1 00:00:02,529 --> 00:00:13,780 Speaker 1: Bloomberg Audio Studios Podcasts Radio News This is the Bloomberg 2 00:00:13,820 --> 00:00:17,890 Speaker 1: Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern 3 00:00:18,290 --> 00:00:21,910 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business app. 4 00:00:22,329 --> 00:00:25,689 Speaker 1: Listen on demand wherever you get your podcasts or watch 5 00:00:25,730 --> 00:00:26,970 Speaker 1: us live on YouTube. 6 00:00:27,590 --> 00:00:30,370 Speaker 2: Patiently here on Fixed Income on AI Ballet. 7 00:00:30,710 --> 00:00:31,070 Speaker 3: K.A. 8 00:00:31,110 --> 00:00:34,129 Speaker 2: With us, Fixed Income at Goldman Sachs. Amanda Lydon just 9 00:00:34,210 --> 00:00:35,210 Speaker 2: crushed me yesterday. 10 00:00:35,350 --> 00:00:35,670 Speaker 4: She's the boss. 11 00:00:35,690 --> 00:00:37,390 Speaker 2: We're going to talk about her Halloween. She gave me 12 00:00:37,409 --> 00:00:40,130 Speaker 2: my Halloween costume. I'm not going to announce it right now. 13 00:00:40,150 --> 00:00:43,360 Speaker 2: It's too emotional. Alexis wants me to announce it later. 14 00:00:43,680 --> 00:00:47,140 Speaker 2: Amanda Lynham is all over the zeitgeist right now in 15 00:00:47,180 --> 00:00:51,580 Speaker 2: your world of fixed income and AI synthesized with all 16 00:00:51,680 --> 00:00:56,510 Speaker 2: your expertise, what Goldman Sachs is talking about with on-balance 17 00:00:56,550 --> 00:01:00,370 Speaker 2: sheet and off-balance sheet debt. Well, good morning. 18 00:01:01,310 --> 00:01:01,870 Speaker 5: Look, we. 19 00:01:02,670 --> 00:01:05,130 Speaker 4: It's probably worth just kind of separating what's happening in 20 00:01:05,150 --> 00:01:07,589 Speaker 4: the equity markets over the last kind of 48 hours 21 00:01:07,650 --> 00:01:09,800 Speaker 4: or so and what's been happening in the fixed income 22 00:01:09,830 --> 00:01:11,779 Speaker 4: markets for the last two or three months. 23 00:01:13,480 --> 00:01:14,440 Speaker 2: Because the move. 24 00:01:14,200 --> 00:01:16,380 Speaker 4: Started in the fixed income markets and the move was 25 00:01:16,500 --> 00:01:21,529 Speaker 4: driven by the sheer amount of issuance that was coming 26 00:01:22,390 --> 00:01:26,470 Speaker 4: to the market. So initially, beginning of the year, Investors 27 00:01:26,490 --> 00:01:28,610 Speaker 4: were very keen to get in on some of this 28 00:01:28,730 --> 00:01:31,770 Speaker 4: AI debt, hyperscalers, some of these kind of chip deals. 29 00:01:32,850 --> 00:01:37,300 Speaker 4: So investors picked them up, but they kept coming. And 30 00:01:37,310 --> 00:01:40,400 Speaker 4: at some point, I think investors figured out pretty quickly that, 31 00:01:40,600 --> 00:01:42,820 Speaker 4: you know, it wasn't just a question of kind of 32 00:01:42,940 --> 00:01:45,160 Speaker 4: pricing the underlying risk, but it was much more the 33 00:01:45,280 --> 00:01:49,020 Speaker 4: question of pricing capacity and balance sheet as to how 34 00:01:49,060 --> 00:01:51,120 Speaker 4: much of this risk could really be digested in a 35 00:01:51,160 --> 00:01:53,280 Speaker 4: short period in the market. And the result of that 36 00:01:53,400 --> 00:01:57,030 Speaker 4: was spread widening. To the off-balance sheet point, look, that's 37 00:01:57,110 --> 00:02:00,250 Speaker 4: what we follow very, very closely. You've got the deals. 38 00:02:00,370 --> 00:02:02,170 Speaker 4: You've got the deals that are on balance sheet. But 39 00:02:02,210 --> 00:02:05,030 Speaker 4: the interesting part, actually, is a lot of these residual 40 00:02:05,080 --> 00:02:08,639 Speaker 4: guarantees are kind of contingent liabilities. And tracking these to 41 00:02:08,800 --> 00:02:12,440 Speaker 4: understand actually what the buildup is of this kind of 42 00:02:12,500 --> 00:02:15,340 Speaker 4: concentration risk in the system is a very important point. 43 00:02:16,020 --> 00:02:19,600 Speaker 6: Are you concerned about some of these off-balance sheet financing structures, 44 00:02:19,680 --> 00:02:22,220 Speaker 6: which presumably we're going to see more of going forward? 45 00:02:22,240 --> 00:02:24,800 Speaker 6: Because the CapEx numbers I see for a lot of 46 00:02:24,820 --> 00:02:27,100 Speaker 6: these companies suggest more debt issuance. 47 00:02:27,720 --> 00:02:27,960 Speaker 3: Yeah. 48 00:02:28,180 --> 00:02:30,220 Speaker 2: So the CapEx numbers are remarkable. 49 00:02:30,240 --> 00:02:32,380 Speaker 4: I mean, we think you're probably going to end up 50 00:02:32,620 --> 00:02:34,530 Speaker 4: north of a trillion over the next kind of two 51 00:02:34,570 --> 00:02:36,510 Speaker 4: years in the IG space alone. 52 00:02:36,530 --> 00:02:36,810 Speaker 5: Wow. 53 00:02:38,710 --> 00:02:41,889 Speaker 4: You know, some of these kind of deals with the 54 00:02:41,990 --> 00:02:46,280 Speaker 4: contingent liabilities are interesting because they're actually shorter duration type 55 00:02:46,350 --> 00:02:51,519 Speaker 4: of deals. They've got residual guarantee backing. There's some leases involved. 56 00:02:51,639 --> 00:02:55,500 Speaker 4: And they're actually quite interesting from a structure point of view. 57 00:02:55,540 --> 00:02:56,360 Speaker 2: They get rated. 58 00:02:56,780 --> 00:02:58,919 Speaker 4: And, you know, is there a concern about those deals? 59 00:02:59,000 --> 00:02:59,880 Speaker 2: Not necessarily. 60 00:02:59,940 --> 00:03:02,420 Speaker 4: There's maybe more of a concern to think about what 61 00:03:02,440 --> 00:03:04,720 Speaker 4: the right price level is or spread level is for 62 00:03:04,760 --> 00:03:08,060 Speaker 4: these deals. But over time, it's important to track what's 63 00:03:08,100 --> 00:03:10,880 Speaker 4: building up and where is it building up? Because, of course, 64 00:03:10,919 --> 00:03:15,420 Speaker 4: we're talking about one sector, one factor, which is the 65 00:03:15,520 --> 00:03:18,919 Speaker 4: AI CapEx boom. And really understanding how it kind of 66 00:03:19,260 --> 00:03:22,320 Speaker 4: like works its way through the capital markets is crucially important. 67 00:03:23,210 --> 00:03:26,490 Speaker 6: Can you explain to our listeners and viewers the bond 68 00:03:26,510 --> 00:03:29,770 Speaker 6: market in France? What's going on there? Because that was 69 00:03:29,810 --> 00:03:33,180 Speaker 6: in the news and. You're based in London. You got 70 00:03:33,200 --> 00:03:34,680 Speaker 6: to think about that. That's part of your job. 71 00:03:34,740 --> 00:03:35,260 Speaker 5: What's going on? 72 00:03:35,420 --> 00:03:39,180 Speaker 4: So, yes, like when I'm in Europe, France comes up 73 00:03:39,240 --> 00:03:43,500 Speaker 4: all the time. So, look, I think it's fairly, like, 74 00:03:44,160 --> 00:03:46,120 Speaker 4: at a certain level, it's really kind of straightforward. Like, 75 00:03:46,190 --> 00:03:50,270 Speaker 4: France is about 120% debt to GDP. That's a large number. 76 00:03:50,370 --> 00:03:51,310 Speaker 6: It doesn't sound good. 77 00:03:51,330 --> 00:03:52,770 Speaker 2: It doesn't sound good. 78 00:03:52,890 --> 00:03:55,450 Speaker 4: What is even worse a little bit is the fact 79 00:03:55,510 --> 00:03:58,010 Speaker 4: that You know, they're running a five to six percent 80 00:03:58,050 --> 00:04:00,890 Speaker 4: deficit and they've got three percent nominal growth. So that 81 00:04:00,950 --> 00:04:04,230 Speaker 4: number goes up by three points every year. And the 82 00:04:04,250 --> 00:04:09,130 Speaker 4: market needs to fund it. And we know that that 83 00:04:09,190 --> 00:04:14,250 Speaker 4: journey can't continue indefinitely. There's a debt loading that France 84 00:04:14,270 --> 00:04:16,630 Speaker 4: will be able to carry because there's a limited amount 85 00:04:16,950 --> 00:04:19,450 Speaker 4: of investors that will buy it. Now, spreads are widening. 86 00:04:20,740 --> 00:04:24,080 Speaker 4: I think 10-year spreads are now 147 basis points over bunds. 87 00:04:24,120 --> 00:04:26,489 Speaker 4: So those are the German government bonds, which people consider 88 00:04:26,529 --> 00:04:29,870 Speaker 4: the risk-free rate in Europe. They can widen potentially a 89 00:04:29,890 --> 00:04:33,610 Speaker 4: little bit further. Now, overlay this with the fact that 90 00:04:33,630 --> 00:04:37,050 Speaker 4: there's going to be a presidential election. that presidential election 91 00:04:37,110 --> 00:04:39,490 Speaker 4: is actually going to be quite interesting because there is 92 00:04:39,550 --> 00:04:42,870 Speaker 4: the possibility that far-right candidate Le Pen could win that 93 00:04:42,930 --> 00:04:46,090 Speaker 4: presidential election. And then it becomes a question of what 94 00:04:46,270 --> 00:04:51,169 Speaker 4: happens to fiscal policy post-election. So this side of the election, 95 00:04:51,250 --> 00:04:54,150 Speaker 4: we would expect way more volatility and no change. 96 00:04:54,370 --> 00:04:55,250 Speaker 5: Right. 97 00:04:55,430 --> 00:04:57,430 Speaker 2: I have to ask this just because of the time here. 98 00:04:57,510 --> 00:05:01,740 Speaker 2: I think, hey, it's so important. We witness a new 99 00:05:01,960 --> 00:05:03,599 Speaker 2: chairman of the Federal Reserve System. 100 00:05:04,380 --> 00:05:04,860 Speaker 5: How does. 101 00:05:05,470 --> 00:05:10,849 Speaker 2: The tension and dialogue of Chairman Warsh changed the job 102 00:05:10,890 --> 00:05:13,270 Speaker 2: for the governor of the Bank of England. I mean, 103 00:05:13,330 --> 00:05:15,839 Speaker 2: I think very little has been said about the knock-on 104 00:05:15,880 --> 00:05:20,860 Speaker 2: effects of an early Warsh tenure on the other banks. 105 00:05:21,339 --> 00:05:22,700 Speaker 2: What do you see? I mean, if I asked this 106 00:05:22,760 --> 00:05:25,140 Speaker 2: of Jan Hatzias, he'd walk out of the room. I 107 00:05:25,160 --> 00:05:28,260 Speaker 2: can ask you. You know, it's safer. But what do 108 00:05:28,279 --> 00:05:28,600 Speaker 2: you think? 109 00:05:29,500 --> 00:05:35,419 Speaker 4: I think it's a really interesting question. As you know 110 00:05:35,480 --> 00:05:37,250 Speaker 4: and you're aware, and that's why you asked the question, 111 00:05:37,470 --> 00:05:39,750 Speaker 4: all of these kind of developed market central banks and 112 00:05:39,790 --> 00:05:41,870 Speaker 4: some of the bigger EM central banks all talk to 113 00:05:41,910 --> 00:05:44,250 Speaker 4: each other and they're coordinated and they learn from each 114 00:05:44,330 --> 00:05:48,130 Speaker 4: other and they compare notes. You know, the Bank of 115 00:05:48,210 --> 00:05:50,910 Speaker 4: England obviously has its own kind of style, so does 116 00:05:50,930 --> 00:05:53,440 Speaker 4: the ECB, so has the Bank of Japan. They all 117 00:05:53,500 --> 00:05:57,200 Speaker 4: have their own kind of political pressures. Those might be 118 00:05:57,260 --> 00:06:02,940 Speaker 4: quite different to what you're seeing in the US. I 119 00:06:02,980 --> 00:06:06,040 Speaker 4: would argue that, you know, although there's a degree of 120 00:06:06,120 --> 00:06:10,040 Speaker 4: personal style that matters, these institutions are kind of very 121 00:06:10,120 --> 00:06:13,340 Speaker 4: strong institutions, ECB, Bank of England, and I don't think 122 00:06:13,460 --> 00:06:20,660 Speaker 4: that a singular change And a new chairmanship, given that 123 00:06:20,700 --> 00:06:23,420 Speaker 4: it's a very recent change in chairmanship, is necessarily going 124 00:06:23,480 --> 00:06:26,980 Speaker 4: to drive tremendous change across central banking at this point 125 00:06:27,020 --> 00:06:29,170 Speaker 4: in time. But let's see how it works out. Let's 126 00:06:29,260 --> 00:06:31,870 Speaker 4: see how less forward guidance matters. 127 00:06:31,930 --> 00:06:32,830 Speaker 2: Let's see. 128 00:06:34,190 --> 00:06:37,710 Speaker 4: What these kind of special groups come up with. And 129 00:06:37,750 --> 00:06:40,469 Speaker 4: then let's see whether that has an impact on central banking, 130 00:06:40,490 --> 00:06:41,450 Speaker 4: which evolves all the time. 131 00:06:41,790 --> 00:06:46,289 Speaker 2: Very good. Thank you so much. Stay with us. More 132 00:06:46,410 --> 00:06:49,260 Speaker 2: from Bloomberg Surveillance coming up after this. 133 00:06:56,520 --> 00:07:00,099 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 134 00:07:00,180 --> 00:07:02,280 Speaker 1: weekday afternoons from 7 to 10 a.m. 135 00:07:02,320 --> 00:07:02,719 Speaker 6: Eastern. 136 00:07:02,800 --> 00:07:06,110 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg 137 00:07:06,140 --> 00:07:08,640 Speaker 1: Business app. Or watch us live on YouTube. 138 00:07:09,170 --> 00:07:10,870 Speaker 2: I want to do this now. I've got Darius Dale 139 00:07:10,890 --> 00:07:14,470 Speaker 2: in the studio here, founder, CEO, Macro Research, 42 Macro. 140 00:07:14,850 --> 00:07:17,130 Speaker 2: Paul's going to go see Cornell Princeton this week. We 141 00:07:17,230 --> 00:07:19,750 Speaker 2: thank you so much, Harvard, for the coverage that we 142 00:07:19,790 --> 00:07:23,550 Speaker 2: have on Bloomberg 92.9 FM in Boston, a first-place Harvard 143 00:07:23,570 --> 00:07:26,250 Speaker 2: football here at Yale. And I can make jokes about 144 00:07:26,310 --> 00:07:29,910 Speaker 2: Yale in last place, but it's not the time. So 145 00:07:30,090 --> 00:07:34,440 Speaker 2: it's a kid in Oxford, Massachusetts, who starts out at 146 00:07:34,480 --> 00:07:39,060 Speaker 2: the absolute bottom. I mean, the bottom of coaching in 147 00:07:39,180 --> 00:07:42,870 Speaker 2: NCAA football. Tony Reno went on to do this, this. 148 00:07:43,110 --> 00:07:46,470 Speaker 2: I think he had, what, 14 jobs before he got 149 00:07:46,530 --> 00:07:49,710 Speaker 2: to head coach at Yale. Here's a single sentence. The 150 00:07:49,730 --> 00:07:54,920 Speaker 2: team won five Ivy League championships together. 17, 19, 22, 23, 25. 151 00:07:54,920 --> 00:07:58,840 Speaker 2: And we've lost Tony Reno. What did he mean for 152 00:07:58,860 --> 00:07:59,540 Speaker 2: your program? 153 00:08:00,360 --> 00:08:05,080 Speaker 7: I'll tell you what he meant for me. We served 154 00:08:05,120 --> 00:08:07,330 Speaker 7: him pork and beans and hot dogs when he came 155 00:08:07,370 --> 00:08:10,810 Speaker 7: to my home or in the High Point housing projects 156 00:08:10,870 --> 00:08:14,040 Speaker 7: when he came to recruit me to Yale. And, you know, 157 00:08:14,660 --> 00:08:17,120 Speaker 7: it's a tragic loss for our program. He's the best 158 00:08:17,240 --> 00:08:19,010 Speaker 7: leader that I've ever been around. He's the best leader 159 00:08:19,050 --> 00:08:20,770 Speaker 7: that many people have ever been around, and he's in 160 00:08:20,790 --> 00:08:21,390 Speaker 7: a better place now. 161 00:08:21,730 --> 00:08:24,800 Speaker 2: What did your parents think when he walked in the door? Oh, 162 00:08:24,820 --> 00:08:25,520 Speaker 2: is the white guy here? 163 00:08:28,850 --> 00:08:30,150 Speaker 5: At nighttime? 164 00:08:31,650 --> 00:08:32,230 Speaker 2: Lock your door. 165 00:08:32,910 --> 00:08:37,809 Speaker 6: All right, Darius, what are we doing here. 166 00:08:39,000 --> 00:08:39,699 Speaker 2: With this market? 167 00:08:39,720 --> 00:08:43,500 Speaker 6: We've got a huge week of earnings. We heard from 168 00:08:43,520 --> 00:08:48,180 Speaker 6: the Federal Reserve. The market's at or near all-time highs 169 00:08:48,210 --> 00:08:50,930 Speaker 6: within 2% or 3%. It feels like there's some angst 170 00:08:50,990 --> 00:08:53,089 Speaker 6: out there, particularly as it relates to the AI story. 171 00:08:53,350 --> 00:08:56,460 Speaker 6: What are the conversations you're having with your clients these days? 172 00:08:57,240 --> 00:09:00,360 Speaker 7: Thank you for that pivot. We've been having a conversation 173 00:09:00,380 --> 00:09:02,160 Speaker 7: with our clients for the last month or so. Our 174 00:09:02,179 --> 00:09:04,500 Speaker 7: quant systems pivot us to a risk-off-market regime, which is 175 00:09:04,559 --> 00:09:06,640 Speaker 7: a signal to our clients across the global buy side 176 00:09:06,679 --> 00:09:08,940 Speaker 7: to take down their gross and tighten their net exposure. 177 00:09:09,460 --> 00:09:11,679 Speaker 7: go up in quality, up in size, lower in beta. 178 00:09:12,100 --> 00:09:13,800 Speaker 7: And that's what they've been doing for the last month. 179 00:09:14,090 --> 00:09:16,270 Speaker 7: And we're starting to see this kind of cascading sequence 180 00:09:16,350 --> 00:09:19,130 Speaker 7: of one pod takes it down, the other pod takes 181 00:09:19,170 --> 00:09:22,010 Speaker 7: it down. And so we're really concerned about that spiraling 182 00:09:22,050 --> 00:09:24,990 Speaker 7: out of control with such a salient catalyst as next week. 183 00:09:25,590 --> 00:09:27,540 Speaker 7: We don't have any ability to predict what's going to 184 00:09:27,559 --> 00:09:29,100 Speaker 7: happen in the elections. All we can do is read 185 00:09:29,120 --> 00:09:31,710 Speaker 7: and react to our signals. And Our signals are suggesting 186 00:09:31,750 --> 00:09:35,770 Speaker 7: that the risk of a blue wave triggering a response 187 00:09:35,880 --> 00:09:39,140 Speaker 7: in the Republican Party to get on board with anti-AI 188 00:09:39,480 --> 00:09:40,340 Speaker 7: is actually rising. 189 00:09:41,480 --> 00:09:43,839 Speaker 2: I look at this, and this morning I'm looking at 190 00:09:43,940 --> 00:09:47,440 Speaker 2: Amazon tanking. Two days in a row, folks, NASDAQ futures 191 00:09:47,500 --> 00:09:52,530 Speaker 2: now down a whopping 2.5%. NASDAQ on futures down 8% 192 00:09:52,530 --> 00:09:56,449 Speaker 2: plus over the last number of days. Joe Feldman over 193 00:09:56,470 --> 00:10:01,270 Speaker 2: at Telsey says Amazon is a robust, solid, strong future. 194 00:10:01,770 --> 00:10:05,250 Speaker 2: How do you as an investment guy get beyond the 195 00:10:05,360 --> 00:10:08,860 Speaker 2: panic to some sell side report that says climb on 196 00:10:08,920 --> 00:10:11,500 Speaker 2: board now? How do you do that exercise? 197 00:10:11,800 --> 00:10:15,420 Speaker 7: Well, as a business owner, we obviously forecast our revenue, 198 00:10:15,440 --> 00:10:17,480 Speaker 7: cash flows, et cetera. And I have no ability to 199 00:10:17,520 --> 00:10:19,950 Speaker 7: forecast my cash flows in 2029. So when I see 200 00:10:19,990 --> 00:10:22,130 Speaker 7: reports like Oracle saying they're going to be free cash 201 00:10:22,150 --> 00:10:25,949 Speaker 7: flow positive in 2029, not understanding the amount of demand 202 00:10:25,990 --> 00:10:27,810 Speaker 7: for compute that we're going to have in the economy 203 00:10:27,850 --> 00:10:30,440 Speaker 7: from companies like mine that need to purchase it, to me, 204 00:10:30,540 --> 00:10:33,160 Speaker 7: it raises an eyebrow. One thing that also raises an 205 00:10:33,200 --> 00:10:34,959 Speaker 7: eyebrow as it relates to this broader AI thing in 206 00:10:34,980 --> 00:10:37,560 Speaker 7: the political cycle is next week, we have not just 207 00:10:37,620 --> 00:10:40,650 Speaker 7: the actual midterm elections in the 36th gubernatorial elections, which 208 00:10:40,670 --> 00:10:42,710 Speaker 7: could be a really negative catalyst in terms of slowing 209 00:10:43,130 --> 00:10:46,350 Speaker 7: growth rate of all the AI CapEx. There's another catalyst 210 00:10:46,370 --> 00:10:48,030 Speaker 7: that I don't think enough people are talking about, but 211 00:10:48,090 --> 00:10:50,620 Speaker 7: hopefully they will start to talk about, is there are 212 00:10:50,660 --> 00:10:54,200 Speaker 7: three wealth taxes on the ballot, California, Colorado, Washington. 213 00:10:54,640 --> 00:10:55,819 Speaker 2: If those wealth tax. 214 00:10:55,600 --> 00:10:58,580 Speaker 7: Votes go in a way that's obviously not favorable for 215 00:10:58,620 --> 00:11:00,500 Speaker 7: Wall Street, you're going to have two catalysts that are negative. 216 00:11:00,900 --> 00:11:03,730 Speaker 7: One catalyst is you're going to force billionaires to actually, 217 00:11:03,790 --> 00:11:06,730 Speaker 7: you know, sell assets and raise cash that's negative for 218 00:11:06,750 --> 00:11:09,920 Speaker 7: the But from a longer-term basis, in our opinion, we 219 00:11:09,940 --> 00:11:12,260 Speaker 7: think that will be a signal for 2028. And you're 220 00:11:12,280 --> 00:11:14,640 Speaker 7: going to get a signal that candidates will start to 221 00:11:14,980 --> 00:11:19,319 Speaker 7: campaign on significant redistributive policies, which will challenge the free 222 00:11:19,360 --> 00:11:23,320 Speaker 7: cash flow assumptions that hockey staked back to positive in 2028, 2029, 223 00:11:23,320 --> 00:11:23,640 Speaker 7: and 2030. 224 00:11:23,640 --> 00:11:27,920 Speaker 6: What did you make of our Federal Reserve yesterday, Tom? 225 00:11:27,960 --> 00:11:31,400 Speaker 6: It was all over it with his Fed watch on 226 00:11:31,880 --> 00:11:32,439 Speaker 6: the Fed day. 227 00:11:32,800 --> 00:11:35,240 Speaker 2: I was medicated. Yes, exactly. 228 00:11:35,260 --> 00:11:35,980 Speaker 5: You were being kind. 229 00:11:36,179 --> 00:11:37,460 Speaker 6: What did you take away from that? 230 00:11:38,350 --> 00:11:41,349 Speaker 7: So let's set the chairs condescending delivery aside because I 231 00:11:41,390 --> 00:11:42,390 Speaker 7: think we're all getting tired of it. 232 00:11:43,670 --> 00:11:50,010 Speaker 2: The Federal Reserve. So said the gentleman. There was some 233 00:11:50,100 --> 00:11:54,960 Speaker 2: massive shaking. Good morning, Robert Schiller. 234 00:11:55,000 --> 00:11:58,360 Speaker 7: So setting that aside, the Fed has an impossible dilemma 235 00:11:58,380 --> 00:12:03,140 Speaker 7: right now because two percent inflation is not compatible with 236 00:12:03,280 --> 00:12:06,870 Speaker 7: winning the race. if in fact the administration is being 237 00:12:06,910 --> 00:12:09,990 Speaker 7: honest with us, that this is truly a national security 238 00:12:10,030 --> 00:12:12,530 Speaker 7: imperative and not just a race to more corporate profits. 239 00:12:12,550 --> 00:12:15,870 Speaker 2: That's the single smartest thing I've heard on this conundrum, Paul, 240 00:12:16,570 --> 00:12:19,859 Speaker 2: in months and months. There's a bigger picture here than 241 00:12:20,679 --> 00:12:22,380 Speaker 2: Fed parlor game, if you will. 242 00:12:22,679 --> 00:12:25,220 Speaker 7: And this is why we think, you know, we do 243 00:12:25,260 --> 00:12:27,980 Speaker 7: believe this market regime gets worse. And so ultimately you're 244 00:12:28,000 --> 00:12:29,579 Speaker 7: going to see more credit spread. You're going to see 245 00:12:29,679 --> 00:12:32,290 Speaker 7: multiples come down, but you have to buy this dip 246 00:12:32,330 --> 00:12:36,439 Speaker 7: because we ultimately believe that Fed Treasury Scott Besant, Fed 247 00:12:36,460 --> 00:12:39,630 Speaker 7: Chair Kevin Worshen, David Zervers from Jeffries, Spooze and Chartreuse. 248 00:12:39,670 --> 00:12:41,890 Speaker 7: They're down there working on something. And in our opinion, 249 00:12:41,929 --> 00:12:43,370 Speaker 7: we think it'll be a liquidity backstop next year. 250 00:12:43,390 --> 00:12:45,590 Speaker 2: Let's go back to the heritage of Yale economics here. 251 00:12:45,630 --> 00:12:49,110 Speaker 2: I think of Edward Yardeni, the Cowles Commission, the giant 252 00:12:49,170 --> 00:12:50,170 Speaker 2: James Tobin and all. 253 00:12:50,220 --> 00:12:50,390 Speaker 6: Of course. 254 00:12:51,250 --> 00:12:54,849 Speaker 2: Yale 101 is you inflate your way out of a 255 00:12:54,970 --> 00:13:00,050 Speaker 2: debt crisis. You inflate your way out of an industrial. 256 00:12:59,370 --> 00:13:01,469 Speaker 5: Policy, which is AI. Exactly. 257 00:13:01,510 --> 00:13:03,710 Speaker 2: That's the only solution, right? 100%. 258 00:13:03,710 --> 00:13:06,030 Speaker 7: And so that, in our opinion, that's where we're headed. 259 00:13:06,390 --> 00:13:08,350 Speaker 7: We think the markets aren't ready to price that risk in. 260 00:13:08,370 --> 00:13:11,770 Speaker 7: We think the next trade, the current trade, is downshifting 261 00:13:11,830 --> 00:13:15,770 Speaker 7: the growth expectations. We're at cycle highs for 2027 revenue 262 00:13:16,010 --> 00:13:18,730 Speaker 7: and earnings growth. Right now, cycle highs heading into one 263 00:13:18,750 --> 00:13:21,550 Speaker 7: of the most salient negative catalysts any of us has 264 00:13:21,580 --> 00:13:22,200 Speaker 7: seen in our careers. 265 00:13:23,080 --> 00:13:26,960 Speaker 6: Our macro weather model currently views the positioning cycle as 266 00:13:27,020 --> 00:13:31,050 Speaker 6: a meaningful headwind for asset markets. Am I selling here? 267 00:13:31,290 --> 00:13:31,910 Speaker 6: What am I doing here? 268 00:13:33,130 --> 00:13:35,520 Speaker 7: Well, respectfully, we would have said to sell in September 269 00:13:35,559 --> 00:13:38,500 Speaker 7: when our system's triggered risk off. But in our opinion, 270 00:13:38,540 --> 00:13:41,200 Speaker 7: if you're fully invested here, you need to, at the 271 00:13:41,220 --> 00:13:44,720 Speaker 7: bare minimum, downshift your beta, rotate into things that are 272 00:13:44,760 --> 00:13:49,370 Speaker 7: less high beta, less cyclical, up in quality. In our opinion, 273 00:13:49,390 --> 00:13:51,089 Speaker 7: we think there's going to be more spread, widening, more 274 00:13:51,130 --> 00:13:53,890 Speaker 7: multiple compression before we get to a happy place. 275 00:13:53,910 --> 00:13:54,189 Speaker 4: How does. 276 00:13:55,230 --> 00:13:58,349 Speaker 6: Anybody hedge AI, do you think, these days? Because it 277 00:13:58,370 --> 00:14:01,710 Speaker 6: just feels like it's everywhere. I can't buy a utility 278 00:14:01,750 --> 00:14:04,890 Speaker 6: stock for the safe dividend because they've run up on 279 00:14:04,910 --> 00:14:05,980 Speaker 6: the AI trade here. 280 00:14:06,030 --> 00:14:07,620 Speaker 7: What do I do? My clients are going to kill 281 00:14:07,660 --> 00:14:10,940 Speaker 7: me for saying this, but the long end of the 282 00:14:10,980 --> 00:14:14,020 Speaker 7: treasury curve. You're talking about a risk-off deflation market regime, 283 00:14:14,059 --> 00:14:17,360 Speaker 7: a Q4 2018-style scenario where the market, where the street goes, 284 00:14:18,540 --> 00:14:21,560 Speaker 7: buy that. In our opinion, we think that risk is 285 00:14:21,640 --> 00:14:23,040 Speaker 7: severely underpriced right now. 286 00:14:24,080 --> 00:14:28,200 Speaker 2: Does the 60-40 model work here? Based on the conversations 287 00:14:28,240 --> 00:14:30,780 Speaker 2: we have in the studio, I'm not so sure it 288 00:14:30,820 --> 00:14:32,910 Speaker 2: does because I don't hear a lot of people, Paul, 289 00:14:33,470 --> 00:14:35,650 Speaker 2: saying price up, yield down on bonds. 290 00:14:36,590 --> 00:14:36,890 Speaker 3: I don't know. 291 00:14:36,930 --> 00:14:40,670 Speaker 6: I can get a 5% coupon on a 10-year. I'm 292 00:14:40,870 --> 00:14:43,010 Speaker 6: sleeping soundly over that. 293 00:14:43,630 --> 00:14:46,200 Speaker 7: In our opinion, the 60-40 model does not work unless 294 00:14:46,240 --> 00:14:48,380 Speaker 7: you get a risk-off. You need to have a risk-off 295 00:14:48,420 --> 00:14:50,460 Speaker 7: sentiment in financial markets. You need to go into a 296 00:14:50,500 --> 00:14:53,010 Speaker 7: deflation market regime. And right now we're in an inflation 297 00:14:53,050 --> 00:14:55,010 Speaker 7: market regime. The only thing that'll get us into a 298 00:14:55,050 --> 00:14:57,250 Speaker 7: deflation market regime is a slowdown in data center. 299 00:14:57,270 --> 00:15:00,390 Speaker 2: Get halfway there. If we have a disinflationary vector of 300 00:15:00,470 --> 00:15:01,150 Speaker 2: some form. 301 00:15:01,290 --> 00:15:01,590 Speaker 5: We don't. 302 00:15:01,670 --> 00:15:04,860 Speaker 2: Some people, some people are predicting we will. That's a 303 00:15:04,930 --> 00:15:06,700 Speaker 2: seismic shift if we get it right. 304 00:15:07,320 --> 00:15:11,520 Speaker 7: It's pretty good forecasting. We don't see any disinflation in 305 00:15:11,540 --> 00:15:14,020 Speaker 7: the system right now. I heard a guest say we're 306 00:15:14,040 --> 00:15:16,040 Speaker 7: going back to two percent inflation next year in Q2 307 00:15:16,060 --> 00:15:18,730 Speaker 7: because of the comps. But in order to get 2% inflation, 308 00:15:19,070 --> 00:15:21,030 Speaker 7: you need to at least see some 2% prints on 309 00:15:21,050 --> 00:15:23,750 Speaker 7: a three-month annualized, six-month annualized before you get there on 310 00:15:23,770 --> 00:15:25,810 Speaker 7: a year-over-year basis. And we're still not seeing that when 311 00:15:25,830 --> 00:15:27,010 Speaker 7: you look at CPI or PCE. 312 00:15:27,390 --> 00:15:29,710 Speaker 2: Derek Still, thank you so much. Particularly, thank you there. 313 00:15:31,630 --> 00:15:35,780 Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this. 314 00:15:43,040 --> 00:15:46,640 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 315 00:15:46,720 --> 00:15:49,890 Speaker 1: weekday afternoons from 7 to 10 a.m. Eastern. Listen on 316 00:15:50,010 --> 00:15:53,270 Speaker 1: Apple CarPlay and Android Auto with the Bloomberg Business app 317 00:15:53,470 --> 00:15:55,170 Speaker 1: or watch us live on YouTube. 318 00:15:55,530 --> 00:15:59,140 Speaker 2: We're going to do a hard shift here. Professor Portis 319 00:15:59,200 --> 00:16:01,940 Speaker 2: in London was listening to our discussion going, oh, those 320 00:16:02,100 --> 00:16:05,380 Speaker 2: crazy Americans. But we're now going to speak to the 321 00:16:05,500 --> 00:16:09,700 Speaker 2: esteemed Rhodes Scholar of another time and place, always at 322 00:16:09,720 --> 00:16:13,280 Speaker 2: the London Business School. Richard Portis, thank you so much 323 00:16:13,330 --> 00:16:17,190 Speaker 2: for joining us. What does it mean to replace Lagarde? 324 00:16:17,370 --> 00:16:22,650 Speaker 2: Replacing Draghi at the ECB was an exceptionally large task. 325 00:16:23,090 --> 00:16:26,770 Speaker 2: How large a task is it to replace Lagarde at 326 00:16:26,810 --> 00:16:27,410 Speaker 2: the ECB? 327 00:16:29,250 --> 00:16:31,450 Speaker 3: First, thank you for having me. But second, it is 328 00:16:31,490 --> 00:16:35,030 Speaker 3: a big task. She has done extremely well. She had 329 00:16:35,150 --> 00:16:38,880 Speaker 3: one misstep very early in her tenure when she talked 330 00:16:38,930 --> 00:16:43,240 Speaker 3: about my job is not keeping spreads low. But beyond that, 331 00:16:44,160 --> 00:16:52,180 Speaker 3: she has been a safe, sure, forward-looking steward of the 332 00:16:52,730 --> 00:17:04,330 Speaker 3: ECB and has commanded a very consensual council of the ECB. 333 00:17:04,450 --> 00:17:07,510 Speaker 3: You don't hear any leaks coming out, as you do 334 00:17:07,869 --> 00:17:15,609 Speaker 3: sometimes from the Fed, of dissent within the ranks on 335 00:17:15,650 --> 00:17:16,560 Speaker 3: monetary policy. 336 00:17:17,080 --> 00:17:21,220 Speaker 2: How has Chairman Warsh changed the dialogue of central banking? 337 00:17:23,800 --> 00:17:26,260 Speaker 5: It's hard for me to say from the outside. 338 00:17:26,300 --> 00:17:29,159 Speaker 3: You know, those central bankers meet every two months in 339 00:17:29,200 --> 00:17:36,180 Speaker 3: Basel and on other occasions, of course. And I think 340 00:17:36,240 --> 00:17:42,250 Speaker 3: there's doubtless a pretty good rapport between Warsh and Lagarde. 341 00:17:42,290 --> 00:17:45,850 Speaker 3: I've seen them together on a couple of occasions and 342 00:17:46,410 --> 00:17:53,680 Speaker 3: in meetings. And they certainly get on perfectly well. And 343 00:17:54,820 --> 00:17:58,159 Speaker 3: I think as far as monetary policy is concerned, obviously, 344 00:17:58,820 --> 00:18:01,520 Speaker 3: the ECB takes into account what the Fed's likely to 345 00:18:01,540 --> 00:18:03,320 Speaker 3: do and the Fed takes into account what the ECB 346 00:18:03,380 --> 00:18:05,750 Speaker 3: is likely to do. And they both sort of look 347 00:18:05,770 --> 00:18:10,330 Speaker 3: at the Bank of Japan. But otherwise, there is some 348 00:18:10,390 --> 00:18:13,430 Speaker 3: degree of tacit coordination there. 349 00:18:14,869 --> 00:18:17,830 Speaker 6: Professor, for our listeners, for our viewers, can you give 350 00:18:17,869 --> 00:18:22,429 Speaker 6: us kind of your overview of just where the European 351 00:18:22,950 --> 00:18:26,960 Speaker 6: economy is today? What are some of the challenges here 352 00:18:27,020 --> 00:18:29,600 Speaker 6: that the EU is dealing with at the moment? 353 00:18:31,400 --> 00:18:35,140 Speaker 3: Well, there is the productivity issue. It's a longstanding issue. 354 00:18:36,140 --> 00:18:40,310 Speaker 3: And productivity growth in the European Union is not as 355 00:18:40,369 --> 00:18:43,540 Speaker 3: high as it has been in the United States. And 356 00:18:44,000 --> 00:18:52,240 Speaker 3: that requires measures that central bank has no role in. Otherwise, 357 00:18:52,880 --> 00:18:56,350 Speaker 3: Europe is hit much harder than the United States by 358 00:18:56,450 --> 00:19:02,010 Speaker 3: the price of oil we import here. And I'm talking 359 00:19:02,030 --> 00:19:05,310 Speaker 3: about the UK as well as the European Union. 360 00:19:06,010 --> 00:19:10,090 Speaker 5: We import a very substantial amount of our oil. 361 00:19:12,359 --> 00:19:17,590 Speaker 3: And that has hit so that there are problems there. 362 00:19:18,609 --> 00:19:22,470 Speaker 5: Otherwise, there is the usual stuff, as I say, what's 363 00:19:22,490 --> 00:19:23,530 Speaker 5: happening to productivity. 364 00:19:24,550 --> 00:19:32,260 Speaker 3: And it's not a positive verdict, I'm afraid. And that 365 00:19:32,320 --> 00:19:36,180 Speaker 3: requires a lot of policy measures that governments have been 366 00:19:36,220 --> 00:19:39,300 Speaker 3: reluctant to take when it's a matter of governments, and 367 00:19:39,400 --> 00:19:45,660 Speaker 3: that the European Commission has not been particularly aggressive about. 368 00:19:45,680 --> 00:19:53,700 Speaker 3: So I think there's, are significant problems here. 369 00:19:55,369 --> 00:19:59,040 Speaker 6: Professor, is there any sense, just Across Europe in general, 370 00:19:59,420 --> 00:20:03,510 Speaker 6: I mean, as we morph into this AI-driven economy and 371 00:20:03,910 --> 00:20:06,950 Speaker 6: technology becomes more and more a part of daily life, 372 00:20:07,490 --> 00:20:10,130 Speaker 6: is there a sense within Europe that, boy, we need 373 00:20:10,170 --> 00:20:15,890 Speaker 6: to improve our productivity to solve some of our challenges here? 374 00:20:16,210 --> 00:20:18,290 Speaker 6: Because it can't just be the state day in and 375 00:20:18,330 --> 00:20:19,869 Speaker 6: day out bailing folks out. 376 00:20:21,450 --> 00:20:23,770 Speaker 3: No, I don't think there's any expectation that the state 377 00:20:23,810 --> 00:20:28,379 Speaker 3: will bail everybody out or actually contribute significantly to an 378 00:20:28,420 --> 00:20:30,020 Speaker 3: acceleration of growth. 379 00:20:30,300 --> 00:20:31,940 Speaker 5: What you need is more investment. 380 00:20:34,359 --> 00:20:40,490 Speaker 3: And indeed more investment that incorporates AI and is forward looking. 381 00:20:40,850 --> 00:20:44,090 Speaker 5: There are some signs, you know, there are some. 382 00:20:44,290 --> 00:20:50,660 Speaker 3: Areas in Europe which are where innovation is Innovation proceeds very, 383 00:20:50,960 --> 00:20:54,179 Speaker 3: very well. You have a number of unicorns in Sweden, 384 00:20:54,240 --> 00:21:02,429 Speaker 3: for example, and I think as well in Finland, where 385 00:21:02,609 --> 00:21:04,850 Speaker 3: you have tech-based. 386 00:21:06,070 --> 00:21:08,890 Speaker 5: Activities. You have Mistral in France. 387 00:21:10,000 --> 00:21:13,100 Speaker 3: But if you look around, there's not enough of that. 388 00:21:13,800 --> 00:21:16,220 Speaker 3: And that's where the priority should be. 389 00:21:16,540 --> 00:21:19,410 Speaker 2: I know we'll speak to you numerous times before this 390 00:21:19,550 --> 00:21:25,870 Speaker 2: French election, but it's almost parliamentary chaos, frankly, somewhat like 391 00:21:25,910 --> 00:21:29,489 Speaker 2: what we see in Israel right now. What does the 392 00:21:29,670 --> 00:21:33,940 Speaker 2: middle look like to Richard Portis, the Macron middle? What 393 00:21:33,960 --> 00:21:38,859 Speaker 2: does it look like in 2028, 29? 394 00:21:39,940 --> 00:21:43,420 Speaker 3: It's very hard to project that far, actually. I'd like 395 00:21:43,440 --> 00:21:47,490 Speaker 3: to be able to say what it looks like in 2027. 396 00:21:47,490 --> 00:21:51,370 Speaker 3: The middle is, to some extent in France, has been 397 00:21:51,410 --> 00:21:55,470 Speaker 3: squeezed out. And the question is whether Glucksmann and others, 398 00:21:55,550 --> 00:22:02,010 Speaker 3: I'm talking about the moderate left leader, whether. 399 00:22:02,950 --> 00:22:09,000 Speaker 5: They can muster enough support. But meanwhile, you have very 400 00:22:09,119 --> 00:22:13,060 Speaker 5: negative forces on both the right, Le Pen, and on 401 00:22:13,100 --> 00:22:14,180 Speaker 5: the left, Mélenchon. 402 00:22:15,400 --> 00:22:21,020 Speaker 3: And they have to be the center has to put 403 00:22:21,060 --> 00:22:21,720 Speaker 3: itself forward. 404 00:22:21,740 --> 00:22:23,720 Speaker 5: And so far, it hasn't done a very good job 405 00:22:23,760 --> 00:22:24,000 Speaker 5: of that. 406 00:22:24,240 --> 00:22:26,659 Speaker 2: What I'm doing, Paul, is I'm setting up Professor Portis 407 00:22:26,680 --> 00:22:29,290 Speaker 2: here for the money question. Professor, I've got to make 408 00:22:29,350 --> 00:22:32,950 Speaker 2: some news this morning. Would you suggest that Christine Lagarde 409 00:22:33,369 --> 00:22:37,890 Speaker 2: could enter French politics with Edouard Philippe and somehow aid 410 00:22:37,930 --> 00:22:40,090 Speaker 2: a rebuilding of the center tendency? 411 00:22:42,480 --> 00:22:45,379 Speaker 5: I don't think Christine Lagarde is. 412 00:22:46,030 --> 00:22:51,130 Speaker 3: leaving early because she wants to get directly into French politics. 413 00:22:52,170 --> 00:22:55,500 Speaker 3: I think she wants to be free to comment on, 414 00:22:56,200 --> 00:23:00,960 Speaker 3: to be in the public sphere in French politics. But 415 00:23:01,080 --> 00:23:05,440 Speaker 3: I don't think she has any ambition or likelihood of 416 00:23:05,640 --> 00:23:09,410 Speaker 3: becoming a figure in the political scene. 417 00:23:10,490 --> 00:23:12,710 Speaker 2: We have to leave it there. Richard Portis, thank you. 418 00:23:12,750 --> 00:23:15,470 Speaker 2: Thank you so much for the London Business School. can't 419 00:23:15,530 --> 00:23:21,869 Speaker 2: say enough about his transatlantic vision. Stay with us. More 420 00:23:21,950 --> 00:23:24,810 Speaker 2: from Bloomberg Surveillance coming up after this. 421 00:23:32,080 --> 00:23:35,659 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 422 00:23:35,740 --> 00:23:37,820 Speaker 1: weekday afternoons from 7 to 10 a.m. 423 00:23:37,859 --> 00:23:38,260 Speaker 6: Eastern. 424 00:23:38,359 --> 00:23:41,659 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg 425 00:23:41,680 --> 00:23:44,220 Speaker 1: Business app or watch us live on YouTube. 426 00:23:44,859 --> 00:23:47,980 Speaker 2: Good morning, everyone. Thrilled that you're with us. Thrilled that 427 00:23:48,000 --> 00:23:51,600 Speaker 2: Natasha Saron is with us. Co-founder of the Yale Budget Lab. 428 00:23:51,619 --> 00:23:55,770 Speaker 2: These people are eclectic. They came to my attention as my, 429 00:23:56,290 --> 00:23:58,810 Speaker 2: you know, thought leader. I hate the phrase thought leaders, 430 00:23:58,850 --> 00:23:59,770 Speaker 2: but I'm going to use it here. 431 00:24:00,450 --> 00:24:00,880 Speaker 5: Tariffs. 432 00:24:01,080 --> 00:24:01,860 Speaker 2: They killed tariffs. 433 00:24:01,880 --> 00:24:02,000 Speaker 4: I know. 434 00:24:02,020 --> 00:24:04,180 Speaker 6: They come out with a ton of good data and analysis. 435 00:24:04,340 --> 00:24:07,459 Speaker 2: You know, and they got a little political tinge, but 436 00:24:07,780 --> 00:24:11,300 Speaker 2: basically they're trying not to be too nuts on the politics. 437 00:24:11,740 --> 00:24:16,650 Speaker 2: Natasha Saron driving this forward, and she's got out today 438 00:24:16,670 --> 00:24:21,030 Speaker 2: the headline that is the quiet undercurrent of this election. 439 00:24:21,650 --> 00:24:26,860 Speaker 2: Tax the rich, question mark. Easier said than done. Natasha, 440 00:24:26,900 --> 00:24:28,980 Speaker 2: what have you learned at the Yale Budget Lab about 441 00:24:29,000 --> 00:24:33,439 Speaker 2: the California proposition or the other propositions to come in 442 00:24:33,440 --> 00:24:34,699 Speaker 2: 49 other states? 443 00:24:36,240 --> 00:24:39,740 Speaker 8: Well, thank you so much for your kind words about 444 00:24:39,859 --> 00:24:42,810 Speaker 8: our work at Budget Lab. I am lucky to work 445 00:24:42,850 --> 00:24:48,219 Speaker 8: with some really remarkable people. Yeah, spend time day in 446 00:24:48,240 --> 00:24:52,020 Speaker 8: and day out trying to like build the analytical infrastructure 447 00:24:52,080 --> 00:24:54,590 Speaker 8: to be able to analyze some of these proposals. And 448 00:24:54,630 --> 00:24:58,050 Speaker 8: we've been doing a lot of work on taxing the 449 00:24:58,109 --> 00:25:02,130 Speaker 8: top and really like how much income there is potentially, 450 00:25:02,470 --> 00:25:04,970 Speaker 8: to tax and what are the right types of tax 451 00:25:05,070 --> 00:25:07,960 Speaker 8: instruments that might let you get that income in a 452 00:25:07,980 --> 00:25:11,900 Speaker 8: meaningful way. And the point of my piece this morning 453 00:25:12,060 --> 00:25:15,879 Speaker 8: was that California is debating this wealth tax measure on 454 00:25:15,960 --> 00:25:21,530 Speaker 8: its about 250 billionaires. I speculate that while I'm like 455 00:25:21,650 --> 00:25:25,360 Speaker 8: incredibly sympathetic with the aim and like billionaires absolutely should 456 00:25:25,390 --> 00:25:28,920 Speaker 8: pay much more in taxes. This particular ballot measure has 457 00:25:28,960 --> 00:25:31,420 Speaker 8: some problems that you're already seeing play out in practice. 458 00:25:31,460 --> 00:25:34,810 Speaker 8: I mean, you're watching billionaires like Sergey Brin and Larry 459 00:25:34,850 --> 00:25:37,590 Speaker 8: Page vote. like up and leave the state, that is 460 00:25:37,609 --> 00:25:40,730 Speaker 8: going to cost money not just from the wealth tax coffers, 461 00:25:41,050 --> 00:25:42,889 Speaker 8: but also from the fact that they're no longer going 462 00:25:42,910 --> 00:25:45,800 Speaker 8: to be paying California income taxes. And so there's some 463 00:25:45,890 --> 00:25:48,320 Speaker 8: estimates out there from Josh Rao at Stanford and his 464 00:25:48,359 --> 00:25:50,899 Speaker 8: co-authors that suggest that as a result of that, this 465 00:25:50,940 --> 00:25:53,000 Speaker 8: tax is actually going to be a net negative for 466 00:25:53,040 --> 00:25:53,440 Speaker 8: the state. 467 00:25:53,460 --> 00:25:55,959 Speaker 6: It kind of goes to the issue, Natasha, as we 468 00:25:55,980 --> 00:26:00,100 Speaker 6: get ready for midterm elections next week, that once again, 469 00:26:00,180 --> 00:26:03,220 Speaker 6: it's probably it's the economy, stupid. And I guess this 470 00:26:03,270 --> 00:26:06,350 Speaker 6: year's format of that or a version of that is 471 00:26:06,410 --> 00:26:09,650 Speaker 6: just affordability and inflation and all that kind of stuff. 472 00:26:09,990 --> 00:26:12,190 Speaker 6: How do you think about that for the average household 473 00:26:12,230 --> 00:26:12,510 Speaker 6: out there? 474 00:26:12,950 --> 00:26:17,770 Speaker 8: Yeah, it's so important because if you ask people about 475 00:26:18,050 --> 00:26:21,050 Speaker 8: how they are thinking about approaching their vote in the 476 00:26:21,109 --> 00:26:24,990 Speaker 8: election next week, cost of living issues are like so 477 00:26:25,090 --> 00:26:28,970 Speaker 8: front of mind for every person, essentially, no matter what 478 00:26:29,040 --> 00:26:35,460 Speaker 8: their political affiliation is. And by the way, 2024 was 479 00:26:35,500 --> 00:26:38,359 Speaker 8: a cost of living election, which Donald Trump won in 480 00:26:38,440 --> 00:26:41,740 Speaker 8: large part because people were frustrated by inflation. And he said, 481 00:26:41,760 --> 00:26:44,290 Speaker 8: I'm going to lower prices on day one. We have 482 00:26:44,330 --> 00:26:46,469 Speaker 8: another one in these midterms and I speculate we're going 483 00:26:46,490 --> 00:26:49,230 Speaker 8: to have another one in 2028. I have a piece 484 00:26:49,310 --> 00:26:52,369 Speaker 8: actually that I wrote for The Times last week where 485 00:26:52,570 --> 00:26:56,500 Speaker 8: I argued that I'm a little nervous about the idea 486 00:26:56,619 --> 00:26:59,020 Speaker 8: that you have politicians who are trying to come up 487 00:26:59,060 --> 00:27:02,840 Speaker 8: with like quick fixes and to affordability, things like cut 488 00:27:02,880 --> 00:27:06,300 Speaker 8: prices on day one or rent freezes, when the reality 489 00:27:06,400 --> 00:27:10,919 Speaker 8: is that things like housing, child care, the cost of 490 00:27:11,060 --> 00:27:14,960 Speaker 8: elder care in this country, all of these are structural 491 00:27:15,100 --> 00:27:19,090 Speaker 8: issues that are going to require really thoughtful long-term policy 492 00:27:19,119 --> 00:27:19,980 Speaker 8: solutions to. 493 00:27:19,880 --> 00:27:20,660 Speaker 2: Try to address. 494 00:27:20,740 --> 00:27:23,290 Speaker 8: And so I think we need to think seriously about 495 00:27:23,330 --> 00:27:26,630 Speaker 8: dealing with this issue of economic precarity, the feeling that 496 00:27:27,010 --> 00:27:30,370 Speaker 8: You know, I feel like one potential crisis away from 497 00:27:30,430 --> 00:27:31,429 Speaker 8: being off the brink. 498 00:27:31,830 --> 00:27:34,750 Speaker 2: Natasha Saron, as we look at the fancy people, what 499 00:27:34,770 --> 00:27:37,580 Speaker 2: they're paying in tax, I would say what's less spoken 500 00:27:37,619 --> 00:27:41,879 Speaker 2: of because it's not so visceral with our audience, Natasha, 501 00:27:42,300 --> 00:27:44,720 Speaker 2: is corporate income tax in the 1960s, 4% of GDP tax. 502 00:27:47,260 --> 00:27:52,600 Speaker 2: craters with Reagan down to 1.5% of GDP. And even today, 503 00:27:53,000 --> 00:27:57,430 Speaker 2: well under 2% of GDP. Is that a solvable fix? 504 00:27:57,510 --> 00:28:01,910 Speaker 2: I mean, Exxon today, what? More money than God, $ 20 505 00:28:01,170 --> 00:28:03,430 Speaker 2: billion share buyback. Solvable. 506 00:28:04,430 --> 00:28:07,890 Speaker 8: This is so solvable and so important. And by the way, 507 00:28:08,010 --> 00:28:10,190 Speaker 8: if you want to tax the rich, a really good 508 00:28:10,270 --> 00:28:12,970 Speaker 8: way to do that is by doing a better job 509 00:28:13,070 --> 00:28:14,310 Speaker 8: of taxing. 510 00:28:13,830 --> 00:28:15,790 Speaker 5: The companies that they own. 511 00:28:16,090 --> 00:28:19,800 Speaker 8: And I have this view that essentially you're absolutely right 512 00:28:19,880 --> 00:28:22,040 Speaker 8: on what's happened to the corporate tax over the course 513 00:28:22,060 --> 00:28:24,720 Speaker 8: of the last few decades. And even just in the 514 00:28:24,780 --> 00:28:26,939 Speaker 8: last decade, you saw the corporate tax rate in this 515 00:28:26,980 --> 00:28:30,890 Speaker 8: country go down from 35 to 21 percent, even though corporations, 516 00:28:30,910 --> 00:28:33,930 Speaker 8: they were actually asking for 25. So they got more 517 00:28:34,270 --> 00:28:36,770 Speaker 8: than they had even aspired for as a result of 518 00:28:36,790 --> 00:28:39,360 Speaker 8: legislation passed in the first Trump administration. 519 00:28:39,430 --> 00:28:39,650 Speaker 3: Right. 520 00:28:39,880 --> 00:28:43,040 Speaker 8: I think there's so much revenue there because these are massive, 521 00:28:43,400 --> 00:28:46,120 Speaker 8: hugely profitable companies. And by the way, we can leave 522 00:28:46,160 --> 00:28:49,160 Speaker 8: the rate in place for 98% of companies. 523 00:28:49,240 --> 00:28:50,980 Speaker 2: Okay, but I got to get this in before the 524 00:28:51,020 --> 00:28:55,340 Speaker 2: market opening. Can I ask an Ernie Tedeschi question? Like 525 00:28:55,380 --> 00:29:03,470 Speaker 2: a nerd question. Can we garner more corporate tax efficiently 526 00:29:03,710 --> 00:29:08,310 Speaker 2: and fair without messing with a lot of people? 527 00:29:09,930 --> 00:29:13,930 Speaker 8: We definitely a thousand percent can. And it's just about 528 00:29:13,950 --> 00:29:17,620 Speaker 8: the top two percent of the most profitable largest multinationals 529 00:29:18,040 --> 00:29:21,400 Speaker 8: you can raise on the order of hundreds of billions 530 00:29:21,440 --> 00:29:23,460 Speaker 8: of dollars over the course of the next decade. 531 00:29:23,780 --> 00:29:28,680 Speaker 1: This is the Bloomberg Surveillance Podcast. Available on Apple, Spotify, 532 00:29:28,800 --> 00:29:33,070 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 533 00:29:33,070 --> 00:29:38,490 Speaker 1: 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, 534 00:29:38,810 --> 00:29:41,880 Speaker 1: and the Bloomberg Business app. You can also watch us 535 00:29:41,980 --> 00:29:45,980 Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal.