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Speaker 2: Peter Ford, yourself and.
Speaker 3: David Gura with us as well.
Speaker 4: Tina, I want to focus on Ukraine and I want
Speaker 4: to go back to nineteen eighty two, the Falklands War,
Speaker 4: where I learned how to spell exo set. I remember
Speaker 4: the technological shock that a missile could take out not one,
Speaker 4: but two, but three British ships. That was stunning. Now
Speaker 4: we have the same thing. How will your world change
Speaker 4: with drones that could kill take out armament from a distance.
Speaker 5: Ukraine launched an incredibly bold and audacious attack eighteen months
Speaker 5: in the making. You've talked about the idea that this
Speaker 5: could signal a change in trend, and others have written
Speaker 5: about China being able to do the same thing. But
Speaker 5: when we look at the markets, guys, right, we don't
Speaker 5: see a very big reaction at all. I think just
Speaker 5: because of the amount of newsflow. So it's an example
Speaker 5: of something that is potentially, you know, a pivotal moment
Speaker 5: in geopolitics, certainly one that means that in the short
Speaker 5: term there isn't going to be sanctions relief likely anytime soon,
Speaker 5: or a ceasefire. But there's so much going on for
Speaker 5: investors to digest that it's not moving the needle as.
Speaker 2: We sift through that news flow.
Speaker 6: Let me ask you about something that's complimentary. We have
Speaker 6: this presidential election in Poland over the weekend, and the
Speaker 6: nationalist candidate won that election, which is just going to
Speaker 6: I think provide further headaches for Donald Tuk, the Prime
Speaker 6: minister of that country. But we have there a president
Speaker 6: elect who is you could say anti Europe or not
Speaker 6: not pro Europe. We could say that, and what does
Speaker 6: that mean just for that country's attitude toward continued involvement
Speaker 6: in the war in Ukraine and in Europe's involvement more broadly.
Speaker 2: The outcome of that election in Poland.
Speaker 5: But the Polish presidential election isn't the kind of thing
Speaker 5: that you know, we would normally be talking about in
Speaker 5: a program like this, But because we are looking at
Speaker 5: Europe that feels increasingly isolated following the US security and
Speaker 5: economic reset, who is in charge in Poland has a
Speaker 5: great deal to do with what kinds of decisions the
Speaker 5: European Union can take when it comes to security and
Speaker 5: when it comes again back to Ukraine. So even though
Speaker 5: markets we'd like to put the Ukraine conflict behind them,
Speaker 5: in this new global context, which we've talked about in
Speaker 5: our new research on the geopolitics supercycle, a small, a
Speaker 5: small kind of domestic vote like a Polish presidential election
Speaker 5: can actually have a big ripple effect in a changed
Speaker 5: security and economic environment.
Speaker 6: Tina, you mentioned that supercycle. So that's a circumstance in
Speaker 6: which geopolitical risks are accelerating and accelerating quickly.
Speaker 2: Talk about that in.
Speaker 6: The context of negotiation and dialogue and diplomacy. On any
Speaker 6: given day, I get a statement from the State Department
Speaker 6: or from a European government indicating that talks are continuing
Speaker 6: when it comes to Ukraine, or it comes to trade
Speaker 6: negotiations or tariff the tariffs and the trade war. Your
Speaker 6: sense of sort of the role that diplomacy is playing
Speaker 6: in that supercycle.
Speaker 5: Well, the geopolitics supercycle is my term, and it's the
Speaker 5: name of a new report that we've published I borrowed
Speaker 5: from astronomy the idea of an acceleration, and what we
Speaker 5: established in the first place before we get to the
Speaker 5: present day is that this isn't in fact new. We've
Speaker 5: seen a tripling of geopolitical risk events materializing over the
Speaker 5: past fifteen years. We established the evidence base for that,
Speaker 5: and in our framework we look at the drivers of
Speaker 5: geopolitical risk against the guard rails. And whether we're talking
Speaker 5: about diplomacy, international institutions, or even global central banks, these
Speaker 5: are the guard rails and unless these institutions function effectively,
Speaker 5: we're going to see more risk events. And I think
Speaker 5: that this heuristic is a useful way to look at
Speaker 5: this kind of blizzard of events.
Speaker 3: This is so important, folks.
Speaker 4: And of course the title of Tina Fortum's forum Global
Speaker 4: Foresight there note is never going back to normal. If
Speaker 4: we're not going back to normal, Tin of fordom, how
Speaker 4: do we defend ourselves against not populism because there's benefits there,
Speaker 4: but harmful populism. How do we defend ourselves from the
Speaker 4: harmful populism of other eras that ended ugly.
Speaker 5: That's where rule of law and institutions come in. And
Speaker 5: these are the kinds of you know, the kinds of
Speaker 5: forces that are increasingly under attack and mistrusted. The problem
Speaker 5: is we don't really have alternatives to them. And any
Speaker 5: kind of revolutionary movement wants to you know, wants to
Speaker 5: burn down what came before it, the idea being of course,
Speaker 5: that you could build something newer and better in its place.
Speaker 5: And this is where when you know, when people ask
Speaker 5: me this question at investor events or board meetings, I
Speaker 5: talk about, how, you know, unless we believe in predestination,
Speaker 5: there is a you know, contributions that we make as individuals,
Speaker 5: as citizens, as you know, as investors and business leaders,
Speaker 5: and even as as parents into maintaining the guardrails that
Speaker 5: prevent risks from turning into crises.
Speaker 4: Tina, one final question I want to get this. INCURTI
Speaker 4: grouped in London yesterday was absolutely riveting on the images
Speaker 4: of the migrants across the English Channel over the weekend.
Speaker 4: Is the phrasing here migration is out of control in
Speaker 4: the United Kingdom?
Speaker 3: How would you call her that?
Speaker 5: On a day like that, there were more border crossings.
