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steal a return to the White House. Ja Ploski of TPW Advisory is bank with us. He was with us what six hours ago? Ja, to see everybody glad to start with this, But you made a really bad call on this selection, Harris land slide. What went wrong?
Oh?
Thank you, John. I appreciate that, the conversation. I always love that. Well, look right, I mean, my dad is It's a good thing we're not paid to be political prognosticators. Because we were of the view that the Democrats would win women vote, abortion, youth vote, et cetera. None of
that really materialized. What's really interesting after a few hours of sleep, is the idea of good economics has turned into bad politics for the Democrats right the Biden Harris administration best economic outcome in generations, the US is the envy of the world, best growth, lowest inflation, and the Trump policy mix, which I think economically speaking is going to prove to be not very good but was clearly
good politics. And so as an investor here we are sitting, we need to think about exactly what we just discussed. You know, is it going to be a sweep, because that means the policy mix, more of it is likely to materialize. If it's not a sweep, then we'll see how it all plays out. But I think for US at TPW, we're focused on a long cycle opportunity, good global growth, good risk asset O tunity, and a lot
of that depends on policy continuity. And I think what we're going to have in the US is clearly policy discontinuity. And the question is going to be how does that play out? And the setup I'm thinking about, like right now this morning on the way in here, was you have the US, which is an over owned expensive asset.
Foreigners have never owned more of US financial assets at a time when the policy mix is deteriorating versus, for example, China, which is a cheap asset under owned just to finish cheap under owned, and arguably the policy mix is improving.
City Economic Surprise Index turning up. Pmis above fifty, and I think we're going to see at the end of this week a further policy response by China because they understand that their growth right now is export driven and with tariffs that could be a big problem.
I wasn't trying to interrupt you, but before we get to it, don't interrupt you.
Criticizement.
It's okay, it's a third.
Down or fourth time.
Vote.
There's a question here about whether you than fade this move if you believe that actually this is not the right policy. To put your mouth the money where your mouth is.
Well, that's a great question, and I thought about that, and tactically, I think you have to enjoy the bounce, right, and the reasons are multifold. First, seasonality, this is the best three months of the year for stocks. Positioning is pretty light, right you're seeing that play out. You don't have five percent moves, two percent moves in the S and P if everybody's already long, so people de risked. Now they have to re risk. Technicals are supportive, and importantly,
most importantly, fundamentals are supportive. Right, we're just coming out of Q three earnings. They were double what the expectation was going into the earning season. The projection was four percent, ended up being around nine percent. And most important, I think we've seen a complete collapse in the VIX. That's what needs to be up on these charts here for Bloomberg. Right, the VIX has gone from twenty five to fifteen in a matter of hours.
I was on TV last night. He's producing.
Now I need a new job on the screen.
Let's go, I need a new job.
Yes, exactly, something's gonna work.
I think you just take over.
So your tripolar world.
Even though your political conviction was wrong, your market conviction in a sense was accurate.
Yeah, exactly. Which is It goes back to what I said last night. Remember my miakup but I think it was twelve to fifty last night was look, do you want to be the old market saying do you want to be right or do you want to make money right?
And I struggle with that for years because I was my background as a cell size strategist, and so you want to be right, really important as a seal size strategist, As an investor and an advisor, we want to make money, and so we're fully invested, we're long equities, we are completely out of treasury. So this asymove is not affecting us in any way, shape or form other than helping us beat our benchmark.
Well, but it's tight to get back in.
Yeah, you know, that's good. That's again the question to be asked, I think, and you know, it's a little tempting tactically again because as I said last night, going into this week, the long end of the treasury market is represented by ETFs, was massively oversold.
Right.
The RSI Relative strength Index for the seven to ten year etf I e F was fifteen. They don't really get down around fifteen very often. So tactically, I think you're probably I wouldn't be a seller if I were as an owner of treasuries right here the long end. But I think the bigger question is the deficit and clearly again the Trump policy mix. It's not just my point of view. Pretty much every independent person who looked at it or a Group, Moody's, Goldman, Peterson.
Et cetera.
