WEBVTT - Examining the Interest Rate Path and Consumer Health 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.800 --> 0:00:14.880 This is the Bloomberg Surveillance Podcast. I'm Paul Sweeney along 0:00:14.880 --> 0:00:17.240 with Tom Keene. Join us each day for insight from 0:00:17.239 --> 0:00:20.760 the best in economics, geopolitics, finance, and investment. You can 0:00:20.800 --> 0:00:24.439 also watch the show live on YouTube. Visit the Bloomberg 0:00:24.480 --> 0:00:27.760 Podcast channel on YouTube to see the show weekday mornings 0:00:27.760 --> 0:00:30.360 from seven to ten Eastern Remarked Global headquarters in New 0:00:30.440 --> 0:00:33.720 York City. Subscribe to the podcast on Apple, Spotify, or 0:00:33.760 --> 0:00:36.800 anywhere else you listen, and as always on Bloomberg Radio, 0:00:36.840 --> 0:00:40.040 the Bloomberg Terminal, and the Bloomberg Business app. Neil Grossman, 0:00:40.400 --> 0:00:44.479 co founder at former CIO founder TKNG Capital, joins us 0:00:44.520 --> 0:00:49.520 here in studio. He's also owns a vineyard. Where's your vineyard, Neil? 0:00:49.680 --> 0:00:53.000 It's in the Milbrook area, up state New York. 0:00:53.040 --> 0:00:56.200 State, in ther beautiful names. He always comes in bearing 0:00:56.200 --> 0:01:01.800 a bottle wine. We appreciate that. It's yes, that's yeh. 0:01:02.000 --> 0:01:05.600 Now you know Carol, you know Carol Master and Tim Senovik. 0:01:05.640 --> 0:01:08.080 Occasionally in there after in Bloomberg Business Weeks, I'll see 0:01:08.080 --> 0:01:12.600 bottles open Data studio. That that's how they play, that's 0:01:12.600 --> 0:01:13.440 how they. 0:01:13.080 --> 0:01:15.240 It adds a clarity to the way it does. 0:01:15.360 --> 0:01:18.160 It does. Hey, we had a bunch of economic data. 0:01:18.200 --> 0:01:20.480 We just got through an earning season. What's your view 0:01:20.480 --> 0:01:21.959 of the world here. I mean, we've got a market 0:01:21.959 --> 0:01:23.399 selling off a little bit today, but I mean we've 0:01:23.400 --> 0:01:25.520 got a market that's S and P five hundred up, 0:01:25.560 --> 0:01:28.240 double digits, yields coming in. What do you make of 0:01:28.280 --> 0:01:28.840 this world we're in? 0:01:29.600 --> 0:01:32.600 I'm more on the this but feels bubbleish a little bit. 0:01:32.640 --> 0:01:34.640 I mean, let's take a look at Apple. I mean, 0:01:34.680 --> 0:01:37.520 wonderful company, don't get me wrong, but somebody added three 0:01:37.560 --> 0:01:40.959 to four hundred billion dollars in value on an announcement 0:01:41.000 --> 0:01:43.360 that they're going into something. I mean, it's pretty staggering 0:01:43.360 --> 0:01:46.120 when you think about it. I think when you watch 0:01:46.360 --> 0:01:49.480 the internals a little bit, the size of the moves 0:01:49.480 --> 0:01:53.000 of stocks based on a little miss, a little hit, 0:01:53.200 --> 0:01:56.560 or a little expectation. I don't remember stuff like this 0:01:56.720 --> 0:01:58.680 very much in the forty years I've been doing this. 0:01:59.160 --> 0:02:01.040 Paul referring to the the FED meeting this week, and 0:02:01.040 --> 0:02:03.400 I wonder how you were processing what we heard from 0:02:03.400 --> 0:02:05.840 the FED, share what we saw in the dot plot 0:02:05.960 --> 0:02:09.080 and the SEP. How are you navigating those data points, 0:02:09.080 --> 0:02:11.600 and how's that sort of shaping your perpective. 0:02:12.200 --> 0:02:14.240 I'm a little lighter than normal right now. I would 0:02:14.240 --> 0:02:18.880 say there was one thing I actually heard in powell statement, 0:02:18.960 --> 0:02:22.040 which you know, is something I think we have even 0:02:22.040 --> 0:02:26.799 talked about. He made the comment that the annualization of 0:02:27.160 --> 0:02:29.800 inflation data is going to be very hard to continue 0:02:29.840 --> 0:02:32.800 to see improvement. I think we're in a range of 0:02:32.880 --> 0:02:34.400 let's say, three and a quarter to four and a 0:02:34.440 --> 0:02:38.320 half percent number one, number two inflation. Wow, I'm looking. 0:02:38.400 --> 0:02:43.280 I use CPI, the PCE, and some of the other 0:02:43.280 --> 0:02:45.960 stuff the FED uses to me is a slice. And 0:02:46.000 --> 0:02:49.480 I understand somewhat why they like to eliminate a little 0:02:49.480 --> 0:02:53.600 bit of volatility of things. But I think the discussions 0:02:54.200 --> 0:02:56.480 in the large of why people don't feel good is 0:02:56.480 --> 0:02:59.360 it's the bigger numbers that affect them. And there are 0:02:59.400 --> 0:03:01.880 a lot of really interesting things. I mean, the cost 0:03:01.919 --> 0:03:04.800 of ensuring things, as you know, the cost of buying cars, 0:03:05.200 --> 0:03:07.560 some of the food costs, they're pretty staggering. And for 0:03:07.600 --> 0:03:11.720 the average person, airfares hotels are off the charts, and 0:03:11.800 --> 0:03:15.440 so you know the concept that maybe you're getting a 0:03:15.440 --> 0:03:17.760 little bit of a slowing in the rate of growth 0:03:17.760 --> 0:03:20.320 inflation if inflation, remember we're not we're still at three 0:03:20.360 --> 0:03:24.120 to four five percent wherever it is three six I 0:03:24.120 --> 0:03:26.560 think people are feeling it still, and I think that's 0:03:27.200 --> 0:03:29.600 one of the issues. I did want to mention something 0:03:29.639 --> 0:03:32.440 which I've been thinking about. I mean, there's been a 0:03:32.480 --> 0:03:35.400 lot of talk for the last two years basically about 0:03:35.400 --> 0:03:39.520 the inverted yield curve and why it has not indic 0:03:39.640 --> 0:03:42.280 you know, lived up to the expectations as an indicator 0:03:43.000 --> 0:03:47.480 of bad things to come. And I've been spending a 0:03:47.520 --> 0:03:51.640 lot of time thinking about this. The idea may well 0:03:51.680 --> 0:03:54.080 be that the inverted yield curve, given the structure of 0:03:54.080 --> 0:03:57.200 the economy now, is actually stimulative more than not. There 0:03:57.200 --> 0:04:00.320 are areas of the economy, obviously, like real estate, where hurts, 0:04:00.360 --> 0:04:02.840 but if you think about it, long term meals are 0:04:02.840 --> 0:04:05.880 still relatively low. In corporate America, if it wants to 0:04:05.920 --> 0:04:09.400 borrow using a four percent base with very tight spreads, 0:04:09.920 --> 0:04:13.880 long term borring costs so lower, So that's not a negative. 0:04:14.120 --> 0:04:18.839 Short term money money for the average investor is throwing 0:04:18.880 --> 0:04:21.159 off tons of yields. But on the other side, the 0:04:21.200 --> 0:04:23.720 real cost of money, the large borrowing is coming out 0:04:23.720 --> 0:04:26.520 of the government of the United States. So they're borrowing 0:04:26.960 --> 0:04:30.560 staggering quantities, they're short funding it, and then they're taking 0:04:30.600 --> 0:04:33.120 that money and it's running through the economy. So I 0:04:33.120 --> 0:04:35.919 think there is some interesting dynamics which have helped us 0:04:35.920 --> 0:04:39.800 support the economy a bit. We'll see as it goes 0:04:39.880 --> 0:04:40.520 right now, but. 0:04:41.680 --> 0:04:43.839 A lot of folks, Neil are saying that this FED 0:04:43.920 --> 0:04:45.919 is already behind the curve that they should be cutting. 0:04:46.600 --> 0:04:48.000 Now are you in that camp? 0:04:48.160 --> 0:04:48.320 You know? 0:04:50.839 --> 0:04:56.200 Look number one, they again there's an asymmetry to what 0:04:56.200 --> 0:04:59.000 they do. One piece of data that looks good, and 0:04:59.800 --> 0:05:03.000 they training the markets to go crazy. Six months. I 0:05:03.000 --> 0:05:05.000 mean we're six months or a year from where we were. 0:05:05.120 --> 0:05:07.640 The economy hasn't slowed, this argument. I know, you have 0:05:07.680 --> 0:05:09.960 built Bill Dudley on who's an old friend of mine, 0:05:10.160 --> 0:05:14.279 talking about about the neutral rate of interest rates and yeah, 0:05:14.320 --> 0:05:16.760 wherever that falls. And again, I think this goes back 0:05:16.760 --> 0:05:20.600 to some of the other questions. You know, central bankers, 0:05:20.600 --> 0:05:22.920 and as you know, I was one for a while, 0:05:23.760 --> 0:05:26.240 tend to look at the liability side of the economy. 0:05:26.360 --> 0:05:30.839 They've never really, in my view, fully incorporated the asset side. 0:05:31.279 --> 0:05:35.320 And I think we are in an asset positive environment 0:05:35.880 --> 0:05:38.440 so you know, and every time that Fred opens its mouth, 0:05:38.480 --> 0:05:40.760 of the market seems to get that it's, you know, 0:05:40.800 --> 0:05:45.240 it's expectations up. What happens yields have hard yields fall 0:05:45.279 --> 0:05:46.960 in the last couple of days, where one hundred basis 0:05:47.000 --> 0:05:50.279 points lower and long term meals over a year, the 0:05:50.360 --> 0:05:54.800 dollar starts to weaken. Stocks are throwing off value, and 0:05:55.680 --> 0:06:00.440 so every time you liquefy it works against the idea 0:06:00.480 --> 0:06:02.960 that you're going to get this sort of significant improvement 0:06:02.960 --> 0:06:04.760 and inflation. So I think we're going to be waiting. 0:06:05.600 --> 0:06:07.600 The last point is and I don't I know everyone's 0:06:07.640 --> 0:06:11.080 talking about September. I think Powell went off on a 0:06:11.160 --> 0:06:14.000 tangent last year because he was hoping he could get 0:06:14.040 --> 0:06:17.080 something done before the election. I do not know unless 0:06:17.120 --> 0:06:22.520 you get a significant downgrading in this economy how and 0:06:23.880 --> 0:06:27.320 or a staggering drop in the prices, which I don't see. 0:06:27.680 --> 0:06:29.479 I don't know how in front of this election, given 0:06:29.520 --> 0:06:32.960 the polarization that that the FED really and I know 0:06:33.000 --> 0:06:35.159 that this is not a political argument per se, but 0:06:35.880 --> 0:06:40.080 the meeting immediately before a major, maybe one of the 0:06:40.080 --> 0:06:41.960 most important elections for them to be doing that, I 0:06:42.000 --> 0:06:43.800 think is going to be a very difficult thing, all. 0:06:43.760 --> 0:06:46.200 Right, Neil, thanks so much for joining us in studio. 0:06:46.320 --> 0:06:48.760 Neil Grossman, he is a co founder of former CIO 0:06:48.800 --> 0:06:51.960 of t k n G Capital. Give him some thoughts 0:06:52.040 --> 0:06:55.520 on these markets on this federal reserve. He is a 0:06:55.560 --> 0:06:58.000 fed hawk. Let's just be clean and simple here. I 0:06:58.000 --> 0:07:00.000 try to tee him up to kind of soften it 0:07:00.040 --> 0:07:13.360 up a little bit, and nothing happening. Tech stocks continue 0:07:13.400 --> 0:07:14.840 to be the story. I mean, I love when my 0:07:14.880 --> 0:07:17.760 tech stocks are leading the market. I feel like that's 0:07:18.040 --> 0:07:20.880 all we've known for the last this is it. I'm 0:07:20.920 --> 0:07:23.760 all in, but I get a little nervous when like 0:07:23.960 --> 0:07:26.200 that's kind of it. You know, there's not that breath 0:07:26.200 --> 0:07:28.600 you like to see in the market. Let's talk to 0:07:28.720 --> 0:07:31.200 a person kind of an expert in this stuff. Melissa Auto, 0:07:31.320 --> 0:07:34.640 head of TMT research at Visible Alpha. Melissa, what's your 0:07:35.200 --> 0:07:39.040 tech call these days? Are you comfortable with where these 0:07:39.080 --> 0:07:41.640 companies are, with where their multiples are, with where their 0:07:41.680 --> 0:07:43.040 earnings are? How do you think about it? 0:07:44.080 --> 0:07:48.280 Thank you. I mean it's a really interesting time right 0:07:48.320 --> 0:07:50.600 now for the tech stocks. I think what we're seeing 0:07:50.760 --> 0:07:55.600 is that essentially garb is kind of worked growth. 0:07:55.320 --> 0:07:58.880 At a reasonable price. Those of us old enough to remember. 0:07:58.600 --> 0:07:59.920 That taking out my pencil. 0:08:00.080 --> 0:08:02.400 Yes, right, So I mean stocks that are trading at 0:08:02.480 --> 0:08:07.240 say twenty to thirty times are actually generating decent growth. 0:08:07.480 --> 0:08:09.760 So when you think about the multiple that they're they're 0:08:09.800 --> 0:08:14.120 generating or the ratio from that, it looks pretty reasonable, 0:08:14.640 --> 0:08:19.400 So it doesn't seem like it's out of proportion. And 0:08:19.480 --> 0:08:22.560 I mean, just coming out of the WWDC this week, 0:08:23.640 --> 0:08:25.960 I mean Apple trades at a range of twenty seven 0:08:26.000 --> 0:08:31.560 to say thirty two times based on forelooking estimates, you know, 0:08:31.640 --> 0:08:37.040 And I think what we've observed is that, you know, 0:08:37.520 --> 0:08:42.080 based on visible alpha consensus, there is a trajectory getting 0:08:42.559 --> 0:08:46.440 essentially built into the market that is looking like there 0:08:46.480 --> 0:08:50.000 could be a really compelling replacement cycle, which I think 0:08:50.040 --> 0:08:54.040 you know, essentially took Apple up this week. So I 0:08:54.040 --> 0:08:56.640 think when you think about what where the growth trajectory 0:08:56.720 --> 0:09:02.040 is going and where AI is potentially taking it, the 0:09:02.160 --> 0:09:03.760 landscape looks really interesting. 0:09:04.080 --> 0:09:04.600 That's where I. 0:09:04.520 --> 0:09:06.960 Want to go. So you mentioned that Apple Worldwide Developers 0:09:07.040 --> 0:09:09.440 Conference and the deal that it broke with open ai, 0:09:09.520 --> 0:09:11.160 and we talk a lot about open AI, we talk 0:09:11.200 --> 0:09:13.040 a lot about in video as well. So these are 0:09:13.080 --> 0:09:15.520 the two kind of marquee names. I'm curious sort of 0:09:15.960 --> 0:09:19.240 how you see that landscape shifting and evening out. So 0:09:19.280 --> 0:09:22.400 there's so much obvious promise and faith in in video, 0:09:22.440 --> 0:09:24.719 for instance, when do we begin to see that sort 0:09:24.720 --> 0:09:26.160 of trickle down and sort of what does it look 0:09:26.200 --> 0:09:27.760 like when mile beneath in video? 0:09:28.280 --> 0:09:31.520 I mean in videos, definitely a loadstar. I mean a 0:09:31.559 --> 0:09:33.960 holy back roll. I mean they just I mean, based 0:09:33.960 --> 0:09:39.040 on visible Aphican census we see in the data. This year, 0:09:39.120 --> 0:09:41.520 the data center revenues are expected to generate over one 0:09:41.559 --> 0:09:46.880 hundred billion dollars, but looking forward several years, it's. 0:09:46.520 --> 0:09:50.960 Going to over two hundred. One hundred billion dollars in revenue. 0:09:51.000 --> 0:09:54.320 Growth for one segment is expected in the market. That 0:09:54.559 --> 0:09:59.400 is astonishing growth. And so you know, I think when 0:09:59.559 --> 0:10:03.040 we look at that, it just tells us, Wow, there's 0:10:03.480 --> 0:10:07.959 something interesting coming down the pike, right, And so I think, 0:10:08.000 --> 0:10:10.400 you know, for Apple, you know, they're sort of the 0:10:10.480 --> 0:10:13.240 consumer end of that, they're the end user of that. 0:10:13.320 --> 0:10:16.560 What Nvidia does is they're essentially building the infrastructure that's 0:10:16.679 --> 0:10:21.120 enabling all of this generative AI to even happen, you know, 0:10:21.240 --> 0:10:26.120 to make it so that you know, users like you 0:10:26.200 --> 0:10:30.559 and I and organizations can actually have the compute power 0:10:30.640 --> 0:10:34.280 to do the generative AI things that are so productive 0:10:34.320 --> 0:10:35.040 and interesting. 