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Bloomberg Terminal and the Bloomberg Business app. Barbara Duran of BDA Capital writing, any legitimate threat to the independence of the FED is to be taken seriously and negatively, as it has the potential to undermine both the dollar and US assets as safe havens for investment. Barbara Johnt is now for more. Barbara and Mornch, Good morning. Let's talk about that first line in that quote. Any legitimate threat is to say legitimate threats.
Yeah, that's the question.
I mean in the past, you would think, no, it's not legitimate because it's so obvious the negative ramifications of this. But given the unpredictability we've seen in this president anything's possible. And if the Supreme Court, we know this as you mentioned earlier, the cases before them, if they ruled that the president can replace people in these other independent agencies,
then I think you might consider it. But if Besson is in there, and Besson does seem to be gaining an influence with the president, hopefully it's not legitimate.
We started this year with the rebalancing towards assets out sweat European equities ready to sounded to perform. Dollar weakness kicked in. This seems to have taken on a new phase over the last month or so. What do you make of the new leg of this? What's behind it? Of the past few weeks?
Well, I think with the tariff uncertainty, I mean, we had the pause. You saw what happened with the market. But I think there is a real question about the credibility and legitimacy of this as a safe havement. As we've seen and everybody's observed, we've had very unusual behavior. You know, as terifts go up, we really shouldn't have
the dollar getting stronger as a flight to safety. It's not happening, and in fact, the dollar is down five percent against the euro and the pound, and also six percents again at the end since early April, that's a lot. I mean, as you said earlier, it's just it's been parody just relatively recently, a few months ago. So it's a real question and it's hard to see that changing because even though we have this ninety day.
Pause, it is just temporary.
And so we also are waiting to see what they decide on semis, on pharma, on lumber and copper and all sorts of things. So there's really there's no way yet to gauge the impact of these policies. Businesses are still on hold, consumers are and every survey that's coming in is showing, you know, sentiment is continues to decline, so you know, we'll see what happens, but it's it's not good.
Well, this speaks to the macroprolysis that Jim Zelter of Apoloighen was mentioning earlier, talked about how do you gauge your longer term acid allocation at a time or so much has yet to be determined, Have we seen enough to say definitively that you need to diversify away from dollars de nominated assets versus traditional portfolio of say five years ago.
Maybe, you know, because the problem here is the question is always how much is the market discounting? All right, the nastik is down fifteen percent plus a year to date, SMP down ten percent. It's probably discounting a lot, but we don't know the worst case. It seems that the worst case is probably over in terms of the tariffs, but there.
Is no way to judge.
So, you know, gold continues to make new highs. I think it will continue because that the move toward gold started before this, and that was really twenty two when we froze the assets in Russia and treasure is suddenly like, oh, maybe treasuries aren't the safe haven. And I think this continues. It So problem with diversifying away, say to Europe all the economies, if our worst case tariffs do come in, they're going to be hurt as well, so their growth
is going to slow. So I think that for now you just have to sort of diversify a bit, you know. And I think a lot of investors are trying to reorient their stock portfolios to more dividend, more high quality, you know, and including gold.
At a time when so many people seem to be a whip side by sentiment, what's the guiding light?
Data is messy, The soft data and.
The hard data aren't cohering, and we're hearing about the lag time between the two.
Earnings are kind of pick.
Your own adventure, throw a dart and figure.
Out what your projection is.
Where is this sense of your north star?
You know, there isn't, you know?
I think because right now, all the data that's been coming in, whether it's the CPIPPI looks good. Retail still good. Balance sheets for both consumers and managements are good. But that's looking backwards, and what you're starting to see earning season started in earnest as we know a couple of weeks ago with the banks, and the banks you know, again looking forward, they see no problems as yet and
are not really increased in the reserves. But a lot of company manager are starting to add, well, we can't really give great guidance. There's this macro uncertainty read tariffs, so it is really hard. I mean, for instance, in our portfolios, we're not selling because in the in the space of a tweet, the stock market could be up a thousand points, and that's the real problem. Here there is no predictability, but you have to say, Okay, I think the worst is over, so we're holding.
If you have cash.
You know, there are opportunities at individual stocks coming up. You can selectively take nibbles.
But I would not I would not be buying in a wholesale way. There's just no way.
What would make you want to buy.
If we had some certainty in tariffs, which is hard to see right now we've got ninety days, and if we had more of.
A process, I mean, as we saw there.
There's a real question about the methodology when he brought out his famous chart there, and I think there's been a lot of questions about that. You know, if for some reason in the next few months we saw more stability, we had the tariffs that were settled, and we're sure that they were settled, and it was a way to measure the impact, then you.
Know, and again depending what that is.
You know, if they're too high, even at this ten percent, how inflationary are they? You know, the Fed has said they can't act because they don't know, you know, how much is going to impact inflation, how much will grow slow? And you're seeing around the street every house is taking down their estimates on GDP growth helping their inflation, but we really don't know how big it will be.
Terry Haynes joined us earlier from Washington, and he basically said the market's way too focus on tariffs. Jay Powell's not going anywhere, and that you have to start focusing on tax cuts. This extension of TCGA and maybe another sweetener.
Is that enough to be excited about your end.
Not for me, you know, you know, I think they were right to focus on the tariffs, and what they're the administration is trying to get is to focus on coming tax cuts.
But really, how deep can the cuts be?
I mean, we're talking really an extension of the cuts, and there'll be some of there's a give and take going on right now, but I don't see them being draconian, and how can they be. I mean, for that exploding the deficit even more so in deregulation. I mean, certainly the capital one, the approval of capital one taking over discovery. That's also will give some investors hope that okay, a deregulation is starting, but that will help on the margin.
But I think the tariffs are so important because that infects the entire world.
You touched on something that I've heard quite a few times after the last week, people who are super badish but aren't selling because they're worried about one positive headline cross in the Bloomberg at least to some massive upside move on the S and P. And I wonder, actually, what's going to make people start selling again, because in the meantime the data seems to be distorted by what we're seeing in a pull forward of purchases by consumers
companies alike, that maybe that data is flattered for the time being. What would it take to start selling again in the sancuity market.
Well, that is a good question because I think, you know, what we've seen to date and certain venture on retail behavior is buying on weakness, which has not not been a good thing. And so I think that once we get some established you know, presence here or even anytime we have a sudden tweet they sends the market one thousand, you've got to be lightening up. So and I think that's you know, look, last week, you didn't have time
or in two weeks ago what had happened. Mark was teve thousand and gave back half of that the next day. So the rapidity of these moves, it's very hard. Unless you're a trader or your algorithmic trader, it's very hard to take action. So you know, I think you know for us, it's just you are in good stocks, you're in good fundamentals, high quality. You just have to wait out the storm and storm.
It is futures right now down about one percent on the SMP. Barmbara, good to see you as always, thanks to drop and bite. Barmba A on the of BDA to extend the conversation, Terry Haynes of Panchee Policy joined us now for more. Terry, welcome to the program. A lot of bark here. How strong is the potential bite?
I think not that strong, John, Thanks, Uh, you know. I My summary of this really comes down to about three things. One is that Trump is trying to pass the buck to Pal for whatever market problems exist. Markets aren't going to bite on that, of course, they're very fixed on Trump. Secondly, you've got a situation where as you've been reporting, the Wall Street community is already reacting this time to the possibility of PALS removal in a
way that they haven't before. So that's a real con And finally, as Lisa mentioned earlier, you had the folks in Congress on the Sunday shows all basically providing a little bit of subtle pushback. So there's I think there's at least three reasons of why the bark is worse than the bite.
Terry.
I love to get your thoughts though on what Kevin Hassett said, the NEC director, and he said that they're studying that option.
He basically left the door open.
Well, I think he should, right.
He's a lot of things, but fundamentally, he's a staffer, and if he publicly descends from whatever the President's doing, he's going to be out of there pretty quickly. So you know, I look at that as a matter of staff loyalty and not much else. You know, they've been studying this since twenty eighteen or twenty nineteen, by the way, so I welcome their continued study.
I want to get your thoughts. What I also asked Marvin Lowe.
The fact that we're having this discussion out loud, the fact that the President didn't make clear what he said last week, which talking about his termination.
Is that enough to do.
Damage to damage to Trump or to Powell, to Trump.
To the position as well as to financial market.
I think it doesn't help financial markets. I certainly don't think it helps the president. I mean, you know, you can parse the statement that you all have been running in the bumpers and you know, if I want him out of there, he'll be out of there.
Well, you know, he's not out of there.
And you don't like his policies, so you know, so he's staying, so you must like his policies. So there's that kind of circularity. And number one and number two, you know, the last thing that the Trump needs right now is is Wall Street fleeing on him when he's in the middle of when he's in the middle of the terrified firstly, and secondly when tax cuts, which are still very very likely at eighty percent having come online.
Yet it feels like President Trump is playing good cop, bad cop with markets right now.
Bad cop, I.
Don't know about your own Powell, good cop, Let's make a deal. All of a sudden, all of these deals potentially are on the table with Japan, with EU. And that's the upside that people are looking for. What if this actually leads to some sort of resolution. How much to expect that to really take the brunt of oxygen.
This week, well, I think this week the White House would be smart to continue to bring out the prospect of deals being done. And I think they were reasonably effective at that the last couple of weeks.
And that's all of the good.
The better it is for what's best for the White House and what's best for the markets at this point are really the same thing, which are to see progress being made on the tariff deals, and to clarify what I always think of as kind of the best and descendant role here, which is that these things are supposed to be path dependent, and if we do deals, tariff rates to excuse me, tariff barriers and ex tariff barriers come down for the United States and for others benefiting markets.
That's all good.
By the time you get to next week, what you're going to say is more progress being made on tax cuts, the idea of a third quarter, fourth quarter deal, and you know, hopefully that helps them get through this patch.
Terry.
Should and will are two very different things, and it seems like you believe that markets do have some sort of I don't want to say veto power, but certainly wait in the president's mind what gives you that concrete sense, Given the fact that there have been a number of occasions where President Trump has come out and pushed back against caring whatsoever about the move in the markets, I.
Think it's really this, you know, I was one of the first, maybe the first, to say that I think Trump cared about markets on tariffs with respect to to imposing them.
Tariffs, in my.
View, have always been part of a much broader economic plan that includes tax cuts and some other things. They've been I think, very clear about that. But at the same time, it is not in the President's political interest at all to have markets go seriously wobbly on him at a time where he's trying to impose a lot of those things. So I think I think that market pressure actually helps define the situation a little bit better politically as well as economically.
Terry, you keep mentioning tax cuts, the market is pricing an extension of TCGA.
What cuts are you.
Talking about now?
I'm talking about the extension of the twenty seventeen cuts, And then you're going to see a bunch of a bunch of tweaks to that, not just the taxes on tips thing that President keeps talking about and other things. But I think you're also going to see a restructuring to really favor increased US manufacturing and including reshoring, among other things.
Terry, I appreciate your input as always. Thanks for catching up with this this morning. Terry Hanes there Panchaia policy, Johnna's Commas Ministry writing, if such a situation occurs, China will never accept it and will resolutely take reciprocal countermeasures. Lada middle of the China basebook joins us now for more Leada and welcome to the program. So let's talk about China. The President keeps saying China wants to come
to the table and make a deal. Are you seeing any sign that China is willing to come to the table.
Not yet, But I don't think coming to the table is that big a lift for either side. You know, if you if you read the headlines, it makes it look like the United States is spiraling in one direction, China's spiraling in the other direction. There's just nothing that could bridge the gap. But the real gap right now
is these enormously high teriffs. But there's there's just not that much difference between one hundred and forty five percent tariffs one hundred and forty five thousand percent terraffs because you just don't have Chinese goods that are competitive at anywhere near that level. So there is a you know, whether it's one forty five down to some other level, to one twenty five, one oh five eighty five, there's
these are arbitrary levels. There's nothing economically significant about staying at these levels, which means the President could take these levels down, not be giving up anything of economic substance, but bring the Chinese back to the table. Are they prepared to do that? Maybe not yet, but they have that card in their pocket. And I think that if if that was something that the White House dangled, then I think that the Chinese would be recepted to it.
And Lena one that it goes once the negotiations began, what would you anticipate the negotiations would be over.
Well, that is the big question, and that's actually the big question with every trade deal, you know, the you.
Know, the talk.
Coming out a lot of these these uh these negotiation rooms is what in the world does the United States want? Does it simply want to narrow the trade deve sit does it want some sort of other uh you know, uh, you know.
Victories in other lanes. Nobody really knows.
I would say that the US China trade negotiations could go in two different directions. You could have a you know, a TikTok, a feednel cooperation, and you know, maybe some concessions about Panama Canal look, you know, uh, properties, along with some more buying, which is basically phase one plus.
That's something that Chinese.
Are probably very interested in coming to the table with if they can get a receptive audience to the US side. If it's more than that, if there are more uss this becomes a lot more difficult certainly the United States and not gon to be able to tell China to restructure and have that happen. So basically, the administration has to come out with a list of demands and then the Chinese can see whether they're serious or not. Until that happens, you know, they're talking past each.
Other leland who has the more leverage at this point, Given the fact that some people believe that the US would be disproportionately hurt by some of the export bands or the export restrictions put on by China.
Well it's tricky because if this were a bilateral spat, the US would have considerably more leverage because of the size of the of the trade deficit. That doesn't mean that China hasn't worked for years in order to create supply chain choke points to create other vulnerabilities, you know, in US supply chains. That's absolutely true, But I think the United States would have more in a one on
one matchup. The problem is this is going on in the backdrop of huge dislocations around the globe in trade. As tariffs are being weighed. Are they going to stay lower, are they going to be much much higher? Nobody really knows. So with the uncertainty, it's create another complica shi for the administration in saying we're solid here, We're going to force this on you. It just muddies the picture in a way that would not be true if this were a one on one battle.
Adding on to the muddied pictures, some people are speculating that in the United States, as the government looks to a trench spending and start to really just get its balance seat in order, China's expanding and you're going to see the growth on the back end of that, and you're already starting to see consumer activity picking back up, I know that Leland, you track this really well in terms of anecdotal and non government sources, in terms of
the economic activity. How much is the truth matching the narrative.
Well, you'll be shocked to hear the truth right now is not matching the narrative. Obviously, Beijing has a reason to look like they have fortified their economy for whatever is to come. And I think to some degree they have preped prepped the system for being able to do bigger fiscal etc.
If they need to do it down the line.
But you look at our data and you see consumption conse sometion is very weak. You know, Q one wasn't a terrible quarter, but March was weak. Consumption was weak.
Why why were some of the things not worse off?
Because you had a sort of rebound in property and you had a rebound in parts of industry. The consumption, the consumption side of things do not look good. So nothing they're doing on that side is showing a real effect. So I don't think that they're not falling off a cliff.
They're not. They're not in doomsday yet, but they're certainly not.
The consumer is not coming to the rescue right now and probably in China never will leland.
When can we expect a call between President Trump and Shuji Pain.
When the ten years sends the right signal?
I mean, look to their credit, the administration came into this saying we're going to do what we want to do on tariffs, and we're not going to be dissuaded by short term market movements. That's the equities market, and that's true, but the bond market has a much more restraining effect on everyone, and that includes the White House. And so I think what you're going to see is
the bond market talking. If it continues to show displeasure, there's going to be increasing pressure on administration to do something, not necessarily peel back in a massive way on this or that, but show that they.
Have a game plan.
And the game plan is not to abandon the US dollar as a reserve currency. So they have to move towards solidifying something that has hard themes that markets can trust, and to the extent that they need to give concessions with rates at ten percent everywhere around the globe except China.
That's one place that they may end up moving.
It feels like when you hear from the president or the Press secretary.
They're saying, we're waiting for she to call.
We're going to be very gracious when the Chinese reach out.
Are you saying that if we see a.
Higher ten year yield, it's going to be the United States trying to get on the phone with Hijinpaning, not the other way around.
I think there's a lot more trying to get on the phone between the two of them than people are talking about. The narrative is always going to be not us, it was them, and that's going to be the story in China.
That's going to be the story of the United States.
But all they really need to do is put something on the table that looks like that there are be tariff concessions on the US side, and that there's a willingness to talk on the Chinese side. I'm not saying that they're they're there yet, but this is because the
rates are arbitrary. As we discussed before, there's nothing that's that that you know, it pushes the White House to keep the rates at one hundred and forty five or one five or one oh five or eighty five or any particular amount that means that there is wiggle room, and I think if you have market pressures, particularly from the bond market, then you're going to have the two sides magically find reasons to come together.
Hey, Leidan, got ahea from you? Leida meta that of China and Iceberg. Cameron Dilson in New West twelth Sanga lack of fend independence is a quote bad scenario for the US economy and what we call a zoo statement by the supposed statement on the show and a best state now on the lunk end camera joins just now for me for more, Cameron, good to see you, Good to see you zoo statement. I've never heard that before in my life.
Where did that come from?
So the idea is that you get both a ball and a bear steepener. It's very much a welcome to the jungle kind of moment because we think it is a bad scenario for the US economy as you have a bowl sleeper on the front end, shortened yields fall that hurts cash interest income on money market accounts. Think about those record money market balances that had been generating big, huge cash interest for individuals. Then on the long end of the curve, if you get a bear steepener the
long end moving higher. You don't get the benefit to the mortgage market, you don't get a benefit to corporate finance. So the end result is that you get pinched on both sides, with lower yields at the front end and higher yields at the back end.
Do you think this nervousness around FED independence is a reason to step away from the long end.
It certainly seems that that's how the market is trading now. I would note that the tenure treasury yield is effectively exactly where it was pre Liberation Day. So for all of this volatility where we had yields move much lower than move much higher, we're right back where we started. So if we really do see a de anchoring of the long end of the yield curve, that would be notable. But at this point it's just all involve volatility and a lot of sideways chop.
Given all of the volatility, where are the comforting matras like don't fight the FED or watch the data and data dependency? What's your north star? As we were talking about earlier in the show.
Look, it's really difficult.
If this were a movie, we would say how to lose exceptionalism in less than ten trading days, meaning that you have called into question these economic world orders that have been so powerful for US companies and being able to benefit from falling interest rates, from the ability to benefit from rising margins over time, and so the end result is that we're all asking huge, major tectonic shift questions.
Well, okay, so then.
What do you do with that?
I mean, this is sort of the big question, right can you follow that or do you start saying you can't change the world in ten days. There are going to be some checks and balances and things that will take time, and so you can't throw it away.
I think that diversification is your friend, and.
If you look at the ability to be able to have a diverseified global equity portfolio, I think it's even more powerful today than it was over the last fifteen years. You've been in a fifteen year relative bear market for non US stocks, and so you're finally starting to ask the question of is are these non US companies having a better place and role in a portfolio? Simply because we're seeing these dynamics of potentially potentially money moving out of the US into the rest of the world.
What does this mean for the US economy real large, the zoo steepener.
We do think it weighs on growth, and we think that growth estimates are still too high.
You're sitting at a level of.
GDP estimates for twenty twenty five at one point seven percent. That's down from two point three percent. That's down from twenty twenty four and twenty twenty three numbers, but it certainly is not to the point where you're pricing in some kind of recession. So we think that also translates to corporate earnings that are likely too high as well.
You have nine percent growth this year, thirteen percent growth next year, so trading at nineteen and a half times, this market hasn't fully calibrated to a lower growth world.
Do you think that's because the market is still waiting on deals to come out of the.
White House one hundred percent.
There's still a lot of optimism that this could just be a short term bargaining tactic. But if you actually see these tariffs get applied, we think that growth estimates again are just far too high.
We hear so much of this. I saw it from Jonathan Krinsky of BTICH for the weekend. We still get the sense that many assume a tweet about tariffs can eraise all the damage that has been done. When do you think we get in the wake cup cool? Because at the moment the date is being flattened by a pull forward a purchases. We saw that and retail sales in the last week. When is the way cup cool come deeper into summer?
Yeah, we think it actually will take longer. So we do think that hard data is going to soften. Hard data is certainly being flattering by a lot of pull forward.
Look at the Dallas Activity.
Index, it's having some of its best time since November. You've also seen big upticks in things like autos as well as imports. None of that will last. We think that that will eventually slow. But the challenge you have is that it's going to take time, and that means that the FED is going to take time because the FED has been very explicit they're waiting for hard data to slow in a more meaningful way to take action, which just means that they will be late to the game this time around.
What does the wake up call look like in equity markets?
We do think that you're in an environment where you can see short term rallies because positioning has gotten so light. It's incredibly important to note Deutsche Bank consolidated positioning is in the second percentile, so it doesn't get much worse than that. That allows you to lift in the short run, but you are in a down trend. You have a
death cross that happened last week. You have momentum that has faded, which means that you can have these rallies, but they likely roll over and that will then result in people starting to finally move out of equities and potentially reduce equity positions, which adds to further volatility, so.
Lower and potentially a lot lower. This really goes to the ultimate question, and it's kind of where we started, which is how much at that point if you do see true economic weakening, do bonds attract that cash back.
I think eventually they do, but you have to see yields move higher to draw people back into this market before people see them as a safe haven trade, which just means that bonds don't play the same kind of volatility dampening role in portfolios that they used to. We think once you start seeing hard data weekend, that's when people will step into bonds. But it's one of those moments where it has to get worse before it gets better.
What's playing that role now?
Is it just gold for everyone?
Yeah, it certainly seems that way.
The one thing we'd note about gold is that it is technically overbought and you have seen very aggressive inflows into gold, which suggests that you could see a breather, but the uptrend is very very powerful.
Race is the question, what does diversification make in twenty twenty five versus years gone by? We hear the day would all the time diversify, diversify into wa and away from What What does that mean now?
Yeah, so it means that you have to get really creative.
At the end of last year, we've said that we thought equities would be higher volatility and lower return. So we launched an uncorrelated strategy with looked at everything from water rates to lit gaition finance to infrastructure, things that don't derive their return streams from traditional equity markets or what the FED is doing. But again, its creativity. It is not something that is typically in your sixty forty portfolio.
Karon, I appreciate your time. Cameron Dawson of New h WELF with a so called zoo Stiegner. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, an geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and, as always, on the Bloomberg Terminal and the Bloomberg Business app.