Shownotes Transcript
As a global leader in alternatives today, PGM is capturing the potential of tomorrow. So as you look to diversify your portfolio, PGM offers expertise in seeding, developing and managing a broad range of liquid and illiquid strategies. With over $320 billion in alts across public and private markets, we are helping clients achieve their long-term goals. PGM. Our investments shape tomorrow, today.
Listeners, we say this every show in the credits, but if you love the podcast, you will also love the Unhedged newsletter. And you can get a free trial at ft.com forward slash unhedged offer. Pushkin. Nerds and highly informed, discerning, very, very good looking listeners to podcasts like this one have been well aware of the storm around US trade policy for weeks, months even.
In markets, bankers and investors are so aware, in fact, that they're getting to the point of burnout. Guys and girls, we hear you on that. It is pretty wild out there.
Meanwhile, over on Main Street in the US, a huge number of people are bobbing along in blissful ignorance. I envy this greatly, but guess what? This bubble is about to pop. Data from ports shows that the usual flow of goods into the US has slowed to a tiny trickle. Americans, you're about to see that most chilling of things, empty shelves. Today on the show, we're asking...
Do we all have to pretend we are supply chain experts now? And is Christmas cancelled already? Or is Donald Trump a huge wimp who will back down?
This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in sunny London. And I'm joined down the line from New York City by the big man, Robert Armstrong. Rob, how's it going, man? I'm a bit bruised, Katie. I fell off my bicycle over the weekend. Was it a heroic fall?
some assault you were doing on your bike or did someone do you wrong or what happened? I just was going slowly and like fiddling with something on the bike and hit something and I went over the handlebars and I'm fine. I have a scraped knee and a bruised rib, but really what was terrible about my accident was that other people saw it. Did anyone film it? Are they able to send it over? I did. I heard echoes of barely suppressed laughter.
It was tough, man. The ego. The ego is the hardest part, Katie, in life. The body heals the ego. Man, it's tough. Oh, this is a sad story. Let's talk about something else that's careering over the handlebars and crashing into the ground. So...
There's a new story saying that Amazon is going to start breaking out the tariff costs when Americans buy stuff using their platform to say on the little receipt, OK, so the widget that you bought is X number of dollars. And here's the amount on top of that that is attributable to the new tariffs of, in China's case, something in the order of 145%.
The White House has said, get this, that this act of telling people how much they're paying for things that they are buying is a hostile and political act. The chief press officer, Caroline Levitt, said she'd spoken to the president on this, and it was all no surprise given Amazon's links to Chinese propaganda or something or other. Rob, why do we think the White House thinks it's bad to tell people how much they're paying for things? Well, first of all, Amazon has denied they're doing this.
But still, the White House's strong response is very, very telling here. They've always shown a strong inclination in favor of invisible tariffs. Think to the first time the White House backed off on tariffs. That was almost immediately after Liberation Day, 48 hours later or something. They said,
About those Chinese electronics. They said, we're going to wait on those a little bit. And the point there, of course, is people notice the price of cell phones. So Trump has managed to convince a large portion of the U.S. population that it's China that pays the tariffs. This is what he said all along, ever since he was on the campaign.
So people are about to realize kind of now that that's not true, right? There's going to be a tariff or a tax on that widget that comes from China to Amazon. There still is an open question whether the Chinese manufacturer or the importer eats some of that tariff in the form of charging lower prices.
And not all of it is passed on to the buyer at Amazon. So there is some... It's not always going to be perfectly transparent what the tariff cost is. But the fact remains, we have a long and august tradition in America of splitting out taxes on our receipts. Sales tax is not just mixed into the price, right? It's added to the price. And...
Having taxes be invisible is always a government's preference because voters don't like taxes. But in all areas of business, finance, economics, whatever, transparency is better. This comes back to the general overpromising of Trump on tariffs. You know, we're FTRs, right? So we are...
kind of pro-trade and pro-globalism, and we don't like tariffs. We think it's a bad form of tax. But you might make a case for different kinds of tariffs in different situations for different reasons. Maybe you want revenue. Maybe you want to rebuild manufacturing. Maybe you want to create jobs. Maybe you have national security worries. List goes on and on.
I've said before the mistake Trump made was that he promised we would get all of these things at once Yeah, and that it would be painless and that it would be fast. Yeah, and there was always gonna come a point where it became clear that It's not everything everywhere all at once. No, right. It's it's something very specifically happening to you First of all, just like
Quality trolling for the White House to be like throwing shade over Amazon, given that Jeff Bezos has really stuck up for Trump. He spent a ton of money on on the inauguration. He was there in the front row. Amazon has also spent 40 million bucks on some biopic about Melania Trump. It shows that nobody is safe from the ire of Donald Trump if you provoke it.
It also kind of reflects a bigger point about when it's on a receipt and it's in black and white and it's in front of your face, there is no escaping it for consumers that the tax exists and that you have to pay it. And this is the point, right? It's like stuff is getting very real for a lot of people very quickly. So...
I'm not sure if you are intimately aware of the work of the Toy Association in the US, but Torsten Slocke from Apollo, he's the chief economist there, he sends out interesting little notes all the time, and he sent out a note recently citing the Toy Association, saying that the tariffs are going to be disastrous for toy retailers in the States. Apparently...
A huge number of toy retailers are like small businesses. They're kind of, you know, mom and pop outfits or very small businesses.
And about 50% of them say they're going to soon go out of business due to this tariff policy because the cost of the stuff that they're importing from China has gone up so much. The only reason we have not yet heard about Trump's war on Christmas is because the Democrats are saving it. Oh, do you think? It's such an obvious, important line. They're just going to wait until it's seasonal. Right. Right. If...
tariffs on Chinese goods stay where they are. The receipts are going to be the least of Trump's problems because the price changes, I think, are going to be fairly obvious on a lot of items. Yeah. And there's going to be no doubt about where they came from. And if there is any doubt, there's going to be plenty of Trump's political opponents who
prepared to remind us at all times about where those price changes came from. Like one interesting thing here is we all remember from COVID, right? Supply chains just ground to a halt for obvious reasons. It takes a really long time to fire them up again. It's true. Although I wonder, let me just say, let me just take issue with that a little bit. At least we had that fire drill.
Right. Presumably we learned a lot about supply chain management like five years ago. And maybe that will come in handy this time. And maybe American children like little carved wooden toys for Christmas.
Little lumps of rock, pieces of coal and a tangerine from California. So we had a very interesting and very well-read story at the start of this week from Peter Foster and pals at the FT. So logistics groups are saying that container bookings into the US, so the big container boxes that come into the States full of stuff from China and elsewhere, are
It's just collapsed. So the port of Los Angeles, which is apparently the main route entry for goods from China, says here it expects scheduled arrivals in the week starting May the 4th to be a third lower in the year before, while air freight handlers have also reported sharp falls in bookings.
So the reality is really starting to kick in here. There's also like quotes in the story, a lot of these kind of freight companies say the orders from China have just stopped coming in. Effectively at 145-ish percent tariffs, that just kills the trade, right? So you're an American. How do you think your fellow... You keep reminding me. I know. How do you think your fellow countrymen are going to take this sudden...
withdrawal of stuff from their shelves. I am not totally convinced that we're going to be looking at bare shelves. I fully agree we're going to be looking at high prices. We're in the first round, right? And there's clearly been a shock.
where people have decided to wait and see before shipping. I think that is what you are seeing in the cargo data you just referred to. But there is inventory in the system. I'm looking at a chart of total business inventories for the United States. And you can see it came up a little bit in recent weeks as people tried to kind of get ready. There's stuff in warehouses. Yeah.
What I can't tell you is how long that stuff will last while the Trump administration and the Chinese government make up their mind to negotiate or not. Yeah. So there is I think there is some cushion in the system if we get a resolution.
But the longer it goes on, the more dangerous it gets. It's almost like the worse things get and the more this reality actually hits Americans in the pocket and in the supermarket aisles, the more likely it is that Trump will blink, right? Because he's nourished by popularity. He loves being popular. He's managed to semi-argue that he doesn't really care about financial markets that much. And what he really cares about is Main Street.
I would add as well that Scott Besson, Besson percent whatever, Treasury Secretary, has said that, you know, all of this back and forth around Trump and the deals that he says he's done on trade and the fact that the, you know, the Chinese and Japanese trade delegations are saying, what deals? What are you talking about? Besson says this is all deliberate strategic uncertainty that Trump is injecting into the negotiations. I don't know about you. I always feel like when, when,
Scott Besson is talking like he's blinking in Morse code. Like, help me with his eyes.
The question of whether Scott Besant is actually a hostage of the Trump administration is a great topic, but probably one we should leave for another podcast. Yeah, I'm going to start tracking his blinks. But my point is just that you've got the strategic ambiguity thing. You've got Trump claims he doesn't care about markets, but he does care about Joe public, right? He cares about everyday families and his popularity with them. So, yeah.
If this gets really bad and we do start to see empty shelves and you guys can't get a hold of like toilet paper and stuff, does Trump blink? Now, you're of a mind, I believe, that Trump is a blinker. I'm going to give you something you're really going to like here, Katie. I'm going to create a massive opportunity for me to turn out to be wrong. Let me get my pen and write this down. Which I know is the very thing that keeps your heart warm in the long nights of...
I think Trump is a wimp at the end of the day. I think Besant is a wimp at the end of the day. I think these are not serious people and that when the heat is on, either from the domestic economy of the United States or from the stock market, they will fold every time. I am the captain of team fold.
And by the way, I'd like to note
Team Fold has kind of been running up the score, first on Chinese electronics, then on the so-called reciprocal tariffs on everybody but China, then on Chairman Powell. Today, story in the Wall Street Journal about how they are going to adjust, i.e. reduce the tariffs on certain auto parts, and they are going to make sure that the auto tariffs don't pile on top of the other tariffs. So these guys...
back off when the going gets tough. And I, my bet, and I, by the way, everybody hates this opinion of mine. So...
All the better when it turns out to be wrong. Yeah. My bet is when things get ugly with China, they back down. The problem, I guess, there is like with one stroke of a Sharpie pen, he can like cross out the 145 number next to China and just put 20 and then everyone's happy, right? And he can say with a straight face, oh, I never said I was going to try and replace Jay Powell as a Federal Reserve chair. And we're like,
No, you literally did. Like three days ago, you definitely said that out loud. So he can unsay things and he can scribble things out with a sharpie. But what you can't do is quickly switch supply chains back on. Again, we saw that with COVID. That was why we had such sticky inflation for such a long time because it takes ages for all this trade to get going again. Now, I'm not saying that this tariff...
snafu thing that we've currently got is on the same scale as the COVID shutdowns. As you say, everyone's learned to build more contingencies into the system, and this is just not as big of a shock. Nonetheless, if you guys really do run out of toilet paper, it's going to take ages for it to get back onto the shelves. So this isn't a thing that he can just flip. Yeah, I should be clear, Katie, that I don't believe that...
Trump being fundamentally wimpy about this stuff makes everything better. It's just a lot better than the alternative.
If we thought he had his heels dug in and he really believed he was going to restructure the most important relationship in global trade, that is the relationship between China and the United States, in two years, we would be in so much trouble. And I think we're not in that much trouble.
I think not only is the disruption an issue, but even if Trump does back off, as I believe he will, you still have the credibility problem. You still have the general questions floating around about whether the United States and its capital markets can be counted on in quite the same way they were once. And that probably has a cost for American assets that those questions are floating around.
I just don't buy the absolute nuclear winter zombie apocalypse thing.
sun expands and consumes the earth hypothesis of what is about to happen. Okay. I hear you. Does that make you feel any better? I think it brings us closer together in terms of what we both think about the situation. I agree that it's better to have a Trump that blinks than a Trump that doesn't blink. But I think lots of things can go wrong in between those blinking episodes.
Well, Rob, let's hope you don't run out of toilet paper. I'm actually not entirely sure how much of your toilet paper is domestically produced. No doubt someone will email me to tell me. I think I might know who as well. In the meantime, we'll be back in a sec with Longshot.
Okie dokie, it's time for Long Short, that part of the show where we go long a thing we love or short a thing we hate. In the brief break there, Rob looked up where America gets its toilet paper from and it's got something to do with Brazilian eucalyptus trees, am I correct? Yeah, I think it does. But I'm not going long toilet paper.
I'm not a hoarder, Katie. I'm actually short something. I am short the AAII Investor Sentiment Survey, which is this very famous and longstanding survey where they ask investors, is the market going to go up or down in the next six months? And right now, a historic majority of investors are saying it's going to go down. And normally, what that would tell you
is fill your boots. Yeah, buy, buy, buy. The one time in history the survey was as bad as it is now was in 1990. And if you bought at the low point then, you made 25% returns in the next year. And if you look at all the low points across history, it's almost always a great time to buy stocks when the AAII hits a very deep low. The idea being when everybody hates stocks, the only way people can change their mind is
is that they like them more. But this time you think they're wrong? But this time I just think the stock market hasn't fallen enough. Like in the historic cases where sentiment has been this bad, most of those times stock prices have already taken an absolute pasting. And that hasn't happened yet. And generally vibes in markets change.
outside of surveys like this just aren't bad enough. They're not bad enough. They're, you know, things like the put-call ratio and margin debt and these other things that kind of gauge how risk-hungry people are, they are not washed out enough. So in this one case, I'm going to say the AAII, which is usually a very good signal. There might be some interference in the signal this time around. I see. I see.
On a different note, I'm going to be long, posh fast food. Ooh. Rob, you will remember, and I seem to actually remember that you really like these guys. You know Gregg's? Yes. They sell pies and stuff on the high street in the UK. Of course, I love it. A pasty. Well, you will have perhaps seen reported exclusively in the FT today that they are going to start producing a red pepper, feta and spinach bake dish.
Ooh, posh. Now you're talking. I support you, even though my tastes in fast food are absolutely the other end of the spectrum. Much more basic. I'm a Taco Bell. My family is a Taco Bell family. We stopped at Taco Bell just the other day when we were on a road trip, and it was affordable, delicious, delicious.
And possibly dangerous to our health, but we loved every minute of it. Well, you see, Greggs are very good at high fat content, baked flaky goods that you eat on a train and get all over yourself when you're a little bit drunk and you're on your way back from a night out. Classy. Not that you would know.
I wouldn't know anything about that. So we are going to be back in your feed, listeners, on Thursday. Listen up then. In the meantime, stick with high-calorie fast food and try not to let the tariffs drive you absolutely round the bend.
Unhedged is produced by Jake Harper and edited by Brian Erstad. 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 Sattler. 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.