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Speaker 2: We are advantaged with Neil Dot of Renaissance Macro. Neil,
Speaker 2: you were my economist of the Year with resilient optimism
Speaker 2: in the depths of COVID. You've turned more cautious When
Speaker 2: I see a stock market go to record highs, how
Speaker 2: can I be cautious?
Speaker 3: No, it's a great point. I mean, and clearly, Tom,
Speaker 3: the pain trade is stocks go higher. I mean, you
Speaker 3: have the market at basically new highs, and you know
Speaker 3: it looks like bear's out number of bulls, so that's,
Speaker 3: you know, I mean, pretty good sign the pain trade
Speaker 3: is higher.
Speaker 2: You know.
Speaker 4: Look, I mean.
Speaker 3: You know the I think you know, the stock market
Speaker 3: is a very useful discounting mechanism, so it's always important
Speaker 3: to keep an eye on it, especially when you have
Speaker 3: a cautious economic view like I do. But you know,
Speaker 3: it's also worth pointing out that it's not a perfect
Speaker 3: discounting mechanism. Right, So when I think about why stocks
Speaker 3: have gone up, you know, it's earnings rates and risk
Speaker 3: premium and earnings estimates keep going higher. Has been coming down.
Speaker 3: You know, you're getting soothing words on trade and interest
Speaker 3: rates have been coming down as the market's bet. You know,
Speaker 3: I guess more in the direction of our FED view.
Speaker 3: So that's what's powering the stock market higher, which kind
Speaker 3: of raises the stakes for what earnings looks like going forward.
Speaker 3: I mean, obviously, economic data generally over the last number
Speaker 3: of weeks on net has been negative, and you know,
Speaker 3: you'd expect, you know, some of that to bleed into.
Speaker 2: The way, doesn't David Dona just reised Jeff de Graf's research. Yeah,
Speaker 2: he doesn't know anything about this stock, right, he just
Speaker 2: listens to the graph.
Speaker 5: David gir I love that you call your it was
Speaker 5: your formerly your economists of the year. Do you get
Speaker 5: a trophy for that? Is there like a no, he
Speaker 5: gets a beverage of beverage of his choice at the
Speaker 5: the time of his choosing. You let me stick with
Speaker 5: the soothingness that you talked about in terms of the
Speaker 5: rhetoric that we've heard from the FED on and what
Speaker 5: we've heard from policymakers on tariffs as well. How much
Speaker 5: of a disconnect is there as you see it, between
Speaker 5: what we're hearing from from them and as you see
Speaker 5: the state of the economy today.
Speaker 3: Well, I mean, my big gripe is really the state
Speaker 3: of the economy as it is not so much what
Speaker 3: tariffs are doing to the economy, because, in my opinion,
Speaker 3: I mean, before tariffs even happened, I mean, we were
Speaker 3: talking about a frozen housing market, a frozen labor market,
Speaker 3: a capex cycle that was really just about tech not
Speaker 3: much else. And uh, you know, I mean, tariffs make
Speaker 3: that bad situation worse. But you know, look, I mean, David,
Speaker 3: I mean for the US economy, what I'm really focused
Speaker 3: on right now is the ongoing deterioration in labor markets.
Speaker 3: We have continuing claims rising to fresh highs week after
Speaker 3: a week. That means that unemployment is probably going up,
Speaker 3: and housing continues to get worse, particularly new family housing.
Speaker 3: Right so, that to me is an important thing to consider.
Speaker 2: I got a year over your PCE coming up here
Speaker 2: in one minute quickly Neil dot A thirty seconds two
Speaker 2: point one percent to a surveyed two point three percent.
Speaker 2: Is that on the edge of stagflation inflation?
Speaker 3: No, I mean this would be the third consecutive month
Speaker 3: where core inflation is running point one, I mean stagflation.
Speaker 3: We have more stag than we have flation right now.
Speaker 3: So yeah, deflation, theflation part is very much in the
Speaker 3: range of a forecast. And I think it's important for
Speaker 3: people to explain why the tariff induced inflation likely is
Speaker 3: anything more than a one off.
Speaker 2: Nil douta with Renaissance macro nailing the stag of stagflation.
Speaker 2: I see real personal spending with a negative statistic Neil,
Speaker 2: what does that signal for future GDP?
Speaker 3: Well, it's going to mean that you're going to see
Speaker 3: some downward revisions to estimates of GDP. And remember that
Speaker 3: the estimates weren't that strong to begin with. You know,
Speaker 3: I'm a little bit surprised that the consensus missed the
Speaker 3: real consumption number because we did see unit auto sales
Speaker 3: come down quite meaningfully over the month, and so you know, look,
Speaker 3: I mean, if you look at this data, what it
Speaker 3: shows is real consumption came in a bit weaker than expected,
Speaker 3: and core inflation came in a bit firmer than expected.
Speaker 3: So without having you know, dialed into all the details.
Speaker 3: It just tells you that consumers are resistant to higher prices, right,
Speaker 3: and that's because ultimately consumer you know, inflation, in my opinion,
Speaker 3: really boils down to the household budget constraint. You know
Speaker 3: right now, you know if you look at real income
Speaker 3: NETA transfers, that's up only one and a half percent
Speaker 3: against last year, and you know that kind of sets
Speaker 3: the table for what what consumer spending will more or
Speaker 3: less do. And you know you're talking about, I think,
Speaker 3: at a minimum of a low potential growth.
Speaker 2: Environment, David Gerr. I see the line item in PC.
Speaker 2: There's like two hundred line items and there's one for
Speaker 2: summer camp. Would you care to comment on that.
Speaker 5: I'll strained all my resources now that I have two
Speaker 5: of them going. But no, that's that's an extreme one.
Speaker 5: Let me go back to the housing market, which you
Speaker 5: mentioned just a moment ago as one of the two
Speaker 5: things that you're you're kind of focusing on and suggesting
Speaker 5: counseling us to focus on here as well. How big
Speaker 5: a drag is that likely to be on the economy.
Speaker 5: More broadly, you're looking here at sort of new home
Speaker 5: starts and projecting a lot of nuance into the way
Speaker 5: that we should be thinking about them.
Speaker 3: Well, sure, I mean, remember this is on the first
Speaker 3: time during this cycle where we've seen residential investment go down.
Speaker 3: The first time was back in twenty two when the
Speaker 3: FED was gearing up massive you know, rate hiking campaigns,
Speaker 3: so they basically crushed home sales. But what was important
Speaker 3: about that period was you were still in a situation
Speaker 3: where you know, home units under construction were rising. Right now,
Speaker 3: you're in a situation where housing starts are running, you know,
Speaker 3: below completions, which basically means that units under construction will
Speaker 3: continue to come down. If you look also at the
Speaker 3: slack in the new housing market, you have you know,
Speaker 3: essentially cycle highs and unsold new housing inventory. So that
Speaker 3: kind of begs the question as to why builders are
Speaker 3: going to break ground on new homes to start with,
Speaker 3: because it makes much more sense at this point for
Speaker 3: them to kind of sell out of the homes they've
Speaker 3: already made as opposed to breaking ground on new homes.
Speaker 3: So that means units under construction will keep falling, and that,
Speaker 3: you know, sort of begs the question as to what's
Speaker 3: going to happen with construcuction employment, which has been you know,
Speaker 3: relatively uh, you know, hanging in there, you know, over
Speaker 3: the last number of years or so. And then you
Speaker 3: talk about, you know, home prices are are are declining, uh,
Speaker 3: you know nationally, particularly the south and the West, which
Speaker 3: is where the builders have been making the home. So
Speaker 3: I do think that construction activity and residential is going
Speaker 3: to be coming down, and I think that's going to
Speaker 3: have effects on unemployment over the over the coming months.
Speaker 4: Neil dudda with us is the renaissance macro.
Speaker 2: We continue commercial free for through a good part of
Speaker 2: this hour, I should say, lots of economic data coming
Speaker 2: up next week.
Speaker 4: David Girl, one more question for mister Dutta. Neili.
Speaker 5: I listened to Mary Daily yesterday on surveillances. I know
Speaker 5: you likely did as well, and she talked about her
Speaker 5: modal outlook has been for some time we would begin
Speaker 5: to see be able to adjust the rates in the fall.
Speaker 5: She hasn't really changed that view any I'm curious, sir,
Speaker 5: what what your hearing or pulling from the commentary we've
Speaker 5: heard from these FED officials and what sense you have
Speaker 5: of their path going forward here?
Speaker 3: Well, David, as you know, I mean, if you put
Speaker 3: two economists in a room, you're lucky to get four opinions, right, So,
Speaker 3: and I think that's kind of where you're at right
Speaker 3: now with the FED. I mean, you have a very
Speaker 3: kind of bimodal sort of distribution. I mean there's some
Speaker 3: that don't think they could should be cutting at all,
Speaker 3: and there's others that think that maybe two cuts are likely,
Speaker 3: some thinking they should start sooner than later, you know.
Speaker 3: To me, I think what's important is what Daily said
Speaker 3: about tariffs, because she basically said that, look like everything
Speaker 3: we know about this means it's going to be a
Speaker 3: one off. So why are we holding off on easing
Speaker 3: if you know, given that that first principle. At the
Speaker 3: same time, you know, we know that unemployment is going higher,
Speaker 3: and you know, if the FED has been saying for
Speaker 3: the longest time that the labor markets aren't a source
Speaker 3: of inflationary pressure, I agree with that. But if unemployment
Speaker 3: is going higher, maybe the risk now is that the
Speaker 3: labor markets are in fact becoming a source of disinflationary pressure.
Speaker 3: And I think that's something that they need to heed.
Speaker 4: Interesting. Neil Da, thank you so much.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 4: I have been.
Speaker 2: Waiting for this interview right now in the studio where
Speaker 2: this Monica Briguerrera compliance.
Speaker 4: Called for you from Morgan Stanley and beg, beg begged.
Speaker 4: Don't ask her. You have real world New York City service. Yes,
Speaker 4: everyone talks.
Speaker 2: Monica Guerra does Corrine Headgar in a Boston Globe today
Speaker 2: as a blistering essay, I'm the gentleman who just won
Speaker 2: democratic primary.
Speaker 4: Here.
Speaker 2: Can you fathom where we will be if mister mumcdoney
Speaker 2: is elected mayor in November.
Speaker 4: Where will people like you in the machinery of city
Speaker 4: Hall be in February or March of next year? Any idea?
Speaker 6: Well, I just want to clarify I'm no longer working
Speaker 6: for city Hall. R Morgan Stanley's opinion, you know. But
Speaker 6: one of the things that I think was interesting about
Speaker 6: this race is that it seemed that the sort of
Speaker 6: democratic socialist label didn't really matter, right, that there is
Speaker 6: a desire to have New York City be more affordable.
Speaker 6: That's what I saw people running towards. Now what does
Speaker 6: it mean long term? One of the biggest questions that
Speaker 6: we're thinking about from a markets perspective is what happens
Speaker 6: with free bussing. How do you get there?
Speaker 7: Right?
Speaker 6: And that's a big and that's a big question because
Speaker 6: if we know the MTA right is both a city
Speaker 6: and state run entity, and there's a lot of debt,
Speaker 6: there is a lot of fiscal pressure and how are
Speaker 6: they going to get there? So for me, my question
Speaker 6: is what does the bonding situation look like long term
Speaker 6: and what does that mean for credit spreads?
Speaker 4: So there's adult talk, folks.
Speaker 2: Here's what we're to do when David, when she gets
Speaker 2: a day off from Morgan Stanley, she can come in
Speaker 2: with her flip flops and we'll talk to her about
Speaker 2: You said, why did you begin an adult interview?
Speaker 5: David GERA, I'd love to talk a bit about trade,
Speaker 5: first of all, and we had this interview yesterday. Howard
Speaker 5: Lutnik was on with Kaylee Lines and Joe Matthew and
Speaker 5: what he allowed during the course of that interview was
Speaker 5: that the US and China had signed an agreement we
Speaker 5: can call it a deal framework of a deal. What
Speaker 5: have you seeming to codify what was discussed and agreed
Speaker 5: upon in Geneva and then in London after that? Where
Speaker 5: does that get us? As we kind of push headlong,
Speaker 5: were less than two weeks away from July the ninth,
Speaker 5: which is when this posit the President put in place
Speaker 5: on these reciprocal tariffs ends and I should say China's
Speaker 5: exempt from all of that. Where are we now? And
Speaker 5: as we see the market move on that news from
Speaker 5: Commerce Secretary Lutnik, what does it tell you about progress
Speaker 5: and process and where things are heading.
Speaker 6: I think it tells me that Marcus been essentially waiting
Speaker 6: for any news, right so anything to hang their hat on,
Speaker 6: any piece of certainty. And so if we're thinking about
Speaker 6: this framework, the only I think some of the details
Speaker 6: we know have to do with rare earth minerals concessions, right,
Speaker 6: there's very very light information on what's in there. The
Speaker 6: interesting thing about this is that even though we have
Speaker 6: sort of a black box on all of the other negotiations,
Speaker 6: they have said that they're willing to kick the can
Speaker 6: on the ten percent. So we know that there is
Speaker 6: essentially a set baseline going forward and that the rest
Speaker 6: is just right this negotiating piece. We think that ultimately
Speaker 6: you're going to land lower closer to ten percent than
Speaker 6: say thirty forty percent in some instances, depending on the country.
Speaker 6: For us, this means positive market response because you're not
Speaker 6: getting the worst case scenario.
Speaker 2: Right.
Speaker 6: Markets have essentially adjusted and priced in this activity. But
Speaker 6: it also means for us as investors, right, is that
Speaker 6: we know which industries, which sectors are going to be
Speaker 6: the most impacted, and where we have status quo.
Speaker 5: I was at the seven summit, and so I watched
Speaker 5: as the President left, and there were all these disappointed
Speaker 5: delegations who had blown great distances, spending a lot of
Speaker 5: time on airplanes with the hope that they could get
Speaker 5: some time with President Trump and his team to talk
Speaker 5: through these trade deals. As you listen to Secretary, let
Speaker 5: me talk about how we're close to these ten deals,
Speaker 5: ten major trading partners signing deals. We had Scott Bessent
Speaker 5: on Fox Business this morning talking about all of this
Speaker 5: getting wrapped up by Labor Day. How much has all
Speaker 5: of the activity of these last few weeks. So that's
Speaker 5: the G seven, that's the NATO summit. Of course, all
Speaker 5: that's been happening in the Middle East set back this timetable.
Speaker 5: How much realism is baked into the fact that we
Speaker 5: could get some deals here sign soon.
Speaker 6: I think that it is real that you can get
Speaker 6: some deals signed soon, especially by August. The fact that
Speaker 6: they've pushed out that that deadline, and I think they'll
Speaker 6: continue to do so.
Speaker 2: I don't think we're.
Speaker 6: Really beholden to any specific timeframe other than that if
Speaker 6: we're looking at the tax bills, so I'm going to
Speaker 6: shift Turkey to OBBB, you know, the one big beautiful Well,
Speaker 6: if you're looking at the fiscal hawks and getting them
Speaker 6: to the table, there has to be some sort of assurance,
Speaker 6: right that they can offset some of the debt and deficit.
Speaker 6: And so while we may not know what those specific
Speaker 6: parameters are, we do have a baseline expectation from the
Speaker 6: CBO of what types of revenue could be raised an
Speaker 6: event of heightened tariffs.
Speaker 4: It's Friday, Might Brain. You're killing me, David.
