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: Zandy has been on fire out on Twitter writing this up.
Speaker 2: And you know, like he's got the fam photo on
Speaker 2: Twitter and you can tell, I mean your youngest daughter,
Speaker 2: Mark Sandy, Daffodil, your youngest daughter. Just look what is
Speaker 2: it about the youngest daughter, doctor Sandy.
Speaker 3: They're true, I hear you, I hear, but all my
Speaker 3: kids are enchanting Tom.
Speaker 2: But then there's Daffodil, the youngest daughter. How's the inflation
Speaker 2: at the Zandy house? Right now? Into this report? What
Speaker 2: do you see viscerally on inflation?
Speaker 3: You know, abstracting from the ups and downs in all rounds,
Speaker 3: it feels like consumer price inflation is three percent year
Speaker 3: over year, which is, you know, it's back closer to
Speaker 3: the Fed's target, but not quite there. I mean on
Speaker 3: the CPI, the Fed's target would be two and a
Speaker 3: half percent. The thing that you know, obviously is a
Speaker 3: bit more worrisome is where we're headed. And you know,
Speaker 3: if we had this conversation three months ago, I said
Speaker 3: we'll be back to the feed's target by the spring.
Speaker 3: But you know, with these tariffs, it doesn't feel likely
Speaker 3: at this point.
Speaker 4: So Mark, is that a valid concern for this marketplace
Speaker 4: that these terraffs will result in I don't know, meaningfully
Speaker 4: higher inflation.
Speaker 3: Yeah, you know, obviously it depends on how how high
Speaker 3: the tariffs go, how broad based they are, how persistent
Speaker 3: the tariffs are put in place. But it feels like
Speaker 3: we're going to get some real tariffs here for an
Speaker 3: extended period. And you know, here's a good rule of thumb.
Speaker 3: For every percentage point increase in the effective tear rate,
Speaker 3: that adds one tenth of one percent consumer pretemplation over
Speaker 3: the subsequent year. So we go from three percent effective
Speaker 3: ter fright where we were before you know, President Trump,
Speaker 3: to let's say ten percent, and that feels like we'reheaded.
Speaker 3: That adds seven ten percent to see PI inflation in
Speaker 3: the coming year. That's you know, that's that's meaningful.
Speaker 2: Can you calculate where we are and add three percent? Statistic? Now,
Speaker 2: are we at a zandy four point two percent this
Speaker 2: morning or on our way to ten percent? Do we
Speaker 2: know where we are? Uh?
Speaker 3: You mean Tom with what's already been implemented.
Speaker 2: What's already been implemented, you know the Yeah, I think
Speaker 2: we're Yeah, I think we're kind of closer to four
Speaker 2: four and a half.
Speaker 3: You're right, four point you know, four point you know,
Speaker 3: I have to do the calculation, but four point two
Speaker 3: sounds about right to me. Yeah, so we've gone from
Speaker 3: three to four point two. Yeah, so we got a
Speaker 3: ways to go here.
Speaker 2: You know. The real thing is the reciprocal terrafs.
Speaker 3: Right, that's if that if that's actually implemented early April,
Speaker 3: that's the kind of the schedule at the moment. Yep,
Speaker 3: that's that would get you over ten. That would get
Speaker 3: you over ten on the effective break.
Speaker 4: And what was such an environment due to your GP
Speaker 4: outlook weaker?
Speaker 3: You know, terriffs do they result in some combination of
Speaker 3: higher inflation, higher interest rates, or weaker economic growth. Pick
Speaker 3: your poison. It's you know, if you don't get the inflation,
Speaker 3: you're going to get the weaker growth. If you don't
Speaker 3: get the weaker growth, you get the inflation or higher
Speaker 3: interest rates. Were and all the above is already happening
Speaker 3: in anticipation of the tariffs, right, I mean you can
Speaker 3: see inflation expectations are up. The Fed's not moving now,
Speaker 3: and they're telling us it's because it's economic policy code
Speaker 3: where or tariffs and growth is slow, and so all
Speaker 3: the things that we think terifts are going to do,
Speaker 3: they're doing in the advance of actually the terrft's coming
Speaker 3: into place, because we're all anticipating it.
Speaker 2: Pauler, good question here. I'm sorry, it comes down to Granularity.
Speaker 2: Daffodil needs a new pair of Doc Martin Mary Janes
Speaker 2: at the Zandi house hold.
Speaker 3: It sounds scary leopard.
Speaker 2: I mean, they're ard and their incoming and they're gonna
Speaker 2: have a terrify them because they're made sure everything. I mean,
Speaker 2: you know everything. Micro Granular is going to be there.
Speaker 2: Mark Sandy with Moody's with this. We're gonna talk to
Speaker 2: him after this inflation report. There's a lift to the
Speaker 2: market today, Paul might right, it's a tentative lift.
Speaker 4: We were here the same place yesterday Tom before. Yeah,
Speaker 4: we'll get some of the tweets started coming out. So Mark,
Speaker 4: just at the inflation reading the CPI, we got a
Speaker 4: little bit better than expected in terms of lower inflation.
Speaker 4: We know it's backward looking, but what do you take
Speaker 4: away from the CPA print today.
Speaker 2: Well, that's on the face of it better.
Speaker 3: You know, it's one of these things where you have
Speaker 3: to go to the second third significant digit. I mean,
Speaker 3: I think our estimate was like zero point two five,
Speaker 3: so it would rounded up two point three. So maybe
Speaker 3: I don't know what to do the calculation, but you know,
Speaker 3: that's how much we're parsing the numbers here. But I
Speaker 3: think bottom line, you know, abstracting from the vague reason
Speaker 3: the monthly later, we're kind of, as I said earlier,
Speaker 3: still stuck around three percent, and that's that's where we're
Speaker 3: going to stay for a while until we get some
Speaker 3: clarity around and hopefully these tariffs go away, you know,
Speaker 3: sooner rather than later.
Speaker 2: Mark, where are you going to FED rate cuts through
Speaker 2: the year? I mean, everybody seems to be threeish guessing,
Speaker 2: but don't you don't guess, Mark, so you know what
Speaker 2: you're doing and what they'll do.
Speaker 3: Tell you, Tom, I'm confused. I mean the FED, right,
Speaker 3: because what do you do with the tariffs? I mean,
Speaker 3: it raises inflation, weakens gross how do you respond and
Speaker 3: they're saying, well, we don't until we get some clarity,
Speaker 3: any kind of clarity around what's going on and how
Speaker 3: it's all going to play out. I mean, in my
Speaker 3: baseline kind of official forecast, I have two rate cuts
Speaker 3: towards the end of the year. It's going to take,
Speaker 3: you know, until the second half of the year before
Speaker 3: they get enough clarity to start moving again.
Speaker 2: But ultimately, you know, I do.
Speaker 3: Think the tariffs are going to be you know, more
Speaker 3: growth negative than inflation positive. I think at the end
Speaker 3: of the day, Doctors, and that may mean more rate cuts, Doctors.
Speaker 2: And thank you so much for joining us today. Mark
Speaker 2: Sandy writing for Moody's always very strong out on Twitter.
