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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. So here's the latest
this morning. The president leaning into the campaign promises he's capped as new polling shows a dip in his approval rating, and Libby Cantrell and Pimco joined us now from what Liby good mornic good morning?
Is the hotel in Texas?
I mean, look, I think for good reason the GOP is paying attention to it. Obviously, this is a red state, a ruby red Senate district. The state Senate district that flipped to to Democrats went from thirty one kind of a swing of thirty one points from the twenty twenty four election. It is still early days, but there are other metrics in addition to these off cycle elections that I think are warning signs for Republicans. The approval rating
is one of them. The generic ballots or generally, how do the how does the population feel about Democrats over Republicans or favoring Democrats right now by five points on average, and then enthusiasm Democrats seem to be more enthusiastic. Those are all we have a little mini midterm election model that we built at PIMCO, and those all are statistically significant.
So in addition to Texas, the data is also pointing to signs that, you know, like history, the Republicans are probably poised to lose seats in November.
However, it is really early days.
It's still only even though it was a very long January, it's only still nine months away, so a lot.
As we can. Republicans strategers said the same thing to me last night, Amory, it's early days, you know, don't look at Texas. We have to November. We have the one big beautiful bill coming out. What the President going to be focused on before November?
When I think Republicans do want show, not tell, right, President Trump wants to tell folks obviously, and this is.
Sort of what Joe Biden did as well.
Understandably, he's proud of the things that he's accomplished in twenty twenty five. I think Republicans on the hill, though, do you want to pivot to showing and they're hoping that these very large refunds that the househouseholds are going to be getting, the fact that withholding tables are decreased, and so big people are getting bigger paychecks. All of
this will you know, sort of booy sentiment. Now what President Trump has talked about the sort of affordability agenda, and I think again Republicans want him to pivot from immigration back to the affordability agenda. Things like capping credit cards, preventing institutional investors from buying single family homes. Those things all need Congress, and I don't think we're going to see Congress do anything honestly, on the fiscal side.
It's weird because Wall Street acts like some of this is done, yeah, and I think, yeah, well yeah, I'm not sure.
I mean, so this is the president, you know, and might frustrate him understand them, I think, and to frustrate other presidents as well. He only has limited authority in terms of moving the needle. Right, the executive branch executes existing law. It is the Congress that creates the laws, and there is no law that gives the president authority
to do either of those things. What he can do and Mary, which we've talked about before, is he can direct Fanny and Freddy to buy more agency mortgage backed securities. They have been doing that for several months. In the end of twenty twenty five. We think they will continue to lean into that. I think they read through for
maybe for investors. Not only is that good for sort of mortgage spreads, mortgage rates, and potentially helping the economy at least, you know, marginally, it also does decrease the chances that the GSS go public. I think the President understands he actually would much rather control the GSCs than to issue them to the public.
Well, how much more do you see them actually buying?
I mean, how much can this be accelerated and become a main story, particularly at the long end of the Yeld curve.
Yeah, so it it's a good question. Right now, FHIFA and Treasury have capped how much the GSS can hold on their balance sheets, to four hundred and fifty billion dollars collectively between Fanny and Freddy. Right now they have about two hundred and fifty billion as of last filing, so.
They can still go up.
I mean the President has directed that two hundred billion dollar gap to be filled. Now, interestingly, that four hundred and fifty billion dollars, that is not a statutory limit, I meaning the Congress doesn't have to get involved. FHFA and Treasury. FHFA, the regulator of Fanny and Freddy, can simply change that. So there's actually I think a lot of runway here. If you go back to the financial crisis, Fanny and Freddie owned up to one and a half
trillion dollars of mortgages. So are they going to go back there? Probably not, but you know it is there is still more runway. And I think the question though, is on worsh in the balance you know, the FED chair nominee worsh on the balance sheet, because of course they're letting kind of mortgages run off, effectively selling mortgages, and of course the other side of the administration is
buying mortgages to bring down. Right, So we'll see there's a little bit of tension there, as there always is between the fiscal policy makers and the monetary policy makers. We'll sort of see if he's asked that in his confirmation hearing.
I'm really glad that we haven't talked about a government shutdown so far. Today evidently had ended and now we're fine, except that potentially not so much in about nine days, when TSA might get defunded and then we won't be able to fly. And I'm just wondering, how likely is that that TSA and the Coast Guard are going to be what gets defunded in nine days, and so that all of a sudden the airports are going to be absolutely terrific or in a terrible way in the next couple of weeks.
It just bothered you, so no, no, I know, I understand obviously, this is that one of the ways that people consume government services right is through the airports. I think, happily we are not going to be talking about a macro impactful shutdown until potentially September when Congress that has to fun the FY twenty seven bill.
I think that's unlikely. Though we see a shutdown.
Usually folks don't like to shut down the government, right before the midterms. But you're right that this one thing that has not been funded. Funding for DHS does include TSA. There's obviously this negotiation going on around ice limitations and what have You will sort of see how that plays out. But we could see that shutdown. I think more likely, though, you might just see another cr to sort of build time.
I think that you know, shutdowns, you do quite well politically on either side of the aisle, and I think both parties have a vested interest and not seeing the government shutter.
Stay with us more Bloomberg surveillance coming up after this, South Korea's top diplomat meeting with Secretary of Saint Marco Rubio as the country races to avoid a tariff hike. Jean Saroka, the executive director of the Port of Los Angeles, writing, tariffs continue to keep everyone on edge. I expect more uncertainty ahead on the trade front. Jean joins us now for more. Jane, Welcome to New York. Good morning, good to see you. I'm going to see you, sir. Let's
get into the numbers. Talk about tough comps. I think that's an understatement to say that you've got tough comps relative to last year?
How much have things slowed down?
January over eight hundred thousand container units off by a little bit more than ten percent. February looks to be about the same. We've got a mid quarter lunar New year March, we'll see a traditional drop off. If you look at Q one versus last year, we'll probably be down in double digit fashion.
How much is a reflection of consumers not buying and how much this is a reflection of a lot of different industry is not wanting to import because of the.
Tariffs, Lisa, Probably a combination of both. And here's why. Last year and even going back to the campaign trail, as we've discussed, you saw a lot of run ups to try to build inventories ahead of tariffs and work unit prices down. Secondly, while retailers are doing okay, holiday sales not bad, Matt Chay says, we crossed a trillion dollars according to the National Retail Federation. That's also inflation induced.
So the number of units moving at the retail level a little bit lower, prices have gone up.
How much has there been a complete shift in terms of where things are being sourced? That do come to the port I'm just curious if there is sort of a sense of favoring, say paces in South America over say Southeast Asia. Have you seen that shift in a material way.
It's noticeable, and companies are still looking. CEOs and executives are telling me that their staff is spending a lot more time both on simulation of what would happen next, based on policy, where do I source from, how do I get contracts in place? And just trying to keep up with all this information. So for US, China was sixty percent of our portfolio back in twenty eighteen. This year it'll drop below forty percent. Yet we're still growing
because we've been chasing the freight. But trying to keep your eye on what's next is going to be very interesting. Tree deal with India yesterday, maybe some possibilities there.
Well, this is interesting because I didn't get a direct answer from Ambassador Career in Davos about this. The transshipment, how do you track it? Because China is still sending to the hind stage, just not directly from Beijing. There is a middle sting.
Yeah, yeah, a couple things.
Traditionally, supply chains at Asia were country to country, so the buttons and plackets on a shirt made in China. Go down to Vietnam, you make the whole shirt, sell it to Macy's here on thirty fourth Street. Some bad actors out there are trying to circumvent tariffs go lower
cost countries by transhipping. But China has announced in the fifteenth five year Plan is not only exporting goods, they're now manufacturing expertise exporters as well, so they're investing in plants along the Pacific Rim and other locations around the world.
Do you think this administration will go after that?
Yeah? Probably so.
How challenging is that it's.
Really challenging because it's tough to get hard data on where this supply chain starts and who's funding it and who's funding it.
We've told lots with you about how much improved systems and processing through the pandemic. How much have things slowed down because of the tariffs. Can you give us an idea of what that looks like now relative to where it was the year before.
Well historically, compared to the numbers of containers we're moving right now, we look pretty decent, but it's been super choppy from COVID to a little bit of downturn based on high inventories and then all this tariff build up. It just looks different. But last year was our third busiest on record in one hundred and eighteen years and we didn't have one ship backed up. We're doing things a little bit smarter, working together and information technology please a huge role here, John.
That's super impressive. We can still see in the data though, that are still problems. ICM Manufacturing came out in the last couple of days and if you go through the commentary Gene and thew ME. Just to go through the commentary here trade TARFF uncertainty is creating volatility in the supply chain. It's making long term planning point list. This comes from a range of industries within manufacturing that continues to be uncertainty and added costs through our global operations
at LEASTA. Just going through the details, it was a great number, by the way, decent print, But you go through the details and the commentary coming from various industries, it's not good.
It's not good reading at all.
Well.
