1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,240 Speaker 2: Terminal and the Bloomberg Business app. Stocks in chin KaiA 10 00:00:37,280 --> 00:00:40,240 Speaker 2: as investors look past credit concern Sarah Hunt of Alpine 11 00:00:40,240 --> 00:00:43,559 Speaker 2: Saxon Woods, seeing the wall of worry becoming somewhat Steve Hurt, 12 00:00:43,800 --> 00:00:46,360 Speaker 2: She writes, the following credit is usually the culprit in 13 00:00:46,360 --> 00:00:49,800 Speaker 2: stock market selloffs. Add to that concerns about equity market 14 00:00:49,880 --> 00:00:52,640 Speaker 2: valuations and we go a pop pyre and volatility and 15 00:00:52,760 --> 00:00:54,360 Speaker 2: lower in yields and equities. 16 00:00:54,560 --> 00:00:55,720 Speaker 1: Sarah joins us now for more. 17 00:00:55,720 --> 00:00:58,000 Speaker 2: Sarah, good morning, good morning. Have we got a credit 18 00:00:58,040 --> 00:00:59,720 Speaker 2: problem or an isolated fraud? 19 00:00:59,720 --> 00:01:02,880 Speaker 3: Isha, That is the big question, and I think that 20 00:01:02,880 --> 00:01:05,360 Speaker 3: that is something that is going to come under increasing scrutiny. 21 00:01:05,400 --> 00:01:07,240 Speaker 3: You saw what happened with the regional banks. You saw 22 00:01:07,280 --> 00:01:09,720 Speaker 3: some of the business development companies have some issues with 23 00:01:09,720 --> 00:01:12,520 Speaker 3: their stock prices because people start to worry about that 24 00:01:12,600 --> 00:01:15,520 Speaker 3: whole private credit boom and what is underneath the surface 25 00:01:15,560 --> 00:01:17,240 Speaker 3: where you can't see it, and whether or not that's 26 00:01:17,280 --> 00:01:19,679 Speaker 3: going to be a problem. Right now, it looks to 27 00:01:19,720 --> 00:01:22,319 Speaker 3: be somewhat isolated, but every time there's another thing that 28 00:01:22,360 --> 00:01:24,560 Speaker 3: comes out, it becomes a bigger problem. And that sort 29 00:01:24,560 --> 00:01:26,720 Speaker 3: of goes to Jamie Diamond's comment, right, So I think 30 00:01:26,760 --> 00:01:30,199 Speaker 3: that is going to be the issue and how much 31 00:01:30,280 --> 00:01:33,039 Speaker 3: that continues for the next couple of weeks, months, days, 32 00:01:33,200 --> 00:01:35,120 Speaker 3: it really depends on whether or not something bigger happens. 33 00:01:35,160 --> 00:01:36,680 Speaker 2: So did you find it odd that the Diamond comment 34 00:01:36,720 --> 00:01:38,520 Speaker 2: became the headline for last week at the same time 35 00:01:38,560 --> 00:01:40,559 Speaker 2: earnings knocked it out of the park on Wolf Street 36 00:01:40,560 --> 00:01:41,479 Speaker 2: and stocks finished the week. 37 00:01:41,560 --> 00:01:44,480 Speaker 3: Hia, Not really, because it sort of goes to that 38 00:01:44,800 --> 00:01:46,880 Speaker 3: list of things that people are concerned about, and I 39 00:01:46,920 --> 00:01:49,120 Speaker 3: think that people have been talking about private credit and 40 00:01:49,200 --> 00:01:52,320 Speaker 3: talking about some of those illiquid areas of the market 41 00:01:52,360 --> 00:01:53,960 Speaker 3: and whether or not there are going to be issues 42 00:01:54,000 --> 00:01:55,880 Speaker 3: in there, and you can't see what the valuations are 43 00:01:56,160 --> 00:01:58,960 Speaker 3: for a while. So it's more that once something comes out, 44 00:01:59,040 --> 00:02:01,600 Speaker 3: then it becomes a bigger problem. So I think that 45 00:02:01,720 --> 00:02:03,600 Speaker 3: part of that was just the fact that something did 46 00:02:03,640 --> 00:02:06,240 Speaker 3: happen and everybody was a little bit worried about that happening. 47 00:02:06,280 --> 00:02:08,200 Speaker 3: So it's not surprising that that got latched onto. 48 00:02:08,280 --> 00:02:10,200 Speaker 2: It's hard to make the argument right now looking across 49 00:02:10,200 --> 00:02:12,200 Speaker 2: the banks that net charge officer spired and out of 50 00:02:12,200 --> 00:02:16,080 Speaker 2: control nonperforming loans are increasing, and I see much of 51 00:02:16,080 --> 00:02:17,440 Speaker 2: that at all now. It's not to say that it 52 00:02:17,480 --> 00:02:19,520 Speaker 2: can't happen, right and I can see why people are 53 00:02:19,520 --> 00:02:22,120 Speaker 2: worrying that we go from zero to sixty pretty quickly. 54 00:02:22,160 --> 00:02:23,880 Speaker 2: I understand all that, but it's the one I think 55 00:02:24,080 --> 00:02:26,680 Speaker 2: outside of the issues we've discussed the support that need 56 00:02:26,760 --> 00:02:27,160 Speaker 2: to worry. 57 00:02:27,520 --> 00:02:29,560 Speaker 3: I think the issue in credit is not with the 58 00:02:29,560 --> 00:02:32,120 Speaker 3: big money center banks, which reported first and reported really 59 00:02:32,160 --> 00:02:34,040 Speaker 3: good numbers. I think it's more down in the regional 60 00:02:34,080 --> 00:02:36,240 Speaker 3: banks and in some of those private credit areas, and 61 00:02:36,320 --> 00:02:39,120 Speaker 3: I think that that's the concern, and to the extent 62 00:02:39,160 --> 00:02:42,240 Speaker 3: that that's not the biggest spending cohort. To your point earlier, 63 00:02:42,240 --> 00:02:45,600 Speaker 3: then it's not that it doesn't matter it's more that 64 00:02:45,680 --> 00:02:48,040 Speaker 3: who's caught up in it and how bad is it 65 00:02:48,080 --> 00:02:50,359 Speaker 3: going to be? And if it's not that bad, it's 66 00:02:50,360 --> 00:02:52,280 Speaker 3: not going to matter. If it's a few banks that 67 00:02:52,360 --> 00:02:54,320 Speaker 3: have a problem here or there, it's not an issue. 68 00:02:54,360 --> 00:02:55,880 Speaker 3: But this sort of reminds me of the issue with 69 00:02:55,919 --> 00:02:58,760 Speaker 3: treasuries last year, when it was like, oh my goodness, 70 00:02:58,760 --> 00:03:00,000 Speaker 3: now all of a sudden, these banks that you would 71 00:03:00,160 --> 00:03:02,399 Speaker 3: have thought of have the gap because of the marked 72 00:03:02,400 --> 00:03:05,320 Speaker 3: to market problem. So it really depends on where this goes. 73 00:03:05,320 --> 00:03:07,680 Speaker 3: If it stays somewhat small and contained. I don't think 74 00:03:07,680 --> 00:03:09,280 Speaker 3: it's a big issue, but it's definitely one of the 75 00:03:09,280 --> 00:03:10,480 Speaker 3: things that people are concerned about. 