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Joining us now as we slide into this CPI report, this important report. Constance Hunter, Senior Advisor Macro Policy Perspectives and of course always with the Economist Intelligence Unit, joins us today. I guess it's sort of like a mysterious report, to say the least. But is disinflation in place? If I see US and global yields moving.
Higher, Well, the yields are probably moving higher for a number of reasons. But I think what we've seen is the disinflation and deeplyation in goods that's about to end, right, And I agree with Anna Wong. We're seeing softness and
transportation services. That's about six percent of the waiting of CPI, and so the question is is that are the increases in goods and the fall and transportation going to offset each other When we look at core services though, we're still running a little bit above four percent year over year, So if we can.
See what vets churche not yet, not yet, No.
I will vets. They're way about four.
Way about four percent? All right?
So CPI ex food x energy year on year, and since this is two point eight percent, isn't that okay?
Well, so I can live with that. So if we go back to that.
So I was listening early this morning, and I forget the name of the guest you had on who was talking about the post nineties, the late nineties equity market, right, And in the nineties we had potential GDP was a bit higher, we had inflation between two and a half and three percent, and because growth was humming along, actually
only two point eight percent was okay. The big question mark here is we are coming into potentially softer growth and even higher inflation going forward as a result of the tariffs.
How could you forget? Julian and Manuel have everquor?
I'm so sorry, Julian.
Forgettable?
My bad?
You're right, Tom.
So what do we do here?
If you're the Federal Reserve, you see a print like two point eight percent, let's say it comes in there today.
Do you feel like you've got more work to do? Do you feel like you can sit on your hands, do you need to cut rates?
So what everybody is going to be looking for, and it's going to be challenging, right because these are lagging indicators. But what everybody's going to be looking for what are the clues not just about what it says where we would be going if we weren't having tariffs, but we're looking for clues about what is going to be inflation in May, June, July as a result of the tariffs. And so the details of this goods pricing is going
to be really critical. And we have the amazing work by Cavallo and his colleagues on the real prices index, right, and if you look since March, we've seen import prices go up. But of course this allows domestic producers to say, well, I can also afford to raise my prices because my competition is raising their prices. Right, so you import overall inflation, I.
Get forty two seconds, just as simple as I can. And this goes to Economics Intelligence Unit, all the wonderful work of ANA one here, your work with macro policy perspectives and Julia Cornado in your head, where is CPI twelve months out? Not your end, but just is it to Paul's point, is it three ish? Is it two point xi ish? You're going to make some news here four ish?
No.
I think the news here is that the growth shock is going to overtake the inflation shock. So you've asked the critical question, and I think twelve months out we could be looking at a two and a half percent inflation, provided that all of those core services that have been sticky continue to begin a little bit downward.
Constin Hunter chief economists at the economist intelligence units still what it's in our Bloomberg Interactive Broker studio constants. We've had so much discussion about tariffs this year, has it impacted your GDP outlook at all? Because I'm not sure, actually I'm not even sure where we are with tariffs right now, but it seems like it's not as bad as it was maybe a couple of days ago.
Has it impacted your GDP outlook?
So what impacted our GDP outlook is the uncertainty that the the back and forth on tariff policy has caused. And of course this is intertwined with a bunch of dispersion regarding economists forecasts, and so it is that uncertainty that we think is going to drive the pullback in growth, and that's going to come from firms reducing capex because they're not quite sure where there where it.
Makes sense to spend.
We see from a we have a corporate network that are around the world. We have it in different cities and we've surveyed them and we ask them about in this tear for war, who are you going to choose to align with?
You?
You're going to choose to align with the US. Are you going to choose to align with China? Or are you going to try to stay neutral? And you know japan executive Japanese executives, yes, they want to align with the US. You look at executives at country companies based in other countries and they're reconsidering whether they want to align with the United States. That's going to impact capex.
Here to your global view and constance hunters known for always taking things globally. My first chart of the day was generic forty years Japan yields are slipping away here, there, and everywhere. To me, that's lower fixed income prices. Do we underestimate the drift of the US ten year yield, the drift of Japan and other nations debt now.
I think I think we shouldn't underestimate it.
Right.
We are seeing term premium come back.
And if we go back to this nineties world we were talking about earlier, that is fine if you have stronger growth, stronger productivity. It has a dampening effect on growth if you don't have those things. If it's because of increased debt levels. And when we think about what's happening, we're looking at China really doing a huge stimulus to try to make up for this, increasing its debt levels. We're looking at Germany, you know, ending its debt break,
increasing its debt levels. So there is a good reason that we are seeing term premium go higher here and around the world.
A terrific work again always by the Top Live blog. It's one of the great premium products of the Bloomberg at Terminal Top Live and Chris Ansy driving forward all of that covered some of these We got to kind of says you got to react to some of these headlines. The annual gain and a headline CPI what our audience cares about at two point three percent is the smallest
since February of twenty twenty one. In other words, before the big inflation surge of spring of twenty twenty one, but the trademard may reverse.
That because of God, we're not seeing that yet.
I was just glancing at the goods inflation from the release and from what they've the sort of top line numbers, and we're really not seeing any goods. We saw apparel continue to decline, we saw used cars continue to decline. It's not there yet, and the question is sort of when does that come? Does it come in May? And all indications are that it will be coming. And so we really go back to what's happening with Core, which was two point eight.
Well, thank you, you drove the vics under eighteen. You're killing a constants hunter with us with the Economic Intelligence Unit today and Juliet Cornado of a micropolicy perspective seventeen point nine zero on the VIX. That's a whow statistic futures up nine down, futures off of UNC United Health showing a negative statistic nasdack up a solid four tenths of a percent. Paul I had a tantrum. He said, Tom, I'm sick and tired of John Lipsky and Constance Hunter
and all these people at sixty thousand feet. Let's get the landing gear out with Matt Miskin Manual Life. Johnny Andcock Investments are co chief investment strategy. Matt tough question, what is your strategy this second third week of May.
Well, we've gone from risk off to risk one in a matter of weeks, and it's been incredibly volatile for us. It's about just being patient here. We leaned a little bit into markets on the equity side amidst that drawdown because we didn't think it was that fundamental. But now frankly, we're back to the bond market and looking at disinflationary forces that CPI report did miss again. We actually had egg deflation, which is nice to see, and so we
actually think you got to be patient here. Now things are back to being expensive on the risk side. Look to get some high quality income.
He's too modest. Emily Rowland has nailed it with buy American by large cap. Stay the course, don't go to cash, Paul.
Matt, What do we doing it in a fixed income space here? That to your treasures yielding during your four percent these days?
Do you just hide out there? Do you try to take some credit risk here?
We the short end, we don't mind. I mean, it's if that is attractive yields, you know, you can't you can't dismiss that. But also in the intermediate part of the curve, we just think it's completely hypnotized right now by political developments. It's so odd to us that the terror risk has come down and inflation's coming down, and
yet the ten year treasure yield is accelerating higher. So it really has not been pricing in any disinflation in our view, and you're getting this really nice income stream again available to you in the bond market, and it's not it's blowing through all the risk issues that could be playing out. I mean, if you look at the risk assets right now, well back to twenty one times on the pe ratio of the SMP, high yield spreads
are back to three percent. Industrials are the best performing sector now year to date, and financials are close behind risk assets. A price for perfection, high quality income has a lot of ability to run here. If this other side of the market gets a bit of a rotation or bid, again, what.
Did you make of earnings there, Matt? Did they give you any confidence? Is it reflecting I guess the uncertainty of the tires situation we're in. What did you take away from earnings?
You know, the US earning season has been great.
It's just amazing how little that has been of attention from investors. So the US earning season is going out about fourteen percent year of the year growth clip, which is one of the best we've seen in years. And US equities are significantly underperforming their foreign counterparts. On the MSCIIFA earnings are down six percent year of a year, and that's the best performing part of the global equity market.
So stocks are not following profits, they're following politics, and it's a lot of sentiment and to us, we're not going to be whip sawed by sentiment. We're going to follow the earnings. And even though the earnings have been good, the negative side of the story is that the earnings revisions have been coming down. So we started the year with nearly a fourteen percent earnings growth estimate for twenty twenty five. The streets view now it's nine. So our
view is that's going to keep getting trimmed. S and p multiples just got expensive again. We want to look for high quality income and be patient here.
Johnny Hancock was involved in all sorts of deals and negotiations at the Founding Fathers and you know, getting things done in the eighteenth century. He would have loved a big, beautiful tax bill. How does the tax bill coming? This is really the first time Paul I brought this up on the show. All of a sudden, folks, it's a summer legislative season. Matt Michigan. What's that going to do to the bond market. What's going to do to Emily Rowland's call in the equity market?
You know, coming from Boston, we dislike taxes, just like almost all Americans. I mean, we're still getting over t tax over here, Tom, you know, legacy of Boston and ancestors here. But you know, in terms of Paul's see, it's been a give and take, and you know, tariffs we're going to be a negative on margins. They we're going to print margins. That's diminishing. Now we got a potential tax bill. At the end of the day, what we are seeing is that growth in profit margins are
probably going to be limited. We just don't see much of a tax cut. We just see an extension of the current tax regime regime more likely, and it's just going to be one that you know, I think it's if you did a pie chart, it's ninety percent of investor intention right. Ten percent is everything else. But in our view, investors should be more attentive to global growth
and fundamentals. And to us it's okay, but it is a decelerating growth environment We're likely to see over the course of the year.
Where we in sixty forty somebody, I am sorry, I can't cite it, folks. Somebody had a great article this weekend on the death of sixty forty sixty percent equities, forty percent bonds go play golf outside Babson at the Wellesley Country Club. Matt miss can help me here is sixty forty still, Jermaine.
It's great foundation still. In our view, it's just that the equity side of the portfolio, we think is going to have as a long term investor less return potential. We're coming off of amazing ten year fifteen year type returns out of the equity side, and the bond side has been brutal for like the last five years, and we just think that the bond side is going to take on more of a return driver over the next decade, the yields are a lot higher than they were five
ten years ago. And then on the equity side, look if you want to look at credit or private debt or other things. Income as a return driver is our big theme over the next several years.
Are buybacks, our share buybacks and income driver.
It's okay, we'll take it as a capital return. It does help obviously, you know, reduce shares, increase earnings power. But at the end of the day, we've already done a lot of that. That has been a significant return driver. Capital appreciation. But good old dividends and income and.
Yeah, thank you, Yeah, payments. Man, I got to go there, Thank you so much. Man Miskin with his manual life at Johnny Hancock running jug here folks. Paul Sweeney says, where's the beef, where's the dividend?
Yep, exactly right. I've been asking Tim Cook that for a long time at Apple. Let's talk about the fixed income market, Tom, I'm.
Looking at the ten year treasury. We're in about.
Three basis points four point four to three percent and two people are talking about people are talking about it. I mean, you can actually talk to somebody in fixed income this days and have a reasonably interesting conversation.
Years ago, you just get like zero percent return on the bond market. Whos to talk to these people?
Kathy Jones, for example, she fixed income strategist that Charles Schwap nobody wanted to talk to her for like a decade.
Now real yield in the fixed income space.
Kathy, How are you guys at Charles Shwap thinking about the bond market these days.
Now?
I'm Paul.
I think the key is that at the long end you still have some risk to the upside. We didn't see a tariff effect in this CPI report, which is great, but we do expect to see some impacts. Tariffs, even at a lower level, are still four or five times as high as they were before, so we'll probably see some tariff effect coming through towards the end of the year, and then we have all the budget talks to go through. So we think that the long end, the intermediate to
long end, stays elevated. It doesn't necessarily have to go a lot higher here, but stays elevated because the term premium is going to stay up until we see some of those policy issues resolved.
Hey, Kathy Jones review for our listeners and our viewers here this is important question, folks out the yield curve, Where does your own Powell and Company have impact? Don't give me it's just in the short term, belogny. Can they affect the belly of the curve? Cand your own power effect the price of the ten year note?
Yeah, certainly, because they focus a lot on inflation expectations, and that's where you get the FED policy focus that moves out the yield curve. So the FED effects the yield curve certainly, very strongly out to two years, maybe three to five years, But when it comes to ten year, then you have to incorporate the inflation outlook and a
bunch of other stuff. But keeping inflation expectations anchored, which I would say right now, I'm not sure they are fully anchored, but keeping those anchored is a big focus for the FED because that's what keeps the long end down relative to the short end.
Tom, here's some inflation news that you can use. Eggs were down twelve point seven percent on the month, the biggest tumbles since nineteen eighty four. That's after the surgeon egg presses do the Avian flu. Of course, that's a coordinated Chris answer, seen editor for Bloomberg News. That's news you can use. I'll defer to call, of course.
But that's why are they back to where they used to know? I took the photo of Kirkland eggs here. I'll get it out on social for Lisa Matteos. I know she's hanging on every word this morning. Yep. But the bottom line is, if you're paying seven forty nine a dozen for fancy eggs that were handpicked, you know, in a field in Connecticut, and you get your what is.
A twelve point seven percent decline, then there's.
Six dollars fifty nine. This is not happening. I can assure you. This is I'm reporting, folks, that's not happening.
Kathy Jones have credit quality out there.
I mean, with all this tariff talk and I'm concerned and some economic concerning that's bringing into the marketplace are fixing comp Infession is starting to worry about credit quality.
We saw a little bit of windening of spreads, a fairly substantial widening of spreads as the tariff talk ratcheted up. They've come back a bit from there. We haven't seen them skyrocket, yet because of the economic data keep keep holding in pretty pretty well. So I think credit quality is peaked for the cycle, but it's definitely an investment rate,
it's still pretty strong. I think in high yield it is kind of a mixed bag from here, but we haven't seen that downturn in the economy that would cause credit spreads to really widen significantly.
From me, how do YouTube live chat? I mean, you know they don't care about you, they don't care about me. Well, one guy goes, I really don't care about John Tucker, But twenty four eggs it's shop right? Nine two doesn't? That's like five bucks? Yeah, it doesn't. I'm shopping at the wrong.
Story, exactly right, kathyw Are there some sectors here that that kind of screen well for you guys here when you when you think about credit risk here, you.
Know, we tend to look at it and aggregate.
But I would say the areas that have held up well are still financials. Financials continue to be in very good shape.
And those are.
Issuers of not only investment grade bonds, but we're also issuers of say, preferreds, So you get to play either the higher risk, longer duration version of that in financials or the kind of intermedia term basic bond aspect of that the financials. But they're holding up pretty well.
In this in this cacophony of news of international relations of Rianda and arrest. Kathy Jones, What is CFO is going to do on issuance? Do they say, let's go, let's go, let's go.
You know, issuance is still holding up, But the opportunity set isn't that great, right because the curve sort of flattens out. You don't get a lot of advantage right now in issuing beyond maybe a little bit in the belly of the curve. So issuance is going to keep pace. But I don't think that these yields are so attractive that any CFO who hadn't already extended duration or hadn't already taken advantage of financing, would jump at these yields.
Katy, thank you so much, greatly, greatly appreciate it. Kathy Jones with Charles Schwaber.
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 in the studio now, Brian Belski, He's here for two reasons. One is after the shock of yesterday. And also finally, the Minnesota Twins one eight games in a row and it's up there on a roll.
It's amazing. I was there for one of them. Was a beautiful night in Minneapolis.
