1 00:00:00,040 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 2 00:00:13,800 --> 00:00:17,880 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:21,960 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business app. 4 00:00:22,320 --> 00:00:25,640 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:25,760 --> 00:00:27,160 Speaker 1: us live on YouTube. 6 00:00:27,640 --> 00:00:30,360 Speaker 2: James Karen joins us right now, thrilled to have him 7 00:00:30,360 --> 00:00:34,400 Speaker 2: on with Morgan Stanley of course their CIO Cross Assets solutions. 8 00:00:34,880 --> 00:00:39,000 Speaker 3: Jim Tomorrow Bloomberg Money twelve noon, and your. 9 00:00:38,920 --> 00:00:40,720 Speaker 2: Denny will be with us. Let's get right to the 10 00:00:40,800 --> 00:00:44,840 Speaker 2: yard Denny moment. Are the bond vigilantes at work? Jim Karen, 11 00:00:46,000 --> 00:00:49,760 Speaker 2: good morning. I think the bond vigilantes are at work. 12 00:00:50,320 --> 00:00:53,199 Speaker 2: You know, clearly oil prices are higher. It's dragging up 13 00:00:54,200 --> 00:00:56,320 Speaker 2: US treasure yields. But look, I mean, you know you 14 00:00:56,360 --> 00:00:59,440 Speaker 2: were mentioning it, mentioning it earlier. Dollar yen is also 15 00:00:59,520 --> 00:01:04,440 Speaker 2: up around three. Global bond yields are up, right, So 16 00:01:04,520 --> 00:01:06,679 Speaker 2: I don't think this is you know, we should frame 17 00:01:06,720 --> 00:01:09,679 Speaker 2: this story as not an exclusive US story, but this 18 00:01:09,760 --> 00:01:11,920 Speaker 2: is more of a global macro story in terms of 19 00:01:11,920 --> 00:01:15,760 Speaker 2: what's taking place. It seems like inflation, you know, is moderating, 20 00:01:15,760 --> 00:01:17,840 Speaker 2: but it's still high, and I think the I think 21 00:01:17,840 --> 00:01:20,800 Speaker 2: the takeaway here is that inflation is going to likely 22 00:01:20,920 --> 00:01:24,440 Speaker 2: stay higher for longer given what's happening in energy prices, 23 00:01:24,680 --> 00:01:27,319 Speaker 2: and that resets the entire yield curve. It shifts the 24 00:01:27,480 --> 00:01:30,120 Speaker 2: entire yeal curve a bit higher, Whereas we had a 25 00:01:30,160 --> 00:01:32,160 Speaker 2: little bit of a break, you know, over the past 26 00:01:32,160 --> 00:01:34,679 Speaker 2: couple of weeks when oil prices went down, and I 27 00:01:34,680 --> 00:01:37,360 Speaker 2: think that's just reasserting itself. And you know, with all 28 00:01:37,400 --> 00:01:39,800 Speaker 2: of the issues that we're getting from all of the corporates, 29 00:01:39,840 --> 00:01:44,199 Speaker 2: in particularly some of the technology, large technology companies, there's 30 00:01:44,240 --> 00:01:46,800 Speaker 2: a lot of weight on these bond markets, and I 31 00:01:46,800 --> 00:01:49,960 Speaker 2: think that they're acting very rationally at this point. 32 00:01:50,800 --> 00:01:54,080 Speaker 4: So, Jim, what does all that mean for our new 33 00:01:54,080 --> 00:01:57,080 Speaker 4: fit chair Kevin Warsh, How do you think he's viewing 34 00:01:57,520 --> 00:01:58,480 Speaker 4: what's going on out there? 35 00:01:59,200 --> 00:02:00,400 Speaker 3: Yeah, it's a great question. 36 00:02:00,520 --> 00:02:00,680 Speaker 2: Right. 37 00:02:00,720 --> 00:02:05,960 Speaker 5: So when we think about what is pushing inflation potentially higher, 38 00:02:06,360 --> 00:02:08,919 Speaker 5: it's a supply shock, right, It's about oil, and it's 39 00:02:08,919 --> 00:02:10,240 Speaker 5: about energy. 40 00:02:09,919 --> 00:02:11,240 Speaker 3: Prices and things like that. 41 00:02:11,360 --> 00:02:16,560 Speaker 5: Monetary policy is there to really address a demand shock, right, 42 00:02:16,600 --> 00:02:19,800 Speaker 5: So if you have high wages, you know, an overheating economy, 43 00:02:19,840 --> 00:02:22,360 Speaker 5: and you know you know, wages going up, people are 44 00:02:22,360 --> 00:02:25,520 Speaker 5: spending money, then yes, high interest rates can certainly help that. 45 00:02:25,960 --> 00:02:28,440 Speaker 5: But when you have high oil prices as one of 46 00:02:28,480 --> 00:02:32,040 Speaker 5: the culprits that's pushing inflation higher. Ultimately, what you're saying 47 00:02:32,040 --> 00:02:35,000 Speaker 5: is that higher oil prices is a headwind to the economy. 48 00:02:35,080 --> 00:02:38,160 Speaker 5: So therefore, with these higher oil prices, maybe we should 49 00:02:38,200 --> 00:02:41,360 Speaker 5: hike rates and slow the economy further. Like, it doesn't 50 00:02:41,400 --> 00:02:44,320 Speaker 5: really match up, right, This is a supply side shock. 51 00:02:44,800 --> 00:02:49,320 Speaker 5: Monetary policy is generally there for demand side shocks, So 52 00:02:49,560 --> 00:02:52,480 Speaker 5: I think it makes Warsh's job a little bit complicated. 53 00:02:52,760 --> 00:02:55,320 Speaker 5: What he's going to have to look for is are 54 00:02:55,400 --> 00:03:00,120 Speaker 5: these energy higher energy prices seeping into core inflation is 55 00:03:00,160 --> 00:03:04,520 Speaker 5: becoming heavily embedded in the overall inflation and inflation expectation. 56 00:03:04,919 --> 00:03:07,240 Speaker 5: Now we saw this recently, right, if there's something that 57 00:03:07,360 --> 00:03:10,120 Speaker 5: gets resolved in the Middle East, oil prices can come 58 00:03:10,160 --> 00:03:13,520 Speaker 5: down thirty dollars a barrel. Right, that's not the kind 59 00:03:13,680 --> 00:03:16,919 Speaker 5: of thing that the FED should necessarily think about hiking into, 60 00:03:17,040 --> 00:03:18,720 Speaker 5: at least not at this point. 61 00:03:19,200 --> 00:03:24,120 Speaker 4: So, given your world cross asset solutions, what kind of 62 00:03:24,160 --> 00:03:26,720 Speaker 4: screens well for you guys these days? How do you 63 00:03:26,720 --> 00:03:27,280 Speaker 4: think about that. 64 00:03:28,040 --> 00:03:29,760 Speaker 3: Yeah, it's so. 65 00:03:30,160 --> 00:03:31,919 Speaker 5: The way that we look at this is that we 66 00:03:31,960 --> 00:03:36,080 Speaker 5: can't just rely on bonds as like the easy hedge. 67 00:03:36,200 --> 00:03:38,080 Speaker 3: Right, it used to be just a great hedge. 68 00:03:38,120 --> 00:03:40,560 Speaker 5: Just get long bonds, don't think about it, you know, 69 00:03:40,600 --> 00:03:43,000 Speaker 5: buy the index and just hold this and be a 70 00:03:43,080 --> 00:03:46,119 Speaker 5: very passive bond investor. In this type of an environment, 71 00:03:46,120 --> 00:03:48,720 Speaker 5: what you're seeing is that bond yields are rising and 72 00:03:48,760 --> 00:03:51,840 Speaker 5: that's hurting the prices and that's hurting overall performance. So 73 00:03:51,880 --> 00:03:54,200 Speaker 5: therefore what we're seeing is that we want to be 74 00:03:54,400 --> 00:04:00,280 Speaker 5: underweight interest rate risk, So underweight bonds, underweight duration will. 75 00:04:00,200 --> 00:04:01,320 Speaker 3: Own some high quality. 76 00:04:01,600 --> 00:04:04,720 Speaker 5: But on the equity side, the areas that we think 77 00:04:04,840 --> 00:04:07,840 Speaker 5: actually make a lot of sense are the quality sectors. 78 00:04:07,920 --> 00:04:10,960 Speaker 5: Some of the value sectors values unperformed, you know, growth 79 00:04:11,000 --> 00:04:12,960 Speaker 5: by about ten percent this year. It's not all about 80 00:04:12,960 --> 00:04:16,520 Speaker 5: the hyperscalers anymore. It's about the broader economy, healthcare. We 81 00:04:16,560 --> 00:04:19,640 Speaker 5: really like the healthcare sector, and actually the consumer. The 82 00:04:19,640 --> 00:04:23,120 Speaker 5: consumer is actually holding up pretty well with all of this. 83 00:04:23,360 --> 00:04:25,480 Speaker 5: So there are a lot of things to think about, 84 00:04:25,520 --> 00:04:27,080 Speaker 5: but we have to broaden our lens. 85 00:04:27,240 --> 00:04:30,400 Speaker 2: I love the idea of supply side analysis versus demand 86 00:04:30,560 --> 00:04:33,120 Speaker 2: side and that we can all walk away and say, oh, 87 00:04:33,120 --> 00:04:37,360 Speaker 2: it's just idiosyncratic of the war or whatever. There's a point, 88 00:04:37,440 --> 00:04:40,480 Speaker 2: there's a tip point on yield, Jim Carron, where price 89 00:04:40,560 --> 00:04:44,719 Speaker 2: goes down and things change on a ten year yield. 90 00:04:44,760 --> 00:04:48,000 Speaker 2: Do you have in your head a critical yield point 91 00:04:48,320 --> 00:04:49,960 Speaker 2: off of where are we right now? My eyes are 92 00:04:49,960 --> 00:04:53,680 Speaker 2: feeling me four point six y nine wow percent? Do 93 00:04:53,760 --> 00:04:56,920 Speaker 2: you have a number in your head? So? 94 00:04:57,080 --> 00:04:59,960 Speaker 3: I do, And I'll first say that it's a moving target. 95 00:05:00,080 --> 00:05:00,240 Speaker 6: Right. 96 00:05:00,320 --> 00:05:03,080 Speaker 5: So if we if we were having this conversation six 97 00:05:03,120 --> 00:05:05,960 Speaker 5: months ago, I'd say that this level would. 98 00:05:05,760 --> 00:05:08,320 Speaker 3: Be a you know, a tipping point. 99 00:05:08,560 --> 00:05:11,200 Speaker 5: But what we realize is that the economy has grown, 100 00:05:11,320 --> 00:05:14,800 Speaker 5: earnings have been very strong, we have higher nominal growth. 101 00:05:14,800 --> 00:05:17,279 Speaker 5: We're living in a higher nominal world these days. 102 00:05:17,360 --> 00:05:17,480 Speaker 2: Right. 103 00:05:17,560 --> 00:05:20,240 Speaker 5: Nominal GDP growth is about six percent right now, which 104 00:05:20,279 --> 00:05:23,520 Speaker 5: is pretty good. So that tipping point for ten year 105 00:05:23,560 --> 00:05:26,480 Speaker 5: treasury yields that turns things, you know, much more poorly. 106 00:05:27,080 --> 00:05:29,360 Speaker 5: I you know, right now, my estimate would be around 107 00:05:29,360 --> 00:05:33,760 Speaker 5: four point eighty five percent. So we're we're close, but 108 00:05:33,839 --> 00:05:36,360 Speaker 5: we're not there yet, Jim. 109 00:05:36,839 --> 00:05:39,200 Speaker 4: I would argue, from my perspective, no one's got a 110 00:05:39,240 --> 00:05:42,760 Speaker 4: better tech call than the greater Morgan Stanley complex. Here 111 00:05:43,080 --> 00:05:45,559 Speaker 4: we saw one of the leaders last night, Alphabet reports 112 00:05:45,560 --> 00:05:48,360 Speaker 4: some numbers and they took their CAPEX numbers higher as 113 00:05:48,400 --> 00:05:50,719 Speaker 4: which the AI and it stops trading down five percent 114 00:05:50,760 --> 00:05:54,200 Speaker 4: this morning. What do you guys think is the market's 115 00:05:54,760 --> 00:05:56,080 Speaker 4: AI call these days? 116 00:05:57,160 --> 00:05:57,400 Speaker 3: Yeah? 117 00:05:57,480 --> 00:06:00,200 Speaker 5: So, so what the market's getting very concerned about out 118 00:06:00,440 --> 00:06:03,719 Speaker 5: is all of us spend, all of us CAPPEC spend. 119 00:06:03,800 --> 00:06:06,640 Speaker 5: Will it turn into a return on investment in our 120 00:06:06,760 --> 00:06:09,960 Speaker 5: OI as we like to say, And that's not and 121 00:06:10,000 --> 00:06:12,480 Speaker 5: that's not abundantly clear that you just if you throw 122 00:06:12,600 --> 00:06:15,480 Speaker 5: more money that you get a better return, you know, 123 00:06:15,920 --> 00:06:19,719 Speaker 5: in an investment. And the read through on this whole 124 00:06:19,760 --> 00:06:23,280 Speaker 5: thing is does this come to a does this come 125 00:06:23,320 --> 00:06:25,599 Speaker 5: to a batman? In other words, in order to have 126 00:06:25,640 --> 00:06:28,359 Speaker 5: the capax, you might have to issue more bonds. Therefore 127 00:06:28,400 --> 00:06:30,760 Speaker 5: you become you know, more indebted as a company if 128 00:06:31,200 --> 00:06:33,480 Speaker 5: you're leveraging your balance sheet in order to do that. 129 00:06:33,880 --> 00:06:37,120 Speaker 5: And then if you don't get the overall return on investment, 130 00:06:37,520 --> 00:06:41,200 Speaker 5: then you major repricing in the equity markets. And that's 131 00:06:41,240 --> 00:06:43,960 Speaker 5: the crescendo that people are worried about right now. We're 132 00:06:43,960 --> 00:06:47,240 Speaker 5: not there yet, but that would be This would be 133 00:06:47,240 --> 00:06:47,679 Speaker 5: the sign. 134 00:06:48,240 --> 00:06:50,479 Speaker 2: Jim Karen, thank you so much. Just a terrific brief 135 00:06:50,520 --> 00:06:56,000 Speaker 2: this morning, against with forever Morgan Stanley. Stay with us. 136 00:06:56,279 --> 00:06:59,520 Speaker 2: More from Bloomberg Surveillance coming up after this. 137 00:07:06,760 --> 00:07:10,320 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 138 00:07:10,400 --> 00:07:13,560 Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on 139 00:07:13,640 --> 00:07:17,280 Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or 140 00:07:17,440 --> 00:07:18,960 Speaker 1: watch us live on YouTube. 141 00:07:19,320 --> 00:07:22,720 Speaker 2: Matt Bloxham with this down Senior analyst Bloomberg Intelligence Paul. 142 00:07:22,800 --> 00:07:24,720 Speaker 2: For those of you on radio, you just can't see it. 143 00:07:25,080 --> 00:07:27,480 Speaker 2: I mean he is such a stud, Paul, and he 144 00:07:27,600 --> 00:07:28,680 Speaker 2: looks like you could be in. 145 00:07:28,640 --> 00:07:30,280 Speaker 3: The Burnham cabinet exactly. 