January 31, 2025 • 27 mins
- Sebastien Page, Head of Global Multi-Asset and Chief Investment Officer, T. Rowe Price
- Adam Posen, President, PIIE
- Nouriel Roubini, Atlas America Fund Portfolio Manager / Roubini Macro Associates CEO
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Episode Transcript
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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 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
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anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business app. We begin this out
with stocks rising after results from Apple and Intel. Sebastian
Page of t Row price, saying he's a reluctant ball.
We remained slightly overweight starks versus bonds and our position
for the stock market to broaden. However, we're starting to
take profit. Sebastian joins us now for more. Soeb it's
good to see you, great to see you. Where are
you taking profits, sir?
Speaker 3 (00:55):
We're selling some starks. We're going to remain so overweight
for now, putting the proceeds in cash so or underweight bonds,
and we're also selling some high yield We're splitting the
proceeds between cash and bank loans, which I think are
attractive when rates surprise on the upside a little bit.
(01:15):
They're kind of negative duration, if you will.
Speaker 2 (01:17):
So two points to make care. One why you're selling,
and the second why you're allocating the proceeds the way
you're allocating them.
Speaker 4 (01:23):
Let's start with why you're selling. Why are you selling?
Speaker 2 (01:25):
Why are you coming out of stocks just a little
bit and selling down high yield just a little bit.
Speaker 3 (01:30):
Okay, I'm going to give you the most consensus narrative,
the most boring narrative.
Speaker 4 (01:34):
Go ahead.
Speaker 3 (01:35):
Okay, we're Friday. Yeah, we're confident in the economy. The
economy looks just fine. But we're worried about valuation. And
I wur surveillance every day and everyone's on that boat.
But evaluations are expensive. And you know at twenty two
four earnings price earnings ratio on the S and P,
it's high. In twenty twenty one, remember all the speculation
(01:56):
we had. Does it start to you to feel a
little bit like twenty twenty one? You know someone in
twenty one, someone bought a jpeg of a rock. Remember
one point three million? And when I say that, to clients.
They always reply that someone just bought a banana taped
to a wall for six million, so they're starting to
feel expensive.
Speaker 2 (02:15):
What do you point into this frothy though, That's what
I want to get into.
Speaker 4 (02:18):
Where do you see the froth right now?
Speaker 3 (02:20):
Overall stock valuations?
Speaker 5 (02:23):
Overall?
Speaker 3 (02:23):
And I say wrong because there's some stocks that are
quite fairly priced in the world, so we're positioned for
the market to broaden.
Speaker 4 (02:30):
But also credit spreads. Credit spreads really tight by.
Speaker 5 (02:33):
Historical stand what's fairly priced right now?
Speaker 3 (02:36):
I think, look, if you look at the average stock
in the world, you get a price earnings ratio of fourteen.
That's actually the long run average for the average stock
in the world. So that means that you have smaller caps,
value international, small gaps. Yeah, pretty much everything but the
technology sector, and they're parts of the technology sector that
(02:56):
are also fairly valued. But it's all about the broadening.
I think we're approaching peak concentration.
Speaker 5 (03:02):
People have been saying this for months, and actually they've
been saying it for an entire year. John start of
the conversation saying, you're reluctant bull, So is that what
makes you reluctant? Just the valuations, or there are other
things you're concerned about, like policy uncertainty.
Speaker 3 (03:14):
So I guess Lisa's not here today, so I need
to play the bear.
Speaker 4 (03:17):
Narrative, give us the doom and gloom.
Speaker 3 (03:18):
Yeah, okay, Look, I think long end rates are real
risk for those valuations. The curve is flat, you have terriffs,
you have inflation, you have resetting higher on growth expectations.
The direction of long end rates could be higher, and
that could put pressure on those valuations, and then you
have the usual lists tariff. Geopolitics often they don't matter
(03:41):
until they really do. And Amery my view is that
geopolitics will really matter when you see an oil shock.
And given the pressure that this new administration is going
to put on Iran and where Iran is right now,
I don't know where it's going to come from. I'm
not a geopolitical analyst, but that's one of the risks
that's out there.
Speaker 2 (04:00):
We've got a lak capital And that was the second
point you made as you sound down some of those
equity positions into high yield you can get into cash
and not into the long end of the bond market,
not into treasuries, not into a ten year at four
fifty three. Do bonds not do what bonds used to
do in the portfolio?
Speaker 4 (04:15):
From your perspective, we still hold bonds.
Speaker 3 (04:18):
We have an overweight where short duration bonds will do
what they need to do only if we get a
growth shock. And by the way, this is I didn't
name it as a risk. It's still a risk that
some growth related data disappoints. Remember back in August last year,
we had one bad non farm payroll print and the
market kind of freaked out a little bit. So it
doesn't take much for a growth scare. I don't think
(04:41):
that's the base case. In that case, bonds will diversify
your portfolio. Rate shock, inflation shock bonds will not diverse.
Speaker 2 (04:49):
You still have a FED responded to that unemployment headfake
from the summer. They wanted to insulate the labor market.
They cut interest rates one hundred basis points. That was
the starting gun for Then things have changed a few
months later. And I wonder from your perspective, whether the
threats of tariffs constrains the dubvish bias of the Federal Reserve.
Do you think it does.
Speaker 3 (05:07):
Yes, I think it does, because at least in the
short run, it's inflationary. We're talking about twenty five percent
on Canada. You get a ton of crude imports from Canada.
I don't know how oil prices aren't reacting a bit
more this morning, right, This is like twenty percent of
oil consumption in the US is derived from Canadian crude.
(05:27):
So yeah, I mean that ends up being inflationary.
Speaker 5 (05:30):
And when it comes to states landlocked in the Midwest,
it's their only area where they actually get crude is
from Canada. When you just mentioned earlier, we're never ready
for geopolitical shock and it kind of shocks everyone when
we get it. And you think that could be in
the oil space, Could that be this weekend? Could it
be Canada not something like Iran or Venezuela or Russia.
Speaker 3 (05:49):
Well, the market doesn't seem to freak out about it yet, right,
And a part of this is we don't really know
what's going to happen to tariff ever. I mean, it
could change on a dime, but I think once they're
on then it's harder to take them off. So I
don't know, Amory, I think is a small probability of
a fairly sizable oil spike. When I asked a geopolitical
(06:12):
expert recently and I said, what could be the black
swan in geopolitics and the oil market? And he said,
what once you start hearing that word in the news media,
once you start hearing it on surveillance Hormuz, which we
haven't had any disruption there, but that is a large
proportion of global oil flows. I'm kind of just you
(06:33):
don't know, it's a black stright At the moment.
