WEBVTT - Iran Ceasefire Doubts Weigh on Markets 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.880 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.160 or watch us live on YouTube. 0:00:27.640 --> 0:00:30.280 Wonderful surprise for you this morning. All things to talk 0:00:30.320 --> 0:00:33.600 about with Robert Kaplan of Colvin Sax, former president of 0:00:33.600 --> 0:00:36.680 de Dells Fed. We could talk for three hours with him, 0:00:36.720 --> 0:00:39.600 but we're gonna do a massive audible here. And the 0:00:39.720 --> 0:00:42.800 kid from you grew up in Brooklyn. 0:00:42.960 --> 0:00:44.879 That my parents did, and I grew up in Kansas. 0:00:44.960 --> 0:00:46.560 They grew up in Prairie Village. 0:00:46.600 --> 0:00:46.800 Yeah. 0:00:47.479 --> 0:00:51.159 And with John Sherman, you enjoyed partial ownership of the 0:00:51.200 --> 0:00:51.880 Bobby Wits. 0:00:52.159 --> 0:00:53.720 That's right of the Bobby Witch. 0:00:53.720 --> 0:00:56.600 I watched him with the Giants in Phoenix here recently. 0:00:56.640 --> 0:00:58.760 He's an electric player. I mean, he's a great player. 0:00:58.920 --> 0:01:02.240 How will the Kansas Royals your team you're part owner 0:01:02.280 --> 0:01:05.679 with John Sherman, how will they compete? Where the payrolls? 0:01:05.760 --> 0:01:08.160 About the size of Aaron Judges payroll I got one 0:01:08.200 --> 0:01:11.600 hundred and eighty two million is a working statistic. This 0:01:11.640 --> 0:01:12.360 is unfair. 0:01:12.480 --> 0:01:16.400 Right, yeah, and that's why in the is a sensitive topic. 0:01:16.440 --> 0:01:19.479 But in the labor negotiations over the next year or two, 0:01:19.800 --> 0:01:21.920 there's going to have to be a discussion about some 0:01:22.160 --> 0:01:27.319 type of balancing salary cap that the sport really really 0:01:27.400 --> 0:01:30.920 needs to create more competitiveness. Having said that, Royals are 0:01:30.920 --> 0:01:32.920 going to I say that some a little bias. Royls 0:01:32.959 --> 0:01:33.880 are gonna be good this year. 0:01:35.440 --> 0:01:37.920 I mean there's I mean the word is in sports radio. 0:01:38.000 --> 0:01:39.880 There's going to be a work stoppage next year. 0:01:40.000 --> 0:01:41.360 They do not need. 0:01:41.280 --> 0:01:43.959 Within the delicacy's Robert kaplan. Of where you sit with 0:01:44.000 --> 0:01:47.080 the Kansas City Royals, are you optimistic there can be 0:01:47.120 --> 0:01:48.960 a constructive agreement. 0:01:49.280 --> 0:01:54.320 I'm optimistic that it's clear the sport needs to deal 0:01:54.400 --> 0:02:00.480 with the disparity like other sports were to get from 0:02:00.520 --> 0:02:02.280 here to there. I don't know, but it's clear it 0:02:02.320 --> 0:02:04.400 would benefit everyone involved in the sport. 0:02:04.480 --> 0:02:07.880 One Kansas final Kansas City question before serious issues. Am 0:02:07.880 --> 0:02:12.280 I right? Kansas City is booming. That's what I notice 0:02:12.760 --> 0:02:16.480 the radar from here. It's booming. The new airport at all. 0:02:16.680 --> 0:02:20.720 Of course, yes, listen, I'm Kansasity's a fabulous place to live. 0:02:20.760 --> 0:02:24.679 I love it. I go back there regularly, and it's 0:02:25.080 --> 0:02:28.079 it doesn't have a lot of Like forty three other 0:02:28.160 --> 0:02:30.600 states in the United States, the state of Kansas and 0:02:30.639 --> 0:02:34.359 Missouri are not growing substantially in terms of population, but 0:02:34.400 --> 0:02:35.520 it's a fabulous place. 0:02:35.680 --> 0:02:37.480 Yeah, it's good. Should we start the show. 0:02:37.680 --> 0:02:38.000 Let's go. 0:02:38.160 --> 0:02:41.000 Let's start to show Paul Sweety with Robert Kaplan, the 0:02:41.040 --> 0:02:42.960 former FED president of Dallas. 