Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern
Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App.
Speaker 1: Listen on demand wherever you get your podcasts, or watch
Speaker 1: us live on YouTube.
Speaker 2: A really interesting path to investment management. Russ coster Rich
Speaker 2: is out of Brandeis and Boston College Law, also at Columbia.
Speaker 2: Really just a wonderful set of academics. We're thrilled at.
Speaker 2: Russ Costs could join this morning from Blackrock, where he
Speaker 2: has a focus on scientific active equities. Rostcon strance is
Speaker 2: science right now is a new study of international investment.
Speaker 2: You push against that, you say beware a focus on
Speaker 2: international investment.
Speaker 3: Discuss that and more and tom so right now.
Speaker 4: We've had an unusual start to the year, to put
Speaker 4: it mildly, and one of the many things that's been
Speaker 4: going on which was not expected when we started twenty
Speaker 4: twenty five, was this dramatic outperformance of international markets, particularly Europe,
Speaker 4: and people will remember that began early in the year,
Speaker 4: before we really knew the full extent of the tariffs.
Speaker 4: But it's actually continued, albeit at a slower pace. So,
Speaker 4: you know, one of the questions we're getting from our
Speaker 4: clients frequently with the Global Allocation Fund is should we
Speaker 4: be more invested in international? And while I do think
Speaker 4: that there's always a good argument for international diversification, it's
Speaker 4: not clear to us that that strong outperformance of Germany
Speaker 4: of the rest of Europe that began the year can
Speaker 4: continue in an environment in which economic growth is slowing.
Speaker 4: There's a lot of policy and certainty, and trade is
Speaker 4: likely to be very different than it's been for the
Speaker 4: past several decades. So we are still of the you
Speaker 4: that many of the best companies in a multi assid
Speaker 4: portfolio are going to be from the United States.
Speaker 5: So, Russ, how do you think about some of this?
Speaker 5: You know, all the headwinds investors are trying to deal
Speaker 5: with right now. Has that changed the way you allocate
Speaker 5: between stocks and bonds and maybe alternatives? Are you trying
Speaker 5: to get at play a little closer to the vest
Speaker 5: a little bit more conservative or defensive? How are you
Speaker 5: guys playing this?
Speaker 4: Well, that's definitely the case you and we have brought
Speaker 4: in our risks. So we had an equity overweight for
Speaker 4: most of twenty and twenty four actually much of twenty
Speaker 4: three as well. We've brought that closure to home. We've
Speaker 4: added a little bit of duration back into portfolio. So yes,
Speaker 4: given the uncertainty, we're definitely thinking about where do we
Speaker 4: want to bring.
Speaker 3: Risk and where do we want to make our bests.
Speaker 4: But there are a couple of other areas too that
Speaker 4: I think go to your question, one of which our
Speaker 4: bond's going to work as a hedge.
Speaker 3: Now we've shifted from.
Speaker 4: An environment where for a lot of the last three
Speaker 4: years the concern was inflation to more of a concern
Speaker 4: about recession. Session is the issue? Then generally bonds work
Speaker 4: better and mitigating equity risk. The question is are we
Speaker 4: going to get a recession or we can to see
Speaker 4: higher inflation in the back of the tariffs. That's one
Speaker 4: thing we're wrestling with. The other, which has definitely had
Speaker 4: an impact on how we allocate and goes to the
Speaker 4: question about alternatives, is gold Right now? The biggest risk
Speaker 4: to markets is uncertainty. There's also a risk about whether
Speaker 4: or not international investors are going to trim their allocation
Speaker 4: to dollar denominated assets. In that environment, we found that
Speaker 4: gold is actually very helpful in the portfolio obviously it
Speaker 4: record highs. That's another place we've actually been increasing our
Speaker 4: bet to over the last three to six months.
Speaker 5: So you know, in terms of fixed income RUSS, is
Speaker 5: there any call here to take credit risk or do
Speaker 5: you just sit kind of in the three to five
Speaker 5: year treasury kind of belly of the curve kind of thing.
Speaker 4: Well, I think it's actually both. I think we do
Speaker 4: like the belly of the curve in general. We've been
Speaker 4: cautious about the long end of the curve for a
Speaker 4: while and it really hasn't done too much so far
Speaker 4: year to date. But absolutely we think that credit is
Speaker 4: one of the areas you can actually find opportunity. And
Speaker 4: the reason is there's a lot of risk on the economy.
Speaker 4: But even if we were to get a recession, our
Speaker 4: views would be a mode recession. Corporate balance sheets, at
Speaker 4: least for large companies, are in good shape. Many of
Speaker 4: them turned out their debt back in twenty and twenty one.
Speaker 4: In other words, that extended the maturity of their debt
Speaker 4: and for the first time in years, really more than
Speaker 4: a decade, you can build a portfolio with high quality
Speaker 4: credit get seven seven and a half percent. That's looking
Speaker 4: pretty good at an environment where equity returns are obviously
Speaker 4: more questionable and you get more volatility. So credit is
Speaker 4: one of the areas we definitely like in a multi
Speaker 4: asset portfolio.
