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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: What a wonderful way to start the week. Joe Davis

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Speaker 2: joins from Vanguard. Right now. I can't say enough about

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Speaker 2: the clarity of is note. Joe. The thing that I

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Speaker 2: notice in your note is we migrate I mean rounded

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Speaker 2: of five percent and being inflammatory four point six percent

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Speaker 2: unemployment rate. Is that still a fully employed America?

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Speaker 3: Well, I think it's close to it. Tom, and again,

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Speaker 3: what a wonderful way to start the week. On the

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Speaker 3: show again, the labor the unemploymentary. You know, typically comments

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Speaker 3: will say it's a live an indicator. I couldn't think

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Speaker 3: of a more important one right now, just because of

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Speaker 3: these cross currents. Right we have a labor supply in

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Speaker 3: the United States that for some time was going to

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Speaker 3: be muted or low number of people entering the workforce.

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Speaker 3: At the same time, we've had the demand come down

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Speaker 3: the past two years for a number of reasons. I'd

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Speaker 3: say it's roughly in balance. There are pockets of softness

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Speaker 3: clearly versus the heady days of COVID three, four or

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Speaker 3: five years ago, but it is not as week as

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Speaker 3: some say that I would that is to us.

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Speaker 2: Are we still under the guise of stimulus? I mean,

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Speaker 2: there was this stimulus that many people ascribe a third

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Speaker 2: COVID stimulus, is a Biden stimulus, and then other stimuli

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Speaker 2: from there on. Are we still goosing the economy?

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Speaker 3: I'd say that's a tough argument to push too hard, Tom,

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Speaker 3: I mean, I see where you're trying to go. But

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Speaker 3: at the same time, we've had oil prices they've come

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Speaker 3: down now, but we've had you know, some of that

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Speaker 3: volatility and the costs of living as in you know,

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Speaker 3: for many consumers more than offset some of the fiscal

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Speaker 3: which we were going to see benefits of in twenty

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Speaker 3: twenty six. So and then of course you have the

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Speaker 3: monetary policy, which you know, our theme for some times,

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Speaker 3: they're not as restrictive as they think, and you just

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Speaker 3: have to push to you just have to look to

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Speaker 3: the to the inflation rate. So we're in this territory

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Speaker 3: where the Federal Reserve, you know, we've been highly vindicated

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Speaker 3: that they were not going to see this significant easy.

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Speaker 4: It's the wrong benchmark.

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Speaker 3: So I think policy loosely speaking, is roughly neutral where

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Speaker 3: we're at fiscal monetary combined.

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Speaker 5: Joe, we've got WTI crude oil now below sixty nine

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Speaker 5: dollars per barrel. Does that mean we don't have any

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Speaker 5: inflation problems out there?

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Speaker 4: Well, yeah, I would hope with a lag.

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Speaker 3: I mean, we've been expecting inflation to come down a

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Speaker 3: little bit less so than the average.

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Speaker 4: Economists, but we've it's still.

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Speaker 3: Been above our forecast admittedly, So I say that with reservation.

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Speaker 3: But I tell you we look into twenty twenty seven,

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Speaker 3: despite the head wins that we have from a demographic

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Speaker 3: some of the tensions globally, we are pushing into three

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Speaker 3: percent GDP growth next year for the United States.

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Speaker 4: That that's materially above expectations.

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Speaker 3: It primarily comes down to AI investment thrusts, which is

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Speaker 3: approaching levels we have rarely seen outside of some pretty

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Speaker 3: transformative technologies emerge.

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Speaker 5: So, Joe, I mean, one of the concerns I think

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Speaker 5: a lot of folks have about just thinking about inflation

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Speaker 5: going forward is if we're in this kind of reshoring

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Speaker 5: on shoring friends, shoring America first type of you know, manufacturing.

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Speaker 5: Does that suggest that just prices in general should be

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Speaker 5: higher than they were over the last thirty forty fifty

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Speaker 5: sixty years.

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Speaker 3: Well, if we froze the pace of globalization, which I

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Speaker 3: think is a fair baseline, which means we don't increase

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Speaker 3: our exports and imports as a percentage of our economy

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Speaker 3: as we did over the past twenty thirty years with

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Speaker 3: the as A China and the WTO and so forth,

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Speaker 3: and we just hold steady, and that's we'll push up

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Speaker 3: inflation by our calculations.

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Speaker 4: And we have a deep data.

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Speaker 3: Set roughly point two percent a year, maybe point three

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Speaker 3: if you push it so that would be inflation. Maybe

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Speaker 3: not two percent, but perhaps even closer two and a

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Speaker 3: half percent. That is not not that you just say

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Speaker 3: that's zero, but it's not pushes this into a high

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Speaker 3: inflation world.

