Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business app. Let Me Cantrell with
Speaker 2: Pimco joins us around the table, Libby, how does the
Speaker 2: President of the United States come back from that?
Speaker 1: Well?
Speaker 3: That is the I think the question for a lot
Speaker 3: of democratic strategies and for the White House. You know, Interestingly, John,
Speaker 3: you know, even though I think we all saw the
Speaker 3: same debate and you know, arguably the president really did
Speaker 3: not meet the very low expectations that were established for
Speaker 3: him by President Trump. You know, the the you know,
Speaker 3: the Biden campaign is acknowledging that he you know, as
Speaker 3: as Vice President Kamala Harris said, he had a slow start,
Speaker 3: but he finished strong.
Speaker 1: This is one debate.
Speaker 3: There will be another opportunity for another debate on September tenth.
Speaker 3: I doubt that debate happens at this point, honestly, So
Speaker 3: I think that they are, you know, they are at
Speaker 3: least indicating that this is, you know, this is going
Speaker 3: according to plan, and I do you know, I just
Speaker 3: think from a process perspective, it's really important to keep
Speaker 3: in mind here that there is no you know, party
Speaker 3: elder in the back room smoking a cigar deciding who
Speaker 3: the next Democratic nominee is going to be.
Speaker 1: This is Joe Biden.
Speaker 3: Joe Biden will be the nominee unless he steps down.
Speaker 3: Unless he decides, really in the next two weeks or so,
Speaker 3: that he is no longer going to run. That has
Speaker 3: to be his decision. That is nobody else's decision. That
Speaker 3: is not the donor's decision, it is not the Democratic
Speaker 3: strategy decision. That has to be Joe Biden's decision. And
Speaker 3: then even then there is no consensus candidate. So the
Speaker 3: thing that the Democrats risk here is that they don't
Speaker 3: if Joe Biden does decide not to run, that there
Speaker 3: could just be chaos, and that then undermines their whole
Speaker 3: pitch to the American people that they are the Party
Speaker 3: of stability, but it was very objectively an incredibly bad
Speaker 3: night for the president.
Speaker 2: You've indicated to us repeatedly that a lot of the
Speaker 2: questions you get asked is about who is going to
Speaker 2: ultimately be the candidate for the Democrats, And the words
Speaker 2: that you hear repeatedly from clients is not Joe Biden.
Speaker 2: You hear things like Michelle Obama, even Jamie Dimond. I
Speaker 2: think you shared with us a number of months ago.
Speaker 2: What do those conversations sound like now, particularly yesterday evening.
Speaker 3: Yeah, well, I would say that our traders had lots
Speaker 3: of ideas, had lots of views last night, and we're
Speaker 3: sharing with them with me, you know, in a very
Speaker 3: generous way that you know. I think that that, of course,
Speaker 3: is that narrative John is going to probably is going
Speaker 3: to reach a fevered pitch if it hasn't already. I
Speaker 3: just think people have to really understand though, that there
Speaker 3: is a process here that the Democratic Party has established
Speaker 3: and they have put their thumb on the scale. Joe
Speaker 3: Biden is going to be their nominee again unless the
Speaker 3: President of the United States takes it not this can
Speaker 3: only be his decision.
Speaker 1: I just can't reinforce that enough.
Speaker 4: So yes, I do.
Speaker 3: I think that the narratives around Michelle Obama and Jamie
Speaker 3: Diamond are going to just accelerate, for sure, But I
Speaker 3: don't think that changes the reality that this is likely
Speaker 3: what this is, and if it's not going to be,
Speaker 3: the decision has to be made really within the next.
Speaker 1: Week or so.
Speaker 5: Libby, you broke up the fact that Biden camp is
Speaker 5: saying he finished strong. Arguably he didn't. He didn't even
Speaker 5: end with a real pitch. The American people didn't bring
Speaker 5: up abortion. It's supposed to be all this money they're
Speaker 5: going to spend on trying to get out the vote.
Speaker 5: At the same time, I'm sure your phone was blowing
Speaker 5: up like mine with Democrats saying this is an unmitigated disaster.
Speaker 5: Do you see a schism now between Democrats and the
Speaker 5: White House and the campaign?
Speaker 3: Well, I do think that the down ballot Democrats, and
Speaker 3: you know we've talked about this before that, of course,
Speaker 3: the Democrats are much more vulnerable in the US Senate.
Speaker 3: They only control the Senate by one vote. Right now,
Speaker 3: twenty three of the thirty four seats are being defended
Speaker 3: by Democrats. Of those twenty three eight are vulnerable. So
Speaker 3: for those folks and Marie who are in these vulnerable
Speaker 3: races in the Senate and then also in the House,
Speaker 3: of course, I think that the Democrats are hoping that
Speaker 3: they can flip the House. There is a lot of
Speaker 3: concern that even though the polling shows that those Democrats
Speaker 3: are actually outperforming Biden by a pretty significant margin, that
Speaker 3: Biden's performance last night will just you know, continue to
Speaker 3: weigh not only on him but on their candidacy.
Speaker 4: But again, I.
Speaker 3: Just think this is the reality here is this is
Speaker 3: very difficult to change at this late in the game.
Speaker 3: This was not some sort of again just going to
Speaker 3: the conspiracy theories, This was not some plan by the
Speaker 3: Democrats to show Joe Biden's weakness and then to try
Speaker 3: to change the taicket. This is I think this was
Speaker 3: a mistake. This was sort of a political miscalculation. They
Speaker 3: really were, as you said earlier, they were really trying
Speaker 3: to reset the race. They wanted this, They set the
Speaker 3: terms for the debate. They were hoping that this would
Speaker 3: be able to recalibrate.
Speaker 4: And it's not.
Speaker 1: I think from a market's perspective.
Speaker 3: Let's see what happens I mean, there was some discussion
Speaker 3: about terroriffs yesterday, there was some sort of brief discussion
Speaker 3: about deficits. I didn't hear anything about that either candidate
Speaker 3: is going to be there's going to be any fiscal
Speaker 3: consolidation right there. They did not talk about deficit reduction.
Speaker 3: Only thing they did talk about was reinforcing the importance
Speaker 3: of Medicare and Social Security and not touching those entitlement programs.
Speaker 3: And as we know, that's a big source of the deficit. So,
Speaker 3: you know, maybe the market starts pricing in some of
Speaker 3: the terror risks that they've been sort of ignoring at
Speaker 3: this point. Maybe, you know, yields, you know, maybe the
Speaker 3: yield curve starts normalizing a little bit with this sort
Speaker 3: of the expectation that we're going to see, you know,
Speaker 3: even more spending.
Speaker 6: Yeah, yields are up a couple of basis points four
Speaker 6: point two eight percent yesterday on the ten year today.
Speaker 1: It's four point three percent.
Speaker 6: Whoo big fear, especially compared to what's going on in
Speaker 6: French bond markets.
Speaker 1: We talk a lot about Biden this morning. We didn't
Speaker 1: talk about Trump. We didn't talk.
Speaker 6: About the fact that it was really the focus on Biden,
Speaker 6: but it wasn't though Trump really representing the stellar performance.
Speaker 6: I am wondering about what this does to embolden him
Speaker 6: with respect to his choices for vice president, whether he
Speaker 6: leans more to a populist rather than a centrist, whether
Speaker 6: he feels like he has more of a mandate to
Speaker 6: cater more to the fringes in a way because there
Speaker 6: is a sort of a vacuum on.
Speaker 1: The other side of the ticket.
Speaker 3: Yeah, I think it's a great point. If Joe Biden
Speaker 3: did not meet the very low expectations that were established
Speaker 3: for him, and I think arguably President Trump did outperform expectations.
Speaker 3: He was more disciplined than certainly he was in those
Speaker 3: first debates in twenty twenty. He was more moderated. I
Speaker 3: actually think the format probably helped him, the fact that
Speaker 3: the mics were being muted. But I do think your
Speaker 3: point about vice president this is it puts his aper
Speaker 3: focus now because you know, folks are now, because of
Speaker 3: concerns around Biden's age, are going to make this much
Speaker 3: more of a referendum on the vice president than even
Speaker 3: it was before. And as a result, who Trump's vice
Speaker 3: president is going to be, it's probably even more important
Speaker 3: as well, because that debate that is likely to happen
Speaker 3: either an end of July or August is going to
Speaker 3: be you know again, more important. So so I do
Speaker 3: think that this is, you know, this is this was
Speaker 3: a win for for President Trump. As we all know,
Speaker 3: debates are more performed performative. They're more about performance than
Speaker 3: they are about style. And I think on style, you know,
Speaker 3: he you know, he definitely he won.
