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We begin this now with stockslower as investors away clarity on trade talks. Jenny Johnson, the CEO of Franklin Sempleson, one of the world's largest investment managers, joined us now for more.
Jenny's good to see you. It's great to be here. Thanks for having me.
Things have changed a lot since we caught up with you in Davos, Switzerland. It's a lot of optimism. You remember everyone was charged as exceptionalism. Well, strowth, lots of hiring markets are great. Things have changed a lot. Have they changed for you?
Well, you know, I actually we talked about it at the time. You know, I think that you have to think through kind of where the president is, right, He's come in with a plan.
It's been very clear, right, it's.
Taxes, immigration, tariffs, government efficiency and deregulation, right and so, and he has about a year and a half to get those things done before the midterms come in. And so, you know, from the tariff standpoint, again, he's a deal maker. So when you are trying to make a deal, you need to show that you are in the position of strength, right. So a lot of this blistering is around. I'm in a position of strength and you're going to have to bow to my will. I think the challenge has been
There are some unintended consequences of that. I was talking to somebody yesterday about Canadians. They're so they're not upset about the terroifts, they're upset about the fifty first state comment, and that Airbnbs in Rhode Island are down because the Canadians say, I'm not going to come visit the US. So those are the undertendant consequences.
The other piece of this is.
He needs the tax revenues identified in tariffs to help fund his tax cuts, which, by the way, are not tax cuts really, they're extensions. And if we don't get that extension, there is a massive tax increase that happens, which really becomes an issue around the economy.
Can you describe how you and the same thing the endgame looks like? What do you think it looks like? Because some people have described the last few weeks as madness. Is there a method to it?
Yeah?
So I think what we hope to see, you'd like to see a couple of deals done right to show that he's willing to come to the table and make a deal.
Right, so we can see a deal.
With Japan or Vietnam or you know somewhere to show no, no, no, he's playing his deals.
You'd like to know who is responsible.
Remember it was Paul Ryan who ushered the first tax cuts through, Like who's responsible for ushering that legislation through and champion that that'll be very important because he's got to get those done. And the question is how quickly can he get it done? To calm the markets, because what we've seen is, you know, look at you when you suddenly have CEOs who say I can't give guidance because there's so much uncertainty. That uncertainty makes them fear,
and then they stop making investments. If you stop making investments, it slows down the economy. Right, So I think what we need to see in the next ninety days is some clarity in the meantime uncertainty.
It leads to a lot of conspiracy theories and lots of other types of speculation. As someone who oversees one and a half trillion dollars of assets, how much of a material shift have you seen with customers consumers shifting just slightly away from US assets to insulate from some of the whip side and the uncertainty.
You definitely see, you know, non Americans reducing on the institutional side some of their exposure to US equities.
Okay, so we've seen that a bit.
But on your hand, you know, you sort of you if you are in the market now, this is not the time to get out of the market, right.
You need to play this out.
And if you hadn't made the trade to being in more defensive stocks, then there's no point in doing that now, right because you've already sort of missed it.
So you know, the reality is AI.
I actually played around this weekend with an app called replet where you can just use natural language processing to have it code and generate an app for you. Like the efficiencies are income from AI, we haven't seen those kind of productivity gains yet. The productivity gains that we're seeing are coming from technologies that came out twenty years ago, and so as those things play into companies, I think you'll see real opportunity.
You know, one thing that I hear from you, and I heard from Mike Wilson of mart and Stanley earlier this morning, was that corporate America has a lot of good about it in terms of strength, in terms of resilience,
in terms of technological progress. It's the question about other dollar denominated assets, and I'm talking about treasuries, I'm talking about government debt, especially given some of what you were talking about with respect to who is driving some of these bunch of proposals through Congress.
That really is the issue. How much have you seen.
That bid get called into question as institutions, particularly foreign ones move away.
Well, I think there's a question of you know, how much are you know, foreign governments pulling away from treasuries? And you know, is that is that what we're seeing the treasury market? Or are we seeing the unwinding of the basis point? They are the basis trade and so you know, Look, then the question falls into will is the reserve?
US is the reserve currency? At question? Look, is not where else she going to go?
Right?
The US is going to be the reserve currency. People will say, well, China trade has gone up to two percent. Yeah, it's come from four to six percent of trade. Right, you know, it'll chip away at it, but we are still going to continue to be the reserve currency.
You mentioned a lot of non US and ves there is pulling back from the United States. Morning Star had research out this week that said some of that is actually patriotic rebalancing from capital from America to Europe. Do you think it's that emotional for some of these.
People, Well, you know, just again talking to folks from Canada who are so fundamentally offended by the comment of you know, the fifty first state.
Yeah, it's emotional, right. They kind of get it on.
The trade and tariffs and we can deal and you want help on immigration.
But a comment like.
That has obviously you had that kind of nationalists response.
What are the long term impacts of feelings like that?
You know, who's at a dinner last night, we're you know, debating does that push Europe to China?
I don't think it, you know, obviously.
I think what it does is there's the joke of you know, it's not Mega, it's Mega make Europe great again, right, It forces Europe to do things like more defense independence, more energy independence. Look, there's been a lot of brilliant talent in Europe. Why are we not seeing these unicorn companies from a technological and a lot of people say it's the regulation and it's some of the policies that
they have in Europe. And so if this forces Europe to be more resilient on its own, that's actually a good thing for Europe. I don't think it necessarily they don't suddenly trust China much. We're we're already trading with China. But it forces them to say, you know what, we have to stand on our own a little bit more.
It's why we're seeing some investors rebalance towards Europe since the start of the year. I wanted to build on some of Lisa's questions, and I think this is an important line of questioning. At the moment, some investors aren't drawing a distinction between risk assets in America and the safe haven asset in America. It's trading as one bucket
dollar denominated assets. And I wonder, from your perspective, when that a dynamic starts to take hold of the country, whether that's a risk you need to actively manage or a dislocation you take advantage of.
Which one is it at the moment?
Well, I think anytime that it becomes a risk on, risk off in a big block, and yet you know the underlying fundamentals are different in kind of an investment that's that actually becomes a great investment opportunity. So I think you have to look at it and unpack those Do.
You think that's what this is right now and it's the opportunity in stocks or bonds With that.
In mind, I think you know right now it's it's it's almost a market reacting to just a headline statement, right, and so it's it's really sort of on and off.
It's a risk on, risk off. I think that from a.
You know, the dollar was was someone would say overvalued, who knows, right, and it's come down a fair bit. I think there are a lot of people that were the US uh the debt and the deficit, you know, thought that it was overvalued, and so probably in this there's a little bit of that coming, you know, some of that frothy ness coming off.
What's your advice to people right now who were part of that dollar bit. They've built up that massive dollar long over the period of a decade across asset classes, in both equities and fixed income, and they're nervous about the policy in Washington and looking to reallocate. What do you suggesting they do.
I think it depends on where you're if you if you're a dollar based economy, I think that's okay. You don't have to worry about that. If you're not a dollar based economy, you have to understand how that's going to impact your investments.
Certainly been something that the Europeans about to think about over the last few months, that's for sure. Jenny, it's good to see you lost to talk about. I can't imagine how much has changed the next time we spoke speak Jennie Johnson there the Franklin Templeton CEO, on the latest in this market.