00:00:02 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube. 00:00:27 Speaker 2: Kim Dawson does this word duct for me? 00:00:29 Speaker 3: It's just for me, okay. 00:00:30 Speaker 2: In the fox size, it's like six it's like six point. It's like it's like, you know, fourteen years old in middle school when you could read the board from the back of the room. 00:00:41 Speaker 3: I can't read this note. Save me. 00:00:43 Speaker 4: Paul Sweeney, Cam Dawson joins us here CIO New Edge Wealth Here. Kim, what's the feel for earning so far this year? We've had, you know, more than, maybe not two thirds of the S and P five hundred reported. 00:00:55 Speaker 5: Seems pretty solid. Is it solid enough? 00:00:57 Speaker 6: Oh? 00:00:57 Speaker 7: Well, of course it's solid enough. We're trying looking at forty seven point struss real it's not real, right, So about twenty percentage points of that is coming from the paper gains from Amazon and Google. And that sets up for a very interesting dynamic as we get into twenty seven because it's unlikely. 00:01:16 Speaker 3: Those will will will repeat. 00:01:18 Speaker 7: But you still have the rest of the market growing at twenty eight point eight percent earnings growth, which is absolutely incredible, incredible given the fact that it's not as if we're coming out of an earnings recession the last couple of years. We're strong too. 00:01:31 Speaker 4: Yeah, So I mean, I mean, is this revenue driven? Is it margin driven? 00:01:35 Speaker 8: What's he's going on? 00:01:35 Speaker 2: This is stop stop stop stop Cefa Sweeney just nailed it, folks. Where on the income statement is this happening. 00:01:44 Speaker 7: So that's a it's a really important point because yes, there is a big revenue component and that should not be a surprise because nominal GDP. 00:01:52 Speaker 2: A you're just know you you know where I'm going continue. 00:01:56 Speaker 7: Well, it was eight percent. Remember, revenue is nominal. So they benefit from this world where prices are still going up. And the other dynamic that's happening is that, yes, margins are expanding. They're up about three hundred basis points on a net income margin overall for the S and P five hundred. Now, a good portion of that, about half of that is those paper gains again from Google and Amazon and the other The rest of that is actually coming from semiconductors, and not because of some kind of productivity boom, but we argue it's operating leverage. It's effectively you're growing revenue so much on a fixed cost business that margins are exploding for semiconductor. 00:02:34 Speaker 2: As I just said to Robert Doll, let me say the same thing to you as well. If we assume it's someday our China like nominal GDP ms, what's the analog here of what the stock market does is nominal comes down? 00:02:48 Speaker 8: Yeah, do we have a history? 00:02:50 Speaker 7: Well, we do because we had a period of very strong nominal GDP growth and a year like twenty twenty one and it certainly decelerated a bit and twenty twenty two, and so we saw some dynamic of that reflect within the overall market performance. 00:03:06 Speaker 3: But it raises the question of. 00:03:09 Speaker 7: Is this as good as it gets? Second quarter earnings are so extraordinary, is that going to be the peak for this cycle? And then the question is does the market care? The market care is when you have a second derivative slowdown, So forty seven turns into thirty, turns into twenty, and then eventually you go to negative. So that would be the concern, is that if people see this as the peak and we descend from there. That could be a source of volatility for markets. 00:03:37 Speaker 4: We're going to get SpaceX after the close, and it's kind of been a certainly a seminal event for the equity market. It's the largest IK of all time. Monster valuation trades up, now it's trading down. 00:03:48 Speaker 5: Should the market. 00:03:50 Speaker 4: Pay attention to SpaceX and earnings here for the clothes today? 00:03:52 Speaker 6: Oh? 00:03:53 Speaker 7: I think we have to, just because it is the sign of a potentially all clear if you have a good reaction to the earn for some of these other big IPOs to come out. I mean, SpaceX has been a story about the perils of high valuation. Okay, right, So when they iPod at eighty five times current price to sales sixty times forward price to sales, even if those sales deliver, you are going to see you have to grow into that multiple. 00:04:21 Speaker 8: And that's effectly what has happened. 00:04:22 Speaker 7: You see that price to sales ratio now fall to about twenty five times price to sales, so effectively you've reset the valuation. The question is is it enough? Twenty five times would still be the third most expensive name in the s and P five hundred if SpaceX was in the S and P five hundred, which is not because it doesn't generate any profit. 00:04:40 Speaker 4: That's right, all right, allocation here? How are you thinking about equities versus fixing? 00:04:48 Speaker 3: Come here? 00:04:49 Speaker 7: Well, if you are concerned about growth or at all want to hedge your portfolio against a potential slowdown in growth, which I will note there is no sign of a slowdown on growth happening in any of the data. Look at Atlanta Fed GDP now over six percent for the third quarter. 00:05:06 Speaker 2: This is nuts. 00:05:07 Speaker 7: But if you were to want to hide yourself against growth, then that would certainly be in bonds a way to do it, given how high yields are, that you are getting well compensated, and the expectations you would see a rally in bonds if you were to see us. 00:05:23 Speaker 2: The difference here, folks, is if there's a forty two page report, unlike the duration of AI CAPEX, I'll read the first two pages and look for a chart to look at. Backdep Cam Dawson sits on the airplane and reads every single word of the report. How long does this keep going? I'm sorry, Cam? Here in August of this year, this is the arch question yeah, is if we assume this can't continue, can we adjust in this market, adjust in a measured manner before some correction or legitimate SPX. 00:06:00 Speaker 7: We truly are in an environment where it is Atlas holding up the world, and Atlas in this scenario is the hyperscaler's willingness to burn all of their free cash flow on this capex. We would not be seeing the nominal GDP growth that we are seeing. We would not be seeing the earnings growth we were seeing were it not for these companies' willingness to spend all of their cash and all of their free casual generation and be able to spend on this capex. If there is anything that causes them to pull back on that, and we are seeing no evidence of that that they're wanting to pull back on CAPEX, that would certainly be a big market negative. I would flag you look at Microsoft people celebrating their capex discipline because CAPEX slightly declined for twenty twenty six. It was just an accounting adjustment. They played some accounting games. They reclassified some of their cash flows from operating into financing cash flows, and that's CAPEX spell. It wasn't actually a real cut to capex. So this is still an environment where company's willingness to spend is certainly what is driving and boosting both that GDP and earnings. 00:07:07 Speaker 4: I like and your notes you say, this is a market that's wobbled, but it hasn't really fallen down yet, even if you've got semiconductors correcting, even if you've got just you know, some concerns out there in the marketplace about the MAG seven. It doesn't fall down, is it all? I guess it all just comes back to earnings. 00:07:23 Speaker 7: Right, Yeah, we did that for the seventies babies. 00:07:25 Speaker 8: Yeah, remember that. 00:07:26 Speaker 7: We Yeah, Weebel's wobble, but they don't fall down, and we're saying it's not a bowl or a bear market. 00:07:31 Speaker 4: It was a Weebel market. 00:07:32 Speaker 7: And so effectively we had this wobble in markets. But because it was so rotational under the surface, weakness within MAG seven was offset by strength and semiconductors, and then weakness within semiconductors was offset by strength in MAG seven. Then you had continued strengthen things like financials, for example. And so it's left us with a market that has been able to be so resilient despite the fact that large weights had really weak periods. Think about the mag seven. A lot of these names rent Bear Markets just a couple of weeks ago, and so certainly the rotational nature of things has allowed us to have a much more resilient top line. 00:08:07 Speaker 2: Perfect what a perfect seguity, the rotational nature. Yes, Kim Dawson, thank you so much. 00:08:13 Speaker 5: For you wich well, stay with us. 00:08:15 Speaker 2: More from Bloomberg Surveillance coming up after this. 00:08:26 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube. 00:08:38 Speaker 2: This is a treat. We're trying to parachute and Damien sass are in a moment on em A tag team here Stephen Englander of the Standard Charter Bank, and we hope mister Sasa are with us trying to find him within the building. It's not Stephen, honored to have you here. You are definitive with your work at City Group over the years and now at the Standard Charter Bank. You and I we we gottic folks lift the dialogue here on this. Why should the average American care that there's a third or fourth Japanese intervention, and now the Secretary Treasury has to come to the rescue. What's the so what for Americans? 00:09:15 Speaker 3: I think the problem for the US is twofold. The major problem is that increasingly, when we see the Japanese end acutely weak, it's associated with higher Japanese yields. The market is afraid that the fiscal situation in Japan is deteriorating. So the weekend and higher Japanese yields occur together, but some of those higher Japanese yields spill over into US yields. Now, the Treasury Secretary, you know, his only job descriptions keeping borrowing costs down. And so when he sees this kind of risk, especially in a week like this, when they're talking about Bondihuans and you know, sort of giving the outlook for the future, he wants to be careful that he doesn't get blindsided by what's happening in Japan. 