1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,880 Speaker 2: Terminal and the Bloomberg Business App. 10 00:00:36,560 --> 00:00:39,600 Speaker 3: Peter Sheer of Academy Securities writing, the end of free 11 00:00:39,600 --> 00:00:42,640 Speaker 3: money has been a major factor in the recent downturn 12 00:00:42,680 --> 00:00:44,920 Speaker 3: and could weigh on the economy and markets going forward. 13 00:00:45,159 --> 00:00:47,800 Speaker 3: I think the economy is at a greater risk than 14 00:00:47,800 --> 00:00:48,800 Speaker 3: we've seen in some time. 15 00:00:48,880 --> 00:00:51,120 Speaker 1: Peter joins us. Now, Peter, great to see you, see 16 00:00:51,159 --> 00:00:51,400 Speaker 1: you too. 17 00:00:51,479 --> 00:00:53,120 Speaker 3: This seems to be echoing what we heard from Neil 18 00:00:53,120 --> 00:00:55,320 Speaker 3: Dotta yesterday of Renaissance Macro, where he said that he 19 00:00:55,360 --> 00:00:57,320 Speaker 3: thinks the train may have already left the station when 20 00:00:57,360 --> 00:01:00,080 Speaker 3: it comes to FED rate cuts and the potential damage 21 00:01:00,560 --> 00:01:02,880 Speaker 3: that has been foisted upon the economy. 22 00:01:03,200 --> 00:01:04,640 Speaker 1: Why are you so negative as well. 23 00:01:05,040 --> 00:01:07,120 Speaker 4: So what I'm seeing, I think is what we're calling the 24 00:01:07,160 --> 00:01:08,880 Speaker 4: end of free money and kind of being a bit 25 00:01:08,959 --> 00:01:10,560 Speaker 4: cavalier about that. But there was a time, right if 26 00:01:10,600 --> 00:01:13,080 Speaker 4: you announced you were spending x billion on data centers 27 00:01:13,160 --> 00:01:15,640 Speaker 4: or AI, your stock went up two x And all 28 00:01:15,680 --> 00:01:17,800 Speaker 4: of a sudden, now you're seeing people question that. You're 29 00:01:17,800 --> 00:01:21,080 Speaker 4: seeing stories emerged about ooh, which technology should we use? 30 00:01:21,080 --> 00:01:22,480 Speaker 5: So I think we're going through this breather right. 31 00:01:22,480 --> 00:01:24,560 Speaker 4: A year ago at this time, if you didn't have 32 00:01:24,600 --> 00:01:27,280 Speaker 4: an AI strategy, you were ridiculed as a CEO. Your 33 00:01:27,319 --> 00:01:29,559 Speaker 4: stock was going to suffer. So there was spend, spend, spend. 34 00:01:29,560 --> 00:01:31,559 Speaker 4: There was this kind of real rush to spend, spend, spend. 35 00:01:32,120 --> 00:01:34,240 Speaker 4: Now I think everyone's sitting back, Okay, what do we 36 00:01:34,280 --> 00:01:34,959 Speaker 4: want to spend on? 37 00:01:35,120 --> 00:01:36,400 Speaker 5: What is the best value? 38 00:01:36,520 --> 00:01:38,880 Speaker 4: And the hyperscalers Right, all of a sudden, you can't 39 00:01:38,920 --> 00:01:41,080 Speaker 4: just say you're going to build more and your stock 40 00:01:41,120 --> 00:01:41,480 Speaker 4: goes up. 41 00:01:41,520 --> 00:01:43,640 Speaker 5: So this is kind of this first time. 42 00:01:43,680 --> 00:01:45,120 Speaker 4: I think we might see a bit of an AI 43 00:01:45,240 --> 00:01:47,080 Speaker 4: diet where people are like, Okay, how do we be 44 00:01:47,160 --> 00:01:48,920 Speaker 4: cautious on this? Where do we spend? What do we 45 00:01:48,960 --> 00:01:51,640 Speaker 4: spend on? What technology is emerging. We haven't talked about 46 00:01:51,680 --> 00:01:53,600 Speaker 4: anything out of China yet that could derail some of 47 00:01:53,600 --> 00:01:54,160 Speaker 4: our stocks. 48 00:01:54,240 --> 00:01:55,440 Speaker 5: So I think this is where we get a bit 49 00:01:55,440 --> 00:01:56,000 Speaker 5: of a slowdown. 50 00:01:56,040 --> 00:01:57,600 Speaker 3: Right now, before we get into the details of the 51 00:01:57,600 --> 00:01:58,920 Speaker 3: AI trade, you said the end. 52 00:01:58,880 --> 00:01:59,520 Speaker 1: Of free money. 53 00:01:59,600 --> 00:02:01,560 Speaker 3: I don't want to dive into that because yesterday we 54 00:02:01,560 --> 00:02:04,040 Speaker 3: were talking about tightening liquidity conditions. Now a lot of 55 00:02:04,080 --> 00:02:06,360 Speaker 3: people attributed that to the sell off that we saw 56 00:02:06,400 --> 00:02:08,840 Speaker 3: in things like bitcoin and also the big tech names. 57 00:02:09,160 --> 00:02:11,280 Speaker 3: Why is this now the end of free money with 58 00:02:11,320 --> 00:02:14,200 Speaker 3: the federers are of cutting rates and ending quantitative tightening. 59 00:02:14,520 --> 00:02:16,280 Speaker 4: Well, you've also seen coming back to some of the 60 00:02:16,320 --> 00:02:19,920 Speaker 4: crypto you had the dacos or the digital asseid treasury companies. 61 00:02:20,040 --> 00:02:22,040 Speaker 4: Some are very sophisticated, some do a lot of things, 62 00:02:22,160 --> 00:02:24,760 Speaker 4: some simply buy the underlying And there was a period 63 00:02:24,800 --> 00:02:26,600 Speaker 4: of time right if you bought x amount of ether, 64 00:02:26,720 --> 00:02:27,880 Speaker 4: your stock went up two x. 65 00:02:28,120 --> 00:02:29,520 Speaker 5: All of a sudden, that's not happening. 66 00:02:29,560 --> 00:02:32,160 Speaker 4: So all these trades that we're kind of self perpetuating 67 00:02:32,440 --> 00:02:35,120 Speaker 4: are falling down, and you're having a bit less liquidity 68 00:02:35,160 --> 00:02:38,000 Speaker 4: come through this and everything I hear and see when 69 00:02:38,000 --> 00:02:41,320 Speaker 4: we're talking whether it's consumers, corporate, I feel there's belt tightening. 70 00:02:41,000 --> 00:02:41,640 Speaker 5: Going on everywhere. 71 00:02:41,639 --> 00:02:42,800 Speaker 4: I think people are going to be a little bit 72 00:02:42,800 --> 00:02:45,680 Speaker 4: surprised where as they go through the budgeting process that 73 00:02:45,760 --> 00:02:50,280 Speaker 4: companies are actually shrinking their budgets rather than growing full scale. 74 00:02:50,880 --> 00:02:53,519 Speaker 6: What do you think the administration does in this? Because 75 00:02:53,560 --> 00:02:56,519 Speaker 6: we were speaking with the Commerce Secretary yesterday who was 76 00:02:56,600 --> 00:02:59,080 Speaker 6: beating the drum saying AI has been such a boon 77 00:02:59,160 --> 00:03:02,000 Speaker 6: for our economy. David Sacks, the cryptos are, which also 78 00:03:02,080 --> 00:03:04,200 Speaker 6: has an ear to the administration, was putting on x 79 00:03:04,320 --> 00:03:08,840 Speaker 6: yesterday that it is an AI related investment accounts that 80 00:03:09,000 --> 00:03:10,920 Speaker 6: half of GDP in a reversal. 81 00:03:10,520 --> 00:03:11,560 Speaker 1: Would risk recession. 82 00:03:12,080 --> 00:03:14,200 Speaker 6: Is this an administration that would see the sector as 83 00:03:14,280 --> 00:03:16,799 Speaker 6: too big to fail? As Sam Altman has hinted at 84 00:03:16,840 --> 00:03:18,520 Speaker 6: to the ugarn of others at open AI. 85 00:03:18,800 --> 00:03:20,120 Speaker 4: You know what I think they are doing, I think 86 00:03:20,160 --> 00:03:23,760 Speaker 4: it's rightfully to do, is investing heavily in electricity and 87 00:03:23,840 --> 00:03:26,160 Speaker 4: energy production. Right we are putting money into nuclear, We're 88 00:03:26,200 --> 00:03:29,600 Speaker 4: putting money into everything. That's that's really the bottleneck right 89 00:03:29,600 --> 00:03:31,200 Speaker 4: now is this electricity. And supposedly that's one of the 90 00:03:31,240 --> 00:03:34,360 Speaker 4: arguments with the TPUs versus the GPUs is lower electricity 91 00:03:34,400 --> 00:03:36,880 Speaker 4: US so I think electricity is actually a bottleneck. I 92 00:03:36,920 --> 00:03:38,600 Speaker 4: see the government spending a lot of time on that, 93 00:03:38,640 --> 00:03:40,720 Speaker 4: which fits very much. I know you're sick of hearing it. 94 00:03:40,760 --> 00:03:43,320 Speaker 4: But production for security or prosec I think they are 95 00:03:43,400 --> 00:03:45,480 Speaker 4: trying to figure out mark. I think these are the 96 00:03:45,520 --> 00:03:47,840 Speaker 4: things that the government's trying to make sure goes along. 