0:10:35.720 --> 0:10:39.080 So in Vidia obviously, I think for most lay people 0:10:39.800 --> 0:10:42.600 that is their AI play, even though there's a lot 0:10:42.679 --> 0:10:46.800 more on the software side. I hear Microsoft mentioned as 0:10:47.040 --> 0:10:50.200 a way if you want exposure to kind of the 0:10:50.240 --> 0:10:53.040 next wave of technology, whether it's AI, whatever you like. 0:10:53.200 --> 0:10:54.760 I call it a big data two years ago and 0:10:54.800 --> 0:10:57.599 now now it's AI. Microsoft is a story. How do 0:10:57.600 --> 0:10:58.200 you think about that? 0:10:58.280 --> 0:11:02.000 I mean, Microsoft is another monster. I'm based on visible 0:11:02.040 --> 0:11:05.160 African census there Azure cloud business is expected to go 0:11:05.200 --> 0:11:08.000 from seventy five billion dollars and then over the next 0:11:08.040 --> 0:11:11.080 couple of years to one hundred and fifty billion. I mean, 0:11:11.559 --> 0:11:14.200 so between in Video and Microsoft together, you're talking about 0:11:14.200 --> 0:11:18.000 one hundred and seventy five billion dollars in expected new 0:11:18.080 --> 0:11:21.679 revenue growth. That's incredible. 0:11:22.200 --> 0:11:24.880 We had this news this week Bloomberg reporting that two 0:11:24.920 --> 0:11:27.319 regulators are looking into Microsoft and Video when it comes 0:11:27.320 --> 0:11:29.400 to AI, and I wonder stif what that tells you, 0:11:29.440 --> 0:11:32.160 not necessarily about those cases as they might be unfolding, 0:11:32.200 --> 0:11:34.720 but about where we are in this cycle. Again, we 0:11:34.760 --> 0:11:37.000 talk about the promise of AI. It things are moving 0:11:37.040 --> 0:11:39.440 so quickly. You talk about doubling revenue rents Quint saying 0:11:39.520 --> 0:11:41.040 like the in the s few that you're talking about. 0:11:41.080 --> 0:11:43.160 But you know, then you have news like this and 0:11:43.200 --> 0:11:44.800 you wonder sort of what what are the things that 0:11:44.920 --> 0:11:46.520 might slow this down or might bring this to a 0:11:46.520 --> 0:11:49.160 more normal pace. Is that even likely to happen? 0:11:49.160 --> 0:11:49.520 Do you think? 0:11:49.720 --> 0:11:52.000 I mean, it's a question that keeps me up at night. 0:11:52.640 --> 0:11:57.240 I'm like, what what happens if the consumer just doesn't adopt? 0:11:57.320 --> 0:11:59.520 If it doesn't click generative aidea. 0:11:59.200 --> 0:12:04.480 It doesn't click? Because I really remember covering Apple back 0:12:04.520 --> 0:12:09.280 in the day, pre iPhone, and I remember a lot 0:12:09.280 --> 0:12:11.760 of us in the investment community debating, oh is this 0:12:11.800 --> 0:12:13.480 thing going to take off? Or people going to like 0:12:13.559 --> 0:12:17.040 these touch screens or like there's no keyp head, you 0:12:17.040 --> 0:12:20.599 know what about the flip phone? Remember those days? And 0:12:21.520 --> 0:12:25.240 I remember there were two really distinct moments when I thought, Okay, 0:12:25.320 --> 0:12:28.200 this thing is going to be huge. The first was 0:12:28.240 --> 0:12:31.200 when I saw my one year old child taking her 0:12:31.240 --> 0:12:36.600 finger on an iPad and very engaging with this. Couldn't 0:12:36.640 --> 0:12:39.480 walk or talk really, but can engage with an iPad. 0:12:39.559 --> 0:12:42.480 I was like, Wow, this is really interesting. Wow, this 0:12:42.520 --> 0:12:46.200 could create a whole generation of users that are not 0:12:46.280 --> 0:12:50.200 really baked into expectations. And the second was my mom, 0:12:51.080 --> 0:12:55.160 widow and retiree saying, you know, I think I want to, 0:12:55.360 --> 0:12:58.280 you know, convert from a flip phone to an iPhone. 0:12:58.400 --> 0:13:00.320 What do you think should I do it? And then 0:13:00.640 --> 0:13:05.000 it really revolutionizing her life things like GPS takes her 0:13:05.040 --> 0:13:08.680 the way she engages with us and her friends, really 0:13:09.120 --> 0:13:13.440 making her life a lot more fun and easy. And 0:13:13.520 --> 0:13:18.040 so if generative AI is able to do that, I 0:13:18.040 --> 0:13:19.400 think it could be really interesting. 0:13:19.800 --> 0:13:23.840 Melissa thirty seconds left Amazon. What's your takeaway from Amazon? 