1 00:00:06,320 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm term Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: jay Leye. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:32,600 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg. The 5 00:00:32,720 --> 00:00:36,120 Speaker 1: story it comes from China retaliating said it would levy 6 00:00:36,120 --> 00:00:39,640 Speaker 1: in additional tariff on imports of one hundred and six 7 00:00:39,720 --> 00:00:43,720 Speaker 1: U S products including soybeans, automobiles, chemicals, and aircraft. This 8 00:00:43,840 --> 00:00:48,240 Speaker 1: in response to proposed American duties on Chinese high tech goods. 9 00:00:48,280 --> 00:00:50,280 Speaker 1: All of this in the last twenty four hours. To 10 00:00:50,360 --> 00:00:52,919 Speaker 1: draw a distinction, a line between what is the proposal 11 00:00:52,960 --> 00:00:55,480 Speaker 1: and what is actually policy, Chris Rapki joins us now 12 00:00:55,720 --> 00:00:59,720 Speaker 1: MFUG Union Bank chief financial economist, Chris, Let's drain the 13 00:00:59,760 --> 00:01:02,080 Speaker 1: draft just for a moment and look at what's on 14 00:01:02,120 --> 00:01:05,560 Speaker 1: the table. Is this a negotiation or the first shot 15 00:01:05,640 --> 00:01:09,360 Speaker 1: of a trade war? Yeah, I mean it sounded like 16 00:01:09,440 --> 00:01:12,200 Speaker 1: China was just putting this out here, this is what 17 00:01:12,240 --> 00:01:14,720 Speaker 1: they could do, but they didn't announce the date of 18 00:01:15,280 --> 00:01:19,119 Speaker 1: enacting these tariffs, So it sounds like both sides are 19 00:01:19,520 --> 00:01:23,039 Speaker 1: hitting each other pretty hard. In terms of rhetoric. But 20 00:01:23,240 --> 00:01:27,640 Speaker 1: we're aways away from finding that exports between the two 21 00:01:27,680 --> 00:01:30,000 Speaker 1: countries are going to slow down. Here, well, let's go, 22 00:01:30,160 --> 00:01:32,040 Speaker 1: let's go into what's on the table to The United 23 00:01:32,080 --> 00:01:35,960 Speaker 1: States has unveiled proposals for tariffs. They will be discussed 24 00:01:35,959 --> 00:01:38,080 Speaker 1: over the next sixty days, and the Chinese have said, 25 00:01:38,200 --> 00:01:40,720 Speaker 1: here are proposals, and in sixty days, if you implement 26 00:01:40,760 --> 00:01:44,560 Speaker 1: these tariffs as policy, we will respond and this proposal 27 00:01:44,680 --> 00:01:48,120 Speaker 1: will become policy. This seems to me, Chris like high 28 00:01:48,200 --> 00:01:51,080 Speaker 1: stake negotiations for the next sixty days. Would that be 29 00:01:51,080 --> 00:01:53,160 Speaker 1: an accurate description of what it is? Yeah, it is 30 00:01:53,240 --> 00:01:56,360 Speaker 1: high stakes, I guess one of the one of the 31 00:01:56,400 --> 00:01:59,760 Speaker 1: problems is that the president and his trade advisors have 32 00:02:00,040 --> 00:02:02,200 Speaker 1: have drawn a line in the sand. It's almost a 33 00:02:02,240 --> 00:02:05,160 Speaker 1: campaign promise that he's not going to back off of 34 00:02:05,240 --> 00:02:08,320 Speaker 1: the president and that is they there's a three seventy 35 00:02:08,600 --> 00:02:13,000 Speaker 1: billion dollar deficit in goods trade deficit in goods between 36 00:02:13,120 --> 00:02:15,120 Speaker 1: US in China. He wants to cut that by a 37 00:02:15,200 --> 00:02:18,919 Speaker 1: hundred billion. Well that a hundred billion out of three 38 00:02:19,040 --> 00:02:21,600 Speaker 1: seventy five. That's a big, big number. I don't think 39 00:02:21,639 --> 00:02:24,200 Speaker 1: he's gonna get that, So that's problem one. The other 40 00:02:24,240 --> 00:02:27,560 Speaker 1: thing that disturbs me that may make this story have 41 00:02:27,720 --> 00:02:32,000 Speaker 1: some legs besides just people pounding the table is the 42 00:02:32,080 --> 00:02:36,160 Speaker 1: intellectual property idea. The fact that the administration seems to 43 00:02:36,200 --> 00:02:40,760 Speaker 1: be going to bat for US companies doing business over there, 44 00:02:40,800 --> 00:02:44,160 Speaker 1: doing joint ventures that they don't own, giving up their 45 00:02:44,320 --> 00:02:49,360 Speaker 1: technology secrets to China production secrets for the goods they produce, 46 00:02:49,680 --> 00:02:53,520 Speaker 1: and then walking away and getting nothing. That is more intractable. 47 00:02:53,600 --> 00:02:56,360 Speaker 1: I don't know how they're going to resolve that, because 48 00:02:56,400 --> 00:03:00,360 Speaker 1: that's like a thirty year trend towards that. How how 49 00:03:00,360 --> 00:03:02,000 Speaker 1: are they going to reverse that? I don't know how. 50 00:03:02,000 --> 00:03:05,560 Speaker 1: That's good. We can get into the China made proposals 51 00:03:05,600 --> 00:03:07,560 Speaker 1: a little bit later with you, I'm sure for me, 52 00:03:07,639 --> 00:03:10,079 Speaker 1: what's on the table from the Chinese was was a 53 00:03:10,120 --> 00:03:13,079 Speaker 1: little bit of a heightened rhetoric kind of move from 54 00:03:13,080 --> 00:03:16,480 Speaker 1: the Chinese themselves by bringing soybeans into the conversation. That's 55 00:03:16,520 --> 00:03:20,240 Speaker 1: an escalation politically speaking for the United States. What's ironic 56 00:03:20,240 --> 00:03:22,200 Speaker 1: about this whole situation is for the United States, they 57 00:03:22,200 --> 00:03:26,080 Speaker 1: are reciprocating their own move from the Chinese tariffs of 58 00:03:26,080 --> 00:03:28,240 Speaker 1: their own and the Chinese are saying well, it's only 59 00:03:28,240 --> 00:03:31,000 Speaker 1: polite for us to reciprocate. The irony of that is 60 00:03:31,000 --> 00:03:33,239 Speaker 1: is that it's the United States doing the reciprocating here 61 00:03:33,400 --> 00:03:36,560 Speaker 1: and it's the Chinese escalating things. Would that be Would 62 00:03:36,560 --> 00:03:38,280 Speaker 1: that be a decent read of what's happening here? This 63 00:03:38,360 --> 00:03:41,040 Speaker 1: is an escalation from the Chinese, perhaps more from the 64 00:03:41,120 --> 00:03:43,680 Speaker 1: United States to bring soybeans into the conversation. Yes, and 65 00:03:43,760 --> 00:03:47,560 Speaker 1: it happened so quickly. It happened very very quickly. And 66 00:03:47,640 --> 00:03:50,080 Speaker 1: I think what they're doing is they're reading the political 67 00:03:50,120 --> 00:03:53,280 Speaker 1: tea leaves for the president and saying, you know, the 68 00:03:53,320 --> 00:03:58,040 Speaker 1: heartland of the country year supporters produced soybeans, and they're 69 00:03:58,040 --> 00:04:00,920 Speaker 1: going to go out of business if you can't offload 70 00:04:01,000 --> 00:04:03,360 Speaker 1: these crops to somewhere else in the world, which of 71 00:04:03,400 --> 00:04:06,840 Speaker 1: course they can't. So I think they're needling the president directly. 