Bloomberg Surveillance TV: February 6, 2025

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and am Marie 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

Daryl joins us now for more.

Darrel.

Good to see you, you too join.

A bit of heat coming out of the American story. It's not bad, just a little bit of heat coming out m services. Job openings will get claims later roast tomorrow.

It's not a good thing.

I think it's a good thing. You want that economic growth. I mean, we walked into this year thinking the economy would run hotter than most of our friends up and down Wall Street, right, So we were a good half a point above an economic growth. We thought rates would be higher, we thought inflation would be meaningfully higher than the consensus. We were almost a full point ahead of everybody else on your end CPI for twenty twenty five. And we think earnings will deliver. I mean you're already

That's five and a half six percent nomenal If you.

Think that the economy was run hot last year, is some of the uncertainty that we see right now coming from policy that hampers corporate spending. Is that a feature not a bug to help with the disinflationary process, where otherwise some of these pro growth policies can be somewhat inflationary.

I I guess the way we've thought about, at least is when the dust settles at year end, the positive policy impacts.

Need to outweigh the negatives.

Right.

And you've got both ends of it, right, So you've got tariffs and immigration you can call negative, and you can call deregulation and.

Tax cuts positive.

Right.

We haven't got to the ladder yet, right, we're still kind of you know, stewing on it.

We've been all about, you know, early.

Days, tariffs, what we do, control of the border, all that stuff. So ironically, the markets have weathered that quite well, right, I mean we're sitting here in a tight band, whether you look at the stock market, the bond market, right, which we're talking about with the tenure, thank you, We remember that, you know, when the Feds first started cutting rates in September of last year, rating the TENUREUS three seventy, right,

Or fifty five basis points.

So that's term premium, which is just a function of the uncertainty around the policy.

Okay, so if you do get some of that term premium taken out of the system, if you have longer term yell, it's returned to sort of where they were back on September eighteenth. How much is that part of your call for the broadening out?

How important is that.

To see the rotation out of just some of the magnificent seven stocks into the rest of the index?

Well, certainly.

So what I would say is this, like when you think about twenty twenty five and what has to happen, You've got two fives that need to happen. Tenure needs to stay below five percent, right, Unemployment rate needs to stay low five percent. Earning's growth needs to deliver, and earning's breadth needs to broaden out to your point, Inflation needs to stay less than three and a half percent.

Basically, I want to pick up on your point about tariffs, and now you're saying the market's weathering it pretty well. But isn't the market just pricing in the fact that there will be eleven hour deals like we saw with Canada Mexico.

Yeah, I mean I think you have to separate, right, you know the old adage of like you've got to take President Trump seriously but not literally.

We were learning that quickly, right.

Not all tariffs are created equal, right, remember Trump one dot Oh, the tariffs were very surgical, right, it was washing machine parts, solar panels and stealing aluminum.

This time, they're very broad. They're like a stick, right.

Twenty five percent on Canada, twenty five percent on Mexico, ten percent on China.

They're at the country level, right.

So we're using the emergency powers and instead of three oh one two thirty two powers this time, right, which is a very different equation. I think, when it's all said and done, you know, the the Canada, Mexico.

And call it the friends.

Tariffs including the the Eurozone are more about leverage and getting what you want. China is more about geopolitics. Right, That's where the real rub is with China. And I would expect the durability the Chinese tariffs to stick and stay, and that means very specific things for certain industries.

Right.

We still get most of our tech hardware and a lot of our semis from parts of China.

Right.

Autos are a big element there, Metals, energy prices, those are the areas. So it's gonna it's gonna come down to those segments, sectors and industries that where the tariffs are going to matter as they get applied.

Him.

Are you concerned at that point then about inflation rising, because this is the opening salvo when it comes to Chinese tariffs.

Yeah, I I.

Mean as I said, I I think are the inflation is You can call it stick year, you can call it more durable, whatever you want to call it. If if when we walked into this year, the rest of the streets said, you know, if you measured us CPI as they were saying two to two and a half, we were at three point three right, which is that full point a head.

Which is why when you.

Look at go back to Atleasa's tenure, I know we got to keep coming back to this, which is why our ten year Sorry John didn't she yes.

She doesn't own the ten year bond.

Why we have the tenuere a year end this year at four seventy five, Like we don't think when we were doing the math right about everybody else was in the threes on the ten year right for year end twenty five.

You can't make that math work right. So I think rates are higher.

I think inflation is more durable, and that inflation premium is the year goes on gets stacked into the into the.

Eelds scope best. And they said, so it's a bradmos.

Ye.

Well, I.

Spoke Aid last night and they said, no, he watches everything every indicy. They're like, also, he looks at the barrels on the market. He wants to know where oil.

Is everything, no doubt about that. But I think coming into this year, just bigger picture, we thought maybe because they were going to run this hot, there would be a risk that the deficit would get away from them. The treasury yields would run away as well. January, you'd started to push up back towards five percent. We've retreated by forty basis points. When you hear the Treasury Secretary say things like I'm focused on the tenure yield, how

I do think that's the right focal point.

Right, rates matter in this environment because it matters for equity evaluations, It will matter ultimately for earnings, it matters

Right. The risk you run is the auctions get sloppy, John.

And we saw that back in October of twenty twenty three, where there just wasn't enough demand. Everybody was crowding to the short side of the curve on the demand, and the bid tocover ratios on those long auctions were messy.

And then yet it made some changes, and it looks like those changes might be sticking, at least for now. Now, I'm just going to see it Downald Trunk wels Fanka joining Guess now is at Mills of Raymond James now ed welcome to the program. I wonder what consequences this might have, if any, for the tax cuts over the next few months.

Yeah, John, there's a lot to talk about here, because you know, the first thought I have is, as soon as the Treasury Secretary says Donald Trump is not focused on the Fed lowering rates. We're almost near guaranteed getting a headline from Donald Trump saying the Fed needs to lower the front end of the rates.

I do think that.

When I hear these comments, it is going to be difficult to do as much of the tax cuts as Republicans want to do. Another thing in that interview, Treasury Secretary Besson said that they should do a score that would allow Republicans to make the tax cuts permanent, extending out current baseline. If we are going to see a four or five trillion dollar plus increase in the debt and the deficit over the next ten years, that's more

And ed, isn't that.

Because the bond market has a seat at the table when it comes to what you're discussing this huge tax bill and whether or not they can go as far as they'd like to go.

Yeah, And when I've talked to folks in and around kind of the Trump administration, one of the things that they want to highlight is tax cuts are only one part of the story. They want to talk about the deregulatory agenda. They want to talk about, Doge. They want to talk about the amount of money that's going to be collected Anne Marie from all of the tariffs that

Well, let's discuss how they're going to do that. Centators will sit down with Trump this weekend and they're talking about this two path bill. I caught up with Congressman Jason Smith yesterday, who still wants this one big, beautiful bill, but that seems to be collapsing in real time. What's your take on the next steps for the Republicans in Congress.

Well, next step, Sammary, is getting a budget. You can't start the budget reconciliation process. You have nothing to reconcile until you pass the budget. And so this is where the fact that Republicans have as slim as possible of a majority, you lose one vote, you can't get this done. So Donald Trump is also going to be having a conversation later today with House Republicans. He's going to see if he can get them to pass something to start

It could be permanent.

They could add tax cuts to this if they use the score that they're talking about. But until there is leadership from the White House to instruct them on what to do, we don't know what we get from the Hill until that point.

And I loved how we started this conversation about how important the tenure is and how this might be the ultimate check on the market. I thought that the photograph that we showed really set it up perfectly. Where you have Donald Trump in the middle, and you have Scott Besson on one side, bond representative, and then you have Howard Lutnik on the other side, who in some ways the stock representative, growth representative, trying to get some of

Yeah, Lisa, I guess my flippant answer to that would be the last person who spoke to him. That's what we have seen countless times. In this he has once again instilled what we'd call a team of rivals. And we've seen this and elsewhere too on trade on Tariff's there is a huge match between Team Econ, which is Scott Bessen's World versus Team Tariff that is Lutnick. That's going to be Jamison Greer, as mentioned, he's having his hearing today for US Trade representative.

That's Peter Navarro.

So what I've been instructed to do when I'm listening to all these competing voices is find areas of commonality, and that's going to be the likely policy. And one of the things that I think the market has been missing is the most dubvish view coming out of that kind of team of rivals on tariffs is only starting at two point five percent of a universal tariff and getting to somewhere to ten to twenty percent. If that's the dubbish view, I want to know what the hawkish view is.

At that point ed, how do you advise clients? How do you advise companies that want to make plans, want to understand what their footprint should look like, want to understand where they can expand in the world. Are you telling them to just hold off and that frankly, they will not know just what.

That hawkish view is and how high.

It could go.

Yeah, I'm not telling them to hold off, but I am telling them to expect volatility. I was at a conference yesterday down at our headquarters in Saint Pete at Raymond James talking about how volatility is back and that you have to kind of not react to everything to get some of the big conversation right. And so there are a number of things out of this administration that could be viewed as market positive. There are other things

But don't stay paralyzed.

Because we stay paralyzed, you miss out on a lot of opportunity. Been doing this job for a while, I can always tell you the risk, but that has not been the right strategy before, and I don't think it's the right strategy now, Lisa.

Sequencing matter is that I think we've all been saying out over the last several months. We wanted to know what would come first. We found out the focus was on trade, and pretty quickly for this market. At the moment, I wonder how quickly things could change again when we really start to see what's going to happen with the tax package. When do we start to get a better idea of the contours of That's it going to take weeks?

Months?

How long I think we'll get some idea within the next couple of weeks. As I mentioned, you have to pass the budget first. In Republicans, if we can get a budget in the February March time period, people will get optimistic on what can get done.

And then I want to see what score they're using.

It's a technical thing, but if they use a score that says extend out current policy, which is what the Treasury Secretary is expecting to say, that's where we have the conversation about these tax cuts being permanent.

That's not priced into the market.

If we are in March and April talk about permanent tax cuts as a high probability event, that's a market positive from where I sit.

It might have an impact on the.

Tenure that the Treasury Secretary does not want, and that might be the binding constraint.

But I do expect.

That we will have moments of clarity followed by everything falling apart before it ultimately gets done. And one thing I say about DC is that things appear impossible right up until the moment they're inevitable. But I do think it is inevitable this year we will get something done on tax cuts.

And this was brittiant looking forward to being on the journey with you as most of frankmonc jans on a path forward for the year had Sonya masking a ups stop and buying for more Sonya get to see you? What are you looking for from tomorrow's number? And to Jonathan Pingo's point of ittakes this why is January so hard to forecast?

You know, January tends to be quiet, seasonal. There's also weather effects as well, so we have this impact of seasonality, and we've had this historically, I think for at least a few years that is amplified in January compared to other months. But in addition, here we're going to have benchmark revisions, so the underlying assumptions of how we're estimating

An exercise and predicting noise, we should collect these and exercise and predicting noise in a random number generator.

This is fantastic.

I am curious about what your takeaway is, just more broadly from the random number generator, you know, exercise and noise the stagnancy of this market. That's not a stagnation of this market. The idea that we're not seeing a lot of hiring or we're not seeing a lot of firing. Do you take that as being implicitly a negative, suggesting a brittleness that makes this labor market more susceptible to some sort of shock. That's the way some people have been describing it.

Well, that's possible, yes, and tariffs could be one of those shocks, actually, and we would expect the unemployment rate to go up if there if the tariffs against you know, Canada, Mexico, China are in fact sustained, especially Canada and Mexico. But on the other hand, the US is doing considerably better than the rest of the world, so that is a.

Strength for us.

Of course, JP Morgan had this survey and they talk about inflation teriffs of the biggest impact on markets in twenty twenty five.

I know we're just joking here, but no seriousness.

Doesn't even matter what the non farm payroll number is tomorrow.

In terms of the exercise and predicting noise, probably.

Less so well.

Of course, in a sense we would expect, you know, I if for example, the number comes in considerably lower than what the market expects, I would think the market would react. Of course, now the number comes in close as usual, folks are probably going to look through it more and refocus on tariffs.

Well, okay, so let's talk about tariffs.

Then you don't think Canada Mexico get implemented and implemented, but we still have China. This is just the opening salvo Trump set himself and he says he's going.

After the European Union next. How do you think about terrorts the rest of the year.

We would think of it as if they were to get implemented. There are really two ways to think about it, right, two paths. One is just the thread of tariffs that is causing uncertainty already for businesses, and we've seen this in the ISM manufacturing survey for example, LSM manufacturing as well and others regional surveys. And the other one is the actual impact of tariffs if they were to get

Inflation, actually something largely absent from this conversation. An absent I would say, from the news conference with Sham and Power in the past week. Why are conversation about the files in Los Angeles and the disruption we all expect in the economic data.

What happened to that story?

Well, that's a terrible it's a terrible tragedy, of course, but unlike the staying power of tariffs, we would expect there to be rebuilding exercise and reversion to trend from.

So you're not expecting any disruption in the economication in the weeks to come.

We are expecting this to show up in the in part in the NFP, for example, later this week, but we're not expecting this to be an effect for.

The rest of the year.

Necessarily that would persist.

Got it, Sonya, It's going to see you as always, Sonya Meskan, There of ubs on the data we get. Tomorrow's read Halfmanley, co founder of manis Ai and author of Superagency What Could Possibly Go Right? Without AI Future joined us now read It's good to see you, I said as you walked into the room. There's a book I need to read What Could Go Right? Because I'm very worried about what things could go wrong. Let's put it that way. You in the book approach something really important.

The short answer is it gives you superpowers, right, and it gives you superpowers across a large number of things. Everyone should go try chat, GPT, inflections, pie and traffics Claude.

Give it a try.

You can find what should I make for dinner? How do I get medical advice that's available to me? How I might have a difficult conversation with a colleague? You know, how might I actually do things in parenting that might be different? You know, all of those things are are our superpowers.

That we get each Run Lisa round to the bus, I am. Do you want to share with the audience what you do?

You can You can manipulate what your kids look at if you send them links to things that then change their algorithms that then give them more news feeds in their in their feed. I mean, there are ways that you can kind of play the system a little bit, and I think that that's proper.

Yeah, exactly. And by the way it helps them learn, it gets some news about the environment around them. I mean, this is one of the things that is if you're not actually in fact using these AI agents to learn right now, you should. And like, for example, one of the ways that I do when I approach a difficult subjects, for example quantum computing, I stick a technical paper in and I say, explain this to me like I'm twelve.

Superpowers, superpowers.

Yes, okay, So my next question is going to be how should we participate and how we shake this intelligence? And Leaser has given us one ie, Dick, could you give us an time?

Well, I think part of the key thing is my very first chapter is about chat GPT, where humanity enters the chat. You've got hundreds of millions of people who are interacting with it, and the company watches what works and what doesn't work and then improves it. So by simply going and experimenting and getting which kind of things are the things that help you elevate your agency, then actually in fact helps the company know, oh these things really work, Oh these things need to be improved.

At the same time you talk about technical papers, and one thing that AI does really well is work with technical details, not so much, the social not so much. When you have to have certain biases that are baked into some of these algorithms, what are the limitations to this in sort of broad raised application at a time where people are saying this could do qualitative jobs and there could potentially be a lot of biases baked in.

So every major group is working intensely on biases. And actually, one of the things that we did with Inflection and PIE personal intelligence PUN intended was to teach it to be kind and empathetic, to have EQ as important as IQ.

The reason why I find this so fascinating is because I think about my children and what careers they potentially could have, and I'm like, no, not programmer, because that's going to be dead. You know, all of these other ones. Probably if you can be empathetic, human those human skills are probably going to be more needed. That's what people are saying. Are you saying those two are going to go out the Waydow? I mean, what is this due to employment?

So first, I actually think programming skill jobs aren't going out the door. I think there's human application, but I think it's also human application of like.

EQ as well.

So the fact that you have a for example, say a medical assistant that can help you with something, or a coach that might be able to talk with something, doesn't mean you don't want a human coach. It's more coaches the better right and being able to make it work.

You're talking about AI for the good, but what about AI in the hands of adversaries?

Well, so superpowers, superpowers for terrorists, superpowers for criminals, superpowers for rogue states. That's one of the things that we need to be careful about how we navigate. Once again, all of the major groups actually have security groups that are working on this to try to make sure and that's I think part of the having call so called red teaming plans and kind of trying to make sure that that's as minimized as much as possible.

How do think the US government should be approaching this. The market's freaked out because of deep seek and how much potentially the CCP is putting money into their version of AI. But when you're in China and you want to look at things on deep seek that are particilarly critical to the CCP, it will not show you. So how does the US government go about this?

Well, so I think it's important that the US government kind of continues some of the threads that the previous executive order did, which is, you know, you have red teaming things that you actually do world leadership about what kind of things are happening. I mean there's connections in the UK AI Safety and Suit and the US one and the French one, and I think these are important

Of what we're doing.

What do you make then, of the tech industry being very close to this administration. I'm not just talking about your former friend Elon Musk. I was at the White House yesterday and Bill Gates was walking.

Into the West Wing for meetings.

Do you think they can help the administration basically get to there faster when it comes to safe AI.

In the short absolutely, I think it's if you said, of any kind of Western democracy government in the world, most especially, of course, you know, American presidency, American government, should they be connected with the tech industry talking about how tech creating the future? What are the things that we can do to make better American industry, better, American society, better lies for American citizens? The short answer is absolutely what.

You make in the backlashed against Dale Musk more recently about hazing film from the government, Well.

In government, the move fast and break things maybe should be, you know a little bit more compassionate and judicious.

Is that what you think the price should be.

I think that the question should be is trying to say, hey, look, there's reason government doesn't work like companies, even though I think there's efficiency that's really good and we need to respect those reasons too.

Do you feel that you're going to basically get some sort of repudiation because of where your politics were ahead of this election, and given how Trump has basically cosied up.

To a lot of individuals in the tech world.

I have not seen you yet at mar Lago in inauguration or walking into the West.

Look, I think the thing that we most want as American citizens is for our government to succeed, to succeed for our industry, succeed for our citizens. And so that's what I most want, and I think we all do.

You have been an incredible investor. You are an early investor in open Ai, you invested in LinkedIn, just so many of the behemoths currently. Do you see a lot of upstarts right now that look like they could become the next big thing in some of this machine learning technology.

So the short answer is yes, although picking them is one of the difficult things about being a venture capitalist, and there's a lot of different options. Back a few years ago, I was arguing that we were five large tech.

Companies heading to ten.

But I wouldn't necessarily have predicted that Nvidio would have so quickly become one of those, you know, into the seven and then going to ten. And so I think that's we are in that progress, and I think there are a number of startups that are creating amazing technology. And then the question is product market fitt scale.

What do you think the next technological evolution is going to be? They could potentially be a sort of chat GPT moment or a deep seek moment, or one of these sort of breakthrough A has.

One of the things I think we're going to see this year. All of the major AI companies are working on amplifying coding and one of the things like for example, you know for your kids other things, thank you will be yes, you have to bring up the UH will be Actually all of us will have a software engineering assistant and that will make all of our work a lot better. And that's one of the things I think hasn't yet entered the consciousness. So I think that's one

How we can accelerate the scientific process. I say, we're rulled up with you on that page. You're very successful. Thank you sir. Ready to appreciate your time. Thank you, good to see it. Rid Hoffman, Manus AI, and a whole lot more. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiot politics. You can watch the show live on Bloomberg TV weekday mornings from