00:10:04 Speaker 2: To me, they're silence here. Jessper Cole is one of the great Japanese watchers for years. Jessper Cole says, there perhaps is tensions within the secondary bank system of Japan. Are there unknown unknowns we don't know about within the banking system with Japan, which makes the Secretary of Treasury want to parachute in. 00:10:28 Speaker 3: You know, that's very hard to say, especially from this distance, unless you're watching it very closely, you know. And certainly the Japanese would be better place to deal with their banking issues than the US Treasury. I mean, US is a big country, but it can't solve everybody's problems. 00:10:43 Speaker 2: Okay, I want to get this in. Paul's lined up with a question smarter than mine, as simple as I can. 00:10:50 Speaker 3: You and I read RUDIGERD. 00:10:51 Speaker 2: Dornbush, we read Rogue Off, we read Opsfeld, you lived it as a PhD. A. 00:10:58 Speaker 3: Yale? 00:10:58 Speaker 2: Is there any likely this can work for Japan? I don't see an analog to the past. 00:11:06 Speaker 3: You know. I think this is a bridge, you know, and they're hoping that something down the road happens that makes organically helps contribute to yen strength. So it could be, say there's a deal in the mid Mid East, so oil prices come down. It could be that the Bank of Japan sort of raises rates so that the pressures are off. It's not a solution on its own, and we wrote a piece today, and one of the issues with Japan is that, you know, retail is exporting capital, you know, the man on the street, and they're not going to care that the US is intervened. You know, the reasons for taking money out of Japan are very different and the reasons you know, say a speculator would go short dollar. 00:11:53 Speaker 4: Yet, how significant is it that the US did join the back of Japan in supporting the en Here. It doesn't happen very often, no. 00:12:01 Speaker 3: And it's the first time it's happened. It's first time it happened in this form with the US serve telegraphing what it was going to do in terms of intervention. You know, even intervening Friday afternoon when most people are heading to the beach is like, real, you loved it. 00:12:18 Speaker 2: You wrote off Friday night and Saturday. 00:12:20 Speaker 3: Right, actually not to be clear, and that he did rite on Sunday. So you know, I think there's a lot that's unusual here. And you know they intervened in twenty eleven after the earthquake that was a special circumstances. You have to go back to two thousand and one and the intervention on the euro to find us coming in to sort of directionally push another currency. 00:12:45 Speaker 4: The interventions work in the intermediate to long term. This one seems to be beholding. But I don't know tell us about that, well. 00:12:53 Speaker 3: I mean, I work on the trading floor. In the long term is longer than seventy two hours? 00:12:59 Speaker 5: Okay? 00:13:00 Speaker 3: You know. The answer is that if nothing changes, you know, it's really hard to keep spending the money that it takes. You know, so far they've been dogged. Every intervention has tried to get yen stronger, so that anyone who went short yen after the previous intervention gets washed out. But there's a limit to how long you can do that, and if organically people want to take money out of Japan at some point that it goes the end way. 00:13:28 Speaker 2: Robin Brooks just publishes moments ago at Brookings for years with Gold and Sacks, he's been really definitive within this debate, folks, this is really complex inside baseball. He publishes on higher yields, stronger yen. He assumes a normal place for the Japanese bond market now is priced down yield up dramatically. Is that the end outcome here, whatever they want to do, is that there's going to be higher yields in Japan because he screwed this up so bad. 00:14:01 Speaker 3: They are facing pressures. You know, they tried very hard over the last ten years to stimulate the economy. You had, you know, the three arrows type of program, which had mixed success. 00:14:11 Speaker 2: Right. 00:14:12 Speaker 3: If you can't get the growth on your own, right, and you're trying to use fiscal policy to do it, there's a limit to what you can do. And if the fiscal policy isn't completely successful, right, people look at the other side of your balance sheet and say, you know, maybe not so good. 00:14:26 Speaker 2: Worldwide Bloomberg surveillance, where there's across America, Steven Anglander, where there's the standard Charter Bank Good Morning, ninety to nine FM Boston, ninety nine one in New York and Bloomerg eleven three to zero excuse me in New York in ninety nine one in Washington. What a joy is we brief in the morning at eight or nine am. Damien sasor of Bloomberg Intelligence on em with Steven Angler. Damien a question this morning for doctor Englander. 00:14:53 Speaker 9: So, doctor Englander, do you remember when we were on that panel with the Chinese at the Harvard Club a few years back, and we were you know, everything I'm seeing here with the en flags China yuon for me flags other low yielders, and the competition for funding currencies that's going on amidst the morass here. I mean, I think for me anyway, it was kind of implicit that the dollar and Japanese en were one currency block. Now that that's a little bit more explicit. What is yen strength? How does that weigh on other low yielding emerging market develop market currencies out there? 00:15:23 Speaker 3: Well, I think that that's just you know, secondary hope from the Treasury that, apart from sort of helping keep US yields down, that if the yen strengthens, it will spill over into other Asian currencies. You know, if you're a Korea or Taiwan or Thailand, it's hard for your currency to go up when the end is going down, that's right, And you know they're hoping that this will sort of lever everybody else down. 00:15:46 Speaker 9: Yeah, but the yuon is is at an all time not an all time It's had a cycle high here, so it's kind of that outlier. But then again, Chinese yields are lower than that of Japan right now. So you know, how do you think the PBOC, how will Beijing react to this sort of explicit sort of backing of the Japanese. 00:16:05 Speaker 2: We can't even tie your shoelaces. Just see how he does so on JP Y, c N Y, what do you do? 00:16:13 Speaker 3: You know, I think that they're very different. Structural situations like these want is strong, They have this enormous trade surplus, very insensitive to the strength of of CNY. 00:16:26 Speaker 9: Governments that are very willing to act and intervene. Both of them are similar in that respect, Steven. 00:16:31 Speaker 3: And you know, you know, you can think of the government of Japan and many other finance ministers is having this illusion that all you got to do is get your currency weaker and you're going to have an export boom. And it hasn't happened, right, And so I think that what you're seeing are different, very different. 00:16:48 Speaker 9: From a risk management and an investor standpoint, it's very difficult to bet one way or the other in those two currencies, even though they're low yielders, and you know, everybody wants to fund in them because of that threat that officials will inter mean and prop up or bring down the currency level. 00:17:02 Speaker 5: Right. 00:17:03 Speaker 3: You know, I think the Chinese have a lot more credibility because they're interesting. How some payments is so strong. 00:17:09 Speaker 2: Did Stephen your davy what you're getting there, folks? For those immortals out there that didn't nail differential equations, you're getting a window there into how the adults talk about this. We're trying to do that on surveillance. Nothing cursory. This is a huge deal on the other side of the world. Stephen Angler under the chance Standard Charter Bank, and Damien Sassar of Bloomberg Intelligence with Paul Sweeney. 00:17:33 Speaker 4: So, Steve, I mean, boy, before this intervention, we were once sixty four. We were all on a one sixty five watch. Why don't we head back there? I mean it kind of goes back to my first question. I mean, it seems like this intervention is short term at best. 00:17:47 Speaker 3: That's true, but if you've ever had the experience of losing money short term, it's not a very pleasant one. 00:17:54 Speaker 8: So you know, like you know people who you know, professional. 00:17:57 Speaker 3: Traders, people who do this, you know they're going to be wary. The one thing you do see is that the you know, in the options market, the premium for buying. 00:18:09 Speaker 9: The negative skill way up where that's gotten way down, So it could be that people will start selling yen. 00:18:18 Speaker 3: Upside or then by buying dollar yen upside. 00:18:21 Speaker 4: Typically the US, I mean, how committed are they to Japan and their efforts to try to strengthen her care? I mean, what do we know about the US role here? 00:18:31 Speaker 3: You know, you haven't think that was a grain of salt when the US a year ago was talking about slapping nineteen twenty nine fifty nine percent, you know, that didn't seem like a very friendly US view of Japan. You know, I think that the you know, they do have interests, and. 00:18:49 Speaker 9: That we were just foreign participation in US Treasury auctions. For me, that's what this comes down to. And I don't know, Stephen, if you have an opinion on that, But for me, the reason the White House I think became so explicit here is because they're looking at they're gonna have to place a lot of paper in the next few if I'm not mistaken, right, We've got some auctions coming up, and you know, the foreign bid for a lot of our paper has it's been like it that's critical and. 00:19:09 Speaker 2: Was standard Charter Bank Third World to Damien's point. Do you see the mom and pop Japan or even industrial Japan pulling away from full face. 00:19:20 Speaker 5: Where they are? 00:19:21 Speaker 3: Yeah, I don't think that they're gonna pull away from the States. I mean especially you know, we expect yields to continue to go up and it's going to be attractive to the rest of the world. 00:19:29 Speaker 8: Okay, well, let's discuss that. 00:19:30 Speaker 2: Because it's non leader Damien help us out here as well. Okay, I'm going to say, is a general statement where two point seven zero percent Japanese yield worse than umpteen decades going back to you know whatever, the Ming dynasty. I can't remember where nonlinearly does that relationship break price down Japan yield up. It's a smooth curve until it isn't. How close are we to some form of jump condition in Japanese yields. 00:20:00 Speaker 3: I'm the most critical of Japan, but I don't think we're that close. I mean, they, you know, the their death is very long term. They've been very careful in how they've placed it. I think that there may be gradual pressure. I don't think that there's going to be a cute immediate pressure. 00:20:16 Speaker 9: Yeah, I mean, I think the TIC data shows a little bit of stealth repatriation. Again, it's backward looking, right, I mean, we're for a few months in a years when. 00:20:22 Speaker 5: We start talking about tick data. 00:20:23 Speaker 9: But it does show that you know, you know, rising Japanese yields a resulting in reduced foreign participation in treasury auctions. 00:20:28 Speaker 5: It's just a fact. 00:20:29 Speaker 9: And if it continues, you know, I think that's exactly what we're going to see people kind of drawing, you know, the US dollar and the Japanese yen that much closer together. 00:20:37 Speaker 5: It is, it's one currency block. 00:20:39 Speaker 4: So Damian, what is it the fact that we've got the US stepping in with Japan? What does it mean for your world here as some of these emerging marketing. 00:20:47 Speaker 9: Currency I mean, truthfully, I'm a fan of Edward Any and m Powell and a lot of people who are for years and years and years, Paul have been saying that exactly what I said. They're two sides of the same coin. The en and the dollar are inexorably intertwined. Their linked in so many different ways, be it the assets that they hold in dollars that we hold that are in yen, the auctions, everything I'm talking about. So you have to look at it one system, and I think the US government is right to, you know, lend support to what the Japanese officials and authorities are trying to do here. 00:21:16 Speaker 2: Steven Angelerer, what does it mean for Toyota and all the Toyota symbolizes of industrial Japan, the stereotype coming out of World War Two? 00:21:28 Speaker 3: Well, you know, I think there are numbers different stories here. The US has been pressuring every country to build more in the States whatever the you know, uh the name is, and I think we're going to continue to see that. That's trade policies are using all these tariffs to try and push that forward. So far to a lot of announcements, not huge visible success. 00:21:51 Speaker 2: So I want to I want to go back to Paul the smartest question that I've heard so far, and that's basically, yen comes down. I got the chart out here, one sixty four, one hundred and sixty four yen per dollar, folks. The end strengthens off one two three whatever moments down to a one fifty six. I think that's eight big figures. And now we come we came halfway back, but now we're at one fifty seven. So one sixty four at a stronger yen one fifty seven. Do you predict this? Damien said that that will be tested. 00:22:25 Speaker 3: I think that if it's going to be tested, it's going to be tested gradually. I think that the authorities are going to be very careful. We're likely to see more interventions and they'll be you know, what they really don't want to do is sez yen back up to one sixty very quickly after everything that they've done. So I think that what they're going to try and do is flush out everyone who's been trying. 00:22:48 Speaker 5: To exactly right, this is prepared. 00:22:50 Speaker 9: This is basically a perpetuation of the carry trade, which has just been a money machine, a cash register for a lot of investors and speculators for the better part of the last three to four years. And so that is just embedded level the people that banks and investors are taking advantage of in the system, and this is a direct kind of you know, striking a you know over their bow. Basically, they're trying, they're trying to go after those guys. You can say, oh no, I can I can fund and I can invest in dollars and. 00:23:14 Speaker 5: Bob's your uncle. 00:23:14 Speaker 3: They can't do it. Forever though exactly, and the US has not spent a lot of money. 00:23:19 Speaker 5: Official Intervention doesn't. 00:23:20 Speaker 3: Want to spend a lot of money on this, okay, So I think if if they do a couple more rounds and the money keeps going out, they're going to have a hard time continuing to do it. 00:23:30 Speaker 2: Steven Engliner, thank you for the last word. There. He's with a standard chatter bank a special moment, joined by Damien Saser of Bloomberg Intelligence. That's what Paul and I like to roll with pro conversation. Stay with us more from Bloomberg Surveillance coming up after this. 00:23:53 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern than on Apple, Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube. 00:24:06 Speaker 2: The heritage of what we do, particularly on Russia is centered around years ago Jeffrey Sachs of Columbia, Marshall Goldman in Boston, and Angelus Stent in Washington, many other good voices. No one is more acute on his Russia than Sergei Guriev, dean of the London Business School, where he has really jump started the enthusiasm and authority of that institution. Where honored that Sergei could join us this morning. I've been really remiss on this, Professor Guriev, and it's the basic idea, what shape is Putin in? I get different cross currents in the zeitgeist. How fragile is the leadership of Vladimir Putin right now? 00:24:52 Speaker 6: Thank you very much Tom and Paul for inviting me to the program. Great honor and pleasure. 00:24:56 Speaker 8: To be here. 00:24:57 Speaker 6: We don't know what shape Puttin is in. His leadership is stable until it is for agile and falls apart. These regimes are very brittle. Now we know that there are a lot of unhappy people around him. Some of them are voicing their concerns. Russian public, responding to various polls, is calling for the end of hostilities. Putting In public says things are fine and winning, let's continue. He recently said I don't even know what we should do once this war is over, suggesting that he has no agenda besides this war. So in public he seems to project confidence, and we don't really know how well informed he is because the situation on the battlefield and for that matter, within Russia when Ukrainian drones are attacking refineries and retail e commerce warehouses. 00:25:50 Speaker 8: Situation is not great for Putting. 00:25:52 Speaker 6: But to the extent that he's not having independent news media, he doesn't listen to Bloomberg, so maybe is not fully informed. 00:26:01 Speaker 4: Sergei, I think earlier in the war it appeared it seemed like the war was not really being felt too acutely by the average Russian on the street. That seems to be changing as. 00:26:11 Speaker 3: The war drags along. 00:26:13 Speaker 4: Casualty lists grow, it's you know, drafts become more and more deeper, and then now we start to see real military incursions into the motherland of Russia. What is the feeling for the person on the street as religiou to this war these days. 00:26:29 Speaker 6: I think twenty tinety six has made a whole lot of difference previously, As you rightly said, they were casualties. Probably we are talking about killed and wounded in the range of one point three to one point four to one point five million people, which is a huge number, right. But what put In did before, he would recruit those soldiers from the poorest parts of Russia, trying to project normality, normalcy of life in big cities and in Moscows and Petersburg most importantly. But that is changing right now. He's still trying to protect more from the war. But we've all seen those footages from big cities where you have a lot of smoke in Moscow, but also in other big cities, and now also Ukrainians attacking the ecners and refiners have delivered this message to every single Russian and the amount of gasoline producers now down by a third, which of course results in short empire gasoline price. 00:27:23 Speaker 2: So I would think within the zeitgeist of America, we don't understand the different sources. Cs IS Steam Think Tank three hundred and twenty five thousand Russian military deaths. Ukrainian government estimates are one point four to five million, maybe seven hundred thousand Russian soldiers Russia. Well, there's barely any releases. Do we understand the deep peopling of Russia by this war. 00:27:54 Speaker 8: Yes, it's a huge it's a huge impact. 00:27:56 Speaker 6: In addition to this one point four to one point five killed and wounded, you have about a million Russians have left. And these are probably the best skilled, the most competent Russians, the most motivated and entrepreneurial Russians. So Russia has been hit very, very difficult blow in terms of its future. So there is a huge demographic challenge. We also see how shortages of labor are impacting civilian sectors. So no, it's not great to be in charge of Russian economy these days, if that is your question. And Putting is destroying Russia's future as we speak, in addition of course to destroying Ukrainian cities. 00:28:34 Speaker 4: And it also seems like this war has really shown the value of drone warfare, and well, nobody's done it better than Ukraine, and they seem to be just offsetting whatever sheer numbers Russia can throw at it in many material Why this drone warfare. That's got to be a shock to the Russian military. 00:28:52 Speaker 8: It's a shock to every military. 00:28:53 Speaker 6: Every military commander around the world now is watching this war because it is changing the whole counculus of how we. 00:28:59 Speaker 8: Think buzz wars. 00:29:00 Speaker 6: Right now, you're right, Russia before the war was three times as week four times. It's weak in terms of manpower, and now Ukrainians have also lost a lot of mental refugees refugee flows. But Ukraine indeed stabilized the frontline through using the drawn technology and also using drawns to attack deep inside of Russia. So it's a huge change in overall calculus. How wars are now being found. 00:29:23 Speaker 2: SERGERI, We're gonna leave it there, we have to go to breaking news, but we're really honored to have you with us. We didn't have times to talk about the incredible up up of the London Business School over the last number of years under mister kuriavs Tenure Dean of the London Business Schools Serji Guria there and just Russia. 00:29:41 Speaker 5: Stay with us. 00:29:42 Speaker 2: More from Bloomberg Surveillance coming up after this. 00:29:53 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Alvalcarplay and Android Otto with the Bloomberg Business Up, or watch us live on YouTube. 00:30:05 Speaker 2: Stephanie row theor to synthesize that right now exquisite it Wolf research and bringing a huge statistical foundation to our economics. When you look at this the screen of data on an Excel spreadsheet and you base off the central limit theorem, are we normal right now? 00:30:25 Speaker 6: Yeah? 00:30:25 Speaker 10: I think we are at least well, at least from a labor market perspective that I think is very fair to say the lad market seems normal. 00:30:34 Speaker 2: The dynamics normal around some form of distribution. 00:30:39 Speaker 10: I think that's totally fair, and that's why there's not that much emphasis on the labor market right now, because it seems to be in very good balance. And you know, of course we'll learn more on Friday. Our expectation is it will be a report that's not so interesting, where payrolls are solid, the on a point rate takes back up to where it's kind of been trending for a while. Next week's CPI report, however, speaks to the part of the economy that's a little bit less normal. 00:31:02 Speaker 4: Okay, So going to that inflation part of the economy again, tom'son twenty one. We've got oil plunging here today down almost five percent, but that could go up five percent tomorrow depending upon social media posts. What is underlying inflation your perspective, Yeah, so I. 00:31:18 Speaker 10: Think the trend, the actual underlying trend and inflation is a little north of two and a half percent. Now, there's been other things that have held up inflation to make it abnormally high. Tariffs have been one thing we estimate that's been boosting inflation by about sixty to seventy basis points. That is going to roll off the data as you move through time and companies don't again raise prices from tariffs. The one piece of the inflation puzzle that is elevated that we do have to keep a very close eye on is the impact from AI. Okay, so that's about adding about thirty basis points. 00:31:48 Speaker 4: Con Inflation flows through the economy, so the way it hits. 00:31:52 Speaker 10: The inflation data in particular is through computer software and accessories. This is the component that has held up, especially on core piece of EA. So you know the two main measures of inflation. On core PC, it's held it up more because it's a much bigger weight, and CPI has a much smaller rate, and that's why those two have have had sort of a different readings in the last. 00:32:09 Speaker 2: Stummoning rough through this. Right now, let me do a data check, folks. Some markets are moving futures up thirty two down, futures up seven hundred, nastack up one point two percent. I don't have a good VIX reading yet, and we're watching a brinch crewed eighty dollars forty cents heading towards a lower seventy nine dollars handle. Paul Sweeney was Stephanie Rough. 00:32:30 Speaker 4: So the average consumer out there has a job three or four percent wage increase nominal, but inflation's up there too. So you put all that together, how is the consumer out there? 00:32:42 Speaker 8: The consumer is. 00:32:43 Speaker 10: Doing actually pretty well and so right if you look at you know, income growth relates to inflation. The dynamic isn't that great today, It's okay, But as you move through time, the picture is going to get a little bit better because inflation is likely to slow down, especially on a year of year basis. And by the way, you're starting to see the lad market a little bit better. So at the same time inflation is coming down, wags are taking back up at least modestly, so that supports a consumer that could still do okay. Now, why has it done so well so far this year? It's not purely just what's going on in the labor market. You've had one big bill has been pretty impactful, and to be fair, you've had some pretty strong equity gains and equity networks is not nothing. 00:33:21 Speaker 2: How do you respond? John Riding and Breen wrote a brilliant essays it has done for years. Is bear Stearn's time ages ago. He took the equation why equill C plus I plus g LUs exports and said, look, the S plus I is eightish percent. No one's ever seen this before. I mean this boom and consumption and investment, the combo AI caterpillar thing. Do you see us unraveling that smoothly without jump conditions that could be painful? 00:33:52 Speaker 10: Yeah, I mean, I think we're in an environment where consumption is trending at a little above two percent. I think it'd be better if we just kind of stabilize around two percent and the investment side of the backdrop is normally high shriven by AI. 00:34:05 Speaker 2: What we see, it's nuts, is what we see. 00:34:07 Speaker 10: Okay, fine, well we use that. You could use your terminology. But I think what we'll end up seeing is capex growth in the AI space will eventually slow down, probably not so much in the next twelve months, but in the next two years or so, which is kind of what we mean, because it's an environment where you don't really want to see forty percent continuous growth in AI related kepex. That's not sustainable, and you will end up with malinvestment. 00:34:28 Speaker 2: Sophie Wroth with us. Let me rip off the script here as we are wont to do. And it's just as simple as this oil comes down, gallon of gas comes down. I mean, just is it an old school to say that's good for America or we move beyond gas and oil affecting us. 00:34:46 Speaker 6: No. 00:34:47 Speaker 10: I think it matters, especially for the low end consumer, because this has been the part of the consumer that has been left out of the last couple of years. And this is the way we started to see, especially in the last couple of months, when you really saw a big rise in gas prices, you started to see delinquencies pick up, a little bit, more credit card usage start to pick up as well. So this, this would add a little bit of relief to this low end consumer which has been struggling for many years now. So a combination of lower gasoline prices plus a pickup in wages, especially for sort of blue collar, lower end workers, could mean an environment where this this pocket of the consumer does a bit better. So yeah, I think I think it matters. It's not We're not an environment where it's entirely irrelevant. 00:35:31 Speaker 4: What do you make of this fed sitting here because we're gonna have another meeting coming up soon, and do you feel like this FED has to move at the next meeting. 00:35:39 Speaker 10: I think it's a going to entirely depend on the next two inflation price. Okay, If data dependent core PCE is tracking below point two five percent, then the FED can stay on hold and have good reason to do it and have the market supporting it and doing that. If it's running above point two five percent, I think there's very little chance of the FED is not hiking into. 00:35:58 Speaker 2: So the middle ground, the drama of Chairman Warsh, but the middle ground, which says simply, isn't it. Maybe his strategy was fine, but he didn't communicate it. What does he need to change in his communication if he is a strategy that you just outlined of quiescent inflation. 00:36:18 Speaker 10: Yeah, I mean so, I mean all he had to say at the meeting was we're not hiking today because I think inflation is heading down in the next two prints. If not, then we'll hike it. 00:36:28 Speaker 2: I think he said that in the first five minutes, and then it fell apart. 00:36:32 Speaker 10: It unraveled well when he was asked, why didn't you hike today? You know, you and the other eight members. Why didn't you favor a hike? He didn't really answer the question. Yeah, that was one of the most sort of troubling moments of concres. 00:36:45 Speaker 2: Colby Smith, I don't remember. 00:36:47 Speaker 3: It was right there, It was right there, yep. 00:36:49 Speaker 10: Yeah, I mean was that was a good question to be asking, and he didn't have an answer, and all he had to say was something to the tune of, you know, the inflation is heading lower, and if not, will act. 00:36:57 Speaker 5: He didn't. 00:36:57 Speaker 10: He continued to sort of outsource the tightening to the markets, and that's what markets clearly didn't like. Every time he said and made a comment like that, you just had a thirty year yield continue to rise. 00:37:06 Speaker 2: Could you see Kevin Worshon's statistics class with Stephanie here? 00:37:11 Speaker 3: Absolutely tune up and spit them out. 00:37:14 Speaker 2: Stephanie, thank you, thank you, thank you so much for all you do for is Stephanie Roth, chief economist at Wolf Research, just a really interesting, seriously and interesting synthesis about the dynamics of where we are. 00:37:28 Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday seven to ten am Easter and on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal