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Terminal and the Bloomberg Business app. The Amanda Lineum of black Rock Right in the following we expect episodes of macrovolatility. We remain attuned to the opportunity cast of being too defensive and under risked in this environment. Amanda joins us now for more Amandaican Monic morning.
Thank you for having me.
Great to see you.
The risk of being too defensive with stocks at all time highs and credit spreads near the ties for the year, explain please.
So I think in a time like this where there's a lot of uncertain often the reflex from investors is to just generically move up in quality. And we've been pushing back against that and basically saying that there's there's a case for selectively moving down in credit quality. If you look, for example, high yield total returns have outperformed investment grade. Here today subsets of high yield, including double
b's have outperformed triple bees. So I think what the market is telling you is that, yes, we're expecting volatility, there's residual uncertainty, but if you focus on kind of back to basics credit work, companies are navigating this and we are paying incredibly close attention to the micro level
commentary of companies in this environment. And I think what the market is actually seizing on is companies guiding towards twenty twenty six and twenty twenty seven, outlining all of the operational levers that they can pull to navigate this uncertainty. And I think that's what's giving some comfort. Now. Is there a lot of scope for spread tightening? No, But our income are all in yields and corporate credits still attractive. Yes, And I think that's really what we're emphasizing.
That's exactly what I wanted to ask you, the idea that spreads are near all time tights onield bonds. You're not getting compensated in addition to treasuries that much at all relative to history.
Why doesn't that worry you?
Well, there is some market segmentation there, so the trade off between treasuries. Yes, the spreads are tight, but back in Link twenty twenty four, we've characterized that as warranted resilience. So those spread levels, there are a host of reasons macro, fundamental, technical,
why those spreads can remain in that tight range. I think from our perspective, when we talk to investors, they're looking to deploy capital into corporate credit, and so what we're really saying is, if you're buying corporate credit, buy it for the income, the carry, the yield, not for the potential total return boost from tighter spreads. And I think really the point we're just trying to make is if you're waiting for sustained selloff in credit spreads, we view the bar for that is pretty high.
So it's pretty remarkable that not only is it not April second, but here we are with yet another trade war brewing and escalate to de escalate, And not only are people not getting bearish, we've got David costen Over at Gold miss ax up creating as SMP forecast, you could an upgrade over a Bank of America, And here you are in the credit space at Black CROC saying there's a risk we're not getting risky enough, and then essentially that's what we have to go. Are we just
discounting the policy uncertainty entirely? Has that sort of been stripped out of the picture.
We're not discounting it.
The title of our third quarter outlook, for example, was two sided Risks. So we're absolutely recognizing that there's still a lot of uncertainty. There are still a lot of potholes that we need to navigate in this environment. What we're saying, however, is that the economy has shown relative resilience and so taking a complete risk off posture, in our view, isn't.
The way to go.
In fact, again going back to the lower rated pockets of the corporate credit market, they've outperformed. It kind of reminds me of in the early stages of the FEDS rate hiking cycle, when rates were being hiked significantly and there was an expectation in Europe in the US that it would lead to an imminent recession. The economy surprised
to the upside. I feel like that's a little bit what's happening in the corporate sector is that it's actually turning out that corporates have a lot of levers to pull to navigate this. Some are within product mix, some are vendor relationship, inventory purchases, and so they're actually navigating this, and I think the bottoms up credit work is signaling that there is a little bit more resilience, I think
than many expected. That does not mean, however, that we are expecting a more challenging growth inflation mix inflation mix, so that doesn't mean that we aren't expecting some softening in the data from here.
We were able to get to this point because we saw reversals from this administration when the market pushed back on some of their policy proposals.
I think we got to this point because companies have been a little bit more forthcoming about the options that they have at their disposal. And so when you look at retail earnings, for example, over the last month, some of these retail companies have actually guided towards they can actually offset the full cost of pariffs starting in twenty
twenty six. Yes, there may be some near term volatility and some near term headwind but I think those sort of concrete details are what's giving investors the comfort to actually do the bottoms up credit work. That doesn't mean that all these companies are created equal. There will be some winners and losers in this, but I do think it's hard to ignore when companies actually present that full suite of lovers.
Do an each cham in pounds account.
I think I think that's probably more of a boon for the equity market, frankly than the credit market. I think actually, if rates stayed in this regime, that's a pretty supportive technical for corporate credit in terms of all in yields. There's been some increase in default rates, but by and large companies have incorporated that higher borrowing cost, so I don't think it's a prerequisite for continued resilience in corporate credit. I think maybe the equity market might be disappointed.
We can live with rights in the falls on FED funds.
Yes, I mean you've seen some floating rate borrowers default, but those are largely repeat defaulters, so by definition that should have been priced into the market. I think ideally it would be nice to have some additional normalization cuts. But you know our view, we're not expecting easing, so I think that's really the base case for us.
What you just said there was fascinating that any kind of rate cuts would help the equity market more than the credit market. Is the credit market now clipping the coupon all in yield story period full stop? And if rates go down that will be challenging in terms of justifying why you should purchase credit at these spreads.
I think psychologically there is some hesitation for investors if we would see, for example, high yield all in yields below seven percent, right, that kind of gets some attention. I think it's I do think that it's more of a why are you mind credit for Kerrie for income frey yield, not for the total return boost from tighter spreads or lower rates that's historically been the driver of
total returns. Not our real view in this cycle. For sure, it would help fixtrate long duration product, but I think if you look at the fact pattern of inflation above target growth, holding in still residual uncertainty. The commentary from the FED, we're not expecting the first rate cut until the fourth quarter, so really that's kind of our base case.
We heard that again early this out. I'm Minderalana a black croc. Appreciate it.
Thank you.
Let's build on that conversanction with Rob Casey of Sakenem looking at Taris and ranks in the following. Consensus currently is the July ninth will simply become August one. However, we would suggest being cautious around this view and standing on God for taras snampback sooner than then, Robed John, Just now for more ro Good morning morning. You said it. A lot of people are failing good. We can just
look through all of this. Leaser explained it perfectly. Why do you think there is a risk of actually follow through here?
I think there's a risk of follow through a because President Trump has not gotten the concessions that he wants in private negotiations or in you know, public negotiations with posting these letters, and he is potentially running out of room. Right, we may get a court decision on AIPA this fall. Trump is essentially has the opportunity to negotiate between now and then. So they're telling us they're getting closer, right, and maybe we get a bunch of deals over the course of the next week.
Or you know today.
If not, I think they probably want to push their advantage before you know, caving or taking a step back.
What's the decidive factor that dictates the shape of those deals. What's the difference between becoming the UK or Vietnam or Japan? What's the difference?
I think that, I mean that that's clearly an open question. What we've seen in the UK deal, the Vietnam deal among others is I mean, frankly, they're not very detailed. So I think that the deciding factor is the you know, the leader on the other side of the table is willing to accept what President Trump wants in broad terms, in vague terms, and maybe maybe they're able to sell it to their domestic constituency and then Trump is able to come back to us and say we made a
good deal. But that's not to say that these are even the trade deals that are struck. They're still not very detailed.
When you talk about concessions the administration is looking for and they haven't received them yet, what exactly.
Well, I mean, across the board, I think they're really two. Trump wants to be able to message that he's bringing down tariff levels on US goods being exported elsewhere. He wants to message that he's decreasing the trade deficit with individuals. I think that is probably the one with individual countries.
That's probably the one that's going to get the most play from President Trump so far, because even when he's announcing, you know, twenty five percent on Japan, twenty five percent on Korea, he's saying, these tariffs are not enough to rectify the trade deficits. So we still focused on the trade deficit. He still sees it as a problem even at these higher levels.
When you look at things like the United Kingdom, Vietnam, even the slew of deals we saw in his Middle East trip, what happened to all of them? What is the process that's now happening behind the scenes within the administration to actually make sure the deals of the details of the deals get done.
Who's working on that?
Well, I think it's behind the scenes, Amory for a reason. Right, we're not one hundred percent sure.
Do they even have the staff.
Well, that's why I was going to say, ninety days ago, we heard ninety deals in ninety days, right, and that sounded impossible then, and clearly it was impossible, right, Not every country that has tariffs to be applied, you know today or August first, not every country has even had
FaceTime with the president's administration. And so if you're a country is saying, we haven't even had the chance to negotiate and now we're getting these tariffs slapped on at the higher level, Like what are you supposed to do with that? So I think it's clear that there is not the bandwidth maybe that they had expected, because these deals aren't quite as easy as as Trump best and among others.
Hoped, there might not be the bandwidth. There's also a question about the framework and what kind of framework they're using to really understand what to extract from different trading partners. It's buy more rice, buy our chickens.
Talk about car exports.
I mean, there's this question of raising the ANTI and using it as sort of a national security tool as well as a trade tool. Have we got any clarity around what the framework looks like.
Not a lot of clarity.
I think one thing that we can see from both the UK and Vietnam is that President Trump wants to come back to the US and message that we are able to send more goods elsewhere, right and that's broadly speaking so far, I would say mostly focused on the US farm AAG industry. We also want to be able to sell more cars elsewhere, you know, export, build up manufacturing capacity in the US. I don't think we can forget about a general goal of building up manufacturing capacity
in the US. Each individual deal may not get us that much closer, but I think that's the overall trend, at least the President Trump is hoping for.
The goal is also to raise revenue, and this is sort of a key component with the One Big Beautiful Bill. And we did see the revenue surge to a record twenty four billion dollars in May. How much is that sort of a sticking point at this point? They kind of have to keep rates high totally.
I think it's a major priority. Obviously. Obviously we don't really hear that from the White House, right because if we're talking about tariff revenue, then we also have to be talking about who's paying that revenue, right, And a lot of times, not all the time, but a lot of times it's the American consumer. But the truth of the matter is, on the back of One Big Beautiful Bill, right, we are still in a deficit crisis, and so we have to find money somewhere. We didn't find it in
higher taxes. We didn't find it in you know, reverting to pre Trump tax cut levels. We're going to have to find it elsewhere. And I just have to say, you know, there is revenue to be had with tariffs, of course, but there is I think a broader point to make from now until August first, and that is, if we don't have the one hundred and forty five percent on China right then we really are looking at only a marginal I don't want to call it marginal.
It's more than marginal. But we're not looking at a drastic increase in tariff levels, which means we're not looking at a drastic increase in revenue levels as well.
Did you mean to call it a crisis or was that a slip Because it's early. We just passed a multi trinion dollar bill. It's har to call it a crisis down in Washington. What makes it a crisis?
Well, the deficit may not be in crisis right because we've run wide deficits for quite.
A long time and we're all still standing.
But the truth of the matter is, I don't think Republicans have a solution to the deficit, what they call a deficit crisis. Trump came into Washington describing the necessity of bringing the deficit down. Of course, we can all sit here and say that Democrats have failed to.
Do it over the previous four years.
But it's pretty clear that Republicans are going to fail to do it, at least in this Congress, and I think very likely over the course of Trump's term.
They're certainly not behaving as if it's a crisis in Washington.
And they just passed a bill that is definite deficit expansionary. The US is going to be selling a net more than two hundred and twenty billion dollars net over the next five weeks alone. This really raises a question, you again, where are the bond vigilantes? Are they just pegging their hopes and dreams and the fact that the Treasury is going to sell it all in T bills?
I guess so it's not in the bond market this morning, full notty some thirties at the moment, yozah Magli high by four or five basis points on a session. Robert's going to see you, Thank you, sir, rob Case they have signal we've got some extra time joining us not to discuss Santa Pianki of Alico, Sarah, welcome back to the program. How is the Administration of House Sun tried pound that's going to use that extra three weeks?
Well, I think that you guys are right to say that what the White House is trying to do here is to signal countries where they are frustrated. Although South Korea and Japan early on were places where the White House was hopeful for a deal, they've really gotten stuck in the conversations around sectoral tariffs, or particularly around.
Tariffs on auto's steal.
Some of the largest imports from those countries, the assion countries, Cambodia, Indonesia. I think they're trying to follow more the model that we saw briefly outlined around Vietnam. So I think we're doing some signal sending. The administration has, I think, always been very very optimistic about how many trade deals or even frameworks one.
Can cut in a period of time.
So I really just viewed yesterday this first set of letters as an indication of where at this moment, the White House believes things are not on the path they want.
To see how powerful is the signal though, and the President says it's firm, but not one hundred percent firm.
Yeah, well, I think you know, there are certainly some in the markets who are just going to shrug this off because we have seen delays, we have seen this kind of kind of high.
Top talk before.
I think what we would remind investors and other stakeholders is that right now we do see the directional terif rate in the next coming weeks going up. We're seeing countries like Vietnam like ending up at higher than this sort of ten percent baseline we've been at, and we have more sectoral tariffs. So some of this is just Trump negotiating that we've watched for a long time.
But I think also we're at really high terrriforates right now.
We're already at about fifteen percent, and again in our lines, the next signal points upward.
Sarah, do you have a decent understanding of what has been demanded by trade partners? Has the White House articulated that, do they know what they need to do to get the tariff that's been put in a letter in the last twenty four hours to get that tariff lower?
I think it really depends on the partner. I think certainly countries like Japan and Korea understand where the sticking points are, even though they don't like it. They just really particularly they've got their own politics. For example, in Korea, it's a very new government. Japan has an election coming up. They need relief on phoos really, so I think they understand. I think they're the bid ask is just at this
part too far apart other countries. I know there is a bandwidth challenges given how many countries are negotiating, So a country like a Cambodia maybe having trouble getting all the airtime. They need to sort this out. So I think it really depends on the partner. Interestingly, you know EU that it's been traditionally very sticky, difficult trading partner. For the Trump administration, they seem on track. So this is just kind of, you know, a snapshot of where we are in this inning.
Sarah, what do we mean but when we talk about getting deals, because it seems like the details of these deals are actually very foggy, It takes a long time. You've been intimately involved in crafting some of these deals.
How realistic is it.
That they could be more than a framework anytime in the next few months, given just what goes into some of these new negotiations.
Well, these are very very high level, as you point out. For example, on Vietnam, one of the touted deals by the Trump administration, we haven't even really seen paper. And one of the big questions for Vietnam is they got a bifurcated terra fright, they got twenty percent and then forty percent on transshipment. Transhipment can mean lots of different things and can have lots of different implications. So these
are extremely high level. And look, you have trade irritants with trading partners because there are a sensitive political and economic issues and they take a long time to work through. So the notion that we were ever going to get, you know, ninety deals in ninety days was certainly thought of somebody who hasn't spent a lot of time negotiating trade.
Well, now it's one hundred and thirteen days, and I think a lot of people are questioning whether or not you can even get a dozen of deals done by then. When can we expect the sectoral tariffs to actually be announced?
Interesting, some of them are rumored to be coming any day now.
Copper is supposedly close lumber.
I think the biggest ones that we're watching are on SEMIS and the pharmaceutical industry. Those are very large sectors of the economy and very important from particularly on semis an inflationary perspective. About where the administration goes, I think there's still a lot for the administration to sort out. But the way we have seen this president operate in sectoral tariffs so far is he comes out with twenty five percent, pretty broad, and then negotiates from there. So far,
they have been stickier in those negotiations. That's why the Koreas and Japan's are so frustrated. But in terms of when he wants to throw this in the mix, sort of unclear, except I will say this president is feeling pretty good coming off some impressive legislative wins and foreign policy wins. He may feel like right now is that time he has the bandwidth to put these forwards.
So do you think he'll be more aggressive and let a lot of this drag on.
I think he is feeling bullish and more aggressive, you know, And at the same time, the market, you know, isn't necessarily always buying all of it, so that probably also tilts in the direction of wanting him to go even further. But again, of course there's a lot of back and forth. I don't believe, for example, that Japan or Korea will end up ultimately with a twenty five percent a reciprocal tariff.
That's all part of the process.
But directionally, again, we think we're on an upward move. And yeah, I do think he's feeling pretty good, and generally that leads presidents to be a bit more bullish.
Sarah, thank you one of the biggest bulls on this stock for quite a while on the street, I'll confess. CEO Kathy Wood, Kathy, thanks for making time for us this morning. Let's just talk about what Dan I've said to us yesterday that he believes Elon Musk is crossing a line and that the board needs to step in.
Do you share that for you?
Well, I have to tell you we've been dealing with controversy around Elon Musk in one form or another since we first bought the stock when the company was founded in twenty fourteen, and we owned Tesla in It's one of the top holdings in three of our ETF so arkk W and Q. So we are watching this like a hawk, no question about it. But with the experience over the last eleven years, we turn around today and
see Tesla really not an EV manufacturer anymore. Moving into the robotaxi age, we believe successfully and we believe it will scale much better than most of it's can competitors. We see SpaceX really only ninety percent of all of the satellites out there neurally transforming lives of paralyzed people, people with als, and probably most surprising of all, XAI. Now we own all of those again in our venture fund,
following them very carefully. XAI is on some benchmarks. It hit a point that three pro hit in June, it.
Hit it in February.
So you know, we are very focused on barriers to entry technology moats and we believe that the moats that Elon has built, and obviously this is not just Elon. He's attracting the best and the brightest to help solve some of the world's biggest problems. So again we do trust the board and the board's instincts here and.
We stay out of politics.
Well, we'd love your opinion on the current situation, just on Testa specifically. You mentioned some phenomenal companies doing some incredible things for Tesla, though, do you believe that Elon can pursue his political ambitions at the same time pursuing the best interest of Tensla shareholders.
One of the announcements Elon made recently is that he is going to oversee sales in the US and in Europe. And when he puts his mind on something, he usually gets the job done. So I think he's much less distracted now than he was, let's say, in the White House twenty four to seven.
At what point do you see sort of the political landscape shifting though, not just for Tesla but for the haves and the have nots in some of the big tech space. I know you've had a complicated relationship, say with Apple, which seems uniquely pegged by some of these tariffs.
Is there anything that you could see that.
Would make you like that stock again or do you think that really it is going to fall out of magnificent seven.
Yes, we've been watching Apple for a long time with an AI lens, and that started, I'm going to say about seven years ago when it was becoming serious about autonomous vehicles. If you think about the ultimate mobile device, it's an autonomous vehicle, and.
That should have been Apples to win. And what we've seen.
There is one turnover of management teams after another, and it's all autonomous driving. Is an AI project, is the largest AI project on Earth, we believe, and so losing the talent that it has, and as I understand it lost another one today to Mark Zuckerberg's top fifty. So they've had a lot of trouble in this regard and I think the burden of proof is on them.
Do you think that it is time to follow the talent, that this is going to work the gamble that you're seeing over at Meta and that that's the path of travel for the other big tech companies that are going to just eat some of the companies from the inside out, take the talent unnecessarily by the company.
You know, it's a very good question.
We're trying to figure out if what Mark Zuckerberg is doing today is much like he did when he was pivoting hard to the metaverse, which proved because he thought that was the.
Next big thing, and that was incorrect.
AI is the next big thing, no question about it, and you do have to have the right DNA and you have to move fast and break things, as he would say. So you know, it'll be interesting to see if he's able to turn his open source strategy. And we've admired that quite a bit in terms of generative AI into a leader again or as we were observing it, Apple's LAMA three at the time was improving at a faster rate than some of OpenAI's models, and that was true of open source generally.
And then that has stopped. So, yes, you had to do something. Is this the right thing? Why did that stop?
I don't know, Kathy.
Next time you're with us, we'll have a longer conversation to leaders, incredible men doing incredible things.
I convest CEO Kathy Worth.
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