April 11, 2025 • 16 mins
Kyle Bass said the US may need to undergo a recession as it reorders its global trade ties and attempts to rein in the federal deficit.
”We have to make some difficult choices,” the Dallas-based investor said in an interview on Bloomberg Television. “Both of those things might be slightly recessionary, and if that’s true, we might have to go to a brief recession in order to rebuild our foundation.”
President Donald Trump’s moves to drastically increase trade levies sent equity valuations plunging and US yields soaring before Trump put in a 90-day pause. There still remain increased duties on major trading partners while the administration has ratcheted up the US tariff on goods from China to at least 145% — a result of a 125% rate that includes “reciprocal” duties and a 20% rate imposed by Trump earlier this year over fentanyl trafficking.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. Let's talk about this
all with Hayman Capital Management founder and CIO Kyle Bass
joining us. Now, Kyle, it's great to have you with us.
I know that last week on a competing network, you
said that I think the tariffs are thoughtful. I think
they will work. With that in mind, I would love
to hear your thoughts on what you make of the
(00:24):
tariff rollout and that now this ninety day pause. Which
adjectives would you use?
Speaker 2 (00:29):
Now I've used the same adjectives.
Speaker 3 (00:31):
I mean, look, you've got seventy five countries to reach
out to us in two days, and they're all countries
that matter minus China on a trade perspective. So you
know it takes it takes ninety days to sit down
with someone and iron out something that isn't simply a
tariff number.
Speaker 2 (00:49):
There's tariffs, non tariff barriers, there's currency.
Speaker 3 (00:52):
There's all kinds of inputs to this equation, and so
giving a ninety day reprieve while they hammer out trade
deals is a good idea.
Speaker 4 (01:03):
Kyle.
Speaker 5 (01:03):
We have had a lot of big multinationals pulling their
outlooks due to this uncertainty, and then small main street
businesses writing in on mass and saying it's just impossible
to do business in this economy.
Speaker 4 (01:18):
Who are these tariffs good for?
Speaker 3 (01:21):
I mean, it's more important to reset the trade relationships
between the United States and the rest of the world.
And I believe President Trump thinks that bilateral trade negotiations
end up being better for the world's largest consumer, which
is the United States.
Speaker 2 (01:38):
And so if we can.
Speaker 3 (01:39):
Get to a place where trade is more fair, then
I think we can get to a foundation where we
can build, grow, where we can grow once again and
grow from a much stronger foundation. These tariffs, these non
tariff barriers, the manipulation that's gone on against the United
States for so long is no longer going to happen.
(02:01):
And I think our trade relationship with China is the
one that doesn't look to have any off ramps at
this moment in time. But I can tell you that
once all of these agreements get hammered out, the US
is going to be in a much better place.
Speaker 1 (02:13):
Well, Kyle, to that point, I know that you're focused
on China. Do you see any chance of a de escalation?
I know that you said that there isn't a clear
off ramp right now. But do you see any chance
that things could cool down or do you think that
this trade war specifically between the US and China is
just getting started here?
Speaker 3 (02:29):
Yeah, I mean it actually got started back when China's
sent of the WTO and China's been at this trade
war with the United States for its entire ascension, call
it twenty three years. And so the US has just
figured out what China's malign intentions are. And we all know.
We've seen their militaristic belligerents in the Second Thomas Show
(02:51):
and the Philippines, We've seen it surrounding Taiwan. We've listened
to the rhetoric of shijiping, and we are now in
a place where we're going tit for tat on tariffs.
Where I think China's made a grave error here is,
as you know, we only export about one hundred and
forty billion a year to China and we import call it,
(03:11):
four hundred and fifty billion from them, And so I
think that if we're doing tit for tat on tariffs,
than China loses because there is no functional equivalency in
the amount of goods and services moving back and forth.
So we'll see what happens here. But I think it
looks like we're in a game of we can call
(03:32):
it a Chinese standoff, or we can call it a
Mexican standoff.
Speaker 2 (03:36):
I don't see an off ramp here.
