Wall Street vs the White House
23:08 Share

At PGM, we actively manage risk today while targeting outperformance tomorrow. So no matter what investment risks concern you most, from geopolitics to inflation to liquidity, PGM brings disciplined risk management expertise that spans 30 market cycles. Our active approach finds opportunities in volatility, helping our clients to navigate risk and achieve their long-term goals. PGM. Our investments shape tomorrow, today.

Pushkin. President Donald Trump has committed to be very nice to China in trade negotiations and has promised, cross his heart and hope to die, that he will not fire the chairman of the Federal Reserve, Jay Powell. Stocks like this, S&P 500, been up for a couple of days now. Today on the show, has Wall Street made peace with President Trump?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from Unhedged World Headquarters in beautiful and sunny and spring-like New York City. Today, I am joined by the FT's U.S. Finance Editor, James Fontanella-Khan. James, welcome back to the show. Thank you for having me. So you talk to a lot of Wall Street people.

Let's have a little vibe check. How are the great and good of the American financial system feeling about the administration right now? They're all getting their hearts checked because, you know, it's tough out there. That's number one. Yes. Once they've cleared the state of their- Their physician has cleared them to leave the hospital. And they can put their hands back on their Bloomberg terminals to trade and stuff. Yes. Yes.

Look, we've got to first define what Wall Street we're talking about because- Very good point. Anybody who's been listening to this show, and I've said this before, a lot of Wall Street was backing Kamala Harris. And I've now defined that group of Wall Street as the blue blooded, the royalty of- Old Wall Street, I'd say. Yeah, the fancy investment bankers, the top lawyers. Mm-hmm.

But there's always the other side of Wall Street, which is like the scrappy, bare knuckles. Yeah, the grubby ones. Yeah, yeah. And so maybe represented by Howard Lotnick. Yes. The Howard Lotnicks of Wall Street. Yeah. Who are extremely successful, made a ton of money, but they are a bit more uncouth. Yeah. To the kind of snobby Wall Street elite. Somebody once used the phrase, these are guys who have hairy knuckles. Very hairy knuckles. You don't want to get into a fist fight with them. No. No.

They were Trumpier. Very much Trumpier. The traitors. But what happened once Trump did win the election is that they all kind of realigned. And I think that's important to notice. Even the guys who didn't like Trump thought, you know what? At the end of the day, he's going to remove a ton of regulation. He's going to make our life so much greater. We're going to get rich. It's going to probably be bad for the country, but it's going to be good for us. Mainly, you know, white people.

Male. Yeah. Rich guy. Even I was thinking back in January, what are we going to see? We're going to see banking regulations softened. Maybe capital requirements are going to come down on banks. There's going to be an M&A bonanza because there's not going to be the kind of reflexively anti-deal attitude that the Biden administration brought to the table. And so if anyone is going to benefit-

It's going to be the kind of Wall Street establishment because they're going to have IPOs, they're going to have M&A, they're going to have freedom to lend because the capital requirements are lower and so on. That stuff may happen, but it ain't happened yet.

It ain't happened, and I'm not sure it will. And that's one thing generally all of Wall Street misunderstood. Nobody was paying attention. Nobody was listening what Trump and J.D. Vance were saying way before they won the election. Yes. When J.D. Vance accepted the nominee to become the vice president-elect, or like the running mate, excuse me, of Trump,

He made it very clear he was going to go against Wall Street and that they were going to work for Main Street. And early on, Besant said, Wall Street's done fine. It's Main Street's turn. Totally. And even then, people were not believing what they heard. No, no. Besant also said MAGA doesn't stand for make M&A great again. Yeah, yeah. And so people were just like not paying attention.

Right. Well, they're paying attention now. They are. And what is their response? When you get these guys on the phone, what are they, you know, as it were, off the record or on background, what is it that they're saying? The general sense is one of disbelief. Hmm.

Ultimately, they thought, sure, he's saying this stuff during the campaign because he's got to win the vote. Yeah. And that's his base. But it's just talk. It's just talk. Then by the time he's back in, he's going to do right by us. The guy is from Wall Street. But again, big misconception. What a lot of people who have been paying a little closer attention told me is like Trump has an enormous chip on his shoulder.

He was derided and mocked by Wall Street, by the New York elite for decades. He was like at the scrappy end of the scrappy people. Absolutely. He was a joker. Yeah. He was a guy who was like some kind of mediocre property guy. Real estate guy. And he was so crap at that.

He wasn't always the best at kind of paying his debts on time or- He had the hairiest knuckles of all. Absolutely. He was like at the extreme end of the scrappy end of Wall Street. He was hustling people. And so people would rather not deal with him. And also a lot of law firms felt like it was always hard to get money out of him. And just, he's a tough guy to deal with. He ain't Wall Street royalty. That is for sure. His biggest comeback was being- A TV star. Yeah. Yeah. A reality TV star. And-

And again, that is considered unserious. Trump kind of resented that. And I think what he did when he came back is he made people who belittled him pay. That's why he went after the universities. That's why he went after the law firms.

And we can't appreciate how petty and vindictive this man is. And he understood, differently from other administrations, that he has incredible power because nobody knew or nobody fully realized maybe the president of the United States could issue an executive order targeting an individual or a company.

That's just like a new thing. And I think the law firms, as you've written, it's particularly important what has happened there because they are, especially now, the big law firms, even more than they have been historically, are a kind of addenda to Wall Street. Absolutely. It's the deal guys that are in charge of the big law firms. The M&A guys, the private equity guys. You're spot on. Yeah.

This shift that has happened in the last 20 years is probably best encapsulated by the likes of Paul Weiss, which has become the first major target of Trump when it comes to law firms. And they bent the knee. They bent the knee first. And actually, by bending the knee first, turned out that they made a great deal because they're the ones contributing the least to Trump's kind of pro bono legal advisory kind of...

But it's interesting that Paul Weiss, that's basically, it has a democratic feel as a law firm. And it was a litigation wolf, at least. That's its history, yeah. That's its history. I mean, I think what you've written is that even at a place like Paul Weiss, these are now deal places. Yeah.

The top guys at places like Paul Weiss, others are Kirkland, also got hit by... Well, they avoided an executive order because they kind of anticipated Trump by paying him or by committing $100 million worth of pro bono work. Latham and Watkins, all these are firms that over the last 20 years have...

Hired a ton of really good corporate lawyers. Deal lawyers. Exactly. They are deal makers in a way that they are... And then we get in trouble here, but they've got the brains and the sophistication of a lawyer, but that kind of real estate agent qualities of a banker. Yeah. And so...

They have become incredibly powerful in the boardroom. They drive a ton of business. And these guys are making $20, $30 million a year. And they're not going to fight the president. They don't see the upside of getting in a fight with the president. They're pissed off. There's no deals right now. And that's bad business for them. Yeah, indeed. That 17th home on the south of France doesn't pay itself. Yeah. That's been my experience, too. Yeah.

So how does Wall Street look at the economic advisors who Trump has around himself? There's this idea that Besant is the Wall Street man. Lutnik is kind of on the Wall Street side. But then you have Navarro, who's the nutty protectionist. How are those guys perceived? Look, a big guy on Wall Street who is very, very Republican. Yeah. Big, big Trump guy. Yeah.

told me nobody knew who the hell Besant was before he kind of emerged as an advisor to Trump. Yeah. We knew who Lutnick was, but he's kind of like not really taken seriously. Yes. And so the idea that these guys emerged as key advisors to the president was surprising. That's what kind of is interesting when we have the stock market tanking. Mm-hmm.

Back in the day, the president would have called the likes of Jamie Dimon, Steve Schwartzman. Schwartzman, of course, is the head of the mighty Blackstone, the great asset management slash private equity house. The alternative investment manager. Is that what we're calling it now? This time around, Trump decided... I mean, A, Trump wasn't even recognizing there was a crisis because technically...

He was playing the art of the deal. He was making things go down because we're going to go up. Go up four-dimensional chess, et cetera, et cetera. But essentially, you needed... Jamie Dimon had to go on Fox Business to send a message to the White House that, you know, if we don't fix this quickly, we're about to cause permanent damage. You raise an important point, which is, is anybody on Wall Street... So we've had Jamie Dimon make some noises, but he's been pretty politic...

Is Wall Street making its voice heard saying these policies are not good for Wall Street and what is not good for Wall Street is not actually good for Main Street or America's economy or anything else? Is anybody speaking up? Yes, we're starting to see people speaking out. On the one hand, you have the ones who were betrayed by Trump, the Anthony Scaramucci's of this world. He's been extremely vocal.

But he's hardly a Wall Street titan, with all due respect to Scaramucci, who I like. You know, he's the kind of fund-to-funds guy and a gadfly, which we love him for, but he's not running big money. Fair enough. But he was pissed off for losing about 15% of his cash on the day. Yeah.

When you then go to the royalty of Wall Street, the Ray Dalias of this world, the Ken Griffins of this world. Yeah, that's big money. Yes. Ray Dalias has been talking about, you know, unless we take serious measures quickly and we need to do it in a bipartisan way, which is like good luck, we're going to go and we're hitting the rocks. Yeah. My message is like we're hitting the rocks. And Ken Griffin was talking this week about how the brand...

of the United States is being tarnished. Griffin's an interesting character. I mean, you could make the case that Griffin, who runs both a huge market maker and a big hedge fund, both called Citadel,

is the most powerful person on Wall Street simply by virtue of how much money he's running directly. What is the story politically with him? Did he support Trump? Did he support Harris? What was his story? Historically, he's a Republican. In this last election, he didn't really come out strongly in favor of Trump. Yeah. And again, probably...

They courted him, but he remained quite under the radar from that perspective. Interesting. But he has come out now and he said that this is looking like trouble. He says if America loses the trust of the world, it's hard to undo that. Get it back. And that's like you cannot fix betraying somebody. And at the moment, a lot of American allies feel betrayed. Yes.

And so undoing that will be hard. But what is interesting are the people who haven't spoken out. Good point. Where is Steve Schwartzman? Indeed. The last election race, he came out saying, I will vote for change. And he came out strongly supporting Trump. And he got it. He got change. He got change. It's the change you want. But remember, Schwartzman was on Trump's business council, if you want.

Then, like many others, he quit, journeyed around the killing of George Floyd. And then he came out even stronger, even more strongly around the January 6th riots. And he condemned them and kind of made a point that, you know, that was his clean break from Trump. And in 2022, during the midterms, he made it clear that it was time for the Republican Party to look for another candidate.

A year later, he saw Jesus and he changed his mind. Speaking of which, where's Larry Fink? Who again, I think does he run the biggest fund, but they have more, they're literally managing more money than anybody else. Larry Fink runs BlackRock, the huge asset manager. It manages more money than most countries on the planet put together.

Mr. ESG. Mr. ESG up until a year or two ago. Yeah, he was all about the environment. The social responsibility of business. Absolutely. Governance and using the good guy. Yeah. Mr. Good guy is now not talking about or not expressing views. He was famous for sending letters and telling CEOs how to behave. Yeah. But he's now a little- Yes.

little skeptic about his views on whether it's okay for the president to issue executive orders attacking law firms or calling Harvard a anti-Semitic institution. Yeah. And so I think that is the silence of very powerful people is something that is concerning. And what is interesting, it's actually the little guy on Wall Street. Hmm.

It's the smaller law firms that are kind of standing up to Trump. Yes. And there's something to be told about. We will look back and people will remember who spoke up and who didn't. Yeah, yeah.

Both for business interests and for the larger kind of political issues. Absolutely. But it's the same thing amongst universities. The fact that Columbia caved immediately and Harvard is willing to fight it out. Yeah. People will remember. People will remember. Yeah. There's been a lot of talk in the last couple of days about whether we have established the existence of the Trump put. That, you know, wind pressed. Market went down 12%. 90-day pause on the tariffs. Yeah.

Market throws a fit after he sends a nasty true social post about the chair of the Fed 24 or 36 hours later. No, no, no. I'm never going to fire Jerome Powell. Does Wall Street believe in the Trump put? Are they feeling better? Because it looks like from a certain point of view, the markets wear the pants now. Administration makes big talk. Markets go down. Administration walks it back.

Are we feeling good about that? Are we confident that the Trump put is in place? If you're on Wall Street, if you're a trader on Wall Street, you're by definition a positivist. Yeah, an optimist. You're an optimist. I mean, there are also people who short stocks, but the majority of the people playing the mic- If you're going to be a pessimist, you got to be in a different line of work. You got to be a journalist. And so, yes, there's a feeling that at the end of the day,

Trump loves the market. He loves watching the stock market going up. Yeah. He's one of us. It has to go back to normal. Yes. But anyway- We have to get the Trump we expected eventually. That guy will show up. And you know what? It might happen. Yeah. But nobody knows. Anybody who tells you they know what Trump is going to do next-

All right. Let me reframe the same question a slightly different way. Have we given up the M&A market and the IPO market for dead?

Are those businesses just closed? Like, are the M&A bankers even coming into the office at this point? Or do they just... They're just waiting. They're at home. They're in that house in the south of France waiting for the smoke to clear. I'll tell you this. We have a new M&A reporter, Oliver Barnes. He's been on the show. Great friend of the show. Yeah, he's awesome. He's having...

six meetings a day. It's like, everybody's willing to meet me. This is amazing. It's like, yeah, because nobody got... Because we got nothing else to do. No. Everybody's feeling sad for themselves and they want to hang out with Ollie Barnes. Yeah. So, I mean, at the moment, everybody's talking about 2026. It's coming back. So, again, they're optimists. So, we're just not getting a bonus in 2025. I mean...

This year, you're doing great if you ain't losing money. Yeah. So that's the objective. Right. Stay above water. Yeah. Nose above water. I know the feeling. I know the feeling. JFK, is anybody making money in this environment?

Absolutely. There's always somebody making money. And a lot of traders love chaos. Yes. The volatility in the market. It's how you read that. And you can get lucky. You can get very unlucky. And also, the spreads are wide and loopy. If you're running a desk, a trading desk- You're loving that. There's a lot. People are running in, people are running out, and you're taking a scrape both directions. I had my Mr. Berisha, my investment advisor at JP Morgan tell me, you got to buy the dip. You got to buy the dip. So it's like-

I did not, just for the record. This is very clear. The trading desks, when we saw the big bank results, I guess a week ago now- They made $37 billion. Yeah, yeah. They made a lot of money. And the trading desks love a bit of chaos. Absolutely. It's different for the bankers. Okay. As a sort of closing point, let's turn the discussion firmly to the future here.

What is Wall Street hoping for, looking for, expecting in the months to come? What's the forecast? I mean, I know in the kind of literal sense, Wall Street banks and their analysts are cutting earnings expectations. That is slowly starting to happen. There's a kind of realization. But what are we, you know, do we have a game plan for the next six months, 12 months? Do we have hopes, dreams? If you're sitting there in a big chair. I think the number one desire is...

End the flood. Yeah. Decide a tariff and then let us know what the number is. Give us certainty. Exactly. Everybody's asking for certainty because the big difference with the previous administration is, you know, they didn't like a lot of their policies, but at least there was some clarity of what those policies were and you could work around it. Today, if you're an executive at a company that depends on importing materials from China, Vietnam or Europe,

You know that for the next 90 days, this is the world you live in, but you don't know how it's going to change in 90 days. And even after those 90 days, how sure are you that it's not going to change again? So everybody's kind of putting its pencils down. Yeah. The hope is there's a resolution, and then they want to see this resolution last more than a couple of days. They want to see the president and his team reintroduce some stability in the system.

And they can live with, frankly, anything. But they have to know what it is. They have to know what it is. That's the number one. People want certainty. And that's true.

for M&A, but that's also true for capital investments if you're trying to expand or indeed shrink a division. The point is this is a Main Street question, not just a Wall Street question. Main Street businesses need certainty too. No, if you have a tiny store, is like, "Am I going to buy more XYZ goods?" From China. Yeah, because this is the right time or the wrong time. Correct. And if at some point that doesn't get resolved, Main Street is shutting down the store.

One thing is certain, and that is that we will be right back with Long and Short after a break.

Bonds are back. And so is All The Credit, PGM Fixed Incomes monthly podcast series. From the latest trends to long-term perspectives, you'll get timely fixed income insights from leading economists, research analysts, and investment professionals. Whether you're new to bonds or a seasoned investor, tune in to All The Credit wherever you get your podcasts. This podcast is intended solely for professional investor use. Past performance is not a guarantee of future results. ♪

Listeners, welcome back. This is Long and Short, which is the portion of the show where we go long things we like and short things we don't like.

James, what are you long or short today? I'm long on AC Milan. I'm shocked. We had a terrible season. We're ninth at the moment in the league, in the Italian league. And what stage of the season are you at, Romain? We're at the end. It's the end. It's over. But yesterday, on Wednesday, we won 3-0 in a derby in what is the kind of Coppa Italia. It's the equivalent of the cup final. Yeah. And we're in the final on May 14th.

Gains bologna. And I'm positive that we're going to win. I am negative on stocks in the short term. There is this sense out there that with the latest caves by the administration, that the period of extreme stock volatility is over. I don't buy it. I think the waves are going to keep crashing in for weeks to come. Be careful out there, listeners. And we'll be back in your feed next week.

Unhedged is produced by Jake Harper and edited by Bryant Erstadt. 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 Rob Armstrong. Thanks for listening.