00:00:00 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube. 00:00:27 Speaker 2: And Tanya for KOOI has one of the honest, most wonderful paths in economics of anybody out there, darkening the door at Pennsylvania and Wharton years ago with their finance ability. She staggered to Columbia and then she went out to UCLA, which is one of the most twisted programs in the country. One of my heroes, Axel Leonovud, was there. I mean, what you witnessed, Let's she say, Tanya for cooy with MetLife with us. Now you're sitting there yesterday listening to this, and you think of about Excel layanavudet uc La or Clarida at Columbia or all I mean, Laurence Summer's father at Pennsylvania. I mean, how did you distill that MBA speak? 00:01:16 Speaker 3: Yeah, I mean that's ultimately what it was. Right, there was and there was very little mention of economics, right, and this is This was the Bloomberg quote of the day was it's some deciding what not to do is as important as deciding what to do, But deciding how to not do anything was the problem here, Like he I could have given you any number of economic rationales, reasons, thoughts, you know, developed thesies of why not to why not to hike? We didn't think there should be a hike, but how it was conveyed was what There was a vacuum of economic information there, economic analysis. 00:01:54 Speaker 2: Are you optimistic he can escape what we witnessed yesterday? 00:02:00 Speaker 3: He's going to have to decide whether he wants to double down on his experiment here of pretend of trying to be a next to Alan Greenspan, or give up and say, hey, this we need I need to communicate better. I need to under communicate my understanding of economic data, what I'm doing, why I've done what I've done, And I'm not I'm not sure he's going to give up on the experiment, and that's the concern. 00:02:31 Speaker 4: Well, one could argue that his disclosure or lack of disclosure information yesterday or process yesterday was consistent with what he said all along, which is I don't need to hold the hand. It's not the job of the FED and Reserve to hold the hand of the markets. You guys, look at the data. You figured out do the same thing that we're doing. 00:02:49 Speaker 3: The problem with that is that the markets are trying to figure out what the FED is doing at all points in time, or what the FED will do at all points in time, and in the absence of a vacuum, we start analyzing. I guess in Greenspan's time, this people analyze the fatness of his briefcase. That's what we're going to go back to do. If he doesn't actually communicate at the very least two things. He didn't even give us backward guidance, right, He didn't even tell us his rationale for what he did, and he doesn't say very much about his reaction function. 00:03:26 Speaker 2: Tanya for Cooey with this, I heard that phrased a lot yesterday. Reaction function. I had to look it up. Tanya for Cooey with us with the Metropolitan Life working with drow Matison, just absolutely spectacular. We're going to continue this conversation and as she said, we've got to get to the next step. Guess what that is? The economic data we're going to see right now the usual dump personal income, personal spending, those key PC with a question. Maybe Chairman warnsh knew at the press conference yesterday the data. What do you think? Well, I think he was front running the data. 00:03:57 Speaker 4: I don't know. 00:03:58 Speaker 2: I'm guessing he did not, folks, but we'll see. Look at GDP annualize one point five percent gets my attention as well, from two point one to two point zero. And now off of that survey two point zero one point five percent, we say good morning to all of you as well. Something we're trying right now. Bloomberg dot com, slash Ask Radio, Bloomberg dot com, slash Ask Radio, we're rolling this out. Carol Massler had a tantrum, said I have to do it first. So they did it last night with the Tech thing with Mendy Job and they got a huge response. Good morning around the world to Bloomberg dot com subscribers and terminal users who can now come in. I'm gonna be honest, We're gonna vet the questions. Okay, you know, if if they ask me, you know, do I really hate the Yankees that much, We're not going to do that question. Unfortunately, we got a week in Smart question this morning. This is some Andrew at Wisconsin, Like I think he's probably you know, Madison economics is pretty good. You gotta believe Andrew's doing this from the classroom and with Tanya Forakou here. We can do this with that life because it's great. It's about the parlor game. What you and I we remember what it wasn't as stupid as is now. Is everyone just mad that they can no longer front run the FED for the first time in fifteen years. That's the heart of the matter, isn't it. 00:05:18 Speaker 3: I think that's that's what Warsh is trying to get around. He's trying to wean the markets off of excess dependence. And I do think there's a point there where we perhaps did too much forward guidance. We got into forward guidance because rates were too low, rates hit zero FED funds and we had to sort of say, well we continue, We'll continue to have zero for a while. 00:05:41 Speaker 2: Right. 00:05:41 Speaker 3: That That was the origin story of some of this forward guidance. Right, and now we are a little bit too dependent on forward guidance. But we still need to know why the Fed did what they did that, you know, backward guidance, So to speak and what are they going to do under different scenarios? Towed down that path, but I would have liked to have seen some reaction function articulated by by Walsh. Doesn't have to say what he thinks is going to happen, but what are the things that he worries about? Is he worried about wages? Is he worried about the labor market? None of that was addressed. 00:06:17 Speaker 4: The economy by not raising the rate yesterday. A lot of folks to say, that's fine, that's actually decent. The data is not there, This economy is not overheating. Is that jive with what you're looking at the data? Percent? 00:06:31 Speaker 3: I think what's what's actually been interesting is the you know, one of the source of growth is AI. That's sort of, you know, the our superstar for this team right now, right and that is has been a little bit self correcting right now. There's a bit of introspection in the markets. There's a little bit of concern there, a little bit of shaking out of of winners and losers a little. 00:06:53 Speaker 4: Bit, and that's been doing its thing. 00:06:55 Speaker 3: That's actually working in favor of not having to burst any rational exuberance bubbles. The consumer is not overheating crazily. 00:07:06 Speaker 4: It should be. 00:07:07 Speaker 2: Okay, you're here, so don't go away, stay here. Interests are ASKI on deck from Morgan Stanley. We're commercial free to you across American and worldwide at special edition of Bloomberg Surveillance after what we witnessed yesterday. And thank you so much Andrew and Wisconsin for that question, really really actually foundational question it right now Bloomberg Surveillance this morning, brought you by IBKR trade election, climate and economic outcomes with IBKR prediction markets right alongside your stocks and your options. Earn interest in your position, and receive one dollar per contract if you're right. Learn more at ibkr dot com slash Predictions. Okay, I'm gonna go walk within a wong later. We're gonna do that with Tani right now. And basically what I'm saying, folks is what we have is a threat, a war, an argument, whatever you want to hal it between people that don't want to do traditional economics. If you're Tony Faku and UCLA, did you study under Axel. 00:08:09 Speaker 3: Leanovud No, I don't know if he was there at the time, right, he probably wasn't there. 00:08:14 Speaker 2: He's coming from Trent or over in Italy. Axle Leonovid Folks is one of my heroes. I was so honored to interview him a number of times. Is Milton Friedman once said to me Leyanuvoud is the guy who came out of the trenches and took on that nineteen sixties certitude of Kynesian policy. He was the angry guy bulletproof academics. Is this just a war against whether it's Robert Lucas at Chicago or Clarida and what's called DSGE or some you know, somebody new winning John Bates Clerk, Is this just a discussion about we need to end the economic discussion at the FED and just let the markets go. 00:08:56 Speaker 3: I think that's what worsh is. I think that's the direction that Warsh wants to head in. Is that really is it accomplishing at that? 00:09:05 Speaker 4: Though? 00:09:05 Speaker 3: I think there's different there's better ways of accomplishing that. If there, If there is, if that is a question, because ultimately the markets are really still trying to understand, and they're they're taking the indication from from you know, all the other folks that are speaking wall Er Logan Hammick. 00:09:21 Speaker 2: Is we got to go is uh as somebody emails and thank you for this again. Thank a subscriber at ASK Radio uh Tony and simple is Drew Madis okay. 00:09:32 Speaker 3: He's okay, He's okay, I mean he yeah, he did leave early. 00:09:41 Speaker 2: TONYOI thank you so much, really really appreciate it. This morning we get lucky as we had Michael Perverses earlier to start the show scheduled and to Sisarowski with us with Morgan Stanley, who's you know, he's bon dude, folks, but he's really encyclopedic from Full Faith and Credit over to the fancy stuff with all of his heritage out of Eaton van some Morgan Stanley in Boston, Andrew, can you buy the thirty year Full Faith and Credit this morning? 00:10:08 Speaker 5: So I wouldn't be buying it this morning. I'd be more focused on the front end of the curve, and quite frankly, for the reasons you saw yesterday, which is that there's still not enough clarity from the FED and there's still not enough term premium being built into this market for the new FED chair. And so I'd be avoiding long end bonds. We've been avoiding them all year, and yesterday's press conference didn't give us any more confidence to go into them despite the backup. 00:10:33 Speaker 4: So what was your take from yesterday's news coming out of this Federal Reserve? I mean, Chairman Warsh getting some criticism for a lack of disclosure, but it's kind of been his call all along here. 00:10:45 Speaker 2: I don't know. 00:10:46 Speaker 5: Yeah, Look, I don't think the Fed made a mistake by not hiking rates. I think that was what they should have ultimately done. I think we had a weak inflation report in the CPI earlier this month, we had a weaker PAYO report, So I think it's if he had justified the hold for those reasons and saying we want a little more time, I don't think you would have seen the bond market sell off and the equity market self we did. I think instead of just kind of coming out in kind of vague terms and talking about maybe that let the market do the work for you, I think that's the problem that the bond market and risk markets ultimately had, because then it leads to a credibility problem, which means you might ultimately end up having to hike when you weren't going to have to a few weeks ago. If the data kept coming in your direction. Now you're kind of introducing credibility into the equation, which is a big problem for the FED. 00:11:35 Speaker 4: So I mean the bond market. I mean, as you mentioned, mister Walsh said that he's letting the bond market do the heavy lifting, which it certainly is with the or the ten year. Now out of the four sixty seven to thirty year or five twenty one, even a shorten, you know, it's still at four and a quarter. So I mean the bond market is in fact doing the work of the FED historically. Is that a problem? 00:11:58 Speaker 2: No? 00:11:58 Speaker 5: I mean, look, the bond market and equity markets certainly yesterday tighten financial conditions. That's something that you know would would at the end of the day be going in the fedce favor to kind of counter some of the other inflationary forces. But I think that the lack of direction, the lack of communication, we know it's going to lead to more volatility, and if we're in some void, then you don't want to let this get too uncontained. And I think that's the thing where all of a sudden you saw certain analysts out there estimating that, hey, maybe the thirty year goes to five point fifty now and can kind of gap there quickly. We saw how quickly it just moved, you know, thirteen fourteen basis points yesterday, And I think there's concern of if we're not going to get any discussion from the FED, then how how high can this go? 00:12:42 Speaker 2: How quickly? 00:12:43 Speaker 5: So I'd still be avoiding those long end bonds. But again I think that the data could end up saving the FED. But in the interim period, who knows how bad it could get. 00:12:53 Speaker 2: When you see these dynamics of all the you know, all this stuff, the er that you're expert at, we use, say price movement, is it working in a non panic rational way or do you worry about jump conditions? We're somewhere out there that I don't understand the fixed income market could unravel. 00:13:13 Speaker 5: Yeah, I think that, you know, it's certainly concerning how how quickly this can escalate. And and the issue for the FED and the US market is that it's not just it's not just here in the United States that we have this kind of massive issuance and and kind of massive deficits. You know, the era of austerity in Germany and Europe is over. We have China, who's exporting bonds. We have these megacap hyperscalers that are issuing, you know, hundreds of billions of bonds. So all this is kind of compounding on itself and giving investors some concern of like, Okay, how how much how much more issuance is the market going to have to digest? And how high how high should we be pricing in a term premium. So I think that that's the thing, is that this is a bit of a different situation that we've had the last decade because there is so much more supply coming everywhere, and so the market's not just trying to count, not just trying to figure out where where rich should be in the United States. But it's Europe, it's China, it's it's Japan and and and then it's the spread that you're getting on these kind of mega megacap tech companies, tech company long bonds too. 00:14:13 Speaker 4: Andrew as an active fiction income investor, did you come into the office today with thinking differently about your portfolio than you did maybe yesterday morning? 00:14:22 Speaker 5: So so we've we've had a view that the yeal curve should be steepening all year. We continue to kind of even that view. I think the one thing that that's changed in my mind is that I didn't think the FED was going to have to to hike for the rest of the year. I thought that the data itself, as long as if the war in Iran can just calm down. Oil prices are the main thing that's that's kind of driving inflation and chip inflations there as well. But I thought that FED, if they just kind of could stall a little bit, that could give them enough time for the data to come in their favor. 00:14:52 Speaker 2: I think the one thing. 00:14:53 Speaker 5: That's changed now is this FED credibility, and they might end up having to hike in a situation just to kind of regain that credibility. I think that's the one thing that's changed in my mind that didn't exist twenty four hours. 00:15:05 Speaker 2: I'll find a question, Andrew, did you have a chance during the World Club to go to Hennessy's Bar? What a bomb show they're closing Hennessy's Bar, definitive iconic in Boston. Did you have a chance to go there? Like for the whole Scotland thing in the World. 00:15:17 Speaker 5: Cup, a true institution and we're really sorry to see it go. Between that, we still have the bell in hand here, but we are sorry to see all the Scottish people leave. They were walking around town with their kilts and we miss them and hope they come back real soon. 00:15:33 Speaker 2: It's great and plus Hennessey's they're going to transfer the Bloomberg terminal that they have at the bar over there. Good Bar twenty three is going in there or whatever. Andrew, thank you so much. And Seroski advanced Morgan Stanley there on fixed income really important, the futures up forty for we're commercial free to this hour with a great lineup to come to help you understand what we witnessed yesterday. Francis Donald will join us from RBC. Michael Ball on short notice. I think he's on vacate and he's coming in. He's rocket and Michael Ball will be with us. And now joining us here is Seemas Shaw with principle and she's just magnificent. It's synthesizing the transatlantic arc from London. Seema. How was this digested yesterday in the city. 00:16:24 Speaker 6: I think it was digested in the same way that it was in the US, which was a lot of confusion, confusion and some concern with regards to clarity to the clarity that Chosh was providing, and real question marks about whether he's genuinely committed to that price stability goal that he continued to talk about. So I think there's been some I don't know if it's necessarily going to stick, but certainly there are questions and concerns that maybe the FED will have to address within the coming weeks. 00:16:54 Speaker 4: Seema had We've got this FED presumably on hold, but the expectations it will have to hype soon. If that's kind of the case when we had the ECB hold steady here today, how are you approaching these markets today anything different from maybe the last day or two. 00:17:12 Speaker 6: Well, I guess the only thing that's different is that we went into the meeting not expecting any hikes at all in twenty twenty six and even through twenty twenty seven, and the reason for that was just that the economic battery doesn't necessarily justify a hike yesterday. 00:17:27 Speaker 7: But of course there is a risk that you. 00:17:29 Speaker 6: See continued to high energy prices, and then that feeds through inflation expectations and underlying inflation. The same debate that I think everyone is having. I think the added dimension that came from yesterday is that Let's say that we do see continued to move up in energy prices, maybe not very significant, but at least that inflation doesn't trend down as much as the FED would want. The fact is that because the bond market is really questioning that credibility, it almost to a point, starts to raise the prospect the probability of FED hikes later down the line, because they need to react in order to put that credibility back into the market and then suppress that bond movement higher. So actually, I think the probability of hikes has actually increased over the next twelve months off the back of yesterday. 00:18:12 Speaker 4: So next steps here for the credit markets here, I mean this change the way you're thinking about credit risk here at all in the bond market, not at. 00:18:25 Speaker 6: This stage, but it's certainly something that we want to watch. I mean, typically when you're seeing thirty years and other parts of the bond the yield curve moving up, things do start to get a little bit messy. Now we're at the early stages. I don't think it's the time to react, certainly within twenty four hours of the FMC press statement, but we need to see some talk and if within the next month or so you're not getting any clarity, then certainly, Yeah, then I think we could be moving to a stage where markets generally risk assets are facing a considerably more challenging time. If they're still questioning the credibility of the THAD, then that will make the I think the arithmetic pretty difficult for riskousis abroad, across the across the market. 00:19:06 Speaker 2: Seman, from where you set and synthesize this, you rocked at the London School of Economics. You made it through their freshman year math exam. Full disclosure, I actually put Mick Jagger didn't pass it. 00:19:18 Speaker 4: Is that right? 00:19:18 Speaker 2: It's all right, Seema Shark killing it at LC. You're twenty one years old. You're walking into Her Majesty's treasury to help them out. I mean, you know you're the real deal, Seema. Is this the distillate of the president just really doesn't want economists economists to do central banking. Look it may well be. 00:19:39 Speaker 6: I mean, I think that was one of the things that came out. Look, go back through four weeks. I think the market have finally started to discard this idea that the chairwash was going to be the mouthpiece for President Trump. I think fast forward to today and those question marks are back. You know it does, Chairwash. I want to keep rates un change because that's President Trump's perspective. I think there is a question, and I think it needs to be dealt with. 00:20:01 Speaker 5: I want to. 00:20:01 Speaker 6: Hope that this is a truly independent FED, but I think it's now up to the Central Bank to really come out and reaffirm that commitment that it is genuinely focused on pricetability. 00:20:13 Speaker 2: She says it so politely. Yeah, it's not like everybody else is in an upwrold. Sema Shaw is gracious, Sema Shaw with principal, Thank you so much. Stay with us. More from Bloomberg Surveillance coming up after this. 00:20:33 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube. 00:20:45 Speaker 2: Paul Sankie's people caught up and had a tantrument. Can't cancel. So we've got Sankie here and Hooties and Saudi's and all the rest of it. So you're sitting in front of a bunch of fancy people, which is the way Paul Sankie rolls. What's the number one question fancy hydrocarbon people want to know from you right now? 00:21:05 Speaker 8: Well, I think there's this ongoing debate as to why crude prices are not higher, right because the military situation in the Gulf is developing in a way that's not great. And obviously the main folks of that is Saudi Arabia. Looks like we've got some peace in the UAE, we've got a settled situation in Lebanon, and then of course you've got an absolute beating that the Ukrainians are handing out to the Russian oil infrastructure. So I think the answer to the question is refining capacity limitations, and so there's not the ability to use more crude to bring down product prices. And you've got to remember that wholesale gallasolene is right now one hundred and forty dollars a barrel. So I think people are looking at the wrong oil price. 00:21:45 Speaker 2: In fact, okay, this is critical Young trenchin in China, off the desk in Singapore. Our oil people, they only go to Oxford and Cambridge in LC and so he comes up with the Ice Brant distillate refinery. Explain your audience why looking at the wah Wah at four dollars twenty cents isn't the way to look at this. You got to look at ice gas oil in Europe. No, slightly disagree. 00:22:13 Speaker 8: I mean, I think four twenty at the wah Wah is one hundred and sixty seventy dollars a barrow, right, So when you think about it in those terms, and then you know Brent's at ninety, we've got a seventy dollars refining margin. And I say that's a margin, that's not a price. So you know, we've had Valero, for example, printing twelve dollars this morning in their results. I think a year ago they made one or two. So there's you know, it's just a question of how people look at it, and they just focus on crude oil. But when you think about what happened in horn Moves, you shut down six million barrels of they of refining capacity, that's that's demand for crude, and China of course shut down six million barrels a day of oil crude oil imports. 00:22:49 Speaker 2: So there's been quite a big pressure. 00:22:50 Speaker 8: When you combine it with the SPR and the emergency releases all crude oil, and then you see this enormous price that we're paying. For example, jet fuel hasn't been far off two hundred dollars a barrow. What's fascinating as well, Thomas, people are still flying and driving, you know. So there's been a really interesting thing there. And another thing i'd highlight is long term thematic is the separation of the North American oil market from the global Basically, because you can't buy Chinese evs in North America, you've taken away the EV subsidy in North America. So what's happening. A tesla can't give away a tesla. So what you're seeing here is actually a situation where we're looking like will remain a very oil dependent economy. The rest of the world will actually do everything they can post horn moves to get off oil even more than they already were. 00:23:33 Speaker 4: Can hormos ever go back to the way it was pre war here? 00:23:37 Speaker 8: Absolutely not Now. I mean it's done. It's the one and done. And you know you've seen that with the hooties and the sewers. You know that three years now we've been at fifty percent of previous volumes. It's just too much risk. And the one thing about the Hormoves, you know, is it's the one incontrovertible if that's the right word, choke point. So every other choke point globally there's an alternate with horn moves essentially as pipelines. But for you, just for example Katari liquid natural gas, I don't see a solution other than the horn moves, so they're going to have to make some sort of agreement with the Iranians. The other thing people miss is if you look at where the US Navy is, it's not in the strait of horn Moves. Those aircraft carriers are way way out in the Arabian Sea, which is actually limiting our ability to bomb, which achieves basically nothing in my view, so it remains a horrendous mess. The other thing i'd highlight is two things. One is Ukraine had a drone attack on Siberian refinery the other day. That's oney eight hundred kilometers actually miles, I think it's a long way. And the other mystery at the moment is that a US owned gas floating a storage vessel in Egypt was blown up by a drone with no one claiming the responsibility for that. But that was another thing that was a very strange outcome. Bottom line is the drone, you know, the emergency drones. The emergence of Ukraine as a global superpower in drones makes all of this refining and tanker infrastructure incredibly vulnerable in a way that it wasn't previously. And the need for domestic energy, which the US has in abundance domestic infrastructure heavily defended, is going to become a very very important thing more than it was previously. And in that regard, the America's look in very good shape. 00:25:18 Speaker 4: What does Iran want? Do you think from an energy perspective in theory, I think the economica they would want the straight open to move their oil and their products. Is there a way to negotiate with them to really just from a economic standpoints say let's just open this up, and because it's good for everybody, including you guys. 00:25:37 Speaker 8: I mean I think where I would say, you know, is this a sewer's moment for the US that you know, like the UK, you just have to exit. The reason I would have suggested it's the right thing to do is because set of a given level. This is religious. You know, Iran and the Iranian proxies are all Shea and Iran against Israel is, Like, are you going to really solve a religious war that goes back? You know, possibly, you know, in the case of the Shia is a thousand years, but you know, generally longer. And what are we doing in that theater when we've got our own oil and gas is an open question. What's really interesting here is it seems like the UAE has made peace with Iran. You'll notice there's no attacks right now going on in the UAE, and of course Dubai historically was a Persian trading post, so there's a very close relationship there. What's not good is that you're now getting the US bombing Iraq, which is where the Shias are attacking the Saudis, right, and it's clear that the Saudis have a major issue here that they have to resolve, having not really had great relations historically with Iran in the way that UEE or Katso has. 00:26:35 Speaker 2: I want to close the loop on this. We're going to have to go here, Paul Sankie, we got to get you back shortly here. There's so much going on. You mentioned and for a lot of people, this is ancient history. For you and me, It's not nineteen fifty six, Sir Anthony Eden blew up his career over Suez. Folks, We're not going to make this a history lesson. All you got to know is a prime minister of the United Kingdom went down in flames. Yeah. How does President Trump extricate himself from the Sanky complexities you just gave us? 00:27:06 Speaker 8: Well, I think they have actually in real terms, because the US Navy is out of the Gulf and we you know, for example, the Basin Bahrain is on a skeleton crew. You know, we're actually being forced by military pressure. So I'm not believing a whole lot of what I'm hearing, frankly from the US administration about what's happening in that theater. I think it's going very poorly. So at a given level, you need to make an agreement with the GCC, with the Saudis and the ua Is that. 00:27:28 Speaker 2: We're at We're out of here, agreed. We got about this is like World War One. It's like, you know, T. Lawrence coming over and looking at the Suez Canal. We have to make an agreement from the trucial states up to Kuwait and indeed even Iraq to extricate ourselves. 00:27:42 Speaker 8: And you know what I always said Tom right at the beginning is Trump has to immediately fly and see she and talk to him and sort this out. That's the only way you can sort it out. As was she, Trump delayed the visit to she didn't agree a whole lot, and then days later she met Putin. As you know now she again is the only guy that Zara out if you want to do it with you know, another superpower, but you're gonna have to concede an awful lot to China. 00:28:04 Speaker 2: So Paul from the Jersey Shore emails and it says, get this guy back soon as can you come back, like next week? 00:28:09 Speaker 8: I see you inviting you back next week because I'm then going to Norway for a couple of weeks. So I'll drop back because theres a look to talk about you. Sank, Thank you, thank you, thank yous for Definitive. 00:28:18 Speaker 2: Is an oil house. Paul Sank with his own shop. I can't say enough about his work over the decades as well. Stay with us. More from Bloomberg Surveillance coming up after this. 00:28:36 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern. Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube. 00:28:49 Speaker 2: Gil Luria was thrilled to have with us today to pick up the pieces off Microsoft and Meta and look today to Apple. Gil I wanted to take you back to April of twenty twenty five. Apple is up one hundred percent. That's called a double seventy percent annualized. What were you thinking about Apple on Liberation Today? It's all going to end. Tim Cook's a failure and China's going to crush Apple. What was it like back at that dibaccle for Apple, like one sixty a share? 00:29:22 Speaker 9: Well, Apple has decided to not participate in the AI build out, to be cautious, careful, and wait for the outcome before it commits to anything. In a year ago, that looked like a terrible idea, and right now it looks genius because everybody's fighting it out, spending so much on capax. 00:29:43 Speaker 2: Right we don't know who's going to win. 00:29:45 Speaker 9: Whose model open closed, anthropic, open eye, Google and the Apple's above the thread, whatever wins they'll use in their phones. 00:29:53 Speaker 2: Microsoft prove yesterday they have a formula. What is the distinction of Microsoft and KEP spend versus the other eight mag seven stacks. Paul Sweeney owns. 00:30:06 Speaker 9: That Microsoft came across as the adult in the room yesterday. Here we are, we're going to accelerate Azure growth. By the way, one hundred billion dollar business that accelerate from thirty nine to forty three percent will accelerate to forty five percent. And we can do it with just increasing capex. We don't have to increase it significantly, which is what Google said last week. Will increase kpex. We'll keep building these data centers, but we're going to do it responsibly to match the growth. And here we are with growth accelerating very nicely, and by the way, it's impacting other parts of Microsoft business favorably. So they just came across as the adult in the room, which is what investors sorely needed after what Google said and what Meta said last night. 00:30:52 Speaker 4: All right, let's go to Meta. If microsofts the adult in the room, let's talk about mister Zuckerberg and maybe some of his messaging yesday. What is the AI call for Meta? 00:31:01 Speaker 9: Here, do you think, Well, then mister Zuckerberg is treating it like it's his company, which it is. He has controlling interest, but shareholders don't like that. 00:31:11 Speaker 2: They gave him. 00:31:12 Speaker 9: Plenty of opportunity last night to say, hey, look, I can turn around and rent out some of my excess compute capacity for billions of dollars a month, just like Elon's doing at SpaceX, and it's going to be a windfall and that'll help me raise less capital and continue the build out. And instead he was very circumspect. He said, well, you know, there's a few ways I can monetize. We can sell more ads, we can sell enterprise. We're going to have a personal assistant, but I'm not going to really tell you how much of each or what's more important. And investors are frustrated because they're continuing to increase their copex spend, revenue missed, and there's no clear strategy of how they're going to pay for all that data center build out. So investors just walked away feeling mister Zuckerber is doing whatever he wants and we shareholders are left holding the back. 00:32:01 Speaker 4: Feels a little bit like the metaverse here. I mean, what is the stated plan from Meta here is it. Is it to build a standalone, you know, kind of an app, a tool itself, an open ANI type thing, a clawed type of tool itself. What's the stated plan at least? 00:32:23 Speaker 9: Yes, right now they're still in that race of trying to have a better model and open ananthropic, which by the way, is highly unlikely. But their ultimate goal is to give us a personal assistant, a friend, an AI friend that we can talk to get advice, have them do chores for us, run errands for us. That's the vision that they're proposing. They're pretty far from that, but that's the main thrust of what they're headed towards. That's why they want to have the best model. 00:32:50 Speaker 2: Thirty seconds. Then we got to get over the final question thirty secs, guill, do you have a single best buy right now? Micron? 00:32:58 Speaker 9: Micron is trading like the site is over. And what we heard from Microsoft is that there's the belts in the room and we're going to continue to build down data centers, d more AI and we don't need to hell of a lot more memory for that. 00:33:09 Speaker 2: Okay, So you know, in terms of coolness points, and I love that they're in Santorini for this ad. Gil Lauria, have you tried, hon Or? Do you own a pair of the seven hundred and ninety nine dollars Meta display glasses from ray Ban. 00:33:25 Speaker 9: No, My sons tell me that it's a violation of other people's privacy. So they're not very popular right now, and I'm not going to do that to them. 00:33:34 Speaker 2: Okay, you'll do it next week. Seriously, that's a huge deal. I mean, do they have any sensitivity at all that if Michael bar wore the Meta display seven hundred ninety nine glasses it would ruin Alexis Christoph versus privacy. 00:33:50 Speaker 9: I don't think mister Zuckerberg cares about our privacy. I think there's about twenty years of track record telling us that, Gil. 00:33:56 Speaker 2: Thank you so much. Reporting from Gil Lauria, Da Davidson. Stay with us. More from Bloomberg Surveillance coming up after this. 00:34:11 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube. 00:34:24 Speaker 2: We start strogging on this moment of interest for the FED with Sophia durosis for years at Morgan Stanley Holding Court right now at point seven to two, and we're thrilled in well timed to be with us, and of course all of our academics out of Michigan years ago. How much does Chairman Warsh not like people like ned Gramlk. I mean, the bottom line here is it's a war against models in economics, isn't it? 00:34:51 Speaker 4: Well? 00:34:51 Speaker 7: Good morning, first of all, and I think it is a bit more of a throwback to an evidence based FED, waiting for data, waiting for inf fashion, and much less focus on forecasting. And perhaps that reflects the difference in this chairman compared with the other recent chairs that we've had that have had more of an academic lean and more confidence in forecasts and using forecasts as a guiding principle. 00:35:18 Speaker 2: Will he be model based? Can he dare be the excellence of Michigan? I think of Bessie Stevenson policy based, what will be the worst framework? 00:35:28 Speaker 7: I think the worst framework is evidence based. I think that he will be watching the data as they come in and deciding what is the correct policy path, gauging whether the economy is in transition, and I thought the data this morning, we're quite interesting in that regard. While inflation is very high, the level of inflation is quite high, it has been moderating. We saw a bit more of a moderation than we expected today. So my sense is that he's being cautious when we can potentially be at an inflection point. 00:36:00 Speaker 4: Is he running the risk of losing some credibility with the marketplace because the trading action yesterday, I think was a little erratic, to say the least. 00:36:08 Speaker 7: Was quite an eye popper to see the thirty year yield rise as much as it did. Certainly there's that narrative out there, but I would also be a little bit careful about reading too deeply into the price action, considering that there was an unusual amount of uncertainty heading into this decision. Typically the Fed signals very clearly what they're going to do. We don't have a lot of variation in futures. We did have a fair amount, so perhaps some of that was investors kind of clearing the deck after quite a bombshell of a press conference. 00:36:45 Speaker 4: So I'm sure you've got a lot of emails and a lot of ims for ibs from your trader saying Now, what's the FED going to do the way pencil in a September ike, at decemberike, does he sit on the sidelines for maybe an extended period of time. What's the message from you here? 00:37:02 Speaker 7: Well, I am taking the message from their actions more than from their words, and so looking at the committee as a whole, this was a committee that still had an easing bias in April, even though inflation was running at a higher rate. And it was a committee that didn't hike in June. I know it was the chair's first meeting, but I think the data we're more compelling for a hike. And now what we've seen is a couple prints of inflation coming in a bit lower, the labor market showing a bit more of a moderation as well. And so to me, looking at their actions, it says to me that the hurdle for at least those nine other FOMC people is high in terms of hiking Sophia drosis. 00:37:46 Speaker 2: With this, we're going to go to Kevin Hasset to the White House here in about five six minutes as well, the thrilled toy of Sophia drosis appoint seven to two with us today. Kevin Gordon emailed in from Schwab and we were talking about domestic final sales because it's a wonderfully important statistic. I learned that from Bettina Dalton years ago at Fidelity. The GDP number was some bit soggy. As Sophia just mentioned. Nominal GDP was I believe to be polite over six percent fold in the oomph of the economy from the combined inflation in real GDP, and our chairman Warsh can manage a supposed decline in nominal GDP. 00:38:28 Speaker 7: Yes, well, that nominal GDP print probably speaks to ongoing health in corporate profits. As you know, corporate profits are coming off of. 00:38:35 Speaker 2: Got an AI overlay. 00:38:37 Speaker 7: It does, but you know, I would say that the issue with the AI, the Kapex boom continues, and the chair mentioned that yesterday it's quite strong, but a large component of that is imported, so the potential for it to create overheating domestic conditions seems a bit less to me compared with other Kapex cycles. 00:38:55 Speaker 2: We got to go back to Morgan Stanley here, I mean, okay, here, we gotta go back. I'm sorry, Steve, I gotta go there. Audrey Chuv Friedman was on did we, as an outlier yesterday, have the dollar finally break? Is this a moment where this shocking dollar resilience even with higher rates, finally turns around and we get with a lack of credibility dollar weakness. 00:39:19 Speaker 7: So I think the dollar is going to lose a little bit of interest rate support and has. Of course, the market has repriced seeing that the FED didn't act on the accumulated high level of inflation at the last two meetings, So the market's extrapolating that a bit forward in terms of the reaction function. But we also need to be cognizant of what other central banks are doing. So the ECB last week declined to hike and also stated a bit more of an open ended path, so perhaps they will not fully meet the amount of tightening that's priced in, and other central banks might be sounding a bit circumspect, And we had the Bank of England this morning they held rates. So the question to me is, you know, the FED may have come across a bit more dubbish than some people expected, but I think that this is a broader trend among central banks now as perhaps they contend with energy prices at higher levels which also has a detrimental impact on growth. The tradeoff is very clear here, So. 00:40:20 Speaker 4: What is the underlying inflation actor? That's one of the questions I think the market's asking, how do you do. 00:40:26 Speaker 2: You have at point seven to a disinflation ary vector. 00:40:30 Speaker 7: Well, I do think that inflation is going to moderate in the second half of the year where we were in the first half of the year. We're seeing already some moderation in rents and in services, and I think that there will be a bit more of that in the pipeline. Obviously, this morning we saw a below than expected move in inflation, so it seems to me that perhaps the worst is behind us. The issue for the Fed now is, though they might want to wait, and though maybe the data gave them a little bit of luxury of the time to wait, I don't think they can tolerate any acceleration going forward. 00:41:08 Speaker 2: Oh good news, Paul. I was so worried. I see a list of people moving out of point seventy to two, Freddie Perrault to Clay Holmes, AJ Minter, and I don't see Sophia Dros's name on here. The Mets are cleaning house, aren't they. 00:41:23 Speaker 7: Well, you know what it's like to be a Mets fan. It teaches you patience, it teaches you to show it. I love my Mets merch it's co branded Mets and points seventy two. But yes, as you know, a lot of economists love baseball, so that brings a little added fun to it. 00:41:40 Speaker 2: Sophia, thank you, thank you so much for coming in today. Just hugely valuable at all point seventy two. Thank you, mister Cohen and all. And it's still It's still the Mets, and they'll recover, we think. 00:41:53 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.