July 16, 2025 • 32 mins
Watch Bloomberg Businessweek Daily LIVE every day on YouTube: http://bit.ly/3vTiACF.
President Donald Trump denied he is seeking to remove Federal Reserve Chair Jerome Powell, after raising the idea in a closed-door meeting with congressional Republicans that leaked to the media.
“No, we’re not planning on doing anything,” Trump told reporters on Wednesday. He later added, “I don’t rule out anything, but I think it’s highly unlikely, unless he has to leave for fraud.”
A White House official, speaking on the condition of anonymity earlier Wednesday, said they expected Trump to soon move against the Fed chief after his meeting with members of Congress visiting the White House to discuss cryptocurrency legislation. Some lawmakers also left that Tuesday evening meeting with that impression, and Trump acknowledged that he had polled the participants about dismissing Powell.
The president’s remarks in the Oval Office left open the possibility of ousting Powell for cause. Trump and his allies have lambasted the Fed chair over the central bank’s decision to hold interest rates steady and the cost of the central bank’s renovations of its Washington headquarters.
Today's show features:
- Lael Brainard, Distinguished Fellow at the Georgetown Psaros Center for Financial Markets and Policy and Former Vice Chair of the Federal Reserve, on President Donald Trump's continued pressure on Fed Chair Jerome Powell
- Ken Leon, Director of Equity Research at CFRA on bank earnings from Goldman Sachs, Morgan Stanley and Bank of America
- Simeon Hyman, Global Investment Strategist at ProShares on his firm’s mid-year outlook for markets and the economy
- Dr. Gracelin Baskaran, Director, Critical Minerals Security Program and Center for Strategic and International Studies on the booming market for rare-earth materials, including Apple’s $500 million deal to buy them from MP Materials
See omnystudio.com/listener for privacy information.
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Transcript
Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business
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ahead with insight on the people, companies, and trends shaping
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(00:23):
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Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 2 (00:32):
I want to bring in somebody who has quite a
bit of experience with the Federal Reserve. Former Director of
the National Economic Council, former Vice Chair of the Federal Reserve,
Distinguished Fellow at the Georgetown Sarrows Center for Financial Markets
and Policy. Lael Brainerd is with us right now. It's
good to have you with us this afternoon, and that's
exactly where I want to start. We spoke to Mike
(00:52):
McKee out in Victor, Idaho, and he said there was
a collective eye roll when he saw the news earlier
this morning from the other members of the Federal Reserve
and Fed watchers out there.
Speaker 3 (01:03):
Do you look at the news that.
Speaker 2 (01:04):
We got this morning, the comments from the President that
we got this morning as being different than other criticism
of J.
Speaker 3 (01:09):
Powell in the past.
Speaker 4 (01:11):
I think there's a lot of continuity. He has clearly
been very frustrated for some period of time with the
Federal Reserve and their wait and see mode while they
wait to see how tariffs are going to affect inflation
and the economy, and you know, he's very impatient to
(01:33):
see rates come down. So I saw those comments today
as being certainly in that same spirit, although of course
the rumors early in.
Speaker 5 (01:44):
The day had more urgency to them.
Speaker 4 (01:47):
Of Course, subsequent to that, he seems to have pulled
back the comments, and that's a good thing. I think
it would be extremely bad for the United States to
have a big rupture in the institutional independence of the
Federal Reserve, which is what that would.
Speaker 5 (02:04):
Amount to exactly.
Speaker 6 (02:05):
So, how do you think this will affect the Fed's
credibility in controlling inflation? And more broadly, how will this
political move really just affect inflation expectations. We saw markets
react earlier. There was really a huge whiplash from the
equity market to the fixed income market.
Speaker 4 (02:19):
Absolutely, so if the President of the United States were
to go ahead and actually make an effort to remove
the chair of the Federal Reserve, that would fly in
the face of decades of institutional convention that puts the
Federal Reserve in an independent position to pursue on the
(02:43):
control of inflation as well as keeping labor markets strong.
And I think it would really raise important questions in
the minds of investors in the United States and around
the world as to whether the institutional environment that really
underpins the value of treasury securities, the strength of the dollar,
(03:06):
and the expectation that inflation will remain low and stable
in the United States, all of those things I think
would be thrown into question, and that should lead investors
to demand more to hold long term treasury, so that
should lead to the long end of the curve going up.
Speaker 2 (03:26):
Whenever the Fed chair gives a press conference, he's asked
by journalists about the criticism that the president has made
or is making about him. You've worked with j Powell
for years, you know him in your view, how does
he feel about being this punching bag.
Speaker 4 (03:42):
So I don't know how he feels personally, but I
know that anybody in that position would feel that they
have an important const well institutional responsibility that he was
confirmed by the US Senate that there is a legal
(04:04):
set of expectations regarding the Federal Reserve Chair's role, and
of course monetary policy is set by committee, it's not
set by the chair alone, and so it is the
Federal Open Markets Committee that has continue to.
Speaker 5 (04:23):
Hold on rates.
Speaker 4 (04:25):
So it's a much broader institutional environment, and personalizing it
by this relentless focus on the chair, I think is
extremely problematic, again, bad for the United States and ultimately
defeats the purpose that I think the President is trying
to achieve, which is to see rates go down sustainably
(04:47):
in an environment of growth and low inflation.
Speaker 6 (04:50):
When you look at the history of political pressure exerted
upon the FED, how do you make sense of today?
I'm thinking Nixon ars thes is today world is to
it a different or are they more or less the same?
Speaker 4 (05:04):
So I think that the past episodes where we've seen
a lot of pressure on the Federal Reserve Chair two
lower interest rates for political reasons have ended extremely badly,
and we've seen in those episodes high inflation and the
FED has really struggled to bring inflation back down. So
(05:28):
I think this is a kind of similar set of
pressures to what some feed chairs have felt in the past,
but not in the recent past. I think in the
you know, during the period that we have seen low
and stable, moderate what what they call the Great Moderation,
low and stable inflation, there has been a real understanding
(05:50):
that the President the administration should allow the Federal Reserve
to conduct monetary policy in a way that establishes their
credibility on inflation control. So this is a big change
relative to the last three decades, and it's highly problematic.
(06:12):
You know, the President has said very explicitly that he
wants to see the Federal Reserve lower rates because every
percentage point that rates come down, this is what he says,
it will save him three hundred billion dollars in interest
payments on the national debt. And of course that's more
important than ever now that we've just added through the megalaw,
(06:35):
another four trillion dollars to the national debt. And so
when you hear the President talking about this, he really
seems to be very focused on those interest payments. And
that is exactly the kind of institutional environment that would
undermine the credibility of the Federal Reserve in fighting inflation
and could actually lead investors to demand higher interest rates
(06:59):
on long term trend.
Speaker 2 (07:00):
That's the great irony in this whole situation here. I
just we have twenty seconds left. I just want you
to make a prediction. Do you think Fed Chair J.
Powell will fulfill his term as the Chairman of the
Federal Reserve until May of next year.
Speaker 4 (07:13):
I certainly hope so, and yes I do.
Speaker 2 (07:16):
All right, Lalel Brainerd, thank you so much for joining
us on Bloomberg Business Week Daily. That is, of course,
Lalel Brainerd, former National Economic Council Director, former Vice Chair
of the Federal Reserve, Distinguished Fellow at the Georgetown Sorrow
Center for Financial Markets and Policy.
