On "Forbes Newsroom," Spencer Hakimian, founder and chief investment officer of hedge fund Tolou Capital Management, discussed the contraction of the U.S. economy in Q1, and called on President Trump to pause his tariffs in order to avoid a recession.
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00:00Hi, everyone. I'm Maggie McGrath, senior editor at Forbes. Economic data that has come out this
00:09week is showing a mixed report as to the health of the broader U.S. economy. January and February
00:16data look somewhat strong, but it's getting softer as we look at March and April. And the
00:22big question is, how much of this is because of President Trump's tariffs and the market
00:27volatility that has emerged as a result of the uncertainty around these policies? Joining us
00:33to discuss all of this is Spencer Hakimian. He is the founder and chief investment officer of hedge
00:39fund Tulu Capital Management. He is also a Forbes 30 Under 30 alum. Spencer, thanks so much for coming
00:44back. Good morning. So before we started recording, you and I were talking about some of the data that's
00:51come out this week. We've had some jobless claims. We've had a look at first quarter GDP, and we
00:55continue to see earnings coming across corporate America. Let's start with GDP. As an investor,
01:01what jumped out at you from this report? There's two things that really jumped out at me. And I hate
01:09to be the bearer of bad news, but neither of them were so positive in my lens. The first thing was
01:16just the headlight print, you know, that everyone saw first quarter GDP contracted by about 0.3%
01:22on an annualized basis. And that mostly had to do with the fact that net exports, which is just
01:28exports minus imports, had fallen substantially on a rush from American businesses and households
01:36to buy some of those imports before this wave of tariffs came into place.
01:41But I think possibly more importantly here is that real personal consumption, which at the end of the
01:49day is the engine of our economy. This is households going to buy breakfast in the morning, going to buy
01:56clothes to go to work, you know, car payments, everything that the real economy depends on is
02:04really slowing down at a rapid pace. So if we go back to the fourth quarter of 2024,
02:11that figure, real consumption grew at 4% on an annual basis, which is very strong and indicative of
02:18a very healthy economy, which in my opinion, we had at the end of 2024. And I believe the data
02:23corroborates it. Now, if we go to the first quarter of 2025, that figure has already fallen to
02:30only 1.8%. So we've had a 220 basis point fall off in real consumption. And mind you, Maggie,
02:38the first quarter of GDP, it measures the time period of January 1st until March 31st. So there
02:45were no tariffs in place yet, right? There was no liberation. They had not happened yet. The auto
02:51tariffs came out on April 3rd. The Mexican and the Canadian tariffs are still being delayed. The steel
02:58tariffs, although they were somewhat in place, they really hadn't really in earnest gone into effect
03:03until mid-April. So what I'm worried about is we're already seeing such a sharp contraction or not a
03:12contraction, but a slowdown in the growth of real growth. And we haven't even gotten to the point
03:18that prices have spiked or that businesses have potentially started laying off people. So I think
03:26something that will be worth talking about on this show is how the data is progressively getting a
03:32little bit worse as the weeks, as the months, as the days go by. So, and I think there's a lot of
03:37evidence to show it. Some of that other evidence you were talking earlier today online about jobless
03:44claims, they came in a little higher than expected. And then you also reposted a story noting
03:50that 24% of Americans are scrapping plans to make a major purchase like a home or a car due to
03:57tariffs. So what does this all lead to potentially?
04:05At the end of the day, the economy is interconnected, right? I spend, which is somebody else's income,
04:14which lets them hire employees, which lets those employees then spend back in my business,
04:20which becomes my income, which lets me hire employees, which lets the whole cycle going.
04:26What people I think should really understand, because it's been a really long time since we've
04:31had a proper quote unquote recession, is that these things become self-fulfilling and it's a snowball
04:39effect, right? It's the person that forgoes buying a car because it's 20% higher. Well, then,
04:47you know, the car dealership starts laying off people. And then the people that are at the car
04:52dealership that, you know, every Sunday, like they like to go with their family on a family dinner,
04:56they stop going to that dinner now because their income got, you know, their income fell in half
05:01because one person in the family got laid off. And then that restaurant owner, all of a sudden,
05:06his or her sales fell. So he lays off a chef. And then because he lays off the chef,
05:12the chef's landlord doesn't get paid rent. So these things tend to compound and they tend to compound
05:17very quickly. So what I am really looking for right now are the forward looking data points or
05:26the more localized immediate data points that are showing some things. And unfortunately, I'm seeing
05:32it a little bit in jobless claims. It's going up. It's evidently going up. Continuing claims is also
05:41going up. And then in things like construction spending, right? That fell negative 0.5% month
05:48over month. So on an annualized basis, construction spending is down 6%. Why do you think that is? Well,
05:54if 25% of Americans are going to delay buying a home, who's going to build a house and get stuck
05:58with inventory? So the signs are there, if you ask me. So what is the likelihood the U.S. tips into a
06:07recession this year if you were to put a percentage chance on it? So again, as I've been saying on the
06:13shows a few times now, this is really still all contingent on whether we course correct, right?
06:21You know, unlike, let's say the COVID pandemic, where we needed a vaccine to be produced, or in 2008, where it
06:29was, it took years to rebuild bank balance sheets and household balance sheets that are lost in homes. This
06:36is a unique crisis in the sense that one person at any point in time can stop it. It's, it could be stopped
06:43right now. But with that being said, when we spoke for the first time a month ago, none of the effects
06:51of these tariffs were in place. So at that point, the likelihood of recession was much lower. Now that
06:58it's been 30 days since liberation day or 29 days, right? We have cargo that has simply not come from
07:05overseas that had to come here. We already have jobless claims going up. We already have construction
07:12spending going up. So some damage is inevitable. If you were to ask me, I frankly do not see how we
07:19avoid a recession at this point. At this point, what becomes the more interesting question if you
07:25were to ask me is how severe does this have to get? And again, it's the same idea. One person at any
07:33point in time can choose to stop this and we will halt the severity here, right? There's going to be
07:39problems. Spring looks like it's going to be very tough with inventory. Memorial day doesn't look so
07:45good. Back to school doesn't look like it's going to be so good for all the retailers, but maybe at
07:50least we can save Christmas at this point, right? So at this point, we're just talking about how severe,
07:55I don't think it's a question anymore of will the economy slow down? I don't think anyone in good
08:00faith can argue it's not. The data is already showing it. So I don't see how we cannot, but we can
08:06still mitigate the severity of it, which I hope we do, but I'm frankly losing confidence by the day.
08:13And when we talk about losing confidence, you posted something yesterday about you have friends
08:18in banking and across Wall Street, private equity, et cetera, commercial real estate in DC, in New York,
08:25who are in touch with the administration. And I'm paraphrasing here, but it seems like everyone's
08:31losing a little bit of faith. What does Wall Street think of the Trump administration's ability
08:36and President Trump's ability to do the course correction that you just said we need?
08:43Well, the capacity to do it is there. There is no doubt that if the United States president and the
08:52White House wants to course correct, they can do it. This is not a question of competency. This is a
09:01question of desire. The desire, we don't know if it's there or not. We simply do not know if they
09:09want to course correct. Some of them appear to really want to do these tariffs, despite all the
09:15evidence to the contrary of how bad it appears it will get. Some of them, Peter Navarro, Howard
09:20Lutnick, the president himself, they really appear to want to be doing this course of events.
09:28My tweet was about something that I've just been hearing a lot, and I really felt it was important
09:37to speak up about. People that are getting face time, specifically at investment banks, commercial
09:45banks, pension bonds, hedge funds, with the administration. Not that they're talking to the
09:51highest levels. So they're not talking to Scott Best. They're not talking to, you know, the director
09:57of the Commerce Department. They are talking to the staffers, the anonymous people that get no glory,
10:02they do the day-to-day work of actually fulfilling the tasks of what the administration wants to do.
10:10They're saying the level of competency for those people is simply not there. Regardless of whether
10:17the policy is a good idea or not, regardless of whether the idea of tariffs is good or not,
10:23the fact that we have story after story of United States customs invoicing the wrong tariff level,
10:32and then having to refund companies, and then coming back a week later and saying,
10:37hey, we actually charge you too little. We have to actually charge you more.
10:41That is not a question of policy. It is a bad policy, but that's a question of having just poor,
10:47you know, like employees. That is just a question of not having a good skill set.
10:54There was a paper in the Financial Times a few days ago that a group of hedge funds that were,
11:00you know, bond-focused hedge funds were speaking to some people on the Council of Economic Advisors,
11:06and they came out of that meeting and they told the Financial Times,
11:09these people don't know what they're talking about. Like, they wouldn't get jobs at our companies. So
11:14regardless of policies, I think we should all agree, we as Americans, regardless if it's Republicans or
11:21Democrats, we are entitled to the highest level of competency from the people that are working on
11:27our behalf. Nobody at Forbes, as an example, that does a careless job would have a job for so long.
11:34So that's all I was saying with that tweet.
11:38Still, I think it's important, right? Because in a moment of economic delicacy, if you will,
11:43it is a delicate time for our economy. I think as a consumer, as someone who's worried about her
11:48savings, this is me speaking as Maggie, not as, you know, journalists, you know, I want to know
11:53that the people who are handling it have the competence to handle it. So I guess my question
11:59is, what is Wall Street's message to the administration? What's your message to the
12:03administration right now?
12:05You're absolutely right to feel that way. Who would not? You work very hard for your money. Who
12:10would not want their money to be in good hands? That's just the most basic evolutionary human
12:16desire to, you know, to be taken care of for what you deserve. I think, ultimately, I cannot speak
12:24for all of Wall Street, but I can speak for myself. And I think this is fairly consensus on Wall Street.
12:30I don't think my phone is going to be ringing with what I said right now.
12:36Negative impact is obvious. I mean, there's no positive data coming out. Look, even corporate
12:43earnings. They're, for the first quarter, they're reporting strong numbers, but they're not willing
12:51to guide for the second quarter. What does that mean? This is so simple. They just said they had a
12:57pretty good quarter. And now, what changed? They're no longer willing to guide? You never hear that on
13:03Wall Street. On Wall Street, when somebody has a great quarter, the CEO, the CFO, everyone comes out
13:10and they tell their investors, it's getting even better. Buy more of the stock. You know, believe in
13:15us. Look how good we just did. What company goes from reporting and earnings to not be willing to
13:20even give you guidance? So, it's evident. So, the simple message to the administration is
13:27we should course correct here. I know, as an example, maybe we just pause, as we did the 90-day
13:34pause with all the other countries. Maybe we just pause with China, right? Maybe in the interim,
13:41while we are negotiating new trade terms with China, albeit I do not know how successful they'll
13:46actually be because they, frankly, weren't successful in 2018. But let's leave it at the
13:50side and let's give the administration the benefit of the doubt here. Why don't we at least pause the
13:56current action while we are negotiating, right? In a sense, because right now, we cannot do business
14:02with China, right? 140% tariff on China is effectively an embargo. You're going to get
14:06empty shelves any day now. There's no way around that. So, I mean, this is effectively, this is like,
14:14you know, you're negotiating fire insurance on your home, but in the meantime, you're burning down your
14:20house. Well, why would you do such a thing? Why don't you negotiate the rate on your fire insurance
14:25without your house burning, right? Who gets more leverage at this point if our economy goes into
14:31the dumps? It's the Chinese probably get more leverage. If we light everything on fire and then
14:37we negotiate with them, right? We come from a point of weakness because we're going to have angry
14:42citizens. We're going to have unemployment rise. We're going to have inflation rise. We're going to
14:47have the GDP fall. Obviously, the Chinese are paying attention. Someone like me in New York on a
14:52Bloomberg Terminal can figure this out. Of course, the Chinese know about this too. So my basic
14:57message to them would just be pause. Just pause this while you negotiate. Don't light the house
15:04on fire while you're negotiating with them. Before I let you go, I want to ask you about the market and
15:11specifically what it's been doing recently and also whether President Trump's comments about this
15:17is the Biden stock market, if that holds any water. What do you think about the movements of the market
15:24and whether or not we can assign credit or blame to any one president?
15:31Look, Maggie, I'm not a Republican. I'm also not a Democrat myself. I make that pretty clear.
15:38And just to prove that I'm not a partisan, I thought, quite frankly, it was a little pathetic
15:43in 2022 when President Biden blamed the runaway in inflation on the previous administration.
15:50So just like it was pathetic to me in 2022 and 2025, it is pathetic to me when the president wants to
15:57say that when the stock market falls, it's Biden's fault. And when the stock market rises, conveniently,
16:03it's back to his credit. With that being said, there's only so much that a president can in normal
16:15times affect the stock market because thankfully, we have a system of checks and balances, right? We
16:20don't have a king. We have a temporary president, an elected official. We have three separate branches
16:26of our government, right? So there's only so much that a president can affect. Let's say if
16:31President Biden in the past had a good or a bad idea, well, that was still contingent on the House
16:38and the Senate approving it. And that was also contingent on the judicial branch to render that
16:47legal. But what's going on here with tariffs is clearly a unilateral action. The Senate Republicans
16:54had a chance last night to vote down President Trump's unilateral tariff power, and they chose
17:01not to. So just as a matter of just let's be real with each other, this really is one person's
17:14doing. And again, look, what I keep saying is, even if this does not lead to catastrophe,
17:23what good is coming out of it, right? People were really happy that the market was flat in April.
17:29We're happy about that? I mean, that's something to cheer for, right? Like, we've lowered our
17:35standards so much that not losing 5% of our asset prices a month is something to be happy about.
17:43Asset prices are supposed to go up. We take tremendous risk to own assets, right? Why would
17:48we expect them to go up in price? People are cheering that it was flat last month. I mean,
17:54give me a little bit of a break on that. And yeah, that's just my general takeaway on that.
18:01I think that is a fair takeaway. And as always, Spencer, we so appreciate your thoughts and
18:06analyses on the markets, on the economy, and what the administration is doing to kind of navigate
18:12both. I'll have to let you go for now, but we will have you back as this quarter continues. And as we
18:18continue to get economic data that affects the markets. But in the meantime, Spencer Hakimian,
18:23thank you so much for joining us. We really appreciate it.