1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,080 Speaker 2: Terminal and the Bloomberg Business app. We begin the sour 10 00:00:37,120 --> 00:00:39,800 Speaker 2: with stock steady as investors prepare for a week full 11 00:00:40,000 --> 00:00:42,680 Speaker 2: of event risk. Muhammad al Aaron of Queen's College, Cambridge 12 00:00:42,680 --> 00:00:45,080 Speaker 2: writing a heavy data week on tap for the US 13 00:00:45,240 --> 00:00:48,040 Speaker 2: with the monthly jobs report, lots of speaking engagements for 14 00:00:48,080 --> 00:00:51,800 Speaker 2: policymakers including Treasury Secretary Besson and Fedcha J. Powell, and 15 00:00:51,840 --> 00:00:54,920 Speaker 2: the latest on tariffs and DOGE. Mohammed joins us now 16 00:00:54,920 --> 00:00:57,640 Speaker 2: for more. Mohammed, Welcome to the program, Sir. Where to begin? 17 00:00:57,800 --> 00:01:00,400 Speaker 2: I think we start on Friday and the rupture in 18 00:01:00,440 --> 00:01:04,040 Speaker 2: Transatlantic relations and the breakdown in the Oval Office. When 19 00:01:04,080 --> 00:01:06,680 Speaker 2: you saw that and when you think about the consequences 20 00:01:06,680 --> 00:01:10,600 Speaker 2: it could have for the economic picture in Europe, for 21 00:01:10,760 --> 00:01:13,640 Speaker 2: military spending, and for what it could mean for financial markets. 22 00:01:13,640 --> 00:01:15,479 Speaker 2: To Muhammad, what are your thoughts at the moment? 23 00:01:17,200 --> 00:01:18,160 Speaker 3: Thanks for having me, John. 24 00:01:18,480 --> 00:01:23,440 Speaker 4: My thoughts is that that feeds into some existing themes, 25 00:01:23,600 --> 00:01:28,120 Speaker 4: both top down and bottom up and intensifies them. So, 26 00:01:28,280 --> 00:01:32,320 Speaker 4: top down, we've had issues of fiscal realignment, and that's 27 00:01:32,319 --> 00:01:35,640 Speaker 4: going to feed into fiscal realignment, including putting pressure on 28 00:01:35,680 --> 00:01:38,840 Speaker 4: the dead break in Germany, including the question of how 29 00:01:38,840 --> 00:01:39,920 Speaker 4: does it interact with what. 30 00:01:39,920 --> 00:01:41,119 Speaker 3: Dodge is doing in the US. 31 00:01:41,880 --> 00:01:44,920 Speaker 4: Secondly, it feeds into the energy market and how you 32 00:01:44,920 --> 00:01:48,440 Speaker 4: think about the energy market. And third it feeds into 33 00:01:48,440 --> 00:01:51,680 Speaker 4: the realignment of the global order that also has a 34 00:01:51,720 --> 00:01:53,840 Speaker 4: trade element to it and a currency element to it. 35 00:01:53,840 --> 00:01:56,200 Speaker 4: So you have all these top down factors that are 36 00:01:56,240 --> 00:01:59,520 Speaker 4: being amplified, and then the bottom up factor that's being 37 00:01:59,520 --> 00:02:05,160 Speaker 4: amplified defense and we are seeing significant sector differences occurring as. 38 00:02:05,000 --> 00:02:05,760 Speaker 3: You would expect. 39 00:02:06,160 --> 00:02:09,839 Speaker 4: So I think of it, John, not as unprecedented, which 40 00:02:09,880 --> 00:02:12,880 Speaker 4: is the words that the political science and the international 41 00:02:12,880 --> 00:02:16,160 Speaker 4: relations people are using, but in the field of economics 42 00:02:16,200 --> 00:02:20,200 Speaker 4: and finance, it is amplifying things that were there already. 43 00:02:20,080 --> 00:02:21,880 Speaker 2: So Muhammed, a number of weeks ago, we said on 44 00:02:21,880 --> 00:02:23,880 Speaker 2: this program that the president of the United States may 45 00:02:23,919 --> 00:02:26,640 Speaker 2: well push the Europeans into doing things that might be 46 00:02:26,680 --> 00:02:29,280 Speaker 2: good for them. You wrote in the Financial Times about 47 00:02:29,280 --> 00:02:33,040 Speaker 2: a month ago, the mounting risk to US exceptionalism. How 48 00:02:33,080 --> 00:02:35,720 Speaker 2: does some of these things across these dimensions play into 49 00:02:35,919 --> 00:02:37,200 Speaker 2: what you wrote about a month ago. 50 00:02:38,639 --> 00:02:40,919 Speaker 4: So, John, both the good news and the bad news 51 00:02:41,080 --> 00:02:46,200 Speaker 4: is we have a very action oriented administration has come in. 52 00:02:47,240 --> 00:02:51,880 Speaker 4: It has hit the ground running, if not sprinting, and 53 00:02:51,919 --> 00:02:55,120 Speaker 4: if you are business, it feels like you're trying to 54 00:02:55,200 --> 00:02:59,200 Speaker 4: drink from a fire hose. There's energy issues, there's the 55 00:02:59,200 --> 00:03:02,680 Speaker 4: immigration issue, there are trade issues, that public sector issues, 56 00:03:02,880 --> 00:03:06,160 Speaker 4: including public sector contract their regulation issues. 57 00:03:06,600 --> 00:03:08,080 Speaker 3: So you're trying to. 58 00:03:08,080 --> 00:03:12,600 Speaker 4: Absorb all this and what we've seen is sentiment has 59 00:03:12,600 --> 00:03:15,360 Speaker 4: come down and there's been a wait and see attitude 60 00:03:15,720 --> 00:03:19,720 Speaker 4: because most of these things impact both your income and 61 00:03:19,800 --> 00:03:23,880 Speaker 4: your expenditure, so it's really hard to figure out how 62 00:03:23,919 --> 00:03:25,799 Speaker 4: all these things are going to play out. Then there 63 00:03:25,880 --> 00:03:28,880 Speaker 4: is the international relation side of it, your trading side 64 00:03:28,880 --> 00:03:32,800 Speaker 4: of it. So the worry that I have is that 65 00:03:33,000 --> 00:03:37,640 Speaker 4: the lack of ability by the public sector to absorb 66 00:03:37,680 --> 00:03:41,720 Speaker 4: all This results in a wait and see attitude. That 67 00:03:41,760 --> 00:03:44,000 Speaker 4: wait and see attitude comes at a time when we 68 00:03:44,040 --> 00:03:47,040 Speaker 4: already have a bit of a whiff of sackflation going on. 69 00:03:47,920 --> 00:03:52,240 Speaker 4: And next thing, you know, people start questioning US economic exceptionalism. 70 00:03:52,400 --> 00:03:56,600 Speaker 4: And if they do, two things happen. You start questioning 71 00:03:56,640 --> 00:03:59,840 Speaker 4: the only reliable engine of growth for the global economy, 72 00:04:00,280 --> 00:04:03,520 Speaker 4: and you start questioning the shield that markets have had 73 00:04:04,200 --> 00:04:07,760 Speaker 4: against all sorts of geopolitical and political aspects. 74 00:04:08,320 --> 00:04:10,800 Speaker 1: That's a lot of hair on the American exceptionalism story. 75 00:04:10,800 --> 00:04:12,760 Speaker 1: And we've been talking to people about it for the 76 00:04:12,840 --> 00:04:15,840 Speaker 1: past couple of weeks about the concerns, the lack of certainty, 77 00:04:15,920 --> 00:04:18,680 Speaker 1: the on hold kind of nature of a lot of CEOs. 78 00:04:18,720 --> 00:04:21,080 Speaker 1: And yet when you ask them, they still say they 79 00:04:21,120 --> 00:04:23,600 Speaker 1: prefer to invest in the US over the rest of 80 00:04:23,640 --> 00:04:27,360 Speaker 1: the world. If Europe went through with a nine hundred 81 00:04:27,400 --> 00:04:31,480 Speaker 1: billion euro spending package on defense and infrastructure, would that 82 00:04:31,560 --> 00:04:34,640 Speaker 1: shift for you? Would you see brighter shoots in Europe? 