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 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:37,200 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Mohammad al Owen 10 00:00:37,200 --> 00:00:39,800 Speaker 2: of Queen's College, Cambridge, writing, the US has taken its 11 00:00:39,800 --> 00:00:42,720 Speaker 2: economy and those of other countries on an uncomfortable journey 12 00:00:42,720 --> 00:00:45,880 Speaker 2: to an uncertain destination. This will severely test the financial 13 00:00:45,920 --> 00:00:49,760 Speaker 2: system and America's global standing. Muhammed joins us now for more. Mohammed, 14 00:00:49,760 --> 00:00:51,280 Speaker 2: looking forward to spending the next two hours with you. 15 00:00:51,320 --> 00:00:53,840 Speaker 2: Good morning, Good morning, Thank you John one. Your reaction 16 00:00:53,920 --> 00:00:55,920 Speaker 2: to this headline here from the President in the last 17 00:00:56,000 --> 00:00:59,600 Speaker 2: hour so add on Truth's social social media platform. The 18 00:00:59,640 --> 00:01:02,600 Speaker 2: President following maybe some of the ECB commentary this morning, 19 00:01:02,720 --> 00:01:06,399 Speaker 2: expectations that they'll reduce interest rates and complaining why isn't 20 00:01:06,400 --> 00:01:08,840 Speaker 2: the Federal Reserve doing the same thing? And he ends 21 00:01:08,880 --> 00:01:12,920 Speaker 2: this post with this line here, Mohammad Powell's termination cannot 22 00:01:12,920 --> 00:01:14,880 Speaker 2: come fast enough. Now, the debate we've had around the 23 00:01:14,920 --> 00:01:17,200 Speaker 2: table is how do you interpret that line. Is that 24 00:01:17,280 --> 00:01:19,400 Speaker 2: someone waiting for the expiration of a term that takes 25 00:01:19,400 --> 00:01:22,200 Speaker 2: place in May of next year, or someone who's thinking 26 00:01:22,240 --> 00:01:23,240 Speaker 2: about doing things sooner. 27 00:01:24,000 --> 00:01:27,000 Speaker 3: So only President Trump knows what that means. But it 28 00:01:27,000 --> 00:01:29,679 Speaker 3: should come as no surprise. We know that President Trump 29 00:01:29,720 --> 00:01:35,399 Speaker 3: has been frustrated at the absence of interest rate cuts. 30 00:01:36,480 --> 00:01:38,640 Speaker 3: I suspect you got very angry when you heard Chair 31 00:01:38,680 --> 00:01:42,920 Speaker 3: Powell yesterday. Chair Poal really put all the blame on tariffs, 32 00:01:43,360 --> 00:01:49,400 Speaker 3: gave no possibility to the better outcome zero given zero possibility. 33 00:01:50,720 --> 00:01:53,200 Speaker 3: And then there's one thing you have to remember. I 34 00:01:53,240 --> 00:01:57,360 Speaker 3: know that the conventional wisdom is that this is an 35 00:01:57,360 --> 00:02:01,560 Speaker 3: attack on the independence of the FED. There is another 36 00:02:02,920 --> 00:02:05,560 Speaker 3: way of looking at this, which is this Fed has 37 00:02:05,600 --> 00:02:09,600 Speaker 3: sacrificed people in the past. If you remember the president 38 00:02:09,720 --> 00:02:11,920 Speaker 3: of the Dallas Fed, the president of the Boston FED. 39 00:02:12,040 --> 00:02:15,919 Speaker 3: The vice chair was sacrificed ahead of Congress looking into 40 00:02:16,320 --> 00:02:20,680 Speaker 3: allegations of insider trading if you remember, the potential side 41 00:02:20,800 --> 00:02:23,919 Speaker 3: was sacrificed to protect the monetary policy side. And it 42 00:02:23,919 --> 00:02:26,359 Speaker 3: wouldn't surprise me if President Trump is pushing on this, 43 00:02:26,840 --> 00:02:29,880 Speaker 3: because there's a real question for Chair Pale should he 44 00:02:30,000 --> 00:02:34,079 Speaker 3: step down to preserve the independence of the Fed, because 45 00:02:34,120 --> 00:02:37,160 Speaker 3: otherwise the Federal will be the subject of a lot 46 00:02:37,160 --> 00:02:38,120 Speaker 3: of attacks going. 47 00:02:37,960 --> 00:02:40,079 Speaker 2: Forward if he did step down, with that call into 48 00:02:40,280 --> 00:02:43,360 Speaker 2: question even more the independs of the Federal Reserve, what's 49 00:02:43,400 --> 00:02:44,519 Speaker 2: the ultimate outcome here? 50 00:02:44,639 --> 00:02:47,239 Speaker 3: So this is a judgment that has to be made, 51 00:02:47,280 --> 00:02:50,800 Speaker 3: and has to be made by Chairpalell. There are credible candidates. 52 00:02:50,880 --> 00:02:54,560 Speaker 3: Kevin Walsh, for example, The markets would be very comfortable 53 00:02:54,600 --> 00:02:58,239 Speaker 3: with Kevin Walsh as the FED chair. He has tremendous experience, 54 00:02:58,960 --> 00:03:02,720 Speaker 3: He understands the market, understands the economics, he has expertise. 55 00:03:03,120 --> 00:03:05,680 Speaker 3: So you know, I could see a scenario in which 56 00:03:06,160 --> 00:03:10,399 Speaker 3: what Secretary Bassett said before the election plays out, where 57 00:03:10,440 --> 00:03:15,079 Speaker 3: they pre announce Kevin as the next chair, and then 58 00:03:15,120 --> 00:03:17,920 Speaker 3: that puts tremendous pressure and then Chair Powell has to 59 00:03:17,919 --> 00:03:19,280 Speaker 3: make a very difficult decision. 60 00:03:19,440 --> 00:03:20,440 Speaker 4: Let's say that happens. 61 00:03:20,760 --> 00:03:22,480 Speaker 2: And I know that's not your base case right now, 62 00:03:22,520 --> 00:03:23,880 Speaker 2: you can tell us if it is, but it hasn't 63 00:03:23,880 --> 00:03:26,000 Speaker 2: been before. Let's say it happens, though, how do you 64 00:03:26,000 --> 00:03:27,200 Speaker 2: think the market would respond to that? 65 00:03:27,960 --> 00:03:29,959 Speaker 3: So I think the market would look at Kevin Walsh 66 00:03:30,160 --> 00:03:33,320 Speaker 3: and think he's a very credible FET chair, And I 67 00:03:33,360 --> 00:03:37,080 Speaker 3: think the market would rather have a credible FET chair 68 00:03:37,280 --> 00:03:41,160 Speaker 3: that's not in continuous conflict with the White House than 69 00:03:41,200 --> 00:03:45,120 Speaker 3: being continuous conflict with God. The Harvard example gives you 70 00:03:46,040 --> 00:03:48,200 Speaker 3: is an illustration of what can happen. You can suddenly 71 00:03:48,240 --> 00:03:50,680 Speaker 3: have all sorts of other things questioned about the FED 72 00:03:51,440 --> 00:03:53,520 Speaker 3: if it's in direct conflict with the White House. 73 00:03:53,880 --> 00:03:57,560 Speaker 5: Isn't this conversation alone putting in question the independence of 74 00:03:57,600 --> 00:04:01,880 Speaker 5: the FED? We're talking about scenario where we could basically 75 00:04:01,920 --> 00:04:05,280 Speaker 5: get around the White House to placate the president. 76 00:04:05,840 --> 00:04:09,360 Speaker 3: But we've seen that scenarios where they've gone around the 77 00:04:09,440 --> 00:04:13,400 Speaker 3: Congress to placate the Congress. We've seen a situation where 78 00:04:13,760 --> 00:04:16,320 Speaker 3: in the beginning they sacrifice the pretential side. Michael bo 79 00:04:16,520 --> 00:04:20,479 Speaker 3: was a vice chair and he stepped down. So I 80 00:04:20,520 --> 00:04:23,599 Speaker 3: don't think this is a much structural break, but I 81 00:04:23,640 --> 00:04:26,320 Speaker 3: do think there's a very delicate judgment, and Marie here 82 00:04:26,440 --> 00:04:28,400 Speaker 3: very delicate and I'm glad I don't have to make it. 83 00:04:28,520 --> 00:04:30,760 Speaker 5: Well, it almost sounds like you agree with the president 84 00:04:31,200 --> 00:04:34,640 Speaker 5: in this sense. His termination cannot come fast enough, meaning 85 00:04:34,880 --> 00:04:37,120 Speaker 5: when Powell's out of the job, it cannot. 86 00:04:36,839 --> 00:04:37,760 Speaker 4: Be soon enough. 87 00:04:37,880 --> 00:04:39,160 Speaker 5: It sounds like you agree with that. 88 00:04:39,240 --> 00:04:43,720 Speaker 3: So the word termination is a very strong word, right, 89 00:04:45,040 --> 00:04:48,240 Speaker 3: that word, I must say. I looked at it and thought, wow, 90 00:04:48,360 --> 00:04:53,440 Speaker 3: that's a really strong word. But we do know that 91 00:04:54,080 --> 00:04:58,120 Speaker 3: in a year's time, Chairpal will step down. We know that, 92 00:04:58,520 --> 00:05:00,880 Speaker 3: we know that he's not going for us. We know 93 00:05:00,920 --> 00:05:03,800 Speaker 3: he's not going to get a third term, so that 94 00:05:03,920 --> 00:05:06,000 Speaker 3: issue is out there. We also know the President is 95 00:05:06,040 --> 00:05:11,320 Speaker 3: really frustrated about interest rates not being cut. And I 96 00:05:11,400 --> 00:05:15,360 Speaker 3: go back yesterday's comments by Chair Powell, which he went 97 00:05:15,520 --> 00:05:18,360 Speaker 3: well beyond what he've said in the past, were like 98 00:05:18,400 --> 00:05:20,120 Speaker 3: a red rag to the White House. 99 00:05:20,279 --> 00:05:22,320 Speaker 2: You've been critical of the Fellow Reserve before. You've referenced 100 00:05:22,320 --> 00:05:24,680 Speaker 2: this address a couple of times. Now what stood out 101 00:05:24,760 --> 00:05:27,640 Speaker 2: for you yesterday? Where do you think the Chairman went wrong? 102 00:05:28,760 --> 00:05:28,839 Speaker 6: So? 103 00:05:28,960 --> 00:05:32,240 Speaker 3: Actually, I think the Chairman yesterday was less political than 104 00:05:32,240 --> 00:05:36,400 Speaker 3: he normally is. I do think that we all have 105 00:05:36,640 --> 00:05:42,720 Speaker 3: to give the possibility of the good scenario. The market certainly. 106 00:05:42,760 --> 00:05:46,040 Speaker 3: Does you heard me say the market is fifty to fifty. 107 00:05:46,160 --> 00:05:48,720 Speaker 3: As to which of the two outcomes in the destination 108 00:05:48,920 --> 00:05:51,080 Speaker 3: is going to play out. Is this going to be 109 00:05:51,279 --> 00:05:54,840 Speaker 3: a Jimmy Carter moment with prolonged taxlation or is this 110 00:05:54,920 --> 00:05:57,280 Speaker 3: going to be a Margaret Thatcher run a Wagan moment 111 00:05:57,320 --> 00:06:00,240 Speaker 3: where you rewire not just the domestic economies, but to 112 00:06:00,320 --> 00:06:01,640 Speaker 3: rewire a global economy. 113 00:06:02,000 --> 00:06:02,520 Speaker 4: Isn't the fact? 114 00:06:02,560 --> 00:06:05,039 Speaker 2: Yeah, basically acknowledging that by saying, we've got a way 115 00:06:05,080 --> 00:06:07,000 Speaker 2: for more clarity before we can decide what we need 116 00:06:07,040 --> 00:06:07,280 Speaker 2: to do. 117 00:06:07,640 --> 00:06:09,560 Speaker 3: Yes, but he went much further. I mean, I have 118 00:06:09,600 --> 00:06:11,640 Speaker 3: all that. He generally said, we have to wait for 119 00:06:11,839 --> 00:06:14,800 Speaker 3: greater clarity, but he kept on pushing on the challenges 120 00:06:14,800 --> 00:06:18,320 Speaker 3: to do a mandate. He kept on pushing that inflation 121 00:06:18,880 --> 00:06:22,120 Speaker 3: may be persistent. He hasn't said that in the past. 122 00:06:22,440 --> 00:06:26,880 Speaker 3: Two meetings ago, he reintroduced transitory. Two meetings ago he 123 00:06:26,960 --> 00:06:29,400 Speaker 3: we introduced transitory when we talk about tariffs, and then 124 00:06:29,480 --> 00:06:32,760 Speaker 3: last meeting he walked it back. And now he's gone 125 00:06:32,760 --> 00:06:35,400 Speaker 3: one step further and made a very strong statement. 126 00:06:35,440 --> 00:06:37,400 Speaker 2: So let's talk about the optimal outcome. What does it 127 00:06:37,440 --> 00:06:38,640 Speaker 2: look like in the months to come. 128 00:06:39,560 --> 00:06:42,039 Speaker 3: I think I am in the same vote that everybody 129 00:06:42,040 --> 00:06:44,400 Speaker 3: else is saying. This is a really highly uncertain time. 130 00:06:44,839 --> 00:06:47,479 Speaker 3: You know, I think this is an uncertain journey to 131 00:06:47,520 --> 00:06:51,279 Speaker 3: an uncertain destination, and the market has been swinging one 132 00:06:51,279 --> 00:06:54,040 Speaker 3: way and the other. You said it this morning, depending 133 00:06:54,080 --> 00:06:57,640 Speaker 3: on the tariff news, it's either excitement or fear. 134 00:06:59,040 --> 00:07:01,760 Speaker 5: Yesterday we did also here J. Powell talk out the 135 00:07:01,800 --> 00:07:05,360 Speaker 5: Smoot Holly levies of the nineteen thirties, ninety five years ago, 136 00:07:05,480 --> 00:07:07,640 Speaker 5: and he said there isn't a modern experience for how 137 00:07:07,640 --> 00:07:08,440 Speaker 5: to think about this. 138 00:07:08,960 --> 00:07:09,800 Speaker 4: Do you agree with him? 139 00:07:10,040 --> 00:07:13,080 Speaker 5: Or can you draw some modern experiences to deal with 140 00:07:13,120 --> 00:07:13,880 Speaker 5: this time right now? 141 00:07:14,480 --> 00:07:16,360 Speaker 3: No, it's hard. I mean, by the way, that was 142 00:07:16,360 --> 00:07:18,760 Speaker 3: a strong statement as well, something that he hasn't gone 143 00:07:18,800 --> 00:07:20,160 Speaker 3: anywhere near before, and. 144 00:07:20,120 --> 00:07:22,800 Speaker 5: That was the Faires Bueller scene I was alluding to earlier. 145 00:07:23,000 --> 00:07:25,280 Speaker 3: Correct, and I remember that scene that he should have 146 00:07:25,320 --> 00:07:29,280 Speaker 3: referred to in the movie. No, we haven't had this before. 147 00:07:29,680 --> 00:07:33,640 Speaker 3: This is an attempt to rewire the global economy, and 148 00:07:33,680 --> 00:07:38,120 Speaker 3: we haven't had this in an integrated globalized economy. 149 00:07:38,560 --> 00:07:41,600 Speaker 5: Are you surprised by how different Powell sounds from Waller? 150 00:07:42,760 --> 00:07:45,520 Speaker 3: Yes? I do. I'm surprised how different Wallers sounds from 151 00:07:45,560 --> 00:07:47,560 Speaker 3: Waller a year ago. 152 00:07:47,720 --> 00:07:49,000 Speaker 5: I think he's running. 153 00:07:50,840 --> 00:07:53,160 Speaker 3: It's been quite a transformation. Let's put it this way. 154 00:07:53,400 --> 00:07:55,040 Speaker 4: Do you know how he did do a good job yesterday? 155 00:07:55,120 --> 00:07:55,800 Speaker 4: Ragged Raj Jahan. 156 00:07:56,040 --> 00:07:59,520 Speaker 2: He was a great He was absolutely fantastic, and he 157 00:07:59,560 --> 00:08:01,840 Speaker 2: asked this question I'm place he asked. They talked about 158 00:08:02,080 --> 00:08:04,200 Speaker 2: the difference of a challenge to the cycle and the 159 00:08:04,280 --> 00:08:06,800 Speaker 2: challenge to the system. And you and I've reflected on 160 00:08:06,800 --> 00:08:09,360 Speaker 2: this too, the challenge to the system here, how are 161 00:08:09,360 --> 00:08:11,640 Speaker 2: you thinking about that challenge at the moment. 162 00:08:11,960 --> 00:08:13,520 Speaker 3: So first of all, let me say Rugu was great 163 00:08:13,520 --> 00:08:16,120 Speaker 3: because not only did he keep the flow going, but 164 00:08:16,200 --> 00:08:20,840 Speaker 3: for those who are not very familiar with economics, he 165 00:08:20,880 --> 00:08:23,120 Speaker 3: explained why he was asking the questions, and he did 166 00:08:23,200 --> 00:08:26,160 Speaker 3: really well. You know, we've put it slightly differently. Is 167 00:08:26,200 --> 00:08:29,960 Speaker 3: that normally advanced economy live in cyclical space and developing 168 00:08:30,000 --> 00:08:33,760 Speaker 3: countries live in structural space. Now suddenly we have advanced 169 00:08:33,760 --> 00:08:37,040 Speaker 3: economies living in structural space. So the boundaries to the 170 00:08:37,040 --> 00:08:40,480 Speaker 3: cyclical fluctuations are no longer holding, or they are much 171 00:08:40,520 --> 00:08:42,680 Speaker 3: wider than there were before. So we have a whole 172 00:08:42,760 --> 00:08:48,040 Speaker 3: range of potential outcome. I love the United earnings call 173 00:08:48,120 --> 00:08:51,040 Speaker 3: when they came out with two scenarios, it's a bimodal world. 174 00:08:51,360 --> 00:08:54,800 Speaker 3: MX today came out with a huge qualifier saying it's 175 00:08:54,880 --> 00:09:00,200 Speaker 3: subject to the global macroeconomy. So companies are not only 176 00:09:00,360 --> 00:09:04,080 Speaker 3: thinking internally about arrange of outcomes, they're expressing it in 177 00:09:04,120 --> 00:09:04,920 Speaker 3: their earnings course. 178 00:09:05,160 --> 00:09:08,000 Speaker 2: As allocators need to do the same exercise. They need 179 00:09:08,000 --> 00:09:09,840 Speaker 2: to work out what the future looks like. And Rujan 180 00:09:09,920 --> 00:09:12,280 Speaker 2: talked about a change in US philosophy. So in the 181 00:09:12,280 --> 00:09:14,640 Speaker 2: post war system, as you know better than most, US 182 00:09:14,720 --> 00:09:16,800 Speaker 2: assets are at the very heart of it. And the 183 00:09:16,800 --> 00:09:20,079 Speaker 2: interpretation of this administration appears to be that their responsibilities 184 00:09:20,080 --> 00:09:22,320 Speaker 2: are a net burden and not a net benefit, and 185 00:09:22,320 --> 00:09:25,440 Speaker 2: they're trying to rebalance that. They look at the FX 186 00:09:25,480 --> 00:09:28,640 Speaker 2: so called distortions, that's what Steven Myron called them, and 187 00:09:28,679 --> 00:09:30,360 Speaker 2: they don't look at the benefits that come from this 188 00:09:30,480 --> 00:09:33,720 Speaker 2: structural bid for US as sets that deliver lower interest 189 00:09:33,800 --> 00:09:35,920 Speaker 2: rates than maybe that otherwise get what are the dangers 190 00:09:35,960 --> 00:09:38,280 Speaker 2: of trying to rebalance that over the period of say 191 00:09:38,480 --> 00:09:39,400 Speaker 2: three and a half years. 192 00:09:40,000 --> 00:09:42,480 Speaker 3: So, whether it is the US, whether it is the 193 00:09:42,600 --> 00:09:46,920 Speaker 3: UK with the EU, this integration does two things to 194 00:09:46,960 --> 00:09:50,640 Speaker 3: your balance sheet. It increases the gains and increases the 195 00:09:50,640 --> 00:09:53,440 Speaker 3: potential losses, so you now operate at a higher level 196 00:09:53,440 --> 00:09:56,480 Speaker 3: of both. And if you don't manage the potential losses, 197 00:09:56,800 --> 00:09:59,240 Speaker 3: then people will focus on that and forget about the gains. 198 00:09:59,280 --> 00:10:03,760 Speaker 3: We sort o the UK with Brexit. So I think 199 00:10:03,559 --> 00:10:06,480 Speaker 3: the more integrated economies come, the more you have to 200 00:10:06,520 --> 00:10:09,080 Speaker 3: manage the downside risks. I say this because AI is 201 00:10:09,080 --> 00:10:11,760 Speaker 3: really critical in this. We've got to manage the downside 202 00:10:11,840 --> 00:10:16,240 Speaker 3: risk to exploit the enormous benefits that come from that mom. 203 00:10:16,000 --> 00:10:17,920 Speaker 5: And you said, when you look at developing economies, it's 204 00:10:17,960 --> 00:10:21,800 Speaker 5: structural and like the United States, we're cyclical. Is everyone 205 00:10:21,840 --> 00:10:24,040 Speaker 5: just viewing this moment wrong? Should we be thinking about 206 00:10:24,200 --> 00:10:26,760 Speaker 5: developing economy when looking at what is going on right 207 00:10:26,800 --> 00:10:28,400 Speaker 5: now in US in terms of policy. 208 00:10:28,640 --> 00:10:31,960 Speaker 3: Well, some have tried to make that parallel when saying 209 00:10:32,120 --> 00:10:35,720 Speaker 3: it's highly unusual to see the US having higher interest 210 00:10:35,800 --> 00:10:38,720 Speaker 3: rates and a weekend dollar. That happens in the developing 211 00:10:38,760 --> 00:10:42,679 Speaker 3: world that doesn't happen in advanced economies. I think that's 212 00:10:42,679 --> 00:10:46,120 Speaker 3: a step too far. I think what we're seeing is 213 00:10:46,240 --> 00:10:50,079 Speaker 3: a portfolio reallocation from an overweight to the US to 214 00:10:50,280 --> 00:10:53,560 Speaker 3: more balanced globally. That is what we're seeing, and I thought, 215 00:10:53,600 --> 00:10:57,440 Speaker 3: wik reader yesterday on the show, what's great with that? 216 00:11:07,600 --> 00:11:09,720 Speaker 2: So here's the latest this morning starts at heading for 217 00:11:09,720 --> 00:11:12,320 Speaker 2: a week of losses is Chan Chan Pound pause freezing 218 00:11:12,360 --> 00:11:15,240 Speaker 2: cold water over the so called fed pert joining us 219 00:11:15,240 --> 00:11:17,840 Speaker 2: now to discuss as Jean Pavan of Black Rock Jean 220 00:11:17,880 --> 00:11:20,400 Speaker 2: get to see you, sir, some reaction by the President 221 00:11:20,400 --> 00:11:22,120 Speaker 2: of the United States earlier on this morning, which I'm 222 00:11:22,160 --> 00:11:24,760 Speaker 2: sure you saw, complaining that the chairman had not cut 223 00:11:24,800 --> 00:11:27,160 Speaker 2: interest rates unlike the ECP, which is set to do 224 00:11:27,240 --> 00:11:29,360 Speaker 2: in about thirty minutes time, and saying at the end 225 00:11:29,400 --> 00:11:31,880 Speaker 2: of his social media post this morning, the pals termination 226 00:11:32,480 --> 00:11:35,640 Speaker 2: cannot come fast enough. If clients asked you about that 227 00:11:35,679 --> 00:11:38,679 Speaker 2: line this morning, what will you tell them? 228 00:11:39,160 --> 00:11:41,240 Speaker 6: Well, I spent a week in Europe last week, and 229 00:11:41,240 --> 00:11:44,160 Speaker 6: I'm going to tell you that the discussion about like 230 00:11:44,400 --> 00:11:47,840 Speaker 6: us asset then we should think about this environment is 231 00:11:48,600 --> 00:11:52,040 Speaker 6: totally different than everything I've seen. And I think that 232 00:11:52,200 --> 00:11:55,120 Speaker 6: kind of development in the context. 233 00:11:54,679 --> 00:11:56,760 Speaker 7: That is already one that investors are. 234 00:11:56,640 --> 00:12:00,600 Speaker 6: Shaky, I think will require had a bit of work 235 00:12:00,640 --> 00:12:05,120 Speaker 6: to reassure. I think you know what I would say 236 00:12:05,160 --> 00:12:07,240 Speaker 6: would fall back to I think there are immutable laws 237 00:12:07,240 --> 00:12:08,120 Speaker 6: that i'd play here. 238 00:12:08,320 --> 00:12:09,680 Speaker 7: We're going to be bumping into them. 239 00:12:10,400 --> 00:12:12,439 Speaker 6: We need to be ready for some kios along the way, 240 00:12:12,440 --> 00:12:15,160 Speaker 6: but we're going to be bumping into some pretty immutable laws, 241 00:12:15,520 --> 00:12:16,800 Speaker 6: and I think that's what we need to get a 242 00:12:16,800 --> 00:12:17,240 Speaker 6: handle on. 243 00:12:17,600 --> 00:12:19,920 Speaker 2: We've said repeatedly on this program this morning that we'd 244 00:12:19,960 --> 00:12:23,240 Speaker 2: like clarity from the White House what termination actually means. 245 00:12:23,520 --> 00:12:25,400 Speaker 4: Does it mean the expiration of. 246 00:12:25,360 --> 00:12:28,600 Speaker 2: The term may next year said to take place, or 247 00:12:28,640 --> 00:12:30,880 Speaker 2: moving that forward and doing something more dramatic. But you've 248 00:12:30,880 --> 00:12:34,160 Speaker 2: touched on something important, the erosion of trust in US 249 00:12:34,200 --> 00:12:37,160 Speaker 2: assets that we've seen. Some people have made the case 250 00:12:37,200 --> 00:12:39,280 Speaker 2: that over the last week all we saw was treasury 251 00:12:39,440 --> 00:12:42,800 Speaker 2: markets responding to the unwinding a trade, some hedge funds 252 00:12:42,800 --> 00:12:45,640 Speaker 2: blowing up, and maybe it was nothing bigger than that. 253 00:12:45,800 --> 00:12:46,800 Speaker 4: What do you think it was. 254 00:12:47,520 --> 00:12:50,000 Speaker 6: I think there's a broad story here, and if I 255 00:12:50,000 --> 00:12:52,240 Speaker 6: had to say one word, I think it's debt. It's 256 00:12:52,280 --> 00:12:54,920 Speaker 6: the large US debt that is a big part of 257 00:12:54,960 --> 00:12:57,440 Speaker 6: the story here. But you know, I think we've seen 258 00:12:57,480 --> 00:12:59,520 Speaker 6: and we were with a view with discuss that before 259 00:12:59,559 --> 00:13:00,040 Speaker 6: that we were. 260 00:13:00,080 --> 00:13:02,040 Speaker 7: An environment shape by supply. 261 00:13:03,040 --> 00:13:05,120 Speaker 6: I think the tariff discussion we're having here is very 262 00:13:05,160 --> 00:13:08,240 Speaker 6: much an example of another supply shock that is that 263 00:13:08,360 --> 00:13:11,679 Speaker 6: is leading German power to be more awkish and people expected, 264 00:13:11,720 --> 00:13:14,240 Speaker 6: I guess, but there is a really real story of 265 00:13:14,440 --> 00:13:16,679 Speaker 6: supply shock that is putting pressure on rates to go up. 266 00:13:16,720 --> 00:13:20,079 Speaker 6: So I think there was already uh, pressure for long 267 00:13:20,160 --> 00:13:22,400 Speaker 6: term rates to go up, but you add on top 268 00:13:22,440 --> 00:13:27,720 Speaker 6: of that, you know, questions about tariffs that are really 269 00:13:27,840 --> 00:13:30,920 Speaker 6: like if you really are trying to decouple from the 270 00:13:30,920 --> 00:13:34,040 Speaker 6: rest of the world quickly, Uh, that also means that 271 00:13:34,080 --> 00:13:37,160 Speaker 6: you're cutting yourself out from a source of funding for 272 00:13:37,200 --> 00:13:39,880 Speaker 6: your debt, and the that is large and I think 273 00:13:39,920 --> 00:13:42,080 Speaker 6: this is this is the the key thing that is 274 00:13:42,160 --> 00:13:45,160 Speaker 6: driving here is that you know, the financiers of that debt, 275 00:13:45,280 --> 00:13:48,960 Speaker 6: people financing it, are looking at this differently now and 276 00:13:49,040 --> 00:13:51,520 Speaker 6: I think that's adding another kind of risk premium, if 277 00:13:51,520 --> 00:13:54,840 Speaker 6: you will, in terms of long term rates. And so 278 00:13:54,880 --> 00:13:56,960 Speaker 6: that is the nimic at least, not about one player. 279 00:13:57,000 --> 00:14:00,520 Speaker 6: It's not about like you know, one official government selling 280 00:14:00,600 --> 00:14:02,360 Speaker 6: or not. I think this is a broader kind of 281 00:14:03,120 --> 00:14:04,000 Speaker 6: sentiment story. 282 00:14:04,559 --> 00:14:06,320 Speaker 3: So Jean, you set up, you told us about what 283 00:14:06,360 --> 00:14:09,440 Speaker 3: you heard, You told us about the sentiment, how far 284 00:14:09,520 --> 00:14:13,000 Speaker 3: are we in this rebalancing from the US to the 285 00:14:13,000 --> 00:14:13,640 Speaker 3: rest of the world. 286 00:14:14,760 --> 00:14:15,920 Speaker 7: I think we're pretty far. 287 00:14:16,200 --> 00:14:19,280 Speaker 6: I mean, if if there's a if they are real 288 00:14:19,640 --> 00:14:25,520 Speaker 6: intent of reducing current account deficit and surpluses and balancing 289 00:14:25,520 --> 00:14:28,200 Speaker 6: these things, were very far from that objective and decoupling, 290 00:14:28,600 --> 00:14:30,760 Speaker 6: and in fact, I don't think that can happen very quickly. 291 00:14:31,720 --> 00:14:33,560 Speaker 7: So to me, this is more than there's a very. 292 00:14:33,440 --> 00:14:36,280 Speaker 6: Near term, kind of immutable kind of constraint that we're 293 00:14:36,280 --> 00:14:38,640 Speaker 6: going to be bumping against, as I said before, and 294 00:14:39,040 --> 00:14:41,560 Speaker 6: it's going to be materializing by rates going up, which 295 00:14:41,560 --> 00:14:43,960 Speaker 6: will make the debt look very different for the government 296 00:14:44,000 --> 00:14:46,520 Speaker 6: I think themselves. I think their bigger channe The biggest 297 00:14:46,600 --> 00:14:49,920 Speaker 6: challenge for them is rates at five percent ten year 298 00:14:50,040 --> 00:14:52,880 Speaker 6: changes completely the budget are in medic going forward, and 299 00:14:52,920 --> 00:14:56,200 Speaker 6: I think that will have to be confronted at some point. 300 00:14:56,280 --> 00:14:58,920 Speaker 6: So that's why I mean, no matter the intent, I 301 00:14:58,960 --> 00:15:01,920 Speaker 6: think we're going to be stopp along the way. It's 302 00:15:02,000 --> 00:15:05,040 Speaker 6: a many year's process as opposed to a mini month's. 303 00:15:04,800 --> 00:15:07,520 Speaker 5: Process, and that goes against a key objective from this administration, 304 00:15:07,560 --> 00:15:10,200 Speaker 5: which is to keep rates much lower. They want to 305 00:15:10,240 --> 00:15:13,200 Speaker 5: see it going lower to four percent. When it comes 306 00:15:13,200 --> 00:15:15,680 Speaker 5: to things like who is dumping these assets? The Treasury 307 00:15:15,680 --> 00:15:18,440 Speaker 5: Secretary didn't seem to think it was foreign governments. Do 308 00:15:18,480 --> 00:15:19,440 Speaker 5: you think it's sovereigns? 309 00:15:19,840 --> 00:15:23,080 Speaker 6: As I said, I think this is a broader global 310 00:15:23,120 --> 00:15:27,680 Speaker 6: reassessment and thinking. I think there's broad fundamental reasons for 311 00:15:27,800 --> 00:15:31,840 Speaker 6: rates to go up, and then you get events like 312 00:15:32,040 --> 00:15:34,200 Speaker 6: we got last week, and it adds to this narrative. 313 00:15:35,240 --> 00:15:36,680 Speaker 7: So I think it's difficult. 314 00:15:36,360 --> 00:15:40,240 Speaker 6: To pinpoint like a single source. I think this is broader. 315 00:15:40,480 --> 00:15:42,760 Speaker 6: And then when these things happen, there's always other things 316 00:15:42,760 --> 00:15:44,280 Speaker 6: that happen at the same time, so you get like 317 00:15:44,320 --> 00:15:48,040 Speaker 6: the dynamic leveraging in the market that gets triggered by this. 318 00:15:48,120 --> 00:15:50,360 Speaker 6: So I don't think we'll ever pinpoint one, but I 319 00:15:50,360 --> 00:15:53,840 Speaker 6: think we should take note that there is a sentiment 320 00:15:53,880 --> 00:15:54,760 Speaker 6: story that is playing on. 321 00:15:55,080 --> 00:15:57,880 Speaker 3: So John, one of the things that is really debated 322 00:15:57,960 --> 00:16:01,320 Speaker 3: right now among global macro ponomous is what is the 323 00:16:01,360 --> 00:16:03,120 Speaker 3: beta of the rest of the world to US growth. 324 00:16:04,200 --> 00:16:07,080 Speaker 3: So some people feel that it'ser point five, others feel 325 00:16:07,120 --> 00:16:09,800 Speaker 3: it's more than one. Where would you put the beta 326 00:16:10,280 --> 00:16:12,280 Speaker 3: the growth beta of the rest of the world, Well, 327 00:16:12,320 --> 00:16:14,720 Speaker 3: it's the US for Europe and for developing countries. 328 00:16:16,320 --> 00:16:20,520 Speaker 6: You know, I think there's a distinction between where this 329 00:16:20,560 --> 00:16:23,000 Speaker 6: administration might want to go in many years from now 330 00:16:23,040 --> 00:16:24,480 Speaker 6: and where we are right now. I don't think the 331 00:16:24,480 --> 00:16:28,000 Speaker 6: world has changed materially yet. I mean, yes, the tone 332 00:16:28,000 --> 00:16:30,400 Speaker 6: and everything has changed like drastically, and the uncertainty is 333 00:16:30,440 --> 00:16:32,880 Speaker 6: as uncertainty as we've ever seen it, as you said before, 334 00:16:33,600 --> 00:16:37,000 Speaker 6: But right now, the fundamentals where the US is still 335 00:16:37,080 --> 00:16:39,600 Speaker 6: very much as link as it was. And I think 336 00:16:39,640 --> 00:16:41,760 Speaker 6: we've seen it right, you know, when we've seen the 337 00:16:41,800 --> 00:16:45,320 Speaker 6: baration day, we've seen the US market tank. It's not 338 00:16:45,440 --> 00:16:48,600 Speaker 6: like Europe has outperformed during those days or other markets are. 339 00:16:48,680 --> 00:16:50,960 Speaker 6: So the beta is still very much as strong as 340 00:16:51,000 --> 00:16:51,480 Speaker 6: it was. 341 00:16:52,280 --> 00:16:54,360 Speaker 3: Over time, more than one, more than one or less 342 00:16:54,360 --> 00:16:54,640 Speaker 3: than one. 343 00:16:54,680 --> 00:16:56,240 Speaker 7: I think we're looking at something that looks like one 344 00:16:56,360 --> 00:16:58,920 Speaker 7: right now. So I don't think I wouldn't. 345 00:16:58,640 --> 00:17:01,240 Speaker 6: Take a big on either side, but I think it 346 00:17:01,240 --> 00:17:03,120 Speaker 6: looks like it's very much correlated with it. 347 00:17:03,120 --> 00:17:04,879 Speaker 2: Does that mean you can't think is bigger bet for 348 00:17:04,960 --> 00:17:07,600 Speaker 2: Europe against the United States and vice versa if they're 349 00:17:07,600 --> 00:17:08,320 Speaker 2: on the same boat. 350 00:17:08,920 --> 00:17:11,640 Speaker 7: Yeah, So I think I think it's it's it's it's something. 351 00:17:11,359 --> 00:17:14,800 Speaker 6: To say US is risky, so let's let's go elsewhere. 352 00:17:15,359 --> 00:17:17,359 Speaker 6: But because of that beta, I think we're still in 353 00:17:17,400 --> 00:17:21,920 Speaker 6: the world where you know, all boats will be moving together. 354 00:17:22,760 --> 00:17:24,480 Speaker 6: But there is one thing happening though, is that in 355 00:17:24,520 --> 00:17:27,640 Speaker 6: this environment that you know, clients have always been having 356 00:17:27,680 --> 00:17:30,480 Speaker 6: a home bias, right, it's easier to invest shelter to home. 357 00:17:30,920 --> 00:17:33,680 Speaker 6: I think that exacerbates that home bias we have. So 358 00:17:33,760 --> 00:17:35,320 Speaker 6: it's in this environment. 359 00:17:34,960 --> 00:17:37,040 Speaker 2: Your high conviction view is actually in the treasury market. 360 00:17:37,240 --> 00:17:39,879 Speaker 2: So should we finish on that underway treasure raise? Is 361 00:17:39,920 --> 00:17:42,399 Speaker 2: it for all the reasons we've discussed or something missing? 362 00:17:43,400 --> 00:17:45,919 Speaker 6: It's for while we had on top of that the 363 00:17:45,960 --> 00:17:50,119 Speaker 6: inflation story that is not resolved. It's actually being you know, 364 00:17:50,880 --> 00:17:53,600 Speaker 6: fueled somewhat more with with those measures. 365 00:17:54,040 --> 00:17:56,600 Speaker 7: So we have been on the way to us church. 366 00:17:56,720 --> 00:17:58,399 Speaker 6: This is the highest conviction we've been having for the 367 00:17:58,440 --> 00:18:02,080 Speaker 6: last many months, even I would say many years. We're 368 00:18:02,119 --> 00:18:05,080 Speaker 6: setting through a high rate environment. Everything we see confirms 369 00:18:05,119 --> 00:18:08,120 Speaker 6: out and the leader's development. I think after that as well, and. 370 00:18:08,040 --> 00:18:10,320 Speaker 2: The latest communication from cham and Pan which reinforced it 371 00:18:10,359 --> 00:18:22,679 Speaker 2: to Choman Van a black crop can I'm shure before 372 00:18:22,720 --> 00:18:24,639 Speaker 2: my senior Trump trying to advice that joins us now 373 00:18:24,640 --> 00:18:25,359 Speaker 2: for more Candian is. 374 00:18:25,359 --> 00:18:26,880 Speaker 4: Good to see you. Good to see you as well. 375 00:18:26,920 --> 00:18:28,800 Speaker 2: What are the prospects of making a deal in this 376 00:18:28,840 --> 00:18:31,120 Speaker 2: smaller timeframe with this money countries? 377 00:18:31,800 --> 00:18:33,600 Speaker 8: Well, I think the chances of making a deal with 378 00:18:33,720 --> 00:18:37,320 Speaker 8: Japan seem pretty high. Right, Like you've heard bess and 379 00:18:37,400 --> 00:18:39,639 Speaker 8: talk about the fact that there are about fifteen countries 380 00:18:39,680 --> 00:18:42,120 Speaker 8: with whom they're close to making a deal. I don't 381 00:18:42,160 --> 00:18:45,040 Speaker 8: foresee ninety countries in ninety days, but certainly with some 382 00:18:45,080 --> 00:18:47,000 Speaker 8: of our major trading partners with whom we have some 383 00:18:47,040 --> 00:18:49,760 Speaker 8: of these significant issues, I do think the administration is 384 00:18:49,880 --> 00:18:50,639 Speaker 8: very optimistic. 385 00:18:50,720 --> 00:18:52,919 Speaker 5: Let's talk about the one that's a little bit harder, China. 386 00:18:53,160 --> 00:18:54,879 Speaker 5: They came out this week with a number of demands 387 00:18:54,920 --> 00:18:57,280 Speaker 5: they'd like to see response. By the way, we should 388 00:18:57,320 --> 00:18:59,800 Speaker 5: note this was a bloomberg scoop according to someone familiar 389 00:18:59,840 --> 00:19:02,679 Speaker 5: with the CCP, thinking right now, do you think this 390 00:19:02,720 --> 00:19:06,320 Speaker 5: administration is ready to appoint a point person for Beijing 391 00:19:06,359 --> 00:19:07,040 Speaker 5: to deal with. 392 00:19:07,359 --> 00:19:09,800 Speaker 8: Well, I think both sides are looking to see if 393 00:19:09,800 --> 00:19:11,760 Speaker 8: there is an off ramp. Right Like last week, we 394 00:19:11,920 --> 00:19:15,479 Speaker 8: backed ourselves into a trade embargo between the two world's 395 00:19:15,600 --> 00:19:18,639 Speaker 8: largest economies, So there has to be a way to 396 00:19:18,720 --> 00:19:20,679 Speaker 8: resolve this at some sort of political level, and I 397 00:19:20,680 --> 00:19:23,240 Speaker 8: think appointing someone seems like a reasonable way forward. But 398 00:19:23,280 --> 00:19:25,760 Speaker 8: that said, the President has said that he wants to 399 00:19:25,800 --> 00:19:29,320 Speaker 8: negotiate directly with Shijing Pang, so there's going to be 400 00:19:29,359 --> 00:19:31,960 Speaker 8: some negotiations behind the scenes to see if they want 401 00:19:31,960 --> 00:19:33,720 Speaker 8: to back off that approach or if they're willing to 402 00:19:33,760 --> 00:19:35,040 Speaker 8: delegate one level down. 403 00:19:35,480 --> 00:19:38,840 Speaker 5: Do you think the likely scenario here is that there's 404 00:19:38,880 --> 00:19:41,520 Speaker 5: a call and then they appoint someone, and then who 405 00:19:41,560 --> 00:19:43,040 Speaker 5: do you think that individual's going to be? 406 00:19:43,600 --> 00:19:46,240 Speaker 8: Well, of the constellations of actors, who it could be. 407 00:19:46,280 --> 00:19:49,359 Speaker 8: It could be a Secretary Bessant, could be a Secretary Letnik, 408 00:19:49,400 --> 00:19:51,800 Speaker 8: it could be someone like Jamison Greer. But I do 409 00:19:51,840 --> 00:19:53,560 Speaker 8: think that in the last week or two we've seen 410 00:19:53,640 --> 00:19:56,840 Speaker 8: Bessant really take the lead publicly in terms of advancing 411 00:19:56,840 --> 00:20:00,439 Speaker 8: some of the President's trade agenda points. He would be 412 00:20:00,440 --> 00:20:02,600 Speaker 8: a likely interlocutor with the Chinese when it. 413 00:20:02,560 --> 00:20:05,359 Speaker 5: Comes to the other deals. And speaking of China, the 414 00:20:05,400 --> 00:20:08,240 Speaker 5: Secretary has insinuated he wants to shore up some of 415 00:20:08,280 --> 00:20:11,399 Speaker 5: these other deals and then confront China together. Is that 416 00:20:11,440 --> 00:20:13,800 Speaker 5: the kind of concessions they're looking for? When they talk 417 00:20:13,880 --> 00:20:16,000 Speaker 5: to Japan or the European Union or Vietnam. 418 00:20:16,680 --> 00:20:19,119 Speaker 8: Well, I think, like taking a step back, this is 419 00:20:19,200 --> 00:20:22,040 Speaker 8: existential from their perspective of the administration, that we are 420 00:20:22,119 --> 00:20:25,440 Speaker 8: overly reliant on China, that the Western world has become 421 00:20:25,520 --> 00:20:28,000 Speaker 8: overly reliant on China, and so it makes sense from 422 00:20:28,040 --> 00:20:32,000 Speaker 8: their perspective to look at building alliances with other countries 423 00:20:32,000 --> 00:20:33,679 Speaker 8: where they adopt some of the same measures that the 424 00:20:33,800 --> 00:20:37,160 Speaker 8: United States does. And even from the perspective of third markets, 425 00:20:37,240 --> 00:20:39,400 Speaker 8: if the United States and China are in this posture 426 00:20:39,440 --> 00:20:41,280 Speaker 8: of not trading with one another, those goods are going 427 00:20:41,320 --> 00:20:43,160 Speaker 8: to go somewhere else. They're going to flood other markets, 428 00:20:43,359 --> 00:20:44,959 Speaker 8: and so I think that's what they're trying to get to. 429 00:20:45,080 --> 00:20:47,240 Speaker 8: But the question for me is some of these Asian 430 00:20:47,359 --> 00:20:49,920 Speaker 8: nations in particular, are they going to pick sides. Are 431 00:20:49,920 --> 00:20:51,320 Speaker 8: they going to be willing to put up some of 432 00:20:51,320 --> 00:20:52,679 Speaker 8: these barriers on China or not. 433 00:20:53,119 --> 00:20:56,840 Speaker 5: So when it comes to other investigations and administration is launching, 434 00:20:56,880 --> 00:20:58,960 Speaker 5: we learned this week that there is an investigation a 435 00:20:59,040 --> 00:21:02,199 Speaker 5: section two thirty two on pharmaceuticals on semi conductors that 436 00:21:02,359 --> 00:21:05,040 Speaker 5: was launched April first. Why did we learn about it 437 00:21:05,080 --> 00:21:05,560 Speaker 5: this way. 438 00:21:06,000 --> 00:21:07,840 Speaker 8: I have to say I spent ten years in government 439 00:21:07,880 --> 00:21:09,480 Speaker 8: and have never heard of a secret. 440 00:21:09,119 --> 00:21:09,840 Speaker 7: Two thirty two. 441 00:21:10,240 --> 00:21:14,199 Speaker 8: But that's effectively what we saw happen. Well, there is 442 00:21:14,240 --> 00:21:17,560 Speaker 8: no legal obligation to notify the public that an investigation 443 00:21:17,640 --> 00:21:20,120 Speaker 8: has been launched. There is a legal obligation to give 444 00:21:20,119 --> 00:21:23,480 Speaker 8: the public an opportunity to comment. But some of this 445 00:21:23,680 --> 00:21:27,080 Speaker 8: may have just been there's so much going on that 446 00:21:27,119 --> 00:21:30,159 Speaker 8: they failed to alert the public. Could be that they 447 00:21:30,200 --> 00:21:32,919 Speaker 8: were just investigating and sort of got out over their skis. 448 00:21:33,000 --> 00:21:35,200 Speaker 8: But for whatever reason, it's neither here nor there. We're 449 00:21:35,200 --> 00:21:38,000 Speaker 8: in an active investigation and the administration has two hundred 450 00:21:38,040 --> 00:21:40,560 Speaker 8: and seventy days to complete those investigations. 451 00:21:40,760 --> 00:21:43,200 Speaker 4: They have two seventy How quickly can they wrap it up. 452 00:21:43,680 --> 00:21:46,840 Speaker 8: As soon as almost humanly possible? So that comment period 453 00:21:47,040 --> 00:21:49,040 Speaker 8: is I think it's going to be May seventh when 454 00:21:49,080 --> 00:21:51,960 Speaker 8: all those comments are due. They could potentially announce the 455 00:21:51,960 --> 00:21:54,000 Speaker 8: results as soon as May eighth. Now I don't think 456 00:21:54,000 --> 00:21:55,959 Speaker 8: it will be the soon. I think they'll give themselves 457 00:21:55,960 --> 00:21:58,320 Speaker 8: another month to digest some of the comments. But we've 458 00:21:58,359 --> 00:22:01,320 Speaker 8: heard Secretary Best or Secretary Letnix say that within a 459 00:22:01,359 --> 00:22:03,600 Speaker 8: month or two we're likely to see some of those measures. 460 00:22:03,640 --> 00:22:05,200 Speaker 2: A couple of names in the mix right now, Who 461 00:22:05,240 --> 00:22:07,119 Speaker 2: do you think is running the show at the moment? 462 00:22:07,640 --> 00:22:10,040 Speaker 8: I think Donald Trump. I think President Trump is running 463 00:22:10,080 --> 00:22:12,480 Speaker 8: the show. He has always been his own trade advisor. 464 00:22:12,560 --> 00:22:15,359 Speaker 8: But of the economic advisors who seemed to be in 465 00:22:15,359 --> 00:22:18,800 Speaker 8: the mix, Secretary Bessett, Secretary Latnik, Jamison, and Career. 466 00:22:19,400 --> 00:22:22,800 Speaker 5: Does it surprise you that the Treasury Secretary has almost 467 00:22:22,840 --> 00:22:24,760 Speaker 5: made a U term when it comes to negotiations in 468 00:22:24,800 --> 00:22:26,879 Speaker 5: the past two weeks. When I spoke to him after 469 00:22:26,880 --> 00:22:29,040 Speaker 5: what Trump called Liberation Day, he said he wasn't part 470 00:22:29,040 --> 00:22:31,560 Speaker 5: of the negotiations. Then clarified to me this week he 471 00:22:31,600 --> 00:22:33,879 Speaker 5: meant he wasn't in charge or a part of the 472 00:22:33,880 --> 00:22:37,280 Speaker 5: negotiations regarding the tariff rates. On that big chart, How 473 00:22:37,280 --> 00:22:40,520 Speaker 5: big of a disagreement was those reciprocal tariffs. 474 00:22:41,240 --> 00:22:41,520 Speaker 7: Yeah. 475 00:22:41,920 --> 00:22:44,080 Speaker 8: In Trump run, it was very clear that we had 476 00:22:44,080 --> 00:22:46,959 Speaker 8: different advisors on different spectrums. We had the free traders, 477 00:22:46,960 --> 00:22:50,240 Speaker 8: we had the protectionists, and Trump two the difference between 478 00:22:50,240 --> 00:22:53,000 Speaker 8: them is much smaller, right, So, I think you have 479 00:22:53,200 --> 00:22:56,159 Speaker 8: advisors who might have different perspectives, but their view is 480 00:22:56,240 --> 00:22:58,640 Speaker 8: largely rowing in the same direction. So I don't see 481 00:22:58,640 --> 00:23:01,040 Speaker 8: the same break in the same way. But I do 482 00:23:01,080 --> 00:23:03,879 Speaker 8: agree that Secretary Bessant is much more active now in 483 00:23:03,960 --> 00:23:06,040 Speaker 8: terms of driving some of the agenda, at least in 484 00:23:06,119 --> 00:23:08,040 Speaker 8: terms of the public voice of the administration. 485 00:23:08,200 --> 00:23:10,520 Speaker 2: And this is certainly something malcat Pontispen's wanted to say, 486 00:23:10,640 --> 00:23:12,880 Speaker 2: including Jamie time at a JP Morgan, who basically said 487 00:23:12,920 --> 00:23:14,600 Speaker 2: that in a Financial Times interview. 488 00:23:14,560 --> 00:23:15,160 Speaker 4: Early this week. 489 00:23:15,240 --> 00:23:16,639 Speaker 5: He said he's an adult in the room and he 490 00:23:16,760 --> 00:23:19,280 Speaker 5: likes that he's now taking a louder voice when it 491 00:23:19,280 --> 00:23:21,320 Speaker 5: comes to these trade negotiations and thinks he should be 492 00:23:21,359 --> 00:23:24,320 Speaker 5: the point person. Neil Dutta has talked about this the 493 00:23:24,400 --> 00:23:27,480 Speaker 5: ascent of Bessent, and he said Trump has cracked a 494 00:23:27,520 --> 00:23:29,640 Speaker 5: lot of eggs and now it's up to the secretary 495 00:23:29,960 --> 00:23:33,560 Speaker 5: to make an omelet. So Wall Street is definitely feeling 496 00:23:33,600 --> 00:23:36,720 Speaker 5: more comfortable that the Treasury Secretary is the one who's 497 00:23:36,720 --> 00:23:38,639 Speaker 5: bit more careful with his words when it comes to 498 00:23:38,680 --> 00:23:40,600 Speaker 5: these negotiations. He's in driver and seat. 499 00:23:40,680 --> 00:23:43,040 Speaker 2: Kellyan's good to say thanks for dropping bye, thank you. 500 00:23:43,119 --> 00:23:45,200 Speaker 2: The former senior Trump tried to devise a Kelly On show 501 00:23:45,200 --> 00:23:56,960 Speaker 2: with that. The New York Fed President John Williams, speaking 502 00:23:56,960 --> 00:23:59,359 Speaker 2: at the moment just said this. The economy is in 503 00:23:59,400 --> 00:24:01,640 Speaker 2: a very good place. Learn Goodwin of New York Life. 504 00:24:01,680 --> 00:24:03,600 Speaker 2: John's isnaw from are Lauren, Come, I ask you, is 505 00:24:03,640 --> 00:24:05,160 Speaker 2: the economy in a very good place? 506 00:24:05,520 --> 00:24:05,720 Speaker 3: Ooh? 507 00:24:05,800 --> 00:24:08,520 Speaker 1: I think the economy is in a pretty precarious place. 508 00:24:08,520 --> 00:24:11,600 Speaker 1: But we're starting from a really strong base. Our economic 509 00:24:11,640 --> 00:24:14,320 Speaker 1: scenario is. Coming into this year, we expected growth to 510 00:24:14,359 --> 00:24:16,639 Speaker 1: slow from around two and a half percent to just 511 00:24:16,720 --> 00:24:19,760 Speaker 1: below two percent. We're now looking at half a percent 512 00:24:20,080 --> 00:24:22,199 Speaker 1: of GDP growth out of the US this year. So 513 00:24:22,200 --> 00:24:26,960 Speaker 1: it's not a recession, but that's a much more worrisome position, 514 00:24:27,119 --> 00:24:30,040 Speaker 1: let's say, than we expected just a couple. 515 00:24:29,760 --> 00:24:30,760 Speaker 7: Of months ago. 516 00:24:31,320 --> 00:24:34,280 Speaker 1: And perhaps more important than that, though we have about 517 00:24:34,320 --> 00:24:37,840 Speaker 1: a fifty to fifty percentage on recession versus not. We're 518 00:24:38,280 --> 00:24:40,800 Speaker 1: pretty confident that will end the year with inflation higher 519 00:24:40,800 --> 00:24:43,560 Speaker 1: than it is. And so as I see investors look 520 00:24:43,600 --> 00:24:46,520 Speaker 1: around and say, maybe we'll wait and see see how 521 00:24:46,640 --> 00:24:50,720 Speaker 1: tariffs develop, see how monetary policy developed, I look at 522 00:24:50,720 --> 00:24:53,800 Speaker 1: that expectation for higher inflation, and I say, even if 523 00:24:53,800 --> 00:24:55,560 Speaker 1: you were going to wait and see, do you have 524 00:24:55,600 --> 00:24:58,080 Speaker 1: the portfolio that you need to wait and see When 525 00:24:58,080 --> 00:24:59,520 Speaker 1: we have such inflation volatility. 526 00:24:59,600 --> 00:25:01,240 Speaker 2: Let's get in that in a second, to just focus 527 00:25:01,240 --> 00:25:02,919 Speaker 2: on the economy of monetary policy, and then we can 528 00:25:02,960 --> 00:25:05,200 Speaker 2: get to the market. Cause if you think the growth 529 00:25:05,240 --> 00:25:07,120 Speaker 2: is going to come down from three to zero point 530 00:25:07,119 --> 00:25:08,800 Speaker 2: five and inflation by the end of the year will 531 00:25:08,800 --> 00:25:12,240 Speaker 2: be higher than now Cham and Pal, it's not giving 532 00:25:12,280 --> 00:25:15,520 Speaker 2: us any clues on what hate reduce interest rights? When 533 00:25:15,520 --> 00:25:18,160 Speaker 2: do you think hate reduce interest rights? If at all? 534 00:25:18,640 --> 00:25:21,040 Speaker 1: I think that the FED will do as much as 535 00:25:21,040 --> 00:25:25,639 Speaker 1: it can to do as little as possible. It's just 536 00:25:25,960 --> 00:25:32,040 Speaker 1: very difficult to change policy credibly in a position where 537 00:25:32,119 --> 00:25:35,640 Speaker 1: inflation in inflation expectations are so. 538 00:25:35,720 --> 00:25:36,440 Speaker 7: On the line. 539 00:25:37,480 --> 00:25:41,399 Speaker 1: Do I completely agree with Mike that short term inflation 540 00:25:41,480 --> 00:25:44,000 Speaker 1: expectations that we're seeing out of consumers, out of businesses 541 00:25:44,320 --> 00:25:46,879 Speaker 1: have de anchored in a meaningful way in reaction to 542 00:25:46,920 --> 00:25:49,280 Speaker 1: how people feel right now. I expect that those will 543 00:25:49,280 --> 00:25:53,959 Speaker 1: come down as reality proves to be less dire. But 544 00:25:54,000 --> 00:25:56,679 Speaker 1: we're still in an environment where, in order for the 545 00:25:56,720 --> 00:25:59,399 Speaker 1: FED to avoid some of the worst case scenarios for 546 00:25:59,520 --> 00:26:02,679 Speaker 1: the econ ME, cutting rates doesn't get you there. I 547 00:26:02,680 --> 00:26:05,600 Speaker 1: don't think cutting rates does much to shore up supply 548 00:26:05,720 --> 00:26:09,119 Speaker 1: chain challenges. Cutting rates certainly doesn't do much to manage 549 00:26:09,160 --> 00:26:12,720 Speaker 1: inflation expectations in both short and long term market interest rates, 550 00:26:12,920 --> 00:26:15,439 Speaker 1: and so they're going to do everything they can not 551 00:26:15,560 --> 00:26:15,920 Speaker 1: to move. 552 00:26:16,000 --> 00:26:18,640 Speaker 5: So your base case is stackflation. 553 00:26:18,480 --> 00:26:21,280 Speaker 1: Stackflation light, where you have a little bit of growth 554 00:26:21,280 --> 00:26:24,920 Speaker 1: but inflation moving up. And the difference between being in 555 00:26:25,760 --> 00:26:28,320 Speaker 1: recession and not in recession, I think is meaningful for 556 00:26:28,440 --> 00:26:31,560 Speaker 1: the markets. But when we're looking at the economic scenario, 557 00:26:32,640 --> 00:26:34,800 Speaker 1: not a whole lot of daylight between us sort of 558 00:26:34,960 --> 00:26:38,320 Speaker 1: muddle through with inflation as opposed to an outright recession. 559 00:26:38,600 --> 00:26:43,120 Speaker 1: Our lowest probability, about fifteen percent, is for a recession 560 00:26:43,160 --> 00:26:46,760 Speaker 1: that's deep enough and demand destruction is pronounced enough to 561 00:26:46,840 --> 00:26:50,360 Speaker 1: actually bring inflation lower. I think that's the least likely scenario. 562 00:26:50,440 --> 00:26:53,040 Speaker 5: You mentioned things like trade and supply chains. The President 563 00:26:53,080 --> 00:26:55,960 Speaker 5: was out this morning with a few different social media posts, 564 00:26:55,960 --> 00:26:57,720 Speaker 5: but one of them was about the fact that he 565 00:26:57,800 --> 00:26:59,960 Speaker 5: talked to Mexico, He talked to the Japanese, the GHOSTI. 566 00:27:00,400 --> 00:27:02,119 Speaker 5: He says, even China is waiting to come in. The 567 00:27:02,160 --> 00:27:05,760 Speaker 5: Italians are here today. What if all these trade barriers 568 00:27:05,800 --> 00:27:09,200 Speaker 5: and concerns are actually solved within ninety days. 569 00:27:10,160 --> 00:27:13,760 Speaker 1: For one, I think it's very unlikely and expect that 570 00:27:13,880 --> 00:27:16,840 Speaker 1: the average tariff rate will be higher in a couple 571 00:27:16,840 --> 00:27:18,640 Speaker 1: of months than it was a couple of months ago, 572 00:27:18,680 --> 00:27:22,200 Speaker 1: which has a meaningful impact on inflation. But perhaps more important, 573 00:27:22,359 --> 00:27:24,880 Speaker 1: tariffs are a negotiating tool, but they're also a policy 574 00:27:24,880 --> 00:27:28,359 Speaker 1: in themselves. We've been hearing from the administration that trade 575 00:27:28,359 --> 00:27:32,240 Speaker 1: deficit is perceived as a sign of global economic weakness, 576 00:27:32,000 --> 00:27:34,920 Speaker 1: and it's a challenge that the administration is looking to 577 00:27:34,960 --> 00:27:36,800 Speaker 1: resolve on top of that. 578 00:27:36,880 --> 00:27:37,840 Speaker 4: If the goal of. 579 00:27:37,800 --> 00:27:41,000 Speaker 1: Those policies in the end is to re shore some 580 00:27:41,119 --> 00:27:45,399 Speaker 1: important supply chains, how far that goes remains to be seen. 581 00:27:45,680 --> 00:27:49,800 Speaker 1: But even so, that's a very capital intensive trend that frankly, 582 00:27:50,000 --> 00:27:52,800 Speaker 1: even if tariffs were completely rolled back and we shook 583 00:27:52,840 --> 00:27:56,480 Speaker 1: our shook our hands of the last couple of weeks, 584 00:27:57,000 --> 00:28:00,320 Speaker 1: those capital intensive trends are happening, they're underway. And see 585 00:28:00,320 --> 00:28:04,720 Speaker 1: that as an environment where outright disinflation is unlikely. 586 00:28:05,119 --> 00:28:08,040 Speaker 3: So, Louren, you tease the portfolio implications of everything we 587 00:28:08,200 --> 00:28:10,600 Speaker 3: just discussed at the beginning of the interview. So what 588 00:28:10,680 --> 00:28:13,680 Speaker 3: audi and how far our investors from where you think 589 00:28:13,680 --> 00:28:16,280 Speaker 3: they should be. 590 00:28:15,280 --> 00:28:18,879 Speaker 1: For starters the sixty to forty portfolio, and look not 591 00:28:18,960 --> 00:28:21,280 Speaker 1: all investors use it, but just as a baseline, the 592 00:28:21,320 --> 00:28:24,240 Speaker 1: sixty to forty portfolio was designed for a period where 593 00:28:24,280 --> 00:28:28,560 Speaker 1: inflation and inflation volatility were low. That's not the situation 594 00:28:28,640 --> 00:28:30,479 Speaker 1: that we're in right now, and so it's not the 595 00:28:30,520 --> 00:28:32,800 Speaker 1: benchmark probably that investors should be using. 596 00:28:33,560 --> 00:28:34,840 Speaker 7: For two, if you think. 597 00:28:34,720 --> 00:28:39,640 Speaker 1: About the last fifteen years, the most effective acid allocation, 598 00:28:39,680 --> 00:28:41,480 Speaker 1: if we're all honest with ourselves, would have been to 599 00:28:41,560 --> 00:28:44,800 Speaker 1: be ninety percent invested in US large cap growth equity. 600 00:28:45,560 --> 00:28:47,440 Speaker 1: We got a couple of extra years of that, even 601 00:28:47,440 --> 00:28:49,680 Speaker 1: as inflation rates have been higher because of the boom 602 00:28:49,680 --> 00:28:50,200 Speaker 1: from AI. 603 00:28:50,720 --> 00:28:52,200 Speaker 4: But as I look forward, I. 604 00:28:52,120 --> 00:28:55,480 Speaker 1: Don't think that that's the allocation that overweight US equity 605 00:28:55,560 --> 00:28:59,040 Speaker 1: allocation that makes the most sense moving forward. So geographic 606 00:28:59,440 --> 00:29:02,600 Speaker 1: rebalance I think is important. We're definitely seeing that out 607 00:29:02,600 --> 00:29:05,560 Speaker 1: of x US investors already. I think US investors need 608 00:29:05,600 --> 00:29:09,480 Speaker 1: to do the same. We're also looking at building inflation resilience, 609 00:29:09,640 --> 00:29:13,960 Speaker 1: whether that's in dividend payers or inflation or income generating equity, 610 00:29:14,400 --> 00:29:18,880 Speaker 1: or by taking equity like risk in credit or in 611 00:29:18,920 --> 00:29:24,880 Speaker 1: the bond market. And we're considering some hedges for inflation volatility. 612 00:29:24,920 --> 00:29:28,719 Speaker 1: Those moments when you get inflation surprises, so including gold, 613 00:29:28,840 --> 00:29:31,400 Speaker 1: real estate, other inflation aware asset classes sort of. 614 00:29:31,440 --> 00:29:34,360 Speaker 3: One thing you didn't mention is government bonds. You completely 615 00:29:34,400 --> 00:29:37,160 Speaker 3: avoided government bonds, So let me take you there. What 616 00:29:37,240 --> 00:29:38,280 Speaker 3: about government bonds? 617 00:29:38,840 --> 00:29:43,600 Speaker 1: So I have very high conviction that duration is a 618 00:29:43,720 --> 00:29:47,080 Speaker 1: tactical bet at best for the foreseeable future. Now we 619 00:29:47,160 --> 00:29:51,080 Speaker 1: know that, taking the ten year treasury bond as an example, 620 00:29:51,600 --> 00:29:54,160 Speaker 1: there are three things that move the tenure treasury the 621 00:29:54,200 --> 00:29:56,240 Speaker 1: path of the Fed funds rate over that ten year period. 622 00:29:56,280 --> 00:29:58,800 Speaker 1: We're not seeing a lot of price expectation or changing 623 00:29:58,840 --> 00:30:02,440 Speaker 1: there inflation expectations which have been pretty well anchored, but 624 00:30:02,480 --> 00:30:05,239 Speaker 1: are are there's a wide dispersion of estimates so that 625 00:30:06,200 --> 00:30:09,840 Speaker 1: it moves a little higher. And then the term premium, 626 00:30:09,960 --> 00:30:13,040 Speaker 1: supply and demand issues, and not only in moves in 627 00:30:13,080 --> 00:30:16,240 Speaker 1: the tenure but also in moves in currency tell us 628 00:30:16,280 --> 00:30:19,360 Speaker 1: that demand for treasuries is fraying a bit on the margin, 629 00:30:19,400 --> 00:30:21,520 Speaker 1: and that makes sense to me given the what we're 630 00:30:21,520 --> 00:30:24,840 Speaker 1: seeing globally. So that's an environment where I think the 631 00:30:25,040 --> 00:30:30,080 Speaker 1: tenure treasury yield is absolutely live between four and five percent. 632 00:30:30,480 --> 00:30:32,400 Speaker 1: So if you can be in the market tactically and 633 00:30:32,480 --> 00:30:35,960 Speaker 1: trade those moves, sure, but for the average investor that's 634 00:30:36,000 --> 00:30:40,040 Speaker 1: making one month, three month, two year changes, duration is 635 00:30:40,080 --> 00:30:41,640 Speaker 1: not our favorite place to take. 636 00:30:41,560 --> 00:30:42,240 Speaker 3: Risk, Lauren. 637 00:30:42,280 --> 00:30:44,280 Speaker 2: I appreciate the clarity. It's good to see. As always, 638 00:30:44,320 --> 00:30:46,520 Speaker 2: thank you, Lauren good when they're in New York life. 639 00:30:47,000 --> 00:30:50,560 Speaker 2: This is the Bloomberg Sevenmans podcast, bringing you the best 640 00:30:50,600 --> 00:30:54,160 Speaker 2: in markets, economics, antiopolitics. You can watch the show live 641 00:30:54,240 --> 00:30:57,200 Speaker 2: on Bloomberg TV weekday mornings from six am to nine 642 00:30:57,280 --> 00:31:01,000 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or 643 00:31:01,040 --> 00:31:03,640 Speaker 2: anywhere else you listen, and as always on the Bloomberg 644 00:31:03,760 --> 00:31:05,560 Speaker 2: Terminal and the Bloomberg Business out 645 00:31:09,520 --> 00:31:10,000 Speaker 4: Mm hmm.