1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,239 Speaker 2: Terminal and the Bloomberg Business app. We begin this out 10 00:00:37,280 --> 00:00:40,360 Speaker 2: with stocks rising after results from Apple and Intel. Sebastian 11 00:00:40,360 --> 00:00:43,000 Speaker 2: Page of t Row price, saying he's a reluctant ball. 12 00:00:43,240 --> 00:00:46,360 Speaker 2: We remained slightly overweight starks versus bonds and our position 13 00:00:46,479 --> 00:00:49,239 Speaker 2: for the stock market to broaden. However, we're starting to 14 00:00:49,280 --> 00:00:51,720 Speaker 2: take profit. Sebastian joins us now for more. Soeb it's 15 00:00:51,720 --> 00:00:53,440 Speaker 2: good to see you, great to see you. Where are 16 00:00:53,440 --> 00:00:54,480 Speaker 2: you taking profits, sir? 17 00:00:55,120 --> 00:00:58,640 Speaker 3: We're selling some starks. We're going to remain so overweight 18 00:00:58,720 --> 00:01:03,480 Speaker 3: for now, putting the proceeds in cash so or underweight bonds, 19 00:01:04,319 --> 00:01:07,760 Speaker 3: and we're also selling some high yield We're splitting the 20 00:01:07,800 --> 00:01:12,360 Speaker 3: proceeds between cash and bank loans, which I think are 21 00:01:12,360 --> 00:01:15,320 Speaker 3: attractive when rates surprise on the upside a little bit. 22 00:01:15,319 --> 00:01:17,640 Speaker 3: They're kind of negative duration, if you will. 23 00:01:17,880 --> 00:01:20,600 Speaker 2: So two points to make care. One why you're selling, 24 00:01:20,680 --> 00:01:22,920 Speaker 2: and the second why you're allocating the proceeds the way 25 00:01:22,920 --> 00:01:23,600 Speaker 2: you're allocating them. 26 00:01:23,680 --> 00:01:25,880 Speaker 4: Let's start with why you're selling. Why are you selling? 27 00:01:25,880 --> 00:01:27,640 Speaker 2: Why are you coming out of stocks just a little 28 00:01:27,640 --> 00:01:30,119 Speaker 2: bit and selling down high yield just a little bit. 29 00:01:30,600 --> 00:01:33,200 Speaker 3: Okay, I'm going to give you the most consensus narrative, 30 00:01:33,319 --> 00:01:34,360 Speaker 3: the most boring narrative. 31 00:01:34,440 --> 00:01:34,959 Speaker 4: Go ahead. 32 00:01:35,160 --> 00:01:39,200 Speaker 3: Okay, we're Friday. Yeah, we're confident in the economy. The 33 00:01:39,240 --> 00:01:43,560 Speaker 3: economy looks just fine. But we're worried about valuation. And 34 00:01:43,680 --> 00:01:46,360 Speaker 3: I wur surveillance every day and everyone's on that boat. 35 00:01:46,680 --> 00:01:50,520 Speaker 3: But evaluations are expensive. And you know at twenty two 36 00:01:50,680 --> 00:01:53,080 Speaker 3: four earnings price earnings ratio on the S and P, 37 00:01:53,200 --> 00:01:55,880 Speaker 3: it's high. In twenty twenty one, remember all the speculation 38 00:01:56,000 --> 00:01:58,400 Speaker 3: we had. Does it start to you to feel a 39 00:01:58,400 --> 00:02:01,480 Speaker 3: little bit like twenty twenty one? You know someone in 40 00:02:01,520 --> 00:02:04,880 Speaker 3: twenty one, someone bought a jpeg of a rock. Remember 41 00:02:05,000 --> 00:02:08,600 Speaker 3: one point three million? And when I say that, to clients. 42 00:02:08,639 --> 00:02:11,120 Speaker 3: They always reply that someone just bought a banana taped 43 00:02:11,160 --> 00:02:14,080 Speaker 3: to a wall for six million, so they're starting to 44 00:02:14,280 --> 00:02:15,280 Speaker 3: feel expensive. 45 00:02:15,480 --> 00:02:17,840 Speaker 2: What do you point into this frothy though, That's what 46 00:02:17,880 --> 00:02:18,600 Speaker 2: I want to get into. 47 00:02:18,639 --> 00:02:20,280 Speaker 4: Where do you see the froth right now? 48 00:02:20,560 --> 00:02:22,040 Speaker 3: Overall stock valuations? 49 00:02:23,280 --> 00:02:23,760 Speaker 5: Overall? 50 00:02:23,800 --> 00:02:26,360 Speaker 3: And I say wrong because there's some stocks that are 51 00:02:26,639 --> 00:02:29,280 Speaker 3: quite fairly priced in the world, so we're positioned for 52 00:02:29,320 --> 00:02:30,360 Speaker 3: the market to broaden. 53 00:02:30,560 --> 00:02:33,760 Speaker 4: But also credit spreads. Credit spreads really tight by. 54 00:02:33,760 --> 00:02:35,680 Speaker 5: Historical stand what's fairly priced right now? 55 00:02:36,160 --> 00:02:38,720 Speaker 3: I think, look, if you look at the average stock 56 00:02:38,800 --> 00:02:42,079 Speaker 3: in the world, you get a price earnings ratio of fourteen. 57 00:02:42,600 --> 00:02:45,919 Speaker 3: That's actually the long run average for the average stock 58 00:02:45,960 --> 00:02:49,359 Speaker 3: in the world. So that means that you have smaller caps, 59 00:02:49,520 --> 00:02:53,440 Speaker 3: value international, small gaps. Yeah, pretty much everything but the 60 00:02:53,520 --> 00:02:56,760 Speaker 3: technology sector, and they're parts of the technology sector that 61 00:02:56,919 --> 00:02:59,919 Speaker 3: are also fairly valued. But it's all about the broadening. 62 00:03:00,000 --> 00:03:02,200 Speaker 3: I think we're approaching peak concentration. 63 00:03:02,800 --> 00:03:04,720 Speaker 5: People have been saying this for months, and actually they've 64 00:03:04,720 --> 00:03:06,360 Speaker 5: been saying it for an entire year. John start of 65 00:03:06,360 --> 00:03:08,680 Speaker 5: the conversation saying, you're reluctant bull, So is that what 66 00:03:08,840 --> 00:03:11,519 Speaker 5: makes you reluctant? Just the valuations, or there are other 67 00:03:11,560 --> 00:03:13,840 Speaker 5: things you're concerned about, like policy uncertainty. 68 00:03:14,080 --> 00:03:16,040 Speaker 3: So I guess Lisa's not here today, so I need 69 00:03:16,080 --> 00:03:16,920 Speaker 3: to play the bear. 70 00:03:17,000 --> 00:03:18,440 Speaker 4: Narrative, give us the doom and gloom. 71 00:03:18,520 --> 00:03:22,640 Speaker 3: Yeah, okay, Look, I think long end rates are real 72 00:03:22,800 --> 00:03:26,320 Speaker 3: risk for those valuations. The curve is flat, you have terriffs, 73 00:03:26,360 --> 00:03:31,680 Speaker 3: you have inflation, you have resetting higher on growth expectations. 74 00:03:32,040 --> 00:03:34,520 Speaker 3: The direction of long end rates could be higher, and 75 00:03:34,560 --> 00:03:37,640 Speaker 3: that could put pressure on those valuations, and then you 76 00:03:37,720 --> 00:03:41,880 Speaker 3: have the usual lists tariff. Geopolitics often they don't matter 77 00:03:41,960 --> 00:03:45,280 Speaker 3: until they really do. And Amery my view is that 78 00:03:45,440 --> 00:03:48,520 Speaker 3: geopolitics will really matter when you see an oil shock. 79 00:03:49,160 --> 00:03:52,520 Speaker 3: And given the pressure that this new administration is going 80 00:03:52,560 --> 00:03:54,960 Speaker 3: to put on Iran and where Iran is right now, 81 00:03:55,080 --> 00:03:56,600 Speaker 3: I don't know where it's going to come from. I'm 82 00:03:56,640 --> 00:03:59,360 Speaker 3: not a geopolitical analyst, but that's one of the risks 83 00:03:59,400 --> 00:03:59,960 Speaker 3: that's out there. 84 00:04:00,000 --> 00:04:02,000 Speaker 2: We've got a lak capital And that was the second 85 00:04:02,040 --> 00:04:03,840 Speaker 2: point you made as you sound down some of those 86 00:04:03,880 --> 00:04:06,960 Speaker 2: equity positions into high yield you can get into cash 87 00:04:07,040 --> 00:04:08,720 Speaker 2: and not into the long end of the bond market, 88 00:04:08,800 --> 00:04:11,400 Speaker 2: not into treasuries, not into a ten year at four 89 00:04:12,120 --> 00:04:14,480 Speaker 2: fifty three. Do bonds not do what bonds used to 90 00:04:14,560 --> 00:04:15,920 Speaker 2: do in the portfolio? 91 00:04:15,960 --> 00:04:18,719 Speaker 4: From your perspective, we still hold bonds. 92 00:04:18,720 --> 00:04:22,240 Speaker 3: We have an overweight where short duration bonds will do 93 00:04:22,320 --> 00:04:24,120 Speaker 3: what they need to do only if we get a 94 00:04:24,160 --> 00:04:27,040 Speaker 3: growth shock. And by the way, this is I didn't 95 00:04:27,080 --> 00:04:29,320 Speaker 3: name it as a risk. It's still a risk that 96 00:04:29,560 --> 00:04:33,160 Speaker 3: some growth related data disappoints. Remember back in August last year, 97 00:04:33,200 --> 00:04:35,800 Speaker 3: we had one bad non farm payroll print and the 98 00:04:35,839 --> 00:04:38,120 Speaker 3: market kind of freaked out a little bit. So it 99 00:04:38,160 --> 00:04:41,680 Speaker 3: doesn't take much for a growth scare. I don't think 100 00:04:41,720 --> 00:04:44,920 Speaker 3: that's the base case. In that case, bonds will diversify 101 00:04:44,960 --> 00:04:49,080 Speaker 3: your portfolio. Rate shock, inflation shock bonds will not diverse. 102 00:04:49,120 --> 00:04:52,080 Speaker 2: You still have a FED responded to that unemployment headfake 103 00:04:52,120 --> 00:04:54,599 Speaker 2: from the summer. They wanted to insulate the labor market. 104 00:04:54,640 --> 00:04:56,680 Speaker 2: They cut interest rates one hundred basis points. That was 105 00:04:56,720 --> 00:04:59,320 Speaker 2: the starting gun for Then things have changed a few 106 00:04:59,320 --> 00:05:01,760 Speaker 2: months later. And I wonder from your perspective, whether the 107 00:05:01,839 --> 00:05:05,680 Speaker 2: threats of tariffs constrains the dubvish bias of the Federal Reserve. 108 00:05:05,839 --> 00:05:06,520 Speaker 2: Do you think it does. 109 00:05:07,720 --> 00:05:10,479 Speaker 3: Yes, I think it does, because at least in the 110 00:05:10,560 --> 00:05:13,800 Speaker 3: short run, it's inflationary. We're talking about twenty five percent 111 00:05:13,839 --> 00:05:17,040 Speaker 3: on Canada. You get a ton of crude imports from Canada. 112 00:05:17,279 --> 00:05:20,240 Speaker 3: I don't know how oil prices aren't reacting a bit 113 00:05:20,279 --> 00:05:23,160 Speaker 3: more this morning, right, This is like twenty percent of 114 00:05:23,240 --> 00:05:27,799 Speaker 3: oil consumption in the US is derived from Canadian crude. 115 00:05:27,880 --> 00:05:30,520 Speaker 3: So yeah, I mean that ends up being inflationary. 116 00:05:30,560 --> 00:05:32,919 Speaker 5: And when it comes to states landlocked in the Midwest, 117 00:05:32,960 --> 00:05:36,039 Speaker 5: it's their only area where they actually get crude is 118 00:05:36,040 --> 00:05:39,480 Speaker 5: from Canada. When you just mentioned earlier, we're never ready 119 00:05:39,480 --> 00:05:42,400 Speaker 5: for geopolitical shock and it kind of shocks everyone when 120 00:05:42,400 --> 00:05:43,680 Speaker 5: we get it. And you think that could be in 121 00:05:43,720 --> 00:05:46,039 Speaker 5: the oil space, Could that be this weekend? Could it 122 00:05:46,040 --> 00:05:48,960 Speaker 5: be Canada not something like Iran or Venezuela or Russia. 123 00:05:49,440 --> 00:05:53,280 Speaker 3: Well, the market doesn't seem to freak out about it yet, right, 124 00:05:53,360 --> 00:05:55,880 Speaker 3: And a part of this is we don't really know 125 00:05:55,920 --> 00:05:58,680 Speaker 3: what's going to happen to tariff ever. I mean, it 126 00:05:58,680 --> 00:06:00,760 Speaker 3: could change on a dime, but I think once they're 127 00:06:00,839 --> 00:06:04,640 Speaker 3: on then it's harder to take them off. So I 128 00:06:04,680 --> 00:06:07,440 Speaker 3: don't know, Amory, I think is a small probability of 129 00:06:07,560 --> 00:06:12,080 Speaker 3: a fairly sizable oil spike. When I asked a geopolitical 130 00:06:12,120 --> 00:06:14,919 Speaker 3: expert recently and I said, what could be the black 131 00:06:14,920 --> 00:06:18,360 Speaker 3: swan in geopolitics and the oil market? And he said, 132 00:06:18,360 --> 00:06:20,880 Speaker 3: what once you start hearing that word in the news media, 133 00:06:21,000 --> 00:06:24,680 Speaker 3: once you start hearing it on surveillance Hormuz, which we 134 00:06:24,760 --> 00:06:28,200 Speaker 3: haven't had any disruption there, but that is a large 135 00:06:28,520 --> 00:06:33,680 Speaker 3: proportion of global oil flows. I'm kind of just you 136 00:06:33,680 --> 00:06:35,520 Speaker 3: don't know, it's a black stright At the moment. 137 00:06:35,560 --> 00:06:37,960 Speaker 5: Trump has been actually quite quiet about Iran and focus 138 00:06:38,000 --> 00:06:40,760 Speaker 5: on other issues. You did mention something though, once you 139 00:06:40,760 --> 00:06:42,560 Speaker 5: put tariffs on, they don't come off, and we saw 140 00:06:42,560 --> 00:06:45,839 Speaker 5: that in the Biden administration. They kept Trump's first administration 141 00:06:45,960 --> 00:06:48,960 Speaker 5: tariffs on. Yet it added a little bit to inflation, 142 00:06:49,080 --> 00:06:51,960 Speaker 5: but not enough. When we had an inflation spike under Biden, 143 00:06:52,040 --> 00:06:55,000 Speaker 5: they didn't even remove them. So why is the FED 144 00:06:55,160 --> 00:06:59,279 Speaker 5: putting all this emphasis potentially in their concerns about policy 145 00:06:59,320 --> 00:07:02,560 Speaker 5: going forward, that is to inflation on tariffs if we've 146 00:07:02,560 --> 00:07:03,960 Speaker 5: had them for years now. 147 00:07:04,040 --> 00:07:06,440 Speaker 3: Well, I think we're putting that emphasis. I don't think 148 00:07:06,440 --> 00:07:09,200 Speaker 3: the FED is coming out and saying we're watching the 149 00:07:09,279 --> 00:07:12,480 Speaker 3: tariff game and we're adjusting our policy accordingly. 150 00:07:12,680 --> 00:07:15,200 Speaker 5: We're reading Well, they did though, they didn't assume, and 151 00:07:15,200 --> 00:07:17,160 Speaker 5: then they did assume. Part of that is because of 152 00:07:17,200 --> 00:07:18,680 Speaker 5: trade realignment. 153 00:07:18,200 --> 00:07:20,200 Speaker 3: Right, yes, I mean, look, they have to react their 154 00:07:20,280 --> 00:07:22,840 Speaker 3: data dependent and I think right now the FED is 155 00:07:22,920 --> 00:07:26,920 Speaker 3: weight and see so you're right, the first round of 156 00:07:26,920 --> 00:07:29,080 Speaker 3: tariffs weren't inflation area. I think there are all sorts 157 00:07:29,080 --> 00:07:32,440 Speaker 3: of effects of terriffs that we don't understand. You see 158 00:07:32,440 --> 00:07:35,320 Speaker 3: what happened with Columbia. It's a negotiation forward. 159 00:07:35,400 --> 00:07:36,800 Speaker 4: I'm with you. I hear that all the time. 160 00:07:36,840 --> 00:07:39,480 Speaker 2: But to am Marie's point, the accusation leveled at the 161 00:07:39,520 --> 00:07:41,520 Speaker 2: FED right now is they seem to be more concerned 162 00:07:41,520 --> 00:07:45,160 Speaker 2: with Trump tariffs than they were with Biden fiscal stimulus. 163 00:07:45,480 --> 00:07:47,400 Speaker 2: And it's hard to get your head around that. Do 164 00:07:47,440 --> 00:07:50,080 Speaker 2: you speak about that on the committee? So what explains that? 165 00:07:50,520 --> 00:07:53,800 Speaker 3: I mean, we speak about all of it, and we 166 00:07:53,920 --> 00:07:57,120 Speaker 3: debate all of it. Look, the FED is looking at 167 00:07:57,200 --> 00:08:01,720 Speaker 3: or talking about looking at employment and inflation, and tariffs 168 00:08:02,080 --> 00:08:04,760 Speaker 3: are a driver of inflation, and the short run could 169 00:08:04,800 --> 00:08:07,040 Speaker 3: be a driver of inflation. And the short run I 170 00:08:07,040 --> 00:08:10,560 Speaker 3: think it all boils down to this data dependency of 171 00:08:10,640 --> 00:08:13,560 Speaker 3: the FED. And if to the extent that tariffs drive 172 00:08:13,640 --> 00:08:17,120 Speaker 3: the data itself, then the FED will adjust, right, So 173 00:08:17,160 --> 00:08:22,360 Speaker 3: there's several layers of reactions in macroeconomics that the FED 174 00:08:22,400 --> 00:08:26,960 Speaker 3: will react to. But you know, it's it's a treacherous 175 00:08:27,080 --> 00:08:30,680 Speaker 3: environment I think for them to you know, it might 176 00:08:30,720 --> 00:08:33,640 Speaker 3: not take much for the talk of rate hikes to 177 00:08:33,679 --> 00:08:34,240 Speaker 3: start again. 178 00:08:34,800 --> 00:08:36,040 Speaker 4: Sebastia, we'll leave it. 179 00:08:36,000 --> 00:08:46,640 Speaker 2: There, Joht. I guess now to discuss is Adam Post 180 00:08:46,679 --> 00:08:50,160 Speaker 2: and the president of the Patison Institute for International Economics. Adam, 181 00:08:50,160 --> 00:08:51,000 Speaker 2: good morning, it's good. 182 00:08:50,840 --> 00:08:51,920 Speaker 4: To see you. Good to see you. 183 00:08:52,080 --> 00:08:54,000 Speaker 2: There is a constructive view out there, and it sounds 184 00:08:54,040 --> 00:08:55,160 Speaker 2: like this. This is what I hear a lot from 185 00:08:55,160 --> 00:08:57,599 Speaker 2: equity bulls. They say the approach to Taris is transactional 186 00:08:57,760 --> 00:09:00,640 Speaker 2: in nature, the scout for significant to go and the 187 00:09:00,679 --> 00:09:03,320 Speaker 2: backdrop right now for the Board of Economy, it's pretty decent. 188 00:09:03,480 --> 00:09:05,640 Speaker 2: Things are going to be okay. It's not a price 189 00:09:05,679 --> 00:09:09,240 Speaker 2: we have to pay for the uncendainty. In the meantime, Yes. 190 00:09:09,880 --> 00:09:12,840 Speaker 1: The price we're going to see not just inequity markets, 191 00:09:12,880 --> 00:09:15,640 Speaker 1: but we're going to see in specific industries. We're going 192 00:09:15,720 --> 00:09:18,920 Speaker 1: to see in energy prices going up. We're going to 193 00:09:19,000 --> 00:09:21,920 Speaker 1: see in disruption to the US auto sector. We're going 194 00:09:22,040 --> 00:09:26,440 Speaker 1: to see in sharp retaliation from Mexico and Canada on 195 00:09:26,600 --> 00:09:29,680 Speaker 1: specific industries. I'm not meaning to be vague by saying 196 00:09:29,679 --> 00:09:33,920 Speaker 1: specific industries, but the point is it's about choke points. 197 00:09:34,160 --> 00:09:37,320 Speaker 1: It's about things that are hard to replace. And the 198 00:09:37,360 --> 00:09:40,240 Speaker 1: big thing, as studies we've done in Peterson's saying, which 199 00:09:40,280 --> 00:09:43,400 Speaker 1: is intuitive, is there's some range over which you put 200 00:09:43,400 --> 00:09:45,760 Speaker 1: on a tariff and everybody's like, Okay, it's a price rise, 201 00:09:45,800 --> 00:09:49,280 Speaker 1: it's annoying, we'll deal with it. There's another range where 202 00:09:49,320 --> 00:09:53,640 Speaker 1: it's like you're imposing shortages like you did during COVID 203 00:09:53,400 --> 00:09:57,680 Speaker 1: that that suddenly it becomes unaffordable or inaccessible to get 204 00:09:57,720 --> 00:09:59,960 Speaker 1: certain things you need, and that's when you start getting 205 00:10:00,040 --> 00:10:03,160 Speaker 1: big macro effects. So I agree John with the people 206 00:10:03,160 --> 00:10:06,080 Speaker 1: who say the underlying strength of the US economy is there. 207 00:10:06,559 --> 00:10:09,199 Speaker 4: But this is frankly not s t. 208 00:10:09,400 --> 00:10:12,120 Speaker 1: Canada and Mexico A our two largest trading partners. We're 209 00:10:12,160 --> 00:10:16,200 Speaker 1: at peace with them, their military allies, their democracies, and 210 00:10:16,280 --> 00:10:19,800 Speaker 1: our auto sector and our food sector are incredibly integrated. 211 00:10:20,720 --> 00:10:21,720 Speaker 1: So this is gonna hurt. 212 00:10:21,960 --> 00:10:24,320 Speaker 5: But Trump hates trade deficits, so he will do anything 213 00:10:24,360 --> 00:10:27,040 Speaker 5: he can to try to bring that deficit down or 214 00:10:27,040 --> 00:10:30,640 Speaker 5: maybe bring up negotiations for USMCA. What do you think 215 00:10:31,000 --> 00:10:34,320 Speaker 5: is the underlying drive for these types of teriffs that, 216 00:10:34,720 --> 00:10:37,360 Speaker 5: based on my conversations, I'd be more shocked if we 217 00:10:37,440 --> 00:10:41,080 Speaker 5: don't see them happen tomorrow. Is it a negotiation tool 218 00:10:41,200 --> 00:10:42,240 Speaker 5: or he wants to keep them. 219 00:10:42,120 --> 00:10:46,480 Speaker 1: On emery I I think you're reporting your senses right. 220 00:10:47,240 --> 00:10:50,720 Speaker 1: We we've been talking for months about expecting that the 221 00:10:50,800 --> 00:10:54,360 Speaker 1: terrafs would really happen. I think it's much more likely 222 00:10:54,440 --> 00:10:58,120 Speaker 1: the negotiations in the end go well with Canada than 223 00:10:58,160 --> 00:11:03,480 Speaker 1: with Mexico. But the thing is, twenty five percent, even 224 00:11:03,520 --> 00:11:06,240 Speaker 1: if you exempt certain things, is an enormous number. This 225 00:11:06,400 --> 00:11:08,199 Speaker 1: is you know when people say, oh, the tariffs under 226 00:11:08,200 --> 00:11:10,920 Speaker 1: Trump one, we're not inflationary. Those were a couple percent 227 00:11:11,600 --> 00:11:15,560 Speaker 1: in a few industries. This is very wide tariffs at 228 00:11:15,600 --> 00:11:18,479 Speaker 1: a very high level, with major retaliation. 229 00:11:18,760 --> 00:11:20,800 Speaker 5: So let's talk about this scope. Do you think oil 230 00:11:20,920 --> 00:11:23,040 Speaker 5: is really on the table? Trump kind of flirted with 231 00:11:23,080 --> 00:11:24,719 Speaker 5: it yesterday in the Oval Office. 232 00:11:26,400 --> 00:11:27,040 Speaker 4: We don't know. 233 00:11:27,280 --> 00:11:29,440 Speaker 1: It doesn't make any sense to put oil on the 234 00:11:29,480 --> 00:11:31,560 Speaker 1: table because then you're saying, Okay, I want to buy 235 00:11:31,559 --> 00:11:33,480 Speaker 1: more from Saudi or Russia. I just want to go 236 00:11:33,520 --> 00:11:35,240 Speaker 1: back to your last point, which is right, which is 237 00:11:35,280 --> 00:11:38,800 Speaker 1: how much is it negotiating versus keeping it on? The 238 00:11:38,840 --> 00:11:41,679 Speaker 1: fear is and I think what the market should fear 239 00:11:42,200 --> 00:11:44,080 Speaker 1: is that they're going to put on this across the 240 00:11:44,080 --> 00:11:47,599 Speaker 1: board minimum of tariffs as part of the tax package, 241 00:11:47,760 --> 00:11:51,199 Speaker 1: and then we're in an entirely different world. It's a 242 00:11:51,960 --> 00:11:55,160 Speaker 1: it's a revenue raiser. On net, it's probably bad for growth, 243 00:11:55,320 --> 00:11:57,480 Speaker 1: and on net it's not going to raise enough revenue. 244 00:11:57,520 --> 00:11:59,040 Speaker 4: But that would be the justification. 245 00:11:59,400 --> 00:12:01,480 Speaker 5: Can you go through what you would expect in your 246 00:12:01,520 --> 00:12:05,080 Speaker 5: base case as retaliatory because Trump is talking about potentially 247 00:12:05,640 --> 00:12:09,480 Speaker 5: tariffs on Canadian crude, but for Canada, that would be 248 00:12:09,520 --> 00:12:12,040 Speaker 5: the nuclear option for an export teriff, right. 249 00:12:12,160 --> 00:12:14,760 Speaker 1: I mean, it's like when they complain, you know that, 250 00:12:15,080 --> 00:12:17,280 Speaker 1: oh my god, China's gonna cut us off from something. 251 00:12:17,320 --> 00:12:19,880 Speaker 1: So imagine if Canada cut us off from oil. Think 252 00:12:19,920 --> 00:12:23,000 Speaker 1: about you know, in the nineteen seventy three oil crisis, 253 00:12:23,080 --> 00:12:26,880 Speaker 1: when the Petro States decided to cut the US off oil. 254 00:12:27,200 --> 00:12:29,080 Speaker 1: How is that good for the US? I mean, it's 255 00:12:29,120 --> 00:12:29,920 Speaker 1: it's destructive. 256 00:12:30,360 --> 00:12:33,400 Speaker 2: So madam, the federal serve is gonna prepare for all eventualities. 257 00:12:33,760 --> 00:12:35,839 Speaker 2: You warn't back in August, they should prepare for them. 258 00:12:35,840 --> 00:12:39,280 Speaker 2: We talked about this repeatedly six months later. Whatever it is, 259 00:12:39,440 --> 00:12:41,800 Speaker 2: are you more comfortable with where the FED is now 260 00:12:42,200 --> 00:12:44,000 Speaker 2: compared to where they work going into the end of 261 00:12:44,000 --> 00:12:44,280 Speaker 2: the year. 262 00:12:44,720 --> 00:12:48,600 Speaker 1: I'm more comfortable than I'm not yet comfortable. I mean, 263 00:12:48,640 --> 00:12:51,000 Speaker 1: the FED has the luxury because the fund again, the 264 00:12:51,000 --> 00:12:54,000 Speaker 1: fundamentals of the US economy are quite good, and we've 265 00:12:54,000 --> 00:12:56,760 Speaker 1: been getting good news and productivity, as we've also talked about, 266 00:12:57,240 --> 00:12:59,959 Speaker 1: So the FED has something of the luxury. 267 00:13:00,080 --> 00:13:00,920 Speaker 4: It's not a crisis. 268 00:13:00,960 --> 00:13:03,080 Speaker 1: They don't have to make up their minds now, but 269 00:13:03,600 --> 00:13:06,439 Speaker 1: they keep having this inertia of saying, well, we're maybe 270 00:13:06,480 --> 00:13:07,960 Speaker 1: not going to cut as much, but we're still going 271 00:13:08,040 --> 00:13:11,120 Speaker 1: to cut now on the fundamentals of the US economy. 272 00:13:11,120 --> 00:13:13,400 Speaker 1: The idea that they need to keep cutting was already 273 00:13:13,559 --> 00:13:17,040 Speaker 1: I think arguably a mistake. So then comes this issue 274 00:13:17,120 --> 00:13:20,360 Speaker 1: of tariffs. Do they play hamlet and agonize, Oh, is 275 00:13:20,400 --> 00:13:22,959 Speaker 1: it a first round, one off effect and we got 276 00:13:23,000 --> 00:13:25,880 Speaker 1: to wait to see whether it goes beyond oil or 277 00:13:25,920 --> 00:13:30,280 Speaker 1: beyond autos, or do they say, hey, in a world 278 00:13:30,360 --> 00:13:35,560 Speaker 1: we're close to full employment, there's pricing power, we're creating shortage. 279 00:13:35,559 --> 00:13:37,880 Speaker 2: There is pricing power. You don't think there's a prices 280 00:13:37,920 --> 00:13:40,680 Speaker 2: will have to just stomach this and igets. 281 00:13:40,840 --> 00:13:41,679 Speaker 4: I don't think so. 282 00:13:42,040 --> 00:13:45,199 Speaker 1: I mean, the evidence is not the so called greenflation 283 00:13:45,280 --> 00:13:48,240 Speaker 1: that was always a myth, but the evidence is not 284 00:13:48,400 --> 00:13:51,440 Speaker 1: every industry, but most industries. The companies do have pricing power. 285 00:13:51,440 --> 00:13:53,880 Speaker 1: I mean, when the economy is growing well over two percent, 286 00:13:54,920 --> 00:13:58,760 Speaker 1: people are buying when we had an inventory correction. Otherwise, 287 00:13:58,760 --> 00:14:01,040 Speaker 1: as Jason Furman's pointed out, the underlying strength of the 288 00:14:01,120 --> 00:14:03,200 Speaker 1: US economy is even stronger than the two point three 289 00:14:03,280 --> 00:14:08,120 Speaker 1: number we had. The idea that there's no pricing power 290 00:14:08,200 --> 00:14:09,240 Speaker 1: is just strange. 291 00:14:09,280 --> 00:14:11,439 Speaker 2: I think this conversation is important because it's difficult to 292 00:14:11,480 --> 00:14:13,480 Speaker 2: sit here and say, I think the President will do 293 00:14:13,520 --> 00:14:15,720 Speaker 2: excel why this we can We've got to think about 294 00:14:15,800 --> 00:14:18,600 Speaker 2: how inflation prone this economy might be. When you think 295 00:14:18,640 --> 00:14:22,320 Speaker 2: about sources of inflation at the moment, whether it be energy, labor, goods, 296 00:14:22,400 --> 00:14:24,720 Speaker 2: or services. What is it about the current state of 297 00:14:24,760 --> 00:14:27,280 Speaker 2: things that you think this economy is more inflation prone 298 00:14:27,280 --> 00:14:29,600 Speaker 2: than maybe the Federal Reserve themselves my belief. 299 00:14:30,040 --> 00:14:33,960 Speaker 1: I think there's two categories shown. There's the pre existing 300 00:14:34,200 --> 00:14:37,160 Speaker 1: underlying economics and then there's the Trump tariffs and other 301 00:14:37,160 --> 00:14:40,560 Speaker 1: effects on the pre existing The economy's inflation prone because 302 00:14:40,560 --> 00:14:43,560 Speaker 1: financial conditions are not tight. They're just slightly tight in 303 00:14:44,040 --> 00:14:47,280 Speaker 1: residential real estate and otherwise not. I think we're inflation 304 00:14:47,440 --> 00:14:52,080 Speaker 1: prone because for all the talk about energy deregulation, we've 305 00:14:52,120 --> 00:14:55,200 Speaker 1: seen how that's actually not a major determinant of inflation. 306 00:14:55,280 --> 00:14:55,440 Speaker 4: Right. 307 00:14:55,560 --> 00:14:58,040 Speaker 1: Energy prices came down enormously in the last year of 308 00:14:58,120 --> 00:15:00,640 Speaker 1: the Biden administration, and that wasn't an to make up 309 00:15:00,640 --> 00:15:06,000 Speaker 1: of inflation. And we're inflation prone because the fat hasn't 310 00:15:06,040 --> 00:15:09,280 Speaker 1: lost huge amounts of credibility, but we're not down to target, 311 00:15:09,400 --> 00:15:11,480 Speaker 1: and it is a few years later, and the memory 312 00:15:11,520 --> 00:15:14,960 Speaker 1: of inflation is very strong. That's the fundamentals. Then on Trump, 313 00:15:15,400 --> 00:15:19,080 Speaker 1: we've just talked about tariffs again. In theory, you could 314 00:15:19,080 --> 00:15:22,160 Speaker 1: have a tariff that's just a price shift, like anything 315 00:15:22,200 --> 00:15:25,320 Speaker 1: that's not Canadian and Mexican becomes relatively cheaper. But in 316 00:15:25,360 --> 00:15:28,400 Speaker 1: practice it's going to be experienced as inflation, and then 317 00:15:28,440 --> 00:15:31,120 Speaker 1: people will want to catch up with prices and wages. 318 00:15:31,600 --> 00:15:35,360 Speaker 1: But also the anti migration stuff, leave aside the human rights. 319 00:15:35,360 --> 00:15:39,920 Speaker 1: The anti migration stuff is partly recessionary, partly inflationary because 320 00:15:39,960 --> 00:15:43,480 Speaker 1: it creates shortages of labor in certain industries like home 321 00:15:43,520 --> 00:15:49,080 Speaker 1: health care, residential construction, food harvesting, the native workers documented 322 00:15:49,120 --> 00:15:52,960 Speaker 1: workers don't want to do and then you've got potentially 323 00:15:53,040 --> 00:15:54,640 Speaker 1: and this is going to be a lag. This is 324 00:15:54,720 --> 00:15:57,080 Speaker 1: a few months down the road, very large tax cuts. 325 00:15:57,120 --> 00:15:59,480 Speaker 1: And even if I'm mad, as Van Marie rightly says, 326 00:15:59,520 --> 00:16:01,880 Speaker 1: you get some revenue from the terraffs, it's nothing to 327 00:16:01,920 --> 00:16:03,480 Speaker 1: compare to the size of the tax cunt. 328 00:16:03,760 --> 00:16:05,280 Speaker 4: So if you're the Fed and you're. 329 00:16:05,160 --> 00:16:08,800 Speaker 1: Not just supposed to be reacting data dependent, but you're 330 00:16:08,800 --> 00:16:11,480 Speaker 1: actually supposed to be looking at the forecast, it's very 331 00:16:11,480 --> 00:16:13,600 Speaker 1: hard for me to understand why they're not pivoting more. 332 00:16:13,920 --> 00:16:15,760 Speaker 2: Just quickly, your base case is the next moves a 333 00:16:15,840 --> 00:16:18,840 Speaker 2: hike and not account. 334 00:16:18,880 --> 00:16:21,840 Speaker 1: My base case remains that by September they'll be hiking. 335 00:16:22,080 --> 00:16:24,480 Speaker 1: They may make a further mistake and cut once more. 336 00:16:24,760 --> 00:16:27,280 Speaker 1: I hope not, but by the base cases, by September 337 00:16:27,320 --> 00:16:27,680 Speaker 1: they'll hike. 338 00:16:27,800 --> 00:16:29,560 Speaker 2: It's quite a cool but you've been making it for 339 00:16:29,600 --> 00:16:31,480 Speaker 2: quite a while. I appreciate it, Adam, Thank you, sir, 340 00:16:31,520 --> 00:16:33,160 Speaker 2: thank you. Imagine it's not the call you wanted to make. 341 00:16:33,240 --> 00:16:43,240 Speaker 2: Either Adam posting there of the Pederson Institute. 342 00:16:44,880 --> 00:16:46,000 Speaker 4: Let's turn back to the markets. 343 00:16:46,000 --> 00:16:48,440 Speaker 2: Tech stocks leading gains this morning after a week of 344 00:16:48,480 --> 00:16:51,680 Speaker 2: mixed earnings and news of China's Deep Seek AI breakthrough. 345 00:16:51,920 --> 00:16:54,960 Speaker 2: Noria Rabini of NYU Stern and Hudson Bay Capital taking 346 00:16:55,000 --> 00:16:57,640 Speaker 2: a bullish stance posting on X earlier this week, and 347 00:16:57,720 --> 00:17:00,640 Speaker 2: my modest opinion the Deep Seek surprise is country intuitively 348 00:17:00,760 --> 00:17:04,000 Speaker 2: over time bullish for US and global stocks, as it 349 00:17:04,040 --> 00:17:07,760 Speaker 2: is another positive global accurcate supply shock that increases US 350 00:17:07,760 --> 00:17:12,640 Speaker 2: and global potential growth and makes exponential AI even more exponential. 351 00:17:12,880 --> 00:17:14,720 Speaker 2: No realtal just now for more. I always going to 352 00:17:14,720 --> 00:17:17,119 Speaker 2: say a buddy seen John, we must pick up on 353 00:17:17,160 --> 00:17:19,040 Speaker 2: that theme. Why do you think this is good news 354 00:17:19,040 --> 00:17:22,040 Speaker 2: and you believe it is the real deal? Export compliance 355 00:17:22,119 --> 00:17:23,920 Speaker 2: only costs five six million dollars. 356 00:17:24,760 --> 00:17:26,720 Speaker 4: No, of course, in. 357 00:17:26,720 --> 00:17:31,359 Speaker 6: Spite of the restrictions, probably got more GPU Navidia and 358 00:17:31,440 --> 00:17:34,960 Speaker 6: otherwise the INDUS five k probably one hundred thousand are 359 00:17:35,000 --> 00:17:37,439 Speaker 6: in the costs where much more and so on and 360 00:17:37,480 --> 00:17:40,639 Speaker 6: so still it's not the twenty x improvement. Maybe it's 361 00:17:41,040 --> 00:17:44,040 Speaker 6: two or three x. But my point was that if 362 00:17:44,040 --> 00:17:46,920 Speaker 6: this is true, even to a two three x extent 363 00:17:47,480 --> 00:17:51,760 Speaker 6: is one of the biggest total factor productivity increases in 364 00:17:52,119 --> 00:17:56,159 Speaker 6: human history literally and should be increasing potential growth, not 365 00:17:56,320 --> 00:17:59,439 Speaker 6: just in China. The reinforce learning can be used by 366 00:17:59,480 --> 00:18:02,320 Speaker 6: everybody's open source. It's going to use it, and it's 367 00:18:02,320 --> 00:18:05,280 Speaker 6: going to increase also not only the productivity of those 368 00:18:05,280 --> 00:18:07,600 Speaker 6: who are producer of eyes, but more importantly of the 369 00:18:07,640 --> 00:18:10,320 Speaker 6: consumers of ice. So if it's really true, and I 370 00:18:10,320 --> 00:18:13,040 Speaker 6: think it's an intergiative process, we all learn from each other, 371 00:18:13,080 --> 00:18:16,240 Speaker 6: we all distilled from each other within the US, within 372 00:18:16,400 --> 00:18:19,199 Speaker 6: China and US and others. It increases the fact that 373 00:18:19,240 --> 00:18:21,080 Speaker 6: the AI is going to change the world for the better. 374 00:18:21,359 --> 00:18:24,480 Speaker 6: It will be a significant increase in potential growth in 375 00:18:24,520 --> 00:18:28,160 Speaker 6: the United States and also globally. So over the medium term, 376 00:18:28,240 --> 00:18:31,760 Speaker 6: this should be actually positive for US and global stock markets, 377 00:18:31,800 --> 00:18:35,119 Speaker 6: not negatives. So the reaction I think initially a Monday 378 00:18:35,240 --> 00:18:37,879 Speaker 6: was totally excessive, And the fact that now there's been 379 00:18:37,920 --> 00:18:40,800 Speaker 6: some retracing over the week is people are digesting the 380 00:18:41,000 --> 00:18:43,600 Speaker 6: news and saying this is not the shock that we thought. 381 00:18:43,640 --> 00:18:47,160 Speaker 2: It was positive stocks, positive for the economy, for economic growth. 382 00:18:47,359 --> 00:18:49,359 Speaker 2: I think it's positive for society. 383 00:18:50,920 --> 00:18:53,560 Speaker 6: Well, you know, There's been a huge debate about what 384 00:18:53,600 --> 00:18:57,880 Speaker 6: are the risks of AI as opposed to the benefits 385 00:18:57,960 --> 00:19:01,760 Speaker 6: of AI. I think in part political and philosophical question. 386 00:19:01,880 --> 00:19:06,120 Speaker 6: We know the information, this information, the risk of increase 387 00:19:06,560 --> 00:19:10,199 Speaker 6: cyber warfare eventually is to humanity and so on. But 388 00:19:10,240 --> 00:19:14,720 Speaker 6: I would say on net AI, like any other teological innovation, 389 00:19:15,200 --> 00:19:18,080 Speaker 6: is going to lead to an increase in both proditivy growth, 390 00:19:18,160 --> 00:19:20,679 Speaker 6: potential growth, and human welfare. We may be able to 391 00:19:20,680 --> 00:19:23,840 Speaker 6: live until not ninety one hundred, one hundred and twenty. 392 00:19:24,080 --> 00:19:27,119 Speaker 6: Longevity helped you name it. So it's a benefit to 393 00:19:27,160 --> 00:19:31,040 Speaker 6: society overall. And there are side consequences and problems and 394 00:19:31,160 --> 00:19:33,440 Speaker 6: risk and where to manage them. And I think that 395 00:19:33,480 --> 00:19:36,240 Speaker 6: the regulation of the EYE is going to be very complicated, 396 00:19:36,280 --> 00:19:38,920 Speaker 6: probably like the Internet. We're going to do it too little, 397 00:19:38,960 --> 00:19:40,639 Speaker 6: too late, and then we're going to realize there are 398 00:19:40,680 --> 00:19:41,240 Speaker 6: some mistakes. 399 00:19:41,280 --> 00:19:43,280 Speaker 2: If I clipt what you just said and use some 400 00:19:43,320 --> 00:19:45,639 Speaker 2: AI and took out some words and replaced the II 401 00:19:45,800 --> 00:19:48,639 Speaker 2: with globalization, yeah, when we send the same thing a 402 00:19:48,640 --> 00:19:49,440 Speaker 2: few decades ago. 403 00:19:50,480 --> 00:19:54,360 Speaker 6: Well, globalization that is being bashed right now by everybody 404 00:19:54,920 --> 00:19:58,080 Speaker 6: led to an increase in huge amounts of welfare for 405 00:19:58,160 --> 00:20:01,439 Speaker 6: business of people under world two poincisely Chinians and others 406 00:20:01,440 --> 00:20:04,320 Speaker 6: and so on, and even in advanced economies so great 407 00:20:04,359 --> 00:20:06,960 Speaker 6: and globalization and trichnology are the same. Thing is a 408 00:20:07,000 --> 00:20:10,520 Speaker 6: ways of increasing productivity growth. There'll be a backlash, But 409 00:20:10,560 --> 00:20:13,200 Speaker 6: I think that the backlash is going to come on 410 00:20:13,320 --> 00:20:16,159 Speaker 6: AI is that there will be massive amounts of job displacement. 411 00:20:16,840 --> 00:20:19,879 Speaker 6: Job augmentation will be initially, but then jobs well, this 412 00:20:19,960 --> 00:20:22,359 Speaker 6: is what is going to be, and then there'll be 413 00:20:22,840 --> 00:20:24,440 Speaker 6: UBI or other things to result it. 414 00:20:24,560 --> 00:20:28,280 Speaker 2: AI do the services. What globalization did to manufacturing is 415 00:20:28,280 --> 00:20:31,080 Speaker 2: a question. I keep going back to how many people 416 00:20:31,080 --> 00:20:34,200 Speaker 2: are going to be satisfied with just UPI I don't 417 00:20:34,200 --> 00:20:35,920 Speaker 2: want to sit at home, do nothing and get paid 418 00:20:35,920 --> 00:20:39,520 Speaker 2: by the government. We aspire as human beings to be better, 419 00:20:39,800 --> 00:20:42,720 Speaker 2: to improve, to climb the social ladder. 420 00:20:43,119 --> 00:20:46,879 Speaker 6: A lot of people in a world of scarcity, of course, 421 00:20:46,920 --> 00:20:49,879 Speaker 6: the dignity of life was to provide for yourself and 422 00:20:49,920 --> 00:20:52,440 Speaker 6: for your family and go and look for water, food, 423 00:20:52,480 --> 00:20:55,480 Speaker 6: shelter every day. In a world in which scarcity becomes 424 00:20:55,560 --> 00:20:58,160 Speaker 6: less of a constraint, we have to produce see less 425 00:20:58,200 --> 00:20:59,760 Speaker 6: because the robots are going to do it, and we 426 00:20:59,800 --> 00:21:02,880 Speaker 6: can consume more. You're right that you guys saying what's 427 00:21:02,920 --> 00:21:04,760 Speaker 6: the meaning of life in that situation? 428 00:21:05,119 --> 00:21:06,359 Speaker 4: It's a philosophical question. 429 00:21:06,400 --> 00:21:09,360 Speaker 6: And John manakas and at thirty said, once we get 430 00:21:09,359 --> 00:21:11,760 Speaker 6: this technology innovation, it's going to work only ten hours 431 00:21:11,960 --> 00:21:14,800 Speaker 6: than sixty hours, and we'll become poets, artists, creators and 432 00:21:14,840 --> 00:21:17,640 Speaker 6: whatever not. Maybe the nature of life is going to change. 433 00:21:17,680 --> 00:21:20,040 Speaker 6: Maybe with AGI, we have to merge with the machine, 434 00:21:20,080 --> 00:21:22,800 Speaker 6: because if we don't merge with the machine, become hyper 435 00:21:22,840 --> 00:21:25,359 Speaker 6: intelligent and we become obsolete, and then there's going to 436 00:21:25,400 --> 00:21:27,680 Speaker 6: be a new species. It's not going to be almost appiens, 437 00:21:27,680 --> 00:21:30,120 Speaker 6: but all more robot because then it's going to take decades. 438 00:21:30,480 --> 00:21:32,080 Speaker 4: Those an important philosophical question. 439 00:21:32,119 --> 00:21:35,359 Speaker 6: But I would argue provocatively that twenty years from now, 440 00:21:35,680 --> 00:21:39,960 Speaker 6: potential growth probably could be eighty percent sorry eight percent, 441 00:21:40,440 --> 00:21:43,480 Speaker 6: and unemployment rate could be eighty percent. We are going 442 00:21:43,520 --> 00:21:45,399 Speaker 6: in that direction over time, and then we have to 443 00:21:45,440 --> 00:21:48,000 Speaker 6: manage the concelet and UBI, by the way, cannot be 444 00:21:48,040 --> 00:21:50,320 Speaker 6: only national, because the winners and losers are going to 445 00:21:50,640 --> 00:21:54,160 Speaker 6: be only internal, butle so across countries, does we innovate 446 00:21:54,280 --> 00:21:56,960 Speaker 6: get better off compared to those who don't innovate. Can 447 00:21:57,000 --> 00:21:59,240 Speaker 6: we have a system of global governance that has a 448 00:21:59,280 --> 00:22:03,960 Speaker 6: cross border I mean, those are big issues global governance, well, 449 00:22:04,040 --> 00:22:08,520 Speaker 6: a form of global governance cooperation actually, But if. 450 00:22:08,440 --> 00:22:11,440 Speaker 5: You use deep sea today you can't even find out 451 00:22:11,440 --> 00:22:14,159 Speaker 5: things about the Chinese Communist Party, things like tenements square. 452 00:22:14,240 --> 00:22:16,720 Speaker 5: How are you supposed to have global government with these 453 00:22:16,800 --> 00:22:17,560 Speaker 5: kinds of countries. 454 00:22:18,560 --> 00:22:20,920 Speaker 6: I think what's going to happen is that over time, 455 00:22:21,080 --> 00:22:24,720 Speaker 6: given the geopolitical divisions within US and China, the Wall 456 00:22:24,840 --> 00:22:27,119 Speaker 6: is going to be divided in two. There'll be a 457 00:22:27,160 --> 00:22:30,199 Speaker 6: group of countries US with its friends and allies and 458 00:22:30,280 --> 00:22:34,400 Speaker 6: others in the global cells. We prefer the economic, monetary, social, political, 459 00:22:34,440 --> 00:22:37,080 Speaker 6: geopolical system of the US and the West. Someone the 460 00:22:37,080 --> 00:22:39,440 Speaker 6: global's are are going to go with us, and there'll 461 00:22:39,480 --> 00:22:41,200 Speaker 6: be other going to go with the model of China, 462 00:22:41,720 --> 00:22:46,560 Speaker 6: but model economic trade instate, capitalist geopolitical security via right 463 00:22:46,640 --> 00:22:49,359 Speaker 6: technology and whatever not, and there'll be a split world. 464 00:22:49,640 --> 00:22:52,760 Speaker 6: But within the West, if there are and those friends 465 00:22:52,760 --> 00:22:55,960 Speaker 6: and allies, if there are winners and losers within countries 466 00:22:56,040 --> 00:22:58,760 Speaker 6: or across countries, we'll have a system of transfers. I mean, 467 00:22:58,760 --> 00:23:02,560 Speaker 6: we've been subsidizing the defense of our friends and allies 468 00:23:02,760 --> 00:23:05,520 Speaker 6: from Asia to Europe for now eighty years because it 469 00:23:05,600 --> 00:23:07,639 Speaker 6: was in the global interests of the United States. So 470 00:23:07,680 --> 00:23:11,080 Speaker 6: if we need to do global UBI across friends and 471 00:23:11,119 --> 00:23:13,320 Speaker 6: allies and others part of our systems, we're going to 472 00:23:13,320 --> 00:23:15,280 Speaker 6: do it. But that's the world we're going and Chinese 473 00:23:15,320 --> 00:23:17,720 Speaker 6: doing the same thing. We have to subsidize our friends, 474 00:23:17,720 --> 00:23:18,200 Speaker 6: and they'll. 475 00:23:18,040 --> 00:23:19,639 Speaker 4: Do the same. Unpatched a fund of the world to 476 00:23:19,680 --> 00:23:21,080 Speaker 4: describe what nothing to do with it. 477 00:23:21,200 --> 00:23:24,720 Speaker 5: And this is not here and it's essential, Lisa is 478 00:23:24,760 --> 00:23:27,080 Speaker 5: not even here, and it's gone very existential this conversation 479 00:23:27,680 --> 00:23:32,080 Speaker 5: when it comes to this idea of our global regulation 480 00:23:32,560 --> 00:23:36,000 Speaker 5: on AI. Do you think Trump will use AI right 481 00:23:36,000 --> 00:23:38,240 Speaker 5: now in the next four years as a bargaining chip 482 00:23:38,280 --> 00:23:40,840 Speaker 5: as he tries to work on global realignment when it 483 00:23:40,840 --> 00:23:41,720 Speaker 5: comes to trade. 484 00:23:42,240 --> 00:23:44,159 Speaker 4: Oh, he will actually buy them. 485 00:23:44,240 --> 00:23:47,800 Speaker 6: Right before he left in early January, had this new 486 00:23:47,920 --> 00:23:51,560 Speaker 6: AI diffusion rule that divides essentially the world in the 487 00:23:52,000 --> 00:23:55,240 Speaker 6: three group of countries Tier one, Tier two, Tier three. 488 00:23:55,760 --> 00:23:59,439 Speaker 6: If you are part of the global technological order of 489 00:23:59,440 --> 00:24:01,680 Speaker 6: the United time States and you accept all the rules 490 00:24:01,680 --> 00:24:04,800 Speaker 6: and the security, you have access to unlimited amounts of 491 00:24:04,880 --> 00:24:09,200 Speaker 6: advanced chips of Navidian others. You have access to all 492 00:24:09,280 --> 00:24:11,879 Speaker 6: the AI models, you can have access to building the 493 00:24:11,960 --> 00:24:15,280 Speaker 6: data center, and you're part of our own technological sphere, 494 00:24:15,520 --> 00:24:19,720 Speaker 6: and we set the rule of essentially within that type 495 00:24:19,760 --> 00:24:21,919 Speaker 6: of Tier one, we are deciding you utterly. 496 00:24:22,160 --> 00:24:23,120 Speaker 4: It's not a question. 497 00:24:22,920 --> 00:24:26,000 Speaker 6: About regulating AI, but who is our friend and ally 498 00:24:26,080 --> 00:24:29,360 Speaker 6: And even within NATO, there are only so far eighteen 499 00:24:29,400 --> 00:24:32,960 Speaker 6: countries that qualify for tierue. Not all NATO countries do. 500 00:24:33,320 --> 00:24:36,159 Speaker 6: Of course, the countries in the Big Big Five I 501 00:24:36,400 --> 00:24:39,359 Speaker 6: are part of some of the other NATO members, plenty 502 00:24:39,359 --> 00:24:41,720 Speaker 6: of countries are not. Tier two is mostly in the 503 00:24:41,760 --> 00:24:45,520 Speaker 6: Global South and everybody else. Of course, China arrivels are two, 504 00:24:45,600 --> 00:24:47,840 Speaker 6: three and so on. So the US is going to 505 00:24:47,920 --> 00:24:51,080 Speaker 6: set the rules of the global technological order, and it's 506 00:24:51,080 --> 00:24:53,720 Speaker 6: going to do it totally unilatterally. And it's either you're 507 00:24:53,760 --> 00:24:56,480 Speaker 6: with me, because I'm setting those technologies and I'm the 508 00:24:56,520 --> 00:24:58,119 Speaker 6: one who's advanced in those technologies. 509 00:24:58,200 --> 00:25:00,880 Speaker 4: Then you can use the chips, you can of the application, 510 00:25:00,960 --> 00:25:01,479 Speaker 4: you can do that. 511 00:25:01,480 --> 00:25:04,400 Speaker 6: That's a center with me, or otherwise you're in the doghouse. 512 00:25:04,600 --> 00:25:06,520 Speaker 2: I wanted to squeeze it one more questions. The Europeans 513 00:25:06,560 --> 00:25:10,040 Speaker 2: would be Europeans would be deeply upset with this conversation. 514 00:25:10,080 --> 00:25:11,080 Speaker 4: I'm showingus no, but. 515 00:25:11,280 --> 00:25:14,160 Speaker 6: They already accepted it. The same thing happened with data centers, 516 00:25:14,240 --> 00:25:17,400 Speaker 6: right They tried to find an alternative, they were not successful. 517 00:25:17,720 --> 00:25:21,240 Speaker 6: And the hyper scalers are providing those data centers in Europe. 518 00:25:21,240 --> 00:25:22,600 Speaker 4: And maybe that's there. 519 00:25:22,760 --> 00:25:25,960 Speaker 6: They are technically in Europe, but they are controlled by 520 00:25:26,560 --> 00:25:29,280 Speaker 6: WS and Microsoft. Then you name it against today, so 521 00:25:29,280 --> 00:25:30,280 Speaker 6: that's already the world we're in. 522 00:25:30,320 --> 00:25:32,200 Speaker 2: I wanted to squeeze in a word on Stephen Moran 523 00:25:32,359 --> 00:25:34,960 Speaker 2: just quickly worked alongside Hbou Hudson by Capital who you 524 00:25:35,000 --> 00:25:37,800 Speaker 2: represent this morning? Published a really interesting paper at the 525 00:25:37,840 --> 00:25:41,840 Speaker 2: end of last year about activist treasury issuance ATI. 526 00:25:42,240 --> 00:25:43,240 Speaker 4: Now he's in power. 527 00:25:43,280 --> 00:25:46,080 Speaker 2: Now he's in the White House working alongside Donald Trump, 528 00:25:46,119 --> 00:25:48,199 Speaker 2: is an economic codvisor. What's going to happen now? If 529 00:25:48,240 --> 00:25:51,439 Speaker 2: you believe that yan In, the former Treasury secretary was 530 00:25:51,600 --> 00:25:56,040 Speaker 2: issuing treasuries actively at the front end to have different objectives, 531 00:25:56,359 --> 00:25:57,840 Speaker 2: how do we unwind that this time around? Do we 532 00:25:57,880 --> 00:25:58,320 Speaker 2: even try? 533 00:25:59,240 --> 00:26:03,080 Speaker 6: Well? Scott in his confirmation hearing was asked about this, 534 00:26:03,640 --> 00:26:07,080 Speaker 6: and he already said that effectively given the impact on 535 00:26:07,160 --> 00:26:10,119 Speaker 6: long term interest rates, if you phase it out right away, 536 00:26:10,720 --> 00:26:12,480 Speaker 6: it's going to be a shock to long bone neals 537 00:26:12,520 --> 00:26:15,760 Speaker 6: already going higher. In our paper estimated the shot could 538 00:26:15,800 --> 00:26:18,119 Speaker 6: be for the next three years or at least fifty 539 00:26:18,119 --> 00:26:20,840 Speaker 6: business points. So then all that so they're going to 540 00:26:20,840 --> 00:26:24,000 Speaker 6: have to wait and phase it out one gradually and 541 00:26:24,119 --> 00:26:28,520 Speaker 6: two interview when bond yields are going lower, either going 542 00:26:28,560 --> 00:26:32,080 Speaker 6: lower because maybe growth is slower or because inflation is lower. 543 00:26:32,160 --> 00:26:36,600 Speaker 6: So they'll have to opportunistically gradually phase it out over time. 544 00:26:36,640 --> 00:26:37,920 Speaker 6: But it's not going to happen overnight. 545 00:26:38,200 --> 00:26:39,040 Speaker 4: They've already said so. 546 00:26:39,359 --> 00:26:41,560 Speaker 2: Noriel, So it's going to say lost to think about 547 00:26:41,880 --> 00:26:44,439 Speaker 2: scaring me about the future or everything. If m YU 548 00:26:44,560 --> 00:26:47,679 Speaker 2: standing Hudson by campital I want absolutely nothing to do 549 00:26:47,760 --> 00:26:51,640 Speaker 2: with that. This is the Bloomberg Seventans podcast, bringing you 550 00:26:51,920 --> 00:26:55,320 Speaker 2: the best in markets, economics, angiot politics. You can watch 551 00:26:55,359 --> 00:26:58,120 Speaker 2: the show live on Bloomberg TV weekday mornings from six 552 00:26:58,160 --> 00:27:01,720 Speaker 2: am to nine am Eastern. Subscribe to the podcast on Apple, 553 00:27:02,000 --> 00:27:04,840 Speaker 2: Spotify or anywhere else you listen, and as always on 554 00:27:04,880 --> 00:27:07,320 Speaker 2: the Bloomberg Terminal and the Bloomberg Business app. 555 00:27:11,280 --> 00:27:11,679 Speaker 3: M HM