WEBVTT - Tariff Ruling as Traders Ready for Jobs 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app, 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.200 us live on YouTube. 0:00:27.480 --> 0:00:31.040 This is incredibly well timed for the news. Laurie Calvesina 0:00:31.600 --> 0:00:32.159 with this. 0:00:32.960 --> 0:00:35.040 At RBC in where they work at Credit Squeeze. 0:00:35.040 --> 0:00:37.920 Over the years, Lauriae, I've never seen this where once 0:00:37.960 --> 0:00:42.200 again vix out three big figures, and I just don't 0:00:42.280 --> 0:00:45.240 see the sweat that I should see with a vix 0:00:45.280 --> 0:00:50.159 out three big figures. We're just weaned. We're hardwired by 0:00:50.240 --> 0:00:51.239 in the dip, aren't we. 0:00:51.880 --> 0:00:54.960 So it's interesting, Tom, if you look at aaii net bowls, 0:00:55.320 --> 0:00:57.800 they dropped like a stone, sunk like a stone. I 0:00:57.800 --> 0:00:59.680 guess I should stay in August. And the last time 0:00:59.680 --> 0:01:01.640 we saw that was the first quarter of this year, 0:01:02.040 --> 0:01:04.959 which predated the tariff sell off that we got. But 0:01:05.040 --> 0:01:07.840 in retrospect was an indication that maybe that by the 0:01:08.200 --> 0:01:11.680 mentality wasn't going to be rushing in to save the day. 0:01:12.560 --> 0:01:14.720 So you know, it's funny, Tom, we're having sort of 0:01:15.280 --> 0:01:17.720 a red day or red morning to start the week. 0:01:18.720 --> 0:01:21.679 I'm a little surprised, you know, by the timing of 0:01:21.720 --> 0:01:24.240 it necessarily, but you know, of this particular day. But 0:01:24.319 --> 0:01:26.920 that being said, we had been telling people, you know, 0:01:27.319 --> 0:01:31.200 back in August AAI I had sung valuations were stretched 0:01:31.520 --> 0:01:33.800 and seasonalities poor in September and October. 0:01:33.880 --> 0:01:36.160 Well, I've been remiss and mentioned it's the Nasdaq one 0:01:36.200 --> 0:01:38.800 hundred a negative one point five percent this morning. 0:01:38.800 --> 0:01:42.720 Absolutely, So let's let's just start with valuation. How are 0:01:42.760 --> 0:01:44.199 you thinking about valuation here? 0:01:44.319 --> 0:01:44.480 Is that? 0:01:44.760 --> 0:01:47.760 Is that a cost for concern as we think about it? 0:01:47.880 --> 0:01:47.960 So? 0:01:48.040 --> 0:01:48.680 I think it is. 0:01:48.760 --> 0:01:51.480 And if you look at just plain old fashioned vanilla 0:01:51.680 --> 0:01:54.480 forward pe multiples, a market cap weighted s and P 0:01:54.600 --> 0:01:57.280 five hundred number has been bumping up against recent highs 0:01:57.320 --> 0:01:59.040 and started to stall. We've seen the same thing on 0:01:59.080 --> 0:02:00.920 the Nasdaq one hundred, even if you look at it 0:02:00.960 --> 0:02:04.160 on an equal weighted basis, And you know, the way 0:02:04.160 --> 0:02:05.520 we put it is that we sort of hit a 0:02:05.600 --> 0:02:09.520 valuation ceiling and things get a little bit tougher, and 0:02:09.800 --> 0:02:12.240 it really just represents a headwind that you're kind of 0:02:12.280 --> 0:02:15.200 not really vulnerable to good news anymore, but you are 0:02:15.280 --> 0:02:17.280 vulnerable to bad news, and this morning the bad news 0:02:17.280 --> 0:02:18.919 seems to be the bond market acting out. 0:02:19.400 --> 0:02:21.800 Yeah, exactly, We've got the ten year treasure yields out 0:02:21.800 --> 0:02:24.440 about six basis points four point two nine percent here, 0:02:25.320 --> 0:02:28.000 so we do have a FED that presumably is going 0:02:28.040 --> 0:02:31.360 to start easing. How does that play into your outlook? 0:02:31.600 --> 0:02:33.600 So it's a great question, Paul, and I'll tell you. 0:02:33.639 --> 0:02:35.840 We have a you know, sort of a top down 0:02:35.919 --> 0:02:38.519 valuation model where we project where the PE should be 0:02:38.560 --> 0:02:40.239 at the end of the year on a trailing basis, 0:02:40.280 --> 0:02:42.560 and three inputs into that are inflation, the FED, and 0:02:42.600 --> 0:02:45.520 ten year yields. The FED cutting, you know, getting some 0:02:45.639 --> 0:02:49.200 relief there should give you some upward lift to that PE, 0:02:49.560 --> 0:02:52.160 but inflation moving up should give you some downward pressure. 0:02:52.240 --> 0:02:54.680 And we'll see you know, TBD on the ten year yield, 0:02:55.360 --> 0:02:57.720 but it tends to be more of an inversely correlated factor. 0:02:57.760 --> 0:02:59.560 So even if we have cuts coming off, ten year 0:02:59.600 --> 0:03:00.639 yields are moving up. 0:03:00.919 --> 0:03:01.440 The way the. 0:03:01.400 --> 0:03:03.880 Math works says, you know, at best, they sort of 0:03:03.919 --> 0:03:05.120 net out, you know, at the end of the day 0:03:05.120 --> 0:03:07.520 if you throw inflation and may give you some downward pressure. 0:03:07.960 --> 0:03:11.079 Right, So how do you screen here in this kind 0:03:11.120 --> 0:03:14.480 of market? Again where it's a most people call it 0:03:14.480 --> 0:03:17.080 an expensive market, but it's supported by some pretty solid 0:03:17.080 --> 0:03:17.920 earnings out there. 0:03:18.160 --> 0:03:21.040 How do you screen here? You screen by industry, by factor. 0:03:21.040 --> 0:03:22.600 How do you think so we you know, we tend 0:03:22.600 --> 0:03:25.320 to do less work on factors. I tend to do 0:03:25.360 --> 0:03:28.000 more work on sectors and industries. And I'll tell you 0:03:28.160 --> 0:03:30.280 I put another chart into the weekly this week. I'm 0:03:30.360 --> 0:03:32.360 sounding like a broken record, but it comes back to 0:03:32.400 --> 0:03:35.680 the financials and we did some work around ism prices 0:03:35.720 --> 0:03:38.200 paid last week, just looking at its relationship to the 0:03:38.240 --> 0:03:40.800 stock market, and then I ran it against sector performance 0:03:41.200 --> 0:03:44.040 and guess what financials comes out as your top sector. 0:03:44.440 --> 0:03:47.200 If that sort of leading indicator of inflation is moving up, 0:03:47.240 --> 0:03:49.960 things like healthcare and staples tend to underperform. 0:03:50.040 --> 0:03:53.240 Do you have a vector of inflation higher or is 0:03:53.280 --> 0:03:55.480 it a vector level persistent? 0:03:56.400 --> 0:03:59.640 So you know, our economists are looking for inflation on 0:03:59.680 --> 0:04:01.240 a head line basis. I think to move up to 0:04:01.240 --> 0:04:03.200 around two point nine percent at the end of the year, 0:04:03.240 --> 0:04:06.360 So nothing crazy like what we saw in sort of 0:04:06.400 --> 0:04:08.600 the you know, kind of post COVID era or even 0:04:08.680 --> 0:04:11.360 back in the seventies, but you know, certainly far away 0:04:11.400 --> 0:04:14.200 from that two percent target that the FED has, And 0:04:14.760 --> 0:04:16.200 you know, I think this is just going to be 0:04:16.440 --> 0:04:18.960 the question. You know, we've got this real test coming up. 0:04:19.200 --> 0:04:21.520 We know the inflation pressures are there. We don't know 0:04:21.560 --> 0:04:23.599 what the demand picture is really going to be, but 0:04:23.680 --> 0:04:27.640 we know that tariffs are creating some upwards seen into sectors. 0:04:27.720 --> 0:04:30.640 I mean, I like this idea, how quaint sectors If 0:04:31.120 --> 0:04:35.080 I have a persistent inflation, which sectors win? 0:04:35.560 --> 0:04:38.159 So you've actually been seeing energy act a little bit better. 0:04:38.200 --> 0:04:40.560 And that's another one that typically, you know, we've just 0:04:40.640 --> 0:04:43.120 noticed more anecdotally less so in a study like the 0:04:43.160 --> 0:04:46.640 one I mentioned, But if you expect to see you know, 0:04:46.720 --> 0:04:48.920 sort of inflation pressures mount, we often will see the 0:04:48.920 --> 0:04:53.080 commodity sectors do quite well. We actually upgraded materials the 0:04:53.160 --> 0:04:55.240 last time we made sort of our quarterly changes to 0:04:55.279 --> 0:04:59.000 sector bets, and we liked the valuations there. Our analysts 0:04:59.040 --> 0:05:01.919 were pretty enthusiasm. There are clearly some tariff headwinds, but 0:05:01.920 --> 0:05:03.760 there's also a lot of you know, kind of a 0:05:03.880 --> 0:05:05.560 dollar benefit from a weeker dollar. 0:05:06.200 --> 0:05:08.919 I about just the concentration risk in this market. 0:05:08.920 --> 0:05:10.880 Every once in a while, like every other week, maybe 0:05:10.880 --> 0:05:14.120 it gets called out somewhere that boy it's ten percent. 0:05:14.160 --> 0:05:16.599 You know, they're you know, halfu of stocks are really 0:05:16.640 --> 0:05:19.000 responsible for the performance of the S and P five hundred. 0:05:19.240 --> 0:05:20.560 How do you guys think about that? 0:05:20.680 --> 0:05:22.360 So we have one chart in our deck. 0:05:22.680 --> 0:05:24.360 This may be the first time I've ever talked about 0:05:24.360 --> 0:05:26.880 it on TV, but we look at those top ten 0:05:27.000 --> 0:05:29.080 market cap names in the S and P five hundred 0:05:29.080 --> 0:05:31.120 as a percent of net income of the S and P, 0:05:31.279 --> 0:05:33.320 and then we compare it to the percent of market cap. 0:05:33.920 --> 0:05:36.120 And what we're seeing is that the market cap has 0:05:36.200 --> 0:05:38.840 exceeded the net income percentage. But that gap has been 0:05:38.880 --> 0:05:40.680 pretty stable in recent years, so. 0:05:40.640 --> 0:05:42.680 You're getting the premium. I will tell you. 0:05:42.720 --> 0:05:44.720 In August, it did seem like the gap got a 0:05:44.760 --> 0:05:47.640 little bit wider between the two. Nothing super alarming, but 0:05:47.680 --> 0:05:49.480 you could have made the case looking at that chart 0:05:49.480 --> 0:05:52.360 that the concentration, you know, maybe got a little bit 0:05:52.360 --> 0:05:54.560 of ahead of the relationship that have been in place 0:05:54.560 --> 0:05:55.000 the last time. 0:05:55.000 --> 0:05:56.120 So what is I mean? 0:05:56.120 --> 0:05:59.320 Come on, it's September. I believe the quarter in September 0:05:59.320 --> 0:06:00.960 thirty the present and can't change. 0:06:00.760 --> 0:06:01.680 That, right, I don't think so? 0:06:01.720 --> 0:06:04.599 Okay, thank you anyone, but September thirty. JP Morgan is 0:06:04.600 --> 0:06:08.559 October fourteenth. I mean, we got earnings wrong last time 0:06:08.640 --> 0:06:11.560 and the time before. Are we reducing it again? 0:06:11.800 --> 0:06:14.279 Well, look, I will tell you that on earnings this 0:06:14.440 --> 0:06:16.960 last reporting season, I would sort of fade the idea 0:06:16.960 --> 0:06:18.960 that it was the best reporting season ever. I think 0:06:19.000 --> 0:06:21.680 one of my competitors actually said that. And if you 0:06:21.680 --> 0:06:23.360 go through and you look at the data, a lot 0:06:23.400 --> 0:06:25.680 of it was backward looking. And it was because of 0:06:25.760 --> 0:06:28.000 all these tariff impacts that weren't as bad as what 0:06:28.040 --> 0:06:30.120 people had put in in the last reporting season. And 0:06:30.160 --> 0:06:33.520 guess what, everybody figured that out starting in May, right, 0:06:33.560 --> 0:06:36.000 and so it really had already gotten baked in. It 0:06:36.000 --> 0:06:38.760 was a very sort of backward looking beat. If you 0:06:38.839 --> 0:06:41.200 look at, you know, kind of the forward looking growth 0:06:41.240 --> 0:06:44.440 expectations for twenty twenty six, we only saw them go up. 0:06:44.480 --> 0:06:46.320 And you know, if you look at that percentage growth 0:06:46.360 --> 0:06:48.400 rate twenty six over twenty five, it only went up 0:06:48.400 --> 0:06:50.040 for two sectors, tech and materials. 0:06:50.040 --> 0:06:51.160 It went down everywhere else. 0:06:51.480 --> 0:06:54.800 That doesn't mean to me, that doesn't scream that we 0:06:54.920 --> 0:06:57.240 just injected a bunch of optimism into the outlook. 0:06:57.680 --> 0:07:00.600 I have one final quest. I mean, you're so healthy, 0:07:00.640 --> 0:07:03.479 I mean for your children, are you going with the 0:07:03.600 --> 0:07:08.320 leaded cheese or Kraft singles two percent milk American cheese. 0:07:08.520 --> 0:07:11.160 We do not do Kraft, the Kraft singles we do. 0:07:11.200 --> 0:07:12.720 The mozzarella sticks were big. 0:07:14.360 --> 0:07:15.520 Those are very big. Thank you. 0:07:15.760 --> 0:07:17.440 Yeah, the little one likes those. 0:07:17.600 --> 0:07:18.920 Yeah, you gotta keep them happy. 0:07:20.120 --> 0:07:23.760 Who does match sha go long mozzarella sticks. 0:07:22.640 --> 0:07:25.120 Also, we also. 0:07:24.920 --> 0:07:28.360 Have a daily dose of chocolate milk, so very good. 0:07:28.480 --> 0:07:28.960 I like that. 0:07:29.120 --> 0:07:33.080 I like that too. Remember Bosco, come in. You've been Bosco. 0:07:33.240 --> 0:07:36.840 Your mother know you're too young to remember. I remember 0:07:36.920 --> 0:07:41.480 powdered milk. You talk about Death's door. Lauri Calvicina, thank 0:07:41.520 --> 0:07:43.200 you so much, greatly appreciate it. 0:07:43.520 --> 0:07:44.200 Stay with us. 0:07:44.480 --> 0:07:47.720 More from Bloomberg Surveillance coming up after this. 0:07:54.960 --> 0:07:58.559 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:07:58.600 --> 0:08:01.640 weekday afternoons from seven into ten am. He's durn Listen 0:08:01.680 --> 0:08:05.280 on Apple, Karplay and Android Otto with the Bloomberg Business app, 0:08:05.440 --> 0:08:07.120 or watch us live on YouTube. 0:08:07.200 --> 0:08:11.560 Henrietta Trey's briefs This avoiding the speculation of the weekend 0:08:11.600 --> 0:08:15.800 and the president's health. Henrietta, if we have a war department, 0:08:16.280 --> 0:08:20.240 what is the symbolism of going from Harry Truman's defense 0:08:20.520 --> 0:08:24.160 Department back to a renamed War Department. 0:08:25.200 --> 0:08:28.400 I think the most important takeaway here is that Congress 0:08:28.440 --> 0:08:31.480 is about to reinsert itself into the conversation for the 0:08:31.480 --> 0:08:34.280 first time in a month. Recall that the House left 0:08:34.360 --> 0:08:38.720 early at the end of their scheduled the scheduled work period. 0:08:38.800 --> 0:08:42.440 They called it quits early because of the hullabaloo around 0:08:42.440 --> 0:08:45.160 the Epstein files. So now the President is going to 0:08:45.160 --> 0:08:52.120 be facing a serious litany of competition from Congress when 0:08:52.120 --> 0:08:55.080 they get back to talk about, you know, Miron, the 0:08:55.120 --> 0:08:58.520 firing of Cook, the firing of the your Labor Statistics Commissioner, 0:08:59.240 --> 0:09:02.720 the why not rename the War Department. It's a great 0:09:02.720 --> 0:09:05.120 way to have another way to control the narrative, which 0:09:05.160 --> 0:09:07.760 is going to be critical going into a potential government shutdown. 0:09:08.000 --> 0:09:10.760 The fact that the Federal Court of Appeals ruled that 0:09:10.800 --> 0:09:14.120 his aipatas were unlawful, and a whole host of other 0:09:14.160 --> 0:09:16.200 things that he hasn't had to address for five weeks 0:09:16.200 --> 0:09:17.640 and is going to have to starting today. 0:09:17.840 --> 0:09:20.960 So a great way to have a counter cycle. 0:09:21.160 --> 0:09:24.960 Who in Congress is going to drive the agenda over 0:09:25.000 --> 0:09:28.440 the next several weeks and months here the social play. 0:09:28.280 --> 0:09:31.920 Out, well, really we're going to see the government shutdown 0:09:32.080 --> 0:09:35.000 probably start to drive the narrative pretty quickly because it 0:09:35.120 --> 0:09:37.679 is the most pressing issue for them. This month, we're 0:09:37.679 --> 0:09:39.840 going to do the National Defense Authorization Act in the 0:09:39.840 --> 0:09:42.760 Senate this week. We'll get the mirror confirmation hearing in 0:09:42.800 --> 0:09:45.920 the Senate Banking Committee on Thursday. The House is going 0:09:46.000 --> 0:09:49.680 to take up their NDAA next week. Those let's just 0:09:49.679 --> 0:09:52.160 avert a government shutdown narratives are really going to drive 0:09:52.200 --> 0:09:54.720 because that's the most urgent, pressing issue. There will be 0:09:54.720 --> 0:09:59.360 press conferences with Republican Congressman Massy over Epstein. 0:09:59.400 --> 0:10:01.040 They'll try to get that bill to the floor. 0:10:01.640 --> 0:10:03.720 The Senators are going to talk about, you know, whether 0:10:03.800 --> 0:10:06.040 or not they can cobble together an appropriations bill and 0:10:06.080 --> 0:10:08.959 pocket recisions. The driving narrative is really going to be 0:10:08.960 --> 0:10:11.200 the legislative agenda. I love the using the calendar just 0:10:11.240 --> 0:10:13.000 for that purpose. It's all about a shutdown. 0:10:13.400 --> 0:10:15.560 So, Henryette ken you, I feel like I ask you 0:10:15.600 --> 0:10:18.920 this question every six or nine months. What is the 0:10:18.960 --> 0:10:20.959 calendar look like as it relates to a shutdown? 0:10:20.960 --> 0:10:22.800 What is the timing and the milestones we have to 0:10:22.800 --> 0:10:23.440 pay attention to. 0:10:24.320 --> 0:10:26.560 Basically, we need them to come to an agreement to 0:10:26.640 --> 0:10:29.480 keep the lights on by September thirtieth at midnight. Asking 0:10:29.520 --> 0:10:33.160 any more than that is probably unrealistic. The House and 0:10:33.200 --> 0:10:35.920 Senate having come to an agreement on all twelve appropriations 0:10:35.920 --> 0:10:37.839 bills since I want to say Bill Clinton's era in 0:10:37.920 --> 0:10:41.640 ninety six, so you know, any hopes of camaraderie and 0:10:41.679 --> 0:10:44.880 bipartisanship have flown that they are not realistic. But a 0:10:44.960 --> 0:10:47.640 short term staff gap that's going to probably weigh on 0:10:48.120 --> 0:10:51.040 the legislative agenda another one or two times for the 0:10:51.080 --> 0:10:52.840 rest of this year is what we should expect. 0:10:53.240 --> 0:10:55.000 I don't think there will be a shutdown. My odds 0:10:55.040 --> 0:10:55.960 are twenty five percent. 0:10:56.000 --> 0:10:58.240 That's pretty high for me, to be honest, But that's 0:10:58.240 --> 0:11:00.760 because the administration is doing something called a rocket recision 0:11:00.800 --> 0:11:02.040 where they try to cut spending. 0:11:02.040 --> 0:11:03.280 The Congress is already. 0:11:02.960 --> 0:11:06.760 Appropriated, but the shutdown would start at twelve oh one 0:11:06.840 --> 0:11:07.880 on October. 0:11:07.440 --> 0:11:08.920 First, and too short a visit. 0:11:09.000 --> 0:11:10.720 Let me squeeze this in and I got like eight 0:11:10.720 --> 0:11:12.600 ways to go here, folks. We literally could do two 0:11:12.679 --> 0:11:16.800 hours with the Henrietta this morning. How does the imagery, 0:11:17.160 --> 0:11:23.120 the pageantry play of putin g mody all the different 0:11:23.200 --> 0:11:27.760 Bloomberg is a beautiful images g and Putin best pales, 0:11:27.800 --> 0:11:32.520 best buds. How does it play in your world, Henrietta, In. 0:11:32.440 --> 0:11:34.960 My world, which is very much tariff world, it shows 0:11:35.000 --> 0:11:39.200 you the negative consequences of tariffs. You penalize our global allies, 0:11:39.400 --> 0:11:43.440 NATO allies, You push India, who we've tried to foster 0:11:43.480 --> 0:11:46.520 a relationship with for thirty years, that have made incredible 0:11:46.520 --> 0:11:49.400 strides considering their neighboring China. 0:11:49.600 --> 0:11:51.000 Is really really telling. 0:11:51.040 --> 0:11:54.680 And the part that's really striking is how personal the 0:11:54.720 --> 0:11:57.920 President makes his relationships with all of these men, whether 0:11:57.960 --> 0:12:01.800 it's President She, President Putin Modi. The President has gone 0:12:01.840 --> 0:12:04.199 out of his way to explain that he can fix 0:12:04.280 --> 0:12:08.240 the US, the Ukraine Russia war on day one, Gaza 0:12:08.320 --> 0:12:11.280 on day one. He has an incredible relationship with President She, 0:12:11.400 --> 0:12:15.120 an incredible relationship with Mody, and yet we see precisely 0:12:15.160 --> 0:12:19.080 the opposite, this relationship actually not being valid and driving 0:12:19.120 --> 0:12:21.439 those men together because. 0:12:21.000 --> 0:12:22.280 Of the tyriffs. 0:12:21.920 --> 0:12:26.160 It's a obvious consequence, but nonetheless unintended from the administration. 0:12:26.400 --> 0:12:27.880 We got to get you on daily and the new 0:12:27.960 --> 0:12:30.720 slow extraordinary Henry ou to trace, Thank you so much, 0:12:30.960 --> 0:12:35.120 stay with us. More from Bloomberg surveillance coming up after this. 0:12:42.360 --> 0:12:45.960 You're listening to the Bloomberg Surveillance Podcast. Catch us Live 0:12:46.040 --> 0:12:49.160 weekday afternoons from seven to ten am Eastern Listen on 0:12:49.280 --> 0:12:52.880 Apple Karplay and Android Otto with the Bloomberg Business app. 0:12:52.840 --> 0:12:56.360 Or watch us Live on YouTube. This is the interview 0:12:56.520 --> 0:12:57.040 of the day. 0:12:57.080 --> 0:13:00.760 It is Ernie Tedesky, the Budget lab at you on 0:13:00.800 --> 0:13:05.240 your grocery bill, on the tariffs, on vespas, the tariffs 0:13:05.280 --> 0:13:08.680 that are happening. The Budget lab At, y know, absolutely 0:13:08.760 --> 0:13:13.480 expert under his leadership, Ernie, what inning are we in 0:13:13.480 --> 0:13:16.360 in the impact of tariffs upon us all? 0:13:16.760 --> 0:13:20.439 Is it like the second inning? Or are we like along 0:13:20.480 --> 0:13:20.800 the way? 0:13:21.840 --> 0:13:24.719 I think that we're like in the sixth word. We're 0:13:24.760 --> 0:13:27.240 not quite at the seventh inning stretch. Yet we are 0:13:27.320 --> 0:13:31.440 starting to see impacts on actual economic data. So so 0:13:31.559 --> 0:13:34.640 core goods prices are about two percent higher than they 0:13:34.920 --> 0:13:38.000 would have been based on pre twenty twenty five trend 0:13:38.480 --> 0:13:41.000 and that suggests that like as of June and July, 0:13:41.280 --> 0:13:45.040 consumers were paying about three quarters of the tariffs and 0:13:45.480 --> 0:13:46.960 probably American. 0:13:46.520 --> 0:13:47.520 Businesses the rest. 0:13:47.679 --> 0:13:51.440 There's very little evidence that foreign producers are paying them 0:13:51.520 --> 0:13:52.040 right now. 0:13:52.080 --> 0:13:54.400 So look, there's obviously more to come. 0:13:54.520 --> 0:13:58.840 We expect announcements on things like semiconductors, pharmaceuticals, et cetera. 0:13:59.720 --> 0:14:03.280 But you know, it's we're beyond the beginning of the game. 0:14:03.679 --> 0:14:04.040 Ernie. 0:14:04.559 --> 0:14:07.760 I've been talking a lot about the microeconomics and dynamics 0:14:07.760 --> 0:14:10.720 of the substitution effect, where Paul wants a vest but 0:14:10.840 --> 0:14:13.920 in study by Zah Harley, I get that idea. But 0:14:13.960 --> 0:14:16.679 there's also any income effect. Are you at the budget 0:14:16.760 --> 0:14:20.560 lab at Yale? Are you seeing a diminished appetite for growth? 0:14:20.600 --> 0:14:23.920 Are you seeing a diminished nominal GDP because of this 0:14:24.040 --> 0:14:25.200 tariff tension. 0:14:26.040 --> 0:14:29.239 It's tough to see right now because consumers and businesses 0:14:29.280 --> 0:14:33.160 are timing the tariffs and they're still trying to sort 0:14:33.200 --> 0:14:35.000 out what we're all trying to sort out, which is 0:14:35.040 --> 0:14:38.240 the best time to import things, the best time to buy. So, 0:14:38.640 --> 0:14:42.240 you know, we've seen big declines in consumer spending in 0:14:42.320 --> 0:14:46.600 certain months, especially late last year early this year, that 0:14:46.680 --> 0:14:50.480 seemed to definitely be anticipatory tariff effects. But then they're 0:14:50.520 --> 0:14:54.240 followed by big spikes as there is a tariff pause 0:14:54.360 --> 0:14:57.040 or tariff relief. You know that's temporary, and so people 0:14:57.040 --> 0:15:00.520 try to get their spending in. So it's really clear 0:15:00.680 --> 0:15:04.440 what the ongoing effect is, you know, looking through all 0:15:04.440 --> 0:15:07.200 that noise, we think that ultimately the terriffs that have 0:15:07.280 --> 0:15:10.560 been announced will be the equivalent of, you know, about 0:15:10.560 --> 0:15:13.640 twenty four hundred dollars off of the purchasing power of 0:15:14.320 --> 0:15:16.400 the average American household. But that's going to take about 0:15:16.400 --> 0:15:18.240 two years or three years to get there. 0:15:18.400 --> 0:15:21.440 Paul Harley, this most like a vespa is a Harley 0:15:21.560 --> 0:15:25.360 soft tail, slim oh okay and crimson stonewashed white and 0:15:25.360 --> 0:15:27.480 pearls so solid. 0:15:27.520 --> 0:15:31.240 For the executive, I got the vesta pree tariff Ernie 0:15:31.320 --> 0:15:33.560 talk to us about it. Kind of the nature of 0:15:33.600 --> 0:15:36.120 these tariffs is it as a white house which to 0:15:36.400 --> 0:15:40.920 suggest a one time price adjustment versus maybe a beginning 0:15:41.000 --> 0:15:42.760 of a inflationary trend. 0:15:43.800 --> 0:15:46.560 So that's also really hard to parse right now because 0:15:46.600 --> 0:15:49.200 on the one hand, like the textbook will tell you 0:15:49.280 --> 0:15:52.080 that this is a one time price adjustment. On the 0:15:52.120 --> 0:15:55.720 other hand, when the given the chaotic rollout of the 0:15:55.760 --> 0:15:59.280 tariffs and the gradual rollout of the tariffs, even if 0:15:59.280 --> 0:16:02.360 it is a one time price adjustment, because it's so 0:16:02.880 --> 0:16:07.320 you know, incremental, it feels like true inflation to people 0:16:07.800 --> 0:16:09.520 because they get a little bit one month, they get 0:16:09.560 --> 0:16:11.480 a little bit more the next month, and so it 0:16:11.480 --> 0:16:12.760 doesn't feel like one time, it. 0:16:12.760 --> 0:16:14.560 Feels like it's this ongoing thing. 0:16:14.880 --> 0:16:18.240 Plus there is the FED concern that this is going 0:16:18.280 --> 0:16:22.040 to spill over into supply chains and actually be more 0:16:22.080 --> 0:16:25.600 persistently inflationary. We haven't seen evidence of that yet, but 0:16:26.000 --> 0:16:28.840 you know, like I said, we're it's not the beginning anymore, 0:16:28.880 --> 0:16:31.040 but it's not you know, it's not the late game still, 0:16:31.080 --> 0:16:32.680 so we're still looking for more evidence. 0:16:33.320 --> 0:16:35.920 Well, on the other side, Ernie, I guess it is 0:16:35.960 --> 0:16:40.320 in fact true that the government is raising tariff revenue. 0:16:40.560 --> 0:16:43.400 Is It's correct, no doubt. 0:16:43.680 --> 0:16:49.400 We've raised almost ninety billion dollars this year from just 0:16:49.520 --> 0:16:52.040 the new tariffs that have been announced in twenty twenty five. 0:16:52.040 --> 0:16:54.200 That's not total tariff revenue. That's just from the new 0:16:54.200 --> 0:16:57.200 tariffs that is. Look, that is substantial. We think that 0:16:57.200 --> 0:17:01.120 that is consistent with three trillion dollars new tariff revenue 0:17:01.320 --> 0:17:04.000 over ten years if the tariffs are kept in place. 0:17:04.359 --> 0:17:07.960 Nobody should downplay that is that is a major amount 0:17:07.960 --> 0:17:08.399 of revenue. 0:17:08.840 --> 0:17:12.600 Just to tie it together for our listeners and viewers, 0:17:12.960 --> 0:17:16.160 of that nine twenty billion a month, sixty to eighty 0:17:16.200 --> 0:17:18.840 percent is being paid for by consumers and the rest 0:17:18.880 --> 0:17:19.920 buy American businesses. 0:17:20.840 --> 0:17:22.520 So that's what we think. So this is a tax 0:17:22.560 --> 0:17:25.080 on Americans, let's be clear about that. The other thing 0:17:25.080 --> 0:17:27.720 that's interesting so far, and we're going to start incorporating 0:17:27.760 --> 0:17:31.320 this into our modeling, is that some tariffs are coming 0:17:31.320 --> 0:17:36.240 in much lower than we expected, in particular Canada, where 0:17:37.119 --> 0:17:40.760 ninety two percent of Canadian trade is now tariff free, 0:17:41.040 --> 0:17:43.960 which is much higher than we expected given USMC. So 0:17:44.080 --> 0:17:48.480 it appears that Canadian firms and American importers are taking 0:17:48.520 --> 0:17:51.960 advantage of lots of different I won't say loopholes because 0:17:52.440 --> 0:17:56.560 I'm sure it's all legal, but you know, available authorities 0:17:56.600 --> 0:17:58.199 to bring things in TIF free. 0:17:58.400 --> 0:18:00.159 You know, I know, I knew, haven Ernie, you just 0:18:00.200 --> 0:18:02.359 doing pizza to takeout. I mean, you know that's what 0:18:02.440 --> 0:18:06.159 you're rolling. But I look to groceries this weekend and 0:18:06.200 --> 0:18:09.879 it's just jaw dropping out. Everything's up. Are the price 0:18:09.960 --> 0:18:14.280 of groceries and produce up because of your world of tariffs. 0:18:15.480 --> 0:18:18.120 So a little bit so a couple of things. One, 0:18:18.320 --> 0:18:20.800 we get a lot of produce from Canada and Mexico. 0:18:21.119 --> 0:18:26.640 Mexico in particular, and like fresh produce especially falls under 0:18:26.720 --> 0:18:30.280 us mc A ninety percent of the time. And if remember, 0:18:30.320 --> 0:18:33.480 if something is us mc A compliant, it's tariff free. 0:18:34.040 --> 0:18:37.840 So you know, Mexican avocados are probably not very sensitive 0:18:37.840 --> 0:18:40.520 at all to tariffs. The other thing is that there's 0:18:40.560 --> 0:18:43.560 a lot of non tariff stuff going on in groceries 0:18:43.640 --> 0:18:47.760 right now. Beef obviously, you know that's a whole thing, 0:18:47.960 --> 0:18:50.239 but that's got very little to do with tariffs. That 0:18:50.280 --> 0:18:54.320 has more to do with worldwide drafts, et cetera. So 0:18:54.320 --> 0:18:57.159 so I think that I think the tariff story is 0:18:57.200 --> 0:19:00.560 more on the good side things like appliance, is tronics, 0:19:00.600 --> 0:19:02.160 furniture rather than groceries. 0:19:02.280 --> 0:19:05.119 I know, you to front run your academics, but when 0:19:05.160 --> 0:19:08.960 you have a meeting today with Miss Gimbal and the rest, 0:19:09.160 --> 0:19:12.080 what's the thing that you're thinking about at the Yale 0:19:12.160 --> 0:19:12.800 Budget Lab. 0:19:13.640 --> 0:19:15.880 So the thing is, so we're thinking about we think 0:19:15.920 --> 0:19:17.439 about lots of things all the time, but I mean 0:19:17.440 --> 0:19:20.880 the thing that we're thinking about most is, you know, 0:19:20.960 --> 0:19:24.520 where do we go from here in terms of tariff revenue? 0:19:24.520 --> 0:19:27.960 Because we're we're a fiscal and a macroeconomic think take. 0:19:28.440 --> 0:19:31.320 So you know, we've we've done a lot of work 0:19:31.359 --> 0:19:36.120 on the macroeconomics. We're trying to think about ways that 0:19:36.440 --> 0:19:39.440