97 00:03:47,960 --> 00:03:49,520 Speaker 4: I think it's gonna be hard for them to intervene 98 00:03:49,520 --> 00:03:51,520 Speaker 4: directly in a But yes, if we get this AI 99 00:03:51,600 --> 00:03:54,360 Speaker 4: slow down, unless other parts of the economy really pick up, 100 00:03:54,600 --> 00:03:57,720 Speaker 4: we are going to see this potential maybe not a recession, but. 101 00:03:57,680 --> 00:03:59,480 Speaker 5: A slow down. And that's why I'm concerned. How does 102 00:03:59,480 --> 00:04:00,560 Speaker 5: the WELFERFI to play into that? 103 00:04:00,560 --> 00:04:02,160 Speaker 6: At least it has been talking about how just more 104 00:04:03,280 --> 00:04:06,680 Speaker 6: of everyday people of household's own equities at this point, 105 00:04:06,880 --> 00:04:08,480 Speaker 6: and a lot of the gains and equities have been 106 00:04:08,520 --> 00:04:10,800 Speaker 6: tied to AI. If AI starts to take a breather, 107 00:04:10,920 --> 00:04:12,760 Speaker 6: what overall wealth effect does that come back and have 108 00:04:12,840 --> 00:04:13,800 Speaker 6: on the consumer we I think. 109 00:04:13,720 --> 00:04:15,600 Speaker 4: We've already seen a big hit to crypto right Bitcoin 110 00:04:15,640 --> 00:04:17,240 Speaker 4: itself is down six hundred and fifty. 111 00:04:17,000 --> 00:04:18,800 Speaker 5: Billion, and it seems to track very well. 112 00:04:18,800 --> 00:04:21,400 Speaker 4: You know, I always use ARKK as a proxy for 113 00:04:21,400 --> 00:04:24,240 Speaker 4: disruptive stocks. Those stocks are down, so you've kind of 114 00:04:24,279 --> 00:04:27,040 Speaker 4: seen this big move in certain segments of the market. 115 00:04:27,120 --> 00:04:29,480 Speaker 4: Almost anything momentum related is down. So I think you've 116 00:04:29,480 --> 00:04:31,920 Speaker 4: already seen a chunk of wealth wiped out for people 117 00:04:31,920 --> 00:04:34,160 Speaker 4: who would spend that money. So I think we need 118 00:04:34,200 --> 00:04:36,400 Speaker 4: to see this turnaround or you're going to see everyone. Hey, 119 00:04:36,440 --> 00:04:38,000 Speaker 4: maybe we've got to be a little bit classes right, 120 00:04:38,640 --> 00:04:40,440 Speaker 4: everything's going to the moon. Crypto is going to two 121 00:04:40,520 --> 00:04:42,440 Speaker 4: hundred thousand, wherever the number is. All of a sudden, 122 00:04:42,440 --> 00:04:44,279 Speaker 4: you're sitting here at eighty six thousand on bitcoin. 123 00:04:44,560 --> 00:04:45,440 Speaker 5: I think it. 124 00:04:45,200 --> 00:04:47,640 Speaker 4: Doesn't create this negative wealth effect where people are. 125 00:04:47,600 --> 00:04:49,200 Speaker 5: Going to be conservative coming into their spending. 126 00:04:49,279 --> 00:04:50,479 Speaker 1: So there are three ways to look at this. 127 00:04:50,680 --> 00:04:52,480 Speaker 3: There's one way to look at it saying, Okay, this 128 00:04:52,520 --> 00:04:53,919 Speaker 3: is going to be a recession next year that no 129 00:04:53,920 --> 00:04:55,919 Speaker 3: one's expecting, which is typically how it happens, which is 130 00:04:55,920 --> 00:04:58,200 Speaker 3: what we heard from neal data. Then there's a way 131 00:04:58,200 --> 00:05:00,000 Speaker 3: of saying that actually there's going to be a rebound 132 00:05:00,160 --> 00:05:02,760 Speaker 3: early next year because of the tax refunds and other 133 00:05:02,800 --> 00:05:05,480 Speaker 3: types of stimulative effort, but that there will be sort 134 00:05:05,480 --> 00:05:07,560 Speaker 3: of this flagging growth. And then the third way of 135 00:05:07,600 --> 00:05:09,920 Speaker 3: looking at this is it is going to be morally 136 00:05:10,000 --> 00:05:13,240 Speaker 3: hazardous for either this administration or the Federal Reserve to 137 00:05:13,279 --> 00:05:15,520 Speaker 3: allow this market to creter. So you're going to see 138 00:05:15,520 --> 00:05:19,400 Speaker 3: this bazooka of stimulus coming from quantitative easing, from federrate cuts, 139 00:05:19,400 --> 00:05:22,280 Speaker 3: and from fiscal that will ultimately propel this market higher. 140 00:05:22,279 --> 00:05:23,000 Speaker 1: Where do you fall in? 141 00:05:24,200 --> 00:05:26,000 Speaker 4: You know, I do think coming into the midterm elections, 142 00:05:26,000 --> 00:05:27,440 Speaker 4: we are going to see a huge effort. I think 143 00:05:27,480 --> 00:05:30,000 Speaker 4: Trump and Trump one point, Oh, learn the pain. If 144 00:05:30,000 --> 00:05:32,080 Speaker 4: you don't win the midterms, it's really hard to govern 145 00:05:32,160 --> 00:05:34,080 Speaker 4: your next two years. So I expect a lot of 146 00:05:34,120 --> 00:05:37,160 Speaker 4: stimulus coming into that, and I have liked, for example, 147 00:05:37,279 --> 00:05:39,360 Speaker 4: my favorite trade right now has been to be underweight 148 00:05:39,480 --> 00:05:42,360 Speaker 4: NASDAQ one hundred so QQQ and ETF form and I 149 00:05:42,520 --> 00:05:44,920 Speaker 4: like the S and P five hundred equal weights, so 150 00:05:45,120 --> 00:05:47,400 Speaker 4: RSP is one you know ETF that you can use 151 00:05:47,400 --> 00:05:49,080 Speaker 4: for that. And I think you're going to get this 152 00:05:49,120 --> 00:05:50,880 Speaker 4: bit of a rebouncing right. Some of the air is 153 00:05:50,880 --> 00:05:52,800 Speaker 4: going to leak out of the AI, some of it 154 00:05:52,839 --> 00:05:54,719 Speaker 4: should be transferring to the rest of the economy. And 155 00:05:54,720 --> 00:05:56,359 Speaker 4: that's why I like kind of the equal weighted S 156 00:05:56,360 --> 00:05:58,559 Speaker 4: and P five hundred. I think as we take away 157 00:05:58,680 --> 00:06:02,400 Speaker 4: investor focus from the AAI to electricity, which is still 158 00:06:02,400 --> 00:06:03,960 Speaker 4: going to be a part of this, But what else 159 00:06:04,040 --> 00:06:04,840 Speaker 4: is going on in the economy? 160 00:06:04,880 --> 00:06:06,360 Speaker 5: What else are we building? What are we making? 161 00:06:06,560 --> 00:06:08,680 Speaker 4: We are going to be trying to build manufacturing plants, 162 00:06:08,680 --> 00:06:10,360 Speaker 4: We're going to be trying to build mindes. We're going 163 00:06:10,400 --> 00:06:13,280 Speaker 4: to be trying to build refining and processing companies. So 164 00:06:13,320 --> 00:06:15,440 Speaker 4: there will be activity, and I think that's the area 165 00:06:15,440 --> 00:06:16,560 Speaker 4: that's going to shine next year. 166 00:06:16,760 --> 00:06:20,200 Speaker 3: If you are defensive, can you go into long term 167 00:06:20,240 --> 00:06:23,880 Speaker 3: bonds with the expectation that this is an incentivized fed 168 00:06:23,880 --> 00:06:27,240 Speaker 3: to reserve to ultimately bring down long term costs in 169 00:06:27,279 --> 00:06:29,560 Speaker 3: whatever type of financial engineering it requires. 170 00:06:30,040 --> 00:06:32,160 Speaker 4: Normally I would say yes, but I'm kind of stuck 171 00:06:32,200 --> 00:06:34,080 Speaker 4: more in the belly of the curve five to seven years. 172 00:06:34,240 --> 00:06:36,800 Speaker 4: I just think there's going to be some outward pressure 173 00:06:36,839 --> 00:06:39,200 Speaker 4: on the tens and beyond as people are nervous did 174 00:06:39,240 --> 00:06:40,840 Speaker 4: we cut too much? Are we being too aggressive? Are 175 00:06:40,880 --> 00:06:43,120 Speaker 4: we paying attention to inflation? So I think that's going 176 00:06:43,160 --> 00:06:44,600 Speaker 4: to diminish a bit of the rally there. So I 177 00:06:44,720 --> 00:06:46,160 Speaker 4: kind of like the belly of the curve. I think 178 00:06:46,200 --> 00:06:48,760 Speaker 4: you're going to see two ten spreads actually go potentially 179 00:06:48,760 --> 00:06:50,120 Speaker 4: to one hundred. So I could see us down at 180 00:06:50,120 --> 00:06:52,400 Speaker 4: three percent on FED funds, and I could still see 181 00:06:52,440 --> 00:06:53,839 Speaker 4: a ten year close to four percent. 182 00:06:54,120 --> 00:06:56,000 Speaker 6: Are you getting those vibes from the Fed that they 183 00:06:56,000 --> 00:06:57,640 Speaker 6: are going to be forceful in their cuts. We heard 184 00:06:57,680 --> 00:07:00,520 Speaker 6: from Chris Waller yesterday saying yes, December, and then it's 185 00:07:00,560 --> 00:07:02,479 Speaker 6: meeting by meeting, I'll. 186 00:07:02,320 --> 00:07:04,640 Speaker 4: Be slightly embarrassing, and honest, I'm not really paying that 187 00:07:04,720 --> 00:07:06,440 Speaker 4: much attention. I think we are going to get a 188 00:07:06,480 --> 00:07:09,920 Speaker 4: new administration. The Fed's going to look very different next year. 189 00:07:10,000 --> 00:07:12,040 Speaker 4: We're going to get to three percent before the middle 190 00:07:12,040 --> 00:07:13,400 Speaker 4: of the summer. I don't really care whether it's a 191 00:07:13,400 --> 00:07:15,320 Speaker 4: cut in December or not. That's kind of my base case, 192 00:07:15,400 --> 00:07:17,080 Speaker 4: right this is the direction we're headed. It's going to 193 00:07:17,080 --> 00:07:19,800 Speaker 4: come almost hill or high water. So that's kind of 194 00:07:19,800 --> 00:07:21,640 Speaker 4: how I'm thinking about it. I'm spending less attention to 195 00:07:21,640 --> 00:07:23,920 Speaker 4: who's talking today and tomorrow. Look who's going to be 196 00:07:23,960 --> 00:07:26,400 Speaker 4: talking in the future. We know we're getting these cuts 197 00:07:26,440 --> 00:07:26,840 Speaker 4: next year. 198 00:07:27,120 --> 00:07:30,800 Speaker 3: Peter's share of academy securities is still with us, Mister Prosek, 199 00:07:30,920 --> 00:07:33,360 Speaker 3: Let's put that hat on because ultimately this really does 200 00:07:33,400 --> 00:07:35,800 Speaker 3: go down to what is your takeaway. Does this have 201 00:07:35,840 --> 00:07:39,280 Speaker 3: more consequences potentially for Ukraine, Russia or potentially for Taiwan. 202 00:07:39,560 --> 00:07:41,760 Speaker 4: I think probably more for Taiwan. So when we're looking 203 00:07:41,800 --> 00:07:45,000 Speaker 4: at this, and again I work with thirty retired general's admirals, 204 00:07:45,040 --> 00:07:47,000 Speaker 4: a couple of CIA people, so we spend a lot 205 00:07:47,000 --> 00:07:47,960 Speaker 4: of time on where. 206 00:07:47,760 --> 00:07:48,679 Speaker 5: This is all playing out. 207 00:07:48,800 --> 00:07:50,920 Speaker 4: And I think as we're having conversation with clients, we're 208 00:07:50,960 --> 00:07:54,120 Speaker 4: reminding one g said he wants his military to be 209 00:07:54,200 --> 00:07:55,440 Speaker 4: ready by twenty twenty seven. 210 00:07:55,560 --> 00:07:56,280 Speaker 5: It's not a sign that. 211 00:07:56,240 --> 00:07:58,200 Speaker 4: He's going to do anything in twenty twenty seven. But 212 00:07:58,280 --> 00:08:00,360 Speaker 4: we've always thought what's going to happen is there's going 213 00:08:00,400 --> 00:08:03,200 Speaker 4: to be a multiple application of the levers of power. 214 00:08:03,240 --> 00:08:06,920 Speaker 4: So the levers of power are diplomacy, information, military, and economics. 215 00:08:06,920 --> 00:08:08,920 Speaker 4: So the DIME framework, I think they are going to 216 00:08:08,920 --> 00:08:11,800 Speaker 4: put so much pressure on Taiwan that Taiwan may eventually 217 00:08:11,840 --> 00:08:14,480 Speaker 4: just say enough's enough. And we are seeing the US 218 00:08:14,520 --> 00:08:16,080 Speaker 4: pivot a little bit away from the kind of this 219 00:08:16,160 --> 00:08:20,520 Speaker 4: global policeman of the world to really focused on domestic 220 00:08:20,600 --> 00:08:23,240 Speaker 4: right north South, the Monroe doctrine seems to be taking 221 00:08:23,280 --> 00:08:26,560 Speaker 4: place again. Right we move the forward into the aircraft 222 00:08:26,560 --> 00:08:29,280 Speaker 4: carry into the Caribbean. So there's this big domestic focus. 223 00:08:29,280 --> 00:08:31,520 Speaker 4: So I think there is some risks that Taiwan feels 224 00:08:31,520 --> 00:08:34,079 Speaker 4: a little bit maybe left out, a little bit nervous. 225 00:08:34,160 --> 00:08:36,640 Speaker 4: And when we look at trade negotiations right now, the 226 00:08:36,679 --> 00:08:38,719 Speaker 4: two things that I think China has some power over 227 00:08:38,800 --> 00:08:41,640 Speaker 4: us are still the processed and refined rarest and critical minerals. 228 00:08:41,679 --> 00:08:43,160 Speaker 4: So on pro sac, I think we are trying to 229 00:08:43,160 --> 00:08:44,840 Speaker 4: do a lot of that. I am convinced that this 230 00:08:44,920 --> 00:08:47,520 Speaker 4: administration from some talks as well. One we want to 231 00:08:47,520 --> 00:08:49,760 Speaker 4: produce the rarest and critical minerals, but really we want 232 00:08:49,800 --> 00:08:51,440 Speaker 4: to make sure we can process and refine them to 233 00:08:51,440 --> 00:08:54,120 Speaker 4: break that lock that China has us on us. We 234 00:08:54,160 --> 00:08:56,600 Speaker 4: control the chips, we control the best quality chips. Again, 235 00:08:56,679 --> 00:08:58,839 Speaker 4: maybe now we throw the TPUs into that. Those are 236 00:08:58,840 --> 00:09:01,600 Speaker 4: things China wants. At the same time, China controls a 237 00:09:01,600 --> 00:09:04,200 Speaker 4: little bit the ability for Taiwan to ship things. So 238 00:09:04,280 --> 00:09:05,960 Speaker 4: far China has not done anything, but they do have 239 00:09:06,000 --> 00:09:08,920 Speaker 4: this very very large maritime militia. They've used it in 240 00:09:08,920 --> 00:09:10,880 Speaker 4: the past and little incidents, but they could put this 241 00:09:10,920 --> 00:09:11,200 Speaker 4: to work. 242 00:09:11,200 --> 00:09:12,400 Speaker 5: It's largely shipping vessels. 243 00:09:12,440 --> 00:09:14,680 Speaker 4: They have larger vessels within that and they would just 244 00:09:14,679 --> 00:09:16,720 Speaker 4: disperse themselves in such a way that it would slow 245 00:09:16,800 --> 00:09:17,600 Speaker 4: shipping down. 246 00:09:17,760 --> 00:09:18,560 Speaker 5: They would throw. 247 00:09:18,360 --> 00:09:21,280 Speaker 4: Logs off back, they would throw knits nets trying to 248 00:09:21,640 --> 00:09:24,040 Speaker 4: foul propellers, so they could do a lot if they 249 00:09:24,080 --> 00:09:26,760 Speaker 4: really wanted to push on us against Taiwan. So I 250 00:09:26,760 --> 00:09:29,160 Speaker 4: don't know where this is all headed, but it feels 251 00:09:29,200 --> 00:09:31,440 Speaker 4: a little bit Parson Parcel where we're focusing a little 252 00:09:31,440 --> 00:09:34,480 Speaker 4: bit more north south Monroe doctrine, and maybe China has 253 00:09:34,480 --> 00:09:35,840 Speaker 4: a little bit more control in that region. 254 00:09:36,000 --> 00:09:38,520 Speaker 6: Where does that leave someone like Japan, who has been 255 00:09:38,600 --> 00:09:41,720 Speaker 6: leading on the US alliance in their current height intentions 256 00:09:41,760 --> 00:09:43,839 Speaker 6: with China after the Prime Minister made those off the 257 00:09:43,840 --> 00:09:46,600 Speaker 6: cuff marks that they would support or take action if 258 00:09:46,679 --> 00:09:48,360 Speaker 6: China had military action against Taiwan. 259 00:09:49,120 --> 00:09:51,240 Speaker 5: I think it leaves everyone a little bit questioning what 260 00:09:51,360 --> 00:09:52,120 Speaker 5: is our mission? Right? 261 00:09:52,120 --> 00:09:55,000 Speaker 4: The Biden administration is very clear that we would support Taiwan. 262 00:09:55,040 --> 00:09:57,680 Speaker 4: Trump has not been clear so far, And our official 263 00:09:57,679 --> 00:10:01,040 Speaker 4: doctrine before Biden has always been ambiguity, right, Strategic ambiguity 264 00:10:01,040 --> 00:10:02,840 Speaker 4: has been a part of this. The one thing to me, 265 00:10:02,920 --> 00:10:04,760 Speaker 4: it comes back and we've been talking to clients about 266 00:10:04,760 --> 00:10:06,079 Speaker 4: this for four years and people used to kind of 267 00:10:06,120 --> 00:10:07,800 Speaker 4: roll their eyes at us, and now I think they're listening. 268 00:10:07,880 --> 00:10:10,920 Speaker 4: Is shipping you have to diversify your supply chains along 269 00:10:10,960 --> 00:10:14,240 Speaker 4: shipping routes. You cannot be dependent on one shipping lane. 270 00:10:14,320 --> 00:10:16,760 Speaker 4: So Thailand and Vietnam, you're not diversified. They're going through 271 00:10:16,800 --> 00:10:18,920 Speaker 4: the same place, maybe even South Korea. So I think 272 00:10:18,960 --> 00:10:20,760 Speaker 4: this is kind of a huge wake up call that 273 00:10:20,800 --> 00:10:23,280 Speaker 4: everyone has to look at shipping as a bigger risk 274 00:10:23,320 --> 00:10:25,320 Speaker 4: than we ever have in the past and say, hey, 275 00:10:25,520 --> 00:10:28,320 Speaker 4: what happens if and maybe it never happens, Maybe we 276 00:10:28,400 --> 00:10:30,520 Speaker 4: go on living peacefully and we have these great economic 277 00:10:30,559 --> 00:10:32,960 Speaker 4: deals that allow it. I think we have to prepare 278 00:10:33,000 --> 00:10:35,520 Speaker 4: for more and more deglobalization and more and more risk. 279 00:10:35,720 --> 00:10:38,000 Speaker 6: That's so interesting you say that, because I've had conversations 280 00:10:38,040 --> 00:10:40,720 Speaker 6: with private equity executives who have companies, lots of them 281 00:10:40,760 --> 00:10:43,200 Speaker 6: that need to deal with supply chain issues, and they said, 282 00:10:43,200 --> 00:10:45,000 Speaker 6: we've done such a good job since Trump came in 283 00:10:45,000 --> 00:10:47,720 Speaker 6: as present, because we've de risked from China and now 284 00:10:47,720 --> 00:10:48,640 Speaker 6: we're in South Asia. 285 00:10:48,679 --> 00:10:50,240 Speaker 1: To your point, we're in Vietnam, We're. 286 00:10:50,080 --> 00:10:53,040 Speaker 6: In these places that still might feel blowback should there 287 00:10:53,080 --> 00:10:54,480 Speaker 6: be a larger scale conflict. 288 00:10:54,880 --> 00:10:56,120 Speaker 1: Are there other options? 289 00:10:56,240 --> 00:10:58,960 Speaker 6: Is the supply chain resilient enough to completely move away 290 00:10:58,960 --> 00:11:01,720 Speaker 6: from that region even if it's not China? 291 00:11:01,840 --> 00:11:03,360 Speaker 4: No, But I think you can diversify, you can have 292 00:11:03,400 --> 00:11:05,120 Speaker 4: some there, you can have some other reasons because you 293 00:11:05,160 --> 00:11:06,720 Speaker 4: are going to want to try and sell into that region. 294 00:11:06,800 --> 00:11:06,920 Speaker 5: Right. 295 00:11:06,920 --> 00:11:09,120 Speaker 4: India is a huge growth story. There's all sorts of opportunities, 296 00:11:09,160 --> 00:11:10,319 Speaker 4: so you want to be there. But I think you 297 00:11:10,360 --> 00:11:12,360 Speaker 4: want to look at South and Central America. What's going 298 00:11:12,400 --> 00:11:15,679 Speaker 4: on there right? Whatever happens, you know, how do we 299 00:11:15,720 --> 00:11:17,679 Speaker 4: do better with Brazil? So far Brazil has been tough. 300 00:11:17,720 --> 00:11:19,760 Speaker 4: We are working closely, I think with Argentina. So I 301 00:11:19,760 --> 00:11:21,320 Speaker 4: think there's going to be a lot of opportunities in 302 00:11:21,320 --> 00:11:23,960 Speaker 4: that North South and again, you know, keep coming back 303 00:11:24,000 --> 00:11:26,160 Speaker 4: and lots of things I've learned not being military, but 304 00:11:26,240 --> 00:11:27,959 Speaker 4: you know they talk about at academy security is the 305 00:11:28,000 --> 00:11:30,520 Speaker 4: tyranny of distance. So in war, it is really hard 306 00:11:30,520 --> 00:11:32,000 Speaker 4: to fight a war if you're far away. If you 307 00:11:32,040 --> 00:11:36,840 Speaker 4: look at where Guam is relative to Taipei or Taiwan, 308 00:11:37,160 --> 00:11:38,800 Speaker 4: it is a very far distance. It's going to be 309 00:11:38,800 --> 00:11:40,640 Speaker 4: hard for us even when we try and do something 310 00:11:40,640 --> 00:11:42,960 Speaker 4: to support that relative to what China. They have the 311 00:11:43,000 --> 00:11:44,800 Speaker 4: same problem when you look at Central and South America. 312 00:11:44,840 --> 00:11:47,319 Speaker 4: And let's not forget the first place Mark rule Rubio 313 00:11:47,440 --> 00:11:50,199 Speaker 4: went was the Panama Canal. That has never really happened 314 00:11:50,240 --> 00:11:52,439 Speaker 4: in our history. Right the you know Secretary of Defense 315 00:11:52,480 --> 00:11:57,240 Speaker 4: to or sorry secretary almost always goes to the UK. 316 00:11:57,640 --> 00:11:59,680 Speaker 4: He went to Panama Canal. So there is something shifting 317 00:11:59,679 --> 00:12:01,760 Speaker 4: in this. So I have pay close attention to that. 318 00:12:02,040 --> 00:12:03,679 Speaker 4: And if you want to be where the US government's 319 00:12:03,679 --> 00:12:05,199 Speaker 4: going to protect you and do the most, I think 320 00:12:05,200 --> 00:12:07,200 Speaker 4: it's pretty clear to me you want to be edging 321 00:12:07,480 --> 00:12:11,880 Speaker 4: or favoring North and Central and South America over Asia. 322 00:12:11,960 --> 00:12:14,520 Speaker 3: Five years ago, when the pandemic was raging, everyone was 323 00:12:14,559 --> 00:12:17,199 Speaker 3: talking about the deglobalization and this idea that you had 324 00:12:17,200 --> 00:12:19,719 Speaker 3: to build in sort of inefficiency in your supply chain 325 00:12:19,760 --> 00:12:20,920 Speaker 3: to create redundancies. 326 00:12:21,160 --> 00:12:22,400 Speaker 1: It was going to be inflationary. 327 00:12:22,760 --> 00:12:25,960 Speaker 3: Now we're not talking about inflation, we're talking about disinflation 328 00:12:26,080 --> 00:12:29,920 Speaker 3: from artificial intelligence. Even as we see an acceleration of 329 00:12:29,960 --> 00:12:33,480 Speaker 3: this trend of being more regional, is there still an 330 00:12:33,480 --> 00:12:38,120 Speaker 3: inflationary overlay to this that's the reverse of what globalization provided. 331 00:12:38,360 --> 00:12:40,440 Speaker 4: I think there is as it comes online, there is 332 00:12:40,480 --> 00:12:42,360 Speaker 4: going to be some pressure on commodity prices if we 333 00:12:42,400 --> 00:12:44,440 Speaker 4: really start building these factories, if we build out the 334 00:12:44,559 --> 00:12:47,040 Speaker 4: energy production that we need, or electricity production, we are 335 00:12:47,040 --> 00:12:48,960 Speaker 4: going to see levels of inflation that have been higher. 336 00:12:49,000 --> 00:12:50,679 Speaker 4: I think it's persistent, say that two and a half 337 00:12:50,679 --> 00:12:52,280 Speaker 4: to three and nine percent. It's not going to get 338 00:12:52,280 --> 00:12:54,800 Speaker 4: out of control. But over time, we've also built a 339 00:12:54,880 --> 00:12:56,960 Speaker 4: much more secure system. I think costs will go down 340 00:12:57,000 --> 00:12:59,280 Speaker 4: over time. Right if you're not shipping things long ways? 341 00:12:59,360 --> 00:13:01,679 Speaker 4: Can I just keep coming back to I really believe 342 00:13:01,720 --> 00:13:04,440 Speaker 4: this kind of concept of production for security is going 343 00:13:04,480 --> 00:13:07,680 Speaker 4: to replace kind of EESG. When we're thinking about sustainability. 344 00:13:07,840 --> 00:13:09,760 Speaker 4: It's going to be much more like what do we 345 00:13:09,800 --> 00:13:11,920 Speaker 4: need at the base? And this is going to sound wonky, 346 00:13:11,960 --> 00:13:14,560 Speaker 4: but you know, I look at Maso's hierarchy of needs. 347 00:13:14,559 --> 00:13:16,400 Speaker 4: I always think that's probably the most useful course I 348 00:13:16,400 --> 00:13:17,079 Speaker 4: took with psych. 349 00:13:16,920 --> 00:13:17,680 Speaker 5: One oh one. 350 00:13:17,800 --> 00:13:21,040 Speaker 4: But it talks about you basically need shelter, you need food, 351 00:13:21,040 --> 00:13:22,480 Speaker 4: and all those things before you can move up to 352 00:13:22,480 --> 00:13:25,559 Speaker 4: self actualization. And we're kind of at the self actualization. 353 00:13:25,640 --> 00:13:26,920 Speaker 4: What we would like, well, I'd love to do this, 354 00:13:26,960 --> 00:13:28,840 Speaker 4: I'd like to do these things, and then we realized 355 00:13:28,840 --> 00:13:29,560 Speaker 4: we had to our base. 356 00:13:29,600 --> 00:13:31,840 Speaker 5: It erodent. We cannot produce the things that we need. 357 00:13:31,880 --> 00:13:34,080 Speaker 4: How can you be safe for sustainable if you're not 358 00:13:34,200 --> 00:13:37,200 Speaker 4: making some level of your basic necessities. So I think 359 00:13:37,200 --> 00:13:39,160 Speaker 4: that's where we are headed. I think the government's the 360 00:13:39,160 --> 00:13:41,360 Speaker 4: first to see it. I think capital is already starting 361 00:13:41,360 --> 00:13:43,160 Speaker 4: to flow into it. So capital is going to be second. 362 00:13:43,320 --> 00:13:45,440 Speaker 4: Corporation is going to adopt it, and I think Europe's 363 00:13:45,440 --> 00:13:47,000 Speaker 4: going to start falling. I think Europe's going to fight 364 00:13:47,040 --> 00:13:49,040 Speaker 4: out a bit more tooth and nail, but ultimately they're 365 00:13:49,040 --> 00:13:50,760 Speaker 4: going to get dragged into this where you have to 366 00:13:50,760 --> 00:13:53,640 Speaker 4: produce your basic necessities or some portion of it yourself, 367 00:13:53,679 --> 00:13:55,959 Speaker 4: and work with close allies because you cannot just rely 368 00:13:56,040 --> 00:13:57,319 Speaker 4: on China to be your friend. 369 00:13:57,400 --> 00:13:58,040 Speaker 1: Stay with us. 370 00:13:58,360 --> 00:14:00,800 Speaker 2: Multile inpex Devinance coming up off. 371 00:14:00,640 --> 00:14:11,640 Speaker 3: To this, I'd always say me of Columbia thread noodle 372 00:14:11,800 --> 00:14:15,160 Speaker 3: casting doubt. I'm a so called productivity boom. Writing AI 373 00:14:15,280 --> 00:14:18,240 Speaker 3: will lead to an acceleration and automation, which has been 374 00:14:18,280 --> 00:14:21,280 Speaker 3: a central feature of economic growth. AI will have no 375 00:14:21,520 --> 00:14:25,480 Speaker 3: impact an aggregate economic productivity. It joins us now at 376 00:14:25,480 --> 00:14:27,640 Speaker 3: that bold statement, ed, why do you think that that's 377 00:14:27,680 --> 00:14:27,960 Speaker 3: the case? 378 00:14:28,000 --> 00:14:29,920 Speaker 1: Given the fact that so many people are saying. 379 00:14:29,880 --> 00:14:31,880 Speaker 3: That is when this will start to pay off, that 380 00:14:32,040 --> 00:14:35,400 Speaker 3: is when this will be disinflationary and not necessarily just 381 00:14:35,480 --> 00:14:38,120 Speaker 3: the investment in nuts and bolts in the physical world. 382 00:14:38,320 --> 00:14:38,520 Speaker 5: Yeah. 383 00:14:38,520 --> 00:14:42,360 Speaker 7: Absolutely, Look, we've seen these waves before. The point I 384 00:14:42,400 --> 00:14:47,000 Speaker 7: wanted to make is it's really difficult to translate technological innovation, 385 00:14:47,360 --> 00:14:50,120 Speaker 7: which we've seen pretty much continuously over the course of 386 00:14:50,120 --> 00:14:54,960 Speaker 7: the past forty years, into aggregate economic productivity. That's extraordinarily difficult. 387 00:14:55,080 --> 00:14:58,680 Speaker 7: It really requires us to reorganize how we make economic widgets. 388 00:14:59,000 --> 00:15:01,920 Speaker 3: So at this point, you're saying that there are implications 389 00:15:01,920 --> 00:15:05,000 Speaker 3: for the fixed income world in terms of the ultimate payoff, right, 390 00:15:05,000 --> 00:15:07,720 Speaker 3: because it comes to not only the corporate debt market 391 00:15:07,760 --> 00:15:10,560 Speaker 3: that's been fueling a funding a lot of this, but. 392 00:15:10,560 --> 00:15:13,160 Speaker 1: Also it goes down to the expected inflation. 393 00:15:13,280 --> 00:15:15,640 Speaker 3: Right, just what kind of growth you can see on 394 00:15:15,680 --> 00:15:18,000 Speaker 3: the heels of AI. So where do you think the 395 00:15:18,000 --> 00:15:19,920 Speaker 3: biggest misunderstanding really is right now? 396 00:15:20,400 --> 00:15:24,200 Speaker 7: Yeah, I mean part of the problem is with channeling 397 00:15:24,400 --> 00:15:28,400 Speaker 7: an extraordinary amount of savings now into the AI thematic, 398 00:15:28,960 --> 00:15:31,920 Speaker 7: it's going to cannibalize to some extent the capital that's 399 00:15:31,960 --> 00:15:35,200 Speaker 7: available to other parts of the economy, including the treasury market. 400 00:15:35,600 --> 00:15:38,320 Speaker 7: When in the early stages of this the AI theme 401 00:15:38,360 --> 00:15:41,560 Speaker 7: has just come to the investment grade market wholesale. It 402 00:15:41,560 --> 00:15:44,120 Speaker 7: will be with us for a number of years, no doubt. 403 00:15:44,760 --> 00:15:44,920 Speaker 6: Well. 404 00:15:44,960 --> 00:15:47,680 Speaker 7: One of the risks is it starts to lift yields 405 00:15:47,720 --> 00:15:50,560 Speaker 7: across the ward and starts to make the cost of 406 00:15:50,600 --> 00:15:53,800 Speaker 7: capital more expensive for other companies. That ultimately could be 407 00:15:53,840 --> 00:15:55,280 Speaker 7: a drag on growth down the line. 408 00:15:55,560 --> 00:15:58,280 Speaker 6: This is a real crowding out because not only in capital, 409 00:15:58,600 --> 00:16:02,400 Speaker 6: but in manufacturing the way that energy is used to 410 00:16:03,520 --> 00:16:05,840 Speaker 6: So wouldn't that be a healthy thing. If all of 411 00:16:05,880 --> 00:16:08,200 Speaker 6: a sudden we've decided we've gone so too far and 412 00:16:08,400 --> 00:16:11,000 Speaker 6: AI backs up and the spending on AI backsup, does 413 00:16:11,000 --> 00:16:13,200 Speaker 6: that open up other parts of the economy to make 414 00:16:13,320 --> 00:16:15,440 Speaker 6: use of this capital, make use of the energy, make 415 00:16:15,560 --> 00:16:17,640 Speaker 6: use of America's manufacturing capacity. 416 00:16:17,920 --> 00:16:21,120 Speaker 7: Yeah, eventually that could very well be the story. We've 417 00:16:21,160 --> 00:16:23,440 Speaker 7: seen this happen in other parts of the world. China 418 00:16:23,440 --> 00:16:24,880 Speaker 7: as a fantastic example of this. 419 00:16:25,160 --> 00:16:26,320 Speaker 1: It's gone too far. 420 00:16:26,440 --> 00:16:30,040 Speaker 7: We're now seeing deflation, outright deflation because of that capacity 421 00:16:30,040 --> 00:16:34,000 Speaker 7: in China. It's very early in the story, But one 422 00:16:34,000 --> 00:16:37,760 Speaker 7: of the risks is we've invested an extraordinary amount of capital, 423 00:16:38,280 --> 00:16:42,240 Speaker 7: some starting with a te at this point in the 424 00:16:42,280 --> 00:16:46,320 Speaker 7: AI thematic, and some of that capital either depreciates rapidly 425 00:16:46,760 --> 00:16:49,440 Speaker 7: or is stranded and doesn't contribute to economic growth. 426 00:16:49,520 --> 00:16:53,960 Speaker 6: What happens to private asset players who've all started to 427 00:16:54,000 --> 00:16:56,120 Speaker 6: pour money in this. A lot of the conversation there 428 00:16:56,160 --> 00:16:58,680 Speaker 6: is we're not taking AI risk, We're taking meta risk. 429 00:16:58,760 --> 00:17:01,680 Speaker 6: We're taking oracle credit risk. If what you're talking about 430 00:17:01,720 --> 00:17:03,920 Speaker 6: that corporate bond markets also start to feel some of 431 00:17:03,960 --> 00:17:06,199 Speaker 6: the pain. What does that due to this entire ecosystem 432 00:17:06,240 --> 00:17:06,760 Speaker 6: of funding. 433 00:17:07,359 --> 00:17:08,800 Speaker 7: Yeah, it's quite vulnerable. 434 00:17:09,000 --> 00:17:09,560 Speaker 1: Let me say this. 435 00:17:09,920 --> 00:17:12,920 Speaker 7: The good news is we're starting with corporate balance sheets 436 00:17:12,960 --> 00:17:14,600 Speaker 7: that are extraordinarily strong. 437 00:17:14,720 --> 00:17:17,960 Speaker 5: These are high quality, high grade issuers. 438 00:17:18,760 --> 00:17:22,119 Speaker 7: The corporate bond market, particularly the investment grade market, was 439 00:17:22,480 --> 00:17:26,840 Speaker 7: practically invented for this. It's there to fund these themes. 440 00:17:27,160 --> 00:17:29,200 Speaker 7: So it's going to be a while until we get 441 00:17:29,200 --> 00:17:31,560 Speaker 7: to a point where it starts to degrade and we 442 00:17:31,640 --> 00:17:35,080 Speaker 7: see whether it has an impact on earnings. But the 443 00:17:35,119 --> 00:17:40,000 Speaker 7: fact that the story is so deeply interconnected is definitely vulnerability. 444 00:17:40,080 --> 00:17:42,199 Speaker 7: That's not a new theme, but it's going to be 445 00:17:42,200 --> 00:17:43,000 Speaker 7: with us for some time. 446 00:17:43,240 --> 00:17:44,879 Speaker 3: So how much of a liability do you think this 447 00:17:44,920 --> 00:17:46,399 Speaker 3: is for the treasure market. 448 00:17:47,119 --> 00:17:47,840 Speaker 1: A little bit? 449 00:17:47,960 --> 00:17:52,680 Speaker 7: And again the good news is we're sort of focused 450 00:17:52,680 --> 00:17:54,960 Speaker 7: on the narcissism of small differences. What is the fad 451 00:17:55,040 --> 00:17:57,840 Speaker 7: going to do in a couple of weeks. The AI 452 00:17:57,880 --> 00:18:01,480 Speaker 7: theme doesn't affect that in any meaningful way. One of 453 00:18:01,480 --> 00:18:03,760 Speaker 7: the core questions for the Fed in the next couple 454 00:18:03,760 --> 00:18:07,160 Speaker 7: of years is should we assume, the way Greenspan did 455 00:18:07,200 --> 00:18:10,960 Speaker 7: in the mid nineties, that productivity is rising. That's a 456 00:18:11,000 --> 00:18:13,760 Speaker 7: license to keep monetary policy tighter than it would have 457 00:18:13,840 --> 00:18:17,880 Speaker 7: been otherwise. If they make a mistake, and look, Greenspan, 458 00:18:17,960 --> 00:18:20,119 Speaker 7: god lucky and he got it right. But if we 459 00:18:20,200 --> 00:18:22,960 Speaker 7: make a mistake that leads to lower growth, that leads 460 00:18:22,960 --> 00:18:25,879 Speaker 7: to tighter policy, that leads to lower inflation in the 461 00:18:25,920 --> 00:18:28,280 Speaker 7: coming years, And that's going to be a really, really 462 00:18:28,320 --> 00:18:32,359 Speaker 7: interesting debate in both twenty twenty six and beyond. 463 00:18:32,520 --> 00:18:35,000 Speaker 3: If this does lead to greater weakness and potentially overly 464 00:18:35,080 --> 00:18:38,480 Speaker 3: tight financial conditions at least for the rest of America 465 00:18:38,560 --> 00:18:40,960 Speaker 3: or the rest of corporate America that hasn't experienced the 466 00:18:41,000 --> 00:18:45,960 Speaker 3: AI boom, Are you expecting this to be essentially disinflationary 467 00:18:46,040 --> 00:18:48,160 Speaker 3: for the wrong reasons, right, the idea that they could 468 00:18:48,160 --> 00:18:50,879 Speaker 3: actually slow growth and end up in a situation where 469 00:18:51,440 --> 00:18:54,480 Speaker 3: the corporate debt issuance really suffers because the growth just 470 00:18:54,600 --> 00:18:57,280 Speaker 3: isn't there to really fuel the returns and the profits 471 00:18:57,280 --> 00:18:58,200 Speaker 3: in an ongoing way. 472 00:18:58,760 --> 00:19:01,000 Speaker 7: Yeah, let me start with the second other questions. So, 473 00:19:01,680 --> 00:19:05,600 Speaker 7: if productivity does not materialize, in other words, productivity is 474 00:19:06,160 --> 00:19:10,000 Speaker 7: very concentrated in parts of the economy that potentially deliver 475 00:19:10,119 --> 00:19:15,600 Speaker 7: earnings to these companies, it's fine. If productivity becomes more 476 00:19:15,640 --> 00:19:18,359 Speaker 7: diffuse and the economy as a whole starts to lift, 477 00:19:18,520 --> 00:19:22,120 Speaker 7: that's a license for again higher interest rates across the board. 478 00:19:22,160 --> 00:19:24,920 Speaker 7: That's a license for a healthier growth story. That's something 479 00:19:24,960 --> 00:19:27,240 Speaker 7: we saw in the mid nineties through the mid two thousands, 480 00:19:27,760 --> 00:19:32,200 Speaker 7: great outcomes in terms of inflation, fiscal interest rates, stability, 481 00:19:32,240 --> 00:19:36,199 Speaker 7: and so on. The challenge for the FED is, again, 482 00:19:36,440 --> 00:19:39,280 Speaker 7: if we make the wrong assumption in the short term 483 00:19:39,320 --> 00:19:44,600 Speaker 7: and we put that higher productivity story into our strategy 484 00:19:44,640 --> 00:19:47,359 Speaker 7: at the moment, you could make a much stronger case 485 00:19:47,359 --> 00:19:49,240 Speaker 7: for tighter policy, and that would be a mistake of 486 00:19:49,320 --> 00:19:49,680 Speaker 7: the stage. 487 00:19:50,000 --> 00:19:52,440 Speaker 3: So, if that's the case, what's yours conviction right now? 488 00:19:52,440 --> 00:19:54,160 Speaker 3: Heading into your end into twenty twenty six. 489 00:19:55,280 --> 00:19:58,000 Speaker 7: With respect to interest rates, Look, I think we have 490 00:19:58,600 --> 00:20:02,600 Speaker 7: a starting level if really yields inflation adjusted yields across 491 00:20:02,600 --> 00:20:05,360 Speaker 7: the board that are still quite healthy. At the same time, 492 00:20:05,359 --> 00:20:07,600 Speaker 7: when you look at the corporate debt market where we're 493 00:20:07,640 --> 00:20:12,080 Speaker 7: financing and underwriting this AI story, corporate spreads are extraordinarily tight. 494 00:20:12,720 --> 00:20:15,560 Speaker 7: There's a lot more room for those spreads to widen, 495 00:20:15,920 --> 00:20:18,400 Speaker 7: and there's a lot more room for real interest rate 496 00:20:18,440 --> 00:20:21,200 Speaker 7: inflation adjusted yields to come down in the course of 497 00:20:21,240 --> 00:20:22,320 Speaker 7: the next twelve to eighteen months. 498 00:20:22,400 --> 00:20:24,479 Speaker 6: What would it take for spreads to widen though, because 499 00:20:24,560 --> 00:20:26,639 Speaker 6: this is a market that's flush with cash looking to 500 00:20:26,640 --> 00:20:29,600 Speaker 6: put it to work, and it feels like every single auction, 501 00:20:29,960 --> 00:20:32,640 Speaker 6: every single debt issue, once that there is so much 502 00:20:32,720 --> 00:20:36,239 Speaker 6: demand that spreads, even when they widen, are widening to like, 503 00:20:36,280 --> 00:20:39,480 Speaker 6: I don't know, seventy bases like nothing crazy still even 504 00:20:39,480 --> 00:20:40,840 Speaker 6: when you do see widening. 505 00:20:40,520 --> 00:20:43,879 Speaker 7: Absolutely And the appropriate answer is I have no idea. 506 00:20:44,960 --> 00:20:48,399 Speaker 7: All I know is at the moment, investors are not 507 00:20:48,560 --> 00:20:50,760 Speaker 7: being compensated for a lot of the risks that they 508 00:20:50,800 --> 00:20:54,960 Speaker 7: are taking, particularly in weaker balance sheets. How quickly those 509 00:20:55,000 --> 00:20:58,440 Speaker 7: balance sheets degrade ultimately is going to be the key 510 00:20:58,480 --> 00:21:01,400 Speaker 7: part of that narrative for next year. And then, most importantly, 511 00:21:02,240 --> 00:21:05,880 Speaker 7: we need a shock to our beliefs. That's what always happens. 512 00:21:06,320 --> 00:21:08,840 Speaker 7: There are deep stories that are embedded in the way 513 00:21:08,880 --> 00:21:13,040 Speaker 7: we price these spreads. There are deep stories around the 514 00:21:13,080 --> 00:21:16,280 Speaker 7: AI thematic, for example, that are being embedded in how 515 00:21:16,320 --> 00:21:19,199 Speaker 7: we price assets in the economy. Shocks to stories like 516 00:21:19,240 --> 00:21:21,879 Speaker 7: that ultimately are what we orient at credits right. 517 00:21:22,280 --> 00:21:25,720 Speaker 2: Stay with US multile Impex Savana's coming up off to this. 518 00:21:34,840 --> 00:21:37,600 Speaker 3: Former senior White House Trade advisor Kelly and Shaw writing, 519 00:21:37,880 --> 00:21:40,840 Speaker 3: the daytant between the US and China is continuing to hold, 520 00:21:41,080 --> 00:21:43,080 Speaker 3: and I expected to through new years. 521 00:21:43,080 --> 00:21:44,439 Speaker 1: I am increasingly. 522 00:21:43,920 --> 00:21:47,840 Speaker 3: Skeptical about the durability of the US EU trade deal. 523 00:21:47,920 --> 00:21:49,639 Speaker 3: Kelly An joins us. Now, thank you so much for 524 00:21:49,680 --> 00:21:52,119 Speaker 3: being with us. Kelly An, Let's just first talk about 525 00:21:52,160 --> 00:21:54,879 Speaker 3: what you make of the idea of negotiating a deal 526 00:21:55,280 --> 00:21:58,480 Speaker 3: for the EU and the US that supposedly was already 527 00:21:58,480 --> 00:22:00,119 Speaker 3: set in stone. 528 00:22:00,400 --> 00:22:03,040 Speaker 8: Yeah, good morning, Thanks so much for having me on. 529 00:22:03,200 --> 00:22:05,800 Speaker 8: This is why I'm so skeptical about this deal and 530 00:22:05,840 --> 00:22:09,719 Speaker 8: frankly watching it very very closely. The United States and 531 00:22:09,840 --> 00:22:12,920 Speaker 8: Europe announced back in July that they had agreed on 532 00:22:13,160 --> 00:22:17,320 Speaker 8: a package of mutual concessions, including tariff cuts going both ways. 533 00:22:17,840 --> 00:22:20,320 Speaker 8: The US implemented that going all the. 534 00:22:20,240 --> 00:22:21,080 Speaker 1: Way back to August. 535 00:22:21,080 --> 00:22:24,320 Speaker 8: First, the EU has only introduced its legislation with no 536 00:22:24,440 --> 00:22:26,679 Speaker 8: real hope of even passing it in the short term. 537 00:22:26,960 --> 00:22:30,200 Speaker 8: So the EU has yet to cut a single tariff line. 538 00:22:30,520 --> 00:22:31,560 Speaker 1: Now the US is in. 539 00:22:31,600 --> 00:22:34,760 Speaker 8: Brussels, you have Ambassador greer As while as Secretary Leutnik, 540 00:22:34,800 --> 00:22:37,800 Speaker 8: who are there talking to their counterparts. What seems to 541 00:22:37,800 --> 00:22:40,520 Speaker 8: be on the table is a potential deal on steel 542 00:22:40,680 --> 00:22:44,879 Speaker 8: in exchange for concessions on the Digital Single Market, on 543 00:22:45,359 --> 00:22:48,199 Speaker 8: the DMA, on some of these digital regulations. But the 544 00:22:48,240 --> 00:22:50,119 Speaker 8: EU has said that they're not budging on that. So 545 00:22:50,160 --> 00:22:52,119 Speaker 8: I don't expect the US to budge on steel and 546 00:22:52,200 --> 00:22:54,200 Speaker 8: aluminum either, which means. 547 00:22:54,000 --> 00:22:54,840 Speaker 1: We have an impasse. 548 00:22:55,040 --> 00:22:56,800 Speaker 8: And I think as soon as the President starts to 549 00:22:56,800 --> 00:22:58,639 Speaker 8: connect with the fact that the EU hasn't cut a 550 00:22:58,640 --> 00:23:01,440 Speaker 8: single tariff line, that's going to spell some serious trouble 551 00:23:01,480 --> 00:23:02,440 Speaker 8: for this relationship. 552 00:23:02,600 --> 00:23:06,440 Speaker 3: That relationship has been afraid for quite a while. There 553 00:23:06,440 --> 00:23:08,919 Speaker 3: are ongoing questions also about the US and China, and 554 00:23:08,920 --> 00:23:10,800 Speaker 3: I think that right now more people are focused on that, 555 00:23:10,880 --> 00:23:14,199 Speaker 3: just simply because of how essential trade is between these 556 00:23:14,200 --> 00:23:16,920 Speaker 3: two econees, particularly when it comes to rare earth minerals 557 00:23:17,200 --> 00:23:19,359 Speaker 3: and a couple other products. I'm just wondering what you 558 00:23:19,440 --> 00:23:22,000 Speaker 3: make of the phone call between President Trump and a 559 00:23:22,040 --> 00:23:25,000 Speaker 3: President g and this idea of a visit coming in April. 560 00:23:26,160 --> 00:23:30,440 Speaker 8: Yeah, this was a really interesting conversation. It wasn't interesting 561 00:23:30,480 --> 00:23:32,919 Speaker 8: so far as the two leaders spoke. They speak all 562 00:23:32,960 --> 00:23:35,679 Speaker 8: the time. It's not unusual to follow up with a 563 00:23:35,720 --> 00:23:38,920 Speaker 8: successful meeting and a deal that is being implemented, to 564 00:23:39,000 --> 00:23:41,440 Speaker 8: touch base, to talk about the trade issues, to talk 565 00:23:41,480 --> 00:23:45,240 Speaker 8: about China soybean purchases, WE purchases, and other commitments that 566 00:23:45,280 --> 00:23:48,080 Speaker 8: are coming due. But what I found so interesting were 567 00:23:48,200 --> 00:23:51,760 Speaker 8: the competing readouts, and one in which China really rushed 568 00:23:51,760 --> 00:23:54,600 Speaker 8: to get out. The President didn't even give his own 569 00:23:54,640 --> 00:23:59,040 Speaker 8: readout for several hours later. China's was almost exclusively focused 570 00:23:59,040 --> 00:24:02,080 Speaker 8: on this issue of time Taiwan, on the importance of Taiwan, 571 00:24:02,200 --> 00:24:05,840 Speaker 8: saying the US had acknowledged the importance talking about its 572 00:24:06,240 --> 00:24:10,440 Speaker 8: criticality for the post world international order. While the US 573 00:24:10,480 --> 00:24:12,960 Speaker 8: readout didn't mention Taiwan at all. It was focused on 574 00:24:13,000 --> 00:24:15,399 Speaker 8: the trade deal focused on Ukraine, and so it's this 575 00:24:15,520 --> 00:24:19,320 Speaker 8: he said, she said. What actually happened in this call mystery. Now, 576 00:24:19,400 --> 00:24:22,199 Speaker 8: of course there are no transcripts available to the public 577 00:24:22,240 --> 00:24:25,120 Speaker 8: about what happens in these behind the scene phone calls. 578 00:24:25,600 --> 00:24:28,159 Speaker 8: But what is interesting is the narrative that both sides 579 00:24:28,160 --> 00:24:30,720 Speaker 8: are laying out. And I think what is clear is 580 00:24:30,760 --> 00:24:33,000 Speaker 8: what's on China's mind right now. I think the President's 581 00:24:33,000 --> 00:24:35,760 Speaker 8: focused on this trade deal. But when the President does 582 00:24:35,960 --> 00:24:39,240 Speaker 8: go visit President she in April, I have no doubt 583 00:24:39,280 --> 00:24:41,359 Speaker 8: that Taiwan is likely to be on the agenda, at 584 00:24:41,440 --> 00:24:42,720 Speaker 8: least from China's perspective. 585 00:24:43,000 --> 00:24:47,040 Speaker 6: The fact that Taiwan wasn't mentioned by President Trump Kelly in, 586 00:24:47,119 --> 00:24:50,399 Speaker 6: does that say anything about the White House's willingness to 587 00:24:50,440 --> 00:24:54,200 Speaker 6: step in should there be military action from China to Taiwan. 588 00:24:55,400 --> 00:24:58,560 Speaker 8: I certainly wouldn't read that into an omission. I think 589 00:24:58,640 --> 00:25:02,520 Speaker 8: from the US perspective, this call was really about checking 590 00:25:02,520 --> 00:25:06,280 Speaker 8: in on the trade deal discussions around what's happening in Ukraine. 591 00:25:06,320 --> 00:25:09,120 Speaker 8: The administration has said several times over the past few 592 00:25:09,160 --> 00:25:12,840 Speaker 8: months that there's no end to the Ukraine Russia war 593 00:25:12,920 --> 00:25:16,760 Speaker 8: without China's active participation. So I do think that those 594 00:25:16,840 --> 00:25:19,359 Speaker 8: are the things that are likely on the administration's mind 595 00:25:19,440 --> 00:25:22,679 Speaker 8: right now. I think what is clear, based on what 596 00:25:22,840 --> 00:25:26,920 Speaker 8: is happening between China and Japan right now, the concern 597 00:25:27,040 --> 00:25:30,840 Speaker 8: over Taiwan is really this messaging campaign that we're seeing 598 00:25:30,840 --> 00:25:33,000 Speaker 8: from China. This seemed to me more about a race 599 00:25:33,040 --> 00:25:35,879 Speaker 8: to win the narrative versus what actually happened in the call, 600 00:25:36,200 --> 00:25:37,800 Speaker 8: and I think that's why you're seeing the US just 601 00:25:37,840 --> 00:25:38,520 Speaker 8: not address it. 602 00:25:38,640 --> 00:25:40,720 Speaker 6: I was going to say, in terms of competing narratives. 603 00:25:40,720 --> 00:25:43,359 Speaker 6: You also had the Japanese Prime Minister say that she 604 00:25:43,480 --> 00:25:46,680 Speaker 6: received a call right after that China US call from 605 00:25:46,720 --> 00:25:49,360 Speaker 6: the President, but we didn't really hear about it from 606 00:25:49,440 --> 00:25:51,720 Speaker 6: the side of the US Kelly, and what do you 607 00:25:51,760 --> 00:25:52,080 Speaker 6: make of that? 608 00:25:53,359 --> 00:25:56,040 Speaker 8: Yeah, clearly there is a tremendous amount of tension right 609 00:25:56,040 --> 00:25:59,720 Speaker 8: now between Japan and China. China's threatening to cut flights, 610 00:26:00,400 --> 00:26:03,080 Speaker 8: There is a huge diplomatic row right now over the 611 00:26:03,119 --> 00:26:06,879 Speaker 8: Prime Minister's comments about the existential threat to Japan of 612 00:26:06,960 --> 00:26:10,960 Speaker 8: any sort of military incursion by China into Taiwan. I 613 00:26:10,960 --> 00:26:14,560 Speaker 8: think with the United States President showing is solidarity with 614 00:26:14,640 --> 00:26:16,959 Speaker 8: the prime minister, I think this is about saying that 615 00:26:16,960 --> 00:26:20,280 Speaker 8: we are with you, We stand with our ally. I 616 00:26:20,280 --> 00:26:23,280 Speaker 8: don't think the President needed to issue any sort of 617 00:26:23,280 --> 00:26:25,280 Speaker 8: statement to make that point. The fact that that phone 618 00:26:25,320 --> 00:26:28,080 Speaker 8: call happened was the message. And so I do think 619 00:26:28,119 --> 00:26:31,520 Speaker 8: that the United States and Japan are united. But again, 620 00:26:31,600 --> 00:26:35,600 Speaker 8: this issue of Taiwan is increasingly on President She's mind, 621 00:26:35,680 --> 00:26:37,639 Speaker 8: and I think this will be a real point of tension, 622 00:26:37,760 --> 00:26:42,040 Speaker 8: particularly going into those April meetings, and I expect President 623 00:26:42,160 --> 00:26:45,080 Speaker 8: She to try to squeeze the President for something on Taiwan. 624 00:26:45,200 --> 00:26:48,080 Speaker 8: And that's when we'll see what the US's real position is. 625 00:26:48,040 --> 00:26:49,879 Speaker 3: Here, Kelly, and how much is it a tit for 626 00:26:49,960 --> 00:26:53,280 Speaker 3: tat this idea that if the US does shift away 627 00:26:53,400 --> 00:26:59,360 Speaker 3: from Taiwan hardcore a rhetoric around Taiwan, that China will 628 00:26:59,400 --> 00:27:03,200 Speaker 3: help the Russia Ukraine war and potentially bringing it in 629 00:27:03,280 --> 00:27:03,879 Speaker 3: to it sooner. 630 00:27:05,080 --> 00:27:07,920 Speaker 8: Look, I think that China is likely to use all 631 00:27:08,000 --> 00:27:10,680 Speaker 8: of its leverage points in terms of trying to push 632 00:27:10,840 --> 00:27:13,520 Speaker 8: issues that are so important to it, and Taiwan is 633 00:27:13,520 --> 00:27:17,320 Speaker 8: issue number one in terms of the things that President 634 00:27:17,400 --> 00:27:18,199 Speaker 8: She wants to do. 635 00:27:18,800 --> 00:27:22,919 Speaker 1: But look, I do think that the US position is 636 00:27:23,080 --> 00:27:24,480 Speaker 1: strategic ambiguity. 637 00:27:24,880 --> 00:27:27,600 Speaker 8: I don't think that the fact that the President hasn't 638 00:27:27,640 --> 00:27:29,920 Speaker 8: departed from that, or at least said anything from that 639 00:27:29,960 --> 00:27:33,840 Speaker 8: indicates a different pivot point in US policy. But again, 640 00:27:33,880 --> 00:27:36,199 Speaker 8: the robber is really going to meet the road come April, 641 00:27:36,280 --> 00:27:40,080 Speaker 8: when I fully expect President She to push the President 642 00:27:40,160 --> 00:27:43,119 Speaker 8: on this issue. And then again we'll see what the 643 00:27:43,200 --> 00:27:46,119 Speaker 8: result is. But the US position, as far as I'm aware, 644 00:27:46,200 --> 00:27:50,280 Speaker 8: has not changed. I think strategic ambiguity continues to be 645 00:27:50,560 --> 00:27:51,640 Speaker 8: the US view. 646 00:27:52,600 --> 00:27:56,160 Speaker 2: This is the Bloomberg Sevens podcast, bringing you the best 647 00:27:56,160 --> 00:27:59,240 Speaker 2: in market economics, an gio politics. You can watch the 648 00:27:59,240 --> 00:28:02,480 Speaker 2: show live Bloomberg TV weekday mornings from six am to 649 00:28:02,600 --> 00:28:06,359 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 650 00:28:06,520 --> 00:28:08,760 Speaker 2: or anywhere else you listen, and as always, on the 651 00:28:08,760 --> 00:28:11,200 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.