WEBVTT - Bloomberg Surveillance TV: January 30, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.239 Terminal and the Bloomberg Business app. We begin this out 0:00:37.280 --> 0:00:40.360 with stocks rising after results from Apple and Intel. Sebastian 0:00:40.360 --> 0:00:43.000 Page of t Row price, saying he's a reluctant ball. 0:00:43.240 --> 0:00:46.360 We remained slightly overweight starks versus bonds and our position 0:00:46.479 --> 0:00:49.239 for the stock market to broaden. However, we're starting to 0:00:49.280 --> 0:00:51.720 take profit. Sebastian joins us now for more. Soeb it's 0:00:51.720 --> 0:00:53.440 good to see you, great to see you. Where are 0:00:53.440 --> 0:00:54.480 you taking profits, sir? 0:00:55.120 --> 0:00:58.640 We're selling some starks. We're going to remain so overweight 0:00:58.720 --> 0:01:03.480 for now, putting the proceeds in cash so or underweight bonds, 0:01:04.319 --> 0:01:07.760 and we're also selling some high yield We're splitting the 0:01:07.800 --> 0:01:12.360 proceeds between cash and bank loans, which I think are 0:01:12.360 --> 0:01:15.320 attractive when rates surprise on the upside a little bit. 0:01:15.319 --> 0:01:17.640 They're kind of negative duration, if you will. 0:01:17.880 --> 0:01:20.600 So two points to make care. One why you're selling, 0:01:20.680 --> 0:01:22.920 and the second why you're allocating the proceeds the way 0:01:22.920 --> 0:01:23.600 you're allocating them. 0:01:23.680 --> 0:01:25.880 Let's start with why you're selling. Why are you selling? 0:01:25.880 --> 0:01:27.640 Why are you coming out of stocks just a little 0:01:27.640 --> 0:01:30.119 bit and selling down high yield just a little bit. 0:01:30.600 --> 0:01:33.200 Okay, I'm going to give you the most consensus narrative, 0:01:33.319 --> 0:01:34.360 the most boring narrative. 0:01:34.440 --> 0:01:34.959 Go ahead. 0:01:35.160 --> 0:01:39.200 Okay, we're Friday. Yeah, we're confident in the economy. The 0:01:39.240 --> 0:01:43.560 economy looks just fine. But we're worried about valuation. And 0:01:43.680 --> 0:01:46.360 I wur surveillance every day and everyone's on that boat. 0:01:46.680 --> 0:01:50.520 But evaluations are expensive. And you know at twenty two 0:01:50.680 --> 0:01:53.080 four earnings price earnings ratio on the S and P, 0:01:53.200 --> 0:01:55.880 it's high. In twenty twenty one, remember all the speculation 0:01:56.000 --> 0:01:58.400 we had. Does it start to you to feel a 0:01:58.400 --> 0:02:01.480 little bit like twenty twenty one? You know someone in 0:02:01.520 --> 0:02:04.880 twenty one, someone bought a jpeg of a rock. Remember 0:02:05.000 --> 0:02:08.600 one point three million? And when I say that, to clients. 0:02:08.639 --> 0:02:11.120 They always reply that someone just bought a banana taped 0:02:11.160 --> 0:02:14.080 to a wall for six million, so they're starting to 0:02:14.280 --> 0:02:15.280 feel expensive. 0:02:15.480 --> 0:02:17.840 What do you point into this frothy though, That's what 0:02:17.880 --> 0:02:18.600 I want to get into. 0:02:18.639 --> 0:02:20.280 Where do you see the froth right now? 0:02:20.560 --> 0:02:22.040 Overall stock valuations? 0:02:23.280 --> 0:02:23.760 Overall? 0:02:23.800 --> 0:02:26.360 And I say wrong because there's some stocks that are 0:02:26.639 --> 0:02:29.280 quite fairly priced in the world, so we're positioned for 0:02:29.320 --> 0:02:30.360 the market to broaden. 0:02:30.560 --> 0:02:33.760 But also credit spreads. Credit spreads really tight by. 0:02:33.760 --> 0:02:35.680 Historical stand what's fairly priced right now? 0:02:36.160 --> 0:02:38.720 I think, look, if you look at the average stock 0:02:38.800 --> 0:02:42.079 in the world, you get a price earnings ratio of fourteen. 0:02:42.600 --> 0:02:45.919 That's actually the long run average for the average stock 0:02:45.960 --> 0:02:49.359 in the world. So that means that you have smaller caps, 0:02:49.520 --> 0:02:53.440 value international, small gaps. Yeah, pretty much everything but the 0:02:53.520 --> 0:02:56.760 technology sector, and they're parts of the technology sector that 0:02:56.919 --> 0:02:59.919 are also fairly valued. But it's all about the broadening. 0:03:00.000 --> 0:03:02.200 I think we're approaching peak concentration. 0:03:02.800 --> 0:03:04.720 People have been saying this for months, and actually they've 0:03:04.720 --> 0:03:06.360 been saying it for an entire year. John start of 0:03:06.360 --> 0:03:08.680 the conversation saying, you're reluctant bull, So is that what 0:03:08.840 --> 0:03:11.519 makes you reluctant? Just the valuations, or there are other 0:03:11.560 --> 0:03:13.840 things you're concerned about, like policy uncertainty. 0:03:14.080 --> 0:03:16.040 So I guess Lisa's not here today, so I need 0:03:16.080 --> 0:03:16.920 to play the bear. 0:03:17.000 --> 0:03:18.440 Narrative, give us the doom and gloom. 0:03:18.520 --> 0:03:22.640 Yeah, okay, Look, I think long end rates are real 0:03:22.800 --> 0:03:26.320 risk for those valuations. The curve is flat, you have terriffs, 0:03:26.360 --> 0:03:31.680 you have inflation, you have resetting higher on growth expectations. 0:03:32.040 --> 0:03:34.520 The direction of long end rates could be higher, and 0:03:34.560 --> 0:03:37.640 that could put pressure on those valuations, and then you 0:03:37.720 --> 0:03:41.880 have the usual lists tariff. Geopolitics often they don't matter 0:03:41.960 --> 0:03:45.280 until they really do. And Amery my view is that 0:03:45.440 --> 0:03:48.520 geopolitics will really matter when you see an oil shock. 0:03:49.160 --> 0:03:52.520 And given the pressure that this new administration is going 0:03:52.560 --> 0:03:54.960 to put on Iran and where Iran is right now, 0:03:55.080 --> 0:03:56.600 I don't know where it's going to come from. I'm 0:03:56.640 --> 0:03:59.360 not a geopolitical analyst, but that's one of the risks 0:03:59.400 --> 0:03:59.960 that's out there. 0:04:00.000 --> 0:04:02.000 We've got a lak capital And that was the second 0:04:02.040 --> 0:04:03.840 point you made as you sound down some of those 0:04:03.880 --> 0:04:06.960 equity positions into high yield you can get into cash 0:04:07.040 --> 0:04:08.720 and not into the long end of the bond market, 0:04:08.800 --> 0:04:11.400 not into treasuries, not into a ten year at four 0:04:12.120 --> 0:04:14.480 fifty three. Do bonds not do what bonds used to 0:04:14.560 --> 0:04:15.920 do in the portfolio? 0:04:15.960 --> 0:04:18.719 From your perspective, we still hold bonds. 0:04:18.720 --> 0:04:22.240 We have an overweight where short duration bonds will do 0:04:22.320 --> 0:04:24.120 what they need to do only if we get a 0:04:24.160 --> 0:04:27.040 growth shock. And by the way, this is I didn't 0:04:27.080 --> 0:04:29.320 name it as a risk. It's still a risk that 0:04:29.560 --> 0:04:33.160 some growth related data disappoints. Remember back in August last year, 0:04:33.200 --> 0:04:35.800 we had one bad non farm payroll print and the 0:04:35.839 --> 0:04:38.120 market kind of freaked out a little bit. So it 0:04:38.160 --> 0:04:41.680 doesn't take much for a growth scare. I don't think 0:04:41.720 --> 0:04:44.920 that's the base case. In that case, bonds will diversify 0:04:44.960 --> 0:04:49.080 your portfolio. Rate shock, inflation shock bonds will not diverse. 0:04:49.120 --> 0:04:52.080 You still have a FED responded to that unemployment headfake 0:04:52.120 --> 0:04:54.599 from the summer. They wanted to insulate the labor market. 0:04:54.640 --> 0:04:56.680 They cut interest rates one hundred basis points. That was 0:04:56.720 --> 0:04:59.320 the starting gun for Then things have changed a few 0:04:59.320 --> 0:05:01.760 months later. And I wonder from your perspective, whether the 0:05:01.839 --> 0:05:05.680 threats of tariffs constrains the dubvish bias of the Federal Reserve. 0:05:05.839 --> 0:05:06.520 Do you think it does. 0:05:07.720 --> 0:05:10.479 Yes, I think it does, because at least in the 0:05:10.560 --> 0:05:13.800 short run, it's inflationary. We're talking about twenty five percent 0:05:13.839 --> 0:05:17.040 on Canada. You get a ton of crude imports from Canada. 0:05:17.279 --> 0:05:20.240 I don't know how oil prices aren't reacting a bit 0:05:20.279 --> 0:05:23.160 more this morning, right, This is like twenty percent of 0:05:23.240 --> 0:05:27.799 oil consumption in the US is derived from Canadian crude. 0:05:27.880 --> 0:05:30.520 So yeah, I mean that ends up being inflationary. 0:05:30.560 --> 0:05:32.919 And when it comes to states landlocked in the Midwest, 0:05:32.960 --> 0:05:36.039 it's their only area where they actually get crude is 0:05:36.040 --> 0:05:39.480 from Canada. When you just mentioned earlier, we're never ready 0:05:39.480 --> 0:05:42.400 for geopolitical shock and it kind of shocks everyone when 0:05:42.400 --> 0:05:43.680 we get it. And you think that could be in 0:05:43.720 --> 0:05:46.039 the oil space, Could that be this weekend? Could it 0:05:46.040 --> 0:05:48.960 be Canada not something like Iran or Venezuela or Russia. 0:05:49.440 --> 0:05:53.280 Well, the market doesn't seem to freak out about it yet, right, 0:05:53.360 --> 0:05:55.880 And a part of this is we don't really know 0:05:55.920 --> 0:05:58.680 what's going to happen to tariff ever. I mean, it 0:05:58.680 --> 0:06:00.760 could change on a dime, but I think once they're 0:06:00.839 --> 0:06:04.640 on then it's harder to take them off. So I 0:06:04.680 --> 0:06:07.440 don't know, Amory, I think is a small probability of 0:06:07.560 --> 0:06:12.080 a fairly sizable oil spike. When I asked a geopolitical 0:06:12.120 --> 0:06:14.919 expert recently and I said, what could be the black 0:06:14.920 --> 0:06:18.360 swan in geopolitics and the oil market? And he said, 0:06:18.360 --> 0:06:20.880 what once you start hearing that word in the news media, 0:06:21.000 --> 0:06:24.680 once you start hearing it on surveillance Hormuz, which we 0:06:24.760 --> 0:06:28.200 haven't had any disruption there, but that is a large 0:06:28.520 --> 0:06:33.680 proportion of global oil flows. I'm kind of just you 0:06:33.680 --> 0:06:35.520 don't know, it's a black stright At the moment. 0:06:35.560 --> 0:06:37.960 Trump has been actually quite quiet about Iran and focus 0:06:38.000 --> 0:06:40.760 on other issues. You did mention something though, once you 0:06:40.760 --> 0:06:42.560 put tariffs on, they don't come off, and we saw 0:06:42.560 --> 0:06:45.839 that in the Biden administration. They kept Trump's first administration 0:06:45.960 --> 0:06:48.960 tariffs on. Yet it added a little bit to inflation, 0:06:49.080 --> 0:06:51.960 but not enough. When we had an inflation spike under Biden, 0:06:52.040 --> 0:06:55.000 they didn't even remove them. So why is the FED 0:06:55.160 --> 0:06:59.279 putting all this emphasis potentially in their concerns about policy 0:06:59.320 --> 0:07:02.560 going forward, that is to inflation on tariffs if we've 0:07:02.560 --> 0:07:03.960 had them for years now. 0:07:04.040 --> 0:07:06.440 Well, I think we're putting that emphasis. I don't think 0:07:06.440 --> 0:07:09.200 the FED is coming out and saying we're watching the 0:07:09.279 --> 0:07:12.480 tariff game and we're adjusting our policy accordingly. 0:07:12.680 --> 0:07:15.200 We're reading Well, they did though, they didn't assume, and 0:07:15.200 --> 0:07:17.160 then they did assume. Part of that is because of 0:07:17.200 --> 0:07:18.680 trade realignment. 0:07:18.200 --> 0:07:20.200 Right, yes, I mean, look, they have to react their 0:07:20.280 --> 0:07:22.840 data dependent and I think right now the FED is 0:07:22.920 --> 0:07:26.920 weight and see so you're right, the first round of 0:07:26.920 --> 0:07:29.080 tariffs weren't inflation area. I think there are all sorts 0:07:29.080 --> 0:07:32.440 of effects of terriffs that we don't understand. You see 0:07:32.440 --> 0:07:35.320 what happened with Columbia. It's a negotiation forward. 0:07:35.400 --> 0:07:36.800 I'm with you. I hear that all the time. 0:07:36.840 --> 0:07:39.480 But to am Marie's point, the accusation leveled at the 0:07:39.520 --> 0:07:41.520 FED right now is they seem to be more concerned 0:07:41.520 --> 0:07:45.160 with Trump tariffs than they were with Biden fiscal stimulus. 0:07:45.480 --> 0:07:47.400 And it's hard to get your head around that. Do 0:07:47.440 --> 0:07:50.080 you speak about that on the committee? So what explains that? 0:07:50.520 --> 0:07:53.800 I mean, we speak about all of it, and we 0:07:53.920 --> 0:07:57.120 debate all of it. Look, the FED is looking at 0:07:57.200 --> 0:08:01.720 or talking about looking at employment and inflation, and tariffs 0:08:02.080 --> 0:08:04.760 are a driver of inflation, and the short run could 0:08:04.800 --> 0:08:07.040 be a driver of inflation. And the short run I 0:08:07.040 --> 0:08:10.560 think it all boils down to this data dependency of 0:08:10.640 --> 0:08:13.560 the FED. And if to the extent that tariffs drive 0:08:13.640 --> 0:08:17.120 the data itself, then the FED will adjust, right, So 0:08:17.160 --> 0:08:22.360 there's several layers of reactions in macroeconomics that the FED 0:08:22.400 --> 0:08:26.960 will react to. But you know, it's it's a treacherous 0:08:27.080 --> 0:08:30.680 environment I think for them to you know, it might 0:08:30.720 --> 0:08:33.640 not take much for the talk of rate hikes to 0:08:33.679 --> 0:08:34.240 start again. 0:08:34.800 --> 0:08:36.040 Sebastia, we'll leave it. 0:08:36.000 --> 0:08:46.640 There, Joht. I guess now to discuss is Adam Post 0:08:46.679 --> 0:08:50.160 and the president of the Patison Institute for International Economics. Adam, 0:08:50.160 --> 0:08:51.000 good morning, it's good. 0:08:50.840 --> 0:08:51.920 To see you. Good to see you. 0:08:52.080 --> 0:08:54.000 There is a constructive view out there, and it sounds 0:08:54.040 --> 0:08:55.160 like this. This is what I hear a lot from 0:08:55.160 --> 0:08:57.599 equity bulls. They say the approach to Taris is transactional 0:08:57.760 --> 0:09:00.640 in nature, the scout for significant to go and the 0:09:00.679 --> 0:09:03.320 backdrop right now for the Board of Economy, it's pretty decent. 0:09:03.480 --> 0:09:05.640 Things are going to be okay. It's not a price 0:09:05.679 --> 0:09:09.240 we have to pay for the uncendainty. In the meantime, Yes. 0:09:09.880 --> 0:09:12.840 The price we're going to see not just inequity markets, 0:09:12.880 --> 0:09:15.640 but we're going to see in specific industries. We're going 0:09:15.720 --> 0:09:18.920 to see in energy prices going up. We're going to 0:09:19.000 --> 0:09:21.920 see in disruption to the US auto sector. We're going 0:09:22.040 --> 0:09:26.440 to see in sharp retaliation from Mexico and Canada on 0:09:26.600 --> 0:09:29.680 specific industries. I'm not meaning to be vague by saying 0:09:29.679 --> 0:09:33.920 specific industries, but the point is it's about choke points. 0:09:34.160 --> 0:09:37.320 It's about things that are hard to replace. And the 0:09:37.360 --> 0:09:40.240 big thing, as studies we've done in Peterson's saying, which 0:09:40.280 --> 0:09:43.400 is intuitive, is there's some range over which you put 0:09:43.400 --> 0:09:45.760 on a tariff and everybody's like, Okay, it's a price rise, 0:09:45.800 --> 0:09:49.280 it's annoying, we'll deal with it. There's another range where 0:09:49.320 --> 0:09:53.640 it's like you're imposing shortages like you did during COVID 0:09:53.400 --> 0:09:57.680 that that suddenly it becomes unaffordable or inaccessible to get 0:09:57.720 --> 0:09:59.960 certain things you need, and that's when you start getting 0:10:00.040 --> 0:10:03.160 big macro effects. So I agree John with the people 0:10:03.160 --> 0:10:06.080 who say the underlying strength of the US economy is there. 0:10:06.559 --> 0:10:09.199 But this is frankly not s t. 0:10:09.400 --> 0:10:12.120 Canada and Mexico A our two largest trading partners. We're 0:10:12.160 --> 0:10:16.200 at peace with them, their military allies, their democracies, and 0:10:16.280 --> 0:10:19.800 our auto sector and our food sector are incredibly integrated. 0:10:20.720 --> 0:10:21.720 So this is gonna hurt. 0:10:21.960 --> 0:10:24.320 But Trump hates trade deficits, so he will do anything 0:10:24.360 --> 0:10:27.040 he can to try to bring that deficit down or 0:10:27.040 --> 0:10:30.640 maybe bring up negotiations for USMCA. What do you think 0:10:31.000 --> 0:10:34.320 is the underlying drive for these types of teriffs that, 0:10:34.720 --> 0:10:37.360 based on my conversations, I'd be more shocked if we 0:10:37.440 --> 0:10:41.080 don't see them happen tomorrow. Is it a negotiation tool 0:10:41.200 --> 0:10:42.240 or he wants to keep them. 0:10:42.120 --> 0:10:46.480 On emery I I think you're reporting your senses right. 0:10:47.240 --> 0:10:50.720 We we've been talking for months about expecting that the 0:10:50.800 --> 0:10:54.360 terrafs would really happen. I think it's much more likely 0:10:54.440 --> 0:10:58.120 the negotiations in the end go well with Canada than 0:10:58.160 --> 0:11:03.480 with Mexico. But the thing is, twenty five percent, even 0:11:03.520 --> 0:11:06.240 if you exempt certain things, is an enormous number. This 0:11:06.400 --> 0:11:08.199 is you know when people say, oh, the tariffs under 0:11:08.200 --> 0:11:10.920 Trump one, we're not inflationary. Those were a couple percent 0:11:11.600 --> 0:11:15.560 in a few industries. This is very wide tariffs at 0:11:15.600 --> 0:11:18.479 a very high level, with major retaliation. 0:11:18.760 --> 0:11:20.800 So let's talk about this scope. Do you think oil 0:11:20.920 --> 0:11:23.040 is really on the table? Trump kind of flirted with 0:11:23.080 --> 0:11:24.719 it yesterday in the Oval Office. 0:11:26.400 --> 0:11:27.040 We don't know. 0:11:27.280 --> 0:11:29.440 It doesn't make any sense to put oil on the 0:11:29.480 --> 0:11:31.560 table because then you're saying, Okay, I want to buy 0:11:31.559 --> 0:11:33.480 more from Saudi or Russia. I just want to go 0:11:33.520 --> 0:11:35.240 back to your last point, which is right, which is 0:11:35.280 --> 0:11:38.800 how much is it negotiating versus keeping it on? The 0:11:38.840 --> 0:11:41.679 fear is and I think what the market should fear 0:11:42.200 --> 0:11:44.080 is that they're going to put on this across the 0:11:44.080 --> 0:11:47.599 board minimum of tariffs as part of the tax package, 0:11:47.760 --> 0:11:51.199 and then we're in an entirely different world. It's a 0:11:51.960 --> 0:11:55.160 it's a revenue raiser. On net, it's probably bad for growth, 0:11:55.320 --> 0:11:57.480 and on net it's not going to raise enough revenue. 0:11:57.520 --> 0:11:59.040 But that would be the justification. 0:11:59.400 --> 0:12:01.480 Can you go through what you would expect in your 0:12:01.520 --> 0:12:05.080 base case as retaliatory because Trump is talking about potentially 0:12:05.640 --> 0:12:09.480 tariffs on Canadian crude, but for Canada, that would be 0:12:09.520 --> 0:12:12.040 the nuclear option for an export teriff, right. 0:12:12.160 --> 0:12:14.760 I mean, it's like when they complain, you know that, 0:12:15.080 --> 0:12:17.280 oh my god, China's gonna cut us off from something. 0:12:17.320 --> 0:12:19.880 So imagine if Canada cut us off from oil. Think 0:12:19.920 --> 0:12:23.000 about you know, in the nineteen seventy three oil crisis, 0:12:23.080 --> 0:12:26.880 when the Petro States decided to cut the US off oil. 0:12:27.200 --> 0:12:29.080 How is that good for the US? I mean, it's 0:12:29.120 --> 0:12:29.920 it's destructive. 0:12:30.360 --> 0:12:33.400 So madam, the federal serve is gonna prepare for all eventualities. 0:12:33.760 --> 0:12:35.839 You warn't back in August, they should prepare for them. 0:12:35.840 --> 0:12:39.280 We talked about this repeatedly six months later. Whatever it is, 0:12:39.440 --> 0:12:41.800 are you more comfortable with where the FED is now 0:12:42.200 --> 0:12:44.000 compared to where they work going into the end of 0:12:44.000 --> 0:12:44.280 the year. 0:12:44.720 --> 0:12:48.600 I'm more comfortable than I'm not yet comfortable. I mean, 0:12:48.640 --> 0:12:51.000 the FED has the luxury because the fund again, the 0:12:51.000 --> 0:12:54.000 fundamentals of the US economy are quite good, and we've 0:12:54.000 --> 0:12:56.760 been getting good news and productivity, as we've also talked about, 0:12:57.240 --> 0:12:59.959 So the FED has something of the luxury. 0:13:00.080 --> 0:13:00.920 It's not a crisis. 0:13:00.960 --> 0:13:03.080 They don't have to make up their minds now, but 0:13:03.600 --> 0:13:06.439 they keep having this inertia of saying, well, we're maybe 0:13:06.480 --> 0:13:07.960 not going to cut as much, but we're still going 0:13:08.040 --> 0:13:11.120 to cut now on the fundamentals of the US economy. 0:13:11.120 --> 0:13:13.400 The idea that they need to keep cutting was already 0:13:13.559 --> 0:13:17.040 I think arguably a mistake. So then comes this issue 0:13:17.120 --> 0:13:20.360 of tariffs. Do they play hamlet and agonize, Oh, is 0:13:20.400 --> 0:13:22.959 it a first round, one off effect and we got 0:13:23.000 --> 0:13:25.880 to wait to see whether it goes beyond oil or 0:13:25.920 --> 0:13:30.280 beyond autos, or do they say, hey, in a world 0:13:30.360 --> 0:13:35.560 we're close to full employment, there's pricing power, we're creating shortage. 0:13:35.559 --> 0:13:37.880 There is pricing power. You don't think there's a prices 0:13:37.920 --> 0:13:40.680 will have to just stomach this and igets. 0:13:40.840 --> 0:13:41.679 I don't think so. 0:13:42.040 --> 0:13:45.199 I mean, the evidence is not the so called greenflation 0:13:45.280 --> 0:13:48.240 that was always a myth, but the evidence is not 0:13:48.400 --> 0:13:51.440 every industry, but most industries. The companies do have pricing power. 0:13:51.440 --> 0:13:53.880 I mean, when the economy is growing well over two percent, 0:13:54.920 --> 0:13:58.760 people are buying when we had an inventory correction. Otherwise, 0:13:58.760 --> 0:14:01.040 as Jason Furman's pointed out, the underlying strength of the 0:14:01.120 --> 0:14:03.200 US economy is even stronger than the two point three 0:14:03.280 --> 0:14:08.120 number we had. The idea that there's no pricing power 0:14:08.200 --> 0:14:09.240 is just strange. 0:14:09.280 --> 0:14:11.439 I think this conversation is important because it's difficult to 0:14:11.480 --> 0:14:13.480 sit here and say, I think the President will do 0:14:13.520 --> 0:14:15.720 excel why this we can We've got to think about 0:14:15.800 --> 0:14:18.600 how inflation prone this economy might be. When you think 0:14:18.640 --> 0:14:22.320 about sources of inflation at the moment, whether it be energy, labor, goods, 0:14:22.400 --> 0:14:24.720 or services. What is it about the current state of 0:14:24.760 --> 0:14:27.280 things that you think this economy is more inflation prone 0:14:27.280 --> 0:14:29.600 than maybe the Federal Reserve themselves my belief. 0:14:30.040 --> 0:14:33.960 I think there's two categories shown. There's the pre existing 0:14:34.200 --> 0:14:37.160 underlying economics and then there's the Trump tariffs and other 0:14:37.160 --> 0:14:40.560 effects on the pre existing The economy's inflation prone because 0:14:40.560 --> 0:14:43.560 financial conditions are not tight. They're just slightly tight in 0:14:44.040 --> 0:14:47.280 residential real estate and otherwise not. I think we're inflation 0:14:47.440 --> 0:14:52.080 prone because for all the talk about energy deregulation, we've 0:14:52.120 --> 0:14:55.200 seen how that's actually not a major determinant of inflation. 0:14:55.280 --> 0:14:55.440 Right. 0:14:55.560 --> 0:14:58.040 Energy prices came down enormously in the last year of 0:14:58.120 --> 0:15:00.640 the Biden administration, and that wasn't an to make up 0:15:00.640 --> 0:15:06.000 of inflation. And we're inflation prone because the fat hasn't 0:15:06.040 --> 0:15:09.280 lost huge amounts of credibility, but we're not down to target, 0:15:09.400 --> 0:15:11.480 and it is a few years later, and the memory 0:15:11.520 --> 0:15:14.960 of inflation is very strong. That's the fundamentals. Then on Trump, 0:15:15.400 --> 0:15:19.080 we've just talked about tariffs again. In theory, you could 0:15:19.080 --> 0:15:22.160 have a tariff that's just a price shift, like anything 0:15:22.200 --> 0:15:25.320 that's not Canadian and Mexican becomes relatively cheaper. But in 0:15:25.360 --> 0:15:28.400 practice it's going to be experienced as inflation, and then 0:15:28.440 --> 0:15:31.120 people will want to catch up with prices and wages. 0:15:31.600 --> 0:15:35.360 But also the anti migration stuff, leave aside the human rights. 0:15:35.360 --> 0:15:39.920 The anti migration stuff is partly recessionary, partly inflationary because 0:15:39.960 --> 0:15:43.480 it creates shortages of labor in certain industries like home 0:15:43.520 --> 0:15:49.080 health care, residential construction, food harvesting, the native workers documented 0:15:49.120 --> 0:15:52.960 workers don't want to do and then you've got potentially 0:15:53.040 --> 0:15:54.640 and this is going to be a lag. This is 0:15:54.720 --> 0:15:57.080 a few months down the road, very large tax cuts. 0:15:57.120 --> 0:15:59.480 And even if I'm mad, as Van Marie rightly says, 0:15:59.520 --> 0:16:01.880 you get some revenue from the terraffs, it's nothing to 0:16:01.920 --> 0:16:03.480 compare to the size of the tax cunt. 0:16:03.760 --> 0:16:05.280 So if you're the Fed and you're. 0:16:05.160 --> 0:16:08.800 Not just supposed to be reacting data dependent, but you're 0:16:08.800 --> 0:16:11.480 actually supposed to be looking at the forecast, it's very 0:16:11.480 --> 0:16:13.600 hard for me to understand why they're not pivoting more. 0:16:13.920 --> 0:16:15.760 Just quickly, your base case is the next moves a 0:16:15.840 --> 0:16:18.840 hike and not account. 0:16:18.880 --> 0:16:21.840 My base case remains that by September they'll be hiking. 0:16:22.080 --> 0:16:24.480 They may make a further mistake and cut once more. 0:16:24.760 --> 0:16:27.280 I hope not, but by the base cases, by September 0:16:27.320 --> 0:16:27.680 they'll hike. 0:16:27.800 --> 0:16:29.560 It's quite a cool but you've been making it for 0:16:29.600 --> 0:16:31.480 quite a while. I appreciate it, Adam, Thank you, sir, 0:16:31.520 --> 0:16:33.160 thank you. Imagine it's not the call you wanted to make. 0:16:33.240 --> 0:16:43.240 Either Adam posting there of the Pederson Institute. 0:16:44.880 --> 0:16:46.000 Let's turn back to the markets. 0:16:46.000 --> 0:16:48.440 Tech stocks leading gains this morning after a week of 0:16:48.480 --> 0:16:51.680 mixed earnings and news of China's Deep Seek AI breakthrough. 0:16:51.920 --> 0:16:54.960 Noria Rabini of NYU Stern and Hudson Bay Capital taking 0:16:55.000 --> 0:16:57.640 a bullish stance posting on X earlier this week, and 0:16:57.720 --> 0:17:00.640 my modest opinion the Deep Seek surprise is country intuitively 0:17:00.760 --> 0:17:04.000 over time bullish for US and global stocks, as it 0:17:04.040 --> 0:17:07.760 is another positive global accurcate supply shock that increases US 0:17:07.760 --> 0:17:12.640 and global potential growth and makes exponential AI even more exponential. 0:17:12.880 --> 0:17:14.720 No realtal just now for more. I always going to 0:17:14.720 --> 0:17:17.119 say a buddy seen John, we must pick up on 0:17:17.160 --> 0:17:19.040 that theme. Why do you think this is good news 0:17:19.040 --> 0:17:22.040 and you believe it is the real deal? Export compliance 0:17:22.119 --> 0:17:23.920 only costs five six million dollars. 0:17:24.760 --> 0:17:26.720 No, of course, in. 0:17:26.720 --> 0:17:31.359 Spite of the restrictions, probably got more GPU Navidia and 0:17:31.440 --> 0:17:34.960 otherwise the INDUS five k probably one hundred thousand are 0:17:35.000 --> 0:17:37.439 in the costs where much more and so on and 0:17:37.480 --> 0:17:40.639 so still it's not the twenty x improvement. Maybe it's 0:17:41.040 --> 0:17:44.040 two or three x. But my point was that if 0:17:44.040 --> 0:17:46.920 this is true, even to a two three x extent 0:17:47.480 --> 0:17:51.760 is one of the biggest total factor productivity increases in 0:17:52.119 --> 0:17:56.159 human history literally and should be increasing potential growth, not 0:17:56.320 --> 0:17:59.439 just in China. The reinforce learning can be used by 0:17:59.480 --> 0:18:02.320 everybody's open source. It's going to use it, and it's 0:18:02.320 --> 0:18:05.280 going to increase also not only the productivity of those 0:18:05.280 --> 0:18:07.600 who are producer of eyes, but more importantly of the 0:18:07.640 --> 0:18:10.320 consumers of ice. So if it's really true, and I 0:18:10.320 --> 0:18:13.040 think it's an intergiative process, we all learn from each other, 0:18:13.080 --> 0:18:16.240 we all distilled from each other within the US, within 0:18:16.400 --> 0:18:19.199 China and US and others. It increases the fact that 0:18:19.240 --> 0:18:21.080 the AI is going to change the world for the better. 0:18:21.359 --> 0:18:24.480 It will be a significant increase in potential growth in 0:18:24.520 --> 0:18:28.160 the United States and also globally. So over the medium term, 0:18:28.240 --> 0:18:31.760 this should be actually positive for US and global stock markets, 0:18:31.800 --> 0:18:35.119 not negatives. So the reaction I think initially a Monday 0:18:35.240 --> 0:18:37.879 was totally excessive, And the fact that now there's been 0:18:37.920 --> 0:18:40.800 some retracing over the week is people are digesting the 0:18:41.000 --> 0:18:43.600 news and saying this is not the shock that we thought. 0:18:43.640 --> 0:18:47.160 It was positive stocks, positive for the economy, for economic growth. 0:18:47.359 --> 0:18:49.359 I think it's positive for society. 0:18:50.920 --> 0:18:53.560 Well, you know, There's been a huge debate about what 0:18:53.600 --> 0:18:57.880 are the risks of AI as opposed to the benefits 0:18:57.960 --> 0:19:01.760 of AI. I think in part political and philosophical question. 0:19:01.880 --> 0:19:06.120 We know the information, this information, the risk of increase 0:19:06.560 --> 0:19:10.199 cyber warfare eventually is to humanity and so on. But 0:19:10.240 --> 0:19:14.720 I would say on net AI, like any other teological innovation, 0:19:15.200 --> 0:19:18.080 is going to lead to an increase in both proditivy growth, 0:19:18.160 --> 0:19:20.679 potential growth, and human welfare. We may be able to 0:19:20.680 --> 0:19:23.840 live until not ninety one hundred, one hundred and twenty. 0:19:24.080 --> 0:19:27.119 Longevity helped you name it. So it's a benefit to 0:19:27.160 --> 0:19:31.040 society overall. And there are side consequences and problems and 0:19:31.160 --> 0:19:33.440 risk and where to manage them. And I think that 0:19:33.480 --> 0:19:36.240 the regulation of the EYE is going to be very complicated, 0:19:36.280 --> 0:19:38.920 probably like the Internet. We're going to do it too little, 0:19:38.960 --> 0:19:40.639 too late, and then we're going to realize there are 0:19:40.680 --> 0:19:41.240 some mistakes. 0:19:41.280 --> 0:19:43.280 If I clipt what you just said and use some 0:19:43.320 --> 0:19:45.639 AI and took out some words and replaced the II 0:19:45.800 --> 0:19:48.639