WEBVTT - Trump Blasts Xi on Trade as Tariffs Loom 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.000 us live on YouTube. 0:00:27.160 --> 0:00:30.440 Joining us now. And just an incredibly important time. I 0:00:30.440 --> 0:00:32.600 think in all the years that I've talked to Robert Caplan, 0:00:32.640 --> 0:00:35.839 maybe this is the most important time. The chaos out there, 0:00:35.880 --> 0:00:39.839 the confusion that we have on steel tariffs, and tweets 0:00:39.840 --> 0:00:42.720 at two o'clock in the morning, a lot of unusual. 0:00:42.320 --> 0:00:45.800 Truths that tweets their truths. 0:00:44.840 --> 0:00:49.160 Truth excuse me? And fiscal discussion. A four hour conversation 0:00:49.240 --> 0:00:52.800 with Robert Kaplan of the Dallas Fed, of Harvard Business School, 0:00:52.840 --> 0:00:57.160 and of course always his Goldman Sacks, Robert Caplin. The 0:00:57.240 --> 0:01:00.840 Dallas Fed website is easily one of the two or 0:01:00.840 --> 0:01:05.040 three most interesting of our federal reserve system. And there 0:01:05.120 --> 0:01:08.760 is a brilliant article two days ago about a place 0:01:08.880 --> 0:01:13.920 twenty five miles northwest of El Paso called Santa Theresa, 0:01:14.480 --> 0:01:20.280 New Mexico, where they built an export import hub into Mexico. 0:01:20.560 --> 0:01:23.880 I mean, this is the granularity of what we're dealing. 0:01:23.880 --> 0:01:27.279 It's like the Bridge and windsor Canada, except at Santa 0:01:27.360 --> 0:01:32.360 Theresa in New Mexico. With all your experience, Robert Kaplan, 0:01:32.720 --> 0:01:37.320 how turned upside down is our export import relations? 0:01:38.560 --> 0:01:46.039 Well, it's challenging right now because if you're gonna domicile 0:01:47.120 --> 0:01:54.640 manufacturing in the United States, the relationship between Canada and Mexico, 0:01:55.840 --> 0:01:58.880 or with Canada Mexico are critical, meaning we tend to 0:01:59.160 --> 0:02:03.080 source goods which are helped by cheap labor from Mexico 0:02:03.640 --> 0:02:07.880 and cheap or cheaper natural resources from Canada. And so 0:02:07.960 --> 0:02:10.040 you have these hubs like the one you mentioned in 0:02:10.040 --> 0:02:15.960 New Mexico that have been situated to facilitate integrated logistics 0:02:16.040 --> 0:02:21.079 and supply chain arrangements, other import export arrangements which are 0:02:21.240 --> 0:02:26.639 critical to North America and have allowed North America on 0:02:26.680 --> 0:02:30.320 the margin to take share from Asia. And so the 0:02:30.480 --> 0:02:35.600 recent tariff events have basically put sand in the gears 0:02:36.160 --> 0:02:39.239 of some of those relationships and made it more challenging. 0:02:39.400 --> 0:02:43.400 These are the granularities, folks, that are so important. Robert 0:02:43.480 --> 0:02:47.160 Kaplan did when you were running the FED in Dallas, 0:02:47.200 --> 0:02:52.040 did you ever visit the LVMH factory in Alvarado, Texas. 0:02:53.440 --> 0:02:57.280 I don't think I did, but I visited. I visited 0:02:57.320 --> 0:03:00.960 lots of sites north of the order and south of 0:03:01.000 --> 0:03:06.120 the border, and I learned about the velocity the frequency 0:03:06.280 --> 0:03:08.720 of goods going back and forth across the border. 0:03:09.600 --> 0:03:14.800 Do you have a confidence weaken supply an American manufacturing 0:03:15.240 --> 0:03:17.919 might I mean, folks about Kaplan is one of the 0:03:17.960 --> 0:03:20.680 most qualified people on this question. I know he's a 0:03:20.720 --> 0:03:25.120 business guy working in economics. Robert Kaplan, can we actually 0:03:25.160 --> 0:03:29.560 develop a skilled American manufacturing working force? 0:03:30.680 --> 0:03:33.919 We can develop it, but it's expensive. That's the issue. 0:03:34.080 --> 0:03:37.440 Most companies I talk with want to be able to 0:03:37.760 --> 0:03:44.160 use either Mexico, Canada, to some extent, even Vietnam, which 0:03:44.200 --> 0:03:47.560 is more farther afield. But they want they use these 0:03:47.760 --> 0:03:50.960 logistics and supply chain arrangements because if you did it 0:03:51.040 --> 0:03:55.400 all in the United States, their judgment is because costs 0:03:55.440 --> 0:03:57.920 are hire that it would not be globally competitive. This 0:03:58.000 --> 0:04:02.880 allows them to domicile in Innia States predominantly manufacturer in 0:04:02.880 --> 0:04:07.280 the United States, and if they didn't have those relationships, 0:04:07.320 --> 0:04:08.200 it would be harder to do. 0:04:08.760 --> 0:04:11.600 Damien Sas are with me this morning. Robert Kaplan here, 0:04:11.760 --> 0:04:14.600 expert on em in the Pacific RIM as well with 0:04:14.680 --> 0:04:17.160 Bloomberg LP Damien. 0:04:17.000 --> 0:04:19.840 Mister Kaplan, Sarah, I'd like to ask you about global growth, right, 0:04:20.040 --> 0:04:22.280 I mean, as Tom just pointed out, right, we are 0:04:22.360 --> 0:04:26.720 seeing a weeker dollar, weaker oil. We are seeing fiscal 0:04:26.720 --> 0:04:29.120 stimulus out of the US, China, and the EU, and 0:04:29.200 --> 0:04:32.640 more importantly, we're seeing monetary stimulus out of the emerging markets, 0:04:32.680 --> 0:04:35.120 right because you know, basically China's dumping in a lot 0:04:35.120 --> 0:04:39.160 of them and they're basically suppressing inflation domestically. You know, 0:04:39.520 --> 0:04:41.479 isn't this good for global growth? I mean, walk me 0:04:41.520 --> 0:04:41.880 through this. 0:04:43.000 --> 0:04:48.160 Yeah, So, going into this year, we had a oversupply 0:04:48.600 --> 0:04:53.120 and still do of goods globally. China over capacity is 0:04:53.160 --> 0:04:56.840 a big part of that story. So goods have been disinflating, 0:04:57.080 --> 0:05:00.880 including by the way, in the United States. Relation issue 0:05:01.279 --> 0:05:07.880 was in services, not in goods. The global goods disinflation continues, 0:05:08.480 --> 0:05:12.080 except there's a question whether it will continue in the 0:05:12.160 --> 0:05:16.320 United States because of what we do on tariffs. But 0:05:17.040 --> 0:05:19.720 the fact of the matter is we've had this goods 0:05:19.720 --> 0:05:24.480 over supply. What the tariffs have done is caused businesses 0:05:24.520 --> 0:05:26.760 around the world and particularly in the United States, to 0:05:26.960 --> 0:05:30.800 pause and be more uncertain as to how they're going 0:05:30.839 --> 0:05:34.880 to redo logistics and supply chains. Remember, only twelve percent 0:05:34.960 --> 0:05:40.560 of US GDP is manufacturing. We import another twelve percent 0:05:40.680 --> 0:05:45.000 in goods. We're basically a service economy. But these tariffs 0:05:45.080 --> 0:05:49.200 have created uncertainty in both goods and services, not just 0:05:49.240 --> 0:05:53.000 here but globally, which have put a damper on growth. 0:05:53.520 --> 0:05:54.960 And that's what you're seeing. 0:05:55.160 --> 0:05:57.360 Mister Kaplinser. I'd like to get your panel some of 0:05:57.400 --> 0:05:58.960 the things we're seeing out here on the long end 0:05:58.960 --> 0:06:01.400 of the US Treasury curve tens thirty steepening. I mean, 0:06:01.400 --> 0:06:04.120 it's not a US specific phenomenon. We're seeing similar price 0:06:04.120 --> 0:06:06.680 action across global fixed income in Europe and Japan, etc. 0:06:07.080 --> 0:06:09.040 And you know, my question for you, is that more 0:06:09.160 --> 0:06:12.680 a function not of growth expectations in thirty year real 0:06:12.760 --> 0:06:15.760 yields breaking out, but is it more just the players 0:06:15.760 --> 0:06:18.839 at that end of the market, the limited number of players, 0:06:18.880 --> 0:06:23.040 the lack of market depth. I'm just talking lifers, pension funes, endowments. 0:06:23.040 --> 0:06:24.960 There's just not that many of them out there, So 0:06:25.240 --> 0:06:27.360 talk to us a little bit about what you're witnessing 0:06:27.400 --> 0:06:28.160 out on the long end. 0:06:28.760 --> 0:06:32.040 It's a supply and a demand issue. First of all, 0:06:33.480 --> 0:06:36.279 the world and the United States is in the middle 0:06:36.320 --> 0:06:39.000 of this is much more highly leveraged than we were 0:06:39.080 --> 0:06:42.400 right before. Covid Us is a good example. Debt to 0:06:42.480 --> 0:06:45.280 GDP or net debt was in the seventies. It's now 0:06:45.320 --> 0:06:48.320 over one hundred percent. The Western world and the developed 0:06:48.320 --> 0:06:52.800 world is more leveraged, and as a result of that, 0:06:53.320 --> 0:06:56.520 there's more paper to sell at the long end of 0:06:56.560 --> 0:07:00.960 the curve. On the other hand, global buyers are very 0:07:00.960 --> 0:07:04.560 aware of that, and they're more reluctant to buy duration 0:07:05.080 --> 0:07:08.400 because they're worried. As we saw from Silicon Valley Bank 0:07:08.520 --> 0:07:10.720 and First Republic, you can lose a lot of money 0:07:10.800 --> 0:07:13.520 if you overdo it and buying duration. So we have 0:07:13.560 --> 0:07:17.120 a supply and demand issue. That's why the administration, the 0:07:17.160 --> 0:07:20.320 Trump administration came into office saying we're going to try 0:07:20.320 --> 0:07:24.720 to chip away at that debt and that leverage because 0:07:24.720 --> 0:07:28.520 we're worried about the term premium and it doesn't seem 0:07:28.520 --> 0:07:30.720 to be materializing. But that was the motivation. 0:07:31.520 --> 0:07:33.840 Robert Kaplan with US folks, who welcome all of you 0:07:34.400 --> 0:07:37.679 on your commute across the nation. Good morning, Serious XM 0:07:37.760 --> 0:07:41.640 Channel one twenty one, Flabbergasted by the support on the 0:07:41.680 --> 0:07:45.520 oldest of digital media. Good morning, Android auto was in 0:07:45.520 --> 0:07:47.640 a car yesterday or the Android auto? Good to see 0:07:47.680 --> 0:07:51.200 that as all they were listening to Bloomberg eleven three. Ah, 0:07:51.240 --> 0:07:54.320 I guess through Android Auto. Thank you Apple cart play 0:07:54.360 --> 0:07:57.800 good morning on YouTube. It's our new digital distribution, Robert 0:07:57.840 --> 0:08:00.200 Caplan said, Tom, you got to get with it. So 0:08:00.280 --> 0:08:03.840 we did this YouTube thing and subscribe to Bloomberg podcast. 0:08:03.880 --> 0:08:07.800 It's shocking, the digital distribution, Robert Kaphen. That goes to 0:08:07.840 --> 0:08:12.120 the innovation of America. We've all noted the distinction of 0:08:12.160 --> 0:08:17.960 Europe versus America, the technology shift in America, the innovation 0:08:18.680 --> 0:08:22.600 it's going to a part of America. How do we 0:08:22.720 --> 0:08:27.040 drag the rest of America into our new technology, our 0:08:27.080 --> 0:08:28.160 new productivity. 0:08:29.080 --> 0:08:34.320 Yeah. So technology enabled disruption has been with us for 0:08:34.640 --> 0:08:37.160 now the last several years. And oh, by the way, 0:08:37.160 --> 0:08:39.320 if you've lost your job in the United States in 0:08:39.320 --> 0:08:42.520 the last ten years in the past, that might have 0:08:42.559 --> 0:08:45.360 been due to globalization. In the last ten years, it's 0:08:45.480 --> 0:08:50.199 due to technology enabled disruption. And that disruption is accelerating. 0:08:50.320 --> 0:08:57.240 AI will accelerate it. And what we're seeing when I 0:08:57.280 --> 0:09:00.640 talk to clients across sectors in the United States and globally. 0:09:00.880 --> 0:09:05.640 It's affecting every single sector. Any sector in goods and services, 0:09:05.679 --> 0:09:09.400 you name it is being affected by this. The challenge 0:09:09.440 --> 0:09:12.960 is when a worker loses his or her job or 0:09:12.960 --> 0:09:17.600 their job gets restructured because of technology, can we retrain 0:09:17.679 --> 0:09:20.400 them so they can stay employed either in that business 0:09:20.520 --> 0:09:23.679 or find a high productive job in another business. And 0:09:23.720 --> 0:09:26.880 that's where the United States has been lagging. We need 0:09:26.920 --> 0:09:32.040 to improve early childhood literacy, secondary education, digital divide skills training, 0:09:32.960 --> 0:09:36.440 and we have not been as quick to do that. 0:09:37.040 --> 0:09:38.679 I would say as other countries. 0:09:39.160 --> 0:09:43.240 Mister Kaplincer, private credit is consolidating. Private equity fundraising has 0:09:43.240 --> 0:09:44.960 plunged by more than a third over the first three 0:09:45.000 --> 0:09:47.720 months of this year. I'm curious to hear your thoughts 0:09:47.760 --> 0:09:50.920 on quote unquote shadow financing here in the US. You know, 0:09:50.960 --> 0:09:55.439 I'm hearing about these continuation vehicles deteriorating COLO demand weekem, 0:09:55.440 --> 0:09:58.319 and you know, I want to know if another year 0:09:58.360 --> 0:10:00.800 of needed realizations tom are going to sour long term 0:10:00.800 --> 0:10:02.120 investors on the asset class. 0:10:02.800 --> 0:10:05.199 Well, so let's go through what's going on. First of all, 0:10:05.200 --> 0:10:11.000 as I just said, there's more business uncertainty, valuations, have recovered, 0:10:11.240 --> 0:10:15.520 but they're more muted. Cost of financing has gone up. 0:10:16.160 --> 0:10:18.960 You know, we talked about duration. Long end of the 0:10:19.040 --> 0:10:23.240 curve is stickier, and all that feeds together and makes 0:10:23.280 --> 0:10:30.280 it harder to either do monetizations or to do new transactions. 0:10:30.640 --> 0:10:34.840 And so what we're seeing is it's not that the 0:10:35.040 --> 0:10:39.240 equity markets and other markets aren't open for monetizations. I 0:10:39.240 --> 0:10:41.640 think a lot of the firms feel like if they 0:10:41.920 --> 0:10:44.960 the prices they could sell out today are lower than 0:10:45.080 --> 0:10:48.000 some cases where they have the asset marked. And so 0:10:48.040 --> 0:10:51.960 there's indigestion in the system. It won't last forever. Right 0:10:52.120 --> 0:10:53.920 we're in the middle of it right now where we've 0:10:53.960 --> 0:10:58.120 got some indigestion where it's why you're not seeing more transactions, 0:10:58.120 --> 0:11:01.920 more modernizations, more equity offices and mergers because of it. 0:11:02.000 --> 0:11:06.040 Okay, come on, Robert Kaplan to Danien's good question, and 0:11:06.120 --> 0:11:07.800 you're one of the great qual I think of you 0:11:07.880 --> 0:11:10.880 and Richard Fisher as being like at the apex of 0:11:10.920 --> 0:11:15.480 this of the link between economics, finance and investment. Robert Kaplan, 0:11:15.559 --> 0:11:19.480 as simple as I can mark to market in private equity, 0:11:19.520 --> 0:11:22.520 in private credit, is it a challenge right now? 0:11:23.280 --> 0:11:26.880 It's a challenge right now. And I think many private 0:11:26.880 --> 0:11:31.280 equity firms will tell you that it's not that they 0:11:31.320 --> 0:11:34.040 couldn't sell the asset. They're just not happy with where 0:11:34.080 --> 0:11:36.880 they could sell it, and they want to do modetizations, 0:11:36.880 --> 0:11:39.760 but they want to do them at more attractive valuations. 0:11:40.160 --> 0:11:42.480 What do you expect from the fedure to finish up here, 0:11:42.559 --> 0:11:45.920 Robert kaplan? A number of firms are saying they will 0:11:45.960 --> 0:11:49.360 do nothing until into twenty twenty six. I mean, on 0:11:49.400 --> 0:11:53.720 an next post basis, that's the safest path for mister Boyle, 0:11:53.880 --> 0:11:54.720 isn't it. 0:11:55.520 --> 0:11:58.920 I don't know about that, So they'll they'll take it 0:11:58.960 --> 0:12:02.600 may turn out that way, but that's not I wouldn't. 0:12:02.880 --> 0:12:06.120 I don't think the FED is planning that. It's taking 0:12:06.120 --> 0:12:08.080 a one meeting at a time. And the reason it's 0:12:08.120 --> 0:12:12.120 shortening up the time horizon is you've got a tax bill. 0:12:12.760 --> 0:12:16.120 That's that's that we don't know what what out stimulative 0:12:16.120 --> 0:12:19.160 it it's going to be. We have tariffs that haven't 0:12:19.200 --> 0:12:22.400 been set yet, and so this uncertainly needs to get 0:12:22.440 --> 0:12:26.440 clarified before the FED can be clear on what it 0:12:26.760 --> 0:12:30.520 wants to do next, and that may take at least 0:12:30.600 --> 0:12:34.800 until the fall. But I wouldn't assume that the FED 0:12:34.840 --> 0:12:37.800 won't act this year. But the FED can't prejudge that 0:12:37.960 --> 0:12:40.480 and can't get rigid about it. And so that's why 0:12:40.480 --> 0:12:43.640 you're seeing them be noncommittal, and they'll continue to be noncommittal. 0:12:43.800 --> 0:12:45.960 Rour Caplin, thank you so much for the generous time 0:12:46.000 --> 0:12:49.760 this morning. Vice chairman at gulb and Sex always associated 0:12:49.800 --> 0:12:53.120 with Harvard Business School and his federal I say, mister 0:12:53.360 --> 0:12:55.880 Tier and the rest are saying it's not his bank. 0:12:56.240 --> 0:13:04.280 Robert Caplin and the Dallas Fed, thank you. 0:13:04.280 --> 0:13:07.840 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:13:07.920 --> 0:13:11.080 weekday afternoons from seven to ten am Eastern. Listen on 0:13:11.160 --> 0:13:14.840 Applecarplay and Android Auto with the Bloomberg Business app, or 0:13:14.960 --> 0:13:16.480 watch us live on YouTube. 0:13:16.600 --> 0:13:20.640 Every time a crisis shows up, a new institution shows up. 0:13:20.679 --> 0:13:24.880 That's magical. It is the Budget Lab at Yale with 0:13:24.960 --> 0:13:29.040 the backing of Pete Peterson's Foundation and many other good people, 0:13:29.120 --> 0:13:32.120 Martha Gimble and Ernie to Desk any others drive in 0:13:32.200 --> 0:13:38.080 this forward and they've had a profound impact on analysis 0:13:38.240 --> 0:13:41.520 and clearing through the depart in the phrase the bs 0:13:41.559 --> 0:13:44.400 of the moment, Ernie Tdesky joins us from the Budget 0:13:44.480 --> 0:13:48.400 Lab this morning, Ernie, what's a number one message you 0:13:48.480 --> 0:13:55.040 would send both Republicans and Democrats in Congress. 0:13:55.559 --> 0:13:59.000 Number one message is that where we're at right now 0:13:59.120 --> 0:14:03.600 is not writing our fiscal shit. We need ten trillion 0:14:03.679 --> 0:14:06.600 dollars of deficit reduction over the next decade just to 0:14:06.679 --> 0:14:10.680 stabilize our debt to GDP, which is probably all the 0:14:10.800 --> 0:14:13.640 United States needs. We don't need to balance the budget fully, 0:14:13.679 --> 0:14:16.400 we just need to stabilize, you know, get debt growing 0:14:16.400 --> 0:14:20.680 at the same rate as the economy. And what they're 0:14:20.680 --> 0:14:23.720 doing in Congress right now is not even close to that. 0:14:24.440 --> 0:14:27.960 It's a four trillion dollar bill if you make permanent 0:14:28.160 --> 0:14:31.360 all of the tax cuts in it, and even if 0:14:31.360 --> 0:14:34.280 you include tariff revenue, tariff revenue is only raising two 0:14:34.320 --> 0:14:37.840 trillion dollars at this point, so we're still making the 0:14:37.880 --> 0:14:39.160 debt situation worse. 0:14:39.760 --> 0:14:42.280 The critics of earning to Desk and Martha Gimble and 0:14:42.320 --> 0:14:45.360 the rest, what they would say is the growth rate 0:14:45.440 --> 0:14:48.520 is too gloomy. At CBO, we're going to be more 0:14:48.560 --> 0:14:51.960 optimistic about mourning in America. We're going to get a 0:14:51.960 --> 0:14:57.000 better little g in life will go on. Is that possible? 0:14:57.480 --> 0:15:01.520 Feasible remotely be a constructive outcome. 0:15:03.120 --> 0:15:05.920 I mean, look, any more growth that we can get 0:15:06.000 --> 0:15:11.320 is nice, it's cherry on top. But extra growth that 0:15:11.360 --> 0:15:15.680 we get is not nearly going to be enough to 0:15:15.720 --> 0:15:18.560 solve the problem for us. You know, even if we 0:15:18.720 --> 0:15:23.240 had three percent growth, you know, sustained for a decade, 0:15:23.240 --> 0:15:28.200 which is infeasible. Most most economists think that trend growth 0:15:28.240 --> 0:15:31.680 in the United States is two percent. We would not 0:15:31.920 --> 0:15:34.960 stabilize the debt to GDP over ten years alone by 0:15:34.960 --> 0:15:38.160 getting to three percent growth. And you know, this bill 0:15:38.640 --> 0:15:42.320 they go above and beyond just straight TCGA extension. So 0:15:42.360 --> 0:15:44.720 there's probably gonna be a little bit of fiscal impulse 0:15:44.760 --> 0:15:46.840 in the short run. But this bill is not going 0:15:46.920 --> 0:15:50.440 to get us to three percent growth persistently, especially when 0:15:50.480 --> 0:15:54.120 you add on top the terrorists that they've passed, which 0:15:54.440 --> 0:15:56.680 you know, shave off half a point of growth this year, 0:15:57.120 --> 0:16:00.440 and keep you know, GDP persistently lower long run. 0:16:01.040 --> 0:16:02.760 Ernie, I know you and your team have done a 0:16:02.880 --> 0:16:04.680 lot of work on this, but I think most market 0:16:04.680 --> 0:16:06.800 practitioners believe the effective twer F rate by the end 0:16:06.800 --> 0:16:08.320 of this year is going to come in somewhere between 0:16:08.360 --> 0:16:12.080 fifteen to eighteen percent. Yet you know, I mean, recession 0:16:12.120 --> 0:16:15.480 probabilities are like down, and basically people are calling for 0:16:15.520 --> 0:16:17.520 the US economy. I mean, I think it's growing at 0:16:17.560 --> 0:16:19.760 a four percent plus clip here in the second quarter. 0:16:20.040 --> 0:16:22.480 So look, we all wanted nickx Pacis to go nine games. 0:16:22.520 --> 0:16:24.600 But just where is this catchup of the heart to 0:16:24.640 --> 0:16:25.520 the soft data here? 0:16:26.840 --> 0:16:29.960 Yeah, like it's a great point. We're at fifteen percent 0:16:29.960 --> 0:16:33.880 effective rate right now, and and we think that that 0:16:34.000 --> 0:16:36.240 takes off half a point of growth off of twenty 0:16:36.280 --> 0:16:38.840 twenty five. Now, we want to be very sober about 0:16:38.880 --> 0:16:41.640 what that means. Half a point off of growth is 0:16:41.680 --> 0:16:45.520 a significant headwind to the US economy. But on the 0:16:45.520 --> 0:16:47.760 other hand, if you thought that the US economy was 0:16:47.800 --> 0:16:50.800 two percent in twenty twenty five, and you shave off 0:16:50.880 --> 0:16:54.640 half a point, you're at one five, which is, you know, 0:16:54.800 --> 0:16:58.120 not as great as it was, but that's not recessionary 0:16:58.240 --> 0:17:01.640 by itself. I will say that what we don't capture 0:17:01.680 --> 0:17:05.320 in our modeling is the uncertainty effects of tariffs. And 0:17:05.359 --> 0:17:07.880 so what I tell people is that we probably don't 0:17:07.880 --> 0:17:10.680 have a central estimate in our estimates of terriff effects. 0:17:10.800 --> 0:17:13.919 We're probably a floor in terms of the effects, So 0:17:14.000 --> 0:17:17.320 there is still more recession risk than there was a 0:17:17.400 --> 0:17:17.800 year ago. 0:17:18.080 --> 0:17:21.080 A special Treatnie, you'dski with us for an extended conversation 0:17:21.200 --> 0:17:24.400 this morning with the budget lab all of us work 0:17:24.480 --> 0:17:27.679 for ed Himan at Evercore ISI over the years. Just 0:17:27.680 --> 0:17:30.480 a real treat folks within the market and the futures 0:17:30.520 --> 0:17:33.280 up thirteen. What's going on? You know what it is 0:17:33.400 --> 0:17:37.439 about our debt and deficit, Ernie. I was weaned on 0:17:37.600 --> 0:17:42.159 how Bronner's the debt in the deficit, a cruel accounting 0:17:42.280 --> 0:17:43.960 and all that. I don't want to go into that 0:17:44.119 --> 0:17:46.800 too early in the morning. To go into debt. You 0:17:46.880 --> 0:17:49.639 are magical because you had to work for Ed Hyman. 0:17:49.920 --> 0:17:53.000 You had to work with the granularity of the American 0:17:53.040 --> 0:17:57.040 economy that Ed Heyman and ed Yardnny frankly invented at CJ. 0:17:57.200 --> 0:18:00.480 Lawrence years ago. When you look at the granu larity 0:18:00.520 --> 0:18:04.960 of the American economy, does this debt in deficit break us? 0:18:05.080 --> 0:18:08.760 Or do we just keep going with the American dream? 0:18:09.359 --> 0:18:09.479 So? 0:18:09.560 --> 0:18:11.520 I don't so. On the one hand, I don't think 0:18:11.560 --> 0:18:14.320 that it breaks the US treasury market, you know, I 0:18:14.359 --> 0:18:18.400 think you would need something close to a meteor strike 0:18:18.680 --> 0:18:21.960 or you know, maybe a debt ceiling in pass to 0:18:22.320 --> 0:18:24.800 fully break the treasury market. If we're talking about just 0:18:24.880 --> 0:18:27.160 adding to our debt, I think it's going to have 0:18:27.200 --> 0:18:29.919 a mostly linear effect. I think it's going to just 0:18:30.040 --> 0:18:32.640 keep adding to interest rates. Now there's a limit to that. 0:18:33.040 --> 0:18:35.640 We can obviously go too far, but I don't think 0:18:35.680 --> 0:18:38.760 that that's a short run risk. On the other hand, 0:18:38.960 --> 0:18:41.320 like when you look at estimates of the term premium, 0:18:41.359 --> 0:18:44.399 there we go term premium is up and it's and 0:18:44.440 --> 0:18:46.639 it's up not just because of debt, it's up because 0:18:46.640 --> 0:18:49.440 of tariffs as well. You know. The big Uh. This 0:18:49.640 --> 0:18:53.200 continuity in the rise of the term premium recently was 0:18:53.240 --> 0:18:57.080 after April second, not after we got news about what 0:18:57.160 --> 0:19:00.080 was going on in Congress. So I think what we 0:19:00.080 --> 0:19:03.040 we need to appreciate, without getting too pollyannish here, what 0:19:03.119 --> 0:19:06.400 we need to appreciate is that it's not just the debt. 0:19:06.880 --> 0:19:10.720 It's that investors are reacting to this new reality of 0:19:10.840 --> 0:19:13.359 trade and the risk of the United States is not 0:19:13.400 --> 0:19:15.920 going to be as central to world financial markets as 0:19:15.920 --> 0:19:16.680 it was in the past. 0:19:17.040 --> 0:19:19.679 Ernie, the changes we're witnessing, I'm talking dollar hedging by 0:19:19.680 --> 0:19:23.639 Asian lifers, difine benefit contract conversion by European pensions like 0:19:23.680 --> 0:19:26.359 the Dutch JGB loss is harvesting by the BOJ. Are 0:19:26.359 --> 0:19:28.359 they structural or is it short term in nature? 0:19:29.640 --> 0:19:31.680 I mean, I think that they're mostly strung. I think 0:19:31.680 --> 0:19:33.600 it's mostly short term right now. I think that they 0:19:33.640 --> 0:19:39.160 are mostly you know, reacting to idiosyncratic factors in those countries. 0:19:39.240 --> 0:19:41.919 You know, things like insurance companies in Japan, just the 0:19:41.960 --> 0:19:45.320 fact that the BOG has less demand in general right 0:19:45.359 --> 0:19:49.160 now because they have such relative to japan high inflation. 0:19:49.560 --> 0:19:51.919 I think also a lot of investors are reacting to 0:19:52.080 --> 0:19:55.200 the change and the short run US outlook. But look, 0:19:55.240 --> 0:19:58.720 I wouldn't call anything structural yet because nobody knows what 0:19:59.240 --> 0:20:01.359 the final tear rate is going to be. In the 0:20:01.440 --> 0:20:04.639 United States. I would say that the court decision, the 0:20:05.040 --> 0:20:09.440 US Court of International Trade, if anything, tightened the uncertainty 0:20:10.200 --> 0:20:14.520 rather than diminishing it, because now we have uncertainty bands 0:20:14.520 --> 0:20:18.000 that reach to zero percent tariffs. Right That's that's not 0:20:18.080 --> 0:20:22.399 my likeliest outcome, but now it's applausible. It's a plausibility 0:20:22.480 --> 0:20:25.359 that the courts could strike down most of the Trump 0:20:25.400 --> 0:20:28.800 administration tariffs, and so you as a business or a consumer, 0:20:29.359 --> 0:20:31.439 it's even more uncertain now what things are going to 0:20:31.440 --> 0:20:32.200 look like in a year. 0:20:32.359 --> 0:20:34.680 Are any some of the largest and most venerable fund 0:20:34.680 --> 0:20:37.640 managers in the country, Double Line, Pimco, TCW are avoiding 0:20:37.640 --> 0:20:39.200 the thirty year. In fact, some of them are actually 0:20:39.200 --> 0:20:41.240 recommending to short the thirty year. But then I think 0:20:41.280 --> 0:20:44.399 about the negative carry associated on a marked market basis 0:20:44.400 --> 0:20:46.680 with shorting treasuries. Talk to us a little bit about 0:20:46.680 --> 0:20:48.680 what exactly is going on out there at the long 0:20:48.760 --> 0:20:51.640 end of the curve from a practitioner standpoint, I mean, 0:20:51.800 --> 0:20:53.840 is there is there going to be a bit is 0:20:53.880 --> 0:20:55.879 there demand? And at what level do you think people 0:20:56.000 --> 0:20:58.280 just start to, you know, kind of get weed back 0:20:58.320 --> 0:20:59.040 into that market. 0:21:00.119 --> 0:21:03.200 Yeah, it's a good question. So you know what we've seen, 0:21:03.280 --> 0:21:07.520 you know, we've particularly seen the thirty ten spread rising lately. 0:21:07.640 --> 0:21:12.400 I think that that is primarily being driven by fiscal 0:21:12.440 --> 0:21:18.040 concerns right now. It'll be interesting to see sort of 0:21:18.080 --> 0:21:21.160 as we get more news on tariffs. You know, tariffs 0:21:21.240 --> 0:21:25.359 are tariffs are in a funny way of offsetting that 0:21:25.440 --> 0:21:28.440 concern a little bit because they obviously raise revenue while 0:21:28.480 --> 0:21:32.480 at the same time swallowing growth. So so if tariffs 0:21:32.480 --> 0:21:35.720 diminish because of court cases, or because you know, the 0:21:35.720 --> 0:21:39.480 Trump administration comes to deals with other countries, like it'll 0:21:39.480 --> 0:21:42.760 be interesting. Like it's actually quite uncertain what effect that's 0:21:42.800 --> 0:21:45.320 going to have on the long end. If we raise 0:21:45.359 --> 0:21:47.520 more tariff revenue, that might, on the one hand, a 0:21:47.600 --> 0:21:52.240 swage fiscal concerns, but it might also raise growth doubts 0:21:52.240 --> 0:21:52.919 about the US. 0:21:53.080 --> 0:21:55.040 Ernie, thank you so much, Ernie. To Deski with us 0:21:55.080 --> 0:21:57.840 the budget labit you can't say enough about how they 0:21:57.880 --> 0:22:02.280 have just overnight definitively changed the fiscal dialogue in America. 0:22:02.400 --> 0:22:03.120 That's a real treat. 0:22:03.680 --> 0:22:07.600 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:22:07.640 --> 0:22:10.920 starting at seven am Eastern on Applecarplay and Android Auto 0:22:11.080 --> 0:22:14.040 with the Bloomberg Business app. You can also listen live 0:22:14.119 --> 0:22:17.679 on Amazon Alexa from our flagship New York station, Just 0:22:17.720 --> 0:22:20.280 say Alexa play Bloomberg eleven thirty. 0:22:21.040 --> 0:22:24.840 This is a joy with a fabulous old world perspective. 0:22:24.880 --> 0:22:28.240 I think of Rubini, Teleban, so many others coming out 0:22:28.280 --> 0:22:32.520 of the levant in points east of there, in Persia, 0:22:33.359 --> 0:22:38.399 in Iran and joining us right now is Sasan Garamani, 0:22:38.600 --> 0:22:43.880 President and CEO at SGH Macro Advisors, associated with Medley 0:22:44.640 --> 0:22:46.800 for years. Wonderful to have you here. Thank you so much, 0:22:46.920 --> 0:22:49.159 Thank you Tom for coming in. You've got such a 0:22:49.200 --> 0:22:52.959 different perspective. And I think of China, I think of 0:22:53.000 --> 0:22:57.480 like Baghdad and the Sassoon family from a zillion years ago. 0:22:58.119 --> 0:23:04.560 Nobody understands the heritage of Persia and the greater Persia 0:23:05.119 --> 0:23:09.359 in setting up the Pacific rim over centuries. And so 0:23:09.440 --> 0:23:11.520 you've got this one with your family. You have this 0:23:11.640 --> 0:23:16.000 wonderful perspective on China. Do we understand China or are 0:23:16.000 --> 0:23:17.240 we ugly Americans? 0:23:18.480 --> 0:23:22.639 I think we're increasingly understanding China. And I think the 0:23:22.680 --> 0:23:26.680 evolution of our thinking has changed over time, and quite simply, 0:23:26.680 --> 0:23:33.199 it's gone from from a trading partner and to increasingly 0:23:33.240 --> 0:23:36.880