Surveying the wreckage

Katie Martin (0:09)

Boys and girls, are you not entertained? Markets have gone properly loopy since Donald Trump's so-called Liberation Day when he dropped trade tariffs on every non-American man, woman and penguin on earth. Stocks got fried, there's weird stuff going on in bonds and the dollar, we've got it all. Now today is Tuesday, and it's calmed down a fair bit, but if you think it's all over, then you are braver than me. Today on the show, we're asking, are we there yet? Is it safe to dip a toe back into stocks? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at FT Towers in lovely, sane, sunny London. And I'm joined down the line by that guy off of the Unhedged newsletter in New York, the Reverend Robert Armstrong.

Robert Armstrong (1:02)

Peace be upon you, my sister.

Katie Martin (1:06)

I mean, are you guys over there okay? Because like I turned my back for a week. I had COVID number six. God damn it. It really took me out.

Robert Armstrong (1:17)

I just can't believe it. But the takeaway is that COVID has tried to kill you six times and six times it has failed. Katie Martin, undefeated, untied. Unbelievable.

Katie Martin (1:30)

One of the COVIDs that I had really took me out. This latest one was also not pleasant anyway. It's very boring. But in my absence, first of all, markets completely lost the plot.

Robert Armstrong (1:41)

They did.

Katie Martin (1:41)

And secondly, you opened up this podcast last week by reading from the Bible, Revelations 9

Robert Armstrong (1:48)

Things got worse after I made reference to the apocalypse. So that reading turned out to be prescient.

Katie Martin (1:56)

Well, I was sort of, you know, lying around suffering with COVID thinking, have I overdone the codeine? What is going on here? Rob is reading from the Bible. Did I miss a memo from Unhied saying, all FT podcasts must now be with a religious reading?

Robert Armstrong (2:16)

Things fell apart while you were gone.

Katie Martin (2:18)

Yes. Let's sum up the way in which things fell apart. So, if you have been suffering with COVID, or perhaps living in a cave for the past 10 days or so, then you will be unaware that Donald Trump did what he has said very clearly for like 40 years that he wanted to do, which is he brought in massive trade tariffs against every other country on earth, much higher tariffs than everyone was expecting, and markets no likey. Markets no likey at all. There were some days, Thursday, Friday, last week, the start of this week, where some of the moves lower in stocks, particularly US stocks, were brutal.

Robert Armstrong (3:01)

And the volatility was unbelievable, which is a whole other risk factor you have to think about. Back in religious mode, Katie, I am entering the booth to make my confession, which is, as you will remember, I committed a grave sin weeks or months ago, which was to predict that from a markets and economy point of view, the Trump presidency would be a bit meh. And I think, I confess now on my knees that the meh hypothesis has been disconfirmed by the last week.

Katie Martin (3:37)

I mean, in retrospect, I don't know what on earth led you to this hypothesis in the first place.

Robert Armstrong (3:42)

Because the first presidency was kind of meh at the end of the day. And let me just say, it may get more boring from here. There may be backing down. We can discuss that later, but we may revert to the meh mean as weeks pass. I want to keep that possibility open.

Katie Martin (4:00)

But so, the past few days really have been pretty wild. I heard a good little nickname today. So, you know Treasury Secretary Scott Bessent?

Robert Armstrong (4:10)

I do.

Katie Martin (4:11)

A nickname for him that I stole off the internet earlier is Stock Dissent. Which I think is quite good value.

Robert Armstrong (4:20)

I mean, this is-

Katie Martin (4:21)

Nick that off Blue Sky.

Robert Armstrong (4:22)

This is one of the factors I think that markets are honestly dealing with. So, we're thinking about, you think to yourself, why are stocks going? The most obvious explanation is, tariffs will hurt earnings. Stocks are priced on the earnings of companies, stock go down. Second thing that might be happening here, tariffs slow down economy. That's very simple. And when the economy slows, there's a general hit to demand, that hurts earnings and therefore stocks. That's point number two. The third thing is your point about stock descent. The rollout of these tariffs was so amateurish, so jejun, so nonsensical, so in contradiction with what the administration had said up to this point, that to borrow a term from, I believe it was Dario Perkins of TS Lombard who coined this term, the market has to put a more on risk premium on American assets. Because it's like, if these guys are going to do this, we talked on the show last time about how the formula for calculating the tariffs is just silly. There's no other way to describe it. When people first saw it, they thought it was a gag.