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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Recession fears rising
Speaker 2: on the hills have increased tarifs and federal job cuts.
Speaker 2: Ronica Clark of City Rights the payrolls report was not
Speaker 2: far off expectations, but details of the report suggest a
Speaker 2: softening trend in labor demand for Anica joins us now
Speaker 2: from what Bronica, good morning.
Speaker 3: It's good to see you, Good morning, Thanks for having me.
Speaker 2: Let's talk about those details. Where do you see the weakness?
Speaker 2: What concerns you at the moment?
Speaker 4: Yeah, on the surface, this looked like a jobs report
Speaker 4: that looks like the last six or seven months, we
Speaker 4: had the unemployment rate staying that range. It's been in
Speaker 4: one hundred and fifty thousand jobs. That's fine, but it
Speaker 4: was really the increase in the unemployment rate, so it's
Speaker 4: still in the range, but that occurred alongside of decline
Speaker 4: and participation, so people maybe leaving the labor force. Unemployment
Speaker 4: rate would have been even higher, something like four point
Speaker 4: four percent if that hadn't happened. And then even in
Speaker 4: the details of perils, you know, hours work that are
Speaker 4: coming down, it doesn't feel like there's a lot of
Speaker 4: demand for workers right now.
Speaker 5: Which raises this question of how resilient this labor market
Speaker 5: is in the face potentially of a policy shock that
Speaker 5: a lot of people.
Speaker 6: Are talking about. What's your sense.
Speaker 5: I know, you guys have been saying that the economy
Speaker 5: was weakening. How off sides are people in their expectations
Speaker 5: at the robustness of the US labor market.
Speaker 4: Yeah, we have been seeing this weekening for a while.
Speaker 4: Primarily this has looked like a very low churn labor
Speaker 4: market that's low hiring, low quits, low layoffs.
Speaker 3: But that low hiring.
Speaker 4: Dynamic, I do think it's restrictive rates that got us here,
Speaker 4: and that means the labor market's not very well positioned
Speaker 4: to absorb a shock, even if it's coming from from government.
Speaker 4: Obviously we're tracking the numbers of those layoffs and the
Speaker 4: direct impact of those might be minimal enough, you know,
Speaker 4: a couple tenths on the unemployment rate could could get bigger.
Speaker 4: But I would really worry about the spillover to you know,
Speaker 4: private private sector contractors and just hiring that is solo
Speaker 4: and might be going even lower in face of uncertainty.
Speaker 4: Why would you be hiring people right now? And that
Speaker 4: could be the bigger impact on the labor market.
Speaker 5: It seems like there is a grand plan, and there's
Speaker 5: sort of this sense that you take your paint up
Speaker 5: front and then some of the positive and you rejigger
Speaker 5: the US economy.
Speaker 6: And it's moving on a one or two year cycle.
Speaker 5: President Trump saying he judges himself in quarters. Can you
Speaker 5: talk about the timeframe of a labor market that is
Speaker 5: much slower moving?
Speaker 3: Yeah?
Speaker 4: Yeah, I mean we've come a long way in terms
Speaker 4: of the labor market loosening already. Of course, mean we
Speaker 4: had the increase in the unemployment rate last year, had
Speaker 4: looked like maybe there was some stability, But I think,
Speaker 4: you know, we're at that point where in past cycles
Speaker 4: you see this much sharper increase in the unemployment rate.
Speaker 3: That's the layoff.
Speaker 4: Stage of this weakening labor market. So it's been slow
Speaker 4: moving for now. It's been maybe taking a bit longer
Speaker 4: to get to that last stage than usual, But this
Speaker 4: could be what pushes us there for sure.
Speaker 7: What kind of impact is DOGE having on the labor market?
Speaker 4: Yeah, I mean we do track, you know, the outright
Speaker 4: numbers of layoffs that we've seen so far, Well, we'll
Speaker 4: start to see that. I think in the March employment
Speaker 4: report wasn't as you know, showing up in this February
Speaker 4: data quite yet, but we're, you know, something around forty
Speaker 4: to sixty k right now.
Speaker 3: The bigger numbers would come over the summer.
Speaker 4: You know, we have these plans for mass layoffs that
Speaker 4: are supposed to happen over the summer. Maybe we're looking
Speaker 4: at something like three hundred thousand maybe more.
Speaker 7: Do you think the private sector could absorb these jobs?
Speaker 3: I don't think so. Yeah.
