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Speaker 2: Joining us now. And just an incredibly important time. I
Speaker 2: think in all the years that I've talked to Robert Caplan,
Speaker 2: maybe this is the most important time. The chaos out there,
Speaker 2: the confusion that we have on steel tariffs, and tweets
Speaker 2: at two o'clock in the morning, a lot of unusual.
Speaker 3: Truths that tweets their truths.
Speaker 2: Truth excuse me? And fiscal discussion. A four hour conversation
Speaker 2: with Robert Kaplan of the Dallas Fed, of Harvard Business School,
Speaker 2: and of course always his Goldman Sacks, Robert Caplin. The
Speaker 2: Dallas Fed website is easily one of the two or
Speaker 2: three most interesting of our federal reserve system. And there
Speaker 2: is a brilliant article two days ago about a place
Speaker 2: twenty five miles northwest of El Paso called Santa Theresa,
Speaker 2: New Mexico, where they built an export import hub into Mexico.
Speaker 2: I mean, this is the granularity of what we're dealing.
Speaker 2: It's like the Bridge and windsor Canada, except at Santa
Speaker 2: Theresa in New Mexico. With all your experience, Robert Kaplan,
Speaker 2: how turned upside down is our export import relations?
Speaker 4: Well, it's challenging right now because if you're gonna domicile
Speaker 4: manufacturing in the United States, the relationship between Canada and Mexico,
Speaker 4: or with Canada Mexico are critical, meaning we tend to
Speaker 4: source goods which are helped by cheap labor from Mexico
Speaker 4: and cheap or cheaper natural resources from Canada. And so
Speaker 4: you have these hubs like the one you mentioned in
Speaker 4: New Mexico that have been situated to facilitate integrated logistics
Speaker 4: and supply chain arrangements, other import export arrangements which are
Speaker 4: critical to North America and have allowed North America on
Speaker 4: the margin to take share from Asia. And so the
Speaker 4: recent tariff events have basically put sand in the gears
Speaker 4: of some of those relationships and made it more challenging.
Speaker 2: These are the granularities, folks, that are so important. Robert
Speaker 2: Kaplan did when you were running the FED in Dallas,
Speaker 2: did you ever visit the LVMH factory in Alvarado, Texas.
Speaker 4: I don't think I did, but I visited. I visited
Speaker 4: lots of sites north of the order and south of
Speaker 4: the border, and I learned about the velocity the frequency
Speaker 4: of goods going back and forth across the border.
Speaker 2: Do you have a confidence weaken supply an American manufacturing
Speaker 2: might I mean, folks about Kaplan is one of the
Speaker 2: most qualified people on this question. I know he's a
Speaker 2: business guy working in economics. Robert Kaplan, can we actually
Speaker 2: develop a skilled American manufacturing working force?
Speaker 4: We can develop it, but it's expensive. That's the issue.
Speaker 4: Most companies I talk with want to be able to
Speaker 4: use either Mexico, Canada, to some extent, even Vietnam, which
Speaker 4: is more farther afield. But they want they use these
Speaker 4: logistics and supply chain arrangements because if you did it
Speaker 4: all in the United States, their judgment is because costs
Speaker 4: are hire that it would not be globally competitive. This
Speaker 4: allows them to domicile in Innia States predominantly manufacturer in
Speaker 4: the United States, and if they didn't have those relationships,
Speaker 4: it would be harder to do.
Speaker 2: Damien Sas are with me this morning. Robert Kaplan here,
Speaker 2: expert on em in the Pacific RIM as well with
Speaker 2: Bloomberg LP Damien.
Speaker 3: Mister Kaplan, Sarah, I'd like to ask you about global growth, right,
Speaker 3: I mean, as Tom just pointed out, right, we are
Speaker 3: seeing a weeker dollar, weaker oil. We are seeing fiscal
Speaker 3: stimulus out of the US, China, and the EU, and
Speaker 3: more importantly, we're seeing monetary stimulus out of the emerging markets,
Speaker 3: right because you know, basically China's dumping in a lot
Speaker 3: of them and they're basically suppressing inflation domestically. You know,
Speaker 3: isn't this good for global growth? I mean, walk me
Speaker 3: through this.
Speaker 4: Yeah, So, going into this year, we had a oversupply
Speaker 4: and still do of goods globally. China over capacity is
Speaker 4: a big part of that story. So goods have been disinflating,
Speaker 4: including by the way, in the United States. Relation issue
Speaker 4: was in services, not in goods. The global goods disinflation continues,
Speaker 4: except there's a question whether it will continue in the
Speaker 4: United States because of what we do on tariffs. But
Speaker 4: the fact of the matter is we've had this goods
Speaker 4: over supply. What the tariffs have done is caused businesses
Speaker 4: around the world and particularly in the United States, to
Speaker 4: pause and be more uncertain as to how they're going
Speaker 4: to redo logistics and supply chains. Remember, only twelve percent
Speaker 4: of US GDP is manufacturing. We import another twelve percent
Speaker 4: in goods. We're basically a service economy. But these tariffs
Speaker 4: have created uncertainty in both goods and services, not just
Speaker 4: here but globally, which have put a damper on growth.
Speaker 4: And that's what you're seeing.
Speaker 3: Mister Kaplinser. I'd like to get your panel some of
Speaker 3: the things we're seeing out here on the long end
Speaker 3: of the US Treasury curve tens thirty steepening. I mean,
Speaker 3: it's not a US specific phenomenon. We're seeing similar price
Speaker 3: action across global fixed income in Europe and Japan, etc.
Speaker 3: And you know, my question for you, is that more
Speaker 3: a function not of growth expectations in thirty year real
Speaker 3: yields breaking out, but is it more just the players
Speaker 3: at that end of the market, the limited number of players,
Speaker 3: the lack of market depth. I'm just talking lifers, pension funes, endowments.
Speaker 3: There's just not that many of them out there, So
Speaker 3: talk to us a little bit about what you're witnessing
Speaker 3: out on the long end.
Speaker 4: It's a supply and a demand issue. First of all,
Speaker 4: the world and the United States is in the middle
Speaker 4: of this is much more highly leveraged than we were
Speaker 4: right before. Covid Us is a good example. Debt to
Speaker 4: GDP or net debt was in the seventies. It's now
Speaker 4: over one hundred percent. The Western world and the developed
Speaker 4: world is more leveraged, and as a result of that,
Speaker 4: there's more paper to sell at the long end of
Speaker 4: the curve. On the other hand, global buyers are very
Speaker 4: aware of that, and they're more reluctant to buy duration
Speaker 4: because they're worried. As we saw from Silicon Valley Bank
Speaker 4: and First Republic, you can lose a lot of money
Speaker 4: if you overdo it and buying duration. So we have
Speaker 4: a supply and demand issue. That's why the administration, the
Speaker 4: Trump administration came into office saying we're going to try
Speaker 4: to chip away at that debt and that leverage because
Speaker 4: we're worried about the term premium and it doesn't seem
Speaker 4: to be materializing. But that was the motivation.
Speaker 2: Robert Kaplan with US folks, who welcome all of you
Speaker 2: on your commute across the nation. Good morning, Serious XM
Speaker 2: Channel one twenty one, Flabbergasted by the support on the
Speaker 2: oldest of digital media. Good morning, Android auto was in
Speaker 2: a car yesterday or the Android auto? Good to see
Speaker 2: that as all they were listening to Bloomberg eleven three. Ah,
Speaker 2: I guess through Android Auto. Thank you Apple cart play
Speaker 2: good morning on YouTube. It's our new digital distribution, Robert
Speaker 2: Caplan said, Tom, you got to get with it. So
Speaker 2: we did this YouTube thing and subscribe to Bloomberg podcast.
Speaker 2: It's shocking, the digital distribution, Robert Kaphen. That goes to
Speaker 2: the innovation of America. We've all noted the distinction of
Speaker 2: Europe versus America, the technology shift in America, the innovation
Speaker 2: it's going to a part of America. How do we
Speaker 2: drag the rest of America into our new technology, our
Speaker 2: new productivity.
Speaker 4: Yeah. So technology enabled disruption has been with us for
Speaker 4: now the last several years. And oh, by the way,
Speaker 4: if you've lost your job in the United States in
Speaker 4: the last ten years in the past, that might have
Speaker 4: been due to globalization. In the last ten years, it's
Speaker 4: due to technology enabled disruption. And that disruption is accelerating.
Speaker 4: AI will accelerate it. And what we're seeing when I
Speaker 4: talk to clients across sectors in the United States and globally.
Speaker 4: It's affecting every single sector. Any sector in goods and services,
Speaker 4: you name it is being affected by this. The challenge
Speaker 4: is when a worker loses his or her job or
Speaker 4: their job gets restructured because of technology, can we retrain
Speaker 4: them so they can stay employed either in that business
Speaker 4: or find a high productive job in another business. And
Speaker 4: that's where the United States has been lagging. We need
Speaker 4: to improve early childhood literacy, secondary education, digital divide skills training,
Speaker 4: and we have not been as quick to do that.
Speaker 4: I would say as other countries.
Speaker 3: Mister Kaplincer, private credit is consolidating. Private equity fundraising has
Speaker 3: plunged by more than a third over the first three
Speaker 3: months of this year. I'm curious to hear your thoughts
Speaker 3: on quote unquote shadow financing here in the US. You know,
Speaker 3: I'm hearing about these continuation vehicles deteriorating COLO demand weekem,
Speaker 3: and you know, I want to know if another year
Speaker 3: of needed realizations tom are going to sour long term
Speaker 3: investors on the asset class.
Speaker 4: Well, so let's go through what's going on. First of all,
Speaker 4: as I just said, there's more business uncertainty, valuations, have recovered,
Speaker 4: but they're more muted. Cost of financing has gone up.
Speaker 4: You know, we talked about duration. Long end of the
Speaker 4: curve is stickier, and all that feeds together and makes
Speaker 4: it harder to either do monetizations or to do new transactions.
Speaker 4: And so what we're seeing is it's not that the
Speaker 4: equity markets and other markets aren't open for monetizations. I
Speaker 4: think a lot of the firms feel like if they
Speaker 4: the prices they could sell out today are lower than
Speaker 4: some cases where they have the asset marked. And so
Speaker 4: there's indigestion in the system. It won't last forever. Right
Speaker 4: we're in the middle of it right now where we've
Speaker 4: got some indigestion where it's why you're not seeing more transactions,
Speaker 4: more modernizations, more equity offices and mergers because of it.
Speaker 2: Okay, come on, Robert Kaplan to Danien's good question, and
Speaker 2: you're one of the great qual I think of you
Speaker 2: and Richard Fisher as being like at the apex of
Speaker 2: this of the link between economics, finance and investment. Robert Kaplan,
Speaker 2: as simple as I can mark to market in private equity,
Speaker 2: in private credit, is it a challenge right now?