83 00:04:35,000 --> 00:04:36,960 Speaker 3: No, it wouldn't shift for me. 84 00:04:37,360 --> 00:04:39,800 Speaker 4: I would still prefer to US over Europe for the 85 00:04:39,839 --> 00:04:44,760 Speaker 4: simple reason that Europe doesn't have a genuine and durable 86 00:04:44,880 --> 00:04:49,719 Speaker 4: growth engine. So maybe defense contributes in the short term 87 00:04:49,800 --> 00:04:53,800 Speaker 4: to growth, but they need to get a handle on 88 00:04:53,880 --> 00:04:57,800 Speaker 4: some really fundamental things. I encourage everybody to read the 89 00:04:57,880 --> 00:05:01,480 Speaker 4: Dragi Report, the Driver Report, a really good assessment of 90 00:05:01,520 --> 00:05:04,479 Speaker 4: what has gone wrong in terms of investment, in terms 91 00:05:04,520 --> 00:05:07,839 Speaker 4: of competitiveness and productivity, and what needs to go right, 92 00:05:08,440 --> 00:05:12,520 Speaker 4: and that should be your benchmark when you assess future 93 00:05:12,520 --> 00:05:14,280 Speaker 4: growth prospects in Europe. 94 00:05:14,760 --> 00:05:18,240 Speaker 1: So what happens, Muhammad, if this American exceptionalism story is 95 00:05:18,400 --> 00:05:20,719 Speaker 1: challenged to the degree that you're laying out and a 96 00:05:20,760 --> 00:05:23,279 Speaker 1: lot of people are worried about, but there isn't a 97 00:05:23,279 --> 00:05:24,880 Speaker 1: brighter alternative in Europe. 98 00:05:26,440 --> 00:05:29,200 Speaker 4: That's the concern because remember I've always said the good 99 00:05:29,200 --> 00:05:31,880 Speaker 4: and the bad and the ugly of the global economy. 100 00:05:31,920 --> 00:05:34,880 Speaker 4: The good is the US, the bad is China, and 101 00:05:34,920 --> 00:05:37,880 Speaker 4: the ugly is Europe. And if you don't see China 102 00:05:38,400 --> 00:05:41,520 Speaker 4: and Europe converge up to the US, there's a risk 103 00:05:41,560 --> 00:05:44,080 Speaker 4: that the US will converge down to the other two. 104 00:05:44,520 --> 00:05:47,520 Speaker 3: It is a risk scenario. It is not the baseline 105 00:05:47,520 --> 00:05:48,239 Speaker 3: I want to stress. 106 00:05:48,680 --> 00:05:53,400 Speaker 4: But in mid January, no one was questioning US economic exceptionalism, 107 00:05:53,440 --> 00:05:55,240 Speaker 4: and now, as you point out, a lot more people 108 00:05:55,480 --> 00:05:56,839 Speaker 4: are starting to worry. 109 00:05:56,560 --> 00:05:59,560 Speaker 5: About it, Muhammad, what do you make of the tariffs? 110 00:05:59,600 --> 00:06:02,080 Speaker 5: Do you think they're actually going to come on tomorrow 111 00:06:02,200 --> 00:06:05,479 Speaker 5: or do you think the market consensus of that. Maybe China, 112 00:06:05,480 --> 00:06:07,640 Speaker 5: of course goes on, but there will be a pause, 113 00:06:07,920 --> 00:06:10,960 Speaker 5: another pause or pass when it comes to Canada and Mexico. 114 00:06:11,080 --> 00:06:12,400 Speaker 5: Is the accurate way to view this? 115 00:06:13,839 --> 00:06:15,640 Speaker 4: I don't know, and Mary, I really don't know. I 116 00:06:15,640 --> 00:06:18,520 Speaker 4: don't think anybody knows about the president. But what has 117 00:06:18,600 --> 00:06:22,560 Speaker 4: become clear is that there are three sets of tariffs, 118 00:06:23,480 --> 00:06:26,880 Speaker 4: and that explain why the President was pursuing so many 119 00:06:26,920 --> 00:06:28,719 Speaker 4: objectives with tariffs. You know, when he came out in 120 00:06:28,760 --> 00:06:31,599 Speaker 4: October when he said it's my favorite word. He said, 121 00:06:31,640 --> 00:06:36,200 Speaker 4: it can weige revenue, it can result in fairer trade, 122 00:06:36,880 --> 00:06:42,840 Speaker 4: It can put pressure on both adversaries and allies, and 123 00:06:42,880 --> 00:06:47,960 Speaker 4: in addition, it can protect US industry. And the initial 124 00:06:47,960 --> 00:06:50,760 Speaker 4: reaction of the economist was too many objectives for a 125 00:06:50,760 --> 00:06:53,839 Speaker 4: single tool. But we're seeing now what is happening. You 126 00:06:53,920 --> 00:06:57,480 Speaker 4: have a set of general tariffs that do the revenue 127 00:06:57,520 --> 00:07:00,720 Speaker 4: side and the reciprocity side, the fair trade side. You 128 00:07:00,760 --> 00:07:06,520 Speaker 4: have a set of sector specific tariff aluminium steel that 129 00:07:06,600 --> 00:07:09,720 Speaker 4: protect industry, and then you have a third set of 130 00:07:10,240 --> 00:07:14,000 Speaker 4: tariff's aim that particular countries to get particular outcomes. And 131 00:07:14,040 --> 00:07:15,720 Speaker 4: I think that that's the thing we're going to live 132 00:07:15,800 --> 00:07:18,480 Speaker 4: with for the next few months, is not the next 133 00:07:18,480 --> 00:07:22,560 Speaker 4: few years, which is multifaceted trade policy, Muhammad. 134 00:07:22,560 --> 00:07:24,680 Speaker 2: For the first time in a long time, there was 135 00:07:24,720 --> 00:07:27,320 Speaker 2: a FED official in the last week that considered stagflation. 136 00:07:27,880 --> 00:07:30,760 Speaker 2: I'm sure you notice the same comments downside risk to 137 00:07:30,800 --> 00:07:34,320 Speaker 2: growth and upside risk to inflation. If we were to 138 00:07:34,360 --> 00:07:37,280 Speaker 2: have a fedsjior mandate that went into conflict, how do 139 00:07:37,320 --> 00:07:40,080 Speaker 2: you suppose would be the best way to approach that situation. 140 00:07:41,880 --> 00:07:43,840 Speaker 3: It's tough, is really tough. 141 00:07:43,920 --> 00:07:49,000 Speaker 4: Stagflation is the nightmare of policymakers and it is the 142 00:07:49,120 --> 00:07:50,280 Speaker 4: nightmare of FED. 143 00:07:50,040 --> 00:07:53,040 Speaker 3: With the dual mandate, as you point out, So it's 144 00:07:53,120 --> 00:07:53,640 Speaker 3: really tough. 145 00:07:54,000 --> 00:07:57,400 Speaker 4: I worry, like you had an introduction that we've had 146 00:07:57,400 --> 00:08:00,800 Speaker 4: a reactionary FED. So the FED is not going to 147 00:08:00,880 --> 00:08:03,960 Speaker 4: be getting ahead of this anytime soon. I hope it 148 00:08:04,040 --> 00:08:06,720 Speaker 4: understands it, but it's not going to be getting ahead 149 00:08:06,760 --> 00:08:08,880 Speaker 4: of it anytime soon. So the risk is John, that 150 00:08:10,320 --> 00:08:14,720 Speaker 4: monetary policy continues to amplify volatility, rather than acting as 151 00:08:14,720 --> 00:08:15,880 Speaker 4: an act of stability. 152 00:08:16,120 --> 00:08:17,440 Speaker 3: That's the risk we face right now. 153 00:08:17,560 --> 00:08:19,760 Speaker 1: Mohamma, can you just give us a sense of the 154 00:08:19,800 --> 00:08:23,320 Speaker 1: trajectory of your belief that the economy can withstand all 155 00:08:23,320 --> 00:08:26,600 Speaker 1: of this in the United States. As the year has progressed, 156 00:08:26,680 --> 00:08:29,440 Speaker 1: I realized that it's the beginning of March. But how 157 00:08:29,520 --> 00:08:33,320 Speaker 1: much more worried are you now than say, two weeks ago, 158 00:08:33,960 --> 00:08:37,120 Speaker 1: about a real calling into question of American exceptionalism and 159 00:08:37,160 --> 00:08:39,240 Speaker 1: a real rolling over of the US economy. 160 00:08:40,280 --> 00:08:42,120 Speaker 3: You know it's my natue. I've been worried for a while. 161 00:08:42,200 --> 00:08:47,840 Speaker 4: I put out an ft UP head on February fourteenth 162 00:08:48,320 --> 00:08:52,319 Speaker 4: saying be careful that slowly we may see the erosion 163 00:08:52,559 --> 00:08:55,520 Speaker 4: of US economic exceptionalism, and that's bad news for everybody, 164 00:08:55,640 --> 00:08:57,400 Speaker 4: not just the US, for everybody. 165 00:08:58,240 --> 00:09:00,800 Speaker 3: So I've been worried for a while. I've seen sort 166 00:09:00,840 --> 00:09:02,960 Speaker 3: of three elements that have made me worry. 167 00:09:03,880 --> 00:09:08,040 Speaker 4: One is the way business is reacting to all these 168 00:09:08,080 --> 00:09:11,959 Speaker 4: policy changes, which increasingly is wait and see. We think 169 00:09:12,000 --> 00:09:14,800 Speaker 4: it's going to be fine, but let's wait and see. Second, 170 00:09:14,960 --> 00:09:19,520 Speaker 4: we know that the lower segments of the household income 171 00:09:19,559 --> 00:09:24,079 Speaker 4: distribution is under enormous pressure, and that has been a 172 00:09:24,160 --> 00:09:27,079 Speaker 4: concern for a while and then the third issue is 173 00:09:27,160 --> 00:09:30,160 Speaker 4: the risk of a FED policy mistake. So these things 174 00:09:30,240 --> 00:09:34,240 Speaker 4: have been there and now they've amplified because of what's 175 00:09:34,280 --> 00:09:34,719 Speaker 4: been going on. 176 00:09:35,320 --> 00:09:38,280 Speaker 2: Muhammed always appreciate your time, A good front of this program, 177 00:09:38,320 --> 00:09:39,800 Speaker 2: a good friend of ours. We appreciate it. Thank you, 178 00:09:39,880 --> 00:09:52,439 Speaker 2: Sir Mohammed Aaron of Queen's College, Cambridge. There tariff deadline 179 00:09:52,520 --> 00:09:54,559 Speaker 2: fere than twenty four hours away to open markets of 180 00:09:54,600 --> 00:09:57,320 Speaker 2: Wolf Research writing, if Trump follows through with his threats, 181 00:09:57,760 --> 00:10:00,199 Speaker 2: it increases the risk that he'll go big with this 182 00:10:00,320 --> 00:10:03,760 Speaker 2: eight full second reciprocal tariff policy. Tobin joined us now 183 00:10:03,800 --> 00:10:06,120 Speaker 2: for more. Tobin, I guess the first question will the 184 00:10:06,200 --> 00:10:08,240 Speaker 2: President follow through on his threats? 185 00:10:09,960 --> 00:10:10,600 Speaker 6: In some ways, the. 186 00:10:10,600 --> 00:10:13,280 Speaker 7: Setup looks exactly the same as it did in early February, 187 00:10:13,400 --> 00:10:15,320 Speaker 7: when I was fairly confident that he wouldn't end up 188 00:10:15,320 --> 00:10:18,560 Speaker 7: following through and at least not doing so with long duration. 189 00:10:19,360 --> 00:10:21,319 Speaker 7: I have to say I'm less optimistic this time. I 190 00:10:21,360 --> 00:10:23,640 Speaker 7: think he's been, you know, quite resolute that he's going 191 00:10:23,720 --> 00:10:25,760 Speaker 7: to do something. Even over the weekend. The comments from 192 00:10:26,040 --> 00:10:29,000 Speaker 7: Commerce Secretary Lutnik that people are taking encouragement from you know, 193 00:10:29,120 --> 00:10:31,000 Speaker 7: point it to some flexibility in the rate, but still, 194 00:10:31,120 --> 00:10:32,679 Speaker 7: you know, kind of double down on the likelihood that 195 00:10:32,720 --> 00:10:34,439 Speaker 7: they would go ahead and do something. So it's hard 196 00:10:34,480 --> 00:10:38,079 Speaker 7: to have total confidence, but you know, I think it's 197 00:10:38,720 --> 00:10:41,880 Speaker 7: also impossible to write off the risk that he'll actually go. 198 00:10:41,920 --> 00:10:42,199 Speaker 3: Through with it. 199 00:10:42,640 --> 00:10:45,920 Speaker 5: Scott Bessett, the Treasury Secretary. Tobin said to David Weston 200 00:10:45,960 --> 00:10:48,719 Speaker 5: on Bloomberg TV on Friday that the Mexican government made 201 00:10:48,720 --> 00:10:51,800 Speaker 5: a proposal matching US on China tariffs and then said 202 00:10:51,800 --> 00:10:54,800 Speaker 5: it would be a nice gesture if the Canadians did it. Also, 203 00:10:55,200 --> 00:10:57,559 Speaker 5: is that a big enough concession to potentially put another 204 00:10:57,640 --> 00:10:59,679 Speaker 5: pause on these twenty five percent tariffs? 205 00:11:00,840 --> 00:11:03,120 Speaker 7: Conceivably, the terrifts have never really made a lot of 206 00:11:03,200 --> 00:11:06,400 Speaker 7: economic sense for the US. In the Canadian case in particular, 207 00:11:06,480 --> 00:11:09,360 Speaker 7: they are way out of scale with the actual problem 208 00:11:09,440 --> 00:11:12,040 Speaker 7: that we have in terms of migration and drug trafficking, 209 00:11:12,080 --> 00:11:14,280 Speaker 7: which is obviously much more of a Mexico problem than 210 00:11:14,320 --> 00:11:17,079 Speaker 7: a Canada problem. So, you know, it all comes down 211 00:11:17,120 --> 00:11:19,880 Speaker 7: to Trump's assessment I think of whether or not he's 212 00:11:20,440 --> 00:11:23,400 Speaker 7: kind of accomplished his political goal here in the Mexican case, again, 213 00:11:23,440 --> 00:11:25,280 Speaker 7: there is much more in the way of actual policy 214 00:11:25,320 --> 00:11:27,679 Speaker 7: cooperation that we need there have been some indications that 215 00:11:27,679 --> 00:11:29,559 Speaker 7: they're making progress in terms of cracking down on some 216 00:11:29,640 --> 00:11:31,920 Speaker 7: of the cartels. So if he wants to, he certainly, 217 00:11:32,040 --> 00:11:33,800 Speaker 7: I think, can do what he did last time and 218 00:11:33,880 --> 00:11:36,360 Speaker 7: just points of progress made and new commitments and call 219 00:11:36,400 --> 00:11:38,440 Speaker 7: it off. The question is what he wants to do, Truman. 220 00:11:38,679 --> 00:11:41,120 Speaker 5: One of the tariffs is going to be a ten percent, 221 00:11:41,679 --> 00:11:45,920 Speaker 5: basically the Trump administration signaling that they understand how important 222 00:11:46,400 --> 00:11:50,360 Speaker 5: Canadian heavy cruit is, especially to the Midwest. But the 223 00:11:50,440 --> 00:11:54,160 Speaker 5: Canadians are also saying they can maybe have recipable tariffs 224 00:11:54,520 --> 00:11:56,719 Speaker 5: on energy. How ugly can this get? 225 00:11:57,760 --> 00:11:57,880 Speaker 4: Hey? 226 00:11:57,920 --> 00:11:58,760 Speaker 3: Can you get very ugly? 227 00:11:58,800 --> 00:12:01,640 Speaker 7: I mean, you know, the initial give order imposing these 228 00:12:01,720 --> 00:12:04,760 Speaker 7: tariffs back on February first made very clear that the 229 00:12:04,880 --> 00:12:07,320 Speaker 7: United States reserves the right to further escalate if there 230 00:12:07,400 --> 00:12:10,800 Speaker 7: is retaliation, and I think that the sensible expectation would 231 00:12:10,840 --> 00:12:12,920 Speaker 7: be that there will be retaliation because the Canadians and 232 00:12:12,920 --> 00:12:16,920 Speaker 7: the Mexicans can't just take this sitting down. So, you know, 233 00:12:17,200 --> 00:12:18,920 Speaker 7: I think there are absolutely is upside to the rates 234 00:12:18,920 --> 00:12:20,880 Speaker 7: if things go really badly. I think we saw as 235 00:12:20,920 --> 00:12:24,720 Speaker 7: you were just talking about in the confrontation with Zelensky 236 00:12:24,840 --> 00:12:27,439 Speaker 7: last week, when things get personal. You know, I do 237 00:12:27,520 --> 00:12:29,559 Speaker 7: think there's a risk that things can go south in 238 00:12:29,640 --> 00:12:32,480 Speaker 7: ways that don't totally line up with either side's objective interests. 239 00:12:32,640 --> 00:12:35,120 Speaker 1: Wait, Tobin, can you develop that please, this idea that 240 00:12:35,280 --> 00:12:38,120 Speaker 1: actually what happened on Friday will influence the likelihood that 241 00:12:38,160 --> 00:12:39,440 Speaker 1: these tariffs go on tomorrow. 242 00:12:40,760 --> 00:12:42,440 Speaker 7: I don't know that there's a direct influence. I think 243 00:12:42,440 --> 00:12:44,480 Speaker 7: it's more just a case study. As Trump themselves said 244 00:12:44,520 --> 00:12:47,000 Speaker 7: in the true social posts that he put out afterwards. 245 00:12:47,040 --> 00:12:49,160 Speaker 7: You know, you sort of you it's telling what can 246 00:12:49,240 --> 00:12:52,800 Speaker 7: come out under emotion. You know, if there is an 247 00:12:52,840 --> 00:12:55,520 Speaker 7: actual move to go forwards to these terrafs, even at 248 00:12:55,520 --> 00:12:59,200 Speaker 7: a reduced rate, like the likelihood of tiffer tab retaliation 249 00:12:59,440 --> 00:13:01,240 Speaker 7: is definitely thing that we need to worry about. And 250 00:13:01,520 --> 00:13:05,040 Speaker 7: if we're locked into a confrontational stance with these two countries, 251 00:13:05,280 --> 00:13:07,160 Speaker 7: you can't rule out the possibility that, you know, sort 252 00:13:07,160 --> 00:13:10,000 Speaker 7: of interpersonally, things go wrong and we find both sides 253 00:13:10,080 --> 00:13:11,960 Speaker 7: kind of dact into their corners, Tobin. 254 00:13:12,320 --> 00:13:15,640 Speaker 5: Tomorrow, we also have a joint address to Congress from 255 00:13:15,720 --> 00:13:18,160 Speaker 5: the President of United Age, which basically is a different 256 00:13:18,160 --> 00:13:19,319 Speaker 5: way of saying we're going to have a state of 257 00:13:19,320 --> 00:13:20,400 Speaker 5: the Union. What are you expecting. 258 00:13:21,440 --> 00:13:23,840 Speaker 7: Yeah, they've done very little in terms of previewing, even 259 00:13:23,880 --> 00:13:25,920 Speaker 7: talking to Republican sources on the Hill. There's not a 260 00:13:25,960 --> 00:13:29,079 Speaker 7: lot of rumors and gossip going around about what it 261 00:13:29,160 --> 00:13:31,319 Speaker 7: is that he might announce. My guess would be that 262 00:13:31,400 --> 00:13:33,960 Speaker 7: it's mostly focused on accomplishments and that we have kind 263 00:13:34,000 --> 00:13:36,920 Speaker 7: of a Promises made, Promises kept theme where he points 264 00:13:36,960 --> 00:13:39,640 Speaker 7: to the massive amount of activity that's already gone on, 265 00:13:39,800 --> 00:13:41,800 Speaker 7: much of which they feel very good about. I'm sure 266 00:13:41,800 --> 00:13:43,880 Speaker 7: they'll have some, you know, tidbits of news. Would be 267 00:13:44,280 --> 00:13:46,960 Speaker 7: uncharacteristic to go into this and have nothing that's that's 268 00:13:47,040 --> 00:13:49,199 Speaker 7: new and headline grabbing. But I think a lot of 269 00:13:49,280 --> 00:13:51,880 Speaker 7: it is going to be, you know, rehearsing and framing 270 00:13:51,960 --> 00:13:53,840 Speaker 7: up the totality what they've done so far. 271 00:13:54,040 --> 00:13:56,360 Speaker 2: Hi Tobin, I appreciate your time as always, sir. Thank 272 00:13:56,440 --> 00:13:58,720 Speaker 2: you Tobermarcus of war for research things could look very 273 00:13:58,760 --> 00:14:11,600 Speaker 2: different tomorrow. Coming up on the program, Liz Young Thomas 274 00:14:11,679 --> 00:14:14,680 Speaker 2: of SOFI on the momentum reversal, Joe Faudman of TAUSE 275 00:14:14,720 --> 00:14:17,240 Speaker 2: the Advisory Group looking ahead to target earnings, and Steve 276 00:14:17,320 --> 00:14:21,040 Speaker 2: Roshutto on why he's constructive on the US economy, we're 277 00:14:21,040 --> 00:14:23,400 Speaker 2: begin to saut with stock's looking to rebound following last 278 00:14:23,440 --> 00:14:26,880 Speaker 2: month's losses. Liz Young Thomas of SOFI, writing, there's been 279 00:14:26,960 --> 00:14:29,960 Speaker 2: a notable shift in which stock sectors and assets are 280 00:14:30,080 --> 00:14:32,440 Speaker 2: leading or lagging the broad market, and it's one that 281 00:14:32,520 --> 00:14:36,360 Speaker 2: can be best described as a reversal of momentum. Liz 282 00:14:36,440 --> 00:14:38,320 Speaker 2: joins us now for more, Liz, I just wonder in 283 00:14:38,360 --> 00:14:41,120 Speaker 2: your mind whether it's anything just more than that. We've 284 00:14:41,200 --> 00:14:44,160 Speaker 2: had discussions about a growth scare, and based on the 285 00:14:44,200 --> 00:14:46,280 Speaker 2: conversations we've had on this program, it feels like there's 286 00:14:46,280 --> 00:14:48,280 Speaker 2: been a massive sentiment shift. And then you look at 287 00:14:48,320 --> 00:14:51,040 Speaker 2: the equity market, it's down by not even five percent. 288 00:14:51,240 --> 00:14:52,480 Speaker 2: How do we square that circle? 289 00:14:54,200 --> 00:14:56,240 Speaker 8: Well, I think there has been a sentiment shift in 290 00:14:56,280 --> 00:14:58,600 Speaker 8: the sense that everything that got us here for the 291 00:14:58,720 --> 00:15:01,400 Speaker 8: last two years has now gone a little bit out 292 00:15:01,440 --> 00:15:03,400 Speaker 8: of favor. And you could have seen some of those 293 00:15:03,520 --> 00:15:06,640 Speaker 8: markers in the second half of twenty twenty four in 294 00:15:06,800 --> 00:15:09,880 Speaker 8: terms that you look at just the AI related stocks, 295 00:15:09,960 --> 00:15:12,920 Speaker 8: the big tech stocks, there'd been more scrutiny over the 296 00:15:13,040 --> 00:15:16,800 Speaker 8: spend and the expectations. So now coming into twenty twenty five, 297 00:15:17,160 --> 00:15:19,760 Speaker 8: investors started to look for growth in other places and 298 00:15:19,840 --> 00:15:23,440 Speaker 8: then layer on top of that the fears about economic growth. 299 00:15:23,600 --> 00:15:26,960 Speaker 8: So when we're looking at this rotation that's occurred under 300 00:15:27,000 --> 00:15:30,240 Speaker 8: the surface in sectors, I think it's quite healthy. The 301 00:15:30,360 --> 00:15:33,600 Speaker 8: difference is that you need a number of different sectors 302 00:15:33,760 --> 00:15:36,120 Speaker 8: to keep up and to pick up the slack if 303 00:15:36,200 --> 00:15:38,960 Speaker 8: technology stocks are not going to be the darlings again 304 00:15:39,000 --> 00:15:39,880 Speaker 8: in twenty twenty. 305 00:15:39,720 --> 00:15:41,840 Speaker 2: Five, so let's pick up on the growth scare theme. 306 00:15:41,960 --> 00:15:43,920 Speaker 2: Discretionary has had a difficult run of it, but you 307 00:15:43,960 --> 00:15:45,960 Speaker 2: could say a lot of that is just tesla. We 308 00:15:46,080 --> 00:15:48,800 Speaker 2: have seen the bond market start to respond though, seven 309 00:15:48,840 --> 00:15:51,720 Speaker 2: consecutive weeks of lower bond yields on a ten year maturity. 310 00:15:51,960 --> 00:15:54,560 Speaker 2: Are you seeing high yield credit confirm some of those 311 00:15:54,600 --> 00:15:55,280 Speaker 2: growth jitters. 312 00:15:57,040 --> 00:16:00,320 Speaker 8: You do see high yield responding to that consider and 313 00:16:00,800 --> 00:16:02,560 Speaker 8: that's been something that if you look at just high 314 00:16:02,600 --> 00:16:05,320 Speaker 8: yield spreads over the last few months, you've seen this 315 00:16:05,520 --> 00:16:08,280 Speaker 8: grind lower and spreads. High yield, as we know, is 316 00:16:08,400 --> 00:16:11,520 Speaker 8: highly correlated with the equity market. But there has been 317 00:16:11,560 --> 00:16:14,640 Speaker 8: a spike in high yield spreads over the last let's 318 00:16:14,640 --> 00:16:17,120 Speaker 8: call it three to four weeks, which I think again 319 00:16:17,560 --> 00:16:20,680 Speaker 8: is healthy. There should be a correlation with the equity market. 320 00:16:21,080 --> 00:16:23,840 Speaker 8: The big change that's occurred so far in twenty twenty 321 00:16:23,920 --> 00:16:27,120 Speaker 8: five is that yield started to respond, and I'm talking 322 00:16:27,160 --> 00:16:30,480 Speaker 8: about ten year treasury yields started to respond to growth 323 00:16:30,560 --> 00:16:33,520 Speaker 8: fears more so than inflation fears. So what we were 324 00:16:33,560 --> 00:16:35,680 Speaker 8: seeing in the latter half of twenty four and even 325 00:16:35,720 --> 00:16:38,080 Speaker 8: the early weeks of twenty five were that the ten 326 00:16:38,120 --> 00:16:41,400 Speaker 8: year yield was rising because of inflation fears. Well, now 327 00:16:41,440 --> 00:16:43,480 Speaker 8: the ten year yield has come down quite a bit 328 00:16:43,800 --> 00:16:45,000 Speaker 8: because of growth fears. 329 00:16:45,480 --> 00:16:47,120 Speaker 2: The shift, though, is that that. 330 00:16:47,360 --> 00:16:50,320 Speaker 8: Drop in the ten year yield has not served as 331 00:16:50,360 --> 00:16:53,640 Speaker 8: a tailwind for stocks, So you're seeing those growth fears 332 00:16:53,760 --> 00:16:57,560 Speaker 8: bake through into stocks, into high yield spreads, and into 333 00:16:57,640 --> 00:16:58,720 Speaker 8: the tenure treasure yield. 334 00:16:59,240 --> 00:17:01,040 Speaker 1: The reason why it is such a difficult market right 335 00:17:01,120 --> 00:17:03,120 Speaker 1: now is because there's so many different themes that are 336 00:17:03,160 --> 00:17:04,840 Speaker 1: layered on top of each other. We started the show 337 00:17:04,920 --> 00:17:08,200 Speaker 1: talking about the potential for tariffs to come on on Tuesday, 338 00:17:08,280 --> 00:17:12,160 Speaker 1: a potential response from the European Union to different geopolitical developments, 339 00:17:12,200 --> 00:17:16,160 Speaker 1: including the meeting on Friday with Vladimir Zelenski and Donald Trump. Liz, 340 00:17:16,520 --> 00:17:19,520 Speaker 1: from your perspective, what is more interesting to you this 341 00:17:19,680 --> 00:17:23,360 Speaker 1: week and has the bigger catalyst effect potentially on the markets. 342 00:17:23,560 --> 00:17:26,920 Speaker 1: What we get on Tuesday with respect to potential tariffs 343 00:17:26,960 --> 00:17:29,840 Speaker 1: in the state of the Union, or the economic data 344 00:17:30,160 --> 00:17:33,199 Speaker 1: that culminates with the non farm payrolls report on Friday. 345 00:17:35,240 --> 00:17:37,280 Speaker 8: Well, of course, if the non farm payrolls report is 346 00:17:37,280 --> 00:17:40,080 Speaker 8: a surprise of some sort, that'll be likely the more 347 00:17:40,160 --> 00:17:43,080 Speaker 8: market moving event. The tariffs, if they do go into 348 00:17:43,160 --> 00:17:47,520 Speaker 8: place as announced tomorrow. The market really already reacted to 349 00:17:47,640 --> 00:17:50,399 Speaker 8: that back in January. Now, of course there needs to 350 00:17:50,480 --> 00:17:53,000 Speaker 8: be some repricing. There's been quite a bit of volatility 351 00:17:53,080 --> 00:17:55,680 Speaker 8: since then and a lot of uncertainty. But if we 352 00:17:55,760 --> 00:17:57,639 Speaker 8: do get a surprise on the payrolls report, I think 353 00:17:57,680 --> 00:18:01,080 Speaker 8: that's a more market moving event. The trouble is that 354 00:18:01,160 --> 00:18:02,280 Speaker 8: we have to make it all the way through the 355 00:18:02,320 --> 00:18:04,960 Speaker 8: week before we get there, so I don't expect a 356 00:18:05,040 --> 00:18:07,080 Speaker 8: huge surprise on that payrolls report. 357 00:18:07,560 --> 00:18:07,760 Speaker 1: Yet. 358 00:18:08,000 --> 00:18:10,320 Speaker 8: I do think that as the first half of this 359 00:18:10,480 --> 00:18:14,000 Speaker 8: year progresses, we're going to get some bumpier data in payrolls, 360 00:18:14,080 --> 00:18:16,200 Speaker 8: largely because of some things that are going on in 361 00:18:16,400 --> 00:18:19,480 Speaker 8: Washington and just weather patterns other things that could be 362 00:18:19,560 --> 00:18:21,520 Speaker 8: going on. In the construction market, and the fact that 363 00:18:21,880 --> 00:18:24,480 Speaker 8: mortgage rates have stayed so high, so the construction market 364 00:18:24,560 --> 00:18:27,159 Speaker 8: has slowed down a bit, but I don't expect a 365 00:18:27,240 --> 00:18:28,920 Speaker 8: huge surprise this week in payrolls. 366 00:18:29,119 --> 00:18:32,399 Speaker 1: Okay, So given all of this, are you actually leaning 367 00:18:32,480 --> 00:18:34,240 Speaker 1: into some of the selloff or do you think that 368 00:18:34,440 --> 00:18:37,480 Speaker 1: actually that this is a sign that things are going 369 00:18:37,560 --> 00:18:40,000 Speaker 1: to be jittery for a while and people probably should 370 00:18:40,040 --> 00:18:43,000 Speaker 1: reduce risk on some level because of that uncertainty. 371 00:18:44,560 --> 00:18:46,280 Speaker 8: I think you have to, first of all, to find 372 00:18:46,359 --> 00:18:48,720 Speaker 8: what you mean by reduce risk as an investor. So 373 00:18:48,760 --> 00:18:51,320 Speaker 8: if you're looking at your portfolio and you are overweight 374 00:18:51,520 --> 00:18:55,640 Speaker 8: naturally some of those meg seven stocks, technology certain themes, 375 00:18:55,720 --> 00:18:59,240 Speaker 8: maybe it's the AI theme. Many investors have become overweight 376 00:18:59,320 --> 00:19:02,240 Speaker 8: those themes just because the performance has been so strong 377 00:19:02,400 --> 00:19:04,919 Speaker 8: for the last two years. So if you're looking at 378 00:19:04,960 --> 00:19:09,240 Speaker 8: reducing risk by diversifying out the drivers that you're exposed 379 00:19:09,240 --> 00:19:11,800 Speaker 8: to in the portfolio, yes, absolutely, I do think it's 380 00:19:11,880 --> 00:19:14,240 Speaker 8: time to do that, and I think you can broaden 381 00:19:14,320 --> 00:19:17,560 Speaker 8: out into some sectors that have the opportunity to produce 382 00:19:17,680 --> 00:19:20,400 Speaker 8: growth but are trading at lower multiples and aren't quite 383 00:19:20,440 --> 00:19:23,639 Speaker 8: as exposed to some of this volatility that's occurring on 384 00:19:23,680 --> 00:19:26,080 Speaker 8: a day to day or week to week basis. Those 385 00:19:26,160 --> 00:19:30,000 Speaker 8: sectors for me would be healthcare first and foremost. I'd 386 00:19:30,119 --> 00:19:32,680 Speaker 8: be looking at things like materials. If we're worried about 387 00:19:32,720 --> 00:19:36,200 Speaker 8: inflation heating up again, you can look at industrials, you 388 00:19:36,280 --> 00:19:39,080 Speaker 8: can look at financials. Financials haven't traded great for the 389 00:19:39,160 --> 00:19:41,840 Speaker 8: last few weeks, but that could be an opportunity. And 390 00:19:41,920 --> 00:19:44,440 Speaker 8: then I still really like gold here. Despite the fact 391 00:19:44,480 --> 00:19:46,800 Speaker 8: that it's hit new all time high after new all 392 00:19:46,880 --> 00:19:49,480 Speaker 8: time high, there continues to be a lot of appetite 393 00:19:49,480 --> 00:19:51,800 Speaker 8: in that market, both institutional and retail. 394 00:19:52,040 --> 00:19:54,560 Speaker 2: Massive run over the last year. Lets appreciate your time 395 00:19:54,680 --> 00:19:56,520 Speaker 2: as always and enjoyed the race of note as well. 396 00:19:56,760 --> 00:20:09,080 Speaker 2: List Young tell us that of sie flying States shoots off. 397 00:20:09,119 --> 00:20:12,639 Speaker 2: Miszoo says the US fundamentals are healthy. He runs the following. 398 00:20:12,720 --> 00:20:15,159 Speaker 2: The underlying strength of the business cycle is evident in 399 00:20:15,200 --> 00:20:17,760 Speaker 2: the heart attanks of releases. They will dominate in the 400 00:20:17,840 --> 00:20:20,040 Speaker 2: longer run. Steve joins us now for more stave good morning, 401 00:20:20,359 --> 00:20:22,400 Speaker 2: morning to thank you sir, A lot of paint become 402 00:20:22,400 --> 00:20:25,360 Speaker 2: almost bearish. Give us the constructive take of the US economy. 403 00:20:25,480 --> 00:20:27,200 Speaker 6: Well, I think there are a lot of people who've 404 00:20:27,200 --> 00:20:29,399 Speaker 6: been wanting to call recession. Okay, when you think about it, 405 00:20:29,440 --> 00:20:32,040 Speaker 6: since twenty twenty two, we're now in our seventh recession theme. 406 00:20:32,640 --> 00:20:35,040 Speaker 6: Each one has not pail that paired out, and I 407 00:20:35,119 --> 00:20:38,280 Speaker 6: don't think this one will either. The concept that DOJE 408 00:20:38,359 --> 00:20:40,560 Speaker 6: is going to create some kind of major lapse and 409 00:20:40,680 --> 00:20:43,240 Speaker 6: employment growth on the government side of the equation that 410 00:20:43,359 --> 00:20:46,200 Speaker 6: the private sector will not be able to absorb over time, 411 00:20:46,240 --> 00:20:48,480 Speaker 6: I think is just incorrect to the extent that people 412 00:20:48,600 --> 00:20:51,280 Speaker 6: worried about the fact that we're reducing immigration and where 413 00:20:51,320 --> 00:20:52,879 Speaker 6: all the work is going to come from. Well, now, 414 00:20:52,920 --> 00:20:55,600 Speaker 6: if you have a transfer from public sector to private 415 00:20:55,640 --> 00:20:58,400 Speaker 6: sector employment, maybe it's actually a healthy thing that takes 416 00:20:58,440 --> 00:21:00,240 Speaker 6: place in terms of the economy. A leads terms of 417 00:21:00,280 --> 00:21:02,600 Speaker 6: the transition. The thing you do have to worry about 418 00:21:02,680 --> 00:21:05,600 Speaker 6: is negatives usually come before positives. So yes, you're in 419 00:21:05,720 --> 00:21:07,680 Speaker 6: this environment now where a lot of the soft data 420 00:21:07,720 --> 00:21:10,280 Speaker 6: has turned negative, a lot of people have turned negative, 421 00:21:10,480 --> 00:21:13,280 Speaker 6: and therefore everyone's willing to jump on the recession story again. 422 00:21:13,320 --> 00:21:15,960 Speaker 6: As I said, this is the seventh recession story since 423 00:21:16,000 --> 00:21:19,560 Speaker 6: twenty twenty two. Think about that seven in less than 424 00:21:19,680 --> 00:21:23,920 Speaker 6: three years, and everyone's convinced each one is going to 425 00:21:24,000 --> 00:21:26,680 Speaker 6: be there, and everyone wants shock and all type headlines. 426 00:21:26,920 --> 00:21:29,880 Speaker 6: We saw a major investor in the marketplace they screaming 427 00:21:29,880 --> 00:21:32,479 Speaker 6: about a global debt crisis. We saw Warren Buffett over 428 00:21:32,520 --> 00:21:35,440 Speaker 6: the weekend talking about tarifs as basically a moral equivalent 429 00:21:35,520 --> 00:21:38,960 Speaker 6: to war. Everyone's going for big headlines. The reality is, 430 00:21:39,040 --> 00:21:41,560 Speaker 6: look at where the equity market is. We've taken out 431 00:21:41,640 --> 00:21:44,959 Speaker 6: the Trump bump, that's basically what we've done. Look at 432 00:21:45,000 --> 00:21:47,080 Speaker 6: the bond market. We're still well up from where we 433 00:21:47,160 --> 00:21:49,159 Speaker 6: were in September, even though we're well off from the 434 00:21:49,240 --> 00:21:51,439 Speaker 6: four eighty HI but four eighty has been a very 435 00:21:51,520 --> 00:21:54,440 Speaker 6: very strong resistance level repeatedly. So I think what we're 436 00:21:54,480 --> 00:21:58,120 Speaker 6: really looking at is consolidations within markets rather than really 437 00:21:58,200 --> 00:21:59,280 Speaker 6: breaking out a new trends. 438 00:21:59,280 --> 00:22:02,159 Speaker 2: We'll let policy define bad versus good. They're in the 439 00:22:02,200 --> 00:22:04,520 Speaker 2: business of doing just that. Who's the angel, who's the devil? 440 00:22:04,600 --> 00:22:08,320 Speaker 2: They can decide. We're interested in markets of betsa versus worse. 441 00:22:08,600 --> 00:22:10,280 Speaker 2: It's growth is going to be bets are in twenty 442 00:22:10,400 --> 00:22:14,600 Speaker 2: five versus twenty four three percent GDP down to two 443 00:22:14,680 --> 00:22:17,119 Speaker 2: point five or up to three point five? What do 444 00:22:17,160 --> 00:22:17,800 Speaker 2: you expect to think. 445 00:22:18,280 --> 00:22:20,000 Speaker 6: Well, to be honest with you, I think if we're 446 00:22:20,040 --> 00:22:22,440 Speaker 6: in that two point five to three area, you're the 447 00:22:22,560 --> 00:22:27,320 Speaker 6: fifth year of above trend economic growth. That's never happened before, 448 00:22:28,160 --> 00:22:30,320 Speaker 6: and I don't in the post war period. And I 449 00:22:30,440 --> 00:22:33,560 Speaker 6: don't think that's a bad performance. It's certainly a performance 450 00:22:33,640 --> 00:22:36,639 Speaker 6: that's consistent with where bottom up earnings expectations are for 451 00:22:36,720 --> 00:22:38,840 Speaker 6: this year, which is around twelve and a half percent. 452 00:22:39,160 --> 00:22:41,160 Speaker 6: And then when you look at all the negative headlines 453 00:22:41,160 --> 00:22:44,360 Speaker 6: about earnings, our earnings revision tracker is minus twelve point 454 00:22:44,400 --> 00:22:47,240 Speaker 6: six percent, which means twelve point six percent more companies 455 00:22:47,280 --> 00:22:50,320 Speaker 6: are downgrading earnings and upgrading them. Twelve point six is 456 00:22:50,600 --> 00:22:54,520 Speaker 6: basically correction phase. It's not contraction phase in a market. 457 00:22:55,280 --> 00:22:57,880 Speaker 6: And I think these are the important fundamentals. The headlines 458 00:22:57,920 --> 00:22:59,640 Speaker 6: are getting out of step with reality. 459 00:23:00,000 --> 00:23:01,600 Speaker 1: Hold on a second, because it's a little bit of 460 00:23:01,600 --> 00:23:04,200 Speaker 1: a straw man argupant. I've got to be honest, because honestly, 461 00:23:04,280 --> 00:23:06,400 Speaker 1: there have been a number of headlines that have said recession, 462 00:23:06,640 --> 00:23:09,119 Speaker 1: but when we talk to investors, most of them do 463 00:23:09,240 --> 00:23:11,800 Speaker 1: not say that the recession is their base case. Most 464 00:23:11,840 --> 00:23:14,320 Speaker 1: of them believe that this is a slowdown, but it 465 00:23:14,440 --> 00:23:16,720 Speaker 1: is a market slowdown, and maybe it's catch up from 466 00:23:16,760 --> 00:23:21,000 Speaker 1: some of the post COVID period that was inflated by 467 00:23:21,080 --> 00:23:23,920 Speaker 1: some of the spending by the government. How do we 468 00:23:24,080 --> 00:23:28,080 Speaker 1: measure whether this is something that is underpriced as a 469 00:23:28,160 --> 00:23:31,119 Speaker 1: risk in the economy in markets the idea that the 470 00:23:31,200 --> 00:23:33,760 Speaker 1: slowdown is more significant that people thought, even if it's 471 00:23:33,760 --> 00:23:37,160 Speaker 1: not recession. Right, at what point is it not workable 472 00:23:37,240 --> 00:23:37,840 Speaker 1: for you anymore? 473 00:23:37,960 --> 00:23:40,560 Speaker 6: When you've got to get below trend gdpay and you've 474 00:23:40,560 --> 00:23:42,520 Speaker 6: got to have an argument that you're going to sustain 475 00:23:42,680 --> 00:23:45,680 Speaker 6: below trend gdpay. And we're sitting in an environment right 476 00:23:45,760 --> 00:23:48,040 Speaker 6: now where the Federal Reserve is cutting strains one hundred 477 00:23:48,040 --> 00:23:50,920 Speaker 6: basis points, the forward structure of rates is again anticipating 478 00:23:50,960 --> 00:23:54,200 Speaker 6: fifty basis points more rate cuts. We've taken tenure note 479 00:23:54,280 --> 00:23:57,160 Speaker 6: off the peak by sixty basis points. So all those 480 00:23:57,240 --> 00:23:59,439 Speaker 6: factors are coming in against the balance sheets that are 481 00:23:59,480 --> 00:24:02,200 Speaker 6: very very hell a liquidity that's still very ample in 482 00:24:02,240 --> 00:24:05,680 Speaker 6: the system, excess savings globally that's being generated. Going to 483 00:24:05,720 --> 00:24:07,960 Speaker 6: be looking for the best alternative. So I think you 484 00:24:08,119 --> 00:24:10,720 Speaker 6: have to get to a sustained period below trends GDPAI, 485 00:24:11,040 --> 00:24:12,360 Speaker 6: and I don't see that in the car. 486 00:24:12,600 --> 00:24:15,439 Speaker 1: So this is ultimately comes down to a FED argument, 487 00:24:15,640 --> 00:24:18,280 Speaker 1: This idea that if the FED cuts right now in 488 00:24:18,400 --> 00:24:21,560 Speaker 1: response to a weakening trend, that you think it could 489 00:24:21,560 --> 00:24:24,480 Speaker 1: be the policy error that could rejigger some sort of 490 00:24:24,560 --> 00:24:28,440 Speaker 1: inflation or some sort of maybe positive growth shock. Is 491 00:24:28,520 --> 00:24:29,160 Speaker 1: that what you're saying. 492 00:24:29,240 --> 00:24:31,800 Speaker 6: If the FED were to cut again in this environment, 493 00:24:31,920 --> 00:24:34,840 Speaker 6: I think you'll quickly see bond yields retrace theirself back 494 00:24:34,840 --> 00:24:36,800 Speaker 6: to the four eighty level. Not so sure they break 495 00:24:36,840 --> 00:24:38,600 Speaker 6: the four eighty level, but I think they'll push back 496 00:24:38,880 --> 00:24:41,680 Speaker 6: because people will realize fundamentally this economy. As you said, 497 00:24:41,800 --> 00:24:43,240 Speaker 6: a lot of the investors you talk to the same 498 00:24:43,280 --> 00:24:45,520 Speaker 6: people the issuers I talk to, and the investors I 499 00:24:45,560 --> 00:24:47,800 Speaker 6: talk to. All of these people are telling me business 500 00:24:47,880 --> 00:24:50,800 Speaker 6: is really good. You know, things aren't a problem. And 501 00:24:50,880 --> 00:24:55,200 Speaker 6: yet you have this negative headlines continuously beating on people, 502 00:24:55,600 --> 00:24:58,280 Speaker 6: and I think as a result of that, you're holding 503 00:24:58,320 --> 00:25:00,680 Speaker 6: down the expectations. If the federal deserve to come in 504 00:25:00,680 --> 00:25:03,080 Speaker 6: and cut interest rates again, I think people will quickly 505 00:25:03,160 --> 00:25:04,000 Speaker 6: rethink the story. 506 00:25:04,240 --> 00:25:06,960 Speaker 5: Do you think the negative headlines, though, are actually creating uncertainty? 507 00:25:07,040 --> 00:25:08,560 Speaker 5: People are on the sidelines. 508 00:25:09,119 --> 00:25:11,359 Speaker 6: I think there are people who are sitting there saying, 509 00:25:11,760 --> 00:25:15,239 Speaker 6: why do I get involved at this particular juncture by 510 00:25:15,280 --> 00:25:17,480 Speaker 6: the same thing the investor side of the base on 511 00:25:17,640 --> 00:25:19,480 Speaker 6: the issuer side of the base. Look at what they're 512 00:25:19,480 --> 00:25:21,400 Speaker 6: doing in terms of the number of issues coming to market. 513 00:25:21,480 --> 00:25:23,320 Speaker 6: They're willing to sell at these levels. They're telling you 514 00:25:23,640 --> 00:25:27,160 Speaker 6: these levels are attractive, These spreads are attractive longer term. 515 00:25:27,560 --> 00:25:29,160 Speaker 6: So I think what you have in here, and again 516 00:25:29,280 --> 00:25:31,280 Speaker 6: the bond market investors have pulled us down from four 517 00:25:31,280 --> 00:25:33,600 Speaker 6: to eighty to four to twenty five, so there's been 518 00:25:33,600 --> 00:25:35,280 Speaker 6: a substantial move. So I think they've put a lot 519 00:25:35,320 --> 00:25:37,440 Speaker 6: of money to work. I think we're just getting to 520 00:25:37,520 --> 00:25:40,159 Speaker 6: the point now where so much negative news is and 521 00:25:40,600 --> 00:25:44,200 Speaker 6: negative economic news and positive bond news. Think about what's 522 00:25:44,280 --> 00:25:47,080 Speaker 6: priced into the bond market right now, seventh recession call. 523 00:25:47,400 --> 00:25:49,720 Speaker 6: Not only that Besson's going to come up with something 524 00:25:49,800 --> 00:25:52,480 Speaker 6: sleight of hand to reduce eight hundred billion dollars worth 525 00:25:52,560 --> 00:25:54,680 Speaker 6: of borrowing this year. Doge is going to save this 526 00:25:54,800 --> 00:25:57,520 Speaker 6: a trillion dollars every year for the next ten years. 527 00:25:58,040 --> 00:25:59,640 Speaker 6: All of this is priced into the market. 528 00:25:59,640 --> 00:26:00,120 Speaker 1: And where. 529 00:26:01,640 --> 00:26:02,800 Speaker 6: Why aren't we at two percent? 530 00:26:03,840 --> 00:26:08,080 Speaker 5: So contortion'slock puts it this way, we're in a modest 531 00:26:08,119 --> 00:26:10,920 Speaker 5: stagflation shocked to the economy, not a recession. Do you 532 00:26:10,960 --> 00:26:14,080 Speaker 5: see any stagflationary fears? Muhammad Alarian said the same thing 533 00:26:14,119 --> 00:26:14,760 Speaker 5: to us this morning. 534 00:26:14,960 --> 00:26:20,439 Speaker 6: Stagflation requires that you believe inflation is accelerating in an 535 00:26:20,600 --> 00:26:24,000 Speaker 6: environment where the unemployment rate is rising. I don't see 536 00:26:24,000 --> 00:26:25,160 Speaker 6: the unemployment rate rising. 537 00:26:25,440 --> 00:26:26,359 Speaker 5: Four point one percent is. 538 00:26:26,359 --> 00:26:28,840 Speaker 6: Still below the natural rate. I mean, where do we 539 00:26:28,920 --> 00:26:30,720 Speaker 6: have to be three point four before they turn around 540 00:26:30,760 --> 00:26:33,720 Speaker 6: say the labor market's tight. So the reality is the 541 00:26:33,800 --> 00:26:37,760 Speaker 6: labor market's healthy and inflation is at three not at two. 542 00:26:38,400 --> 00:26:41,800 Speaker 6: Is that the end of the world. No. Does it 543 00:26:41,880 --> 00:26:45,840 Speaker 6: suggest bond yields are expensive, Yes, but it's not the 544 00:26:46,000 --> 00:26:49,280 Speaker 6: end of the world in terms of average individuals out 545 00:26:49,320 --> 00:26:51,760 Speaker 6: there in the country, two percent inflation versus three percent 546 00:26:51,760 --> 00:26:53,800 Speaker 6: inflation not get a bank or them in a world 547 00:26:53,840 --> 00:26:56,639 Speaker 6: where hourly earnings growth is going at four point one percent. 548 00:26:57,359 --> 00:26:58,920 Speaker 6: And that's the other thing to look at in terms 549 00:26:58,960 --> 00:27:00,920 Speaker 6: of the payroll numbers that come out on Friday, is 550 00:27:01,000 --> 00:27:03,760 Speaker 6: that hourly earnings number and the unemployment rate. Besides the 551 00:27:03,800 --> 00:27:05,840 Speaker 6: slowdown that we're probably going to see a employment one 552 00:27:05,920 --> 00:27:08,480 Speaker 6: hundred and fifty thousand perore employment is very consistent with 553 00:27:08,600 --> 00:27:11,240 Speaker 6: trend GDP. Question is how much of that is a 554 00:27:11,280 --> 00:27:12,920 Speaker 6: function of weather. How much of that was a function 555 00:27:13,000 --> 00:27:14,560 Speaker 6: of for as far as how much of that was 556 00:27:14,600 --> 00:27:17,800 Speaker 6: a function of DOGE, we don't know. The reality is 557 00:27:17,840 --> 00:27:19,760 Speaker 6: when you look at the moving average of these things, 558 00:27:19,960 --> 00:27:22,040 Speaker 6: they're all doing fairly healthy, especially when you look got 559 00:27:22,200 --> 00:27:24,240 Speaker 6: on a year of a year basis. There's still well 560 00:27:24,280 --> 00:27:26,240 Speaker 6: with in areas that support growth to the economy. 561 00:27:26,359 --> 00:27:28,400 Speaker 2: You acknowledge in the air term, though we might see 562 00:27:28,440 --> 00:27:30,320 Speaker 2: some weak prints. Based on what you said at the 563 00:27:30,359 --> 00:27:32,960 Speaker 2: start of the conversation, the destination might be good, and 564 00:27:33,040 --> 00:27:35,040 Speaker 2: I agree with you. You could increase the dynamism of 565 00:27:35,040 --> 00:27:37,639 Speaker 2: the American economy by removing the government allowing the private 566 00:27:37,680 --> 00:27:39,840 Speaker 2: sector to step in. That all makes a lot of 567 00:27:39,920 --> 00:27:42,080 Speaker 2: sense in the net term, though, how much weakness would 568 00:27:42,080 --> 00:27:44,280 Speaker 2: you expect to experience in the next couple of months. 569 00:27:44,320 --> 00:27:45,840 Speaker 2: You might describe it as a head fake if we 570 00:27:45,920 --> 00:27:48,080 Speaker 2: get here, because we'll still end up somewhere good. But 571 00:27:48,119 --> 00:27:50,280 Speaker 2: I'm trying to understand what you expect in the next 572 00:27:50,320 --> 00:27:50,800 Speaker 2: few months. 573 00:27:51,160 --> 00:27:52,440 Speaker 6: I mean to be honest with if we got to 574 00:27:52,480 --> 00:27:56,080 Speaker 6: two percent GDP, I'd be fine with it what you 575 00:27:56,160 --> 00:27:58,440 Speaker 6: saw in terms of the Atlanta FED numbers. When you 576 00:27:58,480 --> 00:28:00,840 Speaker 6: think about we had this massive trade fics chock right, 577 00:28:01,000 --> 00:28:04,240 Speaker 6: it didn't show up in wholesale or retail inventories, and 578 00:28:04,320 --> 00:28:05,960 Speaker 6: everyone sits here and says, well, it can't be a 579 00:28:06,040 --> 00:28:09,320 Speaker 6: manufacturing inventory as well. If you're manufacturing and you're pulling 580 00:28:09,359 --> 00:28:12,240 Speaker 6: in a lot of intermediate product, we don't know the 581 00:28:12,320 --> 00:28:16,080 Speaker 6: manufacturing inventory yet, we'll see them. Maybe the manufacturing inventories 582 00:28:16,080 --> 00:28:18,199 Speaker 6: were very, very big. Maybe it's a big one time 583 00:28:18,280 --> 00:28:21,920 Speaker 6: shock and manufacturing. Maybe this data all gets revised, Maybe 584 00:28:21,960 --> 00:28:25,680 Speaker 6: the consumer numbers get revised. The reality is you're jumping 585 00:28:25,880 --> 00:28:29,879 Speaker 6: on every little marginal change when the reality is the 586 00:28:30,040 --> 00:28:34,840 Speaker 6: fundamental trend has been healthy. We've caused called seven recessions 587 00:28:35,720 --> 00:28:38,320 Speaker 6: since twenty twenty two, and we've had an economy that 588 00:28:38,520 --> 00:28:41,160 Speaker 6: is growing above trend for four years, going to be 589 00:28:41,280 --> 00:28:44,400 Speaker 6: five years. Think about it. There's a disconnect between the 590 00:28:44,520 --> 00:28:45,760 Speaker 6: logic and the reality. 591 00:28:45,880 --> 00:28:47,480 Speaker 2: Steve, It's going to say and catch up as a 592 00:28:47,560 --> 00:28:49,960 Speaker 2: west Thank you, sir, Steve A shits so of Miszilo. 593 00:28:50,800 --> 00:28:54,320 Speaker 2: This is the Bloomberg Seventans podcast bringing you the best 594 00:28:54,400 --> 00:28:57,920 Speaker 2: in markets, economics, angiopolitics. You can watch the show live 595 00:28:58,040 --> 00:29:01,000 Speaker 2: on Bloomberg TV weekday mornings from six am to nine 596 00:29:01,080 --> 00:29:04,760 Speaker 2: am Eastern, Subscribe to the podcast on Apple, Spotify, or 597 00:29:04,840 --> 00:29:07,440 Speaker 2: anywhere else you listen, and as always, on the Bloomberg 598 00:29:07,520 --> 00:29:09,400 Speaker 2: Terminal and the Bloomberg Business app.