Speaker 5: And again, if we put it back in the super
Speaker 5: cycle framework, climate change, corruption, erosion of civil rights and
Speaker 5: civil liberties, these are all drivers of more migration, and
Speaker 5: so as long as they proliferate, we should expect more
Speaker 5: efforts for people to leave their homes and come elsewhere,
Speaker 5: and without institutions, we're going to see that feed into
Speaker 5: the political process, into regulation, legislation, and the kind of
Speaker 5: low trust that we see in so many developed countries
Speaker 5: around the world right now.
Speaker 4: Tina, thank you for the time. Tina Fordham, she's with
Speaker 4: Fordham Global Foresight. Look for her report from Fordham Global Foresight.
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Speaker 3: I spent weeks.
Speaker 4: Trying to get Christopher Harvey in here, hesus Wells Fargo
Speaker 4: ahead of Equity Strategy and joins us this morning. I
Speaker 4: love the tone of your optimism.
Speaker 3: How do you do it? Given the malstroam of newsflow
Speaker 3: literally hour by hour? How do you do it? How
Speaker 3: do you frame a view?
Speaker 7: Come on, Tom? What's not to like? You have rates
Speaker 7: going up, you have tariffs every day, you have tweets,
Speaker 7: you have concerned about the consumer. You have uncertainty, it's perfect, right,
Speaker 7: But what we look at is we're looking at the
Speaker 7: data and we're looking at six months ahead of time. Right,
Speaker 7: we think we have seen maximum uncertainty. We think we
Speaker 7: have seen the bottom of the market, and we think
Speaker 7: that we're going to work better from here. Right, we're
Speaker 7: expectingly have not not a ton of information on trade
Speaker 7: and tariff, but progress on trade and tarwiff and templates
Speaker 7: that we can work from as we go forward.
Speaker 4: My foundational thing, Chris Harvey, is corporations adapt. Right across
Speaker 4: the Wills Fargo span. How are you seeing corporations adapt
Speaker 4: so they have the optimism you have?
Speaker 7: Well, I think what corporations are doing is they're watching
Speaker 7: every day. They're looking at the same thing that we're doing.
Speaker 7: Every day. They're saying, okay, are we seeing it in
Speaker 7: our business? And again getting back to Tony Capriano, he's saying, hey,
Speaker 7: we're seeing pod, We're seeing the consumer spend. Right. The
Speaker 7: US consumer, I think is really underappreciated. They we start
Speaker 7: spending one we're five years old, and we continue to
Speaker 7: spend until hopefully until ninety five.
Speaker 4: Right.
Speaker 7: We understand value intuitively, we understand utility and what we
Speaker 7: do is we shift to where we're finding that that
Speaker 7: utility and that's what the consumer is doing, and as
Speaker 7: long as the consumer has a job, they will continue.
Speaker 7: And we're just not seeing that pain or labor.
Speaker 2: Market that people are really worried about it.
Speaker 4: I just had a vision of the next Wells Fargo
Speaker 4: equity junket to the gritty and there you go.
Speaker 2: Yeah, thank you.
Speaker 6: I was hatch here on this Tuesday. How do you
Speaker 6: look at the soft data in complement with the hard data?
Speaker 6: Think that's what you're getting at here. And I've noted
Speaker 6: many members of the present's economic team have been highlighting this.
Speaker 6: They're has been a lot of anxiety about where this
Speaker 6: might be headed. We've seen that in consumer cent but
Speaker 6: we've seen it in kind of the sentiment from employers
Speaker 6: as well. The hard data hasn't met that. And did
Speaker 6: you see them coming together at some point or should
Speaker 6: we be looking at them kind of different when we
Speaker 6: look at them together.
Speaker 7: So about a couple of weeks ago, we sat down
Speaker 7: we had this conversation, what's going to happen between the
Speaker 7: hard and soft data? Are they're going to converge or
Speaker 7: should we actually be looking at the soft data, and
Speaker 7: the conclusion we came to is we're not completely dismissing
Speaker 7: the soft data, but what we realized is after the
Speaker 7: presidential election cycle, we should be looking at the betting markets,
Speaker 7: placing more weight on the betting markets. And the betting markets,
Speaker 7: or the prediction markets, i should say, are where we're
Speaker 7: getting our quote unquote soft data, and it's telling you
Speaker 7: a much different story on inflation, on recession, so on and
Speaker 7: so forth. So we discount significantly the soft data. We
Speaker 7: watch the hard data like a hawk every day, and
Speaker 7: when we want sentiment soft data, we're either talking to
Speaker 7: clients or we're looking at the prediction markes.
Speaker 6: A bit more about that, I'm very curious of how
Speaker 6: someone in your position approaches that world, which I think
Speaker 6: is a novel want to renew one to a lot
Speaker 6: of people.
Speaker 2: How do you make good use of the prediction markets?
Speaker 7: Well, well, you're talking to a guy that when was
Speaker 7: seven years old, which reason the racing forms to his grandfathers.
Speaker 7: So we have been involved in these types of markets
Speaker 7: for a while, and I think there's a lot of
Speaker 7: information in these markets, and we saw that during the
Speaker 7: presidential election cycle. And what we do is we're just
Speaker 7: always looking for that signal. We're always looking for information,
Speaker 7: and there's information there. When we start to deconstruct how
Speaker 7: the surveys are done, we get less confidence on the
Speaker 7: soft data. And while people look at it and we
Speaker 7: have to think about it and we have to react
Speaker 7: to it, we're just not putting a whole lot of
Speaker 7: weight on it. And at the end of the day,
Speaker 7: we're talking to our economists, we're talking to companies, we're
Speaker 7: going through transcripts, we're trying to break our thesis every day,
Speaker 7: and we're just having a hard time doing that.
Speaker 4: How do you overlay the technology view forward and productivity
Speaker 4: forward right onto a persistency of corporate earnings? To me,
Speaker 4: it's underestimated.
Speaker 7: I think so I was around in the late nineties
Speaker 7: and I remember what was happening there wa way.
Speaker 3: Faster, John help here.
Speaker 7: And the comparison, it's not a comparison between today and
Speaker 7: back then. Back then you had very levered companies. I'll
Speaker 7: throw out some goodies World com Quest, Global, Crossing level three,
Speaker 7: tapping God bless you. But today you have the hyper
Speaker 7: scace that aws the Microsoft, the Metas, the Googles of
Speaker 7: the world. These are companies that don't need to go
Speaker 7: to the capital markets and fund themselves.
Speaker 4: Right.
Speaker 7: Furthermore, if you look at the technology, what we were
Speaker 7: doing is we were laying a dumb We were a
Speaker 7: dumb technology in the ground fiber optic cable, which did
Speaker 7: not become obsolete for a good decade decade plus. Today,
Speaker 7: what we have is really and I'm using the phrase
Speaker 7: that Jensen used, we have AI factories. You have then foundation,
Speaker 7: and on top of that you have the innovation. And
Speaker 7: it's a very nice symbolic. Really is symbiotic release.
Speaker 4: Joy Chris Harvey with us with Wells Fargo. We continue
Speaker 4: as chief US secuity strategist here. We do this at
Speaker 4: eight or nine year with the futures improved, how.
Speaker 3: Are we lifting the market?
Speaker 4: Futures negative eighteen on negative nine, the vics nicely under
Speaker 4: twenty eighteen point five to.
Speaker 3: Two dollar churning a little bit on DXY, little bit.
Speaker 4: Of dollar strength fractional I call it. Over the last
Speaker 4: two days. David Gera in for Paul Sweeney.
Speaker 6: David, Chris, I want to ask you about AI. We've
Speaker 6: talked too much about in video yet you mentioned it
Speaker 6: just a moment ago. We had this news this morning
Speaker 6: that Meta is going to contract for nuclear power with Constellation.
Speaker 7: You have this kind of.
Speaker 6: Picks and shovels portfolio when it comes to AIS. These
Speaker 6: are companies that are kind of ancillary maybe the big
Speaker 6: ones that we talk a lot about.
Speaker 2: Where do you see growth there?
Speaker 6: So it's not as if we've turned the page here
Speaker 6: from that last chapter, this one, the AI story continues.
Speaker 6: What's interesting to you about the secretor today? Where do
Speaker 6: you see opportunity besides the big names, the handful of
Speaker 6: big names we talk so much about.
Speaker 7: I think the biggest near term issue you is the
Speaker 7: AID Diffusion Act. The AI Diffusion Act has been mitigated.
Speaker 7: So now what you can do is you can export
Speaker 7: that technology. And what I think is Jensen is probably
Speaker 7: the new Tim Cook if it looks like he has
Speaker 7: the ear of the administration. And what they're realizing is
Speaker 7: we do need to be that base level of AI.
Speaker 7: We do need to export it. We do need us
Speaker 7: technology all throughout the world because if we don't, somebody
Speaker 7: else will step in. That somebody else is properly China.
Speaker 7: And so I think the most important thing is the
Speaker 7: mitigation of the AI difusion index, because now we can export,
Speaker 7: we can become that base layer. But this is a
Speaker 7: very different technology than what we saw in the late nineties,
Speaker 7: and we're still, i would say, in the mid innings
Speaker 7: for this. There's a lot more to do. The computational
Speaker 7: power that you need, the actual power that you use
Speaker 7: is hard to comprehend.
Speaker 4: In the grind of this, which ratio and the income
Speaker 4: statement is most efficacious right now? I mean I think
Speaker 4: back to time, Gelbot at DLJ was a price to say,
Speaker 4: price to sales. But coming down the income statement, which
Speaker 4: describes your optimism best.
Speaker 7: It's still not earnings. Right if you look at the hyperscale,
Speaker 7: as the hyperscals are making money up.
Speaker 3: Thirty two percent versus this, am I right up eight percent?
Speaker 7: I don't know off the top of my head, but
Speaker 7: they are. The answer is we've never seen this, right,
Speaker 7: That's right. They are putting. They are spending capex, but
Speaker 7: they are getting a return for their capex, and they
Speaker 7: will continue to do that until that equation no longer works.
Speaker 7: And as we look at it, it is working and
Speaker 7: it will continue to work.
Speaker 4: So this is critical if I'm scared stiff, right, But
Speaker 4: Chris Harvey's telling me I got to participate is my
Speaker 4: psychological relief to take my terminal value out a little
Speaker 4: bit farther and say, Okay, I'm nervous. I'm going to
Speaker 4: own this stuff. But it's not a three year vision,
Speaker 4: it's a five year vision. Is that the act?
Speaker 7: Well, I think what you want to do in any portfolio,
Speaker 7: you have to have some you have to have an anchor,
Speaker 7: You have to have some sort of low volatility or
Speaker 7: defensive property to it. What we've been telling people, we
Speaker 7: started the year with anchoring it with staples. Now we're
Speaker 7: anchoring it with utilities, and so that's going to mitigate
Speaker 7: and has mitigated the uncertainty. If you want to if
Speaker 7: you want to get involved in lovall, SPLV or USMV,
Speaker 7: that's fine, but just anchor, right, look for those really
Speaker 7: good risk awards. Look out three five years, right, take
Speaker 7: those good risk awards, but anchor that with something else,
Speaker 7: because you do have to mitigate that uncertainty because of
Speaker 7: the uncertainty. I'm not going to discount it's.