It was well, are there blackflies at the Twins stadium in May? And is it like Cleveland where there's.
We call them ganats? Yeah, yeah, yeah, it's uh.
I went to several spring training games down at Fort Myers and then was up in Many for business last week, so I was able to catch a ball.
Withhold says a book out, I'm not to invest and I'm not to invest is the panic and this is the modern disease that Brian and I are so against him, which is goady cash. How do you get back in the market if you're part of the goady cash crew?
You buye and I think you try not to outsmart yourself. You know, We've been talking about this for years, Tom and everyone tries to time the market and try to be smarter than the market.
The market is what the market is.
And and thanks for sticking with us in terms of our view because many people did not, and we took a lot of heat in the media and a lot of heat internally, and a lot of heat from our clients.
For all build Ian is such a lovely guy.
I just did the ReConference keynote and he followed me, so I love that guy.
Plus Minnesota guy. So you know, of course, but you know, and we we do what we do for a reason.
We're investors. We're not going to react fear sells. People were making binary decisions based on emotion without having analysis, and the analysis said that, you know, the markets were not going to be as broken as everybody thought, and I think everyone was kind of once again jumping to conclusions. I really think, guys, that what's happening is we've kind of shocked ourselves into.
A period of normalization, believe it or not.
And so the periods that we've seen really for all intents and purposes, Tom and Paul since two thousand and seven have not been normal, not been normal. So we've been said saying for the last couple of years that we're entering normalization.
So normalization is at a high single digit return expectation for equity markets.
Yeah.
I mean, if you go back historically, it's nine point six percent or nine point eight percent, they're all divided on there. So I think high single digit, low double digits for both the S and P five hundred and earnings growth. We said this in our year ahead piece for twenty twenty three that we published in November of twenty twenty two. At that report, guys, we said the new cyclical bull market has begun, part of our twenty five year secular ballmarket theme, which remains intact. We are
now in year three of that cyclical bowl. And so at the end of the day, we think that you answer Tom's questions, don't try to outsmart yourself, be an investor. Stocks are higher twelve months from now, stocks are higher six months from now in this two shell pass.
And oh, by the way, it looks like it's passed.
Our financials a comfort stock for people's scared stiff.
I think they are, Tom, because you know, a lot of people talk about deregulation going forward, but we talk about we think about how from a portfolio perspective, small men and large, we think there's massive under owning, under ownership of financials, and we think our major theme in large cap money would be scale in small cap moneys by small those small cat banks that have existing fantastic
relationships and clean balance sheets. But we think it's the regional banks that are going to be interesting because they absolutely positively have to either get smaller or get bigger. And we think there's going to be a lot of consolidation twenty six to twenty seven.
Hey, Brian, what did you make of earnings this cycle? Because we had a lot of companies kind of pulling guidance. It's kind of I guess at the height of this tariff uncertainty here, what did you make of earnings? Would you make of the guidance? How much can we hang or out on that?
Well, the only difference now versus COVID where everybody pulled their guidance, they pulled on actually their forecast too. They haven't pulled their forecast. They just they came out with great earnings the majority above the long term trend in terms of.
The first quarter.
What we looked at as twenty twenty six numbers relative to twenty twenty five numbers, and we saw what we'd like to call this earnings revision low, meaning everyone.
Dropped their numbers at once.
So I think that at the end of the day, earnings are kind of tracking high single digit, low double digit increases for the S and P five hundred. We think small cap in MidCap can actually potentially do a little bit better, Paul. But I think this uncertainty with respect to what has occurred the first six months of the year five months of the year, I'm sorry with respect to the tariffs, is starting to unwind and you'll
start to see more kind of consistent earnings. But again, I think earnings are set up to be under promise and over deliver, which is that's the kind of period that you want to be in.
So, I mean, I'm trying to figure out. I'm reading all the bluebird stuff.
I can't. Yeah, we are on terrors.
I know we're higher. I don't know how much, but I know we're higher.
So that's got to impact earnings margins, that kind of stuff.
Is that reflected in the stocks?
Do you think? Well?
I think the one thing that people don't know is who's going to take on the cost. Is it going to come out of margins? It's going to be the consumer or the producer. I think so many people rush to judgments Paul that it was going to be the consumer. But what we're seeing is we're seeing that the consumer discretionary sector, I think from a bottoming perspective, looks very well in terms of earnings. That's exactly when you want to buy them quickly.
Here the revenue persistency of MAG seven. I mean even if it's high single digit, which is pretty gloomy, but they if they sum up to a high single digit revenue persistency, that's constructive. Right. Yeah.
Two things, actually three.
You know, following me is one of the greatest stock pickers I've ever met, Nancy Tangler. I'm a great friend of mine, and I think we're entering into this period of stock picking and it means matter and you need.
To have a lot of experience doing that. Number one.
Number two, I've said this for a long time now, for at least ten plus years, that the MAG seven or the big cap tech stocks are.
The new consumer staples.
You go back to the nineties, we went to liquidity and where there was consistency, and maybe maybe their business models are changing a little bit. We're going to see that in Google clearly but I think the consistency of the of the revenue growth going forward and the liquidity that it offers investors, that's why you have to own some of these names.
Brian, Thank you so much. Brian Belt, thanks with Speama Capital Markets. I got a tape safe somewhere if you when it was terrible out just saying just stay the course, just just be in there. We'll play that, you know, h end of the year, the vik the Vikings will be six and zero before they break the Northwest hearts one more time they've.
Been doing that, and then finish seven in ten, seven in ten.
Brian Belski, thank you so much. As he mentioned, Nancy Tegler coming up. This is what we like to do, folks, just back to back excellence.
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Nancy Tangler, like Brian Belski, what's the market going to do? Boring? Okay? If you roll like Nancy Tangler, and eleven years ago you write the introduction to your classic book, I'm looking at three beds four bass, seven thousand square feet Paradise Valley eight five two five three Arizona, three beds four bass for twenty five million dollars. Okay, Paradise Valley, And there you were.
Nancy says, we.
Got to interrupt. The Women's Guide to Successful Investing was important with Paul Gray McMillan, and then it became even more important. What was it like fighting to get that book published? Do you have to yell and screen? Did Laffler have to call up and beat on someone?
Thank you for that, Tom, No, No, not at all. It was I think we were early on the whole issue of women, transfer of wealth to women.
This a huge deal.
And then the second edition, you know, happily they came to me and just I mean, you've written a ton.
You know.
It's harder to write a second edition than the first edition because you have to edit and then you have to add in topical stuff.
But it's been it's been fun and important.
Nobody cares. We want a third edition right now. I want you to talk to women after three months in a lifetime events and all the stereotypes out there that still exist. Yeah, how do women get hurted to understand equities?
Yeah?
Well, I think the research shows women make better investors than men. Let's just say we're as good of investors, because I just followed one of the greats.
Brian Belski.
But they need to give themselves permission, because women have excused themselves from the conversation. Average age of a widow is fifty nine in the US. I was fifty nine. Happily I'd been managing all the family wealth. But most that's a bad time to start learning. So they need to read my book, and then they need to listen to your show, and they need to read barons.
The stereotypes are there's just like an auto ad or something I can't remember, and the guys worried about like three tuitions mortgages in that and the woman wants to figure out where to get a diet of coke. It's not funny, Paul. This is like, this is like the most important conversation we can have.
Nancy, what did you What were you telling your clients when we actually had a market a couple of weeks ago, down twenty percent from it's in recent highs.
That's a bear market for a lot of people. A lot of folks aren't.
That experience with that, right, What kind of conversations were we having with them then and now?
Well again, like Brian, we're long term investors, so we were buying okay, and you know, we were able to pick off a number of names like Microsoft, Talenteer twenty percent ago, just.
A few weeks ago.
So I think I've been hearing that the tech trade is over for the last three years.
I was gonna say three decades.
Or maybe three decades, but certainly the last three were every summer we get a bear market in technology because that's it.
We're done.
We're doing and we've just been in buying it and it's been great for our clients. And we also have a lot of history of outperformance, so that gives them confidence in a period like that.
So what do we do now?
I mean, I think tariffs are going to be lower than maybe we initially feared, but they're still higher than they were before. I guess that's a drag on economic growth. I'm not sure how much I think everybody's trying to do the math right now? What do you do in this kind of environment.
Yeah, So, I mean I'm long for the days when we had a FED that used price level targeting like Wayne Angel, remember him, the.
Late Waite Angel who just died. We just lost Wayne Angel. Explain his contribution off of Milton Friedman to our economic thoughts.
Yeah, well he was forward looking, as you know.
I mean he was looking at the currency exchange rates, commodity prices to really guide FED policy instead of looking at last month's data, which is what we have right now. And so I think when you when you have a FED that says tariffs, I can't do anything until I.
Know what they are.
That's not how this works. And so I think you have to be looking at things that are relevant.
Is we have Paul mentioned it eloquently, if we have this walk back on the trade war? We had John Lipsky on earlier, it was much more apolitical and you know than the Laffler Tangler Republican heritage. Where is your group? Where is your tribe in Pleasant what's it called Pleasant Valley? Where is your tribe? Post Trump? Is it like we revert back to what we knew? Or do we go on to something different? Within a conservative economic ethos.
Yeah.
Well, I mean I personally think tariffs are bad. They're an indirect tax on the consumer tax. So I do think it would be much more constructive to focus on growth and focus on reasonable tax levels. So you know, if we get the extension of the TCJA and additional tax cuts which are in there, the salt deduction goes up, you get no tax on tips and social security. Potentially in overtime that will be I think helpful to growth. But we as a nation need to focus on spending discipline.
We have none. This bill looks like it's going to be additive to the deficit, and we have to focus on growth and sent people. I love this idea of opening an account for every newborn in America where they learn to invest at a very young age and they see the power of compounding.
Well, my daughter's gotten her three brothers to focus on this stuff.
She's the only one that's got her.
At Austria, see women exactly, she's she does the taxes for them as well.
She saw some turbo tax. What do you think about the consumer? We're going to hear about the consumer on Thursday year.
Yea, Paul, they are I mean, I think you know, we saw some pull forward. Custom duties in April were over sixteen billion versus eight billion the month before, So we didn't see it in first quarter earnings, but we are going to see it, I think in second quarter. But that said, I think the consumer continues to spend. The great eddi Ard Denny's comment that they.
Spend there yesterday never he lifted, Yeah, I think off the top of my man's sixty five hundred.
Yeah he did, and Boldman just raised theirs to sixty one. I don't live in that world, like I have to produce performance and so I can't change and wiggle. But yeah, and he said they spend when they're depressed because it produces dopamine. So I think we'll continue to see the consumer spent.
I need your opinion on this. I think it's really important. I put out in a lovely, lovely small village in Massachusetts, somebody has a barbie garden. They have like hundreds of barbies. We've actually donated to it. I think we donated Barbie Ferrari with Ken and the whole thing. But like it's like hundreds of Barbies in their yard. People come by and stare at it. How many your thoughts on thirty barbies or three barbies? Is this what we've come to
an American consumption? I'll bet you out of you know where you were at Point Loman before that you had what forty or fifty barbies.
I wasn't really a barbie gal.
No.
I wanted to be a pilot in the Navy.
So well they had Barbie top time.
I think sometimes our administration, I'm gonna say it this way, has an unfortunate way with words.
And that was just that was a statement I think to make.
And I think we don't want that kind of We want growth, we don't want that kind of Well, we'll have to pull back on our own personal consumption, but the government doesn't have to. So I think we have to get some of this stuff right sized. I think, you know, once you get to Washington, you just lose touch. I interviewed for a position at the BED and the guy said to me, look what we've done for America.
He was ex Goldman Sachs. We lowered rates.
And I said, well, that's great if you if you are invested in risk assets, but not if you're retired with a certain assumption of interest rate, you know, income on your investments and now you're a greeter at Walmart. So they need perspective like I think they need to do time in Mid America.
Can you come back again? We need a third edition of successful investigation, Nancy Tegler with this.
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This is a joy. What we do on surveillance around the busy schedule of our guests is wait till we can talk to them for an extended moment. And we have that with John Lipsky out of Iowa years ago in Wesleyan in Connecticut, and of course forever identified with Stanford. He attended the recent John Taylor conference with Michael McKee. John Lipsky's contribution to our public policy scheduled and less than scheduled, has been profound. At the International Monetary Fund
and of course forever identified with JP Morgan Economics. John Lipsky thrilled to have you with us today.
You're too kind, but it's a pleasure to be here.
I got to start with the great loss of Joseph Nye. I want you to explain in the trenches of the IMF, you're speaking Illinois, You're working with a guard to write the ship. What Joseph ny contributed to international relations.
Well, I've ran across him in a couple of ways. One, of course, the renowned for his inceptualization of the idea of soft power in international relations as opposed to simply
hard power. And of course, in the context of the IMF, which was a foundational institution creating the post World War two order that restored the global economy and produced in the sixty years after World War Two the fastest sustained global economic growth probably ever, that the United States leadership in creating the institutional grid that was the foundation of the so called rules based international order was a reflection and a powerful and reflection of the US soft power.
Joe was for many years also as widely as a professor at Kennedy School at Harvard and an essayist. Also was the US head of the Trilateral Commission, and so took an active but behind the scenes.
In a way role of.
Keeping certainly an international foreign policy elite together.
John, let's ski let me ask you the money question that all listening to us across this nation want to know. After Trump, do we revert back to Ellipsky international relations and structure or do we go on to something new?
Well, I don't know what Ellipsky structure would be, but the really, Tom, you know, at the in the in the first Trump administration, when there was already a degree of let's let's say, shock and uncertainty created about where the US policy was going. Uh, it was commonplace for Americans to tell foreigners, well, it's it's it's gonna it's gonna be even if Trump is gone, it's not going to be back to being the same again. And people would say, well, what do you mean exactly, and the
answer would be I'm not sure either. Now we would be doubling down on that. Uh, let's let's look at the many ways that we would take a look at try to figure out what comes next. Right now, the President is enunciating and acting act acting energetically to pursue what he would call American First, America First. But Secretary of the Treasury Scott Bessen describes as America first doesn't mean America alone. Well, that that's good, but what exactly
does it mean? And it's obvious that we don't know the answer, so we don't yet know what Trump two point zero is actually going to be. For example, let's take this in relation to the kind of question you were asking Tom the US and the World Trade Organization? Where are we on that reciprocal tariffs appear to be not a policy that's not compliant with one of the fundamental aspects of the World Trade Organization agreements, which is
the principle of most favored nation. In other words, you don't go around discriminating country by country with differential tariff rates on the same product. That creates that inhibits international trade, creates a mess. Well, we seem to be pursuing that. So what does that mean with regard to such fundamental things as our support for the wt O.
Well, forgive me John Lipsky with us here, folks, who welcome all of you across the nation on YouTube around the world. Good morning as well. In one of the great charms, here is ages ago in the Salmon Brothers Building, Building seven. Ye, Paul Sweeney got to walk the halls of John Lipsky.
I was a lowly investment banking grunt that John Lipsky as a night there.
So hey, John, what does it mean? I'm looking at the US dollar here.
Stocks have bounced back, bonds have bounced, yields to come back, but.
The dollar is still kind of under pressure here. What do you make of the US dollar here in the global economy?
Well, it seems to me obviously markets are trying to find their way here. But I would I would say that there's there's little doubt that there has been a substantial reassessment of the outlook for the US economy that involves not just domestics, not just foreign investors, but domestic investors. But it has had an impact on the dollar. And I would say to roll the tape back to last fall when or even at Dobbos in January, the dominant
theme was US exceptionalism. How is it that the US has faster productivity growth, more new business formation, stronger growth
in business investment, etcetera. And entirely positive, not entirely, but substantially in positive view of the US economy, especially in differentiated form, it's that the US is doing It's not perfect a long way, but doing better than everybody else that has been fundamentally reassessed by policy developments that have caused investors everywhere to number one, look at to reassess US growth downwards, reassess inflation outlook upwards, and create more
institutional uncertainty. Tom had mentioned earlier that I was last week in attending last week attending two conferences at Stanford University, and we heard presentation from Stanford professors who are measuring what they call the convenience premium for US Treasury securities that was formed one of the evidence of the investors of viewing not just the US economy but US markets
is exceptional, and that seemingly has disappeared. So in other words, you could say a loss of safe haven or diminishment diminishment of the safe haven aspects of the US market. But I would say what you've seen in the dollar is again a fundamental reassessment of the differential view of the US economy, and not in a favorable way, to say the least. Hey John added on to that last word. Here,
the degree of uncertainty about where policy is going. Since this has essentially been a policy driven upset, it remains pretty substantial.
Hey John, I think you and I and most of our listeners, most of our viewers, we grew up in a.
World where globalization was the story.
You had to do your time in Tokyo, you had to do your time in London. This is a global economy, global market.
Is that over?
Oh no, not at all. As you see, the rest of the world is still obviously has to take important account of what the world's largest economy is doing, especially since it seems intent on altering at the very least, if not disrupting, the institutional frameworks that were created largely with the support of the United States. The rest of the world is continuing to trade. In other words, for example, within Asia, the growth of interregional trade continues to outstrip
that of trade with the between regions. Especially in the US. Also, trade and services has continued to grow rapidly, and our trade policies that have caused so much upset have exclusively looked at trade in goods. But it's trades and services that forms part of the most interesting opportunity for the global economy.
John, I want to get this in. I think it's just too important. Your heart and soul is of Iowa. Your mother's public office in Iowa, ages Ago, I have family on the Mississippi River in western Illinois, et cetera. And the basic idea and I go back to Smaller's classic essay in the fifties of isolationism in America, and it comes from Iowa. It comes from the Midwest. When you and I were kids. It was led by the Chicago Tribune. I want you to speak to the new
breed of American isolationism. Now, how does that on the end? Now?
Yeah, Tom, It's an excellent question, and it's a puzzlement to me thinking, let's let's keep it with Iowa.
Iowa.
Iowa remains an agricultural state in the sense of its products, even though actually direct direct farming is a very now is a very very small part of the labor force.
But still US agricultural exports are an absolutely vital part of the Midwest farming and for Iowa, and for exact ample, the last time there was in Trump number one, when there was a big upset with agricultural trade with China, the administration ended up having to spend tens of billions of dollars in compensation, among others, to Iowa farmers for their lost income, and at the same time there has been.
When I was growing up, Tom, let's just say what you would call there very there weren't very many folks of color around. But today at my old high school, I think it's it's considered exceptional if the valedictorian is one of those those very talented Asian kids who have settled in the wake, especially in the wake of the
Vietnam War. And you can find in the construction industrial and let's see what's happening now and in the packing industry in Iowa a huge influx of Latin workers who are viewed as really very much multi the work, hard working folks. So it's and yet I was voted overwhelmingly for Trump, So it's as you would say, if call it isolationist seems jarring. But still it's certainly more nationalists and buying into the idea that the US has been taken advantage of by foreigners and by the elites.
Thank you so much. And just as one example there of the change of the Middle West is of course the wonderful Jim Young Kim, who was at Dartmouth College and then the World Bank, serving right when John Lipsky was serving as well. John Lipsky, thank you for extended comments today, remembering Paul Sweeney a few years ago.
Back to Brothers exactly as well.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay.
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Brian used a principal at Madison Wall. Brian, you're based in Portland, Oregon.
I have no idea why you were there. I love the town, but you're.
In New York.
I am Laura Martin, our good friend from Needham. She's in New York. Why are all you media mobiles in New York this week?
You don't like to hang out together?
And it's upfront? Oh that that yeah? Tell us what upfront is? And why do we even have an upfront season anymore? Tell us what upfront is?
Right? Well?
The upfront is this period of time where the world's largest advertisers and the largest sellers of advertising in the United States and TV in particular, come together. The TV network owners and YouTube and Amazon all do big song and dances I think Lady Gaga is going to be at YouTube's broadcast tomorrow.
Wow.
And yeah.
Basically they show what they're they've got planned for the next year and then and it's the time. Once they've done that, then everyone can forecast what they think audiences are going to be and then budgets basically start getting negotiated. That's what the whole upfront period is about.
Bring us up to date with your historic call that TV will not go away. Well, we're brilliant on that. What's a new view from Brian Weezer.
Well, it's a gradual erosion. I mean, I still think that the overall industry can grow the top line by let's say one percent. If you included streaming growth of call it ten percent, and you assume that subscription fees from PATV declines by call it six or seven percent, and ad revenue declines by call it three percent, the overall medium grows.
By about a percent. So it doesn't die.
It just evolves, and the profit margins might shrink, but it doesn't go away.
If I'm CBS and Tom, some of these after parties for these upfronts, legendary stories I cannot tell.
But that's what the NewYork Post is for exactly?
Talk to just about I mean, what are the networks where they allocant? Are they spending money on their CBS television network programming? Are they putting everything on streaming these days? Well?
I think that when you look at some of the networks like NBCU, it's kind of surprising, if not shocking, just the share of the content budget going to peacock versus going to the broadcast creative budget. Yeah, exactly, we're
we're paying for content other than sports. Now, sports rights continues to be heavily skewed towards broadcast networks and cable networks, and that's primarily because you can get people to pay for the services right to access it, and the leagues want the reret and the reach of broadcast.
Still. So if I go over to Michael's today for lunchare the calcald and all that they put me in the way back? And I'm back with the D class celebrities upfront? Are the fancy people you talk to leading the upfront charge? What are they talking about? Is it like one? They're talking about YouTube? What's the theme in the hallways? Here's the fun thing?
Even though YouTube may very well have the biggest single event this week, it's really not part of the upfront CAN conversation, which is kind of weird, right. They want to be part of those conversations. They might be bigger than NBCU and Disney and Paramount combined, but they're not really part of the overall TV budget process because most marketers don't think of them as TV yet.
See, that is so odd because that's where the I used to just say to people, wherever the eyeballs go, that's where ad.
Dollars will go.
And it's so slow, right, it's because it's different.
Though in the eyes of the typical marketer, mister Beast might be comparable, but mister Beast by himself, Beast by himself, mister beat is relatively small. And so because you're buying audiences, not programs, when it comes to YouTube, it's hard to wrap your head around what you're getting. That's part of the issue.
We're living this every day, folks, and we really treasure that you're on YouTube where there's good around the world, particularly in the Pacific. Rim evening, Good morning to your New York time on YouTube. Subscribe to Bloomberg Podcast if Brian Weezer saw our numbers, he'd be calling us exact beast exactly.
So, Brian, how are advertisers thinking about broadcast television and cable television today?
Yeah? Right now?
Well today as in what may something? Right, I think they're still freaking out. Notwithstanding the yesterday's press conference. I think that there's still a lot of concerns and uncertainty about what their budgets are going to be, and so I think there's gonna be a lot of reluctance to put down money. That's the first thing, right.
I think it's just general political economic issues.
Uncertainty is a real issue because it's already a challenge when you're making these commitments for a period from say October to September of the following year, when you don't even know what economic policy is going to be in about thirty days, let alone sixty nine and twenty. So I think that that uncertainty is the first top of mind thing, and that's going to be a huge feature of this upfront in terms of reluctance to commit without a lot of flexibility. So that's the first in top
of their mind. But digital platforms are even more important, right, So the TV budgets have a negative trajectory. Digital budgets continue to have a growing trajectory for large brands.
Like single digit growing.
I think this your single digit yeah, and I think that the double digits is the thing of the past.
I mentioned you're in Portland. From Portland up to Vancouver, is the new Hollywood maybe through the Toronto and the rest that mister President Trump, mister President went after a good morning, Marilyn Monroe, thanks for listening. But the bottom line is the future of Hollywood if they're exporting ever labor transaction outside California.
Yeah, Well, the smart thing if you're in the production business outside of the United States is to make sure you're doubling down your productions for outside of the United States.
The United States is as.
You guys follow as well as anywhere more pushing towards autarchy. I mean, the reality is that if you want to produce a content or any business or product for the United States, you, Kanye are going to need to have a US based operation. I think that Vancouver in particular where I'm from, and Toronto are heavily dependent on American productions, but if they focus on the rest of the world, huge opportunity.
So what do we doing today on the upfront? What's the party today today?
Disney is later today, so I'll be there.
And so where we want getting this ESPN app that's going to have everything we all want?
Yeah, well I don't coming.
I don't know the specific schedule. But I think that the sports specific apps really have a limited audience because the number of people who are willing to pay only for that product are going to be limited. That's why the whole concept of having like a bundle of services is.
A better business. Yest or charter, Oh no, would never pay for that.
When you were Sterling Draper, did you ever beat did you ever beat Yodah Holloway? Oh? No's that?
No?
Yeah, I certainly no.
I've said some I've got some people from that era.
Was that was that when they.
Sit they send the biggest Yeah?
Remember I replaced the guy started in nineteen forty eight. Yes, and it was Bob Cohen.
Bob Cohen, that's right. Bob Cohen was the definitive voice on Madison Avenue.
What happens to not West Point Peperol WPP.
I think that agencies generally are more likely twenty years from now you'll be able to recognize today's agencies in some form with a higher probability than meta will be around.
Okay, mark our words.
Mata is just heart probability.
Probability.
Yeah, don't be a stranger's thing. Can we get who should get live reporting from the upfronts? Joining the stem YEP upfront corresponding Brian, exactly right, very quit fun, Brian, thank you.
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