Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Pina Cheer of
Speaker 2: Academy Securities, writing for the first time in weeks, I'm
Speaker 2: optimistic about the outlook for the economy and for markets,
Speaker 2: but it is tempered slightly by all the measures it
Speaker 2: took to get here. Pete joins us now for more
Speaker 2: peak and Morning Morning. Where's the encouragement come from?
Speaker 3: Well, first, I wrote that like at nine am on Sunday, So.
Speaker 4: I'm buying not quite.
Speaker 5: As encouraged as I was.
Speaker 6: For me.
Speaker 3: What I would really like to say see is a
Speaker 3: true pivot towards domestic growth. Right, Let's get the chipsacked
Speaker 3: money out there, you know, last Thursday at the cabinet meeting,
Speaker 3: a couple of the people talked about shipbuilding. I think
Speaker 3: we have to spend some money do some things domestic growth,
Speaker 3: long term contracts. Either with shipbuild there's something to you know,
Speaker 3: that we can really get our hands around and grow,
Speaker 3: build up manufacturing without necessarily having to fight with the
Speaker 3: rest of the world.
Speaker 5: Do you think it slightly We'll see that.
Speaker 3: I'm increasingly dubious. I did not, like, you know, all
Speaker 3: the mixed messaging we got on tariffs over the weekend,
Speaker 3: right from Friday night, no exception exemptions to more exemptions.
Speaker 3: And I think I'm a little bit worried about bond
Speaker 3: yields as a whole. Partly I do think foreigners should
Speaker 3: be selling. I think you can get better yield than
Speaker 3: your own country. There's all this talk about, you know,
Speaker 3: potentially fees on foreign holdings mar Alago Accord. But beyond that,
Speaker 3: if you just take away, I think we missed three
Speaker 3: things last week. The budget for the military. Trump wants
Speaker 3: to do a trillion instead of eight hundred billion. That's
Speaker 3: going to add to the budget. We just had very
Speaker 3: large debt ceiling raises that gives them the opportunity. And finally,
Speaker 3: dose the Thursday More Cabinet meeting basically said they're targeting
Speaker 3: one hundred and fifty billion for this year instead of
Speaker 3: a trillion, and places like the Wall Street Journal things
Speaker 3: are reporting that they can't even come up with one
Speaker 3: hundred and fifty billion. So we are not on the
Speaker 3: right track on the deficit, which I think was everyone's
Speaker 3: big hope. So I think bond yields lead US lower
Speaker 3: across the board right now, until we do something domestic
Speaker 3: to help.
Speaker 1: Growth, bond yields lead US lower.
Speaker 6: Can you elaborate on that?
Speaker 1: By the way, coming out and saying that you're optimistic
Speaker 1: and then this litany of negatives really is just you know, yes,
Speaker 1: which gives you a thing change so quickly things are
Speaker 1: so what are you?
Speaker 3: And I was very, very very so I was thinking,
Speaker 3: you know, we were like heading towards twenty percent down
Speaker 3: from here, it feels like it might be more controlled.
Speaker 3: I will watch very closely today this. You know, when
Speaker 3: we went through the GFC and even the European debt crisis,
Speaker 3: one thing that always struck me as key when we
Speaker 3: moved to a new leg of the problem was you'd
Speaker 3: get the announcement you were hoping for, so in this case,
Speaker 3: tariff exemptions, and if you don't last a full day
Speaker 3: on the rally, it tends to mean the market's now
Speaker 3: looking through that and saying, Okay, yeah, these exemptions whatever,
Speaker 3: let's what we actually have on the table. And it's
Speaker 3: a lot of problems out there. And the other part
Speaker 3: that makes me a little bit nervous that I think
Speaker 3: we'll see is if we stick to tariff deals. I
Speaker 3: think teriff deals are easy. I think we're going to
Speaker 3: go after trade deals, and to me, trade deals will
Speaker 3: require import quotas something like that on behalf of these
Speaker 3: other countries and possibly restrictions on what they can do
Speaker 3: with China. I don't think that's going to be that
Speaker 3: easy for them to digest. So I think we'll learn
Speaker 3: a lot more in the next coming this week about deals.
Speaker 3: Tariff deals, I'm comfortable with it goes down trade deals,
Speaker 3: I think we take another leag lower.
Speaker 1: You know, I've seen somebody notes where people talk about
Speaker 1: how exhausted they are and how stressful this period is,
Speaker 1: and I was thinking about why, and there's this flood
Speaker 1: of information and it's hard to understand what structure to
Speaker 1: even put them in. What have we learned versus just
Speaker 1: tidbits of information that are coming in at you in
Speaker 1: rapid fire. Have we learned anything from the turmoil of
Speaker 1: the past week. Are we passed peak uncertainty and heading
Speaker 1: into something that we can more concretely hold.
Speaker 3: So the biggest thing for me that I can't quite
Speaker 3: figure out, and I think is really critical, is did
Speaker 3: China get sucked into being more aggressive on tariffs by
Speaker 3: how we play this out. Did we make it look
Speaker 3: like it was the US versus everyone China was more
Speaker 3: aggressive and now regrets it, Or did we learn that
Speaker 3: China really doesn't care, that China spent four years preparing
Speaker 3: for this and is really ready for the fight.
Speaker 4: I lean towards the ladder.
Speaker 3: I will give the people who talk about, you know,
Speaker 3: out of the deal in forty chess, that it could
Speaker 3: be the former, and I it's the former, that's great
Speaker 3: because China will have to back off.
Speaker 5: It was the ladder.
Speaker 3: We're not really prepared for this at all.
Speaker 2: And place you went there is there any sign that
Speaker 2: China's coming to the tango? Do you see an I
Speaker 2: think it's so no.
Speaker 3: I think you know we have to go back and
Speaker 3: we're about fifteen percent of China's exports, and you know,
Speaker 3: I think they exempted twenty five percent, whether it last
Speaker 3: or not, but I think that's also looking at it
Speaker 3: on the raw dollar value. I think from a profit margins,
Speaker 3: you know, we exempted probably China's most profitable things that
Speaker 3: they export to US. I don't see them come to
Speaker 3: the table. I see the rest of the world talking
Speaker 3: to them. We've been so, you know, which is very dangerous.
Speaker 3: And again, if you're in that part of the world, you.
Speaker 5: Probably have to play nice with China.
Speaker 3: Their military is there, their nave growing, It's unclear what
Speaker 3: direction Trump wants to go on some of that, and
Speaker 3: the rest of the world I think is very tired.
Speaker 3: The uncertainty doesn't do well, and everyone knows it's going
Speaker 3: to take years to rebuild manufacturing, which is why I
Speaker 3: go back to I'd be much more optimistic if we
Speaker 3: started doing things domestic. Maybe we buy ten billion dollars
Speaker 3: of navy ships, but they have to be built in
Speaker 3: the US shipyard, and that's going to be ten years
Speaker 3: of delivery, but it can start that process.
Speaker 2: We've talked a lot about the pressure that it's put
Speaker 2: on Europe, and it's push Europe to do things that
Speaker 2: is good for Europe. And I just wonder if this
Speaker 2: pushes China to do things that is good for China
Speaker 2: in line with what the President would actually like to
Speaker 2: say from China, which is a rep banasy the economy
Speaker 2: towards domestic consumption.
Speaker 5: Are you hopeful?
Speaker 3: No, I just don't think Chinese consumed the way we do.
Speaker 3: I think, like quite frankly, no one consumes the way
Speaker 3: the US does. We consume a lot, and that's another
Speaker 3: concern about the economy. Right We're seeing some delinquencies tick
Speaker 3: up with all this uncertainty. I think China's going to
Speaker 3: try and do what they do trade with the rest
Speaker 3: of the world, trade with us, and we're going to
Speaker 3: figure out where they have the opportunities. Again, they've spilled
Speaker 3: the last ten years building up ninety percent of rarest
Speaker 3: and critical minerals are refined in China. We can get
Speaker 3: them anywhere. I think that's not the hard part, whether
Speaker 3: it's cost justified to get it anywhere, it's the refining,
Speaker 3: and again that's going to take years. So China is
Speaker 3: putting all this pressure on us. And again, this was
Speaker 3: ridiculous five years ago. When we talked about this at Academy, Securities,
Speaker 3: the number of things that are really critical to military
Speaker 3: equipment that we are getting from China when we were
Speaker 3: having all this friction with China was insane. So bringing
Speaker 3: those back makes sense. But we've done it in such
Speaker 3: a way that I think we've left ourselves vulnerable in
Speaker 3: the meantime.
Speaker 1: So it seems like we haven't really gotten much clarity
Speaker 1: when it comes to understanding the off ramp between US
Speaker 1: and China negotiations.
Speaker 6: We do have a sense.
Speaker 1: Though, of what that off ramp looks like for President
Speaker 1: Trump to cater to a market, specifically the treasury market.
Speaker 6: And I want to go back to something that.
Speaker 1: You said, which is that you think that the bond
Speaker 1: market is going to lead the rest of the market's
Speaker 1: lower from here. Have we learned something about where that
Speaker 1: Trump put is in terms of what kind of levels
Speaker 1: of bond heals get him nervous.
Speaker 5: A little bit?
Speaker 3: But I think it was very easy with all the
Speaker 3: noise last week to talk about this as being foreign selling.
Speaker 3: This basis trade unwinding, right, So you know, FED said
Speaker 3: they would you know, incur, you know, they would protect
Speaker 3: the bond market, which I think they will, they'll buy
Speaker 3: some here there. I don't think we're going QE, but
Speaker 3: I think it was very easy to think of this
Speaker 3: as a temporary thing. If the conversation starts turning as
Speaker 3: I think it might, that our deficit isn't going away,
Speaker 3: dose isn't being as successful as we wanted, we are
Speaker 3: not being spendthrift. I think that starts putting even domestic
Speaker 3: pressure on yous and people saying, well, maybe even with
Speaker 3: inflation coming down, we're not at the right level. So
Speaker 3: that to me would be a bigger problem, right, and
Speaker 3: it'd be hard them. So what can he do? I'm
Speaker 3: not sure at that point.
Speaker 1: Okay, so if you get to like four seventy five,
Speaker 1: if we get to five.
Speaker 3: I think they're begging to come up with structure.
Speaker 6: I don't know.
Speaker 3: I think they're begging the FED to work for And again,
Speaker 3: a lot of this happened overnight last time.
Speaker 6: If it starts happening more and more.
Speaker 3: During the day, that's where I think the fear comes out.
Speaker 3: But I don't know what he can do other than
Speaker 3: go keeping flip flopping on tariffs. And it feels like
Speaker 3: they're kind of tired of flip flopping. On TARRAF And
Speaker 3: the other part is with the sole deficit. Right, we
Speaker 3: were at one time and it was always confusing how
Speaker 3: much of that was going to be the case. But
Speaker 3: tariffs are going to help reduce our deficit. Well, if
Speaker 3: that income's not really coming in, where are they going
Speaker 3: to get other income? And I think they're going to
Speaker 3: target foreign holders of treasuries again, there's talk about, you know,
Speaker 3: delisting some of the Chinese ADRs.
Speaker 4: I don't see what.
Speaker 3: That really does at this point, but you know that
Speaker 3: probably triggers yet another response from China. And I just
Speaker 3: keep thinking that we expect China to make these simplified moves,
Speaker 3: and we've talked about this before. She has learned something
Speaker 3: Trump one point zero. She was the first one tomorrow lago.
Speaker 3: Every time Trump said tariffs, they raise their hand trade delegation.
Speaker 3: They have played this very differently. So just like Trump
Speaker 3: administration has had four years to plan this, China has
Speaker 3: had four years to plan this.
Speaker 5: And it's beginning to look.
Speaker 3: Like China spent a lot more time and money planning
Speaker 3: this than the US did.
Speaker 2: It doesn't look like a negotiation right now. In fact,
Speaker 2: at least when I were talking about this, yesterday. It
Speaker 2: looks like the US is negotiating potentially, but itself of
Speaker 2: the moment, you're not hearing much back from China.
Speaker 5: I wanted to finish on one final point with.
Speaker 2: You, because you've been very consistent about this, is we
Speaker 2: work our way through learning season.
Speaker 5: You've ready ready rised the.
Speaker 2: Flag about the damage being done to the American brand,
Speaker 2: not about the attractiveness of US assets, but the attractiveness
Speaker 2: of US goods, US services. How much damage has actually
Speaker 2: been done.
Speaker 3: I think we are going to see some of that,
Speaker 3: and it's this first wave is going to be a
Speaker 3: little bit difficult to tell whether it's just because of
Speaker 3: global economic weakness that foreign sales sell down, or you're
Speaker 3: going to have to start looking is there an indication
Speaker 3: that's ay Cadbury, for example, starts doing better than some
Speaker 3: of our brands overseas, and that I think will be
Speaker 3: the real key. Try and figure out pairs where Okay,
Speaker 3: here's a European or other brand and are there sales
Speaker 3: declining or changing relative to the US brands. And I
Speaker 3: think that would be a big shock to the system,
Speaker 3: because I do think people believe and you can see
Speaker 3: it in some of the price action today that there's
Speaker 3: just this huge demand for our brands globally and it's
Speaker 3: only being affected by tariffs. I think we've diminished that
Speaker 3: as part of this overall trading strategy, and that's going
Speaker 3: to be harmful, and I think we may even see
Speaker 3: some companies talk about it. I think it's too early
Speaker 3: this quarter, but as this goes on, I think that
Speaker 3: becomes an issue for the rest of the year.
Speaker 2: Interesting want to watch, Peter, it's going to see you.
Speaker 2: Thanks for dropping by bitter chair there and Academy Securities.
Speaker 2: If you look at for stability in the bond marketing,
Speaker 2: you've got it. At the moment, we're down across the board.
Speaker 2: Here across the curve, we're down six or seven basis
Speaker 2: points at the front end on a ten year maturity,
Speaker 2: the yield is down six to let's call it four
Speaker 2: forty three. Let's turn to the economy. US consumer sentiment
Speaker 2: falling to its second weakest reading on record, while inflation
Speaker 2: expectations saw to multi decade highs Nita Richardson of ABP, writing,
Speaker 2: inflation has made consumers cautious, but rising incomes can help
Speaker 2: cushion any tariff driven price increases if they come neither
Speaker 2: joined us now for more need a good morning. Let's
Speaker 2: just focus on the data and get away from the politics.
Speaker 2: Or income is still rising, you.
Speaker 7: Know, we're seeing that when we look at payroll at ADP,
Speaker 7: they're certainly rising, not as fast as they were two
Speaker 7: years ago, but at a healthy clip, faster than before
Speaker 7: the pandemic. There's also a different source of income that's
Speaker 7: really important to think about, which is the housing market.
Speaker 7: We get housing starts this later this week. Home equity
Speaker 7: for home owners is up almost nine percent from a
Speaker 7: year ago. So no, it's not the highest home equity
Speaker 7: we'd seen on record, but it's close. It's like the
Speaker 7: third highest, and so that's another level of question.
Speaker 6: I don't mean to be.
Speaker 7: Too polyann on a Monday, but I also want to
Speaker 7: give a real data reality check to all the uncertainty
Speaker 7: that's out there in the market.
Speaker 6: I was just going to say, you're not complying with
Speaker 6: the narrative. I love it.
Speaker 1: I think it's great, and I think it's good to
Speaker 1: push back against it because there's so much gloom and
Speaker 1: doom about companies who are frozen, who aren't going to
Speaker 1: be hiring, They're not going to be firing, but job
Speaker 1: mobility just isn't there. You're still seeing just some signs
Speaker 1: the consumers are maintaining resilience through other means, even with
Speaker 1: the stock market that may be rallied last week, but
Speaker 1: certainly didn't feel like it, and even with the idea
Speaker 1: that it might be harder to get a raise.
Speaker 7: I don't discount the sentiment because sentiment usually triggers certain behaviors.
Speaker 7: And you see downbeat sentiment with consumers, with homebuilders, with CEOs,
Speaker 7: everywhere you go. There is a pessimism in the outlook.
Speaker 7: But then when you turn to the raw data, this
Speaker 7: week is super important. Why this is the reference week.
Speaker 7: This is the week that the BLS will start counting
Speaker 7: the number of people who got paid for their employment report,
Speaker 7: and this is the week the ADP will report in
Speaker 7: of two weeks to talk about the labor market.
Speaker 6: And if you look at this week and you.
Speaker 7: Compare it to March, what you're seeing is that hiring
Speaker 7: is still solid. And if you look at one area
Speaker 7: of sentiment that is holding up worker sentiment, we're actually
Speaker 7: going to produce a worker sentiment index tomorrow, publish it
Speaker 7: at adpresearch dot com. What you'll see is that while
Speaker 7: consumers are downbeat, workers are highly engaged.
Speaker 6: They're plugged in.
Speaker 7: Maybe it's because they're cautious about their job loss, but
Speaker 7: they're showing off the hair or engaged, and they are
Speaker 7: productive and they're doing so because they want to make
Speaker 7: sure that they keep those jobs as they move into
Speaker 7: the rest of the year.
Speaker 1: So qui quitting has died basically is what you're saying,
Speaker 1: which is actually.
Speaker 6: Pursueing really welcome. That's fantasting less.
Speaker 1: I'm curious you say that hiring is remaining solid. Is
Speaker 1: it in specific industries they give you a sense of
Speaker 1: contentially whether this is a resilience factor or whether this
Speaker 1: is people getting old and needing to cater to them
Speaker 1: of getting fatter.
Speaker 7: Yeah, that's a great question, because we really do see
Speaker 7: a good news bad news scenario there. We're seeing hiring
Speaker 7: across firm sizes. That's good news, especially if you look
Speaker 7: at small businesses who are price takers in the global
Speaker 7: input market. We're seeing solid hiring across the board, but
Speaker 7: not every industry. In fact, if you look at consumer
Speaker 7: facing industries or somewhat discretionary like leisure and hospitality, it's
Speaker 7: been weaker. If you look at retail also weaker, so
Speaker 7: we're seeing hiring and ironically manufacturing. So we don't know
Speaker 7: if that's pull forward hiring they get ahead of some
Speaker 7: of these tariff and trade changes, or if this is
Speaker 7: a real rebound and we're seeing it in B to
Speaker 7: B services but not so much in consumer facing. In
Speaker 7: the series, that is a sea change, and it's tied
Speaker 7: directly to consumers and how they're feeling about the economy.
Speaker 2: You talked about the importance of expectations. Let's talk about
Speaker 2: how consumers are feeling about this economy. You med Channel
Speaker 2: Friday consumer sentiment almost three year low, inflation expectations, multi
Speaker 2: decade highs unemployment expectations the worst since two thousand and nine.
Speaker 2: Are you seeing anything in the hard data to validate
Speaker 2: consumer confidence that week? That poor that we saw on Friday.
Speaker 7: On the labor market, now, layoffs are at a two
Speaker 7: year low. They continue to hover around those two year
Speaker 7: lows in the private sector. Different for the federal government,
Speaker 7: but in the private sector, we are not seeing that
Speaker 7: kind of upturn and upheaval and pause and hiring that
Speaker 7: is being projected or picked up in the sentiment. Now,
Speaker 7: things can change rapidly I'm not saying that the outlook
Speaker 7: that we're seeing right now is going to be consistent
Speaker 7: six months from now. But if you're looking at the
Speaker 7: starting point in the baseline, you're seeing, and I think
Speaker 7: Chair Pal said this and his recent remarks, a labor
Speaker 7: market that is solid and continues to perform.
Speaker 2: Still this massive, massive sprint lace of bestween the soft
Speaker 2: and hot data. I keep going back to that headline
Speaker 2: from you, Mitch. To see unemployment expectations down at the
Speaker 2: worst levels we've seen since two thousand and nine is
Speaker 2: pretty staggerant.
Speaker 6: It was funny you were mentioned that. In the past
Speaker 6: couple of weeks.
Speaker 1: Lori Cavasina put that out in a report, saying that
Speaker 1: in all of the earnings calls also, corporate executives have
Speaker 1: been talking about how this reminds them of two thousand
Speaker 1: and eight, This reminds them of twenty twenty, This reminds
Speaker 1: them before that of the two thousands.
Speaker 6: You see that in the.
Speaker 1: AAII sentiment survey as well. So at a certain point,
Speaker 1: have we really reached a new paradigm shift though, where
Speaker 1: suddenly the soft data has not been predictive of the
Speaker 1: hard data. Are we going back to something more normal
Speaker 1: where you would normally see a correlation there.
Speaker 2: So the Federal Reserve is not blinking and Native the
Speaker 2: Federal Reserve will be meeting in early May. That meeting
Speaker 2: and Cluthes, we'll get that decision on May seventh. What
Speaker 2: you make have kind of navigated things so far and
Speaker 2: what would you expect to see in a few weeks time.
Speaker 7: I think the Fed is navigated the way Main Street has.
Speaker 7: They're waiting and watching. There hasn't been any big money
Speaker 7: moves that we can identify, and I think it's too
Speaker 7: early on the policy front to make any firm movements.
Speaker 7: And that's what you're seeing from the FED. But it's
Speaker 7: also what you're seeing from small businesses and medium sized
Speaker 7: businesses who can't change operations on a dime. Consumers can't
Speaker 7: change spending patterns on a dime. So what you're seeing
Speaker 7: is an economy that started from a solid baseline in
Speaker 7: wait and see mode, just like the FED.
Speaker 1: You know, there is this discussion that we had and
Speaker 1: it was off air, about whether this FED is going
Speaker 1: to be really just targeting dysfunction in the treasure market
Speaker 1: or whether they actually were going to be looking at
Speaker 1: levels we're not going to close the spreads until the
Speaker 1: spreads get too wide, and then we're going to close them,
Speaker 1: akin to maybe what the ECB has been doing. I
Speaker 1: am curious about this theory that Neil Koshkari put out
Speaker 1: over the weekend saying that we at the FED have
Speaker 1: no ability, zero ability to affect that destination of your
Speaker 1: yields as investors try to get some sort of price
Speaker 1: discovery here. Do you believe that or do you think
Speaker 1: that there is a level at which they do step in.
Speaker 7: Well, I think this comes to your sentiment momentum distinction.
Speaker 7: I mean, the FED operates at the short end of
Speaker 7: the curve.
Speaker 6: That is their mandate, and.
Speaker 7: So I think if you take the literal interpretation of
Speaker 7: the Fed's actions, yes, they are not responsible for the
Speaker 7: longer end of the curve. But we know that the
Speaker 7: FED has a huge sentiment role in all of us
Speaker 7: in itself, and just by their forward guidance, they can
Speaker 7: change the way the bond market reacts. So yes, and no,
Speaker 7: pardon thoft, we're still back in that distinction.
Speaker 1: So I guess to sum it all up, do you
Speaker 1: see the unemployment rate rising quickly enough to get the
Speaker 1: FED engaged in terms of cutting rates or having some
Speaker 1: sort of stimulative effort in the near term, in the
Speaker 1: next two weeks, the next three weeks before, or the
Speaker 1: next two months, right before the economy really can turn.
Speaker 6: Not in the next month.
Speaker 7: No, we have not seen the transmission mechanism multiply to
Speaker 7: an effect that it hits the real economy in a
Speaker 7: way that you would see the kind of staggering job
Speaker 7: loss that would justify on its own a rate.
Speaker 6: Moved by the Fed.
Speaker 7: The labor market is still holding up two hundred and
Speaker 7: nine thousand private sector jobs created according to the federal
Speaker 7: government last month. That's not going to be a downbeat
Speaker 7: measure by anyone's estimation.
Speaker 2: NATA, it's going to say, as always, thanks for dropping
Speaker 2: by NATA. Riches in that of IDP, go to surround
Speaker 2: a Tengo here in New York, Hendrida Trice.
Speaker 5: If I had to promise Hendra go to see you.
Speaker 5: Let's just get to this.
Speaker 2: I'll be allowed exemptions or not do they exist?
Speaker 8: I mean under the AEPA tariffs that went on that
Speaker 8: are already at twenty percent, there are no exclusions except
Speaker 8: in the case of like if you're giving a donation
Speaker 8: from a religious and the semiconductors are tariff, the pharmaceuticals
Speaker 8: are tariff. Everything coming in four hundred and ninety eight
Speaker 8: billion dollars is effectively tariff.
Speaker 6: So it's just going to get worse from.
Speaker 2: Here with similar with all these different buckets. Speaking of
Speaker 2: getting worse sectoral tariffs, what would they look like and
Speaker 2: when would they be announced?
Speaker 8: So I think that the two two tariffs are the
Speaker 8: most pernicious kind that we can get, and in the
Speaker 8: twenty twenty five environment, thirty day comment periods are pretty much.
Speaker 6: All we should expect.
Speaker 8: We saw with the auto investigation back in twenty nineteen,
Speaker 8: was it that they don't even necessarily release the investigation
Speaker 8: after it's confirmed.
Speaker 6: You know, they're just putting these tariffs on.
Speaker 8: So I think for pharma and for semiconductors, the worst
Speaker 8: case scenario is that sometime in this thirty sixty ninety
Speaker 8: day window, the tariffs go on, the comment period happens,
Speaker 8: and the tariffs are on.
Speaker 6: Before the summer.
Speaker 1: What's the strategy here, That's a great question.
Speaker 8: I mean, they want pharmaceutical manufacturer back in the United States.
Speaker 8: We know that that takes five to seven years to
Speaker 8: get the various approvals for even opening the facility, let
Speaker 8: alone having the workers come in and actually do the
Speaker 8: manufactur on those kinds of products. I think that the
Speaker 8: semiconductor space is exactly the same. When I'm on calls
Speaker 8: with investors, they're talking about, Thank goodness we had the
Speaker 8: investment from the last administration into semiconductors, from the Chips
Speaker 8: and Sciences Act of Bipartison.
Speaker 6: Build it passed years ago.
Speaker 8: To keep providing any kind of support to the industry
Speaker 8: because it's going to get slamed from the tariffs.
Speaker 1: I'm just asking, because the complications here are pretty dramatic.
Speaker 1: Trying to keep track of which tariffs have gone on.
Speaker 1: Where is a gold task when you try to talk
Speaker 1: about what the actual effective tariff freight is, let alone,
Speaker 1: how you plan for the future and what that could
Speaker 1: be with additional rounds of tariffs coming on.
Speaker 6: What are people telling you?
Speaker 8: That's the stories that I hear the most are the
Speaker 8: anecdotal data points. As you were talking before about connecting
Speaker 8: the soft data to the hard data. The bankruptcies that
Speaker 8: they're expecting, the seizing up at the ports, the manufacturers halting, hiring,
Speaker 8: halting production, keeping their products on ships.
Speaker 6: In cargo ships.
Speaker 8: There's a lot of reminiscing about covid era when the
Speaker 8: ships were just in the port. We're going to have
Speaker 8: to all go back to like monitoring the Pacific Ocean
Speaker 8: and see what.
Speaker 6: Kind of fleets are out there.
Speaker 8: That's what folks are talking about now and anticipating seeing
Speaker 8: in the hard data in the next couple weeks.
Speaker 2: It just got a message from a Limbug subscriber. This
Speaker 2: sounds very chaotic. The market seems to have price peak,
Speaker 2: chaos is behind us.
Speaker 5: What are we missing? What are we missing?
Speaker 8: I don't think the stories have come out yet about
Speaker 8: how this is going to impact actual domestic manufacturers who
Speaker 8: rely on foreign imports. You were mentioning critical minerals before.
Speaker 8: How are you supposed to make your windshield wiper sensors
Speaker 8: if you don't have the magnets that go into it.
Speaker 8: So if you stockpiled enough in the last couple of
Speaker 8: months to get in around that, you have some certainty
Speaker 8: for a couple of weeks. But it's not a sustainable situation.
Speaker 8: I think the hard data is going to come out
Speaker 8: next for the next couple of weeks and months, and
Speaker 8: these tariffs are not going to come off, especially if
Speaker 8: they're done during under two thirty two, those are the
Speaker 8: most pernicious.
Speaker 6: Three oh one is pernicious. I mean these have real
Speaker 6: standing power for years, and.
Speaker 2: Then we need some relief taxes. What's changing with the
Speaker 2: tax push at the moment?
Speaker 8: Man, You know how I feel about this. The tax
Speaker 8: component they're now President Trump is talking about is tax
Speaker 8: cuts and deregulation. You are not permitted to pass deregulation
Speaker 8: via reconciliation instructions, and Democrats will not be working with
Speaker 8: Republicans on a crypto bill or any other deregulatory legislation.
Speaker 6: So unless you like the emission standards.
Speaker 8: Components which are going to get produced in a what
Speaker 8: seventy five dollar barrel oil situation, you're not going to
Speaker 8: see a deregulatory push anytime this year, and certainly not
Speaker 8: until you get certain agency officials seated in their positions.
Speaker 6: In the first place.
Speaker 8: And then the tax bill I think is going to
Speaker 8: take until the end of July, and as you know,
Speaker 8: it includes four trillion dollars in deficit increases and very
Speaker 8: little in the way of new stimulus. So I think
Speaker 8: there's a disconnect between the narrative and reality.
Speaker 1: Given that is there a loss of power that Trump
Speaker 1: is having or a loss of a clutch over the
Speaker 1: Republican House Caucus.
Speaker 6: I don't buy that argument.
Speaker 8: They passed the budget vote last week, and I think
Speaker 8: that was the biggest hurdle. The next step is are
Speaker 8: you going to vote for tax increases on every single American?
Speaker 6: Or are you going to vote for this bill? And
Speaker 6: that's a cut and dry. The whip is easy. All
Speaker 6: members are going to support that.
Speaker 1: There is a theory that if things get chaotic enough,
Speaker 1: and if some of these proposals are outrageous enough, there
Speaker 1: is going to be the ultimate check, which is going
Speaker 1: to come by congressional action against some of these tariffs
Speaker 1: or potentially a court action. Do you see any pathway
Speaker 1: to that or are people just wishful thinking?
Speaker 9: No?
Speaker 8: I see no path for that either. If you can
Speaker 8: get six or seven Republicans to join on to a
Speaker 8: Senate bill, that is wildly insufficient. I think that President
Speaker 8: Trump needs these members through this budget vote that happened
Speaker 8: last week, and now through you know, let's call it
Speaker 8: Memorial Day or July to pass this tax bill, and
Speaker 8: then he doesn't need them at all, and no legislation
Speaker 8: is going to pass.
Speaker 6: There will be no Reconciliation Authority. There will be no
Speaker 6: more legislation, which.
Speaker 8: Is, by the way, the playbook from the first term,
Speaker 8: where we got a tax bill initially and then spent
Speaker 8: the next three years doing tariffs.
Speaker 6: And that's what I expect here.
Speaker 2: Just quickly we have the point where they're all quote
Speaker 2: saying treasury yields to each other down on campbel Hill.
Speaker 5: No way, not that yet.
Speaker 6: I'm not sure we'll ever be there. I wouldn't expect that.
Speaker 2: I hope we never get that, because if we get that,
Speaker 2: we've got major problems.
Speaker 1: Yeah, at one level, I kind of hope that they
Speaker 1: do pay attention because it does actually matter suddenly, if
Speaker 1: you have a fifty basis point increase in tenure yields,
Speaker 1: that increases by billions of dollars the.
Speaker 6: Amount of the United States is paying. So I hope
Speaker 6: they do quote those treasure yields.
Speaker 1: Congress Members, if you are listening, please get a Bloomberg
Speaker 1: termin'll take a look at that ten yure yield, take
Speaker 1: a look at a thirty year yield.
Speaker 2: That's a sales pitch. I'm right there with you, and
Speaker 2: please get that Bloomberg terminal. Clearly, the President was looking
Speaker 2: very closely last weekend coming into the trade and weak.
Speaker 1: Yeah, I got yippie people got a little nervous. But
Speaker 1: he dealt with that in one statement, and that's what
Speaker 1: he said. The issue is, do we have a true
Speaker 1: sense of where that Trump put is.
Speaker 6: Do we have a sense of what level, what type of.
Speaker 1: Chaosk potentially end up dealing with some sort of response
Speaker 1: from this administration.
Speaker 2: Henry answer, it's good to see you. Thanks, thanks for
Speaker 2: dropping by. Thank you, Henry to trace their evde upon visit.
Speaker 2: Dorman Sachs adding to banking optimism after posting a record
Speaker 2: revenue hall from its equity trading unit.
Speaker 5: The stock is up by two percent.
Speaker 2: To discuss some place to say is David Edison of
Speaker 2: Fannessy Funds. David, Welcome to the program, sir, appreciate getting
Speaker 2: some time with you. We've heard from Jape, Morgan from
Speaker 2: Morgan Stanley from Goldman. How would you grade the quarter
Speaker 2: so far?
Speaker 9: Well, the quarters were great. I think the industry is
Speaker 9: showing that they have done a great job of dealing
Speaker 9: with credit and liquidity and capital managing the buybacks. So
Speaker 9: I think the you know, it's like that's all in
Speaker 9: the past, unfortunately, but I do think the industry is
Speaker 9: in great shape to weather what's ahead. I think your
Speaker 9: conversation with Gerard Cassie this morning sort of put it
Speaker 9: in focus. But I think the industry is in great shape.
Speaker 9: Doesn't mean the stocks are going to double or triple
Speaker 9: or go down fifty percent, but I think as an
Speaker 9: industry they're ready for whatever happens in Washington.
Speaker 2: I think let's talk about that as a portfolio manager,
Speaker 2: just how defensive do these names trade in growth scares?
Speaker 2: And how has that changed over the last decade.
Speaker 9: Say, well, I think since you know, two thousand and eight,
Speaker 9: we've been worried about a credit cycle, worried about a
Speaker 9: rate cycle.
Speaker 4: We've had an inverted curve.
Speaker 9: So the financials have been, you know, frankly not the
Speaker 9: place to be for ten or twelve years, and I
Speaker 9: think the color of my hair shows it. So I
Speaker 9: think the hope is that as we go forward here,
Speaker 9: there's going to be a you know, a little less
Speaker 9: pressure on them as they you know, in a sense,
Speaker 9: the terrorists are not attacking financial services products.
Speaker 4: They're attacking physical goods, and so.
Speaker 9: I think people maybe are going to be more worried
Speaker 9: about the physical good traders and makers than they are
Speaker 9: about the financial guys. So we'll see. I mean, Wall
Speaker 9: Street finds a way to make money in all environments.
Speaker 9: People need to lend money to grow. The economy is
Speaker 9: not going to go to zero, and so I think,
Speaker 9: you know, these companies could be the safe harbor that
Speaker 9: they haven't been for the last ten or twelve years.
Speaker 1: David, the narrative around banks has shifted. At the beginning
Speaker 1: of this year, it was the growth stock, given the
Speaker 1: fact that there was supposed to be a wave of
Speaker 1: deregulation as well as a boom in mergers and acquisitions
Speaker 1: and all sorts of deals. Now it's a defense stock,
Speaker 1: where suddenly banks are buying back their own shares and
Speaker 1: pretty large quantities. We just heard about a forty billion
Speaker 1: dollary purchase from Goldman Sachs.
Speaker 6: Which is it? Is it defense or offense?
Speaker 9: Well, when you sort of have one guy deciding what
Speaker 9: the world trade environment's going to be and a bunch
Speaker 9: of other stuff, I think, you know, you look for
Speaker 9: defensive names, and that means you look for a good
Speaker 9: balance sheets, You look for capital, you look for liquidity,
Speaker 9: and you look for good managers. And I think the
Speaker 9: banks have that and so you know, this weekend was
Speaker 9: pretty quiet on the Washington front. So the market's up.
Speaker 9: So I think the general move of the market, I
Speaker 9: think is, you know, the market generally wants to go
Speaker 9: up in my view, and it's being held back by
Speaker 9: sort of one guy making decisions about how the world's
Speaker 9: going to function, and that I think will calm down
Speaker 9: and we'll I think we'll be okay.
Speaker 4: On the other.
Speaker 1: Side, another way of sort of approaching the same question
Speaker 1: is which banks are best positioned for the next phase
Speaker 1: of whatever is to come. Is it the ones who
Speaker 1: are going to benefit from volatility and markets trading revenues,
Speaker 1: some of the potential other opportunities there, or is it
Speaker 1: going to be the lenders the Bank of Americas They're
Speaker 1: going to go out and actually be able to create
Speaker 1: credit at a higher rate based on where the treasure
Speaker 1: yield is right now.
Speaker 9: Well, I think one of the concerns I think that's
Speaker 9: coming up on the analysts that I've talked to and
Speaker 9: the companies that I talked to prior to earnings was
Speaker 9: that is this disruption going to really hurt small business
Speaker 9: and therefore hurt the lending of the traditional banks that
Speaker 9: we haven't heard from.
Speaker 4: Yet, but we will in the next in the coming weeks.
Speaker 9: I think the big banks, you know, they have the earnings,
Speaker 9: they have the in the sense network effect of having
Speaker 9: a lot of customers and a lot of data inputs
Speaker 9: about what's going on. But I think the overriding thing
Speaker 9: about this industry is that we need new products, we
Speaker 9: need innovation, and we need companies to do transformative acquisitions
Speaker 9: to kind of get them back on a growth path.
Speaker 9: They've lost so much share on the lending side to
Speaker 9: private equity and private debt and other sources of income
Speaker 9: that the loans just don't grow anymore, and so they
Speaker 9: need to do other things to get out of that
Speaker 9: box that they're in. And hopefully that will happen as
Speaker 9: we move forward with the new administration.
Speaker 2: We've had lots of people say the same thing, that
Speaker 2: we're expecting consolidation, particularly between the regionals and the smaller lenders. David,
Speaker 2: what are you anticipating for the year ahead on that front, Well, it.
Speaker 9: Started off pretty good. I think that, you know, I
Speaker 9: don't think that's.
Speaker 4: Going to stop.
Speaker 9: I don't think whatever the administration is doing now is
Speaker 9: going to stop that. I think at the end of
Speaker 9: the day, the smaller banks know that they're losing share.
Speaker 9: They can't invest in technology, it's hard for them to
Speaker 9: compete with these new platforms that seem to be popping
Speaker 9: up every day. They're competing for deposits and loans, and
Speaker 9: so they need to get bigger. And that's, you know,
Speaker 9: sort of the process that you see that in the marketplace.
Speaker 9: The bigger companies have the higher valuations and the smaller
Speaker 9: companies are going to being left behind. So I think
Speaker 9: the market is telling you something and hopefully the managers
Speaker 9: are hearing that and seeing it.
Speaker 2: David, appreciate your time. Tricky moment for you all, I'm sure,
Speaker 2: David Allison of Fantasy Funds. This is the Bloomberg Seventans podcast,
Speaker 2: bringing you the best in markets, economics, antient politics. You
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Speaker 2: out
Speaker 3: Mm hmm.