'One Person' Has Ability Turn U.S. Economy From Brink Of Recession—That Person Is Trump: CIO

Forbes Breaking News

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.

Transcript

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.

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