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Today's episode is sponsored

0:02

by Trading 212. The

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platform bringing commission for

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investing to everyone. 100 days

0:08

down, 1,361 to go. Trump's

0:10

return to the White House

0:12

is already reshaping the global

0:15

order, sending shockwaves through financial

0:17

markets. Asset prices have tumbled,

0:19

correlations have fractured, and investors

0:21

are reassessing risk itself. Who

0:23

better to help us make

0:25

sense of the turmoil than

0:27

Financial Times columnist Katie Martin?

0:29

And in today's dumb question

0:31

of the week, is this

0:33

a good time to be

0:36

a financial journalist? Today we're delighted

0:38

to be joined by Katie Martin

0:40

from The Financial Times. Katie

0:42

writes the Longview column, unpicking

0:44

the latest market trends, and co-hosts

0:47

the UnHedge podcast, and of course

0:49

is a reliable source of sanity

0:51

and sarcasm amongst the Noise. Thanks

0:53

so much for joining us, Katie.

0:56

Pleasure, pleasure. So in the

0:58

three months since Trump took

1:00

office, he's unleashed a trade

1:02

war, alienated allies, and led

1:04

markets to question the safe

1:06

haven status of US debt

1:09

and the dollar itself. Katie,

1:11

how surprised would you by the

1:13

emergence of this sell America trade?

1:15

Yeah, as you say, he's got

1:17

a lot done in his first hundred days.

1:19

It's been really something. I mean... I didn't

1:22

think we would be where we are

1:24

now at this point and I don't think

1:26

the professionals in markets did either, right? So,

1:28

you know, if you look at all

1:30

the kind of notes that we had at

1:33

the back end of last year from the

1:35

big investment banks from the big investment

1:37

houses saying this is what we expect from

1:39

2025, this is what we expect from Trump,

1:42

it was not this. It was American exceptionalism,

1:44

so US stocks beating the rest of

1:46

the world hands down. It was a

1:48

stronger dollar because tariffs were thought to

1:50

be inflationary. It was just this kind of

1:53

buy America buy America thing and that

1:55

has flipped completely on its head in

1:57

the course of a hundred days to

1:59

actually as you say I'm worried about

2:02

the safe haven status of the dollar,

2:04

I'm worried about US government bonds in

2:06

a way that I haven't ever been

2:08

before, and Europe is beating the

2:10

US hands down. So it's a

2:13

massive surprise for everybody I think.

2:15

And so do you think

2:17

that there's any kind of

2:19

bid for European assets, including

2:21

things like gilts now that US

2:23

treasuries aren't looking so cool?

2:26

Yeah, so on the question of

2:28

treasuries. There's a lot to

2:30

unpack there. There is definitely

2:32

a groundswell of opinion among

2:34

big money managers. That's Trump

2:37

and his administration. By hinting

2:39

at this idea that they

2:41

might impose some terms and

2:43

conditions to US Treasury holders,

2:45

that does blow apart a

2:48

good part of the trust

2:50

element that makes treasuries do what

2:52

they do, which makes them... like

2:55

this safety valve for the entire

2:57

financial system. So the question then

2:59

is for fixed income managers, for

3:01

bond managers, where does that money

3:03

go instead? Now for years and years

3:05

the argument has been there is no

3:07

way that the dollar could be

3:09

unsettled from its role as the

3:12

dominant global reserve currency are in

3:14

there and there is no way

3:16

that treasuries could be shunted aside

3:18

from this crucial role because there

3:20

is no alternative. No other bond

3:22

market can accommodate this flow. And

3:24

look, to a large extent that

3:26

remains kind of true. There is

3:28

no other bond market on

3:31

earth that's a single country

3:33

bond market that simultaneously offers

3:36

the safety and size and

3:38

depth and liquidity that treasuries

3:41

offer. But... what there's also never

3:43

been before is such an urge to

3:45

find an alternative you know the alternatives

3:47

have always been there but no one's

3:49

ever really bothered to jump into them

3:51

because why you know treasuries already do

3:53

the job inertia is a thing let's

3:55

just stick with treasuries so where does

3:57

the money go instead some of it

3:59

I would would go towards guilt

4:01

but guilt are a bit of a weak

4:03

link in the sort of developed

4:05

market fixed-income universe. So currently where

4:08

a lot of the money is

4:10

going is into things like German

4:12

buns. Does it help that they're

4:15

going to issue way more of

4:17

them potentially in the future? Massively.

4:19

So there was a huge drop in German

4:22

government bond prices earlier this year when

4:24

Germany said, okay, we're going to issue

4:26

lots more buns because we've decided, finally,

4:28

we've been telling them this for God

4:30

knows how long, we've decided we need

4:32

to spend some money. And so there

4:35

was a big drop in German government

4:37

bond prices, but at the same time

4:39

there was a big jump in the

4:41

euro. So this was not the market's way

4:43

of saying, oh no, we think Germany has

4:46

become fiscally incontinent because that's just stupid, that

4:48

just doesn't bear any kind of scrutiny at

4:50

all. But since Trump has started doing what

4:52

he's doing with the tariffs and with geopolitics

4:55

more broadly, we've seen that the yields on

4:57

German government bonds come down really quite hard.

4:59

So they've picked back up in price a

5:01

lot. So there's clearly demand, a lot of

5:04

demand for German paper, even though there's a

5:06

lot more of it kicking of it kicking

5:08

of it kicking around. I mean I guess

5:10

if it is going to be a

5:13

viable alternative to the dollar and to

5:15

treasuries there needs to be more of

5:17

it right you need that depth of

5:19

the market yeah especially if they're not

5:22

going to issue common European debt at

5:24

scale well are they not going to

5:26

issue common europea I mean I feel

5:28

like The bureaucrats understand the assignment here,

5:30

right? They can see the opportunity that's

5:33

in front of them. They are not

5:35

idiots. They can see that and they

5:37

want to have a much more important

5:39

role in terms of reserve currency status.

5:41

So this is a thing that they

5:44

want and it's a thing that they

5:46

can see that the market wants in

5:48

a way that perhaps it hasn't. before.

5:50

You know, the EU has done joint

5:53

issuance before, you know, some of it

5:55

five years ago around COVID and the

5:57

market bit their handoff and now they

5:59

could not fail to sell this

6:02

paper. I'm absolutely convinced of it.

6:04

There is a huge groundswell of

6:06

demand for joint European paper. Maybe

6:08

I'm reading too much into it.

6:10

I'm not a kind of EU

6:12

criminologist, but I feel like the

6:14

fact they've gone really quiet about

6:16

this stuff says to me they're

6:18

working on something. So purely a

6:20

hunch, but I feel like they

6:22

will make this work somehow and

6:24

they will fudge it. This won't

6:26

be a perfect debt instrument, but

6:28

if the EU is good at

6:30

anything, it's good at fudging stuff

6:32

under pressure. And I feel like

6:34

that is the job that's in

6:36

front of them. It's certainly for

6:38

things like defence. It seems as

6:40

if this common issue is something

6:42

they're considering. But what's interesting to

6:44

me is all of the other

6:46

consequences of Trump's policies, which is

6:48

you look at the Canadian election,

6:50

you look at what's happening in

6:52

Europe with greater unity, I'd say,

6:54

almost kind of a revitalisationitalization of

6:56

Europe. What other consequences do you

6:58

think there are going to be

7:00

as a result of the fallout?

7:02

I experienced something quite odd, which

7:04

is when I speak to US

7:06

asset managers, the vibe is very

7:08

much, look, this is a total

7:10

mess and this is awful and

7:12

there's a lot of volatility and

7:14

there's a lot of very unpleasant

7:16

market moves, but this too shall

7:18

pass, don't worry, we'll get over

7:20

it, we'll get back to being

7:22

the world's dominant market. When I

7:24

talked to people in Europe, they're

7:26

like, nah, something very fundamental here

7:28

has changed. And the starting point

7:30

for a lot of European asset

7:33

managers is not even the tariffs,

7:35

which were, you know, the Liberation

7:37

Day tariffs were announced on April

7:39

2nd. You go back a few

7:41

weeks from that, it was JD

7:43

Vance in Munich. Yeah. It was,

7:45

you know, he rocked up to

7:47

the sidelines of the, it rocked

7:49

up to the Munich Security Council

7:51

and started... praising the far right

7:53

in Germany and started lecturing Europe

7:55

about free speech. This went down

7:57

like a cup of cold, sick.

7:59

The Europeans are deeply offended by

8:01

this. And for them, that just

8:03

says, okay, the US is just

8:05

not the ally that we thought

8:07

it was. And that's not the

8:09

only kind of broadside against Europe

8:11

that's come from the administration by

8:13

any stretch of the imagination. And

8:15

so for a lot of European

8:17

asset managers, that is a really

8:19

important moment. Do I think that

8:21

European asset managers on mass are

8:23

going to dump all of their

8:25

US assets? No. Do I think

8:27

they're going to accumulate more US

8:29

assets? Not at the speed that

8:31

they previously did. I think there

8:33

is a big pivot going on

8:35

and I think, you know, the

8:37

fast money is already on this,

8:39

the hedge funds are all over

8:41

it, your kind of CTA traders,

8:43

you know, you didn't... quite a

8:45

lot of retail traders. They're already

8:47

on this, but the really kind

8:49

of big supertanker here is real

8:51

money, right? It's pensions, it's insurers,

8:53

it's all of those guys that,

8:55

they don't just dart in and

8:57

out of markets just for fun.

8:59

They have meetings about meetings, about

9:02

meetings, about maybe tweaking asset allocation,

9:04

you know, every kind of quarter.

9:06

They are much more slow moving.

9:08

And I think we're just at

9:10

the very beginning of that process

9:12

where they realign much more closely

9:14

towards domestic investment, towards European investment

9:16

and Asia actually for that matter,

9:18

and just pivot away from the

9:20

US because the world has finally

9:22

realised that accidentally it's massively overweight

9:24

US. This was not really the

9:26

plan. And I guess you could

9:28

say that the US was looking

9:30

potentially quite overvalued anyway coming into

9:32

this. So it didn't need a

9:34

huge shock to ruin it. And

9:36

we had a huge shock anyway.

9:38

Yeah, the US market was absolutely

9:40

priced for perfection and this is

9:42

not perfection. I think that is

9:44

a reasonable assertion. The other kind

9:46

of element here is, again, the

9:48

world had found itself massively overweight

9:50

US tech in particular and a

9:52

massive challenge to US tech has

9:54

come along in the form of

9:56

deep. seek from China. So turns

9:58

out China can build actually pretty

10:00

decent AI widgets at a tiny

10:02

fraction of the cost and that

10:04

blows apart a big chunk of

10:06

the investment case for all of

10:08

the big shiny big tech names

10:10

in the states that are trading

10:12

at God knows what kind of

10:14

multiples to their earnings. That's a

10:16

double whammy in effect. You've got

10:18

the geopolitics and the tariffs which

10:20

are kind of of a piece

10:22

and then you have this notion

10:24

that actually US Big Tech does

10:26

not necessarily have the motor around

10:28

it that we previously thought. That's

10:31

not a great combo for US

10:33

stocks. So do you think that

10:35

with all the noise in the

10:37

flooding, as they call it, with

10:39

Trump, is there anything going on

10:41

in markets which people have kind

10:43

of ignored? It's a good question

10:45

because... This is the only story

10:47

in town, it's the only game

10:49

in town. I feel like actually

10:51

a lot of this deep-seek stuff,

10:53

a lot of the challenge to

10:55

US tech dominance, is getting a

10:57

bit drowned out in the tariff

10:59

noise. China, as I'm sure you

11:01

know, the market shifts ebbs and

11:03

flows between, it's uninvestable too. We

11:05

love it too, it's uninvestable again.

11:07

I think we've gone there and

11:09

back in the last three years

11:11

a few times on our podcast.

11:13

you know just when you feel

11:15

like you're comfortable there's some new

11:17

regulatory thing or strategic thing that

11:19

kind of blows it out the

11:21

water but I think investors are

11:23

willing to look at China in

11:25

a way that they haven't been

11:27

for the past few years that

11:29

said the potential hit to the

11:31

Chinese economy from the tariffs I

11:33

don't think it's going to be

11:35

as big as certainly Donald Trump

11:37

thinks it will be I think

11:39

China can wear this somewhat better

11:41

I think they're actually holding quite

11:43

a lot of the cards here

11:45

but I think that is something

11:47

that is something that is something

11:49

that is considered to be investable

11:51

and is definitely worth keeping an

11:53

eye on. Do you think the

11:55

fact that the US is stepping

11:57

back from the world stage, for

12:00

example closing embassies in Africa, that's

12:02

really leaving room for countries like

12:04

China to step in and become

12:06

more dominant on the world stage

12:08

and just see... like a much

12:10

more reliable partner. Yeah, I mean

12:12

China, Russia, not necessarily the most

12:14

pleasant regimes on earth, but you

12:16

know what you're getting. The US

12:18

is clearly squandering its leadership role,

12:20

whether that is in geopolitics or

12:22

whether that is in finance, and

12:24

the consequences of that will continue

12:26

to be felt for a long

12:28

time because my sense is there's

12:30

no way back from this. You

12:32

know, once the trust is gone.

12:34

It's very difficult to move past

12:36

it, so I don't see an

12:38

easy way that the US can

12:40

click its fingers and say, okay,

12:42

trumps out of office now or,

12:44

you know, have had another set

12:46

of elections, you know, whatever it

12:48

is. Let's hope so. Let's just

12:50

pretend that that didn't happen. I

12:52

don't think the world is looking

12:54

to pretend that didn't happen any

12:56

time soon, because for long-term asset

12:58

managers, people who think in chunks

13:00

of 30, 40, 50 years. We

13:02

can't do this every four years.

13:04

We just can't, like, our nerves

13:06

are not built for it. I

13:08

think it would be a different

13:10

thing if we actually knew what

13:12

the Trump administration wanted out of

13:14

the trade war, right? If Europe

13:16

could go to the administration and

13:18

go, okay, these are their demands,

13:20

we can see a landing zone

13:22

in the middle, rather than just

13:24

this sort of vague thing where

13:26

you don't know who you're speaking

13:29

to, is it Scott Besson, is

13:31

it, Trump himself, and they're like,

13:33

what can you offer us? Well,

13:35

I think that, you know, the

13:37

Wall Street Journal had some good

13:39

reporting about that, you know, the

13:41

Japanese delegation turned up in the

13:43

States to talk about a trade

13:45

deal and they sat down in

13:47

front of the US representatives and

13:49

said, okay, what do you want?

13:51

And they didn't have an answer.

13:53

No. So how do you negotiate

13:55

with that? And, you know, for

13:57

one country, it's apparently about immigration.

13:59

We've spent quite a lot of

14:01

time and energy at the FT

14:03

trying to figure out... Okay what's

14:05

the framework here? What is the

14:07

overarching worldview? What are we dealing

14:09

with? And actually we're coming to

14:11

the quite uncomfortable conclusion that there

14:13

really is no plan. And the

14:15

lack of the plan is not

14:17

a strategy. Chaos is not a

14:19

strategy. The strategy is not a

14:21

strategy. So it's just a big

14:23

mess. And so yeah, if you're

14:25

trying to negotiate a trade deal

14:27

with this administration, what do you

14:29

offer? I mean, it seems that

14:31

the US administration is kind of

14:33

negotiating within itself to try and

14:35

find out what they want. There's

14:37

also some fun reporting around. I

14:39

think again it might be from

14:41

the from the journal. that obviously

14:43

there was a big climb down

14:45

from Trump over the liberation day

14:47

you know quote unquote bonniers liberation

14:49

day reciprocal tariffs and the reporting

14:51

around that is that Literally Scott

14:53

Besson and Howard Lutnik, the Commerce

14:55

Secretary, waited until Peter Navarro was

14:58

in a different part of the

15:00

White House. Yeah, locked the door.

15:02

I'm not exaggerating this, the reporting.

15:04

Went into the Oval Office, convinced

15:06

Trump to take a quote-unquote pause,

15:08

got him to send out the

15:10

post on truth social saying I'm

15:12

pausing. And then Scarpet. So Navarro

15:14

heard about it at the same

15:16

time as everybody else said, this

15:18

is just not, this is just

15:20

no way to run an economy

15:22

is it? So how do you

15:24

negotiate with that framework? I really,

15:26

no clue. You know, if the

15:28

Brits say, okay, fine, we'll take

15:30

your chlorinated chicken and you can

15:32

have a big tournament at your

15:34

golf course, you know, whatever it

15:36

is, will that move the dial?

15:38

And does the administration have the

15:40

bandwidth, the capacity to renegotiate hundreds

15:42

of trade deals within 90 days?

15:44

I mean we're what 15-ish days

15:46

in. None have been signed so

15:48

far. And even if you sign

15:50

one, right? I mean Trump signed

15:52

on in his first term with

15:54

Canada and Mexico and now he's

15:56

trying to throw it away. So

15:58

what are you even signing? He

16:00

literally signed the USMCA. So the

16:02

kind of Canada, Mexico, US trade

16:04

deal. His ink is on that

16:06

piece of paper. It's not worth

16:08

paper it's written on. I'm One

16:10

of the really kind of interesting

16:12

things that for Main Street America,

16:14

I think there's a lot of

16:16

people that have not yet felt

16:18

the impact of what is going

16:20

on. There's a couple of reasons

16:22

why they're going to quite soon.

16:24

One is tourist numbers to the

16:27

US have cratered. I mean, I'm

16:29

not in a hurry to go

16:31

to the US for business or

16:33

pleasure, I don't know about you

16:35

guys, but I'm not going near

16:37

the place. We joked the other

16:39

week that we'd have to delete

16:41

every episode of our podcast before

16:43

we did. Yeah, I mean. Lest

16:45

we end up in some South

16:47

American prison. I don't particularly want

16:49

to go to El Salvador, thanks

16:51

very much. So I'm not in

16:53

a hurry to go to the

16:55

states. The other is, I don't

16:57

know if you've seen the numbers

16:59

around arrivals of cargo at major

17:01

ports in the US. each those

17:03

ports are empty because 145% tariffs

17:05

on China effectively means no trade

17:07

with China. Yeah it's an embargo

17:09

by any other word really isn't

17:11

it? Exactly so people are going

17:13

to start seeing empty shelves really

17:15

quite soon and actually on that

17:17

point that you know to the

17:19

extent that we are all grappling

17:21

around for some sort of strategic

17:23

or intellectual framework for what the

17:25

administration is doing here maybe isolating

17:27

China That's the result, whether it's

17:29

the intention or not, I don't

17:31

know, but that's the result. And

17:33

it forces the rest of the

17:35

world to make a decision. Whose

17:37

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Terms and fees apply. It's

19:00

interesting listening to you and Robert Armstrong,

19:03

Rob, talking on your podcast about what's

19:05

going on in America. And he's very

19:07

much from the camp that this is

19:10

a temporary thing, whereas you're a bit

19:12

less sanguine, I'd say, about the upside.

19:14

I mean, if you just look at

19:17

the polls right now, it doesn't seem

19:19

as if it's really a huge fall

19:21

of popularity for Trump, given what's happened

19:24

in terms of markets, in terms of

19:26

the economy. Do you think that there'll

19:28

be another Trump? Will there be an

19:31

appetite for more populism after Trump? Because

19:33

that's my big worry, whether this continues

19:35

after the 1,300 days. Yeah, it's a

19:37

really good question and I think the

19:40

Americans don't understand how cross the Europeans

19:42

are, but also I think we Europeans

19:44

don't understand the US media landscape. there's

19:47

a huge proportion of the population in

19:49

the states that has no idea any

19:51

of this is happening. You know, if

19:54

you switch... on Fox News, this is

19:56

not the story of the day. You

19:58

know, when the markets were cratering a

20:01

couple of weeks ago, they took the

20:03

little chiron off the bottom of the

20:05

screen that says this is what the

20:08

markets do. You know, it's kind of,

20:10

you know, Soviets putting Swan Lake on

20:12

the tele, kind of. you know, level

20:15

stuff. You know, they just pretend it's

20:17

not happening. So there's a lot of

20:19

people that don't realize. So that's why

20:22

I say it's so important that within

20:24

the next few months, they're going to

20:26

see stuff disappearing from shelves. So there's

20:29

a note kicking around that's getting quite

20:31

a lot of attention at the moment

20:33

from like the American Toy Association or

20:36

something like that. And they're saying, you

20:38

know, the vast majority of toy retailers

20:40

in the US are... relatively small businesses.

20:43

50% of them say they're going to

20:45

go out of business if these China

20:47

tariffs actually come through at those sorts

20:50

of levels. You know, Christmas is canceled.

20:52

The cargo is not arriving. The toy

20:54

shops are going out of business. So

20:57

it's going to have to, you know,

20:59

I think Americans need to really feel

21:01

this before they can come around to

21:04

any kind of analysis over whether this

21:06

was a good idea or not. explicitly

21:08

that this tariff situation with China is

21:11

unsustainable now. I mean, he's probably the

21:13

most moderate, if you want to put

21:15

it that way, in the administration. But

21:18

is there an off-ramp here with China?

21:20

What is it? If they're waiting for

21:22

China to blink, I think they might

21:25

be waiting a while. That's the thing.

21:27

And again, there's been a lot of

21:29

insults thrown around. So one thing that

21:32

annoyed a lot of Chinese officials is

21:34

when JD Vance referred to the Chinese

21:36

population as a bunch of peasants. Okay,

21:38

that's an interesting place to start your

21:41

negotiations. Where is the off-ramp? I don't

21:43

know. To what extent is Scott Besson

21:45

holding back the president? We just don't

21:48

know. You know, I'm old enough to

21:50

remember that, you know, Treasury Secretary said

21:52

something was going to happen and you

21:55

could take that to the bank. This

21:57

was a fact. This is the Treasury

21:59

Secretary speaking. He's in charge of this

22:02

stuff. Now, we're just not living quite

22:04

in that world. I mean, people are

22:06

looking around for an adult in the

22:09

room, right? And they're like, well, Scott

22:11

Besson, he's at least a teenager. He's

22:13

got something going for him. I think

22:16

he kind of, he gets it. But

22:18

ultimately he needs to stay on board

22:20

with Trump and that means saying some

22:23

things that you think, does he really

22:25

believe this? So he was on the

22:27

sort of Sunday TV circuit just last

22:30

weekend and he was asked, you know,

22:32

you know, you know, Trump is saying

22:34

he's got 200 deals already struck on

22:37

the on the tariff renegotiations what's he

22:39

talking about and Besson sort of looks

22:41

a bit like slightly like a rabbit

22:44

in the headlights which I think he

22:46

always does anyway and says well I

22:48

think what the president is referring to

22:51

here is sub-deals like what now that's

22:53

one of the other really interesting things

22:55

that I think has happened to markets

22:58

over the past 100 days is that

23:00

we just question everything. So you see

23:02

the Treasury Secretary say something and you're

23:05

like, does he really mean that or

23:07

is he just saying it because he

23:09

wants to stay on board? And then,

23:12

you know, you have markets acting rather

23:14

strangely ahead of announcements from the White

23:16

House about tariff delays and whatever and

23:19

people say, is this inside a trading?

23:21

I have no idea. But I do

23:23

know that it's bad that trust in

23:26

markets has deteriorated to the point that

23:28

that's the question people ask whenever an

23:30

announcement comes out from the White House.

23:33

We're in a very unusual place here.

23:35

It's not comfortable territory. And where do

23:37

you think we might be going? I

23:39

mean, at the moment, things are not

23:42

quite as bad as they were when

23:44

we had the widespread tariffs. There was

23:46

a stepping back from that. Do you

23:49

think it could get worse from here?

23:51

My personal view is yes, it could

23:53

get a lot worse, but there is

23:56

a school of thought that's not insane

23:58

that is, look, by the dip. you

24:00

know he's he's he's backing down he's

24:03

backing away from his attacks on Jay

24:05

Powell the chairman of the Federal Reserve

24:07

he's backing down from his tariffs because

24:10

he can see how damaging they are

24:12

not just to stocks but also more

24:14

importantly to the bomb market which he

24:17

described as getting a little yippie. Yeah

24:19

he was right on that it was

24:21

yippie it was a little nauseous I

24:24

think was another phrase he used anyway

24:26

so he does step back when he

24:28

has his you know the flame to

24:31

his feet So maybe the case for

24:33

buying the US, not necessarily for US

24:35

exceptionism, but for staying invested in the

24:38

US, maybe that still makes sense. I'm

24:40

sympathetic to that, but I do also

24:42

think that it's actually when the markets

24:45

are relatively quiet and they're doing relatively

24:47

well, that's arguably when we should be

24:49

the most worried, because that's when he

24:52

might think to himself, okay, this was

24:54

fine, I'm gonna try it again, I'm

24:56

gonna see how far I can push

24:59

this. Again, how effective is Scott Besson?

25:01

It's difficult without being in the room

25:03

to really judge, but I certainly wouldn't

25:06

fall off my chair with surprise if

25:08

it was him that talked Trump down

25:10

from some of the attacks. He's been

25:13

leveling against Jay Powell recently because that

25:15

really is third rail stuff. You don't

25:17

muck about with the Fed. The market

25:20

does not like that at all. Yeah,

25:22

if you're talking of things getting worse,

25:24

it seems there's a few roots, isn't

25:27

there. There's going after the Fed. escalating

25:29

the trade war into sort of capital

25:31

controls that go along with it that

25:34

would be scary. Yeah there's a number

25:36

of ways he can make this worse

25:38

you know again I find it odd

25:40

when in a sense when people say

25:43

oh well he's back down it's like

25:45

yeah but he could he could back

25:47

up again with a click of a

25:50

thing or like someone who's that prone

25:52

to changing their mind can change it

25:54

in either direction at any time. So

25:57

I'm not sure why people take as

25:59

much comfort as they do from these

26:01

little stepbacks. I think the big picture,

26:04

the sort of grand sweep of history

26:06

here, is that people have woken up

26:08

to the fact that global stocks industry

26:11

are between 60 and 70% weighted to

26:13

the US and that's fine as long

26:15

as the US is a functioning ally

26:18

and liberal democracy that obeys the rule

26:20

of law. It's less fine when any

26:22

of those things is undermined. So people

26:25

have been talking about market concentration for

26:27

a long time, now they're really starting

26:29

to act on it. I mean having

26:32

said all of that, you said liberation

26:34

day, as Trump called it, was second

26:36

of April, so like a month on,

26:39

it's conceivable that the S&P 500 will

26:41

end April flat, which seems kind of

26:43

weird, right? Yep, it is, but stocks

26:46

for me are not really where the

26:48

actions are. The really important thing to

26:50

watch is Treasuries and the dollar. That's

26:53

a much bigger signal. You know, yes,

26:55

April might end up being flat. I

26:57

mean, honestly, what a world. But the

27:00

fact that when the tariffs hit the

27:02

fan on April 2nd, the fact that

27:04

treasuries went down rather than up, that's

27:07

not a great sign, especially when you've

27:09

got the dollar selling off at the

27:11

same time. So for me, that relationship

27:14

snapping, that correlation snapping, that use of

27:16

the dollar as a haven asset and

27:18

of treasuries as a haven asset, That's

27:21

quite dark and that's not a positive

27:23

signal for US equities. I mean the

27:25

dollar we can at the same time

27:28

as treasuries and the US stock market

27:30

if anything's going to push international investors

27:32

out of the US equity market is

27:35

that right? I mean you don't want

27:37

the dollar going down at the same

27:39

time. Yeah I mean Trump and Besson

27:41

actually are very keen to throw focus

27:44

on the scale of the... recovery in

27:46

US stocks after Trump's step back. But

27:48

that's quite disingenuous, right? It overlooks how

27:51

big the shock was, and I think

27:53

certainly Besson knows full well that treasuries

27:55

are really where the actions are, and

27:58

actually, you know, Trump's step back. back

28:00

his pause on the so-called reciprocal tariffs.

28:02

It doesn't feel like coincidence to me

28:05

that it came a couple of days

28:07

after a really quite nasty auction of

28:09

three-year US government debt. The usual kind

28:12

of overseas buyers just did not show

28:14

up. And Bessent knows. He surely knows.

28:16

He's done his time in the hedge

28:19

fund world. He knows that's bad. And

28:21

I feel like that was a big

28:23

part of Trump's decision. That's the yippiness

28:26

that he was talking about. to reel

28:28

back. So in a way that is

28:30

the bond market showing its teeth a

28:33

little bit. You know, yes it was

28:35

a three-year, blah blah, you know, there

28:37

are all sorts of caveats and yes

28:40

bots, but they hold a lot of

28:42

power here. I know you don't like

28:44

talking about the Maralego project, but one

28:47

of the things they were talking about

28:49

was century bonds. Now the idea here

28:51

is obviously if you're Japan, if you're

28:54

a big holder of US treasuries, which

28:56

you've got a maturityurity maturity date, you

28:58

can manage the risk. If you're invited

29:01

to swap that for something which doesn't

29:03

pay a coupon, which has a maturity

29:05

of a century, effectively it's a perpetual

29:08

zero coupon bond. Now if you accept

29:10

it willingly, it's not a default, but

29:12

how do you think markets would take

29:15

that treasury markets? idea behind the Maralago

29:17

Accord, which suddenly all the kind of

29:19

people around Trump had sort of, you

29:22

know, well that wasn't my idea. I

29:24

never spoke about what Maralago Accord is

29:26

like, no, the Maralago Accord that you

29:29

put in writing in like in November,

29:31

this argument that you put forward. The

29:33

idea of this as you say is

29:36

you know you split the world up

29:38

into firm allies squishy allies and enemies

29:40

effectively and you sell treasuries to them

29:42

on differential terms depending on who they

29:45

are and that some of them that

29:47

if they want to have this so-called

29:49

US security umbrella and if they want

29:52

lenient treatment on tariffs then they have

29:54

to scratch our back, right? They have

29:56

to buy these century bonds or perpetual

29:59

bonds. There's a number of issues here.

30:01

One is, you know, as we've just

30:03

been discussing, the tariffs are on, they're

30:06

off, they go up, they go down,

30:08

they go up and up and up

30:10

again. They can't stick to a line.

30:13

on policy for 10 days, let alone

30:15

100 years. So why would anyone in

30:17

their right mind buy these things? Now,

30:20

there might be a world in which

30:22

someone, you know, a massive bondholder like

30:24

Japan, right? Japan holds at 1.1 trillion

30:27

dollars worth of treasuries. They might say

30:29

fine, stick a couple of billion in

30:31

these purposes. No skin off mine. I

30:34

don't really care. And that could be

30:36

claimed as a win by all sides.

30:38

Fine. But I think the risk is

30:41

that just anything like that. undermines trust

30:43

in treasuries that little bit further and

30:45

the market has demonstrated itself to be

30:48

extremely allergic to that idea. You just

30:50

you can't muck about with treasuries in

30:52

this way. I think you know Martin

30:55

Wolf here at the FT described it

30:57

as a protection racket and I'm quite

30:59

sympathetic to that. characterization. It's just no

31:02

way to run the world's global reserve

31:04

currency. You know, there's so many issues

31:06

with it. What if Russia were to

31:09

buy some of these bonds? Then would

31:11

the US step in as a security

31:13

guarantor of Russia? Really? So they wouldn't

31:16

be tradable these securities. Everything about this

31:18

plan is just like bananas and everyone

31:20

I speak to in the US Treasury's

31:23

market. Like, this is totally crazy. It

31:25

must never happen. Does that mean it

31:27

won't happen? No. It could do. but

31:30

nobody in mainstream finance wants any note

31:32

of this to happen at all and

31:34

I do think it's pretty unlikely. Okay,

31:37

with everything we said, I'm getting pretty

31:39

depressed. Can we try and make a

31:41

bull case somehow for global assets? Look,

31:43

I can make a really strong bull

31:46

case for Europe here. You know, check

31:48

it. out footsies up 3% this year,

31:50

Dax is up 12% this year. This

31:53

is speaking on what you know the

31:55

end of April. They've had a hammering

31:57

but they've recovered pretty well and in

32:00

dollar terms they're doing incredibly well. So

32:02

anyone who's holding unhed US assets is

32:04

getting fried overseas at the moment. So

32:07

yeah the bull case for US for

32:09

me is very difficult to put forward

32:11

with a straight face but the bull

32:14

case for Europe. You've got a continent

32:16

that is working together, you've got a

32:18

continent that must be thinking about more

32:21

joint debt. It's prepared to do whatever

32:23

it takes for defence and for the

32:25

energy transition story. We've got some sort

32:28

of peace slash ceasefire-ish for Ukraine coming

32:30

down the pipe, at least within the

32:32

next couple of years. What's not to

32:35

like about Europe? They're looking at things

32:37

like car factories that are laying idle

32:39

because China is absolutely killing the electric

32:42

vehicle market. They're doing a fantastic job

32:44

on that. So Germany's thinking, well, why

32:46

don't we turn these things into tank

32:49

factories? You know, Spain is having the

32:51

same conversation about some of their auto

32:53

facilities. So the bull case for Europe,

32:56

I think, is stronger than it's been

32:58

for years. At the same time, building

33:00

a load of tanks. There is some

33:03

debate around, okay, what are the multipliers

33:05

here? You know, say you get lots

33:07

of fiscal spending put into defense. Does

33:10

that just basically buy a bunch of

33:12

tanks or does it create a stronger

33:14

economy overall? In the short term, I

33:17

think it probably just builds a bunch

33:19

of tanks and actually with more kind

33:21

of high-end defense equipment, there will still

33:24

be a reliance on bits from the

33:26

US to make that technology work. But

33:28

over the long term, I think there's

33:31

a whole kind of ecosystem, there's a

33:33

whole supply chain, there's a whole economic

33:35

revitalization story that does stack up here.

33:38

So that's why, you know, spending on

33:40

just like spending, spending on even housing

33:42

or health or schools or whatever. market

33:44

can be quite allergic to what it

33:47

considers to be too much of that.

33:49

But I don't think there's such a

33:51

thing in the market's mind as too

33:54

much defence spending in Europe when we've

33:56

got clearly enemies to the east of

33:58

us and the lack of a big

34:01

ally now to the west. So I

34:03

think it's very much a positive rather

34:05

than a negative story. But how about

34:08

things like reinvesting profits back into the

34:10

business? If you look at the US,

34:12

they've had much higher reinvestment rates. So

34:15

if you look, you know, over decades,

34:17

you can see why they've had such

34:19

big capital growth relative to Europe. You

34:22

can, but if you were running a

34:24

US company right now, would you be

34:26

looking to build a new factory somewhere?

34:29

Would you be looking to hire a

34:31

whole bunch of new people? Would you

34:33

be looking to expand overseas? Companies can't

34:36

do this when they are constantly at

34:38

the end of a barrel from the

34:40

president where tariffs are on again and

34:43

they're off again. And it's an incredibly

34:45

difficult environment for corporate treasurers and chief

34:47

executives to navigate in the states. And

34:50

my hunch is that, you know, corporate

34:52

America, especially the kind of mom and

34:54

pop businesses, the smaller businesses, they simply

34:57

cannot cope with. doubling the cost of

34:59

their input goods and a bit more

35:01

again from China. There's got to be

35:04

some distress coming down the line here,

35:06

whether that's redundancies or defaults or a

35:08

combination. It's just hard to see the

35:11

upside here. Now normally I'd expect to

35:13

see the CEOs of large companies saying

35:15

this is crazy. this is going to

35:18

hurt our business, this is going to

35:20

crush our profit. And yet, there's been

35:22

absolute silence. The only place where we've

35:25

really heard any kind of pushback has

35:27

been in the earnings calls, which are

35:29

now coming through for this quarter. So

35:32

is the CFO saying it, not the

35:34

CEO, right? Yeah, poor on CFO. Always

35:36

get it in the... Yeah. So we

35:39

did quite an interesting project at the

35:41

FT about a week or 10 days

35:43

ago, which is comparing stuff that big

35:45

US executives said about Trump before the

35:48

liberation day tariffs and stuff that they're

35:50

saying after. There's definitely been a shift

35:52

in tone, but the kind of, you

35:55

know, really big CEOs or kind of

35:57

Jamie Diamond, Mark Zuckerbergs of the world.

35:59

They're treading a very delicate line. They

36:02

know that this is a vengeful God

36:04

and that, you know. terrible things can

36:06

happen to their businesses if they don't

36:09

toe the line. But they have shifted

36:11

the tone to some extent. And I

36:13

think actually what's happening with universities in

36:16

the states is an interesting point around

36:18

where this might go. You know, after

36:20

a lot of faffing around and taking

36:23

flag from the administration, they finally banded

36:25

together more and made more of a

36:27

united front. Could that happen with corporate

36:30

America? I mean, it could. Again, we

36:32

had a really interesting story a little

36:34

while ago about the law firm Paul

36:37

Weiss, which really got it in the

36:39

neck from the Trump administration and effectively

36:41

folded and said, fine, we'll do what

36:44

you want. And they got a lot

36:46

of crap for this from the rest

36:48

of the legal community and from the

36:51

press and all the rest of it.

36:53

But the guy who runs the firm

36:55

was saying, tell me what choice I

36:58

had here. It was either I do

37:00

what the administration wants or the entire

37:02

future of this law firm is at

37:05

stake. on the careers of everybody who

37:07

works for us, they are all on

37:09

the line. So it's very easy for

37:12

us to kind of be on the

37:14

sidelines and say well you should never

37:16

bend the knee sort of thing, but

37:19

in real life it's very difficult to

37:21

be that principled. If we can make

37:23

some kind of bullcase for the US

37:26

from here, would it be something like

37:28

Trump's tactic is... to go in big

37:30

to begin with that's his negotiating style

37:33

he'll step back and we'll end up

37:35

with tariffs global tariffs of like five

37:37

or ten percent a little bit higher

37:40

on China maybe maybe some countries like

37:42

Canada will be excluded eventually who knows

37:44

and the Trump will eventually get distracted

37:46

by something else wherever comes along and

37:49

he'll leave trade eventually and the world

37:51

will just go on and we'll have

37:53

a relief rally with that I'm not

37:56

saying that's what's going to happen I

37:58

don't believe that but would that be

38:00

the case you can make that argument

38:03

and particularly around the midterms so by

38:05

the time the midterm elections come around

38:07

it looks like you are going to

38:10

have these empty shelves and people losing

38:12

their jobs and small businesses defaulting and

38:14

that should all things equal all things

38:17

equal swing Congress back towards the the

38:19

Democrats and then yeah maybe he finds

38:21

something else to be obsessed with Greenland.

38:24

I'm not also bad. That's not going

38:26

to help. The thing with this notion

38:28

that don't worry Trump will get bored

38:31

of trade and he'll realize how hard

38:33

it is is he has been literally

38:35

talking about this for 40 years. Yeah.

38:38

anything about how the US should be

38:40

run. It is high tariffs, low interest

38:42

rates, low taxes. This has been an

38:45

incredibly consistent line from him since he

38:47

was, you know, some real estate guy

38:49

in New York. So is he going

38:52

to change? the habit of a lifetime

38:54

especially when he was specifically elected on

38:56

this basis so you see a lot

38:59

of stuff kicking around online now about

39:01

you know people who run small businesses

39:03

or whatever and saying well I didn't

39:06

vote for this this is this is

39:08

going to kill my business I can't

39:10

pay these tariffs I voted for Trump

39:13

but I didn't I didn't vote for

39:15

this and it's like no you did

39:17

though you literally did vote for this

39:20

this is very explicitly what you did

39:22

vote for he was very clear that

39:24

this was what he was what he

39:27

was going to do he's the one

39:29

president who's done what he said he

39:31

was going to do in the campaign

39:34

exactly so don't come crying to me

39:36

but it's very difficult for people to

39:38

find that off ramp and whether that's

39:41

you know as individuals or whether that's

39:43

as the president can you really imagine

39:45

him standing up and saying guys you

39:47

know what I think maybe I've over

39:50

at this, maybe I got the whole

39:52

terrorist thing that I've been talking about

39:54

for 40 years, wrong. So there's been

39:57

a big debate over the whole course

39:59

this year around, you know, where is

40:01

the pain threshold, where is the Trump

40:04

put, right? At what point do markets

40:06

get so ugly that Trump says, okay,

40:08

actually I got this wrong? I think

40:11

we've seen some elements of that with

40:13

the stepback recently and with the kind

40:15

of volatility we've seen in the fixed

40:18

income space in the bond market, but

40:20

I think... Certainly what they're saying is,

40:22

oh, well, we're here for the people,

40:25

we're not here for markets, we're not

40:27

here for Wall Street, we're here for

40:29

Main Street, so we don't care how

40:32

much stocks go down. Really? You know,

40:34

you cared about it when the last

40:36

lot were in charge. How far do

40:39

stocks have to fall to really convince

40:41

him that he's got this wrong? It's

40:43

a lot further than we are at

40:46

now. So let's say we come to

40:48

May next year, Trump hasn't try to

40:50

oust Powell. but now he's going to

40:53

nominate someone else. Presumably they're going to

40:55

be someone who very much favours a

40:57

low interest rate policy. Do you think

41:00

that would be taken as a negative

41:02

by market or will they just be

41:04

so relieved at that point that it

41:07

won't be a big deal? It depends

41:09

who it is and it depends where

41:11

inflation is and it depends whether the

41:14

US is in like full blown recession

41:16

at that point. So there's a lot

41:18

of variables here. My point on the

41:21

whole like Powell debate is look he

41:23

can't file Powell. This is just not

41:25

a thing he can legally do. But

41:28

Powell's term is up in a year,

41:30

as you say, who does he replace

41:32

him with? If it's like a complete

41:35

joker, then the market's not going to

41:37

respond well to this. The other thing

41:39

is there's nothing to stop him saying

41:42

tomorrow who he wants this new Fed

41:44

chair to be. And then you've got

41:46

a shadow Fed chair. who can sort

41:48

of you know chuck peanuts from the

41:51

peanut gallery at whatever it is. Powell

41:53

is doing it, he's getting this wrong,

41:55

don't worry everybody as soon as I'm

41:58

in office I'm going to unravel this.

42:00

This is a plausible scenario. So he

42:02

doesn't even have to oust power for

42:05

this to be a problem. But does

42:07

Trump understand that it's decided by committee

42:09

and like the Fed chair is not

42:12

all powerful? I mean, it is decided

42:14

by committee, but the Fed chair role

42:16

is a somewhat more powerful role than

42:19

the equivalent one over in the UK.

42:21

So the Fed chair gets their way

42:23

pretty much. But even then, you know,

42:26

they are poking around for legal loopholes

42:28

that means they could replace some other

42:30

people at the Fed too. So this

42:33

is an enormous risk to US assets.

42:35

Markets have already made it quite clear

42:37

that they don't like it one little

42:40

bit. Now Katie Martin is a great

42:42

expert at mixing humour and finance and

42:44

that's something we try to do as

42:47

well in our own weekly market roundup.

42:49

This is delivered free to your inbox

42:51

every Friday and if you want to

42:54

learn more about that just go to

42:56

our website pensioncraft.com/newsletter. Okay today's dumb question

42:58

of the week. Is this a good

43:01

time to be a financial journalist? It's

43:03

a dumb question but it's a good

43:05

question but it's a good question. On

43:08

the one hand yes people read our

43:10

stuff and they are very engaged with

43:12

markets and there's a lot going on.

43:15

It's better than being the flip side

43:17

is you can imagine from our point

43:19

of view Trump makes some big pronouncement

43:22

about something really important like tariffs or

43:24

the Fed or whatever it is do

43:26

we put that on the front page

43:29

of our newspaper or are we running

43:31

the risk that by the time that

43:33

paper is physically printed he will have

43:36

changed his mind again and then we'll

43:38

look silly so it's quite difficult I

43:40

think we are in quite a similar

43:43

boat to asset managers it's very difficult

43:45

to note Is this noise? Is this

43:47

real? Is this something I should really

43:49

pay attention to? I feel like there's

43:52

just a lot of wasted effort. We've

43:54

all spent a lot of time and

43:56

effort trying to unpack policy and what

43:59

it all means and then it's all...

44:01

in the bin anyway. So I mean,

44:03

yes, it's a good time, but it's

44:06

also pretty exhausting. Must be a great

44:08

time to be a financial columnist. Again,

44:10

yes and no. I used to be

44:13

a good little soldier. I would write

44:15

my columns a couple of days in

44:17

advance, and I would file them to

44:20

my editor, and I'd say, look at

44:22

me, I felt my happy earlier, I'm

44:24

trying to get a good person. At

44:27

least you're not wondering what to write

44:29

about. No, I would love to have

44:31

something else to write about though. You

44:34

know, it's Trump, Trump, Trump, and I

44:36

think we could all do with a

44:38

break from Trump, but I just don't

44:41

see it happening. I think this is

44:43

our life now. So thanks for joining

44:45

us Katie. It's been amazing to talk

44:48

to you and I love your stuff

44:50

in the FT. It's great that you

44:52

provide a bit of humour which has

44:55

made this really difficult period a bit

44:57

more bearable. If you don't laugh your

44:59

cry so I just figure this is

45:02

essential at this point. Thanks so much.

45:04

Pleasure. Thank you for joining us for

45:06

many happy returns. Keep sending us your

45:09

questions no matter how dumb at MHR

45:11

at Pentron craft.com. And do remember to

45:13

check out pensioncraft.com for all the information

45:16

about our membership courses and investment coaching

45:18

options. Many happy returns is a pension

45:20

craft production. Co-hosted and executive produced by

45:23

Romyn Akisa and Michael Pew. This podcast

45:25

is for informational and entertainment purposes and

45:27

is not financial advice. We do not

45:30

provide recommendations or endorse any decision to

45:32

buy, sell or hold any security. We

45:34

cannot be held responsible for any actions

45:37

listeners may take and investors are encouraged

45:39

to seek independent financial advice.