Is This the End of the US Exceptionalism Trade?

SPEAKER_2 (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:22)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, you as exceptionalist. Like to my mind, the big question for investors is like we've had this 15 year plus run of where it's like the only game in town has been you invest in the US. You did not get paid for diversification. Arguably, you didn't even get paid for diversification within the US, because you should have just been in tech stocks the entire time. But I really feel like this is the moment where people are asking, like, is this one trade that's worked out so well, is it coming to an end?

Tracy Alloway (0:57)

You know what I really like? I like talking about US exceptionalism in markets because no one immediately starts debating like the definition of US exceptionalism. That drives me crazy.

Joe Weisenthal (1:07)

Right, because in the broader realm of like just sort of politics or society or life, like is the US exceptionalism.

Ozan Tarman (1:14)

I hate that conversation.

Joe Weisenthal (1:15)

But in markets, it's unambiguous.

Ozan Tarman (1:16)

Yes.

Joe Weisenthal (1:16)

In markets, it's unambiguous that US assets have just been where you want to be for a long time.

Tracy Alloway (1:22)

So not only have US equities outperformed recently, but they've really come to dominate the market as a whole, as a proportion of the market. So the entire world, you know, even with US stocks falling recently, the entire world basically still has an overweight on America, right?

Joe Weisenthal (1:39)

The world is overweight. No, I mean, it's true. And if you're a global manager and your benchmark is the MSCI, AWS or whatever, you know, it's still in large part of US trade. By the way, I was looking at the Bank of America Fund Manager Survey today, which is one of my favorites. And after two straight years of long Mag-7 being identified by fund managers as the perceived most crowded trade, in this most recent month it was gold, which was really interesting.

Tracy Alloway (2:05)

Oh, so it's finally changed. That was the thing, because like for years and years and years, everyone was like, oh, fangs, like Big Tech, so crowded. And the suggestion was don't even bother buying because the valuation is just so eye watering at the moment. But in actuality, if you wanted to not even outperform, but like meet your benchmark, that was the only trade, was buy tech.

Joe Weisenthal (2:27)

This is the true pain trade, right? Because it's like everybody is log tech. Everybody is overweight tech. How could you make money buying tech? And yet you still had to buy tech just to keep up. And so now there's the question, is the pain trade reversed? Because if there's so many people are so into tech and so into the US, can they actually make the risk and take the move of like, you know what, I'm gonna overweight Germany, or I'm gonna buy Chinese stocks or whatever it is.

And these are, I think, this is the moment where like, you have to get this call right. And this is the call of the moment.

Tracy Alloway (3:00)

And you haven't really had to do that before. Now things are getting interesting.

Joe Weisenthal (3:03)

Right, we all know the backdrop of all this, so we don't really have to do that in the intro. But I'm very excited about our guest. We're still here in London. We are gonna be speaking with Ozan Tarman. He is the Vice Chair of Global Macro at Deutsche Bank. And he talks and thinks about all of these questions with his clients all the time. So we're gonna get a slice of what he's thinking about. Ozan, thank you so much. Great to be here with you in person.

Ozan Tarman (3:27)

Wonderful to be here. Honestly, I'm a big fan. I listen to you guys all the time. My clients and friends are big fans. So it's great to be here in my hometown.

Joe Weisenthal (3:35)

This is very important to us when guests say this on the episode. We hate when they say it before the recording starts. Cause like that was a total waste. Do you agree with the premise that I set up that this is essentially the big question that everyone has to grapple with right now in markets?

Ozan Tarman (3:53)

We fought it out and quite tiringly.

Joe Weisenthal (3:57)

Sorry to exhaust it. We're exhausted too.

Ozan Tarman (3:59)

I mean, even we're very exhausted after the liberation day, but even before all that, we're exhausted from how wrong the whole Gen 2, Gen 20 consensus went. Everybody and their brother were believing SMP would go anywhere between 7,000 to 6,500. TY, US 10 year would go to 5%.