Speaker 2: Russ got to get you into the studio here to
Speaker 2: do it much longer, and you a couple more questions
Speaker 2: here before we dash to Canada risk costurage like the
Speaker 2: Blackrocks Science and Technology Fund. What Tony Kim is doing.
Speaker 2: The bottom line is, is what retail loves big tech companies
Speaker 2: as well with it AWE as you mentioned the Maelstrom
Speaker 2: of the Q one the first one hundred days of
Speaker 2: President Trump. Are the persistent cash flows of those science
Speaker 2: and technology leaders in Nvidia, Amazon, Microsoft, the rest. Are
Speaker 2: they still in place?
Speaker 4: I think so, Tom Now Tony could do much more
Speaker 4: adjustice to that question than I Can't sure, but I
Speaker 4: think it's the right question because this is something that's
Speaker 4: going to become increasingly important. We came into the year
Speaker 4: expecting a stronger economy. If we have a weaker economy,
Speaker 4: which is almost certain, we're going to focus on companies
Speaker 4: that can produce reliable cash flow. And yes, there are
Speaker 4: questions about the buildout on AI, but the reality is
Speaker 4: many of the companies you mentioned. These are platform companies.
Speaker 4: Their profitability is much higher than average, their earnings are
Speaker 4: much more.
Speaker 3: Consistent than average.
Speaker 4: This is still an opportunity long term for a lot
Speaker 4: of investors. And I said in the beginning, while we
Speaker 4: still like the US because we find more of these
Speaker 4: companies in the US than other regions, Russ.
Speaker 2: We got to leave it there. I'm so sorry. Russ Costrich.
Speaker 2: Please get into her studio. He's got to get into
Speaker 2: the studio.
Speaker 4: Sure.
Speaker 2: I mean, you know exactly, Russ. The food court. You'll
Speaker 2: love it. Russ Costrich, Black Rock, Thank you.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station, Just
Speaker 1: say Alexa, play Bloomberg eleven thirty.
Speaker 2: If she was in Michigan and did a paper or
Speaker 2: whatever and it ended up being a book, The River
Speaker 2: runs Black, think of what Oppenheimer, Barbie, that's the way
Speaker 2: the River Run Black worked. Within the academics on China,
Speaker 2: Elizabeth Economy immediately rose to a claim on analysis of
Speaker 2: the Pacific Rim. She's followed up with any set of books,
Speaker 2: including the World according to China and The Third Revolution.
Speaker 2: We know her public service to the nation with Secretary
Speaker 2: of Romando at Commerce. She is the Hargro Senior Fellow
Speaker 2: co Director US China and World Program. This on the
Speaker 2: Left Coast Hoover Institution at Stanford University, Doctor Economy. When
Speaker 2: you hear diplomats of China in an organized manner called
Speaker 2: the President of the United States for bullying, how do
Speaker 2: you translate that?
Speaker 6: I think it's pretty straightforward. Look, I think right now
Speaker 6: the two countries aren't a game of chicken, and the
Speaker 6: Chinese are waiting for a real signal from President Trump
Speaker 6: in the form of dropping the unilateral tariffs or reducing
Speaker 6: them substantially. I think actually President Trump did blink last
Speaker 6: week when he said that he expected to reduce those tariffs.
Speaker 6: But I think the Chinese decided not to recognize that.
Speaker 6: At least the Chinese officials decided not to recognize it.
Speaker 6: Maybe they saw it more as a wink than a blink,
Speaker 6: and they don't trust it. But I think, you know,
Speaker 6: it's not just the Chinese, frankly world, and I think
Speaker 6: China's being pretty confident in their assessment of President Trump,
Speaker 6: and that you know, many other countries are also looking
Speaker 6: at the United States in the same way.
Speaker 2: Within the gi real politic. Do they have the power
Speaker 2: in the leverage to say to other nations, if you
Speaker 2: dance with President Trump, you won't dance with China. Do
Speaker 2: they have that power to say that to act on that.
Speaker 6: You know, It's been interesting to me as I've watched
Speaker 6: the Chinese go around, first with the charm offensive in
Speaker 6: Asia and Europe and then with the more coercive sort
Speaker 6: of approach that you just noted. I've been surprised at
Speaker 6: the extent to which China has not managed to translate,
Speaker 6: you know, the sort of chaotic policy and bullying behavior
Speaker 6: of the United States into a sort of a greater
Speaker 6: leverage for China itself. I think we saw Australia say,
Speaker 6: you know, when China reached out to them, you know, no,
Speaker 6: thank you, We're not about to join hands. We saw
Speaker 6: Canada do the same. I think the EU is flirting
Speaker 6: with China, but you know, they have their own economic
Speaker 6: problems with China, and they're also you know, there continue
Speaker 6: to be extremely unhappy with China. Support for Russia and Ukraine.
Speaker 6: So what I've seen really is that China has not
Speaker 6: been able, either through coercive messaging or through sort of
Speaker 6: a more positive approach to bring countries to its side.
Speaker 6: That being said, I think there are probably some countries,
Speaker 6: you know, emerging in middle income economies that are heavily
Speaker 6: reliant on China where that kind of coercive tactic is
Speaker 6: likely to work. But I think it's important to remember
Speaker 6: that while China is the largest trading partner for most
Speaker 6: countries in the world, that the US is a larger
Speaker 6: export market for most countries in the world, and I
Speaker 6: think that's also playing into this.
Speaker 5: So we saw Elizabeth just yesterday up in Canada, we
Speaker 5: saw the result of President Trump's kind of verbal attacks
Speaker 5: on Canada, fifty first state and all that type of
Speaker 5: stuff really united the people of Canada here behind a candidate.
Speaker 5: Here is something similar happening in China. Are the people
Speaker 5: uniting behind President g on this hey, this nationalism platform?
Speaker 6: Absolutely? I mean, I think the terriffs in that regard
Speaker 6: have been a real boon to see jinping into his standing.
Speaker 6: I think, you know, previously you saw that there was
Speaker 6: a lot of negative sentiment, for example, in social media
Speaker 6: and China about the state of Chinese economy, and it
Speaker 6: was really directed towards the Chinese government. With the tariffs, basically,
Speaker 6: the US has become a scapegoat for all of China's
Speaker 6: economic ills, and so there's a rally around the flag
Speaker 6: element to what's going on in China. And frankly, I
Speaker 6: was in Hong Kong last week, and I will tell
Speaker 6: you that there's increasing confidence in China. And I was
Speaker 6: at a conference with a lot of leaders from China's
Speaker 6: tech sector, and there, you know, they not only feel
Speaker 6: that they can get around any kind of export restrictions
Speaker 6: or other kinds of tariffs that the US might be
Speaker 6: placing on China, but they also just have they're just
Speaker 6: looking at the United States and thinking how many own
Speaker 6: goals can the US government score here? And so I
Speaker 6: just I think that that's what's that is what the
Speaker 6: tariffs are triggering, primarily in China.
Speaker 2: A good evening to the Pacific rim on YouTube. Thank
Speaker 2: you so much for tuning in with us our conversation
Speaker 2: of the month, indeed, perhaps the second quarter. Elizabeth Economy,
Speaker 2: Hargrove's senior fellow at the Hoover Institution at Stanford University
Speaker 2: here on all of our expertise on China, and now
Speaker 2: the America must and will respond. We do this with
Speaker 2: reading green and screen. The Secretary Treasury is scheduled to
Speaker 2: speak here in twenty minutes. That'll be interesting, Paul.
Speaker 5: Which country has the stronger hand here in negotiations going forward?
Speaker 6: You know, I think to some extent, China has the
Speaker 6: stronger hand. I think we had a little bit of
Speaker 6: an arrogance on our part because we thought, given that
Speaker 6: there's a you know, three hundred billion dollar trade deficit,
Speaker 6: and you know, China is so much more reliant on
Speaker 6: the US market than the US is on the China
Speaker 6: market in terms of exports. I think we thought that
Speaker 6: we had the upper hand, but think it ignored a
Speaker 6: couple of important facts. Number one, that we are reliant
Speaker 6: on China for some very critical inputs like critical minerals
Speaker 6: and rare earths magnets that we need for our technology
Speaker 6: and defense industries. And in fact, you know, for thirty
Speaker 6: percent of the products that we import from China, we
Speaker 6: are reliant on them to seventy percent or more, right,
Speaker 6: so we have more close to single source supply a
Speaker 6: dependency on China than they do on US. So I
Speaker 6: think there's that element is playing out. That being said,
Speaker 6: the Chinese economy was struggling before we put the tariffs on.
Speaker 6: I think you know, many Chinese factories, low and low
Speaker 6: margin factories do consumer electronics and apparel and toys, are
Speaker 6: extremely concerned because the US market was really important. And
Speaker 6: so I do think there are calls now in China
Speaker 6: for the Chinese government to recognize actually that President Trump
Speaker 6: did blink last week, and to say take the win
Speaker 6: and get to the negotiating table. And we just saw
Speaker 6: a really interesting article come out in the Chinese newspaper Unsigned,
Speaker 6: which signals that it's coming from the Chinese government that
Speaker 6: basically said, you know, go look at Mao's on protracted
Speaker 6: war and get hunkered down and stop talking about getting
Speaker 6: back to the negotiating table.
Speaker 7: Well, this is the heart of me.
Speaker 6: Yeah, there's a debate going on in China, but this is.
Speaker 2: Brilliant Elizabeth economy. This is the heart of the matter.
Speaker 2: As we have experts like you, I think at Leland
Speaker 2: Miller China based book of course, the Giants Spence and
Speaker 2: Orville Shell. You read the material and you say this
Speaker 2: is the voice of the government. Now. In your book
Speaker 2: The Third Revolution, you talk about the lion awakens, you
Speaker 2: talk about the road forward because of President Trump. Is
Speaker 2: the road forward for g radically different now? And does
Speaker 2: he have a new power given to him by the
Speaker 2: stumbling of President Trump?
Speaker 6: I mean, I think it depends on how long the
Speaker 6: president stumbles and in which direction. I mean, I think
Speaker 6: there's a stumble, one might say on the tariffs. There's
Speaker 6: a stumble on, you know, undercutting investment in our universities.
Speaker 6: There's probably a stumble and moving away from you know,
Speaker 6: clean energy, which is you know, the choice of most
Speaker 6: of the world for the twenty first century. So while
Speaker 6: we're looking backwards to the nineteen fifties and the rest
Speaker 6: of the world is looking to twenty fifties. I think
Speaker 6: there are a number of different stumbles. But it really
Speaker 6: we're only one hundred days into this administration and there's
Speaker 6: plenty of time for I think, course correction, and it's
Speaker 6: really going to depend on people, I think in this industry.
Speaker 2: I got to ask this question, Paul. It's really it's
Speaker 2: a really rude, rude question. If the Secretary of Commerce
Speaker 2: now took Raymundo manners one oh one, would Howard Lutnik
Speaker 2: be a lot more effective if he had the grace
Speaker 2: of your former boss at Commerce.
Speaker 6: I don't think it's just a matter of grace. I
Speaker 6: think I think there's an essential fundamental understanding of the
Speaker 6: way the government works, of the way the economy works,
Speaker 6: and an understanding of what American workers and businesses want most.
Speaker 6: I think, you know, she brings the whole package. You know,
Speaker 6: I'm not exactly sure what Secretary Lutnik is bringing to
Speaker 6: the table at this point.
Speaker 2: Well, that was diplomatic exactly, Elizabeth.
Speaker 5: I think about a company like Apple, it's just so
Speaker 5: inextrictably linked to China, And then I kind of just
Speaker 5: take that out to the overall US. Are the two
Speaker 5: sides here really prepared to decouple here? It just seems like,
Speaker 5: in this global world, can you really do that? Does
Speaker 5: either side really want that?
Speaker 3: You know?
Speaker 6: I think certainly US business, most US business that's engaged
Speaker 6: in business, whether exporting or invested manufacturing in China, is
Speaker 6: not interested in a complete decoupling. I do think based
Speaker 6: on COVID, based on the Russia's invasion of Ukraine, there
Speaker 6: has been a shift in many boardrooms in terms of
Speaker 6: their understanding of you know, an overdependence on any single source,
Speaker 6: in particular China. But I don't think there's an interest
Speaker 6: in decoupling. That being said, I think within the US
Speaker 6: government there are definitely people at this senior most levels
Speaker 6: who wouldn't mind a complete decoupling. And I think, look,
Speaker 6: you know, supply chain movement began during the Biden administration.
Speaker 6: There was definitely a push to you know, encourage companies
Speaker 6: to rethink their China strategy and to begin to manufacture elsewhere.
Speaker 6: Under the Trump administration, I think that's you know, ten
Speaker 6: you know, magnified tenfold. And I think there are people
Speaker 6: who are actually driving toward decoupling. It would include someone
Speaker 6: like Peter Navarro in that group, and they do have
Speaker 6: the President's here, so you know, I'm not sure where
Speaker 6: this you know all is going. I think the administration
Speaker 6: is actually divided.
Speaker 2: One final question, doctor Economy, and you mentioned earlier that
Speaker 2: the Trump administration is trying to look back to another
Speaker 2: time and place. A g platform was to look back
Speaker 2: to maw in all the different certitudes of the fifties
Speaker 2: and the sixties in China. Do the people of China
Speaker 2: want to look back.
Speaker 6: So I would say that Sheijinping looked back politically and
Speaker 6: know most people in China don't support the very regressive
Speaker 6: and repressive policies that Sheijinping has instituted. On the other hand,
Speaker 6: when it comes to innovation and technology, Sheijinping is full
Speaker 6: on twenty first century and beyond. And I think that's
Speaker 6: what we're seeing, not only in the innovation sector, but
Speaker 6: in the deployment of new technologies of robotics and AI.
Speaker 6: That's where they're really going to eat our launch if
Speaker 6: we don't get our app together. So I think politically, yes,
Speaker 6: backwards move, but in terms of tech and innovation, they're
Speaker 6: charging one hundred times faster forward than we are.
Speaker 2: Elizabeth Economy, Thank you so much, Hargo's senior fellow the
Speaker 2: Hoover Institution.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Thank you Ethan Harris for your support. Legendary at Lehman
Speaker 2: at Bank of America. Ethan Harris said, I'll be retired
Speaker 2: but I'm not just writing on LinkedIn. Absolutely brilliant, Ethan.
Speaker 2: Thank you for the LinkedIn expertise. I love your headline
Speaker 2: of a few days ago, two weeks ago. Beatings will
Speaker 2: continue until Morell improves. Tell us doctor Harris, how bad
Speaker 2: the beatings are for the American consumer.
Speaker 8: Well, one of the amazing things that we've seen in
Speaker 8: the last three months is that the negotiating tactic of
Speaker 8: the Trump administration is to create uncertainty, to put your
Speaker 8: opponent off the balance by talking in very aggressive terms.
Speaker 8: This is certainly the way the trade war is playing out.
