On "Forbes Newsroom," Spencer Hakimian, founder and chief investment officer of hedge fund Tolou Capital Management, explained why he thinks President Trump's tariffs and their rollout will all but certainly cause a recession if not an "economic catastrophe," and discussed the stock market turmoil that has occurred since the announcements.
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NewsTranscript
00:00President Trump's global tariff announcement has wiped out $6 trillion of U.S. market value
00:09in just two and a half days of trading.
00:12The S&P 500 is flirting with bear market territory, while major Wall Street banks are warning
00:18of increasing recession risks.
00:21I'm Maggie McGrath, a senior editor at Forbes, and here to discuss the market's volatility
00:25and the potential for major economic ramifications from Trump's tariffs is Spencer Hakimian.
00:33He's the founder and chief investment officer of hedge fund Tulu Capital Management.
00:37He's also a Forbes 30 Under 30 lister.
00:40Spencer, thanks so much for joining us today.
00:42My pleasure, appreciate it.
00:45So yesterday, Sunday, when futures trading opened, you posted a video to social media
00:51saying you were looking at how badly futures were down at the time, and of course markets
00:55opened, Monday trading also in the red.
00:58But you said, we are risking an economic catastrophe like nothing we've ever seen before.
01:03Worse than 08, worse than the beginning of COVID.
01:06Why do you say this?
01:08For me, it's fairly obvious.
01:10I mean, we cannot arbitrarily reroute and rework global supply chains, global trade.
01:17These are things that are literally almost a century in the making.
01:21And to think that we can somehow just magically change all of this over a single weekend while
01:27the president gulfs, frankly, I just do not think this is possible.
01:31And I think we're being extremely, extremely careless with our economy.
01:36And the consequences are going to be felt by people that unfortunately may start losing
01:41their jobs, just as we saw in Detroit over the weekend as Solana started laying off people.
01:47So I say we risk an economic catastrophe, first, because I don't even agree with the
01:52idea of what we're doing.
01:54But second, because even if I did agree with it, the pace and the utter chaos of it will
02:00almost certainly lead the economy into a recession.
02:03You can talk to any small business you want right now, nothing's happening.
02:07If they are relying on exports, they cannot function under this.
02:11What do we think is going to happen to them?
02:13So that's why I made that video.
02:16There's a lot to dive into from what you just said.
02:19But let's talk about what the tariffs, they're sweeping.
02:22It is dozens and dozens and dozens of countries.
02:25And the White House has even said some 50 countries have already contacted the Oval
02:29Office to negotiate.
02:31As you look at what President Trump announced, are there certain countries, certain tariffs
02:36that you see as more damaging to the U.S. economy than others?
02:40Or is it just the breadth of what we're seeing that's so damaging?
02:47Of course, there are some tariffs that are a lot more damaging.
02:50And I just want to go back to that video I made.
02:53I just want to clarify, I agree with the president on some of these tariffs.
02:57I agree that we should not be 100% reliant on India, China and Ireland for pharmaceutical
03:04manufacturing.
03:05I agree that high-end chips should most likely not only be made in Vietnam.
03:10Where I passionately disagree is, are we really going to fight to bring back sock manufacturing
03:15from Cambodia?
03:17Are we really going to fight to bring back sneaker production from Vietnam?
03:22Are these things worth fighting over?
03:24And we are stretching ourselves thin.
03:28If we want to go out China over some unfair trade practices, which they uncertainly do.
03:33If we want to even go after, let's say, Germany, where they may be unfairly tariffing our auto
03:38companies more than we're tariffing, let's say, Volkswagen, fine.
03:42But to be going after everybody at the same time, so much that we're tariffing countries
03:47that don't have humans on it.
03:49I mean, it's almost impossible not to laugh when we talk about this.
03:54This has to get more measured.
03:56This has to get more targeted.
03:57There has to be a clear and legitimate plan.
04:00It has to be spoken with, with big business leaders, with small business leaders.
04:05There has to be some type of message conveyed that we are doing this, we're doing X for
04:10Y.
04:11And to simply just pull out a chart that looked like a high schooler made and to say we're
04:15tariffing every country in the world based on some arbitrary numbers that we made up,
04:19this is insanity.
04:20We're going to lose trading partners.
04:23We're going to lose allies.
04:24People that want to work with the United States are going to have no choice but to gravitate
04:28towards China.
04:29Is that what we want?
04:30Does that make us stronger?
04:32Does that make them weaker?
04:34It does not make sense to me.
04:36When you talk about doing everything all at once and how that just can't happen, you
04:41used in your video a really interesting example of an Intel factory.
04:45And I wonder if you could talk a little bit more about that because you say you agree
04:48with the president in some of these cases, but the idea of reshoring so much business
04:54production and manufacturing in the U.S., that is something that takes time.
04:58Can you talk about the average timelines that would be more reasonable and perhaps wouldn't
05:03cause such a market reaction?
05:07The president said that we will have all these factors up and running in one and a half to
05:10two years.
05:11It's just factually, it's impossible.
05:13I'll give a good example.
05:15The previous president, President Biden, as part of his Chips Act, gave a massive subsidy
05:20to Intel, the American chip manufacturer, to build one, one chip factory in Ohio.
05:28One.
05:29Okay.
05:30They started, they broke ground February of 2022.
05:32You know when that's going to be complete?
05:34As of their last guidance to Wall Street, Q4 of 2030, we're talking almost nine years
05:42to build one factory.
05:44Granted, chips are a little bit more complicated than let's say building, let's say, you know,
05:49a t-shirt manufacturing plant, but nonetheless, it just shows the gravity.
05:55One plant could take a decade.
05:57To say that we can somehow do this in two years is just, it's so irresponsible for somebody
06:03to say something like that.
06:04And beyond that, I think this is exactly what Wall Street is anxious about, not just the
06:10breadth of the tariffs.
06:12This is completely unreasonable.
06:13This is so easily disprovable what they are talking about that, you know, we're losing
06:19credibility every time we make a comment like this out in the public.
06:25And then to answer your next question, in terms of the timeline, it really would vary.
06:31But I mean, think about anyone that's even built a single family home in the United States.
06:36There's delays, there's permitting, prices go up, vendors quit in the middle, you have
06:41to find new ones.
06:44Best case scenario, the best case scenario, which is not going to happen, but if it did
06:48happen, we'd be looking minimum five to seven years.
06:51A more realistic scenario, if you were to ask me, is 10 to 12 years.
06:54And I've seen some credible people, but they are bearish, so they've said this could take
06:58a full generation, this could take 25 years.
07:01I mean, look how long it took Germany to be built after World War II.
07:04It didn't happen overnight, it took 20 years.
07:08Those are some sobering numbers.
07:09So I do have to ask, Bill Ackman said over the weekend that he's calling on the White
07:14House to institute a 90-day pause, just a timeout to lower the temperature and, I think,
07:22to better negotiate some of these terms.
07:25Would a 90-day timeout in this situation help at all, given some of those timelines that
07:30you just outlined?
07:34Anything at this point would help.
07:3590 days would help, 30 days would help, 60 days would help, a full year would help.
07:41Anything would help.
07:42I agree with Bill Ackman here that we have to pause this because this is going to go
07:47into effect in under 36 hours from now.
07:51The world economy will be shut down.
07:54You cannot put a 50% tariff on every country we depend on for exports and expect that to
07:59not be inflationary and anti-growth immediately.
08:04This is an emergency.
08:06So I agree with Bill.
08:09Some delay, just for some clarity, we have to understand how you actually expect us to
08:13do this.
08:14How do we replace the tomatoes and avocados from Mexico that Walmart depends on to sell
08:20their produce?
08:21How do we replace seafood from Japan immediately?
08:25These are not political questions.
08:26These are simple, basic human questions.
08:29And I hope that cooler heads will prevail in the White House because frankly, they have
08:33to.
08:34I think around the time of President Trump's election, re-election, and inauguration, there
08:41were some folks who were finding comfort in his hiring of Howard Lutnick and Scott Besant,
08:46longtime Wall Street veterans.
08:49What is Wall Street's view and what is your view of Lutnick and Besant now?
08:55They're in the administration.
08:56Are they the cooler heads that could prevail here?
09:00If we go back to right after the election, I should say, and Wall Street, at least our
09:07sector got pretty happy about seeing specifically Scott Besant and to a lesser extent Howard
09:12Lutnick get chosen to be the administration, it reminded us of when Steve Mnuchin and Gary
09:18Cohen were put into the first administration and Steve and Gary were really counteracting
09:24forces to the more radical voices on trade, I'm talking about in the administration such
09:31as Peter Navarro, there was Steve Bannon last time around, there was a whole host of actors.
09:36So Wall Street took it as a comforting sign that the president chose some traditional,
09:43you know, more traditional types of people to be in this administration on the idea that
09:48they could counteract some of the people that may have had more radical ideas.
09:54That's been an utter disappointment.
09:56Scott Besant seems like he has absolutely no leverage in this White House.
10:00He didn't even know why Canada and Mexico were exempted from the chart last week.
10:06Howard Lutnick, I know there was a verbal dispute between him and Bill Ackman last night on X.
10:14Every time he goes on TV, it just seems like he makes a comment that just, you know, frankly
10:18does not make sense.
10:19He was talking about how Europe doesn't accept our beef because our beef is stronger than theirs.
10:25What does that even mean?
10:28You can't even not laugh at a comment like that.
10:32So I think as of now, Wall Street is a little bit disappointed in the lack of sway that
10:39Scott Besant and Howard Lutnick have had.
10:42Hopefully things can turn around.
10:44But as of now, it seems like Besant doesn't have any leverage in this White House and
10:49Lutnick doesn't appear to be making anything better, if you want my honest truth.
10:54What would it take to turn this situation around, in your opinion?
10:58So in my opinion, and I'm going to speak in terms of the economy, because although, you
11:02know, I am an investor myself, first and foremost, I'm a citizen of this country, so I want to
11:07talk about the economy.
11:11I think we have to take some kind of off-ramp here.
11:14Frankly, it'll most likely be ceremonial, just as it was in 2018.
11:20Maybe China can commit to buying more soybeans, as an example, although never really materialized.
11:26You know, maybe Japan, who already has a lower tariff rate than we do, agrees to, you know,
11:31have a lower tariff rate than us, which is already what's happening.
11:34So it doesn't really matter.
11:37Countries like Zimbabwe that don't really import anything from us can maybe agree to
11:41make their tariffs zero.
11:43But I think for this to get fixed, the president wants to take some kind of victory.
11:48He's not going to get anything of substance, if you were to ask me, because if he was,
11:51he would have got it in 2018.
11:53Or frankly, President Biden, that continued a lot of his tariffs, would have got it in
11:562021, 2024.
11:59I don't see a material win coming.
12:02But I think we can arrive to some ceremonial win where we can just take an off-ramp here.
12:08And if we can, and I stress, if we can do this very quickly, we do not have to go into
12:15a recession here.
12:16My anger on that video on X that we spoke about was, this is self-induced, COVID was
12:23an act of nature.
12:242008, yes, you could say was a policy error, but there was hundreds of bad actors and this
12:29was brewing over years.
12:31This is a single point of error, and this is one person can choose to stop this tomorrow.
12:37That's what is frustrating about this.
12:39So I think that if we are to turn this around, it's going to be over some kind of indefinite
12:45pause about tariffs.
12:46And I just want to say, even in that indefinite pause scenario, I think some credibility is
12:52unfortunately lost.
12:54Every 30 days since January 20th, we've been doing this.
12:58So I think in terms of equity markets, we are going to have to price in a permanent
13:03Trump discount, quote unquote, because this can happen at any time.
13:06This is like a volcano that can erupt at any point in time.
13:12But I still think we can recover most of the economic losses that we look like we're going
13:16to suffer if we can get through this sooner rather than later.
13:20You talk about a permanent Trump discount in the market, or at least for the time being.
13:24I was looking at the VIX this morning and it is just surging, which, of course, is an
13:28indication of market volatility.
13:30Do you predict market volatility for the rest of 2025 or what's your view there as an investor?
13:38So as an investor, we tilt towards volatility being a norm.
13:43We tilt towards volatility always being there.
13:45We're always invested, although it's not actually true.
13:48It still pays to invest as if volatility is always there and be both risk on and risk
13:54off at the same time.
13:57In my personal opinion, as long as this threat of tariff stays in place, as long as Congress
14:03does not take back their constitutional right to impose tariffs, not the president.
14:09This was a right that was given to the president in the 1970s and is not an absolute right
14:14by any means.
14:15This is an emergency measure that looks like it's being pushed a little too far.
14:19As long as this potentiality in the market is there, that at any morning we can wake
14:24up to 50% tariffs on Vietnam or on China on anybody, I think the VIX will stay elevated.
14:31I don't think we'll have a 50 handle on the VIX at all times, but I think the baseline
14:36of the VIX from 2024, the baseline has gone up a little bit materially for the time being.
14:41As we talk about other market indicators, you've built your firm using AI models that
14:46can predict the price fluctuations of assets, including gold and crypto.
14:52These are two asset classes that are really interesting right now.
14:55Gold is surging and crypto has had day-to-day increases, but year-to-date is down.
15:04I want to ask you, these two asset classes are traditionally seen as hedges against the
15:09broader equity markets.
15:10What do you make of these two asset classes and the way they've been moving recently?
15:15Yes, you're right.
15:17They are seen as hedges.
15:19I personally disagree with that.
15:21Gold is absolutely a hedge for risk off events like what we've had since, let's say February
15:2719th.
15:29Crypto is a lot more correlated to equity markets, especially Bitcoin.
15:35It's pretty well correlated to the Nasdaq 100.
15:38With that being said, the correlation, if you want to go back to let's say 2018, 2017
15:44was nearly 100%.
15:46If stocks were up for the day, Bitcoin was up for the day.
15:48If stocks were down for the day, Bitcoin was down for the day.
15:50Now it's gone to about 40%.
15:53That is a sign that Bitcoin is becoming a little bit less correlated to the equity market.
15:59But as we've seen, Bitcoin is down this year and stocks are down this year, and gold is
16:04up double digits this year.
16:06It's not quite yet the perfect hedge.
16:09Nonetheless, we still own it.
16:11The reason that we personally own an asset like Bitcoin is that it's actually somewhat
16:17counterintuitive.
16:18But because Bitcoin is more volatile than equities are, you can own less Bitcoin to
16:25get a similar reaction that you wanted from equities.
16:30Let's say if we needed $10 in equities because you expected equities to go up 1%, you might
16:36only need $5 of Bitcoin because Bitcoin might go up 2% in that exact same scenario.
16:41That is kind of the reason why we have an allocation to Bitcoin.
16:47And yeah, I think gold is behaving exactly as you'd expect it to behave.
16:52It's why it's one of our favorite asset classes to own on a permanent basis, not just now.
16:57Because you don't know when these risk off events are suddenly going to materialize.
17:00But when they do, assets like stocks and crypto tend to fall, safe havens like gold and sometimes
17:08bonds tend to rise.
17:09So we like to have a balance where we are not exposed and it looks like it's working
17:13out well.
17:14I mean, we were flat last month and equity markets were down 7-8%.
17:19So I think there's some proof to the method.
17:23So far, so good for you.
17:25But hedge funds overall are facing some of their biggest margin calls since 2020.
17:30What does that signal to you?
17:33So I cannot speak for every hedge fund in the world.
17:37Hedge fund is a term as vague as sports.
17:41You know, there's billiards and there's kickboxing, right?
17:43Those are both sports, but they are very different in reality.
17:49But a lot of hedge funds tend to be operating on strategies that are low nominal volatility,
17:58which just means that overall the idea is low volatility.
18:02And then they leverage up those investments, meaning they borrow against it.
18:06So if they have, let's say $1 of equity, they might borrow $4 from a lender and they
18:11have $5 position right there.
18:14And that position tends to work well when markets do well, which is most years.
18:19But when markets don't do well, that leverage works against you in the other way.
18:23And a 5% loss quickly becomes a 25% loss.
18:27And most hedge funds at least are designed to not lose money.
18:30They're not really designed to make the best returns.
18:33It's a very different clientele, pension funds, high net worth investors.
18:38It's people that are much more worried about not losing their money rather than, you know,
18:42making 25, 30% in a year.
18:44So hedge funds tend to stop out of trades very quickly if their strategy goes south
18:49because they cannot tolerate those losses and, you know, they risk redemptions if they
18:54get too big.
18:56Now in your video that you posted yesterday, you talked about how in this environment,
19:01you will generally be okay.
19:02Your firm will generally be okay, but you are worried about the U.S. consumer and small
19:06businesses, which we touched on briefly at the beginning of this conversation.
19:09But I just want to emphasize the point.
19:12What do you see happening to U.S. small businesses in this moment right now?
19:18This is all subject to a lot of uncertainty because, you know, we can hang up off this
19:22call and this can all be reversed.
19:24And then, you know, but if we're going to go on the assumption that what is in place
19:30now is going to stay in place, the consumer will be hurt.
19:35Inflation will go up in the short term.
19:37Unemployment will undoubtedly rise.
19:40People will tighten their belts.
19:42People will get laid off.
19:44And just as another comment, if you think that you are somehow going to get a cheaper
19:48mortgage on your house because the 10-year is falling, you have to consider the other
19:53side of this equation, which is credit spreads.
19:56You and I are not the United States government, all right?
20:00Banks lend to us because we have a job, we are employed, we have a wage, and that wage
20:04can satisfy that mortgage.
20:07If we go from employed to unemployed, we are not a creditworthy borrower at that point.
20:15As an example, the 10-year fell in 2008.
20:18Mortgage rates didn't fall in 2008.
20:19Good luck trying to get a mortgage back in 2008.
20:22In March of 2020, the 10-year nosedive.
20:25You couldn't get a mortgage back then.
20:27So it is not just about the 10-year yield.
20:30The 10-year yield is the United States government borrowing costs.
20:34In a normal time, yes, we are all in a way pegged to that.
20:38In an abnormal time like now, there is no guarantee that we are going to get lower borrowing
20:43costs because the United States government is getting lower borrowing costs.
20:47In fact, it could be quite the opposite.
20:49So if everything lasts, I'm bearish on the US consumer, unfortunately.
20:55Absolutely, US small businesses are very dependent on domestic consumption.
21:02Think about your local bagel and coffee store.
21:06They're dependent on that person that's going to work in the morning that stops in and gets
21:09himself or herself a bagel and a coffee.
21:12What if he or she doesn't have a job in two months?
21:15That sale dries up.
21:16The economy is all interconnected.
21:18That is what we have to understand.
21:22One of my frustrations in that video was a lot of people are saying, well, you know,
21:25the stock market, Wall Street isn't Main Street.
21:29Wall Street is pricing in what's going to happen.
21:31What do you think Wall Street is pricing in?
21:32It's pricing in what is expected to happen to Main Street in this time period.
21:38Stocks started falling early in 2008.
21:42Unemployment didn't really begin to rise until the end of 2008.
21:46People were saying the same comments back then, Wall Street isn't Main Street.
21:50To an extent, I agree with that, but I believe that is an unfounded comment based on history.
21:55Spencer, we've covered a lot of ground.
21:58Is there anything else on your mind as it relates to tariffs and their economic impact
22:02that you would like to share with the Forbes audience or maybe, if we're lucky, anyone
22:06from the administration who might be watching?
22:09The only thing that I would say is we have to have compassion.
22:15I understand why people were angry in 2021 to 2025.
22:20I fully understand it.
22:22I fully understand why, although the unemployment rate was 4% on paper, many people had no hopes
22:30for getting a job and they quit the labor market.
22:34My biggest worry is that person that, for whatever reason that is not his or her fault,
22:41could not get a job at 4% unemployment rate.
22:45They are doomed.
22:46They are doomed at 8% unemployment.
22:49It's not funny.
22:50It is not a joke.
22:52We shouldn't be talking about winning golf rounds.
22:55People's livelihoods are in the balance here.
23:00Problems that were problems at 4% are such bigger problems at 8%.
23:05If you thought 6% inflation was bad in 2021, wait till 2022, I should say.
23:11Wait till there's, God forbid, if there's 6% inflation with unemployment rising this
23:16time around.
23:17Then you'll see a problem.
23:18Then you'll see a real problem.
23:20So all I'm urging the White House is have compassion.
23:26Many of the people that voted for you, voted for you guys because their economic situation
23:31was dire.
23:33Please do not make it worse for them.
23:35I will be okay.
23:37Somebody like me, we will trade around this.
23:39Even if I lose 10%, life's going to move on for me.
23:43It is the person that cannot afford to miss a paycheck.
23:47That is who is at risk here.
23:49It's not me.
23:50It is them.
23:51So please, I urge the White House, think about those people.
23:55Many of them voted for you to help them.
23:57Please think about them.
23:59Spencer Hakimian, founder and chief investment officer of Tulu Capital Management.
24:04Thank you so much for joining us and for those very important words and also analysis.
24:08We really appreciate your time.
24:09Thank you, Maggie.