Speaker 1: Boo, Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferroh, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. We begin this out
Speaker 2: with stocks falling after Nvidio delivered a disappointing fourth quarter
Speaker 2: revenue forecast. Cameron Dawson of New Wedge Wealth looking ahead
Speaker 2: to twenty twenty five, saying tech earnings estimates are too high.
Speaker 2: Bloomberg Intelligence shows consensus forecast for tech going from plus
Speaker 2: fourteen this year to plus twenty seven next year, even
Speaker 2: within video going from one forty this year to fifteen
Speaker 2: next year. We don't see the everything else in tech
Speaker 2: able to deliver that kind of growth. Camra joins us
Speaker 2: now for more camera good Mornic Coome running is the
Speaker 2: bout too high for twenty five.
Speaker 3: I think the bar is too high for that reacceleration
Speaker 3: in tech because we don't get it from the other
Speaker 3: big tech weights. You don't get an acceleration from Apple,
Speaker 3: you don't necessarily get a big one from Microsoft. You
Speaker 3: get a deceleration from Nvidia. So it means that the
Speaker 3: market is pricing and effectively the everything else in tech
Speaker 3: truly reaccelerating. We're not quite sure if you can get that.
Speaker 3: So if you look at the two seventy two numbers
Speaker 3: for twenty twenty five earnings, you look at tech, you
Speaker 3: also have to look at healthcare, which is the other
Speaker 3: area where there's a big acceleration that's priced in. It's
Speaker 3: set to go from three percent to twenty percent next year.
Speaker 3: But remember expectations were for twenty percent this year and
Speaker 3: all we got was three.
Speaker 2: Let's stay on tech. AI and Vidia doing really well
Speaker 2: this year. The rest of the semi space nus a
Speaker 2: good how'd you explain the difference between the two.
Speaker 3: It truly is AI and everything else. If you look
Speaker 3: at the equal weight Semiconductor Index, it's actually down three
Speaker 3: percent this year, which tells you that there is still
Speaker 3: a malaise in the old industrial Auto China, old manufacturing
Speaker 3: part of semiconductors. That does reflect this weak manufacturing environment
Speaker 3: where we've been in where we've had this historically long
Speaker 3: stretch of a PMI sub fifty. So the question is
Speaker 3: we do think that pmis will start to recover only
Speaker 3: because of better sentiment we saw that post the election
Speaker 3: in twenty sixteen. Does that translate to better manufacturing activity
Speaker 3: on a global basis or do you get this offset
Speaker 3: from tariffs where you still see this malayse take hold
Speaker 3: and it truly stays this world where you only have
Speaker 3: AI demand and everything else this week.
Speaker 1: So basically what you're talking about is the AI side
Speaker 1: of the story that's really powered this market. A lot
Speaker 1: of people have come on the show and said they
Speaker 1: agree with you that probably expectations are too high for
Speaker 1: AI to keep leading, but that just gives everything else
Speaker 1: a chance to catch up. Those semis are going to
Speaker 1: actually have their turnaround day. You hear those sizes of
Speaker 1: words from the likes of Micron, and tell why do
Speaker 1: you think that's not the case that the rest of
Speaker 1: the market will just play catch up, even as AI
Speaker 1: maybe doesn't grow quite as much as some people hope
Speaker 1: hope does spring eternal.
Speaker 3: And we do know that if you look at these
Speaker 3: at these very cyclical semiconductor industries, we know that it's
Speaker 3: most cyclical industry in the world. That you have been
Speaker 3: in this weaker environment for a couple of years, So
Speaker 3: the bar is lower for a recovery. But the big
Speaker 3: question still comes back to tariffs. Will you see companies
Speaker 3: still want to invest in big manufacturing plants that would
Speaker 3: support the demand for these semiconductors. If there's a questional
Speaker 3: mark about where the terriffs will come from, where should
Speaker 3: they be and so that's that offsetting factory. Yes, the
Speaker 3: demand has been weak, but does it remain weak because
Speaker 3: of tariff uncertainty?
Speaker 1: So everyone has come on the show since the election
Speaker 1: is basically said, are you bullish on the US or
Speaker 1: are you really bullish on the US? And then I
Speaker 1: saw your outlook for this upcoming year and basically your
Speaker 1: cast to go a whole bunch of cold water on
Speaker 1: this and you're saying that it's going to be choppy,
Speaker 1: stap being so exciting. Either you get chopp that could
Speaker 1: create some drawdowns, or you get a bubble which will
Speaker 1: end badly.
Speaker 4: Why aren't you more excited.
Speaker 3: Well, look, we're excited, we're still bullish on the US
Speaker 3: and we're still fully invested. The point is, though, is
Speaker 3: that if you think about sixty four hundred sixty seven hundred,
Speaker 3: all of that glosses over the path you take to
Speaker 3: get there, and the path is going to be really important.
Speaker 3: We think it's going to be different than twenty three
Speaker 3: and twenty four. Twenty three and twenty four was broadly
Speaker 3: up into the right. But what we see is that
Speaker 3: because you're going in with high valuations, high sentiment, high positioning,
Speaker 3: as well as stretched expectations for earnings growth, you have
Speaker 3: this big high bar to jump over, which just suggests
Speaker 3: to get used to more volatility. So what we're talking
Speaker 3: to clients about is to say that if that volatility comes.
