Surveillance: Unresolved Issues with Musk (Podcast)

the Elon Musk. The Tesla CEO talked about the quote unquote unresolved matters in his pursuit of Twitter Must spoke with The Bloomberg's editor in chief, John Micklethwaite from the Cutter Economic Form in Doha, powered by Bloomberg. They're still, um a few unresolved matters you've you've probably read about the questions who have the number of fake and spam users on the system is less than five cent, as Twitter claims, which I think is probably not most people's

experience on when using Twitter. Um So we're still a waiting resolution on that matter. Um and that that is a very significant matter. Um So we're waiting resolution on that UM. And then of course there is the question of will the dead portion of the round come together? And then will the shareholders vote in favor? So I think those are the three things that UM standard the you know, if that needs to be resolved before the transaction can complete. What about the general state of the economy?

Does that weigh on you when you think about this? I mean, you just described it. You have a super bad feeling about the economy. Are you still in that position? I just said to you earlier Joe Biden has just come out and said that a recession in America is not inevitable. How do you feel about the economy? I think recessionally is inevitable at some point. As to whether there is a reception in the near term, I think that is more likely than not. Certainly isn't. It's not

a certainty, but it appears more likely than not. And what do you think? I'm I'm I'm with you. I agree with you, and I think it's more likely. Can I ask you one particular thing to do with the Twitter bid, which is you know you are one of the biggest and fastest growing investors in China. Tesla. You've talked about it being a third of your sales going forward. You're not buying Twitter the kind of public forum for free speech. The Chinese historically don't tend to be very

enthusiastic about free speech. Are you worried about whether you can keep those two particular horses running? Is buying Twitter going to get you in trouble with the needs? Twitter does not operate in China, so um, And I think China does not attempt to interview interfere with the free speech of the of the press in the US as far as I know, because I assume you're not under pressure to ed Bloomberg to uh from China, So I think there's UM. I don't think it's gonna be an issue.

And in terms generally of that issue of freedom of speech and Twitter, you've talked about Twitter being making even freer and letting more people onto it. Is there a limit at all to to who you think should be allowed onto Twitter? My aspiration for Twitter, or in general, for the digital town square, would be that it is as inclusive in the broader sense of the word as possible.

Um that it is. It is appealing a system to use. UM. So I mean, ideally i'd like to get like of uh, that's in North America and perhaps I don't know half the world or something ultimately on on Twitter in one form or another. And that needs what that means. It must be something that is appealing to people. It obviously cannot be a place where they feel uncomfortable or harassed,

um or they'll simply not use it all right. That was Tesla Ceo Elon Musk sitting down with Bloomberg's editor in chief John michelth Waite from the Cutter Economic Form in Doha, powered by Bloomberg. We're gonna rip up the script here with Prusia shrim she's US economist at Barclays, but obviously with department from LS is always dollar in foreign exchange based is a litmus paper of the system.

Let's go from weekend out to strong dollar. How does a resilient dollar or strong dollar change the degrees of freedom that Jerome Powell has well, thanks for having me, Tom. A strong dollar is definitely something that is favorable for import prices. Um. It's it should help in the long term to try and relieve some pressure at least from important inflation. So the President Trump would say, we need to bring the dollar down to spur exports. We haven't

heard that from President By at least so far. I mean, give me the exports side of that discussion. Well, um, it's it's true that a stronger dollar would be um slightly unfavorable for net exports, But I think the focus right now is on taming inflation pressure. So from that point of view, we think a stronger dollar absolutely absolutely. But put going to yet your Danny's point, there is no vulcer. They're not going to raise rates into a recession.

They don't want to trigger a recession. Is that an accurate characterization and of what you expect from the central bank? Well, absolutely, I think no central bank wants to engineer the recession. But from what we saw in their summary of economic projections, from what we heard from Chair Powell, I think they are acutely aware that there is likely to be some pain to the economy if they wish to bring price

pressures under control. And I think what they showed us through the seventy five basis point rate hike in the June f O m C and what their hawkish dot plot shows us is they're willing to sort of push the limit a little over here to try and and

get expeditiously to neutral. Uh. And even if that comes at the cost of slightly lower growth and slightly more unemployment, I think that's a chance that they're willing to take at this point in all right, So if you go there to the dark plot and the projections, we have to also go to what some people have called fantasy land, this idea of unemployment remaining fairly muted into the future, even though we do have this hark ish shelt What

is the breaking point for the reserve for policymakers more broadly in terms of the unemployment rate at a time when you've got the likes of Larry Summers projecting five percent unemployment for five years needed to bring inflation down. Yeah, it's it's I think they are in a tough spot. Um that the trade off between you know, achieving price stability as well as full employment that's becoming increasingly challenging. Um.

And I think we are in a tough inflation environment. UM. I do agree to your point that, you know, the projections that they've laid out in in their summary over there do seem a little optimistic. You know, some might call it a Rosie picture. UM, aspirational even UM. But I think what the FED is likely to look at going forward is how the data evolves. And you know, that's the message that check Powell has given us multiple times. So I think that's going to be their focus as

of now. Well, what data will they be looking at between now in July when they're deciding between fifty and seventy five? Yeah, so we get a whole host of data points in fact, but we now and July. But I would say top of the list would definitely be in the June um CPI inflation print. UM. They will you know, see signs of whether inflation pressures continue to accelerate UM, you know, across core categories, particularly UM, the University of Michigan's Inflation Expectations print is going to be

another important indicator that they will look at. And then of course we have the employment report that comes in at the beginning of the month, and you know, outside of that, I think they will also continue to look at some of how, you know, some of the other data points in terms of how retail sales evolve, what's happening to housing. For example, we get a bunch of home sales data UM, and you know, we're getting the sense that housing is beginning to feel the pinch of

title financial conditions. So I think it's going to be a whole set of these data points that they will keep an eye on UM and you know that's what they like you deliberate on before making their policy decisions. So focusing on the inflation expectations data point in particular, because Power sided that directly in the REST conference last week, saying we saw that University of Michigan number, and that is partly why we decided to move seventy five basis points,

not wait six weeks to do so. And we heard Jim Bullard of the St. Louis Bed over the weekend talking about the risk of inflation expectations running away, getting out of control. How large of a credibility problem does this Federal Reserve have right now? And what is the

likelihood you place around something like that happening. Well, I think credibility was um, you know, probably an issue that they were concerned about going into the June f O m C meeting, and I think that's the reason why they did such a statement hike, and you know, they did that hawkish shift to their dot plot. But you know. Having done that, I think to some extent they have been successful in sort of reinstate incredibility around UM, their price stability mandate UM as if now, um, you know,

inflation expectations still look reasonably well anchored. Yes, the move up in the University of Michigan print was a cause for concern UM, but right now that doesn't seem to be running away. This is critical. I mean, July Barklay says there's a reluctance to do seventy five weeks back to back that put you in a you know, a less hawkish camp. I guess that's how I put it, not so much dervish camp. How close are they to

their comfortable neutrality? Not some fancy tailor rule or statistical ballet, but how I mean, if it's nonlinear, how close are they to the point where they're aware it's nonlinear and there's a huge impact. Is it now? Is it the fall? Is it next year? UM? I think they they're getting there. They're getting there, They're getting they're getting there close to

their estimate of the neutral rate. And like you said, we are slightly below consensus, and that we are calling, you know, for a fifty basis point hike in in July, and we think right now we are seeing signs that

type of financial conditions are lightly weighing on economic activity already. Um, we think that these signs are, like you, to intensify as we get into the July meeting, and um, you know, the Fed is likely to conclude that policy is possibly inching into restrictive territory already at least Simon remiss on this. I'm sorry, folks. The Bloomberg Financial Conditions Index, which is really really a good series, thank you Michael Rosenberg and team,

is one standard deviation down today. It's a negative one point zero six at Lisa, which is Germain. To the Barclays point, things are tightening, and you see that mortgage rates exemplified. They're probably more than anywhere else at six percent. Putcha, how much buying power does the consumers still have? One of the biggest questions has really been the power of the consumer. And we've heard about how they are so strong and their balance sheets are terrific. Are they really

that good right now? Um? Well, to the to your point, yes, houshold balance sheets still look reasonably you know, healthy. We still estimate that excess savings that they accumulated over the course of the pandemic are still about two and a half trillion dollars um. But we are seeing signs that consumers are likely pulling back on spending. We think the momentum and consumption spending is slowing. We see that in

the retail sales data. For example, we track some high frequency credit card data, and we we've seen signs that you know, slow spending has slowed across goods and services. And then you know, to your point, the savings rate has also dropped well below um pre pandemic levels. So you know, even despite the fact that they do have you know, decent balance sheets to rely on, it looks like they are becoming a little hesitant about spending. And I think eroding purchasing power is a key concern among

consumers right now. Thank you so much for joining us today Pussia, Assam. Where this with Barclays and now our conversation of the day on your fear of recession Edward year Danny joins us his president, Your Danny research for far more than that, decades of experience and the ebbs and flows of the American economic experiment, and we just saw Carlos Good of the areas. Kellogg's say, enough, we're thrown in a towel. We're breaking up underperformer in Battle Creek, Michigan.

In recession, in the gloom of recession? Ad isn't the rule always corporations adjust? Well? I think everybody adjusts in a recession. And uh, what what's interesting is if we are in a recession or we're going to have an imminent recession. As you know, Tom, this is probably the most anticipated recession of all times, which in my mind makes it either less likely or if it does occur, it's going to be a fairly short and uh and shallow recession, which is kind of where I'm leaning towards

at this point. I don't think a recession is yet inevitable. I've got subjective probability of a recession happening over the next eighteen months. But I've been raising that assessment as as everybody else hasn't been. And let's go through some of the components, starting with gas, and with five dollars a gallon gas, Let's say it goes down a little bit but stays around here. At what point is that the trigger in and of itself in terms of how

much it really crimps consumer spending. Well, you know, it's it's a tricky situation. When you look at UH spending by all households, it's about four or five percent of all households budgets relative to personal income. However, when you look at it on a per household basis, we were spending about hundred dollars a month on average per household about a year ago, and now we're up to about five thousand dollars per month. And I should say that's at an annual rate. It's not per month. It's at

an annual rate. In other words, at the price of five dollars UH. If it just stays here, we'll be spending five thousand dollars on average per household, and that hurts especially lower income households. Now, some of them have had some pretty substantial wage increases, but unfortunately they've seen that they've had to give the mold back at the

grocery store and filling up with gasoline. So the gasoline situation is definitely an issue, and it's as you mentioned before, it's really one of the main reasons that the consumer sentiment index has taken a dive to an all time record low, especially the expectations component. So consumers are depressed, and they're depressed about inflation generally and gasoline prices and

grocery prices specifically. And I'm wondering how that is going to translate into corporate earnings because as we talk about a consumer faced with higher prices at the gas pump, at the grocery store, they're spending less on certain discretionary items. We've seen that with the warnings out of the likes of Target. How much broader will that extend at as we approach the second quarter earning season. Well, that's a

good news and bad news situation. The bad news is that some of these retailers are getting stuck with lots of inventories of consumer discretionary categories. And the good news is that they're going to have to clear those inventories by cutting price is And as you know, one of the most significant components of inflation over the past year has been consumer durable goods inflation, and that's gonna come down, especially all the housing related items. So um, it's contributing

to a slower economy. On the other hand, it's going to probably mean that the inflation news is going to be somewhat better than expected over the rest of the year. And you're Denny, given twenty eight flavors of recession, is your study of history that all central banks remained data dependent or do they throw in the tunnel and blink at some point? Well, I don't see if Paul Bulker out there, let me let me start out with the extreme.

