The Trump economy: How big? How beautiful?
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AmErica and china are getting bigger and europe is getting smaller. This has had eu policymakers taking a careful look at europe's relative competitiveness versus other geopolitical superpowers. There is a real desire to really inject and reinvigorate competitiveness into the european economy. To hear more about the impact of this year s elections landscape on the global economy and financial markets, subscribe to pigeons, the outthinking investor in your favorite pod concept.

the. People of amErica have spoken loudly, and their choice is very, very clear. They want Donald trump as the next president. So high tariffs and mass deportations of the nation's explicit choice of economic policy, possibly with a little executive branch influence over interest rates to boots, that smells pretty inflationary from here.

So today on the show, we're gonna some economic market predictions that we hope we will not make us look silly in a few months time. And if they do, we'll just deny this podcast ever happen. This is unhedged.

The markets for finance podcast is in the financial of times, push in, i'm paying out in the market column F, T, H, Q in the relatively calm, serene london, join down the line from new york city on head news letter crew kept in Robert armstrong and first able deck hand add writer listeners as a reminder, if you get confused, i'm the one with the english accent. Aid is the Young and clever one. And robbers, rob, guys, how's IT going?

It's going well. I'm not one of these people who gets all emotional about presidential .

elections. So new york .

is very easy right now.

like some thing is not right, but nobody's changing their behavior.

Let me tell you what is right. The good ship USA got this election done and dust IT nice and quickly. Yeah, good.

And I think that that is a huge relief, just regardless of the what you think about the person who won in the person who lost man. The decision was clear. IT was clear quickly. The system worked no fast, no us, yeah.

in in the pundit square of window would have been huge upset. If Harris one, all of the transporters would have thone of IT. If trump had won the electro al college, but not the popular vote, herr's voters would have turn of IT. This was like the only outcome where everything is calm, I guess.

Yeah.

yes, this is clear as day. And so you know, rob and I we trust about this actually the other day on the point about how markets just don't like these kinda moves than what was going on kind of situations. They like this kind of certainty.

So just that is in off to add a certain amount to the stock market. And also, let's just have a quick kind of rattle through what markets have done since don't truck got elected. So that's yesterday.

What happened yesterday, S N P. Five hundred was up two and a half percent of Russell, which is small cap t. Of that six.

That's broadly as expected. Trump wants to a lot. Yeah.

stocks like this.

Trump wants to cut corporate taxes in america. And if that happens, earnings go up. And so stock Prices should rise. And IT explains, they even seen the small caps and the big caps, the wrestle two thousand roads so much because they are more domestically focused. So more of their revenue will be tax at this lower rate we are currently imagining is going to become the corporate yeah.

And there are certain state sectors of stocks that did particularly well. So bank stocks sort particularly capital one, and discover because their merger seems to potentially go through row in the trap administration, the funny may and pretty mac stocks. So stocks that theoretically trump wants to give the profits back to shareholders also jumped and then need a dollar. Stores did tell .

me poorly. They import chinese crap and the chinese at tax, as you might call .

IT in the U.

K. Is the craft is set to go up yeah and home home .

builders to tell because .

mortgage .

are probably going to go up if you get inflation.

Well, that brings me on to my next point, which is what we've had in addition to a really good day in the stock market. I refuse to talk about bitti in, but I would just briefly notes that IT hit a record high trumpy crp to whatever this government doesn't. But what we've also had is a really decent jump in the dollar and a big jump in, in bonde's, right? So bond Prices are gone down.

The yellow are gone up. That is because the market thinks that trump is inflationary. So my question to you guys is, is trump inflationary?

I would frame the question slightly differently.

There is one point OK.

okay. But just hear me out. Part of IT is he inflationary? And part of IT is just is he a higher yields? Guy is a person of big tax cuts with no cuts in spending. And that means bigger deficits, sustained large deficits, at the very least.

And the result is that the long yield goes up, long bonds go down because the fiscal situation of the united states is worse. And then you can kind pile the inflation point on top of that. If he does that kind of thing, this kind of thing tends to .

be inflationary to and in theory, if he does follow through on what he's been saying is gonna, which is the deport lots of of migrants, then that starves the labor market of a source of really cheap labor for jobs that, Frankly, lot of other people don't want to do. And that should push up wages as well. That's also inflationary, right? So is there's a few angles where markets think this is gonna play in.

Here's my thing though, say he puts on puts in these terrorists s on the source of scale. He's been talking, has been talking about massive tourists globally, particularly for china, but also globally. If you assume that the dollar runs higher at the same time, will that cancel out this effect? So no, you you have a TV that's made out in south korea, right? You get a twenty percent tariff slapped on top of that, that the buyers in the U.

S. To have to apply. But if the dollar is twenty percent higher, does the consumer notice?

Good point. ExcEllent point. Well, IT will depend. I mean, the dollar going twenty percent higher would be an amic move and also .

the rest of the world .

would float. Yeah so that I mean, it's a stretch. But I think what you what's right about the argument you just made is that there are a lot of counterbalancing forces that could come into play here.

Do you know I mean, the the global economy is very dynamic. So it's not like trump turns the time of switch and Prices just mechanically move higher by that amount. There's all kinds of repercussions and feedback loops that you have to kind of think through. Yeah.

but I think it's fair to say that at least on the government spending point, so the borne yields, absolutely, that is his planned IT seems like he's going to get a republican senate in a republican house. So it's likely that he will be able to pass the tax cuts, increase the spending that he wants. Sothe bon, you're to rise on the deficit, point on inflation, immigration and terrify. As rob said, IT gets much easier.

Yeah, but but you know, at a simple level, it's like you take workers out of the economy, wages should go up. That's what they taught me back in supply and demand school a and if you make products .

more expensive than Prices go up, yeah and you .

know you can argue about to what degree this is a one time effect. So it's a step change versus a you you trigger a self reinforcing cycle where you have persistent inflation. I think you can have that debate.

But like at the most basic level, of course, these things are inflationary. And in the case of immigration, it's designed to be inflationary. The whole reason that we we want immigration down or the those who want immigration to fall on immigration to fall, is because they want to pay for domestic workers to go up. We call that wage inflation. And when we were kids back in school, they told us that wage inflation is the kind of inflation that tends to persist and build on itself.

I also, I get so frustrated with that step change versus not ship change argument because at the end of the day, the Prices will be higher, as we've learned in this election of americans hate higher Prices. So whether or not to the step change or persist in inflation, they're gonna like IT.

That's exactly the point I was gonna make. Like you know that so he's painting himself into a corner, right? Inflation is bad. He's won this election in no small part due inflation that that kind of got embeddable the previous of distrain but possible can make inflation worse. And also he might seek a you know semi official or official role of some kind relating to the federal reserve, might want more influence over interest rates.

Help me out here. There is an important player in this drama who we haven't mentioned. And while this person may not actually exist, SHE is worth mentioning, and SHE is the bond vigilant ante. And one thing that I don't think we tried to think to do in the column yesterday, eight and nine, but I think is interesting. So if all this stuff is true, yes, about trump that we just went through, he's inflationary, its higher rates.

How do markets respond to that over time? And how does trump respond to the markets? So he just won an election and fair enough by pointing out that there was a lot of inflation under biden, and that equals a bad economy.

So what happens if the trump is inflationary crowd is right, and we have a significant increase in inflation and bond markets break out and maybe stock markets don't like IT all that much either, right? And suddenly trump, who likes to measure his success against the market, suddenly he's in a situation of being criticised by the market. How is he gonna respond to that? How is he going to respond to that? I don't know.

Have no idea. I think, I think he is a logical ability to .

cept lame. I'm sure someone else, whoever he blames verbally, will his behavior and the behavior of the administration change, like word, a proper bond vigilante free out and an accompanying disturbance in the stock market? Would that scare a trumpet administration into conventionality?

I'm not saying that's the most likely scenario, but i'm just put that out. There is something we ought to think about because he know, as we pointed down in the column yesterday, he had a nice ride from markets two thousand and seventeen to two thousand. Twenty one stock market, very agreeable, right? Slow IT was pretty plain ceiling.

You can argue about whether he caused that or not. I'm always a little skeptical about the relationship between policy and markets. Fine, he had. He had a good. How does he act when he has a bad V, C, V markets? Not that i'm saying initially will, but these things have been known to happen.

Yeah yeah. What we wrote about in the column yesterday is also you know the immigration and the tariff pieces also could not be as inflationary the market expecting. And that depends again on how they actually go about doing this.

There's a lot of vigorous on the terror policy. IT might just be a negotiation tactic, in which case theoretically, terrace s would become lower. I don't think that's the case, but that is what some people in his orbit say. And then the immigration stuff, right? If there is massive unrest and if people aren't happy, if if the republicans are unhappy that the person manicured, their law is no longer there or is demanding more money, how is that going to blow up in their face?

So there's a bunch of stuff that we don't yet know around how this immigration policy is going to actually play out, how this tariff policy is going to play out. Let me throw at you. Another thing that we don't know is trump P A strong dollar guy or a weak dollar guy, you know.

So if we get to the point where all of this stuff is inflationary, IT means that higher for longer is back in. Potentially, we start to have a conversation again about U. S.

Interest rates having to pick up rather than Carry on falling. If this keeps pumping up the dollar, will he like that? Or will he discover pretty quickly that that's actually bad for american exporters? And actually.

let me make a apparently meaningless and empty term logical. This is what I specialize. Trump will not perceive a stronger dollar as a stronger dollar. He will perceive IT as other countries manipulating their currencies downward.

And that is how he will frame that, right? So he likes, you know, he probably likes the word strong and IT, especially when it's associated with american things. And the dollar is an american.

This a is the paradigm matic ally american thing. However, you know, a weak euro a week, yen a week, R, N, B. These will be seen by him as evidence that other countries are cheating in their affairs with the united states. And i'm not saying, i'm not imagining this. This is in fact how he talks about this and has already talked about IT.

Yes, he did this when he was last in office like the european central bank, cut interest rates for whatever reason. You, as everyone expected, they were. And he lashed out of them for manipulating the currency.

Now we know that a strong dollar and weak currencies elsewhere are just the same thing, right? But that's not how he's going to frame IT and that he won't act on that assumption .

that because doesn't really value the independence the fed or or as well that to believe violates comments, I don't they go value the independence of other central banks in the same.

So I think he is probably defacto a weak dollar guy, but that his policies are probably strong dollar. And also, he has said.

even though he wants to be a weak dog guy, he's constantly touted how he wants the dollar to be at the center of global commerce as if that weren't already the center of global commerce. But he's completely said that so that would not imply a strong .

dollar policy so much going on here, you guys, I am going to buy IT down into a series of silly .

questions or for vora.

So on this issue of whether trump is genuinely inflationary, you know the the dollar plays off against tariff, son, is is IT all a wash? Dedit a given prediction? Where is the U. S. Inflation rate at the end of two and twenty five? You may pick your preferred inflation measure.

I'm going to say core P, C, E, P, C, inflation, sense for inflation in personal consumption, expendable. And it's the measure that the fed prefers. It's currently two, six five.

two two six five corp city.

Um I will say a year from now, it's going to be I think the overunder is actually two point six five because I think if trump is inflationary, it's gna take some time. And we're in a we're in a drifting down part of inflation, and we are not gonna have an inflation problem in the next year. This is what I fearless lesly predict.

I don't understand your answer that hope so.

Where is that the next year? So about where IT is now. It's above two and below three right now, maybe a shade above two if you want a number. I'm going to say that it's a two point three at the end of the year. Three.

that's a radical take, adam.

What given that a theoretically ally could already be starting to reinflate? Now I think that's gonna all the over. I'll take the over, but maybe even significantly over to me. What IT depends on is I think these policies will be inflationary to some extent. The question is, how fast can policies actually be put correct?

The terrorists, if we really do believe these terrors are part of some master scheme of negotiation that will take a long time to negotiate every single term with every single country. yes. So I imagine that we .

might want to be something I might be used. And reframe your question, what do you think is the peak inflation .

rate .

in trump s next term like that? I turn the question back on Kitty kate. What is the peak year over year U. S. Core inflation rate under Donald trump twenty twenty five to twenty twenty nine?

I will take three point eight.

So you're basically on my side. It's it's warm but not super warm .

after four .

point six. wow. So if OK now that's core.

If if I think you include oil, which I think we will stay low for a long time and that's going to be much lower. But core, which is unfortunate, not what the american media is attention to.

will be much will be much hard. okay. Now I with Kitty, I think it's going to be cooler than that because I think in the end, a lot of these policies are not gone to get done.

Okay, that's that's my I think that's the central high policy. I think there sixty percent chance is a huge amount of t hot air here. The other forty percent is a totally different picture.

They may go Better. But if if adan is correct and inflation gets to four point six percent, that is gonna be wild, right? Because then rates are high again, mortgage are more expensive. The whole narrative that is the dims that caused inflation that gets turned over, the politics is going to be massive. He will have lost the just because he's, you know, all presidents lose the house in the first mid term that will happen so he won't have congress and you, if you like, I don't know, twenty six, twenty seven. We have core inflation coming up against five percent IT is going to be lively as hell.

super await. So what is your answer?

rope? That is, I don't think I think my central apology like yours that it's gonna warm but not hot if ads right. It's gna be wild times.

But here's thing, I think that people's feelings about the economy are hot air when IT comes to trust. I don't think that I guess I think there are a lot of people who can really hurt by this economy. And inflation has hurt a lot of households. Yeah and I I think sometimes we do a disservice by talking about the average because there's people on the bottom of the average in the top of the yeah, but I really do believe that the media system and the politics of this moment or not, ones that will hold trumpet to account if the economy gets Better.

And now we come to the point where aid, and I fundamentally disagree, I think if there is a serious increase in inflation, I think trump will massively chicken out that all the stuff we talk about about him that is inflationary when faced with the actual beast. IT is my not very confident. I like sixty, forty, seventy, thirty. He just massively chickens out.

I think he checks ens out on some of IT the immigration tion stuff a little bit, but he staked his campaign, the entire core policy promises of the campaign, or terrace deportation and some form of tax cut he's gonna to deliver on some regard on all three of them. The degrees might vary, but I really do believe it's more political statement that IT is an economic concern at this point. I don't think the truck really cares that much about uh, you know his supporters is their wallets and I never say yeah no that .

that that mean you make you make a good case. But I am taking the other side of IT.

I want to move onto my next question. Everyone's talking about amErica all the time, not talking about amErica again. great.

But my next question, ironically, about amErica is where does the S. M. P. Five hundred end up at the end of next year. So it's had a good run on the on the back of trumpy election is now of five thousand nine hundred and something. Where does IT end up at the .

end next year? First of all, I don't even want to talk about my track record .

at predicting .

the mark IT is polls IT is terrible, but know I just don't see any I mean, I think the market is expensive and has an a long run. So another huge leg up seems unlikely to me, but I don't see any reason why valuations would crack or the economy would crack. So I think it's going to be up a kind of average amount, another ten percent, six percent in the real terms, something like that.

I think the twenty twenty five window also might be too soon. And right? I'm sure they'll get tax cuts, which mechanically .

will feed into higher earnings. Yeah, that's I think if things .

were to hit the fan in terms of regulation and you know guiding the deep state in a way that actually feeds the market, that won't happens. Twenty sex. So I I agree that will be only regularly up in twenty twenty five. But I think there is a possibility that there is some pharmacies dal crisis and or .

other crisis if other crisis.

if R, F, K is in charge of all health agencies, imagine he also wants.

also wants the floor I taken out of the water yeah and so what the the stock pic is like the company that makes dental equipment .

and there's that like cool, fancy start up dentist .

place in new york's city.

Yeah, we have one next door here. now.

beautiful. But to give me a number, i'm saying six thousand five hundred and the next year.

okay, be slightly .

under to be annoying and do six thousand three hundred.

five, nine, two, nine times one point one equals did you get six thousand five hundred? K, we all agree, six thousand .

five hundred taking the okay.

my final question for ten points. Where do interest rates end up at the end of next? yeah. And I don't want you marking about with this question end of next .

year in which interest we talking about, we don't about the fed exactly.

So we're currently at where are we? A little under five percent.

The market has to be point seven. I think the futures market is telling us three point seven. I'll take one less, cut the net and go for how you like that. That fans rated about four. I'm GTA believe in the wisdom .

of the masses and say, three point seven, five.

I, I, i'm gonna say I don't want to agree with rope, but I sort of agree with grow.

Yeah where we know where are we now? Exactly where at four, seven, five, right?

yeah. I can see forecasts before then. And I don't think inflation starts kicking you know becoming an issue until a little later .

into a trap term. And the other thing about going with the market, rain, is one thing we really learned in this market in this election is that markets are pretty good at predicting the future, not great, but they did really well on this election. And so once again, we have an opportunity to honour markets in all their forms and their ability to aggregate many opinions into a sensible forecast for the future. Of course, they get tons of stuff wrong, but it's as good as mechanisms as we have .

efficient markets, boys and girls, not on a related point. So my understanding is the whether he wants to or not, or trump cannot unseat jp, whose chAmber of the fed until his term is up, which I think is sometime in twenty twenty six.

early in twenty six. Yeah, yeah. Does he really .

point him if if power wants to do IT even does does he reappoint him? He he's a trump er point in the first place.

I sincerely doubt power wants to do IT again under the time administration. Yes, but first all trump apparently florida idea trying to fire him. But he was told that that was not legally possible .

in the first time. I know fluid is, I mean, what we heard IT was, he said he asked somebody if IT was possible to fire him. I am sure you ask a lot of questions, but I if things have been a bit hectic in markets in twenty five, keeping him around might be something that they want to do.

So IT depends a little bit if if you see turbulence ahead in markets, they may see the virtue in keeping the guy around. But if we have a smooth year, they're gonna put somebody in there. So I think if IT is know.

there's two people who are fluid as contenders. There's Kevin has set we've interviewed in Kevin wash. Kevin wash is seen as the more straight, narrow be sorted.

Been on the fed. He you know more of a Normal conservative guy. I feel like things are good hill, nominate Kevin has set, will be a little more he is lighting if things are bad humor inet.

Kevin, worth, the book of the Kevin, yeah, yeah.

How I cannot offer any kind of scenario is detail is that once i'm just going to shut up, which comes is very unnatural to me.

But but look, I think I think we've you know we've given some straightforwardness ces, and some not Harry straightened and ces. What one last thing, do we get a recession during trumps turn? If I knew how to predict recessions.

kate, I wouldn't be hanging around here today.

Yeah, you really love IT.

Um recessions are rare these days, right? I mean, it's just a historical fact that recessions seem to come around less often these days. The rational thing to do face with this question, if you had to put money on, is to say no, because in an average four years at this point, you don't have in a recession. Now are there any reasons for us to push those adds up?

See in my mind, if there is a recession, I don't think I will be from natural economic accurate, I think will be from some unexpected ziem factor, exotic effect like covet or yeah that we had a recession, right? So I magine they're being not I don't want this to happen. I don't think truck will try to make this happen. I just I feel like .

we're overdo at this point for .

something even worse.

Yeah, mr. Spooky, IT feels incredible. I think you need come back on IT. But if you know gun to my head.

I would say, account I am. I like to hand you money.

Now we'll talk about the odds later on. The next show will discuss .

our recession onod. Okay, look, we've put the world to ride here, but we're going to be back in a sec with long shot. What do you see on the horizon? Uncertainty or opportunity?

Whatever you see at pigeon, we can help you rise to the chAllenges of today, providing outlooks on the market with deep global local expertise. With over fourteen hundred investment professionals in pursuit of long term returns, our investments shape tomorrow, today, pursue your tomorrow with P, G, M, A leading global asset manager. Oche doc, it's time for a long, short, that part, the show where we go.

Long a thing we love, short a thing we hate. What do you guys go? I want to to go first.

I am short incumbent. So where there's been, there's been loads of elections all over the world this year. And pretty the income in pretty every case have lost votes or outright lost elections.

Say, look at U. K. You look at france, you look at japan, you look at U.

S. More of the story. inflation. man. Voters do not like .

him bit .

what you guys got.

I am short the tweet industry because I love tweet above all fabrics in all its varieties and permutations. However, its november in new york and it's in the midst seventies. Global warming is real. Tweet is facing a very scratchy future. And what is what kind of .

sis as sistani .

al crisis you it's like i'm like in order to keep wearing tweet, i'm going to have to move to like sweden, you know and then I might actually just so I can keep where .

that happens. A yeah I wasn't expected of good to for playing. Uh, adam.

I am long the american project. A lot of people were disappointed by the outcome of the selection, have concerns about this next administration, but I believe the americans will hopefully put their voices forward. And amErica will continue to be an asian where a lot of people want to live. And that gives people brighter futures. And in the otherwise.

what if I will second you? america? AmErica is is awesome and will continue to be awesome.

I'm hopeful. good. Look, amErica being awesome. I can't take the other side of listeners that's IT for today, but we are going to be back in your feed and it's gonna sound a little bit different.

Knows boilers, but you know something exciting coming. So listen up next tuesday. Unhatched is produced by jake harper and edited by brian us. That executive producer is jake of ghost am.

We had additional help from top of forehead shower burma as the fts global head of audio special banks to Laura Clark, alex maki, gretchen and neck's cylink ft. Premium subscribers can get the unhemmed th letter for free. A thirty day free trial is available to everyone else.

Just go to F T dot com slash unhedged offer. I'm kate Martin. Thanks for listening.