1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,319 Speaker 2: Terminal and the Bloomberg Business app. Stephen Main, the chair 10 00:00:37,360 --> 00:00:39,800 Speaker 2: of the White House Council of Economic Advisors, joins us 11 00:00:39,840 --> 00:00:42,040 Speaker 2: now for more. Stephen, welcome back to the program, my friend. 12 00:00:42,120 --> 00:00:44,680 Speaker 2: Let's talk about the President's message for House Republicans a 13 00:00:44,720 --> 00:00:46,960 Speaker 2: little bit later this morning. What's top of mind? 14 00:00:48,200 --> 00:00:49,519 Speaker 3: Good morning, Thanks for having us. 15 00:00:49,520 --> 00:00:51,600 Speaker 4: Well, what's top of mind is the Council of Economic 16 00:00:51,600 --> 00:00:54,560 Speaker 4: Advisors just published a paper it's available on our website 17 00:00:54,600 --> 00:00:56,279 Speaker 4: talking about all the good stuff this tax bills are 18 00:00:56,280 --> 00:00:56,640 Speaker 4: going to do. 19 00:00:56,880 --> 00:00:58,400 Speaker 3: It's going to boost GDP relatives. 20 00:00:58,520 --> 00:01:00,320 Speaker 4: Not passing the bill by about four point two to 21 00:01:00,360 --> 00:01:02,760 Speaker 4: five point two percent is going to create seven million 22 00:01:02,840 --> 00:01:04,880 Speaker 4: jobs and it's going to boost take home pay for 23 00:01:04,920 --> 00:01:07,800 Speaker 4: a typical family of four by eight to thirteen thousand dollars. 24 00:01:07,880 --> 00:01:10,479 Speaker 4: So these are really big effects relatives not passing the bill. 25 00:01:10,520 --> 00:01:12,560 Speaker 4: It's imperative that we get this bill over the line. 26 00:01:12,720 --> 00:01:15,679 Speaker 5: Steve, though, when I'm talking to individuals in Congress and 27 00:01:15,720 --> 00:01:18,559 Speaker 5: then reading your white paper, you have a fifteen percent 28 00:01:18,600 --> 00:01:21,360 Speaker 5: corporate tax rate in your white paper right now that's 29 00:01:21,440 --> 00:01:23,480 Speaker 5: not being discussed in Congress. Do you think the President 30 00:01:23,560 --> 00:01:25,440 Speaker 5: is going to bring that issue forward today? 31 00:01:26,640 --> 00:01:28,640 Speaker 4: You know, I can't I can't prejudge the outcome of 32 00:01:28,680 --> 00:01:31,360 Speaker 4: exactly what these talks will do, but that fifteen percent 33 00:01:31,720 --> 00:01:35,200 Speaker 4: corporate rate on domestic manufacturing will help at the margin. 34 00:01:35,280 --> 00:01:37,480 Speaker 4: But it's not the it's not the core of the 35 00:01:37,600 --> 00:01:39,840 Speaker 4: proposal that you know. There were those numbers that I 36 00:01:39,880 --> 00:01:42,240 Speaker 4: gave you will be pretty similar. If that doesn't make 37 00:01:42,240 --> 00:01:44,839 Speaker 4: it into the final version, maybe it'll be a hair lower. 38 00:01:44,920 --> 00:01:46,280 Speaker 4: But you have to keep in mind, there's a lot 39 00:01:46,319 --> 00:01:48,600 Speaker 4: of stuff going into this bill, and any single one 40 00:01:48,600 --> 00:01:51,240 Speaker 4: of these, any single one of these measures isn't enough 41 00:01:51,280 --> 00:01:53,000 Speaker 4: to sort of, you know, change those numbers a lot. 42 00:01:53,040 --> 00:01:56,200 Speaker 4: Because all these measures to combine together to improve the 43 00:01:56,240 --> 00:01:59,680 Speaker 4: investment opportunities in America, to encourage firms to invest in, 44 00:01:59,720 --> 00:02:02,640 Speaker 4: encourage firms to bind to invest, new equipment, new factories, 45 00:02:02,800 --> 00:02:03,440 Speaker 4: all the stuff. 46 00:02:03,760 --> 00:02:06,120 Speaker 5: There's a ton that's going into this bill, and that 47 00:02:06,200 --> 00:02:09,880 Speaker 5: is why it's even so challenging for Speaker Johnson to 48 00:02:09,919 --> 00:02:12,640 Speaker 5: get all these different factions on board. Something else you 49 00:02:12,720 --> 00:02:14,800 Speaker 5: don't have in your paper, though, is what's going on 50 00:02:14,880 --> 00:02:19,119 Speaker 5: in salt. Do you expect the salt cap to raise, say, 51 00:02:19,160 --> 00:02:20,400 Speaker 5: thirty K forty K? 52 00:02:22,000 --> 00:02:23,919 Speaker 4: Yeah, so I do expect there to be salt relief. 53 00:02:24,000 --> 00:02:26,240 Speaker 4: The President has expressed support for this, and I think 54 00:02:26,240 --> 00:02:29,080 Speaker 4: the President will deliver salt relief to American households. I 55 00:02:29,120 --> 00:02:31,160 Speaker 4: don't know exactly what the number will shake out, and 56 00:02:31,600 --> 00:02:33,640 Speaker 4: as you know, you know, this is how negotiations happen. 57 00:02:33,720 --> 00:02:35,440 Speaker 4: One side says what it wants, the other side says 58 00:02:35,480 --> 00:02:37,560 Speaker 4: what it wants. And the President is one of the 59 00:02:37,560 --> 00:02:40,000 Speaker 4: best negotiators in history, and he's shown over a career 60 00:02:40,040 --> 00:02:43,360 Speaker 4: spanning decades that he can forge hundreds of deals, and 61 00:02:43,400 --> 00:02:45,200 Speaker 4: I think he'll forge another one right in front of us. 62 00:02:45,240 --> 00:02:45,440 Speaker 1: Now. 63 00:02:45,919 --> 00:02:48,919 Speaker 6: There is a good element in this that you're focusing 64 00:02:49,000 --> 00:02:50,960 Speaker 6: on growth, and I do think that that is important. 65 00:02:50,960 --> 00:02:52,120 Speaker 6: You can't cut too much. 66 00:02:52,160 --> 00:02:54,120 Speaker 2: You have to offer some sweeteners. 67 00:02:53,560 --> 00:02:55,480 Speaker 6: To keep growth going, to keep the revenue side of 68 00:02:55,480 --> 00:02:58,000 Speaker 6: things going. I do wonder, though, how much of a 69 00:02:58,040 --> 00:03:01,120 Speaker 6: constraint to debt side really is, given the fact that 70 00:03:01,520 --> 00:03:03,640 Speaker 6: looks like things are getting a little yippie again in 71 00:03:03,680 --> 00:03:04,840 Speaker 6: the bond market. 72 00:03:05,639 --> 00:03:05,919 Speaker 3: Thanks. 73 00:03:05,919 --> 00:03:08,560 Speaker 4: So, I'm so glad you mentioned that, because the truth 74 00:03:08,639 --> 00:03:10,520 Speaker 4: is that we do have a plan for deficit reduction 75 00:03:10,560 --> 00:03:13,240 Speaker 4: and we will deliver lower deficits. It just happens that 76 00:03:13,280 --> 00:03:15,600 Speaker 4: some of those things fall outside of the scoring process. 77 00:03:15,639 --> 00:03:18,160 Speaker 4: How CBO scores the bill because of the rules that 78 00:03:18,240 --> 00:03:20,359 Speaker 4: Congress gave it. And so, for example, we're going to 79 00:03:20,400 --> 00:03:22,000 Speaker 4: get better growth as a result of this bill, as 80 00:03:22,040 --> 00:03:24,000 Speaker 4: a result of deregulation, as a result of the trade 81 00:03:24,040 --> 00:03:26,560 Speaker 4: deals we're negotiating. We get growth to three percent. That 82 00:03:26,600 --> 00:03:29,800 Speaker 4: generates four trillion dollars additional revenues over the ten year 83 00:03:29,840 --> 00:03:32,840 Speaker 4: win budget window above the CBO baseline. That doesn't go 84 00:03:32,840 --> 00:03:36,920 Speaker 4: into the scoring process because CBO doesn't account for improvements 85 00:03:36,920 --> 00:03:38,960 Speaker 4: and economic growth. We're going to bring in hundreds of 86 00:03:39,000 --> 00:03:41,800 Speaker 4: billions of dollars of revenue through tariffs, right, that's another 87 00:03:41,840 --> 00:03:44,240 Speaker 4: point off the deficit. We're going to bring interest rates 88 00:03:44,280 --> 00:03:46,520 Speaker 4: down through expanding the supply side of the economy, through 89 00:03:46,760 --> 00:03:50,520 Speaker 4: more effective tax rates, through deregulation, through pushing the supply 90 00:03:50,600 --> 00:03:52,640 Speaker 4: side out to meet the demand side, we get interest 91 00:03:52,720 --> 00:03:54,680 Speaker 4: rates back to where they were pre COVID. That's another 92 00:03:54,720 --> 00:03:57,240 Speaker 4: point off the deficit. And then there's cuts to waste, fraud, 93 00:03:57,240 --> 00:03:59,240 Speaker 4: and abuse, some of which are in the bill, some 94 00:03:59,320 --> 00:04:01,800 Speaker 4: of which are beingcomplished by those that's another fifty two 95 00:04:01,880 --> 00:04:04,360 Speaker 4: hundred basis points off the deficit worth of GDP. So 96 00:04:04,440 --> 00:04:06,640 Speaker 4: I just gave you three to four percent of GDP 97 00:04:06,960 --> 00:04:09,440 Speaker 4: off the deficit. None of it falls into the scoring 98 00:04:09,480 --> 00:04:11,440 Speaker 4: system that the CBO is doing part of the yet 99 00:04:11,480 --> 00:04:14,040 Speaker 4: the conversation is for some reason dominated by CBO. 100 00:04:14,240 --> 00:04:16,120 Speaker 6: Well, part of the reason why it's not being scored 101 00:04:16,200 --> 00:04:18,919 Speaker 6: is because there are a lot of contingencies before you 102 00:04:18,920 --> 00:04:20,760 Speaker 6: get to all of these realities. And I'll just pick 103 00:04:20,760 --> 00:04:22,559 Speaker 6: out once, since we were talking about the bond market, 104 00:04:22,560 --> 00:04:25,200 Speaker 6: the idea that yields go down as you increase the 105 00:04:25,240 --> 00:04:27,919 Speaker 6: supply side of the economy, there's a pretty bumpy path 106 00:04:28,279 --> 00:04:31,080 Speaker 6: to get there. Do you have enough faith in that 107 00:04:31,080 --> 00:04:35,000 Speaker 6: that you ignore USGG three thirty eight year index GP, 108 00:04:35,160 --> 00:04:37,240 Speaker 6: that you ignore the thirty year yield, you ignore the 109 00:04:37,279 --> 00:04:39,800 Speaker 6: ten year yield in the near term and just have 110 00:04:39,920 --> 00:04:42,240 Speaker 6: faith that longer term it will work out. 111 00:04:43,080 --> 00:04:43,279 Speaker 3: Yees. 112 00:04:43,400 --> 00:04:46,520 Speaker 4: So, look, you know, we're still dealing with the lingering pressure, 113 00:04:46,520 --> 00:04:50,120 Speaker 4: the lingering inflation pressures due to President Biden's reckless fiscal policies. 114 00:04:50,200 --> 00:04:52,919 Speaker 4: But we are bringing those inflation pressures down through pushing 115 00:04:52,920 --> 00:04:55,120 Speaker 4: out the supply side of the economy. We've had now 116 00:04:55,240 --> 00:04:58,640 Speaker 4: three inflation reports in a row below expectations. Core inflation 117 00:04:58,720 --> 00:05:00,880 Speaker 4: on an annual basis is running the lowest level since 118 00:05:00,920 --> 00:05:03,520 Speaker 4: March of twenty twenty one. And as we continue to 119 00:05:03,520 --> 00:05:06,000 Speaker 4: control inflation, it will provide scope for interest rates to 120 00:05:06,000 --> 00:05:06,400 Speaker 4: come down. 121 00:05:06,440 --> 00:05:07,440 Speaker 3: I have no doubt about that. 122 00:05:07,800 --> 00:05:10,719 Speaker 5: Well, Steve, you know, the American people are concerned about 123 00:05:10,760 --> 00:05:13,279 Speaker 5: prices going up, the latest being Subaru. They're going to 124 00:05:13,279 --> 00:05:16,680 Speaker 5: be increasing their vehicle prices citing quote market conditions aka 125 00:05:17,160 --> 00:05:20,599 Speaker 5: concerns about what's going on with trade and tariffs. How 126 00:05:20,640 --> 00:05:23,480 Speaker 5: can you say you're delivering on inflation when actually companies 127 00:05:23,520 --> 00:05:25,320 Speaker 5: are warning that prices are going higher. 128 00:05:26,560 --> 00:05:26,880 Speaker 3: Yeah. 129 00:05:26,920 --> 00:05:29,359 Speaker 4: So, look, you know, imports are only fourteen percent of 130 00:05:29,400 --> 00:05:32,520 Speaker 4: the economy. The ability of the ability of those types 131 00:05:32,560 --> 00:05:35,520 Speaker 4: of things to really move the needle on inflation are limited, 132 00:05:35,520 --> 00:05:37,560 Speaker 4: and what we saw in the tariffs in twenty eighteen 133 00:05:37,600 --> 00:05:41,200 Speaker 4: twenty nineteen was zero macroeconomic evidence of inflation. What we've 134 00:05:41,200 --> 00:05:43,240 Speaker 4: seen so far since the tariffs have been in and 135 00:05:43,320 --> 00:05:45,520 Speaker 4: don't forget, we've been introducing tariffs since day one of 136 00:05:45,520 --> 00:05:48,760 Speaker 4: this administration, and what we've seen as tariffs have started 137 00:05:48,800 --> 00:05:51,760 Speaker 4: to come up has been no real meaningful macroeconomic effect 138 00:05:51,760 --> 00:05:54,200 Speaker 4: in inflation. And so while there can be volatility in 139 00:05:54,200 --> 00:05:58,000 Speaker 4: the short run, I do believe that US importers have flexibility. 140 00:05:58,040 --> 00:05:59,799 Speaker 4: But where they get stuff from they can make stuff 141 00:05:59,800 --> 00:06:01,880 Speaker 4: at hellme home, they can import from other countries that 142 00:06:01,880 --> 00:06:03,599 Speaker 4: treat us better, that rate trade deals with US as 143 00:06:03,600 --> 00:06:06,240 Speaker 4: opposed to countries that treat us worse, and that flexibility 144 00:06:06,279 --> 00:06:09,000 Speaker 4: gives them leverage. That leverage allows them to force the 145 00:06:09,040 --> 00:06:12,000 Speaker 4: burden of the tariffs on the other party on other countries. Now, 146 00:06:12,040 --> 00:06:13,800 Speaker 4: in the fullness of time, that'll happen. But in the 147 00:06:13,839 --> 00:06:16,640 Speaker 4: short run, can there be volatility in prices and economic 148 00:06:16,640 --> 00:06:19,440 Speaker 4: activity just as there were in financial markets, Yeah, it 149 00:06:19,480 --> 00:06:22,479 Speaker 4: can happen, But over time we have the leverage and 150 00:06:22,520 --> 00:06:23,960 Speaker 4: that will allow us to force the burden of the 151 00:06:24,000 --> 00:06:25,080 Speaker 4: tariffs onto other countries. 152 00:06:25,160 --> 00:06:27,120 Speaker 5: When you think about tariffs, do you think they're going 153 00:06:27,160 --> 00:06:29,000 Speaker 5: to be revenue raising or do you think that we're 154 00:06:29,000 --> 00:06:30,960 Speaker 5: going to get deals so the revenue raising won't be 155 00:06:30,960 --> 00:06:33,440 Speaker 5: as high. And do you have a number within the 156 00:06:33,480 --> 00:06:35,800 Speaker 5: White House that you're discussing which how much you want 157 00:06:35,800 --> 00:06:38,480 Speaker 5: to get in terms of revenue raises to offset this 158 00:06:38,640 --> 00:06:39,160 Speaker 5: tax bill. 159 00:06:40,480 --> 00:06:40,800 Speaker 3: Sure? 160 00:06:41,000 --> 00:06:42,960 Speaker 4: So, first of all, what we've seen with some of 161 00:06:43,000 --> 00:06:45,120 Speaker 4: the deals we've made so far is that there's still 162 00:06:45,160 --> 00:06:47,279 Speaker 4: a ten percent tariff in place, and in the case 163 00:06:47,279 --> 00:06:50,040 Speaker 4: of China, there's other tariffs too, the fentanyl tariffs, the 164 00:06:50,040 --> 00:06:52,320 Speaker 4: tariffs from the first term as well, And so even 165 00:06:52,360 --> 00:06:54,920 Speaker 4: if we strike deals, odds are will still be collecting 166 00:06:55,080 --> 00:06:57,640 Speaker 4: some tariff revenue. But even if we end up bringing 167 00:06:57,640 --> 00:07:01,240 Speaker 4: those tariff rates below or down to zero, you know 168 00:07:01,520 --> 00:07:04,880 Speaker 4: that means more economic activity. If we're writing deals because 169 00:07:04,880 --> 00:07:07,960 Speaker 4: we're succeeding in opening foreign markets to our exports, allowing 170 00:07:08,000 --> 00:07:11,320 Speaker 4: American firms to sell into foreign markets the way we 171 00:07:11,400 --> 00:07:13,680 Speaker 4: allow foreign firms to sell into our market, that means 172 00:07:13,720 --> 00:07:16,400 Speaker 4: more economic activity here because of more exports. And if 173 00:07:16,440 --> 00:07:19,600 Speaker 4: there's more economic activity, more exports coming out of America 174 00:07:19,680 --> 00:07:22,239 Speaker 4: going to foreign markets. That's more income that gets taxed 175 00:07:22,240 --> 00:07:24,600 Speaker 4: at the personal level, at the corporate level, and that's 176 00:07:24,640 --> 00:07:26,840 Speaker 4: lots more revenue too. So either way you slice it, 177 00:07:26,920 --> 00:07:29,000 Speaker 4: we get revenue from tariff's or we get revenue from 178 00:07:29,080 --> 00:07:31,200 Speaker 4: higher GDP because we're selling more to other countries. 179 00:07:31,320 --> 00:07:33,760 Speaker 2: Sounds like when win Steven les Typer ends up that way. 180 00:07:33,840 --> 00:07:36,800 Speaker 2: Steven Marin there the White House Council of Economic Advisors 181 00:07:36,920 --> 00:07:48,640 Speaker 2: chair joining us now here in New York City, the 182 00:07:48,760 --> 00:07:51,440 Speaker 2: former Wealth Bank President David mount Pass, David and Moonic 183 00:07:51,720 --> 00:07:54,920 Speaker 2: good Mornington more than a decade of warnings August twenty eleven, 184 00:07:55,000 --> 00:07:58,760 Speaker 2: Standard of Pause August twenty twenty three, Fitch May twenty 185 00:07:58,840 --> 00:08:01,840 Speaker 2: twenty five. We've ignored them for the best part of 186 00:08:01,880 --> 00:08:03,560 Speaker 2: a decade. Should we stop paying attention? 187 00:08:04,440 --> 00:08:05,080 Speaker 3: Absolutely? 188 00:08:05,800 --> 00:08:10,520 Speaker 1: The fiscal situation is a real mess. I've written about 189 00:08:10,520 --> 00:08:12,880 Speaker 1: it that the spending is out of control. So the 190 00:08:13,000 --> 00:08:16,360 Speaker 1: question is how do you bring control to a Washington 191 00:08:16,440 --> 00:08:19,440 Speaker 1: that really wants to grow. You know, the lobbyists right 192 00:08:19,480 --> 00:08:22,720 Speaker 1: now are in seventh heaven because of the complexity, and 193 00:08:22,800 --> 00:08:27,240 Speaker 1: so you have this system that is able to borrow 194 00:08:27,400 --> 00:08:31,200 Speaker 1: and tax like crazy, and so then Washington sees that 195 00:08:31,320 --> 00:08:35,160 Speaker 1: and says we should just spend double whatever we can 196 00:08:35,240 --> 00:08:37,080 Speaker 1: bring in, and that's what they're doing. 197 00:08:37,800 --> 00:08:39,760 Speaker 3: Now. Whose fault is that. 198 00:08:39,800 --> 00:08:43,720 Speaker 1: Everybody wants to point fingers at everybody else. I think 199 00:08:43,800 --> 00:08:47,079 Speaker 1: we've got to see a fundamental change in the spending system. 200 00:08:47,360 --> 00:08:51,440 Speaker 1: Does started that, and now this Reconciliation Bill is the 201 00:08:51,559 --> 00:08:55,480 Speaker 1: extension of that and enactment into law. Notably, it includes 202 00:08:55,520 --> 00:08:58,560 Speaker 1: regulatory reform, which is going to help a lot with growth. 203 00:08:58,640 --> 00:09:02,000 Speaker 5: But David until Washington sides to go and really look 204 00:09:02,000 --> 00:09:05,839 Speaker 5: at Social Security. That's the biggest piece of the pie 205 00:09:05,920 --> 00:09:08,480 Speaker 5: when it comes to spending. Really everything else is on 206 00:09:08,520 --> 00:09:10,800 Speaker 5: the margins. Is this administration willing to go there? 207 00:09:11,280 --> 00:09:13,040 Speaker 1: I don't think so, and I don't think they should. 208 00:09:13,080 --> 00:09:15,640 Speaker 1: I think you have to build credibility with the public. 209 00:09:15,840 --> 00:09:18,760 Speaker 1: Why would you go after Social Security? People put their 210 00:09:18,800 --> 00:09:22,760 Speaker 1: money into it, and they then retirement is a really 211 00:09:22,800 --> 00:09:25,800 Speaker 1: important part of people's lives and their children's lives as 212 00:09:25,840 --> 00:09:32,080 Speaker 1: they watch. Don't do that age be raised. I don't 213 00:09:32,080 --> 00:09:35,760 Speaker 1: think it's timely for that question to come on. You 214 00:09:35,840 --> 00:09:39,000 Speaker 1: really have to show that you can cut some programs, 215 00:09:39,120 --> 00:09:42,520 Speaker 1: downsize government, and set up a system where you actually 216 00:09:42,559 --> 00:09:46,720 Speaker 1: make decisions so they're arguing about the fraud and waste 217 00:09:46,720 --> 00:09:50,360 Speaker 1: in medicaid. I think that's a useful discussion of how 218 00:09:50,400 --> 00:09:52,760 Speaker 1: can you get quite a bit of savings from a 219 00:09:52,800 --> 00:09:56,319 Speaker 1: program that was expanded drastically. 220 00:09:56,400 --> 00:09:58,480 Speaker 5: You talk about how this administration has to have trust 221 00:09:58,559 --> 00:10:02,720 Speaker 5: with the constituents. Well, President promised a number of policy 222 00:10:02,760 --> 00:10:05,280 Speaker 5: provisions on the campaign trail, lifting the salt tax, which 223 00:10:05,360 --> 00:10:09,080 Speaker 5: was capped under his first administration, making sure that things 224 00:10:09,160 --> 00:10:11,440 Speaker 5: like he did say he doesn't really want to touch medicaid, 225 00:10:11,440 --> 00:10:13,959 Speaker 5: definitely doesn't want to touch medicare. How do you build 226 00:10:13,960 --> 00:10:17,000 Speaker 5: that trust if these are some of the issues that 227 00:10:17,240 --> 00:10:18,320 Speaker 5: are on the chopping block. 228 00:10:18,679 --> 00:10:21,200 Speaker 1: I think by going to the hill and talking with members, 229 00:10:21,200 --> 00:10:27,559 Speaker 1: but then also clear communication from the administration and from 230 00:10:27,880 --> 00:10:30,800 Speaker 1: all around the country of people saying we want the 231 00:10:30,840 --> 00:10:34,320 Speaker 1: government to stop spending so much money and then make 232 00:10:34,559 --> 00:10:38,560 Speaker 1: decisions and start I've advocated start with small decisions and 233 00:10:38,600 --> 00:10:41,920 Speaker 1: then make them bigger and bigger. Sometimes I've talked about 234 00:10:41,960 --> 00:10:44,880 Speaker 1: it that you need to make three major spending decisions 235 00:10:44,920 --> 00:10:48,800 Speaker 1: per week all the way through twenty twenty five, and 236 00:10:48,880 --> 00:10:52,520 Speaker 1: so I think they're doing that sum in this reconciliation bill. 237 00:10:52,800 --> 00:10:53,839 Speaker 3: It's really long. 238 00:10:53,960 --> 00:10:55,520 Speaker 1: I don't know if you've looked at the bill, but 239 00:10:55,640 --> 00:10:57,400 Speaker 1: it's intensely complicated. 240 00:10:57,520 --> 00:10:59,960 Speaker 6: Well, you talk about that and how it's a daydream 241 00:11:00,160 --> 00:11:03,520 Speaker 6: for a lot of lobbyists. I'm wondering if you speak 242 00:11:03,520 --> 00:11:05,800 Speaker 6: to people in Washington, DC and get a sense of 243 00:11:06,160 --> 00:11:09,040 Speaker 6: what kind of constraint bond yields are at a time 244 00:11:09,040 --> 00:11:10,840 Speaker 6: where bond vigilantes are getting very excited. 245 00:11:11,679 --> 00:11:14,160 Speaker 1: I think that was the big issue at the beginning 246 00:11:14,160 --> 00:11:17,120 Speaker 1: of the Clinton administration. You know, spending had been growing, 247 00:11:17,160 --> 00:11:19,719 Speaker 1: and so so you had the idea that I want 248 00:11:19,760 --> 00:11:23,880 Speaker 1: to be reincarnated as the bond market because it's so important. 249 00:11:24,080 --> 00:11:27,480 Speaker 1: I do think we've changed a lot since then. For one, 250 00:11:27,640 --> 00:11:30,559 Speaker 1: the FED is buying lots of bonds, so that changes 251 00:11:30,600 --> 00:11:34,000 Speaker 1: the dynamic in the bond market. The US economy is 252 00:11:34,040 --> 00:11:37,880 Speaker 1: fundamentally really strong, and so I think we could have 253 00:11:38,000 --> 00:11:40,480 Speaker 1: lower interest rates on the short end and the long 254 00:11:40,640 --> 00:11:44,360 Speaker 1: end with if they could begin to think about the 255 00:11:44,400 --> 00:11:47,680 Speaker 1: spending side and actually pull it down. So I'm not 256 00:11:47,760 --> 00:11:50,720 Speaker 1: one that thinks there's so much a limit or a 257 00:11:50,800 --> 00:11:53,760 Speaker 1: higher yield that we're that we're that we're going to 258 00:11:53,880 --> 00:11:56,320 Speaker 1: have to see. I think more we have to see 259 00:11:56,320 --> 00:11:58,640 Speaker 1: the growth come out of the regulatory changes. 260 00:11:59,000 --> 00:12:02,480 Speaker 6: I'm ashaw you advocate for monetizing the debt in some capacity, 261 00:12:02,480 --> 00:12:05,360 Speaker 6: given the fact that the Fed is buying bonds, albeit 262 00:12:05,400 --> 00:12:08,200 Speaker 6: at a slowing pace, and has been known to do that. 263 00:12:08,920 --> 00:12:11,040 Speaker 1: You know, I'm not a fan of qees. So since 264 00:12:11,080 --> 00:12:13,360 Speaker 1: the beginning, I've said it was a shift in duration. 265 00:12:13,520 --> 00:12:19,320 Speaker 1: The government was basically buying duration to cover up the 266 00:12:19,400 --> 00:12:22,600 Speaker 1: lack of growth, and that took us from twenty ten 267 00:12:22,760 --> 00:12:25,640 Speaker 1: all the way through twenty twenty one. So a giant problem, 268 00:12:26,080 --> 00:12:30,480 Speaker 1: but that it's correctable. Is not a big step for 269 00:12:30,679 --> 00:12:35,720 Speaker 1: the US FED to say it's going to downsize its portfolio. 270 00:12:36,040 --> 00:12:40,800 Speaker 1: That would reduce that problem. That's already going on in Europe. Look, 271 00:12:41,000 --> 00:12:45,760 Speaker 1: the ECB is selling off its bond portfolio or reducing 272 00:12:45,800 --> 00:12:49,240 Speaker 1: the size of its portfolio fast and it hasn't hurt 273 00:12:49,240 --> 00:12:52,800 Speaker 1: their yields, and so I think that's a lesson. So 274 00:12:53,080 --> 00:12:55,240 Speaker 1: that shouldn't be the issue right now. The issue is 275 00:12:55,240 --> 00:12:59,120 Speaker 1: the Fed is huge, it's doing regulatory control, it's not 276 00:12:59,280 --> 00:13:02,360 Speaker 1: talking much about spending. It didn't talk during the Biden 277 00:13:02,400 --> 00:13:06,960 Speaker 1: administration about the blowout and spending, and the interest rates 278 00:13:07,000 --> 00:13:10,720 Speaker 1: as a result end up being higher than they should be. 279 00:13:11,080 --> 00:13:14,880 Speaker 1: The models. You know, the models within the FED are 280 00:13:14,920 --> 00:13:17,600 Speaker 1: not working at all. They're based on their fifty year 281 00:13:17,600 --> 00:13:21,240 Speaker 1: old models, economic models of how the economy works, so 282 00:13:21,320 --> 00:13:23,079 Speaker 1: that needs to be really rewritten. 283 00:13:23,400 --> 00:13:25,320 Speaker 2: It's been ridiculous for quite a while, running a six 284 00:13:25,400 --> 00:13:28,960 Speaker 2: percent Lodget deficit, thank you, with unemployment close to four percent, 285 00:13:29,320 --> 00:13:31,079 Speaker 2: just absolutely ridiculous. 286 00:13:31,200 --> 00:13:32,760 Speaker 3: And everybody knows that. 287 00:13:33,520 --> 00:13:37,560 Speaker 1: And then they say, well, my politicians should stand up 288 00:13:37,559 --> 00:13:40,520 Speaker 1: and go after social Security. That's not really the answer 289 00:13:40,559 --> 00:13:43,800 Speaker 1: to me. You've got to make suicide name programs that 290 00:13:43,880 --> 00:13:46,760 Speaker 1: we don't need. The public will support that and then 291 00:13:46,800 --> 00:13:48,600 Speaker 1: build on it, and there's some of that in the 292 00:13:48,640 --> 00:13:52,160 Speaker 1: Reconciliation bill. It's good to have President Trump engaged on it. 293 00:13:52,320 --> 00:13:54,520 Speaker 2: David Mountpass is going to see you, sir, as always. 294 00:13:54,520 --> 00:13:56,840 Speaker 2: As David said, the system is so large in Washington. 295 00:13:57,160 --> 00:13:59,680 Speaker 2: You start to push against it, it pushes back pretty quickly. 296 00:14:00,000 --> 00:14:02,880 Speaker 6: That's the reason why we've seen year after year people 297 00:14:02,880 --> 00:14:05,439 Speaker 6: say the same issue and never remedy it because it 298 00:14:05,480 --> 00:14:06,320 Speaker 6: is political service. 299 00:14:16,160 --> 00:14:18,560 Speaker 2: Let's stick with the economy. Towson's slock Apollo writing, the 300 00:14:18,600 --> 00:14:20,840 Speaker 2: list of headwinds is growing. The trade war is making 301 00:14:20,880 --> 00:14:24,680 Speaker 2: products more expensive in Walmart, student loan payments and restarting, 302 00:14:24,760 --> 00:14:27,520 Speaker 2: and the Moody's down grade is pushing up borrowing costs 303 00:14:27,560 --> 00:14:30,840 Speaker 2: for consumers and for firms. Towson joins us now for 304 00:14:30,920 --> 00:14:33,520 Speaker 2: more Torston, good morning. A lot to worry about, and 305 00:14:33,560 --> 00:14:35,320 Speaker 2: FED official has just told us to take summer off, 306 00:14:35,360 --> 00:14:37,800 Speaker 2: basically that they'll get back together in September. Consider what 307 00:14:37,840 --> 00:14:39,360 Speaker 2: to do. Do you think they need to do something 308 00:14:39,360 --> 00:14:39,840 Speaker 2: before then? 309 00:14:40,320 --> 00:14:41,760 Speaker 7: I don't think they need to do a thing before, 310 00:14:41,840 --> 00:14:43,640 Speaker 7: but I do think that the list of worries is 311 00:14:43,640 --> 00:14:45,640 Speaker 7: indeed growing. It used to be the case for the 312 00:14:45,720 --> 00:14:48,160 Speaker 7: last several months that we've been worrying mainly about the 313 00:14:48,200 --> 00:14:50,600 Speaker 7: trade war. What is coming from the trade war, very 314 00:14:50,600 --> 00:14:53,000 Speaker 7: importantly is what Jamie Diamond pointed out yesterday. 315 00:14:53,240 --> 00:14:53,600 Speaker 3: Name it. 316 00:14:53,640 --> 00:14:55,960 Speaker 7: Now we're going to see the negative effects of tariffs 317 00:14:56,000 --> 00:14:58,680 Speaker 7: on earnings and therefore also on the economy. The yield 318 00:14:58,680 --> 00:15:01,560 Speaker 7: budget LAP is quantified that the impact on GDP this 319 00:15:01,640 --> 00:15:04,760 Speaker 7: year will be minus zero point seven. Normally GDP growth 320 00:15:04,800 --> 00:15:07,000 Speaker 7: this too, So if I subtract minus zero point seven, 321 00:15:07,040 --> 00:15:09,040 Speaker 7: that brings you so still one point three. That's not 322 00:15:09,120 --> 00:15:11,560 Speaker 7: a recession, but it certainly something that will be pushing 323 00:15:11,880 --> 00:15:14,240 Speaker 7: point rate up. In the same calculation by roughly half 324 00:15:14,240 --> 00:15:14,560 Speaker 7: of percent. 325 00:15:14,600 --> 00:15:16,520 Speaker 3: His point. So the first thing is tariffs. 326 00:15:16,560 --> 00:15:19,440 Speaker 7: We are still waiting to see the actual effects of tariffs, 327 00:15:19,480 --> 00:15:22,040 Speaker 7: both on earnings and on the economy. And the things 328 00:15:22,040 --> 00:15:24,720 Speaker 7: that are being added now more recently is student loan 329 00:15:24,840 --> 00:15:28,040 Speaker 7: payments are restarting, is beginning to hit people's credit scores. 330 00:15:28,080 --> 00:15:30,760 Speaker 7: That's about nine million people now who potentially will have 331 00:15:30,760 --> 00:15:32,280 Speaker 7: a hit to their credit scurse, and therefore we'll have 332 00:15:32,360 --> 00:15:34,920 Speaker 7: challenges going out buying a house, going out buying a car, 333 00:15:34,960 --> 00:15:36,320 Speaker 7: going out buying a wash on dryer. 334 00:15:36,480 --> 00:15:38,000 Speaker 3: And third, and finally the downgrade. 335 00:15:38,160 --> 00:15:40,840 Speaker 7: Yes, the market reaction yesterday may be more mild, and 336 00:15:40,920 --> 00:15:43,960 Speaker 7: yes we did go from the US being hyper exceptional 337 00:15:44,200 --> 00:15:47,120 Speaker 7: to just being exceptional. But it's certainly a risk with 338 00:15:47,200 --> 00:15:49,160 Speaker 7: the fiscal discussion and in rates markets that we are 339 00:15:49,160 --> 00:15:51,360 Speaker 7: also adding on to the layer in terms of the 340 00:15:51,400 --> 00:15:52,480 Speaker 7: issues that we see. 341 00:15:52,280 --> 00:15:54,520 Speaker 2: The stress and the buyer now pay later dates as well, 342 00:15:54,560 --> 00:15:56,920 Speaker 2: and you've seen that build for a number of months. 343 00:15:56,920 --> 00:15:59,560 Speaker 2: The question I would ask, the brutal reality is low 344 00:15:59,600 --> 00:16:01,800 Speaker 2: income workers haven't had a good run for a long 345 00:16:01,800 --> 00:16:04,200 Speaker 2: long time. That's been true even when people came on 346 00:16:04,240 --> 00:16:06,480 Speaker 2: this program and said the economy was good. Do you 347 00:16:06,480 --> 00:16:09,000 Speaker 2: see the stress mind grasing up income levels at all? 348 00:16:09,200 --> 00:16:10,480 Speaker 3: That is exactly what's going on. 349 00:16:10,520 --> 00:16:13,560 Speaker 7: So your saw Klana yesterday say that they were reporting 350 00:16:13,600 --> 00:16:17,080 Speaker 7: that buy Now, Pay Later was seeing more weakness among consumers, 351 00:16:17,280 --> 00:16:19,960 Speaker 7: and the issue is exactly that it's migrating up towards 352 00:16:19,960 --> 00:16:22,840 Speaker 7: middle income households. You're seeing this also more broadly in 353 00:16:22,880 --> 00:16:25,720 Speaker 7: for example, in the housing data. The Santa weekly data 354 00:16:25,800 --> 00:16:28,840 Speaker 7: for traffic for home builders is beginning to slow. 355 00:16:28,600 --> 00:16:30,760 Speaker 3: Down, and this spring selling season. 356 00:16:30,520 --> 00:16:33,200 Speaker 7: Has basically been much weaker than the spring selling season 357 00:16:33,240 --> 00:16:35,200 Speaker 7: we've seen for the last few years. So also the 358 00:16:35,200 --> 00:16:38,240 Speaker 7: weakness in the housing market is leading indicator telling you 359 00:16:38,520 --> 00:16:41,760 Speaker 7: that the middle income consumer is also beginning to look monstrous. 360 00:16:41,920 --> 00:16:42,640 Speaker 2: So you don't. 361 00:16:42,480 --> 00:16:46,520 Speaker 6: Necessarily see recession, but this downside to growth that comes 362 00:16:46,560 --> 00:16:49,480 Speaker 6: at a time of pricing pressure something that looks a 363 00:16:49,520 --> 00:16:52,720 Speaker 6: bit like stagflation. And I wonder some people say, well, 364 00:16:52,720 --> 00:16:55,080 Speaker 6: if it's not a recession, then it's pretty good. Is 365 00:16:55,080 --> 00:16:58,000 Speaker 6: this actually a worst case scenario for risk assets because 366 00:16:58,040 --> 00:17:01,360 Speaker 6: there isn't a very obvious reaction function from the fat 367 00:17:01,520 --> 00:17:05,400 Speaker 6: reserve from policy makers to respond to the fundamental underlying 368 00:17:05,520 --> 00:17:07,120 Speaker 6: weakness in consumers. 369 00:17:07,400 --> 00:17:10,440 Speaker 7: Exactly because inflation if that is now going up. We've 370 00:17:10,440 --> 00:17:13,280 Speaker 7: heard all the stories from Walmart now super various. Of course, 371 00:17:13,320 --> 00:17:16,119 Speaker 7: retailers are saying prices will be moving higher over the 372 00:17:16,160 --> 00:17:16,720 Speaker 7: coming quarters. 373 00:17:16,720 --> 00:17:17,800 Speaker 3: That's what everyone expects. 374 00:17:17,840 --> 00:17:20,240 Speaker 7: This is a textbook definition of a trade will, namely 375 00:17:20,320 --> 00:17:23,680 Speaker 7: higher prices because imports of containers that come in to 376 00:17:23,880 --> 00:17:24,560 Speaker 7: Los Angeles. 377 00:17:24,560 --> 00:17:26,200 Speaker 3: Of course, things will become more expensive. 378 00:17:26,320 --> 00:17:29,480 Speaker 7: And that is exactly challenging the fed's room for maneuvering 379 00:17:29,720 --> 00:17:32,040 Speaker 7: because they will have to keep rates higher for longer 380 00:17:32,240 --> 00:17:34,719 Speaker 7: in response to almost no matter what growth is doing. 381 00:17:34,800 --> 00:17:36,879 Speaker 7: If growth, of course gets into a deep recession, they 382 00:17:36,920 --> 00:17:39,240 Speaker 7: will be cutting. But if growth is just weakening, and 383 00:17:39,280 --> 00:17:41,720 Speaker 7: that is the expectation from the contentus, that's what we're 384 00:17:41,720 --> 00:17:44,840 Speaker 7: seeing in the data, then you will have this stackflation situation, 385 00:17:44,880 --> 00:17:48,480 Speaker 7: which is very uncomfortable from a FED perspective because inflation 386 00:17:48,560 --> 00:17:50,280 Speaker 7: higher for longer says the fetch you would be hiking, 387 00:17:50,480 --> 00:17:52,480 Speaker 7: But growth slowing down says the fetch should be cutting. 388 00:17:52,680 --> 00:17:54,479 Speaker 7: So this becomes a question for the FED, do they 389 00:17:54,560 --> 00:17:56,480 Speaker 7: like apples and oranges, Do they put more weight on 390 00:17:56,560 --> 00:17:59,040 Speaker 7: inflation being high or do the more weight on growth 391 00:17:59,080 --> 00:17:59,520 Speaker 7: slowing down? 392 00:18:00,119 --> 00:18:03,160 Speaker 6: Something that that John was talking about Jamie Diamond yesterday 393 00:18:03,160 --> 00:18:06,800 Speaker 6: talking about this complacency in markets, particularly with risk assets, 394 00:18:06,840 --> 00:18:09,280 Speaker 6: given the fact that yes, you have these tariffs, but 395 00:18:09,359 --> 00:18:12,479 Speaker 6: you also have this kind of backdrop that does pressure 396 00:18:12,520 --> 00:18:15,480 Speaker 6: the consumer. Do you think that risk assets really are 397 00:18:15,520 --> 00:18:18,240 Speaker 6: not pricing in this type of backdrop at a time 398 00:18:18,520 --> 00:18:21,200 Speaker 6: when you've seen big rebounds in this wake of any 399 00:18:21,240 --> 00:18:21,880 Speaker 6: kind of selloffs. 400 00:18:22,000 --> 00:18:24,080 Speaker 3: I think the stock market is backward looking at the moment. 401 00:18:24,119 --> 00:18:26,080 Speaker 3: The stock market is not taking. 402 00:18:25,760 --> 00:18:28,000 Speaker 7: Into account the fact that we have these three different 403 00:18:28,000 --> 00:18:30,480 Speaker 7: folds that are now pushing the economy down. First of all, 404 00:18:30,720 --> 00:18:33,760 Speaker 7: we have tariffs weighing on earning terrrists weighing on GDP, 405 00:18:34,040 --> 00:18:36,679 Speaker 7: Terry's pushing you on Tornmada. We have also student loan 406 00:18:36,760 --> 00:18:40,560 Speaker 7: problems that will hit people's ability to borrow. And finally, 407 00:18:40,560 --> 00:18:43,000 Speaker 7: we also had the movies downgrade. Yes, again, that might 408 00:18:43,080 --> 00:18:44,639 Speaker 7: just be a thing in marguts where we said, oh 409 00:18:44,720 --> 00:18:46,600 Speaker 7: this just went and came away, and well we suddenly 410 00:18:46,600 --> 00:18:48,880 Speaker 7: no longer an issue, but it is certainly something that 411 00:18:49,040 --> 00:18:51,200 Speaker 7: this conversation, the direction of travel when it comes to 412 00:18:51,240 --> 00:18:53,840 Speaker 7: the fiscal discussion is only one way, namely that we 413 00:18:53,880 --> 00:18:55,760 Speaker 7: will see that levels go up, and there's more and 414 00:18:55,760 --> 00:18:57,760 Speaker 7: more discussion around what does that mean not only for 415 00:18:57,880 --> 00:18:58,960 Speaker 7: rates but also. 416 00:18:58,680 --> 00:18:59,160 Speaker 3: For the dollar. 417 00:18:59,240 --> 00:19:01,000 Speaker 7: And note also, yes, by the way that the dollar 418 00:19:01,040 --> 00:19:03,359 Speaker 7: went down even though rates went on a round trip, 419 00:19:03,400 --> 00:19:05,640 Speaker 7: still telling you that there is something here to think 420 00:19:05,680 --> 00:19:08,080 Speaker 7: about in terms of the bigger picture, not only in 421 00:19:08,119 --> 00:19:10,000 Speaker 7: terms of what rates are doing. And where the dollar 422 00:19:10,000 --> 00:19:12,240 Speaker 7: goes down, of course we get even more inflation and pressure, 423 00:19:12,400 --> 00:19:14,240 Speaker 7: and that complicates the job for the faired even further. 424 00:19:14,359 --> 00:19:17,159 Speaker 5: Torstan, you keep talking about downside risks. Do you see 425 00:19:17,240 --> 00:19:20,399 Speaker 5: any upside risk to policy proposals right now in Washington? 426 00:19:20,520 --> 00:19:22,880 Speaker 7: I do think that the stock markets focus on deals 427 00:19:22,920 --> 00:19:25,040 Speaker 7: when it comes to trade deals. We do see, of 428 00:19:25,080 --> 00:19:27,440 Speaker 7: course that there could be some good change, that we 429 00:19:27,480 --> 00:19:29,760 Speaker 7: could get some deals of course over the coming weeks 430 00:19:29,760 --> 00:19:31,679 Speaker 7: and months ahead. But the issue here is that the 431 00:19:31,680 --> 00:19:33,320 Speaker 7: policy has already been implemented. 432 00:19:33,640 --> 00:19:34,320 Speaker 3: Let's not forget that. 433 00:19:34,480 --> 00:19:37,640 Speaker 7: That is, but average tariff rates went from in January 434 00:19:37,680 --> 00:19:39,479 Speaker 7: three percent to now eighteen percent. 435 00:19:39,840 --> 00:19:41,200 Speaker 3: So that's a fairly dramatic shock. 436 00:19:41,280 --> 00:19:44,800 Speaker 7: Remember in twenty seventeen eighteen, from first term tariff rates 437 00:19:44,840 --> 00:19:46,719 Speaker 7: went from two to three and now we went from 438 00:19:46,760 --> 00:19:49,720 Speaker 7: three to eighteen. That's a very significant impact, which is 439 00:19:49,760 --> 00:19:52,920 Speaker 7: exactly why this earning season gave this outcome that companies 440 00:19:52,960 --> 00:19:55,960 Speaker 7: are having a hard time giving forward guidance. Companies are having, 441 00:19:56,000 --> 00:19:59,160 Speaker 7: of course a lot of challenges. We're dealing with higher tariffs. 442 00:19:59,200 --> 00:20:01,320 Speaker 7: That's why ford More Company had losses of one and 443 00:20:01,359 --> 00:20:03,760 Speaker 7: a half billion, Apple losses of nine hundred million. It 444 00:20:03,800 --> 00:20:07,640 Speaker 7: really is significant how these coming motions of what will 445 00:20:07,640 --> 00:20:10,280 Speaker 7: happen to earnings and GDP are not being priced in 446 00:20:10,280 --> 00:20:11,399 Speaker 7: into markets at the moment. 447 00:20:11,480 --> 00:20:15,320 Speaker 2: In your office at your headquarters, on the calendar, what's circled, 448 00:20:15,480 --> 00:20:16,960 Speaker 2: what dates which month? 449 00:20:17,200 --> 00:20:19,320 Speaker 7: So what's most important is back to when the square 450 00:20:19,359 --> 00:20:21,320 Speaker 7: the circle is. To what you said without the FIT meeting, 451 00:20:21,440 --> 00:20:23,719 Speaker 7: it is very important how the FIT communicates about this. 452 00:20:24,080 --> 00:20:26,199 Speaker 7: So far, if i'm C members have said we have 453 00:20:26,240 --> 00:20:28,240 Speaker 7: a weight and C mode, because it's fair to say 454 00:20:28,320 --> 00:20:30,680 Speaker 7: John Williams said this, and Power also has been talking 455 00:20:30,680 --> 00:20:32,840 Speaker 7: about this. It's fair to say, let's wait and see 456 00:20:33,000 --> 00:20:35,159 Speaker 7: what the data actually is going to turn out like. 457 00:20:35,200 --> 00:20:37,840 Speaker 7: But if I turn on my Bloomberg excreing that side ECFC, 458 00:20:37,920 --> 00:20:40,320 Speaker 7: go and look at what is the consensus expectation to 459 00:20:40,440 --> 00:20:42,080 Speaker 7: inflation this year, it's going up. 460 00:20:42,280 --> 00:20:44,800 Speaker 3: What's the consensus expectations of GDP growth, it's going down. 461 00:20:45,080 --> 00:20:47,919 Speaker 7: As an investor, this should be the number one thing 462 00:20:47,960 --> 00:20:49,560 Speaker 7: to look at when I do asset that location. So 463 00:20:49,640 --> 00:20:51,880 Speaker 7: the answer to your question is the incoming data does 464 00:20:51,880 --> 00:20:54,520 Speaker 7: it play out as the consensus and the textbook would predict, 465 00:20:54,720 --> 00:20:56,760 Speaker 7: namely that inflation is going to go up and GDP 466 00:20:56,880 --> 00:20:58,359 Speaker 7: is going to go down? And I would expect that 467 00:20:58,600 --> 00:20:59,679 Speaker 7: is exactly what we're looking at. 468 00:20:59,680 --> 00:21:03,320 Speaker 2: Over the inflation short lived or persistent. They say they 469 00:21:03,359 --> 00:21:06,480 Speaker 2: need time. New York Fed President John Williams said, maybe 470 00:21:06,480 --> 00:21:09,360 Speaker 2: by September. Is that enough time to know whether it's 471 00:21:09,359 --> 00:21:10,080 Speaker 2: one or not the other? 472 00:21:10,200 --> 00:21:10,720 Speaker 3: Well, hold on. 473 00:21:10,760 --> 00:21:12,520 Speaker 7: So there are two very important aspects of that. Bet 474 00:21:12,560 --> 00:21:14,760 Speaker 7: Hammack said in a speech here two weeks ago at 475 00:21:14,760 --> 00:21:18,199 Speaker 7: the HUA Institution that she is already seeing companies that 476 00:21:18,280 --> 00:21:22,240 Speaker 7: are not impacted by tariffs also raising prices because competitors 477 00:21:22,280 --> 00:21:24,880 Speaker 7: are raising prices. And the second thing, also, let's think 478 00:21:24,880 --> 00:21:26,959 Speaker 7: about it the following. If it ends up being the 479 00:21:26,960 --> 00:21:30,480 Speaker 7: case that you will have imports that are significantly lower, 480 00:21:30,520 --> 00:21:32,919 Speaker 7: and therefore you will have less variety on the shelves, 481 00:21:33,040 --> 00:21:34,440 Speaker 7: that means that I may not be able to buy 482 00:21:34,440 --> 00:21:36,520 Speaker 7: a white shirt and a right color. And if that's 483 00:21:36,560 --> 00:21:38,320 Speaker 7: the case, then the price of all the shirts that 484 00:21:38,359 --> 00:21:40,639 Speaker 7: are left will be going up. So that means that 485 00:21:40,680 --> 00:21:43,000 Speaker 7: it's not only about this one time lift in changing 486 00:21:43,000 --> 00:21:44,600 Speaker 7: the sticker and what is the price of my shirt, 487 00:21:44,760 --> 00:21:46,959 Speaker 7: But it's also that if there is less variety, if 488 00:21:47,000 --> 00:21:48,840 Speaker 7: there's less goods coming in, and if we're trying to 489 00:21:49,160 --> 00:21:50,640 Speaker 7: avoid and prevent goods from. 490 00:21:50,440 --> 00:21:52,320 Speaker 3: Coming in, it will mean that the goods that are. 491 00:21:52,280 --> 00:21:55,040 Speaker 7: Left might see a more permanent increase in inflation. 492 00:21:55,080 --> 00:21:56,200 Speaker 3: So that's why this is not just. 493 00:21:56,160 --> 00:21:58,960 Speaker 7: A temporary feature in terms of thinking about inflation. It 494 00:21:59,040 --> 00:22:02,000 Speaker 7: is something that potentially could have more longer lasting impact. 495 00:22:02,080 --> 00:22:04,600 Speaker 2: Just don't buy a gray shirt. Can't stand a gray shirt. 496 00:22:04,600 --> 00:22:08,080 Speaker 2: You united that gray shirts? I just find no one 497 00:22:08,119 --> 00:22:10,360 Speaker 2: makes a great shirt. Looks you are gray. No one 498 00:22:10,359 --> 00:22:12,879 Speaker 2: makes a gray shirts. Not the tight color. Sometimes, just 499 00:22:12,920 --> 00:22:18,480 Speaker 2: like white shirts look sharp, blue looks precisely, it looks dirty. Yeah, 500 00:22:18,520 --> 00:22:19,480 Speaker 2: it looks like there we go. 501 00:22:19,680 --> 00:22:20,600 Speaker 3: I don't clean it shirt. 502 00:22:21,800 --> 00:22:35,119 Speaker 2: It's going to see of Apollo. Thank you, sir Misra 503 00:22:35,320 --> 00:22:37,360 Speaker 2: of JP Morgan rites. And the tax cuts will get 504 00:22:37,359 --> 00:22:40,560 Speaker 2: extended and the spending cuts won't likely happen. Physical term 505 00:22:40,600 --> 00:22:44,160 Speaker 2: premium should rise more steeper curve higher cost of capital 506 00:22:44,440 --> 00:22:48,000 Speaker 2: to create dispersion in growth and returns. Prayer's whether it's 507 00:22:48,000 --> 00:22:51,000 Speaker 2: around the table, prayer, good morning. How much risk is 508 00:22:51,040 --> 00:22:53,160 Speaker 2: in the so called risk free asset. 509 00:22:54,080 --> 00:22:56,760 Speaker 8: So it depends on what you define by risk credit risks. 510 00:22:57,040 --> 00:22:59,520 Speaker 8: There is no credit risk. I mean the US issues 511 00:23:00,119 --> 00:23:05,040 Speaker 8: and see we will pay back our debt. The duration risk, 512 00:23:05,119 --> 00:23:07,359 Speaker 8: which is really a function of term premium or I 513 00:23:07,400 --> 00:23:10,199 Speaker 8: don't want a bond geek out here, but risk premium 514 00:23:10,600 --> 00:23:14,040 Speaker 8: that's much higher. So you're looking out the curve. There's 515 00:23:14,080 --> 00:23:15,720 Speaker 8: a lot of risk in those ten y or thirty 516 00:23:15,800 --> 00:23:18,560 Speaker 8: year bonds. We look at Japan, so I think if 517 00:23:18,600 --> 00:23:22,199 Speaker 8: there's a global rise in rates, if we're ignoring, I mean, 518 00:23:22,240 --> 00:23:23,960 Speaker 8: I think the whole mood is downgrade. 519 00:23:24,040 --> 00:23:25,840 Speaker 2: We knew about it. It was lagging. 520 00:23:25,840 --> 00:23:26,320 Speaker 3: I hear you. 521 00:23:26,440 --> 00:23:29,080 Speaker 8: But you know, in the words of Hemingway, you know, 522 00:23:29,119 --> 00:23:30,720 Speaker 8: how do you go bankrupt? And not that I'm saying 523 00:23:30,760 --> 00:23:33,119 Speaker 8: that the US is going bankrupt, but you know it's 524 00:23:33,359 --> 00:23:36,560 Speaker 8: gradually and then suddenly, And I think we at that 525 00:23:36,680 --> 00:23:38,960 Speaker 8: point where the market says, you know what we have 526 00:23:39,040 --> 00:23:43,200 Speaker 8: to look out for fiscal sustainability. Congress is not doing 527 00:23:43,240 --> 00:23:46,160 Speaker 8: its bit, so the bond market has to force Congress 528 00:23:46,160 --> 00:23:48,200 Speaker 8: to do its bit, and so I think that's why 529 00:23:48,240 --> 00:23:51,040 Speaker 8: the long end is scary, because how high do rates 530 00:23:51,080 --> 00:23:54,000 Speaker 8: have to go before the administration or Congress says, you 531 00:23:54,040 --> 00:23:56,240 Speaker 8: know what, we don't have the political will, but the 532 00:23:56,280 --> 00:23:59,600 Speaker 8: market's forcing our hand. I'm not sure what that level is. 533 00:24:00,040 --> 00:24:02,040 Speaker 8: I don't think the bottom mark is very beautiful right now. 534 00:24:02,040 --> 00:24:05,239 Speaker 8: It's in the hippie state, so you know. That's why 535 00:24:05,280 --> 00:24:07,119 Speaker 8: I think when you ask about risk, the long end 536 00:24:07,119 --> 00:24:09,399 Speaker 8: has risk. The front end is being dragged with the 537 00:24:09,440 --> 00:24:12,680 Speaker 8: long end. That's where I think there's opportunity because I think, 538 00:24:12,720 --> 00:24:14,960 Speaker 8: I mean, we're trying to move away from trade, but 539 00:24:15,000 --> 00:24:18,240 Speaker 8: we're still in that pause. Effective taraphrate is still high. 540 00:24:18,280 --> 00:24:21,199 Speaker 8: There's uncertainty. I think the FED will be late, but 541 00:24:21,240 --> 00:24:23,399 Speaker 8: at some point they're going to cut a lot, you know, 542 00:24:23,600 --> 00:24:26,199 Speaker 8: more aggressively when they start. So the front end, I 543 00:24:26,359 --> 00:24:28,800 Speaker 8: like the long and that's where that risk comes in. 544 00:24:29,000 --> 00:24:31,600 Speaker 2: Let's unpack some of this. You use the important word global. 545 00:24:32,000 --> 00:24:35,280 Speaker 2: It's global. What's making it global at the moment? So 546 00:24:35,359 --> 00:24:36,160 Speaker 2: some of it is I. 547 00:24:36,080 --> 00:24:38,480 Speaker 8: Think US rates do tend to drive the rest of 548 00:24:38,520 --> 00:24:40,800 Speaker 8: the world. I think there's some element of that we've 549 00:24:40,800 --> 00:24:43,080 Speaker 8: seen it in other you look at the Taper tantrum, 550 00:24:43,160 --> 00:24:45,560 Speaker 8: even when it's a US domestic issue, you do see 551 00:24:45,600 --> 00:24:48,680 Speaker 8: that impact whose investors are global. But the other thing 552 00:24:48,760 --> 00:24:51,119 Speaker 8: is the rest of the world. If the US is 553 00:24:51,320 --> 00:24:53,800 Speaker 8: forcing the rest of the world to do more fiscal stimulus, 554 00:24:53,960 --> 00:24:57,840 Speaker 8: either because of trade defense, you name which issue, you 555 00:24:57,920 --> 00:24:59,760 Speaker 8: could have a lot more supply in the rest of 556 00:24:59,800 --> 00:25:03,280 Speaker 8: the world. And then if I'm a foreign investor I'm Japanese, 557 00:25:03,320 --> 00:25:05,840 Speaker 8: I can look at the highest Japanese rate, or I 558 00:25:05,840 --> 00:25:07,800 Speaker 8: can look at the US and say, you know what, 559 00:25:07,880 --> 00:25:09,480 Speaker 8: I don't even know what's going to happen with the dollar. 560 00:25:09,520 --> 00:25:12,320 Speaker 8: Maybe the dollar is gill obal valued. I'd rather hold 561 00:25:12,320 --> 00:25:14,639 Speaker 8: the US. So I think when it's a global rate trise, 562 00:25:14,920 --> 00:25:17,200 Speaker 8: it does tend to have more legs, which is why 563 00:25:17,240 --> 00:25:19,680 Speaker 8: that to your risk question earlier, that risk in the 564 00:25:19,720 --> 00:25:22,160 Speaker 8: long end is higher because this is a global bond 565 00:25:22,240 --> 00:25:24,399 Speaker 8: sell off, and I wouldn't fade that. I don't think 566 00:25:24,440 --> 00:25:27,240 Speaker 8: there's a cross market trading. I think it's a steepener 567 00:25:27,280 --> 00:25:28,040 Speaker 8: trade globally. 568 00:25:28,240 --> 00:25:30,080 Speaker 6: Well, just to build on that and something that Edyar 569 00:25:30,119 --> 00:25:33,159 Speaker 6: Danny was talking about, how global bond vigilantes are grabbing 570 00:25:33,160 --> 00:25:36,280 Speaker 6: their pitchforks and marching into the streets and pushing back 571 00:25:36,280 --> 00:25:38,480 Speaker 6: against some of the fiscal stimulus and just some of 572 00:25:38,520 --> 00:25:42,440 Speaker 6: the recklessness. Some people would say that these developed markets 573 00:25:42,440 --> 00:25:45,240 Speaker 6: have been with their budgets. How much does the risk 574 00:25:45,440 --> 00:25:48,399 Speaker 6: if you will, really lie in the developed markets in 575 00:25:48,440 --> 00:25:52,199 Speaker 6: a new way, its sovereign debt markets that totally upends 576 00:25:52,320 --> 00:25:54,520 Speaker 6: investing logic of the past couple decades. 577 00:25:55,160 --> 00:25:57,240 Speaker 8: I think it is a developed market issue, and I 578 00:25:57,280 --> 00:25:59,160 Speaker 8: think some of this goes back to if you see 579 00:25:59,160 --> 00:26:02,080 Speaker 8: how much friskal still has happened during COVID, it was 580 00:26:02,200 --> 00:26:04,080 Speaker 8: much more in the developer now was not. 581 00:26:04,000 --> 00:26:05,960 Speaker 3: As much in Europe. But we're going to get a 582 00:26:06,000 --> 00:26:06,560 Speaker 3: lot more. 583 00:26:06,440 --> 00:26:10,320 Speaker 8: Defense spending, infrastructure spending. But the US spent a lot 584 00:26:10,359 --> 00:26:13,560 Speaker 8: of money. Part of that exceptional story was the fact 585 00:26:13,600 --> 00:26:18,000 Speaker 8: that we had significant fiscal expansion. And now I think 586 00:26:18,000 --> 00:26:21,000 Speaker 8: the market's saying, you know, no, mask What I struggled 587 00:26:21,080 --> 00:26:23,359 Speaker 8: with is risk assets are ignoring this. 588 00:26:23,760 --> 00:26:25,080 Speaker 3: So if things slow. 589 00:26:24,880 --> 00:26:27,320 Speaker 8: Down, we've just the FED is telling us actually very 590 00:26:27,320 --> 00:26:29,880 Speaker 8: clearly that we're not going to be in there quickly. 591 00:26:30,240 --> 00:26:33,119 Speaker 8: We might be constrained because of inflation risk. Now the 592 00:26:33,160 --> 00:26:35,560 Speaker 8: fiscal site's telling you there may not be a lot 593 00:26:35,600 --> 00:26:38,359 Speaker 8: of fiscal put either, So I think the risk asset 594 00:26:38,400 --> 00:26:41,600 Speaker 8: complex is a little complacent. But to your point, I 595 00:26:41,600 --> 00:26:43,080 Speaker 8: think the bond vigilantes are awake. 596 00:26:43,680 --> 00:26:44,600 Speaker 3: Do they take over? 597 00:26:44,880 --> 00:26:46,879 Speaker 8: I think it's a bit of a dance between the 598 00:26:46,920 --> 00:26:49,439 Speaker 8: hard data and the bond vigilantes, and we have to 599 00:26:49,480 --> 00:26:50,760 Speaker 8: see what who wins. 600 00:26:50,840 --> 00:26:52,280 Speaker 6: I keep thinking about it at your DNA, and he 601 00:26:52,320 --> 00:26:54,240 Speaker 6: can't decide whether it's going to be a stock market 602 00:26:54,240 --> 00:26:56,439 Speaker 6: melt up or a bond market meltdown. And it seems 603 00:26:56,480 --> 00:27:00,000 Speaker 6: like the risks right now are the potential for ongoing growth, 604 00:27:00,359 --> 00:27:04,280 Speaker 6: also with inflation and fiscal irresponsibility on one side. So 605 00:27:04,280 --> 00:27:06,800 Speaker 6: the duration risk is the big one, or it becomes 606 00:27:06,800 --> 00:27:09,560 Speaker 6: a growth scare and suddenly the credit risk becomes the 607 00:27:09,640 --> 00:27:12,560 Speaker 6: key component. Are you saying that the credit risk component, 608 00:27:12,680 --> 00:27:15,000 Speaker 6: the growth scare is the one that we should prioritize, 609 00:27:15,080 --> 00:27:17,840 Speaker 6: which will ultimately cure the other side, at least for 610 00:27:18,000 --> 00:27:21,040 Speaker 6: most of the duration in terms of where the risk 611 00:27:21,119 --> 00:27:21,640 Speaker 6: is perceived. 612 00:27:21,720 --> 00:27:24,200 Speaker 8: I think that's like the trillion llar question here. I mean, 613 00:27:24,200 --> 00:27:26,840 Speaker 8: the hard data is going to be so muddied by 614 00:27:27,320 --> 00:27:30,239 Speaker 8: front loading. Maybe there's still frontloading happening because we're in 615 00:27:30,280 --> 00:27:33,440 Speaker 8: that pause period. We're in an uncertain period. I do 616 00:27:33,480 --> 00:27:35,720 Speaker 8: think if I step back and look at fundamentals, I 617 00:27:35,760 --> 00:27:38,600 Speaker 8: think we're slowing. We've taken that tail risk of recession 618 00:27:38,600 --> 00:27:41,200 Speaker 8: off the table, but what is our base case below 619 00:27:41,240 --> 00:27:44,120 Speaker 8: trend growth? And so I do think if you ask 620 00:27:44,200 --> 00:27:46,320 Speaker 8: me to pick one, I would say the growth side 621 00:27:46,960 --> 00:27:50,560 Speaker 8: is likely to continue to weaken. We'll be looking at details. 622 00:27:50,040 --> 00:27:51,000 Speaker 3: To companies pass on. 623 00:27:51,000 --> 00:27:54,000 Speaker 8: I mean, this is a consumption tax ultimately, whether it's 624 00:27:54,000 --> 00:27:57,840 Speaker 8: a corporates eat it or or consumers have to eat it, 625 00:27:57,840 --> 00:27:59,200 Speaker 8: it's going to start to hurt demand. 626 00:27:59,280 --> 00:28:01,080 Speaker 2: So I think growth slows down. 627 00:28:01,119 --> 00:28:02,760 Speaker 8: But to your point, I don't think we can ignore 628 00:28:02,800 --> 00:28:05,200 Speaker 8: if we get a bill and it's still not done. 629 00:28:05,240 --> 00:28:07,520 Speaker 8: The Senate has to work. I mean, I'm focused on 630 00:28:07,560 --> 00:28:10,359 Speaker 8: the Senate. They don't like even the Medicaid work requirements. 631 00:28:10,440 --> 00:28:12,960 Speaker 8: So if you get salt, you get a lot more 632 00:28:12,960 --> 00:28:16,360 Speaker 8: fiscal stimulus, and we realize it's all front loaded, then 633 00:28:16,400 --> 00:28:18,600 Speaker 8: I think you can get that long end. But there 634 00:28:18,640 --> 00:28:20,639 Speaker 8: is a self limiting aspect to that long end, Like 635 00:28:20,680 --> 00:28:23,159 Speaker 8: I don't know if it's four and a half five percent, 636 00:28:23,320 --> 00:28:25,679 Speaker 8: I think every other market's going to pay attention to it. 637 00:28:26,000 --> 00:28:28,080 Speaker 8: The economy is going to slow down because the long 638 00:28:28,160 --> 00:28:30,439 Speaker 8: end is what actually drives the economy. So there's a 639 00:28:30,520 --> 00:28:34,159 Speaker 8: limiting aspect. I just don't know if we're there yet. 640 00:28:34,560 --> 00:28:37,040 Speaker 8: And if the hard data remains muddied and all we 641 00:28:37,080 --> 00:28:39,680 Speaker 8: get is the soft data hard data disconnect, you can 642 00:28:39,680 --> 00:28:42,800 Speaker 8: get the front end being stuck and the long end 643 00:28:42,880 --> 00:28:44,960 Speaker 8: taking over. I think that's the risk scenario, which is 644 00:28:45,000 --> 00:28:47,400 Speaker 8: why you know it's nervous to be in the long end. 645 00:28:47,480 --> 00:28:48,240 Speaker 2: Think you're supposed to have. 646 00:28:48,280 --> 00:28:51,120 Speaker 8: Steepeners and if you own risk assets, you're supposed to 647 00:28:51,160 --> 00:28:53,360 Speaker 8: buy that front end because that's the only place where 648 00:28:53,360 --> 00:28:55,520 Speaker 8: you can have confidence that the FED can come in 649 00:28:55,520 --> 00:28:56,640 Speaker 8: and somewhat control. 650 00:28:56,800 --> 00:29:00,360 Speaker 2: Preyermisra IF, JPMOK and Asset Management Prayer. Thank you. This 651 00:29:00,440 --> 00:29:04,959 Speaker 2: is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, 652 00:29:05,000 --> 00:29:07,960 Speaker 2: and geopolitics. You can watch the show live on Bloomberg 653 00:29:08,000 --> 00:29:11,120 Speaker 2: TV weekday mornings from six am to nine am Eastern. 654 00:29:11,440 --> 00:29:14,800 Speaker 2: Subscribe to the podcast on Apple, Spotify or anywhere else 655 00:29:14,800 --> 00:29:17,480 Speaker 2: you listen, and as always on the Bloomberg Terminal and 656 00:29:17,520 --> 00:29:18,760 Speaker 2: the Bloomberg Business app.