Bloomberg Surveillance TV: November 21, 2024

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferroh, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always on the Bloomberg

I think the bar is too high for that reacceleration in tech because we don't get it from the other big tech weights. You don't get an acceleration from Apple, you don't necessarily get a big one from Microsoft. You get a deceleration from Nvidia. So it means that the market is pricing and effectively the everything else in tech truly reaccelerating. We're not quite sure if you can get that.

Let's stay on tech. AI and Vidia doing really well this year. The rest of the semi space nus a good how'd you explain the difference between the two.

It truly is AI and everything else. If you look at the equal weight Semiconductor Index, it's actually down three percent this year, which tells you that there is still a malaise in the old industrial Auto China, old manufacturing part of semiconductors. That does reflect this weak manufacturing environment where we've been in where we've had this historically long

So basically what you're talking about is the AI side of the story that's really powered this market. A lot of people have come on the show and said they agree with you that probably expectations are too high for AI to keep leading, but that just gives everything else a chance to catch up. Those semis are going to

And we do know that if you look at these at these very cyclical semiconductor industries, we know that it's most cyclical industry in the world. That you have been in this weaker environment for a couple of years, So the bar is lower for a recovery. But the big question still comes back to tariffs. Will you see companies still want to invest in big manufacturing plants that would

So everyone has come on the show since the election is basically said, are you bullish on the US or are you really bullish on the US? And then I saw your outlook for this upcoming year and basically your cast to go a whole bunch of cold water on this and you're saying that it's going to be choppy, stap being so exciting. Either you get chopp that could create some drawdowns, or you get a bubble which will end badly.

Why aren't you more excited.

Well, look, we're excited, we're still bullish on the US and we're still fully invested. The point is, though, is that if you think about sixty four hundred sixty seven hundred, all of that glosses over the path you take to get there, and the path is going to be really important. We think it's going to be different than twenty three and twenty four. Twenty three and twenty four was broadly

What will you do with it? The classic Walter.

Demer line of when it comes time to buy, you won't want to. So we're trying to get our minds in process of accepting this volatility, wanting to step into it versus running away from it. But certainly we think it's that wide choppy rain, not necessarily low fall up into the right.

Is it choppy because of underlying economics or because of policy.

Probably policy and policy of course could drive and influence the underlying economics. We think that big sweeping tariff policy is certainly a dampener of growth. It raises the question around at supply chain disruptions, which could be inflationary. But those policy wild cards of do we get tax reform,

So terrorifts for you definitely are a tail risk. A lot of individuals have come on and said that, but a tax cut and a big tax plan that would be a boost. How do you think about the sequencing of all this, Well.

That's the thing that we think it could be inverse from the twenty sixteen sequencing, where we got tax cuts first and then we got tariffs, and that's one of the reasons for the weak market that we had in twenty eighteen. This time around, tariffs could happen first, and we still have a big question mark as to whether or not you even get that corporate tax cut simply because you are negotiating four point seven trillion dollars of existing taxes with a very slim majority in the House.

Let's finish on bitcoin just to count ninety eight k all time high multiple choice, A risk anset on steroids, an important diversify for portfolios, or a proxy to play some huge momentum societal shift over the next few years.

Which one is it.

DA and B meaning that you think it's It is definitely a liquidity proxy. This is a proxy for how much liquidity is slashing around in the market. We certainly have seen that play out in other cycles that when the FED is removing liquidity, Bitcoin is typically done poorly. This is a world that given the FED is cutting rates with financial can so easy. That is supportive of

So Lisa would like to know some form of inverse correlation between the performance of a twenty year oaction and bigcoin.

Is that right?

All I can say is a psychological commodity tulips, where a psychological commodity you can say pretty much anything.

Or haven't got to guess so much. Left Malpert, I'm not.

Just saying that the crypto is tulips, but I will just say that a crypto platform founder of tron, Justin Sun, bought a banana that was duct taped to a wall for six million dollars. Yes, okay, So I'm just looking at this and I'm like, is that psychological kind of commodity is sort of to ease your fears?

I think that that is the bubble scenario into twenty five, is that we get a bark of speculative fervor, and that is the scenario where you could see runaway markets because people start yoloing on bananas taped two walls, and that could be something that would make its way into broader equity markets where you see valuations push up into even more rarefied air.

You don't sound like a crypto purist at all. A lot of these conversations years ago when we were trading down there, ten k, same conversations, and here we are up by one hundred totally.

I think that anyone who's been barishing crypto has been humbled massively. And there's a lot of questions around exactly the idea of blockchain and how it could be used in supply chains that have cost a whole host of different asset classes.

So there is a lot of value here.

That's a good clean up effort. That one right there, bigcoin right now ninety AK all time highs up this morning by a round about four percent. Cameron, thank you, Thanks going to see it. Thank you, Cameron Dawson of New h Weel. The former Google CEO Eric Smith joins us on his latest book, Genesis, Artificial Intelligence, Hope and the Human Spirit. Eric joins us now for more. Eric,

Well, Well, let's.

Start with a hope that either of your show is incredible. Previous guests talked about two percent productivity. Imagine that productivity goes to five percent a year because of this technology.

So there's every reason to think that.

There's enormous land businesses, inventions, science, health, and so forth to get invented. But the same is also true for the invention of conflict and war. And if you think about it, it makes absolutely no sense to put somebody in a fighter jet up in the air and have them be shot at by another missile. It makes much more sense for that fighter pilot to be sitting on the ground and having a swarm of the equivalent.

Of those jets.

Let's just call them powerful robots, powerful drones that act in synchrony to achieve the objective of this attacker or to defend yourself, and the future of war is autonomous and networked and AI driven.

This is something that a lot of people have focused on, in particular how the US is going to evolve in this manner, as well as how China is going to evolve in this manner, how they're going to use some of the space satellites to help coordinate that effort. Eric, do you feel like right now one superpower is winning versus the other? What is the best way to gain preeminence in a military AI sphere.

Well, when doctor Kissinger and I went on his last trip to China, I was convinced from that meeting that China was two to two and a half years behind us, But I am now wrong. It turns out that in the last couple of weeks China has brought out software models what are called language large language models that are rivals of the best American ones, which I never thought would be possible. One is called quinn An other words called hong Yung. And it looks like they've caught up

So there are a lot of questions within this, and this could be a half an hour discussion, but one of them is who should be financing and who should be leading the national efforts to gain pre eminence in this sphere. And you have to wonder, you talk about China as a state organized, state funded type of effort that is coordinated in that manner, how should it be directed in a place that does consider itself capitalist, like the United States.

Well, the Chinese model is what is called civil military fusion, where they subsidize their biggest companies. No one in America, not even in the companies, thinks that the thinks that the largest American companies need to be subsidized. But let me make an argument that if general intelligence, that is human intelligence, is to be invented, it should be invented in the United States and under control.

Of Americans and the American government.

And I don't mean managed, but I mean under the legal control of our country, our citizens, at our democracy, and getting there first is a big deal.

A number of us have talked for some time.

That there should be ANAI for America initiative where the government works closely with the private companies and figures out a way to make sure that we are ahead of ahead of time. In truth, however, the financial industry that you all invented, for which we are incredibly grateful, has been incredibly.

Generous in terms of the ability to fundraise the billions of dollars that are required.

And I should state, by the way that you guys have done such a good job in raising money, and we've done such a good job in actually getting the computer scientists around the world and the data and so on and so on. What we now need is energy. We are prolific consumers or energy, and we're going to run out. One estimate is that US will run out of all sources of energy by twenty twenty eight at our current growth rate.

There's another topic you discussed in this book, which is AI to check AI.

How can that work?

When do you think about it?

One of the things that happens in AI systems is you have compositional generations. What happens is you take one piece and another piece and you interlick them and they've never been linked together before, and it looks like when you combine those two you get emergent properties. So that's in and of itself interesting. So the question is what is the limit of that? How far can that system

Math, chemistry, and arts and so forth. No human can do that.

It looks like these systems will be not only available in the next five years, because we already have examples of passing these tests already, but also that they'll be broadly available for all of society.

That has huge implications.

We've never had an experiment where each and every one of us has a polymath, you know, the Einstein type scientists at our back and call.

And furthermore, that scientist, whatever you want to call him or her or.

Is, is capable of writing code, doing agents, and making things happen.

How do you think the United States competes with China when we have an incoming administration that wants to put up tariff walls, and even this administration who's been putting export controls on some of our high tech semiconductors.

I am not in favor of broad tariffs. I never have been.

I'm the son of an economist and a grandson of an economist, and tariffs are essentially taxes. What I am in favor of is restrictions or limitations for strategic reasons. It's really important that we win in this race against China. And so the things that the Trump administration Biden administration to limit, for example, hardware access, were really smart. And I know because I was part of a commission that recommended it way back when in fact was adopted.

Great job. So the question here is ignoring the tariff.

Question, which I just don't like and I think is just another tax. How do you control how do you control and limit what China does? And how do you how do you amplify.

What America does?

And you sit there and you go, well, you're doing pretty well, right, everybody's making a lot of money.

There's all this growth, and Dy's doing well. All the tech companies are doing well. But let me explain what happens.

You have a slope that's like this, and it keeps going up and up and up with humans.

At some point the industry.

Believes that there will be AI scientists, that is, non human scientists, and he or she who gets there first gets a slope like this and all of a sudden boom.

Yeah right, we're really really growing fast.

These network effect businesses are what we do in our in our competitive environment against each other under US regulation.

I want that to be true globally for the US.

Eric, I can sell to you world and thin of having your back students to continue the conversation. Congratulations on the new books. So we pretty shake a time. The full mcgogle CEO Eric Smith begin this out with Trump's treasury pick still very much up in the air following meetings with Apollos, Mark Rowan, and former FED Governor Kevin Walsh.

For being here.

I think we need to take a big step back in FANCO several years back to twenty sixteen, twenty seventeen. Just frame for us what you had to face down in sixteen going into seventeen and how long the to do list was back then.

So I think we should take even a bigger step back and remember what the environment was. If you go back to the economic environment as we were going through this exact period, we had a environment where we had just started just barely started to come out of the Fed's zero interest rate policy, quantitative easing and a decade of Fed articles would ever be inflation again. We were

Rates were low.

And then you think about the situation with state and local government. State and local governments were not in great position eight years ago. Now, think of what's going on with the migrant population. How much money some of these

That's you know, that's where you start.

That's literally day one, that's January twentyth twelve noon.

You walk into that. Yep.

So there's a fundamental difference from where we are. But there's a similarity to coming off of the Obama administration versus the Biden administration. The excitement of business, the opportunity going forward, those are the excitements.

You know.

Then you go back eight years ago and say, okay, what did we.

Walk into as well?

Well, look, the number one policy that we really wanted to get done initially was tax reform. Tax reforms are number one objective. Unfortunately, you know, the House had sort of gotten ahead of the White House during the last few weeks of the prior administration. The House had gone ahead with repeal of Obamacare, So we walked into repeal and replace without really a replace, which I have to.

Admit I totally forgot about. I totally forgot about the McCain vote. Yeah, I've totally forgotten that you'd walked into that back in seventeen. How did that complicate things? To get taxes done.

A highly complicated thing.

You know, we all thought on the economic team that we were walking in, we were going to, you know, January twenty, we were going to start on tax policy, tax policy, tax policy. I think all of us got thrown into healthcare, healthcare, healthcare, trying to figure out healthcare. None of us were really healthcare experts, none of us had been doing work on healthcare for the prior three months trying to get ready to walk in.

We'd all been.

Working on tax policy and trying to figure that out. So everyone got derailed for the better part of I would say two months or three months, knowing that we wanted to go through taxes in year one because we wanted to use that budget that existed and we wanted to use budget reconciliation to get taxes done that year.

So every day we were spending on.

Healthcare, we were losing a day of tax policy, which was you know, it was anxiety creating, let's put it that way. So we were trying to get rid of the healthcare issues quickly as we do.

What's going to be the priority when they walk in January this time around? Is it going to be tariffs or is it going to be cutting tax So I.

Think there's two priorities day one on the economic side, and you'll argue there's both economics. I think it's going to be taxes, because again you've got a deadline. Remember the personal side of the tax policy ends at twelve midnight December thirty first, twenty twenty five.

So there is a.

Forcing function, and Washington operates really well with a forcing function.

They need deadline, they need deadlines. They need that.

Journalists well I don't know about journalists, but I know about Washington.

They need a deadline.

There is a hard and fast deadline now, look, they could extend it, but that would be another Act of Congress to extend it, so they have a firm deadline in place. So Number one thing on the I would say the economic policy front is they're going to deal with taxes. Number two is I think simultaneously we could argue this is this is economics as well.

They need to deal with the immigration policy. You know.

I think we will see Trump come back to many of the executive orders and many of the policies that he had going out.

On January twentieth. He will reinstate all.

Of those policies to shut the border and at least stop the flow of illegal immigrants in the United States. So I think they will work on both of those simultaneously.

Okay, so if personal policy, we have two out of the three we have a borders are he's announced and we also have Howard Latnet going over.

As to commerce.

What is going on with the treasury pick. We have three men who I've been told the President thinks of a high caliber Scott Besson, Mark Rowan, Kevin Walsh in Palm Beach yesterday having these conversations with the president. You know how he operates. Why is this pick taking so long? If he ran an echon agenda campaign.

So I think you just answered a little bit. He ran an economic agenda campaign. This is in his opinion, this is one of the most important, if not the most important pick he is going to make, so getting it right is important.

I'll also remind you something. We'll go back to eight years ago.

The economic picks were made the week after Thanksgiving. I was hired the week after Thanksgiving. Manutrient was put into his job the week after Thanksgiving. So the transition team is a couple weeks and probably a month ahead on most of the picks.

So we've all got.

This anxiety because this is a second term president, so he knows how to get stuff done quickly. But if you think of what happened eight years ago, those picks were made in the last week of November, first week of December, and we were all ready to go in our chairs in place by twelve noon January twenty, So

Do you think it's a name that I have not reported on.

I look, I'm not involved in the process. I think the President will put any in every name that he thinks can do the job well on the list, and he will choose what he thinks is the best person to do the job.

Do you think it is feasible for President elect Donald Trump to achieve his goals of the tariffs that he's put out there while acquiescing or creating some calm in the bond market.

We will see what actually happens in policy.

You know, I always remind.

People what you say to get elected and what you do in actual policy are two different things. You know, Americans like to hear what your ultimate idea is to get done. But we've got a very rigorous policy process in the United States. We've got a House, we've got a Senate, we've got lots of constituencies, and when it comes down to actually executing implementing policy is not exactly what the president wants. In fact, every piece of legislation

I guess the reason why people are so interested in the Treasury pick is because people want to understand what that compromise might look like, and the individual might give some insight into that. Do we have a sense and will this sort of be the ultimate test for you how much Congress pushes back on some of the picks that have already been announced that are controversial even among Republicans. Will that be sort of a test of just whether

Every Congress and every president when they come in and they pick, they put their nominations through and they go through the consent process.

It's different.

Every four years, every president goes through a different process. You have a different makeup of a Senate. You have a different sort of body. And by the way, the body will be different at the end of this year, and then it will transition. I think it's January third is the swearing of the new Senate. It will change January third in the middle of the process. So some of these nominees could actually go through an approval process with this current sitting.

Senate, some may go through with a new Senate.

The probably the vast majority will go through with the new Senate because it takes time to get the paperwork through, it takes time to get the vetting through. But every one of these events is unique, and it's uniquely different because they're different personalities involved. There's different people went through different elections. Certain states changed, they became redder, so the senery may or may not be more comfortable taking a

So you did mention the financing of the deficit, and that's very interesting to me, especially at a time where you talked about the short term nature of a lot of the financing. Do you expect that to change for there to be a lot more longer dated issuance regardless of where yields are at with the next Treasure Secretary, whoever that might be.

But I think it's really prudent risk management to start elongating the debt of the United States and not have to live off very large short term auctions and not have to live off a short term demand for treasuries.

Like we're always worried about.

Financing the deficit and what could happen Like as a person that grew up as a risk manager running a large balance sheet for a large percentage of my life, you would want to de risk that. How do you de risk that from a treasury standpoint, You roll out maturities as long as you can, so you cut down the amount that you have to fund at each of these auctions. So I would think that this administration would want to get that done and roll out maturities.

Gary, I want to pick up on a conversation we were having earlier the race to be the next Treasury secretary. You've been in the room with President elect Donald Trump many a time, including to interview. What's it like to interview with Donald Trump?

Well, look, look, it's always a stressful experience. You know, you're sitting there with the President elect and a large amount of his team.

Like usually when you're in the room with the President elect doing these interviews, there's multiple other people in the room. You know.

I always reminded myself, I'm speaking of the President elect.

I'm not speaking to other people in the.

Room, so you've got to sort of block out the other people in the room. But he's rigorous in his questions, and he tends to go multiple different directions, so you know, he'll go from from.

Topic A to topic B, to topic C, back to topic A.

It's interesting.

You've got to be on your game when you're in there. You've got to be on your game. And he's thinking, you know, in multiple directions, and it's very interesting and he's always got a interesting spin on things.

You know. I think the.

President like Trump, is one of the best marketers and branders there is I've ever seen. So when I'm always talking about an answer and how I would think.

Of something from a policy standpoint.

He's talking about it, how is he going to sell this to America and how's it going to affect people? And how's it good for the country, And he's thinking in that term. So we're always having an interesting conversation where I'm thinking about it from an economic policy, markets policy standpoint, and he's thinking about it from how do I sell this and how do.

I get momentum for this.

Some space in the media are describing this process as looking for a yes man, someone who would just say yes to some of his policy proposals, including the trade. You had disagreements with him on trade. You were very open about that. We're all aware of it at the time. In the first term, how open is he to those disagreements.

Look, I believe.

It's the job of an advisor in the White House to tell the president the truth and tell them things that he doesn't want to hear. Now you get to tell him plain things he does want to hear. You know, it was always fun to go in there with the economic data. You know, you get the economic data the night before it's released, and there are many nights where I got to go in there and talk to him about the economic data, what it was, how good it was,

And I think those are the jobs.

Of the people that sit in the White House's advisors to make sure when the president does something they understand the intended and unintended consequences. They should never a president should never be blindsided by a decision.

When it comes to the check and the pushback on Trump two point zero, John talked about this his first four years. All the time the Trump put it was a stock market that he cared about.

He would reverse core.

Some potentially something he want to do in executive order, just because he saw the fallout in the financial markets.

What's going to be that check this time?

I think Trump is going to care as much about the stock market these next four years as he did the first four years. That is a benchmark that he will measure himself it's a very public benchmark. It's one that he uses. He talks about it in every speech. He's already started talking about it in the transition. How well the market's done since election night. I don't think that will change over the next four years.

Do you think the bond market takes on additional importance? We started this whole conversation about the difference between now versus say, twenty sixteen to seventeen, certainly in fixed income in a very different position.

I think the bond market deserves a long discussion here. I think there's a lot going on. When I talked it, when I talked a little bit ago. You know where FED funds were at seventy six faces points where they're four and a half percent. Now, that's only half the story. You know, we had a flat yield curve and then we've gone through an inverted yield curve over the last four years because everyone was worried about a recession. And

How stafe is a normal year?

Yeah, Like, at least you've been around long enough to ask a question, how steep is a normal yield curve, because a lot of people don't even remember a normal yield.

Curve is steep.

You know, we've seen since the Fed started cutting interest rates, ten years have gone up sixty to seventy basis points. I'm not surprised by that. I think we're renormalizing a yield curve. If we've taken recession fears off the table and the ten years going to go to a normalized rate of let's call it three three and a half percent, you know, there has to be at least one hundred to one hundred and twenty five basis points of steepness in FED funds ten years. I think it's at least

And a quarter.

If we're going to three and a half, you know, we're talking four to seventy five, and we're going to continue steepness out the curve. And that's before we get to what I consider a pretty large refinancing wall coming up in twenty five and beyond. You know, I think many people forgot that. You know, twenty twenty, the COVID year, we did a lot of refinancing in the market, but they were all most of them were five year refinancing.

We could so called morning. Let's do it for now. Next time, it's going to see it, sir, great singer, appreciate it. Gary Cone there, the IBM Vice chairman and former Director of the National Economic Council under Donald Trump. This is the Bloomberg Sevenants 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