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Speaker 2: Joining us now and again in the future. Is lifting
Speaker 2: up twenty at forty two is someone who's been much
Speaker 2: maligned and has been fearless in her academics of saying,
Speaker 2: you know what, I'm associated with the dread at our
Speaker 2: word recession, but I don't see it out there. Claudia
Speaker 2: sam has nailed that call. She's chief economist at New
Speaker 2: Century As Advisors, and she joins us here this morning.
Speaker 2: At Claudia, my distant memory is Jeffrey Frankel at Harvard saying, Okay,
Speaker 2: there's a jobs mandate, there's an interest rate in flameation mandate.
Speaker 2: But real GDP and maybe distant nominal GDP really matter.
Speaker 2: Can a dearth of GDP shift the labor market and
Speaker 2: shift the FED?
Speaker 3: Well? Absolutely, I mean these are all growth and employment
Speaker 3: are absolutely tied together, not necessarily quarter by quarter. And
Speaker 3: I think you know, if you're referring to the first quarter,
Speaker 3: the small decline in GDP, like there is a lesson
Speaker 3: from that, But it is not that we are falling
Speaker 3: into a recession. It's that we are facing a major
Speaker 3: cost shock with an increase in tariffs and businesses we're
Speaker 3: responding to that in consumers that cause a lot of
Speaker 3: disruption in the numbers. So that's one example where you
Speaker 3: know that first quarter GDP declient is giving us a
Speaker 3: sense of where we're headed. But it's more about where
Speaker 3: we're headed working through these tariffs, which eventually will have
Speaker 3: some effects on employment, even if we're not seeing them today.
Speaker 2: Okay, way from then the som recession mania. Are you
Speaker 2: modeling out four percent year over year CPI? Is that
Speaker 2: in the New Century Advisor's realm of thinking?
Speaker 3: So I think that's absolutely in the realm of possibility,
Speaker 3: And certainly I feel very that we have we are
Speaker 3: facing slow in growth, rising unemployment, and faster inflation. Now
Speaker 3: magnitudes are going to be absolutely crucial, and I think
Speaker 3: a really big question for the Fed in particular is
Speaker 3: they think about their policy.
Speaker 4: Is the duration right?
Speaker 3: If this is if we're just seeing a kind of
Speaker 3: a blip a move up in inflation, the recedes as
Speaker 3: that we adjust to the tariffs or maybe the jobs
Speaker 3: go away. But that's like a key question that we
Speaker 3: are far from having the answers to see.
Speaker 2: You see how she does this at the University of
Speaker 2: Michigan and they get on the XA Exis she's looking
Speaker 2: at the duration. Yeah, she's looking at the lengthiness, the
Speaker 2: lengthiness of the magnitude.
Speaker 5: Claudia, can this economy avoid a recession? I mean I
Speaker 5: see a jobs number today, I think about Tom's theory
Speaker 5: the companies and people adapt this economy avoid.
Speaker 6: A recession absolutely.
Speaker 3: I mean, we have all the ingredients of a recession.
Speaker 3: We have the tariffs, we have the slot immigration, we
Speaker 3: have the federal cuts and other factors. We have massive uncertainty.
Speaker 3: Like really, if I mean this, we are pointed towards
Speaker 3: the recession, and yet we are in the very early stages.
Speaker 3: And we see sometimes our businesses to build some buffers,
Speaker 3: like a big inventory built getting ahead of the tariffs.
Speaker 3: I mean, we're nobody wants to lay off workers, nobody
Speaker 3: wants to cut back on their spending, right like people
Speaker 3: are trying to make adjustments. So but what needs to
Speaker 3: happen is these aggressive policies have been put in place.
Speaker 3: These cost shocks, they have got to be dialed back
Speaker 3: and really quickly. I mean, there's some damage done already
Speaker 3: that we're going to deal with costs as this year
Speaker 3: goes on. But magnitudes matter, and avoiding the recession, and
Speaker 3: particularly the recession dynamic is when that shock, it just
Speaker 3: spreads through the whole economy, and we really have got
Speaker 3: to nip this in the bed, in the bud before
Speaker 3: you have those feedback effects take cold.
Speaker 5: When you see a lot of companies again, we're probably
Speaker 5: seventy percent away through the earning cycle here, a lot
Speaker 5: of companies are, as you said, either pulling their guidance,
Speaker 5: or if they still have guidance, they're saying, we're concerned here,
Speaker 5: We've got a lot of variability around our businesses. What
Speaker 5: do you take away from some what you heard from
Speaker 5: Corporate America so far?
Speaker 3: So clearly these are big shocks. There's a lot of uncertainty.
Speaker 7: I think.
Speaker 3: The other place I found pretty interesting reading this time
Speaker 3: was going through the Fedspage book, which has a similar
Speaker 3: kind of talking to business contacts, talking to nonprofits in
Speaker 3: the communities, and you just here over and over again,
Speaker 3: contingency planning, getting ready like potentially cutting our potential, but
Speaker 3: not there yet. But it is so clear that a
Speaker 3: massive amount of time and energy is being spent on this.
Speaker 4: What do we do when.
Speaker 2: It hits Claudia, You've sat in the offices at the FED, folks.
Speaker 2: This is not the romance of some big fancy table
Speaker 2: in the Echos building. This is the meat and potatoes
Speaker 2: that doing PhD work at the greatest central bank in
Speaker 2: the world. And the answer is, you guys like smooth curves,
Speaker 2: gradual change. We just had Jeans Soroka, in of the
Speaker 2: Port of Los Angeles, flew in just to talk to
Speaker 2: John Tucker. Claudia. He sees a jump condition, a discontinuous
Speaker 2: event at his port. How do what fancy people like
Speaker 2: you fold in the reality of long shorman in truckers
Speaker 2: in Los Angeles.
Speaker 3: Right, it's a moment where to some extent you have
Speaker 3: to look at the models, but put them to the side. Right,
Speaker 3: there's no macroeconomic model that's going to give you the
Speaker 3: kind of discontinuities, the kind of very sharp turns that
Speaker 3: you're seeing in the data. I mean those way we
Speaker 3: should expect. We had this massive surge in imports that
Speaker 3: had a big effect on the composition of GDP in
Speaker 3: the first quarter, We're going to probably see a snapback
Speaker 3: because I mean we from that shipping, those imports are
Speaker 3: going to the floor. So don't come to me and say, oh,
Speaker 3: GDP is three percent in the second quarter, all is great,
Speaker 3: Like that could be under the hood telling us we've
Speaker 3: got a big problem in the second half of this year.
Speaker 3: So you have to, like you have to respond to
Speaker 3: those discontinuities, particularly when you can tie them back to
Speaker 3: a story. There's noise all the time that you want
Speaker 3: to look through. This isn't noise, right, Like we're responding
Speaker 3: to something big, and then that's why that outlook is
Speaker 3: important in the judgment.
Speaker 2: Claudia, with great respect for your impact in American economics,
Speaker 2: I think everybody wants to know this unfair question, but
Speaker 2: I'm going there on this strange Friday. What is your
Speaker 2: counsel to Hasset at Pennsylvania Vestent of Yale and Greer
Speaker 2: our trade representative as they counsel the president. These guys
Speaker 2: are legit academics. What should they do with this unique presidency?
Speaker 3: They need to slow it down, right, you know, I
Speaker 3: disagree with the policies they're pursuing, but I'm strong, I'm
Speaker 3: very turned about the way in which they're being pursued.
Speaker 3: This is very aggressive, this is very fast, and it
Speaker 3: can potentially cause a lot of damage. So even if
Speaker 3: you're in the spirit of having more industrial poalicy, having
Speaker 3: higher tariffs, a smaller government, like, there's a way to
Speaker 3: do this that doesn't cause maximal damage, right, And I'm
Speaker 3: very concerned, and I think the White House and you
Speaker 3: hear some messaging from them that you know, tarafrates aren't
Speaker 3: sustainable with China, and we're doing negotiations, but we need
Speaker 3: to see some action that actually pulls back these costs
Speaker 3: before it's too late.
Speaker 2: Doctor sum Thank you so much, Claudius. I'm joins us
Speaker 2: New Century Advise us here.
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Speaker 2: James Uroca where the Garcetti appointment in twenty fourteen has
Speaker 2: the most important job in America right now. Every one
Speaker 2: on Global Wall Street wants this view. We're honored off
Speaker 2: the red Eye that the gentlemen of Los Angeles and
Speaker 2: Long Beach Ports joined us this morning. Just thank you
Speaker 2: so much for joining Bloomberg this morning. As simple as
Speaker 2: I can make it, What is a single thing you
Speaker 2: would say today to the long sharman of Long Beach
Speaker 2: in Los Angeles.
Speaker 4: We're going to get through this, even though we're going
Speaker 4: to be down by thirty five percent next week on
Speaker 4: cargo volume coming into the port compared to last year,
Speaker 4: five thirty five percent. Major retailers, big importers have said,
Speaker 4: at one hundred and forty five percent tariffs, I'm not
Speaker 4: shipping out of China. I don't know if this could
Speaker 4: change in two hours, two days, two weeks, So let's
Speaker 4: hit the pause button. But to the long shoreman, We've
Speaker 4: had a great fiscal policy in place for a decade.
Speaker 4: We're going to keep investing. We're going to get through this.
Speaker 4: Every four containers meet a job at the port.
Speaker 2: What would you say to sixteen hundred Pennsylvania Avenue when
Speaker 2: you observe their press moments, their management.
Speaker 4: We're talking about the ground truth. Cargoes down, jobs are down,
Speaker 4: and this is the dock workers, the truckers, warehouse folks.
Speaker 4: But also the manufacturing people. This is Los Angeles County.
Speaker 4: Almost four hundred thousand people go to work every day
Speaker 4: in manufacturing jobs. It's just in Los Angeles, in La County.
Speaker 4: It is the biggest in the nation. Those are the
Speaker 4: folks that we got to keep going too.
Speaker 5: So tell us how a tariff works. When does it
Speaker 5: get assessed, How does it get assessed, who pays it?
Speaker 8: How does that work.
Speaker 4: There's a start date that's announced. If your cargo is
Speaker 4: ingated to that port overseas after the date of announcement,
Speaker 4: it's applied. The tariff has applied. It's assessed when it
Speaker 4: gets off the ship in Los Angeles and assessed by
Speaker 4: US Customs.
Speaker 2: Who pays it?
Speaker 4: The importer of record ammart, big retailer, big manufacturer bringing
Speaker 4: in parts, they pay for it. And what the CEOs
Speaker 4: and board members have been telling me is they're going
Speaker 4: to pass it on to the next in the supply
Speaker 4: chain consumers from the retail guys. The parts are going
Speaker 4: straight to the factory.
Speaker 2: We have somebody just emails in what's the COVID equivalent?
Speaker 2: Is this like, Oh, I'm recalling March of twenty twenty,
Speaker 2: Am I wrong?
Speaker 3: Lall day?
Speaker 4: Yeah? It was March, and our business was cut in half.
Speaker 4: That month. We only did like four hundred and fifty
Speaker 4: thousand containers, but it made a quick return as we
Speaker 4: all started buying online and curbside pickup. I don't know
Speaker 4: when the return date is going to be just yet.
Speaker 5: So what are the Walmarts of the world telling you
Speaker 5: in terms of kind of what they think they're going
Speaker 5: how they're going to behave going forward?
Speaker 4: Again? Hit the pause button. I'm not hiring. Open positions
Speaker 4: are shelved for the time being. Capital investments are on pause,
Speaker 4: and I'm waiting and seeing guys like Walmart and others
Speaker 4: of the large big box variety started bringing in inventory
Speaker 4: back last summertime campaign trail folks were talking about different
Speaker 4: trade policy, tariffs, etc. These guys saw through that a
Speaker 4: little bit, knowing that this day would come. Where I'm
Speaker 4: concerned right now, Paul, are these small to middle sized
Speaker 4: importers that didn't have the ability to bring an inventory warehouse, a,
Speaker 4: et cetera. Now they're faced with a dilemma of do
Speaker 4: I buy at these super exorbitant prices, Can I pass
Speaker 4: it on and still compete with the big guys, or
Speaker 4: do I just sit and wait. I've got to make
Speaker 4: payroll next month with your harborst.
Speaker 2: And with the Queen Mary over on Long Beach that
Speaker 2: you know, the tourist thing. The fact is the stuff
Speaker 2: comes off and they gets to get on Highway seven
Speaker 2: to ten or whatever what happens on the interstate highways.
Speaker 2: Given this crisis, you're.
Speaker 4: Going to see truckers who have been hauling four and
Speaker 4: five containers up till now per day move maybe two
Speaker 4: or three. Starting next week, you see less traffic on
Speaker 4: the roads. The warehouses with their vacancy rate at six
Speaker 4: seven percent, that's probably going to dip to Retailers have
Speaker 4: told me that they've got about five to seven weeks
Speaker 4: left of normal inventory and then we'll start seeing spot shortages.
Speaker 4: Give us an exam that you may go to the
Speaker 4: store and you're looking for that blue shirt Duke perfect.
Speaker 2: Duke merchandise right.
Speaker 4: It gives you want to nice blue shirts your size
Speaker 4: and your style with the right kind of collar. You
Speaker 4: may see eleven purple ones on the shelf and one
Speaker 4: blue one that just doesn't match your taste, and the
Speaker 4: price for that blue one is likely up a lot
Speaker 4: more than the others.
Speaker 2: Our interview of the day here, we welcome all of
Speaker 2: you accrastination, particularly early in the morning on the left coast.
Speaker 2: Jeane Soroca with us here of the ports of Los Angeles,
Speaker 2: Long Beach and the rest.
Speaker 4: Paul, Hey, geene I.
Speaker 5: Again, we've got a president who's the situation is very
Speaker 5: fluid in terms of his policy pronouncements. If we were
Speaker 5: to have a president that's maybe dial back some of
Speaker 5: the tariff situation, what's the time frame for your whole process,
Speaker 5: your whole world to start kicking in again.
Speaker 4: Yep, Paul, if we reached a deal today as we're
Speaker 4: speaking with China, whatever that deal may look like, a framework, etc.
Speaker 4: It would take the shipping lines about two weeks to
Speaker 4: reap his their vessels to the major ports Ching Dao, Jamin, Shanghai.
Speaker 4: Then it takes another two weeks after they load up
Speaker 4: to steam over to La So we've got a month
Speaker 4: once we push the button to say, hey, we're back
Speaker 4: in business. And that's why this inventory level at the
Speaker 4: retail folks are telling me about we're starting to we're
Speaker 4: starting to get a little tight here.
Speaker 2: You're maybe the one person in America that can to
Speaker 2: answer this. With great respect for Ambassador Burns Nicholas Burns
Speaker 2: with his public service to China here in the recent years,
Speaker 2: we all understand there's going to be retail shortages here
Speaker 2: empty the four hundred thousand manufacturing types in Los Angeles,
Speaker 2: those Chinese names you pronounced correctly, that I Butcher. What's
Speaker 2: this going to be like for the people in those
Speaker 2: Chinese cities of manufacturing and export?
Speaker 4: Yeah, tom As, you remember I worked in China for
Speaker 4: about four and a half years. They still maintained very
Speaker 4: close ties there to the business community. I'm on the
Speaker 4: phone with guys and friends overnight every night, and basically
Speaker 4: manufacturing has slowed to levels they have not seen before
Speaker 4: since the COVID times. And if folks are out of work,
Speaker 4: the government's going to help them out.
Speaker 2: They have a social safety net.
Speaker 5: Yes, So what are you telling I guess your workers
Speaker 5: at the port, I mean you've got I remember from
Speaker 5: you were so kind to a store in a pandemic
Speaker 5: to explain how this whole supply chain thing works.
Speaker 4: It's not just the people unloading the cargo.
Speaker 5: It's the truckers, it's the it's a warehouse employees, it's.
Speaker 4: Everybody, right right, It's one to nine jobs in the
Speaker 4: five counties Southern California area. A million people go to
Speaker 4: work every day based on what we do at the
Speaker 4: ports of LA and Long Beach, and so what we're
Speaker 4: trying to do is just keep morale up. Again, Let's
Speaker 4: not blink here. We still get a lot of work
Speaker 4: to do. The longshoreman as an example, they can start
Speaker 4: doing preventative maintenance on the machinery when volume dies down
Speaker 4: a little bit. The mechanics can get out there in
Speaker 4: force and make sure that all this equipment is ready.
Speaker 4: When that surge comes back, we're going to be humming
Speaker 4: with the truckers. Let's move around some domestic freight as well.
Speaker 4: So we're just trying to keep the morale up, keep
Speaker 4: the people focused on the job as best we can.
Speaker 4: But knowing that we've got a preparation. We've got preparation here. Now.
Speaker 4: When that cargo picks up, we're going to see it
Speaker 4: forty days before it actually arrives on our shores. We're
Speaker 4: gonna be ready.
Speaker 2: Do you sleep on the Red Eye or do you
Speaker 2: work in the Red Eye?
Speaker 4: You know, I got a couple of winks, but you know,
Speaker 4: I mean just getting here to Manhattan, seeing you guys
Speaker 4: the energy here and with all that's going on in
Speaker 4: our industry.
Speaker 8: We're moving, You're getting energy from this.
Speaker 2: This is yes, John, I regularly appreciate it. I'm thrilled
Speaker 2: to have them with us. A gentleman of Los Angeles
Speaker 2: and all of this important discussion. Jeans sorocas Chief Executive
Speaker 2: Officer the Port of Los Angeles.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: just say Alexa play Bloomberg eleven thirty good brding, everyone.
Speaker 2: Post anytime, keeness jobs say digress right now to the
Speaker 2: earnings that we see in the digestment of Amazon, Apple
Speaker 2: and the others. And when you do that, you look
Speaker 2: at the cloud. I looked at a given cloud ETF
Speaker 2: I went back ten years. I get for anirog Rana,
Speaker 2: a log regression, and I say the reason for the
Speaker 2: shaving of the beard. For those of you on radio,
Speaker 2: you can see this, but on YouTube, it's fine cinema.
Speaker 2: When we go down one point four standard deviations, off
Speaker 2: the ten year trend yep Rana shaves, he's not coming
Speaker 2: back till we tick on the trend. What's your timeline, Ana, Rog?
Speaker 2: I'm getting that beard back on the face. Is it
Speaker 2: going to be a recovery of quarters or years?
Speaker 7: I don't know. It depends on the weather, mostly on Rog.
Speaker 5: What did you learn last night from Amazon? And they
Speaker 5: put an operating income guidance? You know range out there
Speaker 5: that you could drive a fleet of Amazon trucks through
Speaker 5: what's going.
Speaker 7: On, But what you would expect that because the tariff
Speaker 7: uncertainty is so high, you do not know whether the
Speaker 7: goods coming in at what price there would be, what
Speaker 7: customers would buy. I mean, there's a lot going on
Speaker 7: their retail business. But frankly speaking, the Amazon Web Services
Speaker 7: margins were spectacular yesterday at thirty nine point five percent.
Speaker 7: Now that's going to drop down a little bit in
Speaker 7: the next quarter because of compensation reasons. But other than that,
Speaker 7: you know, the operating income is largely dependent on the
Speaker 7: retail business right now.
Speaker 5: And quite frankly, I think are we at the point
Speaker 5: now on aug where we don't even care about Amazon
Speaker 5: dot Com?
Speaker 4: Is it all just really important WS?
Speaker 7: But you know, if you think about it, the rest
Speaker 7: of the businesses do have an impact on their margin structure.
Speaker 7: So you know, you do have to care about it
Speaker 7: because all the benefit that you're getting from the Amazon
Speaker 7: Web Services profit, you know, some of the other businesses
Speaker 7: can can negate that I had.
Speaker 2: Interag Lizzie Sanders was in yesterday and I trotted out Graham,
Speaker 2: Down and Coddle seven hundred pages. Securities analysis. In the
Speaker 2: heart of the matter is a timeline to terminal value.
Speaker 2: When you look at the cloud, do you have a
Speaker 2: three year view, seven year view, decade view? What's the
Speaker 2: RANA terminal value in analysis of cloud cash flow?
Speaker 7: See, when you look at something like a cloud business,
Speaker 7: you know, I rate them as one of the best
Speaker 7: businesses out there. You know, right next to you know
Speaker 7: one could say Visa and mastercout payment processors. The reason
Speaker 7: for that is because once you develop an application in
Speaker 7: the cloud, you know you're not going back and develop
Speaker 7: maing it in house. This is, in our view, one
Speaker 7: of the most durable businesses out there. So my dominant
Speaker 7: value actually is well above ten us on this one.
Speaker 2: What's the electricity story? Paul and I see all this
Speaker 2: gloom and doom retail's gonna pay for so and so's
Speaker 2: next cloud thing in Texas or whatever. Just a quick
Speaker 2: brief here, Should we fear that our utility bills will
Speaker 2: pay for fancy billionaires in the RAA cloud space?
Speaker 7: Yeah, I'll take you back to around two thousand and eight,
Speaker 7: two thousand and nine, when everybody thought that because of China,
Speaker 7: the oil prices will go super cycle two hundred and
Speaker 7: fifty to two hundred bucks. And you know, we haven't
Speaker 7: seen that happen. So I firmly believe that people in
Speaker 7: the power industry will figure out how to take care
Speaker 7: of this shortage of demand that will come from all
Speaker 7: the data center build up. You know, I'm not sweating
Speaker 7: bit that that is going to have a have a
Speaker 7: big impact on the AI boom that we are seeing
Speaker 7: right now.
Speaker 5: Hey, Anrav, we just said Gene Soroka in who runs
Speaker 5: the Port of Los Angeles, he says his shipments next
Speaker 5: week look to be down thirty percent year on year.
Speaker 5: Is that just what's Amazon saying about what they're doing
Speaker 5: in terms of stocking their shelves.
Speaker 7: See, one of the things we'll see is, you know, Amazon,
Speaker 7: both on the one P business and the three pe business,
Speaker 7: you will see a decline in volume. I mean it
Speaker 7: has to be. You know, something that you're paying ten
Speaker 7: dollars for, you you were not going to pay substantially
Speaker 7: more for that, So you will see a lull. Another
Speaker 7: thing we learned from Apple last night was they actually
Speaker 7: brought in a lot more or basically, you build up
Speaker 7: their inventory before the tariff hyves, so at least in
Speaker 7: the June quarter they can fulfill that demand that's going
Speaker 7: to show up. So you could see a lot of
Speaker 7: companies stocking up ahead of this particular tariff raise. Now
Speaker 7: the question is if it continues for another three to
Speaker 7: six months, then there's a bigger problem. And I think
Speaker 7: that's what all of us are trying to figure out,
Speaker 7: is whether this thing gets solved in three months or
Speaker 7: six months or longer.
Speaker 2: Nerik, thank you so much and rug run with us
Speaker 2: here with much more fun publishing in Bloomberg Intelligence Here
Speaker 2: on the cloud.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also watch us
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Speaker 1: terminal the.
Speaker 2: Peterson Institute for International Economics. This is like twelve years ago,
Speaker 2: had to fill awfully big shoes of Fred Burston, and
Speaker 2: they chose Adam Posen, truly one of the nation's great economists,
Speaker 2: to our duty at the Bank of England years ago
Speaker 2: as an outside member, where thrilled doctor Posen could join
Speaker 2: us because of all the readable noise of the trade war.
Speaker 2: His essay trade wars are easy to lose this on
Speaker 2: April ninth has been the definitive essay that along at
Speaker 2: the Peterson Institute with Olivia Blonchard's work, David Wilcox and
Speaker 2: the Fed, and i'd mentioned from Berkeley Maurice Sobsfeld on
Speaker 2: King Dollar's shaky ground. Doctor Posen, thank you so much
Speaker 2: for joining Bloomberg Surveillance. What did you learn a out
Speaker 2: him at the IMF meetings? How scared of the fancy
Speaker 2: people like you?
Speaker 4: Thanks so much, Tom.
Speaker 6: The partnership with you, Paul and Surveillance gets our analysis
Speaker 6: out to your audience, which we really appreciate. The IMF
Speaker 6: World Bank meetings were the most blank IMF World Bank
Speaker 6: meetings I've ever been involved with. Nothing was talked about
Speaker 6: in any serious way that I'm aware of, because everybody
Speaker 6: was just on tenter hooks. The Treasury Secretary and the
Speaker 6: FED Chair in the G seven and G twenty meetings
Speaker 6: tried to reassure people and it didn't go very well.
Speaker 6: The statements made by the Treasury Secretary to a private
Speaker 6: banking group, which then leaked intentionally, we're seen as not
Speaker 6: that reassuring either, and as covered in the Financial Times,
Speaker 6: in Bloomberg and elsewhere, the CEA chair just made people
Speaker 6: more nervous. So what does that leave you with? A
Speaker 6: basically a very uncertain outlook and bottom line, a bunch
Speaker 6: of central banks who are not the FED, who are
Speaker 6: going to be cutting rates.
Speaker 2: One day, Adam I was in Edinburgh and I did
Speaker 2: a radio interview back to America to Bloomberg on the
Speaker 2: economy from the porch of Adam Smith's house. You gave
Speaker 2: the original Adam Smith lecture at the University of Glasgow.
Speaker 2: What Adam Smith would David Ricardo, would Adam Posen Would
Speaker 2: they call this a new mercantilism?
Speaker 4: Absolutely?
Speaker 6: What Adam Smith and David Ricardo outlined the law of
Speaker 6: comparative advantage, They advantages of specialization and most of all,
Speaker 6: the idea that governments trying to stack up cash at
Speaker 6: the expense of other countries betrays their people's well being.
Speaker 4: They'd be all on that.
Speaker 6: And then there's more sophisticated, more narrow points, more recently
Speaker 6: less profound, but still important that you've said in my
Speaker 6: article on many others that you can't win a trade ward,
Speaker 6: at least not with the large economy you're heavily dependent on,
Speaker 6: and you can't win by creating uncertainty. So this is
Speaker 6: just bad. I mean, I realized the stock market has recovered,
Speaker 6: and I realized that some companies are just getting on
Speaker 6: with it, whether it's corruption or investment or paying field fees.
Speaker 4: But it's bad.
Speaker 5: Adam does as we think about the US and China
Speaker 5: in a trade dispute. Here does either side have an
Speaker 5: inherent advantage here?
Speaker 6: To me, Paul, I think the starting point is both
Speaker 6: sides are better off if you don't play. It's like
Speaker 6: that old movie War Games. You know better not to
Speaker 6: play the game. But if you come right down to it, China,
Speaker 6: if push comes to the shove, has advantaged it. So
Speaker 6: for the US it is depending on the US for
Speaker 6: a few things which it wasn't already getting in terms
Speaker 6: of technology and otherwise as a source of money. Money's good,
Speaker 6: but you can find many ways to make money, and
Speaker 6: if you have to cut back on money, you can
Speaker 6: deal with it. US is dependent on China for a
Speaker 6: whole bunch of things, ranging from pharmaceuticals to air conditioning systems,
Speaker 6: to low end chips that populate our electronics and our autos,
Speaker 6: to rare earth's processing, some of which over time we
Speaker 6: can substitute for, but in the short run we can't
Speaker 6: get elsewhere, and that, to me is the real problem here.
Speaker 6: If the Trump administration had undertaken a major effort which
Speaker 6: would have taken years, to wean the US away from
Speaker 6: dependence on China and worked with other countries and gotten
Speaker 6: alternative sources and subsidized production a whole bunch of things
Speaker 6: to make us less dependent, that would be one thing.
Speaker 6: But starting the trade war when you're totally dependent just
Speaker 6: leads to the kinds of shortages you were talking about.
Speaker 6: Our job was talking about in the Port of Los Angeles.
Speaker 5: Adam, are trade deficits inherently a bad thing for a country?
Speaker 6: No? I mean the US ran trade deficits through much
Speaker 6: of the nineteenth century. And grew very quickly. Australia has
Speaker 6: been running trade deficits for years and it has grown well
Speaker 6: with great equality. Trade deficits can be bad if it
Speaker 6: turns out you're either a on a fixed exchange rate
Speaker 6: system and you don't generate enough currency to keep the
Speaker 6: exchange rate fixed, which is why most countries aren't on
Speaker 6: a fixed exchange rate system, or B if you're just
Speaker 6: basically selling off all the family China, or just to
Speaker 6: keep yourself alive. But for the US, over the last
Speaker 6: fifty years, one hundred years, one hundred and fifty years,
Speaker 6: we've been running trade deficits because people find investing here
Speaker 6: more valuable than investing in other places. And when that
Speaker 6: capital comes in, they're paying us to buy more stuff
Speaker 6: than we have of opportunities, which is great at least
Speaker 6: until now.
Speaker 2: Adam posing with us will continue with the Peterson Institute.
Speaker 2: On this job's day, twenty minutes away from an important report,
Speaker 2: Claudia Sum will lead our coverage our conversation at the
Speaker 2: bottom of the hour equities. As doctor Posen mentioned, lift
Speaker 2: it's been four hundred days in a row. I think
Speaker 2: it's like April didn't occur. Up twenty four on futures down,
Speaker 2: futures up to zero one.
