Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Joining us now, Danny
Speaker 2: of Yourdenny Research. He writes Trump and Bess and discards
Speaker 2: some of their best cards while preparing to play tariff
Speaker 2: poker with China. Financial markets are happy that Team Trump
Speaker 2: is blinkingg Edgiandenny joined us now for more. Ed Welcome
Speaker 2: to the program. Let's talk about the extent of that blink.
Speaker 2: How much of a U turne are you expecting in
Speaker 2: the next several weeks.
Speaker 3: Well, it's a very.
Speaker 4: Odd situation where the United States seems to be negotiating
Speaker 4: with itself, so very peculiar art of the deal where
Speaker 4: you walk in the room and you're you're the only
Speaker 4: one in there, and you keep issuing really press release
Speaker 4: to saying that great progress is being made.
Speaker 3: So I don't really know what to make of it.
Speaker 3: What I do make of.
Speaker 4: It is that curly the financial markets have had a
Speaker 4: big impact on the administration. This is the bond vigilantes
Speaker 4: and the stock vigilantes ganging up on the administration and saying,
Speaker 4: you know, we need some moderation here, we need some
Speaker 4: cooling off. And that's exactly what the administration is doing.
Speaker 2: And that is the target Home Depot and Walmart vigilantes
Speaker 2: as well. Clearly the most important meeting that took place
Speaker 2: in Washington this week where the retailer is sitting down
Speaker 2: with the President of the United States and warning Kim
Speaker 2: they're within weeks we could have empty shelves. And I
Speaker 2: think it makes it difficult at this moment to read
Speaker 2: the economic data. What is a genuine rebuilding infantries, what
Speaker 2: is a genuine sustainable underlying trend in demand, and what
Speaker 2: do you see in the data and the earnings.
Speaker 4: Well, the earnings are actually starting to be cut back.
Speaker 4: Of course, analysts have finally gotten their recession tariff memo,
Speaker 4: so they've started to incorporate the fact that this isn't
Speaker 4: going to be good for the economy. It's going to
Speaker 4: weigh on the economy. I think to the extent that
Speaker 4: analysts usually talk just to companies, they don't talk to economists,
Speaker 4: But they're reading the headlines and they see that economists
Speaker 4: are lowering their outlook for economic growth, and they're probably
Speaker 4: getting that kind of guidance from some of their companies
Speaker 4: that if the tariffs stay on, the longer they stay on,
Speaker 4: the weaker the economy is going to be. But I
Speaker 4: think at the rate at which the administration is back
Speaker 4: and off here, the economic impact of the tariffs could
Speaker 4: start to really ease off by the second half of
Speaker 4: the year, which is at this point when most economists
Speaker 4: expecting a much weaker economy are actually a recession. So
Speaker 4: there could be a reversal at least in the soft
Speaker 4: data that then it would suddenly lift the pressure off
Speaker 4: the hard data.
Speaker 5: And it feels like the genius sort of out of
Speaker 5: the bottle, But we can't see and we don't know
Speaker 5: how big he is. We don't know whether he can
Speaker 5: climb back into the bottle at any given time.
Speaker 6: I just wonder as you look forward why you reject.
Speaker 5: The idea that what we're seeing right now is a
Speaker 5: long term structural loss of US exceptionalism that will result
Speaker 5: in a weaker dollar and potentially less dynamism in US
Speaker 5: equities over time.
Speaker 3: Yeah, that's a great question.
Speaker 4: I mean, it's only a few months ago that the
Speaker 4: American exceptionalism made the front cover of The Economist. I
Speaker 4: think it was October of last year. There was a
Speaker 4: lot of dollars that looked like a rocket ship, and
Speaker 4: you know, we couldn't be staffed. Look, I think now
Speaker 4: that everybody is having second thoughts about that, or even
Speaker 4: concluding in a dire way that the dollars is in
Speaker 4: decline here as a reserve currency. Keep in mind that
Speaker 4: there's nothing like the US capital markets. Well, you know,
Speaker 4: when you make a list of exceptionalism, American capital markets
Speaker 4: are exceptional. They are huge, they are liquid. There's nothing
Speaker 4: like them. So I don't know how the dollar losers.
Speaker 4: That's preserve status, and I think it remains strong even
Speaker 4: this recent hysteria about the weaker dollar. It's fell about
Speaker 4: ten percent. Using the Dollar index, the DXY that everybody watches,
Speaker 4: but a much better index that the FED calculates is
Speaker 4: down about half as much, which is no big deal
Speaker 4: in my opinion.
