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Steve chivone with us with federated Aaron as thrilled he could be with this. You were just down in San Diego, Steve, talking to people trying to make decisions on asset alloccasion.
How miserable are people.
Worried? You know, I think you've got and Frank, I don't mean to be callous about it, but it makes me like the market set up better today, ironic, given the newsflow we just heard that than where we were last November. The expectations set last November was unfulfillable. Where today, you know, we've got a healthy wall of worry around resurgent inflation, hawkish fed tariffs policy, and I think that that wall of worry is going to get knocked down or taken down brick by brick as we get in
the second half of the year. So more pain to come, but we see a much much better second.
Half Tursan Slack moments ago with Apollo just put out the states affected by terrorists. It's the usual victims of Michigan, Texas. I feature Nebraska is today, Indiana, Kentucky is MAG seven, Steve chiveron as the technology excellence of growthy federated or MEZ is it affected by tariffs.
It's not necessarily affected by tariffs in an extraordinary way. I mean, there is certainly some effects that relates to chips and things of that nature. But if you think about it, if you were going to retaliate against the United States, you really can't do it in a general economic sense. Right if you're Canada or Mexico, where exports represent twenty five or a third of your GDP and the US those imports maybe three or four percent, you're
not winning that battle. Your only leverage if you are a foreign country trying to retaliate against the United States is to try to go after the MAG seven where fifty percent of the revenue for some of those names are overseas, and so I think they are the obvious retaliation target if we're going to go down that route.
Steve, what are we doing with asset allocation these days? That we sit back and we had such outperformance by the equity markets in twenty three and twenty four. What are we doing with asset allocation these days?
Yeah. Look, I think what we're in is a fog of uncertainty, which is what we're calling it, and it's an economic slowdown in this first part of the year. However, I think inflation concerns are overblown, particularly because the risks to growth I think are greater than the risks to inflation. I really don't care what Chairman Powell has to say. This FED is cutting and I think they may be
cutting by the middle of the year. I think tariffs, for all of the concern Paul, we are going to end up essentially with the United States instituting a tariff level equal to the world's vats. I think trade barriers are going to come down with resident from the tariffs, and you're going to see US barriers get up to about the level of a VAT. That's not the end of the world. You're going to get to a tax top package somewhere between Memorial Day and the fourth of July.
And I think in the back half of the year you're going to see cyclicals small caps and the short end of the curb rally. I'm not smart enough, clever enough, or quick enough to try to get defensive today and get bullish tomorrow. We're going to invest for that better second half.
Stay Chiver on one final questionnaire. I think it's really really important. The conservative client, they got a retirement plan, They're like swingey, it's a five oh one. K the things on steroids?
Do they do something?
Here?
I got to do something. I just the newsflow. I can't take it. Lisa Matale gave me my first gray hair. What do I do? I mean, what's the to do list for you? Infederated here?
I think for a conservative client, one of the best things you can do is put together a portfolio that generates income. You know, in my household, once a quarter, you know, we get our dividend payment on stock that we have, and we call it dividend Day. It's one of the happiest days of the year for my wife four times a year because that money comes in and we're not worried about a share price, right, We're not
worried about a stock being up or down. We know that the investments that we hold generate an income, and I think for clients that are conservative or tending to get skittish, having a portfolio that produces an income that helps you to stay calm because you know that check is coming in and not overreact to share price movements, helps you stay invested, helps you stay long, and helps you not overreact to some of the noise that you're seeing in the political news flow right now. And I
think that's the best thing you can do. You don't want to overreact.
Okay, Steve Schiveron, thank you so much for the guidance. Cerre and folks, this is a huge issue. Will be covering us of course, and really into March. You know, get the jobs report coming up, Paul, But I'm sorry.
S a location. What do we do? Some people say, do nothing. You know, we'll have to see.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch US live on YouTube.
This is joy. I had absolutely nothing to do with this.
I think Eric and the interns figured this out and I just want to take a moment here. People on the East coast have absolutely no clue the academic heritage of far western Canada, including the University of British Columbia.
It is I learned this years ago. It is just wacko.
How good the economics is. She's out of that combine, Catherine. These joins US now with pigium as well, like econometrics in aid economics. It was like absolutely definitive in my ute. Continent of Europe is what you focus on?
Is it blowing up?
This morning I saw Italian German spreads really didn't move. It's a one off lift.
Isn't it.
Yes.
I think what we're seeing is in some ways a quote unquote you know, good move in an orderly move asset prices. I think markets are taking this very positively. It is you know, I see it as a third in a row of droggies, whatever it takes of the next generation.
EU announcement in July twenty twenty, this is big. This is huge.
This.
When I first heard these numbers, I was like, this is a go big or go home number.
This is a huge deal.
Like you and I studied Duley Garber Folkards Lando, David Fokertslando at jointsche Bank years ago, like the deve Putin invaded. Paul Focarts Lando told me the fiscal sphere, the space in Europe will never be the same culturally. Are the institutions there, BMP, PERRYBA, this the entire structure of Europe.
Are they ready for this non austerity?
This is a great question. I mean, it is a big move.
But one argument that I've made a long time in Europe, We're so used to having this narrative following the sovereign debt crisis, that debt is a problem in Europe. We think about Italy more recently, we think about France. But if we look at the EU as a whole, or even just the euro Area as a whole, debt to GDP is very, very low. It's much much lower than any other comparable economic region, either in size or level
of development. It's at the EU level. It's eighty percent relative to GDP, so it's.
Way way lower.
They have loads of fiscal space. The issue for Europe is not the lack of money. The issue in Europe is not the lack of general consensus about how these funds should be spent. The problem in Europe is there is no fiscal mechanism in place to allow this spending to happen. So what is so important about this signal that we're seeing from Germany is not just the size, but what it means for Europe working together, having leadership in its largest, most economically important economy.
In terms of going forward.
And I think everything else, you know, provided this is planned and executed, you know properly, there are there are risks clearly around doing big stuff. I think everything else is going to fall into line.
That answer just doubled my knowledge of what's going on.
Oh this is much.
I want you to jump in here, but I said it with leguard at Jackson Hall. Sure, people called me up and said this is a huge speech.
What Catherine is that Your phone is my fault? Now hold on, let me see. Oh it's it's Air France.
Available.
I never this is the first time that's happened. It's your fault. What card is fired up? Oh that's we're doing. Paul saved me. But the guards fired up about that's amazing.
And Catherine in your notes here, I love this. The German spending plan is a game changer, a fiscal bazooko. Earlier expectations of a two hundred million dollar defense bill were completely surpassed. So just putting in the context a huge announcement by Germany as it relates to spending, will the rest of Europe?
Will they follow? And they follow?
I think they're going to have to follow. I think it's going to be a multi pronged approach. We're going to, you know, get some announcements today. What I would say is a lot of these announcements coming today are.
You know, these are quote unquote easy.
They are politically easy, they are financially easy for them to agree. It doesn't require, for example, unanimity at the EU level.
These there are.
Announcements that I'm expecting today that are more in the incrementalism bucket. So if we want to see another big substantive move from here, I think what I would be looking at is one we need a signal that the EU, not Europe, but the EU is actually politically aligned and
moving forward. That doesn't necessarily mean they've got to agree eurobonds, but I want to see them smash some old chestnuts here along the lines of banking union, along the lines of capital markets union, because no matter how much public money they throw at this is never going to be enough. You need private money and you need the signal the politically they're working together.
I got eight questions, including how she fixes the Toronto maple leafs.
Cather Nize. This is brilliant, and what I think.
We need to focus on in the time we've got left is what's it mean for Americans? Because the risk here is they're eighty percent GDP? Are they going to become like us with the out of control debt and deficit? I mean, is that the fear, the pushback that Europe's going to see?
That risk is always there, but there are mechanisms in place. We have these new fiscal rules at the EU level. Some people say, you know, they're not really very very stringent, but I mean think the proof is in the pudding. I mean they have been pretty effective if absolute debt to GDP is only eighty percent, So you know, my guess is they are going to handle this in a way that is constrained.
Here's the guard when I was with her in Jackson Hall, this is Maynard Keynes quote. The difficulty lies not in the new ideas but escaping from the old ones. Brilliant to Paul's good question is Finland ready to escape the old ideas and become like America with a pop phenomenal GDP and all the other things.