0:02:43.360 --> 0:02:46.520 Robert, you know, the FED decision, I guess was not 0:02:46.560 --> 0:02:48.160 surprising in March kind of. 0:02:48.480 --> 0:02:50.480 But if I look at the WRP. 0:02:50.080 --> 0:02:52.200 Function, look at where the market is thinking, the market's 0:02:52.240 --> 0:02:54.839 not really pricing in any cuts or even any rate 0:02:54.919 --> 0:02:57.080 heights for the end of the year, I guess that 0:02:57.160 --> 0:02:59.480 makes sense because there's so much uncertainty out there. 0:02:59.639 --> 0:03:04.240 It makes a lot of sense. If we talked literally 0:03:04.360 --> 0:03:07.600 just a month ago, we would have said we're set 0:03:07.680 --> 0:03:10.280 up for a strong year growth in twenty twenty six, 0:03:10.919 --> 0:03:14.560 tax and centers, regulatory reform, AI data center power boom. 0:03:15.720 --> 0:03:19.040 And I think the FED was hopeful in the back 0:03:19.080 --> 0:03:22.120 half of the year that headline inflation would tail off 0:03:22.160 --> 0:03:23.800 a bit, so they might be able to cut rates 0:03:23.800 --> 0:03:27.000 once or twice. Obviously, because of what's going on in 0:03:27.040 --> 0:03:31.480 the Middle East, I think they're going to need to 0:03:31.480 --> 0:03:33.560 step back, that's the right thing to do and let 0:03:33.560 --> 0:03:35.800 this unfold. Then the market is sort of backed off 0:03:35.800 --> 0:03:39.680 also and is pricing in basically no cuts this year. 0:03:40.360 --> 0:03:42.880 What do you think if I'm at the board level, 0:03:42.920 --> 0:03:45.960 if I'm at the c suite level, I've navigated tariffs. 0:03:46.600 --> 0:03:50.000 Now we have to navigate what may be, you know, 0:03:50.040 --> 0:03:55.640 an inflationary slowing economy due to higher energy prices. What 0:03:55.760 --> 0:03:57.120 is the c suite? What is the board to do 0:03:57.120 --> 0:03:58.840 these days? Are they going to sit on their hands 0:03:58.840 --> 0:03:59.120 as well? 0:03:59.160 --> 0:03:59.560 A little bit? 0:03:59.600 --> 0:04:02.000 Do you think they're what we're seeing? They're not sitting 0:04:02.080 --> 0:04:05.200 on their hands because we are in the middle of 0:04:06.720 --> 0:04:10.320 not only an AI data center power cap x boom, 0:04:10.400 --> 0:04:14.640 but now we're in the early stages of the adoption boom, 0:04:14.800 --> 0:04:17.880 which is going to improve productivity growth in every business 0:04:17.880 --> 0:04:20.800 we talk to has got to be trying use cases 0:04:21.120 --> 0:04:22.760 and trying to figure out how that's going to work. 0:04:22.800 --> 0:04:26.880 And many are concluding that in this new era they're 0:04:26.920 --> 0:04:31.120 better off getting more size and scale and merging, so 0:04:31.240 --> 0:04:34.520 that's not slowing down at all. Having said that, if 0:04:34.560 --> 0:04:37.360 you want to if your forecast for the year, this 0:04:37.440 --> 0:04:40.440 has put a little bit of a damper for many 0:04:40.480 --> 0:04:42.480 businesses on their growth outlook, and they're going to be 0:04:42.560 --> 0:04:46.760 more careful and that will start with hiring and other expenditures. 0:04:47.080 --> 0:04:51.680 But they've got to keep aggressively pursuing this AI situation, 0:04:51.880 --> 0:04:53.120 and mergers will be part of that. 0:04:53.360 --> 0:04:55.480 You're in the early crisciple of this, of course, at 0:04:55.480 --> 0:04:57.520 the Dallas Fed. And we all know how the Texas 0:04:57.600 --> 0:05:00.800 is booming. The philanthropy and Michael Dell and others. Here's 0:05:00.800 --> 0:05:05.160 Anna Crockett from Robert Kaplan's Dallas Fed Salary not sole 0:05:05.279 --> 0:05:09.280 concern for young adults weighing career decisions. So you bringing 0:05:09.400 --> 0:05:11.799 over to AI in the boom, whether it's Deer Valley 0:05:11.839 --> 0:05:15.240 out into Phoenix or everything going on in Texas, what's 0:05:15.240 --> 0:05:18.960 going to be the incentive here to drive employment and 0:05:19.320 --> 0:05:21.080 happy employment forward? 