Speaker 4: What will you do with it? The classic Walter.
Speaker 3: Demer line of when it comes time to buy, you
Speaker 3: won't want to. So we're trying to get our minds
Speaker 3: in process of accepting this volatility, wanting to step into
Speaker 3: it versus running away from it. But certainly we think
Speaker 3: it's that wide choppy rain, not necessarily low fall up
Speaker 3: into the right.
Speaker 5: Is it choppy because of underlying economics or because of policy.
Speaker 3: Probably policy and policy of course could drive and influence
Speaker 3: the underlying economics. We think that big sweeping tariff policy
Speaker 3: is certainly a dampener of growth. It raises the question
Speaker 3: around at supply chain disruptions, which could be inflationary. But
Speaker 3: those policy wild cards of do we get tax reform,
Speaker 3: tax cuts or not, do we get higher tariffs. All
Speaker 3: of these things are potential sources of volatility, and because
Speaker 3: you're training at such high valuations today, there's not a
Speaker 3: lot of wiggle room to absorb that higher uncertainty.
Speaker 5: So terrorifts for you definitely are a tail risk. A
Speaker 5: lot of individuals have come on and said that, but
Speaker 5: a tax cut and a big tax plan that would
Speaker 5: be a boost. How do you think about the sequencing
Speaker 5: of all this, Well.
Speaker 3: That's the thing that we think it could be inverse
Speaker 3: from the twenty sixteen sequencing, where we got tax cuts
Speaker 3: first and then we got tariffs, and that's one of
Speaker 3: the reasons for the weak market that we had in
Speaker 3: twenty eighteen. This time around, tariffs could happen first, and
Speaker 3: we still have a big question mark as to whether
Speaker 3: or not you even get that corporate tax cut simply
Speaker 3: because you are negotiating four point seven trillion dollars of
Speaker 3: existing taxes with a very slim majority in the House.
Speaker 3: A big question mark if you can get us down
Speaker 3: to eighteen percent on the corporate tax rate given everything
Speaker 3: else you're negotiating.
Speaker 2: Let's finish on bitcoin just to count ninety eight k
Speaker 2: all time high multiple choice, A risk anset on steroids,
Speaker 2: an important diversify for portfolios, or a proxy to play
Speaker 2: some huge momentum societal shift over the next few years.
Speaker 4: Which one is it.
Speaker 3: DA and B meaning that you think it's It is
Speaker 3: definitely a liquidity proxy. This is a proxy for how
Speaker 3: much liquidity is slashing around in the market. We certainly
Speaker 3: have seen that play out in other cycles that when
Speaker 3: the FED is removing liquidity, Bitcoin is typically done poorly.
Speaker 3: This is a world that given the FED is cutting
Speaker 3: rates with financial can so easy. That is supportive of
Speaker 3: this kind of asset. We think it is also a
Speaker 3: psychological commodity that captures fears about dollar debasement, the fact
Speaker 3: that you have high fiscal spinning, the fact that you're
Speaker 3: talking about even more monetary spin or stimulus, which just
Speaker 3: supports this notion that there are people who are afraid
Speaker 3: of dollar debasement, and thus this is their way of
Speaker 3: being able to get access to that risk.
Speaker 2: So Lisa would like to know some form of inverse
Speaker 2: correlation between the performance of a twenty year oaction and bigcoin.
Speaker 4: Is that right?
Speaker 1: All I can say is a psychological commodity tulips, where
Speaker 1: a psychological commodity you can say pretty much anything.
Speaker 4: Or haven't got to guess so much. Left Malpert, I'm not.
Speaker 1: Just saying that the crypto is tulips, but I will
Speaker 1: just say that a crypto platform founder of tron, Justin Sun,
Speaker 1: bought a banana that was duct taped to a wall
Speaker 1: for six million dollars. Yes, okay, So I'm just looking
Speaker 1: at this and I'm like, is that psychological kind of
Speaker 1: commodity is sort of to ease your fears?
Speaker 3: I think that that is the bubble scenario into twenty five,
Speaker 3: is that we get a bark of speculative fervor, and
Speaker 3: that is the scenario where you could see runaway markets
Speaker 3: because people start yoloing on bananas taped two walls, and
Speaker 3: that could be something that would make its way into
Speaker 3: broader equity markets where you see valuations push up into
Speaker 3: even more rarefied air.
Speaker 2: You don't sound like a crypto purist at all. A
Speaker 2: lot of these conversations years ago when we were trading
Speaker 2: down there, ten k, same conversations, and here we are
Speaker 2: up by one hundred totally.
Speaker 1: I think that anyone who's been barishing crypto has been
Speaker 1: humbled massively. And there's a lot of questions around exactly
Speaker 1: the idea of blockchain and how it could be used
Speaker 1: in supply chains that have cost a whole host of
Speaker 1: different asset classes.
Speaker 4: So there is a lot of value here.
Speaker 2: That's a good clean up effort. That one right there,
Speaker 2: bigcoin right now ninety AK all time highs up this
Speaker 2: morning by a round about four percent. Cameron, thank you,
Speaker 2: Thanks going to see it. Thank you, Cameron Dawson of
Speaker 2: New h Weel. The former Google CEO Eric Smith joins
Speaker 2: us on his latest book, Genesis, Artificial Intelligence, Hope and
Speaker 2: the Human Spirit. Eric joins us now for more. Eric,
Speaker 2: Welcome to the program sir. I want to pick up
Speaker 2: on that one word hope and ask you how much
Speaker 2: hope I should have that this goes right, and start
Speaker 2: with this quote from Foreign Affairs magazine. It read as follows.
Speaker 2: In cases where some humans might face off militarily or
Speaker 2: diplomatically against the highly AI enabled state, or against AI itself.
Speaker 2: Humans could struggle to survive, much less compete. Such an
Speaker 2: intermediate order could witness an internal implosion of societies and
Speaker 2: an uncontrollable explosion of external conflicts. So you've got to
Speaker 2: calm meet down, Eric. Should I have hope that this
Speaker 2: plays out?
Speaker 6: Well, Well, let's.
Speaker 7: Start with a hope that either of your show is incredible.
Speaker 7: Previous guests talked about two percent productivity. Imagine that productivity
Speaker 7: goes to five percent a year because of this technology.
Speaker 6: So there's every reason to think that.
Speaker 7: There's enormous land businesses, inventions, science, health, and so forth
Speaker 7: to get invented. But the same is also true for
Speaker 7: the invention of conflict and war. And if you think
Speaker 7: about it, it makes absolutely no sense to put somebody in
Speaker 7: a fighter jet up in the air and have them
Speaker 7: be shot at by another missile. It makes much more
Speaker 7: sense for that fighter pilot to be sitting on the
Speaker 7: ground and having a swarm of the equivalent.
Speaker 6: Of those jets.
Speaker 7: Let's just call them powerful robots, powerful drones that act
Speaker 7: in synchrony to achieve the objective of this attacker or
Speaker 7: to defend yourself, and the future of war is autonomous
Speaker 7: and networked and AI driven.
Speaker 1: This is something that a lot of people have focused on,
Speaker 1: in particular how the US is going to evolve in
Speaker 1: this manner, as well as how China is going to
Speaker 1: evolve in this manner, how they're going to use some
Speaker 1: of the space satellites to help coordinate that effort. Eric,
Speaker 1: do you feel like right now one superpower is winning
Speaker 1: versus the other? What is the best way to gain
Speaker 1: preeminence in a military AI sphere.
Speaker 7: Well, when doctor Kissinger and I went on his last
Speaker 7: trip to China, I was convinced from that meeting that
Speaker 7: China was two to two and a half years behind us,
Speaker 7: But I am now wrong. It turns out that in
Speaker 7: the last couple of weeks China has brought out software
Speaker 7: models what are called language large language models that are
Speaker 7: rivals of the best American ones, which I never thought
Speaker 7: would be possible. One is called quinn An other words
Speaker 7: called hong Yung. And it looks like they've caught up
Speaker 7: or they're very close behind. And it looks like China
Speaker 7: has decided that it's another part of its industrial policy,
Speaker 7: along with its focus on cellular dominating the battery industry,
Speaker 7: dominated in the car industry, et cetera. So they're willing
Speaker 7: to spend the money. What's interesting is that it does
Speaker 7: frame the narrative of China versus the US as the
Speaker 7: defining narrative. And one of the more interesting questions, which
Speaker 7: we discussed at some length in the book, is what
Speaker 7: happens to the deterrence and what happens to all the
Speaker 7: other one hundred and ninety five countries that are not
Speaker 7: China and not the US. These questions are really important
Speaker 7: because the power of this technology upends society in so
Speaker 7: many ways, economically, the way we govern, the way we
Speaker 7: reach language, and so forth and so on.
Speaker 1: So there are a lot of questions within this, and
Speaker 1: this could be a half an hour discussion, but one
Speaker 1: of them is who should be financing and who should
Speaker 1: be leading the national efforts to gain pre eminence in
Speaker 1: this sphere. And you have to wonder, you talk about
Speaker 1: China as a state organized, state funded type of effort
Speaker 1: that is coordinated in that manner, how should it be
Speaker 1: directed in a place that does consider itself capitalist, like
Speaker 1: the United States.
Speaker 7: Well, the Chinese model is what is called civil military fusion,
Speaker 7: where they subsidize their biggest companies. No one in America,
Speaker 7: not even in the companies, thinks that the thinks that
Speaker 7: the largest American companies need to be subsidized. But let
Speaker 7: me make an argument that if general intelligence, that is
Speaker 7: human intelligence, is to be invented, it should be invented
Speaker 7: in the United States and under control.
Speaker 6: Of Americans and the American government.
Speaker 7: And I don't mean managed, but I mean under the
Speaker 7: legal control of our country, our citizens, at our democracy,
Speaker 7: and getting there first is a big deal.
Speaker 6: A number of us have talked for some time.
Speaker 7: That there should be ANAI for America initiative where the
Speaker 7: government works closely with the private companies and figures out
Speaker 7: a way to make sure that we are ahead of
Speaker 7: ahead of time. In truth, however, the financial industry that
Speaker 7: you all invented, for which we are incredibly grateful, has
Speaker 7: been incredibly.
Speaker 6: Generous in terms of the ability to fundraise the billions
Speaker 6: of dollars that are required.
Speaker 7: And I should state, by the way that you guys
Speaker 7: have done such a good job in raising money, and
Speaker 7: we've done such a good job in actually getting the
Speaker 7: computer scientists around the world and the data and so
Speaker 7: on and so on. What we now need is energy.
Speaker 7: We are prolific consumers or energy, and we're going to
Speaker 7: run out. One estimate is that US will run out
Speaker 7: of all sources of energy by twenty twenty eight at
Speaker 7: our current growth rate.
Speaker 5: There's another topic you discussed in this book, which is
Speaker 5: AI to check AI.
Speaker 4: How can that work?
Speaker 6: When do you think about it?
Speaker 7: One of the things that happens in AI systems is
Speaker 7: you have compositional generations. What happens is you take one
Speaker 7: piece and another piece and you interlick them and they've
Speaker 7: never been linked together before, and it looks like when
Speaker 7: you combine those two you get emergent properties. So that's
Speaker 7: in and of itself interesting. So the question is what
Speaker 7: is the limit of that? How far can that system
Speaker 7: go up? I think it will get there, and I
Speaker 7: think that it's probable that we can build systems that
Speaker 7: are the technical term is super intelligent, where you have
Speaker 7: a simple system, sorry, a single system that is at
Speaker 7: the nineteth percentile of physics.
Speaker 6: Math, chemistry, and arts and so forth. No human can
Speaker 6: do that.
Speaker 7: It looks like these systems will be not only available
Speaker 7: in the next five years, because we already have examples
Speaker 7: of passing these tests already, but also that they'll be
Speaker 7: broadly available for all of society.
Speaker 6: That has huge implications.
Speaker 7: We've never had an experiment where each and every one
Speaker 7: of us has a polymath, you know, the Einstein type
Speaker 7: scientists at our back and call.
Speaker 6: And furthermore, that scientist, whatever you want to call him
Speaker 6: or her or.
Speaker 7: Is, is capable of writing code, doing agents, and making
Speaker 7: things happen.
Speaker 5: How do you think the United States competes with China
Speaker 5: when we have an incoming administration that wants to put
Speaker 5: up tariff walls, and even this administration who's been putting
Speaker 5: export controls on some of our high tech semiconductors.
Speaker 6: I am not in favor of broad tariffs. I never
Speaker 6: have been.
Speaker 7: I'm the son of an economist and a grandson of
Speaker 7: an economist, and tariffs are essentially taxes. What I am
Speaker 7: in favor of is restrictions or limitations for strategic reasons.
Speaker 7: It's really important that we win in this race against China.
Speaker 7: And so the things that the Trump administration Biden administration
Speaker 7: to limit, for example, hardware access, were really smart. And
Speaker 7: I know because I was part of a commission that
Speaker 7: recommended it way back when in fact was adopted.
Speaker 6: Great job. So the question here is ignoring the tariff.
Speaker 7: Question, which I just don't like and I think is
Speaker 7: just another tax. How do you control how do you
Speaker 7: control and limit what China does? And how do you
Speaker 7: how do you amplify.
Speaker 6: What America does?
Speaker 7: And you sit there and you go, well, you're doing
Speaker 7: pretty well, right, everybody's making a lot of money.
Speaker 6: There's all this growth, and Dy's doing well. All the
Speaker 6: tech companies are doing well. But let me explain what happens.
Speaker 7: You have a slope that's like this, and it keeps
Speaker 7: going up and up and up with humans.
Speaker 6: At some point the industry.
Speaker 7: Believes that there will be AI scientists, that is, non
Speaker 7: human scientists, and he or she who gets there first
Speaker 7: gets a slope like this and all of a sudden boom.
Speaker 6: Yeah right, we're really really growing fast.
Speaker 7: These network effect businesses are what we do in our
Speaker 7: in our competitive environment against each other under US regulation.
Speaker 6: I want that to be true globally for the US.
Speaker 2: Eric, I can sell to you world and thin of
Speaker 2: having your back students to continue the conversation. Congratulations on
Speaker 2: the new books. So we pretty shake a time. The
Speaker 2: full mcgogle CEO Eric Smith begin this out with Trump's
Speaker 2: treasury pick still very much up in the air following
Speaker 2: meetings with Apollos, Mark Rowan, and former FED Governor Kevin Walsh.
Speaker 2: Investors still waiting for President elect Donald Trump to make
Speaker 2: a final decision on the individual who will go into
Speaker 2: twenty twenty five facing down a huge to do list.
Speaker 2: Joining us around the table the IBM Vice chair the
Speaker 2: former National Economic Council Director Gary Cone, Gary, good morning,
Speaker 2: Good morning, Thank you, Seeyah, thanks.
Speaker 4: For being here.
Speaker 2: I think we need to take a big step back
Speaker 2: in FANCO several years back to twenty sixteen, twenty seventeen.
Speaker 2: Just frame for us what you had to face down
Speaker 2: in sixteen going into seventeen and how long the to
Speaker 2: do list was back then.