Speaker 6 (03:37):
Kyle, to the extent that you see escalation of this
trade war with China in particular, you're looking at two
whales in the ocean going at it, and you do
have investors getting increasingly concerned about a weakening here of
Chinese currency in order to boost their exports. How many
tools does China have really in order to fight the
(04:02):
US on this battle?
Speaker 3 (04:04):
Yeah, I mean you heard Treasury Secretary Besson said they're
playing poker Han with a pair of twos. They've got
a banking system that's three and a half times more
levered than ours, and they've only been at banking roughly
for twenty years, like real banking, So they've got a
system that's levered to real estate, and real estate in
China's down thirty to fifty percent, depending upon.
Speaker 2 (04:26):
Where you are.
Speaker 3 (04:27):
So they've got an insolvent banking system. They've got runaway
unemployment amongst your youth. They've got another twelve million kids
graduating their universities this year. And so you've got youth unemployment,
a banking system that's insolvent, you've got.
Speaker 2 (04:44):
A real estate collapse.
Speaker 3 (04:46):
And so when you're asking me what tools China has,
they've got a couple of places where they could really
press us. Right one, believe it or not, we still
have the majority of our active pharmaceutical ingredients for all
antibiotics in the US made in the city of Wuhan.
Speaker 2 (05:00):
That's just a it's a sad truth.
Speaker 3 (05:02):
And then on the finishing side of synthetic graphite on
rareth minerals, if you remember back in our trades bat
in twenty nineteen, Xijingping mad made a visit to where
they do the rareth metals finishings and we have seen
we haven't seen g since April seventh, So you know,
we'll we'll we'll see.
Speaker 2 (05:24):
Well, we'll see what he does.
Speaker 3 (05:26):
But he can he can start with holding things like
antibiotics and rareth minerals.
Speaker 2 (05:31):
But this is something that our administration has thought through.
Speaker 1 (05:34):
Well, Kyle, I wanted to talk to you as an
investor now too, because as Janelle mentioned, of course, China
has been signaling that it will gradually let the yuan weekend,
And I'm curious how you're approaching that, whether you're seeing
that as a trade and betting against the offshore.
Speaker 3 (05:49):
You want No, I think I'm not at the moment,
but I would say that it is not under China's control.
When you think about go back to the to the
Asian financial crisis of nineteen ninety seven and ninety eight,
it wasn't it wasn't Thailand's decision to let go.
Speaker 2 (06:07):
It was Thailand running out of reserves. And so when
you look at.
Speaker 3 (06:11):
China and the offshore you Wan, in the end, China's
got to spend dollars to support that relationship.
Speaker 2 (06:18):
And China needs a strong you Wan.
Speaker 3 (06:22):
They buy thirteen million barrels of cruit every day, eight
and a half bees of gas every day, and they
buy forty percent of their food every day in dollars.
So if for some reason they have to let that
relationship go and the you won weekend as we saw
it weekend two days ago, to its weakest level ever,
we'll see if that if that relationship holds.
Speaker 2 (06:42):
And my view is when you look at the.
Speaker 3 (06:45):
Differentials and interest rates and you look at China's bond market,
the one thing that can't be lying coming out of
China is their bond market go where the look at
the Chinese tenure, it's collapsed. So their economy is in
a very different place than now. And that relationship between
the one and the dollar and the Hong Kong dollar
and the dollar is that's a tenuous relationship and we'll
(07:08):
see what happens.
Speaker 5 (07:09):
Hey, Kyle, just quickly, what do you think the most
they can allow the on to weaken is? I mean,
where's the point where they have to step in and
can't allow any more slippage?
Speaker 3 (07:20):
Yeah, I mean, I mean it's just begune. All you've
seen is a move from roughly six twenty to seven
forty over a period of time. So you know, typically
again when countries run out of reserves, as you know,
the currency flaps in the wind. So there's this concept
of them quote controlling where it is. And then there's
(07:40):
the uncontrollable moves. And what we saw in the Asian
financial crisis, even with the largest player back then was
South Korea, we saw some pretty notable currency moves. And
I think that's coming, and you know, I just I
don't know if it's coming in the next month or so,
but I'll tell you the interest rate differentials, the business
cycle differential are going to dictate the movements and the currency.
(08:02):
So we do expect the Chinese currency to weaken pretty
materially against the dollar.
Speaker 1 (08:06):
Kyle, I want to talk about the tariffs that are
still in place. Of course, we got the news about
the ninety day pause on certain countries yesterday, but you
take a look at what still stands. You have twenty
five percent on steel aluminum autos, twenty five percent on
auto parts starting from May third. And I want to
bring this to your home state of Texas. I know
that you're a Texas guy and you think about Texas's economy.
(08:27):
There's a lot of car dealerships, there's a lot of
car companies, and of course a lot of energy there.
I'm curious, you know what you think the impact on
Texas might be.
Speaker 3 (08:37):
Yeah, I mean in the near term, the impact is
going to be slightly negative, right, But when you when
you think about the carve outs. First of all, you
know we import about four point two trillion a year
as a country.
Speaker 2 (08:50):
Roughly forty percent.
Speaker 3 (08:51):
Of those imports were already exempt from this new round
of tariffs. You mentioned the two thirty two tariffs, right, steel, aluminum, autos,
auto parts, things like that. But I think it's important
to understand that those two thirty two tariffs, second two
thir two tiarffs were put on by Trump and his
in his last administration, and if you remember, Biden ran
(09:12):
on we're going to cancel those the tariffs. In the end,
what happens is when someone like China, a state actor,
can act uneconomically or non economically and they can flood
your market with steel or aluminum or synthetically synthetic graphite
or anything like that. And why it's important is they
can act for a longer period of time to put
(09:34):
your businesses out of business, so they can take capacity
utilization down enough to where they can literally turn our
steel industry off, turn our aluminum industry off. So those
tariffs are necessary, and those will live and they will
live into the future, and they may not be high enough.
We must maintain domestic production of certain things from a
national security perspective, and that's why those stand where they stand.
(09:57):
For autos, it just you know, you see China building
plants in Mexico and Canada. So basically to avoid the
tariffs on on their cars, and so we're our negotiations
with Mexico and Canada are primarily on fentanyl, secondarily on
Chinese transshipments, and we'll end up.
Speaker 6 (10:16):
Getting this right, Kyle, Even if you believe that the
tariffs are ultimately necessary for the American economy, how much
more pain do investors have to bear? Because you do
still see the S and P five hundred after yesterday's rally,
still down more than seven percent this year, You saw
the bond market whips on wildly just this week. How
much more pain is there as this transition and this
(10:40):
negotiation proceeds.
Speaker 3 (10:42):
I think, so we need to separate a few things
that you said. The bond market had a had to
fit you know this in the selloff, and it was
largely due to it wasn't a basis trade. You know,
it's the it's the fixed floating swaps, and I know
that gets in a world that.
Speaker 2 (10:59):
A lot of people don't want to talk about.
Speaker 3 (11:00):
But it was very simply a regulatory trade that bond
traders had on expecting expecting banks' abilities to buy treasuries
to increase, and then the tariff mayhem showed up and
that had to unwind. I think that had a lot
to do with the crazy move in the tenure. So
I think things are settling down. But you know, as
(11:21):
far as stocks are concerned, you've heard the President, you've
heard the Treasury secretaries say, we have to make some
difficult choices, and we must reset our trade relationships for
the rest of the world. We also must narrow our
fiscal deficit in the United States. And both of those
things might be slightly recessionary. And if that's true, we
(11:44):
might have to go through a brief recession in order
to rebuild our foundation. And you say, how much longer
can investors hold? You know, Look, the market's not up
into the right, you know, every year of every decade.
Speaker 2 (11:57):
And I think that.
Speaker 3 (11:58):
This is a necessary reset so that we can grow
again in the future and grow more thoughtfully.
Speaker 5 (12:04):
Kyle as an avowed free market capitalist, I care mostly
about myself.
Speaker 4 (12:11):
Right.
Speaker 5 (12:11):
So the twenty seventeen Tax Cuts and Jobs Act, President
Trump punched me in the gut with a massive tax raise,
right because he takes out all of a sudden, this
state and local tax deduction cap that's been in place,
or it puts in a cap after we had a
state and local tax deduction.
Speaker 4 (12:29):
For one hundred and four years.
Speaker 5 (12:31):
If I can get a discount now in my taxes
because of DOGE cuts or because of revenue on tariffs,
I'll be happy. And you have said you think that
DOGE is going to cut six hundred billion out of
government costs and that we could raise six hundred billion
in revenue. Is that going to offset the tax increase
that Trump handed me in twenty seventeen somehow?
Speaker 1 (12:54):
No?
Speaker 3 (12:54):
And look, let me let me begin by saying, Matt,
I know you're out in things for yourself, and that's
I guess what you care about. Uh That the good
news is is is you and I and Wall Street
are not setting trade policy for the world. Because if
if if all we did was open ourselves the unrestricted
free trade, we'd all be speaking Chinese tomorrow. We need
to be thinking about national security in the long run.
(13:17):
On the tax side, you know, there there are going
to be some tax breaks, but there they are not
going to be uh for for the for the top
of the for the top of the scale. It's going
to be focused more in the middle class and as
far as as far as state and local deduction caps.
I mean, it's interesting to see the migration in the
United States. You live in a place that sounds like
(13:40):
it has state and local taxes. One could say.
Speaker 4 (13:44):
That pay property taxes, right, don't you in Texas?
Speaker 2 (13:47):
Yeah, we do, we pay property tax.
Speaker 3 (13:49):
But when you think about high tax, high cost jurisdictions
that some some might say or mismanaged, you see the
migration in the US moving from the northeast and the
west coast to the south to Florida, Tennessee, Texas, South Carolina.
And that's where major businesses and people are moving. And
so I think that tax arbitrage or movement is going
(14:09):
to continue for the next call it ten years to come.
Speaker 2 (14:12):
And I think you're seeing people vote with their feet.
Speaker 1 (14:14):
And I do want to defend Matt a little bit.
I know you care about more than just yourself, but
people care.
Speaker 5 (14:19):
About in terms of the wealth of nations, right, Adam Smith.
Speaker 4 (14:22):
That's how capitalism works.
Speaker 5 (14:23):
Every man for himself, that's how it's supposed to work.
Speaker 1 (14:26):
Well, Kyle, with that in mind, I want to talk
to you about you and your future because Bloomberg reported
in January that the Trump administration was considering you for
opposed to either the Treasury Department or the Defense Department,
And I'm really curious here we sit in April, are
you joining the administration?
Speaker 2 (14:43):
I mean, I'm going to go no comment there.
Speaker 3 (14:46):
It's it's not worth talking about unless unless there's actually
a deal on the table, and there certainly is no
deal on the table. My biggest regret in life is
that I've never formally served our country. And if there's
a place where I can serve it and it can
work out in my life as well, then I'm always open.
Speaker 2 (15:04):
I've got open ears.
Speaker 6 (15:05):
I'll definitely come back if and when you do have
a deal. But I also have another question, Kyle, for
you about you and your portfolio. When you look at
this market, how do you play this? What are the
trades that you would put on right now?
Speaker 3 (15:18):
You know, I think that I think when the market's
down twenty it's you know, year to date, which was
I guess a couple of days ago. I think that's
I think it's an overreaction. But when I think about
the coming GDP prints, you're going to see a recessionary impulse.
You're going to see a slight inflationary uptick on a
couple of goods that ended up in the tariff. Melee
(15:40):
but I believe the slight recession impulse that we're going
to see over the next six months will actually bring
the general price level down. I don't think you're going
to see a big inflationary move or stag inflationary move.
So I think six months from now, the market's going
to be in a much better place.
Speaker 2 (15:56):
And that's with the caveat of If.
Speaker 3 (15:59):
China doesn't that Taiwan, if things in Iran don't get
much worse, and if things in Russia Ukraine don't get
much worse, I think things are gonna look better.
Speaker 2 (16:08):
In the next six months.
Speaker 3 (16:09):
If China invades Taiwan, I think I think all bets are.
Speaker 1 (16:12):
Off all right, Kyle, we got to leave it there.
You've been very generous with your time this morning.
Speaker 4 (16:16):
Really appreciate it.
Speaker 1 (16:17):
That is Hayman Capital's Kyle Bass
Bloomberg Audio Studios, podcasts, radio news. Let's talk about this
all with Hayman Capital Management founder and CIO Kyle Bass
joining us. Now, Kyle, it's great to have you with us.
I know that last week on a competing network, you
said that I think the tariffs are thoughtful. I think
they will work. With that in mind, I would love
to hear your thoughts on what you make of the
(00:24):
tariff rollout and that now this ninety day pause. Which
adjectives would you use?
Speaker 2 (00:29):
Now I've used the same adjectives.
Speaker 3 (00:31):
I mean, look, you've got seventy five countries to reach
out to us in two days, and they're all countries
that matter minus China on a trade perspective. So you
know it takes it takes ninety days to sit down
with someone and iron out something that isn't simply a
tariff number.
Speaker 2 (00:49):
There's tariffs, non tariff barriers, there's currency.
Speaker 3 (00:52):
There's all kinds of inputs to this equation, and so
giving a ninety day reprieve while they hammer out trade
deals is a good idea.
Speaker 4 (01:03):
Kyle.
Speaker 5 (01:03):
We have had a lot of big multinationals pulling their
outlooks due to this uncertainty, and then small main street
businesses writing in on mass and saying it's just impossible
to do business in this economy.
Speaker 4 (01:18):
Who are these tariffs good for?
Speaker 3 (01:21):
I mean, it's more important to reset the trade relationships
between the United States and the rest of the world.
And I believe President Trump thinks that bilateral trade negotiations
end up being better for the world's largest consumer, which
is the United States.
Speaker 2 (01:38):
And so if we can.
Speaker 3 (01:39):
Get to a place where trade is more fair, then
I think we can get to a foundation where we
can build, grow, where we can grow once again and
grow from a much stronger foundation. These tariffs, these non
tariff barriers, the manipulation that's gone on against the United
States for so long is no longer going to happen.
(02:01):
And I think our trade relationship with China is the
one that doesn't look to have any off ramps at
this moment in time. But I can tell you that
once all of these agreements get hammered out, the US
is going to be in a much better place.
Speaker 1 (02:13):
Well, Kyle, to that point, I know that you're focused
on China. Do you see any chance of a de escalation?
I know that you said that there isn't a clear
off ramp right now. But do you see any chance
that things could cool down or do you think that
this trade war specifically between the US and China is
just getting started here?
Speaker 3 (02:29):
Yeah, I mean it actually got started back when China's
sent of the WTO and China's been at this trade
war with the United States for its entire ascension, call
it twenty three years. And so the US has just
figured out what China's malign intentions are. And we all know.
We've seen their militaristic belligerents in the Second Thomas Show
(02:51):
and the Philippines, We've seen it surrounding Taiwan. We've listened
to the rhetoric of shijiping, and we are now in
a place where we're going tit for tat on tariffs.
Where I think China's made a grave error here is,
as you know, we only export about one hundred and
forty billion a year to China and we import call it,
(03:11):
four hundred and fifty billion from them, And so I
think that if we're doing tit for tat on tariffs,
than China loses because there is no functional equivalency in
the amount of goods and services moving back and forth.
So we'll see what happens here. But I think it
looks like we're in a game of we can call
(03:32):
it a Chinese standoff, or we can call it a
Mexican standoff.
Speaker 2 (03:36):
I don't see an off ramp here.
Speaker 6 (03:37):
Kyle, to the extent that you see escalation of this
trade war with China in particular, you're looking at two
whales in the ocean going at it, and you do
have investors getting increasingly concerned about a weakening here of
Chinese currency in order to boost their exports. How many
tools does China have really in order to fight the
(04:02):
US on this battle?
Speaker 3 (04:04):
Yeah, I mean you heard Treasury Secretary Besson said they're
playing poker Han with a pair of twos. They've got
a banking system that's three and a half times more
levered than ours, and they've only been at banking roughly
for twenty years, like real banking, So they've got a
system that's levered to real estate, and real estate in
China's down thirty to fifty percent, depending upon.
Speaker 2 (04:26):
Where you are.
Speaker 3 (04:27):
So they've got an insolvent banking system. They've got runaway
unemployment amongst your youth. They've got another twelve million kids
graduating their universities this year. And so you've got youth unemployment,
a banking system that's insolvent, you've got.
Speaker 2 (04:44):
A real estate collapse.
Speaker 3 (04:46):
And so when you're asking me what tools China has,
they've got a couple of places where they could really
press us. Right one, believe it or not, we still
have the majority of our active pharmaceutical ingredients for all
antibiotics in the US made in the city of Wuhan.
Speaker 2 (05:00):
That's just a it's a sad truth.
Speaker 3 (05:02):
And then on the finishing side of synthetic graphite on
rareth minerals, if you remember back in our trades bat
in twenty nineteen, Xijingping mad made a visit to where
they do the rareth metals finishings and we have seen
we haven't seen g since April seventh, So you know,
we'll we'll we'll see.
Speaker 2 (05:24):
Well, we'll see what he does.
Speaker 3 (05:26):
But he can he can start with holding things like
antibiotics and rareth minerals.
Speaker 2 (05:31):
But this is something that our administration has thought through.
Speaker 1 (05:34):
Well, Kyle, I wanted to talk to you as an
investor now too, because as Janelle mentioned, of course, China
has been signaling that it will gradually let the yuan weekend,
And I'm curious how you're approaching that, whether you're seeing
that as a trade and betting against the offshore.
Speaker 3 (05:49):
You want No, I think I'm not at the moment,
but I would say that it is not under China's control.
When you think about go back to the to the
Asian financial crisis of nineteen ninety seven and ninety eight,
it wasn't it wasn't Thailand's decision to let go.
Speaker 2 (06:07):
It was Thailand running out of reserves. And so when
you look at.
Speaker 3 (06:11):
China and the offshore you Wan, in the end, China's
got to spend dollars to support that relationship.
Speaker 2 (06:18):
And China needs a strong you Wan.
Speaker 3 (06:22):
They buy thirteen million barrels of cruit every day, eight
and a half bees of gas every day, and they
buy forty percent of their food every day in dollars.
So if for some reason they have to let that
relationship go and the you won weekend as we saw
it weekend two days ago, to its weakest level ever,
we'll see if that if that relationship holds.
Speaker 2 (06:42):
And my view is when you look at the.
Speaker 3 (06:45):
Differentials and interest rates and you look at China's bond market,
the one thing that can't be lying coming out of
China is their bond market go where the look at
the Chinese tenure, it's collapsed. So their economy is in
a very different place than now. And that relationship between
the one and the dollar and the Hong Kong dollar
and the dollar is that's a tenuous relationship and we'll
(07:08):
see what happens.
Speaker 5 (07:09):
Hey, Kyle, just quickly, what do you think the most
they can allow the on to weaken is? I mean,
where's the point where they have to step in and
can't allow any more slippage?
Speaker 3 (07:20):
Yeah, I mean, I mean it's just begune. All you've
seen is a move from roughly six twenty to seven
forty over a period of time. So you know, typically
again when countries run out of reserves, as you know,
the currency flaps in the wind. So there's this concept
of them quote controlling where it is. And then there's
(07:40):
the uncontrollable moves. And what we saw in the Asian
financial crisis, even with the largest player back then was
South Korea, we saw some pretty notable currency moves. And
I think that's coming, and you know, I just I
don't know if it's coming in the next month or so,
but I'll tell you the interest rate differentials, the business
cycle differential are going to dictate the movements and the currency.
(08:02):
So we do expect the Chinese currency to weaken pretty
materially against the dollar.
Speaker 1 (08:06):
Kyle, I want to talk about the tariffs that are
still in place. Of course, we got the news about
the ninety day pause on certain countries yesterday, but you
take a look at what still stands. You have twenty
five percent on steel aluminum autos, twenty five percent on
auto parts starting from May third. And I want to
bring this to your home state of Texas. I know
that you're a Texas guy and you think about Texas's economy.
(08:27):
There's a lot of car dealerships, there's a lot of
car companies, and of course a lot of energy there.
I'm curious, you know what you think the impact on
Texas might be.
Speaker 3 (08:37):
Yeah, I mean in the near term, the impact is
going to be slightly negative, right, But when you when
you think about the carve outs. First of all, you
know we import about four point two trillion a year
as a country.
Speaker 2 (08:50):
Roughly forty percent.
Speaker 3 (08:51):
Of those imports were already exempt from this new round
of tariffs. You mentioned the two thirty two tariffs, right, steel, aluminum, autos,
auto parts, things like that. But I think it's important
to understand that those two thirty two tariffs, second two
thir two tiarffs were put on by Trump and his
in his last administration, and if you remember, Biden ran
(09:12):
on we're going to cancel those the tariffs. In the end,
what happens is when someone like China, a state actor,
can act uneconomically or non economically and they can flood
your market with steel or aluminum or synthetically synthetic graphite
or anything like that. And why it's important is they
can act for a longer period of time to put
(09:34):
your businesses out of business, so they can take capacity
utilization down enough to where they can literally turn our
steel industry off, turn our aluminum industry off. So those
tariffs are necessary, and those will live and they will
live into the future, and they may not be high enough.
We must maintain domestic production of certain things from a
national security perspective, and that's why those stand where they stand.
(09:57):
For autos, it just you know, you see China building
plants in Mexico and Canada. So basically to avoid the
tariffs on on their cars, and so we're our negotiations
with Mexico and Canada are primarily on fentanyl, secondarily on
Chinese transshipments, and we'll end up.
Speaker 6 (10:16):
Getting this right, Kyle, Even if you believe that the
tariffs are ultimately necessary for the American economy, how much
more pain do investors have to bear? Because you do
still see the S and P five hundred after yesterday's rally,
still down more than seven percent this year, You saw
the bond market whips on wildly just this week. How
much more pain is there as this transition and this
(10:40):
negotiation proceeds.
Speaker 3 (10:42):
I think, so we need to separate a few things
that you said. The bond market had a had to
fit you know this in the selloff, and it was
largely due to it wasn't a basis trade. You know,
it's the it's the fixed floating swaps, and I know
that gets in a world that.
Speaker 2 (10:59):
A lot of people don't want to talk about.
Speaker 3 (11:00):
But it was very simply a regulatory trade that bond
traders had on expecting expecting banks' abilities to buy treasuries
to increase, and then the tariff mayhem showed up and
that had to unwind. I think that had a lot
to do with the crazy move in the tenure. So
I think things are settling down. But you know, as
(11:21):
far as stocks are concerned, you've heard the President, you've
heard the Treasury secretaries say, we have to make some
difficult choices, and we must reset our trade relationships for
the rest of the world. We also must narrow our
fiscal deficit in the United States. And both of those
things might be slightly recessionary. And if that's true, we
(11:44):
might have to go through a brief recession in order
to rebuild our foundation. And you say, how much longer
can investors hold? You know, Look, the market's not up
into the right, you know, every year of every decade.
Speaker 2 (11:57):
And I think that.
Speaker 3 (11:58):
This is a necessary reset so that we can grow
again in the future and grow more thoughtfully.
Speaker 5 (12:04):
Kyle as an avowed free market capitalist, I care mostly
about myself.
Speaker 4 (12:11):
Right.
Speaker 5 (12:11):
So the twenty seventeen Tax Cuts and Jobs Act, President
Trump punched me in the gut with a massive tax raise,
right because he takes out all of a sudden, this
state and local tax deduction cap that's been in place,
or it puts in a cap after we had a
state and local tax deduction.
Speaker 4 (12:29):
For one hundred and four years.
Speaker 5 (12:31):
If I can get a discount now in my taxes
because of DOGE cuts or because of revenue on tariffs,
I'll be happy. And you have said you think that
DOGE is going to cut six hundred billion out of
government costs and that we could raise six hundred billion
in revenue. Is that going to offset the tax increase
that Trump handed me in twenty seventeen somehow?
Speaker 1 (12:54):
No?
Speaker 3 (12:54):
And look, let me let me begin by saying, Matt,
I know you're out in things for yourself, and that's
I guess what you care about. Uh That the good
news is is is you and I and Wall Street
are not setting trade policy for the world. Because if
if if all we did was open ourselves the unrestricted
free trade, we'd all be speaking Chinese tomorrow. We need
to be thinking about national security in the long run.
(13:17):
On the tax side, you know, there there are going
to be some tax breaks, but there they are not
going to be uh for for the for the top
of the for the top of the scale. It's going
to be focused more in the middle class and as
far as as far as state and local deduction caps.
I mean, it's interesting to see the migration in the
United States. You live in a place that sounds like
(13:40):
it has state and local taxes. One could say.
Speaker 4 (13:44):
That pay property taxes, right, don't you in Texas?
Speaker 2 (13:47):
Yeah, we do, we pay property tax.
Speaker 3 (13:49):
But when you think about high tax, high cost jurisdictions
that some some might say or mismanaged, you see the
migration in the US moving from the northeast and the
west coast to the south to Florida, Tennessee, Texas, South Carolina.
And that's where major businesses and people are moving. And
so I think that tax arbitrage or movement is going
(14:09):
to continue for the next call it ten years to come.
Speaker 2 (14:12):
And I think you're seeing people vote with their feet.
Speaker 1 (14:14):
And I do want to defend Matt a little bit.
I know you care about more than just yourself, but
people care.
Speaker 5 (14:19):
About in terms of the wealth of nations, right, Adam Smith.
Speaker 4 (14:22):
That's how capitalism works.
Speaker 5 (14:23):
Every man for himself, that's how it's supposed to work.
Speaker 1 (14:26):
Well, Kyle, with that in mind, I want to talk
to you about you and your future because Bloomberg reported
in January that the Trump administration was considering you for
opposed to either the Treasury Department or the Defense Department,
And I'm really curious here we sit in April, are
you joining the administration?
Speaker 2 (14:43):
I mean, I'm going to go no comment there.
Speaker 3 (14:46):
It's it's not worth talking about unless unless there's actually
a deal on the table, and there certainly is no
deal on the table. My biggest regret in life is
that I've never formally served our country. And if there's
a place where I can serve it and it can
work out in my life as well, then I'm always open.
Speaker 2 (15:04):
I've got open ears.
Speaker 6 (15:05):
I'll definitely come back if and when you do have
a deal. But I also have another question, Kyle, for
you about you and your portfolio. When you look at
this market, how do you play this? What are the
trades that you would put on right now?
Speaker 3 (15:18):
You know, I think that I think when the market's
down twenty it's you know, year to date, which was
I guess a couple of days ago. I think that's
I think it's an overreaction. But when I think about
the coming GDP prints, you're going to see a recessionary impulse.
You're going to see a slight inflationary uptick on a
couple of goods that ended up in the tariff. Melee
(15:40):
but I believe the slight recession impulse that we're going
to see over the next six months will actually bring
the general price level down. I don't think you're going
to see a big inflationary move or stag inflationary move.
So I think six months from now, the market's going
to be in a much better place.
Speaker 2 (15:56):
And that's with the caveat of If.
Speaker 3 (15:59):
China doesn't that Taiwan, if things in Iran don't get
much worse, and if things in Russia Ukraine don't get
much worse, I think things are gonna look better.
Speaker 2 (16:08):
In the next six months.
Speaker 3 (16:09):
If China invades Taiwan, I think I think all bets are.
Speaker 1 (16:12):
Off all right, Kyle, we got to leave it there.
You've been very generous with your time this morning.
Speaker 4 (16:16):
Really appreciate it.
Speaker 1 (16:17):
That is Hayman Capital's Kyle Bass
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