Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, and
Speaker 1: this is Here's Why, where we take one new story
Speaker 1: and explain it in just a few minutes with our experts.
Speaker 1: Here at Bloomberg.
Speaker 2: People getting really a bit tired. They don't know even
Speaker 2: if something's announced, whether two days later it's not changed again.
Speaker 2: So you really see some fatigue of decision makers.
Speaker 1: That's the CEO of Logistics Giant DHL, Tobias Meyer. For
Speaker 1: executives like him navigating the near daily shifts in US
Speaker 1: economic policy, it's like driving through fog with no headlights.
Speaker 1: When the rules are changing so quickly, it's not just
Speaker 1: hard to keep up, it's almost impossible to make decisions.
Speaker 1: Should a company build a new factory, order more supplies,
Speaker 1: hor or more workers, and where to do any of this?
Speaker 1: And when you don't know what's coming, you hit the brakes.
Speaker 2: But we haven't I don't think spent enough time talking
Speaker 2: about just the un certainty out there.
Speaker 3: Operating in this highly uncertain environment means go slow.
Speaker 2: The higher uncertainty and greater risk of recession, the.
Speaker 4: Fear that on a daily basis, you wake up in
Speaker 4: the morning and not wondering whether which sectors again to
Speaker 4: have twenty five percent towers, which country's tariffs again to
Speaker 4: be at one hundred percent. That's where the damage is caused.
Speaker 1: So here's why uncertainty is an economic killer. Joe Wisenthal,
Speaker 1: host of Bloomberg's Odd Lots podcaster, is with me in London. Joe,
Speaker 1: great to see you, Thank.
Speaker 3: You for having me. Thrilled to be here.
Speaker 1: Tell me, with your brain and knowledge these matters, how
Speaker 1: can we define uncertainty in this moment in twenty twenty five.
Speaker 3: Yeah, I mean it's a great question, and I think
Speaker 3: there are sort of two different elements, which is, one is, Okay,
Speaker 3: we know there's going to be a change in the
Speaker 3: trading environment between the rest of the world in the US, right,
Speaker 3: Like that's obviously a done deal, and nobody knows like
Speaker 3: what type of arrange will be profitable in those environments
Speaker 3: and so forth. So that's a form of uncertainty. But
Speaker 3: that there's another, you know, the more deeper form of
Speaker 3: uncertainty is, yes, we know there's going to be a change,
Speaker 3: but we don't know to what right. And part of
Speaker 3: that is I don't think you know, the White House
Speaker 3: has clearly articulated what it wants the new environment to be.
Speaker 3: There's a message uncertainty because various people speak for the
Speaker 3: White House on behalf of the White House, and there's
Speaker 3: a lot of ambiguity about the degree to which anything
Speaker 3: they say actually reflects the thinking of the administration. And
Speaker 3: when I say the administration, I only mean the President
Speaker 3: because you know, typically one would think there is a
Speaker 3: coherent message, but I don't think there is. There's you know,
Speaker 3: there's rivals within the White House that have different priorities,
Speaker 3: and I think that even the President himself, well, he
Speaker 3: has some intuitions that you know, he believes that tariffs
Speaker 3: are a tool that can be used to revive the
Speaker 3: manufacturing sector. The degree to which that policy is cemented
Speaker 3: seems still very up in the air.
Speaker 1: Can we say that it's more uncertain now that it
Speaker 1: has been in years?
Speaker 4: Yeah?
Speaker 2: Sure.
Speaker 1: How do we sort of measure uncertainty? I mean you
Speaker 1: can look at the mats for one example.
Speaker 3: Well, look, I think you know, in the two big
Speaker 3: recent crises that we had, there were clear goals. During COVID,
Speaker 3: the goal was to stop the spread of the disease
Speaker 3: and then from an economic side, to sort of replaced
Speaker 3: all the lost money, you know, all the lost economic
Speaker 3: activity for those months during lockdown in two thousand and
Speaker 3: eight and two thousand and nine. The goal was to
Speaker 3: stop a bank run, and there was a lot that
Speaker 3: they didn't know at the time, and they certainly, you know,
Speaker 3: may have misjudged the speed and scale through which the
Speaker 3: financial system was deteriorating in two thousand and eight and
Speaker 3: two thousand and nine, But the goal was to stop
Speaker 3: a bank run. In this case, you know, as they say,
Speaker 3: the call is coming from inside the house, so you
Speaker 3: don't really know what the goal is. Is the goal
Speaker 3: to improve our ability to manufacture high tech things that
Speaker 3: are important for national security?
Speaker 4: Maybe?
Speaker 3: Is the goal to fundamentally restructure the economy such that
Speaker 3: everyone or a lot more people are in what we
Speaker 3: call production work. Is the goal to stop the flow
Speaker 3: of fentanyl? Is the goal to slow international migration. So
Speaker 3: whereas in the last two crises, there is certainly a
Speaker 3: lot of uncertainty, and there's a lot of debate about, well,
Speaker 3: what's it going to take and how long will it
Speaker 3: take to stop the spread of a pandemic or a
Speaker 3: bank run, et cetera. I don't think we actually even
Speaker 3: know what the goal is here, and so in some sense,
Speaker 3: I would say, again, there are various attempts to measure
Speaker 3: uncertainty that our market based measures, our sentiment based measures.
Speaker 3: But I would say there is a degree of uncertainty
Speaker 3: now that is in a way incomparable to any recent crisis.
Speaker 1: What's the macro picture when we have this level of uncertainty,
Speaker 1: given that, as you say, it doesn't really have a
Speaker 1: parallel something we've looked at before.
Speaker 3: Well, look, at a minimum, it's very hard to imagine
Speaker 3: any company in the world committing to like serious investment
Speaker 3: right now. And what I mean by investment obviously is
Speaker 3: opening up new locations, opening up new production facilities, expanding headcount,
Speaker 3: et cetera. Why would anyone do that in this environment?
Speaker 3: And that's at a minimum. Furthermore, there has been this
Speaker 3: hit to financial markets of financial tightening, as they say,
Speaker 3: and so stock prices have gone down, yields on government
Speaker 3: debt have gone up, credit spreads have gotten wider. So
Speaker 3: there is just an increased cost of doing business already
Speaker 3: on the financial side, and then you layer in the
Speaker 3: actual literal increased cost of doing business because the goods
Speaker 3: that a company imports, whether they're for resale or whether
Speaker 3: their inputs to production have also gone up. So you
Speaker 3: layer in the inherent policy uncertain and the fact that
Speaker 3: until there's some policy stability, no one is going to
Speaker 3: do anything new, on top of the fact that the
Speaker 3: existing costs we're on day to day operations for both
Speaker 3: financial and goods have gone up. And this is why
Speaker 3: many people believe we're either going into a recession in
Speaker 3: the US or that we're already in one.
Speaker 1: At what points do businesses, consumers, markets simply got used
Speaker 1: to things being so uncertain. Is there a point at
Speaker 1: which that we all just sort of shrug and move on.
Speaker 3: It's hard to imagine that you can ever fully shrug
Speaker 3: and move on. But the answer to that persistent uncertainty
Speaker 3: is to take fewer risks, to shore up your balance sheet,
Speaker 3: to cut everything that you can theoretically cut. You know,
Speaker 3: it's interesting, like in twenty twenty two, when there was
Speaker 3: significant inflation, there were a lot of concerns. Then you know,
Speaker 3: the Federal Reserve was jacking up interest rates and so
Speaker 3: there was a lot of a concern. Then I was like, oh,
Speaker 3: we're going to go into a recession. But one of
Speaker 3: the overriding dynamics of that period was this visceral fear
Speaker 3: of companies to be short of labor, because twenty twenty,
Speaker 3: twenty twenty one, twenty twenty two, twenty twenty three, it
Speaker 3: was probably the first time in recent corporate history where
Speaker 3: companies realized that there is not an endless supply of
Speaker 3: workers out there. I'd say, you had restaurants like, oh,
Speaker 3: we literally can't operate right because we can't find the
Speaker 3: workers in this environment. And so what that means is
Speaker 3: that there was this real reluctance to fire anyone because
Speaker 3: you might think, well, you know, things are uncertain, but
Speaker 3: I can't fire anyone because the last thing I want
Speaker 3: to do is to be caught short labor. Again, I
Speaker 3: just had this very visceral experience of being short. We're
Speaker 3: in a very different environment right now.
Speaker 4: You know.
Speaker 3: Arguably, even going into middle of February, which is when
Speaker 3: the turbulence really began, there were signs of economics slow
Speaker 3: down a little bit that may had nothing to do
Speaker 3: with Trump. Maybe you know, it's time for like the
Speaker 3: fit A Reserve to cut rates. Signs of the housing market,
Speaker 3: which is very important stalling out. So even then there
Speaker 3: was probably already this sort of negative growth impulse emerging
Speaker 3: in the US economy, and so I think this time
Speaker 3: around right now, I suspect that inside many companies, the
Speaker 3: conversations are about what can we cut. We want to
Speaker 3: preserve capital, we want to preserve cash, we want to
Speaker 3: preserve operational flexibility, just to survive to the next month
Speaker 3: or the next half of the next quarter.
Speaker 1: Where do we look for signs that things are calming down,
Speaker 1: that things are becoming more certain.
Speaker 3: I mean, look, I'm a big fan of the stock
Speaker 3: market as an indicator. The stock market is not as
Speaker 3: volatile as it was. The policy environment, I guess, you know,
Speaker 3: is less fluid that it seemed like a week ago,
Speaker 3: right change, It could change, you know, but like the
Speaker 3: pace of new news that's come out is slowed down
Speaker 3: a little bit. You know, there's only so far you
Speaker 3: can really go with that. So like at the margins,
Speaker 3: things are more certain than they were a week ago,
Speaker 3: but we're just talking marginal changes and.
Speaker 1: We'll have to watch them to see more things go next. Joe,
Speaker 1: great to have you here, Thanks for having me. Joe Wisenthal,
Speaker 1: host was brilliant to Odd Lots podcast and author of
Speaker 1: its newsletter. Thank you. For more explanations like this from
Speaker 1: our team of three thousand journalists and analysts around the world,
Speaker 1: go to Bloomberg dot com slash explainers. I'm Stephen Carol.
Speaker 1: This is here's why. I'll be back next week with more.
Speaker 1: Thanks for listening.