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Speaker 4: The arithmetic right, just you cannot get there.

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Speaker 2: Without getting in troubled compliance. On Monday. We usually say

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Speaker 2: this question for Wednesday, Joe, but I'm going to throw

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Speaker 2: it out at you today as an economist, and you

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Speaker 2: look at it. Chapter twenty three a manqu or. Chapter

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Speaker 2: twenty three accru and you know introduct the economics is

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Speaker 2: an economist. What does it mean when you see the

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Speaker 2: wall of money coming into your Vanguard.

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Speaker 3: Well, I think it shows the the entrepreneurship and the

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Speaker 3: conviction of longer term returns on capital for savers and investors.

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Speaker 3: I think there's probably not a better indication a positive

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Speaker 3: long term sentiment for the average citizen than deploying their

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Speaker 3: hard earned savings right through hard work and they're putting

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Speaker 3: it into foregoing consumption today for higher return in their

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Speaker 3: own future. And so we continue to see that higher

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Speaker 3: term conviction. Of course, the positive markets help.

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Speaker 4: In that sentiment, but I think that sometime is lost

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Speaker 4: in time.

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Speaker 3: You're getting right at it and that's a powerful force

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Speaker 3: the United States. It says that our economic assessment is

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Speaker 3: not outlandish by any means.

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Speaker 2: Thank you, Meck, Thank you. Joe Davis with Vangar greatly

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Speaker 2: appreciated this morning. This is the way we roll on surveillance.

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Speaker 2: We moved from the good economics, so did Joe Davis

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Speaker 2: at Vanguard. Stay with us. More from Bloomberg Surveillance coming

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Speaker 2: up after this.

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Speaker 1: You're listening to the Bloomberg Survey podcast. Catch us Live

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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on

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Speaker 2: Right over to JP Morgan and Kelsey Burrow as well.

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Speaker 2: I thought Joe was very eloquent there about just the

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Speaker 2: enthusiasm in America do invest Is there still an enthusiasm

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Speaker 2: off the JP Morgan bond desk. Are people on the

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Speaker 2: bid buying bills, notes and bonds?

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Speaker 6: Yeah?

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Speaker 7: I would say, particularly when you look at investment grade

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Speaker 7: and high yield, we've seen a very strong demand and

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Speaker 7: that's a function of both high all in attractive yields

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Speaker 7: and also the fundamentals. The fundamentals just look very good

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Speaker 7: for these companies. They've had to prepare for a number

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Speaker 7: of different shocks over the last few years, whether it

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Speaker 7: be tariffs, whether it be the energy shock, and essentially

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Speaker 7: they've passed all these tests with flying colors. And at

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Speaker 7: the same time, there is a really amazing build out

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Speaker 7: of AI and everything that goes around AI.

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Speaker 6: There's no appetite there right, No, there's not.

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Speaker 2: Can you Paul set up a ladder maturity hyperscalers? Actly?

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Speaker 5: What do you guys think about just all this new

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Speaker 5: issuance coming out of the tech sector.

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Speaker 1: Yep.

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Speaker 5: I mean, I'm assuming you got the phone calls like

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Speaker 5: everybody else to buy all these things, and how do

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Speaker 5: you think about that?

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Speaker 6: Yeah, so it's interesting.

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Speaker 7: A few years ago, if you would have asked me

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Speaker 7: about the tech sector as a bond investor, I would

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Speaker 7: have said, well, it's interesting, but it's really a small

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Speaker 7: part of our market. You know, it's not really something

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Speaker 7: that is going to drive spreads or the narrative. And

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Speaker 7: obviously that has changed a lot, and the tech sector

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Speaker 7: of the investment grade market has moved from you know,

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Speaker 7: ten percent moving to fourteen fifteen percent, and that's being

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Speaker 7: led by the issuance of the hyper scalers, which from

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Speaker 7: a balance sheet perspective are are very high quality relative

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Speaker 7: to the average of the investment grade universe. I would say,

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Speaker 7: we're we're finding the most opportunity is looking beyond the

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Speaker 7: average index level for investment grade at five percent and

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Speaker 7: looking where what I would call kind of the extended

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Speaker 7: sectors of investment grade where you can actually pick up

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Speaker 7: an additional one hundred basis.

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Speaker 6: Points of yield.

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Speaker 7: These are things that are backed by investment grade issuers

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Speaker 7: oftentimes investment grade rated, but for a number of different

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Speaker 7: structural reasons, trade with a significant yield, pickup and trade

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Speaker 7: more like high quality, high.

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Speaker 6: Yield, you know.

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Speaker 7: Yeah, so some of those examples, and these are linked

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Speaker 7: to the AI buildout, so things like energy and utility hybrids,

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Speaker 7: so lower down in the capital structure.

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Speaker 6: Also, you know, the banks are are picking up their lending.

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Speaker 7: They want to get involved with this too, so we

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Speaker 7: do like bank capital, so bank paper that's lower in

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Speaker 7: the capital structure. Also, when you look at some of

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Speaker 7: these data center deals, and we do think you have

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Speaker 7: to be kind of very careful with the data center

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Speaker 7: issuance because these are a little bit different than your

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Speaker 7: traditional deals in terms of they're more like project financing

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Speaker 7: and each deal has.

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Speaker 6: Its own individual.

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Speaker 7: Details associated with it that you need to be careful about.

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Speaker 7: But those are other opportunities as well. And then if

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Speaker 7: you look at the long end of the curve in

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Speaker 7: terms of the hyperscalers, you know you are seeing fairly

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Speaker 7: steep credit curves there, which we do think is warranted

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Speaker 7: given all of the longer term risks. But these are

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Speaker 7: again areas where you can pick up significant yield relative

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Speaker 7: to the index and be very involved with the AI

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Speaker 7: and secular growth themes that we're seeing in the market

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Speaker 7: right now.

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Speaker 5: About opportunities outside the US where it's development markets for

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Speaker 5: merging markets, how do you guys think about that?

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Speaker 6: Yeah, so there are a lot of opportunities.

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Speaker 7: You know, I have a background in US rates and

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Speaker 7: I look at the global rates market what is priced

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Speaker 7: into different central banks, and I do think that there's

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Speaker 7: a lot of opportunities, particularly in markets where rate hikes

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Speaker 7: may be somewhat overpriced, particularly outside the US. We've seen

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Speaker 7: this amazing retracement in oil. I mean, the speed in

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Speaker 7: which oil has come down from the highs and normalized

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Speaker 7: back to pre war levels has been incredible. And at

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Speaker 7: the same time, the thing that caused central banks to

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Speaker 7: be hawkish has unwound. But some of that hawkish pricing

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Speaker 7: is still in the markets. And so where there are

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Speaker 7: areas in the emerging markets, for example, like Mexico, which

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Speaker 7: is closer to US, in India further away, where those

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Speaker 7: central bank hikes may not actually they may not follow

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Speaker 7: through with those hikes in theirs to Mexico.

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Speaker 2: Do you have an intern from Pace University doing a

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Speaker 2: FIFA adjusted matrix, like you know, are you are you

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Speaker 2: selling or buying Mexico?

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Speaker 7: Yeah, no, we do really like the local market in Mexico.

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Speaker 7: Uh so Mexico em And you know, I think that's

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Speaker 7: a great idea for a project.

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Speaker 6: We have a number of interns here at our desk

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Speaker 6: at Brazil.

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Speaker 7: Come on, these are areas where you have very high

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Speaker 7: real yields, and there.

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Speaker 2: Are areas where the head coach has a very short

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Speaker 2: shelf life exactly. But it's but again, this goes back

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Speaker 2: to inflation adjusted yields. Yes, is what it's about. So

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Speaker 2: do the take take Mexico. Do the mathematics there, what's

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Speaker 2: their nominal yield less inflation? How many basis points? How

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Speaker 2: many percentage points do you pick up? Just do it

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Speaker 2: your head?

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Speaker 6: Yeah, well, I mean one day morning. Yeah.

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Speaker 7: So, I mean right now you're looking at a yield

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Speaker 7: in Mexico of nine percent on the ten year and

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Speaker 7: that's obviously without inflation. And we like to look at

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Speaker 7: the forward expectations for inflation rather than the spot inflation.

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Speaker 6: Yeah, I mean it makes sense.

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Speaker 7: Right, We've been just through this big inflation shock with

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Speaker 7: energy and so you know, the real yields look compressed

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Speaker 7: when you look at the high spot inflation rate. But

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Speaker 7: when you look at the forward path for inflation, that's

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Speaker 7: going to start to come down.

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Speaker 6: And you're seeing high real yields.

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Speaker 7: Really across the board, not just in emerging markets, but

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Speaker 7: also in the US.

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Speaker 6: We're at the higher end of the range for real

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Speaker 6: yields right now.

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Speaker 4: In the US.

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Speaker 5: How much credit risk do you think investors should be

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Speaker 5: taken here? Because they can get a four spot ten

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Speaker 5: on the two year treasury, which is a nice return,

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Speaker 5: nice coupon for a lot of folks, how much credit

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Speaker 5: risk above them beyond that?

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Speaker 1: Yeah?

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Speaker 7: I think that's a really good point just about the

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Speaker 7: yields and the treasury market relative to history. And the

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Speaker 7: reason why that matter is if you think about it

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Speaker 7: right a few years ago, if you were to see

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Speaker 7: a fifty basis point increase in the tenure treasure yield,

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Speaker 7: that would essentially wipe out all of your income for

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Speaker 7: the year. Right now, actually, if you look at the

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Speaker 7: returns for the US treasury market, you know, the ten

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Speaker 7: year yield is up about forty five basis points on

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Speaker 7: the year, but total returns and treasuries is slightly positive.

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Speaker 6: And that is you know the.

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Speaker 7: Power of the starting yield and the income. Now on

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Speaker 7: top of that, our outlook for the economy is pretty

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Speaker 7: good right now, and so with the fundamentals in the

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Speaker 7: credit market, I think there is a lot of space

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Speaker 7: to look beyond treasuries and to look at corporate credit,

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Speaker 7: but also securitize credit is an area where we have

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Speaker 7: a lot of focus.

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Speaker 2: Kelsey Barrow think is someone the JP Morgan what we'd

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Speaker 2: love to do an economic view of bond youth. Thank you,

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Speaker 2: Kelsey Barrow of Vanguard and JP Markets. Well, stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live

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Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on

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Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or

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Speaker 1: watch us live on YouTube.

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Speaker 2: When Andrewslim had joined Morgan Stanley a few years ago,

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Speaker 2: it was three thousand, Yeah, I'm sure something like that.

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Speaker 2: December thirty first, nineteen ninety one. Joining us now with

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Speaker 2: the tertius wisest note on the street, Andrew slimon joyed

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Speaker 2: the supplied equity advisors at Morgan Stanley Investment. Andrew, you know,

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Speaker 2: I love your note and what I really love about

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Speaker 2: it is the shock that we haven't really priced in

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Speaker 2: this earnings and revenue boom that surprises me. Didn't we

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Speaker 2: do that ninety days ago? Well?

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Speaker 8: Yeah, I mean, Tom, Look, earnings estaments are going up

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Speaker 8: faster than the market is. And you know, my belief

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Speaker 8: is that you know, obviously people ask all the time,

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Speaker 8: whereas the market going to end the year?

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Speaker 2: I'm sure they ask you that.

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Speaker 8: And when we get to the end of this year,

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Speaker 8: all that's going to matter is what is that twenty

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Speaker 8: twenty seven earnings number? Because we're not going to care

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Speaker 8: about twenty twenty six. And the reality is that earnings

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Speaker 8: number started this year at three hundred and fifty seven dollars.

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Speaker 8: It's at four hundred dollars today. Now that's twenty twenty

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Speaker 8: seven earnings, So it's up. It's up, you know, whopping

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Speaker 8: thirty three dollars and it's only June. And if you

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Speaker 8: look at the quarterly beats by the SMP, they're accelerating.

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Speaker 8: The first quarter was a bigger beat than every other quarter,

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Speaker 8: you know, over the last year and a half. The

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Speaker 8: ism is going up, So it seems to me we

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Speaker 8: might still be too low on that four hundred dollars.

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Speaker 8: And if it's A it's four hundred and twenty dollars,

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Speaker 8: you put twenty multiple on it. That's eighty four hundred

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Speaker 8: on the SMP. So yeah, there's bumps along the way,

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Speaker 8: there'll be question marks. But as long as the E

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Speaker 8: is going up faster than the P, that means the

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Speaker 8: pe is an inflating. I think that's a much healthier

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Speaker 8: market than a market that's just going being revalued higher

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Speaker 8: on a you know, on a pe basis.

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Speaker 5: Andrew, I'm sure at cocktail parties, people corner you and

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Speaker 5: they say, hey, what's the AI story at there? How

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Speaker 5: do I play AI? What is your view now that

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Speaker 5: we're three to four years into this whole phenomenon, I.

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Speaker 8: Get caught when I got corner cocktail parties, I hear

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Speaker 8: the same thing, Paul, which is it's in a bubble.

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Speaker 2: AI is in a bubble.

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Speaker 8: And again I go back to, well, if I look

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Speaker 8: at the memory names, right, what's a bubble if you

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Speaker 8: think about a bubble, But bubble is excessive expectations of

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Speaker 8: growth and excessive valuation.

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Speaker 2: Well, what I hear is I.

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Speaker 8: Keep hearing these companies say numbers are too low. Bring

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Speaker 8: your numbers up, and then I look at valuation, and

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Speaker 8: the evaluations are not that extreme because the market knows

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Speaker 8: that this is potentially cyclically high earnings. So the market

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Speaker 8: isn't getting over at SKI and overpaying for their earnings.