0:13:24.640 --> 0:13:29.280 Amazon is in a really interesting position right now. We 0:13:29.480 --> 0:13:33.760 just I was just actually at the Amazon AWS Financial 0:13:33.840 --> 0:13:38.840 Services Symposium. There was a lot of discussion around how 0:13:38.920 --> 0:13:42.680 generative AI is being brought into organizations, and I think 0:13:42.960 --> 0:13:46.040 the big takeaway from that is that, you know, it's 0:13:46.080 --> 0:13:50.720 really going to move more to the cloud and companies 0:13:50.760 --> 0:13:54.240 are really feeling that FOMO trade. And so when I 0:13:54.280 --> 0:13:58.840 look at the Amazon expectations for the AWS business, we 0:13:58.920 --> 0:14:03.240 have seen the visible AFRIC consensus numbers for AWS margin 0:14:03.840 --> 0:14:06.600 go up one hundred and twenty basis points into Q two. 0:14:06.960 --> 0:14:09.960 So I think there's some interesting momentum coming in there. 0:14:10.400 --> 0:14:12.680 Melissa, thank you so much for joining us, Melissa Otto, 0:14:12.840 --> 0:14:15.640 she said of TMT research at Visible Alpha. Getting a 0:14:15.640 --> 0:14:23.520 little tech discussion this morning. David, you're a worldly guy. 0:14:23.680 --> 0:14:28.760 Let's talk US sanctions, Let's talk US industrial policy, US protectionism, 0:14:29.160 --> 0:14:32.560 US monetary policy. Are these good? Are they bad? Are 0:14:32.600 --> 0:14:35.080 they working? Or are they not working? I have no idea. 0:14:35.160 --> 0:14:37.440 I did pay attention when I was a duke to 0:14:37.480 --> 0:14:40.040 some of my economics classes, but I just don't know. 0:14:40.080 --> 0:14:46.400 Steve Hanke knows. He's professor at Johns Hopkins University. You know, Steve, 0:14:46.400 --> 0:14:48.440 thanks much for joining us here. This is an election year. 0:14:48.480 --> 0:14:51.600 I'm starting to hear a lot more discussion about global 0:14:51.680 --> 0:14:56.840 industrial policy, US industrial policy. Let's just start with you know, tariffs. 0:14:57.720 --> 0:15:01.840 Are tariffs good? Are tariffs protectionism? Are they good? Are 0:15:01.880 --> 0:15:04.600 they needed? Safe for the electrical v vehicle market? What 0:15:04.600 --> 0:15:05.000 do you think? 0:15:06.600 --> 0:15:07.600 I think they're terrible? 0:15:07.800 --> 0:15:08.200 Nobody. 0:15:09.720 --> 0:15:14.800 And we just keep getting getting all the major political 0:15:14.880 --> 0:15:19.800 players in the game, doubling down and proposing even more nutty, 0:15:20.400 --> 0:15:25.160 terrify ideas with each passing day. You know, we we 0:15:25.200 --> 0:15:29.440 had Trump yesterday. He's got some idea. He's he's going 0:15:29.440 --> 0:15:33.000 to replace the income tax with revenues from terrorists. 0:15:34.760 --> 0:15:39.320 Do we get we don't get revenues from tariffs, do we? 0:15:37.000 --> 0:15:39.520 Well? 0:15:40.320 --> 0:15:43.800 We we we we do get revenues from tariffs, but 0:15:44.480 --> 0:15:46.920 the revenues there are actually a tax that come out 0:15:46.960 --> 0:15:50.479 of the height of American consumers and businesses. 0:15:50.600 --> 0:15:53.400 So that's that. 0:15:53.560 --> 0:15:58.160 The terriffs thing is is really unbelievable because it's part 0:15:58.240 --> 0:16:04.760 of a larger picture. And sanctions are actually a form 0:16:04.800 --> 0:16:09.320 of protectionism. This is all really David under the umbrella 0:16:09.360 --> 0:16:14.160 of protectionism. So you have sanctions, and since two thousand, 0:16:15.400 --> 0:16:19.000 the United States has increased the number of sanctions that 0:16:19.000 --> 0:16:23.160 we've put on various individuals and countries by nine hundred percent. 0:16:23.840 --> 0:16:25.840 But it's amazing. 0:16:25.400 --> 0:16:29.960 Because the scholarly literature shows us that these things don't work. 0:16:31.120 --> 0:16:37.520 They always end up backfiring, creating a lot of unintended consequences, 0:16:38.440 --> 0:16:43.200 and the sanctioned countries and individuals always find workarounds one 0:16:43.200 --> 0:16:47.160 way or another to get out of them. But in 0:16:47.200 --> 0:16:50.120 the end, when I say they don't work, they usually 0:16:50.200 --> 0:16:53.480 create what's called a rally around the flag effect that 0:16:54.000 --> 0:17:01.560 keeps the targeted leaders or elites in countries in the 0:17:01.640 --> 0:17:06.439 Saddle Valley Naessa, one of my colleagues at Johns Hopkins 0:17:06.440 --> 0:17:12.440 and experienced diplomat Iranian of origin, just did a big 0:17:12.480 --> 0:17:17.359 study with three other colleagues on Iran and basically the 0:17:17.400 --> 0:17:23.159 sanctions we put on Iran have really created this rally 0:17:23.200 --> 0:17:27.280 around the flag effect because the idea was the US thought, well, 0:17:27.320 --> 0:17:30.480 we'll put the sanctions on that will put a lot 0:17:30.520 --> 0:17:33.120 of pressure on the middle class, and the middle class 0:17:33.119 --> 0:17:36.320 in Iran will come to our side. Well, no, the 0:17:36.320 --> 0:17:39.280 middle class either went to the sidelines or went on 0:17:39.320 --> 0:17:43.120 the side of the regime because they view those who 0:17:43.160 --> 0:17:45.520 imposed sanctions on as enemies. 0:17:45.880 --> 0:17:48.040 Steve, let me ask you a little bit more about that. 0:17:48.119 --> 0:17:49.560 And I think it's a rare day when I don't 0:17:49.600 --> 0:17:52.000 see in my inbox and message from the Treasury Department 0:17:52.000 --> 0:17:54.840 about a new sanction, particularly with regard to to Russia's 0:17:54.840 --> 0:17:56.800 invasion of Ukraine. And so we have the G Seven 0:17:56.840 --> 0:18:00.560 meetings unfolding now in Italy and the Treasury or Jennet 0:18:00.600 --> 0:18:03.080 Yellen announcing a new raft of sanctions against Russia I 0:18:03.080 --> 0:18:06.480 think tied to semiconductors. But you're gonna get something I 0:18:06.520 --> 0:18:07.919 wanted to ask you about, and that is this kind 0:18:07.920 --> 0:18:12.080 of recent history of the weaponization of sanctions, the Treasury Department, 0:18:12.280 --> 0:18:16.200 the administration, this and previous ones really relying on them 0:18:16.600 --> 0:18:19.280 as a tool. I mean, Jennet Yellen not shy about 0:18:19.320 --> 0:18:22.119 saying she thinks these are effective. You talk about hern 0:18:22.240 --> 0:18:25.160 as we pivot to Russia. Are they any more effective 0:18:25.200 --> 0:18:29.160 when there is an actual military war, when you see 0:18:29.160 --> 0:18:30.840 the kind of ratcheting up that we've seen here in 0:18:31.160 --> 0:18:32.080 recent years. 0:18:33.520 --> 0:18:34.240 The answer is no. 0:18:34.600 --> 0:18:39.280 If you read all of the scholarly literature tells exactly 0:18:39.359 --> 0:18:43.199 the same story, starting in World War One, and that's all. 0:18:43.560 --> 0:18:51.639 These almost never achieve their desired objectives. And let me 0:18:51.680 --> 0:18:54.359 give you, let me give you one. Let's go back 0:18:54.400 --> 0:18:57.720 to the nineteen seventies. You know when the Soviets invaded 0:18:58.400 --> 0:19:04.000 Afghanistan and nineteen seventy nine, Jimmy Carter was in the 0:19:04.040 --> 0:19:07.520 White House, of course, in Brazinski was a National Security advisor, 0:19:07.560 --> 0:19:12.040 and they put a ban on agricultural exports from the 0:19:12.160 --> 0:19:16.880 US to the Soviet Union. And what happened is what 0:19:17.160 --> 0:19:23.400 Bob Mandel called the Afghan effect, and that is the 0:19:23.440 --> 0:19:24.560 Soviets went. 0:19:24.480 --> 0:19:27.720 To Argentina right away and cut a deal for grain. 0:19:28.480 --> 0:19:32.440 US farmers, of course, were prohibited from sending an exporting 0:19:32.520 --> 0:19:36.800 grain to the Soviet Union, so that Argentines made out 0:19:36.920 --> 0:19:37.719 like bandits. 0:19:38.520 --> 0:19:40.440 The Soviets weren't hurt at all. 0:19:41.240 --> 0:19:46.840 And ironically, who was in power in Argentina at the time, well, 0:19:46.960 --> 0:19:48.159 Hunt was in power. 0:19:49.200 --> 0:19:51.120 They were supposedly the bad guys. 0:19:51.160 --> 0:19:56.040 So this is law, the kind of law of unintended consequences, 0:19:56.440 --> 0:19:58.000 this Afghan kind of effect. 0:19:58.160 --> 0:20:00.800 I guess we're seeing that now with with China. You 0:20:00.840 --> 0:20:04.040 see that that relationship between Russian and China has grown 0:20:04.080 --> 0:20:05.840 in warmth, shall we say, since the start of that. 0:20:05.880 --> 0:20:11.160 Well, yeah, this is absolutely they are blocked at the hip, 0:20:11.960 --> 0:20:15.240 and then it's because of these sanctions. And now we 0:20:15.320 --> 0:20:19.720 put even further batchel of sanctions on as you indicated 0:20:19.720 --> 0:20:20.560 with the G seven. 0:20:20.680 --> 0:20:21.600 So it's just. 0:20:21.640 --> 0:20:25.560 Something that doesn't work. But the problem is it's part 0:20:25.600 --> 0:20:32.399 of this protectionist thing. We the public thinks somehow they work, 0:20:32.520 --> 0:20:34.840 They have the impression that they work, they and they 0:20:34.920 --> 0:20:40.720 become familiar with, they think sanctions and comfortable with sisms. 0:20:41.160 --> 0:20:44.520 So if we're sanctioning somebody, why not put a quota 0:20:44.560 --> 0:20:47.600 on them or a terrif on them, so you get 0:20:47.640 --> 0:20:52.959 in out into the broader sphere of other kinds of 0:20:53.480 --> 0:20:55.320 government intervention. 0:20:55.800 --> 0:20:59.600 And Dan Steve David brought up China. I'd love to 0:20:59.600 --> 0:21:03.840 get your here because I think there's a founded concern 0:21:03.960 --> 0:21:08.360 on many Americans view about China, whether it's a technology 0:21:08.359 --> 0:21:12.040 cold war between China and the West. We're concerned about, 0:21:12.160 --> 0:21:15.320 you know, TikTok being so pervasive here in the US. 0:21:16.080 --> 0:21:18.359 What do you think the US policy should be about 0:21:18.480 --> 0:21:21.960 China in terms of trade and just overall relations there, 0:21:21.960 --> 0:21:25.080 because there are some significant, I would say meaningful concerns. 0:21:26.640 --> 0:21:29.760 Well, we have a lot of the S and B 0:21:29.880 --> 0:21:33.520 five hundred companies that are very involved in China and 0:21:34.840 --> 0:21:39.400 deriving considerable profits from China, And as far as I'm concerned, 0:21:39.400 --> 0:21:45.600 that's a good, good idea. Trade is always good. Once 0:21:45.640 --> 0:21:49.879 you start cutting trade off, you increase the chance that 0:21:49.920 --> 0:21:52.440 you're going to get into a hot war of some sort. 0:21:52.960 --> 0:21:57.240 And with the current administration, and this started of course 0:21:57.280 --> 0:22:03.080 with Trump and the former administration, we've essentially continued to escalate. 0:22:03.240 --> 0:22:07.479 Really what is an open commercial trade war with China, 0:22:07.840 --> 0:22:09.960 which I think is a very bad policy. 0:22:11.080 --> 0:22:13.320 Steeve, you mentioned Argentina moment ago. Maybe I can ask 0:22:13.359 --> 0:22:16.159 you about what's been going on there. Lastly, so we 0:22:16.160 --> 0:22:19.280 were talking about Argentina in the seventies, how about Argentina today? 0:22:19.359 --> 0:22:22.679 And you have President me like pushing really hard for 0:22:22.760 --> 0:22:25.879 this legislation that would make pretty radical changes and cuts 0:22:25.880 --> 0:22:28.960 to the Argentine economy, as he, i think, is going 0:22:29.000 --> 0:22:30.800 to Italy to meet with the IMF to try to 0:22:30.800 --> 0:22:33.960 renegotiate some of that country's debt once again. But we've 0:22:34.000 --> 0:22:35.840 seen the protests in the street. At the same time, 0:22:35.920 --> 0:22:40.639 we've seen Parliament in Argentina pass a kind of lighter 0:22:40.720 --> 0:22:43.000 version of that omnibus build that was designed to kind 0:22:43.000 --> 0:22:46.399 of rework the economy there. What's your read on that 0:22:46.480 --> 0:22:48.959 as you look to that part of the world. Do 0:22:49.000 --> 0:22:51.680 you see him as making progress despite it all? What's 0:22:51.720 --> 0:22:57.040 your sense of what Pemula is doing in Argentina. 0:22:57.840 --> 0:23:02.480