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Well, I'm going to go back to when you were twenty five years old. You wrote it was a joke, but it wasn't. It was a serious idea about time and space and interstellar planets and all that. The final sentence of Krugman at age twenty five.
Those of us working in this.
Field, I'm going to paraphrase of international economics and trade are still a small band, but we know that the force is with us, doctor Krugman.
Where is the force for morning?
Professor Boyofstein with a paper about interstellar trade?
So what the hell? Where is the force this morning for this nation?
Oh boy, this is really really bad. I mean you want to say, this is we're talking about, if you know, assuming the Rose Garden, anything like what Trump announced in the Rose Garden is actually going to be where we land. We're talking about tariffs that are significantly higher than smooth holy and of course starting from very low. So this huge jump and tiff rates with a US economy that's three times as open to international trade as it was in nineteen thirty. So this makes smooth holy look like
a rounding error. And it's so that's really bad. And it's also it's highly uncertain. Never had a situation where really you have no idea but within you know, like twenty points where the tariff average tarifrate's going to be a few months from now. So this creates an impossible environment for business. It's it's hard to imagine a worse trade policy than what we're getting.
In the cacophany Paul Krugman, we have nations acting. Last night at nine point fifteen, I picked up my phone and there was China acting. China just says no. Trump lives on negotiation, folks. Bloomberg's Tim O'Brien owns a high ground on this. He lives on negotiation. John Bolton, writing in The Telegraph, says he lives on negotiation. If the Chinese don't negotiate, what happens to Paul Krugman's trade economy?
Oh, I mean at the starting point here again, is that negotiate about what?
Now?
China you could conceivably have some China is not a free trade economy, and you know, they might be able to make some concessions, but they ain't gonna their their back is up and they have a national pride and their economy, by some measures, is as big as ours or bigger. So you don't want to They're they're not removing and the other players, I mean, think about the Europeans. Europe had an average tariff of about one point seven percent on US good has still about one point seven
percent on US goods. What can they give? What concessions can they make? It's not as if Trump is you know, is asking them to do something. It's asking them to remedy some real sin. He's sort of made up a story about how they must be doing something wrong, but they aren't actually, and so they they even if he wants concessions, they can't give them.
Professor, I think one of if we just step back a little bit, one of the I think the basis of the Trump administration tariff policy is that they're trying to reorder the world economic order. Is there something fundamentally broken about the world economic order that disadvantages the US?
Actually, no, all is said and done. It's yeah, the US runs an overall trade deficit, but that's mostly because you know, the balance of payments always balances if you attract inflow, so foreign capital. Then the math says that you have to have a trade deficit. That's the I know mathmax has a progressive bias, but still that's what
the math says. And the US is an attractive place to an invest or was until you know now, so the idea that there's something fundamentally wrong just doesn't make sense.
And it's worse.
I mean that Trump Trump and his people think not only that the US shouldn't run a trade deficit, but that we shouldn't run a trade deficit with any country. That everything should be bilateral balance trade, which is just crazy. I mean, you know, if you think about people, if you work, if you work for somebody else, well, you run a surplus with that person because they pay you and you probably don't spend much of your income on
their products. On the other hand, you run a bilateral deficit with your supermarket because you buy from them and they don't buy stuff from you. And so you know, the same applies to country. So it's just crazy and I don't know. I think all of this stuff about remaking the international order is window dressing. It's the fundamental thing is Trump wants TIFFs, and then everything else is people Trump to explain why, you know, recconning explanations of why he wants tariffs.
And Jason Furman in the Ft this morning, really writing up this complete focus on getting tariffs in to go back to the fifties, the thirties or maybe nineteen oh five. We welcome Paul Krugman, of course at Iconic at Princeton University. You know him from the New York Times. He just went out the door. He has a substack. It's a value. I got two substacks for you. I got to mention Paul, Adam Twos is killing it out on substack. But Adam Twos subscribe. Paul Krugman subscribe on.
Substack as well. We welcome all of you.
Across the nation on YouTube worldwide with the Laureate Paul Krugman.
Paul lotalization from an economic perspective, is that dying as we see it?
Oh, I mean, well, I you know, the truth is we don't know, which is part of the problem with this enormous uncertainty. But yeah, I mean, we have built up this very integrated world economy with all of these you know, supply chains and so on, which cannot survive a twenty three percent to you average US terafreate. So this is going to really smart us up.
