Franklin Templeton President/CEO Jenny Johnson Talks Tariffs
09:11 Share

You're listening to an iHeart Podcast. Hiscox Small Business Insurance knows there is no business like your business. Across America, over 600,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online quote at Hiscox.com. That's H-I-S-C-O-X dot com.

There's no business like small business. Hiscox Small Business Insurance.

Bloomberg Audio Studios. Podcasts, radio, news. We are standing by with Franklin Templeton, President and CEO, Jenny Johnson. And you know what? It's live TV, Jenny. Live TV, right down on the sidelines. Everybody's here. Everybody is here. And the reality too is everyone is talking about what's going on in the United States right now with the President's tariff plan. How do you see things

things playing out and what do you think is being underappreciated by investors right now? Well, I think, first of all, I think Vesson is doing a better job at describing this as interlocking engine, right? It's tariffs, it's taxes, and it's deregulation. And I think that

You know, you got to remember in the U.S., you sort of have 18 months when you get in to make big changes. Otherwise, you know, Congress is likely to flip, but he's not going to get things passed, right? So if you think about this, the first thing he does, he hits tariffs. I think he's working through to get his tax cuts and

Remember, this is really a tax extension with some additional tax cuts. If we don't get the tax extension, it's a massive tax increase, which then becomes an economic problem, right? He needs to pay for that.

So how does he pay for it? He pays for it by tariffs. So when he first came out with the tariffs, he says that's a $600 billion revenue increase. Today you get about $80 billion from tariffs. Now whether it's $600 billion or whatever, he needs $400 billion to $450 billion a year to get

to pay for his tax cuts or his tax extensions. So tariffs is a great way to do it. That's the interlocking nature of this. And when we think about from an economic standpoint, the deregulation is really important, especially as a business

somebody running a global business. And so I think that's the plan. The problem is it's messy because you have to do it all quickly in this sort of 18 months. There's also an issue, too, when it comes to tax cuts and other types of more pro-growth policies. Is that going to run into issues with concerns about our budget deficit? We had the budget director on yesterday, and there's been a lot of talk as to how much can you really afford to do right now

when you have 120% debt to GDP ratio and other metrics that are also ahistorical norms. Listen, there's no question that what has happened with the deficit in time, you want to be able to add additional deficits during bad economic times. We've done it during good economic times, which means you have nothing to be able, no leverage if things turn into a recession. So that's a difficult point.

Again, as long as he pays for it, how is he going to pay for it? He's going to pay for it from changing tax revenues of $80 billion a year from tariffs to $480 or $500 billion. As long as it's paid for, that's less of a problem. Then, of course, the other part of his plan is this government efficiency, to be able to reduce the deficit. That's going to be important.

$1.8 trillion a year in additional debt, that is not sustainable. You have mentioned throughout the course of this conference that that

that that path is concerning. The bond market today, you have a 10-year yield that has been drifting higher in the last couple of days, despite the calm that the Treasury Secretary seems to be providing to the market. The bond market's not quite showing it. So what does this mean? Do you believe that the bond market risks a tantrum if the U.S. financial situation is not figured out? I don't know if it's a tantrum, but I do think, look, we've, you know, our view is you probably get a,

only one cut this year. But I also think you have to be realistic on the 10-year. I mean, I don't think it'd be surprising to have the 10-year at like 475 at the end of the year. Why? You have to have buyers of our debt. The economy is still pretty strong. ISM numbers came in today. You know, I mean, a lot of people said, oh, we had this recession. Well, we had a recession number

because GDP imports, people accelerated them. That's sort of a false signal, I think. So, you know, the economy still feels pretty robust. Now, that doesn't mean that we aren't at a really important moment where there's no question businesses are hesitating. They're hesitating in CapEx spend because they're concerned about what do these tariffs mean to us. And without certainty, they can't spend. If that goes on for too long,

you will risk triggering a recession. Are your investors hesitating at all? Are they worried right now? So first of all, most institutions are long-term, right? And so they're not going to deal, they're not going to make switches because of tactical shifts. They're waiting to see what's going to happen here, right? I mean, because any day,

day, it kind of jumps up and down. So that's, I think most of them are viewing this as, all right, we're going to wait and see. You did see European investors pull back a little bit from the U.S. A lot of people said, well, is that because they're annoyed with the U.S.? No, I think it's because they realize that there are opportunities in Europe to fend spending other areas. And it was the best performing index to date. So again,

So again, I think most institutional investors, and actually because we sell through the Wealth Channel through financial advisors, they tend to be more sort of long-term in their thinking and say, listen, if you missed it at the start, there's no point in making those shifts now because it changes every day. Because you also operate through the Wealth Channel, I'm really curious about your view on what's happening in private markets right now also. Since we've been here, we've had a huge range of views. We've had private

private asset managers say, don't worry about it, everything's fine, the marks are all good. And then we've had others say there's a lot more trouble under the surface. Where do you stand on that spectrum and how do you consider this moment where so many asset managers are opening up to wealth clients for an asset

asset class that's not as infallible. Right, exactly. Yeah, no, so, I mean, it's interesting. Look, I first of all fundamentally believe that it is important that we open up the private markets to the wealth channel responsibly.

Right. I mean, there's a big difference between a pension fund who knows exactly what their cash flow liabilities are for the next 30 years, making a commitment to saying, I want to put 30 percent or 40 percent in private markets and an individual who may have one year or two years of expenses and savings and locking up those assets. So education is really important. The type of vehicles are really important. We're working. I love the idea of retirement.

because there's always cash flows coming in, right? People don't tend to stop their payroll contributions. And putting kind of a managed account solution, which is dealing with the illiquidity risk. But the illiquidity risk is very real, and

It's permanent capital, so in times of stress, you don't get the same pressure that the stock market gets when people use it as their liquid. What do you think of some of these new products, ETFs and similar types of products that are effectively putting private assets in there, but with a mix of public assets to try to address some of those liquidity concerns?

Franklin Templeton actually in some of our growth products, because we're headquartered in Silicon Valley. I mean, honestly, our team, our growth equity team that was there saying, "Gosh, we're missing these IPO performance kickers that we used to get because companies are waiting so long to go public." And so we actually, for the last decade, have put late stage venture into some

of our growth equity mutual funds, you can do that up to 15% of the mutual fund. So again, as long as you know your product and you know what your commitment is as far as the illiquidity, then that doesn't concern me. What concerns me is when people start to convince themselves that these things are more liquid than they really are, because they're not liquid. Now, Jenny, I'd love a business update from you as well. Of course, you've been navigating trouble at the Western Asset Management Unit.

What's the latest on what's going on and how Frampleton is turning past that page? Yeah, so we're working through it. There's obviously been a change in administration. So as you can imagine, a lot of these government agencies, the new leadership, it takes time for them to get into office. And so we're continuing to work through that process. And I think the good news is we today are an incredibly diverse asset manager. The 1.5 trillion that we have, no single

investment team accounts for more than, I think, 11% of our revenues. And so actually, our Franklin fixed income team, which wasn't historically particularly institutional, has had tremendous net flows in there. And so, again, the key is to be able to have that stable of capabilities. We're a top 10 alternatives manager. We have massive, I think we probably have about $460 billion in fixed income between private credit and traditional fixed income. So,

So what makes us so resilient is the ability to have all of this stable of opportunities. I'm looking forward to seeing how you navigate the year. That is, of course, Franklin Templeton, President and CEO, Jenny Johnson. Switch to Verizon Business and get more from your internet without paying more for your internet. Get LTE Business Internet starting at $39 a month when paired with select business mobile plans. That's unlimited data.

You're listening to an iHeart Podcast.