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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordert. 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 laces.
This morning, the US and Eran exchanging strikes near the Stratiformers, with President Donald Trump calling on Tehran to make a deal to end a war. Stephen Koker CFRA right in the White House seems to have backed it south into a situation where it either escalates or hands Iran a strategic victory. Stephen joins us now from More. Stephen, welcome to the program. We've got a decent understanding of the
details of the US proposal. We've been waiting a day or what kind of response to you expecting from the Iranians.
I don't think it's going to be a positive response.
The Iranians believe that they have more time on their hands to wait the president out to force the United States to capitulate. The US Intelligence community yesterday issued a report indicating that they believe that the Iranians can live like this for months with rising gas prices and other concerns for the American consumer. It does not seem that the President has as much time either way you have it.
I think the statement.
From the Iranian Foreign minister would suggest that we are still at a stalemate.
When it comes to that report that Washington Post was talking about with the CIA, they say that the naval blockade, the Iranians could survive that for at least three to four months. We're talking about basically the entire summer. Stephen, do you think then the administration has to rethink its plan.
Well, this is what I was seeing when I suggested that the President has backed himself into either sq relation or capitulate to the Iranians. If the Iranians can hold out, as the CIA indicates, they're not going to be forthcoming with any kind of proposal that requires them to give up enriching uranium, not having at least parcel control over the Strait of hor moves and giving up their ballistic missile program.
We've already dropped basically the issue of proxies.
So they are in a very strong position from where they believe they're in a very strong position. So the answer then is either for the United States to come off of its demands or for the President to actually escalate and try to force them to capitulate on the battlefield. So far, they haven't capitulated in either place, the battlefield or the negotiating.
Table when it comes to the President's three red lines proxies, ballistic missiles, and a nuclear weapon. Is there any indication that we are closer on any of these aims.
No, we're not closer on any of them.
Again, the Iranians remained steadfast that they have a right to enricheranium. They're not going to give up their ballistic missile program. That is a significant threat to the neighbors that they want to hold on to after this conflict, and the proxies, although greatly diminished, are useful to them now. Add the new leverage that they have over the Strait of Remus, and the Iranians feel that they have all the advantages here. In addition, this is a regime that
has already forced the Iranian people to suffer. At the low end of the estimates, they killed seven thousand people in a matter of days in January.
At the high end, thirty thousand people.
They are prepared to live out this blockade.
And make Iranians eat dirt if they need to.
Every single analyst has come on from Wall Street so far this morning has not wanted to talk about Iran. They have not wanted to talk about the straight up removes. They've wanted to move on. For all the people who are trying to tune this out because ultimately they have confidence that it's going to turn out one way or another. How do you explain why this is still incredibly important and potentially revolutionary when it comes to reshaping global alliances as well as supply chains.
Yeah.
Well, first, I think it's important just in terms of the American consumer. It costs a lot more money to fill up your car your SUV with gas these days, and that's going to have an impact on everything that everything that people buy. Eventually, we are somewhat insulated from it here in the United States because we're wealthy, but in time, this is going to really pinch.
I'll note that the Israeli has.
Recently agreed to send jet fuel to Germany so that Luftonza can maintain its obligations in its flight schedule. So this can be very, very disruptive in terms of reshaping global alliances. We are seeing a realignment in the region starting to take shape.
You have the Saudi's, the.
Turks, the cutlery Is, the Pakistanis on one end, and then you have the Israelis, Emerdis, Bahrainis and other extra regional actors like Greece, Kenya, Ethiopia, Somaliland on another end
of an alignment. Here, the expectations that American policymakers have had over twenty five years about an alignment of Saudi Arabia, the UAE, Bahrain, Egypt, Jordan, and virtually less and not so virtually Israel have been shattered as a result of this conflict, and we're going to start seeing different blocks emerge. The Iranians are now empowered in ways that no one really had imagined when the President launched this conflict on February twenty eighth.
Stay with US mul Bloomberg Savannan's coming up after this Francis don at the VABI SI joined us now for more. Francis, welcome to the program. One fifteen. The estimate sixty five is an upside surprise beneath the how encouraging our things.
Well, John, you've heard me say it before. America needs workers, not jobs, and that is so clear in today's April release. Job creation is just fine in America. It is matching what we're seeing in low jobas claims, improving continuous claims, drops in layoffs activity. We have more than enough jobs to actually lower the rate of unemployment over time. We are substantially above that break even rate. And for a long time, for the last decade, that's what would have
mattered most is the consumer employed. But that's not what matters in the American economy anymore. What matters is not do they have a job? It's are they working enough hours? A little bit better in April, and are they making enough money in those jobs? Now, wage growth a little disappointing here, and I'm watching this very very closely as we head into an inflationary shock. Real wages are very close to zero and could go negative. So the story
here is one of cyclical improvement. But also a lot of structural themes coming through in this morning's numbers.
Francis on the structural themes, you'd expect wages to be hotter than they are. When I hear you say we're lacking workers, not jobs. That sounds like a labor market that should be tight generating wage growth. So what's going wrong there.
Well, it's not going wrong. You've got wage growth of three point six percent and moving higher. And again it's a structural theme that will evolve over time. There's also a sectoral issue here. I'm seeing almost half of this job growth is once again in healthcare and education in the past year. If you slip out, if you take out healthcare and education from the system, cyclical private payrolls are going negative. So we hear a lot about this no higher, no fire zone. That's true on aggregate, but
it's not true bi sector. There's plenty of hiring in education and plenty of firing in trade related sectors. So just looking at that aggregate and saying, well, this is true for everybody isn't quite the case. And I'll highlight here once again my eye went right through it. Labor force participation rate is down again. This peaked in two thousand and one, John has been declining ever since and
is getting worse, not better. So a little bit of wage growth is here, but this is going to be the issue going forward in the next one to three years in America is can you find the right workers? Can you find the right skilled workers? And what do you have to pay to get them?
Francis, how much were you watching in real time the shift from white collar to other jobs, whether it's in manufacturing and construction or whether it's an education in healthcare.
We talked to clients about this endlessly because what we highlight to them is as a growing share of jobs our public sector or public sector adjacent, the cyclicality of your job market starts to decline. For example, we don't see cyclicality and healthcare employment. If there's a recession, you don't really see a meaningful decline, and that sort of breaks the relationship between private sector cyclical weakness and the
job market. It also means it's less likely to spread through the coole economy than it has before.
Now.
The downside of that is that you don't tend to see the same sort of large productivity increases. You don't see the same four or five six percent GDP numbers that you start to see a big private sector engagement. So effectively, what this means is as the job market moves towards more government and government adjacent type rules, you end up with a floor undergrowth, but also a ceiling.
And that's the key takeaway from these big structural trends is the way that we've looked at these numbers, been on the show for a decade. I've talked about a lot of them. It's going to have to change.
For insis how much does this underscore the difficult decision that the Federal Reserve has to make because ultimately they don't influence the jobs that you're talking about that much one way or another. They do, however, potentially influence financial conditions that are leading to some of the optimism in areas like artificial intelligence.
You know, I don't know why it would be a difficult decision, although clearly there's some angst in the Federal Reserve. Where is the data that would suggests that easing is necessary? What problem are we trying to solve? Their job creation a very tight labor market, underlying trends of inflation are
heading upwards, not downwards. There's still a significant amount of heat under this economy, and the risk now, particularly in the last month, of seeing a lot of underlying labor market indicators picking up is not of disinflation or needing to ease to correct for some growth downturn, but actually having to be very cognizant of the upside risks no longer just for inflation, but for the economy as well. And you know, every month we put out a report and we say what's the risk to our base case.
The risk to our base case for growth is now tilted upwards. And that's really disjointed from the ongoing narrative that there's weakness in the job market and that there could be recession concerns coming. I just don't see it.
Stay with us more Bloomberg Surveillan's coming up after this. Colway shares falling in the pre market after giving a disappointed forecast, and the stock is down by seven percent in the pre market. Sarah Counst of Cleo Capital Rights and Core Weave will be an early domino to fall in any real tech correction, and if I had gains there, I would lock them in and run. Sarah joined us now for more. Sarah, Welcome to the program. Why is Corewave in this move today potentially more signal than noise.
Because this is a company that has just sort of struggled and has kept getting lucky because they keep sort of pulling out these these deals to be able to build more data centers. But when you look back to their IPO, the sentiment around that, I don't think that those concerns have materially changed. This is not a company
that has super solid financials. It's gotten incredibly lucky that very solid companies, the videos of the world, the metas of the world, have all decided to sort of yolo their capbacks into data center spend.
But I don't know how long that's going to last.
Does it tell you something about the broader AI ecosystem or just this name? And I think that's what I'm going to get here.
It's a little bit of both.
I think Corewave is a uniquely fragile company in the ecosystem. We certainly saw that, you know, before their IPO, that was widely the sentiment, and so you know, I would go back and look at some of those notes then and say, has much really changed? But I think that the broader AI market, The question is when will they make money. We know that on the private side we're seeing a lot of unease around open ai, not just the lawsuits, but you know, questions of how sustainable is
their current business model. Is there going to be huge price hikes from from open ai and Nthropic, which then drives a lot of the more casual users of smaller business users off of using them. How much efficiency or even really big enterprises actually getting.
From ai in the workplace.
There's a lot of data that shows that it might be close to zero, or that compute credits are actually more expensive to just hiring a good, solid junior engineer.
To do some of this work.
And so I think that we're spending like it's a sure thing, but when you look at the data, the ROI, even the revenue, it's really unclear if it is.
You talked about open ai, and we were discussing earlier this morning how soft Bank is having trouble getting a margin loan for ten billion dollars backed by their stake in open ai because the creditors are concerned about the valuation being assigned to open Ai. How much is this just winners and losers? Coming to the surface, versus a sense that maybe the entire ecosystem is overpriced right now based on very high expectations and very high costs.
Look, I love Masa because that guy is great for entertainment, but I don't know that if you can look at soft bank struggles and sort of wide in and out to the rest of the market, because they operate in an incredibly unique way if you think back to the we work days and Uber and all of that, so you know, I wouldn't be sort of overly looking at them as the signal. I think that that big question does come back to and where we see companies outside of the alphabets of the.
World make real money on this.
Obviously, in Nvidia, the chip makers are making a lot of money, but that money is only as good as the demand for the chips, which really could you know, kind of slow down and fall apart at any time. The other piece of it is as the global economy slows and contracts, which we know is happening, there are
fewer enterprises who need AI. There are fewer people who are necessarily interested in paying for that subscription to be able to get you know, a slightly better restaurant recommendation or slightly better travel recommendation because they're not doing that, and so as those subscriptions wane, the entire industry sort of falls apart based on a lack of demand.
I'd love your to take then, Sarah on cloud Flair, saying that they were playing to cut eleven hundred people because they can replace them with artificial intelligence. Notably, the shares are down significantly in pre market trading after that announcement, not being treated as exactly a cost savings. Why don't you think that that's being treated by the market as evidence of some of the productivity gains and actual monetization of some of these tools.
I think at this point we've kind of heard that story, right.
We see people go in, they do a big layoff, they say it's going to be great, We're going to do AI now, and then they realize, oh, the AI.
Is not working that well. They have to kind of hire people back.
It also is often seen, and certainly not in clouds Flares case, but it's often been seen in the market as hey, maybe there's something wrong with the underlying business, maybe there's something wrong with the revenue, and they are covering that with the AI driven layoffs, because that's a buzzword we like, and so I think that there's just a little bit We saw the same thing with Meta
a few weeks ago with their layoffs announcement. There's just a little bit of I think, kind of people don't really buy that an AI triggered layoff is a good thing anymore.
Sara, there's a report in the Wall Street Journal about a recent call the Vice President had with the heads of all these companies Elon Musk, Dario Mode, Sam Altman and expressing alarm about artificial intelligence. Do you think this White House in Washington is going to try to put a leash on some of these companies.
I think that the White House is going to do what we've seen it do over the last few years, which is that you have to stay in.
Their good graces.
It's a bit of a pay to play, and so I think that what you're going to find is that they're going to say, you know, it's a little bit like when the mob comes into your store and says, you know, we want to make sure that you're taken.
Well care of. And so I think that these AI companies.
Are going to have to very aggressively stay on the sort of right side of the White House of the administration. I don't know how much sort of the anti data center sentiment, which we're seeing sort of bipartisan in communities across the country, is feeding.
Into this, but I do think that one jd.
Vance is trying to set himself apart a little bit from the rest of the administration and look like he's caring a little bit more about main street issues. Anti Data Center very much is a main street issue right now. And then two, this administration wants to make sure that everybody knows that at the end of the day, they're going to owe the White House something, and this is a great way to remind them.
Sarah, Is any of that new? I remember when these companies used to dress themselves up in the cloak of liberal values and make out there was super progressive and left wing because they were worried about progressive people down in Washington, d C. Is any of this new Just a different flavor, isn't it.
I think it's a certainly different and more aggressive flavor in the US. I think that the actual kind of the money that's changing hands around the ballroom and things is certainly a slightly more Banana Republic take on it. But I think that you know to your point, people tend to like to play nice with the most powerful government in the world for a good reason.
This is the Bloomberg Survendans podcast, bringing you the best in markets, economics, antiopolitics. 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 always on the Bloomberg Terminal and the Bloomberg Business out Mm hmm.