00:00So let's talk about it. We're finally out of the longest shutdown in history. We're starting to get a drip feed of these super delayed economic data releases.
00:10And I just wonder, you know, how much faith investors can have. And of course, what we're talking about when it comes to data, but also what it means that the fact that we did have this shutdown, so to speak.
00:20Yeah, I mean, the delayed data piece is important. You know, folks are trying to cobble together the best framework that they can, and it could influence the December Fed decision.
00:32We don't know how much, right? We have to wait and see what actually happens there. You know, we do expect a cut. We are in that camp.
00:39But when we're thinking about the broader picture, we're advising our clients to, you know, not just look at the data that's released, but also look to alternative sources as well.
00:47Mm-hmm. Alternative sources as well. That is one of the conversations we had over the past 40-something days of how complete of a picture can you put together when you think about the alternative data, how it actually tends to stack up against official government data?
01:03So I'm not the economist in our office, but what I can say is that if we're thinking about interest rates and what matters, right, for our clients and individuals, you know, we have to watch that balance between the labor market, inflation.
01:17Right. And what eventually the Fed is going to do. And so that's really what's on the top of the mind for the people that we're interacting with every single day and that we're trying to walk through, right, some of those uncertainties.
01:29With regards to those uncertainties, I think it would be an understatement to say that things have been a little dysfunctional in Washington for some time, certainly this year, but even prior to that.
01:38But when people start to talk about, oh, you know, we're going to get another credit rating downgrade on the U.S., blah, blah, blah, is that in the realm of possibility or is that just kind of just folks just pontificating?
01:49I mean, anything's in the realm of possibility, but we just received an affirmation.
01:54We just got an affirmation from S&P, AA+, stable outlook, and that's predicated on tariff revenue.
02:04So that's a very different environment.
02:06So even though we have this massive addition to federal debt and deficit, that $4.5 trillion from the OBBBA, the important thing here is what happens with tariff revenue.
02:20And we think it's here to stay, so we think that the risk of any sort of downgrade is much lower because the Trump administration is already doing the legwork to get ahead of a Supreme Court decision on tariffs.
02:31Well, I mean, how do you do that, though?
02:33I mean, if there is a Supreme Court decision and those tariffs, and I'm always confused about the use of the word revenue, that just goes back to the original source, right?
02:41Is that a net positive for us all?
02:43Well, potentially, and this isn't from the consumer perspective that would be very hard to track down, right?
02:48Really, it would go to the businesses if they did have any sort of reimbursement.
02:52But what's most important about this is that you have the administration clearly working on bilateral trade deals, which do not qualify under IEPA and would be a separate thing, essentially replacing those IEPA revenues, as well as the use of Section 232, 301, and many others.
03:07So for us, we think that this is a patchwork approach, and you don't get necessarily the broad sweeping impact of IEPA of saying Emergency Powers Act, great headline, but you get to the same place from a revenue standpoint.
03:20Maybe a little less, maybe you're more $2 trillion versus $2.5 to $3.5, but you're still in a place where the ratings agencies, the credit analysts are feeling comfortable.
03:29But even so, I mean, you talk about that patchwork approach.
03:32Maybe the IEPA tariffs are ruled illegal.
03:34Some of those other avenues, the timelines are drawn out a little bit longer than just IEPA.
03:40So let's go into hypothetical land.
03:42Let's say that, you know, you're not able to get the revenue streams that are at least anticipated right now.
03:48How does that translate into the market?
03:51Should at least the IEPA tariffs get ruled illegal?
03:54Well, in that instance, if you don't have this sort of very quick replacement theory, if you're looking at delays, it's going to add to bond term premiums, right?
04:03Essentially, the risk that you're getting compensated for for holding a treasury.
04:08So for us, this is potentially some interim bond market volatility, but essentially the administration is likely to signal what they're working on.
04:17They're already doing that.
04:18They're already conducting studies around Section 232.
04:21And so the one thing that's really amazing about this administration, as opposed to others, is that they tell us everything that they're doing.
04:28And so markets can either look through it.
04:31They can wait.
04:32It has multiple implications when we're thinking about business cycle and decision making.
04:37But especially from a bond market perspective, it's a priority for them.
04:40And they're likely to signal very strongly the direction in which they're moving.
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