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Speaker 1: people getting really a bit tired.
Speaker 2: They don't know even if something's announced whether two days
Speaker 2: later it's not changed again. So you really see some
Speaker 2: fatigue of decision makers.
Speaker 1: That's the CEO of Logistics Giant DHL, Tobias Meyer. For
Speaker 1: executives like him navigating the near daily shifts in US
Speaker 1: economic policy, it's like driving through fog with no headlights.
Speaker 1: When the rules are changing so quickly, it's not just
Speaker 1: hard to keep it's almost impossible to make decisions. Should
Speaker 1: a company build a new factory, order more supplies, hor
Speaker 1: or more workers, and where to do any of this?
Speaker 1: And when you don't know what's coming. You hit the brakes.
Speaker 1: But we haven't I don't think spent enough time talking
Speaker 1: about just the uncertainty out there.
Speaker 2: Operating in this highly uncertain environment means go slow.
Speaker 1: The higher uncertainty and greater risk of recession, the fear
Speaker 1: that on a daily basis, you wake up in the
Speaker 1: morning and not wondering whether which sectors again to have
Speaker 1: twenty five percent towers, which country's twerffs again to be
Speaker 1: at one hundred percent. That's where the damage is caused.
Speaker 1: So here's why uncertainty is an economic killer. Joe Wisenthal,
Speaker 1: host of Bloomberg's Odd Lots podcasters with me in London. Joe,
Speaker 1: great to see you, Thank.
Speaker 2: You for having me, thrilled to be here.
Speaker 1: Tell me, with your brain and knowledge of these matters,
Speaker 1: how can we define uncertainty in this moment in twenty
Speaker 1: twenty five.
Speaker 2: Yeah, I mean it's a great question, and I think
Speaker 2: there are sort of two different elements, Which is one
Speaker 2: is okay, we know there's going to be a change
Speaker 2: in the trading environment between the rest of the world
Speaker 2: and the US, right, like that's obviously a done deal,
Speaker 2: and nobody knows like what type of arrangements will be
Speaker 2: profitable in those environments and so forth. So that's a
Speaker 2: form of uncertainty, but that there's another, you know, the
Speaker 2: more deeper form of uncertainty is, yes, we know there's
Speaker 2: going to be a change, but we don't know to
Speaker 2: what right. And part of that is I don't think,
Speaker 2: you know, the White House has clearly articulated what it
Speaker 2: wants the new environment to be. There's a message uncertainty
Speaker 2: because various people speak for the White House on behalf
Speaker 2: of the White House, and there's a lot of ambiguity
Speaker 2: about the degree to which anything they say actually reflects
Speaker 2: the thinking of the administration. And when I say the administration,
Speaker 2: I only mean the president because you know, typically one
Speaker 2: would think there is a coherent message, but I don't
Speaker 2: think there is. There's you know, there's rivals within the
Speaker 2: White House that have different priorities. And I think that
Speaker 2: even the President himself, well, he has some intuitions that
Speaker 2: you know, he believes that tariffs are a tool that
Speaker 2: can be used to revive the US manufacturing sector. The
Speaker 2: degree to which that policy has cemented seems still very
Speaker 2: up in the air.
Speaker 1: Can we say that it's more uncertain now that it
Speaker 1: has been in years. Yeah, I'm sure. How do we
Speaker 1: sort of measure uncertainty? I mean, you can look at
Speaker 1: the mats for one example.
Speaker 2: Well, look, I think you know, in the two big
Speaker 2: recent crises that we had, there were clear goals. During COVID,
Speaker 2: the goal was to stop the spread of the disease
Speaker 2: and then from an economic side, to sort of replaced
Speaker 2: all the lost money, you know, all the lost economic
Speaker 2: activity for those months during lockdown in two thousand and
Speaker 2: eight and two thousand and nine. The goal was to
Speaker 2: stop a bank run. And there was a lot that
Speaker 2: they didn't know at the time, and they certainly, you know,
Speaker 2: may have misjudged the speed and scale through which the
Speaker 2: financial system was deteriorating in two thousand and eight and
Speaker 2: two thousand and nine. But the goal is to stop
Speaker 2: a bank run. In this case, you know, as they say,
Speaker 2: the call is coming from inside the house, so you
Speaker 2: don't really know what the goal is. Is the goal
Speaker 2: to improve our ability to manufacture high tech things that
Speaker 2: are important for national security? Maybe is the goal to
Speaker 2: fundamentally restructure the economy such that everyone or a lot
Speaker 2: more people are in what we call production work. Is
Speaker 2: the goal to stop the flow of fentanyl is the
Speaker 2: goal to slow international migration. So whereas in the last
Speaker 2: two crises, there is certainly a lot of uncertainty, and
Speaker 2: there's a lot of debating about, well, what's it going
Speaker 2: to take and how long will it take to stop
Speaker 2: the spread of a pandemic or a bank run, et cetera.
Speaker 2: I don't think we actually even know what the goal
Speaker 2: is here, and so in some sense, I would say, again,
Speaker 2: there are various attempts to measure uncertainty. There are market
Speaker 2: based measures, there are sentiment based measures. But I would
Speaker 2: say there is a degree of uncertainty now that is
Speaker 2: in a way incomparable to any recent crisis.
Speaker 1: What's the macro picture when we have this level of uncertainty,
Speaker 1: given that, as you say, it doesn't really have a
Speaker 1: parallel something we've looked at before.
Speaker 2: Well, look, at a minimum, it's very hard to imagine
Speaker 2: any company in the world committing to like serious investment
Speaker 2: right now. And what I mean by investment obviously is
Speaker 2: opening up new locations, opening up new production facilities, expanding headcount,
Speaker 2: et cetera. Why would anyone do that in this environment?
Speaker 2: And that's at a minimum. Furthermore, there has been this
Speaker 2: hit to financial markets of financial tightening, as they say,
Speaker 2: and so stock prices have gone down, yields on government
Speaker 2: debt have gone up, credit spreads have gotten wider. So
Speaker 2: there is just an increased cost of doing business already
Speaker 2: on the financial side, and then you layer in the
Speaker 2: actual literal increase cost of doing business because the goods
Speaker 2: that a company imports, whether they're for resale or whether
Speaker 2: their inputs to production, have also gone up. So you
Speaker 2: layer in the inherent policy uncertainty and the fact that
Speaker 2: until there's some policy stability, no one is going to
Speaker 2: do anything new, on top of the fact that the
Speaker 2: existing cost we're on day to day operations for both
Speaker 2: financial and goods have gone up. And this is why
Speaker 2: many people believe we're either going into a recession in
Speaker 2: the US or that we're already in one.
Speaker 1: At what points do businesses, consumers, markets simply get used
Speaker 1: to things being so uncertain. Is there a point at
Speaker 1: which that we all just sort of shrug and move on.
Speaker 2: It's hard to imagine that you can ever fully shrug
Speaker 2: and move on. But the answer to that persistent uncertainty
Speaker 2: is to take fewer risks to shore up your balance sheet.
Speaker 2: To cut everything that you can theoretically cut. You know,
Speaker 2: it's interesting, like in twenty twenty two, when there was
Speaker 2: significant inflation, there were a lot of concerns. Then you know,
Speaker 2: the Federal Reserve was jacking up interest rates and so
Speaker 2: there was a lot of a concern. Then I was like, oh,
Speaker 2: we're going to go into a recession. But one of
Speaker 2: the overriding dynamics of that period was this visceral fear
Speaker 2: of companies to be short of labor. Because twenty twenty,
Speaker 2: twenty twenty one, twenty twenty two, twenty twenty three, it
Speaker 2: was probably the first time in recent corporate history where
Speaker 2: companies realized that there is not an endless supply of
Speaker 2: workers out there. I'd say, you ahead, restaurants like, oh,
Speaker 2: we literally can't operate right because we can't find the
Speaker 2: workers in this environment. And so what that means is
Speaker 2: that there was this real reluctance to fire anyone because
Speaker 2: you might think, well, you know, things are uncertain, but
Speaker 2: I can't fire anyone because the last thing I want
Speaker 2: to do is to be caught short labor. Again. I
Speaker 2: just had this very visceral experience of being short. We're
Speaker 2: in a very different environment right now. You know, arguably,
Speaker 2: even going into middle of February, which is when the
Speaker 2: turbulence really began, there were signs of economic slow down
Speaker 2: a little bit that may had nothing to do with Trump.
Speaker 2: Maybe you know, it's time for like the fit of
Speaker 2: reserve to cut rates, signs of the housing market, which
Speaker 2: is very important stalling out. So even then there was
Speaker 2: probably already this sort of negative growth impulse emerging in
Speaker 2: the US economy. And so I think this time around
Speaker 2: right now, I suspect that inside many companies the conversations
Speaker 2: are about what can we cut. We want to preserve capital,
Speaker 2: we want to preserve cash, we want to preserve operational flexibility,
Speaker 2: just to survive to the next month, of the next
Speaker 2: half of the next quarter.
Speaker 1: Where do we look for signs that things are calming down,
Speaker 1: that things are becoming more certain.
Speaker 2: I mean, look, I'm a big fan of the stock
Speaker 2: market as an indicator. The stock market is not as
Speaker 2: volatile as it was. The policy environment, I guess, you know,
Speaker 2: is less fluid that it seemed like a we ago,
Speaker 2: right although that could change it change, you know, but
Speaker 2: like the pace of new news that's come out is
Speaker 2: slowed down a little bit. You know, there's only so
Speaker 2: far you can really go with that. So like at
Speaker 2: the margins, things are more certain than they were a
Speaker 2: week ago, but we're just talking marginal changes.
Speaker 1: And we'll have to watch them to see where things
Speaker 1: go next. Joe, great to have you, Thanks for having me.
Speaker 1: Joe Wisenthal Houst is brilliant to Odd Lots podcast and
Speaker 1: author of its newsletter. Thank you. For more explanations like
Speaker 1: this from our team of three thousand journalists and analysts
Speaker 1: around the world, go to Bloomberg dot com slash explainers.
Speaker 1: I'm Stephen Carroll. This is Here's why. I'll be back
Speaker 1: next week with more. Thanks for listening.