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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg
Terminal and the Bloomberg Business App. Jim Bianco of Bianco Research is watching ten year bonyields and writes the following. If rates are steady, then ten year bonields should continue sideways before heading above five percent, and the curve will steepen. Jim joins us now for more. Jim Bianco, I want to go to a quote from Michael Hartner Bank for America and get your thoughts on this take this morning, we say hot three percent USCPI January is a blessing
in disguise for both bonds and starks. Michael and the team go on to say rising inflation means Trump must go small, not big. On terraff and immigration in the coming months to avoid fanning a second wave of inflation. Jim, would you agree with that sake, No.
I would not. I mean, we all know the phrases. You're supposed to take Trump seriously, but not literally. And that's what I think we've seen in the market in the last twenty four hours. They're torturing themselves to basically, you know, micro read what Trump has said, but take them seriously. He intends on doing tariffs, and we are going to get tariffs, and they're going to come. And as much as we want to try and talk ourselves
out of it, they are coming later this year. And I might add markets get things wrong all the time. It convinced itself in January twenty twenty COVID wasn't going to be anything, and it was.
It convinced itself in August.
Of twenty twenty that, you know, the young carry trade unwined was the biggest deal we've ever seen, and it wasn't. So it gets things wrong a lot. And take Trump seriously.
Aside, Jim, With that in mind, as you look at bonds and stocks, and you look at stocks, clothes to old time highs and bond yields near the low end of the range for the year so far.
What do you think is more vulnerable, Oh, I think the bond market is probably more vulnerable at this point. The hot CPI number, I think is still a tell that the at least at a minimum, the road to two percent is now. You know, we've been talking about the last mile for two years, and we're probably going to have to talk about it for another two years before we get there to two percent.
That we've got sticky inflation.
And if we've got sticky inflation, the Fed is probably going to be done raising cutting rates, if not maybe one more this year, although I think they might be done for the year, meaning that the funds rate is still going to end the year with a four handle
on it, even with one more cut. And if the yield curve continues to steep in and we see some kind of normalization of the curve, which we've been seeing for the last several months, that means that you could be pushing the tenure yield above five percent sometime later this year.
And I still think that that's in the cards.
Jim, when you take a step back, it feels like it's a little bit of a numbing and ironment. There is so much noise you have. On one hand, about three days ago, we were talking about that inflationary risk, and you would have had a lot of compatriots talking about five percent treasure yields. At the same time, you got inflation data that looked bad on the surface, but people got enough comfort from the individual details to say, actually,
this means that disinflation is intact. How do you strip out the noise and have conviction about inflation call and the possibility of expectations getting truly unmoored.
Well, I think if you look at the way that the markets have been trading, and if you say start with the stock market, the S ANDP is at the higher end of a range.
It's been since two weeks after the election.
It's been trading in about a fifty eight hundred to sixty one hundred range for like I said, over two months, and it's just at the top end of the range. And the same thing has been happening with the bond market too. On November fifteenth, we're four to fifty, we're four fifty three. We ended the year at four fifty six. So there's a lot of noise and the markets move
around a lot. Yesterday was a big individual day in the stock market, but the trend is still sideway, and that says that that's still a market that is has little convictioners unsure of where to go next. So it sees all the news and it's not really reacting to it other than having big days here or there, but moving sideways.
And I think ultimately it's going to give a way too.
There's going to be terrifts, there's going to be a little bit more inflation, and interest rates are going to go higher.
Jim, when you talk about the inflationary impulse, are you really attributing that to policy or do you see something in the internals of the data that a lot of people are just dismissing as highlighting some sort of pressure that everyone is closing their eyes to.
No, I see something in the data.
Every time we have a financial crisis or recession, and we had both in twenty twenty, the economy changes. Change is not worse, it's not dystopian. The big change that happened in the economy coming out of twenty twenty.
Was remote work.
Over a quarter of the country is now doing remote work, and we know what Jamie Diamond's attitude about that is from a couple of days ago.
He doesn't like it at all.
It is here, it is not going away, and that is a fundamental change not only to the.
Way we work, but also to the way we live our lives.
And I think that that is building excess pressures on prices and leaving us with higher inflation, not eight ten or Zimbabwe inflation, but more like three to four percent inflation.
And core CPI just finished it's forty fifth month in a row above.
Three percent, So we've been seeing that kind of pressure, although we continue to try and tell ourselves that no we're going to go back to two percent. That you know we're going to return, as Jpal says, to a pre pandemic environment, the cycle changed.
We're in a different cycle right now.
Jim, I just love to quickly get your thoughts before we end on what you actually think is going on with tariffs, because you say the market should be taking Trump seriously and they didn't. But he didn't actually sign anything formidable yesterday. It's an investigation into these countries. There was not a single tar iff placed yesterday. And my read is he's a negotiating mode to get some sort of concessions, especially out of the European Union. Would you not agree with that?
Yeah.
I think tariffs are leverage, and I think they are big leverage. And I think that when it comes to negotiating with our partners, whether it's Canada, Mexico or the European Union, Trump holds more cards than they do, and I think that these tariffs are a threat and he wants something else. Now, in the case of Europe, I think what he wants is he wants more security arrangements.
He wants them to spend five percent of their budget on a defense and he even said yesterday he wants them, when they're spending five percent of their budget on defense, to buy.
More stuff from defense makers in the United States.
So I think that all of this is more leverage than an external revenue service to raise revenues. I think he wants some of that too, but I think it's really about negotiating and we need to understand that that's what he's trying to do.
Hi, Jim Grid's kickoff this morning with you. I am freciate it. Jim Pianco at Biancout Research Pit, a chair of Academy Securities, saying maybe we need to squeeze some shorts. But I suspect we're going to see tariff related headlines to spook the market as early as the next week. Pet Joined, just now for more, Pete, good morning, it's good morning. Yeah, what happened yesterday? Should we start there?
Yeah?
I feel like it wasn't really Donald Trump speaking. I feel like he got sucked into his advised advisors to come up with this very mellow message. Right, if you think about Trumpets, We're gonna take over Greenland.
Canada should be the fifty first state.
Right, there's no nuances about well, Quebec doesn't like Ontario. He's always very aggressive, even on the initial set of tariff. So I feel like the rest of the world's kind of like, Okay, what was really said? And I do think tariffs resonates with people, trade protection resonates with people. I'm not even sure that resonates. So I feel that sometime next week he's going to be like, no one's taking this seriously.
I'm not going to listen to my advisors.
I'm going to go back to being myself and I'm going to send a clear message.
I'd love to have Potin back in the G seven. Russia should be sitting at the table that was restrained version of the president yesterday.
So that was an interesting one.
I think it's again you go back and why Russia was brought into the G seven or G eight at the time was Okay, maybe if they work with us, you'll move forward. I think it's a little bit incorrect right now because there should be some sort of punishment for the invasion, and certainly this is going to send Europe, you know, in a tizzy. Right Europe's not gonna be comfortable with us at all. Europe's not comfortable with any form of peace right now, let alone bringing him back.
So again, I think there's all this friction, and I think people have.
Been very when we jump in.
Europe's not comfortable with any kind of peace right now. Can you translate that, because that just sends shocking too people. What does that mean?
I think Europe, much more than US, is very worried about If you give Putin an inch, you've given them a mile, and that's any sort of a core that gives Putin time to you know, take his win, consolidate, leads him coming back for more than two years down the road. That's I think very prevalent within Europe. It's a thought that's much more concerning to them, and they are sitting there much closer to the front lines, so I think their view of a piece is very different than ours, which.
Is the reason why a lot of the commentary that we hear out of the Earth Union as well as analysts in the United States is this doesn't really move the needle further towards some sort of peace agreement that is viable and long lasting. You have a lot of generals ed at your firm at Academy Securities. Do they agree or do they think that actually having conversations is a really solid step, just like the market seems to imply.
So we think there is going to be a deal done this year. I think whether Europe likes it or not, it's going to happen. We think that the Russian frozen dollar reserves are going to play a big part of that. So that's going to be the carot and stick right Pudin. We could try and fight you and keep all these dollar reserves, or we can give you some back and if you make peace Ukraine, you get a bunch of dollar reserves to give up some land and do the rebuilding.
So I think that's a big part of it.
There'll be some sort of vague path for China or sorry for Ukraine to head towards NATO that Pudin probably won't believe in, and there's a chance, right if you.
Pull people together. I think most of our generals.
Again, I think one of the more interesting questions we've been asked periods, what would you do most as a general to ensure peace for the US?
US like fund the State Department. More so, I think.
Talking and engaging with countries, that's a way to pull it together. So I don't know that there's an obvious lasting piece, but if you stop the war, you get people talking, there's that potential.
Markets are sniffing this out, and there's a question of how much that is giving sort of a turbo charged effect to some of the optimism that we heard a couple months ago about the euro Maybe things have gotten so bad they can't get any worse.
Do you lean into that?
And it's not just with Europe but also with China that if there is discussion and there is some semblance of deal making, then maybe that could actually reignite some of the growth in the rest of the world, not just the US.
So at the start of the year we are very adamant.
We call the geopolitical opportunities and risk, and I think everyone talks about geopolitical risks.
We felt there'd be some sort.
Of resolution this year in Ukraine, Russia, there'd be some sort of resolution with Iran Israel. Those are going to be very positive for those regions. I think Germany can Actually this might help Germany out of the slump, especially if Ukraine's given these dollar reserves to rebuild. Poland I think is going to be a huge beneficiary of this. I think in the next few years you're going to
see Poland's importance grow more and more. And even when Vance talks about pulling troops out of Germany, at least in the past Trump administration, it was pulling troops out of Germany and putting them in the Baltics, putting them in Poland for two reasons. One closer to Russia, so more important, and two this goes back to Trump. Having a US military base in your country provides huge economic benefits to that country. Right, the military spends money, the
people there spend money. So if Germany's not spending their three percent, let's give it to the Baltics who are spending their three percent. Let's give it to Poland, who's done a lot. So I think there's going to be a lot of you know, thought about this and it's not simplistic.
Do you think that maybe then the long dollar trade is crowded because right now what we're seeing is actually a push towards the rest of the world. Gets your house in order.
Yes, So I would say right now the portfolio we're recommending people is very contrayan. But we still like despite all the friction that we see with China, despite China as national security threat number one, FXI and k web By thinking you're going to continue to do to well, they're heavily under owned.
China's trying to do its own thing.
Trump seems to back off and then periodically I think that could explode higher. I like European stocks, and I do like the chip makers in the US, but I like the ones that can be domestic chip makers. I think you're seeing more and more of this. We've been talking about it since day one of Trump. He wants a domestic chip industry. We need to be able to make chips. That's going to be part of national security.
I think that's just starting to take off. And we've seen some single stock reactions this week that I think are just the beginning of what can come.
Everything you're saying to me, I keep thinking Trump is very transactional, this nuance, this idea of pulling troops out of Germany, but not to pull them out of Europe, but put them in the Baltics. Isn't that what the Europeans are Going back to Jonathan's point, Trump yesterday saying he liked to see Putin back at the table to the G eight. Well, Russia was kicked out because of
annexation illegal annexation of Crimea. At the same time Germany was still willing to build Lord Stream too years later.
Yeah, and one thing I would say, there's I think one thing. Europe's getting a little bit ahead of itself. I don't think Russia is coming back to deliver cheap gas to Germany anytime soon.
I think Russia's really moved on.
They're like, well, China's going to be a better customer, India is going to be a better customer. They're both going to be buying fossil fuels for fifty year in the future. Germany wakes up every day saying we're not going to use fossil fuels ever again, and then uses fossil fuels. So I don't think you're going to see this, you know, return to what it was. That switch has
been broken. It's not coming back. I think the US has a better chance of establishing relationships with this And the other thing I think.
You pointed out earlier is tariffs.
Trump is going to be carrot and stick with everyone. Here's what you get if you behave nicely.
Here's what you know.
And that may work, it may backfire. That's going to be the big question.
So right now, what do you think he wants his major concessions when it comes to teriffs.
I think he does want something that allows us manufacturing to grow, something that makes it easier to build things here. And of all things we look at, I think the one he's most committed to and the one where we might get subsidies is the chip industry. I think everything else would be nice. I think that's a must have. And so when you think about must haves, it's the chip industry.
You said, the GI who said it would be the GI.
You're thinking Canada gets kicked out because they'll be part of the fifty first state, so.
Then it's still the G seven.
Just stand up in minded.
I know that's what you're thinking.
If you said it to me yesterday.
The pressure was building into these comforts again on Canada yesterday, wasn't it.
What's that all about?
You know?
I think again that's why I found what he says about Canada, for example, versus what he did on your global tariffs so interesting. So if you're Canada in Mexico right now or even some extent China, you're still facing the first round of tariffs and your fentanyl negotiations. Then you got slapped with twenty five percent on aluminum steel, and now there's this vague talk about reciprocals and what are you even negotiating now? I think his message was
too muddled yesterday. I think markets took it comfortably because Okay, this isn't going anywhere. I think that's where he gets disappointed in the next few days, when people don't show up to kiss the ring, don't come saying, hey, President Trump, what do.
We need to do?
And that's when I think he ups the rhetoric because he does want people to come to the table. I just don't think yesterday's message brings people to the table.
Right now, the marcut's not taking a seriously, that's for Showupay, it's going to say as a wis pit a chair that academy, let's get you to I love Oshatagas who joins us now, Janet, I think a tough question. What do you say to clients at the moment? Who asks you, Jeanette, what do you think is going to happen on April first? What'd you tell them?
So?
I think the one thing that we've noticed is that it is important to have a difference between tariffs on China and tariffs on the rest of the world. We have noticed that Trump has proposed tariffs several times and in the beginning for four weeks of his administration, but only the tariffs on China the additional ten percent, have actually gone into effect. Everything else seems to be up for negotiation. So we did have Canada and Mexico already negotiate,
We had Columbia already negotiate. They're setting up a timeframe saying you have basically until April first to start making some offers. Obviously, you had Prime Minister Mody coming into Washington yesterday. He came ready to offer some things to Trump to try to fix that reciprocal trade relationship with the US. And also the fact that these tariffs were
announced while jd. Vance is in Europe for the Munich Security Conference is also important to try to say Europe, you need to do something to change the relationship with the United States.
Well, Janette, we do have the head of the European Parliament Trade Committee saying that they're willing to lower the tariff when it comes to autos. What else could Europe give the United States in terms of concessions in these negotiations.
So I think definitely the autos has been a thorn in Trump's side for quite some time. So getting that rate down from ten percent to closer to two point five and matching the US rate would be quite important. Obviously, US l G has also been really important during the entire Ukraine conflict. I think that Trump is definitely looking for Europe to buy and more US LERG and then
also defense. So I think one of the things that plays into Trump talking about lowering US defense spending is also having other countries, including India, including Europe, buy more US defense products and equipment, and so that I think also kind of goes into this piece where they're trying to get Europe to pay more for its own defense and be less reliant on the United States, but still purchase more things from the U States.
Jane, We've been speculating about some of these proposals for a while. What specifically did we learn yesterday from a proposal that was really light in details.
So I think the point is is that this could also be One of the things that I thought was very interesting is that Trump did say this might be somewhat of a replacement for his universal tariff that he proposed to do a ten percent tariff on all countries. This is a way that they have a new trade law that they're using. It's not busy, it's an old trade law that hasn't been used, but that's where they're
looking to actually apply this. But it's saying that this is also more of a one on one basis, saying that whatever that country's tariff rate on the US is, if they lower it, that is an ability to avoid the tariffs or to change other non tariff barriers that are impeding US trade. So it shows that there's actually a lot of room for negotiation for changes to avoid these terraffs from going into effect, and also shows that it could be done a more one on one basis
rather than a broad universal tariff. I think Trump is really trying to focus on countries with which the US has large trade deficits. Those are countries like China, Mexico, Vietnam, Japan, South Korea, Thailand. Those are really probably where he's going to be focused India as well, actually, but those are whereas going to be focused on, and then he can
kind of move on to other countries. But I think that is kind of what we saw is a little bit of a change there where you see it could be a little bit less broad in the sense of going after the entire all imports coming into the United States, but also still shows that there is this room for negotiation.
Just quickly, Marcus are taking this as an idea that maybe this president doesn't want tariffs for tariff's sake to raise money. Do you think it's fair to discount that at this point?
So I think he does want tariffs for the revenue purposes, obviously, the Congress does have to pass a large text bill. Congress is not going to legislate on tariffs, but having that revenue come into the treasury is certainly something that he could point to to say that this is not going to cost as much as it has been perceived, especially when we're looking at the deficit concerns, particularly coming
out of the House Conservatives. But I do also think that it's not that he wants to necessarily have terariffs in place just to have terarifs in place. He wants changes. He wants other countries to make changes that are more beneficial to the United States, saying repeatedly that he thinks that the US has been treated poorly, and I think that is more ultimately his goal.
Jenette appreciate the update. Thank you Janeto as statiguus joining us around the time. Well, Lindsay, pix a stainful. A whole bunch of headwinds have held bad the consumer consumer centima we've seen that be hit in the last month or so. Is it hurting spending?
Well, clearly, I think this number really starts to poke some of the holes into the thesis that we see this ongoing resilience of the consumer. Now, broadly speaking, we continue to see the consumer spend in the marketplace on goods and services, but it's that loss of momentum. It's that second derivative decline of the consumer slowing the pace of still positive expenditures. Now, Lisa, as you pointed out, a lot of this weakness is offset by earlier upward
revisions to prior months. That being said, they're clearly still challenges facing the consumer in this environment of higher prices, higher borrowing costs, the resumption of student debt payments. There's still a lot of challenges facing the average American and the average household balance shape.
I feel like we're whipsawd in terms of a narrative every day. One day it's weakness that potentially could be the biggest headwind to the market this year. The other it could be inflationary in an upwoard growth shock.
Which is it, well, I think it goes together.
I think inflation is one of the biggest challenges that we're seeing way on consumers at this point. As consumers are forced to face this burden of elevated prices as they have been for years, that's going to continue to erode their ability to spend in the marketplace. Now we've seen consumers turn to many of these one off scenarios by now pay later turning to credit cards with balances
over now one point two trillion dollars. But as that burden continues to increase, that's going to ameliorate their ability to find these additional supplements to continue to spend at this pace. So we've gone from double digit spending down to eight, down to six. We're now averaging just under
three percent since the start of twenty twenty three. That's still indicative of a solid two percent GDP pace, but if we slow further from here, that could start to add to the momentum of a stagflation storyline.
So the pushback that we get from the stagflation fears is if you actually look at the data inside of some of the inflation metrics, it's not that bad, and it's steadily disinflationary, and it really just matters core PCEE, which is fine, and everything else is just noise. Do you agree.
I think we've seen a lot of improvement from earlier peak levels. I don't want to throw cold water on the improvement that we've seen, but we are not in a clear disinflationary environment at this point as of last year, a lot of noise, a lot of volatility in the metrics, and more recently we've seen not just a move sideways, but upward acceleration for four consecutive months in the PPI and the CPI and some of the core metrics. The
supercore CPI housing alone double the two percent target. So with that acceleration, we expect the PC and the core PC to remain closer to two and a half percent, which still perpetuates the concern then of choking off upside potential for growth.
We're dominated by headlines about policy changes that could be coming down the pike, and we are awaiting a discussion from JD. Vance And I'm wondering, from your perspective, how quickly some of what's being discussed percolate into the economic data and backdrop that you're seeing.
Well, it can certainly add to the uncertainty in the marketplace. It can add to the uncertainty we see in consumer confidence, and I think that was in good part behind that drop that we saw at the start of the year.
But in terms of filtering into the actual price data that I think will be extended out probably about six months or so because businesses have already responded in anticipate of those tariffs, of those higher prices, so a lot of that inventory build has already been taken into account. So we're not going to see that filter into the price metrics for some time, but again it will continue to cause near term volatility and uncertainty.
Lindsay, it's great to catch up with you, as always, very Lindsaypix of there as Steve Fuller. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, angiopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the bloom Blog terminal and the Bloomberg Business app