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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six 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. Joining us now, Danny
of Yourdenny Research. He writes Trump and Bess and discards some of their best cards while preparing to play tariff poker with China. Financial markets are happy that Team Trump is blinkingg Edgiandenny joined us now for more. Ed Welcome to the program. Let's talk about the extent of that blink. How much of a U turne are you expecting in the next several weeks.
Well, it's a very.
Odd situation where the United States seems to be negotiating with itself, so very peculiar art of the deal where you walk in the room and you're you're the only one in there, and you keep issuing really press release to saying that great progress is being made.
So I don't really know what to make of it. What I do make of.
It is that curly the financial markets have had a big impact on the administration. This is the bond vigilantes and the stock vigilantes ganging up on the administration and saying, you know, we need some moderation here, we need some cooling off. And that's exactly what the administration is doing.
And that is the target Home Depot and Walmart vigilantes as well. Clearly the most important meeting that took place in Washington this week where the retailer is sitting down with the President of the United States and warning Kim they're within weeks we could have empty shelves. And I think it makes it difficult at this moment to read
the economic data. What is a genuine rebuilding infantries, what is a genuine sustainable underlying trend in demand, and what do you see in the data and the earnings.
Well, the earnings are actually starting to be cut back. Of course, analysts have finally gotten their recession tariff memo, so they've started to incorporate the fact that this isn't going to be good for the economy. It's going to
weigh on the economy. I think to the extent that analysts usually talk just to companies, they don't talk to economists, But they're reading the headlines and they see that economists are lowering their outlook for economic growth, and they're probably getting that kind of guidance from some of their companies that if the tariffs stay on, the longer they stay on,
the weaker the economy is going to be. But I think at the rate at which the administration is back and off here, the economic impact of the tariffs could start to really ease off by the second half of the year, which is at this point when most economists expecting a much weaker economy are actually a recession. So there could be a reversal at least in the soft data that then it would suddenly lift the pressure off the hard data.
And it feels like the genius sort of out of the bottle, But we can't see and we don't know how big he is. We don't know whether he can climb back into the bottle at any given time.
I just wonder as you look forward why you reject.
The idea that what we're seeing right now is a long term structural loss of US exceptionalism that will result in a weaker dollar and potentially less dynamism in US equities over time.
Yeah, that's a great question.
I mean, it's only a few months ago that the American exceptionalism made the front cover of The Economist. I think it was October of last year. There was a lot of dollars that looked like a rocket ship, and you know, we couldn't be staffed. Look, I think now that everybody is having second thoughts about that, or even concluding in a dire way that the dollars is in decline here as a reserve currency. Keep in mind that
there's nothing like the US capital markets. Well, you know, when you make a list of exceptionalism, American capital markets are exceptional. They are huge, they are liquid. There's nothing like them. So I don't know how the dollar losers. That's preserve status, and I think it remains strong even this recent hysteria about the weaker dollar. It's fell about
ten percent. Using the Dollar index, the DXY that everybody watches, but a much better index that the FED calculates is down about half as much, which is no big deal in my opinion.
This is the reason why people are looking at announcements from a number of different ACID allocators and seeing if they are trying to diversify even a little bit away
from the United States into other countries. I just wonder how concerned you are about the idea that forty four percent of S and P five hundred companies that have reported so far have mentioned the word recession, except from three percent in the fourth quarter, at a time where potentially the US's ability to borrow to bolster the economy and any kind of downturn could really be a lot more difficult, a lot more pricey, a lot more paniff.
Yeah.
Well, I think the stock markets discounted certainly a weakening in the economy in the second half of the year. We certainly lowered our numbers from something like two and a half to three percent growth this year to something more like.
Zero point five to one and a half percent.
The only question is what there should be negative signs on those numbers, and some people, I guess are in that camp. We're still looking at the forty five percent odds of an outright recession.
We think the.
President's really the administration is going to back off as they have been on these tariffs, and to the extent that they don't, I think they're going to declare victory. I think they're going to get maybe ninety pieces of paper from ninety countries, signed by key diplomats, laying out a.
Groundwork of framework.
You can't negotiate a treaty in ninety days, you can't implement the treaty in ninety days. But I think they're going to declare victory, move on to the extension of the tax cuts, and life will go on.
And when it comes to the tariffs, though, the Wall Street General appoint of the administration might back down on China to say sixty percent, but that is what Trump has been saying for months. On the campaign trail, he promised ten percent across the board, of sixty percent on China. So if that's the base case, how does this economy look?
Well, as you know, it's hard to define what the base case is. It changes almost daily from the press conferences that the President has in the Oval Office. Is associates keep talking about how much progress they're making. So I think, you know, sixty percent is just as prohibitive
as one hundred and forty five percent. I think they're going to have to again negotiate against themselves and maybe postpone that increase so to leave it at sixty percent, but they're going to postpone it for ninety days, turn down the rhetoric, and find somebody to negotiate with the Chinese on a better deal.
Just a final question from us. You've been super constructive on this cycle for quite a while. Coming into the twenty twenties, you talked about the Roaring twenties. Yep, we're at the halfway point working through that now. If he's fronting the town on that view or you're sticking with.
It, well, John, it was a great first half of the decade. I hope it's the Roaring twenty twenties as over. Yet there's sort of deja avous with the nineteen the nineteen twenties we got a whole decade out of that before the Congress that hoerendously imposed tariffs, So there's a
certain similarity here. But I think this too shall pass, and I'm still looking for the Roaring twenty twenties to be a description of the entire decade called me an optimist, but I think I guess my mantra has been Look how well the US economy has done over the years despite Washington.
That's still my bet.
And we hope you're right. It's going to catch up with you. As always, Danny, there have your Danny research to discuss and place to say. The North Bank Investment Management CEO Nikolay Tangan joins US now for more. Nicolay, welcome back to the program. So a lot has changed since we last spoke. Attitudes towards US as sets are starting to shift. I just wonder how you and the team have started to think about that, how you're debating that issue internally over in Norway.
Well, we have a very long term view on what we do, so you know, we are invested with roughue half for the fund in the US and we are here for the very long term. So we have not made any major adjustments lately.
So Nikolai, can I rid into that that you view this as just a shock to the cycle and maybe not a long term shock to the system.
Well, I think it's very very difficult to say it, because when we make scenario analysis here, one of the negative things that that we see is that if you get a decentanglement between the two major trading blocks, that's really really negative because it slow down it slows down growth, increases inflation and zone. So it is potentially one of the really negative things that can happen here. So I think the out look for markets are very, very uncertain, given.
That there has been a shift, Nikolai, to move at least a little bit of assets about large acid allocators out of the United States, diversified to places like China, to India, to Europe. Why aren't you doing the same and shifting to benchmarks that have a little bit more exposure elsewhere.
Well, we actually are extremely well diversified already. You know, we own one and a half percent of all the listed equities in the world. In Europe we have more, we have closed to three percent, and so in the US we have one than a half percent, and we also have the same in the rest of the world. So I would say we are we are well diversified, seventy percent equities, thirty percent bonds. We also have a very very good way to say, portfolio, which is coming in really handy here.
Well, nikola you said previously this morning when you were speaking to media and OSLO that you will correct the underweight to US stocks. So you are planning to reinvest in US stocks even though you are surprised that we haven't.
Seen even more weakness.
Why are you redeploying all of the money that maybe has lost in terms of benchmark allocation to US equity has given some of these larger uncertainties.
Well, the kind of the increased medication to the US is part of a program that we've been doing for quite some time. We still have some work to do here and that we will continue to do. And you know, we think the large American companies are just great long term investments, and so we are very happy to be invested in there.
What sectors can you give us a little bit of a hint of specifically the sectors or the companies are interested in the United States?
Well, are quite in near in how we are invested in the US. So we typically have large holdings in the you know, in the big tech companies, in all your large companies.
Really and we made you know a lot of money.
There over the last few years.
Of course, so far this year it's been it's been negative. But when you look in comparison to the games we've had the last year and the year before, we're given back in a way surprisingly little.
I would say, what about defensive companies like Lockheed Martin, is that going to be open for business? When it comes to the cumber.
Well fund, Well, we invest in a lot of different industries. We have less exposure to the defense industry, but we are in a lot of the defensing names as well.
Nikolai, one word you often use with us is we are diversified. I just wonder if the meaning of that word has shifted over time, particularly this year, the treasury market is behaving in unpredictable ways. When the equity market is falling, treasury markets have fell as well. In fact, those two asset classes are training and lockstep. At the moment, it's as if investors are treating all dollarg and ONMITD
as assets as one bucket. And I just wondered, Nicolay, what that means for how you think about diversification this year and beyond.
Yeah, there was sometimes when when this type of diversification worked less well.
We had the same type of situation.
You know, two three years ago, and so some years it works, some years it doesn't.
I think over time, if you have.
A really long term time horizon, I think it's the right positioning to have.
We've seen over the last month or so that some investors were trying to understand whether what was happening in the treasury market was just trades unwinding, some hedgephones, hedge funds blowing up, or nicolay, whether it was a reassessment of the safe haven status of the United States. Nicola I was on your dashboard to have distinguished between one and the other.
What do you think it was? What do you think it is?
Well, I think it's a very very complicated question. I don't think it's only one thing. I think it's a cocktail of all kind of things you mentioned. Now, so far this year, we've we have been neutral to the US treasure market. We have not reduced or increased positions, so we have we have certainly not to cause that move.
Do you have a sense, Nikolai, going forward of whether we are entering a more inflationary period given some of the deglobalization that we're seeing, some of the fissures and some of the kinks that are emerging in the supply chain system.
Yeah, I think we are potentially going into a more inflationary situation. It is kind of a pretty obvious consequence of higher tariffs, and of course inflation is really negative of market so I think that's potentially one of the big risks that we are.
Seeing just now.
Interestingly, we just yesterday released a podcast with Ken Rogoff, kind of the world leading specialist, I guess on inflation, and he's also very word about this particular fact.
Well, I guess, just to build in what John was asking about the idea of diversification, and you have been about neutral on US bonds, there has been a feeling that maybe diversification, especially in an inflationary environment, requires some gold, requires some alternative assets that might be act based funding
that have different streams of diversified revenues. Is that your take on it that you just on the margins want to pick up a little bit more gold or diversify a little bit more in some of these other asset classes.
Yeah.
So we have a very strict mannight here from the ministry, so we cannot buy gold, and I do think gold sometimes has a bit difficult to understand what the intrinsic value is of gold.
We also don't do cryptocurrencies, for instance.
But when we look at alternative assets, I would say in a market like this to have real estates, that's very good. We have just under a thousand properties around the world, you know, large holdings in Manhattan, Boston, Washington one and so I think that's going to be a pretty good place to be going forward.
Nikolay, I appreciate your take at a difficult time. Thanks for your time this morning. Nicolai Tangan there the Norway Well fun CEO. On a difficult moment, the UCB warning tarras may be more disinflationary than inflationary for Europe. This after President Trump said he's confident of reaching a trade deal with the EU. Joining us around the table here in our studio in Washington, d C. The chief economist of the European Central Bank, Philip Blank.
Philip's good to see you, sir, Good morning. Thanks for being able to hear in Washington.
So the Governing Council meeting, I imagine was very different this time around than a number of months ago when you walked into that room and presented changes to the economy.
What did you tell a team?
Sure, I mean, I think it was a gear change for several reasons, So of course our core business has been to try and get inflation back down from a high number to our targets. I think there was a milestone in this meeting in the sense of the most recent data had come in quite low. What we've been waiting for services inflation to kind of drop, and it has been dropping. And then we had surveys showing that basically the weight dynamic this year and in twenty six
is lower than we expected. So basically, if you like, if you clear the table about the historic issue, are we safely bringing inflation back to target? I think a lot it's not entirely settled, but a lot of it is settled. So the gear change was of course, now we have new things to talk about, and really since all the way back to last summer, trade policy uncertainty has been part of what we've had to talk about. But we still have trade policy uncertainty, but we also
have trade policy news. You know, lots has happened that the and then the other element of what we've seen is of course, and that happened, by the way, like a day or two before our March meeting, was a German break through and fiscal policy. So we already had that, if you like, in the early incarnation at the March meeting. We know more now, but it's still, you know, in terms of what the other European countries are going to do,
it's something that's still in discussion. So what I would say if you put all of that together, and I think you're probably hearing this from various colleagues and other people this week, is if I take a longer term perspective, and the IMF in their publications this week, a lot
of the data go out of twenty thirty. If I take a twenty thirty perspective, you know, I think there's a lot of grants to have a renewed optimism that essentially, with more fiscal support, the credibility of delivering our two percent target on a kind of long term basis is stronger. The case for the European economy to be more resilient, to grow from a domestic source, not just from running a big export machine is more credible. But of course
we have to navigate from where we are now. Where As you said in your intro, immediately in the short term, the way it's playing out with euro appreciation with.
A big job and energy prices.
The disinflatory forces are there, but I would say maybe the question you know, I wouldn't load it all on the trade policy is what we also see now as a portfolio shift. So there's a clear portfolio shift going on, which is I think the way you can reconcile euro appreciation in the middle of this trade discussion.
As you know, Philip, that sort of begs the question why you don't act more aggressively. Does that give you the space to act more preemptively?
Well, I think a very important narrative we had last week, and it was repeated threat to Manto policy statement was resilience. What we're seeing is the europan economy growing. Two years of it was kind of more stagnating. So we said the European economy is going to recover. We saw modest but still market recovery last year is around zero nine. We have zero nine written down in March for this year.
And that's basically because with incomes going up, consumption through recover with our Munti policy, and the general improvement of the economy, investments should recover with more government support. So all the domestic engines are there. So what you have
to think about. Is all of that, if you like, is saying that the economies should be growing, even marking down some trait negative And this is why we're not in a situation where we see some dramatic change in the external environment or in friest pressures and so on.
So steady is okay?
Hold on a second, Are you saying that what we've seen with respect to US policy and the uncertainty isn't increasing the chance of session materially for the euroregion?
Well, I mean, I think our overriding seam, of course is uncertainty, and let's not get ahead of ourselves in terms of being too sure about any any path for the economy. But I think the message is but it's not me dreaming it up. If you look at the external watchers, if you look at the IMF, it's fairly modest mark dance on the growth trade for the European economy. The US, of course has a major trade policy issue all with the world. We have a trade policy issue
with the US. The US is an important trading partner, but it's not our only trading partner, so directionally it is a markdown. There is a markdown, but it's important to say. It's a markdown from a growth trade around zero nine to a little bit less. Let's see in the coming weeks how much less. And I think if you look at the surveys this week, the surveys have elements of people being concerned, but they also have elements. Right now, we're busy. Manufacturing is a bit busier than
it was. That could be a little bit of front running of taris, for sure, but it's also remember the recovery narrative Europe what has been stagnating. The American economy has grown quickly, So if you like, in terms of if there was room for the American economy to decelerate, and then trade policy is adding to that. What I'm saying to you is essentially the baseline for Europe was to grow a bit more quickly, and so the resilience
is there. You can take a trade hit without going to using that word which I of that you mentioned.
You mentioned, of course, that Europe has more trading partners.
Than the United States.
How concerned are you that if the walls keep going up in the United States, China will have to just jump somewhere.
It's going to be on the continent.
So I think directly an element with that must be you know, must be expected. But I think you know, China fully understands that if you listen to their policy announcements they're going to do. Their focus is on improving domestic demand. So in terms of the reorientation from the US, I would allocator at fairmount to domestic demand, some amount to around the world. But I think also China understands it's a large economy and a bit of restraint in exporting may make sense.
For the twenty seconds left, I just wanted to jump in. Olie Rain was busy this morning, your governing council partner, and he made the point that we should be open to larger interest rate cuts. Is that a position that you and the team agree with?
Philosophically, we don't pre commit to any rate path, of course, and so this is why again it's important, and I think the Government Council, I think tries hard to maintain this is. You can express that in different ways, and in particular, there's no reason to say we're always going to do the default twenty five. Philosophically I agree with that. Okay, what I said to you earlier on.
Is right now.
The growth performance. I'm sure to be marked down. It's still a growing economy. We've replaced from I think to the downside. But we don't need to be too from.
Out about equity futures.
Right now in the SMP, just the touch soft that we're down by two tenths of one percent. Coming up this hour Franklin Templeton CEO Jenny Johnson. Following back to back games for equities, we'll catch up with Carlos Querpo, the Trade and Economy Minister of Spain, on a US EU trade deal and the standard chart of Chair Jose Vines on the potential for lower levees on China. We begin this now with stocks lower as investors away clarity
on trade talks. Jenny Johnson, the CEO of Franklin Templeton, one of the world's largest investment managers, joined us now for more.
Jenny, it's good to see you.
It's great to be here. Thanks for having me.
Things have changed a lot since we caught up with you in Davos, Switzerland. So a lot of optimism, you remember it everyone with us, exceptionalism well strength, lots of hiring markets are great.
There's a change the law. Have they change for you.
Well, you know, I actually we talked about it at the time. You know, I think that you have to think through kind of where the president is.
Right, He's come in with a plan. He's been very clear.
Right, it's taxes, immigration, tariffs, government efficiency and deregulation, right and so, and he has about a year and a half to get those things done before the midterms come in. And so you know, from the tariff standpoint, again, he's a deal maker. So when you are trying to make a deal, you need to show that you are in the position of strength, right, So a lot of this blistering is around I'm in a position of strength and
you're going to have to bow to my will. I think the challenge has been there are some unintended consequences of that. I was talking to somebody yesterday about Canadians.
They're so they're not.
Upset about the terroiff, they're upset about the fifty first state comment and that Airbnbs in Rhode Island are down because the Canadians say, I'm not going to come visit the US. So those are the under tenant consequences. The other piece of this is he needs the tax revenues identified in tariffs to help fund his tax cuts, which, by the way, are not tax cuts really, they're extensions.
And if we don't get that extension, there is a massive tax increase that happens, which really becomes an issue around the economy.
Can you describe how you and the same thing the endgame looks like? What do you think it looks like? Because some people have described the last few weeks as madness.
Is there a method to it?
Yeah?
So I think what we hope to see, you'd like to see a couple of deals done right, to show that he's willing to come to the table and make a deal.
Right.
So if we can see a deal with.
Japan or Vietnam or you know, somewhere, to show no, no, no, he's playing his deals.
You'd like to know who is responsible.
Remember it was Paul Ryan who ushered the first tax cuts through, Like who's responsible for ushering that legislation through and champion that?
That will be very.
Important because he's got to get those done and the question is how quickly can he get it done to calm the markets because what we've seen is, you know, look at you when you suddenly have CEOs who say I can't give guidance because there's so much uncertainty. That uncertainty makes them fear, and then they stop making investments. If you stop making investments, it slows down the economy. Right, So I think what we need to see in the next ninety days is some clarity in the meantime uncertainty.
It leads to a lot of conspiracy theories and lots of other types of speculation. As someone who oversees one and a half trillion dollars of assets, how much of a material shift have you seen with customers, consumers shifting just slightly away from US assets to insulate from some of the whip siwing and the uncertainty.
You definitely see, you know, non Americans reducing on the institutional side some of their exposure to US equities.
Okay, so we've seen that a bit.
But on your hand, you know, you sort of you if you are in the market now, this is not the time we get out of the market, right, you need to play this out. And if you hadn't made the trade to being in more defensive stock, then there's no point in doing that now, right, because you've already sort of missed it. So you know, the reality is AI. I actually played around this weekend with an app called replet where you can just use natural language processing to
have it code and generate an app for you. Like the efficiencies are come from AI, we haven't seen those kind of productivity gains yet. The productivity gains that we're seeing are coming from technologies that came out twenty years ago, and so as those things play into companies, I think you'll see real opportunity.
You know, one thing that I hear from you, and I heard from Mike Wilson of Morgan Stanley earlier this morning, was that corporate America has a lot of good about it in terms of strength, in terms of resilience, in terms of technological progress. It's the question about other dollar
denominated assets, and I'm talking about treasuries. I'm talking about government debt, especially given some of what you were talking about with respect to who is driving some of these budget proposals through Congress.
That really is the issue.
How much have you seen that bid get called into question as institutions, particularly foreign ones, move away.
I think there's a question of you know, how much are you know, foreign governments pulling away from treasuries and you know, is that is that what we're seeing the treasury market or are we seeing the unwinding of the basis point?
They are the basis.
Trade and so you know, look, then the question falls into well is the reserve US as the reserve currency?
At question? Look, is not where else you going to go?
Right?
The US is going to be the reserve currency. People will say, well, China trade has gone up to two percent. Yeah, it's gone from four to six percent of trade, right, you know, it'll chip away at it, but we are still going to continue to be the reserve currency.
You mentioned a lot of non US investors pulling back from the United States. Morning Star had research out this week that said some of that is actually patriotic rebalancing from capital from America to Europe. Do you think it's that emotional for some.
Of these people, Well, you know, just again talking to folks from Canada who are so fundamentally offended by the comment of you know, the fifty first state. Yeah, it's emotional, right, they kind of get it on the trade and tariffs and we can deal and you want help on immigration. But a comment like that has obviously had that kind of nationalists response.
One are the long term impacts of feelings like that.
You know, who's at a dinner last night, we're you know, debating. Does that push Europe to China?
I don't think it, you know, obviously.
I think what it does is there's the joke of you know, it's not Mega, it's Mega make Europe great again, right.
It forces Europe.
To do things like more defense independence, more energy independence. Look, there's been a lot of brilliant talent in Europe. Why are we not seeing these unicorn companies from a technological and a lot of people say it's the regulation and it's some of the policies that they have in Europe. And so if this forces Europe to be more resilient on its own, that's actually a good thing for Europe. I don't think it necessarily. They don't suddenly trust China
much more. They're already trading with China. But it forces them to say, you know what, we have to we have to stand on our own a little bit more.
It's why we're seeing some invest this rebalance towards Europe since the start of the year. I wanted to build on some of Lisa's questions, and I think this is an important line of questioning at the moment, some investors aren't drawing a distinction between risk assets in America and the safe have an asset in America, it's training as one bucket.
Dollar denominated assets.
And I wonder from your perspective, when that Ian dynamic starts to take hold of the country, whether that's a risk you need to actively manage or a dislocation you take advantage of.
Which one is it at the moment?
Well, I think anytime that it becomes a risk on risk off in a big block, and yet you know, the underlying fundamentals are different in kind of an investment, that actually becomes a great investment opportunity.
So I think you have to look at it and unpack those Do.
You think that's what this is right now and it's the opportunity in stocks or bonds?
With that in.
Mind, I think you know, right now it's almost a market reacting to just a headline statement, right, and so it's really sort of on and off. It's a risk on risk off. I think that from a you know, the dollar was someon would say over valued, who knows, right, and it's come down a fair bit. I think there are a lot of people that were the US the
debt and the deficit. You know, thought that it was overvalued, and so probably in this there's a little bit of that coming, you know, some of that frightingness coming off.
What's your advice to people right now who were part of that dollar bit. They've built up that massive dollar long over the period of a decade across asset classes, in both equities and fixed income, and they're nervous about the policy in Washington and looking to reallocate.
What do you suggesting they do?
I think it depends on where If you're a dollar based economy, I think that's okay, you don't have to worry about that. If you're not a dollar based economy, you have to understand how that's going to impact your investments.
Certainly been something that the Europeans about to think about over the last few months, that's for sure. Jenny, it's good to see you lost to talk about. I can't imagine how much has changed the next time we spoke. I speak Jenny Johnson. There the Franklin Templeton CEO on the latest in this market. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, angiot, politics, You can watch the show live on Bloomberg TV weekday mornings
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