72 00:04:07,440 --> 00:04:09,520 Speaker 1: I mean, John Farrell, I thought your data check was great, 73 00:04:09,520 --> 00:04:11,720 Speaker 1: and yes I'm watching doll again as well, John, One 74 00:04:11,760 --> 00:04:16,599 Speaker 1: of six eighteen is really not correlated with no In fact, 75 00:04:16,640 --> 00:04:18,479 Speaker 1: you know what my take is this morning something the 76 00:04:18,560 --> 00:04:21,480 Speaker 1: real price action is just sort of isolated into equities. 77 00:04:21,520 --> 00:04:25,920 Speaker 1: It's an equity volume selected a real risk of story 78 00:04:26,080 --> 00:04:28,160 Speaker 1: broad based risk off would be a big bit at 79 00:04:28,160 --> 00:04:29,920 Speaker 1: the front end of the tracery curve and a market 80 00:04:29,920 --> 00:04:32,880 Speaker 1: deciding that we're going to price out hikes right and 81 00:04:33,000 --> 00:04:35,480 Speaker 1: see that right or wrong? John, What I've emphasized this 82 00:04:35,520 --> 00:04:38,440 Speaker 1: morning is the complexities that are out there. Chris Repki 83 00:04:38,520 --> 00:04:42,720 Speaker 1: Michael McKee had a brilliant observation that the China US 84 00:04:42,800 --> 00:04:45,760 Speaker 1: back and forth on soybeans. Good morning all of you 85 00:04:45,839 --> 00:04:50,160 Speaker 1: on serious SEXEMP Channel one nineteen in Iowa is Argentina 86 00:04:50,200 --> 00:04:54,520 Speaker 1: because at the margin, I believe Argentina's the number two 87 00:04:55,640 --> 00:05:00,000 Speaker 1: exporter to China on soybeans. So there's a game theory 88 00:05:00,080 --> 00:05:04,760 Speaker 1: read to this that Dr Navarro and President Trump seemed 89 00:05:04,800 --> 00:05:08,720 Speaker 1: to downplay. Where are you on the game theory the 90 00:05:08,760 --> 00:05:12,120 Speaker 1: tip for tip of trade, I mean, it's a proven fact. 91 00:05:12,400 --> 00:05:15,880 Speaker 1: There's a game theory, right, yeah. I guess what it 92 00:05:15,920 --> 00:05:19,320 Speaker 1: illustrates is that there, you know, it's very difficult to 93 00:05:19,360 --> 00:05:22,000 Speaker 1: be a winner in this environment. I mean, if you 94 00:05:22,040 --> 00:05:25,560 Speaker 1: go back, didn't we slap some trade tariffs on I 95 00:05:25,600 --> 00:05:29,240 Speaker 1: believe it was steel in the Bush administration which ended 96 00:05:29,279 --> 00:05:32,360 Speaker 1: up coming back off. I think the problem is that 97 00:05:32,839 --> 00:05:35,120 Speaker 1: it looks good that you can pound the table and 98 00:05:35,160 --> 00:05:38,960 Speaker 1: put on a tariff, but it doesn't work like you 99 00:05:39,200 --> 00:05:42,880 Speaker 1: thought it would. And and again, by trying to do this, 100 00:05:43,080 --> 00:05:47,120 Speaker 1: you're trying to interrupt a trend towards globalization that has 101 00:05:47,240 --> 00:05:50,760 Speaker 1: taken place over three decades. You can't pound the table 102 00:05:50,800 --> 00:05:54,279 Speaker 1: and say we want to change it now. It's you 103 00:05:54,320 --> 00:05:57,000 Speaker 1: don't reverse something in one day that's been a thirty 104 00:05:57,080 --> 00:06:00,320 Speaker 1: year story. The problem is though, it's the Chinese haven't 105 00:06:00,320 --> 00:06:03,840 Speaker 1: been liberalizing here, Chris, and at some point someone has 106 00:06:03,880 --> 00:06:06,240 Speaker 1: to stand up and say enough is enough. The Maid 107 00:06:06,320 --> 00:06:09,280 Speaker 1: in China program, and I promise that we would get 108 00:06:09,320 --> 00:06:12,440 Speaker 1: there is a very very transparent program of the Chinese 109 00:06:12,520 --> 00:06:14,120 Speaker 1: to say to the rest of the world, here the 110 00:06:14,160 --> 00:06:18,480 Speaker 1: industries that by we want to dominate. Now. I think 111 00:06:18,480 --> 00:06:20,120 Speaker 1: it would be pretty naive for the rest of the 112 00:06:20,160 --> 00:06:23,880 Speaker 1: world to stand idly by and talk about glorious globalization 113 00:06:23,960 --> 00:06:27,359 Speaker 1: and free trade while the Chinese keep their protectionist barriers 114 00:06:27,400 --> 00:06:30,480 Speaker 1: to entry up and say, look, guys, in five we're 115 00:06:30,480 --> 00:06:33,360 Speaker 1: going to dominate all of these industries. Enjoy your free trade, 116 00:06:33,640 --> 00:06:37,360 Speaker 1: enjoy your globalism, and in your wake up and we'll 117 00:06:37,360 --> 00:06:39,719 Speaker 1: be leading the world. Why should you stand by and 118 00:06:39,760 --> 00:06:42,440 Speaker 1: just let that happen? Chris? Well, I guess that's what 119 00:06:42,480 --> 00:06:45,159 Speaker 1: we're seeing happen. By the way that the way you painted, 120 00:06:45,200 --> 00:06:47,640 Speaker 1: it's almost frightening, isn't it. It's kind of it's the 121 00:06:47,640 --> 00:06:50,280 Speaker 1: battle of who's going to be great again? Are we 122 00:06:50,360 --> 00:06:53,359 Speaker 1: going to make America great again? Is China going to 123 00:06:53,440 --> 00:06:57,839 Speaker 1: become great? There has been a completely naive, naivety about 124 00:06:57,880 --> 00:06:59,920 Speaker 1: the administration has gone by in the United States from 125 00:07:00,000 --> 00:07:02,480 Speaker 1: America for the last twenty years about this Chris. There 126 00:07:02,520 --> 00:07:05,440 Speaker 1: has been a wish, some optimism that the Chinese would 127 00:07:05,440 --> 00:07:09,000 Speaker 1: wake up and be more like America and be more 128 00:07:09,080 --> 00:07:11,240 Speaker 1: like Europe. And the message of the last few years 129 00:07:11,320 --> 00:07:13,680 Speaker 1: is that is just not going to happen. Isn't the 130 00:07:13,680 --> 00:07:17,120 Speaker 1: president onto something here? Yeah he is, but don't forget 131 00:07:17,320 --> 00:07:19,080 Speaker 1: it's going to be very They can say they want 132 00:07:19,080 --> 00:07:23,200 Speaker 1: to dominate certain industries, but it's not necessarily going to happen. 133 00:07:23,240 --> 00:07:25,600 Speaker 1: There's a lot of cars coming in from South Korea 134 00:07:25,720 --> 00:07:29,280 Speaker 1: right now. I don't see that changing. Um you know, 135 00:07:29,400 --> 00:07:32,520 Speaker 1: I know China wants to develop to develop their own 136 00:07:33,280 --> 00:07:37,840 Speaker 1: car industry like trucks and try and export those goods 137 00:07:37,840 --> 00:07:39,760 Speaker 1: to the rest of the world. But it just saying 138 00:07:39,800 --> 00:07:42,720 Speaker 1: it doesn't mean it's going to happen, So I don't know. 139 00:07:42,800 --> 00:07:46,600 Speaker 1: I mean, I wouldn't go too far with the story 140 00:07:46,720 --> 00:07:48,960 Speaker 1: on the part of China taking over the world. John Ferrell, 141 00:07:49,000 --> 00:07:51,280 Speaker 1: how far did you grow up from Lancashire? Is that 142 00:07:51,280 --> 00:07:56,160 Speaker 1: the said it right? They have a small team that 143 00:07:56,360 --> 00:07:59,680 Speaker 1: was Red Liverpool. Well, now that's what you've got to 144 00:07:59,720 --> 00:08:02,720 Speaker 1: live up. And then you've got Manchester United. Manchester United 145 00:08:02,840 --> 00:08:05,480 Speaker 1: is in Lancashire, Mancha Manchester United is more of a 146 00:08:05,560 --> 00:08:07,800 Speaker 1: Lancashire type of club. I did not know that it's 147 00:08:07,800 --> 00:08:10,360 Speaker 1: more than Northern. You probably have more money. United supports that. 148 00:08:10,440 --> 00:08:12,360 Speaker 1: I just pronounced it like John Lennon because of the 149 00:08:12,440 --> 00:08:15,720 Speaker 1: son Chris roski Let's lecture Mr Farrell on the Great 150 00:08:15,760 --> 00:08:19,800 Speaker 1: Debate here and John brings up an absolute classical economics 151 00:08:19,840 --> 00:08:23,800 Speaker 1: take we all learned from William Stanley Jevons of Lancashire, 152 00:08:23,840 --> 00:08:28,560 Speaker 1: England a million years ago about marginalia. How does the 153 00:08:28,680 --> 00:08:35,439 Speaker 1: inherent Washington Trade Group explained to the president the marginale 154 00:08:35,559 --> 00:08:39,480 Speaker 1: of William Stanley Jevons that the next action is more 155 00:08:39,520 --> 00:08:44,800 Speaker 1: important than John's good idea of getting the marginal trade 156 00:08:44,840 --> 00:08:48,840 Speaker 1: dynamics work right. Yeah, I mean, well, I mean to 157 00:08:48,920 --> 00:08:52,240 Speaker 1: me this just shows you how what a slow process 158 00:08:52,440 --> 00:08:54,760 Speaker 1: this is going to be. And if you know, there's 159 00:08:54,760 --> 00:08:57,400 Speaker 1: nothing slow about the president at John's point, I know, 160 00:08:57,520 --> 00:09:00,560 Speaker 1: but he wants that. But it's just, yeah, it's going 161 00:09:00,600 --> 00:09:04,840 Speaker 1: to be very slow in occurring putting these tariffs on, 162 00:09:05,080 --> 00:09:08,640 Speaker 1: seeing if it adjusts the trade flows. I mean in 163 00:09:08,679 --> 00:09:13,120 Speaker 1: a certain fashion. I mean, uh, tariff, maybe that's not 164 00:09:13,120 --> 00:09:16,199 Speaker 1: going to slow the exports coming in as much as 165 00:09:16,200 --> 00:09:18,120 Speaker 1: you think as well, we don't. We don't know. There's 166 00:09:18,160 --> 00:09:21,040 Speaker 1: so many unknowns here, Chris Rocky, We've got to leave 167 00:09:21,040 --> 00:09:23,160 Speaker 1: it there. But great have you with a semifug Union 168 00:09:23,160 --> 00:09:40,960 Speaker 1: Bank chief financial economists. Let's just raise the question why 169 00:09:41,040 --> 00:09:43,880 Speaker 1: is BMW starting production in China? Should I tell you why? 170 00:09:44,200 --> 00:09:46,400 Speaker 1: Because you have to produce in China. Otherwise, if you 171 00:09:46,440 --> 00:09:50,839 Speaker 1: import those BMW's into China, you face significant tariffs for 172 00:09:50,920 --> 00:09:55,359 Speaker 1: bringing luxury autos into China. It's because they have significant 173 00:09:55,360 --> 00:09:58,679 Speaker 1: barriers to entry that many of these manufacturers have to 174 00:09:58,720 --> 00:10:01,720 Speaker 1: actually produce in China. And this goes to the heart 175 00:10:01,760 --> 00:10:04,880 Speaker 1: of the debate. Tom in Washington, d C. The heart 176 00:10:04,880 --> 00:10:08,160 Speaker 1: of the debate is that the Chinese needs to open up, 177 00:10:08,440 --> 00:10:11,839 Speaker 1: and this is what is happening Michelle Meyer with No 178 00:10:12,320 --> 00:10:16,120 Speaker 1: Bank of America, Mary Lynch on international economics and really 179 00:10:16,120 --> 00:10:17,959 Speaker 1: how it folds back into the g d P of 180 00:10:18,000 --> 00:10:21,600 Speaker 1: the United States of America. Michelle, you're expert on American housing, 181 00:10:21,640 --> 00:10:24,240 Speaker 1: but you do a lot lot more for Mr Harris 182 00:10:24,360 --> 00:10:29,080 Speaker 1: and company. Do you change g DP models off of 183 00:10:29,320 --> 00:10:34,480 Speaker 1: nasty trade tip for tat Eventually you do. UM, It 184 00:10:34,559 --> 00:10:39,240 Speaker 1: just depends on how severe it gets. So for right now, 185 00:10:39,400 --> 00:10:43,520 Speaker 1: our simulations of what's been put into effect thus far 186 00:10:43,920 --> 00:10:47,920 Speaker 1: suggests a very small impact on the aggregate numbers UM. 187 00:10:48,080 --> 00:10:51,360 Speaker 1: So it is a bit more inflationary, but um, you know, 188 00:10:51,520 --> 00:10:55,280 Speaker 1: we're assuming somewhat limited paths through to overall consumer spending 189 00:10:56,200 --> 00:11:00,640 Speaker 1: from this increase in in in and import prices UM. 190 00:11:00,760 --> 00:11:03,280 Speaker 1: And then in terms of aggregate trade flows, again, it's 191 00:11:03,360 --> 00:11:05,680 Speaker 1: not a huge number that's going to move the needle 192 00:11:05,800 --> 00:11:09,040 Speaker 1: very much. So potentially it's light drag to GDP growth, 193 00:11:09,040 --> 00:11:12,200 Speaker 1: potentially a slight increase in inflation UM. But where it 194 00:11:12,240 --> 00:11:15,920 Speaker 1: becomes obviously a lot more problematic if it persists, if 195 00:11:15,920 --> 00:11:19,920 Speaker 1: we continue to see this back and forth, is retaliation UM, 196 00:11:20,080 --> 00:11:22,160 Speaker 1: where we put something in place, trying to put something 197 00:11:22,200 --> 00:11:24,840 Speaker 1: in places other economies put UM some some sort of 198 00:11:24,840 --> 00:11:28,640 Speaker 1: trade specifications in place, and it also ripples through the 199 00:11:28,679 --> 00:11:32,280 Speaker 1: financial markets, and then we have a whole different ball games, Michelle, 200 00:11:32,480 --> 00:11:35,200 Speaker 1: assuming these proposals actually get put in place and they 201 00:11:35,200 --> 00:11:38,080 Speaker 1: actually become policy, I'm going to ask that really horrible 202 00:11:38,160 --> 00:11:41,680 Speaker 1: question that economists have to answer, the percentage chance that 203 00:11:41,760 --> 00:11:44,839 Speaker 1: actually these proposals become policy. Do you have any idea 204 00:11:44,920 --> 00:11:48,280 Speaker 1: right now? Michelle, we don't. We don't, and luckily, as 205 00:11:48,440 --> 00:11:52,320 Speaker 1: you know, as economists, obviously we have to do different scenarios. UM. 206 00:11:52,360 --> 00:11:55,040 Speaker 1: But my approach in this environment where there's just been 207 00:11:55,080 --> 00:11:59,040 Speaker 1: so many political unknowns is that I wait until policies 208 00:11:59,040 --> 00:12:02,000 Speaker 1: have actually been implement did before we put them explicitly 209 00:12:02,000 --> 00:12:05,720 Speaker 1: in our forecasts. Because there's so many moving parts. The 210 00:12:05,760 --> 00:12:08,880 Speaker 1: headlines are changing a daily basis, so trying to calibrate 211 00:12:08,920 --> 00:12:14,240 Speaker 1: your forecasts UM in real time is just virtually impossible. Well, ultimately, Michelle, 212 00:12:14,240 --> 00:12:15,960 Speaker 1: you'd be kind of righting your forecast at a risk 213 00:12:16,200 --> 00:12:19,199 Speaker 1: of something happening. Does the risk of something happening damage 214 00:12:19,360 --> 00:12:21,960 Speaker 1: risk appetite in any way? Does it damage the economy 215 00:12:22,120 --> 00:12:25,080 Speaker 1: as opposed to the reality of something happening. Well, again, 216 00:12:25,120 --> 00:12:28,720 Speaker 1: that goes into the linkages and and the risk factors 217 00:12:28,720 --> 00:12:32,720 Speaker 1: would be shown through financial conditions rather than the real economy. 