Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Leye. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. If
Speaker 1: you want some price sanction, maybe you need to go
Speaker 1: to Emerging markets and effects this morning a want to punch,
Speaker 1: and both of those lead to the same source. US sanctions,
Speaker 1: Russia threatening to retaliate for a new round of sanctions
Speaker 1: announced by the United States, and Urdawan's delegation to the
Speaker 1: United States failing to secure any concessions from the administration
Speaker 1: in Washington. Join me to discuss this. Shahab John news
Speaker 1: Credit Sweete, Global head of FEC Strategy, Good morning to
Speaker 1: your Shahab wanning E m f X. Walk me through
Speaker 1: whether this is idiosyncratic or whether there's a much bigger
Speaker 1: story taking place here. I think the underlying story is
Speaker 1: and has been, the rising global yields, which obviously puts
Speaker 1: pressure on all emerging markets. But on top of that
Speaker 1: you have clearly the trade story, the tariff's story as well,
Speaker 1: which is as a severe risk to export oriented economies
Speaker 1: and what that what happens then is if you don't
Speaker 1: throw in specific themes like sanctions as well, um, you've
Speaker 1: really got a very weak patience that's not necessarily ready,
Speaker 1: you know, for yet another sickness. And I think that's
Speaker 1: for countries like Turkey. That's definitely what the problem we
Speaker 1: have is right now dot A Turkey moving by another
Speaker 1: two percentage points again today. I mean, we're seeing big
Speaker 1: moves in Turkish markets. And I think what a lot
Speaker 1: of people perhaps listening to this program are trying to
Speaker 1: figure out is how this bleeds, the contagion, the ripple effect,
Speaker 1: the channels for that. How do you see this playing
Speaker 1: out at the moment, At the moment it might be
Speaker 1: contained to Turkish assets, do you see it bleeding into
Speaker 1: financial system and potentially beyond shaub So, I think the
Speaker 1: sanctions story, the way that bleeds is that the market
Speaker 1: looks at any other country that could have a sanctions
Speaker 1: risk as well, um, And of course Russia is right
Speaker 1: now clearly in that zone UM, and worries about those
Speaker 1: and you need a bigger risk premium. And of course
Speaker 1: right now the U S seems to have a number
Speaker 1: of different spats with a number of different countries, so
Speaker 1: that's one factor in terms of more direct financial contagion.
Speaker 1: The easiest way that could happen would be for severe
Speaker 1: losses on Turkish assets UM due to for example, default
Speaker 1: risk or something of that nature, leading markets to have
Speaker 1: to sell out of other places with risk UM Now
Speaker 1: at the moment, I think that the risk of that
Speaker 1: is relatively low, just because so many investors have already
Speaker 1: sold the Turkish assets. Maybe that the risk is more
Speaker 1: localized right now to Turkey from that perspective, but it's
Speaker 1: something that you shouldn't rule out and definitely keep an eye.
Speaker 1: Something that we've explored on this program is how a
Speaker 1: technical issue can quickly become a fundamental one when you
Speaker 1: have to address what's happening in Turkey's markets, when you
Speaker 1: have to address what happens in Russia, Argentina and elsewhere.
Speaker 1: All of a sudden, short term rates in these countries
Speaker 1: are just aggressively higher, and then you have to think
Speaker 1: about whether that chokes offt growth and chokes off earnings
Speaker 1: of local companies as well. Are we at that point
Speaker 1: now already? Sharp? I think for sure. In the case
Speaker 1: of Argentina, we've we've passed that point. In Turkey's case,
Speaker 1: we are definitely at that point that the reality is
Speaker 1: that the reason why earlier going and others in Turkey
Speaker 1: don't want much higher rates is their knowledge that that
Speaker 1: will probably go hand in hand with the recession, and
Speaker 1: that's obviously something that's politically unpalatable. So that point has
Speaker 1: already been reached. The only question now is the path
Speaker 1: we take from here in terms of whether they go
Speaker 1: for an early stabilization of the currency or not. Can
Speaker 1: I switch gears? You can? Can I do that? Permission?
Speaker 1: You have permission very quietly. You know, we're talking about
Speaker 1: Sterling blah blah blah and e M and all that.
Speaker 1: I get it. Euros is on the move. We haven't
Speaker 1: talked about Switzerland and this huge signal, if you will,
Speaker 1: this traffic signal for all of foreign exchange. Why is
Speaker 1: Swiss stronger versus the Euro? The Swiss franc continues to
Speaker 1: play a role as the ultimate barometer, explain it to
Speaker 1: our audience well of local European problems. So we do
Speaker 1: have a situation still where the market knows that they
Speaker 1: have to be potentially contentious budget negotiations in Italy, UH
Speaker 1: and there is a risk premium, so it's a flight
Speaker 1: to quality. It's still in FX space. The Euro against
Speaker 1: the Swiss Franc remains the ultimate barometer of how intra
Speaker 1: European tensions are. So if A. C. Malona is going
Speaker 1: down the tubes and what's it called Juventus juveniles, they're
Speaker 1: going up with with the Renault and all that. The
Speaker 1: answer Swiss Frank you just to Renaldo was renaled Renaldo? Anyways?
Speaker 1: I mean Swiss Frank's moving off of Italy, right it is.
Speaker 1: And look, at the end of the day, market also
Speaker 1: knows that the capacity of the Swiss National Bank to
Speaker 1: continue to intervene and Prince Swiss Frank's to expand this
Speaker 1: balance sheet is lower than in the past because the
Speaker 1: currency is much weaker than it was let's say a
Speaker 1: year ago. And you know this, Switzerland want to be
Speaker 1: the only buyer, for example, of Italian debt at the
Speaker 1: time of budget crisis in Italy. Probably not. So the
Speaker 1: market knows this, and that's one of the reasons why
Speaker 1: the Swiss franc is going out. How does it effects
Speaker 1: guy like you react to central banks that own equity
Speaker 1: positions and I understand the Swiss ownership. I assume is
Speaker 1: way different than the Japanese ownership. But I mean, I
Speaker 1: don't know, maybe the Fed ons, you know, ten million
Speaker 1: shares of Tesla for all I know. But how do
Speaker 1: you respond to the idea that a central bank is
Speaker 1: running a stack portfolio. Well, in the Switzerland's case, you
Speaker 1: have the central banks balance sheet being over in equities
Speaker 1: and I don't know, and it's as overseas equities as well,
Speaker 1: apple and different to Japan's. So that makes it a
Speaker 1: very leveraged and very uh I guess aggressive balance sheets.
Speaker 1: That The problem, of course is that until such points
Speaker 1: as equities come off significantly, no one's going to talk
Speaker 1: too much about this issue as a potential problem for
Speaker 1: the Swiss if anything. Right now, what it does is
Speaker 1: a very positive carry balance sheet. Because John there was
Speaker 1: a massive jargon alert's two minutes in the penalty box. Well,
Speaker 1: what it means is that the Swiss of paying zero
Speaker 1: and negative or receiving you know, from negative rates on
Speaker 1: the Swiss francs they've printed in order to buy these
Speaker 1: assets overseas which provide very positive dividend flows. So every
Speaker 1: year the Swiss National Bank has a very positive cash
Speaker 1: flow negative rates. Well, that's the that's the fact. So
Speaker 1: the reality is it's it's a very sustainable position because
Speaker 1: you print Swiss francs and you buy these obviously assets
Speaker 1: until such point as stakes for in a dramatic word,
Speaker 1: Jo and I didn't have a time to talk about
Speaker 1: this on television this morning, but it's real simple. Nobody's
Speaker 1: talking about the chronic effect of these negative interest rates
Speaker 1: and be in place in a place like Switzerland. If
Speaker 1: I told you where monetary policy was in Switzerland, could
Speaker 1: you tell me that GDP would have a two handle
Speaker 1: year on year. I mean, growth is okay, the country
Speaker 1: is rich, it's a wealthy nation. What are they doing.
Speaker 1: I think what they're trying to do is effectively keep
Speaker 1: everybody employed in a country where there's enough overseas wealth
Speaker 1: and enough returns from that overseas wealth to effectively mean
Speaker 1: that you don't absolutely need to do that. UM. In
Speaker 1: a sense, you have a very wealthy individual if you
Speaker 1: want to look at it as a person that still
Speaker 1: wants to work. UM. And so you're trying to find
Speaker 1: the exchange rate that allows both you know, the wealth
Speaker 1: stocks that Switzerland have has to come into the country
Speaker 1: while allowing employment to remain high. It's not an easy
Speaker 1: thing to achieve, and that's why you have this awkward
Speaker 1: situation that you have in Switzerland right now. Of course,
Speaker 1: inflation is always ready to be low in Switzerland too, Yeah,
Speaker 1: and so trying to at least maintain the illusion that
Speaker 1: you can reach two percent infigation requires these kinds of Honestly,
Speaker 1: I used to scratch my head every time I went
Speaker 1: over to Zurich um and I'd interviewed the Swiss National
Speaker 1: Bank governor and I'd sit down in front of him,
Speaker 1: and I scratched my head all the time because I
Speaker 1: was looking around and seeing all of these people driven
Speaker 1: around and blanked out mercedes, incredibly wealthy individuals. And then
Speaker 1: we had this country there was exploring deeply negative interest
Speaker 1: rates and building up a balance sheet through buying equities, Tom,
Speaker 1: and it can't make sense of this. And Japan, by
Speaker 1: the way, it is doing the same things, an incredibly
Speaker 1: wealthy country per capita is totally fine. Yet they are
Speaker 1: exploring what is completely unprecedented in central bank history. Yeah,
Speaker 1: I agree. I mean, it's it's odd and the last really,
Speaker 1: John lest bizarre. Yeah, there's just no other way to
Speaker 1: put it. Thank you. So much great, thank you, thank
Speaker 1: you very much with us today and SIS. But you know,
Speaker 1: a lot of these currencies really moving. I walked in John,
Speaker 1: I saw Turkish Lear and said, wow, we're looking at
Speaker 1: the media wars now and it's worse plural. There's so
Speaker 1: much going on, just extraordinary what we're seeing. To this
Speaker 1: morning Tribune, Sinclair Tribune says no, oh yeah. And by
Speaker 1: the way, Sinclair, we're gonna sue you because it has
Speaker 1: to do with Sinclair wanted to hold on to their stations, etcetera, etcetera.
Speaker 1: And there's six other diversions as well. Exhausted In early August,
Speaker 1: Tuna Amobi joins us with see up our research about Tuna.
Speaker 1: When I say the media wars, how do you translate that?
Speaker 1: You know, I think that's exactly the right terminology, Tom,
Speaker 1: And I think what we're seeing, you know, the events
Speaker 1: that are unfolding in the media landscape, what I see
Speaker 1: on the regulatory and legal UH side, or even the
Speaker 1: M and A and the implications, I think, you know,
Speaker 1: it's it's unprecedented, right you talk about the Sinclair Tresune,
Speaker 1: I mean this deal was you know, kind of uh
Speaker 1: had a lot of tip on its shoulder from the beginning,
Speaker 1: I think, um, the FCC when they voted to send
Speaker 1: a deal for a judicial review, we were of the
Speaker 1: opinion that it was effectively a death sentence, and that's
Speaker 1: why we downgraded or shares on SYNC on Sinclair to hold.
Speaker 1: So at this point, I think a lot of parties
Speaker 1: in the media landscape are going to be trying to
Speaker 1: read the tales and trying to figure out what this means,
Speaker 1: especially with the Justice Department pushing ahead with the appeal
Speaker 1: of the A T and P time warners. There's a
Speaker 1: lot of a lot of things too, um, you know,
Speaker 1: to to read into what's going on. Is our earnings,
Speaker 1: are cash flows our margins persistent into the future or
Speaker 1: are they threatened because of the competitive and technological lens gape. Well,
Speaker 1: I think there's no question that technology and advancements have been, uh,
Speaker 1: you know, one of the catalysts to some of the
Speaker 1: M and A announcements that we have witnessed, especially now
Speaker 1: that a lot of companies are looking to a direct
Speaker 1: consumer and the technology that supports that scale is also
Speaker 1: another factor that comes into play here. So you've seen
Speaker 1: a lot of justly in among these companies just trying
Speaker 1: to you know, get exposures across areas, whether it's horizontal
Speaker 1: or vertical. Um. You know, my sense is that there
Speaker 1: is a little bit of hesitation right now because of
Speaker 1: all of these regulatory uncertainties. UM, but there's still some
Speaker 1: appetite out there. I think overall, we think the prevailing
Speaker 1: sentiment in the landscape is still cautiously positive. But you know,
Speaker 1: I thought we had a little bit more regulatory certainty,
Speaker 1: not uncertainty, No, I think best. I think the signals
Speaker 1: have been mixed under the Trump administration, which they moved
Speaker 1: quickly to read stated the you Achev discount, which was
Speaker 1: the catalyst for this um you know sincular Tribune deal
Speaker 1: in the first place, right, and then fast forward latter
Speaker 1: they go ahead and challenge vehemently the A T and
Speaker 1: T time one to merger. There's still appealing that transaction.
Speaker 1: So there's conflicting signals out there. Uh. And broadcasters are
Speaker 1: just kind of sitting trying to figure out what's going
Speaker 1: on in media companies in general. We saw the um,
Speaker 1: you know, the the Discovery um script deal was was
Speaker 1: supposed to be another supposed to be you know, well
Speaker 1: that's right, right, but not to interrupt you. But what's
Speaker 1: critical here is there's a lot of supposed to be
Speaker 1: going on. I mean, I mean I just find deal
Speaker 1: to deal to deal. What's the what's supposed to be story?
Speaker 1: That's an opportunity right now for you. Well, we know
Speaker 1: there's a lot of dry powder out there sitting u
Speaker 1: looking to get to work media companies. I think the
Speaker 1: balance is a largely in good shape. Um you know.
Speaker 1: I think that what the Disney Fox deal um on
Speaker 1: the scores is that companies are willing to leverage up
Speaker 1: their balance sheets, uh significantly if they can proved investors
Speaker 1: and make a case that there's potential synergies. And that's
Speaker 1: why investgent. Oh come on, you sound like a CEO.
Speaker 1: Come on, tuning, you sound like a CEO. Potential synergies.
Speaker 1: Did they do that deal and the other deals to
Speaker 1: coming in this supposedly environment? Did they do Disney Fox
Speaker 1: to do the deal or to be sure somebody else
Speaker 1: didn't get it? I would argue that it's a little
Speaker 1: bit of both, right. I think Bob Bagger has made
Speaker 1: a pretty compelling case that, um, you know, those synergies
Speaker 1: can be achievable if not conservative. Right. Um, So I
Speaker 1: think you know, Comcast obviously wanted to just that as bad,
Speaker 1: and for Disney to get those that's just as strategic
Speaker 1: as not letting Comcast get them. And all played into this,
Speaker 1: Uh you know, playd to this rot race among these
Speaker 1: companies to get much bigger and more content in the
Speaker 1: pipeline to push out to consumers very quickly. Or give
Speaker 1: me a Brian Roberts update. How bad is this August?
Speaker 1: That's a very interesting question. Uh, you know, I think
Speaker 1: the only good one he'll do just fine. Yeah, I mean,
Speaker 1: I mean the persistent of cash flow um speaks for itself.
Speaker 1: Tuna Mobi, thank you so much, CFI A research. I'm
Speaker 1: gonna bring in our next guest because John Ferrell made
Speaker 1: me smarter and George Freeman can add to it. George Friedman,
Speaker 1: one of our most popular guests working out of a
Speaker 1: bunker in Austin, is in cyclopedic on our political economics
Speaker 1: and how it folds into our defense in our offense.
Speaker 1: And George John Farrell just made me smarter by mentioning
Speaker 1: the tensions within China. Your lead is circled wagons in China.
Speaker 1: What do you mean by that? Oh, China is in
Speaker 1: deep trouble aside from the Western you know, all of China.
Speaker 1: Uh China has reached a point where it cannot export
Speaker 1: competitively with other countries. The U S sanctions make that
Speaker 1: even more difficult. That means there's tremendous pressure in China.
Speaker 1: China is a poor country, about a billion people live
Speaker 1: in pretty much third world of property and uh G
Speaker 1: is desperately trying to hold all these fashions together as
Speaker 1: he applies very painful solutions, and there is tension within
Speaker 1: China and whether or not it can possibly hold together
Speaker 1: uh For a hundred years before maut Sung, China was
Speaker 1: a highly fragmented country. So the Chinese are playing with
Speaker 1: existential problems. But we still think of China's it was
Speaker 1: five or ten years ago. So what's changed, George, and
Speaker 1: how is this going to materialize in the coming months. Well,
Speaker 1: what change basically was that China built an industrial plan
Speaker 1: far too large for domestic consumption, and foreign consumption declined
Speaker 1: after two eight and competing countries like Vietnam and others
Speaker 1: were taken away the Chinese market. How this plays out
Speaker 1: basically has little to do with economics. At this point,
Speaker 1: the economic reality is set, it's now a social and
Speaker 1: political problem, which is how does the Chinese regime and
Speaker 1: the Chinese public in various interests react to the fact
Speaker 1: that China's move is not only over, uh, it is
Speaker 1: now in a period of extreme stringency. So, George, this
Speaker 1: is an important question, and I imagine how that anybody
Speaker 1: would speak to would say yes to this. But do
Speaker 1: you actually see existential risk to the Communist Party at
Speaker 1: this point, or at least you see an existential risk
Speaker 1: of evolving. Well, the Communist Party is monolithic, it has
Speaker 1: it's a compendium of interests. They are the interests of
Speaker 1: the coastal cities and party committees there, and their interest
Speaker 1: is basically to maintain good relations with the West. There
Speaker 1: is the interior interior parties. Uh. They haven't benefited much
Speaker 1: from the major boom, and they want to see resources
Speaker 1: diverted from the coastal areas to their interests. This is
Speaker 1: a huge country. It's very diverse, it has a very
Speaker 1: diverse interest Obviously, when it was growing fantastically, you could
Speaker 1: cover up these things. But now when the question how
Speaker 1: to be distribute the pain is different. George. One of
Speaker 1: the great realities of our ute is how wrong we
Speaker 1: got Russian and Soviet Union intelligence before their collapse. Do
Speaker 1: we have a knowledge of Chinese intelligence, Chinese society, the
Speaker 1: dynamic of their politics, or as we are we flying
Speaker 1: as blind as we were in six Americans have the
Speaker 1: strange tendency to overestimate and some enemies and underestimate others.
Speaker 1: We underestimated at Vietnamese, we underestimated Taliban. We vastly overestimated
Speaker 1: the Russian capability, and we're doing the same thing with
Speaker 1: China now. We don't look at their weaknesses, and we
Speaker 1: don't look at the problems that they have, and above all,
Speaker 1: we don't look at the fact that what they were
Speaker 1: a decade ago is not what they are now. We
Speaker 1: tend to see them as a kind of static, monolithic
Speaker 1: entity that can understand anything. So George on the on
Speaker 1: the issue of overestimating also an issue of overestimating political rivalries.
Speaker 1: We saw this with Japan in the nineteen eighties, and
Speaker 1: we saw how that turned out. If we think about
Speaker 1: why the sanctions push is coming through this arrist push
Speaker 1: to be more precise, from the U. S administration on China,
Speaker 1: do you think it's borne out of overestimating the economic
Speaker 1: rivalry that shine of poses. Are you saying they are
Speaker 1: weak than some people think they are going to be
Speaker 1: in the next ten years. It has much more to
Speaker 1: do with the fact that the United States has a
Speaker 1: reality didn't have ten years ago, which is his a
Speaker 1: clienting industrial class. And that may not be a macro
Speaker 1: economic problem, but it's a massive political problem. And the
Speaker 1: question that we're doing and how do we take care
Speaker 1: of him? George, this came up yesterday. I want to
Speaker 1: rip up the script here, but with your abilities, it's
Speaker 1: a timely question. We had the great uh interview of
Speaker 1: David Rubinstein and his peer to peer. We did that
Speaker 1: last night folks on Bloomberg Radio with a gentleman as
Speaker 1: the chief executive officer Boeing, and a gentleman emailed in
Speaker 1: and said, would somebody ask how we do defense contracts?
Speaker 1: And this came back to something called the case for
Speaker 1: was his genormous billion dollar airplane deal and there's cost
Speaker 1: overruns and Boeing, I guess, has to pay the US
Speaker 1: government a ga jillion million dollars. Do you, George Freeman,
Speaker 1: have any clue how we spend money at the Pentagon? Well,
Speaker 1: the first thing is what is our strategy and how
Speaker 1: do we set it. And it's a very conventional understanding.
Speaker 1: I mean, look, the U. S. Navy wants there are
Speaker 1: two entities. They want to make China look super powerful.
Speaker 1: What is China? The other is the U. S. Navy.
Speaker 1: Because the U. S. Navy is able to say that
Speaker 1: the Chinese or a major threat, they're going to get
Speaker 1: funded heavily. So the vision of the world of what
Speaker 1: the threats are, what the dangers are, these are essential.
Speaker 1: They drive the American economy. I mean one of the
Speaker 1: we talked about this Soviet Union and overestimating them. There
Speaker 1: was a major overestimation by the Pentagon. Other intelligence sources
Speaker 1: had different views, but the Pentagon view, and that's how
Speaker 1: we fund them. We identify threats. It takes it. It
Speaker 1: takes ten fifty years to build a weapon system and
Speaker 1: at that time and we hold after its steady. I
Speaker 1: shall end up reading more about the case for which
Speaker 1: I don't know what that is. Do we know China's
Speaker 1: technology and military? I mean, all the interviews we do,
Speaker 1: and they've got a submarine base hanging off Vietnam there
Speaker 1: on that island, etcetera. Do we actually know their technology?
Speaker 1: I'm pretty sure that the military and intelligence people know
Speaker 1: what they're capable of. But again the question is not
Speaker 1: what they're capable of, but how it's projected. So, yes,
Speaker 1: they've got an island they built, So what that island
Speaker 1: will disappear about fifteen minutes into a war. That's not
Speaker 1: a strategic capability. The Chinese are blocked by a string
Speaker 1: of islands. They can't get out of it because they
Speaker 1: have right, haven't have a military strength. Okay, one final question,
Speaker 1: Georgia will let you go. I was in Helsinki a
Speaker 1: few weeks back. John wasn't and I was having a
Speaker 1: beverage of my choice down by the harbor, and I
Speaker 1: thought I saw a periscope stick up in the water.
Speaker 1: Are there really submarines floating around the Baltic He was
Speaker 1: like ten drinks, Dave. At that point brin with Mr Freedman,
Speaker 1: keep this serious, George's Baltic Sea are They're like submarines
Speaker 1: bouncing into each other in the Baltic Sea. We not
Speaker 1: bossing at each other. There's a lot of maneuvering, the
Speaker 1: Russians of maneuver there. We cannot to go too deep
Speaker 1: into it. But yeah, there are submarines everywhere, and uh,
Speaker 1: if there were, a lot of them would be destroyed.
Speaker 1: Very how do they get through the Danish Straits? I
Speaker 1: mean out there, you know, way west of Helsinki, there's
Speaker 1: like island. The months gives them a little bit of
Speaker 1: a tuck tomb. Okay, we're gonna George, you're gonna have
Speaker 1: to answer that question. We'll do that the next time.
Speaker 1: George Freedman with us on the Danish Straits. Francis Donald
Speaker 1: with us with Manual Life doing macro strategy there and
Speaker 1: right now we want a macro strategy through the core
Speaker 1: economic function. Let's start with g d P, which is
Speaker 1: the consumer. Francis, what's the dynamic of the consumer right now?
Speaker 1: It's just fine. We could go through all the numbers,
Speaker 1: but the story is the same as been which is
Speaker 1: employment is strong, wages are steadily rising, the labor forces increasing,
Speaker 1: and there are wealth effects that occurring way not just
Speaker 1: through wages, but home prices at six and through the
Speaker 1: equity market. Consumer. That's the steady state that we don't
Speaker 1: need to worry about right now. Where we need to
Speaker 1: shift our focus is to the eye and to the
Speaker 1: g Well, the eye always is variable, folks, I is
Speaker 1: what's what what Francis sev the economy, am I right
Speaker 1: on that it's up there, and it's incrementally important. It's volatile,
Speaker 1: it's followed tile up, but it's also increasingly going to
Speaker 1: be the pivot function here. So as we lose a
Speaker 1: little bit of steam into the end of the cycle,
Speaker 1: we probably have a year and a half two years.
Speaker 1: We need the investment, We need the eye to come
Speaker 1: back online. And this is where my concern is. And
Speaker 1: some of the soft data that we've been looking at
Speaker 1: does suggest that that business confidence that we witnessed over
Speaker 1: the last eighteen months or so maybe peeking out. And
Speaker 1: I think this is where the Fuderle Reserved is going
Speaker 1: to be spending a lot of their research. But this
Speaker 1: is critical, folks. So we've now we're going on months
Speaker 1: and months from the tax bill and all that I
Speaker 1: thought we incentivized corporations to invest, and we now see
Speaker 1: in tax receipts a hockey stick of lower tax receipts
Speaker 1: in a stand calendar, among others. The budget guy just
Speaker 1: publishing a trillion dollar deficit for next year. Where's the
Speaker 1: payoff of that? Which is the investment? That's a very
Speaker 1: good question, and it's the key question as to when
Speaker 1: we see this cycle ending. Is it a year and
Speaker 1: a half out or do we push it out further
Speaker 1: because we get an investment impulse. Now, what worries when
Speaker 1: he comes back to this p p I data this morning,
Speaker 1: which is that these input prices across all of our
Speaker 1: input price metrics are rising. They're rising because of commodities,
Speaker 1: because of energy, but also because tariff. They're starting to
Speaker 1: work their way through the system. And at this point,
Speaker 1: this is when I start to worry about things like margins.
Speaker 1: Can companies pass on costs to consumers? I'm not sure
Speaker 1: they can. So this is gonna work against some of
Speaker 1: the shield that we saw from the fiscal pulls. Now,
Speaker 1: explain the dynamic that everybody always ignores, which is the
Speaker 1: G government spending, and of course that's wrapped up in
Speaker 1: our fiscal policy and deficits. How does G shift in
Speaker 1: the next twenty four months. Well, G already shifted. We've
Speaker 1: got a sizeable fiscal pulse through a tax cut and
Speaker 1: other measures. It was about one point two percentage points
Speaker 1: of GDP for this year, is going to be about
Speaker 1: one point six for next year. And this is one
Speaker 1: of the reasons why the US will be apable of
Speaker 1: withstanding some of the headwinds created by pariffs, but it
Speaker 1: won't be able to shield against all of them, and
Speaker 1: most importantly, it won't be able to field against the
Speaker 1: hit to confidence. Okay, but but I'm doing my back
Speaker 1: of the bow time math, which is for take away
Speaker 1: whatever number you just gave me tells me right now,
Speaker 1: the run rate of this economy is sub three given
Speaker 1: all the G shenanigans were doing. Is that Is that
Speaker 1: an okay statement? That sounds about right? I mean, the
Speaker 1: US is not a economy, just like it's not a
Speaker 1: three percent inflation economy either. It's a two percent, two
Speaker 1: percent type of world. That what we're going to see
Speaker 1: with the G is that the government spending adds some
Speaker 1: variability to that over time, and it should have also
Speaker 1: worked through the confidence channel. And those animal spirits were
Speaker 1: quite strong over the first half of this year. But
Speaker 1: my concern moving forward is that those animal spirits that
Speaker 1: came off of this tax cut may begin to face.
Speaker 1: And so, finally, to round out the equation what everybody
Speaker 1: flunks on the exam, which is the dynamics of our
Speaker 1: exports and imports, I go back Francis to the rule
Speaker 1: that the media always focuses on imports and never on exports.
Speaker 1: Do we have a buoyant American export economy, well, we should,
Speaker 1: except the global trade activity has been decelerating. It probably
Speaker 1: peaked out about three months ago. If we get China
Speaker 1: back online, that should support global trade activity, and that's
Speaker 1: a tide that lifts all boats. But generally, when we
Speaker 1: think about what's going to happen over the six to
Speaker 1: nine months, the export components, that's gonna stay relatively the same.
Speaker 1: It's do we get the offset coming from investment and
Speaker 1: government spending. That's where the key UM inflection point is
Speaker 1: going to be in the u S story. And now
Speaker 1: folks with this clinic and folks, this will be out
Speaker 1: in the podcast. We're gonna do this section with Francis
Speaker 1: Donald Manual Life out with Apple Um Apple Podcasts and
Speaker 1: Spotify and our other venues. Thank you for the podcast
Speaker 1: feedback we're getting, Francis, it's rounded out, and that we
Speaker 1: all understand dollar dynamics effect net exports. I would respectfully
Speaker 1: suggest dollar dynamics affect the investment component you're focused on.
Speaker 1: They absolutely do, and they stronger dollar higher wages, input
Speaker 1: costs rising these are all things that are going to
Speaker 1: weigh on margin's way on companies moving forward. And that's
Speaker 1: why over earning season, I just kept looking, what are
Speaker 1: we getting, What's what does the guidance look like from
Speaker 1: these companies. So far, it looks just fine. We don't
Speaker 1: get any particularly terrible guidance. Guidance for Q three has
Speaker 1: been better than typically for the first month of the
Speaker 1: quarter um so it looks like this is still kind
Speaker 1: of a weight and see type of environment, one that
Speaker 1: I'm not overly concerned about right now. We might have
Speaker 1: noticed that New Zealand Governor Overnight made a really interesting comment.
Speaker 1: He said that they're watching, worrying and waiting, and I
Speaker 1: think that's a three words that we can take with
Speaker 1: us over the next couple of months across the entire world.
Speaker 1: But just sound like an economist when you say that,
Speaker 1: because that's what economists are paid to do, is to watch,
Speaker 1: worry and and wait. As well as chairman Paul Gonna wait,
Speaker 1: I don't see it. I mean he's he's he's wedded
Speaker 1: to a rate increase in September and he moves right
Speaker 1: on from there. Do you pick predict a second rate increase?
Speaker 1: Towards two. Yeah, markets are predicting a second one. And
Speaker 1: what I say here is the risk is really asymmetric.
Speaker 1: It's not like we're going to move towards pricing in
Speaker 1: three rate hikes by the end of this year either.
Speaker 1: And the second point is that Powell has a lot
Speaker 1: of optionality here. He's going into Jackson Hole with a
Speaker 1: three esque cp I. By the end of this year
Speaker 1: it should be down towards two pc He can choose
Speaker 1: how he wants to frame that we're at target or
Speaker 1: we're a little bit above target. He has a lot
Speaker 1: of room to do what he wants over the next
Speaker 1: half of this year. My senses is going to push
Speaker 1: towards normalization. The central banks have a pocket here before
Speaker 1: growth starts to meaningfully decelerate in ten I think they
Speaker 1: go for it. Francis, thank you so much. What a
Speaker 1: great clinic from Francis. Donald head a macro strategy at
Speaker 1: Manual Life as well, and that will be out on
Speaker 1: our Apple podcast. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio