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