Is This the End of the US Exceptionalism Trade?

Summary

Odd Lots Podcast Summary: "Is This the End of the US Exceptionalism Trade?"

Episode Details

• Title: Is This the End of the US Exceptionalism Trade?
• Host: Joe Weisenthal & Tracy Alloway
• Guest: Ozan Tarman, Vice Chair of Global Macro at Deutsche Bank
• Release Date: April 17, 2025

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Introduction: Assessing US Market Dominance

In this episode of Bloomberg's Odd Lots, hosts Joe Weisenthal and Tracy Alloway delve into the pressing question facing investors: Is the long-standing US Exceptionalism Trade nearing its end? For over fifteen years, US equities, particularly within the tech sector, have been the cornerstone of global investment strategies, offering limited diversification benefits. The hosts set the stage by highlighting the dominance of US assets in global portfolios and questioning whether this trend is sustainable.

Joe Weisenthal opens the discussion by emphasizing the unique position the US market has held:
"Is this one trade that's worked out so well? Is it coming to an end?" (01:17)

The Crux of US Exceptionalism in Markets

Tracy Alloway points out the unequivocal nature of US Exceptionalism within financial markets, contrasting it with the more debated concept in politics and society. She underscores how US equities have not only outperformed but have also become a significant proportion of the global market.

Tracy Alloway:
"Not only have US equities outperformed recently, but they've really come to dominate the market as a whole." (02:15)

The hosts discuss how global benchmarks remain heavily weighted towards US assets, making it challenging for global managers to diversify away from US stocks without sacrificing performance.

Crowded Trades and the Potential Shift

Joe references the Bank of America Fund Manager survey, noting a shift from the previously crowded "Magnificent Seven" tech stocks to gold as the most crowded trade. This pivot signifies increasing skepticism about tech valuations and raises questions about future investment strategies.

Joe Weisenthal:
"After two straight years of long mag Seven being identified by fund managers as the perceived most crowded trade... this most recent month was gold." (02:58)

Tracy Alloway elaborates on the difficulty of outperforming when the primary investment strategy (overweighting tech) becomes a necessity to meet benchmarks, labeling it the "true pain trade."

Guest Insights: Ozan Tarman on Market Dynamics

Inviting Ozan Tarman, Vice Chair of Global Macro at Deutsche Bank, the hosts seek expert perspectives on the sustainability of US market dominance. Ozan provides a comprehensive analysis of the factors undermining US Exceptionalism, including unexpected policy shifts and China's technological advancements.

Ozan Tarman:
"The US was the one, the big one, printing the most, especially after Omicron. And on top, yes, the magnificent seven... All these consensus trades and views are thrown into the water." (06:16)

He highlights the reversal of expected fiscal behaviors in Germany and China, challenging the previously held beliefs that these economies couldn't match US fiscal ambitions.

Europe and China: Shifting Economic Landscapes

The discussion pivots to the recent surge in European stocks and China's resilience in the tech sector. Ozan attributes Europe's unexpected infrastructure spending and China's competitive stance in technology, particularly AI, as pivotal changes disrupting the US-centric investment landscape.

Ozan Tarman:
"Germany step is a huge step... These all are completely turned on their head." (06:16)

He notes Europe's potential to reinvent itself in technology, albeit requiring time, and China's strides in sectors like electric vehicles (EVs) and solar energy, which pose significant competition to US tech dominance.

Monetary Policy and Market Reactions

The conversation delves into the implications of US monetary policy, Federal Reserve actions, and their impact on the dollar and treasury yields. Ozan discusses the challenges the Fed faces in maintaining credibility amidst political pressures, especially with President Trump's interventions.

Ozan Tarman:
"If president didn't blink and 10 year and 30 year continue to sell off with the dollar selling off... Then Fed would have come definitely... But Powell really doesn't want to cut because of all the inflation growth dynamics." (08:39)

Tracy and Joe reflect on how these policy decisions create uncertainty and affect global investor confidence, drawing parallels to past economic crises and their market impacts.

Technological Competition: AI and Beyond

Tracy raises concerns about the US's lead in AI and technology, noting the lack of comparable competitors outside the US until China's advancements. Ozan responds by acknowledging Europe's current shortcomings in cutting-edge tech but remains optimistic about its ability to innovate and catch up.

Tracy Alloway:
"There has been this long-running disappointment that Europe is just not where other places like the US and China are when it comes to cutting-edge technology." (18:26)

Ozan Tarman:
"Europe can reinvent itself. That's going to take a little bit of time... Europe does AI, but does the chips..." (20:15)

Bitcoin and Digital Assets: A Shifting Perception

Towards the episode's end, Joe introduces a question about Bitcoin's evolving role in investment portfolios. Historically viewed as a speculative asset, Bitcoin has shown signs of stabilizing and potentially being recognized as a digital gold equivalent. Ozan acknowledges this shift but also points out the impact of broader market dynamics and policy changes on Bitcoin's institutional adoption.

