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Paul, and I can't remember a guest a half hour ago. To remember a guest two days ago is unthinkable. It's a blur what we do. We have a great team, including said Benson, who keep us going forward. I remember exactly, Paul, what Nancy Lazar said ninety days ago or one hundred days ago, Folcus, this was the single most important piece of American wisdom from Nancy Lazarre. And she joins us again here this morning with too short a visit. She's
with Piper Sandler. You said, it's a blogey reality for America. We're investing in government and all these derivative jobs, and we're not investing in the private sector to create a backbone of job formation and prosperity in America. Has that been amended in all the theatrics of the last three months.
Well, the Big Beautiful Bill did indeed incentivize companies to invest more in the United States, and that is one of the positives you can say about the current the current legislation, companies can now fully expense their capital spending exactly.
It sounds like LBJ one oh one.
I'm not sure it's LBJ one on one. I might go to Ronald Reagan one oh one. He was really the first president to articulate the importance of investing in the economy through his accelerated Appreciation tax legislation. So now I wouldn't go back to the sixties. That's actually an inflationary period. I would certainly hope we're not going back here.
You should just put me in the time this little bizarre time out you, Paul, Why don't you pick it up here?
So there are some positive obviously, some positive pro growth parts of the legislation, which is the market had been anticipating when this president was elected. On the flip side, we've got the uncertainty of terriffs, a the cost of tariffs and who's going to bear that and be just kind of the uncertainty that that brings into corporate America.
How do you balance those too?
Well?
I think near term, obviously terriffs are going to be the driving force creating the soft patch, as we're calling it, weaker economic activity. They are near term a negative. We're going to see it in two Q growth. Even though headline GDP will be two to three percent in the second quarter. Underneath the hood, if you look at private domestic demand, it's going to be closer to zero point five percent. The swing is due to trade.
Right.
Trade is a big drag on one Q. It's going to be an incremental support for two Q. So right now private demand is shifting down to abouzero point five two Q probably also into three Q. So near turm. The terriffs are indeed the driving force in the economy. But as we go into twenty six, I think these other incentives to invest in the United States capital spending, supporting private sector in investment and in turn eventually jobs are going to be more important and the market quite
frankly maybe looking through that. Except tariffs, they're here. They're here to stay. We even built them into our forecast. Near terms, they are going to show up in the inflation data more clearly as we go into three Q. You can already see it in the data. We highlight that this morning three Q will be a little bit more evident with price higher prices, both businesses and consumers are going to are paying these higher prices. That's giving us the soft Are we going to have a.
David Stackman moment and later Reagan where we go, Oops, there went the fiscal budget.
I think I think we may already be in that environment right now. I actually, when I look at the government spending data, I can see some incremental restraint. I think I get booed when I talk about that, but you can see it if you look very closely at the monthly Treasury statement. The federal outlaid data are starting to stall out. You're hearing it from companies, software, defense consultants. You are hearing companies say the government's being a little
bit more stringy. You're seeing it in the job data. Federal employment has declined for the past five months. It's going to given what happened yesterday, it's likely to accelerate. Federal employment is likely to continue to decline. So I'm seeing government spending being chipped away. I might almost like a David Stockman moment, which is like, you know, wake up and smell the coffee. The the the deficit is
way too big. Government spending is way too big. I think, I think people, some people within the administration understand that, and you are starting to see some incremental restraint, and not this year, but maybe next year. The deficit can come in a little bit better than expected.
But definitely, I mean, just one big, beautiful bill. It adds to deficits debt and billions of dollars. The market doesn't care.
Well again, it's it's it does incrementally add to the deficit. It keeps it about six and a half percent of gd of GDP. It's not going to be bigger than it otherwise would have been. Again, you're just extending these tax cuts. I don't disagree with you if the market doesn't care. And one of the reasons the market's looking through this is because, as I've said before to you, all capital spending is ugly duckling of economic data. And this bill reinforces the need to invest in this country.
Right.
Let's go to first principles here, because some folks Nancy Lazar with this, with Piper Sandler thrilled she could be with this absolutely iconic and a view of the American economy. Okay, so consumption is sixty nine to seventy percent of GDP. How much is that private investment that Lazar need? How is it eleven?
Now it's fourteen.
Capital spending is about fourteen percent of GDP, So it is clearly less than the consumer. But again it's it's it's therefore it is underappreciated as a driver. It's the it's the multiply effects from capital spending that are so important. If you go around the country and you look at states from Georgia to South Carolina to Indiana where you've had very clear investment booms, those economies are doing well because of the multiplier you create services associated with these factories.
And so listen to you.
Are we back to a nineteen fifties nineteen sixties multiplier superiority of capital investment in manufacturing?
I think so it's actually been unfolding for about fifteen years, and so I think at the end of the day, yes.
Real quickly, how's a consumer out there?
We call it the new smarter consumer. The consumer right now is reacting to these higher tariffy. Real consumer spending is stalling out. From services to machine to hardware. You are seeing the consumer pull back. The only thing we're buying right now are clothes. I'm certainly helping to do that. But yeah, the consumer is reacting to the uncertainty, to the higher prices. But we don't think the consumer is going to push us into our session. It takes a
lot to push the consumer into negative territory. So stall speed, yes for session now.
Nancy Lasare thank you so much. Viper SANDLERC.
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Now for Global Wall Street to treat Iconic I Lincoln at the Bank of Montreal, PIMO Capital Markets and what happens to John Tucker, Paul Sweeney and Tom King's world. If I get a five twenty five or a five point fifty yield and a thirty year bond.
I think we would see some excitement in the equity market. By excitement, I mean to the downside. We've already tried to retest those levels in the past, and the reality is that risk assets can't handle it. We're not an economy made for thirty year bond yields at high So it.
Seems like we're going to be getting tariffs here in that seems to be and probably aggressively.
So what is it?
What does that mean for the bond market?
So I'll argue that to a large extent, tariffs are already priced in. We see it in tenure break evens, we see it in inflation futures. The reality is that we are looking for a summer of reflation, certainly on the good side. I think the fascinating aspect is that we still haven't seen it materialize in the realized data yet.
Now next week we get CPI, there should be some signs of upward pressure, but the consensus is just zero point three, and that's relatively benign and good for the bond market overall.
So the ten year treasury, I mean, we're sitting here at roughly four point four zero percent. What do you think maybe we end the year on the ten year US Treasury?
Our forecast is that we end twenty twenty five with ten year yields at three eighty five. Now that might sound somewhat dramatic, but we were just at four eighteen at the beginning of July. So more than anything, it's going to be a range.
So describe the bond vigilantes is an important statement here for mister Lingen. For the jargon is the linkage here, folks, of the bond price movement which changes the yield as we're buffeted in the economy and all and Lincoln are the bond vigilantes just so powerful the White House has to listen to ed Yard Denny and I and Lingoln.
That's an interesting that's interesting question. I think to some extent the bond vigilantes had their day on the budget debate, and to some extent we've heard from Bessent that he is going to focus borrowing in the bills market, not further out the curve. So arguably the bond vigilantes won this round.
I mean, we got to stop the show, folks. Ian knows how to press my buttons. Okay, Ian cut to the chase.
The head of.
CEA hugely criticized by the economic establishment, pushing against the giant. Peter Fisher from years ago says, we're going to load the boat on short term paper and change our duration and maybe we're then going to go out of my twenty year paper. My right Paul French, perpetuity bonds and the rest and discuss this should we shift the distribution of our debt because Steve Marin says we should.
Well. One thing that I'll note is that the rest of the world is already doing this. The UK is doing this. We've heard from Bank of Japan that they're willing to be responsive to how the market is pricing in their borrowing needs. And we even saw Yellen do that in twenty and twenty three. And so the idea that Bessent is taking advantage of the low rates in the front end of the market is consistent with what the rest of the global sovereign debt market's doing.
Ye, and I'm looking at the two ten spread here. I got my two year treasury let's call it three ninety, my tenure at four forty, So a fifty basis points steepening of the curve. Historically has that been a normalized level or how should we think about that?
So it's positive it's upward sloping. That's consistent with what a curve normally is. I think the unique aspect of this is all it's being equal. We would expect the curve to be steeper led by the front end of the market. But the FED has so much uncertainty on whether or not they can start cutting again anytime soon that that's what's keeping the curve from being a steeper in here, which has been to the surprise. I would say to a lot of market participants of this cycle, Ian.
Lincoln, too short a visit. We got to go talk Copper, Doctor Copper. We've been talking with doctor Lingoln of Female Capital. Market's absolutely brunt.
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Truman over and I'm sure Douglas Serwin joins, US Professor of Economics at Dartmouth. Paul, you had a brilliant insight there. And where are we right now, Professor.
Well, it depends on whether we're talking about the US or the rest of the world. You know, the rest of the world continues to trade, has not raised tariffs significantly, and I think what's hanging over the US is we're in between two possible equilibria. One could be higher tariffs, liberation day tariffs take effect, or maybe taking infect August first, or this uncertainty. So we have tarifs about ten percent
or so. That's uncertainty about whether they're going to go higher and whether the deadlines will be extended or not, and they're both sort of bad equilibria. We don't want the high tariffs, but we also don't want to really live with us uncertainty about whether the tariffs that we have are going to be jumping up in coming months.
Professor, from your perspective, who pays the cost of tariffs? Do we know?
Actually we do know because we have these experiments from the first Trump term, and there's been about a half a dozen economics papers that have studying the issue. And it's domestic consumers. That is, the importers can't absorb those in those margins. In their margins, they can't absorb the tariffs,
so they pass them along. Now that doesn't mean that final consumers us as households, necessarily pay all the tariff, because there are various stages and imported products sometimes are a small part of the final price that we pay. But there's no doubt that it's passed within this country. So it's not other countries paying the tariffs, it's we in the US will be paying for these tariffs.
So, in terms of tariff policy, I think most people have kind of understood it and experienced it on a maybe a product by product or country by country basis. How affective are tariffs on kind of this kind of global approach that we're seeing from the Trump administration, and kind of what's the net effect.
Well, you're absolutely right that in the past tariffs have been sort of piecemeal, either imposed on a particular product or particlar product coming from a particular country, anti dumping duties, duties target at China, and what have you. And so the easy thing about them, or one element of them, is that they're easily evaded. You just shift where you're importing from. You it's called trade diversion. You start importing more from Mexico, Vietnam instead of China.
What happened.
But if you're imposing these blanket tariffs on everyone, it really has a much bigger effect than all those piecemeal of tariffs that we've seen in the past.
Dougr when I went back and I read the McKinley speech in Buffalo, New York, the day before President McKinley was assassinated. You've been eloquent on this. You said there was a shift in McKinley's certitude about tariffs. Can we see the same shift from President Trump?
I don't think we see it yet, But I think what you see is this conviction that we ought to be imposing these tariffs being tempered by some of these advisors, particularly Scott Best at Treasury. And I think the market reaction to the April second announcement of the Liberation Day tariffs, that is, three or four days of consecutive one percent declines in major equities, the rise in bond yields, that may have spooked the administration and may temper how much they're willing to follow through.
Your iconic book Against the Tide, I mean when you published that the glacier was just pulling back north of Hanover, New Hampshire. If you move to the modern day, Doug Irwin, with a new financialization of American capitalism, can the financial vigilantes, the copper vigilantes, Can they join ed Yard Denny's vigilantes.