0:05:21.720 --> 0:05:24.440 So what we see and I saw this when I 0:05:24.480 --> 0:05:26.240 was at the Dallas FED, and I see it more now. 0:05:27.080 --> 0:05:29.440 All we've got a lot of what I call mismatches. 0:05:29.920 --> 0:05:32.840 So the FED worries about are we sickly growing? Are 0:05:32.880 --> 0:05:35.719 we weakening? We got difference, We've got a structural problem. 0:05:35.880 --> 0:05:39.320 We've got college graduates, programmers, others can't find jobs. But 0:05:39.400 --> 0:05:44.400 I've never seen more open jobs. Window installers, technicians, plumbers, 0:05:44.839 --> 0:05:48.039 people to work on the Ford Motor Company assembly line 0:05:48.040 --> 0:05:49.960 to make one hundred and thirty five grand here can't 0:05:50.000 --> 0:05:54.600 find them, and so these mismatches have to be worked through. 0:05:54.640 --> 0:05:56.760 And we're kind of struggling with that right now. 0:05:56.760 --> 0:05:57.599 Okay, this is set of the. 0:05:57.600 --> 0:06:01.120 Grassley welders in Iowa a million years ago. What's the 0:06:01.160 --> 0:06:03.960 simple issue, more pay for those working class people. 0:06:04.360 --> 0:06:07.560 Some of it is aspirational. If I go to college, 0:06:07.960 --> 0:06:09.719 I think, did I go to college to be a 0:06:09.760 --> 0:06:12.880 plumber or electrician? Turns out those jobs make a lot 0:06:12.960 --> 0:06:16.880 of money, and so I think you may see you're 0:06:16.880 --> 0:06:19.160 going to need to see more changes in our educational 0:06:19.200 --> 0:06:22.040 system where it wouldn't shock me if fifteen years from 0:06:22.080 --> 0:06:26.920 now a state college offers a skill training option, they'll 0:06:27.000 --> 0:06:27.640 do that. Now. 0:06:27.960 --> 0:06:32.200 This would be Paul an Agricultural and Mechanical school, like 0:06:32.240 --> 0:06:33.760 at College Point Texas. 0:06:33.960 --> 0:06:34.359 Exactly. 0:06:34.440 --> 0:06:35.520 That's right, College station. 0:06:35.720 --> 0:06:39.960 Yeah, comes to stations exactly, Robert. I mean, talk to 0:06:40.040 --> 0:06:41.800 us about the m and A environment. We came into 0:06:41.839 --> 0:06:45.640 the second term of President Trump. The expectation was that 0:06:45.680 --> 0:06:47.200 this was going to be an administration that was going 0:06:47.240 --> 0:06:48.640 to be very supportive of. 0:06:48.800 --> 0:06:49.960 M and a consolidation. 0:06:50.760 --> 0:06:51.880 Have we in fact seen that. 0:06:52.960 --> 0:06:57.360 I think the I'll talk generally, the attitude in boards 0:06:57.480 --> 0:07:02.080 is there is a window here where I think companies 0:07:02.120 --> 0:07:03.919 are more confident that if they want to do a 0:07:03.960 --> 0:07:06.599 merger that they'll be able to get it done, and 0:07:06.640 --> 0:07:08.440 they want to take advantage of that window. 0:07:09.360 --> 0:07:10.000 Private credit. 0:07:10.040 --> 0:07:11.560 If it weren't for the Warner around, Tom and I 0:07:11.640 --> 0:07:13.480 keep saying to each other, Boy, if it weren't for 0:07:13.480 --> 0:07:15.240 the Warner around, this private. 0:07:14.880 --> 0:07:16.480 Credit issue would be maybe a. 0:07:16.400 --> 0:07:20.960 Bigger issue for global Wall Street and concerns about is 0:07:21.000 --> 0:07:23.640 there a systemic risk in the private credit world which 0:07:23.640 --> 0:07:25.680 has seems such a tremendous amount of growth since a 0:07:25.680 --> 0:07:27.520 great financial crisis. How do you guys think about that? 0:07:27.840 --> 0:07:31.480 Yeah, so if you actually look under the hood in 0:07:31.520 --> 0:07:35.760 the portfolios, obviously you want to check what their industry 0:07:35.760 --> 0:07:39.640 exposures are, how much software exposure. It's, by the way, 0:07:39.720 --> 0:07:42.520 there's nothing wrong with software companies. It just you may 0:07:42.560 --> 0:07:44.560 not want them to be leveraged five times even d 0:07:45.520 --> 0:07:49.880 But there's the portfolio issue, which I would argue, if 0:07:49.920 --> 0:07:52.560 growth is solid this year, we're unlikely to have a 0:07:52.600 --> 0:07:55.120 credit cycle in twenty six. So what's going on. There's 0:07:55.160 --> 0:07:59.120 that liquidity mismatch that's big problem, and I think they're 0:07:59.160 --> 0:08:03.680 being confused, meaning there are certain BDC's that you have 0:08:03.760 --> 0:08:08.680 to offer quarterly liquidity. And when investors rush for the 0:08:08.720 --> 0:08:12.040 exits and they think others are, then they're going to rush. 0:08:12.160 --> 0:08:15.640 And I think in portfolios that have good matching of 0:08:15.760 --> 0:08:19.560 assets and liabilities liquidity, they may be fine. Having said 0:08:19.560 --> 0:08:23.120 that this is the crisis before the crisis, to quote 0:08:23.160 --> 0:08:26.360 someone else, if we have a credit cycle in next 0:08:26.400 --> 0:08:28.600 two or three years, I actually think this concern now 0:08:28.720 --> 0:08:31.560 is going to be healthy, because if we have a 0:08:31.600 --> 0:08:34.040 credit cycle, then you're going to see more issues in 0:08:34.080 --> 0:08:34.720 private credit. 0:08:34.960 --> 0:08:39.000 If you're listening across America, good morning to you, Paul Suenian, 0:08:39.640 --> 0:08:43.960 Tom Keane, Bloomberg Surveillance on YouTube, Subscribe to Bloomberg Podcast. 0:08:44.000 --> 0:08:48.000 It's our digital distribution, humbled by that success, and of 0:08:48.000 --> 0:08:51.000 course all of you on traditional audio as well with us. 0:08:51.080 --> 0:08:54.360 Robert Caplan of the Dallas Fed now holding court again 0:08:54.400 --> 0:08:57.640 at Golden Sachs as vice chairman. I would say, like 0:08:57.720 --> 0:09:01.560 Mark Kimmitt and the military SPAN's finance Robert Champlin, you 0:09:01.640 --> 0:09:06.280 spend academics over to finance over to your service at 0:09:06.280 --> 0:09:10.400 the Dallas FED like no one else in America. Once again, 0:09:10.559 --> 0:09:15.640 we're studying within private credit the efficacy of hedging. In 0:09:15.720 --> 0:09:18.600 every single class ever been taught, there's a point where 0:09:18.600 --> 0:09:21.559 a hedge catches up with you. How close are we 0:09:21.600 --> 0:09:25.760 within rehedging? Where the game, the shell game we're playing 0:09:26.120 --> 0:09:28.840 where we get to a shock a tip point that 0:09:29.000 --> 0:09:30.199 upsets the apple. 0:09:29.920 --> 0:09:30.760 Cart so. 0:09:32.320 --> 0:09:36.040 Well, obviously the yield curve is drifted up because oil 0:09:36.080 --> 0:09:38.400 prices have drifted up, the real yields come up, and 0:09:38.520 --> 0:09:41.240 people are concerned that central banks just aren't going to 0:09:41.280 --> 0:09:43.960 cut in the way that we may have thought literally 0:09:44.000 --> 0:09:47.240 a month ago. Having said that, I think that the 0:09:47.280 --> 0:09:50.280 private credit issue, maybe not this year, but over the horizon, 0:09:50.400 --> 0:09:54.640 is about operational risk matching financial risk. And we were 0:09:54.640 --> 0:09:58.040 taught way back when if operational risk is high, be 0:09:58.160 --> 0:10:03.120 careful about the financial risk. And AI and disruption is 0:10:03.160 --> 0:10:07.160 going to increase operational risk. Businesses will figure it out, 0:10:07.480 --> 0:10:09.880 but you don't want to be as highly leveraged, and 0:10:09.960 --> 0:10:11.880 so that's something I think people are going to have 0:10:11.920 --> 0:10:12.680 to go back and screwtin. 0:10:12.679 --> 0:10:14.800 Now this is a private credit people, Paul will say, well, 0:10:14.800 --> 0:10:19.520 we're not leveraged. We're here, I'm listening to Robert Kaplan. 0:10:19.520 --> 0:10:23.200 Well, the companies listen. We would have said in the 0:10:23.240 --> 0:10:27.200 past four or five times, ebit deep, that's not over leveraged. 0:10:27.240 --> 0:10:29.559 Well it is. If there's a risk that your ebit 0:10:29.600 --> 0:10:32.600 D might drop thirty percent because of a new innovation, 0:10:32.760 --> 0:10:33.960 that's the issue. 0:10:34.520 --> 0:10:36.599 What's the message to your bankers these days when you 0:10:36.600 --> 0:10:38.680 sit down with your senior bankers or coverage bankers, and 0:10:38.880 --> 0:10:39.280 all right. 0:10:39.240 --> 0:10:40.800 For the next few weeks, let's go out. 0:10:40.800 --> 0:10:43.559 We want to get this message out to our clients. 0:10:43.160 --> 0:10:47.959 Let's stay close to clients, Let's understand their needs, Let's 0:10:48.000 --> 0:10:50.880 be shared bringing. Let's bring the whole firm to bear, 0:10:51.040 --> 0:10:54.760 including our thought leadership, to help them figure out what's 0:10:54.800 --> 0:11:01.040 going on. Corporate clients are very active. Investment clients across 0:11:01.080 --> 0:11:05.839 all our sectors are trying to figure out and handicap 0:11:05.920 --> 0:11:09.640 what's going on, and our job is to understand them, 0:11:09.679 --> 0:11:14.040 build our relationships, and serve them by bringing the whole 0:11:14.040 --> 0:11:14.640 firm to bear. 0:11:15.240 --> 0:11:19.160 Are you sensing that this I mean the AI revolution, 0:11:19.240 --> 0:11:21.280 I guess we'll call it, or just I'm not sure 0:11:21.280 --> 0:11:22.760 what it is. We used to call big data back 0:11:22.800 --> 0:11:25.120 in the day. But some people are telling me this 0:11:25.240 --> 0:11:27.320 is more important than the Internet, and it might just 0:11:27.360 --> 0:11:31.199 be a cut below electricity in terms of the importance 0:11:31.320 --> 0:11:35.200 of society. I've had somebody expressed to me that way. Boy, 0:11:35.240 --> 0:11:37.560 if I'm a corporate border COEO, I feel like I 0:11:37.600 --> 0:11:40.640 got to get super smart, super quick because it's either 0:11:41.520 --> 0:11:43.319 a friend or an enemy to my business. 0:11:43.559 --> 0:11:44.320 I'm not sure which. 0:11:44.440 --> 0:11:46.800 Yeah, And so here businesses are handling it in the 0:11:46.840 --> 0:11:50.800 following way. A typical business has ten or fifteen use cases. 0:11:51.360 --> 0:11:55.360 You know, how can we change our controllers department, our 0:11:55.400 --> 0:11:59.480 marketing department, all the different things that they do. They're 0:11:59.520 --> 0:12:03.040 in the with partners outside partners of going through those 0:12:03.160 --> 0:12:06.240 use cases. And I'd say we're in the early innings 0:12:06.320 --> 0:12:07.880 and two years now they're going to be a whole 0:12:07.960 --> 0:12:10.960 lot smarter. Two years can be an eternity, yes, but 0:12:11.080 --> 0:12:13.440 businesses will be a whole lot smarter. Some of them 0:12:13.480 --> 0:12:16.040 are saying, I want to do more strategic merger activity 0:12:16.360 --> 0:12:19.480 to help mitigate some of the risk here. But we're 0:12:19.520 --> 0:12:22.640 in we're learning right now. So anybody tells you I 0:12:22.679 --> 0:12:24.200 know exactly how this is going to they don't know. 0:12:24.640 --> 0:12:26.800 The smartest people I know are in the middle of it, 0:12:26.840 --> 0:12:29.400 and they're open to learning and are not prejudging it. 0:12:30.000 --> 0:12:33.080 On AI, what is your observation on a roll up 0:12:33.240 --> 0:12:36.360 of all the competitors now? Are there too many? Just 0:12:36.440 --> 0:12:39.640 on a unit basis, are there too many players? 0:12:39.880 --> 0:12:43.640 Well, so, a lot of our attention, because we can't 0:12:43.679 --> 0:12:48.960 avoid it, is all the CAPEX and the compute infrastructure part. Okay, 0:12:49.080 --> 0:12:53.679 then there's the adoption companies, which are extremely highly valued. 0:12:55.040 --> 0:12:58.920 And the truth is, I have no doubt we need 0:12:58.960 --> 0:13:02.640 to create more compute. How the adoption companies are going 0:13:02.720 --> 0:13:04.240 to shake out? I think that's where more of the 0:13:04.320 --> 0:13:08.000 uncertainty is, and that's where the software situation. The first 0:13:08.040 --> 0:13:11.480 reaction is it's gonna be disruptive. I think the second 0:13:11.480 --> 0:13:14.199 reaction after people calm down, but clients are going to 0:13:14.280 --> 0:13:17.200 need advice to help with the installation of the software. 0:13:17.360 --> 0:13:21.360 Companies are critical of that. So I think we're literally 0:13:21.400 --> 0:13:22.560 wrestling our way through this. 0:13:23.040 --> 0:13:25.880 Thank you for the comments on Kansas City. There was 0:13:25.960 --> 0:13:29.000 I mean, was George Brutt's bat tard. 0:13:29.240 --> 0:13:30.079 I think it was. 0:13:31.600 --> 0:13:34.600 Robert Kavin, Thank you, Thank you awer of the Kansas 0:13:34.640 --> 0:13:37.280 City Royals with the modest interest in gold and sacks, 0:13:37.720 --> 0:13:40.280 and of course it's a public service at the Feederizer 0:13:40.400 --> 0:13:45.600 Bank of Dallas for stay with us. More from Bloomberg 0:13:45.760 --> 0:13:47.800 Surveillance coming up after this. 0:13:55.040 --> 0:13:58.600 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:13:58.679 --> 0:14:01.840 weekday afternoons from into ten am e's durn Listen on 0:14:01.920 --> 0:14:05.600 Applecarplay and Android Otto with the Bloomberg Business up, or 0:14:05.760 --> 0:14:07.240 watch us live on YouTube. 0:14:07.679 --> 0:14:11.040 The way that you find young economists, folks, is their 0:14:11.040 --> 0:14:13.120 research comes in. In the old days, it was printed 0:14:13.120 --> 0:14:15.360 in paper and you actually held it in your hands 0:14:15.360 --> 0:14:19.160 and said, oh, now it comes across in this whole 0:14:19.160 --> 0:14:21.840 digital thing and email and all that, and you open 0:14:21.880 --> 0:14:25.040 the PDF file and go, oh yeah, that's what we 0:14:25.080 --> 0:14:28.120 did with Michelle Myers years ago at Bank of America said, 0:14:28.240 --> 0:14:30.640 oh she follows the consumer. 0:14:30.200 --> 0:14:31.240 Like no one. 0:14:31.360 --> 0:14:33.480 I want to go to K shaped and I want 0:14:33.520 --> 0:14:37.440 you to do a classic Michelle Meyer decyle or quintile 0:14:37.520 --> 0:14:41.400 breakdown of the population count of the United States of America. 0:14:42.080 --> 0:14:45.680 We obviously perceive it as the center, tendency and equal 0:14:45.960 --> 0:14:49.800 arms of the K shape. Belooney, define the real K 0:14:50.040 --> 0:14:51.240 shape that's out there. 0:14:52.040 --> 0:14:55.160 So I think it's extremely important always to look below 0:14:55.240 --> 0:14:58.080 the headlines. You have the aggregate numbers, and then you 0:14:58.120 --> 0:15:00.560 have a lot of stories that happen when you did deeper. 0:15:00.600 --> 0:15:03.840 And always in every cycle, the economy is not felt 0:15:03.920 --> 0:15:07.200 evenly across different types of populations, whether you're looking at 0:15:07.240 --> 0:15:09.960 an income level, whether you're looking at across different regions 0:15:09.960 --> 0:15:13.120 of the US, different types of jobs, it's going to 0:15:13.160 --> 0:15:15.440 feel different. And I think we're there now, we've been 0:15:15.480 --> 0:15:18.080 there this entire cycle. Part of that is because this 0:15:18.120 --> 0:15:20.600 has been a cycle of a lot of asset price inflation. 0:15:21.080 --> 0:15:25.320 We have seen markets behave very well, obviously very volatile times, 0:15:25.320 --> 0:15:25.880 but very well. 0:15:26.240 --> 0:15:29.000 She moves a master card and won't answer my question. 0:15:29.680 --> 0:15:31.240 The K shaped on the. 0:15:31.480 --> 0:15:35.440 Shape I'm going to get there. I'm getting there. 0:15:36.560 --> 0:15:40.240 Yeah. So the story is that, yes, you certainly have 0:15:40.360 --> 0:15:42.880 this differentiation. Part of it has to do with household 0:15:42.920 --> 0:15:45.880 balance sheets, which reflects the fact that we've seen a 0:15:45.920 --> 0:15:50.120 lot of asset price inflation, a lot of appreciation, and 0:15:50.160 --> 0:15:53.360 that is clearly supported that top part of the K, 0:15:53.920 --> 0:15:57.040 where the purchasing power has increased because of that phenomenon. 0:15:57.720 --> 0:16:00.560 So in John Tucker's Business flashyalking about a lot of 0:16:00.640 --> 0:16:04.720 financial markets reflecting some angst about inflation maybe creeping back 0:16:04.720 --> 0:16:07.680 into this economy, maybe even more pronounced than we're used to. 0:16:07.920 --> 0:16:10.680 What is your view on inflation given what's going on 0:16:10.800 --> 0:16:12.520 in the geopolitical world these days? 0:16:12.680 --> 0:16:15.080 Of course, so inflation has been a hot topic for 0:16:15.080 --> 0:16:17.920 a while, right you think about tariffs, all the forecasts 0:16:17.960 --> 0:16:21.200 about how it can really boost inflation in a problematic way. 0:16:21.240 --> 0:16:23.760 It ended up being a lot more modest in terms 0:16:23.760 --> 0:16:25.880 of the pass through. But we're now at that point 0:16:25.880 --> 0:16:28.480 again when we're talking about the potential for higher inflation, 0:16:28.560 --> 0:16:30.720 and here it's a little bit more meaningful because you 0:16:30.760 --> 0:16:34.280 have the direct hit to headline inflation from energy prices, 0:16:34.560 --> 0:16:37.080 potentially from food prices as well, depending on what happens 0:16:37.120 --> 0:16:39.720 with fertilizer prices and how that gets passed on to food. 0:16:40.200 --> 0:16:42.160 When you look at the core, you take out food 0:16:42.200 --> 0:16:44.920 and energy there, I think there's very fairly a bigger 0:16:44.960 --> 0:16:47.400 debate as to whether or not some of these higher 0:16:47.440 --> 0:16:51.040 costs of production get passed on to consumer core prices 0:16:51.040 --> 0:16:53.680 when you think about durables, when you think about some 0:16:53.760 --> 0:16:56.240 of the bigger ticket items that tend to have more 0:16:56.320 --> 0:16:59.400 sensitivity to high transport costs, and that will be a 0:16:59.440 --> 0:17:01.880 function of the duration of this shock. We know oil 0:17:01.920 --> 0:17:04.159 prices are high right now, and we know there's a 0:17:04.200 --> 0:17:06.840 lot of uncertainty about where they go, but how long 0:17:06.920 --> 0:17:09.560 they stay high will determine whether or not it passes 0:17:09.600 --> 0:17:11.719 on to the core. And I don't think we're there yet. 0:17:11.920 --> 0:17:13.679 It seems like, you know, one of the concerns is 0:17:14.600 --> 0:17:17.239 we've seen this before, We've seen shocks before. Consumers are 0:17:17.240 --> 0:17:19.359 pretty savvy they kind of maybe you can look through it, 0:17:19.400 --> 0:17:23.600 but sometimes you might see a shift away from the 0:17:23.640 --> 0:17:25.680 stuff I'd like to have, like a new car, yeah, 0:17:25.800 --> 0:17:28.119 versus stuff I have to have now, which is I 0:17:28.160 --> 0:17:29.800 have to put guess what I've already got or something 0:17:29.840 --> 0:17:31.680 like that. So I mean that's I guess that goes 0:17:31.680 --> 0:17:34.400 to your argument. Boy, if this persists, then maybe we've 0:17:34.400 --> 0:17:35.879 got a different discussion. 0:17:35.480 --> 0:17:38.640 And that is critical. It's a reallocation of purchasing power 0:17:38.720 --> 0:17:41.439 and a lot of that is not my choice, and 0:17:41.480 --> 0:17:43.600 it's important to keep that in mind, especially when it 0:17:43.640 --> 0:17:47.440 goes back to Tom's initial point around the key shaped narrative. 0:17:47.760 --> 0:17:49.520 There's a lot of folks out there, a lot of 0:17:49.520 --> 0:17:52.640 households that don't necessarily have as much flexibility, and if 0:17:52.680 --> 0:17:55.320 gas prices arising, they have to spend more of the 0:17:55.359 --> 0:17:58.040 purchasing power at the pump or drive less if they 0:17:58.080 --> 0:18:01.280 can not, everybody can just what they can spend on it. 0:18:01.440 --> 0:18:05.320 Mastercurred, you have a font of information no one else has. 0:18:05.640 --> 0:18:10.120 What is the greatest misconception we have about our use 0:18:10.240 --> 0:18:14.400 of credit cards? What forty two percent annual interest rate? 0:18:14.480 --> 0:18:18.520 I'm kidding, folks, But when you look at charge cards, 0:18:18.000 --> 0:18:20.920 what's what's the myth out there that upsets you? Right now? 0:18:22.560 --> 0:18:24.280 I don't know that there is a myth that up 0:18:24.320 --> 0:18:27.120 sets me as an economist when I'm thinking about the 0:18:27.160 --> 0:18:30.960 overall economic environment. I think it's generally when you look 0:18:30.960 --> 0:18:33.760 at spending trends and you think about the different ways 0:18:33.760 --> 0:18:38.919 that consumer spend. Obviously, using credit is a path and 0:18:38.960 --> 0:18:42.040 it's one that allows for a lot more stability in spending. 0:18:42.119 --> 0:18:44.600 Right when you think about the fact that why we 0:18:44.640 --> 0:18:47.920 have credit cards, why we have other forces forces sources 0:18:47.920 --> 0:18:49.800 of payments, is that it allows you to kind of 0:18:49.840 --> 0:18:53.160 smooth your spending a lot more because you could adjust 0:18:53.200 --> 0:18:55.119 based off of where you are in the labor market, 0:18:55.200 --> 0:18:57.240 what you're seeing in terms of your balance sheet, et cetera. 0:18:57.480 --> 0:19:01.120 Linked in the savings, right, I mean, are we spending spending, 0:19:01.200 --> 0:19:02.800 spending or we actually. 0:19:02.840 --> 0:19:05.600 The savings rate has been pretty stable. So you had 0:19:05.640 --> 0:19:09.240 an unintentionally high savings rate after the pandemic. We all 0:19:09.280 --> 0:19:10.880 know that that a lot of that was drawn down 0:19:10.920 --> 0:19:13.920 pretty quickly, frankly, and in the last several years it's 0:19:13.960 --> 0:19:16.920 been remarkably steady and pretty close to what would be 0:19:17.000 --> 0:19:17.640 considered normal. 0:19:18.040 --> 0:19:21.040 Mister Meyer emails and he says, enough Kansas City royals talk. 0:19:21.480 --> 0:19:23.760 Those phillies look awfully good this year, don't they. 0:19:23.880 --> 0:19:26.360 That would be my husband who is emailing, and probably 0:19:26.600 --> 0:19:27.280 not my father. 0:19:29.320 --> 0:19:32.520 Okay, but yeah, Michelle, thank you so much, honey. Mischel 0:19:32.560 --> 0:19:36.240 Meyern she forgot a master card Economics Institute. Just can't 0:19:36.240 --> 0:19:39.480 say enough about their research on consumer all the great 0:19:39.480 --> 0:19:44.600 work she's done over the years. Stay with us. More 0:19:44.720 --> 0:19:47.600 from Bloomberg Surveillance coming up after this. 0:19:54.880 --> 0:19:58.480 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:19:58.520 --> 0:20:01.560 weekday afternoons from seven to ten am. He's durn Listen 0:20:01.600 --> 0:20:05.160 on Apple Karplay and Android Otto with the Bloomberg Business app, 0:20:05.359 --> 0:20:07.080 or watch us live on YouTube. 0:20:08.000 --> 0:20:12.000 Coming up, without question, our Global Wall Street Conversation of 0:20:12.080 --> 0:20:14.879 the Day. Paul and we agree, if there wasn't a ward, 0:20:14.920 --> 0:20:17.439 there would be no other topic private credit. 0:20:17.480 --> 0:20:18.800 I think you're right. I think you're right. People are 0:20:18.840 --> 0:20:21.160 just trying to get a handle on is this something 0:20:21.200 --> 0:20:22.960 systemic to we need to worry about this? It could 0:20:23.000 --> 0:20:24.520