76 00:03:10,639 --> 00:03:13,320 Speaker 4: It's staying small and contained, at least at the moment, 77 00:03:13,400 --> 00:03:14,799 Speaker 4: is what it feels like. Do you think all this 78 00:03:14,960 --> 00:03:17,600 Speaker 4: spend and focus on AI investment can kind of put 79 00:03:17,720 --> 00:03:20,359 Speaker 4: pest infiltration to the side. 80 00:03:20,320 --> 00:03:22,960 Speaker 3: As long as that continues and it doesn't look like 81 00:03:23,040 --> 00:03:24,799 Speaker 3: that's got to crack in it, right, Because every time 82 00:03:24,840 --> 00:03:26,440 Speaker 3: you see a crack in the AI story, whether or 83 00:03:26,440 --> 00:03:28,040 Speaker 3: not there was something that went around I think last 84 00:03:28,040 --> 00:03:30,440 Speaker 3: week about how many hits this happened and whether or 85 00:03:30,440 --> 00:03:32,320 Speaker 3: not that was smaller than it was and what does 86 00:03:32,400 --> 00:03:34,600 Speaker 3: that mean? And I think that anytime you get a 87 00:03:34,680 --> 00:03:37,600 Speaker 3: question about that, people start to question the premise of 88 00:03:37,640 --> 00:03:39,920 Speaker 3: why valuations are so high. On the other hand, we 89 00:03:39,960 --> 00:03:41,880 Speaker 3: do have rates coming down, and that makes a difference 90 00:03:41,880 --> 00:03:43,360 Speaker 3: as well, whether or not it makes a difference to 91 00:03:43,360 --> 00:03:46,040 Speaker 3: the economy as such, it definitely makes a difference to 92 00:03:46,120 --> 00:03:49,960 Speaker 3: investors into the stock market because lower roads do make 93 00:03:50,080 --> 00:03:50,880 Speaker 3: room for those. 94 00:03:50,800 --> 00:03:54,400 Speaker 4: Multiple Jentathan access question last hour. Is it more important 95 00:03:54,400 --> 00:03:57,480 Speaker 4: to hear from the tech mega giants than it is 96 00:03:57,480 --> 00:03:58,400 Speaker 4: from the federal Reserve? 97 00:03:59,360 --> 00:04:02,280 Speaker 3: It's both, But right now, if there's any slippage and 98 00:04:02,360 --> 00:04:04,240 Speaker 3: earnings from the tech guys, I think you're going to 99 00:04:04,240 --> 00:04:08,080 Speaker 3: see a more wobbly, more volable market because with the 100 00:04:08,200 --> 00:04:10,040 Speaker 3: lack of data and with the assumption that the Fed's 101 00:04:10,040 --> 00:04:11,520 Speaker 3: going to cut at the end of this month, I 102 00:04:11,560 --> 00:04:13,680 Speaker 3: think that right now that is not as much of 103 00:04:13,680 --> 00:04:16,479 Speaker 3: an open question. But if you see anything in the earnings, 104 00:04:16,560 --> 00:04:18,280 Speaker 3: or if you see any concern in the earnings on 105 00:04:18,360 --> 00:04:22,119 Speaker 3: the tech side, or a slowdown meaningfully somewhere that can't 106 00:04:22,120 --> 00:04:25,360 Speaker 3: be explained by we don't have this capacity to give 107 00:04:25,400 --> 00:04:27,640 Speaker 3: people something, and then I think people really start to 108 00:04:27,640 --> 00:04:30,760 Speaker 3: worry about what that looks like and that spend direction 109 00:04:30,880 --> 00:04:31,720 Speaker 3: looks like I have You've. 110 00:04:31,600 --> 00:04:33,720 Speaker 2: Got a company it'd be more focused on than others. 111 00:04:33,960 --> 00:04:36,320 Speaker 2: Next Wednesday, the same day the FED meets, will have 112 00:04:36,400 --> 00:04:39,520 Speaker 2: Microsoft meta alphabet. The rest will follow. Is the one 113 00:04:39,560 --> 00:04:40,760 Speaker 2: that stands out more than others. 114 00:04:41,600 --> 00:04:44,120 Speaker 3: I think it's the compendia of those who are spending 115 00:04:44,160 --> 00:04:46,880 Speaker 3: the most right, So it's all of them. And if 116 00:04:46,920 --> 00:04:50,400 Speaker 3: anybody says something odd and everybody else doesn't say it, 117 00:04:50,480 --> 00:04:52,159 Speaker 3: then I think it's okay. If you get a bunch 118 00:04:52,240 --> 00:04:54,680 Speaker 3: of different comments that are like, well, we're pulling back 119 00:04:54,680 --> 00:04:56,520 Speaker 3: a little bit here, or the year of a year 120 00:04:56,560 --> 00:04:58,880 Speaker 3: spend is going to be x instead of X plus ten, 121 00:04:59,120 --> 00:05:00,880 Speaker 3: I think it's really going to be a question of 122 00:05:00,880 --> 00:05:04,360 Speaker 3: what they say collectively, because collectively that huge spend in 123 00:05:04,440 --> 00:05:07,360 Speaker 3: the top of the you know, basically data center market 124 00:05:07,400 --> 00:05:09,280 Speaker 3: is what's been driving a lot of this stuff, So 125 00:05:09,360 --> 00:05:11,080 Speaker 3: everybody kind of has to be on the same page. 126 00:05:11,120 --> 00:05:13,800 Speaker 2: I think there's two very different approaches between China and 127 00:05:13,839 --> 00:05:16,359 Speaker 2: the US. Of course, those two countries will become the 128 00:05:16,400 --> 00:05:18,120 Speaker 2: folks of attention over the next week when the two 129 00:05:18,160 --> 00:05:20,520 Speaker 2: leaders get together at the end of this month. China's 130 00:05:20,520 --> 00:05:23,159 Speaker 2: shooting for efficiency we saw that with Deep Seek at 131 00:05:23,200 --> 00:05:25,360 Speaker 2: the start of the year. America at the moment, based 132 00:05:25,400 --> 00:05:27,680 Speaker 2: on what we're hearing from these companies, is just shooting 133 00:05:27,720 --> 00:05:31,600 Speaker 2: for massive capacity, investing tons and tons of money. It's 134 00:05:31,640 --> 00:05:34,520 Speaker 2: then approach that as an investor you feel more comfortable with. 135 00:05:35,200 --> 00:05:38,880 Speaker 3: Well, I think that right now it's harder for the 136 00:05:39,000 --> 00:05:41,640 Speaker 3: US to jump in and do the efficiency thing. They're 137 00:05:41,680 --> 00:05:44,480 Speaker 3: going to have to because the reality on the ground 138 00:05:44,600 --> 00:05:47,720 Speaker 3: is the power that's needed for currently what is extrapolating 139 00:05:47,760 --> 00:05:50,560 Speaker 3: from the demand is way bigger than we have. So 140 00:05:50,600 --> 00:05:53,120 Speaker 3: there has to be an efficiency argument ultimately, and I 141 00:05:53,160 --> 00:05:54,960 Speaker 3: think that there will be. The question is going to be, 142 00:05:55,040 --> 00:05:57,680 Speaker 3: hoo does that effect the most? And I think at 143 00:05:57,680 --> 00:06:00,480 Speaker 3: the moment right now, it's just a race to get 144 00:06:01,320 --> 00:06:02,760 Speaker 3: all the chips on the board. It's sort of like 145 00:06:02,760 --> 00:06:04,320 Speaker 3: the dark Fiber in two thousand. It's like, we just 146 00:06:04,320 --> 00:06:05,640 Speaker 3: need to put fiber down. We just need to put 147 00:06:05,640 --> 00:06:08,919 Speaker 3: fiber down, and at some point that has to work together. 148 00:06:09,279 --> 00:06:10,920 Speaker 3: And I think that there will be efficiency in the 149 00:06:11,000 --> 00:06:12,520 Speaker 3: United States because I think there has to be, and 150 00:06:12,560 --> 00:06:15,159 Speaker 3: the innovation will get there because you just don't have power. 151 00:06:15,160 --> 00:06:16,400 Speaker 1: Prices are already higher. 152 00:06:16,480 --> 00:06:19,000 Speaker 3: It's already an issue, it's only going to get worse, 153 00:06:19,040 --> 00:06:21,000 Speaker 3: and I think that that's something that will end up 154 00:06:21,040 --> 00:06:24,200 Speaker 3: being solved. How exactly and who benefits the most, I'm 155 00:06:24,240 --> 00:06:24,680 Speaker 3: not sure yet. 156 00:06:24,760 --> 00:06:26,520 Speaker 4: Yeah, how exactly is it going to be solved, because 157 00:06:26,520 --> 00:06:29,719 Speaker 4: obviously potentially government regulation have to come into play. When 158 00:06:29,720 --> 00:06:31,960 Speaker 4: you think about the trade talks, that's I'm sure part 159 00:06:31,960 --> 00:06:35,640 Speaker 4: of your wall of worry. Were you given some comfort 160 00:06:35,640 --> 00:06:37,279 Speaker 4: over the weekend by the President's comments? 161 00:06:38,000 --> 00:06:40,240 Speaker 3: I think it's really difficult a comfort just in the 162 00:06:40,279 --> 00:06:43,200 Speaker 3: de escalation, right. The words themselves are not as important 163 00:06:43,240 --> 00:06:45,200 Speaker 3: as the tone, and if the tone is de escalation 164 00:06:45,360 --> 00:06:48,000 Speaker 3: on both sides, that's probably better for markets. It's when 165 00:06:48,040 --> 00:06:50,080 Speaker 3: the tone started to get very hot on both sides 166 00:06:50,080 --> 00:06:52,640 Speaker 3: that market's got very wobbly. And I think that that's 167 00:06:52,839 --> 00:06:55,640 Speaker 3: one of the things where we just can't know the outcome, 168 00:06:55,640 --> 00:06:57,360 Speaker 3: and what they say and what actually happens on the 169 00:06:57,360 --> 00:06:59,159 Speaker 3: ground are not necessarily going to be the same thing, 170 00:06:59,160 --> 00:07:01,680 Speaker 3: because it almost never is when people are doing negotiations, 171 00:07:01,960 --> 00:07:04,240 Speaker 3: So we won't know what the final terms are in 172 00:07:04,279 --> 00:07:06,960 Speaker 3: any near term. But the idea of less fighting versus 173 00:07:06,960 --> 00:07:07,919 Speaker 3: more fighting is better. 174 00:07:08,120 --> 00:07:10,880 Speaker 4: But when you look at a meeting like that, are 175 00:07:10,880 --> 00:07:15,120 Speaker 4: you concerned that it just bleeds into twenty twenty six 176 00:07:15,240 --> 00:07:17,200 Speaker 4: if it doesn't go well, some of those hot rhetoric. 177 00:07:17,440 --> 00:07:19,480 Speaker 3: Well, all of the tariff stuff is bleeding into twenty 178 00:07:19,480 --> 00:07:21,560 Speaker 3: twenty six, right Like in April of this year, we 179 00:07:21,560 --> 00:07:23,440 Speaker 3: were all convinced that something was going to happen, and 180 00:07:23,440 --> 00:07:25,160 Speaker 3: it was very short term, and now all of a sudden, 181 00:07:25,360 --> 00:07:28,040 Speaker 3: that has been pushed out throughout the entire year. So now, yes, 182 00:07:28,240 --> 00:07:30,080 Speaker 3: it will bleed into twenty twenty six. And I don't 183 00:07:30,080 --> 00:07:33,040 Speaker 3: think that's necessarily a concern as much as it's reality 184 00:07:33,040 --> 00:07:34,640 Speaker 3: on the ground that piece of the wall of worry 185 00:07:34,720 --> 00:07:36,960 Speaker 3: is going to continue to have to be climbed, and 186 00:07:37,040 --> 00:07:39,600 Speaker 3: not just with China, but in general. China is obviously 187 00:07:39,680 --> 00:07:40,600 Speaker 3: one of the biggest issues. 188 00:07:40,640 --> 00:07:42,440 Speaker 2: And just quickly, what's your favorite sector right now? 189 00:07:42,520 --> 00:07:42,920 Speaker 1: And why? 190 00:07:43,440 --> 00:07:44,760 Speaker 3: Well, I think if you look at some of the 191 00:07:44,760 --> 00:07:47,160 Speaker 3: places like defense, which has already run a lot, but 192 00:07:47,200 --> 00:07:50,080 Speaker 3: you've got some big thematic stuff that's not just AI right, 193 00:07:50,120 --> 00:07:52,160 Speaker 3: so Golden Dome, so some of the spending that's going 194 00:07:52,200 --> 00:07:54,760 Speaker 3: to come that you know is coming is very helpful. 195 00:07:54,800 --> 00:07:56,720 Speaker 3: So there are areas in the industrials and defense that 196 00:07:56,760 --> 00:07:58,480 Speaker 3: are going to play into that and I think that 197 00:07:58,560 --> 00:07:59,960 Speaker 3: this is a very good time to be looking a 198 00:08:00,200 --> 00:08:02,680 Speaker 3: longer term thematic investing because you know that there are 199 00:08:02,720 --> 00:08:04,360 Speaker 3: places where they're going to continue. 200 00:08:04,000 --> 00:08:05,800 Speaker 1: To spend Least Favorite. 201 00:08:06,280 --> 00:08:08,840 Speaker 3: Least favorite is tough. Consumers really hard right now, because 202 00:08:08,840 --> 00:08:10,239 Speaker 3: I think that a lot of the low end consumer 203 00:08:10,320 --> 00:08:12,360 Speaker 3: is having a hard time. So consumer is mixed, and 204 00:08:12,400 --> 00:08:15,360 Speaker 3: even high end consumer is not perfect. So I think 205 00:08:15,360 --> 00:08:17,120 Speaker 3: that there are some issues there. But it's interesting that 206 00:08:17,160 --> 00:08:19,720 Speaker 3: the iPhone is finally getting that upgrade cycle that Danives 207 00:08:19,720 --> 00:08:21,520 Speaker 3: has been looking for, So I think that there's some 208 00:08:21,600 --> 00:08:23,760 Speaker 3: good I think there's some good news in that in 209 00:08:23,760 --> 00:08:24,840 Speaker 3: that regard. 210 00:08:25,520 --> 00:08:26,160 Speaker 1: Stay with us. 211 00:08:26,480 --> 00:08:39,200 Speaker 2: More Bloomberg Surveillance coming up after this. Investors looking for 212 00:08:39,240 --> 00:08:41,600 Speaker 2: signs of strength beyond AI, with a busy week of 213 00:08:41,679 --> 00:08:44,680 Speaker 2: erning still ahead. In this, McFee of Oxford Economics saying, 214 00:08:44,720 --> 00:08:47,600 Speaker 2: outside of AI, the world and the US are in 215 00:08:47,679 --> 00:08:51,520 Speaker 2: an investment recession, but it's unlikely to become a broader downturn. 216 00:08:51,640 --> 00:08:52,120 Speaker 1: And it's joints. 217 00:08:52,160 --> 00:08:53,520 Speaker 2: It's now for more and it's good morning and welcome 218 00:08:53,520 --> 00:08:55,800 Speaker 2: back to New York. Well, can you play twn the 219 00:08:55,840 --> 00:08:58,280 Speaker 2: numbers for us? So what is AI and basically what 220 00:08:58,320 --> 00:09:00,360 Speaker 2: does the rest of the world look like yes. 221 00:09:00,480 --> 00:09:02,960 Speaker 5: I think the first thing to mention really is that 222 00:09:03,040 --> 00:09:04,480 Speaker 5: a lot of people are focused a lot on the 223 00:09:04,559 --> 00:09:08,280 Speaker 5: AI investment numbers, and they're not necessarily thinking about imports 224 00:09:08,320 --> 00:09:11,599 Speaker 5: associated with them, so their net impact on growth is 225 00:09:11,640 --> 00:09:15,840 Speaker 5: actually quite small just from the investment portion outside of AI. 226 00:09:15,880 --> 00:09:18,480 Speaker 5: Of course, investments been contracting for a couple of quarters, 227 00:09:18,480 --> 00:09:20,960 Speaker 5: but you know, we don't need to get too worried 228 00:09:20,960 --> 00:09:24,240 Speaker 5: about that. Investment recessions are relatively common. Go back through 229 00:09:24,240 --> 00:09:26,960 Speaker 5: the G seven for example, They're about twice as common 230 00:09:27,000 --> 00:09:30,040 Speaker 5: as normal recessions, so one doesn't necessarily lead to the other. 231 00:09:30,400 --> 00:09:32,959 Speaker 5: I think the key point for growth really is how 232 00:09:33,000 --> 00:09:35,839 Speaker 5: these tech stocks are doing the wealth impact on the 233 00:09:35,920 --> 00:09:38,760 Speaker 5: high end consumer and how that's actually driving growth, not 234 00:09:38,800 --> 00:09:40,440 Speaker 5: necessarily just the AI investment. 235 00:09:40,640 --> 00:09:43,000 Speaker 2: This goes to the bifurcation of the US economy right now. 236 00:09:43,200 --> 00:09:45,640 Speaker 2: The low income cohort is really really struggling, and it 237 00:09:45,679 --> 00:09:47,800 Speaker 2: has been for a while a number of years. Is 238 00:09:47,800 --> 00:09:49,880 Speaker 2: there any reason to believe that's going to migrate up 239 00:09:50,120 --> 00:09:52,240 Speaker 2: to upper income A cohorts as well? 240 00:09:52,720 --> 00:09:56,440 Speaker 5: I think that's the real uncertainty. Remember, the low income households, 241 00:09:56,480 --> 00:09:59,320 Speaker 5: the bottom twenty percent of the income distribution are only 242 00:09:59,360 --> 00:10:02,520 Speaker 5: about nine percent of overall consumer spending, so it's manageable 243 00:10:02,520 --> 00:10:05,880 Speaker 5: if it stays there. But they are driven by very 244 00:10:05,920 --> 00:10:08,760 Speaker 5: different things than the top end, so there's not a 245 00:10:08,920 --> 00:10:12,240 Speaker 5: not a direct move from one to the other. We are, 246 00:10:12,320 --> 00:10:15,960 Speaker 5: of course in a very regressive tax environment in terms 247 00:10:15,960 --> 00:10:17,959 Speaker 5: of tariffs, but also in terms of the one big 248 00:10:18,000 --> 00:10:21,880 Speaker 5: beautiful bill that we'll see. Low income consumers have their 249 00:10:21,880 --> 00:10:25,000 Speaker 5: income fall by two three percentage points, whereas at the 250 00:10:25,000 --> 00:10:28,320 Speaker 5: top end go by two or three percentage points. So 251 00:10:28,520 --> 00:10:30,840 Speaker 5: I'm not sure that there's a direct link between the two. 252 00:10:30,840 --> 00:10:32,560 Speaker 5: I think we've got to watch the stock market really 253 00:10:32,600 --> 00:10:33,800 Speaker 5: to worry about that contagion. 254 00:10:34,000 --> 00:10:36,120 Speaker 2: How fad does a stock market go to explaining how 255 00:10:36,120 --> 00:10:38,679 Speaker 2: we can have an economy where employment levels have dropped 256 00:10:38,720 --> 00:10:41,240 Speaker 2: off to the extent they have and retail sales have 257 00:10:41,280 --> 00:10:42,959 Speaker 2: remained run up there. 258 00:10:43,400 --> 00:10:45,840 Speaker 5: Well, I think that's a big part. But remember with 259 00:10:45,920 --> 00:10:48,719 Speaker 5: the labor market, we're seeing two shocks, and this is 260 00:10:48,760 --> 00:10:49,960 Speaker 5: the thing we've got to get a bit used to 261 00:10:49,960 --> 00:10:52,680 Speaker 5: in economics, actually, as we've had twenty years of demand 262 00:10:52,760 --> 00:10:56,360 Speaker 5: side shocks and supply side being relatively benign nowadays, though 263 00:10:56,400 --> 00:10:58,480 Speaker 5: of course we're seeing much more adverse supply shocks, and 264 00:10:58,520 --> 00:11:01,439 Speaker 5: that's what's happening in the labor market. We've got negative 265 00:11:02,520 --> 00:11:05,679 Speaker 5: supply side shocks alongside a cooling and demand, and that's 266 00:11:05,679 --> 00:11:08,600 Speaker 5: how you can have this no fire, no higher labor market. 267 00:11:08,679 --> 00:11:11,520 Speaker 4: When you talk about this investment recession and the fact 268 00:11:11,559 --> 00:11:14,319 Speaker 4: that we're not going to have a real recession, can 269 00:11:14,360 --> 00:11:19,240 Speaker 4: you US remain exceptional even with this investment depression? 270 00:11:19,280 --> 00:11:19,679 Speaker 6: Almost? 271 00:11:20,440 --> 00:11:23,240 Speaker 5: Yeah, I think it can because ultimately, you know, let's 272 00:11:23,240 --> 00:11:24,960 Speaker 5: think about the three big shocks in the world at 273 00:11:24,960 --> 00:11:28,360 Speaker 5: the moment. First, you've got deglobalization, the impacts of tariffs 274 00:11:28,600 --> 00:11:32,160 Speaker 5: that clearly is going to impact to the surplus countries Germany, Europe, 275 00:11:32,360 --> 00:11:34,960 Speaker 5: China much more than it is Europe. There's a strong 276 00:11:35,000 --> 00:11:37,880 Speaker 5: correlation in our forecast revisions over the last year given 277 00:11:38,040 --> 00:11:42,960 Speaker 5: trade balances. Secondly, you know, on the AI side, clearly 278 00:11:43,000 --> 00:11:45,400 Speaker 5: the US is not only benefiting much more at the 279 00:11:45,440 --> 00:11:47,920 Speaker 5: moment in terms of the investment and consumption picture, but 280 00:11:48,040 --> 00:11:53,400 Speaker 5: should also do so in long term productivity. And then thirdly, 281 00:11:53,760 --> 00:11:57,560 Speaker 5: on the sort of policy dynamics, the US is not 282 00:11:57,600 --> 00:12:00,000 Speaker 5: constrained in its fiscal position, whereas you look around the world, 283 00:12:00,280 --> 00:12:02,120 Speaker 5: there are a lot of economies who are at the moment. So, 284 00:12:02,160 --> 00:12:05,320 Speaker 5: if anything, there's more upside I think to the policy 285 00:12:05,360 --> 00:12:07,320 Speaker 5: stimulus in twenty twenty six for the US. 286 00:12:07,440 --> 00:12:09,839 Speaker 4: Given this backdrop and the investment we are seeing in AI, 287 00:12:10,320 --> 00:12:12,880 Speaker 4: how important is it going to be these tech earnings 288 00:12:12,880 --> 00:12:13,680 Speaker 4: that are upcoming. 289 00:12:14,360 --> 00:12:17,319 Speaker 5: I think it's really crucial. Actually, you know, it's a 290 00:12:17,400 --> 00:12:21,000 Speaker 5: rally that for some has built on these earnings. If 291 00:12:21,000 --> 00:12:23,480 Speaker 5: there's any sort of pullback in the market, really might 292 00:12:23,520 --> 00:12:26,400 Speaker 5: well pull out the rug from underneath those high end consumers. 293 00:12:26,440 --> 00:12:28,800 Speaker 5: I don't see that happening at the moment, but that 294 00:12:28,880 --> 00:12:29,880 Speaker 5: I think is the key risk. 295 00:12:30,160 --> 00:12:32,600 Speaker 2: Do you think it's become more important than the FED decision? 296 00:12:32,920 --> 00:12:35,240 Speaker 2: And by important, I mean more important for the economy 297 00:12:35,360 --> 00:12:37,360 Speaker 2: the onies we get from the megatech fires next week 298 00:12:37,480 --> 00:12:39,120 Speaker 2: versus what Chairman Poun's got to say. 299 00:12:39,840 --> 00:12:42,160 Speaker 5: Well, this is probably my unpopular opinion, but I have 300 00:12:42,280 --> 00:12:45,200 Speaker 5: to say I'm not sure that FED rate carts really 301 00:12:45,240 --> 00:12:47,160 Speaker 5: mean a huge amount for the economy, Certainly not in 302 00:12:47,160 --> 00:12:49,240 Speaker 5: the next six months. Well, you know, if you look 303 00:12:49,280 --> 00:12:52,080 Speaker 5: at the structure of debt in the economy, it's far 304 00:12:52,160 --> 00:12:54,000 Speaker 5: longer now than it has been in the past. We've 305 00:12:54,000 --> 00:12:56,800 Speaker 5: got a situation, where As in most rate culling cycles, 306 00:12:56,880 --> 00:12:58,800 Speaker 5: we're seeing rates come down, but the long end of 307 00:12:58,840 --> 00:13:02,320 Speaker 5: the yell curve rise deepening happening. So financial conditions aren't 308 00:13:02,320 --> 00:13:06,080 Speaker 5: pulling back or easing as much as many people might 309 00:13:06,120 --> 00:13:08,960 Speaker 5: think just by looking at the FED funds, whereas obviously 310 00:13:09,520 --> 00:13:12,240 Speaker 5: equity stocks are having a much bigger impact on overall 311 00:13:12,280 --> 00:13:15,440 Speaker 5: financial conditions in that first phase of path through. 312 00:13:15,840 --> 00:13:18,240 Speaker 2: Interest rates are going to come down again next week. 313 00:13:18,280 --> 00:13:20,080 Speaker 2: Most people think they're going to continue to come down. 314 00:13:20,120 --> 00:13:21,960 Speaker 2: Are you suggesting that's not going to alleviate some of 315 00:13:21,960 --> 00:13:23,160 Speaker 2: the issues in the labor market. 316 00:13:23,960 --> 00:13:27,480 Speaker 5: Yeah, I think that. You know, fundamentally, FED rate cuts 317 00:13:27,600 --> 00:13:31,200 Speaker 5: don't have a huge impact on employments, certainly not in 318 00:13:31,240 --> 00:13:33,640 Speaker 5: the next six months. And remember that a big part 319 00:13:33,679 --> 00:13:35,680 Speaker 5: of what's going on in the labor market is a 320 00:13:35,720 --> 00:13:38,280 Speaker 5: supply shock, and central banks can't really touch that. 321 00:13:38,640 --> 00:13:42,560 Speaker 2: What kind of risk is the feder reserve embracing if 322 00:13:42,600 --> 00:13:44,960 Speaker 2: they're going to be lulled into an easing cycle by 323 00:13:45,000 --> 00:13:47,760 Speaker 2: misdiagnosing the labor markets the extend that obviously, based on 324 00:13:47,800 --> 00:13:49,360 Speaker 2: what you've said, you think they are. 325 00:13:50,640 --> 00:13:52,240 Speaker 5: I wouldn't say that they're going to make a huge 326 00:13:52,240 --> 00:13:54,920 Speaker 5: polity mistake or anything like that. Ultimately, we're talking about 327 00:13:54,960 --> 00:13:58,400 Speaker 5: moving at twenty five basis points, you know, and ultimately 328 00:13:58,520 --> 00:14:01,920 Speaker 5: from a stance that's pretty restrictive by all measures to 329 00:14:02,000 --> 00:14:03,800 Speaker 5: something that's a bit more of a gray area. Who 330 00:14:03,840 --> 00:14:06,559 Speaker 5: knows where neutral is. So it's not like we're going 331 00:14:06,600 --> 00:14:09,800 Speaker 5: to go in most forecasts anyway into a period where 332 00:14:09,880 --> 00:14:13,240 Speaker 5: we'll have really really loose policy. So I don't think 333 00:14:13,240 --> 00:14:14,920 Speaker 5: it's going to be a big mistake, but you know, 334 00:14:15,080 --> 00:14:17,199 Speaker 5: clearly it's something they can correct pretty quickly. 335 00:14:16,960 --> 00:14:19,560 Speaker 2: On our lead, not this side of May, the other 336 00:14:19,600 --> 00:14:21,320 Speaker 2: side of May, once we get a new leadership of 337 00:14:21,360 --> 00:14:23,760 Speaker 2: the Fed Reserve, who knows for the future holds? How's 338 00:14:23,760 --> 00:14:26,119 Speaker 2: that debate plan? And in Europe what kind of conversations 339 00:14:26,200 --> 00:14:28,120 Speaker 2: you guys have in looking across the pond to the 340 00:14:28,200 --> 00:14:29,200 Speaker 2: US At the moment. 341 00:14:29,920 --> 00:14:33,120 Speaker 5: I think there's a lot being talked about institutional quality 342 00:14:33,160 --> 00:14:35,240 Speaker 5: of the US and whether that plays some sort of 343 00:14:35,360 --> 00:14:37,360 Speaker 5: role in the obvious decline and the dollar that we've 344 00:14:37,400 --> 00:14:39,600 Speaker 5: seen so far this year. To be honest, I think 345 00:14:39,600 --> 00:14:42,880 Speaker 5: that's a little bit overplayed. You know, who knows who 346 00:14:42,920 --> 00:14:46,400 Speaker 5: we'll see as the next FED chair, But if they move, 347 00:14:46,680 --> 00:14:49,640 Speaker 5: you know, rates by let's say fifty one hundred basis 348 00:14:49,680 --> 00:14:54,000 Speaker 5: points relative to where the market has some price Now, 349 00:14:54,080 --> 00:14:57,240 Speaker 5: I'm not sure that's actually a massive change, to be 350 00:14:57,280 --> 00:14:59,440 Speaker 5: honest with you, And frankly, you know, we've got a 351 00:14:59,520 --> 00:15:02,800 Speaker 5: very very data dependent FED at the moment. Maybe a 352 00:15:02,880 --> 00:15:04,880 Speaker 5: FED that looks a little bit more towards the forecast 353 00:15:04,960 --> 00:15:07,120 Speaker 5: and things where policy should go and what impact it 354 00:15:07,160 --> 00:15:09,400 Speaker 5: should have would be a good thing. 355 00:15:11,080 --> 00:15:11,720 Speaker 1: Stay with us. 356 00:15:12,000 --> 00:15:24,920 Speaker 2: More Bloomberg surveillance coming up after this gold bouncing offer 357 00:15:25,000 --> 00:15:29,000 Speaker 2: selloff and precious metals on Friday, Ongoing economic uncertainty keeping 358 00:15:29,040 --> 00:15:31,960 Speaker 2: the commodity close to all time highs. Tom's haid saw 359 00:15:32,000 --> 00:15:34,120 Speaker 2: Us of tatig Us, writing, we suspect the gold is 360 00:15:34,160 --> 00:15:37,000 Speaker 2: telling markets that the usc old curve needs to steepen 361 00:15:37,280 --> 00:15:39,800 Speaker 2: in order to tends to maintain their status as the 362 00:15:39,840 --> 00:15:42,480 Speaker 2: primary safe haven. Tom joins us. Now for more, Tom, 363 00:15:42,520 --> 00:15:45,000 Speaker 2: welcome to the program. Understand the theory, but based on 364 00:15:45,040 --> 00:15:46,920 Speaker 2: a price section, does it back it up? 365 00:15:49,080 --> 00:15:49,320 Speaker 1: Yes? 366 00:15:49,320 --> 00:15:51,520 Speaker 7: Absolutely, I think the price action is telling us that 367 00:15:51,560 --> 00:15:55,160 Speaker 7: there are overflows into safe havens, and those overflows are 368 00:15:55,160 --> 00:15:58,440 Speaker 7: going into gold rather than treasuries. You know, we've gone 369 00:15:58,480 --> 00:16:01,680 Speaker 7: through a period we'll call it fifteen where anytime there 370 00:16:01,720 --> 00:16:03,840 Speaker 7: was a bump in the night anywhere around the globe, 371 00:16:03,880 --> 00:16:05,760 Speaker 7: whether it started in the US or it started in 372 00:16:05,800 --> 00:16:09,000 Speaker 7: France or anywhere else, the flows into ten year treasuries 373 00:16:09,040 --> 00:16:10,280 Speaker 7: were just astronomical. 374 00:16:10,520 --> 00:16:11,960 Speaker 6: And that's just not happening this time. 375 00:16:12,040 --> 00:16:14,200 Speaker 7: Yes, you're getting some safe haven flows as we're seeing 376 00:16:14,240 --> 00:16:17,920 Speaker 7: stories about bad loans and worries about systemic credit risk, 377 00:16:18,080 --> 00:16:20,200 Speaker 7: and so ten year yields are rallying, but they're not 378 00:16:20,360 --> 00:16:23,200 Speaker 7: rallying as much as you would see in previous cycles, 379 00:16:23,440 --> 00:16:26,400 Speaker 7: and so gold is getting the overflow of that safe 380 00:16:26,440 --> 00:16:29,600 Speaker 7: haven flow, and that's really the big reason why you've 381 00:16:29,600 --> 00:16:32,360 Speaker 7: continued to see this momentum trade in gold in my opinion. 382 00:16:32,480 --> 00:16:36,400 Speaker 7: Obviously there's folks following into that, but it's the overflows 383 00:16:36,760 --> 00:16:40,280 Speaker 7: from lack of appeal from the traditional safe haven that 384 00:16:40,320 --> 00:16:42,920 Speaker 7: I believe is really the big driver in gold right now. 385 00:16:43,160 --> 00:16:45,080 Speaker 2: So if you think of how deep these polls are, 386 00:16:45,840 --> 00:16:47,960 Speaker 2: the gold poll just isn't deep enough to be the 387 00:16:48,000 --> 00:16:51,040 Speaker 2: alternative to treasuries. I've I've hurt that directly from Goldman 388 00:16:51,080 --> 00:16:52,520 Speaker 2: two when they come on the program, which is why 389 00:16:52,520 --> 00:16:56,480 Speaker 2: you've seen this massive exponential move in gold. Can it 390 00:16:56,600 --> 00:16:59,920 Speaker 2: really replace treasuries, Tom, given the depth of the polar 391 00:17:00,000 --> 00:17:04,160 Speaker 2: invitable liquidity and the treasury market compared to site Goat, Oh. 392 00:17:04,040 --> 00:17:05,440 Speaker 6: Oh absolutely not. It can't. 393 00:17:05,520 --> 00:17:09,360 Speaker 7: And so eventually, if these fares of credit contagent, if 394 00:17:09,359 --> 00:17:12,080 Speaker 7: they really were to spread and we start to see 395 00:17:12,200 --> 00:17:15,440 Speaker 7: more signs of pests in the attic and stuff like that, 396 00:17:15,600 --> 00:17:17,399 Speaker 7: then you're going to see ten year treasure yields not 397 00:17:17,440 --> 00:17:20,800 Speaker 7: just dropping below four percent, but rallying down to close 398 00:17:20,840 --> 00:17:22,280 Speaker 7: to where two's are right now. 399 00:17:22,640 --> 00:17:23,760 Speaker 6: And that's not happening yet. 400 00:17:23,760 --> 00:17:25,960 Speaker 7: But there's just the gold market's not big enough, the 401 00:17:25,960 --> 00:17:29,199 Speaker 7: precious metal market's not big enough, the entire sovereign g 402 00:17:29,359 --> 00:17:31,960 Speaker 7: ten markets not big enough. Treasuries are going to have 403 00:17:32,000 --> 00:17:34,680 Speaker 7: to be the final outlet if there is that type. 404 00:17:34,440 --> 00:17:37,119 Speaker 4: Of risk, Tom, you're looking a lot about what gold 405 00:17:37,160 --> 00:17:39,679 Speaker 4: is doing in terms of the treasury market. Are you 406 00:17:39,760 --> 00:17:43,760 Speaker 4: also concerned about d dollarization and countries trying to get 407 00:17:43,800 --> 00:17:45,840 Speaker 4: their hands on gold because they don't want to touch 408 00:17:45,920 --> 00:17:46,560 Speaker 4: US dollars. 409 00:17:47,640 --> 00:17:49,760 Speaker 7: Well, you know, there's two reasons why we said the 410 00:17:49,840 --> 00:17:52,119 Speaker 7: US curve has to steep in here in order for 411 00:17:52,160 --> 00:17:55,120 Speaker 7: the floes into gold to stop. One is that if 412 00:17:55,160 --> 00:17:58,720 Speaker 7: there's an economic contraction and the credit cycle, which everybody's 413 00:17:58,720 --> 00:17:59,399 Speaker 7: focused on right now. 414 00:17:59,400 --> 00:18:01,520 Speaker 6: The other scenear is that we have. 415 00:18:01,560 --> 00:18:04,640 Speaker 7: Strong growth in the US, the FED eases into that, 416 00:18:04,960 --> 00:18:08,080 Speaker 7: we have loss of FED central bank independence, and de 417 00:18:08,240 --> 00:18:11,320 Speaker 7: dollarization just amplifies this, and so the curve has to 418 00:18:11,320 --> 00:18:15,000 Speaker 7: steepen just to accommodate that. So two scenarios, a weak 419 00:18:15,040 --> 00:18:18,400 Speaker 7: economy and a strong economy both would suggest that one 420 00:18:18,480 --> 00:18:21,240 Speaker 7: gold is going to continue to see flows, and two 421 00:18:21,400 --> 00:18:24,040 Speaker 7: the US treasury curve in order to compete with that 422 00:18:24,119 --> 00:18:25,160 Speaker 7: needs to be steeper. 423 00:18:25,400 --> 00:18:26,879 Speaker 6: We just don't know whether it's going to be a 424 00:18:26,880 --> 00:18:28,280 Speaker 6: strong economy or a weak economy. 425 00:18:28,320 --> 00:18:32,120 Speaker 7: But in both scenarios, yes, absolutely, you see the curves. 426 00:18:31,800 --> 00:18:34,600 Speaker 6: Should steepen and gold should continue to see safe haven flows. 427 00:18:34,760 --> 00:18:38,399 Speaker 7: But the de dollarization story is another reason why gold 428 00:18:38,480 --> 00:18:41,760 Speaker 7: is rallying or picking up those overflows into safe havens 429 00:18:41,760 --> 00:18:43,240 Speaker 7: that would otherwise go into treasuries. 430 00:18:43,280 --> 00:18:45,280 Speaker 4: So you don't think we're seeing gold move into a 431 00:18:45,320 --> 00:18:48,000 Speaker 4: speculative stage. You think there's going to need more flows. 432 00:18:48,040 --> 00:18:50,480 Speaker 4: How much higher can we see gold go? 433 00:18:51,680 --> 00:18:55,359 Speaker 7: Well, I'm probably not an expert on the precious metals market, 434 00:18:55,359 --> 00:18:58,480 Speaker 7: but I will say this that near term we look overbought. 435 00:18:58,800 --> 00:19:01,800 Speaker 7: But if you think about all the potential flows into 436 00:19:01,840 --> 00:19:05,520 Speaker 7: gold over the next let's say year, a reasonable estimate 437 00:19:05,560 --> 00:19:09,439 Speaker 7: of five thousand parounds, I mean, that's not unreasonable at 438 00:19:09,480 --> 00:19:11,320 Speaker 7: this point in time, because you're going to continue to 439 00:19:11,359 --> 00:19:14,240 Speaker 7: have central bank buying, because you're going to continue to 440 00:19:14,280 --> 00:19:19,240 Speaker 7: see the global we'll call it a trade environment deglobalize, 441 00:19:19,560 --> 00:19:21,720 Speaker 7: and there's going to be less demand for dollars. 442 00:19:22,000 --> 00:19:23,040 Speaker 6: That's absolutely true. 443 00:19:23,160 --> 00:19:27,359 Speaker 7: You're very lucky to see inflation reaccelerate next year driven 444 00:19:27,400 --> 00:19:30,879 Speaker 7: by service sector inflation, not tariffs and goods inflation, but 445 00:19:30,960 --> 00:19:34,639 Speaker 7: service sector inflation as the US economy begins to stimulate 446 00:19:34,800 --> 00:19:37,600 Speaker 7: and reaccelerate ahead of midterm elections. So all of those 447 00:19:37,640 --> 00:19:41,159 Speaker 7: would suggest there's a fundamental driver for gold to push higher. 448 00:19:41,840 --> 00:19:43,200 Speaker 6: But near term, I would. 449 00:19:43,119 --> 00:19:46,439 Speaker 7: Argue that we're probably overbought here because the flows definitely 450 00:19:46,480 --> 00:19:48,040 Speaker 7: seem speculative very near term. 451 00:19:48,119 --> 00:19:48,880 Speaker 6: So Tom, that's gold. 452 00:19:48,960 --> 00:19:50,919 Speaker 2: This is where the bond market move gets interesting for me, 453 00:19:50,960 --> 00:19:53,160 Speaker 2: at least if you believe that's going to happen. We've 454 00:19:53,160 --> 00:19:56,679 Speaker 2: got a bond market managing into potentially hotter inflation prints 455 00:19:56,760 --> 00:19:59,720 Speaker 2: and a federal serve that given Howmus communicates it, over 456 00:19:59,720 --> 00:20:02,800 Speaker 2: a last month is willing to ignore those hot inflation prints. Now, 457 00:20:02,800 --> 00:20:05,840 Speaker 2: if the Fed's willing to ignore hot inflation tom well 458 00:20:05,880 --> 00:20:07,320 Speaker 2: the market will investors. 459 00:20:09,320 --> 00:20:10,879 Speaker 6: Uh No, I don't think so. 460 00:20:10,880 --> 00:20:14,040 Speaker 7: So. I think in that scenario you're talking about, yes 461 00:20:14,080 --> 00:20:17,280 Speaker 7: there's credit concerns, but they're manageable. The real issue is 462 00:20:17,280 --> 00:20:20,640 Speaker 7: that the US economy begins to reaccelerate, and in that scenario, 463 00:20:20,720 --> 00:20:24,439 Speaker 7: the curve bear steepens, with tens pulling away from twos, 464 00:20:24,480 --> 00:20:27,240 Speaker 7: but eventually twos pushing higher as well as the market 465 00:20:27,240 --> 00:20:30,480 Speaker 7: probably takes one of those rate cuts from twenty twenty six. 466 00:20:30,480 --> 00:20:32,080 Speaker 6: And just takes it off the table, so you get 467 00:20:32,119 --> 00:20:33,200 Speaker 6: a bear market steepener. 468 00:20:33,520 --> 00:20:36,920 Speaker 7: Everything's pushing higher, but tens push higher at a slightly 469 00:20:36,960 --> 00:20:39,600 Speaker 7: faster clip. That's our base case forecast for this year, 470 00:20:39,640 --> 00:20:42,040 Speaker 7: with tens forecast to end the year back around that 471 00:20:42,080 --> 00:20:45,000 Speaker 7: four point thirty zone, and next year tens pushing back 472 00:20:45,080 --> 00:20:48,399 Speaker 7: up close to five percent as the market realizes. 473 00:20:47,920 --> 00:20:49,520 Speaker 6: That the fear is gone. 474 00:20:49,840 --> 00:20:52,919 Speaker 7: There is an economy that is still reasonably healthy, and 475 00:20:53,359 --> 00:20:56,479 Speaker 7: treasury yields have to push higher to accommodate the slightly 476 00:20:56,520 --> 00:20:59,159 Speaker 7: higher pace of inflation and still slightly higher pace of 477 00:20:59,160 --> 00:20:59,800 Speaker 7: growth too. 478 00:21:00,520 --> 00:21:01,160 Speaker 1: Stay with us. 479 00:21:01,480 --> 00:21:13,960 Speaker 2: More Bloomberg surveillance coming up after this. Terry Hanes of 480 00:21:13,960 --> 00:21:17,320 Speaker 2: Pangaea Policy writing this, China had best show movement on 481 00:21:17,960 --> 00:21:20,880 Speaker 2: some other hot button issues or the US is capable 482 00:21:20,880 --> 00:21:24,200 Speaker 2: of broader direct movement against China's economic interests. Terry joined 483 00:21:24,240 --> 00:21:25,840 Speaker 2: us now for more. Terry, welcome to the program. So 484 00:21:26,000 --> 00:21:28,280 Speaker 2: now my initial reaction to reading that quote is what's 485 00:21:28,359 --> 00:21:32,119 Speaker 2: left to tariff? So what's left to do here? Well, 486 00:21:32,520 --> 00:21:33,159 Speaker 2: good morning all. 487 00:21:33,640 --> 00:21:36,240 Speaker 1: I think what's left to do here, frankly, is to 488 00:21:36,440 --> 00:21:43,480 Speaker 1: understand that the economic issues of the moment, soybeans and 489 00:21:45,720 --> 00:21:48,600 Speaker 1: fentanyl and the rare earths, are part of a broader 490 00:21:48,640 --> 00:21:52,320 Speaker 1: geopolitical struggle. And I think that's the reason why we're 491 00:21:52,359 --> 00:21:55,760 Speaker 1: not going to see any serious movement on this anytime soon. 492 00:21:56,000 --> 00:21:58,440 Speaker 1: We'll probably get some action on soybeans, we'll get another 493 00:21:58,560 --> 00:22:02,920 Speaker 1: nod on fentanyl, they'll continue ropidoping on rare earths, and 494 00:22:03,000 --> 00:22:06,280 Speaker 1: in return, what you get from Trump is not a 495 00:22:06,280 --> 00:22:11,080 Speaker 1: calming effect by saying tariffs are unsustainable, because what Trump 496 00:22:11,160 --> 00:22:14,000 Speaker 1: and Besset have always meant by unsustainable is that they're 497 00:22:14,080 --> 00:22:17,280 Speaker 1: unsustainable for China. So it's not an attempt to calm. 498 00:22:17,359 --> 00:22:19,760 Speaker 1: It's an attempt to tell China, look, we're perfectly willing 499 00:22:19,800 --> 00:22:22,000 Speaker 1: to keep ramping this up if you want to, but 500 00:22:22,040 --> 00:22:24,360 Speaker 1: if you don't, then you need to back off now. 501 00:22:24,640 --> 00:22:27,439 Speaker 4: But Terry, hasn't it shown that it is unsustainable what 502 00:22:27,480 --> 00:22:29,960 Speaker 4: we're dealing with right now, especially when it comes to farmers. 503 00:22:30,000 --> 00:22:33,240 Speaker 4: It's unsustainable for the United States as well. 504 00:22:34,400 --> 00:22:37,359 Speaker 1: It's not a pretty picture by any means, and I 505 00:22:37,359 --> 00:22:40,399 Speaker 1: don't mean to minimize the problems that American farmers have 506 00:22:40,480 --> 00:22:44,320 Speaker 1: at all, but this takes place in the context of 507 00:22:44,359 --> 00:22:50,240 Speaker 1: a much greater geopolitical chess game, and the export markets 508 00:22:50,240 --> 00:22:52,199 Speaker 1: for soybeans are one small part of that. 509 00:22:52,760 --> 00:22:55,600 Speaker 4: So China is holding on to rare earth. They're not 510 00:22:55,640 --> 00:22:58,399 Speaker 4: buying US soybeans. What do they want out of the 511 00:22:58,520 --> 00:23:02,399 Speaker 4: United States besides lowering the tariff threshold. 512 00:23:02,520 --> 00:23:04,359 Speaker 1: Well, they'd like to keep talking, and they'd like the 513 00:23:04,440 --> 00:23:08,959 Speaker 1: United States to go away. Akin to twenty nineteen twenty twenty, 514 00:23:09,000 --> 00:23:12,160 Speaker 1: what the Chinese very likely hope for is that they 515 00:23:12,160 --> 00:23:15,080 Speaker 1: get some sort of small deal with Trump that gets 516 00:23:15,119 --> 00:23:18,320 Speaker 1: trumpeted as a big deal, and what ends up happening 517 00:23:18,520 --> 00:23:23,320 Speaker 1: is that the United States then goes away on bigger 518 00:23:23,359 --> 00:23:27,680 Speaker 1: issues and I think this time out, Trump's not inclined 519 00:23:27,760 --> 00:23:30,080 Speaker 1: to do that. The reason I think that is because 520 00:23:30,080 --> 00:23:34,080 Speaker 1: that's very clearly what he's signaling. I mean, they see 521 00:23:34,520 --> 00:23:40,719 Speaker 1: the rare earth issue as a threat to military plus 522 00:23:40,760 --> 00:23:45,720 Speaker 1: Western economic power and influence and ability to continue frankly, 523 00:23:46,240 --> 00:23:50,959 Speaker 1: and they'll defend that. And so this thing isn't going 524 00:23:51,040 --> 00:23:51,960 Speaker 1: away anytime soon. 525 00:23:52,240 --> 00:23:55,480 Speaker 4: It's not going But what you're describing is the contours 526 00:23:55,600 --> 00:23:59,159 Speaker 4: of a maybe small deal on three specific issues that 527 00:23:59,240 --> 00:24:02,080 Speaker 4: could be done with Holy Fang and Scott Bessont. Why 528 00:24:02,080 --> 00:24:04,040 Speaker 4: do we need President Trump meeting with Shijiping. 529 00:24:05,160 --> 00:24:09,440 Speaker 1: We need that because both both Trump and Chijinping want 530 00:24:09,520 --> 00:24:13,840 Speaker 1: that meeting to be able to show that jaw jaws better. 531 00:24:13,640 --> 00:24:14,480 Speaker 4: Than war war. 532 00:24:14,680 --> 00:24:19,040 Speaker 1: And they're continuing to talk, and in this case, the 533 00:24:20,520 --> 00:24:25,000 Speaker 1: any kind of seeming rapprochemont between these two leaders, you know, 534 00:24:25,320 --> 00:24:29,720 Speaker 1: lifts all boats, whether it be in China, which wants 535 00:24:29,800 --> 00:24:32,480 Speaker 1: respect and wants to be seen as an equal, or 536 00:24:32,560 --> 00:24:35,959 Speaker 1: the United States, you know, where Trump knows he's going 537 00:24:36,000 --> 00:24:38,720 Speaker 1: to get a pretty large market bounce out of a 538 00:24:38,760 --> 00:24:40,680 Speaker 1: continued rap rushmop. 539 00:24:40,520 --> 00:24:43,760 Speaker 2: Sorry, this amount of escalation really started with China a 540 00:24:43,840 --> 00:24:47,119 Speaker 2: number of weeks ago. They flexed their superior rare res 541 00:24:47,119 --> 00:24:50,200 Speaker 2: refining capacity. That's a move that does not come without risk, 542 00:24:50,320 --> 00:24:52,120 Speaker 2: and Ry, I just want it from your standpoint, whether 543 00:24:52,160 --> 00:24:55,320 Speaker 2: you believe that was a strategic mistake on the Chinese half. 544 00:24:56,480 --> 00:24:59,399 Speaker 1: I think it was clumsily handled at the very least, 545 00:24:59,480 --> 00:25:01,840 Speaker 1: So I think I'll mostly agree with you on that. 546 00:25:02,480 --> 00:25:05,199 Speaker 1: But also I found the timing interesting because what you 547 00:25:05,280 --> 00:25:09,800 Speaker 1: had in a situation. In this situation is in the 548 00:25:09,800 --> 00:25:13,560 Speaker 1: broader geopolitical context, you've got a Gaza broker piece, which 549 00:25:13,760 --> 00:25:17,439 Speaker 1: right now, of course is teetering a little bit, but 550 00:25:17,480 --> 00:25:20,320 Speaker 1: you got that. You got the US Argentina bailout, which 551 00:25:20,320 --> 00:25:24,520 Speaker 1: from a geopolitical perspective is a pushback against China in 552 00:25:25,240 --> 00:25:28,400 Speaker 1: South America. And you've got Russia under a lot more pressure, 553 00:25:28,640 --> 00:25:31,840 Speaker 1: not only because they're not winning in Ukraine, but because 554 00:25:31,880 --> 00:25:34,640 Speaker 1: the price of oil and other things imperil their ability. 555 00:25:35,480 --> 00:25:41,920 Speaker 1: That together describes a Chinese and client state proxy defeat. 556 00:25:42,440 --> 00:25:45,280 Speaker 1: So China, among other things, is reminding everybody that they're. 557 00:25:45,080 --> 00:25:48,600 Speaker 4: Still here, Terry, before we let you go on China, 558 00:25:48,720 --> 00:25:52,119 Speaker 4: Today's day twenty of US government shutdown. We're just mentioning 559 00:25:52,200 --> 00:25:54,600 Speaker 4: it now, twenty three minutes into the program. When do 560 00:25:54,640 --> 00:25:56,080 Speaker 4: you think the goarm will actually opened? 561 00:25:57,200 --> 00:26:01,480 Speaker 1: I got early November after the New York City elections. 562 00:26:02,320 --> 00:26:04,680 Speaker 1: What I think about this is that this is now 563 00:26:04,720 --> 00:26:07,480 Speaker 1: morphed into a struggle for the broad center of the 564 00:26:07,520 --> 00:26:11,120 Speaker 1: American public, who's more reasonable. There's a lot of evidence 565 00:26:11,160 --> 00:26:14,480 Speaker 1: out there that Democrats aren't winning that battle right now, 566 00:26:14,720 --> 00:26:17,600 Speaker 1: and what Republicans see an opportunity to do now is 567 00:26:17,680 --> 00:26:20,720 Speaker 1: kind of use the kind of no King's amused Bush, 568 00:26:20,760 --> 00:26:24,480 Speaker 1: plus the Mamdani election in New York City to continue 569 00:26:24,560 --> 00:26:26,360 Speaker 1: to paint Democrats as extremists. 570 00:26:26,720 --> 00:26:28,760 Speaker 2: So I think this goes on for a while, Sarry, 571 00:26:28,800 --> 00:26:30,760 Speaker 2: just quickly. Then you don't see that as a coincidence 572 00:26:30,760 --> 00:26:33,480 Speaker 2: at a calendar. You actually think that's a connected story, what's 573 00:26:33,480 --> 00:26:35,600 Speaker 2: happening in New York City and what happens in Washington. 574 00:26:36,080 --> 00:26:38,399 Speaker 1: Oh absolutely, because what they'll end up doing is and 575 00:26:38,840 --> 00:26:41,040 Speaker 1: you know, this gets teased all over the place and 576 00:26:41,080 --> 00:26:43,840 Speaker 1: has been for a while. Trump mentioned it over the weekend. 577 00:26:43,880 --> 00:26:46,760 Speaker 1: I think too, is that you know, this is the 578 00:26:46,800 --> 00:26:49,359 Speaker 1: face of the Democratic Party, that's what these people are 579 00:26:49,440 --> 00:26:52,200 Speaker 1: up to, and noticed, by the way, and not incidentally 580 00:26:52,280 --> 00:26:56,280 Speaker 1: that you know, neither Schumer, nor Jeffreys nor anybody else 581 00:26:56,320 --> 00:26:59,000 Speaker 1: in New York wants to stand up to them. This 582 00:26:59,600 --> 00:27:03,399 Speaker 1: is your Democratic Party, folks, as compared to us, who 583 00:27:03,440 --> 00:27:07,800 Speaker 1: are leading on already leading with the public on economy 584 00:27:07,840 --> 00:27:09,800 Speaker 1: and crime and a bunch of other major issues. 585 00:27:10,960 --> 00:27:14,520 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 586 00:27:14,520 --> 00:27:17,840 Speaker 2: in markets, economics, and geopolitics. You can watch the show 587 00:27:17,920 --> 00:27:20,840 Speaker 2: live on Bloomberg TV weekday mornings from six am to 588 00:27:21,000 --> 00:27:24,760 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 589 00:27:24,880 --> 00:27:27,119 Speaker 2: or anywhere else you listen, and as always, on the 590 00:27:27,119 --> 00:27:29,560 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.