Speaker 2: All this stuff is way too nerdfest Monica. Are you
Speaker 2: concerned about our debt and deficit? Or do we just
Speaker 2: you know, the proverbial little g we just continue to
Speaker 2: grow our way out of this mess.
Speaker 6: The idea from this administration is yes, they will. They
Speaker 6: want to grow their way out of this.
Speaker 2: I know that now every administration since Zachary Taylor and
Speaker 2: Tyler Taylor.
Speaker 4: I remember John.
Speaker 5: Tyler Thomas, Jonathan Taylor.
Speaker 2: Help me or right now, we're going to grow our
Speaker 2: way forward extended protection.
Speaker 6: So let me just put it this way. I'm not
Speaker 6: a modern monetary theorist. I don't prescribe to the the
Speaker 6: idea that that doesn't matter.
Speaker 3: Now.
Speaker 6: What I do want to highlight is that you have
Speaker 6: to have growth at levels that outpace the pace of
Speaker 6: interest expense, right, And so if they're able to get
Speaker 6: that balance correct, right, if you get the GDP to
Speaker 6: interest expanse balance correct, then essentially you can keep going
Speaker 6: for quite a while right on this productivity promise of
Speaker 6: the United States. So we don't actually see that cracking yet,
Speaker 6: but it is still a problem.
Speaker 2: Medica, Greg got twenty seconds free bussing. Come on, we
Speaker 2: can do this over a cup of sanc. It's not
Speaker 2: that on a bus. Yeah, No, I haven't been on
Speaker 2: a buses.
Speaker 6: Pro Buses are great free bussing.
Speaker 2: The rich pay for it, but they know it's a
Speaker 2: dedicated text. They know every dollar of that tax is
Speaker 2: going to buses.
Speaker 4: It's a layup.
Speaker 6: This is the thing. There's a lot of transportation holicies
Speaker 6: that seem like layups, you know, when you're thinking about
Speaker 6: congestion pricing from a hocals perspective. That was a layup.
Speaker 6: It wasn't. It had tons of hiccups with people that
Speaker 6: you know, proposing views. So not everyone is going to
Speaker 6: feel that. You know that they're willing to be altruistic
Speaker 6: and you know, support free bussing.
Speaker 4: We got to go. This is br Please come back
Speaker 4: like Monday, Monica.
Speaker 5: Your face the roseve Island tram Right, I got a problem.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: We're an international brief and we're so honored to have
Speaker 2: her in studio where us. She was just a workhorse
Speaker 2: through COVID free of beamis with US chief economist Ts Lombard,
Speaker 2: always and forever of London. When you say to an
Speaker 2: American you have to focus on the Pacific RIM. Let's
Speaker 2: start with a why for you, you know, Trump trade
Speaker 2: tariffs and all that. Why should we pay attention to
Speaker 2: the Pacific RIM in the second half of this year. Yeah.
Speaker 7: I think that nexus between the US and China is
Speaker 7: one of the things that's really changing and shifting in
Speaker 7: terms of the axis of the global economy. When we
Speaker 7: think about the underlying drivers of some of the big
Speaker 7: shifts that we see in the thing that I hyper
Speaker 7: fixate on, which is bond equity correlations, the underlying driver
Speaker 7: is the political economy inequality of both.
Speaker 2: I saw another jump condition in Taiwan dollar today, way
Speaker 2: outside two standard deviations take currency dynamics week dollar over
Speaker 2: to some of these almost jump conditions in specific room
Speaker 2: strength over to equity bond correlation.
Speaker 7: Okay, so I think, all right, let's do this. I
Speaker 7: think what's happening here is is in the currencies outside
Speaker 7: of of the M and B within China. Like, I
Speaker 7: just don't know why the administration wouldn't consider the currency
Speaker 7: as part of trade deals when when you're considering China
Speaker 7: it's a slightly more I guess aggressive proposition.
Speaker 2: But you know what.
Speaker 7: The Taiwan has had this current account surplus for years
Speaker 7: and years and years. It's a massive percentage of GDP.
Speaker 7: Why would that not be a part Why would the
Speaker 7: currency not be a part of the of the deal.
Speaker 7: And I think sort of what's changing here here I
Speaker 7: go to the bond equity correlation, is that we're we're
Speaker 7: shifting away from the hyperglobalization that has sustained those current
Speaker 7: account surpluses and into a world where the policy reaction
Speaker 7: to the hollowing out of Detroit and the rise of inequality,
Speaker 7: the policy reaction is negative supply shocks. Negative supply shocks
Speaker 7: push inflation into the system, destroy demand, and turn the
Speaker 7: bond equity correlation positive because the investors need more to
Speaker 7: compensate them for the deterioration of the hedging quality of
Speaker 7: the of the bond. And so the likelihood of those
Speaker 7: negative supply shocks is just higher now than it was previously,
Speaker 7: not least because we're moving from a unipolar global political
Speaker 7: order to a multipolar global political order, which also has
Speaker 7: a lot of consequences in that specific rim area. So
Speaker 7: this increase in instances of negative supply shots to me,
Speaker 7: and this is where I have to be very careful
Speaker 7: about sort of my truth on a three year time
Speaker 7: horizon versus what actually gets priced at this moment in time.
Speaker 7: To me, that means greater likelihood of negative supply shots.