Joe Weisenthal:
"Bitcoin has not actually been as tech stock-like as it used to. People have called it digital gold, but the chart doesn't reflect that clearly." (33:57)

Conclusion: Navigating a Changing Investment Landscape

As the episode wraps up, the hosts and Ozan summarize the intricate balance between US market dominance and emerging global competitors. They emphasize the importance of monitoring key political and economic players—Trump, Powell, and Xi—and their decisions that could significantly influence future market trends.

Ozan Tarman:
"I think we have the backing of the Fed... So first of all, I believe blinks will continue from the White House but even if they don't, I think we have the backing of the Fed." (32:37)

Tracy Alloway adds a cautionary note on the potential for increased term premiums in treasuries and the need for investors to remain vigilant amidst evolving market conditions.

Tracy Alloway:
"I do like one thing that seems certain to me really is the higher term premium in the treasury market and the idea of a steep NER." (37:48)

Key Takeaways

• End of an Era: The long-standing US Exceptionalism Trade may be facing significant challenges due to unexpected fiscal policies in Europe and technological advancements in China.

• Market Crowding: Overreliance on US tech stocks has led to crowded trades, prompting investors to consider diversifying into other asset classes like gold.

• Policy Influence: US monetary and fiscal policies, particularly interactions between the Fed and the Trump administration, play a crucial role in shaping investor confidence and market stability.

• Global Competition: Europe's potential to innovate and China's competitive edge in technology sectors are altering the global investment landscape, offering new opportunities and risks.

• Digital Assets: Bitcoin's role is evolving, potentially moving towards being recognized as a digital gold, though its stability and institutional adoption hinge on broader market and policy factors.

Notable Quotes:

• Joe Weisenthal (01:17):
  "Is this one trade that's worked out so well? Is it coming to an end?"

• Tracy Alloway (02:15):
  "Not only have US equities outperformed recently, but they've really come to dominate the market as a whole."

• Ozan Tarman (06:16):
  "All these consensus trades and views are thrown into the water."

• Ozan Tarman (08:39):
  "Powell really doesn't want to cut because of all the inflation growth dynamics."

• Tracy Alloway (18:26):
  "There has been this long-running disappointment that Europe is just not where other places like the US and China are when it comes to cutting-edge technology."

• Joe Weisenthal (33:57):
  "Bitcoin has not actually been as tech stock-like as it used to. People have called it digital gold, but the chart doesn't reflect that clearly."

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This episode of Odd Lots provides a deep dive into the shifting dynamics of global markets, questioning the sustainability of US market dominance and exploring the rise of European and Chinese economic powerhouses. With expert insights from Ozan Tarman, listeners gain a comprehensive understanding of the multifaceted factors influencing today's investment landscape.

Transcript

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[Joe Weisenthal]

Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

[Tracy Alloway]

And I'm Tracy Alloway.

[Joe Weisenthal]

Tracy US Exceptionalist like, to my mind, the big question for investors is like we've had this 15 year plus run of where it's like the only game in town has. When you invest in the US you did not get paid for diversification. Arguably you didn't even get paid for diversification within the US because you should have just been in tech stocks the entire time. But I really feel like this is the moment where people are asking like, is this one trade that's worked out so well? Is it coming to an end?

[Tracy Alloway]

You know what I really like? I like talking about US Exceptionalism in markets because no one immediately starts debating like the definition of US Exceptionalism. That drives me crazy. Crazy, right?

[Joe Weisenthal]

Because in the broader realm of like just politics or society or life, like is the us but in markets, it's unambiguous. Yes, in markets it's unambiguous that US Assets have just been where you want to be for a long time.

[Tracy Alloway]

So not only have US equities outperformed recently, but they've really come to dominate the market as a whole. Like as a proportion of the market. So the entire world, you know, even with US Stocks falling recently, the entire world basically still has an overweight on.

[Joe Weisenthal]

The world is overweight. No, I mean, it's so true. And if you're a global manager and your benchmark is the MSCI AWS or whatever, you know, it's still in large part of U.S. trade. By the way, I was looking at the bank of America Fund Manager survey today, which is one of my favorites. And after two straight years of long mag Seven being identified by fund managers as the perceived most crowded trade. And this most recent month was gold, which was really interesting.

[Tracy Alloway]

Oh, so it's finally changed. That was the thing. Because, like, for years and years and years, everyone was like, oh, fangs, like big tech. Crowded, like. And the suggestion was, don't even bother buying because the valuation is just so eye watering at the moment. But in actuality, if you wanted to not, not even outperform, but like, meet your benchmark, that was the only trade was buy tech.

[Joe Weisenthal]

This is the true pain trade, right? Because it's like everybody is log tech, everybody is overweight tech. How could you make money buying tech? And yet you still had to buy TEC just to keep up. And so now there's the question of is the pain trade reverse? Because after so many people are so into tech and so into the US can they actually make the risk and take the move of, like, you know what, I'm gonna overweight Germany or I'm gonna buy Chinese stocks or whatever it is. And these are. I think this is the moment where, like, you have to get this call right. Seriously, this is the call of the moment.

[Tracy Alloway]

And you haven't really had to do that before. Now things are getting interesting, right?

[Joe Weisenthal]

We all know the backdrop of all this, so we don't really have to do that in the intro. But I'm very excited about our guest. We're still here in London. We are going to be speaking with Ozan Tarman. He is the vice chair of Global Macro at Deutsche bank, and he talks and thinks about all of these questions with his clients all the time. So we're going to get a slice of what he's thinking about. Ozan, thank you so much. Great to be here with you in person.

[Ozan Tarman]

Wonderful to be here. Honestly, I'm a big fan. I listen to you guys all the time. My clients and friends are big fans, so it's great to be here. This is my hometown.

[Joe Weisenthal]

This is very important to us. When clients say that or, sorry, when guests say this on the episode. We hate when they say it before the recording starts because that was a total waste. Do you agree with the premise that I set up that this is essentially the big question that everyone has to grapple with right now in markets?

[Ozan Tarman]

Without a doubt, and quite tiringly.

[Joe Weisenthal]

Sorry to exhaust it. We're exhausted, too.

[Ozan Tarman]

I mean, even. We're very exhausted after the Liberation Day, but even before all that, we're exhausted from how wrong the whole 1-2-20 consensus went. Everybody and their brother were believing S&P would go anywhere between 7,000 to 6,500 Ty US 10 year would go to 5%. It kind of did, but for all the wrong reasons. And then euro dollar right. I mean everybody who's saying parity, believe me politely, deep inside they were believing 0.95 that $CNH would go to aid. I can go on and on. And why, right? First of all, this US exceptionalism, we can go into tech as well. But first and foremost it was about fiscal expansion. US was the one, the big one, printing the most, especially after Omricon. And on top, yes, the magnificent seven, the wonderful Silicon Valley story and the belief that Germany, Europe and China, for different reasons, would never match the same fiscal ambitions. All these three things I mentioned are completely turned on their head. From deep sea to Germany's one, in fact 1.1 trillion to China holding on to their currency and choosing more fiscal. All the consensus trades and views are thrown into the water.

[Tracy Alloway]

It is true. In January we recorded that episode with the ECB's chief economist and it was basically about all the challenges facing Europe. And then like two months later, European stocks are surging. Everyone's getting very excited about that market. I have what I imagine might be a difficult question, but maybe it's not for you. How much of this has to do with things being really bad in the States versus things actually going well in Europe?

[Ozan Tarman]

I really like that question. It's not a difficult question actually, it's a key question. At the very beginning of the year it was more about rest of the world doing much better than expected. Germany step is a huge step. After the election I held a micro dinner in Frankfurt, as you do, and both our big cheeses and some of our key clients really did not see this coming. Maybe 300 million, maybe 400 billion. Mainly on defense. After the shocking mini. But infrastructure, health, education was hardly mentioned. Something like 1.1 trillion. My head of rates trading was throwing that out as an idea which was quickly pushed back. Then the Hamburg local elections happened and right away Merz came up with that number. And before the new parliament sets in. Sometimes these words, hyperboles are used too much. But that was a historic step. On top China, deep Seq. That was a big, big development. I mean I was jumping up and down on my Bloomberg on Saturday and Sunday of that weekend, whatever you want to believe. I mean maybe they'll do it for five, maybe they do it for 50. They definitely don't do it for 2 billion or 1 trillion. Right? So Deepseek will change the world for Magnificent Seven and all of us consumers. But then to trace his question recently, it's becoming more about us hurting itself, us hurting its soft power, us creating a confidence crisis in a way. With full respect to Scott Besant, who's been a dear client friend as well, who's been to some of my New York Mac readers when he says what Mag7 goes through, a quote has got nothing to do with MAGA is more about a deep seq issue. I would kindly disagree with that. Of course deep seq as I told you, has got many factors to do with it, but tariffs, much more than people expected, ended up shooting us on its own leg.

[Joe Weisenthal]

Is deep seek about deep seq or is it a metonym for the rise of competitive Chinese tech?

[Ozan Tarman]

I think more for the latter. But my friends that I do trust in beyond market minors from the start believe that it was real. Some things it did much better than ChatGPT and I think us since it has given me my education as well. The first reaction to it was the us I know this is for real. It may help all of us. Let's compete. So in that sense it was good for humanity as well. But yes, that was the first step in the in this year in which China said hey I'm here. Then the second big step was last Wednesday. I mean joined Tracy last Wednesday unfortunately five, six hours before this when I woke up to see the China fixed to see if they devalued big or not and when I was leave to see they haven't then I looked at us 10 year as you do and EURUSD and then I didn't unfortunately sleep. Why?

[Joe Weisenthal]

Because I didn't sleep that night either. I was on my couch updating my Bloomberg app on my phone just looking at 10 year.