Speaker 8: It's also true for downsizing government and for encouraging immigrants
Speaker 8: to self deport. So you've got this kind of shock
Speaker 8: and awe approach to trying to change policy. But the
Speaker 8: problem is that everyone's hearing this, including business leaders and
Speaker 8: consumers and investors, and so it's really bad for the
Speaker 8: markets and the economy to have this super aggress talking
Speaker 8: to approach. And that's what I mean by the beatings.
Speaker 8: It's kind of like, you know, it's if they don't
Speaker 8: stop this tactic, we will get.
Speaker 2: The appointed and assigned is Bessant of the hedge fund industry.
Speaker 2: Bessant used to work for mister Soros Bessant, who is
Speaker 2: Secretary Treasury. Do you believe the secretary can modify the
Speaker 2: beatings that will continue until Morell improoves.
Speaker 8: I think he's the best hope for that. I do
Speaker 8: think that, uh, he's gotten the ear of the President
Speaker 8: pointed out that the way we're heading, you're gonna have
Speaker 8: a really bad equity market going forward. And he's I
Speaker 8: think the architect of the recent softening of rhetoric. So
Speaker 8: he's he's gonna he's helping. And because he comes from
Speaker 8: a more moderate background than a lot of the other advisors.
Speaker 8: The problem is, of course that I don't think this
Speaker 8: is going to end quickly. This back and forth and
Speaker 8: threats and counter threats and nasty negotiations. We have to
Speaker 8: get used to it. That's this is the new normal
Speaker 8: for a while here, and so it's going to continue
Speaker 8: to be a big headwind to the economy.
Speaker 2: Surveillance idea, Paul, should we have doctor Harrison every time
Speaker 2: I think we're waiting for a press conference?
Speaker 3: I think is brilliant.
Speaker 5: I think we can do that.
Speaker 8: You're gonna have to raise my pay.
Speaker 5: We know some people here, Hey, I mean you do
Speaker 5: an undergraduate degree and then a PhD in economics. I'm
Speaker 5: guessing you had a class or two on tariffs. Are
Speaker 5: there scenarios where tariffs are effective economic policy? And are
Speaker 5: we employing them in that way this time?
Speaker 8: Well, I think that there's an agreement among economists that
Speaker 8: there are issues with completely free trade that you need
Speaker 8: to You want to protect regional economies when there's a
Speaker 8: flood of foreign competition coming in, you don't want to
Speaker 8: let that just roll over the economy without any support.
Speaker 8: And we didn't do that. We didn't support local communities.
Speaker 8: So there were problems in the expansion of free trade,
Speaker 8: and they're all in. A lot of that was China.
Speaker 8: It was China just dumping really cheap stuff on global markets.
Speaker 8: So I think that economists would agree that you need
Speaker 8: to deal with China and the unfair trade practices of China,
Speaker 8: but that's not what they're doing. China should be the focus.
Speaker 8: Why are we beating up on Canada and Mexico. We
Speaker 8: have a free trade agreement with them, They are closest allies.
Speaker 8: Why are we beating up in Europe? Europe's trade is
Speaker 8: relatively unfettered with the United States, so it's not the
Speaker 8: right way to go about it. The tariffs should be
Speaker 8: focused on issues of geopolitics and on unfairness, not this
Speaker 8: kind of us against everyone. America alone is not a
Speaker 8: good policy.
Speaker 5: Ethan. I think some of the uncertainty that you talk
Speaker 5: about that we all kind of are are are hearing
Speaker 5: about from companies as they talk about their guidance. Is
Speaker 5: it uncertainly as it leads to economic growth or is
Speaker 5: it more on the inflation side. Where's the bigger concern
Speaker 5: for you?
Speaker 8: Well, I'm actually a bit more worried about the growth
Speaker 8: hit here. You know what's happening right now is that
Speaker 8: the corporate sector is like a deer in the headlights.
Speaker 8: They don't know what to do. I mean, if you're
Speaker 8: if you're a corporation that has heavy dealings with the
Speaker 8: federal government, that deal has a immigrant workforce that is
Speaker 8: involved in trade, all of those sectors are being touched
Speaker 8: by high levels of uncertainty. You can't figure out where
Speaker 8: to put your next plant if you don't know where
Speaker 8: what tariffs are going to be four years from now.
Speaker 8: You can't You can't go out and hire workers if
Speaker 8: you know that your workplace is going to be rated
Speaker 8: any minute and you may end up with serious penalties.
Speaker 8: You can't do government. It's anything related to government if
Speaker 8: you don't know who's going to be working at the agency.
Speaker 8: So it's uh, it's very broad. Uh you know, uncertainty
Speaker 8: shock that that just is freezing up activity.
Speaker 2: But this is Ethan Harris rumor as he's retired. I
Speaker 2: don't buy it for a minute of Lehman and iconic
Speaker 2: at Bank of America out of Scenic Clark University, oldest
Speaker 2: university in New English. Yeah, it's out there a big background.
Speaker 8: I'm actually on a golf course right now.
Speaker 2: That's good. Okay, that's good to know Ethan to go
Speaker 2: to Ned Phelps, the giant so supportive of what I do.
Speaker 2: In his modern word of dynamism, his President Trump broken
Speaker 2: America's dynamism.
