The Fed Weighs Tariffs & Taxes

Bloomberg Audio Studios, podcasts, radio news.

This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple car Player, Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.

Joining us down to get started.

She Wolston Holiday Dress interat how many parties do you have tonight?

Oh?

My goodness, do you like only one?

Only one?

Just one party?

Yes?

Yes, Joining us.

Rebecca Petis and iconic at JP Morgan of course, a tour of duty at Bridgewater as well.

You came in and you whispered to Paul.

You said, strong dollar.

How strong a dollar?

Well, a lot stronger than consensus has for next year. So most of the big investment banks are looking for weakness in the dollar, especially in the second half.

Of the year.

I don't see it.

You've got a divergence in interest rates, even though that's somewhat priced in, but it's going to favor the dollar. You have much stronger growth in the US, which I think will continue to bring capital to the US, which will help the dollar. And in a case where President elect Trump decides to go hardcore on the tariffs. We've seen historically that that tends to be a positive for

So I'm asking me for a friend here, could the euro get to parody?

I think the euro is likely to break through parody.

Now next year party, So there you go. I'm putting it out there, all right. I mean, for our friends that like to go to Rome in Paris, Lisa, that's a good thing. For those of us who stay in New Jersey, and that's so much of a thing, all right, talk to us about the equity markets. I've heard so much discussion over the past month or two of out international investors coming to the US market. Is is this activity unusual? Is it typical? What do you make of it?

I mean, the risk that I think a lot of people are pointing out is that the US equity market, relative to the rest of the world, has gotten very expensive and heavily owned by foreign investors, international investors and domestic investors, and so there are. It feels like a drum beat now of calls that the US is in a bubble. The US could slow down next year. We'll get money going overseas because the valuations are much better. And the thing I always come back to is valuations matter,

Given where we are, let's fuld the correlated mess.

I put out a tweet here we got d x Y through one oh seven. I got a ten year real yield out to two point zero three percent. To me, the single two sentences of the weekend was a guy named Sam Row, always suspect Sam Row channeling Liz Anne Saunders and Kevin Gordon and Charles Schwab on a beautiful scattered dot study that says it's not correlated. You can't take one year forward pe multiples like barons one on

That's a great question.

So it's to me, there's a chicken and egg situation here. Does the equity market drive the currency? Does the currency drive the equity market and pull in bonds too? They all influence each other, and often it's which one is dominant. We'll be driving which one is having the bigger move, the greater momentum. So you can see a big move in bonds if we have a big rise in the ten year yield that not purely driven by growth, that

Everything earlier there's a bubble.

I don't see a bubble bubble.

I did not say there's a bubble. I said there's a rugby morning.

I'm trying to wake people up there.

I want to be clear what I'm saying. The US market is expensive. If you look at a twelve month forward price earnings ratio, if you look at EPs growth priced in for next year for US stocks, if you look at ownership. But we know from history, to your point, Tom, that what happened this year has zero correlation with what happens next year. So the market could continue to rise if we have decent growth in the US and there

How About we had the election last month here, big change is coming starting in January of twenty twenty five here in US policy. Your outlook at all or your allocation or where you want to find risk in the marketplace.

Yeah, the one thing that I think investors should be really thinking about our scenarios because we simply don't know yet what President elect Trump and his administration are going to do in terms of sequencing and size. So when do tariffs happen and how big are they, what kind of deportation do we see? Those are big downside risks in my opinion for the equity market. I don't think they're being priced in right now, but we don't know, And so if you don't know what's going to happen,

Our viewers or listeners have a collective memory of President Trump railings a strong dollar. Everything you said is against a genetic structure of Donald Trump. He wants a week dollar to keep US exports going.

Are you suggesting that's done.

Trump has gotten a little more balanced in his currency comments over the last few months, and certainly the Treasury Secretary nominee Scott Bessant is also more balanced in terms of his view on the dollar. So if the dollar is very strong and we're seeing that hurt exporters in the data. Of course we're going to get some tweets or posts or whatever.

You know.

The president elect is into that day, but what can he actually do about it. I don't think we have a new Plaza accord or a mar Lago accord. I don't think that's in the cards.

