Trump Tariffs Overturned, $56T Debt Surge, AI Replacing Workers & Fed Cuts Debate

0:00Anthony Scaramucci:You have debt heading to 120 % of GDP. Over the last 15 years, the Fed spent its time debasing the U.S. dollar. I just find it to be a real lack of self-awareness.

0:10Mike Novogratz:When I look at the boomers, it has been the most selfish generation in the history of America. When they went into power when they were in their 30s, roughly child poverty and 60 % of seniors lived under the poverty line. Fast forward 40 years, they've been in power that long. We still have 16 % of kids under the poverty line, but only 3 % of seniors under the poverty line. In essence, they took the apple and instead of giving it to their grandchild, they ate it themselves. You can look at so many statistics of how this generation got fat. They stole, they've left this new generation, as you said,$41 trillion going to$56 trillion in debt.

0:45Mike Novogratz:And they should be ashamed of themselves, quite frankly.

0:48Anthony Scaramucci:Welcome to All Things Markets. I'm Anthony Scaramucci. And I'm Mike Novogratz. Michael, a lot is going on, Michael. Six to three Supreme Court decision. The court struck down the global tariffs, or at least a good portion of them, just reminding people some tariffs were legislatively mandated by Congress. The ones that weren't, particularly the ones against China in February of 2025, have been struck down. We're talking about right now about$135,$140 billion worth of tariffs, Michael. What do you think? Any impact on the markets? Does it change anything in your point of view?

1:29Mike Novogratz:You know what's so interesting? I do think it changes things. You've got geopolitics on the one hand and you've got AI on the other and it is making investing really complicated. We've been in a really tight range in the stock market, even though underneath there's been huge movements. Listen, what's going to happen with the tariffs? People are going to get rebates. Like that's going to happen and it's going to take a long, you know, some period of time. People are going to sue. it's going to be a mess, but slowly those rebates are a fiscal stimulus, right? And so it's larger trade deficit, larger budget deficit, stronger economy.

2:13Mike Novogratz:What's weird is the taxes on the consumer, but the rebate comes to the corporate. And so that's not great in terms of the political messaging around it and the reality of it. But I think we're going to have a similar economy still strong, even a little stronger, makes it a little tougher for the Fed to cut, though I think they still will because you still have, I think, inflation heading in the right direction. And, you know, the yield curve should get a little steeper. The dollar should sell off as we're going to need to have, you know, cheaper product to be more competitive.

2:52Anthony Scaramucci:Why not declare? I mean, again, it's not a political show. It's more about markets. But why not declare victory and say, hey, I use my muscle to push some people around. We're going to go back to the other tariffs. So I'm going to give the rebate, which will be a stimulus going into the midterms, which help his party. Why do you think the president is tripling down on this whole tariff idea, knowing full well that this new Section 122 tariff will also likely get shrugged down? That doesn't meet the balance of payment tests that he's supposed to have.

3:28Mike Novogratz:Listen, you know Donald Trump better than I do, certainly. But his sense of self has only grown since he's been in the second term, as evidenced by the eight different buildings he once named after him. And so losing doesn't seem to be an option for him. having people quote disloyal often means they're stupid and you know they don't know what they're thinking about and so like the reaction to this was almost textbook what this administration has been doing period and so it's not necessarily rational it's not necessarily economic um i said this on the last podcast like the tariffs were actually a pretty interesting way to shift the balance from income taxes to some form of consumer tax.

4:20Mike Novogratz:And they were raising a ton of revenue. And so when Trump would say things like we could get rid of the income tax by switching it to all these tariffs, he wasn't wrong. It's just, you got to be straightforward with who's going to pay the cost of those tariffs and where the impact is going to happen. And right now, you know, polling is not going well. Calci has the Republicans at less than 15 % in the midterms. that's not a prediction, that's a market. Hence, it's a prediction market.

4:51Anthony Scaramucci:Right, but yeah, I mean, all right. So, but you're still calling for how many rates, cuts by the end of the year?

4:58Mike Novogratz:You know, listen, 23 basis points is priced in to the September SOFR contract, right? And so that's one priced in. I think you're definitely gonna get one because Warsh is gonna come in and he's kind of almost pre-committed to that one. And the market is probably fairly priced here. If it slows down a little bit and he sees some light, he'll cut twice. I think if you're Kevin Morse, you want to get rates to where you think the equilibrium is and then pause, right? Your story has been, I disagree with Powell on what equilibrium is and how fast he could have cut. Therefore, I want to get there and then we're going to process things the same way, right?

5:46Mike Novogratz:We're going to look at all the data and make decisions based on forward-looking data. He just thinks we were at the wrong level. And so I do think he'll cut fast.

5:55Anthony Scaramucci:So in the meantime, it looks like, and again, I'm just guessing$135 billion getting returned either to the corporations or the individuals. It's very hard as an individual. I look through it. You know, I bought some wine from France. It was held up at customs, Michael. and they said I needed to spend$535 in duties to get the wine in, which of course I did. And now if I want to file for the refund, good luck to you because it's very Byzantine in terms of how that goes. But that money's coming back to a lot of people. And the CBO, something you're very familiar with from your time working in Washington, is saying that by 2036, which is not a long time from now, 10 years, Michael, we're going to have a budget deficit that is exceeded.

6:47Anthony Scaramucci:This is the national debt, excuse me. The national debt of the United States is going to be$56 trillion according to the Congressional Budget Office. So that's going to be north of 126, 125 % of the GDP. What say you as we're hitting a$3 trillion budget deficit, operating deficit by 2036?

7:11Mike Novogratz:You know, there's a thing called the Minsky moment where confidence just evaporates. You don't know where it is and then it happens. You know, at one point, the bond market says, I'm not going to finance that deficit. At one point, your foreign friends say, I'm not going to finance that deficit. We're not there yet, right? Bond market's well behaved. And Besson can adjust where he issues and the Fed can buy. So this dance can go on a lot longer than we think it can, but there's a breaking point somewhere. And when it breaks, lo and behold, it gets really ugly. Ken Rogoff, I think, and then Ray Dalio, they all talked at one point in the OA crises and the aftermath of the OA crises of when you have this blow up of a deficit and blow up of debt, how can you have a kind of a perfect deleveraging or a beautiful deleveraging?

8:05Mike Novogratz:And it's really complicated, right? You got to run inflation a little bit over the 2%. You run three, three and a half percent, try to convince people it's really only 2 % and slowly eat away your debt while you get growth going again. It's such a hard plane to land on a very small runway. And we're not even close at this point. The politics make it almost impossible. If you look at what, and you said this on the last podcast, we were going to cut this from this branch, this from this department, this from this department, and none of the cuts got made.

8:36Anthony Scaramucci:Right. Well, but Michael, you've been doing this for 40 years. Me too, right? So combined 80 years roughly. The markets have priced this in. The markets are nonchalant about it.

8:49Mike Novogratz:The markets are nonchalant about it because it hasn't bit yet. So like I traded my first kind of great crises. Great. It's always painful to use the word great because it's great as a trader if you're on the right side of it. But it's terrible for the people in the countries you're dealing with. So when Thailand, Indonesia, Korea all blew up in 97, 98, right? It was good, good, good, good, good, very bad, right? I call those paradigm shifts, right? They had quasi-fixed currencies pegged to a basket of the dollar or pegged to the dollar itself. And they had tons of capital coming in because it was the Asian miracle.

9:29Mike Novogratz:And then people realized, whoa, there's too much debt. And then all the capital ran away and they had monster currency devaluations. GDP collapsed, fighting in the streets, dogs and cats living together. And then it takes a while to kind of rebuild and start going again. Like we haven't had that in the developed world in a long time, but we're heading towards that, period.

9:55Anthony Scaramucci:Is there a trade? If Mike Novogratz, Anthony Scaramucci got together and said, okay, here's a product that we're going to deliver to you that protects you from this crisis, what would be in that portfolio?

10:08Mike Novogratz:Yeah. So the problem, of course, is when you buy insurance, insurance gets expensive until you need it, right? But the trades you want on are yield curve steepeners, right? That funding yourselves out 10 years should be more expensive because there's more risk that it's going to be a really shitty environment that we're going to have to borrow too much than it is, say, in two years. We kind of know what we need to borrow. And so yield curve steepeners is one of them. Being short the dollar against something, right? Against gold, against silver, against... I think gold and silver had their highs this year, but against a basket of other things.

10:44Right now, the trade du jour is long the Chinese renminbi, long the Mexican peso.

10:50Mike Novogratz:I mean, look at Mexico had terrible rioting and terrorism all over Jalisco and that whole part of Mexico. And the currency's unchanged. That's how strong the mexpeso is right now. So Brazil, mex, a basket of Korea, Taiwan, and China seem to be a really good place to have currency exposure right now.

11:12Anthony Scaramucci:So I'm going to paint a scenario for you because we always have to assess probabilities. We have$15 trillion of debt that needs to be refinanced from June of 2026 to the end of 2027. So in an 18-month period of time, we're going to refinance$15 trillion of debt. What happens if there's some disorder in a treasury auction while we're doing that? right bonds down stocks down uh it's complicated the dollar should be down but sometimes when

11:50Mike Novogratz:people are panicked they go flake to the quality first right bitcoin should go up but it could go down if it goes down with stocks you know what's so complicated is if there was a nuclear bomb that went off somewhere traditionally just buy me the dollar buy me treasuries that probably still is the reaction function, but it might not be because of our standing in the world and where, where we are with this debt. Um, but it probably still is, but that's where, you know, even though I think gold topped, maybe it's gold, right? Like, you know, like every once in a while, there's a another surge. The problem is Anthony is waiting for those crises is like waiting for Godot.

12:34Mike Novogratz:It might be a year and that damn subway might not be for three years or four years or five years.

12:40Anthony Scaramucci:So, Michael, you go to Washington a lot. Okay, you know I have an allergic reaction when I go to Washington. I break out in Ives. God forbid I could even possibly lose my hair, which is a very important asset to me. When I talk to these public servants about the deficit, they look at me like, yeah, deficits don't matter. We can continue on this deficit chain forever. Do you get that feeling from our public servants when you talk to them? Or you have any that are like, wow, you know, we should be worried about the stuff that I'm talking about?

13:11Mike Novogratz:There is a core group of, you know, politicians down in D.C. You know, I'm thinking of guys like French Hill, the congressman from Arkansas. He's a Republican. You know, Cory Booker, even here in New Jersey, gets it. There's a lot of people that get it, that know we got to get our fiscal house in order. they also all recognize like scott bessett gets it and even though he gets it a hundred percent you just look at how hard the politics of it are when we have a world where the haves and have not seem to get wider by the day i mean i look at what mandami is trying to do in new york and like my heart goes with them and my brain wants to throw up on them uh like we just spend too much money to spend more.

14:00Mike Novogratz:We have a shrinking population, yet our budget is going up. We have a dramatically shrinking school population, and yet our budget is going up and we're getting lesser results. And so New York City spends too much money. And if you want to agree with Mondami, you can say, let's take the same amount of money, which is too much, and reallocate where we spend it that would be a logical at least debate but no one wants to do that they just want to spend more and so he looked at the budget and said you're not going to give me my tax increases i'm going to throw a temper tantrum and try to play blackmail and raise your property taxes instead of saying maybe the population and the market is telling me i can't have more that i need to do more with less and until we get a shift in mindset on both the republicans because the republicans talk a big game of it and don't do shit and the democrats don't even talk that game we need a shift of mindset and saying hey we have all these tools we need to do more with less at a government level and it's just not in how politicians think they like to spend so so michael i'm from the future

15:15Anthony Scaramucci:I'm from June of 2028, which is two short years from now. And I say to you, Michael, lots of white collar middle income jobs have been cut because we've had this AI revolution, this agentic AI. And these companies don't need these people anymore. They can just have the tasks done by AI now. Our economy is a consumption based economy. You know that. but I know that 68 % to 70 % of the GDP is coming from consumer spending. But middle-class incomes, I'm defining that between$50 ,000 and$150 ,000. They buy houses and cars and subscriptions and streaming services. It then wiped out, Michael.

16:02Mike Novogratz:Yeah. So if you look at something like Red Lobster, which is a restaurant that that demographic used to go to, it's not fast food. It's nicer than that. It's mid-price range. It's affordable. Their sales are plummeting. Like that group is suffering. And you can see it in their consumption behaviors. All the consumption is now coming from the very elite, right? Go to Prada and a suit is$4 ,000. To most people in America, that seems just insanity, right? And there's lineups at Prada. And so, I mean, there's a real problem here. And that's got to get addressed at one point. The point I'm getting to, though, there's no historical precedent for what I'm saying.

16:47Anthony Scaramucci:Ironically, the retail stock, I can cut 40 % of my workforce. It'll improve my profitability. The retail stock will go up. But now with 40 % of the workforce cut, the consumption is going to go down.

16:59Mike Novogratz:I had a fascinating, I was in Jackson Hole. We did a podcast. A couple of days afterwards, I had like three fascinating conversations. Two were with crypto and tech company CEOs. and the aha moment I had. And it's funny because I had lunch eight, nine weeks ago with the CEO of Bank of New York and a bunch of other people. And he had told me that at Bank of New York, they're already looking at AI agents as employees with employee numbers and treating them. They had a very few of them. They were somewhat symbolic. And these other two CEOs said after Claude Coe, they were like, wait a minute. Their aha moment, and it's now my aha moment.

17:38Anthony Scaramucci:I stole it from them.

17:41Mike Novogratz:was instead of looking at AI to make each person more productive, look at, hey, Galaxy's got 122 new jobs we're trying to hire for. Look at each job and say, can you do it with an agent? And then that agent becomes an employee working for a captain. And so you might have a senior engineer that's got 11 agents working for him, but he needs to think of them like employees. That's such a radical idea because all of a sudden, instead of hiring 60 people, you're hiring six, maybe. And then of course, even though you don't want to think this way, the employees you have, you're like, well, I see what's his job description.

18:17Mike Novogratz:What's his job description. And you're going to see, I mean, this guy, because he had to, because the margins on his business are going down was telling me he was going to cut 40 % of his staff in three months and thought he was going to get double the productivity. So those conversations first got me scared of like, wow, we hit this. I said this last time, this Claude Code moment of two months ago, whatever, six weeks ago, really has shifted the intensity and the anxiety of every CEO I've ever spoken to. We went from, oh shit, to all hands on deck. We got to move. We got to move fast. And then I had a conversation with my daughter who had been working on an AI startup for a long time and decided she couldn't figure the lane out, but she's an anthropologist and a very smart woman, right?

19:10Mike Novogratz:She studied anthropology, visual anthropology, thinking about it. And she was asking me all these questions about like, why? Why are we doing this? What's the purpose? And it got me thinking, because we fear the Chinese so much, this is existential. We've got to get AGI before they do, that there's no regulation. There's no slowdown on how fast this is going and who's driving it, right? You got Zuckerberg at one point, Elon Musk at one point, you got Sam Altman, you know, who are all solely financially driven. And so like we're handing over, in essence, the future of humanity in lots of ways to unelected, financially driven, you know, guys whose morals might or might not agree with yours, whose ethics might or might not agree with yours.

20:04And it's happening so fast,

20:06Mike Novogratz:it feels almost like what the F is going on here? And we don't have a president who thinks that way to say, how let me slow things down. And maybe a different president at a different time would be like, whoa, whoa, whoa, whoa, whoa, whoa. Let's have a real idea of what this does for the citizens of our country. Like, let's answer the why. We haven't answered the why other than productivity is good. And what we're learning is in late stage capitalism, and productivity, it maybe shouldn't be the only goal because it's going to put everyone out of work. Henry Ford used to say that all the time. I need at least people, like my employees need to be rich enough to buy my car.

20:43Anyway, it's just got me very worried,