In some sense? Yes, I mean the dramatic rise in copper prices yesterday. I mean users are going to be paying a lot. This idea that you know, once again, other countries are going to pay the tariff. It won't be passed through to domestic crisis. We saw that with
copper just yesterday. And when we see this on shoes and t shirts and electronics and all the other things that these broad terraffs may be applied on August first, you know, we're going to have a major impact on the economy and I think temper the ability to house make say yeah, we're going to go full speed ahead on this.
For all of you across the nation. At treat Douglas, Erwin and Dartmouth College, we continue Paul Sweeny and Tom Keen. It is Bloomberg surveillance, Paul Professor.
Some of the pushback on the tariff policies is centered on this concern that it may slow US economic growth and it may push up inflation. How do you few view those risks.
I think they're absolutely correct to be thinking in those terms. You know, once again, there is about a dozen different simulations and models out there. Private sector, academia, think tanks and what have you, And there's never a positive GDP impact from tariffs, and there's never a negative price effect of these tariffs. The questions of the magnitudes, and of course the magnitudes will depend a lot on what tariffs we actually see implemented. You know about a commentator say,
we don't see the data today. Well, we haven't really imposed a lot of the tariffs that have been proposed. We haven't imposed those that have been proposed, and so when we do, I think that's when we'll start seeing big effects on the data.
Discuss, professor, the reciprocity. McKinley in that famous speech before his tragic death, he mentioned reciprocity is a path to get out of onerous tariffs. If I look at Korea or Japan, the President's correct, they won't take our General Motors, our GM, Cadillac Escalades or whatever. Tell me about reciprocity with Asia, Professor.
Sure, Well, the interesting thing about Korea is we have a free trade agreement with Korea, so the tariff that they apply in US products is zero. So then you have to say, well, what's exactly the problem of selling in Korea? Are there non tariff barriers? Are there other financial factors and capital flows that are driving the bilateral imbalance, and because that's what the administration is really focused on.
The you know, with those reciprocal tears that they announced on Liberation Day, they said, well, we're just taxing them the way they tax us. Well it wasn't that way at all in terms of the formula they used. It's all based on the trade deficit that we have bilaterally, and once again, trade deficits don't really necessarily indicate trade barriers. We have trade surplus and trade deaths with countries that we have free trade rooms with where the tariffs are
zero on both sides. We have a trade surplus with Australia. So those are very imperfect measures of what government policy worth respect trade are.
What is the best path or process for our central bank to deal with this tariff shock.
That's a great question, a very important one. You know, I think the standard responses you sort of have to look through the price effects, but you can't look through the GDP effects.
Thank you.
If so, This is really why the said will be in a conundrum if we see higher prices and lower growth. You know, on one hand, you want a titan to take care of the price impact. On the other hand, you want to loosen to take care of the GDP effect. I think it really depends on what sort of configuration of chaffs we see in August and coming months.
Brilliant. I can't say enough about that. I was a set up question, folks. I knew where Professor Irwin was going and a major shout out to all the work of Jeffrey Frankel at a college. It's in Boston. It's on the Charles Rivers. It's one of those schools in Boston. Jeffrey Frankel said, don't forget GDP and the calculus of what Central Bank should and could and will do. Douglas Irwin is it Dartmouth.
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A little perspective. Chicago long ago was the bedrock of American isolationism. I lived it with my grandparents. Were entities out there a million years ago and out of nineteen twenty two, one organization in Chicago battled the inherent Midwest isolizationism of America. It was sort of like Ike out in Kansas a million years ago, and that was the Chicago Council on Global Affairs. It is a sterling, sterling group.
Michael Moscow, all sorts of great names of Midwest, William Day, all sorts of names of a Midwest business, Eva Adalder as well as the chief executive officer. And they have scored a coup. It's like the Cubs getting a middle relief. In September. Avenja Murray from London to Chicago now President, chief Executive Officer of Chicago Council of Global Affairs Leslie first of all for all of Bloomberg, congratulations. What is it like to go from London and parachute into Chicago, Illinois.
You know, in today's world, it feels exciting, it feels normal in one sense. I mean, and thank you for that brilliant welcome and introduction the Chicago Council on Global Affairs. You just nailed it. Nineteen twenty two, on the back of America's rejection of the Treaty of Versailles of the League of Nations and that group of men and women being very concerned about keeping America globally engaged. But you know,
as you know, I was at Chathamhouse. Chutthamhouse and the Chicago Council are both nonpartisan, independent membership base organizations in two really tremendously vibrant, dynamic cities with very large financial bases. So in that sense it feels very familiar. But Chicago, as you know, tomas a deeply, in the best of all possible ways, a deeply American city, and so I thought it was time to bring it home. And a time when, as we know, America is staying engaged is absolutely critical.
Two brilliant essays in the last twenty four hours on the folly of seeking manufacturing renaissance in America. It's not there because of technology whatever whatever. You're now in the absolute heartbed of the hopes and dreams of manufacturing America. Can we create manufacturing jobs.
We can have manufacturing jobs, We should have some manufacturing jobs. We're clearly not going back to where we were. I don't think very many, if any economists.
Really believe that.
And you know, the call the demand for that is one that's intensely political and not really very strategic or forward looking or economic. We know the challenges of the future are going to be about automation, about artificial and artificial and intelligence. We're actually going deep on quantum in a few weeks in Chicago, and so it's that looking forward and retraining and retooling and educating that that are
going to be essential. Unfortunately, we're stuck in a moment in the US where the headline news and the kind of push by the administration is not really one that's tackling the the the challenges and the possibilities and potentials of the future. So I think those those pieces that you're referring to are the headline is right there.
Leslie, How would you as we think about global affairs, global geopolitics, and we know President Trump favors the America First approach, how do you think this plays out in the coming weeks months, a couple of three years.
Look, President Trump came into office. We know he wanted to do those deals, to be the president who delivered peace, who really moved things forward, kept things come. The campaign promises was was the aspiration was things were quiet with me,
they were come with me. You got President Biden, you got all these wars so far that's been very hard to deliver on it, and to be fair to President Trump, it was a tall mountain to climb to deliver peace in the Middle East, Peace in Ukraine when Russia has really no interest right now in ending the war and settling what is bound to be a very intense geopolitical rivalry with China for decades to come, was always going to be difficult. So these are you know, very big challenges,
and unsurprisingly they remain largely unresolved. I think the the best that we can hope for in Ukraine is that there is some effort to buy the US US to sustain Ukraine's fight in that conflict, which is likely to go on for quite some time, and to get into a sort of landing position with China so that there is a steady diplomatic engagement and a dialing down of tensions.
But this is extremely difficult and now, and of course in the Middle East, we have a situation where Iran appears to still have its nuclear capabilities and the risk now absent any negotiation, and that's I think where we should definitely try to head that that Iron accelerates it's its desire to get a nuclear weapon.
A few years ago, you were kinds on foreign relations with Charles Kopchain on isolationism. Is the character of Trump isolationism changing from the rhetoric of the election. He's got a job now, he's dealing with mister Putin, as Paul mentioned, literally on a what daily basis. I think, so once a week phone calls something like that, Leslie, is it a new Trumpean isolationism that we're going to confront?
You know, Tom, I've never seen President Trump as isolationist. I have seen him as certainly transactional, as being having a desire to work bilaterally and unilaterally and not through multilateral venues. All of that is true. But he's deeply engaged in the world. He's you know, very recently used military force against Iran. He's, as you said, talking to Putin. He's very ambitious globally. He's got a big personality at
book footprint. This is not in America that's retreating and ignoring the rest.
Of the world, Leslie. No one cares. All we care about cubs or white Sox, and you get Pope Leota show up. So Chicago Council and Global Affairs can have an event. The nuk Miski Park. It is.
It is a fabulous city and I hope to go to all those games.
No clue, nighting doctor. Just remember there's only one hockey team. Remember this name Stan Makita, and he's got a diner you could go to. I saw the movie once, Leslie Ben Jamurry, Thank you.
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I have the clearest memories of anry Horden from the Polish border at the beginning of the war, trying to explain the distance from the cities of western Ukraine US to Keeve into the battleground of eastern Ukraine. We've covered a course, the horror of destruction in the Black Sea, and within this and the moment we're in right now, including President Trump's important comments yesterday, life goes on. We are thrilled to bring you now Alexander Kamarov, who is
a businessman, a simple businessman in Ukraine. It involves telecommunications, it involves us work out of Stockholm School of Economics, and we're just thrilled he could give us it a brief. This morning, life goes on, sir, with great respect for the tragedy. What is the state of the economy in your Ukraine?
You know, in general it is okay taken into account the circumstances.
I think that we are doing well.
Of course, Ukraine and economy right now is around eighty percent in comparison to twenty twenty one before the invasion, But it is growing, okay, and with national support, we have demonstrated on average four plus percent grows since twenty twenty two. Okay, And you know business is working, so all services I in place, critical services are in place. So I think the situation is quite okay taken into account the full scale invasion and war in Ukraine.
Away from your remed and we've done this with Admunster Vitas. Particularly, is the economy of the Ukraine Black Sea region? Is the grain exports there operable right now? Are you moving out your core export commodity across the Black Sea to the Mediterranean?
Yes, it is fully active. Okay.
There are of course there are some limitations imposed by the war, but there is no blockout, you know, so, and business is running quite well.
Of course, it's not my area, let's say, of expertise. I'm much more.
About digital business, telco infrastructure and critical infrastructure.
But what I see that we are able to expert okay.
So agriculture, so overseas okay, without any kind of extra limitations.
Yes, there are let's say, war risks, but in general it works quite well.
Alexander, your company, Kivstar is a leading telecommunications company there. I would think a reliable telecommunications systems would be critical, particularly for a country that is at war. What's the status of your telecom infrastructure today?
Across areas that are under Ukrainian control. We are fully operational, okay, So we are running network almost like during the pre war period. We are developing, we are investing into the infrastructure. Let me give you a few figures. In the beginning of the war, we build more than three thousand new sites and actually more than ten thousand new base stations. So we are trying to ensure almost the whole population
coverage with the modern technologies like lt SO. We already achieved ninety six percent, and this is one of our focuses is actually to provide reliable and redundant services to our customers.
We are well prepared for the national blackouts right now.
We can run our fixed and mobile networks up to ten hours without electricity. And on the top of this kind of critical technical infrastructure, we are developing digital services and digital propositions to our clients right now.
Keepstar is not just that telco provider, It is a provider of the.
Digital services with TELCA license based on the modern and the biggest and the most advanced infrastructure in the country.
So, Alexandre, are you finding that your infrastructure is being targeted by the Russians and perhaps part of their strategy to disrupt communications.
Yes, of course, So since the beginning of the war, we lost around three core sights. So these are technological platforms allocated around Ukraine. But due to the mitigate efforts, okay, you are to a quite extensive i will say technical project. Okay, so we were able to sustain and maybe you know that Keith Star was targeted and as a result of this cyber terrorism Okay, So Keith Star was the victim of one of the biggest cyber Terrorism Act in the
global telecom world. But still we are doing business, we are providing services, and we are demonstrating a very high level of resilience.
We would like you to come back on again. So this has been a wonderful brief and realities. I've got so many more questions. Alexander Kamarov, thank you so much with Kifstar sell your telephone operations. Tours of duty in Kazakhstan and Ukraine. Here's Ukraine, I should say, have been just extraordinary. We'll have mister Kahmer again.
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