It creates this level of uncertainty and when you talk to different CEOs, they say, we didn't price in a lot of the tariffs last year because we had inventories that we were pushing through. We don't have those inventories anymore, so now we have to pass along the price increases and how can they do that at a time where the consumer is looking for value?
So last year we talked about this concept, this phrase that Gym's out from Polo mentioned, and it was macro paralysis that for a lot of companies that were just sat still, they couldn't make decisions, didn't know what to do.
Do you see any of that? I do. Yeah.
We talked some time ago about people hitting the pause button and their finger is still on it. Hiring is flat, new jobs non existent, and realistically speaking, companies are not looking at longer term horizons for planning purposes. And capital investment also very soft.
Then how do you plan for that?
We have to invest through budget cycles, economic cycles, and even election cycles. We've got about ten billion dollars worth of projects on the capital side right now. New terminals for the first time in a generation. We need a new bridge crossing onto Terminal Island and outlining more rail capacity as well as road connectors to keep this cargo flowing. We'll see this, there'll be ups and downs, but long term growth will take place.
If companies don't have inventory anymore and they don't want to build too much in victory because they don't know how things are going to change. How much are people looking for much faster shipments and smaller shipments each time.
That's exactly what's focusing right now and what we saw last year when the trade policy was softened and tariffs came down during negotiations, importers had windows of opportunity to get their cargo here and the fastest way was through the Southern California Gateway. So while overall imports were down in the country, we were up simply because of that certainty and the fast pace that we gd a cargo from Asia into the country.
Stay with us Mulplenberg. Savannan's coming up after this downside surprise twenty two K. They expected number and US to have a forty five thousand with us around the table. James Echohoff of BNP parent bunch, James, good to see you.
Great to be backing.
We've seen some signs not here but elsewhether the labor market was firming up a bit coming against the new year. Would you put more way on that than this look.
We think the economy is at a great place this year, but we're very optimistic about the.
Outlook with that.
We're looking for very strong growth that's driven by stimulative fiscal policy, stimulative monetary policy, stimulative markets, and the early signs of AI beginning to impact the economy.
We think there's a likelihood that some of that is.
Going to slash into the labor market, and it's support well, we think has already been a pretty bersilient.
You've got an accounts for twenty six absolutely just explain that for us.
We think the Fed is.
Going to react to the data, that it's going to follow the economic outlook and its standard policy framework, regardless of who leads it or for the course of the year. So we think that Powell, I think is delivered the easing he wants to deliver. We had earlier thought there might be room for one last one, but the data is just held up just so well.
That we've recently taken that out.
Beyond that, we think the data will tell the story, and that the story of a strong economy and with a stable labor market and with inflation that's a bit higher than what then we think the.
FED is looking for Well, we're not going to get the data on Friday, so we're not going to have the data that actually proves that out. Yet, the data that we are getting, this ADP number of twenty two thousand, I mean.
It's pretty low.
Well, how do you look at this and explain to people this is actually very good.
Well, this is the debate at the FED, and we saw your Governor Waller dissent saying, look, zero job's growth of a las year after we see expected revisions in his estimation, that that's not a healthy labor market. And you have others, including Shairpal saying, look, immigration policy has changed a lot. There are a lot fewer people coming to the country, a lot of people have left.
This may well be a full employment pace of job gains.
So our view is that the pace we'll see over the coming year is something on the lines of fifty k. So this is a little bit low the one that we just off from ADP, but that ultimately is the pace that can ourgue close to that pace that maintains the labor market at this current level of unemployment.
One of the reasons why a number of people have priced in at least two rate cuts for this year is not because I think the economy is going to fall off a cliff, but because they believe that any kind of growth is going to come with disinflation. We saw PEPSI, for example, cutting prices by ten to fifteen percent in response to some of their efficiencies to try to increase their customer volume.
How much do you see this as.
Likely a good backdrop for the FED to be cutting because if you don't see any cuts, you don't buy that disinflation story. Is that right?
Our view is that the AI boom is coming and we're going to see a boost in productivity, but that will also come with it a cyclical boom as well, And part of that is because of the neutral rate of rising over time, and part of that is because of the existing level of stimulus that we're seeing from fiscal monetary policy and from financial markets. So in addition to seeing the boost, the disinflationary boost to growth that you're referm to, we'll see a cyclical boost as well.
This is a similar story to the nineties, where the green Span is widely heralded for not hiking during that period.
It wasn't that he cut into that. It was that he delayed hikes to allow.
The productivity boom to play out, and we think that that's a likely prospect ahead. Is that the federal standpad while it sees strong growth and while it sees some residual inflation pressure.
Well, you seeing the AI boom and productivity being inflationary or disinflationary.
See productivity on its own being disinflationary. But it will come with more So we'll see some growth from AI and then we'll see even more growth. We think we're set up for a very strong year of growth and that that will come with it labor market strength and with a bit more inflation.
When it comes to the AI build out, data centers, etc. That is, to do you think inflationary electricity needed the cost of building.
We think it's a moderate impact on the inflationary outlook. Tech capex as a contribution to GDP isn't historically that high. It just become a bit more concentrated. So we think that that's ultimately a fairly modest impact on our growth in our inflation forecast. What we think is mattered more has been the overall booming business sentiment that has come from AI. We saw eism earlier this week as a blowout. We think that part of that is optimism from AI.
It's filtering through to the rest of the economy and supporting activity that has a sick look proportent to it, and we think that will help drive growth, help drive labor market.
This I'm a trained by the rate on Kevin Wosh, so let's develop that a little bit more.
Governor Myron sent this this week.
I'm probably looking for a little bit more than a point of interest rate counts over the course of the year. Why would chair Wash be that much different to Governor Myron.
So when I think about this, I often go back to James Carvel's comment from the nineties when he's reincarnated, he wants to come back as the bond market because he can intimidate everybody. Ultimately, we think FED chairs face fairly strong incentives to deliver pro growth, pro market outcomes.
Kevin Warsh is well known for being a very well networked person among financial circles, and we think he will follow the same asset price signals as as our FRED chairs do and that will leave him, in our view, following a fairly standard reaction function. We think he will want to do that because that is what achieves the best economic result, and we think he will face pressure from the rest of the poblacy to do that as well.
At least it's not convinced. I can just say on the ConA my eye, the Palmi wasn't convinced.
Well, No, I just think that if he talks to people in the market, there are a lot of people who actually agree with the FED potentially cutting rates at least two times. I mean, the Wall Street isn't exactly unified in what they think, and more people come on the show thinks the FED should cut rights a couple more times this year than not. So I guess that that's the skepticism that I have.
Look, we're not hawked, we're bullish.
So we think the economy is going to be that very very well this year.
Well, I just got to tell you our forecast.
So look, we think the economy is just going to do a bit better. We think the people have been really reluctant to give this economy credit for how strong it is, for how strong the cyclical impulse is. The FED is pulling teeth sometimes, but they've upgraded their forecast of growth to solid. We think that growth is going to be strong this year and that's going to have implication.
For the rate helple.
So you don't buy though that growth can be disinflationary, that you that you can run stronger but not hotter. Right, So you basically are rejecting that idea. Where is that inflation going to come from if it's not coming from housing and it's not coming from lazed potato chips.
Look, it's Look, you can have disinflation or growth. We just don't think we're going to. We think the economy is going to do so well that it's going to sustain inflation. We think there's a bit more to run on tariff pass through. We think that's not quite done. We think we've got another year of that at least, and we think that the services market is going to
hold up well. And the data we'll see today from is some services will be people tell us some of that story gain in the absence many out of data. This week, we're above consensus for that print. We were both consensus for US and manufacturing, which they noted was a blowout.
So we're looking for another strong.
Print there and I think as we see the data over the coming months, we will get the sense for how well the economy is performing and the implication that has for a modest uptick in inflation.
James, I'm also skeptical of Worsh not delivering any cuts, and not just because to Lisa's point, everyone comes on here and says, at least maybe two we're going to get this year. How did you get the job? How did he convine Trump to put him in that seat If he's not going to deliver at least minimum one cut this year.
Well, we think that the important thing here is the relationship with the White House. That Kevin Walsh has a longstanding personal, family, professional relationship with President Trump, and we think that will be helpful to him in the seat in establishing a more normal relationship between the Fed and the White House. What we've seen over the past year
is not sustainable, it's not consistent with FED independence. That Kevin Worsh turns a new page and should, in our view, be able to run monetary policy with greater independence because you will have that trust with the White House. We think he will start the conversation with the balance sheet and talking about how over time to reduce the balance sheet that says where he's made his name over the past few years.
We think there's a deal to be made at the FED.
I'm reducing the balance sheet over time, and the watch word for us, whether Kevin Warish refers to the words gradual and predictable. Ultimately we think the market would tolerate is smaller FED balance sheets, so long as it's not a surprise and it comes a.
Well communicated way.
The market is much less excited about big, big shocks, and so a big taper tantrum we think would be risk off. But a gradual and predictable transition of the FED regime to a smaller ballo sheet we think would be well taken.
That sound the interpretation of a lot of people and precious meadows gone into the weekend after that announcement.
Just quickly, what should GENP number for this year? We're in the mid two.
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