I think Europe is ready to move forward.
I saw, you know, excerbs from the Munich Security conference. You know, we saw White House press conferences. I think from the perspective of Europe, this was a game changer for them.
This really shifted.
Going back to these German numbers. Going into the weekend, the numbers were two hundred billion for a defense fund. Only then on Monday we heard four hundred billion for a defense fund and four hundred billion for infrastructure.
Then we heard five hundred million for each of those. So we grew literally in a matter of.
Days, across the nation, around the world, and particularly to those of you in the continent of Europe. Katheransu us with PGM. Here a brilliant conversation. This is what surveillance is about. We welcome you on your commute across America, and of course we say good morning on YouTube. Subscribe to Bloomberg Podcast. Growing each and every day, Paul, this is I mean, this is thirty years Paul. This is a new con with doctor Nase.
And Catherine talk to us about just the political support, the popular support. Isn'tre that support out there across Europe for this new way of thinking about spending and maybe having to take a bigger role in defending themselves and what that costs.
Well, I think it tells you a lot, you know, about where we find ourselves.
Now.
If you said we need.
To increase this defense spending with one for one cuts in the social safety network, I think you're going to come up against a lot of resistance, which is why we've ended up where we are, where the easiest flex point has been increasing debt and doing this through debt financing, because there is that resistance. But I think the reality is is that over the course of time, slowly some of this social welfare network is going to need to be rained in. And it comes by to your point
about debt sustainability. So you know, for now this is this extra you know, slodge of money over and above, but ultimately is going to have to come at the offset of something.
The ambiguity here and this goes back to Stigler's posts, not as Nobel Prize, but Stigler's looking at the little g the growth rate here, the American bargain has always been we will grow our way out of our debt. Do you see a new nominal GDP, whatever the mix of it is in Europe where they become more like America and they get the little g to cover for the debt expansion.
I absolutely think that this is possible. And why do I think that? Firstly, you know, demographics is not destiny. If I look at what's going on in Japan. I mean, it's remarkable Japan grew faster in the fourth quarter of last year than the United States. This is a country that's facing a significantly, you know, dramatic and dramatically different demographic headwin than the United States. And it's because they took a very long term strategic view.
And they have invested.
They've increased labor market participation, they've improved productivity, and so you can get growth. We're also seeing early signs in that the European periphery, on the back of these next generation EU investments, that potential growth is starting to pick up. You know, we're not talking anything huge, but you know, a tenth a couple tenths is actually nothing to sneeze at if you accumulate that over many, many years. So
I don't see any reason why Europe cannot grow. Germany did actually grow on average by two percent GDP real on average every year in the decade before the financial crisis. Now they haven't grown it all since twenty nineteen. That's not normal. That's not normal. So I think there is absolutely scope for them to do.
We'll get a few more in here.
We've got someone who's slummed in from Germany we've got to talk to exactly.
So in terms of Germany, a market viewing Germany and broader Europe now, is this increased acceptance of higher spending. Is it seen as pro growth? Does it raise inflation concerns? What are the markets telling us here?
I think the market for now is working on the assumption that this is a positive for growth.
I looked at a lot of.
Charts today and the yield move is contained. Yes, cultural this is critical for PJUM. If if Greg Peters was here, this is the question you'd ask you the is the institutional integrity there to sustain European business so they don't disinvest or halt investment.
Well, this is why I think. In addition to this, you know, big fiscal Bazooka. I want to see a strong signal from the EU level that leaders there are working in unison, that they're willing to take hard political decisions that you know, are going to go against some vested interest to move forward. I want to see that signal. We haven't seen it yet. What we're going to hear today is not that signal.
It needs to be more.
ECB just out of the headlines, the European Central Bank says rates are becoming meaningfully less restrictive. Is that a societal less restrictive or is that a growthiness imploding?
So uh, you know you asked the great question before, what is it?
What does it mean for the ECB? This is a complete flip.
For so long in Europe it was really monetary policy that was leading and fiscal was lagging. And now fiscal is firmly in the driving seat, and the ECB is going to have to adjust to that.
I think at the margin.
