1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,440 Speaker 2: Terminal and the Bloomberg Business App. Peter Ropenheimer of Goldman 10 00:00:37,520 --> 00:00:40,559 Speaker 2: Sachs writing, it's possible the terriffs could hurt equity prices 11 00:00:40,640 --> 00:00:43,680 Speaker 2: even if the US agrees on deals with key training partners. 12 00:00:43,760 --> 00:00:46,279 Speaker 2: Peter joins us now for more. Peter, Welcome to the program, sir. 13 00:00:46,320 --> 00:00:48,440 Speaker 2: Before we talk about the risk, let's talk about the price. 14 00:00:48,680 --> 00:00:50,879 Speaker 2: The rally we've seen on both sides of the Atlantic, 15 00:00:50,920 --> 00:00:53,239 Speaker 2: on the S and P and the eurostocks fifty of 16 00:00:53,320 --> 00:00:55,720 Speaker 2: close to something like nine percent. Peter, when you break 17 00:00:55,760 --> 00:00:58,760 Speaker 2: things down, let's just talk about breath. Compare and contrast 18 00:00:58,800 --> 00:01:02,000 Speaker 2: the story in the States to the story you're witnessing 19 00:01:02,280 --> 00:01:06,399 Speaker 2: in Europe. 20 00:01:04,720 --> 00:01:07,919 Speaker 3: Well, very different story. At one level, it looks very similar. 21 00:01:07,920 --> 00:01:10,320 Speaker 3: As you said, both markets are rising, but they're rising 22 00:01:10,360 --> 00:01:14,080 Speaker 3: in different ways. The contributions are quite different. In the US, 23 00:01:14,760 --> 00:01:18,400 Speaker 3: very much driven again by the power of the biggest 24 00:01:18,400 --> 00:01:21,600 Speaker 3: tech stocks, which are really leading the market. As you say, 25 00:01:21,840 --> 00:01:24,600 Speaker 3: smps are an all time high, the median stock is 26 00:01:24,640 --> 00:01:29,039 Speaker 3: around twelve percent below it's fifty two week high, so 27 00:01:29,280 --> 00:01:33,720 Speaker 3: very very concentrated, whereas in Europe, actually there's significant breadth, 28 00:01:34,360 --> 00:01:39,800 Speaker 3: unusual breadth actually in the market, and you're seeing much 29 00:01:39,880 --> 00:01:44,000 Speaker 3: much less concentration, although of course you are seeing and 30 00:01:44,080 --> 00:01:49,000 Speaker 3: have seen stocks that are disappointing being very heavily punished, 31 00:01:49,000 --> 00:01:50,960 Speaker 3: and that's happened on both sides of the Atlantic. 32 00:01:51,200 --> 00:01:53,279 Speaker 2: So let's just pick up on the US TEK story 33 00:01:53,760 --> 00:01:55,840 Speaker 2: and the narrow breadth that I've heard so much of 34 00:01:55,880 --> 00:01:57,920 Speaker 2: that I'm sure you have as well. Whether it is 35 00:01:57,960 --> 00:02:01,080 Speaker 2: necessarily unhealthy. If I think about the dominant risks of 36 00:02:01,160 --> 00:02:04,360 Speaker 2: the moment, they're largely cyclical, they're related to trade, and 37 00:02:04,400 --> 00:02:06,320 Speaker 2: in many ways some people might look at the US 38 00:02:06,400 --> 00:02:08,920 Speaker 2: DOT market and say that's a source of stability, not 39 00:02:09,000 --> 00:02:13,840 Speaker 2: necessarily downside risk. How would you counter that look? 40 00:02:13,919 --> 00:02:15,919 Speaker 3: I think it's right that, you know, if we step 41 00:02:15,960 --> 00:02:19,240 Speaker 3: back and think about economies which are still growing, albeit 42 00:02:19,760 --> 00:02:22,400 Speaker 3: at a slower pace, certainly in the US, but interest 43 00:02:22,480 --> 00:02:26,959 Speaker 3: rates coming down, that's broadly a supportive environment for risk assets. 44 00:02:27,080 --> 00:02:30,560 Speaker 3: And the fact that in the US the tech heavy 45 00:02:31,639 --> 00:02:35,560 Speaker 3: largest companies have been dominating the rally is a function 46 00:02:35,720 --> 00:02:39,799 Speaker 3: of their very very powerful, continued profit growth. It's not 47 00:02:39,880 --> 00:02:43,519 Speaker 3: been about speculation. It's really been about very very strong fundamentals, 48 00:02:43,520 --> 00:02:46,519 Speaker 3: and there's nothing wrong with that. The only problem, of course, 49 00:02:46,960 --> 00:02:51,240 Speaker 3: is that after you get an increasingly concentrated market, it 50 00:02:51,320 --> 00:02:55,959 Speaker 3: becomes harder to diversify risks, at least domestically, and that's 51 00:02:55,960 --> 00:02:58,519 Speaker 3: one of the reasons why we've been arguing that investors 52 00:02:58,560 --> 00:03:02,160 Speaker 3: should take a more open mind mind a view of 53 00:03:02,280 --> 00:03:06,079 Speaker 3: diversification geographically to improve risk adjusted returns. 54 00:03:06,280 --> 00:03:09,400 Speaker 4: Well, Peter, where is the opportunities in Europe? Because I'm 55 00:03:09,400 --> 00:03:11,960 Speaker 4: looking at the Bank of America fund manager survey out 56 00:03:12,000 --> 00:03:14,960 Speaker 4: of Europe and they say European investors thirty five percent 57 00:03:14,960 --> 00:03:17,920 Speaker 4: expect stronger European growth over the coming twelve months. But 58 00:03:17,960 --> 00:03:20,880 Speaker 4: it was forty four percent last month. So isn't that 59 00:03:20,919 --> 00:03:23,440 Speaker 4: European story actually starting to dwindle a little bit. 60 00:03:25,080 --> 00:03:27,120 Speaker 3: Yeah, and we've seen that to some extent in the 61 00:03:27,160 --> 00:03:30,240 Speaker 3: relative performance. Very much the first part of the year, 62 00:03:30,800 --> 00:03:34,800 Speaker 3: Europe outperforming both in terms of underlying assets but also 63 00:03:35,400 --> 00:03:39,240 Speaker 3: on a dollar adjusted basis. As the dollar weakened and 64 00:03:39,360 --> 00:03:43,400 Speaker 3: that differences moderated to some extent. But I think it 65 00:03:43,440 --> 00:03:45,800 Speaker 3: is right to say that from a very low base, 66 00:03:45,960 --> 00:03:49,800 Speaker 3: European growth is improving somewhat. An important driver of that 67 00:03:50,160 --> 00:03:54,400 Speaker 3: is the expansion of fiscal policy coming from Germany, and 68 00:03:54,440 --> 00:03:57,960 Speaker 3: we do also have a couple of other themes that 69 00:03:58,040 --> 00:04:04,000 Speaker 3: are encouraging intro particularly increased defense spending which is powering ahead, 70 00:04:04,400 --> 00:04:08,000 Speaker 3: more infrastructure spending across Europe, and also some of the 71 00:04:08,160 --> 00:04:11,360 Speaker 3: value areas of the market which are doing really very well, 72 00:04:11,400 --> 00:04:14,400 Speaker 3: banks being a perfect example. And I would say that 73 00:04:14,600 --> 00:04:17,719 Speaker 3: is another difference between Europe and the US. The US 74 00:04:18,200 --> 00:04:22,080 Speaker 3: is still being driven by growth dominated themes, particularly related 75 00:04:22,080 --> 00:04:25,880 Speaker 3: to technology, whereas in Europe and some other markets, value 76 00:04:25,920 --> 00:04:26,920 Speaker 3: is actually outperforming. 