Speaker 7: All right.
Speaker 6: So you also said that the fiscal is coming into focus,
Speaker 6: and I want to get a sense from you, given
Speaker 6: what we didn't here yesterday, which is any discussion about
Speaker 6: taming this, how long can the United States remain, as
Speaker 6: John has mentioned many many times before, in this place
Speaker 6: of being able to have the privilege of acting recklessly.
Speaker 6: How long before the US starts to feel the same
Speaker 6: pressure of France does Yeah, And I think that is.
Speaker 1: The big question for sure.
Speaker 3: Again, you know what we've talked about this many times
Speaker 3: that you know, you can't replace something with nothing. And
Speaker 3: the fact that the US is the reserve currency, the
Speaker 3: fact that the treasury is the reserve asset of the world,
Speaker 3: the fact that central banks still hold treasuries, that the
Speaker 3: fact that they still have this flight to quality characteristics.
Speaker 3: I mean, all of this just sort of speaks to
Speaker 3: the fact that this privilege is still extended to the
Speaker 3: United States. And what we do expect, though, what we're
Speaker 3: telling our clients is that while we're not expecting the
Speaker 3: bond vigilanties necessarily to come back and to sort of enforce,
Speaker 3: you know, spending restraints on Washington anytime soon, we would
Speaker 3: expect that there would be some term premium that would
Speaker 3: increase at the long end of the curve. Right so,
Speaker 3: right now, the curve has been flat inverted for the
Speaker 3: last two years. You haven't, as an investor, been getting
Speaker 3: that premium to hold longer.
Speaker 1: Dated paper with deficits.
Speaker 3: And I think this is interesting. This didn't really come
Speaker 3: up last night, but the CBO last we upgraded their
Speaker 3: deficit projections for the United States and that they're numbers
Speaker 3: that are just really, you know, pretty surprising. They're six percent,
Speaker 3: seven percent, eight percent. You add back the cost of
Speaker 3: the Trump task cuts should the if and when they
Speaker 3: get extended, and then you're talking about eight percent deficits.
Speaker 3: And yet the markets don't really move. So we are
Speaker 3: expecting this to the markets to sort of internalize this
Speaker 3: at some point and be reflected again and increasing term
Speaker 3: premu at the long end of the curve. But in
Speaker 3: terms of the reserve currency status, the reserve assets status,
Speaker 3: that does not seem like it's going away, because as
Speaker 3: we've been mentioning, I mean, look at the other developed countries,
Speaker 3: look at the alternatives, right, you know, as we've talked
Speaker 3: about a lot Bill Gross's you know, you know assertion
Speaker 3: about the cleanest dirty shirt, the US is the cleanest
Speaker 3: dirty shirt. It's not clean, but it's a lot less
Speaker 3: dirty than a lot of the other alternatives.
Speaker 2: The best thing about treasuries this morning than not French bumps.
Speaker 2: I mean, that's kind of it, right. But what Lebby said, well,
Speaker 2: Libby said, I think is absolutely vine. So Deutsche Band
Speaker 2: could talk to about this as well. The extent to
Speaker 2: which is going to go on to pursue a very
Speaker 2: aggressive protectionist trade policy is something you have to take
Speaker 2: much more seriously this morning, based after what we saw
Speaker 2: last night.
Speaker 6: Even an independent government agency, as Libby was talking about,
Speaker 6: is ringing the alarm bells and saying that we're going
Speaker 6: to see deficits unlike what we have ever seen in
Speaker 6: our history. That is akin to more of an emerging market,
Speaker 6: and nobody's really noticing it, saying we'll be able to
Speaker 6: work it out.
Speaker 1: When do they start to notice?
Speaker 4: Lebby, thank you, it's good to see you. Thank you.
Speaker 2: A focus on the process, let me Cantrell of Pinco.