Speaker 4: I think this is a private sector also that has
Speaker 4: been weakening for a while, hiring.
Speaker 3: Rates very low.
Speaker 4: Of course, the private sector is going to feel some
Speaker 4: of this also. You know, government contractors, just general uncertainty.
Speaker 3: Those are going to be people who.
Speaker 4: Are not spending in the economy as much. You know,
Speaker 4: they'll there will be ripple effects.
Speaker 2: Isn't that They ultimate goal of the administration though, The
Speaker 2: ultimate goal it is to rebalance the economy. And your
Speaker 2: response to that is, I don't think so, you're not
Speaker 2: finish as possible in.
Speaker 3: A nice, orderly rebalancing.
Speaker 4: I think no, because I think we had a weaker
Speaker 4: view of the economy, you know, going into this year already,
Speaker 4: and I think we've seen that in the data. So yeah,
Speaker 4: this is a really precarious labor market that maybe can't
Speaker 4: handle some of these these changes.
Speaker 2: Is it a rebalancing the FED needs to support.
Speaker 4: I think the FED will be there to support the
Speaker 4: labor market. Obviously, we do have concerns of inflation, and
Speaker 4: tariffs are related to that.
Speaker 3: But if this is a true, you.
Speaker 4: Know, weakening economy, maybe you can't pass on those price
Speaker 4: increases as much. You can't demand a higher wage, and
Speaker 4: so you're not actually as worried about the persistent inflation.
Speaker 3: From this is what.
Speaker 5: Does the FED have to see then in order to
Speaker 5: actually start cutting rates. Does that sort of avoid a
Speaker 5: recession or does that mean that we have to see
Speaker 5: the whites of recession size before they start engaging.
Speaker 4: I think they will probably be getting more concerned on
Speaker 4: the labor market, on the growth side of things. And
Speaker 4: so if you do see some inflation dat alone that
Speaker 4: look a bit more favorable, maybe Wednesday's numbers, you'll add
Speaker 4: to that confidence that inflation is slowing.
Speaker 3: Then they can be cutting as soon as May. That's
Speaker 3: our base.
Speaker 2: Case Wednesday for CPI. The following week, FED Powell a
Speaker 2: news conference and FED decision on March nineteenth. Two things
Speaker 2: to look for. Veronica's good to see you as always.
Speaker 2: Thank you, Ronica Clark. There a city. Let's turn back
Speaker 2: to the tariff agenda. Twenty five percent tariffs on steel
Speaker 2: and aluminum imports still on deck for Wednesday, the former
Speaker 2: NEC deputy director Kelly and Shaw writing, the ambiguity of
Speaker 2: Trump's tariff plans are a feature and not a bug.
Speaker 2: As he sets to negotiate both USMCA and relationships with
Speaker 2: a number of key trading partners, Kelly and Shaw joined
Speaker 2: US Now for more Kelly and welcome to the program.
Speaker 2: Those negotiations set to kick off a whole lot more
Speaker 2: in the next month at a start of April when
Speaker 2: we get the reciprocal tariffs. What are you expecting to
Speaker 2: see in the next month or so.
Speaker 8: Yeah, good morning.
Speaker 9: I think what's been really interesting is despite the fact
Speaker 9: that last week's terrifaction on Canada and Mexico was the
Speaker 9: single largest terrifaction of any president in modern history, the
Speaker 9: administration keeps saying, hold your breath and wait till April second.
Speaker 9: So I'm expecting the announcement of large tariffs on a
Speaker 9: number of US trading partners, particularly those with large trade deficits,
Speaker 9: which will give them an opportunity to potentially negotiate their
Speaker 9: way out of whatever the administration has planned in terms
Speaker 9: of rebalancing those trading relationships.
Speaker 7: Kelly, And when it comes to April second, is this
Speaker 7: just the announcement and then we're going to have a
Speaker 7: public comment period. How long until we see that tariffs
Speaker 7: actually take place?
Speaker 8: Yeah. The truth is we don't know yet.
Speaker 9: We're not clear on how the administration intends to structure this,
Speaker 9: whether they intend to actually move forward with tariffs under
Speaker 9: something like AIPA or Section three three eight on April second,
Speaker 9: as well as some of these sectoral tariffs that they've
Speaker 9: been talking about or whether they'll announce their plan and
Speaker 9: then kick those off into investigations, which would take several
Speaker 9: more months before those tariffs went into effect.
Speaker 8: They could pick either path.
Speaker 7: If it's a path that they're going to have some
Speaker 7: more time. Does that mean that Trump is a negotiating
Speaker 7: mode and he's happy to maybe pull back the tariff
Speaker 7: threat if he gets something from one of the trading partners.
Speaker 9: Well, I think the President has been clear that he
Speaker 9: is open to negotiations on these reciprocal tariffs. His idea
Speaker 9: is that we'll charge you what you charge us, and
Speaker 9: if other countries come to the table and lower their
Speaker 9: own tariff barriers, then those teriff rates would go down
Speaker 9: on the US side as well. And I think that
Speaker 9: is the beauty of this concept of reciprocity. It really
Speaker 9: is the epitome of fairness from the perspective of the president.
Speaker 9: So I certainly think their scope for negotiation.
Speaker 7: What about Wednesday when it comes to aluminum steel, Do
Speaker 7: you expect those tariffs to go through?
Speaker 6: As Howard Latnix said over the weekend.
Speaker 8: Yeah, I do.
Speaker 9: I think that this is a redo of what the
Speaker 9: administration did back in twenty eighteen, and the view that
Speaker 9: you're hearing coming out from the White House is that
Speaker 9: there were so many exceptions, so many illusions, that it
Speaker 9: became a loophole you could drive a truck through.
Speaker 8: And so they're starting with the.
Speaker 9: Maximalist tariff approach when it comes to steel and aluminum.
Speaker 9: I do think that there's scope for countries like Australia
Speaker 9: or maybe Canada and Mexico to get some sort of
Speaker 9: country exception country exclusion, but for now, I think he's
Speaker 9: moving forward with.
Speaker 8: The full measure.
Speaker 5: A number of studies callyan IF and pointing to the
Speaker 5: fact that actually production might move more quickly out of
Speaker 5: the United States if the twenty five percent tariffs do continue, particularly.
Speaker 6: On Canada and Mexico.
Speaker 5: I'm talking about autoparts makers in particular. How much do
Speaker 5: you think that the president accounts for this type of
Speaker 5: behavior at a time where a lot of companies are
Speaker 5: trying to insulate themselves for themselves from headline risk.
Speaker 9: Yeah, I think that the President's reaction to pair back
Speaker 9: some of the Canada and Mexico tariffs and say that
Speaker 9: for companies that are complying with USMCA rules of origin,
Speaker 9: that you would be exempted from the measure shows that
Speaker 9: the President is paying attention to this and that it's
Speaker 9: not just about production in America but in North America.
Speaker 9: But this is an administration that is really focused on production,
Speaker 9: and so not only are they using tariffs to achieve that,
Speaker 9: but they have forecasted that when it comes to tax cuts, deregulation,
Speaker 9: in a number of other policies, they're going to do
Speaker 9: what they can to incentivize producing in the US and
Speaker 9: producing in North America.
Speaker 5: Kelly, and what do you make of this theory that
Speaker 5: this is all by design, that a little bit of
Speaker 5: pain is kind of the goal here to get interest
Speaker 5: rates lower to offset some of the tax cuts and
Speaker 5: just the increasing deficit and increasing interest expense that the
Speaker 5: US is paying. Do you believe that that could actually
Speaker 5: be by design.
Speaker 9: I'm not sure if that's the objective of the administration.
Speaker 9: I think when they talk about the fact that there's
Speaker 9: going to be pain, and when the President talks about
Speaker 9: this transition period, what they're talking about is the fact
Speaker 9: that they have their eye on the ball ten steps ahead,
Speaker 9: and that at the end of the administration, they want
Speaker 9: to be in a place where US trading relationships are
Speaker 9: in a more balanced position where there are lower tax
Speaker 9: rates and they're is a greater incentive to produce in
Speaker 9: the United States and what they refer to as this
Speaker 9: golden age of manufacturing, Golden age of production, but that
Speaker 9: that is not going to be easy to get to.
Speaker 9: It's not a straight line. You're gonna have to break
Speaker 9: some plates in the meantime. And so if some of
Speaker 9: these other economic consequences are happening, that is part of
Speaker 9: the entire measure. But I'm not sure that all of
Speaker 9: these are necessarily intended consequences, Killy.
Speaker 7: And there's one place we know where the tariffs are
Speaker 7: going to stick, and of course that's China. Twenty percent
Speaker 7: and as of today, China's reciprocal tariffs on the United States,
Speaker 7: those retaliatory measures have gone into place for a number
Speaker 7: of agricultural products.
Speaker 6: Given you were.
Speaker 7: There for Phase one, do you think potentially there's a
Speaker 7: bigger deal to be had at the end of this
Speaker 7: when it comes to China, Because I remember twenty eighteen
Speaker 7: there was billions of dollars of losses from the agricultural
Speaker 7: sector in the United States and then Trump to actually
Speaker 7: have a bailout for these farmers.
Speaker 9: Yeah, agriculture really is at the tip of the sphere
Speaker 9: when it comes to trade and tariff policy because they're
Speaker 9: the first to get retaliated. They are one of the
Speaker 9: most politically sensitive products in the United States, and every
Speaker 9: member of Congress has some form of agriculture in their district,
Speaker 9: which is why it's so attractive for our trading partners
Speaker 9: to hit them first.
Speaker 8: We'll have to see where this goes.
Speaker 9: I mean, the President has tweeted and posted on true
Speaker 9: social about taking care of the farmers, having them sell domestically.
Speaker 9: I think he is keenly aware that they are getting
Speaker 9: hit first. But when it comes to China and some
Speaker 9: sort of trade deal the juries out. We'll have to
Speaker 9: see what happens and whether China wants to come to
Speaker 9: the table with the United States and vice versa. April second,
Speaker 9: the President has a report on China's compliance with the
Speaker 9: Phase one deal, a review of the eighteen billion dollars
Speaker 9: in tariffa the Biden administration added, and then China's IP practices.
Speaker 9: So I fully expect this relationship to get a bit
Speaker 9: more tumultuous before it gets better. And then maybe this
Speaker 9: spring or summer there may be some scope for negotiating
Speaker 9: some of.
Speaker 2: It back down, well, said Keleon, going to say, you
Speaker 2: wise cleon show that they form any say Deputy Director
Speaker 2: Barbara rein Hardefouyer Investment Management, writing, it's challenging to have
Speaker 2: strong views in this turbulent market environment. If the pride
Speaker 2: Trump administration is guidance ratified, trade policy should be better
Speaker 2: than feared. Barbara joins, just now for more, Barbara got Mornick,
Speaker 2: Good morning. Is that playbook even worth looking at anymore?
Speaker 1: You know, I think it's the problem is the stopping
Speaker 1: go nature of the administration's policy seem to really be
Speaker 1: what's causing a lot of indigestion in the markets.
Speaker 6: And that also.
Speaker 1: Coupled with softer survey data, Earnings revisions have been marked
Speaker 1: down a bit at least for the first half of
Speaker 1: this year, and it's causing a lot of problems. I mean,
Speaker 1: it was just on February twenty that we hit a
Speaker 1: new all time high for the S and P five hundred.
Speaker 1: It feels like it was about a year ago.
Speaker 2: Things have changed quickly. The President's not stepping in, He's
Speaker 2: not changing course certainly days why would he? The channel
Speaker 2: of the Fed Reserve is not stepping in or changing course,
Speaker 2: what do you need to see to generate a counter
Speaker 2: trend rally?
Speaker 1: Here happen, markets are very oversold at this point. So
Speaker 1: we have long term indicators and short term indicators on
Speaker 1: investor sentiment, and our short term indicators are as oversold
Speaker 1: as they have been in over three years.
Speaker 6: At this point.
Speaker 1: You'd have to go back to the twenty twenty two
Speaker 1: sell off to have this type of short term oversold indicators.
Speaker 1: I think that you probably need some clarity on tariffs
Speaker 1: in order to be able to get the market to
Speaker 1: have put in a sustainable rally. Now, when a counter
Speaker 1: trend rally comes, what's likely to do well The things
Speaker 1: that have sold off the most. I mean US small
Speaker 1: cap stocks, so one of my team pointed this out
Speaker 1: to me, are down over twenty percent from September or
Speaker 1: twenty twenty four. So likely you're going to see a
Speaker 1: big counter trend rally in US small caps, US midcaps,
Speaker 1: potentially US growth stocks as well, but it could be
Speaker 1: a while before you get enough visibility to generate that
Speaker 1: counter trend rally.
Speaker 5: You said that the over sold indicators were the most
Speaker 5: going back to twenty twenty two, and yet we're still
Speaker 5: at some twenty one times earnings. We're still at a
Speaker 5: pretty elevated valuation, which goes to the structural argument that
Speaker 5: may maybe money has been flowing into the US disproportionately
Speaker 5: for so long that now just a normalization, especially back
Speaker 5: to Europe, makes a little bit of sense. How much
Speaker 5: credence do you give that idea.
Speaker 1: I don't discount it all that. I mean, I give
Speaker 1: it a lot of credence. However, I would note the following.
Speaker 1: The fiscal stimulus plans that Germany is planning to put
Speaker 1: into place is really only for Germany.
Speaker 6: At this point.
Speaker 1: You still have long term structural issues that have to
Speaker 1: be solved for Europe. According to the Droggy report, you
Speaker 1: have demographics that.
Speaker 6: Are working against you.
Speaker 1: You've got regulation that is very heavy in Europe. Those
Speaker 1: things have to be addressed and changed dramatically in order
Speaker 1: for Europe to say, in order to say Europe's going
Speaker 1: to outperform in.
Speaker 6: The US for the next three years.
Speaker 5: One difficulty right now is you don't invest in hours,
Speaker 5: right I assume that you have a longer.
Speaker 1: Term arized I mean, I'm investing free timing.
Speaker 6: And it's technically forty years.
Speaker 5: This is the difficult aspect, right this is a trader's
Speaker 5: market right now, we're talking about shifts that are incremental
Speaker 5: when you have to look over the big term and
Speaker 5: understand what the long term goal is and whether it's
Speaker 5: feasible for us to get there.
Speaker 6: So how you doing that?
Speaker 3: Well?
Speaker 1: I think the big issue that we're considering now is
Speaker 1: that the stagflationary scenario is getting a lot of traction
Speaker 1: in the markets. And if that's the case, no asset
Speaker 1: class works, not bonds, not stocks, no international nothing. Well
Speaker 1: maybe cash works for you over the very short term. Now,
Speaker 1: if you get a little bit less policy uncertainty, you
Speaker 1: can look a little forward to the US data seems
Speaker 1: to be softening a bit, at least on the survey side.
Speaker 1: If it starts to reach the hard data such as employment,
Speaker 1: you would see a FED policy response if they have
Speaker 1: the air cover on inflation. But the problem is is
Speaker 1: that even with the change in policy on Friday, you
Speaker 1: did not see this big rally off of oh, we're
Speaker 1: giving some relief on.
Speaker 6: Tariffs that you had seen before.
Speaker 1: So I think the market is in very much a
Speaker 1: show me state, and the only way that you get
Speaker 1: there is clarity on inflation, and clarity on terraffs.
Speaker 6: Neither of those seem to be coming now.
Speaker 1: Having said all that doom and gloom, potentially see a
Speaker 1: very good case that the FED has the ability to
Speaker 1: cut rates in the second half of this year, maybe
Speaker 1: really kind of like the late third quarter, because if
Speaker 1: all goes well, if tarists are indeed staved off, it's
Speaker 1: a one time inflation hit.
Speaker 6: To the upside, you.
Speaker 1: Should get enough relief from weaker economic data that inflation's
Speaker 1: coming down, that core PCE is dropping, that the Fed
Speaker 1: may be able to say we can cut interest rates
Speaker 1: maybe twice this year. That should give the market enough
Speaker 1: relief as long as the underlying earnings picture stays pretty
Speaker 1: much intact.
Speaker 7: The narrative is focused on the political economy and all
Speaker 7: these headlines from Trump, So you're saying that it can
Speaker 7: shift back to the Fed, and that could be the
Speaker 7: catalyst for an upswing in US eecrities.
Speaker 1: It could be in upswinging equities globally. At that point,
Speaker 1: I think that you need to see at least some
Speaker 1: policy certainty from the administration, and don't forget as we
Speaker 1: get towards the second half of this year, they have
Speaker 1: to start worrying about the midterm elections in twenty twenty six,
Speaker 1: So the clock on the very difficult, very uncertain Trump
Speaker 1: policies that could be growth negative do have somewhat of
Speaker 1: a time decay associated with them.
Speaker 7: We do have some certainty though tariffs have gone into
Speaker 7: place on China. Are you saying potentially uncertainty on everything
Speaker 7: else is almost worse than tariffs going into place.
Speaker 1: Well, tariffs in place on China is really an old
Speaker 1: story that's been coming through for a long time. So
Speaker 1: what happened after the first tariffs went in on China?
Speaker 1: You had this opportunity set where the rest of the
Speaker 1: world stepped in.
Speaker 6: To be the manufacturer.
Speaker 1: Right, so countries in Asia, Japan, excuse me, on Thailand, Malaysia,
Speaker 1: the Philippines, and also even to Mexico when you're starting
Speaker 1: to talk about tariffing our two biggest trading partners, that
Speaker 1: is a whole different story. Those will certainly put Mexico
Speaker 1: and Canada into a recession, and they account for forty
Speaker 1: percent of globally traded goods. So it's a very different
Speaker 1: story to tariff China. And then thinking differently about and
Speaker 1: with the Mexico and China, and then also potentially Europe.
Speaker 1: If you tariff Europe, that's going to have a big
Speaker 1: knock on effect to China as well. However, the biggest
Speaker 1: swing that you can get in stimulus is likely coming
Speaker 1: from the Chinese, So that actually makes us a little
Speaker 1: bit more bullish on the emerging markets. Then we would
Speaker 1: say the very overbought European equities at this time.
Speaker 5: So you put this all together, it sounds like on
Speaker 5: the margins, over the past few weeks, you've been shifting
Speaker 5: out of the US and waiting for the US to
Speaker 5: sort of get some of those certainties before going into
Speaker 5: whether it's small caps, mid caps or big tech.
Speaker 6: Is at the idea well in our portfolio.
Speaker 1: Is what we've done more recently, we bought a little
Speaker 1: bit more into the emerging markets. We bought something into
Speaker 1: US midcaps because we want to make sure and have
Speaker 1: exposure to those parts of the market that are likely
Speaker 1: going to benefit from the rotation. We've been reticent to
Speaker 1: buy European equities because they have run.
Speaker 6: So far at this point.
Speaker 1: You know, every single type of technical indicator that you
Speaker 1: look at RSIs that you could look at on your
Speaker 1: Bloomberg terminal, and many of our sentiments surveys say that
Speaker 1: European equities are indeed overbought, So if you're buying them
Speaker 1: at this point, you know the potential tide is against you,
Speaker 1: just because the new has been so positive for Europe.
Speaker 1: So we would wait for someone to a reprieve before
Speaker 1: we would think about going out to your p inequities.
Speaker 2: The DATS is still up about twenty percent so far
Speaker 2: here today, even with a one percent move this morning, Bumba,
Speaker 2: it's good to see you. Thanks for breaking it down.
Speaker 2: Thank you so much. Baba Royan, had there a voyeur
Speaker 2: investment management if you are just joining US equities here
Speaker 2: down by one point four percent. Let's turn to Washington
Speaker 2: and President Donald Trump refusing to rule out a recession
Speaker 2: for the United States and the economy, saying the US
Speaker 2: should expect a period of transition as he rolls out
Speaker 2: it's wide ranging tariff for gender joining US. Now for
Speaker 2: more is Neil Dounta of run mac Neil, Good morning, Jis.
Speaker 2: I want to take a step back with you because
Speaker 2: I think you're talking about something much bigger than just tariffs.
Speaker 2: In fact, you've pointed that out several times in your research.
Speaker 2: You think maybe something bigger is happening here. I want
Speaker 2: to give you the opportunity just to share your thoughts.
Speaker 10: Well, I think what's important is, while there's a lot
Speaker 10: of sort of enthusiasm, I guess to kind of lay
Speaker 10: everything that we're seeing at the feet of the Trump administration,
Speaker 10: I think the truth is is that things were slowing
Speaker 10: before they walk through the door. I mean, even February
Speaker 10: is you know, hard to say that this is all
Speaker 10: a function of policy uncertainty in tariffs.
Speaker 8: And in the three months.
Speaker 10: Ending in February, total hours worked have actually contracted. That's
Speaker 10: pretty rare on a three month basis. So it tells
Speaker 10: you that, you know, the economy was already slowing and
Speaker 10: there was a lot of weakness in train and you
Speaker 10: couldn't make the argument that, you know, trade related policy
Speaker 10: uncertainty is what's, you know, potentially dimming the outlook.
Speaker 8: But the consensus was off.
Speaker 10: Sides on the data as it has been coming in
Speaker 10: for the last several months, and some of that data
Speaker 10: reflects things that have already happened, right, So you know,
Speaker 10: I think that's important. You know, incomes are slowing, the
Speaker 10: housing markets frozen up increasingly.
Speaker 8: It looks like the labor markets have been.
Speaker 10: Sluggish, you know, and governments, I think, particularly for stay
Speaker 10: in local governments had been has been getting sliced and
Speaker 10: diced long before DOSEE came on the scene. So you know,
Speaker 10: I think these are sort of very interesting.
Speaker 8: Things to consider. And one of the things that we're
Speaker 8: learning is.
Speaker 10: Well, number one, I mean, the power put the stripe
Speaker 10: price on that is lower than we thought, and we
Speaker 10: learned more about that last week. But also I think
Speaker 10: the strip price on the Trump put.
Speaker 8: Is lower than we thought.
Speaker 10: So you have both some BC kind of you know,
Speaker 10: embracing the labor market even though it's getting worse. That's
Speaker 10: not necessarily a good place to be for risk appetite.
Speaker 6: So Neil, let's use it as a starting point.
Speaker 5: And you've been pretty consistent about this for a number
Speaker 5: of months that you think that the economy is a
Speaker 5: lot weaker than a lot of people had been pricing
Speaker 5: in and that you thought the FED would have to respond.
Speaker 5: It raises a question of the fragility to headline risk,
Speaker 5: the fragility to the uncertainty that we hear already coming
Speaker 5: into some of the CEO commentary coming out after earning.
Speaker 5: Do you think that it is even more susceptible to
Speaker 5: some of what is happening on the policy front.
Speaker 8: Well, I mean, you know, look, it depends.
Speaker 10: So for example, last week, you know, we've been seeing
Speaker 10: the markets kind of get dinged every time there's some
Speaker 10: kind of a trade announcement, right, but you're not really
Speaker 10: seeing that relief when the trade announcement is undone. Right,
Speaker 10: So for example, with Mexico Canada tariffs, I mean, we
Speaker 10: put twenty five percent tariffs on everything coming in from
Speaker 10: Canada to Mexico, and then the next day we exclude
Speaker 10: everything that's under the sort of umbrella of the USMCA.
Speaker 10: So we're tariffing everything and exempting everything all at the
Speaker 10: same time. And you know, you didn't really see much
Speaker 10: relief in the markets from that. So to me, that suggests,
Speaker 10: you know, number one, maybe the uncertainty is hurting to
Speaker 10: some extent, but also there's something beyond just trade that's
Speaker 10: driving markets, and I think it's you know, sort of
Speaker 10: a deterioration in the data and what that means for
Speaker 10: the outlook going forward, because it's not like the Fed's
Speaker 10: about to step in. So the fact that the Fed's
Speaker 10: not willing to step in even though the economy already
Speaker 10: has slowed reinforces that downsup.
Speaker 5: Almost I get through Neil, but a lot of companies
Speaker 5: have come out Best Buy, Target talked about how they
Speaker 5: are probably going to pass along price increases to consumers
Speaker 5: and expect to sell less as a result of some
Speaker 5: of these tariffs. We're already hearing about some companies shuttering
Speaker 5: certain operations to try to deal with some of the
Speaker 5: ebbs and flows of tariffs that come on and off.
Speaker 5: For you saying that it has had no effect and
Speaker 5: that essentially the vast majority of everything is just the
Speaker 5: existing economy that was slowing in that essentially it is
Speaker 5: Biden data and not Trump data.
Speaker 8: Well, I think it's dramatically over sold.
Speaker 10: I mean, it's one of these things where things are
Speaker 10: going well, it's you know, my growth strategy, and now
Speaker 10: when things are not going well, it's the uncertainty.
Speaker 8: That came out about in the last week and a half.
Speaker 10: I mean, it's sort of I think that's kind of
Speaker 10: amusing to me, but I would just say that you
Speaker 10: may be. I mean, I thought the comments from Kevin
Speaker 10: Hassett were interesting where he's basically talking about reciprocity, and
Speaker 10: you know, remember one of the ways there, they've they've
Speaker 10: long said that they've they plan to use tariffs is
Speaker 10: an escalate to.
Speaker 8: De escalate situation, Right, So do you get the.
Speaker 10: Heat dialed up to dial the heat back down and
Speaker 10: you get other countries to reduce their tariffs? I mean,
Speaker 10: how is the stock market going to respond to that?
Speaker 6: So?
Speaker 10: You know, I think what companies largely deal with is
Speaker 10: what's right in front of them, and what they're seeing.
Speaker 10: I think is that demand has been slowing and that's
Speaker 10: probably prompting additional caution in their outlook. I don't think
Speaker 10: that they're making whole set. I mean, maybe some of
Speaker 10: them are, but I don't really think that's that's that's
Speaker 10: the big story here. To me, The big story is
Speaker 10: government spending was already getting worse, particularly stay in locals.
Speaker 10: Housing has been locked up, labor markets have been locked up.
Speaker 10: What Trump's doing isn't helping. But you know, those those
Speaker 10: are those are much bigger considerations I think than policy uncertainty.
Speaker 6: Yeah, what's the potential upside?
Speaker 8: Though? Not right?
Speaker 10: I mean, I guess the question I would have for
Speaker 10: you is when does it matter, Lisa, when policy uncertainty
Speaker 10: is high?
Speaker 5: Right?
Speaker 10: Is it when there's a financial market shock to go
Speaker 10: along that, because if you look at credit spreads, they're
Speaker 10: relatively team at the moment, right, So that to me, yeah,
Speaker 10: they're rising from very very low levels. I mean you
Speaker 10: need a magnifying glass to see the increase.
Speaker 6: But can we talk about the market upside though?
Speaker 7: You mentioned because Scott Bessant, you mentioned the Trump put
Speaker 7: or the FED put.
Speaker 6: Scott Bessant last week said there's no put.
Speaker 7: He said the Trump call on the upside is if
Speaker 7: we have good policies and the markets will go up.
Speaker 6: When can we see that? And what kind of strike
Speaker 6: price are you looking at?
Speaker 8: Well, I mean, I don't know. It's it's like anything else.
Speaker 10: I mean you have to kind of peel back the
Speaker 10: onion and kind of think about what they're really trying
Speaker 10: to say here. And what that means is, you know,
Speaker 10: there may they may be. I mean, the look they're
Speaker 10: they're playing a game of chicken, both ends of DC
Speaker 10: with each other. It's exhausting, but it is what it is,
Speaker 10: right and and I think at some level what they're
Speaker 10: trying to do is kind of, you know, maybe get
Speaker 10: the FED to You can see a scenario where the
Speaker 10: Fed's cutting interest rates in the back half of the year,
Speaker 10: probably somewhat aggressively, you know, maybe one hundred basis points
Speaker 10: in the back half. At the same time, we're past
Speaker 10: the kind of uncertainty regarding trade, and then you get
Speaker 10: the Fed cuts, and then you get the call option,
Speaker 10: which is the tax law getting extended, and you know,
Speaker 10: sort of the markets focusing more.
Speaker 8: On lower taxes and deregulation.
Speaker 2: Again, no distactly what's the threshold for those cuts from
Speaker 2: the Federals, what they want to see, what they need
Speaker 2: to say.
Speaker 10: It is going to get worse, and inflation is not
Speaker 10: going to be as strong as they think. I mean,
Speaker 10: that's really what it is. I mean, you talk about
Speaker 10: inflation expectations. Mike McKee was talking about how there's going
Speaker 10: to be inflation expectations coming out this week, you know
Speaker 10: today and at the end of the week with the
Speaker 10: humish data. You know, why do we care about inflation
Speaker 10: expectations because people take those expectations and then try to
Speaker 10: bid up their wages. Good luck, good luck with that,
Speaker 10: see how it works out. I don't think that people
Speaker 10: are going to be able to actually bid their employers
Speaker 10: up for higher wages no matter what their inflation expectations
Speaker 10: are because no one's quitting their jobs, so firms have
Speaker 10: no incentive to pay people up. So I think people
Speaker 10: are in to the extent they have those expectations. I
Speaker 10: think companies are going to be in for a root
Speaker 10: awakening if they try to meet those expectations.
Speaker 8: I think people are going to be much.
Speaker 10: More resistant to higher prices than companies believe. It doesn't Again,
Speaker 10: so tariffs are the inflationary Yeah, maybe, but I think
Speaker 10: the bigger issue is the increased costs. So we don't
Speaker 10: know exactly how much of the in cost increase is
Speaker 10: going to be passed passed through to consumers.
Speaker 2: PSA. On my side, Neil, I just want to say
Speaker 2: to everyone out there, push, keep asking, No You're worth
Speaker 2: Neil owns his own company, He's talking his book. No
Speaker 2: do'ts to appreciate your time. No dotsor of Renmak there
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