WEBVTT - Market Rises amid Policy Uncertainty 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.080 --> 0:00:31.600 We are advantaged with Neil Dot of Renaissance Macro. Neil, 0:00:31.640 --> 0:00:34.640 you were my economist of the Year with resilient optimism 0:00:34.680 --> 0:00:38.279 in the depths of COVID. You've turned more cautious When 0:00:38.320 --> 0:00:41.120 I see a stock market go to record highs, how 0:00:41.120 --> 0:00:42.200 can I be cautious? 0:00:43.600 --> 0:00:45.960 No, it's a great point. I mean, and clearly, Tom, 0:00:46.000 --> 0:00:48.479 the pain trade is stocks go higher. I mean, you 0:00:48.520 --> 0:00:53.400 have the market at basically new highs, and you know 0:00:54.640 --> 0:00:57.960 it looks like bear's out number of bulls, so that's, 0:00:58.040 --> 0:01:01.280 you know, I mean, pretty good sign the pain trade 0:01:01.320 --> 0:01:01.760 is higher. 0:01:02.080 --> 0:01:02.240 You know. 0:01:02.360 --> 0:01:03.160 Look, I mean. 0:01:04.959 --> 0:01:06.720 You know the I think you know, the stock market 0:01:06.760 --> 0:01:09.679 is a very useful discounting mechanism, so it's always important 0:01:09.680 --> 0:01:11.800 to keep an eye on it, especially when you have 0:01:11.840 --> 0:01:14.480 a cautious economic view like I do. But you know, 0:01:14.520 --> 0:01:16.440 it's also worth pointing out that it's not a perfect 0:01:16.480 --> 0:01:19.760 discounting mechanism. Right, So when I think about why stocks 0:01:19.760 --> 0:01:22.880 have gone up, you know, it's earnings rates and risk 0:01:22.920 --> 0:01:28.560 premium and earnings estimates keep going higher. Has been coming down. 0:01:28.880 --> 0:01:31.399 You know, you're getting soothing words on trade and interest 0:01:31.480 --> 0:01:35.360 rates have been coming down as the market's bet. You know, 0:01:35.400 --> 0:01:37.479 I guess more in the direction of our FED view. 0:01:37.640 --> 0:01:41.240 So that's what's powering the stock market higher, which kind 0:01:41.280 --> 0:01:44.760 of raises the stakes for what earnings looks like going forward. 0:01:44.800 --> 0:01:48.520 I mean, obviously, economic data generally over the last number 0:01:48.520 --> 0:01:52.560 of weeks on net has been negative, and you know, 0:01:52.600 --> 0:01:57.920 you'd expect, you know, some of that to bleed into. 0:01:55.880 --> 0:02:00.280 The way, doesn't David Dona just reised Jeff de Graf's research. Yeah, 0:02:00.280 --> 0:02:02.800 he doesn't know anything about this stock, right, he just 0:02:02.840 --> 0:02:03.760 listens to the graph. 0:02:03.880 --> 0:02:05.440 David gir I love that you call your it was 0:02:05.480 --> 0:02:07.040 your formerly your economists of the year. Do you get 0:02:07.040 --> 0:02:09.760 a trophy for that? Is there like a no, he 0:02:09.800 --> 0:02:11.720 gets a beverage of beverage of his choice at the 0:02:12.000 --> 0:02:14.000 the time of his choosing. You let me stick with 0:02:14.040 --> 0:02:15.760 the soothingness that you talked about in terms of the 0:02:15.800 --> 0:02:17.440 rhetoric that we've heard from the FED on and what 0:02:17.440 --> 0:02:20.560 we've heard from policymakers on tariffs as well. How much 0:02:20.560 --> 0:02:22.320 of a disconnect is there as you see it, between 0:02:22.360 --> 0:02:24.320 what we're hearing from from them and as you see 0:02:24.320 --> 0:02:25.680 the state of the economy today. 0:02:27.560 --> 0:02:29.760 Well, I mean, my big gripe is really the state 0:02:29.840 --> 0:02:31.920 of the economy as it is not so much what 0:02:32.040 --> 0:02:35.080 tariffs are doing to the economy, because, in my opinion, 0:02:35.200 --> 0:02:38.359 I mean, before tariffs even happened, I mean, we were 0:02:38.400 --> 0:02:41.720 talking about a frozen housing market, a frozen labor market, 0:02:42.320 --> 0:02:46.400 a capex cycle that was really just about tech not 0:02:46.560 --> 0:02:51.079 much else. And uh, you know, I mean, tariffs make 0:02:51.320 --> 0:02:54.760 that bad situation worse. But you know, look, I mean, David, 0:02:54.760 --> 0:02:58.360 I mean for the US economy, what I'm really focused 0:02:58.400 --> 0:03:02.639 on right now is the ongoing deterioration in labor markets. 0:03:03.120 --> 0:03:06.640 We have continuing claims rising to fresh highs week after 0:03:06.680 --> 0:03:09.359 a week. That means that unemployment is probably going up, 0:03:10.440 --> 0:03:16.200 and housing continues to get worse, particularly new family housing. 0:03:16.400 --> 0:03:19.320 Right so, that to me is an important thing to consider. 0:03:19.400 --> 0:03:21.760 I got a year over your PCE coming up here 0:03:21.760 --> 0:03:24.920 in one minute quickly Neil dot A thirty seconds two 0:03:24.960 --> 0:03:28.200 point one percent to a surveyed two point three percent. 0:03:28.639 --> 0:03:31.120 Is that on the edge of stagflation inflation? 0:03:32.880 --> 0:03:35.200 No, I mean this would be the third consecutive month 0:03:35.600 --> 0:03:40.120 where core inflation is running point one, I mean stagflation. 0:03:41.240 --> 0:03:43.640 We have more stag than we have flation right now. 0:03:43.680 --> 0:03:49.600 So yeah, deflation, theflation part is very much in the 0:03:49.680 --> 0:03:52.160 range of a forecast. And I think it's important for 0:03:52.200 --> 0:03:56.280 people to explain why the tariff induced inflation likely is 0:03:56.320 --> 0:03:57.720 anything more than a one off. 0:03:57.760 --> 0:04:03.440 Nil douta with Renaissance macro nailing the stag of stagflation. 0:04:04.040 --> 0:04:07.720 I see real personal spending with a negative statistic Neil, 0:04:07.760 --> 0:04:10.600 what does that signal for future GDP? 0:04:12.480 --> 0:04:14.560 Well, it's going to mean that you're going to see 0:04:14.600 --> 0:04:19.120 some downward revisions to estimates of GDP. And remember that 0:04:19.160 --> 0:04:22.560 the estimates weren't that strong to begin with. You know, 0:04:22.560 --> 0:04:25.760 I'm a little bit surprised that the consensus missed the 0:04:25.800 --> 0:04:29.080 real consumption number because we did see unit auto sales 0:04:29.120 --> 0:04:34.640 come down quite meaningfully over the month, and so you know, look, 0:04:34.680 --> 0:04:37.479 I mean, if you look at this data, what it 0:04:37.560 --> 0:04:42.080 shows is real consumption came in a bit weaker than expected, 0:04:42.080 --> 0:04:44.800 and core inflation came in a bit firmer than expected. 0:04:44.920 --> 0:04:47.480 So without having you know, dialed into all the details. 0:04:47.760 --> 0:04:51.240 It just tells you that consumers are resistant to higher prices, right, 0:04:51.360 --> 0:04:56.600 and that's because ultimately consumer you know, inflation, in my opinion, 0:04:56.640 --> 0:04:59.960 really boils down to the household budget constraint. You know 0:05:00.160 --> 0:05:05.320 right now, you know if you look at real income 0:05:06.760 --> 0:05:10.400 NETA transfers, that's up only one and a half percent 0:05:10.480 --> 0:05:14.839 against last year, and you know that kind of sets 0:05:14.880 --> 0:05:18.200 the table for what what consumer spending will more or 0:05:18.320 --> 0:05:21.520 less do. And you know you're talking about, I think, 0:05:21.680 --> 0:05:23.640 at a minimum of a low potential growth. 0:05:23.480 --> 0:05:25.840 Environment, David Gerr. I see the line item in PC. 0:05:26.120 --> 0:05:28.599 There's like two hundred line items and there's one for 0:05:28.720 --> 0:05:32.400 summer camp. Would you care to comment on that. 0:05:32.520 --> 0:05:34.440 I'll strained all my resources now that I have two 0:05:34.440 --> 0:05:36.960 of them going. But no, that's that's an extreme one. 0:05:37.480 --> 0:05:38.960 Let me go back to the housing market, which you 0:05:38.960 --> 0:05:40.360 mentioned just a moment ago as one of the two 0:05:40.400 --> 0:05:42.279 things that you're you're kind of focusing on and suggesting 0:05:42.360 --> 0:05:45.640 counseling us to focus on here as well. How big 0:05:45.680 --> 0:05:47.400 a drag is that likely to be on the economy. 