This is an audio transcript of the Unhedged podcast episode: ‘Trump dump?’
Robert Armstrong
Feels like the world, in the last month or so, has turned upside down. We have a Republican administration that is, in theory, business-friendly, but the stock markets go in the wrong direction, growth expectations are falling and markets, finance corporations — everything is helter skelter, opposite day and inverted.
[MUSIC PLAYING]
Today on the show, we’re gonna start swimming so we don’t sink like a stone because the times they are a-changin’. This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong, coming to you from beautiful Unhedged world headquarters in the capital of the universe, New York City.
I am joined today by world-famous head of the Financial Times Lex column, John Foley, to discuss how strange things are and whether they can get even stranger. Hi, John.
John Foley
Hi, Rob.
Robert Armstrong
Well, where to begin? There’s a lot of strange things out there. Here’s one for you. You’ve written about this a bit. I’ve written about it a bit. It used to be that tech led the stock market. Tech sort of stinks now. Since the middle of February, not one of the Magnificent Seven is up.
This morning we have two big tech companies reporting results and are down 15, 20 per cent. What is going on? What happened to tech, John?
John Foley
I think there are a few things going on. One thing is that people have met people. Investors have made a ton of money on tech.
Robert Armstrong
Mega.
John Foley
A ton. On the Magnificent Seven, Nvidia, $3tn. Palantir, not in the Magnificent Seven, probably Magnificent Eight to Nine.
Robert Armstrong
Yes.
John Foley
It makes sense that when expectations change a little bit that people decide to take some profit. And expectations certainly are changing, maybe more than a little bit, actually.
Robert Armstrong
Yeah. Sort of general expectations, not just expectations for those companies, but for kind of the world, it feels like.
John Foley
So, when you think about it, all these companies that are based on this artificial intelligence boom, at some point in the future, the idea is that people are paying for something, that someone is buying a service that they believe has some value to them. Otherwise, what’s the point of all of this?
Robert Armstrong
Right.
John Foley
And I think generalised worries about the economy and growth and how much money there will be sloshing around to buy stuff ultimately have to feed through into these long-term growth projections.
And the thing about stocks is that most of the value comes from future cash flows, right? So think about Nvidia, Palantir, probably like 80 per cent of their value comes from stuff that happens after 2030. So you’re really like drawing lines out into the distant future. And if you change the trajectory of the line a little bit, you’ve wiped or added lots of value.
Robert Armstrong
One thing, yeah, is when you have a lot of your value in the future, you’re very sensitive to expectations as a stock, the price of your stock is. And the other thing is when an investor has made so . . . is looking at their portfolio, and they’ve made so much money in a small group of stocks or a single sector of the stock market, they’re overweight that sector of the stock market.
John Foley
Right.
Robert Armstrong
That starts to take over the whole portfolio. Then some spooky stuff happens. You’re like, well, I gotta sell something. Let’s take a look down here at the stuff I could possibly sell. Your eye is gonna fall on the thing where you’ve made a load of money and which you are overweight, which makes it look risky not to sell it.
John Foley
Absolutely. There’s another thing going on here as well, which is what I often think of as the curse of being good at stuff. Like, if you’re good at stuff, people just expect you to do it whether or not you like it.
Robert Armstrong
Right.
John Foley
Maybe I’m talking about myself, I’m making this too personal. But like with these tech stocks, they’ve got . . . people have got used to them exceeding expectations. So now, if they don’t exceed our already elevated expectations, we become horribly disappointed.
And you mentioned the two tech stocks today that are falling. One is Marvell, which is a chipmaker. The other one is MongoDB, which is a company that essentially just does an unintelligible thing involving databases (Robert laughs), like everything in the tech sector today. But these companies haven’t actually done anything bad to be down 20 per cent. They just have not exceeded expectations by as much as people thought that they should.
Robert Armstrong
Yes. Yeah. Eventually everything conceivable good ends up in the price. And there’s literally nowhere else to go.
John Foley
Yes.
Robert Armstrong
OK. You wrote about another area of stress in tech, which is a tech IPO: CoreWeave. Now, am I to understand this is another company that does an unintelligible thing with a database?
John Foley
No. (Robert laughs) So I loved writing about CoreWeave because it does things with objects that I understand, which is always nice and rare. I mean, it kind of does, but these things are relative. So CoreWeave runs data centres.
Robert Armstrong
Yes.
John Foley
What it is effectively is an enormous pile of Nvidia chips in servers which customers can rent out in order to do AI stuff.
Robert Armstrong
It’s kind of a cloud services for AI, something, is that fair?
John Foley
We often call this neocloud because the big cloud companies are like Google, Alphabet, Amazon, but neoclouds are kind of independent companies that just run data centres like guns for hire. You can come in, you can use their servers to do some complex calculations, then off you go. CoreWeave wants to list its shares. The valuation could be anything up to $40bn, would be reasonably sensible, believe it or not. The whisper number out there is more like $35bn. Because this is tech, it comes with quirks that would in a normal world be extremely off-putting.
Robert Armstrong
Go ahead.
John Foley
In this case, it might not be. So CoreWeave is like, as I said, it has data centres and it rents them out, but it rents them out mostly to one company, which is Microsoft. And its supplier is mostly one company, which is Nvidia.
Robert Armstrong
Right.
John Foley
So if you think about this is like it’s a company that does a thing that seems good — data centre rental — but it has basically one dominant supplier, one dominant customer. That’s a lot of risk.
Robert Armstrong
Avoid.
John Foley
Both Microsoft, Nvidia also, as you say . . .
Robert Armstrong
Great companies.
John Foley
High expectations.
Robert Armstrong
If you have to be between two huge companies, those are good ones to be between.
John Foley
But you’re also you’re not just between the two companies if you invest in this. You’re also between the founders who have super voting shares that give you no power. There is a staggered board where you can’t eject all the directors in one go. I mean, all the greatest hits.
Robert Armstrong
Right.
John Foley
But it’s just not only you investing in the AI boom, you’re investing in a basically three-way tug of war between dominant suppliers, dominant customers, dominant shareholders. That just layers on an extra kind of risk. And already the FT, our colleagues at the FT, have reported today that Microsoft may be reassessing some of its relationships with CoreWeave. So . . .
Robert Armstrong
Moving on from tech uncertainty to economic uncertainty, we’ve seen bond yields fall, dollars fall, worries about tariffs, small caps selling off. So on top of this shift in the what we might call the internal dynamics or leadership of the stock market, we have a macroeconomic shift layered on top of that.
It’s almost hard to distinguish the two between what is going on with what would be changing in the stock market anyway and what is changing because the economics are changing. I mean, are things like tariffs and growth expectations showing up in your world, in the companies that you’re covering?
John Foley
That whole tariff situation is crazy. They’re on, they’re off. They’re imposed, they’re unimposed, they’re reimposed, they’re unimposed again.
Robert Armstrong
Right.
John Foley
Like, this throws companies into a state of grave discombobulation. And I think that what we know about companies is that they like some kind of predictability. And when I’ve been talking to company executives, the story is always the same. It’s like they just want to know what they’re doing. They just wanna know where to put their assets. And that uncertainty is the most damaging thing for companies.
It’s not bad for everyone — you know, traders in Wall Street banks love volatility. But the companies themselves are finding it very hard to know what to do. What they are doing is making noises about building stuff in the US: opening car plants, you know, building data centres, whatever it may be.
So the economic story then becomes even more complicated because in the short term you’ve got tariffs, which are presumably highly inflationary. Eggs cost whatever, $12 a dozen.
Robert Armstrong
That may not be tariffs. That’s bird flu. But still, it had an inflationary backdrop, you might say.
John Foley
That’s bird flu? And we also have eggs that come in from Canada, don’t forget, into some of the northern states. But yes, bird flu. But then in the longer term, we’re being told, but this is going to result in a huge renaissance in manufacturing in the United States. And it’s definitely true that companies are talking about building more production capacity here.
Robert Armstrong
So yeah, that was the idea of these tariffs, is to get manufacturing capacity moved to the United States and that might, at least in theory, companies are edging that way.
We wrote about an interesting sector yesterday in this respect, which is boxes. You know, you never know where these policy changes are going to affect. But the companies that make cardboard boxes and packaging material, International Paper and Smurfit are two stocks that got really whacked yesterday, because if you’re going to take anything across the Mexico-US border and a lot of stuff goes across that border, it’s in a cardboard box.
So those companies said, this is bad news for us. And if you’re going to make a cardboard box, you’re going to make it out of a tree. And that tree comes from . . .
John Foley
Not the United States.
Robert Armstrong
Canada. We have a lot of timber in the United States, but we also get a lot of timber and wood material from Canada.
John Foley
And Trump wants to get more timber from the United States, right? He said this.
Robert Armstrong
I’m sure and you know, the timber company that is actually very heavily overweight in the United States rather than Canada is a company called Weyerhaeuser. That stock is up because now it’s competing in its timber sales against expensive Canadian logs.
You never think about the cardboard box supply chain until somebody starts fiddling around with it. And the story is kind of repeated, you know, all over.
John Foley
Right, but how close do you get to the point where we’re trying to be self-sufficient in literally everything? Like this kind of autarkic state where we’re making the timber that makes the cardboard boxes, which makes the products that are made in the United States. Because the problem you have then is if demand for a certain product in the United States changes and you have no global trade flows any more, what do you do with all the cardboard boxes you don’t need any more that you’re making with American timber in America? It’s tricky. There’s a reason why trade flows work, and it’s because you can send stuff to where it’s needed for the best price.
Robert Armstrong
Yeah. So we have a weird piece of growth/tariff anxiety in the background with intended and unintended consequences. But one company you wrote about, I was interested to see that has made a little bit of hay off this weird situation globally.
The strange Trump world situation is BlackRock, just got a deal done in Panama, which I guess is going to be the United States soon, but it isn’t quite yet, at least according to the president. Kind of walk us through that deal that they did.
John Foley
Well, so the Panama Canal, as most listeners will know, President Trump has talked a lot about his concerns about the Panama Canal being a sort of American creation that is now being influenced, used, whatever it is by foreign powers that he’s not so keen on China being the obvious one. So he wants to kind of take back control of that.
So what’s happened is that’s resulted in the owner of some of these Panama Canal ports, CK Hutchison, which is Li Ka-shing conglomerate in Hong Kong selling these ports for like $23bn or at stake in those ports to BlackRock, in a deal that seems to have been brokered through handshakes and bilateral conversations. And Larry Fink, the CEO of BlackRock, talking to Trump and briefing him, a sort of arranging this deal. Other bidders don’t seem to have had much of a look in the number of advisers on the deal was very, it was a very elite group of bank advisers.
Robert Armstrong
How did Lex assess the price on that deal?
John Foley
Well, so . . .
Robert Armstrong
Is it expensive? Is it impossible to say?
John Foley
So it’s difficult to say because we don’t know what the exact numbers are on these ports. Like CK Hutchison reports, they come into a section called “Other” in its reports, along with some other stuff. So we can’t exactly see. Some analysts have had a stab at it.
Citigroup said in a kind of first take on it. Other analysts said that they thought that this asset, which was changing hands for about $23bn, was CK’s stake in it they thought was worth about $12.5bn. CK had like 80 per cent of it. So clearly there’s a gap there. The other telling thing is that CK Hutchison’s stock was up by the equivalent of about $4bn after the deal was announced.
And it’s said when I looked this morning, it was still up that much. So that suggests that they’ve sold it for more than investors were thinking it was worth, which, in fairness to BlackRock, may not be because BlackRock has overpaid. It may just be that investors in CK Hutchison weren’t really paying attention to the value of these ports. But it might also be that BlackRock has paid a high price for a very politically valuable asset that presumably wins BlackRock more friends in Washington.
Robert Armstrong
Yeah, which companies are really lining up to get. I mean, the friends in Washington thing we saw with the partial reprieve against tariffs for Canada and Mexico. After a visit to the White House of various car executives, Trump said, we’ll give you a month where automotives and auto parts are not part of the tariff package and the stock market like that, at least as of yesterday afternoon, the stock market like that. But it raises the question about the value of, in a highly regulated trade economy, political capital is worth more now. Something like that.
John Foley
That is definitely true. Relationships matter more than rules in some senses.
Robert Armstrong
I don’t want to use the word crony, but I think the word for what we’re talking about is crony. (Laughter)
John Foley
But it also is . . . the interesting question and it’s one that I know you’ve tackled on Unhedged, is how much the Trump administration cares about equity prices and the index, right? Because in the first administration, it was widely assumed when I would talk to folks in DC or in the markets, that Trump cared a lot about what the S&P or the Dow was going, and that was he managed to do that because he saw it as a sign of success for him. It’s not clear yet how much that matters in the second administration.
Every time you see a reprieve on these tariffs, you think, oh, maybe it does matter. Maybe this is a response to the kind of mini meltdown we’ve had in the last few days. But I think the thing that the market is asking is like, does he still care about that? Because if it becomes clear that he doesn’t, or that he feels that an even a large correction is worth it for this long-term gain of rebuilding America, then I think there’s going to be, you know, hang on to your hats. (Laughter)
Robert Armstrong
I think that’s true. Scott Bessent, and I’m never quite sure . . .
John Foley
Bessent?
Robert Armstrong
I’m putting Bessent.
John Foley
I don’t know.
Robert Armstrong
Just on the right syllable there.
Anyway, he said on TV, he was pressed on this point. Gosh, the stock market’s going down. Market doesn’t like tariffs. He had this very important comment the other day coming from the Treasury secretary. He said Wall Street has done well. We’re worried about Main Street.
And that is a hell of a statement coming from a Wall Street guy who’s running the Treasury department. You can be sure Wall Street is listening to that. But, that thesis in my view, has not really been put to the test yet. The all-time high for the S&P 500 was just a month ago, and it’s only like 5 or 6 per cent ago. I mean, we haven’t had any real pain yet.
We’ll see who cares about Wall Street when Wall Street’s off 20 per cent. If it is, I mean, it may go up, you know, I’m not making a prediction. All I’m saying is the principle has not been put to a proper test yet.
John Foley
Also, Wall Street in the US more than other countries is Main Street to the extent that people have the retirement.
Robert Armstrong
They certainly do. So yeah. So people will feel if you get a real stock market correction, you haven’t had anything like a correction yet. You’ve had a lot of volatility. A lot of the changes in leadership and internal puts and takes that we’ve discussed earlier in the show, but you haven’t had a real correction. And although bond yields have fallen as growth expectations have come in, and in theory that’s bad.
Remember that bond yields down is at least the direction that this administration says that they want. So even though they’ve gone down for the wrong reason, they’re going the right way, so they can be happy. So I would argue that the administration’s stomach for bad market news has not really been tested yet. And we will see.
But speaking of government, I want to talk about one other note your team wrote, which was about consultants in Washington. What did you write about there?
John Foley
So Doge, Department of Government, the so-called department, because we don’t know if it really is a Department of Government Efficiency, Elon Musk’s outfit, which Elon Musk maybe runs or maybe doesn’t, wants to cut costs, he wants to cut the budget deficit. Consultants are a source of enormous spending by the government. There’s a number out there saying that $500bn of consulting fees in the last couple of years. So the question is, like, who do you cut first and what gets cut?
Now, what’s interesting about this to me is that if you’re supplying the government with paper clips or servers or whatever it is, you know what you’re delivering, you know what the value is. They can decide whether or not they need that. Consultants is something a bit different, right?
The whole point of consultants, which you could unkindly describe what they sell as snake oil, is that they tell you how to do stuff and they charge you a fee for it. And maybe the fee is worth it, maybe it isn’t. You kind of just have to hope for the best and it’s an issue of trust. But these consultants are now gonna have to show that they add value to the government, which is not an easy thing to do. It’s not a terrible thing for them to have to do it either.
Robert Armstrong
Yes. I will say that there is high-value and low-value consulting, and I think the people in the industry would tell you that. And a lot of the so-called lower-value consulting is referred to within that industry as butts in seats. So it’s like literally there is periodically in the US government a push to privatise bits of the US government. This is not something new. It’s been going on for years.
And one of the ways you do that is you take someone sitting in a seat who is a government employee, and you wave your paperwork wand and they become a PwC employee or a Deloitte employee. They’re still doing the same government work they were doing before, but the government is, in scare quotes, smaller now.
So it will be interesting what happens to those people because I’m sure they’ll be the butts in seats consultants. What will happen to them as opposed to the federal workforce, which is probably more unionised, more dug in.
John Foley
That makes sense. I mean, the point of consultants should be that they create a return on the investment that you make into them, right? So if consultants are actually helping the government save money, it would be foolish to get rid of that high-value consulting business.
Robert Armstrong
And you know. Who is it best positioned to figure out who provides the most high value?
John Foley
Would that be the consultant?
Robert Armstrong
Yes.
John Foley
Exactly.
Robert Armstrong
I’m gonna be bidding on that contract.
John Foley
I think there’s nothing bad about consulting.
Robert Armstrong
Consulting, consulting.
John Foley
It’s just doing it chaotically. It seems.
Robert Armstrong
Yes. Speaking of chaos, we will be back with more chaos after a short break.
[MUSIC PLAYING]
Listeners, welcome back. This is Long and Short, which is the part of the show where we go long things that we like and short things we don’t like. John, do you have a long or a short for us today?
John Foley
So I do have a long, but, and I’m gonna stick my neck out because I could look really stupid.
Robert Armstrong
Awesome.
John Foley
Tesla, I think long Tesla. The reason for this is that everyone is really down on Tesla for reasons that seem very good.
Robert Armstrong
Stocks been crushed. It’s off like a third . . .
John Foley
(Overlapping speech) It’s like 7 per cent above where it was before the election, so that the whole Trump bump has basically almost gone. Everyone is talking about falling sales in Europe, people vandalising power charging stations, Musk’s time is too thinly spread, blah blah blah.
All of these are very reasonable, but I just think that Tesla has always been trading on stupid valuations based on things like humanoid robots, robo taxis, things that don’t exist. I just think that those things are no more or less likely now than they were before the election. So there is no reason for me to think that Tesla is worth less than it was before Musk.
Robert Armstrong
That is a bold call. I’m glad we have this on tape so we can replay it at your retirement ceremony.
John Foley
It’s a deepfake.
Robert Armstrong
I am long potash. Do you know what potash is?
John Foley
I do know what potash is.
Robert Armstrong
Potash is a fertiliser, as you know. It is in the ground.
John Foley
Do you know where it’s in the ground, mostly?
Robert Armstrong
I do, that’s why I’m long. Tell us John, where is it?
John Foley
Canada.
Robert Armstrong
It’s in Canada. And it’s something that American farmers really need. It’s a very, very hard thing to substitute another kind of fertiliser for. So Canada’s got it. America needs it. And here is Ontario premier Doug Ford speaking on Tuesday. We need to make sure America feels the pain, Ford said. Without potash down there, the US doesn’t have a farming system. So if you happen to have some potash sitting around the house, you’re in a good spot right now. So I’m long potash.
[MUSIC PLAYING]
Listeners, we’ll be back in your feed next week, and until then, stay sharp out there. Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.
FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer.
I’m Rob Armstrong. Thanks for listening.
[MUSIC PLAYING]