Robert Armstrong on coining the Taco trade

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0:17Good morning from the Financial Times. Today is Friday, April 3rd, and this is your FT News Briefing. There's been a shakeup at the U.S. Department of Justice, and more private credit investors want out of Blue Owl Capital. Plus, we continue our series on tariffs today with a look back at the taco trade.

0:36Robert Armstrong: It quickly became clear that on any point where the president was subjected to significant economic or political pressure of any kind, he would cave. I'm Mark Filippino, and here's the news you need to start your day.

1:04U.S. President Donald Trump fired his attorney general Pam Bondi yesterday. She's been under increasing pressure over how she handled files related to Jeffrey Epstein, the child sex offender who died in 2019. Bondi's department missed a congressional deadline to release all the Epstein files. It then botched the initial attempts to redact the documents and, in doing so, inadvertently exposed the names of some victims. This is the second high-profile ousting from Trump's cabinet this year. He fired Homeland Security Secretary Kristi Noem last month. Deputy Attorney General Todd Blanche will step in to replace Bondi as acting head of the department.

1:47The cracks in the private credit market keep getting worse for Blue Owl Capital. The investment firm disclosed yesterday that it was struck with a huge increase in investor requests to withdraw their money, and that hit the company's stock hard. Here to tell us about where things go now is the FT's U.S. investment editor, Eric Platt. Hey, Eric. Hey, how's it going? Pretty well. So just give us the numbers. What exactly did Blue Owl disclose yesterday? So Blue Owl disclosed the size of investor redemptions from two of its flagship private credit funds. For one, its kind of marquee fund with about$20 billion of net assets, it said it received redemption requests of almost 22%.

2:26For a smaller fund that's focused on lending to software companies, it said redemption requests surged above 40%. These are really large figures compared to rivals across the industry, and it prompted Blue Owl to limit redemptions from both of the funds, as many of its larger peers have also done. Can you remind me why investors want to pull out their money at such a rate? Yeah, investors have been really spooked by what's happening in private credit, right? There's this kind of opacity element to it. You know, these loans aren't trading, so there's a real question around the valuation of the underlying collateral.

3:02It's private. It's private, right? And so people have some unease about that. There's fears around the amount of software lending that private credit has done, especially as AI really takes off. There's a question what that means for the business models of a lot of enterprise software companies. And of course, those were companies that private credit really helped bankroll. And so there's a question about, are these loans going to be in trouble that are spread across the private credit industry? So we'll talk a little bit more about the broader industry in a second. But first, how bad is all this for Blue Owl and its investors?

3:34It's particularly bad. We've been watching their stock price. It started to decline on Wednesday, the day after the deadline for investors to decide whether they want to redeem. And it accelerated on Thursday. And the declines this year are almost at 50%. It's a huge cut to their valuation. It's a sign that investors really have questions over the company's ability to begin growing going forward or even kind of stabilize itself. And so there's a real question here around what the future for Blue Owl looks like. Now, what does Blue Owl have to say about all this? So Blue Owl has said they're observing this really meaningful disconnect between the public dialogue and private credit and kind of what they're seeing in their actual portfolio.

4:16They're saying the loans are still performing, the companies are doing well and growing, and there's people who are racing to the gates to get out of the funds. while actually they're saying, you know, the underlying assets within the funds are really quite resilient. And it'll be their job to get that message to investors, to really try to calm them, to hopefully turn the tide on these redemptions. Yeah, I feel like I ask either you or one of our colleagues this question every week for the past several weeks, but how worried should we be just generally about the private credit industry as a whole?

4:51So I would say be moderately concerned, right? Like have your ears up, read the FT diligently. But I don't think that we are seeing a systemic kind of issue. These private credit funds run at much lower leverage than what we were seeing in 2008. And so we're not seeing the kind of spillover effects we might have expected years ago. And a lot of executives that we talk to, analysts who cover the industry say, this happens in every asset class, cycles come and go. That's the definition of a cycle, right? But for the last, I don't know, since the crisis, we weren't seeing companies go bankrupt in huge numbers.

5:32And maybe that changes, and maybe that means returns in this asset class are poor in the future. But it doesn't mean we're headed for the end times. That's DFT's Eric Platt. Thanks so much, Eric. Thank you.

5:49This time last year, markets were having, well, you could call it a bit of a meltdown. U.S. President Donald Trump had just announced an aggressive and sweeping set of tariffs. But within a month, Trump backtracked and major equity indices around the world rebounded. Investors calling out Trump on his bluffs quickly became known as the taco trade. Trump always chickens out. I'm joined now by the man who coined that phrase, Rob Armstrong. He's the FT's U.S. financial commentator. Hey, Rob. Hi, Mark. It's good to be back on the show. So how many times have you heard the word taco since you coined that phrase last year?

6:25You know, Mark, you work your whole career putting in the time, educating yourself, trying

6:32Robert Armstrong: to write well, and then you make one dumb joke and it becomes defining of everything that you've done. Since we are on the taco topic, remind folks what it is and why equity markets changed course so quickly last spring. I think people were shocked both by the scale of the tariffs that were announced, but by the complete incoherence of the design of the tariffs and their distribution, how they were calculated and so forth. And markets were just appalled and fell very sharply indeed. However, the backtracking started almost immediately. there would be delays, there would be carve-outs, there would be exceptions for certain countries and products, and on it went.

7:26Robert Armstrong: And it quickly became clear that on any point where the president and his administration were subjected to significant political or economic pressure of any kind, he would cave. But I think it's important to note that tariffs were not eliminated it all together. So the most economically and politically painful bits were carved out. And in that way, we arrived at a tariff package kind of by mistake that the world could live with. Even though equities rebounded from that low, they've been pretty volatile over the past year. We'll get more into the Iran stuff a little later. And typically when stocks are volatile, you see investors flock to safe haven assets like gold, like U.S.

8:14treasuries. Did that happen like you'd expect it to?

8:18Robert Armstrong: Well, it happened, but not like I would expect it to. So in the case of gold, it went absolutely bananas to go from the yellow metal to the yellow fruit there. I mean, I've never seen anything, any commodity move the way that gold until quite recently was moving up. And it started with central bank buying, central banks wanting to get away from the dollar a little bit. And that trade was quickly passed on to retail buyers. And it quickly became a momentum trade. So that's kind of like a Frankenstein monster of a safety trade. It started out as safety and became something else. Treasuries have been a little trickier because the ghost of inflation still hangs over the bond market.

9:09Robert Armstrong: And any sign that inflation might recur or rise is absolute poison to bond returns. So we haven't seen quite the rush into treasuries, you might expect, but they have been solid in most cases. Again, until very recently. Until very recently. Right. Yeah. It's really important to caveat that this is all, we're all We're only talking about up until the end of February of this year because that is a completely different story. But anyway, what about global markets? Was there any particular market that stuck out to you? Well, one thing that sticks out is that international markets and in particular European markets had quite a good 2025.

9:56Robert Armstrong: And part of the reason for that was the idea that Europe may have to shed some of its connections with the United States because of the indifference or hostility of the administration to Europe. The idea that European governments might become more fiscally aggressive, spend a little more money on things like defense, and the idea that European economies generally would have to get their act together. Who knows if that story will survive higher oil prices war and so forth. But it was a remarkable and quite unexpected development of what we saw last April and other kind of anti-globalist antics on the part of the Trump administration.

10:47Rob, how are investors thinking about the impact of tariffs going into year two, given that the U.S. Supreme Court ruled the emergency tariffs illegal? So we're in this kind of weird place where there are some temporary tariffs that will expire in July. You still got the bilateral deals in place with the U.S. and several countries. How do investors view this whole thing now?

11:09Robert Armstrong: perhaps to the relief of the Trump administration, or perhaps not. Investors have largely pushed tariffs to the side mentally. There are other things to think about now. We keep coming up against this war, but the most proximal effect of that war on markets is the price of energy, and through the price of energy to inflation and inflation expectations. And now we're thinking about things like the growth of the economy, inflation, and so forth. Rob Armstrong is the FT's U.S. financial commentator. Thanks as always, Rob. It's a pleasure. And thanks to everyone for following along with our series about the anniversary of so-called Liberation Day.

11:52We've got one more installment coming your way tomorrow with the FT's Claire Jones. She'll talk about the economic implications of the tariffs. Stay tuned. You can read more on all these stories for free when you click the links on our show notes. This has been your daily FT News Briefing. Check back next week for the latest business news. The FT News Briefing was produced this week by Safia Ahmed, Julia Webster, Sonia Hudson, Fiona Simon, and Victoria Craig. I'm your host and editor, Mark Filippino. Our show is mixed by Alex Higgins, Sam Giovinco, Kelly Gary, and Kent Millitzer. We had help this week from Peter Barber, Michael Lello, David Da Silva, and Gavin Coleman.

12:27Our executive producer is Topher Forhez. The FT's global head of audio is Cheryl Brumley. And our theme song is By Metaphor Music. Thank you.

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