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
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Speaker 2: Terminal and the Bloomberg Business app. Sarah Hunt of Valpine
Speaker 2: saxon Words, writing, it may take a couple of months
Speaker 2: to see the real world effect of the trading slow
Speaker 2: down caused by the tariff situation. It's hard to believe
Speaker 2: this all started only four weeks ago. Sarah, good Morning,
Speaker 2: Good Morning said the same thing yesterday was a month gone.
Speaker 2: This has been brutal, hasn't it.
Speaker 3: It has been quite a lot to happen in a
Speaker 3: short period of time. And I think you know I've
Speaker 3: talked about this before. I think market participates are so
Speaker 3: used to immediate effects and immediate information flow that we
Speaker 3: don't all remember that this all takes time to play
Speaker 3: out through the economy. So this only started four weeks ago.
Speaker 3: The actual effects of that are not even close to
Speaker 3: being seen, And all you're seeing right now is the
Speaker 3: ancillary effects that are people are worried about.
Speaker 2: Equity markets have recovered at the index level on the
Speaker 2: S and P five hundred, policies haven't changed too much.
Speaker 2: What kind of changes people expect them and how quickly?
Speaker 3: Well, I think this is the big question. Right So,
Speaker 3: you had a really decent earning season for the most part.
Speaker 3: You had a number of companies call out the problems.
Speaker 3: You had a number of issues, but the capex was strong,
Speaker 3: the AI story stays intact. That was very helpful I
Speaker 3: think for markets, and that was very important. But now
Speaker 3: we get back to Okay, now what's going to happen
Speaker 3: in trade? And we still don't know, And I think
Speaker 3: that is the sooner we can get any kind of
Speaker 3: clarity on that, the better. But right now I think
Speaker 3: that that just leaves us in a tough position risk
Speaker 3: reward wise.
Speaker 1: If someone were on the US Central Bank, they might
Speaker 1: be really happy that we have so rarely mentioned the
Speaker 1: FED on a day when the two day meeting is
Speaker 1: starting and they do have to come out with some
Speaker 1: prognostications tomorrow. I am wondering how much of a possible
Speaker 1: put this is later in the year if the FED
Speaker 1: were to cut rates more significantly. That's what John and
Speaker 1: Emory were hearing yesterday from Chris Harvey of Wells Fargo.
Speaker 1: Are reaffirming the seven thousand level. Do you buy that well?
Speaker 3: I think that the Fed's in a tough place for
Speaker 3: all the reasons that have been discussed right we have
Speaker 3: still some inflationary pressures. The labor market's holding up, the
Speaker 3: earnings are holding up, the economy is holding up pretty well.
Speaker 3: The question is going to be if you start to
Speaker 3: see deterioration in that labor market, and we certainly have
Speaker 3: heard anecdotally layoffs from different companies. Some of it is
Speaker 3: specific to them, some of it is just general industry
Speaker 3: and a lack of hiring. And I think if that
Speaker 3: starts to catch up, you could see those cuts. But
Speaker 3: because of the other issues and the price is paid
Speaker 3: index and where you're seeing inflation, I think it's very
Speaker 3: difficult to bake in as much as we're baking in
Speaker 3: right now.
Speaker 1: To be fair, I'm trying to figure out if we've
Speaker 1: learned anything that basically companies have been coming in with momentum,
Speaker 1: they have done pretty well if you take a look
Speaker 1: at the earnings as a whole. Mohammad al Aaran was
Speaker 1: saying that the raw data is showing that momentum is
Speaker 1: sort of pretty robust heading into this, and then you
Speaker 1: have a FED that has quite a lot to potentially cut.
Speaker 1: If there is some sort of cheriation of the data,
Speaker 1: is that enough for you to see this as more
Speaker 1: than just a bear market rally.
Speaker 3: Well, I think it really is going to depend on
Speaker 3: a number of things. One of them is getting some
Speaker 3: certainty because we're still seeing a lot of pull forward
Speaker 3: because people don't know, so people are still buying ahead,
Speaker 3: not just companies pulling an inventory, but individuals making choices.
Speaker 3: That makes the data look very good in the near term.
Speaker 3: And the question is is it going to soften at
Speaker 3: the end of the year the hard data, not the
Speaker 3: survey data. So if that starts to be a problem
Speaker 3: and the FED can cut, I think that's going to
Speaker 3: be helpful. But where markets are right now on the
Speaker 3: equity side, I think it's a little difficult to see
Speaker 3: how you can really get that next leg up unless
Speaker 3: you think that there is a path forward that doesn't
Speaker 3: have so much uncertainty and chaos, and I don't think we.
Speaker 4: Know that yet.
Speaker 5: Well, the whole point of the Trump administration they've talked
Speaker 5: about is game theory, strategic uncertainty. But what if we
Speaker 5: end where Trump started ten percent around the world, sixty
Speaker 5: percent on China? How would the market digest that?
