1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always, on the Bloomberg 9 00:00:34,000 --> 00:00:37,200 Speaker 2: Terminal and the Bloomberg Business App. The US and China 10 00:00:37,280 --> 00:00:40,040 Speaker 2: agreeing to a ninety day calling golf period, the US 11 00:00:40,159 --> 00:00:42,680 Speaker 2: reducing its levies on Chinese imports from one hundred and 12 00:00:42,680 --> 00:00:45,879 Speaker 2: forty five percent to thirty while China cuts duties on 13 00:00:46,000 --> 00:00:49,080 Speaker 2: US goods from one hundred and twenty five percent to ten. 14 00:00:49,400 --> 00:00:52,440 Speaker 2: Joining us now to discuss the Treasury Secretary Scott Beson, 15 00:00:52,479 --> 00:00:55,840 Speaker 2: a driving force behind trade soalks in Geneva over the weekend. 16 00:00:55,920 --> 00:00:58,200 Speaker 2: Mister Secretary, Welcome back to Bloomberg Surveillance, Sir. 17 00:00:58,440 --> 00:01:00,000 Speaker 3: It's good to see you. 18 00:01:02,000 --> 00:01:03,320 Speaker 4: Good afternoon from Geneva. 19 00:01:03,400 --> 00:01:06,120 Speaker 2: Jonathan WRT to catch up. As always, let's get into 20 00:01:06,160 --> 00:01:08,640 Speaker 2: these talks over the weekend. One standout line for me 21 00:01:09,200 --> 00:01:11,720 Speaker 2: and for many others was the line that the differences 22 00:01:11,800 --> 00:01:14,560 Speaker 2: between the two sides weren't as large as we thought 23 00:01:14,640 --> 00:01:17,680 Speaker 2: they would be. What were those differences, sir, and why 24 00:01:17,720 --> 00:01:19,600 Speaker 2: were they smaller than you expected? 25 00:01:22,560 --> 00:01:26,600 Speaker 1: Well, I think Jonathan, what's important to know is for 26 00:01:27,400 --> 00:01:30,919 Speaker 1: the tariff program, we had a plan, we had a process, 27 00:01:31,280 --> 00:01:33,959 Speaker 1: but we did not have a mechanism for engaging with 28 00:01:34,120 --> 00:01:39,839 Speaker 1: the Chinese. So China was the only country who escalated 29 00:01:39,880 --> 00:01:44,039 Speaker 1: their terriffs in response to our reciprocal tarot level. So 30 00:01:44,160 --> 00:01:49,440 Speaker 1: that resulted in an unfortunate escalation. So we now have 31 00:01:49,800 --> 00:01:54,480 Speaker 1: a mechanism to deal with that. Neither side wants a 32 00:01:54,680 --> 00:01:59,080 Speaker 1: generalized the coupling. The US is going to do a 33 00:01:59,160 --> 00:02:05,680 Speaker 1: strategic dec coupling in terms of the items that we 34 00:02:05,800 --> 00:02:13,080 Speaker 1: discovered during COVID were a national security interest, whether it's semiconductors, medicine, steel, 35 00:02:13,639 --> 00:02:18,360 Speaker 1: So we still have a generalized terriffs on some of those, 36 00:02:19,280 --> 00:02:24,960 Speaker 1: but both sides agreed we do not want a generalized decoupling. 37 00:02:25,639 --> 00:02:28,400 Speaker 2: These things take time, as you know, sir, We've got 38 00:02:28,480 --> 00:02:30,720 Speaker 2: ninety days now to work with. Last time around, it 39 00:02:30,720 --> 00:02:33,400 Speaker 2: took eighteen months to reach an agreement on purchase agreements. 40 00:02:33,440 --> 00:02:34,960 Speaker 2: I think you yourself have said in the past that 41 00:02:35,000 --> 00:02:37,000 Speaker 2: it can take two to three years to have a 42 00:02:37,040 --> 00:02:40,680 Speaker 2: full comprehensive trade agreement with the country. Between the US 43 00:02:40,680 --> 00:02:43,399 Speaker 2: and China, What do you think is achievable, sir, over 44 00:02:43,400 --> 00:02:44,840 Speaker 2: the next ninety days. 45 00:02:47,160 --> 00:02:49,720 Speaker 4: Well, Jonathan, we're going to see. 46 00:02:49,760 --> 00:02:52,880 Speaker 1: But what has to happen is it has to be 47 00:02:52,960 --> 00:02:56,680 Speaker 1: fair for the American people. But in January twenty twenty, 48 00:02:57,360 --> 00:02:59,400 Speaker 1: President Trump produced a template. 49 00:02:59,560 --> 00:03:02,120 Speaker 4: We have an excellent. 50 00:03:01,840 --> 00:03:07,880 Speaker 1: Trade agreement with China, and the Biden administration chows not 51 00:03:08,000 --> 00:03:12,000 Speaker 1: to enforce it. The Chinese delegation basically told us that 52 00:03:12,160 --> 00:03:17,160 Speaker 1: once President Biden came into office, they just ignored their obligations. 53 00:03:17,200 --> 00:03:21,959 Speaker 1: So we all already have a large framework. The other 54 00:03:22,000 --> 00:03:25,560 Speaker 1: thing to remember here, Jonathan, is that this is a 55 00:03:25,680 --> 00:03:30,360 Speaker 1: pause down to ten percent. The April second level for 56 00:03:30,520 --> 00:03:35,880 Speaker 1: China is thirty four percent, so we will be working 57 00:03:36,080 --> 00:03:40,960 Speaker 1: to see where their final reciprocal number ends up. And 58 00:03:41,440 --> 00:03:46,800 Speaker 1: the negotiations are a combination of tariffs, non tariff, trade barriers, 59 00:03:47,120 --> 00:03:51,800 Speaker 1: currency manipulation, and subsidies of labor and capital. 60 00:03:52,440 --> 00:03:54,040 Speaker 2: Just to build on that, as I listen to you, 61 00:03:54,200 --> 00:03:57,040 Speaker 2: do you consider the new levels as a sailing or 62 00:03:57,080 --> 00:03:58,200 Speaker 2: a flaw. 63 00:04:00,880 --> 00:04:01,800 Speaker 4: Well, it's obvious. 64 00:04:02,160 --> 00:04:07,800 Speaker 1: It's obviously a floor that they are now with everyone 65 00:04:07,840 --> 00:04:12,800 Speaker 1: else who did not retaliate. So the levels have come 66 00:04:12,880 --> 00:04:16,760 Speaker 1: down to the Paull's level, And what I would say 67 00:04:17,080 --> 00:04:22,919 Speaker 1: is thirty four, which is their assigned April second level, 68 00:04:22,920 --> 00:04:25,080 Speaker 1: would be a ceiling, which is what I went out 69 00:04:25,120 --> 00:04:28,080 Speaker 1: and told people on April second, which is. 70 00:04:28,040 --> 00:04:29,160 Speaker 4: Why I was surprised. 71 00:04:29,160 --> 00:04:33,880 Speaker 1: Market participants panicked because we had kept we had kept 72 00:04:34,400 --> 00:04:39,200 Speaker 1: the upside for every country and if they didn't retaliate, 73 00:04:39,480 --> 00:04:43,560 Speaker 1: So this unfortunate turn of events happened because of retaliation. 74 00:04:44,200 --> 00:04:46,080 Speaker 4: But now we have a. 75 00:04:48,960 --> 00:04:52,640 Speaker 1: Process in place to avoid escalation like that. 76 00:04:52,760 --> 00:04:55,280 Speaker 5: Again, Secretary Buston, just to build on that, are you 77 00:04:55,320 --> 00:04:58,160 Speaker 5: saying that teriff rates will only go up from here 78 00:04:58,640 --> 00:05:00,880 Speaker 5: if this really is a floor or of ten percent 79 00:05:00,960 --> 00:05:05,560 Speaker 5: on the Chinese side and thirty percent on the US side. 80 00:05:06,400 --> 00:05:09,479 Speaker 1: I'm not saying that they're going to go up, but 81 00:05:11,440 --> 00:05:14,760 Speaker 1: it would be implausible that they would go below ten. 82 00:05:16,000 --> 00:05:18,680 Speaker 5: One thing that you've been talking about is generalized to 83 00:05:18,720 --> 00:05:21,359 Speaker 5: coupling as something that's not necessarily in the interest of 84 00:05:21,400 --> 00:05:23,320 Speaker 5: either side, and either side wants that. 85 00:05:23,760 --> 00:05:25,359 Speaker 6: What about a strategic to coupling. 86 00:05:25,640 --> 00:05:29,479 Speaker 5: What is the appropriate rate of tariffs that could potentially 87 00:05:29,880 --> 00:05:32,440 Speaker 5: cause some sort of strategic to coupling in the sectors 88 00:05:32,480 --> 00:05:34,360 Speaker 5: that you are talking about. 89 00:05:37,160 --> 00:05:42,200 Speaker 1: Well, look, the bringing back our strategic. 90 00:05:44,320 --> 00:05:45,039 Speaker 4: Are important. 91 00:05:45,080 --> 00:05:48,440 Speaker 1: Strategic industries can be a result of terrace, but it's 92 00:05:48,440 --> 00:05:53,080 Speaker 1: also a result of national will. So this administration is 93 00:05:53,200 --> 00:05:56,760 Speaker 1: running full speed to make sure that what we saw 94 00:05:57,160 --> 00:05:58,360 Speaker 1: during COVID. 95 00:05:58,120 --> 00:05:59,360 Speaker 4: Never happens again. 96 00:06:00,120 --> 00:06:03,960 Speaker 1: So it's a combination of it can be terrorists, but 97 00:06:04,240 --> 00:06:08,919 Speaker 1: again it is the administration moving as quickly as possible 98 00:06:09,000 --> 00:06:12,039 Speaker 1: to make sure that we are self sufficient in the 99 00:06:12,080 --> 00:06:13,280 Speaker 1: strategic industries. 100 00:06:13,520 --> 00:06:17,239 Speaker 2: I think that's completely understandable from the United States side, 101 00:06:17,400 --> 00:06:19,360 Speaker 2: and I want to miss the secretary whether the Chinese 102 00:06:19,480 --> 00:06:22,120 Speaker 2: understood that. Did you get the sense they do understand 103 00:06:22,120 --> 00:06:24,679 Speaker 2: that will be the road forward for the United States. 104 00:06:27,480 --> 00:06:30,680 Speaker 1: Well, I think they understand that, and I think they 105 00:06:30,800 --> 00:06:35,320 Speaker 1: understand that we are focused on fair trade, that this 106 00:06:35,640 --> 00:06:41,159 Speaker 1: gigantic deficit that we have with them, that it didn't 107 00:06:41,200 --> 00:06:44,000 Speaker 1: happen last year, it didn't happen there before, It's happened 108 00:06:44,040 --> 00:06:48,400 Speaker 1: over decades, and that this happened half excuse me has 109 00:06:48,440 --> 00:06:53,640 Speaker 1: to be remedied. The China shock gutted our manufacturing sector 110 00:06:53,800 --> 00:06:54,480 Speaker 1: and we want. 111 00:06:54,360 --> 00:06:55,279 Speaker 4: To bring that back. 112 00:06:55,680 --> 00:06:59,600 Speaker 1: On the other side, Party chair, she has said that 113 00:06:59,680 --> 00:07:04,159 Speaker 1: he would like to increase consumption, but to date the 114 00:07:04,320 --> 00:07:08,479 Speaker 1: Chinese have just increased manufacturing. So we would like to 115 00:07:08,480 --> 00:07:11,880 Speaker 1: see them increase consumption. We would like to see them 116 00:07:11,960 --> 00:07:15,800 Speaker 1: open their market to American products. So there are two 117 00:07:15,800 --> 00:07:20,680 Speaker 1: ways to rebalance. One is fewer Chinese goods in the 118 00:07:20,800 --> 00:07:24,680 Speaker 1: US market. The other is more American goods in the 119 00:07:24,760 --> 00:07:28,720 Speaker 1: Chinese market. And my guess is that the answer is 120 00:07:28,760 --> 00:07:29,760 Speaker 1: somewhere in between. 121 00:07:30,120 --> 00:07:31,920 Speaker 2: Some of this, of course, takes us back to the 122 00:07:31,920 --> 00:07:34,600 Speaker 2: purchase agreements of the first term of the president. 123 00:07:34,960 --> 00:07:36,200 Speaker 3: Is it different this time around? 124 00:07:36,360 --> 00:07:39,080 Speaker 2: Is it as simple as just revisiting those purchase agreements 125 00:07:39,200 --> 00:07:41,960 Speaker 2: or do you see additional sectors being targeted? 126 00:07:46,160 --> 00:07:50,800 Speaker 1: Jonathan, I think everything's on the table. But the Phase 127 00:07:50,840 --> 00:07:54,280 Speaker 1: one purchase agreements is a very good road map because 128 00:07:54,280 --> 00:07:58,440 Speaker 1: I will point out that during twenty twenty China met 129 00:07:58,480 --> 00:08:02,320 Speaker 1: their obligations under that agreement. It was only under President 130 00:08:02,440 --> 00:08:08,080 Speaker 1: Biden where they neglected them. So we are getting we 131 00:08:08,120 --> 00:08:12,880 Speaker 1: are starting there, and look, the world has changed, products 132 00:08:12,880 --> 00:08:16,880 Speaker 1: have changed, product mix has changed, so I think everything's 133 00:08:17,000 --> 00:08:19,880 Speaker 1: on the table, but the main thing here is we 134 00:08:20,000 --> 00:08:23,160 Speaker 1: have to have a fair deal for the American people. 135 00:08:23,600 --> 00:08:27,320 Speaker 1: And keep in mind too that we also have twenty 136 00:08:27,320 --> 00:08:32,280 Speaker 1: percent fentanyl terras on, so we are at for twenty 137 00:08:32,360 --> 00:08:36,400 Speaker 1: twenty five. We have put on thirty percent terraffs. They 138 00:08:36,440 --> 00:08:41,640 Speaker 1: have put on ten. And my economic observation is that 139 00:08:41,960 --> 00:08:46,520 Speaker 1: businesses just need time to calibrate that we saw approximately 140 00:08:46,600 --> 00:08:51,720 Speaker 1: twenty percent terraiffs from President Trump's first term. Businesses calibrated, 141 00:08:52,559 --> 00:08:58,880 Speaker 1: supply chains moved. We have seen twenty percent tariffs President 142 00:08:58,880 --> 00:09:02,760 Speaker 1: Trump put on in February due to the fentanyl crisis. 143 00:09:03,600 --> 00:09:07,200 Speaker 4: Calibration very little disruption. 144 00:09:07,200 --> 00:09:11,520 Speaker 1: And now a ten percent additional tariff should mean very 145 00:09:11,559 --> 00:09:12,520 Speaker 1: little disruption. 146 00:09:13,080 --> 00:09:13,840 Speaker 6: Mister Secretary. 147 00:09:13,880 --> 00:09:16,320 Speaker 5: A lot of people are wondering what caused the softening 148 00:09:16,440 --> 00:09:19,520 Speaker 5: and tone, the reason for both sides to come together 149 00:09:19,720 --> 00:09:22,160 Speaker 5: and be able to have this kind of negotiation and 150 00:09:22,880 --> 00:09:25,640 Speaker 5: try to pass forward where there will be further negotiations 151 00:09:25,679 --> 00:09:28,960 Speaker 5: in the near term. What's your interpretation of what caused 152 00:09:29,000 --> 00:09:30,080 Speaker 5: both sides to come. 153 00:09:29,920 --> 00:09:30,480 Speaker 6: To the table. 154 00:09:33,480 --> 00:09:39,320 Speaker 1: Well, I think that the two levels on the reciprocal tariffs, 155 00:09:39,360 --> 00:09:43,440 Speaker 1: when they both ratcheted up to one twenty five caused 156 00:09:43,440 --> 00:09:47,800 Speaker 1: the equivalent of an embargo, and that wasn't good for 157 00:09:48,040 --> 00:09:52,080 Speaker 1: either side. Where the depth is a country, so less 158 00:09:52,120 --> 00:09:56,120 Speaker 1: bad for us. But I think there was the unintended 159 00:09:56,160 --> 00:10:00,960 Speaker 1: consequence of this very fast ratchet, and so now both 160 00:10:01,000 --> 00:10:04,760 Speaker 1: sides are at ten. We will be moving forward with 161 00:10:04,880 --> 00:10:08,200 Speaker 1: a ninety date pause. And the important thing to remember 162 00:10:08,640 --> 00:10:11,240 Speaker 1: is that we can always go back to the April 163 00:10:11,400 --> 00:10:15,440 Speaker 1: second level. But my sense is we had very good 164 00:10:15,480 --> 00:10:24,280 Speaker 1: discussions of my counterpart was the very firm, but very engaged, 165 00:10:24,520 --> 00:10:28,719 Speaker 1: and I think we have set the stage for meaningful discussions. 166 00:10:29,400 --> 00:10:33,080 Speaker 5: Mister secretary, is there already a scheduled date for Jijian 167 00:10:33,120 --> 00:10:36,200 Speaker 5: paying and President Trump to meet in person at any 168 00:10:36,200 --> 00:10:37,040 Speaker 5: point in the near term? 169 00:10:37,080 --> 00:10:39,040 Speaker 6: Do you think that that is something in. 170 00:10:38,960 --> 00:10:41,160 Speaker 5: The cards as part of these negotiations. 171 00:10:44,200 --> 00:10:46,160 Speaker 1: I think that there would be a phone call before 172 00:10:46,200 --> 00:10:52,000 Speaker 1: a meeting, and there's nothing on the calendar, but I 173 00:10:52,040 --> 00:10:55,560 Speaker 1: could imagine that that could happen in the coming weeks 174 00:10:55,600 --> 00:10:56,520 Speaker 1: or months. 175 00:10:56,559 --> 00:10:57,600 Speaker 3: Coming into the meeting. 176 00:10:57,640 --> 00:11:00,000 Speaker 2: As you know, the President put out a social media 177 00:11:00,120 --> 00:11:02,400 Speaker 2: posts referred to as Scotty b. I won't go there, 178 00:11:02,440 --> 00:11:05,680 Speaker 2: We'll keep using missus secretary, and he said you could 179 00:11:05,679 --> 00:11:08,000 Speaker 2: go as low as eighty. Can you share with us 180 00:11:08,040 --> 00:11:10,800 Speaker 2: how we went from say, eighty down to thirty. 181 00:11:10,840 --> 00:11:11,880 Speaker 3: Where did that number come from? 182 00:11:11,960 --> 00:11:12,160 Speaker 4: Sir? 183 00:11:16,000 --> 00:11:20,680 Speaker 1: I think that in the President's mind, eighty was a 184 00:11:20,800 --> 00:11:26,000 Speaker 1: number that did not cause an embargo, so we could 185 00:11:26,240 --> 00:11:30,440 Speaker 1: still be at eighty and have trade flowing. But we 186 00:11:30,440 --> 00:11:35,560 Speaker 1: were able to both the moved down by one hundred 187 00:11:35,559 --> 00:11:39,559 Speaker 1: and fifteen percent. And Jonathan, I think the other important 188 00:11:39,679 --> 00:11:42,160 Speaker 1: thing here is I think this is the first time 189 00:11:42,720 --> 00:11:46,320 Speaker 1: that the Chinese have addressed one of the President's real priorities, 190 00:11:46,360 --> 00:11:49,680 Speaker 1: which is ending this fentanyl crisis in the United States. 191 00:11:49,960 --> 00:11:52,760 Speaker 1: So they brought their trade team, and they brought a 192 00:11:52,880 --> 00:11:58,079 Speaker 1: vice Minister for State Security who met with our national 193 00:11:58,120 --> 00:12:02,040 Speaker 1: security team. It was a separate and they had a 194 00:12:02,160 --> 00:12:09,040 Speaker 1: very robust and detailed discussion on ways to stop the 195 00:12:09,440 --> 00:12:14,679 Speaker 1: transport of precursor drugs from China to North America that 196 00:12:14,880 --> 00:12:17,200 Speaker 1: ends up in the hands of the cartels that is 197 00:12:17,200 --> 00:12:22,080 Speaker 1: then killing several hundred thousand Americans a year. So I'm 198 00:12:22,240 --> 00:12:27,480 Speaker 1: very optimistic that President Trump we have solved part of 199 00:12:27,480 --> 00:12:30,960 Speaker 1: the fentanyl crisis by securing the border, and I think 200 00:12:31,080 --> 00:12:35,079 Speaker 1: this is the next step on that. So if over 201 00:12:35,120 --> 00:12:39,280 Speaker 1: the coming months we were to see excellent engagement from 202 00:12:39,320 --> 00:12:44,120 Speaker 1: the Chinese and solutions towards solving the fentanyl crisis. I 203 00:12:44,160 --> 00:12:47,120 Speaker 1: think we could see some amount of the fentanyl tariffs 204 00:12:47,120 --> 00:12:51,200 Speaker 1: perhaps come off, but that is going to take actions 205 00:12:51,280 --> 00:12:51,920 Speaker 1: from them. 206 00:12:52,280 --> 00:12:59,000 Speaker 3: What kind of action specifically, sir, Well, we. 207 00:12:59,000 --> 00:13:02,600 Speaker 1: Can see where these precursor drugs that are coming from 208 00:13:02,640 --> 00:13:10,120 Speaker 1: from at Treasury Financial Criminal Enforcement Network has very good 209 00:13:10,240 --> 00:13:15,160 Speaker 1: visibility into international finance. We can see these Chinese companies 210 00:13:15,480 --> 00:13:18,360 Speaker 1: that are selling the equipment for making the pills that 211 00:13:19,240 --> 00:13:21,120 Speaker 1: transferring the precursor. 212 00:13:20,640 --> 00:13:22,040 Speaker 4: Drugs to the cartels. 213 00:13:23,000 --> 00:13:28,319 Speaker 1: US Treasury has declared the Mexican cartels foreign terrorist organizations, 214 00:13:28,760 --> 00:13:34,760 Speaker 1: so working with Chinese leadership to stop this would be 215 00:13:35,000 --> 00:13:36,920 Speaker 1: a very tangible symbol. 216 00:13:37,760 --> 00:13:38,400 Speaker 4: In China. 217 00:13:38,920 --> 00:13:44,040 Speaker 1: The narcotics distribution is punishable by death, and we're not 218 00:13:44,200 --> 00:13:48,440 Speaker 1: pushing for that necessarily, but we are pushing for very 219 00:13:48,880 --> 00:13:52,439 Speaker 1: very strict enforcement, similar to what they. 220 00:13:52,320 --> 00:13:52,880 Speaker 4: Do at home. 221 00:13:53,280 --> 00:13:56,360 Speaker 5: Mister Secretary, I imagine you're incredibly tired, and a lot 222 00:13:56,400 --> 00:13:58,160 Speaker 5: of people are very excited to see you taking the 223 00:13:58,240 --> 00:14:01,360 Speaker 5: lead in these discussions, certainly in the market. Are you 224 00:14:01,400 --> 00:14:03,840 Speaker 5: going to be taking the lead going forward with other 225 00:14:04,320 --> 00:14:11,160 Speaker 5: difficult negotiations around the world with different trading partners. 226 00:14:11,840 --> 00:14:15,560 Speaker 1: I've been involved in most of the Asia negotiations. We 227 00:14:15,640 --> 00:14:21,240 Speaker 1: had a very good negotiation with Or, We've had two 228 00:14:21,320 --> 00:14:25,600 Speaker 1: rounds of negotiations with Japan. I've been involved with Korea. 229 00:14:25,880 --> 00:14:32,280 Speaker 1: I've met with the Vietnam and excuse me, also Indonesia. 230 00:14:32,400 --> 00:14:36,280 Speaker 1: So my focus has been on the Asia region thus far. 231 00:14:36,760 --> 00:14:40,760 Speaker 1: And then the trade team had a great victory with 232 00:14:40,920 --> 00:14:46,360 Speaker 1: the UK putting together the contours of the first trade deal. 233 00:14:46,680 --> 00:14:48,360 Speaker 1: The other thing I want to say too is my 234 00:14:48,480 --> 00:14:52,720 Speaker 1: partner here in Geneva. Ambassador Greer was an incredible asset. 235 00:14:52,920 --> 00:14:58,840 Speaker 1: He has years of experience, a broad and deep knowledge 236 00:14:59,160 --> 00:15:01,200 Speaker 1: of trading to goociation. 237 00:15:00,840 --> 00:15:02,480 Speaker 4: Of the numbers and the nuance. 238 00:15:02,640 --> 00:15:06,920 Speaker 1: And we would not be here today without Ambassador Career. 239 00:15:07,200 --> 00:15:09,280 Speaker 2: Missus Secretary, just before you go, you've promised us a 240 00:15:09,280 --> 00:15:10,920 Speaker 2: lot of time. We've used up most of it already. 241 00:15:10,960 --> 00:15:13,760 Speaker 2: Just the final question, what does victory look like for 242 00:15:13,840 --> 00:15:16,680 Speaker 2: you in six months time when we get to year end. 243 00:15:16,960 --> 00:15:18,600 Speaker 2: And I know it's frustrated to you that we've only 244 00:15:18,600 --> 00:15:20,840 Speaker 2: been talking about trade, that we haven't focused on the 245 00:15:20,840 --> 00:15:24,320 Speaker 2: full policy platform. Where do you want to be by 246 00:15:24,400 --> 00:15:24,920 Speaker 2: year Rent? 247 00:15:28,600 --> 00:15:33,840 Speaker 1: Well, well, Johnathan, this administration is doing peace deal, trade deal, 248 00:15:34,000 --> 00:15:37,520 Speaker 1: tax deal. I try to stay mostly, as you know, 249 00:15:37,600 --> 00:15:44,320 Speaker 1: in my econ lane. So from that lane, victory to 250 00:15:44,400 --> 00:15:49,160 Speaker 1: me looks like the three legged stool. That really are 251 00:15:49,240 --> 00:15:52,880 Speaker 1: the three parts of our program really kicking in, So 252 00:15:53,680 --> 00:15:57,320 Speaker 1: we will have most of the trade and tariffs settled. 253 00:15:57,880 --> 00:16:01,480 Speaker 1: The tax bill is moving along very well, better than 254 00:16:01,520 --> 00:16:06,200 Speaker 1: I could have imagined. Speaker Johnson, leader Thoon are doing 255 00:16:06,240 --> 00:16:09,320 Speaker 1: an incredible job with President Trump's leadership. 256 00:16:09,560 --> 00:16:11,400 Speaker 4: So we will have tax done. 257 00:16:11,680 --> 00:16:15,520 Speaker 1: And then the final piece that is longer lagged, but 258 00:16:15,560 --> 00:16:21,400 Speaker 1: perhaps the most important is deregulation and deregulation. We are 259 00:16:21,680 --> 00:16:27,280 Speaker 1: deregulating across all industries every day. President Trump is committed 260 00:16:27,320 --> 00:16:30,440 Speaker 1: to for every new regulation, ten comes off the books. 261 00:16:31,040 --> 00:16:35,200 Speaker 1: And deregulations should start kicking in in the. 262 00:16:35,080 --> 00:16:36,400 Speaker 4: Third and the fourth quarters. 263 00:16:36,720 --> 00:16:42,880 Speaker 1: So tax, trade, and deregulation all coming together at the 264 00:16:43,000 --> 00:16:45,680 Speaker 1: end of the year. I think it's going to be very, 265 00:16:46,640 --> 00:16:49,600 Speaker 1: very powerful for President Trump's economic agenda. 