Speaker 5: This is the reason why people are looking at announcements
Speaker 5: from a number of different ACID allocators and seeing if
Speaker 5: they are trying to diversify even a little bit away
Speaker 5: from the United States into other countries. I just wonder
Speaker 5: how concerned you are about the idea that forty four
Speaker 5: percent of S and P five hundred companies that have
Speaker 5: reported so far have mentioned the word recession, except from
Speaker 5: three percent in the fourth quarter, at a time where
Speaker 5: potentially the US's ability to borrow to bolster the economy
Speaker 5: and any kind of downturn could really be a lot
Speaker 5: more difficult, a lot more pricey, a lot more paniff.
Speaker 3: Yeah.
Speaker 4: Well, I think the stock markets discounted certainly a weakening
Speaker 4: in the economy in the second half of the year.
Speaker 4: We certainly lowered our numbers from something like two and
Speaker 4: a half to three percent growth this year to something
Speaker 4: more like.
Speaker 3: Zero point five to one and a half percent.
Speaker 4: The only question is what there should be negative signs
Speaker 4: on those numbers, and some people, I guess are in
Speaker 4: that camp. We're still looking at the forty five percent
Speaker 4: odds of an outright recession.
Speaker 3: We think the.
Speaker 4: President's really the administration is going to back off as
Speaker 4: they have been on these tariffs, and to the extent
Speaker 4: that they don't, I think they're going to declare victory.
Speaker 4: I think they're going to get maybe ninety pieces of
Speaker 4: paper from ninety countries, signed by key diplomats, laying out a.
Speaker 3: Groundwork of framework.
Speaker 4: You can't negotiate a treaty in ninety days, you can't
Speaker 4: implement the treaty in ninety days. But I think they're
Speaker 4: going to declare victory, move on to the extension of
Speaker 4: the tax cuts, and life will go on.
Speaker 1: And when it comes to the tariffs, though, the Wall
Speaker 1: Street General appoint of the administration might back down on
Speaker 1: China to say sixty percent, but that is what Trump
Speaker 1: has been saying for months. On the campaign trail, he
Speaker 1: promised ten percent across the board, of sixty percent on China.
Speaker 1: So if that's the base case, how does this economy look?
Speaker 4: Well, as you know, it's hard to define what the
Speaker 4: base case is. It changes almost daily from the press
Speaker 4: conferences that the President has in the Oval Office. Is
Speaker 4: associates keep talking about how much progress they're making. So
Speaker 4: I think, you know, sixty percent is just as prohibitive
Speaker 4: as one hundred and forty five percent. I think they're
Speaker 4: going to have to again negotiate against themselves and maybe
Speaker 4: postpone that increase so to leave it at sixty percent,
Speaker 4: but they're going to postpone it for ninety days, turn
Speaker 4: down the rhetoric, and find somebody to negotiate with the
Speaker 4: Chinese on a better deal.
Speaker 2: Just a final question from us. You've been super constructive
Speaker 2: on this cycle for quite a while. Coming into the
Speaker 2: twenty twenties, you talked about the Roaring twenties. Yep, we're
Speaker 2: at the halfway point working through that now. If he's
Speaker 2: fronting the town on that view or you're sticking with.
Speaker 4: It, well, John, it was a great first half of
Speaker 4: the decade. I hope it's the Roaring twenty twenties as over.
Speaker 4: Yet there's sort of deja avous with the nineteen the
Speaker 4: nineteen twenties we got a whole decade out of that
Speaker 4: before the Congress that hoerendously imposed tariffs, So there's a
Speaker 4: certain similarity here. But I think this too shall pass,
Speaker 4: and I'm still looking for the Roaring twenty twenties to
Speaker 4: be a description of the entire decade called me an optimist,
Speaker 4: but I think I guess my mantra has been Look
Speaker 4: how well the US economy has done over the years
Speaker 4: despite Washington.
Speaker 3: That's still my bet.
Speaker 2: And we hope you're right. It's going to catch up
Speaker 2: with you. As always, Danny, there have your Danny research
Speaker 2: to discuss and place to say. The North Bank Investment
Speaker 2: Management CEO Nikolay Tangan joins US now for more. Nicolay,
Speaker 2: welcome back to the program. So a lot has changed
Speaker 2: since we last spoke. Attitudes towards US as sets are
Speaker 2: starting to shift. I just wonder how you and the
Speaker 2: team have started to think about that, how you're debating
Speaker 2: that issue internally over in Norway.
Speaker 7: Well, we have a very long term view on what
Speaker 7: we do, so you know, we are invested with roughue
Speaker 7: half for the fund in the US and we are
Speaker 7: here for the very long term. So we have not
Speaker 7: made any major adjustments lately.
Speaker 2: So Nikolai, can I rid into that that you view
Speaker 2: this as just a shock to the cycle and maybe
Speaker 2: not a long term shock to the system.
Speaker 7: Well, I think it's very very difficult to say it,
Speaker 7: because when we make scenario analysis here, one of the
Speaker 7: negative things that that we see is that if you
Speaker 7: get a decentanglement between the two major trading blocks, that's
Speaker 7: really really negative because it slow down it slows down growth,
Speaker 7: increases inflation and zone. So it is potentially one of
Speaker 7: the really negative things that can happen here. So I
Speaker 7: think the out look for markets are very, very uncertain, given.
Speaker 5: That there has been a shift, Nikolai, to move at
Speaker 5: least a little bit of assets about large acid allocators
Speaker 5: out of the United States, diversified to places like China,
Speaker 5: to India, to Europe. Why aren't you doing the same
Speaker 5: and shifting to benchmarks that have a little bit more
Speaker 5: exposure elsewhere.
Speaker 7: Well, we actually are extremely well diversified already. You know,
Speaker 7: we own one and a half percent of all the
Speaker 7: listed equities in the world. In Europe we have more,
Speaker 7: we have closed to three percent, and so in the
Speaker 7: US we have one than a half percent, and we
Speaker 7: also have the same in the rest of the world.
Speaker 7: So I would say we are we are well diversified,
Speaker 7: seventy percent equities, thirty percent bonds. We also have a
Speaker 7: very very good way to say, portfolio, which is coming
Speaker 7: in really handy here.
Speaker 5: Well, nikola you said previously this morning when you were
Speaker 5: speaking to media and OSLO that you will correct the
Speaker 5: underweight to US stocks. So you are planning to reinvest
Speaker 5: in US stocks even though you are surprised that we haven't.
Speaker 6: Seen even more weakness.
Speaker 5: Why are you redeploying all of the money that maybe
Speaker 5: has lost in terms of benchmark allocation to US equity
Speaker 5: has given some of these larger uncertainties.
Speaker 7: Well, the kind of the increased medication to the US
Speaker 7: is part of a program that we've been doing for
Speaker 7: quite some time. We still have some work to do
Speaker 7: here and that we will continue to do. And you know,
Speaker 7: we think the large American companies are just great long
Speaker 7: term investments, and so we are very happy to be
Speaker 7: invested in there.
Speaker 1: What sectors can you give us a little bit of
Speaker 1: a hint of specifically the sectors or the companies are
Speaker 1: interested in the United States?
Speaker 7: Well, are quite in near in how we are invested
Speaker 7: in the US. So we typically have large holdings in
Speaker 7: the you know, in the big tech companies, in all
Speaker 7: your large companies.
Speaker 6: Really and we made you know a lot of money.
Speaker 8: There over the last few years.
Speaker 7: Of course, so far this year it's been it's been negative.
Speaker 7: But when you look in comparison to the games we've
Speaker 7: had the last year and the year before, we're given
Speaker 7: back in a way surprisingly little.
Speaker 1: I would say, what about defensive companies like Lockheed Martin,
Speaker 1: is that going to be open for business? When it
Speaker 1: comes to the cumber.
Speaker 7: Well fund, Well, we invest in a lot of different industries.
Speaker 7: We have less exposure to the defense industry, but we
Speaker 7: are in a lot of the defensing names as well.
Speaker 2: Nikolai, one word you often use with us is we
Speaker 2: are diversified. I just wonder if the meaning of that
Speaker 2: word has shifted over time, particularly this year, the treasury
Speaker 2: market is behaving in unpredictable ways. When the equity market
Speaker 2: is falling, treasury markets have fell as well. In fact,
Speaker 2: those two asset classes are training and lockstep. At the moment,
Speaker 2: it's as if investors are treating all dollarg and ONMITD
Speaker 2: as assets as one bucket. And I just wondered, Nicolay,
Speaker 2: what that means for how you think about diversification this
Speaker 2: year and beyond.
Speaker 7: Yeah, there was sometimes when when this type of diversification
Speaker 7: worked less well.
Speaker 8: We had the same type of situation.
Speaker 7: You know, two three years ago, and so some years
Speaker 7: it works, some years it doesn't.
Speaker 8: I think over time, if you have.
Speaker 7: A really long term time horizon, I think it's the
Speaker 7: right positioning to have.
Speaker 2: We've seen over the last month or so that some
Speaker 2: investors were trying to understand whether what was happening in
Speaker 2: the treasury market was just trades unwinding, some hedgephones, hedge
Speaker 2: funds blowing up, or nicolay, whether it was a reassessment
Speaker 2: of the safe haven status of the United States. Nicola
Speaker 2: I was on your dashboard to have distinguished between one
Speaker 2: and the other.
Speaker 8: What do you think it was? What do you think
Speaker 8: it is?
Speaker 7: Well, I think it's a very very complicated question. I
Speaker 7: don't think it's only one thing. I think it's a
Speaker 7: cocktail of all kind of things you mentioned. Now, so
Speaker 7: far this year, we've we have been neutral to the
Speaker 7: US treasure market. We have not reduced or increased positions,
Speaker 7: so we have we have certainly not to cause that move.
Speaker 5: Do you have a sense, Nikolai, going forward of whether
Speaker 5: we are entering a more inflationary period given some of
Speaker 5: the deglobalization that we're seeing, some of the fissures and
Speaker 5: some of the kinks that are emerging in the supply
Speaker 5: chain system.
Speaker 7: Yeah, I think we are potentially going into a more
Speaker 7: inflationary situation. It is kind of a pretty obvious consequence
Speaker 7: of higher tariffs, and of course inflation is really negative
Speaker 7: of market so I think that's potentially one of the
Speaker 7: big risks that we are.
Speaker 8: Seeing just now.
Speaker 7: Interestingly, we just yesterday released a podcast with Ken Rogoff,
Speaker 7: kind of the world leading specialist, I guess on inflation,
Speaker 7: and he's also very word about this particular fact.
Speaker 5: Well, I guess, just to build in what John was
Speaker 5: asking about the idea of diversification, and you have been
Speaker 5: about neutral on US bonds, there has been a feeling
Speaker 5: that maybe diversification, especially in an inflationary environment, requires some gold,
Speaker 5: requires some alternative assets that might be act based funding
Speaker 5: that have different streams of diversified revenues. Is that your
Speaker 5: take on it that you just on the margins want
Speaker 5: to pick up a little bit more gold or diversify
Speaker 5: a little bit more in some of these other asset classes.
Speaker 3: Yeah.
Speaker 7: So we have a very strict mannight here from the ministry,
Speaker 7: so we cannot buy gold, and I do think gold
Speaker 7: sometimes has a bit difficult to understand what the intrinsic
Speaker 7: value is of gold.
Speaker 8: We also don't do cryptocurrencies, for instance.
Speaker 7: But when we look at alternative assets, I would say
Speaker 7: in a market like this to have real estates, that's
Speaker 7: very good. We have just under a thousand properties around
Speaker 7: the world, you know, large holdings in Manhattan, Boston, Washington
Speaker 7: one and so I think that's going to be a
Speaker 7: pretty good place to be going forward.
Speaker 2: Nikolay, I appreciate your take at a difficult time. Thanks
Speaker 2: for your time this morning. Nicolai Tangan there the Norway
Speaker 2: Well fun CEO. On a difficult moment, the UCB warning
Speaker 2: tarras may be more disinflationary than inflationary for Europe. This
Speaker 2: after President Trump said he's confident of reaching a trade
Speaker 2: deal with the EU. Joining us around the table here
Speaker 2: in our studio in Washington, d C. The chief economist
Speaker 2: of the European Central Bank, Philip Blank.
Speaker 8: Philip's good to see you, sir, Good morning. Thanks for
Speaker 8: being able to hear in Washington.
Speaker 2: So the Governing Council meeting, I imagine was very different
Speaker 2: this time around than a number of months ago when
Speaker 2: you walked into that room and presented changes to the economy.
Speaker 8: What did you tell a team?
Speaker 9: Sure, I mean, I think it was a gear change
Speaker 9: for several reasons, So of course our core business has
Speaker 9: been to try and get inflation back down from a
Speaker 9: high number to our targets. I think there was a
Speaker 9: milestone in this meeting in the sense of the most
Speaker 9: recent data had come in quite low. What we've been
Speaker 9: waiting for services inflation to kind of drop, and it
Speaker 9: has been dropping. And then we had surveys showing that
Speaker 9: basically the weight dynamic this year and in twenty six
Speaker 9: is lower than we expected. So basically, if you like,
Speaker 9: if you clear the table about the historic issue, are
Speaker 9: we safely bringing inflation back to target? I think a
Speaker 9: lot it's not entirely settled, but a lot of it
Speaker 9: is settled. So the gear change was of course, now
Speaker 9: we have new things to talk about, and really since
Speaker 9: all the way back to last summer, trade policy uncertainty
Speaker 9: has been part of what we've had to talk about.
