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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App.

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: Dominating constem with a holistic view on the economy, Your

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Speaker 2: note is breathtaking pushing against the gloom is a regime

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Speaker 2: of lower rates from within the ambiguity of all those dynamics.

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Speaker 2: Is it a positive trend of lower rates or a

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Speaker 2: grim tend of lower rates?

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Speaker 3: Well, I think the idea is the economy is under

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Speaker 3: a transformation thanks to the policy of the new administration.

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Speaker 3: That transformation involves basically rebalancing away from the consumer, if

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Speaker 3: you like, towards investments and nests, exports.

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Speaker 4: And what goes with that.

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Speaker 3: Actually, first of all is a weaker real exchange rate,

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Speaker 3: a weaker real effective exchange rate for the dollar. And

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Speaker 3: then as regards interest rates, it's sort of like not

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Speaker 3: necessarily lower or higher, however, it is steeper in terms

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Speaker 3: of real terms to real rates. So the idea is

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Speaker 3: that in the end we're going to have a very

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Speaker 3: low real funds rate and a relatively elevated if you

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Speaker 3: like long term real rate. And so when you ask

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Speaker 3: the question, our rates lower, there's a pivot point and

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Speaker 3: the answer is yes at one end, but not necessarily

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Speaker 3: at the other.

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Speaker 5: I hate you you send in a thirty six page

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Speaker 5: power point.

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Speaker 2: Nothing's changed since you and Irah Jersey at credits we

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Speaker 2: few years ago. What is a distinctive slide in your

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Speaker 2: thirties six page PowerPoint?

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Speaker 5: What's the one our listeners and viewers need to hear about.

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Speaker 3: Well right now in terms of the evolution of the

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Speaker 3: economic outlook, the main point is that inflation is relatively

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Speaker 3: benign now and if anything, it could actually go down

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Speaker 3: a little bit more in the next quarter or two. However,

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Speaker 3: there's a lot of risk that inflation actually goes back

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Speaker 3: up again at the end of next year. So the

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Speaker 3: idea is that the FED has a window to cut rates.

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Speaker 3: So our sort of mantra is cut and rais the

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Speaker 3: FED should be cutting rates suggressively. I don't disagree with

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Speaker 3: Stephen Myron. However, they need to be prepared to raise

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Speaker 3: rates at the end of next year, if not in

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Speaker 3: twenty twenty seven, which sounds a little odd, but that's

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Speaker 3: kind of the nature rates. Get them down and you

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Speaker 3: may have to take them back up again.

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Speaker 2: You mentioned mister Myron in my conversation with Waller of

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Speaker 2: Bemidji in Washington State. Does Dominic Constant have a favor

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Speaker 2: to be FED Chairman?

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Speaker 3: Well, I sort of feel risk reward in terms of

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Speaker 3: giving some sort of confidence at the long end, sort

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Speaker 3: of favors someone like Kevin Walsh. I would think, I know,

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Speaker 3: I mean, I think a Hasset would be would be

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Speaker 3: fine too. I just think some of the ideas that

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Speaker 3: you know, the FED needs to have a radically different,

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Speaker 3: you know, different approach.

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Speaker 4: I'm not not sure you know that that's going to.

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Speaker 3: Serve the administration very well right in terms of long

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Speaker 3: term interest rates having.

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Speaker 2: Get one more in Isabelle's ready to go? The answer

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Speaker 2: is and Waller was big on British descent. You've lived

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Speaker 2: the descent of the United Kingdom. There were fistfights at

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Speaker 2: Cambridge when custom was was there. Should we have a

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Speaker 2: more fractious FED dialogue like the Bank of England.

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Speaker 3: I mean, doesn't doesn't hurt having friction among the different members?

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Speaker 3: Absolutely not. I mean, but you know, at the end

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Speaker 3: of the day, that they need to. I think absolutely

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Speaker 3: they need to retain inflation credibility, and to do that

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Speaker 3: you probably want a more U fide approach around that.

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Speaker 5: Daminic Houston with US of Mizio this morning, here's Isabelle.

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Speaker 6: Isabelle, let's talk about your big, big thesis, three percent

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Speaker 6: FED funds rate before Powells term ends, and that's a

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Speaker 6: bold call a special win. Market pricing are still hesitant

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Speaker 6: when it comes to aggressive easing. What's the key catalyst

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Speaker 6: for the FED to speed things up?

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Speaker 2: Then?

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Speaker 3: Well, I mean, clearly the balance of risks has shifted

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Speaker 3: in terms of the labor market. And I think the

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Speaker 3: thing that I look at that i'm sort of I

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Speaker 3: find very compelling is if you look at the unit

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Speaker 3: profit data for corporate America, and this is kind of

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Speaker 3: domestic corporate America. We're not talking about SMP, of which

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Speaker 3: half of it is sort of international. We're talking about domestics.

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Speaker 3: There is absolutely no pricing power for domestics and you

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Speaker 3: see that in the data, very very little.

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Speaker 4: And that means that.

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Speaker 3: All of the cost pressures that come from say tariffs,

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Speaker 3: that they're being absorbed effectively, and that leads to other

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Speaker 3: forms of cost reduction, which is really in the labor market.

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Speaker 3: So it's all very well to say that, yes, you know,

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Speaker 3: job creation is lower because you know of the immigration

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Speaker 3: thing of reversing, et cetera. But at the end of

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Speaker 3: the day, companies are being obliged to cut unit costs

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Speaker 3: where they can, and that is on the labor side.

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Speaker 3: And the risk clearly is that what is currently a

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Speaker 3: weaker aggregate ours worked. Clearly, the riskers are going to

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Speaker 3: be laid off at some point, and we have.

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Speaker 6: Lauri Logan floating removing the FED funds target entirely. And

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Speaker 6: you seem to agree, what's the argument.

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Speaker 3: There, Well, that's a brilliant question topic and it's very interesting, and.

