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Speaker 2: We're gonna rip up the script and we do this
Speaker 2: with great respect for Blackrock because they took the mathematician
Speaker 2: of China and elevated her to fame. She's driving, of course,
Speaker 2: all of investment strategy for Blackrock. We've spoken many times
Speaker 2: about Wayee's accomplishments in her China, and in this hugely
Speaker 2: turmoil time, we rip up the script with Wayey Way.
Speaker 2: I do want to get to the market coverage here.
Speaker 2: We've got an extended time with you on surveillance this morning,
Speaker 2: but I need to ask you to describe, and Zen,
Speaker 2: I want you to describe. You went to Cambridge, fine,
Speaker 2: but please describe the word respect that the Chinese government
Speaker 2: speaks about overnight. I'm sorry, Wyley, It's like Bill Murray
Speaker 2: in Tokyo. For Americans, it's lost in translation. Please translate.
Speaker 3: Well, actually, what is happening right now is that nobody
Speaker 3: wants to call first, Nobody wants to call first, and
Speaker 3: each is apping the pressure. So there's a lot of
Speaker 3: postering happening on both sides before negotiation, which is why
Speaker 3: we think that it actually is not so rewarding to
Speaker 3: try to predict what is the next step of policy
Speaker 3: making or the next rhetoric. It's more rewarding to try
Speaker 3: to understand what are the rules governing negotiation, governing policy
Speaker 3: making that will ultimately shape the destination of where heading
Speaker 3: towards Where.
Speaker 2: We're heading is on a different timeline. You know that
Speaker 2: I love the XXSWAYI I'm very delta what's called in
Speaker 2: the Greek letters folks, theta driven. I would suggest the
Speaker 2: timeline of President Trump in America with their linkage into
Speaker 2: black Rock investment, is radically different than the Chinese timeline.
Speaker 2: Discuss that is there a huge separation in short term
Speaker 2: and long term between the two cultures.
Speaker 3: Well, maybe there is some time pressure because we are
Speaker 3: heading into a meeton, for example, in the US next year,
Speaker 3: so things need to happen a bit more quickly. But
Speaker 3: what I meant by kind of rules that cannot be
Speaker 3: broken is more on the economic basis.
Speaker 4: Specifically, you know.
Speaker 3: We have the US looking to reduce strait deficits that
Speaker 3: cannot be reduced without reducing foreign lending by the same magnitude.
Speaker 3: So if you push that in that direction too quickly,
Speaker 3: it's going to raise interest rate and it's going to
Speaker 3: raise a future death servicing costs, which is why we
Speaker 3: saw the bond market route last week, and specifically we
Speaker 3: did this kind of bag of envelope calculation.
Speaker 4: Twenty five basis point of long.
Speaker 3: Term yields translate into roughly fifty to seventy five billion
Speaker 3: dollars per annon of additional debt servicing costs. And we're
Speaker 3: already at a point where we're spending more in the
Speaker 3: US right, like one hundred and fifty billion dollars more
Speaker 3: than last year this time. So these are the kind
Speaker 3: of checks and balances and influencing factors that ultimately could
Speaker 3: drive where we're heading towards now on the On the
Speaker 3: China side, the impacts on from tarraffs on the growth
Speaker 3: picture is likely very severe, right, So if everything kind
Speaker 3: of go according to plan, which is not the expectation,
Speaker 3: but if that were to happen, we're talking about PEACH
Speaker 3: to GDP to the magnitude of two percent, which would
Speaker 3: mean that the government would really risk kind of significantly
Speaker 3: under shooting the growth target of five percent this year.
Speaker 3: So both sides have tracks and constraints that they need
Speaker 3: to balance, and this is what we pay more attention
Speaker 3: to rather than what they're saying on a single day,
Speaker 3: because of course they do not want to put everything
Speaker 3: on the table as they are getting ready for negotiation.
Speaker 2: You got to love a woman that went to Raffles
Speaker 2: Junior High School in Singapore. We welcome all of you
Speaker 2: on the Pacific rim basically in your evening here on
Speaker 2: YouTube Wayy of black Rock with this son truly in
Speaker 2: historic Wednesday, Paul Wait.
Speaker 5: They talked to us about kind of how you think
Speaker 5: about the tariff backdrop here we did President Trump did
Speaker 5: talk initiate the ninety day kind of freeze here if
Speaker 5: you will on many of these reciprocal turfs. How do
Speaker 5: you just kind of factor all that in here? Because
Speaker 5: I'm listening to companies conference calls and I don't think
Speaker 5: corporate America knows what the thing. How are you guys
Speaker 5: approaching it?
Speaker 3: I think the fact that you were just talking about,
Speaker 3: I think United Airline giving out guidance in scenario in
Speaker 3: a scenario way with two scenarios, that's really really unusual.
Speaker 3: But that has been how we think about kind of
Speaker 3: us our location already, So this is an unprecedented word.
Speaker 4: Already, economic uncertainty.
Speaker 3: Was at really extremely elevated levels because of mega forces, AI,
Speaker 3: low pub and transition, and now policy uncertainty is at
Speaker 3: a record high as well. So compounding economic uncertainty and
Speaker 3: policy uncertainty means that we cannot do point forecast anymore.
Speaker 3: We have to think about kind of investing through scenarios.
Speaker 3: So I see, I'm happy to see the corporates are
Speaker 3: doing that. But specifically in terms of the tariff backflop
Speaker 3: that you asked after April second, it was it was
Speaker 3: very concerning for us. Not so much, yes, indeed yes,
Speaker 3: also because the magnitude of the tariffs were bigger than expected.
Speaker 4: But more important than that is the fact that.
Speaker 3: There didn't seem to be checks, didn't seem to be
Speaker 3: constrained in terms of how US is setting out to
Speaker 3: make policies, and that is why we were more concerned
Speaker 3: after April second. But the fact that they walked back
Speaker 3: last week, they walked back and they put in place
Speaker 3: the ninety day polls gave us some comfort that the
Speaker 3: checks are still in place, even though immediately after April
Speaker 3: second it didn't look like they were.
Speaker 4: They still were in place.
Speaker 3: They will help guide where we are heading towards, and
Speaker 3: that gives us more comfort to them think.
Speaker 4: A little bit longer term.
Speaker 3: Of course, in the Newton there's still going to be
Speaker 3: a huge amount of uncertainty as negotiations go ahead, both
Speaker 3: sides of negotiations. Talking about kind of all the bilateral
Speaker 3: negotiations that are taking place, it's likely going to throughout
Speaker 3: a lot of headlines drive market volatility. But knowing that
Speaker 3: there are checks in place that can influence the destination
Speaker 3: is important for us to be able to focus on fundamentals.
Speaker 5: So we saw just in this quarter, this first quarter
Speaker 5: of twenty twenty five way just some reversal funds flows
Speaker 5: out of the US, selling bond, selling stocks, selling the dollar,
Speaker 5: and perhaps going into some European markets taking advantage of
Speaker 5: the more stable markets here. Is that kind of a
Speaker 5: short term trade or is that a longer term investment thesis?
Speaker 3: From your perspective, I think it's too early to call
Speaker 3: this a longer term unwind of multi years of US exceptionalism.
Speaker 3: I think the reversal that we saw here today very
Speaker 3: much reflect the stretched positioning in US assets and also
Speaker 3: the greater gap of valuation between US aquitas and European
Speaker 3: aquitis for example, and the rest of the world for example.
Speaker 3: But to say that this is kind of the end
Speaker 3: of US exceptionalism is premature, I would say, because drivers
Speaker 3: of US exceptionalism include the depth of capital market, the
Speaker 3: appetite for risk taking, energy independence, greater spent we see
Speaker 3: that on the FISCO from today is supported by exopitant
Speaker 3: privilege of making sure that the rest of the world
Speaker 3: can found it. I mean, all of those reasons why
Speaker 3: companies like in Video exist in the US and not elsewhere.
Speaker 3: So I think it's way too premature to say that
Speaker 3: this is the end of US exceptionalism. I would also
Speaker 3: observe after April the second, the drawdown in terms of
Speaker 3: equities across the world are almost the same. Europe was
Speaker 3: selling off as much as US was selling off. After
Speaker 3: April second, I think it's very very early to say
Speaker 3: that Europe definitely be a winner, but they will be selectable.
Speaker 2: Bring up the drawdown for you too. We're sub eighteen
Speaker 2: percent on this it's you know, it's a correction, it's
Speaker 2: a bear mark. But we've had a recovery. Way Ley
Speaker 2: in the zeitgeist this morning, and the blur is the
Speaker 2: basic idea that companies are buying back their shares, that
Speaker 2: senior executives have an optimism there's a horizon out there
Speaker 2: somewhere that we're going to get to. Where is Wayley's
Speaker 2: horizon to solve to get beyond this crisis? Are you
Speaker 2: looking at it this quarter, this year or is your
Speaker 2: horizon distressingly out years?
Speaker 3: Well, I think with the evolution of technology, hopefully we're
Speaker 3: all living longer, so I hope I have a longer
Speaker 3: term horizon, and with that longer term horizon, I would
Speaker 3: observe a lot of the correction drawdown that we have
Speaker 3: seen in quality quality.
Speaker 4: Companies may have been over down right. If you think about.
Speaker 3: Kind of the evaluation metrics for some of the quality
Speaker 3: TEG names in the US, they are at the lowest
Speaker 3: level since the beginning of chat GPT. Now you can
Speaker 3: say that valuations has lost or meaning because analysts are
Speaker 3: slow to adjust their earnings earnings revision. Maybe, but it
Speaker 3: still doesn't change the fact that some really good value
Speaker 3: names out there, and the drivers in terms of AI
Speaker 3: adoption hasn't changed, so I think there are some really
Speaker 3: good offenis longer term.
Speaker 2: One final question, Waly, thank you so much generously you
Speaker 2: to take this time with us today. So I'm up
Speaker 2: at like two am or midnight or whatever, you know,
Speaker 2: I'm you know, Bracton's got me up looking at red
Speaker 2: SOX highlights. Wayly, I see that the government of China
Speaker 2: is going to ban the mailing of packages from Hong
Speaker 2: Kong to America. What does that signal to you?
Speaker 3: I think this is an example of kind of each
Speaker 3: side up in pressure as they get ready for negotiation.
Speaker 3: Nobody wants to go first. They want to increase pressure
Speaker 3: to bring the other side to the table. This is
Speaker 3: one of those things I think, you know, like Boeing
Speaker 3: yesterday the news was another example, and then the H
Speaker 3: twenty chips another example.
Speaker 4: I think we're going to see.
Speaker 3: Quite a few examples of this as we get into negotiation.
Speaker 3: But then, really not as much attention should be paid
Speaker 3: to kind of the bit by bitch incremental news, but
Speaker 3: really pay attention to the laws, the checks that will
Speaker 3: govern where we're heading towards.
Speaker 4: Is how I think about investing right now.
Speaker 2: Really, thank you so much with black Rock this morning,
Speaker 2: just Brian, thank you so much.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: Things have changed. There's a crisis in America and Dan
Speaker 2: Ives has piped it down. There was a color scheme
Speaker 2: going on back when there was American exceptionalism. And for
Speaker 2: those of you today, in honor of Louis Vauton the
Speaker 2: challenges they had yesterday, he's going with the washed pink
Speaker 2: shade today. Okay, i'lla LVMH. So we have a more
Speaker 2: subdued Dan Ives with this, Dan, how have you survived
Speaker 2: the last ten days? You've had to bring some price
Speaker 2: targets down? What has been the Ives methodology to reset?
Speaker 6: A lot of coffee, a lot of calculators and look,
Speaker 6: to me, it's really it's talking to so many people
Speaker 6: throughout supply chain, customers, companies to understand basically scenarios. And
Speaker 6: that's how we viewed it, Like what are numbers? Cut's
Speaker 6: gonna look like, and then what does that mean for prices?
Speaker 6: And I think you're starting to now see the results
Speaker 6: of that, in Vidia being the first one in terms
Speaker 6: of the real effect from this tower.
Speaker 5: For so, Dan, how do you think about I guess
Speaker 5: the underlying tech spend globally over the next twelve months.
Speaker 5: To what extent, if any, does that likely going to
Speaker 5: come down?
Speaker 6: Yeah, so, Paul, I view it as let's say, three
Speaker 6: undred twenty five billion max seven spending on cap backs
Speaker 6: for AI that's assumed. Let's call that too eighty two ninety.
Speaker 6: In other words, that's right now what I think is
Speaker 6: baked in, like you already are gonna have probably ten
Speaker 6: percent cuts, could be more, but I think most investors
Speaker 6: are going to basically, you're not gonna have guidance. You're
Speaker 6: gonna toss out June, You're gonna toss out September quarter.
Speaker 6: You assume some negotiation gets the cooler heads. And I
Speaker 6: think right now every investor I talked to you're looking
Speaker 6: at twenty six numbers to understand what the normalized numbers
Speaker 6: look like with some sort of base.
Speaker 2: I mean, let's do it Nvidio quickly.
Speaker 7: Here.
Speaker 2: I want to get to Apple, which I think is
Speaker 2: the attention of our listeners and viewers. Were you surprised
Speaker 2: by the Nvidio markedown over naight?
Speaker 6: I mean, I think it's a it's a knee jerk actually,
Speaker 6: and obviously it's a headline and it's it's negative news.
Speaker 6: But I mean, to me, Tom, I already assumed ten
Speaker 6: percent cuts.
Speaker 2: Right, Okay, let's start with Apple here, and you and
Speaker 2: I have gone back and forth in this over the
Speaker 2: years and over the last thirty eight months, Dana and
Speaker 2: I just looked like a genius on Apple until this crisis.
Speaker 2: Is there persistency of cash flow that is provided for
Speaker 2: share buyback and dividend growth? Is it still there? It's that.
Speaker 6: I mean, look, even you know when you scenario and
Speaker 6: sort of put pressure on the model and stress test
Speaker 6: that cash flow comes down five percent, maybe seven percent.
Speaker 6: The reality is is that a lot of that on Apple,
Speaker 6: I think starts to now get found in. It comes
Speaker 6: down to with with China numbers unless these tariffs in
Speaker 6: their current state stick for ninety days and longer than
Speaker 6: to me at Apple content right here, I mean, it
Speaker 6: is a name.
Speaker 2: Does Jim Cook Dana eives with all of your specific
Speaker 2: room work, does he have a special relationship with Beijing.
Speaker 6: Oh, I mean, look, cooks ten percent politician ninety CEO.
Speaker 6: No one understands Beijing's supply chain better than cook. The
Speaker 6: reality is, I mean, look, India gives some optionality where
Speaker 6: you could, you know, call maybe five ten percent, but
Speaker 6: they have no options outside Easia. I mean, and that's
Speaker 6: right now with they need to navigate and also make
Speaker 6: sure China there's no retaliatory toward Apple. There's no retaliatory,
Speaker 6: and we talked about toward Tesla. I think right now,
Speaker 6: that's that's front and center what he needs to manage,
Speaker 6: as well as within the White House to make sure
Speaker 6: these tariffs don't impact to the extent. Look, you can't
Speaker 6: have two thousand hours iPhones, that'd be thirty percent demand destruction.
Speaker 2: Wow.
Speaker 5: So Dan, I mean, when you talk to the executives
Speaker 5: in Silicon Valley, do they expect this to be the
Speaker 5: new normal for at least the next four years?
Speaker 2: I guess no.
Speaker 6: I think I mean, look, whatever they'd probably say, I mean,
Speaker 6: I could tell they're figuring out what when negotiations happen,
Speaker 6: what the baseline gets to, what they're going to pass through,
Speaker 6: what they're going to eat what they're going to ultimately
Speaker 6: pass through to the rest of the spot, and that's
Speaker 6: what they're trying to figure out in terms of what
Speaker 6: the new baseline will be once we get through this. Basically,
Speaker 6: you know, a UFC battle between China and US.
Speaker 2: Yeah, Dan, answer this folks here with the what bush
Speaker 2: we continue. We welcome all of you in your commute
Speaker 2: across the nation. Just a terrific set of conversations today
Speaker 2: out on YouTube, Fiery chat out on live chat there.
Speaker 2: Thank you so much for your attention on YouTube. Subscribe
Speaker 2: to Bloomberg Podcast. Just amazed by the permanence of YouTube
Speaker 2: and living rooms and offices around the world. Dan, I'm
Speaker 2: not going to mince words. Reuters did a story out
Speaker 2: of Paris and Alvarado, Texas the other day on LVMH
Speaker 2: Louis vuittonm that they're having trouble with American labor manufacturing
Speaker 2: American bags. When tech people are politicians start spouting off
Speaker 2: about bringing those manufacturing processes of the Pacific rim over
Speaker 2: to America. Do we have the labor force with a
Speaker 2: discipline and the culture to make that stuff.
Speaker 6: No, And we've talked about it a lot over the
Speaker 6: last two weeks. That's a fictional tal and the reality
Speaker 6: is that you could see me in America in terms
Speaker 6: like the reality in terms of the waver force, the
Speaker 6: cost inputs, where the raw materials are coming from, and
Speaker 6: also the ip ME and the supply chain. You have
Speaker 6: a factory here where the chips made.
Speaker 7: They're main Asia.
Speaker 6: And that's the reality.
Speaker 7: Of this situation.
Speaker 6: And that's why I've said, like this is something where
Speaker 6: for the first time in thirty years, US is ahead
Speaker 6: of China when it comes to tech. But if you
Speaker 6: don't navigate this third rail issue the right way, you'll
Speaker 6: cut the knees of tech, take it back years and
Speaker 6: guess who wins in it.
Speaker 2: It's China tech.
Speaker 5: Dan, is there a place in your coverage that is
Speaker 5: a safer place to be, whether it's software with Microsoft
Speaker 5: or work, I don't know.
Speaker 2: Yeah, Penn state base play exactly exactly, I'd say, Paul,
Speaker 2: I'd say it's software and cybersecurity.
Speaker 6: I mean those are sort of the buckets from IBM
Speaker 6: to Oracle to Microsoft. Cybersecurity, whether it's pal out or CrowdStrike,
Speaker 6: cyber arc checkpoint, those are almost the defensive safety blankets
Speaker 6: in tech. In terms of in soft friend cybersecurity, even
Speaker 6: though you know you have number cuts there too.
Speaker 7: But again, no come is going to.
Speaker 6: Give guidance in earning season and the streets already factoring
Speaker 6: and beep into this. You have ten percent cuts across
Speaker 6: the board.
Speaker 2: Okay, out of the pandemic, Dan ives, I got a
Speaker 2: fancy standard deviation chart to Apple. It's well behaved, it's
Speaker 2: the great eyes rally. The people that hate you aren't
Speaker 2: aware that you nailed that. You know, as a generalization,
Speaker 2: you nailed to move up is an uber bowl. I'm
Speaker 2: not that far out of two standard deviations down on Apple.
Speaker 2: I mean the phrase Apple's cratered is not accurate, right, No,
Speaker 2: I mean, look, I think.
Speaker 6: Because the reality is is that unless you assume just
Speaker 6: a black swan event Army get everyone understands that. Like
Speaker 6: it's about the friend, it's the free castlow, it's the
Speaker 6: services business, which is not really that impact from how
Speaker 6: that gives you massive downside protection in Apple, and that's
Speaker 6: why that stock is holding up the way it is
Speaker 6: relative to them being in the eye of this show.
Speaker 2: So do you have a buy on Apple? Of course,
Speaker 2: dude to me Apple, upset to me Apple.
Speaker 6: Over the next twelve to eighteen months.
Speaker 7: You own Apple, you own a video.
Speaker 6: I mean, I'd argue you own if.
Speaker 7: You navigate these storms.
Speaker 6: You have to navigate the storm over the next three
Speaker 6: to six months. You do not panic. You're in the
Speaker 6: You're in a game of high stakes poker that's playing
Speaker 6: out with opering economy, you know, with it.
Speaker 2: I mean, Paul wants to get in here, and I'm sorry,
Speaker 2: I gotta do this. Can Penn State football meet meet
Speaker 2: Nevada August thirtieth?
Speaker 5: Oh, that's gonna be a nice tune up game.
Speaker 3: I mean yeah.
Speaker 6: Look again, like I said, I for all the SEC
Speaker 6: fans out there, they had their they had their run.
Speaker 6: Now it's big Pens run Penn State twenty five Michigan,
Speaker 6: Ohios and then Penn State three in a row, right
Speaker 6: for Nanny's.
Speaker 2: And then then they play FIU. I don't even know
Speaker 2: what fi you is. Dan, I's go away. I'm sorry, Paul,
Speaker 2: I know you want to get I just love busting
Speaker 2: his chops. Danipes, thank you so much. We're something colorful
Speaker 2: next time. He's the web Bush and serious conversation here, folks.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: We're going to do this raptor on retail sales here,
Speaker 2: but not on retail sales. We're gonna get them on
Speaker 2: for a much much longer conversation here in the coming weeks.
Speaker 2: In two thousand and seven, the most famous strategist in
Speaker 2: the world was a guy named Matt King. He was definitive,
Speaker 2: definitive it trying to figure out the path for Lehman Brothers.
Speaker 2: And before that did something that I featured in my
Speaker 2: book with David Goldman of Bank of America, which is,
Speaker 2: forget about the garbage out there in derivative science, look
Speaker 2: at the super senior tranches. Matt King over the years
Speaker 2: has devolved into Satori Insights and joins us now for
Speaker 2: far too short conversation. This is for Global at Wall Street,
Speaker 2: Matt King live or Ois is dead. We have so
Speaker 2: for sofr is compared to the ten year yield of
Speaker 2: the two year yield that looks at the trust market
Speaker 2: out there is a trust of the financial plumbing system broken.
Speaker 7: I think it's closer to breaking than many people make out.
Speaker 7: For me, what's going on at the moment is this
Speaker 7: big disconnect between you've heard all your equity and your
Speaker 7: credit guests focused on tariffs and on earnings and some
Speaker 7: of the trailing data, and then conversely what we see
Speaker 7: going on in treasury markets with the rising term premium,
Speaker 7: this evening of the real yuel curve, what increasingly looks
Speaker 7: like a run on the dollar, capital flight out of
Speaker 7: the US, and then most obviously in gold. There's just
Speaker 7: this big disconnect, and it does remind me of some
Speaker 7: of those other periods of my career that you're kind
Speaker 7: enough to mention, where yeah, the people in one market
Speaker 7: looking at that and thinking, hey, this could come to
Speaker 7: dominate everything else, and other people need to wake up.
Speaker 2: We did a seminar with lousy coffee years ago. I
Speaker 2: can't remember the hotel folks Is in New York, EMMT King.
Speaker 2: What we talked about was leverage within the system. Is
Speaker 2: there a leverage out there? Is there a Myron Shaw's
Speaker 2: lt CM leverage out there?
Speaker 7: I can't see mostly no, or at least not in
Speaker 7: the way that people think. So people have been excited
Speaker 7: about the onlineer basis trades and some of the moves
Speaker 7: and swap spreads and pointing to hedge funds. And yes,
Speaker 7: there has been this big pickup in leverage and reproactivity,
Speaker 7: especially for multistrap funds, but I don't think that's the
Speaker 7: problem here. If anything, I would say that it's almost
Speaker 7: a diversifying element relative to all the long only money
Speaker 7: that is poured in over the last decade or so.
Speaker 7: And so for me, there is this scary thing that
Speaker 7: sort of all my career, I focus on the thing
Speaker 7: that's about to blow up, and each time the crises
Speaker 7: seem to get bigger and bigger. The debt that's out
Speaker 7: there now is across non financial sectors as a whole,
Speaker 7: and more than anything with governments, including the US government.
Speaker 7: But it's not the financial leverage in quite the same
Speaker 7: way as it was previously, and on the one hand,
Speaker 7: that makes it slower burning. But on the other hand,
Speaker 7: the feedback loop from markets through to the economy is
Speaker 7: larger ever than it's been in the past.
Speaker 5: So, Matt, I guess you put into context the sell
Speaker 5: off in the equity markets. People selling treasuries selling the
Speaker 5: US dollar buying gold.
Speaker 2: What does that tell you?
Speaker 5: Usually you would think the treasuries in the US dollar
Speaker 5: a safe havens in a time of uncertainty.
Speaker 7: We heard some of it from Jamie Diamond yesterday, except
Speaker 7: all the things he said could happen, the erosion of
Speaker 7: the US's safe haven status and potential exodus from US assets.
Speaker 7: I would argue that they're underway already. It's difficult to
Speaker 7: see in the data, but I think it's highly likely
Speaker 7: that we get more of that because many of the
Speaker 7: moves that the Trump administration are making, not only with tariffs,
Speaker 7: basically a direct assault on the foundation of rule of law.
Speaker 7: We heard it in the news previously with the direct
Speaker 7: defiance of the Supreme Court ruling. And this is the
Speaker 7: foundation of markets and trust.
Speaker 2: Effectively, Matt King was SATORI with us, we will continue
Speaker 2: with them around this retail sales every port, and I
Speaker 2: promise for Global Wall Street we'll get mister King on
Speaker 2: here for a much much longer conversation. Matt will continue
Speaker 2: with you. Please stay with us. The vics thirty one
Speaker 2: point five to two into these retail sales futures at
Speaker 2: negative forty right now, the ten year yield four point
Speaker 2: three to two percent, the Sweeney yield four point two
Speaker 2: to one percent, and we'll see this important data come out.
Speaker 2: Of course, retail sales is a nominal number. It's before inflation.
Speaker 2: There's a month over month focus on it, and I
Speaker 2: focus on the control group where we're looking for a lessoning,
Speaker 2: a tertiary statistic. The FEDCE Services business activity comes in
Speaker 2: worse than survey in a stark negative nineteen. As well,
Speaker 2: the control group comes in a little light at zero
Speaker 2: point four percent. That's lower than the zero point six
Speaker 2: percent expected. Futures do a little bit better than where
Speaker 2: we were, I mean, Paul, at the end of the day,
Speaker 2: it's it's sort of like where we were. I think, Yeah,
Speaker 2: I mean Jumble. Yeah.
Speaker 5: You saw the retail sales come in at plus one
Speaker 5: point four percent. Last period was a zero point two percent,
Speaker 5: So you know, a little bit of front running the
Speaker 5: tariffs perhaps is what commers are suggesting.
Speaker 2: Er economic coverage. All that we do there on Bloomberg Surveillance,
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Speaker 2: centric support and future ready technologies, grow on your own
Speaker 2: terms with a partner dedicated to your success. Go to
Speaker 2: Commonwealth dot com to learn how we continue with Matt
Speaker 2: King of SATORI on the basis trade on the shock
Speaker 2: of the leverage the system. How does something as esoteric
Speaker 2: Matt King is a basis trade affecting hedge funds that
Speaker 2: get it wrong. But what's it mean for the general public.
Speaker 7: At the moment? I would say the basis trade in
Speaker 7: itself and the hedge fund positions in themselves not very much.
Speaker 7: Maybe they're the beginning of the inkling that we need
Speaker 7: to look a little bit more at the plumbing and
Speaker 7: at scope for flows, and the volatility may trigger some
Speaker 7: bigger moves, But for me in themselves, there's no real
Speaker 7: sign of stress in repo. It's no worse than it
Speaker 7: would be over a quarter end. There's a little bit
Speaker 7: of on the runoff the run kind of lack of
Speaker 7: liquidity in some markets, but in general that's not where
Speaker 7: the problem is. The problem is this potential for long
Speaker 7: only money around the world to shift from riskirtation away
Speaker 7: from the US to outright risk reduction, and for investors
Speaker 7: in treasuries to take seriously and price seriously, some of
Speaker 7: the threats which increasingly are out there, and we start
Speaker 7: to see it in the dollar. We're just beginning to
Speaker 7: see it in treasuries. But it can easily run much
Speaker 7: further and frankly feed on itself.
Speaker 2: Met King, one more question. We got to go back
Speaker 2: to retail sales. Matt King, as simple as I can,
Speaker 2: with all of your decades of excellence, is American exceptionalism done?
Speaker 7: Even if Trump were to wind back all of the
Speaker 7: tariffs even more than he's done already, I think it
Speaker 7: would be very difficult to recreate the trust which is
Speaker 7: at the heart of the financial system and the financial flows,
Speaker 7: which frankly are at the heart of everything that has
Speaker 7: made America great. That's what's under attack here. That's why
Speaker 7: it's so serious, and that's why I think it's not
Speaker 7: in the price.
Speaker 2: I don't have you with us, Matt King, Iconic A's
Speaker 2: City Group and JP Morgan before that with his story
Speaker 2: and thank you so much, Satori Insights. I should say
Speaker 2: thank you so much.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg business app. You can also watch us
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Speaker 2: I was up practicing and a currency knowledge. Yeah, you know.
Speaker 2: For Rebecca Patterson, she's with the Council on Foreign Relations
Speaker 2: as a shingle out at Vanguard as well. We're not
Speaker 2: going to ask her about ETFs bitcoin. I was going
Speaker 2: to ask her about the Swiss frank Maybe we'll get
Speaker 2: to that. But here's the future, folks. Seriously, right now,
Speaker 2: the World Trade Organization lowers their economic growth forecast for
Speaker 2: this year for next year. Some of these numbers are huge,
Speaker 2: huge moves. Rebecca Patterson, you're expert at this. I mean,
Speaker 2: this is the future that we're seeing right now this morning. Yeah,
Speaker 2: you know.
Speaker 8: I I've been trying to find when is the last
Speaker 8: time we saw a dollar bond and stock sell off
Speaker 8: in tantum that lasted for more than a few days,
Speaker 8: And I had to go back to my friend Mark Sobel,
Speaker 8: who is a longtime Treasury guy now the chair of
Speaker 8: the US at omfif at Think Tank nineteen seventy seven
Speaker 8: seventy eight. So we haven't seen what we're living through
Speaker 8: right now in a very very long time. And back
Speaker 8: then What caused it was inflation expectations, lack of confidence
Speaker 8: in the FED, lack of confidence in policy.
Speaker 2: This is smart people like you taking the cacophony of
Speaker 2: news in lowering growth in the zeitgeist, Rebecca Patterson, Are
Speaker 2: we underestimating the decline in real GDP and nominal GDP
Speaker 2: from the Trump events?
Speaker 8: The hard thing is you cannot have confidence in any view.
Speaker 8: We saw that with United's dual outlooks. Because we could
Speaker 8: get deals, we could have the whole tariff war go
Speaker 8: away tomorrow, like literally we could, and at the same
Speaker 8: time we probably won't. The ten percent universal tariff probably
Speaker 8: stays at a minimum something on China. At a minimum,
Speaker 8: those two things alone would take the tariff level significantly
Speaker 8: higher than what we've seen in many decades. So I
Speaker 8: think looking for a major slow down in growth against
Speaker 8: that backdrop is reasonable. The only good news, and I
Speaker 8: think the people who aren't looking for recessions yet, is
Speaker 8: that we were starting from such a strong place right
Speaker 8: We had record household wealth at the end of last year.
Speaker 8: We had very little leverage on household balance sheets corporate
Speaker 8: balance sheets relatively speaking. So I think people who are
Speaker 8: saying slow down but no recession, are looking at that
Speaker 8: and hopefully lots of deals. I'm a little more bearish.
Speaker 8: I think that we're probably looking at, at a minimum
Speaker 8: a mild recession later this year.
Speaker 5: I'm just reading in a little bit more into this
Speaker 5: WTO news. They slash their global goods trade outlook and
Speaker 5: it's new forecast to The Geneva based WTO expects the
Speaker 5: volume of world merchandise trade to decline by zero point
Speaker 5: two percent in twenty twenty five, almost three percentage points
Speaker 5: lower than it would have been without the US led
Speaker 5: trade war.
Speaker 8: So I mean that's a major hit to global growth.
Speaker 8: I mean basically, what we have between the US and
Speaker 8: China right now is a trade embargo. I mean, with
Speaker 8: a tariff rate at that level, we're effectively saying no trade.
Speaker 8: And the US imports half of its consumer goods from China.
Speaker 8: So right now, inventories are getting built up. We're getting
Speaker 8: front loading, if you will, of inventories and spending. So
Speaker 8: we're going to see decent data for the next few months,
Speaker 8: but then we're going to have a wily coyote moment
Speaker 8: where tariffs come back in the reprieve is over, the
Speaker 8: inventories are used and We're going to be paying a
Speaker 8: lot more for shoes and clothes, and the consumer is
Speaker 8: going to get hit hard.
Speaker 5: I think, so what do we do from an investor standpoint?
Speaker 5: I mean, is it's you know, you look at it
Speaker 5: and I think the only thing I see is gold
Speaker 5: out there is kind of where that the funds are flowing,
Speaker 5: but you know a.
Speaker 2: Lot of it stocks.
Speaker 5: Folks are saying, hey, find the good companies, the good
Speaker 5: names you know, and you can buy them cheaper.
Speaker 8: Here there is an argument for active stock selection right now.
Speaker 8: With all the money in passive index funds, where you're
Speaker 8: just getting in and out of a country or an
Speaker 8: entire sector, you are going to see some stocks that
Speaker 8: have better fundamentals than our price. So I think that
Speaker 8: is one approach to this. I think leaning in on
Speaker 8: large caps and on consumer staples, so defensive areas. I
Speaker 8: think if you want overseas diversification, the UK looks like
Speaker 8: they may get a trade deal with the White House,
Speaker 8: and they tend to be a more defensive market overall.
Speaker 8: That might be another place I'd nibble at. You mentioned Switzerland, Tom.
Speaker 8: Normally that's one of my go tos for downside protection,
Speaker 8: but with the pharmaceutical tariffs. I'm not sure that one
Speaker 8: works as well.
Speaker 5: This time, we're going to.
Speaker 2: Stop the show because this is what she does. She
Speaker 2: triangulates the issues of the moment. Yesterday we started in
Speaker 2: on antibiotics. Pharmaceuticals somewhere between eighty percent or whatever, and
Speaker 2: about it has come from China. There's a whole European
Speaker 2: drug trade as well. The media is way underplaying pharmaceuticals,
Speaker 2: aren't they like Apple, sexy cell phone and all that.
Speaker 2: Those antibiotics we take for granted are really under threat.
Speaker 8: I mean, my hope is that, just with some of
Speaker 8: the exceptions we've seen in the last week, if supply
Speaker 8: chains become truly threatened later this year, we will see
Speaker 8: exceptions for pharmaceutical ingredients and actual pharmaceuticals, because there's no
Speaker 8: way the voting public is going to be okay if
Speaker 8: they can't get their meds on your commute.
Speaker 2: This morning, Good morning, Bloomberg eleven three or the entire
Speaker 2: Patterson families listening in. We say good morning on your
Speaker 2: community across the nation on YouTube. Subscribe to YouTube a
Speaker 2: Bloomberg podcast. I should say just thank you so much
Speaker 2: for that interest. Okay, because Rebecca was here, Paul, I
Speaker 2: had to like go adult. Usually I go euroswissy, but
Speaker 2: I did dollars swissy logarithmic noot. You know, you get
Speaker 2: some curve linear move here there. I was on a
Speaker 2: street in lais And Switzerland, Brady fifteen year old, and
Speaker 2: I was doing the math four point three Swiss franks
Speaker 2: to a dollar. I can't, I can't figure it out,
Speaker 2: and I'm sorry. It's a linear decline. But with a
Speaker 2: new Trump acceleration to ever ever stronger Swiss, I got
Speaker 2: gold at thirty two hundred dollars per else What is
Speaker 2: that signal to you on the JP Morgan desk years ago?
Speaker 8: I think there is a flight to safety, and the
Speaker 8: dollar right now is not seen as that, I think,
Speaker 8: or bonds for that matter, to the same degree they
Speaker 8: are normally. And then I think there also is an
Speaker 8: element of repatriation of foreign investors who had been loading
Speaker 8: the boat with US assets for the last eighteen or
Speaker 8: so years, taking some money home for economic concerns, political concerns,
Speaker 8: et cetera.
Speaker 5: All right, so can central banks have an impact here
Speaker 5: on this global trade issue, a global economic issue? I
Speaker 5: think that's central banks in general, and we'll hear from
Speaker 5: the Fed soon.
Speaker 8: Yeah, so we're going to write we have power coming up.
Speaker 8: Cutting rates is hard if inflation rises or is sticky,
Speaker 8: so central banks, especially in that situation, will move slowly
Speaker 8: so they won't come to the rescue that way. If
Speaker 8: the bond market freezes up, we could see stabilization measures
Speaker 8: like we saw in March twenty twenty or around SVB,
Speaker 8: So we could get financial stability help, but we might
Speaker 8: not get growth help as quickly quickly.
Speaker 2: As we like.
Speaker 8: One thing I'm watching today, guys, is the meeting between
Speaker 8: Trump and the Japanese Trade delegation. Bonds are coming up.
Speaker 8: Japan owns one point one trillion dollars of US treasuries.
Speaker 8: I just have to think they're going to have a
Speaker 8: little discussion about that. What can Japan do to help
Speaker 8: lower US financing costs? I don't know what Japan would
Speaker 8: want to do, but it wouldn't surprise me if that's
Speaker 8: a topic.
Speaker 2: Rebecca Person with the consopt formulations in the website, folks,
Speaker 2: I can't say enough about it. And Foreign Affairs Magazine
Speaker 2: just lights out Lawrence Friedman and the new issue on
Speaker 2: war truly an expert at one time with him years
Speaker 2: ago and Adam Poe's and everybody talking about his article
Speaker 2: of the last three, four or five days. So you
Speaker 2: don't know this, folks, But the cafeteria for the consol
Speaker 2: on Formulations is match on sixty fifth Street. Everybody goes
Speaker 2: in there, you can sit there. It's like the number
Speaker 2: of PhDs at a lunch at match. And excuse me, Paul,
Speaker 2: lunch at the CFR is not twelve noon. We're talking
Speaker 2: one ish one point fifteen. And they're in there at
Speaker 2: the wonderful match on sixty fifth Street, there's like eighteen
Speaker 2: PhDs around a table. What are you and Froman talking
Speaker 2: about about negotiation? She's laughing at me.
Speaker 7: I haven't negotiation, I know.
Speaker 8: I'm just saying I haven't been invited to match. I'm like,
Speaker 8: I need to talk to Froman tonight over.
Speaker 2: There and go to match. But the Rebecca, the issue
Speaker 2: here is there's this word negotiation and the president is
Speaker 2: of you know, I'm not being a critic of Trump.
Speaker 2: Don't give me a grief, folks, but he's got in
Speaker 2: his mind his negotiation and the Chinese are talking respect.
Speaker 2: I have no idea what the Japanese are talking about.
Speaker 2: To find the word negotiation, at CFR.
Speaker 8: Well, there's what we've seen traditionally, and then there's what
Speaker 8: we're living through now. I think what we're living through now,
Speaker 8: you know, who knows what the number is, seventy seventy
Speaker 8: five countries in ninety days. You have to do a
Speaker 8: deal every thirty hours or something, so that's not going
Speaker 8: to happen when they normally take quarters or years. I
Speaker 8: think our best hope is that we get a number
Speaker 8: of countries to sign, you know, understandings of what will
Speaker 8: happen the beginning of a trade deal, and it's enough
Speaker 8: of global GDP, enough of US trade to calm the
Speaker 8: markets at least somewhat that the worst case scenario is
Speaker 8: off the table. Japan would be a huge win, and
Speaker 8: I think from what we're hearing from the Japanese they
Speaker 8: are hoping to do a deal. If we could see
Speaker 8: that come out later today, we'll have another relief rally.
Speaker 8: I don't know if it'll last. They want Japan to
Speaker 8: help pay more for the defense umbrella from the United States.
Speaker 8: They want a stronger en. Well, the n already strengthen
Speaker 8: ten percent this year against the dollar, so I don't
Speaker 8: know what else they want. They want Japan to keep
Speaker 8: raising rates. They want something with bonds. What will that
Speaker 8: package look like? More access for US farmers to Japanese
Speaker 8: markets cars. But I do think Japan, Korea, Vietnam, there
Speaker 8: are a handful of countries that I think are relatively
Speaker 8: more likely to want deals. If the US can get
Speaker 8: that done quickly, that will help, again for the short term,
Speaker 8: at least stabilize things.
Speaker 5: Would that be enough to keep the US economy out
Speaker 5: of a recession?
Speaker 8: I don't think so, honestly. The ten percent universal tariff,
Speaker 8: and even if Chinese tariffs don't stay where they are,
Speaker 8: if they stay high, we're still looking at an average
Speaker 8: tariff rate in the United States that's going to be
Speaker 8: the equivalent of a one two thousand dollars tax hike
Speaker 8: per each US household. So I still think you have
Speaker 8: a pretty material hit.
Speaker 7: Brilliant question, Paul.
Speaker 2: Headline just out amd SE's up to eight hundred million
Speaker 2: charges from US export controls on m I three h eight.
Speaker 2: A stockdown seven percent seems to be a trend. We
Speaker 2: got to frame this. You failed there, Rebecca. If we
Speaker 2: have a ten percent tariff, that's only five times bigger
Speaker 2: than what it was before, four times but we need
Speaker 2: to explain to people, even if we get the best outcome,
Speaker 2: what it does to the real GDP spirit and confidence
Speaker 2: of America is I'm going to use this is a
Speaker 2: this is a word best. I gave a speech once
Speaker 2: at Best. Yeah, sheried to use it. I got one
Speaker 2: in the time out here. It's a ginormous move up
Speaker 2: to ten percent.
Speaker 8: It is, it is, and we're seeing the uncertain and
Speaker 8: the surveys now we're seeing the uncertainty coming from corporations.
Speaker 8: I think earning's guidance has to get pulled lower, growth
Speaker 8: expectations pulled lower. We're going to see it. We're starting
Speaker 8: to see it now. Bub blah blah credit markets.
Speaker 7: So that's coming well to Paul's question.
Speaker 2: On Paul today, take it over to the monetary space.
Speaker 2: We talked about a Jay curve with Rashudo. Do you
Speaker 2: suggest that this is yes inflation but then it reverts
Speaker 2: on a real GDP slowdown or nominal GDP slow down
Speaker 2: to some form of disinflation.
Speaker 8: And that was Waller's comments right a few days ago.
Speaker 8: Governor Waller from the FED said that he had two scenarios.
Speaker 8: Of course, we all have more than one scenario. Now,
Speaker 8: but he believes that the shock to demand from the
Speaker 8: tariffs could overwhelm the inflation and eventually lead us to
Speaker 8: enough disinflation that you can cut rates.
Speaker 2: That's possible.
Speaker 8: I think that's if I get something wrong with my view.
Speaker 8: It's that that the hit to demand pulls inflation down.
Speaker 2: Bronze that, folks, because what's important there as miss Patterson
Speaker 2: has a more inflationary view and demand won't crush.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: The newspapers. Maybe she'll be terriff free. What do you think?
Speaker 3: I don't know.
Speaker 2: What do you got?
Speaker 9: I'll break a little tariff in there maybe, Okay. I'm
Speaker 9: starting with this big boom in ultra luxury cruises. Okay,
Speaker 9: the big ship, yes, Charlie Ballad. I don't know if
Speaker 9: he does these.
Speaker 2: Extra luxury on him too.
Speaker 9: Yeah, yeah, I want to know if he goes on
Speaker 9: the big luxury. Okay. So they're growing two and a
Speaker 9: half times faster than the overall industry because of that business,
Speaker 9: Bloomberg BusinessWeek says, and their words, not mine, snobs are
Speaker 9: enjoying cruising now, okay, so look at these amenities. I
Speaker 9: don't know if SI gets these, but amenities like private
Speaker 9: world tool, whirlpool tub, butler service, private pools, Starlet Cinema's
Speaker 9: free flowing sham or there you got me, there you
Speaker 9: got the diamond dust facials. I mean all of this.
Speaker 9: Fourteen thousand dollars per week per couple.
Speaker 2: You know what SIE doing?
Speaker 10: Not doing that cruises Europe like they start up with
Speaker 10: the Polar Bears, okay, like halfway to Iceland and he
Speaker 10: ends up off crete somewhere, you know, sipping all the drinks.
Speaker 2: I mean the basic I mean, I've never done this,
Speaker 2: but it's like I was in Venice saying, you know,
Speaker 2: the square and all that, and one of the ships
Speaker 2: went by. I couldn't believe it. And it's ginormous, is
Speaker 2: what Bloomberg Business Week is saying.
Speaker 9: Yeah, And they're saying it's like the high end ones,
Speaker 9: like big names like four Seasons, like high in concepts
Speaker 9: from star cirls, like it's getting into this.
Speaker 2: He gets a drink. Their is LVMH bags in it next.
Speaker 9: So Guy Fieri, right, you know him as this one
Speaker 9: hundred million dollar contract with Food Network.
Speaker 7: Wow.
Speaker 9: But one thing he says he's tough with is passing
Speaker 9: his fortune onto his kids. And he tells Business Insider quote,
Speaker 9: if you want this cheese, you gotta get two degrees. Okay,
Speaker 9: And he took that actually from Shaquille O'Neil said, okay.
Speaker 9: But his oldest son Hunter, he graduated the NBA from
Speaker 9: University of Miami in May. Okay. His youngest son, Rider
Speaker 9: who's nineteen, finishing freshman year at San Diego State, and
Speaker 9: he's kind of fighting it, saying, you know what, Dad,
Speaker 9: can we get out of this arrangement? Like I'm kind
Speaker 9: of done at this point right now. So his dad saying,
Speaker 9: you know what, you got it, you gotta go along.
Speaker 2: Two things. Had a wonderful thing with guy you know,
Speaker 2: I don't know, he was coming to Times Square or whatever.
Speaker 2: I literally went down to his restaurant and we did
Speaker 2: the whole meal thing at the bar in that total
Speaker 2: class act. Yeah, I got I got all sorts of grief.
Speaker 2: How can a fancy bow tie like you be dealing
Speaker 2: with this guy? And he was a complete class act.
Speaker 2: And it's interesting. I mean, you know, he's like saying,
Speaker 2: get it done, kids, right he is.
Speaker 9: You know he has he does a huge fortune. And
Speaker 9: you know, if the kids want it, they gotta get
Speaker 9: not one, but two new degrees. That's right, are you
Speaker 9: He's saying that's you know, his dad kind of passed
Speaker 9: down from his.
Speaker 2: Dad, right, Yeah, Okay, thanks you one more?
Speaker 9: Yes, I do. Oh, Citi's with the most affordable rent, right,
Speaker 9: because the cost of rent risen by more than fifty
Speaker 9: percent over the past ten years. We all know that
Speaker 9: who has the most affordable one? We had wallet hub.
Speaker 9: They got the job done. They analyzed a medium annual
Speaker 9: growth rent in more than one hundred and eighty cities.
Speaker 9: They compared it to the medium household income. So if
Speaker 9: you go by the lowest percent of income spent Bismarck,
Speaker 9: North Dakota, then you have Sioux Falls, South Dakota, and
Speaker 9: then Cheyenne, Wyoming. And then you go to that highest
Speaker 9: percent of income spent, right, and you go to Oceanside, California, Jackson, Mississippi,
Speaker 9: and Birmingham, Alabama. It just goes to show you kind
Speaker 9: of bit different.
Speaker 2: And Newark's on the list as well. Right, New Jersey,
Speaker 2: I think snuck into it as being really expensive.
Speaker 9: It's getting their New New Jersey one hundred and eighty one. Yeah,
Speaker 9: highest percent of income spent so in Miami, Florida right
Speaker 9: behind that.
Speaker 2: Yeah, are you doing?
Speaker 9: They crunched the numbers they did.
Speaker 2: Are you doing?
Speaker 9: I see you know I want to go tariff. So
Speaker 9: I'm going to go tariff for you because you requested it. Okay,
Speaker 9: Canada and China tariff chaos hitting Vermont's Maple Syrup business.
Speaker 2: Yeah.
Speaker 9: And the reason why is because all the things dayless
Speaker 9: steel fixtures, like the machines to make it come from Canada,
Speaker 9: like all these different things. So they're saying now because
Speaker 9: of that for Mons Maple Syrup.
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