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And re sheats with Us Now with Morgan Stanley. Were thrilled that he could be with us today. Andrew, the first thing I did in honor of your Brown University of Mathematics is I took course EPI this series, not the year over your month of a month the series, and I don't have a first or second derivative convexity towards disinflation. Does Morgan Stanley see disinflation in place or can you not say that after the report?
Yeah, so we do see disinflation in place, although you know not yet. Inflation is still holding up through the end of the year. Where we, I think are a little bit more optimistic on inflation than the consensus is next year where we see inflation coming down, and I think importantly it's really coming down in the first half of the year, where for the incoming Trump administration, we think it's going to be a case where policy has
kind of fast announcement but slow implementation. You don't get the inflationary effects of tariffs of immigration changes until kind of in the back half of twenty twenty five and
in the first part of the year. We think that a lot of the inflation which is being driven by shelter auto insurance, that that can come down, That those series are running kind of well ahead of where the real economy markets for those are, and that some of the difficult seasonality in January and February, which previously has boosted inflation, we think that actually sets an attractive bar that might make it a little bit easier for inflation to be a little bit better than expected. So we
do see inflation coming down. We see that disinflation the first half of the year, and we think that will mean that the FED cuts not just this month but in January as well.
Is that so get a sense there, Andrew, where out there are you suggesting your clients really think about adding some risk, if anywhere, as a thing about twenty twenty five.
Yeah, So I think as a house, I think we are more optimistic than consensus on duration. We think that vond yields will fall. We think that that fall will be concentrated in the first half of the year, as the FED ends up cutting a little bit more than expected, as inflation falls a little bit more than expected, and as I think some of again, some of the inflationary impacts of policy change take longer than expected to develop.
And you know, I think an important part that our interest rate strategists have been talking about, but it also applies to credit, is you know, fixed income markets have been operating under this very difficult environment of a very flat or inverted yield curve. There's been very little carry in the asset class. If the FED continues to cut as we expect, if the ECB continues to cut as we expect, we think the European Central Bank will take policy rates down to just one percent by the end
of next year. That's going to provide I think, a much better carry environment for fixed income and be support of adoration credit risk.
How much credit risk are you suggesting folks take here these days, given that the two year treasuries at four point one.
So I think credit's also a story. I think of a little bit a better first half and then maybe a more challenging second half. So spreads are low you know, I don't think this is a case where ourselves are really any credit investor is loading up on a large amount of credit risk. But it's also one where I think you have to be kind of careful about timing that short or timing that underweight.
The credit.
We think can remain somewhat tighter for longer than the markets expecting. So we're expecting US credit spreads, European credit spreads to actually be a little bit tighter by the middle of next year and then maybe have a more difficult second half.
Andrew, just your one final question here. It's too short a visit today. We want to get you on for much longer chat as well. You're sitting over the holidays and you've got family members going Andrew, we don't understand your world. But as capitalism is finance in place, is this a normal time?
Well, I think what we are looking at is is a much wider range of outcomes looking ahead. And I think the new incoming administration increases the odds of boom and a larger capital market rebound, and it increases the odds of stagflation, of weaker growth and higher inflation. If you look at Morgan Stanley's Economic Outlook, our strategy outlook, which we published a couple of weeks ago. You'll see that in our forecast. You'll see that in our numbers.
You'll see that in this wider range of outcomes. So I think we are moving from a very moderate outcome which was outstanding for credit and good for the equity market as well, to something that's a lot less moderate, and it might not be bad, it might be good, but it's a wider range of outcomes that we're dealing with.
Just short of visit Andersy's Thank you so much. We'll do it again, Morgan Stanley.
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.
When you get a new office at Stanford University, yeah, you know, it's like you live in here.
I mean it's like gorgeous.
Out there, I know, perfect.
Her public service to this nation has been extraordinary. We're gonna squeeze in a couple of minutes here. She has just served secretary of Ramando at Commerce, but far more before that, she served all of us with absolutely definitive coverage of China. Her Third Revolution is a definitive cover to cover. Read on President she Elizabeth Economy now at Stanford University, doctor Economy, Thank you so much for joining Bloomberg Surveillance. What is our intelligence on Beijing is a
general sense. Do we know what's going on with the Chinese leader ship?
I think we have a reasonably good idea of where she Jinping wants to take the country. If you're asking, do we have a good visibility into the inner workings of the Standing Committee of the Polipio, the top seven people that rule the country, I have to say the answer is probably not at this point. But I think we have a fairly clear sense both in terms of what China's doing at home and its foreign policies about overall directionally where She Didn't Ping wants to take the country.
How is their military projection?
I mean from the budget standpoint, we can talk about deflation in China and the capitalism or non capitalism of China.
But the fear, the arch fear across all including the South China Sea. Is there military projection? Are they funding? Are they a defense? Are they an offense juggernaut. Oh absolutely.
I mean they have the largest military in the world there maybe is now larger than in ours. You can see with the activity that they've been undertaking over the past six months, you know, sort of accelerated military activity in the Taiwan straight in the South China Sea, very aggressive, and I think this is all part of one of Chijinping's major sort of directives is really to reclaim the
territory that he considers to be Chinese sovereign territory. And so I think they use any excuse they can to sort of do these military exercises, I think in the hopes basically to coerce other countries and Taiwan just to accede to Chinese demands. That hasn't happened yet, but I
think that really is the intention. So there's been no letup despite the challenges in the Chinese economy, There's been no letup in terms of their spending on defense, in terms of the overall trajectory of their military and their desire to be able to project force and meaningful ways.
Doctor economy, What do you believe the Chinese view is of President elected Trump here?
So I think, look there as many views in China about President Trump as there are in the United States. I think there are people who welcome President Trump for a range of reasons. There are people who are kind of you know, maga Chinese who like the President's views around values, or at least the views that were expressed
during the campaign around values. There are people who think that President Trump is going to be good for China because he's going to hold the United States, you know, back out of a number of international institutions, things like the World Health Organization or the Paris Climate Accords and leave a lot of space for China to assert its
leadership on the global stage. People who think that there are going to be problems between the United States and our allies because President Trump has a sort of more transactional approach to how to navigate our relations there. And so, you know, we saw a lot of problems in the first Trump term with our European allies that China tried to exploit. I think they're thinking in those terms again, you know, are they going to have opportunities like that?
At the same time, of course, President Trump has promised variously to level you know, sixty percent tariffs on you know, all Chinese exports twenty five percent tariffs, ten percent tariffs. We don't know where you know, the numbers in the land.
We don't know.
Whether it's going to be you know, whether the terrafs are basically the threat of tariffs is basically a tool to get China back to the matiating table. All of these things are sort of up in the air at this point in time, so a mix of views. I think about what president might mean for the country, and one.
Of the chapters lives in the Third Revolution, The Lion awakens. That is the arch fear by partisan fear of America. You live this in real time with Gina Romando at Commerce in the Trump administration.
We assume the lion away weakens. How do we quiet the lion and the coming four years?
I mean, I'm not sure that there's really a way to quiet the lion. I think there's a way to ensure that the United States, you know, is the dragon.
I guess in the.
In the sense that you know, what I think our message should be is that we're still looking toward US leadership on the global stage, right, and US technological leadership and military leadership and leadership and the values domain. I think, to me, what we want to do is to run faster. I sometimes worry that we over index on our defensive tools,
and so that would be a concern. I think with President Trump and you know, sort of the approach of just levy more tariffs, I'd like to see us invest more, you know, in science and technologies. We're still waiting to see the science right of the Chips Act. I think that, to me is what the United States needs to do and not simply say we don't want China to do this, stop China from doing that.