Here it's going to raise there or at least put them at the top end of neutral. So yes, I was expecting this cut today. I think they probably will cut one more time, maybe later this year, but that they sit at that top end of neutral of two point two five percent by the end of this year, so they are going to be more cautious, and of course they need to see what this all means for the real economy, and it will take time. Right, this
stuff's not shovel ready. It's not going to impact on GDP on day one.
This is one of Alketzani's from London, visiting today with Pgium Fixed Income.
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I'm cut to the chase at Latour de Jent this afternoon at lunch in Paris, overlooking the brand spankin New Notre Dame. You're going to have a fancy lunch with seasonal duckling on we go to the Crape Mademoiselle. What are the fancy people of Europe think of this world turned upside down?
How well had differently? There is a lot on the plate, and what we see is on one side, some countries that have the FISCUS place to googleld notably polland Germany. Some other said that not so. Macron probably now is taking the lead. And this is something that honestly it was back at twenty seventeen when it said we really need in Europe to speed up and get some defense spending. So probably it's going to lead the queue and we
will get there. I don't know how much and how fast, but this is the final destination.
I mean, this is a c change for yes, both the US and Europe broader to find if there's going to be a lesser role in the US across Europe, that means obviously the European countries need to step up more. Seen at the EU today, What does that mean for investing house That impact your investment outlook as you think about allocating capital across the globe.
Well, the big question is how this is going to be financed and how this well have an impact on growth because it is a structural it is a permanent increase in expenses. And this is why I believe we are seeing the bound going to the GUIs this is what worries us at the moment. So I would say that for the time being, nothing has been approved from the Parliament in Germany. So the situation still remains quite quite fluid. So we take called staying cautious on the risks set.
If you were at the guard press conference, one question would you ask the.
ECB quantitative titaning? What are you going to do on that? Because on cutting rates this is something that was a consensus view.
But news I.
Find this absolutely extraordinary. How should the United States respond? This is all of a sudden, Europe are destiny nation for marginal investment? I mean a Monday, What do you tell American clients today of the action of the White House has changed this whole dialogue.
Well, to us, it really goes back to the consequence on the other classes, so on rates, on the currency, so on the US dollar. Honestly, we are shorter the US dollar longer Europe because we do expect the US dollar to progressively depreciate. In the past, it was because of the FED. We thought that the FED action and the asynchrony between FED and the ECB would have led to depreciating currency. But this is what I think the US administration wants. They want a weaker a US dollar.
Yeah, just looking at the German ten year boomed. Just you know since February twenty eighth, when was it two point four percent. We're now our two point eighty six percent, So big, big move up in German yields. Is the expectation within with you and your clients, UH and investors in Europe that this backing away from monsterity is a good thing for the European economy.
It is as long as the increase in the death spending goes into improving growth. So we are talking about a country that has a sixty percent that to GDP ratio, which is honestly, it's not issues Germany. This is Germany.
You are well over one hundred.
I'm talking about Germany. So if spending on infrastructure this is going to be growth constructive. On military expenses, that multiplier might be a little bit low lower.
So I got to get to say, we're going to go to the news here in the United States Monica. But I think this is just so question is so important. So Spain expands their debt, Germany expands their dead, which is like Mississippi expanding its dead in Michigan. To the Guard's point, where is the fiscal union they will affect this efficiently.
I don't see it. Well.
What we need to understand is how the framework will be fully deployed, because if it goes down to the nations, so this is where the issue will be. And not all the countries will spend at the same size at the same time, just because they have different needs. So the issue might be eventually to have an umbalanced Europe with some countries that have been spending more Poland, Germany and some that have less room.
Let's see what the commissioners.
Today will vote on the escape rule, just to allow some more spaces to the countries, to the state members.
So if we ever do a remote tour Dejan right there on the front and overlooking the river, can you.
Join us there?
Sure there are It would be like lunchtime.
Yanks, Harris. We could do lunch, you.
Know, we'll do the deck of the Hausler and then we'll do.
Lisa. It's perfect mound of defect travel guide for Europe. Thank you so much. Head of a Monday investment at Racist.
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Now a four hour conversation with Henrietta Trey.
She's been so kind to be with us on like a three day basis here with BEDA partners. Henriette, I actually do have a countdown clock going for the first time.
We're eight days away from March fourteenth. Within the halls.
