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You usually would dive in with Richard Clarina of Pimcoe's, Hey, what's the market going to do? What's the fed gonna do? We're gonna stop and this is why we're talking to Richard Clareda, and today Kachola Coda of Rochester, when he was fed a Reserve Bank of Minnesota said, of the theories wrapped around Professor Clareda, modern macro models do not capture an intermediate, messy reality that's out there right now. There's a messy, messy reality that we're all facing there.
And to me, looking at the magnificent architecture of dssee, folks, I'll say, at once dynamics, stochastic general equilibrium theory in the beauty of it, and not the physics envy, but just the wonderful thinking of it. You come here and as Ned Phelps would say, go to the XX short term, medium term, long term, you're in the Oval Office right now, and you've got to explain to Trump and the gentleman from Pennsylvania Hasset the short term, the medium term, the
long term of what they are doing right now. How do you explain that.
Well, what you say is the goal is to onshore, bring production back to the US, reduce the trade deficit. What we know is they can put on tariffs.
They have. The liberation day is.
Tomorrow, but it will take several years for that production if it eventually does ramp up. To boost the supply side of the economy, we have supply chains. Tariffs are essentially attacks on inputs to production, so that slows it down. Also the uncertainty about what the policy will look like in the future as well. So right now what you're getting is a lot of uncertainty. It's slowing the demand and the economy. Eventually you may get more jobs and
more production, but that's several years down the road. So I think I want the folks in the Oval Office to understand the time dimensions at work here.
For sure.
Stephanie Kelton has a theory which is very much against people like you on what modern monetary theory should look like, and part of that theory is the intrusion of politics into monetary economics. Right now, we're doing almost Vorescian tariff law, mkindling tariff law, certainly from a nineteenth century. Can the political system be patient enough to get declared as medium term success?
Well, I'm not sure.
And in particular it gets it another fundamental idea in economic which is the idea of time consistency, that eventually people figure out that your promise now may not be delivered in the future. And so that's why, in particular, if the twenty percent tariffs that we're hearing about are really the beginning of a negotiation, that also adds an additional layer of uncertainty on top of just knowing what
the tariff number is is now. You know, Tom, we saw him when I was at the Fed in twenty nineteen that, in fact, just the uncertainty about the trade policy itself was a damper to the economy. And that's a very tangible factor fact of life in macro and I think we're seeing an elevated version of it now.
And Richard, I think we're seeing some the folks on Wall Street start to take down their GDP numbers being ratchet up their inflation expectations. Are they too early here or is that a reasonable I guess near to intermediate term outlook.
Well, you know, Paul, everything in macro is a probability, and so I think it is appropriate to move up the probability of a recession. Certainly it would not d my base case now, but it's certainly somewhat more elevated than it was in particular. I think the other piece of this time, getting back to your point about the but the AX axis, is there's a lot of talk about fiscal you know, no tax on tips, social Security, you know, tax deductions to buy a car.
But again that's going to.
Take most of the rest of this year to work its way through through Congress, and so again there'll be uncertainty over that piece of it as well.
And given that backdrop of uncertainty, Richard, is there anything FED and policy can do to it to really, I don't counteractor to impact the economy because it doesn't feel like there's much that FED it can do in the face of what could be a slowing economy in higher inflation.
Well, I think here we want to distinguish between what the FED can do and what they will do. You know, what the FED could do is cut rates preemptively. That's more or less what the power FED did during my teim there in twenty nineteen. The economy began to slow because of trade policy uncertainty, inflation began to fall, and so we cut rates, essentially an insurance cut. I don't think the FED really now has the runway to do
an insurance cut. In other words, we may need to see a very tangible slowing in the economy, in the labor market, rising the unemployment.
Rate to get the Fed off of Hold right here.
If you just joining it, because across the nation, we're with Richard clair To, the former vice chairman of the FED. We have a spectacular set of conversations for you today. Nancy Lazar will be with us later. Among us Michael Nathanson. Paul had a tantrum yesterday and said, get Nathanson. We have Michael Nathanson here with a interesting essay on YouTube. We welcome all of you on YouTube. Subscribe to Bloomberg Podcast.
It's our wonderful new distribution. Thank you for a successful march, Paul.
Richard, So you know, it's interesting some of the hit you know, the data that the FED looks at. Historical data still shows the economies in pretty solid shape. But boy, I get kind of spooking. I think the market gets a little spooky when they see survey data like the University of Michigan data showing that WIT consumers really are concerned, their sentiment is following, their inflation expectations are arising. How does the FED look at that type of data.
It's an input into the projection. I think cher Palell mentioned at the press conference last week that they look at the survey data, but the survey data doesn't necessarily translate into hard data eventually. I think what we have seen, even Paul in the hard data is a pretty noteworthy slowing in consumption side of the economy relative to a really strong fourth quarter.
I think a lot of reason why.
Cell side houses are marking down their forecast is not so much the survey data. It's the tangible data on consumption being very very soft in Q one.
You more than anyone, have got to go from the academics of DSGE and your work at literally building the modern Columbia program. Did you bring Woodford over were You're the one? And it said Michael come on over.
I wish I could take credit for that.
That was my success was Don Davis who brought Woodford over, but I was leading the cheerleading effort to do it.
There was a cheerleading effort and they used torpedo bets at the Columbia Right now, so Richard did bring in Stiglitz. Okay, well, that takes credit for that. Okay, that's good. But the thing in Richard clar Day is to bring this over to the application of what we're doing now that the theories to me are literally out the window. What is the theory of the dual mandate right now?
Well, right now, the labor markets where the Fed wants it to be.
We have about a four percent unemployment rate and all broad measures of the labor market. So the Fed wants to keep the market labor market where it is right now. Chair Pale has said a number of times that the Committee doesn't think that the labor market now is a source of inflation. So they're very happy where the labor
market is. What they were thinking six months ago is that they were on a glide path to this soft landing, although they didn't use that term, and I think the glide path has been delayed somewhat.
My ten year real yield here Jerome Schneider called me up from PIMCO. Yet up early, he says, Tom, the ten year real yield one point seventy eight percent. It's coming down, down, down. If you're talking to Pimco troops right now, are you modeling out a higher unemployment rate? I got Atlanta GDP, GRIMM, I got feder Re zero Bank of New York disagreeing with that. Where is Richard Clarida on the I guess the vector of the unemployment rate?
I think the risk is to the upside.
And indeed, if you look at the Fed's projections two weeks ago, where they show a chart that what is the risk to the unemployment outlook, it's to the upside. So I think there's some upside risk right here.
You know, at.
Minimum, given what's going on with DOGE right now, we're going to see some increase in unemployment through those efforts. Also important to note that even coming into the year, Tom, if you look at private employloyment in particular, excluding healthcare and education, which have a pretty big government backstop, private employment had been really slowing throughout much of last year.
So that. I think that's also irrelevant.
How do you view the consumer here today, Richard? It just seems like anytime over the last twelve fifteen years to get concerned about the economy, but the consumer hangs in there and generally keep spending pretty well. How do you think about the US consumer?
Well, in the aggregate, you know, there are three hundred million consumers, and in the aggregate they're in great shape. You know, in particular high levels of net worth. If you own a house, if you have money in the stock market, you've had a really good run for the last several years. But about a third of Americans don't own their own home or don't hold any stock, and
for them it's a very different outcome. So what you're starting to see in the data now is a pretty strong, if I may use the term bifurcation between upper ear consumers and consumers who don't own their own homes or have a lot of stock market wealth, and then they're getting pinched.
Okay, this is the heart of the matter. I mean, Alan Meltzer almost took it, almost took a swing at me. Jackson holds over this because Alan Meltzer want to go back to forty seven and aggregate data. You've been teaching that for twenty five years back when you were at Illinois. We're aggregating data. You just described a barbelle John Edwards to Americas. Yeah, around the table at the Eccles building. Besides arguing over who's got redskins dads? Forget about that.
But around the table at the Eccles building, are you looking at two Americas or some economic aggregated fiction.
Well, I'll put and say you look at both. But certainly during my time there, the staff did very very good work on looking a very disaggregated data. Forget you know, two Americas that were looked at like thirty eight different parts of the economy.
So you do both? Oh, come on, I mean Jason Furman in his wonderful New York got bed. We'll get Professor Furman in up in a schools up at a school in New England somewhere. Jason says, flat out, tariffs kill the poor and the tax cut goes to the rich. It's a single sense in surveillance correction, Lisa, thank you for noting it. It's not the Washington Redskins, it's the Commander's my folks, it's my excuse me.
Maybe we'll go back.
Who knows, maybe I'll still have a job.
The world's changed. So Richard, where do we go from here? What's the key thing that you're looking at here for this economy? Is it the tariffs? Is it the consumer? Is it the labor market? What's the key thing you're focusing on?
Look?
I think I think the issue is we're in a period now where measured inflation is going to go up because of the pass through of the tariffs, and activity is going to slow. So the real question for me, Paul, is are we going through what I call a whiff of stagflation or are we really entering what would be a pretty very pretty persistent stagflationary crunch. You know, I'm
still relatively optimistic. I think it's more of a whiff than a new normal, but it's certainly something that that is would be would be quite relevant.
