Breaking Down Warning Signals from the Bond Market — ft. William Cohan

Vote for Prof G Markets at the Webby Awards Scott and Ed discuss how the markets reacted to Trump’s tariff exemption on smartphones and computers, the dollar falling to a three-year low, and first quarter bank earnings. Then William Cohan, New York Times bestselling author and founding partner of Puck, joins the show to unpack the latest developments in the bond market. He explores the potential fallout of a credit crisis, weighs in on whether Japan and China are wielding the bond market as a geopolitical weapon, and offers his take on where the next wave of damage from the tariffs is likely to surface. Subscribe to the Prof G Markets newsletter Order "The Algebra of Wealth," out now Subscribe to No Mercy / No Malice Follow the podcast across socials @profgpod: Instagram Threads X Reddit Follow Scott on Instagram Follow Ed on Instagram and X Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:28Speaker 01

  Here's your report.

• 0:29Speaker 02

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• 0:49Speaker 02

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• 0:53Speaker 01

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• 0:58Speaker 03

  Payday bars have a bone to pick with the other candy bars. Enough with the toppings and layers and stuff, kay? Payday bars are just salty crunchy peanuts and sweet caramel. Delicious. Payday Peanut Caramel Bar.

• 1:13Scott Galloway?

  Today's number 60. That's the percentage of general admission Coachella attendees who use buy now, pay later to finance their tickets. Ed, have you ever had sex at a music festival?

• 1:25Ed Elson?

  No.

• 1:26Scott Galloway?

  It's fucking intense.

• 1:39Ed Elson?

  I don't know why I like that one. For some reason, I like that one. I think I like the pun jokes.

• 1:43Scott Galloway?

  Yeah, it's cute, right?

• 1:44Ed Elson?

  A little bit of a dad humor twist, yeah. How are you, Ed? What's going on with you? I'm doing very well, Scott. My dad's visiting, so I've been hanging out with him, which has been very nice, yeah.

• 1:53Scott Galloway?

  What are the Elson men doing together? Like, what did you do with your dad? What'd you take him to see?

• 1:57Ed Elson?

  Uh, we had lunch uptown and we walked around Central Park, which was nice.

• 2:04Ed Elson?

  We're mostly just getting meals together, which is sort of what we like to do. Um, I'll be having lunch with him tomorrow. We're having dinner together on Thursday.

• 2:11Scott Galloway?

  During lunch? Um, I know my dad and me. Oh, you can notice, you guys can already hear it coming. Everyone's like putting their hands over there. During my, when my father used to come visit during long lunches, he would pause and he would reach across the table and they'd look at me and he'd say, "You're such a disappointment." Does that happen to you?

• 2:33Ed Elson?

  I'm still waiting on that one.

• 2:34Scott Galloway?

  Ah, anyways.

• 2:37Ed Elson?

  How are you? You're, you're, you're in Palm Beach, right?

• 2:40Scott Galloway?

  I'm in Palm Beach.

• 2:40Ed Elson?

  Why?

• 2:41Scott Galloway?

  I'm not sure. Probably, I forget, either my sons have friends here or my partner has friends here. I don't, why am I here? I have no fucking idea why I'm here. Seriously, why am I here? I don't know. Anyways, we're at this new hotel called the Colony Hotel and it's what I call a 64 hotel, six-star prices, four-star service. And they just throw people at everything and it's all these nice young people who have no desire to be in the services business who are waiting to go, I don't know, what people do in Florida, find a bill of cocaine. I don't know, what, what do people do here in Florida? Open a nightclub?

• 3:13Ed Elson?

  Fight crocodiles.

• 3:14Scott Galloway?

  They have gators here, not crocodiles, that's Africa. But it's, it is actually a really, I mean, first off, it's spectacular here. It's spectacular. I'll put up with, especially Florida's passed a law such that like eight-year-olds can work now. I'll put up with that for this weather.

• 3:29Ed Elson?

  Is Trump there? I know he was there last weekend.

• 3:31Scott Galloway?

  He must have left because the traffic got noticeably better last night. When he's here, they shut down A1A.

• 3:36Ed Elson?

  Apparently it's ruined that town, the traffic. As soon as he arrives, the traffic just gets unbelievable.

• 3:41Scott Galloway?

  Well, it cuts off, they basically close an artery. One of the most beautiful drives I think in the US is up to A1A here and they just close it down because Mar-a-Lago's on the beach. Although, oh, I got some gossip. I ran into my friend Mehmet Oz. I was at, I think it was at Bibliokay, which is a great restaurant here. And I was with a bunch of people. Mehmet, the new head of, I think it's Social Security and Medicare or Medicare or Medicaid, anyways overseeing like $2 billion, who I like, I think is a good man, came up, said hi and he said, "Let me meet, let me introduce you to Bobby Kennedy." And I'm like, "Oh, no, I met Bobby on Bill Maher thinking that we'd like..." And he came up to me and RFK Jr. shook my hand and then walked away. So he's he's mad at us, Ed. Something you said, something you said he's mad at us.

• 4:24Ed Elson?

  Probably something you said. So that you you've been pretty outspoken about your dislike of Bobby, Bobby Kennedy, right?

• 4:32Scott Galloway?

  That's not fair. I just said there are a few people in modern history that are going to cause more death, disease and disability. But I'm not sure. He's handsome. I've also said that he's handsome. It's just, you know, this whole rubella and measles and kids having limbs amputated unnecessarily. I I think that's a bad thing. I think that's a bad thing.

• 4:50Ed Elson?

  Shall we dig into our episode today?

• 4:53Scott Galloway?

  Thanks. Thank you for the lifeline. Get to it.

• 4:55Ed Elson?

  OK, let's get to the headlines. But before we do that, I just want to remind everyone today is the last day to vote for Profi Markets in the Webby Awards. So please vote for us. Go to vote dot webbyawards dot com, type in Profi Markets, click Business, really holding your hand here, and then vote for Profi Markets, please. We really want to win this. Thank you very much.

• 5:25Ed Elson?

  President Trump announced smartphones, computers and memory chips would be exempt from the latest round of tariffs. That news sent the major indices in tech stocks such as Apple and Nvidia rallying on Monday. Auto stocks also climbed after Trump said he was considering potential tariff exemptions for imported vehicles. The dollar fell to a three year low against the euro, continuing its downward slide since Liberation Day. Investors remain uneasy over the administration's unpredictable approach to trade policy as JP Morgan Asset Management's chief investment officer put it, quote, "There is now a very good case for the end of American dollar exceptionalism." And finally, Wall Street just had its best quarter ever for trading stocks. Trading revenues at Bank of America, Morgan Stanley, Goldman Sachs and JP Morgan all came

• 6:09Ed Elson?

  in at record highs, helping the banks beat expectations across the board. So Scott, let's start with these tariff exemptions. Smartphones, computers, memory chips are now exempt from these new tariffs. This, of course, benefits the big tech companies. It also, of course, benefits Apple. You called this to a T last week. This has probably been your most on the nose prediction so far this year. Let's just quickly listen to your prediction from last week.

• 6:38Scott Galloway?

  Tim Cook is the CEO that, or the business person that Donald Trump thinks he is. He's going to figure out a way to give an exemption to all Apple products. Your reactions? Let me just say, I'm really enjoying this podcast so far. Look, this is an easy one, and this is a, this is a form of corruption. And that is whoever has proximity to the president, or is a popular company, or is a big company, this is a transfer of wealth from small business and medium sized business to big business. The company that could probably, it would be, it would be hugely damaging, but let's go to the other side of the spectrum. I spoke to a fraternity brother of mine from UCLA who built this really nice little specialty products company that, so you know, if you go to a conference, the mugs, the logo

• 7:20Scott Galloway?

  of mugs, the fleeces, the signage that all says NetSuite by Oracle, and the water bottles at conferences when you go speak somewhere. That's a big business. And he has built this nice business, I would imagine it's 10 to 20, I mean, small business, right? He doesn't give a million dollars to inauguration, he's not on Trump's radar, no one, you know, it's not, it doesn't have a cult like Apple does. And I talked to him over the weekend. Basically, his business has been shut down. It's like COVID, but worse. And that is, he has to come up with a bunch of additional revenue to get stuff off a ship, a tanker that's on its way that's going to land. He has told all of his suppliers in China to stop producing and shipping. And there's no way he can turn around to, you know, call it, say Coachella had branded

• 8:02Scott Galloway?

  merchandise, he can't turn around and go, oh, I gotta, I gotta increase the, the amount I was going to charge for those branded stage signs by 145% because of what Trump did. He has these contracts he has to live up to. So he doesn't think the market's going to be able to absorb that type of price increase. So he has two choices. He can either go out of business or try and reroute all this supply chain madness that's taken him 20 years, slowly but surely, to reroute to China. And you might have said, well, he should have known better. He shouldn't have been that, you know, concentrated. Well, guess what? The majority of these businesses are very concentrated

• 8:41Scott Galloway?

  in China, including Apple. But Apple gets a reprieve. But the 98% of companies who depend upon import and export are small and medium sized business. They're shit out of luck. So when it's the richest companies, the companies with proximity to the president, the companies that can give him money for his inauguration, get quote unquote exemptions, that's corruption. And this is, I mean, there's so many points of light I've been absorbing over the last week. I spoke to another, I spoke to the CEO of a pretty well-known Cadillac company. And this person said, okay, I have whatever $20 million on a boat of outdoor

• 9:21Scott Galloway?

  furniture, or sweaters or what have you. I've got to show up with $29 million to get the stuff off the boat. I've got to pay a tariff of $29 million. Said, when the merchandise left China, I didn't think I was going to have to pay. So I got to walk into my CFO and say, can I, I need $29 million in 72 hours. They don't just have that lying around. That's going to hit earnings massively. And then the one I just didn't consider was, this person said, and now I've got to figure out a way to get dozens, if not hundreds of people down to the port of Long Beach to re-tag and re-label every single item. Because what, what people do now, or what companies do now is when they order stuff in China, they

• 10:04Scott Galloway?

  attach the labeling and the pricing in the factory. And he's like, I've got to reprice and re-label everything. So I've stopped all shipments from China. It's going to take my inventory down. I'm going to have to pass on as much as possible of these prices to consumers, meaning inflation. But at the same time, I'm ordering less merchandise, which means prices go up, sales go down. I'm looking at charging consumers higher prices. Meanwhile, my, my earnings are going to get absolutely kicked in the nuts. So every point of light I've seen is small and medium sized businesses are getting really hammered here. My friend who runs that small business is saying, he said, Scott, this is like COVID times 10, but I'm not getting any relief. Business is just shut down for me.

• 10:46Scott Galloway?

  I think we're going to see the next two cycles of earnings calls, even if they decide all bets are off, which quite frankly, I think they're going to do. I think they're going to back down on almost everything. You wait, every single CEO, any weakness in their earnings calls, of which there's going to be a lot, they're just going to say tariffs, the tariffs absolutely wreaked havoc on our business on so many different dimensions, and it took our earnings down. I wonder if this is, we kept talking about a rerating down of stocks. I think this is the, I think this is the catalyst. And I don't even think we've seen, the, the real damage here is like an iceberg. The vast majority of it is below the waterline. We don't even see it.

• 11:24Ed Elson?

  What this is also officially revealed is how this tariff policy has now devolved into basically a game of whack a mole, where you, you, you just selectively roll back the tariffs based on how the market reacts and based on who gives you a phone call. I mean, it is completely on the fly policy at this point. The yields go up and the tariffs come down and the yields go down. And he says, the tariffs are going to come back up. Now the tech stocks go down and the, the tech tariffs go down. And, and now we even see what's happening in the auto market where the auto stocks are hurting. And Trump is saying to the Wall Street Journal that he might make some exemptions for the auto industry and, you know, roll back those car tariffs.

• 12:08Ed Elson?

  So I think what we're seeing now is he has officially surrendered to the markets. He has surrendered to Wall Street, to big tech, to Tim Cook, to Johnson Huang. They've all got his number now. And he's, this idea that he's folding left and right and basically signaling to the markets that he has now become a candle in the wind. I mean, there is no strategy at this point. And I think that's a very unique predicament for the markets to digest now. Because yes, these big tech companies, they are seizing back control of the narrative. They are getting more favorable conditions. But is it a good thing? Is it a bullish or a bearish signal that the president is now?

• 12:51Ed Elson?

  Unequivocally bending his knee to the dynamics that are unfolding in the markets. I don't really know. And I think that's the thing that we're going to have to keep an eye on over the next couple of weeks. But there is no doubt that the people who are getting hit hardest here are the small to medium sized businesses, the very businesses that Trump said he would bring back to life.

• 13:11Scott Galloway?

  I haven't heard anything you said since you used the term candle in the wind. Jesus Christ, you're so Princeton. Let me ask you this. Do they make that university for a man? Do you think any of my colleagues from UCLA have ever used the term a candle in the wind?

• 13:27Ed Elson?

  Let's talk about what's happening to the dollar here. Dollar hit a three year low last week against the euro. You know, we've talked before about how unusual it was that after the tariffs, we saw the stock market go down and the yields on treasuries go up. And that's strange because usually when stocks go down, as much as they did last week, you see this flight to safety, which means that investors start buying into treasuries, which brings the yield down. And instead, we saw the opposite, yields went up, which was an indication that the investment community believed that treasuries were not safe. And that's very rare and very alarming, as we discussed last week.

• 14:07Ed Elson?

  So what's happening to the dollar right now is the same dynamic, but to the power of three. Because in the same way that when investors dump stocks and they usually buy treasuries, in the same way that that's the the common dynamic. When investors start dumping treasuries, usually what happens is they go and they buy dollars. Because for governments and for large institutions, the dollar is generally considered to be the ultimate safety asset, safer than stocks and even safer than treasuries. And we can talk about gold and we can talk about Bitcoin, but throughout modern history, this has been the dynamic.

• 14:50Ed Elson?

  What we're seeing this week is once again, the opposite. The yield is going up. And the dollar is going down. So investors are dumping their dollars. They are converting into other currencies. They do not consider the dollar to be a safe investment. And so this is a continuation of what we discussed last week. We're now seeing a flight away from the US stock market, away from the US treasury market, and now away from the US dollar. So from top to bottom, from stocks and all the way down to dollars, the world is essentially selling America. And the implications here are again enormous, because if this

• 15:33Ed Elson?

  continues, if everyone keeps selling their dollars, then we will lose our position as the world's reserve currency. And you ask anyone who knows anything about economics, they will tell you our reserve currency status is basically the number one reason our country is as powerful as it is today. And it's been described as the exorbitant privilege. And we can get into why it's so useful. The long and short of it is it makes borrowing a lot easier and a lot cheaper for us. But if we lose that, and now people are beginning to talk about that, you saw that quote from the chief investment officer of JP Morgan, this could be the end of American dollar exceptionalism. If we lose that, then America is really in trouble. We're not there yet, but I just want to explain that, you know,

• 16:18Ed Elson?

  this is the direction we're seeing. This is the conversation that investors are beginning to have. And yes, it is on the table.

• 16:25Scott Galloway?

  If people lose faith in our company's ability to pay money back, they're less likely to loan us money, meaning companies and the government have to increase the interest rate they offer people who loan us money in order to justify the increased risk. So our costs go up. And at the same time, our dollars, our remaining dollars have less purchasing power overseas. So our costs go up and our purchasing power goes down, both in terms of the interest rate we have to offer and also just the remaining dollars we have even after that become worth less. So that's a reduction in prosperity. That means we're no longer going to Universal, we're going to Knott's Berry Farm or King's Island. It means we're no longer have 10 gifts under the Christmas tree for our kids.

• 17:10Scott Galloway?

  We'd have eight. And if these tariffs hold, given that 77% of toys under the Christmas tree are about to double or go up two and a half acts, then you're talking about four gifts under the Christmas tree. So this is an immediate Decline and prosperity. When I moved to London, one of the reasons I wanted to buy in London was I wanted to diversify out of the dollar. I thought, okay, I'm gonna put, I'm gonna have some money in another currency. And of course, the moment I did that, I think I bought my place and I, I converted dollars at, I think, a buck twenty-six, and then immediately went to a dollar ten. I remember moving in and thinking, this house is worth fifteen percent less than I paid for it thirty days later. Now it's back to a dollar thirty-two. And I like the idea of having

• 17:54Scott Galloway?

  some assets in foreign currencies. And it just goes back again to this notion of diversification. But the way you grow an economy is you're able to borrow more than deposits on hand, right? You can borrow a hundred and twenty dollars, a bank can borrow a hundred and twenty dollars from depositors and lend out a hundred and fifty, because as long as they don't ask for it back at the same time, you kind of have this great leverage and you can lend more than you would if you were just only lending the money that's been provided to you. And basically, the US, because it has the lowest interest rates and the most trust, has the lowest cost of capital in history, meaning we can be more aggressive. And so when the cost of that capital goes up, much less the cost of human capital, think about how difficult it is to get people to come here now.

• 18:40Scott Galloway?

  I mean, people just don't need this shit.

• 18:42Ed Elson?

  Let's move on to this third headline here, which is these big bank earnings. We had earnings from JP Morgan and Bank of America, all the big banks. And just by the numbers here, it was a great quarter for the banks. JP Morgan beat on estimates, their profits rose nine percent. Bank of America also beat, profits up eleven percent. Goldman Sachs beat, profits up fifteen percent. Citigroup beat, up twenty-one percent. Morgan Stanley beat, profits up twenty-six percent. I mean, huge, huge quarter, incredible quarter of these banks. And as usual, they're all kind of telling the same story here. And this is generally what we see in banking. It's a very cyclical business. Whatever's going right or wrong at JP Morgan is usually the same thing

• 19:27Ed Elson?

  that's going right or wrong at Bank of America. You know, last year, it was this rise in net interest income. The year before that, it was this downturn in investment banking, et cetera, et cetera. So what is the theme today?

• 19:41Ed Elson?

  Well, it's actually something we predicted, and that is that trading revenues, the money that these banks make from facilitating and executing stock trades, that business is exploding. It was a record quarter for most of these banks. For Morgan Stanley, the trading revenue was up 45%. And the reason this is happening is volatility. The administration is causing chaos in the markets, which is causing investors to reshuffle their portfolios, their buying and their selling, and the banks are profiting off of that. And this is what I said way back at South by Southwest.

• 20:19Ed Elson?

  The people who are being rewarded here are not the value investors. It's not the people who are investing long term into the real economy in America. In fact, they're getting burned. The people who are winning in the stock market are the traders, the gamblers, the speculators. It's basically the people who want to make a quick buck off of volatility. Scott, your reactions to what we're seeing from the big banks?

• 20:44Scott Galloway?

  Very simply, when there's tumult in the market, people want to take moves. A company says, whether it's Mercedes that wants to hedge its exposure to the dollar or whether it's a company that needs to come up with another, another $100 million to offload their products. There's going to have to be a tariff on they weren't expecting. They have to either raise money, go to a bank, or a consumer says, I freaked out about this. I'm retiring in two years. I'm going to take down my equity exposure. I'm going to sell stocks. But anything in the news like this just creates more urgency and more action and just more trading. I mean, we've all been, everything we're talking about in terms of diversification,

• 21:28Scott Galloway?

  all the moves require a certain, or induce, if you will, a certain level of action. What we've been saying is don't do panic selling. And there's friction in that activity in the form of commissions and trading commissions for investment banks. So whenever there's activity like this and tumult in the marketplace that inspires a lot of actions, buying and selling, this, the volume of commissions go up. In addition, There's going to be more exotics and more derivatives and more margin and more kind of sophisticated trading vehicles that clients and corporations will call on. They'll say, I'm worried about the US market. Can you hedge my dollar exposure? And those types of products tend to have much higher margins.

• 22:13Scott Galloway?

  In addition, that sense of urgency, quite frankly, creates pricing power on behalf of the providers, specifically the bank riding those types of vehicles. Comme ci goes, steady as she goes, is not good for these guys. I mean, in terms of trading, because there's just less trading and less sophisticated kind of vehicles that are lower margin. So, you know, when the bullets are flying, these guys are the arms dealers. But the only thing I would argue is that I think it's a sugar high because I think this is probably suppressing a lot of kind of systemic capital raising, like IPOs, debt market offerings. I would think M&A has kind of come to a standstill. The price discovery here is really difficult. What do you pay for something?

• 22:57Scott Galloway?

  Well, the buyer's going to think, oh, it should be 20% less expensive than what I offered you 30 days ago. And the seller is like, no, I'm not buying that. So I think this is a sugar high. I don't think this is going to last for these guys.

• 23:10Ed Elson?

  That's another argument for why today, as a bank, you have to be massively diversified in terms of your businesses, which is why JP Morgan has been such an outperformer. You know, when we see a downturn in M&A, they have a huge trading desk and they can generate and make up for it in times of volatility like we're seeing today, and they make the money off of the trading. And then, you know, in calmer times, they'll make their money off of the interest. So the banks will be fine, especially the larger, more diversified banks. And in this case, the banks are winning. But I just do want to just re-navigate us to what Trump's promises were and also to whom those promises were made.

• 23:54Ed Elson?

  This was all supposed to be a win for regular people, for... Small, medium sized businesses for Main Street, for 401k holders. And again, what we're seeing here with these bank earnings, the dynamic we're seeing is actually the reverse. The winners here are the traders on Wall Street. The winners here are the people who are clients of these big banks, who can afford to give them a call and take advantage of all of those exotic instruments that you just talked about that generate that that higher margin. The losers here are regular investors on Main Street, the people who get no benefit from markets going up and down and up and down and up again.

• 24:35Ed Elson?

  You know, there's no benefit from having a volatile market if you're a long term investor who simply has their assets in a 401k and it's invested in the S and P. At first, it looked like Trump was just kicking both Wall Street and Main Street in the stomach. What we're seeing over the past week is that he is bailing out or figuring out a way to make his rich friends happier than they were before. But meanwhile, everyone else, all the regular people, they're going to get burned. And just one interesting note, Goldman on their earnings, they didn't mention the tariffs once. They didn't say the word tariff a single time.

• 25:16Ed Elson?

  I think they probably want to position themselves as calm and unfazed by what's happening. But I think you have to assume that they probably are, to an extent, also actually a little bit unfazed by what's happening. Because I think they have this backstop that regular people don't have, which is that volatility can be a boon for them in the form of trading revenues. And that's what we saw this last quarter.

• 25:41Scott Galloway?

  It's funny, my interpretation of that was it's a giant reach around to Trump, that they don't even want to engage in the argument and they're worried about his wrath, so they don't use the term, they just talk about volatility rather than saying, the ass clown has created economic uncertainty for all of us. I mean, I know David Solomon, I like him a lot, I think he's a great leader. I am incredibly disappointed. Across all corporate leaders who all wake up every morning, look at themselves in the mirror and say, hello, Mr. President. I bet 498 of the 500 Fortune 500 CEOs think there's a non-zero probability they should be president, that they're so fucking awesome that they'll be drafted to run for president. And the key attribute of a president is leadership. And leadership kind of comes down to one basic fucking thing, and that's

• 26:25Scott Galloway?

  doing the right thing, even when it's hard. And none of these guys are doing the right thing, because it's hard to call out just how ridiculously damaging this is to America. There is such a lack of leadership across our Fortune 500 CEOs. We keep waiting. Everyone assumes that, you know, our corporate leaders are the best in the world. They're the best in the world at making profits. They have not demonstrated themselves to be great leaders.

• 26:49Ed Elson?

  We'll be right back after the break for our conversation with William Cohen. If you're enjoying the show so far, be sure to give the Prof G Markets feed a follow wherever you get your podcasts.

• 27:07Speaker 00

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• 27:34Speaker 06

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• 28:04Speaker 03

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• 28:24Ed Elson?

  Welcome back. Here's our conversation with William Cohen, New York Times bestselling author and founding partner of Puck. Bill, thanks for coming on.

• 28:32Speaker 08

  Great to be here. Thank you for having me again.

• 28:37Ed Elson?

  So we talk a lot about the stock market. I think everyone talks a lot about the stock market, especially on this show. We talk a lot less about the bond market, which despite being much larger in terms of just asset size, I think is quite misunderstood compared to the stock market. So we wanted to have you on today to talk to us about bonds. You've been writing a lot about the bond market in the past couple of weeks. What we saw last week was a fluctuation in yields. We saw this explosion in the yield on the 10-year, and this was the thing that everyone was very concerned about. So give us an explainer on what happened to the yield on the 10-year, what happened to Treasury

• 29:22Ed Elson?

  yields in general last week, why it's important, and why everyone is so concerned about this.

• 29:28Speaker 08

  Markets are a confidence game. The financial system is a confidence game. And I don't mean that in a negative way. I mean that in a positive way. It only works if people continue to have confidence in it. Stock market is all about confidence. You know, you generally believe that a stock is going up, or else you wouldn't invest in it, or you'd short it if you believed it was going down. But you have to have confidence that the financial statements are accurate, and that's why we have an SEC, we have regulators, that's why they have to file and certify the financial statements. The bond market

• 30:13Speaker 08

  is also relies on confidence. So when the tariffs shenanigans begin, what I call the tariff palooza began in earnest, there was an initial flight to quality. And what I mean by that is people sort of ran from the equity markets because they didn't know What the effect of these tariffs would be on corporate profits and people's confidence in the equity market and in the economy generally, whether we're going to have inflation and a recession or stagflation, whatever it was going to be. And so the initial impulse was to run to the

• 30:50Speaker 08

  safety of the treasury bond market. And when, you know, this tariff palooza started, the yield on the 10 year treasury was around 4%. And the next day or so, it rallied and the yield fell to like 3.85%, which, you know, is relatively low, especially over the last few years. And so there was this sense that people were seeking the safety of the treasury bond market. But then, once people began to realize what these exorbitant tariffs were all about, and how convoluted it all seemed, and how poorly thought out, and how much inflation

• 31:32Speaker 08

  it might result in, the bond, the yield on the bond market began to move up precipitously and then got to like 4.5%, which was basically the largest and quickest move up in the 10 year treasury in like 37 years. So it really shook people's confidence in, you know, what is supposed to be the most sanctified, safest market that there is.

• 32:04Ed Elson?

  While that was all happening, we were describing confidence being shaken. I was watching CNBC, I was glued to the TV, and everyone was talking about the possibility of a credit crisis or a credit crunch. That's sort of the end game, it sounds like, you know, if yields explode, then it could trigger this credit crisis. Explain to us, what actually is a credit crisis? What does that look like? What does it mean on a technical level? And why would it be so bad for our economy?

• 32:36Speaker 08

  The whole world runs on debt. I mean, you know, borrowings, you know, and the availability of borrowings, lending money that you can borrow to buy a car, a house, finance an LBO, just finance your business on a day to day basis. And as long as there's the debt available. At a price you're willing to pay, then you know, the whole system, you know, works pretty well. What happens during a credit crisis or a credit freeze is that that availability of debt capital just dries up. Can't get it. You know, you can get it at exorbitant rates

• 33:21Speaker 08

  of interest, but you know, most people won't pay that exorbitant rate of interest. So just pass on the purchase, pass on doing the deal, pass on the refinancing, whatever it is. And, you know, you know, the markets, I mean, one of the reasons I love the debt markets is because it shares so much information with you so quickly about risk. You know, it's a place where sort of risk hangs out and you can see it developing on a minute to minute basis. Like, you know, when it became apparent, and I especially love, you know, the high yield bond index, because that's where, you know, high yield bonds,

• 34:05Speaker 08

  junk bonds are issued by companies with less than stellar credit rating, you know, who have real risk to their credit, but can still get access to capital. That was the great innovation of Mike Milken at Drexel Burnham, providing capital to companies that otherwise wouldn't have been able to get it and doing it in the junk bond market by issuing these bonds, you know, publicly to a large extent. And, but they don't have AAA credit ratings. They don't, they often don't have investment grade credit ratings. They have below investment grade credit ratings, which means that they have to pay a higher rate of interest to borrow the money than say Johnson and Johnson would have to pay, or the government would have

• 34:48Speaker 08

  to pay, assuming, you know, we don't default on our debt, or we lift the debt ceiling, or we don't get too crazy, which we happen to be going through a crazy phase now, which is why everybody gets so nervous. And so when the yields in the junk bond market spike up, you really get the sense that people are really risk off, as they like to say on Wall Street, that, that, you know, that they'll borrow money, or these companies can borrow money, but they really have to pay up for it. So what happens in the junk bond market can tell you so much about. How people are feeling about risk. And last week, the yield in the junk bond market,

• 35:33Speaker 08

  which was already trending up because interest rates had been rising and people were worried about the economy generally, had been about seven and a half percent, leapt up to eight and a half percent, like in a day or two. I mean, another huge jump in a very short period of time. So people are really nervous. And that's just the average junk bonds. Some junk bonds are yielding, you know, 20% or more.

• 36:01Scott Galloway?

  There's a general sense that last week, that either intentionally, you know, using the debt markets as a weapon. And that is, people are fed up with Trump and these sort of what they believe are reckless mutually, you know, assured mutual destruction tariffs. And that they went, the Japanese and potentially the Chinese went into the bond market, did some short, you know, fairly abrupt, pulsed sales that took the tenure up to basically say, hey, boss, you fuck with us, we're gonna fuck with you. Do you, do you get the sense that's what happened?

• 36:40Speaker 08

  Personally, I think that's what happened, because it's a way to quietly fuck with us, if you will. You know, fuck with us, you know, you, you're gonna do these tariffs? Yes, we'll match you tariff for tariff. We'll play that long game. We've been around for 5,000 years. You've been around for 250. We'll, we'll play that long game with you. And in the meantime, we'll drive up the cost of money. Not only, you know, because if you drive up the cost of the government borrowings, which is exactly the opposite of what, you know, the Trump administration was hoping would happen, then it costs more to refinance, it drives up your budget deficits, it drives up the cost of all other borrowings by corporations and individuals, because it-

• 37:24Speaker 08

  Bonds are priced off of a spread to treasuries and while that spread had narrowed, then in the last few weeks it's widened again. So that's what I thought happened, Scott, and that and it was also like a signal that, you know, you need to refinance $6 trillion of treasury securities by June. We may not play in that, you know, Scott Besant, Treasury Secretary. So, you know, good luck trying to refinance at anything like, you know, four and a half percent rate. It might be even higher. But, you know, the other day I noticed that Besant came out and said, that's not what happened. Personally, I'm not sure I believe anything that comes out of the Trump administration. So I don't know that I believe that, but something has to account for the largest move up in the 10-year bond in 37 years.

• 38:09Scott Galloway?

  If you were, you're a banker, if you were hired by the Chinese Communist Party, if you were hired by the CCP with the mandate of quietly, elegantly devastating the US economy.

• 38:21Speaker 08

  I can't tell if this is going to be a question or a comment.

• 38:25Scott Galloway?

  Well, most of my questions are comments, just discussed. I think the Trump, I'll put for a thesis, so Phil and I are friends. I think the Trump administration has vastly overplayed their hand and has absolutely no sense of how powerful or vulnerable we are. That if China wanted to, they could seriously fuck with us. That they could go into the market, sell their $700 billion in treasuries and spike the 10-year and maybe inspire just like a crazy panic here. But they're not stupid. They realize that if they kneecap their third biggest partner, trading partner, behind the EU and Asian nations, that would be bad for them. So they're showing more restraint than we are. Am I overestimating,

• 39:09Scott Galloway?

  underestimating their ability to wreak havoc on our economy, given that they're now our, kind of our, I think, one of our largest creditors?

• 39:16Speaker 08

  Yeah, I think they're our third largest creditor with Japan being, I think, a bit bigger. So the two of them could certainly subtly send a message and you're right. You know, you don't want to dump your 760 billion worth of treasury securities because that, you know, just like you wouldn't dump, you know, your big position in, in, of stock in a company without a, you know, proper underwriting or dribbling it out over time because that'll drive the price down. And, you know, you, you won't obviously get as much for them.

• 39:57Speaker 08

  But I think it was a very effective signal. Yes, the Americans buy a lot of goods from the Chinese. But, you know, look, they just said, we're not going to sell you any more rare earth minerals. So they control the rare earth mineral market and we need those rare earth minerals for all sorts of things. It's like, you know, electric cars for starters. So that's another way that they can be very effective in getting their message out. So to get back to your original observation, yes, of course, it's Trump. He's overplayed his hand in the most ridiculous conceivable way possible.

• 40:38Speaker 08

  I mean, you, even if you were like a Hollywood script writer, you could not possibly imagine this kind of scenario that Trump has come up with to, you know, destroy or to begin to destroy the confidence that people have in our capital markets, which is, you know, like you've talked about so, so often, Scott, you know, with universities are, you know, one of our greatest American assets. Another one of our great American assets is our financial markets. You ruin those, you ruin the confidence that people have in those financial markets. You know, it's a self inflicted wound. We'll be right back.

• 41:29Speaker 00

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• 42:46Ed Elson?

  We're back with Profty Markets. You know, you talk about the idea that what we're seeing in the surge in these yields is a result of an action from the Chinese government, maybe the Japanese government to fuck with us, as you said. And I feel like these are the two options here. It's either this one-off, event-driven situation where the Chinese government has said, hey, we're gonna dump our treasuries today just to remind you that you can't fuck with us. Or it is a larger and more structural change where the entire world is turning away from the US debt markets, away from US treasuries, much like they're turning away from the US

• 43:31Ed Elson?

  stock market. And in that case, what we could see is higher yields for even longer. You know, and I think those are two very different paths, right? In one case, the yield spikes up and then it comes back down. In the other case, it continues to slide up and up and up. One is more of a one-off event and the other is a structural change that is going to last for a long time. I'm wondering in your view, which path you consider to be more likely? Is this just, you know, premature trying to intervene with Donald Trump? Or is this a structural change and the world is turning away from US debt?

• 44:12Speaker 08

  You know, honestly, both things can be true. I think both things can be happening.

• 44:17Ed Elson?

  Yeah.

• 44:17Speaker 08

  If you look at the 2008 financial crisis, it was caused by a huge flaw in the architecture of Wall Street. This whole idea that depository institutions, whether consumer deposits or institutional deposits, you know, were borrowing short and lending long and, you know, giving creditors. I mean, Bear Stearns at the end was borrowing in the overnight repo market, basically giving their creditors a vote every day, every night about whether to do business with them anymore. And finally, in March of 2008, they said, you know, enough, I'm not doing this anymore.

• 45:00Speaker 08

  I'm not rolling over the $75 billion of overnight repo that you want. And basically, you know, you're out of business. Same thing happened with Lehman, Merrill, almost happened with Morgan Stanley and Goldman Sachs. So that is an inherent flaw in the fractional banking system, in our banking system generally. We saw it again with Silicon Valley Bank and Republic Bank. So we have a basic flaw in the architecture of the system. But so that's why that happens. And that's, that's why historically there's been financial crises in this country, usually once every 20 years. As a society, we've said, okay, we can live with a blow up once every 20 years because, you know,

• 45:44Speaker 08

  we like banks and private banks. And if we didn't have them, our economy would basically be tiny. And we wouldn't have the dynamism that we do in the economy. Generally speaking, in 2020, we had the pandemic, which was an exogenous factor, freaked everybody out, economies got shut down all around the world, concern for a recession, the Fed had to jump in and flood the zone again. And then in 2025, April 25, we have the actions of a single madman who happens to be in the White House, who can by executive

• 46:25Speaker 08

  order, thanks to Congress's inability to seize back that right to implement tariffs or not. I'm still wondering why they haven't seized it back. But they've ceded this to the executive, and he's just going hog wild with it, loving being the center of attention, as we know. He himself is the one who is causing these fluctuations in the markets, this loss of confidence. So people are like thinking to themselves, this mad king, we don't have a parliamentary system, we can't vote him out of office, we can't have a vote of no confidence, we can't impeach him, we tried that twice, that doesn't seem to work.

• 47:05Speaker 08

  We're stuck with this guy for four years. So you're asking if this is a longer term situation? The answer is, as long as Donald Trump is in the White House, and Congress does not take back the power of the tariffs, which is rightly theirs, which they don't seem to be in any hurry to do, this is, you know, why there's this massive loss of confidence. And, you know, once that confidence is lost, especially when it's a factor driven by this kind of a factor, it's going to be very hard to get it back. Not impossible. We got it

• 47:41Speaker 08

  back after 2008, even with the architectural flaws in the system. But this is such a self-inflicted wound. It doesn't have to happen. A normal person might say, okay, I had this idea, I was wrong, and now I'm going to correct it because I've seen the damage I've done. But we're dealing with somebody who never admits that they're wrong, and will never do something without, you know, trying to save face. And I don't know how you save face in this situation without just sort of abandoning the whole stupid idea to begin with.

• 48:17Ed Elson?

  The big question is ultimately, okay, then where does all the money go? Like, I don't, I think we could reframe it, not necessarily in terms of alpha, but just as a, as a basic question. You know, if capital is leaving the US stock market, it's also leaving the US bond market. It's also leaving the US dollar. I mean, we've seen the dollar at a three-year low compared to the euro. Then it has to go somewhere else. And I think the question we have to address is where will the money go eventually? If that rotation is to fully materialize? Does it go to Europe? Does it go to China or to gold or maybe even to Bitcoin? Maybe to other foreign debt markets?

• 48:57Ed Elson?

  If you had to make a very long-term prediction as to where the money ultimately goes, if this rotation materializes, what would you predict?

• 49:09Speaker 08

  This is not, uh, you know, completely a black and white. There's a lot of shades of gray here. I mean, um, the, the money isn't leaving, uh, our bond markets or even our equity markets. What's happening is everything's being rerated. Everything's being repriced. So you, you can still get capital, which is why we're not yet in a credit crunch or credit freeze. You can still get capital. It's just going to cost you a lot more. You, you can still invest in Nvidia. You're just gonna, it's gonna cost you a lot less. So, I mean, uh, as Howard Marks said, uh, the great, uh, distressed bond investor,

• 49:50Speaker 08

  he said, you know, if suddenly you, you go into, uh, Bloomingdale's and everything's 25% off, uh, you're not going to run out of the store and say, oh my God, I'm not going to buy anything. Everything's 25% off. You're gonna say, oh, let me get out my shopping cart here and pull as much as I can that I wanted to buy and put it in there. So, you know, the time to back up. The dump truck in the equity markets is when there's a major correction, which is, you know, why Warren Buffett moved into cash in such a big way at the end of last year and the beginning of this year. And now it's like 350 billion of cash. He's the only, if you look at the billionaire list, the Bloomberg billionaire list, which I

• 50:35Speaker 08

  love to look at, he's the only billionaire, I think, in the top 10 whose net worth has increased since the first of the year. And he's up like 25 billion because he's sitting on this pile of cash that's earning whatever it's earning, four or 5% in the bond market. So as usual, he's much more brilliant than everybody else, even though he's 92, 93, 94, not being ageist here, Scott. But I think that, you know, it's just we've got the forced sale sign on and you can't catch a falling knife. So you have to be careful, you know, it could go, it could get worse. But basically the message always has been in the past, when markets correct, I always say that's a good thing and that's a time to invest.

• 51:20Scott Galloway?

  So I think the majority of the people, at least the circles we run and think that this is one, bad, but two, a lot of the damage has yet to be felt. Now, obviously we see the markets because they get marked every day. But a lot of this damage, the way I would describe it is Trump pausing the tariffs has just pulled the knife halfway out of the back of the economy, but the damage is going to take years to heal. Any sense for where the next manifestations of this damage will pop up? Is it hiring? Is it more market tumult? Is it earnings calls? Is it reduction in tourism? Like, what are you, what are you waiting on for sort of the next card to be turned over?

• 52:02Speaker 08

  Well, I think we're already seeing the reduction in tourism into this country from all over the world.

• 52:08Scott Galloway?

  Yeah, it's huge.

• 52:09Speaker 08

  Huge. It's fascinating. Really. I've never seen anything like that. You know, the bankers I talked to, the M and A bankers I talked to, who were talking to, you know, gobs of CEOs, they're worried about earnings in the third and fourth quarter.

• 52:23Scott Galloway?

  Yeah.

• 52:24Speaker 08

  Because they see, you know, inflation rising, you know, tariffs being on, everything costing more, demand will start to, you know, be affected and their earnings will be affected. That, you know, people like to say, well, the- You know, the stock market isn't Main Street. And, you know, I get that concept, but it actually is, you know, related Exactly. to Main Street in the sense that it's related to corporate earnings, which of course is related to Main Street. So there, there, there, there is very much a relationship between the two. And, you know, and as we know, the market, the stock markets especially are forward looking.

• 53:05Speaker 08

  And I, and I think part of the reason we've lost this 10 or 15% so quickly is because investors are saying, hey, you know, these tariffs and the result of them, this loss of confidence and people holding on to their wallets. We are a consumer driven economy. And if the consumer closes the wallet, you know, we're going to see a decline in earnings in the third and fourth quarter. And that's what I think CEOs are expecting. And that's why you're not seeing any M and A business on Wall Street or much financing business. You know, all this anticipated regulatory relief that you, that Trump was going to usher in is all for naught now because, you know, he's, he's screwed the pooch by destroying

• 53:50Speaker 08

  the confidence that we had in the markets and that corporate CEOs had in their own businesses. And they're just not going to do things when they don't know, you know, where all this is going to settle out.

• 54:02Ed Elson?

  William Cohen is a New York Times bestselling author, financial journalist, former M and A banker, and a founding partner of Puck, where he writes about what's really happening on Wall Street. I love Bill's newsletter. I highly recommend you go subscribe to Puck. It's really, it's really informative and he keeps things spicy, which I appreciate, especially in financial news. Bill, this was a pleasure. Thank you so much for joining us.

• 54:26Speaker 08

  Thanks, Bill. Thank you both.

• 54:30Ed Elson?

  This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Severio is our research lead. Isabella Kinsel is our research associate. Dan Shalan is our intern. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and Join us for a fresh take on markets on Monday.

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