Speaker 2: Look from there for some very important nos. Futures up
Speaker 2: seventy four, a lift of the market, not going to
Speaker 2: make too much about it. Paul and I are waiting
Speaker 2: for the next headline. Long agoing far away. A wonderful
Speaker 2: person who was a great supporter of mine in the
Speaker 2: early years and Stan Freeburg was Fred Burston, and he
Speaker 2: was at the Peterson what became the Peterson Institute. The
Speaker 2: toughest job was to pick up from Fred, and that
Speaker 2: is what Adam Posen has done with grace, to say
Speaker 2: the least. The only one working harder than Adam Posen
Speaker 2: at the Peterson Institute is Chad Bone, who hasn't a
Speaker 2: day off since time began. As we look at this
Speaker 2: trade mess, we're in bonus round. Adam Posen is expert
Speaker 2: on the German political economic experiment. Doctor Posen, thank you
Speaker 2: so much for joining us today. If Doug Ehr went
Speaker 2: up at Dartmouth was to rewrite his history of the
Speaker 2: tariffs and all, what would Doug Rwin? What would Adam
Speaker 2: Posen be writing right now?
Speaker 5: Thanks Tom for having me back. And everyone should read
Speaker 5: Chad Bound and Doug Erwin's new piece and Foreign Affairs
Speaker 5: that just came out on tariffs. Doug has made the
Speaker 5: point repeatedly there are charts on THEEPIE website that this
Speaker 5: is historically unprecedented. You really have to go back one
Speaker 5: hundred years, ninety plus years to Smooth Hollie to see
Speaker 5: anything like this in terms of the size scope of tariffs.
Speaker 5: But even more so, this is much more uncertain. As
Speaker 5: he's pointed out Chad, Mary Lovely and I in various ways,
Speaker 5: this is an exercise of discretionary presidential power. I'll leave
Speaker 5: aside the constitutionality or the issues of politics, but just
Speaker 5: from an economic point of view. In the past, when
Speaker 5: there's been large moves of tariffs, it's mostly been in
Speaker 5: the US because Congress has authorized them. This is being
Speaker 5: done day to day or as justin Wolfer's joked intra
Speaker 5: day tariff changes on presidential whim, and that creates even
Speaker 5: more uncertainty.
Speaker 2: Take them on.
Speaker 5: Doug would say, we're in new territory and it ain't pretty.
Speaker 2: Professor Erwin joining us from Dartmouth will do that on
Speaker 2: Friday here in Bloomberg Surveillance. Doctor Posen, as simple as
Speaker 2: I can. Krugman with his Nobel speech would look at
Speaker 2: the microeconomics of the moment and it'd be a lot
Speaker 2: of fancy Adam Posen talk. Forget about it. What's the
Speaker 2: dead weight loss for our audience right now, our audience
Speaker 2: in Winnipeg, our audience in Wisconsin. What's the dead weight
Speaker 2: loss given all of this.
Speaker 5: On the order of a thousand plus dollars a year
Speaker 5: for the average household, higher for lower income households. And
Speaker 5: that doesn't include the hits to retirement funds or the
Speaker 5: going forward the lower opportunities because investments getting chilled. Direct
Speaker 5: hit is on the order of one thousand dollars per household.
Speaker 5: You could argue if the tariffs get stick or if
Speaker 5: they put on the across the board tariffs, it gets
Speaker 5: closer to fifteen hundred to two thousand dollars a household.
Speaker 4: Adam, I'm hearing the recession word more and more over
Speaker 4: the last several weeks. Is that in your cacus anywhere?
Speaker 5: So I've been saying for a while the OW did.
Speaker 5: I was expecting a large boom and then fed induced
Speaker 5: bust under Trump. But I always held out that this
Speaker 5: was a radical enough program that it was bimodal, meaning
Speaker 5: again simple talk, it wasn't going to end up in
Speaker 5: the middle. It was going to be one of two outcomes.
Speaker 5: I have the recession probability only at like fifteen plus percent,
Speaker 5: so no different than anybody in a normal time. But
Speaker 5: what I kept saying, and this may have been a
Speaker 5: hedge but it turns out to be reality, was if
Speaker 5: Trump administration overdid it on tariffs, on migration, on fiscal follies,
Speaker 5: that that would swap us into the tariff rem It
Speaker 5: xues me into the recession camp. So I've up my
Speaker 5: recession subjective probability to thirty percent. I still think it's
Speaker 5: more likely than not we get a boombust. But you
Speaker 5: throw in the geopolitical shock, which is enormous and which
Speaker 5: really changes the game for Europe and for everybody. And
Speaker 5: then you throw in the fact that Doge shutting down
Speaker 5: environment education USAID. I may not like, but I expected
Speaker 5: that throwing a miasma of similar uncertainty over all government contracting,
Speaker 5: all government workforce has huge effects. So, yeah, the recession
Speaker 5: risk has gone way up.
Speaker 4: From some of President Trump's policy people were starting to
Speaker 4: hear more and more discussion that what the President is
Speaker 4: aiming to do is to kind of reshape the US
Speaker 4: economy to bring more manufacturing back to the US, and
Speaker 4: some folks are concerned that that's kind of counter intuitive
Speaker 4: to what we've experienced over the last fifty sixty seventy
Speaker 4: years of more of a globalization and at least in
Speaker 4: the US economy, of focus on the services part of
Speaker 4: the economy. How do you view this potential pology policy
Speaker 4: shift for the US.
Speaker 5: I view it as a very mistaken policy shift for
Speaker 5: two reasons. First, in line with what you said, increasing
Speaker 5: manufacturing employment or literal production within US borders isn't necessarily
Speaker 5: a good thing. If they want to force Americans to
Speaker 5: do rare earth's mining or production of generic pharmaceuticals, those
Speaker 5: are steps backward for US workers, and so you would
Speaker 5: either have to vastly overpay, which then makes it totally
Speaker 5: uncompetitive internationally and totally in inflation for the domestic household,
Speaker 5: or you're just subjecting American workers to bad jobs that
Speaker 5: were too well endowed and skilled to do. The second reason, though,
Speaker 5: is it's just not going to work. My colleague Robert Lawrence,
Speaker 5: who's at Harvard and Peterson Institute, had a book out
Speaker 5: last fall called Behind the Curve, which I think established
Speaker 5: brilliantly that even if you fantasize about going back to
Speaker 5: nineteen fifty eight and a bunch of guys getting to
Speaker 5: be big bread owners, breadwinners for their families with no education,
Speaker 5: which there's reasons you might like that, it's just not
Speaker 5: going to happen because the total taste of the world
Speaker 5: and the movement of technology, for me, globalization has made
Speaker 5: it impossible to create large numbers of manufacturing jobs of
Speaker 5: that sort. So it's a bad goal and it's not
Speaker 5: going to work.
Speaker 2: We continue with that imposing the Peterson Instituting and Doug
Speaker 2: Arwin with us on Friday from Dartmouth. Breek Rona coming
Speaker 2: up as well from Wellington. Good morning across the nation.
Speaker 2: Good morning ninety two to nine FM and Boston, and
Speaker 2: I'm down to ninety nine one FM in Washington, DC
Speaker 2: as well. Adam, we got a go to on a
Speaker 2: time here. I want to slip this in. I think
Speaker 2: it's so important. Robert Zelik is somebody that I think
Speaker 2: more than anyone, takes our international economics and our sense
Speaker 2: of constructive globalization and folds it into American business. He's
Speaker 2: been on fire recently. What's the message you've taken from
Speaker 2: one of our trade giants?
