Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: I'm going to go back to the stock market and
Speaker 3: look at shares of Broadcom up a whopping nineteen percent.
Speaker 3: I want to get more with kushon so Bonnie and
Speaker 3: Bloomberg Intelligence senior semi analyst, so we know the story.
Speaker 3: The numbers for its AI revenue were super high. Their
Speaker 3: outlook looked really good. Is it justified in a one
Speaker 3: trillion dollar valuation right now?
Speaker 4: Look going into the earnings, the top concerns where how
Speaker 4: is AI going to do next quarter? What are the
Speaker 4: numbers looking like for twenty twenty five and sort of
Speaker 4: no visibility beyond that. So can this rarey sustain those
Speaker 4: numbers that are driving the stock?
Speaker 5: Really gives investors three to three to.
Speaker 4: Four years quantifiable target and milestone to look at and
Speaker 4: now just track the execution.
Speaker 5: And those numbers are pretty huge.
Speaker 4: I mean you're talking about three to four x fold
Speaker 4: growth in just the Sam just from his three customers,
Speaker 4: not even including the additional two that they're working on.
Speaker 6: So Kulj help us think about Broadcom now in comparison
Speaker 6: to Nvidia and maybe even some of the other players.
Speaker 6: How's this industry as it relates to AI? How is
Speaker 6: it shaking out here?
Speaker 5: Yeah?
Speaker 4: I mean when you look at Broadcom just barely six
Speaker 4: months or a year ago, people didn't even think of
Speaker 4: it as an AI company, right. It was primarily the
Speaker 4: investor base. It was really loved for his free cash flow,
Speaker 4: generating ability, highly profitable, sustainable, slow, mid to high, high
Speaker 4: single digit grower. Now suddenly AI is going to become
Speaker 4: a huge chunk of its semi connective revenues. And in combination,
Speaker 4: you still have the software revenues at high margin generating
Speaker 4: significant amount of cash. So you have this really growing
Speaker 4: and media type or even growing faster in certain areas
Speaker 4: going forward than in AI story. Along with all the
Speaker 4: goodness of what do you want from a large gap
Speaker 4: which is high profitability, high operating margin, high free cash
Speaker 4: flow for the.
Speaker 3: Non AI stuff like the chips that go into like
Speaker 3: phones and cars and all that kind of stuff, How
Speaker 3: is that part of the business doing? Because it hasn't
Speaker 3: been doing very well. We've were waiting for their cycle
Speaker 3: globe recovery to kind of kick up.
Speaker 7: Where do Broadcom land on this.
Speaker 4: Yeah, I mean they are aligned very well to what
Speaker 4: rest of the cyclical semis are doing. I mean, look,
Speaker 4: twenty four was the bottom for.
Speaker 5: Most of its business.
Speaker 4: We do expect recovery starting early next year, but it's
Speaker 4: going to be really slow turning corners, so we don't
Speaker 4: expect any sort of fireworks there. But the good news
Speaker 4: is the way AI is expected to grow, that portion
Speaker 4: of the business is going to shrink and become a
Speaker 4: significantly smaller part of the chip business.
Speaker 6: All right, So as you step back from the semispace
Speaker 6: these days, Kunjan, what are the conversations you're having about
Speaker 6: the space in general? Is it in Vidia all the time?
Speaker 6: Do I want to own a basket of these things?
Speaker 6: What are some of the conversations you're having with your
Speaker 6: investor clients.
Speaker 4: Yeah, the top question is sort of searching for the
Speaker 4: next in media, trying to add more and more AI
Speaker 4: exposed names and who else in the semi sector and
Speaker 4: the peripheral sectors, whether it's foundries, whether it's memory, whether
Speaker 4: it's semiconductor equipment providers can benefit from this broadening AI boom.
Speaker 4: You know, the first beneficiary, almost entire.
Speaker 5: Beneficiary, was just one name in media. So that's a
Speaker 5: conversion we have and we have been actually.
Speaker 4: Calling out Broadcom and Marvell for quite a while now
Speaker 4: that these are going to be sort of the next
Speaker 4: set of beneficiaries from the coverage that we cover.
