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00:00Let's just talk broadly about this speech. What stood out for you and what do you think should
00:04stood out for the investing public, American citizens at large, the business community? And
00:10I think about American citizens who still think about this affordability issue. So what stands
00:15out on those fronts? Yeah, nice to be with you. I mean, this was, you know, there was more
00:20performance here than policy, we would argue. There was a bit of a spiking of the football
00:27in terms of really sort of reinforcing some of what President Trump has perceived as victories,
00:34the one big, beautiful bill, closing the border, some of the other immigration policies that he
00:40has pursued, and also some of the foreign policy wins that he is characterized, at least as wins.
00:47So I think that this was, in some ways, a lot of kind of red meat for his base as
00:53these addresses
00:55oftentimes are. Now, he did talk about tariffs, as you mentioned. I think that to the relief of many
01:04Republicans in that chamber, he did not call on Congress to take a vote on tariffs. I think that
01:09is something that probably would have failed anyway, but also would have been politically difficult
01:15for Republicans. But by and large, this was, I think, a pretty typical State of the Union address
01:22in many ways. It was, again, more of a rehashing of sort of the political wins, and pretty light on
01:31policy details, and light on kind of a roadmap, I think, for a lot of congressional Republicans
01:35heading into the midterms. Yeah, I'm really glad you went to the midterms, because that's exactly
01:39where I want to go. And try to understand from you if it actually moved the needle
01:44on how people could vote come the midterms, because that's what Republicans and Democrats
01:50are focused on right now. I think it was a bit surprising that there were not arguably
01:56more policies that he'd actually highlighted in other speeches, in other venues, highlighted
02:03in last night's speech. And he did talk about this ban that he wants Congress to codify
02:10in terms of institutional investors investing in single-family homes. But he didn't really
02:17talk about some of the other proposals. To Senator Warren's criticism, she remarked that
02:22he did not talk about capping credit cards and what have you. Now, I don't think any of those
02:27will actually get effectuated into policy. Those need Congress anyway. But in terms of really
02:35leaning into that affordability sort of framework and theme, he didn't really give Republicans
02:40all that much. Again, I think what his hope is, and what a lot of Republicans hope is, is
02:46that voters' sentiment around the economy will be different come this fall. Now, of course,
02:51that one big, beautiful bill, people will be getting refunds on average $4,000, about $1,000
02:58extra in terms of a refund relative to last year. So I think the hope is that there will
03:04be more optimism and that folks will have a different perception of affordability. And so
03:09maybe he won't need to lean into some of those policies. I think that was maybe last night was
03:13maybe a tell of that of that thinking. Libby, he did focus on the stock market, certainly something
03:18we, you know, focus on here at Bloomberg. But, you know, talking about how good that was,
03:22right, and wealth created and good for investors. But is that always a good read? Or is that even a
03:29good read on kind of the state of the U.S. as a nation and as an economy? Well, I
03:35think there are
03:35lots of examples where, you know, voters have, you know, one view of things and the stock market
03:41is doing something different. I think if you talk to President Biden, I think that was one of his
03:45frustrations and his economic advisor's frustrations is that actually the market was doing quite well
03:51and the economy objectively was doing pretty well. But voters just didn't feel it. So perception is
03:56reality here. And going into these midterm elections, again, I think there is a hope that
04:02voters will feel better about things. And I think, you know, to President Trump's credit in terms of
04:09the Trump accounts that were codified into one big, beautiful bill, this idea of broadening that out
04:16and giving folks access to retirement accounts who may not have access to traditional 401k. But so I
04:23think he is trying to tie the stock market performance to kind of everyday people's lives.
04:29However, you know, we'll see there's a lot of distance between here and there in terms of getting
04:34that actually effectually into policy. I think a lot of folks think what a great idea, right, to get
04:38if we talk about wealth creation, this is a great way to do it. But I do also think about
04:42how do we pay
04:42for all this stuff? And when do we think about kind of the fiscal house and when that's going to
04:48matter? I know, you know, go back a decade or so. And it was in every conversation I talked about
04:53here
04:53at Bloomberg, or even longer than that, then it went away. And now it's back again. So I just think
04:59about when do we have to kind of when does that all come home to roost? Or is it already?
05:03Yes, I think if you contrast this speech with the speech last February, where President Trump was
05:10really leaning into this idea of doge and cutting federal spending, and talking about the deficit,
05:17there was no mention of the deficit last last night. And in fact, he talked about how important Social
05:24Security and Medicare were and how those would not be touched. As you all know, those are important
05:28programs, bipartisan, you know, why bipartisan support? However, they're both they're both very expensive as
05:34well. And, you know, our view here is that while there is no kind of immediate fiscal reckoning,
05:40I mean, the bond market, as you, as you all know, hasn't necessarily the bond vigilantes haven't
05:45come out here and, and discipline Washington. But there is probably a question of, you know,
05:51when not if that there will be a an inflection point where members of Congress will have to actually
05:57do something in terms of sort of the fiscal trajectory. It doesn't look like it's close.
06:03There's not a lot of political appetite to increase taxes or reduce spending. You know,
06:09our view is a sort of six to seven percent deficits as a percentage of GDP, there will be a
06:14limit to that.
06:15And whether it's the bond market that is imposing that discipline, or when it's, you know, Social
06:20Security trust fund, starting to kind of go bankrupt, so to speak, which is expected to happen
06:24in the early 2030s. So we do think this is a, you know, again, a question of when, not if,
06:30but it's just the when is probably not, you know, under President Trump's term, at least as, you know,
06:36if what the market signals are saying now. You know, Libby, you know, you've seen different
06:40market cycles, different economies under different presidents. We've talked about this a little bit
06:44earlier with our own Mike McKee. How do you describe the Trump economy? Is it a good one?
06:50Well, I think that, you know, and again, there is a limitation to how much a president can
06:54actually impact the economy. So this is, you know, for better or for worse, presidents,
07:00President Trump included, they like to take, you know, take sort of credit for when things are
07:06going well. But also, to sort of avoid any of that, you know, blame when they're not. I think
07:14we would characterize this economy, you know, this sort of, you know, K-shaped, two-speed economy
07:20is quite real. Where are, you know, if you just look at the components of GDP, obviously,
07:26you know, AI-related CapEx fueled a lot of growth last year, as did the high-end consumer. I think
07:33there is a hope in 2026, and again, this is what I think Republicans are banking on, that the breadth
07:39of that economic growth is broader and that this sort of, the consumer at the kind of middle to lower
07:46end starts feeling better about things and starts participating in the economy. But if you, if the
07:51economy just is predicated on kind of AI-related CapEx and the high-end consumer, that makes for a
07:58relatively fragile economy. And if you sort of see any kind of wobbles in the labor market, for instance,
08:06that could, you know, have maybe a non-linear impact. So, you know, I think it's a stronger economy.
08:13It's been a resilient economy, for sure. Right. But again, I think Republicans are hoping that
08:18you can sort of broaden out the source of that growth and that they'll actually be rewarded then,
08:23you know, come November. But that AI spend, the impact on the market, sending it higher,
08:27and then, you know, the wealth created among affluent spenders, that is something that Greg
08:33Docco has certainly talked about a lot for us from EY Parthenon and the importance. And if that starts to
08:39come undone, that could be problematic, Tim. Hey, Libya, I want to shift gears a little bit and talk to
08:42geopolitics because ahead of the speech, the president, and he's gotten quite a bit of
08:46criticism in recent months, even from within his own party, about focusing too much on geopolitics.
08:51And while he didn't talk too much about geopolitics, what he did frame last night was,
08:55you know, Venezuela and the ouster of Maduro, that being a win for oil companies and Americans who are
09:02getting oil and will get oil from Venezuela. And just now we are learning that Cuba has shot four
09:09dead in a clash with a Florida speedboat. That's just breaking news just in the last few minutes.
09:13I'm wondering about geopolitics, though, and the political risk for a president who came in and
09:18said, you know, no more on a platform, no more foreign wars wants to end wars for focusing so
09:24much on geopolitics within his first year in office. Is that alienating some of his base?
09:30I think it's confused some of his base, for sure. As you said, that there is a wing of the
09:38Trump base
09:39that, you know, is more isolationist. I think those folks thought that, you know, President Trump would
09:44be sharing in that view. He obviously, he talked about ending the war in Ukraine. That has not
09:50happened. He's talked about, you know, bringing kind of peace globally. I think you could sort of
09:56quibble about whether that has actually been true or not. And then to your point,
10:00he has focused on, you know, some of these more specific operations. Now, I think, you know,
10:07Venezuela, the way that they would characterize the White House would characterize this as this
10:10is an extradition, kind of a high profile arrest, if you will, that required a lot of resources of
10:16the U.S. government, but was quite different from regime change. We'll see kind of how that how that
10:22plays out. But I do think, Tim, you're right to sort of focus on this politically, because
10:27midterms are all about turnout. It's not about persuasion, right? You need to get your base turned
10:32out. You need them to get excited. Whereas a general election, it's about sort of persuading folks
10:37who might be kind of on the fence. Again, midterms all about kind of your base turnout. And if your
10:43base
10:44is at all, you know, feeling maybe a little bit less enthusiastic about you, they may not turn out.
10:50And so I do think this, you know, we'll sort of see how this kind of movie plays out. But
10:55you could
10:55see President Trump, you know, maybe kind of be forced by his own party to be less focused on these
11:00issues, because it just doesn't have doesn't have sort of the galvanizing effect, as you know, the
11:06kitchen table, gas and grocery issues, you typically you typically have. The last thing I'll just say,
11:12though, is I think President Trump was quite clear about what his framework was he was using
11:16yesterday as it relates to Iran, he definitely did not close the door.
11:20on, you know, potential intervention. He also didn't necessarily endorse that he was going to
11:25do this either. So he was using sort of this clear framework about, you know, about Iran's,
11:31you know, ability to develop a nuclear weapon and what have you as kind of a litmus test. So I
11:36think
11:37he he's trying to be more clear about what it would require to engage. But again, politically,
11:42he may be forced to back that back off this as we get closer to the midterms.
11:46Libby, going back to the affordability issues, we know President Trump and Vice President J.D.
11:49Vance are hitting the road tomorrow, and I believe on Friday to kind of test their affordability
11:55message with voters in Texas and Wisconsin this week. So things like, you know, obviously,
12:01the tax cuts that are already part of his big, beautiful bill, these new savings accounts for
12:06kids, maybe banning of institutional investors from buying homes, you know, that we didn't get
12:12anything more on that. Are there policies or clarifications of policies or implement to
12:18implementation of policies that are likely to come leading up to the midterms that you think
12:23kind of improve the affordability issues for those who will be voting?
12:29I think the reality is, is that even if President Trump wants to see some changes,
12:35it's going to be very difficult for Congress to get anything done before the summer, which is
12:41really the de facto end of this Congress. That's when they will adjourn for their sort
12:48of summer, traditional summer recess, for them to really go back to their districts and to campaign.
12:54So in terms of the runway to actually effectuate policy, we are talking about a very short one,
13:01you know, to July, basically. And we don't see Congress moving. We don't see them passing another
13:06tax bill, another spending bill, another bill that prevents institutional investors from buying
13:13single family homes or what have you. There is a housing bill that they may be able to pass both
13:17chambers and get signed into law, but that is likely going to be it. So I think kind of for
13:23all intents
13:23and purposes here, Trump will have to lean on those policies he can effectuate unilaterally,
13:29which is the agencies buying, you know, agency MBS. That is one thing that he did not talk about in
13:33his
13:33speech. It's kind of for us, you know, bond nerds over here. But, you know, we do think that's
13:38actually that and deregulation. Those are two things that he can and will, we think, continue to
13:46lean on to help, you know, improve, you know, at least mortgage rates and sort of, you know, the rate
13:51environment in general and hope that that will actually trickle down to some kind of the perception,
13:57again, of affordability among voters. But outside of that, we do not expect Congress to move,
14:02really, period before, between now and the midterms. All right. I don't recall seeing
14:08mentions of agency MBSs on the prediction markets. Wait, that's when they all stood up. Remember?
14:13They like the... Exactly. The only bipartisan moment we saw was at our agency MBS.
14:18Bringing the parties together. Libby Cantrell, you rock.
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