77 00:04:27,400 --> 00:04:29,960 Speaker 4: The risk of tariffs, though still exist, and the team 78 00:04:30,000 --> 00:04:32,159 Speaker 4: at Goldman Sachs had a no doubt about how the 79 00:04:32,240 --> 00:04:35,400 Speaker 4: impact has yet to hit consumer prices. When it comes 80 00:04:35,440 --> 00:04:38,240 Speaker 4: to tariffs, that hit is just getting started, what can 81 00:04:38,320 --> 00:04:41,400 Speaker 4: this mean for Europe and some European corporate names. 82 00:04:43,960 --> 00:04:46,640 Speaker 3: Well, I think that it does complicate the picture because 83 00:04:46,680 --> 00:04:49,120 Speaker 3: we haven't yet seen the full effect of tariffs on 84 00:04:49,160 --> 00:04:51,359 Speaker 3: either side of the Atlantic, and it is likely to 85 00:04:51,480 --> 00:04:56,720 Speaker 3: weigh on consumer confidence to some extent and the ability 86 00:04:56,720 --> 00:05:00,400 Speaker 3: for consumers to continue to drive economic growth, and we're 87 00:05:00,440 --> 00:05:04,640 Speaker 3: already seeing some evidence of that slowing, particularly in the US, 88 00:05:04,960 --> 00:05:09,120 Speaker 3: and alongside it some weakness in the labor market. The offset, 89 00:05:09,200 --> 00:05:11,320 Speaker 3: I think is that you will see lower rates, at 90 00:05:11,400 --> 00:05:14,240 Speaker 3: least in the US. We think for the ECB they're 91 00:05:14,240 --> 00:05:18,480 Speaker 3: done for now. They've already cut rates more aggressively, and 92 00:05:18,520 --> 00:05:22,159 Speaker 3: I think there's less room for that to continue given 93 00:05:22,200 --> 00:05:24,960 Speaker 3: that we're going to see some effect of tariff still 94 00:05:25,279 --> 00:05:26,120 Speaker 3: yet to come through. 95 00:05:26,640 --> 00:05:29,000 Speaker 2: You mentioned the rally we've seen in US tag validated 96 00:05:29,040 --> 00:05:31,320 Speaker 2: by the earnings. The earnings have been really powerful. I 97 00:05:31,360 --> 00:05:33,719 Speaker 2: believe you said the same thing for the banks and 98 00:05:33,720 --> 00:05:35,640 Speaker 2: the run up we've seen in Europe. This rally of 99 00:05:35,640 --> 00:05:38,760 Speaker 2: more than forty percent for European banks so far year today, 100 00:05:39,000 --> 00:05:41,640 Speaker 2: has it been justified also by the earnings we've seen 101 00:05:41,680 --> 00:05:45,600 Speaker 2: so far and the outlook coming from the c suite. 102 00:05:45,800 --> 00:05:49,000 Speaker 3: Yeah, very much so, and we have to emphasize that 103 00:05:49,040 --> 00:05:51,720 Speaker 3: this is a huge turnaround from the trend that we 104 00:05:51,800 --> 00:05:54,960 Speaker 3: saw really for a decade after the financial crisis, where 105 00:05:55,200 --> 00:05:58,280 Speaker 3: banks came under huge pressure, particularly in Europe. They had 106 00:05:58,279 --> 00:06:02,200 Speaker 3: to delever, raise capital, cut dividends, and although they were 107 00:06:02,360 --> 00:06:06,400 Speaker 3: cheap in terms of multiple they kept on underperforming. But 108 00:06:06,440 --> 00:06:09,560 Speaker 3: we've seen a dramatic change in circumstances. Now they have 109 00:06:09,640 --> 00:06:13,400 Speaker 3: strong balance sheets. You mentioned earlier that the credit cycle 110 00:06:13,480 --> 00:06:17,679 Speaker 3: is benign, and more confidence in the economy means less 111 00:06:17,760 --> 00:06:21,240 Speaker 3: risk of loan losses and credit losses and provisionings for 112 00:06:21,279 --> 00:06:23,640 Speaker 3: the banks. And we have steeper yield curves which are 113 00:06:23,760 --> 00:06:28,840 Speaker 3: very supportive of their profits. So in Europe, the very 114 00:06:28,880 --> 00:06:32,039 Speaker 3: powerful returns that we've been seeing in banks is justified 115 00:06:32,080 --> 00:06:37,240 Speaker 3: by very strong fundamentals, just as the technology companies have 116 00:06:37,320 --> 00:06:39,360 Speaker 3: been supported by fundamentals in the US. 117 00:06:39,480 --> 00:06:41,880 Speaker 2: Can we just touch on the rates back drub for Europe? 118 00:06:41,920 --> 00:06:44,240 Speaker 2: For a long long time they complained about negative interest rates. 119 00:06:44,279 --> 00:06:46,160 Speaker 2: We got away from that. Now it feels like rates 120 00:06:46,200 --> 00:06:48,120 Speaker 2: are started to come back down again, Peter. And maybe 121 00:06:48,160 --> 00:06:50,719 Speaker 2: they don't stop at two, perhaps they don't stop at one. 122 00:06:51,120 --> 00:06:54,159 Speaker 2: How important is the rate outlook? For the long story 123 00:06:54,200 --> 00:06:55,240 Speaker 2: on bags. 124 00:06:56,440 --> 00:06:59,720 Speaker 3: I think the most critical factor is going to be growth. 125 00:07:00,320 --> 00:07:03,200 Speaker 3: If we avoid recession, that would be our central view, 126 00:07:04,120 --> 00:07:07,040 Speaker 3: then the risk of a provisioning cycle that could be 127 00:07:07,080 --> 00:07:10,800 Speaker 3: damaging for earnings is moderated. Of course, what's been very 128 00:07:10,840 --> 00:07:13,080 Speaker 3: helpful for the banks, and this has been true in 129 00:07:13,160 --> 00:07:17,080 Speaker 3: many regions, particularly in Europe, is that yel coves have steepened. 130 00:07:17,320 --> 00:07:20,120 Speaker 3: We've seen already a lot of progress on short rate 131 00:07:20,160 --> 00:07:24,920 Speaker 3: cutting by the UCB, but long rates have been edging up, 132 00:07:25,120 --> 00:07:29,720 Speaker 3: partly driven by growing deficits and spending, particularly in Germany, 133 00:07:29,720 --> 00:07:33,120 Speaker 3: and that spread has been very helpful for banks. It 134 00:07:33,160 --> 00:07:35,520 Speaker 3: may moderate a little bit moving forwards, but I think 135 00:07:35,560 --> 00:07:38,320 Speaker 3: if we continue to get economic growth, the outlook is 136 00:07:38,320 --> 00:07:40,559 Speaker 3: still reasonably benign for the banking sector in Europe. 137 00:07:40,640 --> 00:07:43,120 Speaker 2: Peter Rockenheimer of Goma SAX Peter, I appreciate your time 138 00:07:53,320 --> 00:07:56,080 Speaker 2: joining us Now is the former Boston Fed president Eric Rosengrant. 139 00:07:56,320 --> 00:07:59,040 Speaker 2: Welcome back to the program, Sir, some healthy debate at 140 00:07:59,080 --> 00:08:01,120 Speaker 2: the feder Reserve. Let's call it what it is. It 141 00:08:01,160 --> 00:08:03,880 Speaker 2: is healthy. Do you think September is too early to 142 00:08:03,960 --> 00:08:04,720 Speaker 2: settle the debate? 