Speaker 6: Still quite real maximum uncertainty. You're confident in that sort
Speaker 6: of how do you see all this playing out over
Speaker 6: the course of the summer. So we're coming up against
Speaker 6: some very hard deadlines here as the President continues to
Speaker 6: make threats and ratchet up the tariffs that he's put
Speaker 6: in place. Your sense of where we're headed.
Speaker 2: So these in these talks, these negotiations, you.
Speaker 7: Know, it's really I don't mean to be evasive, but
Speaker 7: it is really tough. What I'm looking for is I'm
Speaker 7: just looking for progress. I expect to hear progress out
Speaker 7: of Asia. First. I am really surprised about the relationship
Speaker 7: between China and the US. I did not expect them
Speaker 7: to sit down as early as they did, and that
Speaker 7: I think is a real positive. And that's a positive
Speaker 7: I hadn't been thinking about. I thought that was frozen.
Speaker 7: That's not happening. That's the last thing that's going to occur.
Speaker 7: So that's actually very encouraging. But we do need to
Speaker 7: see something either out of India or Japan or South Korea,
Speaker 7: something to set the template. We don't see that, and
Speaker 7: by the end of June the summer is going to
Speaker 7: be a little bit more choppy than I think.
Speaker 4: What is there, I mean, you know, the advantage to
Speaker 4: Jay Brice and what is the what is their incentive
Speaker 4: to provide an initial template.
Speaker 3: I see no incentive for Japan to act well.
Speaker 7: If you're India, I think there's a lot there. Right.
Speaker 7: We have a lot of things that they want ag aerospace, armament, power,
Speaker 7: and they have many things that that we need. Right,
Speaker 7: they can help us this intermediate China. They have the
Speaker 7: ability to do that.
Speaker 5: Right.
Speaker 7: One of the things that we do worry about, and
Speaker 7: we've been talking about, is what about the ports. How
Speaker 7: do you get things from point A to point B?
Speaker 7: And do they have enough ports? But I think India
Speaker 7: is the key, and I think they will likely be
Speaker 7: the first or one of the first.
Speaker 4: Chris Harvey with was his optimism on the equity market.
Speaker 4: He's with Wells Fargo. I want you to up set
Speaker 4: up the polarity we've been talking about for the last
Speaker 4: couple of days, which is maybe three zip codes in
Speaker 4: Manhattan versus the rest of the country. You're advantaged at
Speaker 4: Wells Fargo by having I think, really a breadth across America.
Speaker 4: What is the difference between the zeitgeist now almost of
Speaker 4: the eastern quarters, you know a little bit of the
Speaker 4: West coast, and what's really going on out there.
Speaker 7: So what I think is really going on out there
Speaker 7: is people really do back up the administration. They really
Speaker 7: do feel like something has to be done on trade
Speaker 7: and tower and they think that we're making the right
Speaker 7: steps in that direction. When for somebody like me and
Speaker 7: somebody like you, we're looking at every single tweet, we're
Speaker 7: looking every single thing. People in the and people on
Speaker 7: their day to day jobs, they just don't do that.
Speaker 7: And what they see is have a job. Things are good,
Speaker 7: they're doing well. Economy seems to be fine, and we're
Speaker 7: just going to keep moving forward. And we think the
Speaker 7: economy and the situation is moving forward. And they look
Speaker 7: at the technology and they say, hey, this is an
Speaker 7: amazing technology. The world's an okay place, David.
Speaker 2: When it comes to.
Speaker 6: How about when it comes to this tax and spending bill,
Speaker 6: and you can talking about regular folks in this country
Speaker 6: or watching all of that unfold maybe from a distance,
Speaker 6: how much does that standard sort of change your world,
Speaker 6: whether or not we see that past in July or
Speaker 6: August or later this year.
Speaker 7: I don't think it changes for the average person all
Speaker 7: that much. The salt tab. We've been looking into the
Speaker 7: salt tax, and I think that helps a lot of
Speaker 7: people in high tax states, but on the higher income,
Speaker 7: and that probably helps spending later over the next twelve
Speaker 7: eighteen months, and it helps a little bit with their
Speaker 7: bird to sentiment. I think the bigger issue is is
Speaker 7: the deficit stabilizing. Looks like the deficit is stabilizing. I'm
Speaker 7: a little bit concerned about the rhetoric and the talk
Speaker 7: about longer end rates. But if you think about it
Speaker 7: and you look at it, things haven't gotten worse. So
Speaker 7: I'm not really sure why the narrative negative it is today.
Speaker 7: It should have been much worse, much sooner. So it's
Speaker 7: a little confounding.
Speaker 4: Chris, thank you generously to come in this morning. Chris
Speaker 4: Harvey with us with Wells Fire with a real optimist
Speaker 4: take here. All of his literature is like, get on board,
Speaker 4: participate in America's feature.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 3: We dive into the American labor economy right now.
Speaker 4: There's no one better qualified than Thomas Purcelli is chief
Speaker 4: yours economist and PGM definitive on America's wage growth or.
Speaker 3: Lack thereof, definitive on the bar economy. In tom I'm
Speaker 3: going to go to tourst and slack out.
Speaker 4: Or the morning paragraph this morning saying look, we're at
Speaker 4: one hundred and thirty thousand non farm payrolls on Friday.
Speaker 3: He doesn't buy it.
Speaker 4: Question mark sixty four thousand NFP coming with continuing claims
Speaker 4: doing that little second derivative lift is a weaker job economy.
Speaker 8: Finally here Yeah, So so, first of all, could be
Speaker 8: with you all. Look, I think that you know this
Speaker 8: is not for us. This is not new new information, right.
Speaker 8: I mean that labor backdrop has been sort of showing
Speaker 8: these cracks for quite some time now, you know, whether
Speaker 8: you're looking at hiring rates or quit rates or labor differentials,
Speaker 8: and now recently this little curl up in continuing claims.
Speaker 8: I think it's all the evidence is pretty clear that
Speaker 8: that labor is slowing down. So so from our perspective,
Speaker 8: it's you know, it's just a question of when now
Speaker 8: do you really start to see a show up in
Speaker 8: the payroll report. But but I would hasten to add
Speaker 8: everyone's waiting for it to show up in the payroll report.
Speaker 8: But once it show's up there, it tends to be
Speaker 8: too late. I mean, it's like that's the last thing
Speaker 8: that breaks. But you have all these other all this
Speaker 8: other evidence that's already pointing in that direction.
Speaker 3: When it goes, it goes.
Speaker 4: I would suggest, folks, my reading back to World War
Speaker 4: to thank you Olivia Blunchard for being with us yesterday
Speaker 4: in memory of Professor Fisher Tom Percelling. When I look
Speaker 4: at unemployment rate, it goes four point two percent. When
Speaker 4: it goes, do you frame out a quie s in
Speaker 4: five percent or could it be worser?
Speaker 8: Yeah, I think by the end of the year you
Speaker 8: could easily you'll you'll be up close to five percent.
Speaker 8: We don't think you necessarily break through that. I do
Speaker 8: think that there's an interesting sort of dynamic to consider
Speaker 8: in the context of you know, immigration flows of obviously
Speaker 8: slow down pretty notably, and as long as you know
Speaker 8: the economy is not going to break in a meaningful way,
Speaker 8: I don't think the unemployment rate really has to sort
Speaker 8: of do a lot of heavy lifting. So we do
Speaker 8: expect the unemployment rate will rise, and in fact, that's
Speaker 8: sort of one of their key criteria for for US
Speaker 8: as relates to our view on the FED, which is
Speaker 8: to say they will be cutting before the end of
Speaker 8: the year. But I don't know that it to get ugly,
Speaker 8: but it's going to happen.
Speaker 6: Let me ask you a bit about inflation and sort
Speaker 6: of where you see that story going here. And we
Speaker 6: were talking earlier about the soft data and the hard
Speaker 6: data and the anxiety that we see among consumers and businesses.
Speaker 6: What do you think that will start to manifest itself
Speaker 6: more in the harder data as we see again I
Speaker 6: call them negotiations. I guess back and forth over over
Speaker 6: these trade deals and the prospect that they could could
Speaker 6: be inflationary, it could lead to higher inflation.
Speaker 2: Yeah.
Speaker 8: Look, I think what's interesting is if you look at
Speaker 8: some of these company transcripts right like during the quarterly
Speaker 8: earnings calls, I mean, some companies took price in April.
Speaker 8: I mean you didn't even have terrorists that really went
Speaker 8: through at that point, and this was early in a.
Speaker 6: Less defensive or opportunistic I think it's probably a little
Speaker 6: bit of both.
Speaker 8: And so you know, and think back on yesterday's IM
Speaker 8: I mean there were some really interesting comment forget about
Speaker 8: the indexes with an ism. I mean they're fine, but
Speaker 8: I think the sort of you know, the responding comments
Speaker 8: I think are always much more interesting. And responding comments
Speaker 8: were pret clear like they're pushing price through. There's no
Speaker 8: question that that is going to happen. So here's the
Speaker 8: thing though, while we expect inflation will rise again, that's
Speaker 8: a part of our call, has been a part of
Speaker 8: our call. This is not the COVID lift in inflation.
Speaker 8: And I think that's especially true when you consider incomes.
Speaker 8: I mean real incomes right, like real incomes x transfers
Speaker 8: is running out of slower pace than is consumption, real consumption.
Speaker 8: That's not a sustainable set up, and so I think
Speaker 8: that means that it probably breaks the spirit of the
Speaker 8: consumer to some extent.
Speaker 3: An extended discussion with Tom PERCELLI.
Speaker 6: Pees tiught we had this warning that John Tucker mentioned
Speaker 6: just a moment ago from the OEC this morning about
Speaker 6: slowing growth globally US A part of that seeing slowing
Speaker 6: growth here here as well. What is your sense of
Speaker 6: where that's headed? Does it does it marry with or
Speaker 6: dovetail with what the OECD said this morning?
Speaker 8: Yeah, I mean, look, I think the I think the
Speaker 8: I think those forecasts are just sort of catching up
Speaker 8: with some with some of the reality that I think
Speaker 8: there's already been in place. You know, the sort of
Speaker 8: the slower rejectory of economic activity in the United States
Speaker 8: and elsewhere, I think has been pretty known at this point.
Speaker 8: You know, it's funny we were having this conversation internally.
Speaker 8: You know, there's I think you could break the backdrop
Speaker 8: up into structural and cyclical right cyclically speaking, Uh, you know,
Speaker 8: we see slowing economic activity, like you know, we're calling
Speaker 8: it the muddle through with a sort of you know,
Speaker 8: a skew to the left tail. I think over the
Speaker 8: more medium term, right, you know, medium to long term.
Speaker 8: You know, it's easy to see a sort of a
Speaker 8: fatter right tail that will take time. Though in fact,
Speaker 8: I've been saying, I think you've got to go through
Speaker 8: the left tail before you get to the right tail.
Speaker 8: But yeah, I think that that to me is it's
Speaker 8: already baked in the cake that folds in.
Speaker 4: I wanted to ask you you came from a wonderful
Speaker 4: house RBC, like haleemccroft on Hydrocarbon's your parachute in. You know,
Speaker 4: you get off the boat, the Hinckley and your parachute
Speaker 4: in them pagium and these guys are.
Speaker 3: A world class bond geeks. Yes, what do they teach you?
Speaker 3: What does what does the Greg Peters in the rest? What?
Speaker 3: How do they inform your economics? Now that you're surrounded
Speaker 3: by this brain ball?
Speaker 8: You know, it's I I love this question. So I
Speaker 8: always said, you know, being on the when I was
Speaker 8: on the sale side, you know, you would you would
Speaker 8: go into, you know, a meeting and you would just
Speaker 8: drop these ideas and then you get the hell out
Speaker 8: of there and you never knew really what happened with
Speaker 8: those ideas because you'd be running off to the next meeting.
Speaker 8: But now there, you know, my next meeting is the
Speaker 8: sort of another internal meeting. So it's been great to
Speaker 8: sort of see my ideas sort of you know, come
Speaker 8: to life as it relates to working with guys like
Speaker 8: Greg and Robert Tip and then of course delete saying
Speaker 8: it's been it's been a wonderful experience.
Speaker 3: How do you fold in then really yield dynamics.
Speaker 4: Ken Rogoff was in recently with my book of the Summer,
Speaker 4: Our Dollar Your problem and the bottom line is the
Speaker 4: inflation had just yields the heart of the debate. Yes,
Speaker 4: how do you lecture Greg Peters on the vector of.
Speaker 7: The real you?
Speaker 8: He does not want me to lecture him, and I
Speaker 8: don't think I want to lecture him either, So who
Speaker 8: I adore him?
Speaker 7: Actually, he's great.
Speaker 8: Look, I think one thing that we're really trying to do,
Speaker 8: and I think that this is something that is sort
Speaker 8: of the holy grail in my humble opinion, I think
Speaker 8: the marrying you know, look, p Jim is first and
Speaker 8: foremost to bottom up shop. That has always been true.
Speaker 8: And so I think one thing that you know, we're
Speaker 8: really trying to think about a lot is.
Speaker 7: How do we marry that right?
Speaker 8: How do we marry the bottom and the bottom up
Speaker 8: and the top down. I think we've been doing a
Speaker 8: pretty good job of making some progress on that, and
Speaker 8: it's something I look forward to continuing with with Greg
Speaker 8: and the rest of the team. It's actually been a
Speaker 8: really useful project.
Speaker 6: I was reading in this morning and our friend Claudia
Speaker 6: Sam has a new piece out talking abo's what the
Speaker 6: FED is thinking through at this moment in time, and
Speaker 6: she said, kind of the fundamental question here is will
Speaker 6: tariff induced inflation be short lived as the level of
Speaker 6: prices adjust to higher tariffs, or will it persist as
Speaker 6: a series of feedback loops lead to further price increases.
Speaker 2: Where do you fall on that question?
Speaker 6: We were talking about the way that companies have been
Speaker 6: addressing this defensively or opportunistically. As I interjected, how worried
Speaker 6: are you about that feedback loop turning into something kind
Speaker 6: of crippling?
Speaker 8: It is very hard to see this inflation dynamic persist,
Speaker 8: and it's very hard to see. I think again, we'll
Speaker 8: sort of have a you know, sort of short memories
Speaker 8: for this stuff, and I think people are looking back
Speaker 8: over this COVID window and they're saying, hey, well, this
Speaker 8: is what happened then. Yeah, But there's so many differences, right,
Speaker 8: I mean, people were sitting on a mountain of cash.
Speaker 8: We shut down an otherwise pretty healthy economy, turned it
Speaker 8: back on like a light switch, creating a pent up
Speaker 8: demand scenario. People were able to dip into this mountain
Speaker 8: of cash. We had massive supplies shortages. So I think
Speaker 8: it was really easy to sort of build a case,
Speaker 8: or at least it was for us when I was
Speaker 8: at RBC, to build the case that you were going
Speaker 8: to see much more persistent inflation than was appreciated. This
Speaker 8: setup today is wildly different. I think what wants up
Speaker 8: happening is these these price increases that we are undoubtedly
Speaker 8: going to see will basically break break the consumer. And
Speaker 8: I think ultimately I could give re session, which is
Speaker 8: why we have that left tail is a little bit
Speaker 8: on the fat side.
Speaker 4: Truss, there evidence that they will lower prices if and
Speaker 4: when the tariffs are over, so see that.
Speaker 8: In my literal I don't think that they're talking about
Speaker 8: that right now. I mean, in fact, if anything, companies
Speaker 8: want to take price as much as they can. It's
Speaker 8: been pretty clear on that, so I think it'll I
Speaker 8: think that the what that means to me is that
Speaker 8: the lift in inflation could actually be firmer than a
Speaker 8: lot of people think. I think people are sort of
Speaker 8: flirting with the idea of, hey, maybe you get to
Speaker 8: three percent and maybe it Peter's out there. My risk
Speaker 8: on that is that it can run. But I think ultimately,
Speaker 8: if you have a slowing labor backdrop, which is what
Speaker 8: we expect, then that'll give way.
Speaker 3: Here's the way the act works, folks. I'm overwhelmed.
Speaker 4: My email inbox is insane and young Turks show up
Speaker 4: and they.
Speaker 3: Have research reports.
Speaker 4: And the rule is if it's seven pages, I read
Speaker 4: the first two pages, and if it's thirty pages, I
Speaker 4: read the first four pages. And that ages ago, this
Speaker 4: clown showed up from our RBC Capital markets. I'm like,
Speaker 4: who is this guy? And he's talking wage dynamics. Here
Speaker 4: begin with the discussion on the wages. What's our real wage?
Speaker 4: Look like you own the high ground on this.
Speaker 8: Yeah, well, thank you for those nice words.
Speaker 3: You know.
Speaker 8: Look, I think the way that I like to look
Speaker 8: at the backdrop right now is I'm looking at real incomes,
Speaker 8: and I think real incomes X transfers that running at
Speaker 8: a slower pace than real consumption that is not sustainable.
Speaker 8: That is simply not sustainable. So it's really easy for
Speaker 8: us to build a case on slower economic activity.
Speaker 4: Forget the continuum, the media frenzy of the phrase barbelle,
Speaker 4: I don't buy it for a minute, yep. And I'll
Speaker 4: let you decide on a death sile or quintile basis.
Speaker 4: Ye where does America break? To me?
Speaker 3: It's a way higher income and beneath that is painful.
Speaker 8: I agree with that. I think that that's exactly what
Speaker 8: we're seeing right now. I mean, you know, this is
Speaker 8: the you know, the classic K shape recovery conversation that
Speaker 8: we've been having for for quite some time. I think
Speaker 8: that there's almost no doubt that there's a lot more
Speaker 8: pain happening in those other quintiles that you just mentioned.
Speaker 8: But you know, you look at it, and again this
Speaker 8: gets into the hard verse soft data point. Just look
Speaker 8: at confidence at the upper income confidencing the upper income
Speaker 8: is also starting to break too, And I think it
Speaker 8: look it's easy to sort of see that happen when
Speaker 8: you have equity markets that are also breaking them coming back.
Speaker 8: Equity markets coming back probably will ease some of that concern,
Speaker 8: but I think most folks get that in an environment
Speaker 8: where you're talking about significant terrors and potentially significant price increases,
Speaker 8: I think that gives everyone a moment of pause, where
Speaker 8: do you.
Speaker 2: See things going from here?
Speaker 6: When it comes to the labor market, so there is
Speaker 6: a lot of happy talk from the administration about how
Speaker 6: this is going to usher in a lot of new
Speaker 6: jobs and manufacturing in particular, we're talking about diminution of
Speaker 6: the labor market. You have to say, we're kind of
Speaker 6: late late to the party. Recognizing that you were there earlier,
Speaker 6: But how do you see that ending and how much
Speaker 6: faith or or optimism that you have that all of
Speaker 6: this could lead to some sort of reimagined or or
Speaker 6: a labor market renaissance of some sort.
Speaker 8: So I think over the so this gets into the
Speaker 8: cyclic over structural right like cyclically, I think again, I
Speaker 8: think you'll start to see the slow down in in
Speaker 8: labor and as a result, economic activity at large. I think,
Speaker 8: I think longer term, I think that there's I think
Speaker 8: there's a real case to make for I you know,
Speaker 8: I hate the term, you know, US exceptionalism. I just
Speaker 8: think it's overused and there has to be a better
Speaker 8: way of saying it. But I think the idea of
Speaker 8: US exceptionalism over the more medium to long term, for
Speaker 8: lack of a better phrase, I think is real. And
Speaker 8: I think about that in the context of the pieces
Speaker 8: are in place for productivity to kill it again, it'll
Speaker 8: take time to get there, and I do think that
Speaker 8: some of the things that the administration is doing could
Speaker 8: actually help in that. Regard the corporate tax part of
Speaker 8: that of the tax cuts, I think that that can
Speaker 8: actually go a long way to sort of helping build
Speaker 8: the base of productivity. But again that you got to
Speaker 8: I think you're going to go through the left tail
Speaker 8: before you go to the right.
Speaker 3: Tant arrested.
Speaker 4: They FORDA, it does thirty five knots coming back down
Speaker 4: the East River.
Speaker 3: Wow, he's gonna be flying over the city.
Speaker 4: Tom bertz Ellie, thank you so much, with a don't thanks, guys, stranger,
Speaker 4: please please please.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg Terminal.
Speaker 4: The new heart and soul of the New Yorker is
Speaker 4: emin as knows out with a new book on Greenwich, Connecticut,
Speaker 4: and it reads like McPhee. You read it, you keep
Speaker 4: reading it, David, because it's crafted.
Speaker 6: Evan Aso is great to have you with a staff
Speaker 6: writer the New Yorker is Tom alluded to there. The
Speaker 6: new book is called The Haves and Have Yachts Dispatches
Speaker 6: on the Ultra Rich. Congrats on the book. Congrats also
Speaker 6: on the title, which is excellent. Let's start with the
Speaker 6: warning that we heard from former President Biden has prepared
Speaker 6: to leave office. He said, today an oligarchy is taking
Speaker 6: shape in America of extreme wealth, power and influence that
Speaker 6: really threatens our entire democracy, our basic rights and freedom.
Speaker 6: He sounded the alarm as he was making his way
Speaker 6: to the exit. What has changed when it comes to
Speaker 6: wealth inequality in this country over the last five six months.
Speaker 9: Thanks guys, by the way, Tom, you made my day.
Speaker 9: We live in a world, John McPhee made.
Speaker 2: I'll say that.
Speaker 9: What President Biden was getting at is something really important
Speaker 9: to a lot of folks. Frankly, it sounded almost belated. Look,
Speaker 9: the good news is this country has never been wealthier
Speaker 9: in so many respects. We are building companies, We're on
Speaker 9: the cusp of a new era of technology and all
Speaker 9: the ways you talk about on the show every day,
Speaker 9: whether it's AI and robotics. And yet at the same time,
Speaker 9: as you know, there are about half of American adults
Speaker 9: who will tell you that they don't have one thousand
Speaker 9: dollars to spend on an emergency expense. We are at
Speaker 9: a point now it's really similar to where we've been
Speaker 9: at moments in our history where we have tremendous technological opportunity,
Speaker 9: huge wealth creation, and we're also facing a fork in
Speaker 9: the road to make sure that that is also not
Speaker 9: steering our government down a path that Henry Ford used
Speaker 9: to say that he wanted to make sure that his
Speaker 9: own employees, his own workers, could afford the cars he
Speaker 9: was making. And those are some of the decisions we
Speaker 9: have to be making now.
Speaker 6: This is clearly a theme that has animated a lot
Speaker 6: of your work. I look at the Osmoso for going
Speaker 6: back to your first book, Age of Ambition, Chasing Fortune,
Speaker 6: Truth and Faith in the New China, which I read
Speaker 6: on my first trip to Shanghai, and you mark then
Speaker 6: on just the abundance the amount of wealthy excitement about
Speaker 6: wealth and up mobility in China. As you look at
Speaker 6: this particular book, are we looking at something that's uniquely
Speaker 6: American or has this rise of the ultra rich and
Speaker 6: sort of shared globally.
Speaker 9: Yeah, it's a fascinating parallel in many ways, David. I
Speaker 9: mean I first started reading in a sense about the
Speaker 9: American guilded age when I was living in China. Hus
Speaker 9: I was trying to understand what was happening. We were
Speaker 9: seeing railroads built at a pace we hadn't seen since
Speaker 9: America in the nineteenth century. It's fitting in some ways
Speaker 9: that I used The Great Gapsbie when I lived in
Speaker 9: Beijing to conceptualize it. Here we are it's twenty twenty
Speaker 9: five hundredth anniversary of that book. There are a lot
Speaker 9: of lessons in there about how do you take that
Speaker 9: sense of cultural energy that we might have had at
Speaker 9: certain moments in the Roaring twenties, but also the awareness
Speaker 9: that without making really smart choices, we're not going to
Speaker 9: make sure that this money gets into the hands of
Speaker 9: people who can rise with the tide.
Speaker 4: Evan, you grew up in the crucible this Grantwich, Connecticut,
Speaker 4: where I'm sure three kids down the street did have
Speaker 4: Hinckley picnic boats.
Speaker 3: You didn't. Your father was acclaimed within journalism.
Speaker 4: But what does the crew do below the fancy people
Speaker 4: to try to get their kids to motivate and have
Speaker 4: a good life and even aspire to be richer. I
Speaker 4: mean this is topic one right now between the of
Speaker 4: AI the decline of liberal arts. What do the kids
Speaker 4: do just below those with the super yachts.
Speaker 9: Yeah, you know, I face these questions myself. I'm a dad,
Speaker 9: I've got two kids, I think about the challenges of
Speaker 9: people coming out of school today and how hard it's
Speaker 9: going to be to get those first jobs. But here's
Speaker 9: the thing, you know, we have some pretty great models
Speaker 9: to inspire us in terms of how to think about
Speaker 9: being energetic, being creative. I think about Warren Buffett. He's
Speaker 9: on our minds a lot, all of us these days.
Speaker 7: You know.
Speaker 9: He talks about how much he left, how much he
Speaker 9: will leave to his kids. He likes to say, as
Speaker 9: you know, Tommy says, I want to leave them enough
Speaker 9: that they can do anything, but not so much that
Speaker 9: they can do nothing. I try, as I think about
Speaker 9: the opportunities that are coming, to say to people, Look,
Speaker 9: it's not enough for us to just say, Elon Musk
Speaker 9: has now crossed the four hundred billion dollar threshold. We've
Speaker 9: never had somebody with that kind of prosperity. Isn't that
Speaker 9: as sign of strength. No, we have to be saying
Speaker 9: to people, if we don't make smart choices, it's going
Speaker 9: to end up with too many Musks and perhaps not
Speaker 9: enough Buffets. And I think that's an important thing to
Speaker 9: keep in mind.
Speaker 6: Spare a teer for the billionaire class, but I am
Speaker 6: interested in this element of loneliness that comes through in
Speaker 6: your book. So if you have billionaires buying these super yachts,
Speaker 6: they can be in isolation on the open seas. You
Speaker 6: have another chapter or another piece that you've written about
Speaker 6: Silicon Valley billionaires who are looking to remote New Zealand
Speaker 6: as a place where they can go weather the storm,
Speaker 6: if that's a nuclear disaster or something that's a natural disaster.
Speaker 2: What explains it?
Speaker 6: And just I think the contrast is so stark to
Speaker 6: what you were talking about a moment ago, which is,
Speaker 6: during the Gilded Age you had billionaires, you had multimillionaire
Speaker 6: I should say, maybe not billionaires who are interested in
Speaker 6: philanthropy and in helping the wider population, building libraries in
Speaker 6: towns across America. It seems like there is a stark
Speaker 6: contrast that exists now between the aspirations of a lot
Speaker 6: of these ultra wealthy than what we saw before.
Speaker 9: Yeah, David, you know, for the reporting for this book,
Speaker 9: I went to New Zealand, I went to Monaco. Hardship
Speaker 9: pay was not forthcoming despite my insistence, and it was
Speaker 9: a fat way of getting into the minds of people
Speaker 9: who have succeeded. And I think what you find in
Speaker 9: a lot of cases. And this is the surprise, is
Speaker 9: a sense of fear, frankly, a sense of vertigo. You know,
Speaker 9: a lot of people will say, look, you've made all
Speaker 9: the money in the world, what are you afraid of?
Speaker 9: Why do you need to stand on the stage with
Speaker 9: a president who you may not even necessarily ideologically agree with.
Speaker 9: And I think what that tells us is that the
Speaker 9: higher you get, you actually can end up feeling quite vulnerable,
Speaker 9: quite exposed. I mean, as Silicon Valley CEO said to me,
Speaker 9: I keep a helicopter gassed up all the time, and
Speaker 9: I have a bunker with an air filtration system. And
Speaker 9: I think that is Another former hedge fund manager said
Speaker 9: to me, Look, there are twenty five hedge fund managers
Speaker 9: in this country who make it more money combined than
Speaker 9: all of the kindergartener teachers. And he said, and it
Speaker 9: doesn't feel good to be one of those twenty five.
Speaker 9: That's the vertigo.
Speaker 4: Evn We got to leave it there, but don't be
Speaker 4: a stranger. Evan Austen's congratulations from the New Yorker. The
Speaker 4: haves and they have not have yachts. Piece it together
Speaker 4: from a wonderful New York can't say enough about this
Speaker 4: as a general read on these odd odd times.
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,
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