Speaker 3: When we take a look at Broadcom though, and the
Speaker 3: stock reaction in the near term, are we borrowing faith
Speaker 3: from like twenty twenty five or twenty twenty six, or
Speaker 3: is this like legit comp number rally?
Speaker 4: I mean, there is definitely a huge weightage given on
Speaker 4: their ability to execute to that large sam that they
Speaker 4: have laid out. You know, investors have been who have
Speaker 4: been following Hawk for many years, don't take what he
Speaker 4: says lightly.
Speaker 5: There's a big degree.
Speaker 4: Of conviction in what Hawks is and can deliver. So
Speaker 4: there's definitely a huge reliance in what you see in
Speaker 4: the stock movement that they will be able to sort
Speaker 4: of meet or execute on those numbers.
Speaker 6: So is the when we see like a big number
Speaker 6: coming out of the likes of Broadcom, does that give
Speaker 6: you pause for the NVIDIAs story that maybe there's a
Speaker 6: market share shift going along, that maybe the competition is
Speaker 6: starting to step up here.
Speaker 5: Not in the near term.
Speaker 4: Look, the merchant silicon GPU that and media sells versus
Speaker 4: the custom that Broadcom does right now are being used
Speaker 4: for two different use cases, and both of those use
Speaker 4: cases that demand is booming, right, so it's a win
Speaker 4: win for everyone right now. Eventually, in theory, if this
Speaker 4: demand rarely does normalize and there is some kind of digestion, Look,
Speaker 4: there's only so much these hyperscalers will spend, right, So
Speaker 4: eventually down the road we will come to a point
Speaker 4: where they will have to decide do they want to
Speaker 4: spend more in their custom and the GPU and what
Speaker 4: are people demanding for. At that point there will be
Speaker 4: wallet share competitiveness, but not at this given point, just
Speaker 4: because the use cases and applications are very different.
Speaker 3: They get the majority of their revenue really from Apple
Speaker 3: and WT Microelectronics. Right then it comes sort to Alphabet
Speaker 3: and Meta with about six to eight percent of its revenue.
Speaker 7: Thank you so much. Supply chain analysis function on the terminal.
Speaker 3: Are they trying to diversify that in a meaningful way
Speaker 3: or are they comfortable with that sort of waiting.
Speaker 4: I think it's just organically going to get diversified.
Speaker 2: Right.
Speaker 4: The wireless from Apple is not a fast growing business.
Speaker 4: It's a sort of mid single digit at best. Right, So,
Speaker 4: and there are some concerns around that it's too mature
Speaker 4: to talk about it. But even if you assume that
Speaker 4: business continues, and like the speed at which the AI
Speaker 4: business is.
Speaker 5: Going to increase, the speed at which Google.
Speaker 4: Meta and these other hyperskillers are become going to become
Speaker 4: a larger portion of broadcom, it is organically going to
Speaker 4: diversify away from the top two customers that you pointed out.
Speaker 1: All right, John, thanks so much for joining us.
Speaker 5: KU.
Speaker 6: John Sobani, senior analyst on semiconductors. He's over there Bloomberg Intelligence,
Speaker 6: based in our San Francisco office right there in Silicon Valley,
Speaker 6: close to all those big tech companies that he covers.
Speaker 6: So that's a real advantage for us, Sir John Cobani
Speaker 6: Sobani joining us there.
Speaker 1: That's a heck of a move for a company, you know, one.
Speaker 6: Trillion dollar market cap stock to move twenty percent. I've
Speaker 6: said it when I was seeing some of the moves
Speaker 6: from Nvidia, when they were moving ten twenty thirty percent
Speaker 6: a day. This is huge amounts of shareholder wealth being
Speaker 6: created in this space. It just the absolute dollars are
Speaker 6: kind of stunning for to take a look at it.
Speaker 6: So this isn't any penny stock at there.
Speaker 2: So you you're listening to the Bloomberg Intelligence Podcast. Catch
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Speaker 7: All right, let's get two overseas.
Speaker 3: We're going to France President Manuel Maulcrant appointing Francois be
Speaker 3: Roux as France's new prime minister to navigate a fractured
Speaker 3: I feel like that's a nice way of saying a
Speaker 3: political landscape and there's a to do list that's very difficult.