143 00:08:06,600 --> 00:08:08,520 Speaker 5: I think it depends on how the data comes in 144 00:08:09,400 --> 00:08:12,480 Speaker 5: we have two CPI reports, one PCE report, and one 145 00:08:12,520 --> 00:08:17,200 Speaker 5: employment report. Data can be pretty noisy, so I think 146 00:08:17,200 --> 00:08:19,480 Speaker 5: we need to see what things look like as we 147 00:08:19,520 --> 00:08:23,440 Speaker 5: get into September. But I agree that if the CPI 148 00:08:23,520 --> 00:08:27,840 Speaker 5: and PCE are reasonably well restrained and the labor market 149 00:08:27,840 --> 00:08:31,680 Speaker 5: looks sweet, then it would be appropriate to ease rates. However, 150 00:08:31,720 --> 00:08:35,199 Speaker 5: it's also quite possible that we'll see a slowly increasing 151 00:08:35,280 --> 00:08:39,920 Speaker 5: inflation rate. I'm expecting the CPI will probably be the 152 00:08:39,920 --> 00:08:44,040 Speaker 5: core cpi'll be above three percent when it comes out tomorrow, 153 00:08:44,200 --> 00:08:46,719 Speaker 5: and if we start seeing numbers that look higher than 154 00:08:46,760 --> 00:08:51,079 Speaker 5: the market's expecting, sentiment can change pretty quickly. So I 155 00:08:51,120 --> 00:08:53,240 Speaker 5: think it's a little too soon to call September. I 156 00:08:53,280 --> 00:08:56,520 Speaker 5: think the Fed was acting appropriately when it wanted to 157 00:08:56,559 --> 00:09:02,160 Speaker 5: wait and see, because right now, while the payroll employment 158 00:09:02,320 --> 00:09:05,040 Speaker 5: was week, the unemployment rate was four point two percent, 159 00:09:06,120 --> 00:09:08,559 Speaker 5: and the labor market has had a labor supply shock, 160 00:09:08,600 --> 00:09:10,680 Speaker 5: So you probably want to focus a little bit more 161 00:09:10,679 --> 00:09:13,840 Speaker 5: on the unemployment rate than the payroll employment numbers. 162 00:09:14,200 --> 00:09:16,240 Speaker 2: Eric, as you look at the dual mandate at the moment, 163 00:09:16,280 --> 00:09:18,520 Speaker 2: and this really speaks to the divide of the Federal Reserve, 164 00:09:18,760 --> 00:09:20,920 Speaker 2: there are some individuals who want to focus on the 165 00:09:20,920 --> 00:09:23,360 Speaker 2: employment side of the mandate, others who still want to 166 00:09:23,360 --> 00:09:25,679 Speaker 2: focus on the price stability side of the mandate. Can 167 00:09:25,720 --> 00:09:28,280 Speaker 2: you share with us your experience. Did you prioritize one 168 00:09:28,320 --> 00:09:30,920 Speaker 2: side over the other? Are they created equally. 169 00:09:32,320 --> 00:09:37,680 Speaker 5: So everybody can vote? And way I mean it's you're 170 00:09:37,720 --> 00:09:40,719 Speaker 5: not given the waiting function, so each person can kind 171 00:09:40,720 --> 00:09:43,120 Speaker 5: of choose for themselves what they think is most important 172 00:09:43,160 --> 00:09:47,199 Speaker 5: at the time. But the framework document actually talks about 173 00:09:47,280 --> 00:09:50,319 Speaker 5: what you should do when both elements of the mandate 174 00:09:50,360 --> 00:09:53,559 Speaker 5: are not where you want it. And in that document 175 00:09:53,600 --> 00:09:55,800 Speaker 5: it argues that you should look at how far away 176 00:09:55,840 --> 00:09:57,400 Speaker 5: you are from where you want to be and how 177 00:09:57,400 --> 00:10:01,240 Speaker 5: long it'll take to get there. So on inflation, if 178 00:10:01,240 --> 00:10:03,840 Speaker 5: you look at the core PCE, we're at two point 179 00:10:03,880 --> 00:10:06,520 Speaker 5: eight percent, and most people think it's going to take 180 00:10:06,600 --> 00:10:08,960 Speaker 5: quite some time for us to get back to two percent. 181 00:10:09,400 --> 00:10:11,679 Speaker 5: If you look at the unemployment rate, we're right at 182 00:10:11,720 --> 00:10:15,720 Speaker 5: four point two percent. So despite the weak labor supply 183 00:10:15,920 --> 00:10:20,320 Speaker 5: that's been happening, the labor market doesn't look to be 184 00:10:20,320 --> 00:10:23,600 Speaker 5: in that much trouble. You don't see initial claims rising rapidly. 185 00:10:24,600 --> 00:10:27,800 Speaker 5: So while I know a number of participants at the 186 00:10:27,920 --> 00:10:32,320 Speaker 5: FMC are talking about concern about the employment mandate. It 187 00:10:32,400 --> 00:10:35,560 Speaker 5: actually is exactly where they forecast they want it to be, 188 00:10:35,760 --> 00:10:37,160 Speaker 5: which is at full employment. 189 00:10:37,640 --> 00:10:40,880 Speaker 4: Basically, what you outline there says that the Fed shouldn't 190 00:10:40,880 --> 00:10:42,920 Speaker 4: be cutting just yet. So is there a bias to 191 00:10:42,960 --> 00:10:44,240 Speaker 4: a weakening labor market? 192 00:10:46,160 --> 00:10:49,880 Speaker 5: So it depends on a forecast, and I would say 193 00:10:49,920 --> 00:10:55,120 Speaker 5: private sector economists do not see a rapidly rising unemployment 194 00:10:55,200 --> 00:10:59,640 Speaker 5: rate and do not see an elevated risk of seeing 195 00:10:59,679 --> 00:11:03,600 Speaker 5: a risk session. So I would think the rhetoric around 196 00:11:03,600 --> 00:11:07,240 Speaker 5: the labor market would be more consistent if the private 197 00:11:07,280 --> 00:11:10,840 Speaker 5: sector was seeing more evidence in the data that the 198 00:11:10,920 --> 00:11:13,240 Speaker 5: unemployment rate looked like it was going to rise, that 199 00:11:13,320 --> 00:11:16,319 Speaker 5: initial claims was going to rise. So I think at 200 00:11:16,320 --> 00:11:19,640 Speaker 5: this case, at this time, it's a little bit odd 201 00:11:19,679 --> 00:11:22,320 Speaker 5: to overweight the employment part of the dual mandate. 202 00:11:22,720 --> 00:11:24,520 Speaker 2: Eric, Can we just sit on the data and I 203 00:11:24,559 --> 00:11:26,680 Speaker 2: want to avoid the politics. Don't worry about that not 204 00:11:26,720 --> 00:11:29,360 Speaker 2: going to include you in any of that whatsoever. We're 205 00:11:29,400 --> 00:11:31,600 Speaker 2: always dependent on the data, and there's been a question 206 00:11:31,720 --> 00:11:34,400 Speaker 2: for a long long time about how dependable the data 207 00:11:34,520 --> 00:11:37,480 Speaker 2: actually is, particularly the labor market data prone to very 208 00:11:37,559 --> 00:11:40,600 Speaker 2: large revisions. We saw that last year, We've seen it 209 00:11:40,640 --> 00:11:43,000 Speaker 2: many times in the past as well. Eric, how did 210 00:11:43,000 --> 00:11:46,920 Speaker 2: you manage that situation? Were you less sensitive to incoming 211 00:11:46,960 --> 00:11:48,760 Speaker 2: monthly reads and knowing that at some point in the 212 00:11:48,760 --> 00:11:50,880 Speaker 2: future they would be revised, How did you approach it? 213 00:11:52,200 --> 00:11:54,920 Speaker 5: So if you focus on a forecast month to month, 214 00:11:55,000 --> 00:11:57,520 Speaker 5: doesn't matter nearly as much as where you expect things 215 00:11:57,559 --> 00:12:01,160 Speaker 5: to go over time. And as you point out, the 216 00:12:01,240 --> 00:12:04,480 Speaker 5: labor market data, particularly the payroll numbers, can be pretty jumpy. 217 00:12:04,960 --> 00:12:08,080 Speaker 5: And the reason for that is not because anybody's manipulating it. 218 00:12:08,080 --> 00:12:12,040 Speaker 5: It's because they do a survey and if people don't 219 00:12:12,040 --> 00:12:15,800 Speaker 5: fill out their survey forms on time, then in the 220 00:12:15,840 --> 00:12:19,959 Speaker 5: revision they pick up the additional surveys and so depending 221 00:12:20,000 --> 00:12:22,160 Speaker 5: on what the response rate is, and the response rate 222 00:12:22,200 --> 00:12:25,600 Speaker 5: has been going down on many US government surveys, it 223 00:12:25,679 --> 00:12:28,720 Speaker 5: becomes less accurate and the revisions can be larger as 224 00:12:28,760 --> 00:12:32,400 Speaker 5: they get additional data. So you never should put too 225 00:12:32,480 --> 00:12:36,120 Speaker 5: much weight on any one data point. You're really looking 226 00:12:36,160 --> 00:12:39,880 Speaker 5: for a trend you're not actually looking for. While Wall 227 00:12:39,880 --> 00:12:44,880 Speaker 5: Street focuses on beating expectations and having a number, comparing 228 00:12:45,240 --> 00:12:49,160 Speaker 5: the current number to what they expected, the central bankers 229 00:12:49,160 --> 00:12:52,400 Speaker 5: should really be worried more about long term trends. So 230 00:12:52,800 --> 00:12:55,600 Speaker 5: long term trends don't get affected as much by a 231 00:12:55,640 --> 00:12:58,560 Speaker 5: single data point, so you should smooth through most of 232 00:12:58,600 --> 00:13:01,320 Speaker 5: that data, and that's what most forecasts end up doing. 233 00:13:02,040 --> 00:13:04,920 Speaker 4: Do you think there's concern though, that now the US 234 00:13:05,080 --> 00:13:07,520 Speaker 4: data is no longer considered the gold standard given the 235 00:13:07,520 --> 00:13:11,840 Speaker 4: fact that the President ousted the commissioner of the BLS. 236 00:13:12,440 --> 00:13:16,719 Speaker 5: Well, it depends on who he gets who replaces at 237 00:13:16,760 --> 00:13:21,680 Speaker 5: the BLS, but it would be very disturbing if you 238 00:13:21,800 --> 00:13:27,120 Speaker 5: didn't have reliance on the data, and the US not 239 00:13:27,240 --> 00:13:30,920 Speaker 5: just the BLS data, but the GDP data, the inflation data. 240 00:13:31,640 --> 00:13:34,520 Speaker 5: All that data is critical to making good policy choices. 241 00:13:35,000 --> 00:13:38,880 Speaker 5: And if that data is manipulated in some way so 242 00:13:38,920 --> 00:13:41,719 Speaker 5: that you can't rely on it, it becomes very problematic 243 00:13:41,760 --> 00:13:47,679 Speaker 5: for policy. And while the initial changes are probably not 244 00:13:47,720 --> 00:13:51,000 Speaker 5: going to be that noticeable, over time it can create 245 00:13:51,040 --> 00:13:53,360 Speaker 5: havoc and I think you see examples of that or 246 00:13:53,400 --> 00:13:56,280 Speaker 5: the Wall Street Journal did an article on what happened 247 00:13:56,280 --> 00:14:01,120 Speaker 5: in Argentina when they started manipulating the data. China has 248 00:14:01,160 --> 00:14:04,240 Speaker 5: been famous for dropping series that didn't work in the 249 00:14:04,240 --> 00:14:07,120 Speaker 5: way they were hoping so. For example, youth unemployment is 250 00:14:07,160 --> 00:14:12,600 Speaker 5: not reported anymore on a consistent basis, but you see 251 00:14:13,280 --> 00:14:15,199 Speaker 5: young people coming to the United States because they can't 252 00:14:15,240 --> 00:14:18,200 Speaker 5: get jobs in China. So you can conceal to some 253 00:14:18,400 --> 00:14:21,960 Speaker 5: extent data and for months to month you can get 254 00:14:22,000 --> 00:14:25,440 Speaker 5: slightly better numbers, but over time, if you're manipulating, the 255 00:14:25,520 --> 00:14:27,200 Speaker 5: data becomes obvious to the public. 256 00:14:27,640 --> 00:14:33,320 Speaker 4: Eric the President's nomination to fill Governor Coogler seat Stephen Myron, 257 00:14:33,400 --> 00:14:35,920 Speaker 4: is an individual that is already working with him as 258 00:14:36,000 --> 00:14:38,880 Speaker 4: one of his economists the head of the CEA. Less 259 00:14:38,920 --> 00:14:41,480 Speaker 4: than a year ago, Myron was against cuts at the FED. 260 00:14:42,200 --> 00:14:45,480 Speaker 4: Does he look purely political now, potentially to his new 261 00:14:45,520 --> 00:14:46,600 Speaker 4: colleagues at the FOMC. 262 00:14:48,800 --> 00:14:52,320 Speaker 5: I think there is a consistency problem. He has traditionally 263 00:14:52,360 --> 00:14:55,400 Speaker 5: been somebody very concerned about the inflation part of the mandate, 264 00:14:56,120 --> 00:14:59,640 Speaker 5: and so his newfound interest in the labor market and 265 00:14:59,640 --> 00:15:05,880 Speaker 5: the ne to lower interest rates looks somewhat out of 266 00:15:06,040 --> 00:15:09,280 Speaker 5: character from what he was concerned about. Over time, he's 267 00:15:09,320 --> 00:15:12,880 Speaker 5: written about being concerned that there's too much politics of 268 00:15:12,960 --> 00:15:16,680 Speaker 5: the FED. He obviously has been a strong proponent of 269 00:15:16,720 --> 00:15:20,520 Speaker 5: this administration's policies and seems to be a proponent of 270 00:15:20,640 --> 00:15:23,840 Speaker 5: lowering interest rates, which has been advocated by the administration. 271 00:15:24,840 --> 00:15:27,120 Speaker 5: So if what you're looking for is an independent FED, 272 00:15:27,600 --> 00:15:30,880 Speaker 5: he probably is not the perfect choice to ratify an 273 00:15:30,880 --> 00:15:31,720 Speaker 5: independent FED. 274 00:15:32,160 --> 00:15:34,360 Speaker 2: Eric I appreciate your opinion. Thank you, sir, the former 275 00:15:34,400 --> 00:15:47,280 Speaker 2: Poston FED president Eric Riisenkrant Henry to try to fight 276 00:15:47,320 --> 00:15:49,520 Speaker 2: a pound it joined us. Now for more, Henrietta, can 277 00:15:49,520 --> 00:15:52,040 Speaker 2: you think of another example of something like this plank 278 00:15:52,080 --> 00:15:53,680 Speaker 2: out in your lifetime? 279 00:15:55,240 --> 00:15:56,280 Speaker 6: Certainly not at BIS. 280 00:15:56,360 --> 00:15:59,440 Speaker 1: Wendy points it out exactly, there's not another example like this. 281 00:16:00,040 --> 00:16:02,400 Speaker 1: I think the most interesting way to look at this 282 00:16:02,640 --> 00:16:05,200 Speaker 1: is to see the President sort of expanding out beyond 283 00:16:05,240 --> 00:16:08,840 Speaker 1: something that was a very real concern for him on Friday, 284 00:16:08,880 --> 00:16:10,920 Speaker 1: if you followed his truth social posts, it was very 285 00:16:10,960 --> 00:16:13,400 Speaker 1: much about these court cases that are pending around the 286 00:16:13,400 --> 00:16:16,040 Speaker 1: AEPA tariffs. So if the President is going to be 287 00:16:16,360 --> 00:16:19,880 Speaker 1: stripped of his authority to impose taris via EPA, is 288 00:16:19,920 --> 00:16:23,360 Speaker 1: he giving himself some sort of additional leverage point with 289 00:16:23,440 --> 00:16:28,600 Speaker 1: export controls and selling them to effectively the basic way 290 00:16:28,680 --> 00:16:31,120 Speaker 1: of just getting trade flowing and having some sort of 291 00:16:31,160 --> 00:16:32,640 Speaker 1: card to play with China. 292 00:16:32,640 --> 00:16:34,760 Speaker 6: I think that's an interesting angle to think about. 293 00:16:35,440 --> 00:16:38,000 Speaker 1: I think the AIPA court case story is the most 294 00:16:38,280 --> 00:16:40,920 Speaker 1: critical here, and the President obviously was focused on that 295 00:16:41,000 --> 00:16:44,040 Speaker 1: on Friday, and then this announcement makes sense in that context. 296 00:16:44,120 --> 00:16:46,560 Speaker 4: Henrieta, If you're in a C suite of a massive 297 00:16:46,600 --> 00:16:48,840 Speaker 4: American company and you see what's playing out right now 298 00:16:48,880 --> 00:16:51,320 Speaker 4: with Nvidia and AMD, is this a new risk that 299 00:16:51,400 --> 00:16:54,040 Speaker 4: you need to contend with that potentially if you want 300 00:16:54,080 --> 00:16:57,720 Speaker 4: to export your products to outside of the United States, 301 00:16:57,880 --> 00:16:59,840 Speaker 4: you might have to pay the US government. 302 00:17:00,880 --> 00:17:03,960 Speaker 1: I think it's completely stands to reason, and every single 303 00:17:04,040 --> 00:17:06,200 Speaker 1: one of these trade deals has some sort of pay 304 00:17:06,440 --> 00:17:09,320 Speaker 1: mint component. And what happens is we get these original 305 00:17:09,320 --> 00:17:12,119 Speaker 1: announcements and then they get materially walked back. So this 306 00:17:12,160 --> 00:17:14,920 Speaker 1: one's pretty cut and dry fifteen percent in the event 307 00:17:14,920 --> 00:17:17,480 Speaker 1: that that's where it lands. But think about the Japan deal, 308 00:17:17,520 --> 00:17:19,879 Speaker 1: for example, the White House set that's five hundred and 309 00:17:19,920 --> 00:17:22,400 Speaker 1: fifty billion dollars worth of investment that's going to flow 310 00:17:22,440 --> 00:17:23,240 Speaker 1: to the United States. 311 00:17:23,320 --> 00:17:24,440 Speaker 6: We get ninety percent of. 312 00:17:24,359 --> 00:17:27,320 Speaker 1: The returns, But the reality is that only eleven billion 313 00:17:27,400 --> 00:17:30,679 Speaker 1: dollars of that five hundred billion that Japan committed to 314 00:17:31,119 --> 00:17:34,080 Speaker 1: is going to come from the Japan bank. Everything else 315 00:17:34,200 --> 00:17:36,239 Speaker 1: is going to come from private sector that you have 316 00:17:36,280 --> 00:17:39,280 Speaker 1: no control over. So there are these big numbers floated 317 00:17:39,320 --> 00:17:42,880 Speaker 1: and then they're almost always revised. Another example, to give 318 00:17:42,880 --> 00:17:45,399 Speaker 1: you another one down would be the gold tariffs that 319 00:17:45,480 --> 00:17:49,040 Speaker 1: are happening right now. This sort of rampant confusion before 320 00:17:49,040 --> 00:17:51,879 Speaker 1: there's an ultimate clarity is really the prevailing theme of 321 00:17:51,880 --> 00:17:52,639 Speaker 1: this administration. 322 00:17:53,080 --> 00:17:55,439 Speaker 4: Okay, but when you're talking about pay components, when it 323 00:17:55,440 --> 00:17:59,080 Speaker 4: comes to other trade negotiators, it's about investing in the 324 00:17:59,200 --> 00:18:03,719 Speaker 4: United States. That means money and jobs, jobs for Americans 325 00:18:03,760 --> 00:18:07,000 Speaker 4: coming into the United States. This is purely about just 326 00:18:07,119 --> 00:18:09,480 Speaker 4: paying some of your profit streams for chips that at 327 00:18:09,480 --> 00:18:12,320 Speaker 4: one point you are already sending to China to the 328 00:18:12,440 --> 00:18:14,760 Speaker 4: US government. How is this in line what the Trump 329 00:18:14,800 --> 00:18:17,560 Speaker 4: administration and the campaign ran on. 330 00:18:18,440 --> 00:18:20,680 Speaker 6: Well, it's definitely not consistent at all. 331 00:18:20,720 --> 00:18:23,800 Speaker 1: Either there was a national security threat exposed to these 332 00:18:23,960 --> 00:18:26,120 Speaker 1: chip sales, which is something that we've been dealing with 333 00:18:26,160 --> 00:18:29,080 Speaker 1: for at least a decade, or you can just pay 334 00:18:29,280 --> 00:18:31,760 Speaker 1: your way around it and it's no longer a national 335 00:18:31,840 --> 00:18:35,720 Speaker 1: security threat. They are two mutually exclusive developments. And I 336 00:18:35,760 --> 00:18:38,440 Speaker 1: think again it goes back to the president needing more 337 00:18:38,520 --> 00:18:43,560 Speaker 1: chips in the China negotiations, because, for example, the export 338 00:18:43,760 --> 00:18:47,240 Speaker 1: of US soy and agriculture. 339 00:18:46,600 --> 00:18:49,800 Speaker 6: Goods is down fifteen fifty percent. 340 00:18:49,720 --> 00:18:51,760 Speaker 1: In just the last six months, dropped from like eleven 341 00:18:51,800 --> 00:18:53,800 Speaker 1: and a half billion dollars worth of sales to five 342 00:18:53,840 --> 00:18:56,880 Speaker 1: and a half. The president needs more ammunition, and if 343 00:18:56,880 --> 00:19:00,400 Speaker 1: he can somehow create a reliance, which is what we've 344 00:19:00,400 --> 00:19:03,680 Speaker 1: heard from the Nvidia CEO on US chip sales, then 345 00:19:03,720 --> 00:19:05,919 Speaker 1: that gives some additional leverage perhaps down the line, but 346 00:19:05,960 --> 00:19:09,080 Speaker 1: it's definitely mutually exclusive to the national security argument. 347 00:19:09,160 --> 00:19:11,280 Speaker 2: How much leverage do they have right now Handwritter, I 348 00:19:11,320 --> 00:19:13,400 Speaker 2: think that's worth exploring. If you look at the Chinese 349 00:19:13,400 --> 00:19:17,000 Speaker 2: export numbers, they seem to be doing okay. The export 350 00:19:17,160 --> 00:19:20,520 Speaker 2: numbers are up, the exports to just go into other places. 351 00:19:20,720 --> 00:19:22,359 Speaker 2: Is this important to them in the same way it 352 00:19:22,480 --> 00:19:25,399 Speaker 2: was maybe six months ago, maybe several years ago, four 353 00:19:25,480 --> 00:19:26,320 Speaker 2: or five years ago. 354 00:19:27,040 --> 00:19:27,320 Speaker 6: Yeah. 355 00:19:27,320 --> 00:19:29,720 Speaker 1: Absolutely, And this is what you always have heard from 356 00:19:29,800 --> 00:19:30,760 Speaker 1: China very consistently. 357 00:19:30,800 --> 00:19:33,040 Speaker 6: The United States is a bully, come do business with us. 358 00:19:33,240 --> 00:19:36,399 Speaker 1: We're seeing it operate in Africa right now and the 359 00:19:36,440 --> 00:19:39,199 Speaker 1: EU and other nations in the Southeast Asian region. 360 00:19:39,640 --> 00:19:41,000 Speaker 6: And one of the things to. 361 00:19:41,000 --> 00:19:42,879 Speaker 1: Be mindful of as we get into this is that 362 00:19:42,920 --> 00:19:45,719 Speaker 1: the president has threatened one hundred and forty five percent 363 00:19:45,760 --> 00:19:48,600 Speaker 1: tires eighty percent would be the rate that goes into 364 00:19:48,640 --> 00:19:50,960 Speaker 1: effect on August twelfth, that they don't reach a detant. 365 00:19:51,280 --> 00:19:56,160 Speaker 1: But China plainly has the president in a corner around 366 00:19:56,320 --> 00:20:01,320 Speaker 1: magnets and rare earths that debilitate the automate and defense. 367 00:20:00,960 --> 00:20:02,600 Speaker 6: Sectors win one fell swoop. 368 00:20:02,920 --> 00:20:05,720 Speaker 1: So the reason that the ninety day pause is the 369 00:20:05,760 --> 00:20:08,119 Speaker 1: base case on the street is because the president threatened 370 00:20:08,119 --> 00:20:09,720 Speaker 1: too much and he's not going to get it. 371 00:20:09,720 --> 00:20:10,959 Speaker 6: We don't have the capacity for that. 372 00:20:11,000 --> 00:20:13,600 Speaker 1: Goldman's coming out with you sixty seven percent inflation hike 373 00:20:13,880 --> 00:20:16,800 Speaker 1: to the US consumer and prime prices being passed on. 374 00:20:17,080 --> 00:20:18,800 Speaker 6: We do not have that ability right now. 375 00:20:18,840 --> 00:20:20,800 Speaker 1: It's the same reason not to go to too many places, 376 00:20:20,920 --> 00:20:22,800 Speaker 1: the same reason you're not saying the Russia sanctions go 377 00:20:22,840 --> 00:20:25,520 Speaker 1: into effect. You cannot mess with oil and gas prices 378 00:20:25,520 --> 00:20:27,280 Speaker 1: when we have this risk of inflation coming. 379 00:20:27,520 --> 00:20:29,960 Speaker 2: What would be helpful is if the Europeans another trade 380 00:20:29,960 --> 00:20:32,280 Speaker 2: pound has gone on side with the United States to 381 00:20:32,280 --> 00:20:34,440 Speaker 2: put the pressure on China's for the pressure on another 382 00:20:34,520 --> 00:20:37,080 Speaker 2: trade pond. And do you see those pieces coming together 383 00:20:37,359 --> 00:20:39,320 Speaker 2: anytime soon, I. 384 00:20:39,400 --> 00:20:41,719 Speaker 6: Don't, And think about what we have pending. 385 00:20:41,840 --> 00:20:46,040 Speaker 1: You've got Section two thirty two, pharmaceutical tires, automobiles, automobile parts, 386 00:20:46,080 --> 00:20:50,320 Speaker 1: semiconductor chips, all those outstanding components. And the EU is 387 00:20:50,359 --> 00:20:52,680 Speaker 1: not at all thrilled with the deal that was reached 388 00:20:52,680 --> 00:20:54,439 Speaker 1: a couple weeks back with the United States. 389 00:20:54,480 --> 00:20:56,840 Speaker 6: So that block is fractured to. 390 00:20:56,800 --> 00:20:58,680 Speaker 1: The point where we don't even have legally binding texts, 391 00:20:58,720 --> 00:21:00,600 Speaker 1: and we might not for months now. I don't see 392 00:21:00,640 --> 00:21:04,439 Speaker 1: that coming around. We don't have Canada even, you know, 393 00:21:04,480 --> 00:21:05,840 Speaker 1: so I think we're quite a ways away. 394 00:21:06,040 --> 00:21:07,800 Speaker 4: What kind of way does the US have when it 395 00:21:07,800 --> 00:21:10,320 Speaker 4: goes to Brussels and say, really put the screws to China, 396 00:21:10,400 --> 00:21:12,920 Speaker 4: given the fact that now the United States is saying, well, 397 00:21:13,080 --> 00:21:15,600 Speaker 4: actually we'll send some chips that we thought were national 398 00:21:15,600 --> 00:21:17,520 Speaker 4: security concerned, but you just have to give us some 399 00:21:17,560 --> 00:21:18,040 Speaker 4: of the profit. 400 00:21:19,000 --> 00:21:22,040 Speaker 1: You know, this is really the underlining issue that all 401 00:21:22,080 --> 00:21:25,680 Speaker 1: of our trading partners has had. Who is the ultimate decider? 402 00:21:25,720 --> 00:21:27,440 Speaker 1: Where is the line in the sand? 403 00:21:27,560 --> 00:21:28,920 Speaker 6: What are we even negotiating? 404 00:21:29,200 --> 00:21:31,440 Speaker 1: And that's been a consistent theme that we've seen from 405 00:21:31,480 --> 00:21:34,280 Speaker 1: Japan and Korea and the EU is what is it 406 00:21:34,280 --> 00:21:36,560 Speaker 1: that we can offer, What can we commit to and 407 00:21:36,880 --> 00:21:39,760 Speaker 1: write into legally binding text on our end that we 408 00:21:39,800 --> 00:21:42,359 Speaker 1: can then go and operate with around the world. And 409 00:21:42,359 --> 00:21:45,000 Speaker 1: that's not something that they have any ability to even 410 00:21:45,040 --> 00:21:48,200 Speaker 1: get in the room in a timely manner to have 411 00:21:48,240 --> 00:21:51,520 Speaker 1: that conversation. And there are so many outstanding issues, and 412 00:21:51,520 --> 00:21:53,720 Speaker 1: I would just say one more time here, the market 413 00:21:53,800 --> 00:21:55,840 Speaker 1: is not a the inflation is not a one and 414 00:21:55,920 --> 00:21:58,840 Speaker 1: done situation. We're still going to get lumber TIFFs on 415 00:21:58,960 --> 00:22:01,080 Speaker 1: Canada on top of the ones that the President put 416 00:22:01,119 --> 00:22:04,560 Speaker 1: into effect on Friday. We still have outstanding sectoral tire 417 00:22:04,720 --> 00:22:07,560 Speaker 1: risks with all of these major trading partners from Switzerland 418 00:22:07,560 --> 00:22:10,600 Speaker 1: to Ireland. There's no certainty here and I don't have 419 00:22:10,760 --> 00:22:12,520 Speaker 1: any reason to think that that would end in the 420 00:22:12,560 --> 00:22:13,320 Speaker 1: next three years. 421 00:22:13,600 --> 00:22:16,920 Speaker 2: Just briefly, how much money is coming in in the meantime, Henritta, 422 00:22:17,119 --> 00:22:18,600 Speaker 2: Just how much we take it in month on month 423 00:22:18,600 --> 00:22:19,119 Speaker 2: of the moment. 424 00:22:19,640 --> 00:22:21,440 Speaker 1: I think last I saw it was twenty seven billion 425 00:22:21,480 --> 00:22:23,840 Speaker 1: dollars a month. So ultimately, this is a two point 426 00:22:23,920 --> 00:22:27,120 Speaker 1: seven trillion dollar revenue raiser that the United States consumer 427 00:22:27,200 --> 00:22:30,960 Speaker 1: pays for, and the inflation numbers are going to get compounded, 428 00:22:31,000 --> 00:22:33,080 Speaker 1: because again this is not a one and done event. 