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Speaker 3: All Right, as we mentioned, Tim and I are setting
Speaker 3: the stage at the top a lot coming out investors
Speaker 3: this week, and I mentioned Julian Emmanuel over at Evercore
Speaker 3: II calling this a moment of truth for the markets
Speaker 3: because you've got big tech earning some of those mags seven,
Speaker 3: You've got the trade negotiations like we just talked with Catherine,
Speaker 3: You've got the FOMC, the jobs report and earnings report.
Speaker 4: It's a lot.
Speaker 5: Tim, Let's ask Nancy Lazarrel about it. She's chief economist
Speaker 5: for Piper Sandler. She joins us from Aspen, which is
Speaker 5: the biggest element on your radar. This week. We opened
Speaker 5: our program talking about Okay, yes, the trade deals. Those
Speaker 5: are obviously very big. We have everything happening when it
Speaker 5: comes to tariff deadlines. Later this week, We've got earnings
Speaker 5: out this week from some of the megacap tech players,
Speaker 5: and then of course the jobs are coming at us
Speaker 5: on Friday, not to mention fed share, J Powell coming
Speaker 5: at us on Wednesday. How are you making sense of it?
Speaker 6: Well?
Speaker 7: I think really the consumer spending data we're going to
Speaker 7: see for the month of June from an economic perspective,
Speaker 7: is going to be really important. Our best guess is
Speaker 7: that the consumer is going through a soft patch right now.
Speaker 7: We have already clearly seen that in the retail sales data.
Speaker 7: Within consumer spending, we're going to get more information on services.
Speaker 7: We heard last week from some of the service oriented
Speaker 7: consumer companies airlines, hotels, restaurants that consumer spending in the
Speaker 7: service sector also is a little squishy. It's not just goods,
Speaker 7: it's also the service side. So consumer spending, how week
Speaker 7: will it be as we go into second quarter into
Speaker 7: the third quarter? Excuse me?
Speaker 8: We are expecting a soft patch.
Speaker 7: We think it will be on the softer side, reflecting
Speaker 7: in part demand was pulled forward in anticipation of these tariffs,
Speaker 7: and you have already seen price increases and that's also
Speaker 7: impacting consumer consumer spending.
Speaker 5: How do you make sense of that, given what we
Speaker 5: heard from airlines over the last couple of weeks. Not
Speaker 5: every airline, of course, but I'm talking mainly of United
Speaker 5: and Delta, who said, you know, as we got a
Speaker 5: little clarity about what was happening with tariffs late June
Speaker 5: early July, we started to see a real big turnaround
Speaker 5: when it came to consumer spending. How do you gel
Speaker 5: those two things.
Speaker 7: I think it really is a bifurcated consumer. One of
Speaker 7: these days, I look forward to not using that word anymore.
Speaker 7: We've talked about that for a couple of years now,
Speaker 7: but there is really a bifurcation. The higher end business
Speaker 7: oriented airlines are I'm not an airline analyst, but they
Speaker 7: are being supported by the higher end and businesses. Whereas
Speaker 7: the airlines that reported last week, couple of them anyway,
Speaker 7: and again today some layoffs, those are more for the
Speaker 7: lower end consumer, and the lower end consumer is really
Speaker 7: getting squeezed from these terrafs. It is basically a regressive
Speaker 7: tax on the consumer. So the bifurcation companies that are
Speaker 7: geared toward businesses and the higher end consumer can plow
Speaker 7: through this. Those that are more tied to the lower
Speaker 7: end consumer are struggling. The consumer really is looking at
Speaker 7: price points right now.
Speaker 3: I want to get to what our Shawn Donnan wrote
Speaker 3: about on the Bloomberg Today and at Bloomberg dot Com,
Speaker 3: and that has to do Nancy with the damage to
Speaker 3: the global economy from American protectionism. He notes that it's
Speaker 3: becoming increasingly evident even if financial markets get somewhat excited
Speaker 3: as we see trade deals being done. He says it
Speaker 3: all amounts to another step change in the trade barrier
Speaker 3: that the President has erected around America, which is starting
Speaker 3: to reshape trade and investment patterns worldwide. Not his opinion,
Speaker 3: but his reporting out that Shawn has done here at
Speaker 3: Bloomberg and Bloomberg Economics, saying the hit to the world
Speaker 3: economy will reach two trillion by the end of twenty
Speaker 3: twenty seven relative to its pre trade war path.
Speaker 4: It's going to be a different global environment.
Speaker 7: Yes, well, for sure, it's going to be a different
Speaker 7: global environment. But I think we have to look at
Speaker 7: the economy as three dimensional chess, not just as a
Speaker 7: flat as a flat board, no question, tearis our attacks.
Speaker 7: I'm definitely more for free trade, but I'm also for
Speaker 7: fair trade. Maybe we can shake one little positive out
Speaker 7: of this and get some fair trade i e. Incrementally
Speaker 7: sell more to Japan and Europe in particular. But to
Speaker 7: be sure, right now, our effective tariff rate that we're
Speaker 7: calculating is about seventeen. Now it's down dramatically, but seventeen
Speaker 7: is the highest since since the nineteen thirties, and so
Speaker 7: to be sure, that is a headwind to global growth.
Speaker 7: But I think that is just one part of the puzzle.
Speaker 7: The second thing that's going on in the United States
Speaker 7: is the capital spending cycle, and the tax legislation or
Speaker 7: that was just passed actually in the one Big Beautiful
Speaker 7: bill indeed does very very very significant accelerated depreciation for
Speaker 7: capital spending apex appreciation for eighty percent of capex. That
Speaker 7: is going to be a significant boost to cash flow,
Speaker 7: corporate cash flow.
Speaker 8: We've already heard that.
Speaker 7: Last week we had four companies AT and T, Verizon,
Speaker 7: T Mobile, and United Rental. I'll say this tax legislation
Speaker 7: is a support for their cash flow. So against I
Speaker 7: think we can't just look at one level. We have
Speaker 7: to look at what's going to happen to capital spending
Speaker 7: and capital spending. I call it the ugly duckling of
Speaker 7: economic data. It's underappreciated for what it does for growth.
Speaker 7: It creates productivity, profitability and lists potential GDP growth and
Speaker 7: that eventually lists living standards. So quite frankly, I think
Speaker 7: that article is a little bit way too one sided,
Speaker 7: and you need to look at the bigger picture and
Speaker 7: near term again, this economic soft patch for sure, but
Speaker 7: you're already seeing signs the companies that I mentioned, you're
Speaker 7: seeing it in data where US capital spending is picking up,
Speaker 7: and that's going to come back and help not only
Speaker 7: productivity but the job cycle as we go through twenty
Speaker 7: twenty six. So it's important to look at the bigger picture.
Speaker 7: And I didn't mention deregulation. I'll stop, but that's also
Speaker 7: another really important support for the US and therefore the
Speaker 7: global economy.
Speaker 4: But is it okay?
Speaker 3: And you know, one of the things I want to
Speaker 3: go back to is you say support for the labor market.
Speaker 3: We had Rob kaplan On, former president of the Dallas Fed,
Speaker 3: on Friday and he said, you talked repeatedly over the
Speaker 3: tight labor market and the impact of immigration perhaps on
Speaker 3: that and how that could then impact US growth.
Speaker 4: So I just want to throw that out there.
Speaker 3: But when you talk about capex and what it can
Speaker 3: do for growth, certainly great for company balance sheets, Does
Speaker 3: it help workers? Does it actually provide momentum throughout the economy.
Speaker 7: Absolutely, Again, it's called a business cycle for a reason,
Speaker 7: and when businesses invest again, they improve their profitability through productivity.
Speaker 7: And if companies aren't making more money, if their cash
Speaker 7: flow is indeed going up, that is incentive to spend
Speaker 7: not only on capital spending, but eventually on jobs and
Speaker 7: in wages. And you see it, you see it historically
Speaker 7: in in the data. Again, capital spending always grows faster
Speaker 7: than housing capital spending, accept potentially in recession, capital spending
Speaker 7: always grows faster than consumer spending. So it's really really underappreciated.
Speaker 7: Businesses create jobs and pay and pay weaight and pay wages.
Speaker 7: So near term, absolutely, I would argue we're in a
Speaker 7: soft patch. The unemployment rate is grinding higher the Although
Speaker 7: initial claims have come down a little bit, continuing claims
Speaker 7: remain elevated. Companies, I'm not sure the labor market is tight.
Speaker 7: Continuing claims remain very elevated. Companies are reluctant to hire
Speaker 7: given the trade. Given the trade uncertainty. We think as
Speaker 7: we go into twenty twenty six, the improvement in corporate profits,
Speaker 7: which right now are sluggish but they'll improve into twenty
Speaker 7: twenty six, then leads to a stronger a stronger labor market.
Speaker 7: So yes, there's nothing more beneficial for the consumer than
Speaker 7: stronger productivity growth a low inflationary environment, and that gives
Speaker 7: you stronger real income growth.
Speaker 5: To what extent is that productivity growth, in your view,
Speaker 5: hampered or not by tariffs.
Speaker 7: I don't think it really is hampered by tariffs per se,
Speaker 7: incrementally maybe from a higher cost of certain certain investments.
Speaker 7: As a result, we are seeing an increase in the
Speaker 7: price of certain capital goods. So at the margin that
Speaker 7: is a little bit of a nick. But this is
Speaker 7: this is a very significant full capex depreciation, which again
Speaker 7: those four companies early on in this earning season. I
Speaker 7: can't wait to hear what happens over the next couple
Speaker 7: of weeks that I have seen significant savings in cash
Speaker 7: in cash flow, So we don't know yet the full
Speaker 7: quote unquote saving to companies from this a new depreciation schedule,
Speaker 7: and it could more than offset anything which I think
Speaker 7: it does from a tariff from a tear perspective. So
Speaker 7: tariffs are a one time tax versus capital spending, has
Speaker 7: a very long tail and will help the economy at
Speaker 7: least through twenty six, not into twenty sex.
Speaker 3: So Nancy, we've got a FED meeting, as you well know,
Speaker 3: FED decision on Wednesday. So you say we're in a
Speaker 3: bit of a soft patch right now, but you are
Speaker 3: looking for improvement in twenty twenty six, and you see
Speaker 3: profits leading to a stronger labor market. If we've already
Speaker 3: got stimulus coming as a result of some of the
Speaker 3: tax measures by the President's big beautiful bill, then does
Speaker 3: the FED really should they not do anything for maybe
Speaker 3: the rest of the year.