0:05:47.400 --> 0:05:49.279 More broadly, you're looking here at sort of new home 0:05:49.440 --> 0:05:51.640 starts and projecting a lot of nuance into the way 0:05:51.640 --> 0:05:52.720 that we should be thinking about them. 0:05:53.440 --> 0:05:55.159 Well, sure, I mean, remember this is on the first 0:05:55.160 --> 0:05:58.280 time during this cycle where we've seen residential investment go down. 0:05:58.600 --> 0:06:00.600 The first time was back in twenty two when the 0:06:00.640 --> 0:06:03.960 FED was gearing up massive you know, rate hiking campaigns, 0:06:03.960 --> 0:06:07.400 so they basically crushed home sales. But what was important 0:06:07.440 --> 0:06:10.320 about that period was you were still in a situation 0:06:10.520 --> 0:06:17.960 where you know, home units under construction were rising. Right now, 0:06:18.000 --> 0:06:23.359 you're in a situation where housing starts are running, you know, 0:06:23.440 --> 0:06:28.599 below completions, which basically means that units under construction will 0:06:28.600 --> 0:06:32.520 continue to come down. If you look also at the 0:06:32.600 --> 0:06:36.479 slack in the new housing market, you have you know, 0:06:36.600 --> 0:06:40.919 essentially cycle highs and unsold new housing inventory. So that 0:06:41.000 --> 0:06:44.120 kind of begs the question as to why builders are 0:06:44.120 --> 0:06:45.880 going to break ground on new homes to start with, 0:06:46.040 --> 0:06:48.000 because it makes much more sense at this point for 0:06:48.080 --> 0:06:50.240 them to kind of sell out of the homes they've 0:06:50.279 --> 0:06:52.640 already made as opposed to breaking ground on new homes. 0:06:52.720 --> 0:06:57.200 So that means units under construction will keep falling, and that, 0:06:57.360 --> 0:06:59.080 you know, sort of begs the question as to what's 0:06:59.080 --> 0:07:02.400 going to happen with construcuction employment, which has been you know, 0:07:02.560 --> 0:07:07.880 relatively uh, you know, hanging in there, you know, over 0:07:07.880 --> 0:07:10.640 the last number of years or so. And then you 0:07:10.680 --> 0:07:14.280 talk about, you know, home prices are are are declining, uh, 0:07:14.440 --> 0:07:19.280 you know nationally, particularly the south and the West, which 0:07:19.320 --> 0:07:21.880 is where the builders have been making the home. So 0:07:22.920 --> 0:07:25.560 I do think that construction activity and residential is going 0:07:25.600 --> 0:07:27.960 to be coming down, and I think that's going to 0:07:28.000 --> 0:07:31.720 have effects on unemployment over the over the coming months. 0:07:31.800 --> 0:07:33.520 Neil dudda with us is the renaissance macro. 0:07:33.600 --> 0:07:37.160 We continue commercial free for through a good part of 0:07:37.240 --> 0:07:40.000 this hour, I should say, lots of economic data coming 0:07:40.080 --> 0:07:40.560 up next week. 0:07:40.640 --> 0:07:44.440 David Girl, one more question for mister Dutta. Neili. 0:07:44.520 --> 0:07:47.280 I listened to Mary Daily yesterday on surveillances. I know 0:07:47.440 --> 0:07:49.160 you likely did as well, and she talked about her 0:07:49.200 --> 0:07:51.720 modal outlook has been for some time we would begin 0:07:51.800 --> 0:07:54.000 to see be able to adjust the rates in the fall. 0:07:54.240 --> 0:07:58.120 She hasn't really changed that view any I'm curious, sir, 0:07:58.240 --> 0:08:02.480 what what your hearing or pulling from the commentary we've 0:08:02.480 --> 0:08:04.400 heard from these FED officials and what sense you have 0:08:04.480 --> 0:08:05.840 of their path going forward here? 0:08:07.040 --> 0:08:08.560 Well, David, as you know, I mean, if you put 0:08:08.560 --> 0:08:11.720 two economists in a room, you're lucky to get four opinions, right, So, 0:08:13.200 --> 0:08:15.080 and I think that's kind of where you're at right 0:08:15.120 --> 0:08:16.680 now with the FED. I mean, you have a very 0:08:16.800 --> 0:08:21.360 kind of bimodal sort of distribution. I mean there's some 0:08:21.400 --> 0:08:23.160 that don't think they could should be cutting at all, 0:08:23.200 --> 0:08:26.360 and there's others that think that maybe two cuts are likely, 0:08:26.440 --> 0:08:31.600 some thinking they should start sooner than later, you know. 0:08:31.800 --> 0:08:36.200 To me, I think what's important is what Daily said 0:08:36.200 --> 0:08:40.800 about tariffs, because she basically said that, look like everything 0:08:40.800 --> 0:08:42.520 we know about this means it's going to be a 0:08:42.559 --> 0:08:46.360 one off. So why are we holding off on easing 0:08:46.559 --> 0:08:52.040 if you know, given that that first principle. At the 0:08:52.040 --> 0:08:56.559 same time, you know, we know that unemployment is going higher, 0:08:56.640 --> 0:08:59.120 and you know, if the FED has been saying for 0:08:59.160 --> 0:09:01.800 the longest time that the labor markets aren't a source 0:09:01.840 --> 0:09:05.400 of inflationary pressure, I agree with that. But if unemployment 0:09:05.480 --> 0:09:08.040 is going higher, maybe the risk now is that the 0:09:08.080 --> 0:09:11.240 labor markets are in fact becoming a source of disinflationary pressure. 0:09:11.520 --> 0:09:13.280 And I think that's something that they need to heed. 0:09:13.520 --> 0:09:15.280 Interesting. Neil Da, thank you so much. 0:09:20.400 --> 0:09:23.960 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:09:24.040 --> 0:09:27.200 weekday afternoons from seven to ten am Eastern Listen on 0:09:27.280 --> 0:09:30.920 Applecarplay and Android Otto with the Bloomberg Business app, or 0:09:31.080 --> 0:09:32.560 watch us live on YouTube. 0:09:32.640 --> 0:09:33.240 I have been. 0:09:33.160 --> 0:09:36.320 Waiting for this interview right now in the studio where 0:09:36.320 --> 0:09:39.200 this Monica Briguerrera compliance. 0:09:38.559 --> 0:09:41.560 Called for you from Morgan Stanley and beg, beg begged. 0:09:41.920 --> 0:09:48.360 Don't ask her. You have real world New York City service. Yes, 0:09:48.480 --> 0:09:49.640 everyone talks. 0:09:49.840 --> 0:09:54.800 Monica Guerra does Corrine Headgar in a Boston Globe today 0:09:55.120 --> 0:09:59.240 as a blistering essay, I'm the gentleman who just won 0:09:59.440 --> 0:10:00.719 democratic primary. 0:10:01.600 --> 0:10:01.920 Here. 0:10:02.440 --> 0:10:06.880 Can you fathom where we will be if mister mumcdoney 0:10:07.080 --> 0:10:09.480 is elected mayor in November. 0:10:09.520 --> 0:10:12.680 Where will people like you in the machinery of city 0:10:12.720 --> 0:10:16.520 Hall be in February or March of next year? Any idea? 0:10:17.000 --> 0:10:19.320 Well, I just want to clarify I'm no longer working 0:10:19.360 --> 0:10:26.160 for city Hall. R Morgan Stanley's opinion, you know. But 0:10:26.200 --> 0:10:28.680 one of the things that I think was interesting about 0:10:28.720 --> 0:10:31.040 this race is that it seemed that the sort of 0:10:31.080 --> 0:10:34.280 democratic socialist label didn't really matter, right, that there is 0:10:34.400 --> 0:10:36.960 a desire to have New York City be more affordable. 0:10:37.040 --> 0:10:39.760 That's what I saw people running towards. Now what does 0:10:39.760 --> 0:10:42.120 it mean long term? One of the biggest questions that 0:10:42.120 --> 0:10:44.559 we're thinking about from a markets perspective is what happens 0:10:44.559 --> 0:10:46.400 with free bussing. How do you get there? 0:10:46.480 --> 0:10:46.640 Right? 0:10:46.679 --> 0:10:48.920 And that's a big and that's a big question because 0:10:48.960 --> 0:10:51.240 if we know the MTA right is both a city 0:10:51.320 --> 0:10:54.800 and state run entity, and there's a lot of debt, 0:10:54.920 --> 0:10:57.600 there is a lot of fiscal pressure and how are 0:10:57.600 --> 0:10:59.160 they going to get there? So for me, my question 0:10:59.280 --> 0:11:02.480 is what does the bonding situation look like long term 0:11:02.520 --> 0:11:03.920 and what does that mean for credit spreads? 0:11:04.040 --> 0:11:05.800 So there's adult talk, folks. 0:11:06.000 --> 0:11:08.520 Here's what we're to do when David, when she gets 0:11:08.600 --> 0:11:11.560 a day off from Morgan Stanley, she can come in 0:11:11.600 --> 0:11:13.840 with her flip flops and we'll talk to her about 0:11:14.200 --> 0:11:17.320 You said, why did you begin an adult interview? 0:11:17.440 --> 0:11:20.120 David GERA, I'd love to talk a bit about trade, 0:11:20.160 --> 0:11:21.960 first of all, and we had this interview yesterday. Howard 0:11:22.000 --> 0:11:24.559 Lutnik was on with Kaylee Lines and Joe Matthew and 0:11:24.840 --> 0:11:26.599 what he allowed during the course of that interview was 0:11:26.640 --> 0:11:29.120 that the US and China had signed an agreement we 0:11:29.160 --> 0:11:31.040 can call it a deal framework of a deal. What 0:11:31.120 --> 0:11:34.319 have you seeming to codify what was discussed and agreed 0:11:34.360 --> 0:11:38.120 upon in Geneva and then in London after that? Where 0:11:38.120 --> 0:11:40.120 does that get us? As we kind of push headlong, 0:11:40.120 --> 0:11:42.040 were less than two weeks away from July the ninth, 0:11:42.040 --> 0:11:44.360 which is when this posit the President put in place 0:11:44.400 --> 0:11:46.959 on these reciprocal tariffs ends and I should say China's 0:11:47.000 --> 0:11:50.120 exempt from all of that. Where are we now? And 0:11:50.160 --> 0:11:52.280 as we see the market move on that news from 0:11:52.440 --> 0:11:56.280 Commerce Secretary Lutnik, what does it tell you about progress 0:11:56.280 --> 0:11:57.960 and process and where things are heading. 0:11:58.280 --> 0:12:00.880 I think it tells me that Marcus been essentially waiting 0:12:00.920 --> 0:12:04.000 for any news, right so anything to hang their hat on, 0:12:04.360 --> 0:12:07.240 any piece of certainty. And so if we're thinking about 0:12:07.280 --> 0:12:09.319 this framework, the only I think some of the details 0:12:09.360 --> 0:12:12.200 we know have to do with rare earth minerals concessions, right, 0:12:12.280 --> 0:12:16.200 there's very very light information on what's in there. The 0:12:16.280 --> 0:12:18.960 interesting thing about this is that even though we have 0:12:19.080 --> 0:12:22.240 sort of a black box on all of the other negotiations, 0:12:22.600 --> 0:12:24.800 they have said that they're willing to kick the can 0:12:24.880 --> 0:12:27.760 on the ten percent. So we know that there is 0:12:27.840 --> 0:12:31.320 essentially a set baseline going forward and that the rest 0:12:31.440 --> 0:12:34.840 is just right this negotiating piece. We think that ultimately 0:12:34.840 --> 0:12:37.560 you're going to land lower closer to ten percent than 0:12:37.600 --> 0:12:40.679 say thirty forty percent in some instances, depending on the country. 0:12:41.200 --> 0:12:44.920 For us, this means positive market response because you're not 0:12:44.960 --> 0:12:46.240 getting the worst case scenario. 0:12:46.440 --> 0:12:46.640 Right. 