I think, Paul, that people are understanding the jump condition and tariffs. I'm going to go back to Trump one. You did a wonkish Paul. You should read the wonkish Krubman in the Times. You'll age Paul did you did like a wonkish trade. You got a chart and the yx's is price of imports. On the X axis is the volume of imports. Now with Trump too, that chart is just simply just shattered. There's no other way to
put it. You have a welfare loss if we explode the price of imports, if we have the volume of imports decrease a lot slower real GDP, slower nominal, slower investment. How big can that welfare loss be? And who listening right now loses?
Okay? The yeah, I mean, the thing we're always to realize is that, roughly speaking, we think that the damage done by tariffs is not proportional to the tariff is proportional to.
The square of the tariff.
So you know, a twenty percent tariff is something like four times as bad as a ten percent tariff. Now putting numbers to it, I mean, I long run, it's finding the long run impact of these terraffs is probably look, it's it's going to be worse than Brexit. So in Brexit we tend to think it was three or four percent of British GDP. Maybe, uh, this could easily be more than that, though there's.
A limit to it.
Deep Uh, it's hard to get It's not you know, in itself, it's it's a serious hit to the economy. But the funny thing is in the short run it can be worse. And the reason it can be worse is the is the extreme uncertainty that we're creating. And so you know, once we you know, even with these high terraffs will settle down. Eventually business will find ways to cope. Costs will be higher, GDP will be lower.
But that's you know, we'll make that transition. But right now, if you I mean, I can only imagine that a lot of manufacturing, you know, managers are if they aren't drinking, they're more powerful them because they should be the the Anything any move you make may turn out to be distriss because God knows what the tariffs will be, what time the investment matures.
Well, you just what you just heard there from Paul Krugman Folks is absolutely critically. I want to translate it a little bit. He mentions some math, the square of the tariff. This goes back to littlely Newtonian physics. Think one, two, three, four five, No, maybe exponential two four eight, sixteen thirty two. That's an exaggeration, but you get the idea. Paul, let's bring it right over to America. Are we going to
have a square the unemployment rate? Are we going to see different labor metrics, including the four point x unemployment rate explode higher.
Okay, I think we will, but that's not not in the long rum. That's the thing tariffs. What is the impact of tariffs on the unemployment rate under normal conditions? N aswrisk not much. It makes what labor less efficient, doesn't cause a doesn't cause a slump. It just means that people do different things, they do worse things, but they stay.
Employed, so that it's not really unemployment rate. It's it's productivity that will suffer. It's it's real incomes that will suffer in the long run. But we may very well now I think better than even odds that we are going to have a recession this year, which is not the standard effective terriffs normally. If you ask me to do tarrats cause recessions, I would say no.
The whole story about smooth Holly caused the Great Depression, that's basically a wrong story. It's smooth Holly was a bad thing, but not for that reason. But the uncertainty which makes means that if you invest you should you invest more in your Mexican component's plant well, not if we're going to have twenty five percent tariffs on Mexico. Should you invest in US production instead? Not if those tariffs might not stay in place and you really wish
that you had invested in Mexico. So there's gonna be a lot of just playing cash, sitting on the sidelines while business is wait for similarity, which it doesn't seem to be coming anytime soon.
Professor was just as recently as the beginning of the year that Tom and I were having discussions with our guests here in Bloomberg surveillance about US economic exceptionalism. Boy, that seems quaint now is that still the case here? How do you think about that visa the US and the rest of the world.
Well, we were, I mean, if you wanted to kill a US exceptionalism, this is kind of what you would do, right the I mean, and that there's there's much more.
It's not just the terrorists.
But yeah, the US from about two thousand on, the US had much faster productivity growth than other advanced countries. We just outperformed. And we also have somewhat better demography than other advanced countries. So we just had a much better growth picture than anyone else in the advanced world. And all of a sudden, uh, you know the uh, we're disrupting our trade, although we're disrupting other people as well.
That's a bad thing. Should work.
Bear in mind that in the background, this isn't the only radical departure in policy that the Trump administration is pursuing. Look at what is happening to scientific research. Enormous cuts in mass layoffs. I mean they're the CDC is laying off medical scientists so fast that they're actually that samples are being left in resers with nobody to look after them.