Speaker 4: Because they don't need to.
Speaker 3: They're stimulus already coming, and they've got to be careful
Speaker 3: about inflation.
Speaker 4: Just got about forty seconds.
Speaker 7: Yes, I would agree that the FED doesn't need the
Speaker 7: cut rates. Our guests that they probably do, according to
Speaker 7: my colleague Benson, at least once, but we don't really
Speaker 7: need more than that. They already cut rates one hundred
Speaker 7: basis points last fall and that's still working its way
Speaker 7: through into the economy. So good point. Combination of the
Speaker 7: incremental I don't want to call it physical stimulus. It's
Speaker 7: basically tax at tax and implicit tax cut for corporations,
Speaker 7: and the regulation are not inflationary. They're actually disinflationary through
Speaker 7: improving productivity growth. But net no, we really don't need it,
Speaker 7: but we'll probably will probably to get at least one.
Speaker 3: All right, great to get some time with you again, Nancy,
Speaker 3: Thank you so much. Have a good week, Nancy Lazar.
Speaker 3: She's chief economist over at Piper Sandler.
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Speaker 5: The US and Chinese officials finished their first two days
Speaker 5: of talks aimed at extending their tariff truth beyond a
Speaker 5: mid August deadline and hashing out ways to maintain trade
Speaker 5: ties while safeguarding economic security. The agenda includes giving more
Speaker 5: time for high stakes negotiations to play out on issues
Speaker 5: ranging from US levies tied to fentanyl trafficking to Chinese
Speaker 5: purchases of sanctioned Russian and Iranian oil. Andrew Bishop is
Speaker 5: following this all He's Senior Partner Global Head of Policy
Speaker 5: Research at Signam Global Advisors. He joins us from Washington, DC, Andrew,
Speaker 5: giving your view of what has happened over these first
Speaker 5: of two days of trade talks. Do you think that
Speaker 5: this tariff truths will be extended?
Speaker 8: Oh, yes, very much so.
Speaker 9: I think the tariff truth is absolutely going to be extended.
Speaker 9: But the main reason for that is not so much
Speaker 9: because I think there's great progress being made on the
Speaker 9: substance of these talks. Rather, I think President Trump essentially
Speaker 9: realized back in April May that high tariffs on China
Speaker 9: just don't work because the impact on the US economy
Speaker 9: is too great and China has.
Speaker 8: Too much leverage in the form of its control over
Speaker 8: rare earths.
Speaker 9: So as a consequence of that, I think the President
Speaker 9: is in very much de escalation mode and trying to
Speaker 9: buy time make sure that the US receives the rare
Speaker 9: earth that China has promised in Geneva and London. And
Speaker 9: therefore he's definitely interested in extending that pause.
Speaker 5: So if China has, in the in the words of
Speaker 5: Donald Trump, maybe has the cards in this negotiation, in
Speaker 5: your words, has too much leverage in this negotiation, then
Speaker 5: what does the US have Aside from an economy that
Speaker 5: relies on goods from China.
Speaker 9: The US really only has a terror freight, which is
Speaker 9: why I think the Chinese side is going to be
Speaker 9: bargaining hard for a reduction in tariffs as well as
Speaker 9: a reduction or at least a stabilization in export controls,
Speaker 9: in particular of semiconductors.
Speaker 8: What's interesting in the latest recent.
Speaker 9: Events of the past couple of weeks is that the
Speaker 9: Trump detmonstration has reversed some of its earlier export controls
Speaker 9: on VSH twenty chips, for example.
Speaker 8: As I'm sure you're well aware, that was.
Speaker 9: A view that we had at Signum that this would
Speaker 9: be part of the deal that they struck in London.
Speaker 9: The problem for the Trumpet demonstration is that that move
Speaker 9: is already getting enormous pushback.
Speaker 8: Right So, while China is going to be.
Speaker 9: Demanding more of that, more repeal of export controls, it's
Speaker 9: going to be hard for President Trump to agree to
Speaker 9: that without facing major backlash domestically. And that's why I
Speaker 9: think he'll start pivoting the conversation away towards tariff.
Speaker 8: Relief, just not as emminently as this week.
Speaker 3: I don't think who has more at stake here? We
Speaker 3: so often, Andrew talk about the relationship and the dependent
Speaker 3: relationship between the United States and China. But when you
Speaker 3: look at this relationship, does one of the countries have
Speaker 3: more at stake here?
Speaker 6: So?
Speaker 9: I think the answer to that is, and the reason
Speaker 9: why you get different answers right, is that China definitely
Speaker 9: has more to lose economically than the US does. The
Speaker 9: problem is the US has a lower political pain tolerance,
Speaker 9: and as consequence, though even though the US economy is
Speaker 9: far more resilient and can absorb these shocks from a
Speaker 9: political standpoint, you have a president and it would be
Speaker 9: the case with any other president that essentially faces a
Speaker 9: Taco situation as soon as they come under pressure.
Speaker 4: So then talk to us.
Speaker 3: Take us to China in terms of what is happening
Speaker 3: in their economy right now, and we know that you're
Speaker 3: right in terms of pain tall tolerance, that many much
Speaker 3: has been reported. I guess I should say in terms
Speaker 3: of the Chinese government that they'll do what they need
Speaker 3: to do right in terms of potentially inflicting pain economic
Speaker 3: pain on their citizens. But tell us about what is
Speaker 3: the truth or reality, at least as you know it
Speaker 3: to be the Chinese economy today.
Speaker 9: So what's interesting is you see a lot of vulnerabilities
Speaker 9: in the Chinese economy. Youth unemployment is a major one,
Speaker 9: you know, sort of misallocated savings and low consumption is another,
Speaker 9: and of course problems and the major problems in the
Speaker 9: real estate market. But what's interesting is that a lot
Speaker 9: of those problems aren't directly related to President Trump's tariff
Speaker 9: threats or tariff enactments, if you will.
Speaker 8: So there are two ways of looking at that.
Speaker 9: You could say, any marginal worsening of the situation due
Speaker 9: to Trump makes the Chinese position even harder to sustain.
Speaker 9: But a different interpretation, which I would lean with, is that,
Speaker 9: you know, because China is aware that these are structural
Speaker 9: problems that it's on its way to at least, you know,
Speaker 9: resolve or at least tackle on its own. President Trump
Speaker 9: really isn't the major agenda item on the table here,
Speaker 9: and he can be sort of kept at bay and
Speaker 9: handled almost like as a single singular issue in its
Speaker 9: own bucket, if you will.
Speaker 5: We've spent a lot of time over the last few
Speaker 5: weeks and all over the last few months talking about
Speaker 5: rare earths talking about tariff rates. But one thing that
Speaker 5: hasn't necessarily come up a lot of late has been
Speaker 5: the fate of TikTok and how TikTok could or could
Speaker 5: not be used as a bargaining chip in these negotiations.
Speaker 5: What's your view?
Speaker 8: So my view on that is.
Speaker 9: My view on that is that you can have a
Speaker 9: TikTok deal any day, right as long as the US
Speaker 9: is willing to accept the situation where China continues to
Speaker 9: control the algorithm. So that could look at one that
Speaker 9: could look one of two ways. Either China controls the
Speaker 9: algorithm and there are essentially two tiktoks, a Chinese TikTok
Speaker 9: and an American TikTok, and the American TikTok is sort
Speaker 9: of fully US owned but it just doesn't have that
Speaker 9: initial algorithm. Or you have a situation where the TikTok
Speaker 9: platform in the US still has the underlying algorithm, but
Speaker 9: there's an existing dependency on China. What I don't see
Speaker 9: is China agreeing to part ways with that algorithm. So
Speaker 9: a simpler, a simpler version of that is to say,
Speaker 9: China is not going to give away the real TikTok.
Speaker 9: So the question is whether the US wants to continue
Speaker 9: with the status quo or downgrade TikTok's quality.
Speaker 3: If you like, Hey Andrew, something we talked about in
Speaker 3: the two o'clock hour about all of these trade agreements that.
Speaker 4: The devil's in the details, right.
Speaker 3: And it just feels like in many ways we're just
Speaker 3: getting kind of agreements to do something. Something like a
Speaker 3: US China trade deal is going to be a complicated
Speaker 3: one and lots and lots of pages and items to discuss.
Speaker 3: So I guess what my question is is we will
Speaker 3: probably not know the specific details for a while. So
Speaker 3: investors trading off of, I mean, what should they trade
Speaker 3: off of, what do they be looking for in terms
Speaker 3: of specifics when it comes to a US China trade
Speaker 3: deal and how long might that take?
Speaker 9: And so I think one thing that they can trade
Speaker 9: on is direction of travel, right, So, very concretely, experts
Speaker 9: debate whether there's going to be a minor terror for
Speaker 9: Leaf tomorrow or in November or some time in between.
Speaker 9: But most experts at this stage agree that there is
Speaker 9: a floor under the relationship and that it's unlikely we're
Speaker 9: going to see TEFF increase, right, So one answer is
Speaker 9: things are probably going to get better, not worse, over
Speaker 9: the coming six months, different if you look over the two.
Speaker 8: To five here horizon. But that's a separate question. So
Speaker 8: that's one answer.
Speaker 9: The second answer would be any deal is likely to
Speaker 9: involve purchase commitments from China, right, so similar to the
Speaker 9: Phase one trade agreement that they struck back during President
Speaker 9: Trump's first term. China will probably promise to buy more
Speaker 9: American things items, including agricultural goods. Those targets are not
Speaker 9: likely to be as high as during the first agreement.
Speaker 9: They were unrealistic back then. But that's a second component.
Speaker 9: The third is again, oh sorry.
Speaker 3: No offurtunately, we've got to wrap it and leave it here,
Speaker 3: which is a mega te Well.
Speaker 5: Honey, back to talk about the third one. Okay, that's
Speaker 5: what we call a megates.
Speaker 4: That was great though. We really appreciate Andrew Bishop.
Speaker 3: He's Senior Partner, Global Head of Policy Research at Signum
Speaker 3: Global Advisors, joining us from DC.
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Speaker 1: Just say Alexa play Bloomberg eleven thirty Now to a.
Speaker 5: Very serious global issue. We're going to start in the
Speaker 5: Middle East, where President Donald Trump said the US would
Speaker 5: work on a new effort to provide food aid to
Speaker 5: alleviate starvation and gaza, along with other governments and organizations,
Speaker 5: including the UK and the European Union. His comments from
Speaker 5: this morning from Scotland in a press conference with the
Speaker 5: UK Prime Minister Keir Starmer.
Speaker 10: The United States will be helping with the food. You know,
Speaker 10: we have a lot of access to food. We got
Speaker 10: a lot of food ourselves, and we're going to bring
Speaker 10: it over there. We're also going to make sure that
Speaker 10: they don't have barriers stopping people. We're going to be
Speaker 10: getting some good, strong food. We can save a lot
Speaker 10: of people. I mean, some of those kids are that's
Speaker 10: real starvation stuff. I see it, and you can't fake that.
Speaker 10: So we're going to be even more involved.
Speaker 5: That's President Trump earlier today from Scotland. We're going to
Speaker 5: head to tele Aviv. Now to Bloomberg News Israel Bureau
Speaker 5: Chief Ethan Bronner. Ethan, we've all seen the pictures by
Speaker 5: now of starving Palestinians, many of whom are children. You've
Speaker 5: wrote about this, and you wrote about this last week,
Speaker 5: and the back and forth, what the Israeli government has
Speaker 5: said is happening, what many in the worldwide community has
Speaker 5: said is happening. The World Health Organization said is happening.
Speaker 5: In your view, what is going on.
Speaker 6: Tim, I mean, you know, I wish I had the
Speaker 6: wisdom for a genuinely deep answer. I think there can
Speaker 6: be no question that people are going hungry in Gaza.
Speaker 6: I think that we are now beyond any discussion of that.
Speaker 6: The issue begins to get complicated when we're talking about
Speaker 6: famine or starvation and whose fault it is and how
Speaker 6: long it's been going on. And I have to tell
Speaker 6: you that as a reporter here who can't get into Gaza,
Speaker 6: I mean, the Israeli military and government have barred us
Speaker 6: from going in. It's been a source of enormous frustration
Speaker 6: for the entire two years almost that this war has
Speaker 6: gone on, that you have international aid organizations talking about
Speaker 6: starvation and you have the Israeli military saying none of it.
Speaker 6: So I think that for a while it was exaggerated.
Speaker 6: It may still be exaggerated. But it is real, and
Speaker 6: even the Israelis have acknowledge it, and indeed, as you
Speaker 6: just noted, so has President Trump. So a very difficult
Speaker 6: situation is underway where people don't have food to eat,
Speaker 6: just fifty miles from where I'm sitting Ethan.
Speaker 4: So many ways to go here.
Speaker 3: But one thing I want to say is you say,
Speaker 3: for the most part, everyone has agreed that there's no starvation,
Speaker 3: but Israeli Prime Minister Benjamin not Now who says that
Speaker 3: there's no starvation in Gaza, So.
Speaker 6: Right, I said, I can think we can all agree
Speaker 6: there is hunger, right, I mean, these are these various
Speaker 6: technical definitions. He has said there's no starvation. He doesn't
Speaker 6: seem to be right. I think the next question is
Speaker 6: is they're famine. I'm not sure I know the different
Speaker 6: you know how to distinguish among these things, but clearly
Speaker 6: one as we go down the words, we get to
Speaker 6: a more difficult situation. There is no question there is hunger.
Speaker 6: Even the Israeli military, what's held a briefing for us
Speaker 6: a few days ago, use the phrase food insecurity. When
Speaker 6: I pressed, the folks been the colonel at some length
Speaker 6: about it. So there's no doubt about that. But you know,
Speaker 6: and we see people, we see what they look like,
Speaker 6: and we hear people talking about having no food and
Speaker 6: being afraid of dying from it. So this is not
Speaker 6: a joke.
Speaker 5: How do reports of the hunger happening there coincide with
Speaker 5: Israel blocking aid supplies for Gaza in early March, so
Speaker 5: at that.
Speaker 6: Point, I mean, I'm not a government spokesman, as you know,
Speaker 6: but the Israeli argument at that time was that the
Speaker 6: Hamas was hoarding huge amounts of this food and that
Speaker 6: there was enough of it for a while, and that
Speaker 6: they were Israel was going to find a way to
Speaker 6: keep it out of the hands of Hamas for a
Speaker 6: bunch of reasons. Their main complaint was that Hamas was
Speaker 6: taking the food aid, feeding its own militants, keeping it
Speaker 6: from ordinary people, and then selling it on the market
Speaker 6: so as to continue their war against Israel. That has
Speaker 6: been challenged in various ways. Some version of that seems
Speaker 6: to be true, and that's why Israel did it and
Speaker 6: then set up this rather inefficient organization to try to
Speaker 6: skirt Amas, and that has not gone well.
Speaker 3: We have a viewer who has written in and said, well,
Speaker 3: I'm wondering why President Trump is not pushing for a
Speaker 3: permanent end to the Gazo war.
Speaker 4: I guess if it was easy, it would be done.
Speaker 6: You're hoping I can answer that question.
Speaker 3: Look, I don't forgive you for giving you such a test,
Speaker 3: but I think it's been going on.
Speaker 4: First look, I mean I think.
Speaker 6: Look, I would say the following that for most people abroad,
Speaker 6: from most people anywhere, the idea that there's.
Speaker 8: A war is terrible.
Speaker 6: Wars are terrible, okay, but we do have a war
Speaker 6: underway between two forces. The Israel believes that if Hamas
Speaker 6: is not eliminated, that it will reconstitute itself and a
Speaker 6: reconstitute itself as a threat to Israel. I think the
Speaker 6: President Trump is somewhat sympathetic to that idea. Now, while
Speaker 6: they're trying to eliminate Hamas, if people are starving, if
Speaker 6: ordinary people have no food, this is a separate issue.
Speaker 6: So in theory, and again I'm not the President's spokesman.
Speaker 6: In theory, if they could flood the area with food
Speaker 6: over the next weeks, then they could start their war
Speaker 6: up again. Because Hamas is, after all, holding fifty Israeli
Speaker 6: hostages and has said it will not step down from
Speaker 6: power or give up its arms, which from Israel's perspective,
Speaker 6: is a danger to Israel. So I think that the
Speaker 6: President is somewhat sympathetic to that reasoning. Whether that's appropriate reasoning,
Speaker 6: we can discuss at another time.
Speaker 3: And we should point out that this week we have
Speaker 3: dozens of ministers that are gathering at the United Nations
Speaker 3: in a conference to really push for a two state
Speaker 3: solution between Israel and the Palestines. We should also point out,
Speaker 3: tim that the US and Israel have boycotted this event.
Speaker 1: Ethan.
Speaker 5: We've spoken to you constantly over the last twenty one
Speaker 5: months or so after October seventh, and one thing that
Speaker 5: you've shared with us throughout that time from Israel is
Speaker 5: the view of the Israeli public support of the war,
Speaker 5: support of Prime Minister Benjamin NETANYAHUO. You've written in the
Speaker 5: last couple of weeks about some weakening support within the government,
Speaker 5: which he still does control after walkouts, But what about
Speaker 5: on the ground in Tel Aviv? And based on your reporting,
Speaker 5: is there still widespread support for this conflict?
Speaker 6: I think it is weakening. I would say that the
Speaker 6: photos and the videos of starving people and especially starving
Speaker 6: children in recent days has taken a toll on the
Speaker 6: public support. In addition to a range of other things,
Speaker 6: dying soldiers, the sense that Israel is increasingly isolated internationally.
Speaker 6: They're increasing reports of Israelis being attacked on the street
Speaker 6: in Greece and in Austria and so on. So there
Speaker 6: is a growing fatigue with all that. And Hamas does
Speaker 6: been destroyed. So I think there is We don't have
Speaker 6: polls yet from this week showing it, but there is.
Speaker 6: I hear it around dinner tables, I hear it from friends,
Speaker 6: I hear it from colleagues. There is a growing challenge
Speaker 6: to the legitimacy and the justice of this if with
Speaker 6: all these things happening, people are also starving and the
Speaker 6: hostages are not being freed. So yes, I can't tell
Speaker 6: you that there is a majority against the war because
Speaker 6: I don't know that, but my instinct is that it
Speaker 6: is dropping.
Speaker 4: UMAs how powerful are they still?
Speaker 3: You know? And I'm just thinking about the attacks and Iran,
Speaker 3: and we thought the proxies and we thought that.
Speaker 4: There was progress on this front. What do we know?
Speaker 6: Well, we know that they're able to recruit lots of
Speaker 6: young people to join their forces, it's not surprising given
Speaker 6: what's been going on for two years and longer in
Speaker 6: Gaza for ordinary people. So I think that there is
Speaker 6: some degree of strength. The problem is strength when you're
Speaker 6: a gorilla organization basically means survival and being able to
Speaker 6: poke the bear, which is Israel. So it still has
Speaker 6: that ability to do it, and nobody is able to
Speaker 6: replace Hamas right now in Gaza. Israel's argument is that
Speaker 6: once it can really break the back of the organization properly,
Speaker 6: people will emerge who are willing to take up governing
Speaker 6: the place. We will see whether that's true or not.
Speaker 6: With reference to what you refer to a better two
Speaker 6: state solution, The argument there is that non Hamas Palestinians
Speaker 6: who are associated with the Fatal movement and with the
Speaker 6: Palestinian authority could take over. The Israeli government's argument is
Speaker 6: that they are not sufficiently different from Hamas, They too
Speaker 6: teach their children to hate Israel. And the second argument
Speaker 6: they make is they will ultimately lose out to the
Speaker 6: more radical forces. We can't forward to let that state exist.
Speaker 6: So we're in a very difficult place.
Speaker 5: It's an impossible question to answer, Ethan, but it's a
Speaker 5: question I think worth pondering if the situation that you
Speaker 5: laid out is indeed what comes to pass, And I
Speaker 5: guess I could say, if and when the hostages are released,
Speaker 5: then what well.
Speaker 6: One of the problems with the question, Tim, is that everyone,
Speaker 6: many people believe that the hostages will never all be released,
Speaker 6: because it is the only currency that Hamas holds in
Speaker 6: order to hold Israel over any barrel of any kind. Now,
Speaker 6: what may happen is this government may decide that it's
Speaker 6: gotten all the hostages out through any deals it can,
Speaker 6: and it moves in fully militarily, and the remaining hostages
Speaker 6: are either killed or rescued. And then once there are
Speaker 6: no more hostages than Israel might continue militarily even further,
Speaker 6: or with President Trump's encouragement and the world's anger, this
Speaker 6: government might return to negotiating with Hamas indirect negotiations in
Speaker 6: either Kata or Egypt as that have been happening, and
Speaker 6: some attempt to cut a deal, at least a partial deal.
Speaker 6: But you know, though, what is the future is a
Speaker 6: very legitimate question, and I don't have the answer.
Speaker 3: Yeah, it's just amazing and just disturbing from so many
Speaker 3: different angles.
Speaker 4: The situation.
Speaker 3: Do you expect any Do you expect anything to come
Speaker 3: out of this meeting at the UN just real quickly.
Speaker 6: No, I don't depends on by anything. There can't be
Speaker 6: anything definitive out of it. A state of Palestine will
Speaker 6: not exist as a result of this meeting. It maintains,
Speaker 6: It insists that the world would like that to be
Speaker 6: the solution, and at the moment there is not a
Speaker 6: majority in Israel that embraces that solution.
Speaker 3: All right, going to leave it there, Ethan, thank you,
Speaker 3: Thank you as always. Ethan Brawner, Israel Bureau chief at
Speaker 3: Bloomberg News, joining us from Tel Aviv is on this Monday.
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
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Speaker 6: All right.
Speaker 3: From stable coins and treasuries to a crypto treasury firm,
Speaker 3: that's where we go next.
Speaker 5: And Ethereum Treasury Firm has agreed to go public in
Speaker 5: a blank check company merger backed by more than one
Speaker 5: and a half billion dollars of crypto and stock financing.
Speaker 5: It joins the rush of digital assets heading to public markets.
Speaker 5: We're talking about ether Machine. It's the expected surviving company
Speaker 5: of the merger, and it's set to be anchored by
Speaker 5: more than one hundred and sixty nine thousand ether from
Speaker 5: one of the co founders and a stock financing of
Speaker 5: more than eight hundred million dollars. That's, according to a
Speaker 5: statement just last week, as much as one hundred and
Speaker 5: seventy million dollars of cash and the trust account of
Speaker 5: Dynamics Corp. The Spack merging with the Pool would also
Speaker 5: be included. We've got with us and Raca Bernatova, founder
Speaker 5: and CEO of Dynamics, joins us here in the Bloomberg
Speaker 5: Interactive Brokers studio. I said a lot of words just
Speaker 5: now that might not be clear to everybody who doesn't
Speaker 5: follow this space inside and out what is going on
Speaker 5: with this SPEC.
Speaker 11: So thank you for having me, Tim and Carol. Great
Speaker 11: to be here. We're very excited about the merger with
Speaker 11: the ether Machine. This is our actually second SPEC transaction
Speaker 11: in the past eighteen months or so. We're very excited
Speaker 11: about the transaction number one. Obviously, it's in a space
Speaker 11: that we see is a very high growth space over
Speaker 11: the next short, medium and long term in the ethereum space.
Speaker 11: But ninety percent of stable coins are in the ethereum universe,
Speaker 11: and so we see actually the ether machine and being
Speaker 11: one of the large beneficiaries of the recent genius actors
Speaker 11: I just pointed out, just talked about number two. The
Speaker 11: team is an extremely experienced team. They've been running in
Speaker 11: the ethereum space for five ten years. Actually, they are
Speaker 11: going to be fully dedicated to the business and really
Speaker 11: grow it into a large institutional company. So it is
Speaker 11: a business that should be public in the first place,
Speaker 11: which was really truly one of our objectives as a
Speaker 11: dynamics pack. And a third piece, as you just mentioned,
Speaker 11: you know, one of the founders is contributing a very
Speaker 11: large eth steak himself, which shows a high confidence and
Speaker 11: conviction into building you know, the biggest or if not
Speaker 11: the biggest institutional player in the space. So very exciting,
Speaker 11: you know, we, obviously you mentioned the financing, are very
Speaker 11: excited about the financing package. This is the biggest financing
Speaker 11: that has happened in the space since twenty twenty one.
Speaker 11: Eight our million dollar pipe that's at ten dollars back
Speaker 11: by very large investors, electriccapital, blockchain, dot com.
Speaker 3: You make money the ether machine, Yeah, so ultimately the
Speaker 3: company all of it.
Speaker 11: Yes, So it is a very differentiated company in our view.
Speaker 11: It is not a treasury company. It's a company that
Speaker 11: is really using ether for multiple purposes, staking, restaking, and
Speaker 11: DeFi and so you have multiple ways to actually win
Speaker 11: and create yield for end investors. So we are energy
Speaker 11: and infrastructure investors, a dynamics team by training over the
Speaker 11: past couple decades. And so the way we think about it,
Speaker 11: Carol is basically, you can invest in oil or you
Speaker 11: can invest in oil company it actually utilizes oil and
Speaker 11: create more value out of oil. So we see the
Speaker 11: ether machine in a similar manner. You can invest in
Speaker 11: ether or just the digital asset, or you can actually
Speaker 11: invest in the ether machine that's using the asset and
Speaker 11: generating yield on top of it.
Speaker 5: How do you think the return of ether machine is
Speaker 5: connected to the price of ether? It so obviously like
Speaker 5: if you're an oil if you're going to get invest
Speaker 5: in an oil oil company or in actual oil, those
Speaker 5: two things are pretty closely correlated.
Speaker 11: There will be probably a certain correlation team in terms
Speaker 11: of price, you know, going in multiple directions, what we
Speaker 11: believe just given the demand for ether and stable coins,
Speaker 11: you know, hopefully that's going to.
Speaker 4: Be in a positive direction.
Speaker 11: We are excited about the fact that obviously ethereum is
Speaker 11: one of the big beneficiaries of some of the commercial
Speaker 11: demand as well. You see large companies like black Rock,
Speaker 11: JP Morgan, you know, Deutsche Bank and others really starting
Speaker 11: to embrace the space, and so that should sort of
Speaker 11: underpin the demand for this digital currency in particular. But
Speaker 11: there will be we assume some you know, sort of correlation,
Speaker 11: but again there will be extra value add benefit that
Speaker 11: the team is going to create as they actually fully
Speaker 11: utilize Ether for yield.
Speaker 4: So you're crypto play or an energy play.
Speaker 11: We our background is energy and infrastructure by training, and
Speaker 11: we really do see sort of the digital assets space
Speaker 11: skirl as the next frontier in uh, you know, next
Speaker 11: generation infrastructure. Obviously you are seeing financial infrastructure or correct correct,
Speaker 11: and so you know, a lot of the background that
Speaker 11: we have from traditional energy and infrastructure assets are actually
Speaker 11: translatable into the digital act economy as well. You know,
Speaker 11: when you think about.
Speaker 4: The concept of.
Speaker 3: Investing in energy infrastructure, you're applying it to either correct okay, okay,
Speaker 3: and so you.
Speaker 11: Have a component of you need large scale capital in
Speaker 11: order to make these companies sustainable, long term businesses, similar
Speaker 11: to traditional energy infrastructure. You need technical expertise again similar
Speaker 11: to some of that energy traditional energy infrastructure, and you
Speaker 11: just need high scalability of the overall market and the industry,
Speaker 11: which again is a kind of a third underpinning factor
Speaker 11: in the space.
Speaker 5: Over the last few weeks months, we've seen a real
Speaker 5: rise in treasury companies tied to different cryptocurrencies, mostly Bitcoin,
Speaker 5: but some Ether. I know that you said there is
Speaker 5: a distinction between Ether machine and other crypto treasury companies.
Speaker 5: But if somebody thinks about this in the context of
Speaker 5: Strategy formerly known as micro strategy and Michael Saylor, the
Speaker 5: guy who kind of began this all, what are the
Speaker 5: differences in similarities between the way that ether machine is
Speaker 5: set up.
Speaker 11: I think that's a good comparison. By the way, tam
Speaker 11: with micro strategy, we are seeing the Ether machine hopefully
Speaker 11: being the pioneer of ether, similar to what happened with
Speaker 11: the Bitcoin and micro strategy.
Speaker 5: MicroStrategy is not an energy company or an infrastructure company.
Speaker 5: They're a bitcoin company, that's.
Speaker 11: Right, and bitcoin, you know, it's sort of interesting because
Speaker 11: one of the reasons why we feel that ether is
Speaker 11: a very interesting asset class it doesn't have the energy
Speaker 11: intensity component similar to bitcoin. And if you really take
Speaker 11: a step back right and think about the energy infrastructure
Speaker 11: complex over the next five to ten years, there's going
Speaker 11: to be a high competing demand one from residential customers,
Speaker 11: second from you know, onshoing manufacturing industrials, third from the
Speaker 11: bitcoin space, and fourth from the data center and AI space.
Speaker 11: And Ether doesn't actually necessary phase you know, the same
Speaker 11: sort of challenges from an energy perspective as bitcoin does.
Speaker 11: So there was another sort of a winning you know,
Speaker 11: or selling factor for us in terms of partnering with
Speaker 11: the Ether machine versus another cryptocurrency.
Speaker 6: You know.
Speaker 3: One of the things that we love looking at here
Speaker 3: at Bloomberg as you'll put in a ticker, and we
Speaker 3: look at the supply chain and understanding customers versus clients
Speaker 3: who will ultimately be your biggest clients you think, and
Speaker 3: really provide some growth going forward.
Speaker 4: Yes, so both commercial customers.
Speaker 11: So again some of the large institutions, which I think
Speaker 11: again Carol.
Speaker 4: Is fin you're talking large financial.
Speaker 11: Institution, Yes, And that's again one of the reasons why
Speaker 11: the timing from our perspective is is really interesting with
Speaker 11: the Genius Act coming to play and really energizing the space,
Speaker 11: and second actually stepping you know, some of the large
Speaker 11: commercial customers coming in.
Speaker 4: But at the end of the day, there is going to.
Speaker 11: Be a retail component and you know, when you visualize
Speaker 11: kind of five to ten years from now, it's going
Speaker 11: to be a really important piece of our sort of
Speaker 11: daily you know, sort of life on a personal basis.
Speaker 3: Any customers you can share with us. At this point,
Speaker 3: just got about thirty seconds left.
Speaker 11: I would say that, you know, the team again is
Speaker 11: very experienced. We have some really interesting access to large
Speaker 11: commercial customers. So I would say stay tuned exciting developments
Speaker 11: from Dynamics and the Ether Machine.
Speaker 4: Pretty soon.
Speaker 3: We'll see raybe in the next six months, we'll see okay, okay.
Speaker 3: Really fascinating and certainly part of our changing world, no
Speaker 3: doubt doubt about it.
Speaker 4: Andrea and Raka Bernadtova, she.
Speaker 3: Is founder a CEO of dynam I'm next joining us
Speaker 3: right here in our Bloomberg Interactive Broker studio.
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