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Speaker 2: It has been too long. Brian Levitt joins us right
Speaker 2: now with Invesco with a really interesting and holistic view
Speaker 2: of tying it together to have confidence to invest. Parktrin
Speaker 2: from the University of Michigan. Can you write a midyear
Speaker 2: review right now? June thirty becons, July onet becons. Is
Speaker 2: it possible to do an Invesco midyear review? Yeah?
Speaker 3: I would say the midyear review is set up for
Speaker 3: the economy was good. We got policy on certainty. Policy
Speaker 3: uncertainty got worse than it was expected, led to some
Speaker 3: recession fee, and then policymakers generally backing off at least
Speaker 3: pauses with regards to tariff's federal reserve, perhaps sounding maybe
Speaker 3: a little bit more dubbish. And so the market is
Speaker 3: now set up for expectation of incrementally continued improvements with
Speaker 3: regards to policy.
Speaker 4: How about the federal reserve?
Speaker 5: What kind of policies should we expect from the Federal
Speaker 5: Reserve here today? It feels like the economic data that
Speaker 5: they rely upon suggest that maybe they kind of sit
Speaker 5: on their hands a little bit here.
Speaker 2: Yeah, they may sit on their hands.
Speaker 3: I think ultimately we're going to see rate cuts, and
Speaker 3: so the market, whether that comes in a month or
Speaker 3: six months, the market believes that interest rates on the
Speaker 3: short end are going lower, and I suspect that's ray.
Speaker 3: I mean, we all know the Feds in a little
Speaker 3: bit of a bind because growth is likely to slow,
Speaker 3: prices are likely to rise as the tariff's effect starts
Speaker 3: to hit. But if you look at leading indicators for
Speaker 3: the employment market and for the inflation story, you've got
Speaker 3: jobless claims ticking up a bit, You've got inflation expectations
Speaker 3: very stable in the bond market, and so the Fed
Speaker 3: is likely to the air on the side of easing.
Speaker 2: What I really this is really important question, folks. Everybody
Speaker 2: out there go to cash and market timing and that
Speaker 2: what is the Levitt prescription to get back in the market.
Speaker 2: When you know you blew it, you feel terrible, you're
Speaker 2: not telling your spouse, loved one what really happened. You've
Speaker 2: missed the boat to a record NASDAC high. How do
Speaker 2: you get back in the game.
Speaker 3: Yeah, it's always a challenge. If you look historically, I
Speaker 3: mean people will talk about dollar cost averaging, or people
Speaker 3: will talk about, you know, slowly moving back into these markets.
Speaker 3: Historically you're better off. Even if you're investing at the
Speaker 3: market high, you're still better off historically than sitting in
Speaker 3: cash or or even dollar cost averaging. So I would
Speaker 3: advise and investors to be in these markets. What you
Speaker 3: can do rather than have it tom be all or nothing,
Speaker 3: I'm in or I'm out, and you can focus if
Speaker 3: you're concerned, you focus more on quality. You focus more
Speaker 3: on businesses that are able to withstand some of the
Speaker 3: challenges that we're dealing with, which is really why Nasdaq
Speaker 3: is back leading again. Could we see an environment where
Speaker 3: market's broaden out, where you want to be more small cap,
Speaker 3: more value, All that sure probably requires some easing and
Speaker 3: a pickup an economic activity.
Speaker 5: So Brian, if the Fed's going to cut maybe once,
Speaker 5: maybe twice this year, that's about it. So it feels
Speaker 5: like if the market's going to move higher, earning is
Speaker 5: are going to come to.
Speaker 4: The forefront yet again.
Speaker 5: Yet I think most investors feel like there might be
Speaker 5: some earnings risk out there. How do you think about
Speaker 5: the earnings outlook here?
Speaker 3: Yeah, there is some earnings risk with regards to what
Speaker 3: we're grappling with with tariffs. I mean everybody's talking about will.
Speaker 4: We see some price shocks?
Speaker 3: Will the consumer feel it? I think we sort of
Speaker 3: hope so, because if not, that these businesses are absorbing
Speaker 3: all of it, which will be a hit to profitability.
Speaker 3: But look, it's still a good backdrop. I mean, if
Speaker 3: you think of the nominal growth environment, you're you're looking
Speaker 3: at you somewhere around four four and a half percent.
Speaker 2: So that's the mist call of the first six months.
Speaker 3: Is nominal GDP nominal GDP state substinate. I mean that's
Speaker 3: why I say the set of coming into the year
Speaker 3: was good. The economy was resilient, inflation was stable, and
Speaker 3: inflation was stable at the upper end of the Fed's
Speaker 3: comfort zone. We hadn't seen that in years. That's a
Speaker 3: good nominal growth backdrop for corporate profitability. Policy can shift that,
Speaker 3: and that's why you had a twenty percent decline following
Speaker 3: going into and following Liberation Day. I think the reality
Speaker 3: with regards to tariffs, is that consumers and businesses can
Speaker 3: make changes, we can adjust. We're really just looking for clarity.
Speaker 5: Brian, talk to just about is there anything that screens
Speaker 5: well for you guys sector wise, factor wise?
Speaker 4: Were you guys having your conversations these days?
Speaker 3: Yeah, I would, I would say on the fact their side,
Speaker 3: it's still a quality story. So we're still in an
Speaker 3: environment where leading indicators are pointing lower, and typically when
Speaker 3: the leading indicators are pointing lower, you're waiting for the
Speaker 3: policy response, and so right now it's a it's more
Speaker 3: of a quality environment. I think we'll get back to
Speaker 3: more of a recovery feel where we get policy response
Speaker 3: and leading indicators pick up, but that that may take
Speaker 3: a bit. On the income side. I still like credit
Speaker 3: thirty seconds. We didn't have you any of your talk markets.
Speaker 3: Danny Wolf of Michigan. Is he the real deal?
Speaker 2: Sure? In the draft tonight.
Speaker 3: I think he's the real deal. You can never go
Speaker 3: wrong having seven footers, right, you know.
Speaker 2: How tall is the guy from Duke six short? Okay,
Speaker 2: Brian Levi, thank you so much. Thank you with the investo.
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Speaker 2: This is a joy in our studios in New York.
Speaker 2: Is someone definitive in Hong Kong. He's never gotten over
Speaker 2: the redo of the Mandarin mbar where they ruined the
Speaker 2: top of the Mandarin Hotel in Hong Kong. Frederick Newman
Speaker 2: is Chief Asia Economists at HSBC with wonderful Johns Hopkins Academics.
Speaker 2: I'm gonna steal from Paul here. You walked in the
Speaker 2: studio and Paul said, is Hong Kong changed? What is
Speaker 2: the state of Hong Kong today?
Speaker 6: So the economy is still a bit soft. We have
Speaker 6: very high interest rates. We got us interest rates chauness.
Speaker 6: Economy is not doing that well at the moment. But
Speaker 6: there is a real buzz there because we have equity
Speaker 6: markets coming alive, and we had about five years of
Speaker 6: down markets and the kind of the heart.
Speaker 2: Of the city's equities.
Speaker 6: You see cab drivers with their four phones playing, you know,
Speaker 6: equities all day long. And so if you get the
Speaker 6: market come up, you got ipo pine. I'm being full again,
Speaker 6: that really adds a bit of a buzz. So it
Speaker 6: does feel really there's optimism coming back into the Hong
Speaker 6: Kong Financial Center.
Speaker 5: How does this world of trade, tariff's, trade policy uncertainty,
Speaker 5: how's that impacting Asia Pacific region.
Speaker 6: Well, it's a huge headache, right that the region was
Speaker 6: built on exports and a lot of exports to the US,
Speaker 6: and so there's a lot of apprehension. And it's not
Speaker 6: just the exports we worry about. It is also the
Speaker 6: cap X that's associated with it, right, and so that's
Speaker 6: the worry. But on the other hand, if you look
Speaker 6: at China, for example, owned China's exports to the United
Speaker 6: States are only two point five percent of China's economy.
Speaker 6: It's not the end of the world.
Speaker 2: And that slows down again, it's so important.
Speaker 6: China's exports to the United States are only two point
Speaker 6: five percent of China's economy. Now many people intuitively would
Speaker 6: say it's a much larger share, but actually, if you
Speaker 6: add direct and indirect exports, about two and a half percent,
Speaker 6: maybe three if you not everything is statistically captured, but
Speaker 6: it's not more than a three percent.
Speaker 2: I'll give you a statistic. Paul one hundred and twelve
Speaker 2: percent of Americans don't know what.
Speaker 5: For exactly said, So, how are you guys thinking about
Speaker 5: China here in the short term and also that maybe
Speaker 5: intermediate two to three year term.
Speaker 6: So look, even if only two point five percent of
Speaker 6: your experts go to the US, if you're not fifty
Speaker 6: percent of that off, that takes a percentage point off
Speaker 6: your GDP. That hurts in the short run, right, no
Speaker 6: doubt about it. But there's about two and a half
Speaker 6: percent of GDP fiscal stimulus in the pipeline this year,
Speaker 6: and you see a bit of that getting traction. So,
Speaker 6: for example, the past couple of months, you see retail
Speaker 6: sales suddenly accelerating. You see at the companies we speak
Speaker 6: with are actually saying sales are picking up, and so
Speaker 6: there's a bit more stabilization coming through on the domestic side.
Speaker 4: Actually ex China here.
Speaker 5: You know, everybody here in the US, we've become a
Speaker 5: lot smarter about tariffs and kind of where our goods
Speaker 5: come from. And we've learned really since that pandemic that
Speaker 5: a lot of stuff is coming from Vietnam, from Malaysia.
Speaker 4: Other parts of Asia.
Speaker 3: Here.
Speaker 4: Talk to us, ex China, how is Asia doing.
Speaker 6: So big a problem for the other countries. So if
Speaker 6: you take Vietnam, for example, eleven percent of Vietnam's depend
Speaker 6: in the Vietnam Cup depends on American shoppers compared to
Speaker 6: two point five percent in China, So Vietnam is potentially
Speaker 6: much more disruption. Soda is Thailand, sodaes, Korea, sodas Malaysia,
Speaker 6: and so these countries worry a lot about the tariff
Speaker 6: deadlines coming up.
Speaker 2: Frederick Newman with this, will they just see their chief
Speaker 2: economists their voice of Asia this morning. The zeitgeist, I'm
Speaker 2: sure when you're on the plane here, is that the
Speaker 2: tariff pain is being swallowed by Asian manufacturers, particularly Japanese
Speaker 2: car exports and such. They're eating that large new tariff.
Speaker 2: Do you buy it? And will that sustain.
Speaker 6: Only to some extent? Because the Japanese yennas depreciated a
Speaker 6: lot over recent years, right, it seems like they're swallowing it,
Speaker 6: but really only back to twenty twenty one levels in
Speaker 6: terms of your profit margins. Perhaps, so I don't think
Speaker 6: necessarily it's that big a burden for Asia to carry
Speaker 6: in other areas. Actually, Asia will pass on these costs
Speaker 6: because China is the single producer of many, many critical items.
Speaker 6: There's nobody else who can tell you certain medical sort
Speaker 6: of pharmaceutical ingredients. For example, vitamins right can mostly out
Speaker 6: of China these days.
Speaker 5: How do other I'm just I'm looking at your research
Speaker 5: report because it's got a table of your forecast for HSBC.
Speaker 5: In the countries I don't think about as often as
Speaker 5: I do, maybe European, Malaysia, Philippines, Singapore, Indonesia. How did
Speaker 5: those countries interact with China?
Speaker 6: Likely they're in some ways on trade caught to an
Speaker 6: I rock and hard place. China for them, in many
Speaker 6: ways is a larger market than the US, yes, right,
Speaker 6: And so when the US is we don't want your
Speaker 6: good or we're going to put terrius on you, then
Speaker 6: they turned to China. And and so it's in some
Speaker 6: ways if we push these countries too much, essentially it
Speaker 6: drives them, probably economically more into the Chinese orbit. Now
Speaker 6: they also face Chinese competition, so it's really tough for
Speaker 6: them to find the right path.
Speaker 2: And look at your work, Fred Newman at HSBC and folks,
Speaker 2: it is the Hong Kong and Shanghai Banking Corporation with
Speaker 2: a heritage that truly goes back centuries. The only equivalent
Speaker 2: was John Anderson years ago at UBS. And the basic
Speaker 2: idea here is our misunderstanding of what's going on in China.
Speaker 2: And the heart of the matter to me is we
Speaker 2: have a president who thinks it's deal making or unilateral
Speaker 2: or bilateral discussions. But it's truly a multilateral Asia, isn't it.
Speaker 2: I mean, that's the great misconception in America.
Speaker 6: It is a multilateral Asia. The supply chains are completely
Speaker 6: interconnected across the region. Most of the goods coming from
Speaker 6: Vietnam have a very significant component to Chinese share in them,
Speaker 6: so from Malaysia. China is a dominant Asian producer and
Speaker 6: it kind of it's interweaved with all the other economy.
Speaker 2: So, you know, we're weaned on Japan as the foundation
Speaker 2: capitalist society of Asia. Are they still? Is Japan still
Speaker 2: the dominant provider of finance?
Speaker 6: No, no longer. It is an important finance provider, but
Speaker 6: China exports twice as much capital than Japan does, so
Speaker 6: in terms of financing the world economy, it's now China
Speaker 6: that stepped in in.
Speaker 2: The Mandarin Hotel is a little cafe. Remember downstairs. Yeah,
Speaker 2: the little cafe. It was like something out of a
Speaker 2: Bond movie. People in there. I would read five newspapers
Speaker 2: in there is that little cafe still there on bottom.
Speaker 6: They have refurbished it, but they rebuilt that pretty much
Speaker 6: the same way was before. So you little cafe sixties,
Speaker 6: it's still very fifty six. He has been redone, but
Speaker 6: it's still in that old island at cafe. You're still
Speaker 6: there and you still welcome to come and read your newspapers.
Speaker 2: When you When you go to the Imperial Hotel in Tokyo,
Speaker 2: they have a huge lobby which is like a TV
Speaker 2: set for a dream of genie from the nineteen sixties.
Speaker 2: It's actually unbelievable some of the We won't talk about
Speaker 2: Fullerton's Bar in Singapore, now, will we, Fred, Yes, no,
Speaker 2: we won't. Have a few guys, Fred Newman, this has
Speaker 2: been wonderful. Please don't be a honor to have you here.
Speaker 2: He's with HSBC Hong Kong with Perspective. They're really good
Speaker 2: perspective there.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
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Speaker 1: say Alexa play Bloomberg eleven thirty.
Speaker 2: This is a really important conversation right now. He is
Speaker 2: steeped in the international relations of Persia with all sorts
Speaker 2: of abilities as well. His book How Sanctions Work Iran
Speaker 2: in the impact of economic warfare is noted with important economics,
Speaker 2: including the University of Geneva. Oliveez joins us right now, Ali,
Speaker 2: what is a number one thing Americans get wrong about
Speaker 2: the culture, the fabric the people of Persia.
Speaker 7: Well, I think the number one thing is that Persia
Speaker 7: is an ancient nation. It's a country that has seven
Speaker 7: thousand years of history. It had a government three thousand
Speaker 7: years ago, and you know, it is surprisingly still to
Speaker 7: this day, despite having an anti American government in the
Speaker 7: past nearly five decades, a very pro American population, which
Speaker 7: is almost the reverse of what we get in the
Speaker 7: rest of the region, which is we have pro American
Speaker 7: governments but anti American population.
Speaker 5: How representative is the government of Iran of its people.
Speaker 5: Then that's kind of something that I think most Americans
Speaker 5: really don't understand.
Speaker 7: Well, it's not a democratic government. It is an authoritarian government,
Speaker 7: and even its own surveys show that it's eighty five
Speaker 7: percent of the Runian population do not like this regime
Speaker 7: and would like to see it's back, But it has
Speaker 7: ten to fifteen percent of its core constituents who are
Speaker 7: true believers in this system, either for ideological reasons or
Speaker 7: because they have vested economic interest in it, and in
Speaker 7: a way they are very committed to make sure that
Speaker 7: the system survives.
Speaker 5: So I guess one of the issues as we think
Speaker 5: about the conflict between Israel and Iran and then the
Speaker 5: US involvement over the past weekend, people have been talking
Speaker 5: about discussing regime change. Is that something that should be discussed.
Speaker 5: Is it even of a remote possibility in the near
Speaker 5: to intermediate term.
Speaker 7: Well, first thing I would say is that we have
Speaker 7: to look at our track record of bringing about regime
Speaker 7: change in that part of the world, and it has
Speaker 7: been an abject failure after an abject failure. So engineering
Speaker 7: from the outside is not really something that we should
Speaker 7: be looking forward to because of our track record. Second, internally,
Speaker 7: there is right now no viable organized discipline alternative opposition
Speaker 7: inside the country or even outside of the country that
Speaker 7: is able to push US regime over and take power.
Speaker 7: This is not Syria in twenty twenty four, when you
Speaker 7: have rebel group in control of parts of the country
Speaker 7: that could just march into Damascus.
Speaker 2: Your essay in Foreign Affairs, don't give up on diplomacy
Speaker 2: with Iran. Just so important to me is the idea
Speaker 2: of who are we speaking to? Are we speaking to
Speaker 2: the theocracy? Are we speaking to the military that I
Speaker 2: believe supports the theocracy or uses the theocracy?
Speaker 7: You're absolutely right, there's really not much difference. This is
Speaker 7: a militarized theocracy and talking to you know, like Ron's
Speaker 7: FIGN minister, for instance, was formerly a member of the
Speaker 7: Revolutionary Guards. There is really a coexistence between the clerical
Speaker 7: establishment and the revolutionary Guards. It's like the Deep States,
Speaker 7: basically Ali.
Speaker 5: Just since the US attack on around over the weekend,
Speaker 5: there's been conflicting reports from various sources, including the Trump
Speaker 5: administration officials, about the effectiveness of and the damage inflicted
Speaker 5: by the Americans on the nuclear sites.
Speaker 4: What are your sources telling you?
Speaker 7: Look, the reality is, at the end of the day,
Speaker 7: there's only so much we can all know. Whether it's
Speaker 7: intelligence services or DoD or whichever government agency you look at,
Speaker 7: even the IAA, the un clear watchdog, they really cannot
Speaker 7: judge much by just looking at satellite images. The only
Speaker 7: way to get a full picture is to get the
Speaker 7: inspectors back on the ground, to be able to go
Speaker 7: into these tunnels and see the degree of damage that
Speaker 7: has been done. But there are two things we know
Speaker 7: for sure. One, as Vice President jd. Evan said the
Speaker 7: other day, the Iranians had moved the stockpile of near
Speaker 7: bomb grade and rich uranium that they had about four
Speaker 7: hundred kilograms. And also they have a stockpile of advanced centrifutures,
Speaker 7: and those two things still provide them with a pathway
Speaker 7: to a bomb.
Speaker 2: So that tells me Alivice that the determinant here is
Speaker 2: Israeli intelligence. I think we can all agree that the
Speaker 2: Israeli intelligence into Iran has been extraordinary and making this
Speaker 2: up folks, but stay with me, but Ali vas I
Speaker 2: mean that's that we don't learn this from a presidential
Speaker 2: statement in front of Marine one. We're going to learn
Speaker 2: this from traditional espionage and intelligence by Israel.
Speaker 7: Right, that is correct, But there is also the reality
Speaker 7: that this kind of intelligence, when you go all out
Speaker 7: and using it the way Israel used it in its
Speaker 7: opening salvo of its strike on Iran. You also lose
Speaker 7: a lot of your assets on the ground, so it
Speaker 7: becomes harder to do this again and again. And in
Speaker 7: any case, even Israeli intelligence had admitted that the military
Speaker 7: solution would set back Iran's nuclear program by a few
Speaker 7: months to maybe one to two years at max. Remember
Speaker 7: we had a nuclear deal with Iran in twenty fifteen.
Speaker 7: That agreement sets back Iran's nuclear program by fifteen years
Speaker 7: without firing a shot. So it's a simple math calculation
Speaker 7: of which one is more beneficial.
Speaker 2: Ali, thank you so much. As with us are In Project,
Speaker 2: director of the Crisis Groups are In Project, is le
Speaker 2: recent essay in Foreign Affairs magazine.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
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Speaker 2: Alisia Levine, head of Investment Strategy Equities at BNY, this
Speaker 2: is what the show's about. You got Sam Stovall, with
Speaker 2: all that heritage. You and I this is before you
Speaker 2: are at Brown you and I worshiped his father, Robert
Speaker 2: stolevall years ago with lou Rukaiser and all that and
Speaker 2: Alisia Levine. To bring it over to your rigid and
Speaker 2: magical mathematics, I think is incredibly important. What is the
Speaker 2: convexity of this pain trade right now in this new
Speaker 2: bull market? What the accelerated force is shocking?
Speaker 8: It's shocking. The if I if I just wrote on
Speaker 8: a piece of paper and that old fashioned way of
Speaker 8: what's going on in the world, a list of facts,
Speaker 8: dispassionate facts. The fact that the S and P is
Speaker 8: up this year is actually extraordinary, which tells you the
Speaker 8: pain trade is higher. The pain trade is higher because
Speaker 8: there's so much negativity. Every conference I go to, every
Speaker 8: discussion I have, is about looming inflation, the crushing of growth,
Speaker 8: the all these terrible policies, and the market's telling you
Speaker 8: that it's not going to be that bad, and that
Speaker 8: we really have to quiet the noise around us in
Speaker 8: our in our heads and look at profitability of companies,
Speaker 8: which is what we do as investors. Right So you
Speaker 8: know the reason that tariffs were such a shock to
Speaker 8: the market and the market sold off twenty percent, essentially
Speaker 8: pricing in two thirds of the way pricing in a
Speaker 8: recession is that that original level of tariffs was over
Speaker 8: two percent of us GDP at six hundred and fifty
Speaker 8: billion dollars. Well, that sends a two percent growth economy
Speaker 8: into recession, right, So that's why the market price in
Speaker 8: the recession so quickly. As the tower's been rolled back,
Speaker 8: you're back to a growth area of somewhere between one
Speaker 8: and two percent, and the margins on the SMP are
Speaker 8: going higher, on the tech companies and communication service companies,
Speaker 8: and so the market's going higher as everybody's ringing their
Speaker 8: hands and talking about how how terrible it all is.
Speaker 5: Do you think there's still earnings risk in this market?
Speaker 5: Because I think earnings are going to have to be
Speaker 5: a big driver of market performance. If the Fed's only
Speaker 5: going to give you one or two rate cuts in
Speaker 5: then this year, maybe, so I.
Speaker 8: Do think that to sustain the market here move higher,
Speaker 8: you have to expect earnings moving higher, not necessarily in
Speaker 8: the next few quarters, but for twenty twenty six, right,
Speaker 8: because you know, over the summer investors start looking at
Speaker 8: four or twelve months, look at twenty twenty six earnings.
Speaker 8: I think the market is probably telling you that's what's
Speaker 8: going to happen. The risk here is that we become
Speaker 8: a little complacent from the blowout earnings of Q one
Speaker 8: coming in at thirteen percent when seven percent was expected.
Speaker 8: It does sterilize the rest of the year in terms
Speaker 8: of downward pressure on earnings because you can bring that
Speaker 8: back in for the year. But then we just kind
Speaker 8: of go to sleep on the fact that there is
Speaker 8: some earnings risk. And clearly on the retail side, you've
Speaker 8: seen some demand destruction and you're going to have some
Speaker 8: margin risk from the imports, like you can see that
Speaker 8: Tony Ism.
Speaker 5: Numbers exactly, and the the inflation levels. You know, before
Speaker 5: this whole process, there were you know, three percent ish
Speaker 5: I'm sorry, the tariff levels were roughly three percentage. Now
Speaker 5: they seem to be ten eleven, twelve, thirteen percent something
Speaker 5: in that range, not the twenty or thirty or fifty
Speaker 5: percent that maybe was the concern, but still they're a
Speaker 5: lot higher.
Speaker 6: A lot higher.
Speaker 5: Is Corporate America just going to take that in the
Speaker 5: margin because it doesn't I guess that or they can
Speaker 5: be passed along to consumers.
Speaker 4: We're not really sure yet.
Speaker 8: I guess I think we don't really know. Okay, Like
Speaker 8: there's some discussion that also the the exporters to us
Speaker 8: are going to eat some of it as well. I
Speaker 8: think we actually don't know. If I go back to
Speaker 8: twenty eighteen, and of course the scale of the towers
Speaker 8: are much lower, so maybe it is an perfect look back.
Speaker 8: But actually inflation fell over twenty eighteen, really yes, because
Speaker 8: there was a little bit of demand destruction in the
Speaker 8: areas which had tariffs. So I think we don't actually know.
Speaker 8: And in twenty eighteen the exporters eighth part of the
Speaker 8: tariff hit. This is much more extensive. It is akin
Speaker 8: to a consumption tax. I think there'll be rapid substitution
Speaker 8: on whatever is being tariffed. I think you see that
Speaker 8: fairly quickly. But it does mean that there's going to
Speaker 8: be some hit to certain sectors of the economy. I
Speaker 8: think likely tariffs wind up a little bit lower.
Speaker 2: Can I go nerd?
Speaker 4: Sure?
Speaker 2: So? Okay, it's like it's one hundred degrees. You know,
Speaker 2: the beautiful Lego Starship in Alicia Levine's living room is
Speaker 2: melting right now from the keat.
Speaker 8: It's got its own air.
Speaker 2: Doctor Levine I'm going to go back to your mathematics
Speaker 2: at Chicago, and I'm going to take it back to
Speaker 2: game theory. I went back and forth with Mohamed Hilarian
Speaker 2: this morning, and he is a king of unknown unknown
Speaker 2: and the game theory. I take them market and speech
Speaker 2: is from the Guadalcanal low of nineteen forty two. You
Speaker 2: take the IBOCON chart log s and p. Five hundred
Speaker 2: and you enjoyed the leap out of seventy five. And
Speaker 2: many people will say the extrapolation of a bull market
Speaker 2: started eighty eighty one eighty two off we went. Is
Speaker 2: that what we're missing right now is that kind of
Speaker 2: log linear lift in equities. It was a surprise in
Speaker 2: seventy five, a surprise in the early eighties.
Speaker 8: So I think it's hard for me to see us
Speaker 8: getting to three percent growth, right. What you had in
Speaker 8: the eighties was three percent growth. So that's really what
Speaker 8: you need for nominal earnings, right, because earnings are nominal
Speaker 8: and growth is nominal. The thing here is, I just
Speaker 8: think what everybody's missing is the resiliency of corporate America
Speaker 8: and the resiliency of households. Of households. I have a
Speaker 8: chart that I use which shows the crushing of the
Speaker 8: household's balance sheet of debt to assets. It is a
Speaker 8: crushing from fifteen years ago of the global financial crisis.
Speaker 8: It's basically been cut in half. Households are so resilient
Speaker 8: and there are fifty three trillion dollars wealthier than they
Speaker 8: were five years ago. So your assets, your financial assets,
Speaker 8: are going higher and your liabilities as a percent of
Speaker 8: assets are going lower. So you've got healthy balance sheets
Speaker 8: in the household sector. All that debt, of course was
Speaker 8: transferred to the government. But the households are resilient, and
Speaker 8: corporate America is resilient. Large cap are resilient, less so
Speaker 8: for small cap because they've got floating right debt, but
Speaker 8: during a place where there's much more resiliency than the
Speaker 8: conversation we're hearing is.
Speaker 5: But the concern on that side the household income. More
Speaker 5: than fifty percent of US households don't hold assets. That's true,
Speaker 5: So that's a problem.
Speaker 8: Yes, Okay, so I'm going to sound ruthless here. Okay,
Speaker 8: but I'm going to say that they don't go into
Speaker 8: the number of shocker, they don't go into the aggregate numbers.
Speaker 8: It is true that the lower quartile of income has
Speaker 8: been suffering, and they've been suffering since the rate hikes
Speaker 8: of twenty twenty two, when the free money stopped and
Speaker 8: those households borrow short, not long, and what sterilized households
Speaker 8: and corporates is borrowing long. Rates were near zero. So
Speaker 8: we've got three percent mortgages.
Speaker 2: We got to leave it here out of time. When
Speaker 2: you come back next time, I want to do a
Speaker 2: definitive distinction between log normal and plus on distribution.
Speaker 4: Oh that's going to work. Sho you to the audience.
Speaker 2: La Alicia Levin, Thank you so much from BNI.
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