Golf course in Scotland. He is turn Turny, a turnberrier. Everybody works killed. Yeah, I can see president elected killed.

Sure, talk to us about avocados.

Okay, so I have been Yes, we're talking about avocados.

So amazing.

Surveillance go.

So you think about risks in the next year. And one risk that I think is on people's radar screens but maybe not enough, is a resurgence of inflation. And one area I think you want to watch is food inflation. US farmers are struggling right now. They can't get enough workers. Uh and seventy percent of workers in US farming are immigrants, about half of those are illegal immigrants. If you reduce the workers, you can't get the crops out of the ground.

I saw it, but Paul helped me.

Here. We didn't know what avocado was until what fifteen years ago?

The guacam only the kids with the quaka, it was guak.

You know, if you want, that's a main three Americans. I mean, double the price of guac for super you will have angry voters.

See, I told you each avocado contains fifty eight milligrams of magnesium.

Sure, is there anything bad about avocados?

Lisa, Come on, Lisa, get with it.

It's a healthy fat. It's very good for you.

Avocados. Do you buy him by the bushel at costco?

We sure do, do you really?

I do?

I buy the big bag. They come a little bit hard, so you got to kind of put them in the cabinet to ripe off. Yeah, but that's the.

Way to do it. The budget deficits has widened. This is from your optioned from three point nine percent of gross domestic product in twenty eighteen to six point four percent today, suggesting that maybe the US government will not have the same capability to support farmers in such a scenario.

I mean they're going to feel pressure to do that, for sure. Farms are all across the country, our amber waves of grain, right, so they're going to be pressure. But are they going to find the money? It's going to be harder to find the money this time. Is Elon going to let them have the money?

Right?

Where's the best avocado restaurant in New York City? Oh? Massive craving word?

Okay, Rosa Mexicano tabletop guacamole. They come and make it in front of you and you can customize it. That's still my go to.

Yep, very good.

See I'm now I'm now in holiday mode. You just officially got me there.

Becky Patterson, thank you so much for joining us.

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern. Listen on Apple car Play and Android Auto with a Bloomberg Business app, or watch us live on YouTube.

Henrietta Trace joins us right now with Veda Partners.

She's just been absolutely famous, Henriette, there is really only one question. Are there Are there Republican senators that are going to push against their president? There was confusion over the weekend.

I think there's a lot of things to push back against incoming President Trump over you know, some of the nominees that he's picked, whether it's tanksas or RFK Junior. You're starting to see it in individual little baskets. We're dealing with the government funding bill that has not been released yet because it continues and increases federal spending and creates a problem with you know, eighty to one hundred

So let's go to that issue here. I'm always when you people talk about funding the government and shutdowns. It kind of gets my attention here. Just walk us through the timeline about what our Congress is going to be doing over the next several weeks as it relates to keeping this government open.

Yeah, great question.

Right now, they're going to vote on a National Defense Authorization Act, which increases federal spending for that sector by one percent to eight hundred and eighty four billion dollars. If I'm not mistaken, it includes you know, fourteen percent uptick for a junior enlisted serviceman.

And that's the package that they'll pass this.

Week while we wait to release the government funding bill, which will similarly increase federal spending by one hundred billion dollars roughly just to get us into March. So we're kind of trying to clear the decks, but they're not clearing it for any kind.

Of long duration.

It's just until about March fourteenth of twenty twenty five, which means almost as soon as we pass this hurdle to keep the government open, we're going to be facing another shutdown early next year, which very likely could.

Get in the way of the Republican agenda.

Around this first smaller Reconciliation Bill on Immigration, Defense and the Order, and that's going to be the story of next to its starts.

Well to the mystery of what Senator is going to do with the different controversial cabinet picks. Is the tea party ish type of the House going to go against their president on March fourteenth?

You know? I think this is the real issue that we have, which is Speaker Johnson has a zero vote margin until April when he's going to have a whopping to vote margin.

So House Republicans lost seats.

Last election cycle, which is something that doesn't get I think reported enough, and that's going to be even more difficult for Speaker Johnson to keep the job and to keep the government open into next year. To answer your question directly, absolutely, I think that the Republicans in the next cr will probably lose one hundred and fifty House Republican members when they go to keep the government open under President Trump in twenty twenty five.