146 00:07:30,640 --> 00:07:34,000 Speaker 2: I mean he just looks like you know, ten downing stream. 147 00:07:34,200 --> 00:07:37,720 Speaker 2: We'll call we need Matt Bloxham to do technology. Man, 148 00:07:37,760 --> 00:07:41,119 Speaker 2: I'm gonna cut to the ad ludload Chase I read 149 00:07:41,160 --> 00:07:48,320 Speaker 2: about Robotaxi. It's it just I'm not taking Tesla's Robotaxi 150 00:07:48,640 --> 00:07:53,000 Speaker 2: from Heathrow to the hotel across from Queen Victoria Street, 151 00:07:53,080 --> 00:07:54,400 Speaker 2: am I no. 152 00:07:54,920 --> 00:07:56,720 Speaker 7: If you are saying not for a long time, unt see, 153 00:07:56,720 --> 00:08:00,240 Speaker 7: we got quite a lot of way, my test thing 154 00:08:00,320 --> 00:08:02,160 Speaker 7: going on in the city. So you do you see 155 00:08:02,240 --> 00:08:04,360 Speaker 7: quite a few more of those cars around, but with 156 00:08:04,440 --> 00:08:07,880 Speaker 7: people in them making sure that they they drive safely. 157 00:08:07,960 --> 00:08:11,480 Speaker 7: But I think it's it's quite a cultural shift for 158 00:08:11,520 --> 00:08:13,560 Speaker 7: a lot of people. I think this kind of concept 159 00:08:13,640 --> 00:08:16,000 Speaker 7: of driverless taxes. 160 00:08:15,960 --> 00:08:17,880 Speaker 3: Is it runny proof of concept. 161 00:08:19,160 --> 00:08:21,840 Speaker 7: I mean, there's obviously, you know, some some good results 162 00:08:21,880 --> 00:08:28,080 Speaker 7: in the US with with WEIMO. I think in Europe nothing, 163 00:08:28,320 --> 00:08:31,640 Speaker 7: nothing really yet. And I think again, culturally we're quite 164 00:08:31,640 --> 00:08:33,600 Speaker 7: different over here, so I think that there's a long 165 00:08:33,640 --> 00:08:36,520 Speaker 7: way to go before there's kind of wide scale acceptance. Obviously, 166 00:08:36,520 --> 00:08:39,240 Speaker 7: you know, I think even even if you saw an 167 00:08:39,240 --> 00:08:42,360 Speaker 7: initial kind of positive reaction to it, I think that 168 00:08:42,400 --> 00:08:45,479 Speaker 7: would probably be put down as a kind of curiosity value, 169 00:08:45,600 --> 00:08:47,520 Speaker 7: and you'd have to see the kind of longer term 170 00:08:47,559 --> 00:08:49,760 Speaker 7: trend just kind of see people really moving it. I 171 00:08:49,800 --> 00:08:52,040 Speaker 7: don't see it personally. It's a kind of a big 172 00:08:52,080 --> 00:08:54,760 Speaker 7: thing for quite some years to come. 173 00:08:55,040 --> 00:08:57,319 Speaker 4: Matthew, you might be surprised because we know each other, 174 00:08:57,360 --> 00:09:01,160 Speaker 4: but I actually took a weimom in Santa There, California, 175 00:09:01,440 --> 00:09:04,480 Speaker 4: to an in and out Burger and back and I survived. 176 00:09:04,559 --> 00:09:06,319 Speaker 4: So I mean it's coming, my friend. 177 00:09:06,840 --> 00:09:10,000 Speaker 7: Yeah, it's definitely coming exactly, Matthew. 178 00:09:10,000 --> 00:09:13,640 Speaker 4: You know, we heard from Google last night some people 179 00:09:13,679 --> 00:09:15,440 Speaker 4: called alphabet. I'm not sure where that came from. But 180 00:09:17,040 --> 00:09:20,240 Speaker 4: there was a time when higher kapex was rewarded by 181 00:09:20,480 --> 00:09:23,520 Speaker 4: the stock market. I'm not sure that's the case anymore. 182 00:09:23,679 --> 00:09:26,840 Speaker 4: When you talk to institutional investor clients, how are they 183 00:09:26,840 --> 00:09:29,600 Speaker 4: thinking about AI these days? Do they want to see 184 00:09:29,640 --> 00:09:32,200 Speaker 4: more investment or did they want to see return? Where 185 00:09:32,240 --> 00:09:33,200 Speaker 4: are we in that discussion? 186 00:09:34,320 --> 00:09:37,520 Speaker 7: I think they want to see more data about the return, 187 00:09:38,280 --> 00:09:42,080 Speaker 7: you know. I think conceptually people get that you need 188 00:09:42,120 --> 00:09:45,400 Speaker 7: to spend to generate revenue, but I don't think they're 189 00:09:45,440 --> 00:09:48,360 Speaker 7: quite yet seeing enough of revenue being generations off the 190 00:09:48,400 --> 00:09:52,200 Speaker 7: spend that's happening. And I think, if anything, that the 191 00:09:52,320 --> 00:09:57,760 Speaker 7: Google capex upgrade today relative to the revenue growth is 192 00:09:57,840 --> 00:10:00,600 Speaker 7: not that you know that there's a widening day connect there. 193 00:10:00,640 --> 00:10:02,560 Speaker 7: And I think one of the numbers people were looking 194 00:10:02,640 --> 00:10:06,120 Speaker 7: at quite closely was the order pipeline, and that grew 195 00:10:06,160 --> 00:10:08,880 Speaker 7: a bit, but it didn't grow spectacularly. So I think 196 00:10:08,960 --> 00:10:12,200 Speaker 7: there's more needed to show that there's a direct link 197 00:10:12,240 --> 00:10:14,880 Speaker 7: between increased spending and capital and revenue. 198 00:10:15,000 --> 00:10:17,920 Speaker 2: When you look at all this madness, there's got to 199 00:10:17,960 --> 00:10:18,719 Speaker 2: be losers. 200 00:10:18,960 --> 00:10:23,080 Speaker 3: What's the when of when we work out the losers? 201 00:10:23,120 --> 00:10:26,280 Speaker 2: I think the railroads of the American Railroads, Matt coming 202 00:10:26,320 --> 00:10:29,400 Speaker 2: out of eighteen eighty eighteen ninety, it took little forty 203 00:10:29,480 --> 00:10:31,440 Speaker 2: years to get rid of them. Are we going to 204 00:10:31,440 --> 00:10:34,000 Speaker 2: weed out the tech losers? Doug cast calls at the 205 00:10:34,080 --> 00:10:37,880 Speaker 2: stack they're investing in all this stuff? Okay, fine, are 206 00:10:37,920 --> 00:10:42,520 Speaker 2: we going to do this in two years or twenty years? 207 00:10:43,400 --> 00:10:45,720 Speaker 7: I think it's more like the two year time frame, 208 00:10:46,400 --> 00:10:50,160 Speaker 7: to be honest, you know, I think the next twelve 209 00:10:50,240 --> 00:10:53,320 Speaker 7: to eighteen months is a really important part of the 210 00:10:53,360 --> 00:10:59,000 Speaker 7: cycle for enterprise spending on AI and more scrutiny about 211 00:10:59,080 --> 00:11:01,440 Speaker 7: where it makes sense where it doesn't. You know, we 212 00:11:01,480 --> 00:11:04,360 Speaker 7: see lots and lots of anecdotal evidence coming out about 213 00:11:04,760 --> 00:11:09,840 Speaker 7: companies burning through their token budgets and raining in where 214 00:11:09,880 --> 00:11:13,520 Speaker 7: they're guiding people to use AI in their businesses, and 215 00:11:13,559 --> 00:11:15,880 Speaker 7: they're going to be the CFOs are going to be 216 00:11:15,880 --> 00:11:19,480 Speaker 7: pushing people to kind of really demonstrate those savings and 217 00:11:19,520 --> 00:11:22,880 Speaker 7: those benefits much more clearly. And so if that makes 218 00:11:22,920 --> 00:11:25,559 Speaker 7: things a bit more kind of just kind of discerning 219 00:11:25,559 --> 00:11:28,360 Speaker 7: about where where they use AI. Then we potentially in 220 00:11:28,360 --> 00:11:30,600 Speaker 7: a position where we have over capacity. It will go 221 00:11:30,720 --> 00:11:34,800 Speaker 7: from undercapacity to overcapacity quite quickly. And that's where all 222 00:11:34,840 --> 00:11:38,160 Speaker 7: these kind of potential big investments we're seeing in chip 223 00:11:38,200 --> 00:11:41,120 Speaker 7: capacity and dacent capacity start to kind of maybe look 224 00:11:41,160 --> 00:11:44,440 Speaker 7: a little bit misjudged. 225 00:11:45,160 --> 00:11:48,640 Speaker 4: We saw, you know, a real bombshot from IBM Matthew 226 00:11:48,679 --> 00:11:50,599 Speaker 4: a couple of weeks ago when they pronounced their numbers in 227 00:11:50,640 --> 00:11:53,679 Speaker 4: the stockfeld the most ever in the history of IBM. 228 00:11:54,040 --> 00:11:56,959 Speaker 4: I think that opened eyes for a lot of investors, like, oh, 229 00:11:57,000 --> 00:12:00,960 Speaker 4: this capex you know, funnel is not like there's. 230 00:12:00,800 --> 00:12:01,480 Speaker 3: Limits to it. 231 00:12:01,559 --> 00:12:04,560 Speaker 4: I mean, so, how do you think about tech spending overall, 232 00:12:04,600 --> 00:12:07,160 Speaker 4: because it's it doesn't seem like all this AI stuff 233 00:12:07,200 --> 00:12:09,520 Speaker 4: is incremental. It may be coming from some. 234 00:12:09,400 --> 00:12:10,920 Speaker 3: Other areas of the tech stack. 235 00:12:10,920 --> 00:12:11,640 Speaker 4: How do you think about that? 236 00:12:12,600 --> 00:12:15,120 Speaker 7: Yeah, that's right, and I think you to a large 237 00:12:15,160 --> 00:12:18,240 Speaker 7: degree see that in the IT services space. So if 238 00:12:18,280 --> 00:12:22,040 Speaker 7: you look at the recent from Accenture and Vist other 239 00:12:22,120 --> 00:12:25,800 Speaker 7: art services companies, they're still seeing incredibly muted demand for 240 00:12:25,880 --> 00:12:28,600 Speaker 7: traditional IT services. So there's a clear evidence I think 241 00:12:29,520 --> 00:12:33,480 Speaker 7: that spending is being shifted to AI away from what 242 00:12:33,520 --> 00:12:38,160 Speaker 7: has seen perhaps now deprioritized technology transformation projects. And I 243 00:12:38,160 --> 00:12:40,320 Speaker 7: think that's what we've seen play out with IBM two, 244 00:12:40,400 --> 00:12:44,240 Speaker 7: is that, Yeah, you know, their mainframe business, which historically 245 00:12:44,280 --> 00:12:46,560 Speaker 7: had been growing quite well, certainly hit a bit of 246 00:12:46,559 --> 00:12:50,800 Speaker 7: a brick ball because budgets are not limitless, and companies 247 00:12:50,840 --> 00:12:53,160 Speaker 7: are realizing that they need to kind of prioritize things 248 00:12:53,160 --> 00:12:55,000 Speaker 7: and there are the more important parts of the AI 249 00:12:55,080 --> 00:12:56,559 Speaker 7: stack they have to spend money on. 250 00:12:56,920 --> 00:12:59,640 Speaker 2: Which company forward are you most focused on? After seeing 251 00:12:59,679 --> 00:13:00,679 Speaker 2: Google yesterday? 252 00:13:03,480 --> 00:13:06,160 Speaker 7: Yeah, I think we're kind of very much looking at 253 00:13:06,200 --> 00:13:08,719 Speaker 7: the Meta results and the Amazon results because I think 254 00:13:08,760 --> 00:13:12,440 Speaker 7: it's do they Googles kind of raised them essentially in 255 00:13:12,520 --> 00:13:15,520 Speaker 7: terms of Capex and do they kind of match that 256 00:13:15,600 --> 00:13:18,520 Speaker 7: Kapex grace and you know, then we get into another 257 00:13:18,600 --> 00:13:21,120 Speaker 7: Capex cycling. I think that stretches things even more. 258 00:13:21,400 --> 00:13:23,240 Speaker 2: Matt, Thank you, thank you, thank you so much. Matt 259 00:13:23,280 --> 00:13:28,120 Speaker 2: Bloxham with us from Queen Victorious greet Stay with us. 260 00:13:28,360 --> 00:13:31,600 Speaker 2: More from Bloomberg Surveillance coming up after this. 261 00:13:38,840 --> 00:13:42,400 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 262 00:13:42,480 --> 00:13:45,640 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 263 00:13:45,720 --> 00:13:49,400 Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or 264 00:13:49,559 --> 00:13:51,040 Speaker 1: watch US live on YouTube. 265 00:13:51,400 --> 00:13:54,920 Speaker 2: Joining US now from HSBC Dearren may Or, their senior 266 00:13:55,040 --> 00:13:58,960 Speaker 2: FX strategist. I need to explain that the heritage of 267 00:13:59,200 --> 00:14:04,040 Speaker 2: HSBC in looking at the dynamics of the global markets 268 00:14:04,080 --> 00:14:07,360 Speaker 2: a second to none. What is a distinction you're writing 269 00:14:07,400 --> 00:14:11,240 Speaker 2: about right now? Are you linking in commodities? Are you 270 00:14:11,320 --> 00:14:14,800 Speaker 2: linking into Spain one? The World Cup? What's the distinctive 271 00:14:14,840 --> 00:14:15,800 Speaker 2: feature right now? 272 00:14:16,240 --> 00:14:19,320 Speaker 8: Yeah? Strange we haven't managed to weave that last one 273 00:14:19,320 --> 00:14:22,160 Speaker 8: in good to be back by the way. I think 274 00:14:22,200 --> 00:14:24,200 Speaker 8: one of the distinctions I quite like at the moment 275 00:14:24,760 --> 00:14:27,280 Speaker 8: is between a good interest rate hike and a bad 276 00:14:27,280 --> 00:14:30,920 Speaker 8: interest rate hike. And you know, at the moment we've 277 00:14:30,920 --> 00:14:33,880 Speaker 8: got renewed escalation and oil prices, right, so everybody's getting 278 00:14:33,920 --> 00:14:37,560 Speaker 8: more hawkish about ECB banking and the FED. Normally, for 279 00:14:37,600 --> 00:14:40,920 Speaker 8: currency markets that's a wash, right because your rate differentials 280 00:14:41,160 --> 00:14:44,400 Speaker 8: don't move. That's the currency angle. But I think a 281 00:14:44,440 --> 00:14:47,320 Speaker 8: lot in terms of how the currency market should react 282 00:14:47,320 --> 00:14:50,120 Speaker 8: to that will be determined by how activity is going 283 00:14:50,160 --> 00:14:53,040 Speaker 8: into the hike, right, So you have a FED where 284 00:14:53,080 --> 00:14:56,400 Speaker 8: activity is relatively resilient, the labor market's resilient, you hike 285 00:14:56,480 --> 00:15:00,600 Speaker 8: into that. I think it's unambiguously dollar positive. The ECB, 286 00:15:00,760 --> 00:15:03,160 Speaker 8: the Bank of England, where you've got question marks over 287 00:15:03,240 --> 00:15:05,880 Speaker 8: activity and growth and they're kind of forced into a 288 00:15:05,960 --> 00:15:09,560 Speaker 8: hike because inflation's misbehaving. That for me is at best 289 00:15:09,600 --> 00:15:12,880 Speaker 8: ambiguous for the currency, but potentially a negative for the currency. 290 00:15:12,880 --> 00:15:15,600 Speaker 8: So I think in the narrative about you know, hawkysh 291 00:15:15,680 --> 00:15:18,040 Speaker 8: drifts or whatever it might be, that I think could 292 00:15:18,040 --> 00:15:20,200 Speaker 8: be a currency takeaway to us, the places is a 293 00:15:20,720 --> 00:15:21,680 Speaker 8: dollar bullish angle. 294 00:15:22,240 --> 00:15:24,200 Speaker 4: So I mean we kind of came into the year 295 00:15:25,200 --> 00:15:27,720 Speaker 4: dubbish on the US dollar. I think the market was 296 00:15:27,800 --> 00:15:30,160 Speaker 4: generally that was kind of the consensus. And then of 297 00:15:30,160 --> 00:15:32,680 Speaker 4: course the war with the RN came about and that 298 00:15:32,800 --> 00:15:36,040 Speaker 4: changed the narrative a little bit. Sure going forward, is 299 00:15:36,080 --> 00:15:38,040 Speaker 4: there still room for this dollar to be stronger here? 300 00:15:38,560 --> 00:15:38,840 Speaker 6: I think? 301 00:15:38,880 --> 00:15:40,880 Speaker 8: So, I mean, to be fair, we did a pivot. 302 00:15:41,600 --> 00:15:43,560 Speaker 8: You know, we came into this year. I would say 303 00:15:43,560 --> 00:15:46,560 Speaker 8: we were modus dollar bears and now were modest dollar 304 00:15:46,600 --> 00:15:50,680 Speaker 8: bill so we're lowercase both sides of the equation. I think, 305 00:15:51,200 --> 00:15:53,520 Speaker 8: you know, the US around war did one thing. It 306 00:15:54,000 --> 00:15:56,520 Speaker 8: knocked on the head the idea of de dollarization as 307 00:15:56,520 --> 00:15:59,600 Speaker 8: a theme, right, because everyone scrambled for their shiny dollars 308 00:15:59,640 --> 00:16:04,000 Speaker 8: when geopolitical risk was escalating, at least initially. I think 309 00:16:04,200 --> 00:16:07,000 Speaker 8: a second element that's changed is I think the market's 310 00:16:07,040 --> 00:16:09,600 Speaker 8: more confident about the independence of the FED. And this 311 00:16:10,000 --> 00:16:13,640 Speaker 8: was a narrative in twenty five, right, President Trump Bashingham. 312 00:16:14,000 --> 00:16:15,680 Speaker 8: But I think you know the perception that would be 313 00:16:15,720 --> 00:16:18,720 Speaker 8: the fedst firm under pale and washes come in and 314 00:16:18,760 --> 00:16:21,200 Speaker 8: if you like, not set anything dumb. So that's a 315 00:16:21,240 --> 00:16:23,880 Speaker 8: win as well for the market. So I think those 316 00:16:23,880 --> 00:16:26,160 Speaker 8: were two big game changing events and I think that 317 00:16:26,320 --> 00:16:30,120 Speaker 8: correctly appropriately kind of caused this pivot in market kind 318 00:16:30,160 --> 00:16:31,000 Speaker 8: of sentiment. 319 00:16:30,760 --> 00:16:34,000 Speaker 2: Hong Kong and Shanghai Banking Corporation. If I look at 320 00:16:34,000 --> 00:16:35,120 Speaker 2: the Bloomberg. 321 00:16:35,080 --> 00:16:37,160 Speaker 3: Global Global Global. 322 00:16:37,240 --> 00:16:41,400 Speaker 2: Total Return bond indext, I've got a great moderation and 323 00:16:41,600 --> 00:16:45,600 Speaker 2: even with the recovery from twenty twenty two, global bonds 324 00:16:45,600 --> 00:16:49,560 Speaker 2: are screaming four standard deviations off the old trend. 325 00:16:49,840 --> 00:16:52,000 Speaker 9: We got a long way to go to get back. 326 00:16:52,640 --> 00:16:56,320 Speaker 9: And it's rolled over and it's an ugly chart. What 327 00:16:56,400 --> 00:17:00,800 Speaker 9: are the ramifications if oats, guilts and the rest of 328 00:17:00,840 --> 00:17:04,600 Speaker 9: it breakthrough, I think a five point five zero thirty 329 00:17:04,720 --> 00:17:05,640 Speaker 9: year US ban. 330 00:17:06,800 --> 00:17:08,720 Speaker 8: So I blame Liz Trust for this. Do you remember 331 00:17:08,720 --> 00:17:13,600 Speaker 8: her back in the day, Prime Minister Trust the letters? Right, Okay, 332 00:17:13,880 --> 00:17:16,800 Speaker 8: Sir King's next up. Up until that point, I would 333 00:17:16,840 --> 00:17:19,760 Speaker 8: have said fiscal policy anywhere, at least in G ten 334 00:17:19,880 --> 00:17:21,840 Speaker 8: was kind of an irrelevance for the currency market. 335 00:17:21,920 --> 00:17:22,080 Speaker 2: Right. 336 00:17:22,119 --> 00:17:24,480 Speaker 8: We talked about twin deficits in the US, but I'm 337 00:17:24,520 --> 00:17:26,800 Speaker 8: fifty five years old. We've had twin deficits every year 338 00:17:26,800 --> 00:17:30,360 Speaker 8: i've been on this planet. Right, So, but what Liz 339 00:17:30,400 --> 00:17:33,040 Speaker 8: Trust did and Quasi Quarteng is they managed to get 340 00:17:33,080 --> 00:17:35,600 Speaker 8: currencies in G ten sensitive to fiscal risks. And now 341 00:17:35,640 --> 00:17:38,359 Speaker 8: he's seen it with Japanese fiscal risk. We've seen it 342 00:17:38,400 --> 00:17:41,879 Speaker 8: still obviously with Sterling. And I think Tom's good to 343 00:17:41,880 --> 00:17:45,440 Speaker 8: bring up the oats, you know, do French politics become 344 00:17:45,480 --> 00:17:49,359 Speaker 8: a new driver for well, the bomb market obviously, but 345 00:17:49,440 --> 00:17:52,480 Speaker 8: by extension for the euro. So it's something we're addressing. 346 00:17:53,080 --> 00:17:56,679 Speaker 8: What I think is interesting from a relative perspective is 347 00:17:57,040 --> 00:17:59,800 Speaker 8: the US fiscal discussion seems to have drifted off the 348 00:18:00,320 --> 00:18:03,000 Speaker 8: right since the one Big Beautiful Bill and the big 349 00:18:03,000 --> 00:18:06,119 Speaker 8: beautiful actors and I just drifted off. 350 00:18:06,080 --> 00:18:08,760 Speaker 2: From where I am. We are addicted to a COVID 351 00:18:09,160 --> 00:18:12,159 Speaker 2: in a post COVID stimulus. That's all there is to it. 352 00:18:12,480 --> 00:18:14,600 Speaker 2: Nominal GDPs worldwide. 353 00:18:15,040 --> 00:18:17,159 Speaker 3: They're nuts, they are. 354 00:18:17,240 --> 00:18:18,959 Speaker 8: But I think what we're also dicted to do is spending 355 00:18:18,960 --> 00:18:22,240 Speaker 8: more than we earn. I mean, on a human level, 356 00:18:26,520 --> 00:18:29,280 Speaker 8: this is the problem, right, And you know, everyone accepts 357 00:18:29,280 --> 00:18:32,479 Speaker 8: it is unsustainable, but everyone seems willing to support it. 358 00:18:32,840 --> 00:18:35,680 Speaker 8: But it's getting more and more expensive now. I think 359 00:18:36,240 --> 00:18:38,480 Speaker 8: where's the currency overlay? I'm not sure it's the direct 360 00:18:38,520 --> 00:18:41,719 Speaker 8: currency takeaway unless something's unraveling, you know, unless we have 361 00:18:42,280 --> 00:18:45,520 Speaker 8: true nervousness about Japan, about the UK, France, et cetera. 362 00:18:45,600 --> 00:18:47,000 Speaker 8: And that's not quite manifest here. 363 00:18:47,040 --> 00:18:48,399 Speaker 3: Well, how much you mentioned Japan here? 364 00:18:48,440 --> 00:18:50,040 Speaker 4: I mean, we got the yen at one sixty three 365 00:18:50,040 --> 00:18:52,720 Speaker 4: and change weaker again today. I mean, what does the 366 00:18:52,760 --> 00:18:53,520 Speaker 4: boj do here? 367 00:18:53,560 --> 00:18:54,240 Speaker 3: What are they thinking? 368 00:18:54,640 --> 00:18:56,879 Speaker 8: I don't know. I call this the Wayne Scales effect 369 00:18:57,160 --> 00:18:59,920 Speaker 8: because I get on the Wayne Scales every morning and am. 370 00:19:00,040 --> 00:19:02,000 Speaker 8: But that looked out rageous two weeks ago, so it 371 00:19:02,040 --> 00:19:04,480 Speaker 8: doesn't look quite as outrageous when I step on this morning. 372 00:19:05,080 --> 00:19:08,280 Speaker 8: And you know, yeah, at one sixty three. It's like, okay, 373 00:19:08,320 --> 00:19:08,600 Speaker 8: but it was. 374 00:19:08,800 --> 00:19:12,000 Speaker 2: You know, I get so many emails in a fin 375 00:19:12,160 --> 00:19:13,840 Speaker 2: they say, Dara's doing more crypto. 376 00:19:13,960 --> 00:19:19,280 Speaker 8: Now, yeah, explain, explain why or explain crypto because the 377 00:19:19,359 --> 00:19:20,840 Speaker 8: second one's going to take it a lot longer. 378 00:19:21,480 --> 00:19:23,680 Speaker 2: Are you are? You have you like shifted over from 379 00:19:23,760 --> 00:19:24,600 Speaker 2: FX to crypto. 380 00:19:24,680 --> 00:19:26,480 Speaker 8: I'm doing that great task. You know they call it 381 00:19:26,520 --> 00:19:28,320 Speaker 8: double heading where you do two jobs at the price 382 00:19:28,359 --> 00:19:30,480 Speaker 8: of one. Yeah, I'm sure you do it here. 383 00:19:31,040 --> 00:19:36,000 Speaker 2: You know we don't as please no, but Derek crypto 384 00:19:36,200 --> 00:19:39,560 Speaker 2: one twenty to sixty one, bit dog, what's the future? 385 00:19:40,040 --> 00:19:42,960 Speaker 8: Fortunately, my my obligations around crypto don't extend to the 386 00:19:43,040 --> 00:19:46,879 Speaker 8: nonsense of forecasting tokens quite yet. Where my conversations focused 387 00:19:46,960 --> 00:19:50,439 Speaker 8: is token ized currencies, you know, stable coins, these elements 388 00:19:50,520 --> 00:19:54,119 Speaker 8: the banks moving was I think a spectActor of technology. 389 00:19:54,160 --> 00:19:56,439 Speaker 8: I definitely think this is the future of kind of 390 00:19:56,440 --> 00:19:57,480 Speaker 8: financial market. 391 00:19:57,440 --> 00:19:58,520 Speaker 3: Infrastructure in the future. 392 00:19:58,800 --> 00:20:01,200 Speaker 8: The future will be We're all going to tokenized assets. 393 00:20:01,200 --> 00:20:03,439 Speaker 8: We're going to be trading it with tokenized money, whatever 394 00:20:03,600 --> 00:20:06,040 Speaker 8: shape or form that money is, and we're going to 395 00:20:06,080 --> 00:20:07,560 Speaker 8: have faster settlement. 396 00:20:07,240 --> 00:20:09,879 Speaker 2: Operation games, faster settlement because. 397 00:20:09,600 --> 00:20:11,880 Speaker 8: People love speed. I mean, you know it's it's been 398 00:20:11,920 --> 00:20:14,360 Speaker 8: like that saying no good stories started with a salad. Right, 399 00:20:15,520 --> 00:20:19,639 Speaker 8: markets look for efficiency gains, and this technology does provide that. 400 00:20:19,680 --> 00:20:22,480 Speaker 8: I'm not necessarily an evangelist for bitcoin or other specific 401 00:20:22,520 --> 00:20:26,200 Speaker 8: token to but as a as a plumbing gig, it's 402 00:20:26,520 --> 00:20:28,320 Speaker 8: twenty four You might say, what do we want twenty 403 00:20:28,320 --> 00:20:30,600 Speaker 8: four seven trading? Because you like, we want to play 404 00:20:30,600 --> 00:20:33,760 Speaker 8: golf for the weekend, But the reality is people want 405 00:20:33,760 --> 00:20:36,560 Speaker 8: to be able to move money flexibly twenty four to 406 00:20:36,560 --> 00:20:40,320 Speaker 8: seven and if you can reduce settlement risk another aspects 407 00:20:40,400 --> 00:20:41,000 Speaker 8: for seven. 408 00:20:40,920 --> 00:20:43,199 Speaker 2: Argument, do you need Paul help being heer? Do we 409 00:20:43,240 --> 00:20:46,920 Speaker 2: need a first mover status? Like does JP more gonna 410 00:20:46,920 --> 00:20:47,520 Speaker 2: have to step in? 411 00:20:48,760 --> 00:20:51,080 Speaker 8: Let me give you an example. We should a tokenized 412 00:20:51,119 --> 00:20:54,480 Speaker 8: bond in Hong Kong. Right for the HKMA. You settle 413 00:20:54,560 --> 00:20:58,479 Speaker 8: T plus five tokenize format settles T plus one right 414 00:20:58,960 --> 00:21:01,240 Speaker 8: us right, And that's and it could it could have 415 00:21:01,240 --> 00:21:03,440 Speaker 8: been the same day, but no one wants bonds to 416 00:21:03,480 --> 00:21:06,320 Speaker 8: settle same day because everyone has to prefund. Okay, so 417 00:21:06,480 --> 00:21:09,160 Speaker 8: the technology allows for that. It means you don't tie 418 00:21:09,240 --> 00:21:11,159 Speaker 8: up capital waiting for things to settle. You don't have 419 00:21:11,200 --> 00:21:12,920 Speaker 8: a bunch of banks going, hey, who owns this? Do 420 00:21:12,960 --> 00:21:15,840 Speaker 8: you own this? My ledger shows this, yours show? It's 421 00:21:15,920 --> 00:21:18,960 Speaker 8: so it just makes complete sense work. Yeah, yeah, And 422 00:21:19,000 --> 00:21:20,600 Speaker 8: I'm not just saying that because I needed to work 423 00:21:20,600 --> 00:21:23,240 Speaker 8: for the next ten years. You know, I genuinely believe 424 00:21:23,280 --> 00:21:23,720 Speaker 8: in my core. 425 00:21:24,080 --> 00:21:26,440 Speaker 2: I would say to the lovely people, they just be seeing. 426 00:21:26,480 --> 00:21:27,600 Speaker 2: Darren needs a third half to. 427 00:21:27,640 --> 00:21:29,679 Speaker 8: Put that. 428 00:21:30,480 --> 00:21:33,360 Speaker 2: Back to Captain or watch out, Jeremiah, thank you so much. 429 00:21:33,359 --> 00:21:34,600 Speaker 3: I really really appreciate it. 430 00:21:34,600 --> 00:21:35,000 Speaker 8: Thank you. 431 00:21:35,040 --> 00:21:39,840 Speaker 2: Will they just be seeing? Stay with us. More from 432 00:21:39,880 --> 00:21:42,520 Speaker 2: Bloomberg Surveillance coming up after this. 433 00:21:49,800 --> 00:21:53,359 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live 434 00:21:53,440 --> 00:21:56,600 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 435 00:21:56,680 --> 00:22:00,359 Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app or 436 00:22:00,480 --> 00:22:02,160 Speaker 1: what is Live on YouTube. 437 00:22:02,440 --> 00:22:07,240 Speaker 2: Julia Carnado perfectly timed for thus with micropolicy perspectives. Julia, 438 00:22:07,359 --> 00:22:11,719 Speaker 2: how does one hundred dollars Brent again change the FED debate? 439 00:22:13,480 --> 00:22:18,679 Speaker 6: Well, it certainly brings another round of inflation pressures on 440 00:22:18,800 --> 00:22:22,520 Speaker 6: top of several layers that we've already gotten from the 441 00:22:22,640 --> 00:22:26,160 Speaker 6: earlier phases of the war, from the AI build out, 442 00:22:26,240 --> 00:22:30,119 Speaker 6: from tariffs, there's just layer upon layer now of upward 443 00:22:30,119 --> 00:22:34,880 Speaker 6: pressure on inflation. And yes, this is also a demand 444 00:22:34,920 --> 00:22:37,080 Speaker 6: shock in the sense that those higher prices are going 445 00:22:37,119 --> 00:22:40,680 Speaker 6: to hurt consumer purchasing power. But at least so far, 446 00:22:40,760 --> 00:22:44,000 Speaker 6: the labor market's holding up, the US economy is holding up, 447 00:22:44,520 --> 00:22:46,480 Speaker 6: and so the FED is really going to need to 448 00:22:46,520 --> 00:22:48,400 Speaker 6: focus on the inflation side of the mandate. 449 00:22:49,320 --> 00:22:53,520 Speaker 4: So, Julian, when you know we've seen inflation metrics Cpippi 450 00:22:53,680 --> 00:22:57,080 Speaker 4: fluctuate with the price of global oil. Here, what's the 451 00:22:57,280 --> 00:22:59,159 Speaker 4: underlying inflation story to you? 452 00:22:59,280 --> 00:22:59,440 Speaker 2: Though? 453 00:23:00,119 --> 00:23:01,600 Speaker 4: It kind of X the energy. 454 00:23:02,640 --> 00:23:08,240 Speaker 6: So I think the underlying story is pretty well described 455 00:23:08,359 --> 00:23:11,679 Speaker 6: by the trajectory of core PCEE inflation. That's been the 456 00:23:11,720 --> 00:23:15,399 Speaker 6: Fed's preferred metric. They may revisit that, but if we 457 00:23:15,480 --> 00:23:18,679 Speaker 6: look at the details, they do make sense. There is 458 00:23:18,720 --> 00:23:22,439 Speaker 6: a broadening in core inflation pressures. So it's not just 459 00:23:22,480 --> 00:23:26,440 Speaker 6: an oil story or a food story. It is really 460 00:23:26,480 --> 00:23:30,479 Speaker 6: a story of again several layers of supply shocks that 461 00:23:30,640 --> 00:23:36,040 Speaker 6: are rippling through airfares, They're rippling through software prices, They're 462 00:23:36,119 --> 00:23:40,280 Speaker 6: rippling still through core goods prices. We were just getting 463 00:23:40,320 --> 00:23:43,600 Speaker 6: to the tail end of the tariff impulse. It seemed 464 00:23:43,640 --> 00:23:47,600 Speaker 6: to US, and that was good news. We are expecting 465 00:23:47,640 --> 00:23:50,840 Speaker 6: some relief on goods inflation in the second half of 466 00:23:50,880 --> 00:23:55,720 Speaker 6: the year, but that is now at risk because shipping 467 00:23:55,760 --> 00:23:57,920 Speaker 6: costs are going to go up and that could push 468 00:23:58,000 --> 00:24:02,000 Speaker 6: up on goods prices and other inputs could be on 469 00:24:02,040 --> 00:24:05,560 Speaker 6: the rise. The longer this level of oil prices, again 470 00:24:05,920 --> 00:24:08,679 Speaker 6: it's not just the impulse, but that level of energy 471 00:24:08,680 --> 00:24:11,400 Speaker 6: prices is so much higher it's going to ripple through 472 00:24:11,440 --> 00:24:14,600 Speaker 6: supply chains and prices in a wide range of category. 473 00:24:14,800 --> 00:24:18,040 Speaker 2: Julia on a dual mandate. When I see claims today 474 00:24:18,080 --> 00:24:20,680 Speaker 2: back in nineteen sixty nine, and let's say it's an aberration, 475 00:24:21,200 --> 00:24:24,040 Speaker 2: it's FIFA, or it's a Red Sox winning fifteen in 476 00:24:24,040 --> 00:24:27,760 Speaker 2: a row, who knows. But the answer to Julia here 477 00:24:28,040 --> 00:24:30,640 Speaker 2: is there's still a labor mandate, is that it's still 478 00:24:30,760 --> 00:24:34,600 Speaker 2: they really can't raise They really can't raise rates because 479 00:24:34,760 --> 00:24:38,040 Speaker 2: the market, the job market is still resilient. 480 00:24:39,160 --> 00:24:42,120 Speaker 6: Yeah, the job market is resilient, and that gives them scope. 481 00:24:42,240 --> 00:24:44,600 Speaker 6: That gives them some some scope to raise rates. I 482 00:24:44,600 --> 00:24:49,040 Speaker 6: think tom one of the sort of underappreciated macro dynamics 483 00:24:49,040 --> 00:24:52,320 Speaker 6: that is quite significant, but we don't talk about it 484 00:24:52,359 --> 00:24:55,200 Speaker 6: as much. Because we're so busy talking about AI all 485 00:24:55,240 --> 00:24:58,800 Speaker 6: the time. Is the demographic transition the US is in. 486 00:24:59,320 --> 00:24:59,520 Speaker 4: One. 487 00:24:59,560 --> 00:25:04,359 Speaker 6: We've got a rapidly aging, retiring baby boom population, and 488 00:25:04,600 --> 00:25:08,440 Speaker 6: on top of that, we've chosen extremely restrictive immigration policy. 489 00:25:08,880 --> 00:25:12,520 Speaker 6: That adds up to basically no labor force growth. That 490 00:25:12,640 --> 00:25:16,840 Speaker 6: means that the unemployment rate really isn't going to rise 491 00:25:17,200 --> 00:25:19,720 Speaker 6: unless the US is in a recession or heading into 492 00:25:19,800 --> 00:25:24,440 Speaker 6: a recession. There isn't really the US economy doesn't need 493 00:25:24,480 --> 00:25:27,000 Speaker 6: to create a lot of jobs because there isn't a 494 00:25:27,040 --> 00:25:30,040 Speaker 6: lot of labor force growth. There's no labor force growth, 495 00:25:30,359 --> 00:25:33,480 Speaker 6: and I think what that means is it leads to 496 00:25:33,720 --> 00:25:36,920 Speaker 6: a more resilient labor market. It's really tough to knock 497 00:25:37,000 --> 00:25:41,320 Speaker 6: it over again. You need to be seeing truly recessionary 498 00:25:41,400 --> 00:25:44,960 Speaker 6: dynamics on the demand side. And while you know the 499 00:25:45,040 --> 00:25:49,880 Speaker 6: AI boom isn't particularly a creative to the labor market, 500 00:25:50,160 --> 00:25:53,800 Speaker 6: it's also enough to keep overall demand on track and 501 00:25:53,840 --> 00:25:56,879 Speaker 6: the labor market hanging in there. So it's not like 502 00:25:56,920 --> 00:26:01,520 Speaker 6: we're seeing companies super bullish across sects adding employees. That 503 00:26:01,640 --> 00:26:05,280 Speaker 6: is definitely not the picture, But nor are people really 504 00:26:05,320 --> 00:26:08,720 Speaker 6: looking to lay people off or reduce their workforce. They're 505 00:26:08,760 --> 00:26:12,240 Speaker 6: sort of in a hold steady mode and that's good 506 00:26:12,359 --> 00:26:16,040 Speaker 6: enough for this labor market, for this demographic transition we're in. 507 00:26:16,560 --> 00:26:19,240 Speaker 6: And again that leads us back to the insulation side 508 00:26:19,280 --> 00:26:19,800 Speaker 6: of the mandate. 509 00:26:19,920 --> 00:26:24,400 Speaker 2: Julia Coronado thrilled over this UH today here as we 510 00:26:24,720 --> 00:26:27,639 Speaker 2: continue to vix out two point five seven, the down 511 00:26:27,680 --> 00:26:31,240 Speaker 2: future is now negative six hundredsh So this market's still 512 00:26:31,440 --> 00:26:34,359 Speaker 2: deteriorating or Paul Sweeney with doctor Coronado. 513 00:26:34,720 --> 00:26:38,280 Speaker 4: So, Joeia, what's your view of the underlying consumer here? 514 00:26:38,800 --> 00:26:40,560 Speaker 4: We were just talking about the labor market. It seems 515 00:26:40,560 --> 00:26:42,720 Speaker 4: like everybody who wants a job has a job. Wages 516 00:26:42,760 --> 00:26:46,080 Speaker 4: are rising, maybe not in pace with inflation, But how 517 00:26:46,080 --> 00:26:47,560 Speaker 4: do you view the labor of the consumer. 518 00:26:48,640 --> 00:26:50,439 Speaker 6: So the consumer is a mixed bag. You know, we 519 00:26:50,480 --> 00:26:53,840 Speaker 6: talk all the time at nauseum about the K shaped economy, 520 00:26:53,920 --> 00:26:57,440 Speaker 6: but it is a reality. So you know, for say 521 00:26:57,440 --> 00:27:01,919 Speaker 6: the median or average household, they've got a job, they 522 00:27:01,960 --> 00:27:04,840 Speaker 6: may not be feeling great about it. Consumer sentiment around 523 00:27:04,840 --> 00:27:08,920 Speaker 6: the labor market is pretty pretty low. But they have 524 00:27:08,960 --> 00:27:11,800 Speaker 6: a job, they're earning income. They may be seeing some 525 00:27:11,960 --> 00:27:17,560 Speaker 6: slippage and purchasing power from inflation, but they're not rolling 526 00:27:17,600 --> 00:27:22,600 Speaker 6: over and retrenching and really tightening up their budgets. Meanwhile, 527 00:27:22,720 --> 00:27:26,359 Speaker 6: you still have high income households feeling pretty good after 528 00:27:26,920 --> 00:27:30,840 Speaker 6: years of a very bullish stock market has left their 529 00:27:30,880 --> 00:27:33,840 Speaker 6: net worth you know, pretty close to all time highs. 530 00:27:33,840 --> 00:27:38,480 Speaker 6: So the upper income consumer is powering more of the spending. 531 00:27:39,119 --> 00:27:42,600 Speaker 6: They always power a large share, but it's certainly more 532 00:27:42,640 --> 00:27:47,040 Speaker 6: than than usual. And the middle to low income consumer 533 00:27:47,520 --> 00:27:50,920 Speaker 6: isn't feeling good, but they're hanging in enough to keep 534 00:27:50,960 --> 00:27:53,600 Speaker 6: the economy on track. So it's not a raw, raw 535 00:27:53,680 --> 00:27:57,920 Speaker 6: economy by any stretch for most people, but it's okay. 536 00:27:57,960 --> 00:27:59,560 Speaker 6: It's getting by one sign. 537 00:28:00,359 --> 00:28:03,280 Speaker 2: The real yield creeps up, maybe not like other yields, 538 00:28:03,280 --> 00:28:07,240 Speaker 2: et cetera, but the inflation adjusted yield speaking volumes, is 539 00:28:07,280 --> 00:28:09,440 Speaker 2: it enough now to stall business? 540 00:28:11,160 --> 00:28:11,720 Speaker 3: We'll see. 541 00:28:11,760 --> 00:28:14,560 Speaker 6: I mean, this is the tricky part of AI, and 542 00:28:14,600 --> 00:28:17,920 Speaker 6: some people compare AI in the US to a sort 543 00:28:17,960 --> 00:28:21,320 Speaker 6: of form of Dutch disease in the sense that you know, 544 00:28:21,760 --> 00:28:26,200 Speaker 6: these hyperscalers and this capex build out for the AI 545 00:28:26,359 --> 00:28:32,320 Speaker 6: capacity is so large and seemingly so you know, resilient 546 00:28:32,800 --> 00:28:38,600 Speaker 6: or interest rate insensitive, and yet you know the Fed 547 00:28:38,720 --> 00:28:41,480 Speaker 6: may need to tighten policy, and that would hurt other 548 00:28:41,640 --> 00:28:45,680 Speaker 6: sectors more. Housing is already hurting. Could it hurt more? Yes, 549 00:28:45,920 --> 00:28:49,560 Speaker 6: it could hurt more. And so to cool the economy down, 550 00:28:50,080 --> 00:28:54,080 Speaker 6: you might need to hit non AI sectors harder to 551 00:28:54,240 --> 00:28:57,080 Speaker 6: get the space you need to bring inflation pressure. 552 00:28:57,080 --> 00:28:58,880 Speaker 3: Stout's not a great trade off. 553 00:28:59,560 --> 00:29:01,200 Speaker 2: Gently from Texas does this? 554 00:29:01,480 --> 00:29:01,640 Speaker 8: Yep? 555 00:29:01,800 --> 00:29:05,560 Speaker 2: She throws out Dutch disease boy and thinks, I don't know. 556 00:29:05,640 --> 00:29:10,120 Speaker 2: It was the Economist magazine in nineteen seventy seven that 557 00:29:10,280 --> 00:29:13,640 Speaker 2: harken back to the Netherlands. I say, out in the 558 00:29:13,720 --> 00:29:17,000 Speaker 2: North Sea in nineteen fifty nine, Is that right? 559 00:29:17,160 --> 00:29:19,040 Speaker 3: I mean, it's just amazing. 560 00:29:19,400 --> 00:29:24,040 Speaker 2: How it's amazing how Google Chemini save this show an 561 00:29:24,040 --> 00:29:26,960 Speaker 2: hour to hour basis the Dutch disease. 562 00:29:27,360 --> 00:29:31,840 Speaker 9: Thank you, Julia Carnile' go away, greatly appreciate it. 563 00:29:32,080 --> 00:29:36,920 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, 564 00:29:37,040 --> 00:29:41,320 Speaker 1: and anywhere else you get your podcasts. 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