Speaker 2: The former World Bank president David Malpas writ in this
Speaker 2: in the Wall Street Journal, Mister Biden has blamed everything
Speaker 2: except the actual cause, expensive regulations and massive government spending.
Speaker 2: Donald Trump's approach to inflation should be he returned to
Speaker 2: office is likely to be different. Let markets produce more
Speaker 2: so that growth goes up and prices go down. David
Speaker 2: joins us now for more, David wonder for to get
Speaker 2: your perspective on the program. So I'm sure you've read
Speaker 2: the piece, the letter that came from the sixteen Nobel
Speaker 2: laureates earlier in the week warning about the risk associated
Speaker 2: with a Trump presidency and how it would reignite inflation.
Speaker 4: What would you say back to that this morning?
Speaker 8: That Trump was pretty clear on how you could get
Speaker 8: more growth and that's going to have a big impact
Speaker 8: on whether you have inflation. I think you know, I
Speaker 8: don't want to say PhD economists are off base, but
Speaker 8: the group really has a model that hasn't been working.
Speaker 8: Think of all the huge mistakes that have been made
Speaker 8: on inflation forecasts in the past. So what we know
Speaker 8: is that Trump articulated this plan where you have more energy,
Speaker 8: that holds down prices, that allows interest rate cuts, and
Speaker 8: you have more growth within the economy. He was really
Speaker 8: clear on how do you get jobs for minorities, you
Speaker 8: cut off illegal immigration, and you have more growth than
Speaker 8: the economy. I was surprised by the contrast with Biden,
Speaker 8: who was talking it seemed like almost as a senator
Speaker 8: talking about pell grants, talking about first time home buyer credits,
Speaker 8: the small things that aren't really getting to the core
Speaker 8: of the affordability crisis that we're in right now.
Speaker 2: David, let's just go through some of the policies extending
Speaker 2: the twenty seventeen tax cuts, potentially implementing a flat tariff.
Speaker 2: You've heard those same economists talk about why that would
Speaker 2: lead to higher inflation on those two specific issues, why
Speaker 2: wouldn't they contribute to higher prices.
Speaker 8: Yeah, I think if you raise taxes, you're going to
Speaker 8: get less production, and that actually will be inflationary. And
Speaker 8: Biden is proposing big tax increases and that's factored into
Speaker 8: the growth forecasts that CBO put out. You know, the
Speaker 8: deficit forecasts that they're projecting under Biden are dependent on
Speaker 8: the idea that the economy will stay slow growing into
Speaker 8: the future. Trump is really going the opposite way and saying, no,
Speaker 8: that's not the economy that we want. We want a
Speaker 8: better economy that would generate more tax revenues and also
Speaker 8: more prosperity for people.
Speaker 6: David, this is something that we've just discussed before, and
Speaker 6: it's a controversial point, the idea that you can grow
Speaker 6: your way into the deficit by cutting taxes versus having
Speaker 6: to raise revenues. I don't want to have that debate
Speaker 6: right now. I do want to talk about the idea
Speaker 6: of tariffs and what that does going forward, which is
Speaker 6: something that Donald Trump could unilaterally do. Do you believe
Speaker 6: in your core that if the former president does become
Speaker 6: elected and does engage with pretty significant tariffs across the board,
Speaker 6: which you can do unilaterally, that if the market sells off,
Speaker 6: h would reverse course.
Speaker 8: We've seen Biden continue the tariffs that were on China,
Speaker 8: and the market is able to digest a whole lot
Speaker 8: of things, as it's doing this morning.
Speaker 9: So I think the.
Speaker 8: Market adjusts to the policies, and the overall question is
Speaker 8: is the US going to be a strong player on
Speaker 8: the international scene. Trump talked to I thought very effectively
Speaker 8: last night about Afghanistan and the disaster that that created,
Speaker 8: and it's spilling over to all the other world situations.
Speaker 8: So you can create a better world by having an
Speaker 8: actual plan that's based on production. And so you're saying,
Speaker 8: what about tariffs, Well, there's a whole there's a whole plan,
Speaker 8: or excuse me, there are lots of things that can
Speaker 8: be done in the US to really allow this strong
Speaker 8: economy to move forward.