Speaker 5 (06:35):
Trump has been actually quite quiet about Iran and focus
on other issues. You did mention something though, once you
put tariffs on, they don't come off, and we saw
that in the Biden administration. They kept Trump's first administration
tariffs on. Yet it added a little bit to inflation,
but not enough. When we had an inflation spike under Biden,
they didn't even remove them. So why is the FED
putting all this emphasis potentially in their concerns about policy
(06:59):
going forward, that is to inflation on tariffs if we've
had them for years now.
Speaker 3 (07:04):
Well, I think we're putting that emphasis. I don't think
the FED is coming out and saying we're watching the
tariff game and we're adjusting our policy accordingly.
Speaker 5 (07:12):
We're reading Well, they did though, they didn't assume, and
then they did assume. Part of that is because of
trade realignment.
Speaker 3 (07:18):
Right, yes, I mean, look, they have to react their
data dependent and I think right now the FED is
weight and see so you're right, the first round of
tariffs weren't inflation area. I think there are all sorts
of effects of terriffs that we don't understand. You see
what happened with Columbia. It's a negotiation forward.
Speaker 4 (07:35):
I'm with you. I hear that all the time.
Speaker 2 (07:36):
But to am Marie's point, the accusation leveled at the
FED right now is they seem to be more concerned
with Trump tariffs than they were with Biden fiscal stimulus.
And it's hard to get your head around that. Do
you speak about that on the committee? So what explains that?
Speaker 3 (07:50):
I mean, we speak about all of it, and we
debate all of it. Look, the FED is looking at
or talking about looking at employment and inflation, and tariffs
are a driver of inflation, and the short run could
be a driver of inflation. And the short run I
think it all boils down to this data dependency of
(08:10):
the FED. And if to the extent that tariffs drive
the data itself, then the FED will adjust, right, So
there's several layers of reactions in macroeconomics that the FED
will react to. But you know, it's it's a treacherous
environment I think for them to you know, it might
(08:30):
not take much for the talk of rate hikes to
start again.
Speaker 4 (08:34):
Sebastia, we'll leave it.
Speaker 2 (08:36):
There, Joht. I guess now to discuss is Adam Post
and the president of the Patison Institute for International Economics. Adam,
good morning, it's good.
Speaker 4 (08:50):
To see you. Good to see you.
Speaker 2 (08:52):
There is a constructive view out there, and it sounds
like this. This is what I hear a lot from
equity bulls. They say the approach to Taris is transactional
in nature, the scout for significant to go and the
backdrop right now for the Board of Economy, it's pretty decent.
Things are going to be okay. It's not a price
we have to pay for the uncendainty. In the meantime, Yes.
Speaker 1 (09:09):
The price we're going to see not just inequity markets,
but we're going to see in specific industries. We're going
to see in energy prices going up. We're going to
see in disruption to the US auto sector. We're going
to see in sharp retaliation from Mexico and Canada on
specific industries. I'm not meaning to be vague by saying
specific industries, but the point is it's about choke points.
(09:34):
It's about things that are hard to replace. And the
big thing, as studies we've done in Peterson's saying, which
is intuitive, is there's some range over which you put
on a tariff and everybody's like, Okay, it's a price rise,
it's annoying, we'll deal with it. There's another range where
it's like you're imposing shortages like you did during COVID
that that suddenly it becomes unaffordable or inaccessible to get
(09:57):
certain things you need, and that's when you start getting
big macro effects. So I agree John with the people
who say the underlying strength of the US economy is there.
Speaker 4 (10:06):
But this is frankly not s t.
Speaker 1 (10:09):
Canada and Mexico A our two largest trading partners. We're
at peace with them, their military allies, their democracies, and
our auto sector and our food sector are incredibly integrated.
So this is gonna hurt.
Speaker 5 (10:21):
But Trump hates trade deficits, so he will do anything
he can to try to bring that deficit down or
maybe bring up negotiations for USMCA. What do you think
is the underlying drive for these types of teriffs that,
based on my conversations, I'd be more shocked if we
don't see them happen tomorrow. Is it a negotiation tool
or he wants to keep them.
Speaker 1 (10:42):
On emery I I think you're reporting your senses right.
We we've been talking for months about expecting that the
terrafs would really happen. I think it's much more likely
the negotiations in the end go well with Canada than
with Mexico. But the thing is, twenty five percent, even
(11:03):
if you exempt certain things, is an enormous number. This
is you know when people say, oh, the tariffs under
Trump one, we're not inflationary. Those were a couple percent
in a few industries. This is very wide tariffs at
a very high level, with major retaliation.
Speaker 5 (11:18):
So let's talk about this scope. Do you think oil
is really on the table? Trump kind of flirted with
it yesterday in the Oval Office.
Speaker 4 (11:26):
We don't know.
Speaker 1 (11:27):
It doesn't make any sense to put oil on the
table because then you're saying, Okay, I want to buy
more from Saudi or Russia. I just want to go
back to your last point, which is right, which is
how much is it negotiating versus keeping it on? The
fear is and I think what the market should fear
is that they're going to put on this across the
board minimum of tariffs as part of the tax package,
(11:47):
and then we're in an entirely different world. It's a
it's a revenue raiser. On net, it's probably bad for growth,
and on net it's not going to raise enough revenue.
Speaker 4 (11:57):
But that would be the justification.
Speaker 5 (11:59):
Can you go through what you would expect in your
base case as retaliatory because Trump is talking about potentially
tariffs on Canadian crude, but for Canada, that would be
the nuclear option for an export teriff, right.
Speaker 1 (12:12):
I mean, it's like when they complain, you know that,
oh my god, China's gonna cut us off from something.
So imagine if Canada cut us off from oil. Think
about you know, in the nineteen seventy three oil crisis,
when the Petro States decided to cut the US off oil.
How is that good for the US? I mean, it's
it's destructive.
Speaker 2 (12:30):
So madam, the federal serve is gonna prepare for all eventualities.
You warn't back in August, they should prepare for them.
We talked about this repeatedly six months later. Whatever it is,
are you more comfortable with where the FED is now
compared to where they work going into the end of
the year.
Speaker 1 (12:44):
I'm more comfortable than I'm not yet comfortable. I mean,
the FED has the luxury because the fund again, the
fundamentals of the US economy are quite good, and we've
been getting good news and productivity, as we've also talked about,
So the FED has something of the luxury.
Speaker 4 (13:00):
It's not a crisis.
Speaker 1 (13:00):
They don't have to make up their minds now, but
they keep having this inertia of saying, well, we're maybe
not going to cut as much, but we're still going
to cut now on the fundamentals of the US economy.
The idea that they need to keep cutting was already
I think arguably a mistake. So then comes this issue
of tariffs. Do they play hamlet and agonize, Oh, is
it a first round, one off effect and we got
(13:23):
to wait to see whether it goes beyond oil or
beyond autos, or do they say, hey, in a world
we're close to full employment, there's pricing power, we're creating shortage.
Speaker 2 (13:35):
There is pricing power. You don't think there's a prices
will have to just stomach this and igets.
Speaker 4 (13:40):
I don't think so.
Speaker 1 (13:42):
I mean, the evidence is not the so called greenflation
that was always a myth, but the evidence is not
every industry, but most industries. The companies do have pricing power.
I mean, when the economy is growing well over two percent,
people are buying when we had an inventory correction. Otherwise,
as Jason Furman's pointed out, the underlying strength of the
US economy is even stronger than the two point three
(14:03):
number we had. The idea that there's no pricing power
is just strange.
Speaker 2 (14:09):
I think this conversation is important because it's difficult to
sit here and say, I think the President will do
excel why this we can We've got to think about
how inflation prone this economy might be. When you think
about sources of inflation at the moment, whether it be energy, labor, goods,
or services. What is it about the current state of
things that you think this economy is more inflation prone
than maybe the Federal Reserve themselves my belief.
Speaker 1 (14:30):
I think there's two categories shown. There's the pre existing
underlying economics and then there's the Trump tariffs and other
effects on the pre existing The economy's inflation prone because
financial conditions are not tight. They're just slightly tight in
residential real estate and otherwise not. I think we're inflation
prone because for all the talk about energy deregulation, we've
(14:52):
seen how that's actually not a major determinant of inflation.
Speaker 4 (14:55):
Right.
Speaker 1 (14:55):
Energy prices came down enormously in the last year of
the Biden administration, and that wasn't an to make up
of inflation. And we're inflation prone because the fat hasn't
lost huge amounts of credibility, but we're not down to target,
and it is a few years later, and the memory
of inflation is very strong. That's the fundamentals. Then on Trump,
we've just talked about tariffs again. In theory, you could
(15:19):
have a tariff that's just a price shift, like anything
that's not Canadian and Mexican becomes relatively cheaper. But in
practice it's going to be experienced as inflation, and then
people will want to catch up with prices and wages.
But also the anti migration stuff, leave aside the human rights.
The anti migration stuff is partly recessionary, partly inflationary because
(15:39):
it creates shortages of labor in certain industries like home
health care, residential construction, food harvesting, the native workers documented
workers don't want to do and then you've got potentially
and this is going to be a lag. This is
a few months down the road, very large tax cuts.
And even if I'm mad, as Van Marie rightly says,
you get some revenue from the terraffs, it's nothing to
(16:01):
compare to the size of the tax cunt.
Speaker 4 (16:03):
So if you're the Fed and you're.
Speaker 1 (16:05):
Not just supposed to be reacting data dependent, but you're
actually supposed to be looking at the forecast, it's very
hard for me to understand why they're not pivoting more.
Speaker 2 (16:13):
Just quickly, your base case is the next moves a
hike and not account.
Speaker 1 (16:18):
My base case remains that by September they'll be hiking.
They may make a further mistake and cut once more.
I hope not, but by the base cases, by September
they'll hike.
Speaker 2 (16:27):
It's quite a cool but you've been making it for
quite a while. I appreciate it, Adam, Thank you, sir,
thank you. Imagine it's not the call you wanted to make.
Either Adam posting there of the Pederson Institute.
Speaker 4 (16:44):
Let's turn back to the markets.
Speaker 2 (16:46):
Tech stocks leading gains this morning after a week of
mixed earnings and news of China's Deep Seek AI breakthrough.
Noria Rabini of NYU Stern and Hudson Bay Capital taking
a bullish stance posting on X earlier this week, and
my modest opinion the Deep Seek surprise is country intuitively
over time bullish for US and global stocks, as it
is another positive global accurcate supply shock that increases US
(17:07):
and global potential growth and makes exponential AI even more exponential.
No realtal just now for more. I always going to
say a buddy seen John, we must pick up on
that theme. Why do you think this is good news
and you believe it is the real deal? Export compliance
only costs five six million dollars.
Speaker 4 (17:24):
No, of course, in.
Speaker 6 (17:26):
Spite of the restrictions, probably got more GPU Navidia and
otherwise the INDUS five k probably one hundred thousand are
in the costs where much more and so on and
so still it's not the twenty x improvement. Maybe it's
two or three x. But my point was that if
this is true, even to a two three x extent
(17:47):
is one of the biggest total factor productivity increases in
human history literally and should be increasing potential growth, not
just in China. The reinforce learning can be used by
everybody's open source. It's going to use it, and it's
going to increase also not only the productivity of those
who are producer of eyes, but more importantly of the
(18:07):
consumers of ice. So if it's really true, and I
think it's an intergiative process, we all learn from each other,
we all distilled from each other within the US, within
China and US and others. It increases the fact that
the AI is going to change the world for the better.
It will be a significant increase in potential growth in
the United States and also globally. So over the medium term,
(18:28):
this should be actually positive for US and global stock markets,
not negatives. So the reaction I think initially a Monday
was totally excessive, And the fact that now there's been
some retracing over the week is people are digesting the
news and saying this is not the shock that we thought.
Speaker 2 (18:43):
It was positive stocks, positive for the economy, for economic growth.
I think it's positive for society.
Speaker 6 (18:50):
Well, you know, There's been a huge debate about what
are the risks of AI as opposed to the benefits
of AI. I think in part political and philosophical question.
We know the information, this information, the risk of increase
cyber warfare eventually is to humanity and so on. But
I would say on net AI, like any other teological innovation,
(19:15):
is going to lead to an increase in both proditivy growth,
potential growth, and human welfare. We may be able to
live until not ninety one hundred, one hundred and twenty.
Longevity helped you name it. So it's a benefit to
society overall. And there are side consequences and problems and
risk and where to manage them. And I think that
the regulation of the EYE is going to be very complicated,
(19:36):
probably like the Internet. We're going to do it too little,
too late, and then we're going to realize there are
some mistakes.
Speaker 2 (19:41):
If I clipt what you just said and use some
AI and took out some words and replaced the II
with globalization, yeah, when we send the same thing a
few decades ago.
Speaker 6 (19:50):
Well, globalization that is being bashed right now by everybody
led to an increase in huge amounts of welfare for
business of people under world two poincisely Chinians and others
and so on, and even in advanced economies so great
and globalization and trichnology are the same. Thing is a
ways of increasing productivity growth. There'll be a backlash, But
(20:10):
I think that the backlash is going to come on
AI is that there will be massive amounts of job displacement.
