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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a 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 Bloomberg Terminal and the Bloomberg Business app.
Let's turn to the Federal Reserve.
The Trump administration parling the pressure on FED share Jpowell.
The President said he is not going to fire Chair Powell. It would do Chair Powell a favor, and he would be doing the Institution of favor if if he did an internal review. This mission creep from the FED is endangering their independence and monetary policy.
President Trump making a rev visit to the Federal Serve this afternoon to see the two point five billion dollar renovation. A Chi Raja Yaksha of Barclay's writes and concerns about FED independence persists, but we expect status quo to prevail actually joins us now for more a j E goodmonic, Good morning. This market is shaken off a lot, threats to fed independence, trade tariffs, threats actual tariffs.
Can this economy keep shaking it off?
Yeah?
I think as long as you don't get a polysym mistake out of Washington on the magnitude of actually trying to fire the fetchure, which I don't think will happen. I think we are past the worst of it and we are looking forward to a big, you know, big boost and growth over the next few concert.
This is really important because some people still fear that the worst of the data is ahead of us.
What gives you confidence the fact that that I've been virtually no second order effects. Remember I agree with your Plivi's gust living made the point to that there have been substantial talis. If you told me we are a two and a half percent during the year we finished at seventeen eighteen, I would have been But part of the reason I would have been shaken is that because I would have expected business investment to pull back, I would have expected consumer precautionary savings to go up.
Factors matters, John, None of those things.
Have happened, and that's to do with the You know, if they were going to happen, they were going to happen with the headlines, they were not going to happen.
When it actually plays out, it's.
Very very hard for me to see big new second order effects now the consumer pulling back hard, and without that, you do not get a lusting like a recession, a lusting hit two years growth.
Are we measuring the economy correctly? And I asked that because there is. There are pockets that are clearly suffering, and you're seeing that in numbers like from Southwest where consumers who don't have as much money aren't able to travel as much. But then you have this industrial revolution, this renaissance, this huge investment AI technology that's generating efficiency and profitability at the biggest and the most powerful companies and individuals.
Is this showing up in.
The data or is this just changing the way we understand our economy.
I think it's the latter. I think we are measuring it correctly. There's no reason to believe that we've suddenly changed. The fact of the matter is what you said, the United States is two different economis.
One is the old economy.
You know, we all grow up believing housing is a business cycle, for example, and you know housing is struggling with mortgage rates staying.
Where they are.
The durable goods sector, you know, you mentioned airlines, they are struggling.
Doesn't matter.
You have the large tech side and the AI dividends starting to kick in, and I think that matters far more at an index level, at an economy white level. The fact that the hyperscaler is just never pulled back on spending. You know, you might have worried as an important into the United States about Mexico Canada, where I can make my business work or not. Who cares when Google is spending on the eighty five million dollars at a macro level.
Well, at the same time, back during the pandemic, it was sort of the revenge of the physical world. That was something that John said every morning as we walked in, and it was sort of the reality of trying to get toilet paper. Although he is tacked up, I am just wondering whether we're going to end up with revenge of the physical world once more. We're talking about investment in the cloud, all of this sort of technology that's for companies, the way we think, the way we do
work in white collar businesses. What about the goods and services that have to go overroun on ships.
I don't think there's going to be a revenge of the physical world. I almost think it's the other way around, meaning that right now we are all focused on llm's. You know, you put in text and you get out a bunch of information that is the AI models and that we think will hit services jobs.
The fact of the matter is.
I think there are three four five years away from the same thing happening where you put in a bunch of texts and you have a robot doing subtasks. I'm not kidding. This is not sci fi. It's you know, this is I feel the way I did about NVDA five years ago.
You know, none of us thought it would get as big as it is.
But the fact of the matter is, you know that Moore's law, you know the fact that things are twice as cheap every eighteen months or twice as powerful does work in the semiconductor world, doesn't work in the physical world. Fusing air and robotics is powerful, and I almost worry that you're going to have more of the.
Profits continue to go to capital.
We always go believing, you know, plumbers, you'll always need plumbers.
Well you might not five seven, eight.
Years from what you're saying could relatively mean the market is okay, but the employment market gets a whole lot worse.
It does, and with our limits to that. The limits are put in by society.
At some point.
