Attention Will Be on Fed's Language, Lignos Says

Bloomberg dot Com, and of course, on the Bloomberg. On the question of where is Mark Zuckerberg, Lisa Axios reporting this morning that he might break his silence within the next twenty four hours, and my question is whether it's a fluffy webcast about making a world a better place in his commitment to do that, or whether he will actually sit in front of the reporter and take some serious questions in a way that he hasn't done it for a long time, or whether he will pledge to

go to Washington, d C. And testify in front of Congress, which could end up being a tipping point. The other thing I'm looking at to see whether it is a tipping point is whether we have reached the level at which any additional FED rate hikes actually lead to a tightening of financial conditions, because John, as you were pointing out before, wisely, so far rate hikes have actually led to a loosening of financial conditions joining us now, John Sylvia, he is joining us from a snowy Boston and he

is very proud to be here. Thank you so much, Chief economist at Wells Fargo. UM. So let's talk about that. Have we reached the tipping point? Now? If you look at the Bloomberg Financial Conditions Index, you'll see that the improvement over the last six months to a year in the equity market, as well as the weaker dollar has really meant that the financial conditions index is easier today than it was six months ago. So if the Fed would raise rates in March and June, I don't think

we're reaching that tipping point now. Clearly, you know, given that your dad was a mathematician, Lisa Um, he'll explain to you that these linear projections oftentimes don't work out in a non linear world. And so we see in and again two thousand five, two thousand seven. Yes, the Fed can continue to project raising interest rate twenty five basis points every other meeting, but at some point there will be a challenge in the marketplace. Are we anywhere

near to that? No? I think at this point in time. Now, this this year, you got two and a half to three percent growth in the economy and maybe, uh, maybe, Jonathan, when the Treasury continues to increase its financing of the deficit, that you may see some additional pressure on the economy. We're trying to understand the relationship between unemployment and inflation and trying to get some insight from Chairman Powell on

his thoughts of that. The the estimated equilibrium for unemployment seems to be marked a market at the Federal Reserve just drifts lower because unemployment is just drifting lower. Did they have a clue, John, No, I think the markets themselves don't have a clue. It's been quite a surprise that the wage numbers have not increased in line with the decline the unemployment for the last year or so.

We see total labor compensation rising. But no, I mean a lot of discussion about the flat, the flat Phillips curve um, the very very you know, slight slope to it. It's just totally up in the air. We don't know what the equilibrium interest rate is in terms of the Federal fund, right, And you're right, there's this problem in

economics that the latest data dictates the equilibrium. All right, I want to push back a little bit, because you're saying we haven't reached that point where you're gonna get tightening financial conditions in response to rate hikes, and that we're nowhere near that, And yet libor is the big story tightening, rising rapidly to the highest level since two thousand and eight, and it's the factor are tightening of

financial conditions? What do you make of that? Well? It is I think when you're looking at the short interest rate, you are seeing a tightening and financial conditions. But surprisingly, when you broaden that out to again look at the Bloomberg financial conditions in deck, and you look at the dollar and equity markets and the ability of corporations to finance or slee bonds, it's still pretty easy, all right. So how far does the Fed have to hike before

it reaches that to big point? Mean, what's the what's the number? Um? I think, again, when you're looking at March and June, that's a layup. But I would say to September and December moves are much more challenging because at that point in time you do have the FED shrinking its balance sheet and the Treasury increasing its financing. That to me is a very very challenging purer. So the second half of this year could be challenging in some financial mark and the extra led to that as well.

John is to to some extent, maybe even a greater extent, the c B has provided cover for them over the last couple of years. It's one of the reasons financial conditions of East Well again, one of the challenge just you know, Lisa and Jonathan, is the the e c B buys corporate debt, and so when you think about corporate bond issuance in the United States, it's a lot easier when you've got a central bank buying in Europe. John Sylvia, thank you so much for joining us. It's

really a pleasure of having you. We'll be checking back with you to see whether you've changed that tipping point as soon. John Sylvia, Wells Fargo chief Economists joining us here in our Bloomberg eleven three oh studios. What does Facebook have to do to keep traders from continuing to sell? Answering that question, Eileen Bourbage, partner at Passionate Capital also known as tech City UK. She is a chair there. Uh and Eileen joins us now, thank you so much

for being with us. Eileen So what does Facebook have to do to adequately respond to this crisis and uh prompt traders to buy again. Yeah, I think first and foremost they're going to have to write it out a little bit. But what will help is if they start to get in front of the messaging and in front of the information disclosure. And that's that's I think been

a real problem. Their response to what's been happening now for the last few days has been largely one of silence or of just saying playing the victim and not coming from you know, Mark Zuckerberg himself or even Sheryl Sandburg, and I think that's what's worrying investors a bit. Um. I would assume that they want to hear from those two directly, and they also want to being slightly reassured that this isn't going to bring about um over the top regulation now as a consequence, and I would guess

that those two things need to be addressed. Sp Eileen, We forget, actually how young Mark Zuckerberg still is. You've worked with so many young tech leaders, tech CEOs. He's shown a phenomenal ability to orientate this company to areas of growth. What he did with mobile a number of years ago was very, very impressive. But this is his first real crisis that he's had to deal with as the CEO of Facebook in terms of the pr around the company. Eilan, are we seeing some immaturity from Mark

Zuckerberg at this point? I don't necessarily think that's the case. I mean, I think obviously he's got to continue to develop. But I recall years ago when you know, he used to get criticized for wearing his hoodies on stage, and and that's when the market sort of thought, really is this guy going to be able to take the company public?

And how's he going to development? I think he's He's demonstrated a really really great wisdom and being very judicious and surrounding himself with really strong advisors or people such as Cheryl Sandberg or others who can compliment him really well. And I think this is going to be a team effort. It's not just him, but he's you know, he needs

to be advised, he is to be fully briefed. He needs to own and and understand that he's as accountable or more accountable than anybody else for this, and to be able to sort of communicate that in a really passionate and efective way. Well, I mean strategically, yes, I mean he showed himself to be phenomenal. I was one of those individuals that also questioned what this gentleman was doing in a hoodie on a road show to take

a company public. And he's proved everybody wrong. He's proved everyone wrong with his m and A strategy as well. But on this particular instance, he's been completely tone deaf to what's been happening over the last twelve months, hasn't he. Uh, it does seem that that he took it for granted actually, or he didn't realize or appreciate how big it was

going to get. Yes, I think that's the case. And I think that's because, you know, the company position is probably one that right at the time that this happened, we had teas and teas that allowed this, but look

we changed those subsequently. Um, it wasn't necessarily a leak as such or a breach as such, as you know, one person making use of our APIs sharing information which I shouldn't have done with another party, and so they kind of had a defensive approach or response as in sort of very technically, you know, we don't think we did anything wrong, and I think that from your right

that is tone deak. You need to come out in front now, this whole team needs to come out and sort of acknowledge that whether it was technically you know, against their rules or not, or in any violation or anythink, it's not what people want the social network to be

used for. You know, Eileen, yesterday we were talking about regulation and this was sinking a number of tech shares, in particular Twitter with shares following more than ten But today it looks like an increasingly Facebook specific story because Facebook shares are continuing to decline what Twitter is popping

in pre market trade almost two percent. So what does that say to you about sort of the delineation here between the companies that are responding to these things well and those that don't and uh and sort of independent really of even regulatory action here. Yeah, I do think it does demonstrate that investors and customers more more to the point, really want to hear about the company ethos. They want to understand what the mindset is behind the company.

They want to hear about their values, and they want to understand that executives are mindful of their sort of consumers point of view, and I think Twitter has handled that well. Of course they had less to sort of fall or to sort of stay off. But Facebook really hasn't done anything, and that is a massive problem. Yeah, Eileen. At the center of this is this business model for Facebook where essentially you get to use the platform for free, but the currency that they charge is your personal data,

and they use that personal data to generate ad revenue. Ultimately, that's the core of the business model, Eileen. Is that business model being challenged? Is there an existential threat or is it too early to say that? I think I think it's too early to say that. I think it's an age old business model and I don't think it's going to go away. However, will the companies start to rely on or become stronger because of alternative business models, Yes,

I think so. You know, it starts to make money off of other things that are not just advertising based, whether they're transactional related or even financial services like and I think that's going to continue to be more and more important. But I do think advertising is good here

to stay. Then, I think the point about the regulatory situation is that we're in a new kind of operating dynamic, and there's there's got to be new rules around how aggressive or how deeply one can go, you know, Eileen, I just want to take a little bit of a broader look at sort of whether this marks in some ways the peak of the massive run up in tech shares and the incredible rally there just because at this point they're being treated like real companies, not just unicorns

or uh you know, all growth, all potential and uh nothing to stop them. I mean, are we are we seeing sort of a tipping point here? I mean, I

think it's a good sort of reset. It's a good time to take stock and to sort of understand more so for the executive teams of these companies that they have a great responsibility right to the customers that they service, and they have a huge responsibilit the uh as to how they impact maybe even geopolitical events, and whether they're they're acting transparently enough um and being upfront enough about

what their business models are. How that might be you know, used by malicious characters or other people that you know, they're not there to service, but who could take advantage of what they offer. I think that's absolutely true. Well, and I say this in light of a number of initial public offerings from the tech companies. Were finally seeing

these companies go public. And there is a question that one guest on radio yesterday was raising, which is does this mark sort of the peak where some of these founders want to cash in and get out UM? And I'm wondering, you know, from from an advisory standpoint, is that the mindset of some of these founders. I wouldn't have thought so. I mean, perhaps I'm too much of an idealist, But then again, I am an investor, so

I'm going to be an optimist. But I don't think UM founders start businesses, first of all, to to necessarily help, you know, enable the various sort of actors. They don't start companies or platforms to try and help other people manipulate them. And so there I think these take them by surprise, and that is part of why there's such a backlash and a reaction now against Zuckerberger, against the

company Facebook. It's sort of like, really, did you not, you know, expect that this might happen, or did you not consider your responsibility and trying to manage this kind of situation. UM. But then even when it doesn't happen.

I don't think, um, you know, the strong entrepreneurs are looking to get out then I think, you know, if anything, there might be a sort of a battening down the hatches, you know, to remind people know the reason I said about doing this, or that we as a team wanted to do this because of all the positive you know, benefits that we can bring, whether they're commercial or otherwise. And I don't think they look to get out. Eileen, it's great to catch up with you. It's been way

too long. Thank you very much for joining us on Bloomberg Radio. Eileen Bourberg, who haven't been able to speak to for a long long time, but it's such an insightful voice in the world of technology. Partner of Passion Capital, also the Text City you k cha hm Tresy. I want to just pick up on the weaker dollar versus it's peers today. I'm sure that comes as sweet satisfaction to a lot of people out there who are bearish on the dollar going forward, But what happens if they

end up being wrong? Elsa Limnos joins us now. She's RBC Global head of FX Strategy. Also, thank you so much for being with us. Arguably, the bet that the dollar will continue to weaken is the most crowded trade out there right now, at least according to some analysts. I'm wondering, do you think that the likelihood of a reversal of some sort of strengthening actually is getting more realistic. Yeah, it's definitely one of the most crowded trades out there, um,

and the most popular amongst the majors. And it's interesting because the dollar, having started the year very badly in January, hasn't actually been going anywhere through February and March. Um. And I think the longer you see this position stoll Um, the more likely there's people start questioning that very varish consensus.

What's the story that backs up the dollar weakness? And we're looking at capital flows because rate differentials, certainly out for the last year or so, don't really explain the move. So there's a number of reasons that people are pointed to,

none of them particularly well founded. Um. There's been a lot of talk around you know, when front end rate differentials didn't work, people looked at the long end, and then that stopped working, so people started scrambling around for other relationships at the moment, there's a lot of focus on the two fives part of the curve, the relationship with eurodollar, even that now seems to be breaking down. UM. So that's one thing, you know, people are kind of

constantly looking for new rate relationships that may explain it. Um. The second one that gets a lot of traction with some people is this idea that the US budget deficit blowing out, we're going to go back into a twin deficit world like in the early two thousands, and that means dollar weakness across the board. And of course there are some key differences between now and then, um, namely the fact that the private sector is not in depth

sit as it was back then. And so you can go through these reasons one by one and it's not really questioning whether or not they're really going to hold in practice. You know. Also, one thing that I'm struck by is that the economic data in Europe, which many people have had really high hopes for, has been disappointing again and again with each additional reading. And I wonder at what point this really becomes Europe versus US story.

If those disappointments continue, could we just see a de facto strengthening in the dollar that could potentially be disruptive in response. So that's right. You know, you tend to see that with economic expectations and surprises, that they build up as economists have underestimated the ranks of the recovery, and you get all these positive surprises cumulating, and then expectations catch up to the reality and usually over shoot UM and then you start getting the negative surprises. That's

certainly what we're seeing at the moment. In Europe. You know, we had a very long run of positive economic surprises on our indicators UM around thirty three out of thirty four weeks were positive, and that really came to an end a few weeks ago, and since then, um, we've seen Pierre mis this pointing we're going to get another

batch of Pierre Mice tomorrow. The hard data are pointing to maybe a bit of softening momentum as well, And I think it really cools into question this thesis that you know, the US is slowing down and the rest of the world is still picking up at the same time. I just don't think that's validated by the data. Yeah, one thing I want to broaden out and talk about inherent leverage in this system tied to this bet on

a weaker dollar. We see this with the emerging markets and how popular they've become investors going in unhedged, even though it really is a currency bet. UM. Has the market ever been this levered to the bet that the dollar will continue to weaken um. It's certainly been a

while since consensus was this strong against the dollar. UM. You know, when you look at emerging markets, and typically m vets will always be on hedge because of course the cost of hedging is so high UM, but it's unusual for people to be unhedged in d m UM as well. So you know, when you're actually paid to hedge European exposure, Japanese exposure. At the moment, as a US investor, to take the decision to be on hedged, it means that you're actually giving up a bit of

carry that you could pick up. And so that's where I would look for the first signs of the dollar bearish consensus cracking. It's really against the developed markets where you may see that fallings first. That's a really really interesting point. Else So I do want to pivot towards the federal reserve a little bit later today. What are you looking for from Chairman Pale and what would you

like the first question to be for him? Nah? Um, you know, the testament, it may not be that different um to what we heard in his semi annual testament. You know, the press conference may not be that different. UM. There's a lot of focus clearly on what the median dots are going to show UM, although the hurdle for the median shifting from three to four dots is probably fairly high. UM. I think there'll be quite a bit of focused on the language around the statement. You know,

what will they say about the balance of risks. A lot of people have been focusing on the brain Ard speech from a few weeks ago, and the fact that growth is expected to be high this year and next UM with the tax cards coming through UM, and so there will be a lot of attention on the language

around the decision. So are those forecasts for growth to pick up this year and next anchored in hope more than anything else, because I don't see a pick up in the first quarter here in the United States, you know, for better or for worse, think most central bankers still rely heavily on their traditional economic models. UM. And typically when you see fiscal stimulus of the size that we've seen, UM,

you'd expect that to lead to to high short term growth. UM. It's it remains to be seen how long that will take to feed through. It sometimes takes a little bit longer than expected. I mean, we've certainly seen that in other countries. Canada, for example, voted through quite a large UM fiscal use in package a few years back, and it took a while for that to come through in the data. But it does tend to come through eventually.

Just that real quick, I'd love to get your sense on the just going back to the dollar weakness, and I wonder if how much the FED is sort of watching this is something that's easing financial conditions. I wondered to what degree that reflects political risk and what degree

that reflects the deficit that you're talking about earlier. That's a good point because I think if you look at traditional explanatory factors for effects, whether that's great so capital flows or anything else, UM, it's hard to fully explain dollar weakness on those alone. And so some people have pointed to this unexplained gap and and said it reflects some kind of negative political risk premium UM rightly or

wrongly UM. The problem with calling it that is that it's very difficult to identify whether it should grow or reduce, and what the mechanism is behind it. UM. I think the safest thing to say is that, you know, we are certainly seeing much more conventional policy from this administration. UM. But whether it's tariffs and the response from China, or whether it's UM the approach to tax cuts or anything else, the economic transmission mechanisms should actually be the same as

always been. An easy episical policy means tighter monetary and SELENOS has been grebably catch up with your joining us from the City of London, the RBC Global head of f A strategies him there was a headline that crossed this morning that I found really interesting. It's not just Facebook. Big tech revolt has begun this according to Namur currency

strategist Bilal half Fees. I want to bring in Stephanie Miller, Hit Capital Markets senior analyst, joining us from our studios in Washington, d C. Stephanie, thank you so much for being with us. Do you agree do you think that there is some big revolution against technology companies as we

know them? Now that is just in its infancy. Well, thanks for having me, And I love that question because it reminds me of something I read about a month ago an interview with Bill Gates when he basically said that that very thing was probably coming and and he if anyone would know what it means to be a technology company that's targeted by regulators, and he basically, uh intimated that the way that current big technology is, certainly

social media companies specifically we're are acting and the way that consumer data is or isn't protected with sort of begging for a regulatory intervention. Stephanie, do you think that there's a conversation or a meeting going on at Facebook where someone is asking, Okay, how much is this going to cost us? And when this is going to go away? Absolutely, but I think it probably goes even further because it's

cost them quite a bit already in the market. I think it's a maybe close to fifty billion now in market value loss, the amount of Tesla's market capitalization right in two days, exactly in two days. And so the question is has to be beyond what regulators will make Facebook do or make some of these other big tech companies like Twitter, uh do, but more what they should be doing themselves to self regulate. And I work at a brokerage firm. We are a member of FINNRA. We

have our own self regulator. It is not uncommon to have an industry regulate itself. So whether it is a industry wide regulation or a company internal best practices, I think they have to be very seriously thinking about what this means for them going forward. So definitely, as we talk, Facebook shares down nearly two percent, another day of deepening declines.

I want to go back to what you were saying with respect to what Bill Gates noted that he expected a backlash, And I'm wondering what is going to be the shape of this right, I mean, are we going to see just outlawses across the board for tech companies that we're going to see uh, some kind of forced self regulatory agency. What do you think are the steps in the next few months. I think the immediate steps that are going to be most visible to the public

will be hearings in Congress. I think it's unlikely Congress it's going to be in a position this year to actually legislate. UH. There are a lot of reasons compelling reasons for members from both sides of the aisle to be tough on Facebook. But also, once you actually start limiting Facebook's ability to do business, you start impacting companies and all jurisdictions, all congressional jurisdictions who rely on Facebook themselves for their own bottom line. So it gets really

complicate aided really fast. So I think the easiest path forward for Congress right now are really tough hearings on the On the regulatory side, the FTC, the Federal Trade Commission is already announced or they didn't announce that, I should say, but someone UM told the press that they are undergoing an investigation themselves, which could come with a

fine on Facebook. It was just not the only companies that are affected by this right, I mean, you have data breaches that affect not only areas of the US government but also companies such as Equifax. What has been the response there, It's a great question. And Equifax, the type of data that was was breached in that instance was social security numbers and and things that result in in UM identity theft UM, and so far there has been no legislative reaction to Equifax by members of Congress.

Other than hearing and from the FTC. The FTC is in doing its own investigation, which could result in a fine. But my colleague follows this closely doesn't ex back that to occur until this summer at the absolute soonest, So why would this breach at Facebook be considered more serious than the acquisition of people's social security numbers and in many cases credit card information, credit history, as well as

financial data. Why would the personal data that you enter that was used supposedly to create the psychographic profiles, why would that be more egregious, let's say, than than sort of having access or or giving access and not protecting people's personal financial records. I think this is a question that's rooted in politics, and at the end of the day, it will be more egregious if if people tell members

of Congress that it's more egregious. I think the thing that would make you, know, you and me and and our our friends and family really concerned here is if we feel that democracy is being threatened, that tends to rise to sort of a five alarm level. Uh, just as bad as identity theft. But when it comes to just this type of data that it was leaked by this third party who wasn't even Facebook. Um, it's not the type of data that I think people in and

of itself really care about. I think we've known that that social media companies use this data and share this data with marketers, and we are all still participating in social media, you know, Stephanie, I want to pick up on what you said about the political aspect of this

Facebook stories. You have Facebook, which has been reticent to anger either the left or the right too much, the right in particular at a time when Republicans are in Congress and could potentially crack down on them in retaliation as a majority. Uh. And then you know, you have potential allegations that people saying that this fast Facebook data breaches a threat to democracy are trying to politicize on the other side by making it a bigger issue than

it was. Where do you stand on that? I think again the question is going to be, is does that rise to the occasion where those one or both of those issues becomes something that members of Congress are not allowed to ignore, especially ahead of this November election. Um, And right now, I'm not convinced that I see it trending that way. If Facebook takes some proactive steps to demonstrate that it is taking this seriously. And I think Facebook really faces much more of a reckoning with Wall

Street than it does with Washington in this instance. Um, and I'm not sure that anything Washington could do uh could compete with what's already happened in the markets just quickly. Does this also apply to organizations like LinkedIn where people put a lot of their personal information online and they think that they are being viewed by legitimate companies for legitimate positions or indeed making legitimate connections. Yes, LinkedIn, I

would say Twitter also, and even Google. I think this is where it start begins to argue for the industry to come together and self regulate. That is a really long process I would have to imagine. But you know another good analog we talked about Equifax. The tobacco industry was dragged in front of Congress for their first hearing in if you remember that photo on the front page of the New York Times with them all giving testimony

saying that cigarettes don't kill you. And it took fifteen years for the federal government to have give itself the authority to even regulate the tobacco industry. So fe Miller. Thank you so much for that perspective. It may take a very long time before Congress takes material steps. Stephanie Miller, Hight Capital Markets Senior Analyst, Thank you for that. Thanks

for listening to the Bloomberg Saveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at I'm Keen. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio