WEBVTT - ICYMI: More Trump Market Volatility 

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg BusinessWeek

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<v Speaker 1>with Carol Masser and Tim Steneveek on Bloomberg Radio.

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<v Speaker 2>The market chaos unleashed by Donald Trump's trade war continued

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<v Speaker 2>for a third day, as stocks, bonds, and commodities all

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<v Speaker 2>swung wildly, buffeted by both fears of a recession and

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<v Speaker 2>speculation the financial damage will drive him to change course.

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<v Speaker 2>Let's bring in Cheryl Smith. She's an economist and portfolio

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<v Speaker 2>manager at Trillium. Cheryl, good to have you with us.

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<v Speaker 2>The market pain, if you're long in this market that

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<v Speaker 2>we've seen has been caused by concern around tariff policy.

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<v Speaker 2>I think many people would argue this is self inflicted.

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<v Speaker 2>Do you think this continues or do you think that

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<v Speaker 2>the president will change course.

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<v Speaker 3>I think that this chaos that we're seeing is going

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<v Speaker 3>to continue. For whatever reason, Trump likes to work in chaos.

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<v Speaker 3>He appears to think that it keeps people on their

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<v Speaker 3>back foot and that he can gain some kind of

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<v Speaker 3>advantage from it. So the tariff policy really couldn't have

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<v Speaker 3>been constructed more perfectly to create tariff He puts them on,

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<v Speaker 3>he takes them off, he puts the money takes them off,

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<v Speaker 3>and then there was a false rumor today that he

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<v Speaker 3>was going to delay them by ninety days, where we

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<v Speaker 3>got that seven percent intra day swing in the S

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<v Speaker 3>and P five hundred. Really, everyone is on tetra hooks.

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<v Speaker 3>Nobody knows what's real, and everybody is following the news

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<v Speaker 3>to try and figure this out. So I think we're

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<v Speaker 3>going to continue to see this chaos for quite a

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<v Speaker 3>long time.

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<v Speaker 4>Cheryl, what do you make of the upward move in

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<v Speaker 4>treasury yields today? I guess over the longer term they

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<v Speaker 4>have come down. That's something that President Trump has touted

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<v Speaker 4>that interest rates are falling. But what does it tell

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<v Speaker 4>you on a day like today when equities are so volatile,

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<v Speaker 4>and yet we do have yields climbing pretty steadily. Ten

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<v Speaker 4>You're up twenty paces.

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<v Speaker 1>Points just on the day.

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<v Speaker 3>Yeah, I think that what that tells us is that

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<v Speaker 3>the Fed has pretty well signaled that they are not

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<v Speaker 3>riding to the rescue. They are concerned about how the

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<v Speaker 3>effect of these tariffs is going to play out for

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<v Speaker 3>the US economy, but they do not yet have the

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<v Speaker 3>data to understand it at this point. So we had

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<v Speaker 3>some comments from Powell on Friday. We had other comments

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<v Speaker 3>today where they're saying, no, actually, he doesn't get to

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<v Speaker 3>do this on tariffs and then have the FED come

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<v Speaker 3>and ride to the rescue and cut rates a lot more.

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<v Speaker 3>And even if the FED did start doing emergency cuts

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<v Speaker 3>for rates, I actually think that would be an even

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<v Speaker 3>worse signal. So I think we saw a bit of

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<v Speaker 3>bond euphoria, if you will, or you know, heading for

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<v Speaker 3>the hills, just as a way of getting out of

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<v Speaker 3>on Thursday and Friday. Treasuries were the easiest thing to buy.

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<v Speaker 3>Probably some repositioning today.

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<v Speaker 2>I'm going to call you doctor Smith because you have

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<v Speaker 2>a PhD. You're an economist by training. True, are you

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<v Speaker 2>concerned guilty as charge?

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<v Speaker 1>Really?

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<v Speaker 2>But it's good to have you talking to us about

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<v Speaker 2>this because you have training in this, and I want

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<v Speaker 2>to know if you think, from an economic policy perspective,

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<v Speaker 2>what the economic consequences of this tariff policy could be

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<v Speaker 2>on the US economy.

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<v Speaker 3>I think the economic policy consequences can actually be quite dire,

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<v Speaker 3>and I base that on the size of the tariffs

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<v Speaker 3>relative to the Smooth Holly tariffs of nineteen thirty, which

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<v Speaker 3>many people quite credibly think prolonged hastened and deepened the

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<v Speaker 3>Great Recession, and they set off, as we are seeing

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<v Speaker 3>set off now, a round of competitive They called them

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<v Speaker 3>beggar thy neighbor policies, of tariffs going one country, another country, retaliating,

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<v Speaker 3>and so forth, building up in the way that you're

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<v Speaker 3>looking at China right now, with the United States putting

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<v Speaker 3>on successive tariffs, China coming back and saying well, they're

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<v Speaker 3>going to restrict things, and Trump coming out today and saying, well,

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<v Speaker 3>in that case, I'm going to raise you another fifty

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<v Speaker 3>basis points. This is very destructive, and we have trade

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<v Speaker 3>works under the economic concept is called comparative advantage, that

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<v Speaker 3>we really do better if each country does the things

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<v Speaker 3>that it is best suited for by geography, by natural resources,

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<v Speaker 3>by training of people to produce, and then trade so

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<v Speaker 3>things are made most cheaply. We've seen a tremendous expansion

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<v Speaker 3>of trade in the twentieth and twenty first century because

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<v Speaker 3>of the fall in transportation costs that we've experienced. So

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<v Speaker 3>we have a lot more trade going on now than

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<v Speaker 3>we had in the nineteen thirties when the smooth Holly

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<v Speaker 3>tariffs were put on. So I think this is really

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<v Speaker 3>going to be a very very difficult period of transition.

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<v Speaker 3>And most importantly, this chaos and this uncertainty that he

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<v Speaker 3>has created means that businesses and consumers really can't plan.

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<v Speaker 3>So for consumers, I think they're going to increase their

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<v Speaker 3>precautionary saving. They're going to say maybe I'm going to

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<v Speaker 3>put that off for now, I'm not going to buy

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<v Speaker 3>that I might need it later. Things could be getting

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<v Speaker 3>a lot worse. That's bad. On the investment side, companies

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<v Speaker 3>have no idea what they should do in terms of

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<v Speaker 3>organizing their production. Now, if the production they're organizing were

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<v Speaker 3>let's say pizza parl it's easy enough. Do you buy

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<v Speaker 3>a pizza oven or do you not buy a pizza oven.

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<v Speaker 3>We're not talking pizza parlors. We're talking semiconductor factories, we're

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<v Speaker 3>talking steel mails, we're talking major production plants. And any

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<v Speaker 3>company has to look at this and say, how do

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<v Speaker 3>I possibly make a decision about what the tariffs are

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<v Speaker 3>going to be when I'm through making that investment, whether

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<v Speaker 3>that is a year, two years, or seven years down

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<v Speaker 3>the way. So it's going to affect the amount of

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<v Speaker 3>investment that's going to have a significant effect on GDP

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<v Speaker 3>growth and I think we've increased the risk of recession

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<v Speaker 3>dramatically over the past four days.

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<v Speaker 2>Pretty heavy stuff, Cheryl. We appreciate you joining us. Cheryl Smith,

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<v Speaker 2>economist and portfolio manager at Trillium and joining us from Cambridge, Massachusetts.