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A warm welcome to the Risk Reversal Podcast. This Tuesday, April 29th, market has just opened slightly lower. We still have an S&P that has basically retraced 50% from the all-time high to this recent low that we saw earlier in April. Dan, Nathan, how are you today? I'm doing great, Guy, Dami. We got a lot going on, like you mentioned. Today is the 100th day
of the second Trump administration. You're going to see a lot of that sort of stuff. I think on Fast Money Guy, they're asking us what the next 100 days might bring. So get ready for that. They're going to produce that up. You know, I'm looking at the front page of the WallStreetJournal.com and I think we don't even need the rundown. Our main man, Stephen, he does a really nice job with a rundown. Amanda, obviously. That's Stephen Reifus, by the way, who was a La Crosse
hero at Syracuse University. Back to you. He was a hero. Hopefully he's listening. All right, here are some of the top headlines, Guy. Trump to soften blow of automotive tariffs. GM profit is pulled, the guidance that is, citing significant tariff impact. And they're actually reducing their buyback, which I think is really interesting. UPS to cut $20,000
jobs after Amazon breakup. They're having a hard time with the tariff situation also. And then here's one that I think is really interesting. This is the herd on the street guy in the Wall Street Journal. NVIDIA's Trump worries go far beyond the
China, AI diffusion rules could limit U.S. chip companies' sales even to friendly countries and giving the opportunity to foreign rivals. So a lot of stuff there. Where do you want to start with? GM? You want to start with the automotive? The autos for sure, because this is something that we've talked about. Now, by the way, with all that said, GM's down about 2% as we're taping this. And this $46, well, to be honest with you, sort of the $44 level-ish
has been sort of a bit of a line in the sand that the stock continues for whatever reason to bounce off of. But what we have said for a while now, and what I believe to be the truth is, as much as he's dug in, and this is President Trump, on tariffs, and rightly or wrongly so, I'm not going to comment on that. My thought was he was going to find a way to carve out for especially U.S. automakers, specifically GM and Ford, and you throw Stellantis in the mix as well, because
I think there's a part of him that feels he needs to protect these iconic American companies. And I'm sure he's getting a lot of blowback. So it's a very tough game to play when you want to be steadfast in terms of the tariffs, but you're continually trying to make these carve outs for different industries and different companies. So you're walking this fine line. And at a certain point, you've made this comment.
these tariffs, not that they lack teeth, but they seemingly get less and less robust as each day goes by. Yeah. And I guess, you know, we talked about this on Fast Money last night. There was a Dallas Fed survey that came out yesterday. 60% of the respondents were using terms like chaos, insanity, talking about the tariffs. You know, this is an
a firmly red state in an economy that you tell me from a GDP perspective, Guy, is probably top 10 on the planet. It's a really important economy here in the U.S., not just energy, but there's a whole host of other things. You've seen tons of industry. For instance, you know,
Elon Musk moved a lot of his businesses to Texas. So there is the potential, whether these threats or these trade wars or these tariffs, no matter how long it goes or how short they are, there's going to be economic disruption. And we're seeing it already when a company like UPS, whether they're using it as an excuse.
to cut 20,000 jobs, right? That maybe they were already going to cut that sort of thing. It's just, this is going to be really disruptive. We keep hearing about, you know, shipping rates and tankers and all this sort of stuff and, you know, rail rates and last mile stuff or whatever. It's just going to be really hard to turn this thing back on. And so if you go and you try to do these massive tariffs and then you walk everything back, then you have to ask yourself, what are we doing? The other thing I think is important, this is a top headline today,
is with Carney winning in Canada last night, here's a guy who's taken a hard stance versus some of the trade threats, you know what I mean, that we've had here. This party, the Liberal Party, was down 25 points months ago. They looked like it was going to be a wipeout.
Right. And then as soon as Trump started referring to them as the 51st state, think about the switch. So if they don't come to the table for a deal, Mexico does not come to the table for a deal. Japan doesn't come to the table for a deal. The EU, then you say to yourself, what sort of front can we have with China? So I think if you're a corporate here, you should be bracing for a protracted
you know, trade war that leads to the potential of a recession this summer, which is what Torsten Slocke from Apollo is saying, 90% probability. Yeah, a lot of people are making that call as well. Now, the flip side of that coin is David Solomon from Goldman Sachs is sort of trying, I think, temper things down a little bit. And I'm quoting here, if the level of uncertainty grows from here, yes, you will not see the same amount of capital activity
But then he went on to say that things will settle down. That was on a Bloomberg interview. So he's obviously taking a little bit of a different stance in terms of how he feels things are going to play out. Now, what I think is going to wind up happening is whether things settle down or not, I think
Part of this is the market's going to start to realize and start to understand and start to figure out and to deal with the uncertainty and the rhetoric around all these things. When it first started, you obviously saw a heightened state of awareness. Now I think the market is
coming to the realization that, okay, we're not going to react to every single headline. But with all that said, Dan, even though the market, as I mentioned at the top of the show, has basically had a 50% retracement off the low, you still have a volatility index that is north of 25%.
which to me is one of the more remarkable things that we've seen. This is now going on three months, maybe a little bit longer, of a VIX that's been basically at levels that we have not seen for quite some time in terms of just the amount of the duration with which we've been here. And I find that to be maybe the most fascinating thing about this market. Yeah, I guess...
From my perspective, Guy, I'm more focused on the 10-year yield. I know you're focused on the 10-year yield, but I mean relative to the VIX and what the VIX is telling me. Because if the VIX at 25 is saying, despite this rally that we've had over the last few weeks, there's still risk here, I think that's something that is quantitative. That is the pricing of the potential volatility if you look at the curve in the VIX futures curve, and it's saying that.
But if I look at the 10-year, it says to me at 4.2% that it's cool, like right now. And if we start seeing that go higher, then we got a real problem. You know what I mean? And then you have a VIX at 30, skipping to 35 and everything like that. So I guess I'm more focused on that 10-year because if we had a VIX at 30 and we have the 10-year at 4.2% or 4.1%, I'm not worried about equities. You know what I'm saying? Does that make some sense a little bit?
A little bit. And the question you have to ask yourself, I guess, and I think what the market is trying to come to grips with is, was that event a couple of weeks ago that I think Tuesday night where the bond market was eroding in a meaningful way, was that...
the main event or is that just sort of a tremor? And are we getting setting up for the main event? A lot of people think that was it and cooler heads prevailed and we're not going to see that type of uncertainty or that type of momentum in the bond market. Again, other people think that that was just the first of a tremor for a much bigger thing that's going to play out over the rest of the year. I'm sort of more towards that camp where I think it's a tremor.
I still think the bond market is going to tell the story. And I do think there's going to still be some moves in the bond market that seemingly come out of nowhere, but are predicated again on all this rhetoric around trade and all the uncertainty that now the United States has provided for the rest of the world. And bond market, the confidence in the bond market is based on the confidence in the United States. And when that sort of erodes,
you start to have the moves like we saw a couple weeks ago yeah and you know heading into this week with all these mega cap tech earnings i think a lot of folks were hoping that we could put some of those kind of macro moves you know what i mean on the back burner and really focus on companies um fundamentals and you know what's interesting about that is that if we do see some sort of degradation
in the fundamentals as it relates to the lack of clarity, you know, for guidance and maybe some of the kind of metrics that you're tracking, you know, are starting to kind of weaken a little bit after, you know, a couple years of just kind of off to the races sort of stuff. And I'll just use one example today, you know, Spotify, which has been an
absolute darling missed on subscribers. They missed on some other, you know, kind of revenue and earnings estimates and the stocks down, you know, today, 6%, it was down 4% yesterday. And this was an outperformer. This is one of the few stocks I think in the NASDAQ that we look at that was above its 200 day moving average. So I, and you could say, well, Netflix was great, you know, last week or whatever. But if you start seeing some of the leadership outside of the mag seven, you
start to kind of waver a little bit as far as the earnings. That's something that's really interesting. And so last night on Fast Money, we were talking about some of these mega cap tech names and we got to NVIDIA. And I said, listen, NVIDIA is a real problem here. And we were talking about CapEx. We were talking about Google looking back to last week. And then we know that we have Microsoft, we have Amazon.
We have meta this week. So those are all huge NVIDIA customers. And I started saying, NVIDIA acts like, well, you know what? I took a beat there. And Melissa said I could have said what I wanted to say. I was going to say dirty, rotten ass. And she said I could have said that in the break, actually, by the way. So maybe I'll try that. I don't know. Maybe it's going to be – maybe I'll rush it a little bit, guys.
Who knows? And maybe you'll be the guy who tells me that. But when I look at NVIDIA and I talk about that, I just mentioned that hurt on the street article. I just want to kind of explain what that is. Okay. So the AI diffusion rules. So starting on May 15th, 2025, the U.S. will implement the AI diffusion rule, a sweeping set of export controls that
not only restrict sales to China and Russia, but also place strict limits on how many AI chips can be sold to many other countries, including U.S. partners like Israel, Switzerland, India, and Saudi Arabia. These rules also limit the ability of major U.S. tech firms, Microsoft, Amazon, Google, to build, this is the important part to me, to build large AI data centers in those tier two markets. So think about that. Everything, every piece of news,
for the last two years, leading up to DeepSeek on January 27th, was great for NVIDIA. Anything that Google and Microsoft and Amazon and Meta had to say, great for NVIDIA. Now it just seems like, you know, a page has gone the other way. We've turned the page. How's that? And now it seems like... So Bob Seger for you. Yeah. And now it seems like
There's no good news for this name. And still, the stock is 20% above levels that you and I think it should be at to just kind of set things straight a little bit. Thoughts on that? Well, I mean, yeah, the August low from last year, that August 5th low, I think about $90. We obviously traded down there in NVIDIA, and we bounced. But here we are trading about 108, 109. And listen, although that's a nice bounce off of 90, it's not nearly as robust as
as some of these other companies. For example, I think Microsoft, by comparison, I think traded down to about 345. It's currently trading about 390 or so. So a little bit, I guess, percentage-wise, maybe a hair better move. But to me, as much as NVIDIA is important, and you have one day report in front of you, I don't. But Microsoft this week, to me,
is gonna tell a big tale as to really what's going on. And will you see a reacceleration or are they falling victim to the slowdown that everybody else seems to be falling victim to? And if in fact that's the case,
You know, that 345 level or so that we saw a couple weeks ago, you know, I think that's probably in the crosshairs, Dan. Yeah, you know, there's more commentary when you mention Microsoft, right? So one of the early beneficiaries of just the investments they made in OpenAI, right? And we saw that throughout 2023 into 2024. But at some point in mid-24, you know, we started to see the interest in Microsoft wane. And we saw some other things.
definitely in the private markets, but just some of the stuff that was going on as far as on the public clouds and then some of the models that were being used for them, some of the competitors to Microsoft. And then you started to see this OpenAI relationship between Sam Altman and Satya Nadella kind of wane a little bit. And so you start asking yourself, here's a company that has not been able to meaningfully monetize their co-pilot strategy using OpenAI technology.
And you say to yourself, OK, well, if corporate America is uncertain about the course of this economy and they have their finger on the trigger to make cuts, which would be CapEx cuts, it would be job cuts. You can see why some of the just the kind of plans that they had for build outs. And then you bring it back to the AI diffusion point that is made. We could see a major step back.
in capex and at some point you say to yourself okay these companies were being rewarded for the amount of money that they were spending investing in this technology for the future and now the pullback might cause you basically to rethink that strategy it may cause you to rethink the pace in which they're going to get a return on these sorts of investments
I think Google excited people when they reported in terms of, you know, they talked about CapEx and remaining constant in terms of what they guided to. So the market took, I think, a collective sigh of relief. And you might see that from other companies. But what you're mentioning is, again, we've used this word, the sanctity of CapEx. And if things slow down, I'm here to tell you that as much as people want to say AI is the future and we need to make these investments for the future,
If things slow down in a meaningful way, one of the first things that's going to get cut is, in fact, CapEx. So I think those stocks, just my opinion, I don't think the market's prepared for that at all. And I think that's the environment that we find ourselves in. By the way, the next thing that's going to happen after that is, we've talked about this as well, unfortunately, is there going to be layoffs. And you just talked about some of the layoffs that we're seeing on the UPS side of things. So it's all sort of part and parcel what's going on right now, Dan. ♪
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Let's go back to the David Solomon, CEO of Goldman, some of the commentary that he had. And I'm just kind of looking at the Bloomberg write-up and I don't know if it was on TV or what it was, but he said, if the level uncertainty grows from here, yes, you will not see the same amount of capital activity
but things will settle down. And so he goes on, and that's the kind of tone that he's using a little bit. And you know, it's interesting, we're still in this period where a lot of these CEOs, while they're going to the White House and they're trying to kind of plead their case, but they're also being probably very deferential. You know what I mean? And that's why I think what Jamie Dimon did two weeks ago on that interview on Fox Business,
was important because he was willing to kind of voice his concerns publicly. A lot of these folks, you know what I mean, are doing the opposite publicly. And in the private, they're probably not being as, you know, sharp-tongued as they should be because when David Solomon says that their customers, you know, or their clients and the people they're talking to, they're all expecting things to settle down,
then they haven't been paying attention because, you know, at this point, there's been no indication, despite pulling back on some of the worst sort of threats. And this brings me back to what Besson said, I think, Treasury Secretary Besson on CNBC yesterday. They're basically saying that it's the Chinese that have to de-escalate, you know what I mean, to get talks going, which makes no sense to me. And I know I'm kind of merging these two conversations here, but it makes no sense. We're the ones who slapped 145% tariffs.
on the Chinese and now we're waiting for them to deescalate. So that doesn't make any sense. So if you're a US CEO and you're a multinational and you've been doing business all over the world and most of them are doing business in China too, and they know how those countries operate,
They know how those companies in those sorts of states are backed by the state and the like. I just don't see why you would expect something to clear up really quickly. And so that goes to the uncertainty about CapEx and hiring and all that other stuff.
Well, it doesn't make sense if you look at it through the lens of, you know, we initiated this. On the flip side of that coin, there were people say that this was, you know, they've been ripping us off for the last 40 years and this is just us trying to get. And again, I'm not commenting either way, but there are two sides to that equation. And there are people feel like all we're doing is trying to get back on somewhat of a level playing field. But with all that said, this merges into retail as well. And there was a journal article out talking about
the retailers like Walmart and Target and Amazon have been able to sort of keep prices steady, but that's just a matter of time before that genie's going to be out of the bottle as well. So the question is, and this comes back to what we've talked about, is that inflation problem going to reemerge if these retailers can't hold prices at current levels? And I think
That's a concern that's out there as well that I don't think the market is pricing in. Yeah, when you're talking about holding prices too, right? You have to have product to hold prices. And then the less product you have, the more scarcity you have and the higher the prices go, right? And so then the companies have to make a decision. Well, are they going to take the margin that they can get on the product price
they can have, or do they run the risk of losing market share? Because ultimately, this will die down, right? And who knows whether it's a month, whether it's three months, whether it's a year. I bring people back to 2018, the first time we had a trade war with China, when the Trump administration slapped tariffs on them. It took two years.
to get the phase-in deal, the handshake deal, to do phase one. That was January of 2018. So the idea that this is gonna be something that's gonna be done and dusted in a matter of weeks or months, and they also have all these fights that they picked with all of our allies, and so they have to do 50, 60 bilateral deals before China. So bringing it back to these retailers,
You say to yourself, why would they have any confidence that they're going to have access to the product that they need, right, to kind of serve U.S. consumers? And I know that sounds pretty dire. We've experienced this kind of, you know, this threat before, and that was during COVID, and it was not a great period. And that was the thing that caused inflation to go batshit crazy. It's also the thing that caused us to reshore jobs or start thinking about it, which also added to the inflationary pressures.
Well, that is the thing. And that's why we haven't mentioned the Fed yet in the first 20, 25 minutes of us talking, but why the Fed is basically so important and why I think they continue to sort of hold their ground in terms of rates. And they'll continue to say, being data dependent, and part of that data set is exactly what you're talking about. I mean, you can't anticipate inflation. They're not obviously foresighted.
forward-looking, although a lot of people think they should be, but they obviously see what's potentially down the road. And to lower rates in this environment, and this is just me, against the backdrop of what you just said,
Again, this is just me. I think it just puts fuel on what is a fire that's been slowly burning out but could reemerge at any minute. Yeah. And so you mentioned the Fed. And so on Friday morning, we have the all-important jobs number. And then next week on May 7th, we have a Fed meeting where we've seen, you know, Fed funds futures kind of move up.
around a little bit, but still not pricing of like a high probability of a rate cut, despite the fact that that kind of worked its way into the lexicon as far as the markets were concerned last week and maybe caused a little bit of that last push or so. But then we have CPI the week after that guy. So you say to yourself, okay, when was the last time a Fed meeting induced a lot of volatility? I bring it back to December 18th. Basically,
In December, they suggested that they were not going to proceed with the sort of rate cuts path that they were on. Market got absolutely destroyed that day. So I wonder over the next week, week and a half or so, we're going to see some Fed-induced volatility if they continue to take a hawkish stance.
I think that's exactly the point, right? I think as much as people want to say they're out of the equation in terms of the market, I think it's just one more potential variable that could add to the volatility in the market. And I think it's the May 7th date, which by the way, is fast approaching. You know, a week from basically tomorrow is when we're going to hear from these folks. And you're going to have data on the backside of hearing from these folks. And you're going to wonder, you know, what their interpretation is. Because if you get a weak jobs number, which I expect,
That puts them in a really delicate position. They're going to get browbeat in terms of we need to lower rates, prices are down. On the flip side of the coin,
you know inflation to me is still a bit of a bugaboo although other people say otherwise so the fed to me you just said it i think that's one more layer of volatility that the market's not pricing in yeah so this week it's big tech earnings that's the focus here i think industrial earnings are going to continue to be weak and so it's interesting to me that you know those large tech names they're obviously huge components of the s p 500 huge components
to earnings growth there. So if we see some disappointment there, we see a weak jobs number. I wonder what that puts in the Fed's minds as we get into May 7th, Guy. A lot to talk about this week. We'll be back with Market Call Tuesday, Wednesday, Thursday. We'll have a risk reversal podcast that will drop
on Friday. I believe I'm sitting down with Stuart Sopp of Current. So that'll drop. That'll be fun. And you obviously have your guests as well coming up. Yeah. Today I'm recording with Steve Milanovich. He's an old friend of mine. He was a longtime tech analyst at Merrill Lynch, ran Money
after that. And I just want to get his sense for what he's seeing now relative to what he saw in the 90s and the early 2000s there. Great longtime friend of mine and analyst. So I'm excited about that. That drops tomorrow, Wednesday morning. All right. Big week, Guy. I'll check you tomorrow. Thanks. Bye, folks.