WEBVTT - Bloomberg Surveillance TV: February 11, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:36.839 Bloomberg Terminal and the Bloomberg Business app. Ad Mills of 0:00:36.880 --> 0:00:39.200 Raymond James joins us now for more, and let's continue 0:00:39.200 --> 0:00:42.000 the conversation we started with here the big tariffs on 0:00:42.080 --> 0:00:45.920 steel and aluminum and whether there will be any carve outs. 0:00:45.920 --> 0:00:47.440 What's your base case on that one? 0:00:48.080 --> 0:00:50.400 I think the base cases know. I think that the 0:00:50.440 --> 0:00:52.640 base cases that they go up from here, John, and 0:00:52.680 --> 0:00:55.200 I think you are one hundred percent right saying that 0:00:55.440 --> 0:00:58.280 there's all these expectations out there that they're not coming. 0:00:58.680 --> 0:00:59.360 They're coming. 0:00:59.800 --> 0:01:02.640 And I think it's really instructive to look exactly what 0:01:02.760 --> 0:01:06.480 happened with the announcements on Canada, Mexico and China. The 0:01:06.600 --> 0:01:10.360 Chinese tariffs are in and then we move away from 0:01:10.400 --> 0:01:12.800 the kind of Mexico and Canada tariffs, and then we 0:01:12.920 --> 0:01:16.200 put on a tariff on what is the largest imports 0:01:16.240 --> 0:01:19.560 from Canada and Mexico on steel, And this is something 0:01:19.600 --> 0:01:21.520 the Biden administration was doing. One of the things that 0:01:21.560 --> 0:01:24.840 we're concerned about is the Mexico back door, the fact 0:01:24.840 --> 0:01:28.120 that a lot of Chinese steel goes to Mexico or 0:01:28.160 --> 0:01:30.520 Canada and then gets imported into the United. 0:01:30.280 --> 0:01:31.640 States without a tariff. 0:01:31.680 --> 0:01:34.520 So my expectation is that this is happening and it 0:01:34.680 --> 0:01:36.000 only escalates from here. 0:01:36.319 --> 0:01:38.800 So if this happens a knee stick twenty five percent 0:01:38.840 --> 0:01:42.039 on aluminum and twenty five percent on steel by March twelfth, 0:01:42.319 --> 0:01:44.399 what are we supposed to expect when it comes to 0:01:44.440 --> 0:01:46.280 reciprocal tariffs that Trump says we're going to get in 0:01:46.319 --> 0:01:47.080 the next day or two. 0:01:48.640 --> 0:01:50.160 I think that what we're going to see is that 0:01:50.320 --> 0:01:52.800 what you've seen the administration talk about is that what 0:01:53.000 --> 0:01:55.800 are the average tariffs? So on the UK, there's an 0:01:55.800 --> 0:01:58.240 average tariff of four and a half percent for US goods. 0:01:58.680 --> 0:02:01.800 We'll probably put that on the UK. For India it's 0:02:01.880 --> 0:02:05.160 eighteen percent. When I've talked to folks within the administration. 0:02:05.200 --> 0:02:07.400 When I've talked to folks who are the trade experts 0:02:07.440 --> 0:02:10.440 who work for him previously, what they always tell me 0:02:11.000 --> 0:02:13.040 is that as long as the other country is willing 0:02:13.080 --> 0:02:16.040 to drop their tariffs to match our tariffs, then they 0:02:16.080 --> 0:02:17.160 don't go into effect. 0:02:17.720 --> 0:02:19.880 But that's a kind of a push. 0:02:19.520 --> 0:02:22.880 Here to make sure that what we get tariffed versus 0:02:22.960 --> 0:02:25.440 what they pay is exactly the same. 0:02:25.440 --> 0:02:25.840 Memory. 0:02:25.960 --> 0:02:27.359 So, ed, who do you think's lining up to try 0:02:27.400 --> 0:02:29.160 and drop their terror first? 0:02:30.320 --> 0:02:32.960 I don't know if we get that kind of immediately. 0:02:33.400 --> 0:02:35.800 It does seem like India is top of the list 0:02:36.440 --> 0:02:39.160 kind of within the focus of the Trump administration. I 0:02:39.200 --> 0:02:41.760 am certainly looking to see if kind of Europe is 0:02:41.800 --> 0:02:44.119 willing to do this. I do think when I've talked 0:02:44.160 --> 0:02:47.959 to other strategists and other folks who are informing foreign governments, 0:02:48.160 --> 0:02:50.560 one of the big concerns that I hear from them 0:02:50.680 --> 0:02:54.600 is that maybe they offer up something and then Trump 0:02:54.680 --> 0:02:59.000 embarrasses them, which is absolutely part of the negotiating strategy. 0:02:59.000 --> 0:03:01.440 You look back to twenty eight eighteen, we put steel 0:03:01.440 --> 0:03:04.840 and aluminum tariffs on in the first Trump administration. Over 0:03:04.880 --> 0:03:07.800 the next couple of years, Trump worked out deals to 0:03:07.919 --> 0:03:11.280 remove those tariffs. Look at a deal with Australia. Those 0:03:11.400 --> 0:03:14.400 now are kind of blown up. If a country makes 0:03:14.440 --> 0:03:17.600 a deal, can they actually see Trump follow through at 0:03:17.600 --> 0:03:20.320 this or does he come on top and do something different, 0:03:20.560 --> 0:03:22.600 Which makes it hard to want to be the first 0:03:22.600 --> 0:03:24.760 one that lines up and tries to do something to 0:03:24.800 --> 0:03:26.000 stop this ed. 0:03:26.320 --> 0:03:29.320 The market has been pretty sanguine right now. Stocks aren't 0:03:29.360 --> 0:03:33.600 really responding in a significant kind of way. Julian Emanuel 0:03:33.639 --> 0:03:37.040 have ever core ISSI. So this will only actually encourage 0:03:37.040 --> 0:03:40.640 the president to go further and be more aggressive with tariffs. 0:03:40.720 --> 0:03:44.760 Do you agree that's what we saw on the first term, Lisa. 0:03:44.840 --> 0:03:48.920 We saw that whenever he was aggressive in the market 0:03:49.680 --> 0:03:50.480 was okay with that. 0:03:50.800 --> 0:03:53.680 He doubled down, he tripled down. It was only when the. 0:03:53.640 --> 0:03:57.560 Market sold off ten to fifteen percent where we would 0:03:57.600 --> 0:03:59.880 get kind of a tweet out there or a state 0:04:00.240 --> 0:04:01.839 that there was progress being made. 0:04:02.520 --> 0:04:03.840 That would be my expectation. 0:04:04.000 --> 0:04:07.720 Again, we've entered into a new Trump put on the market, 0:04:07.760 --> 0:04:10.280 which is, let's look at what's going on within the 0:04:10.320 --> 0:04:13.240 bond market. If we see yields kind of on the 0:04:13.400 --> 0:04:15.480 long end of the curve really start to blow out, 0:04:15.720 --> 0:04:18.440 that would be a binding constraint from him, but certainly 0:04:18.520 --> 0:04:22.120 to the extent that there is not a negative reaction, 0:04:22.640 --> 0:04:25.840 he feels emboldened. And this is one of the problems 0:04:25.880 --> 0:04:28.960 with the market right now is that they live through 0:04:29.000 --> 0:04:32.240 Trump one point zero and therefore have this expectation that 0:04:32.279 --> 0:04:35.640 if it gets bad, he reversus course, and so we're 0:04:35.720 --> 0:04:38.560 kind of stuck in this feedback loop of no one 0:04:38.600 --> 0:04:41.560 wants to be the first person to sell because there's 0:04:41.600 --> 0:04:44.080 going to be a reversal, and therefore people are kind 0:04:44.120 --> 0:04:47.279 of sticking with this a lot longer than they normally would. 0:04:47.800 --> 0:04:49.720 But that threat doesn't mean it's gone away. 0:04:49.960 --> 0:04:52.719 So you think that when people realize that these tariffs 0:04:52.720 --> 0:04:55.200 are for real, that there actually will be a whole 0:04:55.200 --> 0:04:58.040 host of pressure that maybe we're not seeing right now 0:04:58.040 --> 0:04:59.560 because people aren't taking things seriously. 0:04:59.600 --> 0:05:00.000 Is that right? 0:05:00.960 --> 0:05:03.040 I think that is right, but I would layer in, 0:05:03.240 --> 0:05:05.839 let's see what else is happening. So in the first term, 0:05:05.920 --> 0:05:09.440 there was a massive push for deregulation, or that was 0:05:09.480 --> 0:05:12.680 one of the stories, and that didn't get realized. We've 0:05:12.760 --> 0:05:16.719 already seen this week a takeover of the CFPB. We 0:05:16.839 --> 0:05:20.320 have an aggressive action to try to shut that down. 0:05:20.720 --> 0:05:24.599 That's greater than any regulatory action that was taken in 0:05:24.640 --> 0:05:27.920 his first term, and we're already only in the first month. 0:05:28.240 --> 0:05:31.400 So if there is those deregulatory tail winds, if the 0:05:31.440 --> 0:05:34.599 Trump tax cuts get made permanent, if they add to 0:05:34.640 --> 0:05:37.960 those Trump tax cuts, if the dollar remains strong, if 0:05:38.080 --> 0:05:42.360 exports kind of are rebounding because of these trade kind 0:05:42.360 --> 0:05:45.760 of restrictions, then the market can hold in there. But 0:05:45.880 --> 0:05:48.080 if it is tariffs and only terriffs, and we have 0:05:48.120 --> 0:05:50.760 inflationary pressures in the ten year blows. 0:05:50.520 --> 0:05:52.400 Out the FED is thinking. 0:05:52.279 --> 0:05:55.680 About raising rates, that's when we have the negative market reaction. 0:05:56.040 --> 0:05:56.120 Ed. 0:05:56.160 --> 0:05:58.359 I appreciate you time, sir, going to say at most 0:05:58.360 --> 0:06:10.800 that of Raymond Chang Stefal County of UBS writing we 0:06:10.800 --> 0:06:13.359 look for longer term bull state with two FED cuts 0:06:13.360 --> 0:06:15.680 in the second half of twenty twenty five, less they 0:06:15.760 --> 0:06:17.359 joined us. Now for more, Leslie, it's good to see you. 0:06:17.480 --> 0:06:19.560 Last time we caught up towards the end of last year. 0:06:19.920 --> 0:06:22.760 You were looking for I think four in twenty twenty five. 0:06:22.800 --> 0:06:25.600 What's changed things the data or the prospect the policy 0:06:25.680 --> 0:06:26.800 might change too well. 0:06:26.800 --> 0:06:29.360 We were looking for for prior to the December FED 0:06:29.400 --> 0:06:31.680 meeting and then we actually cut it back to that too. 0:06:31.760 --> 0:06:34.160 And obviously growth is well, what was much, you know, 0:06:34.200 --> 0:06:36.200 greater than we expected. Inflation turned out to be a 0:06:36.240 --> 0:06:38.240 little bit more sticky. But we are still looking for 0:06:38.279 --> 0:06:40.440 two cuts. And you know, we do think that this 0:06:40.760 --> 0:06:44.719 disinflation trend, while it might be stalled, it's not completely drilled. 0:06:44.920 --> 0:06:46.840 So we are looking for inflation to continue to come 0:06:46.839 --> 0:06:48.520 down and more than likely the FED cuts in the 0:06:48.520 --> 0:06:49.280 second half of the year. 0:06:49.880 --> 0:06:52.599 Is it because of policy though, back to John's question, 0:06:52.800 --> 0:06:55.039 or is it because just there is more momentum in 0:06:55.080 --> 0:06:58.120 the underlying economy than a lot of people expected before 0:06:58.120 --> 0:06:59.240 December of last year. 0:06:59.320 --> 0:07:01.560 Well, and there's definitely more momentum if you look at 0:07:01.600 --> 0:07:03.320 some of these GDP growth numbers, if you look at 0:07:03.320 --> 0:07:06.360 consumer spending in the fourth quarter, even the first quarter 0:07:06.400 --> 0:07:08.760 of Lanta, FED now is at like two point eight percent, 0:07:08.880 --> 0:07:11.520 so and the labor market remains strong. So there is 0:07:11.560 --> 0:07:14.880 obviously growth has been this much stronger than anticipated. But 0:07:14.920 --> 0:07:16.600 I think when people say the FED is on hold, 0:07:17.000 --> 0:07:18.760 that's prisoning of the marketplace. I mean the market. The 0:07:18.800 --> 0:07:20.800 market this morning is only pricing in about thirty thirty 0:07:20.840 --> 0:07:23.400 five basis points of cuts for twenty twenty five, So 0:07:23.480 --> 0:07:25.880 I think that you hold for longer is there. We 0:07:26.000 --> 0:07:27.840 just think the market's getting a little bit too hawkish 0:07:27.920 --> 0:07:29.240 right now, so we're still looking for two in the 0:07:29.280 --> 0:07:29.800 second half. 0:07:30.000 --> 0:07:32.280 When you talk about a bull steepener, it kind of 0:07:32.280 --> 0:07:34.240 goes against what we're seeing right now in the market. 0:07:34.280 --> 0:07:36.120 To your point, and you say that the market's a 0:07:36.120 --> 0:07:39.800 little bit incorrect with its pricing in of policy staying 0:07:39.800 --> 0:07:42.280 where it is. There is this belief that in the 0:07:42.360 --> 0:07:46.320 short term and two year and five year types of timeframes, 0:07:46.360 --> 0:07:48.720 you're going to see inflation move up because of tariffs, 0:07:48.760 --> 0:07:51.400 because of policy, but over the longer term you'll see 0:07:51.440 --> 0:07:54.160 inflation come back down and you'll see the sense of 0:07:54.360 --> 0:07:58.440 slower growth. Do you reject that narrative, that scenario. 0:07:58.680 --> 0:07:59.040 I don't. 0:07:59.080 --> 0:08:01.040 I think the market's doing it exactly what we expected 0:08:01.080 --> 0:08:02.760 to do. I mean, the bull steeper won't come until 0:08:02.800 --> 0:08:05.160 the Fed actually cuts. Having this flatter right now is 0:08:05.160 --> 0:08:07.600 what you would anticipate, given you know, the tariffs that 0:08:07.600 --> 0:08:10.840 we're saying, the fact that you mentioned earlier inflation expectations, 0:08:10.880 --> 0:08:13.080 you know in the break evens, which is exactly the 0:08:13.120 --> 0:08:15.559 floor plan that we saw from Trump one point zero. 0:08:15.720 --> 0:08:18.320 So what happens is you have these inflation expectations rise. 0:08:18.640 --> 0:08:20.960 You know, they take the cuts out two year goes up, 0:08:21.000 --> 0:08:23.840 the curve flattens. But the latter part, when you actually 0:08:23.880 --> 0:08:25.960 see some of the growth impact, the FED cuts and 0:08:26.000 --> 0:08:27.840 you bull steep it. So I think the path is 0:08:27.880 --> 0:08:28.960 exactly what we would expect. 0:08:29.000 --> 0:08:31.800 Well, what if you do see material inflation with all 0:08:31.800 --> 0:08:34.840 these tariff concerns, but then also a tighter labor market 0:08:34.880 --> 0:08:37.600 potentially because of what Trump is doing on the immigration front. 0:08:38.000 --> 0:08:39.880 Is that what could up end your thesis for two 0:08:39.880 --> 0:08:41.160 cuts in the back half of the year. 0:08:41.360 --> 0:08:43.320 Yeah, I mean we're not looking for a stagflation scenario. 0:08:43.400 --> 0:08:45.439 I mean I think that you know, the FED is 0:08:45.480 --> 0:08:47.319 going to look at that long term inflation sterario, which 0:08:47.360 --> 0:08:50.880 has been fairly anchored. You know, we don't think that 0:08:50.960 --> 0:08:53.000 inflation is going to stay as sticky as what people think. 0:08:53.000 --> 0:08:55.120 We do think this is one time price increases that 0:08:55.120 --> 0:08:57.680 the FED does look through. So we're not thinking right 0:08:57.720 --> 0:09:01.640 now from what we've seen, unless it's organic, grown, fundamentally 0:09:01.640 --> 0:09:05.040 consumer driven inflation kind of reacceleration, we don't think it's 0:09:05.040 --> 0:09:06.080 going to alter the Fed's path. 0:09:06.200 --> 0:09:07.640 What are you hoping to hear from Powell today. 0:09:08.160 --> 0:09:09.559 I don't think we're going to hear very much. I 0:09:09.960 --> 0:09:11.840 think it's going to be a question about inflation, there's 0:09:11.840 --> 0:09:13.800 no question. But remember, I mean even in the December 0:09:13.840 --> 0:09:16.280 meeting they pushed their target of two percent from twenty 0:09:16.280 --> 0:09:19.000 six to twenty seven, So they've pushed that out right. 0:09:19.080 --> 0:09:22.120 And I think he's explained enough in terms of the 0:09:22.160 --> 0:09:24.840 recent commentary, which I mean the last FED meeting was very. 0:09:26.160 --> 0:09:26.480 Boring. 0:09:26.480 --> 0:09:28.360 In my opinion, He's going to wait for the data. 0:09:28.360 --> 0:09:30.200 He's going to see what happens in terms of inflation. 0:09:30.240 --> 0:09:32.000 But I don't think that he's really going to alter 0:09:32.080 --> 0:09:34.200 his rhetoric that what we saw in the last FED meeting. 0:09:34.240 --> 0:09:35.400 When it comes to taris, I think a lot of 0:09:35.440 --> 0:09:37.400 economists would agree with you. A lot of economists on 0:09:37.440 --> 0:09:39.440 Wall Street to the Federal Reserve would choose to look 0:09:39.480 --> 0:09:41.680 through any price level impact and see it as a 0:09:41.679 --> 0:09:44.200 one off. What would constrain that is an important question, 0:09:44.240 --> 0:09:46.000 though in Deutsche Bank said the following their a bitter 0:09:46.040 --> 0:09:48.760 seat to do so could be constrained if inflation expectations 0:09:48.800 --> 0:09:51.480 begin to rise and all the labor market re emerges 0:09:51.520 --> 0:09:54.480 as an additional source of inflationary pressure. Have we had 0:09:54.520 --> 0:09:56.800 any evidence of that, seen any evidence of that in 0:09:56.800 --> 0:09:59.480 the days we got on Friday on you Mitch and 0:09:59.520 --> 0:10:00.880 in the jobs report, was in. 0:10:00.880 --> 0:10:02.079 The way to say that we got on Friday was 0:10:02.080 --> 0:10:04.240 actually stronger than expected. And I think when you think 0:10:04.280 --> 0:10:07.640 about the policies as a whole, we don't know the 0:10:07.679 --> 0:10:09.599 impact of say immigration with them we'd have in the 0:10:09.640 --> 0:10:11.640 labor market or inflation. We don't know what some of 0:10:11.679 --> 0:10:13.319 these policy impacts. 0:10:12.960 --> 0:10:13.560 Are going to be. 0:10:14.120 --> 0:10:16.559 But we're still looking for in our opinion, labor markets 0:10:16.720 --> 0:10:19.160 to stay strong and growth to stay above trend. We 0:10:19.320 --> 0:10:21.760 just don't think it's going to force them to completely, 0:10:22.040 --> 0:10:24.559 you know, stay on the sidelines. And we especially don't 0:10:24.559 --> 0:10:26.640 think they're going to force a hike in the near term. 0:10:27.240 --> 0:10:29.679 Constraining the bus to waize versus forcing a hiker two 0:10:29.720 --> 0:10:31.959 separate things. I think constraining the bustu weize, I think 0:10:31.960 --> 0:10:34.200 would be sufficient to spook investors, Which is why I 0:10:34.200 --> 0:10:36.559 think this price sanction that we got on Friday was 0:10:36.600 --> 0:10:38.480 some material off the back of what we saw in 0:10:38.520 --> 0:10:41.480 you metch together with the wage report, the hotter than 0:10:41.520 --> 0:10:45.199 expected wages with inflation expectations in chin Kaya or be 0:10:45.280 --> 0:10:48.080 it not confirmed by the New York Feds release yesterday. 0:10:48.280 --> 0:10:50.240 It's enough, it's sufficient just to keep people on. 0:10:50.280 --> 0:10:52.320 Edge because there's no reason for the FED to move 0:10:52.600 --> 0:10:54.439 right now. There has been no data that would really 0:10:54.520 --> 0:10:57.960 push the FED off the shelf where they're very happy 0:10:58.000 --> 0:10:59.800 to remain out of the fray, out of the political 0:11:00.600 --> 0:11:02.840 and just saying pretty much nothing and being really boring. 0:11:02.880 --> 0:11:05.240 And so I think ultimately what you're going to get, 0:11:05.280 --> 0:11:07.080 and I think that your point is a salient one, 0:11:07.360 --> 0:11:10.280 which is the removal of the option of cutting or 0:11:10.320 --> 0:11:11.440 the potential for cutting, is. 0:11:11.480 --> 0:11:12.679 Enough to spook this market. 0:11:12.960 --> 0:11:15.160 How much more would have to get priced in? Or 0:11:15.200 --> 0:11:17.000 is that the fully price scenario at this point? 0:11:17.080 --> 0:11:19.199 Even speaker if you think growth is slowing and no 0:11:19.360 --> 0:11:22.000 Dunta Runmack does Neil right in this. And I repeated 0:11:22.040 --> 0:11:23.720 this a little bit earlier, so I'll share it with 0:11:23.760 --> 0:11:25.680 you again in case you missed it. He thinks growth 0:11:25.720 --> 0:11:27.560 is slowing. He's worried about that. It was written his 0:11:27.600 --> 0:11:29.520 note that he put out yesterday, and he thinks growth 0:11:29.520 --> 0:11:31.040 is slowing while the FED is playing a game of 0:11:31.160 --> 0:11:34.240 chicken with a Trump administration. That's problematic. If you believe 0:11:34.240 --> 0:11:35.200 that's the case, you can. 0:11:35.120 --> 0:11:37.199 Tell a different story depending on what sector you look at. 0:11:37.280 --> 0:11:39.440 He's looking at the housing sector. But you listened to 0:11:39.440 --> 0:11:42.600 what McDonald said yesterday. They actually had an okay outlook. 0:11:42.640 --> 0:11:45.320 You saw a rally because they outperformed based on non 0:11:45.520 --> 0:11:48.400 US sales. But they said low income consumers in the 0:11:48.520 --> 0:11:51.400 US are still under pressure, and they said the overall 0:11:51.440 --> 0:11:54.840 market is pretty muted. The low income segment really is 0:11:54.920 --> 0:11:57.560 still feeling it, and that is a significant portion of 0:11:57.559 --> 0:12:00.000 their customer base. So that type of commentary is enough 0:12:00.000 --> 0:12:01.400 to keep certain people an. 0:12:01.559 --> 0:12:05.040 That's choiceful translated. That's some real detail. I hate the 0:12:05.040 --> 0:12:07.439 word choice it too. That's the detail that I think 0:12:07.440 --> 0:12:09.160 we need to hear from these companies. So let's it's 0:12:09.160 --> 0:12:10.840 good to see you as always. Thanks for being here, 0:12:10.920 --> 0:12:23.560 Leslie Falconio. There of ups most times. To Sarah Malic 0:12:23.600 --> 0:12:26.839 of moving. Sarah joins us now for more on financial market. Sarah, 0:12:26.960 --> 0:12:28.720 welcome to the program. I want to talk to you 0:12:28.760 --> 0:12:31.240 about Chairman Powell. A little bit later on, we heard 0:12:31.280 --> 0:12:33.240 from an economist just there that we could be talking 0:12:33.280 --> 0:12:36.000 about rate hikes later this year. Would you expect to 0:12:36.040 --> 0:12:37.040 be having that conversation. 0:12:38.320 --> 0:12:40.280 Well, I wouldn't take rate hikes off the table. But 0:12:40.440 --> 0:12:42.320 right now we are expecting for about one to two 0:12:42.440 --> 0:12:44.640 rate cuts this year. I mean what markets are hoping 0:12:44.720 --> 0:12:48.080 is for the dust to settle on tech and also terriffs. 0:12:48.080 --> 0:12:50.480 So if we're starting with technology, the concern of you're 0:12:50.480 --> 0:12:53.199 over tech earnings is the amount of spending that companies 0:12:53.200 --> 0:12:56.040 are doing on artificial intelligence and the impact that we've 0:12:56.080 --> 0:12:57.839 seen from deep c and the lower costs there, and 0:12:57.880 --> 0:13:01.120 I think markets are nervous. Are US tech means overspending 0:13:01.480 --> 0:13:04.080 on artificial intelligence and will we get the return on 0:13:04.200 --> 0:13:04.840 investment from that. 0:13:05.200 --> 0:13:07.719 On teriffs, the questions are around is this. 0:13:07.679 --> 0:13:10.920 A negotiation tactic? Are we going to have retaliation? And 0:13:10.960 --> 0:13:13.000 who's going to bear the burden of the higher cost 0:13:13.000 --> 0:13:15.600 of tariffs. I don't think it's just a negotiation tactic. 0:13:15.679 --> 0:13:17.880 I think we are going to see some retaliation and 0:13:17.920 --> 0:13:20.240 I think producers and consumers will bear the cost of 0:13:20.280 --> 0:13:22.480 higher tariffs. And the question of course around that is 0:13:22.480 --> 0:13:24.760 what does that mean for inflation? If you look at history, 0:13:25.040 --> 0:13:27.360 terriffs tend to cause a one time bump in inflation. 0:13:27.679 --> 0:13:30.840 Whether or not the federal look through that is yet 0:13:30.880 --> 0:13:32.120 for us to find out. 0:13:32.440 --> 0:13:34.719 So we've gone over a lot of things, whether it's 0:13:34.720 --> 0:13:37.079 the tech world, and we're talking about the tariffs and 0:13:37.120 --> 0:13:37.400 how it. 0:13:37.360 --> 0:13:38.680 All goes together. 0:13:39.080 --> 0:13:42.600 What's your framework for how you filter out some of 0:13:42.640 --> 0:13:45.520 the news that you get every day to understand how 0:13:45.559 --> 0:13:48.640 to prioritize either the proposals from the White House, the 0:13:48.679 --> 0:13:50.800 earnings that we're getting, or the economic data. 0:13:51.840 --> 0:13:54.320 Well, first we focus on fundamentals and looking at fourth 0:13:54.400 --> 0:13:57.280 quarter earnings. We're wrapping up earning season and they're going 0:13:57.320 --> 0:13:59.640 twelve percent year of year, so the US economy does 0:13:59.640 --> 0:14:00.280 remain straw. 0:14:00.480 --> 0:14:01.960 But then you have to look at valuations. 0:14:01.960 --> 0:14:04.160 And here's an interesting tidbit for this year that I 0:14:04.160 --> 0:14:07.400 think most investors didn't expect. European markets are out performing 0:14:07.480 --> 0:14:09.960 US markets. So why is that when we know European 0:14:10.000 --> 0:14:12.600 markets are cheaper. But that's because of the tech trade. 0:14:12.679 --> 0:14:14.920 Europe has much less disposure to tech and tech has 0:14:14.880 --> 0:14:17.800 struggled this year, so you're seeing EU outperform the US. 0:14:17.800 --> 0:14:19.560 And that's also due to US valuations. 0:14:19.560 --> 0:14:21.320 So we need to be conscious of the fact that 0:14:21.480 --> 0:14:24.440 US markets are trading at a twenty percent premium. You 0:14:24.520 --> 0:14:27.760 might say that's deservedly so because the strength of our economy. 0:14:27.880 --> 0:14:29.680 But going forward, of course, we have to think about 0:14:29.680 --> 0:14:32.000 this sticky inflation. What does that mean for the FED? 0:14:32.240 --> 0:14:35.600 Can the economy continue to chug along with higher tariffs? 0:14:35.880 --> 0:14:39.560 Also thinking about two other factors from the administration, taxes 0:14:39.600 --> 0:14:42.640 and deregulation, which are pro growth for the US. 0:14:42.760 --> 0:14:44.520 So areas that we're looking at that we like are 0:14:44.560 --> 0:14:46.560 small caps. Small caps in the US. 0:14:47.080 --> 0:14:49.600 I think they'll perform better with tax cuts that are 0:14:49.600 --> 0:14:52.760 more positive for the US economy, and deregulation should open 0:14:52.880 --> 0:14:55.400 up the m and a market that's good for small caps. 0:14:55.480 --> 0:14:57.800 So looking at those areas of the world where there's 0:14:57.840 --> 0:15:00.080 valuation support and fundamental. 0:14:59.640 --> 0:15:02.200 Support, I think that's going to be increasingly important this year. 0:15:02.280 --> 0:15:04.200 That's a pretty controversial call, Sarah. We've had a lot 0:15:04.240 --> 0:15:05.600 of people come on the show and say that they 0:15:05.640 --> 0:15:08.000 really don't like small caps because they have a narrow 0:15:08.040 --> 0:15:10.320 pathway to really be successful. 0:15:10.480 --> 0:15:11.440 How do you push back. 0:15:11.280 --> 0:15:13.040 Again, set at a time when a lot of people 0:15:13.080 --> 0:15:15.920 think it's a very real possibility that this sedule reserve 0:15:16.000 --> 0:15:17.680 isn't going to cut rates and that you're not going 0:15:17.720 --> 0:15:21.160 to necessarily get the tax cuts and other pro growth 0:15:21.200 --> 0:15:24.840 policies quickly enough to really give that boost to the sector. 0:15:25.880 --> 0:15:27.760 Well, oftentimes you make the most money when you go 0:15:27.800 --> 0:15:30.480 against consensus, So I'm often pleased to hear that other. 0:15:30.400 --> 0:15:31.720 People don't like that call. 0:15:32.840 --> 0:15:35.360 I think it's important not to just focus on valuations, 0:15:35.400 --> 0:15:38.360 because valuations can say cheap or expensive for a long 0:15:38.400 --> 0:15:40.560 time unless you have a catalyst. And that's the key 0:15:40.600 --> 0:15:42.960 with small caps here they're cheap, but finally they have 0:15:43.040 --> 0:15:45.400 that catalyst, and that is some of these policies from 0:15:45.440 --> 0:15:48.080 Trump that we expect tax cuts should help boost the 0:15:48.160 --> 0:15:51.440 US economy, help the consumer continue to spend, and create 0:15:51.480 --> 0:15:54.560 some operating leverage for the economy. We saw manufacturing data 0:15:54.600 --> 0:15:57.040 start to pick up last week, so that's also strong 0:15:57.200 --> 0:15:59.800 for operating leverage for the economy. Small caps that are 0:15:59.840 --> 0:16:03.000 more domestically oriented, don't forget about the strong dollar negative 0:16:03.040 --> 0:16:06.480 for multinationals, positive for domestic companies like small cap And 0:16:06.560 --> 0:16:09.120 of course, finally deregulation. I think that does help open 0:16:09.200 --> 0:16:11.640 up m and a positive for small companies that larger 0:16:11.640 --> 0:16:13.560 companies tend to look to buy. So those are the 0:16:13.600 --> 0:16:16.680 catalysts there to help finally close that valuation gap between 0:16:16.720 --> 0:16:17.920 smaller and larger companies. 0:16:18.040 --> 0:16:21.280 But are all catalysts created equal. We have tariffs today, 0:16:21.760 --> 0:16:25.560 tax cuts that's going to take months, especially when every 0:16:25.640 --> 0:16:29.080 congressman and congresswoman is king or Queen of the Hill 0:16:29.400 --> 0:16:32.000 and having tons of demands on what gets put in 0:16:32.040 --> 0:16:33.560 this reconciliation package. 0:16:34.720 --> 0:16:35.120 I agree. 0:16:35.120 --> 0:16:37.720 I mean, we have talk about tariffs today, but it's 0:16:37.760 --> 0:16:40.600 still a I think there's still a lot of negotiation left. 0:16:40.640 --> 0:16:42.640 We have to see what the retaliation looks like. And again, 0:16:42.680 --> 0:16:43.280 who's going to. 0:16:43.200 --> 0:16:44.800 Bear the burden of those tariffs? Is it going to 0:16:44.840 --> 0:16:47.160 be consumers or producers? But I do think tariffs are 0:16:47.200 --> 0:16:50.080 the wildcard this year. It is what everybody is talking about. 0:16:50.400 --> 0:16:52.320 It could be a serious issue for the economy, and 0:16:52.320 --> 0:16:54.960 how the Fed reacts to that could be important. Though 0:16:54.960 --> 0:16:57.160 our view is still though if it will get CPI 0:16:57.160 --> 0:17:00.080 and PPI data later this week, inflation is moderating. I 0:17:00.080 --> 0:17:02.280 think Defense still has the room to cut one or 0:17:02.320 --> 0:17:05.080 two times this year, as long as inflation doesn't reaccelerate. 0:17:05.440 --> 0:17:07.560 We mentioned when it comes to Europe and the tariffs, 0:17:07.640 --> 0:17:12.560 Ursula Vunderlin's QUI statement this morning about how it's unjustified 0:17:12.680 --> 0:17:17.080 and will not go unanswered will trigger firm and proportionate countermeasures. 0:17:17.480 --> 0:17:19.800 You started this chat talking about how the EU market 0:17:19.840 --> 0:17:22.280 beat the United States. Do you still think that's possible 0:17:22.320 --> 0:17:24.240 for the rest of the year. Given this potential tit 0:17:24.280 --> 0:17:27.560 for chap between Washington and Brussels, I. 0:17:27.480 --> 0:17:30.200