[Ozan Tarman]

Imagine if we did this one week before because us 10 year had gone to 455 and at the same time dollar was weakening. So even that Sunday three days ago I kind of knew this was the vibe. Some people were really worried about it but I didn't see, I didn't see in two days dollar melting like that. And at the same time us long end being basically lost 10 and 30. That is my terroir. I grew up in emerging markets. My first responsibility was emerging markets. Again no hyperbole. That was emerging markets like trading that stage, you know. I almost wanted to shout out responsibility like almost like an MC to the market. Somebody needs to blink, somebody needs to come. I thought it could be fed. And right that afternoon presidents blinked for the first time.

[Tracy Alloway]

Yeah, you Know what else was very emerging markets that week? You know, having policymakers calling for rate cuts when the dollar was falling and yields were going up. Like that is classic, right?

[Joe Weisenthal]

Well I was thinking that if we were classic, wouldn't the IMF people be calling for rate hikes and not rate cuts in that environment? Would they say oh you know, you need an independent central bank that like is committed to sort of orthodoxy. You got to hike in these environments.

[Ozan Tarman]

That my friend, you guys are in London. We are honored. That unfortunately is the trust moment. We went through that in this island just three years ago. But even then at the height of the panic when quite justifiably some were calling for a hike, bank of England instead chose QE at that time as well. People said oh that may be inflationary at the end, et cetera. But that ended up calming things down I do believe. First of all last week if president didn't blink and 10 year and 3rd year continue to sell off with the dollar selling off em style I think Fed would have come definitely. And the qt, I mean we can talk about that. I think they will do that right away in May anyway. But I think they will do QE as well. Not cut. I think Powell really doesn't want to cut because of all the inflation growth dynamics. But they would have done that. And I don't agree with some of my dear client friends who say even QE inflationary wouldn't, wouldn't long and react to that even more. Maybe they are kindly talking to your book if we have. If you go through that kind of episode, a QE may calm things down. But Trump blinked two or three times so I'm not too sure famous last words will go through that Fed QE stage now. There's a big big big debate already in the markets. Even though my dear friends are tired and wounded. Do you play for the next leg to come? One more quote unquote attack towards 450 and higher in US 10 year. Much more importantly 5% and higher in 30 years. Or do recession worries and growth worries always outweigh? Is it now when worries peak? Is it now time to receive? I kind of have a lean towards this the letter and it has won by 25 basis points as I speak. So something may have begun.

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[Tracy Alloway]

Wanted to talk to you is because you are constantly speaking and arguing over these trading ideas with your clients. And I guess I'm curious.

[Ozan Tarman]

I like the arguing.

[Tracy Alloway]

Yes, I guess I'm curious. Is anyone buying the Trump administration argument that like, okay, we're taking some short term pain in exchange for longer term better economic growth? Is that something that people like are actually positioning for? Is that resonating at all with your clients?

[Ozan Tarman]

Again, very good question. Up until mid February, end of February, a lot of them did. Now we don't think about it, but you know, you're at 113, 115. Back then to talk even €110 was like, come on, you know, calm down, etc. Because people did believe tariffs have to be inflationary. Market is not believing, market is not pricing it, that's why it's not happening, etc. Etc. Then credibility started to become an issue. When you start with Canada and Mexico, when you don't mention China that much, then you decide to do something on Canada and Mexico, even though market and most economists are revolting, you immediately step back, delayed for one month, you start losing credibility. Then people start relaxing about the liberation day. You come up with this big sign with very, let's say creative way of calculating it and you hit China and Asia the most then people say there's a credibility issue.

[Joe Weisenthal]

Actually this reminds me because you and I met for coffee in New York City like three or four weeks ago and I think one of the comments at the time and now that this seems like ancient history, but the thinking at the time was like, oh, it's interesting, Trump is hammering Canada and Mexico a lot more rhetorically than he has China. Maybe he's going to go easy on China. And I had forgotten that that was actually in the discourse even like three weeks ago.

[Ozan Tarman]

I do remember our conversation as well and you made me think too because when I said I still believe, like look, I think for this year this yours US exceptionalism trait is here to stay. It's not just a one quarter thing because that I heard a lot as well. Ozan, good call. We like your blue mega hat. But this is just one month. It's just two months. This is just three months. Yeah, well now it's 115 etc. But then you told me look, China, they're doing a lot better in EV and solar. They're starting to do better in in tech, in fiscal. So maybe we are not that exceptional after all you had told me. And then also on that going easy on China, he was trying to high discards.

[Joe Weisenthal]

Yeah.

[Ozan Tarman]

Then he went seventh gear. But China is playing a good one. If a lot of people back to that Wednesday when we didn't sleep. A lot of people fear that either that Wednesday or that Thursday China would devalue big. To be fair to both my research and trading Perry, Malika, we really believed that people shouldn't exaggerate. They would hold, they would hold the ground and it was to their advantage to choose fiscal more so far so right. And that also proving making things quite difficult for the President. Like even this morning. Right. I opened up okay, it's more colorful for Tracy and Joe. Not wonderful but S and P down 70, NASDAQ down 350. And then as I was walking to the tube, China may talk to you guys if you show respect immediately. SMP 70 points by the way.

[Joe Weisenthal]

For listeners. We are recording this Wednesday, April 16th. It is 10:58 London time. 5:58 New York City time. We always have to get these.

[Tracy Alloway]

So funny. We actually have to include the exact time now which we didn't have to do before.

[Joe Weisenthal]

We used to just do dates.

[Ozan Tarman]

I like that. Before ecb. Before Powell speaks in Chicago.

[Tracy Alloway]

Yeah, exactly. Well okay. So on the tech front, one thing I don't get is so much of the American exceptionalism Trade has been about AI enthusiasm and this idea that America has a head start and no real competitors. At least up until the unleashing slash arrival of deep seeking in Europe, we still haven't really seen a real contender in the AI space. I think that's fair to say. And there has been this long running disappointment that Europe is just not where other places like the US and China are when it comes to cutting edge technology. That hasn't changed as far as I can tell. But it seems like investors are kind of willing to overlook that. Or maybe they think that US isolationist political policy and the idea that Europe is going to have to come together to fight Russia and you know, make up for a less active us maybe that's going to be the thing that sparks technological advance.

[Ozan Tarman]

A bit of both I think first of all, especially Germany. But Europe can reinvent itself. That's going to take a little bit of time. In the meantime, things like Arnie Media, so things like lvmh, Airmes have to carry us, which didn't happen yesterday because of what's going on with China. So it will need time. At the moment, Europe does AI, but does the chips like the part of the chips that helps the ASMLs and TSMC of the world. Germany doesn't necessarily have its own asml, so but at the same time, yeah, this is a country, at least the country Germany, but overall continent that has shown that it can reinvent itself. It's not going to happen in two, three months. But all these, for the past, all these unforced errors America is making is giving the old continent some time.

[Joe Weisenthal]

Europe is arguably now the leading, I mean clearly the most advanced place in the world for aerospace technology. And we had those headlines today or sorry yesterday about China halting deliveries of Boeing. Already Boeing was falling behind Airbus largely due to operational problems. There is clearly still some just sort of like classical industrial might on the continent. Much of it aerospace, probably engines, other parts that feel like areas for potential further growth.

[Ozan Tarman]

Agreed. Look, I go back and forth between three categories. Two categories really. Category one is after having a great four months, I'll be wrong. US exceptionalism will be fully back. This was all a joke. America, America, Category two for reasons like you outlined, Europe, European industrialism. China will continue to lead the pack. To be honest, it's going much better than I would have thought. This much outperformance didn't happen since 1980, etc. It's going to be continued theme and category three USA Inc. America will take everything down. It will be such a serious confidence and market crisis that with all due respect to European aerospace this that the Danish true global recession no place to I go back and forth I mean how can you not you go back and forth these three or two categories my gut feel and reasoning still is that category two the broad team of 2025 will win because why I think president will continue to blink and also I have a backstop now I do believe if things get very ugly 5% and more us 30 are ugly in us said we'll come with QE at this Collins last Friday she gave a hint she said the one more word we are ambitiously or whatever the word she didn't just say watching we're definitely she was the first one to give most investors belief that they could come with more steps. And then Waller I know that now Waller people are half joking about is he really saying it or is he lobbying for the job but he's a you know I think he does believe it. He's a respected man and he did hint that cuts can be front loaded if things get uglier. So first of all I believe blinks will continue from the White House but even if they don't I think we have the backing of the of the Fed.

[Tracy Alloway]

You know I mentioned in the intro this idea that the world is sort of de facto overweight the US just because of the it's the market size and its weighting in a bunch of different benchmarks. Does that provide like some cushion for US equities selling off like the fact that you do have index investors, passive investors that have to be hugging a certain benchmark which happens to be filled with a lot of American equities.

[Ozan Tarman]

Completely agreed. Exactly. Tracy. In a simple way of putting it. I was discussing with a senior colleague yesterday this is great because let's go right into that reallocation the big team. Right. If big players were really in the big sense of the word with a big R reallocating away from the U.S. there will be a lot of circuit breakers in S and P I don't want to sound but that is the name it would be I'm not sure how S and P would open tomorrow morning. So there's a difference between even these big real money so wealth funds trading in their own time zone and making much bigger, much longer dated decisions. So I think this letter it's more we do want headlines especially US emerging markets affects people we do get excited but true true, true big reallocation. I don't think we're there yet that being said, there are trades so these big. It's not just my wonderful hedge funds fast money getting. What's the word Trump used? Queasy. It's beyond yippee, yippee. It's more serious than that.

[Joe Weisenthal]

Yeah, no, Tracy wrote a great note about that yesterday or the day before. I can't track. It's like. And it's like real money, real money actually moving away. You know, everyone looks for analogies to past experiences and it's like, is this like, is this like great financial crisis? Is there like a run element? Is this like Covid where it's a supply shock? Is this like the Liz Truss moment where I don't really like the term because I don't like insulting people, but you hear that term moron risk premium exist. The other, you know, when, when you describe, okay, if the Fed comes in to backstop. Another possibility is a Brexit analogy in which there's not an immediate crisis really, it is just the start of a slow degradation of the economy. It sounds like when you're in that number two spot where it's like, okay, there's some blinking going on, there's some Fed backstopping going on, that it's. Maybe that is the analogy perhaps that we should be thinking about spot on.

[Ozan Tarman]

I mean, soft power is being eroded. My alma mater, I'm biased on the issue, but Harvard headlines, right. That doesn't help the global perception, whatever your politics is. So in that sense, in fact, when I was trying to get some sympathy from some clients while, you know, forwarding around the Harvard headlines, one of them did says. Did say immediate answer US is Brexit moment.

[Joe Weisenthal]

Yeah.

[Ozan Tarman]

To your point. So for it to get more serious, uglier and GFC like that, then that is the big word. DM credit. DM credit that needs to shake for it to become, you know, God forbid, more OA2.09, like, what's the trade?

[Tracy Alloway]

Because we can all sit here and talk about these big macro themes like American exceptionalism, but like, you know, given some of the restrictions on large investors and given the reality of trading in certain markets, like, you know, Chinese assets, what exactly do you do here?

[Ozan Tarman]

I think, look, first of all, I do believe 4850 in S&P may have been a base, a floor. Even if I'm wrong on that, if we go down towards that very fast, more faith blinking and QE will come very fast. So I think we'll bounce very, very fast, that I will forget that I was wrong. I continue to believe Europe and China has a lot of fiscal room. So I feel at the moment quite confident that Dax, amdax, the medium caps and China tech will continue to weigh out for outperform us on race we had started discussing with Joe. I do have sympathy that receivers from here on the long end will work. That may be, that may be a big trade actually talking about despite tiredness and wound wounds, a crowded trade, steepness still crowded. Because on paper it does make sense, you know for different reasons for US and Europe. But you know, short end may, may stay, may stay lower and long end may get, may get sold off more on that one. So I think flatteners at certain stages may give pain to people. ECB for example, okay, she will cut tomorrow but I don't think there's so many unknowns, right how the tariff negotiations will go, etc. On June she will not blink. She will not give you the hint that this will continue on June. And if people started getting worried about the June skip. There you go. That's not going to help your steepening. Our official call is that terminal rate in Europe is all the way down to 1.5. My excellent chief economist Mark Vol does get pushback from that in Spain's and Italy's of the world. Even before the recent developments and even before euro went to 130soft$. Look, we're talking big levels on euro, on yen, on Swissy, on gold. But my bias is still to sell any dollar rallies.

[Joe Weisenthal]

So we're talking about that Wednesday night when dollar was selling off Morning.

[Ozan Tarman]

Wednesday morning. Last Wednesday morning.

[Joe Weisenthal]

Actually it was for me it was Tuesday night. But I mean it sort of depends. It was my Tuesday night.

[Tracy Alloway]

Oh, we all know what you're talking.

[Joe Weisenthal]

We all know what's fine.

[Ozan Tarman]

Yeah, yeah, luckier you.

[Joe Weisenthal]

Yeah, yeah, I was up. That was the Tuesday night. I didn't get any sleep. There was that day. And as you said, you're like this is EM style trading, right? When you see all three equities, treasuries and the dollar going down. If we were actually talking about the US as an em. If you're an analyst, as a sell side talk, there would be a lot more. There'd be a lot of talk about politics and how politics works and you know what is, is there an independent central bank, et cetera. Like how much of the conversation is really becoming about stability of just like the sort of internal workings, rule of.

[Tracy Alloway]

Law of US political order, institutional strength.

[Ozan Tarman]

Again, very, very relevant. I mean in that kind of sense, if we half revisit that your Tuesday night and if president sends five more tweets about Fed should cut right away not good. Some people even believe on the Friday speech I don't know now two weeks.

[Joe Weisenthal]

Before it's okay, we've all lost track of time.

[Ozan Tarman]

If president didn't tweet five minutes before the guy spoke. I mean conspiracy theory but maybe he wouldn't. He wouldn't prefer inflation that much over growth. So if you create that kind of Fed independency question mark it's not going to help your it's not going to help your trade at this moment talking about em if this thing goes like this America needs friends. America finance needs friends. Powell and Besant when they auction need friends. So talking about em right? Whenever the President these days things can change. He's a very successful political person, needless to say. But as of now, whatever the topic is, from tariffs to Powell to Harvard, when he talks and writes too much about an issue, it doesn't help with this capital. You know Tracy's capital allocation situation. Real money sells dollars. Yeah, mathematics. And at the moment he needs real money to buy his auctions.

[KPMG]

KPMG makes the difference by creating value. Like developing strategic insights that help drive M and A success. And embedding AI solutions into your business to sustain competitive advantage. Or deploying tech enabled audits to deliver more accurate and transparent outcomes. Brighter insights, bolder solutions, better outcomes. It's how KPMG makes the difference every day. KPMG make the difference. Learn more at www.kpmg.us. insights.

[Canva]

You know when you're really stressed or not feeling so great about your life or about yourself, talking to someone who understands can really help. But who is that person? How do you find them? Where do you even start? Talkspace Talkspace makes it easy to get the support you need. With Talkspace, you can go online, answer a few questions about your preferences and be matched with a therapist. And because you'll meet your therapist online, you don't have to take time off work or arrange childcare. You'll meet on your schedule wherever you feel most at ease. If you're depressed, stressed, struggling with a relationship, or if you want some counseling for you and your partner or just need a little extra one on one support, Talkspace is here for you. Plus Talkspace works with most major insurers and most insured members have a zero dollar copay. No insurance, no problem. Now get $80 off of your first month with promo code space80 when you go to talkspace.com match with a licensed therapist today at talkspace.com save $80 with code [e-mail] I'm not going to say.

[Tracy Alloway]

That the US is an emerging market, but I am going to ask you, with all of your emerging market experience, what advice do you have for people who are trying to trade the US at the moment?

[Ozan Tarman]

I mean, watch the three key people, Trump, Powell, Xi. Who's going to blink when I think that would be my advice. Even a week ago, Trump already showed that maybe he has less cards. He's blinking then. The second thing is, you know, I mentioned Collins, I mentioned Waller, not cuts. But I do believe that QE is out there. So I think we have the backing of the Fed. And then finally Xi, even though, okay, he has the cards, but this is not good, right? So at some stage they need to talk. Even the basic, what we quote, unquote expected after his, after the President rallies last year, 10% for everyone else, 60% China even, that's much better than this. So at some stage there will be that summit between, between them and we will be at a better stage. So this is all. This all makes sense. That's why I'm not Category three. That's why I'm, you know, we will be okay, maybe 48, 50 will hold, but rest of the world and Europe will do better. If I believe that Trump wouldn't blink because of ideology, whatever. If I believe that Powell will say your problem, not even qe, and if I believe that China would play a very, very even, even a tougher hand, then I would fear, Yeah, I would fear Brexit or 08. Like, seems more. I don't.

[Joe Weisenthal]

Yeah. I just have one last question. It's kind of a curveball and I'm certainly not asking you to like make your call or a trade. You know, One thing that I've noticed though over the last couple of weeks is that Bitcoin has not actually been as tech stock like as it used. I used to joke that bitcoin traded like three tech stocks in a trench code. And I'm wondering, when you talk to people, we all know it's a speculative trade, whatever. That's not my point. But when you talk to people, particularly nems, do you get the sense that people take it for real as a monetary asset, that they want to have some allocation to it that's separate from all of this?

[Ozan Tarman]

Can I answer that and then add one more thing that I want to? Yeah. So bitcoin answer is it was just going to, it was about to become Even more serious in a good sense, it was becoming even more of a digital gold. Not just my, some of my dear client friends and their big PA portfolios, but some institutionalization was taking place because of what they believed Trump would bring to the table. But then my answer to Tracy on credibility on tariff. There's a reason why all these, you know, if he did these China, Canada tariffs on January 20, we would probably want to trade first at 102 Euro dollar. Now we're trading at 115 because credibility is gone. A little bit similar now with the whole bitcoin situation back to the back of the class. If you're a big believer on a big bounce in the market, maybe you would, you know, trade it in your own portfolio, et cetera, et cetera. But some of the funds getting buy and sell side, getting more serious about it as an asset in an institutional side, I think that took a hit. This other team that I want to bring up so that I don't regret tax cut.

[Joe Weisenthal]

Oh yeah.

[Ozan Tarman]

So you know that again, talking about a big veteran, you know, one of us, big market player, best cent. There's a reason why he's saying, literally saying to your colleague Hordern, this whole year has been tariffs, tariffs, tariffs. We need to talk, you know, he's talking to we need to talk tax cut, tax cut, tax cut, deregulation, deregulation. Well, you're the man, you're the one to change the narrative to that. So he's claiming that they're moving fast on that, like in Trump 1.0, that's going to be important. Whether it's going to be just the extension of the existing tax cuts or will he beyond tips and stuff, will he bring something new to the table? We can discuss whether that's good or not, whether this thing, this economy needs more fiscal easing. But yes, if they beyond words, if they can succeed on changing the narrative from tariff madness to more the House tax cut deregulation, how fast it's passing, can it be done before July 4th, etc. And that's going to help the very not what the screens are telling you now, but that would help S and P and Nasdaq.

[Tracy Alloway]

Even there though, we're getting confused, mixed signals. Right. We had a story overnight where the Trump administration was said to be looking at tax hikes for people earning more than a million dollars a year. So I can see why people have forgotten like that part of the narrative because it is a little bit confusing at the moment.

[Ozan Tarman]

Review look for Trump 2.0. It has been for the economic team, it has been a stumbling stock. Stumbling start. Like they haven't.

[Tracy Alloway]

A stumbling start and a stumbling stock.

[Ozan Tarman]

Exactly. It hasn't been understatement. It hasn't been a Michael Phelps start.

[Joe Weisenthal]

Ozan Tarman, thank you so much for coming on Oddlu. This was like the perfect moment. Perfect guest. Really appreciate it.

[Ozan Tarman]

Thank you.

[Tracy Alloway]

Thanks so much. That was fun.

[Joe Weisenthal]

That was a lot of fun. That was a fun conversation. I like the sort of the three, the three scenarios that he laid out. And you know, unlike everyone else, you know, I change my view. Not that anyone should ever listen to my view because I've never gotten anything right. But whatever I'm feeling usually like changes by the hour at this point.

[Tracy Alloway]

Yeah. Which I think is fair. Right. Like that that's the reasonable response to the flood of news headlines that we're getting. I should, I feel like we should just add odd lots does not provide any trading advice. Yeah, that's right. This is our disclaimer. But that said, I do like one thing that seems certain to me really is the higher term premium in the treasury market and the idea of a steep NER also because like I think the US is just going to have to issue like even more short term over time for a variety of reasons, one of which could be foreign investors stepping away from the treasury market more than they have already been doing. So that's one to watch. And then just on the bitcoin point that you were making, I've been thinking about this too over the past couple of weeks. Like I have been eagerly waiting to see what the next big bitcoin talking point is, because this is one of the real strengths of bitcoin is it always comes up with a new narrative. Right.

[Joe Weisenthal]

And like, well, it can't be tariffed.

[Tracy Alloway]

Yeah.

[Joe Weisenthal]

It's kind of. People have called it gold, kind of digital gold. But people should look at the chart. It's not trading as bad and is NASDAQ like as it had been for a while, which makes me wonder if it's a little bit acquiring some of those safe haven properties people supposedly claim.

[Ozan Tarman]

Yeah.

[Tracy Alloway]

But it needs something like pithy for Trump tariff world. And we're still waiting for that. And. But I'm sure there are people working on it right now.

[Joe Weisenthal]

You know, the other thing is when I think about all of these. So there's two things that I think about. One is there is this scenario that I don't think gets talked about as much, which is like the global depression trade or the global recession trade. Right. And so the idea that it's so disruptive and the US Is so important that the idea of it just being like a sort of U.S. recession, which many people obviously think it actually not that it actually is something which seems.

[Tracy Alloway]

Like a realistic possibility.

[Joe Weisenthal]

And then the other thing is that like when everything looks sort of bleak and there really isn't much cutting edge tech in Europe and US is maybe shooting itself in the foot and there are limits to the degree to which anyone can really invest in China. It's not surprising that gold is now perceived. Like that's the one thing, right? Like the one thing that will be there for you is if you have a yellow shiny metal in your safe. And it's not surprising that that's railing.

[Tracy Alloway]

Plus gold is just shiny as you see. It's really nice, that physical attraction, that sense of comfort in times of uncertainty.

[Joe Weisenthal]

Well, you know, we went to the jewelry, the jewelry store, I guess that was like February or March or whatever and I would try it on that 75,000 dol dollar gold necklace and I.

[Tracy Alloway]

Feel like, do you regret not buying it?

[Joe Weisenthal]

I feel really dumb not buying it because a, a bunch of people told it, told me it looked good on me. But B, more importantly, that'd be like an $85,000 gold necklace today.

[Tracy Alloway]

Jo, you know, we're, we're not that far from one of London's jewelry districts. We can, we can go shopping right after this. It's about 10 minutes away.

[Joe Weisenthal]

I'm really underweight gold Tracy. So I might, I might have to do that.

[Tracy Alloway]

All right, shall we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Wiesenthal. You can follow me at the Stalwart. Get more of Ozan's thoughts. Check out his LinkedIn ozontarman. Check him out there. Follow our producers, Carmen Rodriguez, Armanarman, Dashiell Bennett at dashbot and Cale Brooks at Cale Brooks. Thank you to our London producer Moses Andam. For more Odd Lots content go to bloomberg.com oddlots where we have a daily newsletter and all of our episodes. And you can chat about all of these topics 2347 in our discord discord GG oddlots.

[Tracy Alloway]

And if you enjoy Odd lots, if you like it when we talk about trading the end of US exceptionalism, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for listening.

[Ozan Tarman]

SA.

[KPMG]

KPMG makes the difference by creating value like developing strategic insights that help drive M and a success or embedding AI solutions into your business to sustain competitive advantage. KPMG make the Difference. Learn more at www.kpmg.us insights.

[Canva]

You know when you're really stressed or not feeling so great about your life or about yourself? Talking to someone who understands can really help. But who is that person? How do you find them? Where do you even start? Talkspace Talkspace makes it easy to get the support you need. With Talkspace, you can go online, answer a few questions about your preferences, and be matched with a therapist. And because you'll meet your therapist online, you don't have to take time off work or arrange childcare. You'll meet on your schedule wherever you feel most at ease. If you're depressed, stressed, struggling with the relationship, or if you want some counseling for you and your partner or just need a little extra one on one support, Talkspace is here for you. Plus Talkspace works with most major insurers and most insured members have a $0 copay. No insurance, no problem. Now get $80 off of your first month with promo code space80 when you go to talkspace.com match with a licensed therapist today at talkspace.com save $80 with code [e-mail].