218 00:12:32,760 --> 00:12:35,160 Speaker 1: So until the policies are put in place, for the 219 00:12:35,240 --> 00:12:38,720 Speaker 1: most part, economic actors are not going to change their 220 00:12:38,760 --> 00:12:41,440 Speaker 1: their models. Maybe you have an uncertainty shock, you have 221 00:12:41,640 --> 00:12:45,040 Speaker 1: some draw down in terms of production, or some concern 222 00:12:45,080 --> 00:12:48,640 Speaker 1: in terms of how how companies are are are allocating 223 00:12:48,679 --> 00:12:51,960 Speaker 1: their capital um. But really, until you have the actual 224 00:12:51,960 --> 00:12:53,960 Speaker 1: policies and you have the clarity on what those policies 225 00:12:54,000 --> 00:12:56,160 Speaker 1: look like, it's hard to say that you're going to 226 00:12:56,240 --> 00:12:58,640 Speaker 1: see a reaction in the real economy. And your micro 227 00:12:58,880 --> 00:13:04,959 Speaker 1: analysis was the first quarter we're getting huge invariable opinions. Yeah, well, 228 00:13:04,960 --> 00:13:08,000 Speaker 1: the first quarter is plagued by residual seasonality and that's 229 00:13:08,000 --> 00:13:10,520 Speaker 1: what's happening now too. So GDP growth is tracking sub 230 00:13:10,559 --> 00:13:14,080 Speaker 1: two percent um. We're talking about one point seven percent 231 00:13:14,120 --> 00:13:18,480 Speaker 1: for GDP growth UM, and that's not so surprising because 232 00:13:18,520 --> 00:13:20,640 Speaker 1: we've seen it year after year, and you continue to 233 00:13:20,679 --> 00:13:24,280 Speaker 1: have this divergence between what the GDP numbers are saying 234 00:13:24,600 --> 00:13:27,760 Speaker 1: versus job growth. Job growth is very strong and GDP 235 00:13:27,880 --> 00:13:29,920 Speaker 1: is very weak, which means productivity growth in the first 236 00:13:29,960 --> 00:13:34,200 Speaker 1: quarter was John I saw residual seasonality open for Elison 237 00:13:34,280 --> 00:13:40,200 Speaker 1: Crows there there were outstanding You're but honestly you're out 238 00:13:40,200 --> 00:13:42,920 Speaker 1: of control this morning, Michelle mar you talk about GDP 239 00:13:43,080 --> 00:13:44,960 Speaker 1: track and staff of two percent. What's your base case 240 00:13:44,960 --> 00:13:46,360 Speaker 1: for the rest of the year. Because a lot of 241 00:13:46,360 --> 00:13:48,959 Speaker 1: people would talk about this firm macro backdrop and that 242 00:13:49,080 --> 00:13:53,040 Speaker 1: the fundamentals are still okay relative to expectations, things weren't 243 00:13:53,400 --> 00:13:56,800 Speaker 1: okay through Q one. Does Q two look better? It 244 00:13:56,840 --> 00:13:59,839 Speaker 1: does a little better in our opinion. How does it 245 00:14:00,000 --> 00:14:02,959 Speaker 1: look better? I'll tell that we're looking for a rebound 246 00:14:02,960 --> 00:14:05,440 Speaker 1: to mid three percent pace on for the following reasons. 247 00:14:05,960 --> 00:14:08,920 Speaker 1: UM one is we do anticipate the consumer bounces back 248 00:14:08,920 --> 00:14:11,600 Speaker 1: in the second quarter, and I think that generally speaking, 249 00:14:11,600 --> 00:14:14,960 Speaker 1: conditions are favorable for the consumer. We've had strong job worth, 250 00:14:15,040 --> 00:14:18,760 Speaker 1: we've had hints of wage growth UM consumer confidence measures 251 00:14:18,760 --> 00:14:21,520 Speaker 1: are at very strong levels, and tax cuts kicked in 252 00:14:22,160 --> 00:14:25,960 Speaker 1: UM in in their early spring, so UM that should 253 00:14:26,000 --> 00:14:30,040 Speaker 1: then further boost consumer spending. They've already brought back their 254 00:14:30,040 --> 00:14:32,160 Speaker 1: savings rate to a bit of a higher level, so 255 00:14:32,560 --> 00:14:35,120 Speaker 1: I think to get that strong rebound in the second quarter, 256 00:14:35,240 --> 00:14:38,000 Speaker 1: the onus is on the consumer UM and for right now, 257 00:14:38,000 --> 00:14:42,520 Speaker 1: our expectation is that the consumer will show through goldilocks growth, Michelle, 258 00:14:42,680 --> 00:14:45,560 Speaker 1: Is it over the story of low inflation and really 259 00:14:45,640 --> 00:14:48,400 Speaker 1: stable output numbers out swhere? Were we're gonna be talking 260 00:14:48,400 --> 00:14:52,800 Speaker 1: about that Friday? Um? You know, I think it's still 261 00:14:54,240 --> 00:14:57,240 Speaker 1: largely an environment of goldilocks growth in that I don't 262 00:14:57,320 --> 00:15:02,080 Speaker 1: think we're going to see big inflationary press sure's this year? Um? 263 00:15:02,240 --> 00:15:06,320 Speaker 1: So you know, again to find goldilocks, is it three growth, 264 00:15:06,320 --> 00:15:08,920 Speaker 1: three and a half percent growth or something softer? Um? 265 00:15:08,960 --> 00:15:10,640 Speaker 1: I think it will end up seeing something a bit 266 00:15:10,720 --> 00:15:14,520 Speaker 1: softer than that. So, yes, momentum will still be there. 267 00:15:14,600 --> 00:15:17,480 Speaker 1: We will still see output improved. Um. And I don't 268 00:15:17,520 --> 00:15:19,800 Speaker 1: think we're going to have a real inflation scare the 269 00:15:19,840 --> 00:15:22,920 Speaker 1: next few months. Though very importantly we should note the 270 00:15:22,920 --> 00:15:26,120 Speaker 1: base effects are favorable for core inflation, so we're going 271 00:15:26,200 --> 00:15:28,200 Speaker 1: to see core inflation trend up on a year of 272 00:15:28,280 --> 00:15:30,560 Speaker 1: year basis. But I don't think we're going to see 273 00:15:30,640 --> 00:15:33,880 Speaker 1: signs of consecutive months and months surprises. Let me go 274 00:15:33,920 --> 00:15:35,600 Speaker 1: to let me Michelle, let me go to what made 275 00:15:35,640 --> 00:15:38,800 Speaker 1: you famous, which is housing dynamics. What is the elasticity 276 00:15:38,920 --> 00:15:42,400 Speaker 1: or responsiveness of the thirty year fixed mortgage rate. Is 277 00:15:42,440 --> 00:15:46,040 Speaker 1: that a fossil study or do you get value in 278 00:15:46,200 --> 00:15:51,120 Speaker 1: gaming American housing by looking at what happens when we 279 00:15:51,160 --> 00:15:54,360 Speaker 1: have higher thirty year fixed mortgage? I mean, I think 280 00:15:54,360 --> 00:15:56,480 Speaker 1: you have to look at mortgage rates when you're analyzing 281 00:15:56,480 --> 00:15:59,360 Speaker 1: the housing market. It's an important input as this um 282 00:15:59,440 --> 00:16:03,600 Speaker 1: income creation and expectations for future income creation and where 283 00:16:03,640 --> 00:16:06,000 Speaker 1: you are in terms of evaluation. Home price is relative 284 00:16:06,040 --> 00:16:09,240 Speaker 1: to income and rent. So mortgage rates certainly a factor, 285 00:16:09,360 --> 00:16:11,360 Speaker 1: and that is certainly a factor that said it higher, 286 00:16:11,360 --> 00:16:14,480 Speaker 1: and it's it's potentially, you know, weighing on affordability. Now. 287 00:16:14,520 --> 00:16:16,800 Speaker 1: I do think there are offsets from the fact that 288 00:16:16,920 --> 00:16:20,360 Speaker 1: income creation has been stronger and that confidence generally speaking 289 00:16:20,360 --> 00:16:23,080 Speaker 1: around housing has been strong An important fact when you 290 00:16:23,120 --> 00:16:26,080 Speaker 1: think about home price appreciation and how mortgage rates are 291 00:16:26,080 --> 00:16:28,800 Speaker 1: going to feed into that is the supply side. We 292 00:16:28,960 --> 00:16:32,400 Speaker 1: still have a very thin market in terms of housing supply, 293 00:16:32,960 --> 00:16:35,760 Speaker 1: so even an environmental mortgage rates are heading higher, it's 294 00:16:35,920 --> 00:16:38,360 Speaker 1: obvious that's going to curb home price appreciation when you 295 00:16:38,400 --> 00:16:42,320 Speaker 1: have such limited supply out there for the majority of 296 00:16:42,360 --> 00:16:45,680 Speaker 1: the country. Michelle Ma, great to have you on the programs. 297 00:16:45,720 --> 00:17:02,200 Speaker 1: Thank you for for Bank American maror Lynche. It is 298 00:17:02,240 --> 00:17:06,879 Speaker 1: great to see a Bloomberg people go viral is Shira 299 00:17:06,960 --> 00:17:10,639 Speaker 1: overdate did two days ago where they're brilliant work on 300 00:17:10,720 --> 00:17:15,960 Speaker 1: Spotify and on their interesting transaction. Everybody picked you up, Shira, 301 00:17:16,119 --> 00:17:18,880 Speaker 1: Mike Gallen over to a CEOs, gave you major face time. 302 00:17:19,440 --> 00:17:23,680 Speaker 1: What was the distinction of the way you approached this 303 00:17:23,920 --> 00:17:28,480 Speaker 1: novel transaction? What set your gad flight coverage apart from 304 00:17:28,480 --> 00:17:31,440 Speaker 1: all the other bladder that was out there. I appreciate 305 00:17:31,480 --> 00:17:34,360 Speaker 1: the compliment. That was very flattering. Uh So, look, one 306 00:17:34,400 --> 00:17:37,760 Speaker 1: thing that really struck me yesterday as everybody was declaring 307 00:17:38,119 --> 00:17:41,920 Speaker 1: victory about this unusual not I p O stock listing 308 00:17:41,960 --> 00:17:46,720 Speaker 1: from Spotify, is just how few shares traded out of 309 00:17:46,760 --> 00:17:50,600 Speaker 1: the gate. So normally, if you have a conventional ip O, 310 00:17:50,880 --> 00:17:54,239 Speaker 1: companies look to sell, you know, a healthy percentage of 311 00:17:54,320 --> 00:18:00,280 Speaker 1: their total shares, something like and Spotify. Again, it's not 312 00:18:00,359 --> 00:18:02,240 Speaker 1: a conventional I p O. So these rules are a 313 00:18:02,280 --> 00:18:04,440 Speaker 1: little bit different, but at least out of the gate, 314 00:18:04,520 --> 00:18:08,720 Speaker 1: Spotify sold fewer than six million shares on Tuesday, which 315 00:18:08,760 --> 00:18:12,200 Speaker 1: was about three percent of total shares that standing. I 316 00:18:12,240 --> 00:18:14,240 Speaker 1: get the idea that the tech people are playing by 317 00:18:14,520 --> 00:18:16,720 Speaker 1: their own rules. It's like class A, class being A, 318 00:18:17,000 --> 00:18:19,560 Speaker 1: it's like Class A class Z. There's all sorts of 319 00:18:19,600 --> 00:18:21,639 Speaker 1: stuff we go into. But the heart of the matter 320 00:18:21,680 --> 00:18:24,600 Speaker 1: is Wall Street was boxed out of a traditional transaction, 321 00:18:25,040 --> 00:18:27,080 Speaker 1: and yet you, in a select group of others say, 322 00:18:27,160 --> 00:18:30,280 Speaker 1: wait a minute, they weren't. Goldman, Sachs, Alan and Company 323 00:18:30,280 --> 00:18:33,199 Speaker 1: and others were actually involved. How can you have it 324 00:18:33,280 --> 00:18:36,360 Speaker 1: both ways? Yeah, I agree with you that the narrative 325 00:18:36,400 --> 00:18:39,200 Speaker 1: about this not I p O right, was that Spotify, 326 00:18:39,880 --> 00:18:43,160 Speaker 1: uh defied conventional wisdom. They cut out Wall Street, cut 327 00:18:43,160 --> 00:18:45,600 Speaker 1: out Lloyd Blank find right. They had three of the 328 00:18:45,680 --> 00:18:50,360 Speaker 1: most prominent tech financial advisors working on this transaction, as 329 00:18:50,359 --> 00:18:52,840 Speaker 1: you said, Allan and Company, Golden Sacks, Morgan Stanley, and 330 00:18:52,840 --> 00:18:54,879 Speaker 1: they paid them thirty five million dollars, which is a 331 00:18:54,920 --> 00:18:56,760 Speaker 1: lot of money. Yeah, but that's what Farrell gets for 332 00:18:56,760 --> 00:19:00,800 Speaker 1: a week er review. I want to understand. This is critical. 333 00:19:00,920 --> 00:19:03,840 Speaker 1: This is the dirt of the industry the way it works. 334 00:19:03,720 --> 00:19:06,359 Speaker 1: As you call a black Rock, pim Cone, Fidelity and 335 00:19:06,480 --> 00:19:08,680 Speaker 1: six other victims, and you say, what do you want 336 00:19:08,720 --> 00:19:12,560 Speaker 1: for this dog? They set the price? Did that really 337 00:19:12,840 --> 00:19:18,200 Speaker 1: happen here? Even though we're all pretending it didn't. Sort 338 00:19:18,240 --> 00:19:20,400 Speaker 1: of so, I mean, I thought there was a really 339 00:19:20,440 --> 00:19:24,680 Speaker 1: interesting details in our colleagues. Alex brinca story yesterday which 340 00:19:24,760 --> 00:19:29,760 Speaker 1: was basically the bankers spent many weeks before the not 341 00:19:30,000 --> 00:19:34,359 Speaker 1: the stock listing of Spotify calling up both owners existing 342 00:19:34,359 --> 00:19:38,160 Speaker 1: owners of Spotify shares and potential buyers of Spotify shares 343 00:19:38,720 --> 00:19:42,600 Speaker 1: to see at what price sellers might sell, and and 344 00:19:42,720 --> 00:19:45,840 Speaker 1: took canvas for potential buyers. The real breaking news head 345 00:19:45,840 --> 00:19:48,680 Speaker 1: at Tom Kane has stood up for this conversation in 346 00:19:48,720 --> 00:19:51,879 Speaker 1: the studio. This is the first time I've seen you 347 00:19:51,960 --> 00:19:55,399 Speaker 1: stand up for a story. There's a quality of lunch 348 00:19:55,480 --> 00:19:59,560 Speaker 1: at the road shows, and Touch companies are notorious for 349 00:19:59,640 --> 00:20:03,080 Speaker 1: not to mean like a real lunch. You always leave hungry. 