Speaker 5: I agree, Robert is Bob Zeleik is here out of
Speaker 5: me and is a statesperson of the longtime ideal for
Speaker 5: the US, and he integrates diplomacy, history, security economics like nobody.
Speaker 2: Okay, here's a sentence, and here's a sentence. The zero
Speaker 2: sum logic reverts back to a view in the nineteenth
Speaker 2: and eighteenth centuries called mercantilism. Is that's from Zelek? Is
Speaker 2: that where we are this morning?
Speaker 5: Yeah, that is where we are I mean, when you
Speaker 5: listen to the president, President Trump gives the rant he
Speaker 5: gave yesterday about Canada was very unfair. You EU is
Speaker 5: terribly unfair. On and on and on again. I don't
Speaker 5: presume the talk psychology, but as a matter of economic facts,
Speaker 5: it's just a completely self polluted view. It's not true
Speaker 5: on the facts, but it only makes sense if you
Speaker 5: have the mercantilist blinders on, which means you see trade
Speaker 5: as negative some not even zero sum. And you see,
Speaker 5: again going back to the previous comment that only making
Speaker 5: physical stuff matters, and this is just not true. You
Speaker 5: can make national security arguments and Bob would allow for
Speaker 5: this too that specifically referspect to China or given industry
Speaker 5: like semiconductors. You don't want to have too much concentration
Speaker 5: risk dependence on a particular thing. Even there though, you
Speaker 5: don't want to be putting up barriers around. So you're
Speaker 5: dependent on some American company that happens to be a
Speaker 5: friend of the president and is overly protected, too big
Speaker 5: to fail, and makes claims to drop out of the
Speaker 5: spy or semiconductors don't really work right, so you know,
Speaker 5: this is a huge step backward where I think Bob
Speaker 5: is much more articulate than I'm being is the international
Speaker 5: systemic part of this, right, there is a feedback loop
Speaker 5: for the US. And this is what I think Trump
Speaker 5: and his and Bessentin has it. Whether they know it
Speaker 5: or not, whether they think it's a means to an
Speaker 5: end or not, I don't know, but they're ignoring that.
Speaker 5: The US, as I argued in Foreign Affairs a few
Speaker 5: years ago, was chairman of the club and therefore got
Speaker 5: to set the rules, got to self deal, got to
Speaker 5: determine who was members, but it had to behave within
Speaker 5: some reasonable set of rules and provide the club some benefits.
Speaker 5: And once the US just says I'm a member and
Speaker 5: a member who may even leave the club, the club
Speaker 5: goes on without you.
Speaker 2: YouTube live chat, Thank you out on YouTube. Huge audience
Speaker 2: this morning. Paul Tom you need a beard like Adam posts. Oh,
Speaker 2: I mean there it is. Adam's not shaven until the
Speaker 2: Red Sox are in first place. We'll see when that happens.
Speaker 5: Continued sustainably in first place.
Speaker 4: Sustainably in first place. Hey, Adam, I think most Americans
Speaker 4: would agree that this US government, federal government is bloated.
Speaker 4: It's bureaucratic to wants red tape, all that good stuff.
Speaker 6: Is Doge the way to address that not so far.
Speaker 5: I mean, Paul, you're right, most Americans would agree, and
Speaker 5: there's certainly a point there. I think what I tried
Speaker 5: to say to people before Doge got started was the
Speaker 5: issue with government isn't so much waste fraud. It's that
Speaker 5: because of politics, every task has seventeen key performance indicators,
Speaker 5: has seventeen different constituencies, and then gets funded to seventy
Speaker 5: five eighty percent of what it needs to do. That
Speaker 5: at best, and so what you needed to do, and
Speaker 5: this is the place where I think announced government reform
Speaker 5: effort could have been good is saying, let's prioritize. Let's
Speaker 5: not let the accumulation through the years of individual, little
Speaker 5: congressional or special interest moves determine our budget, determine our priorities.
Speaker 5: So again, I'm not in favor of getting rid of education.
Speaker 5: I'm totally against getting rid of USAID. But in a
Speaker 5: sense as a process, if they had just come in
Speaker 5: and said we're taking out this whole department and we're
Speaker 5: doing this instead, that's okay as a process. It's not
Speaker 5: okay to create terror across the workforce. It's not okay
Speaker 5: to make government contractors not get paid for stuff they've
Speaker 5: already done and not know what they're going to get.
Speaker 5: It's not okay to blow up whole ecosystems just because
Speaker 5: they're in government. And most of all, if you did
Speaker 5: it by priorities things like energy grid, nuclear power experts,
Speaker 5: air traffic control Noah and NIH directly into world R
Speaker 5: and D, those things would have been spared because they're
Speaker 5: directly helpful to the economy.
Speaker 2: Adam, I got to do an audible here before we
Speaker 2: let you go. And you know, we all know in
Speaker 2: academics that you are expert on Germany. Let's go back
Speaker 2: to June in nineteen sixty three, when time stop President
Speaker 2: Obama reducts JFK's unbelievable speech in the heart of the
Speaker 2: Cold War, not ready for my German Paul It. I
Speaker 2: nailed it, not even close. I got a D minus there,
Speaker 2: but the professor got hockey tickets, so it worked out.
Speaker 2: Adam Posen, you are expert on this. Is this a Germany?
Speaker 2: In this new Germany? With Conrad at an Hour and
Speaker 2: Villi Brandt, would they recognize it?
Speaker 5: They'd have trouble, and that's a good thing. They would
Speaker 5: have trouble imagining a Germany that pursues security without being
Speaker 5: totally reliant in the US. They would have trouble imagining
Speaker 5: a Germany that does use its fiscal capabilities more more
Speaker 5: than not. And they would have trouble with the Germany
Speaker 5: that explicitly is going to rearm. But I think it's
Speaker 5: the right move for Germany. I mean, you've seen the
Speaker 5: meme on Twitter Tom that Chancellor Chancellor Merits incoming. Chancellor
Speaker 5: Merits is shown with the big smartest face and then
Speaker 5: the blurb is when you realize you can borrow just
Speaker 5: like any other European country. You know, this is genuine progress.
Speaker 5: It's sad that it took the threat to NATO and
Speaker 5: the threat from Russia in the US to make it happen,
Speaker 5: But I think this is a genuine leap forward as
Speaker 5: opposed to previous Chancellor Schultz site and Benda changed changing time.
Speaker 5: This is the real one right now.
Speaker 2: Generous conversation, Thank you so much. Folks. Look at Chad
Speaker 2: Boone and the rest at Peterson Institute for terrific thought
Speaker 2: provoking essays in the chaos of where we are now,
Speaker 2: as we've been saying for days, if not weeks, in
Speaker 2: this chaos, the bomb market matters ball s the stock market. Yeah,
Speaker 2: that's simple. Yep.
Speaker 4: We got a pro in here joining us today, Bridge Kurana.
Speaker 4: He's senior managing director and fixed income portfolio manager at
Speaker 4: Wellington Asset Management. Joining us here on our Bloomberg and
Speaker 4: Arrector broker studio.
Speaker 2: Bridge.
Speaker 4: It talks about, first of all, what do you think
Speaker 4: of the CPI print? Came in a little bit lower
Speaker 4: than expected? What are you sing in the bond market?
Speaker 7: Yeah, so I'm just going through my notes right now.
Speaker 7: It was universally positive, I would say, so two things
Speaker 7: that we're concerning. Last time, core CPI if you take
Speaker 7: out shelter was almost point five percent month of a month,
Speaker 7: which was the highest it was in two years. That
Speaker 7: fell back down to point two percent, so that's good.
Speaker 7: And then core services, which was what the FED really
Speaker 7: cares about because that is tied to the labor market,
Speaker 7: that was point five percent as well. Last month, month
Speaker 7: of a month print that came down to point three
Speaker 7: percent month of a month, and that was driven largely
Speaker 7: by transport and airlines. But point being that, I think
Speaker 7: this is a welcome sigh of relief for the FED
Speaker 7: after that very spicy print. I can see why the
Speaker 7: stock market likes it, because I did think this is
Speaker 7: coming into this event, this was going to be one
Speaker 7: of the most impactful CPI prints in the last few years,
Speaker 7: just because of the equity volatility we've seen. And you know,
Speaker 7: the market has been somewhat buoyed by the fact that
Speaker 7: the market's now pricing in almost three cuts for the
Speaker 7: FED throughout the rest of the year. And so in
Speaker 7: my mind, it was a very important print, and you know,
Speaker 7: I'm not surprised stocks like it.
Speaker 2: That was brilliant except Wednesdays were note free at Bloombert Monday,
Speaker 2: Monday and Tuesday we got notes. Put the damn notes aside.
Speaker 4: So what even what have you been seeing in the
Speaker 4: bond market over the last several weeks of all this volatility,
Speaker 4: all the increased trade talk, the uncertainty to economic growth,
Speaker 4: the uncertainty as it relates to potential impacts on inflation,
Speaker 4: what's a bond market been saying?
Speaker 7: So you have definitely seen a decline in yields in
Speaker 7: the US in particular. Actually it's been much higher yields
Speaker 7: abroad you know, I think the US bond market is
Speaker 7: really responding to the uncertainty in the economy, the sudden
Speaker 7: stop you might see from whether or not it's tariff policy,
Speaker 7: but also immigration as well. And you know, but I
Speaker 7: think what's interesting to me is that I look at
Speaker 7: the intersector performance between cyclical stocks and defensive stocks. To me,
Speaker 7: it's been one of the best leading indicators for bond yields.
Speaker 7: You know, as the market's worried about the cyclical companies,
Speaker 7: then bon yields generally generally fall. And you know what's
Speaker 7: been interesting is is those stocks have been almost thirty
Speaker 7: five percent off their peaks cycles relative defensives and bond
Speaker 7: yields are still you know, about forty fifty basis points
Speaker 7: above where we were in August. And so it has
Speaker 7: been a notable decline in bond yields. I guess just
Speaker 7: given the uncertainty in the economic outlook, I would have
Speaker 7: thought it would have would have been more and particularly
Speaker 7: at the back end of the curve. Most of the
Speaker 7: move has been really repricing the FED, which, to be honest,
Speaker 7: you know, is this is welcome news. But and the
Speaker 7: market's pricing in three cuts rugh roughly. I think that's
Speaker 7: pretty fair, But you know, I'm not sure that there's
Speaker 7: gonna be a lot more than that.
Speaker 2: From December twenty two off the Bloomberg Fixed Income Corporate
Speaker 2: Total Return Index. What a recovery and price we have.
Speaker 2: I don't think it's nearly out there in the zeitgeist
Speaker 2: now at all that it's been price up, yield down
Speaker 2: for bonds. But we're not back to the price peaks
Speaker 2: that we saw COVID pre COVID, and we're certainly not
Speaker 2: back to the Great Moderation vector of success that bonds lived.
Speaker 2: Do you visualize out there just getting back to the
Speaker 2: peak of price that we had years ago, or can
Speaker 2: heaven forbid, get back to the Wellington Pimco vector that
Speaker 2: we saw in the Great Modervation? Can we see that
Speaker 2: much appreciation?
Speaker 6: You know?
Speaker 7: Well, I would say this, you know, it's been a
Speaker 7: really tough you know, returns for bonds over the last decade. Now,
Speaker 7: I think it's the worst performance for bonds over you know,
Speaker 7: a few decades, and on a rank.
Speaker 2: And nobody else will say that. I appreciate.
Speaker 7: Yeah, on a real basis, to an inflation adjusted basis,
Speaker 7: it's you know, you're back to the mid two thousands
Speaker 7: in terms of pilt returns for bonds.
Speaker 4: Now, what I.
Speaker 7: Think is is different right now is that, you know,
Speaker 7: we are in an environment where we've had so much
Speaker 7: fiscal stimulus since the pandemic. We got to all time
Speaker 7: low bond yields and now we've had running deficits of
Speaker 7: six to seven percent, and so the economy hasn't been
Speaker 7: very responsive to high interest rates because fiscal stimulus has
Speaker 7: been uncorrelated with the other parts of the economy. And
Speaker 7: so I guess the point I would make is is
Speaker 7: we do seem to be moving into an environment where
Speaker 7: fiscal stimulus is not going to be what it was
Speaker 7: in the last few years. And then you really bring
Speaker 7: up the question of whether or not, you know, our
Speaker 7: real policy rates are are real rates that different than
Speaker 7: they were, you know, before the pandemic, And I would argue,
Speaker 7: we're seeing less labor force growth, we're seeing you know,
Speaker 7: similar productivity growth than we saw pre pandemic. That means
Speaker 7: that the neutral rate for bonds is not that much
Speaker 7: higher than we really saw prior to the pandemic, even
Speaker 7: if we're in a higher inflation regime.
Speaker 2: Did you take notes on that even though note.
Speaker 7: Free, note free, there was no notes involved in that one.
Speaker 4: How much credit risk are you guys taking these station
Speaker 4: your portfolio and has that changed over the last several
Speaker 4: weeks and months.
Speaker 7: Well, you know, since I've come on your show last time,
Speaker 7: I think this is the first time that actually spreads
Speaker 7: are higher. I still think, you know, but they were
Speaker 7: coming off of very very low level. So high yield
Speaker 7: spreads are currently around three hundred and ten basis points.
Speaker 7: I think that's that's getting to be much more fair
Speaker 7: levels than we've seen. But once again, as I said,
Speaker 7: I think that the market's been really focused, and one
Speaker 7: of the reasons credit spreads have been so tight has
Speaker 7: been just this amount of fiscal stimulus. And I also think,
Speaker 7: you know, one you were talking about trade earlier. I
Speaker 7: do think there's this unappreciated aspect to trade and how
Speaker 7: much surpluses have been from abroad have really come into
Speaker 7: US assets, both in US equity markets and US credit markets.
Speaker 7: And so you know, if we're really trying to change
Speaker 7: that paradigm of lower trade deficits globally, that does mean
Speaker 7: it should mean higher risk premium when it comes to
Speaker 7: credit markets and lower equity valuations. As well, which is
Speaker 7: what we've started to see, you know, at least in
Speaker 7: the last month or so.
Speaker 2: Here's Carhana with us. Well, thank you for that fixed
Speaker 2: income discussion. That's really good about the ten year struggle
Speaker 2: that fixed income has had.
