WEBVTT - Fed Decision and Tech Earnings 0:00:02.529 --> 0:00:13.790 Bloomberg Audio Studios, podcasts, radio, news. This is the Bloomberg 0:00:13.830 --> 0:00:17.889 Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern 0:00:18.290 --> 0:00:21.930 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.329 --> 0:00:25.669 Listen on demand wherever you get your podcasts or watch 0:00:25.730 --> 0:00:26.990 us live on YouTube. 0:00:27.690 --> 0:00:31.710 She's senior advisor, macro policy perspective, chief economist for The Economist. 0:00:32.170 --> 0:00:35.580 intelligence unit constant hunter with us this morning. I want 0:00:35.600 --> 0:00:38.339 to frame out two groups. There's a group looking for 0:00:38.380 --> 0:00:40.900 maybe one more rate rise, that's it, then down we go, 0:00:40.960 --> 0:00:45.110 disinflationary vector, etc. And there's another group saying they should 0:00:45.130 --> 0:00:47.430 be raising rates today or at least raising rates in 0:00:47.470 --> 0:00:51.710 December and raising rates again. What is the single distinction 0:00:51.770 --> 0:00:53.990 between those two groups, Constance? 0:00:54.360 --> 0:00:57.010 So we have this debate on our team all the time, 0:00:57.090 --> 0:01:00.630 and we are not monolithic. We have both representatives. And 0:01:01.670 --> 0:01:04.910 the raise once and then possibly be on a downward 0:01:04.950 --> 0:01:08.780 trajectory is looking at factors in underlying inflation that are moderating, 0:01:09.020 --> 0:01:13.880 non-energy factors. And of course, the real question is, do 0:01:14.800 --> 0:01:21.290 the energy price spikes spillover into services? Is there demand 0:01:21.390 --> 0:01:25.370 for inflation, enough demand for inflation from AI that's going 0:01:25.410 --> 0:01:28.540 to have broader inflationary effects, or is that going to 0:01:28.580 --> 0:01:32.100 be contained? And then I think finally, we are not 0:01:32.260 --> 0:01:33.540 done with the trade war. 0:01:33.560 --> 0:01:33.660 Okay. 0:01:34.020 --> 0:01:37.360 So how, folks, this is This is the Latin moment 0:01:37.520 --> 0:01:38.899 of Bloomberg surveillance this morning. 0:01:39.200 --> 0:01:41.199 Sweeney killing Latin at Duke. 0:01:42.140 --> 0:01:44.590 You were at Lawrenceville years ago. You took Latin? 0:01:44.709 --> 0:01:46.889 We had Latin at the Blessed Sacrament School in Trenton, 0:01:46.910 --> 0:01:48.970 New Jersey. I'll bet we did. 0:01:49.190 --> 0:01:50.810 So let's go Latin with Paul Sweeney. 0:01:51.210 --> 0:01:54.390 Ex ante, get out in front. Ex post, you got 0:01:54.410 --> 0:01:54.770 to wait. 0:01:55.130 --> 0:01:58.640 I'm suggesting this is a Fed that is massively ex 0:01:58.700 --> 0:01:59.420 post right now. 0:01:59.640 --> 0:02:01.280 Yes, and they are not alone, right? 0:02:01.320 --> 0:02:03.720 We have two other central bank meetings this week. We 0:02:03.740 --> 0:02:05.460 have the Bank of Japan and the Bank of England. 0:02:05.960 --> 0:02:08.700 They are both going to hold and wait and see. 0:02:09.680 --> 0:02:13.320 And Japan probably has the most significant inflationary pressure that 0:02:13.380 --> 0:02:16.300 is both demand pull and cost push. And they, too, 0:02:16.380 --> 0:02:19.600 are taking a wait and see approach. And there's really– look. 0:02:20.560 --> 0:02:23.019 If it is an insurance cut and what they are 0:02:23.100 --> 0:02:25.519 signaling is they're tough on inflation, you can make a 0:02:25.540 --> 0:02:28.060 strong argument that they cut today. If you look at 0:02:28.080 --> 0:02:32.570 the underlying economy, does it matter if they hike today 0:02:32.889 --> 0:02:35.410 or hike in December? It really doesn't matter that much 0:02:35.430 --> 0:02:36.530 for the underlying economy. 0:02:36.590 --> 0:02:38.649 She says demand pull, cost push. 0:02:38.730 --> 0:02:42.560 It reminds me of Scotch, cigars, LBJ. 0:02:43.389 --> 0:02:44.210 It's so 60s. 0:02:44.410 --> 0:02:44.790 60s. 0:02:44.850 --> 0:02:49.790 So, Constance, what is, in your mind, the underlying inflation 0:02:50.380 --> 0:02:54.060 out there? Because there's obviously the energy aspect. There's the 0:02:54.220 --> 0:02:57.780 AI aspect. I mean, companies are spending left, right, and center, 0:02:57.820 --> 0:03:00.269 raising money all over the place to spend money. When 0:03:00.290 --> 0:03:03.410 you peel all that away, what is the underlying inflation 0:03:03.430 --> 0:03:05.850 out there? Is it something that the Fed- should be 0:03:05.889 --> 0:03:06.470 concerned about? 0:03:06.750 --> 0:03:08.830 Well, this is a really good question, right? Because we 0:03:08.870 --> 0:03:11.980 have a different backdrop than we had, say, in the 1990s. 0:03:11.990 --> 0:03:13.510 A lot of people like to look at this time 0:03:13.550 --> 0:03:15.350 and say, well, if we compare this to the 1990s 0:03:15.350 --> 0:03:18.790 when we had the internet boom and that technology boom. 0:03:18.810 --> 0:03:22.090 How does that transfer? And the fact is, in the 1990s, 0:03:22.120 --> 0:03:25.220 we were in a global economic backdrop where we were 0:03:25.260 --> 0:03:29.650 reducing friction, right? We were advancing free trade. More countries 0:03:29.690 --> 0:03:34.850 were becoming capitalist and democratic. We had institutions that supported 0:03:34.930 --> 0:03:38.880 coordination And so we had the peace dividend from the 0:03:38.940 --> 0:03:41.740 fall of the Berlin Wall. Now we have a situation 0:03:42.020 --> 0:03:45.940 where we are increasing frictions, where global institutions are not 0:03:46.200 --> 0:03:54.250 easing global frictions, where security, supply, and statism are really 0:03:54.430 --> 0:03:56.780 pushing up prices and in some cases pushing up demand. 0:03:57.150 --> 0:03:59.130 So if we look at that backdrop and we say, okay, 0:03:59.210 --> 0:04:03.470 what percentage of the basket is AI? It's really not 0:04:03.510 --> 0:04:08.110 an AI-related component. It's not a large percent of the basket. 0:04:08.150 --> 0:04:11.270 But the question is, can that grow as this continues 0:04:11.310 --> 0:04:14.460 to grow? And that is, I think, an unknown, but 0:04:14.500 --> 0:04:16.180 something that we are closely monitoring. 0:04:16.860 --> 0:04:19.460 The Fed, I mean, Fed Chairman Walsh, he is sticking 0:04:19.500 --> 0:04:22.660 with this 2% inflation target, as the Fed has done 0:04:22.680 --> 0:04:24.750 for a long time. But A lot of folks are 0:04:24.790 --> 0:04:28.450 suggesting maybe that's not the right target anymore. We're onshoring 0:04:28.470 --> 0:04:31.960 more manufacturer trying to onshore more manufacturing. That suggests maybe 0:04:32.540 --> 0:04:36.219 higher inflation. We're restricting immigration that might push up wages. 0:04:36.380 --> 0:04:39.970 That could be inflationary. Maybe the 2 percent target isn't 0:04:40.130 --> 0:04:42.790 the right target anymore. Maybe it's something higher. How do 0:04:42.810 --> 0:04:43.370 you think about that? 0:04:43.390 --> 0:04:45.370 Well, Tom talks about this all the time. He talks 0:04:45.410 --> 0:04:48.350 about nominal GDP, right? Are we in a nominal GDP 0:04:48.450 --> 0:04:51.240 world that's a 6%, 7% nominal GDP? 0:04:51.360 --> 0:04:54.239 I had a drink with Kodlow once, and he slipped 0:04:54.279 --> 0:04:56.920 something in my drink. I've never been the same again. 0:04:59.600 --> 0:05:00.740 That could happen to a person. 0:05:01.320 --> 0:05:04.180 But in any case, I think that it really. 0:05:03.940 --> 0:05:07.200 Depends on what is nominal GB, where is overall demand. 0:05:07.580 --> 0:05:10.440 So the concern and the reason we have the dual mandate, right, 0:05:10.500 --> 0:05:14.270 is that if you have higher inflation, it curtails economic activity. 0:05:14.770 --> 0:05:19.990 And so you don't want persistently high inflation because that 0:05:20.029 --> 0:05:22.510 makes it difficult for businesses to operate, right? 