All right, So I don't know how that wow, how that's going to play out, Henriette, I talked to us. I guess maybe a little bit more immediate in acounter is some of these nominations that still have to go through congressional approval.

Where are we with.

Some of the mister heg Seth, Tulca Gabbart, some of the more controversial ones. What do we know now?

I mean, right now we're doing effectively a pretty serious media lobbying campaign.

With hag Seth standing next to J. D.

Dance and President Elect Trump at an Army Navy game, you know, obviously trying to project physically that they are all aligned and on board, and encouraging members of the Senate Republican Conference to get on board with passing those members. I think what's going to happen is we're going to see some of these folks get a full core press and President Trump put his weight behind it and say pass this, give me this nominee.

But others A'llah.

Telsea Gabbard, for example, are going to have a much more difficult time.

I keep my eye on the prize.

Obviously, I cover bacroeconomic policy, so I don't really care about some of those agencies.

I really want to see Scott Bessett of the World, Damson Greer at USDR.

Those are much more important to me, and I think those folks are very likely to get through those are the ones who will we put in tyreso on next year?

I think that's the prize.

And now, folks, the civics dumb question of the week, Let's get it out of the way early here on a Monday, Henrietta Trace with.

A senator's vote.

Are their votes visible or are they liked by a ballot box with their secret? Oh?

No, absolutely visible. You can watch this all on c SPAN. It's a great family fun. Highly recommend this.

Debt ceiling. She's such a nerve, I know, dead ceiling death. It's I mean, we've got the clock here in Manhattan. It shows us the deficits. And does anybody care in Washington, DC?

Should they care?

Oh?

They talked about caring.

For sure. Everybody's against deficits, that's for sure. But you're not against specific spending cuts. Excuse me, you're not for specific spending cuts. It's much easier to be against things than for them. So while we talk about, you know, being against federal spending, let's be mindful that we have

How about on the tax front here, how do we think this is going to play out on the tax front?

I think it's clear from incoming Leader Foons agenda that we will not get a tax bill until December of.

Twenty twenty five. We are only to have the massive.

Light over you know, the salt deduction, over repealing the IRA tax credits for burgeoning industries and clean energy solar, wind batteries, et cetera. It's popular to say that we're going to repeal the electric vehicles tax credit, for example, but that's about one hundred and twenty billion dollars in the broader IRA, which has balloomed, as you know, from a bill that they expected to be about two hundred billion dollars in private sector uptake to seven hundred and

You know what's interesting here, Henrietta, and I've got to squeeze this in the salt tax it's called, is a stereotype that is just about democratic states? Or can mister Trump get pressure on the assault tax from Republican states?

You know, that's a great question. As you know, I live down here in Louisiana.

There are beautiful, nice streets down here where people are paying exorbitant property taxes and mortgages.

That's in Texas, that's in every state in our great nation. There's big homes that people want this deduction for.

So I think a lot of it weighs on the New York, New Jersey, Connecticut, California Republican contingent. And the reason that's easy is because those are sheets that president like Trump and the Republican Party have picked up in the last ten years, and so they really highlight those members, and frankly, those members are on the hook for fixing this for their constituents.

That's that they got a lot to Henrietta Trace, thank you so much for your perspective. Can't say now from Louisiana today, which is wonderful. She is with Veda Partners. Every time she's on. I learned stuff I know every single time.

It's just great.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Our Play in Android Auto with a Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.

This is a joy and for me and Paul and Lisa and Charlie Pellett, this could literally be a three hour conversation. We all fly, our loved ones fly. Stephen Trent is definitive. It's City group on this. You know, it's not American Airlines research. It's all of American research. Thrilled to have you in the studio. Way too short of visit which let's just get the single best buy. Is it a foreign carrier or a domestic carrier?

Well, thank you so much for having me on and good morning to you. So in terms of the carriers we like the most in the United States, it's going to be Delta Airlines is our top pick. We do have American Airlines with a by rating and our focus group on a long term basis. However, within the America's Panama's COPA Airlines, we think is dynamite.

Copa Airlines out of Panama. What's what's the place. I know you have a lot of experience covering the transports down in Latin America. Give us just kind of the macro call, because we don't talk about it a lot. How do you how do we think about it from a thirty thousand foot level Latin America transportation?

Yeah, absolutely, So when we look at, for example, the market there versus the market here, I think there are a couple of things I would keep in mind. One of the most important things is the lack of capacity on a per capita basis, so you have relative to the United States, lower employments per capita. The other thing I would layer on top of that, Latin America Airlines, for the most part, of course, generate revenue in local currency and faced US dollar indexed seat mile cost, so

Are they like US and that they have mileage programs and all the other accouturements of US airlines or are they like something back twenty or thirty years or they're just trying to get to the end of the quarter.

Yeah, they're actually somewhat like the US.

Ones, and they are more unbundled than what we have here in the United States. So a full blown Delta Airlines, for example, is sort of would be sort of an anomaly in many Latin markets.

Ours Delta and United and the others competing with government funded international air carriers like Air France, Cutter, Eddiot and the others buying Formula one billboards.

Yeah, that's kind of a tough place, and that has been sort of controversial at points in the past. So you would be concerned about those issues on the Transatlantic for example.

But here in the.

United States, the model is very good. The airlines here have de risked their earning stream through co branded card loyalty programs and the US consumer itself. The demand we see for premium cabin is very good. So I've seen big improvements in earnings quality.

How about some of the budget airlines here, that's a tough business in this country. I'm thinking Spirit and Frontier and all these things. What's going on in that? How do you run a budget airline these days?

You know it's tough. I think it's very difficult. And what do you see with the budget airlines today?

They're all trying to add premium and so when we look at this movement to just the front of the cabin, are they going to imp prove unit revenues on that?

Yes, they probably will.

But if you're a network airline, you're already a unit revenue champion with a strong demand curve. If you're a budget airline, historically, I've never been good at unit revenue. You want to delate the heck out of your seat maul cost and you can't do that.

So Stephen Trent helped me here.

Like Robert Crandall was a huge supporter of what I was doing, and it was such a joy to have him and missus Crandall from Florida.

He changed what we do. But is it still cyclical.

I'm looking at the ten year track record of Delta Airlines, maybe had some challenges like a pandemic, and I'm sorry it's not good enough total return. Is there a new persistency to cash flow where they're acting like a blue chip stock or is in another up and down airline cardiac.

Arrest with these air with these stocks?

Yeah, Look so I think relative to two thousand and nine to now, for example, there's a lot that's changed. The U stairlines, for example, do very little synthetic fuel hatching, which I would argue is part of the problem. More importantly, however, the co branded card piece of the pie is really important. So they're getting cash flow streams from consumers using their credit cards.

Is that more important than Paul sitting on the runway at Newark?

Okay, well that's that's the challenge to Newark has had.

His is use.

Yeah, but trumal A is good though. Boy they did a good job there.

It's short, it's sure, is so?

What all right?

So is the business flyer?

I know that the leisure flyers back and above pre pandemic levels. Some about the business flyer, what's the new normal? What are the Airlines telling me is a new normal for business travel.

Yeah, so I think we're like going back to where.

We were in terms of these those distribution channels kind of getting filled out again. Uh but pre pandemic business travel, are we going all the way back?

I would say no.

And that's because in a lot of industries you no longer have the consumer in the office five days a week. So I'm not saying that the flyout Sunday night, fly home Thursday night is gone, but I think it's at least somewhat diminished. And you've seen some of that flow going towards blended travel. People traveling, and you know these pre pandemic shoulder.

Periods single best buys delta right.

Yes, for the US quickly, How are.

Their lounges doing because I can't get into it.

Well, I think those full lounges are a darn good sign of demand.

So that's going very well. And the other.

Equipment and infrastructure they have set up for premium it's great.

I think American Airlines is.

Just getting started with co branded cart so those are the network carriers.

I think I get thirty seconds. What's Kirby doing at United?

I'm a fan of United as well. I think they're doing great. We had them on our focus list. That was some very good performance on the backped So we continue to think free cash flow for these network airlines is still spooling up, and the diversity of the free cash flow is no longer coming from just passengers buying tickets.

It's coming from co branded cart.

Up one hundred and thirty percent this year. Steve was pre in a year.

Yeah you know, did you always said spooling cares You have to go to talk to say that.

You can only do that if you go to talk up at dark Stephen Trent, don't be a stranger. Thank you so much.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.

Bloomberg Surveillance end Our front page is a Lisa Matteo hours. What do you got, Lisa?

Some new Apple tech that's going to be coming out. This is from the Wall Street Journal in Bloomberg Both I'm reporting starting next year, they're gonna introduce an iPhone that's thinner, so in case you have the one, you have it, it'll be a little bit thinner. It's intended to be cheaper than the pro models, So that's a bonus because it's going to have this simplified camera system and that's reducing their costs. On top of that, foldable

Back that's not that's not very nice.

But no parents use it to on their kids, like on their backpacks and stuff. So it's being used a lot.

Okay, have foldable phone to be.

No, well, not a lot of adults are using it, but it's it's the new like that's the new hot thing. So now they have to adjust to the times, and you know, they have to find a tech gadget that's similar to it, Apple New Tech. So you've heard about the problems with school districts cutting back on bus service, right, So now parents are turning to ride share apps to get their kids to school. This was in the Associated Press. It's interesting. It's not Uber and Lyft that we're talking about.

Somehow.

Buses we do not.

No, no, no, no, we do not in my town. But presumably for the elementary schools you lived close by, they all over tency look close by, you could walk, that's fine. Then the middle school and the high school not so much. So you drive by the high school at pickup time, it's a disaster. As all these parents are they are lined up. I'm like, where are the buses?

Yeah right, yeah no, but that's a problem. So now they're going to these apps. I mean, the question is is it safe so they can claim to like screen the drivers, check their fingerprints, things like that.

I'll be here in the suburbs, you know, folks. Suburbs for me are thirty fourth Street. In the suburbs, you don't have a lot of ubers. I mean, if you have.

A given a high school getting out, they're just flat out not enough cars.

And that's why they're they're starting these new startups, these startup apps. Some of them. My kids just walked, They just just fucked walked a long way.

Maybe bad weather, we go pick them up.

Yeah, I remember going through two feet of snow. You know, no, but you know it was it was like normal that everybody did that. Now they got to be you know what, you got me a black car and not an suv.

God.

Okay, So if you're not the life of the party, you know, if maybe you're a dull person, definitely not, Sweetey. There was a social club just for those type of people. It is called the Dull Men's Club. The Washington Post has a great article kind of looking into it that it started back in nineteen eighty eight, but how it's grown like it's it's now includes women. It has like one and a half million members about posting about their

Okay?

So they collect milk bottles, so they write about that, They take out their trash, what kind of potholes they've seen, what food they've ate. You know, it's the happening place. They even have a calendar that they put out with pictures of their members. Next two things that they have fun doing. It's a hot seller. It's a hot item.

Einstein here saying a calm and modest life instead of constant restlessness, like going to see the eagles at the sphere. She did, I'm a charter member, right you we live vicariously.

Three sweetie, okay, last one. Stick with Hollywood. They're starting to embrace Saudi Arabia. This was in screen time. I'm still kind of going through it. But Lucashaw basically Earlier this month, he went to Jetta for the Red Sea Film Festival. Of course, yes he did. Vin Diesel, Emily Blunt received awards Spike Lee. Many drivers serve on the jury.

There's of course, read Lucas the moment it comes out and there's some Hollywood pushback.

Of course, like do we really want to do this?

Correct?

At the end of the day, money that's what it comes down, exactly, think and it's Hollywood. So I mean it's Hollywood.

Had Johnny Depp, guy Ritchie like they've you know, shot projects there and they say they're going to go.

So Johnny Depp is back, right, you see, backed up making movies and stuff like Johnny Depp.

Okay. Brought to you by Aaron Taylor Johnson, Thank you so much. Craving the Hunter seat in the theaters this week, only only you, Lisa.

Yeah, did you see pictures of this gentleman?

No, let me, what's gonna go? Go to his name?

Aaron Taylor Johnson, Aaron are go ahead.

Right, craving Lisa Matteo on the 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 Eastern 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