Speaker 1 (07:32):
You're listening to the Bloomberg Business Week Daily podcast. Catch
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Speaker 2 (07:46):
Well, the second batch of big banks reported earnings today.
Speaker 3 (07:49):
There was a theme market.
Speaker 2 (07:51):
Volatility sparked by the trade war, leading to record quarters
for traders. Goldman Stock Traders post to the largest revenue
hall in Wall Street history, Morgan Stanley Stock Trader scored
their best second quarter on record, and Bank of America
traders also posted a record second quarter. Watching all of
this closely. Ken Leon, director of Equity Research CFRA Research.
Speaker 3 (08:11):
He joins US from Florida.
Speaker 2 (08:13):
So record quarters for trading across the board today, yet
the stock reaction to the downside.
Speaker 3 (08:19):
Why is that, Well, it's.
Speaker 7 (08:20):
Great to be here. And when you look at the
global US banks, they performed very strongly. What we did
see was not only trading, but the elevated markets means
that fee income across many different businesses like asset management,
wealth management, other services generated substantial year over year growth.
(08:48):
What we were also seeing is how the capital markets
can be the delta for getting stronger growth and also
higher estimates expected from the street looking ahead, both for
revenue and earnings. Those that are more balanced or exposed
to main street America consumer and small business are likely
(09:11):
to see much slower growth and some risk of kind
of sluggish demand in the future. I think that's really
the difference between the outside significant performance of Goldman Sachs,
strong growth for Morgan Stanley, and.
Speaker 3 (09:26):
Then those that were kind.
Speaker 7 (09:28):
Of in between, where the JP Morgan's and then Bank
of America which didn't fire on all cylinders. That's the difference.
Speaker 8 (09:36):
But Ken still, I mean when zooming out from just
today's action, even though I mean Goldman only being up
half a percent after posting a record quarter. When it
comes to trading, what is the driver of these financial shares?
Is it the yield curve? Is it actually the numbers
that we get in the earnings report? Is it something else?
Because I feel like I go through this puzzle at
(10:00):
least four times a year when we got these earnings.
Speaker 7 (10:03):
Yeah, lucky for you, four times. For me, it's every day.
And we've been overweighted the financial sector really since last November,
and the large banks are in the top ten of
that sector. And what we've seen even in the second
quarter or year to date is tremendous performance, more than
(10:25):
two times the S and P five hundred for diversified banks.
But that's not the point. The key point is where
do they go from here? We think the delta not
only for the rest of this year, but really these
stocks are going to be priced on twenty twenty six
earnings is going to be how they do into next year.
(10:46):
Obviously two to four rate cuts, some easing on the
regulatory framework, and then also some opening up in the
capital markets for investment banking. That's going to help these
banks when you look at them, you know, in terms
of pe multiples or what Gina was talking about the
overall market. They have to earn into these valuations or multiples.
(11:13):
When we look at more conservative metrics, which a lot
of bank analysts look at because there are a conservative lot,
such as price and that tangible book value, they're pretty expensive.
But I think it's earnings growth and what that does
in terms of confidence that they can still have upside
over the next year or two.
Speaker 3 (11:34):
That's the key.
Speaker 2 (11:35):
Can I'd be remiss if we didn't ask you about
the drama with regard to fedchair j Powell. The reports
emerging early today that he would be fired by the
President and the President was seriously considered doing that. We
saw a market reaction from the equity side and from
the fixed income side, and then just a little later
in the morning we heard from the President who denied
that he would do that imminently. Yet there are certainly
(11:57):
concerns about the way that the President feel about the
FED share. We all know that what would it mean
for banks if this were to happen. Would it mean anything?
Speaker 7 (12:06):
So I'm a global director and I look at markets
all over the world, and also when you look at
the bond market and really the ten and thirty year treasury.
The FED really matters. It's independence, the respect and responsibility
of its two mandates for inflation and full employment. I
just think this is color or drama.
Speaker 3 (12:27):
You know.
Speaker 7 (12:27):
J Pal is highly regarded. And the other issue, of
course is when his term is up next year, likely
probably to retire, but he could stay on for a
few more years as a governor.
Speaker 3 (12:41):
Okay, So what would happen though if you were forced out.
I don't see that scenario. You really don't know.
Speaker 2 (12:49):
You know, at the end of the day, if even
if they were to find some potential. Look, the President
has targeted the handling of the FED renovation. If there's
something there and he can push them out through that.
Speaker 7 (13:03):
So so President Trump's going to get a dubvish that chairman.
Speaker 3 (13:07):
In part.
Speaker 7 (13:08):
Nobody's really hawkish today. The data will suggest possibly a
slower US economy rest of this year, which is why
we're much more positive on the delta of the capital markets,
not main street America to help large banks earnings.
Speaker 3 (13:24):
So we're just going to have to see.
Speaker 7 (13:26):
But you know, overall, you know, Fed's going to be independent,
and you know, of course we're going to get ray
cuts either way.
Speaker 8 (13:35):
I have a thought as to what would happen to
the banks if Jerome Power forced out. You would see
a lot of volatility and the banks would probably trade
it ken And that brings me back to all of
these training records that we saw these for Goldman and
then these bumper quarterers that the other big banks put up.
Of course, we know what happened in April. We had
Liberation Day at the start of the month, and then
(13:56):
we had the walk back, and it seems like that
was a big boost for these banks. And the question
that comes about is how sustainable is that when you
think about all of this revenue that's being made in
training training relatively, how sustainable is that.
Speaker 3 (14:12):
It's not the trading.
Speaker 7 (14:13):
You really need to focus on financial sponsors, which are
the large private equity firms. They're sitting on two trillion
dollars of companies they own. They have to monetize in
some way and also afford the investment bankers to get
that job done. That's where I would really look as
a delta that we haven't seen really in the numbers
(14:34):
and size as it relates to mergers and acquisitions. Equity
underwriting or other forms of transactions look to lower rates,
making it more appealing to valuation for both public and
private transactions. That's going to be a bonanza for the
large banks.
Speaker 2 (14:51):
Ken Leon, director of Equity Research at CFRA, Thanks so much, Ken,
Good to see you this afternoon.
Speaker 1 (14:57):
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Speaker 6 (15:16):
So Tim, We're now halfway through the year and a
lot of uncertainties that loomed earlier haven't really gone away.
Markets initially cheered the idea that, you know, tariffs may
not be severe as feared, but that optimism is starting
to fade and we're starting to see the first signs
of an inflationary impact. So, for instance, this week's CPI
is one example of that warning. So bond markets are
responding longer data deals are beginning to climb, and with
(15:39):
us to make sense of all of those market moves
is Simeon Hyman. He is global investment strategist and head
of investment strategy at Prochers. That's an etf issuer that
manages some eighty five billion dollars in assets, So not
really that much, I'm kidding it, So thank you, Simon.
Speaker 5 (15:55):
Before anything, we really have to start with a.
Speaker 6 (15:57):
Story of the day, and that is your own, Powell,
the fate of the FED chair. As a strategist, how
do you make sense of all of this? Are these
real so called threats or are they just noise?
Speaker 3 (16:06):
Well?
Speaker 9 (16:07):
Thanks for having me. And what I find very interesting
about this is I think that the President is making
the same mistake that a lot of investors do. And
what do I mean by that the focus on the
FED funds rate in the absence of quantitative easing. The
FED only controls the overnight lending rate. Longer term meals
(16:28):
are determined by market forces. We can park quantitative easing
the thing that happened in the Great Financial Crisis, in
the pandemic. But in the absence of that, what history
shows is that if the FED cuts, that usually is
a steepener because it's stimulating the economy, and the long
end usually sells off a little bit, so it's almost
(16:48):
a misguided focus, because if you get what you wish for,
that's not going to bring down longer term rates. They're
driven primarily by inflation, which we see benign reading this morning,
but still overall ticking up just a little bit. And
the long end has been selling off for a couple months.
Speaker 2 (17:03):
So ironically, the best way to bring rates down would
be to bring inflation under control.
Speaker 9 (17:08):
Correct, I mean that's really the only way of longs
to keep them.
Speaker 3 (17:11):
This is macroeconomics one zero one.
Speaker 9 (17:13):
Now it's one oh one, and the numbers are pretty clear.
Speaker 3 (17:15):
Yeah, the real rate.
Speaker 9 (17:17):
On the above inflation for the ten year treasurey historically
is somewhere around two and a half percent. So if
we really got to two, then you're talking four and
a half, which is where we are. But if we
end up sitting around two and a half three, that's
where you can.
Speaker 3 (17:29):
Have that five handles.
Speaker 2 (17:30):
So if the real way to bring rates down is
to get inflation under control, how do you view the
new tariff regime.
Speaker 9 (17:37):
Well, that's the risk, and I think part of the
tariff story is euphoria around the acknowledgment that it's not
going to be as bad as it looked like on
Liberation Day. But as you noted, the euphoria is wearing
out because if we end up with ten or fifteen
percent across the board, that's still a lot more than
the three we had prior to this administration. So the
(17:59):
reality that even whatever tariffs come out will be higher
than before, that's absolutely inflationary.
Speaker 6 (18:05):
When you think of historical examples when it comes to
political pressures on the FED, how did markets react. I'm
thinking maybe Arthur Burns or Nixon, or maybe this time
is different, because I mean, we are in twenty twenty
five and the president is different from the previous presidents.
Speaker 5 (18:20):
What do you make of that?
Speaker 3 (18:21):
It's not good.
Speaker 9 (18:22):
I mean that's what we had in the seventies. We
had stagflation because there was a lot of political pressure
on the FED, and it took Paul Volker to clean
it up. So the market will embrace the continued independence
of the FED for sure.
Speaker 6 (18:35):
And to the point of many sources, like the chair
does not make you unilateral decisions on interest rate, Like
if President Donald trumb replaces Powell, whoever the FED chair
will be, that person's decision maybe still overturned. So it's
really interesting. But this is clearly a political move. Some
would say.
Speaker 9 (18:53):
It's just back to the first principles. If someone goes
in there and they ease too quickly and inflation expectations rise,
longer term interist rates.
Speaker 3 (19:02):
Will go up. Is all this a distraction in your view?
Speaker 9 (19:05):
I think it's a distraction because the odds are that,
as we heard, Powell's not going to be fired, and
the FED will probably not be early.
Speaker 3 (19:13):
The odds are that will last.
Speaker 9 (19:14):
If anything, they err on being on a little bit
on the late side. So the status quo of the
error being on the late side and having the economy
get a little too deep in recession before their cuts
is still the most likely scenario.
Speaker 6 (19:27):
What are the legal institutional limits of a US president's
ability to really just remove the FED chair and how
might this add to the ongoing uncertainty and markets. I
feel like every day the list just goes longer and longer.
Speaker 9 (19:39):
What we've heard over the last few months is that
compared to the heads of other agencies, it appears that
the Federal Reserve chair is more protected from most presidential
actions than some of the other heads of agencies that
are not even with us anymore. So I think there's
definitely more protections in place, but none of them are impenetrable,
(20:02):
as we found out over the last few months in
many instances.
Speaker 2 (20:05):
Still, over the last few months, since the post April
second bottom of at least the markets this cycle, we've
seen a sustained rally higher inequities, despite the fact that
I think for a lot of people would argue we
don't really have certainty when it comes to tariff policy.
Is the market taking the threat of tariffs going into
(20:27):
full ef fact August first?
Speaker 9 (20:28):
Seriously, right now, there's a little bit of the euphoria
that we spoke that I just spoke about, In other words,
since it's not as bad as the stuff from the lawn.
On April second, there was such a relief rally, and
that might have gone a little bit too far. But
I think that's not the only reason that the market
has rallied so strongly since roughly April eighth, And that
(20:52):
is the fact that fundamentals are so strong. Whether you
look at the S and P five hundred of the
Nasdaq one hundred compared to twenty years ago, turn on
assets stronger, profit margins stronger, everything is there in spades.
And by the way, the NASAQ one hundred. Was it
thirty times then as well? So there is quality support there.
(21:12):
The quality of earnings, the cash flow that is generated
per dollar of earnings, is much better than it was
just the generation ago.
Speaker 6 (21:20):
Moving forward from today's really huge whiplash up of news,
what do you make of the inflation story, especially in
light of the big beautiful bill. Does it fed up
enough reason to.
Speaker 9 (21:29):
Ease I don't think they can ease that quickly in
the face of the big beautiful bill, because that's clearly
expansionary and it adds to the deficit. And I'm not
taking any sort of scary point of view here that
we're going to have a real deficit problem, but mildly
inflationary for sure.
Speaker 6 (21:49):
And how about dollar weakness? How is this affecting your
general views or asset allocation. How much of a tailwind
is it or not a tailwind?
Speaker 9 (21:58):
I think the dollar week this combine that with the
possible for a little bit of a selloff further on
the long end of the curve. Those are related phenomenons
because both of them related to inflation pressures in the
US and a little bit of the growing deficit tarnishing
the safe haven so you absolutely do want some other
(22:20):
sources of diversification.
Speaker 3 (22:22):
Think about it this way. If you look at.
Speaker 9 (22:24):
Bonds, bonds traditionally the offset to equity risk, but that
doesn't always work. It didn't work Liberation Day. Remember we
had the de dollarization thing and bond sold off with stocks.
And of course the wound in everybody's psyche is from
twenty twenty two the equity market went down twenty percent.
(22:44):
Long treasuries went down thirty in twenty twenty two. So
we can't quite count on either bonds or the dollar
for either perfect stability or diversification.
Speaker 3 (22:55):
You got to look elsewhere where do you look?
Speaker 9 (22:57):
A couple of ideas that we think are important. First,
this is a particularly strong environment for cryptocurrency. We know
that the regulatory environment has improved a little bit, but we.
Speaker 3 (23:09):
Also improved a little bit. I mean, it's like we're.
Speaker 9 (23:13):
Waiting and you don't I don't do the political beat.
The odds are something's going to happen, and it doesn't
have to be perfect.
Speaker 3 (23:21):
Well, markets, the crypto markets marketing.
Speaker 9 (23:23):
I believe that, believe that, and again the view of
the leading voices there are the regulation doesn't have to
be perfect, just give us something that's reasonable, we'll know
what to do.
Speaker 3 (23:32):
Okay.
Speaker 2 (23:32):
Whenever somebody is on our air and says cryptocurrency, I
always get pushed back online because people say bitcoin not
all crypto. Is bitcoin, Bitcoin is not all crypto. So
when you say cryptocurrency as an option out there, what
specifically are you talking about?
Speaker 9 (23:47):
Well, there are you can go beyond bitcoin, and ether
is certainly a reasonable opportunity. And then you have a
couple of sister guys. You have Solana, which is more
in the in the ether camp, and then you have
RP is an example with a fixed supply that's more
in the bitcoin camp. So I think there's an opportunity
there to be a little bit more diversified. And I
(24:08):
think the mistake some folks make in the crypto landscape
is they think that well, it's just a risk asset
like everything, it's just going up with the equity rally.
But you remember three years ago when the crypto related
banks where bitcoin went up. Yeah, it really can be
a diversifier. So I think that's one thing.
Speaker 2 (24:27):
You don't think that it's too has too short of
a history to call it a diversifier. It emerged after
the financial crisis. We don't have that long of a
history to look out to say that.
Speaker 6 (24:40):
And the fact that it changes its behavior from haven
to risk assets depending on its mood. It seems.
Speaker 9 (24:48):
This is so intertwined with all the disruptions that are
going on right now, and you have to I would suggest,
walk and chew gum. It's almost inseparable from AI in
the sense that there's all lot of disruption going on
at once, and to ignore it, I think, is that
one's own partl It doesn't mean that you dive in
and hold your nose and just go to the bottom
of the ocean. But think about in the equity markets
(25:12):
as well, think about the AI disruption. You know, way
back when in the late nineties, there was this book
called The Innovator's Dilemma, and it's said that the thesis
of the Innovator's dilemma was that incumbent companies cannot take
advantage of technological innovation because it screws up their cash caps.
Speaker 3 (25:30):
Clayton Christian Cent just passed away a few years ago.
I didn't even realize.
Speaker 7 (25:34):
Ye.
Speaker 9 (25:35):
Now today we got a lot of incumbents who appear
to be making a ton of coin off of this
disruptive technology which is entirely different than that thesis. But
there are still some disruptors too.
Speaker 3 (25:50):
So we have this.
Speaker 9 (25:52):
Environment where I think you have to at least participate
in the disruption. But still you know, have a lot
of the legacy companies and of course legacy diversi of ours.
It's not that you don't want bonds, but you don't
know that they're going to diversify you. And cryptocurrency in
the blockchain is a real thing that's not going anywhere.
Speaker 3 (26:10):
Simeon, thanks for joining us. Come back again soon. Thanks
for having me. Really good to see you.
Speaker 2 (26:14):
Sime And Hymen, global investment strategist, head of investment strategy
at the etf issuer pro Shares, Joining us here in
the Bloomberg Interactive Brokers Studio.
Speaker 1 (26:24):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five eastering. Listen
on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (26:38):
Taking a break from the coverage of the Federal Reserve
and talking about rare earths because they are getting a
lot of attention right now. Just today we learn that
canada Is u core A Rare Metals aims to start
producing rare earth elements at a new location, a Louisiana
facility next May. It boosts US processing capacity in an
industry that's currently dominated by China for all things rare earth.
(27:00):
Back doctor Graceland Baskern. She's director of the Critical Mineral
Security Program at the Center for Strategic and International Study.
She joins us from the Bloomberg, Washington, Toronto. Excuse me,
she joins us from Toronto. I know you've been on
a lot of planes in the last few days, so
we appreciate you joining us from. Where in the world
is Graceland Baskern. I want to know because we haven't
(27:22):
spoken to you in a few weeks, and since then
we've gotten a lot of announcements, including from MP materials
from Apple. This latest from Canada's u Core Rare Metals
is the US on its way to relying less on
China for rare earths.
Speaker 5 (27:34):
US is well on its way.
Speaker 10 (27:35):
In the last two months, we've seen astronomical progress from
a point that US automotive manufacturer came to a screeching
hall and we were virtually begging China to give US
some rare earth, both in Geneva and London, to a
point now where the US government is the biggest owner,
in an unprecedented move of the biggest rare earth company
(27:56):
here in the United States. We have a price floor
that's close to double current prices that the government has
committed to paying. We're building new permanent magnet manufacturing facilities.
This is really a story that when the US sets
its mind to something, it can do it, and it
can do it quickly.
Speaker 5 (28:12):
Well.
Speaker 3 (28:12):
On that.
Speaker 2 (28:13):
We spoke to James Litinski last week of MP Materials.
It's the day the company struck this multi billion dollar
public private deal with the US Department of Defense to
build this new magnet plan expand rare earth capabilities. It's
backed by four hundred million dollars in equity in a
one billion dollar loan commitment. Here's what he said about
that deal.
Speaker 11 (28:31):
The government wants to achieve an important national security objective,
and we at MP are able to help them achieve
that objective. And so they are going to help support
us in accelerating investment in our space, and they're going
to create the conditions that allow us to invest with
a fair return on capital and not be a tax
(28:52):
of speak by mercantilism, and in exchange for that, they're
going to expect some upside and so again I think
this is hopefully it's a new model that we can
utilize across some of these verticals that are really challenging
for US where we've been unable to fully reshore industries
because we're facing competition thinking differently.
Speaker 2 (29:12):
As James Litinski of MP Materials just last week on
our program, the Department of Defense Graceland this position to
become the company's largest shareholder.
Speaker 3 (29:21):
What is your view on this?
Speaker 2 (29:23):
Is this what's needed to boost critical minerals and rare
earths in the US.
Speaker 5 (29:29):
There's two important things to consider about this equity.
Speaker 10 (29:32):
The first is that it will bring in a return
to the American taxpayer, and it already is. When share
price is increased, that means that the US taxpayer is getting.
Speaker 5 (29:41):
A return on that investment.
Speaker 3 (29:43):
That's a big deal.
Speaker 10 (29:44):
The second thing that's important is there is no bigger
signal to the private sector then having government ownership. So
as the government went in for equity, we saw companies
like JP Morgan and Goldman Sachs also come to the
table with a significant amount of capital, because where there
is a project challenge or a hiccup, it's more likely
to get resolved when it's part owned by the government.
(30:06):
So this is a really powerful step in terms of
mobilizing private capital, but also in terms of creating a
more financially sustainable model that will yield or return both
in terms of actual security of minerals and magnets, but
also a return on the investment.
Speaker 6 (30:22):
So we know that Apple made a strategic commitment to MP,
and we also know that the Department of Defense also
did the same. How does that those two rather alter
the geopolitical landscape of bare earth supply chains and will
prompt other countries or other tech defense players to follow suit.
Speaker 10 (30:40):
Apple's move to invest into MP really signifies how executives
are re.
Speaker 5 (30:44):
Looking at the supply chain.
Speaker 10 (30:46):
There was a time not too long ago where we
thought about minerals, we thought about processing and then manufacturing.
Speaker 5 (30:51):
But now we're starting to look at it as a vertically.
Speaker 10 (30:53):
Integrated mind to manufactured good supply chain, because a disruption
at any point that'supp.
Speaker 5 (31:00):
Fly chain stops it. Now for a company like Apple,
this is really important.
Speaker 10 (31:04):
When we started talking about a tariffs at the beginning
of the year and two potential you know, rare earth disruptions.
We started looking at what the cost of an iPhone
could increase to. An iPhone is an incredibly price sensitive good.
The average American consumer can't easily go from paying one
thousand dollars a phone to fourteen hundred dollars a phone
(31:24):
if those rare earths become more expensive or more difficult
to access. So for a company like Apple, ensuring that
there is that reliability of supply is really critical. It
also makes sure that it is an American supply chain,
which is really important for this administration.
Speaker 2 (31:39):
Gracelyn Basgren, thanks for taking the time. No you've been
running from airport to office, so really appreciate you joining
us director of Critical Mineral Security at the Strategic and
International Studies.
Speaker 1 (31:51):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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(32:12):
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Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business
Weekdaily reporting from the magazine that helps global leaders stay
ahead with insight on the people, companies, and trends shaping
today's complex economy. Plus global business, finance and tech news
(00:23):
as it happens. The Bloomberg Business Week Daily Podcast with
Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 2 (00:32):
I want to bring in somebody who has quite a
bit of experience with the Federal Reserve. Former Director of
the National Economic Council, former Vice Chair of the Federal Reserve,
Distinguished Fellow at the Georgetown Sarrows Center for Financial Markets
and Policy. Lael Brainerd is with us right now. It's
good to have you with us this afternoon, and that's
exactly where I want to start. We spoke to Mike
(00:52):
McKee out in Victor, Idaho, and he said there was
a collective eye roll when he saw the news earlier
this morning from the other members of the Federal Reserve
and Fed watchers out there.
Speaker 3 (01:03):
Do you look at the news that.
Speaker 2 (01:04):
We got this morning, the comments from the President that
we got this morning as being different than other criticism
of J.
Speaker 3 (01:09):
Powell in the past.
Speaker 4 (01:11):
I think there's a lot of continuity. He has clearly
been very frustrated for some period of time with the
Federal Reserve and their wait and see mode while they
wait to see how tariffs are going to affect inflation
and the economy, and you know, he's very impatient to
(01:33):
see rates come down. So I saw those comments today
as being certainly in that same spirit, although of course
the rumors early in.
Speaker 5 (01:44):
The day had more urgency to them.
Speaker 4 (01:47):
Of Course, subsequent to that, he seems to have pulled
back the comments, and that's a good thing. I think
it would be extremely bad for the United States to
have a big rupture in the institutional independence of the
Federal Reserve, which is what that would.
Speaker 5 (02:04):
Amount to exactly.
Speaker 6 (02:05):
So, how do you think this will affect the Fed's
credibility in controlling inflation? And more broadly, how will this
political move really just affect inflation expectations. We saw markets
react earlier. There was really a huge whiplash from the
equity market to the fixed income market.
Speaker 4 (02:19):
Absolutely, so if the President of the United States were
to go ahead and actually make an effort to remove
the chair of the Federal Reserve, that would fly in
the face of decades of institutional convention that puts the
Federal Reserve in an independent position to pursue on the
(02:43):
control of inflation as well as keeping labor markets strong.
And I think it would really raise important questions in
the minds of investors in the United States and around
the world as to whether the institutional environment that really
underpins the value of treasury securities, the strength of the dollar,
(03:06):
and the expectation that inflation will remain low and stable
in the United States, all of those things I think
would be thrown into question, and that should lead investors
to demand more to hold long term treasury, so that
should lead to the long end of the curve going up.
Speaker 2 (03:26):
Whenever the Fed chair gives a press conference, he's asked
by journalists about the criticism that the president has made
or is making about him. You've worked with j Powell
for years, you know him in your view, how does
he feel about being this punching bag.
Speaker 4 (03:42):
So I don't know how he feels personally, but I
know that anybody in that position would feel that they
have an important const well institutional responsibility that he was
confirmed by the US Senate that there is a legal
(04:04):
set of expectations regarding the Federal Reserve Chair's role, and
of course monetary policy is set by committee, it's not
set by the chair alone, and so it is the
Federal Open Markets Committee that has continue to.
Speaker 5 (04:23):
Hold on rates.
Speaker 4 (04:25):
So it's a much broader institutional environment, and personalizing it
by this relentless focus on the chair, I think is
extremely problematic, again, bad for the United States and ultimately
defeats the purpose that I think the President is trying
to achieve, which is to see rates go down sustainably
(04:47):
in an environment of growth and low inflation.
Speaker 6 (04:50):
When you look at the history of political pressure exerted
upon the FED, how do you make sense of today?
I'm thinking Nixon ars thes is today world is to
it a different or are they more or less the same?
Speaker 4 (05:04):
So I think that the past episodes where we've seen
a lot of pressure on the Federal Reserve Chair two
lower interest rates for political reasons have ended extremely badly,
and we've seen in those episodes high inflation and the
FED has really struggled to bring inflation back down. So
(05:28):
I think this is a kind of similar set of
pressures to what some feed chairs have felt in the past,
but not in the recent past. I think in the
you know, during the period that we have seen low
and stable, moderate what what they call the Great Moderation,
low and stable inflation, there has been a real understanding
(05:50):
that the President the administration should allow the Federal Reserve
to conduct monetary policy in a way that establishes their
credibility on inflation control. So this is a big change
relative to the last three decades, and it's highly problematic.
(06:12):
You know, the President has said very explicitly that he
wants to see the Federal Reserve lower rates because every
percentage point that rates come down, this is what he says,
it will save him three hundred billion dollars in interest
payments on the national debt. And of course that's more
important than ever now that we've just added through the megalaw,
(06:35):
another four trillion dollars to the national debt. And so
when you hear the President talking about this, he really
seems to be very focused on those interest payments. And
that is exactly the kind of institutional environment that would
undermine the credibility of the Federal Reserve in fighting inflation
and could actually lead investors to demand higher interest rates
(06:59):
on long term trend.
Speaker 2 (07:00):
That's the great irony in this whole situation here. I
just we have twenty seconds left. I just want you
to make a prediction. Do you think Fed Chair J.
Powell will fulfill his term as the Chairman of the
Federal Reserve until May of next year.
Speaker 4 (07:13):
I certainly hope so, and yes I do.
Speaker 2 (07:16):
All right, Lalel Brainerd, thank you so much for joining
us on Bloomberg Business Week Daily. That is, of course,
Lalel Brainerd, former National Economic Council Director, former Vice Chair
of the Federal Reserve, Distinguished Fellow at the Georgetown Sorrow
Center for Financial Markets and Policy.
Speaker 1 (07:32):
You're listening to the Bloomberg Business Week Daily podcast. Catch
us live weekday afternoons from two to five eastering. Listen
on Apple Karplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (07:46):
Well, the second batch of big banks reported earnings today.
Speaker 3 (07:49):
There was a theme market.
Speaker 2 (07:51):
Volatility sparked by the trade war, leading to record quarters
for traders. Goldman Stock Traders post to the largest revenue
hall in Wall Street history, Morgan Stanley Stock Trader scored
their best second quarter on record, and Bank of America
traders also posted a record second quarter. Watching all of
this closely. Ken Leon, director of Equity Research CFRA Research.
Speaker 3 (08:11):
He joins US from Florida.
Speaker 2 (08:13):
So record quarters for trading across the board today, yet
the stock reaction to the downside.
Speaker 3 (08:19):
Why is that, Well, it's.
Speaker 7 (08:20):
Great to be here. And when you look at the
global US banks, they performed very strongly. What we did
see was not only trading, but the elevated markets means
that fee income across many different businesses like asset management,
wealth management, other services generated substantial year over year growth.
(08:48):
What we were also seeing is how the capital markets
can be the delta for getting stronger growth and also
higher estimates expected from the street looking ahead, both for
revenue and earnings. Those that are more balanced or exposed
to main street America consumer and small business are likely
(09:11):
to see much slower growth and some risk of kind
of sluggish demand in the future. I think that's really
the difference between the outside significant performance of Goldman Sachs,
strong growth for Morgan Stanley, and.
Speaker 3 (09:26):
Then those that were kind.
Speaker 7 (09:28):
Of in between, where the JP Morgan's and then Bank
of America which didn't fire on all cylinders. That's the difference.
Speaker 8 (09:36):
But Ken still, I mean when zooming out from just
today's action, even though I mean Goldman only being up
half a percent after posting a record quarter. When it
comes to trading, what is the driver of these financial shares?
Is it the yield curve? Is it actually the numbers
that we get in the earnings report? Is it something else?
Because I feel like I go through this puzzle at
(10:00):
least four times a year when we got these earnings.
Speaker 7 (10:03):
Yeah, lucky for you, four times. For me, it's every day.
And we've been overweighted the financial sector really since last November,
and the large banks are in the top ten of
that sector. And what we've seen even in the second
quarter or year to date is tremendous performance, more than
(10:25):
two times the S and P five hundred for diversified banks.
But that's not the point. The key point is where
do they go from here? We think the delta not
only for the rest of this year, but really these
stocks are going to be priced on twenty twenty six
earnings is going to be how they do into next year.
(10:46):
Obviously two to four rate cuts, some easing on the
regulatory framework, and then also some opening up in the
capital markets for investment banking. That's going to help these
banks when you look at them, you know, in terms
of pe multiples or what Gina was talking about the
overall market. They have to earn into these valuations or multiples.
(11:13):
When we look at more conservative metrics, which a lot
of bank analysts look at because there are a conservative lot,
such as price and that tangible book value, they're pretty expensive.
But I think it's earnings growth and what that does
in terms of confidence that they can still have upside
over the next year or two.
Speaker 3 (11:34):
That's the key.
Speaker 2 (11:35):
Can I'd be remiss if we didn't ask you about
the drama with regard to fedchair j Powell. The reports
emerging early today that he would be fired by the
President and the President was seriously considered doing that. We
saw a market reaction from the equity side and from
the fixed income side, and then just a little later
in the morning we heard from the President who denied
that he would do that imminently. Yet there are certainly
(11:57):
concerns about the way that the President feel about the
FED share. We all know that what would it mean
for banks if this were to happen. Would it mean anything?
Speaker 7 (12:06):
So I'm a global director and I look at markets
all over the world, and also when you look at
the bond market and really the ten and thirty year treasury.
The FED really matters. It's independence, the respect and responsibility
of its two mandates for inflation and full employment. I
just think this is color or drama.
Speaker 3 (12:27):
You know.
Speaker 7 (12:27):
J Pal is highly regarded. And the other issue, of
course is when his term is up next year, likely
probably to retire, but he could stay on for a
few more years as a governor.
Speaker 3 (12:41):
Okay, So what would happen though if you were forced out.
I don't see that scenario. You really don't know.
Speaker 2 (12:49):
You know, at the end of the day, if even
if they were to find some potential. Look, the President
has targeted the handling of the FED renovation. If there's
something there and he can push them out through that.
Speaker 7 (13:03):
So so President Trump's going to get a dubvish that chairman.
Speaker 3 (13:07):
In part.
Speaker 7 (13:08):
Nobody's really hawkish today. The data will suggest possibly a
slower US economy rest of this year, which is why
we're much more positive on the delta of the capital markets,
not main street America to help large banks earnings.
Speaker 3 (13:24):
So we're just going to have to see.
Speaker 7 (13:26):
But you know, overall, you know, Fed's going to be independent,
and you know, of course we're going to get ray
cuts either way.
Speaker 8 (13:35):
I have a thought as to what would happen to
the banks if Jerome Power forced out. You would see
a lot of volatility and the banks would probably trade
it ken And that brings me back to all of
these training records that we saw these for Goldman and
then these bumper quarterers that the other big banks put up.
Of course, we know what happened in April. We had
Liberation Day at the start of the month, and then
(13:56):
we had the walk back, and it seems like that
was a big boost for these banks. And the question
that comes about is how sustainable is that when you
think about all of this revenue that's being made in
training training relatively, how sustainable is that.
Speaker 3 (14:12):
It's not the trading.
Speaker 7 (14:13):
You really need to focus on financial sponsors, which are
the large private equity firms. They're sitting on two trillion
dollars of companies they own. They have to monetize in
some way and also afford the investment bankers to get
that job done. That's where I would really look as
a delta that we haven't seen really in the numbers
(14:34):
and size as it relates to mergers and acquisitions. Equity
underwriting or other forms of transactions look to lower rates,
making it more appealing to valuation for both public and
private transactions. That's going to be a bonanza for the
large banks.
Speaker 2 (14:51):
Ken Leon, director of Equity Research at CFRA, Thanks so much, Ken,
Good to see you this afternoon.
Speaker 1 (14:57):
This is the Bloomberg Business weekdayly podcast. Listen live each
weekday starting at two pm Eastern on Applecarplay and Android
Auto with the Bloomberg Business app. You can also listen
live on Amazon Alexa from our flagship New York station,
Just say Alexa Play Bloomberg eleven thirty.
Speaker 6 (15:16):
So Tim, We're now halfway through the year and a
lot of uncertainties that loomed earlier haven't really gone away.
Markets initially cheered the idea that, you know, tariffs may
not be severe as feared, but that optimism is starting
to fade and we're starting to see the first signs
of an inflationary impact. So, for instance, this week's CPI
is one example of that warning. So bond markets are
responding longer data deals are beginning to climb, and with
(15:39):
us to make sense of all of those market moves
is Simeon Hyman. He is global investment strategist and head
of investment strategy at Prochers. That's an etf issuer that
manages some eighty five billion dollars in assets, So not
really that much, I'm kidding it, So thank you, Simon.
Speaker 5 (15:55):
Before anything, we really have to start with a.
Speaker 6 (15:57):
Story of the day, and that is your own, Powell,
the fate of the FED chair. As a strategist, how
do you make sense of all of this? Are these
real so called threats or are they just noise?
Speaker 3 (16:06):
Well?
Speaker 9 (16:07):
Thanks for having me. And what I find very interesting
about this is I think that the President is making
the same mistake that a lot of investors do. And
what do I mean by that the focus on the
FED funds rate in the absence of quantitative easing. The
FED only controls the overnight lending rate. Longer term meals
(16:28):
are determined by market forces. We can park quantitative easing
the thing that happened in the Great Financial Crisis, in
the pandemic. But in the absence of that, what history
shows is that if the FED cuts, that usually is
a steepener because it's stimulating the economy, and the long
end usually sells off a little bit, so it's almost
(16:48):
a misguided focus, because if you get what you wish for,
that's not going to bring down longer term rates. They're
driven primarily by inflation, which we see benign reading this morning,
but still overall ticking up just a little bit. And
the long end has been selling off for a couple months.
Speaker 2 (17:03):
So ironically, the best way to bring rates down would
be to bring inflation under control.
Speaker 9 (17:08):
Correct, I mean that's really the only way of longs
to keep them.
Speaker 3 (17:11):
This is macroeconomics one zero one.
Speaker 9 (17:13):
Now it's one oh one, and the numbers are pretty clear.
Speaker 3 (17:15):
Yeah, the real rate.
Speaker 9 (17:17):
On the above inflation for the ten year treasurey historically
is somewhere around two and a half percent. So if
we really got to two, then you're talking four and
a half, which is where we are. But if we
end up sitting around two and a half three, that's
where you can.
Speaker 3 (17:29):
Have that five handles.
Speaker 2 (17:30):
So if the real way to bring rates down is
to get inflation under control, how do you view the
new tariff regime.
Speaker 9 (17:37):
Well, that's the risk, and I think part of the
tariff story is euphoria around the acknowledgment that it's not
going to be as bad as it looked like on
Liberation Day. But as you noted, the euphoria is wearing
out because if we end up with ten or fifteen
percent across the board, that's still a lot more than
the three we had prior to this administration. So the
(17:59):
reality that even whatever tariffs come out will be higher
than before, that's absolutely inflationary.
Speaker 6 (18:05):
When you think of historical examples when it comes to
political pressures on the FED, how did markets react. I'm
thinking maybe Arthur Burns or Nixon, or maybe this time
is different, because I mean, we are in twenty twenty
five and the president is different from the previous presidents.
Speaker 5 (18:20):
What do you make of that?
Speaker 3 (18:21):
It's not good.
Speaker 9 (18:22):
I mean that's what we had in the seventies. We
had stagflation because there was a lot of political pressure
on the FED, and it took Paul Volker to clean
it up. So the market will embrace the continued independence
of the FED for sure.
Speaker 6 (18:35):
And to the point of many sources, like the chair
does not make you unilateral decisions on interest rate, Like
if President Donald trumb replaces Powell, whoever the FED chair
will be, that person's decision maybe still overturned. So it's
really interesting. But this is clearly a political move. Some
would say.
Speaker 9 (18:53):
It's just back to the first principles. If someone goes
in there and they ease too quickly and inflation expectations rise,
longer term interist rates.
Speaker 3 (19:02):
Will go up. Is all this a distraction in your view?
Speaker 9 (19:05):
I think it's a distraction because the odds are that,
as we heard, Powell's not going to be fired, and
the FED will probably not be early.
Speaker 3 (19:13):
The odds are that will last.
Speaker 9 (19:14):
If anything, they err on being on a little bit
on the late side. So the status quo of the
error being on the late side and having the economy
get a little too deep in recession before their cuts
is still the most likely scenario.
Speaker 6 (19:27):
What are the legal institutional limits of a US president's
ability to really just remove the FED chair and how
might this add to the ongoing uncertainty and markets. I
feel like every day the list just goes longer and longer.
Speaker 9 (19:39):
What we've heard over the last few months is that
compared to the heads of other agencies, it appears that
the Federal Reserve chair is more protected from most presidential
actions than some of the other heads of agencies that
are not even with us anymore. So I think there's
definitely more protections in place, but none of them are impenetrable,
(20:02):
as we found out over the last few months in
many instances.
Speaker 2 (20:05):
Still, over the last few months, since the post April
second bottom of at least the markets this cycle, we've
seen a sustained rally higher inequities, despite the fact that
I think for a lot of people would argue we
don't really have certainty when it comes to tariff policy.
Is the market taking the threat of tariffs going into
(20:27):
full ef fact August first?
Speaker 9 (20:28):
Seriously, right now, there's a little bit of the euphoria
that we spoke that I just spoke about, In other words,
since it's not as bad as the stuff from the lawn.
On April second, there was such a relief rally, and
that might have gone a little bit too far. But
I think that's not the only reason that the market
has rallied so strongly since roughly April eighth, And that
(20:52):
is the fact that fundamentals are so strong. Whether you
look at the S and P five hundred of the
Nasdaq one hundred compared to twenty years ago, turn on
assets stronger, profit margins stronger, everything is there in spades.
And by the way, the NASAQ one hundred. Was it
thirty times then as well? So there is quality support there.
(21:12):
The quality of earnings, the cash flow that is generated
per dollar of earnings, is much better than it was
just the generation ago.
Speaker 6 (21:20):
Moving forward from today's really huge whiplash up of news,
what do you make of the inflation story, especially in
light of the big beautiful bill. Does it fed up
enough reason to.
Speaker 9 (21:29):
Ease I don't think they can ease that quickly in
the face of the big beautiful bill, because that's clearly
expansionary and it adds to the deficit. And I'm not
taking any sort of scary point of view here that
we're going to have a real deficit problem, but mildly
inflationary for sure.
Speaker 6 (21:49):
And how about dollar weakness? How is this affecting your
general views or asset allocation. How much of a tailwind
is it or not a tailwind?
Speaker 9 (21:58):
I think the dollar week this combine that with the
possible for a little bit of a selloff further on
the long end of the curve. Those are related phenomenons
because both of them related to inflation pressures in the
US and a little bit of the growing deficit tarnishing
the safe haven so you absolutely do want some other
(22:20):
sources of diversification.
Speaker 3 (22:22):
Think about it this way. If you look at.
Speaker 9 (22:24):
Bonds, bonds traditionally the offset to equity risk, but that
doesn't always work. It didn't work Liberation Day. Remember we
had the de dollarization thing and bond sold off with stocks.
And of course the wound in everybody's psyche is from
twenty twenty two the equity market went down twenty percent.
(22:44):
Long treasuries went down thirty in twenty twenty two. So
we can't quite count on either bonds or the dollar
for either perfect stability or diversification.
Speaker 3 (22:55):
You got to look elsewhere where do you look?
Speaker 9 (22:57):
A couple of ideas that we think are important. First,
this is a particularly strong environment for cryptocurrency. We know
that the regulatory environment has improved a little bit, but we.
Speaker 3 (23:09):
Also improved a little bit. I mean, it's like we're.
Speaker 9 (23:13):
Waiting and you don't I don't do the political beat.
The odds are something's going to happen, and it doesn't
have to be perfect.
Speaker 3 (23:21):
Well, markets, the crypto markets marketing.
Speaker 9 (23:23):
I believe that, believe that, and again the view of
the leading voices there are the regulation doesn't have to
be perfect, just give us something that's reasonable, we'll know
what to do.
Speaker 3 (23:32):
Okay.
Speaker 2 (23:32):
Whenever somebody is on our air and says cryptocurrency, I
always get pushed back online because people say bitcoin not
all crypto. Is bitcoin, Bitcoin is not all crypto. So
when you say cryptocurrency as an option out there, what
specifically are you talking about?
Speaker 9 (23:47):
Well, there are you can go beyond bitcoin, and ether
is certainly a reasonable opportunity. And then you have a
couple of sister guys. You have Solana, which is more
in the in the ether camp, and then you have
RP is an example with a fixed supply that's more
in the bitcoin camp. So I think there's an opportunity
there to be a little bit more diversified. And I
(24:08):
think the mistake some folks make in the crypto landscape
is they think that well, it's just a risk asset
like everything, it's just going up with the equity rally.
But you remember three years ago when the crypto related
banks where bitcoin went up. Yeah, it really can be
a diversifier. So I think that's one thing.
Speaker 2 (24:27):
You don't think that it's too has too short of
a history to call it a diversifier. It emerged after
the financial crisis. We don't have that long of a
history to look out to say that.
Speaker 6 (24:40):
And the fact that it changes its behavior from haven
to risk assets depending on its mood. It seems.
Speaker 9 (24:48):
This is so intertwined with all the disruptions that are
going on right now, and you have to I would suggest,
walk and chew gum. It's almost inseparable from AI in
the sense that there's all lot of disruption going on
at once, and to ignore it, I think, is that
one's own partl It doesn't mean that you dive in
and hold your nose and just go to the bottom
of the ocean. But think about in the equity markets
(25:12):
as well, think about the AI disruption. You know, way
back when in the late nineties, there was this book
called The Innovator's Dilemma, and it's said that the thesis
of the Innovator's dilemma was that incumbent companies cannot take
advantage of technological innovation because it screws up their cash caps.
Speaker 3 (25:30):
Clayton Christian Cent just passed away a few years ago.
I didn't even realize.
Speaker 7 (25:34):
Ye.
Speaker 9 (25:35):
Now today we got a lot of incumbents who appear
to be making a ton of coin off of this
disruptive technology which is entirely different than that thesis. But
there are still some disruptors too.
Speaker 3 (25:50):
So we have this.
Speaker 9 (25:52):
Environment where I think you have to at least participate
in the disruption. But still you know, have a lot
of the legacy companies and of course legacy diversi of ours.
It's not that you don't want bonds, but you don't
know that they're going to diversify you. And cryptocurrency in
the blockchain is a real thing that's not going anywhere.
Speaker 3 (26:10):
Simeon, thanks for joining us. Come back again soon. Thanks
for having me. Really good to see you.
Speaker 2 (26:14):
Sime And Hymen, global investment strategist, head of investment strategy
at the etf issuer pro Shares, Joining us here in
the Bloomberg Interactive Brokers Studio.
Speaker 1 (26:24):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five eastering. Listen
on Applecarplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (26:38):
Taking a break from the coverage of the Federal Reserve
and talking about rare earths because they are getting a
lot of attention right now. Just today we learn that
canada Is u core A Rare Metals aims to start
producing rare earth elements at a new location, a Louisiana
facility next May. It boosts US processing capacity in an
industry that's currently dominated by China for all things rare earth.
(27:00):
Back doctor Graceland Baskern. She's director of the Critical Mineral
Security Program at the Center for Strategic and International Study.
She joins us from the Bloomberg, Washington, Toronto. Excuse me,
she joins us from Toronto. I know you've been on
a lot of planes in the last few days, so
we appreciate you joining us from. Where in the world
is Graceland Baskern. I want to know because we haven't
(27:22):
spoken to you in a few weeks, and since then
we've gotten a lot of announcements, including from MP materials
from Apple. This latest from Canada's u Core Rare Metals
is the US on its way to relying less on
China for rare earths.
Speaker 5 (27:34):
US is well on its way.
Speaker 10 (27:35):
In the last two months, we've seen astronomical progress from
a point that US automotive manufacturer came to a screeching
hall and we were virtually begging China to give US
some rare earth, both in Geneva and London, to a
point now where the US government is the biggest owner,
in an unprecedented move of the biggest rare earth company
(27:56):
here in the United States. We have a price floor
that's close to double current prices that the government has
committed to paying. We're building new permanent magnet manufacturing facilities.
This is really a story that when the US sets
its mind to something, it can do it, and it
can do it quickly.
Speaker 5 (28:12):
Well.
Speaker 3 (28:12):
On that.
Speaker 2 (28:13):
We spoke to James Litinski last week of MP Materials.
It's the day the company struck this multi billion dollar
public private deal with the US Department of Defense to
build this new magnet plan expand rare earth capabilities. It's
backed by four hundred million dollars in equity in a
one billion dollar loan commitment. Here's what he said about
that deal.
Speaker 11 (28:31):
The government wants to achieve an important national security objective,
and we at MP are able to help them achieve
that objective. And so they are going to help support
us in accelerating investment in our space, and they're going
to create the conditions that allow us to invest with
a fair return on capital and not be a tax
(28:52):
of speak by mercantilism, and in exchange for that, they're
going to expect some upside and so again I think
this is hopefully it's a new model that we can
utilize across some of these verticals that are really challenging
for US where we've been unable to fully reshore industries
because we're facing competition thinking differently.
Speaker 2 (29:12):
As James Litinski of MP Materials just last week on
our program, the Department of Defense Graceland this position to
become the company's largest shareholder.
Speaker 3 (29:21):
What is your view on this?
Speaker 2 (29:23):
Is this what's needed to boost critical minerals and rare
earths in the US.
Speaker 5 (29:29):
There's two important things to consider about this equity.
Speaker 10 (29:32):
The first is that it will bring in a return
to the American taxpayer, and it already is. When share
price is increased, that means that the US taxpayer is getting.
Speaker 5 (29:41):
A return on that investment.
Speaker 3 (29:43):
That's a big deal.
Speaker 10 (29:44):
The second thing that's important is there is no bigger
signal to the private sector then having government ownership. So
as the government went in for equity, we saw companies
like JP Morgan and Goldman Sachs also come to the
table with a significant amount of capital, because where there
is a project challenge or a hiccup, it's more likely
to get resolved when it's part owned by the government.
(30:06):
So this is a really powerful step in terms of
mobilizing private capital, but also in terms of creating a
more financially sustainable model that will yield or return both
in terms of actual security of minerals and magnets, but
also a return on the investment.
Speaker 6 (30:22):
So we know that Apple made a strategic commitment to MP,
and we also know that the Department of Defense also
did the same. How does that those two rather alter
the geopolitical landscape of bare earth supply chains and will
prompt other countries or other tech defense players to follow suit.
Speaker 10 (30:40):
Apple's move to invest into MP really signifies how executives
are re.
Speaker 5 (30:44):
Looking at the supply chain.
Speaker 10 (30:46):
There was a time not too long ago where we
thought about minerals, we thought about processing and then manufacturing.
Speaker 5 (30:51):
But now we're starting to look at it as a vertically.
Speaker 10 (30:53):
Integrated mind to manufactured good supply chain, because a disruption
at any point that'supp.
Speaker 5 (31:00):
Fly chain stops it. Now for a company like Apple,
this is really important.
Speaker 10 (31:04):
When we started talking about a tariffs at the beginning
of the year and two potential you know, rare earth disruptions.
We started looking at what the cost of an iPhone
could increase to. An iPhone is an incredibly price sensitive good.
The average American consumer can't easily go from paying one
thousand dollars a phone to fourteen hundred dollars a phone
(31:24):
if those rare earths become more expensive or more difficult
to access. So for a company like Apple, ensuring that
there is that reliability of supply is really critical. It
also makes sure that it is an American supply chain,
which is really important for this administration.
Speaker 2 (31:39):
Gracelyn Basgren, thanks for taking the time. No you've been
running from airport to office, so really appreciate you joining
us director of Critical Mineral Security at the Strategic and
International Studies.
Speaker 1 (31:51):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live weekday
afternoons from two to five pm Eastern on Bloomberg dot com,
the iHeartRadio app, tune In, and the Bloomberg Business App.
You can also watch us live every weekday on YouTube
(32:12):
and always on the Bloomberg terminal
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