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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.
So here's the.
Lass this morning. President Trump's policy stoken concerns about the dollars dominance each four percent of Cornell University. Righting the dollars de throning is unlikely, Luckily for the United States and unfortunately for the dollars detractors, there appears to be no competitor strong enough. Each war joins us now for more. Each one. Welcome back to the program sir. It's always good to get your thoughts on Bloomberg Surveillance. Let's take
it from the top. What's the difference between diversification and de dollarization?
So the two could very well be related John, what is the reality the world faces is that if you're holding you know, more than fifty seven percent of your assets, that is reserves in one currency or one asset class, you really should be diversifying, which is something that the world has been trying to do for a long time. So there are very good reasons to step away from
the dollar now. The issue, of course, is that the dollar is very important, not just as a reserve currency, but as a payment currency, as a funding currency, and in all of those respects. The reality is that there simply isn't another currency that can out muscle the dollar. Certainly, a world in which there were multiple currencies that were competing on an even basis might be a more efficient world. It could create more discipline and more incentives or discipline
from the issuers of those currencies. But that's not quite the world we live in right now, and the weaknesses of the other currencies are still keeping the dollar in pretty good shape.
Let's talk about some of those weaknesses. It feels like for money that China is just a Nonstanzer because of the lack of capital mobility. What about the Europeans is Ishua, where do they fit in?
That would be a very logical alternative to the dollar, and in fact, when the Euro was created in two thousand, there was an upsurge of excitement about an alternative to the dollar finally, and the euro did seem ready to fulfill those promises.
In the first seven.
To eight years after its creation, the share of the Euro in foreign exchange reserves, for instance, went up by about eight percentage points from about twenty to twenty eight percentage twenty eight percent, and there was a sense that the euro was an unstoppable linear paths to taking over from the dollar.
But then it all ended.
The global financial crisis and the Eurozone debt crisis revealed that Europe does not quite have all the elements of a monitory union. Yes, there is monitor union, but the true banking union, the fiscal union, and other parts of
economic union did not really hold together. So you think about the core part of the Eurozone, you know, countries like Germany, Austria and the Netherlands and Swan that's a much smaller share of the overall Eurozone bond market, and even those core countries and not exactly doing very well right now. Germany is struggling, for instance, so it doesn't look like Europe is ready to step up and take on the mantle. And certainly since two thousand and eight,
the euro has done very poorly. It's shared as a payment currency, it's shares a reserve currency, have all fallen back to about the pre Euro levels.
This is the institutional weakness that you're talking about that leads the dollar to remain on a much longer leash than any currency should rightfully have.
That's your words.
At the same time, the dollar is still in a leash and Steve England are a Standard Chartered said overnight that a US dollar and race crunch could emerge if the fiscal bill steepens the debt path without boosting growth. How much do you see that as a possibility, say in twenty twenty six or twenty twenty seven.
You know, by all logically so the dollars should not be where it is. We're seeing that macroeconomic policies in the US, especially the physical deficit and debt levels, do not show any real discipline by US policymakers. The key elements of the institutional framework that are crucial to underpinning the dollar's dominance, you know, the independence of the central bank, the FED the system of checks and balances, the rule of law. All of these have certainly taken a pretty
strong beating. But the reality is that if you put the whole package together, the institutions, but also financial market depth and size, and the dynamism of the US economy, even if the US does very poorly in each of these dimensions in a relative sense, it's still doing better than the rest of the world. And that's a difficulty. But having said that, we have certainly seen a fall off in the dollar's share of global asset flows and
so on in the last four to five months. But it's worth keeping in mind that from September of twenty twenty four to about January of twenty twenty four, just still about inauguration day for the new president, the dollar on a trade weighted basis rose by about ten percent, possibly making it quite overvalued. And then it's fallen back by about ten percent to about where it was in September twenty twenty four. So if you want to tell a very negative story about the dollar, you start in January.
If you want to tell a different story about the dollar, that things have changed but not really in a fundamental sense, you go back to September twenty twenty four, and not that much has changed.
We know the president hates trade deficits. Do you think any of this is strategic to boost US exports?
That's a very interesting question. We've heard very mixed messages from the administration about whether they want a weaker dollar in the short run and a long stronger dollar in
the long run. Trump certainly has spoken about how he wants a dollar to remain the dominant currency, but at the same time, in many of the issues that we've had with other countries, including countries that the US is running a t that the US is running a trade surplus with the Trump administrations argue that many of those countries are manipulating their currencies to keep them weak, suggesting that the US would prefer that those currencies be stronger
and the dollar be weaker. That mixed messaging certainly should be hurting the currency, and it probably is, but it doesn't seem to be a fundamental aspect of policy that they're trying to weaken the dollar through the messaging, but certainly the policies they're putting in place. You know, the increased likelihood of the US recession later this year because of all the tariff troubles, the increasing fiscal deficit levels, all of those are certainly going to weaken the dollar.
I have no doubt this is going to be an ongoing conversation, particularly with you, sir, each four percent there of Cornow University joining us now the Republican Congressman French Shell, Arkansas Congressman Hill, welcome back to the program, sir. Let's get into this. I want to understand so here on Will Street. As you know, there's a big sense of self importance when you put this bill together. How much attention do you pay to the bond market, fixed income on what's happening on Will Street?
Well, Jonathan, great to be with you.
Look, Republicans in the House and Senate have collaborated for over a year on the components of this bill, and certainly very intensely since the election. We wanted to deliver on President Trump's campaign promises. First, redeploy federal spending, cut out some of the federal spending but we don't particularly agree with, and reinvest in the border and reinvest in defense. And secondly, a block a twenty two percent tax increase on families by extending the tax cuts and Jobs Act.
Those were the fundamental components, and we did and believe that between the Trump regulatory policies and growth policies and tax policies, that we would get some acceleration and economic growth from the provisions in.
The tax code. But we also focused on cutting spending.
And in the House bill, we cut one point five trillion dollars in spending over the next ten years.
Congressman, there's a handful of vocal Cenaters already who want major changes to this bill. Is it going to look remotely like anything you sent over to the Senate.
Well, I'm not going to make predictions about what will happen in the Senate. We legislate every single day in the House. They legislate periodically over in the Senate, and so when they do, they have a lot of concentrated effort on it. They have to work by consensus in the two parties there, even more so than we do in the House.
So I don't want to predict that.
But look, I want to be clear that John Thune and Mike Johnson and President Trump have collaborated on the background and details of these bills. And that's why, based on what I've witnessed in the House the last five months.
I want to.
Echo Speaker Mike Johnson's point, which is this is a delicate dance and a delicate balance, and so the Senate has to consider any major changes very very carefully.
I think, can a bill be big or can it be beautiful or can.
It be both?
Well, when you've got President Trump, you've got both at all times. So I think it can be significant in its policy direction and change, as well as very beneficial to American families and the growth of the American economy.
And I think.
That's delineated in the in the scope of the bill that we passed in the House.
Congressman of course Emory was talking and referencing what Elon Musk was talking about as he seemed to distance himself, saying he's a bit disappointed that the current iteration of the bill does increase the deficit, and as he said, it seems to undermine some of the progress made by efforts in Doge. Do you agree, does it concern that there is this increase in the deficit with out real offsets for the longer term.
Well, I think the work by Doze over the first fund months of them and has done a lot to uncover productivity loss, needs for reform and full time equivalent positions, how to reform IT systems make them more reliable, reduced waste, fraud and abuse. All those things found by Doze are helpful, and I think they informed Chairman Tom Cole, the chairman of the House Appropriations Committee, and his colleagues exactly how.
To better focus f y twenty six spending.
When we get back into session next week, you'll see the hearings in the House Appropriations Committee start quickly, and I think that's where the Doge work will be best reflected is in looking at f y twenty six.
Do you think that the current iteration of the bill does enough to reduce growth to offset some of the constraints that you're seeing with tariffs, with the idea that even Walmart in your home state in Ventonville is being told to eat it and you're seeing profit margins contract or expectations for it. If you have both the deficit increasing and you have the potential for companies having to cut back, does that worry you well?
As I've said on your show before, I remain concerned about the uncertainty in the tariff strategy. I think we've got regulatory reform going absolutely in the right direction. I believe that the tax preservation of no cuts for households and tax incentives for business are good in the bill, including major tax incentives to bring a new plant and facilities to the United States for construction.
But we need to make sure we have clarity on the tariff issue. And you're right.
Doug McMillan, the CEO of Walmart, met with President Trump made it very clear to him how quickly he believes that tariff clarity.
Needs to be found or it's going to.
Impact store shelves and store prices.
Across the country.
And I think you've seen that reflected in the Macy's report that you had just a few minutes ago.
Did you get a send speaking to a Walmart congressman that we will get clarity by July.
Ninth, Well, I believe that what I've heard from business, Dillard's Department store here at Little Rock, Arkansas, one of the biggest retailers in the South, the Walmart headquartered in Bentonville, Arkansas, as well as a number of small manufacturers here in the state and large, that they want clarity soon, meaning may June early July, because that's going to really impact plan shipments, plan purchases, and what's going to be on
the shelves for back to school and this fall. So it's very important, particularly in the retailing industry, other industries and manufacturing. Maybe there's a little bit more leeway based on inventories that's been built over the inventory that's been built over the first few months of this year.
In Congressman, just before you go, I have a he might want to weigh in on this, the anthropic CEO and what he had to say to Axios the AI could wipe out half of all entry level white college jobs. We sleep walking into a bit of a disaster.
Well. I served last year on the Speaker Johnson's bipartisan Full House AI task Force. We had hearings all year from every segment and walk of life, from education to healthcare to service businesses, and we came up with a series of principles, and one is you have to keep a human in the loop in applying AI, either internally or externally in a business application or a government application. And if you use it as a tool, I think it's going to be a very big productivity.
Tool to boost economic output.
And from what we heard in testimony, I didn't hear the armageddon approach in the short run because it's such a immer urging, early stage tool.
It's accelerating rapidly.
But I think if we keep a human in the loop, as we apply it internal and externally in our businesses and then government, that we're going to continue to have employees that use it effectively and that it's not going to be as catastrophic in the short run, particularly as that predictions that prediction.
We hope you write Congressman Hell, it's going to see you as always, Congressman Franchl on the LESIS needs the smaller invest us bracing front video results south to the closing. Now as China Rex spoke cubs, why on the chip maker joining us not to look ahead? Mandev Singh of Flimperg Intelligence Mandate, Welcome to the program, sir. What are you focused on? Lights of the Southternoon, Well, we know.
That China is the focus, but for me, growth margin is where we can determine. You know, in video's pricing power and right now everyone is fixated on power supply. Six months back, you know, everyone was fixated on supply of GPUs. I feel that concern has alleviated and the focus is more on power and so what I want to know is how does that affect Nvidia's gross martin in terms of supply concerns abating And look, the geopolitical
tensions are still there. They may have to remove some of their supply chains, but in the end, it comes down to growth smartin because that's the biggest determinant of Nvidia's free cash flow.
There's also a question, Mandy, but about the hyperscalers that have come under some unique pressures, and thinking of Google or Alphabet the parent company of Google, how much do you expect some of these companies to increasingly become competitors, not just customers, and for that to be part of the narrative mix stemming from earnings today.
Absolutely.
I mean, look, we know Nvidia's revenue is concentrated with the five big hyperscalers, and we also know OpenAI is trying to branch out on its own comes to building its data centers, et cetera. So from that perspective, you know the commodification of llams. So if Gemini is catching up to open Ai, that's bad news for Nvidia. And look for Nvidia. Clearly they want the llams to standardize on their chips, but there are a lot of alternatives emerging,
especially in China. And if you know, Chinese aren't getting the supply of GPUs and they're still able to train the models. They are setting up a precedent that you can do influencing without Nvidia GPUs, and that is what will determine in this AI infrastructure supercycle. What sort of market share will Nvidia have two years from now or five years from now.
The stock is positive in the pre market by zero point six percent, mandep appreciate your time. Manday's sing there a bloomberg and salentence to build on the conversation. Joining us now Frankly of HSPAC, who has a whole writing on the stock and a one hundred and twenty dollars
price target on Nvidia. Frank welcome to the program. I just want to build on some of the conversation we've already had so far this morning and understand from your perspective why this won't be the Beaten Rays quarter that maybe some people got used to in years gone by.
Yeah, I think if you look at the Beaten Rays, we haven't really seen that for the last couple of quarters in Video since the second half last year, so I think what you're seeing is that. And one of the reasons I think we see is that there's still some ongoing challenges they're facing this year which they didn't face last year. You know, Number one, you had, you know, the supply chain is still having some ongoing issues, especially on the downstream side and the way they ramp their
their NVL rack architecture. We've had the China ban come through earlier as well, and also I think the GtC road map that was launched it wasn't as exciting as people had hoped. We're not seeing a huge spec migration that will drive this incredible pricing power going forward. So these I think were the headwinds that I think you're in Video is facing in the first half of the year. And I think as you go into earnings, I think there will be a major surprise. I think the market
has gotten used to that already. Expectations for earning for the revenue has come down over the last three months, so I don't think there will be a big disappointment either. So I think the focus there will be probably as we go into twenty twenty six, there's a.
Question, frank about the supply side of this story with respect to supply chains and other issues, just creating enough chips to really meet demand. And then there's a question around the demand and how much is coming from China versus the Middle East to versus hyperscalers. Which side of the equation do you think is going to be the more important one this earning season.
I think the focus will be, you know, the narrative someone has actually changed quite a bit, especially after the I think the Middle East AI deal, because that represents a new greenfield market opportunity for Nvidia that you know, over the long run, could perhaps double the revenue from where we are today. So I think that has been probably the biggest change, the big reason why the stock
has rebounded off the recent lows. However, I think, you know, to get confirmation that this demand, this from the moist will materialize, we're going to have to see between now and in the year whether the supply chain expectations for
next year does continue to reverse. Because since the beginning of the year, what we've seen is that the capacity on their chip side allocation has been coming down, so this is trend starts to reverse as we get into next year, that will be seen as a very important indicator. We may not see that for another couple of months, but that will be something I think is really critical because that establishes your baseline for twenty twenty six that
it can grow again. But I think prior to this narrative, it was just really the hyperscalar. Capex will slow and they will also see more of a focus on their own chip, the ACIK chip, and that's why we see Broadcom seeing a very strong growth for next year as well.
Frank, it is a pretty remarkable moment in a photo op when you have Jensen Wang basically standing in between President Trump and check Muhammad Benzaia and Abu Dhabi when they signed this AI partnership. But whether you put all of these deals together across the Gulf, is it enough of an offset for what's happening with China?
I think right now the narrative clearly is there to suggest that it is. I mean, they've talked about six hundred gigawads that potentially over the next ten years or so could double their revenue to two hundred billion. But you know that's the narrative. Whether it materializes or not, we'll have to see. I think again, as we see next year that a supply chain start to see upper revisions. We've been in a downward revision since beginning of the year.
Now does that start reversing course, I think that will be important thing to see because that's going to be the most I think a very important driver for Nvidia next year. The hyperscalar will slow down. I think they know that, and I think they've been preparing for that, which is why I think at Computex Jensen also talked about, you know, willing to sell the networking chips so he doesn't have to buy the hyper skirits don't have to
buy the complete solution from him. So I think he's become more open minded about selling other chips besides the entire solution.
Frank, just to wrap it up, we'd love a thought from you on the man himself, the leadership Jensen, Tim Kirk increasingly out in the cold at the moment with regards to the relationship with the President of the United States. What does Jensen doing right?
Yeah, I think it's an interesting one because he Jensen clearly has expressed desire to continue to sell into China. He's been very vocal about it. In fact, I think, you know, they are working on another chip that they plan to sell into China that can, I guess, get around some of the restrictions we're seeing today. But on the other hand, I think he's also quite supportive of the losing of the AI diffusion. You know, the deal in the sat Arabia I think was a good start.
So I think he's also been very supportive and appreciative of the administration about going in that direction.
Frank, given his pursuit of China though, and China as a major customer, do you see tension down the road between the two individuals.
I think, you know, what video has proven to be is very adaptable. So they've been, you know, every time there's been a restriction and Vidia has advited and followed it, they just come up with another chip that basically falls below the criteria benchmark. And so I think he will continue to do that, but again in a fashion that I think is pretty much well telegraphed. So I don't see it as being a negative source attention. I think, you know, he still doesn't want to give him an
Chinel market. But at the same time, I think he's also looking to follow whatever the restrictions are placed, and he'll find ways to meet them.
So got it, Hey, frank, I appreciate your time. Frankly the of HSVAC on Nvidio earnings from them a little bit later this afternoon. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, angio politics. 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.