Speaker 7: But just as in the eighties it took quite a
Speaker 7: long time for people to price out term premium, it's
Speaker 7: going to take quite a long time.
Speaker 4: To take longer than the modern media.
Speaker 5: Thanks David, I'd love to stick with that, which is
Speaker 5: your overarching thesis that move away from a kind of
Speaker 5: unique polar world to an artipolar one. And so when
Speaker 5: you look at the weakening in the dollar that we've seen,
Speaker 5: is it part and parcel of that. Do you see
Speaker 5: that as kind of emblematic of maybe more near term
Speaker 5: or shorter term phenomena or is that part of this
Speaker 5: kind of broader thesis that you have.
Speaker 7: I think it's definitely part of this broader, broader thesis
Speaker 7: that the underlying sort of driver of the dollar standard
Speaker 7: and the strength of the dollar is the fact that
Speaker 7: the US economy is just more dynamic. It's able to
Speaker 7: sustain higher private consumption led growth without creating inflation, and
Speaker 7: so risk adjusted returns in the US have just been
Speaker 7: higher over that period of time. But I think what's
Speaker 7: what's changing now. The US is going to remain exceptional.
Speaker 7: It's just not going to be as exceptional as it
Speaker 7: was in the twenty ten exceptionality exactly right. So I think,
Speaker 7: you know, the underlying causes of the strength of the
Speaker 7: dollar is not so much on the trade account like
Speaker 7: that seems to me something that's sort of flapping in
Speaker 7: the wind of capital flows. And it's actually capital inflows
Speaker 7: predominantly actually in the last decade from Europe rather than
Speaker 7: the Pacific rim that have have helped to cause this
Speaker 7: this kind of strength of the dollar and the outperformance
Speaker 7: of US assets to the extent that they contribute there
Speaker 7: there as well. And so that's that's also unwinding and
Speaker 7: reversing because US risk adjusted returns are coming down relative
Speaker 7: to the rest of the world, where US risk adjusted
Speaker 7: returns are probably better, and partly thanks to the partly
Speaker 7: thanks to the kind of the chaos that is created
Speaker 7: by Trumpian policy in Europe, but also thanks to the
Speaker 7: rise in inequality and the rise of the AfD ten
Speaker 7: percentage points in the German elections and Russian threat.
Speaker 5: Can I ask you about what's transpired over the last
Speaker 5: twenty four hours We had the Commerce Secretary on our
Speaker 5: ara yesterday evening and he said there's been this deal
Speaker 5: that's been inked, which I guess is codifying the agreement
Speaker 5: that took place in Geneva, and then was react in London.
Speaker 5: Great enthusiasm it scenes in the market because that's an
Speaker 5: indication of something. What is the something that you see
Speaker 5: that indicating bringing to bear your experience tracking what's going
Speaker 5: on in Asia here, it seems to me it's a
Speaker 5: very basic thing that's been to agree to, which is
Speaker 5: a continuation of talks and I guess more openness to
Speaker 5: some bassets of trade. What exactly has been inked here
Speaker 5: and why is that so significant if at all?
Speaker 7: Yeah, I guess the big kind of push point that
Speaker 7: could shift in terms of the actual rate of tariffs
Speaker 7: that's going to be charge on China is with relation
Speaker 7: to the fentanyl side of things, which is a big
Speaker 7: part of the thirty percent additional on China. So that
Speaker 7: that's maybe where you could get some positive news kind
Speaker 7: of coming through. But like with all the trade negotiations,
Speaker 7: it's the July ninth is not like the deadline for
Speaker 7: this to be done. It's the deadline for talks to
Speaker 7: have started, which means again that you just get these
Speaker 7: kind of uncertainty shocks coming through.
Speaker 2: And the time we've got left with all of the
Speaker 2: Tea Slambard, the heritage of Charles Dumont, what you're doing
Speaker 2: for you, Beamish, Where do you think the blended tariff
Speaker 2: level will settle down to? It's seventeen ish now I'm guessing,
Speaker 2: I'm just making a weekend guess where does that end up?
Speaker 4: Does it come back down near two three?
Speaker 2: No?
Speaker 7: I think there's a there's Tariffs have a multiple functions
Speaker 7: in the toolbox. One is negotiations, That's what we saw
Speaker 7: in the first half. Now we're kind of coming through
Speaker 7: the black process of negotiations. Another is like actual balancing
Speaker 7: of the US economy, whether you believe that's going to
Speaker 7: happen or not. But the one with the baseline for
Speaker 7: tariffs that persists is a fiscal reason and a reorientation
Speaker 7: of fiscal policy. And I don't think it's an I
Speaker 7: don't think it is a coincidence that tax cuts are
Speaker 7: about zero point eight percent of GDP and spending cuts
Speaker 7: offset that by zero point two percent, and then it
Speaker 7: just so happens that tariff revenues as they as they
Speaker 7: stand would probably be about zero point six percent. And
Speaker 7: so that helps you to square the circle in Congress
Speaker 7: between the fiscal hawks and the and the people that
Speaker 7: are up for reelection in the in the primary. So
Speaker 7: I think that that ten percent level is actually quite stafy.
Speaker 4: I got twenty seconds. What does labor do in the
Speaker 4: United Kingdom?
Speaker 2: I read the British newspapers and it's as crazy as
Speaker 2: I've ever seen. It'll be crazy. I don't understand it.
Speaker 7: Okay. In the twenty seconds, they probably they probably replicate
Speaker 7: what Gordon Brown does, which is tell them bond vigilant
Speaker 7: is what they want to hear, and then spend like
Speaker 7: a troop.
Speaker 2: Okay, does reform is Nigel Ferrari is going to be
Speaker 2: the next Prime Minister?
Speaker 4: Twelve seconds?
Speaker 7: I hope not. If Reeves manages to sort of shift
Speaker 7: past this kind of myopic focus on the fiscal rules,
Speaker 7: then maybe the economy can turn around.
Speaker 4: Thank you so much, Frank. Does that cover the United Kingdom?
Speaker 2: Yeah?
Speaker 5: It's for thirty seconds, free beamers, Thank you so much.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: terminal joining us.
Speaker 2: James Steele of HSBC, it's one of the piece platinum
Speaker 2: or palladium. I think I saw a record high like
Speaker 2: yesterday or the day before.
Speaker 4: Your world's on fire, isn't it? I mean even so
Speaker 4: over got it going?
Speaker 8: Yes, it certainly is.
Speaker 4: Come.
Speaker 8: The precious metals markets have all been very active this year, well,
Speaker 8: for very different reasons. The gold obviously, you know, and
Speaker 8: all the time I've been watching gold and analyzing it,
Speaker 8: the same twelve or fifteen factors drive it year after year.
Speaker 8: The trick in analyzing it and trying to get an
Speaker 8: idea where the price might go is to which of
Speaker 8: those factors is dominant and which is recessive right now?
Speaker 8: And for this year it's been geopolitics and last year
Speaker 8: as well, and it's been quite a long time since
Speaker 8: that was in the driver's.
Speaker 4: Seat in central banks are still buying at the margin.
Speaker 8: Oh absolutely, that's the second issue too. I mean I
Speaker 8: have no doubt that we would not be up here
Speaker 8: if it went for a central bank buying.
Speaker 4: Now I'm going to get this thing because I think
Speaker 4: it's so important.
Speaker 2: If I look at tell you'red Colorado and the Liberty
Speaker 2: Bell Mine, which is gold and silver, and it's like,
Speaker 2: you know, the unsinkable Miley Brown is like eighteen nine,
Speaker 2: they shut.
Speaker 4: It down in nineteen twenty one.
Speaker 2: Is there still gold or silver out there? When Gura
Speaker 2: goes out to Teller Ride.
Speaker 8: Well, I don't know about that specific mine. But there's
Speaker 8: one of the problems with gold. You know they talk
Speaker 8: about peak oil. Well, I can tell you there's no
Speaker 8: such thing as peak oil, but there is peak gold. Interesting,
Speaker 8: we've been looking for gold for five thousand years. We've
Speaker 8: only been looking for oil for one hundred and fifty
Speaker 8: odd years. And the ore grade is dropping, it's getting
Speaker 8: more difficult. We haven't had a mega discovery since nineteen nine.
Speaker 8: That's twenty million ounces or more since nineteen ninety seven.
Speaker 8: So there's no shortage of gold, and I don't mean
Speaker 8: to give the impression that there is. And mine supply
Speaker 8: is going up because it's very profitable to produce gold
Speaker 8: right now. But we do see later in the decade,
Speaker 8: we see the gold production from the mining side beginning
Speaker 8: to plateau. And top out.
Speaker 5: Let me go back to the central bank issue. And
Speaker 5: I keep thinking about this Leslie Hook piece in the
Speaker 5: Financial Times from a few weeks back, and the thrust
Speaker 5: of that was you have central banks really scaling up
Speaker 5: their purchases of gold all the while the forecast seems
Speaker 5: to be they're going to be paring down how many
Speaker 5: dollars they have on hand. What does that phenomenon tell
Speaker 5: you or say just about the state of the world today.
Speaker 8: Well, that brings in the d dollarization argument, and which
Speaker 8: we think is gradual. We're not in the dollar, the
Speaker 8: dollar will cease to be the world reserve currency count
Speaker 8: at all for many reasons. According to our effects research team,
Speaker 8: the dollar will remain the world reserve currency. But perhaps
Speaker 8: every central bank doesn't need quite as many dollars as
Speaker 8: it has. And if it decides on a portfolio basis
Speaker 8: to readjust things, but is reluctant to go into another
Speaker 8: specific currency, which many of them appear to be, then
Speaker 8: gold is a marvelous way of slightly dewaighting your dollar
Speaker 8: holdings without committing yourself to something like the euro, the yen,
Speaker 8: or another fixed income instrument that you might not want
Speaker 8: to own. So it's it's a perfect sweet spot. And
Speaker 8: when you see geopolitical risks, I mean when you look
Speaker 8: at the central banks that are buying, they tend to
Speaker 8: be near neighbors that they may or may not have
Speaker 8: issues with. They don't tend to keep the gold in
Speaker 8: that country, see, they tend to come elsewhere.
Speaker 2: James Steele with us on your community crascination near June thirty.
Speaker 2: Here we reset for the second half of twenty twenty five,
Speaker 2: even looking into twenty twenty six, which I find hard
Speaker 2: to believe. Futures up twelve up twenty two earlier, give
Speaker 2: back a little bit, but we'll see how the market
Speaker 2: opens here in twenty three minutes of sixteen point at two.