Speaker 3: Alan Katz's Bloomberg Paris bureau chief joins us. Now, Alan,
Speaker 3: does he have to get like approved or voted for
Speaker 3: or is he just in power and then he's going
Speaker 3: to make it work.
Speaker 8: So the latter, he's just in power and he has
Speaker 8: to make it work in France. The president gets to
Speaker 8: nominate where he wants as prime minister. So great, so
Speaker 8: now you've got corns by who. But he has to
Speaker 8: get a few things done, most importantly as a twenty
Speaker 8: twenty five budget, and that's what caused his predecessor got
Speaker 8: nay Michel Bannier to get booted out in an confidence
Speaker 8: vote last week.
Speaker 1: So that's going to be his first order.
Speaker 8: Well, his first order of business really is getting a
Speaker 8: cabinet together, getting in government together, and then it's going
Speaker 8: to be trying to get a twenty twenty five budget passed.
Speaker 8: So that's really the first things he's got to start
Speaker 8: to do, and it's not going to be easy.
Speaker 6: So alan, is there any reason to believe that this
Speaker 6: new prime minister will have any better luck with the
Speaker 6: right and the left which caused the demise of the predecessor.
Speaker 8: So that's a good question. I guess the best answer
Speaker 8: is maybe he is. He's a centrist, right, so he
Speaker 8: he has been known to do. I mean, originally sort
Speaker 8: of his party was more aligned with the sort of
Speaker 8: the center right back in the in the eighties and
Speaker 8: the and the nineties, but then he famously voted for
Speaker 8: a socialist for president in two thousand and seven rather
Speaker 8: than the conservative guy, so he sort of he's reached
Speaker 8: out to both sides over time. He also was very
Speaker 8: famous for having supported malheinm le Penn's right to run
Speaker 8: for president in two thousand and two and Francis to
Speaker 8: get five hundred signatures and local officials to be able
Speaker 8: to run for presidents, and he said, well, she's very popular.
Speaker 8: We can't not have her run. That would be really
Speaker 8: bad for democracy. I don't support her personally, but I
Speaker 8: supported right to run, and the far right remembers that.
Speaker 8: So he's got sort of possibilities. But then really getting
Speaker 8: people onside is going to be much more difficult. Michelle
Speaker 8: Baarnier the guy again who just got ousted. He sort
Speaker 8: of had the far right on side for a while
Speaker 8: also until they weren't. So far everyone today has been giving,
Speaker 8: I guess, sort of mildly positive comments. They're going to
Speaker 8: say we'll wait and see or what depends on what
Speaker 8: he presents, but it's really not clear that he's necessarily
Speaker 8: going to have any better luck than Michelle Banier did.
Speaker 3: What does The far right and the far left want.
Speaker 8: Very different things, but mostly what they want is someone
Speaker 8: who's going to allow them to look good to their
Speaker 8: voters as they get toward the twenty twenty seven presidential election.
Speaker 8: That's one of the problems that we have in France
Speaker 8: right now, which is that you have this big block
Speaker 8: on the left and a big block on the right.
Speaker 8: On the right is led by a woman in Marine
Speaker 8: Le penn and there's the most popular politician in many
Speaker 8: polls in France, and certainly the person who leads polls
Speaker 8: if the next presidential election was to happen today, the
Speaker 8: person who's frequently number two, or if not number two,
Speaker 8: number three is the guy on the far left, Nam
Speaker 8: Jean Luke Bentent Chanp and the two of them are
Speaker 8: definitely looking to the next presidential election. So all of
Speaker 8: their decisions in the short term, in terms of what
Speaker 8: happens in parliament, passing a budget or any other laws,
Speaker 8: is all about what does this mean for how voters
Speaker 8: are going to perceive me in twenty twenty seven, And
Speaker 8: that makes for a very difficult relationship because sometimes there
Speaker 8: are things that you might say, well, that's obvious, sure
Speaker 8: they should like this, but then they don't. In the
Speaker 8: case of Michaud Valgniert, he basically gave in to most
Speaker 8: of the far rights demands, basically three out of four
Speaker 8: main ones that they had, and they voted, you know,
Speaker 8: they voted for emotion of no confidence anyway, because they
Speaker 8: decided it was in their interest, in their longer term
Speaker 8: interest to do so. So that makes it really quite difficult.
Speaker 6: Alan, thank you so much, appreciate your reporting. Alan Katz,
Speaker 6: Paris bureau chief for Bloombergers. How cool is it that
Speaker 6: we get people on the ground, really smart voices pretty
Speaker 6: much everywhere around the world, and they come on the
Speaker 6: air with us.
Speaker 7: Very cool.
Speaker 6: That is such a great and they really know what
Speaker 6: they're doing advantage and they know exactly what they're talking.
Speaker 6: I want to ask that next next time we talk
Speaker 6: to Alan, how big of a story is it in
Speaker 6: Paris and France the reopening of the Notre Dame, Because
Speaker 6: I when you saw the damage from that fire five
Speaker 6: years I'm like, they're never going to fix that stuff.
Speaker 1: I mean, how do you fix that?
Speaker 3: I mean we went to Paris last summer and it
Speaker 3: was like, that's it's never gonna You're gonna be so behind,
Speaker 3: And then they did it. I would think the culturally, yeah,
Speaker 3: and the message it sounds is pretty It's pretty spectacular.
Speaker 6: I mean I give my Corona pat on the back
Speaker 6: and the French people pat on the back because that
Speaker 6: was awesome.
Speaker 1: I want to go prices and fuel prices, prices and
Speaker 1: fuel prices. I get it. So we'll have more on
Speaker 1: that coming up.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on Apple, card playing and
Speaker 2: out with the Bloomberg Business app. Listen on demand wherever
Speaker 2: you get your podcasts, or watch us live on YouTube.
Speaker 3: All right, so we get the Fed on Wednesday, highly
Speaker 3: expect to cut rates in December. The question then becomes
Speaker 3: what happens in twenty twenty five if that neutral rays
Speaker 3: moving up, as Bill Dudley, a former FED governor, was
Speaker 3: talking about on surveillance, If he thinks the neutral rate
Speaker 3: is three point five are a little bit higher, what
Speaker 3: does that mean then for the trajectory of cuts, And
Speaker 3: then what does it mean for sectors that are really
Speaker 3: waiting for those cuts to kick in, like real estate,
Speaker 3: maybe private markets, private equity. We want to deb a
Speaker 3: little bit deeper into this with Miguel Sosa, head of
Speaker 3: market research and strategy over Blue Rock. He joins us
Speaker 3: now from Dallas, Texas. Before we get to the nitty
Speaker 3: gritty of say, private credit and real estate, just give
Speaker 3: us your broad views on twenty twenty five.
Speaker 9: Yes, thank you, Alex. So we're excited about twenty twenty five.
Speaker 9: We think that the markets are poised to perform well.
Speaker 9: We've seen strong performance for twenty twenty four with a
Speaker 9: change in administration. We think that the administration is very
Speaker 9: business friendly, so that should provide an additional tailwind in
Speaker 9: addition to having the high interest rate environment behind us.
Speaker 9: And so what we're seeing is gradually moderating interest rates,
Speaker 9: a predictable and shallow decrease in that interest rate curve
Speaker 9: on the short end, stable in the ten year side
Speaker 9: of the interest rate curve of the yield curve. And
Speaker 9: so we think that twenty twenty five will be a
Speaker 9: positive year for all asset classes.
Speaker 1: All right, let's talk real estate here.
Speaker 6: Where do you see opportunities in real estate?
Speaker 1: Here?
Speaker 6: We've got the Fed cutting rates. I would think that's
Speaker 6: good for that asset class. Where are you guys seeing
Speaker 6: the most opportunities?
Speaker 10: Yes, sess correct.
Speaker 9: So reducing the short end of the curve, the Fed
Speaker 9: funds rate is beneficial indirectly for real estate because naturally
Speaker 9: it moderates the cost of capital. We're seeing opportunities in
Speaker 9: the indust space, in the multifamily space, and really in
Speaker 9: the specialty space as well, and so these are all
Speaker 9: sectors that are seeing low vacancy rates, and so that
Speaker 9: helps to drive lease rates up because there is much
Speaker 9: more demand relative to the supply that's available. And if
Speaker 9: lease rates go up, the net operating income goes up.