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Speaker 8: So I think, I think the uh, you know, the

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Speaker 8: reality is this is going to go longer than people think.

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Speaker 8: One of the great comments that I heard Paul, which

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Speaker 8: I think is really important to consider, is invest into scarcity.

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Speaker 2: Invest into scarcity.

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Speaker 8: What does that mean, Well, there's a scarcity of memory,

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Speaker 8: there's a scarcity of computing power out there. You want

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Speaker 8: to invest in areas where there is more demand than supply,

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Speaker 8: and I think those are two areas where there's more

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Speaker 8: demand than supply currently.

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Speaker 2: Paul would be rude if I just steal that from Andrew.

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Speaker 5: Take it.

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Speaker 4: I think.

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Speaker 2: You know, if you get a parchment from University Penchulva,

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Speaker 2: you go right to chapter one, the exact Laura Summer's

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Speaker 2: father was teaching there. You go right to chip one

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Speaker 2: on scarcity.

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Speaker 6: I love that, so, Andrew.

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Speaker 5: We've heard a couple of times now from this new

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Speaker 5: FED chairman here mister Warsh, first at his meeting, then

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Speaker 5: secondarily over there in Portugal. What are you taking away

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Speaker 5: from our new fed chair.

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Speaker 8: What I take away from my little whirldpoll is that

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Speaker 8: multiples aren't going up. And the reason I say that

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Speaker 8: is that what I hear is no more quantitative easy,

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Speaker 8: no more flooding the market. You know, we're not going

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Speaker 8: to buy as much. We're not going to expand the balanceet.

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Speaker 8: We're going to contract the balancing and that means less liquidity.

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Speaker 8: Less liquidity equals no more pee expansion, potentially pee contraction.

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Speaker 8: So that's you know, that's why when I said twenty times,

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Speaker 8: all the market's trading a little higher than twenty times,

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Speaker 8: So I think I just don't see a market that

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Speaker 8: can move higher on evaluation. The other thing I think

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Speaker 8: is I think it's bullesh for the dollar, and that's

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Speaker 8: one of the reason why the gold has sold off,

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Speaker 8: is it's it's.

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Speaker 2: A dollar bull move. Those are the.

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Speaker 8: Two messages that I heard. It's not the Feds raising rates,

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Speaker 8: but they changing them, the changing the nature and what

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Speaker 8: they're doing.

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Speaker 2: It's the fancy people been wrong, Andrew, is it? You know?

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Speaker 2: I get the fear missing out in retail steps in

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Speaker 2: with great faith, but from where you sit with decades

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Speaker 2: of experience. Are the fancy people participating or are they

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Speaker 2: been too cute in and out of the market.

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Speaker 4: Thank Paul.

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Speaker 8: The most important thing is to boil it down the simplicity.

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Speaker 8: A stock price is the present value of future expectations.

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Speaker 8: What has been going on for the last year and

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Speaker 8: a half is companies have come out and said the

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Speaker 8: praise guidance, raised guides. That means future expectations are going up.

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Speaker 8: That is why the stock market is going higher because

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Speaker 8: the stock companies overall, not all of us, are doing

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Speaker 8: better than expected. So to the extent that people have

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Speaker 8: been too consumed with you know, the war AI disruption,

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Speaker 8: private credit on. These are all the pushbacks the deficit.

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Speaker 8: I keep saying, yeah, okay, those are things to worry about,

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Speaker 8: but don't lose sight of the fact that earnings visions

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Speaker 8: are going up.

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Speaker 2: That means the future values better. Chicago question, Andrew, come on,

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Speaker 2: are the White Sox for real? Loyal boy?

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Speaker 8: That's the toughest questions you've asked me all day. It's

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Speaker 8: you know, it's baffling. Are they really that good? Or

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Speaker 8: is the division really that bad?

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Speaker 2: You know?

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Speaker 8: So we'll we'll, we'll have to see. But it's an

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Speaker 8: exciting time to be a Chicago great.

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Speaker 2: One hundred and twenty one losses last year all you

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Speaker 2: need to know, folks, that's a lot of losses in there.

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Speaker 2: Turn it around with a little bit of a saintly

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Speaker 2: blessing from Rome as well. Andrew Slimon, thank you so

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Speaker 2: much with Morgan Stanley's Chicago There. Stay with us. More

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Speaker 2: from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live

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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on

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00:21:14,240 --> 00:21:17,919
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or

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Speaker 1: watch us Live on YouTube.

