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Even if you didn't read the eight hundred and thirty pages. It had a lovely purple lavender cover and you could walk around campus toading your Absfeld and rogueoff and you get cool points just for that. Joining us now. One of the Foundation academics we have on our international macroeconomics Maurice Obsfeld. He's with the Peterson Institute with Posen and Blanchard. He is at Berkeley forever and always professor. Thank you
so much for joining us. What I see in percolate right now, Maurice Sobsfeld, is real tensions about supply lines falling apart, supply lines fragile because of tariffs, the interstitial, the interstitual.
Wiring of our trade system. Is it broken.
It's not broken yet, but it's understrained. It's understrained because of tariffs. It's understrained because of geopolitical tensions. It's understrained because of the trade war. And we can see this and the threats flying back between President Trump and China right now over everything from shipping to rar earths to cooking oil.
There just seems to be two Americas, one affected by goods and trade worry and angst, in another a financial boom. Like Morgan Stanley, can we exist like this?
Well, you know, the US economy has become increasingly financialized over the decades, and you know, at some level, the US is the world's banker at this point. And interestingly, finance hasn't seen the kind of backlash that we've seen against trade. You know, trade is blamed for deficits with other countries, it's blamed for the declient of manufacturing. You know,
we don't see people wanting to curb financial transactions. Quite the contrary, we're seeing deregulation stable coins and the like. So there really really is a divorce between those two sectors. And you know, the question I have is can that go on forever?
Yeah?
Or will the trade tensions eventually feed into the financial sphere?
I think they will.
And Professor, that's kind of where we are right now. The folks that are supporting tariffs. They say, we are not seeing.
The economy slow down.
We recently had a very strong third quarter GDP print, not seeing a material increase in inflation data, although we are now lacking data because of the shutdown. So again the supporters of tariffs are saying, we're just not seeing those economic headwinds coming from tariffs. So my question to you is is it just a matter of time or are corporations adapting?
Oh? I think it's a matter of time.
There is some adaptation, of course, as corporations look for cheaper suppliers.
But you know, just look at what we've seen.
We have not seen any material fall in the dollar prices that foreign countries charge for US. We've seen some limited increase in consumer prices of imported goods and close substitutes for those imported goods, but not enough to offset the tariff. But we've also seen substantial revenue coming into the treasury from tariffs, which is being paid by our importers.
So how do you square that circle?
Right?
You square it with a hit to profitability and with the observation that firms have been swallowing these tariffs to some extent while they wait for tariff policy to stabilize and figure out what it's going to be going forward now that we kind of know where we are with tariffs. To some extent, I think firms are going to be adjusting by passing those cost increases on.
Professor Obsfeld synthesize here, say the work of Douglas or when at Dartmouth with down the hall from you at Berkeley, Barry Kengreen, and this whole trade up set and the risk to the dollar. This goes back to Obsfeld, Rogueoff, and frankly back to Mundell. I'm assuming you don't have a fear of the gloom crew on a dollar.
Is that correct? The gloom crew?
You know, I'm worried long term about the status of the dollar. I think they're very strong forces keeping the dollar in the prime position it's in in global markets as the world's currency. But foreign countries are increasingly worried about the kind of course of punitive actions that this administration has been taken to enforce its will globally, not just in the trade sphere, but looking at issues like internal politics. You know, we see this across the board
for positive and negative. The Treasury right now is bailing out Argentina for largely political reasons. So I think I think the bottom line is that that foreign countries no longer trust the US as a responsible steward of the global economy are going to seek to decouple and sure themselves against policy volatility emanating from right.
Here, Mars, I gotta get a breaking news, Paul. Can I ask a rude question of Professor Hobsfeld? Yeah, professor, and iiching green question for you, Maurice Hobsfeld on gold at four dollars announce?
What would Barry say?
I'm not going to speak for Barry, my good and longtime friend, but I think he would say that.
I guess I am speaking for him. I want to speak for myself.
Barry and I agree about a lot of things, not everything. You know, gold is a bell weather of fear, and the escalation in its price is far beyond what you would expect to see coming from inflationary fears. Although I think that's part of the picture. I think it be tokens a shift into something that is perceived as safer than the dollar and not subject to.
Extra territorial action by the US.
I mean, you know, we've seen the escalation and price We've also seen increasing purchases of gold by emerging market central banks. A lot of that is China, but not all of it is China, Okay, So that I think tells us something.
About the fear out there.
And you know, the escalation and bitcoin prices is a similar phenomenon.
Professor got to leave it there too short a visit. Thank you so much.
Thank you to you and the Peterson Institute, Adam Posen, Professor Blanchard and others for just great support of what we do. Marky Sobsfeld forever from the University of California at Berkeley.
Stay with us.
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Chris Whalen is definitive on the American financial system. I'm standing or surrounded by dinosaurs in Houston, and I'm going I think I got Chris Whalen in a couple of days. Must listen for Global Wall Street, he joins us. Now I can't say enough about his value to the American financial system, his history, his books, and also his work at Whaling Global Advisors. Chris, I'm just going to cut to the chase. First Brands try Coller have a Are we living two thousand and six?
Chris Whalen, Yeah, we're kind of repeating the same mistakes. You know, if you don't have a trustee to hold the paper, then you have double pledges of collateral. Remember bear Stearns. Yeah, I'm familiar, same same things. So it's called fraud. And you know, the terms on a lot of deals in the past ten fifteen years have loosened in favor of the issuers to the disadvantage of investors. And First Brand is a case in point.
Chris Wayman, there was no other question at my CFA meeting in Houston, no other question. What's the contagion You're expert at the history of this. Come on, Is it like Continental Illinois? Is it like bear Stearns? As you mentioned, what's a contagion factor? In October of twenty twenty.
Five, it's brewing. We won't really see it until we do.
So.
The commercial side of the equation is where the problems are for the banks, right now they are trying to hide them as best they can. We've just changed the accounting rules for loan modifications, by the way, so if it pays for twelve months, we pretend the loan was never modified. How cool is that? And I think that the industry of the rate laters are all walking past the graveyard because private equity, commercial real estate, all of
these sectors are still having significant problems. On the other hand, consumer is quiet. We've been releasing reserves and reducing provisions for loan loss on the consumer side because there's nothing happening yet that may come next year. But the commercial side is where the action is right now, Tom.
Chris, I've learned a new term, I guess in the last few weeks, and that is the basement trade. Where is my understanding is investors are saying, I'm worried about all this government spending around the world, So maybe I don't want to own government securities like currencies, maybe even the government debt, and that includes the US stuff.
Maybe I'll buy some other stuff like gold. What do you make of that?
I've been telling my readers to put at least ten to fifteen percent of their total allocation in the gold for most of this year, and I think it's solely beginning to start for the simple reason that there isn't a lot of deliverable supplying gold. People are worried about deficits. They are worried about the dollar, and I think they're right to do so. The dollar is probably going to continue to go down. We have structural problems in this country.
You notice Chairman Powell is talking about continuing to shrink the balance sheet.
Why.
As Bill Nelson at Bank Policy Institute wrote this week, the Fed funds market may collapse thanks to the big balance sheet. So we have a lot of issues. In the background. The markets look great AI, everybody's still making tons of money. But in the background, people are worried because when you have these old time highs one after another, they tend to not be confirmed after a while.
For Global Wall Street Worldwide on YouTube, across all of our audio product Christopher Whalan joins us his one volume on the American Financial system, my book of the Year. Ages ago were begging him, He's going to put a book. DiCaprio skeed.
Oh, I got to signed up and continue with Chris Whaley.
Chris talked to us.
About liquidity in the marketplace, and I'm thinking about not so much as stock market, but just kind of across the fixed income space, maybe the currency space.
Is that a worry for you, Yes.
Very much. So.
It's almost like we're back to December twenty eighteen when Jerome Powell almost ran the ship aground. You recall they pivoted very quickly in January nineteen and started easing. That's when they went to this ample reserve policy that they've had since then.
And I think that what we're worried about.
Is that the model that the FED uses to judge whether liquidity is adequate or not is based on GDP, which has nothing to do with anything. Liquidity is highly compartmentalized. It does not flow one way in another, so you really don't know until there's not enough.
Chris, I think that's where we are today.
I gotta get two things in here. It's too important. Sweeney's lined up. Sweeny's got notes this morning for Chris Whalen. I have Christopher Waller tomorrow. What is Chris Whalen's question for Governor Waller A presultive chairman, What's your question?
Whalen?
He was very bullish on shrinking the balance sheet earlier this year. Ask him how he feels now? Ask him where round is now?
I don't have to work.
We're landing in the fall. We don't have an altimeter. Okay, where is the ground? Does he know? That's the key question?
Broll.
Yeah, we'll try to get to that again.
You're going to see that in the nine o'clock hour tomorrow with Christopher wall in his speech at the Council and Foreign Relations, and then I will grill him as best I can. He's really quite He's a prodigious intellect, folks, particularly in the game theory of central banking.
Okay, Chris, let's go to it right now.
I suggest that the major banks, led by JP Morgan and Bank of America literally are hiding how proud comfitable they are. In the Whalen history, back to Granpa Whale great great Grandpa Whalen was with Alexander Hamilton. A few years ago, Chris Whalen described the profitability of this modern era of ginormous big banks.
I'm not sure that they're that much more profitable today than they have been in the past. Asset returns are barely one percent. They are giving back capital because they're underutilized. Why are they lending all this money to non bank, non depository institutions because loan demand otherwise is pretty slack. You know, deposits are growing twice as fast as demand for loans. So hopefully when rates fall, we'll see volumes
pick up a bit like last September. This September two, by the way, is going to turn out to be a very good month for banks and non banks. But you know, the bottom line is that there are so many alternatives to traditional banks now that have been spawned in the equity markets and are funded with actity and debt, that you have plenty places to go spawn.
Yes, exactly, only way they would say spawn, private credit.
Was spawned exactly. Hey, here, get your thoughts on the housing market.
Broady defined here that affordability issue continues to be a huge, huge issue for people, particularly young people. I got a mortgage rate still got a six handle out there, and I've got housing costs that are fifty percent since twenty nineteen.
This is a problem, isn't it.
It is, But it's a problem that's going to be fixed. Donald Trump is going to goos to housing market with his friend Bill Polti. They want to support homebuilders at a time when the homebuilders have already got too much inventory. Supply has caught up with demand. And remember the prediction of my good friend Stan Middleman, the founder of Freedom Mortgage Misery on the eighths. I think we see a
maxi home price reset in twenty twenty eight. If you've got that high coupon mortgage, wait a little bit and maybe go into a floater, and then you'll be able to refinance it much lower in a couple of years.
So, Chris, I guess the question is that there seems to be a housing shortage in this country.
I'm not sure how he got there. How do you think that happened in.
Some parts of the country, not everywhere here in New York, in the Blue States where we don't build. Yes, it's astounding to me because this is a market that had very poor volumes before COVID, but the prices keep going up because nobody's building houses. Down south, we have the opposite problem. Chris Carolina is in Texas, Florida. We are up to our ear lobes and.
Support Michael Barrowe's equal time. Chris Whalen quickly here every Brady undergraduate wants to know when's the new book come out?
Well, the second edition should have inflated is out, of course, and I did that for you. David Kotok did the introduction, by the way, very cool, and we're working on a gold book for next year, which will be very good.
You'll probably talk to Iike agreed. That's the way. Chris Whalen rules. Christopher Whalen, thank you so much.
I can't say enough, folks the importance of his skepticism about some of the verbiage of our financial system.
Stay with us.
More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
She had a.
Huge impact the last time she was on. Fatima Bulani joins us. She is at City Group and she is hard wired into the technology and software industry. Fatima Bulani joins us for an important brief this morning. Burying your note Fatima work. Not only in the first inning, the guy the third batters of the ondeck circle. You've got six percent of software spend is on AI. Where is that software spend on AI in one year, in three years, in five years.
Well, it's it's a race to catch up here. You know, we have the pleasure and privilege of running our CIO survey every quarter, so excellent time series data and information about you know, an average organization and very large organizations appetite and proclivity to invest in particular parts of their
IT infrastructure. And you know, I think the trends we are seeing as we're inching closer and closer to having AI, generative AI and related efforts to operationalize this concept of AI really showing up in the budgets and the wallet and the wallet allocation, and so you know, I think it's it's tough tough to sort of, you know, look into the crystal valid say that six percent is going
to become twelve percent in the next twelve months. But the infrastructure spending and the velocity with which we're seeing so much capital being thrown at, you know.
Enabling the AI enterprise, you know, it's.
Only a matter of time till organizations catch up, and really, you know, one of the gating factors, and ultimately there are several gating factories. There's a lot of spaghetti being thrown on the wall way zat Black.
Recking and VIDIA forty billion today a small number moments ago, Oracle collaborates with Microsoft to enhance supply chain efficiency.
There you go, I have no I no idea.
Only Fatima knows what that is.
Fatima, I know in your survey here the next twelve month IT budget growth weakens with the US and EMEA below historical levels.
Why is that? Do you think? You know, I think the.
Inference there is there's most likely some share shift happening. Right, Most I organizations have the unfortunate uh decision and dilemma of, you know, keeping the lights on. So you have to invest in existing uh in your existing footprint of it UH infrastructure and capabilities just to keep the lights on. But then at the same time you have to sort
of invest where the puck is going. Look at me mixing my metaphors, right, and so that's very like, yeah, that's the partial Canadian and me talking, and so really it's uh, you know this this notion and this inference of we're going to see some wallet share shifting in terms of allocation and right, so, uh, how how do you avoid starving?
Uh?
You know, initiatives that help keep the lights on in the organization whilst also straddling this executive and boardroom mandate of we have to do something with AI, we have to invest in AI, we have to create capabilities and operationalize. Uh, these AI efforts to build busines, this value and delivered business value.
It seems like all Tom and I talk about all day is AI. But your survey indicates that cybersecurity remains the number one investment priority.
Talk to us about that.
Yeah, I rtially joke that once cybersecurity falls off the number one perch, you know, wake me up when that happens. Because this has been a very very consistent theme and trend in over a decade of survey results and survey
work that we've done. Right that being said, you know, cybersecurity has become this this snowballing, this juggernaut of a priority for boardrooms and now especially now because you're a tech surface, has you know, effectively metastasized, right, I mean back in the nineteen nineties, it was your corporate network and the Internet you just had to protect. You know, you just have to bear your corporate net the work
against the Internet. And now it's cloud, it's remote workers, it's you know, your distributed offices, it's AI, right, and so the new blind spots, the exposure, the susceptibility of what used to be a pretty tightly controlled network is completely unfurled, right, and so you kind of get the dynamic of your entire attack surface not only has increased, it's also changed and it's so much more nuances. And so that's why, you know, cybersecurity is sort of going
to be the perennial number one spot. And you know, one of the things that you sort of asked me earlier was, well, what's stopping organizations from taking six percent of their IT budgets allocated towards AI initiatives? The twenty twenty five fifty cybersecurity is one of those reasons.
Okay, yeah, Fatima, that's just brilliant Mark Bergenfolks his brilliant effort. I read a cover to cover like comments, subscribe Mark Bergen's Definitive book on YouTube. Thank you for that, He writes this morning for Bloomberg news Fatima, Microsoft cuts forth n scaled deal with Texas AI data center they're going to build. I love this, Paul, thank you for Bloomberg AI n scale two hundred and forty megawatts of power. The site will deploy one hundred and four thousand new Nvidia Corp.
Chips. The rest of it I don't understand.
I mean, Fatima, how does a pro like you who's worried about cash flow at Microsoft, how do you bring in this utility constraint that Mark Bergen writes about this morning.
You know, it's a fair question.
And the way I will frame this for you is, you know, organizations are principally trying to solve for productivity gains, right, you know, business value, productivity gains, et cetera. So a lot of what we're seeing on the software side in terms of the monetization question, right, we're seeing the picks and shovels trade in the AI trade opportunity on fire. It is absolutely in fuego.
Right.
And you know one of the main overhands on the aggregate enterprise software space is when are software vendor is going to get paid for all this stuff? Right?
Right? Okay, we got to go Fatima, that's precisely the worry that Lisa Matail has about AI.
Do you worry that the software vendors will get paid?
You know, we think software vendors are going to get paid, but it's important and critical to pick your spots.
Uh.
You know, we like to bifurcate the entire enterprise software space into application and infrastructure, and we're firm believers that the infrastructure software space is going to be the more
insulated of the two you have. I'm certain you've heard the terms of vibe coding and large language models, you know, chasing application software companies, you know, you know, out of the room, right, And so there's a general view and we'd subscribe to this as well that if you provide tooling, software, plumbing and tooling that's sort of behind the scenes, that's a better position to be in terms of monetizing and commercials.
Paul's yelling at me, go to Bar Fatima.
I got twenty seconds your single best buy right now at City Group.
A big fan of a company called Rubric RBRK. Not one that's on everyone's lips. It's not one that's talked about very much, but in an era where data is going to explode. The fidelity and integrity of your data is going to determine how good your AI applications are. Oh and by the way, if there's a cyber attack that happens and you have to recover all this business data, rubric is the play Ruber way to play RBRK.
Is that right?
Yeah, it's a that's right.
Sixteen billion dollar market cap stocks up about twenty percent year to date, is doubled over the past twelve months.
So it's been a oh good and a good one there.
Yeah, she didn't call me on this Fatima, let me down and didn't call me up a stupid bye.
This good morning. Palo Alto, yep three employed a stronger for the team of belining jes love it. Thank you so much. She is with City Group. Stay with us.
More from Bloomberg Surveillance coming up after this.
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.
Time out for the daily look. It is the front pages around the world.
Do we thank Lisa for the newspaper.
Tell me there's nothing on the banks.
No, nothing on the bank we got. Okay, have you gotten those annoying scam text messages?
I know it's like page Tim.
Cook, I know you're listening.
Do something, fix it, fix it.
Okay, Well we now know who's behind this. So this is in the Wall Street Journal. Really interesting. The Department of Homeland Security is saying criminal organizations in China have made more than a billion dollars in the last three years through those test mech text scams. They have sim farms, that's how they do a lot of it. They use the credit card info. They buy iPhones, gift cards, clothing, cosmetics.
Are well, yesterday it was absolutely verbatim text message hey that I can't remember the vendor.
It wasn't the bank, it was somebody else, Paul.
It was perfect.
Yeah, mine was his easy pass. Yes, all over the place. My kids got them. It's so who knows. But I'm like, I'm not paying anybody door.
Yeah.
So this is the thing they they're trying to like do. They can't do anything about it. It's a man of the moon exactly exactly. But they just if you look at the article. It really goes into the whole process of how there's videos showing the people doing it. I mean, it's it's such an intricate process. But yes, the question still remains, what are we going to do about it?
Okay?
So this I'm going to pull an audible on this because since we go from tech scams, remember the scam in London, all these phones being stolen all the time, eighty thousand phones stolen in the city last year. So the police are saying it goes to the black market for European cell phones in China.
Here we go again, the same phones.
Some are reset, they're sold to new users in Britain, but a lot of them they're shipped to China and also Algeria and China. The newest phones they could be sold for like five thousand dollars. So this is what's going on there. So the reasoning behind that, because you hear those stories the.
Tech management, all these guys with the gajillion dollars they're showing up for FaceTime with the president.
This is where they could really help people, yep, with their technology. I just don't get it.
I don't either, Okay, I want to go to this new ranking. It shows the declining strength of the US passport. This isn't a Washington Post. It's the latest edition of the Henley Passport Index. So this index basically ranks nations based on the number of destinations someone can go to and visit without needing a visa. Okay, so it shows the US passport. It's fallen out of the top ten most powerful passports globally the first time in twenty years. It's now at number twelve, tied with Malaysia.
There you go.
A decade ago it was.
At number one, so you could see the declining. Singapore is the number one spot one hundred and ninety three destinations, followed by South Korea and also Japan.
I got the Irish passport back in the day, like thirty years ago. They were given them a litt Yeah, they were literally did you get.
A case to gain us with that?
No?
But I used it after nine to eleven. I had a lot of travel.
After nine eleven, I felt more comfortable with the Irish reelaking today yeah see yeah, so, but I.
Know lots of people getting too bad. I do not do that.
I mean again, this was thirty years ago. Send in like a ten dollars checking.
I want to get a passport for Quebec because Montreal is killed.
Sure right now? Are do you have any more?
Yeah?
Okay, one last one.
This is about Remember those fancy long business lunches you probably used to do. They would extend into like dinner time and keep going. Well, the Financial Times are saying weight loss drugs are killing that business, you know, the business lunch because a lot more people they're ordering less. They might not want to go because they're eating less, they don't drink alcohol as much. So it really goes into that and how it's hurting restaurants to list.
I'm gonna tell a wonderful newspapers. Thank you so much.
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 Easter and 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