WEBVTT - Bloomberg Surveillance TV: July 25th, 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 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:35.840 Bloomberg Terminal and the Bloomberg Business App. 0:00:36.320 --> 0:00:40.519 Jason Thomas of Carlisle writing the job displacement, productivity gains, 0:00:40.560 --> 0:00:43.960 and agentic economy expected to up end our world have 0:00:44.120 --> 0:00:47.720 yet to materialize. The current AI related capex already accounts 0:00:47.920 --> 0:00:50.800 for more than one third of the second quarter twenty 0:00:50.840 --> 0:00:54.160 twenty five US economic growth. Jason joins us Now, Jason, 0:00:54.240 --> 0:00:56.280 always wonderful to speak with you. Thank you for being 0:00:56.280 --> 0:00:58.200 with us, And to me, this is the big question 0:00:58.560 --> 0:01:02.200 that so many people have estimated for twenty twenty five. 0:01:02.600 --> 0:01:06.559 How much are we actually seeing that AI tailwind come 0:01:06.720 --> 0:01:09.760 into practical effect versus still remain a promise? 0:01:11.560 --> 0:01:14.520 Well, I think it's again it's It's interesting because when 0:01:14.520 --> 0:01:17.319 you think of AI, when you discuss AI, it's almost 0:01:17.480 --> 0:01:21.200 exclusively about the future and what it means, and then 0:01:21.280 --> 0:01:24.319 I think distracts from the present. Just how important all 0:01:24.400 --> 0:01:31.080 this spending is stacks, servers, GPUs, physical construction, and of 0:01:31.120 --> 0:01:35.840 course electricity related energy needs related applications. And this year 0:01:35.880 --> 0:01:39.319 have four companies now that are intending to spend over 0:01:39.360 --> 0:01:43.559 three hundred billion dollars. This year about six are spending 0:01:43.600 --> 0:01:46.800 over four hundred billion. This is went from something that 0:01:46.880 --> 0:01:50.720 is market significant, stock market significant, to something that is 0:01:50.760 --> 0:01:54.800 now GDP significant and also I think underappreciated. It's also 0:01:55.280 --> 0:01:59.040 increasingly significant for bond markets because you know, if we 0:01:59.200 --> 0:02:02.880 look at decade ago, these large companies, they were largely 0:02:03.000 --> 0:02:07.320 virtual companies. Prior to the pandemic, this class of businesses 0:02:07.360 --> 0:02:10.840 only about twenty percent of their book value was property, 0:02:10.880 --> 0:02:14.200 plant and equipment. Most of it was really just cash 0:02:14.600 --> 0:02:18.600 security holdings. Now property plant equipment ACCUNTS for over seventy 0:02:18.639 --> 0:02:22.760 percent of their book value. There's an industrial feel to 0:02:22.800 --> 0:02:25.360 some of these businesses as they ramp up their capital 0:02:25.400 --> 0:02:29.160 spending and that huge surpluses that they used to generate 0:02:29.160 --> 0:02:31.960 the providing liquidity to the rest of the economy is 0:02:32.040 --> 0:02:35.400 now being rolled in capital spending Ai. 0:02:35.800 --> 0:02:38.480 So Jason, just to sort of bleed through into the market. 0:02:38.520 --> 0:02:42.040 What you're saying the industrial revolution that so many people 0:02:42.080 --> 0:02:44.239 say is taking place, are you saying that is a 0:02:44.280 --> 0:02:48.040 physical world sucking capital out of financial markets, in particularly 0:02:48.080 --> 0:02:50.280 the bond market, leading to higher yields. 0:02:51.680 --> 0:02:52.160 Exactly. 0:02:52.600 --> 0:02:55.800 Again, what's so interesting, I think is that these companies 0:02:56.480 --> 0:03:00.960 have really exercised an option to change strategy. In the past, 0:03:01.120 --> 0:03:04.480 it was typical to generate one hundred billion dollars of 0:03:04.520 --> 0:03:09.160 cash from operations, reinvest maybe twelve to fifteen billion, and 0:03:09.200 --> 0:03:12.360 then that free cash flow would of course lead to 0:03:12.639 --> 0:03:15.880 a massive war chest on the balance sheet, or it 0:03:15.919 --> 0:03:20.720 would fund huge share repurchase programs or special dividends. Today 0:03:20.760 --> 0:03:24.320 that revenue is being diverted to capex, and so this 0:03:24.440 --> 0:03:28.600 raises really interesting questions such as the cash generation potential. 0:03:28.800 --> 0:03:33.359 We saw in Alphabet's earnings a big divergence between net 0:03:33.400 --> 0:03:37.000 income and free cash flow. It also raises industrial error 0:03:37.080 --> 0:03:41.760 questions about capacityilization, and also what is the economic rate 0:03:41.920 --> 0:03:44.760 at which this new capital depreciates? You know, is there 0:03:44.880 --> 0:03:49.240 functional obsolescence where you're investing at the frontier of new technology, 0:03:49.280 --> 0:03:52.320 how quickly does it arrive? So these are again very 0:03:52.320 --> 0:03:55.880 interesting questions. But from the bond market perspective, when you 0:03:55.920 --> 0:03:59.520 look at the cumulative cash flow surplus of the corporate 0:03:59.560 --> 0:04:04.200 sector this cycle, it's down seventy five percent from where 0:04:04.200 --> 0:04:07.040 it was a decade ago. So the last cycle, there's 0:04:07.080 --> 0:04:10.080 a question, very large deficits. Why was it so easy 0:04:10.560 --> 0:04:13.040 for the FED to fund itself? Well, of course QE 0:04:13.560 --> 0:04:17.400 is a simple answer, but I think behind that you 0:04:17.480 --> 0:04:21.479 also had again this enormous corporate savings glut. Some of 0:04:21.480 --> 0:04:24.640 that was cyclical, the scars from the GFC, but a 0:04:24.640 --> 0:04:27.080 lot of it was that most of the growth in 0:04:27.200 --> 0:04:31.880 earnings and revenues were attributed to again these virtual businesses, 0:04:31.960 --> 0:04:36.680 businesses that could grow revenue without incremental hiring, incremental investment, 0:04:37.120 --> 0:04:38.320 and they've changed strategy. 0:04:38.760 --> 0:04:42.280 So Jason, it's some serious tailwinds and changes we're talking about, 0:04:42.720 --> 0:04:45.839 But as you underscored, it's only a handful of companies, 0:04:46.040 --> 0:04:49.320 it's only for maybe six companies hyper scalers that are 0:04:49.400 --> 0:04:52.760 leading this charge. Is there a concentration risk in this 0:04:52.880 --> 0:04:55.800 that these trends are being driven by a small cohort 0:04:55.839 --> 0:04:58.440 that for now are being rewarded by markets for spending. 0:04:58.480 --> 0:05:04.240 What happens if that changes. Yes, of course there's concentration risks. 0:05:04.240 --> 0:05:08.279 There's concentration risk in the stock market, there's concentration risk 0:05:08.320 --> 0:05:12.720 in the economy again, as capital spending and GDP become 0:05:12.760 --> 0:05:15.080 more dependent on these continued outlays. 0:05:15.520 --> 0:05:16.520 And I think that that. 0:05:16.800 --> 0:05:19.599 People talk about the mag seven of course, and it's 0:05:19.360 --> 0:05:23.039 the share I think, you know, fifteen percent of global 0:05:23.279 --> 0:05:26.919 stock market capitalization, almost a third of the S and 0:05:26.920 --> 0:05:30.760 P five hundred market capitalization. But I think that what's 0:05:30.800 --> 0:05:33.600 more concerning to me, at least, is that these are 0:05:33.640 --> 0:05:37.080 not a diversified set of businesses operating in you know, 0:05:37.120 --> 0:05:41.320 completely different sectors with completely different strategies. They're all basically 0:05:41.360 --> 0:05:44.880 pursuing the same end goal at the moment. There's some variation, 0:05:45.240 --> 0:05:50.320 of course, but in general, it's a concentrated bet on 0:05:50.400 --> 0:05:53.320 the same AI future, and you know, everyone has to 0:05:53.360 --> 0:05:56.400 hope that ultimately it pays off, because again it's not 0:05:56.600 --> 0:05:59.600 just of significance for the stock market or investors in 0:05:59.640 --> 0:06:03.680 these companies, but again it has very significant spillovers on 0:06:03.720 --> 0:06:05.320 the rest of the economy today as well. 0:06:05.560 --> 0:06:05.720 Well. 0:06:05.760 --> 0:06:08.520 Some of those spillovers Jason, which has been widely talked about, 0:06:08.600 --> 0:06:10.600 is what it does to this labor market, and there 0:06:10.600 --> 0:06:12.960 it's unclear what's really showing up. You see it in 0:06:12.960 --> 0:06:15.640 some of the Earnings Service now, the management platform tool, 0:06:15.880 --> 0:06:18.360 the CEO they're saying yesterday, we're slowing down the hiring 0:06:18.400 --> 0:06:21.240 and jobs that are quite frankly soul crushing, which I 0:06:21.279 --> 0:06:23.800 think is maybe a nice way to describe replacing people's 0:06:23.839 --> 0:06:27.240 jobs with Ai Jason. Is it showing up anywhere? 0:06:29.240 --> 0:06:31.960 I think that most of the change in the labor 0:06:32.000 --> 0:06:35.280 market that we observed in twenty twenty five was related 0:06:35.520 --> 0:06:39.320 to tariffs, just just the shock, the uncertainty, and I 0:06:39.320 --> 0:06:42.520 think what was so interesting about that was CEOs really 0:06:42.640 --> 0:06:46.599 not panicking after April second. I think there was this 0:06:46.680 --> 0:06:50.279 intention to project a sense of normalcy, to look at 0:06:50.480 --> 0:06:52.720 competitors and see if there are any missteps, if they 0:06:52.720 --> 0:06:55.800 could take market share, And part of that had been, yes, 0:06:55.880 --> 0:06:58.640 perhaps slowing the pace of hiring. But it was just 0:06:58.720 --> 0:07:01.919 interesting when we look through our portfolio that they're really 0:07:02.040 --> 0:07:05.760 not much for reduction in open but unfilled positions. There 0:07:05.800 --> 0:07:08.880 really wasn't the pullback that I think many people expected. 0:07:09.200 --> 0:07:11.560 So so the labor market is held up reasonably well, 0:07:11.600 --> 0:07:13.920 and of course on the other side of that, you 0:07:13.960 --> 0:07:17.120 have inflation that continues. You know, if you look at 0:07:17.120 --> 0:07:21.280 core PCE over the last twelve months, still probably two 0:07:21.360 --> 0:07:24.280 and a half two point six percent, So you know, 0:07:24.520 --> 0:07:27.280 it is this interesting moment where I think that inflation's 0:07:27.560 --> 0:07:29.960 a bit stickier. I mean, of course, some people look 0:07:29.960 --> 0:07:32.280 at the last eight to ten weeks and tell me 0:07:32.760 --> 0:07:35.800 inflation is only up by one percent annualized rate. But 0:07:36.280 --> 0:07:38.640 you know, of course there's not that many prices in 0:07:38.640 --> 0:07:43.080 our economy that reset that regularly, you know, whether they're 0:07:43.080 --> 0:07:46.200 fixed or contractual term or you know, just other frictions. 0:07:46.760 --> 0:07:52.400 So you know, it's a twelve month inflation benchmark and 0:07:52.720 --> 0:07:55.000 this it's still elevated. So you know, next week, I 0:07:55.000 --> 0:07:57.800 think is a time when when the FED is very 0:07:57.880 --> 0:08:01.080 reasonably going to take rate study. 0:08:01.440 --> 0:08:05.120 Jason, you're making an argument for why stocks can outperform 0:08:05.200 --> 0:08:07.640 and bonds cannot, the idea that the promise of the 0:08:07.680 --> 0:08:10.520 future and all of this investment and the profitability is 0:08:10.640 --> 0:08:13.640 much more attractive than credit markets. That people say, or 0:08:13.640 --> 0:08:16.160 I would say, government bond markets credit markets might be 0:08:16.160 --> 0:08:16.840 slightly different. 0:08:17.280 --> 0:08:17.960 Is that accurate? 0:08:18.120 --> 0:08:19.320 Is that kind of the way you think of the 0:08:19.320 --> 0:08:20.320 world right now. 0:08:21.920 --> 0:08:25.120 There is of course the convex upside of earnings, of 0:08:25.160 --> 0:08:27.640 the potential of AI, and that is what equity markets 0:08:27.680 --> 0:08:30.720 are ultimately betting on. Whether that materializes or not is 0:08:30.760 --> 0:08:34.200 a separate question, but there is that upside there, and 0:08:34.280 --> 0:08:37.040 I think also just the potential for inflation. When you 0:08:37.120 --> 0:08:41.560 have businesses that can increase prices proportional to the overall 0:08:41.559 --> 0:08:44.400 increase in the price level, that also provides an inflation 0:08:44.559 --> 0:08:48.800 hedge when you're investing in businesses, you know, the fixed 0:08:48.840 --> 0:08:52.200 income markets. That's a different story right now. If you 0:08:52.200 --> 0:08:55.560 look at the size of the US fiscal deficit, it's 0:08:55.600 --> 0:08:59.960 consuming about forty percent of the savings of the private sector, 0:09:00.320 --> 0:09:03.440 that is, the savings of the household sector plus the 0:09:03.440 --> 0:09:06.000 free cash flow of the corporate sector. This is up 0:09:06.600 --> 0:09:09.760 about fifty percent from where it was in the past 0:09:09.760 --> 0:09:13.040 cycle two thousand and nine to twenty nineteen. So this 0:09:13.120 --> 0:09:17.520 is just enormous funding needs, and I think that people 0:09:17.600 --> 0:09:23.720 have to be concerned about the potential to be inflated away. Eventually, 0:09:23.760 --> 0:09:26.880 the Treasury may try to turn out more of its 0:09:26.880 --> 0:09:29.880 dead issuance. And what is the market clearing price when 0:09:29.920 --> 0:09:32.840 the share of federal funding actually moves in the direction 0:09:32.920 --> 0:09:35.920 of ten year notes thirty year bonds. So I think 0:09:36.040 --> 0:09:38.240 certainly a lot of questions there, and I think the 0:09:38.280 --> 0:09:44.320 other big concern bonds historically have hedged equity market risk. 0:09:44.520 --> 0:09:47.560 That was the experience really since two thousand. What we've 0:09:47.600 --> 0:09:50.560 seen since the FED started hiking rates in two thousand 0:09:50.559 --> 0:09:53.880 and two is that stock and bond returns have been 0:09:53.960 --> 0:09:59.000 positively correlated. Those treasury holdings that you thought were protecting 0:09:59.040 --> 0:10:02.240 you that would rise predictably when stocks sell off, are 0:10:02.280 --> 0:10:04.880 actually selling off at the same time. And we saw that, 0:10:04.920 --> 0:10:08.320 of course in April, which many people attribute to the 0:10:08.320 --> 0:10:12.160 decision to suspend the initial Liberation Day tariff schedule. 0:10:12.600 --> 0:10:25.000 Jason Thomas of Carlisle, thank you so much. Francisco Blanche 0:10:25.000 --> 0:10:28.000 of Bank of America. Writing this, we project Brent and 0:10:28.200 --> 0:10:31.560 WTI to average sixty seven and sixty four dollars a barill, 0:10:31.640 --> 0:10:35.600 respectively in twenty twenty five. Francisco joins US now, and 0:10:35.679 --> 0:10:37.880 I guess that you could ask why our price is 0:10:37.920 --> 0:10:41.200 not lower considering all of the supply that we see 0:10:41.200 --> 0:10:43.240 coming out of the Middle East and this push for 0:10:43.320 --> 0:10:45.320 drill baby drill in the United States. 0:10:46.160 --> 0:10:47.680 Thanks for having Melissa once again. 0:10:48.559 --> 0:10:51.280 Yeah, you know it's funny, right, So you know, weaker 0:10:51.360 --> 0:10:55.560 little are we're getting slightly littlewer oil, potentially lower rates 0:10:55.559 --> 0:10:56.000 the whole point. 0:10:56.080 --> 0:10:56.200 Right. 0:10:56.240 --> 0:10:59.240 That's so it's all going according to pine. I do 0:10:59.320 --> 0:11:02.079 think one of the issues that has been supporting oil 0:11:02.400 --> 0:11:07.200 has been the seasonal strength of the summer months. But 0:11:07.320 --> 0:11:08.920 as we go into the second half of the year, 0:11:09.280 --> 0:11:12.920 we are going to likely see lower prices, and that's 0:11:12.960 --> 0:11:15.880 because inventories are most likely to build outside the China. 0:11:15.880 --> 0:11:18.640 I remember in the second quarter we had a surplus, 0:11:18.960 --> 0:11:21.440 but ninety percent of those barrels were stored in Chinese 0:11:21.480 --> 0:11:25.480 strategic reserves. And can you blame them after all the 0:11:25.520 --> 0:11:27.199 volativity we've seen in the Middle. 