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 am 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 --> 00:00:36,800 Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Here's the take 10 00:00:36,840 --> 00:00:39,360 Speaker 2: from Monica to censor of JP Morgan Private Bank, writing, 11 00:00:39,360 --> 00:00:42,120 Speaker 2: We've been constructive on risk assets the last couple of years, 12 00:00:42,440 --> 00:00:46,320 Speaker 2: and we remain cautiously optimistic. We believe the volatility, though 13 00:00:46,680 --> 00:00:50,000 Speaker 2: is back. Trade policy remains rightly the primary source of 14 00:00:50,080 --> 00:00:53,680 Speaker 2: investor uncertainty. Monica joins us now for more. Monica, good morning, 15 00:00:53,760 --> 00:00:55,720 Speaker 2: Good morning. How do you respond to the latest announcement. 16 00:00:56,360 --> 00:00:59,880 Speaker 3: It's very frustrating. It is very hard in my seat 17 00:01:00,160 --> 00:01:01,880 Speaker 3: to try to predict what's going to happen, and that's 18 00:01:01,920 --> 00:01:04,080 Speaker 3: what my job is, help people figure out the future 19 00:01:04,120 --> 00:01:06,280 Speaker 3: and how to invest around that and you just hear 20 00:01:06,319 --> 00:01:09,160 Speaker 3: all this noise and just doesn't feel like liberation Day 21 00:01:09,240 --> 00:01:11,760 Speaker 3: is going to be clarity day. And so I think 22 00:01:11,880 --> 00:01:13,319 Speaker 3: a week from now, we're still going to have a 23 00:01:13,319 --> 00:01:16,200 Speaker 3: lot of questions. There will still be uncertainty, there will 24 00:01:16,200 --> 00:01:18,360 Speaker 3: still be volatility, and so the most important thing for 25 00:01:18,440 --> 00:01:21,600 Speaker 3: many people I work with is just diversify, have a plan, 26 00:01:21,840 --> 00:01:23,360 Speaker 3: and get ready for more bumps. 27 00:01:23,440 --> 00:01:24,959 Speaker 4: You still see a path though for the s and P. 28 00:01:25,040 --> 00:01:27,600 Speaker 4: Five hundred to go to sixty four fifty by the 29 00:01:27,680 --> 00:01:29,839 Speaker 4: end of the year, that that still is your base case. 30 00:01:30,000 --> 00:01:32,080 Speaker 4: At the high end of that range is. 31 00:01:32,080 --> 00:01:34,120 Speaker 3: Predicate on earnings growth, and this is the challenge, like 32 00:01:34,319 --> 00:01:38,679 Speaker 3: what does this do to corporate spending behavior, consumer behavior? 33 00:01:38,720 --> 00:01:40,960 Speaker 3: We don't know yet. We're still we had a really 34 00:01:41,000 --> 00:01:43,360 Speaker 3: strong quarter last quarter earnings. We'll see in a few 35 00:01:43,360 --> 00:01:45,040 Speaker 3: weeks as we start to get their earnings again if 36 00:01:45,040 --> 00:01:45,640 Speaker 3: this continues. 37 00:01:45,720 --> 00:01:47,960 Speaker 4: What do you make of Neil Kashkari's point that the 38 00:01:48,160 --> 00:01:51,520 Speaker 4: uncertainty and the kit to consumer sentiment that we're seeing 39 00:01:51,600 --> 00:01:55,800 Speaker 4: around the sort of on and off tariff announcements itself 40 00:01:55,800 --> 00:01:58,760 Speaker 4: will be potentially more punitive to growth than even the 41 00:01:58,800 --> 00:02:01,720 Speaker 4: tariffs themselves. What point do you say Okay, this has 42 00:02:01,760 --> 00:02:03,680 Speaker 4: gone on long enough that you can't make it up 43 00:02:03,720 --> 00:02:06,800 Speaker 4: by providing some clarity on Liberation Day postponed. 44 00:02:07,120 --> 00:02:08,880 Speaker 3: Yeah, I think the next few weeks are going to 45 00:02:08,960 --> 00:02:11,040 Speaker 3: be critical because if we don't get any sort of 46 00:02:11,600 --> 00:02:14,280 Speaker 3: calming around these headlines, I do think you start to 47 00:02:14,280 --> 00:02:17,960 Speaker 3: worry with this seeping more permanently into consumer psyche investor psyche. 48 00:02:18,040 --> 00:02:20,560 Speaker 3: Right now, investors are saying this might just be a 49 00:02:20,680 --> 00:02:24,760 Speaker 3: negotiating tactic. It's noise, it's not gonna it's transitory, to 50 00:02:24,840 --> 00:02:27,760 Speaker 3: use that tricky word. But the longer this goes on, 51 00:02:28,160 --> 00:02:30,200 Speaker 3: the more I agree with him that this will have 52 00:02:30,200 --> 00:02:32,760 Speaker 3: a permanent impact on people. Most clients I work with 53 00:02:32,880 --> 00:02:34,480 Speaker 3: are still saying, I can deal with this. Let's just 54 00:02:34,520 --> 00:02:36,120 Speaker 3: wait out the next few weeks and then I'll move 55 00:02:36,120 --> 00:02:36,680 Speaker 3: and then I'll decide. 56 00:02:37,040 --> 00:02:38,720 Speaker 2: Just to ask a least's line of questioning, are we 57 00:02:38,760 --> 00:02:40,880 Speaker 2: putting so much faith in the Fed's ability to respond 58 00:02:40,880 --> 00:02:44,080 Speaker 2: to downside risk of growth with a potential inflation we 59 00:02:44,160 --> 00:02:44,639 Speaker 2: spill over? 60 00:02:45,120 --> 00:02:47,280 Speaker 3: At this point, we still believe the FED put is there, 61 00:02:47,400 --> 00:02:50,360 Speaker 3: But again, there's just so many moving pieces, and I 62 00:02:50,480 --> 00:02:52,360 Speaker 3: need to see the most important thing for me in 63 00:02:52,360 --> 00:02:55,360 Speaker 3: the equity call is how their earnings look. The other 64 00:02:55,440 --> 00:02:58,080 Speaker 3: question then becomes one evaluation because with this much uncertainty, 65 00:02:58,240 --> 00:02:59,840 Speaker 3: is anyone willing to pay twenty times for you? 66 00:03:00,360 --> 00:03:00,640 Speaker 5: How much? 67 00:03:00,639 --> 00:03:02,239 Speaker 3: I think that's the concern. It could be eighteen or 68 00:03:02,280 --> 00:03:03,919 Speaker 3: seventeen and then suddenly you're down fifteen. 69 00:03:03,919 --> 00:03:05,840 Speaker 5: We'll just pick upon that the valueition point. How much? 70 00:03:05,840 --> 00:03:08,560 Speaker 5: If this story, have we already discounts it in the US? 71 00:03:08,800 --> 00:03:10,760 Speaker 3: I think we think we've discounted what we see right now, 72 00:03:10,760 --> 00:03:13,239 Speaker 3: which is the chaos. Right so you've had valuations come in. 73 00:03:13,520 --> 00:03:15,800 Speaker 3: But again, if this is more persistent and this continues 74 00:03:15,800 --> 00:03:17,959 Speaker 3: into the summer, then I think there's a real question 75 00:03:18,000 --> 00:03:20,120 Speaker 3: about is twenty times the right number? And that's what 76 00:03:20,160 --> 00:03:23,000 Speaker 3: our valuation is predicated on that kind of multiple, you 77 00:03:23,000 --> 00:03:25,760 Speaker 3: have to start questioning that if we're still grappling with 78 00:03:25,760 --> 00:03:27,440 Speaker 3: these kind of headlines come May in June. 79 00:03:27,560 --> 00:03:30,280 Speaker 4: At the end of last year, people are questioning valuations 80 00:03:30,360 --> 00:03:33,080 Speaker 4: on a bond yield a basis saying if bond yields 81 00:03:33,080 --> 00:03:36,320 Speaker 4: continue to remain sticky or go higher, then it starts 82 00:03:36,320 --> 00:03:39,080 Speaker 4: to raise the risk reward and going from bonds to stocks. 83 00:03:39,520 --> 00:03:41,480 Speaker 4: At this point, what you're seeing is that bonds on 84 00:03:41,520 --> 00:03:44,600 Speaker 4: a day like yesterday actually lost value, yields rose, And 85 00:03:44,640 --> 00:03:48,120 Speaker 4: it goes to the question of toggling between inflation and growth. 86 00:03:48,120 --> 00:03:50,400 Speaker 4: At what point does that become a hampering factor to 87 00:03:50,480 --> 00:03:51,520 Speaker 4: valuations as well? 88 00:03:52,280 --> 00:03:53,840 Speaker 3: I think it is. I think that's sort of where 89 00:03:53,840 --> 00:03:56,320 Speaker 3: you're already starting to see. And the big risk of 90 00:03:56,320 --> 00:03:58,360 Speaker 3: the outside of earnings is one of growth, and we 91 00:03:58,560 --> 00:04:00,560 Speaker 3: are trying to put a pencils aroun around what does 92 00:04:00,600 --> 00:04:02,160 Speaker 3: this look like from a terror standpoint, How does that 93 00:04:02,200 --> 00:04:04,200 Speaker 3: impact growth in a year when we're talking about kind 94 00:04:04,200 --> 00:04:06,760 Speaker 3: of two percent real GDP growth, this could be significant 95 00:04:06,760 --> 00:04:09,160 Speaker 3: if these are permanent, if they are broader, if you 96 00:04:09,200 --> 00:04:12,200 Speaker 3: see retaliations from you know, counterparts around the world, and 97 00:04:12,240 --> 00:04:14,160 Speaker 3: that's just a little bit scary because two percent growth 98 00:04:14,200 --> 00:04:16,960 Speaker 3: is one thing. One percent is very different. And then again, 99 00:04:17,080 --> 00:04:19,080 Speaker 3: what does that still over due to earnings and everything else? 100 00:04:19,160 --> 00:04:21,159 Speaker 4: At that point, what does diversification mean? 101 00:04:22,279 --> 00:04:25,080 Speaker 3: You know, for years, equities were the game in town, 102 00:04:25,160 --> 00:04:27,800 Speaker 3: right it was all growth rates were low. You had 103 00:04:27,839 --> 00:04:30,200 Speaker 3: the AI tailwind, and by the way, that still exists, 104 00:04:30,480 --> 00:04:32,880 Speaker 3: but the challenge and becomes people are probably still too 105 00:04:32,920 --> 00:04:36,000 Speaker 3: far over their skis in broad risk assets, probably too 106 00:04:36,040 --> 00:04:37,920 Speaker 3: focus on the US I still have a lot of 107 00:04:37,960 --> 00:04:40,039 Speaker 3: people who have too much probably private exposure. They haven't 108 00:04:40,080 --> 00:04:41,880 Speaker 3: been a lot of exits, and so like I'm seeing 109 00:04:41,920 --> 00:04:44,440 Speaker 3: a lot of risk and in one bucket, we've been 110 00:04:44,480 --> 00:04:48,040 Speaker 3: really advocating move into some safer parts, move into fixed income. 111 00:04:48,279 --> 00:04:49,000 Speaker 5: I continued a. 112 00:04:49,040 --> 00:04:50,960 Speaker 3: Ton of calls on gold goal is of twenty eight 113 00:04:50,960 --> 00:04:52,880 Speaker 3: percent last year. People still want to buy more because 114 00:04:52,920 --> 00:04:54,960 Speaker 3: of saying, how do I diversify outside the US, how 115 00:04:54,960 --> 00:04:57,880 Speaker 3: do I have something that's a buffer my portfolio? And lastly, 116 00:04:58,279 --> 00:05:01,520 Speaker 3: hedge funds looking for uncorrel returns. I couldn't get anyone 117 00:05:01,560 --> 00:05:03,280 Speaker 3: to talk about hedgehness for years. Now they want to 118 00:05:03,279 --> 00:05:05,880 Speaker 3: talk about hedgehunes again. So it's it's interesting since I 119 00:05:05,920 --> 00:05:08,239 Speaker 3: was old as new, like this playbook became very boring 120 00:05:08,240 --> 00:05:09,520 Speaker 3: for a while. Now you have all the tools again. 121 00:05:09,800 --> 00:05:11,880 Speaker 2: Yeah, and you've seen some spill over the places like Europe, 122 00:05:11,920 --> 00:05:14,120 Speaker 2: even China as well. Equity markets there have stout as 123 00:05:14,160 --> 00:05:16,560 Speaker 2: pick up. Do you think mainply we're whistling past the 124 00:05:16,560 --> 00:05:18,520 Speaker 2: graveyard and places like Europe. 125 00:05:19,040 --> 00:05:21,840 Speaker 3: I you know, just saying Europe is cheap is a 126 00:05:21,920 --> 00:05:24,360 Speaker 3: dangerous game. But there are certainly pockets where I think 127 00:05:24,360 --> 00:05:26,960 Speaker 3: there's opportunity, and so even in the US this has 128 00:05:26,960 --> 00:05:28,800 Speaker 3: become a stock pickers market, So I would argue the 129 00:05:28,839 --> 00:05:31,320 Speaker 3: same thing. In Europe. We still are constructive on Japan. 130 00:05:31,360 --> 00:05:34,120 Speaker 3: There's still you know, evaluation story there, you have reforms 131 00:05:34,120 --> 00:05:36,680 Speaker 3: still continuing. So I think you should be looking more 132 00:05:36,720 --> 00:05:38,719 Speaker 3: outside of the US. Again, most of my clients are 133 00:05:38,720 --> 00:05:40,840 Speaker 3: still heavily weighted to the US from an equity perspective. 134 00:05:41,360 --> 00:05:43,240 Speaker 3: Also on the fixed income side, we're looking at em 135 00:05:43,279 --> 00:05:46,000 Speaker 3: credit to try to gain get diversification outside of the 136 00:05:46,080 --> 00:05:46,440 Speaker 3: US dollar. 137 00:05:46,560 --> 00:05:46,760 Speaker 5: Lacey. 138 00:05:46,800 --> 00:05:48,760 Speaker 2: European equities down today with down a half of one 139 00:05:48,760 --> 00:05:50,760 Speaker 2: percent on the Docks, but that's where the app performance 140 00:05:50,800 --> 00:05:52,440 Speaker 2: has been over the previous few months. 141 00:05:52,480 --> 00:05:54,040 Speaker 4: Yeah, but to your point, the reason why the Dacks 142 00:05:54,080 --> 00:05:56,520 Speaker 4: is down is in part because German auto manufactures are 143 00:05:56,520 --> 00:05:58,200 Speaker 4: going to be very hard hit by some of these 144 00:05:58,240 --> 00:06:00,359 Speaker 4: twenty five percent tariffs and are going to have to 145 00:06:00,400 --> 00:06:03,000 Speaker 4: really shift some of their supply chains. Considering how much 146 00:06:03,000 --> 00:06:05,200 Speaker 4: of their business is done in the United States. Have 147 00:06:05,279 --> 00:06:07,200 Speaker 4: we fully priced the hit to the rest of the 148 00:06:07,200 --> 00:06:09,680 Speaker 4: world from tariffs implemented in the United States. 149 00:06:09,720 --> 00:06:11,200 Speaker 2: This is the argument that Michael Hahnt of Bank of 150 00:06:11,200 --> 00:06:13,359 Speaker 2: America made on Friday going into the weekend that the 151 00:06:13,360 --> 00:06:15,280 Speaker 2: sell off that we've seen in US secuaries was more 152 00:06:15,320 --> 00:06:18,000 Speaker 2: about deep Seak and Doge than it was about tariffs. 153 00:06:18,200 --> 00:06:20,159 Speaker 2: That for him and many others too, we haven't seen 154 00:06:20,200 --> 00:06:22,760 Speaker 2: the tariff trade really realized just yet. 155 00:06:22,560 --> 00:06:24,200 Speaker 4: And we don't really have a full understanding of what 156 00:06:24,240 --> 00:06:26,640 Speaker 4: the terariff trade really means because it's got a lot 157 00:06:26,640 --> 00:06:28,560 Speaker 4: of hair on it right now with the uncertainty as 158 00:06:28,560 --> 00:06:30,240 Speaker 4: well as some of the tip for tag and what 159 00:06:30,400 --> 00:06:32,719 Speaker 4: negotiations there are. I remember when this week was supposed 160 00:06:32,760 --> 00:06:35,480 Speaker 4: to be a negotiation week and suddenly now is something else. 161 00:06:35,520 --> 00:06:36,840 Speaker 5: It was the Europeans were here. 162 00:06:36,839 --> 00:06:38,960 Speaker 2: That makes us square here I know, people were hopeful, 163 00:06:39,000 --> 00:06:40,960 Speaker 2: and here we are. Monica is good to see you. 164 00:06:41,000 --> 00:06:42,960 Speaker 2: Thanks for dropping by. Monica is sents her there, JP 165 00:06:43,080 --> 00:06:56,120 Speaker 2: Morgan Private Bank. Don Schneider of Piper Sandler writing the 166 00:06:56,160 --> 00:06:59,000 Speaker 2: announcement of the twenty five percent tariff on autoast today 167 00:06:59,040 --> 00:07:02,080 Speaker 2: shows Trump is to get on with the broader trade agenda. 168 00:07:02,400 --> 00:07:05,039 Speaker 2: Auto tariffs are a core part of the industrial policy 169 00:07:05,080 --> 00:07:07,919 Speaker 2: and revenue agenda. Much more to come. Don't join us 170 00:07:07,960 --> 00:07:10,440 Speaker 2: now for more done? How much more to come? Over 171 00:07:10,440 --> 00:07:14,680 Speaker 2: the next week or so. 172 00:07:13,240 --> 00:07:16,000 Speaker 6: I think a meaningful amount is coming, even if it's 173 00:07:16,040 --> 00:07:18,000 Speaker 6: not over the next week. I mean, what we've seen 174 00:07:18,240 --> 00:07:20,520 Speaker 6: so far is about a half a percent of GDP 175 00:07:20,920 --> 00:07:23,680 Speaker 6: in tariff revenue that's been announced. 176 00:07:23,760 --> 00:07:24,760 Speaker 1: We have now the. 177 00:07:24,800 --> 00:07:28,160 Speaker 6: Highest effective teriff rate since we've had since the nineteen forties, 178 00:07:28,160 --> 00:07:30,480 Speaker 6: when you add up to twenty percent tariffs on China, 179 00:07:30,880 --> 00:07:34,000 Speaker 6: twenty five percent on steel and aluminum and derivative products, 180 00:07:34,040 --> 00:07:39,000 Speaker 6: twenty five percent on autos, and then reciprocal tariffs are forthcoming. 181 00:07:39,000 --> 00:07:40,640 Speaker 6: I think we've heard those are going to be dialed 182 00:07:40,680 --> 00:07:44,240 Speaker 6: back considerably, but it's important to keep in mind that 183 00:07:44,280 --> 00:07:46,360 Speaker 6: we have all of the products specific tariffs that are 184 00:07:46,400 --> 00:07:51,000 Speaker 6: still coming, whether it ranges from pharmaceuticals, semiconductors, copper lumber. 185 00:07:51,040 --> 00:07:52,280 Speaker 1: So there's much more to come. 186 00:07:52,320 --> 00:07:53,760 Speaker 5: Don't We've seen this movie before. 187 00:07:54,000 --> 00:07:57,880 Speaker 2: Only a month ago auto tariffs Canada, Mexico and then 188 00:07:57,920 --> 00:08:00,480 Speaker 2: we found out they were exempt under usm and I 189 00:08:00,480 --> 00:08:03,360 Speaker 2: was watching that news conference yesterday desperately waiting for a 190 00:08:03,440 --> 00:08:04,559 Speaker 2: journalist to ask the question. 191 00:08:04,680 --> 00:08:05,600 Speaker 5: The question never came. 192 00:08:05,840 --> 00:08:07,920 Speaker 2: Have we got a decent understanding of whether those auto 193 00:08:08,000 --> 00:08:10,760 Speaker 2: exports from those countries to the United States are exempt 194 00:08:11,080 --> 00:08:12,000 Speaker 2: under USMCI? 195 00:08:13,480 --> 00:08:15,800 Speaker 6: It sounds like a pro portion of when will be 196 00:08:15,840 --> 00:08:19,640 Speaker 6: the value added that's attributable to US production, if it's 197 00:08:19,640 --> 00:08:23,280 Speaker 6: still coming from Canada Mexico will will be exempt. Takes 198 00:08:23,320 --> 00:08:26,760 Speaker 6: time to implement that. My sense is where at least 199 00:08:26,800 --> 00:08:29,200 Speaker 6: I group things into kind of four different buckets. China 200 00:08:29,320 --> 00:08:32,440 Speaker 6: is its own trade war, Canada and Mexico is another. 201 00:08:32,679 --> 00:08:37,120 Speaker 6: Product specific tariffs is another, and then finally reciprocal terrafts 202 00:08:37,120 --> 00:08:39,840 Speaker 6: I think with in the case of Canada and Mexico, 203 00:08:40,000 --> 00:08:42,559 Speaker 6: Trump's end goal, I think is to rewrite the USMCA 204 00:08:42,640 --> 00:08:45,000 Speaker 6: on much more favorable terms to the US and he's 205 00:08:45,080 --> 00:08:49,800 Speaker 6: in particular fixated on auto production. So you know, just 206 00:08:49,840 --> 00:08:52,319 Speaker 6: like what happened previously, you had twenty five percent terraffs 207 00:08:52,360 --> 00:08:55,120 Speaker 6: in Canada Mexico that then said, well, it's only going 208 00:08:55,200 --> 00:08:59,040 Speaker 6: to be twenty five percent on non USMCA compliant goods. 209 00:08:59,080 --> 00:09:01,520 Speaker 6: Maybe that ends up being something like thirty percent of 210 00:09:01,559 --> 00:09:05,000 Speaker 6: all goods end up being tariffed under those rates. 211 00:09:05,240 --> 00:09:06,520 Speaker 1: I think that's still you know, a. 212 00:09:06,480 --> 00:09:09,560 Speaker 6: Bargaining chip going forward that eventually those can either roll 213 00:09:09,559 --> 00:09:12,360 Speaker 6: off and be replaced by reciprocal tariffs or by a 214 00:09:12,400 --> 00:09:13,480 Speaker 6: rewrite of US MCA. 215 00:09:14,320 --> 00:09:16,840 Speaker 4: Do you think there's still room for negotiation, given that 216 00:09:16,880 --> 00:09:20,400 Speaker 4: President Trump said yesterday about the tariffs on autos in particular, 217 00:09:20,679 --> 00:09:22,400 Speaker 4: this is permanent one. 218 00:09:23,800 --> 00:09:28,360 Speaker 6: I think, you know, there's two objectives. One is used 219 00:09:28,440 --> 00:09:31,320 Speaker 6: tariffs to achieve non trade concessions, and they can range 220 00:09:31,559 --> 00:09:33,120 Speaker 6: you know, a lot of different things you see from 221 00:09:33,120 --> 00:09:38,040 Speaker 6: federal legal immigration, whether it's digital service taxes, even the 222 00:09:38,080 --> 00:09:41,000 Speaker 6: acquisition of TikTok. But then the other is true revenue 223 00:09:41,000 --> 00:09:44,160 Speaker 6: and industrial policy. And I think anytime Trump is threatening 224 00:09:44,160 --> 00:09:46,920 Speaker 6: tariffs on a product, there really isn't much negotiation to 225 00:09:47,040 --> 00:09:50,320 Speaker 6: be had. He's saying clearly, this is a critical industry. 226 00:09:50,640 --> 00:09:52,720 Speaker 6: We can't be reliant on other sport. We have to 227 00:09:52,760 --> 00:09:54,720 Speaker 6: make it in the US. So I think in the 228 00:09:54,760 --> 00:09:57,079 Speaker 6: case of product teriffs, there there aren't really going to 229 00:09:57,120 --> 00:09:59,880 Speaker 6: be any exemptions where there's no real negotiations either. 230 00:10:00,040 --> 00:10:02,800 Speaker 4: I'm glad you went there, don Yesterday there was also 231 00:10:03,120 --> 00:10:06,040 Speaker 4: this from President Trump. I view it as reducing taxes 232 00:10:06,080 --> 00:10:08,480 Speaker 4: and also reducing debt. Talking about the tariffs and the 233 00:10:08,480 --> 00:10:11,240 Speaker 4: revenue from them. Within a fairly short period of time, 234 00:10:11,320 --> 00:10:12,959 Speaker 4: I think we're going to have a balance sheet that's 235 00:10:12,960 --> 00:10:16,160 Speaker 4: going to be outstanding from a practical point of view 236 00:10:16,200 --> 00:10:19,520 Speaker 4: don how much could to revenue from terrafs head toward 237 00:10:19,640 --> 00:10:22,880 Speaker 4: offsetting the deficit that is set to potentially climb by 238 00:10:22,880 --> 00:10:24,680 Speaker 4: three trillion dollars of the next decade. 239 00:10:25,200 --> 00:10:27,480 Speaker 6: Here, so I think about it. Last year, we had 240 00:10:27,480 --> 00:10:29,800 Speaker 6: have six and a half percent of GDP deficit. Six 241 00:10:29,880 --> 00:10:32,800 Speaker 6: point four of that is our primary deficit excluding interest 242 00:10:32,880 --> 00:10:36,080 Speaker 6: costs three interest costs are three point one percent. If 243 00:10:36,120 --> 00:10:39,319 Speaker 6: all we did was extend the twenty seventeen tax cuts, 244 00:10:39,320 --> 00:10:41,720 Speaker 6: by the end of Trump's term, we had that seven. 245 00:10:41,480 --> 00:10:43,120 Speaker 1: And a half percent of GDP deficit. 246 00:10:43,200 --> 00:10:47,240 Speaker 6: So there's structural upward pressure on spending from entitlements while 247 00:10:47,320 --> 00:10:50,320 Speaker 6: revenues stay flat as the share of GDP and interest 248 00:10:50,360 --> 00:10:51,640 Speaker 6: costs continue to grow. 249 00:10:52,440 --> 00:10:54,720 Speaker 1: What we he's announced so far is basically. 250 00:10:54,400 --> 00:10:56,960 Speaker 6: A half a percent of GDP and tariffs that may 251 00:10:57,000 --> 00:11:00,160 Speaker 6: go up to maybe seventy basis points maybe higher that 252 00:11:00,240 --> 00:11:02,679 Speaker 6: will subtract for growth basically. 253 00:11:02,200 --> 00:11:05,200 Speaker 1: One for one. So you will reduce economic growth. 254 00:11:05,880 --> 00:11:09,400 Speaker 6: His tax and economic package, muiltch, you will include spending 255 00:11:09,400 --> 00:11:14,040 Speaker 6: increases on defense, border security, spending cuts on things like medicaid, 256 00:11:14,440 --> 00:11:17,640 Speaker 6: and then tax cuts. I think leaves us with roughly 257 00:11:17,720 --> 00:11:19,800 Speaker 6: six and a half percent of GDP. Deficit, and then 258 00:11:19,840 --> 00:11:22,480 Speaker 6: tariffs give us a little downside from there, so we're 259 00:11:22,520 --> 00:11:24,800 Speaker 6: kind of getting pulled maybe closer to six percent if 260 00:11:24,840 --> 00:11:27,360 Speaker 6: there's not that big of a growth hit. So I 261 00:11:27,400 --> 00:11:30,240 Speaker 6: don't think this fundamentally changes the trajectory of the deficit. 262 00:11:30,240 --> 00:11:31,880 Speaker 6: We're going to muddle along and it's kind of six 263 00:11:31,920 --> 00:11:36,040 Speaker 6: percent of GDP deficit area for the next couple of years. 264 00:11:36,160 --> 00:11:37,920 Speaker 4: Does it give more breathing room down to some of 265 00:11:37,960 --> 00:11:40,640 Speaker 4: the Republican representatives who been pushing back against some of 266 00:11:40,679 --> 00:11:44,400 Speaker 4: the proposals and some of the debt ceiling extension and 267 00:11:44,480 --> 00:11:48,920 Speaker 4: raising the debt ceiling on concerns about an expanding deficit. 268 00:11:48,960 --> 00:11:51,160 Speaker 4: I mean, can they point to some of the revenue 269 00:11:51,200 --> 00:11:55,080 Speaker 4: that was being raised by tariffs as an offset to 270 00:11:55,280 --> 00:11:57,679 Speaker 4: justify their vote. 271 00:11:58,360 --> 00:12:01,000 Speaker 1: I don't think so. I mean, of course you could. 272 00:12:01,120 --> 00:12:04,240 Speaker 6: I think the people who are most concerned about the deficit, 273 00:12:04,320 --> 00:12:07,440 Speaker 6: you know, say Freedom Caucus members, what they're really concerned 274 00:12:07,440 --> 00:12:10,880 Speaker 6: about is spending. They want spending cuts, and you know 275 00:12:10,880 --> 00:12:13,920 Speaker 6: they're not necessarily going to be placated by tariff revenues 276 00:12:14,000 --> 00:12:17,840 Speaker 6: or likewise, consider Rand Paul in the Senate, you know, libertarian, 277 00:12:18,200 --> 00:12:19,760 Speaker 6: he is very he doesn't want to vote for a 278 00:12:19,800 --> 00:12:23,000 Speaker 6: debtlimiting pre six, et cetera. And he doesn't like tariff. 279 00:12:23,080 --> 00:12:25,160 Speaker 6: So I think for the members that it really is 280 00:12:25,200 --> 00:12:28,240 Speaker 6: important to help who are most concerned about the deficit. 281 00:12:28,280 --> 00:12:32,360 Speaker 6: Tariff revenue doesn't really help. And I'd say secondarily, if 282 00:12:32,360 --> 00:12:35,280 Speaker 6: we are using tariffs as a tool to bring, you know, 283 00:12:35,360 --> 00:12:38,280 Speaker 6: on shoring and production back to the US, generating a 284 00:12:38,320 --> 00:12:40,640 Speaker 6: lot of revenue from that would be suggestive of US 285 00:12:40,720 --> 00:12:43,920 Speaker 6: not on shoring that production and continuing to buy from overseas. 286 00:12:43,960 --> 00:12:46,680 Speaker 6: So if they truly do work, they wouldn't generate a 287 00:12:46,679 --> 00:12:47,360 Speaker 6: lot of revenue. 288 00:12:47,559 --> 00:12:50,160 Speaker 2: I don't I appreciate the update and your reaction to 289 00:12:50,200 --> 00:12:51,600 Speaker 2: the announcement yesterday afternoon. 290 00:12:51,640 --> 00:12:52,840 Speaker 5: Dun Schneider that of. 291 00:13:02,800 --> 00:13:05,920 Speaker 2: President Trump's executive order sending shares of GM Ford a 292 00:13:06,000 --> 00:13:09,360 Speaker 2: stellantislower This morning, Danives of Webbush writing, in our view, 293 00:13:09,360 --> 00:13:11,959 Speaker 2: these initial tariffs, if they hold in their current form, 294 00:13:12,200 --> 00:13:14,680 Speaker 2: would be a hurricane like headwind to foreign and many 295 00:13:14,800 --> 00:13:18,240 Speaker 2: US auto makers and ultimately push the average price of 296 00:13:18,320 --> 00:13:22,240 Speaker 2: cars of five K to ten K. Dan joins us 297 00:13:22,280 --> 00:13:24,280 Speaker 2: now for more, Dan, welcome to the program. Let's just 298 00:13:24,280 --> 00:13:26,840 Speaker 2: start with the basics from the top. Who's most exposed 299 00:13:27,080 --> 00:13:28,199 Speaker 2: in the United States. 300 00:13:28,679 --> 00:13:30,960 Speaker 7: Well, I mean four GM stilanas, right. 301 00:13:31,000 --> 00:13:33,200 Speaker 8: I mean, I think part of the problem there is 302 00:13:33,240 --> 00:13:36,680 Speaker 8: that even if you make it in the US, I 303 00:13:36,720 --> 00:13:38,880 Speaker 8: mean you're talking a lot of times forty to fifty 304 00:13:38,920 --> 00:13:42,680 Speaker 8: parts could be from outside the United States. And I 305 00:13:42,679 --> 00:13:45,760 Speaker 8: think you have thirty thousand parts in a typical vehicle. 306 00:13:46,160 --> 00:13:48,600 Speaker 8: So I think that's what when it comes to Detroit, 307 00:13:48,760 --> 00:13:51,559 Speaker 8: I mean, this is a gut punge to the three 308 00:13:51,679 --> 00:13:55,000 Speaker 8: one three if this actually holds in this forum. 309 00:13:55,559 --> 00:13:58,040 Speaker 2: Let's assume it holds Dan. Where does it leave Tesla. 310 00:13:58,160 --> 00:14:01,320 Speaker 2: Let's do some single name work it make for them? 311 00:14:01,840 --> 00:14:04,040 Speaker 7: Well, even though their cars are built in US. 312 00:14:04,040 --> 00:14:07,720 Speaker 8: In terms of Texas in California, when it comes to parts. 313 00:14:07,920 --> 00:14:10,960 Speaker 7: I mean, you still have a good amount. 314 00:14:10,679 --> 00:14:13,880 Speaker 8: Of parts that come from outside the US, and I 315 00:14:13,960 --> 00:14:15,400 Speaker 8: think that that's what must talk about it. 316 00:14:15,400 --> 00:14:19,920 Speaker 7: And in terms of downstream, no one is unexposed. When 317 00:14:19,960 --> 00:14:20,720 Speaker 7: it comes down to this. 318 00:14:20,800 --> 00:14:23,080 Speaker 8: You have half the cars that have been imported into 319 00:14:23,120 --> 00:14:26,760 Speaker 8: the US twenty twenty four are imported from outside the US, 320 00:14:26,800 --> 00:14:30,240 Speaker 8: but the ones that are made in US they still 321 00:14:30,760 --> 00:14:33,320 Speaker 8: I mean, you have forty percent of engines that are 322 00:14:33,320 --> 00:14:36,160 Speaker 8: basically essentially have parts built from Japan and Korea. And 323 00:14:36,160 --> 00:14:38,080 Speaker 8: that's why what I can tell you is talking to 324 00:14:38,160 --> 00:14:42,000 Speaker 8: many in Detroit last night, Europe overnight. I mean, the 325 00:14:42,120 --> 00:14:44,760 Speaker 8: view is that this isn't almost i'll say, a non starter. 326 00:14:45,240 --> 00:14:49,280 Speaker 8: It would be a backbreaker for the auto industry globally. 327 00:14:50,240 --> 00:14:52,960 Speaker 4: What you see right now is some estimates talking about 328 00:14:53,000 --> 00:14:57,240 Speaker 4: forty percent of total operating profits for Hyundai and Kiya combined, 329 00:14:57,280 --> 00:15:00,880 Speaker 4: for example, is one kind of here that some auto 330 00:15:00,920 --> 00:15:05,240 Speaker 4: manufacturers would be taking if this were the final negotiation, 331 00:15:05,600 --> 00:15:08,200 Speaker 4: if we took President trumpet his word that this is 332 00:15:08,320 --> 00:15:11,560 Speaker 4: a permanent one, that there is no room for negotiation. 333 00:15:12,280 --> 00:15:15,640 Speaker 4: How barisshed would you be on the names of auto manufacturers? 334 00:15:16,200 --> 00:15:19,240 Speaker 8: Okay, I mean if this held and it wasn't in Penal, 335 00:15:19,280 --> 00:15:22,560 Speaker 8: and it was in pen and it actually got enacted, 336 00:15:23,280 --> 00:15:26,600 Speaker 8: it would be an army getting Like you know, I 337 00:15:26,640 --> 00:15:30,760 Speaker 8: think tariff for the auto industry. Others could could sort 338 00:15:30,760 --> 00:15:33,240 Speaker 8: of would be less exposed. But at least my old 339 00:15:33,280 --> 00:15:35,800 Speaker 8: point is is that it would take three to four 340 00:15:35,880 --> 00:15:37,200 Speaker 8: years to build a new factory. 341 00:15:37,720 --> 00:15:41,080 Speaker 7: So the reality is in terms of this and. 342 00:15:41,120 --> 00:15:46,400 Speaker 8: Actually how US car companies meet parts, it's just I 343 00:15:46,760 --> 00:15:49,240 Speaker 8: view it as untenable and that sort of the street 344 00:15:49,280 --> 00:15:52,560 Speaker 8: reaction you see more exposed to GM four to whittle 345 00:15:52,600 --> 00:15:55,840 Speaker 8: on Tesla. I think investors are looking at this being like, look, 346 00:15:55,880 --> 00:16:00,280 Speaker 8: the supply chain basically almost makes this impossible to actually 347 00:16:00,320 --> 00:16:04,000 Speaker 8: get some of these parts, even from US built parts 348 00:16:04,120 --> 00:16:06,680 Speaker 8: because there's no factories, which is. 349 00:16:06,600 --> 00:16:08,920 Speaker 4: The reason why I keep going back to this is 350 00:16:09,000 --> 00:16:13,800 Speaker 4: permanent one In response to someone asking President Trump is 351 00:16:13,840 --> 00:16:17,240 Speaker 4: their room to negotiate? Where is the room to negotiate 352 00:16:17,360 --> 00:16:19,720 Speaker 4: on the edges? Based in the rhetoric that you've heard. 353 00:16:20,560 --> 00:16:23,160 Speaker 7: Look, and I think that continues to be the uncertainty. 354 00:16:23,280 --> 00:16:25,600 Speaker 8: I think maybe the overall mark reaction is okay, there 355 00:16:25,680 --> 00:16:28,440 Speaker 8: still needs to be some sort of negotiation because the 356 00:16:28,560 --> 00:16:31,840 Speaker 8: reality is, Hey, building in the US, but fifty percent 357 00:16:32,560 --> 00:16:35,320 Speaker 8: parts are from Fearn, and there's sometimes there's parts that 358 00:16:35,360 --> 00:16:36,760 Speaker 8: you can't even get in the US. 359 00:16:36,920 --> 00:16:39,000 Speaker 7: How do you build a factor It takes three years. 360 00:16:39,160 --> 00:16:41,440 Speaker 8: So I think that's part of the you know, the 361 00:16:41,440 --> 00:16:44,320 Speaker 8: devil's in the details here. It sounds great, but I 362 00:16:44,320 --> 00:16:47,080 Speaker 8: think that's why the reality is, especially when it comes 363 00:16:47,120 --> 00:16:52,120 Speaker 8: to GM ford stillanis. I mean, there's so many scenarios 364 00:16:52,120 --> 00:16:54,920 Speaker 8: that they've sort of been, you know, going through, but 365 00:16:54,960 --> 00:16:57,840 Speaker 8: the reality is this cannot happen overnight. I mean would 366 00:16:57,880 --> 00:17:01,880 Speaker 8: take years. I mean ouron it would take three years 367 00:17:02,240 --> 00:17:05,040 Speaker 8: to move ten percent of the supply chain fully within 368 00:17:05,080 --> 00:17:07,200 Speaker 8: the US, within the auto industry. 369 00:17:07,440 --> 00:17:10,440 Speaker 2: Down that word negotiation. Let's break some life into that 370 00:17:10,600 --> 00:17:13,760 Speaker 2: negotiation between who. There was this interesting moment in the 371 00:17:13,760 --> 00:17:16,720 Speaker 2: briefing when the President was asked about Tesla and Elon Musk, 372 00:17:16,760 --> 00:17:17,800 Speaker 2: had you spoken to him? 373 00:17:18,119 --> 00:17:19,520 Speaker 5: And the President said no, I hadn't. 374 00:17:19,520 --> 00:17:22,119 Speaker 2: That would be a conflict of interest, which begs the question, 375 00:17:22,320 --> 00:17:25,320 Speaker 2: who's speaking on behalf of Tesla, who's doing the negotiating, 376 00:17:25,520 --> 00:17:27,640 Speaker 2: who's doing the lompying of the US government? 377 00:17:28,200 --> 00:17:30,320 Speaker 8: And remember, like you know, there was that letter that 378 00:17:30,359 --> 00:17:33,560 Speaker 8: Tesla had that was unsigned, and I think that book 379 00:17:33,600 --> 00:17:37,960 Speaker 8: it adds another complexity for Musk and Tesla because with 380 00:17:38,040 --> 00:17:40,160 Speaker 8: everything we talk about with Dige and all the political 381 00:17:40,240 --> 00:17:42,920 Speaker 8: blowback and the third rail issue and everything we've seen 382 00:17:42,960 --> 00:17:47,160 Speaker 8: in Tesla, the reality is when it comes to negotiation 383 00:17:47,400 --> 00:17:49,639 Speaker 8: or at least having sort of you know, someone that 384 00:17:49,720 --> 00:17:54,120 Speaker 8: has to save for Tesla, they're actually at a disadvantage 385 00:17:54,240 --> 00:17:56,320 Speaker 8: because of Musk in this situation. 386 00:17:56,720 --> 00:17:57,960 Speaker 7: That's the irony of it all. 387 00:17:58,480 --> 00:18:01,720 Speaker 2: You've said it on the story. Still bullish on the name, 388 00:18:01,920 --> 00:18:04,399 Speaker 2: but sow it on the story. What needs to happen 389 00:18:04,400 --> 00:18:06,760 Speaker 2: over the next month to turn this around for the stalk. 390 00:18:07,680 --> 00:18:09,480 Speaker 7: I mean must needs to take a step back. I 391 00:18:09,520 --> 00:18:10,400 Speaker 7: thought last week. 392 00:18:10,359 --> 00:18:13,000 Speaker 8: Was a huge step in the right direction in terms 393 00:18:13,080 --> 00:18:16,160 Speaker 8: of the all hands meeting. We've talked about arm's length, 394 00:18:16,320 --> 00:18:18,240 Speaker 8: in terms of when it comes to Douge. You need 395 00:18:18,280 --> 00:18:21,240 Speaker 8: to balance in terms of being CEO of Tesla and 396 00:18:21,400 --> 00:18:25,520 Speaker 8: Douge because you know, it's a moment of truth from 397 00:18:25,600 --> 00:18:29,600 Speaker 8: Musk and Tesla and this is a political symbol that 398 00:18:29,640 --> 00:18:33,160 Speaker 8: Tesla's become. It's a third rail issue and that continues 399 00:18:33,200 --> 00:18:36,080 Speaker 8: to be our view. It's about balance, not him getting 400 00:18:36,080 --> 00:18:38,199 Speaker 8: out of Douge. There needs to be a balance. But 401 00:18:38,280 --> 00:18:40,200 Speaker 8: last week was a step in the right direction. Now 402 00:18:40,200 --> 00:18:43,120 Speaker 8: we need to see more wood to chop ahead next 403 00:18:43,160 --> 00:18:44,080 Speaker 8: four to six weeks. 404 00:18:44,480 --> 00:18:47,600 Speaker 4: Tesla is a perfect microcosm of a larger point that 405 00:18:47,600 --> 00:18:50,359 Speaker 4: we've been wondering, which is can you put this Jennie 406 00:18:50,440 --> 00:18:52,280 Speaker 4: back in the bottle? Once you come out with some 407 00:18:52,320 --> 00:18:55,679 Speaker 4: of these terriffs are the ramifications in other countries, the 408 00:18:55,760 --> 00:18:59,120 Speaker 4: retaliation is going to get a bit ahead of themselves, 409 00:18:59,200 --> 00:19:02,080 Speaker 4: get out of control. And I wonder what you're hearing 410 00:19:02,160 --> 00:19:04,840 Speaker 4: as you travel around the world and talk with CEOs 411 00:19:04,880 --> 00:19:09,280 Speaker 4: and investors about how much this has permanently affected people's 412 00:19:09,320 --> 00:19:13,200 Speaker 4: opinion toward certain US companies and their willingness to give 413 00:19:13,200 --> 00:19:15,639 Speaker 4: the benefit of the doubt to the US tech sector. 414 00:19:16,520 --> 00:19:16,760 Speaker 7: Yeah. 415 00:19:16,880 --> 00:19:18,479 Speaker 8: Look, and I think part of the problem is if 416 00:19:18,520 --> 00:19:20,760 Speaker 8: you're actually looking at supply chain, let's just talk with 417 00:19:20,880 --> 00:19:23,639 Speaker 8: the reality, right, If you're looking at changes in the 418 00:19:23,640 --> 00:19:27,600 Speaker 8: supply chain nine to twelve, eighteen months ahead, you have 419 00:19:27,640 --> 00:19:28,720 Speaker 8: to start that now. 420 00:19:29,160 --> 00:19:31,200 Speaker 7: So part of the problem is you can't just start 421 00:19:31,240 --> 00:19:32,800 Speaker 7: and stop it. So I look, I do. 422 00:19:32,920 --> 00:19:35,680 Speaker 8: Think this, and I've seen it, you know, across the 423 00:19:35,760 --> 00:19:38,320 Speaker 8: easier over the last you know, called a month I 424 00:19:38,400 --> 00:19:41,560 Speaker 8: started in Europe, the last six weeks I've seen Detroit. 425 00:19:42,119 --> 00:19:43,240 Speaker 7: I mean, this is kind of. 426 00:19:43,320 --> 00:19:47,399 Speaker 8: It's caused chaos, But the reality is the enactment of 427 00:19:47,440 --> 00:19:51,360 Speaker 8: it is almost impossible because it comes down to if 428 00:19:51,400 --> 00:19:54,600 Speaker 8: you have no parts in the US, how could you. 429 00:19:54,600 --> 00:19:56,760 Speaker 7: Now go into the US? It will take three years 430 00:19:56,760 --> 00:19:57,520 Speaker 7: to build a factor. 431 00:19:57,800 --> 00:20:01,560 Speaker 8: So the average car will go up ten thousand, twelve thousand, 432 00:20:01,960 --> 00:20:02,879 Speaker 8: some could be lower. 433 00:20:02,960 --> 00:20:05,160 Speaker 7: But that's the reality is the consumer. 434 00:20:05,080 --> 00:20:07,680 Speaker 2: I Dan appreciate the update. Dan Isay of Wood at 435 00:20:07,720 --> 00:20:20,080 Speaker 2: Bush on the lysis of the auto sector. Amanda Lanam 436 00:20:20,080 --> 00:20:22,639 Speaker 2: a black crock with a snap for more, not a picture. 437 00:20:22,680 --> 00:20:24,000 Speaker 2: Amanda wants to see a man a good morning. 438 00:20:24,000 --> 00:20:24,560 Speaker 5: It's good to see you. 439 00:20:24,600 --> 00:20:25,199 Speaker 9: Thank you having me. 440 00:20:25,320 --> 00:20:26,800 Speaker 2: What do you make of this difference between Chair and 441 00:20:26,840 --> 00:20:28,440 Speaker 2: Powell one you've heard from the officials out of the 442 00:20:28,520 --> 00:20:30,600 Speaker 2: last week is the running Is there some daylight between 443 00:20:30,640 --> 00:20:31,200 Speaker 2: the two groups. 444 00:20:31,240 --> 00:20:33,720 Speaker 9: Well, I think it absolutely underscores the uncertainty. And going 445 00:20:33,720 --> 00:20:36,000 Speaker 9: back to the point you were raising the disconnect between 446 00:20:36,000 --> 00:20:38,320 Speaker 9: the sentiment data and the hard data, I think part 447 00:20:38,400 --> 00:20:41,160 Speaker 9: of it is the growth backdrop is much weaker now 448 00:20:41,240 --> 00:20:44,560 Speaker 9: versus a few years ago. Real wages for consumers have declined, 449 00:20:44,600 --> 00:20:47,399 Speaker 9: so their purchasing power has declined. The labor market is 450 00:20:47,440 --> 00:20:50,119 Speaker 9: not as tight, and so I think that's actually what's manifesting. 451 00:20:50,119 --> 00:20:51,720 Speaker 9: Because I agree with you one of the questions we 452 00:20:51,760 --> 00:20:55,720 Speaker 9: get is how could consumer sentiment be so bad? But actually, 453 00:20:55,720 --> 00:20:58,600 Speaker 9: if you look at the labor market purchasing power, I 454 00:20:58,640 --> 00:21:01,879 Speaker 9: think it helps explain that we see room for the 455 00:21:01,920 --> 00:21:04,600 Speaker 9: hard data to catch down to the softer sentiment data, 456 00:21:04,640 --> 00:21:07,359 Speaker 9: and we also see room for credit fundamentals to catch 457 00:21:07,400 --> 00:21:10,879 Speaker 9: down to what has been a pretty negative revision or 458 00:21:10,880 --> 00:21:13,720 Speaker 9: earning testament and company guidance. And I think it underscores 459 00:21:13,720 --> 00:21:17,199 Speaker 9: the uncertainty. I don't think we have conviction on the 460 00:21:17,200 --> 00:21:19,240 Speaker 9: path of policy in many respects, and so it makes 461 00:21:19,280 --> 00:21:20,840 Speaker 9: it difficult to have conviction on inflation. 462 00:21:20,960 --> 00:21:22,919 Speaker 4: It seemed like last week, just to build on the 463 00:21:22,920 --> 00:21:25,240 Speaker 4: point that John was making, it seemed like last week 464 00:21:25,480 --> 00:21:28,919 Speaker 4: people heard fedshare J Powell essentially lean into the idea 465 00:21:29,000 --> 00:21:32,080 Speaker 4: that they would prioritize any kind of downshift and growth 466 00:21:32,400 --> 00:21:34,480 Speaker 4: over any increase in inflation. 467 00:21:35,240 --> 00:21:36,320 Speaker 5: Do you think that that was an. 468 00:21:36,320 --> 00:21:40,040 Speaker 4: Incorrect interpretation or do you think that maybe that is 469 00:21:40,119 --> 00:21:42,960 Speaker 4: his opinion and isn't the mainstream of the Federal Reserve. 470 00:21:43,080 --> 00:21:45,600 Speaker 9: I think during the press conference it was couched with 471 00:21:45,640 --> 00:21:48,680 Speaker 9: a lot of uncertainty. He did say, we're not quite 472 00:21:48,760 --> 00:21:51,040 Speaker 9: sure if we'll be able to look through this. I 473 00:21:51,080 --> 00:21:53,240 Speaker 9: agree with you. What was actually striking to me was 474 00:21:53,480 --> 00:21:57,160 Speaker 9: Atlanta FED President Raphael Bostic's interview with Mike earlier this week, 475 00:21:57,160 --> 00:22:00,000 Speaker 9: where he talked about companies are actually planning on raising 476 00:22:00,040 --> 00:22:03,320 Speaker 9: crisis and they're not expecting a hit to their sales 477 00:22:03,359 --> 00:22:07,080 Speaker 9: volumes and so It remains to be seen how the 478 00:22:07,080 --> 00:22:09,200 Speaker 9: consumers will deal with that, but I think there are 479 00:22:09,240 --> 00:22:11,320 Speaker 9: some inflationary pressures in the system, and I think a 480 00:22:11,359 --> 00:22:13,280 Speaker 9: lot of FED officials are telling you that they want 481 00:22:13,320 --> 00:22:14,400 Speaker 9: to watch that very closely. 482 00:22:14,440 --> 00:22:17,000 Speaker 4: There's a larger point here, and we keep coming back 483 00:22:17,040 --> 00:22:20,040 Speaker 4: to it, this idea of have people had the idea 484 00:22:20,080 --> 00:22:22,600 Speaker 4: of a FED put that is now obsolete in a 485 00:22:22,760 --> 00:22:26,240 Speaker 4: very different environment. The idea that if growth slows, the 486 00:22:26,280 --> 00:22:29,800 Speaker 4: FED can engage with some sort of stimulus by cutting rates. 487 00:22:30,240 --> 00:22:33,120 Speaker 4: Is that fundamentally being challenged at a time where people 488 00:22:33,200 --> 00:22:37,080 Speaker 4: are raising their inflation forecasts and lowering their growth forecasts. 489 00:22:37,080 --> 00:22:39,480 Speaker 9: I think the reaction function is constrained, is the way 490 00:22:39,520 --> 00:22:41,600 Speaker 9: that I would phrase it. And I think they really 491 00:22:41,600 --> 00:22:44,680 Speaker 9: do need to see deterioration in labor demand in the 492 00:22:44,760 --> 00:22:49,400 Speaker 9: labor market before they actually further normalized policy, never mind 493 00:22:49,440 --> 00:22:53,240 Speaker 9: ease policy. And so I think that's really the delicate 494 00:22:53,280 --> 00:22:56,679 Speaker 9: balance that we're in right now, is that they are 495 00:22:56,720 --> 00:22:59,520 Speaker 9: attuned to downside risks and growth, but I think they 496 00:22:59,520 --> 00:23:02,000 Speaker 9: are hesitant, and I think even President Bastik said this, 497 00:23:02,240 --> 00:23:04,120 Speaker 9: They didn't actually want to get ahead of it until 498 00:23:04,160 --> 00:23:08,840 Speaker 9: the growth data actually materialize. That's the risk, and again 499 00:23:09,119 --> 00:23:12,000 Speaker 9: I think it's hard to discount the wide range of 500 00:23:12,080 --> 00:23:14,720 Speaker 9: sentiment data that has come through. You had referenced the 501 00:23:14,720 --> 00:23:17,040 Speaker 9: CEO and CFO surveys. The real risk is that if 502 00:23:17,080 --> 00:23:19,760 Speaker 9: the C suite starts behaving like there is going to 503 00:23:19,800 --> 00:23:22,679 Speaker 9: be a significant downturn in growth, whether that's capex or 504 00:23:22,720 --> 00:23:27,199 Speaker 9: investment hiring, and almost becomes a self fulfilling prophecy that 505 00:23:27,400 --> 00:23:30,600 Speaker 9: the sentiment is so bad so it paralyzes folks, whether 506 00:23:30,640 --> 00:23:33,800 Speaker 9: those are consumers or corporates, and you actually have the 507 00:23:33,840 --> 00:23:36,480 Speaker 9: material growth slowdown that we're hoping to avoid. 508 00:23:36,520 --> 00:23:38,400 Speaker 2: And then these Thursday mornings starts to sound a lot 509 00:23:38,440 --> 00:23:41,240 Speaker 2: different when we get jobless claims at eight thirty Eastern time. 510 00:23:41,560 --> 00:23:42,400 Speaker 5: You said catch down. 511 00:23:42,520 --> 00:23:44,360 Speaker 2: Let's build on the catchdown, not just a hard day 512 00:23:44,400 --> 00:23:46,560 Speaker 2: to down to self, but also the catchdown and credit 513 00:23:46,920 --> 00:23:49,160 Speaker 2: as well. How you've spread is still pretty tight around 514 00:23:49,160 --> 00:23:52,080 Speaker 2: three intred basis points what degree of catchdown even the 515 00:23:52,080 --> 00:23:52,760 Speaker 2: team looking for. 516 00:23:52,920 --> 00:23:56,760 Speaker 9: So I agree with you. Credit valuations have not kept 517 00:23:56,800 --> 00:23:59,080 Speaker 9: track with either of the deterioration in sentiment in the 518 00:23:59,080 --> 00:24:01,440 Speaker 9: equity market or just more broadly, so I think there's 519 00:24:01,440 --> 00:24:04,840 Speaker 9: some room to widen there. The median is for sixty right, 520 00:24:04,920 --> 00:24:08,159 Speaker 9: So should we argue that there's more uncertainty in this 521 00:24:08,200 --> 00:24:10,919 Speaker 9: current environment relative to the median of the post financial 522 00:24:10,960 --> 00:24:11,399 Speaker 9: crisis era? 523 00:24:11,480 --> 00:24:12,320 Speaker 5: I think absolutely. 524 00:24:12,359 --> 00:24:14,640 Speaker 9: Now there are to be clear, there are some important 525 00:24:15,040 --> 00:24:19,639 Speaker 9: counteracting forces that would keep that widening from being that extreme. 526 00:24:19,640 --> 00:24:22,639 Speaker 9: The technicals are still incredibly strong. Most investors that we 527 00:24:22,680 --> 00:24:24,760 Speaker 9: talk to are waiting to buy the dip and buy 528 00:24:24,800 --> 00:24:27,320 Speaker 9: the widening, So to me, that says that most widening 529 00:24:27,359 --> 00:24:31,400 Speaker 9: episodes may be short lived. The new issue technicals are 530 00:24:31,400 --> 00:24:33,800 Speaker 9: really favorable. Not a lot of new money, most of 531 00:24:33,800 --> 00:24:37,080 Speaker 9: it's refinancing. So there are some really important, nuanced technical 532 00:24:37,119 --> 00:24:39,359 Speaker 9: factors that will kind of act as a bit of 533 00:24:39,359 --> 00:24:42,960 Speaker 9: a mitigating factor on widening. But we are absolutely expecting 534 00:24:43,000 --> 00:24:44,080 Speaker 9: for some widening to come through. 535 00:24:44,160 --> 00:24:46,479 Speaker 2: Do those technical factors reach the volume of the canary 536 00:24:46,480 --> 00:24:47,400 Speaker 2: and the canal mine? 537 00:24:47,520 --> 00:24:47,720 Speaker 5: Well? 538 00:24:47,800 --> 00:24:51,920 Speaker 9: I think market structure shifts do alongside those technical factors, 539 00:24:51,960 --> 00:24:55,840 Speaker 9: and so typically corporate credit is a very growth sensitive 540 00:24:55,840 --> 00:24:59,160 Speaker 9: asset class and it should respond more swiftly to growth detereriation. 541 00:24:59,440 --> 00:25:01,480 Speaker 9: We've had the growth of the private credit market, which 542 00:25:01,520 --> 00:25:03,880 Speaker 9: on net we think is a positive for funding access 543 00:25:03,920 --> 00:25:06,879 Speaker 9: because private credit has shown an ability and willingness to 544 00:25:06,880 --> 00:25:09,960 Speaker 9: step in in periods of market volatility, importantly, something that's 545 00:25:10,000 --> 00:25:13,240 Speaker 9: not discussed a lot. For example, the COLO market very 546 00:25:13,359 --> 00:25:16,320 Speaker 9: rating sensitive buyer, and it comprises almost two thirds of 547 00:25:16,320 --> 00:25:18,760 Speaker 9: purchases in the leverage loan market. They can't hold a 548 00:25:18,800 --> 00:25:20,880 Speaker 9: lot of triple c's and sometimes they shy away from 549 00:25:20,920 --> 00:25:23,640 Speaker 9: B minus even when the growth is when growth is chopping. 550 00:25:23,840 --> 00:25:27,200 Speaker 9: So there are technical reasons like that that sometimes prevent 551 00:25:27,240 --> 00:25:31,320 Speaker 9: the syndicated market from operating as you would expect. That 552 00:25:31,480 --> 00:25:34,080 Speaker 9: opens a door for areas like private credit to step in. 553 00:25:34,119 --> 00:25:36,000 Speaker 9: It doesn't mean that that's bad risk. It just means 554 00:25:36,000 --> 00:25:38,280 Speaker 9: that the technicals are not cooperating, and so that is 555 00:25:38,320 --> 00:25:39,000 Speaker 9: new the cycle. 556 00:25:39,280 --> 00:25:41,240 Speaker 4: To build on what John's asking, are we looking in 557 00:25:41,280 --> 00:25:44,040 Speaker 4: the canary in the wrong place, that the idea of 558 00:25:44,119 --> 00:25:47,520 Speaker 4: hyaled spreads, traditionally as a leading indicator for risk acids 559 00:25:47,920 --> 00:25:51,520 Speaker 4: has no longer the same kind of telltale effect, and 560 00:25:51,560 --> 00:25:53,760 Speaker 4: that really it's private markets that we need to be 561 00:25:53,800 --> 00:25:56,840 Speaker 4: looking at. Are we seeing signs of stress in private 562 00:25:56,880 --> 00:25:58,119 Speaker 4: markets in any capacity? 563 00:25:58,240 --> 00:26:01,000 Speaker 9: You aren't really seeing a lot large degree of stress 564 00:26:01,000 --> 00:26:03,119 Speaker 9: in private markets either. I think what that means is 565 00:26:03,160 --> 00:26:05,399 Speaker 9: that the nature of the shock is not emanating from 566 00:26:05,440 --> 00:26:08,159 Speaker 9: the credit market, whether that's liquid or private credit. It's 567 00:26:08,200 --> 00:26:12,240 Speaker 9: actually emanating from consumer spending policy uncertainty in some regards, 568 00:26:12,240 --> 00:26:14,560 Speaker 9: and so I think that's probably the difference in this 569 00:26:14,720 --> 00:26:17,320 Speaker 9: environment is that if the nature we're coming from the 570 00:26:17,320 --> 00:26:20,320 Speaker 9: credit market, if it were over levered companies that we're 571 00:26:20,320 --> 00:26:23,800 Speaker 9: doing shareholder friendly actions, doing m and A and levering 572 00:26:23,880 --> 00:26:26,719 Speaker 9: themselves up, perhaps that would be the early signal from 573 00:26:26,760 --> 00:26:28,920 Speaker 9: the credit market. But that's actually not what's happening here. 574 00:26:29,080 --> 00:26:31,560 Speaker 9: It's the nature of the stress is not coming from 575 00:26:31,560 --> 00:26:34,880 Speaker 9: the corporate market. It's coming from uncertainty and a potential 576 00:26:34,880 --> 00:26:36,120 Speaker 9: slowdown and consumer spec. 577 00:26:36,119 --> 00:26:38,000 Speaker 2: You get the sense this market won't really take these 578 00:26:38,040 --> 00:26:40,200 Speaker 2: headlines seriously until we see it in the hard data. 579 00:26:40,600 --> 00:26:41,200 Speaker 5: I think we. 580 00:26:41,320 --> 00:26:44,240 Speaker 9: Are seeing signs of it being taken seriously. So, for example, 581 00:26:44,240 --> 00:26:47,639 Speaker 9: we're seeing certain sectors underperform even though index level credit 582 00:26:47,640 --> 00:26:50,240 Speaker 9: spreads are tight. As you noted, we are seeing some underperformance, 583 00:26:50,480 --> 00:26:54,600 Speaker 9: I would say on the margin. Investors realize that the 584 00:26:54,640 --> 00:26:57,520 Speaker 9: administration is focused on raising revenue and so tariffs are 585 00:26:57,760 --> 00:27:00,000 Speaker 9: a means to do that. And so again we don't 586 00:27:00,880 --> 00:27:04,960 Speaker 9: dismissed the sentiment data nor the potential for significant policy shifts. 587 00:27:04,960 --> 00:27:07,280 Speaker 9: Our colleagues in the Black Rock Investment Institute expect an 588 00:27:07,280 --> 00:27:09,720 Speaker 9: average effective ter free of ten percent, which is well 589 00:27:09,720 --> 00:27:10,640 Speaker 9: above where we are now. 590 00:27:10,760 --> 00:27:12,880 Speaker 2: Amanda, appreciate your time. I's always it's got to see 591 00:27:12,880 --> 00:27:16,560 Speaker 2: a fantastic Amanda linam there of Black Crab. This is 592 00:27:16,600 --> 00:27:22,000 Speaker 2: the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. 593 00:27:22,240 --> 00:27:24,720 Speaker 2: You can watch the show live on Bloomberg TV weekday 594 00:27:24,760 --> 00:27:28,000 Speaker 2: mornings from six am to nine am Eastern. Subscribe to 595 00:27:28,000 --> 00:27:31,240 Speaker 2: the podcast on Apple, Spotify, or anywhere else you listen, 596 00:27:31,520 --> 00:27:34,119 Speaker 2: and as always, on the Bloomberg Terminal and the Bloomberg 597 00:27:34,160 --> 00:27:34,760 Speaker 2: Business app