1 00:00:00,080 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:33,560 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. If 5 00:00:33,600 --> 00:00:35,960 Speaker 1: you want some price sanction, maybe you need to go 6 00:00:36,120 --> 00:00:39,520 Speaker 1: to Emerging markets and effects this morning a want to punch, 7 00:00:39,600 --> 00:00:43,080 Speaker 1: and both of those lead to the same source. US sanctions, 8 00:00:43,159 --> 00:00:45,920 Speaker 1: Russia threatening to retaliate for a new round of sanctions 9 00:00:45,960 --> 00:00:48,960 Speaker 1: announced by the United States, and Urdawan's delegation to the 10 00:00:49,000 --> 00:00:52,760 Speaker 1: United States failing to secure any concessions from the administration 11 00:00:52,800 --> 00:00:55,440 Speaker 1: in Washington. Join me to discuss this. Shahab John news 12 00:00:55,480 --> 00:00:58,720 Speaker 1: Credit Sweete, Global head of FEC Strategy, Good morning to 13 00:00:58,720 --> 00:01:01,920 Speaker 1: your Shahab wanning E m f X. Walk me through 14 00:01:01,960 --> 00:01:05,319 Speaker 1: whether this is idiosyncratic or whether there's a much bigger 15 00:01:05,360 --> 00:01:09,640 Speaker 1: story taking place here. I think the underlying story is 16 00:01:09,720 --> 00:01:14,119 Speaker 1: and has been, the rising global yields, which obviously puts 17 00:01:14,120 --> 00:01:16,880 Speaker 1: pressure on all emerging markets. But on top of that 18 00:01:16,920 --> 00:01:20,479 Speaker 1: you have clearly the trade story, the tariff's story as well, 19 00:01:21,440 --> 00:01:25,240 Speaker 1: which is as a severe risk to export oriented economies 20 00:01:25,440 --> 00:01:27,720 Speaker 1: and what that what happens then is if you don't 21 00:01:27,760 --> 00:01:31,399 Speaker 1: throw in specific themes like sanctions as well, um, you've 22 00:01:31,440 --> 00:01:35,280 Speaker 1: really got a very weak patience that's not necessarily ready, 23 00:01:35,440 --> 00:01:38,320 Speaker 1: you know, for yet another sickness. And I think that's 24 00:01:38,440 --> 00:01:41,640 Speaker 1: for countries like Turkey. That's definitely what the problem we 25 00:01:41,680 --> 00:01:44,279 Speaker 1: have is right now dot A Turkey moving by another 26 00:01:44,319 --> 00:01:47,440 Speaker 1: two percentage points again today. I mean, we're seeing big 27 00:01:47,480 --> 00:01:49,440 Speaker 1: moves in Turkish markets. And I think what a lot 28 00:01:49,440 --> 00:01:51,400 Speaker 1: of people perhaps listening to this program are trying to 29 00:01:51,440 --> 00:01:54,560 Speaker 1: figure out is how this bleeds, the contagion, the ripple effect, 30 00:01:54,560 --> 00:01:57,120 Speaker 1: the channels for that. How do you see this playing 31 00:01:57,120 --> 00:01:58,720 Speaker 1: out at the moment, At the moment it might be 32 00:01:58,720 --> 00:02:00,840 Speaker 1: contained to Turkish assets, do you see it bleeding into 33 00:02:00,920 --> 00:02:04,640 Speaker 1: financial system and potentially beyond shaub So, I think the 34 00:02:05,080 --> 00:02:08,480 Speaker 1: sanctions story, the way that bleeds is that the market 35 00:02:08,520 --> 00:02:10,760 Speaker 1: looks at any other country that could have a sanctions 36 00:02:10,880 --> 00:02:14,280 Speaker 1: risk as well, um, And of course Russia is right 37 00:02:14,280 --> 00:02:17,600 Speaker 1: now clearly in that zone UM, and worries about those 38 00:02:17,639 --> 00:02:19,800 Speaker 1: and you need a bigger risk premium. And of course 39 00:02:20,160 --> 00:02:22,880 Speaker 1: right now the U S seems to have a number 40 00:02:22,880 --> 00:02:25,600 Speaker 1: of different spats with a number of different countries, so 41 00:02:25,639 --> 00:02:30,359 Speaker 1: that's one factor in terms of more direct financial contagion. 42 00:02:31,000 --> 00:02:34,720 Speaker 1: The easiest way that could happen would be for severe 43 00:02:34,800 --> 00:02:38,640 Speaker 1: losses on Turkish assets UM due to for example, default 44 00:02:38,760 --> 00:02:42,800 Speaker 1: risk or something of that nature, leading markets to have 45 00:02:42,960 --> 00:02:45,840 Speaker 1: to sell out of other places with risk UM Now 46 00:02:45,840 --> 00:02:47,480 Speaker 1: at the moment, I think that the risk of that 47 00:02:47,560 --> 00:02:50,240 Speaker 1: is relatively low, just because so many investors have already 48 00:02:50,280 --> 00:02:52,600 Speaker 1: sold the Turkish assets. Maybe that the risk is more 49 00:02:52,639 --> 00:02:55,520 Speaker 1: localized right now to Turkey from that perspective, but it's 50 00:02:55,560 --> 00:02:57,959 Speaker 1: something that you shouldn't rule out and definitely keep an eye. 51 00:02:58,040 --> 00:03:00,240 Speaker 1: Something that we've explored on this program is how a 52 00:03:00,320 --> 00:03:02,800 Speaker 1: technical issue can quickly become a fundamental one when you 53 00:03:02,800 --> 00:03:05,160 Speaker 1: have to address what's happening in Turkey's markets, when you 54 00:03:05,160 --> 00:03:07,560 Speaker 1: have to address what happens in Russia, Argentina and elsewhere. 55 00:03:07,800 --> 00:03:10,799 Speaker 1: All of a sudden, short term rates in these countries 56 00:03:10,840 --> 00:03:13,440 Speaker 1: are just aggressively higher, and then you have to think 57 00:03:13,440 --> 00:03:15,920 Speaker 1: about whether that chokes offt growth and chokes off earnings 58 00:03:15,919 --> 00:03:18,919 Speaker 1: of local companies as well. Are we at that point 59 00:03:18,919 --> 00:03:21,480 Speaker 1: now already? Sharp? I think for sure. In the case 60 00:03:21,520 --> 00:03:25,760 Speaker 1: of Argentina, we've we've passed that point. In Turkey's case, 61 00:03:25,840 --> 00:03:28,200 Speaker 1: we are definitely at that point that the reality is 62 00:03:28,240 --> 00:03:31,480 Speaker 1: that the reason why earlier going and others in Turkey 63 00:03:31,800 --> 00:03:35,160 Speaker 1: don't want much higher rates is their knowledge that that 64 00:03:35,200 --> 00:03:37,360 Speaker 1: will probably go hand in hand with the recession, and 65 00:03:37,360 --> 00:03:40,760 Speaker 1: that's obviously something that's politically unpalatable. So that point has 66 00:03:40,800 --> 00:03:43,120 Speaker 1: already been reached. The only question now is the path 67 00:03:43,200 --> 00:03:46,000 Speaker 1: we take from here in terms of whether they go 68 00:03:46,080 --> 00:03:48,840 Speaker 1: for an early stabilization of the currency or not. Can 69 00:03:48,880 --> 00:03:52,680 Speaker 1: I switch gears? You can? Can I do that? Permission? 