The vigorous nods of Bessent

Speaker 1 At PGM, expertise across public and private markets today helps build resilient portfolios tomorrow.

Speaker 1 With over $1.4 trillion in AUM, PGM has navigated over 30 market cycles with active investing and disciplined risk management. But it's not just about the numbers.

Speaker 1 Our combined global expertise and local insights give us the strategic perspectives we need to help you reach your long-term goals. PGM, our investments shape tomorrow today.

Speaker 1 Cushkin

Speaker 2 For years and years, maybe a decade and a half, the most important people in financial markets were central bankers, the wise men and women who set interest rates and often also act as regulators.

Speaker 2 Today, though, they kind of play second fiddle to politicians, especially in the US. And in the US, there's two people who really matter.
Three if you include Rob Armstrong, which I don't.

Speaker 2 The two men that matter.

Speaker 2 The two men that matter are, first of all, of course, Mr. Donald J.
Trump, but also his right-hand man in all things financial, Treasury Secretary Scott Besant.

Speaker 2 Now, this one guy is a big reason why markets are so well behaved while policy has been so, let's say, unorthodox. And Besant knows it.

Speaker 2 Today on the show, we're asking what the limits of that really are and whether in the long term you really can bring MAGA to markets without causing an accident.

Speaker 2 This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at FT Towers in London.
It's chilly out there.

Speaker 2 And I'm joined by the big fella Rob Armstrong off of the Unhedged newsletter on the other side of the pond over there in New York City. Rob, how do you feel about responsibility?

Speaker 2 Would you like to be like Scott Besant holding up the sky?

Speaker 3 I am turning in somewhat hesitantly and somewhat to my surprise to a bit of a Scott Besant fanboy. Are you?

Speaker 3 I think the guy is in a very difficult position, as you just suggested, that requires, what is the word I'm looking for here? Flexibility.

Speaker 3 And that he seems to have fit himself to the role.

Speaker 3 And I think that nothing succeeds like success.

Speaker 3 And on

Speaker 3 the big market things

Speaker 3 I write about,

Speaker 3 it's all going okay.

Speaker 3 And what combination of skill and luck that is on Besson's part and how much policy from the administration does or does not have to do with it, we can debate.

Speaker 3 But it's kind of working, and he's the guy whose job it is to make it work, so I'm tipping my hat. How do you like that, Katie?

Speaker 2 You stand for Scott. Now, listen, our

Speaker 2 excellent colleague, James Pellitti, interviewed Besmond for a piece in the FC the other day.

Speaker 2 Great piece, and there was loads of interesting stuff in there, but one line of it, which happened to be in the headline as well, really struck me between the eyes.

Speaker 2 So Besant was talking about, you know, his critics or critics of US policy writ large, and he said, Where the hell is the market risk? And critics have, quote, just been wrong. Boom, mic drop.

Speaker 2 The guy's not wrong.

Speaker 3 No. 10-year yield, the long-ish end of the treasury curve.

Speaker 3 January

Speaker 3 4.8-ish.

Speaker 3 Today,

Speaker 3 4%-ish.

Speaker 2 Right. And yields go down when prices, listeners, go

Speaker 3 up.

Speaker 2 That's correct. To the regular.

Speaker 2 So lower yields are exactly what the administration wants.

Speaker 3 Wanted. And most importantly, because it means lower mortgage rates, which voters like.
And they've gotten some of that. Mortgage rates are not yet low, but they are lower.

Speaker 3 And of course, where he's crowing at his critics is one of the worries was you're going to run the economy hot, you're going to put tariffs on, there's going to be inflation, and rates are going to go up, and it's going to be awful.

Speaker 3 And it has not happened.

Speaker 3 There's various reasons for that. And we can talk about what's actually happening with inflation.

Speaker 3 But I would say exhibit one in defense of Scott Besant and in support of Scott Besant is the 10-year yield.

Speaker 2 Yep. Yep.

Speaker 3 Of course. I mean, live by the 10-year yield, die by the 10-year yield.
So

Speaker 3 he better hope that keeps happening, and I think there's risks to it.

Speaker 2 Yeah. So, you know, also in this interview with James, he was saying, I have a healthy regard for the market.
You've got to respect the market.

Speaker 2 And I think it's reasonable to say that the administration's key measurement for that is exactly, as you say, the 10-year government bond yield. But Bessant is such a kind of...

Speaker 2 curious character, right? I can't get my head around him. And that's not a reflection of our colleague James Pelliti doing a bad job on this interview.

Speaker 2 It's that there are so many contradictions packed in this one guy.

Speaker 2 Like the president now in the States is running like an economic policy agenda that I think it's reasonable to say in a previous life, Scott Besson, as a hedge fund manager at Soros, you know, the hedge fund group, would have been betting against.

Speaker 2 Whereas now he's like the biggest

Speaker 2 arguably the biggest champion for it. So he has backed Trump on tariffs.
He has backed Trump on trying to overhaul the Federal Reserve, partly by kicking out Lisa Cook, who's

Speaker 2 one of the governors.

Speaker 2 She's clinging on, but she's had a very rough time.

Speaker 2 He's also done like other weird, like MAGA-type stuff, like saying he will use the tax service in the states, the Internal Revenue Service, to investigate left-leaning organisations that he doesn't like.

Speaker 2 So on the one hand, he's like full MAGA. And on the other, he is this real kind of stabilising factor.

Speaker 2 So seeing as you have outed yourself as a big Scott fan, Rob, like what is it he's done that you're so fond of?

Speaker 3 Let me think here for a second. How do I want to phrase this?

Speaker 2 Okay,

Speaker 3 we talk about the taco trade sometimes.

Speaker 3 And one of the habits of this administration is that when markets really start to push back on policy, the administration backs off.

Speaker 2 Trump always chickens out.

Speaker 3 Yeah.

Speaker 3 This is a good thing, the chickening out. And it is my assumption, although I don't have positive evidence, that Scott Besant

Speaker 3 is a taco chef, that he helps the president chicken out at crucial moments. Yeah.
When the bond market or equity markets, whatever,

Speaker 3 you know, questions about liquidity arise, he's the guy who says to the president, you have to pay attention now. This is serious.
We're getting a message we have to listen to.

Speaker 3 So a little little bit, my argument is a proof in the pudding kind of argument.

Speaker 3 Now, Lisa Cook is an important example because the evidence seems to be that it, as I read it, and some listeners will disagree, that

Speaker 3 Lisa Cook did not commit mortgage fraud, as the President and Scott Besant have strongly suggested or even said that she has.

Speaker 3 It looks like a purely political effort to use law enforcement to get their way. And this is

Speaker 3 bad.

Speaker 3 This is a bad use of presidential power.

Speaker 3 But think about the situation Scott Besant is in and ask yourself if you would like him to be there or not. Oh, yeah.

Speaker 3 Because there is no way you are going to be Donald Trump's Treasury Secretary for an extended period if you are not a master flatterer

Speaker 3 and you don't get right behind the president's big pronouncements about the economy and the management of the economy. So he's got to say certain things.

Speaker 3 Whatever he might think, if he wants to keep that job, that's the kind of administration this is.

Speaker 3 There is no room for him to be saying, well, Lisa Cook will let the process play itself out and we just want to look into these things.

Speaker 3 But if her name is cleared, I'm sure she'll continue to serve or any money. That's not going to get it done in the Trump administration.

Speaker 3 So now you might say,

Speaker 3 if you really hate the stuff that Trump is doing, you might be tempted to say, the honorable thing to do is resign.

Speaker 3 But if you want what looks to be like a fairly reasonable

Speaker 3 man in this crucial job or woman in this crucial job, you got to recognize they have to toe the line. And he's doing it.

Speaker 2 Yeah.

Speaker 2 I think you're right. I think he is, you know, taco chef in chief.
He is running the tacheria over there in the White House.

Speaker 3 And thank goodness.

