00:00 Brian Sozzi

Welcome to a new episode of opening bid. I’m Yahoo Finance Executive Editor, Brian Sozzi. Like I always say, this is the podcast that will make you a smarter investor, period. All right. Let’s get a minute on that shot clock. And, uh, stock of the day is Tesla. I think it’s been my last four stocks of the day, uh, for the podcast with good reason. Uh, this one is actually tied to Trump’s 100 day mark, which will be on April 29th. Now, coming into the Trump presidency, you would think Tesla would have done well. Stock would have been on fire. That hasn’t been the case. Through the first 100 days of the Trump presidency, shares of Tesla look poised to be down more than 30%, despite Elon Musk having that close proximity to the president. Of course, Tesla’s first quarter results, uh, pressure in terms of sales, pressure in terms of profits. Outlook not good. I know Musk is coming back, but still, stock down more than 30%. And what really caught my attention here and why I’m calling uh, why I’m making Tesla the stock of the day today, new AP poll, uh, on Musk. It found just 33% of US adults have a favorable view of Musk. That’s down from 41% in December. Two thirds of those polled say they have two, they have, uh, just given Musk too much influence in government. Put that together, you really start to understand why Tesla sales have come under pressure. All right, enough for Tesla here. I know you hear me talk about it all the time. Let’s bring in our featured guest for today, former Bridgewater CIO, Rebecca Patterson. Rebecca, always nice to see you. Great to see you, too. Yeah. It’s been a while. I know you’re right back from the IMF meetings in DC. What was your, I guess, what are those meetings like first of all for you? And then what are some of the things you found on the ground this year?

04:04 Rebecca Patterson

Sure. So the International Monetary Fund and World Bank gather twice a year every year, April and October, and basically it’s speed dating for macro people like me. You know, you have policy makers from all over the world who come together for meetings and then there’s lots of other meetings on the sidelines. And so you can really get a quick read on almost every economy in the world within four days. So it’s very, very efficient and you get a lot of good takeaways. And there’s other investors and researchers there like me. So you also can share notes with them and see how they’re thinking about things. So that’s what it is. In terms of my takeaway, the biggest one to me was a read on the non-US investor, the global investor right now. And I’m talking about large institutional investors, people who run large pension funds, sovereign wealth funds, etc. And they’re rethinking the United States. To me that was a big, big deal.

05:49 Brian Sozzi

I thought, I thought stocks have rallied back.

06:06 Rebecca Patterson

Mhm.

06:07 Brian Sozzi

So that surprised, that surprises me a bit to hear.

06:17 Rebecca Patterson

A little bit. Um, so, you know, since, since we got the pause on liberation day, the 90-day pause, and then we also had President Trump pulling back a little bit from his attacks on the Federal Reserve, which thank goodness. I think both of those things have given a bit of a sense of hope that there is a Trump put, that if things get bad, the President and the administration will back off because they don’t want to see their policies cause a US recession or, or a bare market. Uh, I think that’s leading to some buying and the idea that we might get all these deals in 90 days is leading to some buying. But I don’t think we’re through the worst of it. That’s, that’s probably my big point here, that if you are an equity investor or especially a bond investor with yields coming back down on the 10 year in the last few days, this is an opportunity to lighten up a little bit in my opinion. I don’t think you need to do it today, but in the coming weeks or so because we are going to see the tariffs bite. Just this week on May 2nd, this thing called the de minimis tariff, that’s on the little tiny parcels, the $800 or less parcels that come through the border. All that stuff, my teenage daughter will buy on amazon.com and I think, why do you need this? What is it even? Those things, the prices are going to go up in some cases, 120, 130%, um, starting next week. Now, there’s some inventory pulled forward so it might not come all on day one, but we’re going to see that rolling out. The 10% tariff still in place, big Chinese tariffs. There’s, there’s a lot that isn’t going away regardless of what happens with any deal making. That’s going to be a tax on the consumer. So I think that’s going to pressure us. But, but kind of circling back to the IMF, the thing that I’m worried about is, and it’s not just the trade war, it’s the worries about US institutions like the Federal Reserve. It’s worries about the US as a reliable partner on things like NATO, on things like Greenland, Panama, Canada as a 51st state. Even if it was said in jest, it’s not being taken that way. It’s being taken seriously. And so we’re seeing a lot of global investors saying, what else could happen? Could there be a tax on capital flows?

09:35 Brian Sozzi

So the international community, investment community, they don’t trust the US?

09:47 Rebecca Patterson

Look, I don’t want to generalize and say the entire world no longer trusts the US. That would be an overstatement, but I think there is a new risk premium on US assets as seen by foreign investors that did not exist before liberation day, maybe before the administration started. And what that means is that, and I’m just using data from the treasury here, the most recent one is from late last year. So the Treasury Department estimates we have about $30 trillion of US equity and bond holdings by foreign investors. So let’s say I am the investment committee of a big pension fund in Canada. We meet once a quarter. We’re having our next meeting. We’re saying, gosh, we’ve been overweight the US for the last few years.

10:47 Brian Sozzi

So more bullish on the US.

10:50 Rebecca Patterson

Right. And now we’re going to trim that position, maybe by two percentage points, incremental. Let’s just take a little off the table. Let’s do the same with bonds. If you reduce allocations to US stocks and bonds by 4% total, it’s tiny. That if, and that happened generally around foreign investors, $1.2 trillion would leave US assets.

11:25 Brian Sozzi

Where does it go?

11:28 Rebecca Patterson

I think it goes back to home countries. It goes to other foreign markets. I think we’re already seeing that some of it’s going to things like gold. Um, so it’s going to get dispersed around the world into different asset classes. I’m more worried about what it means in the US for the bond market than the stock market because whatever Congress tells us they’re doing on the budget, we know that we’re going to see more issuance of bonds as we are getting less revenue versus our spending. We’re going to have relatively less demand from foreign investors. So bond yields are going higher. I don’t know if we have a so-called list trust moment like 2022 in the United Kingdom when UK bond yields spiked, but I think we are going to see US treasury yields, especially at the longer end, settling at a slightly higher level.

12:23 Brian Sozzi

Are you talking 5% on the 10 year?

12:29 Rebecca Patterson

I hope not. If we saw 5% or higher, I think psychologically that could be pretty damaging for other asset classes, stocks, credit, etc.

12:41 Brian Sozzi

Well, it was damaging when we went from 4% to what, four, five.

12:47 Rebecca Patterson

We touched 5% briefly on the 30 year and, and the US 10 year has gotten close a couple of times now. So if we saw the 10 year rising slowly gradually, it’s not as big of a deal, but it’s still doing damage. It’s raising your mortgage rate, it’s raising your auto loan cost. It’s making it more expensive for companies to borrow to grow. All of that acts like a limit on GDP growth and frankly, a limit on stock valuations. So this isn’t a crisis. This isn’t immediate. This is kind of that slow hurricane approaching the coast. You don’t know if it’s going to hit you directly or on the side, but you know it’s going to do damage, you know it’s coming. That’s what I think we’re going to see probably over the next few months. It’s a slow bleed, but it’s meaningful and investors shouldn’t be overlooking it.

13:45 Brian Sozzi

So we, so we haven’t seen the worst for stocks then.

13:51 Rebecca Patterson

I don’t think so. I don’t think so. Look, my, my hope is that we get enough deals that the rest of the tariffs are disregarded. You know, we kind of say, okay, we got what we needed, we don’t need to do this anymore. I don’t know how likely that is. And, you know, now the fact that the, the bullish argument is, oh, we’re going to reduce Chinese tariffs to only 60%.

14:18 Brian Sozzi

But they’re still there and they, there was no 60% two months ago.

14:24 Rebecca Patterson

Thank you. Exactly, Brian. Right. So, you know, January 1st, people thought 60% was crazy. Now we’re saying, oh well, this is, this is great news. This is a major tax on the consumer and we can’t forget that. And we’re starting to see it in some of the data. We’re certainly seeing it from corporations as they talk about their outlooks. I think it’s going to feed more and more to the quote unquote hard data, retail sales, payrolls in the coming months. Again, it’s not immediate, it’s not a crisis, but it’s going to unfold this summer. And that’s why I think if the, if you got this bounce in stocks, you say thank you very much and maybe you start taking a little off the table or you move into slightly more defensive sectors like staples.

15:02 Brian Sozzi

That’s a new normal.

15:34 Brian Sozzi

Why isn’t it a crisis? Let me give you an example. We were talking off camera about Metamucil. Yeah. I talked to, I talked to last Tuesday. I brought it up. You brought it up. I brought it up. I brought it up. I brought it up. I talked to the CEO of Procter and Gamble, John Moller, and he said there’s an ingredient in Metamucil plant that is just grown in India. And I asked him, why can’t you move it from India to the US? Don’t have the climate for it. So this one plant is going to be, I guess, tariffed where it wasn’t before. Prices are going to go up from Metamucil. I mean, but there’s more instances of that. It’s going to go up for soda. We heard that from Pepsico. Uh, I’ve talked to Whirlpool CEO, Mark Bizer. Appliance prices are going up. This sounds like a potential crisis on our hands.

16:11 Rebecca Patterson

Yeah, let me just.

16:55 Rebecca Patterson

Well, companies, as we know, are doing everything they can to limit the damage. There, there is a good piece. I think, um, I’m not going to say the paper because I can’t remember for sure which it was about companies this morning that are doing everything they can to control costs without layoffs for now. If we cross that Rubicon and it’s no longer just trim costs where you can, but gosh, we need to start laying off workers. It can quickly snowball crisis, recession, whatever you want to call it, right? We’ll be going down that road. I don’t think we’ll see that this Friday in the payroll report. I think we’ll see some moderation in, in job creation, but not as a cliff fall yet. Um, we’re not seeing that from companies yet, but if these things keep building, we’re going to hit that tipping point. Again, I think it’s probably a few months away, but it’s coming. Could it be a crisis? It could. Sure. I mean, look, I think April 2nd to April 8th was a mini crisis. If that had continued, that would have quickly turned into a financial crisis. Now the Federal Reserve can step in, they can do financial stability measures like they did around Silicon Valley Bank or the UK did when they had their crisis in 2022, but that’s one off. That’s not going to prevent the economy from slowing and possibly having a recession. Um, so there’s, they’re limited what they can do and our fiscal space is more limited now with a budget deficit around 7% of GDP when growth has been 3% in the last year. So what are they going to do when, when the stuff hits the fan? They don’t have a lot of room.

18:47 Brian Sozzi

We’re about to find out. Hang with us, uh, Rebecca. We’re going to go off for a quick break. We’ll be right back.

19:33 Brian Sozzi

All right, welcome back to Opening Bid. Having a, a fun chat here at the Nasdaq in Times Square with former Bridgewater CIO, Rebecca Patterson. You’re really, you’re focused on the Fed and you’re right to do so. How important was it that the president for now has backed off on his attacks on Jerome Powell?

19:59 Rebecca Patterson

I think it’s incredibly important that he backed off because if you start questioning the Fed’s independence, it’s going to push up inflation expectations. That’s going to push up bond yields, put more term premium in the bond yield, which makes borrowing costs higher, which acts as a weight on growth. So I think it’s, it’s incredibly important he backed off. I don’t know if we’re out of the woods. We have a Fed meeting coming up in about a week. And the Fed will probably do nothing because there’s no reason to act. Inflation.

20:29 Brian Sozzi

And then come the attacks again.

20:33 Rebecca Patterson

Exactly. That’s my point. So then we’re going to get more verbal attacks. Um, the Powell’s term ends next May. It, it seems pretty likely that, uh, President Trump would like someone else in the seat. And that’s going to be important too, who is in the seat? Is it someone who is going to be independent? Is it going to be someone who is trying to say what Trump wants to hear, which we hear from certain members of his cabinet. Um, so I don’t think we’re out of the woods on that yet, though, although I, I do think it’s a big positive or at least removing a negative that he has backed off on this idea that we’re looking at firing him, which is what Kevin Hassett, uh, reportedly said.

21:18 Brian Sozzi

Why wouldn’t it be the treasury secretary potential? He’s been floating, taking the seat, taking the seat.

21:27 Rebecca Patterson

Possible, possible. And certainly the markets view him, I believe, as more of an adult in the room, so to speak, than some of the other cabinet members. Certainly he has been, um, more reflective and more reassuring to investors, especially over the last week or so at the IMF meetings.

21:51 Brian Sozzi

Yeah, when we talked to him, uh, just before the IMF meetings, and I’m sitting right across from him, Rebecca, I didn’t get the sense that there’s any deal anytime close on China. And that is, and I was just sitting there, I’m like, wow, okay. And then I see markets rallying. I don’t get it. Like I don’t get it.

22:20 Rebecca Patterson

Well, you know, one thing that I’ve been thinking about a lot is, to your point, like, given everything going on, given this incredible level of uncertainty, why would anyone be buying the dip? I do think it’s important to remember that especially since the pandemic, we have seen a resurgence of the retail investor in the United States. And I don’t know the exact breakdown politically between Democrat and Republican among those investors, but I think it’s probably fair to say at least half are Republican. Um, and that retail investor, I think has been more of a dip buyer, so to speak, much more short-term, trading on headlines and, and that is a pretty big sub component behind the market these days. So, you know, when we get proper data and we can parse this in the coming weeks and months, it wouldn’t surprise me if one of the main supports we’re seeing from the, for the market right now is coming from more Trump friendly retail slash speculative short-term traders.

23:31 Brian Sozzi

That still believe in what the administration is doing.

23:35 Rebecca Patterson

Correct, correct. And, and believe that we’re going to get to the other side, right? So they, they think this president is maybe a little chaotic on process, but he’s getting to the right goal. It’s worked for them before, so hold on for dear life sort of mentality.

23:55 Brian Sozzi

But institutions are,

23:58 Rebecca Patterson

are going the other way. Absolutely. We are seeing institutions going the other way.

24:02 Brian Sozzi

They, I imagine they’re concerned about the fundamentals of companies.

24:08 Rebecca Patterson

Yeah, absolutely. And, and again, that retail investor, if I’m right, right now this is a hypothesis, it’s not proven. If I’m right that the retail investor is the main support right now, um, behind the recent rally, they can keep playing that game until they start losing their jobs and or the stagflationary effects of the tariffs start to affect their purchasing power. Um, in which case they have to start pulling back too. And again, I think it’s coming. It’s a question of exact timing and degree, but it’s coming and I would say probably in the next month or two.

24:57 Brian Sozzi

Using all your decades of experience, whether it’s Bridgewater or even before then,

25:04 Rebecca Patterson

My wisdom.

25:05 Brian Sozzi

Yes, your wisdom and analyzing companies and talking institutions. What would you tell the retail investor that is out there buying the dip? You know, they, Yahoo Finance is the home of the retail investor. Every morning, millions of people wake up, they come to us, they have their portfolios on their platform, they’re watching videos, they’re doing everything on this amazing portal. What do you tell this group that seems still very confident?

25:34 Rebecca Patterson

That’s a great question. You know, I, I, there’s nothing wrong with day trading. A lot of people do it for a living and make very good income from it. But if this is money that you’re counting on to be your retirement income, your long-term savings, you don’t want to try to, to time something that’s not timable. President Trump’s posts are not timable. Um, how these deals play out or not is not timable. So you’re basically just gambling and that is not how you, how you save for the long term. If you’re doing this short term because it’s fun, it’s entertainment, and you’re, you can afford to lose a certain amount of money if things don’t go your way, God bless. Have a great time. Um, but if this is longer term oriented money, then I would make sure that a good chunk of it is in something that you’re just sitting on, that you’re not trying to go up and down and tactically trade. That might be money markets, short-term bonds right now, which are still getting you over 4%. It might be a small allocation to gold, which I remain bullish on as central banks continue to diversify. If you want to stay in the equity markets, maybe you move a little bit more into defensive industries like consumer staples. If you want global diversification, maybe you look for markets that are a little less volatile than the S&P that are more cheaply valued. Um, things like the UK right now, I would put in that bucket. It tends to be a more defensive equity market and it does look like the UK Prime Minister is having some good progress making deals with President Trump. Emerging markets, the one that jumps out to me today again, this one I would be small on especially if I’m taking a longer term view. But when I look at who wins from the trade war, no one wins, first of all. But relative winners, one of the countries that’s caught my eye is Brazil. They’re getting market share from the United States on things like agriculture. They’re getting market share from places like China on things like textiles and shoes.

28:06 Brian Sozzi

Maybe they can grow that Metamucil plant.

28:10 Rebecca Patterson

Maybe, right? That’s a great point. That, I mean, I know a lot of older people in Florida who’d be very happy to hear that.

28:20 Brian Sozzi

We’re going to take that offline. We’ll take it offline. Why, you know, in the last minute, we always love to get a hot take, um, from our guests. So my question to you is this, why gold?

28:39 Rebecca Patterson

So gold tends to perform best at the tails, either a recession slash crisis or an overheating economy where inflation might become unanchored. Right now, we’re in the left tail. There is a possible recession slash crisis and that tends to lead retail investors, just normal investors into gold. However, at the same time, and what we’ve seen over the last few years, is central banks getting a little more anxious about their, their exposures to the United States, trying to diversify. They’re looking around the world and saying, I need something safe and liquid and gold helps fill that bucket. Um, and so we’ve seen record buying from central banks, not just for the last year, but for the last three years in a row now. China’s a big piece of it, but it’s certainly not alone. There’s a number of central banks. I think that especially with what we’ve lived through these hundred days of Trump is likely to continue.

29:41 Brian Sozzi

I imagine it’s going to be an interesting next 100 days. Rebecca Patterson, uh, always nice to see you. Thanks so much for joining Opening Bid. Uh, this was a real treat as always. My pleasure. Thanks. All right. And that’s it for the latest episode of Opening Bid. Uh, as always, continue to hit us with those amazing ratings on all the podcast platforms and on YouTube, hit us with those thumbs up. I love all your comments. I read them all. Keep them coming because that’s how we continue to make this thing better. We’ll talk to you soon.

30:01 Rebecca Patterson

My pleasure. Thanks.