I mean, you know, back in the late seventies early eighties, Paul Workers said, you know, thank it, I gotta I gotta bring inflation down. The only way that's going to happen. So if I let interest rates go up to whatever level it takes to cause a recession and bring inflation down, and history does show it's certainly a u s. History shows that the most effective way to bring inflation down is to have a recession. A really hard procession will do it, for sure. I don't think the central banks

want to go there. They've spent the past couple of years trying to get their labor markets protected from the pandemic. They don't want to suddenly completely reverse that around. So I don't think we're gonna see these central banks uh uh tighten in a way that causes the kind of procession in the seventies. But they are tightening, There's no doubt about that. And the fact of the matter is the financial markets have tightened even more so. Critic conditions

are slowing the global economy down. And I think we're gonna see a peak in commodity prices here pretty shortly. And your Jenny, thank you so much, greatly appreciate it. With some real tangible optimism there you're journey at research. This warning to Kevin booked with this managing director Clearview Energy Partners, and Kevin, I want to link in here weaker yen in the import ramifications of Japan and others, which is the researcher over the weekend on what Russia

is doing with their hydrocarbons. They're moving it to India, they are moving it through the Straits of Malacca, up the Pacific rim to other places, maybe to Japan. I'm not going to speak for that, to China whatever. What part of the Russian oil movement has year attention with clear View Energy's global perspective Morning Tom First and foremost the amount that China is buying. It's that strong alliance between China and Russia that really shelters the Russian barrel

right now. India notable for its growth, but China for its volume. Second is that the products don't necessarily have the same home. Those are big refining destinations, China and India. So take crude. They're fine, but they've got products they've made of their own, and so they don't need as much of the refined product that just just disappears if

it can't find a market. Kevin, I want to ask you all these sophisticated questions, but really I just want to know how high gas prices can potentially go in the United States given some of the calls at a JP Morgan and the like for six dollars a gallon gasoline? Look, did you think we were going to be at five right now? I think a lot of people are revising their expectations. Were one hurricane or one major refinery outage away from a significant uptick on its own. With that,

we have crude structurally aiming higher. If you see real insurance sanctions going to force, I don't know how price caps are gonna work just yet, A little skeptical that even works in the end. Uh And so the sanctions that you have put in place threatened to squeeze crude even a bit more before the year ends. And so now you've got crude going up, you've got risks to the refining side. Six dollars is not unreasonable. So what's

the what's the pressure reliever here? Given that we've heard about taxes and removing certain gas taxes that that probably won't do anything. If anything, it will actually cause prices to go higher because it will increase demand or allow demand to keep climbing. What do you see as a policy prescription to cap prices where they are send them lower. Well, you just had a guest who prescribed for action. I suppose nothing solve side prices like high prices, except also

slow growth. But the administration is looking at options that are really at the sort of the dwindling end of the options set. They've already drawn the spr they've already considered products reserves, which aren't very big. Now they're looking at things like product export limitations, not necessarily outright bands,

but caps keeping products home that could have deliterious consequences. Yes, a gasoline price ghastly tax holiday, but as you suggested, that could induced demand or at least preserve it and Ultimately, the things that could put an immediate relief in price or sort of outside of the administration's environmental comfort zone. So things like waving air quality standards for for vapor pressure. That doesn't look like something they're going to do well.

To that point, this is an administration that came into office with a climate agenda that has been trying to lead a global charge toward de carbonization and cleaner energy. If you're leading an oil company, why would you invest in more refineries or ramping up your production capacity knowing that at the end of the day people want to phase out fossil fuels. Yeah, drill today, disappear tomorrow is

not an investment thesis. One last fossil bender before America goes green and sober is not going to convince capital discipline to loosen. It is really a difficult proposition to talk about transition and also ramping at the same time. Well, Kevin, are you predicting six dollars a gallon gas? I mean, can I narrow it down to that? Lisa, I'm asking for a friend. Lisa wants to know we don't predict prices that clearly we predict directions. Then we've got room

to the upside. That's his way of saying, probably I think you said. Okay, Kevin, thank you so much, greatly appreciate it. As he predicts were all going to be driving VW diesels here within weeks. He's with clear View Energy Partners. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten a m. Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best

in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene, and this is Bloomberg