Bloomberg Surveillance TV: October 24, 2024

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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, 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

So remember the context.

Two days after Russian invaded Ukraine in twenty twenty two, the United States, the G seven, we collectively froze Russia's central bank assets held in our countries, about three hundred billion dollars.

Worth in total by all accounts.

This came as a surprise to putin the severity of the action, the speed, the unity of the G seven. So two years later, two plus years later, this June, as you showed on your screen, the G seven committed to lend fifty billion dollars of that value of the Russian frozen assets to Ukraine, using the future interest flows to pay us back. So yesterday President Biden said, We're going to make good in our commitment. We're going to

It's a big deal.

Never before in history has a multilateral coalition frozen the assets of an aggressor country and then found a way to unfreeze those assets for the benefit of the party, all while maintaining the rule of law and our solidarity.

So that's where we are. Deep.

Are you concerned about the consequences though in the future you have the bricks right now meeting talking about whether or not they should move away from doing transactions in the dollar because of.

Things like this.

Well, the important aspect of this deal, I would say two aspects. Actually, One is we followed the rule of law and every single jurisdiction we stuck to the letter of the law. Second, we maintained our unity, our solidarity. You know, there had been some calls to seize the principle of these reserves. We have a legal pathway for doing so. Europe does not. We're going to keep working

For its existence. I was at the G seven, so were you with this?

Really got pushed over the finish line in terms of the European saying okay, we agree with you, We're going to come on board. How much does the US presidential election. How much did the fact that in November potentially there is going to be a change at the White House impact of the Europeans wanting to get this done today.

Look, I would say part of the motivation for this G seven deal was to prove to putin no matter what happens in our election, time is not.

On this side.

I can give you three hundred billion reasons why time is not on putent side. It was also meant to demonstrate that multilateralism it's a force multiplier, and foreign policy and that we're not out of options, We're not out of creativity. So all of those were I would say, underlying motivations for how this deal came together.

Some people might suggest, though, that America is losing influence on the global stage. We haven't managed to persuade China to come to our side of thinking on several issues in international farm relations right now. Is there any evidence that we've retained regained any kind of influence on the global stage at all under this administration.

Well, you mentioned China, John, I mean, I know there's been a lot of talk about protectionism at the IMF this week and beyond.

In my sense, my.

Interpretation of what we're doing doing is that this is a very positive sum view of the world, and we hope China other countries come towards our way of thinking. What we've said is, look, we're going to invest in our productive capacity. Number one, we're going to strengthen it and scale it up. Number Two, For countries that are playing by the same rules, we're going to give access to our productive capacity and are purchasing power.

We hope, we hope it's reciprocal.

But third, and this is where China comes in, for countries that are not playing by the same rules, we are going to use restrictive measures like tariffs to level the playing field and to prevent hundreds of billions of dollars in American tax payer money from getting undercut. That is not a defensive approach, that's not a protectionist approach. It's a positive sum view of the world. We're trying

China included to Amory's point, there are some countries, some account some groups of countries starting to think about trying to move away from the US dollar. Mohammad al Aium wrote in the Financial Times early this week. You might have seen the column that you produced said a loss of confidence in America's management of the global order may have contributed to this run up, the whizzing and the

Look, I don't think we're going to see. If there was a breakdown, we wouldn't see it in the data. By the time it showed up in the data would be too late. What matters is whether we continue to be who we are, whether we continue to have the rule of law, independent and credible institutions, fair and effective regulations, trust in our stewardship of the global economy. That's what

The leave gold is just one example. Though.

What do you say to those that say sanctions don't work, they just create new.

Market What I say is what is your alternative? We're in an environment of very intense geopolitical competition. Both Russia and China have expressed and revealed a desire to disrupt.

The US led order.

When there's conflict, we tend to have three options. Do nothing and stand aside and watch international rules that underpin peace and security get flouted, or go to war. But the policy space in between.

Why do a price cap? Putin makes money every single day exporting oil and gas.

Why not just sanction it.

That's how he funds this war.

Well, sanctions work if they're sustainable, and they're only sustainable if they hurt our target more than they hurt ourselves in the global economy. So take energy for example, coming into the war, Russia was the third largest supplier of oil and gas to the world when global supplies were quite tight. We cut off Russian energy within a month of the invasion, sort of other g seven countries. But the idea of cutting Russian energy off from the world

We're going to have a chance to hit him harder.

The time is coming, so chance to hit him harder. How I'm not going to telegraph that here, but rest assured. We have options and it's a.

Matter of time.

Let's go back to this idea of Jonathan brought up with China and tariffs. China is a big player when it comes to what they're doing in Russia. Russia is able to get chips, say from refrigerators, and maybe use it in their military base. When it comes to tariffs, you're talking about the fact that you think they need to be used on places like China. What do you think separates the democratic position than what the former president is saying on the campaign trail.

So I'm just going to speak hypothetically since I'm not on the campaign. Across the board indiscriminate tariffs, they are going to have four predictable consequences.

Number one global retaliation.

Number two, it's a regressive tax on the most vulnerable segments of society. Number three it compresses profit margins for any business that imports components. And number four would isolate America on the world stage. It would alienate our allies and play right into Putin's and Cheese hands. Our approach has been there's a role for targeted tariffs, but tariffs

And now we're.

Hearing about proposals for an order of magnitude greater increase in tariffs.

That's not where we are.

And then it wouldn't shock me in four years time, the Democrats if they fall out a pack, get back into power, and keep them. This is what's confused us. All there were complaints after complaints about what Donald Trump were doing, and then all of a sudden they were kept. And not only that, it was a rebrand. We talked

No, it's an important distinction because whether it's tariffs or export controls or sanctions, we need to have a limiting principle.

And export controls can play that role.

But we have to be really cool, clear with ourselves and the public and our counterparts, including in China. Why why we're putting on these terms rather than slap them on indiscriminately.

That's the difference.

Deleep, I could talk to you all day.

It's good to catch up.

It's good to see it. Thank you, sir, Thank you very much to Leap seeing that the Deputy National Security Advisor for International Economics. We begin this out with stocks higher. Tesla kicking off Max seven earnings with better than expected results Deutsche Bank's Spinky Charter with this to say on earning season. It's still early, but the results so far are slightly stronger than expected. Go again, especially for the financials where investor positioning is our reading in our reading

Can monitor you.

Good morning, John, good to see you. We've got a big week next week. All the major tach players, with the exception of in Nvidio. How high is the bar for those tech firms?

So, I'd say the bar has been fluctuating. It was extremely high at the beginning of the year. It came down a little bit as positioning came in. Positioning has kind of been going sideways to slightly higher, And just to be clear, positioning tends to align with earnings growth.

So the slowing, we would argue, is inevitable.

It's happening, but it should not be confused with bad earning. So you are absolutely right that it's all a question about the bar and the expectations. And I would say, you know, it's going to fluctuate as you go through sort of this period. It's not all meant to happen on one fine morning. It is going to take a while because there is genuine uncertainty.

We don't often do single names with you, but there is one single name which is basically a market, which is in video. Tolson Slock man, you know, well now at Apollo right this this morning, that it's now bigger than the total market cap of five and the G seven countries, the foreigner zone eighteen percent of the US

Ai, No, I don't think so.

You know, the size means, they're definitely important, the size and the growth rates. But no, I would say, you know, the issue of the year has really been whether we would broaden out. And I would say that is happening. It's you know, for it to happen, you need the fundamental underpinning of earnings growth also rotating, which is what would drive you know, moves in positioning. You just spoke about positioning in earnings growth. So it's all happening, I think.

The economy or earnings are going. The other half's coming from what.

We already spoke about, which is the well understood generally at least among the analyst community, both bottom up and top down, that you know, their earnings growth is basically slowing from megga half growth in tech everybody else kind of going sideways.

But you know, but the same token.

I mean, if you look at Q four right now, you know we're looking for sort of year and young growth in the mid teens.

Those take firms responsible for some massive buyback plans as well. You often refer to what you call this robust demand bank drop for US secuities. Can you walk us through where things are aut with regards to that.

Yeah, So conceptually, basically, you know, I think one very simple way to think about equity from demand supply point of view is how existing equity money is positioned, so that's our positioning measures. There's new money coming into equities,

Quite a while.

It's not just equities that are getting robust inflows. Bonds have been getting robust inflows too, So positioning has upside.

Even do the mid July peak.

We have very robust inflows, and the biggest driver is really the buybacks. And buybacks basically move with earnings, so we're looking for eleven percent earnings growth next year that by itself are used for eleven percent upside in buybacks.

And then there is the matter of.

The buyback payout ratio, which tends to fluctuate between forty and sixty percent. We are sitting in the middle and at around fifty percent. So if the economic backdrop improves and corporate confidence continues to improve, then you're going to see.

That buyback payout ratio also go up.

So there's so in short, all three cylinders from a demand supply point of view look very, very robust.

So what could spoil the party? Because you talk about catalysts. Two, you mentioned our geopolitical risk and the US election? How do you take those into account with this pretty rosy picture you have?

So what I would say is, you know, the election, for example, I mean the traditional pattern is for the equity market to pull back basically starting about a month earlier, and it really sort of you know, the way to think about that is the premium for volatility in that first week basically.

After the election. As Jonathan already stole my punch.

Lune, which is it happens to coincide with all the early month macro data that comes out at the same time, and it is only a few weeks since the last payrolls report, which had a huge impact.

So I would say today there's.

A whole whole bunch of catalysts having an impact. And if you look basically across asset classes, just look at the vix. I mean, so you know, a little bit below twenties to many people seems very reasonable. But if you compare that basically with what actual volatility is doing, you've got almost a ten percentage point premium in the VIX. That's just enormous by historical standards. And it's not just equities. You can do the same for rates. Look at the

Definitely an angsty market when you have people coming on talking about this idea of a Trump trade in equities in the bond market, why don't we see in the tech companies?

So you know, I would emphasize more the uncertainty basically coming from the election and the market really buying protection for potential volatility around the election.

I think it's a.

Little bit too early to start to factor in or you know, the policies and the implications. There is a natural tendency for all of us to focus on that. But I mean, just take the last tax cut, I mean, the tax reform package we have the twenty sixteen election. By December, you know, proposals were being circulated, feedback was being sought, and when did the tax reform come to pass? It came to pass in late twenty seventeen, when I remember, you know, me and my team running a piece called

I mean, you know, well, when it comes to when it comes to corporate tax rate, there's a huge spread though between both these candids fifteen percent twenty eight percent. But to your point, that likely won't get finalized till the end of twenty twenty five. So does that get pushed out for twenty twenty six story for these companies?

Yeah, it's it's it's it will depend on if and when it passes, And that's sort of a complicated route to basically, you know, bet on right now. I mean, what I would offer in terms of thinking about corporate tax reform and earnings is there is no doubt that there is an immediate impact, but over time, you know, if you look at the S and P. Five hundred from the nineteen thirties. Still today, there is a very very very.

Clear trend line. And now you know on.

This chart you should overlay the corporate tax rate in the US. It's done lots of things, and the trend hasn't changed. And I'm not saying that equities are the present value of really trend earnings, but if they were, then you know the trend hasn't changed.

So short term impacts yes, but long term no.

This is a long term policy discussion. I'd love your thoughts on the shorter term because I imagine a lot of people will be down in one eight hundred binky when we wake out November six with the real possibility we don't have a result on November seventh, on November eighth, on the ninth, or tenth, and maybe even longer. We're talked about that Federal Reserve decision a million times. Two days after the election, they might not know the results.

No, It's it's about basically, you know, what's happening in short term to positioning and of course perceptions of what's going on.

So I think.

Basically, you know, a result that takes time really doesn't.

You know, to resolve itself.

Assuming that it does resolve itself, does it really changed the story? I mean, it's it's it's you know, instead of one day event ball, it's about a few days of event bol.

But the point is, really, you know, does it pass?

Is that a dip you'd buy?

I'm sorry, is that a dip that you would buy?

Yeah?

We think of it as a temporary pullback basically. And so going back to your question, you know, is the election or risk? I mean, historically presidential elections haven't really changed the business cycle. That the biggest, highest, big picture level equities.

Are about the business cycle.

So and I would remind that, you know, once anybody comes into power, they have a strong incentive not to destroy the business cycle. So you know, there is a built in check there is that.

How you see in Republican administration that they will be constrained by where the equity market is, that will be regulated by responsive sensitive to it in our experience, based on what happened first time around with Donald Trump.

So I think the evidence formed the last time around is very very clear.

I have a piece on it, and I can dig it up.

You know, every time the trade war, you know, sort of fired up. Let's put it that way, equity market went down by ten percent. I called it Trump relenting, but he would basically argue we have a deal, and the market would bounce, and then he would say, no, we don't actually have a deal. We're going to escalate. The market will go down. So yeah, so are we going to get more pullbacks?

Yes? But did it change the trajectory completely?

No.

I called it the presidential put which is basically the same thing. And we were talking about this earlier this week. We all remember that time when the equity market was camping lower and the president ultimately pretended to have a call with China and suggested that things were better than.

They were, because that would mean that, okay, the equities can then start to rally again. Basically, puts out a tweet, puts out a statement, saisling to a reporter, and equities fall. I mean this happened as well with him wanting to rip up NAFTA, and then sort of had to massage the message because the Dow Jones was doing so bad. And ultimately I think, Jonathan, you've called it. That's what he's regulated by.

Thank you, it's good to see you. It's good. So it's good to catch up. Thank you, sir. Send over that pace.

I wasn't rate that. How old is that perce fgs.

It's from the last administration to take at least four years old.

Thank you, appreciate it and tested the catch up. Thank you may get shout of that. If don't you think, don't I guess now form a speake for the House Kevin McCoy speak of mccouthe good to.

Say, yeah, good to be here. It's a tight one.

And if I could offer you the outcome of any one race right now, which one would you want to know?

I would watch Pennsylvania. Why's that because we elect presidents not by popular vote, by electoral college. So you assume, if you look at the last election, which was only won by forty and eighteen votes, that Donald Trump would get pretty much the same electoral states that he got before. And I believe he'd pick up Georgia. If he picks up Pennsylvania, it's over. He's gotten to his two seventy.

He's beloved in Pennsylvania, and he's out there still campaigning for whether or not he's on the ticket or not. Do you think in Pennsylvania they would reject the Democratic Party even though they love their Democratic governor.

They're not rejecting the Democratic Party.

They're tired of high inflation prices, They're tired of the border being wide open. They want someone to do with something that they'll actually say. You watch President Trump go into a Steeler game and people start chanting USA. What do you think they would chant if Kamala was sitting there. They probably wouldn't say anything. And listen, if I asked, you are America, tell me the three things Kamala Harris will do if she gets elected president. She has spent

To home prices. That's the only thing I know.

You can't sweep.

Okay, it's going to be a very tight race. Republicans will win the Senate. We're in a good place, and that's purely map.

The presidency.

I give a sixty percent chance that President Trump's going to win there.

I just watch. It's a tight race in the House.

It's actually easier for Republicans to win seats this cycle. But Republicans now are behind on money. I just came back and saw four races that were tied. The Democrats had but they don't have the money to go play. They've made a mistake in this process. We always had more. I don't see the strategy in the House where you're on offense. I would go out. We beat the D triple C chair last time. Remember the last two cycles, leaders,

The Republicans are feeling really good this time two years ago. Remember Kerry Lake was supposed to be the governor of Arizona. It wasn't the red Wave, no, but.

There was one place that still won where everybody else lost. Same thing as the election before in the House, and we elected the most Republican women, most Republican minorities. We won five seats in California, five in New York. We won Oregon, we won Arizona. We won where Republicans were losing. And if they keep the problem is they're not keeping with that same strategy.

President Trump, though, this is the thing you want to look at it. Who's going to win?

Okay, First of all, the campaigns in Wisconsin and Pennsylvania, the incumbent Democrat senators are using Trump and their campaigns not against them but hugging them. So tell me how that's going to turn out. That's a good sign for a puppet. Then you're looking at articles where there's infighting in the Democratic Party because they want to know who to blame when they lose, and now they're literally talking about would it have been better to keep Biden on

You're very well versed in the House races.

You want to walk through them. Well no, no, no, not all of them. There's too many.

But well, no, there's some Cubans prolific. You were a prolific fundraiser. You saying they don't have money? Now, whose fault is that? That Speaker Johnson's problem?

Well, look he just came in.

No.

Look I wouldn't put that on Johnson.

I put that on the Age who partnered with all the Democrats who are helping Why would the Democrats partner with these eight Republicans because they knew it would give them an advantage in an election that they couldn't just our super pac last cycle had more money than the D tripleC and their super pack. Now, if you want to look at the makeup of the environment, and this is where you want to you want to see Timing

Republican leading that.

So it's a good environment in the House North Carolina redistrict, so you automatically start with three new seats you can pick up. You've got a race in Colorado that last time was a new seat that we had a libertarian in that picked up four percent of the vote. They're not and Gabe Evans could pick up there. Alaska a ranked system, we don't have the second Republican running there.

We'll pick that seat up. Then if you go to Pennsylvania, we.

Had a bad top of the ticket last time for Governor. Dave McCormick is fantastic. Donald Trump is fantastic. So one or two seats there. You got Michigan where you have Slotkin who pulled out Tom.

Barrett's running to the Republicans were talking two years ago, we only have a little bit of time left.

I have to ask about Eil.

I'm telling you there's opportunities if you had the resources.

You see the opportunities if there was resources, maybe if.

Okay, every cycle I was leader, we gained seats in California, there's two other seats we can gain. The question is are you putting the resources in to get the message out, to get it The environment is there.

If you don't turn it out, there's a problem.

Let's talk about man with resources. Elon Musk. He's saying that if you are a registered voter, you can get one million dollars. There's some legal issues with that, But that's not what I want to ask you. I want to ask about this idea that he can become the head of the Department of Government Efficiency.

Does that make sense?

Because now he's talking about if he does become that person, maybe there's a pathway to approve autonomous vehicles that will directly help his company that he's the chief executive officer of. Can he do both?

Is that what now? Now I've known Elon for a long time.

He's never said I want to go into government so I can get autonomous vehicles approved.

That's not even on his mind.

But listen to the question you just asked, Oh, my god, could we have Elon Musk go to government and make it efficient?

I don't know.

We just had a hurricane in North Carolina and the only way people can get the Internet is because of Elon. We have astronauts stuck in space. The only way that can come down is if we ask Elon. We just watched a rocket that no government did, but Elon set it up, created an engine only made in America, where before him we paid putin for their rockets and he lands it right on back. I would pray Elon would come in and make our government efficient. My god, you

That is what's wrong with them.

He's gonna be tweeting this clip a little bit later speaking, mcconfie is going to see you. Thanks for having me back, Thank you appreciate it. The Folmhouse speak of that. Kevin mccarthie. This is the Bloomberg Sevenants podcast, bringing you the best in markets, economics, antient politics. You can watch the show live on Bloomberg TV weekday mornings from six am to

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