Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordert. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Bruce Casman of JP
Speaker 2: Morgan writes in the following Elevated inflation suggests that the
Speaker 2: removal of downside growth risks would make it unlikely that
Speaker 2: the Fed will deliver the substantial easing expected through the
Speaker 2: end of next year. Bruce joins us now for more.
Speaker 2: Bruce has been too long, my friend, Welcome to the program.
Speaker 2: July thirtieth was the last time we heard from Chairman Power.
Speaker 2: It was in the news conference in Washington, d C.
Speaker 2: How dated do you think they're his views?
Speaker 3: It's clearly dated because we've had important information both on
Speaker 3: growth with the weak labor report and also on inflation. However,
Speaker 3: I think it's important to look at what we got
Speaker 3: from that meeting, both in terms of Palell's description of
Speaker 3: the labor market is solid, as well as the committee
Speaker 3: minutes that showed that a majority of members still thought
Speaker 3: inflation risks were more important than growth US at that time.
Speaker 3: So we're starting with a committee that I think has
Speaker 3: a somewhat hawkish bias around easing. I don't think from
Speaker 3: what you've heard so far from members that there's a
Speaker 3: consensus to ease. And I think whatever we get from
Speaker 3: Powell today, he clearly can't tell us what the September
Speaker 3: meeting is going to do. Having said that, I do
Speaker 3: think the weak labor market report is important.
Speaker 4: It does send a stall speed signal.
Speaker 3: I think the Fed traditionally has an asymmetric bias to
Speaker 3: being sensitive to recession risk. And I think he is
Speaker 3: going to tilt somewhat here in the direction and moving
Speaker 3: away from his description of the labor market is solid
Speaker 3: to tell us that the door is open for and
Speaker 3: easing that hasn't been decided at the September meeting.
Speaker 5: So Bruce, he opens the door, But to what degree
Speaker 5: do you think he would introduce that two way risk,
Speaker 5: that two sided risk, and try to maybe coax the
Speaker 5: market away from leading as heavily as it is now
Speaker 5: to a rate cut in September.
Speaker 3: I think right now the market is decided that there's
Speaker 3: almost certainly going to be a rate cut. I think
Speaker 3: by opening the door but not saying we're going to
Speaker 3: walk through it, that does reflect the two sided risks.
Speaker 3: So this is not a chair that's going to do
Speaker 3: what he did last year and basically promise a rate
Speaker 3: cut at the September meeting. But I think he has
Speaker 3: to reflect the rising risk. He has to reflect the
Speaker 3: shift in his own thinking. He has to tell us
Speaker 3: that September is alive meeting. If he does that, I
Speaker 3: think the market will pretty much stay where it is
Speaker 3: on the September call, Bruce.
Speaker 5: If we also get some discussion about the frame work,
Speaker 5: which we are expecting to and you hear Powell talk
Speaker 5: about turning away from flexible average inflation targeting, if you
Speaker 5: sort of emphasize that, is there any signal in that
Speaker 5: alone or is that more just details that matter not
Speaker 5: from your term policy but policy down.
Speaker 3: The road, I think the reality is the effects flexible
Speaker 3: inflation targeting regime never really took off, and I think
Speaker 3: there are some problems with the way it was described
Speaker 3: in the last framework review. I think Powell will basically
Speaker 3: tell us we're moving back, but I don't think it
Speaker 3: has any implications for how the FED is going to
Speaker 3: set policy, not in September and not going forward from there.
Speaker 4: It'll be interesting color, but not impactful.
Speaker 2: Their understanding of the labor market will be impactful. I
Speaker 2: want your understanding of the labor market first, and then
Speaker 2: we can talk about whether there's any dayline between how
Speaker 2: you think the FED reach things. What do you think
Speaker 2: is going on here? So we've obviously had a step
Speaker 2: down in payrolls growth, and let's just run with the
Speaker 2: numbers we've got so far, because they might change. I've
Speaker 2: got no idea, and I imagine you don't either, But
Speaker 2: let's just run with these numbers. We've seen a step
Speaker 2: down in payroll growth. Bruce, can you put more emphasis
Speaker 2: on the demands side or supply side, a cyclical turn
Speaker 2: or a structural shift?
Speaker 6: Oh?
Speaker 3: I think labor demand is the key issue here, and
Speaker 3: I think in an economy that has slowed sharply in
Speaker 3: the first half of the year, what we're also seeing
Speaker 3: is a family, substantial downshift within the breath and the
Speaker 3: magnitude of labor demand. I am concerned that when we
Speaker 3: see private barrel slow to the pace we've seen in
Speaker 3: the last few months, that that's a warning signal.
Speaker 4: I call it a stall speed alert.
Speaker 3: But at the same time, we haven't seen businesses start
Speaker 3: to retrench. There's nothing suggesting layoffs have picked up. And
Speaker 3: there's also, I think importantly, no signs that the slowing
Speaker 3: and labor demand has really hit labor income, as wages
Speaker 3: have picked up somewhat in the last few months and
Speaker 3: hours have held up. So we have an economy that
Speaker 3: is downshifted. It's sending a risk signal, but it's not
Speaker 3: by any means breaking, And of course we do have
Speaker 3: the flip side on inflation to worry about. I think
Speaker 3: you have to look at the FED as responding to
Speaker 3: these asymmetric the recession risk when it starts to pick up,
Speaker 3: becomes a dominant factor in their thinking. And as I said,
Speaker 3: I think it's enough to get you a couple of eases,
Speaker 3: maybe three, it's not enough to get you one hundred
Speaker 3: and thirty basis points. So the market's pricing in over
Speaker 3: the next eighteen months.
Speaker 2: Bruce, Governor wall is in your camp without a doubt.
Speaker 2: But as you pointed out, the counter point to all
Speaker 2: of this is that measures of slack of being quite stable,
Speaker 2: and you pointed to wages, wages are still okay. So
Speaker 2: you might get a few people on the Committee who
Speaker 2: say this is more about labor supply and that we've
Speaker 2: got a real risk care that we might get pushed
Speaker 2: in one direction when perhaps we should be looking in
Speaker 2: the other. Bruce, how do you think that debate is
Speaker 2: going to plan on the Committee in September?
Speaker 3: You could clearly see that in the minutes this week.
Speaker 3: And I am very much win Waller's camp and being
Speaker 3: concerned about labor demand. But I'm not with him, and
Speaker 3: I think most of the Committee is not with him
Speaker 3: in the way he's reading the inflation data.
Speaker 4: And that's the.
Speaker 3: Tough part of this call, because there is inflation pressure building.
Speaker 3: I don't think underlying signals are telling us US score
Speaker 3: and inflation is below three percent at this point. If
Speaker 3: it wasn't for a risk issue, I don't think the
Speaker 3: Fed would have a case for eezing. I do think
Speaker 3: there's a legitimate risk issue, and I do think it's
Speaker 3: appropriate to respond to that with modest easing as we
Speaker 3: go through the next two or three meetings, Bruce, how.
Speaker 5: Important is it where we've come from, the fact that
Speaker 5: this has been four and a half years of inflation
Speaker 5: consistently above target, the fact that you have scars of
Speaker 5: twenty twenty two still really fresh. Does that in itself
Speaker 5: push back against some of the waller thinking that he
Speaker 5: might be right in normal times, but this time around
Speaker 5: the risk of inflation is different.
Speaker 3: I think that's right, And I think if we were
Speaker 3: sitting in a world where you didn't feel there was
Speaker 3: a heightened risk of a labor market break, you're not
Speaker 3: supposed to be easing even as you see growth having slowed.
Speaker 3: But we do know that recessions are quite disruptive. We
Speaker 3: do know they're they're quite disinflationary. We also can see
Speaker 3: that so far the FED hasn't lost its anchor the
Speaker 3: longer end on inflation credibility. So I think in the
Speaker 3: balancing act here, if you are concerned about inflation recession risk,
Speaker 3: you're supposed to respond to it. If I could put
Speaker 3: another point in here, I do think the FED is
Speaker 3: politically vulnerable as an institution here, and I think the
Speaker 3: risk that they fail to respond to a downturn. Taking
Speaker 3: hold here would create a pretty substantial backlash, which I
Speaker 3: think does weigh on their minds in terms of how
Speaker 3: they're going to think about things as they go into
Speaker 3: the September meeting.
Speaker 2: But it's just built on that vulnerable as an institution.
Speaker 7: What does that really mean?
Speaker 3: Well, I think what it means is if you listen
Speaker 3: to Stephen Moran, if you listen to Bessent, there's talk
Speaker 3: about the FED being reevaluated as an institution. This is
Speaker 3: not about who leads the FED. This is not about
Speaker 3: firing members of the board. This is about do we
Speaker 3: have a reevaluation of the Federal Reserve Act?
Speaker 4: At some point?
Speaker 3: Here is the FED as an institution going to be
Speaker 3: changed by this administration. They're certainly pointing in that direction.
Speaker 3: And I think the more the FED behind the curve,
Speaker 3: the more the FED puts itself in a position where
Speaker 3: it's not sensitive to growth rists that are realized, the
Speaker 3: more those risks increase. The FED understands that the FED
Speaker 3: is a political institution, and I think it accommodates when
Speaker 3: it is under pressure.
Speaker 4: It's a marginal issue.
Speaker 3: I think it won't make the FED ease when there's
Speaker 3: not a good case for it, but when decisions are marginal,
Speaker 3: I think it leans in the dubbsh direction. I think
Speaker 3: that's exactly where we're going to sit at the September meeting.
Speaker 2: Stay with us, Mulblinpex Savanna's coming up after this. Jean
Speaker 2: Barvan of Blackcroff with this to say, we would still
Speaker 2: lean against the market pricing of multiple FED rate cuts
Speaker 2: over the next year. Jonas with us in a studio
Speaker 2: Monta John, Good morning. Why would you push back?
Speaker 8: Well, I think the situation is very murky and it
Speaker 8: remains very much so. Yes, the peril number that came
Speaker 8: out the last one was an important one, and we
Speaker 8: are close attention. I think it leads to even more
Speaker 8: of an easy bias. But the inflation story is far
Speaker 8: from clear. We have many more prints. I don't think
Speaker 8: it's even the next too. I mean it's the next
Speaker 8: many before we get a real handle and that situation,
Speaker 8: and you know, you get inflation and row going in
Speaker 8: the opposite direction. How they're going to balance that is
Speaker 8: is far from clear.
Speaker 4: From how do you put it in a speech?
Speaker 8: In one Amazonia, I think I think you're careful to
Speaker 8: guide the market too much, especially since the more the
Speaker 8: market is I think By you don't want to lug
Speaker 8: this in I don't think so.
Speaker 7: I think you.
Speaker 8: I think there's a big story in inflation that needs
Speaker 8: to be spelled out. The labor market is a very
Speaker 8: very unusual dynamic. It's I think it's very interesting that
Speaker 8: the topic of the conference is really about, you know, employment,
Speaker 8: labor market demographics, which are big structural forces that are
Speaker 8: making the labor market very murky. And I think you
Speaker 8: you emphasize that, and I think I think President Goalsby
Speaker 8: is right that the service on inflation is really puzzling.
Speaker 8: And I think, you know, it's important to remember that
Speaker 8: going into this year, if we hadn't had this kind
Speaker 8: of surprise weakness in service inflation would be more like
Speaker 8: three percent inflation right now. And there's not a real
Speaker 8: explanation for this weakness in service inflation because it doesn't
Speaker 8: really line up with the labor market and wage dynamic
Speaker 8: that we're saying. So so I think the jury is
Speaker 8: very much held on inflation. And unless you get convinced
Speaker 8: that recession risk is very real, then it's going to
Speaker 8: be tough to deliver those cuts.
Speaker 5: So is this, then, Powell that introduces two way risk
Speaker 5: into this market in his speech today?
Speaker 8: Yeah, I think this is this is very hard to do,
Speaker 8: but I think by emphasizing some of the inflation story
Speaker 8: that is not resolve and recession. It's one data point
Speaker 8: on the payroll, right, I mean we could get like,
Speaker 8: you know, a pretty strong one next one. We believe
Speaker 8: that you know, sixty forty to sixty thousand job is
Speaker 8: kind of what we need to keep inflation stable. So
Speaker 8: that's easy to achieve in the next payroll numbers, and
Speaker 8: that would not be screaming recession.
Speaker 6: So I don't know, making those.
Speaker 8: Kinds of points I think pushes a bit against one
Speaker 8: hundred percent price and cut.
Speaker 6: And Look, you're not.
Speaker 5: The only one to say this. I think a lot
Speaker 5: of people have come around this table this week have
Speaker 5: said that before four right, maybe for the past month
Speaker 5: two months, we can go back further saying that they're
Speaker 5: stuck between a hard place.
Speaker 6: It's not a market that's saying.
Speaker 5: That, though, John, So, how vulnerable are we at this
Speaker 5: moment to having a FED that will push back and
Speaker 5: a powel that will push back against current market pricing.
Speaker 8: I think this is an environment that is very as
Speaker 8: a result, very volatile. We keep telling clients and you
Speaker 8: know investors that this is an environment where we have
Speaker 8: more scenarios that are possible in the table than usual.
Speaker 8: You cannot bank on one being one hundred percent. Things
Speaker 8: are not binary, and as a result, we think that
Speaker 8: creates a lot of alpha or you know, investment opportunities.
Speaker 8: The fact that it's price one hundred percent and there
Speaker 8: might be room for some surprise will create some you know,
Speaker 8: near term opportunities, and I think that creates a pretty
Speaker 8: interesting trading.
Speaker 7: Environment for for investors. What you like right now?
Speaker 8: We we we like UH risk in general because I mean,
Speaker 8: no matter what happens with the communication today, and even
Speaker 8: if there was like a surprise, how kishness coming out
Speaker 8: and the market work to react. Adversely, we think there's
Speaker 8: pretty strong under need uh, you know, support for risk assets.
Speaker 8: So we like we like equities, We like US equities
Speaker 8: in particular. We would be you know, a bit more
Speaker 8: careful on on on the rate side of things and
Speaker 8: fix income for like what we're just discussing here, and
Speaker 8: in the context where the dollar has been you know,
Speaker 8: behaving the way it has this year, Uh, there are
Speaker 8: pockets of interest in emerging market that continues to be
Speaker 8: to be there for us and ai UH is UH
Speaker 8: is certainly something that despite the ongoing debate and so on,
Speaker 8: you know, we think it's a pretty powerful force.
Speaker 7: Let's just sit on that.
Speaker 2: You've talked about this as a team, the lack of
Speaker 2: macro anchors right now to focus on other things. Can
Speaker 2: you build out that just a little bit more?
Speaker 8: Yeah, I think you know, there's this environment since twenty twenty.
Speaker 8: It's ironic they're going to be reviewing their framework now
Speaker 8: five years and that five years was exactly for us
Speaker 8: where we moved to a completely different regime. It used
Speaker 8: to be all about demand and risk of inflation, under
Speaker 8: shooting and targets. Now we think it's all shaped by supply.
Speaker 8: It's a transformation, it's a real transformation. There's a lot
Speaker 8: of mega forces that play AI is one in particular,
Speaker 8: and that means that you know where we're going to
Speaker 8: be ending up in.
Speaker 7: Two, three, five years.
Speaker 8: I think it's a lot more clear than any point
Speaker 8: in the four years prior to twenty twenty. Are we
Speaker 8: going to get three percent growth? Are we going to
Speaker 8: get like on a sustained basis, which would be like,
Speaker 8: you know, a speed up or would we be the
Speaker 8: one percent world? These are very different world, very likely
Speaker 8: that we could be in both, but we just don't
Speaker 8: know so to be ready for that. And then inflation,
Speaker 8: we are debating the near term, but we have big deficits.
Speaker 4: We have, you know, big debts.
Speaker 8: How this is going to play out, How these trade
Speaker 8: off will be navigator of the next five years is
Speaker 8: very unclear, And as a result, I think it's very
Speaker 8: difficult to build out a scenario five years out for
Speaker 8: strategic asset allocation and say this is like a reasonable
Speaker 8: basis where I can navigate around. Instead, I think you
Speaker 8: need to be a lot more tactical and instead of
Speaker 8: looking at this macro anchor, I think we want to
Speaker 8: look to these megapce anchor and AI. There are many
Speaker 8: macro scenaris, but we think AI will power through many
Speaker 8: of them, and as a result, is a better way
Speaker 8: to kind of shape portfolios.
Speaker 2: Stay with US multile impact surveillance coming up after this.
Speaker 2: The former us A Labor Department Chief economist Betsy Stevenson,
Speaker 2: writing in The New York Times, the following the fact
Speaker 2: is looking at job numbers without a real understanding of
Speaker 2: what our current steady state job growth should be. Betsy
Speaker 2: joined us now for more, Betsy, thanks for giving us
Speaker 2: some time. I want to give you some space just
Speaker 2: to explain that. What's your understanding of the current situation?
Speaker 9: Yeah, thank you for giving me a chance to give
Speaker 9: the context, because the context is important there.
Speaker 6: Why do we not really know what the steady state
Speaker 6: should be?
Speaker 9: And the reason is that when we're looking at those
Speaker 9: job numbers, what we're trying to think about is how
Speaker 9: many workers.
Speaker 6: Are employers trying to hire.
Speaker 9: But on the other side of that is how many
Speaker 9: workers are there available for them to hire, and how
Speaker 9: much hiring does it take to keep our employment steady
Speaker 9: so that we're at full employment.
Speaker 4: What we have right now is.
Speaker 9: A big decline in immigration, and that is clouding these
Speaker 9: numbers because with people exiting, that's labor supply contracting. We
Speaker 9: definitely need fewer jobs being added each month, but the
Speaker 9: question is how many fewer? What's that steady state rate
Speaker 9: of growth On the flip side, you know, in twenty
Speaker 9: twenty four, twenty twenty three, a lot of people were
Speaker 9: worried that the economy was overheating because they were adding
Speaker 9: so many jobs per month. And it felt like where
Speaker 9: could they be getting these workers while we were seeing
Speaker 9: a resurgence of immigration as we now know, and that
Speaker 9: resurgence of immigration was giving the labor's supply that employers
Speaker 9: needed to be able to keep hiring at that very
Speaker 9: rapid clip.
Speaker 5: Well to that point, Betsy, the most recent reporting from
Speaker 5: the Journal does suggest that there will be a change
Speaker 5: from j. Powell when he speaks today about the framework
Speaker 5: about not just inflation but employment as well, and how
Speaker 5: they view this labor market. Given what you're talking about
Speaker 5: and really the clouds and the unknowingness of how exactly
Speaker 5: this labor market is forming, how should the framework change,
Speaker 5: how should they be approaching this labor market?
Speaker 9: Well, I think what they need to be right now
Speaker 9: is just incredibly data driven. And that's going to mean
Speaker 9: looking at lots of sources of data, because they're trying
Speaker 9: to at not just how many jobs are added, what's
Speaker 9: the unemployment rate, but what is the pressure in the
Speaker 9: labor market that could spark inflation? And so that's going
Speaker 9: to mean digging in and looking more granularly at unemployment
Speaker 9: rates for different groups of people. But remember they have
Speaker 9: a dual mandate. They do want to keep employment at
Speaker 9: full employment, but they've also got to try to get
Speaker 9: that inflation back to their target of two percent. You know,
Speaker 9: we had hit it and then it's sort of bounced
Speaker 9: up a little bit, and we might not think that
Speaker 9: inflations it's not out of control, but it's certainly not
Speaker 9: where they want it to be. And it looks like
Speaker 9: inflation might be about to.
Speaker 6: Tick up even further. So what they're going to be.
Speaker 9: Looking at is what's happening to inflation expectations.
Speaker 6: How tough do they have to.
Speaker 9: Be to keep that inflationary pressure down? And then they
Speaker 9: got to balance that with you know, is this slow
Speaker 9: down in the labor market we're seeing is this driven
Speaker 9: by employers just you know, not having enough oom? Are
Speaker 9: we starting to see a recession where we're going to
Speaker 9: have a bunch of resources, which are workers and people,
Speaker 9: but also capital equipment that's just laying around and doing nothing.
Speaker 6: That's what a recession is all about. We don't want a.
Speaker 9: Recession, but we also don't want to see us demanding
Speaker 9: more than we can supply, and particularly with reducing our
Speaker 9: supply channels from overseas, that means that they're going to
Speaker 9: have to be a little bit careful to try to
Speaker 9: make sure that those reductions and supply don't lead.
Speaker 6: To higher prices.
Speaker 9: I think this is the toughest position the FED is
Speaker 9: basically you know I've ever been in in my lifetime
Speaker 9: at least.
Speaker 5: Well Bessie just describing you describing the state of things.
Speaker 5: It seems like labor market unknown, signals unclear. But what
Speaker 5: is known is that inflation is still with us. In fact,
Speaker 5: it's higher than it was this time last year at
Speaker 5: Jackson Hole. How can the FED be cutting that next month?
Speaker 6: I think that's a big question.
Speaker 9: I think that's why you're hearing a lot from members
Speaker 9: of the Board of Governors and you know, the FOMC
Speaker 9: that you know it's not clear that they should cut.
Speaker 9: They're really really going to have to be data dependent.
Speaker 9: What does that mean? That means that they shouldn't have
Speaker 9: made up their minds right now what they're going to
Speaker 9: do in September. There's data that's going to come in
Speaker 9: between now and then, and they're going to have to
Speaker 9: react to it. I will say, keep in mind that
Speaker 9: we want the FED to react before we.
Speaker 6: See a big problem.
Speaker 9: The FED does the best think about coming into COVID.
Speaker 9: You know, the FED could see the writing on the
Speaker 9: wall with COVID because it was a pandemic and we
Speaker 9: had to help data before we had the economic data,
Speaker 9: and they were able to work to stimulate the economy
Speaker 9: to cut rates before we saw the problems of COVID,
Speaker 9: and I think that really helped us have a less
Speaker 9: bad economic experience with COVID and recover quickly. But they
Speaker 9: kept rates too low too long, and we had that
Speaker 9: surge of inflation, so that it's a tough balancing act
Speaker 9: for them and they're going to have to be looking
Speaker 9: forward using.
Speaker 6: The best data they can.
Speaker 9: And then they're facing a data crisis in the federal government,
Speaker 9: which is firing workers, cutting back staffing, which is making
Speaker 9: it so that the data is cloudier and it's taking
Speaker 9: longer for accurate data to come out.
Speaker 2: Stay with us. Mulblindog. Savannah's coming up after this. Let's
Speaker 2: have that conversation with Alex and Arista of the Cato Institute.
Speaker 2: Alex intervention has consequences, Does it have unintended consequences?
Speaker 7: It absolutely does.
Speaker 1: The long term problems and even the short term problems
Speaker 1: of the government trying to take these equity stakes and
Speaker 1: some of the most productive and innovative companies in the world.
Speaker 1: Is disastrous, and investors and firms are going to look
Speaker 1: at this and they are going to start to make
Speaker 1: investment decisions based on what makes politicians happy and on
Speaker 1: what favors they think they can make, rather than the
Speaker 1: profitability of these investments, which will eventually undermine a lot
Speaker 1: of the productivity gains that we get from these firms.
Speaker 1: I mean, we saw this back in the financial crisis,
Speaker 1: where the government took stakes and companies, temporary stakes, big
Speaker 1: bailouts and companies and auto companies and then made investment
Speaker 1: decisions for them. This was not good for the auto industry,
Speaker 1: it wasn't good for the United States, and I fear
Speaker 1: that the effect of doing this with some of the
Speaker 1: most advanced chip makers in the world will be even
Speaker 1: more destructive.
Speaker 4: Let's work through this, alex So.
Speaker 2: Let's say GFC was about distressed assets connected to the
Speaker 2: employment of thousands upon thousands of people in this country.
Speaker 2: The government found like they had a role to play.
Speaker 2: Let's talk about this one. It feels unique. Here's the situation.
Speaker 2: The government doesn't believe that the freehanded the market is
Speaker 2: going to allow them to build out domestic foundry capacity
Speaker 2: and they need to for national security purposes. What is
Speaker 2: the free market solution to making that happen.
Speaker 1: Well, I think the major free market solution for a
Speaker 1: lot of this is if the government thinks that it
Speaker 1: needs to have certain components in order to fight a
Speaker 1: war at some point, stockpiling is a good way to
Speaker 1: do that.
Speaker 7: Relying on exports from a lot of our allies is
Speaker 7: a good way to do this.
Speaker 1: I mean, if that was really the justification, the United
Speaker 1: States government would not be putting.
Speaker 7: Tariffs on other countries.
Speaker 1: That are our allies, would be increasing trade flows with
Speaker 1: these countries and away from the potential adversary.
Speaker 7: So the Trump administration is trying to.
Speaker 1: Have every side of every argument in this debate over
Speaker 1: trade and ships and equity stakes in these companies. But
Speaker 1: these arguments are all contradicting than each other, contradicting themselves.
Speaker 1: And as a result, a lot of investors at a
Speaker 1: lot of these companies they don't know which way to turn,
Speaker 1: They don't know what types of investments to make, and
Speaker 1: they don't know what the administration or the next administration
Speaker 1: is going to do on this.
Speaker 7: It is not a stable environment.
Speaker 5: To that point, alex Often building up these types of
Speaker 5: things take longer than four years. It will take longer
Speaker 5: than this presidential cycle, is your estimation then that companies
Speaker 5: won't commit. We've already gotten a lot of investment promises
Speaker 5: from a variety of tech companies.
Speaker 6: Do those get.
Speaker 5: Followed through if there is this concern of what happens
Speaker 5: after four years.
Speaker 1: The history of industrial policy in the US and handing
Speaker 1: out subsidies for firms to do this is that oftentimes
Speaker 1: firms upfront will say yes, I'll do this, and then
Speaker 1: they pull back their investments. We saw this for Foxcron
Speaker 1: in places like Wisconsin, other states in Midwest. We've seen
Speaker 1: it with companies throughout the country. Basically going back to
Speaker 1: long periods of time that they will make a politically
Speaker 1: favorable judgment to make the current politicians look good, and
Speaker 1: then they'll back when they notice that they can't make
Speaker 1: the economics work, they can't make the investment and profitable,
Speaker 1: and ultimately that's probably a better situation than them investing
Speaker 1: tens of billions of dollars in projects that won't ultimately work. Listen,
Speaker 1: companies know what they're doing, they understand the rent secret
Speaker 1: environment that they're in they understand this administration pretty well
Speaker 1: and they are just trying to run it out without
Speaker 1: doing too much damage to themselves, to their investors, and
Speaker 1: to their to their share price.
Speaker 5: They understand what the US is doing, Alex. To what
Speaker 5: degree do companies understand and are able to navigate what
Speaker 5: China is doing with AMD in Nvidia? The latest being
Speaker 5: that China seemingly pushing back on allowing companies to buy
Speaker 5: H twenty chips. How does an Nvidia navigate that?
Speaker 1: I mean that, I mean that right there is a
Speaker 1: you know, the trillion dollar question. The Chinese government has
Speaker 1: long been inscrutable to a lot of investors around the world.
Speaker 1: The Trumpet administration's decisions seem crazy to a lot of them.
Speaker 7: So they're really stuck between a rock and.
Speaker 1: A hard place in terms of the investments that they
Speaker 1: want to make. But I mean, it's just going to
Speaker 1: be very, very difficult for them to navigate this. I mean,
Speaker 1: we have a budding geopolitical conflict between China and the
Speaker 1: United States that a lot of people try to compare
Speaker 1: it to the Cold War, but it is radically different
Speaker 1: because there are enormous and valuable trade flows between these
Speaker 1: companies Chinese companies. Chinese firms of Chinese government has long
Speaker 1: demanded payments of intellectual property from American companies to be
Speaker 1: able to operate in their markets. I think we're going
Speaker 1: to see a diversification where the Chinese government is going
Speaker 1: to continue to nickel and dio American firms and demand
Speaker 1: bigger and bigger concessions, just like the US government is
Speaker 1: demanding from American firms in the form of equity stakes.
Speaker 1: So basically, the big loser in all this geopolitical conflict
Speaker 1: is going to be some of the most innovative American companies.
Speaker 7: In the world, no matter which government is doing the pressure.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
Speaker 2: in markets, economics, and geo politics. You can watch the
Speaker 2: show live on Bloomberg TV weekday mornings from six am
Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple,
Speaker 2: Spotify or anywhere else you listen, and as always, on
Speaker 2: the Bloomberg Terminal and the Bloomberg Business app.