Speaker 9: But we still have trade policy uncertainty, but we also
Speaker 9: have trade policy news. You know, lots has happened that
Speaker 9: the and then the other element of what we've seen
Speaker 9: is of course, and that happened, by the way, like
Speaker 9: a day or two before our March meeting, was a
Speaker 9: German break through and fiscal policy. So we already had that,
Speaker 9: if you like, in the early incarnation at the March meeting.
Speaker 9: We know more now, but it's still, you know, in
Speaker 9: terms of what the other European countries are going to do,
Speaker 9: it's something that's still in discussion. So what I would
Speaker 9: say if you put all of that together, and I
Speaker 9: think you're probably hearing this from various colleagues and other
Speaker 9: people this week, is if I take a longer term perspective,
Speaker 9: and the IMF in their publications this week, a lot
Speaker 9: of the data go out of twenty thirty. If I
Speaker 9: take a twenty thirty perspective, you know, I think there's
Speaker 9: a lot of grants to have a renewed optimism that essentially,
Speaker 9: with more fiscal support, the credibility of delivering our two
Speaker 9: percent target on a kind of long term basis is stronger.
Speaker 9: The case for the European economy to be more resilient,
Speaker 9: to grow from a domestic source, not just from running
Speaker 9: a big export machine is more credible. But of course
Speaker 9: we have to navigate from where we are now. Where
Speaker 9: As you said in your intro, immediately in the short term,
Speaker 9: the way it's playing out with euro appreciation with.
Speaker 8: A big job and energy prices.
Speaker 9: The disinflatory forces are there, but I would say maybe
Speaker 9: the question you know, I wouldn't load it all on
Speaker 9: the trade policy is what we also see now as
Speaker 9: a portfolio shift. So there's a clear portfolio shift going on,
Speaker 9: which is I think the way you can reconcile euro
Speaker 9: appreciation in the middle of this trade discussion.
Speaker 2: As you know, Philip, that sort of begs the question
Speaker 2: why you don't act more aggressively. Does that give you
Speaker 2: the space to act more preemptively?
Speaker 9: Well, I think a very important narrative we had last week,
Speaker 9: and it was repeated threat to Manto policy statement was resilience.
Speaker 9: What we're seeing is the europan economy growing. Two years
Speaker 9: of it was kind of more stagnating. So we said
Speaker 9: the European economy is going to recover. We saw modest
Speaker 9: but still market recovery last year is around zero nine.
Speaker 9: We have zero nine written down in March for this year.
Speaker 9: And that's basically because with incomes going up, consumption through
Speaker 9: recover with our Munti policy, and the general improvement of
Speaker 9: the economy, investments should recover with more government support. So
Speaker 9: all the domestic engines are there. So what you have
Speaker 9: to think about. Is all of that, if you like,
Speaker 9: is saying that the economies should be growing, even marking
Speaker 9: down some trait negative And this is why we're not
Speaker 9: in a situation where we see some dramatic change in
Speaker 9: the external environment or in friest pressures and so on.
Speaker 8: So steady is okay?
Speaker 5: Hold on a second, Are you saying that what we've
Speaker 5: seen with respect to US policy and the uncertainty isn't
Speaker 5: increasing the chance of session materially for the euroregion?
Speaker 9: Well, I mean, I think our overriding seam, of course
Speaker 9: is uncertainty, and let's not get ahead of ourselves in
Speaker 9: terms of being too sure about any any path for
Speaker 9: the economy. But I think the message is but it's
Speaker 9: not me dreaming it up. If you look at the
Speaker 9: external watchers, if you look at the IMF, it's fairly
Speaker 9: modest mark dance on the growth trade for the European economy.
Speaker 9: The US, of course has a major trade policy issue
Speaker 9: all with the world. We have a trade policy issue
Speaker 9: with the US. The US is an important trading partner,
Speaker 9: but it's not our only trading partner, so directionally it
Speaker 9: is a markdown. There is a markdown, but it's important
Speaker 9: to say. It's a markdown from a growth trade around
Speaker 9: zero nine to a little bit less. Let's see in
Speaker 9: the coming weeks how much less. And I think if
Speaker 9: you look at the surveys this week, the surveys have
Speaker 9: elements of people being concerned, but they also have elements.
Speaker 9: Right now, we're busy. Manufacturing is a bit busier than
Speaker 9: it was. That could be a little bit of front
Speaker 9: running of taris, for sure, but it's also remember the
Speaker 9: recovery narrative Europe what has been stagnating. The American economy
Speaker 9: has grown quickly, So if you like, in terms of
Speaker 9: if there was room for the American economy to decelerate,
Speaker 9: and then trade policy is adding to that. What I'm
Speaker 9: saying to you is essentially the baseline for Europe was
Speaker 9: to grow a bit more quickly, and so the resilience
Speaker 9: is there. You can take a trade hit without going
Speaker 9: to using that word which I of that you mentioned.
Speaker 1: You mentioned, of course, that Europe has more trading partners.
Speaker 6: Than the United States.
Speaker 1: How concerned are you that if the walls keep going
Speaker 1: up in the United States, China will have to just
Speaker 1: jump somewhere.
Speaker 6: It's going to be on the continent.
Speaker 9: So I think directly an element with that must be
Speaker 9: you know, must be expected. But I think you know,
Speaker 9: China fully understands that if you listen to their policy
Speaker 9: announcements they're going to do. Their focus is on improving
Speaker 9: domestic demand. So in terms of the reorientation from the US,
Speaker 9: I would allocator at fairmount to domestic demand, some amount
Speaker 9: to around the world. But I think also China understands
Speaker 9: it's a large economy and a bit of restraint in
Speaker 9: exporting may make sense.
Speaker 2: For the twenty seconds left, I just wanted to jump in.
Speaker 2: Olie Rain was busy this morning, your governing council partner,
Speaker 2: and he made the point that we should be open
Speaker 2: to larger interest rate cuts. Is that a position that
Speaker 2: you and the team agree with?
Speaker 9: Philosophically, we don't pre commit to any rate path, of course,
Speaker 9: and so this is why again it's important, and I
Speaker 9: think the Government Council, I think tries hard to maintain
Speaker 9: this is. You can express that in different ways, and
Speaker 9: in particular, there's no reason to say we're always going
Speaker 9: to do the default twenty five. Philosophically I agree with that. Okay,
Speaker 9: what I said to you earlier on.
Speaker 8: Is right now.
Speaker 9: The growth performance. I'm sure to be marked down. It's
Speaker 9: still a growing economy. We've replaced from I think to
Speaker 9: the downside. But we don't need to be too from.
Speaker 8: Out about equity futures.
Speaker 2: Right now in the SMP, just the touch soft that
Speaker 2: we're down by two tenths of one percent. Coming up
Speaker 2: this hour Franklin Templeton CEO Jenny Johnson. Following back to
Speaker 2: back games for equities, we'll catch up with Carlos Querpo,
Speaker 2: the Trade and Economy Minister of Spain, on a US
Speaker 2: EU trade deal and the standard chart of Chair Jose
Speaker 2: Vines on the potential for lower levees on China. We
Speaker 2: begin this now with stocks lower as investors away clarity
Speaker 2: on trade talks. Jenny Johnson, the CEO of Franklin Templeton,
Speaker 2: one of the world's largest investment managers, joined us now
Speaker 2: for more.
Speaker 8: Jenny, it's good to see you.
Speaker 6: It's great to be here. Thanks for having me.
Speaker 2: Things have changed a lot since we caught up with
Speaker 2: you in Davos, Switzerland. So a lot of optimism, you
Speaker 2: remember it everyone with us, exceptionalism well strength, lots of
Speaker 2: hiring markets are great.
Speaker 8: There's a change the law. Have they change for you.
Speaker 10: Well, you know, I actually we talked about it at
Speaker 10: the time. You know, I think that you have to
Speaker 10: think through kind of where the president is.
Speaker 6: Right, He's come in with a plan. He's been very clear.
Speaker 10: Right, it's taxes, immigration, tariffs, government efficiency and deregulation, right
Speaker 10: and so, and he has about a year and a
Speaker 10: half to get those things done before the midterms come in.
Speaker 10: And so you know, from the tariff standpoint, again, he's
Speaker 10: a deal maker. So when you are trying to make
Speaker 10: a deal, you need to show that you are in
Speaker 10: the position of strength, right, So a lot of this
Speaker 10: blistering is around I'm in a position of strength and
Speaker 10: you're going to have to bow to my will. I
Speaker 10: think the challenge has been there are some unintended consequences
Speaker 10: of that. I was talking to somebody yesterday about Canadians.
Speaker 6: They're so they're not.
Speaker 10: Upset about the terroiff, they're upset about the fifty first
Speaker 10: state comment and that Airbnbs in Rhode Island are down
Speaker 10: because the Canadians say, I'm not going to come visit
Speaker 10: the US. So those are the under tenant consequences. The
Speaker 10: other piece of this is he needs the tax revenues
Speaker 10: identified in tariffs to help fund his tax cuts, which,
Speaker 10: by the way, are not tax cuts really, they're extensions.
Speaker 10: And if we don't get that extension, there is a
Speaker 10: massive tax increase that happens, which really becomes an issue
Speaker 10: around the economy.
Speaker 2: Can you describe how you and the same thing the
Speaker 2: endgame looks like? What do you think it looks like?
Speaker 2: Because some people have described the last few weeks as madness.
Speaker 8: Is there a method to it?
Speaker 6: Yeah?
Speaker 10: So I think what we hope to see, you'd like
Speaker 10: to see a couple of deals done right, to show
Speaker 10: that he's willing to come to the table and make
Speaker 10: a deal.
Speaker 4: Right.
Speaker 6: So if we can see a deal with.
Speaker 10: Japan or Vietnam or you know, somewhere, to show no, no, no,
Speaker 10: he's playing his deals.
Speaker 6: You'd like to know who is responsible.
Speaker 10: Remember it was Paul Ryan who ushered the first tax
Speaker 10: cuts through, Like who's responsible for ushering that legislation through
Speaker 10: and champion that?
Speaker 6: That will be very.
Speaker 10: Important because he's got to get those done and the
Speaker 10: question is how quickly can he get it done to
Speaker 10: calm the markets because what we've seen is, you know,
Speaker 10: look at you when you suddenly have CEOs who say
Speaker 10: I can't give guidance because there's so much uncertainty. That
Speaker 10: uncertainty makes them fear, and then they stop making investments.
Speaker 10: If you stop making investments, it slows down the economy. Right,
Speaker 10: So I think what we need to see in the
Speaker 10: next ninety days is some clarity in the meantime uncertainty.
Speaker 5: It leads to a lot of conspiracy theories and lots
Speaker 5: of other types of speculation. As someone who oversees one
Speaker 5: and a half trillion dollars of assets, how much of
Speaker 5: a material shift have you seen with customers, consumers shifting
Speaker 5: just slightly away from US assets to insulate from some
Speaker 5: of the whip siwing and the uncertainty.
Speaker 10: You definitely see, you know, non Americans reducing on the
Speaker 10: institutional side some of their exposure to US equities.
Speaker 6: Okay, so we've seen that a bit.
Speaker 10: But on your hand, you know, you sort of you
Speaker 10: if you are in the market now, this is not
Speaker 10: the time we get out of the market, right, you
Speaker 10: need to play this out. And if you hadn't made
Speaker 10: the trade to being in more defensive stock, then there's
Speaker 10: no point in doing that now, right, because you've already
Speaker 10: sort of missed it. So you know, the reality is AI.
Speaker 10: I actually played around this weekend with an app called
Speaker 10: replet where you can just use natural language processing to
Speaker 10: have it code and generate an app for you. Like
Speaker 10: the efficiencies are come from AI, we haven't seen those
Speaker 10: kind of productivity gains yet. The productivity gains that we're
Speaker 10: seeing are coming from technologies that came out twenty years ago,
Speaker 10: and so as those things play into companies, I think
Speaker 10: you'll see real opportunity.
Speaker 5: You know, one thing that I hear from you, and
Speaker 5: I heard from Mike Wilson of Morgan Stanley earlier this morning,
Speaker 5: was that corporate America has a lot of good about
Speaker 5: it in terms of strength, in terms of resilience, in
Speaker 5: terms of technological progress. It's the question about other dollar
Speaker 5: denominated assets, and I'm talking about treasuries. I'm talking about
Speaker 5: government debt, especially given some of what you were talking
Speaker 5: about with respect to who is driving some of these
Speaker 5: budget proposals through Congress.
Speaker 6: That really is the issue.
Speaker 5: How much have you seen that bid get called into
Speaker 5: question as institutions, particularly foreign ones, move away.
Speaker 10: I think there's a question of you know, how much
Speaker 10: are you know, foreign governments pulling away from treasuries and
Speaker 10: you know, is that is that what we're seeing the
Speaker 10: treasury market or are we seeing the unwinding of the
Speaker 10: basis point?
Speaker 6: They are the basis.
Speaker 10: Trade and so you know, look, then the question falls
Speaker 10: into well is the reserve US as the reserve currency?
Speaker 6: At question? Look, is not where else you going to go?
Speaker 3: Right?
Speaker 10: The US is going to be the reserve currency. People
Speaker 10: will say, well, China trade has gone up to two percent. Yeah,
Speaker 10: it's gone from four to six percent of trade, right,
Speaker 10: you know, it'll chip away at it, but we are
Speaker 10: still going to continue to be the reserve currency.
Speaker 1: You mentioned a lot of non US investors pulling back
Speaker 1: from the United States. Morning Star had research out this
Speaker 1: week that said some of that is actually patriotic rebalancing
Speaker 1: from capital from America to Europe. Do you think it's
Speaker 1: that emotional for some.
Speaker 10: Of these people, Well, you know, just again talking to
Speaker 10: folks from Canada who are so fundamentally offended by the
Speaker 10: comment of you know, the fifty first state. Yeah, it's emotional, right,
Speaker 10: they kind of get it on the trade and tariffs
Speaker 10: and we can deal and you want help on immigration.
Speaker 10: But a comment like that has obviously had that kind
Speaker 10: of nationalists response.
Speaker 1: One are the long term impacts of feelings like that.
Speaker 10: You know, who's at a dinner last night, we're you know, debating.
Speaker 10: Does that push Europe to China?
Speaker 6: I don't think it, you know, obviously.
Speaker 10: I think what it does is there's the joke of
Speaker 10: you know, it's not Mega, it's Mega make Europe great again, right.
Speaker 6: It forces Europe.
Speaker 10: To do things like more defense independence, more energy independence. Look,
Speaker 10: there's been a lot of brilliant talent in Europe. Why
Speaker 10: are we not seeing these unicorn companies from a technological
Speaker 10: and a lot of people say it's the regulation and
Speaker 10: it's some of the policies that they have in Europe.
Speaker 10: And so if this forces Europe to be more resilient
Speaker 10: on its own, that's actually a good thing for Europe.
Speaker 10: I don't think it necessarily. They don't suddenly trust China
Speaker 10: much more. They're already trading with China. But it forces
Speaker 10: them to say, you know what, we have to we
Speaker 10: have to stand on our own a little bit more.
Speaker 2: It's why we're seeing some invest this rebalance towards Europe
Speaker 2: since the start of the year. I wanted to build
Speaker 2: on some of Lisa's questions, and I think this is
Speaker 2: an important line of questioning at the moment, some investors
Speaker 2: aren't drawing a distinction between risk assets in America and
Speaker 2: the safe have an asset in America, it's training as
Speaker 2: one bucket.
Speaker 8: Dollar denominated assets.
Speaker 2: And I wonder from your perspective, when that Ian dynamic
Speaker 2: starts to take hold of the country, whether that's a
Speaker 2: risk you need to actively manage or a dislocation you
Speaker 2: take advantage of.
Speaker 8: Which one is it at the moment?
Speaker 10: Well, I think anytime that it becomes a risk on
Speaker 10: risk off in a big block, and yet you know,
Speaker 10: the underlying fundamentals are different in kind of an investment,
Speaker 10: that actually becomes a great investment opportunity.
Speaker 6: So I think you have to look at it and
Speaker 6: unpack those Do.
Speaker 2: You think that's what this is right now and it's
Speaker 2: the opportunity in stocks or bonds?
Speaker 8: With that in.
Speaker 10: Mind, I think you know, right now it's almost a
Speaker 10: market reacting to just a headline statement, right, and so
Speaker 10: it's really sort of on and off. It's a risk
Speaker 10: on risk off. I think that from a you know,
Speaker 10: the dollar was someon would say over valued, who knows, right,
Speaker 10: and it's come down a fair bit. I think there
Speaker 10: are a lot of people that were the US the
Speaker 10: debt and the deficit. You know, thought that it was overvalued,
Speaker 10: and so probably in this there's a little bit of
Speaker 10: that coming, you know, some of that frightingness coming off.
Speaker 2: What's your advice to people right now who were part
Speaker 2: of that dollar bit. They've built up that massive dollar
Speaker 2: long over the period of a decade across asset classes,
Speaker 2: in both equities and fixed income, and they're nervous about
Speaker 2: the policy in Washington and looking to reallocate.
Speaker 8: What do you suggesting they do?
Speaker 10: I think it depends on where If you're a dollar
Speaker 10: based economy, I think that's okay, you don't have to
Speaker 10: worry about that. If you're not a dollar based economy,
Speaker 10: you have to understand how that's going to impact your investments.
Speaker 2: Certainly been something that the Europeans about to think about
Speaker 2: over the last few months, that's for sure. Jenny, it's
Speaker 2: good to see you lost to talk about. I can't
Speaker 2: imagine how much has changed the next time we spoke.
Speaker 2: I speak Jenny Johnson. There the Franklin Templeton CEO on
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Speaker 5: MHM