Tariffs Creating 'Fortress America', Lovely Says

into our economy. Most of the unterviews would you say, you know, the dollars were talking about, but it's not

that big a deal. I just don't buy that. So, you know, I think the dollar has shifted from being important for full GDP to analyzeing GDP growth to investors because we've seen the dollar make you know, you and I've been around through some huge dollar moves, but the last couple of years, we've seen dollar up ten percent, down ten percent, back up again, and that has an impact on corporations, especially SMP five D enormous multinationals with

big international supply chains, and you see it having an impact on earning statements. So to me, that's a more um near term risk because when we think about trade, right, that's the normal place that the dollar used to feed through into the economy. We've got a bigger fish to fry right now in analyzing trade than just looking at

what are those fish? Tariffs uncertainty, Uh, it's full on, you know, it's a variety of other protectionist measures and these unilateral trade agreements and and very lovely of Peterson Institute about an hour go telling us very clearly that we're gonna see tariffs on European automobiles. So that ruined your taxicab act, right, well it might, Um, Laura, I want to I want to find out have you ever met a CEO that has made a decision based on what currencies we're gonna do? No, that's you know, I

think there's a lot of hedging that happens. And you know it goes on in the Treasury Department, right, I mean, it doesn't go on at the board level. It does, but we have seen if you look at the earning statements, you see, um, you know you see it in the earning statements. They measure the dollar, they measure the fact that it's um, you know, weakened as a reason why they've had particularly positive results. We saw that last year, and you know the fact that it strengthens reduces their

ability to repatriate um. You know when it when it when we see the opposite. So it's not that so much that they're making future business decisions based on effects, but it's the fact that quarter by quarter you see dollar impact on the earning statements. Okay, but the reason I was going there is that as an investor, if you are trying to think strategically, as a chief executive or someone running a major enterprise, those effects over time

will be diminished. But it just leads to uncertainty. The more volatility we see in the FX market, you know, the more it's the uncertainty that's creeping in through so many different sectors of companies which rely not only on international supply chains but international revenue chains. And when we get trade piled on top of you know, larger volatility in effects. And the volatility we're seeing right now is not that significant. We've seen much higher volatility in the past.

But to the extent that volatility is hitting us from a lot of different angles in matters, that adds up the arch question for me. And you see this Antiffanies up seven same store sales. Is does the new nominal GDP and the new animal spirit and all these comp numbers mean more investment? And I don't see. I get the idea of CAPEX is up, but is it goosed? Is it a boom economy investment? I don't think so. I think that you you know, CAPEX is really what

we see now are CAPEX. When we see the numbers of durable goods shipments, we see the numbers of GDP, those often to reflect decisions that were made two years ago, especially the big lumpy investments that we want to get from companies that could really push our productivity ahead, you know, for years to come. Outside of the energy sector, it's

it's been hard to find it. And when I think right now the uncertainty we're seeing, I think it's gonna we're gonna feel it, you know, four quarters from now, eight quarters from now, when companies just aren't incentivized to so we're going to see eighteen months from now, two years from now, three years from now, greater investment. No, I think the I think it's going to continue to be challenged. I mean, you know, we have seen even with the new accord between the United States and Mexico.

Maybe that is a blueprint for for for other trade agreements. I feel like that was more of a rebranding than a new than a reinvention. What is SNL going to do with that this weekend? Mexico? You know, with that phone call yesterday? You know, I don't know. It wasn't bad, was it? You didn't It was interesting to me within within the reporting I saw, including Katherine Ramplet the Washington Post and David Fickling with a terrific Bloomberg opinion essay,

a really detailed essay. What I noted that the President of Mexico four times in the conversation brought in Canada. Well yeah, sure, I mean, well, you know NAFTA was a tripartit agreement, right, But Lara, why why do you believe that these agreements will not have a beneficial effect? The question is so beneficial to investment, beneficial to growth, and it's I don't know that they're going to have

a negative effect. I just we still don't know a lot of details, and these are agreements that have to be ratified by Congress, and we don't know if the president is going to have the full weight of Congress behind him. You know when that comes around, tariffs are unilateral, that's a place where the president can act. La Ran, thank you so much. Investments with US. UH today very