Job augmentation will be initially, but then jobs well, this
is what is going to be, and then there'll be
UBI or other things to result it.
Speaker 2 (20:24):
AI do the services. What globalization did to manufacturing is
a question. I keep going back to how many people
are going to be satisfied with just UPI I don't
want to sit at home, do nothing and get paid
by the government. We aspire as human beings to be better,
to improve, to climb the social ladder.
Speaker 6 (20:43):
A lot of people in a world of scarcity, of course,
the dignity of life was to provide for yourself and
for your family and go and look for water, food,
shelter every day. In a world in which scarcity becomes
less of a constraint, we have to produce see less
because the robots are going to do it, and we
can consume more. You're right that you guys saying what's
the meaning of life in that situation?
Speaker 4 (21:05):
It's a philosophical question.
Speaker 6 (21:06):
And John manakas and at thirty said, once we get
this technology innovation, it's going to work only ten hours
than sixty hours, and we'll become poets, artists, creators and
whatever not. Maybe the nature of life is going to change.
Maybe with AGI, we have to merge with the machine,
because if we don't merge with the machine, become hyper
intelligent and we become obsolete, and then there's going to
be a new species. It's not going to be almost appiens,
(21:27):
but all more robot because then it's going to take decades.
Speaker 4 (21:30):
Those an important philosophical question.
Speaker 6 (21:32):
But I would argue provocatively that twenty years from now,
potential growth probably could be eighty percent sorry eight percent,
and unemployment rate could be eighty percent. We are going
in that direction over time, and then we have to
manage the concelet and UBI, by the way, cannot be
only national, because the winners and losers are going to
be only internal, butle so across countries, does we innovate
(21:54):
get better off compared to those who don't innovate. Can
we have a system of global governance that has a
cross border I mean, those are big issues global governance, well,
a form of global governance cooperation actually, But if.
Speaker 5 (22:08):
You use deep sea today you can't even find out
things about the Chinese Communist Party, things like tenements square.
How are you supposed to have global government with these
kinds of countries.
Speaker 6 (22:18):
I think what's going to happen is that over time,
given the geopolitical divisions within US and China, the Wall
is going to be divided in two. There'll be a
group of countries US with its friends and allies and
others in the global cells. We prefer the economic, monetary, social, political,
geopolical system of the US and the West. Someone the
global's are are going to go with us, and there'll
(22:39):
be other going to go with the model of China,
but model economic trade instate, capitalist geopolitical security via right
technology and whatever not, and there'll be a split world.
But within the West, if there are and those friends
and allies, if there are winners and losers within countries
or across countries, we'll have a system of transfers. I mean,
we've been subsidizing the defense of our friends and allies
(23:02):
from Asia to Europe for now eighty years because it
was in the global interests of the United States. So
if we need to do global UBI across friends and
allies and others part of our systems, we're going to
do it. But that's the world we're going and Chinese
doing the same thing. We have to subsidize our friends,
and they'll.
Speaker 4 (23:18):
Do the same. Unpatched a fund of the world to
describe what nothing to do with it.
Speaker 5 (23:21):
And this is not here and it's essential, Lisa is
not even here, and it's gone very existential this conversation
when it comes to this idea of our global regulation
on AI. Do you think Trump will use AI right
now in the next four years as a bargaining chip
as he tries to work on global realignment when it
comes to trade.
Speaker 4 (23:42):
Oh, he will actually buy them.
Speaker 6 (23:44):
Right before he left in early January, had this new
AI diffusion rule that divides essentially the world in the
three group of countries Tier one, Tier two, Tier three.
If you are part of the global technological order of
the United time States and you accept all the rules
and the security, you have access to unlimited amounts of
(24:04):
advanced chips of Navidian others. You have access to all
the AI models, you can have access to building the
data center, and you're part of our own technological sphere,
and we set the rule of essentially within that type
of Tier one, we are deciding you utterly.
Speaker 4 (24:22):
It's not a question.
Speaker 6 (24:22):
About regulating AI, but who is our friend and ally
And even within NATO, there are only so far eighteen
countries that qualify for tierue. Not all NATO countries do.
Of course, the countries in the Big Big Five I
are part of some of the other NATO members, plenty
of countries are not. Tier two is mostly in the
Global South and everybody else. Of course, China arrivels are two,
(24:45):
three and so on. So the US is going to
set the rules of the global technological order, and it's
going to do it totally unilatterally. And it's either you're
with me, because I'm setting those technologies and I'm the
one who's advanced in those technologies.
Speaker 4 (24:58):
Then you can use the chips, you can of the application,
you can do that.
Speaker 6 (25:01):
That's a center with me, or otherwise you're in the doghouse.
Speaker 2 (25:04):
I wanted to squeeze it one more questions. The Europeans
would be Europeans would be deeply upset with this conversation.
Speaker 4 (25:10):
I'm showingus no, but.
Speaker 6 (25:11):
They already accepted it. The same thing happened with data centers,
right They tried to find an alternative, they were not successful.
And the hyper scalers are providing those data centers in Europe.
Speaker 4 (25:21):
And maybe that's there.
Speaker 6 (25:22):
They are technically in Europe, but they are controlled by
WS and Microsoft. Then you name it against today, so
that's already the world we're in.
Speaker 2 (25:30):
I wanted to squeeze in a word on Stephen Moran
just quickly worked alongside Hbou Hudson by Capital who you
represent this morning? Published a really interesting paper at the
end of last year about activist treasury issuance ATI.
Speaker 4 (25:42):
Now he's in power.
Speaker 2 (25:43):
Now he's in the White House working alongside Donald Trump,
is an economic codvisor. What's going to happen now? If
you believe that yan In, the former Treasury secretary was
issuing treasuries actively at the front end to have different objectives,
how do we unwind that this time around? Do we
even try?
Speaker 6 (25:59):
Well? Scott in his confirmation hearing was asked about this,
and he already said that effectively given the impact on
long term interest rates, if you phase it out right away,
it's going to be a shock to long bone neals
already going higher. In our paper estimated the shot could
be for the next three years or at least fifty
business points. So then all that so they're going to
(26:20):
have to wait and phase it out one gradually and
two interview when bond yields are going lower, either going
lower because maybe growth is slower or because inflation is lower.
So they'll have to opportunistically gradually phase it out over time.
But it's not going to happen overnight.
Speaker 4 (26:38):
They've already said so.
Speaker 2 (26:39):
Noriel, So it's going to say lost to think about
scaring me about the future or everything. If m YU
standing Hudson by campital I want absolutely nothing to do
with that. This is the Bloomberg Seventans podcast, bringing you
the best in markets, economics, angiot 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,
(27:02):
Spotify or anywhere else you listen, and as always on
the Bloomberg Terminal and the Bloomberg Business app.
Speaker 3 (27:11):
M HM
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. We begin this out
with stocks rising after results from Apple and Intel. Sebastian
Page of t Row price, saying he's a reluctant ball.
We remained slightly overweight starks versus bonds and our position
for the stock market to broaden. However, we're starting to
take profit. Sebastian joins us now for more. Soeb it's
good to see you, great to see you. Where are
you taking profits, sir?
Speaker 3 (00:55):
We're selling some starks. We're going to remain so overweight
for now, putting the proceeds in cash so or underweight bonds,
and we're also selling some high yield We're splitting the
proceeds between cash and bank loans, which I think are
attractive when rates surprise on the upside a little bit.
(01:15):
They're kind of negative duration, if you will.
Speaker 2 (01:17):
So two points to make care. One why you're selling,
and the second why you're allocating the proceeds the way
you're allocating them.
Speaker 4 (01:23):
Let's start with why you're selling. Why are you selling?
Speaker 2 (01:25):
Why are you coming out of stocks just a little
bit and selling down high yield just a little bit.
Speaker 3 (01:30):
Okay, I'm going to give you the most consensus narrative,
the most boring narrative.
Speaker 4 (01:34):
Go ahead.
Speaker 3 (01:35):
Okay, we're Friday. Yeah, we're confident in the economy. The
economy looks just fine. But we're worried about valuation. And
I wur surveillance every day and everyone's on that boat.
But evaluations are expensive. And you know at twenty two
four earnings price earnings ratio on the S and P,
it's high. In twenty twenty one, remember all the speculation
(01:56):
we had. Does it start to you to feel a
little bit like twenty twenty one? You know someone in
twenty one, someone bought a jpeg of a rock. Remember
one point three million? And when I say that, to clients.
They always reply that someone just bought a banana taped
to a wall for six million, so they're starting to
feel expensive.
Speaker 2 (02:15):
What do you point into this frothy though, That's what
I want to get into.
Speaker 4 (02:18):
Where do you see the froth right now?
Speaker 3 (02:20):
Overall stock valuations?
Speaker 5 (02:23):
Overall?
Speaker 3 (02:23):
And I say wrong because there's some stocks that are
quite fairly priced in the world, so we're positioned for
the market to broaden.
Speaker 4 (02:30):
But also credit spreads. Credit spreads really tight by.
Speaker 5 (02:33):
Historical stand what's fairly priced right now?
Speaker 3 (02:36):
I think, look, if you look at the average stock
in the world, you get a price earnings ratio of fourteen.
That's actually the long run average for the average stock
in the world. So that means that you have smaller caps,
value international, small gaps. Yeah, pretty much everything but the
technology sector, and they're parts of the technology sector that
(02:56):
are also fairly valued. But it's all about the broadening.
I think we're approaching peak concentration.
Speaker 5 (03:02):
People have been saying this for months, and actually they've
been saying it for an entire year. John start of
the conversation saying, you're reluctant bull, So is that what
makes you reluctant? Just the valuations, or there are other
things you're concerned about, like policy uncertainty.
Speaker 3 (03:14):
So I guess Lisa's not here today, so I need
to play the bear.
Speaker 4 (03:17):
Narrative, give us the doom and gloom.
Speaker 3 (03:18):
Yeah, okay, Look, I think long end rates are real
risk for those valuations. The curve is flat, you have terriffs,
you have inflation, you have resetting higher on growth expectations.
The direction of long end rates could be higher, and
that could put pressure on those valuations, and then you
have the usual lists tariff. Geopolitics often they don't matter
(03:41):
until they really do. And Amery my view is that
geopolitics will really matter when you see an oil shock.
And given the pressure that this new administration is going
to put on Iran and where Iran is right now,
I don't know where it's going to come from. I'm
not a geopolitical analyst, but that's one of the risks
that's out there.
Speaker 2 (04:00):
We've got a lak capital And that was the second
point you made as you sound down some of those
equity positions into high yield you can get into cash
and not into the long end of the bond market,
not into treasuries, not into a ten year at four
fifty three. Do bonds not do what bonds used to
do in the portfolio?
Speaker 4 (04:15):
From your perspective, we still hold bonds.
Speaker 3 (04:18):
We have an overweight where short duration bonds will do
what they need to do only if we get a
growth shock. And by the way, this is I didn't
name it as a risk. It's still a risk that
some growth related data disappoints. Remember back in August last year,
we had one bad non farm payroll print and the
market kind of freaked out a little bit. So it
doesn't take much for a growth scare. I don't think
(04:41):
that's the base case. In that case, bonds will diversify
your portfolio. Rate shock, inflation shock bonds will not diverse.
Speaker 2 (04:49):
You still have a FED responded to that unemployment headfake
from the summer. They wanted to insulate the labor market.
They cut interest rates one hundred basis points. That was
the starting gun for Then things have changed a few
months later. And I wonder from your perspective, whether the
threats of tariffs constrains the dubvish bias of the Federal Reserve.
Do you think it does.
Speaker 3 (05:07):
Yes, I think it does, because at least in the
short run, it's inflationary. We're talking about twenty five percent
on Canada. You get a ton of crude imports from Canada.
I don't know how oil prices aren't reacting a bit
more this morning, right, This is like twenty percent of
oil consumption in the US is derived from Canadian crude.
(05:27):
So yeah, I mean that ends up being inflationary.
Speaker 5 (05:30):
And when it comes to states landlocked in the Midwest,
it's their only area where they actually get crude is
from Canada. When you just mentioned earlier, we're never ready
for geopolitical shock and it kind of shocks everyone when
we get it. And you think that could be in
the oil space, Could that be this weekend? Could it
be Canada not something like Iran or Venezuela or Russia.
Speaker 3 (05:49):
Well, the market doesn't seem to freak out about it yet, right,
And a part of this is we don't really know
what's going to happen to tariff ever. I mean, it
could change on a dime, but I think once they're
on then it's harder to take them off. So I
don't know, Amory, I think is a small probability of
a fairly sizable oil spike. When I asked a geopolitical
(06:12):
expert recently and I said, what could be the black
swan in geopolitics and the oil market? And he said,
what once you start hearing that word in the news media,
once you start hearing it on surveillance Hormuz, which we
haven't had any disruption there, but that is a large
proportion of global oil flows. I'm kind of just you
(06:33):
don't know, it's a black stright At the moment.
Speaker 5 (06:35):
Trump has been actually quite quiet about Iran and focus
on other issues. You did mention something though, once you
put tariffs on, they don't come off, and we saw
that in the Biden administration. They kept Trump's first administration
tariffs on. Yet it added a little bit to inflation,
but not enough. When we had an inflation spike under Biden,
they didn't even remove them. So why is the FED
putting all this emphasis potentially in their concerns about policy
(06:59):
going forward, that is to inflation on tariffs if we've
had them for years now.
Speaker 3 (07:04):
Well, I think we're putting that emphasis. I don't think
the FED is coming out and saying we're watching the
tariff game and we're adjusting our policy accordingly.
Speaker 5 (07:12):
We're reading Well, they did though, they didn't assume, and
then they did assume. Part of that is because of
trade realignment.
Speaker 3 (07:18):
Right, yes, I mean, look, they have to react their
data dependent and I think right now the FED is
weight and see so you're right, the first round of
tariffs weren't inflation area. I think there are all sorts
of effects of terriffs that we don't understand. You see
what happened with Columbia. It's a negotiation forward.
Speaker 4 (07:35):
I'm with you. I hear that all the time.
Speaker 2 (07:36):
But to am Marie's point, the accusation leveled at the
FED right now is they seem to be more concerned
with Trump tariffs than they were with Biden fiscal stimulus.
And it's hard to get your head around that. Do
you speak about that on the committee? So what explains that?
Speaker 3 (07:50):
I mean, we speak about all of it, and we
debate all of it. Look, the FED is looking at
or talking about looking at employment and inflation, and tariffs
are a driver of inflation, and the short run could
be a driver of inflation. And the short run I
think it all boils down to this data dependency of
(08:10):
the FED. And if to the extent that tariffs drive
the data itself, then the FED will adjust, right, So
there's several layers of reactions in macroeconomics that the FED
will react to. But you know, it's it's a treacherous
environment I think for them to you know, it might
(08:30):
not take much for the talk of rate hikes to
start again.
Speaker 4 (08:34):
Sebastia, we'll leave it.
Speaker 2 (08:36):
There, Joht. I guess now to discuss is Adam Post
and the president of the Patison Institute for International Economics. Adam,
good morning, it's good.
Speaker 4 (08:50):
To see you. Good to see you.
Speaker 2 (08:52):
There is a constructive view out there, and it sounds
like this. This is what I hear a lot from
equity bulls. They say the approach to Taris is transactional
in nature, the scout for significant to go and the
backdrop right now for the Board of Economy, it's pretty decent.
Things are going to be okay. It's not a price
we have to pay for the uncendainty. In the meantime, Yes.
Speaker 1 (09:09):
The price we're going to see not just inequity markets,
but we're going to see in specific industries. We're going
to see in energy prices going up. We're going to
see in disruption to the US auto sector. We're going
to see in sharp retaliation from Mexico and Canada on
specific industries. I'm not meaning to be vague by saying
specific industries, but the point is it's about choke points.
(09:34):
It's about things that are hard to replace. And the
big thing, as studies we've done in Peterson's saying, which
is intuitive, is there's some range over which you put
on a tariff and everybody's like, Okay, it's a price rise,
it's annoying, we'll deal with it. There's another range where
it's like you're imposing shortages like you did during COVID
that that suddenly it becomes unaffordable or inaccessible to get
(09:57):
certain things you need, and that's when you start getting
big macro effects. So I agree John with the people
who say the underlying strength of the US economy is there.
Speaker 4 (10:06):
But this is frankly not s t.
Speaker 1 (10:09):
Canada and Mexico A our two largest trading partners. We're
at peace with them, their military allies, their democracies, and
our auto sector and our food sector are incredibly integrated.
So this is gonna hurt.
Speaker 5 (10:21):
But Trump hates trade deficits, so he will do anything
he can to try to bring that deficit down or
maybe bring up negotiations for USMCA. What do you think
is the underlying drive for these types of teriffs that,
based on my conversations, I'd be more shocked if we
don't see them happen tomorrow. Is it a negotiation tool
or he wants to keep them.
Speaker 1 (10:42):
On emery I I think you're reporting your senses right.
We we've been talking for months about expecting that the
terrafs would really happen. I think it's much more likely
the negotiations in the end go well with Canada than
with Mexico. But the thing is, twenty five percent, even
(11:03):
if you exempt certain things, is an enormous number. This
is you know when people say, oh, the tariffs under
Trump one, we're not inflationary. Those were a couple percent
in a few industries. This is very wide tariffs at
a very high level, with major retaliation.
Speaker 5 (11:18):
So let's talk about this scope. Do you think oil
is really on the table? Trump kind of flirted with
it yesterday in the Oval Office.
Speaker 4 (11:26):
We don't know.
Speaker 1 (11:27):
It doesn't make any sense to put oil on the
table because then you're saying, Okay, I want to buy
more from Saudi or Russia. I just want to go
back to your last point, which is right, which is
how much is it negotiating versus keeping it on? The
fear is and I think what the market should fear
is that they're going to put on this across the
board minimum of tariffs as part of the tax package,
(11:47):
and then we're in an entirely different world. It's a
it's a revenue raiser. On net, it's probably bad for growth,
and on net it's not going to raise enough revenue.
Speaker 4 (11:57):
But that would be the justification.
Speaker 5 (11:59):
Can you go through what you would expect in your
base case as retaliatory because Trump is talking about potentially
tariffs on Canadian crude, but for Canada, that would be
the nuclear option for an export teriff, right.
Speaker 1 (12:12):
I mean, it's like when they complain, you know that,
oh my god, China's gonna cut us off from something.
So imagine if Canada cut us off from oil. Think
about you know, in the nineteen seventy three oil crisis,
when the Petro States decided to cut the US off oil.
How is that good for the US? I mean, it's
it's destructive.
Speaker 2 (12:30):
So madam, the federal serve is gonna prepare for all eventualities.
You warn't back in August, they should prepare for them.
We talked about this repeatedly six months later. Whatever it is,
are you more comfortable with where the FED is now
compared to where they work going into the end of
the year.
Speaker 1 (12:44):
I'm more comfortable than I'm not yet comfortable. I mean,
the FED has the luxury because the fund again, the
fundamentals of the US economy are quite good, and we've
been getting good news and productivity, as we've also talked about,
So the FED has something of the luxury.
Speaker 4 (13:00):
It's not a crisis.
Speaker 1 (13:00):
They don't have to make up their minds now, but
they keep having this inertia of saying, well, we're maybe
not going to cut as much, but we're still going
to cut now on the fundamentals of the US economy.
The idea that they need to keep cutting was already
I think arguably a mistake. So then comes this issue
of tariffs. Do they play hamlet and agonize, Oh, is
it a first round, one off effect and we got
(13:23):
to wait to see whether it goes beyond oil or
beyond autos, or do they say, hey, in a world
we're close to full employment, there's pricing power, we're creating shortage.
Speaker 2 (13:35):
There is pricing power. You don't think there's a prices
will have to just stomach this and igets.
Speaker 4 (13:40):
I don't think so.
Speaker 1 (13:42):
I mean, the evidence is not the so called greenflation
that was always a myth, but the evidence is not
every industry, but most industries. The companies do have pricing power.
I mean, when the economy is growing well over two percent,
people are buying when we had an inventory correction. Otherwise,
as Jason Furman's pointed out, the underlying strength of the
US economy is even stronger than the two point three
(14:03):
number we had. The idea that there's no pricing power
is just strange.
Speaker 2 (14:09):
I think this conversation is important because it's difficult to
sit here and say, I think the President will do
excel why this we can We've got to think about
how inflation prone this economy might be. When you think
about sources of inflation at the moment, whether it be energy, labor, goods,
or services. What is it about the current state of
things that you think this economy is more inflation prone
than maybe the Federal Reserve themselves my belief.
Speaker 1 (14:30):
I think there's two categories shown. There's the pre existing
underlying economics and then there's the Trump tariffs and other
effects on the pre existing The economy's inflation prone because
financial conditions are not tight. They're just slightly tight in
residential real estate and otherwise not. I think we're inflation
prone because for all the talk about energy deregulation, we've
(14:52):
seen how that's actually not a major determinant of inflation.
Speaker 4 (14:55):
Right.
Speaker 1 (14:55):
Energy prices came down enormously in the last year of
the Biden administration, and that wasn't an to make up
of inflation. And we're inflation prone because the fat hasn't
lost huge amounts of credibility, but we're not down to target,
and it is a few years later, and the memory
of inflation is very strong. That's the fundamentals. Then on Trump,
we've just talked about tariffs again. In theory, you could
(15:19):
have a tariff that's just a price shift, like anything
that's not Canadian and Mexican becomes relatively cheaper. But in
practice it's going to be experienced as inflation, and then
people will want to catch up with prices and wages.
But also the anti migration stuff, leave aside the human rights.
The anti migration stuff is partly recessionary, partly inflationary because
(15:39):
it creates shortages of labor in certain industries like home
health care, residential construction, food harvesting, the native workers documented
workers don't want to do and then you've got potentially
and this is going to be a lag. This is
a few months down the road, very large tax cuts.
And even if I'm mad, as Van Marie rightly says,
you get some revenue from the terraffs, it's nothing to
(16:01):
compare to the size of the tax cunt.
Speaker 4 (16:03):
So if you're the Fed and you're.
Speaker 1 (16:05):
Not just supposed to be reacting data dependent, but you're
actually supposed to be looking at the forecast, it's very
hard for me to understand why they're not pivoting more.
Speaker 2 (16:13):
Just quickly, your base case is the next moves a
hike and not account.
Speaker 1 (16:18):
My base case remains that by September they'll be hiking.
They may make a further mistake and cut once more.
I hope not, but by the base cases, by September
they'll hike.
Speaker 2 (16:27):
It's quite a cool but you've been making it for
quite a while. I appreciate it, Adam, Thank you, sir,
thank you. Imagine it's not the call you wanted to make.
Either Adam posting there of the Pederson Institute.
Speaker 4 (16:44):
Let's turn back to the markets.
Speaker 2 (16:46):
Tech stocks leading gains this morning after a week of
mixed earnings and news of China's Deep Seek AI breakthrough.
Noria Rabini of NYU Stern and Hudson Bay Capital taking
a bullish stance posting on X earlier this week, and
my modest opinion the Deep Seek surprise is country intuitively
over time bullish for US and global stocks, as it
is another positive global accurcate supply shock that increases US
(17:07):
and global potential growth and makes exponential AI even more exponential.
No realtal just now for more. I always going to
say a buddy seen John, we must pick up on
that theme. Why do you think this is good news
and you believe it is the real deal? Export compliance
only costs five six million dollars.
Speaker 4 (17:24):
No, of course, in.
Speaker 6 (17:26):
Spite of the restrictions, probably got more GPU Navidia and
otherwise the INDUS five k probably one hundred thousand are
in the costs where much more and so on and
so still it's not the twenty x improvement. Maybe it's
two or three x. But my point was that if
this is true, even to a two three x extent
(17:47):
is one of the biggest total factor productivity increases in
human history literally and should be increasing potential growth, not
just in China. The reinforce learning can be used by
everybody's open source. It's going to use it, and it's
going to increase also not only the productivity of those
who are producer of eyes, but more importantly of the
(18:07):
consumers of ice. So if it's really true, and I
think it's an intergiative process, we all learn from each other,
we all distilled from each other within the US, within
China and US and others. It increases the fact that
the AI is going to change the world for the better.
It will be a significant increase in potential growth in
the United States and also globally. So over the medium term,
(18:28):
this should be actually positive for US and global stock markets,
not negatives. So the reaction I think initially a Monday
was totally excessive, And the fact that now there's been
some retracing over the week is people are digesting the
news and saying this is not the shock that we thought.
Speaker 2 (18:43):
It was positive stocks, positive for the economy, for economic growth.
I think it's positive for society.
Speaker 6 (18:50):
Well, you know, There's been a huge debate about what
are the risks of AI as opposed to the benefits
of AI. I think in part political and philosophical question.
We know the information, this information, the risk of increase
cyber warfare eventually is to humanity and so on. But
I would say on net AI, like any other teological innovation,
(19:15):
is going to lead to an increase in both proditivy growth,
potential growth, and human welfare. We may be able to
live until not ninety one hundred, one hundred and twenty.
Longevity helped you name it. So it's a benefit to
society overall. And there are side consequences and problems and
risk and where to manage them. And I think that
the regulation of the EYE is going to be very complicated,
(19:36):
probably like the Internet. We're going to do it too little,
too late, and then we're going to realize there are
some mistakes.
Speaker 2 (19:41):
If I clipt what you just said and use some
AI and took out some words and replaced the II
with globalization, yeah, when we send the same thing a
few decades ago.
Speaker 6 (19:50):
Well, globalization that is being bashed right now by everybody
led to an increase in huge amounts of welfare for
business of people under world two poincisely Chinians and others
and so on, and even in advanced economies so great
and globalization and trichnology are the same. Thing is a
ways of increasing productivity growth. There'll be a backlash, But
(20:10):
I think that the backlash is going to come on
AI is that there will be massive amounts of job displacement.
Job augmentation will be initially, but then jobs well, this
is what is going to be, and then there'll be
UBI or other things to result it.
Speaker 2 (20:24):
AI do the services. What globalization did to manufacturing is
a question. I keep going back to how many people
are going to be satisfied with just UPI I don't
want to sit at home, do nothing and get paid
by the government. We aspire as human beings to be better,
to improve, to climb the social ladder.
Speaker 6 (20:43):
A lot of people in a world of scarcity, of course,
the dignity of life was to provide for yourself and
for your family and go and look for water, food,
shelter every day. In a world in which scarcity becomes
less of a constraint, we have to produce see less
because the robots are going to do it, and we
can consume more. You're right that you guys saying what's
the meaning of life in that situation?
Speaker 4 (21:05):
It's a philosophical question.
Speaker 6 (21:06):
And John manakas and at thirty said, once we get
this technology innovation, it's going to work only ten hours
than sixty hours, and we'll become poets, artists, creators and
whatever not. Maybe the nature of life is going to change.
Maybe with AGI, we have to merge with the machine,
because if we don't merge with the machine, become hyper
intelligent and we become obsolete, and then there's going to
be a new species. It's not going to be almost appiens,
(21:27):
but all more robot because then it's going to take decades.
Speaker 4 (21:30):
Those an important philosophical question.
Speaker 6 (21:32):
But I would argue provocatively that twenty years from now,
potential growth probably could be eighty percent sorry eight percent,
and unemployment rate could be eighty percent. We are going
in that direction over time, and then we have to
manage the concelet and UBI, by the way, cannot be
only national, because the winners and losers are going to
be only internal, butle so across countries, does we innovate
(21:54):
get better off compared to those who don't innovate. Can
we have a system of global governance that has a
cross border I mean, those are big issues global governance, well,
a form of global governance cooperation actually, But if.
Speaker 5 (22:08):
You use deep sea today you can't even find out
things about the Chinese Communist Party, things like tenements square.
How are you supposed to have global government with these
kinds of countries.
Speaker 6 (22:18):
I think what's going to happen is that over time,
given the geopolitical divisions within US and China, the Wall
is going to be divided in two. There'll be a
group of countries US with its friends and allies and
others in the global cells. We prefer the economic, monetary, social, political,
geopolical system of the US and the West. Someone the
global's are are going to go with us, and there'll
(22:39):
be other going to go with the model of China,
but model economic trade instate, capitalist geopolitical security via right
technology and whatever not, and there'll be a split world.
But within the West, if there are and those friends
and allies, if there are winners and losers within countries
or across countries, we'll have a system of transfers. I mean,
we've been subsidizing the defense of our friends and allies
(23:02):
from Asia to Europe for now eighty years because it
was in the global interests of the United States. So
if we need to do global UBI across friends and
allies and others part of our systems, we're going to
do it. But that's the world we're going and Chinese
doing the same thing. We have to subsidize our friends,
and they'll.
Speaker 4 (23:18):
Do the same. Unpatched a fund of the world to
describe what nothing to do with it.
Speaker 5 (23:21):
And this is not here and it's essential, Lisa is
not even here, and it's gone very existential this conversation
when it comes to this idea of our global regulation
on AI. Do you think Trump will use AI right
now in the next four years as a bargaining chip
as he tries to work on global realignment when it
comes to trade.
Speaker 4 (23:42):
Oh, he will actually buy them.
Speaker 6 (23:44):
Right before he left in early January, had this new
AI diffusion rule that divides essentially the world in the
three group of countries Tier one, Tier two, Tier three.
If you are part of the global technological order of
the United time States and you accept all the rules
and the security, you have access to unlimited amounts of
(24:04):
advanced chips of Navidian others. You have access to all
the AI models, you can have access to building the
data center, and you're part of our own technological sphere,
and we set the rule of essentially within that type
of Tier one, we are deciding you utterly.
Speaker 4 (24:22):
It's not a question.
Speaker 6 (24:22):
About regulating AI, but who is our friend and ally
And even within NATO, there are only so far eighteen
countries that qualify for tierue. Not all NATO countries do.
Of course, the countries in the Big Big Five I
are part of some of the other NATO members, plenty
of countries are not. Tier two is mostly in the
Global South and everybody else. Of course, China arrivels are two,
(24:45):
three and so on. So the US is going to
set the rules of the global technological order, and it's
going to do it totally unilatterally. And it's either you're
with me, because I'm setting those technologies and I'm the
one who's advanced in those technologies.
Speaker 4 (24:58):
Then you can use the chips, you can of the application,
you can do that.
Speaker 6 (25:01):
That's a center with me, or otherwise you're in the doghouse.
Speaker 2 (25:04):
I wanted to squeeze it one more questions. The Europeans
would be Europeans would be deeply upset with this conversation.
Speaker 4 (25:10):
I'm showingus no, but.
Speaker 6 (25:11):
They already accepted it. The same thing happened with data centers,
right They tried to find an alternative, they were not successful.
And the hyper scalers are providing those data centers in Europe.
Speaker 4 (25:21):
And maybe that's there.
Speaker 6 (25:22):
They are technically in Europe, but they are controlled by
WS and Microsoft. Then you name it against today, so
that's already the world we're in.
Speaker 2 (25:30):
I wanted to squeeze in a word on Stephen Moran
just quickly worked alongside Hbou Hudson by Capital who you
represent this morning? Published a really interesting paper at the
end of last year about activist treasury issuance ATI.
Speaker 4 (25:42):
Now he's in power.
Speaker 2 (25:43):
Now he's in the White House working alongside Donald Trump,
is an economic codvisor. What's going to happen now? If
you believe that yan In, the former Treasury secretary was
issuing treasuries actively at the front end to have different objectives,
how do we unwind that this time around? Do we
even try?
Speaker 6 (25:59):
Well? Scott in his confirmation hearing was asked about this,
and he already said that effectively given the impact on
long term interest rates, if you phase it out right away,
it's going to be a shock to long bone neals
already going higher. In our paper estimated the shot could
be for the next three years or at least fifty
business points. So then all that so they're going to
(26:20):
have to wait and phase it out one gradually and
two interview when bond yields are going lower, either going
lower because maybe growth is slower or because inflation is lower.
So they'll have to opportunistically gradually phase it out over time.
But it's not going to happen overnight.
Speaker 4 (26:38):
They've already said so.
Speaker 2 (26:39):
Noriel, So it's going to say lost to think about
scaring me about the future or everything. If m YU
standing Hudson by campital I want absolutely nothing to do
with that. This is the Bloomberg Seventans podcast, bringing you
the best in markets, economics, angiot 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,
(27:02):
Spotify or anywhere else you listen, and as always on
the Bloomberg Terminal and the Bloomberg Business app.
Speaker 3 (27:11):
M HM
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