Speaker 6: Well, but David, just to sort of pick up on
Speaker 6: the tariff point and what I was getting at, there
Speaker 6: is a belief in markets that potentially the former president
Speaker 6: would reverse course on tariffs that were highly negative for
Speaker 6: the market. A lot of people have come on the
Speaker 6: show and said a lot of the tariffs that have
Speaker 6: been proposed would increase inflation in this country and would
Speaker 6: actually create a real negative situation for a number of companies.
Speaker 6: Do you believe that if the market does sell off,
Speaker 6: that will provide a check to the former president and
Speaker 6: the hue reverse course.
Speaker 8: Huh, Well, that's a real hypothet. So really, I think
Speaker 8: what we have to do is over the next five months,
Speaker 8: survive and then see how do you resolve some of
Speaker 8: the wars and how meaning resolve them quickly and allow
Speaker 8: energy production to start. And then as you look at tariffs,
Speaker 8: I think there needs to be a real rethink of
Speaker 8: how do we interact with China, who has been this
Speaker 8: giant overproducer or very successful industrial producer that takes away
Speaker 8: jobs from rest of the world. There needs to be
Speaker 8: a world discussion of that. You're seeing the politics in Europe.
Speaker 8: You were just referring to it of people in Europe
Speaker 8: realizing that this cost on climate is really hurting their competitiveness.
Speaker 8: So Germany's economy is in deep trouble in part because
Speaker 8: energy costs are so high, So that drives people to
Speaker 8: other answers to try to deal with and interact with
Speaker 8: China into the future. I think that'll be an important
Speaker 8: part of a new administration.
Speaker 5: David, Let's go where you almost went though. What is
Speaker 5: the plan on tariffs? Are these just talking points right
Speaker 5: now or is this a plan? If we were to
Speaker 5: get Trump to be president again, that is going to
Speaker 5: be ten percent tarifful for all imported goods and fifty
Speaker 5: plus on Chinese imported goods.
Speaker 8: You have to have a room with people in it,
Speaker 8: with lawyers in it, with how do you what is
Speaker 8: the legislative process with it? So I think there will
Speaker 8: be a very detailed discussion of how do we protect
Speaker 8: or excuse me, how do we have sectors in the
Speaker 8: US that are able to stand up to subsidize production
Speaker 8: from abroad. And that's a valid discussion to have, should
Speaker 8: have been happening already and needs to be done more deeply.
Speaker 5: We had on Miyamaguinness today from the Committee for Our
Speaker 5: Responsible Federal Budget. I'm sure you know her well, and
Speaker 5: they put out some numbers this week about how President
Speaker 5: Trump approved eight point four trillion dollars of new tenure
Speaker 5: barring during his full term and Biden during his first
Speaker 5: three years and five months approved four point three trillion
Speaker 5: of new ten yure barring. Do you honestly think either
Speaker 5: of these individuals are not going to add a substantial
Speaker 5: amount of money.
Speaker 1: To the deficit.
Speaker 8: To the deficit, so let's talk about debt and deficit.
Speaker 8: If you have a faster growing economy, you won't have
Speaker 8: as big a deficit, as Biden is projected to have.
Speaker 8: CBO is operating from the economic plan that's in place now,
Speaker 8: which is one where and you heard it all last
Speaker 8: night in great detail. The government is going to be
Speaker 8: the solution for each thing. And interest rates are going
Speaker 8: to stay high for a long time because of the inflation.
Speaker 8: So if you project that out, you're going to get
Speaker 8: huge deficits into the future, which is what shows up
Speaker 8: in the CBO forecast. If you redo the forecast based
Speaker 8: on a growth program, you don't get those deficits now.
Speaker 8: I think there also has to be very strong restraint
Speaker 8: on spending. Washington is spending like crazy, and it's out
Speaker 8: into the future. It's every month, it's trillions of dollars
Speaker 8: going out the door. President Trump talked about the Paris
Speaker 8: Agreement costing one trillion dollars. I think he's understating it.
Speaker 8: It's worse than that. So on the energy front alone,
Speaker 8: that's the The subsidies and credits that are being put
Speaker 8: out on that side are super expensive. Some of that
Speaker 8: can be saved still, and the market will react positively
Speaker 8: if you say anything that causes them to think you're
Speaker 8: going to have some restraint. Right now, they're operating on
Speaker 8: the idea of no restraint and that keeps interest rights high.
Speaker 2: David, you're close to the campaign. It's all quite on
Speaker 2: the VP front. Who should we be focused on?
Speaker 4: Do you think?
Speaker 8: No, I don't have a you know, that's up to
Speaker 8: President Trump, and I think what you saw last night
Speaker 8: is somebody that's going to make a lot of decisions
Speaker 8: on things. He landed a lot of blows, and one
Speaker 8: of them was that Biden hasn't fired anyone. You know,
Speaker 8: this is a really important part of management and of governing,
Speaker 8: of choosing people, and Trump will have the chance to
Speaker 8: have really strong people in across the board, and I
Speaker 8: think that can really help. There just hasn't been enough
Speaker 8: strength within the US administration. That's that's operating now, and
Speaker 8: you see it in every policy meeting that that I
Speaker 8: was in. You see it in the results that came
Speaker 8: out of those programs. It's not working and so we
Speaker 8: need change.
Speaker 2: David scrat a catch ups as always, and I will
Speaker 2: continue this conversation over the next four months or so.
Speaker 2: David Malpass, the former Will Bank president, joining us now
Speaker 2: to continue this conversation. And police are Saize Mohammed Aaron
Speaker 2: of Queen's College, Cambridge Mohamed, Let's talk about the fatality
Speaker 2: of the day.
Speaker 4: I'm going to sound like a FED official.
Speaker 2: When you look at the totality of the data, are
Speaker 2: you seeing concrete signs of the economic slow down, a
Speaker 2: loss of momentum? And do you think a conversation about
Speaker 2: reducing interest rates as soon as next month is warranted?
Speaker 9: Yes?
Speaker 7: And yes, John, So if you look at the data
Speaker 7: as a whole, the economy is slowing, and it's slowing
Speaker 7: faster than most economists expect, and certainly more faster than
Speaker 7: what the FED expects. So yes, on the whole, the
Speaker 7: economy is slowing. And let's remember this is an economy
Speaker 7: that has very few buffers. Most of the buffers that
Speaker 7: we've had in terms of personal savings, in terms of
Speaker 7: debt capacity, they've been run down. And that leads you
Speaker 7: to the second question, which is a forward looking FED
Speaker 7: would certainly have the possibility of a July cut on
Speaker 7: the table.
Speaker 2: How much daylight do you think there is between what
Speaker 2: you think they should do and what they will do?
Speaker 9: Too much?
Speaker 7: You know, if I were them, I would seriously look
Speaker 7: at July as being a live meeting. I don't think
Speaker 7: that's the case. I think that's even a question mark
Speaker 7: in the market. And certainly if you look at what
Speaker 7: the narrative of the last few days by FED official
Speaker 7: as to whether even September is alive. Right now, the
Speaker 7: market gives less than a fifty percent probability of a
Speaker 7: weight cut in September. So the narrative has been pushing
Speaker 7: back the weight increase towards the end of the year.
Speaker 7: Had one or two federal officials would like to keep
Speaker 7: open the pusibility of a hike, and I think that
Speaker 7: is a long way from where they should be based
Speaker 7: on what's happening to the economy. But unfortunately, John, that've
Speaker 7: been burnt a couple of times or ready. And let's
Speaker 7: not forget there's still excessively data dependence, so it it
Speaker 7: takes quite a bit of historic data to get them
Speaker 7: to change.
Speaker 1: So I'm not going to sound like John here.
Speaker 6: Let's not talk about the totality of the data or
Speaker 6: a FED official.
Speaker 1: Let's cherry pick.
Speaker 6: Let's talk about some very specific numbers. I want to
Speaker 6: cherry pick personal income coming at zero point five percent
Speaker 6: versus the expectation of zero point four percent, that is
Speaker 6: up from zero point three percent in the.
Speaker 1: Prior month, Mohammed.
Speaker 6: Just looking at personal income and the fact that it's
Speaker 6: increasing even as personal spending declines, does that give you
Speaker 6: a sense if we just wanted to cherry pick that number,
Speaker 6: understanding the totality of the data is different, that maybe
Speaker 6: people are actually in a better place and have a
Speaker 6: greater ammunition and set of financial tools to keep spending
Speaker 6: at a pretty robust pace.
