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Speaker 2: Chambov joined us absolutely definitive at Blackrock here Global had
Speaker 2: a research for Blackrock Investment Institute and with the Canadian
Speaker 2: feel as well. Jean, I see the moment here. I
Speaker 2: was reading very carefully way Lee the other day synthesize
Speaker 2: the Blackrock view of the software shock of four or five,
Speaker 2: six days ago.
Speaker 3: Yeah, I think it's interesting maybe to start by comparing
Speaker 3: this to last fall. Right, So, last fall we had
Speaker 3: market selling off and that was all on the back
Speaker 3: of doubts about whether AI with the real thing. And
Speaker 3: now we got this kind of as you say, shock
Speaker 3: over the last few a couple of weeks, which is
Speaker 3: also a sell off, also a sell off story, but
Speaker 3: it's it's because of AI is a real thing this time,
Speaker 3: and now market extrapolating to the disruption is going to
Speaker 3: really cause So I guess one takeaway is that you know,
Speaker 3: we see that as increasing the conviction of this AI
Speaker 3: mega force being real, it's happening, it's disrupting now, uh,
Speaker 3: and now markets are starting to think through what that
Speaker 3: means for winners and losers.
Speaker 4: I think it's early though on that question.
Speaker 3: So we're going to see markets start to run to
Speaker 3: conclusion and make big, you know, sweeping software type labels
Speaker 3: and stuff and run with this. But I think it's
Speaker 3: going to be a story that's gonna, you know, be
Speaker 3: a much more nuance. And yeah, I think we're gonna
Speaker 3: likely to see overreaction along the way as we've seen.
Speaker 5: John, I'm wondering if this market can perform if technology
Speaker 5: is not leading it. We've become so accustomed to technology
Speaker 5: and then most recently the magazis magnificent seven leading this market.
Speaker 5: Do you sort of have confidence that that's the case.
Speaker 3: Yeah, Well, I mean the we we in our outlook
Speaker 3: we call that micro is macro, right, So the idea
Speaker 3: that like it's it's a it's a mega for story's
Speaker 3: AI is at the center not only of this market
Speaker 3: but of the economy, to be honest. So the growth
Speaker 3: we've been having and we're going to continue that is
Speaker 3: heavily dependent on AI continuing to grow. But I would
Speaker 3: say that what we've seen in the last couple of
Speaker 3: weeks is now visibility into that breaking out of you know,
Speaker 3: out of the pure kind of builders. So yes, we
Speaker 3: are focused on the potential losers, but that means that
Speaker 3: they're losers because there's going.
Speaker 4: To be windfalls.
Speaker 3: They're going to be very significant for the others where
Speaker 3: it's going to get monetized.
Speaker 4: So you know, you know, I think we get Yeah,
Speaker 4: everything dependent on the AI story.
Speaker 3: I think the build out, the need to build this
Speaker 3: out is that THESUS is intact, even maybe reinforced, and
Speaker 3: that's an I perfrescat.
Speaker 4: Our story is killing me.
Speaker 2: Ticos micro's macro. You know, I got a shift to
Speaker 2: a FED discussion Jean Beauvan with us, with all of
Speaker 2: his great work and academics at Princeton. Does Kevin worsh
Speaker 2: have any understanding Jean Beauvan of the micro dynamics of
Speaker 2: Monetary policy study or is it all big concept stuff?
Speaker 2: I mean, I I don't know.
Speaker 3: I don't know that I have visibility into that specific question,
Speaker 3: I think, But you know, I know I've known given
Speaker 3: for for some years and I've followed like his comments
Speaker 3: and so on. I guess one thing you could say
Speaker 3: is that this is only somebody that has like a
Speaker 3: macro view of my policy that is incurred in like
Speaker 3: crisis experience, and I would say that as like a
Speaker 3: good understanding of the global ramification of that.
Speaker 4: So I guess that's uh, that's an important point.
Speaker 3: And has also been very focused on the AI piece,
Speaker 3: which I guess is uh is more of a micro
Speaker 3: lench something. So so that suggests that like both are
Speaker 3: at play here with Kevin And what's.
Speaker 2: Really interesting here we had another guest in earlier is
Speaker 2: talking about the productivity boom is not only AI, but
Speaker 2: is efficiency learned off the pandemic. Describe how you see
Speaker 2: America's burgeoning productivity.
Speaker 3: Well, I would say that the productivity we've seen in
Speaker 3: the data so far, to my mind, our mind, has
Speaker 3: not much to do with AI yet, So I think
Speaker 3: that would be would be more sympathetic to uh, you
Speaker 3: know what we've learned from the pandemic and uh and
Speaker 3: that feeling true.
Speaker 4: And also I think a big part of this is
Speaker 4: just cyclical.
Speaker 3: Uh, you know, where when when growth is accelerating, we
Speaker 3: tend to be more productive before we hire more people
Speaker 3: and there's also this kind of no fire, no higher
Speaker 3: dynamic with the uncertainty that I think manifest itself in
Speaker 3: increased measure productivity.
Speaker 4: So first point is, I don't think we've seen the
Speaker 4: II productivity yet.
Speaker 3: I do think that this is the potential is real, right,
Speaker 3: I mean, and I think it's going to take some
Speaker 3: time to see it.
Speaker 4: But like we for the we think for the first
Speaker 4: time it's.
Speaker 3: Conceivable that AI could be powerful enough to finally break
Speaker 3: us out of a two percent road world, which we
Speaker 3: haven't broke in.
Speaker 4: The US for one hundred and fifty years.
Speaker 3: All the ingenuity of humans over the last one hundred
Speaker 3: and fifty years has just been enough to keep us
Speaker 3: on a two percent road pad. I think it's conceivable
Speaker 3: that AI for the first time could change that.
Speaker 4: And the key thing.
Speaker 3: Will be if it actually leads us to accelerate the
Speaker 3: rate of innovation.
Speaker 4: That's the key thing to track for us. But that
Speaker 4: I don't think we've seen that yet.
Speaker 5: Jehan, twenty twenty five was a year where emerging markets
Speaker 5: really asserted itself as a performer. Here is that can
Speaker 5: extend in twenty six.
Speaker 3: We are we are positive for an emerging market for
Speaker 3: twenty twenty ses. I think the backdrop macro backdrop continues
Speaker 3: to be you know positive for EM in general. Do
Speaker 3: we have you know, a weaker dollar environment that I
Speaker 3: think we were not like subscribing to the idea that
Speaker 3: there's an ongoing kind of trend downward than a dollar
Speaker 3: in twenty twenty six, But I don't think it's trend
Speaker 3: any either, So I think that's going to be conducive
Speaker 3: constructive for EM. We have you know, a Paulsey landscape
Speaker 3: in EM that has been you know, surprisingly strong the
Speaker 3: last couple of years. I think that continues and for
Speaker 3: us then it's about tracing those mega force and now
Speaker 3: they play out in EM. So those that are exposed
Speaker 3: to AI, I think are set to do well. You know,
Speaker 3: Korea is obviously like the super story of twenty twenty five,
Speaker 3: but I think that hass the room to continue.
Speaker 2: What is the study at Black Rock? Joan Bovan of China?
Speaker 2: Are they finally recovering? We're seeing it in retail a
Speaker 2: little bit caring Gucci out today with a better tone,
Speaker 2: but this Black see China doing better.
Speaker 3: I think I think that the marginal the evolution is
Speaker 3: towards a more positive you know, investment landscape. I think
Speaker 3: the and there's a couple of things. I think the
Speaker 3: AI story again, I mean, there's this more in AI
Speaker 3: in life. But that's the key that's certainly the key
Speaker 3: thing right now, and it's also true in in China.
Speaker 4: That's a key thing.
Speaker 3: I think we we have not paid enough attention in
Speaker 3: twenty twenty five has been a big story and it
Speaker 3: has really been pretty powerful. I think the other the
Speaker 3: other key drivers or yes, there's a bit of a
Speaker 3: of a brunnening of growth that could be part of it.
Speaker 3: But I think also the authorities shifting their stands on
Speaker 3: copper China and allowing maybe a bit more breeding room
Speaker 3: I think and learning those lessons from the last few
Speaker 3: years could also be constructive. So on a technical basis,
Speaker 3: we see more opportunity in China than we would have
Speaker 3: had seen a year ago.
Speaker 2: Jean, thank you for the time, particularly those comments on
Speaker 2: the federal reserve nomination process. You champavent at Blackrock. Stay
Speaker 2: with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: True that we here with all the government shut down,
Speaker 2: short shutdown, nice restart, but the economics forward through the
Speaker 2: week is exhausting. To help us out, Francis Donald it
Speaker 2: joins us right now, thrilled to have her with us
Speaker 2: year this morning with RBC. I look, Francis at where
Speaker 2: we are, and I got to get to Friday. Do
Speaker 2: you have any guestimate or bestimate of where you'll be Friday?
Speaker 2: It's a quarter of nine, quarter of nine.
Speaker 6: Well, we will be still reviewing the CPI data, but
Speaker 6: probably taking the entirety of the week together, which is
Speaker 6: we've got retail sales, we've got a jobs number coming through,
Speaker 6: we've got inflation, and yet behind the scenes, the problem
Speaker 6: is a lot of our data is still distorted coming
Speaker 6: off of the shutdown. We've got seasonality issues, which we
Speaker 6: always do in the first quarter, and then we have
Speaker 6: a lot of known unknowns like where is tariff policy
Speaker 6: going to settle? We still don't know the answer to that,
Speaker 6: and we're wrestling out with all of these data points.
Speaker 6: What is a cyclical trend versus what is a structural
Speaker 6: that's never been more important in.
Speaker 2: Microre smart people in Atlanta have the Atlanta GDP now,
Speaker 2: which is now it's coming down. Is that a vector
Speaker 2: in place that are we going to get real GDP
Speaker 2: under three percent?
Speaker 6: We're probably going to get something for the fourth quarter
Speaker 6: around three percent, maybe a little bit of upside about that.
Speaker 6: But again, what is the composition of that growth. We're
Speaker 6: seeing growth that is great for markets, but not great
Speaker 6: great for the people. We're seeing growth that is really
Speaker 6: biased towards capex Ai data centers. Now, that's not necessarily bad.
Speaker 6: Different type of growth. It's not a tide that lifts
Speaker 6: all ships, and it's not one that's going to create
Speaker 6: a significant amount of job growth associated with it. It's
Speaker 6: not growth that's going to save the affordability issues facing consumers.
Speaker 6: In fact, it's not growth that's going to solve the
Speaker 6: k shaped elements of this economy. So it's growth, and
Speaker 6: that's good, and I'll never knock a great GDP number,
Speaker 6: But what's happening under the surface is going to be
Speaker 6: far more important for companies operating in the United States
Speaker 6: and ultimately for markets too.