70 00:03:52,720 --> 00:03:55,880 Speaker 1: You have permission very quietly. You know, we're talking about 71 00:03:55,880 --> 00:03:58,040 Speaker 1: Sterling blah blah blah and e M and all that. 72 00:03:58,200 --> 00:04:03,000 Speaker 1: I get it. Euros is on the move. We haven't 73 00:04:03,000 --> 00:04:07,040 Speaker 1: talked about Switzerland and this huge signal, if you will, 74 00:04:07,120 --> 00:04:10,480 Speaker 1: this traffic signal for all of foreign exchange. Why is 75 00:04:10,560 --> 00:04:14,720 Speaker 1: Swiss stronger versus the Euro? The Swiss franc continues to 76 00:04:14,800 --> 00:04:19,000 Speaker 1: play a role as the ultimate barometer, explain it to 77 00:04:19,040 --> 00:04:22,400 Speaker 1: our audience well of local European problems. So we do 78 00:04:22,520 --> 00:04:25,400 Speaker 1: have a situation still where the market knows that they 79 00:04:25,440 --> 00:04:29,680 Speaker 1: have to be potentially contentious budget negotiations in Italy, UH 80 00:04:29,839 --> 00:04:32,119 Speaker 1: and there is a risk premium, so it's a flight 81 00:04:32,200 --> 00:04:35,799 Speaker 1: to quality. It's still in FX space. The Euro against 82 00:04:35,839 --> 00:04:39,120 Speaker 1: the Swiss Franc remains the ultimate barometer of how intra 83 00:04:39,240 --> 00:04:42,640 Speaker 1: European tensions are. So if A. C. Malona is going 84 00:04:42,640 --> 00:04:47,040 Speaker 1: down the tubes and what's it called Juventus juveniles, they're 85 00:04:47,080 --> 00:04:50,080 Speaker 1: going up with with the Renault and all that. The 86 00:04:50,120 --> 00:04:57,240 Speaker 1: answer Swiss Frank you just to Renaldo was renaled Renaldo? Anyways? 87 00:04:57,279 --> 00:05:00,240 Speaker 1: I mean Swiss Frank's moving off of Italy, right it is. 88 00:05:00,279 --> 00:05:02,320 Speaker 1: And look, at the end of the day, market also 89 00:05:02,480 --> 00:05:05,680 Speaker 1: knows that the capacity of the Swiss National Bank to 90 00:05:05,800 --> 00:05:08,920 Speaker 1: continue to intervene and Prince Swiss Frank's to expand this 91 00:05:09,000 --> 00:05:11,440 Speaker 1: balance sheet is lower than in the past because the 92 00:05:11,520 --> 00:05:14,080 Speaker 1: currency is much weaker than it was let's say a 93 00:05:14,120 --> 00:05:16,720 Speaker 1: year ago. And you know this, Switzerland want to be 94 00:05:17,040 --> 00:05:19,880 Speaker 1: the only buyer, for example, of Italian debt at the 95 00:05:19,960 --> 00:05:23,919 Speaker 1: time of budget crisis in Italy. Probably not. So the 96 00:05:23,920 --> 00:05:26,280 Speaker 1: market knows this, and that's one of the reasons why 97 00:05:26,320 --> 00:05:28,920 Speaker 1: the Swiss franc is going out. How does it effects 98 00:05:28,920 --> 00:05:32,720 Speaker 1: guy like you react to central banks that own equity 99 00:05:32,800 --> 00:05:36,720 Speaker 1: positions and I understand the Swiss ownership. I assume is 100 00:05:36,760 --> 00:05:40,800 Speaker 1: way different than the Japanese ownership. But I mean, I 101 00:05:40,839 --> 00:05:42,919 Speaker 1: don't know, maybe the Fed ons, you know, ten million 102 00:05:42,960 --> 00:05:45,279 Speaker 1: shares of Tesla for all I know. But how do 103 00:05:45,320 --> 00:05:47,920 Speaker 1: you respond to the idea that a central bank is 104 00:05:48,000 --> 00:05:51,479 Speaker 1: running a stack portfolio. Well, in the Switzerland's case, you 105 00:05:51,560 --> 00:05:56,040 Speaker 1: have the central banks balance sheet being over in equities 106 00:05:56,080 --> 00:05:59,080 Speaker 1: and I don't know, and it's as overseas equities as well, 107 00:05:59,360 --> 00:06:02,359 Speaker 1: apple and different to Japan's. So that makes it a 108 00:06:02,440 --> 00:06:06,920 Speaker 1: very leveraged and very uh I guess aggressive balance sheets. 109 00:06:07,160 --> 00:06:10,480 Speaker 1: That The problem, of course is that until such points 110 00:06:10,480 --> 00:06:13,839 Speaker 1: as equities come off significantly, no one's going to talk 111 00:06:13,880 --> 00:06:16,359 Speaker 1: too much about this issue as a potential problem for 112 00:06:16,400 --> 00:06:19,520 Speaker 1: the Swiss if anything. Right now, what it does is 113 00:06:19,560 --> 00:06:24,160 Speaker 1: a very positive carry balance sheet. Because John there was 114 00:06:24,200 --> 00:06:28,159 Speaker 1: a massive jargon alert's two minutes in the penalty box. Well, 115 00:06:28,279 --> 00:06:30,719 Speaker 1: what it means is that the Swiss of paying zero 116 00:06:30,760 --> 00:06:34,840 Speaker 1: and negative or receiving you know, from negative rates on 117 00:06:34,880 --> 00:06:37,800 Speaker 1: the Swiss francs they've printed in order to buy these 118 00:06:37,839 --> 00:06:42,159 Speaker 1: assets overseas which provide very positive dividend flows. So every 119 00:06:42,240 --> 00:06:44,799 Speaker 1: year the Swiss National Bank has a very positive cash 120 00:06:44,800 --> 00:06:48,280 Speaker 1: flow negative rates. Well, that's the that's the fact. So 121 00:06:48,320 --> 00:06:51,120 Speaker 1: the reality is it's it's a very sustainable position because 122 00:06:51,160 --> 00:06:54,919 Speaker 1: you print Swiss francs and you buy these obviously assets 123 00:06:55,080 --> 00:06:57,840 Speaker 1: until such point as stakes for in a dramatic word, 124 00:06:57,880 --> 00:06:59,239 Speaker 1: Jo and I didn't have a time to talk about 125 00:06:59,240 --> 00:07:02,040 Speaker 1: this on television this morning, but it's real simple. Nobody's 126 00:07:02,080 --> 00:07:05,760 Speaker 1: talking about the chronic effect of these negative interest rates 127 00:07:06,160 --> 00:07:09,800 Speaker 1: and be in place in a place like Switzerland. If 128 00:07:09,840 --> 00:07:12,560 Speaker 1: I told you where monetary policy was in Switzerland, could 129 00:07:12,560 --> 00:07:14,360 Speaker 1: you tell me that GDP would have a two handle 130 00:07:14,800 --> 00:07:17,400 Speaker 1: year on year. I mean, growth is okay, the country 131 00:07:17,480 --> 00:07:20,000 Speaker 1: is rich, it's a wealthy nation. What are they doing. 