Speaker 5: Paul Adam, what do you think the economic impact of
Speaker 5: the TIFFs, the uncertainty surrounding the terrifsm What do you
Speaker 5: think the economic impact would be on the US economy
Speaker 5: over the next I know, six to twelve months maybe.
Speaker 6: Well, Paul, I think there's three things going on. I mean,
Speaker 6: you can list a dozen, but the three big things
Speaker 6: are first, again where you started the reporting that Port
Speaker 6: of la is a great source of information. But it's
Speaker 6: not just Port of Lee, it's Port of Seattle, it's
Speaker 6: other places that we're going to have shortages, We're going
Speaker 6: to have interruptions, and it's not just going to be,
Speaker 6: as President Trump dismissively put it, fewer doll choices at
Speaker 6: Christmas for rich kids. It's going to be things that
Speaker 6: companies need, small businesses need in order to produce what
Speaker 6: they produce. And so that's going to be big. That's
Speaker 6: going to be stagflationary. It may not turn the whole
Speaker 6: economy a stackulation, but it's a stagflationary force, meaning inflation
Speaker 6: and contraction. The second thing the uncertainty does is it
Speaker 6: paralyzes investment. So essentially, The only way you get corporate
Speaker 6: investment kept cap X in this country when this is
Speaker 6: going on is under force measure or from the US government,
Speaker 6: meaning either a company our country is are twisted and
Speaker 6: punning up some money or huge amounts of money and
Speaker 6: protection is thrown at it. Otherwise, investment grinds to a
Speaker 6: halt basically because people don't know what's worth it or not, Adam.
Speaker 4: And then the third thing, sorry, go.
Speaker 2: Ahead, no, please give us the third thing please.
Speaker 6: Sorry. Sorry. The last point about uncertainty is it means
Speaker 6: that there's no deal. So if you told me that
Speaker 6: you were going to go to Japan and Korea first
Speaker 6: to try to make a deal, I was totally believing
Speaker 6: that that made sense. But even japan officials, who love
Speaker 6: being good with the US are walking out saying, we
Speaker 6: can't make a deal because we don't know what the
Speaker 6: heck's going on.
Speaker 4: And even if.
Speaker 6: We make a deal, they'll just renegg like they did
Speaker 6: on the previous one, Adam. And those are the big things.
Speaker 2: One of the great great memories, doctor Posen, that we
Speaker 2: have is we got the intelligence on the Soviet Union rung.
Speaker 2: I remember Jeff six out of Columbia going over as
Speaker 2: a young kid out of harvardation to say, and all
Speaker 2: of us getting humbled on a new capitalism post Gorbashev
Speaker 2: and such. Your Nicholas Lardi is absolutely definitive on the
Speaker 2: mood of China. A year ago, he writes, I am
Speaker 2: a skeptic on the idea that consumer confidence in China
Speaker 2: is very weak. From the land of Frek Burston in
Speaker 2: the Peterson Institute, do we have good intelligence on what's
Speaker 2: really going on in the Chinese view of the trade war?
Speaker 6: I'm glad you made the analogy to Eastern Europe. I mean,
Speaker 6: I remember going to East Germany for my dissertation research
Speaker 6: starting in nineteen ninety, and you know, and the reports
Speaker 6: where they were a third of our or two thirds
Speaker 6: of our capity income, and the turds out they were
Speaker 6: less than a third. I don't think we have that
Speaker 6: big an intelligence gap with China, because not because they're
Speaker 6: not secretive, but just because it's a different world, more permeable,
Speaker 6: more information is out there, Paul. But there are things
Speaker 6: in China that are hanging on over that. The threat,
Speaker 6: as I argued a couple of years ago, now in
Speaker 6: Foreign Affairs of the Colinya's Communist Party taking away property
Speaker 6: rights from normal so to speak, Chinese people, which wasn't
Speaker 6: seen as a big threat for the last few decades,
Speaker 6: and that has continued to be a drag on the economy.
Speaker 6: You got obviously the real estate hangover, which they can
Speaker 6: cope with, but they're not doing much and they're choosing.
Speaker 6: They've been keeping their powder dry on doing stimulus, in
Speaker 6: part because they were worried what the US might do.
Speaker 6: But now there's the time and they don't seem to
Speaker 6: be doing it. So but I want to go back
Speaker 6: to Lincoln, back to Paul. All the weaknesses in China
Speaker 6: don't mean that China can't win the trade war. The
Speaker 6: two don't contradict each other. They might explain why China
Speaker 6: wouldn't have entered the trade war if the US hadn't
Speaker 6: provoked it, But once we're in it, all these miseries
Speaker 6: just don't do anything about the relative strength of China
Speaker 6: for winning a trade war.
Speaker 5: Adam, you have so much experience as well in the
Speaker 5: United Kingdom. Here. How do our friends in the UK
Speaker 5: and in Europe from an economic trade perspective of how
Speaker 5: are they viewing what's happening these days?
Speaker 6: It's a good question, Paul, and I think the UK
Speaker 6: has a very different view than Europe, but not because
Speaker 6: of Brexit and not because of some of the other
Speaker 6: things that used to go on. I think His Majesty's
Speaker 6: current government in the Labor Government really feels much like
Speaker 6: Tony Blaird and Jordan Brown did thirty or twenty five
Speaker 6: years ago, thirty years ago, that the future for the
Speaker 6: UK is in the security alliance and the economic alliance
Speaker 6: with the US and so whereas in Europe, just like
Speaker 6: in Canada, and to a lesser degree, in Korea, Japan, Australia,
Speaker 6: certainly in Mexico, there is a reconsideration at a very fundamental
Speaker 6: level about how much you can depend on the US
Speaker 6: in the US government, US ability to make deals, us
Speaker 6: ability to be open. So I think there's a genuine
Speaker 6: divergence between the way the UK is approaching this, which
Speaker 6: is Trump has some points, I mean, not like all
Speaker 6: of it, but we're going to make it work, and
Speaker 6: it's good for us to make it work. And given
Speaker 6: our security relationship, there isn't that much we don't like here,
Speaker 6: whereas for a German led Europe or French led Europe
Speaker 6: on environmental issues, on foreign policy issues, on defense of Ukraine,
Speaker 6: on industrial subsidies, on standards. There's a huge set of disagreement,
Speaker 6: so I think you have to separate the two.
Speaker 2: To go to cod in this dangerous word paradigm. Adam Posen.
Speaker 2: If we get post Trump, whatever anybody's politics, listening or
Speaker 2: watching now on YouTube, Adam Posen, post Trump, is there
Speaker 2: a reversion to some form of post Trump Washington consensus, globalization,
Speaker 2: business as usual? Or is there a permanence to this upset?
Speaker 6: It's the big question, Tom, and I'm not trying to stall.
Speaker 6: I think the answer is it's still the I think
Speaker 6: depends partly how badly things go over the next couple
Speaker 6: of years that you could get a real blow up
Speaker 6: economically as well as politically, and that would lead to
Speaker 6: a repudiation of Trump. But even then it's still to
Speaker 6: play for whether that means a different fame of populism
Speaker 6: or a return to rule of law in mainstream.
Speaker 4: Economics, Doctor Post. That's why I'm out.
Speaker 6: Here talking with you, and your program's important, Adam.
Speaker 2: One final question, if we could Paul Sweeney grew up
Speaker 2: on the lawns of Princeton, in all of middle New Jersey.
Speaker 2: You darkened the door of Cambridge. I mentioned, Adam. I
Speaker 2: don't know if you mentioned it. How many times, Adam,
Speaker 2: have you been in the Tasty in Harvard Square a
Speaker 2: few years back? I mean, you know you were in
Speaker 2: there on one.
Speaker 4: Of the stool I liked.
Speaker 6: I liked Elsie's much better than the Tasty, So I
Speaker 6: was only and I was an early night person, so
Speaker 6: I was only in the Tasty a couple times. I
Speaker 6: was in Elsie probably once every week or two.
Speaker 2: This president is going after a universities that gave us
Speaker 2: people like Maurice Obsfield gave us Ken Rogoff gave us
Speaker 2: Adam Posen. How do we get beyond this threat to
Speaker 2: higher education? Or is some of the President's criticism's valid.
Speaker 6: It's insane no matter how valid the criticisms may or
Speaker 6: may not be. And I'm not going to touch that
Speaker 6: because I'm not an academic, thank god. But destroying the
Speaker 6: research capacity of the greatest research complex in human history
Speaker 6: that has been the source of American advantage and well
Speaker 6: being and defense capacity for eighty years is possibly the
Speaker 6: most destructive thing the Trump administration is doing. And I
Speaker 6: don't mean just Harvard, and I don't mean worrying about
Speaker 6: supposed anti Semitism, although I think that's not what really
Speaker 6: motivates them.
Speaker 4: But who the heck knows.
Speaker 6: I think you're destroying National Institute of Health. You're destroying
Speaker 6: at biomedical research across the board. You're undercutting standards for
Speaker 6: research by having an HHS secretary who makes stuff up
Speaker 6: in contrast to all known research. I mean, I could
Speaker 6: just spew on this, sputtering for hours. This is the
Speaker 6: golden goose for the US economy, for the world's well being,
Speaker 6: and we are destroying it. And that's where the UK
Speaker 6: and a few other countries including Japan and Singapore, Australia, Germany,
Speaker 6: we have to help step up and find a home
Speaker 6: for talent and find the money because this is something
Speaker 6: we can't replace.
Speaker 2: I got twenty two seconds left. I'm sorry, it's May one,
Speaker 2: Red Sox seasons over.
Speaker 4: Yeah.
Speaker 2: Thanks, thank you for the brevity of that answer. Adam
Speaker 2: Posen Forever from Brookline, Massachusetts.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: Alexa play Bloomberg eleven thirty Constance.
Speaker 2: Hundred, where this chief economist Eiu Claudia begged them to
Speaker 2: slow down on policy. Talk about the degrees of freedom
Speaker 2: you get taking our economics over to policy if you
Speaker 2: just go slower without being too slow.
Speaker 9: Well, I think it's not just a matter of going slow,
Speaker 9: although that would certainly help. I think it's being more predictable,
Speaker 9: having a trajectory and being more predictable. And I'm working
Speaker 9: on a piece that'll probably come out early next week,
Speaker 9: which is about the fallacy of trade negotiations. Right. Clinton
Speaker 9: gets credit for NAFTA. Well, that was started under George W.
Speaker 9: Bush and mostly negotiated by Carla Hills, who is who
Speaker 9: his USTR. Right, these take years. Mircosaur has been underway
Speaker 9: for twenty years with Europe, and so the idea that
Speaker 9: we can rip up these trade agreements and just put
Speaker 9: them back together in ninety days is very inconsistent with
Speaker 9: the way the world has worked.
Speaker 4: Heretofore we had.
Speaker 5: Gene Soroca on at the Port of Los Angeles, and
Speaker 5: he says his scheduled sailings are going to be down
Speaker 5: thirty percent next week. So I mean the ships are
Speaker 5: already you know, turning around. How does that impact the economy?
Speaker 5: I mean even Apple, even Amazon are calling out expected
Speaker 5: economic disruptions goods and services disruptions. That's in their forecast,
Speaker 5: Like how does everybody else deal with well?
Speaker 9: And Paul, this is a great point, right if they're
Speaker 9: calling it out and calling in about out in the
Speaker 9: amounts that they are, and they have huge amounts of cash,
Speaker 9: and if they didn't have cash, they could just go
Speaker 9: to the capital markets and raise some cash to front
Speaker 9: load imports. Think of small businesses, they don't have that ability.
Speaker 4: Right, We're talking about cash flow?
Speaker 9: Is is it best one month of of spare cash flow?
Speaker 3: Right month?
Speaker 2: Right now? It just goes back to the definition of anarchy,
Speaker 2: which is we're all nine meals from anarchy. I mean
Speaker 2: on a trade basis, you know, you wonder well where
Speaker 2: it falls apart.
Speaker 9: And you know, we know that civil unrest happens when
Speaker 9: people can't get food.
Speaker 4: When prices happening. No, I think we're.
Speaker 9: Going to have more a shortage of goods, right, So
Speaker 9: if you if you cannot get the barbies for your
Speaker 9: children at Christmas, brilliant.
Speaker 2: Seriously, both Justin Wolfers of Michigan was brilliant with Stephanie Rule.
Speaker 2: I think it was last night of the night before
Speaker 2: on this. You know, we take it for granted that
Speaker 2: the kids get multiple barbies under the Christmas tree, rich
Speaker 2: or poor in this nation.
Speaker 9: Well, let's and let's bring it back to summers. Summer's
Speaker 9: about to be here. Maybe your kids need new, uh,
Speaker 9: you know, clothing and sports equipment to go to camp
Speaker 9: in the summer and to do their summer activities. That's
Speaker 9: not going to necessarily be on the shelves.
Speaker 2: Yeah, we got to get the market open. Constance Hunter
Speaker 2: will stay with us. Chief economist did Eiu again, A
Speaker 2: futures up twenty something tech angst great jobs report features
Speaker 2: up sixty three into the opening down, futures up four
Speaker 2: to twenty two in the vics, A twenty two handle
Speaker 2: twenty two point seven five. Please stay with us, some
Speaker 2: really good conversation coming up. This is Bloomberg surveillance. Gente.
Speaker 8: All right, there you have at the opening dell at
Speaker 8: the New York Stock Exchange. Right out of the gate,
Speaker 8: the S and P five hundred climbing one percent up
Speaker 8: fifty four points. Right now fifty six fifty eight on
Speaker 8: the index. The down Jones and Dustrial average up four
Speaker 8: hundred and twenty two points. That's a one percent pop.
Speaker 8: Right now, Tech having Nasdaq one hundred one percent higher.
Speaker 8: That is up two hundred points after their earnings after
Speaker 8: the closed yesterday. Shares of Apple four percent lower, and
Speaker 8: shares of Amazon right now in the early going down
Speaker 8: about eight tenth of a percent S and P five
Speaker 8: hundred on the verge of its longest winning streak since
Speaker 8: two thousand and four. I should tell you this report
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Speaker 8: opening bail report.
Speaker 4: Paul On Tom John Tucker.
Speaker 2: Thanks somebody's constant hunter with it. Somebody goes to as
Speaker 2: quickly as a tweet for the president in the last
Speaker 2: twenty minutes, Gasoline just broke a dollar ninety eighty gallon
Speaker 2: lowest to years. Groceries and eggs down, energy down, mortgage
Speaker 2: rates down, employments strong. He goes on to say, just
Speaker 2: like I said, we're only in a transition stage just
Speaker 2: getting started. No inflation, the FED should lower its rate DJT.
Speaker 2: Is there inflation constances?
Speaker 9: Hunter, Well, there is always some inflation. Inflation is above
Speaker 9: the Fed's target. Now, I think they're concerned that it
Speaker 9: will instead of continuing to move towards target, will begin
Speaker 9: to you turn away from target.
Speaker 6: Right.
Speaker 9: At the same time, we know that labor market data
Speaker 9: is a lagging indicator, right, So so they're they're in
Speaker 9: a tough place. I don't think given this labor market
Speaker 9: data that they can really cut rates in May. Credibly,
Speaker 9: they're not. They're on their way. And by the way,
Speaker 9: if the tariffs weren't happening, Let's say you took a
Speaker 9: world where these tear none of this was happening, and
Speaker 9: we were status quo on that right and all we
Speaker 9: all we had was, uh, you know, fewer border crossings
Speaker 9: and some labor supply constraints and some and the other
Speaker 9: policies that the administration is putting into place. Would the
Speaker 9: Fed cut rates in May, Absolutely they wouldn't. Inflation is
Speaker 9: on the way to their trajectory, but they would like
Speaker 9: to see it get there before they cut rates, so
Speaker 9: they would likely wait to June or July. Right now,
Speaker 9: we have the tariff tariffs in train. They're about to
Speaker 9: impact what is their impact going to be? Supply supply
Speaker 9: shock and inflation. There's no way the Fed can cut
Speaker 9: into that.
Speaker 5: We've seen the stock market rebound and we retrace, you know,
Speaker 5: maybe a little bit more than half of the losses
Speaker 5: we saw earlier. What has not rebounded is the dollar.
Speaker 5: Continued pressure on the dollar.
Speaker 4: What's going on there?
Speaker 9: Yeah, I mean, I think you're seeing several things. You're
Speaker 9: seeing a reallocation out of US assets, and you have
Speaker 9: a stated policy by the administration that they want less
Speaker 9: trade activity and therefore less demand for dollars. And you
Speaker 9: had Adam Posen on earlier this morning as well. I
Speaker 9: was listening on my way here, and Adam brought up
Speaker 9: a really great point. Our financial account surplus is a
Speaker 9: wonderful thing. It's the opposite of the trade deficit, and
Speaker 9: it means that investors overseas want to bring money to
Speaker 9: the US. They want to put in FDI, they want
Speaker 9: to invest in our equities, they want to invest in
Speaker 9: our stocks, they want to invest in our treasuries, all
Speaker 9: fixed income, you know, private equity, you name it. They
Speaker 9: want to invest in it, and now we have an
Speaker 9: administration that's saying we want the dollar to be weaker,
Speaker 9: we want there to be less activity all around, and
Speaker 9: so I think that's the crux of why you don't
Speaker 9: see the dollar appreciating in the face of tariffs, which
Speaker 9: would be the normal economic reaction.
Speaker 2: Oh, markets appreciate it. CONTs us On here, Thank you
Speaker 2: so much. With EI.
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