Trade and Tariff Disputes Between the U.S. and EU (Podcast)

at Bloomberg dot com. Another day, another trade skirmish. The US went after the European Union for, among other things, uh their air bus subsidies as well as wine and cheese. The European Union saying this is ridiculous a proposal for eleven billion dollars of goods potentially teriffed by the US, and that they will retaliate in kind. Joining us now to discuss why now? Sean Donnin, Bloomberg Senior Trade reporter here in our Bloomberg Interactive Broker Studios. Normally he's down

in Washington, d C. We are so lucky to have him. Sean, Why now? Why now? It's uh, well, let's think back to what Donald Trump cares about when it comes to trade, and he cares about big deficits, and the US is a big trade deficit with the EU hundred seventy billion dollars or so last year, and he's been gearing up for a fund. Yeah, so he's been gearing up for a fight. But he has a bunch on his hands already.

He has one with China, he has one he's working through the U S. M C. A if I got that correctly, But you know he's got he's got a lot of irons in the fire right now with trade. Well, it's a reminder that the trade wars aren't just about China. It's they're all over the place. And you know, there's a there's a trade war that's still going on in some ways with Canada and Mexico. Even though you've got the U S. N C. It's still tariffs that are

still in place there. There's negotiations that are gonna get underway with Japan. I think there's a This is a reminder that a lot of us were thinking that as the U. S and China got close to a deal, and they are getting close to a deal, we think we're gonna see something in the next month or so, um that things were going to calm down. That this kind of shadow that was hanging over the global economy

of the trade wars was going to go away. Well, it isn't because Donald Trump wants to take on all of these other trading partners like the EU, like Japan. These are big economies that Donald Trump is gearing up for a fight. Let's go to this one of the

EU about the aviation. I mean, like if bubbing doesn't have enough problems with the seven thirty seven max that now has to deal with with this issue, give us a little history here, because these are both industries that have been highly subsidized and there's been tariffs for a long period of time. It seems like we've been rereading about this issue Airbus and Boeing and others for a long time. Yeah, this is the longest running fight in the w t OH. It's been going on for fourteen years.

I think there's there's one element of normality about what Donald Trump is doing and that uh, these are gonna be tariffs that are likely to be sanctioned by the w t OH. This is going to be allowed under global trading rules. And normally Donald Trump wants to go around a w t O or rail against a W two. And we saw on tweet today, you know, sighting the w TO is ruling on the legal subsidies here. It's one of the longest running fights. It's a fight that's

that has kind of refused to go away. It's also a fight that you hear people in the administration site as an example of what is wrong with the w t O and the global trading system. Why is it that it takes fourteen years to slve something like this? So, Sean, I love that you're here, Sean Donn and he's been coovering trade for a long time. You have a sense of what's real and what's not. And what I thought was really compelling this morning was when these headlines hit,

the market didn't really move that much. You didn't see a huge drop in airbus shares, Bowing shares, which have already gotten so beaten up, didn't go down that much. And then just in general, there wasn't sort of any kind of reaction. What do you make of that? I think when I make of that is that the market has priced in this kind of uncertainty about trade that's been with us for the past year. And and and Terris,

this is another volley from Donald Trump. But in some ways, it's a front that we knew was open in terms of the EU. It's also to be frank, it's a dispute. It's the airbus bowing dispute that probably puts a lot of people to sleep in the markets. It's been around so long. I'll tell you what doesn't put them to sleep is China trade negotiations. Although you just mentioned earlier,

sometime in the next month, this was a deal. We've been expecting for the last couple of weeks to get an announcement, and you know, I thought they were gonna have a golf date at mar Lago and you know, maybe sushi. I mean, who knows. But what's what's the latest on the China trade negotiations? Are we are both sides making substantive progress or is it just going to be a headline? Do you think so? I think they're

making substantive progress. I think there's a sign. You know, we're getting signs that there's there's a there's a real deal that's that's brewing here. What is happening right now? Well, the problem with trade is and one of the reasons that it tends to not get the attention to deserves sometimes in my mind, although I'm a I'm a trade geek, is very simply that drags on, and just when you're exhausted with the trade negotiation, that seems to drag on

for another year or another month. Uh. And that's really what we're seeing here. These things are hard. I was on the fun last last week with someone in the administration is close to the negotiations, and he said, look, these things are going, they're going. Well, it's just really hard. So just real quickly here, I'm wondering people talk about

these trade skirmishes as President Trump's doing. How much are are many Democrats kind of quietly happy about all this in the sense, not not from sort of like a political standpoint, but glad that he's doing and fighting these fights because they think that they're legitimate. So there's a lot of people in Washington and around the world, to be fair, who think that the fight against China's a legitimate fight. There's some legitimate issues there on industrial subsidies

and intellectual property and so on. But what you've really pointed to is a big dilemma for the Democrats going into trade, and trade skepticism used to be their issue. Donald Trump's made it his issue, how do they respond? Sean Donna, thank you so much for joining us here in studio Bloomberg Interactive Broker Studio. We love having here talking authoring trade. Sean is a senior trade reporter for Bloomberg News. Well, despite the down market today, the SMP

is up fifer cent this year. Today, the NASTAC is up almost The question for a lot of investors is what's left in the markets, particularly for seeing slowing global growth, uh, you know, evidenced by the I m F data this morning, for example. So it help us dig into that issue. We welcome David Deets to the show. David is founder, president and chief investment strategist for point View Wealth Management in Summit, New Jersey. David, thank you so much for

joining us. So we did have some weaker growth numbers coming out of the I m F today, I think probably giving some of the bears some ammunition that say, gee, this market has really gotten ahead of itself given what appears to be slowing global growth. What say you, David, Well, certainly, um, that was one of it. That is one of the

reasons for the sell off today. Um, you know, I would note that the I m F is still UH positing stronger growth in two thousand twenty than this year, so they do see the dip in global activity as somewhat temporary UM. But you know, I think from an investors point of view, the concerns about global growth are not new. And of course what has helped our markets here is that the story has been pretty positive on the US economy with the labor markets, unemployment rate about

a forty year low. UM job creation was just report is very good in March. Consumer sentiment is very strong, small business sentiment is very strong. So I think on balance, what we're focused on here is how well the US is doing, how much creasmce. Can we actually give this idea that the I m F projections somehow is what's

driving the market? I mean, is this just basically that no one really has an incentive trade and there are a couple of algorithms out there that are kind of like bouncing around a couple of styles, pushing things down in touch before we get actual real news. Well, certainly, if you put into the context of the success of economists predicting the economy, you do need to take it with a grain of salt. I remember, you know, Warren Buffett saying they put economists on earth to make astrologers

look respectable. UM. Their track record, quite frankly, has not been particularly good. Is we look at the I mf UM report, we're scratching our heads a little bit because although they're positive for two thousand and twenty, they see the two biggest economies in the world, the US and China, being slower in two thousand twenty than two thousand nineteen. I'm trying to figure out how that works exactly. But you know, in any event, it's more than just the economy.

What it really comes down to is corporate earnings. It comes down to interest rates UM, and it comes down to, you know, the outlook for global trade. I would say that the biggest factor that has driven the market this year is the d eighty degree turn in the position by the Federal Reserve from being very hawkish in terms of wanting to hike interrust rates to now being very dubbish, and many market UM participants see the next move in the Federal Reserve as a cut in interest rates as

opposed to any further hikes. I think at the end of the day, low interest rates UM promote the US housing economy make corporate acquisitions and capital expenditures much more affordable and them And at the end, I mean people are looking at today, for example, ten year treasury two point four eight Very few of us can make our long term plans work getting two point four eight percent on our money. So therefore, I think that any kind

of pullbacks are ultimately gonna be met with positive buying. So, David were later this week, we're gonna be coming into the beginning of the first quarter earnings period. We've got some of the big money center banks. Um I think SMP five hundred earnings forecast consensus for four percent decline or in the first quarter. How are you positioned going

into the first quarter earning season? Well, so, I mean from the macro point of view, Um, yeah, it's it's very disconcerting when earnings are the most the biggest driver of of stocks to have a forecast for a four percent decline you over year. Take that with a grain of salt. For a couple of reasons. One is last year's Q one was very much juiced, as it were,

by the cut in interest rates. That we don't have a second cut in this year, so that has to be taken any consideration, and of course, at the end of the day, is not what happened in the last three months. At the end of the day, it's going to be what UM market particiption, what these companies forecasts for the next let's say, nine to twelve months UM so, and certainly you can make the case anyway that the fact that UM the forecast for earnings is so negative

now beats and positive surprises will be much easier. UM. I think what we're doing here is looking at some companies where the they have stellar franchises, but the prospect for near term earnings is somewhat muted. You mentioned Financials one that we like a lot, as wells Fargo. We're gonna be hearing from them on Friday. UM. I don't think they're gonna say a whole lot because they're in this period now where their current CEO is stepped down there in the process of not only finding a new one,

but looking outside the bank. I think the catalyst for growth for this blue chip franchisees naming a bank executive UM which people respect and can turn the bank around. Names go ahead, any names that you have that you would like to see rise to the Holme of Wells Fargo. Well, certainly the UM. There's a number of lieutenants UM in

JP Morgan. They have been cited UM the actually Warren Buffett UH is very high on JP Morgan and they're probably frustrated because Jamie Diamond seems to have no current plans to leave. I think that would make some sense there. Um, why would Jamie Diamond go from JP Morgan to Wells Fargo. I misspoke there. Jamie Diamond is not going to move, but people who want his job under him UM would be perhaps interested in taking over arguably bank just as

good at JP as JP Morgan. Immediately. So we we had Walgreens pre announced, and I know that's the name we've talked about in the past. For you, that side of the business, that prescription business, the retail business very difficult. What are you views on on Walgreens? So Walgreens is a company that that we moved on to our BI list right now is trading in about eight times earnings

versus a market that said about seventeen times earnings. You know, although much of retail has been gutted by the rise of the internet shopping, we still feel that buying prescription drugs, going in and talking with the pharmacist UM is not so easily displaced by buying online. Plus, of course, all these pharmacies are now developing clinics so that it could be a low cost option to get a check up, to get some medical care at at at a lower rate.

And of course you're always looking for those companies which have size and scale. Walgreens and CBS almost have a duopoly in in this country. Put Walgreens in the context of healthcare. General healthcare is under a cloud. It's usually a defensive sector. Right now, of course, everyone's uh, the pace of prescription drug inflation has been reduced dramatically. Uh do the jaw boning from politicians on both sides of the aisle. Of course, there's some concerns as to whether

we'll fundamentally change the system to a single payer. What has happened historically is those have been unbelievably great opportunities to take healthcare UM investment because normally, Uh, the fear goes away, the threat of price controls dissipates, the system doesn't change, and it can be a great way to see appreciation on your investment. David DIDs thank you so

much for being with us. David DIDs is founder, president, and chief investment strategist at Point View Wealth Management, based in Summit, New Jersey. We have been in a low interest rate environment for more than a decade. We have been looking at robust credit markets, easy learning standards pretty

much across the board. So there's kind of a mystery that's been baked into certain corners of credit markets, in particular the auto lending sector, which is seen delinquencies rise to a post crisis high in some cases, as well as the high defaults and delinquencies among some pure to peer loans. Joining us now to dig under the hood and explain perhaps why we're seeing that is Adam Tempken, credit market supporter for Bloomberg News, joining us here in

our Bloomberg Inner Active Broker Studios. So Adam, let's just start there. What are people looking at for the possible cause for the uptick intolinquencies and defaults at a time of easy credit. Well, Goldman Sachs and Moody's analytics have recently said credit scores they do not include economic cycles, but economic cycles greatly influenced credit scores. So as the

economy has expanded so have the scores. The problem is people's inherent risk, their inherent ability and attitude towards paining is the same. So a five fifty subprime person today is relatively riskier than a five fifty and two thousand nine, and that could be a hidden risk. So the idea here is the FICO scores, which are used by many peer to peer lenders, and some of these smaller deep subprime lenders are not as reliable exactly. The scores are migrating up, but the risk is the same, and the

question is are lenders accounting for that? Are they raising their minimum FICO cutoffs? While Moody's Analytics and Goldman says some of them, the smaller ones maybe unsophisticated deep subprime auto, they're not. They're not bringing in like debt to income or LTV to have. It's not a good differentiator differentiator anymore, these FICO scores, and this is leading to hidden risk in certain corners deep subprime, private credit cards, and peer

to peer marketplace lending. The categories you just mentioned kind of harkened me back to ten or twelve years ago. Okay, so are you trying to tell us or is Moody's and Goldman trying to tell us that the lending community had not really learned the lessons, or is kind of those lessons have kind of receded into the background, because this sounds eerily similar. Well, the good news is that some of the larger banks and savvier lenders are including

other factors. The worry is complacency with some of the waller lenders like deep Subprime Um and some of the smaller online personal loan lenders. They may not be increasing their minimum credit scores, they might not be bringing other factors in. And Goldman is a little worried about this, and Moody's is saying there could be great complacency from these lenders that could lead to losses down the road.

All Right, so let's put this into some scope here, because there's a question how much debt is there that is backed by loans that are underwritten with Phyco scores for first and foremost in the mind. I mean, that's how how much we talked about here. Well, this is probably not a systemic problem. If you look at just outstandings, it's about four hundred billion dollars worth across those areas

that I just mentioned. However, not all of that is securitized, So maybe one fourth of that is securitized hundred billion or so approximately, So this is not systemic. However, the problem is it's a great risk for lenders. It's a great risk for some of the investors in the deep subprime A B s. Okay, and that's what I was going to ask. So a hundred billion dollars of these

loans have been securitized. It means they've been pulled uh into bundles and then their bonds that are sold that are backed by the payments that go into those pools, and they're they're sort of given out to the investors depending on which trunch they invested in, and depending on on what the credit rating is and where they are in the waterfall structure. So I'm wondering, from your perspective,

who are the investors and the riskiest trunches here? I mean, is there is there a sense of, oh, that's your pension fund. Pension funds are look going all the way down to double B and deep subprime. Auto asset managers, I mean across the board people pretty much think these types of auto loan A B s are safe and they've generally performed well, although I have to say, uh, thirty day delinquencies for subprime auto A B s are at close to a peak. Now does that translate to losses?

Here's where it gets tricky. There could be great delinquencies, it doesn't always translate to a loss right away because there's such credit protections robusts. Uh, these are structured very well, but a lot of the banks are now saying do not buy lower rated you know, auto deep subprime A B s, stay away the personal loan a bs that's been securities only over the last few years performing pretty pretty poorly right out of the gate, honestly, very high delinquencies.

We've not really seen a tightening of underwriting yet, but um, a lot of people stay away from that stuff, that type of peer to peer assepect securities, which is a newer, untested asset class. So it looks like Moody's and the Golden The reports here kind of shedding some light on this issue, which we've heard a little bit about certainly, but maybe not the scope. Has there been any regulatory response or how are the regulators looking at this little

slice of the market. There's definitely been a lot of focus on subprime auto um. The the bond investors always say, hey, we think this is safe. You know, uh, there's great protections. But you know, the Federal Reserve came out February saying, hey, auto dilinquencies are at seven million. People are hind on their payments. So this is kind of a growing theme. Warning signals are flashing, and some of the regulators are

slowly getting involved. You know. It seems to me like one of the biggest consequences of this is to sty me the peer to peer lending industry before it really had a chance to gain steam, Paul, because that seems to be one consequence they're having a harder time making money if the credit qualifications just aren't there. Yes, and we've had some period of peer folks in here before talking about kind of how they have a demand for their business because some of the banks have stepped away

a little bit. So very it's very interesting, and I think it's the story we're gonna hear more about going forward. Adam Temptin, thank you so much, Credit Markets reporter for Bloomberg News. Joining us here in a Bloomberg eleventh three yo studio in New York. Well, we are fast approaching the April fifteen deadline, people are scrambling to get their returns done. A lot of tax law changes this year for people to get their hands around, including new tax

law changes around alimony and child support. To get the latest on this, we welcome our next guest, Maggie John Drow. She's financial advisor and founder of John Drought Wealth Management. She joins us live here in Interactive Broker studio. Maggie, thank you so much for being with us again. A lot of tax law changes that people have to figure out this year. Talk to us a little bit about the alimony child support changes that are in this year's

tax code. Sure, thank you for having me. So, if you were divorced on December thirty one, two eighteen, or prior to your divorce decree remains the same unless you decide to amend it. But if you were divorced on January one, two thousand, nineteen or thereafter, alimony has now is different for you the way it is taxed. Uh

So it's essentially flopped um. In the past, those that were paying alimony could take that as a tax deduction, and that is no longer the case for those after January one two has a nineteen and those that are receiving the alimony, this is no longer taxable income for you. Okay, So basically it makes it more expensive for people who have to pay alimony. That's right. So how does this

How have you seen this affecting clients so far? Yeah? Absolutely, so this is fairly new so at time when we tell but experts are concerned that while thinking about and finalizing your divorce decree, there's going to be less incentive to provide greater alimony. Much as you said, Um, so, of course that might be worse in general for the markets.

There'll be less money being injected into goods and services, of course, But I'm wondering from your practical experience, whether it is affecting, uh, the ability of certain people to get the other partner to actually pay alimony. Yes, that is a fear that that's going to but it hasn't. You haven't seen a plan. It's it's been so new that not not really yet know. So Maggie, why why did the I R S do this? Yeah? Absolutely, um, I mean no one really knows what the I R

S does. Well, they're hoping that it will make things easier right. So they've also increased um the standard deduction so that less people are itemizing, and this is probably another way to get people to take the standard deduction versus itemizing UM. Certainly though some analysts you believe it will raise revenue for the I R S over the next decade or so. So I'm wondering just broadening out

some of the other tax changes. The salt issue is one that is very much in the forefront of people's minds. How is that bearing out from your perspective as you talk with clients. Yeah, we're here in New York and New Yorkers and others in the try Ster area, Connecticut, New Jersey. They are being affected the most. They've always

taken the greatest salt deduction historically. So now, as you mentioned, there's a cap of ten thousand dollars as to what can be deducted from the federal taxes, and so um both from an alimony standpoint being taken away as a deduction. Now at the cap of the Salt Tact tax deduction and also at the standard deduction being increased, a lot less people are itemizing. So you know, it seems like it's a cat and mouse game between the I R s and tax advisors every year, it just kind of

goes back and forth. So now you've got this issue about the alimony and divorce. Are there ways that, you know, maybe tax advisors are suggesting their clients can preserve maybe some of the tax benefit. Sure, I mean I always encourage everyone to speak to their cpay about their individual situation.

Um but there are still those that will be taking the itemized deduction, certainly if you have to do ducked more than twenty four thousand, if you're married, filing jointly, and of course the standard uh ways apply, So maxing out that four oh one k your retirement plans, of course is a great way to UM to to increase your your deduction. So people your client has been kind of freaking out as they realize how different it can be for them. Yeah. I think most surprisingly was that

the tax brackets were changed. So we still have seven, but obviously where those brackets falls different and therefore the withholding table has changed. And I think a lot of clients did not realize that they did not work with their employer to reflect that, and so people are either not getting as much of her turn back or they're actually owing the government money, which I think has been the most surprising. Maggie Jendre, thank you so much for

being with us. We really appreciate you having here. Uh. Maggie Jendre is financial advisor and founder of Gendrew Wealth Management, joining us here in our Bloomberg Interactive Brokers Studios. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa abram Woyit's I'm on Twitter at Lisa abram woits one before the podcast. You

can always catch us worldwide. I'm Bloomberg Radio