Speaker 2 Yeah, yeah.

Speaker 2 But so the fact that markets are so calm in the face of all of the usual stuff that we always talk about that I think in normal market conditions would be really quite destabilizing, right?

Speaker 2 The fact that markets are calm. So I did a thing for the BBC the other day, hashtag humble brag.

Speaker 2 They said at the end of the conversation, this might be a silly question, but do you think that the fact that markets are calm emboldens the president to push ahead and do more?

Speaker 2 And I said, no, that's not a silly question at all. I think that's 100% what is going on here.
And that is basically exactly what Bessant was saying in this interview with James Politi, right?

Speaker 2 It's like, where's the market risk? Where's the market freak out? It's clear that we can carry on doing this stuff and advancing this agenda without upsetting the markets.

Speaker 3 Well, you say your thing and then I'll say my thing. I've got screenshots.

Speaker 2 Well, I'm just not convinced that can last forever.

Speaker 3 I agree. Look, a couple of things you have to be really clear about here.
One, the economy is not a bus that the president drives.

Speaker 3 Most things in the economy

Speaker 3 are affected in a very small way at the margin by the policies that are set by the administration.

Speaker 3 Right?

Speaker 3 So a lot of what Besant is talking about is good luck. There's a lot of things that will go on in stock markets and bond markets that has nothing to do with policy.
That's point number one.

Speaker 3 Point number two,

Speaker 3 one thing we know about risk is that it does not appear in small little increments, right?

Speaker 3 In a kind of linear way where risk goes up 1%

Speaker 3 and market prices in risk at 1%. It appears in spikes and crises and cycles and eddies and all this stuff.
It's not.

Speaker 3 So there is a kind of hubris to the where is the market risk line. And you might look at the market and say, okay, here's some places where it is.
Let's look at the dollar, which weakened a lot.

Speaker 3 Now, that happens to fit with the administration's trade rebalancing agenda, having a weaker dollar. But the big move in the dollar does tell you that the world is watching what is going on with U.S.

Speaker 3 policy and responding to it. People are hedging the dollar, it seems pretty clear, in a way global investors did not hedge the dollar before.
Yeah.

Speaker 3 So somebody sees some market risk somewhere.

Speaker 2 Yeah.

Speaker 3 Inflation is up. under Trump, not down.
And we're cutting rates into inflation that is up. That is not a riskless activity, as I have rattled on about at no end in the call.

Speaker 2 That is generally a bad idea.

Speaker 3 Well,

Speaker 3 it's like it's, you know, you're rolling the dice.

Speaker 3 The Fed, you know, which probably will cut tomorrow and is expected to cut again by the end of the year, is betting that the increase in inflation and consumer inflation that we have seen so far this year is transitory.

Speaker 3 And the last time the Fed made that bet, the president of the United States got fired as a result.

Speaker 2 Yes. Because it wasn't, right? It wasn't transitory and voters do not like inflation.
Oh, boy. But I think you're right.

Speaker 2 I think the vast majority of people who manage money in markets would rather have Besant there than not.

Speaker 2 You know, when I talk to investors, They generally don't have very nice things to say about other financial and economic heavy hitters in Trump's orbit.

Speaker 2 They would always much rather it was Besant than not. He's a macro guy.
He's been involved in hedge funds. He understands that you

Speaker 2 monkey about with the bond market at your peril. But I just think there is a lot of weight on his shoulders.

Speaker 2 So again, not to harvest the organs of work from colleagues of ours, but Chris Giles wrote a really interesting newsletter today where he was pointing out that for a really long time after the big financial crisis of 08-09, government bond yields all kind of moved in lockstep.

Speaker 2 They all kind of went up together and they all, you know, mostly yields went down together.

Speaker 2 And there was a paper in 2023 that says, look, you can prove actually that really the only thing that matters for what Treasury yields do is what the Fed is doing.

Speaker 2 So is the Federal Reserve raising interest rates or cutting interest rates? That's kind of the only thing that matters for Treasuries.

Speaker 2 But Chris, because he's much better at sums than me, took that analysis and took it further beyond the point where this 2023 paper came out.

Speaker 2 And he can demonstrate that actually that like massive influence of Fed policy over what government bonds do is falling away a bit.

Speaker 3 It's more about fiscal policy now.

Speaker 2 Yeah, it's much more about fiscal. So it's much more about tax and spend intentions from governments.

Speaker 2 And this is like quite a big regime shift that I don't think a lot of people have been articulating.

Speaker 2 It's like, you know, central banks are very important, but they're kind of on the back seat of that bus that Trump thinks that he's driving, you know, the economy along in.

Speaker 2 Whereas right up at the front, you've got the politicians. Does that fill you with confidence or fill you with dread?

Speaker 3 Well, it means the Fed's role and central banks' role could suddenly become enormously important all at once if the politicians screw it up.

Speaker 3 I don't know how you want to work that into the bus metaphor, but

Speaker 2 they might have to take the wheel back.

Speaker 3 In other words, the worry is that

Speaker 3 the politicians who always have an incentive to run the economy hot in the short to medium term cause inflation.

Speaker 3 And the inflation is bad enough that you need some monetary jiggery pokery, I think is the technical term, to get inflation under control and make the fiscal excesses bearable. But I agree with you.

Speaker 3 I think Chris Giles is exactly right. And I think this transition

Speaker 3 started with the great financial crisis and was reinforced by COVID and the government responses to COVID. And we are in a fiscal first, monetary second world.
And that is a major change.

Speaker 3 Can I slightly change the topic? I thought of something that I like, another thing I like Scott Besant for and that I

Speaker 3 was mentioning that is relevant to the show we did last week, which is it is easy to imagine a Trump administration in which America does not come to the defense of Argentina and the Argentine currency

Speaker 3 and that

Speaker 3 country has another one

Speaker 3 of its periodic monetary slash economic collapses with bad regional effects. But Scott Besant seems to have led the charge to say we will help Malay support the currency of his country.

Speaker 3 And that gamble seems to have worked for Scott Bessant

Speaker 3 because it kept Malay alive. Malay won the election and for all his ridiculous hair and his stupid chainsaw, I'm a Malay guy.

Speaker 3 Those market reforms, he's got the the ship pointed in the right direction. And Scott Besant helped him.
And with a different Treasury Secretary, it might have turned out very differently.

Speaker 2 Some strong fanboy action from Rob Armstrong here towards Javier Millay, President of Argentina, and Scott Bessant Trustee. I mean,

Speaker 3 you got to pick from the menu of people you are given in the world who you're going to like and not like.

Speaker 3 Mahatma Gandhi is out of business at this point, so I can't grab him off the menu, if you know what I mean.

Speaker 2 One tiny last thing, I did enjoy the observation from Scott Bessant the other day where he was on the telebox and he was asked about the struggle of soybean farmers who are really suffering from worsening trade relations between the US and China.

Speaker 2 And he replied to ABC News, I'm actually a soybean farmer myself. I think there are different types of farmers.
There are farmers who own wellies and carry heavy things around and get really dirty.

Speaker 2 And there are people who happen to own farmland. And I would say they are somewhat different things.
Nonetheless, I did think that was quite an amusing list.

Speaker 3 I think part of the reason I think Scott Bassett is an intelligent man

Speaker 3 is that someone who is that bad on television couldn't survive in politics if he didn't have something else going on. He's so bad on TV, it's almost reassuring.
He must be a serious person because

Speaker 3 he's not there because he's a smooth talker.

Speaker 2 Yeah, whereas you're all about the smooth talk. Yeah.

Speaker 2 And

Speaker 2 the good listeners can

Speaker 2 finish that sentence themselves.

Speaker 2 Right.

Speaker 2 Scott Besson, we like him. We're glad he's there.
I'm glad we've cleared that up. We are going to be back in just one little second with Long Short.

Speaker 1 At PGM, expertise across public and private markets today helps build resilient portfolios tomorrow.

Speaker 1 With over $1.4 trillion in AUM, PGM has navigated over 30 market cycles with active investing and disciplined risk management. But it's not just about the numbers.

Speaker 1 Our combined global expertise and local insights give us these strategic perspectives we need to help you reach your long-term goals. PGM, our investments shape tomorrow today.

Speaker 2 Okey-doke, it's time for long short, that part of the show where we go long a thing we love or short a thing we hate. Rob, what you got?

Speaker 3 Well, as you know, Katie, it's tech reporting week. We're going to get Alphabet, Amazon, Apple, Meta, and Microsoft this week.
And in that context, I am going long.

Speaker 3 This is really nerdy, and I apologize in advance. I am going long depreciation expense.

Speaker 2 That's too nerdy.

Speaker 3 Yeah, I know, I know. Come on, mom.
Give me a second. Give me one second.

Speaker 3 So everybody's talking about how all these companies are investing so much money, billions and kajillions of dollars in AI data centers.

Speaker 3 Eventually, that's called capital expenditure.

Speaker 3 That investment funding. Eventually, that expenditure has to appear on the profit and loss statement of these companies, on the income.

Speaker 3 And it hasn't very much yet, because the whole point about depreciation expense, which is where this stuff happens on the income statement, is that it's smoothed.

Speaker 3 It like spreads the spending over time, right? And so my prediction is that pretty soon the conversation is going to go from capital expenditures, which is what we have now, to depreciation expense.

Speaker 3 And how are all these

Speaker 3 huge AI data centers being depreciated? And how is that affecting profits of these companies? And it's just a matter of time before everybody has to learn what this word means.

Speaker 2 You heard it here first.

Speaker 3 Katie, while I have you and our listeners captive, let me be long

Speaker 3 one other thing, which is the unhedged newsletters chart of the week.

Speaker 3 My comrade Hak Young Kim is doing outstanding work churning out an excellent and insightful chart every week, and you can sign up at ft.com forward slash chart of the week.

Speaker 2 I mean, charts famously do not work on podcasts. So

Speaker 2 if you want your charts hit, this is the place to go.

Speaker 2 I am short,

Speaker 2 people saying stupid stuff about gold.

Speaker 2 As you noted in your newsletter, like today or yesterday, whatever, there's been an outbreak of people saying immensely stupid stuff about gold.

Speaker 2 Gold's obviously had a terrific year, but it's fallen off its perch a bit recently. It's now like it's down 10%

Speaker 2 from the peak. Is it down 10% from the the peak because fiat currencies are 10% less debased than they were this time last week? No, it was a line that was going up very fast.

Speaker 2 People bought it because it was a line going up and to the right, and now it's run out of a bit of energy. People should stop over-intellectualizing the gold thing.

Speaker 3 Well, as someone who is literally in the over-intellectualizing the market business, Katie, I think you ought to be careful about what you're saying here. But I'm with you.
I agree.

Speaker 2 People have been saying very silly things. Not us, of course.
Other people have been saying very silly things. No, never, ever.

Speaker 2 Listeners, we probably will say something stupid on Thursday, so listen up then for the next show. And in the meantime, stay golden.

Speaker 2 Unhedged is produced by Jake Harper and edited by Brian Erstadt. Our executive producer is Jacob Goldstein.
Topha 4s is the FT's acting co-head of audio.

Speaker 2 Special thanks to Laura Clark, Alistair Mackey, Greta Cohn, and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free.
A 30-day free trial is available to everyone else.

Speaker 2 Just go to ft.com/slash unhedged offer. I'm Katie Martin.
Thanks for listening.

Speaker 2 And one more thing. I will be in Kilkenny in Ireland for the fabulous Kilkonomics Festival over the weekend of November the 8th.

Speaker 2 Among other things, I'll be recording an unhedged podcast while I'm there. I think that event is sold out, so maybe see you there.
But come and hang out anyway.

Speaker 2 I'm doing loads of things there and I'm up for a pint and a chat.