Speaker 5: I like notes you say we're about to hit the
Speaker 5: five year anniversary of inflation running above two percent. I
Speaker 5: didn't think about it in that terms. The a IFED
Speaker 5: can't be happy about that, But b who cares about
Speaker 5: two percent? I mean, where did that number come from?
Speaker 5: And should we really care? It feels like inflation. It's
Speaker 5: higher than maybe we'd like it, But it's isn't it
Speaker 5: just kind of where we are in this economy.
Speaker 6: Well, I guess that's a great way to put it.
Speaker 6: That's kind of where we are. Where does it come
Speaker 6: from central bank research? Predominantly, I think originating out of
Speaker 6: New Zealand. The two percent was a great place to be.
Speaker 6: And I remember even a few years ago, folks would
Speaker 6: say things like, oh, well, what if we end up
Speaker 6: with three percent being the new two percent? This was
Speaker 6: a really scary type of development. But when I think
Speaker 6: about three percent, I think that while people got worried
Speaker 6: about inflation surging like it did during the post pandemic period,
Speaker 6: you know nine ten percent as being the real big problem,
Speaker 6: But here we are actually sort of embedding higher inflation
Speaker 6: expectations going forward, and the issue is based on our outlook,
Speaker 6: we're going to stay in the high twos and around
Speaker 6: three percent through the end of this year. So it
Speaker 6: wouldn't surprise me if you have me back a year
Speaker 6: from now that we're celebrating the six year anniversary of
Speaker 6: inflation above the two percent target.
Speaker 5: All right, let's go to the other side of the
Speaker 5: FEDS mandate, the labor market. We'll get some labor data
Speaker 5: this week as well, and the unemployment rate. I think
Speaker 5: the forecast is for four point four percent. Again, that
Speaker 5: feels kind of full employment ish, although you tell that
Speaker 5: to a recent college grad and they probably wouldn't feel
Speaker 5: that way. So how do you feel about the labor market?
Speaker 6: Well, employment ish, I'd say that's downright full employment right there.
Speaker 6: There's only two periods in history when we've had unemployment
Speaker 6: rates that were this low. We actually have a four
Speaker 6: to three in our forecast this week, but for three
Speaker 6: four four we're sort of splitting hairs here. So what's happening, Well,
Speaker 6: we are going to have far less job creation. You're
Speaker 6: not going to see new jobs being posted, so non
Speaker 6: farm payrolls those it going to continue to decline. We
Speaker 6: have about sixty sixty five thousand this week coming through
Speaker 6: could be lower, and it will trend lower through twenty
Speaker 6: twenty six, but that unemployment rate is not going to
Speaker 6: rise meaningfully. Why because there are not enough people who
Speaker 6: need new jobs coming forward. We only need to create
Speaker 6: about forty thousand jobs per month or less in order
Speaker 6: to keep those who want jobs with jobs coming through
Speaker 6: this year. That's going to take a lot of re
Speaker 6: education for markets to really understand.
Speaker 2: With the Royal Bank of Canada, Francis Donald with us
Speaker 2: to get us start. It's joining Terry Reisman on deck
Speaker 2: in the next hour, Ander Slimming from Morgan Stanley, Ian
Speaker 2: Bremer in the nine o'clock with Jellebovan Blackrock. Just a
Speaker 2: fabulous set of conversations today to launch into February and Marsh,
Speaker 2: I'm going to digress here now for thirty seconds. I
Speaker 2: think it's very important. One of the great moments for
Speaker 2: your Canada was to see the back Nordiq's on the
Speaker 2: ice with the Montreal Canadians eer of course at Colorado
Speaker 2: Avalanche play. Really emotional, Actually, folks, to see these two
Speaker 2: teams Pictures and Catchers right now? Do we need to
Speaker 2: see Montreal expos next year at Pictures and Catchers.
Speaker 7: Sure, let's go for it.
Speaker 6: I have to tell you just over this weekend My
Speaker 6: husband and I were having a conversation that everyone wanted gold,
Speaker 6: everyone wants critical minerals. Everyone was running after silver, whereas
Speaker 6: up in Quebec we're always running after nordiq a swage.
Speaker 6: We just want Nordique cots butters, and if we could
Speaker 6: monetize that, we could actually beat this market.
Speaker 2: When you were a kid, did you see the expos?
Speaker 2: Do you have any memor morse?
Speaker 6: We saw the expos. We saw UPI who is the mascot?
Speaker 6: It's still embedded in my montreal life.
Speaker 2: It's like up there, it's like it's.
Speaker 6: Like hockey exposs in, skiing on the mountaint being cold.
Speaker 2: Yeah, that kind of track care with the economics, finance
Speaker 2: investment with Francis Donald. I look at the makeup here
Speaker 2: and the number one thing I get from our listeners
Speaker 2: and viewers, you guys are idiots. The unemployment rate isn't
Speaker 2: four percent. We had somebody a couple of days ago
Speaker 2: say the unemployment rate calculated around hiring a dearth of
Speaker 2: hiring is eight percent ish. What does our unemployment rate
Speaker 2: feel like right now?
Speaker 6: Well, it depends who you are. I mean, Paul, you
Speaker 6: highlighted young folks. Right now, we've seen a huge surge
Speaker 6: of what we call youth unemployment, those under the age
Speaker 6: of twenty five. That's not just an American phenomenon, by
Speaker 6: the way, that's happening globally. Maybe some AI issues in there,
Speaker 6: maybe some hesitancy around how much will tariffs actually burn us?
Speaker 6: Should we be bringing on new labor here. But we
Speaker 6: have another theory as well, which is we talk a
Speaker 6: lot about this no hire, no fire environment, which is
Speaker 6: so atypical, but there is a shadow hiring market that's
Speaker 6: happening in the background, which is that if you retire,
Speaker 6: and we know there's mass retirements about two million folks
Speaker 6: in America are retiring every single year right now. That's
Speaker 6: sixty thousand folks more per month than before two years
Speaker 6: ago at delta sixty thousand.
Speaker 7: And you bring in a young person to replace that rule.
Speaker 6: Will not count as new job creation, It will not
Speaker 6: come up in non farm payrolls, will actually just be
Speaker 6: a replacement higher.
Speaker 7: So we know that there's hiring happening.
Speaker 6: That's a little bit more in the shadows and where
Speaker 6: we see and Tom, I'll tell you again, like if
Speaker 6: you are in trade or manufacturing right now, your unemployment
Speaker 6: rate is higher if you're in healthcare, the job market
Speaker 6: is extraordinarily tight. So my friend and colleague Amy Wi Silverman,
Speaker 6: I think here yesterday, friend of your show, she has
Speaker 6: this metaphor of a duck that is calm on the water.
Speaker 7: With the feet paddly.
Speaker 6: This today, I'm going to reduce it because it's a
Speaker 6: brilliant way that she describes it. It's also how the
Speaker 6: economy is operating with that unemployment rate stable on the surface,
Speaker 6: but extraordinary churn and transition happening underneath the surface. So
Speaker 6: it makes sense that Americans feel like they're not well
Speaker 6: represented in the number.
Speaker 7: A because the number is not telling us the whole story.
Speaker 7: But also because there's this huge fragmentation.
Speaker 8: Underneath retail sales.
Speaker 5: We're going to get a thirty this morning. How's the
Speaker 5: consumer doing it there?
Speaker 6: Do you think the consumer is muddling through? They've got
Speaker 6: real wage growth around one percent. That's enough they have
Speaker 6: going forward, so you'll be okay on retail sales. But again,
Speaker 6: incredible fragmentation underneath the surface. High income consumers holding up
Speaker 6: a lot of the rest, but not entirely. And I
Speaker 6: think this is the challenge, is that we're looking for
Speaker 6: a lot of cyclicality in that consumer that's going to
Speaker 6: be reduced because if you want a job in America,
Speaker 6: you probably have one on average. Again, we talked about
Speaker 6: some other areas. So for a very long time, economists
Speaker 6: would say the best way to measure the growth of
Speaker 6: the US economy is to say, if a consumer is employed,
Speaker 6: then all is right with the world.
Speaker 7: The consumer is two thirds.
Speaker 6: But that is no longer going to be the way
Speaker 6: that we measure the strength of the American economy, or
Speaker 6: the way we measure the strength of the consumer. It's
Speaker 6: going to be what type of job do they have,
Speaker 6: is it enough to offset the cost of living? Again,
Speaker 6: five year anniversary of inflation above two percent? And what
Speaker 6: sectors are actually seeing some of that strength moving forward?
Speaker 6: So I'm looking for more information on that today.
Speaker 5: From the Canadian perspective, where are we on tariffs here?
Speaker 5: Because I don't think we've heard a lot about them recently.
Speaker 5: I mean we had down on the Greenland thing a
Speaker 5: while ago. But from your perspective, the Canadian perspective, what
Speaker 5: is the tariff situation?
Speaker 6: Well, it depends what country you're speaking from. And actually
Speaker 6: trade policy is still very much in flux, right. We
Speaker 6: have the IEPAS Supreme Court decision that may come through.
Speaker 6: We have USMCA, Mexico, Canada and the United States are
Speaker 6: up for review of this very important trade document. And
Speaker 6: of course every day we see new information about trade
Speaker 6: deals that the US is embarking on. So our view
Speaker 6: is that actually American companies are not sure where tariffs
Speaker 6: will land, will they get reduced, and that's really implicating
Speaker 6: or slowing some decision making.
Speaker 2: You've been brilliant on this and the answer is we
Speaker 2: are a two to three percent blended tariffs. We did
Speaker 2: a jaw boned moonshot out of the rose Garden up
Speaker 2: to some ginormous William McKinley gilded age number, and there's
Speaker 2: a beautiful chart in the FT. I think Toby Nangoli
Speaker 2: had it coming back down and we're at tennish right now.
Speaker 2: For you, what would be the number to come back
Speaker 2: to where you'd say we'll survive. Do we need to
Speaker 2: get back to two to three percent?
Speaker 6: Well, I think the issue with tariffs is we always
Speaker 6: think about them in absolute as if it's the only
Speaker 6: shock happening to the US economy, and so I hear
Speaker 6: all the time, well, look, tariffs didn't impact the US
Speaker 6: inflation is you know, high twos, about three percent. The
Speaker 6: unemployment rate is fairly well contained. Where was the big
Speaker 6: you know hoop law that economists.
Speaker 7: Warm towards well Number one. I still think it's early.
Speaker 6: So companies, we believe, held onto market share over the holidays,
Speaker 6: and you're going to actually see tariffs rise into CPI
Speaker 6: data into the second quarter of this year. So it's
Speaker 6: too early to say we didn't see it. But secondly,
Speaker 6: we have seen this impact. We've seen it in rise
Speaker 6: and goods. We've seen it in layoffs in manufacturing and
Speaker 6: trade exposed sectors. And I think the better way to
Speaker 6: think about this is if we hadn't had tariffs come through,
Speaker 6: you would probably see higher growth, you would see lower unemployment,
Speaker 6: and you would see less inflation. So you have to
Speaker 6: compare it to what would the world look like without tariffs?
Speaker 6: Not why didn't the economy break as a result.
Speaker 5: So given all that background, what's are fed going to
Speaker 5: do over the next two three four five months?
Speaker 6: You think two three four five months, well, we think
Speaker 6: that they're going to stay on hold just because they
Speaker 6: won't have enough data to justify cuts.
Speaker 7: I mean of the year, we do have.
Speaker 6: A whole call through the end of twenty twenty six.
Speaker 6: Now here's the challenge. It's going to depend on some
Speaker 6: of the biases within the committee and how reactionary they're
Speaker 6: going to be. Because the unemployment rate is going to
Speaker 6: take up a couple beeps here, we could go from
Speaker 6: four to three to four five. Do they feel the
Speaker 6: need to react to that while inflation is still high?
Speaker 6: But the window to do this is probably not going
Speaker 6: to appear until later in this year, because again you
Speaker 6: are going to see inflation stay really high and goods
Speaker 6: inflation rise into the second quarter. But I've been around
Speaker 6: a few feds now, Tom, you and I together have
Speaker 6: seen through a few of them, and there is enough
Speaker 6: variation in the data, there are enough subcomponents, there are
Speaker 6: enough core cpis taking out XYZ that if this FED
Speaker 6: wants to cut and bring rates closer to their estimate
Speaker 6: of neutral, they could find a number for it. But
Speaker 6: our call right now is they won't have enough sufficient data.
Speaker 2: I'm not read in on this, and I assume you
Speaker 2: are because your Francis Donald, who knows all there is
Speaker 2: a bridge to Michigan. There is named after the Fabrican
Speaker 2: Foundation of Detroit. Gordion how I never saw him play.
Speaker 2: I saw Kim Neely, who I was told was the
Speaker 2: closest approximation. The gordianau Bridge has become a political pawn.
Speaker 7: It has what would you know?
Speaker 2: This is a terrible position for you. But how should
Speaker 2: Canada and how should mister Carnie react to what President
Speaker 2: Trump says about that bridge and that magical name.
Speaker 6: Well, I don't think they need any advice for me.
Speaker 6: They've been managing the trade relationship for over a year.
Speaker 6: But the challenges that Canadians and many trading partners across
Speaker 6: the world wake up to new true socials all of
Speaker 6: the time. And what we're seeing here is probably a
Speaker 6: prelude to the USMCA mandatory review. Now, this review of
Speaker 6: USMCA would have been in place no matter who was
Speaker 6: President put in. It's supposed to expire in twenty thirty six,
Speaker 6: and this is a conversation about whether or not to
Speaker 6: extend it. But if you look through to the Americans
Speaker 6: right now, what they're asking for from Canada is not
Speaker 6: largely deal breakers. Things around darry for example, perhaps digital
Speaker 6: services taxes. None of that's happening here is probably going
Speaker 6: to railroad. The Canadian economy. But it's going to take
Speaker 6: up an enormous amount of headlines, and if you're a
Speaker 6: Canadian or American company doing business with each other, it's
Speaker 6: probably going to weigh on your ability to make decisions.
Speaker 2: I saw a photo of the Canadian hockey team in
Speaker 2: front of the DUMO in Milan. Are you kidding me?
Speaker 2: With the total aggregate payroll there is the GDP of California.
Speaker 2: I mean, I mean Canada US.
Speaker 6: You gotta go with Canada, right, Well, of course I'll
Speaker 6: always go with Canada. Are you speaking to the heated
Speaker 6: rivalry version of the Canadian economy a Canadian hockey team
Speaker 6: or the real life one.
Speaker 2: I don't know. I'm looking at Sidney Crosby and Bradmere
Speaker 2: Shawan and you know in Milan, and I'm like, this
Speaker 2: is going to be a hell of a game.
Speaker 7: It's going to be a hell of a game.
Speaker 2: Yeah, Fransis Downald, Thank you so much. Really nice brief there, folks.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on
Speaker 1: Apple karplay and Android otto with the Bloomberg Business app
Speaker 1: or watch us live on YouTube.
Speaker 2: I was channeling Terry Weisman as he walked into the
Speaker 2: studio because I was looking at the Japan forty year
Speaker 2: Where are you going to be in November? Where are
Speaker 2: you going to be in December? Looking back to February,
Speaker 2: and saying I should have, would have could For Terry
Speaker 2: Weisman at Macquarie, his expertise on global foreign exchange, it
Speaker 2: is Japan, okay, currency's there. I guess you say we're
Speaker 2: going to see us stronger yain, but I see it
Speaker 2: in yields. The wonderful Stanley Fisher taught me look at
Speaker 2: the percent change of the yield the forty year generic.
Speaker 2: The yield is in twelve percent from the gloom of
Speaker 2: just weeks ago. Higher prices, lower yield. What does it signal?
Speaker 9: Well, you know, interestingly enough.
Speaker 10: When Sinai Takeichi's took over as head of the LDP
Speaker 10: in Japan back in October, you couldn't say that she
Speaker 10: had a popular mandate, and there was a lot of
Speaker 10: uncertainty about whether or not she was going to drive
Speaker 10: growth higher in Japan. Because she lacked that popular mandate.
Speaker 10: She was right to call this snap election because now
Speaker 10: not only is she the leader of the party, she
Speaker 10: also has a popular mandate, and I think that's incredibly
Speaker 10: important with regard to her ability to push through the
Speaker 10: reforms that could improve growth. Now you might think that
Speaker 10: improving growth should be associated with higher yields. I think
Speaker 10: the market is realizing the higher growth in Japan may
Speaker 10: be exactly what Japan needs to bring down yields, because
Speaker 10: higher growth is what's needed ultimately to bring down that
Speaker 10: debt to GDP ratio that everyone has been concerned about
Speaker 10: in Japan for several years now. So it can also
Speaker 10: be disinflation as well, and we know that higher bond
Speaker 10: yields are associated with expectations of high inflation. She's able
Speaker 10: to drive growth, bring real GDP higher, and bring inflation
Speaker 10: down potentially or stabilize it in Japan, which is very
Speaker 10: different than the policy approach under the new capitalism of
Speaker 10: Primarysiacax Sheeta before her. You should expect eels to come down.
Speaker 10: I think the market is finally realizing that, Look, the
Speaker 10: stock market there is up as well. Dollar yen fell
Speaker 10: upon the announcement of the LP's victories. I think Japan
Speaker 10: is heading in the right direction.
Speaker 5: How will Japan do it? How can Japan fuel growth?
Speaker 5: It's been forty years since we've talked.
Speaker 9: About growth in Japan.
Speaker 5: How do they change that narrative?
Speaker 9: What's the policy?
Speaker 10: Do you think Japan has been stuck in a demographic nightmare?
Speaker 10: So one of the things that has to happen, at
Speaker 10: the very least is to stop spend And I hate
Speaker 10: to say this because it might sound cruel, but to
Speaker 10: really try to stop spending so much money on the
Speaker 10: aging population and start to focus on the youth and
Speaker 10: the young people in Japan who are the engine of
Speaker 10: productivity and innovation. Doing that would be a would start.
Speaker 10: I don't think would start would be stopping this budgetary
Speaker 10: morass of continuing to subsidize a lot of these zombie
Speaker 10: companies in Japan, both directly and indirectly through the subseason
Speaker 10: in the budget.
Speaker 9: I think that will spur innovation.
Speaker 10: I think Japan we think of it as an advanced
Speaker 10: manufacturing economy, but to a large extent, we all know
Speaker 10: that it has lagged with regard to technology adoption innovation
Speaker 10: other countries in the West, including its neighbor China and
Speaker 10: the US.
Speaker 9: I think that's the key. It's interesting business school buddy.
Speaker 5: In mind, the CEO of a Japanese company just sold
Speaker 5: the KKR. I don't think i'd ever seen that, and
Speaker 5: I can't remember how long. I mean, a private equity
Speaker 5: company coming in to Japan an investing capital and on
Speaker 5: the other side, a selling a Japanese company to a
Speaker 5: US private equity company. Maybe that's something like you're talking about. Yeah,
Speaker 5: well maybe, but look, I think Japan has. If what
Speaker 5: you're trying to suggest is that Japan has a lot
Speaker 5: of hidden it or discovered gems in its economy, I
Speaker 5: would agree with that. It's just that innovation and technology
Speaker 5: adoption have been somewhat suppressed.
Speaker 10: But think about it. It's a manufacturing economy. It's an
Speaker 10: industrial economy. It's exactly what's needed in this day where
Speaker 10: defense is becoming increasingly important in that region. It's also
Speaker 10: an economy that has an integrated supply chain. By the way,
Speaker 10: it doesn't really at least for the respect to manufacturing.
Speaker 10: It doesn't really have to worry about getting parts and
Speaker 10: sourcing parts from the rest of the world. It has
Speaker 10: the capacity for that, and it has great infrastructure in
Speaker 10: support of the industrial manufacturing complex. As well, so all
Speaker 10: those things are exactly what you need if you're going
Speaker 10: to restart the economy.
Speaker 9: What they just don't have is the incentive.
Speaker 2: Structure tervicemen with this requiry of Australia, and of course
Speaker 2: they're huge reach into the Western Atlantic and over the
Speaker 2: continent as well as we really consider here the Pacific Rim.
Speaker 2: I think a damien sassa and all that it comes
Speaker 2: down to a boom Now is something as simple as
Speaker 2: luxury like carrying out today with Gucci, say in China
Speaker 2: as a pulse? Is the arch Macquarie call out of
Speaker 2: Sydney and Melbourne that this is a time for the
Speaker 2: Pacific Rim. I've got the Japanese stock market in dollars
Speaker 2: since the pandemic, up eleven point two percent per year.
Speaker 2: I don't think most Americans know that.
Speaker 10: Yeah, look Tom, no one thinks that China's going to
Speaker 10: collapse this year or next. I think we're on the
Speaker 10: look looking at a steady five percent growth rate in China.
Speaker 10: I don't know if I say, Panda, I'm in China.
Speaker 9: That's fine. I think I think that's expected.
Speaker 10: If they reach that target, no one's gonna get excited,
Speaker 10: But no one's going to panic either. But I think
Speaker 10: the real story in East Asia right now is Taiwan
Speaker 10: and Japan. Taiwan because it's the beneficiary of all of
Speaker 10: the hardware spending that's coming out of the US, out
Speaker 10: of the Max seven's and the hyperscalers and the data
Speaker 10: center build out. Japan because they're potentially on the verge
Speaker 10: of a supply side revolution. If you're going to focus
Speaker 10: on East Asia and where the stories are and where
Speaker 10: the innovation is and where the inflection points are, those
Speaker 10: are the two places I would not focus too much
Speaker 10: on China these days.
Speaker 2: All right, Given all that background, what do we do
Speaker 2: with the end here?
Speaker 5: I'm looking at the end from weakening from April ish,
Speaker 5: you know, one forty one to here we are at
Speaker 5: one fifty five. I mean, what do you do with
Speaker 5: the Japanese yen here?
Speaker 10: I think you buy it, okay, I think you take
Speaker 10: a view that dollar yen has probably peaked, the dollars
Speaker 10: gotten as strong as it possibly can. Against the end,
Speaker 10: that we're going to see a resumption of growth, that
Speaker 10: the boj will not succumb to demands to keep interest
Speaker 10: rates slow, but we'll you know, gradually raise interest rates
Speaker 10: that as soon as growth picks up in Japan, people
Speaker 10: will become more enamored of Japanese companies. You'll see an
Speaker 10: inbound flow of capital into Japan. What you mentioned about
Speaker 10: your friend's company being sold to Kekar could be endemic
Speaker 10: of a wave that's going to happen over the next
Speaker 10: few years that's going to be strong for the end
Speaker 10: I believe, and I want to state this with all
Speaker 10: all firmness, is that a currency will do well when
Speaker 10: the growth of the country does well, or the relative
Speaker 10: growth of the as well, or way in this inflecting
Speaker 10: upward in terms of growth. I see that happening in
Speaker 10: Japan right now.
Speaker 2: Taiwan stuck index, Paul, I've never looked at this Bloomberg folks.
Speaker 2: And not only do you see these obscure indexes, but
Speaker 2: you translated into whatever currency you want, the Vietnamese don
Speaker 2: or the US dollar in dollars Taiwanese. Since pandemic twenty
Speaker 2: point eight percent per year, is it too late to
Speaker 2: climb on board the Pacific brand?
Speaker 9: I don't think so.
Speaker 10: I think that to the extent that that foreign investors
Speaker 10: have wanted to grab a piece of the text story,
Speaker 10: they've grabbed it in the US. But they've overlooked is
Speaker 10: that all of these US companies are dependent on fab
Speaker 10: fabrication of chips in Asia, on companies that test chips,
Speaker 10: for example, right there's plenty of those in Taiwan, and
Speaker 10: there's plenty of those in Japan as well.
Speaker 9: So I don't think it's too late.
Speaker 10: If anything, there's been an overhang over Taiwan for the
Speaker 10: last few years on the premise that the Chinese might
Speaker 10: invade at some point, and you don't want to, certainly
Speaker 10: be invested in a country in which that's facing a
Speaker 10: Chinese invasion. But if you abstract from that and you believe,
Speaker 10: as I do, that that China's not going to do
Speaker 10: anything quote unquote stupid here, Taiwan's a great story to
Speaker 10: be investing.
Speaker 9: In right now.
Speaker 2: This is way too much optimism pictures and catchers here. Yeah,
Speaker 2: you know, I can't, I got it. I'm worried about
Speaker 2: you know.
Speaker 5: Most optimistic day of the year, pictures, pictures opening day,
Speaker 5: that kind of thing.
Speaker 2: Doctor Weisman comes in and kills the Pacific Room. Terry Weisman,
Speaker 2: thank you so much, my pleasure stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after.
Speaker 1: This you're listening to the Bloomberg Surveillance Podcast. Catch us
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Speaker 2: So if I was to do a panel, let's say
Speaker 2: some fancy place like Davos. Yeah, right now. They would say,
Speaker 2: mister Keene, who would you like to have in your panel?
Speaker 2: And I would say Ezra Pisade of Cornell cell and
Speaker 2: Ian Bremer of Tulane, and Stanford Gremmer and Persad would
Speaker 2: be lights out. The Doom Loop is Ezra Prasad's new
Speaker 2: book with really interesting discussions of stability, and Ian Bremer
Speaker 2: owns the high ground on this with every nation for itself,
Speaker 2: the j curve, and of course US versus them. Doctor
Speaker 2: Bremmer joins us from Eurasia Group. I look at the
Speaker 2: Doom Loop from prisad Ian and the heart of the
Speaker 2: matter is we are in some form of stability moving
Speaker 2: to instability. Is that how you see it? There's instability
Speaker 2: out there.
Speaker 8: Yeah. I like his book a lot. He's more of
Speaker 8: an economist.
Speaker 11: I'm a political scientist, so I'm focusing on the geopolitics specifically,
Speaker 11: and I think it's cyclical, So I see this as
Speaker 11: a bust cycle because the balance of power is no
Speaker 11: longer aligned with the institutions, the architecture, or the policies
Speaker 11: or the values.
Speaker 8: And that's particularly playing out with the.
Speaker 12: Americans, the most powerful country, stepping back from their own
Speaker 12: historic leadership. So I mean, the good news is that
Speaker 12: that's very unlikely to get you the so called Throughcinity's trap,
Speaker 12: a World War III. Historically, usually when you have a
Speaker 12: move to instability in geopolitics, it's because the major power
Speaker 12: is in decline and trying to hold on to its
Speaker 12: old system. The rising power wants to create a new one.
Speaker 12: That's not what's happening here. The United States is still
Speaker 12: the most powerful country. It's it's just unilaterally saying it
Speaker 12: doesn't want to be in charge of collective security or
Speaker 12: free trade or promotion of democracy of rule of law.
Speaker 12: So it's causing a lot of instability, but it's not
Speaker 12: causing global conflict.
Speaker 5: Ian in your notes, you suggest that these countries historically
Speaker 5: allies and maybe ifposed of the United States, they are
Speaker 5: not decoupling from the US, but they're de risking.
Speaker 9: How are they doing.
Speaker 8: That, they're primarily doing it economically.
Speaker 12: And the reason it's mostly economic is because the global
Speaker 12: economy today is increasingly multipolar, while the global security environment
Speaker 12: is still dominated by the United States.
Speaker 8: So the reality is that even if you don't trust.
Speaker 12: Or rely on the United States as a security ally,
Speaker 12: you don't have many good options and it will take
Speaker 12: you a very long time.
Speaker 8: Even for the Europeans who see this as an existential need.
Speaker 12: Yes they're spending a lot of money on Ukraine, but
Speaker 12: they're buying American weapons. Yes they're stepping up their own security,
Speaker 12: but they know, as Mark Ruta, the Secretary General of
Speaker 12: NATO said in the last few days, how essential the
Speaker 12: Americans still are for the foreseeable future. Where when you
Speaker 12: think of the global economy, there are options. I mean,
Speaker 12: even Canada, which is so incredibly dependent on the United States,
Speaker 12: has the ability to diversify more effectively with the Europeans,
Speaker 12: with the Chinese, with others.
Speaker 8: And that's particularly true India, for example.
Speaker 12: The United States pushes India hard despite the relationship that
Speaker 12: Trump and Mody have, and Modi takes his time in
Speaker 12: doing a deal with the Americans and instead steps up
Speaker 12: as relations with the EU and with the Australians and
Speaker 12: stabilizes with China and the rest.
Speaker 2: So that.
Speaker 12: Effort that we are seeing to hedge is mostly happening
Speaker 12: in diversifying away from US trade, from US capital, and
Speaker 12: you know, those things, once they happen, they.
Speaker 8: Do have much more long term implications.
Speaker 5: Does this America First agenda of this second Trump administration
Speaker 5: to what degree do you think it will empower China
Speaker 5: empower Russia.
Speaker 12: I don't think it's empowering Russia at all. I do
Speaker 12: think it is empowered in China. Russia's dug its own grave.
Speaker 12: In fact, they've dug hundreds of thousands of them over.
Speaker 8: The last four years of the war in Ukraine. They
Speaker 8: are weaker as a consequence.
Speaker 12: Their economy is weaker, their security environment is weaker, their
Speaker 12: diplomacy is weaker. They're basically becoming a second rate state
Speaker 12: that has to follow the lead of China. And that's
Speaker 12: not where Putin wants to be. Clearly where China is
Speaker 12: actually in so many ways taking advantage of the United
Speaker 12: States being seen as unreliable.
Speaker 8: In part that is directly reaching.
Speaker 12: Out to countries to improve their bilateral relations, and in
Speaker 12: part it's stepping up China's role in these old institutions
Speaker 12: that the Americans don't value much anymore. So you will
Speaker 12: have noticed the Americans pulled out of the World Health Organization.
Speaker 8: They convinced Argentina to join them. Nobody else did.
Speaker 12: China immediately stepped up how much money they were giving
Speaker 12: to the WHO to five hundred million dollars.
Speaker 13: Why would they do that because if America is out,
Speaker 13: they get to be number one in influence. When Trump
Speaker 13: announced the Board of Peace, not just in terms of
Speaker 13: Gaza coordination, but as potentially a replacement to many of
Speaker 13: the of the operating principles that the United Nations has.
Speaker 8: The Chinese immediately said, we don't want to join that.
Speaker 2: In the same thing in the time we got left Ian,
Speaker 2: I think the question I'm getting us all the time,
Speaker 2: and I'm not informed like you as simple as I can.
Speaker 2: What do you perceive post Trump? Do we return to
Speaker 2: what Paul and I knew years ago? Do we go
Speaker 2: to some form of the mended new What do you
Speaker 2: perceive in say twenty twenty eight, two thousand and thirty.
Speaker 8: Well, if Trump is followed by a much more predictable
Speaker 8: and reliable leader in the eyes of allies, that I.
Speaker 12: Think you will be able to normalize those relations from
Speaker 12: a very different base. In other words, permanent damage will
Speaker 12: have been done, diversification efforts will be in place.
Speaker 8: The Americans won't be leading the world the way they used.
Speaker 12: To, but you won't see the continued trajectory towards chaos. If,
Speaker 12: on the other hand, Trump is replaced by a leader
Speaker 12: that is seen as not only more unilateralists, but also
Speaker 12: just as unpredictable and just as willing to use American
Speaker 12: power against allies and adversaries alike, then of course that
Speaker 12: trajectory will continue to deteriorate.
Speaker 2: We don't care and the only reason you're on today
Speaker 2: is pictures and catchers with Red Sox down at Fort
Speaker 2: Myers Jet Blue Park. You were behind home played. I
Speaker 2: saw for the playoffs last year. What an improvement on
Speaker 2: the Red Sox, doctor Bremer. Can they do it again
Speaker 2: and improve further?
Speaker 12: Well, they can't do worse than the paid Sure it's
Speaker 12: did this Sunday one of the worst games I've ever seen.
Speaker 12: And but I you know, you gotta be hopeful for
Speaker 12: my Red Sox. I've got to be one of the
Speaker 12: only Red Sox out there that's also capable of rooting
Speaker 12: for the Yankees when I see them in New York.
Speaker 8: It's a weird it's a weird position to be in.
Speaker 2: It's a weird's there's a mental health issue there, probably,
Speaker 2: Adam Bremer, thank you so much. Regards to Moose as well.
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