If there's seventy million knowledge workers in the United States, you know, I've had this A person I considered the single best investor of all time make the argument to me that he's looked at this upwards downwards five years from side, you know, Sunday, and he's telling me that ten million of these workers will not be needed in five to seven years.
He's not saying they want have jobs.
The economic activity that they do now, the value add will be done by machines. We see it in big tech, right, forty percent of coding. You realize Microsoft's let go of twenty thousand people. They have money coming out of the years. There's a reason why that this is happening. Eventually society pushes back. It's happened in every technological revolution. But the difference now, John, is that in the past, when you
had had this right. We were okay with Debtor's prisons were ok which I one hundred years ago, you know, the transition that we didn't make noise this time it will make a lot of.
Fun share with you are concerns mean, and I'll be open and personal abouts here for children of Thatcher and Reagan. I am highly concerned that if you concentrate capital and wealth in the hands of just a few, that the political movement, the corrective course of action on behalf of the paper, will be for the state to get a whole lot bigger, to go forward with higher taxes, universal
basic income. And for people like me who don't really believe ideologically in that view of the world, that's scarce they live in daylight sadamy.
It should, but that is a very real risk.
Now, until we get there, you're going to have corporate earnings flat flattened, you know, for years to come, you're going to have operating margin leverage. And then the other side of it will be society pushing.
But it's happened before.
I mean, you know, six of the seven big oil majors came out of one company, Standard Oil, remember, you know, so this is not every fifteen to twenty fifty years. If you have a big technology change, but all of advantages go to capital, which is what is going to happen. I think eventually society will push back, But until it happens, it's actually a very nice ride the building.
On John's point, should we just expect higher deficits then.
No, I think so.
The OBBA and the tariffs from revenues, the total deficit from that is not higher than if just the trump casks that were expiring had been extended, and we all thought they would be extended if nothing else right. The problem, the reason why the long bound in the United States refuses to come below five percent is not because the OBBA is more profligate.
It's because it locks in.
It makes it clear that we are not going to go away from six and a half to seven percent deficits, which is where we were this year, last.
Year, for at least ten more years.
You know, you mentioned Rachel Rees and the conversation from three weeks ago. The significant part was not that she got emotional in person. The significant part for me was Labor has a big parliamentary majority and cannot pass a simple change, a small change to the welfare build that was the significance of it.
There's no political will.
I appreciate your time, enjoy the right of the market right now sings for the message, and we'll catch up in five fist time. We just around a time you called Libby cantroll of Libby, goodmonic.
Good morning August.
First, are we going to wrap this up for it's not in new July ninth?
Yeah, I mean, look, I think what we were been telling our clients is that we are going to be living with trade policy and tear policy uncertainty for the duration of this administration. So maybe we get a little bit more clarity. I would agree that fifteen percent is the new ten percent, ten percent is the new zero percent.
Kind of the best.
That a country can hope for those with trade surpluses is going to be ten percent, and then everything else is going to be higher. I mean, Japan got I think arguably a pretty good deal here.
But again, if you just look, if we just take a.
Step back and go back to December, right after the election, and we were just saying we're going to be sitting here and talking about how fifteen percent seems pretty benign on one of our closest ally and trading partners.
I don't think anybody would believe it.
So I think that the Overton window, if you will, has really been expanded here, kind of shattered in terms of what is acceptable in the markets and in Washington. And again, I think from an economic and markets perspective, we do think this will start having a bite at some point, even though maybe markets are just, you know, willfully ignoring the reality here.
Well, all the market's numb.
Has Trump basically conditioned them to accept fifteen percent because they're not as a sky high April second terraffs originally this administration came out.
With yet and I think you know what we have been talking to our clients are the sort of like the taco man versus tariff man, this idea of Trump always chickening out, And if you actually look at the tariff level right now, it would not suggest that he is chickening out.
Yet.
Yes, he has softened his most extreme stands. So will the effect of average tar freight go up to thirty percent?
Not likely, But.
Where we think it probably will Land is between fifteen and twenty percent. Fifteen and twenty percent tariff, I mean that's you know, that's not insignificant. So yes, I do think that in some ways, again this idea of you know, the Overton window sort of what's possible in Washington, he's expanded that so much that the market is somewhat desensitized. But we really, we do think this will start having actually real economic effects at some point.
When it comes to these negotiations.