Speaker 4: It's a challenge right now. And I think many private
Speaker 4: equity firms will tell you that it's not that they
Speaker 4: couldn't sell the asset. They're just not happy with where
Speaker 4: they could sell it, and they want to do modetizations,
Speaker 4: but they want to do them at more attractive valuations.
Speaker 2: What do you expect from the fedure to finish up here,
Speaker 2: Robert kaplan? A number of firms are saying they will
Speaker 2: do nothing until into twenty twenty six. I mean, on
Speaker 2: an next post basis, that's the safest path for mister Boyle,
Speaker 2: isn't it.
Speaker 4: I don't know about that, So they'll they'll take it
Speaker 4: may turn out that way, but that's not I wouldn't.
Speaker 4: I don't think the FED is planning that. It's taking
Speaker 4: a one meeting at a time. And the reason it's
Speaker 4: shortening up the time horizon is you've got a tax bill.
Speaker 4: That's that's that we don't know what what out stimulative
Speaker 4: it it's going to be. We have tariffs that haven't
Speaker 4: been set yet, and so this uncertainly needs to get
Speaker 4: clarified before the FED can be clear on what it
Speaker 4: wants to do next, and that may take at least
Speaker 4: until the fall. But I wouldn't assume that the FED
Speaker 4: won't act this year. But the FED can't prejudge that
Speaker 4: and can't get rigid about it. And so that's why
Speaker 4: you're seeing them be noncommittal, and they'll continue to be noncommittal.
Speaker 2: Rour Caplin, thank you so much for the generous time
Speaker 2: this morning. Vice chairman at gulb and Sex always associated
Speaker 2: with Harvard Business School and his federal I say, mister
Speaker 2: Tier and the rest are saying it's not his bank.
Speaker 2: Robert Caplin and the Dallas Fed, thank you.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 2: Every time a crisis shows up, a new institution shows up.
Speaker 2: That's magical. It is the Budget Lab at Yale with
Speaker 2: the backing of Pete Peterson's Foundation and many other good people,
Speaker 2: Martha Gimble and Ernie to Desk any others drive in
Speaker 2: this forward and they've had a profound impact on analysis
Speaker 2: and clearing through the depart in the phrase the bs
Speaker 2: of the moment, Ernie Tdesky joins us from the Budget
Speaker 2: Lab this morning, Ernie, what's a number one message you
Speaker 2: would send both Republicans and Democrats in Congress.
Speaker 5: Number one message is that where we're at right now
Speaker 5: is not writing our fiscal shit. We need ten trillion
Speaker 5: dollars of deficit reduction over the next decade just to
Speaker 5: stabilize our debt to GDP, which is probably all the
Speaker 5: United States needs. We don't need to balance the budget fully,
Speaker 5: we just need to stabilize, you know, get debt growing
Speaker 5: at the same rate as the economy. And what they're
Speaker 5: doing in Congress right now is not even close to that.
Speaker 5: It's a four trillion dollar bill if you make permanent
Speaker 5: all of the tax cuts in it, and even if
Speaker 5: you include tariff revenue, tariff revenue is only raising two
Speaker 5: trillion dollars at this point, so we're still making the
Speaker 5: debt situation worse.
Speaker 2: The critics of earning to Desk and Martha Gimble and
Speaker 2: the rest, what they would say is the growth rate
Speaker 2: is too gloomy. At CBO, we're going to be more
Speaker 2: optimistic about mourning in America. We're going to get a
Speaker 2: better little g in life will go on. Is that possible?
Speaker 2: Feasible remotely be a constructive outcome.
Speaker 5: I mean, look, any more growth that we can get
Speaker 5: is nice, it's cherry on top. But extra growth that
Speaker 5: we get is not nearly going to be enough to
Speaker 5: solve the problem for us. You know, even if we
Speaker 5: had three percent growth, you know, sustained for a decade,
Speaker 5: which is infeasible. Most most economists think that trend growth
Speaker 5: in the United States is two percent. We would not
Speaker 5: stabilize the debt to GDP over ten years alone by
Speaker 5: getting to three percent growth. And you know, this bill
Speaker 5: they go above and beyond just straight TCGA extension. So
Speaker 5: there's probably gonna be a little bit of fiscal impulse
Speaker 5: in the short run. But this bill is not going
Speaker 5: to get us to three percent growth persistently, especially when
Speaker 5: you add on top the terrorists that they've passed, which
Speaker 5: you know, shave off half a point of growth this year,
Speaker 5: and keep you know, GDP persistently lower long run.
Speaker 3: Ernie, I know you and your team have done a
Speaker 3: lot of work on this, but I think most market
Speaker 3: practitioners believe the effective twer F rate by the end
Speaker 3: of this year is going to come in somewhere between
Speaker 3: fifteen to eighteen percent. Yet you know, I mean, recession
Speaker 3: probabilities are like down, and basically people are calling for
Speaker 3: the US economy. I mean, I think it's growing at
Speaker 3: a four percent plus clip here in the second quarter.
Speaker 3: So look, we all wanted nickx Pacis to go nine games.
Speaker 3: But just where is this catchup of the heart to
Speaker 3: the soft data here?
Speaker 5: Yeah, like it's a great point. We're at fifteen percent
Speaker 5: effective rate right now, and and we think that that
Speaker 5: takes off half a point of growth off of twenty
Speaker 5: twenty five. Now, we want to be very sober about
Speaker 5: what that means. Half a point off of growth is
Speaker 5: a significant headwind to the US economy. But on the
Speaker 5: other hand, if you thought that the US economy was
Speaker 5: two percent in twenty twenty five, and you shave off
Speaker 5: half a point, you're at one five, which is, you know,
Speaker 5: not as great as it was, but that's not recessionary
Speaker 5: by itself. I will say that what we don't capture
Speaker 5: in our modeling is the uncertainty effects of tariffs. And
Speaker 5: so what I tell people is that we probably don't
Speaker 5: have a central estimate in our estimates of terriff effects.