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Speaker 2: There is a treat today, I'm Bloomberg. I've I'm going

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Speaker 2: back with Tim O'Brien, who runs all of Bloomberg Opinion

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Speaker 2: for US. Max Hastings, forever associated with a telegraph and

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Speaker 2: writing for Bloomberg Opinion, truly one of the age's definitive historians,

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Speaker 2: has a stop traffic as a essay out today. I

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Speaker 2: was picked up by NDTV in India, among others. Here's

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Speaker 2: the headline. US military dominance is under serious threat that

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Speaker 2: from the venerable Max Hastings, we are honored that becker

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Speaker 2: Wasser could join US today Defense lead for all of

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Speaker 2: Bloomberg economics. What an essay. And it really comes down to,

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Speaker 2: all of a sudden, it's a drone world. How behind

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Speaker 2: is America in drone warfare? Like what we saw with

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Speaker 2: Russia and Ukraine overnight?

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Speaker 9: The United States is massively behind. And part of that

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Speaker 9: is because the US military is not learning the right

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Speaker 9: lessons from Ukraine's war against Russia and its drone war.

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Speaker 9: The US has been slow to adopt drones into its

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Speaker 9: arsenal and hasn't been focused on trying to procure or

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Speaker 9: produce them at the sheer number that you would need.

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Speaker 9: So say, for instance, if you were able to try

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Speaker 9: and have some type of offensive operation, you would need hundreds,

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Speaker 9: if not thousands, for a single operation. And the US

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Speaker 9: isn't ramping up production of those drones at the level

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Speaker 9: that they would need to to have stockpiles that are

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Speaker 9: sufficient to carry out some of the operational concepts that

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Speaker 9: the US military has trained to do.

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Speaker 2: Paul Sweeney Hastings, quoting rigid Kipling of eighteen eighty arithmetic

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Speaker 2: on the front frontier, a scrimmage in some border station,

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Speaker 2: a canter down some dark defile. Two thousand pounds of

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Speaker 2: education drops to a ten rupe jasiele, the squadron's boast,

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Speaker 2: the Kramer's pride shot like a rabbit in a ride.

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Speaker 2: Nothing's changed since eighteen eighty.

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Speaker 5: So, Becca, what is the US military saying response to

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Speaker 5: kind of their drone strategy policy, because it seems like Ukraine,

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Speaker 5: just for want is kind of writing the.

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Speaker 9: Rule book here, Yeah, and the US is trying, right,

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Speaker 9: There's a lot of experimentation. There's exercises where you see

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Speaker 9: you know, army units in particular, trying to operate some

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Speaker 9: of these drones in new ways and trying to frankly,

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Speaker 9: jail break some of their existing drones or AI systems

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Speaker 9: to make them play together and do the things that

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Speaker 9: they want. But this is where some of the long

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Speaker 9: standing efforts to kind of have these either rigid procurement

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Speaker 9: processes have slowed down the integration of drones into the

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Speaker 9: military or the ways in which frankly, the US military

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00:24:14,119 --> 00:24:18,080
Speaker 9: just hasn't fielded enough drones, enough of those cheap, low

443
00:24:18,160 --> 00:24:21,840
Speaker 9: cost drones that are triatable in nature where you don't

444
00:24:21,920 --> 00:24:25,040
Speaker 9: necessarily mind if they end up destroyed on the battlefield.

445
00:24:25,080 --> 00:24:28,119
Speaker 9: Because that is their intent. The US hasn't had to

446
00:24:28,119 --> 00:24:31,000
Speaker 9: fight like that, and so it's a wholesale shift in

447
00:24:31,119 --> 00:24:34,560
Speaker 9: operational concepts in training and not just in equipment.

448
00:24:35,000 --> 00:24:35,280
Speaker 2: YEP.

449
00:24:36,600 --> 00:24:40,960
Speaker 5: Also, this week beca big, big week for NATO. President

450
00:24:41,000 --> 00:24:44,440
Speaker 5: Trump heads over to Turkey for the NATO Summit. What

451
00:24:44,520 --> 00:24:46,440
Speaker 5: kind of expectations are there for this meeting.

452
00:24:47,840 --> 00:24:50,920
Speaker 9: I think the stakes are quite high from the perspective

453
00:24:51,040 --> 00:24:53,840
Speaker 9: of Europe, and that's because you know, with all eyes

454
00:24:53,880 --> 00:24:55,959
Speaker 9: on the NATO summit, they're trying to hope that they

455
00:24:56,000 --> 00:24:58,639
Speaker 9: can stave off some of the worst from happening. The

456
00:24:58,720 --> 00:25:02,159
Speaker 9: European countries are hoping that an increase in defense spend,

457
00:25:02,480 --> 00:25:07,920
Speaker 9: continued commitment to buy American equipment, continued efforts to try

458
00:25:08,000 --> 00:25:10,320
Speaker 9: and fill some of the capability gaps that have been

459
00:25:10,440 --> 00:25:13,680
Speaker 9: left reduced to US commitments to NATO, that that will

