CC-Transcript

• 00:00Do you expect these numbers to start picking up as we get data later in the year? The inflation, the inflation numbers, the inflation numbers are going to be biased higher as we go into the coming months. I think it’s a question of how quickly we feel those effects. We got comments from the head of the L.A. ports last night suggesting that within the next two weeks they expect to see shipments coming in from Asia, down 35% from a year ago. But that’s just the ports. Then we have to get things to the trucks and then we have to get them in the stores. But as supplies dwindle and if the consumer still has a job sales income to spend, they’re going to be paying more for what they can get. So I don’t think we see it tomorrow, but we’re starting to see little inklings of it and it’s going to keep building over the coming months. So I do think the inflation data is biased higher. And given that, you know, it’s going to be very difficult for the Fed to cut, I think the first cut is priced in for July. You would have to see the job situation deteriorate materially for that to be the number one concern for the Fed versus inflation. Well, let’s talk about that a little bit more. We’re a week away from the May meeting for the Federal Reserve. As we mentioned, market pricing in for cuts right now for 2025 firmly versus that that’s going to be difficult to deliver on. But, I mean, when do you think that the balance shifts from, okay, inflation is high, we have to stand pat, too? Oh, boy, look at this economic environment. Take a look at these growth figures. We have to do something. You know, the good news is we started this year in a strong place. We had record household wealth. We had a strong job market. People have incomes. We had low consumer and business leverage. So that allows us to slow, but at least from a high level, we also have and we’re going to see it in the earnings numbers and the corporate guidance in the coming days. The big tech companies are continuing to make this race on AI. And so they’re just going to continue to put in the CapEx dollars, which is a support for the economy, all else equal. So we are slowing. The question is how, how bad and how quickly? I think companies are going to be reluctant to lay off more workers than necessary because there’s so much I’m sorry to use the word uncertainty and because of the experience they had after COVID. Exactly right. They don’t want to fire too much and then have to turn around and rehire. It’s disruptive and it’s very expensive. So I think we’re going to probably see a softer labor market. The question is how quickly and how much momentum does that get? I think it’s going to be a slow grind. I want to pull up also a note this morning trying to look at the bigger picture here for a moment. There’s so much a day to day headline drift. Apollo actually warned investors in recent days about risks to US markets. And they talked about that premium that U.S. assets have against the rest of the world. And they warned that this is at risk. They say the longer and more volatile the path to a trade policy reset is, the greater the risk to this regime and its benefits. Yeah. How worried are you about that longer term shift in the middle of all of this noise? I agree with Apollo on the likelihood increasingly confident of a shift. So when I was at the IMF World Bank meetings in Washington, D.C. last week, I had the opportunity to speak with dozens of investors from overseas. And I think sometimes here in the States, we underappreciated how important this source of capital is for U.S. assets. You know, as of the latest Treasury data, $31 trillion in U.S. stocks and bonds. And when I talk to people who are running pension funds, sovereign wealth funds, etc., they’re thinking they have to have a new risk premium on U.S. assets, that U.S. assets, you can’t see them as attractive as they were before because of the policy uncertainty, because of the tariffs, because of the US’s standing as a reliable partner. And so if they were to simply reallocate 2% off of stocks or 2% off bonds, that would be a $1.24 trillion capital flow. So it’s going to continue to weaken The dollar doesn’t mean stocks can’t go up, but it removes a pretty important source of support. But to your point, it’s not a Liz Truss moment. This is going to be a slow bleed that happens over months because these firms have to go to investment committees to get things approved. It takes a while, but I think increasingly it’s likely to happen. So it’s as we look at all the day to day, it’s important to have that in the backdrop. I think it’s a great point because we’ve seen such swift moves in this market right after Liberation Day on April 2nd. The market’s absolutely puked for three days in a row. Right? Banks calling in traders on an emergency basis on Sunday night. And then after President Trump backed down, we soared. So real fast movements. But your point is that these big sovereign wealth funds, they’re not quick like that. They’re slow and plodding. So even if we see a crisis on the shelves of Walmart or Target, which we have yet to. See, by the way. But if we do, you don’t necessarily see the flows all disappear like that. Right. Right. And I you know, I will be excited when I see some proper data to prove this. I would guess a lot of the flows we’ve been seeing since the pause on tariffs has been US based retail investors, shorter term investors. So that’s the the fast speedboat noise going up and down in the markets day to day. Meanwhile, we have these tankers in the background and I’m talking about the foreign investors. There’s also US investors who might have gotten overweight, the big tech stocks overweight the US markets in recent years because it was the right call. And they might be saying, maybe I need to trim that a little. I think there’s that possibility, too. In addition to the 1.2 trillion I mentioned, the foreign money’s important for the dollar. And the dollar is important because of inflation, because if the weaker dollar continues and adds to import prices and that feeds into inflation, it’s another reason the Fed’s going to have to go more slowly than President Trump would like. Rebecca, we have less than a minute here. The slow bleed, the potential for that capital exodus. A lot of this is in the hands of one man. It’s in the hands of the president. If he were to reverse completely and the trade war were to end. First of all, I don’t think we’ll get a complete reversal. The 10% universal tariffs, I think, are likely to stay. They’re going to use that as revenue to help pay for the budgets. But also some measure of China tariff is going to stay. And don’t forget, we have six different Section 232 investigations underway now. Some point probably late summer, we’re going to see the results of those six different sectors that we could see new additional tariffs on. So I you know, I think hope springs eternal. But my best case scenario is that the tariff level we settle at is multiples higher of where we were in the 1930s.