WEBVTT - Bloomberg Surveillance TV: February 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 --> 0:00:36.879 Terminal and the Bloomberg Business app. Let's get back to 0:00:36.880 --> 0:00:39.120 our top story. President Trump said to speak with leaders 0:00:39.159 --> 0:00:41.800 of Canada and Mexico today ahead of tariffs going into 0:00:41.800 --> 0:00:45.000 effect tomorrow, as he ramps up threats against another key ally, 0:00:45.240 --> 0:00:49.000 the European Union. Jason Furman at the Harvard Kennedy School writing, 0:00:49.080 --> 0:00:51.760 it's hard to decide if tariff's the worst economic policy 0:00:52.000 --> 0:00:55.240 or foreign policy. We'll see if Trump caves to the market. 0:00:55.320 --> 0:00:57.200 Jason joins us now for more. Jason, Welcome to the 0:00:57.200 --> 0:00:59.320 program sir, thanks for making time for us. Let's just 0:00:59.360 --> 0:01:02.200 start here. How different these actions are compared to what 0:01:02.240 --> 0:01:04.800 we saw in Trump's first term? 0:01:05.160 --> 0:01:07.560 Oh yeah, look, I thought there were too many tariffs, 0:01:07.600 --> 0:01:10.679 and Frump's first term, I thought they were too poorly designed. 0:01:11.200 --> 0:01:16.319 But this is just at a massive scale relative to those, 0:01:16.840 --> 0:01:21.480 and these are against close allies, and this is less 0:01:21.560 --> 0:01:24.880 than you know. This is basically two weeks in to 0:01:24.959 --> 0:01:27.959 the administration, and he's promised us he's just getting started. 0:01:28.440 --> 0:01:31.319 Jason, it seems like on Wall Street people believe that 0:01:31.360 --> 0:01:34.040 the US economy is strong enough to withstand the hit, 0:01:34.480 --> 0:01:36.480 the growth hit from these tariffs. 0:01:36.840 --> 0:01:37.600 Do agree. 0:01:38.480 --> 0:01:40.039 First of all, it doesn't look to me like Wall 0:01:40.040 --> 0:01:43.640 Street has priced in these tariffs going into effect on 0:01:43.680 --> 0:01:44.760 a sustained basis. 0:01:45.360 --> 0:01:47.360 And by the way, I hope Wall Street's right about that. 0:01:48.120 --> 0:01:50.559 Some things are crazy enough that you touch the hot 0:01:50.640 --> 0:01:53.640 stove and you pull your hand away, and I think 0:01:53.640 --> 0:01:56.480 that's what Wall Street things would happen. So you can't 0:01:56.480 --> 0:01:59.080 look at the market right now to infer what would 0:01:59.080 --> 0:02:03.000 happen if over the next year, we keep these tariffs on, 0:02:03.800 --> 0:02:07.680 escalate them in response to their responses, add tariffs to 0:02:07.720 --> 0:02:11.560 the European Union at a universal tariff. All of that, 0:02:12.520 --> 0:02:16.680 I have no doubt, would would be quite a big hit. 0:02:16.639 --> 0:02:17.799 To growth, Jason. 0:02:17.840 --> 0:02:19.800 As you know, though, of course, USMCA is up for 0:02:19.800 --> 0:02:22.839 renegotiation next year. How much are these tariffs a part 0:02:22.880 --> 0:02:26.600 of that Caroenen stick approach for that renegotiation with Canada 0:02:26.600 --> 0:02:27.120 and Mexico. 0:02:29.360 --> 0:02:33.640 You know, USMCA was President Trump's trade agreement, and look, 0:02:33.840 --> 0:02:36.520 it's sort of ironic. In twenty sixteen, he campaigned on 0:02:36.600 --> 0:02:39.880 tearing up NAFTA and he ended up doing a renegotiation 0:02:39.960 --> 0:02:42.760 of it that was pretty good, and that got everyone 0:02:42.800 --> 0:02:46.240 on board. This time around, he actually did not campaign 0:02:47.040 --> 0:02:51.320 against NAFTA or USMCA, did not really campaign against Mexico 0:02:51.360 --> 0:02:54.240 and Canada, and he's straight out of the gate with 0:02:54.320 --> 0:02:57.160 tariffs on them. I don't really see this as part 0:02:57.200 --> 0:02:59.960 of a ploy to have a better USMCA and goes 0:03:00.280 --> 0:03:03.120 I don't quite know what we're looking for in the 0:03:03.200 --> 0:03:04.799 USMCA negotiating well. 0:03:04.800 --> 0:03:07.040 He did campaign though, on making sure that he put 0:03:07.080 --> 0:03:10.080 a halt to illegal immigration and stopping the fetanyl flow. 0:03:10.320 --> 0:03:13.600 If you look at our own drug enforcement data, twenty 0:03:13.639 --> 0:03:16.679 one thousand pounds with seas at the southern border of fetanyl, 0:03:16.680 --> 0:03:21.080 forty three pounds of fetanyl from Canada. Two milligrams of 0:03:21.080 --> 0:03:23.800 fetanyl is lethal. There's more than four hundred and fifty 0:03:23.840 --> 0:03:27.080 milligrams in a pound. If that is the direction that 0:03:27.120 --> 0:03:29.800 Trump is taking and it comes to national security, do 0:03:29.840 --> 0:03:33.240 you see this administration using tariffs? Say prior administrations might 0:03:33.320 --> 0:03:34.440 use things like sanctions. 0:03:35.640 --> 0:03:37.320 He First of all, you just said the number for 0:03:37.400 --> 0:03:40.840 Canada was tiny compared to the number for Mexico. And 0:03:40.880 --> 0:03:43.400 by the way, fentanyl goes from the US porter to 0:03:43.480 --> 0:03:47.000 the Canadian border as well, do you think they should 0:03:47.000 --> 0:03:52.880 be putting tariffs on us to stop that flow of fentanyl? Absolutely, 0:03:52.960 --> 0:03:55.400 we need to put pressure on Mexico. But it's not 0:03:55.440 --> 0:03:57.800 like they have a switch that they could choose whether 0:03:57.960 --> 0:03:58.800 or not to push. 0:03:59.440 --> 0:04:01.880 This has been a big issue for them. 0:04:02.280 --> 0:04:05.920 It's undermined a lot of their country the drug trade 0:04:06.240 --> 0:04:10.240 as well. And by the way, destabilizing the Mexican economy 0:04:10.520 --> 0:04:12.240 is going to increase. 0:04:11.960 --> 0:04:15.400 The amount of immigration to the United States, not reduce it. 0:04:15.920 --> 0:04:18.520 Jason, there's a larger theory here that the US needs 0:04:18.520 --> 0:04:20.839 to produce more of its goods at home, both for 0:04:20.960 --> 0:04:24.120 national security reasons and also to give jobs to people 0:04:24.240 --> 0:04:26.600 in areas that got beaten up during a lot of 0:04:26.640 --> 0:04:29.840 the globalization shifts that we saw in the economy. What 0:04:29.880 --> 0:04:32.440 do you think it would take to bring production back. 0:04:32.480 --> 0:04:34.680 Do you think that's a feasible goal and how long 0:04:34.720 --> 0:04:35.280 would it take? 0:04:36.200 --> 0:04:36.400 Yeah? 0:04:36.440 --> 0:04:39.000 I think what would take to bring production back is 0:04:39.040 --> 0:04:43.280 to have an integrated market in North America where inputs 0:04:43.279 --> 0:04:46.960 for American manufacturers can come in tax free, where auto 0:04:47.040 --> 0:04:50.920 parts can go back and forth across the border multiple times. 0:04:51.279 --> 0:04:53.599 That's the way you have an American auto industry. You 0:04:53.600 --> 0:04:56.839 don't make every single piece that goes into the car. 0:04:57.400 --> 0:05:00.599 You have, you know a lot of the you added 0:05:00.880 --> 0:05:03.479 a lot of the key stages of the process, but 0:05:04.200 --> 0:05:07.320 spread production out around the world. That's what makes the 0:05:07.360 --> 0:05:13.360 American economy so incredibly successful. Look at US productivity growth 0:05:13.360 --> 0:05:16.520 compared to any other events economy, It's been much higher. 0:05:16.760 --> 0:05:18.920 Globalization has been a key part of that. 0:05:18.960 --> 0:05:22.960 This is going to destroy American manufacturing if it continues 0:05:23.000 --> 0:05:23.680 and escalates. 0:05:23.960 --> 0:05:28.239 Jason, can you make the argument that globalization destroyed American manufacturing. 0:05:29.440 --> 0:05:35.480 Productivity growth has been the biggest factor in reducing American manufacturing. 0:05:35.760 --> 0:05:39.560 Manufacturing jobs have fallen in China, they've fallen in Germany, 0:05:39.880 --> 0:05:42.800 they fall in the United States because you can make things. 0:05:42.880 --> 0:05:44.600 With fewer people. 0:05:45.000 --> 0:05:47.520 And by the way, even if you want more manufacturing jobs, 0:05:47.680 --> 0:05:51.919 you don't raise input prices for manufacturing. You don't strengthen 0:05:51.960 --> 0:05:56.320 the dollar to hurt exporters. You don't weaken the economies 0:05:56.360 --> 0:05:58.960 of our trading partners. You don't encourage them to put 0:05:59.040 --> 0:06:03.839 terrorfs on manufact Every single aspect of this is bad 0:06:04.640 --> 0:06:06.000 for American manufacturing. 0:06:06.160 --> 0:06:07.640 Jason, just to find a word at the one minute 0:06:07.640 --> 0:06:10.400 we have left with you, just on prices. By definition, 0:06:10.480 --> 0:06:12.400 the importer pays the tariff. So let's just put that 0:06:12.440 --> 0:06:14.760 all to one side. What's your base case on how 0:06:14.800 --> 0:06:16.960 the cost will be distributed? How do you see this 0:06:17.000 --> 0:06:19.080 playing gap? Will it all get passed through to the consumer? 0:06:19.320 --> 0:06:20.560 Will it be eaten elsewhere? 0:06:22.080 --> 0:06:23.840 He'll be a little bit of it eaten by the 0:06:23.880 --> 0:06:26.839 Canadians and Mexicans in terms of the appreciation of the dollar, 0:06:27.760 --> 0:06:30.880 some of it eaten by margins. So I see something 0:06:30.960 --> 0:06:34.120 like an extra half point on inflation, and if you 0:06:34.200 --> 0:06:38.000 go from you know, two point five to three percent inflation, 0:06:38.400 --> 0:06:39.840 and that's a big difference for the. 0:06:39.839 --> 0:06:42.800 Fat, big change. Jason, appreciate your input and your insight. 0:06:42.880 --> 0:06:45.880 Thank you, sir, Jason Furman there at the Harvard Kennedy School. 0:06:55.600 --> 0:06:57.960 I'm ready sent of energy aspects joined us now to 0:06:57.960 --> 0:07:00.160 extend the conversation and RITA, what does a tempt per 0:07:00.400 --> 0:07:03.400 tariff on four million pounds of crew today? Due to 0:07:03.440 --> 0:07:04.320 this energy market? 0:07:07.360 --> 0:07:09.760 I think you look, the ten percent tariff in itself 0:07:10.720 --> 0:07:14.640 doesn't break us refining, but for sure it adds to 0:07:14.680 --> 0:07:17.880 the cost. US refining margins are not great to begin with. 0:07:18.280 --> 0:07:22.520 We've calculated even if Canadian heavies takes seventy percent off 0:07:22.560 --> 0:07:26.720 the tariff, you still lose about a dollar from Midwest margins. 0:07:27.520 --> 0:07:29.760 And I think the critical thing it also is to 0:07:29.800 --> 0:07:32.880 watch for is the Canadian dollar that's weakened a lot, 0:07:33.200 --> 0:07:37.040 so that also helps absorb some of the tariffs. But ultimately, yes, 0:07:37.320 --> 0:07:40.800 you are going to get a hit on US Midwest margins, 0:07:40.880 --> 0:07:44.360 also West coast margins. We're going to see more of 0:07:44.400 --> 0:07:47.800 the Canadian flow on the TMX pipeline to Asia instead, 0:07:48.200 --> 0:07:51.760 and US will have to pay up four alternatives, if 0:07:51.760 --> 0:07:54.080 I may say, I think more than the Canadian one. 0:07:54.160 --> 0:07:56.840 It's a twenty five percent on Mexico that's going to 0:07:56.880 --> 0:07:59.880 be the much bigger problem given the Gulf Coast in 0:08:00.000 --> 0:08:02.640 sports about four hundred thousand barots but of Mexican heavies 0:08:03.120 --> 0:08:05.560 and another two hundred thousand of feet stop what we 0:08:05.600 --> 0:08:07.760 would call fuel oil. That's going to be very hard 0:08:07.760 --> 0:08:09.880 for them to replace. And it's a higher tariff as well, 0:08:10.040 --> 0:08:11.160 given its twenty five percent. 0:08:11.240 --> 0:08:13.040 I'm reading you mentioned something in there that I want 0:08:13.080 --> 0:08:16.600 to pick up and exporting more to Asia. How easy 0:08:16.760 --> 0:08:20.640 is it for Canada and Mexico to shift its export 0:08:20.720 --> 0:08:23.920 lines to direct more of it to China in the 0:08:23.960 --> 0:08:26.440 Southeast asiancy rather than the United States. 0:08:29.160 --> 0:08:32.480 Well, because Canada now has the TMX pipeline. In the past, 0:08:32.520 --> 0:08:34.040 they wouldn't have been able to do so would have 0:08:34.080 --> 0:08:37.199 been a lot harder, but now with TMX, it actually 0:08:37.200 --> 0:08:40.000 gives them a lot more optionality. And if I may 0:08:40.040 --> 0:08:44.040 say so, I think these tariffs have essentially handed a 0:08:44.120 --> 0:08:47.960 boon to Asian refiners. And it's obviously bullish for pad 0:08:48.000 --> 0:08:52.720 One margins because pad One is losing product exports from Canada, 0:08:52.960 --> 0:08:56.920 but it's also boosting European refining margins. It's a win 0:08:57.040 --> 0:08:58.720 for a lot of the rest of the world, just 0:08:58.880 --> 0:09:02.120 a massive loss for you s refining, which you know, 0:09:02.400 --> 0:09:04.839 given that it's meant to be America first, I'm not 0:09:04.840 --> 0:09:07.560 one hundred percent sure that was the intended consequence, but 0:09:07.600 --> 0:09:09.520 that's absolutely how this is going to play out. 0:09:09.600 --> 0:09:11.800 How long before the United States could produce the kind 0:09:11.840 --> 0:09:14.400 of crude that would be good for refining. How long 0:09:14.400 --> 0:09:16.680 before the US can compensate? And I've set that with 0:09:16.760 --> 0:09:20.240 the energy that Donald Trump was talking about. 0:09:22.160 --> 0:09:25.079 They can't. I mean, the reserves are light shale. It's 0:09:25.120 --> 0:09:27.160 a geology problem. We can, you know, scream and shout 0:09:27.160 --> 0:09:29.200 out as much as we want about the volume of 0:09:29.240 --> 0:09:32.200 oil produced. But every refiner on the Gulf Coast and 0:09:32.240 --> 0:09:34.480 a lot of them in the Midwest are complex refiners. 0:09:34.480 --> 0:09:37.559 They need the heavier crude and that's why they were designed, 0:09:37.600 --> 0:09:41.560 because they had availability of Canadian and Mexican heavies. Gulf 0:09:41.600 --> 0:09:44.800 of Mexico producers some medium sour crudes, but it's not 0:09:44.840 --> 0:09:48.640 the heavy material that these refiners need. So it's a 0:09:48.679 --> 0:09:51.600 geology problem. It's nothing to do with you know, regulation 0:09:51.720 --> 0:09:53.959 or anything else. US of course has all the oil 0:09:54.840 --> 0:09:56.960 the refiners require, it's just the wrong type of oil. 0:09:57.240 --> 0:09:59.720 So I'm rida, where can they import this type of crud? 0:10:00.120 --> 0:10:04.480 Not going to be from Mexico or Canada. 0:10:04.600 --> 0:10:07.560 So I think the Canadian imports will still continue because again, 0:10:07.640 --> 0:10:09.800 like I said, the ten percent tariff, again, we'll get 0:10:09.800 --> 0:10:12.600 it split between refiners and Canada, but I think those 0:10:12.640 --> 0:10:14.400 will continue. I think the challenge is going to be 0:10:14.480 --> 0:10:16.760 on the Gulf coast. We do see more Middle Eastern 0:10:17.320 --> 0:10:21.320 barrels arriving potentially from Iraq. Even some Saudi Arabia and 0:10:21.360 --> 0:10:24.199 other Latin American countries can swing, but it's going to 0:10:24.240 --> 0:10:26.280 be a tough ask. And by the way, we don't 0:10:26.320 --> 0:10:28.520 even know if Mexico is going to retaliate. If it 0:10:28.600 --> 0:10:30.960 does on oil products, which is not our base case, 0:10:31.280 --> 0:10:33.800 but US Golf Coast refiners send eight hundred and fifty 0:10:33.840 --> 0:10:36.400 thousand barrels play of products to Mexico. They will not 0:10:36.480 --> 0:10:38.400 find a home and they will have to cut runs. 0:10:38.440 --> 0:10:40.280 That's the one to watch out for Amrita with an 0:10:40.360 --> 0:10:41.439 uptick in prices right now. 0:10:41.440 --> 0:10:43.280 We also have OPEC plus. 0:10:42.800 --> 0:10:45.280 Members meeting today. Is this a moment for them to 0:10:45.320 --> 0:10:46.680 want to add barrels to the market. 0:10:49.520 --> 0:10:53.280 Today's a GMMC meeting rather than no OPEK ministerial meeting. 0:10:53.800 --> 0:10:56.440 The GMMC simply, you know, just take stock of where 0:10:56.480 --> 0:11:00.400 fundamentals are. We've maintained our view that they will appselutely 0:11:00.480 --> 0:11:04.240 have to see outright supply disruption, not just trade floor ships, 0:11:04.240 --> 0:11:07.000 which is what's happening right now before they change course. 0:11:07.080 --> 0:11:09.160 So we maintain the view that you know, the earliest 0:11:09.160 --> 0:11:11.800 you're going to start seeing or back plus unwined is April. 0:11:12.000 --> 0:11:14.240 I'm rich, I appreciate your time. As always, I'm ready 0:11:14.240 --> 0:11:27.040 to send there of energy aspects. Steven Stanley as Santander, 0:11:27.200 --> 0:11:29.679 saying tariffs are likely to be negative for growth, especially 0:11:29.720 --> 0:11:32.280 if there is retaliation. Steve joined us now for more. 0:11:32.320 --> 0:11:34.600 Steven, good to see it, good to be here. 0:11:34.679 --> 0:11:36.440 Chair and Pound in the news conference said he'd wait 0:11:36.480 --> 0:11:39.040 to see policy articulated. And we've said this morning a 0:11:39.080 --> 0:11:41.520 few times that it has been what does he do now? 0:11:42.600 --> 0:11:44.360 I think you have to wait. I mean, I think 0:11:44.360 --> 0:11:45.560 this is a day to day thing. 0:11:46.160 --> 0:11:48.760 President Trump is speaking with the leaders of Canada, Mexico. 0:11:48.920 --> 0:11:51.240 There's a I mean, there's at least a non trivial 0:11:51.320 --> 0:11:53.559 chance that we'd never see these, these twenty five percent 0:11:53.679 --> 0:11:54.839 tariffs on. 0:11:54.840 --> 0:11:57.600 The margins, though given that a lot of companies aren't 0:11:57.600 --> 0:12:00.080 sure what to do with us Jim Bullard for our 0:12:00.200 --> 0:12:02.840 Saint Louis fed President was earlier on in saying he 0:12:02.920 --> 0:12:05.160 sees this as more of a growth shock than an 0:12:05.240 --> 0:12:09.520 inflationary shock. Based on everything that you've read and seen. 0:12:09.320 --> 0:12:12.720 So far, would you agree totally agree with that? Totally agree. 0:12:12.920 --> 0:12:15.560 So the inflation story's been the one that's gotten the 0:12:15.559 --> 0:12:17.240 most run in terms of tariffs. 0:12:17.240 --> 0:12:19.959 But the problem with that story is that tariffs are a. 0:12:19.960 --> 0:12:22.480 One time change in the price level, right, It's not 0:12:22.640 --> 0:12:27.600 a persistent change in the rate of change of prices, 0:12:27.600 --> 0:12:28.360 which is inflation. 0:12:28.840 --> 0:12:30.959 And so in theory, the FED is supposed to look 0:12:31.000 --> 0:12:31.360 through that. 0:12:31.640 --> 0:12:34.480 I realize easier said than done. But if you go 0:12:34.600 --> 0:12:38.120 back to twenty eighteen, I know very different economic landscape, 0:12:38.440 --> 0:12:41.840 but the main issue back then was growth, not inflation, 0:12:41.920 --> 0:12:45.640 and it definitely had a significant impact on growth. 0:12:45.800 --> 0:12:48.040 The argument that people make against this is that the 0:12:48.120 --> 0:12:51.000 US economy is so strong and this is such a 0:12:51.040 --> 0:12:54.360 minor hit that the US will power through it and 0:12:54.400 --> 0:12:55.520 it will barely show up. 0:12:55.960 --> 0:12:59.400 Why do you disagree, Well, we may very well get 0:12:59.400 --> 0:12:59.760 through it. 0:12:59.880 --> 0:13:03.360 I don't think this would necessarily be inflationary, given that 0:13:03.400 --> 0:13:05.319 the economy does have a lot of momentum, but I 0:13:05.360 --> 0:13:07.360 do think that the growth hit would be significant. 0:13:07.760 --> 0:13:09.120 We would notice it for sure. 0:13:09.640 --> 0:13:11.520 And I think again, if you go back to twenty 0:13:11.520 --> 0:13:15.600 eighteen twenty nineteen, it seems to me that the biggest 0:13:15.600 --> 0:13:18.080 takeaway from that experience, at least for me, was it 0:13:18.120 --> 0:13:21.040 wasn't so much the tariffs themselves. It was the uncertainty 0:13:21.480 --> 0:13:23.800 in the environment that it engendered. And I think a 0:13:23.840 --> 0:13:27.800 lot of businesses were, you know, taking a step back 0:13:27.960 --> 0:13:29.840 until they had a better idea of what was coming 0:13:30.559 --> 0:13:34.040 at that time. And now I think businesses are already 0:13:34.080 --> 0:13:38.600 in that mode. They're waiting for tax changes regulatory. 0:13:38.240 --> 0:13:39.480 In addition to tariffs. 0:13:39.840 --> 0:13:42.360 And I mean, if I'm a business person, I'm not 0:13:42.440 --> 0:13:45.640 making any you know, smart, I'm not making any big 0:13:45.679 --> 0:13:47.280 decisions anytime soon. 0:13:47.640 --> 0:13:49.440 The other side of that growth, though, is what if 0:13:49.480 --> 0:13:51.640 there is a fifteen percent corporate tax, right if you 0:13:51.679 --> 0:13:54.280 produce in the United States? Right, isn't it the cart 0:13:54.320 --> 0:13:55.120 and stick approached? 0:13:55.320 --> 0:13:57.360 Well, this is yeah, this is what the president is 0:13:57.400 --> 0:14:00.520 aiming for. Is he wants to bring production and home. 0:14:01.160 --> 0:14:03.760 I mean, I think that's realistic, perhaps for some industries 0:14:03.760 --> 0:14:05.000 and not so much for others. 0:14:05.960 --> 0:14:07.760 But yeah, I mean it is a mix. 0:14:07.840 --> 0:14:11.679 I think that if you look at the administration's proposed 0:14:12.200 --> 0:14:18.680 policy policies in a totality, the tax piece and the 0:14:18.720 --> 0:14:21.560 regulatory piece are likely to be very positive for growth 0:14:21.640 --> 0:14:23.360 and then on the other side, you've got tariffs and 0:14:23.400 --> 0:14:28.160 maybe to some degree immigration, And you know, he's leading 0:14:28.200 --> 0:14:31.600 with tariffs, which it seems to me maybe not the 0:14:32.480 --> 0:14:34.320 right way to go because that's the one that has 0:14:34.360 --> 0:14:36.280 the potential to be negative for growth. 0:14:36.320 --> 0:14:38.680 But you know, we'll see how that plays out. 0:14:38.720 --> 0:14:41.160 I mean, I think it's you know, I'm not a 0:14:41.200 --> 0:14:42.840 political annalys but my sense is. 0:14:42.760 --> 0:14:45.960 That for him, this is all in negotiation. The point 0:14:45.960 --> 0:14:49.040 of this isn't to slap tariffs and slow the economy down. 0:14:49.160 --> 0:14:52.400 It's to get what he wants from Canada, Mexico, China 0:14:52.400 --> 0:14:52.840 and others. 0:14:52.960 --> 0:14:55.040 And he's flirting now the European Union. Last night he 0:14:55.040 --> 0:14:57.800 said we'll definitely happen with the European Union. 0:14:58.120 --> 0:15:01.440 So in that sense, how do you model. 0:15:01.120 --> 0:15:03.000 All of this if it's basically just going to be 0:15:03.160 --> 0:15:06.280 paralysis businesses waiting on the sidelines because they could be 0:15:06.280 --> 0:15:07.680 waiting for months or years. 0:15:07.840 --> 0:15:10.680 Yeah, it's definitely moving target. I mean, you think about 0:15:11.800 --> 0:15:12.840 are the arffs going to happen? 0:15:12.880 --> 0:15:13.760 Are they not going to happen? 0:15:13.840 --> 0:15:16.200 Then if they are, next question, are they going to 0:15:16.200 --> 0:15:20.160 be exemptions? Are certain industries going to get which that 0:15:20.240 --> 0:15:22.440 happened a lot there are a lot of exemptions in 0:15:22.640 --> 0:15:24.680 Trump's first term on the tariffs that we're in posed. 0:15:25.120 --> 0:15:29.040 How do our trading partners respond, are they retaliatory? 0:15:29.080 --> 0:15:31.680 Do they want to deal? How does how does the 0:15:31.680 --> 0:15:33.160 broader economy respond to? 0:15:33.360 --> 0:15:39.360 Do producers and retailers pass everything through? Do they eat 0:15:39.400 --> 0:15:43.040 some of the of the margin? You know, there's so 0:15:43.120 --> 0:15:47.520 many questions that I think it's impossible to have a 0:15:47.560 --> 0:15:50.120 precise estimate. I mean, I think, you know, we know 0:15:50.160 --> 0:15:53.800 the direction, but I don't think that the magnitudes are 0:15:53.920 --> 0:15:55.640 very difficult. You can, you know, you can kind of 0:15:55.640 --> 0:15:58.040 throw numbers out there, but it's all very tentative at 0:15:58.040 --> 0:15:58.280 this point. 0:15:58.400 --> 0:16:01.080 Can we throw some numbers at that few? Let's got 0:16:01.120 --> 0:16:03.120 back to twenty eighteen and talk about the experience from 0:16:03.160 --> 0:16:06.280 twenty eighteen. We know a whole different range of things 0:16:06.280 --> 0:16:09.360 can happen. Exporters can drop prices, we can eat it 0:16:09.400 --> 0:16:11.520 on the margin. It doesn't all have to get passed 0:16:11.520 --> 0:16:13.680 through to the consumer. You would be the first to 0:16:13.720 --> 0:16:16.040 say that's very dependent on what goods and what sectors, 0:16:16.040 --> 0:16:17.840 And I would agree with you. What do we learned 0:16:17.840 --> 0:16:19.760 from eighteen about what corporations did then? 0:16:19.960 --> 0:16:20.480 What happened? 0:16:20.480 --> 0:16:20.600 Then? 0:16:21.000 --> 0:16:25.120 Yeah, I think the difficulty is that the environment is 0:16:25.200 --> 0:16:27.240 very different now than it was then. I think back then, 0:16:27.680 --> 0:16:31.640 inflation expectations were incredibly low. Firms had very little pricing power, 0:16:31.680 --> 0:16:33.920 and I think in many cases they were forced to 0:16:33.960 --> 0:16:37.960 eat at least some of the cost increases. This time around, 0:16:38.320 --> 0:16:41.240 firms have a lot of muscle memory raising prices when 0:16:41.240 --> 0:16:41.760 their costs go. 0:16:41.960 --> 0:16:43.400 Do they have pricing power right now? 0:16:43.480 --> 0:16:44.680 We'll see, We'll see. 0:16:44.720 --> 0:16:48.360 I think that consumers are probably, you know, the anecdotal 0:16:48.400 --> 0:16:52.040 evidence is that consumers have started to fight back a 0:16:52.080 --> 0:16:56.480 little bit. But at the same time, again, consumers also 0:16:56.560 --> 0:16:59.720 have muscle memory and paying higher prices. And you know, 0:16:59.760 --> 0:17:02.520 if if it feels like tariff's is a good reason, 0:17:02.600 --> 0:17:05.119 then maybe they're more inclined to accept it now than 0:17:05.119 --> 0:17:06.119 they would have been in eighteen. 0:17:06.240 --> 0:17:08.959 If we still have these tariffs by Friday, what am 0:17:08.960 --> 0:17:11.600 I looking at the payrolls report for? Is it of 0:17:11.640 --> 0:17:12.400 any use at all? 0:17:13.520 --> 0:17:14.800 I don't think it's irrelevant. 0:17:14.800 --> 0:17:17.080 But I think it's definitely going to be the case 0:17:17.160 --> 0:17:18.960 that the markets are going to pay a lot less 0:17:18.960 --> 0:17:21.840 attention to the normal data flow than they would have otherwise. 0:17:21.520 --> 0:17:24.719 That's for sure. Stephen Stanley of Santanta's Stephen. Thank you, sir, 0:17:25.119 --> 0:17:37.760 I appreciate it. Let's cross over to Earl Davis of BEIMO, 0:17:38.080 --> 0:17:40.560 who has more Welcome to the program, Sir, I've asked 0:17:40.560 --> 0:17:44.000 this question a few times already today. Is this bullish 0:17:44.160 --> 0:17:46.560 or bearish for treasuries? Which one ol? 0:17:48.480 --> 0:17:52.520 It's bullish for tips, not treasuries, and tips will all 0:17:52.560 --> 0:17:55.520 perform both on a rally as we're seeing today in 0:17:55.560 --> 0:17:56.720 the tenure sector. 0:17:56.400 --> 0:17:58.440 And they will outperform on any sell off. 0:17:59.200 --> 0:18:02.240 The reason why it's hard to answer that question ultimately, 0:18:02.280 --> 0:18:05.399 other than tips, is that the market only has the 0:18:05.440 --> 0:18:08.040 ability to focus on one narrative at the time at 0:18:08.040 --> 0:18:10.840 a time, and there's four possible narratives that could have 0:18:11.000 --> 0:18:15.040 happen now. One is inflation, two is growth, three is 0:18:15.160 --> 0:18:15.960 risk off. 0:18:16.080 --> 0:18:17.080 And four is fiscal. 0:18:17.840 --> 0:18:22.159 Two of those, inflation and fiscal are negative on bond yields, 0:18:22.200 --> 0:18:26.399 and two are bullish. That's risk off and growth. The 0:18:26.520 --> 0:18:30.080 risk off is what we're seeing now combined with inflationary fears. 0:18:30.480 --> 0:18:33.000 Do you think on the tax on the fiscal, Earl, 0:18:33.080 --> 0:18:36.159 the actions like this make it more likely than not 0:18:36.600 --> 0:18:38.960 we'll get bigger tax cats than some people expect. 0:18:40.800 --> 0:18:43.320 Yeah, I could go both ways. There's so many unknowns. 0:18:43.359 --> 0:18:45.800 That's why we said our approaches, you know what, we 0:18:45.840 --> 0:18:49.359 expect nothing, but we plan for everything and so that 0:18:49.400 --> 0:18:52.600 we could take advantage of it now. So it's possible, 0:18:52.640 --> 0:18:55.480 but there's so many unknowns, right are the what is 0:18:55.520 --> 0:18:57.240 the revenue actually used for? 0:18:57.920 --> 0:18:58.679 How long does it? 0:18:58.720 --> 0:19:02.960 Does this last a little bit's a short lived tariff war, 0:19:03.640 --> 0:19:06.760 then we can expect to be more see more pressure 0:19:06.760 --> 0:19:09.639 on fiscal but if it's longer lived than yes, it 0:19:09.680 --> 0:19:11.399 does help to fund tax cuts. 0:19:11.400 --> 0:19:13.720 Another spending choices. 0:19:14.240 --> 0:19:16.119 Oh, do you have a base case going into this 0:19:16.200 --> 0:19:18.919 evening because after midnight they're coming on in less as 0:19:18.920 --> 0:19:19.880 an eleventh hour deal. 0:19:21.680 --> 0:19:23.359 Yeah, you know, it's one of those things where you know, 0:19:23.480 --> 0:19:25.880 you hope for the best, prepare for the worst. So 0:19:26.080 --> 0:19:29.000 our base case basically is we don't have a base case, 0:19:29.000 --> 0:19:32.280 but it's to react to the market, to acknowledge when 0:19:32.320 --> 0:19:34.280 a narrative has run out. And I named the four 0:19:34.359 --> 0:19:37.960 things that we're looking at as possible narratives if you were. 0:19:37.800 --> 0:19:38.560 To ask me right now. 0:19:38.600 --> 0:19:40.680 The way I think, the way I believe I see 0:19:40.720 --> 0:19:43.479 this going is first you have your risk off trade. 0:19:43.520 --> 0:19:45.880 You're seeing that through credit spreads wide and you're seeing 0:19:45.880 --> 0:19:49.679 that through a rally inenominals and tips, even though tips 0:19:49.720 --> 0:19:53.520 are rallying more than treasuries, so we'll have this risk 0:19:53.560 --> 0:19:57.040