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This is well timed and we could easily have him mine once a week. John Writing was definitive at bear Stearn's for writing brilliant international US economics with a trenchant view towards a world of higher interest rates. He has absolutely nailed this call of higher yields with Breen. We're thrilled that John Writing could join us this morning. John Writing, I see the thirty year inflation adjusted yield truly back up to near record highs. What does that signal to you?
Well, it signals to me that the said is going to have to do more work than the last set of SEP's suggestion, which still had a rate cut in for twenty twenty six, which I just don't see happening. That neutral is knocked down at one point one percent in real terms, but it's significantly higher, and it you know, I mean not not to pick on any bad member, but bigal Fed President Polson's speech earlier this week, and she asserted at a couple of points speached, which is
generally a good speech with policy. I think it was modestate restriction and restricted. There is no defense. It's an assertion that policy is restricted and the inflation data are
going higher, which argues against Chair Palse. I think relatively famous expression now that they're no neutral by its works, Well, we're seeing iron so we wouldn't appear to be neutral, and the markets have a much higher real yield than the Fed asserting, and I think this is a good area for when Kevin comes in and take shobers FED chair to look at what is the point of guiding markets to a number that you have no idea?
What right?
So to me it's sickly high.
High was your service to your Bank of England and your service and knowing that Arsenal would win with your service to the federal Reserve system as well. When you were back at Cambridge, the inflation had a wage spiral feel to it. Does this inflation feel like a redux of your years at Cambridge?
Not at all, Not at all. Fact, I still have many of I have all of my books back then, and you're right that the one of the main policy tools that was tried very ineffectively in the UK tried somewhat in the US under President Nixon, but was wage controls, and they had no real influence other than to distort markets. This is very different. This is not a wage driven inflation event. Wages are lacking, and moreover, productivity is very strong. So what wage gains are seeing, much of those are
being absorbed. So corporations in this inflation are experiencing wider profit margins and we're seeing part of that in the equity market. It's the strangest inflation, but it is not a wage cost puts a factor absolutely, Oil now a factor, absolutely, but not wages.
I can't say enough, folks about how gen writing handles the ambiguous dynamics of all this. He's been doing it for decades. A timeless back with David Malpass and Genre writing a bare years ago. Got a treat for you today, Damian Sasaur.
Well, John, I mean the leak reach of me can I mean, you know, we got to focus on what he'd be focused on, which is who is buying the paper? Here is who is buying us treasuries? In this market. I've seen China shed four hundred and twenty billion dollars of their US treasury exposure since twenty twenty. Talk to us about who is the incremental buyer of US treasuries in this market.
Well, it's a very good question, because a few days ago we were set at the highest yield level since July two thousand and seven. I'm looking at a long bond. I think, you know, our yield is like five eight percent. We've had a rally since then.
We don't know.
It could just simply be shortcovering. It could be that there is interest from real money buyers because that kind of yield level ought to be attractive to companies with long duration liabilities like insurance companies, and perhaps that is pulled something in. But we're talking here about the ten basis point move amidst the sell off since September of
twenty twenty four. Right, the net has been one hundred and twenty two basis points in the long bomb, but meanwhile the Fed has cut one hundred and seventy five basis points are the front end. So for me, the question isn't who's the marginal buyer? The question is where have the buyers been in total. As the FED has cut interest rates over the last year and a half, they haven't been there.
Well, John, you rately point out that a lot of hikes are now pires. They're not just in the US, but the ECB, the BOE, the BOJA, you name it, certainly in emerging markets. Talk to us about the seventy five percent probability of a FED hike a twenty five bit pike now and the end of the year. Do you think that Sharewash delivers.
It's going to depend on the data. I think that cabin is absolutely committed to price stability. I don't think he's going to simply deliver on rate cuts because that's what sixteen hundred Pennsylvania Avenue wants. I think that he's going to look at the data, and that's going to depend on the conflict. Because behind all of these financial moves that we are talking about here, those are real physical shortage of oils that continues. You're extremely useful function
decanhold moves that I look at every day. That tracks will try to track tankers going through the golf basically not there, and that is one thing of the world's oil. Now we can substitute part of that. But there's still about thirteen percent of the world daily oil consumption is not being moved. Now we just go back to basic economics and the pricing lispice to give demand for crude oil or russy speaking, he can played on said research. You've got a ten times moving twice for a long
time moving volume. So you know, tell me when a Middle East clears up, tell me when the straight up home moves is open. Probably when we've replenished the inventories, which leads at a rapid rate, and then we'll know. But right now I think we should be thinking more about a rate increase than a rate time. That's what I was talking about.
Impultant speech got to run just a huge schedule this morning, John writing, Thank you, thank you, thank you. Can't wait to get you back in the studio again with Breen. John writing, Stay with us. More from Bloomberg Surveillance coming up after this.
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What a treat year on a Friday parachuting in after World Travels, dan Ives joins us are Dan, I'm supposed to talk about Apple and Nvidia. Forget about it. Here's the zeitgeist this morning, folks and Duckcash. Thank you for sending this on Trumany. Jeff Curri's out on the Twitter on this as well. Guess what tokens costs money? OMG, look at the cfo's bill for doing AI in your company, dan Ives. Deloitte wrote this up in January, like eighty pages. OMG,
this is going to be expensive. You see Microsoft limiting use of cloud because it's too expensive. How is this going to play out? Dan Ives?
I mean, look, it just speaks to we're still in the early stage. Agreed, there's more data centers being built. In active data centers, costs over time will come down, but right now in this arms raise, no company, whether it's large cap TAC, small cap international, could basically not go down this out because eventually what's going to happen is the cost and the monizition they'll flip flop over the next few years, and that's why companies are spending at this peace.
I agree on that, but on a macro basis in your world famous on this Does that mean we see a consolidation within the industry? And is that in the second inning? Year? Is a Red Sox try to get to fourth of July? Or is it in the eighth inning and the Yankees are ready to lose to the Blue Jays again? Which is it? It's second and third inning?
Because this is look it speaks to like the bears in their caves hibernation mood that have missed every transmissional in techtoc the last twenty years. They'll continue to miss the AI trade underestimating the scale and scope of what the spending looks like. And I've seen it, you know, just even a few weeks ago in Taiwan. In Asia, demand of spy is what twelve to one, and that is going to continue to drive this massive cap backs and the ripple effects across tech, energy and everything else.
Damien Torsten Slock, publishing moments ago for a pull of global management it capex now accounts for more than one third of S and P five hundred capex spending.
Well, I mean I have to, I mean wow, I mean, but I have to, you know, let's just ship the way here we have the world's largest I mean, on record IPO coming out in SpaceX here, and I just got to ask you, Dan, I mean, what are your thoughts here on Musk and shareholder rights and minority rights and control? I mean, is this unusual the type of structure we're seeing here.
Bomba is betting against Musque. It's been the historically wrong move for investors, right, and I think many were in that betting against Tesla.
You're betting on Musk.
And I get some of the in terms of voting rights and things like that. Book Space actually talking about one of one relative to what's going to really create a whole new category of investing. And as you've seen in the private markets, you know, as more stock has come veb over the last you know, call it three
or six months. And we're talking about a watershed moment, not just for Musque, not just for SpaceX, but as we've talked that we think a year from now over an eighty percent chance SpaceX and Tessa merge.
Wow.
So if that happens, I mean, we're how do investor's position, how do you take advantage of that? Let's put our merger armat on.
Well, you buy Tasa. I mean to some extent because from evaluation respective, I think, Tessa, we've talked about it is almost a double from here relative to the pure opportunities became autonomous robotics and where this is all going in terms of the next level of AA. And that's why Musk is doing this to bring this all under onehood.
On a Friday of Memorial Day, did could you see Dan Ives out in the backyard with a grill? I mean not Michael Barr. Do you think he's doing like the whole thing, the grilled chicken, the long time it's got a long time one at the grill. I could see. I could just see him, you know, you know, with the Milwaukee Best in his hand and the whole thing Dan give me. Microsoft is just you know, a stock idea. You're on it, Acpans on it. I get it. What's
the why the distinction? The differential of Microsoft look.
Kind of right now because of Google and the success massive that they've had in Amazon, there's a view, especially with open Ai, that sort of competition and Microsoft's starting to lose in the game. I just strongly disagree because as enterprises move to Azure and they move on the AI stack. They're going to move in Microsoft. Look, Microsoft and Apple are the two most I viewed table pound
their large cap names relative to where their trade. We've talked about one hundred and fifty dollars upside of Microsoft here. They will prove themselves over the next six to twelve months. They will be the Google of twenty twenty five. That's where I view Microsoft in terms of that. You know that prove it moment generous.
If you have to be with us on this Friday, dain I is with web Bush Securities. Thank you, stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Tush Saren's at the Budget Lab at Yell. They were my think tank of the year last year. They were exquisite on tariffs, but they do much more and they have just set off a firestorm of study on your infernal revenue service and also on carried interest. Natasha, why are people screaming about the Budget Lab at Yelle's work.
Well, I hope Tom that we managed to be your think tank of the Year this year too, and we're very grateful to get to spend time with you always. The sort of interesting thing about carried interest is it does have this massively beneficial tax tree. So if you are a wage your salary earner in this country, you on your income are paying ordinary income rates. If you happen to be a fund manager who classifies some of your wage income really as carried interest, you get this
preferential capital gains treatment. And for a long time that sort of loophole has been existed in the code, been well understood that it exists, but it wasn't really clear that there was all that much money there. So as you're thinking about the trade off with respect to what types of legislation you draft, you don't focus on it. But it turns out our report shows that there really is a lot of revenue here and it should sort of make policymakers pay attention.
Is the question here the emotion democrats Republicans of getting rid of it, or is the question an amendment to a common ground?
Yeah, I think that the sort of I guess my answer is like anything would be better than status quo. There ever, in lots of industries in your industry, and journalism in my industry, and the academy and in every other one too, if you get paid a sort of performance bonus, that income is taxed just like their salary
is taxed. So it is hard for me from a policy perspective to come up with a rationale where you have some classes of industries that happen to be highly wealthy fund managers who are operating in them, or that type of tax treatment just doesn't operate. And so I think that there's a lot of different ways in which you could try to think about exactly how to structure the provision, But in general, I find it hard to defend on its status quo.
Natasha, just for our audience, I wonder if he could just help us out. I mean, what does President Trump? Where's the administration stand on carried interest? I think my interpretation is that they want to actually change the law, right, They want to basically start tax and carry it interest as income.
Is that is that correct?
Well?
You know what's so interesting is that President Trump campaigned on ending the carried interest loophole, and so this has been an area of deep interest for him. This has been an area of frankly bipartisan interest for a long time, but it's and I kind of experienced it as we
put out this report for Budget Lab. Every time you get somewhat close to a policy conversation around carried there are and you both can well appreciate why that is really significant lobbying efforts that push against exactly the types
of changes that would equalize this tax treatment. And so something that I worry about and will continue to watch as we watch these policy debates evolve, is the ways in which industry is going to try to shape these provisions in order to preserve this tax benefit, and the ways in which policy needs to be well informed to push back against that.
So, Natasha, then here's my question, right, because it's all fun and games, you know, I think some of the projections that if they if they close the carried interest loophole, it's something like ninety billion dollars can be generated over the next ten years, you know, Collecting that revenue is
the question I have. How easy will it be for tax authorities here in the US to actually get their hands on those dollars, on those carried interest dollars if indeed, you know, the rule changes totally.
And that's exactly our estimate, which is that you can raise around ninety billion dollars over a decade from a
closing and carried interest loopole. But I'll say to your point, one of the pieces of doing that estimate that's pretty challenging is there's no like line item on the tax return that is how much carry you have, And so it's actually kind of challenging from the perspective of the IRS to be able to say what is your tax liability because this isn't an area where they have perfect visibility.
They get some information from the K one partnership return, and the hope is that that's going to enable them to do better with respect to collectingness if we change the tax treatment. But two things, we need an IRS that's actually able to be functional, and second, it would help to have much more information.
Natasha, let me get out front of work. What's the tariff update? Are we living a double digit tariff right now? Ten eleven twelve percent?
We are. Our effective tariff rate is nearly ten percent at the moment, But we're in a situation, by the way, where there's a ton of legal uncertainty with respect to what's going to happen to the tariffs over the course of the next many months, because we just had an adverse court ruling with respect to some of the Section one twenty two tariffs that the administration is trying to deploy presently.
I mean, I was up in Montreal watching the Canadians' folks is they took another victory a number of months ago, Natasha, and all the talk in Quebec was over their tariff system with America. There was frankly no other issue, including the Montreal Canadians Natasha in Canada, how is our discussions going?
Yeah, But so part of the thing that I am grappling with as I wonder about what the future of tariffs really holds, is we're in a situation right now where, because of tariff and also frankly because of the war, inflation is outpacing wage growth, and so now in a moment where people are looking and not being able to afford what they could last month three months ago on their salaries as a result of this inflationary moment. And so I have to wonder, and I wonder this with Canada.
I wonder this with Europe. I wonder this with all of our allies. Whether there are no magic buttons. The administration can press to lower prices tomorrow, but one thing that they could do is start to roll back these adverse trade policies, particularly with respect to our allies, in ways that will immediately benefit the American consumer. And so I hope that that is what is on the horizon with respect to many of our trading partners.
Natasha, thank you so much the Budget lab. Stay with us. More from Bloomberg Surveillance coming up after this.
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This is a joy. One of the gut people that have really really supported me in this lark that I'm on is Michael Spence. He is a Nobel Prize winner and before that revolutionized, and I mean revolutionized how we teach graduate school. This is at Stanford in their GSB program. The predecessor was our J. Miller Ford Motor and we have with Thiss Rick Stein my right now from LPL Financial you lived it. You lived the Stanford GSB of Michael Spence and all that. What was it like because
nobody It's like Dylan Plane, Electricaitar at Newport. Nobody did what Stanford GSB did before Stanford GSB did it.
It's a very special place. So yeah, I think what you got is a community thatallenged how to become great leaders. And I think for me that was I had gone to Wharton undergrad and so I learned the discipline of how to evaluate companies, how to build strategies, but getting there was about how to lead people, how to create followership, how to look at interpersonal dynamics in the context of business in a place where the professors were off the charts exceptional talented, as were the students.
But then, I mean, now everybody's talking just what you talk. It's like in the concern entire global industry is well, how do you take that at LPL and do that every day? How do you delegate authority at LPL Financial? Yeah?
Largely for me, delegating authority is about having a shared vision. You actually have to work really hard upfront to craft a vision that people can collectively align to so that when you delegate. You're delegating against knowing you're headed to the same direction, and so the decision making upfront is probably more important.
What's the biggest myth of wealth management right now? With financial advisors? What's the thing that most gets wrong?
I think the misnomer in the marketplace right now is this. The overarching story is that AI is going to displace financial advisors and it's going to deliver you know, AI driven advice, and I think you're going to see more decisions being made by humans but enabled through technology.
We welcome you on YouTube today to understand that this is not Paul Sweeney with us. Is Damien SaaS hours with this ruffled and this is great? How can you, Damian? Have your people come in.
Yes with your rice Chrispy trising.
Two of them? Oh thank you?
It's too much rich, you know, I mean, enough of with my breakfast, my choice of breakfast. Let's talk about the impact of AI on wealth management. I find that so fascinating. I mean, look, LPO, you're I mean two point three trillion in assets up thirty percent year every year. You guys have done a great job. Talk to us about continuing that growth. Is AI play a factor in that.
It plays a tremendous factor in it, because I think what you're going to actually see is the underpinnings of the way that advice is delivered and the actual infrastructure and supportive advisors is going to be automated in ways that really enable much more, much more personalized advice delivery from advisors. But the infrastructure that needs to be built is going to be built on the foundations of AI. Think about workflows completely reimagined.
Well, I mean, Rich, That's what I'm hearing from a lot of my peers. I'm fifty two years old and I have friends who are basically now finally training Claud, cleaning their chat or training their chatbot, and you know, consolidating their emails and I mean Claud's telling it which email is drafting response email to something that came in. I mean, are you working with your clients on that type of stuff?
Are you trying to bring them along?
Do you find that they're a little bit behind the curve or are your clients ahead of the curve? Are they looking for more from LPL, more from you and the AI set.
Yeah, so our clients are advisors and the advisors in many cases especially when you live in the independent advisor segment, are looking for help. They're looking for a perspective on what is the role that AI should play in the advice deliver remarket. And so that's where we're trying to step in, not only with solutions, but with intelligence to help them understand how the tools can help them deliver better outcomes for their clients.
How is AI going to help me with not enough diversification or too much diversification in a world of ETFs. Is it going to be part of the choice set or is it about the operational strategy of wealth management?
Yeah, it's going to be about the operational strategy, probably more so than the choice set. What you're going to get is a personalized set of solutions that are going to be enabled through AI. So you're going to be able to create and craft personalized portfolios down to the mass affluent. The things that were initially reserved for high net worth ultra you're going to be able to drive that through direct indexing that's driven through AI, and so
you get a personalized portfolio against a family's goals. And that's going to allow advisors instead of having to craft all of those strategies and spend hours per week on that. They're going to be able to automate that and what you're going to get as a shift from IQ to EQ.
And what LPL Financial's done over the year with great respect, just a simple question, is there still this trend from the major shops and banks over to LPO or is that yesterday's story.
No, that's yesterday's story and tomorrow's story. The move from the major financially why are they're moving because the economics are disruptive. They're moving because they actually if you think about what happens at most firms, the advisors are told how to deliver advice. At a firm like ours, and at LPL, we actually asked the advisors, how do you want to deliver advice? And we craft the firm malleable around them.
It's just the exactly office of appliance given this the sprawl of LPL.
Yeah, so compliance needs to be done on a personalized basis, right, and so we actually group different types of advisors, different sophistication of advisors and applied rules. You obviously have to hit the standards, but compliance also is a craft that is an art, not a science.
Thank you so much for coming in today. Really really happy to be here. I I appreciate it. We're going to see you again, I'm sure. Rich Steinmeier with a CEO LPL Financial.
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