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 --> 00:00:18,400 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 --> 00:00:36,880 Speaker 2: Bloomberg Terminal and the Bloomberg Business app. We begin this 10 00:00:36,920 --> 00:00:39,200 Speaker 2: sour stock steady after notching one of the best days 11 00:00:39,200 --> 00:00:41,319 Speaker 2: of the year so far. Cameron Dawston and new Weege 12 00:00:41,360 --> 00:00:44,280 Speaker 2: Welsh writing, our key message to clients is get comfortable 13 00:00:44,520 --> 00:00:48,400 Speaker 2: being uncomfortable. We see volatility continuing even as we bounce 14 00:00:48,720 --> 00:00:52,040 Speaker 2: off of over sold low sentiment levels. Cameron joins us, 15 00:00:52,040 --> 00:00:53,280 Speaker 2: Now from what camera's good to see you. 16 00:00:53,320 --> 00:00:53,840 Speaker 1: Good to see you. 17 00:00:53,920 --> 00:00:56,280 Speaker 2: Let's talk about your conversations with those clients. What they're 18 00:00:56,280 --> 00:00:57,960 Speaker 2: telling you. Are they're freaking out? Are they bear us? 19 00:00:58,040 --> 00:00:58,840 Speaker 2: What's the response? 20 00:00:58,880 --> 00:01:01,800 Speaker 3: Clients are still very common. We think it's because if 21 00:01:01,840 --> 00:01:05,160 Speaker 3: you look at a seventy thirty portfolio of AQUI versus 22 00:01:05,240 --> 00:01:08,920 Speaker 3: the IG you're still up about one percent for the years. So, yes, 23 00:01:09,000 --> 00:01:11,520 Speaker 3: we have seen this weakness within US equities, But if 24 00:01:11,560 --> 00:01:13,959 Speaker 3: you are a diversified investor, for the first time in 25 00:01:14,000 --> 00:01:17,959 Speaker 3: a while, you actually feel good about having non US exposure, 26 00:01:18,160 --> 00:01:20,480 Speaker 3: which has helped to dle some of the pain that 27 00:01:20,560 --> 00:01:23,280 Speaker 3: you have seen within the concentrated US markets. 28 00:01:23,319 --> 00:01:25,720 Speaker 2: How far out are they willing to extrapolate that recent 29 00:01:25,800 --> 00:01:28,800 Speaker 2: underperformance US versus Europe? Are they starting to wonder whether 30 00:01:28,800 --> 00:01:30,880 Speaker 2: this could be a multi year game or is it 31 00:01:30,920 --> 00:01:31,760 Speaker 2: a short term game. 32 00:01:31,959 --> 00:01:34,760 Speaker 3: We're certainly asking that question, meaning are we going to 33 00:01:34,760 --> 00:01:37,080 Speaker 3: see a repeat of the two thousand to two thousand 34 00:01:37,080 --> 00:01:39,440 Speaker 3: and seven period where it truly was a multi year 35 00:01:39,480 --> 00:01:43,039 Speaker 3: period of non US underperformance versus the rest of the world. 36 00:01:43,240 --> 00:01:45,600 Speaker 3: We think it really depends on two key factors. You 37 00:01:45,720 --> 00:01:48,400 Speaker 3: have to see continued dollar weakness. You have to see 38 00:01:48,600 --> 00:01:51,160 Speaker 3: much further downside in the dollar to suggest that capital 39 00:01:51,200 --> 00:01:53,120 Speaker 3: will leave the US and go to the rest of 40 00:01:53,120 --> 00:01:55,120 Speaker 3: the world. And you have to see it backed up 41 00:01:55,160 --> 00:01:57,400 Speaker 3: by earnings. So if you look here to date, all 42 00:01:57,440 --> 00:02:00,960 Speaker 3: of the outperformance of Europe has been driven by valuation expansion. 43 00:02:01,000 --> 00:02:03,640 Speaker 3: It's gone from thirteen and a half times to fifteen times. 44 00:02:03,840 --> 00:02:06,760 Speaker 3: Earning sestiments have actually gotten cut. So if you think 45 00:02:06,800 --> 00:02:08,760 Speaker 3: that this is going to last more than just a 46 00:02:08,840 --> 00:02:11,359 Speaker 3: couple of months or a couple of quarters, you have 47 00:02:11,400 --> 00:02:12,600 Speaker 3: to believe in the earning story. 48 00:02:12,840 --> 00:02:15,480 Speaker 4: So how do you understand that multiple shift? How do 49 00:02:15,520 --> 00:02:17,840 Speaker 4: you understand the idea that we've seen a weakening in 50 00:02:17,880 --> 00:02:19,480 Speaker 4: the dollar and a sellof in the s and P 51 00:02:19,560 --> 00:02:21,960 Speaker 4: five hundred for one of the longest periods that we 52 00:02:22,040 --> 00:02:25,359 Speaker 4: have in the past few decades. If it isn't necessarily 53 00:02:25,400 --> 00:02:27,320 Speaker 4: some fundamental shift, what is it. 54 00:02:27,800 --> 00:02:29,959 Speaker 3: We have to appreciate that we went into this year 55 00:02:30,080 --> 00:02:33,040 Speaker 3: with a massive record dollar long position. 56 00:02:33,320 --> 00:02:34,040 Speaker 1: If you looked at. 57 00:02:33,919 --> 00:02:37,400 Speaker 3: Futures trading, you had a huge position where everybody was 58 00:02:37,480 --> 00:02:40,440 Speaker 3: long to their eyeballs the dollar. That has now reversed 59 00:02:40,480 --> 00:02:43,320 Speaker 3: and you actually see traders being slightly short the dollar. 60 00:02:43,600 --> 00:02:45,600 Speaker 3: So we think that the dollar could actually find some 61 00:02:45,680 --> 00:02:48,040 Speaker 3: stability here. Maybe in the short term you see some 62 00:02:48,160 --> 00:02:50,799 Speaker 3: mean reversion in some of those trades. The last two days, 63 00:02:51,000 --> 00:02:54,800 Speaker 3: Europe has been underperforming the US, So it's very alluring 64 00:02:54,840 --> 00:02:58,040 Speaker 3: to try to ascribe a narrative to price action to say, 65 00:02:58,160 --> 00:03:01,760 Speaker 3: inter view US exceptionalism, the US exceptional in story is over. 66 00:03:01,960 --> 00:03:04,200 Speaker 3: We think it's actually a lot more about dollar positioning, 67 00:03:04,240 --> 00:03:05,240 Speaker 3: at least in the short term. 68 00:03:05,320 --> 00:03:07,519 Speaker 4: Yeah, you've said this question in your notes, which I 69 00:03:07,520 --> 00:03:09,360 Speaker 4: thought was great. Is at the end of US exceptionalist 70 00:03:09,520 --> 00:03:11,600 Speaker 4: or just a positioning unwined? It seems like maybe it's 71 00:03:11,600 --> 00:03:13,400 Speaker 4: a little bit of the latter. I am curious what 72 00:03:13,440 --> 00:03:16,160 Speaker 4: this means going forward. Then if this gives a sense 73 00:03:16,200 --> 00:03:18,440 Speaker 4: that not only the will there be stability to the dollar, 74 00:03:18,480 --> 00:03:21,360 Speaker 4: but also say to the Magnificent seven, which have unwound 75 00:03:21,400 --> 00:03:22,640 Speaker 4: at a disproportional pace. 76 00:03:23,000 --> 00:03:24,880 Speaker 3: Well, and we do think the weakness of the mag 77 00:03:24,960 --> 00:03:27,520 Speaker 3: seven was a function of its strength at the end 78 00:03:27,560 --> 00:03:30,920 Speaker 3: of the year. MAG seven outperforms so much in December 79 00:03:31,040 --> 00:03:33,800 Speaker 3: that was not justified by the fundamentals earning sessments were 80 00:03:33,800 --> 00:03:34,239 Speaker 3: getting cut. 81 00:03:34,240 --> 00:03:37,440 Speaker 1: It was all valuations. So this is all just these. 82 00:03:37,280 --> 00:03:40,320 Speaker 3: Positioning shifts moving around. We've now gotten to the point 83 00:03:40,320 --> 00:03:43,160 Speaker 3: where positioning is a bit more balanced. You've gone from 84 00:03:43,160 --> 00:03:46,120 Speaker 3: the ninety eighth percentile in US positioning to the twenty 85 00:03:46,200 --> 00:03:49,080 Speaker 3: six percentile. That does set you up for a little 86 00:03:49,120 --> 00:03:51,720 Speaker 3: bit of a relief rally. The question is Europe is 87 00:03:51,760 --> 00:03:54,960 Speaker 3: still trading at fifteen times versus the US at twenty times. 