Miriam Gottfried

Well, even before the recent tariff turmoil, these firms were facing pressure on one of their key businesses, which is private equity. A lot of firms, not just these publicly traded ones, went out and bought companies in 2021. Since then, of course, interest rates have risen a lot, which makes it a lot harder to exit the companies either by selling them or taking them public at a profit.

because so much of the expectation was built into this model of lower interest rates. So firms have just been sitting on these companies, which means that they haven't returned that much cash to their investors, which means that those investors in turn have not returned that cash to them in the form of new fundraising. Of course, now we have tariffs, which just makes things worse.

That logjam is not coming unstuck anytime soon. Now we have a 90-day pause on many of these reciprocal tariffs. And that means there's a lot of uncertainty and people don't really want to go out and sell companies or buy companies because they don't really know whether the tariffs will be in place. They don't know what the right price is.

They don't know if these valuations are the valuations that are going to stick. So it's basically just caused a long pause on an already stuck thing. What would it take to get private equity back on track? You really need more market certainty.

If we could say even these are the tariffs and these are the tariffs that are going to be in place for X amount of time, then people would be able to model that and they would know what their cost structure is and they might be able to move forward. There's also the time factor. Firms might not want to sell them right now, these companies that they've been sitting on.

But they might have to because at a certain point, your investors, your limited partners need their money back. What does how these firms are doing mean for the broader market? What it really means is a lot for Wall Street because the fee paying potential of these firms is very great. Banks, lawyers, they all exist off of these fees that these private equity firms pay.

Of course, big firms like Apollo, Blackstone, KKR, they have many other business lines. They aren't solely reliant on private equity.

What about another mode of transportation, which we can't really live without, which is cars? I think that's going to be a big focus in this quarter.

I know.

Can the automakers pass along these price increases? They've been struggling even before tariffs.

And didn't President Trump explicitly warn the auto CEOs do not raise prices as a result of these tariffs? So the spotlight's kind of on them right now.

You get a couple of windshield wipers. Do people do that? Yeah.

Some of them might be rewriting their guidance up until the minute before their earnings call.

I mean, the administration did not hold back. I think there had been a view beforehand that they will either take the across the board tariff approach, one flat rate for every country to pay on imports, or there will be this reciprocal approach where we're trying to bring other countries into parity with what the U.S. has to pay. And in fact, there was both.

Yes.

All right, welcome back, Christine. In 30 seconds or less, is there a sector of the economy that will surprise the market this quarter?

And I'm Miriam Gottfried. Until next time.

Oh, yeah.

So we have first a 10 percent across the board tariff on all imports and then even higher rates on top of that for countries the White House considers to be bad actors on tariffs. And there will also be a 25 percent duty on all foreign made cars, which was sort of, you know, forecast. We kind of knew that was coming. Let's go to a clip from the announcement.

So these are pretty extreme changes and the market reacted pretty dramatically right afterwards to this news. I mean, there are a lot of Yeah.

Yeah. And that's why Trump positioned these numbers as being kind to other countries. We were being nice to them because we're not doing the full trade deficit. We're taking it and cutting it in half. And then that's what we're charging them. But these are big numbers. These are big numbers. And, you know, I can't tell you the number of products in my house that say made in Vietnam.

made in China. You know, these are this is where a lot of our goods come from today.

tariffs. Yeah, that's right. I think that's true. And I think what people will look for now is whether some of these individual countries decide to strike deals with the U.S. to try to negotiate these rates down a little bit. I mean, that's the goal of reciprocal tariffs, right, is just try to kind of bring people to the bargaining table and get something out of them.

So I wouldn't be surprised if pretty soon we start to see certain countries coming forward with proposals that, you know, might appease the White House and get some of these tariffs to be modified.

OK, let's move on to the earnings front. The first quarter earnings report season is popping off this coming week.

You know, I'm really curious about Delta, which already lowered its guidance, along with many other airlines. You know, the amount that businesses and consumers spend on air travel, I think, is an indication of their sentiment, their optimism about the future, how much they believe they can, you know, shell out versus how much they have to save just in case things go wrong.

More popular, yeah.

Maybe that was just everybody selling off autos. Who knows?

That could at least improve profitability in the short term. We don't know.

Or at least in the short term, because I think, you know, consumer spending is still an important part of the economy. And as that comes down, that will eventually affect companies need to sell stuff to someone. Yeah.

Exactly.

Because we have to explain it.

Today in the studio, we are joined by Christine Short to talk about first quarter earnings, which kick off this coming week. She is the head of research at Wall Street Horizon, a TMX Group company. Christine, welcome. Thank you so much for having me. So we are about to enter earnings season and tariffs are looming large. What does that mean for corporate earnings?

Will some companies be able to pass these tariffs along and what kinds of companies will struggle to do that?

So they were basically saying we're powerless against these tariffs. Like even we, these big companies can't really push back that much.

It's great to be here, Telos, and I am very excited to talk to you about Tariffs again.

Telus and I have both covered a lot of earnings reports, and we know that sometimes the stock doesn't move in the way you expect it to. So do beats and misses really matter? I mean, what should investors actually be looking for on an earnings report to tell them how the stock's going to move?

The initial phase, the juice that caused this private credit industry to grow was tie ups with insurance companies, managing assets on behalf of insurance companies, which need to get a return above what they have to pay out to customers. And so they've turned to private credit to give them that extra edge.

The next phase is raising money directly from individual investors, which is coming in the form of retirement accounts. or people's savings or products that are designed specifically for you and me.

The risks are that we don't know exactly what they're investing in at any given time. We might be able to see, oh, they've made a loan to this company. We don't know the health of the underlying company. So there's a credit risk that we are potentially taking on. There's also liquidity risk. These products tend to tie up money for longer periods of time.

And individual investors might need to get their money out more quickly. And there may be a risk that they can't do it.

Banks are responding in a couple of ways. JPMorgan Chase is on one end of the spectrum, the largest bank. It's really deciding to push back. It has launched a $50 billion balance sheet initiative where it's spending $50 billion of its own balance sheet to get into private credit.

Other banks have announced partnerships with private credit firms so that the bank originates the loan by bringing in the customer. The bank has the relationship with the customer, but the funding comes from the private credit firm.

My pleasure.