It seems like a tough political call there to slow this economy and the rise inflation. Is the longer term gain that this administration sees from perhaps restoring more manufacturing. Is that a realistic expectation?
Do you think, well, that it is.
A realistic expectation, But it will not happen overnight. It will take several years. And in particular, in fairness, we saw a version of this in the Reagan administration. People think of Reagan as being a free trader, and he may have been philosophically, but the Reagan administration, which I actually worked with back in my youth, was actually quite interventionist. In particular, they had a policy known as voluntary export
restraints on Japanese cars. And what the big Japanese automaker's Toylet and Honda realized is the only way for them to have a presence in the US was to build a lot.
Of factories in the US. And so it worked.
An ambitious enough trade policy and lead over time to some onshoing, but it won't happen overnight.
I got eight ways to go. For a final question, I want to go to zero sum, but it's too early in the morning for a zero sum discussion. Here the heart of the matter is a president is looking at this is a bilateral discussion. The giant William Klein at the Peterson Institute aggressively disagrees with that. What's our multilateral outcome of this bilateral naivete?
I think we'll learn a little bit more tomorrow about how much of this is intended to be permanent and how much is an opening, you know, art of the deal negotiation. If it is, if it is as I suspect it will be the opening rounds of multiple negotiations across different countries, then it's certainly not going to be it's certainly not going to really be a multilateral plan or be a series of bilateral deals.
Is get gone to, you know hard in the phrases get gone.
And I think the evidence in favor of that is that the Biden administration really didn't try to resuscitate the WTO.
So why didn't they? Why did Why did they resuscitate the Atlantic Charter off of Newfoundland in nineteen forty two when we were flat on our back?
Well you would have to ask them, but they're the political center of gravity in the last four years before Trump two point zero was really not to engage in the WTO. We never staffed up the dispute settlement process.
It's completely fair. I mean, it goes back to transpecific failure.
Yeah, and very good reminder the Transpacific Partnership exactly.
Yeah, you can come into all for liberation data. I'll do it by phone. How about that, Richard clear to thank you so much, generous.
Of you to be with us.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Coarplay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon on Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
The only one on Wall Street with a torpedo bat at home first in line with Anthony Volpi's bat. Michael Nathanson joins us right now, Mike, I don't care about YouTube your wonderful essay with Maffatt Nathanson. All I want to know is a torpedo bat. Do we ban it and get back to traditional baseball?
Oh? Tom, it's the best thing for baseball. How can we ban it? This is This is a sport that needs something right. It needs some excitement and energy. Say give he went to bat?
So this is this is like the Wilson I think it was the A two thousand of Jimmy Connors. As we got a metal tennis racket, get used to it.
Oh, without a doubt and Baseball could not have made a better outcome for themselves right now, right keep such thousand home runs for the Yankees.
It's a gift the season. It's like homebred Derby. Would you like to start the interview.
Paul Sweed exactly.
Hey, Mike, your your your note on YouTube hit my inbox yesterday. I read every word of it. I know it's been picked up by a lot of media. Can you frame out for us how big YouTube has become as a media company.
Okay, so those compoys look at it and good morning guys. One is simply by revenues, Believe it or not. It's fifty four billion in revenues with advertising, you know the bulk of that. But there is a subscription business. It's fifty four billion. It's literally you know, with the rounding era of Disney, and by this year that will pass Disney in revenues advertising subscription in terms of time spent. I think you knowed from where you guys have your
your your show playing. If you look at connected TVs, more people watch YouTube than any other service. Wow, you know, it's bigger than Netflix, It's big than Disney. Plus if you can look more broadly, just content, linear content channels, cable plus satellite plus streaming. They are still the biggest service of of the TV glass, right, and they also position on your phone and your desktop, and they're also global, right,
So it's it's a monster of a company. Unfortunately, because of Google's, you know, the focus at Google Search and kind of the worries about search, people have ignored just the strength of YouTube. But we keep pointing out every year just the monster that it is, and it's going to overtake Disney by twenty twenty five.
Michael, what does I'm look at the subscription revenue for YouTube, which has become a force mine assume that most of that subscription revenue was folks that maybe cut the cord and said, but I find value on YouTube.
It's a bit of a blend. So it's I think Thomas and before half of its YouTube premium, which includes YouTube music, and we'd say there's about nine to ten billion remains is YouTube TV, which I have. They just raise prices unfortunately, but we think by twenty twenty six and twenty six they'll be the biggest PTV company in America. There will pass Charter and contract.
Right, they're ending a.
Million subs a year, and noone else is losing subs so it's going to get to be a monster of a company on PTV as well.