0:12:46.640 --> 0:12:50.520 Markets have essentially adjusted and priced in this activity. But 0:12:50.559 --> 0:12:53.240 it also means for us as investors, right, is that 0:12:53.280 --> 0:12:55.960 we know which industries, which sectors are going to be 0:12:56.000 --> 0:12:57.960 the most impacted, and where we have status quo. 0:12:58.400 --> 0:13:01.240 I was at the seven summit, and so I watched 0:13:01.240 --> 0:13:03.400 as the President left, and there were all these disappointed 0:13:03.400 --> 0:13:06.760 delegations who had blown great distances, spending a lot of 0:13:06.760 --> 0:13:08.839 time on airplanes with the hope that they could get 0:13:08.840 --> 0:13:10.959 some time with President Trump and his team to talk 0:13:11.000 --> 0:13:13.600 through these trade deals. As you listen to Secretary, let 0:13:13.679 --> 0:13:16.480 me talk about how we're close to these ten deals, 0:13:16.520 --> 0:13:19.640 ten major trading partners signing deals. We had Scott Bessent 0:13:19.840 --> 0:13:22.160 on Fox Business this morning talking about all of this 0:13:22.200 --> 0:13:25.400 getting wrapped up by Labor Day. How much has all 0:13:25.480 --> 0:13:27.400 of the activity of these last few weeks. So that's 0:13:27.440 --> 0:13:29.320 the G seven, that's the NATO summit. Of course, all 0:13:29.320 --> 0:13:32.400 that's been happening in the Middle East set back this timetable. 0:13:32.440 --> 0:13:34.560 How much realism is baked into the fact that we 0:13:34.559 --> 0:13:36.000 could get some deals here sign soon. 0:13:36.520 --> 0:13:38.440 I think that it is real that you can get 0:13:38.440 --> 0:13:40.800 some deals signed soon, especially by August. The fact that 0:13:40.840 --> 0:13:43.200 they've pushed out that that deadline, and I think they'll 0:13:43.240 --> 0:13:44.080 continue to do so. 0:13:44.400 --> 0:13:45.080 I don't think we're. 0:13:44.960 --> 0:13:50.600 Really beholden to any specific timeframe other than that if 0:13:50.600 --> 0:13:52.840 we're looking at the tax bills, so I'm going to 0:13:52.840 --> 0:13:56.640 shift Turkey to OBBB, you know, the one big beautiful Well, 0:13:57.840 --> 0:14:00.000 if you're looking at the fiscal hawks and getting them 0:14:00.080 --> 0:14:02.320 to the table, there has to be some sort of assurance, 0:14:02.400 --> 0:14:04.440 right that they can offset some of the debt and deficit. 0:14:04.720 --> 0:14:07.120 And so while we may not know what those specific 0:14:07.240 --> 0:14:10.480 parameters are, we do have a baseline expectation from the 0:14:10.520 --> 0:14:13.760 CBO of what types of revenue could be raised an 0:14:13.800 --> 0:14:15.560 event of heightened tariffs. 0:14:15.800 --> 0:14:18.199 It's Friday, Might Brain. You're killing me, David. 0:14:18.240 --> 0:14:21.920 All this stuff is way too nerdfest Monica. Are you 0:14:22.040 --> 0:14:25.120 concerned about our debt and deficit? Or do we just 0:14:25.240 --> 0:14:28.720 you know, the proverbial little g we just continue to 0:14:28.800 --> 0:14:30.800 grow our way out of this mess. 0:14:31.040 --> 0:14:33.960 The idea from this administration is yes, they will. They 0:14:34.000 --> 0:14:35.360 want to grow their way out of this. 0:14:35.640 --> 0:14:40.840 I know that now every administration since Zachary Taylor and 0:14:40.880 --> 0:14:42.960 Tyler Taylor. 0:14:44.400 --> 0:14:45.560 I remember John. 0:14:45.400 --> 0:14:47.400 Tyler Thomas, Jonathan Taylor. 0:14:49.600 --> 0:14:52.480 Help me or right now, we're going to grow our 0:14:52.520 --> 0:14:54.440 way forward extended protection. 0:14:54.640 --> 0:14:56.560 So let me just put it this way. I'm not 0:14:56.720 --> 0:14:59.800 a modern monetary theorist. I don't prescribe to the the 0:15:00.000 --> 0:15:01.360 idea that that doesn't matter. 0:15:01.840 --> 0:15:02.160 Now. 0:15:02.400 --> 0:15:04.640 What I do want to highlight is that you have 0:15:04.720 --> 0:15:07.920 to have growth at levels that outpace the pace of 0:15:08.000 --> 0:15:11.320 interest expense, right, And so if they're able to get 0:15:11.320 --> 0:15:14.080 that balance correct, right, if you get the GDP to 0:15:14.160 --> 0:15:17.960 interest expanse balance correct, then essentially you can keep going 0:15:18.000 --> 0:15:20.480 for quite a while right on this productivity promise of 0:15:20.560 --> 0:15:23.440 the United States. So we don't actually see that cracking yet, 0:15:23.920 --> 0:15:24.960 but it is still a problem. 0:15:25.080 --> 0:15:28.480 Medica, Greg got twenty seconds free bussing. Come on, we 0:15:28.480 --> 0:15:31.040 can do this over a cup of sanc. It's not 0:15:31.120 --> 0:15:33.640 that on a bus. Yeah, No, I haven't been on 0:15:33.640 --> 0:15:34.120 a buses. 0:15:34.760 --> 0:15:37.400 Pro Buses are great free bussing. 0:15:38.360 --> 0:15:40.600 The rich pay for it, but they know it's a 0:15:40.720 --> 0:15:44.960 dedicated text. They know every dollar of that tax is 0:15:45.000 --> 0:15:45.960 going to buses. 0:15:46.440 --> 0:15:47.200 It's a layup. 0:15:49.000 --> 0:15:52.240 This is the thing. There's a lot of transportation holicies 0:15:52.240 --> 0:15:54.480 that seem like layups, you know, when you're thinking about 0:15:54.520 --> 0:15:57.680 congestion pricing from a hocals perspective. That was a layup. 0:15:57.840 --> 0:15:59.840 It wasn't. It had tons of hiccups with people that 0:16:00.440 --> 0:16:03.240 you know, proposing views. So not everyone is going to 0:16:03.280 --> 0:16:06.120 feel that. You know that they're willing to be altruistic 0:16:06.280 --> 0:16:08.240 and you know, support free bussing. 0:16:08.440 --> 0:16:10.360 We got to go. This is br Please come back 0:16:10.440 --> 0:16:11.880 like Monday, Monica. 0:16:12.320 --> 0:16:16.040 Your face the roseve Island tram Right, I got a problem. 0:16:16.600 --> 0:16:20.480 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:16:20.520 --> 0:16:23.920 starting at seven am Eastern on Applecarplay and Android Auto 0:16:23.960 --> 0:16:26.920 with the Bloomberg Business App. You can also listen live 0:16:27.000 --> 0:16:30.560 on Amazon Alexa from our flagship New York station. Just 0:16:30.640 --> 0:16:33.280 say Alexa, play Bloomberg eleven thirty Huch. 0:16:33.320 --> 0:16:36.360 We're an international brief and we're so honored to have 0:16:36.400 --> 0:16:38.720 her in studio where us. She was just a workhorse 0:16:39.120 --> 0:16:43.240 through COVID free of beamis with US chief economist Ts Lombard, 0:16:43.320 --> 0:16:47.680 always and forever of London. When you say to an 0:16:47.680 --> 0:16:51.360 American you have to focus on the Pacific RIM. Let's 0:16:51.360 --> 0:16:54.120 start with a why for you, you know, Trump trade 0:16:54.160 --> 0:16:57.320 tariffs and all that. Why should we pay attention to 0:16:57.360 --> 0:17:00.280 the Pacific RIM in the second half of this year. Yeah. 0:17:00.440 --> 0:17:05.840 I think that nexus between the US and China is 0:17:05.840 --> 0:17:08.560 one of the things that's really changing and shifting in 0:17:08.880 --> 0:17:12.119 terms of the axis of the global economy. When we 0:17:12.200 --> 0:17:16.400 think about the underlying drivers of some of the big 0:17:16.440 --> 0:17:18.320 shifts that we see in the thing that I hyper 0:17:18.320 --> 0:17:22.840 fixate on, which is bond equity correlations, the underlying driver 0:17:23.160 --> 0:17:27.600 is the political economy inequality of both. 0:17:28.040 --> 0:17:30.760 I saw another jump condition in Taiwan dollar today, way 0:17:30.800 --> 0:17:36.040 outside two standard deviations take currency dynamics week dollar over 0:17:36.080 --> 0:17:39.120 to some of these almost jump conditions in specific room 0:17:39.240 --> 0:17:41.800 strength over to equity bond correlation. 0:17:42.640 --> 0:17:46.040 Okay, so I think, all right, let's do this. I 0:17:46.119 --> 0:17:50.639 think what's happening here is is in the currencies outside 0:17:50.680 --> 0:17:52.760 of of the M and B within China. Like, I 0:17:52.840 --> 0:17:59.160 just don't know why the administration wouldn't consider the currency 0:17:59.240 --> 0:18:01.840 as part of trade deals when when you're considering China 0:18:01.880 --> 0:18:05.000 it's a slightly more I guess aggressive proposition. 0:18:05.280 --> 0:18:05.919 But you know what. 0:18:06.119 --> 0:18:10.760 The Taiwan has had this current account surplus for years 0:18:10.760 --> 0:18:14.320 and years and years. It's a massive percentage of GDP. 0:18:14.800 --> 0:18:16.680 Why would that not be a part Why would the 0:18:16.720 --> 0:18:19.320 currency not be a part of the of the deal. 0:18:20.040 --> 0:18:22.000 And I think sort of what's changing here here I 0:18:22.000 --> 0:18:25.080 go to the bond equity correlation, is that we're we're 0:18:25.119 --> 0:18:28.720 shifting away from the hyperglobalization that has sustained those current 0:18:28.720 --> 0:18:32.120 account surpluses and into a world where the policy reaction 0:18:32.320 --> 0:18:35.280 to the hollowing out of Detroit and the rise of inequality, 0:18:35.640 --> 0:18:39.680 the policy reaction is negative supply shocks. Negative supply shocks 0:18:40.160 --> 0:18:44.040 push inflation into the system, destroy demand, and turn the 0:18:44.040 --> 0:18:47.280 bond equity correlation positive because the investors need more to 0:18:47.320 --> 0:18:50.000 compensate them for the deterioration of the hedging quality of 0:18:50.040 --> 0:18:53.280 the of the bond. And so the likelihood of those 0:18:53.280 --> 0:18:56.800 negative supply shocks is just higher now than it was previously, 0:18:56.920 --> 0:19:00.719 not least because we're moving from a unipolar global political 0:19:00.840 --> 0:19:03.600 order to a multipolar global political order, which also has 0:19:03.640 --> 0:19:07.920 a lot of consequences in that specific rim area. So 0:19:08.000 --> 0:19:11.600 this increase in instances of negative supply shots to me, 0:19:11.920 --> 0:19:13.480 and this is where I have to be very careful 0:19:13.480 --> 0:19:15.800 about sort of my truth on a three year time 0:19:15.840 --> 0:19:19.120 horizon versus what actually gets priced at this moment in time. 0:19:19.400 --> 0:19:22.400 To me, that means greater likelihood of negative supply shots. 0:19:22.520 --> 0:19:25.080 But just as in the eighties it took quite a 0:19:25.080 --> 0:19:28.240 long time for people to price out term premium, it's 0:19:28.280 --> 0:19:29.760 going to take quite a long time. 0:19:29.680 --> 0:19:31.679 To take longer than the modern media. 0:19:31.760 --> 0:19:34.200 Thanks David, I'd love to stick with that, which is 0:19:34.240 --> 0:19:36.439 your overarching thesis that move away from a kind of 0:19:36.560 --> 0:19:38.520 unique polar world to an artipolar one. And so when 0:19:38.560 --> 0:19:40.400 you look at the weakening in the dollar that we've seen, 0:19:40.480 --> 0:19:42.440 is it part and parcel of that. Do you see 0:19:42.440 --> 0:19:45.040 that as kind of emblematic of maybe more near term 0:19:45.119 --> 0:19:47.119 or shorter term phenomena or is that part of this 0:19:47.200 --> 0:19:48.639 kind of broader thesis that you have. 0:19:48.880 --> 0:19:51.840 I think it's definitely part of this broader, broader thesis 0:19:51.880 --> 0:19:56.840 that the underlying sort of driver of the dollar standard 0:19:57.080 --> 0:20:01.919 and the strength of the dollar is the fact that 0:20:01.960 --> 0:20:05.320 the US economy is just more dynamic. It's able to 0:20:05.520 --> 0:20:10.159 sustain higher private consumption led growth without creating inflation, and 0:20:10.200 --> 0:20:12.920 so risk adjusted returns in the US have just been 0:20:13.040 --> 0:20:17.040 higher over that period of time. But I think what's 0:20:17.119 --> 0:20:20.440 what's changing now. The US is going to remain exceptional. 0:20:20.720 --> 0:20:23.159 It's just not going to be as exceptional as it 0:20:23.240 --> 0:20:26.920 was in the twenty ten exceptionality exactly right. So I think, 0:20:26.960 --> 0:20:30.000 you know, the underlying causes of the strength of the 0:20:30.040 --> 0:20:32.560 dollar is not so much on the trade account like 0:20:32.640 --> 0:20:34.560