266 00:16:49,920 --> 00:16:53,120 Speaker 2: Mister Treasury Secretary scope Esson, we appreciate your time, sir 267 00:16:53,320 --> 00:16:56,080 Speaker 2: from Geneva. Very generous with your time. Thanks for being 268 00:16:56,120 --> 00:17:08,440 Speaker 2: with us right here. Merripandita. JP Morgan writ SINC. We 269 00:17:08,560 --> 00:17:10,240 Speaker 2: do not want to be loaded into a false sense 270 00:17:10,280 --> 00:17:12,959 Speaker 2: of security. While the volatility we saw in April may 271 00:17:13,000 --> 00:17:15,480 Speaker 2: have been the high water mark, that doesn't mean volatility 272 00:17:15,560 --> 00:17:17,159 Speaker 2: is behind us all together. 273 00:17:17,320 --> 00:17:17,560 Speaker 4: MARYA. 274 00:17:17,640 --> 00:17:19,040 Speaker 3: Johns is now for more American monic. 275 00:17:19,080 --> 00:17:19,560 Speaker 6: Good morning. 276 00:17:19,720 --> 00:17:21,160 Speaker 3: Have we put all the bad news behind us? 277 00:17:21,720 --> 00:17:22,600 Speaker 6: Not necessarily. 278 00:17:22,640 --> 00:17:25,680 Speaker 7: What we have to be mindful of is volatility in 279 00:17:25,680 --> 00:17:27,480 Speaker 7: the nature of it, It comes and goes. And while 280 00:17:27,480 --> 00:17:31,000 Speaker 7: we have another recalibration moment. We had April second announcement 281 00:17:31,040 --> 00:17:33,800 Speaker 7: of tariffs, we had April ninth pause on tariffs. Now 282 00:17:33,800 --> 00:17:36,399 Speaker 7: we have a big reduction for a period of time 283 00:17:36,520 --> 00:17:37,800 Speaker 7: in the Chinese. 284 00:17:37,440 --> 00:17:40,280 Speaker 6: Tariff rate, but there are still risks ahead. 285 00:17:40,280 --> 00:17:42,680 Speaker 7: We have to continue to follow the ebb and flow 286 00:17:42,680 --> 00:17:46,560 Speaker 7: of trade optimism, trade disappointment. And there's also a distinction 287 00:17:46,760 --> 00:17:50,119 Speaker 7: here between when the market stops caring, but the economy 288 00:17:50,240 --> 00:17:51,080 Speaker 7: is still going to care. 289 00:17:51,280 --> 00:17:52,119 Speaker 6: Think about Brexit. 290 00:17:52,200 --> 00:17:54,359 Speaker 7: You know, we're ten years on almost from Brexit and 291 00:17:54,760 --> 00:17:57,120 Speaker 7: it's undoubtedly still an impact on the economy there, even 292 00:17:57,160 --> 00:17:58,280 Speaker 7: though it's not showing up in. 293 00:17:58,320 --> 00:17:59,920 Speaker 6: Markets on a day to day basis. 294 00:18:00,200 --> 00:18:02,320 Speaker 7: So this is the squaring of the circle that we're 295 00:18:02,359 --> 00:18:03,879 Speaker 7: going to have to go through over the next couple 296 00:18:03,880 --> 00:18:07,439 Speaker 7: of years, because having a two percent average import goods 297 00:18:07,560 --> 00:18:10,520 Speaker 7: tariff rate last year to something probably still in the 298 00:18:10,520 --> 00:18:12,840 Speaker 7: double digits when all of the dust settles, is going 299 00:18:12,880 --> 00:18:15,239 Speaker 7: to have that longer term pass to the economy. And 300 00:18:15,280 --> 00:18:19,560 Speaker 7: that means where the economy and markets meet is around profitability. 301 00:18:19,720 --> 00:18:21,439 Speaker 2: Before we get into the next company years, can we 302 00:18:21,480 --> 00:18:24,040 Speaker 2: deal with the next couple of months, how will you 303 00:18:24,080 --> 00:18:25,560 Speaker 2: digest the incoming information? 304 00:18:25,920 --> 00:18:28,320 Speaker 3: What will you ignore? What will you choose to put 305 00:18:28,359 --> 00:18:28,840 Speaker 3: some whites on? 306 00:18:29,840 --> 00:18:31,720 Speaker 7: What I want to choose to put weight on the 307 00:18:31,760 --> 00:18:34,720 Speaker 7: most is how our price is impacted, because, as I mentioned, 308 00:18:34,760 --> 00:18:37,160 Speaker 7: the link between markets and the economy and the long 309 00:18:37,240 --> 00:18:39,520 Speaker 7: run is going to be the profit picture here, and 310 00:18:39,680 --> 00:18:42,320 Speaker 7: profits are really going to determine how well stocks can do, 311 00:18:42,640 --> 00:18:45,800 Speaker 7: because ultimately we're already in an environment where evaluations are 312 00:18:45,800 --> 00:18:48,959 Speaker 7: still compared to their long term averages twenty percent higher 313 00:18:49,240 --> 00:18:52,720 Speaker 7: than they perhaps should be on an average basis, And 314 00:18:52,800 --> 00:18:55,320 Speaker 7: so when we think about what underpins that, we have 315 00:18:55,359 --> 00:18:58,159 Speaker 7: to see that profitability. Now we have to recalibrate a 316 00:18:58,200 --> 00:19:01,560 Speaker 7: little bit around economic growth expectations. We were at a 317 00:19:01,640 --> 00:19:04,840 Speaker 7: fifty to fifty recession probability coming into this. Perhaps now 318 00:19:04,840 --> 00:19:08,200 Speaker 7: that is skewed towards slower growth as opposed to definitive 319 00:19:08,240 --> 00:19:12,760 Speaker 7: mild recession. So in that case, still slowing growth means 320 00:19:12,880 --> 00:19:16,120 Speaker 7: slowing profit growth. How do we continue to see profits 321 00:19:16,119 --> 00:19:18,719 Speaker 7: playing out this year? What are the risks from tariffs 322 00:19:18,760 --> 00:19:21,520 Speaker 7: while you have potential revenue slow down? How much you 323 00:19:21,560 --> 00:19:24,679 Speaker 7: have potential pricing increases? How much gets passed on to 324 00:19:24,760 --> 00:19:28,320 Speaker 7: an exhausted consumer versus how much get absorbed by historically 325 00:19:28,440 --> 00:19:31,240 Speaker 7: very high margins. And then you think about even the 326 00:19:31,280 --> 00:19:33,600 Speaker 7: structures within the S. 327 00:19:33,560 --> 00:19:34,439 Speaker 6: And P five hundred. 328 00:19:34,640 --> 00:19:37,000 Speaker 7: Could areas like the mag SVN be a saving grace 329 00:19:37,040 --> 00:19:39,520 Speaker 7: this year as some of those areas are more resilient 330 00:19:39,720 --> 00:19:41,520 Speaker 7: and we see yet another delay, And in terms of 331 00:19:41,520 --> 00:19:43,879 Speaker 7: broadening out of profits, there are so many angles to 332 00:19:43,920 --> 00:19:46,720 Speaker 7: this tariff and non tariff As we reconsider what this 333 00:19:46,800 --> 00:19:47,800 Speaker 7: pause means. 334 00:19:47,720 --> 00:19:49,639 Speaker 5: I can feel a bit of frustration, if not for you, 335 00:19:49,920 --> 00:19:51,600 Speaker 5: for me. I was reading your notes and you were 336 00:19:51,600 --> 00:19:53,719 Speaker 5: talking about a fifty to fifty recession call, and I 337 00:19:53,760 --> 00:19:55,160 Speaker 5: was going to ask you about that. You already brought 338 00:19:55,160 --> 00:19:58,520 Speaker 5: it up and said, probably it's skewed more against recession 339 00:19:58,560 --> 00:19:59,440 Speaker 5: than for recession. 340 00:19:59,480 --> 00:20:01,440 Speaker 6: But how do you switch your views so quickly? 341 00:20:01,520 --> 00:20:01,639 Speaker 4: Right? 342 00:20:01,640 --> 00:20:04,399 Speaker 5: I mean, we're going to see just a complete downgrade 343 00:20:04,400 --> 00:20:06,720 Speaker 5: of the potential for recession, risk of cost Wall Street. 344 00:20:06,760 --> 00:20:10,040 Speaker 7: If these new rates of terrorift stick, you have to 345 00:20:10,080 --> 00:20:13,160 Speaker 7: think about scenarios, and certainly in this environment, extreme scenarios. 346 00:20:13,280 --> 00:20:15,320 Speaker 7: What if tariffs come off altogether? What if we go 347 00:20:15,480 --> 00:20:17,679 Speaker 7: right back to where we were April second? Where do 348 00:20:17,720 --> 00:20:20,000 Speaker 7: we land in between? And clearly we're probably going to 349 00:20:20,080 --> 00:20:21,879 Speaker 7: be somewhere in between, and that in between is so 350 00:20:21,920 --> 00:20:24,280 Speaker 7: hard to figure out when we think, okay. 351 00:20:24,000 --> 00:20:25,560 Speaker 6: Look at what's going on with yields. 352 00:20:25,560 --> 00:20:28,000 Speaker 7: For example, you're seeing yields start to perk back up. 353 00:20:28,400 --> 00:20:31,159 Speaker 7: If one of the factors that's been weighing on yields 354 00:20:31,200 --> 00:20:33,359 Speaker 7: has been lower growth and all of a sudden that 355 00:20:33,480 --> 00:20:36,840 Speaker 7: is potentially alleviated to some extent, then you have yields 356 00:20:36,840 --> 00:20:39,240 Speaker 7: moving in a different direction here. I mean everything in 357 00:20:39,240 --> 00:20:42,000 Speaker 7: the market, whether it's equities or fixed income, has been 358 00:20:42,040 --> 00:20:45,320 Speaker 7: so sentiment driven this year. It's really hard to ground yourself. 359 00:20:45,600 --> 00:20:48,960 Speaker 7: It's trade fears versus trade optimism, and you're switching back 360 00:20:49,000 --> 00:20:51,240 Speaker 7: and forth. So we are trying to figure out where 361 00:20:51,280 --> 00:20:53,680 Speaker 7: to ground ourselves in the in between state, which we're 362 00:20:53,720 --> 00:20:54,600 Speaker 7: likely going to end up in. 363 00:20:54,760 --> 00:20:55,639 Speaker 6: Where is that place? 364 00:20:55,720 --> 00:20:58,720 Speaker 7: Is that gold Well, not necessarily, I mean when I 365 00:20:58,760 --> 00:21:01,719 Speaker 7: think about portfolio position in a way, that's what's changed 366 00:21:01,840 --> 00:21:04,040 Speaker 7: the least because of some of the starting points that 367 00:21:04,080 --> 00:21:06,399 Speaker 7: we're dealing with. I mean, there's still definitely two sided 368 00:21:06,520 --> 00:21:09,600 Speaker 7: risks to bond here when we think about maybe you 369 00:21:09,600 --> 00:21:11,160 Speaker 7: don't see as so much that with growth slow down, 370 00:21:11,200 --> 00:21:13,119 Speaker 7: so there's a lot in terms of term premium that 371 00:21:13,119 --> 00:21:15,760 Speaker 7: could potentially be pushed up when we think about uncertainty. 372 00:21:16,119 --> 00:21:17,639 Speaker 7: On the other hand, when you think about the basic 373 00:21:17,720 --> 00:21:19,920 Speaker 7: dynamics of if we were to see on the AG 374 00:21:20,040 --> 00:21:22,639 Speaker 7: bond index a one percent rise in rates certainly not 375 00:21:22,680 --> 00:21:25,280 Speaker 7: what we expect, you'd be looking at a sell off 376 00:21:25,320 --> 00:21:27,800 Speaker 7: of about one and a half percent over total return 377 00:21:27,920 --> 00:21:29,240 Speaker 7: a year in your bond allocation. 378 00:21:29,400 --> 00:21:31,960 Speaker 6: So you're still actually looking at someone of a contained 379 00:21:32,359 --> 00:21:33,560 Speaker 6: impact there, and. 380 00:21:33,480 --> 00:21:37,120 Speaker 7: Despite overall yields biased upwards, you've actually seen that most 381 00:21:37,160 --> 00:21:39,640 Speaker 7: areas of the bond market have been positive. On the other hand, 382 00:21:39,640 --> 00:21:42,600 Speaker 7: a one percent fall in rates not something we expect either, 383 00:21:43,119 --> 00:21:45,280 Speaker 7: would give you about an eleven percent return given that 384 00:21:45,320 --> 00:21:49,320 Speaker 7: income cushion, So being broadly diversified within fixed income has worked. 385 00:21:49,320 --> 00:21:51,080 Speaker 7: I think it will continue to work, and on the 386 00:21:51,080 --> 00:21:54,760 Speaker 7: equity side, you're still dealing with high starting valuations and growth. 387 00:21:54,880 --> 00:21:56,600 Speaker 7: We want to make sure we're geared towards some of 388 00:21:56,640 --> 00:21:58,480 Speaker 7: the areas that have been a bit more favorable. Whether 389 00:21:58,520 --> 00:22:01,880 Speaker 7: it's value outperform in growth about six percent this year 390 00:22:02,280 --> 00:22:06,520 Speaker 7: or international outperforming fourteen percent in dollar terms this year, 391 00:22:06,640 --> 00:22:10,159 Speaker 7: none of that really changes despite the thirty percent, eighty percent, 392 00:22:10,320 --> 00:22:11,400 Speaker 7: fifty percent terifreate. 393 00:22:11,440 --> 00:22:13,320 Speaker 5: You're getting to something really important, something that John and 394 00:22:13,400 --> 00:22:16,800 Speaker 5: I were discussing earlier this morning about how much structurally 395 00:22:16,880 --> 00:22:19,320 Speaker 5: there has been a loss of dollar exceptionalism and a 396 00:22:19,320 --> 00:22:22,320 Speaker 5: loss of haven status, and the shift to Europe has 397 00:22:22,359 --> 00:22:25,359 Speaker 5: been something more sustainable and not just a knee jerk 398 00:22:25,400 --> 00:22:29,160 Speaker 5: reaction that was a positioning squeeze. You're saying, on one hand, 399 00:22:29,640 --> 00:22:32,760 Speaker 5: maybe a little, but not necessarily wholesale. When it comes 400 00:22:32,760 --> 00:22:35,280 Speaker 5: to the loss of treasuries as a haven status, how 401 00:22:35,280 --> 00:22:36,680 Speaker 5: do you sort of understand what. 402 00:22:36,760 --> 00:22:38,399 Speaker 6: Has changed since April second? 403 00:22:39,400 --> 00:22:42,480 Speaker 7: I think what has changed is certainly that uncertainty level, 404 00:22:42,560 --> 00:22:44,639 Speaker 7: where when there is uncertain T people want to go 405 00:22:44,640 --> 00:22:46,720 Speaker 7: to treasuries, and more recently, when there is uncertain T 406 00:22:46,840 --> 00:22:49,600 Speaker 7: people don't. Because a lot of that uncertainty is emanating 407 00:22:49,640 --> 00:22:52,840 Speaker 7: from the US. I think it's also just the compounding 408 00:22:52,880 --> 00:22:56,639 Speaker 7: effect over time of having unsustainable debt and deficits, and 409 00:22:56,800 --> 00:22:58,800 Speaker 7: that really starting to feed into the bond market given 410 00:22:58,880 --> 00:23:02,000 Speaker 7: higher rates in the cost of servicing debt. Overall these 411 00:23:02,000 --> 00:23:04,680 Speaker 7: things putting that upward pressure on yields, and I think 412 00:23:04,680 --> 00:23:06,880 Speaker 7: that people are putting a microscope to some of those 413 00:23:06,920 --> 00:23:10,280 Speaker 7: elements because it doesn't feel like we're in an environment 414 00:23:10,320 --> 00:23:12,439 Speaker 7: where some of that direction of travel is going to 415 00:23:12,440 --> 00:23:15,320 Speaker 7: be for a more grounded place. 416 00:23:15,520 --> 00:23:17,800 Speaker 2: This comes to scarring. How much scarring will we say 417 00:23:17,800 --> 00:23:21,119 Speaker 2: post I posecond infnably to secure some mighta dails in 418 00:23:21,160 --> 00:23:22,200 Speaker 2: the common ways. 419 00:23:22,480 --> 00:23:24,000 Speaker 6: There are some things you can't unsay. 420 00:23:24,080 --> 00:23:25,399 Speaker 7: I think that's going to be the theme for the 421 00:23:25,400 --> 00:23:27,080 Speaker 7: rest of the year, where even if you do come 422 00:23:27,160 --> 00:23:29,240 Speaker 7: up with a number of trade deals or more likely 423 00:23:29,359 --> 00:23:32,879 Speaker 7: frameworks for longer term deals, there's always that possibility that 424 00:23:32,920 --> 00:23:36,600 Speaker 7: things can potentially come back around, and so there is 425 00:23:36,640 --> 00:23:38,880 Speaker 7: that scarring there where if you're a business, you're seeing 426 00:23:38,880 --> 00:23:41,119 Speaker 7: a lot of buybacks. Hey, what's the best use of 427 00:23:41,119 --> 00:23:42,720 Speaker 7: my money right now? Let me just double down on 428 00:23:42,760 --> 00:23:45,880 Speaker 7: my company. While prices have gone down as opposed to 429 00:23:46,200 --> 00:23:48,880 Speaker 7: put forth money for future investments. So maybe it's less 430 00:23:48,880 --> 00:23:51,760 Speaker 7: about people changing their plans but just putting their plans 431 00:23:51,760 --> 00:23:54,480 Speaker 7: on hold, and in some ways over time that can 432 00:23:54,560 --> 00:23:57,200 Speaker 7: be equally damaging hip. 433 00:23:57,119 --> 00:24:10,080 Speaker 2: Moolk and asset management. Seth Conpenter of Molten Stanley joins 434 00:24:10,119 --> 00:24:11,760 Speaker 2: us around the table. Well, Seth, good morning's you sir? 435 00:24:11,960 --> 00:24:13,960 Speaker 2: H quit exercise. 436 00:24:14,000 --> 00:24:14,440 Speaker 3: I'm okay. 437 00:24:14,680 --> 00:24:17,320 Speaker 2: If the federals have knew what they knew this morning, 438 00:24:17,440 --> 00:24:19,280 Speaker 2: what they've changed the statement and the way they did 439 00:24:19,680 --> 00:24:21,600 Speaker 2: last Wednesday, I don't think. 