Podcast Summary: Unhedged – "Three Surprises That Might Spook the Markets"

Release Date: July 8, 2025
Hosts: Katie Martin, Robert Armstrong, and Aiden Reiter
Published By: Financial Times & Pushkin Industries

Introduction

In this episode of Unhedged, hosts Katie Martin, Robert Armstrong, and Aiden Reiter delve into the recent developments in U.S. fiscal policy and trade regulations, exploring their potential implications for global markets. The discussion centers around President Donald Trump's newly passed budget bill and the anticipated tariffs on Japan and South Korea, analyzing how these policies might "spook" the markets.

Trump's "Big Beautiful Budget"

Katie Martin opens the conversation by highlighting the passage of President Trump's comprehensive budget package, aptly named the "Big Beautiful Budget Act" (BBB Act).

• Aiden Reiter explains the bill's key components:
  • Maintains existing tax cuts: Preserves Trump's initial tax reductions and introduces additional cuts, including the elimination of taxes on tips and overtime.
  • Reduces government programs: Alters funding for healthcare for low-income individuals and modifies subsidies for electric vehicles and manufacturing.
  • Increases the debt limit: Facilitates an additional $3 to $4 trillion in U.S. debt over the next decade, exacerbating the current debt trajectory of $36.1 trillion (02:52 - 05:43).

Robert Armstrong underscores the bill's impact on the national deficit:

"The most important thing is that it increases the deficit. Just a few months after we had what might be described as a kind of fiscal scare..." (04:18)

Despite these significant fiscal changes, Katie Martin observes that market reactions have been surprisingly muted:

"There is at most a very moderate freakout going on around US deficits." (06:47)

Tariffs on Japan and South Korea

The discussion transitions to Trump's tariff policies, particularly the delays and imposed tariffs on Japan and South Korea.

Robert Armstrong notes the initial market panic following Trump's announcement of the "Liberation Day tariffs":

"After Trump announced the Liberation Day tariffs... markets suddenly had a little panic..." (04:31)

However, the expected severe inflationary impact from these tariffs has not materialized:

"Tariff inflation has not, except in a few niche cases, tariff inflation doesn't seem to be rearing its head." (10:15)

Aiden Reiter adds that the effective tariff rate on imports from Japan and South Korea remains relatively low (15.5% to 16%), mitigating immediate concerns:

"The effective tariff rate is, I believe goes from like 15.5 to 16%." (10:53)

Katie Martin highlights the uncertainty surrounding the implementation timeline of these tariffs, which has been pushed from July to potentially September:

"Supprise, surprise, it's been pushed out to some time in August... maybe September." (12:00)

Market Reactions and Deficit Concerns

Despite the substantial increase in the national debt and the introduction of new tariffs, Robert Armstrong points out that bond yields have only seen a modest rise:

"Yields are still lower than they were in the middle, and they're still a lot lower than they were in January." (08:27)

Katie Martin concurs, emphasizing that the market remains largely indifferent:

"It's quite a lot in Bondland, but it's not disastrous for a week." (08:40)

Robert Armstrong suggests that ongoing market momentum may be overshadowing the fiscal news:

"Markets that go up tend to keep going up. And the momentum just turned out to be more important than the news out of the budget and the news out of the tariffs." (09:26)

Potential Market Shocks

The hosts discuss potential triggers that could unsettle the markets further:

1. Earnings Season:
   Robert Armstrong identifies a slowdown in profit growth within the S&P 500 as a primary concern:

   "We know that profit growth in The S&P 500 is slowing. If it turns out to be slowing faster than we expected, I think that could put markets right on edge." (16:09)

2. Trade Negotiations:
   Ongoing negotiations between the U.S. and Europe present another risk, especially if they deteriorate:

   "If the trade negotiations between Europe and the US... turn ugly, suddenly all these larger questions... will be at the forefront of our markets." (16:45)

3. Weak Treasury Auctions:
   Aiden Reiter warns that a weak treasury auction could signal diminishing foreign investor confidence:

   "A weak treasury auction... could be very concerning." (17:07)

Katie Martin emphasizes the precarious position of Japan, the largest holder of U.S. government bonds, and how strained relations could have swift negative repercussions:

"Japan is the world's largest holder of U.S. government bonds and Donald Trump is going out of its way to annoy Japan... it can go horribly wrong quite quickly." (18:12)

Long Short Opinions

In the "Long Short" segment, the hosts share their investment positions based on current market analyses.

1. Aiden Reiter:
   Short Position: Regressive tax policy
   Reasoning: He criticizes massive tax cuts for the wealthy and cuts to essential services like Medicaid, arguing that such policies do not foster economic growth and disproportionately benefit higher income brackets.

   "I think the evidence around trickle down economics is very dubious and I think [it has] been fairly disproven multiple times." (19:32 - 20:05)

2. Robert Armstrong:
   Short Position: Boston Consulting Group (BCG)
   Reasoning: Armstrong disapproves of BCG's involvement in controversial projects, such as relocating populations in Gaza, viewing it as unethical and damaging to the consultancy's reputation.

   "Boston Consulting Group was basically working on a project in Gaza that involved basically the relocation of people. Without going into the details, this is something that consultants should not have approached." (20:16 - 21:06)

Conclusion

The episode concludes with a light-hearted exchange about the dangers of "hot yoga networking" and reminders for listeners to stay informed about fiscal and trade developments. The hosts emphasize the importance of monitoring upcoming earnings reports, trade negotiations, and treasury auctions as potential indicators of future market movements.

Notable Quotes with Timestamps:

• Robert Armstrong (04:18): "The most important thing is that it increases the deficit... the Republican Party by a hair has passed a bill that pretty significantly increases the deficit and the debt in the future."

• Katie Martin (06:47): "There is at most a very moderate freakout going on around US deficits."

• Aiden Reiter (10:53): "The effective tariff rate is, I believe goes from like 15.5 to 16%. Like it's really nothing."

• Robert Armstrong (09:26): "Markets that go up tend to keep going up. And the momentum just turned out to be more important than the news out of the budget and the news out of the tariffs."

• Katie Martin (18:12): "Japan is the world's largest holder of U.S. government bonds and Donald Trump is going out of its way to annoy Japan... it can go horribly wrong quite quickly."

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This summary encapsulates the key discussions and insights from the "Three Surprises That Might Spook the Markets" episode of Unhedged. For the full conversation and additional context, tuning into the original podcast episode is recommended.