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Speaker 2: I'm saying my questions, yeah, continue with well after something

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Speaker 2: out there, just you know, basically, not a lot of

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Speaker 2: people are buying treasuries, Let's be honest.

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Speaker 3: And there's a lot of treasures supply out there. And

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Speaker 3: when I say not a lot, it's obviously foreign demand

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Speaker 3: seems to be waning from the traditional sources. Banks are

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Speaker 3: buying more treasuries. There's definitely a whole push to get

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Speaker 3: banks to buy even more through deregulation, but the big

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Speaker 3: treasury owners believe not are.

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Speaker 4: Through the basis trades.

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Speaker 3: It's obviously showing up in terms of a non bank

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Speaker 3: financial entity that are buying a lot of treasures. And

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Speaker 3: in a way, you know there's nothing less say wrong

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Speaker 3: with her because you know there's a liquidity risk, but

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Speaker 3: there's no sort of duration risk. They might eventually be

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Speaker 3: credit risk, but you know, why not have you know

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Speaker 3: that expanding If Laurie Logan goes out and gets sort

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Speaker 3: of the funds targets and targets repo, you actually take

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Speaker 3: away a big sort of liquidity concern for the HESH

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Speaker 3: funds that are doing this trade. And in a way

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Speaker 3: it might be another avenue by which you get a

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Speaker 3: lot of treasuries absorbed in non traditional areas and you

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Speaker 3: don't need to rely on the Chinese, for example, all

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Speaker 3: the Japanese to buy our treasuries.

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Speaker 2: Dominic Caustim with us, and we continue here he's with

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Speaker 2: the Miszoo and extended conversation.

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Speaker 5: For Global Wall Street Isabelle Lee.

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Speaker 2: I have real trouble with the Meyron certitude and others.

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Speaker 2: Given the Newtonian plug and chug of the tailor rule.

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Speaker 2: We really don't know our start. I told Wili. There's

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Speaker 2: two our starts for this split torn as under America.

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Speaker 2: We don't know the output gap. How blind are we

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Speaker 2: Dominique right now?

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Speaker 4: Well, I think we're always fairly blind.

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Speaker 3: But the best way to discover neutral rates is always

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Speaker 3: is the way.

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Speaker 4: You know.

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Speaker 3: It's like driving the truck and you sort of know

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Speaker 3: the you sort of vaguely know the direction, you know

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Speaker 3: the speed, and you think you're going to know where

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Speaker 3: it's going to end up, and if it doesn't, you recalibrate.

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Speaker 3: That's how our star is basically calculated. So basically, if

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Speaker 3: you cut rates, you know, down to say two percent,

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Speaker 3: instead of leaving him around three or three and a half,

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Speaker 3: then you'll know whether neutral rate is substantially higher after

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Speaker 3: the event. But you know it's a little bit hid

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Speaker 3: and missed, but you can you'n always raise rates if

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Speaker 3: you need to, And that's kind of how I would

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Speaker 3: see it. So the balance of risk kind of tells

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Speaker 3: you you should do more. And then, let's be honest,

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Speaker 3: there's another side to the interest rates story, which isn't

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Speaker 3: just about calibrating interest rates perfectly for the labor market

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Speaker 3: or even inflation. There is a side of this rather

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Speaker 3: nasty sort of debt service sort of spiral with the deficit.

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Speaker 3: You kind of you are obligated to some extent, say, look,

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Speaker 3: have shorter rates and let's maybe finance more.

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Speaker 2: Can I go mathy? Let's go mathy and debt service?

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Speaker 2: How nonlinear is it? I mean, if it's an accelerate

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Speaker 2: through a higher yield. Do you have in your head

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Speaker 2: where we lose the linearity of the calmness of debt

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Speaker 2: service all of a sudden boom?

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Speaker 3: Yeah, absolutely, it gets very nonlinear. You in take Japan,

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Speaker 3: I mean, Japan has short rates in thirty years time

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Speaker 3: that are like six percent.

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Speaker 4: I mean that's crazy.

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Speaker 3: I mean they blow themselves up completely if that were

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Speaker 3: to be realized. And that's in the forward markets. You

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Speaker 3: take countries like France, I mean, they have big issues

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Speaker 3: at the moment.

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Speaker 4: The US does not.

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Speaker 3: The US is not quite as bad as that, but

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Speaker 3: it could be as bad as that if it's not careful.

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Speaker 3: So it must get on top of the debt service,

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Speaker 3: especially if it's finding it too hard to cut the

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Speaker 3: deficit in other ways.

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Speaker 7: What about when it comes to tariffs.

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Speaker 6: Your read seems to be the tariffs are being absorbed

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Speaker 6: quietly for now, we have profit margins weakening, but prices

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Speaker 6: staying benign. What will happen though, when consumers run out

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Speaker 6: of purchasing power?

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Speaker 3: So well, first of all, I mean consumers obviously have

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Speaker 3: taken a bit of a hit on tariffs. I mean

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Speaker 3: clearly consumptions running in a few hundred billion below let's

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Speaker 3: say trend, but not nearly enough to be pushed into recession.

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Speaker 3: One thing to bear in mind is we've only really

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Speaker 3: had half of their potential tariffs we might get. You know,

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Speaker 3: the China truce is extremely important, and if it continues,

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Speaker 3: and then that's that's the sort of good thing from

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Speaker 3: that perspective. So I think the only other the main

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Speaker 3: thing though, is really that profit margins are so large

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Speaker 3: in the US and the domestic you know, US sort

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Speaker 3: of economy. They were large when COVID because of egregious

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Speaker 3: sort of you know, pricing power if you like, that,

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Speaker 3: companies were able to sort of extract really because of

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Speaker 3: the fiscal stimulus. And in a funny way, what the

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Speaker 3: tariffs are doing is by forcing these companies to absorb

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Speaker 3: them rather than pass them on to consumers.

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Speaker 4: It's really that the federal government.

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Speaker 3: Taking the money back that they indirectly gave to a

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Speaker 3: corporate America via the consumer and that egregious pricing. So

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Speaker 3: there's a there's a there's a nice little holistic world

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Speaker 3: that's going on and I and that's why we don't

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Speaker 3: don't actually think we'll go into recession, even even though

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Speaker 3: obviously with the risk of the label market we can

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Speaker 3: perhaps avoid it.

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Speaker 5: Dominic Coust to Missoua.

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Speaker 2: We continue with them, thrilled that he could join us

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Speaker 2: today working with Stever Shuttles, surviving Stever Shuttle's brilliant dissection

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Speaker 2: of American GDP on a daily basis. We welcome all

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Speaker 2: of you worldwide, particularly Global Wall Street in India, in

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Speaker 2: America and the Pacific RIM in the continent of.

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Speaker 5: Course as well. I want to go back to the.

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Speaker 2: Transfixedness of your work with ira at Credits sweee years ago,

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Speaker 2: and you guys owned the chart of how Wall Street

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Speaker 2: was so wrong modeling out higher rates. It's going to happen,

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Speaker 2: these little fan We had a time series, folks with

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Speaker 2: little feathers of how wrong we are right now? What

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Speaker 2: does that chart look like right now? What is the

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Speaker 2: best on Wall Street that once again will be wrong?

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Speaker 3: Well, the current bett on mall Street is that the

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Speaker 3: FED is cutting, but it's cutting let's say, relatively slowly,

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Speaker 3: and doesn't really get to a terminal rate of three

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Speaker 3: percent or so until the second half next year. So

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Speaker 3: where we think the risk reward there is that the

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Speaker 3: FED does end up cutting more aggressively and you bring

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Speaker 3: that forward, so you basically sort of have a sort

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Speaker 3: of more aggressive if you like, you know, flattening out

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Speaker 3: of the forward short rates. But then where it kind

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Speaker 3: of gets I would argue, you know, wrong again, is

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Speaker 3: when you get into twenty twenty seven, where you have

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Speaker 3: an unusual sort almost a flat lining of the funds rates,

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Speaker 3: Like once they come down, they stay down. So not

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Speaker 3: only do they not you know, not come down far enough,

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Speaker 3: but the very fact that they're staying down for that

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Speaker 3: prolonged period seems to me, sorry, incorrect.

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Speaker 2: Are you suggesting that we need to get away from

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Speaker 2: two point zero percent target and that we're going to

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Speaker 2: have a new central bank regime in twenty seven, twenty eight,

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Speaker 2: twenty nine, which is a new set higher.

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Speaker 3: Yeah, I think the I think in the it it

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Speaker 3: kind of depends on what the administration wants to do

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Speaker 3: about inflation.

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Speaker 4: I mean, whether they tolerated or not.

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Speaker 3: So I think in a conventional way, if they tolerate

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Speaker 3: same inflation up around four percent for a while, and

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Speaker 3: they do that because of say the debt service things,

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Speaker 3: then you will have a lot of christ are you model?

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Speaker 2: I'm going to make some news here Isabelle needs news?

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Speaker 2: Are we modeling four percent inflation?

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Speaker 4: One of my very one of my models?

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Speaker 3: And I'm very proud of models four percent core CPI

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Speaker 3: and rising in twenty twenty seven?

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Speaker 7: Yes, Wow, that's a headline for me there. What about?

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Speaker 8: Okay?

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Speaker 6: So then the market doesn't seem to be fully bought

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Speaker 6: in when it comes to the FED accelerating rate cuts.

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Speaker 6: So is that a communication issue from the Fed? Or

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Speaker 6: is that inflation anxiety? Why do you think there's a

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Speaker 6: disconnect there?

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Speaker 3: To be honest, I think pal would be much more

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Speaker 3: committed to bringing rates down further if President Trump wasn't

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Speaker 3: sort of so interfering in FED policy. I think it's

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Speaker 3: almost a kind of like a pride moment. I'll end

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Speaker 3: up doing it, but he just can't sort of preemptively

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Speaker 3: say he'll do it.

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Speaker 4: That's my perspective.

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Speaker 6: And the shutdown the shutdowns market impact is usually limited,

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Speaker 6: but you say that this time might be different, right, Well, I.

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Speaker 3: Mean shut shutdowns are limited if they're short, but if

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Speaker 3: they they're at long, then it does impact consumption. What

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Speaker 3: is long at least a month, and you know this

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Speaker 3: shutdown is approaching that, and I think if it goes

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Speaker 3: even longer than that, obviously you're going to see a

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Speaker 3: consumer spending taker hits. And we model, we model that

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Speaker 3: relative to consumption trends before shutdown and then afterwards. So

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Speaker 3: clearly there is there is some impacts.

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Speaker 2: Yeah, do many costumer and AI they say it's outside

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Speaker 2: you remit, I don't buy it for a moment. I mean,

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Speaker 2: we got sailor coming in here and coming up here

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Speaker 2: in thirty minutes, twenty minutes, the laureate from Chicago and

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Speaker 2: the behavior of the structure fine dominic constant and AI

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Speaker 2: and the overlaid of productivity which we're not going to

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Speaker 2: know for three, four or five ten years.

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Speaker 3: Yeah, well, I'm I'm a big big fan of the

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Speaker 3: productivity sort of miracle stories, you know, through through the trends. Absolutely,

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Speaker 3: I think AI is a massive positive for productivity and

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Speaker 3: it's going to go hand in hand with very little

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Speaker 3: labor input, which we're kind of already seeing. So when

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Speaker 3: I look at the GDP, you know, I look at

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Speaker 3: the expensiture side, let's say, and all that kind of

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Speaker 3: translates into higher productivity, you know, because of the underlying

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Speaker 3: thing AI. And it totally when I talk to our

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Speaker 3: clients basically you know, in the in the in the

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Speaker 3: real money hedge funk community, more and more saying you know,

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Speaker 3: they're obviously using AI and they're not hiring graduates in

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Speaker 3: the way that they did before.

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Speaker 4: That's a really big impact to I mean, I.

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Speaker 2: Look at bazoo on what you're building over there. You

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Speaker 2: pick up Jordan. This is like picking up you know,

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Speaker 2: some baseball player. You pick up George Rochester and foreign

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Speaker 2: exchange human rashudo have to battle over nominal GDP. Are

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Speaker 2: you guys all on the same page. Given a four

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Speaker 2: percent constant cav.

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Speaker 4: We all always agree, it's amazing.

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Speaker 5: It's really a all of a TV yeah together there.

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Speaker 3: But I think the diversity of opinion is good. I

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Speaker 3: mean it challenges each of us to sort of go

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Speaker 3: back and rethink and refine our arguments.

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Speaker 2: What's your future for your United Kingdom? I can't glean

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Speaker 2: it reading the papers.

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Speaker 3: Yeah, I mean it's all it's a little you know,

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Speaker 3: I think the future is my old schoolmate Nigel Farage

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Speaker 3: becomes Prime Minister. I think it's a little bit like

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Speaker 3: the same as in France with you know, with the

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Speaker 3: from that's now you know that the populism is is

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Speaker 3: you know, it can't be held back for too long

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Speaker 3: and it's really a dysfunction of the established parties. I mean,

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Speaker 3: you know, the Labor Party never really you know, it

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Speaker 3: never had a massive popular vote in the first place,

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Speaker 3: but unfortunately it's made a lot of missteps and it's

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Speaker 3: hard to see how they're going to keep out that

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Speaker 3: that the Reform Party.

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Speaker 2: If mister Farage comes calls on his own class as

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Speaker 2: old classmate, will you look to serve as Chancellor of

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Speaker 2: the Exchequer?

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Speaker 5: Of course I would constantly there's from a Zoo. Stay

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Speaker 5: with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live

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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on

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Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or

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Speaker 1: watch us live on YouTube.

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Speaker 5: Elina Show.

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Speaker 2: Tavid joins us right now and has frankly, never been

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Speaker 2: a more important conversation. She's with the Conference Board, which

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Speaker 2: goes back to nineteen sixteen. Full disclosure, it was religion

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Speaker 2: to my grandfather. They are different. They have a huge

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Speaker 2: history of data collection and the mood and in a

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Speaker 2: massive government shutdown. It's not that you're it, but you're

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Speaker 2: the ones that have been tested time and time again

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Speaker 2: and shutdowns. What is your message about what's really going on?

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Speaker 2: Is where data lists?

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Speaker 9: Well, I can guarantee you get another data point from

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Speaker 9: the conference port next Tuesday when the CCI Index will

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Speaker 9: be released and will get another gauge of how consumers

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Speaker 9: are feeling in this economy. And another data point I

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Speaker 9: would like to talk about is the CEO confidence that

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Speaker 9: we received last week, and that hasn't been much of

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Speaker 9: an improvement on the CEO confidence front. Actually they're saying that,

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Speaker 9: you know, things are probably okay, but the CEO confidence

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Speaker 9: is still below the fifty break even level.

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Speaker 2: Testing and CEO confidence. Is it a legitimate time series?

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Speaker 7: Absolutely.

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Speaker 9: It tracks investment, business investment, and the thing that I

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Speaker 9: watch mostly is business investment plans. So that's a gauge

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Speaker 9: for telling you what happens to business investment going forward.

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Speaker 6: Yes, and only four percent of CEOs are expecting a recession,

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Speaker 6: but growth is still projected to decelerate. What's behind this

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Speaker 6: cautious optimism and what does it signal to the business

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Speaker 6: I A Heading into next year.

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Speaker 9: There's still a lot of uncertainty. There's still a lot

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Speaker 9: of uncertainty about the tariff's woodland, that's a lot of

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Speaker 9: uncertainty about the AI impact and regulation and geopolitics as well.

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Speaker 9: So those are top concerns for you know, the c

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Speaker 9: suite people, and I think that's an important thing to

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Speaker 9: remember when you talk about outlook for next year.

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Speaker 6: So the shutdown is having ripple effects not just in

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Speaker 6: GDP but in conference also where are you seeing the

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Speaker 6: most visible science of disruption when it comes to the data,

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Speaker 6: whether it's employment or the CPI printed.

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Speaker 9: For US economists, the data flow is disrupted. That's it

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Speaker 9: already is happening, and we have much lower visibility in

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Speaker 9: terms of how to think about the economy. But in

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Speaker 9: terms of the overall impact on the economy, it's still moderate,

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Speaker 9: but it will be nonlinear, so it doesn't go like

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Speaker 9: one to two tens of a percent each week. It's

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Speaker 9: non linear. So first week, it's minimal. Second week, third week,

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Speaker 9: when people start missing the paychecks, that could be much

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Speaker 9: more significant. And I think if it moves into November,

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Speaker 9: we will talk a little bit more about the economic impact.

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Speaker 6: So, speaking of inflation, we may we may be heading

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Speaker 6: into a hotter print this Friday. Do you think that

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Speaker 6: the Fed can afford to stick to the gradual plan

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Speaker 6: of easing if inflation holds about three percent?

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Speaker 9: Absolutely, That's what Chef Powell said at the NAPE meeting

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Speaker 9: last week. It was an amazing speech by the FED

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Speaker 9: chair and he just basically confirmed, you know, it's it's

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Speaker 9: about the risks. It's about the risks to the labor market,

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Speaker 9: not particular data.

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Speaker 6: So is that the implicant target now three Well, that's

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Speaker 6: that's a tough question.

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Speaker 9: I think they still believe they can get lower, but

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Speaker 9: you know, you're not really speaking about it explicitly.

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Speaker 2: Yoanna, Thanks so much for Jolena Shila Tavia with us

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Speaker 2: with the conference board.

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Speaker 5: Are they're important data coming out? Stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: This is the Bloomberg Surveillance podcast. Listen live each weekday

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Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. You can also listen live

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Speaker 1: on Amazon Alexa from our flagship New York station. Just

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Speaker 1: say Alexa, play Bloomberg eleven thirty shureing.

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Speaker 2: Sri Coyle off, what I you know, we didn't do

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Speaker 2: it enough on this last week the International Monetary Fund

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Speaker 2: with their meetings and.

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Speaker 5: All the different work.

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Speaker 2: I look at the green book, the Global Financial Stability Report.

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Speaker 2: It's one hundred and twenty six dense pages of really

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Speaker 2: PhD level thinking about where are we ro He's gone

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Speaker 2: beyond that and he joins us now on are instabilities

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Speaker 2: maybe within the calm? Rahie, what do you think of

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Speaker 2: our global financial stability right now?

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Speaker 8: Hey Tom, thank you so much for having me. It's

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Speaker 8: a pleasure. And no, I mean, look, I've done the

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Speaker 8: Global Financial Stability Report for almost a decade now, and

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Speaker 8: you sort of get tuned to looking at the left

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Speaker 8: tail of the distribution and what can go wrong throughout.

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Speaker 8: But where we are right now, I think things are

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Speaker 8: going pretty decently well. I mean the big question is

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Speaker 8: that And the perfect example are these IMF meetings that

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Speaker 8: end the last week. When you went to them six

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Speaker 8: months ago, it was all about despondents that you know,

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Speaker 8: there is a tariff shock and everything is going to

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Speaker 8: get tripped at the seams. Now it's all about resilience.

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Speaker 8: That global economy has outperformed expectations, Global markets have perferred

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Speaker 8: expectations are not just US, pretty broad based. So from

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Speaker 8: that perspective, things seem to be going pretty well at

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Speaker 8: the margin. In terms of instability. I would still argue

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Speaker 8: that the biggest risk in the market remains on the

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Speaker 8: US born market side and how inficient people are sort

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Speaker 8: of passing it by. But I think in my view

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Speaker 8: that's some mistrikes.

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Speaker 5: Is that the IMF there's wonderful stress tests.

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Speaker 2: I'll look at, you know, stress episodes is what they

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Speaker 2: call them, where they pretend bad things happen. Are we

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Speaker 2: prepared reheat right now within global Wall Street for the

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Speaker 2: next marginal stress?

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Speaker 8: I think to a great extent, I would argue is

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Speaker 8: the issue is that the unown unknown is something which

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Speaker 8: nobody gets prepared for. But the other stress test, which

441
00:22:32,600 --> 00:22:34,560
Speaker 8: we saw in terms of the banking crisis, in terms

442
00:22:34,600 --> 00:22:37,080
Speaker 8: of the regional banks getting an issue or any stress

443
00:22:37,080 --> 00:22:39,280
Speaker 8: in the tragedy bond market. I think from that perspective,

444
00:22:39,280 --> 00:22:42,520
Speaker 8: the fed and the policy makers are pretty prepared. The

445
00:22:42,560 --> 00:22:44,760
Speaker 8: issue is more of a self gool that cutting rates

446
00:22:44,760 --> 00:22:46,640
Speaker 8: at a time when the inficion is sort of picking

447
00:22:46,720 --> 00:22:50,359
Speaker 8: up sclically can take people by a surprise, and that

448
00:22:50,480 --> 00:22:52,639
Speaker 8: I think can be a sourceful issue.

449
00:22:52,880 --> 00:22:55,199
Speaker 6: So you spoke with over twenty finance ministers, which is

450
00:22:55,200 --> 00:22:57,400
Speaker 6: a real pulse check, and one of your big takeaways

451
00:22:57,440 --> 00:23:00,000
Speaker 6: was that trade is moving beyond the US, and fact,

452
00:23:00,680 --> 00:23:02,960
Speaker 6: what are the countries doing to reapply as supply chains

453
00:23:03,000 --> 00:23:06,879
Speaker 6: and why do you think investors need to take that shift?

454
00:23:06,960 --> 00:23:07,480
Speaker 7: Seriously?

455
00:23:09,040 --> 00:23:12,240
Speaker 8: No, I think Look, this has been a fascinating start.

456
00:23:12,440 --> 00:23:14,840
Speaker 8: If you look at since twenty sixteen, which was from

457
00:23:15,480 --> 00:23:18,719
Speaker 8: first term, ninety percent of countries have seen an increase

458
00:23:18,720 --> 00:23:20,720
Speaker 8: in trade to GDP. US is one of the only

459
00:23:20,760 --> 00:23:23,159
Speaker 8: major countries which have seen a decline in trade to GDP,

460
00:23:23,760 --> 00:23:26,480
Speaker 8: and four of the fastest going trade corridors are outside

461
00:23:26,520 --> 00:23:29,720
Speaker 8: of US. So while we do make a big deal

462
00:23:29,760 --> 00:23:32,280
Speaker 8: out of the US addic situation, the reality being that

463
00:23:32,320 --> 00:23:35,520
Speaker 8: other countries have been preparing for this event for a

464
00:23:35,560 --> 00:23:38,680
Speaker 8: while now, especially when you talk to all these policymakers.

465
00:23:38,720 --> 00:23:42,119
Speaker 8: As you mentioned, I met almost twenty finance ministers last week,

466
00:23:42,359 --> 00:23:44,679
Speaker 8: and the big picture feedback was that luk US is

467
00:23:44,760 --> 00:23:47,760
Speaker 8: extremely important for US and it's impossible to sidetrack it.

468
00:23:48,240 --> 00:23:50,560
Speaker 8: But at the same time, US is just fifteen percent

469
00:23:50,600 --> 00:23:53,320
Speaker 8: of GLO bullet boats. There is a big world outside

470
00:23:53,359 --> 00:23:55,760
Speaker 8: of us that we need to partner with, and now,

471
00:23:55,880 --> 00:23:59,199
Speaker 8: especially now we're in a transactional world, we need to

472
00:23:59,240 --> 00:24:01,480
Speaker 8: be a bit more more mindful of So when you

473
00:24:01,600 --> 00:24:06,200
Speaker 8: we're from your emerging markets, everybody is signing more free

474
00:24:06,240 --> 00:24:09,240
Speaker 8: trade deals. Everyone is trying to diversify their export base

475
00:24:09,320 --> 00:24:12,040
Speaker 8: in terms of partners as products. I think that's a

476
00:24:12,080 --> 00:24:13,720
Speaker 8: welcome development, right go.

477
00:24:13,800 --> 00:24:14,560
Speaker 5: Out with us.

478
00:24:14,600 --> 00:24:17,400
Speaker 2: Thrilled to have them with us with Breakout Partners on

479
00:24:17,400 --> 00:24:21,160
Speaker 2: our Bloomberg podcast, what a successful experiment it's been.

480
00:24:21,320 --> 00:24:23,040
Speaker 5: Thank you for listening on YouTube.

481
00:24:23,160 --> 00:24:27,080
Speaker 2: Subscribe to Bloomberg podcasts out at YouTube and we say

482
00:24:27,119 --> 00:24:31,240
Speaker 2: good morning and Rowhat's India where we've had just huge,

483
00:24:31,520 --> 00:24:34,360
Speaker 2: huge success. Rowen, I want to do an audible here,

484
00:24:34,800 --> 00:24:39,040
Speaker 2: stay to me the new Modi capitalism of India. Explain

485
00:24:39,119 --> 00:24:43,680
Speaker 2: to me twenty twenty six for the animal spirit of India.

486
00:24:45,760 --> 00:24:47,960
Speaker 8: No, I think it's going to be the same old that. Look,

487
00:24:48,400 --> 00:24:51,120
Speaker 8: we have fixed a lot of the historical issues now

488
00:24:51,160 --> 00:24:53,600
Speaker 8: we have a big bad wolf in terms of President Trump,

489
00:24:53,680 --> 00:24:56,239
Speaker 8: and Moodie is the one who's trying to safeguard the

490
00:24:56,240 --> 00:24:59,840
Speaker 8: interest of Indian farmers and Indian sort of domestic houses.

491
00:25:00,000 --> 00:25:01,760
Speaker 8: And we've got to stay the course. If you want

492
00:25:01,800 --> 00:25:04,040
Speaker 8: to make integrate again, let's.

493
00:25:03,840 --> 00:25:06,000
Speaker 7: Stick with the region. What about China?

494
00:25:06,080 --> 00:25:09,880
Speaker 6: You mentioned that China was surprisingly absent from discussions given

495
00:25:09,920 --> 00:25:11,440
Speaker 6: its central role in global trade.

496
00:25:11,520 --> 00:25:12,800
Speaker 7: What do you make of the silence?

497
00:25:14,080 --> 00:25:16,080
Speaker 8: No, I think that was for me the biggest shock.

498
00:25:16,160 --> 00:25:18,639
Speaker 8: That one would imagine that the US China issues and

499
00:25:18,760 --> 00:25:21,720
Speaker 8: China in particular would be a very big focus, but honestly,

500
00:25:21,720 --> 00:25:23,639
Speaker 8: not really. And I think there are a couple of reasons,

501
00:25:23,680 --> 00:25:26,480
Speaker 8: one being most of the investors have priced in that

502
00:25:26,600 --> 00:25:29,160
Speaker 8: the US China's serve issues will continue for the time.

503
00:25:29,480 --> 00:25:32,160
Speaker 8: They will be escalation, most of it is posturing, will

504
00:25:32,280 --> 00:25:35,040
Speaker 8: revert back some of it. So from that perspective, is

505
00:25:35,080 --> 00:25:38,160
Speaker 8: going to be a slow and steady negotiation between US

506
00:25:38,200 --> 00:25:41,199
Speaker 8: and China, and we have we're in that segment of

507
00:25:41,200 --> 00:25:43,639
Speaker 8: the nash EQUIYBM that we don't want to be in

508
00:25:43,640 --> 00:25:45,840
Speaker 8: the goog Do situation. I think both US and China

509
00:25:46,359 --> 00:25:49,520
Speaker 8: realizing that a bigger focus for me was how the

510
00:25:49,520 --> 00:25:53,320
Speaker 8: emerging markets are talking about the China manufacturing blood and

511
00:25:53,359 --> 00:25:56,920
Speaker 8: how the oversupply sort of killing their own domestic manufacturing industries,

512
00:25:57,040 --> 00:25:59,000
Speaker 8: and there is a big focus to make sure that

513
00:25:59,000 --> 00:26:02,200
Speaker 8: that doesn't really groups.

514
00:26:02,320 --> 00:26:04,960
Speaker 5: All right, Ronie, thank you so much. Rohikoel with us.

515
00:26:05,359 --> 00:26:07,920
Speaker 2: Please please would love to see you in a studio

516
00:26:08,320 --> 00:26:13,080
Speaker 2: at some point. Rohikoel is with Breakout Capital Partners.

517
00:26:13,320 --> 00:26:14,040
Speaker 5: Stay with us.

518
00:26:14,280 --> 00:26:24,560
Speaker 2: More from Bloomberg Surveillance coming up after this.

519
00:26:24,560 --> 00:26:28,480
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

520
00:26:28,520 --> 00:26:31,919
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto

521
00:26:31,960 --> 00:26:34,920
Speaker 1: with the Bloomberg Business App. You can also listen live

522
00:26:35,000 --> 00:26:38,560
Speaker 1: on Amazon Alexa from our flagship New York station, Just

523
00:26:38,600 --> 00:26:41,480
Speaker 1: Say Alexa Play Bloomberg eleven thirty.

524
00:26:41,720 --> 00:26:46,920
Speaker 2: Andrew Ceciliana joins his partner Trading Customs Practice a KPMG.

525
00:26:47,440 --> 00:26:50,199
Speaker 2: This could be a three hour interview this morning. You

526
00:26:50,280 --> 00:26:54,920
Speaker 2: are a licensed US customs broker. All of a sudden,

527
00:26:55,000 --> 00:26:59,080
Speaker 2: everything seems arbitrary. When Isabelle Lee gets something from d

528
00:26:59,560 --> 00:27:03,200
Speaker 2: Or in Paris, she has no idea if there's going to.

529
00:27:03,119 --> 00:27:05,680
Speaker 5: Be a customer terrorfunt. Have you ever seen it?

530
00:27:05,760 --> 00:27:06,399
Speaker 4: This nuts.

531
00:27:06,840 --> 00:27:11,879
Speaker 10: No, it's been extremely volatile. Are uncertain really complicated to

532
00:27:12,000 --> 00:27:14,679
Speaker 10: the rules of consistently changing toime. So if you think

533
00:27:14,720 --> 00:27:18,960
Speaker 10: about it today, there are country specific tarifs, industry specific tariffs,

534
00:27:19,359 --> 00:27:22,199
Speaker 10: there's trade deals taking place, and there's a bunch of

535
00:27:22,240 --> 00:27:25,360
Speaker 10: investigations that are still under way that we don't even

536
00:27:25,480 --> 00:27:26,919
Speaker 10: know what the impact is going to be.

537
00:27:27,000 --> 00:27:30,560
Speaker 2: Okay, but so the air JFK Okay, they come at

538
00:27:30,600 --> 00:27:34,520
Speaker 2: a cargo plane. Are there people like you, licensed customs

539
00:27:34,600 --> 00:27:37,320
Speaker 2: brokers figuring out what's in each bundle?

540
00:27:37,600 --> 00:27:38,880
Speaker 5: Well, what a broker does.

541
00:27:39,119 --> 00:27:41,760
Speaker 10: A broker will help clear the shipments, right, so they

542
00:27:41,800 --> 00:27:45,439
Speaker 10: will file the customs entry with US Customs. On that

543
00:27:45,680 --> 00:27:48,440
Speaker 10: entry is where you declare all these tariffs. So that

544
00:27:48,600 --> 00:27:53,479
Speaker 10: is the point of contact with Customs to disclose all

545
00:27:53,520 --> 00:27:54,679
Speaker 10: the towers to customs.

546
00:27:55,040 --> 00:27:58,439
Speaker 6: So the USS racked up some eighty billion dollars in

547
00:27:58,880 --> 00:28:01,760
Speaker 6: tariff revenue this year to more than double the last year.

548
00:28:01,920 --> 00:28:04,360
Speaker 6: And it looks good on the revenue side, but how

549
00:28:04,359 --> 00:28:08,080
Speaker 6: are businesses and consumers actually absorbing this the cost on

550
00:28:08,119 --> 00:28:12,240
Speaker 6: the ground and based on your perch, are they worried

551
00:28:12,359 --> 00:28:13,359
Speaker 6: or what's happening?

552
00:28:13,359 --> 00:28:14,400
Speaker 10: You know, it's a great question.

553
00:28:14,520 --> 00:28:15,280
Speaker 5: It really varies.

554
00:28:15,560 --> 00:28:19,560
Speaker 10: There's no single answer. There are situations where prices going up,

555
00:28:19,720 --> 00:28:22,600
Speaker 10: people see it right there. There are those scenarios, but

556
00:28:22,640 --> 00:28:26,560
Speaker 10: there's also marking conditions that are driving prices not to

557
00:28:26,640 --> 00:28:30,920
Speaker 10: go up. And there's also supplier and import absorption where

558
00:28:30,920 --> 00:28:34,160
Speaker 10: there's negotiations happening where they're absorbing the tariffs, and also

559
00:28:34,200 --> 00:28:36,800
Speaker 10: companies are looking for ways to mitigate and move their

560
00:28:36,840 --> 00:28:38,479
Speaker 10: supply chains to avoid the tariffs.

561
00:28:39,080 --> 00:28:44,680
Speaker 5: Tell me about the Dominimous rule. I mean it's striving everybody. Everybody.

562
00:28:44,760 --> 00:28:47,520
Speaker 10: Yeah, So the Dominicus rule many many years ago was

563
00:28:47,600 --> 00:28:50,040
Speaker 10: like two hundred dollars, and the whole point of it was,

564
00:28:50,040 --> 00:28:52,400
Speaker 10: when you have these small parcel shipments, why do we

565
00:28:52,440 --> 00:28:55,880
Speaker 10: want customs entries for every single small shipment? And then

566
00:28:55,920 --> 00:28:58,360
Speaker 10: when the amount raised to eight hundred dollars, you had

567
00:28:58,360 --> 00:29:01,400
Speaker 10: companies taking advantage of it, you know, putting warehouses in

568
00:29:01,440 --> 00:29:04,520
Speaker 10: Mexico and Encounter and shipping into the US. So a

569
00:29:04,520 --> 00:29:08,000
Speaker 10: lot of US companies right a disadvantage and lobbied against it.

570
00:29:08,120 --> 00:29:10,880
Speaker 10: So right now it's closing a lot of turmoil because

571
00:29:10,920 --> 00:29:16,120
Speaker 10: companies that were relying on that e commerce benefit just

572
00:29:16,240 --> 00:29:20,760
Speaker 10: lowered from eight hundred to pick a number, it's yeah,

573
00:29:20,760 --> 00:29:24,000
Speaker 10: there's it's zero. Now it cost some entries required for

574
00:29:24,040 --> 00:29:26,760
Speaker 10: those shipments. I mean there's different types of entries. But

575
00:29:27,280 --> 00:29:29,760
Speaker 10: the deminimus rule no longer exists.

576
00:29:29,800 --> 00:29:32,560
Speaker 6: So we're clearly at an inflection point in the global trade.

577
00:29:32,600 --> 00:29:34,840
Speaker 6: You call this a turning point and noted that companies

578
00:29:34,880 --> 00:29:39,960
Speaker 6: who treat the disruption disruption as strategy could come out ahead.

579
00:29:40,400 --> 00:29:43,080
Speaker 7: What does that look like in practice though, because okay,

580
00:29:43,440 --> 00:29:44,400
Speaker 7: maybe what if.

581
00:29:44,320 --> 00:29:47,120
Speaker 6: I'm a small business and I got myself used to

582
00:29:47,120 --> 00:29:49,640
Speaker 6: the eight hundred dollars yeah minimum?

583
00:29:49,720 --> 00:29:52,200
Speaker 10: Right, So then so when the tarots, when the new

584
00:29:52,200 --> 00:29:56,160
Speaker 10: towers were initially announced, it was everyone's in mitigation mode

585
00:29:56,440 --> 00:29:57,640
Speaker 10: reacting to the taros.

586
00:29:57,960 --> 00:29:59,040
Speaker 5: There was also uncertainty.

587
00:29:59,040 --> 00:30:00,360
Speaker 10: We don't know if they were going to lie, so

588
00:30:00,400 --> 00:30:02,800
Speaker 10: they were just looking for the low hanging fruit opportunities.

589
00:30:03,080 --> 00:30:06,800
Speaker 10: But now we're beyond mitigation. Companies are rewiring their supply chains.

590
00:30:07,160 --> 00:30:10,840
Speaker 10: They're looking at a tax and trade planning opportunities. They

591
00:30:10,920 --> 00:30:15,080
Speaker 10: are looking at technology and data and AI to do

592
00:30:15,240 --> 00:30:18,320
Speaker 10: scenario planning modeling. We have a tool of KPMG that

593
00:30:18,360 --> 00:30:22,160
Speaker 10: does that for our clients. They're also looking at operating models,

594
00:30:22,440 --> 00:30:25,160
Speaker 10: the customs function for years was operational. It was a

595
00:30:25,160 --> 00:30:28,000
Speaker 10: border tax, clear the goods. Now they're looking at the

596
00:30:28,000 --> 00:30:29,320
Speaker 10: overall structure and.

597
00:30:29,320 --> 00:30:31,960
Speaker 2: This Siciliana that is going to get one more in here.

598
00:30:32,240 --> 00:30:34,640
Speaker 2: I'm very remiss on to say a nasty letter from

599
00:30:34,640 --> 00:30:37,800
Speaker 2: the government in Mexico. Thank you for listening every morning

600
00:30:37,800 --> 00:30:41,160
Speaker 2: in Mexico City. Really honored. And we don't do enough

601
00:30:41,200 --> 00:30:45,200
Speaker 2: on agriculture. How do we do one on terriffs of tomatoes,

602
00:30:45,560 --> 00:30:49,560
Speaker 2: of avocados, of bananas that I think we can't grow

603
00:30:49,600 --> 00:30:50,160
Speaker 2: in America?

604
00:30:50,160 --> 00:30:50,560
Speaker 5: Am I right?

605
00:30:50,640 --> 00:30:50,720
Speaker 9: In?

606
00:30:50,760 --> 00:30:50,800
Speaker 8: That?

607
00:30:51,000 --> 00:30:52,360
Speaker 5: Isabelle that I don't know?

608
00:30:52,400 --> 00:30:55,000
Speaker 7: I have to ask chat Okay, how are we doing.

609
00:30:54,920 --> 00:30:58,760
Speaker 5: On agriculture terrorists? Is it like coming? Well? There was?

610
00:30:59,120 --> 00:31:03,640
Speaker 10: There are terrors for Mexico encounter punitive tariffs under the IEPER,

611
00:31:03,920 --> 00:31:06,120
Speaker 10: which as you know, the Supreme Court case is going

612
00:31:06,120 --> 00:31:06,880
Speaker 10: to rule on soon.

613
00:31:07,400 --> 00:31:08,800
Speaker 5: But there are also exceptions.

614
00:31:08,880 --> 00:31:12,880
Speaker 10: If a good qualifiers under the USMCI, they avoid that tariff.

615
00:31:12,960 --> 00:31:16,000
Speaker 10: So right now, if you meet USMCI, you could avoid

616
00:31:16,040 --> 00:31:16,320
Speaker 10: the taro.

617
00:31:16,440 --> 00:31:20,160
Speaker 2: Well, it's a single summation of your KPMG study and

618
00:31:20,240 --> 00:31:22,240
Speaker 2: this headache of tariffs.

619
00:31:21,960 --> 00:31:25,920
Speaker 10: It's volatile, there's lots of disruption and companies need to

620
00:31:25,960 --> 00:31:30,000
Speaker 10: be agile and flexible and manage through it. You can

621
00:31:30,120 --> 00:31:30,760
Speaker 10: avoid the pain.

622
00:31:30,840 --> 00:31:33,040
Speaker 5: You have to manage it. I got eight more questions,

623
00:31:33,040 --> 00:31:36,160
Speaker 5: come back. Thank you so much.

624
00:31:36,560 --> 00:31:41,400
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,

625
00:31:41,520 --> 00:31:45,800
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,

626
00:31:45,920 --> 00:31:49,400
Speaker 1: seven to ten am Eastern on Bloomberg dot com, the

627
00:31:49,480 --> 00:31:53,520
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You

628
00:31:53,560 --> 00:31:56,920
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629
00:31:57,120 --> 00:31:58,840
Speaker 1: always on the Bloomberg terminal