lovely with us with the Peterson Institute in Syracuse University. Mary, I'm gonna give you an open question to get started. What is the distinction today that you're thinking about after what you observed yesterday on left? Well, I think we're really interested in seeing more details, especially on the roll of the origin. Uh. The agreement is quite complex. What

we had yesterday is sort of a broad outline. We really need to think about the details because for businesses operating across the three countries, it's going to be the details that are going to determine how much they have to change their business operations. Mary, what are rules of origin? And when we talk about things such as requirements and a separate rule for maybe for content, that's all kind of jumbled and complicated. Can you kind of disentangle that

force and explain what that means? Show rules of origin are usually in things that make people yawn. Uh. And I think in some sense this administration is counting on that because the headline news is that this good for workers, But when one really digs in, uh, it's very unlikely that this is going to produce good news for American workers. And here's why. The rules of origin basically are a way of determining which products will be able to enjoy

duty free status within the US market. So it limits uh important content of goods that are going to be traveling freely across the three countries. In the auto case, it means that no more than of the content of the automobile can be made outside North America. And that while that sounds great the average person, great more jobs for the US, what it really does drive up the price of vehicles and limit our ability to export our vehicles to the rest of the world. Okay, so that's

the content. What about the wage rule because that also figures into the assembly line that makes the automobiles. Yes, and the wage rule is really a way to get uh, really an advantage for the United States over Mexico. So this really is a strong arming of Mexico by the

United States. Came into play because Mexican wages are not that high and by saying that a certain share of late of the car has been made with labor that that receives a sixteen dollar an hour wage means that a larger share of the automobile may have to be made within the United States in Canada. So this really is a provision that will benefit the United States against Mexico. Okay, you get we wrote writing that down, So I've got those two specific David Fickling and Travine gets into the

complexity of this all. Do we usually see this complexity in trade agreements? Mary? Or is this unique? Mr Trump is doing trade? Oh? Well, we do see rules of origin. These are particularly complex, and that is because I believe Ambassador Lighthouser in particular really prefers what we think of as managed trade or supply management. Unfortunately, that means that we are replacing the decisions of business involved by government

bureaucrats as to how it's formulas competitive. I mean, the bottom line is there's a lot of formulas dictated by government that Marie Barra at General Motors has to memorize, right, right, It's going to be a boom for consoles to figure out how to get around them, because once you start restricting the ability of companies to do with economically beneficial they're going to try to find ways around it. So what does Christipher Friedland do today? She's gonna wander down

to Washington. Let's be clear here, the President United States does not have a lot of love and affection Minister of Canada, Canadian Foreign Trade negotiate her. So what do you expect to see from Canada? Why should they why should they enjoy this Trump lateral party. Well, they have different issues than than the Mexican Well, in particular, they were very much against the sunset provision, which meant that after five years this deal would go away unless it

was explicitly renewed. That was softened. This is a sixteen year period. What after six years the agreement has to be renewed, as opposed to automatically going away unless it is renewed. So that has been softened. UH. The Canadians, and I think rightly. So, we're concerned about the uncertainty that that enters for UH investors as to whether, you know, when they invested in North America, what would be the rules operating you know, five years. Hence, so they were

against that. They may be able to accept this soft version. UM, they're also concerned about their ability to UH basically complain about US trade restrictions that take away some of the benefits that they think they've agreed to. And people in the past may said, well, that won't happen, but now we're seeing that this happens all the time, which with

the Trump administration. Uh basically all many of our partners have seen, uh them levies on steal and aluminum, on washing machines, on others, things that washing machines was a safe guards allowed under w t O. But nevertheless all these things say, hey, at any moment, some of our exports can be subject to terrorists that we thought were already negotiated away. So this is a real concern for the Canadians. Mary, does this really matter in the sense

that the growing market is China? There was an announcement today, for example, that Nissan is going to be building the first made for China electric automobile. This is a developing market talking about China. The United States is a developed market. Are we talk is this basically if you looked at it five years hence that we're kind of discussing how many angels fit on the head of a pin. Well, I don't think so. I think there's two ways to

look at that. First, the American market remains very important. Not only it is large, I mean that's growing is quickly, although it is growing fairly healthy for a developed country um in the scheme of things, UM. But it's also a market where the competition in the past has been

urged nurse and quality demands are very high. So you see developing countries UH in emerging markets having to reach a certain level of competitiveness in competency before they can even you know, really sell into the American European market. So we're very important in that way. On the other hand, what we're doing now is creating fortress America. We're creating a lot of trade barriers for our companies to import inputs that will keep them competitive in Asian markets. And

then we're inviting retaliation. If this administration moves ahead with national security tariffs on important vehicles, we're going to see more retaliation from our trading partners and that's going to hurt our exporters. Trivic briefly, very lovely, thank you so much for the Peterson Institute. She and Chad bound have just him. I just think smart, smart work of cutting through the many rhetorics. David Harrow joins us now from

Harrow Associates. David, before we get to investment, right now, a brewer's update is in uh in in in order. How are the brewers of Milwaukee doing when the brewers are hanging in there, Tom, I mean they're they're, you know, got a good shot at postseason play. I agree that all the focuses on Red Sox, Yankees and maybe the Astros, and you know a couple of times Cubs Cubs as well, And there's all these teams like Milwaukee percolating underneath to make it interesting as we go. Let's get to it.

David Harrow on international investment, do you have a normal enthusiasm with all the e M crisis? Is it a greater enthusiasm or are you looking at general motors now levels are at greater enthusiasm. I mean it's been a very volatile summer where you've had a stream price movements in certain sectors, in particular overseas. You mentioned the emerging markets. I would also mention what's happening in Europe, European financials,

European autos. Some industrials been very very weak on a lot of these macro headlines and meanwhile the business conditions, the underlying business conditions have been more than acceptable. So this is what provides opportunity is when you get these exaggerated price movements as a result of kind of macroeconomic disturbances. So this is this is good for bottom up value stock picker this summer. So you know, it's you've got

to be you're very busy. There's never rest, but you know that's the nature of summers as of recent Within that in the opportunity as a value of EU banking. We had a Steam guest this morning talking up Bank of Cent and there, but frame how inexpensive EU banking is right now. I mean, if you look at what I think is one of the highest qualities EU Bank,

b n P Perry Bob Banco National pre Um. If you look at its where it trades on a price to book value or a price to earnings and not just current earnings, kind of normal earnings, it probably trades at a good thirty five to discount to say a JP Morgan. Now it's return on equity equity will probably be a pointer or two lower and normalcy if if JP Morgan is kind of mid teens. UH. Perhaps BNP will be low double digits, but still I don't believe

that this valuation differential UH is UH is sustainable. And this all happened, This really started to happen in February when the Italian couldn't get their act together and from a government, and you know, this really hit the European financials and we've seen this happened so many times the financial crisis. Him, I would know the dividend on BMP Perry is you know this is not a type on radio AD five eight zero percent. Yeah, but as David

just mentioned, uh, the actual capital appreciation not there. Hey, David, you know I know that B ANDB PARRYBA is the largest holding in your oak Mark International Fund. The fund down a little bit, just less than eight percent so far this year. I'm wondering whether you are thinking about changing the geographic allocation in the fund. The top allocation right now is to the United Kingdom nearly twenty three percent. But you've got companies like Daimler, Alliance, Credit, Swiss, BMW, Glencore,

uh C, NH Industrial. Are you thinking about maybe shifting to a more concentrated continent of Europe position Well, not necessarily. What we do is position ourselves based down where we find the underlying value of the companies themselves. And all those companies that you listed and named exists in our top position, and they made jockey around depending on what

happens any given day, week, or month. But basically, our position sizes within the portfolio and our waitings within the portfolio are a function of the discount those stocks are trading that verse our measurement of their intrinsic value. And what's happened is is our measurement of intrinsic value. And most of these names has done nothing but gone up.

But meanwhile, because of these headlines, starting in spring and in summer, the prices have been down and in some cases very extreme downward movements in price, and especially in those two sectors, the automotive sector of Europe and as well as the financial sector of Europe. So as those prices decline and that value gap open, we actually see

more opportunities. So our decision making is predicated on trying to take advantage of that gap, that gap between intrinsic value and price, knowing that in the short term, mr market could be very finicky, very irrational, very volatile, and even though it's painful, you mentioned, you know, a year to data, our numbers haven't been so good. But this actually provides us with the basis to outperform over the medium and long term taking advantage of what I call

are these exaggerated and unnatural prices. Is in Tessa San Paolo, the touring Italy based bank. Is that an example. This is a perfect example. By the way you look at that divided yield. Uh, you know you're probably pushing a normal yield of our own seven or eight percent. Why has this stock been so weak? Has it been because of more loan losses? No, their loan losses in fact are declining and they're actually picking up some lending growth.

The whole issue behind in Tessa is where it's domiciled. It's domiciled in Italy, where Italy is having some instability, political instability. Despite the fact that in Tessa's operating basis is in northern Italy, which is very healthy, which is showing some good growth. Uh, it's a very healthy balance sheet,

very healthy capital position. But because it's in Italy, it's been extremely weak and US dollar terms, it's probably down somewhere in the mid since early January, David Harrow with us where Harris associates lts to talk about big elections taking place. A lot of primaries today. Here to tell us all about them is Greg Gerrow, our Bloomberg Government Elections reporter, joining us from studios in Washington, d C. Greg always a pleasure. Let's start with Arizona. What's going

on there and how important is this for the Democrats. Well, Arizona is critical to the Democratic campaign, the underdog campaign to win control of the Senate from the Republicans. Jeff Flake is retiring and you have primaries today for his seat.

I think the race to watch is the Republican primary, a three way primary that includes Congressman Martha McSally who's up against Kelly Ward, who ran against John McCain in the Republican primary, trying to run as a more conservative alternative and more of a pro Trump cadidate than Martha McSally. And then you have Joe R. Pio, the uh controversial former Arizona sheriff who want to pardon from Donald Trump bar peo and order, probably likely to split a lot

of the anti establishment votes. So I think McSally goes on to win and will advance to the November election, probably against one of our colleagues, Democratic Congresswoman Kirsten Cinema. It's a state that Trump narrowly harried in and it will be key to UH, key to the one of the top seven or eight center races in November, and just quickly. Any idea of who the Arizona governor will select to fill the seat left vacant by the passing of Senator John McCain, we don't know quite yet. The

governor is keeping his cards close to his vest. He will appoint a Republican uh, because he is a Republican, also because state lowe requires it. UM. There are several names that have been speculated, including Cindy McCain, the late senator's widow. I don't think that will happen. Republican leaders are gonna want someone who will run in the special election in because Arizona, as I mentioned, as competitive, and they wanted the Republican leaders want a strong candidate to

defend that seat when it comes up again. Are these primaries different than the ones months and months and months ago? I mean, I think of the presidential primary, how they change over time or is just the primaries of primary primaries are primary, you know in this case here, you know, congressional primary is a little odd and that they start as early as in March, and states like Illinois and Texas. And we're kind of getting near to the end with

Florida and Arizona, which traditionally vote late. After today, we'll only have a handful of New England states mostly to left to vote. But people are gonna be watching the primary turnout very closely, especially in Florida, where you have contested primaries in both parties for the governorship and the Republican primary. President Trump is intervened to back a preferred candidate for candidate there tell us about Florida, but specifically

about Donna Schalela. Yeah, Donna Schalela Um. She was President Clinton's Bill Clinton's Health and Human Services Secretary, later the president of the University of Miami. This is a Miami area congressional district that Salela is seeking in today's primary. She has several opponents in the Democratic primary, but because of her name recognition and fundraising, she's likely to win,

perhaps with a plurality of the vote. This is a district that is Hispanic majority it is anti Trump, but it's held by a Republican, Eliana Ross Latenan who is retiring, and it is a top target of Democrats seeking a net game of twenty three seats to overturn the majority. It's a must win for the Democrats. Well, we've got you on overnight the news of courts saying to North Carolina you're gerrymandering, which I believe tilster Republicans is just

not going to go even before the election. Translate that for Yeah, So, a federal court last night issued an opinion that was over three hundred pages that basically invalidated a Republican drawn North Carolina congressional district map as an unlawful partisan gerrymander. And but it's not clear yet if that map will be used in the elections coming up

in just a little over two months. I suspect that the Republicans defending the map will try and ask to stay the ruling or block it until after the election, noting how close we are. We've already had the primary elections in North Carolina in the spring, so we have to wait and see what the what the court is going to do, what the Supreme Court might do because it will certainly be appealed to that body. It rundown. Gregg Gerald, thank you. Loved your work earlier this morning

as well. Mr gerro with Bloomberg Government and Washington really encyclopedic on all this stuff. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio