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The Job's Report came out just moments ago, and it came in like this, one fifty one, just a small downside surprise. We were looking for one sixty. Lots of numbers to talk about. El swear to do that right now, we can bring Mohammad al Aaron of Queen's College, Cambridge into the program. Mohammed, Welcome to the program, sir. Let's get to that Job's report. What's your interpretation of things?
I think you captured it well when you said, you know, no big news here. The only one thing that I would be torturing is the labor force participation.
But everything else came in as expected.
And I think everybody's writing saying what's more important, what's ahead of us?
Not this report?
That said Muhammad, We've been talking a lot about the momentum in the US economy and the fact that it takes a long time to turn things around. Is there any part of this report that makes you concerned about the level of exceptionalism that we're coming off of into this period of certainty?
Not in this report, Lisa, but in a lot of other data. There is, you know, the edge of the US has been predictability, has been transparency, and you're starting to see more and more business step back, not just on a short term basis, but really think how much longer do I need before I figure out what's my operating environment?
And that builds on itself really quickly.
So you know, the risk here is that below the economic exceptionalism, which is strong economic performance, strong acid price performance, has been this notion of the US edge, and.
I worry that this edge is being eroded right now.
So Mohammed, are you saying it's the death of US exceptionalism.
I'm not.
I'm saying it's under enormous pressure. We still have attributes that other countries, you know, would dream of. So you don't kill the US economic exceptionalism, but you could put it on pause as people try to figure out what the operating environment is.
Muhammed's worth five six weeks into a new administration. Has that much changed that quickly in such a short amount of time, So I think.
There's been lots of changes. Just go to Germany and see what's happening there. Look at the debate there. It's been a spotnik moment for Germany in terms of defense spending, infrastructure spending. John, all I can tell you is that all the consensus trades at the beginning of the year have been upended, every single one of them currency weights, relative US equity performance to the rest of the world.
I can go across the board, every single consensus trade has been upended, and that tells you that there has been significant change, which.
Raises a question about how much this is a trade and how much this is a fundamental shift that can actually get implemented in economic data. That takes time, and Stephanie, I would ask you that how long is the transmission mechanism for some of these things at a time when there are some fundamental policy shifts that will take time to implement, but it takes even longer time to ripple through the underlying data and the underlying sense of strengths.
Yeah, to take a couple of months for us to start to see it reflect on the data. Of course, for example, today the February data looked just fine. The March data are going to start to reflect this, and I would expect in the next three months we'll start to see the real impact. So, for example, the impact from tariffs, it takes about three to six months to work its way into the CPI data, so that's when
we start to see that. The payrolls numbers we're going to start to see in the next couple of months because the job a lot of the job cuts are fairly immediate, and then you'll see the government contractors as a result the fallout from that afterwards. So I would expect in six months time we'll see a lot more of this truly reflected in the data, but we'll start to see it in the next couple of prints.
Kathy from an investment perspective and Muhammad was talking about how the policy shifts have been pretty dramatic and the market is trying to be a forward looking prognosticator.
How do you make bold moves?
Do you just hide out in cash?
Do you keep your allocations? I'm serious, it's sort of such a volatile time with sort of the reality checks coming out where there isn't that much news in the economic data.
Yeah, you know, I don't think cash is the solution because you know that it gives you some optionality. So building some liquidity I think is a good idea, and I think people undervalue liquidity in their asset allocation when things are good, and we've had this long stretch of everything's great and who needs liquidity? Now I think you do need liquidity, but we are also keeping our benchmark duration,
like right at benchmark, we're not extending yet. We hope, we hope to see on opportunity, but there's too much noise right now to take that risk. And then we're saying up in credit quality because you just don't have enough excess return there to justify taking a lot of credit risk. And we don't know what industries are really going to get hit. Some industries are going to suffer, and we do expect some spreads to widen as a result of that.
Europe's had a long stretch of everything's bad, and that's changed pretty quickly. Maham, it's come to you on that. I remember in early November, shortly after the election, you said to us on this program, that sucking sound you hear is capital coming in from the rest of the world into the United States. That sucking sound we heard this week was capital gun elsewhere. And we've heard that
a lot throughout the year so far. Mohammed, what do you think about that reversal in flows that a lot of people have identified recently, and how sustainable do you think it is?
So that reversal makes sense given what has happened over the last few weeks, is it sustainable?
I don't know, John, You know.
The jury still out as to whether Europe is going to be able to go from words to actions. It's not easy politically, it's not easy socially. They have governance issues. So I'm not sure that sucking, the reversal sucking sound, if you luck, is going to continue for a while. But I understand why, because there's been a shock to a lot of the conventional wisdom on the US and on Europe.
Muhammed, has there been an end to the sucking sound from the United States?
We'll see the data.
I suspect you'll see that there's certainly less fewer influence coming into the US. But has it completely stopped. I doubt, I really doubted. The US has some attributes that are very difficult to mess up. So the US is still you know, whether you want to call it the cleaner, sturdy shirts or whatever, but it's simply not as clean for outsiders as it was a few weeks ago.
But Muhammad, where was everyone the president was talking about these policies.
For months leading up to the election, and then talking about these policies for months between the election and inauguration. Everyone knew what his plan was.
Why is everyone shocked?
Sequencing and you talked about it earlier today, So we know the five areas in which he's going to move to our unambiguously beneficial to the economy. Three have good and bad to them. There's a journey issue in those, and the hope and the market expected that the sequencing wouldn't be what it is now. What you're getting now is okay, we've got to get go through the detox, we've got to go through the disturbances, and then we
will get the good. The market expected the good to come much earlier, therefore offsetting the bad, and that's not what has happened.
It's definitely not in your head away. That's how it's speaken.
You agree, absolutely, we were expecting tariff to become a bigger thing for later in the year to tie to TCJA. They're coming much earlier. This has a legitimate impact on the economy. And by the way, the uncertainty is even greater than anyone had anticipated. So to the point earlier on capex being sort of stalled out here. It's hard to make any investments when you don't even know what the tax rates are going to be from a tariff perspective, and then they change day to day.
We'll reacting to the payroll report next week. Is the CPI number that comes on the twelfth on a Wednesday, Mouhammed, I want to come to you just on a final question, Secretary best in yesterday at the Economic Club in New York, SETI blin team Transit trade to get the band bank together at the Federal Reserve and look through any inflation pop coming off the back of the tariffs. I just wonder how you feel about Team Transitory getting the band back together, joh.
I'll go back to what Stephanie said. There was price passed through from tariffs. Companies are much more agile in how they think about passing on prices than they were before. So I think, you know, if Team Transitor gets back together, I wouldn't have them commit to too long a playlist.
It's a good way of putting it.
Muhammad, We'll leave it there, thank you. Sir Muhammad al Aerian of Queen's College, Cambridge on the Federal reserve on the jobs data and this market as well. And a special thanks to Stephanie Roth WILLF Research and Kathy Judges at child Swap