Speaker 8: So I think we should take even a bigger step
Speaker 8: back and remember what the environment was. If you go
Speaker 8: back to the economic environment as we were going through
Speaker 8: this exact period, we had a environment where we had
Speaker 8: just started just barely started to come out of the
Speaker 8: Fed's zero interest rate policy, quantitative easing and a decade
Speaker 8: of Fed articles would ever be inflation again. We were
Speaker 8: just starting to turn that corner. We had come through
Speaker 8: obamaed four years or eight years of basically saying, you know,
Speaker 8: there's been a very tough business environment, highly regulated. You know,
Speaker 8: how do we get business re engaged in Trump won
Speaker 8: this victory, it looks very similar where we are today,
Speaker 8: except you know, FED funds were seventy six basis points
Speaker 8: back then. They're four and a half percent today. National
Speaker 8: debt was about twenty trillion. We're thirty five trillion dollars
Speaker 8: right now. So we're in a pretty fundamentally different place.
Speaker 8: And then as you look where we are today, not
Speaker 8: only have we a pretty decisively different position in rates
Speaker 8: and debt, I think the President elect is walking into
Speaker 8: a environment, with that high interest rate environment where housing
Speaker 8: prices have gotten really out of touch for most Americans
Speaker 8: and there's a real push to try and make housing
Speaker 8: more affordable. You look at the way Treasury has decided
Speaker 8: to fund that additional debt. They've been very short dated
Speaker 8: on the curve, which I think provides an enormous amount
Speaker 8: of risk in refunding. And we all worry about refunding
Speaker 8: of Treasury. So I think we've got to have a real,
Speaker 8: a real refunding situation where we roll out maturities. I
Speaker 8: remember talking to the President like eight years ago by
Speaker 8: doing a fifty year and a one hundred year. I
Speaker 8: still think we should have done a fifty year one
Speaker 8: hundred year when.
Speaker 4: Rates were low.
Speaker 8: And then you think about the situation with state and
Speaker 8: local government. State and local governments were not in great
Speaker 8: position eight years ago. Now, think of what's going on
Speaker 8: with the migrant population. How much money some of these
Speaker 8: cities and states have spent on immigrants. Now, they didn't
Speaker 8: say anything prior to the election, but I will be
Speaker 8: shocked if there's not a huge outcry from some of
Speaker 8: the major cities in this country about the amount of
Speaker 8: money they've spent and how much help they're going to
Speaker 8: need from Washington to make their budgets come together.
Speaker 4: That's you know, that's where you start.
Speaker 8: That's literally day one, that's January twentyth twelve noon.
Speaker 4: You walk into that. Yep.
Speaker 8: So there's a fundamental difference from where we are. But
Speaker 8: there's a similarity to coming off of the Obama administration
Speaker 8: versus the Biden administration. The excitement of business, the opportunity
Speaker 8: going forward, those are the excitements.
Speaker 4: You know.
Speaker 8: Then you go back eight years ago and say, okay,
Speaker 8: what did we.
Speaker 4: Walk into as well?
Speaker 8: Well, look, the number one policy that we really wanted
Speaker 8: to get done initially was tax reform. Tax reforms are
Speaker 8: number one objective. Unfortunately, you know, the House had sort
Speaker 8: of gotten ahead of the White House during the last
Speaker 8: few weeks of the prior administration. The House had gone
Speaker 8: ahead with repeal of Obamacare, So we walked into repeal
Speaker 8: and replace without really a replace, which I have to.
Speaker 2: Admit I totally forgot about. I totally forgot about the
Speaker 2: McCain vote. Yeah, I've totally forgotten that you'd walked into
Speaker 2: that back in seventeen. How did that complicate things? To
Speaker 2: get taxes done.
Speaker 4: A highly complicated thing.
Speaker 8: You know, we all thought on the economic team that
Speaker 8: we were walking in, we were going to, you know,
Speaker 8: January twenty, we were going to start on tax policy,
Speaker 8: tax policy, tax policy. I think all of us got
Speaker 8: thrown into healthcare, healthcare, healthcare, trying to figure out healthcare.
Speaker 8: None of us were really healthcare experts, none of us
Speaker 8: had been doing work on healthcare for the prior three
Speaker 8: months trying to get ready to walk in.
Speaker 4: We'd all been.
Speaker 8: Working on tax policy and trying to figure that out.
Speaker 8: So everyone got derailed for the better part of I
Speaker 8: would say two months or three months, knowing that we
Speaker 8: wanted to go through taxes in year one because we
Speaker 8: wanted to use that budget that existed and we wanted
Speaker 8: to use budget reconciliation to get taxes done that year.
Speaker 4: So every day we were spending on.
Speaker 8: Healthcare, we were losing a day of tax policy, which
Speaker 8: was you know, it was anxiety creating, let's put it
Speaker 8: that way. So we were trying to get rid of
Speaker 8: the healthcare issues quickly as we do.
Speaker 5: What's going to be the priority when they walk in
Speaker 5: January this time around? Is it going to be tariffs
Speaker 5: or is it going to be cutting tax So I.
Speaker 8: Think there's two priorities day one on the economic side,
Speaker 8: and you'll argue there's both economics. I think it's going
Speaker 8: to be taxes, because again you've got a deadline. Remember
Speaker 8: the personal side of the tax policy ends at twelve
Speaker 8: midnight December thirty first, twenty twenty five.
Speaker 4: So there is a.
Speaker 8: Forcing function, and Washington operates really well with a forcing function.
Speaker 4: They need deadline, they need deadlines. They need that.
Speaker 8: Journalists well I don't know about journalists, but I know
Speaker 8: about Washington.
Speaker 4: They need a deadline.
Speaker 8: There is a hard and fast deadline now, look, they
Speaker 8: could extend it, but that would be another Act of
Speaker 8: Congress to extend it, so they have a firm deadline
Speaker 8: in place. So Number one thing on the I would
Speaker 8: say the economic policy front is they're going to deal
Speaker 8: with taxes. Number two is I think simultaneously we could
Speaker 8: argue this is this is economics as well.
Speaker 4: They need to deal with the immigration policy. You know.
Speaker 8: I think we will see Trump come back to many
Speaker 8: of the executive orders and many of the policies that
Speaker 8: he had going out.
Speaker 4: On January twentieth. He will reinstate all.
Speaker 8: Of those policies to shut the border and at least
Speaker 8: stop the flow of illegal immigrants in the United States.
Speaker 8: So I think they will work on both of those simultaneously.
Speaker 8: I do think there will be some tariff policy going
Speaker 8: in there as well, and I think the tariff policy
Speaker 8: that will be relatively easy for them to go on
Speaker 8: is to tear iff things that we are currently manufacturing
Speaker 8: in the United States, where you would put tariffs in
Speaker 8: place to protect jobs and protect the products that we
Speaker 8: are currently making the United States.
Speaker 5: Okay, so if personal policy, we have two out of
Speaker 5: the three we have a borders are he's announced and
Speaker 5: we also have Howard Latnet going over.
Speaker 4: As to commerce.
Speaker 5: What is going on with the treasury pick. We have
Speaker 5: three men who I've been told the President thinks of
Speaker 5: a high caliber Scott Besson, Mark Rowan, Kevin Walsh in
Speaker 5: Palm Beach yesterday having these conversations with the president. You
Speaker 5: know how he operates. Why is this pick taking so long?
Speaker 5: If he ran an echon agenda campaign.
Speaker 8: So I think you just answered a little bit. He
Speaker 8: ran an economic agenda campaign. This is in his opinion,
Speaker 8: this is one of the most important, if not the
Speaker 8: most important pick he is going to make, so getting
Speaker 8: it right is important.
Speaker 4: I'll also remind you something. We'll go back to eight
Speaker 4: years ago.
Speaker 8: The economic picks were made the week after Thanksgiving. I
Speaker 8: was hired the week after Thanksgiving. Manutrient was put into
Speaker 8: his job the week after Thanksgiving. So the transition team
Speaker 8: is a couple weeks and probably a month ahead on
Speaker 8: most of the picks.
Speaker 4: So we've all got.
Speaker 8: This anxiety because this is a second term president, so
Speaker 8: he knows how to get stuff done quickly. But if
Speaker 8: you think of what happened eight years ago, those picks
Speaker 8: were made in the last week of November, first week
Speaker 8: of December, and we were all ready to go in
Speaker 8: our chairs in place by twelve noon January twenty, So
Speaker 8: there's plenty of time to get it right. And I
Speaker 8: think the president knows the president, like nos, getting the
Speaker 8: right person is more important right now than getting the
Speaker 8: pick done today or tomorrow.
Speaker 5: Do you think it's a name that I have not
Speaker 5: reported on.
Speaker 8: I look, I'm not involved in the process. I think
Speaker 8: the President will put any in every name that he
Speaker 8: thinks can do the job well on the list, and
Speaker 8: he will choose what he thinks is the best person
Speaker 8: to do the job.
Speaker 1: Do you think it is feasible for President elect Donald
Speaker 1: Trump to achieve his goals of the tariffs that he's
Speaker 1: put out there while acquiescing or creating some calm in
Speaker 1: the bond market.
Speaker 8: We will see what actually happens in policy.
Speaker 4: You know, I always remind.
Speaker 8: People what you say to get elected and what you
Speaker 8: do in actual policy are two different things. You know,
Speaker 8: Americans like to hear what your ultimate idea is to
Speaker 8: get done. But we've got a very rigorous policy process
Speaker 8: in the United States. We've got a House, we've got
Speaker 8: a Senate, we've got lots of constituencies, and when it
Speaker 8: comes down to actually executing implementing policy is not exactly
Speaker 8: what the president wants. In fact, every piece of legislation
Speaker 8: is a compromise. There's no perfect piece of legislation in
Speaker 8: America because at some point people have to compromise. So
Speaker 8: we'll see what the president can get done. I think
Speaker 8: we're all confident there'll be something on taxes. We're one
Speaker 8: hundred percent confident there'll be something on immigration, and there'll
Speaker 8: be something on tariffs. But again, each of these will
Speaker 8: be a compromise. No one is going to get one
Speaker 8: hundred percent of what they want.
Speaker 1: I guess the reason why people are so interested in
Speaker 1: the Treasury pick is because people want to understand what
Speaker 1: that compromise might look like, and the individual might give
Speaker 1: some insight into that. Do we have a sense and
Speaker 1: will this sort of be the ultimate test for you
Speaker 1: how much Congress pushes back on some of the picks
Speaker 1: that have already been announced that are controversial even among Republicans.
Speaker 1: Will that be sort of a test of just whether
Speaker 1: the texts and balances will work. At the same time,
Speaker 1: when a lot of people are saying this time is
Speaker 1: different and that this president elect actually has something of
Speaker 1: a mandate. That is very different than in twenty sixteen.
Speaker 8: Every Congress and every president when they come in and
Speaker 8: they pick, they put their nominations through and they go
Speaker 8: through the consent process.
Speaker 4: It's different.
Speaker 8: Every four years, every president goes through a different process.
Speaker 8: You have a different makeup of a Senate. You have
Speaker 8: a different sort of body. And by the way, the
Speaker 8: body will be different at the end of this year,
Speaker 8: and then it will transition. I think it's January third
Speaker 8: is the swearing of the new Senate. It will change
Speaker 8: January third in the middle of the process. So some
Speaker 8: of these nominees could actually go through an approval process
Speaker 8: with this current sitting.
Speaker 4: Senate, some may go through with a new Senate.
Speaker 8: The probably the vast majority will go through with the
Speaker 8: new Senate because it takes time to get the paperwork through,
Speaker 8: it takes time to get the vetting through. But every
Speaker 8: one of these events is unique, and it's uniquely different
Speaker 8: because they're different personalities involved. There's different people went through
Speaker 8: different elections. Certain states changed, they became redder, so the
Speaker 8: senery may or may not be more comfortable taking a
Speaker 8: certain point of you. So you literally have to watch
Speaker 8: each of these as an individual unique event.
Speaker 1: So you did mention the financing of the deficit, and
Speaker 1: that's very interesting to me, especially at a time where
Speaker 1: you talked about the short term nature of a lot
Speaker 1: of the financing. Do you expect that to change for
Speaker 1: there to be a lot more longer dated issuance regardless
Speaker 1: of where yields are at with the next Treasure Secretary,
Speaker 1: whoever that might be.
Speaker 8: But I think it's really prudent risk management to start
Speaker 8: elongating the debt of the United States and not have
Speaker 8: to live off very large short term auctions and not
Speaker 8: have to live off a short term demand for treasuries.
Speaker 4: Like we're always worried about.
Speaker 8: Financing the deficit and what could happen Like as a
Speaker 8: person that grew up as a risk manager running a
Speaker 8: large balance sheet for a large percentage of my life,
Speaker 8: you would want to de risk that. How do you
Speaker 8: de risk that from a treasury standpoint, You roll out
Speaker 8: maturities as long as you can, so you cut down
Speaker 8: the amount that you have to fund at each of
Speaker 8: these auctions. So I would think that this administration would
Speaker 8: want to get that done and roll out maturities.
Speaker 2: Gary, I want to pick up on a conversation we were
Speaker 2: having earlier the race to be the next Treasury secretary.
Speaker 2: You've been in the room with President elect Donald Trump
Speaker 2: many a time, including to interview. What's it like to
Speaker 2: interview with Donald Trump?
Speaker 8: Well, look, look, it's always a stressful experience. You know,
Speaker 8: you're sitting there with the President elect and a large
Speaker 8: amount of his team.
Speaker 4: Like usually when you're in the room with the President
Speaker 4: elect doing these interviews, there's multiple other people in the room.
Speaker 4: You know.
Speaker 8: I always reminded myself, I'm speaking of the President elect.
Speaker 4: I'm not speaking to other people in the.
Speaker 9: Room, so you've got to sort of block out the
Speaker 9: other people in the room. But he's rigorous in his questions,
Speaker 9: and he tends to go multiple different directions, so you know,
Speaker 9: he'll go from from.
Speaker 8: Topic A to topic B, to topic C, back to
Speaker 8: topic A.
Speaker 4: It's interesting.
Speaker 8: You've got to be on your game when you're in there.
Speaker 8: You've got to be on your game. And he's thinking,
Speaker 8: you know, in multiple directions, and it's very interesting and
Speaker 8: he's always got a interesting spin on things.
Speaker 4: You know. I think the.
Speaker 8: President like Trump, is one of the best marketers and
Speaker 8: branders there is I've ever seen. So when I'm always
Speaker 8: talking about an answer and how I would think.
Speaker 4: Of something from a policy standpoint.
Speaker 8: He's talking about it, how is he going to sell
Speaker 8: this to America and how's it going to affect people?
Speaker 8: And how's it good for the country, And he's thinking
Speaker 8: in that term. So we're always having an interesting conversation
Speaker 8: where I'm thinking about it from an economic policy, markets
Speaker 8: policy standpoint, and he's thinking about it from how do
Speaker 8: I sell this and how do.
Speaker 4: I get momentum for this.
Speaker 2: Some space in the media are describing this process as
Speaker 2: looking for a yes man, someone who would just say
Speaker 2: yes to some of his policy proposals, including the trade.
Speaker 2: You had disagreements with him on trade. You were very
Speaker 2: open about that. We're all aware of it at the time.
Speaker 2: In the first term, how open is he to those disagreements.
Speaker 4: Look, I believe.
Speaker 8: It's the job of an advisor in the White House
Speaker 8: to tell the president the truth and tell them things
Speaker 8: that he doesn't want to hear. Now you get to
Speaker 8: tell him plain things he does want to hear. You know,
Speaker 8: it was always fun to go in there with the
Speaker 8: economic data. You know, you get the economic data the
Speaker 8: night before it's released, and there are many nights where
Speaker 8: I got to go in there and talk to him
Speaker 8: about the economic data, what it was, how good it was,
Speaker 8: how the markets were going to react. Those are great conversations.
Speaker 8: But along with those great conversations, you get to go
Speaker 8: in there and have conversations that say, hey, look, if
Speaker 8: we do X, I think I don't know, I think
Speaker 8: the reaction is going to be this. Are we prepared
Speaker 8: for this intended or unintended consequence?
Speaker 4: And I think those are the jobs.
Speaker 8: Of the people that sit in the White House's advisors
Speaker 8: to make sure when the president does something they understand
Speaker 8: the intended and unintended consequences. They should never a president
Speaker 8: should never be blindsided by a decision.
Speaker 5: When it comes to the check and the pushback on
Speaker 5: Trump two point zero, John talked about this his first
Speaker 5: four years. All the time the Trump put it was
Speaker 5: a stock market that he cared about.
Speaker 4: He would reverse core.
Speaker 5: Some potentially something he want to do in executive order,
Speaker 5: just because he saw the fallout in the financial markets.
Speaker 4: What's going to be that check this time?
Speaker 8: I think Trump is going to care as much about
Speaker 8: the stock market these next four years as he did
Speaker 8: the first four years. That is a benchmark that he
Speaker 8: will measure himself it's a very public benchmark. It's one
Speaker 8: that he uses. He talks about it in every speech.
Speaker 8: He's already started talking about it in the transition. How
Speaker 8: well the market's done since election night. I don't think
Speaker 8: that will change over the next four years.
Speaker 2: Do you think the bond market takes on additional importance?
Speaker 2: We started this whole conversation about the difference between now
Speaker 2: versus say, twenty sixteen to seventeen, certainly in fixed income
Speaker 2: in a very different position.
Speaker 8: I think the bond market deserves a long discussion here.
Speaker 8: I think there's a lot going on. When I talked it,
Speaker 8: when I talked a little bit ago. You know where
Speaker 8: FED funds were at seventy six faces points where they're
Speaker 8: four and a half percent. Now, that's only half the story.
Speaker 8: You know, we had a flat yield curve and then
Speaker 8: we've gone through an inverted yield curve over the last
Speaker 8: four years because everyone was worried about a recession. And
Speaker 8: now we're going back to something that we forgot. What
Speaker 8: it is called a normal yield curve.
Speaker 2: How stafe is a normal year?
Speaker 8: Yeah, Like, at least you've been around long enough to
Speaker 8: ask a question, how steep is a normal yield curve,
Speaker 8: because a lot of people don't even remember a normal yield.
Speaker 4: Curve is steep.
Speaker 8: You know, we've seen since the Fed started cutting interest rates,
Speaker 8: ten years have gone up sixty to seventy basis points.
Speaker 8: I'm not surprised by that. I think we're renormalizing a
Speaker 8: yield curve. If we've taken recession fears off the table
Speaker 8: and the ten years going to go to a normalized
Speaker 8: rate of let's call it three three and a half percent,
Speaker 8: you know, there has to be at least one hundred
Speaker 8: to one hundred and twenty five basis points of steepness
Speaker 8: in FED funds ten years. I think it's at least
Speaker 8: one hundred and twenty five. If we're going to three,
Speaker 8: that's at least four.
Speaker 4: And a quarter.
Speaker 8: If we're going to three and a half, you know,
Speaker 8: we're talking four to seventy five, and we're going to
Speaker 8: continue steepness out the curve. And that's before we get
Speaker 8: to what I consider a pretty large refinancing wall coming
Speaker 8: up in twenty five and beyond. You know, I think
Speaker 8: many people forgot that. You know, twenty twenty, the COVID year,
Speaker 8: we did a lot of refinancing in the market, but
Speaker 8: they were all most of them were five year refinancing.
Speaker 8: So a lot of that COVID paper that was done
Speaker 8: at pretty favorable rates because the Fed again went into
Speaker 8: very accommodated policy. A lot of that COVID paper comes
Speaker 8: as due next year. So we've got a lot of
Speaker 8: refinancing coming due in twenty twenty five. So I think
Speaker 8: the yielder smartly and normally starting to re anticipate what's
Speaker 8: going to happen in the bond market.
Speaker 2: We could so called morning. Let's do it for now.
Speaker 2: Next time, it's going to see it, sir, great singer,
Speaker 2: appreciate it. Gary Cone there, the IBM Vice chairman and
Speaker 2: former Director of the National Economic Council under Donald Trump.
Speaker 2: This is the Bloomberg Sevenants podcast, bringing you the best
Speaker 2: in markets, economics, angiopolitics. You can watch the show live
Speaker 2: on Bloomberg TV weekday mornings from six am to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business Amp.