Is Confidence Eroding in U.S. Investability? (With Dario Perkins)

LIZ ANN SONDERS: I'm Liz Ann Sonders.

KATHY JONES: And I'm Kathy Jones.

LIZ ANN: And this is On Investing, an original podcast from Charles Schwab. Every week, we analyze what's happening in the markets and discuss how it might affect your investments.

Well, hi, Kathy. This is yet another busy week for economic data. So what is the story of the week so far in your world? And just so everybody knows, we are taping this on Tuesday, even though the episode will drop Friday. But what's on your radar? What's going on in your world?

KATHY: Well, I think today is particularly interesting because the bond market is rallying. Yields falling based, I think, presumably on the prospect for weaker economic data. It looks like first quarter GDP is going to come in negative. We've seen a slowdown in hiring in the JOLTS report—that stands for Job Openings and Labor Turnover Survey. So numerous things sort of adding up and saying, "Oh, we're starting to see this softness coming through." And yet the stock market is rallying, presumably because maybe bond yields are coming down. I'm not really too sure about that. So that's one thing I find a little interesting, a little puzzling, and wonder just how long that will last. But basically what I've been focusing on this last week or so is sort of debunking some of the myths that are out there or some of the narratives that have been particularly affecting clients, making them very concerned.

So I just wrote an article about the dollar and how, yeah, it's likely to go down. And we may see less foreign investment because of tariffs. But the idea that it's going to be … people are going to move away from it, and it's going to be replaced as the reserve currency anytime soon is just overreacting to what's out there. I look at it as more pretty much a cyclical decline. I think on the margin, foreign investors may pull back a bit from investing in the U.S., largely because maybe the returns are not expected to be as great as they were for a while. But I don't see it producing a catastrophe. 

The other one I'm working on now is this theory that the Fed's money printing has been what inflated assets. Because I'd like to point out that the Fed has been un-printing money now for the last two years. And it has unprinted over $2 trillion, and yet we're still here. So I just think there's a lot of misunderstanding about the relationship between what the Fed does with its balance sheet and what else happens in the economy. So I'm going to focus a little on that because I had a lot of questions on it. And then, of course, we're coming up on jobs data, which is the big thing, and then the next Fed meeting. So it's going to be an action-packed couple of weeks.

How about you, Liz Ann?

LIZ ANN: I agree with you. think what will stay in focus is the activity of foreigners in our markets, in the Treasury market and the equity market. As we've talked about in past episodes, recent past episodes, unfortunately, the official data on what foreign investors are doing, particularly central banks, is lagged by a couple of months. So one can assume that the April data will be more of a tell than the February data, and it's only the February data that we have in hand right now. So more on that to come. But you're right to point out that the weaker dollar in conjunction with weaker equity prices does provide the impetus for foreign investors to consider moving some of their assets from dollar-based securities back to their home country. So that'll be something we gauge and get details on over time.

We're obviously in the throes of earnings season in my world, and we've got, I think, four of the Magnificent Seven reporting this week, keeping in mind that the reports that are coming in are for the first quarter. First quarter ended the end of March, so it's exclusive of anything that might have directly happened as a result of Liberation Day and the volatility in the aftermath of that. But the season so far is good. The problem is that you're not seeing any commensurate lift to forward-looking estimates. So I think we're in the 19th consecutive week of downward revisions to 2025 numbers. We've gone from 15% at the end of last year down to about 8.5% right now.

And yet again today, as we're taping this, we saw another rash of companies, a couple of airlines, UPS, I think, as well, just withdrew guidance altogether for the analysts that cover the companies. And I think that is probably an environment that gets worse from here, not better, which just means that analysts are somewhat left to their own devices. And if it's anything like what happened the last time we saw a large percentage of companies withdraw guidance, which was in the early part of the pandemic, that left analysts in a position to bias estimates down on a forward-looking basis. So I'm not sure where ultimately they go. I think if we get some combination of negative GDP, which we'll get, I think, tomorrow as you and I are speaking, and then to your point, the jobs report on Friday, I think any combined weakness in those two would probably send a message to analysts that an 8.5% forward-looking earnings estimate is still a bit too high. 

Also, just out this week has been the consumer-confidence data, which showed another big decline. And what we continue to see is sort of the double decline. The consumer confidence has both an expectations component and a present-situation component. And those often on a single month can diverge. If the current environment is still fairly healthy, people are confident in jobs, they might rate their present situation as pretty decent. You could argue that that was a possibility in this backdrop since we're not seeing massive layoffs, and the economic data that we have in hand looks still pretty good. But that declined, in addition to the decline in the expectations component, the latter of which should not be a big surprise. 

And I recently pointed out, in fact, the report that Kevin and I just wrote that published yesterday, this past Monday, kind of a part two to our recession risk update where we dove into a little more detail on how markets have behaved in the past during recessions. And I also threw in just a few recent economic anecdotes, one of which I showed just container tonnage coming from China to the United States is really plunging to a significant degree. And that's not something that can be turned around. I got a question, I think, on Twitter about that that said, "But all we need is one Truth Social post, and that'll completely reverse."

The average span of time it takes a container ship to get from China to one of the U.S. ports is 30 days. That's literally trying to turn an ocean liner, not a speedboat. So we have to build in that time aspect to it. But the other anecdote is within consumer sentiment, you have a reading that is the expectations for the unemployment rate looking a year out, and there was a huge, huge spike in expectations that the unemployment rate was rising. And that does tend to track pretty closely with payrolls. I don't know that that means Friday's payroll number is going to be weak, but if it's quite strong and stays strong, it would be a unique divergence in those two data points. So those are just some of the things on my radar this week.

KATHY: Yeah, I was thinking as you were talking about the analysts' guidance of an old saying is, "If a company can't say anything nice, it doesn't say anything at all about its earnings." I think that we're in, we're falling into that category. At least that's going to be the assumption, right? If you're not giving guidance, it's because it's probably not very good and also doubtful. I mean, too many elements to try to predict, but, yeah, I will say on the foreign flows data, one thing I'll point out is that we don't do a very good job of reporting it in a timely manner, but Japan does. So Japan releases every week. The Ministry of Finance in Japan releases every week, estimates …

LIZ ANN: Now, do they release it just on their own flows? 

KATHY: On their own. Right, right.

LIZ ANN: So it's not broader than just Japan. 

KATHY: No, no. 

Liz Ann: OK, got it.

KATHY: What's interesting about it is for six consecutive weeks from the beginning of early March to mid-April, purchases of foreign bonds by Japanese investors declined. So it does seem to coincide with the idea that foreign investment is pulling back, and it's probably more private investors because that's where the increase has come from over the last couple of years, is probably private investors pulling back because of the trade wars and all the uncertainty about what that means. So going to be some more interesting times for looking at the data, looking at stuff we never used to.

LIZ ANN: You know, speaking of private investors, it's a different categorization, but it popped in my head as you were saying that. I think one of the reasons for the resilience of the equity market very recently, even on a day like today as you and I are having this conversation, you mentioned the decline in bond yields. I think that's certainly something you can point to in terms of the strength in the market. But there is an interesting kind of dichotomy happening in markets right now because a lot of institutional investors, hedge funds, have gotten more cautious in their positioning. And even a measure like American Association of Individual Investors that tracks investor sentiment, that's showing still pretty bearish sentiment. But those tend to be more seasoned, older investors. What we can glean from a lot of data that parses it out is that there still is sort of retail investor trader "buy the dip" mentality. So I'm not sure how long that lasts. Maybe they'll ultimately be right, and the institutional world is going to have to sort of catch up to that resilient optimism on the part of retail traders, but that's something also that's on my radar.

KATHY: OK, well I say it's going to be fun times. We've been having a fun year so far. 

LIZ ANN: Well, we certainly have a lot of content for our pod.

KATHY: We do. We do. A lot to talk about. 

This week we're focusing on some global macroeconomic topics as we mentioned earlier this week. So tell us about our guest.

LIZ ANN: Sure, so our guest is Dario Perkins, and he is a managing director of global macro at TS Lombard. I've been reading their research for quite some time. I often abbreviate it TSL, as do many firms. So just to mention that because it's the same company, and he is based in London with a wonderful accent. So that's always nice for the ears.

So Dario joined TS Lombard in 2011 and writes the bi-weekly Macro Picture newsletter for them. He's also the host of Perkins Vs Beamish podcast, which I listen to on a regular basis. I highly recommend it. Dario has extensive experience as an economist in both the public and private sectors.

At the U.K. Treasury, he coordinated Gordon Brown's global economic forecasts and was responsible for designing the structure of the Bank of England's Financial Policy Committee. He also produced an important review of the Bank of England following the 2008 financial crisis. Prior to TS Lombard, Dario was at ABN AMRO and was named the City's top rated European economist for three consecutive years. 

Dario, thank you so much for joining us. This is a real treat for me as a huge fan of your research and TSL's research. And there was an intriguing comment you made, I suppose to some controversial, but a comment you had in one of your recent reports. It was earlier in April, and it started with the following comment: "For the first time in my career, I'm hearing widespread skepticism about the competency of U.S. policymakers." But maybe as an important qualifier, you said, "But that it isn't really about politics." So just expand on that in whatever context you want.

DARIO PERKINS: Yeah, sure. So you go back to November, I had clients shouting at me because I was too sort of bullish on the rest of the world. So my argument was that that sort of U.S. exceptionalism theme had gone way too far, that people had a sort of distorted view about what Trump was going to do. And you know, people were very, very bullish on the U.S., very, very bearish on the rest of the world. And then the shift in that narrative over the past sort of three months has just been extreme, to point that over the last two or three weeks, I've been having conversations that I just never thought I would have, questions about the basic competency of U.S. policymakers. 

And I think we're used to policy mistakes. We've had policy mistakes in the past. People always accuse the Fed of making a sort of history of policy mistakes, which is sometimes a little bit unfair. But I think people sort of understood what central banks were thinking, what they were trying to do.

They were sort of honest mistakes in that sense. And with this, I mean, this is just a question of recklessness. You know, people felt that this U.S. administration didn't really know what it was doing or was just being aggressively, you know, reckless with the economy, all this stuff about, you know, detoxification and, you know, causing pain and short-term pain, long-term gain. I think it was a real shock to investors. And, you know, this is the sort of sentiment, you know, it had reached quite extremes, you know, two, three weeks ago, I think the Liberation Day was just a massive shock for international investors. And it wasn't just the tariff levels. I mean, the idea that you present this tariff table like a game-show host, I mean, that in itself was a little bit shocking as an image. But it was also the basis of those tariffs, the idea that the administration has taken Trump's worst instincts on international trade, this idea that surpluses are winning and deficits are losing, and then codified it into these reciprocal tariffs. I mean it was the sort of flakiness of that analysis that just really shocked people.

And so you know massive shift in sentiment over a very short period of time. You know, we went from extreme U.S. exceptionalism to this question, you know, "Is the U.S. uninvestable?" which is just not something I ever imagined I would be discussing with people.

LIZ ANN: You talk about trade deficits, and that's clearly, or at least based on the math used in the reciprocal tariffs, being ultimately the goal here of eliminating or easing some of those trade deficits. But I think often lost in the discussion, and I want your opinion on this, is the mirror image of trade deficits, which is the capital account surplus. And you mentioned investability of the U.S. So talk a little bit about that. Are we starting to see disinterest on the part of foreign investors that have been quite supportive of our markets across the spectrum of Treasuries and corporates and equities? So has that tide started to turn, and what do you see the direction going forward?

DARIO: So definitely that's been the conversation. So people have had this chart showing global exposure to U.S. assets, which I think comes to about $30 trillion. A lot of that is equities. And the flip side of running those deficits, those current account deficits, over such a long time is that you're running this persistent current account surplus. So all of this money is flowing into the U.S., is flowing into U.S. assets.

And so we had global investors saying, "Well, what if this flow just stops? And isn't this what the administration wants?" If you want the current account deficit to be narrower, then the capital account surplus has to diminish, too. And so this sort of inflow has to start to dry up. And then we got into sort of different degrees of "Well, how far does this go? Is this just about a sort of net purchases of U.S. assets beginning to diminish? Or will this money actually come back?"

Will this $30 trillion of asset flow go back into the rest of the world? And so that's the sort of balance that people have been playing. Those are the sort of themes that people have been discussing over the past sort of two, three weeks. Again, massive contrast to where we were just a few months ago.

LIZ ANN: In terms of the U.S. goal of reducing the trade deficit, you've written about the two ways that could happen, either weaker U.S. economy or stronger rest-of-world activity. So where do you fall on that sort of binary set of outcomes?

DARIO: Well, I think that's the frustrating thing is that up until Liberation Day, you know, the administration was basically getting what it wanted. You had these big tariff threats, this very aggressive stance with the rest of the world. You know, it wasn't just the sort of trade talk, it was also the politics of it. You know, when J.D. Vance came to Europe and spoke in Germany, that really shook people up. You know, very different approach to Europe.

And it was working. Germany was doing something that people couldn't have imagined six months ago. This massive fiscal stimulus, the abandonment of that sort of debt break that they'd had, this rule that they could only ever run surpluses, that had gone. They were planning massive infrastructure spending, massive defense spending. These are things that the world has been pleading with Germany to do for the last 25 years. 

One of my first jobs was at the U.K. Treasury, looking at sort of global imbalances, and back then, you know, 25 years ago, the IMF[1] was writing all this advice saying "Well, we need Germany to spend more. We need the world to rebalance," so that was working. You know Germany was doing that. Europe is set to follow. You know Europe is going to dilute the fiscal rules across the continent. It's going to increase defense spending in all of these countries. A lot of that has to go to imports because Europe's defense sector is tiny. You know, we're talking about a sector, the defense producing, so manufacturing, which is sort of high-quality manufacturing, that's basically 0.5% of GDP. So if you're going to plug in another 1.5% points of GDP every year for the next sort of decade, that's a huge amount of money flowing into a tiny sector. So they're going to need imports. They're going to need imports from the U.S. So there's a basis of a trade deal there. 

And then you had China. You know, China was panicking too. You know, it's sort of moved to this idea that it would just again flood the world with exports, and the very aggression from the U.S. has sort of broken that model, and they're going back to domestic stimulus. So it was all working, and then the administration almost overplayed its hand with these tariffs, and then that sort of started to create sort of genuine damage to the U.S. economy rather than just the stimulus to the rest of the world. So I think there's still a way through this. I don't think we're going to have a U.S. recession.

I think this is more of a soft patch or slowdown in the U.S. I think U.S. import demand will be weaker than it has been because of that and because of the tariffs. I think they'll roll back a little bit on the tariffs. I think we'll start to get a little bit more sense in terms of policy. It's interesting that Scott Bessent's role in the administration is becoming … he's almost now the spokesman of this administration, which suggests that they want to be a little bit more market-friendly.

And I think you are getting that stimulus in the rest of the world. So it's a little bit of both. I think the U.S. growth will be a little bit weaker than people expected. Maybe the sort of U.S. shine is diminished a little bit by what this administration is doing. And at the same time, the rest of the world stimulates. So you can still have a bit of a benign rebalancing here, but it's just, you know, we are seeing levels of recklessness that we hadn't anticipated.

LIZ ANN: Dario, let me probe a little bit more on recession risk because that's obviously a hot topic these days. Although, I giggle often at how common it is to see probabilities at 40% for whatever it is, in this case, recession. I feel like that's one of those perfect percentages that if whatever it is doesn't happen, you've got the base of, well, "It was … I said it was less than half … even odds," or if it does happen, 40% sounds fairly high. So it's that nice.

DARIO: It's beautiful. It's a beautiful world.

LIZ ANN: It's that beautiful spot. So it's part of the reason why when we talk about probabilities, it's in general, not with percentages. But I know you have the Perkins recession indicator, which is, I guess, a simplistic version of the Sahm rule and ties to simply payrolls going negative. So I wanted to ask you a little bit more about that for a couple of reasons. One, you and I are taping this a few days before Friday's release of the monthly jobs report, the April jobs report. So a lot of our listeners are going to be hearing this after that comes out. So I wanted to express that so people don't wonder why the heck we're not talking about whatever it is that happened on Friday. 

But let's just say we get a negative payroll readings, if not this month, maybe next month. Does that automatically change your perspective? But I also am interested when you have a model like that, given how subject to revision payrolls are, how do you think about the fact that oftentimes the initial release is very different from what ultimately the reading was for that particular month based on subsequent revisions?

DARIO: Yeah, so the problem with the Perkins rule is that I can't say it without sort of sniggering, and it sort of ruins the whole atmosphere. I noticed that Claudia Sahm doesn't have that problem when she talks on CNBC about the Sahm rule. You know, I think the basic point is that there's a big difference between sort of softness in the labor market and outright declines in employment. And when employment starts to go down, it kicks off this sort of reflexive process.

So companies are shedding labor, which they really never do outside of recessionary periods. And then that hits confidence, that hits spending, that feeds back into corporate revenues, and that leads to more job losses. So it's that reflexive dynamic. And I first started writing about this back in sort of 2017, 2018. And back then, investors had sort of spent five, six, seven years saying, "When is this cycle going to end? When is the next recession coming?" You remember that whole sort of long expansion?

LIZ ANN: Oh sure. Yeah.

DARIO: "When is the next recession? When is the next recession?" And my basic point was that you didn't need to be able to forecast a recession because economists are pretty bad at forecasting recessions. We seem to forecast them all the time. Particularly the last few years there's been a recession scare literally every 18 months. But you need to be able to see a recession when one starts. And it is that sort of employment dynamic that first picks that up because that's when that sort of reflexive process kicks in.

And the point about it from an investment point of view was that the market always gave you an opportunity to get out. So once you saw the labor market start to crack, suddenly this view comes into the market that this is really good news because it means the Fed now is finally going to cut interest rates. And so then this sort of big, you know, "The Fed will save us" narrative comes in. And if you look at the behavior of financial markets around those periods where those first cracks appear in the labor market, typically yields sort of pop higher and equities rebound. And so as an investor you can say, "Well now, you know, this rarely ever happens outside of recession. So I'm pretty sure that this is the start of a recession." That reflexivity is kicking in. 

The Fed will start to cut interest rates, but there's this danger point now between the data starting to deteriorate and the impact of the monetary stimulus actually coming through. And that's the most dangerous point for financial markets. So to me, that's the point where you need to start to de-risk. In terms of your sort of practical questions, I've always used the first estimates. So if you look on FRED[2] or on the BLS website, you get those first initial estimates of employment. And if you look at those, there are occasionally … you get these sort of false signals where employment contracts and there isn't a recession, but there's always some really obvious explanation. So some very severe weather, you know, I remember sort of Hurricane Katrina triggered a decline in payrolls in the first estimate. The only time that this didn't happen, and this is the sort of flaw in the model a little bit, was during the soft landing in 1995. Because if you look at that period, you had this crack in the labor market, and then the Fed did freak out and actually cut interest rates, you know, quite quickly in response to that. And it turned out to be a head fake and things turned around. 

So there is that sort of false signal there, but in every other cycle, that to me has been a much better indicator of these cracks appearing. And it is about that reflexive process. And I think 18 months ago when everyone was focused on the Sahm rule, they were sort of missing the point because the reason that the Sahm rule triggered was just rapid population growth, very, very fast immigration.

That, to me, is not a recessionary process. That's just a sudden inflow of workers. The labor market can't absorb them quickly enough. So that goes into a higher unemployment rate, just in math sense. But it isn't a genuine crack, and it isn't that genuine sign of potential problems.

LIZ ANN: Let's stay on the Fed for a minute. I've got a couple questions for you on that. As it relates to the traditional levers of monetary policy, let's assume that weakness shows up in the economy or specifically the labor market before any meaningful acceleration on the inflation side, giving the Fed the impetus to lower interest rates, because of the employment side of their mandate, even though they might be fighting against what ultimately could happen in inflation. I think that's the way we're thinking about it these days. What side of their mandate triggers a move on their part first? 

I guess the open question, though, that I rightly so, I think, everybody's asking is how much of that even represents the elixir for what ails us? Because we're not dealing with interest rates having been too high as a problem or credit availability having constrained. So how do you think about the Fed reaction function given the unique circumstances in the U.S. economy right now?

DARIO: So I think their assumption has been that inflation will go up first. So the tariffs come in, the price level jumps, and then that squeezes real income, that squeezes corporate profits, and then that's the point at which the labor market potentially starts to break. I guess it's possible that it's just the pure uncertainty and sort of policy chaos of the last few months would cause companies to start to cut back on their workforce.

I don't see that as particularly likely. I think that the sequencing is more likely to be the other way. I think that back in 2017, 2018, very clear central bank consensus on this. Central banks should ignore it. They should look through it. Anything they do in terms of raising interest rates would just make the situation worse. It would get them unnecessarily high unemployment for the same inflation outcomes. I think that's changed.

So when I look at what central banks, not just the Fed, but all of these central banks, the Bank for International Settlements, you know, the whole narrative on this, it has changed since COVID. You know, this idea that you can just look through negative supply shocks, I think has gone. And that has made the Fed much more reactive in terms of "I don't think the Fed wants to cut interest rates until it sees the cracks in the labor market start to appear." And so if you get the inflation first, and then the cracks in the labor market, I think that just sort of forces the Fed to be behind the curve. And that's really been my worry with this Fed reaction, you know, this sort of new approach to these supply shocks is that if you are waiting for the labor market to break, then you are behind the curve. 

Now, you asked if this, if monetary easing would help. I think there's some sectors where it definitely helps. So you know, sort of consumer durables, housing. I think that without the monetary easing, I think we could still actually see monetary policy getting tighter over the next 18 months because there's all this sort of debt servicing and all these debts that were turned out during the COVID period, which is still resetting higher. So we probably have to cut interest rates just to prevent that additional monetary squeeze. But I'm not going to argue that cutting interest rates won't help. I think it will help. I think certainly the markets would be looking for that. 

But it does worry me that it's that period between labor market starts to crack, reflexivity kicks in, Fed is cutting interest rates, maybe at first it's cutting interest rates quite slowly because of the inflation side, and then you're waiting for the impact of the monetary policy. That's the really dangerous point from a sort of reflexivity market perspective. What happens in that interval? How quickly can the Fed turn things around? From a positive perspective, I don't see any deep underlying problems in the U.S. economy.

I think one of the reasons that we had that very long expansion in 2010s is that we were just not seeing overinvestment. We were just not seeing very high levels of leverage. The banking sector was being very, very careful in terms of lending. So I don't see these big macro-financial imbalances. I don't see a big problem in credit. Private credit is a problem, but it's not massive. It's not systemic in that sense. So from a fundamental perspective, this is the best U.S. economy we've had since the 90s, I think. It's just, you know, the policy choices that are being made are, "This isn't the best economy, and we need to do something about it, and this is what we need to do," and, you know, from my perspective some of that stuff is quite dangerous.

LIZ ANN: Staying on the Fed, obviously President Trump has backed away from some of the more overt criticisms of the Fed and threats broadly to independence, specific threats about firing Fed Chair Powell. So where do you think we sit right now? I know you've made the comment in past reports in this recent era or at least questioning whether the damage has already been done. So let me ask that of you. Has the damage already been done even though there's been a walk back of some of those more overt threats?

DARIO: I think some damage has been done. I think that once you politicize monetary policy to the degree that's been happening in the U.S., you know, this very strong criticism of Powell, it then makes you think, "Well, you know, Powell's not going to be around for that much longer." You know, this time next year, we will have a successor to Powell. You know, that's when the chair's term is up as the chair. And so, you know, Trump is going to appoint somebody else.

And I think you immediately start to have question marks about whoever, it's not even about specific personalities, but anyone that's prepared to take the job in the context of a job that has been very heavily politicized and where it's very clear that Trump wants to almost set monetary policy by proxy. I think as a sort of global investor thinking about the U.S., you have to have certain doubts about that, whoever comes in. 

And so I think that there has been some damage to the Fed as an institution, and then you worry, "Well, what happens if there is a recession, and the Fed doesn't cut interest rates quickly enough?" We could be back to discussing all of these issues again. You know, I think that Trump has shown his hand as far as, you know, what he thinks about monetary policy, who he thinks should be setting monetary policy, and that is, you know, that sort of upends decades of consensus about this. 

LIZ ANN: You also wrote recently about a possible Liz Truss moment, and for our listeners who are not familiar with that, back in, I think it was 2022, under the leadership of, at the time, Prime Minister Liz Truss, and she kind of self-styled herself as a disruptor and a maverick, somewhat similar to our president. And they announced a mini budget, I think, is what it was generically being called with significant tax decreases, not enough spending offsets, and it caused this move down both in bonds and the local currency, the sterling, at the same time, somewhat similar to what we saw happen a few weeks ago. So do you think that possibility of a Liz Truss moment has passed here in the United States, or is that still a risk?

DARIO: So you're right. I mean that was September 2022. It wasn't just the so-called mini budget, which sounds like a euphemism. It was, which was just massive, you know, unfunded tax cuts, which just seemed really poorly designed, you know, in terms of they were sort of massively regressive, almost like a reward to the people that voted her in, you know, very small number of Tory MPs from the south of England. It was also that she'd sort of … she'd been diluting institutions. So you know, the OBR,[3] which is a sort of fiscal watchdog in the U.K., they are supposed to, you know, sort of check every sort of budget announcement, say what effect they think it's going to have on the economy, say what the fiscal outlook is going to, you know, how the fiscal outlook is going to change. She sort of bypassed them, you know, after weeks of criticizing them and saying they were doing a useless job. She had a real problem with the Bank of England. So she was very, very critical of the Bank of England.

She talked about changing their remit. She wanted them to target the money supply, of all things, as a sort of throwback to the 1980s. And it was the whole messaging. You know, was this sort of, you know, going around institutions, doing these sort of maverick, reckless policies. And then you had certain dynamics in the pension fund industry in the U.K., which just made it much, worse. But the basic dynamic was that sterling was going down, and yields were going up.

And that was a sign that global investors had lost confidence in the U.K. And again, you know, I have a lot of meetings, you know, every week with global investors. I could see this in the meetings. You know, people were saying to me, "What is happening in the U.K.? You know, are you OK?" And, you know, that was their sign that something was going seriously wrong. And in the end, the Bank of England stepped in, and they did something that they deliberately didn't call quantitative easing, but it was basically QE.

But it was a very difficult balancing act because they had to stop yields from rising. And at the same time, you know, they had this inflation problem, and they still wanted to raise interest rates. They wanted to go back to QT, quantitative tightening, which is the opposite of QE. And they pulled it off. You know, they managed to calm the market down. They did this sort of short-term intervention in the bond market, which stabilized things. And then over the next 18 months, they managed to raise interest rates by 300 basis points.

So they managed to pull off this trick. With the U.S., I think we've seen elements of this over the last sort of few weeks. You did have that dynamic where yields were going up, the dollar was going down. I was having these conversations. You know, people were asking questions about the competency of U.S. policymakers. And so we were beginning to see those sorts of dynamics, a loss of confidence in the U.S. I think it's receded to some degree. I think this sort of perception that the U.S. administration is rolling things back a little bit, that Scott Bessent is taking over and becoming the spokesperson of the administration, I think that's helping. But I think you start to see genuine weakness in the economy, and then we go back to maverick policies again, I think those dynamics could come back again. But obviously the U.K. was in a much weaker situation than the U.S. because it wasn't the world's reserve currency.

So it was much easier for global investors to lose confidence in the U.K. than it was for the U.S. But even with the U.S., we were seeing an element of that over the past month.

LIZ ANN: These are heady days these days, and I know you probably spend a lot of time talking and writing about things that are on the more pessimistic end of the spectrum, as do I—it's just the nature of the world in which we live right now—but I know you've also spoken and written about that there is kind of a bull case for the U.S. economy as well as the global economy, so especially when we have some of these heady conversations on our pod, I like to bring it back around and find a little bit of the light and the sunshine. So what would be best-case scenario here unfolding? What is the bull case, near-term, for the U.S. and global economy?

DARIO: I think that the sort of absolute bull case was the way that Scott Bessent has sort of resolved his own cognitive dissonance and come up with this sort of comprehensive idea of what this administration is supposed to be doing, which was a sort of combination of Rubinomics[4] and the Plaza Accord.[5] So if you remember Rubinomics in the '90s, the government basically cut its deficit, got government spending down, that lowered interest rates, and then crowded in the private sector.

So you had very strong private-sector growth. You look at private sector debt, public debt in the '90s, they're basically mirror images of each other. And when you hear Scott Bessent talk about what this administration is trying to do, it is a version of Rubinomics. And then on the Plaza Accord stuff, it's this idea that you use tariffs in a strategic way to force other governments, other parts of the world, to stimulate their economies. And you rebalance the global economy by boosting the rest of the world.

If you get anything resembling those sorts of policies, that could be very bullish. And you could have sort of milder versions of that. Maybe the sort of full Rubinomics is a bit too optimistic because Rubinomics didn't have to deal with tariffs and de-globalization and supply shocks and all of that sort of uncertainty. So it doesn't quite play. But you could have a sort of muddling-through version of that where the U.S. administration becomes a little bit more reasonable in trade, starts to announce these sort of token trade deals with China and other countries. Tariffs go back down, maybe not all the way back down to where they were last year, but way down compared to those reciprocal tariffs that were announced on Liberation Day. You get a little bit of success from DOGE in terms of cutting government spending. You get the corporate tax cuts that offset some of that. U.S. economy is fine. It avoids recession. That sort of reflexive dynamic in the labor market doesn't start to kick in.

The Fed is able to cut interest rates, maybe just gradually, but maybe that's enough at this point. Meantime, you've got other central banks cutting interest rates more quickly, which is what they've been doing over the past two, three months. And eventually, you get this fiscal stimulus coming from China, Germany, the rest of Europe. You play all of that forward into 2026, you could have a pretty good year next year. And you could sort of somehow end up with this global economy that is better balanced and stronger than it was going into this. I mean, it would be a remarkable turnaround, but I think that's the bull case from where we are now, and I don't completely discount that.

LIZ ANN: Well, I'm glad that we were able to end on a positive note. I think we all collectively hope that that bull case is ultimately what unfolds here. In the meantime, because you are so prolific, in your writing, I know you have a fantastic podcast that I listen to all the time. So maybe for our listeners, let us know how people can follow you and where they can find access to your podcast.

DARIO: So the best place is on X or Bluesky. It's just my name—Dario Perkins, that's my handle. I put lots of charts on there. I sort of give a hint of what I'm thinking. Usually as I'm working on something, I'm sort of thinking out loud using X as a sort of route for doing that, getting pushback and things from people. And we have a podcast, Perkins Vs Beamish, which we publish every two weeks, which is just completely free. That's a good place to start.

LIZ ANN: Yeah, and I highly recommend it as a podcaster myself. It's a fantastic one. I just almost finished listening to your most recent one this morning, which I'm going to finish after this. But thank you again for joining us. Really, really appreciate it.

DARIO: No worries, great to be on.

KATHY: So Liz Ann, hard to believe we're looking at May now. The year is flying by. What are you going to be watching for as we head into next week?

LIZ ANN: Well, we already touched on the fact that after this taping, but before the end of the week, we'll get GDP, we'll get the jobs numbers, PCE, or Personal Consumption Expenditures price indexes, coming out as well. I think claims are important to watch on a weekly basis. I think we also have Challenger, Gray & Christmas job cut announcements. That's another thing that I think investors need to keep on their radar.

And then next week we also get the Institute for Supply Management, ISM, version of the PMIs, which is Purchasing Managers Indexes, and they split it and do surveys both on the manufacturing side of the economy and the services side of the economy. And I think we've got an FOMC meeting next week, right, Kathy? I assume that's on your radar.

KATHY: Absolutely. Yeah, that's probably the big one. I'm especially interested after the release of the Beige Book. The Beige Book was, you know, really pretty downbeat, and most of the downbeat indications from the Beige Book from the regional districts was due to tariffs. So it's going to be an interesting meeting in the sense that I think there are probably some people at the regional bank starting to get really pretty concerned about how the economy looks. I think the decision is likely still to be hold steady for now until they get more data, but there is a building sort of sense that we're getting that they are concerned about what's happening on the ground with the businesses they talk to and especially with employment. So that's the jobs numbers, and the FOMC meeting are the big things for me.

So that's it for us this week. Thanks for listening. As always, you can keep up with us in real time on social media. I'm @KathyJones—that's Kathy with a K—on X and LinkedIn. And I, like Liz Ann, have had a sudden rash of imposters who like to just change one letter in my name and make it seem like that makes sense. So please make sure you're following the real me.

And you can always read all of our written reports, including charts and graphs, at schwab.com/learn.

LIZ ANN: And I'm @LizAnnSonders on X and LinkedIn. And if you've enjoyed the show, we'd be really grateful, as we always are, if you'd leave us a review on Apple Podcasts or a rating on Spotify or really feedback wherever you listen. And we will be back with a new episode next week.

For important disclosures, see the show notes or visit schwab.com/OnInvesting, where you can also find the transcript.

[1] International Monetary Fund, https://www.imf.org/en/Home

[2] Federal Reserve Economic Data, https://fred.stlouisfed.org/

[3] Office for Budget Responsibility, https://obr.uk/

[4]https://en.wikipedia.org/wiki/Rubinomics

[5]https://en.wikipedia.org/wiki/Plaza_Accord