I was really struck by the Japanese one because of that five hundred and fifty billion dollar fund, and I'm still kind of confused about exactly what it is because the Prime Minister of Japan is talking about that these are basically loan guarantees, and Howard Lutnik, the Commerce Secretary, is saying it's much much more than that. Almost sounds like a bit of a slush fund. Do you understand what the administration is looking for when it comes to training partners?
Yeah, I think what we are, we are, like everybody else, is waiting for the details. I mean think a couple of things on this one is that, you know, for for another country to be funding our industrial policy, that could actually have some implications. So I think there's there's one of just sort of is this sort of politically realistic that you're actually relying on another country to actually make investments in things that are important from a national
security or from an economic perspective for the country. The other which is a little bit technical and a little bit walking, but I think also important is if the adjective for the administration is to reduce the trade deficit, you can't reduce the trade deficit with the country and increase the capital account. Those things are supposed to be offset. So, you know, I think that you're trying to have kind of both ways here.
So we'll sort of see what the details are.
I think, you know, our you know, our suggestion to our clients is just to focus on what we do know though, which is the fifteen percent tariffs. And again that's that's an increase from the three percent that we had in January.
And you have the joy on the opportunity of going around the world and explaining this to everybody. And I'm curious how different the reaction is for people not in the US versus the United States and how they plan to sort of operate around that.
Yeah, I was just I was just saying before before the before the segment, that I was in Canada yesterday meeting with some of our large institutional clients.
I've been all, you know, all over the world.
We have the benefit of having long standing relationships with clients, you know, again outside of the US and inside the US, and then the perspective is different, you know. I think that you know, in some ways, there's there's asymmetry around the information. So I think there's some assumptions that are made that maybe are not necessarily right for our for
our foreign clients. But I think more importantly, you know, our clients were already over index to sort of US equities to US dollar based assets coming into this year, right, the sort of the narrative of American exceptionalism, the expectation for you know, just blockbuster growth in the US and sort of languishing growth elsewhere come you know, in January,
that obviously has changed. Those expectations have changed. So our clients in some ways, we're already reevaluating some of their dollar based asset allocation.
And I think this probably has accelerated that.
Certainly, the tariffs, I think again maybe they're impervious to that, maybe a little bit more desensitized some of the knocks on the FED, some of the cut questions about the in strength of the institutions, sort of the you know, the political, you know, functionality of Washington. I think those all are still questioned. The questions are front in terms of their in their minds.
You know.
Sam Zef of jpm Worgan Private Bank was on earlier and he said, initially people just work in the derivatives market to hedge their dollar exposure, but the actual reallocation happens over time. Is that something that you're seeing too, that there's a lot of reallocation away from dollar to dominated assets in the pipeline that hasn't fully come to the four yet.
Yeah.
I would say with our clients, we are seeing exactly that we were seeing them this sort of being taken out in the FX market, you know, hedging their dollar based exposure, and you know, you know, broadly speaking, there was some discussion around the tax bill. There was a section eight ninety nine, the revenge tax, which was definitely I think would have had some significant implications on actual
asset allocation. I think now they are maybe sort of taking a step back and not necessarily divesting from the US, but I think sort of maybe hitting the hitting in a little bit more of the pose. But in terms of your new allocation new allocations, yes, but of course it's different for every client, so I don't want to sort of generalize, but I do think that there is, you know, more of which is a reevaluation of some of their dollar based assets.
It's going to say thanks for being here. Let me cancher that a thin.
Dan, I's of wet Bush.
It's the biggest Tesla bull on the street with a price target of five hundred and an outperform rating. Dan joins us now for more, Dank and Mornic.
Great to be here.
Revenue down twelve percent, vehicles deliver down, average sunning, price down, and yet you're at five hundred dollars.
Tell me why?
Yeah, I mean, look the quarter itself nothing right home about, But I mean our view, it's about autonomous robotics. AI is the future for Tesla. So to me, yeah, it's a rough few quarters ahead, but I believe autonomous we are in the beginning what's going to be a trillion dollar valuation alone for a Tesla. So that's why I don't get so concern. We talk about deliveries which actually were kind of in line, you know, when we look at what's gonna happen the second half the story here
when it comes to physical AI. Two best ones out there, it's gonna be Tessa and then video.
Moving from a pre autonomy to a post autonomy world. Did he do enough on the call last night to convince investors that it's going to be smooth sigbink.
Look, I mean obviously the call, you know, definitely some could have criticism in terms of you promising so much.
Well, my view is if twenty to thirty.
Percent of what he promised, you see in the next year, this is a stock that's up seventy eighty percent from here. So that's that's why when I look at Tesla, I don't focus, and we've talked about so much in the show over the years, I don't focus near term deliveries what that means in terms of you know, ev tax credits. This is an autonomous robotics story, and I think, look the AI revolutions we saw from you know, from from Alphabet. I mean, we are just in the early days of this playing out.
Maybe I'm chicken little, but I was looking at this press call, diference. I was reading this and I was thinking, this is a disaster. I mean, Essentially this was a dreamstock and suddenly they're talking about tax credits and things of that nature. They used to talk about an affordable vehicle. Now they're talking about a stripped down model hy that doesn't sound that sexy at all, and they're going to expedite production of pre of other vehicles and put that
on hold. What would it take for you to get barished?
Yeah?
Look, I mean you bring up great points and that will be the bearish points. And when it comes to the affordable next vehicle, is that just a stripped down version. Look, my view is that it comes down to like ROBOTAXI. If you're in twenty five cities in the next year and you should actually start to get volume production of optimists. When it comes to robotics, I think ninety percent of the future value is going to be in the AI story, not on the actual deliveries.
In terms of cars out there.
You have ten million vehicles in terms of teslas out there. It's all about the data and I believe the big thing is going to be the Sherelder mean where they'll have a significant investment XAI and I think that's where you get more of a wartime CEO in Musk, and I think that's really going to be the difference.
Re satisfied by his answers about Xai, about the investments there, the crossover with Tesla, because there was a lot of ambiguity and he was asked that directly and he wasn't able to explain that connection and how it really does rebound over other than some people who are in this industry don't really want to work at a car company. I want to offer them an opportunity to.
Yeah, I wouldn't say like that conference call is not you wouldn't put him in the Neery Hall of Fame that conference call. Okay, But but again we know, like with Musk, it's never going to be you know, it's not going to be Microsoft like. But my view is, and we've talked about it, like the board, they need to get.
Him twenty five percent voted. I think that's key.
Then that starts what's going to be a significant investment in Xai. But we've said also, are there guard rails there that they need to put on.
You've seen him become less political since the.
July fourth third party you know.
Too, so I think, look, you want to seem less focused on that more focused on being CeAl because it comes down to the biggest asset for Tessa is Musk.
The Press secretary yet yesterday was asked does the president support federal agencies contracting with Elon Musk's AI company.
Her answer, I don't think so. No, can he do this about contracts?
Look, I think, but then it comes out look at Groan when it comes to groc in the huge part of the do O D deal. Look, the reality is that Trump administration could say what they're going to say, but they need Musk. Of course they need Jensen. I mean they're gonna need leaders when it comes to you.
Know, of what this AI revolution.
I think.
Look, that's the reality, and I do think at one point you'll start to see them. You know, I wouldn't say this I become friends again, but sort of men fences given what must needs.
To do going to Elon Musk, Sam Altman were not called out yesterday when the President was giving shoutouts at this AI summit.
Is Jensen Wang the new first buddy?
Look, he's the cool kids table.
I mean right now, like if you look where Jensen is, like he is the first buddy for.
Trump because he's almost running Dan.
Look, and the reality is there's one chip in the world fueling the AI revolution. And that's why when it comes to the Middle East trip, who's the right of him?
Jensen?
When it comes in that he's when it comes to China negotiation, the biggest poker chip that you have is a video.
I mean when it comes down. So yeah, So.
First Buddy is wearing a black leather jackets names Jensen.
Final word, Alphabet. What do you think the numbers?
I thought this was as bullish as you could see in terms of the action numbers from search, from YouTube. And this is no longer an alphabet in the corners say they crying, this is one coming out being like we're on the offense.
You say, they can make the transition from that app model that's dominated the last several decades in Silicon Valley.
We can make the transition away from them.
I think it's going to be a renaissance for Alphabet. I still I believe from a large cap prosductive it's one of the best rest awards out there. That's why it's a table pounder. We went to twenty five in the price target and look, haters hate on this and I get it, but the Bears in hibernation mood, there was nothing on their call that they're going to grasp on to it. I want to see them increase cappex. It's an arms race of that right now in AI. You want to see them in the Lefley.
The good news is the markets wanting to support them. Bremo that the stock is up off the back of this capex space and it's not down because then they have very different problems.
Well, initially it was down, and that was interesting because people had the knee jerk reaction of stop spending so much before you can give us a sense of how you're going to monetize it. But as he spoke, and he talked about customer demand to change. Right now, I am chat cheepyteeing. Is Google Search in its decline and I will let you know what it says.
But I also see the bears when they're in the hibernation mood, in the caves. They can find AI in the spreadsheets, and that's part of what I think how they've missed so much of the AI revolution.
Look, get the popcorn out.
This is just a precursor of what's going to be a bullsh Tecker, Microsoft, Meta Volunteer and others.
Then I a Weber Standard Frey chet.
Here, what's around a cycle?
Native Richardson of IDP, Native of Monic.
It's great to be here with you.
It's good to see it.
Let's talk about this job states. We've had a lot from a lot of people who say this lip of banka is no longer a reason to be holkish. Is it becoming a reason to be dubbish.
I think you can't say that this labor market's not in transition. If you look at the last three months of hiring, they're slowing. It's clear. And so whether hawkish or dubbish, the l l labor market is an issue on the table to consider. And I think when we look at next week, which will be jobs week, uh, we'll see a continuation of a slowing trend. And I'd like to mark that trend with something that you can see clearly in the ADP data. The slowdown isn't coming
from goods. It's coming from services, and that is the turnaround in the labor market. It has been that services have held the water for the labor market. It's really the goods sector that's suffered. And with terra in play. Still, you would think it would be the goods sector that is bringing down the momentum.
It's not.
It's services, which points to a whole different case study on what's really going on in the US economy. So talk us through what that case study is in terms of are we just seeing the cycle shift from goods to services, but goods goods hiring will pick up significantly, or does it speak to a broader.
Type of trend.
You know, there's so many megatrons right now, and I like to look at the first six months of twenty twenty five and compare it to the first six months of twenty nineteen before the pandemic. This was actually inspired by something Johnathan said about getting a pay raise, because if you look, I thought it was a great question.
I wasn't satisfied with my answer, so I went to the data, and it turns out that there hasn't been an increase in new higher average pay and over a year eighteen dollars it's been and that's because the supply and demand dynamics have held firm. It's a really bound labor market. I think it breaks because we're seeing lower supply. The labor force participation rate now is lower than it was.
Six years ago.
There are fewer people working and looking for work, and that's what's going to keep pay a little bit higher or a little bit more stable for new hires than it was six years ago.
So this rice is a really good, interesting question. Even if we get numbers that look pretty good on the jobless front, not that many jobless claims on the job creation front, more than some people would expect, is there anything about this labor market that's inflationary with wages increasing.
Well, this is a very deep labor market. We talked about whether it's stock solid. I think of it as deep. Still waters run deep, and what you're seeing is that, yes, if you look at job stayers and job switchers, which we look at all the time at ADP.
Pay growth is elevated.
But when you look at those new hires they're pretty stagnant. And I also look at the job openings by the US government, which shows five hundred thousand more jobs now than and there were six years ago. But the hiring rate, the rate at which employers are hiring is lower three point four in May compared to May twenty nineteen three point eight. There is less urgency to fill those positions, and that's what's leading to this no higher, no fire
stasis in the jobs market. I think it breaks because of labor supply issues, not necessarily labor demand issues.
Governor Waller was sitting in your seat last week and it seemed to really weigh on him. The unemployment rate on recent college grads seven percent.
What's going on? Why are they not able to get a job?
Well, I think it bends back to the data we just saw continuing claims. It's harder to get a job in this labor market where supply and demand are in balance, and for young people coming out into the market, this is not their older brothers or sister's labor market in twenty twenty two. They were snatched right up. They have that expectation. Their older sister told them that they were snatched right up, and that was the ex expectation. It's
not that labor market anymore. To a labor market that requires patients in networking, it's gen z. It's going to take a little bit longer. And where these college grads are coming out is what exactly is slowing Professional businesses. Services are slowing down, finance is slowing down. If they were coming out in construction, I think they would see that kind of snatch up in the labor market, but they're not seeing it now.
Nyla.
It's great to see you. Thanks for writing it down. Appreciate it. Nia Riches and there of ADP. 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 Bloomberg Terminal and the Bloomberg Business app.