Viktor Shvets on Trump's Historical, Revolutionary Moves

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 (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, you know what I'm proud of?

Tracy Alloway (0:26)

Who?

Joe Weisenthal (0:26)

I don't, you know, look, I'm not a trader or anything like that. I don't like try to make a lot of calls or, oh, look at, you know, I'm not even a pundit, I get things right. That being said, you know what I think we did well? I think we took the prospect of a serious change in the US trading relationship with the rest of the world as a serious possibility.

Tracy Alloway (0:48)

We took Trump both seriously and literally?

Joe Weisenthal (0:51)

We definitely, yeah, I think we took it pretty literally. When he was talking on the campaign trail and in the early days after the election, when the markets were flying because all they were talking about was tax cuts and deregulation, I think we were giving serious air time and writing time to the aspects of Trumpism that might not be so market friendly.

Tracy Alloway (1:12)

I think that's right. Also in our newsletter, just a couple of weeks ago, we were talking about how weird the markets actually were because we weren't seeing that much risk priced in, right? Like spreads on credits still pretty low. FX volatility at the time was pretty low. Just lots of weird stuff going on in the markets. And there's someone else who noticed this.

Joe Weisenthal (1:33)

Well, that's right. So I'm looking at an edition of the Odd Lots newsletter. Everyone should Google Odd Lots newsletter and sign up for it. And we had a guest contributor.

He wrote a piece for us on November 27th, 2024 when markets were surging. And he said, this time really is different. And he's a frequent Odd Lots guest. And he has been very in tune with the big changes going on in the world and major turning points. So I'm thrilled to have him back. We are speaking, of course, with the one and only Viktor Shvets, head of global desk strategy at Macquarie Capital, who said, this time is different. And I think it turned out to be different, huh?

Viktor Shvets (2:14)

Yes, yes, it did.

Joe Weisenthal (2:16)

It turned out to be different. Why? OK, let's just go back. What were you thinking on Wednesday, April 2nd, Liberation Day? The chart came out. Massive tariffs announced on the rest of the world. Virtually every country, friend, foe, et cetera.

Viktor Shvets (2:33)

Even small islands.

Joe Weisenthal (2:34)

Even small islands, depopulated islands, tariff levels that are like higher than Smoot-Hawley or whatever. What went through your mind?

Viktor Shvets (2:42)

The question I keep asking myself, what is this administration trying to do? Yeah. So in other words, what is the objective? Is objective to raise revenue in order to partly pay for tax cuts? Is objective to reshape America into some form? Is it to bring manufacturing back? Is it to change the flow of savings and investments on a global basis? What is this administration trying to do? And my answer consistently is they want to remake America. They want to make it different to what it was before. But you can't remake America unless you remake the world at the same time. So it's a revolutionary movement rather than just a little bit of a bypassing it for problems, navigating a few bumps on the road. It's much, much deeper. The only question that I keep coming back is what is a pain threshold?

And what are the sort of breaks on the system? Because most of the breaks we've been discussing for the last four or five months have either disappeared or were in some form co-opted by the system. So there is only very few breaks left. And so one of the breaks is really the pain threshold. At which stage people will feel that their lives have gone much worse than they used to be.

And the other break, of course, is everything to do with electoral cycle associated with it. And so to me, that's the only question. It's not that there is any consistent economic theory behind what this administration is trying to do. Every time I listen, it's very clear that they don't fully understand sexual balances. They don't fully understand that you can't have declining deficits and rising capital inflows at the same time. So it's clearly not guided by some conventional economics. It's sort of guided by a desire, as I said, to change America and different parts of administration of different views. So there is a technocratic part, which is Elon Musk, Andreessen, Peter Thiel. They have very different views. They're much more global. They want technology to progress. They're open to immigration. There is a whole range of things. Then there is a populist wing, probably JD Vance is the most obvious example of that, which are completely opposite, returning America back to 1950s or maybe even late 19th century, closing the borders. Then there is a little bit more technocratic wing, saying that what Bernanke and Greenspan were discussing in the past, which is making sure that savings and investment on a global basis actually balances at some point in time somewhere. And so all of those wings are in conflict. If they are in conflict, expect irrational moves, quick shifts, but do not expect that suddenly tariffs are going to go away. Suddenly restructuring of capital flows will just go away and normality will return.