Liz, you're twenty something and you're at Michigan, and you change the world where the river runs black on the environment in China, You, more than anyone has been over there more often. GM just pulled out of China. Effectively, Is American investment dead in terms of JV or investment in China.
It's not dead, but there certainly has been a precipitous fall off. And it's not just the United States. It's you know, FDI into China overall. So our European partners are the same way, you know, Asian partners, same thing. I think there's just a sense that China has not
been welcoming to private enterprise. Combination of factors, things like the anti espionage law, you know, controls around data, the lack of information around what's going on inside the Chinese economy, rights, the Chinese have been constraining, constricting the types of economic
information that they're willing to share. And then there are Chinese you know, areas where China has just become far more competitive, And I think the car industry is a good example of that, where where I think multinationals find
it more difficult to compete. But China doesn't want FDI to drop off this way, but they're they're sort of caught, I think, in a bind because she didn't Pink isn't really willing to undertake the steps necessary to open the door back up to private enterprise, even in his own private enterprise.
I think it's probably exactly and that's kind of where I wanted to go, Elizabeth. I mean, does President g I mean closing off his country to foreign direct investment and show just the world it's not just technology, it's just broader trade. And is there real support for that type of policy in China?
Well, I think, you know the way that she didn't Pink can drum up support for this, and so let me say, I think certainly not. I think that, you know, the private sector in China has certainly suffered over the past decade and some there. I don't think there is a lot of support. There were four oriented economists who've tried to get Hegen Pin to you know, take his hands off the controls. So I think, no, I don't
think there's widespread support. But I do think to the extent that China feels as though it's under assault from things like terriffs or export controls, that bolsters siege in Pin's you know, argument for duel circulation, the argument that China can innovate, manufacturer and consue largely within itself. Again, teach and Pink doesn't want to close off you know all. He certainly wants China to export, and he wants companies to invest in China. He wants them to bring you know,
high technology stuff that China doesn't have, Hey welcomes. But he's also committed to making China, you know, indigenously capable.
What is your first I mean, I think about Jonathan Spence holding cord a Yale.
What a privilege it would have been to be in that classroom.
It's Stanford among the elite chair of Li's Economy.
What's your first message in the first.
Lecture on Liz Economy's China.
China has a transformative vision for the international system and for China's place within it. And the United needs the United States needs to step up its game.
Good Liz, we need another book. Get to work. I mean she's working like a four hour work week.
Got at Stanford, Elizabet.
At sixteen to do this.
What do you mean?
Yeah?
Ce it Eli's coffee on Madison. Elizabe Economy. Thank you so much for joining us. She's professor at Stanford University.
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 listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty joining us.
Now, I'm gonna give you a two short an introduction. He deserves a much longer one. Is Robert Hormats. Some people talk, others do. And back to the tenure of Secretary Kissinger. Bob Hormantz has traveled the miles of the Levant and Eastern Mediterranean and Chaos. Now to be clear here, you weren't there for the Great Syrian revolt of nineteen twenty five nineteen twenty seven.
You missed that one.
Why is Syria different now than the mess Paul Swenian I grew up with what's different now versus Kissinger and Hormats in the seventies Two things.
Mainly One, you had hauffazilas On running the place, the father of the father of the son who's just vacated his throne to go to to go to Russia. But Huffazilason did not want big dust ups with the Israelis. As a matter of fact, he was the one who created that buffer zone that is now being occupied appropriately
by Israel because Assyrians will pull out of it. But second, we in trying to get a settlement in the Sinai we always tried to keep good relations with the Saudis, Assyrians and others, the UAE and other countries in the region, including the Iraqis so and even the Iranians at that point, so there was a much better dialogue among the various countries to try to get some disengagement between the Israelis and the Egyptians, which ultimately did work, but it took
You have in the Middle East, you have to see a lot of people because there are a lot of power centers. And the other thing in Syria is it's really an amalgam. We have the Kurds, you have the Allowhites, you have the Sunnis, you have the Shiites, and they're all taking different points of view.