Speaker 3: It would be probably some relief in that, to be fair,
Speaker 3: because the numbers were so much higher. And I think
Speaker 3: that that's part of that game theory. I'm going to
Speaker 3: throw out a bunch of numbers and where we're going
Speaker 3: to end up somewhere lower. But in the interim, you
Speaker 3: are seeing some people getting stuck trying to figure out
Speaker 3: do I pay for things at that level? Do I
Speaker 3: cancel this? You've seen a lot of cancelations, and you've
Speaker 3: got a big freight market and an ocean freight market
Speaker 3: that's in a chaotic state right now. So sorting that
Speaker 3: out is going to take some time. And unless there's
Speaker 3: a path on the other side of that where people
Speaker 3: feel comfortable, I think it's going to be difficult.
Speaker 2: Place you brought up the Federal Reserve, the FED, last
Speaker 2: mount of March nineteenth. March nineteenth is a lifetime ago,
Speaker 2: and think about the response to that meeting. I remember
Speaker 2: the Davish interpretation, just the very idea they saw any
Speaker 2: kind of inflation bump as one off. Then the out
Speaker 2: years of twenty six twenty seven, inflation comes back down.
Speaker 2: Super Dovish market is absolutely ripped. And you and I
Speaker 2: remember having a conversation about a more hawkish interpretation, this
Speaker 2: idea that they saw a deceleration in growth and yet
Speaker 2: they didn't increase their outlook for interest rate cuts. And
Speaker 2: I wonder if the more hawkish interpretation becomes that much
Speaker 2: more relevant in the months to come, not oft this meeting,
Speaker 2: but next one when they have to put out fresh
Speaker 2: full cast ale over again.
Speaker 1: Stagflation is a central bank's nightmare. Stagflation is what a
Speaker 1: lot of people are talking about. Are stagflationary likes trends
Speaker 1: at a point when that's what we're seeing on the
Speaker 1: margins communicated in the data like yesterday's ism services, how
Speaker 1: do they respond to that in a way that somehow
Speaker 1: is constructive for this market. Given the fact that stagflation
Speaker 1: really is one of the difficult things that a central
Speaker 1: bank has to deal with they don't have perfect tools
Speaker 1: to counter that.
Speaker 2: I think what the equity market would like to hear
Speaker 2: is Governor Waller his words from cham and Pal. How
Speaker 2: likely is that.
Speaker 3: I think that's a bit difficult at this juncture. So
Speaker 3: I think that it would be you'd need to see
Speaker 3: some real data changes before you could get that shift
Speaker 3: in tone from one to the other. And I'm not
Speaker 3: sure that that is anything we're going to see in
Speaker 3: certainly not this week, I don't think, and into the
Speaker 3: next month we'll see.
Speaker 1: How concerned are you that there appears to be not
Speaker 1: necessarily a shadow FED, but some sort of countervailing force
Speaker 1: on the FOMC that's creating a question around political I
Speaker 1: don't want to say interference, but political clouds hovering around
Speaker 1: the Federal Reserve.
Speaker 3: I think that we've seen it very often that you've
Speaker 3: got this argument between politics and the FED. And I
Speaker 3: don't know that this is any worse except that it
Speaker 3: has been. You now have a president who's actually willing
Speaker 3: to say something out loud in that way. I don't
Speaker 3: think that the FED acts in a political way. I
Speaker 3: think that they are going to continue to do what
Speaker 3: they think they need to do for the economy, but
Speaker 3: it makes it far more difficult, and it makes the
Speaker 3: bar a little bit higher if someone's pushing on you
Speaker 3: to do something that you don't necessarily want to do
Speaker 3: and you don't want to look like you're capitulating. So
Speaker 3: I think that there is an issue there.
Speaker 1: Have you even watching the press conference tomorrow?
Speaker 2: Always okay?
Speaker 1: So what are you hoping to hear?
Speaker 3: I'm expecting to hear not a whole lot and a
Speaker 3: dance again between that inflation, but the dance between inflation
Speaker 3: and the labor market, right, because that's the tension that
Speaker 3: they're going to keep calling out. The labor market still
Speaker 3: looks pretty good until you start to see that. Solten,
Speaker 3: I think it's hard to say anything that is specific
Speaker 3: about what I'm going to do. I'm going to do
Speaker 3: X if Y happens. So I think I'm looking to
Speaker 3: hear more of that dance and to see if there's
Speaker 3: any changes on the margin.
Speaker 2: Can you just pretend it's going to be really exciting
Speaker 2: for us? Super exciting?
Speaker 3: Absolutely? I can't wait.
Speaker 2: Live coverage one point thirty tomorrow afternoon on Blimback TV.
Speaker 2: I'm blimberk ridio it studying. That's the prim of Sara.
Speaker 2: Let's build on some of this. We've been trading on
Speaker 2: retric the prospective deals negotiations. When does the substance stots
Speaker 2: to Matt, so, what does a deal actually look like?