132 00:07:20,640 --> 00:07:24,360 Speaker 1: I think what they're trying to do is effectively keep 133 00:07:24,400 --> 00:07:28,040 Speaker 1: everybody employed in a country where there's enough overseas wealth 134 00:07:28,080 --> 00:07:31,680 Speaker 1: and enough returns from that overseas wealth to effectively mean 135 00:07:31,720 --> 00:07:34,520 Speaker 1: that you don't absolutely need to do that. UM. In 136 00:07:34,520 --> 00:07:37,240 Speaker 1: a sense, you have a very wealthy individual if you 137 00:07:37,240 --> 00:07:39,400 Speaker 1: want to look at it as a person that still 138 00:07:39,440 --> 00:07:41,600 Speaker 1: wants to work. UM. And so you're trying to find 139 00:07:41,600 --> 00:07:45,480 Speaker 1: the exchange rate that allows both you know, the wealth 140 00:07:45,520 --> 00:07:48,720 Speaker 1: stocks that Switzerland have has to come into the country 141 00:07:48,760 --> 00:07:51,600 Speaker 1: while allowing employment to remain high. It's not an easy 142 00:07:51,640 --> 00:07:54,600 Speaker 1: thing to achieve, and that's why you have this awkward 143 00:07:54,640 --> 00:07:57,240 Speaker 1: situation that you have in Switzerland right now. Of course, 144 00:07:57,280 --> 00:07:59,960 Speaker 1: inflation is always ready to be low in Switzerland too, Yeah, 145 00:08:00,160 --> 00:08:04,360 Speaker 1: and so trying to at least maintain the illusion that 146 00:08:04,400 --> 00:08:08,120 Speaker 1: you can reach two percent infigation requires these kinds of Honestly, 147 00:08:08,160 --> 00:08:10,680 Speaker 1: I used to scratch my head every time I went 148 00:08:10,720 --> 00:08:14,120 Speaker 1: over to Zurich um and I'd interviewed the Swiss National 149 00:08:14,120 --> 00:08:16,120 Speaker 1: Bank governor and I'd sit down in front of him, 150 00:08:16,120 --> 00:08:17,720 Speaker 1: and I scratched my head all the time because I 151 00:08:17,800 --> 00:08:19,960 Speaker 1: was looking around and seeing all of these people driven 152 00:08:20,000 --> 00:08:23,800 Speaker 1: around and blanked out mercedes, incredibly wealthy individuals. And then 153 00:08:23,840 --> 00:08:27,360 Speaker 1: we had this country there was exploring deeply negative interest 154 00:08:27,440 --> 00:08:31,040 Speaker 1: rates and building up a balance sheet through buying equities, Tom, 155 00:08:31,200 --> 00:08:33,080 Speaker 1: and it can't make sense of this. And Japan, by 156 00:08:33,120 --> 00:08:34,600 Speaker 1: the way, it is doing the same things, an incredibly 157 00:08:34,640 --> 00:08:39,120 Speaker 1: wealthy country per capita is totally fine. Yet they are 158 00:08:39,240 --> 00:08:45,040 Speaker 1: exploring what is completely unprecedented in central bank history. Yeah, 159 00:08:45,200 --> 00:08:48,839 Speaker 1: I agree. I mean, it's it's odd and the last really, 160 00:08:49,200 --> 00:08:52,360 Speaker 1: John lest bizarre. Yeah, there's just no other way to 161 00:08:52,400 --> 00:08:55,640 Speaker 1: put it. Thank you. So much great, thank you, thank 162 00:08:55,679 --> 00:08:58,640 Speaker 1: you very much with us today and SIS. But you know, 163 00:08:58,679 --> 00:09:01,400 Speaker 1: a lot of these currencies really moving. I walked in John, 164 00:09:01,440 --> 00:09:19,120 Speaker 1: I saw Turkish Lear and said, wow, we're looking at 165 00:09:19,120 --> 00:09:22,600 Speaker 1: the media wars now and it's worse plural. There's so 166 00:09:22,679 --> 00:09:26,240 Speaker 1: much going on, just extraordinary what we're seeing. To this 167 00:09:26,320 --> 00:09:29,480 Speaker 1: morning Tribune, Sinclair Tribune says no, oh yeah. And by 168 00:09:29,480 --> 00:09:31,800 Speaker 1: the way, Sinclair, we're gonna sue you because it has 169 00:09:31,840 --> 00:09:35,200 Speaker 1: to do with Sinclair wanted to hold on to their stations, etcetera, etcetera. 170 00:09:35,240 --> 00:09:39,480 Speaker 1: And there's six other diversions as well. Exhausted In early August, 171 00:09:39,480 --> 00:09:43,559 Speaker 1: Tuna Amobi joins us with see up our research about Tuna. 172 00:09:43,600 --> 00:09:47,360 Speaker 1: When I say the media wars, how do you translate that? 173 00:09:48,679 --> 00:09:52,160 Speaker 1: You know, I think that's exactly the right terminology, Tom, 174 00:09:52,200 --> 00:09:55,240 Speaker 1: And I think what we're seeing, you know, the events 175 00:09:55,240 --> 00:09:58,120 Speaker 1: that are unfolding in the media landscape, what I see 176 00:09:58,280 --> 00:10:01,920 Speaker 1: on the regulatory and legal UH side, or even the 177 00:10:02,040 --> 00:10:04,280 Speaker 1: M and A and the implications, I think, you know, 178 00:10:04,880 --> 00:10:08,840 Speaker 1: it's it's unprecedented, right you talk about the Sinclair Tresune, 179 00:10:09,000 --> 00:10:12,360 Speaker 1: I mean this deal was you know, kind of uh 180 00:10:12,920 --> 00:10:15,120 Speaker 1: had a lot of tip on its shoulder from the beginning, 181 00:10:15,200 --> 00:10:18,920 Speaker 1: I think, um, the FCC when they voted to send 182 00:10:18,920 --> 00:10:21,560 Speaker 1: a deal for a judicial review, we were of the 183 00:10:21,559 --> 00:10:25,079 Speaker 1: opinion that it was effectively a death sentence, and that's 184 00:10:25,080 --> 00:10:29,000 Speaker 1: why we downgraded or shares on SYNC on Sinclair to hold. 185 00:10:29,040 --> 00:10:31,920 Speaker 1: So at this point, I think a lot of parties 186 00:10:31,920 --> 00:10:33,920 Speaker 1: in the media landscape are going to be trying to 187 00:10:34,000 --> 00:10:37,000 Speaker 1: read the tales and trying to figure out what this means, 188 00:10:37,080 --> 00:10:40,560 Speaker 1: especially with the Justice Department pushing ahead with the appeal 189 00:10:40,600 --> 00:10:42,199 Speaker 1: of the A T and P time warners. There's a 190 00:10:42,280 --> 00:10:45,160 Speaker 1: lot of a lot of things too, um, you know, 191 00:10:45,200 --> 00:10:49,000 Speaker 1: to to read into what's going on. Is our earnings, 192 00:10:49,440 --> 00:10:54,880 Speaker 1: are cash flows our margins persistent into the future or 193 00:10:54,960 --> 00:11:01,840 Speaker 1: are they threatened because of the competitive and technological lens gape. Well, 194 00:11:01,880 --> 00:11:07,320 Speaker 1: I think there's no question that technology and advancements have been, uh, 195 00:11:07,360 --> 00:11:09,679 Speaker 1: you know, one of the catalysts to some of the 196 00:11:09,880 --> 00:11:14,400 Speaker 1: M and A announcements that we have witnessed, especially now 197 00:11:14,440 --> 00:11:17,040 Speaker 1: that a lot of companies are looking to a direct 198 00:11:17,160 --> 00:11:20,880 Speaker 1: consumer and the technology that supports that scale is also 199 00:11:20,960 --> 00:11:24,600 Speaker 1: another factor that comes into play here. So you've seen 200 00:11:24,640 --> 00:11:27,240 Speaker 1: a lot of justly in among these companies just trying 201 00:11:27,240 --> 00:11:31,520 Speaker 1: to you know, get exposures across areas, whether it's horizontal 202 00:11:31,679 --> 00:11:35,320 Speaker 1: or vertical. Um. You know, my sense is that there 203 00:11:35,400 --> 00:11:38,120 Speaker 1: is a little bit of hesitation right now because of 204 00:11:38,160 --> 00:11:42,600 Speaker 1: all of these regulatory uncertainties. UM, but there's still some 205 00:11:42,679 --> 00:11:45,559 Speaker 1: appetite out there. I think overall, we think the prevailing 206 00:11:45,679 --> 00:11:49,559 Speaker 1: sentiment in the landscape is still cautiously positive. But you know, 207 00:11:49,600 --> 00:11:52,040 Speaker 1: I thought we had a little bit more regulatory certainty, 208 00:11:52,440 --> 00:11:56,800 Speaker 1: not uncertainty, No, I think best. I think the signals 209 00:11:56,840 --> 00:12:00,720 Speaker 1: have been mixed under the Trump administration, which they moved 210 00:12:00,800 --> 00:12:04,920 Speaker 1: quickly to read stated the you Achev discount, which was 211 00:12:04,960 --> 00:12:08,200 Speaker 1: the catalyst for this um you know sincular Tribune deal 212 00:12:08,280 --> 00:12:11,440 Speaker 1: in the first place, right, and then fast forward latter 213 00:12:11,520 --> 00:12:14,880 Speaker 1: they go ahead and challenge vehemently the A T and 214 00:12:14,920 --> 00:12:18,280 Speaker 1: T time one to merger. There's still appealing that transaction. 215 00:12:18,320 --> 00:12:21,800 Speaker 1: So there's conflicting signals out there. Uh. And broadcasters are 216 00:12:21,840 --> 00:12:24,480 Speaker 1: just kind of sitting trying to figure out what's going 217 00:12:24,480 --> 00:12:27,640 Speaker 1: on in media companies in general. We saw the um, 218 00:12:27,679 --> 00:12:32,040 Speaker 1: you know, the the Discovery um script deal was was 219 00:12:32,080 --> 00:12:34,959 Speaker 1: supposed to be another supposed to be you know, well 220 00:12:35,000 --> 00:12:38,080 Speaker 1: that's right, right, but not to interrupt you. But what's 221 00:12:38,120 --> 00:12:40,439 Speaker 1: critical here is there's a lot of supposed to be 222 00:12:40,520 --> 00:12:43,520 Speaker 1: going on. I mean, I mean I just find deal 223 00:12:43,559 --> 00:12:47,280 Speaker 1: to deal to deal. What's the what's supposed to be story? 224 00:12:47,880 --> 00:12:52,240 Speaker 1: That's an opportunity right now for you. Well, we know 225 00:12:52,400 --> 00:12:55,040 Speaker 1: there's a lot of dry powder out there sitting u 226 00:12:55,520 --> 00:12:58,000 Speaker 1: looking to get to work media companies. I think the 227 00:12:58,120 --> 00:13:01,559 Speaker 1: balance is a largely in good shape. Um you know. 228 00:13:01,640 --> 00:13:04,520 Speaker 1: I think that what the Disney Fox deal um on 229 00:13:04,640 --> 00:13:07,200 Speaker 1: the scores is that companies are willing to leverage up 230 00:13:07,200 --> 00:13:12,640 Speaker 1: their balance sheets, uh significantly if they can proved investors 231 00:13:12,679 --> 00:13:16,040 Speaker 1: and make a case that there's potential synergies. And that's 232 00:13:16,040 --> 00:13:18,280 Speaker 1: why investgent. Oh come on, you sound like a CEO. 233 00:13:18,559 --> 00:13:21,679 Speaker 1: Come on, tuning, you sound like a CEO. Potential synergies. 234 00:13:22,200 --> 00:13:24,559 Speaker 1: Did they do that deal and the other deals to 235 00:13:24,679 --> 00:13:29,559 Speaker 1: coming in this supposedly environment? Did they do Disney Fox 236 00:13:30,160 --> 00:13:32,840 Speaker 1: to do the deal or to be sure somebody else 237 00:13:32,880 --> 00:13:36,600 Speaker 1: didn't get it? I would argue that it's a little 238 00:13:36,600 --> 00:13:38,880 Speaker 1: bit of both, right. I think Bob Bagger has made 239 00:13:38,920 --> 00:13:42,800 Speaker 1: a pretty compelling case that, um, you know, those synergies 240 00:13:42,920 --> 00:13:47,040 Speaker 1: can be achievable if not conservative. Right. Um, So I 241 00:13:47,080 --> 00:13:51,120 Speaker 1: think you know, Comcast obviously wanted to just that as bad, 242 00:13:51,400 --> 00:13:54,200 Speaker 1: and for Disney to get those that's just as strategic 243 00:13:54,320 --> 00:13:58,679 Speaker 1: as not letting Comcast get them. And all played into this, 244 00:13:59,000 --> 00:14:03,280 Speaker 1: Uh you know, playd to this rot race among these 245 00:14:03,400 --> 00:14:06,320 Speaker 1: companies to get much bigger and more content in the 246 00:14:06,360 --> 00:14:09,920 Speaker 1: pipeline to push out to consumers very quickly. Or give 247 00:14:09,960 --> 00:14:12,440 Speaker 1: me a Brian Roberts update. How bad is this August? 248 00:14:14,280 --> 00:14:16,600 Speaker 1: That's a very interesting question. Uh, you know, I think 249 00:14:16,640 --> 00:14:21,360 Speaker 1: the only good one he'll do just fine. Yeah, I mean, 250 00:14:21,480 --> 00:14:24,600 Speaker 1: I mean the persistent of cash flow um speaks for itself. 251 00:14:24,600 --> 00:14:40,120 Speaker 1: Tuna Mobi, thank you so much, CFI A research. I'm 252 00:14:40,120 --> 00:14:42,280 Speaker 1: gonna bring in our next guest because John Ferrell made 253 00:14:42,280 --> 00:14:46,520 Speaker 1: me smarter and George Freeman can add to it. George Friedman, 254 00:14:46,560 --> 00:14:49,240 Speaker 1: one of our most popular guests working out of a 255 00:14:49,280 --> 00:14:56,040 Speaker 1: bunker in Austin, is in cyclopedic on our political economics 256 00:14:56,520 --> 00:15:01,520 Speaker 1: and how it folds into our defense in our offense. 257 00:15:01,680 --> 00:15:05,400 Speaker 1: And George John Farrell just made me smarter by mentioning 258 00:15:05,440 --> 00:15:11,280 Speaker 1: the tensions within China. Your lead is circled wagons in China. 259 00:15:11,600 --> 00:15:14,640 Speaker 1: What do you mean by that? Oh, China is in 260 00:15:14,720 --> 00:15:18,520 Speaker 1: deep trouble aside from the Western you know, all of China. 261 00:15:19,440 --> 00:15:23,040 Speaker 1: Uh China has reached a point where it cannot export 262 00:15:23,240 --> 00:15:26,840 Speaker 1: competitively with other countries. The U S sanctions make that 263 00:15:26,920 --> 00:15:30,800 Speaker 1: even more difficult. That means there's tremendous pressure in China. 264 00:15:30,920 --> 00:15:34,120 Speaker 1: China is a poor country, about a billion people live 265 00:15:35,040 --> 00:15:39,120 Speaker 1: in pretty much third world of property and uh G 266 00:15:39,560 --> 00:15:42,600 Speaker 1: is desperately trying to hold all these fashions together as 267 00:15:42,640 --> 00:15:46,760 Speaker 1: he applies very painful solutions, and there is tension within 268 00:15:46,880 --> 00:15:49,320 Speaker 1: China and whether or not it can possibly hold together 269 00:15:50,120 --> 00:15:53,800 Speaker 1: uh For a hundred years before maut Sung, China was 270 00:15:53,840 --> 00:15:57,240 Speaker 1: a highly fragmented country. So the Chinese are playing with 271 00:15:57,360 --> 00:16:00,960 Speaker 1: existential problems. But we still think of China's it was 272 00:16:01,040 --> 00:16:04,440 Speaker 1: five or ten years ago. So what's changed, George, and 273 00:16:04,640 --> 00:16:08,000 Speaker 1: how is this going to materialize in the coming months. Well, 274 00:16:08,040 --> 00:16:11,640 Speaker 1: what change basically was that China built an industrial plan 275 00:16:12,280 --> 00:16:17,120 Speaker 1: far too large for domestic consumption, and foreign consumption declined 276 00:16:17,200 --> 00:16:21,840 Speaker 1: after two eight and competing countries like Vietnam and others 277 00:16:22,640 --> 00:16:26,560 Speaker 1: were taken away the Chinese market. How this plays out 278 00:16:26,640 --> 00:16:30,160 Speaker 1: basically has little to do with economics. At this point, 279 00:16:30,320 --> 00:16:33,600 Speaker 1: the economic reality is set, it's now a social and 280 00:16:33,600 --> 00:16:37,080 Speaker 1: political problem, which is how does the Chinese regime and 281 00:16:37,200 --> 00:16:40,120 Speaker 1: the Chinese public in various interests react to the fact 282 00:16:40,200 --> 00:16:44,400 Speaker 1: that China's move is not only over, uh, it is 283 00:16:44,440 --> 00:16:47,840 Speaker 1: now in a period of extreme stringency. So, George, this 284 00:16:47,840 --> 00:16:50,040 Speaker 1: is an important question, and I imagine how that anybody 285 00:16:50,080 --> 00:16:53,120 Speaker 1: would speak to would say yes to this. But do 286 00:16:53,200 --> 00:16:57,000 Speaker 1: you actually see existential risk to the Communist Party at 287 00:16:57,080 --> 00:16:59,400 Speaker 1: this point, or at least you see an existential risk 288 00:16:59,800 --> 00:17:05,720 Speaker 1: of evolving. Well, the Communist Party is monolithic, it has 289 00:17:05,760 --> 00:17:08,639 Speaker 1: it's a compendium of interests. They are the interests of 290 00:17:08,680 --> 00:17:12,719 Speaker 1: the coastal cities and party committees there, and their interest 291 00:17:12,800 --> 00:17:17,640 Speaker 1: is basically to maintain good relations with the West. There 292 00:17:17,680 --> 00:17:22,600 Speaker 1: is the interior interior parties. Uh. They haven't benefited much 293 00:17:22,640 --> 00:17:26,280 Speaker 1: from the major boom, and they want to see resources 294 00:17:26,280 --> 00:17:30,960 Speaker 1: diverted from the coastal areas to their interests. This is 295 00:17:30,960 --> 00:17:33,480 Speaker 1: a huge country. It's very diverse, it has a very 296 00:17:33,480 --> 00:17:37,640 Speaker 1: diverse interest Obviously, when it was growing fantastically, you could 297 00:17:37,680 --> 00:17:40,439 Speaker 1: cover up these things. But now when the question how 298 00:17:40,520 --> 00:17:43,679 Speaker 1: to be distribute the pain is different. George. One of 299 00:17:43,680 --> 00:17:46,840 Speaker 1: the great realities of our ute is how wrong we 300 00:17:47,000 --> 00:17:53,280 Speaker 1: got Russian and Soviet Union intelligence before their collapse. Do 301 00:17:53,400 --> 00:17:58,399 Speaker 1: we have a knowledge of Chinese intelligence, Chinese society, the 302 00:17:58,520 --> 00:18:01,840 Speaker 1: dynamic of their politics, or as we are we flying 303 00:18:01,880 --> 00:18:08,280 Speaker 1: as blind as we were in six Americans have the 304 00:18:08,400 --> 00:18:13,720 Speaker 1: strange tendency to overestimate and some enemies and underestimate others. 305 00:18:14,440 --> 00:18:19,800 Speaker 1: We underestimated at Vietnamese, we underestimated Taliban. We vastly overestimated 306 00:18:19,840 --> 00:18:23,359 Speaker 1: the Russian capability, and we're doing the same thing with 307 00:18:23,440 --> 00:18:25,920 Speaker 1: China now. We don't look at their weaknesses, and we 308 00:18:25,960 --> 00:18:29,000 Speaker 1: don't look at the problems that they have, and above all, 309 00:18:29,000 --> 00:18:30,880 Speaker 1: we don't look at the fact that what they were 310 00:18:31,359 --> 00:18:34,840 Speaker 1: a decade ago is not what they are now. We 311 00:18:35,000 --> 00:18:38,760 Speaker 1: tend to see them as a kind of static, monolithic 312 00:18:38,880 --> 00:18:41,879 Speaker 1: entity that can understand anything. So George on the on 313 00:18:41,920 --> 00:18:46,080 Speaker 1: the issue of overestimating also an issue of overestimating political rivalries. 314 00:18:46,119 --> 00:18:48,000 Speaker 1: We saw this with Japan in the nineteen eighties, and 315 00:18:48,080 --> 00:18:50,800 Speaker 1: we saw how that turned out. If we think about 316 00:18:50,840 --> 00:18:53,520 Speaker 1: why the sanctions push is coming through this arrist push 317 00:18:53,560 --> 00:18:55,920 Speaker 1: to be more precise, from the U. S administration on China, 318 00:18:56,320 --> 00:18:59,400 Speaker 1: do you think it's borne out of overestimating the economic 319 00:18:59,480 --> 00:19:01,919 Speaker 1: rivalry that shine of poses. Are you saying they are 320 00:19:01,960 --> 00:19:04,200 Speaker 1: weak than some people think they are going to be 321 00:19:04,359 --> 00:19:07,240 Speaker 1: in the next ten years. It has much more to 322 00:19:07,280 --> 00:19:09,480 Speaker 1: do with the fact that the United States has a 323 00:19:09,560 --> 00:19:12,680 Speaker 1: reality didn't have ten years ago, which is his a 324 00:19:12,760 --> 00:19:16,560 Speaker 1: clienting industrial class. And that may not be a macro 325 00:19:16,680 --> 00:19:20,879 Speaker 1: economic problem, but it's a massive political problem. And the 326 00:19:21,000 --> 00:19:23,080 Speaker 1: question that we're doing and how do we take care 327 00:19:23,119 --> 00:19:26,359 Speaker 1: of him? George, this came up yesterday. I want to 328 00:19:26,480 --> 00:19:28,760 Speaker 1: rip up the script here, but with your abilities, it's 329 00:19:28,760 --> 00:19:32,760 Speaker 1: a timely question. We had the great uh interview of 330 00:19:32,880 --> 00:19:35,159 Speaker 1: David Rubinstein and his peer to peer. We did that 331 00:19:35,240 --> 00:19:38,280 Speaker 1: last night folks on Bloomberg Radio with a gentleman as 332 00:19:38,280 --> 00:19:42,280 Speaker 1: the chief executive officer Boeing, and a gentleman emailed in 333 00:19:42,680 --> 00:19:46,920 Speaker 1: and said, would somebody ask how we do defense contracts? 334 00:19:46,920 --> 00:19:49,679 Speaker 1: And this came back to something called the case for 335 00:19:50,800 --> 00:19:54,679 Speaker 1: was his genormous billion dollar airplane deal and there's cost 336 00:19:54,800 --> 00:19:57,920 Speaker 1: overruns and Boeing, I guess, has to pay the US 337 00:19:58,000 --> 00:20:02,200 Speaker 1: government a ga jillion million dollars. Do you, George Freeman, 338 00:20:02,280 --> 00:20:08,240 Speaker 1: have any clue how we spend money at the Pentagon? Well, 339 00:20:08,280 --> 00:20:11,159 Speaker 1: the first thing is what is our strategy and how 340 00:20:11,160 --> 00:20:14,280 Speaker 1: do we set it. And it's a very conventional understanding. 341 00:20:14,359 --> 00:20:18,000 Speaker 1: I mean, look, the U. S. Navy wants there are 342 00:20:18,040 --> 00:20:20,760 Speaker 1: two entities. They want to make China look super powerful. 343 00:20:20,840 --> 00:20:23,520 Speaker 1: What is China? The other is the U. S. Navy. 344 00:20:23,720 --> 00:20:26,159 Speaker 1: Because the U. S. Navy is able to say that 345 00:20:26,240 --> 00:20:28,880 Speaker 1: the Chinese or a major threat, they're going to get 346 00:20:28,880 --> 00:20:32,960 Speaker 1: funded heavily. So the vision of the world of what 347 00:20:33,080 --> 00:20:36,200 Speaker 1: the threats are, what the dangers are, these are essential. 348 00:20:36,359 --> 00:20:38,840 Speaker 1: They drive the American economy. I mean one of the 349 00:20:39,200 --> 00:20:42,800 Speaker 1: we talked about this Soviet Union and overestimating them. There 350 00:20:42,840 --> 00:20:47,080 Speaker 1: was a major overestimation by the Pentagon. Other intelligence sources 351 00:20:47,119 --> 00:20:50,400 Speaker 1: had different views, but the Pentagon view, and that's how 352 00:20:50,440 --> 00:20:55,399 Speaker 1: we fund them. We identify threats. It takes it. It 353 00:20:55,480 --> 00:20:59,399 Speaker 1: takes ten fifty years to build a weapon system and 354 00:20:59,440 --> 00:21:02,800 Speaker 1: at that time and we hold after its steady. I 355 00:21:03,080 --> 00:21:05,760 Speaker 1: shall end up reading more about the case for which 356 00:21:05,800 --> 00:21:08,240 Speaker 1: I don't know what that is. Do we know China's 357 00:21:08,280 --> 00:21:11,400 Speaker 1: technology and military? I mean, all the interviews we do, 358 00:21:11,480 --> 00:21:14,600 Speaker 1: and they've got a submarine base hanging off Vietnam there 359 00:21:14,600 --> 00:21:19,280 Speaker 1: on that island, etcetera. Do we actually know their technology? 360 00:21:20,960 --> 00:21:25,199 Speaker 1: I'm pretty sure that the military and intelligence people know 361 00:21:25,840 --> 00:21:29,320 Speaker 1: what they're capable of. But again the question is not 362 00:21:29,400 --> 00:21:33,320 Speaker 1: what they're capable of, but how it's projected. So, yes, 363 00:21:33,520 --> 00:21:37,200 Speaker 1: they've got an island they built, So what that island 364 00:21:37,200 --> 00:21:41,080 Speaker 1: will disappear about fifteen minutes into a war. That's not 365 00:21:41,160 --> 00:21:45,480 Speaker 1: a strategic capability. The Chinese are blocked by a string 366 00:21:45,520 --> 00:21:48,239 Speaker 1: of islands. They can't get out of it because they 367 00:21:48,280 --> 00:21:52,000 Speaker 1: have right, haven't have a military strength. Okay, one final question, 368 00:21:52,200 --> 00:21:55,800 Speaker 1: Georgia will let you go. I was in Helsinki a 369 00:21:55,840 --> 00:21:58,480 Speaker 1: few weeks back. John wasn't and I was having a 370 00:21:58,480 --> 00:22:00,480 Speaker 1: beverage of my choice down by the harbor, and I 371 00:22:00,520 --> 00:22:02,600 Speaker 1: thought I saw a periscope stick up in the water. 372 00:22:02,960 --> 00:22:08,760 Speaker 1: Are there really submarines floating around the Baltic He was 373 00:22:08,960 --> 00:22:14,360 Speaker 1: like ten drinks, Dave. At that point brin with Mr Freedman, 374 00:22:14,440 --> 00:22:18,080 Speaker 1: keep this serious, George's Baltic Sea are They're like submarines 375 00:22:18,160 --> 00:22:21,080 Speaker 1: bouncing into each other in the Baltic Sea. We not 376 00:22:21,240 --> 00:22:23,359 Speaker 1: bossing at each other. There's a lot of maneuvering, the 377 00:22:23,400 --> 00:22:27,760 Speaker 1: Russians of maneuver there. We cannot to go too deep 378 00:22:27,800 --> 00:22:32,160 Speaker 1: into it. But yeah, there are submarines everywhere, and uh, 379 00:22:32,280 --> 00:22:34,560 Speaker 1: if there were, a lot of them would be destroyed. 380 00:22:34,680 --> 00:22:37,560 Speaker 1: Very how do they get through the Danish Straits? I 381 00:22:37,560 --> 00:22:40,640 Speaker 1: mean out there, you know, way west of Helsinki, there's 382 00:22:40,760 --> 00:22:45,320 Speaker 1: like island. The months gives them a little bit of 383 00:22:45,320 --> 00:22:47,840 Speaker 1: a tuck tomb. Okay, we're gonna George, you're gonna have 384 00:22:47,880 --> 00:22:49,720 Speaker 1: to answer that question. We'll do that the next time. 385 00:22:49,920 --> 00:23:07,600 Speaker 1: George Freedman with us on the Danish Straits. Francis Donald 386 00:23:07,640 --> 00:23:12,119 Speaker 1: with us with Manual Life doing macro strategy there and 387 00:23:12,200 --> 00:23:15,160 Speaker 1: right now we want a macro strategy through the core 388 00:23:16,240 --> 00:23:20,639 Speaker 1: economic function. Let's start with g d P, which is 389 00:23:20,680 --> 00:23:24,000 Speaker 1: the consumer. Francis, what's the dynamic of the consumer right now? 390 00:23:24,720 --> 00:23:27,480 Speaker 1: It's just fine. We could go through all the numbers, 391 00:23:27,520 --> 00:23:29,679 Speaker 1: but the story is the same as been which is 392 00:23:29,760 --> 00:23:34,200 Speaker 1: employment is strong, wages are steadily rising, the labor forces increasing, 393 00:23:34,400 --> 00:23:37,119 Speaker 1: and there are wealth effects that occurring way not just 394 00:23:37,160 --> 00:23:40,600 Speaker 1: through wages, but home prices at six and through the 395 00:23:40,600 --> 00:23:44,080 Speaker 1: equity market. Consumer. That's the steady state that we don't 396 00:23:44,119 --> 00:23:45,760 Speaker 1: need to worry about right now. Where we need to 397 00:23:45,800 --> 00:23:47,919 Speaker 1: shift our focus is to the eye and to the 398 00:23:47,960 --> 00:23:50,800 Speaker 1: g Well, the eye always is variable, folks, I is 399 00:23:50,840 --> 00:23:54,560 Speaker 1: what's what what Francis sev the economy, am I right 400 00:23:54,600 --> 00:23:58,679 Speaker 1: on that it's up there, and it's incrementally important. It's volatile, 401 00:23:59,240 --> 00:24:03,080 Speaker 1: it's followed tile up, but it's also increasingly going to 402 00:24:03,160 --> 00:24:05,679 Speaker 1: be the pivot function here. So as we lose a 403 00:24:05,720 --> 00:24:07,760 Speaker 1: little bit of steam into the end of the cycle, 404 00:24:07,840 --> 00:24:09,480 Speaker 1: we probably have a year and a half two years. 405 00:24:09,640 --> 00:24:11,679 Speaker 1: We need the investment, We need the eye to come 406 00:24:11,720 --> 00:24:14,399 Speaker 1: back online. And this is where my concern is. And 407 00:24:14,480 --> 00:24:16,360 Speaker 1: some of the soft data that we've been looking at 408 00:24:16,680 --> 00:24:19,360 Speaker 1: does suggest that that business confidence that we witnessed over 409 00:24:19,359 --> 00:24:22,199 Speaker 1: the last eighteen months or so maybe peeking out. And 410 00:24:22,200 --> 00:24:24,080 Speaker 1: I think this is where the Fuderle Reserved is going 411 00:24:24,119 --> 00:24:27,080 Speaker 1: to be spending a lot of their research. But this 412 00:24:27,119 --> 00:24:29,320 Speaker 1: is critical, folks. So we've now we're going on months 413 00:24:29,320 --> 00:24:31,520 Speaker 1: and months from the tax bill and all that I 414 00:24:31,640 --> 00:24:36,800 Speaker 1: thought we incentivized corporations to invest, and we now see 415 00:24:37,160 --> 00:24:41,639 Speaker 1: in tax receipts a hockey stick of lower tax receipts 416 00:24:41,680 --> 00:24:44,879 Speaker 1: in a stand calendar, among others. The budget guy just 417 00:24:44,960 --> 00:24:48,600 Speaker 1: publishing a trillion dollar deficit for next year. Where's the 418 00:24:48,640 --> 00:24:53,520 Speaker 1: payoff of that? Which is the investment? That's a very 419 00:24:53,520 --> 00:24:56,240 Speaker 1: good question, and it's the key question as to when 420 00:24:56,320 --> 00:24:58,760 Speaker 1: we see this cycle ending. Is it a year and 421 00:24:58,840 --> 00:25:00,800 Speaker 1: a half out or do we push it out further 422 00:25:00,920 --> 00:25:04,200 Speaker 1: because we get an investment impulse. Now, what worries when 423 00:25:04,200 --> 00:25:06,399 Speaker 1: he comes back to this p p I data this morning, 424 00:25:06,400 --> 00:25:09,280 Speaker 1: which is that these input prices across all of our 425 00:25:09,320 --> 00:25:12,719 Speaker 1: input price metrics are rising. They're rising because of commodities, 426 00:25:12,760 --> 00:25:15,679 Speaker 1: because of energy, but also because tariff. They're starting to 427 00:25:15,680 --> 00:25:17,840 Speaker 1: work their way through the system. And at this point, 428 00:25:17,840 --> 00:25:20,359 Speaker 1: this is when I start to worry about things like margins. 429 00:25:20,440 --> 00:25:24,280 Speaker 1: Can companies pass on costs to consumers? I'm not sure 430 00:25:24,040 --> 00:25:27,280 Speaker 1: they can. So this is gonna work against some of 431 00:25:27,400 --> 00:25:30,040 Speaker 1: the shield that we saw from the fiscal pulls. Now, 432 00:25:30,160 --> 00:25:33,960 Speaker 1: explain the dynamic that everybody always ignores, which is the 433 00:25:34,040 --> 00:25:38,000 Speaker 1: G government spending, and of course that's wrapped up in 434 00:25:38,040 --> 00:25:42,320 Speaker 1: our fiscal policy and deficits. How does G shift in 435 00:25:42,359 --> 00:25:46,200 Speaker 1: the next twenty four months. Well, G already shifted. We've 436 00:25:46,240 --> 00:25:50,320 Speaker 1: got a sizeable fiscal pulse through a tax cut and 437 00:25:50,359 --> 00:25:52,720 Speaker 1: other measures. It was about one point two percentage points 438 00:25:52,720 --> 00:25:55,760 Speaker 1: of GDP for this year, is going to be about 439 00:25:55,760 --> 00:25:58,200 Speaker 1: one point six for next year. And this is one 440 00:25:58,200 --> 00:26:00,520 Speaker 1: of the reasons why the US will be apable of 441 00:26:00,560 --> 00:26:04,040 Speaker 1: withstanding some of the headwinds created by pariffs, but it 442 00:26:04,080 --> 00:26:06,119 Speaker 1: won't be able to shield against all of them, and 443 00:26:06,240 --> 00:26:08,639 Speaker 1: most importantly, it won't be able to field against the 444 00:26:08,680 --> 00:26:11,640 Speaker 1: hit to confidence. Okay, but but I'm doing my back 445 00:26:11,680 --> 00:26:14,879 Speaker 1: of the bow time math, which is for take away 446 00:26:14,920 --> 00:26:18,440 Speaker 1: whatever number you just gave me tells me right now, 447 00:26:18,560 --> 00:26:22,240 Speaker 1: the run rate of this economy is sub three given 448 00:26:22,280 --> 00:26:25,600 Speaker 1: all the G shenanigans were doing. Is that Is that 449 00:26:25,640 --> 00:26:28,840 Speaker 1: an okay statement? That sounds about right? I mean, the 450 00:26:28,920 --> 00:26:33,000 Speaker 1: US is not a economy, just like it's not a 451 00:26:33,119 --> 00:26:36,720 Speaker 1: three percent inflation economy either. It's a two percent, two 452 00:26:36,760 --> 00:26:39,720 Speaker 1: percent type of world. That what we're going to see 453 00:26:39,760 --> 00:26:42,080 Speaker 1: with the G is that the government spending adds some 454 00:26:42,160 --> 00:26:45,119 Speaker 1: variability to that over time, and it should have also 455 00:26:45,160 --> 00:26:48,119 Speaker 1: worked through the confidence channel. And those animal spirits were 456 00:26:48,160 --> 00:26:50,320 Speaker 1: quite strong over the first half of this year. But 457 00:26:50,440 --> 00:26:52,960 Speaker 1: my concern moving forward is that those animal spirits that 458 00:26:53,040 --> 00:26:55,080 Speaker 1: came off of this tax cut may begin to face. 459 00:26:55,280 --> 00:26:57,920 Speaker 1: And so, finally, to round out the equation what everybody 460 00:26:57,960 --> 00:27:01,160 Speaker 1: flunks on the exam, which is the dynamics of our 461 00:27:01,320 --> 00:27:05,440 Speaker 1: exports and imports, I go back Francis to the rule 462 00:27:05,880 --> 00:27:11,200 Speaker 1: that the media always focuses on imports and never on exports. 463 00:27:11,200 --> 00:27:16,080 Speaker 1: Do we have a buoyant American export economy, well, we should, 464 00:27:16,160 --> 00:27:20,080 Speaker 1: except the global trade activity has been decelerating. It probably 465 00:27:20,119 --> 00:27:23,080 Speaker 1: peaked out about three months ago. If we get China 466 00:27:23,160 --> 00:27:26,880 Speaker 1: back online, that should support global trade activity, and that's 467 00:27:26,880 --> 00:27:30,119 Speaker 1: a tide that lifts all boats. But generally, when we 468 00:27:30,200 --> 00:27:32,159 Speaker 1: think about what's going to happen over the six to 469 00:27:32,280 --> 00:27:36,200 Speaker 1: nine months, the export components, that's gonna stay relatively the same. 470 00:27:36,359 --> 00:27:39,159 Speaker 1: It's do we get the offset coming from investment and 471 00:27:39,240 --> 00:27:43,119 Speaker 1: government spending. That's where the key UM inflection point is 472 00:27:43,119 --> 00:27:44,680 Speaker 1: going to be in the u S story. And now 473 00:27:44,720 --> 00:27:46,639 Speaker 1: folks with this clinic and folks, this will be out 474 00:27:46,680 --> 00:27:49,040 Speaker 1: in the podcast. We're gonna do this section with Francis 475 00:27:49,080 --> 00:27:53,480 Speaker 1: Donald Manual Life out with Apple Um Apple Podcasts and 476 00:27:53,520 --> 00:27:56,920 Speaker 1: Spotify and our other venues. Thank you for the podcast 477 00:27:56,960 --> 00:28:00,320 Speaker 1: feedback we're getting, Francis, it's rounded out, and that we 478 00:28:00,359 --> 00:28:04,920 Speaker 1: all understand dollar dynamics effect net exports. I would respectfully 479 00:28:04,960 --> 00:28:09,840 Speaker 1: suggest dollar dynamics affect the investment component you're focused on. 480 00:28:10,720 --> 00:28:16,640 Speaker 1: They absolutely do, and they stronger dollar higher wages, input 481 00:28:16,720 --> 00:28:18,920 Speaker 1: costs rising these are all things that are going to 482 00:28:19,040 --> 00:28:21,880 Speaker 1: weigh on margin's way on companies moving forward. And that's 483 00:28:21,880 --> 00:28:24,639 Speaker 1: why over earning season, I just kept looking, what are 484 00:28:24,680 --> 00:28:26,919 Speaker 1: we getting, What's what does the guidance look like from 485 00:28:26,920 --> 00:28:30,360 Speaker 1: these companies. So far, it looks just fine. We don't 486 00:28:30,400 --> 00:28:34,280 Speaker 1: get any particularly terrible guidance. Guidance for Q three has 487 00:28:34,280 --> 00:28:36,600 Speaker 1: been better than typically for the first month of the 488 00:28:36,720 --> 00:28:39,960 Speaker 1: quarter um so it looks like this is still kind 489 00:28:39,960 --> 00:28:43,480 Speaker 1: of a weight and see type of environment, one that 490 00:28:43,520 --> 00:28:45,760 Speaker 1: I'm not overly concerned about right now. We might have 491 00:28:45,800 --> 00:28:49,640 Speaker 1: noticed that New Zealand Governor Overnight made a really interesting comment. 492 00:28:49,720 --> 00:28:52,840 Speaker 1: He said that they're watching, worrying and waiting, and I 493 00:28:52,880 --> 00:28:55,040 Speaker 1: think that's a three words that we can take with 494 00:28:55,120 --> 00:28:57,960 Speaker 1: us over the next couple of months across the entire world. 495 00:28:58,600 --> 00:29:00,640 Speaker 1: But just sound like an economist when you say that, 496 00:29:00,640 --> 00:29:03,040 Speaker 1: because that's what economists are paid to do, is to watch, 497 00:29:03,160 --> 00:29:06,560 Speaker 1: worry and and wait. As well as chairman Paul Gonna wait, 498 00:29:07,000 --> 00:29:09,520 Speaker 1: I don't see it. I mean he's he's he's wedded 499 00:29:09,560 --> 00:29:11,680 Speaker 1: to a rate increase in September and he moves right 500 00:29:11,680 --> 00:29:15,000 Speaker 1: on from there. Do you pick predict a second rate increase? 501 00:29:15,440 --> 00:29:19,160 Speaker 1: Towards two. Yeah, markets are predicting a second one. And 502 00:29:19,160 --> 00:29:21,280 Speaker 1: what I say here is the risk is really asymmetric. 503 00:29:21,360 --> 00:29:23,120 Speaker 1: It's not like we're going to move towards pricing in 504 00:29:23,240 --> 00:29:25,240 Speaker 1: three rate hikes by the end of this year either. 505 00:29:25,360 --> 00:29:27,720 Speaker 1: And the second point is that Powell has a lot 506 00:29:27,720 --> 00:29:30,440 Speaker 1: of optionality here. He's going into Jackson Hole with a 507 00:29:30,520 --> 00:29:33,280 Speaker 1: three esque cp I. By the end of this year 508 00:29:33,280 --> 00:29:35,600 Speaker 1: it should be down towards two pc He can choose 509 00:29:35,600 --> 00:29:38,000 Speaker 1: how he wants to frame that we're at target or 510 00:29:38,080 --> 00:29:40,120 Speaker 1: we're a little bit above target. He has a lot 511 00:29:40,120 --> 00:29:42,080 Speaker 1: of room to do what he wants over the next 512 00:29:42,240 --> 00:29:44,400 Speaker 1: half of this year. My senses is going to push 513 00:29:44,400 --> 00:29:47,840 Speaker 1: towards normalization. The central banks have a pocket here before 514 00:29:47,880 --> 00:29:50,840 Speaker 1: growth starts to meaningfully decelerate in ten I think they 515 00:29:50,880 --> 00:29:52,800 Speaker 1: go for it. Francis, thank you so much. What a 516 00:29:52,840 --> 00:29:56,920 Speaker 1: great clinic from Francis. Donald head a macro strategy at 517 00:29:56,920 --> 00:29:58,840 Speaker 1: Manual Life as well, and that will be out on 518 00:29:58,840 --> 00:30:10,080 Speaker 1: our Apple podcast. Thanks for listening to the Bloomberg Surveillance podcast. 519 00:30:10,440 --> 00:30:15,360 Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or 520 00:30:15,520 --> 00:30:19,840 Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom 521 00:30:19,920 --> 00:30:23,760 Speaker 1: Keene before the podcast. You can always catch us worldwide. 522 00:30:24,280 --> 00:30:25,360 Speaker 1: I'm Bloomberg Radio