Of Congress, Democrats and Republicans buffeted by the company of News. What's the path you see to I believe it's March fourteenth at midnight.
It is March fourteenth at midnight, but on the House side it's really March twelfth, because they are going on recess on that day.
So what it looks to me like is.
The House Republican Conference and the Senate Republicans are really trying to jam Democrats here by putting a bill out at the last minute that they will not support on the House side, but then Senate Democrats will be forced to support and vote for sometime midweek next week, around the eleventh or twelfth, So they're really cutting it down to the wire. And we've increased our odds from twenty percent to twenty five percent that we might see a shut down next week as a result.
Okay, so they shut down, and let's say since sir on recess, they shut down for Friday, Saturday, Sunday, OMG, Monday morning they reopen.
Is that the scenario here, Innrietta?
Nope, They're also on re us the next week, so it would be a shutdown of you know, at a minimum.
Does an adult in the room say hey, everybody on recess and get back to work?
Does that? Has that ever happened?
I'm sure it has happened in history, but it's not something that usually does occur. That's sort of why my odds are relatively low that we see a shutdown is because they usually develop a last minute solution. But as for strategy, right now, Republicans are not in the room with Democrats. They're in the room with themselves trying to jam Democrats. And that's going to come into a math problem when we get over the Senate and they need seven Democratic votes to keep the government open.
So it's sort of the run up to the eleventh hour.
Right now, what have we heard from the White House in this whole process?
Here?
The White House, and by that I mean Elon Musk, who was with House Republicans yesterday and really trying to figure out how to get the DOGE cuts implemented into any kind of a permanency. You know, we're seeing cuts
across all kinds of agencies. Trump is planning to announce who's shuttering the Department of Education later on today, as I think y'all reported, you know, they're they're working just with Republicans and really enjoying this situation where Democrats are just being whipsawed back and forth with no clear direction on how to combat them.
So talk to us about you've mentioned in the past, Henrietta, about the Democrats in this budget process may be the time when they can actually step up and be heard here because it seems like President Trump and to a lesser extent, Elon must take all the oxygen out of the room. Is this an opportunity for the Democrats to step up and assert some leadership or at least their position.
It's definitely an opportunity, but as yet they do not have a clear and unified path forward. So right now their ire is all focused on DOGE, and it seems like the main concessions they're asking for is cuts to Doge. But as we saw in the week of the State of the Union address earlier this week, the Republican voter base really supports the idea of dog even if they don't support the actual cuts that are coming. So Democrats are having a hard time coalescing around how exactly to
ran doje in and get the voters behind it. They don't like the cuts, but they haven't identified, you know, a clear flag that they can weave that can get Trump to move off in this position.
And all you're Henrietta Tray's brilliance. I mean, you said, I believe the Senate seven Democrats have to vote with the Republicans.
Is that what you said?
Yep?
But this has to get sixty votes in the Senate side.
Yes, why would any Democrat now vote with the Republicans?
I completely agree with that assessment.
The question is whether they can stomach shutting the government down and the way that Trump is going into this.
But to be cynical about it, isn't that what sixteen hundred Pennsylvania Avenue ultimately.
Would like exactly?
And so this is sort of plying right into Trump's hand, and Democrats threat is to say, if you don't negotiate with us, we will shut it down.
And Trump's effectively saying and so I don't care.
Jeez, that's how that's where we are.
Hey, let's just switch gears a little bit, Henrietta Beda Partners. You guys have any tariff odds tractor A?
What is it?
And B?
What's it telling me of these days?
Oh? Sure?
You know, our clients are all hedge funds and they want the you know, quick and dirty of how things are working and what we're expecting. Everybody's just trying to wrap their arms around the realm of the possible. And so when we put our odds tracker out, we cover a whole host of different components. Odds of tariffs on China, you know, virtually one hundred percent. Obviously those are going into effect. We're at twenty percent now. Odds on Canada
VERSUS Mexico are slightly lower. I think the odds of EU auto tariffs have been and continue to be very high, and I want that to be really clear cut every time we talk to clients. You know, EU auto tariffs I think are coming. There's a per catalyst for that.
On April first, the March thirty first deal that Ambassador Tie negotiated with the EU, and the under the Biden administration expires on March thirty first, So April first is the date that Trump used in his America First trade agenda, and it's not coincidental, it's exactly in line with the expiration there. So our hotstracker really just tries to get to the heart of the matter. Tariffs are coming. They are in place. There might be some staggered effects, but they are coming.
Henrietta, thank you so much.
Just Treasure the frequent visit tendri outa Trey's expert on all this with ATA partners.
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The newspapers, the headlines, she reads twenty of them. To get ready for this, Lisa Mintaio joins us.
What do you have this one?
All right?
We'll starting with the Wall Street Journal because it has a look into how more Americans are relying on their four to one k as like this Rainy Day fund, and they're using it to avoid things like big things foreclosure, to pay medical bills. This was according to Vanguard. So the number is four point eight percent of account holders took early withdrawals last year just for those reasons. So
it was a record high. But they say why it's happening more is because more employers are automatically enrolling their workers, and some of them, I mean have little savings to begin with. So now part of their paycheck is going into this other savings and now they need to use that to help pay for these like other things.
A high ground on this. He and I have argued about it. I'm pretty firm here and there should be no withdrawals. It's it's a sireene call. Everybody does it and it makes no sense in terms of the actual assumption and the failure of our retirement SYS.
What do you think?
But then where do you go?
Yeah, I mean I don't know. I mean it's it's it's you have to do for one K because there's no such intension anymore. So all the swinging offspring works, they're putting their max into four and just having to deal with it.
In the mat. At least folks get the map.
But Lisa it's a huge deal for the contribution.
It is because people are a strapped for cash and if you want to do something buy a home, you need something, like you really want to do it, you don't have the money. So where are you going to go? You go where you actually do have it, and you were tired.
People are living longer.
Yeah, Boston College has great work on this. There's a tip point forty two years old. Yeah, after forty two years old, people are like, oh, I'm getting older, Lisa, you wouldn't understand this. But those under forty two like you are just like, I don't care. I'll take a loan out. Nobody cares.
Next, Okay, this one, okay, I'm fine.
I go before I get a gluten free coffee. Don't it thrown at me?
Yes, thank you. I'm a little biased on this next one. So Duayne the Rock Johnson is back on top as Hollywood's highest paid actor. Okay, get this twenty twenty four eighty eight million dollars. This was in boardroom. If you go on their Instagram page, it's all rotten down. So why Okay, he pulled in fifty million from Red One. Red One.
Watched the Mississippi.
He's a voice actor.
It's a voice thing.
No, that was a lot like he was actually an actor for that. That was for the Red One. So it was like the biggest fee plus by ideal streaming history. Okay, so put it there. Then we get to Mwana I. I mean that's where the big money was too. It switched from the TV series theatrical. He got a big cut of the box office as an executive producer and that doesn't really happen. So that's how it came down to a two money.
He past one billion dollars. Oh yeah, you saw that coming.
Most definitely he can buy me like fifty. And finally, this one, I'm pulling an audible audible, I'm moving this one up for you. Tom the CEO of Air France. He sat down with the Financial Times right and he said that they are banking on wealthy American tourists who spend on fashion brands hotels in Paris to help them recover from this tough year. Okay. He said they're shifting their business model to focus on this premium and market.
So he gave an example. He said some Americans are paying as much as fifty thousand dollars a night for the biggest suite of the Bristol Hotel. Yeah, right there you get the If you want the cheaper option, it's two thousand a night, Tom, So that's a bargain.
I just booked the last week of the year two weeks ago, and I was lucky.
I got a run.
That's how bad it is. Of course, Paul is is is this about the European planes, not just near France, or is it about how uneven the services on the American place?
Which is I don't have an opinion.
I don't know, but interesting I think.
That, you know, the business class over Europe is from the American airlines is good. They got the life flat beds. Have to get that, a boy, they charged for that.
Yeah, and what about the airline tickets, because Tom, do you know Air Francis they're charging twenty four thousand dollars for a return first class ticket between New York and Paris. That's in April. Can you believe that?
Thank you, Lisa Matteo, I hate you, missus the rock I mean eighty eight million.
Sure he can afford it. He's not flying commercial.
Lisa Matteo, thank you so much.
On the newspapers, this is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal