Jenny Johnson Talks Investment Landscape
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Bloomberg Audio Studios. Podcasts. Radio. News. We begin this hour with stocks lower as investors await clarity on trade talks. Jenny Johnson, the CEO of Franklin Templeton, one of the world's largest investment managers, joins us now for more. Jenny, it's good to see you. It's great to be here. Thanks for having me. Things have changed a lot since we caught up with you in Davos, Switzerland. There's a lot of optimism. You remember it. Everyone was charged up. U.S. exceptionalism. Bullish growth. Lots of hiring. Markets are great. Things have changed a lot. How have they changed for you?

Well, actually, we talked about it at the time. I think that you have to think through where the president is. He's come in with a plan, and he's been very clear. It's taxes, immigration, tariffs, government efficiency, and deregulation. And he has about a year and a half to get those things done before the midterms come in.

You know, from the tariff standpoint, again, he's a dealmaker. So when you are trying to make a deal, you need to show that you are in the position of strength, right? So a lot of this blistering is around, I'm in a position of strength and you're going to have to bow to my will. I think the challenge has been there are some unintended consequences of that. I was talking to somebody yesterday about Canadians. They're not upset about the tariffs. They're upset about the 51st state comment.

and that Airbnbs in Rhode Island are down because the Canadians say I'm not going to come visit the U.S. So those are the unintended consequences. The other piece of this is he needs the tax revenues identified in tariffs to help fund his tax cuts, which, by the way, are not tax cuts, really. They're extensions.

that extension, there is a massive tax increase that happens, which really becomes an issue around the economy. Can you describe how you and the team think the end game looks like? What do you think it looks like? Because some people have described the last few weeks as madness. Is there a method to it? Yeah. So I think what we hope to see, you'd like to see a couple of deals done, right, to show that he's willing to come to the table and make a deal, right? So if we can see a deal with Japan or Vietnam or...

you know somewhere to show no no he's he's playing his deals you'd like to know who is responsible member was paul ryan who ushered the first tax cuts to like who's responsible for ushering that legislation through and champion that that'll be very important because he's got to get this done in the question is how quickly can you get it done to calm the markets because what we've seen is

you know, look, when you suddenly have CEOs who say, I can't give guidance because there's so much uncertainty, that uncertainty makes them fear and then they stop making investments. If you stop making investments, it slows down the economy, right? So I think what

we need to see in the next 90 days is some clarity. In the meantime, uncertainty leads to a lot of conspiracy theories and lots of other types of speculation. As someone who oversees $1.5 trillion of assets, how much of a material shift have you seen with customers, consumers, shifting just slightly away from U.S. assets to insulate from some of the whipsawing and the uncertainty? You definitely see uncertainty.

non-Americans reducing on the institutional side some of their exposure to U.S. equities. So we've seen that a bit. But on the other hand, if you are in the market now, this is not the time to get out of the market. You need to play this out. And if you hadn't made the trade to being in more defensive stocks

then there's no point in doing that now, right? Because you've already sort of missed it. So, you know, the reality is AI, I actually played around this weekend with an app called Replit, where you can just use natural language processing to have it code and generate an app for you. Like the efficiencies that come from AI, we haven't seen those kind of productivity gains yet. The productivity gains that we're seeing are coming from technologies that came out 20 years ago.

And so as those things play into companies, I think you'll see real opportunity. You know, one thing that I hear from you and I heard from Mike Wilson of Morgan Stanley earlier this morning was that corporate America has a lot of good about it in terms of strength, in terms of resilience, in terms of technological progress. It's the question about other dollar-denominated assets. And I'm talking about treasuries. I'm talking about government debt, especially given some of what you were talking about with respect to who is driving some of these budget proposals through Congress.

That really is the issue. How much have you seen that bid get called into question as institutions, particularly foreign ones, move away? Well, I think there's a question of how much are foreign governments pulling away from treasuries, and is that what we're seeing in the treasury market, or are we seeing the unwinding of the basis point, the basis trade? And so, you know, let's...

Then the question falls into, well, is the reserve, U.S. is the reserve currency, a question. Look, where else are you going to go? The U.S. is going to be the reserve currency. People will say, well, China trade has gone up 50%. Yeah, it's gone from 4% to 6% of trade. It'll chip away at it.

but we're still going to continue to be the reserve currency. You mentioned a lot of non-US investors pulling back from the United States. Morningstar had research out this week that said some of that is actually patriotic rebalancing from capital from America to Europe. Do you think it's that emotional for some of these people?

Well, you know, just again, talking to folks from Canada who are so fundamentally offended by the comment of, you know, the 51st state. Yeah, it's emotional, right? They kind of get it on the trade and tariffs and we can do and you want help on immigration. But a comment like that has obviously had that kind of nationalist response. What are the long term impacts?

of feelings like that. Listen, you know, I was at a dinner last night, we were debating, does that push Europe to China? I don't think it, you know, obviously I think what it does is, there's the joke of, you know, it's not MAGA, it's MEGA, make Europe great again, right? It forces Europe to do things like more defense independence, more energy independence,

Look, there has been a lot of brilliant talent in Europe. Why are we not seeing these unicorn companies from a technological? A lot of people would say it's the regulation and it's some of the policies that they have in Europe. And so if this forces Europe to be more resilient on its own, that's actually a good thing for Europe. I don't think it necessarily, they don't suddenly trust China much more. They're already trading with China. But it, uh,

it forces them to say, you know what, we have to stand on our own a little bit more. It's why we've seen some investors rebalance towards Europe since the start of the year. I wanted to build on some of Lisa's questions, and I think this is an important line of questioning. At the moment, some investors aren't drawing a distinction between risk assets in America and the safe haven asset in America.

It's trading as one bucket, dollar-denominated assets. And I wonder, from your perspective, when that EM dynamic starts to take hold of a country, whether that's a risk you need to actively manage or a dislocation you take advantage of. Which one is it at the moment? Well, I think any time that it becomes a risk-on, risk-off in a big block, and yet you know the underlying fundamentals are different in kind of an investment, that actually becomes a great investment opportunity. So I think you have to look at it and unpack

those. Do you think that's what this is right now? And is the opportunity in stocks or bonds with that in mind? I think right now it's almost a market reacting to just a headline statement, right? And so it's really sort of on and off. It's a risk on, risk off.

I think that from a, you know, the dollar was, some would say overvalued, who knows, right? And it's come down a fair bit. I think there are a lot of people that would, the U.S., the debt and the deficit, you know, thought that it was overvalued. And so probably in this, there's a little bit of that coming, you know, some of that frothiness coming off.

What's your advice to people right now who were part of that dollar bid? They've built up that massive dollar long over the period of a decade across asset classes in both equities and fixed income, and they're nervous about the policy in Washington and looking to reallocate. What are you suggesting they do? I think it depends on where you're... If you're a dollar-based economy, I think that's okay. You don't have to worry about that. If you're not a dollar-based economy, you have to understand how that's going to impact your investments.

Certainly been something the Europeans have had to think about over the last few months, that's for sure. Jenny, it's good to see you. Lots to talk about. I can't imagine how much has changed the next time we speak. Jenny Johnson there, the Franklin Templeton CEO on the latest in this market.

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