Odd Lots Podcast Summary
Episode: Viktor Schwetz on Trump's Historical, Revolutionary Moves
Release Date: April 9, 2025
Host/Authors: Joe Weisenthal & Tracy Alloway, Bloomberg
Introduction
In this episode of Bloomberg's Odd Lots, hosts Joe Weisenthal and Tracy Alloway engage in a comprehensive discussion with Viktor Schwetz, Head of Global Desk Strategy at Macquarie Capital. The conversation delves into former President Donald Trump's transformative and revolutionary policies, particularly focusing on changes in U.S. trading relationships, tariff implementations, and their broader economic implications.
Trump's Tariff Announcements and Their Impact
The discussion opens with an analysis of massive tariffs announced on virtually every country, including small and depopulated islands, surpassing historical precedents like the Smoot-Hawley Tariff.
- Viktor Schwetz [03:16]: "They want to remake America. They want to make it different to what it was before. But you can't remake America unless you remade the world at the same time."
Schwetz emphasizes that Trump's administration pursued a revolutionary agenda aimed at fundamentally altering America's economic landscape, which required simultaneous global changes.
Capital Inflows and Deglobalization
The conversation shifts to the deglobalization of goods and services, highlighting the challenge of sustaining capital inflows necessary for ambitious domestic projects like boosting manufacturing.
- Tracy Alloway [06:28]: "That's really expensive. And when I look at the markets right now, it's very unclear to me where that money is actually going to come from."
Schwetz discusses how countries are responding by increasing contributions to pension and wealth funds to manage deglobalized capital, though he questions the efficiency of such allocations.
- Viktor Schwetz [07:15]: "Whether it's efficient allocation of capital? Not necessarily. Is it looking after the interest of pensioners that they're supposed to service? Not necessarily, but that could be one way that you actually will accumulate some capital over time in order to fund it."
Historical Comparisons and Revolutionary Movements
A significant portion of the episode draws parallels between Trump's policies and historical revolutionary movements. Schwetz compares the current trajectory to periods under Andrew Jackson, Abraham Lincoln, and Franklin D. Roosevelt (FDR).
- Viktor Schwetz [12:55]: "Probably the times of Andrew Jackson, probably the times of Abraham Lincoln, and I would argue the times of FDR."
He elucidates that like these historical figures, Trump's administration sought to aggressively reshape the executive branch's power, though with differing motivations and outcomes.
The Pain Threshold and Voter Impact
Schwetz introduces the concept of a "pain threshold," referring to the point at which economic hardships begin to significantly affect voters' perceptions and political support.
- Viktor Schwetz [25:50]: "There is a very solid part of the population which actually bought into the idea that you must burn down the house in order to build a bright future."
He warns that prolonged economic pain could lead to widespread dissatisfaction, potentially triggering political upheaval.
Market Reactions and Treasury Yields
The hosts and Schwetz analyze recent spikes in U.S. Treasury yields, unusual in times of uncertainty when yields typically fall as investors seek safe havens.
- Tracy Alloway [18:26]: "There are two things. One answer is the sunsetting of US Exceptionalism and the other answer is liquidations."
Schwetz attributes rising yields to diminishing faith in American exceptionalism and ongoing liquidation of assets as economic conditions worsen.
Risk Premium and the Decline of American Exceptionalism
Schwetz discusses the erosion of the long-held belief in American exceptionalism, leading to a reassessment of risk premiums associated with U.S. assets.
- Viktor Schwetz [16:15]: "Europe or if you think of China, you're looking at about 6 to 9% inflation-adjusted risk premium. So should that risk premium come down... why should it be trading at 20 times when China is trading at 11 times?"
He suggests that as the U.S. is perceived as less exceptional, investors may diversify away from traditional U.S.-centric portfolios, increasing capital flows to Europe and China.
Federal Reserve’s Dilemma and Institutional Integrity
The episode touches on the challenges faced by the Federal Reserve amid rising inflation and economic slowdown, compounded by the diminishing independence of institutions.
- Viktor Schwetz [27:50]: "If in fact Federal Reserve is caught between rising inflation and slowing gross rates, otherwise known as stagflation, the question is whether Federal Reserve will be able [to maintain] the extent of independence that they have been enjoying certainly over the last several decades."
Schwetz expresses concern over the Federal Reserve's ability to manage economic stability without institutional safeguards, given the current political climate.
Closing Remarks and Final Thoughts
The hosts and Schwetz wrap up by reflecting on the fragile balance of norms and the potential for further economic and political instability. They acknowledge the resilience of U.S. underlying strengths but remain cautious about the future trajectory.
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Joe Weisenthal [30:43]: "Well, it is similar to getting a denormalization discount on U.S. assets."
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Tracy Alloway [30:31]: "It's kind of feeding into some of the risk premium that we're seeing around U.S. Assets dollars in U.S. Treasuries."
Schwetz remains hopeful but underscores the importance of monitoring how quickly the pain from current policies will impact broader economic indicators.
Notable Quotes with Timestamps
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Viktor Schwetz [03:24]: "They want to remake America. They want to make it different to what it was before."
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Tracy Alloway [06:28]: "That's really expensive. And when I look at the markets right now, it's very unclear to me where that money is actually going to come from."
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Viktor Schwetz [12:55]: "Probably the times of Andrew Jackson, probably the times of Abraham Lincoln, and I would argue the times of FDR."
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Viktor Schwetz [25:50]: "There is a very solid part of the population which actually bought into the idea that you must burn down the house in order to build a bright future."
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Viktor Schwetz [27:50]: "The question is whether Federal Reserve will be able to extend the extent of independence that they have been enjoying certainly over the last several decades."
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Tracy Alloway [30:31]: "It's kind of feeding into some of the risk premium that we're seeing around U.S. Assets dollars in U.S. Treasuries."
Conclusion
This episode of Odd Lots provides an in-depth analysis of Trump's unconventional economic policies and their ripple effects on global markets and U.S. financial norms. Viktor Schwetz offers valuable historical context and foresight into potential future shifts in global capital allocation, the erosion of American exceptionalism, and the consequential adjustment of risk premiums in U.S. assets. The discussion underscores the complexity and interconnectedness of political decisions and economic stability, offering listeners a nuanced perspective on current market dynamics.
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