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: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Max Kenter of HSBC
Speaker 2: is sticking with this. We remain tactically risk off and
Speaker 2: stick to our underway stance on the US, but buying
Speaker 2: opportunities should come soon enough. Max Kenner of HSBC joined
Speaker 2: us now for more. Max, Welcome to the program sir.
Speaker 2: You put out a note in the last week why
Speaker 2: washing machines matter? Let's start there, Why a washing machines matter?
Speaker 3: Max?
Speaker 4: Yeah, Number one, it was obviously a bit of clickbaiting.
Speaker 4: Unpleased to see that it worked with you, John, that's
Speaker 4: very good. But number two, it actually was there was
Speaker 4: some truth to that, actually and some sort of underlying
Speaker 4: reason why we looked at it because when we looked
Speaker 4: at the washing machine tariffs in twenty sixteen and twenty eighteen,
Speaker 4: in fact, we've seen quite a bit of sort of
Speaker 4: textbook like behavior what we would expect with tariffs. In
Speaker 4: twenty sixteen, when we had the anti dumping order on China,
Speaker 4: for example, the overall imputs of washing machines to the
Speaker 4: US didn't really change. It was only the imports from
Speaker 4: China that dipped, but worldwide inputs actually, you know, they
Speaker 4: were pretty stable, so we saw the classic substitution effect.
Speaker 4: There was also no effect on prices. That only came
Speaker 4: in twenty eighteen when we saw the global tariffs on
Speaker 4: washing machines slapped on, and what you saw in advance
Speaker 4: for that a couple months before that activity went up,
Speaker 4: we saw this classic sort of front loading that people
Speaker 4: are also talking about right now, some people really rushing
Speaker 4: to buy those washing machines, and then imputs really nosedived
Speaker 4: into into those worldwide tariffs. And the same happened with
Speaker 4: laundry equipment CPI. So with prices on washing machines, they've
Speaker 4: actually went up by ten and a half percent straight
Speaker 4: after those tariffs were slapped on in February twenty eighteen.
Speaker 4: So the parallel that we were drawing really this. I
Speaker 4: think people are a little bit too relaxed now in saying, well,
Speaker 4: you know what, the next couple of quarters, maybe consumers
Speaker 4: are going to dial back spending a bit, and maybe
Speaker 4: we're going to feel a little bit on spending and
Speaker 4: on capis. Whereas I do really fear that in the
Speaker 4: next month and two, so in May and June, we're
Speaker 4: already going to start to see some really really disappointing
Speaker 4: heart data. And because the narrative at the moment is
Speaker 4: so entrenched in the sense that it's only a slowdown,
Speaker 4: it's not a recession. Don't worry, it's just to soften
Speaker 4: the survey data because of that really really widespread narrative.
Speaker 4: In fact, I really do fear that a couple of
Speaker 4: heart data points are already a couple of disappointing heart
Speaker 4: data points are already enough to really drive us a
Speaker 4: leg low and risk assets.
Speaker 1: Well, ma's respecting.
Speaker 2: See it this morning at eight thirty Eastern time and GDP,
Speaker 2: but that's just a massive GDP with front loaded imports.
Speaker 2: You're going to see that show up. You might get
Speaker 2: a negative print max. When you say it was sharp
Speaker 2: and hard data, which hard data?
Speaker 1: When? And why? Look, that's that's exactly the point.
Speaker 4: A two months ago, I could have argued, well, it's
Speaker 4: mostly consumer sentiments, right, It's only the soft data and
Speaker 4: the consumer sentiment side, So let's watch that kind of data.
Speaker 4: But now you've got labor market conditions down, right, So
Speaker 4: some of the surveys pointing to lower, maybe even negative
Speaker 4: payroll prints. In the next couple of months, you've got
Speaker 4: CEO confidence down, KAPEX intentions down, whether you look at
Speaker 4: regional FED surveys, you look at PMS, you look at
Speaker 4: small business sentiment. So, in fact, at the moment, I
Speaker 4: think it is way too widespread to say, well, let's
Speaker 4: just dismiss it as soft data weakness. In fact, now
Speaker 4: it's so broad based that I'm looking at the heart data.
Speaker 4: I'm like, I don't really care. I'm not looking only
Speaker 4: at consumer spending now. It could come from anywhere. It
Speaker 4: could be ADP today, it could be GDP today as well.
Speaker 4: Little let's face it, John, today, the GDP data, even
Speaker 4: if it is positive, even if that is the case,
Speaker 4: look consent to are saying consumer spending is going to
Speaker 4: go down from four percent and Q four to one
Speaker 4: point two and Q one in a quarter where most
Speaker 4: likely consumers have actually front loaded activity, and still consumer
Speaker 4: spending is expected to be only a touch above one percent.
Speaker 4: That's not good at all. So to me, it's not
Speaker 4: just consumer spending. It could come from consumers from the
Speaker 4: consumer site, could be on the labor market side, could
Speaker 4: be jobless claims during the summer, right, some sort of
Speaker 4: residual seasonality that we've seen also plan out in twenty
Speaker 4: twenty three and last year, remember the PSALM rule then
Speaker 4: in August, but the market played that already in June
Speaker 4: and July, the sort of the cracks in the labor market.
Speaker 4: So we could genuinely see it from actually a broad
Speaker 4: range of heart data, not just well, I'm looking at
Speaker 4: retail sales and if they don't disappoint then my view
Speaker 4: is wrong.
Speaker 1: No, it's much much more widespread now. Max.
Speaker 5: I've just struck by the fact that three months ago
Speaker 5: you were talking goldilocks and steroids and US exceptionalism nirvana,
Speaker 5: and that was basically the story, and you weren't going
Speaker 5: to fight it, and all of a sudden, your Max
Speaker 5: underweight the United States and you're looking at China as
Speaker 5: a place to really overweight in a significant way. How
Speaker 5: much of a decline would you need to see before
Speaker 5: those buying opportunities start to emerge.
Speaker 4: Yeah, so some of our fundamental models, the different or
Speaker 4: the gap between those fundamentals what we're seeing what's being
Speaker 4: priced in in terms of growth expectations top down growth expectations,
Speaker 4: and what's priced into the equity market. Think globally cyclicals
Speaker 4: over defensives. That gap is around nine percentage points, So
Speaker 4: that really needs to be close. I don't think it
Speaker 4: is enough if we're seeing things like Microsoft or Amazon
Speaker 4: or some of the mag seven disappointing and that then
Speaker 4: driving the equity market down.
Speaker 1: No, it is, in fact, really.
Speaker 4: Particularly the cyclicals globally that are holding up to well,
Speaker 4: and particularly also in the US. I think, you know,
Speaker 4: you look at the US, things like consumer cyclicals, but
Speaker 4: also the russell things like small caps really are a
Speaker 4: pretty pretty decent levels to go underweight and to sell
Speaker 4: again at this at this point.
Speaker 5: Now, yeah, I'm sure at the end of last year
Speaker 5: people were saying that the US would be able to
Speaker 5: weather tarriffs much more effectively than any other economy around
Speaker 5: the world, and all of a sudden, one hundred days
Speaker 5: into Trump's administration, and that story is but Toronto's head,
Speaker 5: and you're basically talking about overweighting everything else except for
Speaker 5: the United States. Why has that narrative shifted to such
Speaker 5: degree that the pain will be maximally fell to the
Speaker 5: United States and US assets rather than Europe, rather than Asia.
Speaker 1: It's a great question.
Speaker 4: It's very, very different from what we expected perhaps three
Speaker 4: months ago. Remember three months ago we had the first
Speaker 4: tariff round with Canada and with Mexico, and you know
Speaker 4: the narrative, Well, I think the broad consensus was this
Speaker 4: is mostly negotiation tactic. And remember this was all solved
Speaker 4: within twenty four hours. We kind of freaked out. FX
Speaker 4: week freaked out, right, We had the Mexican pays off,
Speaker 4: the Canadian dollar cell offs, so most most of the
Speaker 4: tariff effects were really absorbed in FX.
Speaker 1: But then it will result twenty fives.
Speaker 4: So we all thought, okay, let's move on. This isn't
Speaker 4: really something to take seriously. This is mostly noise. No
Speaker 4: need to price that. If anything, it's going to hurt
Speaker 4: the others more than the US because it's just that noise.
Speaker 4: I think what we've all underestimated, including myself, is the
Speaker 4: kind of confidence and sentiment shock, and the kind of
Speaker 4: broad based confidence and sentiment shock that we've really seen
Speaker 4: in the US economy. Again we can I think that
Speaker 4: the only reason why we're talking about the ins and
Speaker 4: outs of daily tweets or you know these you guys
Speaker 4: were just talking about the autos and the kind of
Speaker 4: nitty gritty around those autotariffs. The only reason why we
Speaker 4: can still afford to talk about that is because the
Speaker 4: soft data versus heart data narrative is still holding up,
Speaker 4: because we are not seeing yet the weakness in this
Speaker 4: heart data.
Speaker 1: And I think that's really where.
Speaker 4: I'm scared about in May and in June, where we
Speaker 4: could be seeing the first cracks in jobless claims, the
Speaker 4: first cracks in the heart data, and because of that
Speaker 4: widespread narrative of it's just a slow down, it's not
Speaker 4: a recession, it's just the soft data that is weakening.
Speaker 4: Because of that widespread narrative, I don't need to see
Speaker 4: the whites of the eyes of recession. I think it's
Speaker 4: totally enough for a bearer view like ourselves to see
Speaker 4: two three heart data points disappointing and already that narrative
Speaker 4: I think will be in chatter.
Speaker 1: Max.
Speaker 2: I just want to pick up on one trade in particular,
Speaker 2: just to close this conversation out. You've increased your overweight
Speaker 2: into em local debt. There's two assumptions you're making care
Speaker 2: that if the US economy gets into trouble, the rest
Speaker 2: of the world won't as much. And you're also making
Speaker 2: a call on the FX market as well, because typically
Speaker 2: when you see a global economy go into a downturn,
Speaker 2: the dollar strengthens, it doesn't weaken. Where do these assumptions
Speaker 2: come from.
Speaker 1: I think that's totally right, John.
Speaker 4: I think most of that really is something or is
Speaker 4: the assumption that is mostly a US centric risk off,
Speaker 4: that it's a US centric slowdown. Let's face it, in
Speaker 4: the last two months, we've also seen several of several
Speaker 4: puts from the US administration, so several sort of U
Speaker 4: turns from the US administration. I don't expect this time
Speaker 4: to be any different. I don't expect that if the
Speaker 4: heart data really turns, if of you like ours is correct,
Speaker 4: that really the US administration will press on regardless. I
Speaker 4: do there will be some sort of you know, some
Speaker 4: sort of concessions to the market and some sort of
Speaker 4: U turns where then is exactly precisely those kind of
Speaker 4: buying opportunities that you were alluding to in the very beginning.
Speaker 4: I think that's what we're going to see in the
Speaker 4: next two three months. And that of course means it
Speaker 4: is not an environment where you want to go longer
Speaker 4: dollar and where you say, oh, that's the ultimate safe haven.
Speaker 4: It's mostly really a US risk off where the dollar
Speaker 4: sells off and where weirdly and oddly enough, this this
Speaker 4: this divergence between emerging market local rates and broader risk assets.
Speaker 4: Think US equities, think global equities. That broader divergence we've
Speaker 4: seen in the last two months that will still hold
Speaker 4: and where a lot of emerging market, particularly high beta countries,
Speaker 4: think places like Eveni and Asia, but like South Africa,
Speaker 4: I think Mexico for example. A lot of those high
Speaker 4: beta names have a really really attractive risk premium.
Speaker 2: Here, Max, appreciate the cold today, Max Kenada of HSBC.
Speaker 6: I'm joined with, of course Ryan Peterson, the CEO of Flexport,
Speaker 6: a friend of the show. We're so happy to have
Speaker 6: him in person in DC. You're in the thick of
Speaker 6: this trade story, representing all these companies that are trying
Speaker 6: to figure out where these tariff freights are going. We're
Speaker 6: gonna get GDP numbers today that are going to show
Speaker 6: a tremendous amount of front loading. Where are we right
Speaker 6: now when it comes to shipping, especially in China.
Speaker 7: Yeah, so flexfort is one of the largest logistics companies
Speaker 7: in the United States and the world really, and what
Speaker 7: we've seen since the tariff, since April ninth is a
Speaker 7: sixty percent decline in bookings. And that's not a Flexport number.
Speaker 7: That's industry wide for ocean freight. Now, a booking is
Speaker 7: you place a booking about three weeks before the container
Speaker 7: leaves China and then it arrives, of course in the
Speaker 7: US about a month after that. So this all started
Speaker 7: about three weeks ago. You're going to start to see
Speaker 7: arrivals that the port of Long beachs drop from China
Speaker 7: by sixty percent in the next few weeks, and then
Speaker 7: weeks after that for East coastports, golf cup sports. So
Speaker 7: it's gonna be a massive impact on consumers prices and
Speaker 7: obviously you know the bigger impacts here as companies and
Speaker 7: therefore jobs if they can continue to employ as many
Speaker 7: people and.
Speaker 6: We've seen companies reach out to the White House. Last week,
Speaker 6: you had Walmart target those executives in the Oval Office
Speaker 6: explaining this picture you're describing right now. And then yesterday
Speaker 6: we had really this dramatic episode with Amazon. Amazon was
Speaker 6: going to potentially carve out the tariff price on their
Speaker 6: website and administration called that a hostile and political act.
Speaker 6: Do you tell your businesses how they should maybe deal
Speaker 6: with this White House when it comes to trade policy.
Speaker 7: Well, you know, our businesses is a flexport. Customers are
Speaker 7: kind of mostly small business, small medium sized business.
Speaker 1: We do work with a few large enterprises.
Speaker 7: I feel like they're able to handle relations with government
Speaker 7: on their own, but the small business really doesn't have
Speaker 7: a voice in all this.
Speaker 1: So it's kind of like been to some.
Speaker 7: Extent, my role, our company's role is helping to tell
Speaker 7: that story, showing this data, making it clear like the
Speaker 7: impact is disroportionate on small business. Larger companies tend to
Speaker 7: have more resources to be able to multi source the
Speaker 7: same product. They can buy it in Vietnam and buy
Speaker 7: it in other countries, so as China starts to become
Speaker 7: non competitive, they just shift manufacturing. Small business doesn't have
Speaker 7: that luxury. They can't have multiple factories. They barely convinced
Speaker 7: one factory to produce their item.
Speaker 1: And they're kind of lasting line.
Speaker 6: When it comes to Amazon though, and this entire debacle
Speaker 6: that played out yesterday, what we saw is Amazon come
Speaker 6: out almost immediately and blank and say we were.
Speaker 3: Just doing this under discussion.
Speaker 6: We're actually not going to go forward with this. And
Speaker 6: this was of course after the President as well called
Speaker 6: Jeff Bezos. Was that the right reaction from Jeff Bezos
Speaker 6: in corporate America?
Speaker 7: You know, I'm not going to tell the Amazon team
Speaker 7: how to do their job.
Speaker 3: They're pretty good at life.
Speaker 7: But I thought if it was me, I would be like, yeah,
Speaker 7: putting you know, the tariffs on there to make it
Speaker 7: clear that Chinese products are not competitive, you should buy
Speaker 7: American products, look, no duty on the American listings. And
Speaker 7: they could have positioned that as a win really easily.
Speaker 7: I don't know why they just backed off right away.
Speaker 6: But Amazon, as you said, they're one of the bigger players.
Speaker 3: They'll be fine. What happens with these small businesses? Do
Speaker 3: we see businesses go bankrupt?
Speaker 1: Yeah? Definitely.
Speaker 7: I mean if they don't change this policy, and Trump
Speaker 7: is hinted that they will. It's sort of clear that
Speaker 7: this all escalated very quickly in a tip for tat cycle.
Speaker 7: If they don't bring the tariffs way back down on China,
Speaker 7: like yeah, like thousands, maybe millions of small businesses will
Speaker 7: go out of business. I mean so many companies buy
Speaker 7: from It's four hundred and forty billion dollars worth the
Speaker 7: goods we buy from China every year.
Speaker 6: Like the Treasury Secretary told me a few weeks ago,
Speaker 6: one forty five percent. These levels are unsustainable. What would
Speaker 6: be your advice into the administration at what level they should
Speaker 6: set where it's still potentially is a carrot and stick
Speaker 6: approach with some businesses to move manufacturing elsewhere, but it
Speaker 6: doesn't actually put people out of work.
Speaker 7: Yeah, you know, like you don't want to ask me
Speaker 7: my adviceorial administration.
Speaker 3: I'm like a free trader. I go like zero per se, let's.
Speaker 7: Go, let's you know, open this up and let people
Speaker 7: buy from whoever they want to buy from.
Speaker 8: I don't.
Speaker 3: I don't think that's like what advice would you tell them?
Speaker 6: And then on a timeline, how quickly do they need
Speaker 6: to bring these levels?
Speaker 7: So I think the timeline is really important. I think
Speaker 7: every day that goes buy more damage kits done. You
Speaker 7: have the sixty percent declient in bookings. You just what
Speaker 7: twenty five percent of ocean sailings, So container ships have
Speaker 7: now been canceled. The sailings from China to the US
Speaker 7: have a lot of those who have been diverted. It's
Speaker 7: not a permanent move, but it takes a long time
Speaker 7: to reposition these ships back. So they they're now sailing
Speaker 7: from Vietnam, they're going to Europe. They're just re routing
Speaker 7: the container ships. So when they turn this back on,
Speaker 7: if they do when and if they do lower the tariffs,
Speaker 7: you're going to see there's not enough ships and containers
Speaker 7: to move the cargo, and you're going to see prices
Speaker 7: spike because of that. So, like you know, the economies
Speaker 7: are very complex systems. They're not meant to be centrally
Speaker 7: planned at the White House, and we've somehow forgot that
Speaker 7: lesson that made America so successful to as theme try
Speaker 7: Thank you so.
Speaker 3: Much for your time this morning, John.
Speaker 6: That was Ryan Peterson, the CEO of Flexbord of course,
Speaker 6: really in the thick of this trade warrantys in Washington,
Speaker 6: DC today offered up a little advice from the administration.
Speaker 2: Earnings just around the corner as well. Meta sets report earnings.
Speaker 2: After the closing balance, the industry faces continued regulatory pressure.
Speaker 2: Facebook co founder Chris hughs arguing in the US as
Speaker 2: a history of striking a balance between free markets and
Speaker 2: state capitalism, writ in quote, we organize many of our
Speaker 2: markets for the common good, choosing to cultivate them rather
Speaker 2: than plan them outright. The work is a craft, not
Speaker 2: unlike the work of a sculptor or painter. Chris is
Speaker 2: the author of the new book Market Crafters, and he
Speaker 2: joins us now for more. Chris Camrnic good to see you,
Speaker 2: Thanks for having me. Let's start big and then we
Speaker 2: can get some meta anser.
Speaker 3: Let's do it.
Speaker 2: The secret source of the US economy, how would you
Speaker 2: describe it?
Speaker 9: It's the dance between the private sector and the government.
Speaker 9: So I make the case that policymakers have often harnessed
Speaker 9: and guided markets toward public goals, in order to make
Speaker 9: Americans richer, say for their lives, more economically stable. And
Speaker 9: there's a hidden history of US doing this from the
Speaker 9: nineteen thirties all the way to the present. It's a
Speaker 9: Republican project as much as it's a democratic project, and
Speaker 9: we're going to have to pull out some of the
Speaker 9: lessons from that if we're going to rebuild on the
Speaker 9: other side of the chaos.
Speaker 2: It's happening right now. Talk about the chass. So we're
Speaker 2: doing a good job of it right now.
Speaker 8: Yeah.
Speaker 9: I mean, someone said this is more like market crashing
Speaker 9: than market crafting.
Speaker 3: And that seemed apt to me.
Speaker 2: No.
Speaker 9: I mean, this administration is at best impulsive and at
Speaker 9: worst completely disorganized. The way to do this in the
Speaker 9: right way would be to say we have a mission
Speaker 9: like bringing back manufacturing jobs or even the auto industry.
Speaker 9: Then you'd create trade policy tariffs that would be targeted
Speaker 9: not on avocados and cars, but targeted. You do it
Speaker 9: in collaboration with allies, and you'd pair it with industrial
Speaker 9: policy investments to make sure that those plans can get
Speaker 9: online quickly and that they can do it cheaply. And
Speaker 9: there is a recipe for crafting a particular market.
Speaker 3: Along those lines. This is just chaos. Use to use
Speaker 3: the word.
Speaker 9: You don't know where the tariffs are, whether they're on
Speaker 9: this week or last week, and people are trying to
Speaker 9: figure it out.
Speaker 5: Taking a step back, though further, there is this feeling
Speaker 5: about what the engine of US exceptionalism has been and
Speaker 5: it's been in the world, so that you co founded
Speaker 5: with respect to Facebook, which is big tech, and this
Speaker 5: idea that the technological expertise that has been cultivated in
Speaker 5: the United States has been superior and has been the
Speaker 5: reason why so many people have wanted to invest here.
Speaker 5: Do you see that unable to continue in this certain
Speaker 5: sort of less predictable moment, or do you see that
Speaker 5: as continuing to chug along in a healthy way that
Speaker 5: does lead to some sort of evolution.
Speaker 9: It is certainly on shaky ground, that's for sure. I
Speaker 9: think the story of American technical leadership is also one
Speaker 9: where we see private sector innovation as a critical engine
Speaker 9: of growth, paired with public sector decisions.
Speaker 3: So I'll give a crisp example.
Speaker 9: We've all been talking about semiconductors and chips for the
Speaker 9: last few years, and that's been incredibly important in bringing
Speaker 9: back advanced semiconductor manufacturing in the United States. However, the
Speaker 9: real story of how to support the high tech industry
Speaker 9: in the US starts more in the nineteen eighties with
Speaker 9: Reagan era industrial policy.
Speaker 3: At that point, Japan's share.
Speaker 9: Of global semiconductor production was increasing quickly, and there was
Speaker 9: a man, Robert Nois, the co founder of Intel, who
Speaker 9: teamed up with other semiconductor producers to go to Washington say, hey,
Speaker 9: we have a national security problem on our hands. The
Speaker 9: Department of Defense degree, so did White House in Congress,
Speaker 9: and they came together to first do a structured trade
Speaker 9: policy on Japan to prevent them dumping in the market,
Speaker 9: and then secondly make a big public investment in semiconductor production.
Speaker 9: So at this moment when we could have lost that
Speaker 9: technical lead, at an early important moment, we invested and
Speaker 9: it worked. A few years later, the United States retook
Speaker 9: its share of global semiconductor manufacturing. So what I'm trying
Speaker 9: to say is it's not just a coincidence that we
Speaker 9: have these high tech companies now. And it's yes, it's
Speaker 9: partially because DARPA funded the Internet and the satellites are
Speaker 9: powered by the government, but it's actually something even more explicit,
Speaker 9: a product of market craft, and that you should give
Speaker 9: us lessons for how we can do it in the future.
Speaker 5: You said that the US is at risk of losing
Speaker 5: some of that tech dominance. What makes you feel that
Speaker 5: about the structure of current tech companies, in particular Meta,
Speaker 5: that makes you get the sense that maybe they're losing
Speaker 5: some of that innovation or some of that structure that
Speaker 5: allows them to lead.
Speaker 9: It's less that I think that the tech companies are
Speaker 9: losing innovation and more that you have to have public
Speaker 9: policy to be fundamentally stable to encourage companies all across
Speaker 9: the supply chain to invest. And I think that's truly
Speaker 9: what's at risk now. I mean, you've seen virtually all
Speaker 9: the measures of investor confidence go down, consumer sentiment goes down,
Speaker 9: Inflation expectations are up, equity markets are down, I mean all,
Speaker 9: and there's a real fear that the FED won't be
Speaker 9: able to lower if inflation stays high. So I think
Speaker 9: all of those storm clouds on the horizon are not
Speaker 9: just bad macroeconomically, but bad for our technic companies and
Speaker 9: our leaders. It certainly makes it a much more challenging
Speaker 9: environment them to succeed in.
Speaker 2: If you're a sculpt you'd be breaking metsa up right.
Speaker 9: I wrote a piece six years ago arguing that Meta
Speaker 9: had abused its power and that it had illegally acquired
Speaker 9: WhatsApp and Instagram in order to consolidate its power. You
Speaker 9: have TC under Trump filed suit on that same rationale
Speaker 9: several years ago. The Biden administration reorganized the case and
Speaker 9: continued to prosecute it. And as you know now, I mean,
Speaker 9: the case is ongoing in Washington with exactly these questions, what.
Speaker 2: Is it about it that you think is illegal?
Speaker 9: The decision in now over a decade ago to say
Speaker 9: Instagram is challenging our monopoly, our power in the social
Speaker 9: media landscape, particularly with photos and WhatsApp, later with messaging,
Speaker 9: and then to acquire those rivals and then do things
Speaker 9: like purposefully slow investment and development, as the Instagram co
Speaker 9: founder testified just last week, that is against law to
Speaker 9: acquire competitors, either to shut them down or to consolidate
Speaker 9: a monopolistic position.
Speaker 3: It's quite clear now. The question is is what do
Speaker 3: you do now?
Speaker 9: That was a long time ago, and so you know,
Speaker 9: in my view, I think it's important that Facebook has
Speaker 9: to comply with the law despite making a decision years
Speaker 9: ago that was illegal. And then the question will come
Speaker 9: to what is the appropriate remedy in twenty twenty five,
Speaker 9: and we need to know more from the case to
Speaker 9: figure that out.
Speaker 5: Is it incoherent to call some of the big tech
Speaker 5: companies in the US national champions and to try to
Speaker 5: hope that they're successful while trying to break them up
Speaker 5: and change their business model with elimination of revenues from
Speaker 5: places like China.
Speaker 9: I understand why you say that it seems on the
Speaker 9: surface like they might be in conflict, but actually what
Speaker 9: I chart in my research is a long story of saying,
Speaker 9: wait a second, we want leading industries in the United States.
Speaker 9: So we were talking a lot about tech, but you
Speaker 9: can do it in finance, you can do it in energy,
Speaker 9: you can do it in a whole range of markets.
Speaker 9: And in order to do that, you need to use
Speaker 9: a few different tools simultaneously. One of them might be
Speaker 9: public investment, like in the IRA for climate or in
Speaker 9: the semiconductor example that we were talking about earlier. Another
Speaker 9: might be procurement, another might be reserve buffering, and then
Speaker 9: another might be competition policy.
Speaker 3: So these things can work in concert as long as.
Speaker 9: You have a clear mission, what is government trying to do,
Speaker 9: and if that's to spur in this moment AI research
Speaker 9: and development so that we can lead the world and
Speaker 9: take on China and be at the frontier. That could
Speaker 9: be a very in fact, I think that would be
Speaker 9: a very smart mission to pursue. But it has to
Speaker 9: be crisp and clear, and then you can organize the
Speaker 9: institutions of American democracy to pursue that, and sometimes that
Speaker 9: might mean public investment and competition policy.
Speaker 1: At the same.
Speaker 5: Time, this overlaps with the idea of tariffs as well,
Speaker 5: and the idea that it was a bipartisan effort to
Speaker 5: have specific tariffs on certain products going to China that
Speaker 5: were national security concerns are just outright bands of certain
Speaker 5: types of chips being sold to China. Do you think
Speaker 5: that that is the appropriate policy in terms of limiting
Speaker 5: the amount of information or do you think that, as
Speaker 5: someone who's worked in the tech industry, the more cooperation
Speaker 5: and open and transfer of information, the more innovation and
Speaker 5: the more people can kind of get ahead.
Speaker 3: I don't think it quite works that simply. I think
Speaker 3: we have to be clear about what the goal is.
Speaker 9: Is the goal bringing back jobs in particular manufacturing industries,
Speaker 9: or is the goal onshoing semiconductor manufacturing for national security concerns,
Speaker 9: or is it just a broader goal of technical innovation
Speaker 9: and leadership, Like with the investment in INNAI and depending
Speaker 9: on what the goal is targeted, tariffs can have a place.
Speaker 9: I mean, we saw this on Let's just use the
Speaker 9: example of climate policy. Bidenomics has gotten a bad rep
Speaker 9: but obviously the IRA brought major investments in climate technology,
Speaker 9: not only from the public sector, but doubling the overall
Speaker 9: amount in the private sector is investing as well, and
Speaker 9: that kind of investment, I think and transform that industry.
Speaker 9: So there are bipartisan moments where people agree more so
Speaker 9: on semiconductors than on climate, more so on tech oversite
Speaker 9: and some other things. And I think those can be
Speaker 9: taken advantage of.
Speaker 3: And you know, I.
Speaker 9: Charged the hidden history of how to do this because
Speaker 9: we do.
Speaker 3: Fail a lot of time.
Speaker 9: You know, government, if it doesn't have a clear mission,
Speaker 9: if it doesn't have an institution charged with getting it
Speaker 9: done and the discretion to bring in the best minds,
Speaker 9: then it fails.
Speaker 3: But when those ingredients are there, it succeeds. And that's
Speaker 3: that's why I wrote welcome first with Chris.
Speaker 2: This was great and hopefully we can do it against
Speaker 2: So thank you, sir, found Chris hues that Let's get
Speaker 2: to our next guests. They film at Boston President, Eric Rose,
Speaker 2: and Grant joint us Now for more, Eric, welcome back
Speaker 2: to the programs. There's the data, apps and payrolls on Friday.
Speaker 2: How would you approach a FMC meeting like the one
Speaker 2: we get next week.
Speaker 8: Well, first, as Mike highlighted, it's a pretty noisy number.
Speaker 8: It's partly noisy because a lot of behavior changed to
Speaker 8: reflect the fact that the tariffs were telegraphed, So people
Speaker 8: didn't know the extent of the tariffs. They didn't know
Speaker 8: exactly the distribution around countries, but they didn't know that
Speaker 8: tariffs were coming, and there were certain sectors that you
Speaker 8: would have expected to be tariffed. As a result, many
Speaker 8: people and many firms stockpiled ahead, tried to get ahead
Speaker 8: of the tariffs, and that shows up in imports, that
Speaker 8: shows up in inventories, which is exactly what you're seeing
Speaker 8: in the data. So what it does reflect is enough
Speaker 8: concern that many people and many organizations tried to front
Speaker 8: run the tariffs. Now, in terms of going forward, this
Speaker 8: doesn't include any of the information from the so called
Speaker 8: Liberation Day, so people didn't know during the first quarter
Speaker 8: exactly what the tariff's situation was going to be, and
Speaker 8: I think most people were surprised by how significant the
Speaker 8: tariffs were. So I think what we're seeing now is
Speaker 8: the positioning going into Liberation Day, and we're going to
Speaker 8: still need some additional data after the beginning of April
Speaker 8: to get a better sense of how much weaker the
Speaker 8: economy is going to be. But I would say the
Speaker 8: high frequency data that are coming in are highlighting that
Speaker 8: the Chinese tariffs in particular are basically acting like an embargo,
Speaker 8: and that means that it's very likely that they're going
Speaker 8: to be much higher prices in some shortages of goods
Speaker 8: that are primarily imported from China.
Speaker 2: Eric, what's the timeline that you've got in mind. So
Speaker 2: we've seen this show up in shipping and frank bookings.
Speaker 2: Now I'm starting to wonder when we actually see it
Speaker 2: show up in the shelves when people walk into the store.
Speaker 2: When are they going to notice a difference.
Speaker 8: I think you're going to really start seeing it towards
Speaker 8: the end of the summer, so most retailers, most stores
Speaker 8: stockpiled inventory. Again, it was a highlighted by the President
Speaker 8: that he was planning on putting tariffs on so it's
Speaker 8: not surprising that most stores tried to stock up on
Speaker 8: anything that was produced internationally that might be tariffed, so
Speaker 8: they have some inventories to go through. It takes a
Speaker 8: while to ship goods from around the world. So the
Speaker 8: combination of lags getting into the economy and the fact
Speaker 8: that there were some inventories that are probably going to
Speaker 8: shelter some of the blow. I would expect the bulk
Speaker 8: of the challenge to start being in towards middle to
Speaker 8: end of the summer.
Speaker 5: Given the lag in time before we actually see the
Speaker 5: ramifications and the hard data. How do you understand the
Speaker 5: soft data that some people say is incredibly and increasingly noisy,
Speaker 5: and other people say is a prediction of what's to come.
Speaker 8: So things like some of the consumer surveys have shown
Speaker 8: very dramatic change. I would say that's noisy number, but
Speaker 8: it doesn't mean that it's data that you should completely ignore.
Speaker 8: So I think consumers are very concerned about what the
Speaker 8: price effects are going to be and are starting to
Speaker 8: worry about how much they're going to be affected. I
Speaker 8: think a lot of people are also concerned about rising unemployment,
Speaker 8: and the ADP report, as you highlighted, was relatively weak,
Speaker 8: So I think there's going to be growing concern as
Speaker 8: we get into the summer that we are likely to
Speaker 8: see a recession. A lot of economists are beginning to
Speaker 8: predict that, and I think there is a chance, unless
Speaker 8: the administration pulls back on its tariff policy, that we
Speaker 8: will see some pretty slow growth and continued problems in
Speaker 8: the hard data as we get into the summer.
Speaker 5: We're in the quiet period for the Federal Reserve members
Speaker 5: ahead of the FED meeting next week. There has been
Speaker 5: though a lot of communication about just what they see
Speaker 5: and how they perceive the potential risks going forward of
Speaker 5: both inflation or weaker growth or in among some Do
Speaker 5: you think that at a time like this there should
Speaker 5: be more communication or less communication from the Fed members?
Speaker 8: Well, what you need is clear communication, and I think
Speaker 8: it's very difficult at this time to be particularly clear.
Speaker 8: First of all, we don't know if some of the
Speaker 8: policies are going to be reversed. It is possible that
Speaker 8: negotiations go well with some of the foreign trading partners
Speaker 8: and agreements are made quickly. Now, most trade agreements take
Speaker 8: years to actually negotiate. So my guess is it's going
Speaker 8: to be more of a letter of intent than it's
Speaker 8: going to be an actual agreement. But nonetheless, there's a
Speaker 8: lot of uncertainty about how long this policy sticks, and
Speaker 8: then there's the question of how it starts affecting individual behavior.
Speaker 8: These tariffs are much much larger than anything we've seen
Speaker 8: since the Great Depression, so our statistical models don't have
Speaker 8: this kind of foreign shock in the data. So I
Speaker 8: think they're going to end that. The other issue is
Speaker 8: what you highlighted in the opening, which was a problem
Speaker 8: both for unemployment and inflation, and that makes it more
Speaker 8: difficult for the FED. The FED is going to be
Speaker 8: concerned that the inflation numbers are already up and it's
Speaker 8: before the full impact of the tariffs, and if we
Speaker 8: start seeing inflation rates at three and a half or
Speaker 8: four percent, which given depending on where the tariffs end up,
Speaker 8: at least the reported data over the course of this
Speaker 8: year could get that high, that's going to make it
Speaker 8: difficult for the FED to be reacting preemptively to any
Speaker 8: concerns they have about growing recession concerns. So it's a
Speaker 8: very awkward position for the FED to be in, and
Speaker 8: I think they're going to move relatively slowly until it's
Speaker 8: apparent exactly what the inflation employment shocks are.
Speaker 2: Eric, Before you go, just one final question. The President
Speaker 2: went after the FED share again just yesterday. Does that
Speaker 2: complicate life for the f WEMC in any way, shape
Speaker 2: or form next week and beyond.
Speaker 8: I don't think it really complicates the FMC. They're going
Speaker 8: to do what they think is right. But what it
Speaker 8: does complicate is if people are worried that the independence
Speaker 8: of the FED is undermined, it's going to be much
Speaker 8: more difficult to finance our deficit. The relationship that you
Speaker 8: were talking about between the stock market and the bomb
Speaker 8: market probably will be less correlated than in the past,
Speaker 8: and if we're not careful, we'll lose the safe haven
Speaker 8: behavior that we normally expect when an economy slows down.
Speaker 8: So it's going to limit the fiscal authority as well
Speaker 8: as the monetary authority.
Speaker 2: Eric, appreciate your mind as always and your thoughts at Rosenngrant,
Speaker 2: the former Boston FED president. This is the Bloomberg Seventans podcast,
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Speaker 3: Two