Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Towson Slock of Apollo joins the surround the table. Sawson,
Speaker 2: good morning, sir, It's good to see you morning. Can
Speaker 2: I ignore all that?
Speaker 3: Well, this is.
Speaker 4: A golden lug starting point for the FED, at least,
Speaker 4: I mean the dual mandate it says inflation should be too.
Speaker 4: We moved a little bit more in that direction, better
Speaker 4: than expected, and on jobless claims. We also had a
Speaker 4: label market that still is reasonably strong. So from that perspective,
Speaker 4: this is absolutely good news for the FED that we
Speaker 4: did not get yet any inflation surprise to the upside.
Speaker 4: But obviously we still have terriffs in the pipeline and
Speaker 4: what's left on the tariff front could still add as
Speaker 4: much as one percentage point to tariffs over the next
Speaker 4: I'm sorry to inflation over the next twelve months. So
Speaker 4: in that sense, this is backward looking. As Mike is saying,
Speaker 4: the risks are of course that there's now more upside
Speaker 4: coming to inflation.
Speaker 2: So this is the issue, and it's a sequencing Giessue,
Speaker 2: and I'd love to get your thoughts on it. So
Speaker 2: sentiments collapsed basically created over the past few months. What
Speaker 2: we've started to see with CPI is just a bit
Speaker 2: of softness that's encouraging. How long before we see the
Speaker 2: weakness in the output dates before we then say the
Speaker 2: higher prices in months to come?
Speaker 4: What comes before the other Well, let's think about how
Speaker 4: companies might respond to this.
Speaker 3: So now you know tariffs are coming.
Speaker 4: For example, if you think about Amazon, of the sellers
Speaker 4: on Amazon, seventy one percent they source their goods in China.
Speaker 4: So one very important aspect is that it will be
Speaker 4: visible for everyone the prices are going up on things
Speaker 4: that are imported, of course from China. So the conclusion
Speaker 4: to your question is how do you respond to that?
Speaker 4: Do you take your existing inventory and sell that at
Speaker 4: the old prices? Do you take your existing inventory and
Speaker 4: raise the price immediately? That profile will probably be individual
Speaker 4: for different companies, depending on the competitive situation, which sets
Speaker 4: are there in how sensitive they are to tariffs.
Speaker 3: So we just don't know.
Speaker 4: Yet what the impact will be and how quickly this
Speaker 4: will feed through. But we do know that higher prices
Speaker 4: are coming as a result of goods coming from China
Speaker 4: becoming significantly more expensive. So even if companies decide to
Speaker 4: sell the existing inventory at the old price, we will
Speaker 4: over time see some outware pressure on goods infasion coming
Speaker 4: from this source.
Speaker 3: Is there that.
Speaker 5: We ignore this data at our own peril the idea
Speaker 5: that actually lower energy prices are giving more disposable income
Speaker 5: to consumers to potentially go out there and buy, and that,
Speaker 5: oh yeah, it's also an offset for a lot of
Speaker 5: potential producers in the US.
Speaker 4: Absolutely, low energy prices is very, very helpful for the consumer.
Speaker 4: But the other thing, of course, is that the whole
Speaker 4: surrounding sentiment around what's being going on is that we
Speaker 4: literally went from the last few days from nuclear winter,
Speaker 4: so now back to talking about stackflation and staflation.
Speaker 3: Has these risks of course, that you.
Speaker 4: Have hit winds from consumer sentiment being weak, corporate centimingly weak.
Speaker 4: If you look at the fit survey for Capex planning,
Speaker 4: they are really beginning to turn south. So companies are
Speaker 4: beginning to put back more likely because of the uncertainty.
Speaker 4: And let's not forget we still have a five trillion
Speaker 4: dollar net wealth effect on consumers from the stock market
Speaker 4: going down. So if I add this whole list together
Speaker 4: of week A corporate sentiment, week A consumer sentiment, tariff
Speaker 4: is coming and a negative wealth effect, and on top
Speaker 4: of that also retaliation from foreigners who might be doing
Speaker 4: things to us simply because of the trade wall that
Speaker 4: brings you a fairly long list of downside risks to
Speaker 4: the outlooker world.
Speaker 1: Which raises this issue of how we even game out
Speaker 1: the idea of inflation.
Speaker 3: Why potentially are we.
Speaker 1: Not talking about deflation or disinflation? And I say this
Speaker 1: given the fact that we see Walmart, for example, saying
Speaker 1: that they are going to invest in price competitiveness, basically
Speaker 1: they're going to absorb all of the costs from tariffs.
Speaker 5: At what point could potentially the lack of demand be
Speaker 5: the main story more than inflation.
Speaker 4: And that's why the key issue here is who is
Speaker 4: going to absorb the increase in tariffs?
Speaker 3: Who's going to absorb.
Speaker 4: The price increase in goods that are coming here, in
Speaker 4: particular from China.
Speaker 3: Is it going to be.
Speaker 4: Consumers that will face higher prices or is it going
Speaker 4: to be taking out of margins?
Speaker 3: Will the E in the pe ratio go down as
Speaker 3: a result of this?
Speaker 4: As companies such as Walmart, Costco, and of course Amazon
Speaker 4: begins to say, well, maybe we are going to absorb
Speaker 4: some of this and that remains to be seen exactly.
Speaker 3: Maybe it's going to be.
Speaker 4: Split across corporates and across consumers, but the bottom line
Speaker 4: still is that someone has to.
Speaker 3: Foot the bill when tariffs are going up.
Speaker 6: Wall Street Journal has this morning that the President privately
Speaker 6: acknowledged that his trained policies could potentially lead to a
Speaker 6: trigger a recession, but he said he wanted to make
Speaker 6: sure it didn't cause a depression. Where are you now
Speaker 6: in terms of potentially having a recession this year?
Speaker 4: So, of course the last few days, it was pretty
Speaker 4: clear that there would be a certain stop in the
Speaker 4: economy where prices would go up significantly, literally on all
Speaker 4: trading partners and everything coming in. So that was a
Speaker 4: scenario where a recession was very likely, almost at one
Speaker 4: hundred percent where we came from. Today, the recessiont probability
Speaker 4: is probably fifty to fifty percent, meaning we think that
Speaker 4: there is still a likelihood we will have a slow down,
Speaker 4: but the risk is we just don't know what the
Speaker 4: response is going to be from consumers, corporates, how much
Speaker 4: will markets go down further? In particular, this wealth effect
Speaker 4: on his own think about how we normally talk about
Speaker 4: when the stock market's going down. We go back to
Speaker 4: the spreadsheets and say, what's the marginal propensieses to consume?
Speaker 4: How does consumers react when the stock market goes down?
Speaker 4: Here on his own, the stock market down now five
Speaker 4: trillion so far, and of course now it's rebounding and
Speaker 4: then coming a little bit back again. That's, on its own,
Speaker 4: a fairly significant hit to consumers and the wealth effect
Speaker 4: for the Kajuma outlook,