July 31, 2025 • 52 mins
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Surveillance hosted by Tom Keene & Paul SweeneyJuly 29th, 2025
Featuring:
1) Lael Brainard, Senior Fellow at Harvard University and former Fed Vice Chair and former Director of the National Economic Council, talks about the Fed, rate cuts, and Fed independence. Fed Chair Jay Powell said in his press conference after the Fed held rates yesterday that the central bank needed to stay on guard against inflation risk and rejected arguments for an interest-rate cut.
2) Rich Clarida, Global Economic Advisor at PIMCO, offers his reaction to yesterday's Fed decision and talks about the outlook for rate cuts and Fed independence. Fed Chair Jay Powell said the Fed is well-positioned for now, given lingering uncertainties surrounding President Donald Trump’s tariffs and their economic impact, and that a reasonable base case is that the effects on inflation could be short-lived.
3) Meera Pandit, Global Market Strategist at JPMorgan Investment Management, talks markets and rates ahead of tomorrow's jobs report and tariff deadline. Stocks rose in early trading as Big Tech earnings delivered on optimism around the AI boom, with Microsoft Corp. on course to become the second company to reach a $4 trillion market capitalization.
4) Mark Lehmann, CEO at Citizens JMP, on growing M&A sentiment and how the AI race is playing out in San Francisco. It comes as Meta said yesterday it is increasing spending next year, with executives saying now is the time to seize on investment opportunities in artificial intelligence.
5) Anurag Rana, Senior Tech Analyst at Bloomberg Intelligence, wraps Microsoft earnings and looks ahead to Amazon and Apple.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
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Surveillance Podcast. Catch us live weekdays at seven am Eastern
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Listen on demand wherever you get your podcasts, or watch
(00:25):
us live on YouTube Now.
Speaker 2 (00:27):
Joining us for extensive comments is loud brainer. We are
thrilled that she is here, young duty at Wesleyan in
Connecticut and up to Harvard and her public service, and
really were the more policy effort? Well, I'm dying to
ask you this question. We just head on the show
Magnificent Stephanie Stancheva out of Harvard, and then I see
(00:49):
a Nobel Prize of Claudia Golden out of Harvard. What
was it like for you to have the courage to
do economics a number of years ago? How lonely was
it to be a woman in economics back in the
time of Laurence Summer at the school.
Speaker 3 (01:09):
Well, I would say that by the time I got
to Harvard, obviously we did have some women on the faculty.
Claudia Golden arrived while I was there, Susan Collins was
there for a period of time. There were some really
outstanding young women professors, and you know, it was an
(01:29):
exciting time. I care a lot, of course about how
we use economics to better outcomes in policy, and so
it was just great to be studying with some of
the people who have really shaped economic policy making in
the preceding decades.
Speaker 2 (01:49):
Doctor Braner, I was laying out the differences between a
Clarida and a Brainer, where you look at Dsge and
all the mathewness of Clarida and Gertler, and you were
the really historic policy the effort of getting things done
in economics color. The nature of the uncertainty now that
the FED has to face is we bounce from copper
(02:11):
down the most in forty years to a non printed
India trade agreement. What's the nature of our present uncertainty?
Speaker 3 (02:20):
So, on the one hand, we know a lot about
how tariffs generally affect the economy. We had a little
trial run back in twenty eighteen when Trump, the first
Trump administration, imposed tariffs on China, mostly on China as
well as steel and aluminum. We do know that tariffs
(02:42):
raise prices. Ultimately, that that time between when tariffs are
imposed and when you can see it actually in prices
varies a great deal, but the last time through four
to six months. And we also know that tariffs are
like a supply shock and they can disrupt the labor market.
So we know all of that. What we don't know,
(03:03):
and where this uncertainty is so important is twofold. First
of all, we have not seen tariffs at these levels
for decades. These are smooth, holly level tariffs in many cases,
and so the extent of the changes we just haven't seen.
And secondly, of course, the administration is still in the
process of telling us what those tariff levels are in
(03:26):
those trade agreements are not yet very firm or very clear.
Speaker 4 (03:31):
Low. What did you take away from the FED minutes
yes the FED news yesterday, the meeting yesterday from Fed
Chairman Jpow What was your takeaway?
Speaker 3 (03:40):
So the takeaway I think was that the large majority
of members of the Open Markets Committee want two more
months of data and they will get it before the
next meeting in September. That they are still quite concerned
about potential risks to the upside to inflation, which has
(04:02):
been running high over the last few years, and of
course that means they have to be particularly attentive to
inflation expectations. But that they're also attentive to potential weakening.
And of course we got the GDP report on the
same day, and if you look underneath the hood, there
has been quite a bit of moderation in those core
(04:23):
domestic components, particularly the consumer, over the first half of
the year. So they are balancing those two potential risks,
and they really want that additional data before they make
a decision to move further potentially on cutting rates.
Speaker 4 (04:42):
You know, LOI, We've had a number of guests over
the last several days, maybe even weeks, say, well, it
just kind of feels like a year ago, or maybe
the Fed decided not to move in July when the
data suggested maybe they should, and then they were forced
to maybe go a little bit more than they wanted
to do in September. You feel like the Fed might
be behind the times here a little bit in terms
of cutting rates.
Speaker 3 (05:03):
So I think there is always that risk that the
Federal Reserve, in the effort to get more data to
be more certain, waits a little longer than would have
been ideal with the benefit of hindsight. But we already
were talking about just how much uncertainty the evolving tariff
(05:24):
landscape is injecting into the outlook for the dual mandate
for both inflation and unemployment, and that explains, I think
why they are stuck waiting.
Speaker 2 (05:37):
I've got two things to talk about here, doctor brainer
that I think are important. What a nasty I'll ed
by you in the Washington Boast a few weeks ago
it was the close ara out Low Brainerd going after
the president. The treatment of chair of Chair Pole love Brainerd.
Is things smoothed down a little bit even with Trump
(05:59):
treats even the morning is well, does the industry have
mister Powell's back?
Speaker 3 (06:06):
Well, Look, I think what has been surprising to me
is to hear the President talk about lowering rates as
though it is the Federal Reserves responsibility to lower rates
for US Treasury debt management. And that, of course is
exactly how central banks go wrong in emerging markets like Turkey.
(06:31):
When the President the administration lean on a central bank
to prioritize lowering the cost of borrowing to the government,
it undermines the inflation control credibility of the central bank,
and so for me, of course, what is very important
is that the Federal Reserve continue to have that credibility
(06:55):
for inflation fighting. Now it's more important than ever, having
just come off period of high inflation and of course
facing some inflation from tariff, so that independence is more
important than ever.
Speaker 2 (07:09):
Well, I look at the tariff you know what's changed
since your Washington Post op ed. I look at the
tariff debate, erning Tedesky doing great work at the budget
lab at Yale, allile Yale's to college in New Haven.
I don't know if you're familiar with that, but you know,
I look lol at the tariffs now, JP Morgan modeling
eighteen percent, clearly Smoot Hawley nineteen thirty three, maybe back
(07:32):
to the Gilded Age. Will the president be overcome by
events if we see job jobless increase, if we see
GDP decrease, do you just assume at some point, like
mckinnley adjusted, and I think it was nineteen oh one,
is Trump going to have to adjust to the failure
(07:53):
of the magnitude move in tariffs?
Speaker 3 (07:57):
Well, it's very hard to say right now. Of course
I don't have any insights into that, but I would
say what is clear to me, because I have been
listening carefully to the Treasury Secretary and the President, is
that they see tariffs as a way of raising revenues,
and they have a very aggressive revenue target for tariffs.
(08:18):
They want to raise hundreds of billions, three hundred billion
dollars a year in tariff revenues, which is an order
of magnitude larger than what we have seen recently, and
that means that tariff rights have to be at those
high smooth Haley levels with the attendant potential effects on
(08:38):
the labor market. And we've already seen substantial slowing in
the second quarter in terms of underlying private domestic final demand.
Consumers look like they are feeling a little bit cautious.
We can see that even in today's personal consumption expenditures day,
(09:00):
which really was very modest growth. So yes, I do
believe there's some risk that by trying to achieve those
very aggressive tariff revenue goals, they really are putting a
big dampener on what could be a very dynamic and
exciting period in American growth.
Speaker 4 (09:17):
Lyle, the FED has that dual mandate, of course, of
full employment and price stability. Do you think one is
taking a precedent over the other these days within the Fed?
Speaker 3 (09:29):
Well, I think we heard the chair talk about both
sides of the dual mandate yesterday risks to the upside
potentially on inflation, and we see it in this morning's
preferred Fed inflation gauge. You see those core goods going
back up again after a long period where they had
(09:50):
been coming down. But of course you also see it
in the labor market, where private hiring has really ground
to a halt. Now super market is in balance. As
the chair told everyone yesterday multiple times, the unemployment rate
has remained low, and that in part reflects the fact
(10:11):
that labor demand is falling at the same time that
labor supply is also being constricted on the immigration front.
So it remains in balance. But I do worry about
downside risks to employment.
Speaker 2 (10:24):
Love bringing it a young upstart economist up at Harvard.
His name is let me look here, Jason Furman. I
think you may be familiar with Jason Furman. I love
what he's doing onannualized analysis. Folks out moments ago on
Twitter from Professor Firman driving x ten up at Harvard.
One month core PCE three point one percent, three months
(10:48):
two point six percent, six months annualize three point two percent,
twelve months two point nine percent, I'm sorry, Rick Michigan
and John B. Taylor at Stanford, those guys maybe policy
they're on different pages. They're in the same page that
core pc inflation all is too high, isn't it.
Speaker 3 (11:10):
Well, the core PCE inflation is too high, and it's going,
unfortunately in the wrong direction. That is the bind. So
you know what we were seeing before a lot of
the tariffs started to get imposed was actually, finally services
inflation were coming down. Core goods had already come down,
(11:31):
and so core inflation was trending down towards the target.
Now it is detouring with those core goods lifting it again.
And core services actually in the last two months were
a little stronger than we had previously seen. So it's
moving in the wrong direction, and of course that's a concern.
Speaker 2 (11:53):
And Paul I can't emphasize enough the granularity of these
are full time pros, heavyweights analyzing the tariff impact, guessing
out to Labor Day, guessing out to Christmas, guessing into
next year. And the answer is nobody's talking disinflation.
Speaker 4 (12:12):
Disinflation. How about the consumer, lyle, how do you, given
the backdrop, so to Tom just outlined here, how do
you think the consumer is these days.
Speaker 3 (12:21):
Well, we've got some insights into consumers and their feelings
about both the economy currently and their expectations through some
of the consumer surveys, and of course a little bit
less negative, but still quite negative relative to where it
had been before the tariff agenda started rolling out. They
(12:42):
seem to be worried that prices just are still too high,
and of course that now is creeping back into more goods.
But housing has been a problem for a while, and
that goes to the President's concerns, valid concerns. I think
that mortgage rates are quite high and then the housing
(13:02):
market is frozenly.
Speaker 2 (13:03):
One more thing, I'll be quick here. This is the
magic of Twitter, if they would get if they get
their ex straightened out. I've got Jason Furman, Steve Rattner,
and Ernie Tedesky back to back to back in my feed. Lyle,
this is stunning from Ernie Tedesky. Now at Yale, durable
goods have risen by one point seven percent other than
(13:26):
the depths of COVID. That's the strongest six months rise
since nineteen eighty seven. Does Washington understand that, Lyle brainerd So,
I think Ernie is doing a great job pointing out
the granular.
Speaker 3 (13:43):
Effects which have to be in part reflecting tariff effects.
And when we get pronouncements from the White House, sweeping
pronouncements that a country is going to see twenty five
percent tariffs, nineteen percent tariffs, you really wonder whether they've
had the time and the bandwidth to do the kind
(14:04):
of detailed analysis that would allow them to see that
some of those tariffs they're imposing are actually going to
disadvantage American producers because input prices are going up. It's
going to actually not only hurt American consumers, but in
many cases, like in US domestic auto producers, is actually
(14:25):
making their supply chains more expensive and will make them
less competitive.
Speaker 2 (14:30):
This has been fabulous. I got goosebumps right, that's great. Love, Brainerd,
thank you so much with Richard Clarita in this hour
on our nation's economy and what it means for us.
Thank you to ninety two nine FM Boston or Boston
News Bureau for bringing us doctor Brainerd. This morning.
Speaker 1 (14:55):
You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2 (15:08):
We are honored to have with us Richard clarda always
with Columbia University, with Pimco as well. The former Vice
chairman of the Fed, Ian Lincoln at Bank of Montreal,
the iconic Bank of Canada, just published and he said,
I'm sorry, every inflation series is ticking up. Do we
(15:29):
see tariffs in the minutia of price change already? Do
we see tariffs now?
Speaker 5 (15:36):
Sure, they're starting to show up to some extent in
the inflation data, in particular in those sectors exposed to tariff.
Goods prices are moving up. The overall indexes are are
coming in more or less in line with expectations because
services inflation continues to fall.
Speaker 4 (15:53):
So if you're the Fed, yeah, what did you hear
yesterday from our chairman? Yes, he send it a little
bit more hawkish than maybe the statement.
Speaker 5 (16:02):
I don't know, Harry Truman. I think once said he
wanted he wanted to meet the one armed economist because
he kept getting on the one hand, on the other hand,
I think that was that's what we got yesterday from
from chair Powe. You know, very balanced. I think the
revealing moment was when he was asked by a reporter
about whether or not the dots at the June meeting
(16:25):
were indicative of where the committee was where they showed
two cuts this year. He basically said, look, that was
six weeks ago. We're not paying attention to that. So
he clearly, I think, came in with the goal of
giving himself and the committee optionality in September to pause
or to cut, and I think I think he achieved
that for sure.
Speaker 2 (16:45):
I got to get this side of the way. I
have to ask, have you been contacted by the Trump
administration about future employment in our central Bank? I have not. Okay,
we're waiting on it. There was Psias Glenn Ubberd the
same question at the same silence treatment as well. In
your work in folks, this is wicked fancy mathematics called
(17:07):
dynamic stochastic general equilibrium theorem. Uncertainty is outside the system.
It's what we call exogenous. Our listeners, our viewers are
living indgenous uncertainty right now with all of these shocks
to the system led by tariffs. How do you color
the uncertainty that the PhDs, the FED face.
Speaker 5 (17:33):
It is elevated. I think perhaps less elevated than it
may have been after Liberation Day. I think, in particular,
I think we have a better sense and firms have
a better sense of where we're going to end up
in terms of the new trade regime. And importantly also
we now sort of know the parameters of fiscal policy,
tariff revenue, the deals that are being caught in terms
(17:54):
of investment in the US. So there is uncertainty, but
I think it's moving in both directions. For the economy,
do we have clarity?
Speaker 2 (18:02):
I mean, I look at the Yell budget lab Ernie
Tanowsky and that crew yesterday, Bob Michael modeling eighteen percent
blended work at JP Morgan maybe up to twenty percent
as well. How do people like you that have actually
studied the history give us I like to say, there's
Hubert Heaver tariffs, we're back to the thirties, We're back
(18:24):
to FDR and some you look at the series, we're
back late McKinley like, how do you process the magnitude
change in tariffs?
Speaker 5 (18:36):
Well, sure, and we haven't seen we haven't seen trade
policy like this in a very long time. I think
right now I would say the economy's shown good resilience
so far, both both in the labor market and on
the GDP side. But I think anyone who pretends to
have a precise model or estimate. But I think importantly
what's going on here, Tom is you know that the
(18:58):
Trump folks are really trying to change the trading regime,
and it's early days in that, but I think that's
an important part of the story as well.
Speaker 4 (19:08):
So, Richard, we had two FED Board governors dissented yesterday.
Speaker 5 (19:13):
Both very good friends of mine and former colleagues.
Speaker 4 (19:16):
So I FED people tell me that's kind of something
we should pay attention to that.
Speaker 2 (19:20):
What did you make of it?
Speaker 5 (19:21):
It's the first time I think in thirty plus years
that two governors have dissented. Reserve Bank presidents dissent more
and more frequently. Both Chris Waller and Mickey Bowman, I
think before the meeting indicated that that was going to
be their preference, and I think that I'm sure they
(19:42):
came into the meeting with sound and reasonable arguments for
beginning rate cuts right now. We'll probably hear from them
after the blackout is over as well. But share Powell
also acknowledged that he thought it was a good discussion
at the committee.
Speaker 2 (19:55):
Do they negotiate descents like if there's someone who's the
third descent? Did they say, now you can wait to
the next meeting. Come on, you know, not at the
table in the Eckles building. Wait the tables under construction
fore right now? But is there a discussion within the
propriety of American we're all on the same page economics
(20:17):
that we almost negotiate who and who does not dissent?
Speaker 5 (20:21):
I wouldn't, I wouldn't call the negotiation. What does happen?
And I think this happened under Bernanki and yelling as well.
But certainly during my time at the Palfeed, the chair
before each meeting had individual conversations with all all eighteen people.
Interesting and so there's there. You know, no one gets
blindsided going into the meeting about about the views on
(20:41):
the on the outlooks.
Speaker 2 (20:42):
This is original. This goes back to Larry Myers and
Green spent in that meeting. Is it a courtesy that
you tell the chairman where you're heading?
Speaker 5 (20:53):
Again, those conversations were typically by the.
Speaker 2 (20:56):
Share really unhappy and showed ups today. No, no, no.
Speaker 5 (21:01):
The During my time there, the chair did have individual
conversations with all eighteen folks. Obviously they were nineteen total,
and the purpose of those conversations was so that both
sides had a sense of where policy makers were heading
going into the meeting, and then during the meeting, which
go on for a day and a half. Sometimes minds
(21:22):
change as well during the meeting, but at least going
into the meeting, people all have a sense of where
other folks are.
Speaker 4 (21:29):
I tell you what's changed this in the last couple
of days, Richard is. I think after yesterday's discussion, the
market's kind of pulling back a little bit on the
two rate cuts this year. I don't know before between
now in September, the Fed's going to get some more
inflation data. They're going to get some more labor market data.
Speaker 2 (21:46):
Yeah. Are they just going to wait for that?
Speaker 5 (21:49):
I guess.
Speaker 4 (21:49):
I mean that's being data dependent. I guess right.
Speaker 5 (21:53):
The chair indicated that yesterday. I think that that would
make sense. He'll also have another bite at the communications
apple to mixed metaphors at Jackson Hole in three weeks
and not always, but oftentimes the chairs do use Jackson
Hole as a way to preview the September meeting. So
perhaps another motivation for the two handed economist. Yesterday from
(22:17):
Jay Powell is I'll have the stage to himself at
the end of the month.
Speaker 2 (22:23):
For all of you on your commute across the nation.
A wonderful treat today within the technology earnings allow Brainer
scheduled to be with us here later on in this
half hour, of course, all every work with our central bank,
and now Richard Clarida with us with Pimco, a former
vice chairman. I hate torst and Slock because on a
Wednesday he sends me an email from Apollo Global Management
(22:45):
with six seven things to read, and usually the top
ones are a little light quick reads. Here's what he
sends today. Clarida post pandemic, global inflation, disinflation and central
Bank policy responses, goes on, It's like a movie. It's
got a British movie. It's got a long title. Yeah,
Nber a paper you just published with your thoughts on
(23:07):
twenty one and twenty two. Take this important paper that
Torsten Slock mentions and bring it forward to present day
policy making.
Speaker 5 (23:17):
I'll give you the quick elevator version. Please, global surgeon inflation,
Where did it come from? How do we think about it?
And what are the lessons learned, and the basic point
of that paper is essentially to summarize a lot of
sort of one stop shopping. If you don't read fifty papers,
you can read my summary of the papers. And the
basic story is the inflation came from three factors. A
(23:38):
once in a century pandemic which led to a shock
to supply, triggered a fiscal and monetary policy response, and
then on top of that, of course, you had the
Russian invasion of Ukraine. Policy reacted right, rates, inflation came down,
central banks were confident enough to cut rates. So I
think the lessons learned to me is once in a
(24:01):
century pandemic shocks are very challenging for policy, and on
the other side of it, inflation expectations are anchored. And
that's where we are.
Speaker 2 (24:10):
Peter Orzag at Lazard Now I'm in a shop at
Lazard and also working and Brookings really emphasize the supply
side shocks that we had. Are we there now? Is
the tariff uncertainty now one big supply side shock. I mean,
witness copper, biggest drop for years that yesterday. Sure.
Speaker 5 (24:29):
The other thing I'd like to emphasize as well is
the unemployment rate is low.
Speaker 2 (24:34):
And that is great.
Speaker 5 (24:35):
It's at a very low historical level, but there's still
room for the labor market to expand. In terms of
labor force participation, it's about a point below where it
was decades ago, especially among men prime age male. So
a low unemployment rate is good, but the economy's capacity
depends upon labor force as well, and I think there's
(24:57):
still room to run there.
Speaker 4 (25:02):
President Trump continues his pressure on this fetter reserves, saying
that they should be cutting rates. But we have folks
that we really respect come through the studio that's say
that is behind again. It really needs to cut rates.
I mean, whether you look at real rents or whatever.
I mean, if you look at the real time data,
it's already there. The conditions are already there.
Speaker 2 (25:21):
The cut rates.
Speaker 4 (25:22):
How do you think about that?
Speaker 5 (25:24):
I think a straight reading of sort of standard monetary
policy rules, including the ones I worked on with Girtler
and Galley, for a pretty wide range of assumptions, would
indicate that there's some room to cut rates from current levels.
The details will depend on the model and your views
of inflation, but anywhere in the range of you know,
of fifty to seventy five basis points from here under
(25:47):
the view that Waller and Embowman of express that the
tariffs are not really an inflation shock, they're a price
level shock. And so I think that is the case,
and I think Chirpell himself a month or so ago
indicated the butt for the trade policy uncertainty, they would
probably be cutting rates now.
Speaker 2 (26:05):
But this is important, Richard. Yeah, I really can't say enough.
We are slaves to trend? Oh shuret for we cut rates.
It establishes a vector. Oh yeah, that we must follow.
Why I'm speaking for President Trump now, good morning, mister president.
If you'd like to call in, we'd love to talk
(26:25):
to you. Why in God's name can we just announce
let's just do a one off rate cut and see
where we stand in September or end of October. Why
are we slaves to trend?
Speaker 5 (26:39):
I think that's the sixty four billion dollar question, and
it reflects the evolution in monetary policy. If you go
back to when Tom, you and I start our careers
in the in the eighties with with Vulgar, Vulgar would
never give you an indication of where rates we're going.
Speaker 2 (26:56):
To be, Thank you, thank you. Years.
Speaker 5 (26:58):
It was one meeting at a time, and for the
first half of green Span it was one meeting then
at a time.
Speaker 2 (27:03):
But this is really important, folks.
Speaker 5 (27:05):
Well, two things happened. The academic literature to which I
contributed said there can be benefits to providing guidance on
the rate path, and so I think policymakers fall in
love with that idea. They doubled down on it when
we hit the zero lower bound, and it made sense
to do that. But one of the points I make
in the paper that you nicely plugged, Tom, is that
(27:26):
monetary policy is not immune from the laws of economics.
There are benefits and cost to decisions, and there are
benefits in cost and diminishing returns. And I think you
raise a very good point. We could be in a
different world if basically the FED and other central banks said,
you know, there's a lot of uncertain we're going to
do one meeting at a time.
Speaker 2 (27:47):
Let me cut to the chase. Are we live in
physics envy. We have a lot of fancy people, including
Clareness math folks. It's world class. I can't taste their shoelaces.
I can't tell you I'm a dinosaur. There's not a
dinosaur you're a dinaso. But are we slaves to the
certitude of inertial force where we set up a vector
(28:09):
and we've got a momentum of something. Are you kidding me?
We can't, wouldn't.
Speaker 5 (28:14):
I wouldn't say we're slaves. But that mindset has a
very very powerful hold on a lot of thinking in
markets and in policy making.
Speaker 2 (28:23):
Paul, get one more question.
Speaker 4 (28:24):
In I'm going to take a million dollar cowboy bar
out out west somewhere next month, what should the FED
chairman say in Jackson Hole? Should he change his tune,
should he try to set up the market for September?
What do you think we will hear when Tom's out
there in a million dollar caboy bore.
Speaker 5 (28:44):
I think he's probably going to devote his remarks to
previewing or laying out what they've decided in terms of
their framework. And I think what he will do is
embrace more or less traditional inflation targeting, saying we're not
close to the zero bound now, and policy will act
symmetrically in terms of what he does in terms of
(29:05):
the next meeting in September or the rest of the year.
I think it will depend in part on the data
that we get between now and then, and it will
depend as well on his assessment of his understanding of
the current trade regime.
Speaker 2 (29:22):
Ye, I will read your paper and they'll have Can
I do a report card on a three by five card? Exactly,
Richard Claire to thank you so much, Absolutely brilliant, folks.
That was an absolute clinic on some of the trends,
the physics, the background of how these officials, saying Richard
(29:42):
Claire to the former vice chairman of the FED.
Speaker 1 (29:45):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Corplay and Android
Auto with the Bloomberg Business app. You can also listen
live on Amazon Alexa from our flagship New York station,
Just say Alexa Play Bloomberg eleven thirty A Mere Panda.
Speaker 2 (30:03):
Joins us from JP Morgan, where they're looking at the
tech juggernaut from sixty thousand feet. How does tech in
America in this clear you know, I'm going to take
the ego of dish exceptionalism. How does it affect an
overall investment outlook?
Speaker 6 (30:20):
When we think about the history of US exceptionalists and
over the last call it decade fifteen years. It's been
about economic exceptionalism when we think about this miracle of
high growth, relatively low inflation, relatively low interest rates as well,
but it's also been about corporate exceptionalism. And going forward,
we may have some deterioration in some of that economic exceptionalism,
(30:42):
but certainly you still have that corporate exceptionalism, and it's
rebirthing itself. It's just reviving itself time after time, in
twenty twenty three with the Ai Revolution, but also much
before that in the first phase of some of these companies.
So it has been spectacular to watch some of these
very mature companies reinvent them themselves and grow profits as
they have.
Speaker 2 (31:02):
I just plugged into the Total Return Index five five
five on Microsoft. Yeah, which is where it's going to open.
I guess last ten years twenty nine percent per year, And.
Speaker 4 (31:14):
I'm looking at it today and I'm like, how do
you not own it? Even today?
Speaker 2 (31:17):
I don't own it? Thank you. Triple Lover's dog cash
mirror up to be asleep like a baby. All good, Mira.
Speaker 4 (31:24):
What have we seen from earnings? What have you guys
seen from earning so far? And what do you what
do you think of the market needs to see from
earnings cycle.
Speaker 6 (31:31):
Earnings have been pretty healthy, but also remember the fact
that estimates for earnings were basically cut in half for
this quarter since the beginning of the second quarter and
over the course there so the bar was relatively low.
We're seeing earnings surpass that you are seeing the MAG seven,
of course so far blowing the lice out on earnings,
expected to contribute about two thirds overall to earnings growth
(31:52):
over the course of this quarter, but that should broaden
out over the next couple of quarters. So the good
news is that we are not only hanging our hat
on MAG seven. Profits across the board story is improving incrementally,
But when you think about how that passes through to markets,
the MAG seven are driving about a third of the
returns in markets. So the market does not does demand
(32:15):
that the MAG seven continue to post these types of profits.
When I think about it from a broader allocation perspective
in terms of what clients do and don't own, we
should also remember that given the comeback in the MAG
seven itself, you probably already own a lot, so it's
not necessarily requiring us to double down on it. There
are names that you want to have in your portfolio,
but also think about broadening out beyond that. Given the
(32:36):
fact that this year, for the first time in a while,
we've got choices.
Speaker 4 (32:39):
Well, one of the choices is, and we saw people
make this choice earlier in the year, is they move
money out of the US into rest of world, maybe
even European equities for example. How did you guys view
that kind of trend and did you guys participate.
Speaker 6 (32:54):
We did see investors, at least at a headline level,
more interested outside of the US, but also didn't necessarily
see investors actually selling the US. You still have foreign
investors owning about a quarter of the treasury market at
about twenty percent of the equity market, and you also
see Americans and foreigners doubling down not only the retail segment,
(33:14):
but also increasingly the institutional segment. So I don't think
that sell America narrative is intact. However, I do think
that people are putting that incremental dollar towards some of
the other more diversified opportunities across the board internationally, and
it's not just the dollar. We're seeing the dollar move
a little bit higher, as Tom pointed out, and yet
international equities have survived on a number of different catalysts.
Speaker 2 (33:37):
Bob Michael stopped me cold yesterday. It was a single
sentence of the Fed decides show Parole and Casman are
modeling now as earning. Tedeski at Yell budget lab eighteen
percent tariffs back to thirty three, thirty four, and Bob
even goes up to twenty percent, which to me is unimaginable. Folks,
(33:58):
this is like McKinley terrorists in the Gilded Age. If
we get that, what happens to an investment strategy in America.
Speaker 6 (34:06):
We do have to be mindful that if we get that,
it's probably going to result in higher inflation and slower growth.
But we also have a little bit of a wrench
in the works here when we think about where we
get to in the beginning of next year, in that
we're going to start to see the impacts of fiscal stimulus.
When it comes to some of those tax cuts, some
of them are extensions, but there are some sweeteners in
(34:26):
there that are going to add some fiscal stimulus to
the economy that could potentially keep inflation a little bit higher.
It could also boost growth.
Speaker 2 (34:33):
Do rate cuts come to rescue? Are rate cuts just
to normalize, or can they actually add on to the
stimulus of the huge fiscal bill. They could.
Speaker 6 (34:45):
I'm not sure that rate cuts are actually as relevant
when we think about the fact that over the last
couple of years you've actually had even higher interest rates,
and you've had twenty plus percent markets even outside of
the mag seven. The S and P was up eight
percent ten percent over the last two years perspectively. So
we don't need rate cuts to save the market. I mean,
the market doesn't look like it needs any saving at all.
Speaker 2 (35:05):
Have you been in the new building, not yet.
Speaker 6 (35:07):
I've seen it. You can see in through the windows
from the building across the street. Very exciting, very exciting.
Speaker 2 (35:13):
It's just, you know, then, all that's going on in
New York City in this tragedy is just great to
see the leadership at JP Morgan and Sitadel and others
on Kevin, I really can't say enough about it. You're Panda,
Thank you so much. Global Market Strategist JP Morgan, Investment
not Management.
Speaker 1 (35:36):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Coarclay and Android
Auto with the Bloomberg business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 2 (35:50):
Now we go ever stronger market. Lehman is with Citizens,
JMP Securities. He is definitive on the culture of San
Francisco in Silicon Valley. This goes way back to Montgomery
and other aims in the past. This is a guy
with sell side, get out the Excel spreadsheet, cred but
(36:13):
also done em and A. I want to talk about
picking up the pieces off of First Republic May of
twenty twenty three. You've been intimately involved, not so much
in the details, but his San Francisco and Silicon Valley
recovered from that tobacco recovering.
Speaker 7 (36:33):
And it's a good theme with what we talked about today,
and we'll talk about with Meta because it's about AI
and it starts with the election we had last year
and Daniel Lurie becoming mayor. So a year ago the
mayor Lendon Breed had about a thirty percent positive and
a seventy percent negative. Today Daniel Lurie is a seventy
(36:54):
percent positive and a thirty percent You probably couldn't get
a seventy percent positive on anything today.
Speaker 2 (36:59):
You're Buch Frank Cautron yesterday. Yeah, this guy is like Frank,
you're more qualified than anybody I know to give me
the X axis on AI. Is AI equivalent to anything
in the past? And how far out do you see this?
As I'm speaking as an amateur, this boom.
Speaker 7 (37:18):
It's I hate to say it because the stocks have
moved so much, but it's early and Met is a
perfect example of that. Some of the things that they're
starting to work on and starting to see are showing
in the numbers, but it's really just the beginning. And
I'll give you one example, Tom. They they even talked
about some of the the using large language models for
the first time, and as you know, those have been
(37:39):
we've been talking about those for a bit. But they're
starting to use those for some of their offerings. And
so we've already seen the numbers show up. We're already
seen what they're doing with Capax, but it's showing up
with the numbers already, and we're just at the beginning.
Speaker 8 (37:53):
So as much as these.
Speaker 7 (37:54):
Stocks have run in, as much as we've seen great
gains in the stock market, I hate to say this
because it's going to spook some people.
Speaker 8 (38:02):
We may be early.
Speaker 4 (38:03):
Interesting and Mark, I mean you're responsible for the state
of California, the business, investment, banking business for citizens in Californa.
That's like one of the biggest economies in the world.
Talk to us about California writ large, because we've heard
so many stories about people leaving New York, people leaving
California for Texas and Florida and so on. So how
is the economy in California.
Speaker 7 (38:24):
So it's gone from the fifth biggest economy of the
world the fourth biggest. Citizens has now a major footprint
there where before it had a minor footprint. As you know,
they bought my predecessor firm, JMP, but they've gone in
a variety of markets, whether San Francisco, Silicon Valley, Orange County,
Los Angeles, San Diego. Citizens now is a footprint and
private banking and some of the halo that First Republic
(38:46):
had we've been fortunate to garner because we've just hired
some of these people who are really how many.
Speaker 8 (38:51):
People say they love their bank and young people.
Speaker 7 (38:53):
At First Republic love their bank, and we've been able
to garner some of that halo because it's all about
service and it's all about coordinating. We're coordinating across the platform,
so of our mid tier piers, we're coordinating across a
private bank and investment bank of commercial and consumer.
Speaker 2 (39:07):
How will Silicon Valley defend against Lord Dell down in
Texas and Texas building out they're doing with the New
York Stock Exchange in Texas. Y'all Street, y'all street, what
are you watching land? How does California strategically defend against
the Dell juggernaut in Texas?
Speaker 8 (39:27):
I think it's a big pie. I think we have
some things going for us.
Speaker 7 (39:32):
Obviously we are as I'd like to say, the Golden
Gate Bridge isn't leaving.
Speaker 8 (39:36):
Cal's not leaving. Stanford's probably not.
Speaker 2 (39:38):
Leaving, so educational funding.
Speaker 7 (39:40):
When I hear everybody's leaving San Francisco, I just have
my best guess is Call and Stanford are staying and
yet and the talent and the dollars that are being
spent on AI. You can look at the statistics the
dollars that are being spent in San Francisco, that's a
big number.
Speaker 2 (39:54):
The horrific tragedy in New York City we're living in
the last seventy two hours with Blackstone, their commitment before
all of this horror to Western Pennsylvania is just absolutely
extraordinary again Carnegie Mellon University of Pittsburgh and that so
are we going to see a greater at the margin
(40:15):
cash commitment into Silicon Valley.
Speaker 7 (40:17):
I think what you're going to see is a public
private partnership, and San Francisco is leading that. Like I
said at the top, Daniel Luriy and the business leaders
in San Francisco are committed to finding ways to exploit
the talent.
Speaker 8 (40:30):
Base that we have. Some of the ills that we
have are being fixed.
Speaker 7 (40:33):
And I think there's nothing we like more in this country.
To kind of denigrate things, but there's nothing we like
even greater that than a resurrection story. And I think
you're seeing that real time in San Francisco. And I
think that public private partnership is the most important thing.
Speaker 4 (40:48):
Mark we heard from some of the big banks reported
earnings last week. We heard some pretty positive rhetoric from
the Jamie Diamonds of the world, the Brian Morny hands
of the world, talking about the big global capital markets business,
global banking business. How are you seeing it in the
mid market in California.
Speaker 8 (41:05):
It's definitely picking up.
Speaker 7 (41:06):
I think you're seeing the first signs of a resurrection
of the IPO market. It has not been like we
saw in twenty twenty one, and I will not predict that.
But you're going to see the back half of this
year a bunch of tech companies and a bunch of.
Speaker 4 (41:20):
Who saw Figma price last night exactly?
Speaker 7 (41:22):
And you're going to see several after Labor Day, and
you're gonna see more going out of twenty twenty six.
Speaker 2 (41:27):
Tell us about electric generation, you know there's there's an
angst about it. I think nationwide. I'll say in Virginia
leading the way. But is there going to be a
power suck with the lights don't go on in the
Golden gate Bridge because of all the AI wrapped around
the San Francisco Giants.
Speaker 8 (41:43):
Yeah, not.
Speaker 7 (41:47):
As going to an eight and the postly All Star break.
There's two and eight after they also, right, but it's painful.
Speaker 2 (41:53):
I traded with the Red Sox.
Speaker 8 (41:55):
I did, and I'm not sure Devers is happy.
Speaker 2 (41:56):
But his new homes have to see that, thank you.
Speaker 7 (42:00):
But my hunch is no, I think there's going to
be the kind of innovation that we're seeing in technology.
You're going to see in power generation and it is
a land grab right now. And the Warren talent for
that is real. With the kind of AI purchase that
we've seen Matta make and Microsoft make, can we.
Speaker 2 (42:18):
Go back to Mark Leman old school forget about this
executive m and a bank backed and all that. The
cash use of these juggernauts that we all own, we're
all living. Did they understand they have to deploy cash
to shareholders within buybacks or as Paul mentions always dividend growth.
Speaker 7 (42:40):
If you're talking about the Big seven or Big eight,
I think, like we said, it is kind of a
Warren talent right now. And when you see the headlines
that Meta got for spending fifteen billion dollars for half
a company, they really spend fifteen billion dollars on a
bunch of talent and it barely is you know, it's
not one percent of the company, right so it looks
like an enormous number in an enormous bet, but it's
(43:01):
really not. And when you see the kind of returns
that the companies get on their investments and their investments.
Speaker 8 (43:06):
Are people I think right now they think a bigger.
Speaker 7 (43:08):
Investment is in that race, and it is a race
and there's four or five incumbents, and then there's obviously
open Ai, which we saw their valuation recently, and others.
But there aren't going to be twenty of these. And
there's one other thing that I think is really important
to know is that there are a couple of companies
that have resurrected. I have said for a very long
time there's only two tech companies who reinvent in themselves.
Speaker 2 (43:29):
It's App on Microsoft.
Speaker 7 (43:30):
But look at the market cap ascent of Oracle, look
at the market cap acent of IBM, and these companies
were left for dead basically obviously they really are. So
when you it's about leadership, and it's about talent, and
it's about drive in future.
Speaker 2 (43:46):
Twenty seconds, Intel helpless.
Speaker 7 (43:51):
You know, uh and video is going to market cap
is going to go out more than into three intels
today and I just I hate to be pessimistic.
Speaker 8 (43:59):
It's really hard to find to wait that path for that.
Speaker 2 (44:01):
I got goosebumps this week of technology, Mark Lehman with
his CEO citizens at JMP. That's a great brief before
we speak with enerrog Rana.
Speaker 1 (44:09):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also listen live
on Amazon Alexa from our flagship New York station. Just
say Alexa play Bloomberg eleven thirty the.
Speaker 2 (44:26):
Way we roll. We got Mark Lehman with us here
with citizens JMP and anrog Rana on the physics of
this AI moment. He's with Bloomberg Intelligence and has been
absolutely dead on and I have courage for a long
tail of AI excellence ANIAG after what we saw yesterday.
I want you to frame out capital spending for twenty six,
(44:50):
twenty seven, and even twenty eight. Is it a linear expansion,
does it accelerate into the coming years, or is this
as good as a get.
Speaker 9 (45:01):
So at least for the next two years, we think
the number are numbers are going to go up, the
rate of growth is going to slow down. But it's
tough to call out twenty seven and twenty eight because
right now we have just started to see the benefits
of all these investments that, for example, Microsoft has made.
So I think a lot depends on the pace of
adoption and more so on the enterprise side. To see
(45:23):
what twenty seven and twenty eight looks like. But at
this point we feel very confident about twenty five and
twenty six.
Speaker 2 (45:30):
So I mean, for.
Speaker 4 (45:30):
Microsoft, give us the two or three things that the
bulls are really hanging their hat on here. Again, we're
gonna looks like we're going to hit four trillion dollar
market cap here today.
Speaker 9 (45:41):
So patly, I mean the simple you know, basics is
when when a company's size gets bigger, the growth rates
stops or slows down. In the Microsoft's case, you could
see that growth in Azure is accelerating. This is now
a seventy five billion dollar business as of the end
of lean a lost quarter. So in that case, when
you see growth rate in the thirties accelerating, that basically
(46:03):
shows that the AI adoption rate is picking up. And
you know, people just assume that this is just the
beginning of the adoption curve. Right now, all we're seeing
is the infrastructure spending and that's the benefit everybody's seeing,
whether it's Nvidia or you know, Dell servers, et cetera.
But now what we're seeing is adoption rate on the
cloud side, and I think that is really what is
exciting a lot of people out there.
Speaker 4 (46:25):
So on argument, Well, take a look at Microsoft here,
I mean, what percentage of the cloud an AI do
you feel like is their market share versus some of
the competitors, because we still have to hear from Amazon.
Speaker 9 (46:40):
Yeah, so when you look at just the cloud infrastructure site,
you know, they are the second biggest player after Amazon.
Amazon's you know rund rate as well, over one hundred billion.
But Amazon's growing in the you know, let's say around
the eighteen to twenty percent range. Microsoft now is showing
that they're growing, you know, thirty eight thirty nine percent.
That's a very big difference between the two. So, I mean,
just imagine as seventy five billion dollar business growing in
(47:03):
the mid thirties. And that's because they have that direct
relationship with open ai where they're getting the direct benefit
of U and B using more chat, GBT.
Speaker 2 (47:11):
And right, let's do a two part question. I'll get
the apple on the back end of this color out
the nature of their businesses. Dani's is very big that
Microsoft is the enterprise cloud a person. What is Amazon?
What is Oracle in the rest? What's the character of
(47:32):
those cloud businesses?
Speaker 9 (47:35):
I think that's probably one of the most important questions
for people to think about it right now, when you
look at somebody like an article there, I would say
primarily an infrastructured AI infrastructure player at this point, which
means you want to go there, you want to rent
out the GPUs and you are training your models. Microsoft
is basically said, that's the business they're not so keen on.
They really want to rent out capacity for training to others.
(47:58):
But they are really on the infant size, which is
when an application is running, they want to run that
application because they eventually want to grow with that application.
We think that's a more high value product.
Speaker 2 (48:08):
So then bring it to Apple. This afternoon, Apple and
Google have a search agreement. Do you just assume there's
going to be an announcement that Google Gemini becomes part
of the Apple family. What do you see anaragus salvation
for Apple's AI, Miss.
Speaker 9 (48:26):
Tom As far as I am concerned, you know, that
is the biggest overhang on the stock that nobody talks about.
That twenty billion our payment that comes from Google is
very high margin business adds really to the free cat
flow and the valuation of the company. If they ever
make a deal on that, I think it will be
good for the company.
Speaker 2 (48:44):
It will be good for the stock.
Speaker 9 (48:46):
But one of the good things Mark German has reported
is Apple's ready to go out and partner with other
companies to get their AI into their ecosystem. I think
once they do that, that's another overhang that goes away from.
Speaker 2 (48:57):
Its all wants to get in here, let me be quick.
What are they waiting for?
Speaker 9 (49:03):
I think it's a little bit of they take their
time and making these decisions. They are not yet. They
never do things in haste, and I think that speaks
to the way they treat their user base. They want
to protect their privacy, they want to make sure things
are fine for them. So again, I'm not gonna get
rid of my phone just because the AI is a
little bit slower. I can't make some pictures, but I
(49:24):
think it's gonna come over the next twelve months.
Speaker 4 (49:27):
I mean that kind of goes to my point on
a rogaman. Every time I hear you and other smart
people like Mandep Seing talk about AI in the context
of Amazon or Microsoft, it just the initial question is
what about Apple? So it's I kind of feel like
they don't have to be first, but boy, they just
feel like they're getting every single day farther and farther behind.
(49:48):
I kind of feel like time is of the essence
for them to announce something major.
Speaker 9 (49:53):
Yeah, I completely agree with you. But at the same time,
this is a company that controls probably the most important
distribution system for consumers out there. I mean, people will
stick to the phone no matter what if they get
if they get it wrong, but you know, Paul, that
really makes a huge difference for them. So this is
why they're taking their time. They're using multiple models to
(50:14):
figure out what's best for them.
Speaker 2 (50:15):
I mean an rog just to keep up with you.
This guy's physics University of Deli. You know, I know
it's amazing. I mean anerrag I did MSFT equity. Tom
Sikunda said, time you gotta do more. Turn stay with
me on this, two hands on the steering wheel, okay,
Ani rag MSFT Equity, AAPL Equity. Hs I did a
(50:39):
ratio spread analysis, and Apple's failing off of Microsoft by
two standard deviations, which you know is ginormous. Where's the urgency?
And Cooper Tino, Well, think about it this way.
Speaker 9 (50:55):
Microsoft sales last night grew at fifteen percent. Apple's gonna
grow at five percent. I've been debating I always never
understood why there was always their you know, valuations were
at parity at that point. Now we are coming to
a point when the valuation shows the growth potential of Microsoft.
Imagine a company this size growing at fifteen percent. I
mean that's pretty big. Apple six seven percent max at
(51:18):
the best at this point. If they come up with
a new iPhone seventeen, maybe it goes to seven or eight,
but that's where it ends. Frankly, doesn't go in double
digits under no circumstances. Can I see Apple growing in
double digits?
Speaker 2 (51:30):
Interact thirty seconds? Is elon in this discussion? Yes?
Speaker 9 (51:35):
But the question I always you know, wonder whether Zelan
or Meta is how are they going to monetize their
large language models.
Speaker 2 (51:42):
Now this is.
Speaker 9 (51:42):
Where Microsoft really has the biggest distribution army in the
enterprise world, so they will stick there. You know, AI
products across every enterprise out there, even if it's not
the best. I do not know how the others are
going to monetize that is.
Speaker 2 (51:56):
This great Mark Linman back to back with the enter Atlanta.
Yep is in the on deck. Certain, yeah he is,
He's on the subway. It's just is that how you're
it's coming in than very good interog. Thank you so much,
an rog Rana. They're with great seats for the Chicago Cubs.
Oh yeah, it's unbelievable.
Speaker 4 (52:15):
It's a burgeoning tech cub Chicago.
Speaker 2 (52:17):
It is. It is a tech hub. Androg Rana, thank
you so much. That was fascinating on the different ais,
I don't pretend to understand it.
Speaker 1 (52:24):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
seven to ten am Easter and on Bloomberg dot com,
the iHeartRadio app, tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
(52:45):
and always on the Bloomberg terminal
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Surveillance Podcast. Catch us live weekdays at seven am Eastern
on Apple CarPlay or Android Auto with the Bloomberg Business app.
Listen on demand wherever you get your podcasts, or watch
(00:25):
us live on YouTube Now.
Speaker 2 (00:27):
Joining us for extensive comments is loud brainer. We are
thrilled that she is here, young duty at Wesleyan in
Connecticut and up to Harvard and her public service, and
really were the more policy effort? Well, I'm dying to
ask you this question. We just head on the show
Magnificent Stephanie Stancheva out of Harvard, and then I see
(00:49):
a Nobel Prize of Claudia Golden out of Harvard. What
was it like for you to have the courage to
do economics a number of years ago? How lonely was
it to be a woman in economics back in the
time of Laurence Summer at the school.
Speaker 3 (01:09):
Well, I would say that by the time I got
to Harvard, obviously we did have some women on the faculty.
Claudia Golden arrived while I was there, Susan Collins was
there for a period of time. There were some really
outstanding young women professors, and you know, it was an
(01:29):
exciting time. I care a lot, of course about how
we use economics to better outcomes in policy, and so
it was just great to be studying with some of
the people who have really shaped economic policy making in
the preceding decades.
Speaker 2 (01:49):
Doctor Braner, I was laying out the differences between a
Clarida and a Brainer, where you look at Dsge and
all the mathewness of Clarida and Gertler, and you were
the really historic policy the effort of getting things done
in economics color. The nature of the uncertainty now that
the FED has to face is we bounce from copper
(02:11):
down the most in forty years to a non printed
India trade agreement. What's the nature of our present uncertainty?
Speaker 3 (02:20):
So, on the one hand, we know a lot about
how tariffs generally affect the economy. We had a little
trial run back in twenty eighteen when Trump, the first
Trump administration, imposed tariffs on China, mostly on China as
well as steel and aluminum. We do know that tariffs
(02:42):
raise prices. Ultimately, that that time between when tariffs are
imposed and when you can see it actually in prices
varies a great deal, but the last time through four
to six months. And we also know that tariffs are
like a supply shock and they can disrupt the labor market.
So we know all of that. What we don't know,
(03:03):
and where this uncertainty is so important is twofold. First
of all, we have not seen tariffs at these levels
for decades. These are smooth, holly level tariffs in many cases,
and so the extent of the changes we just haven't seen.
And secondly, of course, the administration is still in the
process of telling us what those tariff levels are in
(03:26):
those trade agreements are not yet very firm or very clear.
Speaker 4 (03:31):
Low. What did you take away from the FED minutes
yes the FED news yesterday, the meeting yesterday from Fed
Chairman Jpow What was your takeaway?
Speaker 3 (03:40):
So the takeaway I think was that the large majority
of members of the Open Markets Committee want two more
months of data and they will get it before the
next meeting in September. That they are still quite concerned
about potential risks to the upside to inflation, which has
(04:02):
been running high over the last few years, and of
course that means they have to be particularly attentive to
inflation expectations. But that they're also attentive to potential weakening.
And of course we got the GDP report on the
same day, and if you look underneath the hood, there
has been quite a bit of moderation in those core
(04:23):
domestic components, particularly the consumer, over the first half of
the year. So they are balancing those two potential risks,
and they really want that additional data before they make
a decision to move further potentially on cutting rates.
Speaker 4 (04:42):
You know, LOI, We've had a number of guests over
the last several days, maybe even weeks, say, well, it
just kind of feels like a year ago, or maybe
the Fed decided not to move in July when the
data suggested maybe they should, and then they were forced
to maybe go a little bit more than they wanted
to do in September. You feel like the Fed might
be behind the times here a little bit in terms
of cutting rates.
Speaker 3 (05:03):
So I think there is always that risk that the
Federal Reserve, in the effort to get more data to
be more certain, waits a little longer than would have
been ideal with the benefit of hindsight. But we already
were talking about just how much uncertainty the evolving tariff
(05:24):
landscape is injecting into the outlook for the dual mandate
for both inflation and unemployment, and that explains, I think
why they are stuck waiting.
Speaker 2 (05:37):
I've got two things to talk about here, doctor brainer
that I think are important. What a nasty I'll ed
by you in the Washington Boast a few weeks ago
it was the close ara out Low Brainerd going after
the president. The treatment of chair of Chair Pole love Brainerd.
Is things smoothed down a little bit even with Trump
(05:59):
treats even the morning is well, does the industry have
mister Powell's back?
Speaker 3 (06:06):
Well, Look, I think what has been surprising to me
is to hear the President talk about lowering rates as
though it is the Federal Reserves responsibility to lower rates
for US Treasury debt management. And that, of course is
exactly how central banks go wrong in emerging markets like Turkey.
(06:31):
When the President the administration lean on a central bank
to prioritize lowering the cost of borrowing to the government,
it undermines the inflation control credibility of the central bank,
and so for me, of course, what is very important
is that the Federal Reserve continue to have that credibility
(06:55):
for inflation fighting. Now it's more important than ever, having
just come off period of high inflation and of course
facing some inflation from tariff, so that independence is more
important than ever.
Speaker 2 (07:09):
Well, I look at the tariff you know what's changed
since your Washington Post op ed. I look at the
tariff debate, erning Tedesky doing great work at the budget
lab at Yale, allile Yale's to college in New Haven.
I don't know if you're familiar with that, but you know,
I look lol at the tariffs now, JP Morgan modeling
eighteen percent, clearly Smoot Hawley nineteen thirty three, maybe back
(07:32):
to the Gilded Age. Will the president be overcome by
events if we see job jobless increase, if we see
GDP decrease, do you just assume at some point, like
mckinnley adjusted, and I think it was nineteen oh one,
is Trump going to have to adjust to the failure
(07:53):
of the magnitude move in tariffs?
Speaker 3 (07:57):
Well, it's very hard to say right now. Of course
I don't have any insights into that, but I would
say what is clear to me, because I have been
listening carefully to the Treasury Secretary and the President, is
that they see tariffs as a way of raising revenues,
and they have a very aggressive revenue target for tariffs.
(08:18):
They want to raise hundreds of billions, three hundred billion
dollars a year in tariff revenues, which is an order
of magnitude larger than what we have seen recently, and
that means that tariff rights have to be at those
high smooth Haley levels with the attendant potential effects on
(08:38):
the labor market. And we've already seen substantial slowing in
the second quarter in terms of underlying private domestic final demand.
Consumers look like they are feeling a little bit cautious.
We can see that even in today's personal consumption expenditures day,
(09:00):
which really was very modest growth. So yes, I do
believe there's some risk that by trying to achieve those
very aggressive tariff revenue goals, they really are putting a
big dampener on what could be a very dynamic and
exciting period in American growth.
Speaker 4 (09:17):
Lyle, the FED has that dual mandate, of course, of
full employment and price stability. Do you think one is
taking a precedent over the other these days within the Fed?
Speaker 3 (09:29):
Well, I think we heard the chair talk about both
sides of the dual mandate yesterday risks to the upside
potentially on inflation, and we see it in this morning's
preferred Fed inflation gauge. You see those core goods going
back up again after a long period where they had
(09:50):
been coming down. But of course you also see it
in the labor market, where private hiring has really ground
to a halt. Now super market is in balance. As
the chair told everyone yesterday multiple times, the unemployment rate
has remained low, and that in part reflects the fact
(10:11):
that labor demand is falling at the same time that
labor supply is also being constricted on the immigration front.
So it remains in balance. But I do worry about
downside risks to employment.
Speaker 2 (10:24):
Love bringing it a young upstart economist up at Harvard.
His name is let me look here, Jason Furman. I
think you may be familiar with Jason Furman. I love
what he's doing onannualized analysis. Folks out moments ago on
Twitter from Professor Firman driving x ten up at Harvard.
One month core PCE three point one percent, three months
(10:48):
two point six percent, six months annualize three point two percent,
twelve months two point nine percent, I'm sorry, Rick Michigan
and John B. Taylor at Stanford, those guys maybe policy
they're on different pages. They're in the same page that
core pc inflation all is too high, isn't it.
Speaker 3 (11:10):
Well, the core PCE inflation is too high, and it's going,
unfortunately in the wrong direction. That is the bind. So
you know what we were seeing before a lot of
the tariffs started to get imposed was actually, finally services
inflation were coming down. Core goods had already come down,
(11:31):
and so core inflation was trending down towards the target.
Now it is detouring with those core goods lifting it again.
And core services actually in the last two months were
a little stronger than we had previously seen. So it's
moving in the wrong direction, and of course that's a concern.
Speaker 2 (11:53):
And Paul I can't emphasize enough the granularity of these
are full time pros, heavyweights analyzing the tariff impact, guessing
out to Labor Day, guessing out to Christmas, guessing into
next year. And the answer is nobody's talking disinflation.
Speaker 4 (12:12):
Disinflation. How about the consumer, lyle, how do you, given
the backdrop, so to Tom just outlined here, how do
you think the consumer is these days.
Speaker 3 (12:21):
Well, we've got some insights into consumers and their feelings
about both the economy currently and their expectations through some
of the consumer surveys, and of course a little bit
less negative, but still quite negative relative to where it
had been before the tariff agenda started rolling out. They
(12:42):
seem to be worried that prices just are still too high,
and of course that now is creeping back into more goods.
But housing has been a problem for a while, and
that goes to the President's concerns, valid concerns. I think
that mortgage rates are quite high and then the housing
(13:02):
market is frozenly.
Speaker 2 (13:03):
One more thing, I'll be quick here. This is the
magic of Twitter, if they would get if they get
their ex straightened out. I've got Jason Furman, Steve Rattner,
and Ernie Tedesky back to back to back in my feed. Lyle,
this is stunning from Ernie Tedesky. Now at Yale, durable
goods have risen by one point seven percent other than
(13:26):
the depths of COVID. That's the strongest six months rise
since nineteen eighty seven. Does Washington understand that, Lyle brainerd So,
I think Ernie is doing a great job pointing out
the granular.
Speaker 3 (13:43):
Effects which have to be in part reflecting tariff effects.
And when we get pronouncements from the White House, sweeping
pronouncements that a country is going to see twenty five
percent tariffs, nineteen percent tariffs, you really wonder whether they've
had the time and the bandwidth to do the kind
(14:04):
of detailed analysis that would allow them to see that
some of those tariffs they're imposing are actually going to
disadvantage American producers because input prices are going up. It's
going to actually not only hurt American consumers, but in
many cases, like in US domestic auto producers, is actually
(14:25):
making their supply chains more expensive and will make them
less competitive.
Speaker 2 (14:30):
This has been fabulous. I got goosebumps right, that's great. Love, Brainerd,
thank you so much with Richard Clarita in this hour
on our nation's economy and what it means for us.
Thank you to ninety two nine FM Boston or Boston
News Bureau for bringing us doctor Brainerd. This morning.
Speaker 1 (14:55):
You're listening to the Bloomberg Surveillance podcast. Catch us live
weekday after noons from seven to ten am Eastern. Listen
on Applecarplay and Android otto with the Bloomberg Business app
or watch us live on YouTube.
Speaker 2 (15:08):
We are honored to have with us Richard clarda always
with Columbia University, with Pimco as well. The former Vice
chairman of the Fed, Ian Lincoln at Bank of Montreal,
the iconic Bank of Canada, just published and he said,
I'm sorry, every inflation series is ticking up. Do we
(15:29):
see tariffs in the minutia of price change already? Do
we see tariffs now?
Speaker 5 (15:36):
Sure, they're starting to show up to some extent in
the inflation data, in particular in those sectors exposed to tariff.
Goods prices are moving up. The overall indexes are are
coming in more or less in line with expectations because
services inflation continues to fall.
Speaker 4 (15:53):
So if you're the Fed, yeah, what did you hear
yesterday from our chairman? Yes, he send it a little
bit more hawkish than maybe the statement.
Speaker 5 (16:02):
I don't know, Harry Truman. I think once said he
wanted he wanted to meet the one armed economist because
he kept getting on the one hand, on the other hand,
I think that was that's what we got yesterday from
from chair Powe. You know, very balanced. I think the
revealing moment was when he was asked by a reporter
about whether or not the dots at the June meeting
(16:25):
were indicative of where the committee was where they showed
two cuts this year. He basically said, look, that was
six weeks ago. We're not paying attention to that. So
he clearly, I think, came in with the goal of
giving himself and the committee optionality in September to pause
or to cut, and I think I think he achieved
that for sure.
Speaker 2 (16:45):
I got to get this side of the way. I
have to ask, have you been contacted by the Trump
administration about future employment in our central Bank? I have not. Okay,
we're waiting on it. There was Psias Glenn Ubberd the
same question at the same silence treatment as well. In
your work in folks, this is wicked fancy mathematics called
(17:07):
dynamic stochastic general equilibrium theorem. Uncertainty is outside the system.
It's what we call exogenous. Our listeners, our viewers are
living indgenous uncertainty right now with all of these shocks
to the system led by tariffs. How do you color
the uncertainty that the PhDs, the FED face.
Speaker 5 (17:33):
It is elevated. I think perhaps less elevated than it
may have been after Liberation Day. I think, in particular,
I think we have a better sense and firms have
a better sense of where we're going to end up
in terms of the new trade regime. And importantly also
we now sort of know the parameters of fiscal policy,
tariff revenue, the deals that are being caught in terms
(17:54):
of investment in the US. So there is uncertainty, but
I think it's moving in both directions. For the economy,
do we have clarity?
Speaker 2 (18:02):
I mean, I look at the Yell budget lab Ernie
Tanowsky and that crew yesterday, Bob Michael modeling eighteen percent
blended work at JP Morgan maybe up to twenty percent
as well. How do people like you that have actually
studied the history give us I like to say, there's
Hubert Heaver tariffs, we're back to the thirties, We're back
(18:24):
to FDR and some you look at the series, we're
back late McKinley like, how do you process the magnitude
change in tariffs?
Speaker 5 (18:36):
Well, sure, and we haven't seen we haven't seen trade
policy like this in a very long time. I think
right now I would say the economy's shown good resilience
so far, both both in the labor market and on
the GDP side. But I think anyone who pretends to
have a precise model or estimate. But I think importantly
what's going on here, Tom is you know that the
(18:58):
Trump folks are really trying to change the trading regime,
and it's early days in that, but I think that's
an important part of the story as well.
Speaker 4 (19:08):
So, Richard, we had two FED Board governors dissented yesterday.
Speaker 5 (19:13):
Both very good friends of mine and former colleagues.
Speaker 4 (19:16):
So I FED people tell me that's kind of something
we should pay attention to that.
Speaker 2 (19:20):
What did you make of it?
Speaker 5 (19:21):
It's the first time I think in thirty plus years
that two governors have dissented. Reserve Bank presidents dissent more
and more frequently. Both Chris Waller and Mickey Bowman, I
think before the meeting indicated that that was going to
be their preference, and I think that I'm sure they
(19:42):
came into the meeting with sound and reasonable arguments for
beginning rate cuts right now. We'll probably hear from them
after the blackout is over as well. But share Powell
also acknowledged that he thought it was a good discussion
at the committee.
Speaker 2 (19:55):
Do they negotiate descents like if there's someone who's the
third descent? Did they say, now you can wait to
the next meeting. Come on, you know, not at the
table in the Eckles building. Wait the tables under construction
fore right now? But is there a discussion within the
propriety of American we're all on the same page economics
(20:17):
that we almost negotiate who and who does not dissent?
Speaker 5 (20:21):
I wouldn't, I wouldn't call the negotiation. What does happen?
And I think this happened under Bernanki and yelling as well.
But certainly during my time at the Palfeed, the chair
before each meeting had individual conversations with all all eighteen people.
Interesting and so there's there. You know, no one gets
blindsided going into the meeting about about the views on
(20:41):
the on the outlooks.
Speaker 2 (20:42):
This is original. This goes back to Larry Myers and
Green spent in that meeting. Is it a courtesy that
you tell the chairman where you're heading?
Speaker 5 (20:53):
Again, those conversations were typically by the.
Speaker 2 (20:56):
Share really unhappy and showed ups today. No, no, no.
Speaker 5 (21:01):
The During my time there, the chair did have individual
conversations with all eighteen folks. Obviously they were nineteen total,
and the purpose of those conversations was so that both
sides had a sense of where policy makers were heading
going into the meeting, and then during the meeting, which
go on for a day and a half. Sometimes minds
(21:22):
change as well during the meeting, but at least going
into the meeting, people all have a sense of where
other folks are.
Speaker 4 (21:29):
I tell you what's changed this in the last couple
of days, Richard is. I think after yesterday's discussion, the
market's kind of pulling back a little bit on the
two rate cuts this year. I don't know before between
now in September, the Fed's going to get some more
inflation data. They're going to get some more labor market data.
Speaker 2 (21:46):
Yeah. Are they just going to wait for that?
Speaker 5 (21:49):
I guess.
Speaker 4 (21:49):
I mean that's being data dependent. I guess right.
Speaker 5 (21:53):
The chair indicated that yesterday. I think that that would
make sense. He'll also have another bite at the communications
apple to mixed metaphors at Jackson Hole in three weeks
and not always, but oftentimes the chairs do use Jackson
Hole as a way to preview the September meeting. So
perhaps another motivation for the two handed economist. Yesterday from
(22:17):
Jay Powell is I'll have the stage to himself at
the end of the month.
Speaker 2 (22:23):
For all of you on your commute across the nation.
A wonderful treat today within the technology earnings allow Brainer
scheduled to be with us here later on in this
half hour, of course, all every work with our central bank,
and now Richard Clarida with us with Pimco, a former
vice chairman. I hate torst and Slock because on a
Wednesday he sends me an email from Apollo Global Management
(22:45):
with six seven things to read, and usually the top
ones are a little light quick reads. Here's what he
sends today. Clarida post pandemic, global inflation, disinflation and central
Bank policy responses, goes on, It's like a movie. It's
got a British movie. It's got a long title. Yeah,
Nber a paper you just published with your thoughts on
(23:07):
twenty one and twenty two. Take this important paper that
Torsten Slock mentions and bring it forward to present day
policy making.
Speaker 5 (23:17):
I'll give you the quick elevator version. Please, global surgeon inflation,
Where did it come from? How do we think about it?
And what are the lessons learned, and the basic point
of that paper is essentially to summarize a lot of
sort of one stop shopping. If you don't read fifty papers,
you can read my summary of the papers. And the
basic story is the inflation came from three factors. A
(23:38):
once in a century pandemic which led to a shock
to supply, triggered a fiscal and monetary policy response, and
then on top of that, of course, you had the
Russian invasion of Ukraine. Policy reacted right, rates, inflation came down,
central banks were confident enough to cut rates. So I
think the lessons learned to me is once in a
(24:01):
century pandemic shocks are very challenging for policy, and on
the other side of it, inflation expectations are anchored. And
that's where we are.
Speaker 2 (24:10):
Peter Orzag at Lazard Now I'm in a shop at
Lazard and also working and Brookings really emphasize the supply
side shocks that we had. Are we there now? Is
the tariff uncertainty now one big supply side shock. I mean,
witness copper, biggest drop for years that yesterday. Sure.
Speaker 5 (24:29):
The other thing I'd like to emphasize as well is
the unemployment rate is low.
Speaker 2 (24:34):
And that is great.
Speaker 5 (24:35):
It's at a very low historical level, but there's still
room for the labor market to expand. In terms of
labor force participation, it's about a point below where it
was decades ago, especially among men prime age male. So
a low unemployment rate is good, but the economy's capacity
depends upon labor force as well, and I think there's
(24:57):
still room to run there.
Speaker 4 (25:02):
President Trump continues his pressure on this fetter reserves, saying
that they should be cutting rates. But we have folks
that we really respect come through the studio that's say
that is behind again. It really needs to cut rates.
I mean, whether you look at real rents or whatever.
I mean, if you look at the real time data,
it's already there. The conditions are already there.
Speaker 2 (25:21):
The cut rates.
Speaker 4 (25:22):
How do you think about that?
Speaker 5 (25:24):
I think a straight reading of sort of standard monetary
policy rules, including the ones I worked on with Girtler
and Galley, for a pretty wide range of assumptions, would
indicate that there's some room to cut rates from current levels.
The details will depend on the model and your views
of inflation, but anywhere in the range of you know,
of fifty to seventy five basis points from here under
(25:47):
the view that Waller and Embowman of express that the
tariffs are not really an inflation shock, they're a price
level shock. And so I think that is the case,
and I think Chirpell himself a month or so ago
indicated the butt for the trade policy uncertainty, they would
probably be cutting rates now.
Speaker 2 (26:05):
But this is important, Richard. Yeah, I really can't say enough.
We are slaves to trend? Oh shuret for we cut rates.
It establishes a vector. Oh yeah, that we must follow.
Why I'm speaking for President Trump now, good morning, mister president.
If you'd like to call in, we'd love to talk
(26:25):
to you. Why in God's name can we just announce
let's just do a one off rate cut and see
where we stand in September or end of October. Why
are we slaves to trend?
Speaker 5 (26:39):
I think that's the sixty four billion dollar question, and
it reflects the evolution in monetary policy. If you go
back to when Tom, you and I start our careers
in the in the eighties with with Vulgar, Vulgar would
never give you an indication of where rates we're going.
Speaker 2 (26:56):
To be, Thank you, thank you. Years.
Speaker 5 (26:58):
It was one meeting at a time, and for the
first half of green Span it was one meeting then
at a time.
Speaker 2 (27:03):
But this is really important, folks.
Speaker 5 (27:05):
Well, two things happened. The academic literature to which I
contributed said there can be benefits to providing guidance on
the rate path, and so I think policymakers fall in
love with that idea. They doubled down on it when
we hit the zero lower bound, and it made sense
to do that. But one of the points I make
in the paper that you nicely plugged, Tom, is that
(27:26):
monetary policy is not immune from the laws of economics.
There are benefits and cost to decisions, and there are
benefits in cost and diminishing returns. And I think you
raise a very good point. We could be in a
different world if basically the FED and other central banks said,
you know, there's a lot of uncertain we're going to
do one meeting at a time.
Speaker 2 (27:47):
Let me cut to the chase. Are we live in
physics envy. We have a lot of fancy people, including
Clareness math folks. It's world class. I can't taste their shoelaces.
I can't tell you I'm a dinosaur. There's not a
dinosaur you're a dinaso. But are we slaves to the
certitude of inertial force where we set up a vector
(28:09):
and we've got a momentum of something. Are you kidding me?
We can't, wouldn't.
Speaker 5 (28:14):
I wouldn't say we're slaves. But that mindset has a
very very powerful hold on a lot of thinking in
markets and in policy making.
Speaker 2 (28:23):
Paul, get one more question.
Speaker 4 (28:24):
In I'm going to take a million dollar cowboy bar
out out west somewhere next month, what should the FED
chairman say in Jackson Hole? Should he change his tune,
should he try to set up the market for September?
What do you think we will hear when Tom's out
there in a million dollar caboy bore.
Speaker 5 (28:44):
I think he's probably going to devote his remarks to
previewing or laying out what they've decided in terms of
their framework. And I think what he will do is
embrace more or less traditional inflation targeting, saying we're not
close to the zero bound now, and policy will act
symmetrically in terms of what he does in terms of
(29:05):
the next meeting in September or the rest of the year.
I think it will depend in part on the data
that we get between now and then, and it will
depend as well on his assessment of his understanding of
the current trade regime.
Speaker 2 (29:22):
Ye, I will read your paper and they'll have Can
I do a report card on a three by five card? Exactly,
Richard Claire to thank you so much, Absolutely brilliant, folks.
That was an absolute clinic on some of the trends,
the physics, the background of how these officials, saying Richard
(29:42):
Claire to the former vice chairman of the FED.
Speaker 1 (29:45):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Corplay and Android
Auto with the Bloomberg Business app. You can also listen
live on Amazon Alexa from our flagship New York station,
Just say Alexa Play Bloomberg eleven thirty A Mere Panda.
Speaker 2 (30:03):
Joins us from JP Morgan, where they're looking at the
tech juggernaut from sixty thousand feet. How does tech in
America in this clear you know, I'm going to take
the ego of dish exceptionalism. How does it affect an
overall investment outlook?
Speaker 6 (30:20):
When we think about the history of US exceptionalists and
over the last call it decade fifteen years. It's been
about economic exceptionalism when we think about this miracle of
high growth, relatively low inflation, relatively low interest rates as well,
but it's also been about corporate exceptionalism. And going forward,
we may have some deterioration in some of that economic exceptionalism,
(30:42):
but certainly you still have that corporate exceptionalism, and it's
rebirthing itself. It's just reviving itself time after time, in
twenty twenty three with the Ai Revolution, but also much
before that in the first phase of some of these companies.
So it has been spectacular to watch some of these
very mature companies reinvent them themselves and grow profits as
they have.
Speaker 2 (31:02):
I just plugged into the Total Return Index five five
five on Microsoft. Yeah, which is where it's going to open.
I guess last ten years twenty nine percent per year, And.
Speaker 4 (31:14):
I'm looking at it today and I'm like, how do
you not own it? Even today?
Speaker 2 (31:17):
I don't own it? Thank you. Triple Lover's dog cash
mirror up to be asleep like a baby. All good, Mira.
Speaker 4 (31:24):
What have we seen from earnings? What have you guys
seen from earning so far? And what do you what
do you think of the market needs to see from
earnings cycle.
Speaker 6 (31:31):
Earnings have been pretty healthy, but also remember the fact
that estimates for earnings were basically cut in half for
this quarter since the beginning of the second quarter and
over the course there so the bar was relatively low.
We're seeing earnings surpass that you are seeing the MAG seven,
of course so far blowing the lice out on earnings,
expected to contribute about two thirds overall to earnings growth
(31:52):
over the course of this quarter, but that should broaden
out over the next couple of quarters. So the good
news is that we are not only hanging our hat
on MAG seven. Profits across the board story is improving incrementally,
But when you think about how that passes through to markets,
the MAG seven are driving about a third of the
returns in markets. So the market does not does demand
(32:15):
that the MAG seven continue to post these types of profits.
When I think about it from a broader allocation perspective
in terms of what clients do and don't own, we
should also remember that given the comeback in the MAG
seven itself, you probably already own a lot, so it's
not necessarily requiring us to double down on it. There
are names that you want to have in your portfolio,
but also think about broadening out beyond that. Given the
(32:36):
fact that this year, for the first time in a while,
we've got choices.
Speaker 4 (32:39):
Well, one of the choices is, and we saw people
make this choice earlier in the year, is they move
money out of the US into rest of world, maybe
even European equities for example. How did you guys view
that kind of trend and did you guys participate.
Speaker 6 (32:54):
We did see investors, at least at a headline level,
more interested outside of the US, but also didn't necessarily
see investors actually selling the US. You still have foreign
investors owning about a quarter of the treasury market at
about twenty percent of the equity market, and you also
see Americans and foreigners doubling down not only the retail segment,
(33:14):
but also increasingly the institutional segment. So I don't think
that sell America narrative is intact. However, I do think
that people are putting that incremental dollar towards some of
the other more diversified opportunities across the board internationally, and
it's not just the dollar. We're seeing the dollar move
a little bit higher, as Tom pointed out, and yet
international equities have survived on a number of different catalysts.
Speaker 2 (33:37):
Bob Michael stopped me cold yesterday. It was a single
sentence of the Fed decides show Parole and Casman are
modeling now as earning. Tedeski at Yell budget lab eighteen
percent tariffs back to thirty three, thirty four, and Bob
even goes up to twenty percent, which to me is unimaginable. Folks,
(33:58):
this is like McKinley terrorists in the Gilded Age. If
we get that, what happens to an investment strategy in America.
Speaker 6 (34:06):
We do have to be mindful that if we get that,
it's probably going to result in higher inflation and slower growth.
But we also have a little bit of a wrench
in the works here when we think about where we
get to in the beginning of next year, in that
we're going to start to see the impacts of fiscal stimulus.
When it comes to some of those tax cuts, some
of them are extensions, but there are some sweeteners in
(34:26):
there that are going to add some fiscal stimulus to
the economy that could potentially keep inflation a little bit higher.
It could also boost growth.
Speaker 2 (34:33):
Do rate cuts come to rescue? Are rate cuts just
to normalize, or can they actually add on to the
stimulus of the huge fiscal bill. They could.
Speaker 6 (34:45):
I'm not sure that rate cuts are actually as relevant
when we think about the fact that over the last
couple of years you've actually had even higher interest rates,
and you've had twenty plus percent markets even outside of
the mag seven. The S and P was up eight
percent ten percent over the last two years perspectively. So
we don't need rate cuts to save the market. I mean,
the market doesn't look like it needs any saving at all.
Speaker 2 (35:05):
Have you been in the new building, not yet.
Speaker 6 (35:07):
I've seen it. You can see in through the windows
from the building across the street. Very exciting, very exciting.
Speaker 2 (35:13):
It's just, you know, then, all that's going on in
New York City in this tragedy is just great to
see the leadership at JP Morgan and Sitadel and others
on Kevin, I really can't say enough about it. You're Panda,
Thank you so much. Global Market Strategist JP Morgan, Investment
not Management.
Speaker 1 (35:36):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Coarclay and Android
Auto with the Bloomberg business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 2 (35:50):
Now we go ever stronger market. Lehman is with Citizens,
JMP Securities. He is definitive on the culture of San
Francisco in Silicon Valley. This goes way back to Montgomery
and other aims in the past. This is a guy
with sell side, get out the Excel spreadsheet, cred but
(36:13):
also done em and A. I want to talk about
picking up the pieces off of First Republic May of
twenty twenty three. You've been intimately involved, not so much
in the details, but his San Francisco and Silicon Valley
recovered from that tobacco recovering.
Speaker 7 (36:33):
And it's a good theme with what we talked about today,
and we'll talk about with Meta because it's about AI
and it starts with the election we had last year
and Daniel Lurie becoming mayor. So a year ago the
mayor Lendon Breed had about a thirty percent positive and
a seventy percent negative. Today Daniel Lurie is a seventy
(36:54):
percent positive and a thirty percent You probably couldn't get
a seventy percent positive on anything today.
Speaker 2 (36:59):
You're Buch Frank Cautron yesterday. Yeah, this guy is like Frank,
you're more qualified than anybody I know to give me
the X axis on AI. Is AI equivalent to anything
in the past? And how far out do you see this?
As I'm speaking as an amateur, this boom.
Speaker 7 (37:18):
It's I hate to say it because the stocks have
moved so much, but it's early and Met is a
perfect example of that. Some of the things that they're
starting to work on and starting to see are showing
in the numbers, but it's really just the beginning. And
I'll give you one example, Tom. They they even talked
about some of the the using large language models for
the first time, and as you know, those have been
(37:39):
we've been talking about those for a bit. But they're
starting to use those for some of their offerings. And
so we've already seen the numbers show up. We're already
seen what they're doing with Capax, but it's showing up
with the numbers already, and we're just at the beginning.
Speaker 8 (37:53):
So as much as these.
Speaker 7 (37:54):
Stocks have run in, as much as we've seen great
gains in the stock market, I hate to say this
because it's going to spook some people.
Speaker 8 (38:02):
We may be early.
Speaker 4 (38:03):
Interesting and Mark, I mean you're responsible for the state
of California, the business, investment, banking business for citizens in Californa.
That's like one of the biggest economies in the world.
Talk to us about California writ large, because we've heard
so many stories about people leaving New York, people leaving
California for Texas and Florida and so on. So how
is the economy in California.
Speaker 7 (38:24):
So it's gone from the fifth biggest economy of the
world the fourth biggest. Citizens has now a major footprint
there where before it had a minor footprint. As you know,
they bought my predecessor firm, JMP, but they've gone in
a variety of markets, whether San Francisco, Silicon Valley, Orange County,
Los Angeles, San Diego. Citizens now is a footprint and
private banking and some of the halo that First Republic
(38:46):
had we've been fortunate to garner because we've just hired
some of these people who are really how many.
Speaker 8 (38:51):
People say they love their bank and young people.
Speaker 7 (38:53):
At First Republic love their bank, and we've been able
to garner some of that halo because it's all about
service and it's all about coordinating. We're coordinating across the platform,
so of our mid tier piers, we're coordinating across a
private bank and investment bank of commercial and consumer.
Speaker 2 (39:07):
How will Silicon Valley defend against Lord Dell down in
Texas and Texas building out they're doing with the New
York Stock Exchange in Texas. Y'all Street, y'all street, what
are you watching land? How does California strategically defend against
the Dell juggernaut in Texas?
Speaker 8 (39:27):
I think it's a big pie. I think we have
some things going for us.
Speaker 7 (39:32):
Obviously we are as I'd like to say, the Golden
Gate Bridge isn't leaving.
Speaker 8 (39:36):
Cal's not leaving. Stanford's probably not.
Speaker 2 (39:38):
Leaving, so educational funding.
Speaker 7 (39:40):
When I hear everybody's leaving San Francisco, I just have
my best guess is Call and Stanford are staying and
yet and the talent and the dollars that are being
spent on AI. You can look at the statistics the
dollars that are being spent in San Francisco, that's a
big number.
Speaker 2 (39:54):
The horrific tragedy in New York City we're living in
the last seventy two hours with Blackstone, their commitment before
all of this horror to Western Pennsylvania is just absolutely
extraordinary again Carnegie Mellon University of Pittsburgh and that so
are we going to see a greater at the margin
(40:15):
cash commitment into Silicon Valley.
Speaker 7 (40:17):
I think what you're going to see is a public
private partnership, and San Francisco is leading that. Like I
said at the top, Daniel Luriy and the business leaders
in San Francisco are committed to finding ways to exploit
the talent.
Speaker 8 (40:30):
Base that we have. Some of the ills that we
have are being fixed.
Speaker 7 (40:33):
And I think there's nothing we like more in this country.
To kind of denigrate things, but there's nothing we like
even greater that than a resurrection story. And I think
you're seeing that real time in San Francisco. And I
think that public private partnership is the most important thing.
Speaker 4 (40:48):
Mark we heard from some of the big banks reported
earnings last week. We heard some pretty positive rhetoric from
the Jamie Diamonds of the world, the Brian Morny hands
of the world, talking about the big global capital markets business,
global banking business. How are you seeing it in the
mid market in California.
Speaker 8 (41:05):
It's definitely picking up.
Speaker 7 (41:06):
I think you're seeing the first signs of a resurrection
of the IPO market. It has not been like we
saw in twenty twenty one, and I will not predict that.
But you're going to see the back half of this
year a bunch of tech companies and a bunch of.
Speaker 4 (41:20):
Who saw Figma price last night exactly?
Speaker 7 (41:22):
And you're going to see several after Labor Day, and
you're gonna see more going out of twenty twenty six.
Speaker 2 (41:27):
Tell us about electric generation, you know there's there's an
angst about it. I think nationwide. I'll say in Virginia
leading the way. But is there going to be a
power suck with the lights don't go on in the
Golden gate Bridge because of all the AI wrapped around
the San Francisco Giants.
Speaker 8 (41:43):
Yeah, not.
Speaker 7 (41:47):
As going to an eight and the postly All Star break.
There's two and eight after they also, right, but it's painful.
Speaker 2 (41:53):
I traded with the Red Sox.
Speaker 8 (41:55):
I did, and I'm not sure Devers is happy.
Speaker 2 (41:56):
But his new homes have to see that, thank you.
Speaker 7 (42:00):
But my hunch is no, I think there's going to
be the kind of innovation that we're seeing in technology.
You're going to see in power generation and it is
a land grab right now. And the Warren talent for
that is real. With the kind of AI purchase that
we've seen Matta make and Microsoft make, can we.
Speaker 2 (42:18):
Go back to Mark Leman old school forget about this
executive m and a bank backed and all that. The
cash use of these juggernauts that we all own, we're
all living. Did they understand they have to deploy cash
to shareholders within buybacks or as Paul mentions always dividend growth.
Speaker 7 (42:40):
If you're talking about the Big seven or Big eight,
I think, like we said, it is kind of a
Warren talent right now. And when you see the headlines
that Meta got for spending fifteen billion dollars for half
a company, they really spend fifteen billion dollars on a
bunch of talent and it barely is you know, it's
not one percent of the company, right so it looks
like an enormous number in an enormous bet, but it's
(43:01):
really not. And when you see the kind of returns
that the companies get on their investments and their investments.
Speaker 8 (43:06):
Are people I think right now they think a bigger.
Speaker 7 (43:08):
Investment is in that race, and it is a race
and there's four or five incumbents, and then there's obviously
open Ai, which we saw their valuation recently, and others.
But there aren't going to be twenty of these. And
there's one other thing that I think is really important
to know is that there are a couple of companies
that have resurrected. I have said for a very long
time there's only two tech companies who reinvent in themselves.
Speaker 2 (43:29):
It's App on Microsoft.
Speaker 7 (43:30):
But look at the market cap ascent of Oracle, look
at the market cap acent of IBM, and these companies
were left for dead basically obviously they really are. So
when you it's about leadership, and it's about talent, and
it's about drive in future.
Speaker 2 (43:46):
Twenty seconds, Intel helpless.
Speaker 7 (43:51):
You know, uh and video is going to market cap
is going to go out more than into three intels
today and I just I hate to be pessimistic.
Speaker 8 (43:59):
It's really hard to find to wait that path for that.
Speaker 2 (44:01):
I got goosebumps this week of technology, Mark Lehman with
his CEO citizens at JMP. That's a great brief before
we speak with enerrog Rana.
Speaker 1 (44:09):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also listen live
on Amazon Alexa from our flagship New York station. Just
say Alexa play Bloomberg eleven thirty the.
Speaker 2 (44:26):
Way we roll. We got Mark Lehman with us here
with citizens JMP and anrog Rana on the physics of
this AI moment. He's with Bloomberg Intelligence and has been
absolutely dead on and I have courage for a long
tail of AI excellence ANIAG after what we saw yesterday.
I want you to frame out capital spending for twenty six,
(44:50):
twenty seven, and even twenty eight. Is it a linear expansion,
does it accelerate into the coming years, or is this
as good as a get.
Speaker 9 (45:01):
So at least for the next two years, we think
the number are numbers are going to go up, the
rate of growth is going to slow down. But it's
tough to call out twenty seven and twenty eight because
right now we have just started to see the benefits
of all these investments that, for example, Microsoft has made.
So I think a lot depends on the pace of
adoption and more so on the enterprise side. To see
(45:23):
what twenty seven and twenty eight looks like. But at
this point we feel very confident about twenty five and
twenty six.
Speaker 2 (45:30):
So I mean, for.
Speaker 4 (45:30):
Microsoft, give us the two or three things that the
bulls are really hanging their hat on here. Again, we're
gonna looks like we're going to hit four trillion dollar
market cap here today.
Speaker 9 (45:41):
So patly, I mean the simple you know, basics is
when when a company's size gets bigger, the growth rates
stops or slows down. In the Microsoft's case, you could
see that growth in Azure is accelerating. This is now
a seventy five billion dollar business as of the end
of lean a lost quarter. So in that case, when
you see growth rate in the thirties accelerating, that basically
(46:03):
shows that the AI adoption rate is picking up. And
you know, people just assume that this is just the
beginning of the adoption curve. Right now, all we're seeing
is the infrastructure spending and that's the benefit everybody's seeing,
whether it's Nvidia or you know, Dell servers, et cetera.
But now what we're seeing is adoption rate on the
cloud side, and I think that is really what is
exciting a lot of people out there.
Speaker 4 (46:25):
So on argument, Well, take a look at Microsoft here,
I mean, what percentage of the cloud an AI do
you feel like is their market share versus some of
the competitors, because we still have to hear from Amazon.
Speaker 9 (46:40):
Yeah, so when you look at just the cloud infrastructure site,
you know, they are the second biggest player after Amazon.
Amazon's you know rund rate as well, over one hundred billion.
But Amazon's growing in the you know, let's say around
the eighteen to twenty percent range. Microsoft now is showing
that they're growing, you know, thirty eight thirty nine percent.
That's a very big difference between the two. So, I mean,
just imagine as seventy five billion dollar business growing in
(47:03):
the mid thirties. And that's because they have that direct
relationship with open ai where they're getting the direct benefit
of U and B using more chat, GBT.
Speaker 2 (47:11):
And right, let's do a two part question. I'll get
the apple on the back end of this color out
the nature of their businesses. Dani's is very big that
Microsoft is the enterprise cloud a person. What is Amazon?
What is Oracle in the rest? What's the character of
(47:32):
those cloud businesses?
Speaker 9 (47:35):
I think that's probably one of the most important questions
for people to think about it right now, when you
look at somebody like an article there, I would say
primarily an infrastructured AI infrastructure player at this point, which
means you want to go there, you want to rent
out the GPUs and you are training your models. Microsoft
is basically said, that's the business they're not so keen on.
They really want to rent out capacity for training to others.
(47:58):
But they are really on the infant size, which is
when an application is running, they want to run that
application because they eventually want to grow with that application.
We think that's a more high value product.
Speaker 2 (48:08):
So then bring it to Apple. This afternoon, Apple and
Google have a search agreement. Do you just assume there's
going to be an announcement that Google Gemini becomes part
of the Apple family. What do you see anaragus salvation
for Apple's AI, Miss.
Speaker 9 (48:26):
Tom As far as I am concerned, you know, that
is the biggest overhang on the stock that nobody talks about.
That twenty billion our payment that comes from Google is
very high margin business adds really to the free cat
flow and the valuation of the company. If they ever
make a deal on that, I think it will be
good for the company.
Speaker 2 (48:44):
It will be good for the stock.
Speaker 9 (48:46):
But one of the good things Mark German has reported
is Apple's ready to go out and partner with other
companies to get their AI into their ecosystem. I think
once they do that, that's another overhang that goes away from.
Speaker 2 (48:57):
Its all wants to get in here, let me be quick.
What are they waiting for?
Speaker 9 (49:03):
I think it's a little bit of they take their
time and making these decisions. They are not yet. They
never do things in haste, and I think that speaks
to the way they treat their user base. They want
to protect their privacy, they want to make sure things
are fine for them. So again, I'm not gonna get
rid of my phone just because the AI is a
little bit slower. I can't make some pictures, but I
(49:24):
think it's gonna come over the next twelve months.
Speaker 4 (49:27):
I mean that kind of goes to my point on
a rogaman. Every time I hear you and other smart
people like Mandep Seing talk about AI in the context
of Amazon or Microsoft, it just the initial question is
what about Apple? So it's I kind of feel like
they don't have to be first, but boy, they just
feel like they're getting every single day farther and farther behind.
(49:48):
I kind of feel like time is of the essence
for them to announce something major.
Speaker 9 (49:53):
Yeah, I completely agree with you. But at the same time,
this is a company that controls probably the most important
distribution system for consumers out there. I mean, people will
stick to the phone no matter what if they get
if they get it wrong, but you know, Paul, that
really makes a huge difference for them. So this is
why they're taking their time. They're using multiple models to
(50:14):
figure out what's best for them.
Speaker 2 (50:15):
I mean an rog just to keep up with you.
This guy's physics University of Deli. You know, I know
it's amazing. I mean anerrag I did MSFT equity. Tom
Sikunda said, time you gotta do more. Turn stay with
me on this, two hands on the steering wheel, okay,
Ani rag MSFT Equity, AAPL Equity. Hs I did a
(50:39):
ratio spread analysis, and Apple's failing off of Microsoft by
two standard deviations, which you know is ginormous. Where's the urgency?
And Cooper Tino, Well, think about it this way.
Speaker 9 (50:55):
Microsoft sales last night grew at fifteen percent. Apple's gonna
grow at five percent. I've been debating I always never
understood why there was always their you know, valuations were
at parity at that point. Now we are coming to
a point when the valuation shows the growth potential of Microsoft.
Imagine a company this size growing at fifteen percent. I
mean that's pretty big. Apple six seven percent max at
(51:18):
the best at this point. If they come up with
a new iPhone seventeen, maybe it goes to seven or eight,
but that's where it ends. Frankly, doesn't go in double
digits under no circumstances. Can I see Apple growing in
double digits?
Speaker 2 (51:30):
Interact thirty seconds? Is elon in this discussion? Yes?
Speaker 9 (51:35):
But the question I always you know, wonder whether Zelan
or Meta is how are they going to monetize their
large language models.
Speaker 2 (51:42):
Now this is.
Speaker 9 (51:42):
Where Microsoft really has the biggest distribution army in the
enterprise world, so they will stick there. You know, AI
products across every enterprise out there, even if it's not
the best. I do not know how the others are
going to monetize that is.
Speaker 2 (51:56):
This great Mark Linman back to back with the enter Atlanta.
Yep is in the on deck. Certain, yeah he is,
He's on the subway. It's just is that how you're
it's coming in than very good interog. Thank you so much,
an rog Rana. They're with great seats for the Chicago Cubs.
Oh yeah, it's unbelievable.
Speaker 4 (52:15):
It's a burgeoning tech cub Chicago.
Speaker 2 (52:17):
It is. It is a tech hub. Androg Rana, thank
you so much. That was fascinating on the different ais,
I don't pretend to understand it.
Speaker 1 (52:24):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
seven to ten am Easter and on Bloomberg dot com,
the iHeartRadio app, tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
(52:45):
and always on the Bloomberg terminal
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