Hormance owns this. I just watched Lawrence of Arabia, but Hormance owns it.
What does this mean, this change we're seeing taking place in Syria, what does it mean for Russia and Iran in that part of the world.
There it dramatically weakens Russia's presence there. Russia is seen by the Syrian people as having supported Basha Alasad. They are not very well liked. They have one base, Latika, and then they have a seaport. They want to keep them. I think that'll be part of the negotiation, but I can't imagine the average Syrian wants them to stay there. And Iran has had its allies in effect get decapitated
or weakened very badly, so all of its tentacles. The essentially the hoodies are still there, but the others are are are gone.
Should the US folks let Erdawan take the northern border of Syria to the southern border of Turkey, worry about the Kurds. That's never going to go away. Should the United States project to south southern and southwestern Syria to try to provide stability around damasks north to homes or do there's there a different approach?
Well, that's there are two really good points there. One, I think we have to work closely with the Turks, but I also think that we have to remember that the Kurds were part of the coalition of forces that overthrew assad and therefore we have done a lot of bad things to the Kurds and sort of pulled the red out from undum of the past. I think we want to try to convince the Turks to work with the Syrian Kurds and not go in there and take advantage of this and weaken them.
Okay, this is.
Too an important conversation. I'm not going to mince words.
I got to tweet out this morning with the President elect making fun of Canada is a fifty first state. Do we have a potential sobriety and gravitas in state to handle these incredible nuances of the Levant.
I don't see it well.
It's very complicated. People in the past have been found have found it very difficult. But you know the the You have to work with the with the Kurds because they're part of this coalition. You have to work with the Turks because they're actually now the most powerful country other than Israel in the area. And Iran's ability to exercise influence has diminished dramatically. The Hesballah has been weakened.
It's it's friends in Syria are gone. That whole notion of moving arms from from the Iran two Lebanon is really diminished, or if probably eliminated for the moment. So yeah, we have to have a very subtle diplomacy and you have to talk to all the parties. That's the one thing we learned about the Shuttle diplomacy. You couldn't just talk to the Egyptians and the Israelis. You had to
talk to others because it's a complicated area. If you want to reserve preserve peace, you've got to have a dialogue with a lot of people, and that means sort of steady focus.
What do you think under president like Trump, our role will likely be in that part of the world over the next several years.
I think he's probably of the view that we should pull back and do relatively little. I don't think he. I mean, he has this fierce or a lot of people around him have his fierce anti Iranian point of view. And the Iranians now are probably going to be spending less money on their friends and allies in the region, who are now for the most part, decapitated or unable to perform anything like what the Iranians hope, which was their surrogates in the region. They can't play that role anymore.
So the Iranians probably are going to spend more time on nuclear On the other hand, they to strengthen their own power. On the other hand, we have to demonstrate that we have good allies in the region, good friends in the region, and strength and relations both with Israel and with the Sunni Arabs on the other side of the Gulf.
Anxiously awaiting Robert D. Hormats The Price of Liberty.
Two point zero. We expect that book the movie rights have already been sold. The Heart and soul.
A hormantce diplomacy is a fiscal soundness at home. What happened by mormance.
What happened is that fiscal policy is broken in this country, that each side makes compromises with the other on tax cuts or spending increases. The budget deficit is really out of control, and so far there have been very little other than talk, very little in the way of specific measures to curb the budget deficit. And if the US continues to have a big budget deficit, it's going to dig into and reduce the ability to provide money for our defense. We need a strong defense system.
In a world of war. We're in a world of.
Trade wars and we're in the world of actual wars, and we're going to need to have a strong defense capability and a strong industrial base to support our defense capability and put more money into defense technology, which is extremely important.
Most wars in the future will be fought by drones, by effective data use, by effective intelligence, and the United States is going to have to be ahead of the game on intelligence, ahead of the game on these non manned military weapons, and that's going to be extremely important. And a much more coordinated battlefield with an Avy, the Army, the Air Force and others working together and data is what's going to enable them to coordinate better, which we need.
Bob, what is your view of Russia at the moment? I mean, they've obviously got their hands tied in the Ukraine. How should this incoming administration deal with Russia over the next seven years? In mister Putin, over the next several years.
First of all, I think the US has to continue to support Ukraine. I know it's going to be expensive. I know it's not as popular as it was. I know there are people in administration who don't want to do this, but a demonstration of weakness, of tentativeness, off fecklessness with respect to Ukraine will send signals all up
and down. And finally we're getting you know, we talked about the Domino effect before, and the other way that George Tennant talked about Domo effect countries falling into the Russian orbit. Now they're falling away from the Russian orbit. All of its friends the Syria probably won't be able to use those bases. All the bets that made in the in the Gulf are probably going to go sour. And I suspect that we have to work. We have to talk to them, but I don't think they're as
powerful as they were. But we also have to demonstrate that NATO is going to protect all the other countries in the region. The Estonia is a Latvia as Lithuanians, and make it very clear that we are part of the single most important part of de terrence, so the Russians don't do this again.
You're the only one I can ask this question too. With immense respect for your service. We are one year on from the death of Henry Kissinger. What do you miss the most about working day to day with doctor Kissinger.
I miss his good judgment. He understood the way the world works. He had a dialogue actually with Putin, with Shujinping, with the President Biden, and he did have one with Trump. I think Kissinger understood that you have to have effect of diplomacy. You have to have a steady diplomacy where you worked with other countries. You had to be seen to be reliable and predictable. Great powers cannot afford to be misunderstood by their allies or their friends, and he
got that. And he also understood in your strong military to back up your diploma.
I got to make some news today. Twenty seconds. Have you spoke to Secretary of State designate Marco Rubio?
Now I have not recently. No, I've spoken to h when he was a senator, but I have not spoken since he's been picked.
You can see hormance, so you know, young Hormontes could go down Staton Street. Amount take it. Robert Hormantz, brilliant.
Thank you so much, of course, by chairman, a Kissinger associate. It's good to see you this holiday.
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.
And I look at the front pages of Lisa Matteo moment here on Bloomberg Surveillance. Lisa, I didn't look at your list. But when the intern said, this is just really something good.
But wait, newspapers is now a moment, not an hour? What is going?
It's a moment, you know. I talk to your PR people. They want to market in this a moment. All right, we're reading.
I have a new luxury destination and that you might want to check out. Okay, luxury travelers, they are heading to this. It's California Sores East Cape. It's about forty five miles northeast of Los Cabos, that big tourist area. So the East Cape, it's big for fishing, least traveled areas because people like it. It's secluded. Okay, but now you start to have these luxury resorts that are coming in back in twenty nineteen. Yeah, the four seasons they
open their Cosas Palmas Resort, one hundred and eighteen rooms. Okay, you've got fine dining, golf course, but it comes with the price tag. Are you ready for it? Guys that you're gonna have to pay about one thousand dollars a night. Okay. That's where it starts at. And they have two more ultra luxury resorts coming summer offering residence. Yes, very very tippy.
Way down like where people don't start directly west of maset Land across the Gulf of California.
Yes, so if you don't like to deal with a lot of people in a big tourist attraction, this is the place where they're going.
Kits On Sweeney's bucket li like that.
It's sweety. You're going to flights already walking down to dangerous provisions.
You're going to go to what's it called East Cape East Cape.
Yes, and they're even having residences there. That starts for about seven hundred and fifty to one thousand dollars for a studio apartment. So okay, there you can. You can get into that too if you really want to stay. All right, I'm moving on to Tom Brady, Big Big souther Be's auction. Okay, the watches, the sports memorabilia, it all sold. There were about forty one lots for nine million dollars total.
Okay, she's selling this stuff.
Does he need cash?
I can't s good question because this story doesn't get into those details.
Said you're a little late.
Yeah, exactly how many.
Kids does he?
Yeah, he's got a lot of kids. So here's a few of the standouts, so if you want to go sports memorbilia side. The top one was a football football he used to break the NFL all time passing yards record, but also a University of Michigan jersey that he wore during his final college game that was top dollar. And then you have, yes, the watches he has the price he watches the Rolex Daytona Paul Newman Paul John Player Special.
Over a million dollars just for that one. It sounds a nice looking watch, but it's very nice looking watch. Or if you like the custom made Audomar p Gay Did I say that right? I hopefully I get Royal Oak watch. It's out of my price range seven hundred and twenty thousand dollars. He actually wore that during the Netflix roast her.
I heard Tom Brady on Fox doing color announcing football four or five weeks ago. He was so bad I had to turn it off and I turned it on this weekend.
And this is typical Brady. He was really, really quite good. Really, I think it's good.
Now.
The question I have is he can I continue doing this? Why would you want to work? It's maybe, I don't know. Check Now he's an owner, that's true. Now he's an owner of the Oak or the Las Vegas or so.
I'm not sure she's an older of the Radars.
Yeah, but see that's behind the scenes. You need to be in the spotlight. Relevant. That's what it's about nowadays.
Okay, Well, thank you for that, Tom Brady. Moment, I'm moving them on Fox.
Okay, asked In Martin. They're actually a better late than never. Okay, they're making their first plug in hybrid supercar. You have to check this out in the Bloomberg terminal. Yeah, the Valhalla finally hitting production in twenty twenty five. It's about four years behind schedule. One thousand and sixty four horse power, top speed t hudge and seventeen miles per hour. Only nine hundred and ninety nine will be made, so you
got to act fast. The price wasn't said, but it's expected to cost more than seven hundred and sixty six thousand dollars. But you know the company has been struggling. Yeah, we'll speaking again up into this. Got to get into that and ride it around the courtyard?
Can I say in that one? Right now?
I mean, right now as we speak, Sergio Perez of Mexico there's this raging battle over what he's going to do with Red Bull. I mean, all these people, including at Aston Martin, are up in the air. It's like it's like Max Freed on steroids.
That's how I put it.
So check it out.
I mean, you know, Hannah Elliott at Bloomberg she works in pursuits. All she does is travel the globe and drive these amazing cars all over the world. And then she has a podcast with Matt Miller and they talk about cars.
That's not a bad gig.
That's not a bad gig. So I'm sure she will be behind that. I don't know.
I don't know.
Matt Miller had a Eliot check out that podcast because if you like cars, that's the one to go to.
I think I've never forgiven Pharaoh.
He got me into this Formula one thing and I actually like, I'm addicted to it.
And they have the Otomist watch that you talked about. They sponsor it.
You know, it's it's like, you know, men walking around with million dollar watches in their wrist, the kind of thing.
Yeah, one more last one. I'll do this one quick.
Okay.
It's a new trend in gift giving because the holiday season is here. Instead of buying gifts, where people are doing is that they're ordering a mix of mixed mystery boxes. They're unopened, unclean mail. Where they're getting at it's not the post office. So these big box retailers who can't figure out and they get things returned and they have all these packages. They actually hire third party companies to come in and take care of the mess.
Hikay.
So those companies at the Mateo at the Mateale Christmas this year, come on Costco.
It's you can get a big box from Costco with.
No no because then you know what it is. But these are like unopened things, so you hand it to somebody and you're just waiting anticipation, like what's it going to be? What's it going to be? Sometimes it's it could be a little bit, you know, embarrassing because some of the things you don't know what they are. But this is a new thing. It's the whole element of surprise.
I didn't know that was the thing.
It's apparently thing. It started during the pandemic because people were bored and these companies had packages to get rid of.
All right, Lisa Matteo, the newspapers, 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 Eastern on Bloomberg Got, 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