460
00:25:13,760 --> 00:25:17,040
Speaker 9: keep President Trump at bay and keep him from doing

461
00:25:17,119 --> 00:25:20,160
Speaker 9: further cuts to US forces in Europe, try and keep

462
00:25:20,200 --> 00:25:24,919
Speaker 9: him from continuing to have designs after Greenland, and also

463
00:25:25,280 --> 00:25:29,240
Speaker 9: try and cajole him into greater support for Ukraine, which

464
00:25:29,359 --> 00:25:32,919
Speaker 9: after some devastating attacks last night, it's very clear that

465
00:25:33,000 --> 00:25:34,879
Speaker 9: they are pretty much out of air defense.

466
00:25:36,040 --> 00:25:37,639
Speaker 2: I mean, you're the pro and is Becca. Paul and

467
00:25:37,680 --> 00:25:39,640
Speaker 2: I are just sitting here taking in the news coll

468
00:25:39,640 --> 00:25:43,320
Speaker 2: eight in it, I'm seeing under Poland Poland says the

469
00:25:43,440 --> 00:25:47,840
Speaker 2: United States of America to resume troops rotation in the country.

470
00:25:48,240 --> 00:25:51,800
Speaker 2: Is this just some bluff to get through the next

471
00:25:51,840 --> 00:25:54,520
Speaker 2: two years of Trump? I mean, I get all the

472
00:25:54,560 --> 00:25:57,359
Speaker 2: body language in that one. Paul, thanks for bringing up NATO.

473
00:25:57,960 --> 00:26:00,600
Speaker 2: I get the body language. But does it mean anything?

474
00:26:01,200 --> 00:26:03,200
Speaker 2: Is time ticks on and they try to go back

475
00:26:03,240 --> 00:26:05,520
Speaker 2: to the relationship we've always had.

476
00:26:07,000 --> 00:26:10,520
Speaker 9: I think Poland's a really unique case because essentially there

477
00:26:10,640 --> 00:26:15,040
Speaker 9: was a US troop rotation that was supposed to go to.

478
00:26:15,000 --> 00:26:16,520
Speaker 6: Poland that was halted.

479
00:26:16,840 --> 00:26:20,600
Speaker 9: After it was halted, which was a Pentagon decision, President

480
00:26:20,640 --> 00:26:23,840
Speaker 9: Trump actually walked that back and said that further cuts

481
00:26:23,920 --> 00:26:27,320
Speaker 9: in Europe are actually going to probably see more forces

482
00:26:27,320 --> 00:26:31,200
Speaker 9: shifted to Poland, which has ramped up its defense spending

483
00:26:31,320 --> 00:26:36,040
Speaker 9: massively and has bought millions upon millions worth of US

484
00:26:36,200 --> 00:26:41,080
Speaker 9: military equipment. So in many respects, Poland is in Trump's

485
00:26:41,119 --> 00:26:43,920
Speaker 9: of you a quote unquote model ally where they are

486
00:26:43,920 --> 00:26:47,879
Speaker 9: continuing to spend and put money back into the US economy,

487
00:26:48,119 --> 00:26:51,720
Speaker 9: and for that they are essentially being rewarded for those efforts.

488
00:26:52,000 --> 00:26:55,000
Speaker 9: So I'm not surprised to see that, yes, you know,

489
00:26:55,119 --> 00:26:58,600
Speaker 9: some of these shifts are happening, and that Poland is

490
00:26:58,760 --> 00:27:02,160
Speaker 9: very much back on the agenda. But I think that's

491
00:27:02,320 --> 00:27:05,080
Speaker 9: very unique to Poland and won't be the experience of

492
00:27:05,160 --> 00:27:09,960
Speaker 9: other countries like Spain and those who essentially restricted US

493
00:27:10,119 --> 00:27:13,560
Speaker 9: access to military bases to prosecute the Iran War.

494
00:27:15,200 --> 00:27:19,040
Speaker 5: President Trump is going to meet with mister Zelenski in Turkey.

495
00:27:19,119 --> 00:27:22,200
Speaker 5: Do we expect anything meaningful to come out of there?

496
00:27:23,320 --> 00:27:26,800
Speaker 5: It just feels like we're in this just long term quagmire.

497
00:27:27,000 --> 00:27:30,760
Speaker 9: In Ukraine, I think that's exactly right, Paul. I think

498
00:27:30,760 --> 00:27:33,080
Speaker 9: we're going to see a continued holding pattern there. I

499
00:27:33,119 --> 00:27:36,520
Speaker 9: expect President Zelenski is going to ask for more Patriot

500
00:27:36,560 --> 00:27:41,200
Speaker 9: missiles in part to protect Kiev and other key areas

501
00:27:41,240 --> 00:27:43,800
Speaker 9: with the Ukraine that have been on a heavy bombardment

502
00:27:44,040 --> 00:27:47,000
Speaker 9: from Russian drones and missiles. But I also think that

503
00:27:47,160 --> 00:27:49,639
Speaker 9: kiv is going to double down on their willingness to

504
00:27:49,760 --> 00:27:52,840
Speaker 9: hold talks with Russia, noting the fact that it was

505
00:27:53,080 --> 00:27:56,479
Speaker 9: President Putin who actually rejected the last uh, you know,

506
00:27:57,080 --> 00:27:58,920
Speaker 9: extension of an invitation for toalking.

507
00:27:58,960 --> 00:28:00,520
Speaker 2: I gotta get this. This is just to try to

508
00:28:00,600 --> 00:28:02,679
Speaker 2: keep up with Becca Wasser or Paul and I go

509
00:28:02,760 --> 00:28:12,840
Speaker 2: down in flames every time drone development. California, Californian Mississippi, Missouri, California, Virginia, California,

510
00:28:12,840 --> 00:28:18,480
Speaker 2: and Georgia, Ohio, California. Then the Stennis Space Center, the

511
00:28:18,600 --> 00:28:22,959
Speaker 2: Creech Air Force Base in Fort Moore formerly Fort Benning,

512
00:28:23,280 --> 00:28:26,119
Speaker 2: Becca Wasser, are we building drones like we used to

513
00:28:26,119 --> 00:28:29,320
Speaker 2: build destroyers in World War Two? Just spread it out

514
00:28:29,600 --> 00:28:31,840
Speaker 2: across America?

515
00:28:32,040 --> 00:28:34,520
Speaker 9: Not quite yet, but that's what we hope to do.

516
00:28:34,920 --> 00:28:37,600
Speaker 9: So essentially, they're trying to spread out all of this

517
00:28:37,680 --> 00:28:41,160
Speaker 9: across America to make sure that it impacts local economies

518
00:28:41,360 --> 00:28:44,800
Speaker 9: but also takes advantage of local workforces. One of the

519
00:28:44,800 --> 00:28:48,120
Speaker 9: things that we've seen, for example, in you know, shipbuildings,

520
00:28:48,160 --> 00:28:50,680
Speaker 9: since you mentioned it, Tom, is that it is heavily

521
00:28:50,720 --> 00:28:56,440
Speaker 9: concentrated in just a few areas Newport News, Virginia, up

522
00:28:56,480 --> 00:28:59,040
Speaker 9: in you know, up in Groton, Connecticut.

523
00:28:59,680 --> 00:29:01,080
Speaker 6: And that means that those.

524
00:29:00,840 --> 00:29:04,400
Speaker 9: Workforces are heavily taxed and there's not enough workers to

525
00:29:04,440 --> 00:29:07,320
Speaker 9: go around, and they can't recruit more so by spreading

526
00:29:07,360 --> 00:29:10,160
Speaker 9: out drone factories which don't need to be on the coast.

527
00:29:10,400 --> 00:29:12,320
Speaker 9: I'm going to have a little bit more flexibility. They're

528
00:29:12,360 --> 00:29:15,000
Speaker 9: hoping to tap into more work first. They're hoping to

529
00:29:15,080 --> 00:29:18,080
Speaker 9: try and help American jobs and economies, and they're trying

530
00:29:18,120 --> 00:29:20,680
Speaker 9: to do what they can to build a distribute throughout

531
00:29:20,720 --> 00:29:21,200
Speaker 9: the country.

532
00:29:21,280 --> 00:29:23,840
Speaker 2: Are you publishing today, Becca? Can you give me a

533
00:29:23,880 --> 00:29:27,720
Speaker 2: heads up on you know, my required reading? Publishing today?

534
00:29:28,800 --> 00:29:31,120
Speaker 9: Well, your required reading is going to be my NATO

535
00:29:31,120 --> 00:29:34,640
Speaker 9: Summit preview, which is about Trump talks and tomahawks.

536
00:29:34,760 --> 00:29:38,080
Speaker 5: They're also poetic, you.

537
00:29:38,040 --> 00:29:39,880
Speaker 2: Know, folks. Where else are you going to have quoted

538
00:29:39,960 --> 00:29:44,479
Speaker 2: Rudyard Keppling and the fame poet Becca Wasser. It's too much, Becca,

539
00:29:45,040 --> 00:29:46,800
Speaker 2: Thank you so much.

540
00:29:47,360 --> 00:29:52,200
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,

541
00:29:52,320 --> 00:29:56,120
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542
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543
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544
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545
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