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Speaker 2: We welcome now Glenn Hubbard, who has defined the growth
Speaker 2: of the Columbia Business School. He stole Abby Joseph Cohen
Speaker 2: from Golden Sachs as well, but far more. He is
Speaker 2: a Republican of a different cut. You do not hear
Speaker 2: his name discussed by President Trump. Maybe that will change.
Speaker 2: Professor Robert, thank you so much for joining Bloomberg's leasure.
Speaker 2: Does he need to widen the reach of his view
Speaker 2: of potential chairman? Does he need to go beyond the
Speaker 2: comfortable Trump minions and look out to Clarida Hubbard and others.
Speaker 3: Look, I think the President's got reasonable names. He'll do
Speaker 3: what he's going to do. I think the show that
Speaker 3: we saw yesterday and other things are harmful for the
Speaker 3: Fed and for his own goals of getting lower interest rates.
Speaker 3: It's not obvious to me that FED policy is too
Speaker 3: tight at the moment. If you just look at a
Speaker 3: simple tailor rule. And it is obvious to me. If
Speaker 3: you continue to beat up the Fed, you risk raising
Speaker 3: inflation expectations, and you risk raising term creamium in long rates,
Speaker 3: and it's the long rates to count.
Speaker 2: You are definitive on a cogent discussion of supply side.
Speaker 2: The arc theme of the Trump administration is rate cuts,
Speaker 2: tax cuts will stimulate growth? Can tax cuts stimulate growth?
Speaker 2: Or is Powell bucked in boxed in by legislation.
Speaker 3: Well, tax cuts of the right kind can stimulate growth.
Speaker 3: In the OBBBA that just passed, we did have expensing
Speaker 3: a business investment. That's a good thing, better treatment of
Speaker 3: R and D, but we also had a big deficit
Speaker 3: finance tax cut. The best policies for growth would be
Speaker 3: changes in regulation, for permitting some housing reform, and frankly,
Speaker 3: high skilled immigration that the administration doesn't seem that interested.
Speaker 2: Glenn, when you came out of Florida, and I should
Speaker 2: point out, folks, if he's the second Hubbard in the family.
Speaker 2: The other Hubbard is with the band Sawyer Brown, which
Speaker 2: is annoyeded, which is noted Glenn, when you came out
Speaker 2: of Florida, you went to Harvard, you read Alan meltzer
Speaker 2: cover to cover, Alan did the two volume FED history.
Speaker 2: Are we at a point like at other moments, including
Speaker 2: the seismic McChesney Martin moment in nineteen fifty one where
Speaker 2: we risk FED independence.
Speaker 3: I think we are at that moment. I think a
Speaker 3: good FED chair will block that much as Chair Martin did.
Speaker 3: But I worry when President Trump says I'd like lower
Speaker 3: rates because I would like to help the fiscal situation.
Speaker 3: Presidents often say they want lower rates to help the
Speaker 3: economy grow or something like that. That's standard politics. This
Speaker 3: is something different, and I worry about it.
Speaker 4: And Glenn talk to us about just tariffs in general.
Speaker 4: How do you when you're teaching your Classic Columbia, how
Speaker 4: do you talk to them about this? Tariffs in general?
Speaker 4: How should they be used? How are they not used?
Speaker 3: Well, that's a great question. I mean tariffs are at
Speaker 3: tax they're not really inflationary. There one time changes in
Speaker 3: the price level. I wouldn't recommend them, but I don't
Speaker 3: think inflation is the biggest reason. I think the reason
Speaker 3: is you're taxing and distorting supply chains. You know, people
Speaker 3: forget two basic things. One at tax on imports is
Speaker 3: actually a tax on exports, and the reason for that
Speaker 3: is two one movements in the dollar and second the
Speaker 3: fact that American imports are largely intermediate goods. You hurt
Speaker 3: manufacturing by doing it. The second point is it's not
Speaker 3: the current account, it's the capital account. All the current account.
Speaker 3: This is the mirror of the capitol account. You can
Speaker 3: put all the tariffs you want on. You're not going
Speaker 3: to change the current account until you change the capitol.
Speaker 2: For all of you nationwide. Glenn Hubbard with US of
Speaker 2: Columbia Business School, just an outstanding two decades there building
Speaker 2: out the jewel of the upper Upper west Side to Morningside,
Speaker 2: his professor Hubbard. In a few minutes we have left
Speaker 2: with you. I have to go back to the FED
Speaker 2: and look at this concept of descent of a younger
Speaker 2: Bank of England where Catherine Mann and others go after
Speaker 2: Governor Bailey. There was descent a bit Larry Meyer writing
Speaker 2: about it with Chairman Greenspan. Do we have a FED
Speaker 2: where whatever President Trump does into twenty twenty six, that
Speaker 2: the governors and the presidents can protect the FED by
Speaker 2: voting against a Trump chairman.
Speaker 3: That's certainly possible, And obviously if the chair had unwise
Speaker 3: policy decisions. I think likely. I think President Trump will
Speaker 3: wind up me making a good FED choice. My concern
Speaker 3: is really the atmospherics around the FED that really come
Speaker 3: from the President himself.
Speaker 2: Look, Glynn, just two more questions here. I want to
Speaker 2: get one, and I know Paul wants to speak to
Speaker 2: you as well. What is the best outcome for the
Speaker 2: advisors to the president sitting on the couch in the
Speaker 2: Oval office is what's the Hubbard recommendation to the Secretary
Speaker 2: of Treasury to guide the president's thinking?
Speaker 3: Pivot to growth? I mean the President has already said, look,
Speaker 3: I've got my OBBB done. Great. He says he'll have
Speaker 3: the tariffs done by September Labor Day. Okay, fine, I
Speaker 3: don't agree with them, but fine, pivot to growth and
Speaker 3: there's a list of things you could do to get
Speaker 3: the economy growing again. It's what Secretary Bessett talks about,
Speaker 3: It's what the President talks about. How about doing it right?
Speaker 2: Is Clariena on the short list? I mean, you two
Speaker 2: argued fought My Cats and Dogs at Columbia years ago.
Speaker 2: But as Richard Clarita on the shortlist for Glenn Hubbard.
Speaker 3: I think rich Clarita is a phenomenal economist. The only
Speaker 3: shortlist that matters is the President's Thank Cldhulbard.
Speaker 2: That is true, Thank you so much, greatly appreciate it.
Speaker 2: He's with Columbia at Business School and should be on
Speaker 2: any shortlist for the fit.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 2: There was a revolution in nineteen forty seven, which is
Speaker 2: sort of where modern statistics of economics came in vasily
Speaker 2: Leontifan and others. Before that, there was an art to
Speaker 2: it that was decided of vailue. The Conference Board had
Speaker 2: a lot to do with it, and another one was
Speaker 2: Jeffrey Moore. The Economic Cycle Research Institute. Latron Achathan has
Speaker 2: carried the torch forward here and releases today a jaw
Speaker 2: dropping future inflation grade going against consensus discuss.
Speaker 5: Well, we as you, as you said in the lead in,
Speaker 5: we're doing something a little different. What we're doing is
Speaker 5: looking at the direction of movement for growth, direction of
Speaker 5: movement for inflation on the latter point on this inflation cycle.
Speaker 5: It's different from cycles and growth. They are very clear cycles.
Speaker 5: They're totally different, they're unique. We have future inflation gauge,
Speaker 5: which anticipates the direction of travel. There news slash is
Speaker 5: it's down. Okay? Really yeah? So now our job is
Speaker 5: to figure out what does that mean? What the heck
Speaker 5: does that mean?
Speaker 2: Is Powell behind? Does a president have an argument that
Speaker 2: mister Powell and the feed is behind because of your
Speaker 2: future inflation gage?
Speaker 5: Well, let's say that there's not a big argument to
Speaker 5: be extra hawkish here, and so maybe for different reasons,
Speaker 5: the directional move here is to the downside. I know
Speaker 5: people are wondering, why, why, why listen to this indicator? Right? Look,
Speaker 5: it has nailed these directional calls as far as I
Speaker 5: can remember, which is roughly to the nineteen nineties when
Speaker 5: I started doing this, and big calls more recently would
Speaker 5: be in twenty one to the downside. Very critical call
Speaker 5: was in early twenty four that we were going into
Speaker 5: sticky inflation, which just messed up everybody. And here, with
Speaker 5: all the presumption that tariffs are going to bring this
Speaker 5: inflation spiral to the four, the indicators are moving to
Speaker 5: the downn side. So yeah, we had some goods inflation
Speaker 5: over the summer, but core inflation is just going to
Speaker 5: sit there and simmer for the time being. It's not
Speaker 5: running away. Services inflation is actually easing a bit here.
Speaker 5: I think the consumer the economy just can't bear it,
Speaker 5: and so try as they may, and they will try.
Speaker 5: All the businesses are going to try. They're not going
Speaker 5: to be able to push it too hard. Consumers may
Speaker 5: ultimately pay the price here, but inflation is not going
Speaker 5: to run away.
Speaker 4: Interesting, So I mean, so does that suggest that again,
Speaker 4: whoever through the supply chain, the importers, the distributors, the wholesalers,
Speaker 4: the retailers, are they kind of all in some way,
Speaker 4: shape or form eating that margin.
Speaker 5: Along the way. I think eventually it gets to the consumer. Okay,
Speaker 5: look at the end of the day, we all pay right,
Speaker 5: and we are there's no free lunch, Sure we are,
Speaker 5: But the inflation spiral, which is that's the bogeyman for
Speaker 5: the Fed. They're free. They're like, wait, wait, wait, is
Speaker 5: there some if we have a step up in inflation,
Speaker 5: does this the beginning of many steps up? The answer,
Speaker 5: as far as we can see with the cyclical stuff
Speaker 5: is no Now. Remember you're talking about regime change. I'm
Speaker 5: looking at the screens. They're all regime change on some
Speaker 5: way or another. Think back to the early seventies. I
Speaker 5: want to go to old times for Tom here. Okay,
Speaker 5: think back to the early seventies. So so Nixon comes in,
Speaker 5: He's doing all this stuff. Everybody said, this is superinflation.
Speaker 5: Are it? Ultimately was, but not right away and on
Speaker 5: a cyclical basis, we're looking at a few quarters.
Speaker 2: That's not the trade and latsy. What's so important here
Speaker 2: is how the corporations adapt. You're basically saying, everybody, calm down,
Speaker 2: what's the history you see at the Economic Cycle Research Institute,
Speaker 2: all those corporate clients that think your God, your religion,
Speaker 2: how do they adapt to this?
Speaker 5: Make hay while the sun's shining. I think the wheels
Speaker 5: aren't coming off right here. I think there is a
Speaker 5: little pricing power with the sticky inflation such as it is.
Speaker 5: Take advantage of it as best you can. And you're
Speaker 5: seeing some of the companies you were just reporting trying
Speaker 5: to do the best they can there for the time being.
Speaker 5: The consumer writ large, that's wealthy households and lower income
Speaker 5: households are bearing it. Okay, I am not sugarcoating what's
Speaker 5: going on with the lower income households. They are under
Speaker 5: a great deal of stress here and that's not going away.
Speaker 5: That'll continue.
Speaker 4: Retail sales going to get that today, still calling for
Speaker 4: some decent growth in retail sales. I kind of guess
Speaker 4: that goes to.
Speaker 5: Your call on the consumer there. Yeah, they're gonna Nobody
Speaker 5: stopped yet, nobody stopped buying yet, and so you still
Speaker 5: have jobs growth even though it's it's it's in an
Speaker 5: easy trend. It's not collapsing.
Speaker 3: Uh.
Speaker 5: These are all parts. So so we we have the
Speaker 5: stag part right, things are slowing. Ye, don't have the
Speaker 5: inflation cycle, right, we know no inflation, no inflation part right here.
Speaker 5: So if you're in the federal reserve, I mean, yeah,
Speaker 5: I just.
Speaker 4: I guess it's another reason to just sit on your.
Speaker 5: Hands, right, He's going yeah, I mean, look, you know,
Speaker 5: sit on your hands. He's gonna take it because he's he's,
Speaker 5: you know, as the he's the lightning rod for the
Speaker 5: moment he does a job, he still has a job.
Speaker 5: He'll he'll ride it out. Ultimately, the president will appoint
Speaker 5: someone more dubbish. It's his remant to do that.
Speaker 6: He's going to do that.
Speaker 5: You know, really big picture, do you want I want
Speaker 5: the administration capturing the Fed?
Speaker 3: Yeah?
Speaker 5: Probably not. And that's what the market gets freaked out about.
Speaker 5: So yesterday you see the reaction, and today there's a
Speaker 5: sigh of relief. I mean, you don't want to be
Speaker 5: Turkey today. You don't want to be the Fed. Back
Speaker 5: in the twenties, we.
Speaker 2: Got to run. I want to get a summer in this.
Speaker 2: So you have no recession call within all your different cycles.
Speaker 5: Not no, no, no. In fact, there's a few right
Speaker 5: spots ail.
Speaker 2: There, like a year ago.
Speaker 5: Yeah, everybody calm down, Yeah, everybody calmed down.
Speaker 2: Okay, love turn on Tom. Thank you so much.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: I was on Fifth Avenue sort of uptown a little
Speaker 2: bit looking down and there's a Lewis Viuten store. They did.
Speaker 2: It's like a luggage thing. They redid it to get
Speaker 2: an update here in the summer on the state of retail,
Speaker 2: and Telsea joins US Telsey Advisory Group. Luxuries a little
Speaker 2: bit weak, Dana, are the fancy people shopping at Walmart?
Speaker 6: There is a trade down And frankly, thank you Tom
Speaker 6: for having me. Hope your summer's going well. Yes, there
Speaker 6: has been a trade down that's going on. Look what
Speaker 6: you've even heard Walmart say where some of the biggest
Speaker 6: parts of their growth are coming from their hire income consumers.
Speaker 6: But you know, you've had two reports last week. You've
Speaker 6: had Brunello Cucinelli who talked about double digit sales. Yesterday
Speaker 6: you had Richmond. Yeah, the jewelry business overall was up
Speaker 6: eleven percent, continued the momentum from the prior quarter. And frankly,
Speaker 6: every region in the world was up six Every channel
Speaker 6: was up six percent in terms of wholesale retail on online.
Speaker 6: When you look at the regions, Japan was down because
Speaker 6: of a fifty nine percent comparison. You have Asia Pacific
Speaker 6: right basically with flat even including a seven percent drop
Speaker 6: in China, and you've had the Americas being pretty solid
Speaker 6: along with Europe. So it's the halves and the have nots.
Speaker 2: Right now, I agree with that, and I totally buy
Speaker 2: into it. Lisa was talking to me, Lisa Matteo, and
Speaker 2: you know, she and I remember back, you know, and
Speaker 2: well she doesn't remember. I remember the nineteen seventies and
Speaker 2: at Richemonk Cardier comes out with the Love Bracelet, the
Speaker 2: Medium model. This is a love collection. It's an iconic symbol.
Speaker 2: It's six one hundred dollars on your risk. That stuff's moving, Dana,
Speaker 2: isn't it.
Speaker 6: It is that stuff is moving. Iconic heritage means something.
Speaker 6: It can be sold. I think you're going to see
Speaker 6: that from her mez Alsough. But overall, the rate of
Speaker 6: growth for many of these companies still is slowing from
Speaker 6: what had happened.
Speaker 2: If Lisa Matteo had the Love Bracelet from Cardier, are
Speaker 2: you telling me she'd sell it at the real reel?
Speaker 6: I think you want to keep it. Why do you
Speaker 6: ever want to sell the Love bracelet?
Speaker 2: Exactly?
Speaker 4: Dana, talk to us about kind of the you know,
Speaker 4: the other side of the equation, the folks that are
Speaker 4: maybe on struggling a little bit economically. How do we
Speaker 4: see that in retail sales? Because I had a pretty
Speaker 4: solid retail sales number just here a couple of minutes ago.
Speaker 6: I know I've saw the retail sales number two. It
Speaker 6: is solid. I think overall what you've seen, you've seen
Speaker 6: that trade down, whether it's the dollar stores, whether it's
Speaker 6: the discounters and off price. Value is definitely winning and
Speaker 6: that lower income consumer, the strength of a labor market
Speaker 6: allows them the ability to spend, but perhaps the discretionary
Speaker 6: spend isn't as great. It is spending on essentials where
Speaker 6: you're seeing prices go up. We have a pricing tracker
Speaker 6: that we put out every Tuesday, eighty different items, the
Speaker 6: same eighty items. We've been doing it since the middle
Speaker 6: of April, and we haven't seen such a big change yet.
Speaker 6: We saw some footwear changes on the ons and the
Speaker 6: hookahs and the ugs, but you haven't seen a lot yet.
Speaker 6: And as we move through, we think the higher priced
Speaker 6: inventory will come in and then you'll see some changes,
Speaker 6: but that's still to come.
Speaker 2: Dana Telsea, with immense respect to your family's heritage, re
Speaker 2: apt around Bergdorf Goodman. Where is the department store across
Speaker 2: this nation in five years?
Speaker 6: Smaller than what it is today? But smaller it's getting
Speaker 6: even smaller. And look what you're seeing. You're seeing brands
Speaker 6: themselves open up their own stores and becoming much more
Speaker 6: integrated with figuring out who their core customer and community is.
Speaker 6: There's still going to be a place for relevant department stores,
Speaker 6: and certainly blooming Dale's what we're seeing Nordstrom do. They're
Speaker 6: having the opportunity to capture more contemporary brands and they're
Speaker 6: taking advantage of that right now. So I think it
Speaker 6: will be smaller and they'll know their customer better and
Speaker 6: hopefully be more relevant for some of them than they
Speaker 6: are today.
Speaker 2: There's the operative Dana Telsea.
Speaker 4: Exactly to every major retailer around the world, how are
Speaker 4: they What are they telling you in terms of their
Speaker 4: ability to maybe take these tariff costs into their own
Speaker 4: P and L versus maybe passing along to their consumers.
Speaker 4: What are you hearing?
Speaker 6: I'm hearing about a third to third a third. What
Speaker 6: I'm hearing is that a third of the change is
Speaker 6: going to be diversifying your sourcing. For example, whether you
Speaker 6: go from China, whether it's Cambodia, whether it's Vietnam, and
Speaker 6: knowing that every place is going to have some type
Speaker 6: of a tariff attached to it. But with the one
Speaker 6: thing they're all saying is you can't come to the
Speaker 6: US because the prices would go up that much. The
Speaker 6: second third of it is sharing the cost with the manufacturers,
Speaker 6: and the third third of it, the remainder, is raising prices,
Speaker 6: which none of them want to do. And that's why
Speaker 6: I don't think I'm seeing it in my pricing tracker yet.
Speaker 6: But the level of price increases that we're hearing at about,
Speaker 6: is it a mid single digit price increase with US?
Speaker 2: We're going to continue with Dana Tel's just Scott Kirby
Speaker 2: pilot for United Airlines coming up after MS Telsa, Bloomberg
Speaker 2: surveillance on your commute across the nation, Bloomberg surveillance on
Speaker 2: an elevator at Bergdorf Goodman. Right now, Dana, help me
Speaker 2: with where the Chinese are shopping? Like Reachmont comes out
Speaker 2: and they're all going to come out? Is it basically
Speaker 2: the zeitgeist says, Oh, China's flat on its back, except
Speaker 2: they're all shopping in Tokyo and Kuala Lumpar. How does
Speaker 2: that work?
Speaker 3: Well?
Speaker 6: Overall, they may still be shopping, but Japan has slowed
Speaker 6: because you're going up against the huge comparisons. They may
Speaker 6: still be going to Japan, but it's not an additional
Speaker 6: uptick from what you're saying there. And also it's the
Speaker 6: same thing with Europe and the Americas. A lot of
Speaker 6: them are shopping more within China than they are shopping
Speaker 6: outside of China, and it's something that's being watched very closely.
Speaker 6: I think that as we move through the earning season,
Speaker 6: I think there'll be more discussions about, well, when does
Speaker 6: the compare and stabilized so you get to flat and
Speaker 6: we're not there yet, Dana.
Speaker 4: Most of America, Walmart target those types of places. What's
Speaker 4: the business like there these days?
Speaker 6: Feels very solid when you think about Walmart, and Walmart
Speaker 6: keeps taking share. You're seeing it with new brands, You're
Speaker 6: seeing it with pricing. You think about what they can
Speaker 6: do also with online. Look at sixty percent of Walmart's
Speaker 6: sales or food, so they're destination for goods and for essentials,
Speaker 6: and it seems like they're a share gainer, as are
Speaker 6: the off pricers. I think Target overall is still working
Speaker 6: to find it's footing given the miscues that it's had.
Speaker 2: Let me the blue Button the Detroit Lions Blue button.
Speaker 2: I got to get this in for Lisa Mateo. Dana
Speaker 2: Telsey Gingham is so in what is sex that they
Speaker 2: have that they're doing with Gingham this summer.
Speaker 6: For Lisa Mateo, I think you're get to see more
Speaker 6: gig him. It is popular, But you know what the
Speaker 6: hottest trend is absolutely have you heard about La boo boos?
Speaker 2: Is Joe Feldman? Is Joe Feldman covering La boo boos?
Speaker 6: No, he's not covering labuobus. But it's basically there's la boufous,
Speaker 6: which are the fakes, there's La boo boos, which are
Speaker 6: the reals, and try to get your hands on one
Speaker 6: not so easy. But that is the hottest trend out
Speaker 6: there lately, and it just started in twenty nineteen.
Speaker 2: I held in my hands last night a gift from Shanghai,
Speaker 2: China to afterthought. She was so happy. It's a light
Speaker 2: blue it's like a rarer La boo boo and she's
Speaker 2: worried of wearing it on her bag because it's not
Speaker 2: the bag will get stolen after thoughts doing product? Are
Speaker 2: you kidding that way? But you know the laboo boo
Speaker 2: is the issue Dana Telsey, thank you for that nugget.
Speaker 5: Is information, absolutely great.
Speaker 2: She is the best. Dana TELSEI on the retail pulse
Speaker 2: of America, from Joe Felman's Big Boxes over to what
Speaker 2: luxury is doing here a black Away on Fifth Avenue.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: This is a conversation of the day on multiple fronts.
Speaker 2: Francis Donald's work is exquisite in RBC Capital markets and
Speaker 2: now we're going to overlay all of the research abilities
Speaker 2: of the Royal Bank of Canada. Francis on tariffs that
Speaker 2: are eighteen percent bundled down from twenty percent bundled. That
Speaker 2: number will change tomorrow, but it's not three percent. You
Speaker 2: and your company are living this across the border down
Speaker 2: to windsor across the British Columbia. Are these double digit
Speaker 2: new tariffs doable?
Speaker 7: Well, We're gonna find out tom.
Speaker 2: And it's a great experiment.
Speaker 6: And what I.
Speaker 7: Think is critical is we are in the largest trade
Speaker 7: shop in one hundred years for the United States and
Speaker 7: the rest of the world. And it is far too
Speaker 7: early to assess what the impact will be when late
Speaker 7: into Q three and the full impact, the full story,
Speaker 7: the full study of tariffs. I don't think we're going
Speaker 7: to feel comfortable saying how meaningful this was on the
Speaker 7: US economy until late into twenty twenty six. Why, because
Speaker 7: there's a significant process in play here. There was massive
Speaker 7: front loading into the economy. Inventories are very very high.
Speaker 7: Those inventories need to be depleted before we start seeing
Speaker 7: imports at those higher tariff levels. Then you have to
Speaker 7: make an assumption of who's going to end up paying
Speaker 7: for that. Is it going to be producers or the
Speaker 7: importers themselves? How much of that cost is going to
Speaker 7: get passed on to the consumer. We're at the end
Speaker 7: of the story, so they're two most important macro questions
Speaker 7: in play right now for an economist is how long
Speaker 7: does it take for inventories to be depleted? We think
Speaker 7: about five months. Marry, it matters greatly which sector you're
Speaker 7: in and how much is going to get passed on
Speaker 7: to the consumer. And if I am a tom, let
Speaker 7: me push back. I hear a lot. I don't think
Speaker 7: consumers are going to take the brunt of this. Producers
Speaker 7: or businesses are going to absorb the entirety of it.
Speaker 7: Is that really bullish? Do we really like the story
Speaker 7: that businesses are going to see all of the tariff
Speaker 7: impact that they won't pass it on to the consumer.
Speaker 7: Because if businesses are taking on that tariff impact, that
Speaker 7: means margin compression for them and they're going to have
Speaker 7: to cut costs another way. So, Tom, do you know
Speaker 7: the old school trolley problem pick the lane between. You
Speaker 7: go down one track and you're on one track and
Speaker 7: you hurt one person, or you go down another and
Speaker 7: you hit one hundred thousand or whatever. We're on a
Speaker 7: trolley problem in America right now, which is we're either
Speaker 7: going to see the costs of tariff passed on to
Speaker 7: consumers and they'll face higher inflation and prices, or we're
Speaker 7: going to see that absorbed by businesses and that probably
Speaker 7: leads to job losses, or we might end up with
Speaker 7: a little bit of both. And I don't think we're
Speaker 7: really going to be able to answer that question into
Speaker 7: well into twenty twenty six.
Speaker 4: How are the folks in your Canada thinking about tariffs
Speaker 4: in the trade situation, trade politi with.
Speaker 7: The US, Well, Canadians are actually thinking a little bit
Speaker 7: less about trade policy now, which is a huge one
Speaker 7: eighty over where the country was in February when it
Speaker 7: was the largest victim of American trade policy. Now Canada
Speaker 7: actually has the lowest average tariff rate of all countries
Speaker 7: that the United States trades with. So if you're looking
Speaker 7: for shelter from the trade war storm, Canada surprisingly ends
Speaker 7: up being where you want to be. Of course, still
Speaker 7: very painful for certain sectors in that country. Steal and
Speaker 7: aluminum for example, copper are going to be getting some attention,
Speaker 7: but right now the focus has turned towards other issues
Speaker 7: in play. And it's just an example I think of
Speaker 7: how quickly the tariff story can go from being disastrous
Speaker 7: to actually being more of a cut on the arm.
Speaker 2: You get you get, say, economic data today model at
Speaker 2: real GDP forward phenomenal GDP as well with the inflation overlay.
Speaker 7: So we're looking at real GDP roughly between one and
Speaker 7: two percent by the end of this year, let's call
Speaker 7: it one and a half percent. And I like to
Speaker 7: simplify this too, are we growing below two percent? Or
Speaker 7: are we growing above two above two percent? And to
Speaker 7: my excellent quality in equity strategy, Lori Calvacino, we talk
Speaker 7: about this a lot because we have to have a
Speaker 7: sense if we're growing above two percent, your economy is accelerating.
Speaker 7: It tends to be bullish for asset classes. We're not
Speaker 7: gonna get there this year. You've got a moderating consumer.
Speaker 7: Even though we had stronger retail sales today, you got
Speaker 7: some weight coming through from trades. And then on top
Speaker 7: of that you have housing, which is really a lost
Speaker 7: growth engine in the US. So it's hard to get
Speaker 7: above that metaphorical or that literal two percent number. And
Speaker 7: that's always how I think about the US economy is
Speaker 7: are you below zero, in which case you're in recession,
Speaker 7: or are you at that critical two percent level? And
Speaker 7: I just can't see it for twenty twenty five, unfortunately, Francis.
Speaker 5: How about the US labor market?
Speaker 4: Here, President Trump and the administration has effectively closed off
Speaker 4: the southern border. How does that impact the labor market
Speaker 4: if at all? I'm not sure.
Speaker 7: Oh, it impacts the labor market, especially within the context
Speaker 7: of what we call the most important American theme, that
Speaker 7: nobody talks about, which is America needs workers, not jobs.
Speaker 7: It is seeing aggressive and accelerating mass retirements. Two million
Speaker 7: Americans are retiring every single year. That's getting bigger. It's
Speaker 7: distorting a range of figures. We've got three retirees for
Speaker 7: every one unemployed new entrant in the US right now.
Speaker 7: You've got a skills mismatch occurring across this labor market
Speaker 7: as we have exceptional needs for healthcare. Did you notice
Speaker 7: that about half of the job gains in the United
Speaker 7: States right now are going into the healthcare sector. That
Speaker 7: effectively means that your job market is no longer a
Speaker 7: helpful cyclical indicator. It's getting bordered by these structural themes,
Speaker 7: and immigration is going to exacerbate some of these problems.
Speaker 2: Are you following the fed derby? What is your advice
Speaker 2: to our listeners and viewers, in particularly your advice council
Speaker 2: to Global Wall Street and monitoring the Trump Powell escapade.
Speaker 7: Well, here's the advice I give myself when I wake
Speaker 7: up and see the news headlines, which is, remember focus
Speaker 7: on the data. And my strong suspicion is that the
Speaker 7: inflation data will be the make or break on what
Speaker 7: the FED does this year, not who's in the position,
Speaker 7: not who's criticizing the position, but what happens with the
Speaker 7: American economy, and our sense is that inflation is going
Speaker 7: to reaccelerate into your end. Those structural factors are going
Speaker 7: to keep a floor under the labor market, make sure
Speaker 7: that the unemployment rate stays low, and that's going to
Speaker 7: make it really hard for anybody in the Federal Reserve
Speaker 7: to cut rates. So even though yes, we're seeing some noise,
Speaker 7: it matters. We're thinking about the value of the institutions,
Speaker 7: the relationship between monetary policy and fiscal policy, that critical
Speaker 7: FED independence. At the end of the day, the FED outlook,
Speaker 7: regardless of who's in the position, comes down to the data.
Speaker 7: And we can say that Tom, you and me because
Speaker 7: we've lived through many cycles and whoever's in the position,
Speaker 7: Sure there's a bias, maybe it changes twenty five basis
Speaker 7: points here or there, But the future of the American
Speaker 7: economy rests on these broader themes. That size of the
Speaker 7: deficit mass retirees not necessarily holds up.
Speaker 2: Just as an inside the central bank, independence of David
Speaker 2: Dodge's Central Bank of Canada is more independent than the
Speaker 2: history of the Bank of England, isn't it. I would
Speaker 2: suggest the Commonwealth had a more independent central bank over
Speaker 2: decades than the mother country.
Speaker 7: Well, that's an interesting takeaway. And the other one is
Speaker 7: that most of the central banks you're referencing are have
Speaker 7: solely one mandate, which is inflation targeting, and as a result,
Speaker 7: it's easier for them to do.
Speaker 2: We have a new third mandate called Donald Trump.
Speaker 7: Well, it makes it more complicated for a federal reserve
Speaker 7: that's going to be balancing a dual mandate and political
Speaker 7: pressure and financial stability risks. I would rather be a
Speaker 7: Bank of Canada or Bank of England central banker right
Speaker 7: now than a federal Reserve member.
Speaker 4: US consumers hanging in there with sell some retails sales
Speaker 4: today there, I mean, I mean, it's just I think
Speaker 4: it's just amazing how strong, relatively speaking, the US consumer
Speaker 4: is today, given some of the uncertainties after in a
Speaker 4: market place, it just doesn't feel like it's playing out
Speaker 4: in the daily behavior of yours consumers.
Speaker 7: Do you know the first thing you learn when you
Speaker 7: become a US economist day one on the job. They
Speaker 7: bring you on the desk that set you up with
Speaker 7: your Bloomberg terminal, and then they say, first rule, never
Speaker 7: bet against the US consumer. This is the first rule
Speaker 7: of US economics.
Speaker 2: So what is the state of the US consumers. It's
Speaker 2: partitioned into two.
Speaker 7: Americas, that's right. So we refer to the US economy
Speaker 7: right now as not one economy, but two economies, two Americas,
Speaker 7: and the evolution of what we call the K shaped economy.
Speaker 7: When I look at this consumer we have to be
Speaker 7: really cautious not extrapolating high numbers for retail sales, both
Speaker 7: because the cycle is distorted by these tariffs, but also
Speaker 7: because we know that they're being disproportionately supported by high
Speaker 7: income households. And so if you're trying to for past
Speaker 7: the American economy right now, you have to spend a
Speaker 7: lot more time thinking about that top ten percent than
Speaker 7: the other ninety percent. But if you're a business and
Speaker 7: your end clients are not the top ten percent, if
Speaker 7: you're a policy maker and you want to make the
Speaker 7: lives of Americans better, you have to be cautious about
Speaker 7: overinterpreting these strong consumer numbers as being representative of the whole.
Speaker 4: So if you're the Federal Reserve, you see these strong
Speaker 4: retail sales numbers. You see moderate inflation. Maybe it's kicking
Speaker 4: up a little bit in some parts of the economy.
Speaker 4: Growth is slowing, but there's still growth. What I mean
Speaker 4: the Fed, I mean just stay on the beach and
Speaker 4: not do anything, stay on the golf course, not do
Speaker 4: anything right.
Speaker 7: Well, the RBC call, in conjunction with our head of
Speaker 7: US Rates Blake Gwyn, is that the Fed can't really
Speaker 7: do much until December. They won't have to win until
Speaker 7: December December first, and that's just effectively a time to
Speaker 7: gate issue. We don't have enough deterioration in either the
Speaker 7: inflation data or the job's number to give enough of
Speaker 7: a mandate. But it's clear to us as a team
Speaker 7: right now that this is a said that wants to
Speaker 7: get back to a more neutral level of rates, and
Speaker 7: there's a bias towards as soon as the data allows
Speaker 7: some permissions to move in that direction. And that's why
Speaker 7: the cut bias is still in our outlet.
Speaker 2: I get one minute, where's capex? I mean the AI
Speaker 2: think brook is out of the huge report today. Where's capex?
Speaker 2: According to the Royal Bank.
Speaker 7: Canada, another structural trend that we should not be downplaying
Speaker 7: and making sure that we continue to disaggregate between the
Speaker 7: structural and the cyclical. But this is one more example
Speaker 7: of that structural trend of AI development in Capex keeping
Speaker 7: a floor under how low growth can get with a
Speaker 7: seven percent deficit to GDP from the government, an ultra
Speaker 7: wealthy doing very well top consumer, and then the Capex
Speaker 7: AI story. It's really difficult to get a decline. So
Speaker 7: we are watching, of course AI really closely. But one
Speaker 7: thing I got to say, Tom, is there are limitations
Speaker 7: on this watch. The electrical grid. We think about that
Speaker 7: more than we ever have before in US economics. How
Speaker 7: much expansion is there?
Speaker 2: I mean, Texas sort of needs in Ontario Quebec Hydro.
Speaker 2: Dan fuss Up at Looma Sales was a majority shareholder
Speaker 2: at one point. You got a well run grid up there.
Speaker 7: Right, world needs Quebec and Ontario type electricity. It's some
Speaker 7: of the most renewable, reliable, and cheap in the world.
Speaker 7: And you may not know this, Tom, but there's currently
Speaker 7: a plan to build out the electrical so that in
Speaker 7: Manhattan itself, twenty percent of electricity going to be fueled
Speaker 7: by Quebec, called the Champlain Project. So when you turn
Speaker 7: on your lights or turn them off or bring your
Speaker 7: AC on. I want you twenty percent.
Speaker 2: Of why there's all the construction on fifty ninth Street.
Speaker 2: You can't even get down the DM streets because of
Speaker 2: Quebec hydro.
Speaker 7: Quebec hydrobec hydro. Something to pay attention to on a
Speaker 7: good Now?
Speaker 2: Are other people very good?
Speaker 7: For instance?
Speaker 2: Take you so much? Fransis Donald RBC.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: My Newspaper's Lisa Matteo highlight of the day. She looks
Speaker 2: at forty two different newspapers. Do you really read lamand
Speaker 2: and French?
Speaker 4: She does, of course, Mercy.
Speaker 2: Mercy, mercy. Okay, what do you got today?
Speaker 7: Okay?
Speaker 8: You've heard of diamonds are a girl's best friend? Right,
Speaker 8: it looks like lab grown diamonds are actually this best friend.
Speaker 8: They look the same, apparently, they're.
Speaker 7: Just as strong, exactly the same, Yeah.
Speaker 8: But a fraction of the price. Yes, and that is
Speaker 8: the difference, and that's the problem. We had the CEO
Speaker 8: of de Beers talking with the Wall Street journals.
Speaker 7: He's fired up.
Speaker 4: He's calling it a need a survey to say, just
Speaker 4: give me a one hundred women, saying if you're off you.
Speaker 8: A you know, a ring engagement?
Speaker 3: Na?
Speaker 2: Yeah, but is there something you'd like to tell us?
Speaker 4: I'm wondering would women accept the lab grown diamond versus them?
Speaker 6: Okay?
Speaker 2: Are you are you going to take a carrot and
Speaker 2: a half lab grown over some joy from Beers fero
Speaker 2: point seventy five carrots?
Speaker 8: I would save the money and put it towards somewhere else.
Speaker 7: That's what I would do.
Speaker 4: And it's my.
Speaker 7: Girlfriend I would tell And that's what it's saying.
Speaker 8: It's you know, you have Signet Jewelers, right, they partner
Speaker 8: with the Beers. They did this marketing campaign. But if
Speaker 8: you look at Signet even they're starting to add these
Speaker 8: lab room.
Speaker 2: Their two carrots.
Speaker 7: It's two carrots. Okay. Have you seen a movie in imax?
Speaker 7: Have you had that experience?
Speaker 8: It's right, the big screen, you get the whole theater,
Speaker 8: the business behind it. Okay, so it licenses technology to theaters, right,
Speaker 8: It generates more than ten percent of box office blockbusters,
Speaker 8: and it attracts major filmmakers because they use their technology.
Speaker 8: So who doesn't like it? Are actually the movie theater
Speaker 8: chains some of the largest US theaters. You have, Cinemak, Regal, Marcus, right,
Speaker 8: they starting to tell what what sources are telling Bloomer
Speaker 8: is that they're holding these talks about doing a joint
Speaker 8: marketing of their big screen theaters. Because if you go
Speaker 8: to Cinema for example, my house, we go to Cinemak,
Speaker 8: they have their big screens. They call them x D right,
Speaker 8: that's their Imax. You know, Regal has r p X.
Speaker 8: They don't use Imax technology. They're not as big as Imax.
Speaker 8: But the chains are starting to say, you know what,
Speaker 8: maybe we should unite around one brand it together.
Speaker 2: Yeah, you two are too young for this Cinerama, which
Speaker 2: was a failure. The first day it came out. You
Speaker 2: could see the scenes, the vertical scenes on the movie
Speaker 2: screen where they're trying to widen the image or whatever.
Speaker 2: I mean, Paul, does do people really want to pay
Speaker 2: up for Imax.
Speaker 4: Versus They absolutely do for the big you know, big
Speaker 4: blockbuster kind of movies.
Speaker 3: You know that kind of thing.
Speaker 8: Okay, so these are for all the space junkies out there.
Speaker 8: A massive rock from Mars it landed on Earth, just
Speaker 8: sold for a record.
Speaker 7: Okay.
Speaker 8: So the backstory is it broke off from Mars when
Speaker 8: an asteroid struck the planet.
Speaker 2: Right.
Speaker 8: It's fifty four pounds about fourteen inches long.
Speaker 7: It traveled to the Earth.
Speaker 8: It landed in a desert in northwest Africa, and some
Speaker 8: meteorite hunter found it back in twenty three years.
Speaker 4: I saw this.
Speaker 8: Because they tested and they take a sample of it
Speaker 8: and they test it and it has the same substances
Speaker 8: that the planet.
Speaker 2: Mark Damon doesn't have anything.
Speaker 5: Nothing.
Speaker 7: You didn't sign off on this, but it did sell.
Speaker 8: Southby's had an auction, okay, five point three million dollars.
Speaker 7: This is a record.
Speaker 2: I mean it's so it's like somebody puts the hunk
Speaker 2: of Mars in their rock garden.
Speaker 4: You know, fine, I mean all right, I mean I
Speaker 4: don't know how you figure it out, but all right,
Speaker 4: go for it.
Speaker 7: And it is a market selling meteorite.
Speaker 2: We've generated a heated response. Thank you across this nation
Speaker 2: and worldwide for listening. Nobody cares about Glenn Hubbard or
Speaker 2: Steve Lakeley was brilliant on ETFs and fixed income Sarah
Speaker 2: and the control room goes, yeah, I'd go for the
Speaker 2: lab Grown. Look, we got a huge response.
Speaker 5: Sarah's the plot.
Speaker 7: I know, I know.
Speaker 8: I said I would tell my son for his girlfriend,
Speaker 8: stick with the lab Grown. Save yourself some money, put
Speaker 8: it down toward a door.
Speaker 7: I'm paying for a house.
Speaker 4: Or something interesting. I took some of my Merrilynch investment
Speaker 4: banking bonus.
Speaker 2: Right, Okay, listen to toils. The newspapers thank us so much.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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