Sell America?
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Pushkin. Oh, America, what have you done? It's all going wrong over in markets. I'm not quite sure where to start here, but stocks have been taking a beating, led by US national champions in big tech. The dollar is wobbling, even though inflation is widely expected to kick higher. So much for the dollar's haven status.

U.S. government bonds, pretty much the same deal. No likey. The latest thing adding fuel to the fire is, of course, Mr. Donald J. Trump really cranking up the heat on head of the central bank, Jay Powell. None of this is good. So today on the show, we're asking, is the sell America trade on? Can anything turn this around?

This is Unhedged, the markets and finance podcast from the Financial Times and our friends at Pushkin. I'm Katie Martin, a markets columnist at the FT in London, fresh from a four-day weekend spent gardening, climbing and doing as little else as possible.

I'm joined down the line from New York City by two sacrificial Americans, stooges, for us to laugh and point at. That talented young man, Aidan Ryder, is back in the house, joined by the big man, Rob Armstrong, who's back from some time out in the sunshine. Here's apparently tanned and rested Rob Armstrong.

Santa Fe, I hear. Santa Fe, Adobe and turquoise. That is what that, like, even the McDonald's is Adobe in Santa Fe. It's incredible. And like every, my son looked around and he's like, every store in this town is the same. And he's exactly right. If you want to buy anything besides turquoise jewelry, cowboy hats, turquoise

And cowboy boots. You are out of luck in Santa Fe. What's the food? What's the vibe? The food is great. It's, you know, it's Southwestern food and Mexican food. You know, it's at 6,000 feet. So the air is bright and clear. The mountains are surrounding you and they're beautiful. I mean, it's a cool place. Did you get your food all Christmas style? Yeah, exactly. Exactly. The red salsa and the green salsa. Yeah. Christmas style is what they call it. It's really good. Yeah.

Well, look, it sounds lovely, but I'm not going. And you know why? Why? Because I don't want to end up in a detention center in Louisiana because some random immigration official doesn't like my resting journalist face. Louisiana is very nice, but I don't know about its detention centers. This is one of the problems that the States has got here, right? Nobody in their right mind wants to go.

go there anymore. I mean, tourism numbers are collapsing from overseas. The Canadians in particular have got some serious beef with you guys and they don't want to visit. Well, I'm going to come on this show and be the optimistic one. I am going to say mistakes have been made to use the first George Bush's passive voice locution.

but the damage can be repaired if we change course. And also, I'll say, I was just in Miami and I saw a lot of Canadians. So they're still coming. Right on. But maybe we should talk about the damage. What is the damage? What's the latest on that? Well, luckily for you, I've written down some numbers about the damage. S&P 500 down 12% so far this year. Now, I will note, and I wrote about this the other day, it's up.

quite a lot from the very low point of that Liberation Day week when Trump announced the tariffs. So if you were lucky or skillful enough to call the bottom there, then congratulations. But I don't personally, I don't see it lasting. NASDAQ down 18%. So anything sort of tech flavored is getting particularly hard hit. Now, one of the reasons why this is particularly bad for you guys is meanwhile, even UK stocks are up a bit and the

And the DAX in Germany is up 7% or 17 in dollars. I could go on. The euro is up at 1.15. So like $1.15, big jump in the euro, big drop in the dollar. Gold up at 3,500 bucks an ounce. I think gold is the most important indicator here because as I've said before-

I think gold is just the flip side of fear. Yeah. Right. I don't think it's not an inflation hedge. It's not an asset. I don't care about its industrial uses. It is stupid, but it is the thing you buy when you're scared. It's like even when the other not scary stuff is not not scary enough. Yeah. You buy gold. Yeah. And gold at thirty five hundred. For those of you who don't follow, that price is insane.

Yeah. Like back when it crossed 2100, people were like, oh no, demand destruction. As soon as you get over 2100, the Chinese and the Indians stopped buying it. Blah, blah, blah. Nope. Yeah.

Well, I mean, is gold really a fear gauge or is it an economic misinformation gauge? Yeah. Right? You talk to people who buy gold, they say, "Oh, well, the reason we're buying this is because central bank reserves are just eating up and gobbling up all the world's gold," and that's not totally true. Not totally true. There's always a story for why you buy gold, but the underlying fact is...

Terror is why you buy gold. Well, sometimes gold is a bit of a funny one. We've talked about it on this pod before, but sometimes gold goes up because it goes up in line with risky assets. So sometimes it's treated as a risky asset. Sometimes it's treated as a sort of instrument of fear. It's where you go if you're terrified about the state of the world.

This is that. There is no plausible argument that this is an example. Well, actually, I think some of the risk asset stuff is there. In other words, the gold trade has worked so well that I think there is some momentum in it. I mean, we're getting away from our main topic and maybe we should veer back onto course. But I think there is a momentum aspect, a greed aspect in gold now. It's the only asset that's worked. So there's probably some speculators piling on there.

Let me tell you the rest of my little laundry list of things that have gone wrong for US markets so far this year.

And this is also a really scary one. US 30-year government bond yields are up close to 5%. And the dollar is down 9% so far this year. So normally what happens is you have this safety valve that happens in markets when bad stuff happens and the dollar goes up and government bonds are in high demand so the yields come down.

That is really not happening at the moment. So the US is suffering in the way that like normal countries suffer when they screw something up really badly, which is that their bonds weaken, their currency weakens. And that makes it all hurt that much more. So people are like, I'm looking at that 10 year yield and I don't want it. I'm still not buying the damn thing. Meanwhile, some yields on Swiss government bonds have gone negative again.

if you can believe it. We're back in that world. So I can't believe we're talking about negative yields again. I didn't know that we were back in ZERP or what was the world we call it? Zero interest rate policy. Yeah, yeah. We're back in ZERP world. Yeah. So for those who were lucky enough to miss it last time around, negative yields work whereby the interest rate on the bonds is already pretty low, which in the case of Switzerland, they're always pretty low. But the demand for these bonds is so high that the

price on them is so high that you are guaranteed to lose money in nominal terms over the lifetime of this bond. But you're okay with that. But you buy it anyway for the safety because you know the Swiss are going to give you your money back. So something very odd is happening in the world where people view US government bonds, even when they're yielding close to 5%, they still don't want to buy the damn things, whereas they will buy the Swiss stuff, even at negative yields, because they're so worried about the state of the world.

Aidan, talk us through some of the reasons why this whole squidgy mess is happening. Well, a lot of this could be because, as you said, people don't want to hold US assets. They are selling off their treasuries. And typically when you buy treasuries, you need dollars to do that. So if they're selling off their treasuries and not buying new treasuries, that means the dollar is going to go down. So that would suggest that Donald Trump has successfully scared off foreign investors.

But we haven't really seen so much proof that that's happening besides the movement in the dollar and the yields. So we've had a bunch of treasury auctions that have been mostly robust, right? They have not shown a big dip in foreign investors. The worst does not happen. That's the nightmare is the government shows up to sell its wares, to sell its debt, and

And nobody comes. And there was one shaky auction right after Liberation Day that people thought this was going to be happening. And then the auction right after it was fine. And since then, they have been fine. There was actually a very good piece by our colleague Arjun Neelalim in Hong Kong, which showed the Japanese investors did start pulling out of treasuries right after Liberation Day. But the pace at which they pulled out was not good.

indicative of some major global shock, right? It was kind of in line with other medium to bad shocks that we've had over the past couple of years. So there is a little bit, I agree with, I'm sorry to cut you off, Katie, or was that you cutting me off? I don't know. Either way, I'm sorry about it. I agree with Aiden that there is a little, there is some, like markets are bad, all right? Markets are bad, but you don't want to exaggerate how bad they are. And I think Aiden's point goes right to that.

which is there has been a pullback in U.S. assets. It is scary that the dollar and the treasuries have broken their normal pattern, but this is not cats and dogs living together. It's bad, but pessimistically, you might say there's plenty of room for it to get worse. Well, that is exactly where I come in. This is where I'm like screwing my face up and slightly sort of shaking my head. It's like,

Yeah, this is like a whole lot worse that it can get. So you've already seen, you know, there's a lot of like hedge funds that have moved quite quickly and have bet against the dollar and they've bet against treasuries and they've made a lot of money. But there is, you know, in the corner of the room, this enormous monster that in market circles is called real money.

These are like insurance companies and they are pension... Pension funds. Pots of pension money that are massive and they move really slowly. They're not like these kind of flighty buy-buy-buys. So they have like three months of meetings that are like, should we change our allocation for U.S. assets from 70% to 65% or whatever? They will have...

have multiple meetings about this, as they should, because they're looking after people's retirement money. But this is a community of investors that is, like I say, very big, very slow moving, that is

hugely long US assets. It's got far more US assets on its books than it should do if you compare the size of the US economy to the rest of the world. So to me, I genuinely don't get where your optimism is coming from because these investors look across the Atlantic or maybe they're sitting in the US already and they're looking at what's going on around them and they think,

hmm, do I want to have 70% of my portfolio in the US? When you've got a president who is like, you know, just flinging all kinds of abuse at the chairman of the Fed, Jay Powell. Yeah. When you've got evidence that the rule of law is like creaking up

it seems when you've got all these tariffs that are going to disproportionately hurt the US economy in relation to the rest of the world, I do not see a case for optimism here. Maybe, maybe I'm wrong. Tell me I'm wrong. Maybe it's

cautious optimism. To your point, we don't know what's going to happen with regard to those really big investors. Same thing goes for foreign investors, right? We're only just starting to get data from Japan, which is the largest foreign holder of US treasuries, and China, which is the second largest holder of US treasuries, is very hard to track what they're doing. So I'm cautiously optimistic because we just haven't seen the big fallout yet.

I think the points you make about pessimism and the worry that the slow moving investment world

Changes its mind about the u.s. At the margin is a very important point and remember we're not talking about everyone selling the u.s Whatever we're literally talking about a couple of percentage points difference in your portfolio allocation Makes a huge difference for markets right and so it doesn't have to be you know We're gonna put all our money in Italian sovereign bonds or anything like that for this to be a very big change that said

First point I would make is there is part of this that is just markets were wildly overpriced on the risk asset side and something was going to happen to bring them down. Stuart Kirk, our colleague, made this point very well in his column last weekend, which was like all of these market messes are the same. They all have this aspect where stocks are trading too expensive, credit spreads are too tight.

Everybody assumes everything's priced for perfection and something has to happen. There's some catalyst that almost doesn't matter what it is that brings markets back to reality. So we're seeing some of that process here. The second thing I would say is that I am hoping and to a degree expecting that we are saved markets.

by the difference between stupidity and irrationality. So let me explain what I mean. Let me explain what I mean by this. So like I think in economic policy, the Trump administration has been stupid. They believed things about tariff policy that were false.

And they instituted policies on the basis of their false beliefs that have had very bad consequences and are not getting the outcomes they expect. On the basis of chat GPT equations, not just false beliefs. But yeah, but that's dumb, right? And dumb things happen. And we're all dumb at one time or another. We all believe things that are not true to a greater or lesser degree. And we find out the hard way. Fine.

Irrational is different than dumb. Irrational is you do things that you know perfectly well are going to hurt you. I am prepared to think there is still some rationality in the White House. And of course, the prime example of this is I will make myself hostage to fortune and say here in front of God and everyone that I don't think the Trump administration is going to earnestly try to fire someone

Jay Powell, because that would be irrational. That would be self-destructive in a massive way. And I'm betting they don't do it, despite all the fears that they will. Like, it certainly looks like legally Trump can't fire Jay Powell, even though at the back end of last week, he was saying the sooner this guy is terminated, the better. But as Chris Charles pointed out.

In his column. That's the FT's Chris Giles, by the way. The FT's own Chris Giles pointed out that there is this, you know, that a lot of people have been following this trial before the Supreme Court about a member of the National Labor Relations Board, which is not as mighty and august a body as the Federal Reserve, but is somewhat analogous. And Trump sacked without explanation someone from the NLRB.

That person sued and that case is now before the Supreme Court. And if the Supreme Court should decide that the president can sack someone from the NLRB, maybe that implies that he can do the same to the Fed. All I'm pointing out here is that the legality is not completely black or white. The precedent is black and white. We don't fire heads of the Fed, but the legal question is a bit open.

So while I agree with you that I don't think he's going to fire Jay Powell, one of the reasons investors might be running away from the U.S. and might continue to run away from the U.S. is not just because of monetary policy or fiscal policy, right? The trades. That stuff will change no matter who the president is, right? Every time we have a new president, they will pursue, most likely pursue, a different economic path. One could argue that all the chaos is not baked in until 2028 because everybody

In 2028, if there is a Republican president again, maybe this stuff really gets baked in for eight years. But what is more concerning to me is the broader legal system. There's a concept in markets that the reason they invest or the reason investors are okay with a country is because the rule of law is there. The rule of law, not even for democratic purposes, just ensures that businesses get fair treatment.

So, we saw it in Mexico last summer. The Mexican stock market took a nosedive because they pursued this judicial reform that a lot of US businesses felt would make them not be treated equal to Mexican businesses. Trevor Burrus: You need clear laws. You need a dispute resolution mechanism that is fair and treats everybody equally. And you need enough stability that you can see into the future. Marc Thiessen: Yeah. And law is based on precedent. So, if something happens just one time, the next judge can use it as an example.

What we have right now in the United States is a lot of novel legal directions taken by the Trump administration and some squidgy judicial decisions in the past year that suggest that the Trump administration could kind of do whatever it wants on some of these issues. So they've...

pursued large law firms. That makes it seem like they might pursue other big businesses. They have pretty awfully and incorrectly detained some people and taken them extra judiciously out of the United States. That suggests that there's issues with the rule of law. But even more intrinsic to that is

There's some argument right now and some lack of clarity on whether or not the Trump administration will actually listen to the courts in returning some of those detainees. Now, if the Trump administration doesn't have to listen to the courts, that is a huge deal for businesses, that is a huge deal for democracy, and it suggests that in the future, the US is a less safe investment if the president or whoever's in power can just do whatever they want. 0:02:00.6 S1: I'd echo that point about Jay Powell, right? To bring it into a market's context, let's suppose a little thought experiment.

They managed to get rid of Powell and they put in some guy of their own. And let's suppose that person, this man or woman, turns out to be a very principled economist and actually ignores all the political pressures they would immediately find themselves under. That doesn't matter.

The very fact that Trump broke, you know, 100 years of precedent and removed the chair of the Federal Reserve, that in itself, no matter what the ensuing monetary policy is, would scare the knickers off of everyone. There's a couple of points there, right? One is, as you say, it's really important that whatever the credentials of the next Fed chair are, that the markets can see that this person has been appointed publicly.

and doesn't sort of owe the president any favours. The other thing that kind of bugs me here is if in, say, two weeks' time, he and the Treasury Secretary, Scott Percent, make an announcement and say, look, we've picked our next Fed chair. Here it is, Mr M Mouse. And this, you know, this super genius... Oh, we've got to cut rates. Yeah.

You know, imagine they appoint some sort of joke candidate who spends then the best part of this next year. Oh, look, they

look, they didn't cut rates. They should have. I'm really sorry that I went with Mr. M. And saying, when I'm in, that's what the person could say that would really be destructive is, don't worry about what Jay Powell is doing. When I'm in, here's what rates are going to be. And you can just, the market can just look forward to May of next year. Now, it's a little bit harder than that because just a chair does not a monetary policy committee make. We should know. You and I know that, come on, it's these sorts of vibes are really important.

important to how markets operate. But I agree with you that the M mouse scenario that you just outlined would be worse than firing Jay Powell, because not only would it be in effect firing him, but you would have created an impossibly confusing situation for the world investment community. And I think this is why it's because like you think foreign assets are

are leaving America now. Wait till Mickey gets in charge. But also, what happens if these big lawsuits and or actions taken against big law firms, they're currently working their way through courts for those who didn't already settle with the Trump administration. What happens if the Trump administration either wins those lawsuits or just ignores whatever the ruling is? That suggests they can do that to whatever business they want to. Look, I don't think it's going to happen.

I think my talking to a lawyer friend over the weekend and he said the positive interpretation of what's going on with the Supreme Court is that the Supreme Court, especially the two justices on its Trumpy wing, are going to give the president the benefit of the doubt on every procedural issue. But eventually they're going to have to actually rule on the substance.

And when they rule on the substance, I just don't think the Trump administration has the intestinal fortitude to flout a decision of the Supreme Court. They will grouse and whine and this and that, and they'll get in line, just like they will not appoint Mickey Mouse, I don't think, or fire Jay Powell. In other words, I think there is a point where the pressure is great and

Self-preservation instincts do kick in for this administration. I may be made a fool. I may be made a fool by events, but this is the life I have chosen. Mickey Mouse will be laughing on your dead stock portfolio. You know, you have to make... I'm not saying it's a 100% prediction, but, like, I'm putting my money on there are limits to the irrationality of these actors. So what I'm hearing here is a bunch of reasons to...

continue to be very nervous about U.S. assets. And the only real counterweight to that is just like blind optimism from Americans like Rob who are just like, it's going to be fine. It's going to be fine. I'm not saying it's going to be fine. It's a difficult moment. What I'm saying is we've had difficult moments before in the history of this country. We had difficult moments in the first Trump administration. And the fundamentals supporting

American assets are largely in place. We can course correct here, and we mustn't overreact. We mustn't overreact to a market that was too expensive in many ways and is returning to a more reasonable valuation on risk assets. We mustn't overreact to 10-year treasuries that look,

They're at four and a half percent less than four and a half percent yield That's not a crazy number for them to be at Trump's superpower is making people feel crazy Mm-hmm, right? That's what that's his magic power is like you look at him you can't look away and he evokes and either positive or a negative very strong emotional response and

And this too shall pass. I mean, the broad message here is I still think you guys are too optimistic and I will beat it out of you eventually. So with that, we're going to be back in a second with Long Short and we're going to do it a little bit differently this week. Find out, are we long or short America? A lot of your returns, you could be giving up 10%, 20% of your returns through bad executions.

Market makers see you coming. Market makers can see the pattern, the times that you put an order through. They can see imbalances where everybody else is putting on the same trade if you're putting a trade on market on open, market on close, certain patterns. To learn more about managing risk and making decisions amid uncertainty, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

Okie dokie, it's time to be long or short America. This is where we are long a thing we love or short a thing we hate. Guys, let me chuck some random market indicators at you and you can tell me what you think. Well, let's start with stocks. Everyone loves stocks. Where do you think the S&P 500 index rounds out this year? So this is the S&P 500 index, biggest US stocks. It's now about 5,200. Where does it end 2025?

I think that we were due for a good old-fashioned correction in U.S. stocks, even all the Trumpy stuff we discussed aside. And I think, what are we down from the peak in February? I don't want to bet in exactly your terms. I'll say from that peak in February, we're going to end up down at least 25%, which is just like a good, solid, mid-sized drop.

U.S. stock market mess. I mean, mid-size, it's pretty chunky. Yeah, no, it hurts, but it's not 2008 stock.

Sure, sure, sure, sure, sure. Yeah, yeah, yeah. Aidan, what are you saying? I mean, I think it might be a little bit more than just a midsize correction. I think there are, I think there will be a correction. And I think a correction was due for some time. But I really do believe there's actual headwinds beyond just the risk off sentiment that's in the air. So you could have a real recession. You could have a debt panic this summer. You could have some AI news that is...

you know, has been brewing under the surface for a while that could come out now. Mag7's been getting killed, all those big tech stocks. Killed. Yeah. So, I mean, I could see it being 25. I'm just going to go a little more than 25. You'll take the under. Yeah, I'll take the under. 30. We'll call it 30. I wanted to be more pessimistic than you, but I think 30 surely is where you...

Yeah. Tap out. People start buying this stuff. People start buying American stocks. I'm just saying that's a lot. A third off. That's a lot. Okay. Aidan, you mentioned the risk just there of some sort of bond shock at some point this year. Where do you guys think the U.S. 10-year bond yield ends up by the end of this year? So it's now 4.4%. And as a reminder to listeners, the yield goes up when the price goes down. So higher yields are generally not important.

a good thing. It raises the cost of borrowing all across the economy. What do you guys reckon? Yeah. I mean, I think that we'll probably end up a little higher than that, around 4.5, but that will hide a lot of volatility in the midterm. So this summer, we have to have something to address the US debt ceiling. At the same time, we have slowing growth. And while there's going to be probably something of a debt panic, since not only do we have really high debt payment costs, but we have an IRS that's been defunded,

So tax revenue might be lower than it otherwise would have been. And you have a low fiscal impulse, meaning that there's going to be less spending by the federal government and growth positive activities.

All that said, I think there will be a debt panic at some point this summer. You could see something as high as 6% to 7%. But then there's going to be a recession. Look at Aiden, 7% on the 10-year. My man. That's not where my end of your prediction is, though, to be fair. If you believe there's a recession, that is going to put a downward pressure on yields. So I feel like we'll wind up a little higher than where we are, but there will be a lot of volatility in the middle.

Wow. 7%, Aidan, if that's right. 7%, I'm going to be like barring the door because the zombie hordes will be trying to knock it down. What are you saying? I just think you guys are pessimists. I'll give you a conditional answer to that one. You guys are pessimists. No, come on. None of this conditional nonsense. Okay, I just think like if there is a recession...

The 10-year is going to be lower than four and a half, you know. So that's the condition. I think the chances of recession, I don't know what they are. But I'll say, look, if the slowdown continues, gets worse, there is a point at which you're like, oh, the hell with it. I'm just buying some treasuries. So you see that that stabilizes the yield. Yeah, maybe. But there will be a panic in the middle, I'm sure. Yeah. Yeah.

So the dollar, what do you think happens to the dollar over the course of this year? As a reminder, it's down. Let me have a look at my piece of paper. Katie, what do you think happens? Yeah, you're the smarty pants here, Katie. Dollar's down 9% so far this year. I think it's got an awfully long way to go from here. So the euro now trades at about $1.14. I think it's going to at least $1.20, $1.25 maybe over the course of this year. There's

All sorts of reasons to like Europe, all sorts of reasons to hate the US. It's a pretty easy FX trade if you ask me. What do you guys think? Well, Katie, you know that I'm a person completely without principles. Yes. But one of the few principles that I do have is

is that predicting currencies is a mug's game. It's a 50.05% chance that you're right if you're the smartest person in the game. Good luck. I say good luck to you both with your...

predictions? Well, I'll say that I think the dollar, there's already been a steady march away from the dollar slowly for the past 60 years. So while I think it will accelerate, I don't think it will be a drastic acceleration, or at least more so than we've seen in the past month. So I can imagine the dollar being down a little bit more, maybe a lot of it more for a little bit. But I also don't want to overstate the strength of the euro, because while we have this fiscal impulse in Germany, we haven't really seen it in the rest of the continent yet. It's going to be not evenly divided.

So it could be a German story, not the rest of Europe. And that suggests that 120 is a little optimistic. I like that point, Aidan, that we might be kind of at peak optimism about European expansion. Again, I am shaking my head. You guys, you are too optimistic. You Americans have been conditioned over your whole lives into thinking that everything will work out just fine.

Eventually. Doesn't it always? I will grind you down. But probably not before Thursday, listeners, which is when we'll be back in your feed. So listen up then. And in the meantime, be like Jay Powell and stay independent.

Unhedged is produced by Jake Harper and edited by Brian Erstat. Our executive producer is Jacob Goldstein. We had additional help from Topher Forges. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.

Oh boy, lower rates. It's a surprisingly good Mickey Mouse impression that you do. Oh boy, tariffs are not inflationary.