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Terminal and the Bloomberg Business App. John Parvan of Blackrock writing, we now see even more course to stay risk on and overweight US stocks. John joins us now for more. Joan, good morning, Good morning. Just explain yourself, sir, why.
I mean it was done at the end of the day. You know, a huge amount of uncertainty. Of course, we've been going through that this year. We don't think there's much insight insight in saying that anymore. It's really about how you get a handle on this, and I guess strong conviction is that you know, when you look over the near term, we have more certainty about the outlook than we would have over the next few years. That's the very unusual environment we are in right now and
over the near term. The world cannot change very quickly, so there'll be you know, noise, there will be headlines, there will be attempt to do stuff, but you know, there are immutable.
Laws at play and that's going to shape the outcome.
So we tend to, you know, over overall be you know, pro us assets and at the same time, like try to fade the extremes that you're going to see coming both ways.
There is a distinction that when you say overall be pro us sets between stocks and bonds, what is the difference.
Well, the difference is that like we like equities and bonds I think are are more tricky in this environment, and so US equities. We think there's like powerful mega forces that are at play.
AI is a big team.
We continue to believe in that that supersedes I guess the near term trained noise and so on. But when it comes to the bond and fixed income a bit. But but government modesl in particular, well, we have a lot of things that play that are for us pointing towards higher yields, higher long term meals term premium that needs to reappear, and so we remain on the way, you know, US treasuries as a result.
Is this a US story or is this a global story? At a time when I believe that you prefer European bonds even though there's still issuing a lot of debt and facing some of the same kinds.
Of issues, it is a US story to the extent that we think that's where the reprising is.
The is the more more serious.
It's also related to the greater uncertainty we have around the FED outlook, the inflation outlook, the debt, the debt picture, whereas in Europe, I mean, you know, inflation is on the way down. You can tell a very credible story for inflation will surprise on the downside. The CB has more room to cut even from here, so that leads to, you know, more support for Europe and bounds.
But so way US equities underway US government bonds while you're overweight European government bonds, maybe underway European equities. I'm just wondering if you could give us a sense of the last time, just to sort of frame this out, that you are less exposed to US treasuries, particularly on the longer duration versus European ones. What was the last time you had this dynamic in black Rocks portfolio.
Well, we've been for the last few years constantly underway US treasuries, so we've been of the view that inflation was a structural phenomenon this environment, that rates will need to adjust. There's a fiscal story that is not the new thing of this year. There's been a deficit story post pandemic that was putting pressure on yels. So that story has been with us for a few years now. That has been one of the strongest convictions we've been
having throughout those that time. And there's been new layers now added to this, which which you know, it's unusual to say we've been structurally underweight US treasuries for so long, Right, it would have been tactically moving around that, but that's really like a lasting story for us.
When it comes to these new layers. You're probably mentioning at least thinking about the one big beautiful bill. Why didn't we see more pushback from the bond market.
Well, I think I think there is a lot of structural demand still for US treasury.
So the reason why we're on the waight is not a bigger.
Sensational story around US exceptionalism being questioned, or it's not about US Treasury is not playing their safe asset role as much as they had in the past, so we're not questioning the fundamental structure of the and there is a there's gonna be a need, a structural demand for this. So I think I think the markets are adjusting. There's no panic so far, and uh, but it's on the drifting up. I think there's room for digesting some.
Of the of the big beautiful bill that.
Came through, and then there's a lot of question now on how it's gonna come next. And so you know, I think I think it's gonna be up. Yield is gonna go up. There's it's gonna be absorb over time towards with with higher yield.
You're saying this at a time when the president's talking about sending out more letters where tariff rates look very similar to what happened on Liberation Day. Do you think the Trump has primed the market to basically absorb his aggressive policies.
Well, I don't know if I don't know if the President has prime the market in any way, but I think I think we have more conviction ourselves since April second, in April nine that what I talked about before, the immutable laws cannot change quickly in the near term, and one part of it is the bond market. To you, to actually connect to the previous discussion, the US realies on you know, foreign funding for for that that that
we're talking about. That's maybe something that we would wish to be different, but that's the starting point that cannot change overnight, and I think that's going to limit the maximulus approach that you can expect to see.
And we've seen that on April ninth.
To us, it was the bond market that really like provided the discipline at that point, and we've seen it. So I guess that'd give us more conviction that going forward that's going to still be a constraint for the time being at least.
That's an interesting thing to think about. Do you still believe that any potential self and treasuries will be self limiting because of that very fact?
I think so.
I think I don't think the US can sustain a massively higher yield, even though we are underweight and we think gilds are going to go up. It has to happen in a fairly gradual manner. And if there's any sign that this is like a very quick resetting. And we're in a world where like we have five percent ten years yield quickly on a sustained basis the whole budget ever at medic that is already pretty challenge, I think is out of the wind.
So five percent is like a ceiling for you, Well, I think I.
Think when we if we're sustainably in a five percent world, I think that changes the picture quite a bit.
I don't think it's a ceiling.
I mean will depend on other what the growth outlook is and and so on. So I don't think there's a hard ceiling. But it's a different world. If we are like adjusting to five percent sustained.
We can I ask you, then, why is it so different given us only sixty basis points away? Why is sixty access points some important?
I think it's it's not so much as sixty basis points, but like this is now the kind of the norm five percent that we expect to see over the next few years. That is a different world than were at four point four. It might bounce back and up, So that's more to sustained aspect.
Even the team have been pretty consistent about this. Now for a number of years at a time when a lot of people have started to price in rate cuts back away than price them in. Again, you've been very consistent about this. There are structural reasons to expect inflation to remain higher, and you think bond yields remain elevated. How convinced the clients of that story right now when you tell it?
Well, I think, well, I find that we're very convinced about this story, and I think you know, there's different views out there, but I think it's less now. We have less pushback than we would have had maybe you know when we started to order that view in twenty twenty two and so on. So I think this has become in some ways more consensus, so less push back, I guess in that sense. But yeah, no, I think I think that's not an easy.
Hard to sell.
Yues John, to appreciate your time. I here so much jump up on the of Black Croub with a S in New York at Mills franm and James Etkimonic morning. It is July ninth, and we have limited clarity how much additional clarity will we have on August one.
We'll have more clarity. I don't think we'll have a lot of the details. I think the whole goal this year is to get as many MoU signed as possible, because I think what President Trump really wants to do is say I got a trade deal with one hundred and twelve countries. They're going to buy trillions of dollars worth of goods, even more trillions of dollars worth of market access, and we're going to work out all the
details later. And I think that one of the good things about having this little extra time is what you need to do to get one of those MOUs is not all that complex. If you can work it out later, that's fine. And that's where I think the market is okay as long as we have this extra time sign the deal. And when you look at the letters that are going out, the new rates are not that much worse or sometimes even a little bit better than April second, So we're okay.
The new rates are basically April second. It's basically Liberation Day part two. But in this letter, Trump does say that perhaps you could consider adjustment to this letter if you decide to come to the table, we may reconsider. But then yesterday he said it's August first. These are the rates we're not going to be adjusting. Which Trump do you believe the next Trump?
I mean it's I mean, there is the only constant here has change. I mean, so I don't necessarily think that August first is necessarily a hard and true date. I don't necessarily think these rates are hard and true. I do think that there is going to be three buckets here. Bucket number one, new revenue. We have a huge new tax bill that is costing trillions of dollars, the most expensive bill in the history of the country. He needs that revenue. Bucket number two protect national security.
Those are the sectorial terrors. If we are at war with China, what do we need to make here in the En States? And Bucket number three has always been can we use the force of the US economy to force policy change elsewhere? That piece is always going to be the hardest part, and that's what all these negotiations are about.
Amory, So who gets a deal today or tomorrow? I'm thinking of three In particular, Japan was supposed to but they got the same second rate. India, I was getting tons of text messages yesterday saying it was imminent. I still see no language on it in the European Union, which seems to capitulate on a ten percent across the board tariff.
Yeah.
I think the most likely is India than Japan, and I think the least likely is the EU. I think one of the issues with the EU is the United States is asking Europe to make a decision. Are you with the United States or are you with China? And there are competing interests. You look at certain countries and they're like, absolutely the United States. A lot of that
economy is tied to US. Others have more exports going into China because they are a block with disparate interest I think that's going to be very hard to get anything on the tape by April first. But I do think that Japan, India, Usustralia, a large part of the GDP globally, can get a deal by August first.
Don't want to get into psychoanalysis here. What is it though about letters? Because it's always a letter? Why does everybody get a letter? And what is the importance of this versus just a verbal warning maybe a presidential tweet?
You know, what is it about a physical.
Letter getting sent out that it has some import for President Trump?
Yeah, I think it shows action. I think it shows the kind of the ability to kind of flesh it out a little bit more. You know, these letters, if you read them, they're basically the same, and they are very clearly dictated exactly by him and probably edited by him, because it's like you see Trump's voice in these letters. I do think that there has been a concern by President Trump that the taco trade is out there and
that he always caves. So he wants to show and project the strength that if you don't come to the table, this is what you get. I think the biggest questions from the you know, social media posts in these letters are some of the details.
What does it mean.
That you'll have higher tariffs if there's transhipment. We do not have a structure in place to deal with kind of how that country of origin would be different. That's why I think the details here are going to take a long time. But he wants to say, here are the general parameters. This is what I want. You come to the table, you tell me what you're going to give me.
I'm taking, not its parenting No, it's because I plan on sending letters to the household and we do have a complaint box already. I am wondering going forward whether the reaction or non reaction that we're seeing in markets is sort of emboldening him to send some more letters and to raise those rates up even higher.
Yeah.
I think that's one of the big questions from clients yesterday at Raymond James is that after April second, what got him to pause these on April ninth was the market reaction. And we've had these conversations so many times. What caused Congress in the past to raise the debt limit is the market reaction? And so are you in this dangerous place that if there is no market reaction then you can get even more aggressive, And at what
point is a mistake made. I don't think we're close to that, but I do think there's always a threat that if you need the market to correct and you don't get it, then you get more bold. The biggest change I've seen so far in this market is early on in administrations, they mostly focus on process. Later on they focus on outcomes. Right now, this is a market that is saying, all right, the process might be changing,
but the outcome is not likely to change. The only way we get a market reaction if they think the outcome is actually going to materially worse than what they actually expected.
What would a mistake be How do you characterize that?
Yeah, I think a mistake would be actually going to fifty percent with the EU in that sticking on for a period of time. When I was in Europe two weeks ago speaking with investors at Raymond James, there is a real concern about the weakness of the dollar and exports getting more expensive coming from Europe into the United States, and then you have tariffs on top of that that
could be a recession. Does that kind of have unintended consequences we talk about, you know, looking at yields here in the United States, we saw after April second, the thirty year go above five percent. Does the thirty year in the ten year start spiking as we start issuing debt over the next couple months to refill the Treasury General account, and does he put pressure on the Fed to build that out and then there is a bond
market reaction. Those are the things that I think are the biggest debates for the second half of this year is kind of the rate.
Path that last point the federalist of what are you ton of clients about the FED rice?
So I think that I know that there is news out this morning that Hassard and warsh are considered to be the front runners. I'd put Waller in Bessent into that camp as well. I think Donald Trump loves people to compete for the job. What I'm watching to see is does Michael Barr step down as one of the FED governors now that he's no longer by seer for supervision. If he does, Hassard or worsh is probably going to get that seat. Coogler another governor her term expires in January,
that is probably the second seat. And then all four compete to see who can be the Fed cheer come the May expiration of Powell seat and who is going to be the most ubish, who's going to be the most supportive of his agenda gets it. It's a perfect scenario for Trump to have another game of Apprentice, but this time for Fetcher.
Oh Gamath thrines equally as Bruitsald that situation, some names are more credible than others. Let's put it that way.
Yeah, or Bachelor. I mean, who gets a rose?
Right?
I mean, we could put this on a whole host of different shows. This does raise a question about how much the market's going to be voting to your point, you know who they're going to vote off the Island?
Love Island? Maybe another one. Yesterday when the President was once again saying that j Powell is terrible, he then looked over to Scott Best and said, I like you better. And that made me think, oh, maybe Besson is back in this race, and it's not just the Kevins.
Can you mention Theisconsin Love Islands? I was just going to say, this is.
Like you mentioned this will I mean, I mean it just feels, you know, like you know, playing for the love and you only get love if you.
Say what I want, and that's sort of a toxic relationship. You watched Love Island.
Want to know more about the complaint books? Save that for another time.
It's true, it comes out once a week, Okay.
At Mosen Raymon Jenks that thank you seek joining us Matt to discuss the film of Trump tried advisay on good to see you, Good to see you. I'm sure you've been up whole night. What's the advisor clods.
My advice to clients is to take the day off, see how this plays out, and then come back in two days and a week and see what the teriff landscape looks like. Because right now this is the endgame of a massive, massive negotiation, and there's just as mixed substance as there is theater. So if you're making real business decisions, you're best just taking a beat and waiting it out and see where things land.
Having worked for Trump, is this the final moment where he's trying to extract the most concessions from all these countries?
I think that there is a lot of that in this And what's so challenging about watching Trump from the outside and what makes him such an interesting negotiator is that there's just as much mix of substance as tactics, and so trying to understand the forest or the trees can be very difficult. But I do think this is the end game, and I think he's trying to say, Okay, country X, country Y, You've given me this deal, but are you really going to give me more? And that's
what he's trying to get. Who was the White House most focused on right now? In terms of the foreign trading partners. So they've talked about these eighteen countries. We've heard anywhere from eighteen to thirty important trading partners. I think those are the ones that the administration's really focused on trying to land a deal with.
You think this is the end game, so that we're going to get some clarity on August first? Is that what you're telling clients that essentially this isn't just a deadline, it's going to be moved to September fourth, and then the October first, and then on and on.
Well both right, So at the same time as we do have this August first deadline in the President doubled down yesterday on true Social and said no, this is a firm deadline. They have also said that if you don't like your terif rates six months a year, two years from now, you can come back and try to
lower that through negotiations. So I think we'll certainly see more certainty, and I'm actual actually hopeful that we do well in advance of August first, because has Customs needs time to adjust the HTS give importers notice of what those tarif rates are, and that process alone can take a couple of weeks.
I just wonder how much some of this leverage is getting lost in the increasingly extreme rates, the increasingly extreme tactics. Does that actually end up bearing less fruit after using it many times? And that's sort of the question that you see in markets is a lot of people shrug this off, and frankly, some of the rhetoric that we're hearing from the trading partners saying the same thing.
Well, I think I'm hearing different things from trading partners anywhere, from sheer panic to blase in terms of some of these tariff rates that have been announced. But what I would say is this is very typical of President Trump's approach to negotiations.
And I do think that tariffs will go up.
The question for me is by how much and with respect to what trading partner? And so you know, whether this is the boy who cried wolf? I don't think so at all. I do think that the terif rates are going to go up, But are they going to go up to thirty six percent on Indonesia? Are they going to go up to forty percent on me? Are maybe not? Let's see where things land.
What I'm hearing from you is that his tactics are actually working on the other side of the negotiating table. Would you say that's correct.
Yeah, Having talked to a number of trading partners, there is a bit of let's pick up the phone, find out what's going on, and see how we can de escalate this happening.
Now when he comes out and announce something, maybe for India, because he said he basically signaled that yesterday I had heard that this was imminent. Is it going to be a framework like he announced with the United Kingdom or we get more substance in details to it.
So India is a bit different than some of the other negotiations that are happening. This is more like a broader trade agreement. So I expect the deal with India to be about a subset of issues versus these reciprocal deals. I do think will look more like frameworks with the substance of those provisions and the details to be negotiated moving forward.
Just one point one dimension of this I think we will find really interesting is transhipping. How much progress have they actually made so far to stop the flow of trade going from China through other countries and inst the United States?
Well, this is an active debate and wash right now, what does that word transshipment mean? Does that really mean ships that are going from China to a third country like Vietnam and then to the United States or is it a reference to this concept of a rule of origin, meaning if you've got Chinese content in that supply chain, you're going to be paying that forty percent that higher tariff. And if that's the case, Vietnam's between a rock and a hard place, as are many of these countries because
China does not like that idea or that provision. So we'll have to see what the administration means by that when we see the actual text.
Outside of Vietnam, what are the countries you're tracking on that issue?
So the President has had the transhipment issue in every single letter that he sent out, so Japan and Korea have it. I think this means a lot for Southeast Asia because so many companies move supply chains after the original three oh one tariffs and Trump one point zero, so this could really hit them.
Kelly, I appreciate it's going to see you in person so here in New York. Thank you. The former senior Trump Trade dediser, Kenny I'm Shaw that's citizen five PERCENTDA with this to say, investors might be done with tariffs, but we doubt Trump's tariff agenda is done with investors. Nancy joins us now for more. Nancy, good Mornic, good morning. What is guiding you at the moment? What convinces you of that?
Well, to be sure, this administration wants higher tariffs. They've already put in higher tariffs, and they're going to and they're going to stick. We've accepted the fact that tarriffs are here, are here to stay. Why we do need a freer trade backdrop, and too, I think misguided this administration thinks this is positive for the United States. I'm
a free market economist. Terriffs are a bad idea. Nonetheless, I have to accept that they are indeed in the indeed here, and they're going to be a negative impact on the economy. It's a regressive tax on consumers. Lower end consumers are going to get hit more because of these higher because of these higher prices, and saying for small medium sized businesses. Larger businesses might be able to plow through this, but the smaller medium sized part of the econom.
We are going to get squeezed. From these higher prices.
When you take the politics out of it, is this more inflationary or more of a slowing growth type of ramification from the teriffs?
Well, in near term, it's a tax, it's a hit. It's a hit on the economy. Whether or not it turns into sustained inflation depends upon what both monetary and fiscal policy do. I would worry about the FED stepping in and easing cutting rates to aggressively here, because that would just increase the odds that these price levels indeed stick. When you've seen tariffs before, when we had some back in twenty eighteen, it was a price shot. You saw
it in furniture, household appliances. You initially had that increase in price, but then you had to decline in demand, and that eventually led to a lower lower prices actually for household appliances and furniture. So it depends how sustainable these are on what the Fed, on what the Fed does.
I want to just hone in on something that you said, if the FED cuts, you think that that would lead to more protracted price increases and more sort of entrenched in inflation. What gives you the confidence to say that at a time where we're seeing on the margins some slowing and consumer spending and certainly deterioration and consumer confidence.
Well as we saw and this is no nowhere near as extreme as we saw during the COVID crisis. You can have a temporary shift down in demand, but inflation is a function of what the Federal Reserve does, monetary and fiscal policy does.
So even though you have that shift.
Down in demand in twenty and twenty twenty, because both monetary fiscal policy so aggressively, you then had price levels stayed elevated with that supply chain disruption, and then you have the inflation in twenty one into twenty two. So near term, yes, we are having to shift down, shift down in demand, which could lead to lower prices, say later this year, next year. But if the Fed were to cut rates too aggressively, then I would again be
worried about inflation in twenty twenty six. And I thought your point on the bond market here is going to be really important. The Fed cut rates last year one hundred basis points. Everyone seems to forget about that. I got raised one hundred basis points in the fourth in the in the fall of last year, what did bond deals do?
They rose one hundred basis points.
So the FED control is a short end of the curve, and I think some of the administration understands that, but they have to be careful of the long end.
Well.
The FED have enough information to cut by September, given the fact, especially that the tariff deadline has been pushed out August. First.
I worry about that because we saw the employment report on the surface looked healthy. Underneath the hood, it was actually a week employment report, but on the.
Surface it looked healthy.
I would have thought it would have been easier for the FED actually to have cut rates here in July, where you really still have tame inflation and signs of an economic slowdown. I worry by September you could have maybe clearer signs of a week a weaker economy, but stickier inflation. I am hearing from from retailers that they're done with inventories pre co the pre tiff increase in inventories.
They're they're they're fading now.
They are going to be selling these higher price products in the third in the third quarter related to the tariff increases.
So I worry about September. But a cycle or one price adjustment.
Again, for right now, it's a one price shift up in price as we saw in twenty eighteen, But we don't have the conclusion.
It depends upon how aggressive the Fed is.
When you say your word about September, are you worried about the price side of things or you worried about what could happen to the labor market if they have to absorb some of this on margin.
Well, I think you're going to increasingly hear stagflation as you go through the third quarter, because already you're seeing consumer spending stalling out. Already again under the hood, the labor market is deteriorating on Apluyment claims are probably the easiest number to show that, clean the number to show that. So I worry that as you go through the third quarter, the Fed.
Is going to have to really balance it.
On one hand, you will have a weaker economy GDP growth we have less than one percent in the third third quarter, probably a higher unemployment rate, But then the inflation data could be also more more sticky, and you're seeing it in the shelter was a good it was a headwind to inflation in the second quarter. Is that going to continue into the third quarter as these tariffs make their way through into the data.
And that says, you know, there's a range of views that a federal reserve, the CEPHECA is incredibly divided. One view, I think is quite important at the moment. It's Governor Wallace view, and Governor Waller is making, I think incredible argument to say you should look through the inflation re effects potentially of tariffs maybe think about reducing interest rates. Do you find that particularly compelling?
I don't one.
I think if you look through the tariffs in aggregate, the economy actually is on a healthier footing. This is a soft patch volatility created from the uncertainty and the tariff and the price and the price increases. As I've said before, and I focus a lot on capital spending, you have incremental physical stimulus for twenty twenty six, importantly for capital spending, which has boosted potential GDP growth already.
You don't need a lower interest rate environment. As some of your you've reported this morning, there's a lot of liquidity in the market, says why does this m and A cycle is picking is picking up, and I would I would be leary and cutting rates to aggressively. One of the economy is healthy with stronger potential GDP growth. We have basically a four percent on a plumber rate cyclicle is going to go up a little bit. But we don't need lower interest rates. This is not two
thousand and eight nine. It's not a COVID crisis. I think rates should stay.
Where they are.
So, John, I was thinking as Nancy was talking, if you wanted to explains tagflation, there is one economist, Donald Trump, who really put it perfectly when he said just a few months ago, you know, maybe you need just two dollars. It costs a little bit more rather than thirty. And maybe that's what we're seeing trickle.
Out to the economy, is that the young companies Mike can know.
I don't know if he really wants to go back quite the same thing.
Maybe not.
I do wonder though about where the inflation comes from. If you do see consumers not as strong of a position. You pointed to the labor market and the weakening that we're seeing in certain certainly the private payrolls report, Where is it going to come from in terms of fueling the ongoing ability to absorb the price increases?
So it will have to come from stronger corporate profits. I mean, because if you have a stronger corporate profit backdrop, then you'll get a stronger labor market. You'll get bigger wage increases, and so near term profits are under pressure. Two Q earnings are probably going to decline, not your year, but sequentially, which is why you have this weaker labor market.
So you need this soft patch to end, which we think can end on its own without lower rates in twenty twenty six because of this incremental physical and importantly because of the capital spending cycle, and so the investment cycle fuels productivity, productivity fuels profitability, and that then that is how you get a stronger job a job, a job market.
Na, Si, we'll have You're right, It's good to see you nice, Thanks for your time, Thanks for dropping by, Thanks for your time, Nanci Azad of Pipersanba.
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