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: Apple Karplay and Android Auto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 2: David Sowerby front running Bloomberg Surveillance this morning with the
Speaker 2: Encorey Advisors, And David, you do the math. The average
Speaker 2: stock from its peak down twenty percent? David Sowerby, are
Speaker 2: we in a bear market?
Speaker 6: We're in a correction? For certainly, the market's down ten percent.
Speaker 6: I like to look at the averager median now it's
Speaker 6: coming close to a bear market. And if we throw
Speaker 6: in small and midcaps, the average stock is about twenty
Speaker 6: five percent off its own fifty two week high, and
Speaker 6: if you look at investor sentiment, it probably puts us
Speaker 6: pretty close to a correction slash bear market.
Speaker 4: So David, what are you telling your clients these days?
Speaker 4: Try to find the names you like because now you
Speaker 4: can get them at at a lower price. Or are
Speaker 4: we just kind of sitting on the sidelines here a little.
Speaker 6: Bit, Paul, Maybe this isn't the best CFA term, but
Speaker 6: you grind through it. The average intra year market sell
Speaker 6: off for the last seventy five years is about fourteen percent,
Speaker 6: so or right there or close enough. Now from a
Speaker 6: contrarian perspective, you can't call a market bottom. But when
Speaker 6: sentiment gets unduly bearish, and it's there now. If you
Speaker 6: look twelve months out, eleven out of the last twelve
Speaker 6: times it's gotten this parish, the market's higher, and the
Speaker 6: average return over the next twelve months is twenty percent.
Speaker 6: I don't know if it's going to be twenty percent,
Speaker 6: but I like those odds, knowing I make my most
Speaker 6: money when I run against the herd and I'm a contrarion,
Speaker 6: which is more what you need.
Speaker 2: To be today.
Speaker 4: What types of securities would you maybe dip your toe
Speaker 4: into and start looking at it this stage.
Speaker 6: It's always got to start with free cash flow on
Speaker 6: a valuation basis, free cash flow margin. Who's growing the
Speaker 6: dividend ten percent or better? If you look at the
Speaker 6: filings for the mutual fund I manage a travel name.
Speaker 6: Windom is off twenty percent from its fifty two week highs.
Speaker 6: And we're not talking about five hundred dollars a night
Speaker 6: midtown prices. We're talking about la Quinta's at one hundred
Speaker 6: dollars a night. It favors the middle market traveler when
Speaker 6: has a very strong balance sheet, good recent earnings numbers.
Speaker 6: There's a travel stock that's down twenty percent from it's
Speaker 6: fifty two week high. I think that's an example. But
Speaker 6: if you find the companies that are generating good free
Speaker 6: cash flow margin above twelve percent, that's a good starting point.
Speaker 2: David.
Speaker 4: We got some interesting and maybe troubling earnings news yesterday
Speaker 4: from a couple of industries. Won the airline industry, companies
Speaker 4: across the board cutting their forward outlook. We had a
Speaker 4: broad based retailer like Cohal's do the same.
Speaker 2: What's your view?
Speaker 4: That kind of reflects that maybe the consumer is weakening
Speaker 4: a little bit due to some of the recent uncertainties
Speaker 4: out there.
Speaker 2: How do you view the consumer, Paul?
Speaker 6: I think the addag in my career as an investor
Speaker 6: is that is never underestimate the health of the US consumer.
Speaker 6: That they defy gravity. And if you look at household
Speaker 6: balance sheets, what the average mortgage rate is at around
Speaker 6: four percent consumer free cash flow after they pay their bills,
Speaker 6: I think it's still a better than average time to
Speaker 6: be a consumer. What they don't like, what businesses don't
Speaker 6: like as well, is uncertainty.
Speaker 2: Yep.
Speaker 6: And that's an overused term in the last two weeks.
Speaker 6: But I was at an investment conference last week. Five
Speaker 6: hundred companies presented the ones I say it in on.
Speaker 6: Everybody got asked the tariff question. Eight out of ten
Speaker 6: said it leads to uncertainty and it's probably a hit
Speaker 6: directly or indirectly on earnings.
Speaker 2: David Sorby with us this morning with the enquirs, we
Speaker 2: continue all right now with them. A good conversation here
Speaker 2: and as you mentioned the Wyndham wh down the cap,
Speaker 2: we're not going to do apple with David. David, you
Speaker 2: have a vista like no one we speak to into
Speaker 2: Michigan and over to Windsor, Ontario, up into Ontario and
Speaker 2: then down the Mississippi River down into Kentucky, down the
Speaker 2: interstates as well. Translate the angst you see on our
Speaker 2: auto tariff war.
Speaker 6: The auto companies have been very specific to the administration
Speaker 6: that this is a bad policy. A hit violates the
Speaker 6: free trade agreement, whether it's NAFTA, US Mexico Canada Free
Speaker 6: Trade Agreement. It violates long term strategies for supply chains.
Speaker 6: The car companies are in much better shape today, Tom,
Speaker 6: because they are better capital allogators, better generators, are free cash.
Speaker 6: We're not helping them by instituting tariffs and what ultimately
Speaker 6: gets passed through to the consumer, and the number of
Speaker 6: weeks you'll have to devote income to to pay for
Speaker 6: a new car. It's not good for the manufacturing renaissance
Speaker 6: that's been taking place in my home state of Michigan
Speaker 6: for several years.
Speaker 4: Being in Michigan, David, give us a sense of just
Speaker 4: kind of what the folks up in that part of
Speaker 4: the country, how they're feeling about the trade. I guess
Speaker 4: we have to call it a war skirmish between the
Speaker 4: US and Canada. You guys are right geographically on the
Speaker 4: front lines.
Speaker 6: There may be the only guest in Bloomberg who can
Speaker 6: go south to Canada or Windsor Now. Now, no surprise,
Speaker 6: Michigan is the largest trading state with Canada, particularly Ontario.
Speaker 6: We're building this spectacular Gordy Howbridge from Detroit to Windsor.
Speaker 6: We'll have fewer passengers and freight hauling if we if
Speaker 6: we make these tariffs more permanent. It's just simply bad
Speaker 6: econ one win one. I wish the President would channel
Speaker 6: more Ronald Reagan or Bill Clinton and unfortunately not channel
Speaker 6: his Herbert Hoover when it comes to trade.
Speaker 2: David, give me an auto company or a manufacturing company
Speaker 2: down south of Detroit that you think has been pretty
Speaker 2: beat up right now, you mentioned Windham Okays Hotels. Great,
Speaker 2: but you know I'm thinking borg Warner, except borg Warner
Speaker 2: hasn't done anything for a decade. Give me. Give me
Speaker 2: an auto company gets sour be ready that's been beat
Speaker 2: to death.
Speaker 6: I think, though I don't own it, I think GM
Speaker 6: is interesting. GM had a very good investor day not
Speaker 6: too long ago where they talked about capital allocation, less
Speaker 6: cap x on evs, more growth, returning it to the shareholder,
Speaker 6: better free cash flow for GM. I know it's the
Speaker 6: biggest name of the group, but I think GM is
Speaker 6: doing some very good things from a capital allocation standpoint.
Speaker 2: Okay, that's great, and you know I get it from
Speaker 2: the from COVID. They're doing double digit return, They're up
Speaker 2: nineteen percent off the mat of COVID, but the tenure
Speaker 2: track record single digit. Do you see a new capital
Speaker 2: discipline there where we can look for nominal GD plus
Speaker 2: x beeps out of auto in Canada and America?
Speaker 6: You can if you if you adopt the right policy.
Speaker 6: And I think the car companies are much better at
Speaker 6: spending their free cash than they were when they were
Speaker 6: making silly acquisitions decades ago, and now more importantly returning
Speaker 6: cash to the shareholder, either with buybacks or dividend growth,
Speaker 6: where maybe too much cap X was thrown into autonomous
Speaker 6: vehicles and electric vehicles, which consumers are reluctant to buy.
Speaker 4: Tom. We're getting close to the opening day, which means
Speaker 4: we have to ask David Sowery about the Atlanta Braves
Speaker 4: and investing in the Atlanta Braves top. David, what do
Speaker 4: you think?
Speaker 6: Well, it's a name I gave you a couple of
Speaker 6: weeks ago. We still own it. It's the John Malone
Speaker 6: spin out. Like so many successful John Malone spinouts, he's
Speaker 6: been buying the stock. It's not just the team, it's
Speaker 6: the franchise, it's the stadium, it's mixed use retail. It's
Speaker 6: a small cap under followed stock, and I've always thought
Speaker 6: that you make your best money in under followed, spin out,
Speaker 6: small and campstocks.
Speaker 2: David Sawerby, thank us so much for the enquirps. Appreciate
Speaker 2: that note, particularly earlier this morning that we saw from
Speaker 2: David Sawerby on the average SMP from its individual peak
Speaker 2: is down twenty percent as well.
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, joining star.
Speaker 2: Kelly Cox to get the markets open. Here, we'll come
Speaker 2: back with her as well. Chief market strategist Rid OL's
Speaker 2: Wealth Management Kelly. I can't stand you write a research
Speaker 2: note which I'm forced to read. It's so smart, and
Speaker 2: the problem I got is you break down this idiocy
Speaker 2: around the two hundred day moving average, which I don't
Speaker 2: believe in, folks, Just so you got it. What do
Speaker 2: we get wrong about in the media about the certitude
Speaker 2: of analyzing the two hundred day moving average.
Speaker 8: Well, Tom, I'm on the other side. I actually think
Speaker 8: that there is some signal around the two hundred day.
Speaker 8: And I want to be clear, I'm not a technician.
Speaker 8: I don't look at many lines on charts, but when
Speaker 8: you're looking at the major moving averages, there has been
Speaker 8: a lot of resistance and support around the two hundred day,
Speaker 8: especially in selloffs, and unfortunately we broke it. We actually
Speaker 8: broke it on Monday. So I call it the danger zone.
Speaker 8: I think that might be a little dramatic at this
Speaker 8: point because I'm trying. I would love to see the
Speaker 8: stock market or the S and P reclaim that, but
Speaker 8: for the moment, now that we are below the two
Speaker 8: undred day, I'm a little more worried about where.
Speaker 2: This could go.
Speaker 4: Times. You may recall Calli as a proud graduate of
Speaker 4: the University of North Carolina and her tar Heels are
Speaker 4: playing today against Notre Dame in the ACC Tournament at
Speaker 4: two thirty, So if you're planning on getting in touch
Speaker 4: with Callie around that time, she may not be a
Speaker 4: mill Calli.
Speaker 8: Yeah, I knew this was coming. I knew this was coming,
Speaker 8: and these are important games. We got to make it
Speaker 8: to March.
Speaker 4: Madness got to make it so yeah, and I think
Speaker 4: the networks went North Carolina there as well. CALLI the
Speaker 4: last several weeks on this selloff here hasn't seemed orderly
Speaker 4: to you, reasonable to you part of a maybe a
Speaker 4: healthy pullback in a market that maybe wants to work
Speaker 4: higher if earning's come through. How do you think about
Speaker 4: the last couple of weeks of training.
Speaker 8: I think it has been a bit orderly, but in
Speaker 8: a disorderly way. And what I mean by that is
Speaker 8: that we've seen the bulk of losses in tech stocks.
Speaker 8: I mean, tech coming into this year has had an
Speaker 8: extounding two year run, which was great. You know, if
Speaker 8: you're a tech investor, you were happy up until the
Speaker 8: beginning of this year. But we've seen a lot of
Speaker 8: those textures that have done so well roll over in
Speaker 8: the past few weeks. And to me, that says that
Speaker 8: there's a bit of a cooling off here. It's not
Speaker 8: necessarily the sell off we're seeing as a necessarily a
Speaker 8: reflection of fundamentals. But at the same time, what worries
Speaker 8: me is that we are seeing some weakening and some
Speaker 8: cracks widening in the job market. So in a way.
Speaker 8: I like the fact that this has been a little disorderly.
Speaker 8: And again I'm not I don't love a sell off
Speaker 8: where you know, are sore turning and our anxiety is rising.
Speaker 8: But the fact that it's been a little uneven has
Speaker 8: comforted me a bit.
Speaker 2: I remember the comedy of we're in an intermediate bullmarket
Speaker 2: or intermediate trend and all that. Kelly Cox, have we
Speaker 2: broken the bullmarket? I don't you know. I'm not hearing
Speaker 2: that within the zeitgeist is the bullmarket over.
Speaker 8: I don't think you can say that until we see
Speaker 8: layoff surge definitively, Because I mean, Tom, you're an order
Speaker 8: of history like I am. You know that barrel markets
Speaker 8: often overlap with economic recessions, and if you're waiting for
Speaker 8: a recession, you need to watch for signals in the
Speaker 8: job market. And I don't quite I don't think we're
Speaker 8: seeing that yet, even though the trend is turning that way.
Speaker 8: You know, we might be where we were several months ago,
Speaker 8: where hiring is coming down, but companies may hold on
Speaker 8: to workers not necessarily lay them off.
Speaker 4: In mass Kelly, one of the questions is do we
Speaker 4: buy the dip? And I saw a city they're trading
Speaker 4: us out with their note. They're saying, don't buy the dip.
Speaker 4: But it was almost between the lines. Just yet, we're
Speaker 4: not quite there. How do you guys think about it?
Speaker 8: Well, we serve long term clients as at Hold, so
Speaker 8: our job is a little bit easier here. I mean,
Speaker 8: over time, we've seen over and over again that dips
Speaker 8: it's been smart to step in and buy the dips,
Speaker 8: especially around this negative ten percent correction level. But again,
Speaker 8: our clients are looking for over years and years and years,
Speaker 8: and of course we believe that the story for the
Speaker 8: US economy can still thrive because markets ultimately grow on
Speaker 8: earning's economy and innovation. But at this moment, if you're
Speaker 8: looking over the next week or month or so, I
Speaker 8: would get a little more defensive.
Speaker 2: Here.
Speaker 8: We're still trying to figure out what this policy story
Speaker 8: could look like. We're trying to figure out the extent
Speaker 8: of the job market damage. We got data today is
Speaker 8: showing inflation is still quite tame. I just wouldn't try
Speaker 8: to be a hero in this environment. I wouldn't be
Speaker 8: the one trying to make big bull trades.
Speaker 2: You say you've got a long term perspective, Kelly as
Speaker 2: well helping here with the utilization of bonds. We've got
Speaker 2: people saying, finally, bonds here value, do you buy it?
Speaker 2: Or does equities? Is there still enough growthiness inequities?
Speaker 8: Well, I think at this moment again, if you're looking
Speaker 8: over the coming weeks and months, you'll probably find some
Speaker 8: comfort in buying up those quality bonds. Right I'd say
Speaker 8: we're in a classic growth scare right now. We haven't
Speaker 8: seen a full slate of data that proves that. You know,
Speaker 8: we're in a full blown economic crisis, but the trends
Speaker 8: are turning the wrong way. And when you're in an
Speaker 8: economic downturn, treasuries are the classics sanity hedge, and they've
Speaker 8: proven to be that during this growth scare. So within
Speaker 8: the fixed income market, look at quality, maybe look a
Speaker 8: little bit longer term. We haven't seen that hedging activity
Speaker 8: be as strong as it has in past growth scares.
Speaker 8: But at the same time, you know, treasuries have risen
Speaker 8: on the back of the cell off.
Speaker 4: So kell, how do you think about valuation here? Again,
Speaker 4: we've had this a little bit of a correction. You're
Speaker 4: roughly a ten percent pull back in y s and
Speaker 4: P five hundred. Is there a valuation call to be
Speaker 4: made here or you don't even kind of go there again.
Speaker 4: And I know you guys are long term, but a
Speaker 4: lot of folks should. They tend to look for some
Speaker 4: entry points, and evaluation is one of the data points
Speaker 4: they look at.
Speaker 8: Right I think valuation matters a little bit less in
Speaker 8: this environment, and valuation matters, but you have to view
Speaker 8: it in context. I mean, right now, the S and
Speaker 8: P's valuation is still quite high historically, but a lot
Speaker 8: of that is because we've seen TEX shares do so
Speaker 8: well over the past two years, and unsurprisingly they're the
Speaker 8: part of the market that's been selling off the hardest.
Speaker 8: So I think if you're taking any lessons from valuation here,
Speaker 8: it's to, you know, look toward those stocks that are
Speaker 8: a little more fairly valued in this environment, stocks that
Speaker 8: hug their earnings a little bit closer than you know,
Speaker 8: the tech and growth shares of the world. We believe
Speaker 8: in value a lot at rid Holts because we try
Speaker 8: to prioritize stability and consistency. But I think right now,
Speaker 8: the lesson is, you know, not to take valuation at
Speaker 8: its face, but to look within your portfolio and understand
Speaker 8: where there are valuation differences.
Speaker 2: Kelly, thanks so much, Kelly Cox. Rid Holts manages to
Speaker 2: greatly appreciate it.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Coarclay, 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: This is an important conversation right now. Leland Miller has
Speaker 2: been a little busy. He's a China beaige book and
Speaker 2: he has been advising on China economics to the Trump administration.
Speaker 2: In a broad sense. He's not able to talk about
Speaker 2: those specifics, but we're thrilled he could be with us today. Leland,
Speaker 2: you are adult at guessing China GDP. Is it a
Speaker 2: legit five percent? Absolutely not, But it doesn't matter.
Speaker 9: I mean, you know, they come out with the numbers
Speaker 9: and say it's you know, whatever numbers they have, and
Speaker 9: they say it's five percent. The market buys it. You
Speaker 9: get two op eds from somebody saying we're skeptical. We're skeptical,
Speaker 9: but each and every day time, the market basically buys
Speaker 9: whatever they put out, regardless of the evidence. So we're
Speaker 9: going to see more of that into the future.
Speaker 2: Are we going to see more tip for tat within
Speaker 2: a zero sum economics that we will definitely see.
Speaker 9: I mean, we were entering trade war time. Obviously, there's
Speaker 9: tariffs coming from every direction, and I think it's important
Speaker 9: to to separate what's happening with China from what's happening
Speaker 9: with the rest of the world, because I think there's
Speaker 9: a different discussion around economic imbalances in China, which which
Speaker 9: are not even the focus of the current tariff. So,
Speaker 9: you know, there's a there's a Mexico Canada strategy that
Speaker 9: they're working on, there's a broader world strategy in terms
Speaker 9: of restructuring economic relationships and in figuring out the you know,
Speaker 9: lessening the trade surplus. And then there's China. And I
Speaker 9: think the China discussion is the one that we've yet
Speaker 9: to have, and it's going to go to several different directions.
Speaker 9: Whether it's you know, Trump going to to China at
Speaker 9: first trying to get a trade deal and then going
Speaker 9: another direction. We don't know yet, but that but that's
Speaker 9: what that's the one that's to come.
Speaker 4: Leland, how do you think China views a potential trade
Speaker 4: work with the US. Do they feel like they have
Speaker 4: leverage here? Position of strength? How do you think they
Speaker 4: view it?
Speaker 9: They definitely don't have a position of strength, But I
Speaker 9: think they're in better position than they were last time around.
Speaker 9: I think all the announcements that we've heard for what
Speaker 9: the last six eight months from Beijing about bigger fiscal stimulus,
Speaker 9: more monetary firepower. You know, there's a lot of people
Speaker 9: who said, oh, look, you know, big things are going
Speaker 9: to happen to the Chinese economy because of that. None
Speaker 9: of that has actually happened. You know, if you look
Speaker 9: at what this is all getting ready for a worst
Speaker 9: case scenario with Trump, and so they're ready to do
Speaker 9: bigger fiscal spending. They're ready to use the monetary spigots
Speaker 9: that they need to in a smaller way. We're not
Speaker 9: talking about the Bazuka unless it's a break the glass emergency,
Speaker 9: and so they're getting ready. They haven't done much yet,
Speaker 9: but I think that they're prepared in a way they
Speaker 9: weren't last time.
Speaker 2: If things get.
Speaker 4: Really bad, Leland, I kind of look at some of
Speaker 4: these big Chinese technology I'll use Ali Baba as an
Speaker 4: example of sixty five percent year to eat. I use
Speaker 4: that as kind of a proxy for how Western investors
Speaker 4: look at China. Is there reason to be optimistic here
Speaker 4: about China looking at a stock like Ali Baba.
Speaker 9: Well, I think you're right that that's how a lot
Speaker 9: of people use it. That wouldn't be my lens. I
Speaker 9: think that you could have a couple of companies in
Speaker 9: the tech sector doing really well, the deep seeks, they
Speaker 9: Ali Baba's, you know, the ten cents, whatever it might be,
Speaker 9: and those stocks are going up, and people are excited
Speaker 9: about Ai proliferating around around China. That has absolutely no
Speaker 9: correlation with broader stocks, and the broader stock market has
Speaker 9: no correlation whatsoever with the real economy. So you can
Speaker 9: see some companies doing better. I don't think that has
Speaker 9: anything to do with the Chinese economy red large, even
Speaker 9: if investors want that to be a signal for you.
Speaker 2: On your community. This Morning across this Nation, Good Morning
Speaker 2: Canada as well. Leland Miller China Beige Book, an extended
Speaker 2: conversation you're specifically trans Pacific on YouTube. Good Morning, Good
Speaker 2: Evening across the Pacific. We're out at Bloomberg Podcasts. Subscribe
Speaker 2: to Bloomberg Podcasts Leland Miller educate us on the nonsense
Speaker 2: of bilateral art make a deal negotiations. We are multilateral.
Speaker 2: I studied at the altar of William Klein at the
Speaker 2: Peterson Institute. Let's just take Vietnam. How does Vietnam fold
Speaker 2: into our nonsensical bilateral debates.
Speaker 9: Well, I think by nonsensical what you're referring to is
Speaker 9: the obsession by some over bilateral trade deficits. And the
Speaker 9: problem with that is you can have restrictions against one country,
Speaker 9: but what you're really worried about is what the grands,
Speaker 9: the grand totality of all the trade flows are. So
Speaker 9: if you know if you have if you have restrictions
Speaker 9: on China, and China is setting things to Vietnam and
Speaker 9: Vietnam to the United States and it balances somehow, then
Speaker 9: then that's much less of a worry than if you
Speaker 9: have a situation where you have amounting trade surplus overall. So,
Speaker 9: because this is becoming very important because we're in an
Speaker 9: era of tariffs, We're an era of transhipping around tariffs.
Speaker 9: We're in an issue in which the more we go
Speaker 9: at China, the more they're going to be setting up
Speaker 9: shop in third party countries. So it's it's very important
Speaker 9: people understand that there shouldn't be too much of an
Speaker 9: obsession with bilateral trade flows. You can watch it, but
Speaker 9: it's the multilateral situation's the vitality that's really important.
Speaker 2: Leland.
Speaker 4: Do you think President She would welcome a meeting with
Speaker 4: President Trump face to face to talk about broader trade issues,
Speaker 4: maybe just issues outside of economics. Is that something you
Speaker 4: think could happen in the next I don't know, six
Speaker 4: months or so.
Speaker 2: Yeah.
Speaker 9: I know will welcome it because he's been sending signals
Speaker 9: to many of us in the in the in the
Speaker 9: in the business community here in the United States that
Speaker 9: that that there all systems go. They want to talk.
Speaker 9: So yes, I think they want to talk very badly.
Speaker 9: But the preconditions on that will be you can't bear
Speaker 9: us as you can't surprise us. We need to know
Speaker 9: what's in store for the next six months so that
Speaker 9: President She doesn't walk into a trapt. So there are
Speaker 9: preconditions on the meeting.
Speaker 2: Leila Miller, I want to trades delicately here, but I
Speaker 2: think it's an important conversation for this nation. This morning,
Speaker 2: Trump one was a light heeiser trade made out of
Speaker 2: the crucible of Robert Leittheiser's brutal childhood in Eastern Ohio.
Speaker 2: He saw Eastern Ohio crushed. What is Trump too trade
Speaker 2: theory compared to what it was in Trump won?
Speaker 9: Well, I think Trump trade theory is very similar. I
Speaker 9: think Trump trade practice is diverging a little.
Speaker 2: Bit from the theory so far.
Speaker 9: Look the first term, it's correct, it was very different
Speaker 9: in a lot of ways than this Trump second term.
Speaker 9: And that Trump was constantly looking for victories. You know,
Speaker 9: he renegotiated NAFTA, he renegotiated Chorus, he negotiated a trade
Speaker 9: deal with with China. These were victories. He was using
Speaker 9: tariffs for the most part as negotiating leverage towards an outcome.
Speaker 9: The goal in the second term is very different, and
Speaker 9: markets have refused to believe this. They they've they've you know,
Speaker 9: maybe they do now with the market doing what it's doing.
Speaker 9: But the Trump administration and the President himself, wants to
Speaker 9: restructure economic relationships in a lasting way. He wants to
Speaker 9: shift the whole paradigm and so set up a wall
Speaker 9: around the United States, cut taxes for domestic manufacturers uh
Speaker 9: and incentivize industries to come home. And so because of this,
Speaker 9: there is much more of an intention to go at
Speaker 9: all these different blocks and countries and go after trade
Speaker 9: surplus countries and try to write the economic relationship and
Speaker 9: bring some of these industries back home. So the idea
Speaker 9: is much bigger than than Trump term one. This is
Speaker 9: this is something they want to leave a legacy on
Speaker 9: in terms of just redefining the way America does business
Speaker 9: around the world.
Speaker 4: And Leland, is there a valid concern that someone marketplace
Speaker 4: are reflecting today in asset prices, that that policy that
Speaker 4: you just articulated, uh may result in slower economic growth
Speaker 4: and certainly higher inflation.
Speaker 9: This is something that that that that we've spoken about
Speaker 9: a lot. People are usually binary on this. If you
Speaker 9: put tariffs in place, it's a disaster. If you put
Speaker 9: tariffs in place, it's fantastic, you know, and usually onto extremes.
Speaker 2: Neither of those is right.
Speaker 9: You can you can have tariffs in a certain in
Speaker 9: certain circumstances in different regimes, but you have to seek
Speaker 9: with them right. So you have to make sure that
Speaker 9: you're not going you know, you if you don't want
Speaker 9: prices to rise, you have to have substitutability. If you want.
Speaker 9: If you want things to be gradual and there not
Speaker 9: to be a market reaction, then you can't go at
Speaker 9: rival production centers and hike tariffs, you know, at both
Speaker 9: of them at the same time. You need to have
Speaker 9: an out. I think what's worrying markets right now is
Speaker 9: if Trump is really trying to have a trade policy
Speaker 9: that changes all these economic relationships around the world, especially
Speaker 9: via tariffs.
Speaker 2: There needs to be a.
Speaker 9: Place where it's foundational place to build, and that has
Speaker 9: traditionally been the new U S MCA countries. It hasn't
Speaker 9: just been the United States. I think this antagonism with
Speaker 9: Mexico and Cana has gotten people worried that prices are
Speaker 9: going to rise because there you can't just bring everything
Speaker 9: home to the United States.
Speaker 2: I'm the leakage. I sound like Steve Roach a million
Speaker 2: years ago, the external externalities and the leakage out of
Speaker 2: a constructed Trump system of trade. Leland Miller isn't the
Speaker 2: singular leakage diminished economic growth that one day flips to
Speaker 2: a deflationary or at least disinflationary vector.
Speaker 9: I don't think anything is baked in. I think all
Speaker 9: of it's about having a strategy and then sequencing it right.
Speaker 9: So you know, if you look at the EU, everyone's
Speaker 9: panicked about how we're going to go to war with
Speaker 9: the EU if this was if this is done in
Speaker 9: a very sensible way, and you know the end result
Speaker 9: of this is that Germany is pressured into releasing the
Speaker 9: It's fiscal breaks that use spending more, it's defending itself more,
Speaker 9: it's funding more innovation, it has a broader capital marketing,
Speaker 9: and people are going to be looking back at a
Speaker 9: couple of years and saying this is a net win
Speaker 9: for the United States and a net win for Europe.
Speaker 9: Now that doesn't mean how it's going to be executed.
Speaker 9: It's going to work that way, but in theory there
Speaker 9: you know this, there's no there's no necessarily bad outcome here.
Speaker 2: Leland, thank you. Let's do it tomorrow. L Chavas book
Speaker 2: greatly appreciated.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each
Speaker 1: weekday seven to ten am Easter and on Bloomberg dot Com,
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
Speaker 1: You can also watch us live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal