The Worst Is Still to Come

25:35But if we start to see that happening or companies just get nervous and start laying off workers, then I think that base is going to be a lot less happy. And then Congress might start trying to pull away a little bit into the midterm. Well, here's where it really hits home. This morning, Chipotle reported earnings. They managed to squeak out a one penny beat, which was good enough for the stock to not sell off. They missed on revenue. And then they said they're going to get it coming and going. Their cost of goods is going up by 50 basis points indefinitely, which is a lot of dollars for the rest of this year, if they're lucky.

26:09And foot traffic is slowing. Same store sales for the first time in a long time. Right. Purchases are coming down. That's Chipotle. That's like, that's as good as it gets in that space. They are the best operators in that space. So that's, who cares? It's burritos. That's a microcosm. That's the middle class, the upper middle class. That's the working professional. like who eats Chipotle in Manhattan? People walking out of an office building. Me. Yeah. Okay. Michael, it's right next door, by the way. But so that's why this is so difficult, I think. Right. Because companies do have a lot of levers and they can pull them and squeak out a one penny beat.

26:45I mean, your chart before is important because it is a good reminder, especially for people who are younger in this and haven't lived through lots of cycles that you will see the bottom early in the recession if we have a recession. Of the stock market. Yes, of the stock market. You don't need to wait till we're at the very, very trough with growth. If you've waited that long, you've waited too long. And the best days are at that bottom. So this idea that, oh, I'm going to wait for the dust to settle. That's not how it works. But you don't think we've, but you don't think we've gotten the full, I don't either.

27:14Not at all. The full what? No, in fact. The full market sell-off related to the potential for how bad this gets. We haven't even seen it. Right. I actually. We were down 19%. I don't think it's done. I'm saying we haven't even seen the earnings report start to deteriorate. Right. I think, I mean, right now that the S &P is down 7 % year to date, right, as we're talking. Nothing. It's nothing. It's really not unusual at all, especially after the last two years we've had. But I'd say for investors who are a little nervous about what's going on, who maybe have over allocated to stocks in the last couple of years, this is a wonderful opportunity to take some money off the table.

27:51And then the question is, where do you go? I don't think it's in 10-year treasuries right now. I think it's probably in money markets. I think it's in gold. Personally, I'm not a huge fan of Bitcoin, but if you are, God bless. It's looking at overseas markets. I want to ask you a question about your world. You've spent a lot of time interacting with sovereign wealth funds, extremely large investment organizations. So this is a CNBC story today. The world's largest sovereign wealth fund, which is Norges Bank in Scandinavia, reports$40 billion loss in the first quarter on tech downturn. I guess they had a big NASDAQ overweight.

28:32As did everyone. As did everybody. Okay. This is a pretty – I mean this is a pretty big loss for one quarter. I know some of it's like a paper loss. It's not like, oh, no, we lost – we misplaced$40 billion. You're in stocks that are in big – that are in big corrections. Okay. But that is the kind of thing, in my view, it does change people's attitudes about their allocation going forward, which is why it makes it really hard for stocks that had been leading to remain leadership. Because I think when people take big paper one quarter losses like that, they start thinking more in terms of being risk averse or looking for things that will not burn them as badly if they go wrong.

29:16What do you think about that? As somebody that has lived in that world, what do you think about that? Yeah, I mean, that makes sense to me. If you had been heavy on the Magnificent Seven or whatever version of that, and you felt the pain over the last couple months, maybe you still believe in them long-term, but you realize, gosh, I don't know when this ends. So I want to diversify a little bit. Maybe I'll trim my tech and have a bit of consumer staples or something else stay in the market, but just get a little lower beta, if you will, just a little less risk in my portfolio. Do you think that that's why tops are a process and they're rounded?

29:52Like historic tops for different stock markets, the NASDAQ included, they tend not to be a short, sharp event where they go parabolic and then crash. They tend to be more like a gradual give up. Lower highs. As stocks rally after a correction, but don't quite get back to the old high. sell off again, rally again, but again to a lower high. And it ends up looking like this dome. Yeah. So from my perspective, that's how I think this goes. I think we can continue to rally. It's tough to picture us approaching Dow 45 ,000, 46 ,000, and the NASDAQ getting back toward its all-time highs, unless this tariff stuff is just completely folded.

30:33See, I agree with you, first of all. And part of that is just because you have investors with different time horizons and different processes. If you're at a big pension fund or you're at a sovereign wealth fund or a central bank, if you're at an endowment and you're thinking about making an asset allocation shift, I'm going to reduce my U.S. equity by four or five percentage points, or I'm going to switch out of U.S. bonds into gold, that you do a bunch of analysis, you present it to your board of directors, they vote on it, then you allocate it. That's going to take months to play out. And that, I think, plays into your idea of a dome or a slow turn.

31:09Because not everyone switches their allocation today. It's going to take a while to do it, but guarantee it's coming. The only question in my mind is how big. A hedge fund can make a lightning quick decision. Yeah. A pension fund, not so much. Not so much. Well, here's what else came at lightning quick decisions. Containers and shipping. So we're already starting to see that. John, throw these charts on, please. So this is at the Port of Los Angeles. We've got 120 ,589 for the week of April 26. And then it's projected to go down to 86 ,000 and then down to 72 ,000. You see trucking volume. Next chart, please, John.

31:44That's a lot of treadmills. Look at this. Not getting delivered. The full chart is obviously 2024 compared to where we are 2025. You see a steep sell-off, like a monster drop. This is going to hit our shores eventually. So Ryan Peterson did a tweet thread. He said, in the three weeks since the tariffs took effect, Ocean container bookings from China to the United States are down over 60%. Yep. 60 % industry-wide. He says the U.S. imports$600 billion worth of goods from China every year, 95 % of that via ocean freight. Those goods sell at retail for$2 trillion. If the tariffs on China continue at this level, they're not going to.

32:20But if they do, just for argument's sake, we will see a$2 trillion hit to economic activity in our country, the failure of tens of thousands of American businesses, and the laying off of millions of employees. So this is the doomsday scenario. Let's just say that the worst won't come to pass, hopefully, but there will be damage. Yeah. Well, even if, I mean, we're at 145 % on China right now. Let's say we take that down to 60%, which is what Trump originally campaigned on, which at the time we all thought, that's a crazy number. Yeah, he's just being crazy. Right? And now we're like, oh, 60, that would be good.

32:53And maybe you can get a market rally. People are relieved on 60, but let's be real. 60 % if it's sustained for any period of time or anything like that. Catastrophic. Well, China's at 125. If we go to 60, do they go to 60? That's a good question. They want us to move first because we started it. They're not going to do anything until we go. And I don't know how that's going to work with various personalities involved. I'll give you one little anecdote since you talked about ships. I was trying to think about relative winners and losers in all this. And someone had mentioned on a call I was on for Council on Foreign Relations that the United States, we import almost all of our shoes.

33:30We make very few shoes in America. So 80 % of the shoes that we import in the United States come from China. 80 % of our shoes come from China. Vietnam too? Vietnam is tiny compared to China. Vietnam is Nike. But they're big globally, but they're tiny compared to China. China is the elephant in the room. So if we can't buy Chinese shoes anymore because the tariff is so high, it just doesn't make any sense. I wear Italian shoes. Well, you're special. No, no, no. But the Chinese started pushing these videos of people in Gucci workshops in China. Like, here's a Birkin bag. We're going to make one right now.

34:09Watch. It's us. They're not making this in Italy. I don't know if that was like— I think you're going to get a very angry call from the Birkin people shortly. It was a propaganda video, but it was effective. It spread like wildfire. So Vietnam, the tariff is 46%. So that's still really expensive. So then who else could make shoes? Brazil. Brazil is not as big as Vietnam. It's tiny compared to China, but the tariff's only 10%. And they already are a big shoe producer. They have the infrastructure. They have very low wages. So Brazil's going to get market share from China and Vietnam on shoes. Brazil is going to get market share from America on agriculture goods that they're selling to China.

34:49So they're winning on both sides of the trade war. And I think it's interesting when I look at the stock markets today, you know, Brazil is up local currency terms. So if you bought the real and then held the stock, 21%. And dollar terms look like they're breaking out. I mean, dollar terms, 14%. But what about the U.S. workers that want to make shoes? Have you met any? Wasn't that the stated intention? No, dude, it's the elves. They're mostly elves. It's the elves in Santa's workshop. Brownies in the traditional fairy tale. They were brownies. Yeah, this is, I mean, I think there's a lot to be said for making sure the U.S.

35:27has resilience in strategic industries. We should make more semiconductor chips. Exactly. Shoes are not. Children's Christmas toys are not. And I don't think there are many Americans who want those jobs. No, how about none? Right. All right, so how about this? So we're starting to see tariffs hit us. This chart comes from Ernie Tedeschi. He's looking at the cumulative year-to-date custom duties in 25 compared with 24. We're taking a significant like higher as they start to hit us. Does this mean tax cuts? Is it enough? So here's a good one for you. All right. Congress is going to do its reconciliation package.

36:01That's its fast track to get the budget passed later this year. Trump would like to get it done by July 4th. I think it's much more likely this thing's going to go to Q4 because it's going to get hard because it is a big increase in the deficit. They're going to need spending cuts. They won't want to hit Medicaid because that hits red voters. So this is going to play out for a while. But to pay for the tax cuts, they need to have sources of revenue to bring that total number down so we don't have a bond vigilante moment. One of the places they're looking for revenue is the tariff revenue. But to have the tariff revenue, because it's not passed by Congress, it's not part of the official package.

36:38So they had to work that around. It's a little bit gimmicky, but they also have to promise it's going to stay in place forever. So, right. It can't be a pay for if it can be like at the stroke of a pen. Hey, we made a deal with, with China. We're done. If you're saying you're going to cut my tax on tips and you're my tax on social security for the next 10 years, that means I need tariff revenue for the next 10 years. If that's what you're saying is the offset. Correct. Okay. I don't think anybody believes in this story. No. That taxes can go down because foreign countries are going to pay them.

37:10Like it seems like. And they're not, obviously. Let's just be clear. We're paying them because we're going to pay more for our new Brazilian shoes. All right. If you're, whose shoes would you rather be in right now? Scott Bessence, where he has the president's attention as much of it as he wants. and he has a lot of sway or for now with markets and anyone will take his call in two seconds. He seems like in a pretty good seat to steer this. Would you rather be him or Jerome Powell who basically has no options whatsoever that are appealing? He either bows down to the president's demands and cuts rates sooner than he would want to, thus potentially undoing his own soft landing and exacerbating inflation, or he doesn't and has this guy screaming at him on Twitter for the rest of the year.

38:07Like, it seems like you'd much rather be at Treasury than at Fed right now. I mean, I think that they're both in very difficult jobs, right? Scott Besson has spent his life in the markets. He understands that tariffs are inflationary. He wanted to work in the seat and take the responsibility, And that means he's going to have to do things that he probably knows are probably not the best thing for America or the global economy or the markets. I would rather be Jerome Powell right now because then I can actually try to do the right thing for the country regardless of politics. Which is what? Cut or don't cut?

38:40No, you can't cut. Why not? Because inflation is way above target and the unemployment rate is low. Why do we think cuts lead to inflation when they happened for 15 years? We were in a deflationary environment for 15 years. That was soon to return. That was created globally. Yeah. Right? So we were desperate to create inflation. We couldn't. Right. We cut to zero and left it there. We put our foot on the gas and held it down. No inflation. But that's partly because we didn't have as much fiscal stimulus globally after 08. And then we had the European crisis in 11 and 12. And then we had a China crisis in 15.

39:18So every time the global economy started recovering, we had other hiccups that pulled us back down. We're in a totally different boat now. We had a huge amount of stimulus after the pandemic. That got things going and drove inflation up. Ukraine, obviously, the Russia invasion, commodity prices further drove up inflation. Inflation's back. But beyond that, the fiscal stimulus has created this dynamic where we're issuing a ton of debt. We have upward pressure on yields. The Fed, if the Federal Reserve, given that inflation is now back in the consumer and business mindset, if they cut rates prematurely and inflation expectations keep going up and their question, their independence is questioned, the 10-year yield is going to be at 5 % in weeks.

40:04You're probably right. And I'm probably wrong, but I still want to counter. The Fed doesn't have data. I mean, inflation's above target. The job market's strong. Why would you cut? Europe has cut seven times. They are trying. They have zero growth. Time out. So they screwed up last time and we got it right, right? Like the financial crisis. Yes. They were hiking rates into the crisis. Yes. Because they were looking at this transitory thing where oil went to 180. And they were looking at iron ore prices and they were looking in the rearview mirror at this emerging markets boom. And they concluded the right move is to raise interest.

40:44Boy, was that wrong. Yeah. That set back their recovery, I don't know, 10 years, maybe permanently. And then they doubled down on the pain because they had this fiscal straitjacket that they created with the birth of the euro in 1999. So they couldn't do fiscal stimulus either. Right. Okay. But so doesn't it seem like it's the same situation now but in reverse? Europe sees that demand is about to fall off a cliff globally because of the trade war. They are slashing rates and intimating that they'll keep going. We're going the other way. we're holding firm on rates, knowing that we're about to have a recession.

41:21But we don't know anything. That's the thing. No, no. Uh-uh. Nobody knows. I agree. President Trump could come out tomorrow and say, you know what? I've talked to a few more CEOs. I had a long talk with the treasury secretary and, you know, we're going to figure it out with China. So it's not too late. I think it's too late. I think it's too late to avoid a major growth slowdown. So what you're saying is if Trump were to do that, what, would then Powell hike and say, just kidding? Like, had he cut? If Powell had cut and then Trump pivots, would the Fed hike? I mean, look, the Fed is always going to be looking at data and it's going to be talking to companies.

42:00The Beige Book just came out and said things are slowing. The Fed's going to take that on board. So it's not waiting for three months of hard data. It's not that far behind the curve, but it does need to see the jobless rate increasing. Weekly jobless claims are not increasing yet. Well, the market is agreeing with you because they're saying, like the Fed CME watcher is saying that they're not going to cut in May. No, there's no reason. I know that, so we've been talking a lot about earnings calls and what companies are saying, and it doesn't matter what they report, right? Correct. It's a different world.

42:29Correct. But it does matter what they're saying. And they do have visibility into the first few weeks of April. And a company like Capital One, which is very much exposed to the consumer, that is not, that's not American Express. It's everybody. They even said the subprime unit was looking okay. So it's not to say that it can't change rapidly, but the economy is generally, pockets of weakness, like always, generally okay. Right. And again, that gets me back to my earlier point. We started this strong. That's our best hope, right? The fact that we had a strong labor market, strong household wealth.

42:59Not a ton of leverage. Not a lot of leverage. The Fed funds rate should be 4.5 % given what's going on. In other words, flat, like where we are. Yeah. Yeah. Yeah. Okay. Yeah. I don't think it should be cut. So you think Powell's doing the right thing? Yes, I do. And you like the hand that he has because he can do the right thing and he won't get blamed. Oh, he will get blamed. But you know that's taking the job. Yeah. Okay. But history, I mean, if this trade war lasts and we have a recession because we initiated a trade war, I don't think Powell's going to be blamed for that. I don't either. I think you're dead right on that.

43:31Let's, John, chart 18. So a shift lower in the expected Fed's funds rate. Not much. No. But basically, this is the implied Fed funds rate. What you can see here is that it looks like 4 % going to 3.7 % next year. Is that three cuts in total? Yeah, that's not a lot. That's where they were when the market peaked on February 19th. Right, right. And so now we're down 40 basis points lower for the end of next year. I mean, if we have a severe slowdown or a shallow recession, the Fed will cut. That's a given. And the question is timing. I think it's probably summer before we see it in the data because right now we're in this pause situation.

44:17No one knows what's happened. Companies aren't going to lay off prematurely and then have to hire back again, but they'll pause on hiring. They'll pause on CapEx. What's the stock market's reaction? The first cut, expected or not? Oh, it'll be expected. I bet the Fed will telegraph it. Okay. Stock market will rally when they start telegraphing it? I think so. I think so. But I think that's months and months and months away. But the two-year will telegraph it too. Yeah. Yeah. Agreed. All right. Here's what we want to ask you. And I think this is maybe the first time in my career that this has ever been like a primary concern.

44:56Right? It was always this idea of bond market vigilantes. There was always this like stand-up comics in their late-night routines would do this bit about how China owns us or whatever. So there's always this idea that like there's this threat hanging over us all in the form of foreigners own our treasury bonds. Of course, the truth is the opposite. That's our best export to the world is treasury bonds. We're really good at selling them all over. OK, fine. You've heard an earful about this during your week in Washington. So I want to play something for you. John, do we have that audio ready or am I playing it?

45:30You got it? OK. The American brand, right? The United States was more than just a nation. It's a brand. It's a universal brand, whether it's our culture, our financial strength, our military strength. America rose beyond just being a country. It was like an aspiration for most of the world. And we're eroding that brand right now. And if you think of your behavior as a consumer, how many times do you buy a product with a brand on it because you trust that brand? You know you could buy a similar dress with no name for less money, but you want the dress that you think is going to not fall apart in two weeks.

46:08You want the handbag that you think is well made. You want the television that you know that when you turn it on, it's going to work perfectly. You want the car that when you turn the engine on, it's going to run. And when it comes to money management, for example, there are many great American institutions whose the power of their brand, that they will deliver a fair service at a fair price, that they'll do well by their investors and put their investors' interests first, whether it's a BlackRock or Fidelity. These are global brands of immense power. But in the financial markets, no brand compared to the brand of the U.S.

46:42Treasuries. U.S. Treasury market, the strength of the U.S. dollar, and the creditworthiness of U.S. Treasuries. No brand came close. We put that brand at risk. Okay. And as you and I both know, it can take a very long time. Evacuation can. All right. So that's Ken Griffin of Citadel and somebody that I think when he speaks, everybody pays attention. You probably have some great Ken Griffin stories. I think that's a great analogy. I love that analogy. I wanted to play that. You know, the U.S. has been exceptional basically since 2008, 2009. We did more fiscal stimulus. We had a higher weight in our stock market of tech companies.

47:23and they were the leading tech companies in the world. So everyone wanted a piece of our growth because we were growing faster than everyone else. They wanted a piece of our companies. And so over this almost 20 years, we had a ton of foreign capital coming to the United States, which by the way, we benefit from. We benefit from it because it makes us richer too if we're in the market and it lowers our borrowing costs by pushing down bond yields. So it's not like these people were taking advantage of it, of us, we benefited from that. Okay, so fast forward to today, Foreign investors have about$22 trillion in U.S.

47:57assets, stocks and bonds. The brand has been tarnished. Investors globally, and I talked to people from probably a dozen different countries in the last four days, they are reviewing how much U.S. exposure they want. The most extreme example I heard was a very large pension fund from another country saying they're worried in an extreme example that the U.S. could weaponize capital markets and they won't be able to sell their U.S. private equity assets. They won't be able to get out. They can't get out anyway right now because there's no buyer. But capital controls, right? Or taxes on capital flows.

48:35So$22 trillion is in the U.S. So I'm a global pension fund. I'm like, well, the U.S. is still a great economy. This couldn't possibly last. I'm just going to trim my allocation. I'm going to take 2 % out of my stocks, 2 % out of my bonds and buy whatever, gold, other countries. 4 % allocation shift, which is tiny. It is not a crazy number. That would be$880 billion leaving US markets. Just that one example. That one example. That's incredible. Yes. That's so much money. That is a huge amount of money. And I think American investors were so focused on the day-to-day, what we're listening to on your podcast, what we're seeing on Bloomberg, what we're listening to on CNBC, that sometimes we forget that our markets are heavily influenced by foreign capital flows.

49:23And because our brand has gotten hurt, you know, we just, we just did a trade deal with Canada five years ago, USMCA. It's Trump's deal. Trump made the deal. He said it was a great deal. And now he's like, nevermind. I hate the deal. I want a new deal. The Canadians are saying, can we trust you? You know? So one of the points that you're making is that this is the kind of shift, allocation shift. When it starts, it goes on for longer than people think. And it's not a two-day phenomenon where we come out, the market's green, somebody goes on CNBC and wait, all right, the foreigners are done selling now.

50:02Once they commit that that's what they're doing, you've made the point that there were these really long drawn out investment committee processes and committees and meetings and discussions, this could be like months or years. This will be a flow behind the scenes that you'll see in your weekly EPFR data or the investment bank, the Bank of America data, whoever is releasing that data. You're going to be seeing drips and drabs of this, I think, for months and months and months. So the day-to-day will go up and down. We had an initial tremor. Right. We didn't have the earthquake yet. And there might not be an earthquake.

50:36There might just be a series of tremors or, I don't know, We need a better weather analogy. What's a long-lasting, a drought, a prolonged drought? Of the flows going the other way relative to the direction they have been going for 20 years. Correct. And that doesn't mean, like, stock markets can still go up. You know, if American investors say, oh, man, these bond yields, the Treasury 10-year yield, that looks like a great return. I'm in. It's possible Americans can step up. But can they step up if they're losing their jobs and they're losing their confidence? I don't think so. Let's do this chart, John.

51:10This is 19. This is the biggest foreign selling of U.S. corporate bonds since April of 2020. What's going on here? I mean, this looks like a lot of money coming out of, I guess, AAA corporates, probably. I don't know if foreigners are dipping much lower down in terms of quality. Probably buying like the greatest hits. Apple bonds. Yes. Yeah, gold. I mean, there's a reason gold is at record highs right now. Because if you don't trust the treasury market, which is the biggest single market in the world, it's about$30 trillion. If you can't trust that anymore, where do you go? I mean, Germany, German bonds, it's a relatively big market, but it's tiny compared to treasuries.

51:55But with the ECB— Japanese bond market is not yielding. And there's no liquidity really in that market because the Bank of Japan owns most of it. Right. So you don't have a lot of bond options. If you're China and you've got all these FX reserves from global trade. Oh, I'm glad you asked that. Okay. This is a big deal. Yeah. People are like, oh, the Chinese own all our bonds. They own us. We borrow money from the Chinese. It's like, no, dumbass. We trade with the Chinese. They get dollars. They need to put those dollars somewhere. They put them into US treasuries. It's a f***ing compliment. It's not a negative.

52:31Right. Right. Okay. So nobody understands that. But explain to our audience why that now comes into play. And it's a lot of money. Right. So foreign investors, both central banks and private investors, own about 30 percent of the U.S. treasury market. Huge. So about a third of our total market foreigners own. Because they buy so much, it pushes down yields, which means it's cheaper for us to get a mortgage. It's cheaper for us to buy a car. We benefit from foreign purchases. They help us. Like that's important to understand. This isn't evil. It's good. Now, they're not about to turn around and start selling bonds actively in the market because as soon as we got wind of that, there would be a crisis in the bond market.

53:12Everyone would be rushing to sell their bonds. Yields would spike. It would be— They'd ruin their own investments. Correct. They would do themselves more harm than good. It would be self-sabotage. But most central bank treasury holdings have very short maturities, five years or less. A lot of them are two years or less. So even if they don't actively sell bonds, because that would also antagonize the White House, they can just let them mature. And not buy them. Bingo. But what are they doing with the money? Buying gold, buying Australian bonds, Canadian bonds, German bonds. They have options. They have options.

53:45Okay. Land. So this is an example of where we may be overplaying our hand. For sure. Yeah. For sure. Okay. This is going to happen. It's not a crisis. It is a long-term capital drought. that is going to reduce the potential gains of the U.S. stock and bond market, which is going to reduce consumer wealth in America. So we are creating conditions to have slower growth for a prolonged period. I'm going to ask you about corporate earnings, but as a lead into that, by that same logic, does it depress the multiples that our businesses are worth on the stock market or in the private equity world? At the margin, sure.

54:23It has to, right? Of course, it has to. Because, I mean, think of the flywheel. if I have a job and I'm confident I spend, my spending is a company's revenue. They have more revenue. They can hire more and invest more. And you get this beautiful flywheel. The flywheel is now starting to go into reverse. I just want to ask you this idea. This question comes up a lot. Oh yeah? If tariffs are so bad, why do other countries tariff us? What do you, I'm sure you get that all the time. What do you say to that? I mean, in a perfect world, we'd have zero tariffs everywhere. And I was really excited when President Trump first said, let's get everybody to zero.

54:55And a few countries have gone to him and said, okay, cool. We'll do zero. It's like, oh, nevermind. Cause he needs revenue to pay for the budget. Vietnam said that. Yeah. Yeah. Yeah. I mean, that would be amazing. Yeah. I think a lot of countries enact tariffs when they're early in their economic development as a way to protect domestic industries, domestic companies that are still growing and trying to get their sea legs. They don't want to have overseas competition while they're just building their steel market for the first time, for example. So India has always had high tariffs because India's economy is in a very different place than America's in terms of its growth.

55:32If they have no tariffs, American and European companies will bulldoze their way in there and take over entire industries. Well, that's the fear, right? That is why they have the tariffs, to let them grow. And once they're big enough, in theory, they should be comfortable and the companies should be strong enough that they don't need the tariffs anymore. The problem is when they keep the tariffs, even though they don't need them anymore. And there are some instances of that. Like I know I'm coming across as really, really negative on President Trump's policies. I think there are instances where tariffs can make sense for certain countries at a certain point in their development cycle or in certain industries like, you know, semiconductors, that there is a strategic national security issue here.

56:10Howard Lutnick has argued, in addition to the tariffs that other countries have against us, they use regulatory bodies to torment some of our companies. They're doing it right now with Meta. They've done it with Google. They do it with Apple all the time. They kind of erect these barriers that make it so that we can't actually compete. We can't sell cars in some of these markets. That's not all fake. Even if you're not a fan of tariffs, that's not fake news. That is a thing. We probably do it back too. We do it back, but there is a kernel of truth here. You know, in Europe's case, Europe could, I sound like Demi Moore today.

56:50I'm getting over a cold. I think you sound great. In Europe's case, even though they've gone a long way to have a monetary union and an economic union, not everything is a union. You have to cross a lot of legal and regulatory hurdles when you go country to country within Europe in terms of banking and capital markets. And that's prevented them, all the regulations and all these national boundaries and different sets of rules have prevented them from growing, you know, the Amazons of the world, the Metas of the world. And so it's their own darn fault. If they could pass, they started working on capital markets union 12 years ago.

57:29Like they know they need to do it. They just can't get it over the finish line. And it really took President Trump to threaten to pull out of NATO to get Germany to say, oh, maybe I should spend a little more on defense. Yeah. So in a way, like good for Trump. He got I read recently that Canada tariff the provinces tariff each other. Like you try to seriously, I believe it. Yeah. If you it's if you have a homegrown product in what in one province, they want to bring it into another. There are cross border tariffs. Well, I haven't done enough homework on this to say something truly educated, but I would be pretty sure that the states in the United States have different regulatory and legal rules to make either I want to be a nurse in one state versus another and I need different requirements or I want to sell booze in one state or another.

58:17So we're not completely free of that here. Let's do gold. Okay. I'm going to read you a quote. You tell me who said this. What motivates most gold purchases is their belief that the ranks of the fearful will grow. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As bandwagon investors join any party, they create their own truth for a while. It's a nice quote. Did you say that? No. Who said it? Warren Buffett. Oh, there you go. Hey, I just gave you a nice compliment. Yeah, they asked him like, I think this was during the last gold bull market, which peaked in 2011.

59:05Not a coincidence. It peaked alongside the uncertainty of the European debt crisis, the debt ceiling debate here. That was like gold's last big moment. And now we're having another one. Yeah, we had a lot of fiscal stimulus in 09, 10. And there was a certain cohort of people who thought increase in money supply would also have gold going up. I ran the gold trading desk at J.P. Morgan's private bank during 08-09. So what do you know? So I learned a lot about gold. I also had a forecast gold for J.P. Morgan when I first started in the 90s. So I have had an education about gold. Here's what I'd say about gold.

59:41Gold tends to do best at tails. So either a crisis slash recession, and you have a safe haven flow, and yields are coming down. So gold has no yield, right? So when yields are coming down, your opportunity cost of owning gold goes down. That's one area where it almost always does well. The other area where it does well is when you have an overheating economy, not just rising inflation, but inflation rising faster than expected, so almost getting unanchored. We haven't seen that recently. In the middle, it doesn't mean gold can't do well, but then it becomes more about demand and supply, and demand is primarily jewelry from China and India.

1:00:19So then you look at those economies. Right now, we're in - This is not jewelry demand. No, no, no, no, no, no, no. Yeah, yeah. This is central bank reserve diversification, which has been going on for three years now. They have been buying major, major tonnage of gold. And the World Gold Council does a great job tracking this. So shout out to them. They have been buying gold for the last several years, especially China, but not only China. And then you have retail investors. I bought gold in January. I've been talking up gold for two years. And I finally said, what am I doing? I want to ask. I've been right.

1:00:52Why don't I own this? I want to ask you what you think. So way before this trade stuff, the trigger, if you just look at a price chart, what really seemed to get golden motion was when Putin invaded Ukraine. And the response, in addition to sending a ton of missiles over there, was to weaponize the US dollar and the SWIFT banking system. all of a sudden that sent a signal to other countries. All this money that we have is ones and zeros on computer screens. That's not money. Right. Money is gold and oil and physical things. Yes. And that coincides perfectly with the start of this gold rally. You agree with that?

1:01:35I totally agree with that. You saw Russia start to buy gold in 2014. It's been buying gold the whole way, but you're right. When 2022 happened and we froze Russian assets, it was a wake-up call for other central banks. Okay. Okay, so you think this rally takes us to 5 ,000 an ounce? Oh, yeah. I sort of do. I think it could, absolutely. At the beginning of the year, Tom Keene at Bloomberg said, do you think we hit 3 ,000 this year? I'm like, how about next week? We just ripped through 3 ,000 like it wasn't even there. No, we're going higher. Again, it takes me back to the foreign investor. If you have people selling America, they're selling bonds and stocks.

1:02:09And when they do that, they sell the dollar, right? Because if I'm a foreign investor, I have to buy dollars to buy the US assets. I'm reversing that trade. I'm selling my stocks and bonds, selling my dollar, going back into my euros or yen or whatever. So the dollar is weakening. So people are going to be worried about a dollar devaluation. And gold is another hedge against that. It could help Bitcoin too, but I think gold is a safer play. If this nonsense settles down and we get some more clarity and we get a rip in the dollar, what would that do to gold? If we had clarity, trade war ends tomorrow.

1:02:43Gold's going to fall hard. because the central bank reserve diversification won't go away. They're seeing, okay, we can't trust the US as a reliable partner. We're going to hedge. But the retail money that's gone into gold would pull back out. The fear premium will come out of it. And for all we know, that could be$500 an ounce. Yeah, easily. We don't know how big that fear premium is. You know what's funny about the gold rally? So you've been bullish for a couple of years. There was a story a year ago, maybe it's two years ago, about how Costco can't keep gold bars. Little baby bars. They're selling these tiny little like bars in the stores.

1:03:22And every time they get a shipment, it gets wiped out that day. The public's not so stupid, it turns out, sometimes. So note to self, the little bars are fun as a holiday gift or something. But honestly, a gold ETF like GLD, which is physically backed. So if something happens to the organization, you aren't a creditor. You actually get physical gold. You have a lot more liquidity and you don't pay a premium. If you actually want gold bars in your home because you think the world's going to end, you'd be better off buying land and a fuel jet and guns. Yeah. Yeah. So buying physical gold, you do that for peace of mind, but it is a suboptimal investment.

1:04:04Yeah. We don't have a gold sleeve in our portfolio. We don't talk people out of it if they want to own it. Yeah. We do have a gun sleeve. We tell people 2 % in bullets and guns for exactly that reason. I want to wrap up by doing some career stuff with you. This has been so much fun for us and we've learned. Have you learned a lot during this? I've learned everything, including what the World Bike does. So thank you. You're very welcome. Rebecca, your career is incredible. So I don't think a lot of people know this about you. So you are moved to Gainesville, Florida early in life. your dad gets a job at University of Florida.

1:04:43Yep. Okay. A lot of friends who have kids there right now. Go Gators. Go Gators. You're a very curious person and you become a journalist. Mm-hmm. And you get discovered while writing the FX column or the FX beat for the Wall Street Journal and you're in London. Wait, what were you doing writing about currency in college? No, no, no, no. This was after college. Okay, okay. No, I'm not that smart. I was having fun in Gainesville. I was not writing for the journal in Gainesville. Okay. No. All right. So you end up, though, you're covering the currency beat and people at JP Morgan are reading your stuff.

1:05:16What era is this? Is this 2000? This would have been. No, no, no. I'm old. This was going to be 95, 96. Okay. So you're making an impact with your columns and they recruit you. Tell us the story. I mean, I was writing about foreign exchange markets, which I love. I'm a currency nerd. Love currencies because they're the intersection of everything. And then when I got to London, I was also writing more policy stuff. So Tony Blair getting elected to be prime minister. The Bank of England became independent for the first time in 97, which is hard to believe. All the meetings in Brussels, trying to figure out what the single currency would look like.

1:05:54Oh, the birth of the euro. Yeah, super interesting. And JP Morgan called me and said, we read your stuff. You get it. You should be an analyst here at our investment bank. And I said, I don't know anything about banking. And I didn't, honestly, back then. They don't either. I think Jamie figured out a few things. Yeah. And I kind of thought about it. I said, well, why not? Right? Like, I'll try it. And if I don't like it, I can always go back to journalism. They're not kicking me out. So I joined. Oh, this is. Here you go. What was going on? I joined in September 1997. Oh, the currency crisis.

1:06:27Right on time. Can you imagine? You have plenty to talk about. My first week on the job. Unbelievable. The Korean won, the Indonesian rupiah, the Thai bot are all falling out of bed. And I have to, I'm like, can someone please show me how to do a regression? So, all right. So, so you spend time at JP Morgan. Yeah. 15 years. 15 years. And then you end up, uh, you end up at Bessemer. Yep. I have the timeline, right? So I was at JP Morgan. Very different firms. In London, Singapore, and New York, uh, investment bank, trading desk, uh, private bank, asset allocation and asset management. And I loved it.

1:07:02But when I was in asset management, I realized I missed running risk. I liked running risk. And Bessemer Trust reached out and said, we need a new CIO. Are you interested? I love JP Morgan. It's always going to have a place in my heart. But it was the opportunity I was dying to have. Like, I want to be the person whose head's on the block making the decision. And it was great. I was there for eight years. I had an amazing team, great clients. I learned a ton. Yeah. It was a really good experience. So how do you get the tap from Ray Dalio? Come join us at Bridgewater. We're doing something different.

1:07:35So I've done a lot of stuff behind the scenes for the Fed my whole career. I used to go back in the day to the New York Fed. They have a thing every year. They've had it for decades now where they train junior central bankers from around the world. And I would do the foreign exchange class for the baby central bankers. Oh, really? So I've done stuff for the Fed. So I was on this Fed Investor Advisory Committee where the head of the New York Fed, senior staff get together with a lot of buy side investors. So Jim Chanos, Bill Ackman, Ray Dalio, Paul Tudor Jones, like, you know, the guys and a few gals.

1:08:07I was one of the gals and Ray got to know me there. And, and, you know, I'm, I'm guessing, but I think he was impressed that I could hold my own, that I could talk about anything and everything. And I wasn't afraid to disagree if I disagreed. Yeah. And so he started saying, maybe you should think about coming over to Bridgewater. and I just thought, what an amazing opportunity to learn. You know, learn to be an algorithmic investor, learn how a hedge fund runs from inside the world's biggest one. And you step in two months before COVID. Yeah, that was fun. Yeah, I mean, the timing is remarkable.

1:08:41What an incredible career. Yeah. Isn't that amazing? It's been great. And I'm not done. I am not done by a long shot. No, we know, we know. But you're, so you're on all these councils and involved with all of these incredible things. Yeah. You're always meeting people at the upper echelons of business and policy. And I was asking you before, like, what's next? And you're not in a rush, but if the right thing comes along. But as we were talking, I was thinking like one thing that you haven't done officially is policy. Yeah. Would you want to step into a room and say, guys, you don't know anything?

1:09:14Here's how it works. Because it sounds like we need you. Well, if - Can I draft you? Look, if the right policy job came, I would do it in a heartbeat. I would love to serve the country. I really would. All right. Amazing. Before we get out of here. The campaign starts now. So before we get out of here. We need a new mayor of New York, right? Real quick. Google just reported, and Josh and I were, at least I was really curious to see, would search be impacted? Because we've been talking about the move away from Google and to the chat GBTs and the clouds of the world. So they just reported revenue increased 12 % to$90 billion.

1:09:49But more importantly, Google services revenues increased 10 % to$77 billion, reflecting strong performance across Google search and other Google subscriptions, platforms, and devices on YouTube ads. And the stock is 5 % after hours. Thank God. Yeah. Your retirement is safe for tonight, America. We'll be okay. Rebecca, did you have fun on the show today? This was so much fun. So much fun. And I'm glad you ended on Google and search because everyone listening to this and watching should be learning AI. Everyone should be spending time with Claude, with ChatGPT. Pick your poison, but get used to it.

1:10:26Start asking it to do stuff. I mean, Claude is my boyfriend now. Yeah. Why? So I'm a ChatGPT slash perplexity. Why Claude? I mean, I think it's just, it's gotten comfortable for me. I use it as a research assistant. If I'm trying to go back and say, when is the last time we had a sustained dollar sell-off with stocks and bonds? I can put in the prompt. I can ask for tables, correlations, analysis. And it just does a beautiful job. That's great to know. Because I use Michael for that. No, I use Claude. And he uses Claude. There you go. See, you're saving money. You're more efficient because of Claude.

1:11:00We have kids roughly the same age. You have two daughters. Yep. They're both in college. One is a junior in high school. Okay. And one is a sophomore in college and she is an AI policy person. Oh, is that right? Yeah. Did you steer her toward that? I did not. She just found it. She got an internship last summer at Department of Commerce doing AI policy and just fell in love with it. Something tells me we're going to need a lot of that. Yeah, I think she'll be good. I think she'll be good. So I have a freshman in college and a sophomore in high school. So we're - Oh yeah, we're in the same place.

1:11:32We're nearby. We always end the show asking people what they're most excited about. and you're excited to watch the two of them grow up and explore the world. Say more. Yeah. I love that idea. I mean, I think about myself when I was their age. I didn't know what I was going to do. I mean, I kind of thought when I was a sophomore in college that I'd be an aeronautical engineer and an astronaut. Banking was not on my bingo card. But Katy Perry took your slot. I know. I'm so mad. I thought I was going to be a professional pothead. There you go. A lot of people did. Yeah. We're all the same age. I just, I mean, I am so grateful for all the crazy experiences I've had.

1:12:09And I just look at them. I'm like, you've got so much in front of you. And they're very lucky that they're going to be able to have those things. That's awesome. On a very similar note, the thing I'm looking forward to is Detroit, Michigan. Per K? I'm going to go to a basketball game. I thought I was going to say something really cool, but yours was like so much more poetic than mine. I'm going to go see the Knicks game four this Sunday. a friend of mine is in Michigan. He's like, why don't you come? I thought about it. I said, I don't know. Why wouldn't I go? Yeah. So I'm going. You know what?

1:12:39It's two hours late. Life is short. I agree. And, you know, being in the markets every day is intense. It's a huge responsibility. And you need to have time to just take a deep breath and have fun. And basketball's awesome. I'm taking the number one Knicks fan in the world, my son, the Nugget. He's like, this is like his favorite thing on earth. That's awesome. Yeah. I'm super excited to do it. The flights were easy. Whatever. I'm going both ways in one day, which is not a thing that I normally do. So, Michael, what are you looking forward to? More original movies. Did you see Sinners yet? No.

1:13:15No, is it good? The Ryan Coogler sensation. It was not 98 % Rotten Tomatoes good, but it was excellent. I don't want to pick nits. It was an excellent movie. Did you go to a theater? I did. I saw it in IMAX. You're supposed to see that kind of movie in a theater. So, it is such a sensation. and hopefully the studios wake up. We don't need to see Rocky 19 or Creed 74. More original movies. So I'm looking forward to that. Led Zeppelin documentary on IMAX. Also on IMAX. We didn't get to it. I wanted to. It was so badly. It made me so happy. Did you see it on like the big IMAX? In, what is it called?

1:13:47Lincoln Square? Yes, yes. Oh man, I would have done that. Yeah, and the people in the crowd were there to party. Oh yeah, I bet. It was, everybody was singing. It was a good time. Oh, very cool. Yeah, original movies. I'm with you. I'm with you. All right, Rebecca, this has been amazing. And we know you are toughing through a little bit of a cough. I feel better. Thank you. You're a warrior. So thank you so much for being here. I want to let people know how they should follow along with your insights and some of the places that you contribute content. Council on Foreign Relations. You're writing there?

1:14:21I write for them. I write for the New York Times. I write for the Financial Times. Okay. Yeah, and LinkedIn. whenever I see news in the morning that I think this is important, this is not noise. I'll post on LinkedIn probably five or six times a week. I follow you on LinkedIn and I think you're always putting interesting stuff up. And maybe that's a good like home base for people who want to follow along what you think. All right. So everyone follow Rebecca Patterson on LinkedIn. Rebecca, you've been an incredible guest. We'd love to have you back sometime. Thank you so much for spending this time with us.

1:14:52This has been so fun. Helping us understand these things. We appreciate it. Thanks. All right. Great job this week. Duncan, John, Nicole, the whole team. We appreciate you. Guys, thanks for listening. Please make sure to leave ratings, reviews. They go a long way. We love it. Thank you so much. Have a great weekend.