Speaker 9: ANDI for short, is a key driver of value. So
Speaker 9: what we've seen recently in the last two years is
Speaker 9: the capital values have come down significantly, but NI has
Speaker 9: gone up significantly. So in other words, you can buy
Speaker 9: more real estate at a discount, and that real estate
Speaker 9: is generating more income and so that will hopefully drive
Speaker 9: returns in the future.
Speaker 3: How much of this is predicated on rates being cut
Speaker 3: from the FED and how much of it is just
Speaker 3: sort of the economic cycle.
Speaker 9: I would say the majority is driven by the economic cycle.
Speaker 9: The change in interest rate environment really inflated cap rates,
Speaker 9: which was the main driver why prices were down. But
Speaker 9: unlike the global financial crisis, which was the last big
Speaker 9: drawdown for real estate, there's very strong fundamentals that are
Speaker 9: driving real estate. Currently, like I said, vacancy rates are low,
Speaker 9: and it's much harder to construct new developments new property
Speaker 9: developments today versus fifteen years ago because of inflation, construction
Speaker 9: costs are up. The other factor, for example, specifically for
Speaker 9: the industrial space, is that we're all buying more products
Speaker 9: online and we want them shipped to our houses faster,
Speaker 9: and so that causes demand for warehouses that are closer
Speaker 9: to city centers so they can get to our homes faster.
Speaker 9: But nobody wants warehouses in city centers or close to cities,
Speaker 9: and there's no vacant plots available for those warehouses. So
Speaker 9: there's that inbound as well. And we have examples across
Speaker 9: the board. Data centers for example, another great example, because
Speaker 9: everybody is consuming more and more information constantly every year,
Speaker 9: so that drives significant demand for data centers.
Speaker 6: And tay all those warehouses for servicing New York City
Speaker 6: and Philadelphia. The right in my backyard, in John Tucker's
Speaker 6: backyard in Central Jersey, access to the New Jersey Turnpike, Garden,
Speaker 6: State Parkway, all that kind of stuff to eighty seven.
Speaker 6: You can serve both Philadelphia and New York.
Speaker 7: Maybe that's why the UFOs are there. Maybe, yeah, exactly,
Speaker 7: I mean we can make that length exactly.
Speaker 6: Hey, hey, Miguel, let's say I want to go out
Speaker 6: and buy some commercial real estate. Is my bank going
Speaker 6: to lend me money? Where do we get the debt
Speaker 6: financing these days?
Speaker 2: Yes?
Speaker 9: So typically commercial developers will go to specialty lenders, and
Speaker 9: depending on what type of property one is buying. If
Speaker 9: it's a fully developed and occupied building it's stabilized, as
Speaker 9: they say, because the occupancy rate is high, then lenders
Speaker 9: are much more willing to provide capital for that and
Speaker 9: increase the loan to value on that property. But if
Speaker 9: it's a empty plot of land and it's a development project,
Speaker 9: then those are typically construction loans, and so there's a
Speaker 9: wide variety of sources for capital. Banks have typically been reluctant,
Speaker 9: especially recently, to provide capital for sectors that are struggling
Speaker 9: from the office space, but there's certainly a broad variety
Speaker 9: of sources of capital, starting from banks all the way
Speaker 9: to individual investors who are happy to provide some of
Speaker 9: those short term construction loans.
Speaker 3: Before I let you go for say, private credit. Where
Speaker 3: are the opportunities they are going into twenty twenty five.
Speaker 9: Yes, private credit is one of our favorite sectors specifically because,
Speaker 9: as I mentioned, the interest rate is in this goldilocks
Speaker 9: phase where we aren't in twenty three year twenty four,
Speaker 9: where we don't have that visibility or uncertainty of how
Speaker 9: long and how far interest rates will climb. And so
Speaker 9: interest rates are at a point where the peak is
Speaker 9: behind us, but they're not at zero either, and so
Speaker 9: that favors the lenders versus the borrowers. Now you can,
Speaker 9: especially in private credit and alternative private credit, you can
Speaker 9: receive nine percent, ten percent even interest rate on loans
Speaker 9: to corporations that are established, they're mature, they're cash flowing,
Speaker 9: and that are going to pay through that debt until maturity.
Speaker 1: Begail, thanks so much for joining us.
Speaker 6: Migel Sosa, head of market research and Strategy at Blue Rock,
Speaker 6: joining Ustart talking about the commercial real estate business, and
Speaker 6: of course a commercial real estate business, as is residential
Speaker 6: real estate really dependent upon interest rates.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 2: weekdays at ten am Eastern on applecar Play and royd
Speaker 2: Otto with a Bloomberg Business. You can also listen live
Speaker 2: on Amazon Alexa from our flagship New York station just
Speaker 2: say Alexa play Bloomberg eleven thirty.
Speaker 3: Here was a headline that was interesting. Well, I mean,
Speaker 3: I think for anyone listening it was interesting. Is the
Speaker 3: Trump advisors are considering raising salt right off limit from
Speaker 3: ten thousand to twenty thousand.
Speaker 7: Why not forty thousands?
Speaker 1: Exactly?
Speaker 7: Why justinate it twenty just you know, move it up there.
Speaker 1: I'm sure your property taxes.
Speaker 7: It's a good question. If can you multiply third fourteen thousand?
Speaker 7: I think, well, okay, is that about?
Speaker 1: That's about around these parts?
Speaker 7: Is it a wow?
Speaker 5: Nothing?
Speaker 7: Is it a wow?
Speaker 10: That's pans.
Speaker 1: You go north of New York City into Westchester and
Speaker 1: that's really low. It's like in the twenties for just
Speaker 1: a regular house.
Speaker 3: I live in an apartment building. Yeah, like a fourteen
Speaker 3: hundred square put apartment building. And every year I feel
Speaker 3: like the property taxes goes up. That's when I knew
Speaker 3: I was an adult.
Speaker 1: But you're here in Brooklyn.
Speaker 3: I'm in park Slow Parks is like the non post
Speaker 3: places where people go to head babies and dogs.
Speaker 7: Anyway.
Speaker 3: Henry Andaturs is managing partner and director of Economic Policy
Speaker 3: of Beta Partners. And she joins us, how real can
Speaker 3: we take this salt tease?
Speaker 11: Very seriously? So good news for you, for sure. I
Speaker 11: commiserate with folks who want it larger. This is the
Speaker 11: minimum I think they have to have for a tax
Speaker 11: bill to pass next year the salt caucus. And indeed,
Speaker 11: a lot of the Republican gains in the House of
Speaker 11: Representatives have come from new voters that they're finding in
Speaker 11: New York, Connecticut, New Jersey, California, states where these salt
Speaker 11: caps are extraordinarily painful, and the members are being very
Speaker 11: clear and vocal.
Speaker 10: They've gotten more and more.
Speaker 11: Adamant and united over the last seven years since this
Speaker 11: tack built passed that they have to see a change
Speaker 11: to salt if there is any tax title in any
Speaker 11: legislation going forward. So they'll try to get it in
Speaker 11: the first reconciliation bill. If there's a second, they'll try
Speaker 11: to get it into that, and they will threaten their votes,
Speaker 11: which with the zero of a margin in the House,
Speaker 11: means that you have to cater to their requests.
Speaker 6: Henrietta, can you give us the latest on the expectations
Speaker 6: for confirmations of some of President Elect Trump's more contentious
Speaker 6: nominees for cabinet positions.
Speaker 1: Have we seen any movement one way or the other.
Speaker 11: I think we have a long way to go here,
Speaker 11: and you can see the various factions coming out behind
Speaker 11: the scenes trying to sink or lift various candidates. One
Speaker 11: of the things that would make me expect those stories
Speaker 11: to continue negatively, for example his nominee hexas or for
Speaker 11: Tulsi Gabbard, is that there are other folks waiting in
Speaker 11: the wings who know that in the event that their
Speaker 11: nominations fail, they could be the ones to gain.
Speaker 10: So there's a lot of.
Speaker 11: Negativity that you see sort of in the behind the
Speaker 11: scenes work, specifically on Tulsi Gabbard.
Speaker 10: I would say that.
Speaker 11: Is going to continue to eat into the next month
Speaker 11: of the conversation, until the negotiations really start in the
Speaker 11: confirmation hearing start and they get these folks up for
Speaker 11: a vote in late January.
Speaker 10: So there's a long way to go.
Speaker 11: I think Chelsea Gabert in particular is pretty empowerlled right now.
Speaker 3: Other news that struck me overnight was the Wall Street
Speaker 3: Journal reporting that potentially Trump could get rid of the
Speaker 3: FDIC and put deposit insurance in hands of Treasury now,
Speaker 3: abolishing a whole unit of the government like that would
Speaker 3: be very rare.
Speaker 7: Can you walk me through it? You think of that potential.
Speaker 11: I don't take those claims particularly seriously. One of the
Speaker 11: things that we should just keep is our base case
Speaker 11: is understanding that Congress has the power of verse, and
Speaker 11: that is something that the Supreme Court has stress tested.
Speaker 11: In nineteen seventy four and in other iterations. Bill Clinton
Speaker 11: famously tried a line at him Vito where he tried
Speaker 11: to just cancel out entire lines of funding that the federal.
Speaker 10: Government or Congress had authorized. It's just not legal.
Speaker 11: It is unconstitutional and runs a foul of so many
Speaker 11: different things.
Speaker 10: Plus you have a lot of members who.
Speaker 11: Get really uncomfortable moving agencies into other auspices. Another example
Speaker 11: to pile on the FDIC thing would be the USTR.
Speaker 11: Electron has said that he's going to put US Trade
Speaker 11: Representative and that office underneath the Department of Commerce, and
Speaker 11: immediately you see members come out of the woodwork and say, Hey,
Speaker 11: that's not what we're into, that's not.
Speaker 10: What it's supposed to be. Keep these two things separate.
Speaker 11: That was very similar to what we saw on Trump's
Speaker 11: first term and Ultimately those did not come to pass.
Speaker 1: Elon Musk DOGE.
Speaker 6: It's been a week or so of I guess no
Speaker 6: news on kind of that front. Is that whole cost
Speaker 6: cutting aspect, How should we think about that and how
Speaker 6: might that play out in the first one hundred days.
Speaker 11: Yeah, I mean we can talk about DOJ, they can
Speaker 11: have committee hearings, they can form caucuses in the House
Speaker 11: and the Senate y'or even bipartisan now in the House.
Speaker 10: But let's look at what's really happening.
Speaker 11: They just voted on in the House a National Defense
Speaker 11: Authorization Act that increases defense spending by one percent. Next week,
Speaker 11: starting on Sunday, they will roll all out a continuing
Speaker 11: resolution that provides one hundred billion dollars in additional funding
Speaker 11: for hurricanes and typhoons. There is additional a to Ukraine,
Speaker 11: there's additional aid to of all host of factors, and
Speaker 11: federal spending next year will continue to rise.
Speaker 10: Whether DOGE exists.
Speaker 11: In holds meetings or not, federal spending is.
Speaker 10: Going to rise into next year.
Speaker 11: They'll vote on it as soon as Thursday of next week,
Speaker 11: and you can take that to the bank.
Speaker 7: What else are you paying attention to?
Speaker 3: As we head out of twenty twenty four into twenty
Speaker 3: twenty five as well, not only from President like Trump
Speaker 3: but also President Biden.
Speaker 11: The most important thing for me is watching the Senate
Speaker 11: and the House budget committees. I know it sounds fluky,
Speaker 11: but this is the single most important thing to watch
Speaker 11: going into next year. What we've already seen from Senate
Speaker 11: Republican leadership and new leader Fune is that they are
Speaker 11: appreciating and expecting for the tax bill to take all
Speaker 11: year to write. We started off with the Salt Caucus conversation.
Speaker 11: It's because of that one point two trillion dollars revenue
Speaker 11: raiser being completely unpalatable to eighteen members of the House
Speaker 11: that they're going to have to negotiate all year on
Speaker 11: a tax bill. So what that first tells me is
Speaker 11: that the deficit appetite for the tax bill is going
Speaker 11: to be very controversial. It's very problematic, and they want
Speaker 11: to take that voat much later in the year. They'd
Speaker 11: like to score some smaller sort of red meat wins
Speaker 11: on immigration, increasing border spending, increasing energy and oil and
Speaker 11: gas permitting that kind of legislation, and that strategy is
Speaker 11: going to come out on January fourth, when House Republican
Speaker 11: leadership has a meeting with the full Republican Conference to
Speaker 11: see if they can tolerate a two reconciliation bill strategy
Speaker 11: or just one.
Speaker 10: So the conversations behind.
Speaker 11: The scenes are already taking place there. Invessors should be
Speaker 11: very much following that right now.
Speaker 10: It has huge.
Speaker 11: Implications for tax policy, for immigration, defense spending, deficit spending, bonds,
Speaker 11: everything happening now Henrietta.
Speaker 6: To what extent, if at all, the folks really the
Speaker 6: folks inside the beltwagh that people that are there year
Speaker 6: in year out, do they view President Electrump as a
Speaker 6: lame duck president.
Speaker 11: I think there's two ways of looking at that. One
Speaker 11: that you have and impetus to actmediately, So that's really
Speaker 11: relevant for them. On the trade front, it takes forever
Speaker 11: to negotiate with foreign nations. We've seen that from twenty seventeen.
Speaker 11: In twenty eighteen, we still do not have a trade
Speaker 11: agreement with the EU, We do not have a trade
Speaker 11: agreement with Canada, with China. So I think the trade
Speaker 11: agencies are going to kick off much earlier in the
Speaker 11: second truck term than they did in twenty seventeen. That
Speaker 11: year we had to wait the full year for the
Speaker 11: tax builder you're written, and then we could get into
Speaker 11: the trade universe. This time, I expect the tax agency,
Speaker 11: excuse me, the tariff agencies USTR, Commerce BIS to come
Speaker 11: out guns blazing immediately. So that's acknowledgment that you only
Speaker 11: have four years to operate, and it takes forever just
Speaker 11: to hold a meeting with China to pick out what
Speaker 11: location you're going to be meeting in, if they'll even
Speaker 11: come to the table and negotiate with you in the
Speaker 11: first place. So I think Lame Duck has a sense
Speaker 11: of nothing will happen on the trade front. I think
Speaker 11: it means everything needs to happen immediately so that you
Speaker 11: have and are taking advantage of the limited four years
Speaker 11: that you do have.
Speaker 3: Which I love how you brought that up, because then
Speaker 3: it's a sequencing conversation, right, If you have taxes, you
Speaker 3: have immigration, and you have tariffs, and you what's the
Speaker 3: sequencing of all of that.
Speaker 11: Yeah, this sequencing is critical. So the tax bill is
Speaker 11: not going to be written until the end of the year.
Speaker 10: The deadline is not till the summer thirty first, They.
Speaker 11: Will not do it until your end Immediately, then you're
Speaker 11: going to have tariffs, and the tariffs are a massive
Speaker 11: hit on American consumers one point four billion dollars in
Speaker 11: real income per month hit from just the existing tariffs.
Speaker 10: So when we double them.
Speaker 11: And put them at thirty five percent or higher sixty percent,
Speaker 11: as President life Trump has advocated, that's going to be
Speaker 11: a substantial hit to the US consumer in advance of
Speaker 11: any certainty about tax policy that will come.
Speaker 10: At the end of the year.
Speaker 11: The immigration component also will happen immediately. You're seeing that
Speaker 11: in both Canada and Mexico now as those two nations
Speaker 11: try to accommodate Trump before he comes into office uses
Speaker 11: the IEPA authority to impose tariffs.
Speaker 10: And limits immigration that way.
Speaker 11: So you're going to see the hit to immigration and
Speaker 11: the tariffs earlier than you're going to see any certainty
Speaker 11: around the straight line extension of the existing tax rates.
Speaker 11: I think it's important to note that we're not talking
Speaker 11: about additional tax cuts to offset maybe the negatives of
Speaker 11: these tariffs. You're talking about a four point six trillion
Speaker 11: dollar cost of just keeping tax cuts.
Speaker 10: At their current rate, tax rates at their current rate.
Speaker 1: All right, this one we're doing, Alex.
Speaker 6: We're sending Henriette to Washington to just fix things, just
Speaker 6: get stuff done.
Speaker 1: That's how good she is.
Speaker 6: Henrietta Tres, Manager partner and director of Economic Policy at
Speaker 6: Vita Partners.
Speaker 1: I'd send her at Washington tomorrow to get stuff done.
Speaker 1: She knows what she's talking about there.
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