Full Implementation of Section 899 Not Being Priced In: Allianz CIO

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00:00899 is for me exactly what people don't spend enough time on. Everybody's looking at trade,

00:05which is the tip of the iceberg, but there is below this momentum around capital controls in

00:09the U.S. in different forms. And one of the forms is indeed this increased tax rate for foreign

00:16corporations operating in the U.S. and more generally, frictions, frothy capital flows

00:22between the U.S. and the rest of the world. I don't think markets are pricing in today

00:26a full implementation on Section 899. So that could actually spook markets vividly because a lot of

00:33people, I talked about the hedge being the name in town today, but a lot of people are also looking

00:38at cross-border exposure at large. So beyond hedges, you know, when you're a European investor, you look

00:43again at, OK, there is the dollar depreciation. There is indeed, you know, yields in the U.S. are

00:49a bit under duress and there is this additional taxation. Would you go long term in the U.S.?

00:54And when you are President Trump and the whole policy continuum is about making sure that people

00:59do long term investment in the U.S., do you really want to spoil that party? So I think the market has

01:04to say that he's going to withdraw on this because that could actually completely annihilate what he's

01:09trying to do on, you know, his policy agenda. But if he were to move on with that policy, I think

01:17that could create a big, scary moment, especially on the equity market and also, again, on the bond

01:22market. And so that is not factored in today because a lot of investors are not thinking

01:27that it could go through as it is, you know, explained today in the bill.

01:30OK. So if that is if that does add up to a big, scary moment, Ludovic, what would pricing

01:35in that big, scary moment look like? A sell-off in stocks, you suggested, but how high for

01:41yields and how weak for the dollar? I think Section 899, we're talking about a sell-off around

01:4810 percent, yields that could go up around half a point, and then the dollar that could

01:54go down another 5 percent. So it's quite huge.