350 00:20:03,119 --> 00:20:05,679 Speaker 1: But John, what she just said is critical, which is 351 00:20:05,680 --> 00:20:08,880 Speaker 1: there was really a pricing discovery going on, even though 352 00:20:08,880 --> 00:20:12,640 Speaker 1: everybody was standing around outside of the price discovery share. 353 00:20:12,680 --> 00:20:14,919 Speaker 1: The real story here, for me, at least from my 354 00:20:14,960 --> 00:20:17,199 Speaker 1: own perspective, is that it was another tech company that 355 00:20:17,240 --> 00:20:19,520 Speaker 1: didn't actually need to raise capital because they've been so 356 00:20:19,600 --> 00:20:22,480 Speaker 1: well shounded in private markets. Isn't that the future here? 357 00:20:23,520 --> 00:20:27,439 Speaker 1: We'll see? So A, I'm not sure that Spotify did 358 00:20:27,440 --> 00:20:30,520 Speaker 1: itself any favors by not raising money. So this is 359 00:20:30,520 --> 00:20:33,920 Speaker 1: a company that, yes, they have been cash flow positive, 360 00:20:34,119 --> 00:20:38,359 Speaker 1: but they have ambitious plans to branch into new businesses 361 00:20:38,520 --> 00:20:41,560 Speaker 1: that's going to require investment. So I do wonder if 362 00:20:41,600 --> 00:20:43,840 Speaker 1: down the road it's going to look like a mistake 363 00:20:43,880 --> 00:20:46,080 Speaker 1: that they didn't choose to raise money when they could 364 00:20:46,119 --> 00:20:48,600 Speaker 1: have in a in an I p O um. But 365 00:20:48,720 --> 00:20:52,639 Speaker 1: you're right that. I'm sure other tech companies that you know, 366 00:20:52,760 --> 00:20:55,600 Speaker 1: like to defy conventional wisdom, or like to pretend that 367 00:20:55,640 --> 00:20:58,760 Speaker 1: they defy conventional wisdom, will look at Spotify's direct listing 368 00:20:58,760 --> 00:21:00,800 Speaker 1: and want to do the same. But the fact is, 369 00:21:01,040 --> 00:21:06,080 Speaker 1: there aren't that many prominent tech companies, private tech companies 370 00:21:06,400 --> 00:21:12,000 Speaker 1: that have healthy enough financials to go public without raising money. 371 00:21:12,040 --> 00:21:18,360 Speaker 1: So Uber, you know, notoriously wildly unprofitable, you can't do 372 00:21:18,440 --> 00:21:21,200 Speaker 1: a non I p O kind of event. Assume there's 373 00:21:21,200 --> 00:21:23,240 Speaker 1: no rush for them to come to the public market 374 00:21:23,280 --> 00:21:27,040 Speaker 1: to raise capital, because despite Uber's problems, sure you've you've 375 00:21:27,040 --> 00:21:29,240 Speaker 1: picked up on this many a time, people throw money 376 00:21:29,240 --> 00:21:31,520 Speaker 1: at them. Absolutely, and I think that is true of 377 00:21:32,040 --> 00:21:36,640 Speaker 1: you know, a small elite category of private tech companies. 378 00:21:36,720 --> 00:21:39,439 Speaker 1: They don't need the public markets to raise money, Sure Overday. 379 00:21:39,440 --> 00:21:41,480 Speaker 1: It's been great to catch up with you. Some tremendous, 380 00:21:41,560 --> 00:21:45,000 Speaker 1: tremendous columns coming out of Bloomberg, Gadfly and Shara in 381 00:21:45,080 --> 00:21:46,600 Speaker 1: front of the Pack For me and Tom, I have 382 00:21:46,640 --> 00:21:48,480 Speaker 1: to say, I've never seen Tom Kane stand up for 383 00:21:48,480 --> 00:21:51,000 Speaker 1: a story in the Student. I'll take it as a compliment. 384 00:21:51,119 --> 00:21:56,400 Speaker 1: I've never seen that baroness over date. You gotta shure 385 00:21:56,560 --> 00:21:58,880 Speaker 1: some credit. I mean, folks, this is what it's like. 386 00:21:58,920 --> 00:22:01,480 Speaker 1: I mean, shares in the wrenches on this thing. And 387 00:22:01,560 --> 00:22:05,239 Speaker 1: she gets global pickup of you know, amid all the 388 00:22:05,280 --> 00:22:07,560 Speaker 1: eighties seven other articles that were out there, which is 389 00:22:07,680 --> 00:22:10,880 Speaker 1: very good. Sure of a Day on Spotify as well. 390 00:22:25,840 --> 00:22:28,000 Speaker 1: It is good to get a calm and reason voice 391 00:22:28,000 --> 00:22:30,200 Speaker 1: in here with the tumult that we see in economics 392 00:22:30,200 --> 00:22:34,679 Speaker 1: in the markets. Stephen Friedman is with BMP Perry. But Stephen, 393 00:22:34,680 --> 00:22:35,919 Speaker 1: I want to go back to a meeting I had 394 00:22:35,960 --> 00:22:39,639 Speaker 1: over a decade ago in Beijing where the senior management 395 00:22:39,640 --> 00:22:41,800 Speaker 1: of Paris be and p Perry bout Line being up 396 00:22:41,800 --> 00:22:44,879 Speaker 1: with one of your chief representatives in China, and it 397 00:22:44,960 --> 00:22:50,080 Speaker 1: was a private and scintillating conversation on the new capitalism 398 00:22:50,200 --> 00:22:53,160 Speaker 1: of China. B mp Perry bid has an absolutely unique 399 00:22:53,880 --> 00:22:56,680 Speaker 1: China view that really goes back more than two even 400 00:22:56,720 --> 00:23:00,200 Speaker 1: three decades as well. What does your Asian death USK 401 00:23:00,720 --> 00:23:05,480 Speaker 1: say about the Chinese view of these terror force Uh? Well, 402 00:23:05,480 --> 00:23:08,880 Speaker 1: our China economists believes that the response from China will 403 00:23:08,920 --> 00:23:14,240 Speaker 1: be um proportional, but ultimately keeping the doors open to negotiations. 404 00:23:14,320 --> 00:23:16,480 Speaker 1: And I think that's what we're seeing so far in 405 00:23:16,480 --> 00:23:19,240 Speaker 1: the response from China. Yes, they're clear that they will retaliate, 406 00:23:19,880 --> 00:23:22,320 Speaker 1: but there's no date. There's a sense that we should 407 00:23:22,359 --> 00:23:24,639 Speaker 1: be talking this problem through. It's supposed to jumping right 408 00:23:24,640 --> 00:23:27,159 Speaker 1: to tariffs. You were at Wesleyan and Russian studies. You 409 00:23:27,240 --> 00:23:31,840 Speaker 1: then did initiate the Johns Hopkins University. And part of 410 00:23:31,880 --> 00:23:35,800 Speaker 1: this is time function. China has a far longer time 411 00:23:35,880 --> 00:23:39,480 Speaker 1: function than any president of the United States. Do they 412 00:23:39,520 --> 00:23:44,240 Speaker 1: just wait President Trump out? I think it's challenging in 413 00:23:44,240 --> 00:23:46,880 Speaker 1: this situation because when I look at the Trump administration, 414 00:23:46,960 --> 00:23:49,840 Speaker 1: it really does have this America First trade agenda, and 415 00:23:49,880 --> 00:23:53,600 Speaker 1: we have a president who is relatively impatient on this front. 416 00:23:53,800 --> 00:23:56,280 Speaker 1: So I think the administration is serious about moving forward 417 00:23:56,280 --> 00:23:59,359 Speaker 1: with tariffs if absolutely necessary, and I think China would 418 00:23:59,400 --> 00:24:01,440 Speaker 1: like to ds late the situation, and I think they're 419 00:24:01,520 --> 00:24:05,119 Speaker 1: very willing to negotiate. Does it put a damper on 420 00:24:05,320 --> 00:24:07,879 Speaker 1: economic growth in the United States if you had to 421 00:24:07,880 --> 00:24:10,800 Speaker 1: bring in a few tweaks your g d P numbers. 422 00:24:11,280 --> 00:24:14,920 Speaker 1: Not yet. No. I think if if we can steer 423 00:24:14,920 --> 00:24:17,840 Speaker 1: a road towards negotiating on some of the I P 424 00:24:17,840 --> 00:24:23,239 Speaker 1: practice UH questions, technology transfer, market access, that means that 425 00:24:23,280 --> 00:24:25,480 Speaker 1: in the end, actually this could be enough positive for 426 00:24:25,520 --> 00:24:27,080 Speaker 1: the U. S. It's a question of whether we can 427 00:24:27,080 --> 00:24:29,359 Speaker 1: get there without going down the route of tariffs first. 428 00:24:29,520 --> 00:24:31,640 Speaker 1: But as of yet, I haven't had to tweak my forecast. 429 00:24:31,840 --> 00:24:34,840 Speaker 1: I think what would be um I opening in near 430 00:24:34,960 --> 00:24:37,040 Speaker 1: term is if there's a sense that this is going 431 00:24:37,040 --> 00:24:39,720 Speaker 1: to escalate, you have further declines in the stock market. 432 00:24:39,720 --> 00:24:42,719 Speaker 1: There's a shock to business confidence, and that ultimately reigns 433 00:24:42,720 --> 00:24:46,000 Speaker 1: in business spending and hiring. Because Q one, the estimates 434 00:24:46,000 --> 00:24:48,520 Speaker 1: I'm saying, you know, is a general statement all over 435 00:24:48,520 --> 00:24:51,160 Speaker 1: the place. I mean, nobody really is a hindle on it. 436 00:24:51,200 --> 00:24:54,040 Speaker 1: Is Q one a one off in the United States? 437 00:24:54,080 --> 00:24:56,880 Speaker 1: Is that, just like now a permanent theory that first 438 00:24:56,920 --> 00:25:00,960 Speaker 1: quarters always nudgie. I think they're a little bit less 439 00:25:00,960 --> 00:25:03,320 Speaker 1: confidence in projecting first quarter growth, there's a sense that 440 00:25:03,359 --> 00:25:06,320 Speaker 1: there's some residual seasonality in the data. So I think we, 441 00:25:06,600 --> 00:25:09,639 Speaker 1: along with many others, tend to look through any weakness 442 00:25:10,040 --> 00:25:12,160 Speaker 1: uh in the first quarter numbers, seeing that a lot 443 00:25:12,160 --> 00:25:14,480 Speaker 1: of the other indicators, survey data, for example, tells you 444 00:25:14,520 --> 00:25:18,639 Speaker 1: that the economy is on a strong footing UM. I 445 00:25:18,720 --> 00:25:22,240 Speaker 1: look at the FED in the certitude to three slash 446 00:25:22,280 --> 00:25:26,960 Speaker 1: four rate hikes. Guy Johnson mentioned today offer London Desk 447 00:25:27,040 --> 00:25:31,480 Speaker 1: that European inflation once again came in maybe on planning 448 00:25:31,560 --> 00:25:36,120 Speaker 1: even a little light. How will chairman Power react if 449 00:25:36,160 --> 00:25:39,720 Speaker 1: we don't get the inflation pick up everybody's presuming. So 450 00:25:39,800 --> 00:25:41,800 Speaker 1: I think he's a bit different from yelling and that 451 00:25:41,920 --> 00:25:43,720 Speaker 1: he's really more in the show me camp. He wants 452 00:25:43,720 --> 00:25:46,640 Speaker 1: to see evidence of inflation moving higher. He's not going 453 00:25:46,680 --> 00:25:49,160 Speaker 1: to move rates higher just based on what a model 454 00:25:49,200 --> 00:25:51,920 Speaker 1: tells you inflation should be in a year. That being said, 455 00:25:52,119 --> 00:25:54,719 Speaker 1: but we are seeing some strength in the inflation numbers 456 00:25:54,760 --> 00:25:55,920 Speaker 1: as of late, and I think we get to the 457 00:25:56,000 --> 00:25:58,080 Speaker 1: end of the year, core PC inflation should be a 458 00:25:58,119 --> 00:26:00,680 Speaker 1: two percent maybe even two point one person. Now the 459 00:26:00,760 --> 00:26:04,000 Speaker 1: question is whether that lasts uh UM beyond this year. 460 00:26:04,200 --> 00:26:06,200 Speaker 1: Some of the strength that we've seen recently, it's likely 461 00:26:06,240 --> 00:26:09,000 Speaker 1: to fade. For example, where is the strength services are goods, 462 00:26:09,400 --> 00:26:11,640 Speaker 1: So it's been in service is very consistent, it's really 463 00:26:11,680 --> 00:26:15,320 Speaker 1: hasn't lifted or turned around still and still basically in deflation. Yeah, 464 00:26:15,320 --> 00:26:16,840 Speaker 1: so it's really a service of story, and we know 465 00:26:16,920 --> 00:26:19,920 Speaker 1: that dominates the price basket. Where we've seen strength recently 466 00:26:20,119 --> 00:26:23,639 Speaker 1: is in healthcare services. But that's that tends to fade 467 00:26:23,680 --> 00:26:25,639 Speaker 1: over time. You tend to get these increases at the 468 00:26:25,640 --> 00:26:28,040 Speaker 1: beginning of the year when the government resets Medicare parts 469 00:26:28,040 --> 00:26:30,920 Speaker 1: Medicare prices. So we're getting almost like Europe where we've 470 00:26:30,920 --> 00:26:35,720 Speaker 1: got union or quasa union labor resets which filter into 471 00:26:35,720 --> 00:26:38,440 Speaker 1: the numbers in this case in terms of medical care inflation. 472 00:26:38,440 --> 00:26:41,720 Speaker 1: I think that's that's exactly right. But the mix of 473 00:26:41,720 --> 00:26:45,160 Speaker 1: this for our listeners that are buffeted by by the 474 00:26:45,160 --> 00:26:48,639 Speaker 1: news flow in the president's tweets, whatever their politics, they 475 00:26:48,680 --> 00:26:52,399 Speaker 1: agree or disagree with the president. I go back to 476 00:26:52,560 --> 00:26:56,520 Speaker 1: a cross st data check is John Farrell mentioned today. 477 00:26:56,600 --> 00:27:01,000 Speaker 1: It's full disclosure. It shows calmness out there without the 478 00:27:01,000 --> 00:27:04,520 Speaker 1: new equity volatility. Do you do that? Do you separate 479 00:27:04,840 --> 00:27:09,360 Speaker 1: the equity tick by tick from everything else out there 480 00:27:09,359 --> 00:27:12,720 Speaker 1: and what it says about our system I do I 481 00:27:12,440 --> 00:27:15,119 Speaker 1: I tend when there are there's breaking news like this, 482 00:27:15,200 --> 00:27:16,919 Speaker 1: I tend to look first at the bond market. I 483 00:27:16,920 --> 00:27:18,800 Speaker 1: think that gives me a better sense as to the 484 00:27:18,880 --> 00:27:20,840 Speaker 1: level of concern out there. And we're seeing yields this 485 00:27:20,880 --> 00:27:23,160 Speaker 1: morning are just down by a basis point or two 486 00:27:23,200 --> 00:27:28,040 Speaker 1: across the curve. Within this again, is I guess the 487 00:27:28,080 --> 00:27:29,920 Speaker 1: idea of going back to the Fed. And we've got 488 00:27:30,000 --> 00:27:32,679 Speaker 1: John Williams coming over to the New York Fed. He 489 00:27:32,760 --> 00:27:34,919 Speaker 1: does a thing called our Start. We let our coverage 490 00:27:34,960 --> 00:27:37,879 Speaker 1: this morning with what is our start? I guess it's 491 00:27:37,920 --> 00:27:43,119 Speaker 1: an inflation adjustment? And what to expect with John Williams 492 00:27:43,119 --> 00:27:45,840 Speaker 1: our starret Are we going to a lower terminal rate 493 00:27:46,240 --> 00:27:48,440 Speaker 1: where the new three point four percent g d P 494 00:27:48,720 --> 00:27:51,840 Speaker 1: is under three and even something lower? You know? I 495 00:27:51,880 --> 00:27:54,520 Speaker 1: don't think so. I think, Wow. What Williams has said 496 00:27:54,560 --> 00:27:58,200 Speaker 1: is that, uh, the neutral FED funds rate is probably 497 00:27:58,359 --> 00:28:01,040 Speaker 1: low by historical standards, and we'll remain low, but not 498 00:28:01,040 --> 00:28:03,200 Speaker 1: not going lower at this point. If anything, I think 499 00:28:03,200 --> 00:28:04,960 Speaker 1: there's a little bit more confidence on a committee that 500 00:28:05,240 --> 00:28:08,440 Speaker 1: with the tax reform efforts increases in investment, that trend 501 00:28:08,520 --> 00:28:10,800 Speaker 1: growth could be heading a bit higher. That might pull 502 00:28:10,880 --> 00:28:13,520 Speaker 1: up the long term terminal FED funds. And then what's 503 00:28:13,520 --> 00:28:16,639 Speaker 1: really cool it maybe less to me and our listeners, 504 00:28:16,880 --> 00:28:20,200 Speaker 1: is productivity. And I go back. You know, it's almost 505 00:28:20,200 --> 00:28:23,639 Speaker 1: like every other discussion is horse and cart. Does better 506 00:28:23,840 --> 00:28:29,360 Speaker 1: economic growth make America great again lead to better productivity 507 00:28:29,480 --> 00:28:31,800 Speaker 1: or is it the other way around? I think that 508 00:28:31,920 --> 00:28:33,800 Speaker 1: I think it's an open question, to be honest. I 509 00:28:33,800 --> 00:28:38,880 Speaker 1: think there is some suggestion that perhaps a pretty hot 510 00:28:38,960 --> 00:28:42,280 Speaker 1: labor market and scarcity of labor could lead to investment 511 00:28:43,120 --> 00:28:46,640 Speaker 1: that will improve will improve productivity over time. I think 512 00:28:46,640 --> 00:28:49,840 Speaker 1: that's the car and hope. Uh. In the final time 513 00:28:49,880 --> 00:28:52,000 Speaker 1: we've got you want to circle back to the news 514 00:28:52,080 --> 00:28:54,560 Speaker 1: of the morning, which is the Terroiff's obviously in China, 515 00:28:55,200 --> 00:28:58,080 Speaker 1: and that is in this folks. The late wonderful Alan 516 00:28:58,120 --> 00:29:01,000 Speaker 1: Meltzer of Carnegie Mellon would take my head off for 517 00:29:01,080 --> 00:29:06,680 Speaker 1: this right now. Alan Meltzer always said, aggregate the American economy. 518 00:29:06,760 --> 00:29:10,480 Speaker 1: We're not smart enough to disaggregate. What the markets doing 519 00:29:10,480 --> 00:29:15,920 Speaker 1: today is they're disaggregating Iowa and soybeans. They're disaggregating Washington 520 00:29:16,080 --> 00:29:19,960 Speaker 1: State in Boeing aircraft. Can we do that in the 521 00:29:20,080 --> 00:29:24,680 Speaker 1: modern economy? Can we disaggregate to the labor effects of 522 00:29:24,800 --> 00:29:28,400 Speaker 1: Senator Grassley's Iowa or do we really still have to 523 00:29:28,440 --> 00:29:31,640 Speaker 1: stay all in holistically as clearly as the bet of 524 00:29:31,640 --> 00:29:35,320 Speaker 1: the president. I tend to look holistically and think that 525 00:29:35,520 --> 00:29:38,080 Speaker 1: the scope of what's been announced so far is relatively small. 526 00:29:38,360 --> 00:29:40,480 Speaker 1: But it's important to go down to the details as well, 527 00:29:40,520 --> 00:29:43,560 Speaker 1: because we know that the tariffs that that are aimed 528 00:29:43,560 --> 00:29:46,360 Speaker 1: at certain sectors that are politically sensitive can have longer 529 00:29:46,440 --> 00:29:49,400 Speaker 1: term repercussion. Should I just call him import Texas? I mean, 530 00:29:49,440 --> 00:29:53,719 Speaker 1: we're I read this and I don't remember it right now, folks, 531 00:29:53,760 --> 00:29:56,280 Speaker 1: but there was a point somewhere out there where they 532 00:29:56,280 --> 00:30:01,640 Speaker 1: invented the phrase tariffs two smooth the text word. It's 533 00:30:01,640 --> 00:30:04,480 Speaker 1: an import text right, pretty pretty much so, and Trump 534 00:30:04,520 --> 00:30:06,280 Speaker 1: has actually used language like that. I think he's often 535 00:30:06,320 --> 00:30:09,520 Speaker 1: called it a reciprocal tax. Okay, well, well, how's this 536 00:30:09,560 --> 00:30:13,080 Speaker 1: going to play out? I mean, it's tipped for TAD 537 00:30:13,160 --> 00:30:15,720 Speaker 1: and that's easy media talk. I know there's going to 538 00:30:15,800 --> 00:30:17,600 Speaker 1: be a delay, there's going to be meetings and all 539 00:30:17,640 --> 00:30:21,160 Speaker 1: that bologna. The markets tell us this is playing out right, now. Yeah, 540 00:30:21,440 --> 00:30:23,960 Speaker 1: so I think we should expect more announcements from the 541 00:30:23,960 --> 00:30:26,960 Speaker 1: administration on trade just to get that even going beyond China. 542 00:30:27,360 --> 00:30:30,160 Speaker 1: But as for this specific set of measures, there's a 543 00:30:30,160 --> 00:30:33,440 Speaker 1: lot of time for negotiations that the administration isn't actually 544 00:30:33,440 --> 00:30:36,360 Speaker 1: committing that it will definitely implement tariffs. So there is 545 00:30:36,360 --> 00:30:38,800 Speaker 1: a way through this. So I think we can be 546 00:30:39,000 --> 00:30:42,560 Speaker 1: cautiously optimistic that maybe there is an agreement reached through 547 00:30:42,600 --> 00:30:45,200 Speaker 1: negotiations over the next several months. Stephen Freeman, thank you 548 00:30:45,240 --> 00:30:48,160 Speaker 1: so much for the BNP parabout uh this morning. Wonderful 549 00:30:48,200 --> 00:30:51,440 Speaker 1: to have him in a huge day of new slow 550 00:30:58,160 --> 00:31:02,320 Speaker 1: Thanks for listening to The Bloomberg's Banlast podcast. Subscribe and 551 00:31:02,440 --> 00:31:07,760 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 552 00:31:07,800 --> 00:31:12,040 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before 553 00:31:12,040 --> 00:31:16,280 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.