Speaker 8: I don't think he's broken it, but he certainly puts
Speaker 8: some major sand in the gears. You know, there's a
Speaker 8: short run problem that we've been talking about, which is
Speaker 8: the kind of deer and headlights effect on business activity.
Speaker 8: There are other things, though, that are even deeper, fundamental issues,
Speaker 8: like what's going to happen to our stem community, our
Speaker 8: scientific community going forward. This is the secret sauce of
Speaker 8: American capitalism. We have the best tech sector in the world,
Speaker 8: we have the best scientists in the world, and we
Speaker 8: draw the smartest people in the world into the US
Speaker 8: educational system. That's actually a longer run kind of damage
Speaker 8: that nobody's really talking about because it seems like a
Speaker 8: political fight. But we really need to get the smartest
Speaker 8: people in the world to keep coming to the US
Speaker 8: because Americans don't seem to want to do science. You
Speaker 8: know that we've got too many economists not enough engineers.
Speaker 8: But yeah, there's little bits of more permanent effects we
Speaker 8: start to play out, and I would point to that
Speaker 8: as my number one long run.
Speaker 5: Concern ethan what role, if any, can the Federal Reserve
Speaker 5: play in kind of inserting itself in this time of
Speaker 5: uncertainty here?
Speaker 8: I mean, they're a steady hand. I think that Pole
Speaker 8: is doing exactly what he should do. Keep reiterating that
Speaker 8: we're an independent central bank. We don't play politics. We
Speaker 8: can't react to what we're seeing right now because there's
Speaker 8: too much uncertainty and we don't know whether we're dealing
Speaker 8: with an inflation problem or a growth problem. And so
Speaker 8: I think they're a steady end on the Tiller here
Speaker 8: and that's about all they can do.
Speaker 2: Fold in the fiscal analysis this morning, folks in the
Speaker 2: zeitgeist is the two Congresses, one looking for a hurried,
Speaker 2: rushed large text program and the other with some patients
Speaker 2: to guess what another debt ceiling debate. This debate's different,
Speaker 2: doctor Harris, because of our fiscal situation, isn't it.
Speaker 8: Yeah. I think that there's certainly a fiscal hawk wing
Speaker 8: of the Republican Party that's making it harder to reach
Speaker 8: these budget deals. And the deficit is out of control,
Speaker 8: and you look at the proposals on the table. X
Speaker 8: cuts are much bigger than the spending cuts. So it's
Speaker 8: not like we're in the process of coming to terms
Speaker 8: with this, and so it's going to continue to be
Speaker 8: a weight around uncertainty in the markets. It may be
Speaker 8: starting to affect the bond market. It may be the
Speaker 8: bond market is starting to wonder whether there's an adequate
Speaker 8: funding for the massive and growing budget deficit, particularly when
Speaker 8: you have these trade wars going on. So it's something
Speaker 8: we need to keep one eye on. Even though it's
Speaker 8: old stuff and we've seen these fights over and over again.
Speaker 8: They usually end up okay. But it's the stakes are
Speaker 8: higher now, Ethan.
Speaker 2: Let me slip in one final question here, and we
Speaker 2: may have to cut you off as we go, but
Speaker 2: let's be optimistic. And that is simply the recession call.
Speaker 2: You are expert at this, at Lehman Brothers, at the
Speaker 2: Bank of America, many are positing a ninety recession. I'll
Speaker 2: let you decide. Isn't a huge body of America in
Speaker 2: recession right now? No?
Speaker 8: I don't think so. I think we're entering. I don't
Speaker 8: think we've tipped into a recession yet, and I do
Speaker 8: think it's in the hands of the Trump administration. They
Speaker 8: can decide are they going to continue to back off
Speaker 8: from shock and awe? And by the way, I think
Speaker 8: the best in today will probably try to be assuring
Speaker 8: for the markets. If that continues, I think we avoid
Speaker 8: a recession. If it doesn't, the damage just builds and
Speaker 8: we do get recession. So I'm a two armed economist.
Speaker 8: You know, I'm gonna tell you, maybe we get a
Speaker 8: recession and maybe we don't.
Speaker 2: Where you retired for one or two days, how did
Speaker 2: that work, Ethan? I think it was zero zero.
Speaker 8: Yeah, I never really wanted to fully retire. I love
Speaker 8: this stuff. This is amazed time to be an economist,
Speaker 8: no question about it.
Speaker 2: I can speak for all of Bloomberg. Ethan Harris, thank
Speaker 2: you so much for the output. Again, folks, I can't
Speaker 2: state enough the LinkedIn what Microsoft has done there, the
Speaker 2: LinkedIn value when you see it in the essays of
Speaker 2: Ethan Harris. Thank you so much, doctor Harris for a
Speaker 2: brief involving a lot of perspective over at the years.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station, Just
Speaker 1: say Alexa play Bloomberg eleven thirty.
Speaker 2: It is an honor in knowing Mark Kearney for years.
Speaker 2: I should state that, And of course mister Kearney did
Speaker 2: board work for Bloomberg ELP. I want to state that
Speaker 2: as well. We have seen history in Canada. We went
Speaker 2: out today and we looked for a voice that understands
Speaker 2: completely the modern Canada. David Dodge Queen's University, and of
Speaker 2: course Princeton is the esteemed economist of Canada. He's the
Speaker 2: former governor of the Central Bank of Canada equivalent to
Speaker 2: our chairman of the Federal Reserve. So honored that doctor
Speaker 2: Dodge could join us this morning, Doctor Dodge, what does
Speaker 2: the new Canada look like?
Speaker 7: Slightly confused, because it's the first time and a very
Speaker 7: long time, that you basically got a parliament that has
Speaker 7: just the two parties, the minor parties, which have been
Speaker 7: very important in being part of governing coalition. We're basically
Speaker 7: decimated last night. Mister Corney is now Prime Minister without
Speaker 7: a a dominant majority. He's a few seats still, a
Speaker 7: few seats short, and so he is going to be governing, governing,
Speaker 7: having to govern with his eyes always on his ability
Speaker 7: to get the votes in Parliament.
Speaker 2: How will he defend against the abruptness, some would say
Speaker 2: rudeness of a request for a fifty first state. I
Speaker 2: mean this, this dream of selected Americans goes back easily
Speaker 2: into the nineteenth century. David Dodge, How should mister Kearney,
Speaker 2: how should Canada push away the idea of a fifty
Speaker 2: first state?
Speaker 7: Well, the first thing is the day to day negotiations
Speaker 7: which are going to have to take place on trade, uh,
Speaker 7: not just the Canada, US, but the three countries in
Speaker 7: North American h North American agreement, that's all got to
Speaker 7: be redone and that that's kind of a very practical
Speaker 7: thing that mister Carney is going to have to focus
Speaker 7: on as well, uh, as well the President of Mexico.
Speaker 7: And that all becomes really important to understand. Then what
Speaker 7: is the role of the United States in terms of
Speaker 7: a trade block, if you will, in the world, as
Speaker 7: the world seems to be dividing itself in the blocks.
Speaker 7: And then what how does North America fit? Because obviously
Speaker 7: North America is stronger taken as a whole uh than not.
Speaker 7: And so the practical thing is going to be to
Speaker 7: discuss with the American administration not just the economic can
Speaker 7: trade arrangements, but the security arrangement for North America, which
Speaker 7: is particularly important. How we're going to deal with the Arctic,
Speaker 7: which is very important. So when you say how will
Speaker 7: we deal with it? What we'll start with the practicalities
Speaker 7: of dealing with those things that have to be dealt
Speaker 7: with on both sides, the American side and ourselves.
Speaker 5: Doctor Dodge. Realistically, what can mister Carney do to try
Speaker 5: to reorient the Canadian economy with less reliance on the
Speaker 5: US trade.
Speaker 9: Yeah, that that that is the big issue that that
Speaker 9: was has been the issue basically since the Great Financial Crisis,
Speaker 9: when investment has been.
Speaker 7: Lagging UH in Canada UH and innovation has been lagging UH.
Speaker 7: And so that that requires really quite a major reset.
Speaker 7: And the difficulty in that reset. It essentially means that
Speaker 7: there's going to be a smaller share of GDP UH
Speaker 7: is going to go to consumption and a larger share
Speaker 7: has to go to investment. And that means for the
Speaker 7: ordinary middle class, that means slower growth in consumption UH
Speaker 7: in the short run over the next few years in
Speaker 7: order to get UH, get productivity up and hence have
Speaker 7: growth in the future.
Speaker 2: David Dodge one final question, if we may Ken Dryden
Speaker 2: change the perspective of America on Canada not only in
Speaker 2: the hockey with the Montreal Canadians, but he changed college
Speaker 2: hockey at Cornell as well working as a public official
Speaker 2: in Canada. And you know Ken Dryden's well quote in
Speaker 2: the Toronto Globe and Mail, we have never been a
Speaker 2: big guy like the United States. What does Canada need
Speaker 2: to do to defend against the big guy?
Speaker 7: Well, defend the best defense is a good offense, and
Speaker 7: that offense has to be to come with a proposition
Speaker 7: on trade and security that is good not just for Canada,
Speaker 7: but good good for the United States. It has to
Speaker 7: be good for both parties, and so that that will
Speaker 7: be that will be the issue going forward. And he
Speaker 7: Mark Carney is laid out some of the key parameters
Speaker 7: in that, and his problem is going to be trying
Speaker 7: to ensure that there is some way to manage the
Speaker 7: fact domestically that for a period of time the amount
Speaker 7: of the average household as for consumption is not going to.
Speaker 2: Grow, right, David, we have to leave it there, of
Speaker 2: a doctor Dodge, thank you so much for joining Bloomberg
Speaker 2: this morning. David Dodge, of course, the seventh Governor of
Speaker 2: the Bank of Canada, thrilled that it could be with
Speaker 2: us on some important day north of our border.
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 watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg terminal.
Speaker 2: It's the key reason that YouTube is growing, of course,
Speaker 2: is Lisa Monteo's newspapers. Let us begin.
Speaker 10: I need some bird chirping again.
Speaker 8: That's what we need to make this go through.
Speaker 10: I want to start with an interesting look at those
Speaker 10: buy now, pay later options like apps like after pay Klarna.
Speaker 10: So they're popular for luxury ittems like appliances, things like that.
Speaker 10: But now there's an interesting take. A new study says
Speaker 10: more people are using it for every day items like grocery. Really,
Speaker 10: so they're using these leader never used. Tilarna is really popular,
Speaker 10: so I know a lot of people who use that.
Speaker 10: So it showed that one quarter shoppers have used a
Speaker 10: service for groceries. That's up fourteen percent from a year ago.
Speaker 10: So more people are doing it. But here's a kicker
Speaker 10: forty one percent. So they paid back that loan late
Speaker 10: over the past year, so they're using the thank you
Speaker 10: for the bird chirping. Now I feel better. They're using
Speaker 10: these apps and things like that, but they're not even
Speaker 10: paying them back on time too.
Speaker 5: I'm guessing they're high.
Speaker 1: See that's the thing.
Speaker 10: They're popular who for people want to avoid the risks
Speaker 10: like with credit cards, are paying interests on a loan.
Speaker 10: But the thing is is that it can also lead
Speaker 10: to overspending and people are kind of extending their debt
Speaker 10: even further because of these and that's the problem with it.
Speaker 10: But it just goes an interesting take on like how
Speaker 10: inflation is starting to affect people in different ways.
Speaker 2: That one sign huge story and it's not daily, it's percolating. Say,
Speaker 2: huge story just on groceries.
Speaker 5: Yeah, that's not next we groceries. Okay.
Speaker 10: Single women across Asia they're opening their hearts and their
Speaker 10: wallets for a new mobile dating game. Okay, it's called
Speaker 10: Love and Deep Space, and women love the fictional character.
Speaker 10: His name is Silas. He's six foot two, red eyes
Speaker 10: not blue, twenty eight, he's an arees.
Speaker 2: Okay, does they have a trust fund?
Speaker 10: Does not have a trust fund. But it's not just him,
Speaker 10: there's like five love interests. But the thing is the
Speaker 10: app is free to download, but women are on this
Speaker 10: thing for like four hours a day, and they're spending
Speaker 10: not on the game because it's free, but they spend
Speaker 10: on the things kind of like how these other video
Speaker 10: games you use them for like outfits and you buy
Speaker 10: you know, extra money, did it spend on this or
Speaker 10: that way? And they're spending like some spend like three
Speaker 10: thousand dollars a year, you know, to on all these
Speaker 10: like online different things to improve their character. But it's
Speaker 10: huge in Asia, Like there's hundreds of women are showing
Speaker 10: up to these live events for this game. It's crazy
Speaker 10: to me.
Speaker 2: It's the digital you know, this new digital world we're
Speaker 2: living in and people are basically running through their charge
Speaker 2: card without knowing it and you know they're consuming Yep.
Speaker 2: It's it's a you know, forget about the finance of it.
Speaker 2: It's a psychology.
Speaker 10: Yes, and they say they like the idea of dating
Speaker 10: but not having to deal with a real man.
Speaker 2: It's a fictional guy. It's a fictional guy.
Speaker 8: Yes, okay, yeah, right, there's nothing like that.
Speaker 2: I think there was a diver who called me.
Speaker 10: That, okay, this could be dangerous, so watch out for this.
Speaker 10: There's another way to make purchases online and that's for
Speaker 10: chat GPT. Open Aye has been trying to extend people
Speaker 10: were having more users, so they have the competition from Anthropic,
Speaker 10: you know, Alphabet's Google Elon musk Xai. So how it
Speaker 10: works is that they have about like five hundred million
Speaker 10: active users. So you go on there, you compare, you
Speaker 10: can ask to compare different products and it will actually
Speaker 10: send you a link and you can click on that
Speaker 10: link and go to that person's website and or company's
Speaker 10: website and buy the product there. So now it's another
Speaker 10: way that you can buy different products off you can
Speaker 10: spend money. It makes it like it makes it easy
Speaker 10: to buy things.
Speaker 5: So this whole AI thing I think is a existential
Speaker 5: threat to Google search business.
Speaker 7: It is.
Speaker 5: I don't understand it. I'm surprised this stock is hanging
Speaker 5: in there. Maybe maybe I just don't get it, But man,
Speaker 5: I could see a scenario where well, type it into
Speaker 5: the Google search. It's just it ain't happening.
Speaker 2: But what you just said is really important. We don't
Speaker 2: get it.
Speaker 10: Yeah, we don't wonder because Google just said their search engine,
Speaker 10: you know, numbers great.
Speaker 5: I know.
Speaker 10: And you're looking at this and you're saying it doesn't
Speaker 10: make sense.
Speaker 2: Whatever, Potato, thanks so much the newspaper. She's off to
Speaker 2: look at some Asian data things. I don't understand.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
Speaker 1: seven to ten am Eastern on Bloomberg dot com, the
Speaker 1: iHeartRadio app tune in, and the Bloomberg Business App. You
Speaker 1: can also watch us live every weekday on YouTube and
Speaker 1: always on the Bloomberg terminal