Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. We begin this out
Speaker 2: with stocks rising after results from Apple and Intel. Sebastian
Speaker 2: Page of t Row price, saying he's a reluctant ball.
Speaker 2: We remained slightly overweight starks versus bonds and our position
Speaker 2: for the stock market to broaden. However, we're starting to
Speaker 2: take profit. Sebastian joins us now for more. Soeb it's
Speaker 2: good to see you, great to see you. Where are
Speaker 2: you taking profits, sir?
Speaker 3: We're selling some starks. We're going to remain so overweight
Speaker 3: for now, putting the proceeds in cash so or underweight bonds,
Speaker 3: and we're also selling some high yield We're splitting the
Speaker 3: proceeds between cash and bank loans, which I think are
Speaker 3: attractive when rates surprise on the upside a little bit.
Speaker 3: They're kind of negative duration, if you will.
Speaker 2: So two points to make care. One why you're selling,
Speaker 2: and the second why you're allocating the proceeds the way
Speaker 2: you're allocating them.
Speaker 4: Let's start with why you're selling. Why are you selling?
Speaker 2: Why are you coming out of stocks just a little
Speaker 2: bit and selling down high yield just a little bit.
Speaker 3: Okay, I'm going to give you the most consensus narrative,
Speaker 3: the most boring narrative.
Speaker 4: Go ahead.
Speaker 3: Okay, we're Friday. Yeah, we're confident in the economy. The
Speaker 3: economy looks just fine. But we're worried about valuation. And
Speaker 3: I wur surveillance every day and everyone's on that boat.
Speaker 3: But evaluations are expensive. And you know at twenty two
Speaker 3: four earnings price earnings ratio on the S and P,
Speaker 3: it's high. In twenty twenty one, remember all the speculation
Speaker 3: we had. Does it start to you to feel a
Speaker 3: little bit like twenty twenty one? You know someone in
Speaker 3: twenty one, someone bought a jpeg of a rock. Remember
Speaker 3: one point three million? And when I say that, to clients.
Speaker 3: They always reply that someone just bought a banana taped
Speaker 3: to a wall for six million, so they're starting to
Speaker 3: feel expensive.
Speaker 2: What do you point into this frothy though, That's what
Speaker 2: I want to get into.
Speaker 4: Where do you see the froth right now?
Speaker 3: Overall stock valuations?
Speaker 5: Overall?
Speaker 3: And I say wrong because there's some stocks that are
Speaker 3: quite fairly priced in the world, so we're positioned for
Speaker 3: the market to broaden.
Speaker 4: But also credit spreads. Credit spreads really tight by.
Speaker 5: Historical stand what's fairly priced right now?
Speaker 3: I think, look, if you look at the average stock
Speaker 3: in the world, you get a price earnings ratio of fourteen.
Speaker 3: That's actually the long run average for the average stock
Speaker 3: in the world. So that means that you have smaller caps,
Speaker 3: value international, small gaps. Yeah, pretty much everything but the
Speaker 3: technology sector, and they're parts of the technology sector that
Speaker 3: are also fairly valued. But it's all about the broadening.
Speaker 3: I think we're approaching peak concentration.
Speaker 5: People have been saying this for months, and actually they've
Speaker 5: been saying it for an entire year. John start of
Speaker 5: the conversation saying, you're reluctant bull, So is that what
Speaker 5: makes you reluctant? Just the valuations, or there are other
Speaker 5: things you're concerned about, like policy uncertainty.
Speaker 3: So I guess Lisa's not here today, so I need
Speaker 3: to play the bear.
Speaker 4: Narrative, give us the doom and gloom.
Speaker 3: Yeah, okay, Look, I think long end rates are real
Speaker 3: risk for those valuations. The curve is flat, you have terriffs,
Speaker 3: you have inflation, you have resetting higher on growth expectations.
Speaker 3: The direction of long end rates could be higher, and
Speaker 3: that could put pressure on those valuations, and then you
Speaker 3: have the usual lists tariff. Geopolitics often they don't matter
Speaker 3: until they really do. And Amery my view is that
Speaker 3: geopolitics will really matter when you see an oil shock.
Speaker 3: And given the pressure that this new administration is going
Speaker 3: to put on Iran and where Iran is right now,
Speaker 3: I don't know where it's going to come from. I'm
Speaker 3: not a geopolitical analyst, but that's one of the risks
Speaker 3: that's out there.
Speaker 2: We've got a lak capital And that was the second
Speaker 2: point you made as you sound down some of those
Speaker 2: equity positions into high yield you can get into cash
Speaker 2: and not into the long end of the bond market,
Speaker 2: not into treasuries, not into a ten year at four
Speaker 2: fifty three. Do bonds not do what bonds used to
Speaker 2: do in the portfolio?
Speaker 4: From your perspective, we still hold bonds.
Speaker 3: We have an overweight where short duration bonds will do
Speaker 3: what they need to do only if we get a
Speaker 3: growth shock. And by the way, this is I didn't
Speaker 3: name it as a risk. It's still a risk that
Speaker 3: some growth related data disappoints. Remember back in August last year,
Speaker 3: we had one bad non farm payroll print and the
Speaker 3: market kind of freaked out a little bit. So it
Speaker 3: doesn't take much for a growth scare. I don't think
Speaker 3: that's the base case. In that case, bonds will diversify
Speaker 3: your portfolio. Rate shock, inflation shock bonds will not diverse.
Speaker 2: You still have a FED responded to that unemployment headfake
Speaker 2: from the summer. They wanted to insulate the labor market.
Speaker 2: They cut interest rates one hundred basis points. That was
Speaker 2: the starting gun for Then things have changed a few
Speaker 2: months later. And I wonder from your perspective, whether the
Speaker 2: threats of tariffs constrains the dubvish bias of the Federal Reserve.
Speaker 2: Do you think it does.
Speaker 3: Yes, I think it does, because at least in the
Speaker 3: short run, it's inflationary. We're talking about twenty five percent
Speaker 3: on Canada. You get a ton of crude imports from Canada.
Speaker 3: I don't know how oil prices aren't reacting a bit
Speaker 3: more this morning, right, This is like twenty percent of
Speaker 3: oil consumption in the US is derived from Canadian crude.
Speaker 3: So yeah, I mean that ends up being inflationary.
Speaker 5: And when it comes to states landlocked in the Midwest,
Speaker 5: it's their only area where they actually get crude is
Speaker 5: from Canada. When you just mentioned earlier, we're never ready
Speaker 5: for geopolitical shock and it kind of shocks everyone when
Speaker 5: we get it. And you think that could be in
Speaker 5: the oil space, Could that be this weekend? Could it
Speaker 5: be Canada not something like Iran or Venezuela or Russia.
Speaker 3: Well, the market doesn't seem to freak out about it yet, right,
Speaker 3: And a part of this is we don't really know
Speaker 3: what's going to happen to tariff ever. I mean, it
Speaker 3: could change on a dime, but I think once they're
Speaker 3: on then it's harder to take them off. So I
Speaker 3: don't know, Amory, I think is a small probability of
Speaker 3: a fairly sizable oil spike. When I asked a geopolitical
Speaker 3: expert recently and I said, what could be the black
Speaker 3: swan in geopolitics and the oil market? And he said,
Speaker 3: what once you start hearing that word in the news media,
Speaker 3: once you start hearing it on surveillance Hormuz, which we
Speaker 3: haven't had any disruption there, but that is a large
Speaker 3: proportion of global oil flows. I'm kind of just you
Speaker 3: don't know, it's a black stright At the moment.
Speaker 5: Trump has been actually quite quiet about Iran and focus
Speaker 5: on other issues. You did mention something though, once you
Speaker 5: put tariffs on, they don't come off, and we saw
Speaker 5: that in the Biden administration. They kept Trump's first administration
Speaker 5: tariffs on. Yet it added a little bit to inflation,
Speaker 5: but not enough. When we had an inflation spike under Biden,
Speaker 5: they didn't even remove them. So why is the FED
Speaker 5: putting all this emphasis potentially in their concerns about policy
Speaker 5: going forward, that is to inflation on tariffs if we've
Speaker 5: had them for years now.
Speaker 3: Well, I think we're putting that emphasis. I don't think
Speaker 3: the FED is coming out and saying we're watching the
Speaker 3: tariff game and we're adjusting our policy accordingly.
Speaker 5: We're reading Well, they did though, they didn't assume, and
Speaker 5: then they did assume. Part of that is because of
Speaker 5: trade realignment.
Speaker 3: Right, yes, I mean, look, they have to react their
Speaker 3: data dependent and I think right now the FED is
Speaker 3: weight and see so you're right, the first round of
Speaker 3: tariffs weren't inflation area. I think there are all sorts
Speaker 3: of effects of terriffs that we don't understand. You see
Speaker 3: what happened with Columbia. It's a negotiation forward.
Speaker 4: I'm with you. I hear that all the time.
Speaker 2: But to am Marie's point, the accusation leveled at the
Speaker 2: FED right now is they seem to be more concerned
Speaker 2: with Trump tariffs than they were with Biden fiscal stimulus.
Speaker 2: And it's hard to get your head around that. Do
Speaker 2: you speak about that on the committee? So what explains that?
Speaker 3: I mean, we speak about all of it, and we
Speaker 3: debate all of it. Look, the FED is looking at
Speaker 3: or talking about looking at employment and inflation, and tariffs
Speaker 3: are a driver of inflation, and the short run could
Speaker 3: be a driver of inflation. And the short run I
Speaker 3: think it all boils down to this data dependency of
Speaker 3: the FED. And if to the extent that tariffs drive
Speaker 3: the data itself, then the FED will adjust, right, So
Speaker 3: there's several layers of reactions in macroeconomics that the FED
Speaker 3: will react to. But you know, it's it's a treacherous
Speaker 3: environment I think for them to you know, it might
Speaker 3: not take much for the talk of rate hikes to
Speaker 3: start again.
Speaker 4: Sebastia, we'll leave it.
Speaker 2: There, Joht. I guess now to discuss is Adam Post
Speaker 2: and the president of the Patison Institute for International Economics. Adam,
Speaker 2: good morning, it's good.
Speaker 4: To see you. Good to see you.
Speaker 2: There is a constructive view out there, and it sounds
Speaker 2: like this. This is what I hear a lot from
Speaker 2: equity bulls. They say the approach to Taris is transactional
Speaker 2: in nature, the scout for significant to go and the
Speaker 2: backdrop right now for the Board of Economy, it's pretty decent.
Speaker 2: Things are going to be okay. It's not a price
Speaker 2: we have to pay for the uncendainty. In the meantime, Yes.
Speaker 1: The price we're going to see not just inequity markets,
Speaker 1: but we're going to see in specific industries. We're going
Speaker 1: to see in energy prices going up. We're going to
Speaker 1: see in disruption to the US auto sector. We're going
Speaker 1: to see in sharp retaliation from Mexico and Canada on
Speaker 1: specific industries. I'm not meaning to be vague by saying
Speaker 1: specific industries, but the point is it's about choke points.
Speaker 1: It's about things that are hard to replace. And the
Speaker 1: big thing, as studies we've done in Peterson's saying, which
Speaker 1: is intuitive, is there's some range over which you put
Speaker 1: on a tariff and everybody's like, Okay, it's a price rise,
Speaker 1: it's annoying, we'll deal with it. There's another range where
Speaker 1: it's like you're imposing shortages like you did during COVID
Speaker 1: that that suddenly it becomes unaffordable or inaccessible to get
Speaker 1: certain things you need, and that's when you start getting
Speaker 1: big macro effects. So I agree John with the people
Speaker 1: who say the underlying strength of the US economy is there.
Speaker 4: But this is frankly not s t.
Speaker 1: Canada and Mexico A our two largest trading partners. We're
Speaker 1: at peace with them, their military allies, their democracies, and
Speaker 1: our auto sector and our food sector are incredibly integrated.
Speaker 1: So this is gonna hurt.
Speaker 5: But Trump hates trade deficits, so he will do anything
Speaker 5: he can to try to bring that deficit down or
Speaker 5: maybe bring up negotiations for USMCA. What do you think
Speaker 5: is the underlying drive for these types of teriffs that,
Speaker 5: based on my conversations, I'd be more shocked if we
Speaker 5: don't see them happen tomorrow. Is it a negotiation tool
Speaker 5: or he wants to keep them.
Speaker 1: On emery I I think you're reporting your senses right.
Speaker 1: We we've been talking for months about expecting that the
Speaker 1: terrafs would really happen. I think it's much more likely
Speaker 1: the negotiations in the end go well with Canada than
Speaker 1: with Mexico. But the thing is, twenty five percent, even
Speaker 1: if you exempt certain things, is an enormous number. This
Speaker 1: is you know when people say, oh, the tariffs under
Speaker 1: Trump one, we're not inflationary. Those were a couple percent
Speaker 1: in a few industries. This is very wide tariffs at
Speaker 1: a very high level, with major retaliation.
Speaker 5: So let's talk about this scope. Do you think oil
Speaker 5: is really on the table? Trump kind of flirted with
Speaker 5: it yesterday in the Oval Office.
Speaker 4: We don't know.
Speaker 1: It doesn't make any sense to put oil on the
Speaker 1: table because then you're saying, Okay, I want to buy
Speaker 1: more from Saudi or Russia. I just want to go
Speaker 1: back to your last point, which is right, which is
Speaker 1: how much is it negotiating versus keeping it on? The
Speaker 1: fear is and I think what the market should fear
Speaker 1: is that they're going to put on this across the
Speaker 1: board minimum of tariffs as part of the tax package,
Speaker 1: and then we're in an entirely different world. It's a
Speaker 1: it's a revenue raiser. On net, it's probably bad for growth,
Speaker 1: and on net it's not going to raise enough revenue.
Speaker 4: But that would be the justification.
Speaker 5: Can you go through what you would expect in your
Speaker 5: base case as retaliatory because Trump is talking about potentially
Speaker 5: tariffs on Canadian crude, but for Canada, that would be
Speaker 5: the nuclear option for an export teriff, right.
Speaker 1: I mean, it's like when they complain, you know that,
Speaker 1: oh my god, China's gonna cut us off from something.
Speaker 1: So imagine if Canada cut us off from oil. Think
Speaker 1: about you know, in the nineteen seventy three oil crisis,
Speaker 1: when the Petro States decided to cut the US off oil.
Speaker 1: How is that good for the US? I mean, it's
Speaker 1: it's destructive.
Speaker 2: So madam, the federal serve is gonna prepare for all eventualities.
Speaker 2: You warn't back in August, they should prepare for them.
Speaker 2: We talked about this repeatedly six months later. Whatever it is,
Speaker 2: are you more comfortable with where the FED is now
Speaker 2: compared to where they work going into the end of
Speaker 2: the year.
Speaker 1: I'm more comfortable than I'm not yet comfortable. I mean,
Speaker 1: the FED has the luxury because the fund again, the
Speaker 1: fundamentals of the US economy are quite good, and we've
Speaker 1: been getting good news and productivity, as we've also talked about,
Speaker 1: So the FED has something of the luxury.
Speaker 4: It's not a crisis.
Speaker 1: They don't have to make up their minds now, but
Speaker 1: they keep having this inertia of saying, well, we're maybe
Speaker 1: not going to cut as much, but we're still going
Speaker 1: to cut now on the fundamentals of the US economy.
Speaker 1: The idea that they need to keep cutting was already
Speaker 1: I think arguably a mistake. So then comes this issue
Speaker 1: of tariffs. Do they play hamlet and agonize, Oh, is
Speaker 1: it a first round, one off effect and we got
Speaker 1: to wait to see whether it goes beyond oil or
Speaker 1: beyond autos, or do they say, hey, in a world
Speaker 1: we're close to full employment, there's pricing power, we're creating shortage.
Speaker 2: There is pricing power. You don't think there's a prices
Speaker 2: will have to just stomach this and igets.
Speaker 4: I don't think so.
Speaker 1: I mean, the evidence is not the so called greenflation
Speaker 1: that was always a myth, but the evidence is not
Speaker 1: every industry, but most industries. The companies do have pricing power.
Speaker 1: I mean, when the economy is growing well over two percent,
Speaker 1: people are buying when we had an inventory correction. Otherwise,
Speaker 1: as Jason Furman's pointed out, the underlying strength of the
Speaker 1: US economy is even stronger than the two point three
Speaker 1: number we had. The idea that there's no pricing power
Speaker 1: is just strange.
Speaker 2: I think this conversation is important because it's difficult to
Speaker 2: sit here and say, I think the President will do
Speaker 2: excel why this we can We've got to think about
Speaker 2: how inflation prone this economy might be. When you think
Speaker 2: about sources of inflation at the moment, whether it be energy, labor, goods,
Speaker 2: or services. What is it about the current state of
Speaker 2: things that you think this economy is more inflation prone
Speaker 2: than maybe the Federal Reserve themselves my belief.
Speaker 1: I think there's two categories shown. There's the pre existing
Speaker 1: underlying economics and then there's the Trump tariffs and other
Speaker 1: effects on the pre existing The economy's inflation prone because
Speaker 1: financial conditions are not tight. They're just slightly tight in
Speaker 1: residential real estate and otherwise not. I think we're inflation
Speaker 1: prone because for all the talk about energy deregulation, we've
Speaker 1: seen how that's actually not a major determinant of inflation.
Speaker 4: Right.
Speaker 1: Energy prices came down enormously in the last year of
Speaker 1: the Biden administration, and that wasn't an to make up
Speaker 1: of inflation. And we're inflation prone because the fat hasn't
Speaker 1: lost huge amounts of credibility, but we're not down to target,
Speaker 1: and it is a few years later, and the memory
Speaker 1: of inflation is very strong. That's the fundamentals. Then on Trump,
Speaker 1: we've just talked about tariffs again. In theory, you could
Speaker 1: have a tariff that's just a price shift, like anything
Speaker 1: that's not Canadian and Mexican becomes relatively cheaper. But in
Speaker 1: practice it's going to be experienced as inflation, and then
Speaker 1: people will want to catch up with prices and wages.
Speaker 1: But also the anti migration stuff, leave aside the human rights.
Speaker 1: The anti migration stuff is partly recessionary, partly inflationary because
Speaker 1: it creates shortages of labor in certain industries like home
Speaker 1: health care, residential construction, food harvesting, the native workers documented
Speaker 1: workers don't want to do and then you've got potentially
Speaker 1: and this is going to be a lag. This is
Speaker 1: a few months down the road, very large tax cuts.
Speaker 1: And even if I'm mad, as Van Marie rightly says,
Speaker 1: you get some revenue from the terraffs, it's nothing to
Speaker 1: compare to the size of the tax cunt.
Speaker 4: So if you're the Fed and you're.
Speaker 1: Not just supposed to be reacting data dependent, but you're
Speaker 1: actually supposed to be looking at the forecast, it's very
Speaker 1: hard for me to understand why they're not pivoting more.
Speaker 2: Just quickly, your base case is the next moves a
Speaker 2: hike and not account.
Speaker 1: My base case remains that by September they'll be hiking.
Speaker 1: They may make a further mistake and cut once more.
Speaker 1: I hope not, but by the base cases, by September
Speaker 1: they'll hike.
Speaker 2: It's quite a cool but you've been making it for
Speaker 2: quite a while. I appreciate it, Adam, Thank you, sir,
Speaker 2: thank you. Imagine it's not the call you wanted to make.
Speaker 2: Either Adam posting there of the Pederson Institute.
Speaker 4: Let's turn back to the markets.
Speaker 2: Tech stocks leading gains this morning after a week of
Speaker 2: mixed earnings and news of China's Deep Seek AI breakthrough.
Speaker 2: Noria Rabini of NYU Stern and Hudson Bay Capital taking
Speaker 2: a bullish stance posting on X earlier this week, and
Speaker 2: my modest opinion the Deep Seek surprise is country intuitively
Speaker 2: over time bullish for US and global stocks, as it
Speaker 2: is another positive global accurcate supply shock that increases US
Speaker 2: and global potential growth and makes exponential AI even more exponential.
Speaker 2: No realtal just now for more. I always going to
Speaker 2: say a buddy seen John, we must pick up on
Speaker 2: that theme. Why do you think this is good news
Speaker 2: and you believe it is the real deal? Export compliance
Speaker 2: only costs five six million dollars.
Speaker 4: No, of course, in.
Speaker 6: Spite of the restrictions, probably got more GPU Navidia and
Speaker 6: otherwise the INDUS five k probably one hundred thousand are
Speaker 6: in the costs where much more and so on and
Speaker 6: so still it's not the twenty x improvement. Maybe it's
Speaker 6: two or three x. But my point was that if
Speaker 6: this is true, even to a two three x extent
Speaker 6: is one of the biggest total factor productivity increases in
Speaker 6: human history literally and should be increasing potential growth, not
Speaker 6: just in China. The reinforce learning can be used by
Speaker 6: everybody's open source. It's going to use it, and it's
Speaker 6: going to increase also not only the productivity of those
Speaker 6: who are producer of eyes, but more importantly of the
Speaker 6: consumers of ice. So if it's really true, and I
Speaker 6: think it's an intergiative process, we all learn from each other,
Speaker 6: we all distilled from each other within the US, within
Speaker 6: China and US and others. It increases the fact that
Speaker 6: the AI is going to change the world for the better.
Speaker 6: It will be a significant increase in potential growth in
Speaker 6: the United States and also globally. So over the medium term,
Speaker 6: this should be actually positive for US and global stock markets,
Speaker 6: not negatives. So the reaction I think initially a Monday
Speaker 6: was totally excessive, And the fact that now there's been
Speaker 6: some retracing over the week is people are digesting the
Speaker 6: news and saying this is not the shock that we thought.
Speaker 2: It was positive stocks, positive for the economy, for economic growth.
Speaker 2: I think it's positive for society.
Speaker 6: Well, you know, There's been a huge debate about what
Speaker 6: are the risks of AI as opposed to the benefits
Speaker 6: of AI. I think in part political and philosophical question.
Speaker 6: We know the information, this information, the risk of increase
Speaker 6: cyber warfare eventually is to humanity and so on. But
Speaker 6: I would say on net AI, like any other teological innovation,
Speaker 6: is going to lead to an increase in both proditivy growth,
Speaker 6: potential growth, and human welfare. We may be able to
Speaker 6: live until not ninety one hundred, one hundred and twenty.
Speaker 6: Longevity helped you name it. So it's a benefit to
Speaker 6: society overall. And there are side consequences and problems and
Speaker 6: risk and where to manage them. And I think that
Speaker 6: the regulation of the EYE is going to be very complicated,
Speaker 6: probably like the Internet. We're going to do it too little,
Speaker 6: too late, and then we're going to realize there are
Speaker 6: some mistakes.
Speaker 2: If I clipt what you just said and use some
Speaker 2: AI and took out some words and replaced the II
Speaker 2: with globalization, yeah, when we send the same thing a
Speaker 2: few decades ago.
Speaker 6: Well, globalization that is being bashed right now by everybody
Speaker 6: led to an increase in huge amounts of welfare for
Speaker 6: business of people under world two poincisely Chinians and others
Speaker 6: and so on, and even in advanced economies so great
Speaker 6: and globalization and trichnology are the same. Thing is a
Speaker 6: ways of increasing productivity growth. There'll be a backlash, But
Speaker 6: I think that the backlash is going to come on
Speaker 6: AI is that there will be massive amounts of job displacement.
Speaker 6: Job augmentation will be initially, but then jobs well, this
Speaker 6: is what is going to be, and then there'll be
Speaker 6: UBI or other things to result it.
Speaker 2: AI do the services. What globalization did to manufacturing is
Speaker 2: a question. I keep going back to how many people
Speaker 2: are going to be satisfied with just UPI I don't
Speaker 2: want to sit at home, do nothing and get paid
Speaker 2: by the government. We aspire as human beings to be better,
Speaker 2: to improve, to climb the social ladder.
Speaker 6: A lot of people in a world of scarcity, of course,
Speaker 6: the dignity of life was to provide for yourself and
Speaker 6: for your family and go and look for water, food,
Speaker 6: shelter every day. In a world in which scarcity becomes
Speaker 6: less of a constraint, we have to produce see less
Speaker 6: because the robots are going to do it, and we
Speaker 6: can consume more. You're right that you guys saying what's
Speaker 6: the meaning of life in that situation?
Speaker 4: It's a philosophical question.
Speaker 6: And John manakas and at thirty said, once we get
Speaker 6: this technology innovation, it's going to work only ten hours
Speaker 6: than sixty hours, and we'll become poets, artists, creators and
Speaker 6: whatever not. Maybe the nature of life is going to change.
Speaker 6: Maybe with AGI, we have to merge with the machine,
Speaker 6: because if we don't merge with the machine, become hyper
Speaker 6: intelligent and we become obsolete, and then there's going to
Speaker 6: be a new species. It's not going to be almost appiens,
Speaker 6: but all more robot because then it's going to take decades.
Speaker 4: Those an important philosophical question.
Speaker 6: But I would argue provocatively that twenty years from now,
Speaker 6: potential growth probably could be eighty percent sorry eight percent,
Speaker 6: and unemployment rate could be eighty percent. We are going
Speaker 6: in that direction over time, and then we have to
Speaker 6: manage the concelet and UBI, by the way, cannot be
Speaker 6: only national, because the winners and losers are going to
Speaker 6: be only internal, butle so across countries, does we innovate
Speaker 6: get better off compared to those who don't innovate. Can
Speaker 6: we have a system of global governance that has a
Speaker 6: cross border I mean, those are big issues global governance, well,
Speaker 6: a form of global governance cooperation actually, But if.
Speaker 5: You use deep sea today you can't even find out
Speaker 5: things about the Chinese Communist Party, things like tenements square.
Speaker 5: How are you supposed to have global government with these
Speaker 5: kinds of countries.
Speaker 6: I think what's going to happen is that over time,
Speaker 6: given the geopolitical divisions within US and China, the Wall
Speaker 6: is going to be divided in two. There'll be a
Speaker 6: group of countries US with its friends and allies and
Speaker 6: others in the global cells. We prefer the economic, monetary, social, political,
Speaker 6: geopolical system of the US and the West. Someone the
Speaker 6: global's are are going to go with us, and there'll
Speaker 6: be other going to go with the model of China,
Speaker 6: but model economic trade instate, capitalist geopolitical security via right
Speaker 6: technology and whatever not, and there'll be a split world.
Speaker 6: But within the West, if there are and those friends
Speaker 6: and allies, if there are winners and losers within countries
Speaker 6: or across countries, we'll have a system of transfers. I mean,
Speaker 6: we've been subsidizing the defense of our friends and allies
Speaker 6: from Asia to Europe for now eighty years because it
Speaker 6: was in the global interests of the United States. So
Speaker 6: if we need to do global UBI across friends and
Speaker 6: allies and others part of our systems, we're going to
Speaker 6: do it. But that's the world we're going and Chinese
Speaker 6: doing the same thing. We have to subsidize our friends,
Speaker 6: and they'll.
Speaker 4: Do the same. Unpatched a fund of the world to
Speaker 4: describe what nothing to do with it.
Speaker 5: And this is not here and it's essential, Lisa is
Speaker 5: not even here, and it's gone very existential this conversation
Speaker 5: when it comes to this idea of our global regulation
Speaker 5: on AI. Do you think Trump will use AI right
Speaker 5: now in the next four years as a bargaining chip
Speaker 5: as he tries to work on global realignment when it
Speaker 5: comes to trade.
Speaker 4: Oh, he will actually buy them.
Speaker 6: Right before he left in early January, had this new
Speaker 6: AI diffusion rule that divides essentially the world in the
Speaker 6: three group of countries Tier one, Tier two, Tier three.
Speaker 6: If you are part of the global technological order of
Speaker 6: the United time States and you accept all the rules
Speaker 6: and the security, you have access to unlimited amounts of
Speaker 6: advanced chips of Navidian others. You have access to all
Speaker 6: the AI models, you can have access to building the
Speaker 6: data center, and you're part of our own technological sphere,
Speaker 6: and we set the rule of essentially within that type
Speaker 6: of Tier one, we are deciding you utterly.
Speaker 4: It's not a question.
Speaker 6: About regulating AI, but who is our friend and ally
Speaker 6: And even within NATO, there are only so far eighteen
Speaker 6: countries that qualify for tierue. Not all NATO countries do.
Speaker 6: Of course, the countries in the Big Big Five I
Speaker 6: are part of some of the other NATO members, plenty
Speaker 6: of countries are not. Tier two is mostly in the
Speaker 6: Global South and everybody else. Of course, China arrivels are two,
Speaker 6: three and so on. So the US is going to
Speaker 6: set the rules of the global technological order, and it's
Speaker 6: going to do it totally unilatterally. And it's either you're
Speaker 6: with me, because I'm setting those technologies and I'm the
Speaker 6: one who's advanced in those technologies.
Speaker 4: Then you can use the chips, you can of the application,
Speaker 4: you can do that.
Speaker 6: That's a center with me, or otherwise you're in the doghouse.
Speaker 2: I wanted to squeeze it one more questions. The Europeans
Speaker 2: would be Europeans would be deeply upset with this conversation.
Speaker 4: I'm showingus no, but.
Speaker 6: They already accepted it. The same thing happened with data centers,
Speaker 6: right They tried to find an alternative, they were not successful.
Speaker 6: And the hyper scalers are providing those data centers in Europe.
Speaker 4: And maybe that's there.
Speaker 6: They are technically in Europe, but they are controlled by
Speaker 6: WS and Microsoft. Then you name it against today, so
Speaker 6: that's already the world we're in.
Speaker 2: I wanted to squeeze in a word on Stephen Moran
Speaker 2: just quickly worked alongside Hbou Hudson by Capital who you
Speaker 2: represent this morning? Published a really interesting paper at the
Speaker 2: end of last year about activist treasury issuance ATI.
Speaker 4: Now he's in power.
Speaker 2: Now he's in the White House working alongside Donald Trump,
Speaker 2: is an economic codvisor. What's going to happen now? If
Speaker 2: you believe that yan In, the former Treasury secretary was
Speaker 2: issuing treasuries actively at the front end to have different objectives,
Speaker 2: how do we unwind that this time around? Do we
Speaker 2: even try?
Speaker 6: Well? Scott in his confirmation hearing was asked about this,
Speaker 6: and he already said that effectively given the impact on
Speaker 6: long term interest rates, if you phase it out right away,
Speaker 6: it's going to be a shock to long bone neals
Speaker 6: already going higher. In our paper estimated the shot could
Speaker 6: be for the next three years or at least fifty
Speaker 6: business points. So then all that so they're going to
Speaker 6: have to wait and phase it out one gradually and
Speaker 6: two interview when bond yields are going lower, either going
Speaker 6: lower because maybe growth is slower or because inflation is lower.
Speaker 6: So they'll have to opportunistically gradually phase it out over time.
Speaker 6: But it's not going to happen overnight.
Speaker 4: They've already said so.
Speaker 2: Noriel, So it's going to say lost to think about
Speaker 2: scaring me about the future or everything. If m YU
Speaker 2: standing Hudson by campital I want absolutely nothing to do
Speaker 2: with that. This is the Bloomberg Seventans podcast, bringing you
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