Viktor Shvets on Trump's Historical, Revolutionary Moves

How should we make sense of the Trump tariffs? They've been terrible for the stock market, obviously. Small businesses seem to hate them. Energy companies aren't fans either. US manufacturers are talking about how the tariffs will make manufacturing harder. And yet we have them. So who stands to benefit? What's the point? And how should we understand this moment in American history? On this episode we speak with one of our favorite guests, Viktor Shvets, the head of global desk strategy at Macquarie Capital. Shvets has been warning for a long time about how US history is at a pivot point, with the neoliberal consensus coming to an end. He talks about Trump's revolutionary efforts to remake American society, the attendant shredding of norms, and what it all means for the globally-held view of American exceptionalism. Read More: Viktor Shvets on Why This Time Really Is DifferentThings Are Getting Pretty Weird in Markets Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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

• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

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• 1:41Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 1:57Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:02Tracy Alloway?

  And I'm Tracy Alloway.

• 2:03Joe Weisenthal?

  Tracy, you know what I'm proud of?

• 2:05Tracy Alloway?

  Oh.

• 2:06Joe Weisenthal?

  I don't, you know, I, look, I, I'm not a trader or anything like that. I don't like try to make a lot of calls or, oh, look at, you know, I'm not even a pundit and gets things right. That being said, you know what I think we did well? I think we took the prospect of a serious change in the US trading relationship with the rest of the world as a serious possibility.

• 2:27Tracy Alloway?

  We, we took Trump both seriously and literally.

• 2:30Joe Weisenthal?

  We definitely, yeah, I think we took him pretty literally. When he was talking on the campaign trail and in the early days after the election, when the markets were flying, because all they were talking about was tax cuts and deregulation. I think we were giving serious airtime and writing time to the aspects of Trumpism that might not be so market friendly.

• 2:51Tracy Alloway?

  I think that's right. Also, in our newsletter, just a couple of weeks ago, we were talking about how weird the markets actually were because we weren't seeing that much risk priced in, right? Like, spreads on credit's still pretty low. FX volatility at the time was pretty low. Just lots of weird stuff going on in the markets. And there's someone else who noticed this.

• 3:13Joe Weisenthal?

  Well, that's right. So I'm looking at a edition of the Odd Lots newsletter. Everyone should Google Odd Lots Newsletter and sign up for it. And we had a guest contributor. He wrote a piece for us on November 27th, 2024, when markets were surging. And he said, "This time really is different." And he's a frequent Odd Lots guest, and he has been very in tune with the big changes going on in the world and major turning points. So I'm thrilled to have him back. We are speaking, of course, with the one and only Victor Schwett, Head of Global Desk Strategy at Macquarie Capital, who said, "This time is different." And I think it turned out to be different, huh?

• 3:54Speaker 04

  Yes, yes, it did.

• 3:55Joe Weisenthal?

  It turned out to be different. Why? What? Okay, let's just go back. What were you thinking on Wednesday, April 2nd, Liberation Day? The chart came out, massive tariffs announced on the rest of the world, virtually every country, friend, foe, etc.

• 4:13Speaker 04

  Even small islands.

• 4:14Joe Weisenthal?

  Even small islands, depopulated islands, tariff levels that are like higher than Smoot-Hawley or whatever.

• 4:19Speaker 04

  Right.

• 4:20Joe Weisenthal?

  What went through your mind?

• 4:21Speaker 04

  The question I keep asking myself, what is this administration trying to do?

• 4:26Joe Weisenthal?

  Yeah.

• 4:27Speaker 04

  So in other words, what is the objective? Is objective to raise revenue in order to partly pay for tax cuts? Is objective to reshape America into some form? Is it to bring manufacturing back? Is it to change the flow of savings and investments on a global basis? What is this administration trying to do? And my answer consistently is they want to remake America. They want to make it different to what it was before. But you can't remake America unless you remake the world at the same time. So it's a revolutionary movement rather than just a little bit of bypassing if for problems navigating a few bumps on the road. It's

• 5:08Speaker 04

  much, much deeper. The only question that I keep coming back is what is a pain threshold? And, and, and what are the sort of brakes on the system? Because most of the brakes we've been discussing for the last four or five months have either disappeared or were in some form co-opted by the system. So there is only very few brakes left. And so one of the brakes is really the pain threshold, at which stage people will feel that their lives have gone much worse than they used to be. And the other brake, of course, is everything to do with electoral cycle associated with it. And so, so to me, that's the only question.

• 5:51Speaker 04

  It's not that there, there is any consistent economic theory behind what this administration is trying to do. Every time I listen, it's very clear that they don't fully understand sectoral balances. They don't fully. Understand that you can't have declining deficits and rising capital inflows at the same time. So it's clearly not guided by some conventional economics. It's sort of guided by uh by a desire, as I said, to change America and different parts of administration of different views. So there is a technocratic part, which is Elon Musk, Andreessen, Peter

• 6:32Speaker 04

  Thiel. They have very different views. They're much more global. They want technology to progress. They're open to immigration. There is a whole range of things. Then there is a populist wing, probably J D Vance is the most obvious example of that, which are completely opposite, returning America back to nineteen fifty's or maybe even late nineteen century, uh closing the borders. Then there is a little bit more technocratic wing, saying that what Bernanke and Greenspan were discussing in the past, which is making sure that savings and investment on a global basis actually balances at some point in time somewhere. And so all of those wings are in conflict. If they are in conflict, expect irrational moves, quick shifts, but do

• 7:16Speaker 04

  not expect that suddenly tariffs are going to go away, suddenly restructuring of capital flows will just go away and normality will return.

• 7:25Tracy Alloway?

  Okay, so you mentioned capital inflows, and this to me seems to be the big um hole in the Trump administration strategy, such as it is. And it's, we want to build a bunch of stuff in America ostensibly. We want to boost manufacturing. Maybe that goal sits alongside a bunch of other goals, as you just mentioned. That's really expensive. And when I look at the markets right now, it's very unclear to me where that money is actually going to come from.

• 7:55Speaker 04

  Yeah, I I I agree. Uh, one of the ways you can try to handle Basically deglobalization of capital because so far we've been talking mostly about deglobalization of goods. We have not yet spoken about deglobalization of services, but with goods and services comes capital. And so when we start talking about deglobalization and fracturing of capital, that's where our wealth funds come in. That's where various superannuation and pension funds come in. Now, a lot of countries already either started that or significantly increased the size of those funds. For example, Korea will start much higher contribution to their pension funds. So if you think of Australia, Australia

• 8:39Speaker 04

  already done it, Singapore has done it, Norway has done it. More and more countries are talking about creating some form of pool of capital within those countries. But once again, is it efficient allocation of capital? Not necessarily. Is it looking after the interest of pensioners that they're supposed to service? Not necessarily. But that could be one way that you actually will accumulate some capital over time in order to fund it.

• 9:07Joe Weisenthal?

  I want to go back to your point about the revolutionary element within Trumpism. Do we need to start looking at Lenin, the Russian Revolution, Mao Zedong to get or China to get a better understanding of what the sort of like zeitgeist or impulses behind

• 9:25Tracy Alloway?

  Can I just say, can you imagine asking that question like a year ago?

• 9:30Joe Weisenthal?

  Yeah.

• 9:31Tracy Alloway?

  Things have changed.

• 9:32Joe Weisenthal?

  I got into my, you know, I got into my 20th century history habit like right at the right times. I read a bunch of books.

• 9:38Tracy Alloway?

  That's right. Your middle age destiny.

• 9:39Joe Weisenthal?

  And what I'm trying to really ask Victor is I want him to validate my choice to take up a 20th century revolutionary history hobby. Am I, was I right to go back and study all, start reading all those books as I got into my mid forties?

• 9:55Speaker 04

  You do. And you can go to 19th century as well. Basically, anything that resembles more or less the modern times. And there were various breaks in the system. Now, remember, US, I keep highlighting, is not a nation of laws or rules. It's a nation of It's a nation of norms. Uh, usually laws in the U. S. are designed very sloppily. And the idea is that we need to compromise. Eventually, the judiciary branch will figure out where exactly the limits are. And so founding fathers never knew whether they want to have monarchy or whether they want to have democracy. Like initially, George Washington was supposed to be an address as his majesty. It was George Washington who insisted on being called Mr. President rather.

• 10:39Speaker 04

  So they were never quite sure what to do. So they never delineated the power. What is an executive power? What is a state power? What is a federal power? What is legislative? What's was judicial? And so the result is U. S. is a nation of norms. Whereas Europe is a nation of rules or the nations of rules. And so the result is in the U. S. It's actually relatively easy to smash those norms if anybody wants to. That's what Andrew Jackson tried to do. That's what Abraham Lincoln did. That's what Theodore Roosevelt did. That's what F. D. R. did. That's what Richard Nixon did. And so what you're seeing is every time those changes occurred, there is a reason why Andrew Jackson or F. D. R. behaved the way they did.

• 11:22Speaker 04

  And there was a reason why they were pushing executive branch as aggressively. And so the reason for that is some kind of a displacement within those countries. And so you can't necessarily compare to cultural revolution because some of the drivers were different. You can't necessarily compare to Bolsheviks in Russia. But the essence is the same. In every one of those cases, there was a dislocation. And one of the answers during dislocation is some form of populist approach. Because the right wing usually does it better than a left wing. Because the right wing essentially saying, and in many ways, cultural revolution was the right wing. They they essentially saying blame blame the foreigners, blame the elite,

• 12:06Speaker 04

  blame blame cosmopolitanism. We must go back to tradition. Whereas left tends to be dominated by more complex social and economic issues.

• 12:31Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Shaun McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 12:47Speaker 05

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service institutional clients.

• 12:56Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merrick of Ripple says.

• 13:03Speaker 06

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 13:23Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 13:33Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Millions of Americans are taking peptides, short strings of amino acids that can act as biological signals for cells. Peptides like insulin can occur naturally in the body, or they can be synthetically introduced to induce a biological process, as happens with semaglutide, the active ingredient in Ozempic. Now Bloomberg's Anika Inamputi reports peptides may be exploring their next frontier: the brain. People are taking peptides for mental clarity and cognitive benefits as alternatives to psychiatric medications and to gain a competitive edge or stave off the effects of aging. Both insulin and semaglutide are approved by the U.S. Food and Drug Administration.

• 14:17Speaker 01

  Because importing or selling unapproved peptides for human use is not legal in the U.S., many people turn to online forums for guidance and overseas vendors with questionable credentials to obtain them. Unapproved peptides, which are marketed as research chemicals, have been circulating in what's become a billion-dollar gray Market amid the rise of do it yourself medicine as people increasingly turn to social media or artificial intelligence for medical help. Doctors warn against self experimentation and advise talking to providers before trying any new therapies. That's the Bloomberg Tech Minute brought to you by Chat GPT. Get started at Chat GPT.com.

• 14:55Tracy Alloway?

  So I understand the analogy with other countries and their history, but can you talk about the parallel that you see in US history? What time period is, you know, 2025 most similar to?

• 15:11Speaker 04

  Well, if you if you go back through a relatively short US history, probably the times of Andrew Jackson, probably the times of Abraham Lincoln, and I would argue the times of FDR Franklin Delano Roosevelt probably will be the most similar periods. You can add Richard Nixon, but that was very different in my view. The same with Theodore Roosevelt, who also was smashing quite a few things. I think it was different. But those three I think in my view, which is which is the beginning of the US with the first populist wave in 1820s, 1830s, the Civil War, and the 1930s was FDR.

• 15:50Tracy Alloway?

  Why FDR, though? Because it seems like, you know, the Trump administration is backing away from a lot of fiscal spending.

• 15:58Speaker 04

  Yeah, well, the the the idea is not whether your fiscal is spent or not. The idea essentially is what is the executive branch allowed and not allowed to do?

• 16:08Tracy Alloway?

  Oh, I see.

• 16:09Speaker 04

  And the other idea is the government penetrates more and more of your life. So on the one hand, Republican Party says we're going to deregulate some of the regulations. On the other hand, they're telling companies what their margins should be and what their prices should be and what policies they should pursue internally, whether culturally or otherwise. So is Republican Party deregulating party? Well, the answer is no, it isn't. It's actually penetrating government much deeper. And that's very much what FDR did through a variety of programs that he tried through 1930s.

• 16:42Joe Weisenthal?

  You know, I would obviously love to just sit here and talk history and political theory with you too, but I know also, you know, in your day job, you go around the world and you talk to people and they ask you questions, et cetera. One of the things that we've been talking about is this sort of like, you know, the end of American exceptionalism, which has been at least probably longer, but in some sense, at least a 15 year story in markets. The only game in town is the US. Global diversification is for suckers and losers, et cetera. Now suddenly you get these little impulses of change. When you're around the world talking to people, do you sense that there is a real opportunity for a meaningful shift in terms of allocations of discretionary investment capital?

• 17:26Speaker 04

  Yes, yes. There is no doubt that the last three months was a incredible shift away from American exceptionalism. The view essentially, if you go to late last year was, yes, there will be a lot of stuff going in the social and cultural areas. There will be a lot of stuff going on in other stuff, in other things, but from an economic point of view, US will continue to pursue a relatively rational policy. So as soon as you sort of undermine that pillar, then people start asking question, what is exceptionalism of the United States? Why US has been growing faster than other countries over the last 15, 20 years? What were the drivers? Are you undermining those pillars? Are you undermining those drivers?

• 18:09Speaker 04

  Now, other countries are not necessarily exceptional. So if you think of Europe, they're suffering from access capital, unlike the United States. They have slower growth rates. They're mostly mercantilist. But on the other hand, if Europe is shifting, the growth rates will improve, utilization of capital will improve, and they will not be as dependent on trade as you go forward. So if you think of US equities adjusting for inflation, risk premia did go up from two and a half to three and a half percent. But if you think of Europe, or if you think of China, for example, you're looking at about six to nine percent inflation adjusted risk premia. So should that risk premia come down? In other words, if US is not

• 18:52Speaker 04

  Such so distinctly different to Europe or China. Why should be trading at twenty times when China is trading at eleven times? And so increasingly, those questions are asked. When you tell people, but you know, US might have an existential problem. But Europe and China have a massive structural problems. You do understand that China is in liquidity trap, that they will not be able to get out very easily. Unless there is a paradigm shift. You understand that Europe also have a structural problems they need to overcome. And so there is a limitation, the way I describe it, we gradually go into the world that no one is exceptional. Uh, and therefore it becomes much more tradable opportunity between the markets.

• 19:34Speaker 04

  Rather than saying, as you correctly said, Joe, over the last fifteen years. Uh, you never bet against the US. Uh, and by the way, if you think of that phrase, never bet against the US. If you said it in nineteen thirty, it would not have resonated. If you said it in nineteen seventies, it would not have resonated with people that you don't bet against the United States. So we we kind of going into this period, largely, I must say, for self inflicted reasons. But but nevertheless, uh, I I think you're right, there will be more cross flow of capital into other markets.

• 20:06Tracy Alloway?

  So speaking of risk premia, one of the things, just one of the things that has happened in recent days is we saw a spike in US Treasury yields. And I think, again, we're recording this on April eighth. Yesterday, Monday, April seventh, we saw the yield on the benchmark. Ten year go from like just below four percent up to, I think, around four point two percent. And everyone's kind of scratching their heads because normally you would see Treasury yields go down because people buy bonds as a safe haven, right? What's your explanation for yields going up?

• 20:42Speaker 04

  Well, to me, there are, uh, there are two explanations, the same applies to US dollar. Because normally you would argue that when uncertainty is high, risk is high. People go into US dollars and into US Treasuries. But now they do not, they go into other places. There is even discussion that are European bonds or Japanese. Bonds might be a better place to be. So there are there are two things. One is US exceptionalism that we've just discussed with Joe. The other one is potentially a liquidation of positions that is occurring. Because remember, an average American is probably, if you include the currency, ten fifteen percent worse off than what they were, or poorer than what they were,

• 21:23Speaker 04

  say, on January first. And so there is some liquidation that is actually occurring as well.

• 21:29Tracy Alloway?

  So sell what you can, not necessarily what you want.

• 21:32Speaker 04

  Sell, sell what you can. So to me, there are two two answers. One answer is a sunsetting of US exceptionalism, and the other answer is is liquidations. However, coming back to that historical perspectives, you know, Roman Empire survived many anomalies and many poor administrators, so to speak. And the reason was the underlying strengths of Roman society and Roman economy. And so the question is whether the underlying strengths of the US, which it can contribute labor, capital, it's growing multifactor productivity, it's got the best balance of tangible and intangible assets, it's got a tremendous geopolitical

• 22:12Speaker 04

  position, whether those positives ultimately will reassert themselves, or at the very least, reduce the degree of drag that otherwise would have occurred. And to me, I'm still hopeful that that is the answer.

• 22:44Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Millions of Americans are taking peptides, short strings of amino acids that can act as biological signals for cells. Peptides like insulin can occur naturally in the body, or they can be synthetically introduced to induce a biological process, as happens with semaglutide, the active ingredient in Ozempic. Now Bloomberg's Annika Inamputi reports peptides may be exploring their next

• 23:12Speaker 01

  Frontier, the brain. People are taking peptides for mental clarity and cognitive benefits as alternatives to psychiatric medications and to gain a competitive edge or stave off the effects of aging. Both insulin and semaglutide are approved by the U.S. Food and Drug Administration. Because importing or selling unapproved peptides for human use is not legal in the U.S., many people turn to online forums for guidance and overseas vendors with questionable credentials to obtain them. Unapproved peptides, which are marketed as research chemicals, have been circulating in what's become a billion-dollar gray market amid the rise of do-it-yourself medicine as people increasingly turn to social media or artificial intelligence for medical help.

• 23:53Speaker 01

  Doctors warn against self-experimentation and advise talking to providers before trying any new therapies. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 24:08Joe Weisenthal?

  By the way, we're recording this April 8th. Right now it's 9:20 a.m. President Trump posting to his Truth Social account, "I just had a great call with the acting president of South Korea. He says they have people on the plane right now." They're clearly in the mode now where they're like, oh, we're like trying to, this is about deals. Because there have been other, I mean, yesterday, for example, there was an FT column from Peter Navarro saying this isn't about deal making. So even the question of, is this about negotiations or deal making is fluid? And there's probably, if we're being honest, some sensitivity to the market going on.

• 24:42Speaker 04

  I mean, there are plenty of inconsistent stuff. But the question you're raising, would the market react positively when we get more and more announcement that the countries are negotiating? Absolutely. You have to remember, small countries have no leverage whatsoever. So whether you're Sri Lanka, Malaysia, Thailand, whatever you are, you have no leverage.

• 25:01Joe Weisenthal?

  They have nothing to offer.

• 25:03Speaker 04

  Well, well, well, the thing is, the thing is that at least Korea does have some domestic market. To ask a country like Sri Lanka to, to actually, who is poorer and relatively small, to run a, a, a balanced trade with the United States is impossible. So the only countries that are capable of a pushback is Canada, UK, European Union, China and Japan. Now, UK and Japan decided not to do it. And so the question comes down to Canada, European Union and China, in extent to which they're going to play a hardball. But to have 50 countries or 60 countries, or whatever the number is, coming in trying to negotiate, that's

• 25:46Speaker 04

  an easy part. Now, the market will react to it, but it's just temporary. It's nothing more than that.

• 25:51Joe Weisenthal?

  By the way, Tracy, Trump says he's also waiting for a call from China. And he says, China really wants a deal. So I'm just.

• 25:57Speaker 04

  Yeah, yeah, yeah.

• 25:58Tracy Alloway?

  I, I have this image in my head of Trump, like, sitting by the phone in the Oval Office, just like twiddling his thumbs.

• 26:04Speaker 04

  Won't hear ring me.

• 26:05Tracy Alloway?

  Yeah, exactly. Okay, so.

• 26:07Joe Weisenthal?

  Wait, is it okay to text twice? I texted. I feel bad, like, oh, he doesn't have read, Xi Jinping doesn't have read receipts on. I have no idea. Anyway, keep going.

• 26:17Tracy Alloway?

  That's right. Okay, so we mentioned in the intro that up until recently, markets had been like, pretty quiet, pretty complacent, you might say, given what's happened over the past week or so. Now that we've seen the big crash in stocks, we've seen spreads on, you know, high yield investment grades start to go up. It's not a blowout necessarily, but it is up significantly. Is risk sufficiently priced in, at least for the short term?

• 26:46Speaker 04

  Nobody knows, because it depends what the policies will be. If the policies are not changed, then the risk is nowhere near priced. And in fact, if the high yields were, say, triple C, which are now 10, 11% spreads, if they go up to 15, the world will freeze. If the average spreads, which are now more like four and a half, go to six, both global economy and the US economy will freeze. So there are some breaks, as I said, on the system. At the end of the day, you can't freeze it. We saw what happened in Pennsylvania and Wisconsin and Florida. At the end of this year, you're going to have Virginia and New Jersey coming up. Then you have, of course, you have midterms. So that there has to be, if Ted, if, if certain

• 27:28Speaker 04

  Texas senators are coming out and saying that, that there's going to be a bloodbath in midterm if this continues, he is absolutely right. So there are, there are checks and balances still in a system. But one of the things to remember, that even if you, even if we pass the high point of tariffs, we might not have passed the high point of other things that are going to come through. And so the question is, over the next several years, are you going to continue seeing it? And I think the answer, the answer is yes. We didn't talk about geopolitics, for example, and extent to which that could shift as well. So it's not just tariffs.

• 28:08Tracy Alloway?

  So, speaking of breaks and checks and balances, you mentioned earlier this idea of a pain threshold for Americans. Talk to us a little bit more about that. Like, where do you sense the pain threshold actually is and what matters most to potential voters?

• 28:24Speaker 04

  Well, I think the way, the way I look at it, there is a very solid part of the population, which actually bought into the idea that you must burn down the house in order to build a bright future. And I don't know whether it's a 30% of the population on that, but there is a very large constituency which fully accepted that. So when Scott Basson talks about detox, this is the audience that accept that whatever you want to build requires pain in between. But on the back of that community, you can't really have political capital, because there are other people who switched for a variety of other reasons, primarily inflation, inequalities, immigration. And so that could constitute

• 29:06Speaker 04

  as much as 20% of your, of your audience. And to those people, I think the pain is already there. And that is why at some point in time, and I agree with Jamie Dimon, I think he said something like, we need to wrap it up reasonably quickly. I think, I think I, I would agree with you, not just because of economic uncertainty and investment uncertainty, not just because forward soft data, which continues to show an enormous collapses occurring, but also because the pain is going to spread much, much wider and a hard data will start backing it up very, very quickly. Some of the pain companies, some of the collecting companies are already seeing that. You already see in the mortgage market that. So you need to, you need to wrap it up.

• 29:51Speaker 04

  And I think that's what the market is looking for. Now, Federal Reserve, of course, in a difficult position because even if we assume average tariffs go down from say 25% to 15, that still implies an inflationary spike, which could be as much as 100 basis points or more. So you'll start looking at the PCE probably three and a half percent or more as you progress through the year. On the other hand, economy will be slowing. So the question is whether Fed will take it as a transitory. And the other question that we keep raising is that we're seeing elimination of independent institutions across the United States. It doesn't matter, Security and Exchange Commission, EPA, whatever that is. What is actually protecting Federal Reserve? And the answer, as I said earlier, US is not a nation of laws and rules.

• 30:36Speaker 04

  It's a nation of conventions and norms. So there is actually not a great deal of protection legally that Federal Reserve has. So the next step on this journey, if in fact Federal Reserve is caught between rising inflation and slowing growth rates, otherwise known as stagflation, if they're actually caught in that, the question is whether Federal Reserve will be able to extend independence that they have been enjoying, certainly over the last several decades.

• 31:04Joe Weisenthal?

  Yeah, we did a really great episode last week, I think, with Lev Manon on exactly this question and how in the end, it's just the norms and if the norms change, that's it. Victor Schwedt, thank you so much for coming back on Odd Lots. Always a thrill to catch up with you.

• 31:18Speaker 04

  Thank you. Thanks so much, Victor.

• 31:33Joe Weisenthal?

  Tracy, I love Victor's characterization of the US as a country of norms and Europe as a continent of rules. Because I always think, like, I've said, joked about, every time I'm in Europe and it's like you're with a group of people, and you're like, try to get like five, squeeze five people into a cab, you know, and they're like, no, it's impossible, it's impossible. And then they eventually like, okay, you can like squeeze one in. They love saying that over there. I've been observing this all, no, it's impossible.

• 32:00Tracy Alloway?

  How often are you squeezing into cabs with five Europeans?

• 32:03Joe Weisenthal?

  Drinking or something, or whatever, like with friends, and, no, it's impossible, it's impossible. Oh, can we get one more person? Can we wait? And, anyway.

• 32:12Tracy Alloway?

  Well, okay.

• 32:13Joe Weisenthal?

  That's not the point. I just wanted to go on this rant about this impulse in Europe to always say everything's against the rules.

• 32:18Tracy Alloway?

  I mean, it's right. It's, yeah, okay. All right. I do think the norms point is really important, and we've been bringing it up on the podcast quite a lot. Like, so much of the US is based on habits, and I guess a sense of shared values, or a sense of this is the way things have always been done, and we're just going to be polite and keep to the guardrails that exist. Well, they don't really exist. They're not codified necessarily in the law, but we're going to keep them because if we don't, that would be bad. That's gone, for sure. And I think this is feeding into some of the, the risk premium that we're seeing around US assets, dollars in US treasuries, as Victor pointed

• 32:58Tracy Alloway?

  out. Like, we're kind of getting a denormalization discount on US assets.

• 33:05Joe Weisenthal?

  Yeah, it feels like it. It certainly does. And like, again, you know, the most simple norm is that policymakers want stocks to go up.

• 33:14Tracy Alloway?

  Yeah.

• 33:15Joe Weisenthal?

  And they, and they were cool with their.

• 33:16Tracy Alloway?

  And that's in doubt.

• 33:17Joe Weisenthal?

  Now, I think maybe right now, the middle of this week, we're seeing a little change, because I think there, there is this little bit of, whoa, like, okay, maybe we left our hand on the stove a little bit too long. You can't just have multiple days of meltdown that are as intense as March 2020 or 1987. So you get these headlines about deals. There was a report about Scott Besant, but like, you know, it's very, it's very chaotic, but it does feel like maybe there's some sort of sensitivity going on to what's going on in the market. But this was a great point of Victor's, like, what are the thresholds that kick in? The soft data has been absolutely terrible. It seems like only a matter of time before that spills into hard data. We'll see.

• 34:00Tracy Alloway?

  Well, the other thing I would say is the administration has set up many different goalposts and it kind of switches between them. So Trump will talk about how much stocks went up in his first term, but then there's also this narrative that if stocks go down, you know, lots of people who were shut out of the market are going to get their chance to buy. The same with housing. So I don't know, they can kind of spin it either way. Like if stocks go down a lot, that's successful for them. And if stocks go up, that's successful. It's weird.

• 34:33Joe Weisenthal?

  Yeah.

• 34:33Tracy Alloway?

  All right. Shall we leave it there?

• 34:34Joe Weisenthal?

  Let's leave it there.

• 34:35Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 34:41Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Check out Victor Schwet's writing. Just Google Victor Schwet's Odd Lots Newsletter and you can see all of the things he's written for us. Follow our producers, Carmen Rodriguez at Carmen Armand Dash, Al Bennett at Dashbot and Kel Brooks at Kel Brooks. For more Odd Lots content, go to Bloomberg.com/ Odd Lots, where we have all of our episodes and that daily newsletter you can subscribe to. And you can chat for free 24/7 in our Discord with fellow listeners. Go check it out. Discord.gg/oddlots.

• 35:11Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we connect politics with what's going on in the markets and history like Victor Schwet's does, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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