0:11:26.920 --> 0:11:28.160 East, Russia, Ukraine. 0:11:28.760 --> 0:11:31.480 So the Chinese are acutely aware of the geopolitics and 0:11:31.880 --> 0:11:33.880 the fact that they're the biggest oil important in the world, 0:11:33.920 --> 0:11:36.040 so twelve million barrels a day, so they have a 0:11:36.120 --> 0:11:38.880 huge exposure. Whether it's the Strait of. 0:11:38.880 --> 0:11:40.199 Hormones or Malacca. 0:11:40.840 --> 0:11:42.840 They're still really heavily on oil despite all the electric 0:11:42.920 --> 0:11:45.200 vehicles that they keep pushing into their market. So I 0:11:45.200 --> 0:11:47.600 think that's that's been part of the story. My sense, 0:11:47.640 --> 0:11:50.680 they'll they'll keep building inventories, but they're almost they almost 0:11:50.679 --> 0:11:54.000 have forty percent of all oil stocks globally at. 0:11:53.880 --> 0:11:55.520 This point, crude oil stocks, that is right. 0:11:55.600 --> 0:11:58.880 So I do think second half of the year, the 0:11:58.880 --> 0:12:01.360 surple is going to be close to two hundred million barrels, 0:12:01.960 --> 0:12:05.160 and eventually we're going to spill out from Chinese inventories 0:12:05.200 --> 0:12:07.640 into the Atlantic Basin, into into the US and Europe, 0:12:07.760 --> 0:12:09.600 and that's what's going to allow prices to come off. 0:12:09.960 --> 0:12:11.600 How much are we going to come off will depend 0:12:11.640 --> 0:12:14.839 on how much Open Plus keeps pushing barrels out, because 0:12:14.840 --> 0:12:17.319 we've seen the recount in the US is already coming down. 0:12:17.840 --> 0:12:18.880 It's down fifteen percent. 0:12:18.960 --> 0:12:21.800 So my sensus that we'll see lower prices, but not 0:12:21.880 --> 0:12:24.240 necessarily prices crashing given. 0:12:24.040 --> 0:12:26.640 The geopolitics and given this supply demand dynamics that we're 0:12:26.679 --> 0:12:29.600 just talking about. How divorced is the price of oil 0:12:29.640 --> 0:12:31.640 from an economic cycle that seems to hinge on a 0:12:31.720 --> 0:12:34.880 new industrial revolution that ten years ago would have included 0:12:34.920 --> 0:12:36.160 a huge use of oil. 0:12:36.760 --> 0:12:39.360 Yeah, this is a very very good point. And when 0:12:39.360 --> 0:12:43.160 you think about the energy demand we're seeing today, it's 0:12:43.280 --> 0:12:45.800 in some places in the US it's astronomical. I mean 0:12:45.880 --> 0:12:48.839 Texan powery Man is up five point five percent year 0:12:48.880 --> 0:12:51.439 and year. I mean, you can barely find an emerging 0:12:51.440 --> 0:12:53.440 market that's going at that's pace, right, And it's just 0:12:53.720 --> 0:12:58.240 this is like insane. So I think if you if 0:12:58.240 --> 0:13:00.360 you look at the next the next few months, the 0:13:00.400 --> 0:13:02.719 majority of the demand and probably next two three years, 0:13:02.720 --> 0:13:04.400 the majority of nine for energy is going to be 0:13:04.440 --> 0:13:07.240 still renewals. Also natural gas, which is what makes us 0:13:07.240 --> 0:13:11.400 relatively constructive on Henry Hub and even into the summer 0:13:11.440 --> 0:13:14.440 on TTF European gas. But for oil, it's not going 0:13:14.480 --> 0:13:16.439 to touch it immediately. It's gonna take a little longer. 0:13:16.760 --> 0:13:18.880 I'm not even sure, you know. Oil is the transportation 0:13:18.960 --> 0:13:22.600 fuel for the most parts, so it's kind of left 0:13:22.600 --> 0:13:26.280 by the wayside in this in this AI revolution for 0:13:26.360 --> 0:13:27.960 more energy at this stage. 0:13:28.040 --> 0:13:30.160 Maybe later on it may not, but for now it. 0:13:30.160 --> 0:13:33.440 Is talk about that later on point what could it 0:13:33.480 --> 0:13:34.280 eventually look like? 0:13:35.080 --> 0:13:37.000 Well, I mean, I think if you look five years out, 0:13:37.040 --> 0:13:39.480 the demand growth threies we're saying for energy, they're going 0:13:39.520 --> 0:13:40.440 to be pretty hard to meet. 0:13:41.520 --> 0:13:43.960 And remember how we've evolved. 0:13:43.960 --> 0:13:46.880 Two years ago, the big tech companies were looking for 0:13:47.040 --> 0:13:49.160 clean sources of power. They're like, oh, we just want 0:13:49.160 --> 0:13:53.600 to use super clean power, and then you know, renewals 0:13:53.640 --> 0:13:56.360 and this net and then they said, well maybe renewals 0:13:56.360 --> 0:14:00.360 and nuclear and now it's like renewals nuclear gas, like, oh, 0:14:00.480 --> 0:14:02.280 just give me any power you can find, because we 0:14:02.360 --> 0:14:04.760 really need a lot of power we need. So there's 0:14:04.800 --> 0:14:09.600 talks about building ten fifteen gigs of power in Pennsylvania. 0:14:09.640 --> 0:14:11.640 There's you know, you have the easterner Boarder is going 0:14:11.640 --> 0:14:15.520 to need a lot of power. Texas already growing beyond belief, 0:14:15.640 --> 0:14:17.640 and even older parts of the US where you have 0:14:17.640 --> 0:14:20.200 this data center's Pacific Northwest, you're gonna have a lot 0:14:20.200 --> 0:14:23.080 of world So and then eventually Europe as well, and 0:14:23.280 --> 0:14:25.680 the US has a capacity problem. The US needs to 0:14:25.720 --> 0:14:29.320 build those power plants Europe because it's destroyed the energy 0:14:29.680 --> 0:14:31.400 consumption in the last couple of years a result of 0:14:31.480 --> 0:14:34.440 Russia Ukraine. Actually it does have the capacity. So there's 0:14:34.440 --> 0:14:36.680 going to be an interesting balancing act in the next 0:14:36.720 --> 0:14:38.920 two three years for power too, which is on. 0:14:38.760 --> 0:14:41.600 That point we finally have a ban on Russian imports 0:14:41.640 --> 0:14:44.080 coming into effect for Europe, and Totel Energy is one 0:14:44.120 --> 0:14:46.040 of the biggest energy players in Europe, was saying, look, 0:14:46.040 --> 0:14:48.640 we have a tightening diesel market because of this how 0:14:48.680 --> 0:14:50.280 played out is this is there going to be more 0:14:50.320 --> 0:14:52.920 stress and tension in the market and tightening of supplies 0:14:53.280 --> 0:14:55.880 as the band really starts to come into force. 0:14:56.840 --> 0:14:59.600 There could be, certainly, and you also have to ask yourself, Okay, 0:14:59.640 --> 0:15:04.880 so there's this ban on that secondary resell issues. Of course, 0:15:05.120 --> 0:15:08.040 Europe doesn't want to buy diesel that has come from 0:15:08.120 --> 0:15:11.360 originally Russian crude oil, which as we know, is going 0:15:11.440 --> 0:15:15.160 mostly into India but also into China. Right So Europe's 0:15:15.160 --> 0:15:19.440 been buying oil from refiners that actually do purchase Russian 0:15:19.680 --> 0:15:21.440 crude and that's been one of the issues. But Europe 0:15:21.520 --> 0:15:27.000 still purchases fifteen percent of its gas directly from Russia, 0:15:27.080 --> 0:15:29.560 right so, and that's that goes from Belgium and France 0:15:29.600 --> 0:15:32.480 and Spain and Italy and does it make its way 0:15:32.480 --> 0:15:35.120 into Germany too. So Europe is trying to really cut 0:15:35.160 --> 0:15:37.920 its dependency on Russia. But it's a tough thing to 0:15:37.920 --> 0:15:40.920 do because again, only three years ago or a half 0:15:40.960 --> 0:15:43.640 years ago, fifty percent of European energy, oil, gas and 0:15:43.640 --> 0:15:45.840 coal came from Russia. So they're trying to do it 0:15:45.880 --> 0:15:50.400 progressively and in the process is not being helping European industry. 0:15:50.440 --> 0:15:52.280 But that's kind of I guess part of the price 0:15:52.320 --> 0:15:53.480 that Europe is ready to pay. 0:15:53.600 --> 0:15:54.080 Francisco. 0:15:54.120 --> 0:15:56.000 Before I let you go, I'd love a comment on 0:15:56.080 --> 0:15:59.440 oil and gold. Excuse me, the solid gold, the solid 0:15:59.680 --> 0:16:02.960 oil that we've seen in terms of just how people 0:16:03.040 --> 0:16:05.800 are treating it. We've seen prices double since twenty twenty 0:16:05.800 --> 0:16:08.440 two to more than three thousand dollars in allens, and 0:16:08.480 --> 0:16:10.680 I just wonder how much higher you see it going 0:16:10.680 --> 0:16:13.000 as you hear an increasing amount of people point this 0:16:13.520 --> 0:16:16.760 out as the haven asset as the real questions around 0:16:16.840 --> 0:16:18.000 via currency. 0:16:18.240 --> 0:16:20.080 Right, So we have to be clear. 0:16:20.840 --> 0:16:23.120 Just like we are bearish on oil and we're constructive 0:16:23.120 --> 0:16:24.800 on gas because of the power story we are, we 0:16:24.840 --> 0:16:28.880 are bullish on gold as well. We think gold is 0:16:28.920 --> 0:16:31.200 eventually going to get around four thousand or the next 0:16:31.400 --> 0:16:34.720 Prounce over the next twelve months. Having said that gold 0:16:34.800 --> 0:16:37.760 needs more investor demand. The story has been mainly a 0:16:37.760 --> 0:16:40.520 central bank story, and of course you know there was 0:16:40.560 --> 0:16:43.960 a nice tour estera of the FED building that we 0:16:44.000 --> 0:16:47.040 saw that, right, So the pressure is on for the 0:16:47.080 --> 0:16:50.840 Fed to cut rates, and obviously people are going to 0:16:50.920 --> 0:16:55.200 question independence and one of the beneficiaries of that questioning 0:16:55.280 --> 0:16:57.440 is going to be the goal market, right, So to 0:16:57.480 --> 0:17:02.880 what extent this you know, this pressure builds on the 0:17:02.880 --> 0:17:06.119 FED political pressure. I think that's what will ultimately trigger 0:17:06.200 --> 0:17:09.359 a higher price for gold. But remember jewelry demands for 0:17:09.359 --> 0:17:12.800 gold is down twenty percent year on year. So so 0:17:13.119 --> 0:17:16.200 the real beneficiaries a year to date of the gold 0:17:17.160 --> 0:17:20.800 upside pressure have been the other metals, the other precious 0:17:20.840 --> 0:17:24.200 metals like silver and platinum and palladium. So so gold 0:17:24.240 --> 0:17:26.720 this is doing well. It's still picking up a mentune, 0:17:26.720 --> 0:17:29.680 but it's already a twenty plus trillion dollar market. Right, 0:17:29.760 --> 0:17:32.720 there's twenty plus trillion dollars worth of gold out there. 0:17:32.920 --> 0:17:37.120 I remember, US treasure isn't handled public twenty trillion or so, 0:17:37.240 --> 0:17:39.400 right in the US public. Now you have the foreigners, 0:17:39.400 --> 0:17:43.720 which on another nine nine trillion. But Goal's gotten very big, 0:17:43.800 --> 0:17:46.600 and to get another leg up you need lower rates 0:17:46.800 --> 0:17:49.520 when this happens, and pretty much those lower rates come 0:17:49.520 --> 0:17:52.120 on the back of political pressure, I think will get 0:17:52.119 --> 0:17:53.200 another another light wind. 0:17:53.240 --> 0:17:55.080 All I can say is we saw a tour of 0:17:55.119 --> 0:17:56.760 the FED. I would have loved to see a tour 0:17:56.800 --> 0:17:57.320 of Fort Knox. 0:17:57.320 --> 0:17:57.880 That's all I can say. 0:17:57.880 --> 0:18:00.080 That's where they should meet next time and Trump at four. 0:18:00.320 --> 0:18:03.399 I would like to see that tour Francisco lunch. Thank you, Gregor, 0:18:03.480 --> 0:18:04.120 thank you so much. 0:18:04.119 --> 0:18:05.679 I'm great to see you as always. 0:18:15.480 --> 0:18:19.639 Great dayco of Ey writing this economic activity is decelerating 0:18:19.720 --> 0:18:23.280 even as inflationary pressures are re emerging. This tension is 0:18:23.440 --> 0:18:26.440 likely to persist through the summer. Greg joins us now 0:18:26.480 --> 0:18:28.400 and Greg, we just had a lineup of people all 0:18:28.440 --> 0:18:31.679 saying that the economy is going strong. People are just 0:18:31.680 --> 0:18:35.320 deciding which fast casual restaurant to go to, and there 0:18:35.400 --> 0:18:37.760 definitely does not seem to be the same kind of 0:18:37.760 --> 0:18:40.720 inflationary pressure that many people thought would be the case. 0:18:41.040 --> 0:18:43.879 Why are you maintaining this idea of a stagflationary push 0:18:44.119 --> 0:18:45.880 that just hasn't shown up in the data yet. 0:18:45.960 --> 0:18:48.560 Well, I think it hasn't shown up in the superficial data. 0:18:48.600 --> 0:18:50.080 But if you lift the hood, you're. 0:18:49.960 --> 0:18:53.240 Going to see the signs of this diflationary move. If 0:18:53.240 --> 0:18:56.120 you look at the recent developments in terms of inflation, 0:18:56.560 --> 0:18:59.560 we estimate that about a third to a fourth of 0:18:59.600 --> 0:19:02.639 the push in inflation in the month of June was 0:19:02.680 --> 0:19:06.480 actually coming from tariff induced price pressure. So it's there 0:19:06.600 --> 0:19:09.119 it's slowly starting to emerge. And I've written in the 0:19:09.119 --> 0:19:11.600 past about the fact that it's not that we're not 0:19:11.680 --> 0:19:14.480 seeing the tariff pressures, it's that they're taking some time 0:19:14.520 --> 0:19:18.560 to filter through because businesses have been managing inventories, because 0:19:18.840 --> 0:19:22.280 they've been using bonded warehouses and foreign trade zones, because 0:19:22.480 --> 0:19:24.919 the effective teriff frate is not quite yet at the 0:19:25.000 --> 0:19:27.400 average teriff frate, and there is a gap between those two. 0:19:27.680 --> 0:19:30.320 All these measures are delaying the inflation pass through. But 0:19:30.480 --> 0:19:34.000 make no mistake, it is materializing, and it will affect 0:19:34.080 --> 0:19:36.600 us with more and more pressure over the course of 0:19:36.640 --> 0:19:39.800 the summer, which will feed into how consumers spend. 0:19:40.080 --> 0:19:41.720 And we're seeing these signs. 0:19:41.400 --> 0:19:44.040 Of pressures on the consumer already. If you look at 0:19:44.040 --> 0:19:47.040 retail sales, the categories that were most affected by the 0:19:47.080 --> 0:19:49.119 tariffs are the ones that are suffering the most. 0:19:49.200 --> 0:19:51.840 So what happens then if we feel the real effects 0:19:51.960 --> 0:19:55.000 later this year and early next year, at the same 0:19:55.040 --> 0:19:57.679 time we're starting to get fed cuts and you're starting 0:19:57.680 --> 0:20:00.280 to see the one big beautiful bill some the stimulus 0:20:00.280 --> 0:20:01.400 through from that, well, I. 0:20:01.320 --> 0:20:03.880 Think it's important to distinguish all of the different details 0:20:03.920 --> 0:20:05.760 that are affecting the economy. There are a lot of 0:20:05.760 --> 0:20:09.359 cross currents which make for this very confusing economic picture, 0:20:09.600 --> 0:20:12.119 but the reality is that the economy is decelerating. If 0:20:12.160 --> 0:20:15.480 you look at the labor market momentum, it is actually decelerating, 0:20:15.800 --> 0:20:18.760 Slower job growth, more concentration of job growth in a 0:20:18.800 --> 0:20:22.399 few sectors. We are seeing continuing claims for unemployment that 0:20:22.440 --> 0:20:25.399 are rising, even though after the hump we saw initial 0:20:25.480 --> 0:20:28.240 claims come back down. We're seeing the hiring rate at 0:20:28.240 --> 0:20:31.520 a ten year low. All of these factors are factors. 0:20:31.080 --> 0:20:32.280 That drive income growth. 0:20:32.320 --> 0:20:35.479 The key pillar to consumer spending activity, and that is 0:20:35.760 --> 0:20:37.720 way to the downside. So that's going to be a 0:20:37.720 --> 0:20:41.040 constraint for consumer spending as we navigate through the second 0:20:41.040 --> 0:20:44.200 half of the year at the same time as inflation 0:20:44.320 --> 0:20:47.919 pressures are ramping up. And about that biscal bill that 0:20:48.040 --> 0:20:50.439 is not going to provide a lot of stimulus in 0:20:50.520 --> 0:20:52.920 terms of the US economy. The major thing the One 0:20:52.920 --> 0:20:56.160