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Speaker 2: He's dubbed himself tariff man, tariff, tariff, tariff. I am
Speaker 2: a tariff man.
Speaker 3: To me.
Speaker 1: The most beautiful word in the dictionary is tariff. Build
Speaker 1: your plant in the United States and you don't have
Speaker 1: any tariffs.
Speaker 2: That is, of course President elect Donald Trump. On the
Speaker 2: campaign trail, he's pledged to impose extra large tariffs on
Speaker 2: imports from China and medium sized ones for the rest
Speaker 2: of the world. If he had his way, the US
Speaker 2: would hark back to a nineteenth century Gilded Age model
Speaker 2: of small government funded largely by tariffs instead of income taxes,
Speaker 2: in which American barons of industry think about the people.
Speaker 2: Like Elon Musk during that time, built vast well thanks
Speaker 2: to protectionism and the privilege of limited competition. That rollout,
Speaker 2: though may be dramatic and bumpy. Sean Don and his
Speaker 2: Bloomberg New Senior economics writer. He writes about what a
Speaker 2: tariff rollout could look like for Business Week. Check it
Speaker 2: out at Bloomberg dot com and also on the Bloomberg terminal.
Speaker 2: He joins us from our Washington, DC bureau. So, Sean,
Speaker 2: if we go back to the first Trump administration, what
Speaker 2: can we learn about how Trump could roll out tariffs
Speaker 2: when it comes when he gets an office on January twentieth.
Speaker 4: Yeah, so, I think the first thing we learned from
Speaker 4: the first Trump administration is that yes, he does deliver
Speaker 4: on his promises, and yes there will be tariffs, but
Speaker 4: it's all the details that matter. And to get to
Speaker 4: those details, you're going to go through a period of
Speaker 4: chaotic policy making where you're going to see have some
Speaker 4: pretty heated debates between his advisors who often come from
Speaker 4: pretty different philosophical camps. And we are starting to see,
Speaker 4: we're less than a week out from the election, or
Speaker 4: just a week out from the election, a similar dynamic
Speaker 4: start to materialize.
Speaker 3: We'll talk to us two about the people that Trump
Speaker 3: is surrounding himself with. He by his own description, is
Speaker 3: tariff man, but he's also appointing and considering people who
Speaker 3: seem to share his views. You think about Robert Lighthouser Lightheiser,
Speaker 3: for example, potentially returning to his post.
Speaker 4: Right, So if Trump is tariff man, then his ideological
Speaker 4: advisor is Robert Litthheiser.
Speaker 3: Right.
Speaker 4: He is the guy who actually has the plan to
Speaker 4: deliver tariffs. He is a trade lawyer with decades in
Speaker 4: the business, decades of being a contrarian in Washington and
Speaker 4: acting as a protectionist, calling for a rebalancing of US
Speaker 4: tariffs with the world and for a crackdown on China.
Speaker 4: He's written a whole book in the last four years
Speaker 4: laying out a plan for how to tackle China and
Speaker 4: take on trade policy. And he's you're kind of true believer.
Speaker 4: But the kind of dynamic we're watching very carefully now
Speaker 4: is where he actually ends up in Trump's cabinet, or
Speaker 4: if he ends up in the cabinet at all, or
Speaker 4: if he ends up in a kind of advisory role
Speaker 4: that may have less power inside the White House, and
Speaker 4: who else ends up in the cabinet. One of the
Speaker 4: things we saw in the first Trump administration was a
Speaker 4: Wall Street guy in the Treasury in Stephn Minouchin, who
Speaker 4: pushed back against a lot of the tariff policy and
Speaker 4: the protectionist ideas that were being pushed by people like
Speaker 4: Robert Leitheiser. That's one of the reasons Robert Leitheiser has
Speaker 4: spent the last few months quietly trying to position himself
Speaker 4: to move into a post like the Treasury or the
Speaker 4: Commerce Department, which may have more power than the old
Speaker 4: US Trade Representative's office, which he inhabited during the first
Speaker 4: Trump administration.
Speaker 2: Sean, what's pretty incredible. We're already starting to see companies
Speaker 2: make announcements about potential price increases as a result of tariff's.
Speaker 2: One of the most read stories on the Bloomberg terminal
Speaker 2: this afternoon is about Stanley Blackendecker. They make craftsmen into
Speaker 2: walt tools. They're considering raising prices in response to higher
Speaker 2: tariffs that they expect to be imposed by President elect
Speaker 2: Donald Trump's administration. The company's CEO actually said in a
Speaker 2: call last month, it's unlikely that they're going to move
Speaker 2: a lot back to the US because it's not cost
Speaker 2: effective to do so, and there are questions about whether
Speaker 2: we even have the labor to actually do that in
Speaker 2: this country. The idea with some of these tariffs would
Speaker 2: be to move production back to the United States, but
Speaker 2: as we're seeing now that's not necessarily feasible for a
Speaker 2: lot of these companies.
Speaker 4: Yeah, and Stanley Black and Decker in that call, the
Speaker 4: CEO was saying that they started drafting a plan in
Speaker 4: the spring for Trump victory and possible tariffs, and they're
Speaker 4: not alone among companies to do that. We know that
Speaker 4: a lot of CEOs and businesses around the world, not
Speaker 4: just here in the United States, have been planning for
Speaker 4: this for months now, and also have had a lot
Speaker 4: of practice through the first Trump and mist also the
Speaker 4: pandemic and all the supply chain realignment that happened there
Speaker 4: the Biden administration and the push to kind of repatriate
Speaker 4: big production in semiconductors and electric vehicles, and the whole
Speaker 4: industrial policy push to encourage that. CEOs businesses today are
Speaker 4: very good at dealing with these things, and they've been
Speaker 4: kind of flexing those muscles for a while, and so
Speaker 4: they're in a different position than they were before twenty
Speaker 4: sixteen when Donald Trump was first elected. And there is
Speaker 4: a very real argument that the Stanley blackendecor seed is
Speaker 4: presenting there. In terms of the availability of labor, We've
Speaker 4: just had a couple of years. We're one of the
Speaker 4: big complaints from businesses is they don't have the workers
Speaker 4: to staff the factories that they're building and so on.
Speaker 4: And that's not going to change suddenly if Donald Trump
Speaker 4: moves into the White House, and especially not if he
Speaker 4: starts cracking down on immigration and deporting people.
Speaker 3: Right, well, let's talk a little bit more about that,
Speaker 3: because Tim I don't know if you know, but I
Speaker 3: am kershow called Open Interest nine to eleven am daily
Speaker 3: on Bloomberg Television, and Matt Miller has, to his credit,
Speaker 3: been obsessed with this question what happens to the labor
Speaker 3: market and what happens to inflation if we do see
Speaker 3: those types of mass deportations. Sean, what have you found
Speaker 3: in your research and your reporting so far?
Speaker 4: Yeah, So, Look, there's a lot of agreement among economists
Speaker 4: that tariffs add to costs for consumers and so that
Speaker 4: that will feed into inflation. And there's a lot of
Speaker 4: agreement from economists that if you start deporting people and
Speaker 4: reducing the number of people moving into the country and
Speaker 4: the labor force, that you're going to exacerbate some of
Speaker 4: the demographic challenges that the United States already has with
Speaker 4: all the baby boomers who are moving out of the workforce,
Speaker 4: and so on over the next few years. I think
Speaker 4: of the world today in one of the framings I
Speaker 4: think is the world is now engaging in the people wars.
Speaker 5: Right.
Speaker 4: Population is one of the great economic forces and one
Speaker 4: of the great economic advantages that the United States has
Speaker 4: had for many, many many years as a place that
Speaker 4: attracts immigrants. If you look at China now, it's got
Speaker 4: a declining population, It's got an aging population. Japan for
Speaker 4: years has been dealing with an aging population, Germany's dealing
Speaker 4: with an aging population, and so on. Within the United States,
Speaker 4: the places that are growing fasts are the places that
Speaker 4: are gaining population. The places that are in real trouble
Speaker 4: economically are those aging counties that just can't hang on
Speaker 4: to people. And when investors are looking to put a
Speaker 4: new factory into place, the first question they ask is
Speaker 4: where are the people? Where are my workers going to be? So,
Speaker 4: you know, all of these things coexist and they kind
Speaker 4: of collide, and that means we're going to see potentially
Speaker 4: more inflation. We're also going to see more strain in
Speaker 4: the labor market, and overall, perhaps a big hit to
Speaker 4: American competitiveness in the world.
Speaker 2: Sean, thanks so much for joining us. Really appreciate taking
Speaker 2: the time This afternoon, Everybody check out Sean's story. It's
Speaker 2: at Bloomberg dot com slash BusinessWeek. You can also read
Speaker 2: it on the Bloomberg terminal, all about the way that
Speaker 2: Donald Trump potentially will roll out tariffs come January when
Speaker 2: he does take office for a second time.
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Speaker 2: Well, Baguya Technology shares are taking a turn lower today.
Speaker 2: They were down at one point as much as forty percent.
Speaker 2: This after the company's third quarter network volume missed the
Speaker 2: average analyst estimates. Paguy is a fintech company that takes
Speaker 2: loans that lenders rejected, analyzes them using AI. It then
Speaker 2: consolidates them to sell to institutional investors. It counts Visa, Ally, Sofi,
Speaker 2: Us Bank, Klarna among its different partners. We've got with
Speaker 2: us gaul Krubiner, the company CEO. He joins us here
Speaker 2: in the Bloomberg BusinessWeek Studio. I want to talk a
Speaker 2: little bit about your view because you have a great
Speaker 2: idea of what the health of the consumer is, the economy,
Speaker 2: what things are looking like. But before that I got
Speaker 2: to talk about we were Bloomberg. I want to talk
Speaker 2: about the stock price you guys reported earlier today. What's
Speaker 2: going on with the stock today? Do you think investors
Speaker 2: are missing the big picture?
Speaker 5: Definitely, So thank you very much for having me today.
Speaker 5: I think the stock price is a different conversation as
Speaker 5: the stock price valied in and a little bit because
Speaker 5: of what you've just described, maybe took a shakeout. But
Speaker 5: the really interesting pieces were the businesses and the fundamentals
Speaker 5: and from that prospective, Pagay ahead a record record revenues
Speaker 5: and even record network volume and maybe just to drill
Speaker 5: down for one second of what the company does. So
Speaker 5: think about it that we are using an AI to
Speaker 5: help different lendos as the one you just described, Ali
Speaker 5: Bank so far and many others US Bank to help
Speaker 5: them serve their consumers. So so far we have helped
Speaker 5: these different organizations to provide loans to over two million customers,
Speaker 5: customers that, as you mentioned, would have otherwise been declined.
Speaker 5: So think about the fact that we helped two million
Speaker 5: Americans get a twenty four billion dollars of additional loans
Speaker 5: that otherwise would not be able to get it through
Speaker 5: their banks. And all of that with the power of
Speaker 5: AI and machine learning that is driving all of that.
Speaker 3: Just ask a simple question, how many of those loans
Speaker 3: go bad?
Speaker 1: Though?
Speaker 3: How much risk do you take on?
Speaker 5: So the reality is that these type of boroels are
Speaker 5: actually good boroels. They are paying and paying well. So
Speaker 5: you think about something in the ranges of four to
Speaker 5: eight percent of an annual loss. And in today's situation
Speaker 5: of the financial situation in the US, if you don't
Speaker 5: have a perfect FICO, you don't get a loan. The
Speaker 5: regulatory environment that exists on the banks is making it
Speaker 5: very hard for them to provide loans to very good
Speaker 5: consumers that would otherwise pay back. And that's where Pagaya
Speaker 5: comes in, helping the banks to provide these credit to
Speaker 5: their customers which they sow needing in these days.
Speaker 2: What are the rates on those loans?
Speaker 5: So usually the rates could vary from a twelve percent
Speaker 5: and up until twenty the way to think about it,
Speaker 5: it's usually two to five percent lower than credit card rates.
Speaker 5: So usually people that are taking personal loans are actually
Speaker 5: refining or reducing the rates when they are moving from
Speaker 5: the very high credit cards into a personal loan, which
Speaker 5: is much more predictable and steady, into they know what
Speaker 5: they are paying over the monthly mails.
Speaker 2: So then who provides the capital to fund those loans?
Speaker 5: That's exactly the interesting point. So have you heard about
Speaker 5: private credit?
Speaker 6: We talked a lot about so much, right talk, So think.
Speaker 5: About Pagaya as the intelconnect between the balance sheets of
Speaker 5: the private credit into the distribution channels of the banks.
Speaker 5: So many of the consumers that are coming to the
Speaker 5: banks and cannot get loan because of the regulatory pressure
Speaker 5: that were just discussed about, these loans could fight home
Speaker 5: in the growing, emerging, booming private credits. We have over
Speaker 5: one hundred and twenty different investors that we are feeding
Speaker 5: to provide home for these loans, which they are happy
Speaker 5: to get access to massive amounts of loans in scale
Speaker 5: that are as good as bank loans, but the regulatory
Speaker 5: capital of the bank is not allowing them to do that.
Speaker 5: So we are the efficancy of this booming type of
Speaker 5: private credit, which is a new form of capital, and
Speaker 5: the need of banks to clear their balance sheet even more.
Speaker 6: That's really interesting.
Speaker 3: No, you go ahead.
Speaker 2: I was going to ask. In an environment where investors
Speaker 2: think rates will go lower, the bond market might not
Speaker 2: agree with that. Right now, how does that private credit
Speaker 2: equation change?
Speaker 5: So the private credit equation is actually becoming bigger and better.
Speaker 5: So the reality is that they are looking to find
Speaker 5: more ways to lock rates and to invest massive amounts
Speaker 5: of capital. So the actually the interest rate going down,
Speaker 5: while very good for the consumers because now they have
Speaker 5: a better relief on the ability to pay their debt,
Speaker 5: is actually being driven by very big amounts of private
Speaker 5: credit that are being injected into the system to help
Speaker 5: these consumers find the ability to find us their debt.
Speaker 2: All right, God, we're gonna have to leave it there.
Speaker 5: Thank you so much.
Speaker 2: Paul Krubiner, he is the CEO of Pagaya, joining us
Speaker 2: here in the Bloomberg Business Week Studio.
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Speaker 4: Now about you let me drive? Oh no, no, no, no, honey,
Speaker 4: please Gravelsten, I want to drive.
Speaker 6: It's a good question.
Speaker 1: This is the drive to the globe on Bloomberg Radio.
Speaker 2: Well, well, well look at that.
Speaker 1: Wow, what do you see?
Speaker 3: It's almost four o'clock.
Speaker 2: That's crazy. Yeah, you've been here all day.
Speaker 3: I know. Well, I live here in the Bloomberg building.
Speaker 3: I don't actually leave, you know, I just row out
Speaker 3: a little.
Speaker 2: You got everything we need?
Speaker 3: Yeah, food, we don't have showers, but who needs that?
Speaker 2: Who needs that?
Speaker 4: Hey?
Speaker 2: We don't. Yeah. Let's see what Paul christopher has to
Speaker 2: say about this rally run up and that breather. You
Speaker 2: keep talking about the pause that we're seeing.
Speaker 5: The pause.
Speaker 2: Paul Christopher's head of Global Investment Strategy at the Wells
Speaker 2: Fargo Investment Institute. He joins us from Saint Louis, a
Speaker 2: collective sigh emerging from the markets today. Finally a little
Speaker 2: bit of a pause in the rally that we've seen
Speaker 2: post election. Paul, how are you thinking about this?
Speaker 6: Yeah, truly a couple of days of pause. Very well,
Speaker 6: come rest, but and we'll have to see what happens
Speaker 6: with that. CPI number tomorrow. A bad number could give
Speaker 6: the market a bad jolt. We'll have to see about that.
Speaker 6: But you know, the real thing to keep in mind
Speaker 6: here is that the trends since the election day are
Speaker 6: really trends that go back to the early part of
Speaker 6: October when Trump started to take momentum, and even back
Speaker 6: earlier than that, to the middle of September. Once we
Speaker 6: started to get a sense that the economy was stronger
Speaker 6: than what we thought the market had thought in early August.
Speaker 6: Then the market started to move okay, higher, yields more
Speaker 6: of a soft landing, maybe no landing, So yields go up,
Speaker 6: right turn, premium goes up, Equity start to march higher,
Speaker 6: Cycnicals get the rotation bid, especially financials, and you get
Speaker 6: a little bit of a breather from tech. And so
Speaker 6: that's kind of the same thing as that Trump rally
Speaker 6: that started in early October. So it just accelerated a
Speaker 6: set of trends that were already in place. When you
Speaker 6: start thinking about, well, okay, tariffs, that's going to raise inflation,
Speaker 6: so yields need to go higher, check that box. They
Speaker 6: were already going higher. Inflation makes the dollars stronger. Sorry,
Speaker 6: tyrorists make the dollars stronger, check another box that was
Speaker 6: already going higher. And then finally the idea that you'd
Speaker 6: have tax cuts and deregulation and stock investors just love that.
Speaker 6: So again another coincidence. And so this rally that we've
Speaker 6: seen here the last week, we should see in a
Speaker 6: little bit longer term context that could continue for a while,
Speaker 6: but maybe not at the same pace we've seen last week.
Speaker 3: Well, Paul, layeron to the corporate fundamentals picture, because you
Speaker 3: think about third quarter earnings, it's still earning season. But
Speaker 3: of the companies that have reported so far, it looks
Speaker 3: like seventy five percent or thereabout have beat their earnings estimates,
Speaker 3: and that is bang in line with the average from
Speaker 3: the past ten years or so. It's below the average
Speaker 3: of the past one year five year look back. And
Speaker 3: in this market, I mean, prior to this big Trump
Speaker 3: rally that we saw, of course, it just felt like
Speaker 3: average wasn't good enough. So when you think about the
Speaker 3: long term and you think about the earnings power, does
Speaker 3: that spell further gains.
Speaker 6: We think it does, but maybe not quite right away.
Speaker 6: That's why we do get a little bit nervous about
Speaker 6: the run up in the last week or so, and
Speaker 6: I mentioned that in terms of the CPI report tomorrow,
Speaker 6: you'd only really need some sort of fundamental disruptor here
Speaker 6: for people to start taking profits. But in terms of earnings, yeah,
Speaker 6: seventy five percent, that's about the longer term average. But
Speaker 6: notice that the guidance was a little bit more negative,
Speaker 6: and earnings growth is slowing, and that's entirely consistent with
Speaker 6: an economy that's slower this year than it was last year.
Speaker 6: Now the question is where's that bottom. We think it
Speaker 6: bottoms in the fourth quarter, and then with the benefit
Speaker 6: of FED raid cuts, starts to improve with the economy
Speaker 6: in twenty twenty five. So we're looking for stronger earnings
Speaker 6: next year. Again, a point I made a moment ago.
Speaker 6: The trends we've seen since mid September are we think,
Speaker 6: solid trends, but they've just accelerated a little bit much here.
Speaker 6: So look for a pullback and then maybe some good
Speaker 6: buying opportunities when that pullback finally arrives.
Speaker 3: Talk to us too about the interaction between the bond
Speaker 3: market and the stock market. It feels like the bond
Speaker 3: market has just been the epicenter of volatility over the
Speaker 3: past week, over the past couple months as well, that
Speaker 3: hasn't slowed down the stock market, but we're starting to
Speaker 3: approach some of these levels out the curve where people's
Speaker 3: it starts to raise some alarm bells. According to some
Speaker 3: of the investors that I've been speaking to, how are
Speaker 3: you thinking about the rise in long duration treasury yields?
Speaker 6: So we kind of look at the components, like the
Speaker 6: inflation piece of the long term yield, and then what
Speaker 6: we call the term premium, which would be the portion
Speaker 6: of the yield that the investor requires in order to
Speaker 6: be compensated for staying in bonds instead of going over
Speaker 6: to a more attractive looking stock market. And that term
Speaker 6: premium is what's been rising lately. That's kind of a
Speaker 6: good sign. That's what you'd expect to see in an
Speaker 6: economy that's bottoming out, where people aren't worried about recession
Speaker 6: anymore but seeing recovery. So now bond investors demand a
Speaker 6: little bit more term premium. They want to say, hey,
Speaker 6: stocks are going to do well, you're gonna have to
Speaker 6: pay me more borrow or whoever you are, for me
Speaker 6: to lend you your money for ten years in this
Speaker 6: bond and we think that's not necessarily an unhealthy sign. Now,
Speaker 6: if we were to see a strong inflation report tomorrow
Speaker 6: or in the next couple of months, or if we
Speaker 6: were to start to get a sense that the deficits
Speaker 6: under the new administration in Congress will be very much higher,
Speaker 6: then that could pose more of a problem for stocks.
Speaker 6: But that's a little bit down the road.
Speaker 2: What's the signal that the bond market is sending about
Speaker 2: what it thinks the Trump administration is going to do?
Speaker 6: Now hard to tell the You know, as I said earlier,
Speaker 6: if you see the bond yield rising and the tariff
Speaker 6: story remains intact and the dollar is accelerating at the
Speaker 6: same time, that would be those two facts there. A
Speaker 6: stronger dollar and higher bond yields would be consistent with
Speaker 6: tariffs and inflation, except that the bond yield really isn't
Speaker 6: being driven by inflation. It's being driven by fundamentally a
Speaker 6: term premium that's consistent with a reinversion of the yield curve,
Speaker 6: a de inversion of the yield curve, you might say,
Speaker 6: where long term rates rise because the economy is strengthening
Speaker 6: and equities are expected to be stronger. So there's kind
Speaker 6: of a sense in which investors could be could find
Speaker 6: it difficult to disentangle bond yields rising. Yeah, that could
Speaker 6: mean inflation, or could mean tariffs, or or it could
Speaker 6: just mean a health economy coming up. And so these
Speaker 6: two trends running in parallel right now will have to
Speaker 6: wait to see how they sort of separate themselves out.
Speaker 6: Typically they do after an election. Right the weeks after
Speaker 6: an election can sometimes bring trends that are very short
Speaker 6: lived and don't last for very long. So again our
Speaker 6: advice to investors here is is to treat what's going
Speaker 6: on in markets right now is a bit of a reaction,
Speaker 6: not a true fundamental rotation, and stick with stick with
Speaker 6: the plan that we established in August, looking for cyclicals
Speaker 6: on pullbacks, looking for small caps on pullbacks, and really
Speaker 6: playing for recovery next year.
Speaker 3: And Paul, just really quickly here. We only have about
Speaker 3: thirty seconds left with you. But if you did start
Speaker 3: to see some of those buying opportunities open up, what
Speaker 3: are the sectors, what are the industries where you would
Speaker 3: be looking to catch the knife there?
Speaker 6: Yeah, definitely cyclical. So we've liked industrials for a while now.
Speaker 6: Energy financials have been a big player lately. They get
Speaker 6: the benefit of deregulatory expectations plus a stronger economy. Financials
Speaker 6: throw in there too, and we like comm services communications
Speaker 6: services here as an alternative way to play tech.
Speaker 2: All right, we're gonna have to leave it there, but
Speaker 2: thanks so much for joining us. Paul, really do appreciate it.
Speaker 2: Paul Christopher, head of Global Investment Strategy at the Wells
Speaker 2: Fargo Investment Institute, joining us this afternoon from Saint Louis.
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