440 00:24:21,520 --> 00:24:22,000 Speaker 4: They would have. 441 00:24:22,640 --> 00:24:24,280 Speaker 8: Look where are we right now. We're going to get 442 00:24:24,280 --> 00:24:26,640 Speaker 8: a CPI report tomorrow and it's going to be pre 443 00:24:26,920 --> 00:24:29,199 Speaker 8: teriff for the most part, maybe a little bit in autos, 444 00:24:29,200 --> 00:24:31,280 Speaker 8: but essentially that's also going to be pre teriff, and 445 00:24:31,320 --> 00:24:32,840 Speaker 8: they're going to want to look at that to see 446 00:24:32,960 --> 00:24:35,240 Speaker 8: are they learning anything on inflation? And so what they 447 00:24:35,280 --> 00:24:39,040 Speaker 8: said at the last meeting was there's uncertainty. There's uncertainty 448 00:24:39,080 --> 00:24:41,560 Speaker 8: on the inflation side, there's uncertainty on the growth side. 449 00:24:42,320 --> 00:24:43,880 Speaker 8: Just the news that we've gotten in the past twenty 450 00:24:43,880 --> 00:24:46,479 Speaker 8: four hours change that. I'm not really convinced that it 451 00:24:46,520 --> 00:24:50,159 Speaker 8: makes a massive difference, because the announcement was that terroiffs 452 00:24:50,160 --> 00:24:52,840 Speaker 8: will come down from the peak still be above where 453 00:24:52,840 --> 00:24:55,040 Speaker 8: they were at the beginning of the year. And I 454 00:24:55,080 --> 00:24:57,240 Speaker 8: think we have seen a few times in the past 455 00:24:57,280 --> 00:25:00,280 Speaker 8: few weeks, times where one announcement gets made and then 456 00:25:00,320 --> 00:25:03,720 Speaker 8: it's reversed twenty four hours forty eight hours later. I'll 457 00:25:03,760 --> 00:25:06,160 Speaker 8: believe this is real when I've seen it in place 458 00:25:06,200 --> 00:25:08,040 Speaker 8: for a while and it actually starts to affect the 459 00:25:08,080 --> 00:25:08,639 Speaker 8: trade flows. 460 00:25:08,720 --> 00:25:11,560 Speaker 2: Your assessment of the risk though for inflation for growth, 461 00:25:12,119 --> 00:25:15,119 Speaker 2: and they still still tilted to the downside for growth 462 00:25:15,119 --> 00:25:16,720 Speaker 2: and tilted to the upside for inflation. 463 00:25:17,359 --> 00:25:18,639 Speaker 3: See the risks unquestionably. 464 00:25:18,760 --> 00:25:20,760 Speaker 8: So we do still, no matter how you slice it, 465 00:25:20,840 --> 00:25:23,200 Speaker 8: have higher tariffs this year than we had coming into 466 00:25:23,200 --> 00:25:25,600 Speaker 8: the year, and so that's got to push up inflation. 467 00:25:25,720 --> 00:25:25,880 Speaker 4: Now. 468 00:25:25,920 --> 00:25:29,240 Speaker 8: In twenty seventeen, twenty eighteen, twenty nineteen, I said, much 469 00:25:29,280 --> 00:25:31,280 Speaker 8: like what you've heard from Powell, the inflation side of 470 00:25:31,280 --> 00:25:34,520 Speaker 8: things from tariff's likely to be temporary. Might even use 471 00:25:34,520 --> 00:25:37,960 Speaker 8: a word transitory if it hadn't become taboo. That's still 472 00:25:38,160 --> 00:25:40,920 Speaker 8: very likely to be the case. However, now versus then, 473 00:25:41,119 --> 00:25:44,320 Speaker 8: we have lived through years of higher inflation and it's 474 00:25:44,320 --> 00:25:46,680 Speaker 8: not at all clear where businesses and household's minds are 475 00:25:46,680 --> 00:25:49,320 Speaker 8: for how inflation dynamics get going. So I think there 476 00:25:49,400 --> 00:25:54,560 Speaker 8: is still upside risk to inflation the downside. Businesses that plan, 477 00:25:54,720 --> 00:25:57,639 Speaker 8: businesses that are going to undertake investment spending, businesses that 478 00:25:57,640 --> 00:25:59,600 Speaker 8: are going to make hiring plans would like to have 479 00:25:59,600 --> 00:26:02,240 Speaker 8: some certain and we have none of that. And again, 480 00:26:02,880 --> 00:26:04,720 Speaker 8: just because there was a statement that there was a 481 00:26:04,760 --> 00:26:07,120 Speaker 8: plan to make a plan to have a deal does 482 00:26:07,160 --> 00:26:10,399 Speaker 8: not take away that uncertainty. So again the risk to 483 00:26:10,440 --> 00:26:12,720 Speaker 8: the downside and growth I think is real and present danger. 484 00:26:12,800 --> 00:26:14,320 Speaker 5: A number of guests have come on the show this 485 00:26:14,400 --> 00:26:16,840 Speaker 5: morning and said that at the very least, it does 486 00:26:16,920 --> 00:26:20,480 Speaker 5: make recession look more like a remote possibility rather than 487 00:26:20,560 --> 00:26:23,800 Speaker 5: a fifty to fifty type of possibility. 488 00:26:23,840 --> 00:26:24,600 Speaker 6: Do you agree with that? 489 00:26:25,200 --> 00:26:27,880 Speaker 8: So I think it probably has to lower the probability 490 00:26:27,920 --> 00:26:31,600 Speaker 8: remote seems a little bit optimistic. Again, how much of 491 00:26:31,640 --> 00:26:37,359 Speaker 8: an effect does the overall uncertainty effect business spending? I 492 00:26:37,440 --> 00:26:39,720 Speaker 8: think I know pretty clearly what the direction is. I 493 00:26:39,760 --> 00:26:42,280 Speaker 8: don't think I have any conviction. I know exactly what 494 00:26:42,320 --> 00:26:44,880 Speaker 8: the magnitude is, and so to be able to say 495 00:26:44,880 --> 00:26:46,639 Speaker 8: it's going to slow things down a little bit, but 496 00:26:46,760 --> 00:26:47,880 Speaker 8: not so much to tip us over. 497 00:26:48,080 --> 00:26:49,000 Speaker 3: That's our baseline view. 498 00:26:49,040 --> 00:26:50,520 Speaker 8: Don't get me wrong, I just don't know how you 499 00:26:50,560 --> 00:26:52,040 Speaker 8: have conviction there to call it remote. 500 00:26:52,280 --> 00:26:54,359 Speaker 6: It sort of raises a point of the Fez reaction function. 501 00:26:54,480 --> 00:26:56,240 Speaker 5: It's something that's interesting when you look at FED fund's 502 00:26:56,280 --> 00:26:58,840 Speaker 5: futures this morning, you're only seeing two rate cuts getting 503 00:26:58,840 --> 00:27:03,000 Speaker 5: priced into the market four last week. It highlights this 504 00:27:03,119 --> 00:27:06,159 Speaker 5: idea that without some sort of rapid deterioration akin to 505 00:27:06,200 --> 00:27:08,640 Speaker 5: a recession, you're not going to see that rapid response 506 00:27:09,000 --> 00:27:10,800 Speaker 5: from the FED that could be one hundred and twenty 507 00:27:10,800 --> 00:27:13,320 Speaker 5: five basis points of ray cuts Like cities. Andrew Hollenhorst 508 00:27:13,359 --> 00:27:16,240 Speaker 5: has called for, how much do you take signal versus 509 00:27:16,240 --> 00:27:18,600 Speaker 5: noise from the market's reaction mane, would you agree with 510 00:27:18,680 --> 00:27:19,560 Speaker 5: the current assessment? 511 00:27:20,000 --> 00:27:23,200 Speaker 8: I would not. In fact, we've been far far, far 512 00:27:23,280 --> 00:27:25,280 Speaker 8: out of alignment with the market pricing has been. We 513 00:27:25,320 --> 00:27:28,199 Speaker 8: have said, even when even before this announcement about the 514 00:27:28,280 --> 00:27:31,199 Speaker 8: possible de escalation on tariffs, we had said the market 515 00:27:31,240 --> 00:27:33,480 Speaker 8: calling for three or maybe four ray cuts this year 516 00:27:33,520 --> 00:27:36,160 Speaker 8: was overdone. We don't have any cuts in our forecast 517 00:27:36,200 --> 00:27:38,240 Speaker 8: for this year. The market's coming towards us, which is 518 00:27:38,240 --> 00:27:41,280 Speaker 8: always a comfortable place to be. But the Fed's got 519 00:27:41,320 --> 00:27:45,480 Speaker 8: a really tricky challenge tariffs. Even if it's at a 520 00:27:45,520 --> 00:27:48,199 Speaker 8: lower level of tariffs, they will push up inflation and 521 00:27:48,240 --> 00:27:51,919 Speaker 8: that probably happens faster than any hit to growth that 522 00:27:51,920 --> 00:27:53,560 Speaker 8: we're going to see in the hard data, which is 523 00:27:53,560 --> 00:27:55,800 Speaker 8: where the FED is really living. And so what does 524 00:27:55,840 --> 00:27:58,399 Speaker 8: that mean? They have to watch things come in and 525 00:27:58,440 --> 00:27:59,520 Speaker 8: they can't take anything. 526 00:28:00,160 --> 00:28:03,080 Speaker 2: Granted, we often cite you, you and Mike gapam because 527 00:28:03,080 --> 00:28:05,400 Speaker 2: you are at zero zero cuts for twenty twenty five. 528 00:28:05,480 --> 00:28:07,200 Speaker 8: Amos are both tall and good looking. 529 00:28:07,240 --> 00:28:09,920 Speaker 2: Of course, that's it. That's why I do it. Andrew 530 00:28:10,000 --> 00:28:12,560 Speaker 2: homhost a city, another toll and good looking gentlemen. It's 531 00:28:12,600 --> 00:28:14,560 Speaker 2: a one hundred and twenty five faces points it cuts 532 00:28:14,560 --> 00:28:16,919 Speaker 2: for twenty twenty five and we said repeatedly you can 533 00:28:17,000 --> 00:28:19,960 Speaker 2: drive a truck through those estimates. They believe the labor 534 00:28:20,000 --> 00:28:22,520 Speaker 2: market weekends in the coming months. What gives you the 535 00:28:22,520 --> 00:28:24,640 Speaker 2: confidence that it won't. 536 00:28:25,119 --> 00:28:25,960 Speaker 4: I think a few things. 537 00:28:25,960 --> 00:28:29,399 Speaker 8: One, the US economy tends not to shift quite so dramatically. 538 00:28:29,400 --> 00:28:32,359 Speaker 8: We do have a big slowdown in our forecast for 539 00:28:32,400 --> 00:28:34,439 Speaker 8: the next several months. So I think that in that regard, 540 00:28:34,480 --> 00:28:36,320 Speaker 8: it's likely to happen. But the first thing you need 541 00:28:36,359 --> 00:28:39,680 Speaker 8: to see is businesses pull way back on the hiring 542 00:28:40,000 --> 00:28:43,240 Speaker 8: and then you're likely to see businesses start the firing process. 543 00:28:43,520 --> 00:28:45,640 Speaker 8: And you need both of those to happen first before 544 00:28:45,680 --> 00:28:47,840 Speaker 8: the FED can go into a full fledged cutting cycle. 545 00:28:48,200 --> 00:28:50,360 Speaker 8: Very difficult to see they get there to get that 546 00:28:50,440 --> 00:28:51,880 Speaker 8: amount of cutting this year. 547 00:28:51,840 --> 00:28:53,840 Speaker 3: Seth, it's going to see a nice to drop it by. 548 00:28:53,880 --> 00:28:56,120 Speaker 2: Thank you the total and good looking Seth compenter the 549 00:28:56,440 --> 00:29:09,080 Speaker 2: of Morgan Stanley russ Coastrict Blank Rock right in the following. 550 00:29:09,240 --> 00:29:12,760 Speaker 2: These stabilization inequities and other risky assets makes sense based 551 00:29:12,760 --> 00:29:16,840 Speaker 2: on a some progress in trade negotiations and b generally 552 00:29:16,840 --> 00:29:19,960 Speaker 2: supportive economic data and earnings. R us Coastric of Blank 553 00:29:20,000 --> 00:29:22,000 Speaker 2: Rock joins us now for more rus We've got this 554 00:29:22,080 --> 00:29:25,320 Speaker 2: odd tug of war, this short term reaction to the 555 00:29:25,360 --> 00:29:27,840 Speaker 2: progress we're making in trade talks, real progress between the 556 00:29:27,960 --> 00:29:30,880 Speaker 2: US and China, and then long term just realizing the 557 00:29:30,920 --> 00:29:33,040 Speaker 2: tarifs are higher now than they were at the start 558 00:29:33,080 --> 00:29:35,120 Speaker 2: of the year, and that could be disruptive for growth 559 00:29:35,160 --> 00:29:35,760 Speaker 2: in the future. 560 00:29:35,800 --> 00:29:37,720 Speaker 3: How do you wait one versus the other. 561 00:29:38,760 --> 00:29:39,760 Speaker 9: We'll good more on Jonathan. 562 00:29:39,920 --> 00:29:43,240 Speaker 10: You know it's funny whatever you write two three days 563 00:29:43,240 --> 00:29:46,680 Speaker 10: ago probably is still you know, given the piece to 564 00:29:46,720 --> 00:29:48,800 Speaker 10: which headlines are coming out. But I think I think 565 00:29:48,840 --> 00:29:51,080 Speaker 10: you're right. I think we are in a tug of war. Obviously, 566 00:29:51,120 --> 00:29:54,240 Speaker 10: this morning we got some very good news. It reduces 567 00:29:54,280 --> 00:29:57,560 Speaker 10: the risk that we're going to see a serious economic contraction. 568 00:29:57,960 --> 00:30:00,200 Speaker 10: It reduces some of the uncertainty, It reduces some of 569 00:30:00,240 --> 00:30:00,960 Speaker 10: that left tail. 570 00:30:01,480 --> 00:30:02,360 Speaker 9: Having said that. 571 00:30:02,240 --> 00:30:04,600 Speaker 10: We self to contend with a few things, one of 572 00:30:04,640 --> 00:30:08,040 Speaker 10: which is they're still uncertainty, the second of which is 573 00:30:08,240 --> 00:30:13,040 Speaker 10: how much did the previous disruption hurt economic activity, whether 574 00:30:13,040 --> 00:30:15,120 Speaker 10: it was at the consumer level or at the corporate level. 575 00:30:15,440 --> 00:30:17,800 Speaker 9: And third and again, valuations are not the best short 576 00:30:17,840 --> 00:30:18,720 Speaker 9: term timing tool. 577 00:30:19,160 --> 00:30:22,680 Speaker 10: Dealing with the fact that even with the pullback we 578 00:30:22,680 --> 00:30:25,360 Speaker 10: had earlier in the year, SMP's back to trading the 579 00:30:25,480 --> 00:30:28,560 Speaker 10: twenty one times future names. That's a big number given 580 00:30:28,600 --> 00:30:29,680 Speaker 10: all the other things going on. 581 00:30:29,800 --> 00:30:31,200 Speaker 9: So I do think it's a tug of war. 582 00:30:31,600 --> 00:30:33,880 Speaker 10: I think we're still in a range, although that range 583 00:30:34,320 --> 00:30:36,520 Speaker 10: is probably higher on the upside and lower on the 584 00:30:36,560 --> 00:30:38,520 Speaker 10: downside than it was on Friday. 585 00:30:38,720 --> 00:30:41,440 Speaker 5: Did we learn anything rosse that makes you materially change 586 00:30:41,480 --> 00:30:44,600 Speaker 5: your allocation? Given some of the uncertainty that remains out there. 587 00:30:45,920 --> 00:30:48,360 Speaker 10: I don't think we would change our allocation, and a 588 00:30:48,400 --> 00:30:50,360 Speaker 10: lot of the themes we were thinking about on Friday 589 00:30:50,760 --> 00:30:51,680 Speaker 10: are still in place. 590 00:30:51,760 --> 00:30:51,920 Speaker 4: You know. 591 00:30:52,000 --> 00:30:54,280 Speaker 10: One of the things that we were looking at that 592 00:30:54,520 --> 00:30:55,720 Speaker 10: I do think is. 593 00:30:55,680 --> 00:30:57,960 Speaker 9: Going to probably work in the back half of the year. 594 00:30:58,520 --> 00:31:02,320 Speaker 10: We had that big rotation earlier in twenty twenty five, 595 00:31:02,760 --> 00:31:06,880 Speaker 10: everyone piled into defensive parts of the market, whether we're staples, utilities. 596 00:31:07,160 --> 00:31:09,800 Speaker 10: I don't think that was right, and that really made 597 00:31:09,840 --> 00:31:12,680 Speaker 10: sense only if you expected a recession. They said, the 598 00:31:12,680 --> 00:31:15,720 Speaker 10: odds of that are lower. We're probably going to muddle 599 00:31:15,720 --> 00:31:18,240 Speaker 10: along with the economy. I do think some of the 600 00:31:18,360 --> 00:31:21,720 Speaker 10: large megacap tech names that struggled earlier in the year 601 00:31:22,080 --> 00:31:24,600 Speaker 10: can actually do well in an environment in which growth 602 00:31:24,640 --> 00:31:28,080 Speaker 10: is okay, race are contained, and many of these big 603 00:31:28,120 --> 00:31:31,280 Speaker 10: things that we're all talking about back in twenty twenty four, 604 00:31:31,640 --> 00:31:33,680 Speaker 10: they're still very much in place. So that's one area 605 00:31:33,680 --> 00:31:35,880 Speaker 10: of the market I do think is a place to 606 00:31:35,920 --> 00:31:37,680 Speaker 10: be in the back half of the year. 607 00:31:37,880 --> 00:31:39,360 Speaker 5: It looks like a lot of people agree with you, Russ, 608 00:31:39,400 --> 00:31:41,840 Speaker 5: because it looks like we're entering something of a bull 609 00:31:41,920 --> 00:31:45,200 Speaker 5: market in big tech, possibly up twenty percent from the 610 00:31:45,240 --> 00:31:48,080 Speaker 5: truugh on April eighth. So you can see this kind 611 00:31:48,120 --> 00:31:50,200 Speaker 5: of knee jerk reaction when you take a look at 612 00:31:50,200 --> 00:31:53,400 Speaker 5: what's changed. What's not back to that pre April second 613 00:31:53,520 --> 00:31:55,880 Speaker 5: relationship of markets. 