Speaker 4: Four James Steele. Are central banks supposed to own gold?
Speaker 4: I mean they have a.
Speaker 2: Societal policy to manage inflation and the mandates differ or
Speaker 2: the jobs market. Everyone new Zealand's different than America.
Speaker 4: I get that. But where does it say they're supposed
Speaker 4: to have Fort Knox.
Speaker 8: Well, they've always had gold. Gold was the original some
Speaker 8: when central banks originated, going back to the Bank of France,
Speaker 8: the Battle the America, they were all founded on their
Speaker 8: gold reserves and in fact, it's only been relative.
Speaker 4: You you, you, you could.
Speaker 8: Almost ask that the currency as we know it now
Speaker 8: is relatively new compared to their to their gold holdings.
Speaker 2: Are their gold holdings now equivalent to what they held
Speaker 2: in the nineteen thirties.
Speaker 8: Well, as far as the actual tonnage goes, they're they're, they're, they're,
Speaker 8: they're they're greater, but as a percentage of their reserves
Speaker 8: much smaller, because we've gotten a lot more currency since
Speaker 8: since since then.
Speaker 5: You bring up to your politics, and you know, I
Speaker 5: take that to mean what's been happening in the Middle East,
Speaker 5: all of the upheaval that we've seen, the fighting and upheaval.
Speaker 5: How much does the current trade picture, the tariff's picture,
Speaker 5: affect the appetite for goldens to what we're seeing in
Speaker 5: the market more broadly.
Speaker 8: Well, it's been a positive for the gold market for
Speaker 8: many reasons. It feeds into the geopolitical argument as well.
Speaker 8: Tariffs are arguably disruptive to capital markets, credit spreads, They
Speaker 8: can ultimately have an effect on equities. All of these
Speaker 8: things increase on certainty, and that's good for gold.
Speaker 4: You know.
Speaker 8: It's not so much that gold reacts to good economic
Speaker 8: policy or about economic policy, although obviously it does, but
Speaker 8: it really reacts to his uncertainty. And if you look
Speaker 8: at the economic policy on uncertainty index, and we've done
Speaker 8: a lot of statistical work on this, the correlation's quite
Speaker 8: quite good.
Speaker 4: Where is gold now in the luxury space?
Speaker 2: I mean, you know, we meant in a win tour
Speaker 2: is finally retiring from Vogue US after a stellar, magical
Speaker 2: adjustment in jewelry and fashion and all that.
Speaker 4: Is in booming now.
Speaker 8: Well, at the high end, it's always good because of
Speaker 8: the income that's allowed to support it, but jewelry demand
Speaker 8: itself is down double digit. The you don't forget seventy
Speaker 8: percent of a physical fifty percent of all physical gold
Speaker 8: demand is in jewelry and silly, yes, yes, half of it.
Speaker 8: And I'm not talking about you know, hedge funds and
Speaker 8: portfolio managers. I'm trying the price millions. It does. But
Speaker 8: the difference is that on the institution, on the investment level,
Speaker 8: relatively few players move in and out, and they move
Speaker 8: a lot of buoyant so they can appear to dictate
Speaker 8: the price on a daily level, whereas millions of people
Speaker 8: buy and sell gold, and very fractional small amounts every
Speaker 8: day around the world, and it can take many months
Speaker 8: for that to feed in.
Speaker 2: David, let's go to our expert on this, joining US
Speaker 2: Weekend Gold expert Lisa Matteo.
Speaker 4: Can you buy gold at costco?
Speaker 9: You can buy the bars and you can buy it
Speaker 9: like jewelry and stuff too.
Speaker 4: Okay, David, One more for James Steel.
Speaker 5: Talk at the beginning, mixing up palladium and platinum. What's
Speaker 5: another metal that we should be paying attention to here
Speaker 5: aside from gold to where have you seen an interesting
Speaker 5: story merging so far?
Speaker 8: It's sorry, it didn't mean to cut you off there.
Speaker 8: So far it's been platinum, and part of that is
Speaker 8: the jewelry story, a platinum jewelry, but gold jewelry has
Speaker 8: gotten very expensive, very expensive indeed, and in price sensitive economies,
Speaker 8: notably China, there's been there is an ongoing switch now
Speaker 8: back to platinum. And when you compare the size of
Speaker 8: the markets, I mean they're much smaller. Platinum is much
Speaker 8: smaller than gold, and the supply of it is rather tight.
Speaker 8: Most of it comes from South Africa, but also Zimbabwe
Speaker 8: and Russia, and none of them are in a particularly
Speaker 8: good state to increase output. So the stocks are much
Speaker 8: lower and the sensitivity to prices higher.
Speaker 4: Thank you for this brief. James Steele with us, so
Speaker 4: they just be seen. Just love having your moon.
Speaker 1: This is the Bloomber Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Coarclay, and Android
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Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: Let's get you at the newspapers, Lisa Matteo before she
Speaker 2: jets to Venice, what are you doing?
Speaker 6: All right?
Speaker 9: So we've heard about the Trump administration's battle with Harvard, right, David,
Speaker 9: You've reported on a number of times now. The New
Speaker 9: York Times is saying the Trump administration putting the pressure
Speaker 9: on the president of the University of Virginia to step down.