429 00:22:33,359 --> 00:22:36,080 Speaker 1: Tariffs have increased at least a dozen times just in 430 00:22:36,119 --> 00:22:38,919 Speaker 1: the last six months, and there are at nine on 431 00:22:39,000 --> 00:22:41,440 Speaker 1: the horizon just in the sectoral tires, without even getting 432 00:22:41,480 --> 00:22:45,040 Speaker 1: into three oh ones on Brazil or the AEPA tariffs 433 00:22:45,119 --> 00:22:46,760 Speaker 1: and whether or not those can be maintained, and then 434 00:22:46,760 --> 00:22:48,840 Speaker 1: we're going to throw export control restrictions on top. 435 00:22:49,080 --> 00:22:49,919 Speaker 6: There's a long way. 436 00:22:49,760 --> 00:22:52,280 Speaker 2: To god Trice if I'd have found us, henretta thank 437 00:22:52,320 --> 00:23:04,239 Speaker 2: you and place to side. The man himself joins us. 438 00:23:04,240 --> 00:23:06,520 Speaker 2: Now for more, Ryan, welcome to the program sir. Just 439 00:23:06,520 --> 00:23:10,080 Speaker 2: describe if you can, the activity that you've seen over 440 00:23:10,119 --> 00:23:13,440 Speaker 2: the past few months, the rush to secure air freight, 441 00:23:13,480 --> 00:23:15,119 Speaker 2: all kinds of things. Ryan, what are you seeing? 442 00:23:16,680 --> 00:23:17,720 Speaker 6: Yeah, thanks for having me on. 443 00:23:17,760 --> 00:23:20,879 Speaker 7: Well, it's been crazy volatile ever since the Liberation Day 444 00:23:20,920 --> 00:23:23,199 Speaker 7: tariffs were announced. You had immediately after that, you had 445 00:23:23,240 --> 00:23:26,320 Speaker 7: a sixty percent decline in ocean freight bookings from China 446 00:23:26,440 --> 00:23:29,119 Speaker 7: to the US that lasted about five weeks, so just 447 00:23:29,160 --> 00:23:31,720 Speaker 7: a massive decline of freight coming out of China. 448 00:23:33,240 --> 00:23:34,400 Speaker 6: You then had, once. 449 00:23:34,200 --> 00:23:37,479 Speaker 7: The terrorists were relaxed, the surge to eighty percent above 450 00:23:37,520 --> 00:23:40,280 Speaker 7: the pre tariff level of volumes. That's what I was 451 00:23:40,320 --> 00:23:44,160 Speaker 7: describing in that tweet, And now now this I think 452 00:23:44,160 --> 00:23:45,880 Speaker 7: that was from a couple of weeks ago, because things 453 00:23:45,880 --> 00:23:49,000 Speaker 7: have been settling in and now we're seeing the real 454 00:23:49,040 --> 00:23:53,119 Speaker 7: effective terariffs, which is people shipping left stuff. Prices devotion 455 00:23:53,200 --> 00:23:56,600 Speaker 7: freight are coming way down back to you know, we're 456 00:23:56,640 --> 00:23:58,840 Speaker 7: probably over the next few weeks going to see prices 457 00:23:58,880 --> 00:24:01,280 Speaker 7: back to levels that we saw we haven't seen since 458 00:24:01,320 --> 00:24:04,480 Speaker 7: after the pandemic in like twenty twenty three, when prices 459 00:24:04,480 --> 00:24:06,639 Speaker 7: were quite low. So I don't know if you call 460 00:24:06,680 --> 00:24:09,280 Speaker 7: that normalizing or just like doing what you would predict, 461 00:24:09,280 --> 00:24:11,720 Speaker 7: which is tariff should lead to less freight, which should 462 00:24:11,760 --> 00:24:15,440 Speaker 7: lead to lower prices, and it's not great for companies 463 00:24:15,440 --> 00:24:16,360 Speaker 7: involved in the business. 464 00:24:16,880 --> 00:24:20,600 Speaker 4: Geographically, Ryan, what ports are dealing with really soft demand. 465 00:24:23,440 --> 00:24:26,000 Speaker 7: I assume that it's pretty evenly distributed across all the ports. 466 00:24:26,000 --> 00:24:28,640 Speaker 7: I don't think there's a trend by poor It's actually 467 00:24:28,840 --> 00:24:31,159 Speaker 7: one thing that has happened here is the airports because 468 00:24:31,760 --> 00:24:35,639 Speaker 7: when the tariffs are announced with such short deadlines, you 469 00:24:35,720 --> 00:24:39,080 Speaker 7: see this huge rush to ship air freight in and 470 00:24:39,119 --> 00:24:41,600 Speaker 7: that sort of ended last a couple of days ago. 471 00:24:41,600 --> 00:24:43,480 Speaker 7: At the end of last week when the new tariffs 472 00:24:43,560 --> 00:24:46,840 Speaker 7: took effect, but in the prior two or three weeks 473 00:24:46,880 --> 00:24:50,240 Speaker 7: to that, there was this huge switch between from ocean 474 00:24:50,240 --> 00:24:52,640 Speaker 7: freight to air freight. So because I met one customer 475 00:24:52,640 --> 00:24:55,560 Speaker 7: said they saved two million dollars by switching four containers 476 00:24:56,000 --> 00:24:58,800 Speaker 7: from ocean freight to air freight, just by beating the tariffs, 477 00:24:59,080 --> 00:24:59,680 Speaker 7: we seem. 478 00:24:59,480 --> 00:25:03,240 Speaker 4: This administry should really try to go after transhipment. How 479 00:25:03,359 --> 00:25:06,560 Speaker 4: is that affecting the supply chains and what you're tracking. 480 00:25:08,280 --> 00:25:11,199 Speaker 7: Yeah, this new transhipment rule is quite interesting. So like 481 00:25:11,240 --> 00:25:14,480 Speaker 7: basically what they've said is that if you have a 482 00:25:14,600 --> 00:25:18,040 Speaker 7: one duty rate, which is around twenty percent or goods 483 00:25:18,080 --> 00:25:21,800 Speaker 7: from for example, Vietnam, but if the goods are determined 484 00:25:21,800 --> 00:25:25,800 Speaker 7: to be transshipped from another country through Vietnam, then the 485 00:25:25,880 --> 00:25:28,800 Speaker 7: duty rate is much higher. This is a very strange 486 00:25:28,800 --> 00:25:34,240 Speaker 7: policy because historically an all precedent of country of origin rules, 487 00:25:35,000 --> 00:25:37,880 Speaker 7: then the Vietnam has nothing to do with the duty rate. 488 00:25:37,960 --> 00:25:41,879 Speaker 7: If they're tranship for Vietnam, the duty rate is still China. 489 00:25:42,720 --> 00:25:45,080 Speaker 7: China's duty rate is not Vietnam. So it's quite a 490 00:25:45,119 --> 00:25:48,760 Speaker 7: confusing rule from those in the industry. What we're basically saying, is, hey, 491 00:25:48,800 --> 00:25:51,359 Speaker 7: in addition to going to jail for committing customs fraud, 492 00:25:51,600 --> 00:25:53,600 Speaker 7: you're also going to have to pay a higher duty rates. 493 00:25:53,640 --> 00:25:56,320 Speaker 7: I mean, I guess it's effective, but it's very strange policy. 494 00:25:56,520 --> 00:25:59,800 Speaker 4: But have you actually seen it work when you're tracking 495 00:26:00,119 --> 00:26:01,040 Speaker 4: all of this cargo? 496 00:26:02,320 --> 00:26:04,159 Speaker 7: No, it's not, I mean, because it's a sort of 497 00:26:04,160 --> 00:26:06,639 Speaker 7: a nonsense. It's basically saying, hey, if you're committing fraud 498 00:26:06,760 --> 00:26:08,920 Speaker 7: and then you have to pay a higher duty rate, well, 499 00:26:09,240 --> 00:26:11,440 Speaker 7: I mean the fraud the penalties were already much worse 500 00:26:11,440 --> 00:26:14,040 Speaker 7: for committing fraud than a higher duty rates. So now 501 00:26:14,080 --> 00:26:16,360 Speaker 7: we haven't seen anything like change because of it. 502 00:26:16,880 --> 00:26:19,920 Speaker 2: Right, How creative are people getting? What kind of mitigation strategies? 503 00:26:19,920 --> 00:26:22,000 Speaker 2: How are they introducing? What are you suggesting? What are 504 00:26:22,000 --> 00:26:22,760 Speaker 2: you advocating for? 505 00:26:23,680 --> 00:26:26,840 Speaker 7: Yeah, I mean, first I'm advocating is don't do anything illegal. 