It's bad for inflation, it's bad for the deficit, it's bad for rates, and theoretically should be bad for growth. But I think there's an idea that this is going to be a hothouse effect, which is what you guys have been talking about.
So what are you looking for to decide whether or not to bite the bullet sell stocks by bonds.
Part of it is to see the makeup of the houses it a trifecta. Part of it is to kind of like see what China does right, because there's going to be a response. Well, you know, we're global, we're multi asset, so we have the whole world is our oyster, and there are going to be opportunities to play. I think for now, as I said, we enjoy the bounce, We enjoy the ride, and we think about, you know,
at some point, maybe lightening up. I think for the US, I mean, I think the call for US is going to be if we really do believe in the tripolar world competition between China, the US, and Europe. China has taken the high ground in the clean energy space. You know, Trump wants to and EVS et cetera. The real fight now is AI. Uh and I don't see that. This is, you know, where the two countries are separating their tech stacks.
That's our whole thesis with China tech. And you know, I think the issue right now is do you want to press that bet right so you reduce the US and you go further into Asia, which has been down five weeks in a row, is cheap and under owned. I mean, those are the things you want to play.
As you said, you want to end EVS. Tesla is absolutely soaring today.
Well that's the must. Well do you think is the biggest.
Loser in terms of your tripolar world with this composition we see in Washington.
The US clearly because Europe has got to respond. They know that the whole Drogy report on competitiveness was we got to do more of the things that China and the US are doing. And to us, there's a new industrial policy mix that is being implemented around the world. To compete in AI, to compete with climate mitigation, to compete in conflict, you need public private partnership because it's too much money for the private sector alone, and the
public sector doesn't have the expertise. So who can marry that best is going to be the winner. And I think you also have to think about immigration. Who can leverage the immigration to improve their growth profile is also going to be a winner. And in the policy mix that the Trump team has laid out to date, it's anti pretty much all of that. And so you know, strategically, as I said, the US de hallor is the most over owned, it's expensive, and the policy mix, in our view, is deteriorating.
There's a lot to unpack there. I just want to pick out a few things. The former president now president atlect has been quite clear that he wants national champions, which is why there's the proposal on the campaign to drop the corporate tax rate to fifteen percent with conditions for domestic manufacturing. Now, you said, when asked who's the biggest loser, you said the US, and then you said,
clearly it's a clearly piece of it. I'm going to push back on because it's not so clear to a lot of people watching the program right now acknowledge that. At the moment, I think you called it a hot house theory. Right now in America, that's what it feels like. It feels like, if you're investing in America, you'll do well. If you're trying to export to America you might have a problem. That house theory. What's the biggest hole in the window right now?
Well, I mean, I think it's JP Morgan who laid out the case that if Trump implements the sixty percent tariff on all China imports, that will lead to almost a halving of the earnings growth that's expected for twenty twenty five. In other words, the earnings are expected to grow by about thirty five bucks next year from this year twenty five five to twenty four, the tariff effect will carve out fifteen dollars. This is JP Morgan's estimates.
They got, you know, reams of economists thinking about this stuff. And so you're basically talking about taking your earnings growth and having it at a time when you know you're not going to get multiple expansion. So it's all about the earnings growth. Your three in a bull market tends to be the year of rest. We are going into year three, that's historically the case, typically single digit returns.
And so I think that the idea of national champions Sure, that's why Tess was probably a Rocking Musk is going to be one of the national champions. But I think overall the whole thrust of the US policy mix has been reshoring right and reshoring with a dollar getting more expensive. Those two things don't compute. So that's a big hole in my view.
I'm going to suggest those JP Morgan economists sounds too unhappy this morning. The stock is up by six point five in the pre market. Jay, It's good to see you and seriously appreciate your time night and this morning.
Thanks be great.
I mean, one of the things that's great about this is that you have to think in real time, right, So by coming on and engaging in this debate and dialogue, you know, it makes our process better. And so we appreciate it. And good luck to everybody, and hopefully the next time we see each other we'll all have had a little bit more rest.
We'll see us soon, Thank you, Sir j Filoski. There TPW advisory attention. Turning to the FED rate decision, Torston slock of Apollo expanding a twenty five basis point rate cut add in quote. We don't expect the FED will cut interest rates in December. Torston joint US for more Torston, Good morning, running. I'm not sure if you've been to bed, so let's start with the election. Good night, good evening,
wherever you want to go. I want to understand whether this has changed anything for you or just cemented what you were already thinking.
Well, I think, of course what always comes with elections is and now we need to figure out what policies are actually.
Going to be implemented.
It's clear that yesterday, at around just before nine pm, we found out what the Trump trade really was, namely that rates were going higher, the dollar was going up, and starks were going up. So from that, of course we could derive that, well, if this continues, it does, on the one hand, mean easier financial conditions because as a stark mike going up, but it also means tighter financial conditions because long rates are going up. So now they challenge for markets is to figure out why are
long rates going up. Are they going up because of the economy expected to even better, or are long rates going up because of worries.
About fiscal sustainability?
And this becomes a very important debate, namely, what would the term premium meaning what will happen to the part of rates that in long rates that have nothing to do with FED expectations. So therefore the conclusion is that we still need to wait and see what policies actually will come.
Which one do you think it is and why? What's it sout?
If I look at my Bloomberg screen and the term premium coming both from the San Francisco FED and the New York FED, they both say that the term premium in the last six seven weeks has been going up more than fifty basis points.
So that's telling you that.
Rates in the long end are going up for reasons that have nothing to do with FED expectations. So now it becomes therefore a little question about okay, so if rates are going up for reasons that have nothing to do with FED expectations, what could those other reasons then be?
And traditionally one interpretation has been that markets do focus on fiscal sustainability, and given that both candidates have been scored by the Penwarden Budget Model and the Committee for a Fair Responsible Budget, that we will have more deficits both under Harris.
And the Trump.
One interpretation has been that rates have generally been going up in the last month or a little bit more because of renewed worries about the fiscal situation.
That's that said.
This morning, what we're seeing is small caps ripping. What we're seeing is some of the consumer cyclical stocks ripping, some of the lower rated credits actually doing very well, which absolutely flies against this idea that it's going to be tighter financial conditions that constrains the economy. Instead, it suggests something about growth reaccelerating. Are you saying that this is an inconsistent response for the market or can you take that as sort of a signal here?
Well for small cap in particular, absolutely, rates higher for longer is negative because let's remember that forty percent of the Russell two thousand have no earnings on negative earnings, so that means that Russell two thousand companies are characterized by having no covers ratios, meaning very little earnings to pay for the interest payment. So that's of course negative
for small caps. What's positive for small caps is likely, first of all, we may get now go more growth, but also from a regulatory perspective, if we now have that the Republicans are going to at least as the market textbook would say, create an environment that is in the market's language more business friendly. Well, that would also be a reason then why small caps should now benefiting.
So there's a talk of walk going on between tier financial conditions meaning higher interest expenses and at the same time what could be characterized more tailwinds to the business environment.
I'm trying to get my head around this because i want to understand how the Fed's going to grapple with this tomorrow and how FED share Jpowell is going to signal about yields going higher on the long end that extensibly should be tightening financial conditions. But aren't it if you see ism services like what we saw yesterday, But aren't if you see what we're seeing in the employment market, at what point does it become a concern?
What are the red flags to you?
Exactly?
So that's why tomorrow is easy for the FIT. December is really difficult, because now we get to the very difficult situation that we already even before the election, had ISM services going up really significantly, including the employment component. We've all been assuming now for several quarters. Oh employment is slowing down, non farm payables will gradually weaken. But then so certainly we began to see of course in
September none five payers went up. October was distorted by the weather, but if we get a payback from the weather in here the day data for November, and on top of that we're already seeing ism services for employment also going up. The challenge for the FIT is that both organically, if you will, the economy is actually still in a good spot, and now you have some questions about, well, what type of policy will come. We will have more fiscal policy, will we have there for more support to
the economy. That will then become the challenge for them in terms of what they should be doing in December.
Well, Torston, the highly regarded Cook Political Report, just put on notes saying the most likely outcome now is a GOP trifector. Former Speaker of the House Kevin McCarthy just texted me saying the Republicans will keep the House. This is someone that knows the House very well and also knows those California districts very well. So there is this trifecta what policy can actually get done?
Well?
So now we go all back and look at the Penwaton budget model, which had a quantification of what would be the implications for GDP of the potential here of red sweep, And the answer to that is that we will generally see a boost to the economy. We will probably also see some boost to inflation, which will certainly.
Complicate the feeds job.
So that's why it remains to be seen what of the things that the Trump has talked about he will be implementing. But if we do get a rid sweep, then certainly we should be going back and studying hard what has the quantified models been showing in terms of the implications for the economy.
How does j Powell talk about this tomorrow?
Well, it's a very difficult challenge for him here because obviously, if we agree that tomorrow is easy with twenty five basis points cut, then how do you start to talk about including this in your forecast. I think that one way that he might begin to talk about it is to say, well, we just don't know what exactly will happen. We don't know which of these policy will be implemented.
So we have a list of things that Trump has talked about, and they have all been quantified by a number of different institutions.
But what of these things will actually come.
Through and in what aut of magnitude becomes a very important issue.
Of course, for the FIT we can play around with this a little bit. Does anyone start auditioning to say chair and POW's job.
Well, as we all know, his term will run out in May of twenty twenty six So now we're already begin to have in the second half of next year a debate about who should be the next fit Chuere And of course this will also become a very important part of these gossion in markets.
We're going to have it right now. Wait doesn't that debate start right now?
One hundred percent, especially because what we were talking about with Thomas Hoenig. I think we cannot emphasize enough the tools that the FED has are not just cutting rates. They also are quantitative easing. They also are bond purchases at a time where there's a real question about the long end. And I wonder how long before we start talking about.
That, Tolson? Just one final question, how similar is this to twenty sixteen when we were waiting for the tax cuts to come from the Trump administration and we having similar conversations with FED officials. I remember the news conferences, I remember the FED speakers at the time. It was at what point do you start to bake this into projections and they had to wait until it became reality. Is it much worse than that? Is it the same? Do you see some parallels here?
This is very different because at the time we had two policies. We had lower taxes, the TCG traump text cuts, and then we had the same time tarriffs. Now we don't have significant text cuts, at least of the same magnitude. So if the terrorists are now going to be even bigger than what we had in twenty seventeen, then you can begin to wonder, well, if we don't have the offsetting effect that terriffs will generally speaking lead to higher prices and generally.
Speaking the risk of lower sales.
There was an offsetting positive effect to the lower sales part by the tax cuts, and we don't have that magnitude of tax cut. Potentially, there are some suggestions that he has talked about lowering corporate tax rates to fifteen percent for domestic manufacturers, so that could maybe offset.
Some of it.
But given what we're talking about on the terriff side is so much bigger than what we had with sixty percent on China than what we had in twenty sixteen. That means that the risks are more tilted towards terrorists, potentially playing a bigger roule.
This is the beginning of a much longer conversation, but just the final word twenty twenty five rate hikes. You ready to go there?
Well, if we now get a tailwind to growth from a better business environment, from easier fiscal policy, and we might also have a little bit high inflation because of terrorists, if we deport illegal immigrants that might also be lifting weage inflation, that would all be argue for the fit. Definitely not cutting as much as the dot plot is telling us.
At the moment.
Tosson Stock of the Polo, one of the very best, Isaac Botansky Btig joined us. Now, Isaac, welcome to the program. We've got some time to work through some of what we've learned overnight, what went right for Trump and what went wrong for Harris.
I think it's going to take a lot of time for us, and I think that they're going to be a number of post mortems on this, you know, and talking to Democrats, I've already heard a fair amount of focus on on uh, the economy. Obviously, that's the number one issue that's what they're starting to see from the exit polls. But they're also claims and concerns of misogyny and and other issues that are in plain So I think Democrats are going to have a lot of soul
searching to do. John. This was this was a resounding slack that they received last night. I mean, when you go through some of these numbers, it's pretty staggering. Trump expanded on his previous margin in twenty three hundred counties. He only decrease his margin in two hundred and forty counties. That's absolutely astounding. Just the fact that he won the popular vote is something that I don't think many of
us had anywhere near our Bengo cards. So I think for Democrats, they're in the wilderness right now, and I think it's going to be a long few years before they figure out who their new standard bearer is and what their message is.
Well, when it comes to the standard bed of the Democratic Party, the sitting incumbent president, do you think the fingers are really going to be pointed at him right now?
Or is it the VP?
I think that we're going to have a circular firing squad and the Democratic Party for the next few days. I think that everybody is going to have to eat a little bit of blame for the strategy here and realizing also that there was a tough hill to climb here, right and I think that we're going to have a lot of revisionist history in terms of when we should have had exit by an exit, if we should have had a full primary. All of those things are going to take up a fair amount of time and air
within the Democratic community. The question to me is are they going to be able to govern from the House or are they going to be in a minority there as well? That's the biggest question for me and I think everyone else at this moment.
What are the tea leaves telling you about those house races? Right now? There's some dozen or two dozen we're still waiting to hear from.
Look, all of my Republican contacts are optimistic, but that might be just the broader euphoria that they're feeling this morning. It's going to take two or three days. We're going to have to buckle in for this. Ultimately. I think what I've tried to highlight the clients over the past few months is, no matter who's in control of the House. It's going to be a very slim margin from the looks of it, and you're going to have the same dysfunction that we saw with the speaker fight just last year.
And I think that's going to be a theme that that markets are going to have to deal with, especially as we get to some of these big tickets spending efforts that I think we all care about.
Isa sak just to build on that, I think is one of the big questions in Marcus this morning. We were just speaking with Marvin Low, for example, who was saying he thinks right now the bond market and broader markets in general are pricing in just Donald Trump at the top of the ticket and the Senate turning red, not.
A red sweep.
What are you hearing from clients about how much you could get a very much accelerated move on the idea that those nineteen still undecided Vosa could flip the House, do go the way of the Republicans.
Yeah, Look, it's a huge procedural issue, right if you have Republicans in charge of the House, you're able to use budget reconciliation, which is an incredibly powerful tool, as we all know, and I think we would have to change some of our assumptions at that point regarding what
will be spent over the next two years. And so to me, if you have that red sweep and that's confirmed over the next few days, then I think our deficit assumptions are going to have to be He ticked up a bit because of the budget reconciliation process, and so to me, that's the ballgame at this point when we think about a lot of what we're going to do over the next few days, is separating rhetoric from reality, right, how much of his immigration proposals or is he going
to advance? How much of his terror proposals is he going to actually advance? But on the spending side, the most important issue here is do Republicans have control of the House, because that unlicklocks budget reconciliation, and that's incredibly powerful means of advancing your agenda.
There's been a lot of discussion around who Donald Trump would surround himself in the White House, who is cabinet would be, what kind of tenor.
It would be, whether it would be hawkish, whether it.
Would be dubish when it comes to foreign policy, when it would be more expansionary or hardline or not. Do we have any early indications based on who was with Donald Trump last night, who is surrounding himself with early this morning.
I found it interesting that we saw the return of his daughter and son in law to the stage. I think that that's not something that we've seen recently on the political side, So I think that's noteworthy and is something that we can should continue to track. I think you're also going to see the return of other folks who have maintained their place in the orbit, whether that's Stephen Minuchin, where you're going to hear a lot more from Robert Liteheiser, who I think we're going to have
to keep our eyes on for Treasury secretary. Those are some of the names. I think that there also is going to be a pronounced focus on Wall Street. Look, John Paulson is part of this conversation, for example, You've seen a number of other hedge fund managers who I think are going to have the year of the President. I don't have the answers at this point, but I know that those are some of the names that you're hearing mentioned most frequently.
I can appreciate your time, sir, as always, no doubt we'll be talking against soon Isaac Boltanski there of BTIG. This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, an Giet politics. You can watch the show live on Bloomberg TV weekday morning 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 ol
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