Speaker 7: Lisa, I'd love to be where you are, okay, But
Speaker 7: there's a problem even if we cherry pick, and even
Speaker 7: if we say one month's data has a ton of
Speaker 7: information content.
Speaker 9: So these are big, two big assumptions.
Speaker 7: I wouldn't know if the increased savings that comes from
Speaker 7: income going more than spending is it voluntary or is
Speaker 7: it forced? Are people voluntarily saving more or do people
Speaker 7: feel forced to save more. So, as much as I
Speaker 7: would like to go to where you are in terms
Speaker 7: of that number, I hesitate because you first you have
Speaker 7: to assume a way some pretty important things. But secondly,
Speaker 7: we don't know whether it's voluntary or forced.
Speaker 1: That's a fascinating point.
Speaker 6: I'm sitting here thinking about that at a time what
Speaker 6: other people might say the reason why they're not spending
Speaker 6: is because they're not buying homes and they're not feeling
Speaker 6: like they have the capacity and the mobility to do so.
Speaker 6: One argument that some of the more inflationistas out there
Speaker 6: have made is that if the FED were to cut
Speaker 6: rates by twenty twenty five basis points next month, that
Speaker 6: would reignite a surge of interest in the housing market
Speaker 6: and then you could see actually prices climb much more
Speaker 6: substantially as a result.
Speaker 1: Do you believe that to be the case, and if not,
Speaker 1: why so?
Speaker 7: I don't think twenty five basis points is going to
Speaker 7: make that much of a difference sort of housing market.
Speaker 7: That's the first issue. I think you'd need a lot
Speaker 7: more than twenty five basis points. Don't forget how much
Speaker 7: we've moved the other way. That's the first point. And second,
Speaker 7: on housing, it gets even more complicated because supply has
Speaker 7: been impacted in a way that most people didn't expect.
Speaker 7: So most people thought that the demand for would come
Speaker 7: down as weates went up. What they didn't realize is
Speaker 7: that the supply of housing would also come down as
Speaker 7: people hesitated from going from a very low weight mortgage
Speaker 7: to a current mortgage. So you know, again that market
Speaker 7: has been distorted by what happened during this long period
Speaker 7: of rock bottom rates, and we must not forget that
Speaker 7: a lot of distortions occurred, and in slower moving asset
Speaker 7: classes like housing, it takes time to get these distortions
Speaker 7: out of the system.
Speaker 6: I'm just wondering if twenty five basis points wouldn't necessarily
Speaker 6: reignite the housing market. Is there still a reverse argument
Speaker 6: that if they don't cut by twenty five basis points
Speaker 6: next month, that they could be accelerating a tipping point
Speaker 6: that the US labor market is already reaching.
Speaker 9: So that's where I am.
Speaker 7: I think if you look at the tails of the distribution,
Speaker 7: or if you look at type one eraror type two
Speaker 7: error right now, the one that scares more is that
Speaker 7: they are too slow. They are too high for too long,
Speaker 7: and that economy slows in such an extent that two
Speaker 7: things happen. First, they can't moderate the slowing, and second
Speaker 7: they end up by having to cut weights much more
Speaker 7: than they would have otherwise, just like they ended up
Speaker 7: by hiking weights much more than they would have had
Speaker 7: otherwise because they were so late. So when I look
Speaker 7: at the tails of the distribution, and remember I put
Speaker 7: on the table the notion that a soft landing is
Speaker 7: fifty percent thirty five percent is that we end up
Speaker 7: in recession because the FED doesn't react quickly enough, and
Speaker 7: fifteen percent is the bigger but not hotter that you
Speaker 7: get a supply, a positive supply shop something like that.
Speaker 9: When I look at that distribution, yeah, I do worry.
Speaker 7: I do worry that the more likely error right now
Speaker 7: is that the FED will not start cutting early enough,
Speaker 7: and then we'll be forced into cutting aggressively, but it's
Speaker 7: not going to have the impact in terms of slowing
Speaker 7: or moderating the slow down, and then will overshoot on
Speaker 7: the way down.
Speaker 4: Yet again, maham, there's a new wrinkle.
Speaker 2: How independent is all of this from policy out of
Speaker 2: the White House in twenty twenty five?
Speaker 7: So, John, I've been fascinated by the discussion you've had
Speaker 7: as to why are markets so calm about US politics?
Speaker 7: Why are so market calm when the yen is at
Speaker 7: one sixty? Why are so markets calm when French Germany
Speaker 7: the spread is at eighty four basis points? And the
Speaker 7: list goes on and on. Why are they so calm
Speaker 7: on the Middle East conflict? Can intensify. And I think
Speaker 7: the reason is because we here in the US have
Speaker 7: three things going for us. One is it belief in
Speaker 7: economic exceptionalism that we can soft land the economy or
Speaker 7: even no land at all. That's still actually the central
Speaker 7: scenario for a lot of people. That's number one. Two
Speaker 7: that we ultimately believe the FED will cut. And three
Speaker 7: we believe that in Video and the Ai revolution is
Speaker 7: such a positive supply shock that it's going to keep on.
Speaker 9: Giving and giving and giving. You know.
Speaker 7: On the three I worry most about the economic assumption.
Speaker 7: And that's why if that economic assumption is tested in
Speaker 7: the months ahead, then the politics, what's happening around the world,
Speaker 7: suddenly all these things will become will capture much more
Speaker 7: attention in the marketplace than they have so far.
Speaker 5: Muhammad, that we're waking up after a moment where the
Speaker 5: sitting president had what everyone is calling a disastrous debate.
Speaker 5: Obama's former campaign manager went on MSNBC and called it
Speaker 5: def Con one. Alarm bells are ringing what would be
Speaker 5: enough between now and November, or potentially what political movement
Speaker 5: could move the markets between now and November.
Speaker 7: So this is your world and much more than mine.
Speaker 7: I think the market truly believes, despite what they hear
Speaker 7: from some economists, that when push comes to shove, whether
Speaker 7: it's President Biden re elected or whether it's President Trump
Speaker 7: comes back into the White House, the degrees of freedom
Speaker 7: is not going to be as much the degree of
Speaker 7: freedom what there will be maybe on tariffs, but we've
Speaker 7: seen that both of them actually are very similar in
Speaker 7: what they end up doing. So the market i think
Speaker 7: senses that despite what the economs are telling them about
Speaker 7: fiscal policy, tariffs, everything else, that when push comes to show,
Speaker 7: these two individuals when in power, will be relatively similar
Speaker 7: in economic policies. Why because we've had four years of
Speaker 7: each and the market has been able to observe what
Speaker 7: they've done. Now bring in the possibility of someone new,
Speaker 7: and that suddenly changes that whole construct.
Speaker 9: So reponding to your question, you know, that's the big
Speaker 9: question is that if.
Speaker 7: You bring someone new into the equation, how will the
Speaker 7: market evaluate and what degree of confidence will markets have?
Speaker 7: It really helps them out that they saw both individuals
Speaker 7: in the White House.
Speaker 2: MA, I'm gonna just want to finish on this and
Speaker 2: get you to elaborate on a final detail. In the UK,
Speaker 2: the guilt market has been a constraining regulating force on
Speaker 2: all kinds of policies coming out of either party in
Speaker 2: this election race, and you can see that in the
Speaker 2: nervousness they have talking about the deficit. You're seeing a
Speaker 2: similar thing take place in France right now. Do you
Speaker 2: think this treasury market could become a regulating force over
Speaker 2: the next administration in this country in the United States?
Speaker 2: Or will we retain that unique privilege to do other things?
Speaker 7: We will unique that we will retain that unique privilege, John,
Speaker 7: because the rest of the world is so messy. So
Speaker 7: I think of it very simply. Whether it's France, whether
Speaker 7: it's the UK, they solve an absolute space. If there
Speaker 7: is physical irresponsibility, then they will feel it regardless of
Speaker 7: what's happening elsewhere. The US solves, the US bond market
Speaker 7: solves in a relative space. As as long as other
Speaker 7: countries are more irresponsible than us, then we can continue
Speaker 7: being irresponsible.
Speaker 2: Muhammed al erin that This is the Bloomberg Surveillance Podcast,
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