And since ultimately US technological progress relies a lot on the spillovers from government research, we're actually crippling, you know, make America not great again. I mean, this is really amazing, Paul Krugman with.
As he continues with this salaureate. Of course, I can't say enough. This is this moment you're in in America, the questions you have in the living from the kitchen table. This is what Krugman was we done years ago at Yale and on to Princeton as well. Look to his sub stack out. I can't say enough about it. I
really subscribe to that as a huge value. Add Paul Krugman, I've got to go over and I guess this goes Mondel and on the Jacob Frankel and Ken Rogoff and the rest to the currency you studied under the guy who invented modern foreign exchange, rudigerd Dornbish dorn Bush. We lost him tragically years ago of cancer. What would Rudy Dornbush say right now where Paul Krugman say about the idea of the China's solution is to depreciate the renmn B.
Well, yeah, I mean, Rudy would have some choice phrases that would be more colorful than anything I can come up with. But yeah, I mean, this is a look if one of the things we've done is we've just place China as being the prime.
Bad actor in the world economy.
China has been a bad actor. They have run and kept an undervalued currency.
They have failed.
You know, China has a problem, which is they don't consume enough, they have excess saving, They're running out of
investment opportunities at home. They've tried to close that gap to square that circle by running big trade surpluses, which they can do because the Apple controlled and undervalue currency, which you know, but the blowback from that has been growing even you know, if Trump weren't there, if we had a sane person as president of the United States, that sane person would be taking a very hard line on China because the Chinese are in fact not good,
They're not team players in the world economy, and the Chinese are still trying to do that, which is insane because it's the United States. Clearly, you know, it's not going to be a market and the Europeans, the rest of the world is not going to take their stuff either, so they are not helping Paul.
One final question, and it's a fun question because the Republicans love to go after you. There's a primal scream, including a senator from Massachusetts, Elizabeth Warren and others Republicans do something. You're at a breakfast coffee with Thune of the Dakotas this morning in the Senate. What do you tell John Thune to do?
Yeah?
I mean, look, all of this is happening because US Congress seeded control over trade policy to the president. They did it a long time ago, they did more than fifty years ago. And because presidents were assumed to be more interested in the international position of the United States than individual congress people would be. Congress is gonna take that back, would take and there's actually a lot of bipartisan support for that. There is. I think people in
Congress they're not idiots, not all of them are idiots. Anyway, they do realize that this is being that this is crazy, and all they need to do really is restore. You make trade policy, like the rest of policy, something that you have the Congress has to vote on. There are reasons why we didn't do that, but so I, you know, a trum might be a change in legislation, but he h, but he's uh. That would put him on the spot and if necessary, you know.
Overrule him.
Just make this a well, you know, take take take away an authority to do this crazy stuff.
Okay, Paul, we got to leave it at that.
Thank you for starting in morning with us, Paul swee and and the whole team. Thank Paul Kruman for his effort. Look to his sub stack, which is really lighten up. I can't say enough about it. It's really quite it's it's more heated than it was with The New York Times. For the years of you that love and disagree with Professor Krue.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern. Listen on Apple, Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
John stolffus for.
This Now he's a o co with Oppenheimer and where surely he could be with us. He's been a bull that's nailed this over the last four or five, six, eight years.
John, I believe you lowered your s.
And p call which was way out there somewhere, as Linda Ronstad said, but if it was out there, John Stolfus, are you still a bull as you cut back your view?
Yes, great to be on the show with you, Tom,
I have got to say we remained bullish. We just had to trim the target because the depth of the selling was such that, you know, we would have have had to have about a thirty percent upside from the bottom and instead of fifty nine to fifty down from seventy one hundred is a year end target for the S and P five hundred, and having reduced our earnings projection from two seventy five to two sixty five, we feel comfortable here right sizing expectations based on the damage
that has been done related to sentiment in certain pockets that you know, it's we don't think it's just about fear and greed. We think it's it's fear and greed
is always in the markets. But on top of that, there's need to invest for serious purposes like retirement, kids, education in retirement, all kinds of things like that, as well as you have based on innovation in technology, we believe where the water shed period on the timeline of financial history here and manufacturing history with what AI is eventually going to do, so we feel comfortable. Like John McLaughlin,
I think it was his second album. Our goal is beyond where we are right now, but we're quite aware of what's happening.