88 00:03:55,040 --> 00:03:58,600 Speaker 3: What's the driver to potentially see those multiples converge further. 89 00:03:58,760 --> 00:04:01,120 Speaker 4: You know, you said get used to being uncomfortable. There 90 00:04:01,160 --> 00:04:02,640 Speaker 4: are a lot of people say I don't want to 91 00:04:02,640 --> 00:04:04,880 Speaker 4: be uncomfortable. I want to have some sort of forward 92 00:04:04,880 --> 00:04:07,120 Speaker 4: indicator to get an edge at a time where it 93 00:04:07,120 --> 00:04:09,480 Speaker 4: seems like there's a lot of noise in nothing else. 94 00:04:10,000 --> 00:04:13,040 Speaker 4: What are you looking for to change materially to get 95 00:04:13,080 --> 00:04:14,600 Speaker 4: some conviction one way or another. 96 00:04:14,840 --> 00:04:17,600 Speaker 3: We have to start from the basis that indicator economics 97 00:04:17,600 --> 00:04:19,880 Speaker 3: and what used to work in prior cycles does not 98 00:04:20,040 --> 00:04:22,600 Speaker 3: work in the post COVID world, which means that we 99 00:04:22,640 --> 00:04:24,800 Speaker 3: can't look to things like the tend to curve of 100 00:04:24,839 --> 00:04:27,320 Speaker 3: telling us if we're having a recession. We can't look 101 00:04:27,360 --> 00:04:30,200 Speaker 3: at those sentiment indicators because they've been so misleading. 102 00:04:30,480 --> 00:04:32,200 Speaker 1: One of the things over the last two years that. 103 00:04:32,160 --> 00:04:34,360 Speaker 3: We've been saying is that watch what they do, not 104 00:04:34,440 --> 00:04:37,440 Speaker 3: what they say, meaning that you cannot look at sentiment 105 00:04:37,520 --> 00:04:40,760 Speaker 3: and soft data and extrapolate it into hard data. We 106 00:04:40,839 --> 00:04:42,720 Speaker 3: think it's actually more important to look at what the 107 00:04:42,760 --> 00:04:45,880 Speaker 3: equity market is saying about the consumer for example, So 108 00:04:45,960 --> 00:04:48,480 Speaker 3: look at equal weight discretionary versus staples. 109 00:04:48,760 --> 00:04:49,719 Speaker 1: If discretionary is. 110 00:04:49,760 --> 00:04:52,720 Speaker 3: Underperforming staples, the equity market is sniffing out that there's 111 00:04:52,720 --> 00:04:56,080 Speaker 3: trouble in River City with the consumer. If it continues 112 00:04:56,120 --> 00:04:58,000 Speaker 3: to be in an up trend, then the equity market 113 00:04:58,040 --> 00:05:00,960 Speaker 3: is telling you a message of it's okay, watch what. 114 00:05:00,960 --> 00:05:01,920 Speaker 1: They do, not what they say. 115 00:05:01,920 --> 00:05:03,960 Speaker 5: Are you also using that same logic when it comes 116 00:05:04,000 --> 00:05:05,440 Speaker 5: to policy makers in Washington? 117 00:05:06,800 --> 00:05:10,559 Speaker 3: Not necessarily there has been followed through in what they've 118 00:05:10,600 --> 00:05:12,640 Speaker 3: been saying. And I think that that was one of 119 00:05:12,680 --> 00:05:15,240 Speaker 3: the follies going into this year, thinking that it was 120 00:05:15,279 --> 00:05:17,680 Speaker 3: all just rhetoric coming out of DC and that we 121 00:05:17,720 --> 00:05:21,159 Speaker 3: wouldn't see policy follow through. But we certainly are seeing it, 122 00:05:21,160 --> 00:05:23,119 Speaker 3: at least to an extent. Yes, we have the flip 123 00:05:23,120 --> 00:05:25,520 Speaker 3: flop and the ping pong about how much we're actually 124 00:05:25,560 --> 00:05:28,640 Speaker 3: going to see tariffs enacted, but there are real policies 125 00:05:28,680 --> 00:05:31,800 Speaker 3: being enacted, which is weighing on activity that we see today. 126 00:05:32,000 --> 00:05:35,159 Speaker 2: April second is increasingly difficult to understand. The Financial Times 127 00:05:35,200 --> 00:05:37,560 Speaker 2: just put out this report that a president is considering 128 00:05:37,560 --> 00:05:40,640 Speaker 2: a two step tariff regime on April second. According to 129 00:05:40,640 --> 00:05:43,920 Speaker 2: people familiar with the matter among proposals, and I'm citing 130 00:05:43,960 --> 00:05:46,720 Speaker 2: this story directly. Now his team has been discussing as 131 00:05:46,760 --> 00:05:49,080 Speaker 2: a plan to launch so called Section three oh one 132 00:05:49,120 --> 00:05:53,520 Speaker 2: investigations into trading partners, so that's unfair trading practices, while 133 00:05:53,520 --> 00:05:58,360 Speaker 2: simultaneously using ready invoked emergency powers to apply immediate tariffs 134 00:05:58,560 --> 00:05:59,279 Speaker 2: in the interim. 135 00:05:59,400 --> 00:06:00,159 Speaker 6: So you could see a. 136 00:06:00,200 --> 00:06:02,960 Speaker 2: Couple of phases of this, which is a reason why 137 00:06:03,000 --> 00:06:05,720 Speaker 2: the people like Max Counter of HSBC or worried that 138 00:06:05,760 --> 00:06:08,400 Speaker 2: this uncertainty will linger beyond April second. And I'm Marie, 139 00:06:08,400 --> 00:06:10,960 Speaker 2: this is something you've talked about repeatedly. There are things 140 00:06:10,960 --> 00:06:13,280 Speaker 2: you can do on day one and April second, there 141 00:06:13,279 --> 00:06:14,920 Speaker 2: are other things you'll have to wait. 142 00:06:14,760 --> 00:06:16,679 Speaker 5: To execute on right If you want to use Section 143 00:06:16,720 --> 00:06:19,080 Speaker 5: three three eight or IEPO, you can maybe use national 144 00:06:19,080 --> 00:06:22,039 Speaker 5: security lever and you can have a tariff that day 145 00:06:22,240 --> 00:06:24,560 Speaker 5: in an executive order. If you want to look at 146 00:06:24,600 --> 00:06:28,280 Speaker 5: something that is more long term, if you need public feedback, 147 00:06:28,680 --> 00:06:31,320 Speaker 5: then you would take weeks or months. But what the 148 00:06:31,320 --> 00:06:33,680 Speaker 5: Financial Times is saying, and it's something I think makes 149 00:06:33,680 --> 00:06:36,279 Speaker 5: sense for how Trump likes to enact policy. You might 150 00:06:36,360 --> 00:06:39,080 Speaker 5: see both on that day come out with something really 151 00:06:39,120 --> 00:06:40,920 Speaker 5: sharp because he wants to deliver, but then at the 152 00:06:41,000 --> 00:06:42,719 Speaker 5: same time it's a little bit more nuanced when it 153 00:06:42,720 --> 00:06:44,720 Speaker 5: comes to maybe specific countries or sectors. 154 00:06:44,839 --> 00:06:47,279 Speaker 2: Camera This makes April second really tough because is it 155 00:06:47,320 --> 00:06:50,760 Speaker 2: going to be a clearing event maximum uncertainty, move beyond it, 156 00:06:50,839 --> 00:06:53,560 Speaker 2: move on by stocks, or will it just get more confusing. 157 00:06:54,000 --> 00:06:56,440 Speaker 3: I think that Peter Cheer earlier this week was really 158 00:06:56,480 --> 00:06:59,120 Speaker 3: wise in saying that if we get clarity, is that 159 00:06:59,240 --> 00:07:02,280 Speaker 3: actually a bad thing in the sense that the current 160 00:07:02,960 --> 00:07:05,960 Speaker 3: EPs estimates do not contemplate the kind of tariff regime 161 00:07:06,000 --> 00:07:09,040 Speaker 3: that's even the tariff light that is being presented, which 162 00:07:09,080 --> 00:07:11,360 Speaker 3: means that we do think that there is downside to 163 00:07:11,400 --> 00:07:13,920 Speaker 3: earning sestments if we get the clarity that people could 164 00:07:13,960 --> 00:07:17,160 Speaker 3: actually start putting it into numbers. We see this arrested 165 00:07:17,160 --> 00:07:20,320 Speaker 3: development and decision making. It's the if you choose not 166 00:07:20,440 --> 00:07:23,120 Speaker 3: to decide, you are still making a choice. Businesses are 167 00:07:23,160 --> 00:07:26,320 Speaker 3: sitting on their hands and not making decisions, and that 168 00:07:26,400 --> 00:07:29,040 Speaker 3: could result, we think, in lower earnings estiments, which we 169 00:07:29,120 --> 00:07:32,360 Speaker 3: think challenges the valuations of equities even further. 170 00:07:32,240 --> 00:07:35,000 Speaker 2: Bad thing for who and bad for witch aquacies the 171 00:07:35,080 --> 00:07:37,320 Speaker 2: United States or the outperformance we've seen in Europe and 172 00:07:37,360 --> 00:07:38,800 Speaker 2: elsewhere in China. 173 00:07:38,840 --> 00:07:42,240 Speaker 3: I don't think that the European rally has been pricing 174 00:07:42,320 --> 00:07:45,559 Speaker 3: in the risk of tariffs being escalated, which just means 175 00:07:45,600 --> 00:07:48,640 Speaker 3: that you're seeing all of this strength and rerating, which 176 00:07:48,720 --> 00:07:52,560 Speaker 3: is more of a positioning flip than necessarily thinking that 177 00:07:52,600 --> 00:07:54,840 Speaker 3: Europe is going to do better because of the tariffs. 178 00:07:54,880 --> 00:07:57,600 Speaker 3: So if we actually see them enacted, we think it's 179 00:07:57,720 --> 00:08:01,800 Speaker 3: more of money leaving global act versus shifting from one 180 00:08:01,840 --> 00:08:02,640 Speaker 3: place to another. 181 00:08:02,720 --> 00:08:03,120 Speaker 1: I'm with you. 182 00:08:03,160 --> 00:08:05,240 Speaker 2: I love the piece from p over the weekend. Careful 183 00:08:05,240 --> 00:08:06,960 Speaker 2: what you wish for if you get the clarity, you 184 00:08:07,000 --> 00:08:09,200 Speaker 2: get the certainty is that when we start to fully 185 00:08:09,200 --> 00:08:11,320 Speaker 2: appreciate the kind of damage it could do to the economy. 186 00:08:11,360 --> 00:08:13,920 Speaker 2: And I'm not talking about the United States, I'm talking 187 00:08:13,920 --> 00:08:15,360 Speaker 2: about the rest of the world, which. 188 00:08:15,160 --> 00:08:16,800 Speaker 4: Is something that people were pricing in at the end 189 00:08:16,800 --> 00:08:18,880 Speaker 4: of last year and everybody seemed to ignore because they 190 00:08:18,880 --> 00:08:22,040 Speaker 4: were all benumbed by the idea of Germans spending money 191 00:08:22,040 --> 00:08:24,480 Speaker 4: and that seemed to take everyone's idea of what tariffs 192 00:08:24,520 --> 00:08:26,040 Speaker 4: would do to the rest of the world out of 193 00:08:26,080 --> 00:08:26,480 Speaker 4: the mines. 194 00:08:26,720 --> 00:08:28,920 Speaker 2: Cameron, good to see you as always. Great to catch up. 195 00:08:28,960 --> 00:08:41,920 Speaker 2: Cameron Dawson, their Avenue Edge, twelve Banks for America cunning 196 00:08:41,960 --> 00:08:44,040 Speaker 2: their growth out looks for the United States and the World. 197 00:08:44,280 --> 00:08:46,600 Speaker 2: Rights and the Growth Revision seek to capture the impact 198 00:08:46,640 --> 00:08:49,920 Speaker 2: of the policy uncertainty shock on spending in CAPEX in 199 00:08:49,960 --> 00:08:53,080 Speaker 2: the coming months, as well as a more hawkish tarist stance. 200 00:08:53,280 --> 00:08:55,760 Speaker 2: Claudia Irigozan of Bank of America joins us now for more. 201 00:08:55,760 --> 00:08:57,600 Speaker 6: Cladia. Good to see you, sir, Thank you. 202 00:08:57,760 --> 00:09:01,000 Speaker 2: First question, hardest question on earth to put out a 203 00:09:01,040 --> 00:09:03,520 Speaker 2: forecast in this environment? How difficult is that? 204 00:09:03,880 --> 00:09:07,840 Speaker 6: It's extremely difficult. But and to be honest, some times, 205 00:09:07,920 --> 00:09:12,200 Speaker 6: uncertainty it's worse than bad news because that impacts the 206 00:09:12,280 --> 00:09:17,000 Speaker 6: decision of companies, irreversible decisions to invest or not. So 207 00:09:17,240 --> 00:09:20,000 Speaker 6: the optional value of waiting is higher when you don't 208 00:09:20,000 --> 00:09:21,800 Speaker 6: know what's going to happen and you can see the Fed. 209 00:09:21,840 --> 00:09:24,600 Speaker 6: The FED is exactly in the same position. They cannot 210 00:09:24,600 --> 00:09:26,559 Speaker 6: move the needle until they figured out what's going to happen. 211 00:09:26,640 --> 00:09:28,360 Speaker 2: So, without of mind, how bad key one going to be? 212 00:09:29,240 --> 00:09:32,480 Speaker 6: Actually it's not going to be that bad. Generally data 213 00:09:32,679 --> 00:09:36,720 Speaker 6: was bad. February data was much better. So probably generally 214 00:09:36,800 --> 00:09:40,520 Speaker 6: was a one off. We mark to market the first quarter, 215 00:09:41,200 --> 00:09:43,400 Speaker 6: we expect probably something between one and a half and 216 00:09:43,440 --> 00:09:45,640 Speaker 6: two percent, So the first half is going to be 217 00:09:45,640 --> 00:09:47,920 Speaker 6: around one and a half one point seven and the 218 00:09:47,920 --> 00:09:50,600 Speaker 6: second half is going to be around two percent, which 219 00:09:50,600 --> 00:09:52,920 Speaker 6: is to try and grow. It's not that bad really. 220 00:09:53,120 --> 00:09:54,400 Speaker 4: At the same time, I think what a lot of 221 00:09:54,400 --> 00:09:56,679 Speaker 4: people are worried about is that tariffs are going to 222 00:09:57,080 --> 00:10:00,880 Speaker 4: keep the inflation picture a little bit stickier than otherwise. 223 00:10:01,480 --> 00:10:03,240 Speaker 1: Than otherwise was on track for Atlanta. 224 00:10:03,240 --> 00:10:06,080 Speaker 4: FED President Rafael Biostik yesterday speaking with our Michael McKee, 225 00:10:06,160 --> 00:10:08,600 Speaker 4: saying that he moved to one rate cut projected for 226 00:10:08,640 --> 00:10:11,080 Speaker 4: this year because he thinks that the path of this 227 00:10:11,200 --> 00:10:13,559 Speaker 4: inflation is going to be very bumpy and not moved 228 00:10:13,640 --> 00:10:15,800 Speaker 4: dramatically and in a clear way to the two percent target. 229 00:10:15,840 --> 00:10:19,040 Speaker 4: Do you agree that that now seems further out of reach. 230 00:10:19,720 --> 00:10:22,840 Speaker 6: Yeah. We had the view that the inflation was sticky 231 00:10:22,880 --> 00:10:25,280 Speaker 6: and was going to continue to remain sticky even before 232 00:10:25,320 --> 00:10:29,400 Speaker 6: the title shock, and we expect the PC inflation around 233 00:10:29,440 --> 00:10:31,480 Speaker 6: three percent, which is too high for the FED to 234 00:10:31,520 --> 00:10:35,480 Speaker 6: feel comfortable cuddion rates. With all that uncertainty, that is 235 00:10:35,520 --> 00:10:38,959 Speaker 6: basically upside risk to inflation. So we have the call 236 00:10:39,040 --> 00:10:41,360 Speaker 6: that the FED will remain a whole for the foreseeable 237 00:10:41,400 --> 00:10:44,280 Speaker 6: future and inflation will remain sticky. Absolutely. 238 00:10:44,440 --> 00:10:46,679 Speaker 4: So it raises this question when you talk about a 239 00:10:46,720 --> 00:10:48,400 Speaker 4: growth slow down. A muhammadal Area and was on this 240 00:10:48,440 --> 00:10:49,640 Speaker 4: program and he asked this question. 241 00:10:49,679 --> 00:10:50,280 Speaker 1: And I've given a. 242 00:10:50,240 --> 00:10:53,120 Speaker 4: Lot of thought to it slowing to what if it's 243 00:10:53,160 --> 00:10:56,240 Speaker 4: not recession. If growth slows to a certain place, does 244 00:10:56,280 --> 00:10:59,800 Speaker 4: it become really difficult for the United States to sustain 245 00:10:59,840 --> 00:11:03,520 Speaker 4: the deficit that it has and continue with the growth 246 00:11:03,520 --> 00:11:07,079 Speaker 4: that it has. If you have inflation that is sticky, 247 00:11:07,120 --> 00:11:09,360 Speaker 4: it's not stiflation, but it doesn't feel great. 248 00:11:10,000 --> 00:11:16,320 Speaker 6: It's a staflationary flavor. Let me put it away. If 249 00:11:16,320 --> 00:11:18,640 Speaker 6: you have the level of uncertainty that you have over 250 00:11:18,679 --> 00:11:21,720 Speaker 6: the last three weeks for another three months, that will 251 00:11:21,760 --> 00:11:25,600 Speaker 6: have a permanent effect on investment decisions and on consumption. 252 00:11:26,200 --> 00:11:31,880 Speaker 6: So this administration can change the way communicates to the market. 253 00:11:32,320 --> 00:11:36,280 Speaker 6: Because the market has no political color. They just price 254 00:11:36,400 --> 00:11:39,079 Speaker 6: what they see and the correction in the market is 255 00:11:39,120 --> 00:11:41,320 Speaker 6: the market telling we don't like these policies or we 256 00:11:41,360 --> 00:11:44,360 Speaker 6: don't understand this policy. So at least communication could be 257 00:11:44,440 --> 00:11:47,360 Speaker 6: more transparent for the market to understand that if this 258 00:11:47,480 --> 00:11:50,760 Speaker 6: is a short and pain for learning game. Usually markets 259 00:11:50,840 --> 00:11:53,600 Speaker 6: rally when the net present value of a project is positive. 260 00:11:53,640 --> 00:11:56,600 Speaker 6: So communication is going to be key. And I notice 261 00:11:56,640 --> 00:11:59,160 Speaker 6: in the last three or four days that communication is 262 00:11:59,240 --> 00:12:01,079 Speaker 6: more careful at least well. 263 00:12:01,080 --> 00:12:03,320 Speaker 5: Trump has talked about being flexible at least when it 264 00:12:03,320 --> 00:12:05,679 Speaker 5: comes to terrorists. When it comes to your inflation forecast, 265 00:12:06,160 --> 00:12:10,320 Speaker 5: it's very hawkish. Do you use some of these tariffs driven. 266 00:12:11,480 --> 00:12:13,679 Speaker 6: For you to have a sense if you have an 267 00:12:13,720 --> 00:12:17,640 Speaker 6: increase of one percent in effected tatifs, that gives you 268 00:12:17,760 --> 00:12:22,560 Speaker 6: between seven, maybe ten or more than ten basis points 269 00:12:23,240 --> 00:12:30,120 Speaker 6: increasing PC. So tariffs the twenty percent is from China, 270 00:12:30,320 --> 00:12:33,240 Speaker 6: that gives you two and a half points of increasing 271 00:12:33,240 --> 00:12:39,120 Speaker 6: effective tittifs, So that gives you already twenty points or 272 00:12:39,120 --> 00:12:42,480 Speaker 6: so on PC. And then if you do reciprocity, you 273 00:12:42,520 --> 00:12:45,400 Speaker 6: can have another half a point in increasing in effected tititis. 274 00:12:45,440 --> 00:12:48,320 Speaker 6: So you can have a sense the things get more 275 00:12:48,320 --> 00:12:50,920 Speaker 6: heity when you say, okay, I'm going to also take 276 00:12:50,920 --> 00:12:54,559 Speaker 6: into account when I do reciprocity VAT then it's a 277 00:12:54,600 --> 00:12:56,040 Speaker 6: completely different discussion. 278 00:12:56,080 --> 00:12:59,200 Speaker 5: And digital services, tax and currency exchanges. They're looking at 279 00:12:59,200 --> 00:13:02,360 Speaker 5: everything across the that's the executive order called for. What 280 00:13:02,400 --> 00:13:04,720 Speaker 5: I'm hearing from you is it's not so much the tariffs, 281 00:13:04,720 --> 00:13:05,640 Speaker 5: it's the uncertainty. 282 00:13:05,760 --> 00:13:07,760 Speaker 1: Can we have an uncertainty driven recession? 283 00:13:08,760 --> 00:13:13,040 Speaker 6: Well, you really really have to keep this uncertainty letter 284 00:13:13,080 --> 00:13:18,200 Speaker 6: for a while. Three weeks easy enough for showing up 285 00:13:18,200 --> 00:13:21,280 Speaker 6: in the soft data. As we were discussing before, Still 286 00:13:21,320 --> 00:13:24,719 Speaker 6: consumption data remains strong. Our cregit card data shows that 287 00:13:24,800 --> 00:13:29,240 Speaker 6: the consumption is resilient. You had massive wealth effects over 288 00:13:29,280 --> 00:13:34,320 Speaker 6: the last year and a half. Consumers heah their interest 289 00:13:34,360 --> 00:13:37,480 Speaker 6: rate exposure big time when interstrate collapsed, the refinance their mortgages. 290 00:13:37,520 --> 00:13:39,760 Speaker 6: So the balance sheet of the private sector is fine. 291 00:13:40,400 --> 00:13:42,720 Speaker 6: The balance sheet of the public sector is not fine, 292 00:13:43,160 --> 00:13:44,719 Speaker 6: and that remains to be seeing how it's going to 293 00:13:44,760 --> 00:13:45,240 Speaker 6: be addressed. 294 00:13:45,280 --> 00:13:47,559 Speaker 2: It's interesting listening to the administration the last twenty four 295 00:13:47,600 --> 00:13:49,640 Speaker 2: houns when they talk about challenges to the economy, they 296 00:13:49,720 --> 00:13:52,160 Speaker 2: kind of brush to a side the terror story. They 297 00:13:52,200 --> 00:13:55,000 Speaker 2: will accept, though the doge and the rebalance of the 298 00:13:55,000 --> 00:13:57,640 Speaker 2: economy away from government spending towards the private sector could 299 00:13:57,679 --> 00:13:59,680 Speaker 2: be damaging. And we heard that from Stephen Merron, the 300 00:13:59,760 --> 00:14:03,040 Speaker 2: chair the Council of Economic Advices, just yesterday speaking to 301 00:14:03,240 --> 00:14:05,360 Speaker 2: blimp Back News. I don't think there's going to be 302 00:14:05,440 --> 00:14:07,920 Speaker 2: a material short term pain from the tariffs. I think 303 00:14:07,920 --> 00:14:10,160 Speaker 2: the short term pain is coming from the re orientation 304 00:14:10,280 --> 00:14:13,160 Speaker 2: of the economy from the government to the private sector. 305 00:14:13,360 --> 00:14:15,080 Speaker 2: How do you even the THA think about DOGE and 306 00:14:15,120 --> 00:14:16,760 Speaker 2: what it could do to your outlook. 307 00:14:18,600 --> 00:14:20,000 Speaker 6: I think it's too early to tell. There are a 308 00:14:20,040 --> 00:14:22,960 Speaker 6: lot of things that the administrations say we're going to 309 00:14:23,000 --> 00:14:25,320 Speaker 6: do it, and it's not easy to implement. The execution 310 00:14:25,480 --> 00:14:28,760 Speaker 6: risks are still high. But dogs is another example in 311 00:14:28,840 --> 00:14:34,400 Speaker 6: which uncertainty. It's not enough to characterize this economy. You 312 00:14:34,520 --> 00:14:37,960 Speaker 6: have to add to to uncertain the confusion. So we 313 00:14:38,000 --> 00:14:42,920 Speaker 6: can agree that tardies will be two twenty percent higher 314 00:14:43,000 --> 00:14:45,280 Speaker 6: or not in April. Second, we can agree on the 315 00:14:45,280 --> 00:14:49,119 Speaker 6: probority distribution of that random event, but we can disagree 316 00:14:49,120 --> 00:14:51,280 Speaker 6: and people disagree a lot on the effect of that 317 00:14:51,480 --> 00:14:52,200 Speaker 6: on the economy. 318 00:14:53,080 --> 00:14:55,160 Speaker 5: When it comes to doughg is your concern and the 319 00:14:55,200 --> 00:14:58,240 Speaker 5: effect of the economy on the labor market and potentially 320 00:14:58,280 --> 00:15:01,320 Speaker 5: the business contracts that you have the private sector doing 321 00:15:01,320 --> 00:15:02,240 Speaker 5: with the US government. 322 00:15:03,080 --> 00:15:06,560 Speaker 6: It's still when you quantify it, it's still relatively minor 323 00:15:06,640 --> 00:15:10,480 Speaker 6: and very concentrated on some geographical areas the DC et cetera. 324 00:15:11,080 --> 00:15:15,480 Speaker 6: But it's going to impact on sentiments, right, so it 325 00:15:15,600 --> 00:15:19,600 Speaker 6: creates uncertainty of where we are going. So if you 326 00:15:19,640 --> 00:15:25,800 Speaker 6: have a master plan that has different pars energy, immigration, 327 00:15:28,280 --> 00:15:32,240 Speaker 6: physical consolidation chart, if you got to put it together 328 00:15:32,280 --> 00:15:34,120 Speaker 6: and explain to the market, this is what we have 329 00:15:34,200 --> 00:15:37,640 Speaker 6: in mind. If you do it piecemeal, you create confusion. 330 00:15:37,760 --> 00:15:40,080 Speaker 5: Well, they have a master plan, but they're doing a 331 00:15:40,080 --> 00:15:42,800 Speaker 5: piecemeal in the sense that they're dressing tariffs first. By 332 00:15:42,800 --> 00:15:44,360 Speaker 5: the end of the year, they want an extension of 333 00:15:44,440 --> 00:15:47,640 Speaker 5: TCGA and they want deregulation along the way. If you 334 00:15:47,720 --> 00:15:52,880 Speaker 5: take the Trump administration's economic policy together, do you think 335 00:15:52,960 --> 00:15:54,040 Speaker 5: it's a fair outcome? 336 00:15:55,560 --> 00:15:58,200 Speaker 6: What we have in our forecast is an economy that 337 00:15:58,240 --> 00:16:04,119 Speaker 6: eventually will continue running the wrong potential. I think policies 338 00:16:04,120 --> 00:16:09,240 Speaker 6: can have the right the thea would be great, but 339 00:16:09,360 --> 00:16:12,920 Speaker 6: implementation rates are very high. If you impose studies in 340 00:16:12,960 --> 00:16:15,560 Speaker 6: the morning and removing in the afternoon, even if you 341 00:16:15,680 --> 00:16:20,560 Speaker 6: end up with at the end, that transition doesn't help. 342 00:16:20,720 --> 00:16:22,320 Speaker 2: It's difficult to plan with that bad job. 343 00:16:22,360 --> 00:16:23,880 Speaker 6: That's for Claudia. It's good to see. 344 00:16:23,880 --> 00:16:25,280 Speaker 2: It's good to catch up and get your thoughts from 345 00:16:25,280 --> 00:16:25,800 Speaker 2: the team over. 346 00:16:25,760 --> 00:16:26,520 Speaker 6: A Bank of America. 347 00:16:26,760 --> 00:16:39,480 Speaker 2: Claudia Rigo isn't there to extend the conversation joining us 348 00:16:39,480 --> 00:16:41,120 Speaker 2: around the table here in New York. Let me control 349 00:16:41,160 --> 00:16:42,360 Speaker 2: the pimp cod Let's be good to see you. 350 00:16:42,400 --> 00:16:42,960 Speaker 1: Good to see you. 351 00:16:43,160 --> 00:16:45,320 Speaker 2: Attempting to read the tea leaves in Washington is a 352 00:16:45,400 --> 00:16:47,320 Speaker 2: dangerous game, but we're going to play it just quickly. 353 00:16:47,600 --> 00:16:49,200 Speaker 2: Do you think maybe, based on the comments in the 354 00:16:49,280 --> 00:16:51,240 Speaker 2: last twenty four hours, the President in this White House 355 00:16:51,280 --> 00:16:53,840 Speaker 2: are realizing some of the legal constraints around what they 356 00:16:53,880 --> 00:16:55,240 Speaker 2: can and can't do on aight Pril second. 357 00:16:55,400 --> 00:16:58,120 Speaker 7: Yeah, And what we know about his trade advisors, jameson 358 00:16:58,160 --> 00:17:01,120 Speaker 7: Greer in particular, who's his US trade presentative. He is 359 00:17:01,320 --> 00:17:05,240 Speaker 7: particularly focused on the legality and the durability of these 360 00:17:05,320 --> 00:17:08,439 Speaker 7: terriff actions. We remember that April second was the first 361 00:17:08,680 --> 00:17:10,679 Speaker 7: sort of the date that was set out in the 362 00:17:10,720 --> 00:17:14,439 Speaker 7: executive order in the first week of the administration that 363 00:17:14,520 --> 00:17:17,800 Speaker 7: really was supposed to clarify kind of the trade agenda. 364 00:17:18,480 --> 00:17:21,880 Speaker 7: It was before the Canada Mexico terriffs, before the Columbia threats, 365 00:17:21,920 --> 00:17:25,520 Speaker 7: before the aluminum steel tariffs. So I think in some 366 00:17:25,560 --> 00:17:29,280 Speaker 7: ways this should, I think provide some coherence in terms 367 00:17:29,320 --> 00:17:32,640 Speaker 7: of the trade agenda. But again, the legality I think 368 00:17:32,760 --> 00:17:35,400 Speaker 7: is very crucial here. One thing that we were talking 369 00:17:35,400 --> 00:17:37,679 Speaker 7: to clients about is is this just an announcement of 370 00:17:37,720 --> 00:17:40,880 Speaker 7: future tariffs. Is this sort of forward guidance, if you will, 371 00:17:40,920 --> 00:17:44,479 Speaker 7: for tariffs or is this actually an announcement that tariffs 372 00:17:44,520 --> 00:17:46,879 Speaker 7: are rolling on on April second? And I think that 373 00:17:46,920 --> 00:17:50,000 Speaker 7: actually has to interplay with the legality. If this is 374 00:17:50,040 --> 00:17:52,680 Speaker 7: being used under AEPA, then he can do this day one. 375 00:17:53,119 --> 00:17:55,320 Speaker 7: If this is more of a broader investigation, then that 376 00:17:55,320 --> 00:17:56,560 Speaker 7: will take several months. 377 00:17:56,560 --> 00:17:58,320 Speaker 1: Well, the ft is saying it's both. There's going to 378 00:17:58,359 --> 00:17:58,919 Speaker 1: be two tiers. 379 00:17:58,920 --> 00:18:01,639 Speaker 5: Potentially we get some pars day one and then longer 380 00:18:01,720 --> 00:18:04,280 Speaker 5: term they're going to look into some trade and balances. 381 00:18:04,480 --> 00:18:07,880 Speaker 5: I love that you talk about mind numbing process because 382 00:18:07,920 --> 00:18:09,959 Speaker 5: I actually think it's important whether or not they use AIPA, 383 00:18:10,000 --> 00:18:11,919 Speaker 5: whether or not they use three thirty eight. Can you 384 00:18:12,000 --> 00:18:14,800 Speaker 5: walk us through what they potentially have a menu of 385 00:18:15,240 --> 00:18:16,440 Speaker 5: to enact on April second. 386 00:18:16,520 --> 00:18:19,119 Speaker 7: Yeah, I mean, as we've discussed before, the executive branch 387 00:18:19,280 --> 00:18:22,159 Speaker 7: just has wide discretion in terms of what they can 388 00:18:22,240 --> 00:18:23,200 Speaker 7: do on tariffs. 389 00:18:23,240 --> 00:18:23,880 Speaker 1: You know, latterly. 390 00:18:23,920 --> 00:18:25,560 Speaker 7: So of course they don't need to go through Congress 391 00:18:25,560 --> 00:18:28,360 Speaker 7: for any of these things. These are authorities that they 392 00:18:28,359 --> 00:18:31,480 Speaker 7: already have, but they do depend in terms of timing. 393 00:18:31,640 --> 00:18:34,960 Speaker 7: So Section three oh one, for instance, that's an investigation 394 00:18:35,440 --> 00:18:38,400 Speaker 7: that usually looks into a country as specific country's practices. 395 00:18:38,680 --> 00:18:40,560 Speaker 7: That investigation can take months. 396 00:18:40,640 --> 00:18:41,160 Speaker 1: This is the. 397 00:18:41,200 --> 00:18:43,800 Speaker 7: Authority that they that the Trump one point zero put 398 00:18:44,320 --> 00:18:47,439 Speaker 7: tariffs on China. So if it's an announcement of a 399 00:18:47,520 --> 00:18:50,160 Speaker 7: three oho one investigation, then again you're kind of giving 400 00:18:50,200 --> 00:18:53,560 Speaker 7: the market some for guidance about what to expect. If 401 00:18:53,600 --> 00:18:56,080 Speaker 7: they use IIPA, if they use section three three eight 402 00:18:56,320 --> 00:18:58,800 Speaker 7: the of the ter EFFACTA from nineteen thirty. 403 00:18:59,320 --> 00:19:02,239 Speaker 1: Then just up to fifty percent, then those can go 404 00:19:02,320 --> 00:19:03,480 Speaker 1: on day one. 405 00:19:03,520 --> 00:19:05,880 Speaker 7: So I think this is where Jamison Grier, though, who 406 00:19:06,000 --> 00:19:09,120 Speaker 7: is a trade attorney by background again US trade representative, 407 00:19:09,160 --> 00:19:11,399 Speaker 7: I think he's going to be very focused on the 408 00:19:11,520 --> 00:19:14,400 Speaker 7: legality of all of this, the durability, and the fact 409 00:19:14,400 --> 00:19:16,720 Speaker 7: that he doesn't want to be fighting this in courts, right, 410 00:19:16,800 --> 00:19:19,679 Speaker 7: he wants this to stay. This is supposed to be 411 00:19:20,359 --> 00:19:23,199 Speaker 7: part of a broader kind of either national security and 412 00:19:23,280 --> 00:19:24,280 Speaker 7: economic agenda. 413 00:19:24,320 --> 00:19:25,800 Speaker 1: And again he's going to be focused on. 414 00:19:25,840 --> 00:19:28,000 Speaker 5: So you're outlining how they may be able to get 415 00:19:28,040 --> 00:19:28,680 Speaker 5: there legally. 416 00:19:28,960 --> 00:19:30,880 Speaker 1: What countries do you think they're going to go after? 417 00:19:31,080 --> 00:19:32,800 Speaker 7: Yeah, I mean if you just look at the trade 418 00:19:32,840 --> 00:19:36,240 Speaker 7: deficit and this president, people may agree with him or 419 00:19:36,240 --> 00:19:38,760 Speaker 7: may disagree with him, and he's been incredibly consistent about 420 00:19:38,760 --> 00:19:42,240 Speaker 7: his focus on the goods trade deficit in particular. And 421 00:19:42,320 --> 00:19:44,960 Speaker 7: if you look at those countries with the biggest goods 422 00:19:44,960 --> 00:19:48,720 Speaker 7: trade deficit, it's China, it's the European Union, it's Mexico, 423 00:19:49,119 --> 00:19:51,199 Speaker 7: and it is Canada. And then he's also going to 424 00:19:51,200 --> 00:19:53,400 Speaker 7: be looking at the tariff rates. And this is where 425 00:19:53,400 --> 00:19:55,359 Speaker 7: I think it does get a little bit complicated. I 426 00:19:55,359 --> 00:19:59,200 Speaker 7: think that reciprocity broadly in terms of the administration, they 427 00:19:59,280 --> 00:20:02,000 Speaker 7: agree on this with this idea of reciprocal tariffs, but 428 00:20:02,160 --> 00:20:05,639 Speaker 7: how do you calculate that tariff? Does that include things 429 00:20:05,680 --> 00:20:08,879 Speaker 7: like the value add attacks in Europe, in which case 430 00:20:08,960 --> 00:20:11,359 Speaker 7: that reciprocal tariff that we would impose on Europe be 431 00:20:11,440 --> 00:20:13,879 Speaker 7: much higher than what the stated tariff level is. So 432 00:20:14,000 --> 00:20:15,280 Speaker 7: I think there are a lot of obviously a lot 433 00:20:15,280 --> 00:20:18,280 Speaker 7: of open questions about what this actually means, but I 434 00:20:18,320 --> 00:20:21,080 Speaker 7: do think we will get some clarity next Wednesday. I 435 00:20:21,119 --> 00:20:23,200 Speaker 7: think the big question is does the market like that clarity? 436 00:20:23,240 --> 00:20:25,240 Speaker 4: Well, the market seems to like the lack of clarity 437 00:20:25,320 --> 00:20:27,280 Speaker 4: or just tea leaves that they've been getting over the 438 00:20:27,320 --> 00:20:30,360 Speaker 4: past couple of days. Have we gotten any further clarity 439 00:20:30,480 --> 00:20:32,480 Speaker 4: or any more of a sense of what the framework 440 00:20:32,520 --> 00:20:36,200 Speaker 4: looks like over the different speeches that we've heard over 441 00:20:36,240 --> 00:20:38,280 Speaker 4: the past few days, kind of in tandem with what 442 00:20:38,320 --> 00:20:39,360 Speaker 4: the market sniffing out. 443 00:20:39,720 --> 00:20:42,440 Speaker 7: Yeah, and again, is this intentional kind of a softening 444 00:20:42,560 --> 00:20:45,560 Speaker 7: or walking away from some maybe the more draconian measures, 445 00:20:45,680 --> 00:20:48,520 Speaker 7: or is this maybe just a byproduct of the fact 446 00:20:48,560 --> 00:20:50,800 Speaker 7: that this was supposed to be really the big reveal, 447 00:20:50,840 --> 00:20:55,000 Speaker 7: if you will, of the sort of administration's trade policy, 448 00:20:55,640 --> 00:20:59,199 Speaker 7: and it wasn't supposed to be necessarily sort of so 449 00:20:59,400 --> 00:21:01,520 Speaker 7: DRACONI I don't think. I think it was supposed to 450 00:21:01,560 --> 00:21:03,800 Speaker 7: be part of a broader economic strategy, and so I 451 00:21:03,800 --> 00:21:05,159 Speaker 7: think some of that we're just sort of seeing that 452 00:21:05,240 --> 00:21:05,960 Speaker 7: kind of fleshed out. 453 00:21:06,119 --> 00:21:08,080 Speaker 4: How much do you think the sequencing of this matters, 454 00:21:08,080 --> 00:21:09,520 Speaker 4: where they want to get this out of the way 455 00:21:09,840 --> 00:21:13,160 Speaker 4: and then pencil in certain revenues from these tariff plans 456 00:21:13,440 --> 00:21:16,159 Speaker 4: to then bring to the tax discussion that is very 457 00:21:16,240 --> 00:21:18,160 Speaker 4: much going to come to the four in the remaining 458 00:21:18,200 --> 00:21:18,840 Speaker 4: months of the year. 459 00:21:19,200 --> 00:21:21,359 Speaker 7: And we've been using this framework with our clients, the 460 00:21:21,440 --> 00:21:24,399 Speaker 7: vegetables and the dessert and we knew that the Trump 461 00:21:24,440 --> 00:21:29,359 Speaker 7: issue with that depends on what you read steam vegetables 462 00:21:29,800 --> 00:21:32,000 Speaker 7: and desserts and ice cream sundays. 463 00:21:32,000 --> 00:21:32,800 Speaker 1: How that, thank you. 464 00:21:33,080 --> 00:21:36,560 Speaker 7: But we've had a lot of steam vegetables right without salt, 465 00:21:37,240 --> 00:21:39,240 Speaker 7: and we have not had a lot of the ice 466 00:21:39,240 --> 00:21:41,359 Speaker 7: cream Sundays. And so I do think this is and 467 00:21:41,359 --> 00:21:43,359 Speaker 7: this was sort of what we expected that there was 468 00:21:43,400 --> 00:21:44,760 Speaker 7: going to be this kind of push and pull in 469 00:21:44,840 --> 00:21:46,960 Speaker 7: terms of economic policy, but in terms of the market, 470 00:21:47,000 --> 00:21:49,720 Speaker 7: they've had a much more vegetables than dessert to use the. 471 00:21:49,760 --> 00:21:50,640 Speaker 1: Labor the metaphor. 472 00:21:51,440 --> 00:21:53,480 Speaker 7: So I do think there's going to be a quick 473 00:21:53,560 --> 00:21:55,600 Speaker 7: pivot to what are the things that they can do 474 00:21:55,680 --> 00:21:57,919 Speaker 7: from a growth agenda perspective. And then I think the 475 00:21:57,920 --> 00:22:00,280 Speaker 7: big question, I think for the markets and for bond 476 00:22:00,320 --> 00:22:03,840 Speaker 7: holders is what is the deficit impact, because I you know, 477 00:22:03,880 --> 00:22:07,080 Speaker 7: I'm I'm skeptical that a lot of these sort of 478 00:22:07,160 --> 00:22:09,919 Speaker 7: spending cuts that have been penciled into the kind of 479 00:22:09,920 --> 00:22:12,679 Speaker 7: framework that is being proposed in the House in particular, 480 00:22:12,920 --> 00:22:14,879 Speaker 7: will actually be enacted into a law. I think that 481 00:22:14,880 --> 00:22:17,600 Speaker 7: those things are very difficult, easy to said to do, easy, 482 00:22:17,760 --> 00:22:19,679 Speaker 7: you know, easier said to do than actually to do. 483 00:22:19,880 --> 00:22:21,800 Speaker 2: You call DOGE douts, what happens with. 484 00:22:21,760 --> 00:22:24,080 Speaker 7: Does you know I do have door shouts? Now this 485 00:22:24,200 --> 00:22:26,159 Speaker 7: is an active discussion within the walls of him go. 486 00:22:26,320 --> 00:22:28,760 Speaker 7: So this is my more my personal view. But if 487 00:22:28,800 --> 00:22:31,720 Speaker 7: you actually look at and this is again my numbing process, 488 00:22:31,760 --> 00:22:35,639 Speaker 7: but actually quite important, anything that is the commerce is 489 00:22:35,640 --> 00:22:38,040 Speaker 7: already appropriated, it's spending that that they've already appropriated that 490 00:22:38,080 --> 00:22:41,040 Speaker 7: gets then kind of cutter are paired back by DOGE, 491 00:22:41,320 --> 00:22:43,520 Speaker 7: that does not go to the Treasury General account, that 492 00:22:43,560 --> 00:22:46,360 Speaker 7: does not go to pay off the deficit that by 493 00:22:46,480 --> 00:22:49,399 Speaker 7: law goes with basically a checking account within that agency 494 00:22:49,600 --> 00:22:51,920 Speaker 7: and has to sit there for five years. This I 495 00:22:51,920 --> 00:22:55,439 Speaker 7: don't think necessarily the market you know, understands that means 496 00:22:55,480 --> 00:22:58,159 Speaker 7: that again these make goods sort of sexy headlines, if 497 00:22:58,160 --> 00:23:01,919 Speaker 7: you will, But in terms of actual deficit reduction, you know, 498 00:23:01,960 --> 00:23:04,080 Speaker 7: we haven't we don't haven't seen that yet, and you 499 00:23:04,200 --> 00:23:07,080 Speaker 7: have to get that enacted by Congress and. 500 00:23:07,000 --> 00:23:08,320 Speaker 6: Codified into le me. 501 00:23:08,400 --> 00:23:10,199 Speaker 2: It's good to see you it's always great to catch up. 502 00:23:10,280 --> 00:23:12,359 Speaker 2: Let me cancel there of Pincoke breaking things down on 503 00:23:12,440 --> 00:23:24,159 Speaker 2: both the trade front and the tax front. President Trump 504 00:23:24,160 --> 00:23:27,240 Speaker 2: reiterating his call for the Federal Reserve to cut interest rates, 505 00:23:27,359 --> 00:23:30,360 Speaker 2: Sonald Desire, Franklin Sempleton sticking with her call for at 506 00:23:30,359 --> 00:23:33,240 Speaker 2: most one rate cup this year rising. While tariffs and 507 00:23:33,359 --> 00:23:37,040 Speaker 2: immigration have come up front, concrete action on deregulation and 508 00:23:37,080 --> 00:23:40,159 Speaker 2: tax policy is expected to follow, and these are the 509 00:23:40,200 --> 00:23:44,200 Speaker 2: two elements that should help tilt growth and conveying inflation. 510 00:23:44,560 --> 00:23:46,280 Speaker 2: Son I'll joined us now for more, so now good 511 00:23:46,320 --> 00:23:48,639 Speaker 2: to see you. That's a more constructive view on US growth, 512 00:23:48,800 --> 00:23:50,120 Speaker 2: a lift to growth at the end of the year 513 00:23:50,160 --> 00:23:51,480 Speaker 2: potentially well, I don't. 514 00:23:51,320 --> 00:23:53,280 Speaker 8: Know whether we wait until the end of the year, 515 00:23:53,400 --> 00:23:58,480 Speaker 8: but a slightly more constructive view than perhaps some in 516 00:23:58,520 --> 00:24:00,679 Speaker 8: the market have taken. At the end of the day, 517 00:24:00,720 --> 00:24:04,880 Speaker 8: we've had a couple of months of definitely freezing up 518 00:24:05,119 --> 00:24:09,720 Speaker 8: as everyone looks at the sequencing being exactly the opposite 519 00:24:09,760 --> 00:24:11,480 Speaker 8: of what they would have liked to have seen, which 520 00:24:11,680 --> 00:24:14,320 Speaker 8: was the nice stuff first, and we didn't get it, 521 00:24:14,400 --> 00:24:18,920 Speaker 8: and we all expected it, and instead we got the complications, 522 00:24:19,160 --> 00:24:23,440 Speaker 8: the uncertainty, the changes by the Fridays to the Mondays 523 00:24:23,480 --> 00:24:26,840 Speaker 8: on what policy would be, which is which gives very 524 00:24:27,040 --> 00:24:28,800 Speaker 8: little visibility and markets aren't like that. 525 00:24:28,840 --> 00:24:30,680 Speaker 2: And yeah, even with that, bondio's to north of four 526 00:24:30,720 --> 00:24:33,240 Speaker 2: percent across the curve. Yes, so where will they be 527 00:24:33,280 --> 00:24:34,760 Speaker 2: as we work our way through the rest of twenty 528 00:24:34,800 --> 00:24:35,320 Speaker 2: twenty five. 529 00:24:35,640 --> 00:24:38,960 Speaker 8: So I'm not actually changing my call for fair value 530 00:24:38,960 --> 00:24:40,919 Speaker 8: on the tenure to be between four seventy five and 531 00:24:41,000 --> 00:24:44,119 Speaker 8: five here, and that is because I would anticipate that 532 00:24:44,200 --> 00:24:46,960 Speaker 8: we aren't actually at the point of an actual recession. 533 00:24:47,320 --> 00:24:49,680 Speaker 8: We're seeing a freezing up of growth, which and then 534 00:24:49,920 --> 00:24:52,520 Speaker 8: there's likely to be a catch up if we actually 535 00:24:52,600 --> 00:24:56,200 Speaker 8: see the tax cuts and deregulations which were promised to us, 536 00:24:56,200 --> 00:24:58,760 Speaker 8: because those are growth positive. Now we can discuss the 537 00:24:58,840 --> 00:25:02,000 Speaker 8: long term impact on debt sustainability, et cetera, et cetera 538 00:25:02,040 --> 00:25:07,600 Speaker 8: of expanding tax cuts. But from the market's perspective and 539 00:25:07,640 --> 00:25:10,119 Speaker 8: this year, next year, it's positive before we get that. 540 00:25:10,320 --> 00:25:13,200 Speaker 4: What you're saying right now explains to me why yesterday, 541 00:25:13,320 --> 00:25:16,320 Speaker 4: on a day of maybe relief that there wasn't necessarily 542 00:25:16,359 --> 00:25:19,520 Speaker 4: another terraf anoalynced to potential softening in some of the terms. 543 00:25:19,520 --> 00:25:22,280 Speaker 4: We saw the biggest one day rally in high held 544 00:25:22,320 --> 00:25:25,440 Speaker 4: bonds going back to August of last year. It speaks 545 00:25:25,480 --> 00:25:28,320 Speaker 4: to the exactly what you're talking about, that people are 546 00:25:28,359 --> 00:25:30,400 Speaker 4: betting that we are not going to get a recession 547 00:25:30,760 --> 00:25:32,280 Speaker 4: and that risk your credit will do better. 548 00:25:32,720 --> 00:25:36,080 Speaker 8: I think essentially that is correct, because every time I 549 00:25:36,160 --> 00:25:40,560 Speaker 8: see the headlines on imminent recession, I look at those 550 00:25:40,920 --> 00:25:44,439 Speaker 8: fixed income risk assets, and as far as I'm concerned, 551 00:25:44,440 --> 00:25:47,760 Speaker 8: there's cognitive dissonance. Nobody's throwing out their risk assets on 552 00:25:47,840 --> 00:25:50,119 Speaker 8: the back of a recession, which if it were coming, 553 00:25:50,520 --> 00:25:52,720 Speaker 8: you would not see high yield spreads where they are. 554 00:25:52,800 --> 00:25:53,480 Speaker 1: You just couldn't. 555 00:25:53,760 --> 00:25:57,720 Speaker 8: And the fact is that the market participants are betting 556 00:25:57,880 --> 00:26:02,440 Speaker 8: on someone coming in an easing pressure on that tenure yield, 557 00:26:02,440 --> 00:26:07,000 Speaker 8: which I think is probably not appropriate. The Fed can't 558 00:26:07,000 --> 00:26:12,240 Speaker 8: do it, and despite discussions from Scott Lessened, there's an 559 00:26:12,359 --> 00:26:15,000 Speaker 8: absolute limit as to what he can do unless that 560 00:26:15,119 --> 00:26:16,040 Speaker 8: deficit comes in. 561 00:26:16,160 --> 00:26:17,320 Speaker 1: Okay, let's talk about that. 562 00:26:17,400 --> 00:26:19,399 Speaker 4: He actually came out and he had made a lot 563 00:26:19,440 --> 00:26:22,240 Speaker 4: of noise before he became Treasurer Secretary about Jennet Yellen 564 00:26:22,320 --> 00:26:24,640 Speaker 4: and her issuing war on the front end as being 565 00:26:24,680 --> 00:26:26,320 Speaker 4: a liability and not turning it out. 566 00:26:26,520 --> 00:26:27,879 Speaker 1: Then he came out and he said that he was 567 00:26:27,920 --> 00:26:28,320 Speaker 1: going to. 568 00:26:28,320 --> 00:26:31,000 Speaker 4: Keep that schedule of issuance in The market rallied because 569 00:26:31,000 --> 00:26:33,120 Speaker 4: there was a sense that he was sensitive to how 570 00:26:33,200 --> 00:26:36,000 Speaker 4: issuance would end up affecting bond yields. Why do you 571 00:26:36,000 --> 00:26:38,080 Speaker 4: think that's not enough at a time when that seemed 572 00:26:38,080 --> 00:26:39,120 Speaker 4: to be the biggest concern for. 573 00:26:39,080 --> 00:26:42,399 Speaker 8: People, Well, I think it shouldn't be the biggest concern 574 00:26:42,440 --> 00:26:44,520 Speaker 8: for people. That's number one, because actually what should be 575 00:26:44,520 --> 00:26:47,800 Speaker 8: the biggest concern for people is the sheer quantum of 576 00:26:47,840 --> 00:26:50,919 Speaker 8: the US fiscal deficit, which is enormous. And if we 577 00:26:51,000 --> 00:26:55,080 Speaker 8: get any piece of the additional tax cuts which Trump 578 00:26:55,200 --> 00:26:58,679 Speaker 8: promised President Trump promised Trump campaign, true, that deficit is 579 00:26:58,680 --> 00:27:03,320 Speaker 8: set to expand further. And I see so little appetite 580 00:27:03,560 --> 00:27:06,760 Speaker 8: for doing anything on what needs to be done to 581 00:27:06,960 --> 00:27:11,960 Speaker 8: constrain that deficit, which would be on significant pieces of expenditure. 582 00:27:12,160 --> 00:27:14,200 Speaker 8: And I'm not talking about doci, I'm talking about the 583 00:27:14,240 --> 00:27:16,040 Speaker 8: stuff entitlements. 584 00:27:16,200 --> 00:27:17,040 Speaker 1: That's the bottom line. 585 00:27:17,040 --> 00:27:19,600 Speaker 8: We're looking at twice the level of expenditure here in 586 00:27:19,600 --> 00:27:22,840 Speaker 8: the US that in terms of the deficit that we 587 00:27:22,920 --> 00:27:26,760 Speaker 8: had pre COVID, and most of that's coming from entitlement spending. 588 00:27:27,080 --> 00:27:30,600 Speaker 8: So no, I don't think that it was purely a 589 00:27:30,640 --> 00:27:33,840 Speaker 8: supply issue which was driving those yields up and down. 590 00:27:33,840 --> 00:27:34,560 Speaker 1: Given the deficit. 591 00:27:34,600 --> 00:27:36,840 Speaker 5: As a restraint, do you think that we only get 592 00:27:36,840 --> 00:27:39,360 Speaker 5: an extension of TCJA then, and none of the extras 593 00:27:39,400 --> 00:27:41,520 Speaker 5: that Trump did promise on the campaign trail. 594 00:27:43,040 --> 00:27:46,480 Speaker 8: That's a really tough call because he hasn't talked as 595 00:27:46,560 --> 00:27:49,640 Speaker 8: much on taxes as he's spoken on everything else, which 596 00:27:49,680 --> 00:27:52,639 Speaker 8: we wish you wouldn't keep speaking about in terms of 597 00:27:52,760 --> 00:27:56,000 Speaker 8: tariffs and so on and so forth, but he hasn't 598 00:27:56,000 --> 00:27:58,960 Speaker 8: spoken as much. However, just I think a week or 599 00:27:58,960 --> 00:28:02,280 Speaker 8: ten days ago, he did and raise the idea of 600 00:28:02,600 --> 00:28:05,920 Speaker 8: a full depreciation of capex within the first year. Now, 601 00:28:06,280 --> 00:28:09,800 Speaker 8: clearly that is unlikely to happen, but even a further 602 00:28:09,880 --> 00:28:14,159 Speaker 8: reduction in the amount of time that capex can be depreciated, 603 00:28:14,400 --> 00:28:16,560 Speaker 8: I think would be viewed as a positive, in part 604 00:28:16,600 --> 00:28:19,760 Speaker 8: because nobody would see it as truly permanent, so you 605 00:28:19,800 --> 00:28:23,159 Speaker 8: could see an immediate reaction of firms stepping in to 606 00:28:23,240 --> 00:28:26,840 Speaker 8: do planned capex. It happened last time around, because there's 607 00:28:26,880 --> 00:28:31,679 Speaker 8: no true belief that under a different administration some of 608 00:28:31,720 --> 00:28:36,480 Speaker 8: these benefits wouldn't be taken away. So yeah, I think 609 00:28:36,560 --> 00:28:41,120 Speaker 8: some of them directionally probably have to happen beyond that 610 00:28:41,600 --> 00:28:42,200 Speaker 8: main piece. 611 00:28:42,400 --> 00:28:44,520 Speaker 2: Some people have been surprised by these sacred thing They 612 00:28:44,560 --> 00:28:46,720 Speaker 2: might also have been surprised by how other countries have 613 00:28:46,760 --> 00:28:51,040 Speaker 2: responded to this, specifically Germany, Germany and Europe robatico want 614 00:28:51,040 --> 00:28:54,360 Speaker 2: a spending spray, an unexpected spending spray. How has that 615 00:28:54,440 --> 00:28:56,000 Speaker 2: changed your outlet for fixed income? 616 00:28:56,960 --> 00:28:58,320 Speaker 1: So here's the thing. 617 00:29:00,000 --> 00:29:01,720 Speaker 8: I think maybe a dozen years from now, we're all 618 00:29:01,720 --> 00:29:03,760 Speaker 8: going to look back and say, okay, so the last 619 00:29:04,320 --> 00:29:10,160 Speaker 8: fiscal non reprobate standing was pushed down and we all cheered. 620 00:29:10,600 --> 00:29:14,640 Speaker 8: Germany was literally the only country amongst the developed advanced 621 00:29:14,640 --> 00:29:17,880 Speaker 8: economies which wasn't spending as if it was going out 622 00:29:17,880 --> 00:29:18,280 Speaker 8: of style. 623 00:29:18,520 --> 00:29:19,080 Speaker 1: Here's the thing. 624 00:29:19,320 --> 00:29:23,560 Speaker 8: Mechanically, yes, growth goes up, but the multiplier attached to 625 00:29:23,600 --> 00:29:26,520 Speaker 8: defense spending is incredibly small. 626 00:29:26,720 --> 00:29:29,040 Speaker 1: So it's not as if this is going. 627 00:29:28,920 --> 00:29:33,719 Speaker 8: To trigger a wave of structural reform innovation which puts 628 00:29:34,000 --> 00:29:39,600 Speaker 8: Germany onto this incredibly better growth path into the I 629 00:29:39,600 --> 00:29:42,200 Speaker 8: don't know, indefinite future, which is what you'd want to see. 630 00:29:42,880 --> 00:29:45,280 Speaker 8: The last thing is I think it's highly unlikely that 631 00:29:45,320 --> 00:29:47,800 Speaker 8: we're going to see it just actually being able to 632 00:29:47,880 --> 00:29:52,920 Speaker 8: absorb those funds into the German economy or any other economy. 633 00:29:53,000 --> 00:29:55,160 Speaker 8: It's not the it's not the flick of a switch. 634 00:29:55,440 --> 00:29:59,560 Speaker 8: You can't suddenly ask Porsche to start making thanks. It 635 00:29:59,600 --> 00:30:01,800 Speaker 8: doesn't happened that quickly, is all. 636 00:30:02,240 --> 00:30:03,760 Speaker 1: I just think these things take time. 637 00:30:04,120 --> 00:30:08,480 Speaker 8: So some of what we've seen in the reaction of 638 00:30:08,520 --> 00:30:10,080 Speaker 8: the market seems to be somewhat over. 639 00:30:10,120 --> 00:30:12,920 Speaker 2: We don't want Porsche building tags son, I'll desire Franklin 640 00:30:12,960 --> 00:30:15,480 Speaker 2: several sent not buying the happy talk out of Germany. 641 00:30:16,280 --> 00:30:19,840 Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best 642 00:30:19,880 --> 00:30:23,200 Speaker 2: in markets, economics, antient politics. You can watch the show 643 00:30:23,240 --> 00:30:26,200 Speaker 2: live on Bloomberg TV weekday mornings from six am to 644 00:30:26,320 --> 00:30:30,080 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 645 00:30:30,240 --> 00:30:32,440 Speaker 2: or anywhere else you listen, and as always, on the 646 00:30:32,440 --> 00:30:34,880 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.