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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Brownowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course, on the Bloomberg Terminal. Claudia Sam writes

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Speaker 1: brilliantly about the stresses within the American political economy. Founder

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Speaker 1: of Sound Consulting, writing for Bloomberg, Opinion in the New

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Speaker 1: York Times, and a former Fellow Reserve economist, and always

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Speaker 1: interesting even if you don't agree with her. Claudia David

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Speaker 1: blanche Flower published a working paper nb ER yesterday with

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Speaker 1: some colleagues from Dartmouth, and it's real simple, he says,

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Speaker 1: calm down. The labor economy is not hot hot hot.

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Speaker 1: Wages are not hot hot hot. You say that may

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Speaker 1: be right, or the warriors may be right as well,

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Speaker 1: and there may be a middle ground. And what we

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Speaker 1: need is time to let things solve out. Claudia Sam

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Speaker 1: wants to go out the X axis. How much time

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Speaker 1: do we need to get this fixed? Yeah, that's that's

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Speaker 1: a big question. So we are absolutely seeing a very

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Speaker 1: disrupted economy begin to heal. That is one important interpretation

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Speaker 1: of the job's report that we saw last week. We

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Speaker 1: have a lot of hiring, We do have strong wage growth.

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Speaker 1: How else are you going to solve the labor shortage

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Speaker 1: and bring workers back without paying them more? That is

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Speaker 1: absolutely a piece of what we're seeing now. We see

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Speaker 1: services becoming more prevalent in consumer spending. So a lot

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Speaker 1: of the disruptions we saw appear to be unwinding. They

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Speaker 1: gotta unwind faster than the Fed keeps going with the rates.

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Speaker 1: So that's that's the big question. If we have enough time.

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Speaker 1: The politicians, Claudia have a timeline which is based on

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Speaker 1: election days. You don't and we don't either. Is this

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Speaker 1: an inflation story to be solved in quarters or years

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Speaker 1: to be fully solved, it's a solution over years. I

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Speaker 1: think we could and and are on track to be

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Speaker 1: seeing some relief in the coming quarters. Uh If we

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Speaker 1: don't see it, then we're we're going to a very

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Speaker 1: weak recessionary place next year. Uh So, and that'll do

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Speaker 1: a good number on inflation if we get there. But

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Speaker 1: I think a path that's really a healing that is

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Speaker 1: um slow but steady pointed in the right direction gets

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Speaker 1: us back to something like two percent in two or

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Speaker 1: three years. This is not a quick turn in terms of,

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Speaker 1: you know, turning back the lights on getting us back

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Speaker 1: to a normal that that just takes takes time. But Claudia,

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Speaker 1: the new normal is something people have been talking about,

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Speaker 1: especially with the participation rate remaining so low. And this

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Speaker 1: is the reason why the likes of Danny Blanche Flower

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Speaker 1: and others say there's more slack in this labor market

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Speaker 1: than it may seem. Do you understand why there are

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Speaker 1: so many people still not going back to work? Is

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Speaker 1: it long COVID? Is it retirements? Is it all of

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Speaker 1: the above. There's some very good research, though it is

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Speaker 1: preliminary that we that the long COVID, just that piece

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Speaker 1: of it could explain two tents three tents off the

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Speaker 1: labor force participation. Right, that's pretty close to a fifth

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Speaker 1: of that gap that we've seen open up. So that's

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Speaker 1: a piece of it. We know people still have care issues,

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Speaker 1: you know, just the ability to be working. We've seen

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Speaker 1: a lot of people unable to work as many hours

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Speaker 1: as they want to because you know, they get sick,

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Speaker 1: they have to come home, there's a lot, and then

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Speaker 1: older workers that took this as an opportunity to retire,

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Speaker 1: some of them could have retired a lot sooner. So, Claudia,

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Speaker 1: the reason why I bring this up is because all

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Speaker 1: these issues are sticky issues, right. They're not going to

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Speaker 1: bring people back in. You're not gonna necessarily see that

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Speaker 1: participation rate go up. So when you talk about time,

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Speaker 1: what is your fear that if the FED does back

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Speaker 1: off or doesn't raise rates as quickly to allow some time,

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Speaker 1: that it gets it wrong yet again, when it's ideological

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Speaker 1: framework has been proven wrong or at least delayed again

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Speaker 1: and again. I think it's a matter of interpretation. The

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Speaker 1: fed's baseline interpretation of what's happening in the labor market

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Speaker 1: is running really hot. There are signs that demand is

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Speaker 1: cooling all over the place, the business investment, the consumer spending.

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Speaker 1: But when they look at that labor market, they're seeing

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Speaker 1: hot not everyone right. Governor Waller has expressed some views

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Speaker 1: about the vacancy rate coming down without unemployment rising. That

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Speaker 1: is clearly a correction of some structural issues. So the

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Speaker 1: FED is open minded, as the FED always is. Their

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Speaker 1: baseline has been looking at the labor market it's too hot,

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Speaker 1: it's unhealthy, and that's what they're trying to cool down.

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Speaker 1: It could be too much, well, Claudia to that point.

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Speaker 1: Looking at the n f i B Small Business Optimism

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Speaker 1: Survey that came out, fort pent of all owners reported

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Speaker 1: job openings that they could not fill in the current period.

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Speaker 1: So as what we're talking about realistically just an absence

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Speaker 1: of hiring, but not necessarily businesses that are going to

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Speaker 1: be outright firing people, especially as they've had difficulty bringing

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Speaker 1: people back after layoffs during the pandemic. Right, a lot

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Speaker 1: of the jobs that are missing are part time jobs.

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Speaker 1: I mean, so we've seen an increase in the multiple

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Speaker 1: job holders. We've seen people moving back from self employment

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Speaker 1: into being employees. That was a very unusual pattern in

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Speaker 1: the crisis. The UH. The optimistic scenario is that the

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Speaker 1: first place, if if businesses see demands slowing down, which

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Speaker 1: it clearly is and it's been at an unsubstainably high pace,

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Speaker 1: when they see it slow down, that they're going to

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Speaker 1: go first to pulling job openings and not firing because

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Speaker 1: they've learned, hopefully at this point, that if you fire

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Speaker 1: a bunch of your workers, it can be hard to

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Speaker 1: bring them back. I think we gotta go because of

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Speaker 1: breaking is Claudius sum thank you so much, particularly on

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Speaker 1: inflation tomorrow on some of the labor linkage is that

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Speaker 1: we see there as well. Let us give a little

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Speaker 1: history here on one of the great great surprises of

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Speaker 1: the last twenty years. They were those guys over in

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Speaker 1: New Jersey and in our childhood they owned a piece

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Speaker 1: of the rock and they would show you Gibraltar and

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Speaker 1: they were Prudential, and that's the way it was. Prudential

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Speaker 1: became p JIM and with it they became truly one

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Speaker 1: of our best best opinionated bond houses. These are bi

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Speaker 1: side people managing bond money, full faith and credit, investment

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Speaker 1: grade credit, which Lisa's expert in, and also of course

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Speaker 1: distress debt. But more than anything, they have done it

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Speaker 1: with an opinionated alan that is absolutely second to none, Lisa.

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Speaker 1: That includes a gentleman greeting us this morning. Yeah, Greg Peters, co,

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Speaker 1: Chief investment Officer at p JIM Fixed Income, who is

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Speaker 1: joining us at a time when the one conviction in

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Speaker 1: markets had been longer term bonds and continues to be

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Speaker 1: longer term bonds. And you've had such a fascinating view

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Speaker 1: on this oscillating between conviction and not so much. Where

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Speaker 1: do you stand on an area that has been a

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Speaker 1: haven amid near term concerns about inflation. Yes, so I

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Speaker 1: think the bond market has just reflected the new reality

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Speaker 1: after Russian made Ukraine coach lockdown. So we have seen

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Speaker 1: and then we're still experiencing this inflation surge um and

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Speaker 1: growth surge. And the thing that I'm focused on and

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Speaker 1: we're focused on p GEM is as like everyone else

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Speaker 1: to rollover in inflation. But I think that kind of

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Speaker 1: misses the bigger question on the table is so what snacks?

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Speaker 1: And you know we were talking earlier, and I think

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Speaker 1: the markets are entirely too comfortable with this notion we're

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Speaker 1: just going to be a straight line down, smooth and

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Speaker 1: easy right to the FED UH mandated zone. So I

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Speaker 1: still think there's lots of room for volatilly, lots of

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Speaker 1: room for rates to move both higher and lower UH

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Speaker 1: and credit spreads to be much more volatile and wider.

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Speaker 1: On balance, that's exactly where I wanted to go. This

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Speaker 1: conviction that people have that the FED will get to

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Speaker 1: their two percent target that you can see in that

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Speaker 1: conviction for longer term bonds. You can see this also

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Speaker 1: and break even rates that have actually come down as

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Speaker 1: the Fed job bones. Do you expect that to change

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Speaker 1: that as we head into the end of the year

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Speaker 1: and as people start to see a cooling office some

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Speaker 1: of the inflation data, you get less of an inversion.

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Speaker 1: The two tents spread, and that ends up being bad

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Speaker 1: from markets because that means the long end is increasing,

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Speaker 1: yields going higher as people start to question the fasibility

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Speaker 1: to get things under control. Yeah, so that's a good question.

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Speaker 1: I think that there's a high probability that the high

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Speaker 1: end rates have already been put into this market. A

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Speaker 1: lot can change, So my conviction level isn't as high

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Speaker 1: as it normally has, just given kind of the uncertainty

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Speaker 1: and the volatility, the unprecedented nature of it all. But

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Speaker 1: I do worry about that. But but actually, Lisa, I

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Speaker 1: kind of worry about the flip side of that, where

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Speaker 1: once rates do come down, that markets get or not

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Speaker 1: rates Inflation rates can come down, the markets get too

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Speaker 1: excited over that, and they're declaring victory in the middle

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Speaker 1: of the battle. And I think that's where the whip

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Speaker 1: saw a moment could really come in uh in her

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Speaker 1: investors in a meaningful way. Well, Greg, of course, it's

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Speaker 1: not just about getting inflation down. It's what it takes

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Speaker 1: to get inflation down. And there is this narrative out

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Speaker 1: there that if the data is looking okay, looking resilient,

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Speaker 1: that means that the FED can hike aggressively in order

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Speaker 1: detain inflation and land softly while doing so. But is

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Speaker 1: it actually if the data is stronger, the FED has

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Speaker 1: to be even more aggressive in order to actually get

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Speaker 1: a handle on demand and bring prices down, and therefore

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Speaker 1: a hard landing is inevitable. Yeah, that's kind of been

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Speaker 1: my narrative all along. I've always felt that this underlying

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Speaker 1: strength of the economy no nominal GDP is really quite robust,

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Speaker 1: which is why you're seeing I can be earning supplies

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Speaker 1: through the upside, or at least not be as as

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Speaker 1: poor as many thought or asserted. So yeah, to me,

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Speaker 1: the stronger the economy, and this is a very strong

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Speaker 1: economy and lots of different respects requires the FED to

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Speaker 1: do more, which in turn means the risk of a

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Speaker 1: hard landing uh E is actually higher, not lower. So

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Speaker 1: I know it's a perverse way to think about it,

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Speaker 1: but that's kind of the viewpoint that I have. So

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Speaker 1: if they have to do more, which is get the

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Speaker 1: terminal rate to a higher level, what is your expectation

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Speaker 1: about how long realistically they're going to be able to

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Speaker 1: stay there before cutting, Because this market is still betting

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Speaker 1: the cuts are going to come next year. Yeah, so

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Speaker 1: the cuts in the marketplace, uh next year seem a

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Speaker 1: little heroic to me. Uh so, Um that that's where

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Speaker 1: I really disagree with the market. So, you know, once again,

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Speaker 1: it's about the path, and I think the markets extrapolating

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Speaker 1: the straight line lower and my strong suspicion is that

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Speaker 1: you're not going to move in a straight line, and

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Speaker 1: so those cuts that are being priced in the market

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Speaker 1: next year are unlikely to be fulfilled in my mind. So, Greg,

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Speaker 1: given the lack of conviction about a specific trade that

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Speaker 1: will be consistently a winning trade, and given your expectation

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Speaker 1: that there is going to be more spread widening, where's

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Speaker 1: the haven trade, where's the ballast when you start to

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Speaker 1: look at investments. Yeah, So I think it's about relative value,

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Speaker 1: a risk neutral type of uh themes. And so one

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Speaker 1: of the teams exactly Europe over the U S. So

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Speaker 1: you know, we look at investment grade corporates, we see

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Speaker 1: a lot more value, even with kind of the move

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Speaker 1: tighter here in Europe than in the US. We see

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Speaker 1: a lot of value and high quality structured products. These

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Speaker 1: are assets that should do really well in the environment that,

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Speaker 1: you know, the tightened type of recession risk. Uh and

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Speaker 1: and basically playing the front end of these predectors. So

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Speaker 1: if you believe that these investments that you have will

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Speaker 1: be quote unquote money good will not involved, then mining

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Speaker 1: that front end is an area to get roll and carry,

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Speaker 1: as we like to say in fixing. Come finally, Greg,

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Speaker 1: obviously CPI tomorrow eight thirty am Eastern time. The print

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Speaker 1: is hot, what happens the prince is cold? What happens? Well,

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Speaker 1: So I think it's uh, you know, the market setting

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Speaker 1: up for a lower print at least kind of in

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Speaker 1: uh in you know the whispers um so um. If

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Speaker 1: it is, I think that is a decided risk off

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Speaker 1: a type of environment. Uh. And if it's at or below,

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Speaker 1: I think we continue to grind here through the course

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Speaker 1: of the summer. Just one caveat I'd like to make though,

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Speaker 1: is you know, August is a period of time where

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Speaker 1: there's not a lot of informational content coming from the marketplace.

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Speaker 1: Liquidity is much more thin. A lot of investors are,

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Speaker 1: you know, taking their mandatory two weekers, and so let's

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Speaker 1: not read too much into what happens here Over the

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Speaker 1: next couple of weeks. I think September will get a

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Speaker 1: much better read on really the market, true market direction.

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Speaker 1: Greg Peters, thank you so much, greatly appreciate it. This morning,

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Speaker 1: Greg Peters with Pijam. It is the morning after a

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Speaker 1: raid by the Federal Bureau of Investigation under search warrant.

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Speaker 1: So not a raid, but a search of a former

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Speaker 1: president's private residence. It is unprecedented, Greg Villier, on short

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Speaker 1: notice to this this morning. We're honored that the gentleman

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Speaker 1: from a g F could join us. Greg. You and

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Speaker 1: I remember in our ute water Gate. This isn't Watergate,

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Speaker 1: isn't it? No, it's not. There are a lot of differences,

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Speaker 1: and one is that, of course Nixon resisted all of this.

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Speaker 1: And I would argue Tom that last night was a

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Speaker 1: trifecta for Trump at three victories in in one one evening.

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Speaker 1: Number one, he's on the front page of every newspaper

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Speaker 1: in America. He loves that. Number two he gets to

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Speaker 1: play martyr. He's brilliant at playing martyr. And number three,

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Speaker 1: the Republicans are looking pretty unified, and if you look

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Speaker 1: at the quotes from everyone from Kevin McCarthy to obscure

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Speaker 1: House members, they are all outraged that this happens. So

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Speaker 1: for I think it's a victory. If Democrats, independence and

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Speaker 1: Republicans assumed that the Attorney General will in some point

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Speaker 1: voice or act or begin a judicial process, does that

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Speaker 1: get in the way of our electoral process this November

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Speaker 1: or a November thirty months from now. It made to

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Speaker 1: the extent that it might affect voting, but I don't

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Speaker 1: think legally it will because Donald Trump specializes in in

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Speaker 1: cases the drag on for seven eight years, so he'll

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Speaker 1: appeal and appeal and appeal, and I think he still

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Speaker 1: could run. The key has always is moderate voters. Will

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Speaker 1: moderates decide they've had enough, like many Republican moderates have decided.

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Speaker 1: That can make a difference. But right now I think

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Speaker 1: that this is a again, it's a plus for Trump.

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Speaker 1: How much greg does this change the dynamic heading into

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Speaker 1: the midterm elections, Because we didn't see some of the

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Speaker 1: polls showing the Democrats had been gaining ground on the

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Speaker 1: heels of lower gas prices and some of these legislative wins. Yeah,

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Speaker 1: that's really intriguing. I mean, you've got food and gas

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Speaker 1: prices coming down, You've got Biden having a pretty darn

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Speaker 1: good summer. So it's possible that maybe the Democrats losses

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Speaker 1: will only be five or ten seats in the House.

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Speaker 1: Maybe the Democrats will keep the Senate. But I can't

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Speaker 1: see the House staying democratic. I think the House will flip.

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Speaker 1: But Greg, what does it say in terms of President

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Speaker 1: Biden's second two years of his first term, this idea

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Speaker 1: that he will not be able to get that much

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Speaker 1: more legislation through. How do you sort of advise some

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Speaker 1: of your clients in terms of what they can expect

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Speaker 1: in response to a downturn, what they can expect in

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Speaker 1: terms of debt reduction and some of these other issues

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Speaker 1: that have been increasing talking points. It's gonna be a

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Speaker 1: pretty meek agenda in the last two years. There's there's

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Speaker 1: not not much left that they can get done. So

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Speaker 1: for my clients in the financial world, that's a good story.

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Speaker 1: Gridlock is a good story. They don't have much to

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Speaker 1: worry about. I don't see any new taxes coming for

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Speaker 1: a long long time. I don't see any big new

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Speaker 1: spending coming for a long time. The big crisis, I

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Speaker 1: would argue, is geopolitical. There's a lot to worry about there. Yeah, well,

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Speaker 1: on that point, Greg, this is a US United States

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Speaker 1: of America where we're talking about the home of a

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Speaker 1: former president being searched for documentation he may or may

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Speaker 1: not have taken from the White House at the same

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Speaker 1: time that we're expecting in a couple of weeks hearings

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Speaker 1: to resume on insurrection at the US capital. That to

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Speaker 1: me looks like a democracy very much in some form

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Speaker 1: of crisis. How does that play when we're trying to

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Speaker 1: defend democracy in Taiwan. Yeah, it's a very very good point.

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Speaker 1: And I think Trump, of course breaks all of the rules.

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Speaker 1: That's always been the case with him, and I think

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Speaker 1: it will will happen again. If if I would just

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Speaker 1: say that Trump is still alive politically, and I would

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Speaker 1: have guessed a few months ago that he'd be close

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Speaker 1: to finished, He's not finished. You can't underestimate this guy.

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Speaker 1: And what about the other Republican potential candidates for they're

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Speaker 1: realistically anyone who could beat him if he runs again.

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Speaker 1: At this point maybe just Santis. You can't rule him out.

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Speaker 1: I think after Liz Cheney lou Is his next Tuesday,

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Speaker 1: she'll probably go to New Hampshire and see how things

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Speaker 1: look for her as a candidate. There could be a

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Speaker 1: dozen candidates, but if Trump runs, he'll clear the field.

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Speaker 1: Great value. You better leave it there. Thank you on

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Speaker 1: short notice for joining us here on this most historic

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Speaker 1: day for a shocked America again a search Warren and

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Speaker 1: a search by the Federal Bureau of Investigation of a

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Speaker 1: former president's residence. This is in Mara Lago, Florida, right

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Speaker 1: now and hugely anticipated. Neil Dotta joins us. He's head

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Speaker 1: of the US Economic Research it renaissance macro research. But

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Speaker 1: what's important there is, he writes, with a stiletto knife

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Speaker 1: in his hands, slicing and dicing the zeitgeist there is

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Speaker 1: out there. Neil Dotta joins us on our American economy.

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Speaker 1: I love the way you go after consensus. What's consensus

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Speaker 1: get most wrong? Right now? Well, I think the consensus

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Speaker 1: right now is pivoting very uh feels like very quickly

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Speaker 1: to peek inflation slower inflation. Um, you know, maybe the

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Speaker 1: FED backing off. I think that's probably a mistake. You

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Speaker 1: think that that's a mistake, Neil, because you think that

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Speaker 1: the FED is going to keep going and that inflation

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Speaker 1: hasn't yet peaked. Well, I don't think core inflation is peaked. Lisa.

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Speaker 1: There she is, tom My arch Nemesis. Now my best

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Speaker 1: friend were on the same side of that. We're on

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Speaker 1: the same side of the fence. Um. Yeah, look, I

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Speaker 1: mean you know, at the end of the day, I

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Speaker 1: think things changed. At the June fform Sea meeting. The

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Speaker 1: FED basically told us that I was willing to, um,

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Speaker 1: you know, push the economy into recession to achieve its goals.

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Speaker 1: And you know, we went from it's going to be

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Speaker 1: challenging to achieve a soft landing, now it's going to

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Speaker 1: be very challenging to achieve achieve a soft landing. I mean, um,

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Speaker 1: you know, the path is narrowing. I mean they sort

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Speaker 1: of use these kinds of you know, words to to

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Speaker 1: basically demonstrate how difficult the task is going to be.

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Speaker 1: But you know, look, I mean the last employment report

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Speaker 1: was a knockout, and you know, essentially we have inflation

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Speaker 1: significantly above target. You heard Mike McKee. They're talking about

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Speaker 1: unit labor costs. I mean, your labor costs are up

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Speaker 1: a lot. You know, interestingly enough, during the pandemic, prices

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Speaker 1: have actually been trailing in a labor costs, which in

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Speaker 1: my view means that there's more upside to prices going forward. Um.

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Speaker 1: And despite the fact that price inflation is so elevated

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Speaker 1: financial conditions, what have they been doing over the last

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Speaker 1: couple of weeks while they've been easing so to me,

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Speaker 1: that suggests that the FED has a lot more room

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Speaker 1: to go. UM. I think the diet is cast now

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Speaker 1: for a seventy basis point move at the September of

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Speaker 1: Film Sea meeting, and they need to leave it on

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Speaker 1: the table for the remaining two meetings this year. What

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Speaker 1: does that mean for equities? I know that you've been

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Speaker 1: a big bull in terms of the corporate resilience and

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Speaker 1: their ability to adapt and adjust. To use Tom's phrase,

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Speaker 1: why is this time different? This moment different? When it

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Speaker 1: comes to that, well, I mean and I mean equity markets. Um.

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Speaker 1: When you think about it, fundamentally, it's really different by

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Speaker 1: three factors, right, Lisa. It's interest rates, actual and expected earnings,

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Speaker 1: and the risk premium right. So the move in July,

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Speaker 1: the nine burst in the SNP five last month, that

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Speaker 1: was entirely driven by lower interest rates. So if I

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Speaker 1: think the Fed's gonna keep hiking, I think interestings will

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Speaker 1: go up, and you know, the economy is not out

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Speaker 1: of the woods. I mean, we're gonna see residential investment

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Speaker 1: contract in the third quarter. We're going to see capital

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Speaker 1: spending come down because growth expectations have softened. UM, inventories

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Speaker 1: will likely be UM more negative, and particularly for you know,

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Speaker 1: sort of durable goods industries, so you'll see an inventory

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Speaker 1: liquidation of some kind. I'm assuming that's all negative for

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Speaker 1: GDP growth, which is negative for for growth and earnings

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Speaker 1: and so um. And so if if interest rates are

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Speaker 1: going up and earnings estimates are coming down, uh, it's

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Speaker 1: hard to be optimistic about the equity market. And of

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Speaker 1: course the equity market is one way the FED has

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Speaker 1: to slow the economy down. Yeah. On the subject of

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Speaker 1: earnings new obviously, the ability to retain profit margin in

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Speaker 1: an inflationary environment like this one is predicated on the

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Speaker 1: ability to pass on higher input costs to the consumer

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Speaker 1: and consumers to tolerate those higher prices. Are we overestimating

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Speaker 1: the resilience of the U S consumer. Consumers have an

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Speaker 1: enormous ability to take on higher prices, as evidenced by

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Speaker 1: the fact that you know, look at how much excess

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Speaker 1: savings they have. They I mean, the entire improvement in

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Speaker 1: consumer spending in the first half of the year was

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Speaker 1: driven by lower savings rates. But that can't last forever,

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Speaker 1: right BINGO. So where does that leave us new? I mean,

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Speaker 1: to me, it just leaves me more cautious on the

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Speaker 1: economic outlook. I mean, and yeah, I'd be cautious on stocks.

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Speaker 1: I mean, I get that the equity markets have kind

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Speaker 1: of ripped here. Um. You know, maybe a lot of

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Speaker 1: the people that were, you know, thinking the way I

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Speaker 1: do about things already sold back in June. But you

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Speaker 1: know this isn't over yet. Um and uh you know

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Speaker 1: that that that's my view. Um, but I definitely and

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Speaker 1: I think one of that is one of those in

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Speaker 1: this because the FED is not done yet, and you

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Speaker 1: think about the rest of the world, the dollar is

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Speaker 1: likely to go. I mean, I don't think the dollar

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Speaker 1: strength is over yet. I mean, you have you know,

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Speaker 1: US economy holding up better than many of its major

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Speaker 1: trading partners. You have the FED still hiking, that's obviously

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Speaker 1: very dollable issues holding up better if we get a

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Speaker 1: data inflation, if we get whatever the real economy will

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Speaker 1: give us, and it doesn't sound like with productivity it's

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Speaker 1: going to be all that much. That's still a sustained

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Speaker 1: nominal GDP. So let's go to the data optimism. Can

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Speaker 1: we say that Datta Data and Brammo agree to agree.

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Speaker 1: I think we could say that, folks, this is a

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Speaker 1: rare occurring. But away from that, when you say to

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Speaker 1: Brammo here in months, you're wrong. It's gonna because Dutta

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Speaker 1: is optimistic. Can corporations adapt to this unique set of

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Speaker 1: cards right now? Well, they're going to adapt, but Tom,

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Speaker 1: that's gonna require some some pain for the economy, right.

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Speaker 1: I mean, if you think about the first half of

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Speaker 1: the year, you know, to me, for business you can.

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Speaker 1: It's the most interesting thing is this reconciliation between the

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Speaker 1: fact that hours worked have been rising very robustly and

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Speaker 1: output has not. So we've seen this big drop in productivity.

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Speaker 1: So the question is how do companies re establish stronger productivity.

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Speaker 1: That's going to require some combination of slower hiring, fewer

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Speaker 1: hours worked, raising prices for fifty years has been total

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Speaker 1: factor productivity to the rescue. Is it going to come

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Speaker 1: to the rescue? Again? Technology isn't overlay. I mean it

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Speaker 1: takes time. I mean I don't see an investment boom

430
00:24:33,160 --> 00:24:36,760
Speaker 1: out there right now. So so where is the productivity

431
00:24:36,800 --> 00:24:38,520
Speaker 1: going to come from? I just want to get under

432
00:24:38,600 --> 00:24:41,080
Speaker 1: us on a negative note, So Brandmo and daughter agree

433
00:24:41,119 --> 00:24:46,159
Speaker 1: to look, I mean, this is this is the issue,

434
00:24:46,440 --> 00:24:48,159
Speaker 1: is that a lot of people are looking at the

435
00:24:48,160 --> 00:24:51,479
Speaker 1: financial conditions into X and Neil you mentioned this, and

436
00:24:51,520 --> 00:24:55,200
Speaker 1: it's actually the least Uh, it's the least tight. It's

437
00:24:55,200 --> 00:24:57,240
Speaker 1: the weakest that it's been. It's a loosest that it's

438
00:24:57,280 --> 00:24:59,919
Speaker 1: been going back to April, and it makes no sense.

439
00:25:00,280 --> 00:25:02,159
Speaker 1: And this is in their case no and and but

440
00:25:02,240 --> 00:25:04,040
Speaker 1: Neil you alluded to this. And this is where I

441
00:25:04,040 --> 00:25:06,280
Speaker 1: think we agree. Is the Fed's gonna look at this

442
00:25:06,359 --> 00:25:09,480
Speaker 1: and say I don't think so, and they're gonna push back.

443
00:25:09,600 --> 00:25:12,159
Speaker 1: When do we get that pushback? Well, it could come

444
00:25:12,160 --> 00:25:15,080
Speaker 1: as soon as Jackson hole. Uh, it could come. At

445
00:25:15,080 --> 00:25:18,240
Speaker 1: the September of mc um you started to see it,

446
00:25:18,320 --> 00:25:22,880
Speaker 1: particularly among a lot of the regional manufact regional FED presidents, Right,

447
00:25:22,920 --> 00:25:26,359
Speaker 1: I mean, they've been saying we're not done yet. Um.

448
00:25:26,400 --> 00:25:27,840
Speaker 1: You know. Look, I mean the other thing, of course,

449
00:25:27,880 --> 00:25:31,080
Speaker 1: is that they they'll often they'll try to be hawkish,

450
00:25:31,080 --> 00:25:34,040
Speaker 1: but they sound doublish in the process. For example, Um,

451
00:25:34,080 --> 00:25:37,080
Speaker 1: you know, they'll say something like, well, it's the markets too,

452
00:25:37,160 --> 00:25:39,480
Speaker 1: it's too soon to be pricing in cuts. Well, you

453
00:25:39,480 --> 00:25:41,440
Speaker 1: shouldn't be pricing them in it all. So why even

454
00:25:41,480 --> 00:25:44,359
Speaker 1: giving the market that that sort of language. Um, you know,

455
00:25:44,480 --> 00:25:46,840
Speaker 1: I think what the Fed basically needs to say is

456
00:25:46,880 --> 00:25:49,359
Speaker 1: that we have a singular focus on bringing inflation down.

457
00:25:49,640 --> 00:25:53,560
Speaker 1: Um and uh, and we're willing to do what it

458
00:25:53,560 --> 00:25:56,320
Speaker 1: takes in order to do that. And you know there

459
00:25:56,320 --> 00:25:59,560
Speaker 1: are no cuts coming. I'm depressed. Neil, thank you so much.

460
00:25:59,680 --> 00:26:06,600
Speaker 1: You'll out of renaissance Macro. This is a joy. He

461
00:26:06,600 --> 00:26:10,720
Speaker 1: has been so busy that we've just said to Admiral Strevidiz,

462
00:26:10,760 --> 00:26:12,520
Speaker 1: will take you when we can get you, and we

463
00:26:12,600 --> 00:26:16,000
Speaker 1: are thrilled to bring you worldwide now a gentleman of

464
00:26:16,040 --> 00:26:18,840
Speaker 1: the United States Navy. And of course this on Taiwan

465
00:26:19,359 --> 00:26:21,600
Speaker 1: and China, and the backdrop of this is my book

466
00:26:21,600 --> 00:26:24,000
Speaker 1: of the Summer. I think it was a year ago,

467
00:26:24,119 --> 00:26:28,000
Speaker 1: maybe two years ago. Two thousand thirty four, a novel

468
00:26:28,080 --> 00:26:31,800
Speaker 1: of the Next World War. Elliott Ackerman and one James

469
00:26:31,880 --> 00:26:35,040
Speaker 1: Trevidis Admiral thank you so much for joining us UH

470
00:26:35,080 --> 00:26:38,399
Speaker 1: this morning. I want to talk about the beginning in

471
00:26:38,440 --> 00:26:41,720
Speaker 1: the South China Sea of your book, The ren Wry Incident,

472
00:26:42,320 --> 00:26:45,920
Speaker 1: which is fiction and has planted out in two thousand

473
00:26:46,000 --> 00:26:49,680
Speaker 1: thirty four. Are we getting to two thousand thirty four

474
00:26:49,880 --> 00:26:54,960
Speaker 1: faster than you thought we would? Kind of feels that way, Tom,

475
00:26:55,000 --> 00:26:59,880
Speaker 1: And of course the book said in that year starts

476
00:27:00,119 --> 00:27:07,560
Speaker 1: with a miscommunication, a miscalculation between navy destroyers and a

477
00:27:07,680 --> 00:27:11,480
Speaker 1: Chinese fishing vessel. And it makes this point that I

478
00:27:11,520 --> 00:27:15,760
Speaker 1: worry about. These are young people, these are young pilots,

479
00:27:15,800 --> 00:27:20,000
Speaker 1: they are relatively young ship captains. They're not deeply experienced.

480
00:27:20,000 --> 00:27:24,240
Speaker 1: It's not Tony Blinkin flying that hornet around. Um. There

481
00:27:24,359 --> 00:27:27,360
Speaker 1: is going to be that potential for miscalculation. So yes,

482
00:27:27,480 --> 00:27:30,639
Speaker 1: I worry we are closer to that kind of miscalculation.

483
00:27:30,800 --> 00:27:35,360
Speaker 1: In two thousand six, on the Ronald Reagan, a pilot

484
00:27:35,480 --> 00:27:39,800
Speaker 1: landed off of Brisbane and on the aircraft carrier struck

485
00:27:39,800 --> 00:27:43,680
Speaker 1: a ramp whatever a lot of damage. The pilot was okay.

486
00:27:44,119 --> 00:27:48,320
Speaker 1: The aircraft was lost. Things happen at sea, you're the pro.

487
00:27:49,040 --> 00:27:51,440
Speaker 1: What are the things that can happen to the Ronald

488
00:27:51,520 --> 00:27:57,879
Speaker 1: Reagan off of Taiwan that concern you? Well, certainly, the

489
00:27:57,960 --> 00:28:02,400
Speaker 1: Ronald Reagan could be targeted by Chinese long range aircraft.

490
00:28:02,560 --> 00:28:05,640
Speaker 1: They could be targeted, so it could be targeted by

491
00:28:05,240 --> 00:28:08,080
Speaker 1: a like an EXO set missile like in the Falkland

492
00:28:08,119 --> 00:28:12,919
Speaker 1: wars Um EXO Set kind of shorter range, but the

493
00:28:13,000 --> 00:28:16,320
Speaker 1: equivalent of today's version of the EXO Set absolutely And

494
00:28:16,320 --> 00:28:19,760
Speaker 1: the other they're worrying about out there are Chinese submarines.

495
00:28:19,920 --> 00:28:23,000
Speaker 1: They're not as good as our submarines, but they're quite capable.

496
00:28:23,119 --> 00:28:26,320
Speaker 1: So yeah, there's a real threat to the Reagan and

497
00:28:26,440 --> 00:28:30,320
Speaker 1: the ships that are supporting her. Thomas. Soon as we

498
00:28:30,680 --> 00:28:34,240
Speaker 1: are done here, I'm gonna go download The Animal's next book,

499
00:28:34,440 --> 00:28:37,199
Speaker 1: to Risk It All Nine Conflicts and The Crucible of Decision.

500
00:28:37,200 --> 00:28:40,240
Speaker 1: That's gonna be my beach read this weekend, the Rickover

501
00:28:40,400 --> 00:28:44,440
Speaker 1: chapters outstand. Yes, I'm looking forward to that. So, Admiral,

502
00:28:44,720 --> 00:28:46,760
Speaker 1: as we step back here with a little bit of

503
00:28:46,880 --> 00:28:49,640
Speaker 1: perspective here, over the last couple of weeks, starting with

504
00:28:50,000 --> 00:28:53,720
Speaker 1: Speaker Pelosi's trip to uh that region of the world.

505
00:28:54,160 --> 00:28:56,280
Speaker 1: What are your views, what are your takeaways? Should she

506
00:28:56,360 --> 00:28:59,560
Speaker 1: have gone, was it a good move there? And the

507
00:28:59,640 --> 00:29:05,720
Speaker 1: response by the Chinese. She first and foremost has every

508
00:29:05,840 --> 00:29:08,240
Speaker 1: right to go there, and we can't put ourselves, the

509
00:29:08,320 --> 00:29:11,840
Speaker 1: United States, in the position of allowing China to have

510
00:29:11,880 --> 00:29:15,080
Speaker 1: a veto authority over anyone trying to go to Taiwan.

511
00:29:15,200 --> 00:29:18,200
Speaker 1: I've been to Taiwan, visited with Madame, said the President.

512
00:29:18,480 --> 00:29:21,360
Speaker 1: I'm not the Speaker of the House, which brings us

513
00:29:21,400 --> 00:29:25,480
Speaker 1: to Yeah. It raised tensions considerably, and they remain at

514
00:29:25,520 --> 00:29:30,160
Speaker 1: a very elevated level, particularly because of this de facto

515
00:29:30,240 --> 00:29:33,440
Speaker 1: blockade that China has put up around the island. But

516
00:29:33,560 --> 00:29:36,960
Speaker 1: having said all that, I think tensions are going to

517
00:29:37,000 --> 00:29:40,440
Speaker 1: go down over the next couple of weeks. Look, President,

518
00:29:40,520 --> 00:29:44,080
Speaker 1: she has no interest in a big firefight out there,

519
00:29:44,120 --> 00:29:48,120
Speaker 1: an incident, a seaking, a ship. It's not where this

520
00:29:48,280 --> 00:29:50,600
Speaker 1: is headed. So look for tensions to come down into

521
00:29:50,640 --> 00:29:54,040
Speaker 1: weeks ahead. I believe my history is Nimus and Sprague

522
00:29:54,040 --> 00:29:58,120
Speaker 1: were in Hawaii and MacArthur was down in Australia and

523
00:29:58,120 --> 00:30:02,120
Speaker 1: there was a raging battle of how to approach Japan.

524
00:30:02,280 --> 00:30:05,800
Speaker 1: This is a few years back, Sir and The answer

525
00:30:05,840 --> 00:30:09,000
Speaker 1: is MacArthur one and up through the Philippines we went.

526
00:30:10,080 --> 00:30:13,680
Speaker 1: Are we deployed now in the Western Pacific? And do

527
00:30:13,760 --> 00:30:17,120
Speaker 1: we have to revisit This is before Strevid, this is

528
00:30:17,160 --> 00:30:21,880
Speaker 1: a young whipper snap after the sixties. Do we need

529
00:30:21,920 --> 00:30:25,880
Speaker 1: to revisit a base for our US Navy and the

530
00:30:25,960 --> 00:30:30,360
Speaker 1: Western Pacific? I would argue we need to protect the

531
00:30:30,360 --> 00:30:34,160
Speaker 1: bases we have, and that includes Guam. It includes uh

532
00:30:34,520 --> 00:30:40,080
Speaker 1: superb bases in Japan, notably Southern Japan, bases in South Korea.

533
00:30:40,280 --> 00:30:43,720
Speaker 1: We've expanded a bit an added basis in Northern Australia.

534
00:30:44,040 --> 00:30:46,760
Speaker 1: It would be great to get back into the Philippines.

535
00:30:47,200 --> 00:30:50,560
Speaker 1: Secretary B. Lincoln met with Marcos Jr. Two or three

536
00:30:50,640 --> 00:30:54,360
Speaker 1: days ago. Is that our first request? I think it's

537
00:30:54,520 --> 00:30:58,160
Speaker 1: on the agenda and it Autoby. I sailed many times

538
00:30:58,200 --> 00:31:02,040
Speaker 1: back in the not the sixties, Tom, thank you. As

539
00:31:02,040 --> 00:31:06,240
Speaker 1: an elementary school in the sixties, but after I graduate

540
00:31:06,360 --> 00:31:09,959
Speaker 1: Fromnnapolis in the late nineties, seventies and eighties, I went

541
00:31:10,080 --> 00:31:14,560
Speaker 1: many times to uh Subic Bay to Clark Air Force Based.

542
00:31:14,600 --> 00:31:18,480
Speaker 1: These were gorgeous, important strategic basis. It would be terrific

543
00:31:18,600 --> 00:31:21,120
Speaker 1: to get access back there. Well, all I will only

544
00:31:21,160 --> 00:31:24,520
Speaker 1: suggest as you chose to serve the nation at the

545
00:31:24,680 --> 00:31:29,760
Speaker 1: absolute bottom of morale for our military with your schooling

546
00:31:29,800 --> 00:31:33,280
Speaker 1: at the Naval Academy. James Travitez, thank you so much.

547
00:31:33,720 --> 00:31:37,480
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

548
00:31:37,600 --> 00:31:40,920
Speaker 1: us live weekdays from seven to ten am Eastern on

549
00:31:41,000 --> 00:31:45,280
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

550
00:31:45,360 --> 00:31:50,240
Speaker 1: to nine am for insight from the best in economics, finance, investment,

551
00:31:50,360 --> 00:31:55,400
Speaker 1: and international relations. And subscribe to the Surveillance podcast on

552
00:31:55,480 --> 00:31:59,280
Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

553
00:31:59,400 --> 00:32:03,440
Speaker 1: the terminal. I'm Tom keatinge In. This is Bloomer