Michael, I want you to talk to entertainment Global Wall Street that listens to us. We thank all of you around the world and particularly in LA and New York, glued to Lucas Shaw and screen time and what we're doing here with Paul Sweeney's leadership on entertainment. I'm going to pick on CNN just because Mark Thompson had a wonderful interview I think in the New York Times nine
months ago. I'm guessing where every other paragraph ended with the basic thought, we don't know what to do with YouTube. What should traditional large media companies do with YouTube?
Yeah, Tom, you have no choice. YouTube is the platform, right, you have to do what you're doing. You have to basically use it for fust capabilities, right. So you have to basic program a long form like you're doing. What's missing in media is short form.
Right.
There's not enough attention on kind of the YouTube shorts or or TikTok you know, or meta reels. You have to come up with a way to leverage short form video. And also you have to become a creator like you have to basically become a mister beast, which I don't know if you're familiar with, and basically you have to program for all types of consumption.
Right.
So I think what everyone can do is do long form content. But what's missing here in the DNA of these companies is that short form creator economy where you're using the difference, you know, kind of the short form essence of YouTube to break through the clutter. It's hard because there's no barriers to entry, right, Like great business that we've analyzed in our careers had a big moat cord cord cutting the.
Cord, you know. Okay, but this is first of all. I was talking with Jimmy Donaldson the other day, really told him he's killing it with mister beasts. I'm looking Michael Nathanson hit the financial side of this. How does traditional media find Paul help me here the fixed cost benefit of YouTube? I don't see it. How do they cover fixed costs on revenue or down the income a statement to the Paul Sweeney's looking at this ebit that thing. How do they do that on YouTube? I see no evidence?
Well, Tom, you have to basically create an alternative studio. Right, you have basically have to invest in startups, and it's not going to be in your P and L. Right, it has to be. To your point, the infrastructure of the companies we cover are just too large to make money in YouTube. But it has to be a confederation of small startups that you invest in.
Right.
You have to basically think of this as a portfolio that you're investing in off to the side that's going to grow one day. I don't think they have the DNA to your point, and the financial structure to play a small ball, right. This is a small all kind of approach. You have to break yourself away and basically hire a bunch of young people to do it. You know it's gonna be a fragmented view.
Hey, Mike, As always, your research notice full of lots of numbers, lots of great analysis. The one that jumps out of me. If YouTube was a standalone business, public comps suggest the business would be worth four hundred and seventy the five hundred and fifty billion dollars, or about thirty percent of Alphabet's current valuation. I'm going to put on my investment banker hat here, Mike, I'm going to go out there and say, let's spin this thing out,
let's ipo this thing. What's the company say about the structure of this company?
The problem is, Paul, is that you know, all the infrastructure is built off of a common backbone, right, so, all the data centers, all the investments in AI, the go to market sales strategy. There's just too much shared services for it to happen, right. It's maybe the government will we don't know. Policy seems to be fluctuating, but maybe the government will break them up. But for today's purposes, they've built it on the back of one infrastructure is too hard to do right now.
I mean, a guy named Moffatt and a guy named Nathanson came out with you know, I'm going to give rich Greenfield some love here as well a massive upfront on cord cutting. How does cord cutting now fold into this migration to the only thing my family watches YouTube and Netflix like ninety five percent? What's that dynamic look like in two thousand and thirty.
Okay, so great question. We have about sixty seven million PHV homes right now, we're losing about five million a year. So in five years time, we'll be down to around forty million PTV homes. Those homes will be there for live sports, right news forty million. That leaves ninety one hundred million homes watching YouTube and Netflix, right, And the challenge would be those forty million homes that remain. Why are we there? And We've talked about this for a
long time. I'm Tom the glue of sports, but sports keeps leaking into streaming. It's gonna be harder for all of us to defend paying one hundred dollars for TV.
Right.
So our view is then YouTube has the ability to become an aggregator where they basically take everyone's services and rebundle it into something called cable TV. But it's in streaming, right. So basically Matha said twenty years ago it turns out that that cable is a good business, it's going to take twenty years to realize that that's the right model.
Right.
But Paul, get one more question here, I'm depressed out on YouTube live chat. Dorsey says time should start streaming six hours a day. I'm not joking, really, yeah, working Dorsey is Dorsey Craig Moffatt in disguise.
That's one more question.
Hey, Craig That begs the question here. I mean, Michael, our good friends at Paramount, Warner Brothers, Discovery, everybody else. I mean, if I don't have a theme park business, what am I doing in the media business these days? What are these companies?
They have to consolidate, right, we have We've been waiting for this dance to come to an end. You have three three services Max, Paramount, Plus and Peacock that now need to activate. And that's the last kind of the piece of the puzzle. But it's not clear again with this administration, how those companies can get bigger politically. So I think we're in this imperfect world where you have some people who've scaled. Tom mentions, Netflix and YouTube will
put Disney there. The rest have to get bigger. And luckily Comcast has a theme park the building up that's gonna get bigger epic in Disney's e Think Park. But the others need to consolidate and take out capacity.
Michael. One final question, rich Out on YouTube sends in this email, and I love it because we just spoke the Sebastian page of Surbert Canada as well. The Rangers have never been this bad? Is the kid from Boston College. Yannick Pro's kid, Gabriel perro is he is he the hope, the future of you.
We're in New York Rangers, thank you for ruining my morning. I don't know, because I don't. I mean, he's a good scorer. We'll see about his size, you know, you know can gests hate. I mean we had a number one pick and a number two pick, right that doesn't happen that often two years in a row, and it didn't work out very well for us. So I am I am in a sad state right now by the New York Rangers. I think it's I think it's regime change. There really has to change.
I totally agree with you on size. I just I mean Peoles modeled out at five eleven, one hundred and sixty five pounds. Let's say pops thirty pounds on weightlifting. Jeremy Rennick, I don't know if he could skate today. You get out of or in Boston. Yeah, I mean they Ron excuse me what Ronnick? Rennick? You know it's like wicked the answers. I just don't know. I just the size. I just I'm with Michael Nathanson. I know we need some big razor plan, you know the ring. Michael,
thank you so much. Congratulations. We still need to get you and Craig Moffatt in the studio to do an entire hour State of Media because we get a huge response when you're on. Thank you for the wonderful comments out on YouTube. Greatly appreciate that. Michael Nathanson with Moffat Nathanson.
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.
Joining us now, we are thrilled to bring you a really a historic time for the nation. Nancy Lazar definitive at CJ. Lawrence over the many years now at Piper Sandler, and just just a perfect time to speak to Nancy Nancy Lazar. Is any of what we're doing with tariffs with a bilateral economic policy? Is any of this in the textbooks you studied a few years back.
Well, it's in the textbooks, but it just has a negative connotation when they write about it in the text In the textbooks. Free trade is definitely a healthier economic backdrop. Fair trade is also key, and I would hope to some extent this does lead to if there is any potential string of positive from this tariff discussion, that we do start having freer trade around the world near term. That's obviously not happening. These are huge taxes on consumers.
We actually import more capital goods than consumer goods. This is going to be a big hit on good He's trying to build stuff in this in this in the United States, so very counterproductive, clearly risk taking GDP into negative territory at least four quarter.
I can't say enough, folks about what we're trying to do here Geographically and Malati just with us from Milwaukee, we're strong with Allspring. Now if Nancy Lazar with us out of Piper with all of their heritage of Minneapolis, Piper Sandler of course entered the wonderful New York City banking expertise, and of course her work at Kalamazoo in the west coast of Michigan as well. Nancy Lazard take the Northwest, a traditional manufacturing heart of the Great Lakes area.
Where are they going to be in six months?
Well, again, terrorists are going to be a tax on the economy. I'm afraid manufacturing activity is going to actually take a hit as we go into the second quarter.
And this is really really unfortunate.
We've had a US manufacturing renaissance theme for fifteen years. It started with the private sector and has been We've had on shoring, clear onshoing, new companies coming to the United States because it was just the US was generally viewed as a better place to do business.
We have our own energy. Then we got the tax cut.
China was increasingly a bad actor industrial policy under the last administration. You actually saw onshoing decline on It declined in part because of increased regulations, and so to be a little more balanced, we are going to see an increased we are going to see decreased regulations. They're already unfolding, and so we're hoping this is short term economic pain with these teriffs. But then as we move back half of the year, we can actually see things start to improve.
This is the heart of the matter. We had the vice chairman, Richard Claard in earlier and he went right to the X axis. Tell us what Nancy Lazar's X axis looks like, short, medium, long term. The effect of these tariffs and their reciprocity.
Yeah.
So first, let me say an Aletti is a good friend of mine, so thanks for having her on this morning. Second, and Richard is a terrific, terrific economist, which he was still at the FED. Bottom line is near term, if we get twenty percent across the board tariffs, which is what the chit chat is today, who knows that would be a tax on the US economy to the tune of minus two percent GDP. And so we currently our base case for two Q would be about would be
two plus two percent GDP. So this basically takes it down to stall to stall speed. If there is retaliation, which there probably will be, you will probably have a negative second second quarter, assuming they're put in place. Assuming they're put in place immediately. As we go through the year, what's going to happen is you're going to start to see the substitution effect and you'll start to see the
thing out of those price increases come down. And so as you move into the back half of the year, maybe later in the back half of the year, inflationary pressures, the tax pressures from these terraces starts to fade.
Inflation starts to fade.
Second, you hopefully do then also have the extension of the tax of the tax cuts. Again, these are not new tax cuts as of now. It's a full extension of tax cuts that are already in place. And it becomes more clear we are getting deregulation. So then in the back half of the year, maybe by the fourth quarter, could be potentially the third quarter, you see GDPs start to re accelerate, and we could get pretty bullish on the economy as we end the year something closer to
three percent. Assuming these tariffs don't result in a global negative trade massive trade trade war, why could we get more positive again on showing is a very very big positive for the United States. We have a lot of productivity in this economy. AI is just going to make productivity even even stronger. Deregulation is going to be a
huge quote unquote tax relief for middle sized companies. They've been squeezed dramatically from the surgeon regulation over the past over the past four years, small medium sized companies create eighty percent of the jobs in this country. And so at the end of the day, again you can see short term pain for sure. Let's hope that something doesn't crack as a result of this pain II.
What weaklings crack usually do get hit.
But as you move through the year, you can see prospects for a stronger economy again, assuming this thing doesn't really turn into a massive global trade war.
Nancy, how do you what do you modeling out for? What are some of our big trade partners how they might respond here? It sounds like Kindada wants to take a tough stand here. We haven't heard too much out in Mexico, Europe. We're not sure. How do you model that out?
Yeah, that's very, very difficult to model out.
I was just in Europe last week, and quite frankly, I was trying to think, what did I see? That was American no cars, So they can't put tariffs on cars. They already have high tariffs on cars, and so it's not clear what they're going to do. Probably will be targeted. I was just talking to my ECO team about this, Probably will be targeted. They've already done motorcycles and some some whiskey, and it probably will continue to go down
to go down that path. But again it's not clear how much of that stuff they actually buy from the United from the United States. I think the bigger issues are what we're going to see out of some of China, China in particular, just.
In the Bloomberg here, folks with Nancy Lazar, I should say, a Piper Sandler with us right now, Nancy and this wonderful, generous conversation this morning. I'm looking at economic research come in and everybody's looking at charts that really show consumers slow down the granularity that you were so famous for over at the years, which is the Nancy Lazard chart right now that describes America, which is a chart that jumps out at you at Piper Sandler.
So over the past two years, what we call public employment, public employment would include the government, federal, state, local education, healthcare, and consultants have generated ninety two percent of jobs over the past two years. The public sector has really been crowding out the private sector. You see it with that job growth. Private sector job growth has been flat for the past two years. Why because wages have been bid up because of this strong demand from these government oriented
sectors of the economy. Again, federal government, state, local government, education, healthcare, and consultants. They've created ninety over ninety percent of the
jobs over the past two years. That's just one way to highlight that government spending, which is about twenty five percent of GDP right now, which historically has happened only two times in the past, during COVID and during World War Two, has been this giant sucking sound from the private sector, keeping inflationary pressures higher for longer, keeping interest
rates higher than they otherwise would be lowering productivity. And so our hope going forward and again looking on the bright side, because there's a lot of dark clouds right now, looking on the bright side, if indeed we can see some success in chipping away at government spending, you have more resources for the private sector, inflation really cools off, you get interest rates down for the right reason, not because of an extreme economic weakness, which may be unfolding
right now. So that's really been my big concern about the US economy that we end up more like Europe where you have these bigger governments and you just don't have the strength of the private sector.
So again I'm looking.
At the glass half full longer term, with hopefully on the plus side, this administration can be successful in stopping this giant sucking sound of the government sector and have more resources available for the private sector because we have so much potential in the private sector. We're innovative onshore and has been a theme creating goods, producing jobs, and so back to me, is the single biggest headwind to the economy and it's got to change.
So what we're hearing from a lot of companies on the most recent conference calls, and presumably we'll hear money upcoming earning conference calls, is this word uncertainty. And I think there's concern in the marketplace that gee, that could impact their ability to hire, their ability to spend money to invest in their businesses. How big of a concern is that for you? Just the level of uncertainty out.
There huge, and when you have sustained period of high uncertainty, you definitely get the knock effects that you were just talking about. And so that again is a headwind to the economy right now. As we go through we're probably gonna see it in the Small Business Confidence Index data we're going to get next Tuesday, where small businesses are very uncertain. They've already pulled back on their cap X plans based on the work one of my colleagues, Dave
Wigglesworth has done. The current increase in uncertainty does risk pulling GDP down about one and a half percentage point if it stays elevated. In particular, capital spending obviously large ticket items is most vulnerable. That could go down significantly if uncertainty stays high, to the tune of about seven percent drop in capital. In capital spending, big ticket item, you're going to postpone, potentially putting that in place until
you understand what's going on with tariffs. And so the combination of the tariffs and this high uncertainty is a huge risk current to the second to the second quarter, and I agree with your point on company earnings.
The one Q earning.
Season we think is going to be very very uneasy, potentially negative. We already had United Airline highlight how even before the tariffs you had this cutback in government travel and at the end of the day that they saw business down fifty percent. And so yes, I think the one Q earning seasons could be very very difficult.
Nancy, Thank you so much, Nancy Lazarea. It's just absolutely brilliant there on the combination the sum of so called government implements, schools, health, education, everything and ninety two percent growth at the march and just extraordinary perspective. Nancy Lazare with this paper. Sandler.
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Chrisman, former CIO, he was at Kelsters. He's retired. You know, he's like this for ever. This is great. Chris joins us this warning, Chris, what's so great about your experience is you know, one little thing you do, you can't move the needle because you got so much money. Where do you find alpha right now? In this Maelstrom.
Tom, You know, it's a huge challenge, and global CIOs are just there. They're buff fuddles because the world is, how should I say, instead of chaotic. It's so flexible right now, and so a lot of we're sticking close to their traditional asset allocation. Others are using total portfolio approach, but they're really having to think about risks differently than they did before.
And it's interesting, Chris. One of the phenomena that we've seen here in the first quart of trading is the dramatic underperformance of the US market versus the rest of the world levels we haven't seen since the eighties. Bloomberg News is reporting. Is this a short term trade, this underperformance or is it some more?
Do you think make Europe grade again? You know, No, I think that it's part of the shift to more global and now more local economy. Like Tom knows, it's always the economy, Paul, and you know, it's interest rates and.
Around the world.
People were recognizing in the fourth quarter last year that the US had suddenly become two thirds of the global financial market. That's unusual, and we do revert to the norm over time. So we're starting to see that trade back. And I think people with a true global portfolio are happy. People that got concentrated in US tech are unhappy.
Well, Meg seven come back. I mean, they got resilient. It appears they have above average revenue growth. It appears they have persistent free cash flow. Is this the opportunity, Chris, that you didn't have when they're traded in seventy times Pe?
Well, they're still pretty rich. But you said at the beginning they've got free cash flow and they've got real earnings. That's the difference between you know, one oh two and the Internet bubble and now, so these are real stocks. They do have long but I think Wall Street like always overshot. It got over excited about AI. We're starting to see uptake. It's slow, it has profound implications, but it's over a long time period. It's not just revenue now.
So you know, I think that people have to take a decision about how to buy those stocks. And do you buy all seven I doubt it. You buy a few of them, or you index? And you know me, I like indexing, so I just buy the whole market and trade with it.
Hey, Chris, I know you host every other month call with some of these leading global CIOs.
How do some of the.
Non US money managers view what's happening here in the US here today? See there's a buying opportunity or are they you know, kind of fretful here?
You know, they're applauding. I talked to a lot of people up in Canada, in Australia and New Zealand and in the EU, and they don't have a home country bias. They are truly global in their portfolio, but they're happy to finally see some diversification in some improvement because they have real assets, often in their home country, and their
currency is a big focus. So the weakness and the dollar that's forecast is a huge trade for them and they see this as a bigger opportunity in their portfolios finally to diversify away from the USA.
And what we do on Bloomberg Surveillance, folks, is to talk to somebody with a lot of experience about the marketing moment we're in, Paul. It's been at least a huge two year bull market.
Right yeah, and it's been driven large bay.
So what you do for scared people is you come up with the rude of strategies like call writing, option dividend enhancement, etc. It's runn them up right now. Everybody's doing it. They do it with bitcoin. Money flowing in, money flowing out right now on bitcoin. Chris Alman on the creative investments going on right now across Wall Street, including option writing and dividend enhancement. We've seen this before, haven't we? Oh?
Yeah, no, Tom, You know, people reach ree yield and the old phrase pigs get slaughtered, lambs got get sheared.
So people that are worried.
You know, the institutional investors are very slow to uptake these new ideas. The one big common one is total portfolio theory, and it's just a different way to look at the world instead of traditional asset allocation. But they are not jumping into digital currencies. That's a hot debate for the three hundred club. They're not jumping into some of the derivative securities. They think they like good solid stuff like infrastructure. Paul and I used to talk about
municipal bonds my favorite area. Good solid, steady income is still a sod after thing for a big institutional portfolio.
Hey, christ In twenty twenty three and twenty four, the real theme there driving the markets high was AI as maybe epitomized by the mag seven. Is this a market or can the broader markets work if tech is not leading.
It can Paul, because you know, we have seen what should be a decent economic boost with lower interest rates and some of the policy changes in theory, but it's been slow and I you know, you guys are seeing it. It's going to be the manufacturing numbers are going to be probably pretty startling. I think the average consumer is pretty slow, and I'm seeing empty storefronts, and I think retail sales are moderate, but they're not running gangbusters. So
you know, it always comes back. It's back to the economy stupid. So take a look at that. The FED has got to be frozen in here. I mean, it's so hard to figure out what to do. But I think the economy is slow and so the market should be slow.
Thank you for unretiring Chris Ellman Advisors Chris Elman with us this morning with all of his work for the California Pension System.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Right now important what's in the Newspaper's mateo in at one am trying to sort it out? What do you got?
First of all, people are asking where's the bow tie? I want to just point that out on the live chat.
Can you explain it? Ripped? For the first time ever, I put it on shoddy French material and it ripped in.
A wardrobe malfunction is what it's called bullet time.
Listen, do you have a backup? And I'm like, no, that would make too much sense.
No, you need the back Sorry, we're efforting that with the team here.
To get a backup.
Well, speaking of the live chat YouTube, this is some interesting news about YouTube about to surpass Disney is the biggest media company in the world now. This is according to Mafitt. Nathan is an analyst. Michael Nathan, who actually is going to join us in the eight o'clock hours, didn't even realize that, but YouTube, the second biggest media company in the world last year, brought in fifty four point two billion twenty twenty four, and that was just
five point five billion behind Disney. And he predicts twenty twenty five YouTube should really eclipse and become the biggest media company in the world.
Pool.
Yeah, and it's only twenty years old. But it just goes to show that's where the audience is going and where the audience goes advertising revenue, followers and as Michael points out in his research note which came I guess day, I read every word of it, subscription revenue too, So it is people cut the cord. It's not that they're not willing to pay for content, it's just which content they want to pay for, and they're happy to pay for this YouTube content.
And what's interesting too, is that the audience they're shaying went from the younger audience and now it's growing beyond just kids. I mean, every one is kind of.
Sure if they get their fidelities straightened out, YouTube music will win in two days. The search algorithm is so superior to the others, but they got to get the fidelities straight Now it doesn't.
Sound And again we got Michael Nathanson, the author of that research note from off It Nathanson coming up in a few moments.
Not bad, not bad. Also speaking to Disney, since we're on the same topic, Disney snow White. We talked about it yesterday right tanking at the box office. But Paul, like Fas said, it's no biggie Why because yes.
Well, I mean this is content that they're going to have all across their platforms, including some new stuff at the theme park.
Are we going to watch it on the streets?
Yeah, digital copies, renting video on demand, then you have Disney, Hulu, ABC, like, it's going to play across.
But if we don't watch it in the theater, why do we think we're going to watch it?
Because they say studies show that films that have controversy, which this one did have behind it will take people out from the theaters, but they'll be more engaged to watch you by the streaming.
I do.
But at the end of the day, they wanted to make five yeah, maybe a billion global gross and they're not gonna get anywhere near it. So so from there it's a disappointment and the people in the film division are getting their knuckles wrapped because this was a big mess.
So do they write it off so they don't pay as much tax on the money you're giving them at Disney World.
Now you get into film accounting, which is the most craziest accounting in the world, just as any a list TV stars or move movie star thanks to their owed to back end and then studio says, so we didn't make any money, So what do you mean he had a billion dollars?
I mean, Lisa's like screaming and spired it. Where's my backhand? I was looking exactly next?
All right, last one I'm pulling all well, going all the way to the end. Canadians, they're drawing some inspiration from a hockey legends rough style of play. I'm sure you're familiar with him, Tom Canadian Gordie Howe aka mister Hockey Right, nice guy on the ice, but he was quick to throw his elbows up oponents who contested him, so he got this nickname Mister Elbow. So the Wall Street Journal is saying Canadians are now turning to this
elbows up movement there. It's a rally against President Trump's tariffs threats to make Canada the fifty first state. So it's like another one of those things. Yeah, yeah, So it kind of took off. If you remember Mike Myers on Saturday Night Live, he like did something on it and that sparked it. You know, he like pointed to his elbow, wore like the shirt that said Canada is not for sale. He's from Canada, and so that sparked it.
But then at the same time you have Wayne Gretzky who's getting the cold shoulder because he supports President Yeah.
Dark Floorido Toronto came out I believe yesterday, and I'm sure quite the day the Leader of Ontario defended Wayne Gretzky. He said enough, he said he was, you know, misquoted or whatever. I don't know in details as well, elbows up? Is it? Like is Carnie? And you know the other politicians are the heading for a minor, a major minor a misconduct? Who knows? Lisa Poteo, thank you so much the news.
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