Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I'm not saying that's the case. Now. These markets may
Speaker 2: go on forever. Maybe we finally found Arouna. But I'll
Speaker 2: tell you my view of whatever it's worth. I think
Speaker 2: one has to think very carefully about what you think
Speaker 2: the risks, quire what do you think the rewards are,
Speaker 2: and try to make reasonable judgments. And I'm not protecting
Speaker 2: it in any way what the markets are going to do.
Speaker 2: I'm just going to say that I think that the
Speaker 2: risks are enormous, and I think, I guess I do
Speaker 2: think I do think that's not I guess I do
Speaker 2: think that the markets don't properly wait.
Speaker 1: Those So let's talk about some of the specific risks people.
Speaker 1: When the tariffs were announced on Liberation Day, April second,
Speaker 1: there was this feeling that business would collapse.
Speaker 2: It wasn't my view, but go ahead.
Speaker 1: Well, why has the market been so surprised? Why have
Speaker 1: companies been so surprised themselves? CEOs I talk to say,
Speaker 1: we've been shocked that things kind of keep going.
Speaker 2: I mean, lista, they may keep I think the tariffs
Speaker 2: are extremely unwise. I think open trade has served our
Speaker 2: country extremely well over many many, many, many decades. I
Speaker 2: do think that some caveats to that. I do think
Speaker 2: you need to protect supply change when they have their
Speaker 2: security or economic security dimensions through subsidies or trade restrictions.
Speaker 2: But having said that, beyond that, I think open trade
Speaker 2: has served us extremely well. I think tariffs will hurt
Speaker 2: us in terms of growth, and I think it's a
Speaker 2: one time increasing in costs. It's not it's not in
Speaker 2: that sense, it's not inflation, but it is a one
Speaker 2: time increasing costs. Costs to our producers will go up.
Speaker 2: That decreases their efficiency and competitiveness. It could lead I've
Speaker 2: never forgotten something poor Boker said to me. You said
Speaker 2: that inflation can take on a life of its own,
Speaker 2: and of course that was a reference inflation expectations. Maybe
Speaker 2: and maybe not. The tariffs could create a set of
Speaker 2: inflation expectations and it could lead to inflation. But whether
Speaker 2: it does or it doesn't, it almost surely will adverse
Speaker 2: the effect growth. But I for one, never thought it
Speaker 2: was gonna have an immediate impact. But I thought that
Speaker 2: the risk was over time. And I think that's the risk.
Speaker 2: And if you speak to CEOs, and you know in
Speaker 2: our firm, we do a lot of that. We have
Speaker 2: an immense business dealing with basically large corporate America. I
Speaker 2: think most CEOs, virtual CEOs. I think they're going to
Speaker 2: be passing on a lot of this in terms of prices,
Speaker 2: So cost to consumers will go up, and cost to
Speaker 2: producers who we're importing excuse me, and components will be
Speaker 2: going up.
Speaker 1: What's fascinating is when the tariffs were announced, people thought
Speaker 1: that it would be really bond negative because inflation would
Speaker 1: go up and you would see sort of this sagflation
Speaker 1: like kind of environment, and so bonds would be in
Speaker 1: a sort of quagmire, as would the FED, as would
Speaker 1: the rest of policymakers. Instead, tariffs are now treated as
Speaker 1: a positive because they are a revenue boost that will
Speaker 1: offset any deficit spend day. I could tell you agree
Speaker 1: with that.
Speaker 2: So I only disagreement because it's wrong, but go ahead.
Speaker 1: Well, so I'm just curious you know where this is
Speaker 1: getting miss understood?
Speaker 2: Well, the l Budget Lab, which is terrifically reliable and
Speaker 2: sensible about budget about the fiscal matters. I asked her
Speaker 2: the other day that one runs at Taja Sarenders, who's
Speaker 2: tended Professor Yale and terrific. Was it a PhD in economics?
Speaker 2: She told me that she suspects, she thinks that revenues
Speaker 2: will be about two point maybe twoing eighty billion a
Speaker 2: year or some number like that, which is and then
Speaker 2: and that's before the adverse effects on growth and retaliation.
Speaker 2: We take it all into account, maybe two hundred it's
Speaker 2: a very small fraction of our deficits. This is not
Speaker 2: going to be a fiscal response, and you're paying a
Speaker 2: price for it. In terms of I said, a moment
Speaker 2: ago risks to growth and at least I think the
Speaker 2: possible will certainly higher costs to consumers and the producers
Speaker 2: and possibly triggering inflationary expectations. What is it? The terriff
Speaker 2: is assuming that it gets passed on, which I if
Speaker 2: you talk to our clients, I think we're all this
Speaker 2: is going to get passed on over time. It's a
Speaker 2: regressive tax, and it's a regressive tax which has adverse
Speaker 2: effects on growth and as I say, a moment ago
Speaker 2: on inflation.
Speaker 1: So I'm trying to pair this with the idea that
Speaker 1: we're seeing mergers and acquisitions accelerate. We hear a growing
Speaker 1: number of companies talk about in corporate executives, a reacceleration
Speaker 1: in the consumer. How do these two things go together.
Speaker 2: I don't think it's complicated. When I was at Gobenzachs,
Speaker 2: we had the economists that we had terrific people strategies.
Speaker 2: They were always tell me what they thought was going
Speaker 2: to happen in the short term, and I would always say,
Speaker 2: you're very nice people, and I think that's nice for
Speaker 2: you to do, and our clients are interested, so you
Speaker 2: should do that. But I myself wouldn't raise my decisions
Speaker 2: on them things short terms and short term effects. Least
Speaker 2: it could be whatever they're going to be. The question
Speaker 2: is what's going to happen over time? And I think
Speaker 2: over time for the reasons I've said, I think tariffs
Speaker 2: are very substantial negative and I think the open traders
Speaker 2: serve with the caveats that I mentioned, I think open
Speaker 2: traders served us very well.
Speaker 1: How much are companies rethinking their US footprint in a
Speaker 1: new kind of way.
Speaker 2: Well my impression, and I get this largely speaking, I
Speaker 2: don't speak to many companies myself. Our people are just
Speaker 2: enormously plugged into corporate America. And I also have three
Speaker 2: advisory relationships with pretty substantial investment. I guess you call
Speaker 2: them funds. I think a lot of people are rethinking
Speaker 2: how much they want to be allocated in the United States.
Speaker 2: And you see it a little bit by the way
Speaker 2: the dollar. The dollar has after all suffered through this thing.
Speaker 2: I don't think too much of it has happened so far,
Speaker 2: but I think at the risks that we're taking, and
Speaker 2: I think, what's so sad to me? At least if
Speaker 2: we have such tremendous strengths, that so many advantages, and
Speaker 2: I think the damage we're doing is very substantial. Attacking
Speaker 2: our research, attacking science and basic research, attacking our universities.
Speaker 2: Immigration policy that makes no sense whatsoever. We should have
Speaker 2: an economic We should have economic particularly, we should have
Speaker 2: immigration that serves our economic needs. And then we should
Speaker 2: have at least, in my opinion, measures to deal with
Speaker 2: the currently undocumented people so they can become a are
Speaker 2: part of our economy. And if they're obviously doing adverse
Speaker 2: things or criminal, I think that's a different matter. They
Speaker 2: can we continue to prosper in our economy eventually becomes citizens.
Speaker 2: There's so much that we can do, but we're doing
Speaker 2: the opposite of all these things.
Speaker 1: There is this feeling and we're seeing this in the
Speaker 1: political sphere, And as someone who is in the Clinton
Speaker 1: administration when globalization was really taking off, I'm wondering what
Speaker 1: your perspective is on how the story of globalization is
Speaker 1: being told now and that a lot of people are
Speaker 1: saying there were a lot of people left behind and
Speaker 1: that there are some things that need to be done
Speaker 1: to remedy that.
Speaker 2: I totally agree with that. When President Clinton announced NAFTA
Speaker 2: in the East Room, I totally agree with that, Lisa,
Speaker 2: one of the things he's but I think the wrong
Speaker 2: conclusion is therefore, let's not open trading markets. I think
Speaker 2: the right conclusion is, let's do at President Clinton talked
Speaker 2: about when he announced NAFTA, but that we never were
Speaker 2: able to do politically. We lost control of the Congress
Speaker 2: and we lost the ability to do it, and that
Speaker 2: is have in place retraining, social safety nets, are greatly increased,
Speaker 2: earn income tax credit so that people with low incomes
Speaker 2: will have higher incomes and have all that to deal
Speaker 2: with job losses. And as much as that is a
Speaker 2: fun a problem with spector trade AI in my opinion,
Speaker 2: and you all have your own views, so we probably
Speaker 2: know ick a lot more about and I do, but
Speaker 2: I say I'm thinking horror for the last two years
Speaker 2: twice a week, so I kind of know something about it.
Speaker 2: I think that the potential for job loss is very substantial.
Speaker 2: And so as much as we needed that kind of
Speaker 2: an adjustment set of programs to deal with trade, and
Speaker 2: we did need that at least absolutely, and we don't
Speaker 2: have it, I think we're going to need even more
Speaker 2: to deal with AI, which.
Speaker 1: Is something that we're not hearing as much about as
Speaker 1: a lot of people think.
Speaker 2: There's no it's not part of the political dialogue, and
Speaker 2: it should be. Look, our political system is in terrible shape.
Speaker 2: And that's not a partisan comment, though I do think
Speaker 2: Trump is doing just immense damage to our country. It
Speaker 2: was econopologies and actions, but in neither party we talk
Speaker 2: about a lot of what we need to talk about,
Speaker 2: and one of the things we need to do is
Speaker 2: to do exactly what I just said, But there's no
Speaker 2: political ability to get not a lot of political focus
Speaker 2: on it, and really no political ability to get it done.
Speaker 1: Given the footprint that you have and the access to companies,
Speaker 1: do you have a of how much they plan to
Speaker 1: reduce their staff or whether they are not necessarily hiring
Speaker 1: recent college graduates as a result of their using Yeah, yeah.
Speaker 2: I get the question. I don't have much wisdom on that.
Speaker 2: I've asked our people that too. I mean, clearly the
Speaker 2: labor market is softened, there's no question about that. I'll
Speaker 2: give you my personal opinion whatever it's worth, but really
Speaker 2: mostly based on just what I think about AI. I
Speaker 2: think AI has the potential for tremendous positives in terms
Speaker 2: of productivity, which by the way, could be partially responsive,
Speaker 2: albeit not fully responsive to our fiscal trajectory and our
Speaker 2: trad fiscal trajectory. On multiple basis. It seems to me
Speaker 2: as a tremendous risk to our economy over time. So
Speaker 2: this can be partly respond partly responses to that productivity,
Speaker 2: increased growth, increased revenues and so forth. But I think
Speaker 2: a lot of Yeah, I do think it's going to
Speaker 2: have very substantial dub replacement fix. A lot of things
Speaker 2: that are being done now by people are going to
Speaker 2: be done by AI and AI. As you know, what
Speaker 2: is the human mind human by neural systems? Right, what
Speaker 2: is AI? AI is neural systems. And if you take
Speaker 2: AI and you pursue it, and some of you know
Speaker 2: much more badas than I do. But you pursue. You
Speaker 2: build bigger and bigger data centers and more and more capacity.
Speaker 2: You create neural systems that are able to do not
Speaker 2: only the more mundane task Lisa, but all the kinds
Speaker 2: of many of the kinds of complex thinking that were
Speaker 2: accustomed to associating with human beings. And that's that, as
Speaker 2: you know, is sort of the question of AGI in admittle.
Speaker 2: You can you can, You can define AGI a lot
Speaker 2: of different ways. I get that, But whatever you want
Speaker 2: toever you want to define it, I don't need any
Speaker 2: question that AI is moving, at least in my opinion.
Speaker 2: I may be wrong, but I don't think I'm wrong,
Speaker 2: moving very quickly toward ever more sophisticated capabilities that can
Speaker 2: more and more replicate the neural processes to the human mind.
Speaker 1: Which is the reason why when you talk to some
Speaker 1: FED officials on and off the record, more off the record,
Speaker 1: they will talk about running the economy hot or prioritizing
Speaker 1: the labor market as a way to ameliorate some of
Speaker 1: the potential job losses from AI, because it encourages companies
Speaker 1: to invest more in their workers and keeps people employed
Speaker 1: so people won't be left behind as much. I mean,
Speaker 1: do you buy into that kind of idea and sort
Speaker 1: of endorse the idea of having a more accommodative monetary
Speaker 1: policy at a time like this.
Speaker 2: Yeah, I get the point, And this is good debate.
Speaker 2: This is kind of things that if you have sensible
Speaker 2: people sitting in a room, you can really discuss in
Speaker 2: very interesting ways. No, I actually don't agree with Lisa.
Speaker 2: I'm much more concerned about the possiblity of inflation. And
Speaker 2: if you run the economy too hot and you get
Speaker 2: higher rate of inflation, and that in turn has a
Speaker 2: weaker dollar and it has higher interest rates, I think
Speaker 2: that can have a lot more adverse effect than the
Speaker 2: benefits you're getting from FED funds rates being lower than
Speaker 2: whatever you think my contrue. So you might actually accomplish
Speaker 2: the opposite of what you wish. So I know, if
Speaker 2: I were at the look, nobody's going to ask me
Speaker 2: what I think at the FED. I promise you. If
Speaker 2: anybody did, I think I would say to them, you've
Speaker 2: got a duel mandate under Humphrey Hawkins, as we all know,
Speaker 2: and I would worry more about the inflationary side of that,
Speaker 2: than I would. I'd worry about both, but I'd be
Speaker 2: quite concerned about inflation.
Speaker 1: One thing, Ray Dalio is speaking earlier, and he drew
Speaker 1: the parallel to the nineteen seventies as well as the
Speaker 1: nineteen thirties, which is a little bit even more alarming.
Speaker 1: I'm just wondering, from your perspective, do you think that
Speaker 1: the nineteen seventies style inflation is the correct analog.
Speaker 2: Well, nineteen seventy is an interesting time, and that's actually
Speaker 2: what Paul Boker was talking about and I were talking
Speaker 2: about this. I don't know, probably not many of you here,
Speaker 2: well maybe none of you actually lived through the nineteen seventies.
Speaker 2: I did, and inflation took on a life of its own, Lisa.
Speaker 2: And this was Paul's point. Inflation expectations built on themselves,
Speaker 2: and once that happened, it's very very hard to deal with.
Speaker 2: And Paul's point was, and I think he's right about this,
Speaker 2: that once inflation gets going, inflation expectation just a very,
Speaker 2: very difficult to deal with. That's why if I were
Speaker 2: the FED, I'd be focused on both both aspects of
Speaker 2: my dual mandate. Humphrey Hawkins but I would be quite
Speaker 2: concerned with not allowing inflation to move in a way
Speaker 2: that is threatening.
Speaker 1: We spoke a bit ago and you said the US
Speaker 1: is still the best place to invest. Do you still
Speaker 1: feel that?
Speaker 2: Yes, I do, But it's complicated. We have such a
Speaker 2: everything a troubled about trouble is the wrong where. It
Speaker 2: is tragic what we're doing ourselves and what this administration
Speaker 2: is doing on so many dimensions in my opinion, in
Speaker 2: terms of public policy. But I think we have enormous
Speaker 2: strengths compared to others. I'm repeating myself when I know
Speaker 2: that we have flexible labor and capital markets. We have
Speaker 2: dynamic culture. We have the capital markets that are unrivaled
Speaker 2: in any place else in the world. We have great
Speaker 2: universities of now we're attacking them in the ways that
Speaker 2: are usually counterproductive in my opinion, and so much else
Speaker 2: to going up natural resources. We have so much else
Speaker 2: going our way, but we are doing a lot of
Speaker 2: damage on the Yes, I would still invest here because
Speaker 2: I think I think, Look, I think all the waing
Speaker 2: its going to depend what happens our political system, and
Speaker 2: I think sooner or later we'll come back. I hope.
Speaker 2: I hope it's a word. I think the odds are
Speaker 2: we will come back at some point to the historical
Speaker 2: system that we've had, where you have a conservative party
Speaker 2: sort of a Rottal regular as a historical conservative. You
Speaker 2: have a progressive or liberal democratic probably do you want
Speaker 2: to call it center left? I don't care, And then
Speaker 2: they have the debates and we're back where we used
Speaker 2: to be. It won't be the same, it will not
Speaker 2: be the same, but it'll be some analog to that.
Speaker 2: So I believe that's the most likely outcome. And China
Speaker 2: has a normous look. China has some great strengths and
Speaker 2: we all know that, but it also has enormous problems
Speaker 2: we also all know. And you're you know, you're From
Speaker 2: twenty nineteen to twenty twenty two, productivity in Europe group
Speaker 2: point four percent. Producting in our states were six percent.
Speaker 2: And the Mario Dragi Report, which was designed to deal
Speaker 2: I was with Marria the other day, which man aarity.
Speaker 2: I just told about this because he was in New
Speaker 2: York and we got together. If it's designed to address
Speaker 2: the productivity problems in Europe, they've done virtually nothing on it.
Speaker 2: So yeah, I'd still bet on us but I think
Speaker 2: we I've still bet on us. I'd still rather be here.
Speaker 2: I am here to my own personal resources. But but
Speaker 2: I think what we're doing to ourselves is is very
Speaker 2: seriously troubling.
Speaker 1: There's a lot of question around gold and the fact
Speaker 1: that a lot of people are going into it, and
Speaker 1: whether this is sort of a signal of something with
Speaker 1: a debasement of the dollar or of people's state of mind.
Speaker 1: What's the message, what's the signal?
Speaker 2: From the figgist notion, Look, gold has always been this
Speaker 2: sort of so called refuge from the dollar, I assume
Speaker 2: I mean from uncertainty, and uh, you know it's that
Speaker 2: thousands of years of history of that is it is
Speaker 2: the current action of gold as a signal of something.
Speaker 2: I have not the figgiest notion. I personally wouldn't own it,
Speaker 2: but that's just because I've never gold has no use value.
Speaker 2: It's only a psychological I'm not demeaning it. It's for
Speaker 2: thousands of years it's been a psychological refuge from uncertainty.
Speaker 2: But I don't know if it had I wouldn't call
Speaker 2: it how I mean, I think one could think reactionally
Speaker 2: and thoughtfully of all these things. I personally wouldn't weigh
Speaker 2: the price of gold in my thinking about what the
Speaker 2: odds are