Tim Pagliara on Trade Tariffs and Market Impacts

Trade, Tariffs, and the US Economy

Interviewer:

Tim Pagliara is Chief Investment Officer with CapWealth. He joins us now. Thank you so much for joining us today. Is there a sense that investors believe that this might be the worst, and potentially a deal could happen?

Tim Pagliara:

Well, I think this is a big reset of the US economy. It's a big reset for our trade negotiations and our partners. You know, the previous caller had mentioned that the tariffs are not negotiable. Well, I would say reciprocity is not negotiable, and we are going to level the playing field on some of these relationships that have just gotten out of balance. And, you know, I was in a meeting with Treasury Secretary Bessent with a small group of people on Monday, and this administration has a very clear message and a very clear strategy on how they're going to deal with this in the context of the big picture. You know, we have a $7 trillion spending problem, we have $5 trillion with the revenue, and $1 trillion of that $5 trillion in revenue goes to interest on our debt, so we have to bring that down. And what you're seeing, I think, in the markets today, take Apple, for example, one of the most widely traded US companies. The 52-week range in Apple is $260 to a low of $165. It's somewhere around $190 this morning. But even at $190, Apple is trading at 32 times earnings. So if the valuations of American companies had not been distorted by this excessive government spending and permissive federal surplus, we wouldn't have these valuation shifts that we're seeing in the market that appear to be very violent because things go down a lot quicker than they go up.

Interviewer:

I just want to jump in here, because you mentioned you're on a call with the US Treasury Secretary Scott Bessent. Did he during that call mention to you, obviously we've seen the US dollar come under pressure, is that part of the strategy? Because he's mentioned that in the past, and also long-term interest rates were something that he was focused on.

Currency and Inflation

Tim Pagliara:

Since Treasury Secretary Bessent was confirmed, the 10-year Treasury has dropped 100 basis points, and the dollar is reflecting a better valuation relative to other world currencies. You know, because Europe has had to step up their game. Germany is now spending more on defense. And so as you see Europe and the rest of the world respond to this, yes, the dollar will moderate, but it will be at a more favorable level for everyone. I also see this talk about inflation with tariffs. Look at the inputs and inflation. Two-thirds of inflation is wage demands and benefit costs in the United States. The other third is commodity prices. All of those metrics now are moderated, so the inputs for inflation, minus whatever impact that the tariffs have, is actually trending in the right direction.

Interviewer:

But they moderating in part because the odds of a sort of shallow recession are going up? 

Jobs and Trade Imbalances

Tim Pagliara:

Well, yes, and yet the US economy, they just reported, created 228,000

jobs, and we were expecting 148,000 jobs. That was the March figure. So you've got

stable US employment for now. You've got somewhat of a moderating economic activity that was going to happen as you dealt with this $2 trillion annual deficit. And again, Treasury Secretary, they have a plan. They want to bring that deficit down, but they have to do it gradually. You can't just pull the patient off the table and expect to get them back on the field. Now it's going to take a little bit of time and they recognize that. You know, we've talked about trade imbalances my entire career. I remember we used to hang on that number in ‘85 and ‘86. Nothing's ever happened, so something has to happen. And, you know, the Trump administration, I call it the three C’s.

Interviewer:

We're running out of time here, Tim, but we really appreciate your time today. Tim Pagliara, Chief Investment Officer with CapWealth, thank you very much for your insights today.

Tim Pagliara:

Thank you for having me.