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US Treasury Secretary Scott Bessont participating in a Q and A session with the Institute of International Finance. The President there and CEO Tim Adams having a little conversation about the economy, about trade policy, and we want to you know, get a sense of kind of where we go from here. Let's bring our next guest, Stewart Paul, us economist with
Bloomberg Economic Stewary. It seems like Secretary Bessant and even the President in his most recent tweets and social media posts, I guess, seemingly pulling back from some of the most you know, stringent tariff requirements. How are you guys reading that? From an economic perspective, is a US trying to to be I guess less confrontational.
From a trade perspective, I think the US is less confrontation, is trying to be a little bit less confrontational, especially when it comes to dealing with our global trading partners, that we need to offset what we typically would get from China, and I think that that's an important thing to keep in mind. When we have, let's say, a universal tariff of twenty five percent, or an average effect of tarifrate of twenty five percent, net's relatively evenly spread
across all of our trading partners. That gives us a relatively limited ability to substitute across sources and across suppliers. When we ramp up our efforts to combat China with tariffs with trade barriers, and we lower our trade barriers
everywhere else, we are becoming less confrontational globally. We're directing more of our efforts specifically towards China, and in doing so, we open up other sources for inputs to production that we might need, so probably less confrontational, and we're just
becoming more specifically targeted towards China. That's probably a good thing in terms of maintaining the global commercial order, but it also will make it an especially difficult list when it comes to negotiating some sort of a trade deal with China, who's responsible for eleven twelve percent of our imports.
He did say that the goal isn't too decoupled. But then as each day passes with no resolution or no dramatic lowering of tariffs, the viability of businesses and other things remain at risk. What can we expect, like how long can this keep on going? I guess is the question?
Yeah, it's going to be a slow de escalation. I think that that's the direction that we're going to be going. So you could talk about both the level and the direction. Right the level is, things are bad. We are at an all time a difficult moment when it comes to our relationship with China and especially our economic relationship with China. But in terms of the direction of travel, things are moving slowly in the right direction, and it can take years.
It can last well beyond the Trump administration. As we saw in the first Trump administration, he imposed Section three zero one tariffs that lasted through the Biden administration with no material change. Now there's been a ramp up. We're starting to change direction, and the de escalation process can take years.
So I guess, is Bloomberg Economics forecasting every recession.
We are not forecasting a recession at this point. We have very modest growth of just over half a percent for twenty twenty five. The contour of growth is going to be determined in large part by what segments of GDP are driving quarter to quarter dynamics. So we know that in the first quarter we should see slow growth because we've front loaded our imports of inputs to production
ahead of tariff implementation. Then when uncertainty really hits, When in certain uncertainty really hits in Q two and into Q three, we should see slower fixed investment growth That should hollow out GDP growth in the middle of the year, but probably not enough to offer set the rebound that we'll get in that export in the middle of the year.
So the contour of GDP and the dynamics for the different components of GDP are probably going to be enough to just keep modest positive growth throughout the year.
We think President Trump said that the US was doing just fine quote unquote with Beijing and did not anticipate a quote hardball negotiation. What was your team's reaction. Did you anticipate that it's.
Going to be hardball? I mean, the President's going to be able to do The President could say whatever he wants, but The reality is that the metals, let's say that we need for just base metals, inputs of production, raw materials for building buildings, electure for the electric grade for battery production, they come from China. China needs a lot of food from US. They're going to try to replace
US food, but let's say food from Brazil. So this is just a massive geopolitical upset that's going on right out. You do have to play hardball. You do have to manage your trading partners. You have to you have to prohibit let's say, geopolitical and economic promiscuity between trading partners who stand between the US and China. And so it is going to be hardball for a while. Trump likes to say that he holds all the cards to use a different analogy, but it doesn't entirely seem to be
the case. Yes, China does need food imports from the US, and they've shown they're not going to retaliate one for one, because they've only imposed you know, low double digitarifs on US corn for example. But it is going to have the opportunity to source food elsewhere, and so over the long run, it's going to be a difficult a difficult negotiation.
All right, we will stay on top of it, of course. Stuart Paul, us economists for Bloomberg Economics, joining us slid here in our Bloomberg Interactive Broker studio.
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Tesla stocks up just under eight percent today. It came out with numbers last week that last night, which were really bad, will blow expectations the worst we've seen in years yet to stock trading out because Elon Musk says that he will devote quote far more of his time to Tesla starting next month, and that's clearly what investors wanted to hear. Craig Trudell joins us Global autos editor for Bloomberg News, joining us from London via that Zoom thing. So, Craig,
is just as simple as Elon's coming back. Let's buy the stock.
Yeah, you know, I think as as our colleague Liam Denning put it. You know, the cure for musks missteps is more Musk apparently, so, you know, I do think that there were a lot of investors who wanted to see him, you know, sort of come come back and you know, devote more of his time. You know, I think you can find people who can say that, you know, that will necessarily fix all that that ails the company.
And you do have to wonder when he was saying in the same breath last night that you know he'll still you know, one or two days a week. Uh, you know, advise for the administration. Just how much he's he's really going to step back here. I would be surprised to see him. He's he's not much of a sort of backseat driver. He likes to be in control.
And Tesla sales started to really slow even before Musks through his waight around politics, and they also go through guidance for the year ahead. What are you going to look at now that he's back and we're getting more elon Musk?
Yeah, I mean I think, you know, the first thing that comes to mind for me is is, uh, you know, given all of all of the challenge challenges they're having with growing sales, you know, around this time last year is when we saw the company make these really dramatic uh you know, changes to to uh you know, headcount and and you know, restructure in this really aggressive way. I think Tesla cut quite a lot of employees last year.
And do we see Musk in his words, you know, come back and be hardcore and sort of uh you know,
throw throw his weight around. Because I think that the challenge that we're going to find this company have until and unless they follow through on these promises for you know, more affordable vehicles in the offering, uh you know, and and also I think vehicles that sort of are differentiated from just what they already have, uh, they're they're going to have trouble you know, continuing to grow and and so there's I think real concern about you know, if
they're just offering a you know, de contented version of the Model Y and or the Model three, is that really going to be enough to sort of move the needle and sort of you know, tie them over until they make some headway on on other efforts that are sort of going to take them more time, like say autonomous driving or robots.
So just with the core auto business, I know mister Musk would like to people look to other parts of his company, but the core auto business, one can argue it's never been a tougher time to compete for them. I mean, you just think it just feels like China by D specifically just kind of taken over the global EV market. What's the competitive landscape book for TESTA these days.
Yeah, I think that's a great point. You know, the Chinese market is incredibly competitive. We're seeing you know, just this week, uh, you know, fresh indication of just how tough the sledding is there at the Shanghai Auto Show, where you know, Jaomi is turning lots of heads. You know, it's it's sort of the Apple car that that Apple decided they couldn't pull off making their su seven that
that really has done well there. You know, b y D continues to just go from sort of strength to strength and really dominate in that market, and Tesla hasn't really had answers. You know, they they play in higher
priced you know brackets. It's not that they are are you know, falling apart there, but in terms of of you know, being able to sort of hang on to the position that they have, it's becoming more difficult when you have you know, a fairly stale lineup and your competitors are of peppering the market with fresh product and innovating in a way that we used to you know, kind of find Tesla was able to. The Chinese industry has really sort of taken up the mantle in this regard.
Can you talk to us more about how much of the tire of discussion was in the call, which took longer than usual. We have must sing it's pretty expensive to bring in things from China right now, and that he'll continue to advocate for lower tireff so we know that this has hurt his business, which does a lot of production and manufacturing in China.
Yeah, it was. It was a long call. It was a late night for those of us tuning in from London, so you know, it was I was a little bit surprised, I would say to hear Musk, you know, be as frank as he was about tariffs. He's of course a very frank person, but he has tended to be very careful about, you know how and when he speaks about
having any daylight between him and President Trump. But he was he was very you know, uh, sort of honest and open about this idea that he does not think that you know, tariffs are the best approach to prosperity, as he put it. And you know, while Tesla is somewhat insulated and that they make the vehicles they stell in the US, you know, in the US, and they have a plant in Shanghai that is is massive and and you know a huge source of their exports for
places other than the US. UH, the company is still affected and and particularly on the side of their energy business, which has been a bright spot, the fact that they import battery cells from China for that business. You know, there's a big concern.
There, Craig, excellent reporting. Thank you very much, appreciate it. Craig Trudelle, Global autos editor for Bloomberg News, joining us from London on Tesla.
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We're talking about Boeing putting up some results that were a little bit better and expected, and I've learned from George Ferguson that I need to focus on the cash situation of this company, particularly their free cash flow, because they need to get the free cash flow positive sooner rather than the later. And they made some progress there is what is what my read is. So let's check in with the extra George Ferguson. He covers airspace, he covers the airlines and all that kind of stuff for
Bloomberg Intelligence. George talk to us about Boeing stocks up seven percent here today? What at the company? What did your takeaways from their earnings?
Yeah, I mean, I think the biggest issue there was a cash general came in a billion dollars better than expectations.
I mean, I kind of get the sense that Boeing management has sort of.
Give us some pretty conservative estimates for cash generation for the year. I think they showed it in the first quarter, coming up, coming out pretty strong. I think there's a real good potential that Boeing could be sort of cash flat, meaning no usage for the year, or maybe even a bit of generation.
And I think as we've.
Gotten into the earnings call what we've heard ish the tariff effects are pretty manageable outside of China.
China's a bit of a challenge.
They know that, but again, a lot of the backlog is is not Chinese airplanes. A lot of that's been the Chinese haven't placed many orders, and you know, Boeing has been sort of busy getting deliveries out to them to get some of those airplanes they've already built for them off the balance sheet. So China the major issue again not not not big though. And the rest of tariff world sounds like where there's occasions that they have to pay, they're paying. They can claw back some of
those costs from the administration. So it sounds like I would say things are continued to be on track for recovery, for a strong recovery.
Hopefully it's here.
Yes, And Boeing last earned a profit in mid twenty twenty one, and it's definitely coming off. It's worse there and it's century long history. We have the CEO okay or break saying at twenty twenty five is the turnaround here? What ising going to do differently?
Well, I mean I think they're going to deliver airplanes, right, So that's the biggest challenge. When you're an aircraft manufacturer and you stop delivering airplanes and you have quality problems, that's why they stop delivering. You're just not going to generate cash. They've really been trying to keep the supply chain I would say warm, by buying components from the supply chain, and that's why they've seen inventories balloon to
like eighty seven billion dollars. I got to check and see what it was on today's balance sheet, but last balance sheet eighty seven billion dollars. So, I mean a lot of the turnaround is build those airplanes with existing inventory. Means the cash generation for the airplanes they build and deliver ought to.
Be higher than historically.
Use that money to pay it, do on debt, keep the balance sheet, or heal the balance sheet.
That's the recovery plan, George.
I know, if I'm talking to you and reading your research, the cash story hinges in large part on getting those seven three sevens out the door. Talk to us about where production is today and where do you think it's going to go in the future.
Yeah, So they said that they were the factory was building at thirty low thirties number of aircraft per month. You know, we had kind of been tracking and I think we saw high twenty. So probably Kelly's got maybe just a more current number on that. I think that they'll they'll get up to the thirty eight limits. This is all on the seven thirty seven that the FAA is put in place for them this year and go past that.
I think they'll get an.
FA approval for that, and probably at the back half of the year, we're kind of looking for them to be forty ish. And so again that you know, the more you use the factory, the more overhead gets absorbed over a larger number of airplanes. The more profitable you are, the more cash you're going to generate.
Part of that story.
Can you talk to us a bit more about how much the tariff headwind will affect the company's top line or bottom line, especially with this really heated tit for tat it seems with China, well.
So again, China has really become much less of an issue for Boeing. The Chinese have placed sixteen orders this decade for airplanes. There's some four hundred orders on the Boeing books. Still that's of a backlog, that's six thousand large.
Kelly Orberg is just talking on the call that you know he's prepared to He was planning and delivering forty to fifty into China this year, So not a lot of airplanes that would be mostly seven thirty sevens and that's out of an expected build of maybe four hundred and seven thirty sevens or so this year.
So you can already see the sizes and that large.
And he's ready to go out and he's going to talk to the customers, see what they want to do, and he's ready to go out and remarket those airplanes. I think we've already seen Air India raise their hand say hey, we'd take some airplanes. And there's other folks around the world that just haven't gotten the deliveries they wanted. They're ready to take airplanes too. So on the top line, I just don't see China impacting things that much.
The bottom line again.
Boeing said eighty percent of their supplier base is US based.
A lot more a lot of the other stuff is Canada and Mexico, which you're under.
You know, the agreement between those countries that allows things to flow without a tariff. And then there's cases where when airplanes would be sold overseas, they can call those tariffs back.
Excell and George, we got go to some breaking news. George ferguson covering the airlines and aerospace companies.
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Markets are moving. Let's see what the professionals are doing. I mean, you can get whipsawed around here. I don't care who you are. Shelby McFadden joins US investment analyst for Motley Full Asset Management, located down in Arlington, Virginia. Shelby, how are you guys kind of day to day dealing with the volatility of this market? Again, We've got a VIX that's come in today but still up near thirty. How do you guys deal with the volatility?
At this point, we've really just buckled ourselves in, you know, that sort of overhead harness that you pull down when you're on a roller coaster. That's been our tool of choice, and it's mainly because the swings that we've seen in the market, they're usually the up and down swing tend to be about the same magnitude down nine hundred, up thousand next day or within thirty six to forty eight hours.
And the other thing too, is that the swings have been pretty broad, right, We're not seeing any major changes in sort of like relative valuations up until today, with you know, consumer discretionary outperforming. It tends to just be a really big, sort of congealed swing in the market, which doesn't leave too too much room for the sort
of relative valuation opportunity. So we are watching the headlines a little bit more closely, not because we want to trade on them, but we're trying to be able to see where the dust is going to settle. And so I think today what we're seeing in the market is a reaction to the prospect that the dust will be settling soon. And I don't really expect there to be too much of an overreaction to Secretary buston sort of
follow up headline. So yeah, I think as active investors we have sat tight so that we can really get a better lay of the land and waited for the real opportunity to show up and not necessarily just move at every sort of down opportunity. Really trying to say discipline and what we believe to be fair.
Value, Sitting tight seems to be the consensus these days. But how are you allocating your funds? Have you shifted anything recently, cut something to overweight or boosted something to overweight.
Yeah, that's a great question. In terms of allocation, what we have looked at is, I would say, in terms of at the top, we've taken a look at what is our cyclical exposure, so whether that's going to be industrials or consumer cyclical. That was one of the first things that we had to look at really after inauguration. So at election we pretty much had to sit down and said, Okay, what are the main sort of like tax policies that we think are going to be the
most impactful. But right now it's more so been okay, what is going to be the most sensitive to any sort of slowdown because we've been back and forth right on whether or not we're going to be able to hold on to this soft landing that was so they worked so hard for or is it going to sort of fall through our fingers. So allocation has been a lot more focused on, Okay, the company is doing very well.
We know that they're going to probably perform ahead of their peers, but we may want to pull back just a little bit because the growth is not going to be a little bit more deferred into the future.
So Shelby, you know, there's with all the tariff talk, it's created a level of uncertainty and you here which is sapped corporate confidence. We're seeing companies pull back on some of their cappecs guidance and so on, and some of their earnings guide and so it's even impacted consumer confidence. We see that in the survey data, like the University of Michigan data. Yet a name on your list is American Express. That seems to be a play on the consumer.
How do you think about American Express in this world?
Well, there's a couple of things I really like about American Express. The first is they are in that sort of premium part of the spectrum, so it's a little bit stickier in terms of being able to maintain those revenues, being able to maintain that spend, so they're just you know,
on the higher end of the credit spectrum. The second thing is more recent and it came from their most recent earnings call where management has basically said, hey, we're not going to be just full stop cutting our allocation of spend to things like product refreshes and reinvesting in
the business just to pad earnings. Right, They're going to continue to try and serve the customer and serve the business for the long term at a time when management of different companies, and rightfully so, are a lot more cautious.
So it's not to say that they are sort of in the wild wild West and thinking that they're completely sort of insulated from any sort of macro issue, but also saying we've got the balance sheet, we've got the financial health to keep investing in this business, and we're
going to do so. And as active managers, that's something that we really like to see, is a commitment to continuing to make the business better and serve customers up into a point where you say, okay, now we need to go ahead and pull things back, but not doing so prematurely is what keeps me excited about that business.
What about TransUnion, that's another company that you like. We know that definitely Americans are relying more and more on credit when it comes to consumer spending.
Absolutely, and so there's another dual sided story to TransUnion as well. So one is again the increasing reliance on credit and debt and also the need for identity verification goes along with that as well, and that is something that one of their peers actually did a lot more of, which is sort of what made the valuation a bit
more attractive for TransUnion. Whether or not that sort of federal identity valuation market sort of starts to shrink is something that could very well serve Transunion's valuation in the future. But the fact is they've been pretty robust up against this environment where we're not quite sure how consumers are going to behave but increasingly people are using more credit, not just because they need to stretch out the financing,
but because of the rewards. So if you're looking at a situation where in the past maybe you'd use credit because you had to, but now the younger generations are getting into credit early, they're using multiple different cards for multiple different purposes, and that's going to require credit check every time, and Transunions does it most affordably.
Shelby, thank you so much for joining us, Shelby McFadden Investment and also Motley Full Asset Management joining us from Arlington, Virginia.
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