April 30, 2025 • 32 mins
- Max Kettner, Chief Multi-Asset Strategist at HSBC
- Ryan Petersen, Chairman, CEO, and founder of Flexport
- Christopher Hughes, co-founder of Facebook
- Eric Rosengren, Former President of the Federal Reserve Bank of Boston
Max Kettner, Chief Multi-Asset Strategist at HSBC, looks ahead to this week's jobs report and other economic data soon-to-be-released, and whether he sees investors having to weather a recession in 2025. Ryan Petersen, Chairman, CEO, and founder of Flexport, discusses supply chain constraints and navigating the trade war. Christopher Hughes, co-founder of Facebook, discusses the company and Big Tech ahead of Meta earnings. Eric Rosengren, Former President of the Federal Reserve Bank of Boston, discusses his outlook for the US economy and interest rates and talks Fed independence.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
live on Bloomberg Television weekday mornings from six to nine
am Eastern. Subscribe to the podcast on Apple, Spotify or
anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business App. Max Kenter of HSBC
is sticking with this. We remain tactically risk off and
stick to our underway stance on the US, but buying
opportunities should come soon enough. Max Kenner of HSBC joined
us now for more. Max, Welcome to the program sir.
You put out a note in the last week why
washing machines matter? Let's start there, Why a washing machines matter?
Speaker 3 (00:55):
Max?
Speaker 4 (00:57):
Yeah, Number one, it was obviously a bit of clickbaiting.
Unpleased to see that it worked with you, John, that's
very good. But number two, it actually was there was
some truth to that, actually and some sort of underlying
reason why we looked at it because when we looked
at the washing machine tariffs in twenty sixteen and twenty eighteen,
in fact, we've seen quite a bit of sort of
(01:17):
textbook like behavior what we would expect with tariffs. In
twenty sixteen, when we had the anti dumping order on China,
for example, the overall imputs of washing machines to the
US didn't really change. It was only the imports from
China that dipped, but worldwide inputs actually, you know, they
were pretty stable, so we saw the classic substitution effect.
There was also no effect on prices. That only came
(01:39):
in twenty eighteen when we saw the global tariffs on
washing machines slapped on, and what you saw in advance
for that a couple months before that activity went up,
we saw this classic sort of front loading that people
are also talking about right now, some people really rushing
to buy those washing machines, and then imputs really nosedived
into into those worldwide tariffs. And the same happened with
(02:01):
laundry equipment CPI. So with prices on washing machines, they've
actually went up by ten and a half percent straight
after those tariffs were slapped on in February twenty eighteen.
So the parallel that we were drawing really this. I
think people are a little bit too relaxed now in saying, well,
you know what, the next couple of quarters, maybe consumers
are going to dial back spending a bit, and maybe
(02:22):
we're going to feel a little bit on spending and
on capis. Whereas I do really fear that in the
next month and two, so in May and June, we're
already going to start to see some really really disappointing
heart data. And because the narrative at the moment is
so entrenched in the sense that it's only a slowdown,
(02:43):
it's not a recession. Don't worry, it's just to soften
the survey data because of that really really widespread narrative.
In fact, I really do fear that a couple of
heart data points are already a couple of disappointing heart
data points are already enough to really drive us a
leg low and risk assets.
Speaker 1 (02:59):
Well, ma's respecting.
Speaker 2 (03:00):
See it this morning at eight thirty Eastern time and GDP,
but that's just a massive GDP with front loaded imports.
You're going to see that show up. You might get
a negative print max. When you say it was sharp
and hard data, which hard data?
Speaker 1 (03:11):
When? And why? Look, that's that's exactly the point.
Speaker 4 (03:16):
A two months ago, I could have argued, well, it's
mostly consumer sentiments, right, It's only the soft data and
the consumer sentiment side, So let's watch that kind of data.
But now you've got labor market conditions down, right, So
some of the surveys pointing to lower, maybe even negative
payroll prints. In the next couple of months, you've got
CEO confidence down, KAPEX intentions down, whether you look at
(03:36):
regional FED surveys, you look at PMS, you look at
small business sentiment. So, in fact, at the moment, I
think it is way too widespread to say, well, let's
just dismiss it as soft data weakness. In fact, now
it's so broad based that I'm looking at the heart data.
I'm like, I don't really care. I'm not looking only
at consumer spending now. It could come from anywhere. It
could be ADP today, it could be GDP today as well.
(03:56):
Little let's face it, John, today, the GDP data, even
if it is positive, even if that is the case,
look consent to are saying consumer spending is going to
go down from four percent and Q four to one
point two and Q one in a quarter where most
likely consumers have actually front loaded activity, and still consumer
spending is expected to be only a touch above one percent.
(04:18):
That's not good at all. So to me, it's not
just consumer spending. It could come from consumers from the
consumer site, could be on the labor market side, could
be jobless claims during the summer, right, some sort of
residual seasonality that we've seen also plan out in twenty
twenty three and last year, remember the PSALM rule then
in August, but the market played that already in June
and July, the sort of the cracks in the labor market.
So we could genuinely see it from actually a broad
(04:40):
range of heart data, not just well, I'm looking at
retail sales and if they don't disappoint then my view
is wrong.
Speaker 1 (04:46):
No, it's much much more widespread now. Max.
Speaker 5 (04:48):
I've just struck by the fact that three months ago
you were talking goldilocks and steroids and US exceptionalism nirvana,
and that was basically the story, and you weren't going
to fight it, and all of a sudden, your Max
underweight the United States and you're looking at China as
a place to really overweight in a significant way. How
much of a decline would you need to see before
those buying opportunities start to emerge.
Speaker 4 (05:09):
Yeah, so some of our fundamental models, the different or
the gap between those fundamentals what we're seeing what's being
priced in in terms of growth expectations top down growth expectations,
and what's priced into the equity market. Think globally cyclicals
over defensives. That gap is around nine percentage points, So
that really needs to be close. I don't think it
(05:30):
is enough if we're seeing things like Microsoft or Amazon
or some of the mag seven disappointing and that then
driving the equity market down.
Speaker 1 (05:39):
No, it is, in fact, really.
Speaker 4 (05:40):
Particularly the cyclicals globally that are holding up to well,
and particularly also in the US. I think, you know,
you look at the US, things like consumer cyclicals, but
also the russell things like small caps really are a
pretty pretty decent levels to go underweight and to sell
again at this at this point.
Speaker 5 (05:57):
Now, yeah, I'm sure at the end of last year
people were saying that the US would be able to
weather tarriffs much more effectively than any other economy around
the world, and all of a sudden, one hundred days
into Trump's administration, and that story is but Toronto's head,
and you're basically talking about overweighting everything else except for
the United States. Why has that narrative shifted to such
degree that the pain will be maximally fell to the
(06:17):
United States and US assets rather than Europe, rather than Asia.
Speaker 1 (06:23):
It's a great question.
Speaker 4 (06:23):
It's very, very different from what we expected perhaps three
months ago. Remember three months ago we had the first
tariff round with Canada and with Mexico, and you know
the narrative, Well, I think the broad consensus was this
is mostly negotiation tactic. And remember this was all solved
within twenty four hours. We kind of freaked out. FX
week freaked out, right, We had the Mexican pays off,
the Canadian dollar cell offs, so most most of the
(06:46):
tariff effects were really absorbed in FX.
Speaker 1 (06:50):
But then it will result twenty fives.
Speaker 4 (06:53):
So we all thought, okay, let's move on. This isn't
really something to take seriously. This is mostly noise. No
need to price that. If anything, it's going to hurt
the others more than the US because it's just that noise.
I think what we've all underestimated, including myself, is the
kind of confidence and sentiment shock, and the kind of
broad based confidence and sentiment shock that we've really seen
(07:15):
in the US economy. Again we can I think that
the only reason why we're talking about the ins and
outs of daily tweets or you know these you guys
were just talking about the autos and the kind of
nitty gritty around those autotariffs. The only reason why we
can still afford to talk about that is because the
soft data versus heart data narrative is still holding up,
(07:36):
because we are not seeing yet the weakness in this
heart data.
Speaker 1 (07:39):
And I think that's really where.
Speaker 4 (07:40):
I'm scared about in May and in June, where we
could be seeing the first cracks in jobless claims, the
first cracks in the heart data, and because of that
widespread narrative of it's just a slow down, it's not
a recession, it's just the soft data that is weakening.
Because of that widespread narrative, I don't need to see
the whites of the eyes of recession. I think it's
totally enough for a bearer view like ourselves to see
(08:02):
two three heart data points disappointing and already that narrative
I think will be in chatter.
Speaker 1 (08:06):
Max.
Speaker 2 (08:07):
I just want to pick up on one trade in particular,
just to close this conversation out. You've increased your overweight
into em local debt. There's two assumptions you're making care
that if the US economy gets into trouble, the rest
of the world won't as much. And you're also making
a call on the FX market as well, because typically
when you see a global economy go into a downturn,
the dollar strengthens, it doesn't weaken. Where do these assumptions
(08:27):
come from.
Speaker 1 (08:30):
I think that's totally right, John.
Speaker 4 (08:31):
I think most of that really is something or is
the assumption that is mostly a US centric risk off,
that it's a US centric slowdown. Let's face it, in
the last two months, we've also seen several of several
puts from the US administration, so several sort of U
turns from the US administration. I don't expect this time
to be any different. I don't expect that if the
(08:52):
heart data really turns, if of you like ours is correct,
that really the US administration will press on regardless. I
do there will be some sort of you know, some
sort of concessions to the market and some sort of
U turns where then is exactly precisely those kind of
buying opportunities that you were alluding to in the very beginning.
I think that's what we're going to see in the
(09:13):
next two three months. And that of course means it
is not an environment where you want to go longer
dollar and where you say, oh, that's the ultimate safe haven.
It's mostly really a US risk off where the dollar
sells off and where weirdly and oddly enough, this this
this divergence between emerging market local rates and broader risk assets.
Think US equities, think global equities. That broader divergence we've
(09:36):
seen in the last two months that will still hold
and where a lot of emerging market, particularly high beta countries,
think places like Eveni and Asia, but like South Africa,
I think Mexico for example. A lot of those high
beta names have a really really attractive risk premium.
Speaker 2 (09:52):
Here, Max, appreciate the cold today, Max Kenada of HSBC.
Speaker 6 (10:06):
I'm joined with, of course Ryan Peterson, the CEO of Flexport,
a friend of the show. We're so happy to have
him in person in DC. You're in the thick of
this trade story, representing all these companies that are trying
to figure out where these tariff freights are going. We're
gonna get GDP numbers today that are going to show
a tremendous amount of front loading. Where are we right
now when it comes to shipping, especially in China.
Speaker 7 (10:26):
Yeah, so flexfort is one of the largest logistics companies
in the United States and the world really, and what
we've seen since the tariff, since April ninth is a
sixty percent decline in bookings. And that's not a Flexport number.
That's industry wide for ocean freight. Now, a booking is
you place a booking about three weeks before the container
leaves China and then it arrives, of course in the
(10:46):
US about a month after that. So this all started
about three weeks ago. You're going to start to see
arrivals that the port of Long beachs drop from China
by sixty percent in the next few weeks, and then
weeks after that for East coastports, golf cup sports. So
it's gonna be a massive impact on consumers prices and
obviously you know the bigger impacts here as companies and
(11:08):
therefore jobs if they can continue to employ as many
people and.
Speaker 6 (11:11):
We've seen companies reach out to the White House. Last week,
you had Walmart target those executives in the Oval Office
explaining this picture you're describing right now. And then yesterday
we had really this dramatic episode with Amazon. Amazon was
going to potentially carve out the tariff price on their
website and administration called that a hostile and political act.
Do you tell your businesses how they should maybe deal
(11:32):
with this White House when it comes to trade policy.
Speaker 7 (11:34):
Well, you know, our businesses is a flexport. Customers are
kind of mostly small business, small medium sized business.
Speaker 1 (11:40):
We do work with a few large enterprises.
Speaker 7 (11:42):
I feel like they're able to handle relations with government
on their own, but the small business really doesn't have
a voice in all this.
Speaker 1 (11:46):
So it's kind of like been to some.
Speaker 7 (11:48):
Extent, my role, our company's role is helping to tell
that story, showing this data, making it clear like the
impact is disroportionate on small business. Larger companies tend to
have more resources to be able to multi source the
same product. They can buy it in Vietnam and buy
it in other countries, so as China starts to become
non competitive, they just shift manufacturing. Small business doesn't have
(12:10):
that luxury. They can't have multiple factories. They barely convinced
one factory to produce their item.
Speaker 1 (12:14):
And they're kind of lasting line.
Speaker 6 (12:16):
When it comes to Amazon though, and this entire debacle
that played out yesterday, what we saw is Amazon come
out almost immediately and blank and say we were.
Speaker 3 (12:26):
Just doing this under discussion.
Speaker 6 (12:27):
We're actually not going to go forward with this. And
this was of course after the President as well called
Jeff Bezos. Was that the right reaction from Jeff Bezos
in corporate America?
Speaker 7 (12:37):
You know, I'm not going to tell the Amazon team
how to do their job.
Speaker 3 (12:40):
They're pretty good at life.
Speaker 7 (12:40):
But I thought if it was me, I would be like, yeah,
putting you know, the tariffs on there to make it
clear that Chinese products are not competitive, you should buy
American products, look, no duty on the American listings. And
they could have positioned that as a win really easily.
I don't know why they just backed off right away.
Speaker 6 (12:56):
But Amazon, as you said, they're one of the bigger players.
Speaker 3 (12:58):
They'll be fine. What happens with these small businesses? Do
we see businesses go bankrupt?
Speaker 1 (13:02):
Yeah? Definitely.
Speaker 7 (13:03):
I mean if they don't change this policy, and Trump
is hinted that they will. It's sort of clear that
this all escalated very quickly in a tip for tat cycle.
If they don't bring the tariffs way back down on China,
like yeah, like thousands, maybe millions of small businesses will
go out of business. I mean so many companies buy
from It's four hundred and forty billion dollars worth the
goods we buy from China every year.
Speaker 6 (13:22):
Like the Treasury Secretary told me a few weeks ago,
one forty five percent. These levels are unsustainable. What would
be your advice into the administration at what level they should
set where it's still potentially is a carrot and stick
approach with some businesses to move manufacturing elsewhere, but it
doesn't actually put people out of work.
Speaker 7 (13:41):
Yeah, you know, like you don't want to ask me
my adviceorial administration.
Speaker 3 (13:44):
I'm like a free trader. I go like zero per se, let's.
Speaker 7 (13:46):
Go, let's you know, open this up and let people
buy from whoever they want to buy from.
Speaker 8 (13:50):
I don't.
Speaker 3 (13:50):
I don't think that's like what advice would you tell them?
Speaker 6 (13:53):
And then on a timeline, how quickly do they need
to bring these levels?
Speaker 7 (13:56):
So I think the timeline is really important. I think
every day that goes buy more damage kits done. You
have the sixty percent declient in bookings. You just what
twenty five percent of ocean sailings, So container ships have
now been canceled. The sailings from China to the US
have a lot of those who have been diverted. It's
not a permanent move, but it takes a long time
to reposition these ships back. So they they're now sailing
(14:17):
from Vietnam, they're going to Europe. They're just re routing
the container ships. So when they turn this back on,
if they do when and if they do lower the tariffs,
you're going to see there's not enough ships and containers
to move the cargo, and you're going to see prices
spike because of that. So, like you know, the economies
are very complex systems. They're not meant to be centrally
planned at the White House, and we've somehow forgot that
(14:39):
lesson that made America so successful to as theme try
Thank you so.
Speaker 3 (14:43):
Much for your time this morning, John.
Speaker 6 (14:44):
That was Ryan Peterson, the CEO of Flexbord of course,
really in the thick of this trade warrantys in Washington,
DC today offered up a little advice from the administration.
Speaker 2 (15:02):
Earnings just around the corner as well. Meta sets report earnings.
After the closing balance, the industry faces continued regulatory pressure.
Facebook co founder Chris hughs arguing in the US as
a history of striking a balance between free markets and
state capitalism, writ in quote, we organize many of our
markets for the common good, choosing to cultivate them rather
than plan them outright. The work is a craft, not
(15:23):
unlike the work of a sculptor or painter. Chris is
the author of the new book Market Crafters, and he
joins us now for more. Chris Camrnic good to see you,
Thanks for having me. Let's start big and then we
can get some meta anser.
Speaker 3 (15:33):
Let's do it.
Speaker 2 (15:34):
The secret source of the US economy, how would you
describe it?
Speaker 9 (15:37):
It's the dance between the private sector and the government.
So I make the case that policymakers have often harnessed
and guided markets toward public goals, in order to make
Americans richer, say for their lives, more economically stable. And
there's a hidden history of US doing this from the
nineteen thirties all the way to the present. It's a
Republican project as much as it's a democratic project, and
(16:00):
we're going to have to pull out some of the
lessons from that if we're going to rebuild on the
other side of the chaos.
Speaker 2 (16:05):
It's happening right now. Talk about the chass. So we're
doing a good job of it right now.
Speaker 8 (16:09):
Yeah.
Speaker 9 (16:09):
I mean, someone said this is more like market crashing
than market crafting.
Speaker 3 (16:13):
And that seemed apt to me.
Speaker 2 (16:15):
No.
Speaker 9 (16:15):
I mean, this administration is at best impulsive and at
worst completely disorganized. The way to do this in the
right way would be to say we have a mission
like bringing back manufacturing jobs or even the auto industry.
Then you'd create trade policy tariffs that would be targeted
not on avocados and cars, but targeted. You do it
(16:38):
in collaboration with allies, and you'd pair it with industrial
policy investments to make sure that those plans can get
online quickly and that they can do it cheaply. And
there is a recipe for crafting a particular market.
Speaker 3 (16:50):
Along those lines. This is just chaos. Use to use
the word.
Speaker 9 (16:54):
You don't know where the tariffs are, whether they're on
this week or last week, and people are trying to
figure it out.
Speaker 5 (17:00):
Taking a step back, though further, there is this feeling
about what the engine of US exceptionalism has been and
it's been in the world, so that you co founded
with respect to Facebook, which is big tech, and this
idea that the technological expertise that has been cultivated in
the United States has been superior and has been the
reason why so many people have wanted to invest here.
Do you see that unable to continue in this certain
(17:23):
sort of less predictable moment, or do you see that
as continuing to chug along in a healthy way that
does lead to some sort of evolution.
Speaker 9 (17:32):
It is certainly on shaky ground, that's for sure. I
think the story of American technical leadership is also one
where we see private sector innovation as a critical engine
of growth, paired with public sector decisions.
Speaker 3 (17:44):
So I'll give a crisp example.
Speaker 9 (17:46):
We've all been talking about semiconductors and chips for the
last few years, and that's been incredibly important in bringing
back advanced semiconductor manufacturing in the United States. However, the
real story of how to support the high tech industry
in the US starts more in the nineteen eighties with
Reagan era industrial policy.
Speaker 3 (18:04):
At that point, Japan's share.
Speaker 9 (18:06):
Of global semiconductor production was increasing quickly, and there was
a man, Robert Nois, the co founder of Intel, who
teamed up with other semiconductor producers to go to Washington say, hey,
we have a national security problem on our hands. The
Department of Defense degree, so did White House in Congress,
and they came together to first do a structured trade
(18:27):
policy on Japan to prevent them dumping in the market,
and then secondly make a big public investment in semiconductor production.
So at this moment when we could have lost that
technical lead, at an early important moment, we invested and
it worked. A few years later, the United States retook
its share of global semiconductor manufacturing. So what I'm trying
to say is it's not just a coincidence that we
(18:50):
have these high tech companies now. And it's yes, it's
partially because DARPA funded the Internet and the satellites are
powered by the government, but it's actually something even more explicit,
a product of market craft, and that you should give
us lessons for how we can do it in the future.
Speaker 5 (19:04):
You said that the US is at risk of losing
some of that tech dominance. What makes you feel that
about the structure of current tech companies, in particular Meta,
that makes you get the sense that maybe they're losing
some of that innovation or some of that structure that
allows them to lead.
Speaker 9 (19:21):
It's less that I think that the tech companies are
losing innovation and more that you have to have public
policy to be fundamentally stable to encourage companies all across
the supply chain to invest. And I think that's truly
what's at risk now. I mean, you've seen virtually all
the measures of investor confidence go down, consumer sentiment goes down,
(19:41):
Inflation expectations are up, equity markets are down, I mean all,
and there's a real fear that the FED won't be
able to lower if inflation stays high. So I think
all of those storm clouds on the horizon are not
just bad macroeconomically, but bad for our technic companies and
our leaders. It certainly makes it a much more challenging
environment them to succeed in.
Speaker 2 (20:01):
If you're a sculpt you'd be breaking metsa up right.
Speaker 9 (20:05):
I wrote a piece six years ago arguing that Meta
had abused its power and that it had illegally acquired
WhatsApp and Instagram in order to consolidate its power. You
have TC under Trump filed suit on that same rationale
several years ago. The Biden administration reorganized the case and
continued to prosecute it. And as you know now, I mean,
(20:28):
the case is ongoing in Washington with exactly these questions, what.
Speaker 2 (20:33):
Is it about it that you think is illegal?
Speaker 9 (20:35):
The decision in now over a decade ago to say
Instagram is challenging our monopoly, our power in the social
media landscape, particularly with photos and WhatsApp, later with messaging,
and then to acquire those rivals and then do things
like purposefully slow investment and development, as the Instagram co
(20:56):
founder testified just last week, that is against law to
acquire competitors, either to shut them down or to consolidate
a monopolistic position.
Speaker 3 (21:06):
It's quite clear now. The question is is what do
you do now?
Speaker 9 (21:09):
That was a long time ago, and so you know,
in my view, I think it's important that Facebook has
to comply with the law despite making a decision years
ago that was illegal. And then the question will come
to what is the appropriate remedy in twenty twenty five,
and we need to know more from the case to
figure that out.
Speaker 5 (21:25):
Is it incoherent to call some of the big tech
companies in the US national champions and to try to
hope that they're successful while trying to break them up
and change their business model with elimination of revenues from
places like China.
Speaker 9 (21:39):
I understand why you say that it seems on the
surface like they might be in conflict, but actually what
I chart in my research is a long story of saying,
wait a second, we want leading industries in the United States.
So we were talking a lot about tech, but you
can do it in finance, you can do it in energy,
you can do it in a whole range of markets.
(21:59):
And in order to do that, you need to use
a few different tools simultaneously. One of them might be
public investment, like in the IRA for climate or in
the semiconductor example that we were talking about earlier. Another
might be procurement, another might be reserve buffering, and then
another might be competition policy.
Speaker 3 (22:16):
So these things can work in concert as long as.
Speaker 9 (22:18):
You have a clear mission, what is government trying to do,
and if that's to spur in this moment AI research
and development so that we can lead the world and
take on China and be at the frontier. That could
be a very in fact, I think that would be
a very smart mission to pursue. But it has to
be crisp and clear, and then you can organize the
(22:39):
institutions of American democracy to pursue that, and sometimes that
might mean public investment and competition policy.
Speaker 1 (22:45):
At the same.
Speaker 5 (22:46):
Time, this overlaps with the idea of tariffs as well,
and the idea that it was a bipartisan effort to
have specific tariffs on certain products going to China that
were national security concerns are just outright bands of certain
types of chips being sold to China. Do you think
that that is the appropriate policy in terms of limiting
the amount of information or do you think that, as
(23:06):
someone who's worked in the tech industry, the more cooperation
and open and transfer of information, the more innovation and
the more people can kind of get ahead.
Speaker 3 (23:14):
I don't think it quite works that simply. I think
we have to be clear about what the goal is.
Speaker 9 (23:19):
Is the goal bringing back jobs in particular manufacturing industries,
or is the goal onshoing semiconductor manufacturing for national security concerns,
or is it just a broader goal of technical innovation
and leadership, Like with the investment in INNAI and depending
on what the goal is targeted, tariffs can have a place.
(23:40):
I mean, we saw this on Let's just use the
example of climate policy. Bidenomics has gotten a bad rep
but obviously the IRA brought major investments in climate technology,
not only from the public sector, but doubling the overall
amount in the private sector is investing as well, and
that kind of investment, I think and transform that industry.
(24:02):
So there are bipartisan moments where people agree more so
on semiconductors than on climate, more so on tech oversite
and some other things. And I think those can be
taken advantage of.
Speaker 3 (24:12):
And you know, I.
Speaker 9 (24:13):
Charged the hidden history of how to do this because
we do.
Speaker 3 (24:16):
Fail a lot of time.
Speaker 9 (24:17):
You know, government, if it doesn't have a clear mission,
if it doesn't have an institution charged with getting it
done and the discretion to bring in the best minds,
then it fails.
Speaker 3 (24:27):
But when those ingredients are there, it succeeds. And that's
that's why I wrote welcome first with Chris.
Speaker 2 (24:32):
This was great and hopefully we can do it against
So thank you, sir, found Chris hues that Let's get
to our next guests. They film at Boston President, Eric Rose,
and Grant joint us Now for more, Eric, welcome back
to the programs. There's the data, apps and payrolls on Friday.
(24:55):
How would you approach a FMC meeting like the one
we get next week.
Speaker 8 (25:01):
Well, first, as Mike highlighted, it's a pretty noisy number.
It's partly noisy because a lot of behavior changed to
reflect the fact that the tariffs were telegraphed, So people
didn't know the extent of the tariffs. They didn't know
exactly the distribution around countries, but they didn't know that
tariffs were coming, and there were certain sectors that you
(25:22):
would have expected to be tariffed. As a result, many
people and many firms stockpiled ahead, tried to get ahead
of the tariffs, and that shows up in imports, that
shows up in inventories, which is exactly what you're seeing
in the data. So what it does reflect is enough
(25:43):
concern that many people and many organizations tried to front
run the tariffs. Now, in terms of going forward, this
doesn't include any of the information from the so called
Liberation Day, so people didn't know during the first quarter
exactly what the tariff's situation was going to be, and
I think most people were surprised by how significant the
(26:05):
tariffs were. So I think what we're seeing now is
the positioning going into Liberation Day, and we're going to
still need some additional data after the beginning of April
to get a better sense of how much weaker the
economy is going to be. But I would say the
high frequency data that are coming in are highlighting that
the Chinese tariffs in particular are basically acting like an embargo,
(26:30):
and that means that it's very likely that they're going
to be much higher prices in some shortages of goods
that are primarily imported from China.
Speaker 2 (26:38):
Eric, what's the timeline that you've got in mind. So
we've seen this show up in shipping and frank bookings.
Now I'm starting to wonder when we actually see it
show up in the shelves when people walk into the store.
When are they going to notice a difference.
Speaker 8 (26:51):
I think you're going to really start seeing it towards
the end of the summer, so most retailers, most stores
stockpiled inventory. Again, it was a highlighted by the President
that he was planning on putting tariffs on so it's
not surprising that most stores tried to stock up on
anything that was produced internationally that might be tariffed, so
(27:12):
they have some inventories to go through. It takes a
while to ship goods from around the world. So the
combination of lags getting into the economy and the fact
that there were some inventories that are probably going to
shelter some of the blow. I would expect the bulk
of the challenge to start being in towards middle to
(27:35):
end of the summer.
Speaker 5 (27:36):
Given the lag in time before we actually see the
ramifications and the hard data. How do you understand the
soft data that some people say is incredibly and increasingly noisy,
and other people say is a prediction of what's to come.
Speaker 8 (27:50):
So things like some of the consumer surveys have shown
very dramatic change. I would say that's noisy number, but
it doesn't mean that it's data that you should completely ignore.
So I think consumers are very concerned about what the
price effects are going to be and are starting to
(28:11):
worry about how much they're going to be affected. I
think a lot of people are also concerned about rising unemployment,
and the ADP report, as you highlighted, was relatively weak,
So I think there's going to be growing concern as
we get into the summer that we are likely to
see a recession. A lot of economists are beginning to
(28:32):
predict that, and I think there is a chance, unless
the administration pulls back on its tariff policy, that we
will see some pretty slow growth and continued problems in
the hard data as we get into the summer.
Speaker 5 (28:47):
We're in the quiet period for the Federal Reserve members
ahead of the FED meeting next week. There has been
though a lot of communication about just what they see
and how they perceive the potential risks going forward of
both inflation or weaker growth or in among some Do
you think that at a time like this there should
be more communication or less communication from the Fed members?
Speaker 8 (29:09):
Well, what you need is clear communication, and I think
it's very difficult at this time to be particularly clear.
First of all, we don't know if some of the
policies are going to be reversed. It is possible that
negotiations go well with some of the foreign trading partners
and agreements are made quickly. Now, most trade agreements take
(29:29):
years to actually negotiate. So my guess is it's going
to be more of a letter of intent than it's
going to be an actual agreement. But nonetheless, there's a
lot of uncertainty about how long this policy sticks, and
then there's the question of how it starts affecting individual behavior.
These tariffs are much much larger than anything we've seen
(29:51):
since the Great Depression, so our statistical models don't have
this kind of foreign shock in the data. So I
think they're going to end that. The other issue is
what you highlighted in the opening, which was a problem
both for unemployment and inflation, and that makes it more
difficult for the FED. The FED is going to be
(30:12):
concerned that the inflation numbers are already up and it's
before the full impact of the tariffs, and if we
start seeing inflation rates at three and a half or
four percent, which given depending on where the tariffs end up,
at least the reported data over the course of this
year could get that high, that's going to make it
difficult for the FED to be reacting preemptively to any
(30:35):
concerns they have about growing recession concerns. So it's a
very awkward position for the FED to be in, and
I think they're going to move relatively slowly until it's
apparent exactly what the inflation employment shocks are.
Speaker 2 (30:48):
Eric, Before you go, just one final question. The President
went after the FED share again just yesterday. Does that
complicate life for the f WEMC in any way, shape
or form next week and beyond.
Speaker 8 (31:00):
I don't think it really complicates the FMC. They're going
to do what they think is right. But what it
does complicate is if people are worried that the independence
of the FED is undermined, it's going to be much
more difficult to finance our deficit. The relationship that you
were talking about between the stock market and the bomb
market probably will be less correlated than in the past,
(31:23):
and if we're not careful, we'll lose the safe haven
behavior that we normally expect when an economy slows down.
So it's going to limit the fiscal authority as well
as the monetary authority.
Speaker 2 (31:35):
Eric, appreciate your mind as always and your thoughts at Rosenngrant,
the former Boston FED president. This is the Bloomberg Seventans podcast,
bringing you the best in markets, economics, an giopolitics. You
can watch the show live on Bloomberg TV weekday mornings
from six am to nine am Eastern subscribe to the
podcast on Apple, Spotify or anywhere else you listen, and
(31:56):
as always, on the Bloomberg Terminal and the Bloomberg Business Apps.
Speaker 3 (32:00):
Two
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
live on Bloomberg Television weekday mornings from six to nine
am Eastern. Subscribe to the podcast on Apple, Spotify or
anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business App. Max Kenter of HSBC
is sticking with this. We remain tactically risk off and
stick to our underway stance on the US, but buying
opportunities should come soon enough. Max Kenner of HSBC joined
us now for more. Max, Welcome to the program sir.
You put out a note in the last week why
washing machines matter? Let's start there, Why a washing machines matter?
Speaker 3 (00:55):
Max?
Speaker 4 (00:57):
Yeah, Number one, it was obviously a bit of clickbaiting.
Unpleased to see that it worked with you, John, that's
very good. But number two, it actually was there was
some truth to that, actually and some sort of underlying
reason why we looked at it because when we looked
at the washing machine tariffs in twenty sixteen and twenty eighteen,
in fact, we've seen quite a bit of sort of
(01:17):
textbook like behavior what we would expect with tariffs. In
twenty sixteen, when we had the anti dumping order on China,
for example, the overall imputs of washing machines to the
US didn't really change. It was only the imports from
China that dipped, but worldwide inputs actually, you know, they
were pretty stable, so we saw the classic substitution effect.
There was also no effect on prices. That only came
(01:39):
in twenty eighteen when we saw the global tariffs on
washing machines slapped on, and what you saw in advance
for that a couple months before that activity went up,
we saw this classic sort of front loading that people
are also talking about right now, some people really rushing
to buy those washing machines, and then imputs really nosedived
into into those worldwide tariffs. And the same happened with
(02:01):
laundry equipment CPI. So with prices on washing machines, they've
actually went up by ten and a half percent straight
after those tariffs were slapped on in February twenty eighteen.
So the parallel that we were drawing really this. I
think people are a little bit too relaxed now in saying, well,
you know what, the next couple of quarters, maybe consumers
are going to dial back spending a bit, and maybe
(02:22):
we're going to feel a little bit on spending and
on capis. Whereas I do really fear that in the
next month and two, so in May and June, we're
already going to start to see some really really disappointing
heart data. And because the narrative at the moment is
so entrenched in the sense that it's only a slowdown,
(02:43):
it's not a recession. Don't worry, it's just to soften
the survey data because of that really really widespread narrative.
In fact, I really do fear that a couple of
heart data points are already a couple of disappointing heart
data points are already enough to really drive us a
leg low and risk assets.
Speaker 1 (02:59):
Well, ma's respecting.
Speaker 2 (03:00):
See it this morning at eight thirty Eastern time and GDP,
but that's just a massive GDP with front loaded imports.
You're going to see that show up. You might get
a negative print max. When you say it was sharp
and hard data, which hard data?
Speaker 1 (03:11):
When? And why? Look, that's that's exactly the point.
Speaker 4 (03:16):
A two months ago, I could have argued, well, it's
mostly consumer sentiments, right, It's only the soft data and
the consumer sentiment side, So let's watch that kind of data.
But now you've got labor market conditions down, right, So
some of the surveys pointing to lower, maybe even negative
payroll prints. In the next couple of months, you've got
CEO confidence down, KAPEX intentions down, whether you look at
(03:36):
regional FED surveys, you look at PMS, you look at
small business sentiment. So, in fact, at the moment, I
think it is way too widespread to say, well, let's
just dismiss it as soft data weakness. In fact, now
it's so broad based that I'm looking at the heart data.
I'm like, I don't really care. I'm not looking only
at consumer spending now. It could come from anywhere. It
could be ADP today, it could be GDP today as well.
(03:56):
Little let's face it, John, today, the GDP data, even
if it is positive, even if that is the case,
look consent to are saying consumer spending is going to
go down from four percent and Q four to one
point two and Q one in a quarter where most
likely consumers have actually front loaded activity, and still consumer
spending is expected to be only a touch above one percent.
(04:18):
That's not good at all. So to me, it's not
just consumer spending. It could come from consumers from the
consumer site, could be on the labor market side, could
be jobless claims during the summer, right, some sort of
residual seasonality that we've seen also plan out in twenty
twenty three and last year, remember the PSALM rule then
in August, but the market played that already in June
and July, the sort of the cracks in the labor market.
So we could genuinely see it from actually a broad
(04:40):
range of heart data, not just well, I'm looking at
retail sales and if they don't disappoint then my view
is wrong.
Speaker 1 (04:46):
No, it's much much more widespread now. Max.
Speaker 5 (04:48):
I've just struck by the fact that three months ago
you were talking goldilocks and steroids and US exceptionalism nirvana,
and that was basically the story, and you weren't going
to fight it, and all of a sudden, your Max
underweight the United States and you're looking at China as
a place to really overweight in a significant way. How
much of a decline would you need to see before
those buying opportunities start to emerge.
Speaker 4 (05:09):
Yeah, so some of our fundamental models, the different or
the gap between those fundamentals what we're seeing what's being
priced in in terms of growth expectations top down growth expectations,
and what's priced into the equity market. Think globally cyclicals
over defensives. That gap is around nine percentage points, So
that really needs to be close. I don't think it
(05:30):
is enough if we're seeing things like Microsoft or Amazon
or some of the mag seven disappointing and that then
driving the equity market down.
Speaker 1 (05:39):
No, it is, in fact, really.
Speaker 4 (05:40):
Particularly the cyclicals globally that are holding up to well,
and particularly also in the US. I think, you know,
you look at the US, things like consumer cyclicals, but
also the russell things like small caps really are a
pretty pretty decent levels to go underweight and to sell
again at this at this point.
Speaker 5 (05:57):
Now, yeah, I'm sure at the end of last year
people were saying that the US would be able to
weather tarriffs much more effectively than any other economy around
the world, and all of a sudden, one hundred days
into Trump's administration, and that story is but Toronto's head,
and you're basically talking about overweighting everything else except for
the United States. Why has that narrative shifted to such
degree that the pain will be maximally fell to the
(06:17):
United States and US assets rather than Europe, rather than Asia.
Speaker 1 (06:23):
It's a great question.
Speaker 4 (06:23):
It's very, very different from what we expected perhaps three
months ago. Remember three months ago we had the first
tariff round with Canada and with Mexico, and you know
the narrative, Well, I think the broad consensus was this
is mostly negotiation tactic. And remember this was all solved
within twenty four hours. We kind of freaked out. FX
week freaked out, right, We had the Mexican pays off,
the Canadian dollar cell offs, so most most of the
(06:46):
tariff effects were really absorbed in FX.
Speaker 1 (06:50):
But then it will result twenty fives.
Speaker 4 (06:53):
So we all thought, okay, let's move on. This isn't
really something to take seriously. This is mostly noise. No
need to price that. If anything, it's going to hurt
the others more than the US because it's just that noise.
I think what we've all underestimated, including myself, is the
kind of confidence and sentiment shock, and the kind of
broad based confidence and sentiment shock that we've really seen
(07:15):
in the US economy. Again we can I think that
the only reason why we're talking about the ins and
outs of daily tweets or you know these you guys
were just talking about the autos and the kind of
nitty gritty around those autotariffs. The only reason why we
can still afford to talk about that is because the
soft data versus heart data narrative is still holding up,
(07:36):
because we are not seeing yet the weakness in this
heart data.
Speaker 1 (07:39):
And I think that's really where.
Speaker 4 (07:40):
I'm scared about in May and in June, where we
could be seeing the first cracks in jobless claims, the
first cracks in the heart data, and because of that
widespread narrative of it's just a slow down, it's not
a recession, it's just the soft data that is weakening.
Because of that widespread narrative, I don't need to see
the whites of the eyes of recession. I think it's
totally enough for a bearer view like ourselves to see
(08:02):
two three heart data points disappointing and already that narrative
I think will be in chatter.
Speaker 1 (08:06):
Max.
Speaker 2 (08:07):
I just want to pick up on one trade in particular,
just to close this conversation out. You've increased your overweight
into em local debt. There's two assumptions you're making care
that if the US economy gets into trouble, the rest
of the world won't as much. And you're also making
a call on the FX market as well, because typically
when you see a global economy go into a downturn,
the dollar strengthens, it doesn't weaken. Where do these assumptions
(08:27):
come from.
Speaker 1 (08:30):
I think that's totally right, John.
Speaker 4 (08:31):
I think most of that really is something or is
the assumption that is mostly a US centric risk off,
that it's a US centric slowdown. Let's face it, in
the last two months, we've also seen several of several
puts from the US administration, so several sort of U
turns from the US administration. I don't expect this time
to be any different. I don't expect that if the
(08:52):
heart data really turns, if of you like ours is correct,
that really the US administration will press on regardless. I
do there will be some sort of you know, some
sort of concessions to the market and some sort of
U turns where then is exactly precisely those kind of
buying opportunities that you were alluding to in the very beginning.
I think that's what we're going to see in the
(09:13):
next two three months. And that of course means it
is not an environment where you want to go longer
dollar and where you say, oh, that's the ultimate safe haven.
It's mostly really a US risk off where the dollar
sells off and where weirdly and oddly enough, this this
this divergence between emerging market local rates and broader risk assets.
Think US equities, think global equities. That broader divergence we've
(09:36):
seen in the last two months that will still hold
and where a lot of emerging market, particularly high beta countries,
think places like Eveni and Asia, but like South Africa,
I think Mexico for example. A lot of those high
beta names have a really really attractive risk premium.
Speaker 2 (09:52):
Here, Max, appreciate the cold today, Max Kenada of HSBC.
Speaker 6 (10:06):
I'm joined with, of course Ryan Peterson, the CEO of Flexport,
a friend of the show. We're so happy to have
him in person in DC. You're in the thick of
this trade story, representing all these companies that are trying
to figure out where these tariff freights are going. We're
gonna get GDP numbers today that are going to show
a tremendous amount of front loading. Where are we right
now when it comes to shipping, especially in China.
Speaker 7 (10:26):
Yeah, so flexfort is one of the largest logistics companies
in the United States and the world really, and what
we've seen since the tariff, since April ninth is a
sixty percent decline in bookings. And that's not a Flexport number.
That's industry wide for ocean freight. Now, a booking is
you place a booking about three weeks before the container
leaves China and then it arrives, of course in the
(10:46):
US about a month after that. So this all started
about three weeks ago. You're going to start to see
arrivals that the port of Long beachs drop from China
by sixty percent in the next few weeks, and then
weeks after that for East coastports, golf cup sports. So
it's gonna be a massive impact on consumers prices and
obviously you know the bigger impacts here as companies and
(11:08):
therefore jobs if they can continue to employ as many
people and.
Speaker 6 (11:11):
We've seen companies reach out to the White House. Last week,
you had Walmart target those executives in the Oval Office
explaining this picture you're describing right now. And then yesterday
we had really this dramatic episode with Amazon. Amazon was
going to potentially carve out the tariff price on their
website and administration called that a hostile and political act.
Do you tell your businesses how they should maybe deal
(11:32):
with this White House when it comes to trade policy.
Speaker 7 (11:34):
Well, you know, our businesses is a flexport. Customers are
kind of mostly small business, small medium sized business.
Speaker 1 (11:40):
We do work with a few large enterprises.
Speaker 7 (11:42):
I feel like they're able to handle relations with government
on their own, but the small business really doesn't have
a voice in all this.
Speaker 1 (11:46):
So it's kind of like been to some.
Speaker 7 (11:48):
Extent, my role, our company's role is helping to tell
that story, showing this data, making it clear like the
impact is disroportionate on small business. Larger companies tend to
have more resources to be able to multi source the
same product. They can buy it in Vietnam and buy
it in other countries, so as China starts to become
non competitive, they just shift manufacturing. Small business doesn't have
(12:10):
that luxury. They can't have multiple factories. They barely convinced
one factory to produce their item.
Speaker 1 (12:14):
And they're kind of lasting line.
Speaker 6 (12:16):
When it comes to Amazon though, and this entire debacle
that played out yesterday, what we saw is Amazon come
out almost immediately and blank and say we were.
Speaker 3 (12:26):
Just doing this under discussion.
Speaker 6 (12:27):
We're actually not going to go forward with this. And
this was of course after the President as well called
Jeff Bezos. Was that the right reaction from Jeff Bezos
in corporate America?
Speaker 7 (12:37):
You know, I'm not going to tell the Amazon team
how to do their job.
Speaker 3 (12:40):
They're pretty good at life.
Speaker 7 (12:40):
But I thought if it was me, I would be like, yeah,
putting you know, the tariffs on there to make it
clear that Chinese products are not competitive, you should buy
American products, look, no duty on the American listings. And
they could have positioned that as a win really easily.
I don't know why they just backed off right away.
Speaker 6 (12:56):
But Amazon, as you said, they're one of the bigger players.
Speaker 3 (12:58):
They'll be fine. What happens with these small businesses? Do
we see businesses go bankrupt?
Speaker 1 (13:02):
Yeah? Definitely.
Speaker 7 (13:03):
I mean if they don't change this policy, and Trump
is hinted that they will. It's sort of clear that
this all escalated very quickly in a tip for tat cycle.
If they don't bring the tariffs way back down on China,
like yeah, like thousands, maybe millions of small businesses will
go out of business. I mean so many companies buy
from It's four hundred and forty billion dollars worth the
goods we buy from China every year.
Speaker 6 (13:22):
Like the Treasury Secretary told me a few weeks ago,
one forty five percent. These levels are unsustainable. What would
be your advice into the administration at what level they should
set where it's still potentially is a carrot and stick
approach with some businesses to move manufacturing elsewhere, but it
doesn't actually put people out of work.
Speaker 7 (13:41):
Yeah, you know, like you don't want to ask me
my adviceorial administration.
Speaker 3 (13:44):
I'm like a free trader. I go like zero per se, let's.
Speaker 7 (13:46):
Go, let's you know, open this up and let people
buy from whoever they want to buy from.
Speaker 8 (13:50):
I don't.
Speaker 3 (13:50):
I don't think that's like what advice would you tell them?
Speaker 6 (13:53):
And then on a timeline, how quickly do they need
to bring these levels?
Speaker 7 (13:56):
So I think the timeline is really important. I think
every day that goes buy more damage kits done. You
have the sixty percent declient in bookings. You just what
twenty five percent of ocean sailings, So container ships have
now been canceled. The sailings from China to the US
have a lot of those who have been diverted. It's
not a permanent move, but it takes a long time
to reposition these ships back. So they they're now sailing
(14:17):
from Vietnam, they're going to Europe. They're just re routing
the container ships. So when they turn this back on,
if they do when and if they do lower the tariffs,
you're going to see there's not enough ships and containers
to move the cargo, and you're going to see prices
spike because of that. So, like you know, the economies
are very complex systems. They're not meant to be centrally
planned at the White House, and we've somehow forgot that
(14:39):
lesson that made America so successful to as theme try
Thank you so.
Speaker 3 (14:43):
Much for your time this morning, John.
Speaker 6 (14:44):
That was Ryan Peterson, the CEO of Flexbord of course,
really in the thick of this trade warrantys in Washington,
DC today offered up a little advice from the administration.
Speaker 2 (15:02):
Earnings just around the corner as well. Meta sets report earnings.
After the closing balance, the industry faces continued regulatory pressure.
Facebook co founder Chris hughs arguing in the US as
a history of striking a balance between free markets and
state capitalism, writ in quote, we organize many of our
markets for the common good, choosing to cultivate them rather
than plan them outright. The work is a craft, not
(15:23):
unlike the work of a sculptor or painter. Chris is
the author of the new book Market Crafters, and he
joins us now for more. Chris Camrnic good to see you,
Thanks for having me. Let's start big and then we
can get some meta anser.
Speaker 3 (15:33):
Let's do it.
Speaker 2 (15:34):
The secret source of the US economy, how would you
describe it?
Speaker 9 (15:37):
It's the dance between the private sector and the government.
So I make the case that policymakers have often harnessed
and guided markets toward public goals, in order to make
Americans richer, say for their lives, more economically stable. And
there's a hidden history of US doing this from the
nineteen thirties all the way to the present. It's a
Republican project as much as it's a democratic project, and
(16:00):
we're going to have to pull out some of the
lessons from that if we're going to rebuild on the
other side of the chaos.
Speaker 2 (16:05):
It's happening right now. Talk about the chass. So we're
doing a good job of it right now.
Speaker 8 (16:09):
Yeah.
Speaker 9 (16:09):
I mean, someone said this is more like market crashing
than market crafting.
Speaker 3 (16:13):
And that seemed apt to me.
Speaker 2 (16:15):
No.
Speaker 9 (16:15):
I mean, this administration is at best impulsive and at
worst completely disorganized. The way to do this in the
right way would be to say we have a mission
like bringing back manufacturing jobs or even the auto industry.
Then you'd create trade policy tariffs that would be targeted
not on avocados and cars, but targeted. You do it
(16:38):
in collaboration with allies, and you'd pair it with industrial
policy investments to make sure that those plans can get
online quickly and that they can do it cheaply. And
there is a recipe for crafting a particular market.
Speaker 3 (16:50):
Along those lines. This is just chaos. Use to use
the word.
Speaker 9 (16:54):
You don't know where the tariffs are, whether they're on
this week or last week, and people are trying to
figure it out.
Speaker 5 (17:00):
Taking a step back, though further, there is this feeling
about what the engine of US exceptionalism has been and
it's been in the world, so that you co founded
with respect to Facebook, which is big tech, and this
idea that the technological expertise that has been cultivated in
the United States has been superior and has been the
reason why so many people have wanted to invest here.
Do you see that unable to continue in this certain
(17:23):
sort of less predictable moment, or do you see that
as continuing to chug along in a healthy way that
does lead to some sort of evolution.
Speaker 9 (17:32):
It is certainly on shaky ground, that's for sure. I
think the story of American technical leadership is also one
where we see private sector innovation as a critical engine
of growth, paired with public sector decisions.
Speaker 3 (17:44):
So I'll give a crisp example.
Speaker 9 (17:46):
We've all been talking about semiconductors and chips for the
last few years, and that's been incredibly important in bringing
back advanced semiconductor manufacturing in the United States. However, the
real story of how to support the high tech industry
in the US starts more in the nineteen eighties with
Reagan era industrial policy.
Speaker 3 (18:04):
At that point, Japan's share.
Speaker 9 (18:06):
Of global semiconductor production was increasing quickly, and there was
a man, Robert Nois, the co founder of Intel, who
teamed up with other semiconductor producers to go to Washington say, hey,
we have a national security problem on our hands. The
Department of Defense degree, so did White House in Congress,
and they came together to first do a structured trade
(18:27):
policy on Japan to prevent them dumping in the market,
and then secondly make a big public investment in semiconductor production.
So at this moment when we could have lost that
technical lead, at an early important moment, we invested and
it worked. A few years later, the United States retook
its share of global semiconductor manufacturing. So what I'm trying
to say is it's not just a coincidence that we
(18:50):
have these high tech companies now. And it's yes, it's
partially because DARPA funded the Internet and the satellites are
powered by the government, but it's actually something even more explicit,
a product of market craft, and that you should give
us lessons for how we can do it in the future.
Speaker 5 (19:04):
You said that the US is at risk of losing
some of that tech dominance. What makes you feel that
about the structure of current tech companies, in particular Meta,
that makes you get the sense that maybe they're losing
some of that innovation or some of that structure that
allows them to lead.
Speaker 9 (19:21):
It's less that I think that the tech companies are
losing innovation and more that you have to have public
policy to be fundamentally stable to encourage companies all across
the supply chain to invest. And I think that's truly
what's at risk now. I mean, you've seen virtually all
the measures of investor confidence go down, consumer sentiment goes down,
(19:41):
Inflation expectations are up, equity markets are down, I mean all,
and there's a real fear that the FED won't be
able to lower if inflation stays high. So I think
all of those storm clouds on the horizon are not
just bad macroeconomically, but bad for our technic companies and
our leaders. It certainly makes it a much more challenging
environment them to succeed in.
Speaker 2 (20:01):
If you're a sculpt you'd be breaking metsa up right.
Speaker 9 (20:05):
I wrote a piece six years ago arguing that Meta
had abused its power and that it had illegally acquired
WhatsApp and Instagram in order to consolidate its power. You
have TC under Trump filed suit on that same rationale
several years ago. The Biden administration reorganized the case and
continued to prosecute it. And as you know now, I mean,
(20:28):
the case is ongoing in Washington with exactly these questions, what.
Speaker 2 (20:33):
Is it about it that you think is illegal?
Speaker 9 (20:35):
The decision in now over a decade ago to say
Instagram is challenging our monopoly, our power in the social
media landscape, particularly with photos and WhatsApp, later with messaging,
and then to acquire those rivals and then do things
like purposefully slow investment and development, as the Instagram co
(20:56):
founder testified just last week, that is against law to
acquire competitors, either to shut them down or to consolidate
a monopolistic position.
Speaker 3 (21:06):
It's quite clear now. The question is is what do
you do now?
Speaker 9 (21:09):
That was a long time ago, and so you know,
in my view, I think it's important that Facebook has
to comply with the law despite making a decision years
ago that was illegal. And then the question will come
to what is the appropriate remedy in twenty twenty five,
and we need to know more from the case to
figure that out.
Speaker 5 (21:25):
Is it incoherent to call some of the big tech
companies in the US national champions and to try to
hope that they're successful while trying to break them up
and change their business model with elimination of revenues from
places like China.
Speaker 9 (21:39):
I understand why you say that it seems on the
surface like they might be in conflict, but actually what
I chart in my research is a long story of saying,
wait a second, we want leading industries in the United States.
So we were talking a lot about tech, but you
can do it in finance, you can do it in energy,
you can do it in a whole range of markets.
(21:59):
And in order to do that, you need to use
a few different tools simultaneously. One of them might be
public investment, like in the IRA for climate or in
the semiconductor example that we were talking about earlier. Another
might be procurement, another might be reserve buffering, and then
another might be competition policy.
Speaker 3 (22:16):
So these things can work in concert as long as.
Speaker 9 (22:18):
You have a clear mission, what is government trying to do,
and if that's to spur in this moment AI research
and development so that we can lead the world and
take on China and be at the frontier. That could
be a very in fact, I think that would be
a very smart mission to pursue. But it has to
be crisp and clear, and then you can organize the
(22:39):
institutions of American democracy to pursue that, and sometimes that
might mean public investment and competition policy.
Speaker 1 (22:45):
At the same.
Speaker 5 (22:46):
Time, this overlaps with the idea of tariffs as well,
and the idea that it was a bipartisan effort to
have specific tariffs on certain products going to China that
were national security concerns are just outright bands of certain
types of chips being sold to China. Do you think
that that is the appropriate policy in terms of limiting
the amount of information or do you think that, as
(23:06):
someone who's worked in the tech industry, the more cooperation
and open and transfer of information, the more innovation and
the more people can kind of get ahead.
Speaker 3 (23:14):
I don't think it quite works that simply. I think
we have to be clear about what the goal is.
Speaker 9 (23:19):
Is the goal bringing back jobs in particular manufacturing industries,
or is the goal onshoing semiconductor manufacturing for national security concerns,
or is it just a broader goal of technical innovation
and leadership, Like with the investment in INNAI and depending
on what the goal is targeted, tariffs can have a place.
(23:40):
I mean, we saw this on Let's just use the
example of climate policy. Bidenomics has gotten a bad rep
but obviously the IRA brought major investments in climate technology,
not only from the public sector, but doubling the overall
amount in the private sector is investing as well, and
that kind of investment, I think and transform that industry.
(24:02):
So there are bipartisan moments where people agree more so
on semiconductors than on climate, more so on tech oversite
and some other things. And I think those can be
taken advantage of.
Speaker 3 (24:12):
And you know, I.
Speaker 9 (24:13):
Charged the hidden history of how to do this because
we do.
Speaker 3 (24:16):
Fail a lot of time.
Speaker 9 (24:17):
You know, government, if it doesn't have a clear mission,
if it doesn't have an institution charged with getting it
done and the discretion to bring in the best minds,
then it fails.
Speaker 3 (24:27):
But when those ingredients are there, it succeeds. And that's
that's why I wrote welcome first with Chris.
Speaker 2 (24:32):
This was great and hopefully we can do it against
So thank you, sir, found Chris hues that Let's get
to our next guests. They film at Boston President, Eric Rose,
and Grant joint us Now for more, Eric, welcome back
to the programs. There's the data, apps and payrolls on Friday.
(24:55):
How would you approach a FMC meeting like the one
we get next week.
Speaker 8 (25:01):
Well, first, as Mike highlighted, it's a pretty noisy number.
It's partly noisy because a lot of behavior changed to
reflect the fact that the tariffs were telegraphed, So people
didn't know the extent of the tariffs. They didn't know
exactly the distribution around countries, but they didn't know that
tariffs were coming, and there were certain sectors that you
(25:22):
would have expected to be tariffed. As a result, many
people and many firms stockpiled ahead, tried to get ahead
of the tariffs, and that shows up in imports, that
shows up in inventories, which is exactly what you're seeing
in the data. So what it does reflect is enough
(25:43):
concern that many people and many organizations tried to front
run the tariffs. Now, in terms of going forward, this
doesn't include any of the information from the so called
Liberation Day, so people didn't know during the first quarter
exactly what the tariff's situation was going to be, and
I think most people were surprised by how significant the
(26:05):
tariffs were. So I think what we're seeing now is
the positioning going into Liberation Day, and we're going to
still need some additional data after the beginning of April
to get a better sense of how much weaker the
economy is going to be. But I would say the
high frequency data that are coming in are highlighting that
the Chinese tariffs in particular are basically acting like an embargo,
(26:30):
and that means that it's very likely that they're going
to be much higher prices in some shortages of goods
that are primarily imported from China.
Speaker 2 (26:38):
Eric, what's the timeline that you've got in mind. So
we've seen this show up in shipping and frank bookings.
Now I'm starting to wonder when we actually see it
show up in the shelves when people walk into the store.
When are they going to notice a difference.
Speaker 8 (26:51):
I think you're going to really start seeing it towards
the end of the summer, so most retailers, most stores
stockpiled inventory. Again, it was a highlighted by the President
that he was planning on putting tariffs on so it's
not surprising that most stores tried to stock up on
anything that was produced internationally that might be tariffed, so
(27:12):
they have some inventories to go through. It takes a
while to ship goods from around the world. So the
combination of lags getting into the economy and the fact
that there were some inventories that are probably going to
shelter some of the blow. I would expect the bulk
of the challenge to start being in towards middle to
(27:35):
end of the summer.
Speaker 5 (27:36):
Given the lag in time before we actually see the
ramifications and the hard data. How do you understand the
soft data that some people say is incredibly and increasingly noisy,
and other people say is a prediction of what's to come.
Speaker 8 (27:50):
So things like some of the consumer surveys have shown
very dramatic change. I would say that's noisy number, but
it doesn't mean that it's data that you should completely ignore.
So I think consumers are very concerned about what the
price effects are going to be and are starting to
(28:11):
worry about how much they're going to be affected. I
think a lot of people are also concerned about rising unemployment,
and the ADP report, as you highlighted, was relatively weak,
So I think there's going to be growing concern as
we get into the summer that we are likely to
see a recession. A lot of economists are beginning to
(28:32):
predict that, and I think there is a chance, unless
the administration pulls back on its tariff policy, that we
will see some pretty slow growth and continued problems in
the hard data as we get into the summer.
Speaker 5 (28:47):
We're in the quiet period for the Federal Reserve members
ahead of the FED meeting next week. There has been
though a lot of communication about just what they see
and how they perceive the potential risks going forward of
both inflation or weaker growth or in among some Do
you think that at a time like this there should
be more communication or less communication from the Fed members?
Speaker 8 (29:09):
Well, what you need is clear communication, and I think
it's very difficult at this time to be particularly clear.
First of all, we don't know if some of the
policies are going to be reversed. It is possible that
negotiations go well with some of the foreign trading partners
and agreements are made quickly. Now, most trade agreements take
(29:29):
years to actually negotiate. So my guess is it's going
to be more of a letter of intent than it's
going to be an actual agreement. But nonetheless, there's a
lot of uncertainty about how long this policy sticks, and
then there's the question of how it starts affecting individual behavior.
These tariffs are much much larger than anything we've seen
(29:51):
since the Great Depression, so our statistical models don't have
this kind of foreign shock in the data. So I
think they're going to end that. The other issue is
what you highlighted in the opening, which was a problem
both for unemployment and inflation, and that makes it more
difficult for the FED. The FED is going to be
(30:12):
concerned that the inflation numbers are already up and it's
before the full impact of the tariffs, and if we
start seeing inflation rates at three and a half or
four percent, which given depending on where the tariffs end up,
at least the reported data over the course of this
year could get that high, that's going to make it
difficult for the FED to be reacting preemptively to any
(30:35):
concerns they have about growing recession concerns. So it's a
very awkward position for the FED to be in, and
I think they're going to move relatively slowly until it's
apparent exactly what the inflation employment shocks are.
Speaker 2 (30:48):
Eric, Before you go, just one final question. The President
went after the FED share again just yesterday. Does that
complicate life for the f WEMC in any way, shape
or form next week and beyond.
Speaker 8 (31:00):
I don't think it really complicates the FMC. They're going
to do what they think is right. But what it
does complicate is if people are worried that the independence
of the FED is undermined, it's going to be much
more difficult to finance our deficit. The relationship that you
were talking about between the stock market and the bomb
market probably will be less correlated than in the past,
(31:23):
and if we're not careful, we'll lose the safe haven
behavior that we normally expect when an economy slows down.
So it's going to limit the fiscal authority as well
as the monetary authority.
Speaker 2 (31:35):
Eric, appreciate your mind as always and your thoughts at Rosenngrant,
the former Boston FED president. This is the Bloomberg Seventans podcast,
bringing you the best in markets, economics, an giopolitics. You
can watch the show live on Bloomberg TV weekday mornings
from six am to nine am Eastern subscribe to the
podcast on Apple, Spotify or anywhere else you listen, and
(31:56):
as always, on the Bloomberg Terminal and the Bloomberg Business Apps.
Speaker 3 (32:00):
Two
Popular Podcasts
24/7 News: The Latest
The latest news in 4 minutes updated every hour, every day.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com