506 00:26:26,840 --> 00:26:28,760 Speaker 7: And there's a lot of incentive to break the rules 507 00:26:28,840 --> 00:26:31,960 Speaker 7: now because you know and you do see people who 508 00:26:32,000 --> 00:26:35,920 Speaker 7: are who are breaking the rules now. For example, if 509 00:26:35,960 --> 00:26:40,000 Speaker 7: you import goods from China and the Chinese company serves 510 00:26:40,040 --> 00:26:43,120 Speaker 7: as the importer, and all you do is the American 511 00:26:43,160 --> 00:26:45,360 Speaker 7: company that used to import them, and now you're just saying, hey, 512 00:26:45,359 --> 00:26:48,200 Speaker 7: I buy them in America. The Chinese company imported them 513 00:26:48,800 --> 00:26:51,400 Speaker 7: and they happened to cheat on the customs duties. That's 514 00:26:51,440 --> 00:26:53,840 Speaker 7: not my fault. Well, guess what customs will hold you liable. 515 00:26:54,600 --> 00:26:56,439 Speaker 7: That's not a loophole that you can get out of 516 00:26:56,600 --> 00:27:00,280 Speaker 7: so easily as that's what's legal. And what we're vising 517 00:27:00,280 --> 00:27:02,280 Speaker 7: people to do is look very closely at three things. 518 00:27:02,600 --> 00:27:05,479 Speaker 7: One is the valuation of the goods, two is the 519 00:27:05,520 --> 00:27:08,960 Speaker 7: country of origin, and three is the classification. Now all 520 00:27:09,000 --> 00:27:11,320 Speaker 7: of these seem like black and white, but they're not. 521 00:27:11,720 --> 00:27:14,320 Speaker 7: This is the law, this is regulation, and therefore there's 522 00:27:14,320 --> 00:27:17,240 Speaker 7: a lot of room for expertise to come in and 523 00:27:17,359 --> 00:27:19,280 Speaker 7: identify what is the gray area and what is the 524 00:27:19,359 --> 00:27:21,200 Speaker 7: legal grayer. How do you say on the right side 525 00:27:21,200 --> 00:27:24,320 Speaker 7: of that legal area, And some of it's not grey, 526 00:27:24,359 --> 00:27:28,960 Speaker 7: it's just like sophisticated so on valuation. If you provided 527 00:27:29,040 --> 00:27:32,879 Speaker 7: capex assistance to your factory, or there's other rules that 528 00:27:32,960 --> 00:27:35,840 Speaker 7: you can say, how that lowered the value of the goods, 529 00:27:36,160 --> 00:27:38,159 Speaker 7: you would pay less triff. You got to do it legally, though, 530 00:27:38,240 --> 00:27:41,640 Speaker 7: make sure you have an expert on the country of origin. 531 00:27:42,080 --> 00:27:44,600 Speaker 7: Similar things, how do you classify this, How do you 532 00:27:44,680 --> 00:27:48,160 Speaker 7: qualify this as being the country of origin that has 533 00:27:48,160 --> 00:27:51,359 Speaker 7: the lower duty rate. There's a lot of sophistication in 534 00:27:51,400 --> 00:27:54,000 Speaker 7: that as well, saying hey, did you apply enough new 535 00:27:54,119 --> 00:27:57,760 Speaker 7: value added either materials or labor in that other country 536 00:27:57,800 --> 00:28:01,600 Speaker 7: to change the country of origin? Legal not committing fraud? 537 00:28:03,119 --> 00:28:06,520 Speaker 7: And the third ist classification. It's illegal to change the 538 00:28:06,560 --> 00:28:09,399 Speaker 7: classification of your goods in order to achieve a lower 539 00:28:09,480 --> 00:28:12,760 Speaker 7: duty rate. But if the correct classification of your goods 540 00:28:12,800 --> 00:28:15,040 Speaker 7: happens to have a lower duty rate, you win. So 541 00:28:15,359 --> 00:28:17,119 Speaker 7: there's again a lot of work that needs to be 542 00:28:17,119 --> 00:28:19,760 Speaker 7: done by sophisticated people who understand these rules that can 543 00:28:19,760 --> 00:28:21,760 Speaker 7: help you out. Plus Forard as a team that does this, 544 00:28:21,800 --> 00:28:23,280 Speaker 7: as too many other companies. 545 00:28:22,960 --> 00:28:25,080 Speaker 2: Run, are you finding them more work just means more time? 546 00:28:25,280 --> 00:28:26,320 Speaker 2: Is this slimming things down? 547 00:28:28,359 --> 00:28:33,040 Speaker 7: Yeah, it's definitely increasing costs for everybody in myriad ways. 548 00:28:33,040 --> 00:28:35,280 Speaker 7: I mean, even just if you want to bring goods 549 00:28:35,280 --> 00:28:38,600 Speaker 7: to another country, transform them change their country of origin 550 00:28:38,680 --> 00:28:40,840 Speaker 7: and lower their duty rate. I mean there's a lot 551 00:28:40,840 --> 00:28:44,440 Speaker 7: of extra work, a lot of extra shipping time, labor processing. 552 00:28:44,520 --> 00:28:48,120 Speaker 7: You've increased the cost plus the duties. So yeah, certainly 553 00:28:48,160 --> 00:28:51,280 Speaker 7: this is not making trade more seamless, that's for sure. 554 00:28:51,640 --> 00:28:53,719 Speaker 4: Ryan, Based on what you're seeing, is there anyone that 555 00:28:53,760 --> 00:28:56,840 Speaker 4: thinks that the US and China won't extend this deadline 556 00:28:56,880 --> 00:28:59,880 Speaker 4: of their agreement their truths that's up tomorrow. 557 00:29:01,640 --> 00:29:03,400 Speaker 7: Yeah, I mean, I'm sure lots of people think they 558 00:29:03,440 --> 00:29:05,920 Speaker 7: won't extend it, and some think they will. I haven't 559 00:29:05,920 --> 00:29:08,080 Speaker 7: looked at what the prediction markets are saying on this, 560 00:29:08,560 --> 00:29:12,280 Speaker 7: and this administration is sort of inscrutable from my perspective, 561 00:29:12,280 --> 00:29:14,320 Speaker 7: I don't really make a lot of predictions on that. 562 00:29:14,400 --> 00:29:17,560 Speaker 4: So well, are people floading and rushing before tomorrow from 563 00:29:17,640 --> 00:29:18,240 Speaker 4: China or no? 564 00:29:20,240 --> 00:29:22,720 Speaker 7: I mean at this point too late, so they were 565 00:29:23,440 --> 00:29:25,760 Speaker 7: people were moving stuff in, but no, I didn't see 566 00:29:25,800 --> 00:29:28,240 Speaker 7: a lot of frontloading on the China one. Yeah, fair enough. 567 00:29:28,240 --> 00:29:30,920 Speaker 7: From the behavior of the actual actors in the market, 568 00:29:30,920 --> 00:29:32,960 Speaker 7: it seems like they think you don't get extended run. 569 00:29:32,960 --> 00:29:35,840 Speaker 2: I appreciate your time and you're insights super valuable. As always, 570 00:29:36,040 --> 00:29:39,680 Speaker 2: Thank you, Ryan Peterson. There the flex for CEO. This 571 00:29:39,880 --> 00:29:44,400 Speaker 2: is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, 572 00:29:44,440 --> 00:29:47,400 Speaker 2: and geopolitics. You can watch the show live on Bloomberg 573 00:29:47,400 --> 00:29:50,560 Speaker 2: TV weekday mornings from six am to nine am Eastern. 574 00:29:50,880 --> 00:29:54,240 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 575 00:29:54,280 --> 00:29:56,920 Speaker 2: you listen, and as always, on the Bloomberg Terminal and 576 00:29:56,960 --> 00:29:58,200 Speaker 2: the Bloomberg Business Amp.