1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,360 Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:37,680 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Max Ketner of HSBC, 10 00:00:37,840 --> 00:00:39,959 Speaker 2: writing Goldilocks, has had a few scratches in the last 11 00:00:40,000 --> 00:00:43,000 Speaker 2: few weeks. Data misses have started to cast some down 12 00:00:43,320 --> 00:00:47,239 Speaker 2: over the idea of US exceptionalism. However, we'd argue this 13 00:00:47,280 --> 00:00:50,199 Speaker 2: is precisely what we're looking for. Max joined us now 14 00:00:50,240 --> 00:00:52,279 Speaker 2: from more Mask in morning. Good Welcome to New York. 15 00:00:52,280 --> 00:00:53,960 Speaker 2: We've got a lot to catch up on. What's that 16 00:00:54,040 --> 00:00:56,520 Speaker 2: last line about? This is precisely what we're looking for. 17 00:00:56,760 --> 00:00:59,960 Speaker 3: I think overall, if you think from a more strategic perspecse, 18 00:01:00,440 --> 00:01:02,360 Speaker 3: then actually this is the kind of stuff you want 19 00:01:02,400 --> 00:01:04,880 Speaker 3: for US exceptionalism, Because the problem is I think two 20 00:01:04,920 --> 00:01:07,920 Speaker 3: months back, the consender's opinion was, you've got to buy 21 00:01:07,920 --> 00:01:10,440 Speaker 3: the dollar, You've got to buy US equities, and actually, 22 00:01:10,520 --> 00:01:13,200 Speaker 3: when we look at anything else, don't even look at it. 23 00:01:13,200 --> 00:01:15,720 Speaker 3: It's not even worth looking at. It's just the US 24 00:01:15,760 --> 00:01:18,759 Speaker 3: and nothing else. And here we are two months later, 25 00:01:18,920 --> 00:01:21,319 Speaker 3: and all of a sudden, nothing's worked. So one of 26 00:01:21,319 --> 00:01:24,319 Speaker 3: the you know, one of the key ingredients for both 27 00:01:24,360 --> 00:01:27,319 Speaker 3: this idea of US exceptionalism but also the idea of 28 00:01:27,319 --> 00:01:30,679 Speaker 3: goldiloxers is that you've got these persistent doubts around it 29 00:01:31,000 --> 00:01:33,000 Speaker 3: that you know, people are saying, oh, Ai, how are 30 00:01:33,000 --> 00:01:35,440 Speaker 3: we going to make money with AI? And how about 31 00:01:35,520 --> 00:01:38,760 Speaker 3: you know, this big, big discount of the rest of 32 00:01:38,840 --> 00:01:42,520 Speaker 3: world equities, international equities versus the US, isn't the US 33 00:01:42,560 --> 00:01:46,520 Speaker 3: too expensive? So this perpetual question around valuations, now that's 34 00:01:46,520 --> 00:01:49,400 Speaker 3: the strategic question. Right then you're saying, hey, that idea 35 00:01:49,440 --> 00:01:53,400 Speaker 3: of US exceptionalism is not dead, absolutely not, because you know, 36 00:01:53,440 --> 00:01:56,280 Speaker 3: we've got lower corporate taxes, the S and P effective 37 00:01:56,280 --> 00:01:59,080 Speaker 3: tax rates, much lower your Roe gap. I think I 38 00:01:59,080 --> 00:02:02,440 Speaker 3: would always argue, look, you can look at valiations as 39 00:02:02,600 --> 00:02:05,320 Speaker 3: a really really negative sign from a strategic a longer 40 00:02:05,400 --> 00:02:07,680 Speaker 3: term perspective in the US. But you can also look 41 00:02:07,720 --> 00:02:10,519 Speaker 3: the other way around and say, your roe gap between 42 00:02:10,560 --> 00:02:13,079 Speaker 3: the US and the rest of the world has more 43 00:02:13,080 --> 00:02:16,560 Speaker 3: than quadrupled in fifteen years. So fine, you're paying a 44 00:02:16,600 --> 00:02:19,080 Speaker 3: higher price, but guess what you're getting more than four 45 00:02:19,160 --> 00:02:24,240 Speaker 3: times as much profitability. Again, that's the strategic perspective. Doesn't 46 00:02:24,280 --> 00:02:26,480 Speaker 3: tell us, unfortunately, an awful lot about the next couple 47 00:02:26,520 --> 00:02:26,840 Speaker 3: of weeks. 48 00:02:26,960 --> 00:02:29,000 Speaker 2: This has been the most exhausting five percent pullback I 49 00:02:29,000 --> 00:02:30,680 Speaker 2: think I've ever witnessed on the anquity market on the 50 00:02:30,760 --> 00:02:33,040 Speaker 2: S and P five hundred. Do you buy this weakness 51 00:02:33,320 --> 00:02:35,440 Speaker 2: or chase the strength in Europe? With banks up twenty 52 00:02:35,480 --> 00:02:38,880 Speaker 2: five percent today on the stock six hundred, Yeah, I'd rather. 53 00:02:38,760 --> 00:02:39,919 Speaker 4: Look elsewhere right now. 54 00:02:39,960 --> 00:02:42,600 Speaker 3: So we've just put out a note this morning saying, look, guys, 55 00:02:43,080 --> 00:02:45,480 Speaker 3: probably the US is not the place to be right now, 56 00:02:45,520 --> 00:02:49,080 Speaker 3: at least tactically, because those tariff headlines are probably not 57 00:02:49,160 --> 00:02:52,080 Speaker 3: going to go away. I think for the FED put 58 00:02:52,200 --> 00:02:56,040 Speaker 3: to come back into action, there simply isn't enough weakness yet. 59 00:02:56,280 --> 00:02:58,720 Speaker 3: So you said, this has been the most exhausting five 60 00:02:58,760 --> 00:03:00,360 Speaker 3: percent pullback, and I feel it. 61 00:03:00,400 --> 00:03:02,160 Speaker 2: I think all of us for fe Have you ever 62 00:03:02,160 --> 00:03:04,440 Speaker 2: seen anything like this when sentiment seems to have shifted 63 00:03:04,480 --> 00:03:06,560 Speaker 2: so much but the market's only done so little. 64 00:03:06,600 --> 00:03:07,920 Speaker 4: It's amazing. I mean it is. 65 00:03:07,960 --> 00:03:10,240 Speaker 3: We've actually done someone analysis on this this week when 66 00:03:10,240 --> 00:03:12,640 Speaker 3: we look at some of our positioning and some of 67 00:03:12,639 --> 00:03:16,000 Speaker 3: our momentum indicators. The drawdown that we've seen so far 68 00:03:16,840 --> 00:03:20,320 Speaker 3: is almost only half of what we would usually see 69 00:03:20,400 --> 00:03:23,160 Speaker 3: when our indicators go down by that much. So you've 70 00:03:23,160 --> 00:03:26,680 Speaker 3: got a big, big shift down in those positioning indicators. 71 00:03:26,960 --> 00:03:29,240 Speaker 3: But normally you'd say, yeah, that's probably like six seven 72 00:03:29,280 --> 00:03:31,800 Speaker 3: percent down, but by that time it was only three 73 00:03:31,880 --> 00:03:32,720 Speaker 3: four percent down. 74 00:03:33,680 --> 00:03:37,360 Speaker 4: So that is exhausting. I get it. But the problem 75 00:03:37,400 --> 00:03:38,440 Speaker 4: is for the FED put to. 76 00:03:38,440 --> 00:03:41,960 Speaker 3: Come back, we need we would need more weakness. You know, 77 00:03:42,000 --> 00:03:44,040 Speaker 3: you're saying five percent, Yeah fine, but is the FED 78 00:03:44,080 --> 00:03:45,440 Speaker 3: really going to go in? It's like, oh my god, 79 00:03:45,480 --> 00:03:47,880 Speaker 3: and videos down, So yeah, we need to cut right for. 80 00:03:47,960 --> 00:03:48,560 Speaker 4: About a second. 81 00:03:48,840 --> 00:03:51,480 Speaker 5: There is this question about the journey mattering, and this 82 00:03:51,560 --> 00:03:53,160 Speaker 5: is a sort of bit of theme over the past 83 00:03:53,160 --> 00:03:55,040 Speaker 5: couple of weeks. How much does the journey matter if 84 00:03:55,040 --> 00:03:57,680 Speaker 5: the destination is a good one, And we're talking about 85 00:03:57,680 --> 00:03:59,520 Speaker 5: how it's only a five percent pullback, but it can 86 00:03:59,520 --> 00:04:02,240 Speaker 5: be uptime, then down twenty percent, and then eventually what's 87 00:04:02,240 --> 00:04:04,440 Speaker 5: a five percent in one day? So it raises this 88 00:04:04,560 --> 00:04:07,000 Speaker 5: question about risk reward models. At a time where you 89 00:04:07,000 --> 00:04:11,000 Speaker 5: cannot model this type of volatility, you cannot model headline risk, 90 00:04:11,400 --> 00:04:14,400 Speaker 5: how much is that alone pushing capital away from the 91 00:04:14,480 --> 00:04:15,440 Speaker 5: United States right now? 92 00:04:15,800 --> 00:04:17,800 Speaker 3: I think on a tactic basis, Yes, I think on 93 00:04:17,839 --> 00:04:19,840 Speaker 3: a tactic basis. So that's exactly what you want to 94 00:04:19,880 --> 00:04:21,880 Speaker 3: do when we look at you know, the US, when 95 00:04:22,480 --> 00:04:25,159 Speaker 3: if you have predicted what's what's happening now from a 96 00:04:25,200 --> 00:04:27,560 Speaker 3: policy perspective in US, if you had told me that 97 00:04:27,640 --> 00:04:30,279 Speaker 3: a month ago, I would have said, risk off everywhere, 98 00:04:30,320 --> 00:04:32,679 Speaker 3: don't buy Europe, buy Europe even less, don't. 99 00:04:32,520 --> 00:04:35,000 Speaker 4: Buy China, don't buy em No, no, no, don't buy anything. 100 00:04:35,360 --> 00:04:37,440 Speaker 3: Now you look at it, I'm like, actually, you know what, 101 00:04:37,839 --> 00:04:40,719 Speaker 3: Europe's really looking great? Like Germany, you know, as a German, 102 00:04:40,760 --> 00:04:43,479 Speaker 3: I look at this, I'm like, this is as watershed 103 00:04:43,520 --> 00:04:46,520 Speaker 3: as you can imagine, right, Like the Germans spending money 104 00:04:46,680 --> 00:04:48,880 Speaker 3: and I know that from myself. 105 00:04:49,040 --> 00:04:49,719 Speaker 4: To get myself. 106 00:04:49,839 --> 00:04:52,320 Speaker 3: I'm in New York and I'm just like, really, coffee 107 00:04:52,400 --> 00:04:53,280 Speaker 3: seven dollars. 108 00:04:53,080 --> 00:04:54,600 Speaker 4: I'm like, I'm not going to have coffee. 109 00:04:54,600 --> 00:04:56,320 Speaker 3: Actually, no, I'm going to go to the Bloomberg office 110 00:04:56,320 --> 00:04:58,320 Speaker 3: every day, get my coffee for free, and then I'll 111 00:04:58,360 --> 00:04:58,640 Speaker 3: go away. 112 00:04:58,839 --> 00:05:00,520 Speaker 4: I don't have to spend money. You can find it 113 00:05:00,560 --> 00:05:00,960 Speaker 4: in you know. 114 00:05:01,960 --> 00:05:05,719 Speaker 3: But it is genuinely it is such an extremely watershed 115 00:05:05,760 --> 00:05:07,080 Speaker 3: moment for Germany. 116 00:05:07,680 --> 00:05:09,560 Speaker 4: And then you look at the banks and we've. 117 00:05:09,360 --> 00:05:10,799 Speaker 3: Just you know, when I came in it's like twenty 118 00:05:10,800 --> 00:05:11,200 Speaker 3: five percent. 119 00:05:11,320 --> 00:05:14,040 Speaker 4: You still want to buy that? Heck? Yeah, absolutely. 120 00:05:14,080 --> 00:05:15,839 Speaker 5: So when do you think that the optimism has gone 121 00:05:15,839 --> 00:05:18,000 Speaker 5: too far? We were just talking to Jane Fowley trying 122 00:05:18,000 --> 00:05:20,880 Speaker 5: to pour some cold water on this optimism that we're 123 00:05:20,880 --> 00:05:23,520 Speaker 5: hearing around. When do you know that we're overstating it 124 00:05:23,640 --> 00:05:25,480 Speaker 5: or understating it? What are you looking for? 125 00:05:26,400 --> 00:05:29,120 Speaker 3: Once you stop having the conversations about should we worry 126 00:05:29,160 --> 00:05:29,960 Speaker 3: and what could stop it? 127 00:05:30,000 --> 00:05:31,440 Speaker 4: I think then were they right? 128 00:05:31,480 --> 00:05:33,640 Speaker 3: So it's a bit like the where the idea of 129 00:05:33,680 --> 00:05:36,400 Speaker 3: you as exceptionalism at the end of December beginning of January. 130 00:05:36,520 --> 00:05:40,080 Speaker 3: Once everyone's super bowled up, then yeah, fine, you're probably done. 131 00:05:40,160 --> 00:05:42,240 Speaker 3: But to be honest, when you look at positioning indicators, 132 00:05:42,240 --> 00:05:44,679 Speaker 3: when you look at flows, certainly flows have been starting 133 00:05:44,720 --> 00:05:48,360 Speaker 3: to come back into European equities, but they've only just started. Right, 134 00:05:48,440 --> 00:05:50,360 Speaker 3: two months ago, you'd have said, why are we even 135 00:05:50,400 --> 00:05:51,200 Speaker 3: looking in Europe? 136 00:05:51,279 --> 00:05:53,760 Speaker 4: What's the point? Right? What is the point? 137 00:05:53,800 --> 00:05:55,359 Speaker 3: And now we look at it, I'm like, wow, this 138 00:05:55,480 --> 00:05:56,479 Speaker 3: is like the best thing ever. 139 00:05:56,600 --> 00:05:57,360 Speaker 4: It's been two months. 140 00:05:57,440 --> 00:05:59,880 Speaker 3: It might again because it's so exhausting, it might be 141 00:06:00,200 --> 00:06:03,040 Speaker 3: like two years, but it's genuinely just a couple of weeks. 142 00:06:03,040 --> 00:06:05,680 Speaker 3: I'll give you an example. I was in Frankfurt literally 143 00:06:05,760 --> 00:06:09,599 Speaker 3: three weeks ago. The amount of conversations with clients I've 144 00:06:09,600 --> 00:06:13,360 Speaker 3: had about fiscal stimulus, about infrastructure, defense, spinning was zero 145 00:06:13,800 --> 00:06:14,640 Speaker 3: absolutely three. 146 00:06:14,720 --> 00:06:17,040 Speaker 4: Yeah, because three weeks ago were like, never gonna happen. 147 00:06:17,080 --> 00:06:18,880 Speaker 3: Come on, you need a two thirds majority, Come on, 148 00:06:18,880 --> 00:06:19,560 Speaker 3: why are we talking? 149 00:06:19,600 --> 00:06:22,080 Speaker 4: Yeah, let's talk about the next sing It's three weeks ago. 150 00:06:22,240 --> 00:06:25,279 Speaker 3: This is as honestly, this is as watershed as we 151 00:06:25,320 --> 00:06:28,520 Speaker 3: can imagine. And then you look at you look away 152 00:06:28,520 --> 00:06:30,760 Speaker 3: from the US and you're saying, hey, why would I 153 00:06:30,839 --> 00:06:34,240 Speaker 3: not buy German mid and small caps or European smaller 154 00:06:34,320 --> 00:06:34,839 Speaker 3: mid caps. 155 00:06:34,960 --> 00:06:35,640 Speaker 4: You look at China. 156 00:06:35,680 --> 00:06:37,719 Speaker 3: You look at the ags tech trade, right, the broadening 157 00:06:37,920 --> 00:06:38,719 Speaker 3: AI trade. 158 00:06:38,800 --> 00:06:41,600 Speaker 4: You look at China Internet. Yeah, that still makes sense. 159 00:06:42,040 --> 00:06:42,800 Speaker 4: You look at Japan. 160 00:06:42,920 --> 00:06:46,400 Speaker 3: Japan, Hey, rates probably going also a bit higher. Japan 161 00:06:46,480 --> 00:06:48,960 Speaker 3: banks fight, they've rallied, they've rallied a lot, but with 162 00:06:49,120 --> 00:06:51,800 Speaker 3: rates maybe going another twenty five bits higher than the 163 00:06:51,800 --> 00:06:54,839 Speaker 3: market is currently pricing, great, still good for the banks. 164 00:06:54,880 --> 00:06:57,280 Speaker 3: So you look outside of the US and there's loads 165 00:06:57,320 --> 00:07:01,599 Speaker 3: of things happening now that are actually really uncorrelated to 166 00:07:01,640 --> 00:07:03,680 Speaker 3: the US, Whereas four weeks ago I would have said, 167 00:07:03,800 --> 00:07:06,280 Speaker 3: if this happens in the US, everything's going to be 168 00:07:06,520 --> 00:07:09,080 Speaker 3: correlation is one and everything's going down, And it's exactly 169 00:07:09,080 --> 00:07:10,000 Speaker 3: the opposite. 170 00:07:09,640 --> 00:07:11,200 Speaker 4: Which is in fact really good. 171 00:07:11,360 --> 00:07:13,600 Speaker 3: You know, we guys have this conversation about correction and 172 00:07:13,640 --> 00:07:16,680 Speaker 3: in exhausting five percent. If we were sitting in Frankfurt, 173 00:07:16,880 --> 00:07:18,840 Speaker 3: we'd be happy, Daisy, I mean, we'd be like freaking 174 00:07:18,880 --> 00:07:19,800 Speaker 3: cowboys right now? 175 00:07:19,840 --> 00:07:22,920 Speaker 6: Are you and you're Frankfurt German friends? Thanking the President 176 00:07:22,920 --> 00:07:23,800 Speaker 6: of the United States for this? 177 00:07:24,840 --> 00:07:27,800 Speaker 4: No? I think, you know, that's probably a bit too far. 178 00:07:28,640 --> 00:07:32,240 Speaker 3: I honestly also don't really care what the you know, 179 00:07:32,320 --> 00:07:34,640 Speaker 3: what the what the catalyst is sort of the catalyst 180 00:07:34,760 --> 00:07:37,720 Speaker 3: is the important thing from a market perspective is number one, 181 00:07:37,800 --> 00:07:38,320 Speaker 3: is it happening? 182 00:07:38,360 --> 00:07:39,160 Speaker 4: Is it likely happening. 183 00:07:39,280 --> 00:07:42,360 Speaker 3: Number two is a sustainable and that looks like it's happening. 184 00:07:42,400 --> 00:07:44,160 Speaker 6: You have a lot of conviction though that this is 185 00:07:44,200 --> 00:07:46,000 Speaker 6: happening and will be sustainable. You don't think this is 186 00:07:46,000 --> 00:07:48,640 Speaker 6: a head fake from the German politicians. 187 00:07:49,880 --> 00:07:52,080 Speaker 3: I think we've gone too far for that to be 188 00:07:52,080 --> 00:07:54,520 Speaker 3: be a headfake, right, for that to be like, oh, actually, 189 00:07:54,680 --> 00:07:56,720 Speaker 3: never mind, Like we just thought we're going to spend 190 00:07:56,720 --> 00:07:57,360 Speaker 3: eight on a billion. 191 00:07:58,080 --> 00:07:59,560 Speaker 6: Pretty focal when it comes to spending. 192 00:08:00,320 --> 00:08:02,920 Speaker 3: Yeah, but that is mostly red tape and mostly bureaucracy, 193 00:08:03,000 --> 00:08:05,000 Speaker 3: right that is, and I think that's more the longer 194 00:08:05,080 --> 00:08:06,840 Speaker 3: term issue. So then we get to your question on it, like, 195 00:08:06,920 --> 00:08:08,720 Speaker 3: is this a headfake tactically it's not. 196 00:08:09,000 --> 00:08:11,520 Speaker 4: Is this a great three six month trade? Absolutely? 197 00:08:11,880 --> 00:08:15,800 Speaker 3: Is this the watershed moment where we're burying use exceptionalism 198 00:08:15,960 --> 00:08:18,400 Speaker 3: and the next three to five years we're only buying 199 00:08:18,400 --> 00:08:21,000 Speaker 3: European equities and now European. 200 00:08:20,840 --> 00:08:22,960 Speaker 4: Profitability is going up relative to the US. 201 00:08:23,400 --> 00:08:26,440 Speaker 3: Probably no, because you know, you've seen what Dragus was 202 00:08:26,480 --> 00:08:30,280 Speaker 3: saying two weeks ago around implicit tariffs within Europe, that 203 00:08:30,320 --> 00:08:33,520 Speaker 3: we've got implicitly forty five percent tariffs within the EU 204 00:08:33,640 --> 00:08:36,240 Speaker 3: on goods and one hundred and ten percent on services. 205 00:08:36,360 --> 00:08:38,679 Speaker 3: You look at the EU Recovery Fund now, it's that 206 00:08:38,720 --> 00:08:41,560 Speaker 3: the uptake on the Recovery fun from almost five years 207 00:08:41,600 --> 00:08:44,560 Speaker 3: ago keeps being subpart in subpart because it's not like 208 00:08:44,600 --> 00:08:46,559 Speaker 3: corporates don't want it and governments don't want it. But 209 00:08:46,600 --> 00:08:49,480 Speaker 3: there's so much red tape, so much bureaucracy within the 210 00:08:49,600 --> 00:08:53,240 Speaker 3: EU right that needs to be tackled. That's not going 211 00:08:53,240 --> 00:08:55,840 Speaker 3: to be tackled with infrastructure and defense spending. 212 00:08:55,920 --> 00:08:57,240 Speaker 4: But those are two separate things. 213 00:08:57,240 --> 00:09:00,720 Speaker 3: And you know, we can talk about the strategic asset decision, 214 00:09:00,720 --> 00:09:02,760 Speaker 3: the seven to ten year decision, or the sort of 215 00:09:02,800 --> 00:09:04,720 Speaker 3: six month decision where you're saying, is this is the 216 00:09:04,800 --> 00:09:07,120 Speaker 3: spending the watershed moment for the next six months. 217 00:09:07,240 --> 00:09:10,600 Speaker 2: One in six months time, can the bond market absorb 218 00:09:10,640 --> 00:09:12,880 Speaker 2: it when we're having a real conversation about a massive 219 00:09:12,920 --> 00:09:15,760 Speaker 2: tax bill going through Congress him in the United States? 220 00:09:16,160 --> 00:09:18,680 Speaker 4: I think so. I think Union in Germany as well, and. 221 00:09:18,720 --> 00:09:21,320 Speaker 2: Than the global bond marketing. Yeah, globe Germany's issue in more. 222 00:09:21,600 --> 00:09:23,640 Speaker 2: US might have to issue more. What does that look like? 223 00:09:23,720 --> 00:09:26,920 Speaker 3: But I think Germany traditionally basically starts issuing more on bills, 224 00:09:27,240 --> 00:09:29,360 Speaker 3: so that actually, at some point I think will be 225 00:09:29,559 --> 00:09:33,360 Speaker 3: bringing in natural buyers foot bones. It still means, obviously, 226 00:09:33,440 --> 00:09:35,720 Speaker 3: as we get more issuance that probably bones are going 227 00:09:35,760 --> 00:09:38,240 Speaker 3: to continue to achieap and versus swaps in the next 228 00:09:38,280 --> 00:09:40,600 Speaker 3: few few weeks and months, but that that trade has 229 00:09:40,600 --> 00:09:44,439 Speaker 3: gone an awful long lot already. But you know, I 230 00:09:44,520 --> 00:09:47,040 Speaker 3: think I'm not particularly bothered. I think in the US, 231 00:09:47,040 --> 00:09:49,120 Speaker 3: I'm also not bothered because you know, we can look 232 00:09:49,160 --> 00:09:52,319 Speaker 3: always at the government debt side of things, but when 233 00:09:52,360 --> 00:09:54,680 Speaker 3: we look at the corporate the private corporate debt side 234 00:09:54,720 --> 00:09:58,040 Speaker 3: of things, massive de leveraging in the last fifteen years. 235 00:09:58,120 --> 00:10:01,319 Speaker 3: Now you look at in TRST payments of corporates. 236 00:10:01,679 --> 00:10:03,720 Speaker 4: When you look at those, we're on a We're like 237 00:10:03,760 --> 00:10:05,920 Speaker 4: on a twenty year low because you know. 238 00:10:05,880 --> 00:10:08,480 Speaker 3: Corporates have been hoarding cash. They get the high cash rate, 239 00:10:08,720 --> 00:10:09,960 Speaker 3: and they've locked in maturities. 240 00:10:10,000 --> 00:10:10,679 Speaker 4: You look at the S and P. 241 00:10:10,840 --> 00:10:13,640 Speaker 3: You got almost sixty percent of debt that's maturing after 242 00:10:13,679 --> 00:10:16,040 Speaker 3: twenty thirty. Why would I you know, when people are like, oh, yeah, 243 00:10:16,040 --> 00:10:18,080 Speaker 3: but there's all this stuff from corporates, I'm like, great, 244 00:10:18,160 --> 00:10:19,160 Speaker 3: call me in fifteen years. 245 00:10:19,280 --> 00:10:19,880 Speaker 4: Oh okay. 246 00:10:20,360 --> 00:10:23,360 Speaker 3: So from that, like you know, the corporate sector and 247 00:10:23,440 --> 00:10:27,439 Speaker 3: the private household sector actually looks way way more healthy 248 00:10:27,559 --> 00:10:29,680 Speaker 3: to absorb sort of that bigger issues. 249 00:10:29,800 --> 00:10:32,199 Speaker 2: The Europeans just sounds so happy right now, don't they. 250 00:10:33,080 --> 00:10:35,559 Speaker 4: Have You never seen me happy? Like blame the coffee. 251 00:10:35,559 --> 00:10:38,040 Speaker 3: I blame the free coffee, you know, give the German 252 00:10:38,080 --> 00:10:39,600 Speaker 3: free stuff, and yet he's happy. 253 00:10:39,640 --> 00:10:41,480 Speaker 5: All I can say is watch him go buy a 254 00:10:41,520 --> 00:10:43,160 Speaker 5: seven dollars copper coffee and all. 255 00:10:43,080 --> 00:10:43,520 Speaker 4: Of a sudden. 256 00:10:43,520 --> 00:10:46,000 Speaker 5: You know, these fiscal stimulus plans, they're real. 257 00:10:46,240 --> 00:10:48,600 Speaker 2: Yeah, come back when it's like eurote dollar one twenty one, 258 00:10:48,640 --> 00:10:50,400 Speaker 2: twenty five, back to one fifty again. 259 00:10:50,600 --> 00:10:52,720 Speaker 4: Max is going to see it. Thanks, that'll make a difference. 260 00:10:52,720 --> 00:11:06,240 Speaker 2: Max Kenna of HSPC, Jen Folly of Rabberbank, writing the 261 00:11:06,280 --> 00:11:08,480 Speaker 2: return of US growth concerns has clearly been a drag 262 00:11:08,520 --> 00:11:11,680 Speaker 2: on the dollar. However, the change and the fundamental drivers 263 00:11:11,720 --> 00:11:15,000 Speaker 2: behind the euro have been even more dramatic. Jane joined 264 00:11:15,040 --> 00:11:17,240 Speaker 2: us now for more. Jane, welcome to the program. I 265 00:11:17,240 --> 00:11:18,760 Speaker 2: have to say we talked about this a little bit 266 00:11:18,800 --> 00:11:22,520 Speaker 2: earlier this hour. It takes time to internalize a shift 267 00:11:22,600 --> 00:11:25,520 Speaker 2: this large on the continent. It will take weeks, months, 268 00:11:25,520 --> 00:11:27,880 Speaker 2: maybe even years. Jane, could you just communicate from your 269 00:11:27,920 --> 00:11:30,840 Speaker 2: standpoint how large a shift we're seeing from Germany. 270 00:11:31,880 --> 00:11:34,240 Speaker 7: Well, certainly as a significant shift in terms of the 271 00:11:34,280 --> 00:11:36,560 Speaker 7: news that we've had, But of course everybody in Europe 272 00:11:36,600 --> 00:11:39,719 Speaker 7: is aware that things take time in order to come 273 00:11:39,760 --> 00:11:42,000 Speaker 7: into fruition, and this is a real issue I think 274 00:11:42,000 --> 00:11:44,560 Speaker 7: for the but the people who've been buying euros, you know, 275 00:11:44,600 --> 00:11:48,120 Speaker 7: aggressively this week. Is this just a sugar rush or 276 00:11:48,200 --> 00:11:52,480 Speaker 7: will we actually have a different determination of the time 277 00:11:52,520 --> 00:11:55,080 Speaker 7: frame it needs to get this money through from Germany, 278 00:11:55,120 --> 00:11:58,280 Speaker 7: from the EU, into the economy, into the defense sector. 279 00:11:58,320 --> 00:12:01,320 Speaker 7: And if there are disappointments along the way in terms 280 00:12:01,400 --> 00:12:04,120 Speaker 7: of that timing, well you know we could see one 281 00:12:04,160 --> 00:12:07,079 Speaker 7: oh five again in your adoration, and potentially quite quickly, 282 00:12:07,120 --> 00:12:09,400 Speaker 7: because we know that there are hurdles. We know that 283 00:12:10,080 --> 00:12:14,640 Speaker 7: if this change in fiscal policy gets through Germany, well 284 00:12:14,640 --> 00:12:18,840 Speaker 7: it's with the outgoing parliament. The new parliament after March 285 00:12:19,000 --> 00:12:24,120 Speaker 7: twenty fifth could have legal challenges even to this. And 286 00:12:24,160 --> 00:12:27,440 Speaker 7: then what about capacity. Europe doesn't have huge capacity in 287 00:12:27,480 --> 00:12:30,280 Speaker 7: terms of defense. How quickly can it actually spend all 288 00:12:30,280 --> 00:12:32,760 Speaker 7: of this money? So we know that the timeline for 289 00:12:32,840 --> 00:12:35,480 Speaker 7: Europe could be quite disappointing. 290 00:12:36,120 --> 00:12:38,839 Speaker 5: So Jane, you raised your forecast to You're a dollar 291 00:12:38,880 --> 00:12:41,400 Speaker 5: to one oh seven. You said that you're going to 292 00:12:41,679 --> 00:12:43,840 Speaker 5: update that by the end of this week. That means 293 00:12:43,880 --> 00:12:45,839 Speaker 5: you have one day to really look at all of 294 00:12:45,880 --> 00:12:47,960 Speaker 5: the facts and figure out how much is real and 295 00:12:48,000 --> 00:12:51,520 Speaker 5: how much is overly optimistic. What are you looking at 296 00:12:51,559 --> 00:12:55,319 Speaker 5: to make that determination, and what's the range of potential outcomes. 297 00:12:55,840 --> 00:12:58,320 Speaker 7: Well, you know, I do think anything from the FAD 298 00:12:58,520 --> 00:13:00,360 Speaker 7: is going to be really important here because you know, 299 00:13:00,400 --> 00:13:04,040 Speaker 7: we're hearing the arguments about the slowing in US growth. 300 00:13:04,160 --> 00:13:06,280 Speaker 7: You know, we can see also, you know, the stock 301 00:13:06,360 --> 00:13:08,680 Speaker 7: market and how that in the US could affect confidence 302 00:13:08,679 --> 00:13:12,000 Speaker 7: for the US consumer. But even though if we were 303 00:13:12,040 --> 00:13:15,439 Speaker 7: to accept the fact that the US economy is slowing, well, 304 00:13:15,440 --> 00:13:18,800 Speaker 7: what about inflation, Because yeah, okay, maybe we were a 305 00:13:18,840 --> 00:13:22,360 Speaker 7: little bit optimistic or pessimistic in terms of the inflation 306 00:13:22,520 --> 00:13:25,600 Speaker 7: push from tariffs at the start of the year, but 307 00:13:25,720 --> 00:13:28,520 Speaker 7: taps are still inflationary. And even if the FED is 308 00:13:28,520 --> 00:13:31,640 Speaker 7: worried about growth, it's unlikely to cut interest rates aggressively 309 00:13:31,679 --> 00:13:34,760 Speaker 7: if it's concerned on the inflation front. So I think 310 00:13:34,760 --> 00:13:38,640 Speaker 7: that's a really important part. To what degree are the 311 00:13:38,720 --> 00:13:43,240 Speaker 7: FED able to cut interest rates in an environment where 312 00:13:43,360 --> 00:13:47,720 Speaker 7: inflation has been looking sticky. It was looking sticky because 313 00:13:47,720 --> 00:13:50,400 Speaker 7: of the Biden month through the end of the Biden administration, 314 00:13:50,920 --> 00:13:54,360 Speaker 7: likely took sticky now because of tariffs, and we just 315 00:13:54,400 --> 00:13:56,680 Speaker 7: don't know the impact of those tariffs, so the Fed 316 00:13:56,720 --> 00:13:59,600 Speaker 7: likely to be cautious on that front. So whereas that 317 00:13:59,760 --> 00:14:03,040 Speaker 7: give the dollar a little prop higher, it's possible that 318 00:14:03,080 --> 00:14:08,280 Speaker 7: the worries about timing about German fiscal spending could actually 319 00:14:08,280 --> 00:14:10,760 Speaker 7: not the euro a little bit lower from the perch 320 00:14:10,880 --> 00:14:12,640 Speaker 7: that we've seen over the last couple of days. 321 00:14:12,720 --> 00:14:14,400 Speaker 5: Although if you take a step back, Jane, I wonder 322 00:14:14,440 --> 00:14:16,199 Speaker 5: if Bob Michael is on to something and whether you 323 00:14:16,200 --> 00:14:19,200 Speaker 5: would agree with this idea that more broadly, maybe it's 324 00:14:19,240 --> 00:14:21,760 Speaker 5: not this week, but maybe it's this month, Maybe it's 325 00:14:21,800 --> 00:14:24,000 Speaker 5: the next couple of months that we're seeing the peak 326 00:14:24,360 --> 00:14:27,200 Speaker 5: in dollar exceptionalism, and with all of the money looking 327 00:14:27,200 --> 00:14:29,640 Speaker 5: to be raised elsewhere, there is going to be a 328 00:14:29,720 --> 00:14:32,680 Speaker 5: sucking sound away from the United States and dollar assets. 329 00:14:33,440 --> 00:14:35,640 Speaker 7: Well, you know, I think this is a question really 330 00:14:35,640 --> 00:14:39,040 Speaker 7: for about US exceptionalism, really for the next decade, for 331 00:14:39,080 --> 00:14:41,360 Speaker 7: the next two or three decades, even I think it's 332 00:14:41,360 --> 00:14:42,920 Speaker 7: going to be able to be answered in a very 333 00:14:42,960 --> 00:14:45,040 Speaker 7: short term. I mean to me, you know, one of 334 00:14:45,040 --> 00:14:47,600 Speaker 7: the definitions of US exceptionalism is the fact that the 335 00:14:47,640 --> 00:14:51,080 Speaker 7: dollar has its own fundamentals, and that derives from the 336 00:14:51,080 --> 00:14:54,560 Speaker 7: fact that about fifty percent of the world's invoices are 337 00:14:54,640 --> 00:14:58,440 Speaker 7: in dollars, and that means that even when negative news 338 00:14:58,480 --> 00:15:01,920 Speaker 7: comes from say the US budget, people need their dollars. 339 00:15:01,960 --> 00:15:04,200 Speaker 7: They buy their dollars. That's why it is essentially a 340 00:15:04,240 --> 00:15:07,320 Speaker 7: safe haven. And for that to change, we're going to 341 00:15:07,400 --> 00:15:09,800 Speaker 7: have this very slow and it's already started, this very 342 00:15:09,800 --> 00:15:15,240 Speaker 7: slow progression away from using dollars as an invoicing currency 343 00:15:15,440 --> 00:15:18,120 Speaker 7: and therefore, you know, as a reserve currency. That that 344 00:15:18,240 --> 00:15:23,080 Speaker 7: has started. It's quite possible that that Trump's policies with 345 00:15:23,120 --> 00:15:27,120 Speaker 7: respect to Europe, with respect Canada, Mexico, et cetera, made 346 00:15:27,200 --> 00:15:30,040 Speaker 7: people move away from the dollars, but that is a 347 00:15:30,160 --> 00:15:32,920 Speaker 7: very slow process and I don't think we're going to 348 00:15:32,920 --> 00:15:34,320 Speaker 7: be able to answer that question quickly. 349 00:15:34,520 --> 00:15:37,479 Speaker 4: Well, what fills the voya, Jane, Well. 350 00:15:37,240 --> 00:15:40,200 Speaker 7: You know precisely, and that is why the movement away 351 00:15:40,200 --> 00:15:42,880 Speaker 7: from the dollars from the dollar, use of the dollar 352 00:15:43,000 --> 00:15:46,280 Speaker 7: internationally will be very very slow. I mean, clearly what 353 00:15:46,320 --> 00:15:48,600 Speaker 7: we've seen over the last few years is you know, 354 00:15:48,720 --> 00:15:50,920 Speaker 7: China wanting to use the remimbia is more of an 355 00:15:50,920 --> 00:15:54,480 Speaker 7: invoicing currency for instance. That will carry on, and some 356 00:15:54,560 --> 00:15:58,160 Speaker 7: of its trade allies will continue to you know, be 357 00:15:58,240 --> 00:16:01,080 Speaker 7: pushed in that direction. It is going to be interesting 358 00:16:01,080 --> 00:16:03,880 Speaker 7: to see whether or not there is a European response 359 00:16:03,920 --> 00:16:06,480 Speaker 7: over the next four years. That perhaps will depend what 360 00:16:06,640 --> 00:16:11,160 Speaker 7: happens between Trump and Europe in terms of tariffs, for instance. 361 00:16:11,440 --> 00:16:18,360 Speaker 7: But again, I think the question about de dollarization is 362 00:16:19,200 --> 00:16:20,080 Speaker 7: a very slow one. 363 00:16:20,160 --> 00:16:23,040 Speaker 2: Hey, Joan, I appreciate it. Jane Fowley there of Rammerbank 364 00:16:23,120 --> 00:16:24,560 Speaker 2: on the shifts we're seeing out of Germany. 365 00:16:34,600 --> 00:16:35,960 Speaker 4: So here's the latest this morning. 366 00:16:35,960 --> 00:16:39,040 Speaker 2: Market's looking for more terifily from the Trump administration delaying 367 00:16:39,080 --> 00:16:42,080 Speaker 2: levies on auto imports for a month. Jason Firman of 368 00:16:42,080 --> 00:16:45,440 Speaker 2: the Harvard Kennedy School, writing, I've rarely seen an economy 369 00:16:45,480 --> 00:16:47,520 Speaker 2: turned negative as quickly as this one has. 370 00:16:47,640 --> 00:16:49,080 Speaker 4: But people shouldn't get over their skis. 371 00:16:49,120 --> 00:16:51,440 Speaker 2: I expect all of this to slow growth and add 372 00:16:51,440 --> 00:16:54,400 Speaker 2: to inflation, but don't expect anything dramatic in the data 373 00:16:54,480 --> 00:16:57,800 Speaker 2: right away. Jason joins us now for more. Jason, welcome back. 374 00:16:57,800 --> 00:16:59,400 Speaker 2: To the program sir, and I'm totally with you. I 375 00:16:59,400 --> 00:17:01,600 Speaker 2: think we all are. This shift was seeing its sentiment 376 00:17:01,680 --> 00:17:04,679 Speaker 2: in just a month, so big and so quick. What 377 00:17:04,760 --> 00:17:07,159 Speaker 2: does that more constructive tone come from at the end 378 00:17:07,200 --> 00:17:10,760 Speaker 2: of that quote that why should we ultimately avoid anything 379 00:17:10,800 --> 00:17:11,400 Speaker 2: too dramatic. 380 00:17:12,520 --> 00:17:16,399 Speaker 8: Look, there's no debate that the Trump administration's impact on 381 00:17:16,440 --> 00:17:20,800 Speaker 8: the economy has been negative. Just about everything they've done 382 00:17:21,280 --> 00:17:23,439 Speaker 8: has been negative for the economy and is going to 383 00:17:23,480 --> 00:17:27,639 Speaker 8: hurt it. You can debate the magnitude, and partly I'm 384 00:17:27,720 --> 00:17:31,560 Speaker 8: reacting to there was the Atlanta Fed's GDP now said 385 00:17:31,600 --> 00:17:34,560 Speaker 8: that the economy was cratering in the first quarter. I 386 00:17:34,600 --> 00:17:38,480 Speaker 8: think that number was flawed. Things move slowly, you know, 387 00:17:38,600 --> 00:17:42,520 Speaker 8: consumers are really really nervous. But my guess is that 388 00:17:42,520 --> 00:17:45,679 Speaker 8: they're probably still spending and they're going to wait and 389 00:17:45,720 --> 00:17:48,760 Speaker 8: see how things turn out. So the types of problems 390 00:17:48,760 --> 00:17:52,000 Speaker 8: we're seeing now, they take time to build. They don't 391 00:17:52,040 --> 00:17:53,680 Speaker 8: just go straight to recession. 392 00:17:54,040 --> 00:17:54,359 Speaker 4: Jason. 393 00:17:54,400 --> 00:17:56,359 Speaker 6: We do have a carve out though for the auto sector, 394 00:17:56,400 --> 00:17:59,680 Speaker 6: and there's lots of conversation. Maybe agricultural will be next. 395 00:17:59,800 --> 00:18:04,400 Speaker 6: If your USMCA compliant, you get a carve out. Basically 396 00:18:04,400 --> 00:18:07,080 Speaker 6: does that mean, the twenty five percent tariffs came and went, 397 00:18:07,280 --> 00:18:09,399 Speaker 6: and what's the impact going to be. 398 00:18:11,440 --> 00:18:13,760 Speaker 8: You know, there's twerts that are going to come, those 399 00:18:13,800 --> 00:18:15,360 Speaker 8: tarifts that are going to go, and then there's more 400 00:18:15,359 --> 00:18:16,919 Speaker 8: tarersts that are going to come back. I mean, you 401 00:18:16,960 --> 00:18:21,080 Speaker 8: just showed Howard Lutnik. He expressed pretty clearly that there's 402 00:18:21,119 --> 00:18:23,840 Speaker 8: going to be more and more and more, and as 403 00:18:23,880 --> 00:18:27,520 Speaker 8: he just said, they're going to stick. So, yeah, you 404 00:18:27,560 --> 00:18:30,560 Speaker 8: can do carve outs, but there's still lots and lots 405 00:18:30,560 --> 00:18:34,760 Speaker 8: and lots of tariffs on Canada and Mexico. And remember 406 00:18:35,560 --> 00:18:40,080 Speaker 8: we're less than two months in to this administration. In 407 00:18:40,160 --> 00:18:44,119 Speaker 8: Trump's first administration, it took him nearly eighteen months to 408 00:18:44,160 --> 00:18:46,480 Speaker 8: get to the first set of tariffs. That was after 409 00:18:46,560 --> 00:18:49,760 Speaker 8: an extensive and judicious process, and it was on a 410 00:18:49,880 --> 00:18:52,840 Speaker 8: much smaller set of imports than anything we're seeing. 411 00:18:52,840 --> 00:18:55,280 Speaker 6: Now, what do you make of the April second argument 412 00:18:55,320 --> 00:18:58,800 Speaker 6: that they're looking for reciprocity basically trying to make sure 413 00:18:58,880 --> 00:19:01,879 Speaker 6: they can rewrite the rules of trade so that it 414 00:19:02,040 --> 00:19:04,439 Speaker 6: actually is in their mind free and fair. 415 00:19:05,400 --> 00:19:08,440 Speaker 8: We already have reciprocity if you look at other rich 416 00:19:08,480 --> 00:19:10,960 Speaker 8: countries their tariffs against the United States tend to average 417 00:19:10,960 --> 00:19:14,400 Speaker 8: about one two percent. Are tariffs against them average about 418 00:19:14,440 --> 00:19:17,680 Speaker 8: one two percent. On average, they're the same. Now, there's 419 00:19:17,680 --> 00:19:20,000 Speaker 8: some things they have higher tariffs than we do. Some 420 00:19:20,080 --> 00:19:22,680 Speaker 8: things they have lower tireffs than we do, but they 421 00:19:22,760 --> 00:19:25,720 Speaker 8: average out to about the same, So we have reciprocity. 422 00:19:26,280 --> 00:19:27,760 Speaker 8: If they want to sit down and do a free 423 00:19:27,760 --> 00:19:30,160 Speaker 8: trade agreement and get those tariffs from one to zero, 424 00:19:31,440 --> 00:19:33,760 Speaker 8: I'd sign up and be wildly enthusiastic. 425 00:19:34,320 --> 00:19:36,160 Speaker 4: Jason, you said that it takes time. 426 00:19:36,320 --> 00:19:38,359 Speaker 5: This is a barge, and to shift to the US 427 00:19:38,400 --> 00:19:41,560 Speaker 5: economy will take more than just a couple of weeks 428 00:19:41,600 --> 00:19:43,639 Speaker 5: of bad sentiment. At what point do you think that 429 00:19:43,680 --> 00:19:46,800 Speaker 5: we'll actually start seeing some of the uncertainty and some 430 00:19:47,000 --> 00:19:50,199 Speaker 5: potentially the expectation of higher prices begin to show up 431 00:19:50,240 --> 00:19:51,840 Speaker 5: in the economic data, the hard data. 432 00:19:53,400 --> 00:19:55,159 Speaker 8: Yeah, I mean, I think you're going to start to 433 00:19:55,200 --> 00:19:59,200 Speaker 8: see it right away, but it'll start pretty small and grow. 434 00:19:59,640 --> 00:20:02,159 Speaker 8: Some of what I'm most worried about here is actually 435 00:20:02,160 --> 00:20:04,480 Speaker 8: what it does on a five or ten year time horizon. 436 00:20:04,880 --> 00:20:08,520 Speaker 8: When you're talking about how businesses think about their integrated 437 00:20:08,600 --> 00:20:14,600 Speaker 8: supply chains, how they organize themselves to have maximum efficiency. Now, 438 00:20:14,600 --> 00:20:17,120 Speaker 8: they're going to have to think how they organize themselves 439 00:20:17,119 --> 00:20:22,399 Speaker 8: to be resilient against an extremely uncertain political system. But 440 00:20:22,840 --> 00:20:24,919 Speaker 8: I think you'll start to see it a little bit 441 00:20:25,000 --> 00:20:27,800 Speaker 8: right away, but it will really grow. And of course 442 00:20:27,840 --> 00:20:32,320 Speaker 8: it depends on do these tariffs escalate or do they 443 00:20:32,680 --> 00:20:35,159 Speaker 8: end up dropping all of them, And of course anything 444 00:20:35,280 --> 00:20:35,879 Speaker 8: is possible. 445 00:20:36,119 --> 00:20:38,479 Speaker 5: This is a pretty significant regime shift, at least when 446 00:20:38,520 --> 00:20:40,440 Speaker 5: it comes to tariffs. And yet what we've been talking 447 00:20:40,480 --> 00:20:42,399 Speaker 5: about a lot of this morning has been Europe, and 448 00:20:42,480 --> 00:20:44,640 Speaker 5: has been China, and has been what's going on there 449 00:20:44,680 --> 00:20:48,639 Speaker 5: with respect to fiscal stimulus and supporting their defense sector. 450 00:20:48,960 --> 00:20:51,960 Speaker 5: And it's raised this question that JP Morgan's Bob Michael 451 00:20:52,040 --> 00:20:55,480 Speaker 5: raised yesterday where he said we saw the peak in 452 00:20:55,640 --> 00:20:57,959 Speaker 5: US dollar exceptionalism this week. 453 00:20:58,320 --> 00:20:59,080 Speaker 4: Do you agree with that? 454 00:20:59,200 --> 00:21:01,320 Speaker 5: Is that something that you're seeing in terms of the 455 00:21:01,400 --> 00:21:05,040 Speaker 5: slow drip feed of rearranging supply chains and even maybe 456 00:21:05,080 --> 00:21:07,119 Speaker 5: invoicing that we see around the world. 457 00:21:08,920 --> 00:21:11,960 Speaker 8: I feel pretty good about the dollar and pretty secure 458 00:21:12,000 --> 00:21:14,560 Speaker 8: about the dollar, although if you wanted to do something 459 00:21:14,640 --> 00:21:18,080 Speaker 8: about dollar supremacy, you would throw a massive amount of 460 00:21:18,160 --> 00:21:20,720 Speaker 8: uncertainty into the US economy, which is what we're seeing 461 00:21:20,760 --> 00:21:22,800 Speaker 8: right now. But I think even that won't be enough. 462 00:21:23,320 --> 00:21:25,440 Speaker 8: And look what we're seeing in Europe is good. I'm 463 00:21:25,480 --> 00:21:28,960 Speaker 8: glad that Germany is untying its hands. I know that's 464 00:21:29,000 --> 00:21:32,760 Speaker 8: a little bit for the bond market to adjust to upfront, 465 00:21:33,200 --> 00:21:37,080 Speaker 8: but absolutely the right move. And Europe has been behind 466 00:21:37,240 --> 00:21:41,000 Speaker 8: in spending on its own defense. They do need to 467 00:21:41,080 --> 00:21:47,240 Speaker 8: shift to something more closer to a wartime economy that 468 00:21:47,240 --> 00:21:50,240 Speaker 8: they can really be in a better position to defend themselves. 469 00:21:50,440 --> 00:21:53,119 Speaker 2: They've been massively behind. Jason's going to hear from it 470 00:21:53,200 --> 00:21:56,160 Speaker 2: as always, Jason Furman there at the Harvard Kennedy School. 471 00:21:56,160 --> 00:21:57,920 Speaker 2: I think you refer to the US economy as a budge, 472 00:21:58,160 --> 00:22:11,240 Speaker 2: more like a supertanker joining us now, Constant Hunter of 473 00:22:11,320 --> 00:22:14,120 Speaker 2: the Economist Group, You're fuvery worried about that on Constant 474 00:22:14,200 --> 00:22:16,400 Speaker 2: joined us now from more Constance. Welcome to the program. 475 00:22:16,560 --> 00:22:18,879 Speaker 2: Let's talk about the jobs data first. So no drama 476 00:22:18,960 --> 00:22:21,440 Speaker 2: in jobless claims, that's good news. Are you expecting any 477 00:22:21,520 --> 00:22:23,720 Speaker 2: drama in the payrolls report tomorrow morning? 478 00:22:24,760 --> 00:22:27,600 Speaker 1: And we're expecting a soccer play role report than we've 479 00:22:27,640 --> 00:22:29,840 Speaker 1: seen on the three and six month average, So I 480 00:22:29,880 --> 00:22:32,600 Speaker 1: would say about one hundred and eighty thousand. What we're 481 00:22:32,600 --> 00:22:34,920 Speaker 1: going to be looking for though, is under the hood 482 00:22:34,920 --> 00:22:37,720 Speaker 1: what's happening, right, So it's not just government employees, but 483 00:22:37,840 --> 00:22:42,840 Speaker 1: that services employees and consultants. That's where you've seen a 484 00:22:42,840 --> 00:22:46,440 Speaker 1: lot of layoffs, right, So there's a multiplier effect from 485 00:22:46,440 --> 00:22:49,359 Speaker 1: what's happening, And so there are a lot of people 486 00:22:49,400 --> 00:22:49,600 Speaker 1: on the. 487 00:22:49,640 --> 00:22:53,880 Speaker 9: Job market with very highly qualified skills. If we continue 488 00:22:53,920 --> 00:22:54,280 Speaker 9: to have a. 489 00:22:54,200 --> 00:22:57,240 Speaker 1: Fairly strong labor market and strong economy, I think those 490 00:22:57,280 --> 00:23:01,440 Speaker 1: people will get sort of hoovered up in into other jobs. 491 00:23:02,000 --> 00:23:04,400 Speaker 1: But if we don't, then you're looking at some more 492 00:23:04,440 --> 00:23:07,160 Speaker 1: longer term damage to the US economy constance. 493 00:23:07,200 --> 00:23:10,359 Speaker 5: We were talking earlier this morning about this being really 494 00:23:10,400 --> 00:23:13,399 Speaker 5: a big economy that takes time to really damage that 495 00:23:13,440 --> 00:23:16,000 Speaker 5: some of the sentiment shift has happened a lot quicker 496 00:23:16,320 --> 00:23:18,040 Speaker 5: than the actual underlying data. 497 00:23:18,040 --> 00:23:18,879 Speaker 4: Would you agree with that? 498 00:23:20,480 --> 00:23:23,800 Speaker 9: Yes, absolutely. I Mean, one of the things that we look. 499 00:23:23,640 --> 00:23:28,679 Speaker 1: At to think about forecasting payrolls is the ISM Services 500 00:23:28,840 --> 00:23:33,280 Speaker 1: Employment Indicator, and that AD is still ticking up even 501 00:23:33,280 --> 00:23:35,879 Speaker 1: though that's a real really a real time indicator. 502 00:23:35,920 --> 00:23:38,760 Speaker 9: But another thing that we look at that's really. 503 00:23:38,680 --> 00:23:43,159 Speaker 1: Valuable is an uncertainty in text that combines three things 504 00:23:43,240 --> 00:23:49,680 Speaker 1: so it combines uncertainty gleaned from actually EIU documents. 505 00:23:49,200 --> 00:23:52,240 Speaker 9: On our own website behind our paywall. 506 00:23:52,560 --> 00:23:56,199 Speaker 1: It looks at changes in the tax code, so of 507 00:23:56,200 --> 00:24:00,680 Speaker 1: course we have the tci JA up for possible extension, 508 00:24:01,359 --> 00:24:06,520 Speaker 1: and then it looks for differential between economists forecasts. And 509 00:24:06,600 --> 00:24:08,960 Speaker 1: when we look at that index, when it has spiked up, 510 00:24:09,040 --> 00:24:12,840 Speaker 1: it has presaged a recession is coming. And we are 511 00:24:12,880 --> 00:24:15,080 Speaker 1: at levels that are well above the two thousand and 512 00:24:15,080 --> 00:24:18,240 Speaker 1: eight financial crisis, well above what happened during the dot 513 00:24:18,280 --> 00:24:22,000 Speaker 1: com bubble, and well above what happened in the nineteen 514 00:24:22,080 --> 00:24:26,320 Speaker 1: ninety SNL crisis. We're not quite at COVID levels, but 515 00:24:26,359 --> 00:24:29,720 Speaker 1: we're pretty elevated. And so what we're doing is we're 516 00:24:29,840 --> 00:24:34,480 Speaker 1: using that to forecast how is this going to impact capex, 517 00:24:34,600 --> 00:24:36,920 Speaker 1: How is this going to impact household consumption? 518 00:24:37,480 --> 00:24:39,840 Speaker 5: How reliable has that kind of sentiment data that open 519 00:24:40,280 --> 00:24:41,960 Speaker 5: constants at a time. And I know that there are 520 00:24:42,000 --> 00:24:44,480 Speaker 5: other things that go into this, but right now some 521 00:24:44,480 --> 00:24:47,000 Speaker 5: people are pointing to the sentiment and talking about how 522 00:24:47,040 --> 00:24:49,000 Speaker 5: negative it is. And Mary's been talking about the Beige 523 00:24:49,000 --> 00:24:51,400 Speaker 5: Book all morning, and she's right. And the word uncertainty 524 00:24:51,480 --> 00:24:54,040 Speaker 5: or some variation of that came forty seven times in 525 00:24:54,040 --> 00:24:56,040 Speaker 5: addition to the forty nine times of terrorist I'm just 526 00:24:56,119 --> 00:24:59,320 Speaker 5: wondering we're not saying the shift though in consumer spending 527 00:24:59,320 --> 00:25:01,320 Speaker 5: habits just yet. I mean, people are worried about it, 528 00:25:01,320 --> 00:25:03,720 Speaker 5: but we're not seeing it. So is there a chance 529 00:25:03,920 --> 00:25:06,240 Speaker 5: that what people say and feel and what they do 530 00:25:06,280 --> 00:25:09,760 Speaker 5: just isn't going to cohere like we've seen in previous cycles? 531 00:25:10,640 --> 00:25:12,960 Speaker 9: So are humans going to keep being humans? Yes? 532 00:25:13,680 --> 00:25:17,800 Speaker 1: We have a lot of dichotomy right in between what 533 00:25:17,800 --> 00:25:20,199 Speaker 1: we say and what we do, So yes, that's a 534 00:25:20,280 --> 00:25:22,399 Speaker 1: significant possibility, And I think we also have to think 535 00:25:22,440 --> 00:25:25,560 Speaker 1: about some of that front Bloating is happening in terms 536 00:25:25,560 --> 00:25:28,760 Speaker 1: of consumer behavior as well, right people buying things. If 537 00:25:28,800 --> 00:25:30,480 Speaker 1: they were planning to buy a car this year, maybe 538 00:25:30,480 --> 00:25:33,000 Speaker 1: they're saying, well, maybe I should buy it now rather 539 00:25:33,080 --> 00:25:35,560 Speaker 1: than wait until April or May, when perhaps it. 540 00:25:35,560 --> 00:25:36,679 Speaker 9: Will be more expensive. 541 00:25:37,760 --> 00:25:41,320 Speaker 1: With that said, though, you'd rarely have you seen this 542 00:25:41,560 --> 00:25:45,200 Speaker 1: level of heightened uncertainty without seeing it cause some pull 543 00:25:45,280 --> 00:25:52,120 Speaker 1: back both in capital expenditure and consumer behavior. I would 544 00:25:52,160 --> 00:25:55,159 Speaker 1: say one thing underpinning this that we have not necessarily 545 00:25:55,160 --> 00:25:58,080 Speaker 1: had in previous cycles, right, is we really are in 546 00:25:58,119 --> 00:26:02,120 Speaker 1: the midst of an incredible productivity boom, and that could 547 00:26:02,160 --> 00:26:03,879 Speaker 1: give us a bit more cushion. 548 00:26:03,520 --> 00:26:05,560 Speaker 9: Than we would normally normally have. 549 00:26:05,800 --> 00:26:08,399 Speaker 1: And then the other thing is that the Fed knows 550 00:26:08,440 --> 00:26:12,240 Speaker 1: that it can afford to wait should things get wobbily, 551 00:26:12,800 --> 00:26:17,560 Speaker 1: because we have such an immense amount of mortgage equity 552 00:26:17,600 --> 00:26:20,960 Speaker 1: in homes and so you saw yesterday all it took 553 00:26:21,080 --> 00:26:23,399 Speaker 1: was the slightest move down and you had a huge 554 00:26:23,480 --> 00:26:27,720 Speaker 1: increase in applications for new homes and applications for refinancing. 555 00:26:28,240 --> 00:26:31,840 Speaker 1: So there's a lot of capital there on the sidelines 556 00:26:31,880 --> 00:26:35,000 Speaker 1: to be deployed in the economy should we get into 557 00:26:35,040 --> 00:26:38,040 Speaker 1: a weaker situation and should the Fed need to lower rates? 558 00:26:38,240 --> 00:26:40,520 Speaker 6: Constants, what kind of impact are you seeing DOGE have 559 00:26:40,680 --> 00:26:42,040 Speaker 6: on the labor market? 560 00:26:43,520 --> 00:26:45,680 Speaker 1: I mean, right now, I would say it's negligible, right 561 00:26:45,720 --> 00:26:48,240 Speaker 1: like we didn't see it show up and claims it's 562 00:26:48,280 --> 00:26:51,040 Speaker 1: a large economy. So, yes, these federal workers are getting 563 00:26:51,080 --> 00:26:55,240 Speaker 1: laid off, but they're really highly qualified individuals generally speaking, 564 00:26:55,600 --> 00:27:00,159 Speaker 1: right with advanced degrees and important specializations. So if are 565 00:27:00,200 --> 00:27:03,359 Speaker 1: not rehired by government once people realized that they were 566 00:27:03,400 --> 00:27:07,080 Speaker 1: actually doing valuable jobs, then it's very likely that they'll 567 00:27:07,080 --> 00:27:09,399 Speaker 1: get rehired within the economy, and then, of course, some 568 00:27:09,440 --> 00:27:13,600 Speaker 1: people choose this opportunity to take an early retirement. 569 00:27:14,680 --> 00:27:17,640 Speaker 2: Constant Hunter, the of the Economistic Group, a constant thank 570 00:27:17,680 --> 00:27:19,639 Speaker 2: you for joining us to break down the latest on 571 00:27:19,680 --> 00:27:23,800 Speaker 2: the labor market. This is the Bloomberg Surveillance Podcast, bringing 572 00:27:23,840 --> 00:27:27,720 Speaker 2: you the best in markets, economics, angiopolitics. You can watch 573 00:27:27,720 --> 00:27:30,480 Speaker 2: the show live on Bloomberg TV weekday mornings from six 574 00:27:30,520 --> 00:27:34,119 Speaker 2: am to nine am Eastern. Subscribe to the podcast on Apple, 575 00:27:34,400 --> 00:27:37,240 Speaker 2: Spotify or anywhere else you listen, and as always, on 576 00:27:37,240 --> 00:27:39,720 Speaker 2: the Bloomberg Terminal and the Bloomberg Business app.