614 00:31:55,520 --> 00:31:56,200 Speaker 6: It's the dollar. 615 00:31:56,440 --> 00:31:59,720 Speaker 5: The dollar is still not completely back to where it was. 616 00:32:00,160 --> 00:32:05,160 Speaker 5: Raises a question has anything materially changed since Liberation Day? 617 00:32:05,240 --> 00:32:07,240 Speaker 5: Given the fact that we are seeing a walking back 618 00:32:07,280 --> 00:32:09,520 Speaker 5: of a lot of those terraffs, how much is the 619 00:32:09,600 --> 00:32:13,480 Speaker 5: dollar fundamentally and structurally in a different place today than 620 00:32:13,560 --> 00:32:16,960 Speaker 5: April second, even with some of the ratcheting back of tensions. 621 00:32:17,520 --> 00:32:19,920 Speaker 10: Well, I think there's definitely more uncertainty, and you've got 622 00:32:19,920 --> 00:32:22,280 Speaker 10: to ask the question, are we going to see some 623 00:32:22,440 --> 00:32:26,680 Speaker 10: diversification out of dollar based assets from international investors? 624 00:32:26,720 --> 00:32:28,280 Speaker 9: And I think that's still very much an open. 625 00:32:28,160 --> 00:32:30,880 Speaker 10: Question, given the fact that trade is going to look 626 00:32:30,920 --> 00:32:33,960 Speaker 10: different going forward than it did, you know, two, three, five, 627 00:32:34,040 --> 00:32:36,680 Speaker 10: ten years ago. Having said that, you know, it's interesting 628 00:32:36,680 --> 00:32:38,920 Speaker 10: there's been a lot of agonizing about the dollar, and 629 00:32:39,040 --> 00:32:39,880 Speaker 10: I think that's right. 630 00:32:40,440 --> 00:32:43,200 Speaker 9: But having said that, the dollar's basically. 631 00:32:42,720 --> 00:32:45,960 Speaker 10: Been in a range mostly between about one hundred and 632 00:32:45,960 --> 00:32:48,640 Speaker 10: one hundred and ten and the DXY. It was down 633 00:32:48,640 --> 00:32:51,680 Speaker 10: with the loads around eleven twelve percent. We had seen 634 00:32:51,800 --> 00:32:56,400 Speaker 10: similar pullbacks in the last five years even without these 635 00:32:56,520 --> 00:33:00,640 Speaker 10: generational or potentially generational shifts in trade. So I think 636 00:33:00,760 --> 00:33:04,600 Speaker 10: the outcome on the dollar is still very much a 637 00:33:04,680 --> 00:33:07,080 Speaker 10: question mark. We may not know that for a period 638 00:33:07,120 --> 00:33:10,560 Speaker 10: of time as we start to see how international investors 639 00:33:10,680 --> 00:33:11,720 Speaker 10: are really are behaving. 640 00:33:11,920 --> 00:33:13,760 Speaker 2: Russ in some ways is part of the same question, 641 00:33:14,120 --> 00:33:16,360 Speaker 2: how to manage your exposure to US treasuries? 642 00:33:16,560 --> 00:33:17,600 Speaker 3: What have you and the team done. 643 00:33:17,600 --> 00:33:20,240 Speaker 2: Has anything changed for you guys over the past few weeks, 644 00:33:20,280 --> 00:33:22,720 Speaker 2: and would it flipped back? Based on the discussions we 645 00:33:22,760 --> 00:33:23,640 Speaker 2: had over the weekend. 646 00:33:24,480 --> 00:33:26,000 Speaker 6: So, Jonathan's really interesting. 647 00:33:26,120 --> 00:33:29,400 Speaker 10: Our our duration position has not changed much this year 648 00:33:29,840 --> 00:33:33,719 Speaker 10: despite all of the volatility. We've been slightly underweight our 649 00:33:33,760 --> 00:33:36,680 Speaker 10: benchmarking duration. Most of that is on the long end 650 00:33:36,680 --> 00:33:38,920 Speaker 10: of the curve. As we've spoken about the past, we 651 00:33:39,000 --> 00:33:41,959 Speaker 10: do like credit and I think that's still probably about right. 652 00:33:42,000 --> 00:33:43,960 Speaker 10: We've seen that backup in yields this morning, so I 653 00:33:43,960 --> 00:33:46,960 Speaker 10: think right, you know as of now that that positioning seems. 654 00:33:46,720 --> 00:33:48,680 Speaker 9: To be about where we want to be. But it's 655 00:33:48,680 --> 00:33:49,640 Speaker 9: worth keeping in mind. 656 00:33:49,800 --> 00:33:52,760 Speaker 10: Even before we started talking about the dollar and we 657 00:33:52,800 --> 00:33:56,120 Speaker 10: started talking about whether or not international investors would abandon 658 00:33:56,160 --> 00:33:59,880 Speaker 10: the dollar. There were those concerns about supply, that concern 659 00:34:00,120 --> 00:34:02,880 Speaker 10: about the deficit, about whether or not that was going 660 00:34:02,960 --> 00:34:04,880 Speaker 10: to have some negative impact on the long end of 661 00:34:04,920 --> 00:34:08,239 Speaker 10: the curve through the term premium. Those concerns are still there, 662 00:34:08,320 --> 00:34:11,000 Speaker 10: so I do think while we are closer to benchmark, 663 00:34:11,040 --> 00:34:13,200 Speaker 10: a little bit of an underweight on the long end 664 00:34:13,320 --> 00:34:14,520 Speaker 10: probably still makes sense. 665 00:34:14,719 --> 00:34:16,600 Speaker 2: Those concerns for us, as you know, a pretty durable 666 00:34:16,600 --> 00:34:19,719 Speaker 2: they're not going anywhere. The big question was whether international 667 00:34:19,800 --> 00:34:22,120 Speaker 2: investors would be willing to finance that deficil, or whether 668 00:34:22,120 --> 00:34:24,360 Speaker 2: we would need one or the other or a combination 669 00:34:24,400 --> 00:34:26,200 Speaker 2: of the two, which is a week at dollar or 670 00:34:26,280 --> 00:34:28,680 Speaker 2: high bond yields. Do you think we settled some of 671 00:34:28,680 --> 00:34:30,439 Speaker 2: those issues or do they remain as well? 672 00:34:31,640 --> 00:34:32,560 Speaker 9: Well? I think they remain. 673 00:34:32,800 --> 00:34:35,800 Speaker 10: I think it's certainly too early to declare all clear, 674 00:34:36,360 --> 00:34:38,719 Speaker 10: and I think a little bit of caution, particularly given 675 00:34:38,760 --> 00:34:41,200 Speaker 10: the fact that we do of their structural deficits are 676 00:34:41,239 --> 00:34:44,640 Speaker 10: exactly right, and the term premium is not so high 677 00:34:45,040 --> 00:34:47,439 Speaker 10: that you're being generously compensated to go out. 678 00:34:47,360 --> 00:34:49,799 Speaker 9: On the curve and take that risk. The other point is, 679 00:34:49,920 --> 00:34:51,759 Speaker 9: do you really need to know. 680 00:34:51,840 --> 00:34:52,000 Speaker 4: Rick. 681 00:34:52,040 --> 00:34:54,000 Speaker 9: Readers spoken about this on many occasions. 682 00:34:54,160 --> 00:34:57,120 Speaker 10: If you have an environment where credit spreads are maybe 683 00:34:57,160 --> 00:35:00,480 Speaker 10: not great, but the absolute yield you can generate on 684 00:35:00,520 --> 00:35:03,360 Speaker 10: a high quality credit portfolio with six or seven percent, 685 00:35:03,800 --> 00:35:05,560 Speaker 10: do you really need to take a risk going out. 686 00:35:05,440 --> 00:35:07,640 Speaker 9: To ten year on the US Treasury? Maybe not. 687 00:35:08,120 --> 00:35:10,400 Speaker 2: Hey, Russ, I appreciate your time. As always, it's going 688 00:35:10,480 --> 00:35:13,359 Speaker 2: to be another busy week. Ross Coastrectare of black Rock. Russ, 689 00:35:13,400 --> 00:35:17,480 Speaker 2: thank you. This is the Bloomberg Surveillance podcast, bringing you 690 00:35:17,760 --> 00:35:21,120 Speaker 2: the best in markets, economics, and geopolitics. You can watch 691 00:35:21,200 --> 00:35:23,960 Speaker 2: the show live on Bloomberg TV weekday mornings from six 692 00:35:24,000 --> 00:35:28,360 Speaker 2: am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 693 00:35:28,520 --> 00:35:30,759 Speaker 2: or anywhere else you listen, and as always, on the 694 00:35:30,760 --> 00:35:33,200 Speaker 2: Bloomberg Terminal and the Bloomberg Business app