Speaker 5: We're probably a floor in terms of the effects, So
Speaker 5: there is still more recession risk than there was a
Speaker 5: year ago.
Speaker 2: A special Treatnie, you'dski with us for an extended conversation
Speaker 2: this morning with the budget lab all of us work
Speaker 2: for ed Himan at Evercore ISI over the years. Just
Speaker 2: a real treat folks within the market and the futures
Speaker 2: up thirteen. What's going on? You know what it is
Speaker 2: about our debt and deficit, Ernie. I was weaned on
Speaker 2: how Bronner's the debt in the deficit, a cruel accounting
Speaker 2: and all that. I don't want to go into that
Speaker 2: too early in the morning. To go into debt. You
Speaker 2: are magical because you had to work for Ed Hyman.
Speaker 2: You had to work with the granularity of the American
Speaker 2: economy that Ed Heyman and ed Yardnny frankly invented at CJ.
Speaker 2: Lawrence years ago. When you look at the granu larity
Speaker 2: of the American economy, does this debt in deficit break us?
Speaker 2: Or do we just keep going with the American dream?
Speaker 6: So?
Speaker 5: I don't so. On the one hand, I don't think
Speaker 5: that it breaks the US treasury market, you know, I
Speaker 5: think you would need something close to a meteor strike
Speaker 5: or you know, maybe a debt ceiling in pass to
Speaker 5: fully break the treasury market. If we're talking about just
Speaker 5: adding to our debt, I think it's going to have
Speaker 5: a mostly linear effect. I think it's going to just
Speaker 5: keep adding to interest rates. Now there's a limit to that.
Speaker 5: We can obviously go too far, but I don't think
Speaker 5: that that's a short run risk. On the other hand,
Speaker 5: like when you look at estimates of the term premium,
Speaker 5: there we go term premium is up and it's and
Speaker 5: it's up not just because of debt, it's up because
Speaker 5: of tariffs as well. You know. The big Uh. This
Speaker 5: continuity in the rise of the term premium recently was
Speaker 5: after April second, not after we got news about what
Speaker 5: was going on in Congress. So I think what we
Speaker 5: we need to appreciate, without getting too pollyannish here, what
Speaker 5: we need to appreciate is that it's not just the debt.
Speaker 5: It's that investors are reacting to this new reality of
Speaker 5: trade and the risk of the United States is not
Speaker 5: going to be as central to world financial markets as
Speaker 5: it was in the past.
Speaker 3: Ernie, the changes we're witnessing, I'm talking dollar hedging by
Speaker 3: Asian lifers, difine benefit contract conversion by European pensions like
Speaker 3: the Dutch JGB loss is harvesting by the BOJ. Are
Speaker 3: they structural or is it short term in nature?
Speaker 5: I mean, I think that they're mostly strung. I think
Speaker 5: it's mostly short term right now. I think that they
Speaker 5: are mostly you know, reacting to idiosyncratic factors in those countries.
Speaker 5: You know, things like insurance companies in Japan, just the
Speaker 5: fact that the BOG has less demand in general right
Speaker 5: now because they have such relative to japan high inflation.
Speaker 5: I think also a lot of investors are reacting to
Speaker 5: the change and the short run US outlook. But look,
Speaker 5: I wouldn't call anything structural yet because nobody knows what
Speaker 5: the final tear rate is going to be. In the
Speaker 5: United States. I would say that the court decision, the
Speaker 5: US Court of International Trade, if anything, tightened the uncertainty
Speaker 5: rather than diminishing it, because now we have uncertainty bands
Speaker 5: that reach to zero percent tariffs. Right That's that's not
Speaker 5: my likeliest outcome, but now it's applausible. It's a plausibility
Speaker 5: that the courts could strike down most of the Trump
Speaker 5: administration tariffs, and so you as a business or a consumer,
Speaker 5: it's even more uncertain now what things are going to
Speaker 5: look like in a year.
Speaker 3: Are any some of the largest and most venerable fund
Speaker 3: managers in the country, Double Line, Pimco, TCW are avoiding
Speaker 3: the thirty year. In fact, some of them are actually
Speaker 3: recommending to short the thirty year. But then I think
Speaker 3: about the negative carry associated on a marked market basis
Speaker 3: with shorting treasuries. Talk to us a little bit about
Speaker 3: what exactly is going on out there at the long
Speaker 3: end of the curve from a practitioner standpoint, I mean,
Speaker 3: is there is there going to be a bit is
Speaker 3: there demand? And at what level do you think people
Speaker 3: just start to, you know, kind of get weed back
Speaker 3: into that market.
Speaker 5: Yeah, it's a good question. So you know what we've seen,
Speaker 5: you know, we've particularly seen the thirty ten spread rising lately.
Speaker 5: I think that that is primarily being driven by fiscal
Speaker 5: concerns right now. It'll be interesting to see sort of
Speaker 5: as we get more news on tariffs. You know, tariffs
Speaker 5: are tariffs are in a funny way of offsetting that
Speaker 5: concern a little bit because they obviously raise revenue while
Speaker 5: at the same time swallowing growth. So so if tariffs
Speaker 5: diminish because of court cases, or because you know, the
Speaker 5: Trump administration comes to deals with other countries, like it'll
Speaker 5: be interesting. Like it's actually quite uncertain what effect that's
Speaker 5: going to have on the long end. If we raise
Speaker 5: more tariff revenue, that might, on the one hand, a
Speaker 5: swage fiscal concerns, but it might also raise growth doubts
Speaker 5: about the US.
Speaker 2: Ernie, thank you so much, Ernie. To Deski with us
Speaker 2: the budget labit you can't say enough about how they
Speaker 2: have just overnight definitively changed the fiscal dialogue in America.
Speaker 2: That's a real treat.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: This is a joy with a fabulous old world perspective.
Speaker 2: I think of Rubini, Teleban, so many others coming out
Speaker 2: of the levant in points east of there, in Persia,
Speaker 2: in Iran and joining us right now is Sasan Garamani,
Speaker 2: President and CEO at SGH Macro Advisors, associated with Medley
Speaker 2: for years. Wonderful to have you here. Thank you so much,
Speaker 2: Thank you Tom for coming in. You've got such a
Speaker 2: different perspective. And I think of China, I think of
Speaker 2: like Baghdad and the Sassoon family from a zillion years ago.
Speaker 2: Nobody understands the heritage of Persia and the greater Persia
Speaker 2: in setting up the Pacific rim over centuries. And so
Speaker 2: you've got this one with your family. You have this
Speaker 2: wonderful perspective on China. Do we understand China or are
Speaker 2: we ugly Americans?
Speaker 6: I think we're increasingly understanding China. And I think the
Speaker 6: evolution of our thinking has changed over time, and quite simply,
Speaker 6: it's gone from from a trading partner and to increasingly
Speaker 6: to a competitor, and increasingly to an aggressive competitor. And
Speaker 6: I think, you know, we get a lot of missives
Speaker 6: from Beijing and I read through them, and I'm always
Speaker 6: almost shocked by the adversarial tone and strategy really towards visa.
Speaker 2: Bets In the Secretary of Treasury's bet, is there going
Speaker 2: to men to a United States X a United States timeline?
Speaker 2: I've seen no evidence of that. If I read Albert
Speaker 2: Harani and the Mediterranean from Persia to Morocco. I don't
Speaker 2: see a US timeline. I don't see a US timeline
Speaker 2: in China. Am I wrong?
Speaker 6: I think what you're referring to, or what you're elading
Speaker 6: alluding to, is a timeline on trade negotiations, and in particular,
Speaker 6: but maybe you know more broadly. I'm sure you call
Speaker 6: it with this as well. They yes and no. I
Speaker 6: think that what we are seeing in China, and if
Speaker 6: you look in particular visa VIV negotiations with US, there
Speaker 6: is a narrative that China can hold out for you know,
Speaker 6: fifty years, one hundred years, you know whatever. And they're
Speaker 6: a strategic imperative to try to put the squeeze on
Speaker 6: the US. You're seeing that with rare earth minerals and
Speaker 6: all these other negotiating leverage points. But China needs a
Speaker 6: deal as well. Underneath the numbers, there's some weakness. There's
Speaker 6: weakness in the consumer spending if they had yet a
Speaker 6: very big stimulus boost in the fall of last year,
Speaker 6: and that's starting to tail off a little bit now.
Speaker 7: So what does the US administration not get about China?
Speaker 6: What do they not get about China?
Speaker 2: I think that.
Speaker 6: The administration is has thinks that they can, especially the
Speaker 6: President thinks that he can break through more quickly on
Speaker 6: negotiations and the decision making process, and the Chinese keep
Speaker 6: insisting that the negotiations be conducted from the technical and
Speaker 6: deputy level up and so that the apparatus is slower
Speaker 6: than I think than what the administration believes. They a
Speaker 6: lot of faith in this Trump she call that should
Speaker 6: be coming this week or next week for a breakthrough,
Speaker 6: and I think there'll be some positive noises coming out
Speaker 6: of it, because I do think both sides want to
Speaker 6: de escalate, but as far as getting a concrete agreement,
Speaker 6: like the Chinese have put together a deal on between
Speaker 6: rare earths and the and the semiconductor ban, and they
Speaker 6: want to have a trade off to loosen those and
Speaker 6: that's going to be hard to come by.
Speaker 2: It's the same ceremony with this SGH Macro advisors thrilled
Speaker 2: these with us today. I would be remiss if I
Speaker 2: ask you about the Western stereotypes of Persia and the
Speaker 2: overwhelming reality I've seen across my life is a basic idea.
Speaker 2: It's the only thing standing in the Greater Mid East
Speaker 2: with the legitimate Middle class and somehow, some way we're
Speaker 2: going to migrate it ran from nineteen seven nine on
Speaker 2: back to something new and more benevolent. Is there any
Speaker 2: hope for that or do you just give it up?
Speaker 2: Not that we would go back to a show structure,
Speaker 2: but that we would amend back to some form of
Speaker 2: new government.
Speaker 6: I'm not sure about the form of new government, but
Speaker 6: I do think that the progress is very real. On
Speaker 6: the nuclear negotiations, I was talking with a friend of
Speaker 6: mine who's very knowledgeable on these issues, John Alterman at CSIS.
Speaker 6: I don't know them, and I said, I think, after
Speaker 6: sixty five years, whatever the math, that this might be
Speaker 6: the deal. And he said, I don't think this is
Speaker 6: the deal, but I think this is a deal, and
Speaker 6: we're getting very close on that. So I thing on
Speaker 6: the economic front and that we might see some loosening,
Speaker 6: but the government is very entrenched there. So I don't see.
Speaker 2: What is the biggest myth of Iran and Americans have
Speaker 2: right now? If I travel fifty south of Tehran, say
Speaker 2: to all that heritage, the gorgeosity of Iran and all
Speaker 2: the ancient history and the rugs is a stereotype in
Speaker 2: that what's the biggest myth Americans get wrong about your Persia.
Speaker 6: I think it's really the attitude of the Iranian people
Speaker 6: towards Americans in particular. And we've used since nineteen seventy
Speaker 6: nine to see a lot of hostility in the Middle
Speaker 6: East towards towards the US. You see that from the government,
Speaker 6: but the Iranian people are very friendly towards foreigners in
Speaker 6: general and Americans in particular. Actually right, and people get
Speaker 6: really people who travel there. There's a there's an amazing
Speaker 6: CNN the show Anthony Bourdain where he to Iran. I
Speaker 6: don't know if you saw. Thats one of the classics,
Speaker 6: and people get surprised by you know, how they roll
Speaker 6: out the rugs, so to speak.
Speaker 2: So Sam, thank you so much, greatly, greatly appreciate your
Speaker 2: tendance today. Sassan Garamouni, where he's president of the Chief
Speaker 2: Executive Officer SGH. Macro Advisor is an important note there
Speaker 2: with some optimism on a China US discussion as well.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Coarclay, and Android Auto.
Speaker 1: With the Bloomberg Business app. You can also watch us
Speaker 1: live every weekday on YouTube and always on the Bloomberg terminal.
Speaker 2: This is a great honor and incredibly well timed. Sheila
Speaker 2: Koglu is with Jeffrey. She was legendary Credit Suis, winning
Speaker 2: all sorts of awards from I and the rest, and
Speaker 2: now at Jeffries and what's different every cell side analyst
Speaker 2: Folks is different. Sheila is bulletproof at the relationship inside
Speaker 2: the Beltway to your economy, premium and bil business class
Speaker 2: seat on a commercial airline. We're going to stay really
Speaker 2: today on the safety of the American system coming out
Speaker 2: of FAA in defense and all. She looks thrilled to
Speaker 2: have you here. I'm going to cut right to the
Speaker 2: chase on the airline business Delta, Hold Air Canada, Hold, Hold, Hold, Hold,
Speaker 2: Hold United A bye. What's unique about United versus all?
Speaker 8: It's your only buy Why we really like it's offering
Speaker 8: internationally premium. We think it can catch up to Delta,
Speaker 8: and their strategy is to grow those premium seats, and
Speaker 8: we think it has an edge. Delta is the clear
Speaker 8: leader in premium, but we think United is catching up.
Speaker 8: An American is a bar behind them.
Speaker 2: Can you do something about luggage and CDG in Paris.
Speaker 8: I don't know, but three international trips in the next
Speaker 8: six weeks. I do think that there's some book away
Speaker 8: with Newark, but the runways opening up early. Scott Kirby's
Speaker 8: inviting people back, folks back to EWR and we'll.
Speaker 2: See across this name RHO question. This is the most
Speaker 2: important conversation of the day. Do you perceive a damaged
Speaker 2: safety to our air system because of Washington budget challenges
Speaker 2: a little bit?
Speaker 8: You know, I've spoken with the former FAA administrators. There's
Speaker 8: so much data out there, and there's systems that we
Speaker 8: could put in place that will prevent the next crashes.
Speaker 8: I was with three corporates yesterday, Letos, SA, c Raytheon Parsons.
Speaker 8: They all make equipment for air traffic controllers, or train them,
Speaker 8: or make software systems. We just need to move some
Speaker 8: of those forward. And President Trump is doing part of that.
Speaker 2: Well, Sheila doesn't.
Speaker 3: Trump's budget proposal boost spending not only on shipbuilding, port infrastructure,
Speaker 3: but on air traffic control as well.
Speaker 8: It does, but it takes time. There's you know, the
Speaker 8: air traffic controllers unionized, and you know, the equipment takes
Speaker 8: years to put in place. So I think one of
Speaker 8: the things this administration is doing positively is moving things forward.
Speaker 3: How do you think the military build up in the EU?
Speaker 3: I mean, we got that new that the European Commission
Speaker 3: approved the joint ventship between BAE, Leonardo and Mitsubishi over night.
Speaker 3: I mean, talk to us a little bit about this
Speaker 3: build up that's coming, This fiscal spend on military at
Speaker 3: the EU. How's that impacting your sector?
Speaker 8: So I actually think the best place away to play
Speaker 8: European defense is two stocks in my coverage, Lachux and Northrop.
Speaker 8: I was with the CEO of Northrop yesterday morning and
Speaker 8: the news came out on NATO air defense build up.
Speaker 8: So NATO right now they're barely spending the two percent.
Speaker 8: Their goal is to spend five percent in total, of
Speaker 8: which three and a half percent is on actual equipment.
Speaker 8: What I think is going to happen is the European
Speaker 8: industrial base is going to build their own fighters. They're
Speaker 8: going to support their home teams. Right, So that might
Speaker 8: leave F thirty five out in the cold, but the
Speaker 8: backlogs fine through twenty thirty, so it's fine. But what
Speaker 8: they do need is air missile systems. The systems and
Speaker 8: the missiles they don't yet have in place, the weapons
Speaker 8: and the fighters they could make themselves. So north A
Speaker 8: been LACHUCKX for that.
Speaker 3: What do you think about this kill switch? And you
Speaker 3: have thirty five that everybody's been talking about is being
Speaker 3: I don't think think that's it isn't it? Just like
Speaker 3: the data package needs to be constantly updated by the US.
Speaker 3: And that's the real risk with owning F thirty fives
Speaker 3: in Europe.
Speaker 8: F thirty five has had a lot of issues, but
Speaker 8: so is every major development program. It just this one
Speaker 8: seems to be plagued consistently. We're on lot eighteen of production.
Speaker 8: Lot nineteen is coming up, and we still have upgrades
Speaker 8: that are just gaining stability after the last four years.
Speaker 3: Well, let's tear up the script here. We saw China
Speaker 3: ways ordering hundreds of airbus jets in some major deal,
Speaker 3: but then we're also hearing that negotiations are breaking down.
Speaker 3: I mean, how do you make sense of all this?
Speaker 8: So this is the way I simply think about it.
Speaker 8: China's fifteen percent of air traffic, so they're going to
Speaker 8: take fifteen percent of planes, whether that's airbus are bowing,
Speaker 8: I don't really mind I actually rather it be Airbus
Speaker 8: because then Boeing has a more diverse customer base and
Speaker 8: doesn't have risk on with a single country in twenty
Speaker 8: forty when Komac actually gets to build.
Speaker 2: You're a stock pick. But I want to recapitulate this.
Speaker 2: I think it's so important you see an urgency to
Speaker 2: fix the safety after the horror of what we saw
Speaker 2: at Reagan next number of months ago.
Speaker 8: I think the the number of air traffic controllers we
Speaker 8: have is quite small. You know, I haven't been able
Speaker 8: to verify this, but I think Newark has something like
Speaker 8: forty percent more passengers coming through since twenty nineteen.
Speaker 2: Okay, but the number.
Speaker 8: Of air traffic controllers is stagnant.
Speaker 2: Everyone listening to see everyone listening to this program knows
Speaker 2: that's insane. Do you suggest a new urgency to fix this?
Speaker 8: Now more air traffic controllers? The attrition rate is quite high,
Speaker 8: sa I see the company I saw the more or
Speaker 8: increase the age. They have a fifty five year year
Speaker 8: retirement limit, which the union is pushing back.
Speaker 2: Okay, well, maybe that it's still hard for you to
Speaker 2: become traffic you know, Sheila where I stand on that.
Speaker 2: But isn't it just simply, these are air traffic controllers.
Speaker 2: They control our lives. Lift the wage? Does that work?
Speaker 8: I think? What what has happened in aerospace defense? And
Speaker 8: because it's such an interesting it's such a specified industry,
Speaker 8: whether it's shipbuilding, whether it's air traffic control, you can't
Speaker 8: find those folks on the street, and those wages might
Speaker 8: not you know, yes, lift the wage, but also the age.
Speaker 8: And it's a hard profession. You don't find those folks
Speaker 8: off the street.
Speaker 2: I hate you. You told me to buy Woodward WWD
Speaker 2: Fort Collins College. I totally to buy August twenty, It's
Speaker 2: done a double Okay? What is Woodword Inc? WWD?
Speaker 8: Woodward is a small cap supplier, which there aren't a
Speaker 8: lot of because everybody's been taken out Walkwall, Collins b
Speaker 8: Airspace my favorite companies to cover back in the day.
Speaker 8: What Woodward does is half of its business is aerospace,
Speaker 8: half is energy. Think about it is it makes it
Speaker 8: controls energy in an aircraft or an aircraft engine or
Speaker 8: an industrial gas turbine. So it makes actuators, fuel control systems.
Speaker 8: It has about three hundred thousand worth of content on
Speaker 8: a seven three seven max, so smaller than other big
Speaker 8: suppliers like a Raithian or a Honeywell, but gaining steam
Speaker 8: and gaining share.
Speaker 3: You know, I'd like to go back to what you
Speaker 3: were saying earlier about raising the retirement age on air
Speaker 3: traffic controllers, because that means that Tom has life after Bloomberg.
Speaker 1: Right.
Speaker 3: I can see him with the glowy sticks and the headphones,
Speaker 3: you know, in.
Speaker 2: The room shielder where these guys are doing.
Speaker 8: No, I haven't had that privilege. It must be quite stressful,
Speaker 8: just as stressful as being in this room right now.
Speaker 2: It is love that stress. Kind of a knight should
Speaker 2: have killed you. With the Jeffers, you greatly appreciate it.
Speaker 2: Just he and I can't say enough about her synthesis
Speaker 2: of Aviation United as your buy.
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: This is joy. Eric Rosen stops by, and we could
Speaker 2: go a couple of ways here with his work on
Speaker 2: Wall Street. You do like private credit, private disc credit trading,
Speaker 2: DA da DA, da da. We could do his philanthropy,
Speaker 2: including pediacric commitment to wild Cornell. Forget about it. He's
Speaker 2: down in Florida now, and from coast to coast people
Speaker 2: are like, is Boca gonna fall into the ocean? Okay?
Speaker 2: Boca three three four three two four beds, John Tucker
Speaker 2: six baths. It's substantial, six five hundred square feet. It's
Speaker 2: popin twenty nine point five million, but it just had
Speaker 2: a five million dollars price cut. Eric Rosen is Florida
Speaker 2: real estate falling into the ocean.
Speaker 9: Well, thanks for having me on again. It's great to
Speaker 9: be with you. So things have definitely slowed down, right,
Speaker 9: So a handful of events have taken place. We've seen
Speaker 9: a huge uptick in prices over the last five or
Speaker 9: six years, two three hundred percent. We've seen mortgage rates
Speaker 9: go up, We've seen much higher, insurance rates tripled in
Speaker 9: many cases. And that the result is we're definitely seeing
Speaker 9: pressure on the low end.
Speaker 5: The lower end.
Speaker 9: Houses are definitely staying on the market longer. Inventory in
Speaker 9: Florida is one hundred and eighty three thousand units as
Speaker 9: to the end of April, and it was at the
Speaker 9: lows in twenty twenty two, twenty thirty five thousand units,
Speaker 9: and before COVID it was one hundred and twenty nine
Speaker 9: thousand units. So you're seeing much more inventory and at
Speaker 9: the high end, the choicest stuff in Miami and Palm
Speaker 9: Beach on the water forty fifty million, sixty million tents
Speaker 9: to sell pretty well. Everything else is on the market
Speaker 9: right longer, and you're seeing price reductions and inventory built.
Speaker 2: I think of the macro flows, like middle class people
Speaker 2: in Florida saying I'm done with this. They're moving to Georgia,
Speaker 2: They're moving to the Carolinas, or I think of the
Speaker 2: money of South America and Central America coming in. Is
Speaker 2: that money still flowing in from nations to the South.
Speaker 9: Yeah, I mean so, listen, the great migration has slowed.
Speaker 9: What we saw in twenty twenty two and twenty twenty one,
Speaker 9: we're not seeing those numbers anymore. But we saw a
Speaker 9: flurry of buying from Californians post the Palisades fires that
Speaker 9: they were displaced. I said, one of my friend brokers
Speaker 9: was showing a showing houses and one day, four out
Speaker 9: of the fi I.
Speaker 2: Have you know other real estate brokers who are friends.
Speaker 9: Friends is a strong term acquaintances. I miss foths, I
Speaker 9: misspoke acquaintances. In one day, four out of the five
Speaker 9: people that showed up for a very expensive open house
Speaker 9: were all displaced, all from California.
Speaker 2: I should say you're a Douglas Element shat talker. Would
Speaker 2: you like that?
Speaker 7: I'm going to guess your customers don't care about mortgage rates.
Speaker 7: Do they care about homeowners insurance and getting homeowners insurance?
Speaker 9: Well, so homeowods insurance rates have gone up double triple
Speaker 9: or quadruple depending on where you are, And if you
Speaker 9: have a mortgage, you have to have hurricane insurance, you
Speaker 9: have to have insurance, and so a lot of most
Speaker 9: of the focus folks that I focus on are not
Speaker 9: super focused on interest rates. But one of my friends
Speaker 9: has a two point five percent mortgage and their insurance
Speaker 9: got canceled and it went from seventeen thousand to eighty
Speaker 9: five thousand dollars per year with much much worse coverages,
Speaker 9: higher deductibles. So he didn't want to repay his mortgage
Speaker 9: because such a cheap mortgage. But most of the high
Speaker 9: end buyers are not super focused on mortgage rates, but
Speaker 9: under a million dollars two million dollars, you're seeing it.
Speaker 9: I spoke with someone who said that three of their showings,
Speaker 9: through their listings that are in the one to three
Speaker 9: million range are offering forty thousand dollars for the buyers
Speaker 9: to buy down mortgage rates, so that instead of paying
Speaker 9: seven percent, they're paying four four and a half percent
Speaker 9: to make their monthly payments more affordable. So rates are
Speaker 9: definitely a factor.
Speaker 7: Okay, the weaker dollar, how does that influence the foreign buyers?
Speaker 9: You know, in Miami there's a lot more foreign buyers
Speaker 9: than other places. But you know, I think it's too soon.
Speaker 9: I don't think we've seen a flurry of new buying
Speaker 9: from foreigners, but they're always in Miami, have a lot
Speaker 9: a lot of Americans come there.
Speaker 2: So what is the hurricane insurance at a one point
Speaker 2: one million price cut thirty five thousand, twenty two hundred
Speaker 2: square feet, four bedroom, three bath and scenic Boca three
Speaker 2: three four nine eight, what's the insurance on that? Well?
Speaker 9: I can only say I don't.
Speaker 7: I can't.
Speaker 9: It's quote that's a house, but I would say it's
Speaker 9: probably up two to three times, especially are you near
Speaker 9: the water. Are you inland by ten miles or are
Speaker 9: you near the beach, because that makes a big nu
Speaker 9: of the beach.
Speaker 2: Not on the beach, but near the beach. You know
Speaker 2: Bar Michael barr.
Speaker 6: Wood live there.
Speaker 9: Yeah, So, I mean, whatever it was, it's probably up
Speaker 9: two and a half times in the last.
Speaker 2: Give me a rough number. I don't you know, nobody's listening, Eric,
Speaker 2: Just give me a number.
Speaker 9: You know, I'm thinking about what my what my insurance
Speaker 9: rates are? You know, you know it would be hard
Speaker 9: for me to guess.
Speaker 2: I don't know, what would you like to guess? Johnsince
Speaker 2: I'm not going to get an answer out.
Speaker 7: Of mister Roses, but I'll be polite mode say well here, no,
Speaker 7: I'll ask this. What are your commissions? What are they?
Speaker 7: Is it still six percent? Or is that negotiable?
Speaker 9: It's always negotiable, you know at the high end you
Speaker 9: know they have.
Speaker 7: It's not going to go. Is the future of real
Speaker 7: estate transactions to is that under threat? Those commissions?
Speaker 9: Listen, you know there's been a lot of talk about it,
Speaker 9: but the commissions for high end product people continue to
Speaker 9: pay for it. But it's denevochable.
Speaker 2: Thank you for coming in really appreciate.
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