December 19, 2025 • 33 mins
- US Trade Representative Jamieson Greer
- Ohsung Kwon, Chief Equity Strategist, Wells Fargo
- Heidi Crebo-Rediker, Senior Fellow at the Council on Foreign Relations
- Anastasia Amoroso, Chief Investment Strategist, Private Wealth, Partners Group
US Trade Representative Jamieson Greer joins to talk USMCA, China, and TikTok’s agreement to launch a new US venture. Ohsung Kwon, Chief Equity Strategist at Wells Fargo, discusses his bullish forecast for 2026. Heidi Crebo-Rediker, Senior Fellow at the Council on Foreign Relations, discusses the European Union’s deal to fund a 90 billion euro loan to Ukraine. Anastasia Amoroso, Chief Investment Strategist, Private Wealth at Partners Group, shares why she doesn’t believe investors should give up on AI in the year ahead.
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 (00:02):
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 Amerie 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.
Speaker 3 (00:36):
Turning two deals TikTok, saying it reached binding agreements for
a new US joint venture majority owned by American investors,
the company's CEO telling employees agreements with Oracle, Silver Lake
Management and MGX have been signed. Joining us now as
we purse through everything that has happened in twenty twenty
five around the trade story is the twentieth US Trade
(00:59):
Representative missing Greer.
Speaker 1 (01:01):
Representative Greer.
Speaker 3 (01:01):
I want to start on how busy twenty twenty five
really was Looking ahead to twenty twenty six, do you
expect the same kind of pace with respect to trade deals?
With respect to trade announcements.
Speaker 4 (01:14):
Well, during twenty twenty five, President Trump the administration has
essentially reset the global trading order to move from you know,
total liberal trade in the United States without any cost,
to a new fair and balanced approach we had. We've
announced lots of trade deals, We've annowned lots of tariffs,
as you know, in the coming year, we expect to
(01:34):
finalize a bunch of those trade deals as well. You know,
I think that the tariff plan is in good shape.
I think we have a lot of the tariffs we
want in place. You know, if there are countries here
and there that don't comply with their deals or don't
want to finish a deal, then maybe we have to
have another conversation. But I think the economy's booming, inflations down,
wages are up, weren't a really great track.
Speaker 3 (01:54):
How much are you potentially at risk should the Supreme
Court overturn some of the tariffs that have been enacted
under the AEPA provision. Do you have something in place
to get those tariffs through other measures or will there
be a rethink about what will be put.
Speaker 1 (02:10):
On and what won't.
Speaker 4 (02:12):
Well, it would be terrible if the Supreme Court overturned
the case, because we have built a new global trading
order on the back of these tariffs and the tariff system,
and our trading partners have accepted it, and they've made deals,
and they've accepted there's going to be some tariff level
to help protect US industry.
Speaker 5 (02:28):
So it would be disaster if this was pulled out.
Speaker 4 (02:32):
All that being said, we will do whatever we need
to do to make sure that we can maintain the
tariffs we need and keep the deals in place.
Speaker 5 (02:39):
Obviously, we want the flexibility.
Speaker 4 (02:41):
Of the emergency powers that Congress has given to the President.
It's the most effective way to deal with it. So
what's made them so effective this year in negotiating. But
absent that, we'll work and we'll find a way to
make sure we can keep all these games we've made
over the past.
Speaker 1 (02:55):
Year representative career.
Speaker 3 (02:56):
There's also a feeling right now that cost of living
concerns are coming to foreign President Trump has talked about
removing some of tariffs on specific goods, particularly having to
do with food, as a way of alleviating some of
the price concerns. How does that factor into discussions going forward?
Do you think that that will be an increasing part
of your thought process as you go through some of
(03:17):
these trade negotiations.
Speaker 4 (03:19):
Well, any good president wants to address affordability, and our
president is and over the past month we saw you know, dairy,
you know, fruit and vegetables, all kinds of prices go
down for basic stables, staples. So that's a great development
going forward. The President removed some tariffs in connection with
some deals related to food coming from a broad bananas, coffee, coco,
(03:41):
the kinds of things we just don't make in the
United States. United States is a food powerhouse. When we
saw inflation earlier, it's really about housing, healthcare.
Speaker 5 (03:49):
Driven by Obamacare disaster.
Speaker 4 (03:51):
So I don't think that, you know, food imports are
really going to be an issue for us. You know,
the tariff program is really about creating jobs, and the
President's regulatory approach is really about bringing prices down and
bringing affordability.
Speaker 6 (04:03):
Ambassador, have you had any specific directives from the President
though as you carry out your negotiations to make sure
any tariffs you put on from here are anyones that
you negotiate specifically are not having an impact on affordability.
Speaker 4 (04:17):
So I know, the kind of the way you put it,
there are a specific direction I would say no, whenever
we're imposing tariffs are doing deals. The purpose of the
trade program is to reshore American manufacturing and protect American
food security. It's really about jobs and increasing wages, which
we've seen over the past few months. When it comes
(04:37):
to prices, the President is undertaking a lot of other actions,
you know, energy policy, tax policy, regulatory gas prices are down,
et cetera. So we don't see the trade policy really
as driving prices. We see it as driving jobs.
Speaker 6 (04:50):
Ambassador, I'd love to go back where Lisa started, and
that is it looks more likely that we indeed have
something of a TikTok deal where US buyers will take
the American portion. You after some of the negotiations in Madrid,
we're talking about how this deal, how this company was
part and parcel of a variety of matters when it
comes to negotiation, negotiating with your Chinese counterparts. So have
(05:12):
you had more discussions about this deal with TikTok? Does
it seem likely that China will let it happen?
Speaker 5 (05:19):
So there are two layers to the TikTok deal.
Speaker 4 (05:22):
One is the private sector layer, where the private parties
are concluding a deal and then there's a layer of
government approvals between the United States and China, and so
my conversations with the Chinese government over the past few months,
as you mentioned, have covered a variety of issues.
Speaker 5 (05:36):
One of them has been TikTok.
Speaker 4 (05:37):
Back at our discussions in Madrid, we came to an
essential agreement that if the private parties came to agreement,
that the Chinese would approve it.
Speaker 5 (05:47):
So we expect approval by.
Speaker 4 (05:48):
The government of China in alignment with that agreement we
reached earlier this year.
Speaker 3 (05:52):
We're hearing about not only this deal with respect to
TikTok and some investors in the US, but also a
review product is to sell two hundred.
Speaker 1 (06:01):
Chips into China.
Speaker 3 (06:03):
And I'm just wondering, stepping back, if all of these
are pieces of a bigger deal that will come to
fruition in twenty twenty six between the US and China.
Speaker 4 (06:13):
I would say with the h two hundred export control issues,
those really are standalone. That was not a negotiated outcome
in the United States. With respect to export controls, those
are not something that are really subject to negotiation. Those
are national security and commercial decisions made by the federal government.
So that's kind of standing on its own with respect
(06:34):
to the rest of the China deal. Right now, we're
trying to make sure that rare earths continue flowing from China.
You know, they've bought over five million metric tons of
soybeans at this point, and we're trying to keep trade
flowing between the two countries in way that makes sense.
Speaker 3 (06:47):
Do you expect a bigger deal other than just sort
of steady reset kind of idea that you've talked about
with respect to the US and China. Do you expect
something more comprehensive to be outlined next year.
Speaker 5 (07:00):
It's a little hard to say at this point. Goal
one is stability.
Speaker 4 (07:05):
For me, and everyone's heard me say this before, we
need trade with China to be much more balanced. Our
trade deficit with China has decreased by twenty five percent
this year alone under President Trump's policy, so that's going
the right direction. I can first see a situation in
the first half of next year where we come to
some kind of agreement with China on exactly what we
should be trading with each other and even in what volumes.
(07:26):
It's a little bit of managed trade, but it's the
kind of thing that can be healthy and stable. Given
the way that Chinese government runs its economy, it just
doesn't mesh very well with the way we want to
run our economy. That just means we have to manage
it a little bit more. And I think there's a
possibility of that. I'm not sure i'd call it comprehensive,
but i'd call it confidence building.
Speaker 1 (07:44):
I'm masser.
Speaker 6 (07:45):
I think a lot of the confusion from many people
comes around national security. One of the points that you
mentioned just a moment ago, especially things with H two
hundred chips.
Speaker 1 (07:55):
Giving chips to.
Speaker 6 (07:55):
China has seen an issue of national security. Even giving
S thirty fives to Saudi Your what does that mean
for national security? Because critics would say that it means
that national security is up for sale. What would you
say to those critics?
Speaker 4 (08:10):
So, with respect to the F thirty five, that's not
my I used to be in the Air Force, but
it's not it's not my wheelhouse. I'm H two hundreds
and export controls generally, export controls have always been fluid,
They've never been static. The very nature of export controls
is that the US government is constantly reviewing the state
of technology and assessing what technologies can be sold and
(08:31):
which ones can and balancing national security and assessing whether
or not there's foreign availability. Everyone knows that the Chinese
are quickly also trying to develop their own AI chips,
semiconductor tools to make those chips, et cetera.
Speaker 5 (08:45):
It's a race. All of those h two hundred.
Speaker 4 (08:47):
Approvals still have to go through the Commerce Department to
make sure that any licenses that are granted really respect
US national security and make sure that it's not violated,
and there can be conditions on licenses, etc. To they
go to end users and end uses that don't jeopardize
US national security?
Speaker 6 (09:04):
Is it fair to say, that, Ambassador that even if
this does go through the kind of cases where this
is allowed, where it's approved, will still be quite limited
in scope.
Speaker 4 (09:13):
So it's hard to say at this point that these
types of license applications are typically a case by case
and reviewed. So we'll see the way it's set up
right now is if the chips are going to go
to China, they come back to the US for a
security inspection to make sure that they are indeed the
types of chips that are being allowed to be sent
to the Chinese. We know there are a lot of
(09:33):
Chinese companies that want them. We know the Chinese government's
pretty interested in having their own domestic champions build them.
So the Chinese themselves right now are having a conversation
about the types of chips that they want from the
United States. We think that they want the Age two Hunters.
They've shown an interest in that. So we'll see between
their process and ours, we'll see where it goes.
Speaker 3 (09:53):
It seems like the tech wars have been behind a
lot of the negotiations over the past twelve months, in
particular not only with China, but of the European Union.
I'm just wondering where some of those discussions are with
respect to some of the restrictions and regulatory investigations Europe
has been making toward US tech companies.
Speaker 1 (10:12):
Where are some of those discussions.
Speaker 4 (10:15):
So I just had a conversation yesterday with my counterpart
in the European Trade in the European Commission yesterday to
reinforce some of the strong concerns we're hearing from US stakeholders.
US tech companies are the most competitive in the world,
and Europe frankly doesn't have those types of competitors.
Speaker 5 (10:37):
If you talk to the Europeans.
Speaker 4 (10:38):
They'll say, that's why we have to regulate and have
these protectionist measures against US tech companies. Unfortunately, we see
in the way that they've developed those measures they're discriminatory.
They only capture companies above a certain threshold of revenue
globally or certain business models, and magically it only happens
to capture US companies. They'll say that they're Chinese companies too,
(10:59):
but we only see actions against American companies. So it's
a problem. It's discriminatory in fact. You'll hear the European say, well,
it's fair, but it's discriminatory in fact and an intent.
So I want to talk to these folks. I want
to negotiate over it. They've been somewhat resistant to that,
but again I had a great conversation yesterday with the
European Trade Commissioner, and I think we just have to
(11:21):
be able to talk about why they're doing this, so
why they're purporting to regulate American companies and their global
business models.
Speaker 3 (11:27):
Ambassador, coming into twenty twenty five, a lot of people
were wondering who are allies and who our adversaries would
be on trade, and we were talking about who traditionally
have been US allies and who haven't. Have you been
surprised and who has been most difficult to deal with
in twenty twenty five, it has surprised a lot of
people in the markets to see the likes of Europe
be a more contentious discussion than other regions, even sometimes China.
Speaker 4 (11:53):
That's because they haven't been trade negotiators. I have not
been surprised at where it's been more challenging. Take India,
for example, who's an important partner and a strategic partner
in a lot of ways. We started negotiating with them
early in the year and we're still negotiating with them
to trying to find a good landing zone. During that time,
we have other trade partners who have come in, started,
(12:14):
proceeded with and concluded trade negotiations with US, etc. The
reality is somebody like Europe and frankly you know some
jurisdictions that want to emulate them. They know they might
have relatively low tariffs compared to the rest of the world,
but they have non tariff barriers regulations that exclude American agriculture.
There's a major exports and regulations that exclude are industrial
(12:35):
exports and so you get into US, and this is
why we have giant imbalances. It's not because Europe is
really competitive, we know they're not. It's because they have
a lot of these rules that prevent US goods and
services from going into the continent.
Speaker 3 (12:47):
Ambassador career just to finish up on Mexico, which.
Speaker 1 (12:50):
Has been negotiating.
Speaker 3 (12:51):
From what we understand, they just recently gave final approval
to put tariffs on certain Chinese imports and a lot
of people are affecting there to be some sort of
reprieve with respect to aluminum and steel tariffs on Mexico.
Is there any discussion about that going on right now?
Speaker 4 (13:09):
So, first of all, any country in the world who
exports steel and aluminum to the United States wants to
have a modification to that regime because the United States
for many years has been the consumer of last resort,
and this is why the President puts steel loomed tariff's
on in the first administration, the Biden administration kept them,
and the President has tightened them further in his second administration.
(13:31):
Of course, the Mexicans are asking for this. We have
found the Mexicans to be quite constructive in some of
our recent discussions and looking to change some of their
laws and regulations related to long standing US concerns. So
have the Mexicans asked about this, Yes, I won't give
any further detail beyond that, but it's certainly something that
they would like to see.
Speaker 2 (13:53):
Stay with US. Multbleenberg Savannah's coming up off.
Speaker 3 (13:56):
To this, Osang Quan of Wells Fargo joins US.
Speaker 1 (14:08):
Now. Osan has a.
Speaker 3 (14:09):
Bullish forecast for next year in the equity space, and
it comes to this question of how much does the
data even matter if you have a federal reserve that
is biased to cut rates at a federal government that
is biased to run this economy.
Speaker 7 (14:21):
Hut, Yeah, I mean I think the set of four
equities into twenty twenty six is pretty favorable. I mean,
the prophecycle is still in a lop cycle. We're forecasting
fourteen percent growth EPs growth forty SMP next year, followed
by another thirteen percent in twenty twenty seven. I think liquidity,
which we talk quite a lot about, that's going to
improve quite a lot in Q one with the fact
(14:43):
starting to expand this balance sheet. It was a lot
sooner and a lot bigger than what we had previously forecasted,
and with that, we're going to see a huge uptake
in the liquid environment overall, and I think that's really
going to be the bullcase for equities as you move
into twenty twenty six.
Speaker 3 (14:58):
But I hear people at the television screen, this isn't
actually quantitative easing. This is just trying to ease the
technical backdrop for banks that are using the FED as
some sort of backstop. So how does this really increase liquidity?
Is this more of a boost to liquidity than some
people are accounting for.
Speaker 7 (15:17):
I mean, it depends on how you define Q. If
Q is really about shortening duration, then it's not a Q.
But if QE is about boosting liquidity into the system,
Because the funding market was really seeing a lot of stress.
If you look at the SOFA spread between the sulfur
rate versus the fat funds rate, it blew up back
in October to as much as thirty five basis points.
(15:38):
So there was a real stress that we saw back
in October and November in the funding market. I think
I think that was really the main crporate for the
selloff that we saw over the past, you know, or
the volatility that we saw over the past six weeks
or so and looking at things like bitcoin quantum stocks
nonprofitable tag those guys sold off the most. And that's
(15:59):
essentially what happens when liquidity dries up. Everyone's risk curves
just to the left, and the assets that are farthest
out the riskurves, the most speculative assets, they gets all
the most.
Speaker 1 (16:09):
I think we liquid are coming back.
Speaker 7 (16:11):
And potentially condition liquid conditions overall being actually good in
Q one, I think speculation is going to pick back up.
Speaker 1 (16:20):
I think I.
Speaker 7 (16:20):
Think AI is going to AI trade is going to
work more in the second half the year that we're thinking, well,
I think the overall equity market it's going to be
pretty bolish.
Speaker 6 (16:30):
Is that why you have the assumption that into next
year you write your research that inflation reacceleration is going
to be worse for equities than a recession would be,
because a lot of people would look at the dichotomy
between the two and say, inflation coming off the back
of COVID, equity still did well. But it's growth that's
really an earnings that's underpretning this equity market, and if
we get a recession then that would be worse.
Speaker 7 (16:51):
Yeah, I mean, if I have to, you know, think
about the probability of recession and inflation. I would assign
a higher probably of inflation. I'm not too concerned about
inflation either, because I think there's that AI productivity, this
inflationary pressure that's going to keep inflation pretty low. But
(17:11):
there's the physical as well as monetary policy that's coming
back in to potentially drive inflation higher. So if I
have to choose, I'll say inflation has a higher potential
than recession. Well, I'm not overall, I'm not too concerned
about it either.
Speaker 6 (17:25):
But inflation would be worse for equities than a recession
would be at this point.
Speaker 7 (17:29):
I mean, both would be bad, but I think the
probability of inflation is probably higher than probability over session
at this point because of physical we estimate about eighty
basis points of GDP contribution for the full year twenty
twenty six. Most of that is happening in the first
half of the year, really through the tax return, so
I think consumption is going to pick back off. Consumption
is seventy percent of the economy, so I'm not too
(17:51):
concerned about the economic downturn.
Speaker 3 (17:53):
What's the sort of break the glass moment in the
yield space for equities, And I asked this, as you
do see longer yields globally creep up on the backs
of a hawkish move from the Bank of Japan, albeit
whatever people are thinking in the currency space, but also
this idea that the ECB is getting to the end
of their using cycle. How much do you see this
sort of line in the sand, let's say, at four
(18:14):
and a half percent for the tenure at five percent,
where suddenly the book case just isn't there.
Speaker 7 (18:19):
Yeah, I think I think it's going to matter more
for what works within the equity market. So we're more
bullished on the reflation cycle into the first half of
the year because of the physical stimulus that we're going
to get. But if rates climbable four and a half
percent or so, I think that's potentially what kills the
reflation cycle and potentially back into AI. I think closer
(18:41):
to five percent is going to be actually pretty bearish
for equities.
Speaker 6 (18:45):
So in this pollish environment for twenty twenty six, the
speculative stuff starts doing well again.
Speaker 1 (18:51):
Is that a healthy bull market?
Speaker 6 (18:52):
Is that a healthy turn in the continuation of the
games we've seen in equities?
Speaker 7 (18:57):
I mean, I think, you know, the bullmarket food boollmarkets
typically have a little bit of speculation at least especially
in this AI cycle. There's there is going to be speculation.
It's new technology, and I don't think it's a bubble yet,
but I think there's a potential it becomes a bubble
in the second half of the year, especially you know,
with the FED continuing with this easing cycle, liquidly being
(19:20):
more ample. And I don't think the AI trade is over.
I mean, there's quite a lot of concerns around AI
cap backs and because Hyperscalers, the market started pushing back
band on hyperscalars capbecs. There's CONSISTUS view is that Hyperscalers
are going to moderate its capbecs and that's been basically
what what drove the SEMI and the AI infrastru infrastructure
(19:42):
sell off over the past week or so. And if
you look at Semis over Hyperscalar Semis versus Hyperscalers, over
the past week, we have seen a three and a
half standard deviation move, meaning hyperscalars are perform semis by
three and a half center deviation, and that trade has
been diverging. If if we start to see hyperscalers sort
(20:03):
of reiterating their capex outlook, the funding issues that Oracle
and open AI are having, those concerns, Get those concerns
ease going forward and liquidity comes bay. I think the
A rate is going to.
Speaker 3 (20:17):
Be back on.
Speaker 2 (20:20):
Stay with us, multiple impact Survanance coming up after this.
Speaker 3 (20:32):
Joining us now is Heidi Krebo Retica of the Council
on Foreign Relations. Heidi, thank you so much for being
with us. You recently wrote a piece about how the
structure of financing the European Union agrees on for Ukraine matters.
So what have we learned overnight when it comes to
the structure they have laid out.
Speaker 8 (20:50):
So, I mean there was first of all, there was
not a question in my mind as to whether or
not Ukraine was going to get the financial support from
the EU. Is just basically how they did it through
collective borrowing, which I think, you know, it's it's a
it's a step towards mutualized debt, but it's not.
Speaker 5 (21:08):
But it is absent.
Speaker 8 (21:09):
You know, three of three of the EU countries, namely Hungary,
Slovakia and Czech and so I think, on the one hand,
that's that's good. They came through with the ninety billion.
This is just from a timing perspective. I think it
had to happen because the IMF is finalizing an eight
(21:30):
point one billion dollar loan to support Ukraine and there's
a huge gap in their financing and so the EU
really needed to step up to provide support. And the
ninety billion is going to go a long way there.
It's not all the way there, because I think the
gap that is projected over the next three years is
one hundred and thirty six point five billion, which is huge,
(21:54):
and but this is a big step in the right direction.
It's it also I think all over pointed. I mean,
it's an elegant solution in a way because it takes
it takes the burden off of individual countries to actually
provide the budget finance from their own individual budgets, So
(22:14):
there is a bit of a collective shift. But at
the same time, it would have been a lot more
powerful to use the Russian sovereign assets. The This was
something they've been negotiating it for a very very long
time and it was I believe politically a big failure
for Chancellor Mergen. So this didn't get done.
Speaker 6 (22:33):
And that's something that Ukraine and Zelensky had been arguing
that it becomes a powerful negotiating force if they were
to use the frozen Russian assets. Hiding on the other
side of things, the Belgians had been arguing that it
would face legal retribution and just retribution in general if
they had used these Russian funds. Straight up, is there
any merit to the arguments coming from the European capital.
Speaker 8 (22:55):
So, you know, Belgium I think at the end of
the day, I just really didn't want to do this.
They had a lot of popular support in not moving
forward to use these immobilized Russian assets. And you're clear obviously,
you know, has the Russians just just sued for you know,
in case Euroclear was planning to use any of these assets,
(23:17):
even though the structures that were being discussed would have
taken the legal I think the legal burden away from
both Euroclaire and Belgium. But you know, at the end
of the day, this is something where Mertz was standing
by himself, France and Italy went Lukewarman did not support him,
and Belgium just you know, pushed through and decided that
(23:39):
this was something that they that they cared a lot
about I'm of two minds. I think that the EU
needs to move towards collective borrowing for its own national
security in order to be able to fund, for example,
its own defense. But the but for this, it just
needed to get done, and it got done by Hooker.
Speaker 6 (24:00):
What does it change, if anything? Heidi though to the
political situation of the very highly indebted nations of France,
of Italy of others.
Speaker 8 (24:08):
Well, I mean, this is going to be a burden,
a burden on them, and it's uh, this is ideally
this would have been, uh, you know, an exercise where
you didn't have to have any additional any additional funding
coming from in particular, you know, countries like France and
Italy and others that are you know, that are struggling
(24:31):
for you know, from a you know that don't have
the headroom to really borrow or put too much up
for to support this loan. It's it just it's it's
unfortunate because they had an opportunity to actually use a
sizable amount of Russian of Russian funds and they weren't
able to get there.
Speaker 2 (24:52):
Stay with us multiple impax Savannah's coming.
Speaker 1 (24:54):
Up after this.
Speaker 3 (25:05):
Socks slightly higher as Wall Street looks to end the
week with a win, and Nastasia and Moroso of Partners
Group writing, we don't believe investors should give up on
AI into twenty twenty six. The current pullback may present opportunity,
and Astasia joins us more and a Stasia, great to
see you to say, very much to the holiday spirit.
Speaker 1 (25:23):
I see, yes, run the holiday spirit. I think it's great.
So coming up.
Speaker 3 (25:26):
It does feel like people over the past couple of
days at least have come back to this idea.
Speaker 1 (25:31):
Maybe the sell off's a good thing.
Speaker 3 (25:32):
It highlights skepticism, it highlights a better entry value.
Speaker 1 (25:35):
How where are you on that?
Speaker 3 (25:37):
What have we seen over the past couple of weeks
that gives you more confidence?
Speaker 1 (25:40):
Right?
Speaker 9 (25:41):
Well, first of all, as you were saying, maybe the
volatility is normal as we get higher and higher at
market altitudes, so to speak. So maybe that is what
we should be accustomed to seeing in twenty twenty six,
and investors scrutinize things more and investors question things more,
so maybe that is to your point in healthy development.
I do think it's nice to see the AI trade
pullback by five or seven percentage points over the last
(26:01):
couple of weeks. Having said that, as I look at
you know, what's really driving the AI trade, it is demand,
the adoption, It is productivity, and it is monetization. And
when I look at all three of those categories, I
see positive developments there.
Speaker 1 (26:14):
First of all, let's talk about adoption.
Speaker 9 (26:16):
You know, around the table, I'm sure are you using
more AI now versus what you did at the beginning
of the year. And if you look at kind of
the adult population in the United States, fifty five percent
is the percentage that use artificial intelligence today. That was
about forty five percent to start the year. We went
from a ten percent adoption rate economy wide to about
seventeen percent, So we are moving up that.
Speaker 1 (26:35):
Adoption curve, which is great.
Speaker 9 (26:37):
The second thing, Lisa, that I looked at the other
day was the productivity increases. Coming into the year, we
were sort of hoping expecting to see the productivity gains
due to artificial intelligence. And when I look back at
the last call it three years, you have actually seen
measurable productivity gains. Productivity has been average about two percent
over year growth versus ten versus one percent we saw
(27:00):
in kind of the decade. You know, after the financial crisis.
So these are not just wishes, These are tangible productivity gains.
We hear that from companies. We see that in our
portfolio companies as well. And then the last point, it's
all about the modernization and there too, whether you look
at cloud revenues, whether you look at some of the
AI lms, the likes of open Ai, their revenues are
(27:21):
surging and I think that trend can continue into twenty
twenty six. So with all of that, the AI trade
is priced better today. So I would step in here
for twenty twenty six.
Speaker 3 (27:31):
The HAI trade in pockets, right, I mean, are there
areas that are the winners and areas that are big
losers as you do see a consolidation of profitability and
a select number of cohorts. Right, I mean, at what
point is the gain of some players the pain of
everybody else? That I point to Micron yesterday doing really
well because guess what, they can charge a whole lot
more for their chips.
Speaker 9 (27:51):
Right now, that is a really good point. It's not
going to be just everybody is a winner, you know.
It's now the tie that lifts all the boats. And
that's what we think about in our investmentmties. We think
about whether a company is going to be disrupted by
artificial intelligence or is actually going to be helped by
artificial intelligence because they're quick enough to embed it.
Speaker 1 (28:08):
So that's one way to think about it.
Speaker 9 (28:09):
The other way, I would say, Lisa, we should actually
draw the distinction between No, I don't think AI is
a bubble, but are there signs of bubble like valuations
in certain parts of the ecosystem.
Speaker 1 (28:19):
Absolutely.
Speaker 9 (28:20):
I mean, if you look at, for example, the lay
stage venture valuations for AI companies versus not AI companies,
there are trading at a premium something.
Speaker 1 (28:28):
Like two hundred and fifty percent.
Speaker 9 (28:30):
You know, it's not the case for earlier stage, but
it is the case for lata stage. So I think
you have to have a question mark around those valuations.
But you know, we are finding I think winners in
artificial intelligence.
Speaker 1 (28:42):
I would say in several different categories.
Speaker 9 (28:44):
The first one is infrastructure, and the shift is now
really sort of yes, we've done data centers for the
last five years, but it's really more of a focus
on energy because you know that's the bottleneck. You know,
we also think about investing in AI companies that have
proprietary data, they have vertical expertise and they can leverage that.
Speaker 1 (29:02):
That's where we.
Speaker 9 (29:03):
Think gives them the competitive mode and the best chance
to embed artificial intelligence and kind of you know, invent
AI power services. And then the last thing is across
our portfolio companies, we also have a concerted effort to
boost productivity, drive revenue growth and also enterprise value creation
by infusing AI.
Speaker 1 (29:21):
So that's where we identify the winners. But you're right,
you know there's.
Speaker 9 (29:25):
Going to be lots of disruption and lots of companies
to avoid as well.
Speaker 6 (29:28):
How much of the avoidance doesn't just have to do
with are you producing revenue? Are you being disrupted by it?
And maybe there is promise there, but debt loads are
getting unmanageable. I mean, Oracle has been the poster choud
for this, for their spending increases elevenfold and their cash
growth has turned into an outright cash burn. Even you
can pick into any company, but even if the promise
is big to you do, debt piles like that in
(29:48):
cash burn make it enough to make that kind of
company no longer attractive.
Speaker 9 (29:52):
I mean, look, once again, I think investors should look
at Oracle and the Lakes and scrutinize anybody who is
quickly taken on debt and maybe not scaling revenues.
Speaker 1 (30:00):
Clear enough. So I do think that's a healthy development.
Speaker 9 (30:03):
But when I think about, let's say, the rest of
the hyperscalers, they don't have the issue that the market
is sort of punishing Oracle for.
Speaker 1 (30:09):
They have plenty of free cash flow. They have plenty
of cash.
Speaker 9 (30:12):
On the sidelines to finance the data center spend. So
and the other thing I would point out on Danny,
you know, going into twenty twenty six, I certainly would
not give up on all the hyperscalers because what you
actually see is their earning stra dijectory keeps on accelerating
towards the tail end of twenty twenty six. And we
talk about this gap narrowing between the MAC seven versus
(30:33):
the four ninety three, but that gap is actually going
to wind out once again for most of the MAC seven,
perhaps not the specific.
Speaker 6 (30:41):
But even for the hyperscalers, and specifically the lms the
Google's Open AI. Why isn't just a Google being the
ultimate winner because they have the ability with their balance
sheet to not charge for their AI models.
Speaker 1 (30:54):
Why not just run open AI?
Speaker 6 (30:56):
Into the grounds with the inability of them being able
to produce revenue of Google just offering it for free,
and then once they're gone, then maybe they can turn
around becoming monopoly. Why why isn't that the future road
that this might go down?
Speaker 1 (31:07):
Well, you bring up a couple of good points.
Speaker 9 (31:09):
You know, Google, first of all, has been investing in
artificial intelligence and working on development and developing artificial intelligence
for years, you know, prior to open AI. So Google,
by all means should be one of the winners of
this AI trend. But the other point I would say is,
you know, whether it's Google, whether it's open AI, whether
it's another platform, it is about that.
Speaker 1 (31:28):
It is about the platforms. You know.
Speaker 9 (31:30):
I remember, you know, talking about artificial intelligence back in
twenty nineteen, and the biggest winners were always going to
be the providers of the picks and shovels.
Speaker 1 (31:38):
Of AI and a lot of these LM models. And
who's that going to be?
Speaker 9 (31:42):
Those who have the massive treasure troves of data, and
so it's the likes of Google and Meta and others.
So I'm not surprised to see, you know, perhaps Google
kind of be in the lead once again.
Speaker 1 (31:52):
As I think they kind of wore back in twenty
nineteen Andastasia.
Speaker 3 (31:55):
There is a big discussion around if there is risk building,
and yes, sure is risk building, but the question is
where most people have pointed to private markets as a
place of potential risk. I know you're focused on financing
companies and financing infrastructure projects through the private markets. How
much risk do you really see building heading into twenty
twenty six.
Speaker 9 (32:16):
Right, Well, if you take a step back, as to
back Lisa, if you think about the sheer growth of
private credit, for example, it went from being a six
hundred billion dollar asset class to a one point seven
trillion dollar asset class. So by the sheer kind of
virtue of growth that we've seen, there's going to be
more and more risks. And I think that's what we've
seen is some of these idiosyncratic headlines are representative of
the growth of the asset class. But when I think
(32:38):
about it from interest coverage ratio perspective, for example.
Speaker 1 (32:41):
Yes it is you know, dipped from.
Speaker 9 (32:44):
Where it was pre twenty twenty two, but it's actually
trought and is starting to improve. So the FED, the
fact that the FED is cut interest rates actually alleviates
I would say some of the pressure on private credit.
You know, I think what you have to look out
for is, you know, there's been lots of money raised
in credit. That money had to be deployed quickly, and
you know, in some cases it was deployed in large
(33:06):
chunks of capital. So was it always appropriately deployed? Was
it always properly covenant covenanted? For everybody?
Speaker 1 (33:13):
I don't know, But for us, if we look.
Speaker 9 (33:15):
Across our prior credit platform and the US side and
the European side, on average, I would say ninety percent
of the loans that we've done have a covenant attached
to them.
Speaker 1 (33:25):
So I can't speak for.
Speaker 9 (33:26):
The industry as a whole, but I think, you know,
if you had the prudent underwriting standards, despite the growth
in the industry, we're in a good place today.
Speaker 2 (33:35):
This is the Bloomberg Sevendans podcast, bringing you the best
in markets, economics, antient politics. 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 as always on the
Bloomberg Terminal and the Bloomberg Business app.
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 Amerie 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.
Speaker 3 (00:36):
Turning two deals TikTok, saying it reached binding agreements for
a new US joint venture majority owned by American investors,
the company's CEO telling employees agreements with Oracle, Silver Lake
Management and MGX have been signed. Joining us now as
we purse through everything that has happened in twenty twenty
five around the trade story is the twentieth US Trade
(00:59):
Representative missing Greer.
Speaker 1 (01:01):
Representative Greer.
Speaker 3 (01:01):
I want to start on how busy twenty twenty five
really was Looking ahead to twenty twenty six, do you
expect the same kind of pace with respect to trade deals?
With respect to trade announcements.
Speaker 4 (01:14):
Well, during twenty twenty five, President Trump the administration has
essentially reset the global trading order to move from you know,
total liberal trade in the United States without any cost,
to a new fair and balanced approach we had. We've
announced lots of trade deals, We've annowned lots of tariffs,
as you know, in the coming year, we expect to
(01:34):
finalize a bunch of those trade deals as well. You know,
I think that the tariff plan is in good shape.
I think we have a lot of the tariffs we
want in place. You know, if there are countries here
and there that don't comply with their deals or don't
want to finish a deal, then maybe we have to
have another conversation. But I think the economy's booming, inflations down,
wages are up, weren't a really great track.
Speaker 3 (01:54):
How much are you potentially at risk should the Supreme
Court overturn some of the tariffs that have been enacted
under the AEPA provision. Do you have something in place
to get those tariffs through other measures or will there
be a rethink about what will be put.
Speaker 1 (02:10):
On and what won't.
Speaker 4 (02:12):
Well, it would be terrible if the Supreme Court overturned
the case, because we have built a new global trading
order on the back of these tariffs and the tariff system,
and our trading partners have accepted it, and they've made deals,
and they've accepted there's going to be some tariff level
to help protect US industry.
Speaker 5 (02:28):
So it would be disaster if this was pulled out.
Speaker 4 (02:32):
All that being said, we will do whatever we need
to do to make sure that we can maintain the
tariffs we need and keep the deals in place.
Speaker 5 (02:39):
Obviously, we want the flexibility.
Speaker 4 (02:41):
Of the emergency powers that Congress has given to the President.
It's the most effective way to deal with it. So
what's made them so effective this year in negotiating. But
absent that, we'll work and we'll find a way to
make sure we can keep all these games we've made
over the past.
Speaker 1 (02:55):
Year representative career.
Speaker 3 (02:56):
There's also a feeling right now that cost of living
concerns are coming to foreign President Trump has talked about
removing some of tariffs on specific goods, particularly having to
do with food, as a way of alleviating some of
the price concerns. How does that factor into discussions going forward?
Do you think that that will be an increasing part
of your thought process as you go through some of
(03:17):
these trade negotiations.
Speaker 4 (03:19):
Well, any good president wants to address affordability, and our
president is and over the past month we saw you know, dairy,
you know, fruit and vegetables, all kinds of prices go
down for basic stables, staples. So that's a great development
going forward. The President removed some tariffs in connection with
some deals related to food coming from a broad bananas, coffee, coco,
(03:41):
the kinds of things we just don't make in the
United States. United States is a food powerhouse. When we
saw inflation earlier, it's really about housing, healthcare.
Speaker 5 (03:49):
Driven by Obamacare disaster.
Speaker 4 (03:51):
So I don't think that, you know, food imports are
really going to be an issue for us. You know,
the tariff program is really about creating jobs, and the
President's regulatory approach is really about bringing prices down and
bringing affordability.
Speaker 6 (04:03):
Ambassador, have you had any specific directives from the President
though as you carry out your negotiations to make sure
any tariffs you put on from here are anyones that
you negotiate specifically are not having an impact on affordability.
Speaker 4 (04:17):
So I know, the kind of the way you put it,
there are a specific direction I would say no, whenever
we're imposing tariffs are doing deals. The purpose of the
trade program is to reshore American manufacturing and protect American
food security. It's really about jobs and increasing wages, which
we've seen over the past few months. When it comes
(04:37):
to prices, the President is undertaking a lot of other actions,
you know, energy policy, tax policy, regulatory gas prices are down,
et cetera. So we don't see the trade policy really
as driving prices. We see it as driving jobs.
Speaker 6 (04:50):
Ambassador, I'd love to go back where Lisa started, and
that is it looks more likely that we indeed have
something of a TikTok deal where US buyers will take
the American portion. You after some of the negotiations in Madrid,
we're talking about how this deal, how this company was
part and parcel of a variety of matters when it
comes to negotiation, negotiating with your Chinese counterparts. So have
(05:12):
you had more discussions about this deal with TikTok? Does
it seem likely that China will let it happen?
Speaker 5 (05:19):
So there are two layers to the TikTok deal.
Speaker 4 (05:22):
One is the private sector layer, where the private parties
are concluding a deal and then there's a layer of
government approvals between the United States and China, and so
my conversations with the Chinese government over the past few months,
as you mentioned, have covered a variety of issues.
Speaker 5 (05:36):
One of them has been TikTok.
Speaker 4 (05:37):
Back at our discussions in Madrid, we came to an
essential agreement that if the private parties came to agreement,
that the Chinese would approve it.
Speaker 5 (05:47):
So we expect approval by.
Speaker 4 (05:48):
The government of China in alignment with that agreement we
reached earlier this year.
Speaker 3 (05:52):
We're hearing about not only this deal with respect to
TikTok and some investors in the US, but also a
review product is to sell two hundred.
Speaker 1 (06:01):
Chips into China.
Speaker 3 (06:03):
And I'm just wondering, stepping back, if all of these
are pieces of a bigger deal that will come to
fruition in twenty twenty six between the US and China.
Speaker 4 (06:13):
I would say with the h two hundred export control issues,
those really are standalone. That was not a negotiated outcome
in the United States. With respect to export controls, those
are not something that are really subject to negotiation. Those
are national security and commercial decisions made by the federal government.
So that's kind of standing on its own with respect
(06:34):
to the rest of the China deal. Right now, we're
trying to make sure that rare earths continue flowing from China.
You know, they've bought over five million metric tons of
soybeans at this point, and we're trying to keep trade
flowing between the two countries in way that makes sense.
Speaker 3 (06:47):
Do you expect a bigger deal other than just sort
of steady reset kind of idea that you've talked about
with respect to the US and China. Do you expect
something more comprehensive to be outlined next year.
Speaker 5 (07:00):
It's a little hard to say at this point. Goal
one is stability.
Speaker 4 (07:05):
For me, and everyone's heard me say this before, we
need trade with China to be much more balanced. Our
trade deficit with China has decreased by twenty five percent
this year alone under President Trump's policy, so that's going
the right direction. I can first see a situation in
the first half of next year where we come to
some kind of agreement with China on exactly what we
should be trading with each other and even in what volumes.
(07:26):
It's a little bit of managed trade, but it's the
kind of thing that can be healthy and stable. Given
the way that Chinese government runs its economy, it just
doesn't mesh very well with the way we want to
run our economy. That just means we have to manage
it a little bit more. And I think there's a
possibility of that. I'm not sure i'd call it comprehensive,
but i'd call it confidence building.
Speaker 1 (07:44):
I'm masser.
Speaker 6 (07:45):
I think a lot of the confusion from many people
comes around national security. One of the points that you
mentioned just a moment ago, especially things with H two
hundred chips.
Speaker 1 (07:55):
Giving chips to.
Speaker 6 (07:55):
China has seen an issue of national security. Even giving
S thirty fives to Saudi Your what does that mean
for national security? Because critics would say that it means
that national security is up for sale. What would you
say to those critics?
Speaker 4 (08:10):
So, with respect to the F thirty five, that's not
my I used to be in the Air Force, but
it's not it's not my wheelhouse. I'm H two hundreds
and export controls generally, export controls have always been fluid,
They've never been static. The very nature of export controls
is that the US government is constantly reviewing the state
of technology and assessing what technologies can be sold and
(08:31):
which ones can and balancing national security and assessing whether
or not there's foreign availability. Everyone knows that the Chinese
are quickly also trying to develop their own AI chips,
semiconductor tools to make those chips, et cetera.
Speaker 5 (08:45):
It's a race. All of those h two hundred.
Speaker 4 (08:47):
Approvals still have to go through the Commerce Department to
make sure that any licenses that are granted really respect
US national security and make sure that it's not violated,
and there can be conditions on licenses, etc. To they
go to end users and end uses that don't jeopardize
US national security?
Speaker 6 (09:04):
Is it fair to say, that, Ambassador that even if
this does go through the kind of cases where this
is allowed, where it's approved, will still be quite limited
in scope.
Speaker 4 (09:13):
So it's hard to say at this point that these
types of license applications are typically a case by case
and reviewed. So we'll see the way it's set up
right now is if the chips are going to go
to China, they come back to the US for a
security inspection to make sure that they are indeed the
types of chips that are being allowed to be sent
to the Chinese. We know there are a lot of
(09:33):
Chinese companies that want them. We know the Chinese government's
pretty interested in having their own domestic champions build them.
So the Chinese themselves right now are having a conversation
about the types of chips that they want from the
United States. We think that they want the Age two Hunters.
They've shown an interest in that. So we'll see between
their process and ours, we'll see where it goes.
Speaker 3 (09:53):
It seems like the tech wars have been behind a
lot of the negotiations over the past twelve months, in
particular not only with China, but of the European Union.
I'm just wondering where some of those discussions are with
respect to some of the restrictions and regulatory investigations Europe
has been making toward US tech companies.
Speaker 1 (10:12):
Where are some of those discussions.
Speaker 4 (10:15):
So I just had a conversation yesterday with my counterpart
in the European Trade in the European Commission yesterday to
reinforce some of the strong concerns we're hearing from US stakeholders.
US tech companies are the most competitive in the world,
and Europe frankly doesn't have those types of competitors.
Speaker 5 (10:37):
If you talk to the Europeans.
Speaker 4 (10:38):
They'll say, that's why we have to regulate and have
these protectionist measures against US tech companies. Unfortunately, we see
in the way that they've developed those measures they're discriminatory.
They only capture companies above a certain threshold of revenue
globally or certain business models, and magically it only happens
to capture US companies. They'll say that they're Chinese companies too,
(10:59):
but we only see actions against American companies. So it's
a problem. It's discriminatory in fact. You'll hear the European say, well,
it's fair, but it's discriminatory in fact and an intent.
So I want to talk to these folks. I want
to negotiate over it. They've been somewhat resistant to that,
but again I had a great conversation yesterday with the
European Trade Commissioner, and I think we just have to
(11:21):
be able to talk about why they're doing this, so
why they're purporting to regulate American companies and their global
business models.
Speaker 3 (11:27):
Ambassador, coming into twenty twenty five, a lot of people
were wondering who are allies and who our adversaries would
be on trade, and we were talking about who traditionally
have been US allies and who haven't. Have you been
surprised and who has been most difficult to deal with
in twenty twenty five, it has surprised a lot of
people in the markets to see the likes of Europe
be a more contentious discussion than other regions, even sometimes China.
Speaker 4 (11:53):
That's because they haven't been trade negotiators. I have not
been surprised at where it's been more challenging. Take India,
for example, who's an important partner and a strategic partner
in a lot of ways. We started negotiating with them
early in the year and we're still negotiating with them
to trying to find a good landing zone. During that time,
we have other trade partners who have come in, started,
(12:14):
proceeded with and concluded trade negotiations with US, etc. The
reality is somebody like Europe and frankly you know some
jurisdictions that want to emulate them. They know they might
have relatively low tariffs compared to the rest of the world,
but they have non tariff barriers regulations that exclude American agriculture.
There's a major exports and regulations that exclude are industrial
(12:35):
exports and so you get into US, and this is
why we have giant imbalances. It's not because Europe is
really competitive, we know they're not. It's because they have
a lot of these rules that prevent US goods and
services from going into the continent.
Speaker 3 (12:47):
Ambassador career just to finish up on Mexico, which.
Speaker 1 (12:50):
Has been negotiating.
Speaker 3 (12:51):
From what we understand, they just recently gave final approval
to put tariffs on certain Chinese imports and a lot
of people are affecting there to be some sort of
reprieve with respect to aluminum and steel tariffs on Mexico.
Is there any discussion about that going on right now?
Speaker 4 (13:09):
So, first of all, any country in the world who
exports steel and aluminum to the United States wants to
have a modification to that regime because the United States
for many years has been the consumer of last resort,
and this is why the President puts steel loomed tariff's
on in the first administration, the Biden administration kept them,
and the President has tightened them further in his second administration.
(13:31):
Of course, the Mexicans are asking for this. We have
found the Mexicans to be quite constructive in some of
our recent discussions and looking to change some of their
laws and regulations related to long standing US concerns. So
have the Mexicans asked about this, Yes, I won't give
any further detail beyond that, but it's certainly something that
they would like to see.
Speaker 2 (13:53):
Stay with US. Multbleenberg Savannah's coming up off.
Speaker 3 (13:56):
To this, Osang Quan of Wells Fargo joins US.
Speaker 1 (14:08):
Now. Osan has a.
Speaker 3 (14:09):
Bullish forecast for next year in the equity space, and
it comes to this question of how much does the
data even matter if you have a federal reserve that
is biased to cut rates at a federal government that
is biased to run this economy.
Speaker 7 (14:21):
Hut, Yeah, I mean I think the set of four
equities into twenty twenty six is pretty favorable. I mean,
the prophecycle is still in a lop cycle. We're forecasting
fourteen percent growth EPs growth forty SMP next year, followed
by another thirteen percent in twenty twenty seven. I think liquidity,
which we talk quite a lot about, that's going to
improve quite a lot in Q one with the fact
(14:43):
starting to expand this balance sheet. It was a lot
sooner and a lot bigger than what we had previously forecasted,
and with that, we're going to see a huge uptake
in the liquid environment overall, and I think that's really
going to be the bullcase for equities as you move
into twenty twenty six.
Speaker 3 (14:58):
But I hear people at the television screen, this isn't
actually quantitative easing. This is just trying to ease the
technical backdrop for banks that are using the FED as
some sort of backstop. So how does this really increase liquidity?
Is this more of a boost to liquidity than some
people are accounting for.
Speaker 7 (15:17):
I mean, it depends on how you define Q. If
Q is really about shortening duration, then it's not a Q.
But if QE is about boosting liquidity into the system,
Because the funding market was really seeing a lot of stress.
If you look at the SOFA spread between the sulfur
rate versus the fat funds rate, it blew up back
in October to as much as thirty five basis points.
(15:38):
So there was a real stress that we saw back
in October and November in the funding market. I think
I think that was really the main crporate for the
selloff that we saw over the past, you know, or
the volatility that we saw over the past six weeks
or so and looking at things like bitcoin quantum stocks
nonprofitable tag those guys sold off the most. And that's
(15:59):
essentially what happens when liquidity dries up. Everyone's risk curves
just to the left, and the assets that are farthest
out the riskurves, the most speculative assets, they gets all
the most.
Speaker 1 (16:09):
I think we liquid are coming back.
Speaker 7 (16:11):
And potentially condition liquid conditions overall being actually good in
Q one, I think speculation is going to pick back up.
Speaker 1 (16:20):
I think I.
Speaker 7 (16:20):
Think AI is going to AI trade is going to
work more in the second half the year that we're thinking, well,
I think the overall equity market it's going to be
pretty bolish.
Speaker 6 (16:30):
Is that why you have the assumption that into next
year you write your research that inflation reacceleration is going
to be worse for equities than a recession would be,
because a lot of people would look at the dichotomy
between the two and say, inflation coming off the back
of COVID, equity still did well. But it's growth that's
really an earnings that's underpretning this equity market, and if
we get a recession then that would be worse.
Speaker 7 (16:51):
Yeah, I mean, if I have to, you know, think
about the probability of recession and inflation. I would assign
a higher probably of inflation. I'm not too concerned about
inflation either, because I think there's that AI productivity, this
inflationary pressure that's going to keep inflation pretty low. But
(17:11):
there's the physical as well as monetary policy that's coming
back in to potentially drive inflation higher. So if I
have to choose, I'll say inflation has a higher potential
than recession. Well, I'm not overall, I'm not too concerned
about it either.
Speaker 6 (17:25):
But inflation would be worse for equities than a recession
would be at this point.
Speaker 7 (17:29):
I mean, both would be bad, but I think the
probability of inflation is probably higher than probability over session
at this point because of physical we estimate about eighty
basis points of GDP contribution for the full year twenty
twenty six. Most of that is happening in the first
half of the year, really through the tax return, so
I think consumption is going to pick back off. Consumption
is seventy percent of the economy, so I'm not too
(17:51):
concerned about the economic downturn.
Speaker 3 (17:53):
What's the sort of break the glass moment in the
yield space for equities, And I asked this, as you
do see longer yields globally creep up on the backs
of a hawkish move from the Bank of Japan, albeit
whatever people are thinking in the currency space, but also
this idea that the ECB is getting to the end
of their using cycle. How much do you see this
sort of line in the sand, let's say, at four
(18:14):
and a half percent for the tenure at five percent,
where suddenly the book case just isn't there.
Speaker 7 (18:19):
Yeah, I think I think it's going to matter more
for what works within the equity market. So we're more
bullished on the reflation cycle into the first half of
the year because of the physical stimulus that we're going
to get. But if rates climbable four and a half
percent or so, I think that's potentially what kills the
reflation cycle and potentially back into AI. I think closer
(18:41):
to five percent is going to be actually pretty bearish
for equities.
Speaker 6 (18:45):
So in this pollish environment for twenty twenty six, the
speculative stuff starts doing well again.
Speaker 1 (18:51):
Is that a healthy bull market?
Speaker 6 (18:52):
Is that a healthy turn in the continuation of the
games we've seen in equities?
Speaker 7 (18:57):
I mean, I think, you know, the bullmarket food boollmarkets
typically have a little bit of speculation at least especially
in this AI cycle. There's there is going to be speculation.
It's new technology, and I don't think it's a bubble yet,
but I think there's a potential it becomes a bubble
in the second half of the year, especially you know,
with the FED continuing with this easing cycle, liquidly being
(19:20):
more ample. And I don't think the AI trade is over.
I mean, there's quite a lot of concerns around AI
cap backs and because Hyperscalers, the market started pushing back
band on hyperscalars capbecs. There's CONSISTUS view is that Hyperscalers
are going to moderate its capbecs and that's been basically
what what drove the SEMI and the AI infrastru infrastructure
(19:42):
sell off over the past week or so. And if
you look at Semis over Hyperscalar Semis versus Hyperscalers, over
the past week, we have seen a three and a
half standard deviation move, meaning hyperscalars are perform semis by
three and a half center deviation, and that trade has
been diverging. If if we start to see hyperscalers sort
(20:03):
of reiterating their capex outlook, the funding issues that Oracle
and open AI are having, those concerns, Get those concerns
ease going forward and liquidity comes bay. I think the
A rate is going to.
Speaker 3 (20:17):
Be back on.
Speaker 2 (20:20):
Stay with us, multiple impact Survanance coming up after this.
Speaker 3 (20:32):
Joining us now is Heidi Krebo Retica of the Council
on Foreign Relations. Heidi, thank you so much for being
with us. You recently wrote a piece about how the
structure of financing the European Union agrees on for Ukraine matters.
So what have we learned overnight when it comes to
the structure they have laid out.
Speaker 8 (20:50):
So, I mean there was first of all, there was
not a question in my mind as to whether or
not Ukraine was going to get the financial support from
the EU. Is just basically how they did it through
collective borrowing, which I think, you know, it's it's a
it's a step towards mutualized debt, but it's not.
Speaker 5 (21:08):
But it is absent.
Speaker 8 (21:09):
You know, three of three of the EU countries, namely Hungary,
Slovakia and Czech and so I think, on the one hand,
that's that's good. They came through with the ninety billion.
This is just from a timing perspective. I think it
had to happen because the IMF is finalizing an eight
(21:30):
point one billion dollar loan to support Ukraine and there's
a huge gap in their financing and so the EU
really needed to step up to provide support. And the
ninety billion is going to go a long way there.
It's not all the way there, because I think the
gap that is projected over the next three years is
one hundred and thirty six point five billion, which is huge,
(21:54):
and but this is a big step in the right direction.
It's it also I think all over pointed. I mean,
it's an elegant solution in a way because it takes
it takes the burden off of individual countries to actually
provide the budget finance from their own individual budgets, So
(22:14):
there is a bit of a collective shift. But at
the same time, it would have been a lot more
powerful to use the Russian sovereign assets. The This was
something they've been negotiating it for a very very long
time and it was I believe politically a big failure
for Chancellor Mergen. So this didn't get done.
Speaker 6 (22:33):
And that's something that Ukraine and Zelensky had been arguing
that it becomes a powerful negotiating force if they were
to use the frozen Russian assets. Hiding on the other
side of things, the Belgians had been arguing that it
would face legal retribution and just retribution in general if
they had used these Russian funds. Straight up, is there
any merit to the arguments coming from the European capital.
Speaker 8 (22:55):
So, you know, Belgium I think at the end of
the day, I just really didn't want to do this.
They had a lot of popular support in not moving
forward to use these immobilized Russian assets. And you're clear obviously,
you know, has the Russians just just sued for you know,
in case Euroclear was planning to use any of these assets,
(23:17):
even though the structures that were being discussed would have
taken the legal I think the legal burden away from
both Euroclaire and Belgium. But you know, at the end
of the day, this is something where Mertz was standing
by himself, France and Italy went Lukewarman did not support him,
and Belgium just you know, pushed through and decided that
(23:39):
this was something that they that they cared a lot
about I'm of two minds. I think that the EU
needs to move towards collective borrowing for its own national
security in order to be able to fund, for example,
its own defense. But the but for this, it just
needed to get done, and it got done by Hooker.
Speaker 6 (24:00):
What does it change, if anything? Heidi though to the
political situation of the very highly indebted nations of France,
of Italy of others.
Speaker 8 (24:08):
Well, I mean, this is going to be a burden,
a burden on them, and it's uh, this is ideally
this would have been, uh, you know, an exercise where
you didn't have to have any additional any additional funding
coming from in particular, you know, countries like France and
Italy and others that are you know, that are struggling
(24:31):
for you know, from a you know that don't have
the headroom to really borrow or put too much up
for to support this loan. It's it just it's it's
unfortunate because they had an opportunity to actually use a
sizable amount of Russian of Russian funds and they weren't
able to get there.
Speaker 2 (24:52):
Stay with us multiple impax Savannah's coming.
Speaker 1 (24:54):
Up after this.
Speaker 3 (25:05):
Socks slightly higher as Wall Street looks to end the
week with a win, and Nastasia and Moroso of Partners
Group writing, we don't believe investors should give up on
AI into twenty twenty six. The current pullback may present opportunity,
and Astasia joins us more and a Stasia, great to
see you to say, very much to the holiday spirit.
Speaker 1 (25:23):
I see, yes, run the holiday spirit. I think it's great.
So coming up.
Speaker 3 (25:26):
It does feel like people over the past couple of
days at least have come back to this idea.
Speaker 1 (25:31):
Maybe the sell off's a good thing.
Speaker 3 (25:32):
It highlights skepticism, it highlights a better entry value.
Speaker 1 (25:35):
How where are you on that?
Speaker 3 (25:37):
What have we seen over the past couple of weeks
that gives you more confidence?
Speaker 1 (25:40):
Right?
Speaker 9 (25:41):
Well, first of all, as you were saying, maybe the
volatility is normal as we get higher and higher at
market altitudes, so to speak. So maybe that is what
we should be accustomed to seeing in twenty twenty six,
and investors scrutinize things more and investors question things more,
so maybe that is to your point in healthy development.
I do think it's nice to see the AI trade
pullback by five or seven percentage points over the last
(26:01):
couple of weeks. Having said that, as I look at
you know, what's really driving the AI trade, it is demand,
the adoption, It is productivity, and it is monetization. And
when I look at all three of those categories, I
see positive developments there.
Speaker 1 (26:14):
First of all, let's talk about adoption.
Speaker 9 (26:16):
You know, around the table, I'm sure are you using
more AI now versus what you did at the beginning
of the year. And if you look at kind of
the adult population in the United States, fifty five percent
is the percentage that use artificial intelligence today. That was
about forty five percent to start the year. We went
from a ten percent adoption rate economy wide to about
seventeen percent, So we are moving up that.
Speaker 1 (26:35):
Adoption curve, which is great.
Speaker 9 (26:37):
The second thing, Lisa, that I looked at the other
day was the productivity increases. Coming into the year, we
were sort of hoping expecting to see the productivity gains
due to artificial intelligence. And when I look back at
the last call it three years, you have actually seen
measurable productivity gains. Productivity has been average about two percent
over year growth versus ten versus one percent we saw
(27:00):
in kind of the decade. You know, after the financial crisis.
So these are not just wishes, These are tangible productivity gains.
We hear that from companies. We see that in our
portfolio companies as well. And then the last point, it's
all about the modernization and there too, whether you look
at cloud revenues, whether you look at some of the
AI lms, the likes of open Ai, their revenues are
(27:21):
surging and I think that trend can continue into twenty
twenty six. So with all of that, the AI trade
is priced better today. So I would step in here
for twenty twenty six.
Speaker 3 (27:31):
The HAI trade in pockets, right, I mean, are there
areas that are the winners and areas that are big
losers as you do see a consolidation of profitability and
a select number of cohorts. Right, I mean, at what
point is the gain of some players the pain of
everybody else? That I point to Micron yesterday doing really
well because guess what, they can charge a whole lot
more for their chips.
Speaker 9 (27:51):
Right now, that is a really good point. It's not
going to be just everybody is a winner, you know.
It's now the tie that lifts all the boats. And
that's what we think about in our investmentmties. We think
about whether a company is going to be disrupted by
artificial intelligence or is actually going to be helped by
artificial intelligence because they're quick enough to embed it.
Speaker 1 (28:08):
So that's one way to think about it.
Speaker 9 (28:09):
The other way, I would say, Lisa, we should actually
draw the distinction between No, I don't think AI is
a bubble, but are there signs of bubble like valuations
in certain parts of the ecosystem.
Speaker 1 (28:19):
Absolutely.
Speaker 9 (28:20):
I mean, if you look at, for example, the lay
stage venture valuations for AI companies versus not AI companies,
there are trading at a premium something.
Speaker 1 (28:28):
Like two hundred and fifty percent.
Speaker 9 (28:30):
You know, it's not the case for earlier stage, but
it is the case for lata stage. So I think
you have to have a question mark around those valuations.
But you know, we are finding I think winners in
artificial intelligence.
Speaker 1 (28:42):
I would say in several different categories.
Speaker 9 (28:44):
The first one is infrastructure, and the shift is now
really sort of yes, we've done data centers for the
last five years, but it's really more of a focus
on energy because you know that's the bottleneck. You know,
we also think about investing in AI companies that have
proprietary data, they have vertical expertise and they can leverage that.
Speaker 1 (29:02):
That's where we.
Speaker 9 (29:03):
Think gives them the competitive mode and the best chance
to embed artificial intelligence and kind of you know, invent
AI power services. And then the last thing is across
our portfolio companies, we also have a concerted effort to
boost productivity, drive revenue growth and also enterprise value creation
by infusing AI.
Speaker 1 (29:21):
So that's where we identify the winners. But you're right,
you know there's.
Speaker 9 (29:25):
Going to be lots of disruption and lots of companies
to avoid as well.
Speaker 6 (29:28):
How much of the avoidance doesn't just have to do
with are you producing revenue? Are you being disrupted by it?
And maybe there is promise there, but debt loads are
getting unmanageable. I mean, Oracle has been the poster choud
for this, for their spending increases elevenfold and their cash
growth has turned into an outright cash burn. Even you
can pick into any company, but even if the promise
is big to you do, debt piles like that in
(29:48):
cash burn make it enough to make that kind of
company no longer attractive.
Speaker 9 (29:52):
I mean, look, once again, I think investors should look
at Oracle and the Lakes and scrutinize anybody who is
quickly taken on debt and maybe not scaling revenues.
Speaker 1 (30:00):
Clear enough. So I do think that's a healthy development.
Speaker 9 (30:03):
But when I think about, let's say, the rest of
the hyperscalers, they don't have the issue that the market
is sort of punishing Oracle for.
Speaker 1 (30:09):
They have plenty of free cash flow. They have plenty
of cash.
Speaker 9 (30:12):
On the sidelines to finance the data center spend. So
and the other thing I would point out on Danny,
you know, going into twenty twenty six, I certainly would
not give up on all the hyperscalers because what you
actually see is their earning stra dijectory keeps on accelerating
towards the tail end of twenty twenty six. And we
talk about this gap narrowing between the MAC seven versus
(30:33):
the four ninety three, but that gap is actually going
to wind out once again for most of the MAC seven,
perhaps not the specific.
Speaker 6 (30:41):
But even for the hyperscalers, and specifically the lms the
Google's Open AI. Why isn't just a Google being the
ultimate winner because they have the ability with their balance
sheet to not charge for their AI models.
Speaker 1 (30:54):
Why not just run open AI?
Speaker 6 (30:56):
Into the grounds with the inability of them being able
to produce revenue of Google just offering it for free,
and then once they're gone, then maybe they can turn
around becoming monopoly. Why why isn't that the future road
that this might go down?
Speaker 1 (31:07):
Well, you bring up a couple of good points.
Speaker 9 (31:09):
You know, Google, first of all, has been investing in
artificial intelligence and working on development and developing artificial intelligence
for years, you know, prior to open AI. So Google,
by all means should be one of the winners of
this AI trend. But the other point I would say is,
you know, whether it's Google, whether it's open AI, whether
it's another platform, it is about that.
Speaker 1 (31:28):
It is about the platforms. You know.
Speaker 9 (31:30):
I remember, you know, talking about artificial intelligence back in
twenty nineteen, and the biggest winners were always going to
be the providers of the picks and shovels.
Speaker 1 (31:38):
Of AI and a lot of these LM models. And
who's that going to be?
Speaker 9 (31:42):
Those who have the massive treasure troves of data, and
so it's the likes of Google and Meta and others.
So I'm not surprised to see, you know, perhaps Google
kind of be in the lead once again.
Speaker 1 (31:52):
As I think they kind of wore back in twenty
nineteen Andastasia.
Speaker 3 (31:55):
There is a big discussion around if there is risk building,
and yes, sure is risk building, but the question is
where most people have pointed to private markets as a
place of potential risk. I know you're focused on financing
companies and financing infrastructure projects through the private markets. How
much risk do you really see building heading into twenty
twenty six.
Speaker 9 (32:16):
Right, Well, if you take a step back, as to
back Lisa, if you think about the sheer growth of
private credit, for example, it went from being a six
hundred billion dollar asset class to a one point seven
trillion dollar asset class. So by the sheer kind of
virtue of growth that we've seen, there's going to be
more and more risks. And I think that's what we've
seen is some of these idiosyncratic headlines are representative of
the growth of the asset class. But when I think
(32:38):
about it from interest coverage ratio perspective, for example.
Speaker 1 (32:41):
Yes it is you know, dipped from.
Speaker 9 (32:44):
Where it was pre twenty twenty two, but it's actually
trought and is starting to improve. So the FED, the
fact that the FED is cut interest rates actually alleviates
I would say some of the pressure on private credit.
You know, I think what you have to look out
for is, you know, there's been lots of money raised
in credit. That money had to be deployed quickly, and
you know, in some cases it was deployed in large
(33:06):
chunks of capital. So was it always appropriately deployed? Was
it always properly covenant covenanted? For everybody?
Speaker 1 (33:13):
I don't know, But for us, if we look.
Speaker 9 (33:15):
Across our prior credit platform and the US side and
the European side, on average, I would say ninety percent
of the loans that we've done have a covenant attached
to them.
Speaker 1 (33:25):
So I can't speak for.
Speaker 9 (33:26):
The industry as a whole, but I think, you know,
if you had the prudent underwriting standards, despite the growth
in the industry, we're in a good place today.
Speaker 2 (33:35):
This is the Bloomberg Sevendans podcast, bringing you the best
in markets, economics, antient politics. 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 as always on the
Bloomberg Terminal and the Bloomberg Business app.
Popular Podcasts
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
Betrayal: Weekly
Betrayal Weekly is back for a brand new season. Every Thursday, Betrayal Weekly shares first-hand accounts of broken trust, shocking deceptions, and the trail of destruction they leave behind. Hosted by Andrea Gunning, this weekly ongoing series digs into real-life stories of betrayal and the aftermath. From stories of double lives to dark discoveries, these are cautionary tales and accounts of resilience against all odds. From the producers of the critically acclaimed Betrayal series, Betrayal Weekly drops new episodes every Thursday. Please join our Substack for additional exclusive content, curated book recommendations and community discussions. Sign up FREE by clicking this link Beyond Betrayal Substack. Join our community dedicated to truth, resilience and healing. Your voice matters! Be a part of our Betrayal journey on Substack. And make sure to check out Seasons 1-4 of Betrayal, along with Betrayal Weekly Season 1.