0:05:22.810 --> 0:05:23.390 Talk about. 0:05:24.570 --> 0:05:29.650 Paul's great question in nominal GDP, this boom economy, and 0:05:29.690 --> 0:05:33.920 yet if I look up credit card delinquencies or percentage 0:05:33.960 --> 0:05:38.020 of month-to-month expenditures on credit cards, it's beyond ugly. 0:05:38.810 --> 0:05:40.109 It's not mean for everyone. 0:05:40.370 --> 0:05:42.469 Do you agree we've never seen this before? 0:05:42.650 --> 0:05:44.740 Well, I think you need to look at credit card 0:05:44.750 --> 0:05:49.120 debt and credit card expenditures as a ratio of overall consumption, right? 0:05:49.480 --> 0:05:52.400 So with that number is growing, obviously the credit card 0:05:52.440 --> 0:05:55.950 number then also grows. How is it growing proportionately? And 0:05:56.270 --> 0:05:57.930 so if we look at it in terms of how 0:05:57.970 --> 0:06:00.490 it's growing proportionately, it's really in line. But then if 0:06:00.529 --> 0:06:03.219 we look at where our delinquency is starting to tick up, 0:06:03.710 --> 0:06:07.180 who are the consumers and households that are really stretched? 0:06:07.270 --> 0:06:07.500 Right. 0:06:07.540 --> 0:06:09.400 And there's a significant cohort of them. 0:06:09.880 --> 0:06:11.160 Okay, Constance, thank you so much. 0:06:11.180 --> 0:06:13.919 Constance Hunter getting us started this morning with EIU and, 0:06:13.940 --> 0:06:18.240 of course, her work with Julia Coronado, Macro Policy Perspectives. 0:06:20.110 --> 0:06:20.700 Stay with us. 0:06:21.020 --> 0:06:24.250 More from Bloomberg Surveillance coming up after this. 0:06:31.490 --> 0:06:35.090 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:06:35.170 --> 0:06:38.350 weekday afternoons from 7 to 10 a.m. Eastern. Listen on 0:06:38.450 --> 0:06:41.710 Apple CarPlay and Android Auto with the Bloomberg Business app 0:06:41.920 --> 0:06:43.660 or watch us live on YouTube. 0:06:44.080 --> 0:06:47.640 Dominic Constance, without question, our global Wall Street interview of 0:06:47.680 --> 0:06:50.380 the day, definitive at Mizzou, all of his decades at 0:06:50.420 --> 0:06:53.599 Credit Suisse as well. Never have I seen you top 0:06:53.680 --> 0:06:57.440 out a note on the jobs market. Paul and I 0:06:57.480 --> 0:07:03.830 called yesterday seismic. that Microsoft are asking 60,000 people to 0:07:03.870 --> 0:07:06.989 head for the door. You and I and Clement Attlee 0:07:07.029 --> 0:07:10.100 have never seen this before. I mean, tell me about 0:07:10.140 --> 0:07:10.900 the jobs market. 0:07:12.520 --> 0:07:16.850 Well, I guess the idea is that the workforce is 0:07:17.170 --> 0:07:20.110 lower and we're still able to create enough jobs to 0:07:20.150 --> 0:07:26.870 keep unemployment unchanged. But clearly, we're at the precipice, maybe, 0:07:27.050 --> 0:07:30.590 where with this AI thing, you know, we might be 0:07:30.650 --> 0:07:33.470 changing that and Microsoft might well be reflecting that. And 0:07:33.490 --> 0:07:35.590 you're seeing a bit more and more of that. However, 0:07:36.230 --> 0:07:39.810 I would sort of suggest that Walsh and I sort 0:07:39.830 --> 0:07:41.760 of share something in common in the sense that When 0:07:41.780 --> 0:07:46.130 you have these sort of productivity events, usually the labor 0:07:46.170 --> 0:07:53.750 demand recovers as productivity expands and you reabsorb these workers. 0:07:54.230 --> 0:07:57.940 But the analog all of our listeners are using is 0:07:57.980 --> 0:08:00.360 we had textile workers in the Carolinas. 0:08:00.800 --> 0:08:02.640 Dominic, that's down south in America. 0:08:02.800 --> 0:08:03.000 Yeah. 0:08:03.120 --> 0:08:03.780 The Carolinas. 0:08:03.820 --> 0:08:06.780 They went to China. They went to Asia. And we 0:08:06.820 --> 0:08:09.350 didn't replace those jobs. Do we risk that again? 0:08:11.040 --> 0:08:15.640 Well, I mean, as a transitory phenomenon, yes, a little bit. 0:08:15.700 --> 0:08:19.040 But I mean, you know, supply creates its demand. And 0:08:19.460 --> 0:08:24.070 when you have excess supply in the States initially, then 0:08:24.270 --> 0:08:26.330 I think that will get reabsorbed and you'll create the 0:08:26.350 --> 0:08:27.690 demand to support it. And it's going to be in 0:08:27.730 --> 0:08:30.930 different areas. I think the economy basically has a way. 0:08:31.370 --> 0:08:34.090 of basically dealing with this. And I wouldn't be afraid 0:08:34.110 --> 0:08:37.270 of this sort of Luddite sort of idea that we're 0:08:37.290 --> 0:08:41.700 forever going to create a mass unemployment that somehow can't 0:08:41.740 --> 0:08:44.740 be reabsorbed. I think the bigger issue is actually income 0:08:45.020 --> 0:08:48.610 and capital distribution. I think the idea is that the 0:08:48.679 --> 0:08:53.569 terms on which labor gets reabsorbed basically might be less 0:08:53.650 --> 0:08:56.969 favorable in terms of real wages and ultimately capital and 0:08:56.990 --> 0:09:00.150 the people's ability to own a pension and buy a house. 0:09:00.890 --> 0:09:03.350 And that is where a policy has to come into effect. 0:09:03.370 --> 0:09:06.069 So that's your kind of K-shaped economy. That's a much 0:09:06.150 --> 0:09:10.460 bigger issue than I think people being made redundant and 0:09:10.500 --> 0:09:13.319 never getting a job back again. I think that won't happen. 0:09:13.679 --> 0:09:15.560 So if the Fed, which we're going to hear from today, 0:09:15.600 --> 0:09:18.439 and Tom will have full coverage starting at 1.30 p.m. 0:09:18.480 --> 0:09:23.250 Wall Street time, Fed focusing on inflation, There's not much 0:09:23.280 --> 0:09:24.809 they can do there. I mean, it seems like the 0:09:24.830 --> 0:09:26.390 energy is going to do what it's going to do. 0:09:27.350 --> 0:09:29.210 AI is there. It doesn't seem to be going away. 0:09:29.230 --> 0:09:32.750 And that probably has some inflationary push. What can the 0:09:32.770 --> 0:09:36.910 Federal Reserve really do here? I mean, it suggests that 0:09:36.929 --> 0:09:38.209 they should just sit on their hands and kind of 0:09:38.250 --> 0:09:38.990 see how things play out. 0:09:39.210 --> 0:09:41.569 I mean, it's a great question. I mean, when you 0:09:41.590 --> 0:09:43.370 look at all the models on inflation, I mean, the 0:09:43.390 --> 0:09:46.330 thing that stands out is inflation expectations matter a lot 0:09:46.350 --> 0:09:49.740 for inflation. and the Fed itself matters much less. I mean, 0:09:49.760 --> 0:09:52.120 it doesn't mean the Fed doesn't matter, but it's more 0:09:52.140 --> 0:09:56.510 important to actually bring down, especially the front end inflation expectations. 0:09:56.790 --> 0:09:58.829 And to some extent, maybe the Fed hiking rates helps 0:09:58.850 --> 0:10:01.800 do that. I think really, what the Fed is, where 0:10:01.840 --> 0:10:04.199 they do matter, is they give you some sense of 0:10:04.240 --> 0:10:07.339 credibility in the inflation fight that helps stabilize a long 0:10:07.420 --> 0:10:09.990 end of the market, in rates markets. So I think 0:10:10.010 --> 0:10:12.490 what the Fed is doing, to some extent, will help 0:10:12.929 --> 0:10:16.710 reduce inflation in addition to to assuming inflation expectations normalize. 0:10:17.170 --> 0:10:20.080 But the bigger issue is by being seen to be 0:10:20.559 --> 0:10:23.780 caring about inflation, they get credibility for the long end 0:10:24.420 --> 0:10:26.900 of the market, which stops interest rates going up to, say, 6% 0:10:26.900 --> 0:10:30.340 in 10s or 30s. And that's kind of where we're at. 0:10:30.700 --> 0:10:35.160 I mean, again, the 10s, you mentioned sitting right at 5%. 0:10:35.160 --> 0:10:38.410 Is this a reasonable level for the yield curve to 0:10:38.490 --> 0:10:41.950 be at, given that This economy is growing pretty darn quickly. 