Speaker 3: I think the problem is that because we don't have substance,
Speaker 3: we can't make those plans out right. I don't know
Speaker 3: what the substance looks like. And I think that's the
Speaker 3: biggest problem is that there isn't a specific absolute I
Speaker 3: know we're looking for this ask, I know we're looking
Speaker 3: for that, and once we get that, we'll have a deal.
Speaker 3: It still continues to be amorphous, and that's why people
Speaker 3: are struggling, both on the corporate side and on the
Speaker 3: investment side.
Speaker 5: Or given how integrated the US and Canada are the economies,
Speaker 5: if this meeting actually does go south, how negative could
Speaker 5: that be for the equity market?
Speaker 3: I think it could be pretty negative, just because it
Speaker 3: is one of the like, this is somebody that we
Speaker 3: shouldn't necessarily be fighting with, right, this is a country
Speaker 3: that we've had a long series of negotiations and agreements with,
Speaker 3: So to put this on footing that becomes very negative.
Speaker 3: I think would be more of an outlook for how
Speaker 3: that's going to go elsewhere than it would be as
Speaker 3: much about the US Canada relationship. But I also think
Speaker 3: that that is an important relationship and you don't want
Speaker 3: to see that go south. And I think that's that
Speaker 3: would be very I think that would be very negative.
Speaker 5: Do you know, to Jonathan's point to Tyler earlier, do
Speaker 5: you know what a win would be for the United
Speaker 5: States when it comes to Canada and trade.
Speaker 6: Well.
Speaker 3: I think this has been the problem throughout this last
Speaker 3: couple of weeks, where we hear about a memorandum of
Speaker 3: understanding or we hear about a trade framework of a framework,
Speaker 3: is that there isn't a clear picture for what winning
Speaker 3: really looks like. So not knowing what those parameters are,
Speaker 3: it's hard to game out what the odds are that
Speaker 3: those parameters are acceptable.
Speaker 1: And of course it's also a dynamic type of picture,
Speaker 1: as many of the executives have talked about, with the
Speaker 1: market playing a leading role. Julian Emmanuel of evercore is
Speaker 1: I came out and said that because the market had
Speaker 1: performed so much better over the past nine trading days,
Speaker 1: it gave President Trump the room to actually talk more
Speaker 1: tough talk with respect to tariffs, and that would lead
Speaker 1: to a pullback, and it sort of has this range
Speaker 1: that he's playing with to try to use the market
Speaker 1: to understand what his potential guidelines are. How much do
Speaker 1: you think about that from an investing standpoint?
Speaker 3: I think that that is exactly the problem that the
Speaker 3: investment world tries to react so quickly and the real
Speaker 3: world cannot. That we're already over something that hasn't happened
Speaker 3: yet on equity markets, and I think that that's one
Speaker 3: of those reasons that I don't disagree with him. I
Speaker 3: think that there is an absolute case to be made
Speaker 3: for the fact that a recovery in financial markets means
Speaker 3: that you take that as see, we can get through this.
Speaker 3: And part of that recovery was backing off to begin
Speaker 3: with and moving it ninety days, and the other part
Speaker 3: of that recovery was earnings. But how much are those
Speaker 3: earned things going to flow through continuously through the next
Speaker 3: several months, because we don't know where they're going. And
Speaker 3: to Cameron's point, earlier margins are really going to be
Speaker 3: in question because the costs picture is unclear, because the
Speaker 3: supply chain is unclear, So we're already discounting something that
Speaker 3: hasn't even happened, and we've already decided it's okay.
Speaker 1: Over the past couple of decades, there's been this focus
Speaker 1: on Wall Street about getting faster and getting a time
Speaker 1: edge on other people, getting closer to electricity sources, that
Speaker 1: you can respond to information more quickly to everybody else.
Speaker 1: Has this been the death of that that getting information
Speaker 1: first is not any kind of advantage whatsoever, and that
Speaker 1: everybody has to shift to another frame of reference when
Speaker 1: it comes to investing that is longer term, more patient,
Speaker 1: more I don't know, private, something else that is not
Speaker 1: sort of high frequency trading.
Speaker 3: I think you're dead on right now because I think
Speaker 3: that the absolute chaos and uncertainty that we're living through,
Speaker 3: rightly or wrongly for the end outcome, makes that information
Speaker 3: not as important because you don't know which way should
Speaker 3: really direct things. FED meetings. Even before this, you could
Speaker 3: watch the reaction to what the FED said, and that
Speaker 3: markets would be up and down and up and down
Speaker 3: in the same hour because people couldn't figure out which
Speaker 3: way we were actually going. And now I think you've
Speaker 3: just put that on steroids, and you've added other types
Speaker 3: of information to that, not just what the FED things,
Speaker 3: but what's happening both in the economy and what the
Speaker 3: administration wants to do, So getting a piece of information
Speaker 3: first is not necessarily directionally easily interpreted.
Speaker 2: Let's just say that Friday's a great example of that.
Speaker 2: We had the poor director from Los Angeles, Jan Soroka
Speaker 2: and Gene told us what was happening with trade volumes
Speaker 2: as of this week, that we had a thirty percent
Speaker 2: roll off in bookings of arrivals. And we'll sit around
Speaker 2: the table and we're like, Okay, what happens next. And
Speaker 2: there's a big debate about what happens next and over
Speaker 2: what timeline and what it should mean for markets, because
Speaker 2: markets might not even respond to it, they might just
Speaker 2: shake it all off. On the prospective deals and the horizon,
Speaker 2: which gives you a forward look of better economic data
Speaker 2: around the corner, how are we going to trade bad
Speaker 2: data in the next couple of months If the President
Speaker 2: is still going around saying deals, deals, we're going to
Speaker 2: close lots of deals.
Speaker 3: I think that there is a point at which that
Speaker 3: rhetoric no longer is as effective. And because this is
Speaker 3: also recent again, we're talking about a four or five
Speaker 3: week period now, since we even started. The rhetoric has
Speaker 3: been very effective. But the longer you go without having
Speaker 3: something done, the less you can goose things with saying
Speaker 3: it's going to be done. It's going to be done,
Speaker 3: and the more problematic it becomes when when those goods
Speaker 3: are not coming over or going back, and you've got
Speaker 3: not the right things, are not situated in the right
Speaker 3: way to get those trade flows started again.
Speaker 2: This is the window everyone's talking about. The window. No
Speaker 2: one really knows how big it is, but this is
Speaker 2: ultimately it. Ultimately you have to show something otherwise eventually
Speaker 2: you get that bad data and this market will have
Speaker 2: to try it on it.
Speaker 1: Eventually those ships will not have gotten here with those goods,
Speaker 1: and eventually retailers will have to adjust and the pricing
Speaker 1: ramifications will happen, and potentially layoffs will happen. And this
Speaker 1: is the reason why Jane Fraser of City Group yesterday
Speaker 1: at the Melkon conference was talking about this gap between
Speaker 1: hard data and soft data and how it has to
Speaker 1: close even though people say that it could persist, and
Speaker 1: which way it's going to close is not clear, and
Speaker 1: I really mean that because it could close to the
Speaker 1: upside or it could close to the downside.
Speaker 2: The President likes to wanka negotiations to the extreme, which
Speaker 2: is why it goes out there with some pretty flamboyant
Speaker 2: statements at time. The Europeans have been quite reserved through
Speaker 2: all of this over the last several weeks. This just
Speaker 2: drops this report that the EU is targeting one hundred
Speaker 2: billion euros of US goods with Taris IV talks fail,
Speaker 2: just setting up the talks in a different way from
Speaker 2: the European side over the coming weeks.
Speaker 5: The fantastic scoop from our colleagues over in Europe. What
Speaker 5: you see here playing out is a caarden stick approach
Speaker 5: now from Brussels. Last week was in the Financial Times
Speaker 5: they were looking at fifty billion euros worth of purchases
Speaker 5: of US goods like soybeans, like LNG. And now what
Speaker 5: they're saying, if we don't get a deal, we are
Speaker 5: going to go after one hundred billion.
Speaker 6: Euros worth of US goods.
Speaker 5: What I find so interesting right now about the Europeans
Speaker 5: is they don't come up a lot in conversations I
Speaker 5: have with administration officials. It's all about Japan, or India
Speaker 5: or South Korea. What's going on with Canada. We're going
Speaker 5: to meet with China at some point. Europe it seems
Speaker 5: to be silent.
Speaker 1: At the same time, the trade chief in Europe came
Speaker 1: out this morning and talked about how if you tally
Speaker 1: up all the goods that could potentially have some reciprocal
Speaker 1: tariffs on them from under President Trump, it would equal
Speaker 1: six hundred and twenty two billion dollars worth. So they're
Speaker 1: writing down on pieces of paper, calculating like something's not adding.
Speaker 1: So we're going to have to come out here with
Speaker 1: a threat, and maybe that's what predicated this discussion this morning.
Speaker 2: Stock's responding to that headline. We're down by about three
Speaker 2: quarters to one percent, just an extra inch lower on
Speaker 2: the screen on the S and P. Five hundred. Stock's
Speaker 2: a little softer. Sarah, thank you. I'm going to see
Speaker 2: you as always, Sarah Hunt. There a vampire Saxon Woods
Speaker 2: turn back to policy, taxes and tariffs and focus with
Speaker 2: Treasury Secretary Scale Busts and testifying before Congress today and
Speaker 2: tomorrow joining us now, Congressman Frenchhill, how if they House
Speaker 2: Financial Services Committee, Congressman, our good friend, welcome back to
Speaker 2: the program, sir, talk us through and just frame if
Speaker 2: you can your approach to these hearings over the next
Speaker 2: few days.
Speaker 7: What do you want to hear you bet well, Jonathan,
Speaker 7: great to be with you this morning. Secretary Investment comes
Speaker 7: to both the House Appropriations Committee and House Financial Services
Speaker 7: today for the first time as Treasury Secretary, and I
Speaker 7: think you'll see questions about the President's economic policy. He's
Speaker 7: put his policy as the centerpiece of deregulation, right sizing regulation,
Speaker 7: making sure that the American businesses and families don't have
Speaker 7: a big tax increase at the end of the year,
Speaker 7: and using a trade strategy that encourages investment in the
Speaker 7: United States, foreign direct investment in the US, and more
Speaker 7: fairness for American products and services abroad.
Speaker 6: I think all.
Speaker 7: Those things will be subjects of questions in both committees.
Speaker 2: You, of course, French represent the home state of Walmart. Congressman,
Speaker 2: what do they want to hear of the next twenty
Speaker 2: four Ultimately what is the company CINCA.
Speaker 7: Well, all my constituents, including Walmart, have made it very
Speaker 7: clear to President Trump and to their trade associations who
Speaker 7: interned have made it very clear to the White House
Speaker 7: they want resolution and certainty as about to what the
Speaker 7: care of strategy is and as it relates to imported
Speaker 7: goods that would be found in Walmart or a department store,
Speaker 7: those decisions have to be made pretty promptly or you're
Speaker 7: going to see, in my judgment, impact on what's on
Speaker 7: store shelves this fall and even this summer, and you're
Speaker 7: going to see price increases this summer potentially as well.
Speaker 7: I think that message was delivered quite clearly by American
Speaker 7: retail businesses principally.
Speaker 5: Well, the message was delivered, But is there understanding you
Speaker 5: got from Walmart from your other constituents that they received
Speaker 5: an optimistic tone from this White House about where the
Speaker 5: future of trade is actually going to end up.
Speaker 7: Well, this is something that we've continued to talk about
Speaker 7: on this show in Congress, which is what is the strategy.
Speaker 7: You have a China strategy, you have a trade fairness
Speaker 7: and reciprocity strategy. You have a bring business back to
Speaker 7: the US strategy. Sometimes those things are in conflict and
Speaker 7: they're tough to do all at once. That's why I
Speaker 7: think that the idea of let's square things away at
Speaker 7: USMCA with Canada and Mexico, Let's make sure we're on
Speaker 7: the same page with Japan Korea and the European Union.
Speaker 6: Those are first and foremost.
Speaker 7: I think that will help us then get the best
Speaker 7: kind of leverage we can as we work on the
Speaker 7: toughest nut in the group, which is how do we
Speaker 7: have trade fairness and in China's mercantilistic trade policy around
Speaker 7: the world.
Speaker 5: Congressman though, did Walmart though, leave that meeting in the
Speaker 5: Oval Office feeling like the President heard them and that
Speaker 5: they're listening to their concerns.
Speaker 7: Well, from the reports I've got, the answer was yes.
Speaker 7: I mean President Trump worked very hard in his first
Speaker 7: term to make sure that consumers were not immediately impacted
Speaker 7: by his tariff negotiations, as he attempted to design a
Speaker 7: teriff strategy that would bring jobs back to the US
Speaker 7: and foreign direct investment back to the US, but not.
Speaker 6: Hit consumer pocket boats directly.
Speaker 7: And so I think that was the message that was delivered,
Speaker 7: and from what I've heard, I think he got that
Speaker 7: and heard that message quite clearly.
Speaker 5: Do you have a sense, and maybe you're going to
Speaker 5: get this from the Treasury Secretary this week of a
Speaker 5: timeline on when all these negotiations would actually come to fruition.
Speaker 7: Well, as I've said, based on talking to my constituents,
Speaker 7: whether they're big European, Mexican or Canadian relationships that we
Speaker 7: have in Arkansas, or a big global company like Walmart.
Speaker 7: So the sooner that we have clarity and certainty to hear,
Speaker 7: the better for business planning.
Speaker 6: I think that's good for business outlook.
Speaker 7: And I think that's good for the American economies to
Speaker 7: have certainty. Nobody questions the desire to have better tree
Speaker 7: Maid fairness, improve USMCA, stop dump goods from coming into
Speaker 7: Canada and Mexico and into the North American market. Those
Speaker 7: are all worthy goals, But the question is we need
Speaker 7: realistic strategies to achieve them, and we've got to make
Speaker 7: sure that we can clearly communicate that to the American people.
Speaker 1: Congressman, there also is this question of how feasible it
Speaker 1: is to get some sort of tax deal, one of
Speaker 1: the other prongs of Secretary Bestin's goal through Congress at
Speaker 1: a time where there are a number of red lines
Speaker 1: that need to be crossed. That's expanding the deficit, potentially
Speaker 1: cutting Medicare and Medicaid in order to get no tax
Speaker 1: on tips and some of the other sweeteners. How feasible
Speaker 1: do you think that it is to get some sort
Speaker 1: of consensus among your colleagues on that.
Speaker 7: Well, we've had seven of our committees now report their
Speaker 7: reconciliation plans. Next week you'll see Agriculture, Energying, Commerce, Ways
Speaker 7: and Means conduct their work. These are important committees. They
Speaker 7: have the bulk of the savings in those committees to
Speaker 7: be debated among members.
Speaker 6: And then what is that tax plan.
Speaker 7: Trump has absolutely been leading in private meetings with Secretary Johnson,
Speaker 7: with Speaker Thune, with Ways and Means, Chair Smith, and
Speaker 7: Chair mccuthrie at Energy and Commerce, and so I think
Speaker 7: we're going to find that right spot where we can
Speaker 7: hold Republicans together and meet the President's objectives for reconciliation.
Speaker 7: But the next two weeks are very very important.
Speaker 1: Yeah, That's why I was going to ask Congressman, how
Speaker 1: quickly does something need to get passed for there to
Speaker 1: be a positive spin at a time where there's a
Speaker 1: three legged stool and one of the legs is really
Speaker 1: remaining in quested, or actually two of them are the
Speaker 1: trade policy as well as what gets actually passed. How
Speaker 1: quickly does it have to get passed for there to
Speaker 1: be a change in tone, certainly among polls.
Speaker 6: Well, I think it's important. We've tried to.
Speaker 7: We've put a premium on the House under Mike Johnson's leadership,
Speaker 7: of getting the tax and spinning reform plan through the
Speaker 7: House as soon as possible, and you've seen, as I said,
Speaker 7: seven of our committees have already done our reconciliation work.
Speaker 7: In the next two weeks we hope to complete it.
Speaker 7: I think that sends the message to the Senate that
Speaker 7: the House is serious, the House has the votes. We
Speaker 7: want to get President Trump's spending and tax priorities through
Speaker 7: the Congress, and that I believe will be send the
Speaker 7: right signal both to the economy, to planning, and be
Speaker 7: a key plank as you noted in the President's Economic
Speaker 7: Policy Congressman.
Speaker 5: But you know, of course we're going to need pay fers,
Speaker 5: and our audience is keen to know where you stand
Speaker 5: on this issue. Do you think stock buyback tax could
Speaker 5: be on the table when it comes to reconciliation package.
Speaker 7: I think the stock buyback tax is a dumb idea.
Speaker 7: It was a dumb idea when Chuck Schumer offered it.
Speaker 7: You're hurting individual caareholders, You're you're hurting payment pension plans,
Speaker 7: So I don't think that's something that should be used.
Speaker 7: I think it hurts economic growth, and I think it
Speaker 7: hurts individual family investments in their pension funds and in
Speaker 7: their individual accounts.
Speaker 2: At You'll plump best. Congressman, Thank you, sir, as always
Speaker 2: appreciate it. Congristman French Show great, A hey from you, sir,
Speaker 2: Thank you very much. Media stocks falling after President Trump
Speaker 2: threatened one hundred percent tariff on movies produced overseas. Jason
Speaker 2: Pass and I have city writing investors have viewed Netflix
Speaker 2: as immune to tariff risks that may no longer be true.
Speaker 2: Jason joins US now for more. Jason, welcome to the program. Circuits,
Speaker 2: get your thoughts. Another shaka, another shock to ultimately deal
Speaker 2: with in process without much detail or clarity about what
Speaker 2: happens next. Just how exposed you think Netflix actually is?
Speaker 4: Well, I think if one hundred percent tariff went through,
Speaker 4: I think they would be very exposed.
Speaker 6: I suspect that what.
Speaker 4: Trump is really trying to do is just nudge more
Speaker 4: production into the US, and there we estimate that US
Speaker 4: production costs are maybe thirty five percent higher than overseas,
Speaker 4: and so will that will limit that will limit the
Speaker 4: damage I think to Netflix.
Speaker 5: So, Jason, you think that this is a max most
Speaker 5: approach and that Trump is not actually going to implement
Speaker 5: one hundred percent tariff.
Speaker 4: Well, look, there's there's a lot of questions on the
Speaker 4: street about whether even has the legal authority to impose
Speaker 4: one hundred percent tariff. There's a law in the books
Speaker 4: called the Burman Act, which says you can't impose tariff's
Speaker 4: on intellectual property. In Trump's tweet, he cited national security
Speaker 4: concerns related to the production of movies, so he's going
Speaker 4: to try and get around it. That sort of raises
Speaker 4: all sorts of legal questions. So I think, like Trump
Speaker 4: always does, he's just trying to get maximum leverage early
Speaker 4: on in the negotiation. But I think the ultimate goal
Speaker 4: is to nudge more production on US soil.
Speaker 5: And he has Governor Newsom coming out and talking about it.
Speaker 5: He has industry leaders coming out and talking about it.
Speaker 5: He said yesterday is going to have a meeting with
Speaker 5: all of them. What would a federal tax credit for
Speaker 5: the industry mean?
Speaker 6: Well, it would, I mean it would.
Speaker 4: It depends how large the tax credit is, but ultimately,
Speaker 4: you know, the text credit would have to be large
Speaker 4: enough to more than offset the production savings that the
Speaker 4: media companies enjoy by producing overseas. So if you had,
Speaker 4: if you had let's assume my thirty five percent numbers, right,
Speaker 4: if you had a tax incentive that was larger than
Speaker 4: the thirty five percent, you could see production moved to
Speaker 4: the United States and it would actually be an earnings
Speaker 4: positive for these media companies. If it's smaller than that,
Speaker 4: it would be a negative to earnings, but would boost
Speaker 4: employment and sort of help the overall US economy.
Speaker 1: Jason, not to get philosophical, but what does it mean
Speaker 1: to be produced to the United States? Is that a
Speaker 1: clear concept to you?
Speaker 6: No, it's not a clear concept.
Speaker 4: I mean a lot of these movies and TV shows,
Speaker 4: you know, have a hybrid approach, and so every production
Speaker 4: is different. It's not black and white like something that's manufactured,
Speaker 4: and so it's it's a gray area, very very tough
Speaker 4: in my seat to analyze with precision.
Speaker 6: But I think the broad.
Speaker 4: Goal is just get a larger percentage, let's call it
Speaker 4: that produced in the United.
Speaker 2: States, Jason, a tax break sufficient to which that what
Speaker 2: makes it so much more expensive to produce content in
Speaker 2: this country?
Speaker 4: Well, mostly it's labor costs. I mean, that's the main thing.
Speaker 4: And then a lot of the overseas markets are providing
Speaker 4: tax incentives as well, so you've got a twin benefit
Speaker 4: if you produce overseas tax credits and lower labor costs.
Speaker 2: And that should have them with the pricing of the
Speaker 2: overall product as well. Jason, I think we wanted to
Speaker 2: finish on that with you just how immune and insulated
Speaker 2: as a company n Netflix going up against the prospect
Speaker 2: of an economic downturn. I know we haven't seen it
Speaker 2: in the hard data just yet, but how we should
Speaker 2: we be?
Speaker 6: Yeah, I don't think particularly worried.
Speaker 4: You know, Netflix's advertising revenues are you know, call it
Speaker 4: one or two percent of the overall revenues. I think
Speaker 4: they'll be able to grow AD revenues even if we
Speaker 4: see an AD recession, just because they're in such a
Speaker 4: nascent you know, part of their arc in terms of
Speaker 4: moving into the ad market.
Speaker 6: In terms of subscriptions.
Speaker 4: You know, when we run the math, Netflix is still
Speaker 4: the cheapest app service out there for video on a
Speaker 4: dollar per minute consumed, so it's it's probably half the
Speaker 4: cost of a company like Disney on a per per
Speaker 4: minute consumed. It's probably one fifth the cost of streaming
Speaker 4: services like Paramount or Max or Peacock on a per
Speaker 4: minute consumed, So I think reasonably inflated from recession risk.
Speaker 2: Interesting. I appreciate the frame, and Jason, thanks for your
Speaker 2: time this morning's sir, Jason passin there of city, Jonathan
Speaker 2: Pingle of UPS, writing, we see a worsening growth and
Speaker 2: inflation trade of facing the FORMC. We expect no changes
Speaker 2: to the policy stance. Jonathan joins us. Now for more,
Speaker 2: Jonathan Wike to the program, Sir, You're certainly not alone
Speaker 2: expecting no change tomorrow. Most people expect no changes. What
Speaker 2: happens after that? This came from Janhatsis of Goldman. He said,
Speaker 2: we expect enough evidence to accumulate for a fight July. Jonathan,
Speaker 2: do you think we'll have enough evidence fight July to
Speaker 2: make that kind of cool? I?
Speaker 6: No.
Speaker 8: I mean so, first of all, I actually have a
Speaker 8: lot of sympathy for Yan's forecast the moment where ours
Speaker 8: isn't isn't that much different from his based on what
Speaker 8: I've seen, But I'm expecting that the May data looks okay,
Speaker 8: and it's really going to be sort of June, July
Speaker 8: August data that's released July August, September that makes the
Speaker 8: case for rate cuts at the September meeting. But you know,
Speaker 8: it's one of those things where you know your previous
Speaker 8: speakers were talking about it. We think you're going to
Speaker 8: start to see some of the inflation impacts in next
Speaker 8: week's CPI report. I just think the labor market's going
Speaker 8: to lag a little bit. I think that's really what's
Speaker 8: going to drive the fence calculus over rate policy eventually
Speaker 8: if it's weak enough.
Speaker 6: Anyway.
Speaker 1: That goes to the part of the question, Jonathan, has
Speaker 1: the damage already been done? Is there already enough more
Speaker 1: moving down the pipeline to cause some sort of near
Speaker 1: term inflationary surge at the same time as a downward
Speaker 1: kind of pressure on the overall economic growth trajectory.
Speaker 8: I mean, I think that's right least. I don't think
Speaker 8: it's like a discrete jump at the moment. But you know,
Speaker 8: if all terriffs went away, I would not snap back
Speaker 8: my GDP forecast to where we were, and we would
Speaker 8: not snap back our inflation forecast where we were. But
Speaker 8: I think you're at a crucial sort of four or
Speaker 8: five months juncture here where every month it lasts longer,
Speaker 8: the more the economic damage is going to be done.
Speaker 8: And you know, as I've sort of been trying to
Speaker 8: tell people, you know, if the bulk of these terrors
Speaker 8: stay in place for the bulk of the year, I mean,
Speaker 8: the bulk of the economic damage is going to be done.
Speaker 1: There's a larger question here about if there is some
Speaker 1: sort of trade resolution and there is some sort of
Speaker 1: better tone in markets, could there be an inflationary shock
Speaker 1: in addition to pretty solid growth. I mean, we've been
Speaker 1: talking about sagflationary types of winds, but a lot of
Speaker 1: the companies and their earnings reports portrayed a pretty positive
Speaker 1: pact chop in terms of economic growth. Is there an
Speaker 1: upside risk for a federal reserve that has to be
Speaker 1: cautious about how quickly they cut rates?
Speaker 8: Well, I think that's exactly the kind of trade off
Speaker 8: they're facing, is that they don't know. I mean, equities
Speaker 8: of rally back pretty impressively actually following the draw down
Speaker 8: after the April second announcements. So that's exactly the challenge
Speaker 8: for the Fed and Chuir Powell, we expect on Wednesday
Speaker 8: is going to say how the dual legs of the
Speaker 8: mandate might be intentioned. If growth holds up fine, this
Speaker 8: is a FED that could be on hold for a
Speaker 8: long time. Or if the inflation trade off is bad
Speaker 8: and often growth is fine, maybe even put hikes back
Speaker 8: on the table. I think though, one of the questions
Speaker 8: I think they're going to face those if the labor
Speaker 8: market weaken sufficiently, I think they're going to end up
Speaker 8: asking themselves, what are the points are the tools?
Speaker 6: Because at some.
Speaker 8: Point there might not be anything to restrain, right, if
Speaker 8: the labor market's weak enough, you know, what are you
Speaker 8: trying to restrain?
Speaker 6: Right?
Speaker 8: I mean, if it's slackening the economy for you due
Speaker 8: to the negative growth impacts, it sort of calls into
Speaker 8: the question the role of its restrictive monetary policy in
Speaker 8: the first place.
Speaker 6: So, you know, it is a.
Speaker 8: Really tough spot for the FED, and it's gonna and
Speaker 8: the potential outcomes depend a lot on really uncertain data forecasts.
Speaker 1: I just want to carry that through. Are you saying
Speaker 1: that at a certain point, if there's an inflationary impulse
Speaker 1: at the same time as we can in growth, there's
Speaker 1: not really much of this FED can do that. It's
Speaker 1: kind of out of tools.
Speaker 6: Yeah, in a way.
Speaker 8: I mean, you know, they'll have other questions to ask,
Speaker 8: like is there credibility being called in a question? Or
Speaker 8: longer run inflation expectations becoming unanchored higher.
Speaker 6: But you know, when we were roaring out of the.
Speaker 8: Pandemic, you know, there was a role for higher rates
Speaker 8: to play in restraining the supply demand mismatch. I mean,
Speaker 8: aggregate demand and the layer market were just surging. I
Speaker 8: mean there was a role for rates to play in
Speaker 8: that growth. If growth is contracting, or the labor markets contracting,
Speaker 8: or the unemployment rates rising rapidly, monetary policy doesn't really
Speaker 8: need to be there.
Speaker 6: To make it rise faster.
Speaker 8: You know, if non farm payroll employment tips negative, they
Speaker 8: don't need to make it more negative, you know. So
Speaker 8: there might be a point at which the usefulness of
Speaker 8: the tools become an important question.
Speaker 2: Johnath than can we do psychology? Does legacy have a
Speaker 2: role to play? Does the legacy of chairman poll have
Speaker 2: a role to play over the next twelve months when
Speaker 2: he knows after this he's out, he's done.
Speaker 8: I think the legacy struck me in March because it
Speaker 8: became clear in March when you looked at the SEP
Speaker 8: that this was a chair who no longer expected to
Speaker 8: get inflation back to two percent on a sustainable basis
Speaker 8: during his current term. Now, I think history could be
Speaker 8: written a number of different ways, because if I look
Speaker 8: at the incoming data on the ECI, the recent inflation data,
Speaker 8: average hourly earnings, I think it looks like they are
Speaker 8: on track to nail the soft landing. So whether this
Speaker 8: next surge is a fault of you know, if history
Speaker 8: writes this as a fault of the chair or the
Speaker 8: tariffs or the next FED chair, I mean, that remains
Speaker 8: to be seen, and I think we'll have to see
Speaker 8: how it plays out. But I have been struck.
Speaker 6: You know.
Speaker 8: I do think the FMC was getting close to nailing
Speaker 8: the soft landing, but at this point I think it's
Speaker 8: probably going to escape Chair Powell's term.
Speaker 2: This situation certainly gets hout of That's for show. Jonathan
Speaker 2: Pinglely you ps, Jonathan, thank you. This is the Bloomberg
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