He's so sophisticated. I can't keep up now.
John McLoughlin had a scallop neck, like between the frets of the neck. He had the woods scalloped out and different things.
You go, hey, John, it's just I'd love to just to get your perspective. You've been in the markets for decades. What did you make of the of the selling over the last several days here?
What did I make of the selling?
Yeah, it looked like the negative pitch Book. Generally speaking, when something happens that creates a catalyst for bears, skeptics and nervous investors to sell without FOMO in what is likely a secular bull market, you get that kind of thing. You bring out the negative pitch book, it gets negativity
to infinity is projected, the market gripped with fear. In the trading community, a lot of people are looking, I would think, based on the selling, probably looking for their next vanity plate on their next trophy automobile related to selling in this kind of a period, But for investors, just as your prior guest said, there's the opportunity to look for We've been saying it for a long time.
Babies that get tossed out with the bathwater. We don't think it's a by the dip moment. We think right now it's shopping list, you know.
We like what's been beaten up, the worst of the qualities actors, INFOTAC, communications services, consumer discretionary. Yeah, let's keep shopping, and then financials and industrials, which we think are pivoted well for where we're headed once we get through this very uncomfortable period with the tariffs. We're just simply priced too high for the market to digest without some pretty serious indigestions. It wasn't it. We don't think it was a tantrum. We think it was a genuine protest, that
this was a bit munch. You know, it's tariff's one oh one in the administration's previous one were one thing, Tariff's one oh two during the Biden administration one thing.
But this was a tariffs four.
To oh one or maybe graduate studies based on the fact that it's really been over a one hundred years that we've lived this kind of proposition in tariffs.
There are anybody.
I don't think anybody is around who's alive, alive or knows that they're alive, who remembers.
This is megs this kind of a period.
Is tech an opportunity here? I mean they were trading our thirty eight thirty nine. I got Apple with a P twenty five is twenty six ish? Is tech an opportunity?
John Stulfus, we have to think so, you know, we're all on the upgrade cycle without naming the company.
I was in a big store where they sell technology yesterday.
John.
I know you don't do individual stacks, but you know a lot of people are in these things.
Not to be tried about it.
There's some real losses taken out there. As we said to Kim Dawson, are we still in a bull market?
I believe so, and I believe it.
It's related to that watershed period on the timeline of of of manufacturing history and technologies history.
UH.
That revolutionizes things going forward, and that will bring its own questions and agony at different points when we take a look and see. We see the disruptions uh within industries, whether it's in hiring or businesses that don't make don't adapt well to the new world.
Uh.
That's a whole other story up ahead.
But overall, the market's going to be looking for what what what builds UH earnings?
Both?
What where does? Where does revenue growth come from? That's what that's what the market really cares about, and that's what appeared to be very much in Dainger near term on April second, when the tariffs were brought out, brought into the showroom so to speak.
Hey John, what have you done with your SMP five hundred estimates?
Yeah, with the S and P we went from two seventy five earnings projection to two sixty five, so you know, it's definitely a haircut on that. And then we went from seventy one hundred as a price target year end to fifty nine to fifty still looking for about so we're looking for about seventeen percent upside from where.
We were on Friday, which is sort of parallel if you think about it, to where we put our target on December ninth for this year. Last year, we put it in for this year and We were.
Looking for about seventeen percent upside from that level, which was pre the peak of February. What was in February nineteenth, So you know, we were looking at seventy one thinking that was rather a conservative based out a year where we'd seen a pair of years and around twenty three percent respectively for twenty three and twenty four.
From where we are right now, that John Sulphus call is up thirteen point eight percent. John Stulfus, a Oppenheiron Company. Thank you, thank you, thank you.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
She's never upset anyone.
In economics, Ellen Wall of the Atlantic Council joins us right now, Ellen, what is Saudi Arabia or frankly, Exona, Texas? What do they do with fifty nine dollars oil?
What do they do with fifty nine dollars? They sell as much as they possibly can, because more they can sell the more money they can make. Yeah, it'd be great if it was higher, But at this point, I think they're stuck with just trying to sell as much as they can, and some countries like China will probably see it, isn't it as a time to stock up?
Is there a break even price for ellen Wald? Paul's ars Paul fifty fifty five?
I think Paul's working with fifty five dollars a barrel's break even.
Where's ellen Wald's break even?
You know, it really depends. I mean their producers in the US who's break even as much lower? Remember Saudi Arabia's break even is about six dollars, So on six break Saudi Arabian a Ramco is going to come out better. Yeah it's about six.
Wow.
See I watched Landman Ellen, so I feel like I'm an expert on all oil and gas. But where's the US here? I mean, the US is now the largest oil producer with thirteen million barrels per day? What do you hear from the US producers here?
Yeah?
What we're hearing from the US producers is a lot of uncertainty. All of this trade stuff is really throwing them for a loop. They are very very concern especially smaller producers. Remember, there are a lot of small producers still in the United States and that accounts for a lot of the oil produce. Yes, we have a lot of large producers, but we're still really a country of a lot of small oil producers, and you know, these
kind of fluctuations can really impact them. And the tariffs are causing huge headaches when it comes to the steel and the kinds of products they need to drill oil. And while we're not seeing that impact production right now, that that is going to come soon. We're going to see companies making decisions to not complete well simply because
it's too expensive. The goods they need, the tubular goods are just too expensive to make sense, and they will leave that well, you know, kind of unfinished, waiting for the price to come down for when it makes sense. So I wouldn't be surprised if this continues, if we do see production starting to trend lower, and I think that will also be reflected in some of the new EIA forecasts that we're going to see coming up.
So, Ellen, it's sixty dollars a barrow here. I mean, it seems to me that you know that reflects concerns about global demand going forward given some of these tariff induced uncertainties in the marketplace. Does OPEK cut output the US producers cut output?
The US producers are going to cut output if it makes sense for them economically and financially. Opek, on the other hand, can make that decision, uh, you know, for I mean, I would say they mostly make it for economic reasons, but they can decide as a group, you know, either to halt their plan production increases. They've already gone through with the one that started in April, which was a very very minor increase. It's a very small amount
of additional oil on the market. But the idea is that they're they're rolling, you know, they're board with this. They can decide to pause that, and they they very well do that, you know, next quarter, decide we're not going to increase anymore until we see how this plays out.
Ellen Wald with a senior fellow Atlantic Council. She continues, whether it's her book Saudi Ink is definitive, Ellen, I need an update on this because Paul and I did they turned this down for the trip to Vienna for Opek. Is it Opek or is it Opek plus that's working into twenty twenty six.
I see a continued Opek plus. You know, we've seen a lot a lot of troubles in this group, a lot of a lot of troubles in paradise. You know, there's a time where Russia and Saudi Arabio most split, where Iran problems with Iran threatening to to you know, force the whole group apart. But I think we're going to see it continued. I do think right now the country to look at is actually Kazakhstan and willingness continue to go along with any kinds of cuts or stays
in production increases. They really want to increase their production, and so I think they're really maybe the troublemaker to keep.
An eye on Ellen.
How about Russia. I mean, if we are moving towards some maybe level of peace in Ukraine, does Russia supply of oil and natural gas? Does that find its way back into the mainstream.
So the interesting thing is that there's still plenty of of you know, Russian oil and Russian gas on the market right now. The question is if there is some kind of resolution and the price cap policy and and sanctions, uh, and then that Russian oil which is being sold at a discount because it is uh, you know, contraband or sanctioned or under this this price cap policy. The Russians are going to say, we're not going to sell it for your your you know, discount at you know, from
the normal prices. We're we're put it back on the market at regular prices. And so I think that we'll actually push prices up because they're not going to take you know, they're not going to accept these lower prices for their oil. They're going to say we're in the clear or now.
So you know, pay up.
So Ellen, give us a sense here, I mean, what's the industry, how's the industry thinking about demand?
Here?
I'm guessing the oil industry, the energy industry in general is like everybody else, we're just kind of floundering. You're looking for some direction. Is a feeling that demand is going to be soft going forward globally.
I do think.
That they feel like in the long run, in the bigger picture, the demand picture looks good, but in the short term there are some serious concerns given this kind of shock to the whole global economic system, and that it could push us into some kind of economic state where demand is lower. You know, there's some interesting news about whether the US is going to impose serious fees at port of call for ships made in China. I mean that that could have impacted the oil industry in
a pretty serious way. And so I think it's really just this wait and see, don't make any decisions. You know, we could be in there some real pain in the short term.
Oh, thank you so much. We need a new book.
She's with the Atlantic Council, Saudi Yank is a jewel Henriad and the Royal family of Saudi Arabia.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple, Coarplay, and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.
I'm gonna cut to the chase. If Tom Hanks had to make a war movie, he'd make it out of John Thune's father. Thune in South Dakota, grew up in a family his father was the distinguished Flying Cross like the real deal in the Pacific. John Thune came you know, the typical political life, star athlete where in God's Name, Libby Cantrell, are the GOP and the good Senator of South.
Dakota relates to trade?
Yes, where are they?
Well, I think it? I mean well, first of all, I think privately they are. There is a lot of pushback.
The White House.
However, Tom, I think it just underscores the fact that Congress does not have a lot of levers here because they, I mean they they intentionally bequeath delegated tariff authority to the President various through various trade Acts nineteen sixty two, the Trade Act of nineteen seventy four, AYEPA of nineteen seventy seven.
So you're saying they can't go back to what they.
Had, Well, they can, but they would need a super majority. They would need two thirds of each chamber in order to override what would inevitably be a veto. So I think there is a practical element here, practically one more question.
Sweeney's looking at me, like, Tom, can I get a word in here? Let me cut to the chase. Did Trump lose the GOP House in the Rose Garden?
Look, I know I don't think so. I mean, I think this speaks to the fact that this party is the party of Trump, and many folks in the House have the President to thank for even being there in the first place. And so this is why I think there's been a real reluctance to push back in public. Again, there is some private pushback, but again I think this is a worldview that President Trump has had for forty years. This is what we keep telling our clients, and he
ran on this. He believes he has a mandate to fulfill this. He believes that there's a lot of unfinished business from the first administration. And I think that the market obviously wants to maybe see through this or hope that there is something this will result in a different outcome. But our view is teriff rates are going to be going up and that will have a headwind on you know,
growth and likely have implications for inflation. To the degree is going to depend on the stickiness of all this, obviously, but I think there it is naive to think that we are not going to see probably significantly higher terarrorf levels.
And President Trump has been very clear that he've used the US trade deficit as the effective scorecard between the US and the rest of the world, and the scorecard shows a deficit of one trillion dollars. Is that the right way to look at it? Is that a fair Yeah?
I mean this is what we what I tell our traders as well. It is really not our kind of role to editorialize or to judge whether this is good economic policy or a bad economic policy. What we think is in terms of providing off of for our clients is what is likely to happen at what should happen. So we may quibble about whether the trade deficit is the right scorecard, is the right metric, but the president is very focused on and it's not even the trade
deficit writ large, it is the goods trade deficit. So it is very specific, and he has this very specific metric for success. And again people may disagree with that. That's fine, but like that is not going to change. I think what is likely going to be the outcome, which is he is going to be focused on that as a metric of sort of future success.
And one could argue that to balance potentially those headwinds that would result from higher tariffs. Uh, he and his administration need a that tax policy to go through like quickly. Is that something? How do you guys handicap this?
Yeah?
So I do think that is going to be a big pivot and a big sort of shift in focus, if you will. It already has been obviously, the House and the Senate are kind of working through the machinations of the very kind of tedious legislative process. I will not underestimate Trump's bullypull. But here though, in terms of getting this through, I think what you're looking at is, you know, there are these different budget resolutions that sort of set up for the broader tax bill. They're quite different.
But I think at the end of the day, Trump will get what he wants in terms of the tax bill. That is where the GOP is.
Why mcguinnis was with us yesterday or the day before. I'm sorry, it's blurfolks. And the basic idea is Libby Cantrell says they're just going to overlay more debt on the deficit.
The deficit. Can't remember what it is?
Yeah, yes, oply the deficit on the definite than the debt.
Yes.
I mean, look, but I think I mean a couple of things is that tariffs are do generate revenue, and so if they are the sort of maximalist approach on tariffs, there could be actually pretty significant revenue coming into the treasury. Coffers. Now, I don't think that's going to go down to pay down debt, go to pay down debt. I think that is literally going to go to pay for more task cuts.
But that can in terms of growth, like balance out some of these sort of cross currents you know that we've been we've been talking about with our with our clients.
So the folks that speak for him are talking about the number of countries that are lining up to negotiate deals with the US. Is that something that you guys think will be successful? I mean, are we going to get a lowering of some of the expectations for tariffs or should we just kind of layer in a base level and go from there.
Well, so I think you know, my view is that sort of the destination here at a minimum, is that we see a universal ten percent tariff, that we see sectoral tariffs on chips and pharma and autos and what have you, and then we see these elevated tariffs sunshine.
So when you say that to your managers quickly here, when you say that to your managers, how do they respond?
They say, equity, Yeah, headwind to growth and maybe a little bit of upper pressure on inflation. But we think this is more of a growth story than it is.
I got to make some news here.
I am actually not trying to make news.
So is Popco talking about an inflation vector? Can they actually turn it around down the road to a lower growth disinflation area.
Well, and I think the question, well, I think this is and again not to not to not commit here, but I do think this is going to want that this could be an an increase in the price level. One time increase I think obviously depends on what happens to inflation expectations, inflation expectations. Inflation obviously has been high, so this could feed into increase inflation expectations.
But we really do think.
The story here is on the growth side and then than the inflation side.
I must I mean, I mean, you know, I'm seeing a few people model negative nominal g dep like back to England nineteen thirties.
Yeah, I don't think we're that far. Again, you do have these cross currents in terms of policy. If you're just looking at tariffs alone, it looks very bad. But if you're actually you know, layering in some of the tax cuts, tax policy certainty and all of that and maybe a little bit more of a coming.
Whim Cantrell, thanks so much. I don't agree with that, and you said, thanks, thank you so much. With pim Co, we'll see what the Republicans do in the house.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business Up. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
James Steele, chief Commodities Analysts at HSBC Securities USA Joints, is here in our Bloomberg Interactive Brokers studio. James, you know, I see gold here up another fifty seven dollars today, three thirty one dollars an ounce here. Is it too far too fast for gold here? Or is this a rational gold market?
Do you think?
Well?
I think you've got to look at what happened in the last few days, and we had a big decline in gold in league with stock market declines, and I think it's easy to ascribe that to gold not being a safe haven or lacking safe haven as an asset. But actually the opposite is the case, because what happened, and this happens with periodic stock declines, is that you get gold liquidation by those who are already long, and
gold therefore fulfills its role as a quality asset. Now, when the smoke clears a bit, typically after a stock market decline, it depends on how long the decline goes on for, but usually after a few days, the smoke begins to clear and gold stabilizes and you get a safe haven demand coming back.
So you know, formire morals like us, you know, closest I come to gold as you know gold and olive oil. The answer is Beijing's on the phone to wear and says sell forty seven bars of gold. Is that what happened the last couple of days.
No, it wasn't so much from I think Asia, as it was those that had well. Some of it certainly was, but it wasn't centrally planned. These are asset managers, portfolio managers and others etf folders.
So it's not central banks.
No, no, no, no, not at all. This was not orchestrated on a central government level. This was people who for a couple of years now have been accumulating gold or longer as a portfolio diversifier and in need when you need to cash your insurance policy in you liquidate a little bit. But that but that seems to be coming to an end today.
How do you get a sense of value of gold? Relative value?
How do you think about?
You wake up saying, point, gold feels expensive here today. I'm like me as a stock analyst. I see my pe ratio and I can look at that versus the market, versus history.
How of gold.
Yes, it's not unfortunately, well I suppose fortunately because it keeps me in a job. Right that It's not as straightforward as with equities. It's also not as straightforward as other commodities, where you know, for copper, or for or for metals or for grains, you can look at cost of production. You can look at day's inventory. My friend Javier Blass will tell you about days in consumption for for for for for for oil. None of these things apply to gold, and that's because gold is part currency
and part commodity. Certainly, fund supply demand balances are important. But if you were to look at, for example, the cost of production, that would not give you necessarily a clue as to as to where gold is going. You have to be sensitive not only to the underlying fundamentals on a supply demand basis, but also on the geopolitical end and the financial market moves. That's what this is what makes gold so interesting and frankly unique.
James Steele with us, so they just be see he's been so helpful to Bloomberg Surveillance with perspective on GOLDI welcome all of you on your commute this morning across the nation. Good morning Mexico, Good morning Canada, Good evening on the Pacific rim of course out on YouTube, building every day on Bloomberg Podcast. Really thank you for the kind comments out on YouTube, particularly the heated comments about some of our guests like Stephen Merrit and Paul Krugwinzo.
Never any negative comments.
About James Steele and never seen them, Okay, on the Bloomberg I went log Nixon. I took gold back to thirty five dollars, an ounce, big leg up.
In the eighties.
I remembered I could only shave like once a week, and then there was a malaise from the eighties to two thousand and then basically other moonshot this pullback in gold. Is it a blip on the map, or is that fear out there that this is the beginning of the taming of gold.
I wouldn't quite so far as to say it's a blip. We have a range this year, our forecast range is two eight hundred dollars to three three hundred and fifty dollars, and we think that's a reasonable level. That's a reasonable range to look at, because if one was to go closer to the twenty eight hundred dollars level, I suspect that we would get official sector buying, that central bank buying, and possibly sovereign wealth fund buying as well, coming back in in a bigger way.
But does Norwegian the Norse Sovereign Wealth Fund? Do they own a lot of gold.
I'm not privy to their gold holdings. But what we have noted ever since two.
Lives here he knows, he knows.
But what we are we we are aware that since twenty twenty two, the fourth quarter, we've seen an extraordinary jump in an official sector demand for gold. And that year alone, if you look at it and compared to mine production, one out of every three ounces of gold that came out of a mine went into a Central Bank vault.
Radio.
You're not getting justice here. YouTube can tell James Steele looks like he's out of.
A Bond movie exactly. I mean he does. He's the guy that knows where the gold is. Gold that gold finger like the you know, it's like Daniel Craigan all that.
I'll get another cre So all right, So gold of fifteen percent year to date sewer up five percent? Is that surprising you as this chief reld of the gold.
It does not surprise me. And the reason for this is that six percent of gold demand is industrial and fifty eight percent of silver demand is industrial.
Okay. So although it is.
A precious metal, it is inextricably linked to the industrial cycle and tariffs, and they decline in forecast, decline in trade weakness which we've seen before the tiers were put on. An industrial production is reducing some industrial demand for silver. With the big exception of photo of all take. So it doesn't surprise solar power okay, okay, okay, And so it doesn't look from Tiffany, Yes, it doesn't surprise me
that silver is down. The gold silver ratio has widened out, which I think will lead to some buying for silver. But fundamentally it's it's it's fundamentally weaker competitor gold.
We're up to forty two listeners this morning, missus keene listen. Oh there you go with James Steele of HSBC. She knows she has her Bloomberg terminal at home. Yes, folks, she knows how to log on and find out where I am. Okay, So gold has down six point from the peak. Does the price of gold and jewelry stores go down?
She as all depending upon where in the world you are.
In Dubai it goes down.
Yes, in nine In non no ECD countries you will tend to find much greater price elisticity because the margin is much lower. And so therefore people in souks and bazaars and jeweler shops cannot afford cannot afford to to not to adjust their prices. You have a higher markup in the West, which effectively allows you to absorb this more one way or the other.
I love busting his chips. It takes so much fun. I know it's not your remit, but I'm going to go there. What does a trade work mean for broken hill properties? What does it mean for falcon Bridge, live in the Yukon life.
What does it mean for the romance of miners or.
Oil dolls, people doing manly things with manly wrenches?
What does it mean?
And it's and it is a hard business too, and they operate in quite unbelievable circumstances. That's one of the things about increasing production in gold is being done in increasingly inhospitable places. Because we've already looked. The low hanging fruit has already been picked. But so far tariffs have not impacted bullion.
Will there be a terrified gold I.
Mean, I suspect not, but I'm not privy to what could happen. So far so far, sir, And we know that because of the way the exchange for physicals have been trading.
On behalf of all of Bloomberg. We're sorry that you had to wait for Havi Bluss to get there.
He is I've known him for years. He's a scholar when it comes to petroleum shaves.
You thank you so much. Will just be seen.
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