0:10:42.140 --> 0:10:43.819 So maybe rates are where they should be. 0:10:43.830 --> 0:10:44.710 I don't know. MARK BLYTH, JR. 0:10:44.880 --> 0:10:46.170 Well, yeah, what do you mean by reasonable? I mean, 0:10:46.210 --> 0:10:48.010 it's certainly not reasonable for debt service. I mean, it's 0:10:48.050 --> 0:10:50.770 a big problem for a lot of countries, including the US, 0:10:50.790 --> 0:10:54.330 to have rates this high. There's nothing about stabilizing the 0:10:54.350 --> 0:10:59.309 debt and having discretionary spending available to the government with 0:10:59.450 --> 0:11:02.390 interest rates this high. I think if you're thinking about 0:11:02.410 --> 0:11:06.090 the economy, then yeah, I mean, it's not totally unreasonable. 0:11:06.130 --> 0:11:08.109 It's probably a little bit high. I mean, I think 0:11:08.130 --> 0:11:10.510 the idea is that inflation is running at 2% and 0:11:10.910 --> 0:11:13.840 real growth, even if it was 3%, you still probably 0:11:13.960 --> 0:11:16.610 ought to have a government security that's close to 4, 0:11:16.600 --> 0:11:19.339 not 5. And based on that, you could argue it 0:11:19.360 --> 0:11:21.020 could be a little bit lower in the end. But 0:11:21.059 --> 0:11:23.680 right now, obviously, you've got this inflation problem. And it's 0:11:23.700 --> 0:11:25.200 a big problem, and it's going to take a long 0:11:25.220 --> 0:11:25.780 time to fix. 0:11:26.040 --> 0:11:28.150 Dominic Constan with us from Missoula. Paul, can we go 0:11:28.250 --> 0:11:29.130 Austrian economics? 0:11:29.170 --> 0:11:29.370 Sure. 0:11:29.390 --> 0:11:31.950 I mean, I'm thinking of Hawtree in England. Did you 0:11:31.990 --> 0:11:32.970 study with Hawtree? 0:11:33.350 --> 0:11:33.410 No. 0:11:33.429 --> 0:11:34.250 Was he an agent? 0:11:34.370 --> 0:11:34.490 No. 0:11:34.630 --> 0:11:35.750 Maybe he died by then. 0:11:35.770 --> 0:11:36.730 Yeah, probably. 0:11:36.830 --> 0:11:37.910 Capital deepening. 0:11:37.990 --> 0:11:43.080 Dominic Constan instructed me and Ira Jersey on capital deepening 0:11:43.540 --> 0:11:48.959 for productivity swings alone. What's the character of AI capital 0:11:49.080 --> 0:11:52.179 deepening you see in this CapEx frenzy? 0:11:53.640 --> 0:11:57.040 Um, well, I mean, capital deeming strictly means, you know, 0:11:57.080 --> 0:12:00.560 you can make more output, you know, with relatively more 0:12:00.600 --> 0:12:02.719 capital to labor. So it's a sort of ratio, if 0:12:02.740 --> 0:12:06.060 you like, of labor to capital use and productivity. So clearly, 0:12:06.559 --> 0:12:08.440 you know, given we just talked about, you know, Microsoft 0:12:08.460 --> 0:12:11.080 getting rid of jobs, et cetera, that's consistent with that 0:12:11.140 --> 0:12:14.000 labor input sort of being somewhat weaker. And yet we're 0:12:14.070 --> 0:12:16.170 adding a lot of capital. And capital comes in lots 0:12:16.210 --> 0:12:18.850 of different forms. It used to be obviously structures. But 0:12:18.890 --> 0:12:21.170 now it includes software and all of that sort of 0:12:21.670 --> 0:12:26.480 intelligent capital. And that's really what AI is delivering. And, 0:12:26.800 --> 0:12:30.660 I mean, we have productivity miracles that happen right the 0:12:30.679 --> 0:12:33.480 way through centuries. And there are these Kuznets cycles and 0:12:33.500 --> 0:12:36.500 conjugative waves. And they're like 20 years or 50 years. 0:12:36.740 --> 0:12:38.760 But basically, I like the 20-year one, which is Kuznets. 0:12:39.110 --> 0:12:41.730 And that basically is sort of where we're now. Last 0:12:41.750 --> 0:12:43.710 time we had a prodigy miracle was about 20 years ago. 0:12:43.830 --> 0:12:44.410 This is great. 0:12:44.470 --> 0:12:46.670 Okay, we're going to go to Kuznets here. I'm going 0:12:46.730 --> 0:12:50.970 to go 1947 is after Autry. Okay, fine, Dominic. Except 0:12:51.150 --> 0:12:54.700 I don't know the depreciation cycle of all this capex 0:12:54.760 --> 0:12:58.079 being spent on all this stuff. We're going into this 0:12:58.320 --> 0:13:01.130 blind compared to what they did in the 50s and 60s. 0:13:02.490 --> 0:13:05.810 Yeah, that's an interesting one, the depreciation. I think the 0:13:05.929 --> 0:13:10.220 idea basically is that these things perhaps are not depreciating 0:13:10.700 --> 0:13:13.360 as fast as you might think. I mean, this has 0:13:13.380 --> 0:13:16.640 been one of the issues around AI valuations. I mean, basically, 0:13:16.660 --> 0:13:19.500 you're still, I understand, you're still using a lot of 0:13:19.600 --> 0:13:21.380 chips that came out a few years ago that still 0:13:21.400 --> 0:13:25.540 have a tremendous amount of sort of use in them still, 0:13:26.100 --> 0:13:30.900 which is basically allowing the capital deepening to be even greater, basically. 0:13:31.750 --> 0:13:35.960 because there's less depreciation. So I think in a way, 0:13:36.000 --> 0:13:38.500 this is a more profound capital deepening than perhaps we've 0:13:38.520 --> 0:13:41.380 seen before, when depreciation might be much faster and all 0:13:41.420 --> 0:13:43.459 the capital you've been spending just has to be replaced 0:13:43.480 --> 0:13:46.840 very quickly. So net capital stock isn't increasing as much. 0:13:47.980 --> 0:13:51.600 What do you think of that S1 from Anthropic? I'm 0:13:51.620 --> 0:13:53.920 sure you've poured through every page here. I mean, this 0:13:53.990 --> 0:13:56.030 is the AI dawning moment, I guess. 0:13:56.110 --> 0:13:59.120 I don't know. Well, I mean, I observe. 0:14:00.480 --> 0:14:02.929 From where I work and the clients that we interact 0:14:02.970 --> 0:14:06.760 with and obviously our own bank, that the take-up of 0:14:07.500 --> 0:14:12.560 these language models is really still only just beginning. I mean, 0:14:12.600 --> 0:14:15.760 you know, I'm using Claude a lot now. But I 0:14:15.800 --> 0:14:19.060 would say six months ago, a year ago, you know, 0:14:19.180 --> 0:14:21.330 it was really peripheral. It was really more for sort of, 0:14:21.340 --> 0:14:23.320 you know, instead of search. So I think from the 0:14:23.440 --> 0:14:26.140 business side, this thing is really just beginning. And we're 0:14:26.160 --> 0:14:28.620 not spending that much money on it yet in terms 0:14:28.640 --> 0:14:29.320 of a customer. 0:14:29.460 --> 0:14:34.440 I've got to squeeze this in. Simon Kuznets, Nobel Prize winner, 1972. One, 0:14:34.580 --> 0:14:39.600 he said, don't confuse GDP with well-being. Are we right 0:14:39.640 --> 0:14:41.940 now confusing our nominal GDP. 0:14:41.980 --> 0:14:43.480 Boom with well-being? 0:14:43.820 --> 0:14:45.720 This is my favorite topic. I mean, I think the 0:14:45.740 --> 0:14:48.680 GDP is a terrible measure of welfare. And the reason 0:14:48.760 --> 0:14:51.560 why people are miserable is because GDP is not the 0:14:51.600 --> 0:14:52.540 right way to be looking at it. 0:14:52.540 --> 0:14:52.920 Thank you. 0:14:53.060 --> 0:14:55.480 You have to look at consumer surplus. Consumers get a 0:14:55.600 --> 0:14:58.920 wonderful gain from wanting something and not having to pay 0:14:59.040 --> 0:15:01.350 as much for it as they're willing to pay. That 0:15:01.610 --> 0:15:03.750 is why profits, by the way, are so high. because 0:15:03.810 --> 0:15:06.830 companies are taking that consumer surplus and putting it into profit. 0:15:07.030 --> 0:15:10.430 Dominic Karsten, my clinic there, did you ever think, Mike 0:15:10.450 --> 0:15:12.250 Bloomberg came up to me once, he said, you've got 0:15:12.290 --> 0:15:14.310 to get Simon Kuznets into the show. 0:15:14.370 --> 0:15:16.690 Yeah, exactly. For the ratings. 0:15:16.870 --> 0:15:21.250 That was a clinic on British mid-20th century economics. 0:15:23.200 --> 0:15:23.800 Stay with us. 0:15:24.100 --> 0:15:27.340 More from Bloomberg Surveillance coming up after this. 0:15:34.600 --> 0:15:38.200 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:15:38.280 --> 0:15:41.460 weekday afternoons from 7 to 10 a.m. Eastern. Listen on 0:15:41.560 --> 0:15:44.820 Apple CarPlay and Android Auto with the Bloomberg Business app 0:15:45.020 --> 0:15:46.720 or watch us live on YouTube. 0:15:47.140 --> 0:15:49.860 This is a good time to speak to David Schlosser, 0:15:50.640 --> 0:15:54.520 multi-asset solutions at VanEck. And I bring that up because, 0:15:54.740 --> 0:15:57.979 you know, they were alternative before alternative was alternative, I 0:15:58.020 --> 0:15:59.600 think is how. 0:15:59.500 --> 0:16:03.460 I put it. And I love, love your comments here. 0:16:04.050 --> 0:16:05.030 On AI. 0:16:05.210 --> 0:16:08.500 I mean, you nailed it. Everyone loves to hate AI 0:16:08.580 --> 0:16:09.140 right now. 0:16:09.880 --> 0:16:13.240 So over the next five days, what do you see 0:16:13.240 --> 0:16:17.240 10 days out after we get a report on AI 0:16:17.540 --> 0:16:20.710 from 43% of the S & P 500 market cap? 0:16:21.390 --> 0:16:23.450 Five days out is pretty tough, but let's push it 0:16:23.490 --> 0:16:26.990 out a little bit further here. So first off, really 0:16:27.010 --> 0:16:30.400 big picture. We are macro investors. We are thematic investors. 0:16:30.440 --> 0:16:32.180 And we believe you make most of your money from 0:16:32.240 --> 0:16:33.640 riding trends. You want to do it in the most 0:16:33.680 --> 0:16:37.600 diversified way possible. And now on AI, the most hated 0:16:37.700 --> 0:16:41.260 trade ever. Here's the thing. People are already writing it off. 0:16:41.440 --> 0:16:44.860 The technology is still being refined. It's improving at rates 0:16:44.980 --> 0:16:48.040 faster and faster and faster. The infrastructure is still being built. 0:16:48.210 --> 0:16:50.020 Companies are still trying to figure out how to use it. 0:16:50.690 --> 0:16:51.990 Yet if you speak to a lot of people, they 0:16:52.010 --> 0:16:53.830 think the trend is completely over. We don't think that 0:16:53.890 --> 0:16:56.810 that's right at all. You know, the best way to 0:16:56.850 --> 0:16:58.970 play it, we think, from here is you want to 0:16:59.010 --> 0:17:02.410 think about infrastructure development companies, right? No matter who wins 0:17:02.450 --> 0:17:05.510 on the technology side, the winners and losers are constantly changing, right? 0:17:05.530 --> 0:17:07.250 You develop a new model, you generally get six to 0:17:07.270 --> 0:17:09.850 eight weeks before you get leapfrogged. No matter who wins 0:17:09.890 --> 0:17:12.470 on the technology side, everybody's going to pay their electric bill. 0:17:12.910 --> 0:17:15.710 Infrastructure development stocks, a lot of these are beaten down significantly. 0:17:15.730 --> 0:17:17.419 A lot of these look like the same prices that 0:17:17.440 --> 0:17:20.180 they were in the beginning of the year. So buy 0:17:20.220 --> 0:17:22.140 the dip on those, do it very, very broadly. That's 0:17:22.160 --> 0:17:22.600 where we're at. 0:17:23.440 --> 0:17:26.460 What did you make of This S1 we saw from 0:17:26.600 --> 0:17:30.990 Anthropic just dropped this yesterday, I guess. What does that 0:17:31.030 --> 0:17:33.530 mean for the space? Are your phones ringing off the hook? 0:17:33.550 --> 0:17:36.350 Your clients want exposure? What did you guys make of that? 0:17:37.210 --> 0:17:41.690 We think from a very, very high-level perspective, it's just 0:17:41.820 --> 0:17:45.320 more of the same thesis, right? Everybody's investing. Everybody's starving 0:17:45.340 --> 0:17:48.300 for capital. More and more and more and more. 0:17:48.160 --> 0:17:48.660 Of the same. 0:17:49.140 --> 0:17:51.399 The situation is this, is that if you take it 0:17:51.440 --> 0:17:55.480 from a really, really high-level perspective, People are trying to 0:17:55.520 --> 0:17:59.060 constantly write off the trade, tell you why it's a problem. 0:17:59.260 --> 0:18:00.619 At first, it was going to take our jobs and 0:18:00.660 --> 0:18:02.520 it was going to take our lives. Now we can't 0:18:02.600 --> 0:18:06.200 fund it. There is a scarcity of capital. It is 0:18:06.260 --> 0:18:10.929 a friction. But bubbles aren't popped when people exactly know 0:18:10.970 --> 0:18:13.550 how it's going to happen. Bull markets don't end this way. 0:18:13.590 --> 0:18:15.590 We're very, very early in this. We think it runs 0:18:15.630 --> 0:18:17.170 for a very, very long period of time. 0:18:17.609 --> 0:18:18.270 Dovetail. 0:18:19.060 --> 0:18:23.740 All the ability of VanEck on commodities, on metals, on gold, 0:18:24.380 --> 0:18:28.980 dovetail that into the infrastructure build-out of AI. What do 0:18:29.030 --> 0:18:34.210 you see as how it buttresses into the commodity cycle 0:18:34.710 --> 0:18:37.370 in VanEck precious metals, but everything else as well? 0:18:39.109 --> 0:18:41.070 We think about it this way. We want to have 0:18:41.130 --> 0:18:43.910 exposure to the entire opportunity set. We want to have 0:18:43.970 --> 0:18:48.350 exposure to everything below the earth. Think of copper, minerals, metals, energy, right? 0:18:48.550 --> 0:18:51.930 The company's benefiting from the extraction, refinement, distribution of commodities, 0:18:52.030 --> 0:18:56.820 natural resource equities, infrastructure development, the rails, moving the energy, MLPs. 0:18:56.880 --> 0:18:59.500 We want the entire opportunity set, right? From all the 0:18:59.540 --> 0:19:00.959 way from below the earth, all the way to the 0:19:00.980 --> 0:19:02.980 refined product, which is the finished product, which is the 0:19:03.020 --> 0:19:05.020 data centers. That's what we're focusing on. So we are 0:19:05.260 --> 0:19:07.980 leaning into technology. We're doing that as well, but we're 0:19:08.000 --> 0:19:10.600 also barbelling it through the infrastructure development. That's the way 0:19:10.619 --> 0:19:11.920 that we're doing it. 0:19:11.940 --> 0:19:14.550 So how are those... I mean, it was... A lot 0:19:14.570 --> 0:19:16.330 of folks will come in here and say, I'm looking 0:19:16.369 --> 0:19:19.850 for a hedge on AI. And it's hard to find one. 0:19:20.609 --> 0:19:22.189 I should throw out, well, just buy a utility with 0:19:22.230 --> 0:19:26.220 a dividend. No, utilities are ripped because of the power 0:19:26.260 --> 0:19:29.720 play there. Are you thinking about hedging at all this AI? 0:19:29.840 --> 0:19:32.800 Are you just kind of long across the board? 0:19:33.640 --> 0:19:35.500 The world has changed in a pretty funny way. It's 0:19:35.540 --> 0:19:37.550 really hard to predict. So think about it this way. 0:19:37.900 --> 0:19:40.170 We've made most of this money this year from refined product. 0:19:40.760 --> 0:19:42.220 If you and I would have been sitting down having 0:19:42.240 --> 0:19:43.570 a beer on New Year's Eve and we said, Dave, 0:19:43.590 --> 0:19:44.710 how are you going to make most of your money 0:19:44.750 --> 0:19:46.830 in 2026? I wouldn't have said, listen, this is what 0:19:46.850 --> 0:19:50.660 we're going to do. We're going to buy heating oil diesel, 0:19:50.780 --> 0:19:52.960 Euro gas, et cetera, and refined products and go through 0:19:52.980 --> 0:19:55.139 the moon that Iran was going to be invaded and 0:19:55.160 --> 0:19:56.540 that Russia and Ukraine were going to blow up each 0:19:56.560 --> 0:19:59.240 other's refining capacity. We wouldn't have said that. So point 0:19:59.260 --> 0:20:01.320 of that whole message is really, really simple. You want 0:20:01.359 --> 0:20:03.219 to spread the peanut butter as much as you possibly 0:20:03.240 --> 0:20:06.189 can across all the assets that are scarce. When you 0:20:06.230 --> 0:20:08.390 do that, you could sit back and benefit from that 0:20:08.470 --> 0:20:11.389 scarcity and the different return drivers over time. Gold's a 0:20:11.430 --> 0:20:12.190 funny one, right? 0:20:12.210 --> 0:20:15.070