Bloomberg Surveillance-Peter Tchir, Head of Macro Strategy, Academy Securities
-Wendy Schiller, Taubman Center For American Politics and Policy Director At Brown University
-Jay Pelosky, Chief Investment Officer/Co-Founder, TPW Investment Management
Peter Tchir of Academy Securities says he thinks January will bring, "a lot of volatility." Wendy Schiller of Brown University warns the incoming Trump administration, "Even with the Republican trifecta you will not always get the victories quickly." Jay Pelosky of TPW Investment Management is, "looking at opportunities outside the US."
Bloomberg Audio Studios, Podcasts, radio News.
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.
We begin this hour, though with US futures mostly unchanged, a little bit softer following a Christmas Eve rally, investors hoping the so called Santa Claus rally will continue from the final four trading days of the year. I was looking at a stat this morning, Peter. Since nineteen fifty, the S and P five hundred has generated average and medium returns of one point three percent during the Santa Claus period, wildly outpacing them market's average seven day gain of three tens percent. And this is coming from LPL Financial. So actually, if you're willing to be in the markets around the holidays, maybe it'll be good for you.
You know, normally it has been.
I think this year though, everyone's kind of been looking for that opportunity to buy. We had the dip post FOMC. I think people bought that dip. I think we've already had a lot of the Santa Rally, then we had the weird stuff that went on with the budget. I think people are going to have to digest what does it look like in the new year with President Trump, with Musk, how's the economy.
Going to shake out?
And I think that's actually going to you know, maybe maybe we get the Santa rally, but I think come early January, we're going to get a lot of volatility.
So you think the market has baked in all the good stuff when it comes to Trump, I think.
Lock got baked in again.
I think you go back to post election, everyone was really worried about tariffs. Then all of a sudden consensus became, Oh, it's just a negotiating point.
You know.
He tends to like volatility, he tends to like chaos. So the more the market gets complacent, I think the more he likely he is up to up the ante.
What do you think in terms of sequencing come January.
You know, I think he's going to go for easy wins. So I think as he gets out there, he's going to look what can be done. So anything that can be done in executive order, look for him to go ahead with that, right because he can do that simply. Then he's going to look for the opportunities.
Again.
I think we're already seeing some progress in terms of immigration. He's working with New York City Mayor Adams. So he's going to go for those high visibility easy wins. And he doesn't start getting those, That's when I think you see a more messy and chaotic problem when it.
Comes to the easy wins though the market is looking for, really is a tax bill. When do you start baking in the fact that this could actually become real legislation.
I think you have to wait until you really see what people come back acting like. Again, this budget thing was kind of weird, right. There's clearly some element, certainly even within the Republican Party that does not want to grow the deficit. There's concern about the deficit growing. You're seeing yields and entire almost every day for the last few weeks we have I think it's about twelve trillion dollars of debt that we have to refinance next year. So one, you need that demand to be there, but the higher if we're rolling that over to higher yields, that's going to add problems to the budget deficit. So I think the deficit is going to take front and center. It's going to make it more difficult than most of us would like to get some of those policies pushed through.
You write about bonds, be wary of bonds.
Nothing from the past days tells us that there won't be a lot of spending, just the direction of spending.
Will be altered.
You're talking about what happened in terms of the debt ceiling debacle, which pretty much when silent once they pass through this clean cr Do you think it's going to be the bond market that is the ultimate check of power in twenty twenty five when it comes to Washington, DC.
I think it will be right.
It's become the interest expense is already a big part of the deficit. It's growing, it's going to continue to grow, and the bond market, I think is very wary. Right, how are we going to pay for all these things? I think everyone out the corner of the eye is still looking at Doge and saying, Okay, maybe something gets done there.
I think that's the.
Bright shining light that's kept market somewhat in check. Is well, if those can really get some efficiencies, maybe we don't see the deficit bloom.
Everything else, though, I think is just telling.
Us this deficit is going to go higher, and that's problematic.
Do you see any fiscal hawks left in Washington?
Apparently?
Maybe what the twenty seven Republicans who voted against the cr They're thirty eight, so yeah, maybe that's it.
There is no one.
It's all a matter of where they spend their tax cuts. And again, dog seems to be the one thing. Maybe that's where they eke out some gains and do something about the deficit. I just don't see that happening very cleanly or very quickly.
You also say that there's hope of discipline discipline, but quote the swamp seems well in trench. So I see consistent upward pressure on bond yields. T row Price is talking about maybe five percent. Some people are even saying six percent on the ten year yield. Do you think we can reach those levels?
I certainly think five percents in the cards. Six percent might be high. We'd have to see some of the policies actually get implemented, but yeah, I think five percent's pretty realistic. Don't forget. Also, we might see some inflation pressures come back again. One people were buying goods ahead of the tariffs or potential tariffs. You're seeing that, You're seeing the economy still move along reasonably, Well, it's that shopping season.
Plus I do think there's been an artificial.
Bias to the data pushing things higher than they really are in terms of jobs and inflation January February, so that could spook the market as well. Six percent seems high though, unless we get really aggressive policy.
What do you make if we get five percent ten year yields? What happens to this idea of US exceptionalism Now?
I think the US economy will struggle at that level. You're starting to see small companies default pick up.
You're also One thing.
That kind of really caught my eye is they've gone back in Q two and said now that we're actually job losses rather than job gains in Q two. So every time they do the revisions, the economy actually seems slightly worse. So I'm not sure where we're managing to.
I do think the.
Fed's going to be much more cautious on rate cuts. They did their one hundred BIPs. They're sending that message. So I think we're susceptible to a yield driven slowdown.
What does that then mean for the equity market?
You know, I think we could see some pressure on the big high flyers again. So much of this market to me, is about the leverageddtfs you have now single stock leverage gts. Have no idea why those have been improved. They're out there. You're seeing a lot of high around that. You've seen a lot of hype around you know, Bitcoin, it got to one hundred thousand a couple times. I think it crossed ninety nine just yesterday, and now it's back to ninety five thousand. So I feel that that's that froth that's in the market. That's what the liquidity is going to get taken out of, and it'll be pretty aggressive and pretty quickly when it happens.
Do you think there's any chance than in twenty twenty five for broadening out or the concentration will remain in these mag seven names.
I think we could see broadening out. We might even see maybe globals start doing better. It's really going to come down to, I think how many fights does Trump pick, who do we pick fights with, are we winning them?
And what sort of policy do we get.
So but with higher yields, I think that's going to make it more and more difficult for this to really broaden out.
Unfortunately, when you say you think globally we can potentially see pickups where exactly right.
Now, I still wouldn't touch Europe. I think Europe's a disaster. You mentioned I think at the start of the top of the show how the europe declined free fall.
So it's hard.
And what scares me about Europe is Germany's kind of been the juggernaut. Europe's kind of Germany's been what's held Europe together. They're doing very poorly right now. So I'm not yet there, But I do think sentiments become so bad over there and so excessive over here that you do get that potential for a reversal because.
It's so low. The entring point is that what you're saying an entry point.
Right and really is a contrary you're looking for.
Okay, once everyone's given up on something that tends to be where it doesn't take much to push that around, and everyone is still so very focused mag seven over here. Every time we've tried to rally, you know, small caps, that's failed, and I keep thinking everyone's looking for that small cap rally and maybe the surprise is going to be Europe or someone does better. I don't think it happens this month or next month, but that could be the trade of the year where all of a sudden people say, let's give the world a chance.
The Dacks, though, is up so much double digits on this year.
Jonathan brings up this point all the time, yet the German economy.
Is on its back.
You know.
I think one of the things with all these is most of these companies are big and global. So that's one reason I think you can look at this and say, you know, I think the S and P five hundred, close to fifty percent of your owns come from overseas. So it's the same for some of those big German companies. Right, Mercedes is not really a German company per se. Right, They're very dependent on global So I think that's you know, it's hard when we look at these things and really nationalize them when some of the big companies really are so global and why would they trade it a much smaller, you know, as a market lower pe.
I think some of it makes sense.
Some of it's telcode things, banks that don't have that potential, but there is that opportunity I think for growth there.
The one area you haven't mentioned is China.
China overnight is apparently giving local officials more leeway and how they invest government bonds. We do see them coming out and trying whatever they can to stimulate the economy.
Is it enough for you to want to go there?
Yeah, I actually don't mind China as an investment, and we'll be interested when we talked to the guests later today. But I do think that this is almost an existential sort of moment for GI and the Communist Party, So they are going to keep throwing things at this until they get.
The economy turned around.
And I am a big believer that their whole strategy is this made by So they're taking their brands, they're trying to sell them globally. They're trying to use bricks as another way to get their brands out there. So I think Chinese companies actually might do pretty well. And again, sentiment's been awful since, you know, there was that brief flurry, you know when everyone said, oh, we have to buy China late in the fall. It's kind of reversed again. I think there is some opportunity there. I think, to me though, it's still a trade, it's not an investment.
You're a traveler, not a settler when it comes to Chenna, definitely. Andy Schiller of the Taubman Center for American Politics at Brown University joins us now, Wendy, thank you so much for joining us, and happy holidays to you.
Thank you for joining us the day after Christmas.
We have a long list of grievances coming from President elect Trump before he even gets into office, whether or not.
It's Canada, Mexico, China, Greenland.
And now the Panama Canal.
What do you make of all that?
Yes, good morning, Henry.
Well.
President Trump, you know, did successfully renegotiate NAFTA, at least in his eyes, in the eyes of a lot of people, trying to secure better terms for the United States in terms of trade. And this is something presidents can do in terms of executive authority. They have a trade representative. They do have a lot of leeway in determining what our economic relationships are in terms.
Of trade and also user fees with foreign nations.
And so there's a long history with the Panama Canal, and so I'm not sure how much the president will invoke that history. But he's looking for victories, and he's looking for victories that he can demonstrate using executive power and really pretty much end running Congress. Because he was president for four years, he understands, even with a Republican trifecta, as he saw last week, you're not always going to get your victories quickly or easily through Congress.
So you're going to look to other venues and other uses of presidential power to achieve quick victories. It's to look successful.
China doesn't control the canal at all, but it does have two of the main five ports adjacent to the canal.
Is that really what Trump is getting after?
Well, I think observers would like to believe that the President wants to strengthen the United States position visa each China in a lot of different ways. We know that China is also investing in a lot of parts of South America and also Africa, and using its resources to sort of gain leverage in those areas. That's been happening for a long time and the United States hasn't really confronted it head on. And I think these are going to be ways in which the Trump administration looks to sort of counter China, beyond even tariffs in the places that China is trying to gain a foothold.
What do you think are the top two or three things he could do basically on day one to set that agenda and get that tone going.
Well.
I can certainly issues some executive orders.
He can certainly raise tariffs under a sort of national security he can do those sorts of things. He can certainly try to block some issues of visas or travel like.
You did with the Muslim ban.
You know, there's a fair number of things presidents can do with executive horizon the first day.
What he can't do is get his ambassador cleared right away.
That's up to the Senate, and the Senate seems under John Thune, the incoming Repulican leader, to want to exert its constitutional privilege and really examine his nominees. Now that examination may take a day, a day and a half, but they're still going to go through the process. So all these ambassadors, all these cabinet levels, they have to still go through the Senate and that's going to take a little while.
So how much that frustrates President Trump. We're about to see, Wendy.
What's the Democrats strategy for next year? Henry?
That is a question I think the Democrats themselves are looking for an answer to. It depends which faction of the Democratic Party emerges, you know, sort of as the chief spokesperson against the incoming presidential Trump's administration. We saw a little bit of playbook from the Democrats on the budget bill, you know, referring to President Musk or co President Elon Musk. I think the Democrats have real concerns about these non elected influences on President Trump.
You know, President Trump, we've seen four years in office. There's a bit of a playbook. Unpredictable, but there's a playbook.
But new actors with this kind of influence, particularly with communications, presents a challenge for the Democrats, and they're trying to sort of drive a wedge between those influences, particularly Musk and the President. Because of the President, they know what they're dealing with with Musk.
It's much more out of their control.
Right now.
We still have a sitting president Joe Biden. Yet when it came to the debt, the potential shutdown debt ceiling debacle of last week, he pretty much seated the spotlight to incoming President Trump. Are you surprised by how much power Joe Biden is seeding right now on the global stage.
Well, I mean, I think Joe Biden and even the Democrats do want to set this up as a relationship between Republican President Trump and a Republican.
Controlled House and Senate.
Because whatever happened in the next couple of months, maybe things sail down, inflation goes down, maybe the economy stays solid, maybe not.
They want nothing to do with that.
They want to start their twenty twenty six campaign now against the trifecta. So it's not really a bad thing for the Democrats for President Biden to sort of, you know, not be involved.
He's also doing things with executive power, things like clemency for example.
I mean, he's trying to do all he can nilaterally and somewhat quietly before the new president takes over. But right now the strategy is to say it's the Republicans government to run, and it's the Republican's government to succeed or fail.
What do you think the rest of the world's going to do in response to some of these things? Right, so far we seem to be talking about this in isolation, what Trump wants to do.
What's the world going to do to push back on that? Or are they going to do anything?
Well, yeah, you have to think about economic markets, So we also have to think about military security and security of Europe. And with Germany's government very shaky, with France's governm shaky, and even with Great Britain's government shaky, you start to really have concerns about military encouragion.
You think about Putin, you think about Ukraine.
You know the instability that could come to Europe with economically and even militarily.
That's a challenge. It's unclear that Trump.
Administration is prepared for, and we just don't know what moves the Trump meministration will make to steady the ship, and of course the global economy will depend on studying that ship. So those are the kinds of unforeseen external shocks that could come earlier in the Trump administration that anyone's expecting.
Trump definitely takes a more bilateral view of the world, while the Democrats or Biden administration had taken more of a multilateral view of the world. If Trump used the world bilaterally, who do you think is going to be his best partner in Europe?
You know, that is a really interesting question.
I just haven't seen any inclination from the prior Trump administration or his rhetoric now that he's looking for a partner. I mean, he you know, he sort of wants Poton to stay in his corner, maybe resolve Ukraine and look good for that. But you know, Trump is Trump, and as we see in domestic politics and international politics, he is a loner.
He wants to exert influence where he can and where he.
Can be successful, but he's not really interested in giving anything to other partners. And that's something that's really strikingly different from the US foreign policy posture than we've seen from a lot.
Of former presidents.
So we're less than a month away from his inauguration, Wendy, when it comes to this sequencing of things like tax cuts, immigration policy, as well as tariffs, how do you expect all of this to play out in Washington.
Well, you know, Emri as you well know because you've discussed it reported on before. You know, there's a difference between Mike Johnson and John Thune on getting reconciliation going and getting an early version of the tax cut you know, on the table and under consideration in both the House and the Senate, an early victory to extend the tax cuts, the Trump tax cuts, that would give the president a lot of momentum to focus on other things like border security. So border security he can do, and to some extent, you know, if he invokes the military in trying to do border security, that will create controversy and that could upend other kinds of domestic priorities he has, like the tax cut bill. One thing that Trump administration doesn't seem to quite get yet, which is surprising given they were there for four years before, is that these things are interrelated. If you ask somebody to make a politically difficult decision on one issue, it's going to affect whether they're going to help you on another. And that's something these Republican leaders will have to manage. But it's unclear how well Trump will manage it.
Wendy Schiler Best of holidays to you. Thank you so much for joining us this morning.
Jay.
I'm so excited he's going to join us for the next sixty minutes.
So what you're saying there, what it sounds like is almost twenty twenty four was the peak when it comes to US exceptionalism.
Is that accurate?
Well, it could be, right, I mean US has led. I mean it's one of the things that's interesting. We talked about those big moments right. One of them was election night, where we talked about the great economic story of the Biden administration did not translate politically, but clearly the US is a global growth leader, best performer on inflation. And yet now we're looking at a situation where we think there's uncertainty in the US with the new administration. The rest of the world is responding. We're in what we call is that we touched on at the top of the long cycle. It's really being driven by competition within our tripolar world thesis of regional competition between Asia, Europe, and the Americas in the three areas of climate AI. In defense, that competition requires a new industrial policy. So we're talking about the marriage of fiscal and monetary policy, and it has to be done well, right, and so you really have to start putting a premium on the policy makers and their ability to be in alignment with public and private sector. We see that in China, right. You were talking earlier about the evs. China led the way in the climate space and they now dominate the entire space. So now the fight is in AI and people are throwing money at this. Every government, every company in the world needs to compete in AI, and so these investments are too big for anyone company. That's why the governments have to get involved. That's all. We have fiscal spending, but you have to do it well. And if you don't do it well, the markets rebel, as we're seeing in Brazil right, nine ten percent fiscal deficit, currency collapsing, rates skyrocketing, in equities underperforming, and so there really is this competition, and we think we're shifting now where the rest of the world has to respond. So you have deflation in China, you have stagnation in Europe, and so we're seeing policy mixes responding now to those issues. And we see President ELEC. Trump as an accelerator of that, right, I mean, he's renting caras on everybody. So people China, in particular export led economy, they don't start to drive domestic consumption. They're more at risk being held hostage by the US, and so they are responding. And one of the great unknowns we talk about the US and the S and P. Guess what, China is outperforming the US FXI, the large cap China ETF is up twenty nine percent year to date, outperforming the S and P. Nobody knows about that, Nobody talks about that. But that's the reality. So it's already starting to happen. And so our view is that year three in a bull market, which is what we're in in the US in globally, tends to be a kind of rest here. Single digit type returns are the average for three year bull markets. So as we see global growth picking up outside the US, we think we're going to see earnings do better outside the US then in the US. That's new, particularly in emerging markets, and therefore we think investors can start to take profits in the US, particularly if there's uncertainty with the new Trump administration, and allocate to the on US markets which are completely under owned at like fifty year lows in relative evaluation, starting to pick up earnings growth, starting to do the right policy mix. So that's the opportunity take some money off the table in the US, move it into the non US markets, and we think commodities as well, and so there's really that pause. So you're three in the US bowl market, single digit earnings growth, that's what we're driving with our single digit return expectation, and then non US markets can go up fifteen percent, eighteen percent earnings growth, economic growth. You know, investors start to allocate there, you go.
Let's look at China a little bit more though. I know equity market there you're saying is doing very well. But the economy they are still struggling, don't you think.
I mean you look at you five percent growth, look at consumer healthy or non consumer demand, it's not really there. I mean, at some point do you think China is going to come out with an even bigger bazuka When it comes to fiscal demand.
Well, a lot of it, as we've talked about, is what's in the price right. And you know the China stimulus, they are taking out the left tail risk. They've told you months ago that they're not going to let the equity market go down and guess what, they have the ability to do that, and so they're doing it. And so as an investor, you know, when you look at single DIGITPE, which is what you know China trades on, when you look at the government saying, you know, we're going to we're going to stimulate the economy. When you look at the tech stuff, right, so the US is trying to freeze China out of the high end tech so it could lead in AI. That's the game. The way we look at that is that's an opportunity to buy China tech, which is now going to dominate the China. Yeah, the China e commerce market, which is much bigger than the US, growing much faster than the US, and the companies that dominate them are trading at like a sixty percent discount to the US peer group. And so we're long China tech because we think that's really where the opportunities. And as we said before, China knows it has to act because it's struggling with deflation. Right. The property sector has been a big problem. By the way it's bottoming, you can start the data starting to finally show properties starting to pick up a little bit in China. And now we have a situation where they are threatened by President Trump with exports. Okay, they're export led economy. They need to switch that export focus to domestic demand focus, and that's what they are doing. So stimulus, stimulus, stimulus, not a huge bazooka. We all, we don't expect that, but stimulus, stimulus, stimulus, more stimulus coming in the spring. And therefore, you know, growing at five percent, earnings growth needs to pick up, So that's important. Earnings growth has been disappointing in China, but we think it's going to pick up. And as it does, stocks are completely under owned. Nobody owns China. I mean I saw something and I can't remember which firm because you know so many year ahead outfits, and I think there was a list of like fifteen major banks and not a single one thought China growth was going to be better in twenty twenty five than it is in twenty twenty four. I love that, you know, when everybody is thinking one thing, we.
Like to go the other way, right, when everyone's on one side of the book real and the other way.
Yes, Okay, so we talked about China.
You to this idea that potentially they have domestic consumption trying to boost it. At the same time, many say that with the walls going up around the United States, they dump more on Europe.
Can you handle that?
Yeah, Europe is a challenge, right, So in our tripolar world, you have China leading because they're the best at marrying this industrial policy, fiscal and monetary, public and private. They've shown that with the climate space right. US responds with the Biden's Chip Act, Infrastructure Act, IRA Act, and now we're in the game best growth of the G seven? And now where is Europe? So Europe has to respond. They know it. You know, there's report after report, the draggy report, this, that and the other. They know what they have to do. It's a matter of political will, and I think you're going to see that political kind of logjam break this spring in Germany. Germany is the you know, the engine of Europe, and it's been going nowhere for years, Okay, in part because Germany has not gone down the fiscal stimulus route that pretty much every other major economy has. They have the famous debt break right, very strict on how much debt they can issue. So guess what they now understand They have to kind of fudge that a little bit, and they need to stimulate to pick get their economy to pick up, because they too, like China, a very export dependent and their export dependency is on China. So China's weak consumption really hurts Germany. All right, So we expect in the upcoming election, right, the government has failed. We wrote a piece last week in our Musings was called vote of no confidence, right, because there's so many no confidence votes in Germany. Had one new government we expect in the spring to be led by the more conservative side of Europe, of German political space, and we think they are going to lead the talk about easing on the debt break. So we expect fiscal stimulus in Germany next year in Europe more broadly, and we think that is going to help attract capital to the European.
Are they're potentially going to be though.
Well, Donald Trump is being inaugurated January twenty and he's a very different view on Europe than the Biden administration.
Well, I mean, look, I think the tariff thing is overstated. Let me just go back to the auto to Europe in Germany one second. Really, the auto companies show it, right, That is the leading edge of European manufacturing, and they are getting their heads handed to them all around the world, but especially in China, so they know, they understand they have got to act, and they're going to act on the tariff side. I think the markets are telling you that for the most part, it's already in the price. Right. Trump came out twenty five percent on Mexico, on Canada.
Is it ready negotiating?
Right?
But here's the thing, it's not the news. It's the reaction to the news that counts. And you look at the reaction to these markets. There was no reaction, no, no reaction. Pay So higher after a week, China stocks higher after a week, Europe, no stocks, no action. So I think the tariffs for the most part are in the price.
This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.
