WEBVTT - Bloomberg Surveillance TV: March 3, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.080 Terminal and the Bloomberg Business app. We begin the sour 0:00:37.120 --> 0:00:39.800 with stock steady as investors prepare for a week full 0:00:40.000 --> 0:00:42.680 of event risk. Muhammad al Aaron of Queen's College, Cambridge 0:00:42.680 --> 0:00:45.080 writing a heavy data week on tap for the US 0:00:45.240 --> 0:00:48.040 with the monthly jobs report, lots of speaking engagements for 0:00:48.080 --> 0:00:51.800 policymakers including Treasury Secretary Besson and Fedcha J. Powell, and 0:00:51.840 --> 0:00:54.920 the latest on tariffs and DOGE. Mohammed joins us now 0:00:54.920 --> 0:00:57.640 for more. Mohammed, Welcome to the program, Sir. Where to begin? 0:00:57.800 --> 0:01:00.400 I think we start on Friday and the rupture in 0:01:00.440 --> 0:01:04.040 Transatlantic relations and the breakdown in the Oval Office. When 0:01:04.080 --> 0:01:06.680 you saw that and when you think about the consequences 0:01:06.680 --> 0:01:10.600 it could have for the economic picture in Europe, for 0:01:10.760 --> 0:01:13.640 military spending, and for what it could mean for financial markets. 0:01:13.640 --> 0:01:15.479 To Muhammad, what are your thoughts at the moment? 0:01:17.200 --> 0:01:18.160 Thanks for having me, John. 0:01:18.480 --> 0:01:23.440 My thoughts is that that feeds into some existing themes, 0:01:23.600 --> 0:01:28.120 both top down and bottom up and intensifies them. So, 0:01:28.280 --> 0:01:32.320 top down, we've had issues of fiscal realignment, and that's 0:01:32.319 --> 0:01:35.640 going to feed into fiscal realignment, including putting pressure on 0:01:35.680 --> 0:01:38.840 the dead break in Germany, including the question of how 0:01:38.840 --> 0:01:39.920 does it interact with what. 0:01:39.920 --> 0:01:41.119 Dodge is doing in the US. 0:01:41.880 --> 0:01:44.920 Secondly, it feeds into the energy market and how you 0:01:44.920 --> 0:01:48.440 think about the energy market. And third it feeds into 0:01:48.440 --> 0:01:51.680 the realignment of the global order that also has a 0:01:51.720 --> 0:01:53.840 trade element to it and a currency element to it. 0:01:53.840 --> 0:01:56.200 So you have all these top down factors that are 0:01:56.240 --> 0:01:59.520 being amplified, and then the bottom up factor that's being 0:01:59.520 --> 0:02:05.160 amplified defense and we are seeing significant sector differences occurring as. 0:02:05.000 --> 0:02:05.760 You would expect. 0:02:06.160 --> 0:02:09.839 So I think of it, John, not as unprecedented, which 0:02:09.880 --> 0:02:12.880 is the words that the political science and the international 0:02:12.880 --> 0:02:16.160 relations people are using, but in the field of economics 0:02:16.200 --> 0:02:20.200 and finance, it is amplifying things that were there already. 0:02:20.080 --> 0:02:21.880 So Muhammed, a number of weeks ago, we said on 0:02:21.880 --> 0:02:23.880 this program that the president of the United States may 0:02:23.919 --> 0:02:26.640 well push the Europeans into doing things that might be 0:02:26.680 --> 0:02:29.280 good for them. You wrote in the Financial Times about 0:02:29.280 --> 0:02:33.040 a month ago, the mounting risk to US exceptionalism. How 0:02:33.080 --> 0:02:35.720 does some of these things across these dimensions play into 0:02:35.919 --> 0:02:37.200 what you wrote about a month ago. 0:02:38.639 --> 0:02:40.919 So, John, both the good news and the bad news 0:02:41.080 --> 0:02:46.200 is we have a very action oriented administration has come in. 0:02:47.240 --> 0:02:51.880 It has hit the ground running, if not sprinting, and 0:02:51.919 --> 0:02:55.120 if you are business, it feels like you're trying to 0:02:55.200 --> 0:02:59.200 drink from a fire hose. There's energy issues, there's the 0:02:59.200 --> 0:03:02.680 immigration issue, there are trade issues, that public sector issues, 0:03:02.880 --> 0:03:06.160 including public sector contract their regulation issues. 0:03:06.600 --> 0:03:08.080 So you're trying to. 0:03:08.080 --> 0:03:12.600 Absorb all this and what we've seen is sentiment has 0:03:12.600 --> 0:03:15.360 come down and there's been a wait and see attitude 0:03:15.720 --> 0:03:19.720 because most of these things impact both your income and 0:03:19.800 --> 0:03:23.880 your expenditure, so it's really hard to figure out how 0:03:23.919 --> 0:03:25.799 all these things are going to play out. Then there 0:03:25.880 --> 0:03:28.880 is the international relation side of it, your trading side 0:03:28.880 --> 0:03:32.800 of it. So the worry that I have is that 0:03:33.000 --> 0:03:37.640 the lack of ability by the public sector to absorb 0:03:37.680 --> 0:03:41.720 all This results in a wait and see attitude. That 0:03:41.760 --> 0:03:44.000 wait and see attitude comes at a time when we 0:03:44.040 --> 0:03:47.040 already have a bit of a whiff of sackflation going on. 0:03:47.920 --> 0:03:52.240 And next thing, you know, people start questioning US economic exceptionalism. 0:03:52.400 --> 0:03:56.600 And if they do, two things happen. You start questioning 0:03:56.640 --> 0:03:59.840 the only reliable engine of growth for the global economy, 0:04:00.280 --> 0:04:03.520 and you start questioning the shield that markets have had 0:04:04.200 --> 0:04:07.760 against all sorts of geopolitical and political aspects. 0:04:08.320 --> 0:04:10.800 That's a lot of hair on the American exceptionalism story. 0:04:10.800 --> 0:04:12.760 And we've been talking to people about it for the 0:04:12.840 --> 0:04:15.840 past couple of weeks about the concerns, the lack of certainty, 0:04:15.920 --> 0:04:18.680 the on hold kind of nature of a lot of CEOs. 0:04:18.720 --> 0:04:21.080 And yet when you ask them, they still say they 0:04:21.120 --> 0:04:23.600 prefer to invest in the US over the rest of 0:04:23.640 --> 0:04:27.360 the world. If Europe went through with a nine hundred 0:04:27.400 --> 0:04:31.480 billion euro spending package on defense and infrastructure, would that 0:04:31.560 --> 0:04:34.640 shift for you? Would you see brighter shoots in Europe? 0:04:35.000 --> 0:04:36.960 No, it wouldn't shift for me. 0:04:37.360 --> 0:04:39.800 I would still prefer to US over Europe for the 0:04:39.839 --> 0:04:44.760 simple reason that Europe doesn't have a genuine and durable 0:04:44.880 --> 0:04:49.719 growth engine. So maybe defense contributes in the short term 0:04:49.800 --> 0:04:53.800 to growth, but they need to get a handle on 0:04:53.880 --> 0:04:57.800 some really fundamental things. I encourage everybody to read the 0:04:57.880 --> 0:05:01.480 Dragi Report, the Driver Report, a really good assessment of 0:05:01.520 --> 0:05:04.479 what has gone wrong in terms of investment, in terms 0:05:04.520 --> 0:05:07.839 of competitiveness and productivity, and what needs to go right, 0:05:08.440 --> 0:05:12.520 and that should be your benchmark when you assess future 0:05:12.520 --> 0:05:14.280 growth prospects in Europe. 0:05:14.760 --> 0:05:18.240 So what happens, Muhammad, if this American exceptionalism story is 0:05:18.400 --> 0:05:20.719 challenged to the degree that you're laying out and a 0:05:20.760 --> 0:05:23.279 lot of people are worried about, but there isn't a 0:05:23.279 --> 0:05:24.880 brighter alternative in Europe. 0:05:26.440 --> 0:05:29.200 That's the concern because remember I've always said the good 0:05:29.200 --> 0:05:31.880 and the bad and the ugly of the global economy. 0:05:31.920 --> 0:05:34.880 The good is the US, the bad is China, and 0:05:34.920 --> 0:05:37.880 the ugly is Europe. And if you don't see China 0:05:38.400 --> 0:05:41.520 and Europe converge up to the US, there's a risk 0:05:41.560 --> 0:05:44.080 that the US will converge down to the other two. 0:05:44.520 --> 0:05:47.520 It is a risk scenario. It is not the baseline 0:05:47.520 --> 0:05:48.239 I want to stress. 0:05:48.680 --> 0:05:53.400 But in mid January, no one was questioning US economic exceptionalism, 0:05:53.440 --> 0:05:55.240 and now, as you point out, a lot more people 0:05:55.480 --> 0:05:56.839 are starting to worry. 0:05:56.560 --> 0:05:59.560 About it, Muhammad, what do you make of the tariffs? 0:05:59.600 --> 0:06:02.080 Do you think they're actually going to come on tomorrow 0:06:02.200 --> 0:06:05.479 or do you think the market consensus of that. Maybe China, 0:06:05.480 --> 0:06:07.640 of course goes on, but there will be a pause, 0:06:07.920 --> 0:06:10.960 another pause or pass when it comes to Canada and Mexico. 0:06:11.080 --> 0:06:12.400 Is the accurate way to view this? 0:06:13.839 --> 0:06:15.640 I don't know, and Mary, I really don't know. I 0:06:15.640 --> 0:06:18.520 don't think anybody knows about the president. But what has 0:06:18.600 --> 0:06:22.560 become clear is that there are three sets of tariffs, 0:06:23.480 --> 0:06:26.880 and that explain why the President was pursuing so many 0:06:26.920 --> 0:06:28.719 objectives with tariffs. You know, when he came out in 0:06:28.760 --> 0:06:31.599 October when he said it's my favorite word. He said, 0:06:31.640 --> 0:06:36.200 it can weige revenue, it can result in fairer trade, 0:06:36.880 --> 0:06:42.840 It can put pressure on both adversaries and allies, and 0:06:42.880 --> 0:06:47.960 in addition, it can protect US industry. And the initial 0:06:47.960 --> 0:06:50.760 reaction of the economist was too many objectives for a 0:06:50.760 --> 0:06:53.839 single tool. But we're seeing now what is happening. You 0:06:53.920 --> 0:06:57.480 have a set of general tariffs that do the revenue 0:06:57.520 --> 0:07:00.720 side and the reciprocity side, the fair trade side. You 0:07:00.760 --> 0:07:06.520 have a set of sector specific tariff aluminium steel that 0:07:06.600 --> 0:07:09.720 protect industry, and then you have a third set of 0:07:10.240 --> 0:07:14.000 tariff's aim that particular countries to get particular outcomes. And 0:07:14.040 --> 0:07:15.720 I think that that's the thing we're going to live 0:07:15.800 --> 0:07:18.480 with for the next few months, is not the next 0:07:18.480 --> 0:07:22.560 few years, which is multifaceted trade policy, Muhammad. 0:07:22.560 --> 0:07:24.680 For the first time in a long time, there was 0:07:24.720 --> 0:07:27.320 a FED official in the last week that considered stagflation. 0:07:27.880 --> 0:07:30.760 I'm sure you notice the same comments downside risk to 0:07:30.800 --> 0:07:34.320 growth and upside risk to inflation. If we were to 0:07:34.360 --> 0:07:37.280 have a fedsjior mandate that went into conflict, how do 0:07:37.320 --> 0:07:40.080 you suppose would be the best way to approach that situation. 0:07:41.880 --> 0:07:43.840 It's tough, is really tough. 0:07:43.920 --> 0:07:49.000 Stagflation is the nightmare of policymakers and it is the 0:07:49.120 --> 0:07:50.280 nightmare of FED. 0:07:50.040 --> 0:07:53.040 With the dual mandate, as you point out, So it's 0:07:53.120 --> 0:07:53.640 really tough. 0:07:54.000 --> 0:07:57.400 I worry, like you had an introduction that we've had 0:07:57.400 --> 0:08:00.800 a reactionary FED. So the FED is not going to 0:08:00.880 --> 0:08:03.960 be getting ahead of this anytime soon. I hope it 0:08:04.040 --> 0:08:06.720 understands it, but it's not going to be getting ahead 0:08:06.760 --> 0:08:08.880 of it anytime soon. So the risk is John, that 0:08:10.320 --> 0:08:14.720 monetary policy continues to amplify volatility, rather than acting as 0:08:14.720 --> 0:08:15.880 an act of stability. 0:08:16.120 --> 0:08:17.440 That's the risk we face right now. 0:08:17.560 --> 0:08:19.760 Mohamma, can you just give us a sense of the 0:08:19.800 --> 0:08:23.320 trajectory of your belief that the economy can withstand all 0:08:23.320 --> 0:08:26.600 of this in the United States. As the year has progressed, 0:08:26.680 --> 0:08:29.440 I realized that it's the beginning of March. But how 0:08:29.520 --> 0:08:33.320 much more worried are you now than say, two weeks ago, 0:08:33.960 --> 0:08:37.120 about a real calling into question of American exceptionalism and 0:08:37.160 --> 0:08:39.240 a real rolling over of the US economy. 0:08:40.280 --> 0:08:42.120 You know it's my natue. I've been worried for a while. 0:08:42.200 --> 0:08:47.840 I put out an ft UP head on February fourteenth 0:08:48.320 --> 0:08:52.319 saying be careful that slowly we may see the erosion 0:08:52.559 --> 0:08:55.520 of US economic exceptionalism, and that's bad news for everybody, 0:08:55.640 --> 0:08:57.400 not just the US, for everybody. 0:08:58.240 --> 0:09:00.800 So I've been worried for a while. I've seen sort 0:09:00.840 --> 0:09:02.960 of three elements that have made me worry. 0:09:03.880 --> 0:09:08.040 One is the way business is reacting to all these 0:09:08.080 --> 0:09:11.959 policy changes, which increasingly is wait and see. We think 0:09:12.000 --> 0:09:14.800 it's going to be fine, but let's wait and see. Second, 0:09:14.960 --> 0:09:19.520 we know that the lower segments of the household income 0:09:19.559 --> 0:09:24.079 distribution is under enormous pressure, and that has been a 0:09:24.160 --> 0:09:27.079 concern for a while and then the third issue is 0:09:27.160 --> 0:09:30.160 the risk of a FED policy mistake. So these things 0:09:30.240 --> 0:09:34.240 have been there and now they've amplified because of what's 0:09:34.280 --> 0:09:34.719 been going on. 0:09:35.320 --> 0:09:38.280 Muhammed always appreciate your time, A good front of this program, 0:09:38.320 --> 0:09:39.800 a good friend of ours. We appreciate it. Thank you, 0:09:39.880 --> 0:09:52.439 Sir Mohammed Aaron of Queen's College, Cambridge. There tariff deadline 0:09:52.520 --> 0:09:54.559 fere than twenty four hours away to open markets of 0:09:54.600 --> 0:09:57.320 Wolf Research writing, if Trump follows through with his threats, 0:09:57.760 --> 0:10:00.199 it increases the risk that he'll go big with this 0:10:00.320 --> 0:10:03.760 eight full second reciprocal tariff policy. Tobin joined us now 0:10:03.800 --> 0:10:06.120 for more. Tobin, I guess the first question will the 0:10:06.200 --> 0:10:08.240 President follow through on his threats? 0:10:09.960 --> 0:10:10.600 In some ways, the. 0:10:10.600 --> 0:10:13.280 Setup looks exactly the same as it did in early February, 0:10:13.400 --> 0:10:15.320 when I was fairly confident that he wouldn't end up 0:10:15.320 --> 0:10:18.560 following through and at least not doing so with long duration. 0:10:19.360 --> 0:10:21.319 I have to say I'm less optimistic this time. I 0:10:21.360 --> 0:10:23.640 think he's been, you know, quite resolute that he's going 0:10:23.720 --> 0:10:25.760 to do something. Even over the weekend. The comments from 0:10:26.040 --> 0:10:29.000 Commerce Secretary Lutnik that people are taking encouragement from you know, 0:10:29.120 --> 0:10:31.000 point it to some flexibility in the rate, but still, 0:10:31.120 --> 0:10:32.679 you know, kind of double down on the likelihood that 0:10:32.720 --> 0:10:34.439 they would go ahead and do something. So it's hard 0:10:34.480 --> 0:10:38.079 to have total confidence, but you know, I think it's 0:10:38.720 --> 0:10:41.880 also impossible to write off the risk that he'll actually go. 0:10:41.920 --> 0:10:42.199 Through with it. 0:10:42.640 --> 0:10:45.920 Scott Bessett, the Treasury Secretary. Tobin said to David Weston 0:10:45.960 --> 0:10:48.719 on Bloomberg TV on Friday that the Mexican government made 0:10:48.720 --> 0:10:51.800 a proposal matching US on China tariffs and then said 0:10:51.800 --> 0:10:54.800 it would be a nice gesture if the Canadians did it. Also, 0:10:55.200 --> 0:10:57.559 is that a big enough concession to potentially put another 0:10:57.640 --> 0:10:59.679 pause on these twenty five percent tariffs? 0:11:00.840 --> 0:11:03.120 Conceivably, the terrifts have never really made a lot of 0:11:03.200 --> 0:11:06.400 economic sense for the US. In the Canadian case in particular, 0:11:06.480 --> 0:11:09.360 they are way out of scale with the actual problem 0:11:09.440 --> 0:11:12.040 that we have in terms of migration and drug trafficking, 0:11:12.080 --> 0:11:14.280 which is obviously much more of a Mexico problem than 0:11:14.320 --> 0:11:17.079 a Canada problem. So, you know, it all comes down 0:11:17.120 --> 0:11:19.880 to Trump's assessment I think of whether or not he's 0:11:20.440 --> 0:11:23.400 kind of accomplished his political goal here in the Mexican case, again, 0:11:23.440 --> 0:11:25.280 there is much more in the way of actual policy 0:11:25.320 --> 0:11:27.679 cooperation that we need there have been some indications that 0:11:27.679 --> 0:11:29.559 they're making progress in terms of cracking down on some 0:11:29.640 --> 0:11:31.920 of the cartels. So if he wants to, he certainly, 0:11:32.040 --> 0:11:33.800 I think, can do what he did last time and 0:11:33.880 --> 0:11:36.360 just points of progress made and new commitments and call 0:11:36.400 --> 0:11:38.440 it off. The question is what he wants to do, Truman. 0:11:38.679 --> 0:11:41.120 One of the tariffs is going to be a ten percent, 0:11:41.679 --> 0:11:45.920 basically the Trump administration signaling that they understand how important 0:11:46.400 --> 0:11:50.360 Canadian heavy cruit is, especially to the Midwest. But the 0:11:50.440 --> 0:11:54.160 Canadians are also saying they can maybe have recipable tariffs 0:11:54.520 --> 0:11:56.719 on energy. How ugly can this get? 0:11:57.760 --> 0:11:57.880 Hey? 0:11:57.920 --> 0:11:58.760 Can you get very ugly? 0:11:58.800 --> 0:12:01.640 I mean, you know, the initial give order imposing these 0:12:01.720 --> 0:12:04.760 tariffs back on February first made very clear that the 0:12:04.880 --> 0:12:07.320 United States reserves the right to further escalate if there 0:12:07.400 --> 0:12:10.800 is retaliation, and I think that the sensible expectation would 0:12:10.840 --> 0:12:12.920 be that there will be retaliation because the Canadians and 0:12:12.920 --> 0:12:16.920 the Mexicans can't just take this sitting down. So, you know, 0:12:17.200 --> 0:12:18.920 I think there are absolutely is upside to the rates 0:12:18.920 --> 0:12:20.880 if things go really badly. I think we saw as 0:12:20.920 --> 0:12:24.720 you were just talking about in the confrontation with Zelensky 0:12:24.840 --> 0:12:27.439 last week, when things get personal. You know, I do 0:12:27.520 --> 0:12:29.559 think there's a risk that things can go south in 0:12:29.640 --> 0:12:32.480 ways that don't totally line up with either side's objective interests. 0:12:32.640 --> 0:12:35.120 Wait, Tobin, can you develop that please, this idea that 0:12:35.280 --> 0:12:38.120 actually what happened on Friday will influence the likelihood that 0:12:38.160 --> 0:12:39.440 these tariffs go on tomorrow. 0:12:40.760 --> 0:12:42.440 I don't know that there's a direct influence. I think 0:12:42.440 --> 0:12:44.480 it's more just a case study. As Trump themselves said 0:12:44.520 --> 0:12:47.000 in the true social posts that he put out afterwards. 0:12:47.040 --> 0:12:49.160 You know, you sort of you it's telling what can 0:12:49.240 --> 0:12:52.800 come out under emotion. You know, if there is an 0:12:52.840 --> 0:12:55.520 actual move to go forwards to these terrafs, even at 0:12:55.520 --> 0:12:59.200 a reduced rate, like the likelihood of tiffer tab retaliation 0:12:59.440 --> 0:13:01.240 is definitely thing that we need to worry about. And 0:13:01.520 --> 0:13:05.040 if we're locked into a confrontational stance with these two countries, 0:13:05.280 --> 0:13:07.160 you can't rule out the possibility that, you know, sort 0:13:07.160 --> 0:13:10.000 of interpersonally, things go wrong and we find both sides 0:13:10.080 --> 0:13:11.960 kind of dact into their corners, Tobin. 0:13:12.320 --> 0:13:15.640 Tomorrow, we also have a joint address to Congress from 0:13:15.720 --> 0:13:18.160 the President of United Age, which basically is a different 0:13:18.160 --> 0:13:19.319 way of saying we're going to have a state of 0:13:19.320 --> 0:13:20.400 the Union. What are you expecting. 0:13:21.440 --> 0:13:23.840 Yeah, they've done very little in terms of previewing, even 0:13:23.880 --> 0:13:25.920 talking to Republican sources on the Hill. There's not a 0:13:25.960 --> 0:13:29.079 lot of rumors and gossip going around about what it 0:13:29.160 --> 0:13:31.319 is that he might announce. My guess would be that 0:13:31.400 --> 0:13:33.960 it's mostly focused on accomplishments and that we have kind 0:13:34.000 --> 0:13:36.920 of a Promises made, Promises kept theme where he points 0:13:36.960 --> 0:13:39.640 to the massive amount of activity that's already gone on, 0:13:39.800 --> 0:13:41.800 much of which they feel very good about. I'm sure 0:13:41.800 --> 0:13:43.880 they'll have some, you know, tidbits of news. Would be 0:13:44.280 --> 0:13:46.960 uncharacteristic to go into this and have nothing that's that's 0:13:47.040 --> 0:13:49.199 new and headline grabbing. But I think a lot of 0:13:49.280 --> 0:13:51.880 it is going to be, you know, rehearsing and framing 0:13:51.960 --> 0:13:53.840 up the totality what they've done so far. 0:13:54.040 --> 0:13:56.360 Hi Tobin, I appreciate your time as always, sir. Thank 0:13:56.440 --> 0:13:58.720 you Tobermarcus of war for research things could look very 0:13:58.760 --> 0:14:11.600 different tomorrow. Coming up on the program, Liz Young Thomas 0:14:11.679 --> 0:14:14.680 of SOFI on the momentum reversal, Joe Faudman of TAUSE 0:14:14.720 --> 0:14:17.240 the Advisory Group looking ahead to target earnings, and Steve 0:14:17.320 --> 0:14:21.040 Roshutto on why he's constructive on the US economy, we're 0:14:21.040 --> 0:14:23.400 begin to saut with stock's looking to rebound following last 0:14:23.440 --> 0:14:26.880 month's losses. Liz Young Thomas of SOFI, writing, there's been 0:14:26.960 --> 0:14:29.960 a notable shift in which stock sectors and assets are 0:14:30.080 --> 0:14:32.440 leading or lagging the broad market, and it's one that 0:14:32.520 --> 0:14:36.360 can be best described as a reversal of momentum. Liz 0:14:36.440 --> 0:14:38.320 joins us now for more, Liz, I just wonder in 0:14:38.360 --> 0:14:41.120 your mind whether it's anything just more than that. We've 0:14:41.200 --> 0:14:44.160 had discussions about a growth scare, and based on the 0:14:44.200 --> 0:14:46.280 conversations we've had on this program, it feels like there's 0:14:46.280 --> 0:14:48.280 been a massive sentiment shift. And then you look at 0:14:48.320 --> 0:14:51.040 the equity market, it's down by not even five percent. 0:14:51.240 --> 0:14:52.480 How do we square that circle? 0:14:54.200 --> 0:14:56.240 Well, I think there has been a sentiment shift in 0:14:56.280 --> 0:14:58.600 the sense that everything that got us here for the 0:14:58.720 --> 0:15:01.400 last two years has now gone a little bit out 0:15:01.440 --> 0:15:03.400 of favor. And you could have seen some of those 0:15:03.520 --> 0:15:06.640 markers in the second half of twenty twenty four in 0:15:06.800 --> 0:15:09.880 terms that you look at just the AI related stocks, 0:15:09.960 --> 0:15:12.920 the big tech stocks, there'd been more scrutiny over the 0:15:13.040 --> 0:15:16.800 spend and the expectations. So now coming into twenty twenty five, 0:15:17.160 --> 0:15:19.760 investors started to look for growth in other places and 0:15:19.840 --> 0:15:23.440 then layer on top of that the fears about economic growth. 0:15:23.600 --> 0:15:26.960 So when we're looking at this rotation that's occurred under 0:15:27.000 --> 0:15:30.240 the surface in sectors, I think it's quite healthy. The 0:15:30.360 --> 0:15:33.600 difference is that you need a number of different sectors 0:15:33.760 --> 0:15:36.120 to keep up and to pick up the slack if 0:15:36.200 --> 0:15:38.960 technology stocks are not going to be the darlings again 0:15:39.000 --> 0:15:39.880 in twenty twenty. 0:15:39.720 --> 0:15:41.840 Five, so let's pick up on the growth scare theme. 0:15:41.960 --> 0:15:43.920 Discretionary has had a difficult run of it, but you 0:15:43.960 --> 0:15:45.960 could say a lot of that is just tesla. We 0:15:46.080 --> 0:15:48.800 have seen the bond market start to respond though, seven 0:15:48.840 --> 0:15:51.720 consecutive weeks of lower bond yields on a ten year maturity. 0:15:51.960 --> 0:15:54.560 Are you seeing high yield credit confirm some of those 0:15:54.600 --> 0:15:55.280 growth jitters. 0:15:57.040 --> 0:16:00.320 You do see high yield responding to that consider and 0:16:00.800 --> 0:16:02.560 that's been something that if you look at just high 0:16:02.600 --> 0:16:05.320 yield spreads over the last few months, you've seen this 0:16:05.520 --> 0:16:08.280 grind lower and spreads. High yield, as we know, is 0:16:08.400 --> 0:16:11.520 highly correlated with the equity market. But there has been 0:16:11.560 --> 0:16:14.640 a spike in high yield spreads over the last let's 0:16:14.640 --> 0:16:17.120 call it three to four weeks, which I think again 0:16:17.560 --> 0:16:20.680 is healthy. There should be a correlation with the equity market. 0:16:21.080 --> 0:16:23.840 The big change that's occurred so far in twenty twenty 0:16:23.920 --> 0:16:27.120 five is that yield started to respond, and I'm talking 0:16:27.160 --> 0:16:30.480 about ten year treasury yields started to respond to growth 0:16:30.560 --> 0:16:33.520 fears more so than inflation fears. So what we were 0:16:33.560 --> 0:16:35.680 seeing in the latter half of twenty four and even 0:16:35.720 --> 0:16:38.080 the early weeks of twenty five were that the ten 0:16:38.120 --> 0:16:41.400 year yield was rising because of inflation fears. Well, now 0:16:41.440 --> 0:16:43.480 the ten year yield has come down quite a bit 0:16:43.800 --> 0:16:45.000 because of growth fears. 0:16:45.480 --> 0:16:47.120 The shift, though, is that that. 0:16:47.360 --> 0:16:50.320 Drop in the ten year yield has not served as 0:16:50.360 --> 0:16:53.640 a tailwind for stocks, So you're seeing those growth fears 0:16:53.760 --> 0:16:57.560 bake through into stocks, into high yield spreads, and into 0:16:57.640 --> 0:16:58.720 the tenure treasure yield. 0:16:59.240 --> 0:17:01.040 The reason why it is such a difficult market right 0:17:01.120 --> 0:17:03.120 now is because there's so many different themes that are 0:17:03.160 --> 0:17:04.840 layered on top of each other. We started the show 0:17:04.920 --> 0:17:08.200 talking about the potential for tariffs to come on on Tuesday, 0:17:08.280 --> 0:17:12.160 a potential response from the European Union to different geopolitical developments, 0:17:12.200 --> 0:17:16.160 including the meeting on Friday with Vladimir Zelenski and Donald Trump. Liz, 0:17:16.520 --> 0:17:19.520 from your perspective, what is more interesting to you this 0:17:19.680 --> 0:17:23.360 week and has the bigger catalyst effect potentially on the markets. 0:17:23.560 --> 0:17:26.920 What we get on Tuesday with respect to potential tariffs 0:17:26.960 --> 0:17:29.840 in the state of the Union, or the economic data 0:17:30.160 --> 0:17:33.199 that culminates with the non farm payrolls report on Friday. 0:17:35.240 --> 0:17:37.280 Well, of course, if the non farm payrolls report is 0:17:37.280 --> 0:17:40.080 a surprise of some sort, that'll be likely the more 0:17:40.160 --> 0:17:43.080 market moving event. The tariffs, if they do go into 0:17:43.160 --> 0:17:47.520 place as announced tomorrow. The market really already reacted to 0:17:47.640 --> 0:17:50.399 that back in January. Now, of course there needs to 0:17:50.480 --> 0:17:53.000 be some repricing. There's been quite a bit of volatility 0:17:53.080 --> 0:17:55.680 since then and a lot of uncertainty. But if we 0:17:55.760 --> 0:17:57.639 do get a surprise on the payrolls report, I think 0:17:57.680 --> 0:18:01.080 that's a more market moving event. The trouble is that 0:18:01.160 --> 0:18:02.280 we have to make it all the way through the 0:18:02.320 --> 0:18:04.960 week before we get there, so I don't expect a 0:18:05.040 --> 0:18:07.080 huge surprise on that payrolls report. 0:18:07.560 --> 0:18:07.760 Yet. 0:18:08.000 --> 0:18:10.320 I do think that as the first half of this 0:18:10.480 --> 0:18:14.000 year progresses, we're going to get some bumpier data in payrolls, 0:18:14.080 --> 0:18:16.200 largely because of some things that are going on in 0:18:16.400 --> 0:18:19.480 Washington and just weather patterns other things that could be 0:18:19.560 --> 0:18:21.520 going on. In the construction market, and the fact that 0:18:21.880 --> 0:18:24.480 mortgage rates have stayed so high, so the construction market 0:18:24.560 --> 0:18:27.159 has slowed down a bit, but I don't expect a 0:18:27.240 --> 0:18:28.920 huge surprise this week in payrolls. 0:18:29.119 --> 0:18:32.399 Okay, So given all of this, are you actually leaning 0:18:32.480 --> 0:18:34.240 into some of the selloff or do you think that 0:18:34.440 --> 0:18:37.480 actually that this is a sign that things are going 0:18:37.560 --> 0:18:40.000 to be jittery for a while and people probably should 0:18:40.040 --> 0:18:43.000 reduce risk on some level because of that uncertainty. 0:18:44.560 --> 0:18:46.280 I think you have to, first of all, to find 0:18:46.359 --> 0:18:48.720 what you mean by reduce risk as an investor. So 0:18:48.760 --> 0:18:51.320 if you're looking at your portfolio and you are overweight 0:18:51.520 --> 0:18:55.640 naturally some of those meg seven stocks, technology certain themes, 0:18:55.720 --> 0:18:59.240 maybe it's the AI theme. Many investors have become overweight 0:18:59.320 --> 0:19:02.240 those themes just because the performance has been so strong 0:19:02.400 --> 0:19:04.919 for the last two years. So if you're looking at 0:19:04.960 --> 0:19:09.240 reducing risk by diversifying out the drivers that you're exposed 0:19:09.240 --> 0:19:11.800 to in the portfolio, yes, absolutely, I do think it's 0:19:11.880 --> 0:19:14.240 time to do that, and I think you can broaden 0:19:14.320 --> 0:19:17.560 out into some sectors that have the opportunity to produce 0:19:17.680 --> 0:19:20.400 growth but are trading at lower multiples and aren't quite 0:19:20.440 --> 0:19:23.639 as exposed to some of this volatility that's occurring on 0:19:23.680 --> 0:19:26.080 a day to day or week to week basis. Those 0:19:26.160 --> 0:19:30.000 sectors for me would be healthcare first and foremost. I'd 0:19:30.119 --> 0:19:32.680 be looking at things like materials. If we're worried about 0:19:32.720 --> 0:19:36.200 inflation heating up again, you can look at industrials, you 0:19:36.280 --> 0:19:39.080 can look at financials. Financials haven't traded great for the 0:19:39.160 --> 0:19:41.840 last few weeks, but that could be an opportunity. And 0:19:41.920 --> 0:19:44.440 then I still really like gold here. Despite the fact 0:19:44.480 --> 0:19:46.800 that it's hit new all time high after new all 0:19:46.880 --> 0:19:49.480 time high, there continues to be a lot of appetite 0:19:49.480 --> 0:19:51.800 in that market, both institutional and retail. 0:19:52.040 --> 0:19:54.560 Massive run over the last year. Lets appreciate your time 0:19:54.680 --> 0:19:56.520 as always and enjoyed the race of note as well. 0:19:56.760 --> 0:20:09.080 List Young tell us that of sie flying States shoots off. 0:20:09.119 --> 0:20:12.639 Miszoo says the US fundamentals are healthy. He runs the following. 0:20:12.720 --> 0:20:15.159 The underlying strength of the business cycle is evident in 0:20:15.200 --> 0:20:17.760 the heart attanks of releases. They will dominate in the 0:20:17.840 --> 0:20:20.040 longer run. Steve joins us now for more stave good morning, 0:20:20.359 --> 0:20:22.400