Speaker 9: They're currently investigating the school for the DEI efforts. The
Speaker 9: DOJ is saying that they want that president to step down,
Speaker 9: and The New York Times is saying that's what's making
Speaker 9: this different than all the other battles that they've done,
Speaker 9: because this is the first time the administration has pushed
Speaker 9: a university to remove its leader. He's been the president
Speaker 9: there since twenty eighteen, so this is a big move
Speaker 9: for that. With all the talks we're having courts.
Speaker 2: I mean, forget about whatever the name of the school is.
Speaker 2: Doesn't judiciary just show up at some point.
Speaker 5: Well, we've seen that in the case of Harvard over
Speaker 5: these last few weeks, sort of allowing Harvard to continue
Speaker 5: to allow international students and for example. But I think
Speaker 5: that's so fascinating about this story by Michael Schmid of
Speaker 5: The Times, is just the power that's being exercised on
Speaker 5: this public state university. As you say, at least bring
Speaker 5: up the fact that they're trying to get this this
Speaker 5: leader out who'd been at Harvard. By the way, he'd
Speaker 5: been the i think the dean of the education school
Speaker 5: at Harvard before this. So we'll see where this goes.
Speaker 5: But sort of you see rationing up here, the administration's
Speaker 5: kind of device that's putting on these.
Speaker 2: Yeah, a wonderful conversation with an executive of a college
Speaker 2: the other day, it doesn't matter where they are, and
Speaker 2: we both agreed. It's a world turned upside down for
Speaker 2: all sorts of reasons. Post COVID there's a fewer kids now,
Speaker 2: you know, just the normal grinding of education is tough
Speaker 2: right now.
Speaker 5: Yeah, and everyone's sort of worried about where all this is.
Speaker 4: This has headed. Don't have to see Lisa next please.
Speaker 9: Okay, I'm about to do for a Costco run and
Speaker 9: I have to prepare the budget because usually drop about
Speaker 9: five hundred dollars.
Speaker 5: Every time you go.
Speaker 4: She's got full freezers.
Speaker 5: I see, Yeah, she.
Speaker 4: Turns your freezers on in the garage yeast. But here's
Speaker 4: why I thought.
Speaker 9: That's why I thought this story was interesting. Okay, it's
Speaker 9: on the terminal sources telling Blue Werk that Target is
Speaker 9: looking into the sale of more products in larger quantity.
Speaker 9: So they want to start doing the bulk items on
Speaker 9: their website because I say, it's going to provide greater
Speaker 9: value like coffee and snacks and things like that, because
Speaker 9: they want to compete with Costco but also Walmart. But
Speaker 9: so you can get the bulk without the you're staring
Speaker 9: at home.
Speaker 2: And regret that you bought paper plates for two thoy
Speaker 2: thirty When you're by ball, do you stare at it
Speaker 2: and go that was dumb? No.
Speaker 9: The only time I do is produce when it goes
Speaker 9: bad and I get really mad.
Speaker 5: Costco have produce, they do, and they have great produce.
Speaker 9: So yes, that's the only time I get mad.
Speaker 2: Old foods is if you can get avocados they have
Speaker 2: them star Yeah, if they have them, Yes, and aren't
Speaker 2: riper overdone?
Speaker 4: Costco's killing it. I mean, I mean on the shareholder returned,
Speaker 4: it's amazing.
Speaker 9: I'm telling you, I was onto something a long time ago.
Speaker 5: Next, you got your tassel from the Gritty Palace. She's
Speaker 5: going to get the gold membership card from Costco.
Speaker 4: Sixteen dollars at night. Next.
Speaker 9: All right, so we go from Target to the elite
Speaker 9: world of private jets. Okay, so celebrities, business owners love them.
Speaker 9: But you've always heard about the environmental impact, remember the
Speaker 9: stories with the Super Bowl and all that. Okay, so
Speaker 9: Washington Post, yes, Davos too. They pointed to this report
Speaker 9: and highlights that globally, private jets admitted up to nineteen
Speaker 9: and a half million metric tons of greenhouse gases in
Speaker 9: twenty twenty three. And here's what's interesting. That year private
Speaker 9: jets they polluted more than the total of all commercial
Speaker 9: flights that were departing from London's Heathrow Airport. So that
Speaker 9: is huge and the US is ranking high.
Speaker 4: Yeah, as far as.
Speaker 5: This here, that's an exercise more discretion in terms of
Speaker 5: your use of the US.
Speaker 4: You don't have it.
Speaker 2: I went back and forth with Bramo last night, and
Speaker 2: you know, we're looking at the Dessau but it's not
Speaker 2: the one Taylor Swift has.
Speaker 4: It's a cheaper one. Yeah, and we're staying with Golf.
Speaker 5: Street We've always which I think is smart.
Speaker 4: Yeah, yeah, we do. And we didn't. We didn't price up.
Speaker 2: I said to Micah said, I'm just not getting the
Speaker 2: G six and the and the answer is the engine
Speaker 2: pollution is a big deal.
Speaker 5: It is.
Speaker 9: It is that to the wedding defense, you can't.
Speaker 4: But Sweetey took the Sikorski.
Speaker 5: He had to get out there fast and Janeec couldn't
Speaker 5: get a seat. He had to take the taxi.
Speaker 2: Lisa Mateo, the newspapers, thank you so much.
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