The Compound and Friends - The Worst Is Still to Come

Episode Date: April 25, 2025

On episode 189 of The Compound and Friends, Michael Batnick and Downtown Josh Brown are joined by Rebecca Patterson, Senior Fellow at the Council on Foreign Relations and former Chief Investment Strategist at Bridgewater Associates, to discuss: what's next for the stock market, what the trade war means for small businesses, the Fed's dilemma, foreign capital flows, the rally in gold, and much more! This episode is sponsored by Public. Fund your account in five minutes or less at https://public.com/compound and get up to $10,000 when you transfer your old portfolio. Sign up for The Compound Newsletter and never miss out: thecompoundnews.com/subscribe Instagram: instagram.com/thecompoundnews Twitter: twitter.com/thecompoundnews LinkedIn: linkedin.com/company/the-compound-media/ TikTok: tiktok.com/@thecompoundnews Public Disclosure: All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank. Cryptocurrency trading services are offered by Bakkt Crypto Solutions, LLC (NMLS ID 1890144), which is licensed to engage in virtual currency business activity by the NYSDFS. Cryptocurrency is highly speculative, involves a high degree of risk, and has the potential for loss of the entire amount of an investment. Cryptocurrency holdings are not protected by the FDIC or SIPC. *Rate as of 3/5/25. APY is variable and subject to change. **Terms and Conditions apply. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Rebecca, can I confess something? I don't know the difference between the World Bank and the IMF. So the World—that's okay. The World Bank— Stop it, dude. That's not the professional talk. The panda has the logo. Right? I have no idea. Oh, okay. Maybe. No, that's the World—

That's the World Wide Panda. That's the World Wildlife Fund. The World Wide Panda. So the World Bank focuses on the poorest countries in the world. Rebecca's like, what am I doing here? I'm sorry, Rebecca. No, no, no, this is why I'm here, right?

I want to educate people. That's like, I'm not judging. I didn't know any of this for the longest time. Why would you? Why would you need to? The World Bank's like a relief organization. The World Bank tries to alleviate poverty. So right now, one of their big

goals is getting electricity to 300 million Africans by 2030. That's what they do. So they're working with local governments, fighting corruption, trying to do that. They're using AI now and putting little teeny chips in basically dry, burnt out farmland. And they're able to track when people should water or not. These people don't have computers, they don't have anything, so they actually create these little gadgets and it just lights up green. They can't even read, but it lights up green when they need to water. And just from doing stuff like that, there's food and people are starving less. That's like a, that's a pretty worthy mission. Yeah. The IMF is more about giving headlines to Reuters.

The IMF is giving advice to economies advanced and emerging on how to have better policies to be financially stable, economically stable. Are they a lender of last resort to sovereigns? Is that a way to think about it? In a way, in a way. What's interesting about these things. So the IMF World Bank have meetings twice a year, every April, every October,

and basically central bankers, finance ministers, policymakers from literally all around the world come to DC for a week, twice a year. So it's like speed dating for macro nerds. You can see everybody. And you catch up on everybody's take on everything. Exactly. So it's an incredibly efficient way

to just get a deep dive on where the world is. And that's why I go and I've been going, I don't know, 20 years. Okay, so the one you just coming back from DC was, which specific event was it? Well, it's all of it. All of it? Oh, it's all going on at once? Yeah, yeah, yeah. Yeah, you're running around to meetings, running around to conferences.

Okay. You know, I'm with... DC is nice this time of year. Well, so is here. Yeah, well, that's true. Yeah, it's gorgeous. That's true for sure. Okay.

That's why I wore pink. Like driving from Penn Station, I'm like, oh my god, it's so beautiful outside. I was going to say, you're giving spring. I felt a spring vibe. OK, we like it. All right, how are we doing, guys? Josh, it is the Confound of the Quakes. That's it, guys.

That's it. Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is sponsored by Public. Invest in almost everything, Josh. I'm talking stocks, bonds, options, crypto, and more. Put your cash to work with Public's high-yield cash account. Now at a 4.1% APY.

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A 1% match when you open a new IRA on public. Pretty cool. Find out more at public.com slash compound, paid for by Public Investing. Full disclosures in podcast description. Welcome to The Compound and Friends. All opinions expressed by Josh Brown, Michael Batnick, and their castmates are solely their own opinions and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any

investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to an all new edition of the Compound and Friends, America's favorite investing podcast. Literally, this goes out worldwide, Rebecca. You will be heard in many countries, many regions, and your words carry weight, um, given your standing in the international economic community. Rebecca is currently a senior fellow at the Council on Foreign Relations.

She is also an independent director at Vanguard and on the Executive Committee of the Bretton Woods... Wait, Executive Committees of the Bretton Woods Committee and the Trilateral Commission. She has served on the New York Federal Reserve's investor advisory and foreign exchange committees. She currently chairs the council for economic education. Most recently, Rebecca was chief investment strategist for Bridgewater associates. Some called you baby Ray. Our resumes are very similar. Yeah. Previously was chief investment officer of Bessemer Trust on multifamily office overseeing 85 billion

in client assets. Rebecca also spent 15 years at JP Morgan in research, trading, and portfolio strategy roles in the US, Europe, and Asia. I did a chat GPT, like give me 10 highlights from Rebecca's career, it's 42 pages. It's so much. So we'll take, we'll just, everyone can take my word for it. Rebecca is a supremely accomplished, widely respected, incredible speaker on some of the most important things happening in

the world right now. We are so lucky to have you here. Thank you, Rebecca Patterson for joining us at The Compound of Friends. I am very excited to be here. Awesome. All right, so let's start with this. Obviously we're in a market situation now where we're hanging on every word from politicians. It's not always like this, but there are these bouts

and sometimes it goes on for a year, sometimes goes on for a week. This one is, I don't know, six to eight weeks now, would you say? I think we're on 93 days. Okay. Yeah. All right. And it's going to continue because it's 90 days from April 2nd takes us to July 4th,

not coincidentally. That's like when the rubber really meets the road. But it's almost a market where, wait, what did Scott Besson say? Why is the NASDAQ up 4%? Oh no, wait, they let Navarro in front of the TV camera. Now the S&P is down 2%. That's what we're doing right now. I think this week, one of the things that's happened

is that the Besson wing within the administration seems to have gotten the upper hand. They're in the media more. The Lutnik, Navarro, China Hawk wings seems to like have been told back down. And I don't know if that reverses in a week. I don't even know if it matters. But I just wanted to get your take on, do you agree that that's kind of the backdrop for this three day rally

we're experiencing in the US stock market? Yeah. So I was in DC for the last few days, so I was able to hear the Treasury Secretary a couple of times live, and he's definitely trying to communicate with the investment community that there's a plan, it's all going to be okay, we're on it, it's sequencing, we'll get through this hard part and then we'll have some great tax cuts and deregulation. It's all going to be fine. So, yes, he is leading the charge on the communication.

But as you said, the question is until what? President Trump could say something in the next five minutes. Navarro could come out and say something. Stephen Myron could come out and say something. Stephen Moore could... So, you can't count on it lasting. That's the hard part. Does a rallying stock market work against the interests of stock market

investors because it could be perceived in the white house that, okay, everybody's used to this now we can drop another shoe. Like, like does it, does it give Trump the impression that the trade war is going well when he sees the Dow retake 40,000? You know he's watching the Dow. I'm sure he's watching the stock market, the bond market now increasingly as well. I'm not sure that there's that much strategy going into, okay, the stock market's been up for three days. Now it's time to say X.

I don't think there's that much going on on that front. Not to say he's not thinking a lot about policy, but I don't think he's connecting the two quite like that. So we are recording on Thursday, and it has been a dizzying week of headlines. I want to run through four quickly and then get your take. This was just yesterday. So on the front page of the Wall Street Journal, it said the White House considers slashing

its steep tafts on China, and there's all sorts of other articles. Levees could be cut by more than half in some cases. Markets extend rally. The markets were big on the day. And then midday, Wiesenthal tweeted, OK, so we're back to this. Besant, no unilateral offer from Trump to cut China tariffs. Besant asked on Trump power firing, says, I'm not a lawyer.

Market sold off. Then later in the afternoon, the FT says Trump is going to exempt carmakers from some tariffs on auto parts from China. And then later into the close, all within a day's work. President Trump says he is not considering changes to automobile auto parts tariffs. How are investors... Wait, can I extend this? Just today. Same thing. We're in talks with China.

China comes out and says, who are you talking to? You're not talking to us when there are no talks. So to extend what Michael's saying, what do you do? I mean, it depends what kind of investor you are. If you're a day trader right now, you're just thanking God for zero day options, I think. You know, because you're just losing your premium, if it goes your way, you're golden, if not, you know what you're losing. But for anyone who has a slightly longer timeframe, or, or, you know, I feel for you for long term investors, you almost just don't want to be looking at that,

because it's noise, you can't count on any trend lasting to your point more than an hour. So I think you have to take a step back and say, OK, what is the underlying economy doing and what is it going to be doing? And that's really tricky too, because right now, the job market's solid. People have incomes.

They can keep spending. Household net worth was at an all time high at the end of last year. It's down some, but it's still good. So the consumer's in good shape, not a lot of leverage. Companies don't have a lot of leverage. That part of the economy is, at least we're going into this in a strong place, AI capex continuing nicely, even with uncertainty. That's a big support for the economy, but that's where we've been. When we have this kind of uncertainty,

and I know people say it's political, University of Michigan, it's all swayed by the Democrats being pessimistic. No, I don't buy that. There is so much uncertainty in every survey you see, including the Federal Reserve's beige book yesterday, and we are seeing it in earnings guidance. It's coming. The question is when. Because if people are front-loading purchases because of tariffs, the high spending might

look like it's lasting another month or two and give us this false sense of everything's going to be fine. It's pulled forward. And then we're going to have a Wiley Coyote moment and we're just going to go off the cliff. I'm not sure that'll happen, but I think there's a decent chance that'll happen to that happening. That happened in the Y2K episode. We had like a two years worth of tech spending pulled forward into

the last six months of 1999. And people thought it's like this new paradigm. You get into March of 2000 and companies start giving their guidance for the next quarter. Where did all the orders go? Well everybody upgraded their computers because we thought if they didn't, the planes would fall out of the sky. Right. So if everyone is front loading purchases, which I don't know if we have definitive data.

That's not true. That they're doing that yet. But I could see that screwing with the headline numbers. I think we're just going to have messy data. Messy data. Is the point. So in 2022, Kyla Scanlon famously coined the term the vibe session,

where there was this gigantic never before seen disconnect between the soft data, how people felt, at least how they were answering surveys about how they felt, fell off a cliff. And you never saw the hard data catch down to that. You're seeing that again, this time around, except almost assuredly, you are going to see the hard data catch down.

The question is, to what extent, like how much is it gonna catch down and when? Because it is coming. Yeah, yeah. So that's, I mean, again, because we're starting to what extent, like how much is going to catch down and when? Because it is coming. Yeah. Yeah, so that's, I mean, again, because we're starting in such a strong place for the US economy, it's a question if we have a recession or not. My base case is a recession, mainly because I think the tariffs, even if we pull back from some of the crazy Liberation Day numbers,

it's still a material, material increase from where we were at the beginning of this year. It is a material tax on the consumer. It is going to affect purchasing power. What does base case mean to you? You're 60% confident or 80, 90? How certain would you say base case means? Again, it depends how long I think,

especially tariffs on China. That's the big one. And I don't have a sense that we're gonna reach a deal tomorrow. So if we have relatively high tariffs on China for a couple of months, which I think is very, very possible, and we have this 10% universal tariff on everything,

that alone would make me think 75% chance at least a shallow recession later this year. Can we put this graphic up from Sherwood personnel as policy and performance? Yeah, I've seen this. So, this is the S&P 500's daily return, depending on which Trump official is mentioned more in news articles. So, when it's a besant day, which today is a besant day, yesterday was too, have a besant day, almost sounds like a catch on, we're up, and if it's a Lutnik or a Navarro Day,

like if they're hogging the spotlight, we're going down and it's purely because of the things they're saying, the rhetoric. I want to show you one more version of that. This is from Neil Dutta. Yeah, I saw this one too. So this one's great. We love Neil.

Neil will be on the show soon. Same concept though, like the Varo-Latnik days are not good days to be long. The Besant days give you a chance to catch your breath. Okay, are we taking it too far? Is it rational? I mean, I'm not even sure how you, if you can see their schedules in advance

and you know where Besant's gonna be appearing, maybe you could come up with some algorithmic trading strategy for that. I think that's pretty cute. I'm not sure I would invest that way. I guess what I'm asking is, is the sentiment swinging too much? We have factions. Right now there are factions in the White House. There are the isolationists, there are the more international market friendly people,

there's the full on MAGA crowd, and then there's the technocrats. Or I shouldn't say technocrats, technobros. They're like the industrialists, kind of. Like you would have called them in a prior presidential era. Like the Elon? Yeah, yeah, yeah. That grew. And they don't agree on all this stuff.

And whoever can get the president's attention that day, that's going to be where they run. Here's something funny. So what's erupted in the last 48 hours is this, I mean, in plain sight, you probably know. But for most people, they were like, wait, what's going on? There's this massive battle between the Elon faction and the Scott Besson faction. Apparently Besson doesn't like that Elon had Howard Lutnick install that commerce and picked his own IRS commissioner.

Right. And that got reversed. Right. I would have thought that those two would find common cause because I doubt either of them wants the trade war to be exacerbated. But like to your point, this is not one side versus the other. This is so many different voices There are four or five factions within the White House. They don't agree

They're all trying to get their vision for America through and so as long as we have those different voices that are conflicting Hitting the airwaves moving the markets. We're gonna continue to have this kind of volatility. So I don't I think this is a feature It's not a bug. Here's the big Wall Street Journal story today. The only opponent that can make the president back down is the stock market. So I'll just I'll quote this quickly. They spelled bond wrong. Did they really? No, I'm kidding.

It should be the bond market. Oh, sorry, slow. I had a blonde moment. The president is also hearing regularly from executives concerned about how his trade policies are affecting their bottom lines. On Monday, Trump met with top execs from the country's big retailers. Target, Walmart, and Home Depot. I think they scared the shit out of him.

The journal didn't say that. I said that. They delivered a stark warning to the president that tariffs could scramble supply chains and raise prices. They were telling the president to expect empty shelves this summer. Is that bad? So I think he walks out of a meeting like that and says, put Scott on CNBC. That's what I think is happening. Yes. Yeah.

I mean, COVID was not that long ago. We all still remember trying to find toilet paper in 2020. And so can you imagine if a few months into President Trump's term, there was a toilet paper hoarding again? I'm not suggesting that will happen, but just the idea of that could cause the U.S. consumer to completely lose their mind. And then we would have a Wile E. Coyote moment. I think he knows he'll own that too.

I mean, he's trying to make this a power thing, but 100% not going to work. We have an index for corporate America. It's called the S&P 500. It fell 19%, it's since rally, it's down, it's in a 10% drawdown from all time highs. If there was an index for Main Street America, for the small business owner, I think it would be down 35, 40% with no bounce.

Yes. Isn't that the Russell 2000? Well, and that's part of the tariff thing, right? So with the exemptions, the whole trade war becomes a piece of Swiss cheese. You've got a hole for Apple. You're going to maybe get a hole for car makers. But the people who are getting the carve outs, the holes,

are huge companies with armies of lobbyists in DC. The little guys, to your point, the small businesses around the country, which is 85% of the businesses in the country, if not higher, they don't have someone to go talk to the president and say, hey, I need a carve out. And imagine them calculating what the effective tariff rate is going to be on their goods. How would they do that? And even how to pay it, right?

They haven't had a deal with this before. What they do have though is town halls. Yes. And they are making themselves heard to both Democrat and Republican congressional people and they're getting loud. And I saw there's a group of farmers in Montana that are suing the president, uh, effectively saying the uncertainty is like costing them their entire livelihood. A lot of these great plain states have to support themselves by selling

agriculture around the world. Well, China buys soybeans. The soybeans, they buy, is it 60%? Is it crazy enough? $12 billion worth a year. Yeah, so I wrote about this in October and the New York Times put a headline on it, your guacamole is about to become a luxury good. And my main point was to talk about the stress on the U.S. farming industry because they were

already stressed before the election came. But I was looking at Trump's campaign pledges and saying, okay, if we have a trade war, retaliatory tariffs immediately going on farmers. If we're deporting immigrants, they rely on immigrants for those farms. So they're stuck. They're losing twice. So during Trump's first term, America lost market share in soy and some other agricultural products to Brazil.

After Trump left, trade war basically stopped, paused. It didn't come back. Brazil is now by far the biggest exporter of soy to China. US used to be. We're not anymore. We're tiny. Oh, we've lost that permanently. We lost it permanently.

Okay. And now we're lost that permanently. We lost it permanently. Okay. And now we're going to do it again. And last time, the US government bailed out the farmers tens of billions of dollars in grants and loans, mainly grants. We don't have as much fiscal space this time. We can't afford to write the same size check this time. So we're doing, we don't have the fiscal room to help them and we're doing structural damage to the industry. His polls are the lowest they've ever been on his handling of the economy.

And that includes COVID. That includes, so that includes the first trade war, 2018, while he was doing all those bailouts. So he's at 38% favorability across the board on his handling of the economy. This, along with immigration, were the reason he got elected. All right, so Rebecca, this was the actual statement about China. Quote, at present, there are absolutely no negotiations

on the economy and trade between China and the US, according to the Ministry of Commerce spokesperson. And he also added, all sayings regarding progress on bilateral talks should be dismissed. Quote, if the US really wants to resolve the problem, it should cancel all the unilateral measures on China. So then Trump was given a chance to rebut that. He's like, no, we spoke to them this morning. It's cool. Anyway, let me show you a couple of that. He's like, no, we spoke to them this morning. It's cool.

Anyway, let me show you a couple of charts. Let's put this first one up. This is the S&P 500's exposure. The names that are most exposed to China, I'm sure you could blindfold yourself and pick them out. But for the people listening, not watching, it looks like the average of these most heavily exposed names to China are in a 33% drawdown.

It's Broadcom, it's Corning, it's Agilent Tech, MGM Resorts, Applied Materials, Las Vegas Sands. There are some names in here that you wouldn't necessarily guess like A.O. Smith, which makes water boilers. But it's still a big drawdown for these China names. So let's do one more. This is deciles of S&P 500 percentage daily advances and subsequent 12 month forward returns.

All right, so here's what we're looking at. Tell us the conclusion. On Tuesday, I think there were three stocks that were down in the S&P 500. It was like a really unusual amount of green on the screen. So for the first 10 deciles, in terms of where you are, it doesn't really matter. It has no bearing on full returns.

But when you isolate it, and now listen, in fairness, N equals 20, but they all happened at market bottoms. We had this on the bottom in 2009. You had this in 2010 a few times, in 2011, in 15, 16, 18, 20, and 22, and now today. And historically, on a go-forward basis, the SNP is up 22% 12 months later. Now, the difference between this and all of the other events is that we haven't even begun to feel the effects of a recession. Right. So I'm glad you shared this chart because charts like this make me slightly insane.

I appreciate that you mentioned N equals 20. Yes. If I have a sample set of 20, I don't really care about it. It's not going to help me make a good investment. So what I would want to do is look at each of those 20 instances and say, what was going on? Is there a reason that we got this outcome? Is today similar to those or different? It's possible that in those 20 instances, the reason you got a signal at the end is because you had a major policy response, central bank cut rates or something. So without knowing more about this chart, I think it's interesting, but I would say

you need to do, and I'm not saying you, your audience would want to do more homework. Totally. So we're always of the opinion that like all this has to be taken with a grain of salt because nobody can see the future. It's a good average, but I guess the point that I just made to counter the point that I just made is we haven't even begun to see the recession yet. Right. Well stocks don't wait for earnings to bottom. John, next chart please. So here's what we have. We have a chart of the trailing 12 months earnings for the S&P 500 and

then we have where the stock market bottomed and where earnings bottomed and conclusively what you see over and over again, and this is a permanent feature of the market, is that stocks do bottom before earnings do. The question this time is when does earnings bottom and from what level and how bad does it ultimately get? Right, and I would say the answer to that depends a lot on how long the tariffs last, how big the tariffs are. Does the Fed stay independent?

Does the Supreme Court give President Trump the ability to get rid of the heads of agencies? And does that include the Federal Reserve? I mean, I can tell you the answer to your question once I know the answer to my questions. Without that, I don't know. Some of your questions are about to be tested. Everything he's done up until now has been an executive order. It's a blitz of executive orders. Congress doesn't even need to be consulted. In a lot of cases, they seem relieved. They don't want to weigh in on

this stuff. Like, they know it's really popular with the base on the right. They don't want to be the ones that try to stop it. And so they're almost like, relieved, thank God, let him do another executive order. We don't have to debate this. We don't have to go on record. Until their voters get unhappy. That sounds unsustainable. Yeah. If the economy softens, if people start losing their jobs, if inflation ticks higher because of the tariffs, which will take months to feed through. But 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. And foot traffic is slowing. Same store sells for the first time in a long time. Right. Purchases are coming down. That's Chipotle. 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. Yeah, okay.

Michael, it's right next door by the way. But so that's why this is so difficult, I think. Because companies do have a lot of leavers and they can pull them and squeak out a one penny beat. I 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 how it works. But you don't think we've gotten the full... Not at all.

The full what? The full market sell-off related to the potential for how bad this gets. We haven't even seen it. We were down 19%, I don't think it's done. We haven't even seen it. Right. We're 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, 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 overallocated to stocks in the last couple of years, this is a wonderful opportunity to take some money

off the table. And 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 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. As 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 burn will not burn them as badly if they go wrong. What do you think about that? As somebody that has lived in that world? Yeah, I mean, I that makes sense to me if If you had been heavy on the Magnificent 7 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? Like historic tops for different stock markets, the NASDAQ concluded, 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. 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 then Nasdaq getting back towards its all-time highs unless this tariff stuff is just completely folded. See, I agree with you, first of all.

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 US equity by four or five percentage points, or I'm going to switch out of US 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, because 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. A pension fund, not so much. Not so much. Well, here's what else can't met lightning quick decisions. Contain pension fund not so much. Not so much. Well here's what else can't met like 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 a hundred twenty thousand five hundred eighty nine for the week of April 20 to April 26. And then it's projected to go down to eighty six thousand and then down to seventy two thousand. You see trucking volume. Next chart please, John.

That's a lot of treadmills Look at this so any deliver 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 added 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%%. 60% industry wide. He says the US 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, but if they do, just for argument's sake, we will see a $2 dollar 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 the doomsday scenario right that let's just say that the worst the worst won't come to pass Hopefully, but there will be damage. Yeah. Well, even if I mean we're at 145 percent 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. And 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 60 do they go to 60 that's a good question they want us to move first because we started it they're not gonna do anything until we go and I don't know how that's gonna work with various personalities involved I'll give you I'll give you one little anecdote since you talked about ships I was trying to think about relative winners and losers and 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. We 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 or? Vietnam is tiny compared to China. Vietnam is Nike. But they're big globally, but they're 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, watch. 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 is only 10%. And they already are a big shoe producer. They have the infrastructure. They have very low wages. So Brazil is 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. So 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 US workers that want to make shoes? Have you met any? Wasn't that the stated intention? No, dude, it's the 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 US has 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. How about this? So we're starting to see

tariffs ahead us. This chart comes from Ernie Tedeschi. He's looking at the cumulative year-to-day custom duties in 25 compared with 24. We're taking a significant higher as they start to hit us. Does this mean tax cuts? Is it enough? So here's a good one for you. Alright, Congress is going to do its reconciliation package. That's its fast track to get the budget passed later this year.

Trump would like to get it done by July 4. 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. So they have 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 your 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 gonna pay them Like it's it seems like they're not obviously let's just be clear We're paying them because we're gonna pay more for our new Brazilian shoes. All right, if you are Whose shoes would you rather be in right now? Scott Besson's 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. Like it seems like you'd much rather be in at Treasury than at Fed right now. I mean I think that they're both in very difficult jobs. Scott Besant 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? No, you can't cut.

Why not? You can't cut. Because inflation is way above target and the unemployment rate is low. Why do we think cuts lead to inflation when they haven't for 15 years? We were in a deflationary environment for 15 years. Well, soon to return.

That was created globally. Yeah. 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. 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 2008. And then we had the European crisis in 11 and 12, and then we had a China crisis in 15. So 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 and Vasia 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. 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 ten-year yield is going gonna be at 5% in a week's days. You're probably right, and I'm probably wrong, but I still wanna 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, so- They have zero growth. Time out. So they screwed up last time and we got it right. Like the financial crisis. They were hiking rates into the crisis 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 rear view mirror

at this emerging markets boom and they concluded the right move is to raise interest. Boy, was that wrong. 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 strait jacket 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 But we don't know anything. Well, 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 gonna 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. The 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 Right. Well the market the market is agreeing with you because they're saying like the feds see me Watcher is saying that they're not gonna they're not gonna 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? That's it's a different world correct But it does matter what they're saying and they do have visibility into the first few weeks of April in 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.

Not a ton of leverage. Not a lot of leverage. You think the funds should be four and a half percent, given what's going on? In other words, flat, like where we are? Yeah. Yeah. 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. He will get blamed, but you know that taking the job. 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. Let's, John, chart 18. So a shift lower in the expected Fed

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, it'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. No 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. They'll telegraph it. Yeah.

How did stock market will rally when they start telegraphing it? I think so. I think so too. But I think that's months and months and months away. Okay. 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, 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. Right?

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 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. There's treasury bonds. We're really good at selling them all over the... Okay, fine.

You've heard an earful about this during your week in Washington. So I want to play something for you, John. We have that audio ready or am I playing it? You got it? Okay. 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 gonna not fall apart in two weeks. You want the hand big that you think is well made. You want the television that you know that when you turn it on it's gonna work perfectly. You want the car that when you turn the engine on, it's gonna 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' interest 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 US Treasuries. US Treasury market, the strength of the US dollar and the the strength the credit worthiness of US 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 come 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. The US has been exceptional basically since 2008-2009. We did more fiscal stimulus. We had a higher weight in our stock market of tech companies and 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 US assets, 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're reviewing how much US 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 US could weaponize capital markets and they won't be able to sell their US private equity assets. They won't be able to get out. They'll be a capital control. They can't get out anyway right now because there's no buyer. But capital controls, right? Or taxes on capital flows. So 22 trillion is in the US. So I'm a global pension fund. I'm like, well, the US is still a great economy. This possibly 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. So much money. 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. And because our brand has gotten hurt.

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, never mind. I hate the deal. I want a new deal.

The Canadians are saying, can we trust you? 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 we, all right, the foreigners are done selling now. Once 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 of- 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. There might just be a series of tremors or make, 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. This is 19. This is the biggest foreign selling of US corporate bonds since April of 2020. What's going on here?

This is, 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. But 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. 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. 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**king compliment. It's not a negative. 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% of the US 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, everyone would be rushing to sell their bonds, yields would spike. It would be a big ruin their own investments. Correct. They would do themselves more harm than good. 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 we 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. They have options. Okay. Land. So this is an example of where we may be overplaying

our hand. For sure. Yeah. For sure. Okay. This is gonna 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 gonna 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. It 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? 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. And 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. 12th. Yeah, I mean, that would be amazing. 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. If 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, 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. Howard Lotnick 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 Metta.

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 fit. 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.

In Europe's case, Europe could, I sound like Demi Moore today. I'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 worlds, the metas of the worlds. And so it's their own darn fault. If they could pass, they started working on capital markets union 12 years ago. Like 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.

So in a way, like good for Trump, he got Germany to do something. I read recently that Canada, the provinces tariff each other. Like you try to seriously. I believe it. Yeah, like if you have a homegrown product 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. So 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 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. I just gave you a nice compliment. Yeah, they asked him like, why? I think this was during the last Gold Bull Market, which peaked in 2011. Not 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 2009-10 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 JP 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 JP Morgan when I first started in the 90s. So I have had an education about gold. Here's what I'd say about gold. Gold 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. So then you look at those economies.

Right now we're in- This is not jewelry demand. No, no, no, no, no, no, no. 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've been right. Why I don't own this? I bought it. I want to ask you what you think the, so way before this trade stuff, the trigger, if you just look at a price chart, what really seemed to get gold in 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? I 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. Yes. Okay. So you think this rally takes us to 5,000 an ounce? Oh, yeah, I think I sort of do. I think it could. Absolutely. At the beginning of the year, Tom Keen 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, and 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, gold'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 Fiat premium is. You know what's funny about the gold rally?

So you've been bullish for a couple years. There was a story a year ago, maybe it's two years ago, about how Costco can't keep gold bars. They're selling these tiny little bars in the stores. And every time they get a shipment 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. So buying physical gold, you do that for peace of mind, but it is a suboptimal investment. Yeah. We don't have a gold sleeve in our portfolio. We don't talk people, but it is a suboptimal investment. We don't have a gold sleeve in our portfolio. We don't talk people out of it if they want to own it.

We do have a gun sleeve. We tell people 2% in bullets and guns for that, 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 WorldBite does. So thank you. You're very welcome.

Rebecca, you are, 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. 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 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. After school. After college. No, I'm not that smart. I was having fun in Gainesville. I was not writing for the journal in Gainesville. All right. So you end up though, you're covering the currency beat and people at JP Morgan are reading your stuff. What 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.

Oh, 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.

It's fine. I think Jamie figured out a few things. Yeah, 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. you go. What was going on? I joined in September 1997. Oh, the currency crisis. Right on time. Can you imagine? You have plenty to talk about. My first week on the job, the Korean won,

the Indonesian Rupiah, the Thai Baht 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 you spend time at JP Morgan. Yeah, 15 years. 15 years. And then you end up, you spend time at JP Morgan. Yeah, 15 years. 15 years. And then you end up, you end up at Bessemer?

Yep. At the Timeline, right? Yep, so I was at JP Morgan. Very different firms. In London, Singapore, and New York, investment bank, trading desk, private bank, asset allocation, and asset management. And I loved it, but when I was in asset management,

I realized I missed running risk. I liked running risk and Bessemer Trust reach 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 heads 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. So 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. So 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.

I was one of the gals and Ray got to know me there. And, you know, 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. And so he started saying, maybe you should think about coming over to Bridgewater. And I just thought, what an amazing opportunity to learn.

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. I mean, the timing is remarkable. What an incredible career. Yeah.

It was amazing. It's been great. And I'm not done. I'm 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 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. Would you want to step into a room and say, guys, you don't know anything, here'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 clods of the world. So, they just reported revenue increased 12% to 90 billion dollars, but more importantly, Google services revenues increased 10% to 77 billion dollars, 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 5% after hours. Thank God. Yeah.

Your retirement is safe for tonight America. You'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. Start 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. It gives me sources. 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. We have kids roughly the same age. You have two daughters. Yep. They're both in college? One is a junior in high school. And one is a sophomore in college.

And she is an AI policy person. Oh, is that right? 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 in the same place. We'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 Katie 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 and 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 gonna 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 gonna go to a basketball game. I thought I was gonna say something really cool, but yours was like so much more poetic than mine. I'm gonna 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? 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 Centers yet? No.

No, is it good? So, The Ryan Cougar Sensation, it was not 98% Ronald 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 on 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 bad.

It made me so happy. Did you see it on the big IMAX in Lincoln Square? 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 a good time. Oh, very cool.

Yeah, original movies, I'm with you. Alright, Rebecca, this has been amazing. And we know you were 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? I 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. This has been so fun.

Thanks. I hope you understand these things. We appreciate it. Thanks. Alright, 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. Alright, so that's my test run. We just want to give you a sense of what the show's gonna be like.