Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
We moved to this speech this morning, and of course the international economics personified by Adam Posen. He is leadership at the Peterson Institute, arguably the toughest act to follow in think tanks. He's done Yelman's duty there and we're thrilled he could summarize all the academics at Peter Institute. Doctor Posen joins us this morning, you have the advantage
of a shocking set of quality, Adam. In international economics, I see Wai mckibbon and Marcus Nolan, the giant Marcus Nolan writing about tariffs, the Adam Posen summary, If we get a certain magnitude of tariff, what does it mean for our listeners and viewers?
Thanks Tom, thanks for monitoring our work. And the new piece by mckibbon and Noland is the latest best thing on what a tariff concentrated on China, Mexico, Canada, would do. I think your viewers, your listeners should think about three sets of magnitudes. First is negotiating tools small and for the most part, limited to a bunch of other countries, a bunch of countries, but not all across the board. That's annoying, a burden on US households, not a huge
deal macro economically or market terms. The second level is what they're talking about, which is potentially putting on tariffs across the board at ten or fifteen percent across almost all countries, almost all industries. That's a genuine large tax increase, and it's a particularly just stortionary tax increase. That's going to be meaningful inflation for American households, and it's going to be more like shortages felt in a lot of areas. So it's not just a question of what percentage of
what part of the economy. And that's part of what the modeling way of Peterson and others are trying to do is tease that out. That also is a world in which you get retaliation almost certainly from China, Europe, Canada, Mexico, everybody. And that's a world in which everything shrinks. Sorry. Third last version, they overdo it we get a recession.
I look at them at the work here, folks. I really want to emphasize the academics here of say William Klein at Peterson was foundational to moving away from President Trump's unilateral and bilateral as Paul would say, transactional discussion, and William Klein said, we don't understand the multilateral ramification of what we do. What would William Klein say, Adam Posen about the multilateral impact of these tariffs.
Well, I hope you'll have bill on soon. But the fact is this is reversing ninety plus years of history in which the US has both as enforcer and as exemplar said, you don't get rich by closing your markets, and other countries have cheated, and it's mostly harmed them more than it's harmed the US, certainly, and more than
it's hard the rest of the world. But in general, we've gone to a world where, for the last twenty five years, the rest of the world keeps integrating and opening, even China and the US has been standing still in terms of integrating and opening. And so this now tips
us backwards. And you know, this is a world where things are going to be more expensive, Innovation is going to be less widely shared, conflict and uncertainty for business, investment is going to be up, and the developing countries of the world will be getting more shut out except for the few very big ones like India and Brazil. And in the end, it's not going to serve any of the goals that President Trump claims he wants. It's not going to close the trade deficit. It's not going
to weaken the dollar. It's not going to lead to better US technology, it's not going to lead to more than a few hundred thousand more manufacturing jobs and most and it probably is going to lead to inflation.
Adam, giving that backdrop here, what's your view of China these days, and given the challenges they face, and given kind of some of the policies we're starting to see coming out of the Trump administration.
You're absolutely right, again in the same spirit of it's a general equilibrium. Other people exist world. China's got deep, deep problems. And you and I started talking about this, you know, eighteen twenty months ago when I was writing in Foreign Affairs that China is economic long COVID, It's not just a real estate problem. It's not just that they're going through a short term downturn. This is fuldamentally about demographics and distrust of the government, and she pushing
too far with intervention, leaving a side. What I know you've talked about in this program many times the irony of the US emulate China just as China is blowing itself up. The real issue is does this make them more desperate to dump goods on you borest of the world. If the US shuts them out, does this make them more desperate to pursue self sufficiency, which will be a vicious cycle downwards for them, but also encourage the US and others to shut up their markets. I think the
bottom line is China. There's a lot of ruin in China, especially in a communist run state, but they're not going to be growing anything like what they were growing at and their moves towards so called self sufficiency are hurting them.
So, Adam, is globalism dead or is it just kind of on pause here?
I think it was on pause. I think we're going through a setback, but it's not one of the most important things about globalization, meaning the not just trade, but the crossing of people, ideas, goods, investment, capital across borders is it's always been with us. You go back thousands of years in ancient China and ancient Rome, they were trading.
With each other.
You go back hundreds of years, and even in the Middle Ages, even in the times of backwardness, there were great amount of trade and interaction because the gains are so large, because people want variety, they want new ideas, they want entrepreneurship and possibility. I don't mean to get teary eyed, but this is the reality. So nobody's going to kill globalization. What they are going to do is make things bad for.
One Adam City. I actually traveled with this. I think I read a couple chapters at Jackson Hole Doug Irwin and Maurice Obsfield floating exchange rates at fifty. I got way too much peace, love and dope on the show. Right now. Nobody's looking for Ecuador, nobody's looking for Mexico. To you and the team at Peterson Field, not to harp on nineteen ninety eight, but are we set out there for the headaches that Stanley Fisher faced in the nineties.
I think Tom, it's good to be looking at these historical analogies, but I think we're set out there for the headaches that we're faced in the eighties, that the US gets so caught up in this mismatch macro policy of loose fiscal tiding belatedly type money and a huge upscore dollar cycle that just continues and that leads to debt.
Gracis around the world now again India, Brazil, possibly Mexico depending on how badly Trump treats them, Indonesia, Turkey now that it's getting attacked together, the largest dm are actually going to do okay, especially in a world of geopolitics.
But the rest of.
The developing world, almost all of Africa, South Asia outside of India, Central America, large parts of South America, outside of Brazil, these are going to be suffering. As the IMF and the World Bank keep talking about that, there's huge amounts of debt that just keeps accumulating because there's not the growth, not the options and goes in. The AB keeps talking about open trade is the way to development for these countries, and the world's shutting down.
Adam. One final question, speaking of trade, do the Red Sox have a prayer? I mean, did they participate in the off season.
It's amazing, Tom. I know you keep track of the Bruins and everything, watching the Celtics, watching the New England Patriots actually have a revival of hope, and seeing the Red Sox just sort of go eh, I don't get it. I don't get it.
Did you buy any Walker Bueler Merch yet? No. Adam and I are on the same pigeon, Doctor Posen, Thank you so much, the gentlemen from Brookline Manchuse. It's Adam pos and of course what a job at the Peterson Institute.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
Ted pic just brilliant in Davos. Why was he brilliant because he reads Sarah Wolf. That's why Sarah Wolf joins us now. Mister Pick starts every morning listening and reading his thematic and macro investing team at Morgan Stanley as well. You're sitting and having a beverage of your choice with mister Pick. What do you say about tariffs? Am I right, that this is a study of magnitude more than anything else to.
Study of magnitude, and it's a study of timing. If we look back to the x axis. The x axis, of course, if we look back to the twenty eighteen, twenty nineteen tariffs, and you read the transcripts among the FMC participants, they were brought looking through the tariffs right that it was a one off price effect, that it wasn't going to be inflationary for the longer run, and they were more worried about the following hit to growth after the tariffs. Can we do the same thing this time?
Not necessarily, it's a little bit more complicated. If we're phasing in tariffs over the course of this year, it's going to be a lot more difficult to discern the effects of tariffs versus the effects of, you know, just real inflation. It's also going to be a price level increase that's occurring over a longer period of time than normal. So it's going to be more inflationary than what we saw back in twenty eighteen twenty nineteen, and so the FED might be in a position where they're going to
have to take cuts off. If that's the case or not cut at all and kind of be on hold until they see all the tariffs play out and what it means for economic activity.
So the Fed's really really going to be looking at this tariff news coming out of the next several months.
Yeah, I mean right now, we were thinking that tariffs were going to be more of a back half of twenty twenty five story and start to phase in. But as we heard from Trump in the last couple of days February first, we could already be seeing tariffs on China, tariffs on Mexico and Canada. Mexico and Canada we're watching very closely. That could be pretty detrimental to US manufacturing.
Our auto supply chains are incredibly interlinked with Canada up in the North computers, electronics, all the type of manufacturing, and so not only is eighty percent of Mexico and Canadian trade with the US, but twenty percent of our trade is with them as well. So this is a bigger deal on.
A game theory basis. Down at Laredo, I've actually been there, folks at the border at the Windsor Bridge over to Detroit's where the hoard comes over from Ontario to watch the Detroit Lions and the Detroit Tigers on a game theory basis, they're going to respawd, then what do we do?
So I think this is all going to be a game leading up to the renegotiation of the USMCA right, which is in twenty twenty six. And so if we put tariffs on Canada and Mexico, they retaliate and put tariffs on the US and that's going to hurt US economic activity. And then I think probably within six months to a year, we pull back the tariffs and that helps the US get some of the things that they want out of Canada in Mexico as we go into twenty twenty six negotiations. So what does the US want?
Right?
They want Canada Mexico to be stricter on immigration from their side of the border. They want the countries to be stricter on fentanyl, so drugs entering the US. And they want to be stricter on Chinese foreign direct investment that's filtering through Mexico and then back into the US.
So has all of this from the Trump administration from the election, has it changed your view of kind of the economy, how to invest, where to invest? Has it changed.
Yeah, it definitely has. I mean, we're looking for more diversification. We think that valuations are a little bit bloated right now for the US and there's some downside risk economic activity. We should be looking to diversify, possibly in Europe. There's some big policy changes happening in France, Germany in the UK this year. We also are looking to emerging markets for opportunity, and so we do think that even though there is the story of US exceptionalism, that things are
a little bit too expensive here. The other thing we're looking at within US stocks is to be selective. So the consumer for example, which we talk a lot about on the show, Internationally sourced consumer goods are going to have a tough year between a strong dollar, between tariffs, and so consumer services might be a nice place to hide again for twenty twenty five.
But Sarah, we're nowhere near job banks or and your team Subercarpenter, Ellen, Zenner, Keeping and Alle until the job market breaks. It's a solid.
Economy, right, Yeah, there's nothing really concerning here in the claims data right initial claims are basically low moving sideways, which is reflecting that we're not seeing layoffs continue claims are trending higher, and we saw that in the report this morning, but that's just because we're not hiring as much. And so if I look at the totality of the data,
labor demand seems to be solid and actually stabilizing. Into the fourth quarter, there was actually a reacceleration in labor income, and so that's really benefiting consumers and consumer spending, and that momentum is carrying through into twenty twenty five. I think the bigger question for this year, right is labor supply, not labor demand. And that's the immigration story that we're
watching very closely. Immigration was adding over one hundred thousand to payrolls the last two years, and so what does that mean for this year? If we close down the border, if we have deportations, we're likely going to see a pretty sharp slow down in payrolls because of losing that labor supply. What can that mean for wages? What can that mean for inflation? And then, as we all care about most, what does that mean for the Fed?
So given that backdrop, how do you expect the FED to proceed this year? I mean, you know there's been if you look at the work function on the Bloomberg journel. It's been all over the place in the past six to nine months. Now, I think we're out of pricing maybe a couple of rate cuts this year.
But yeah, again, people.
Seem to be all over the place. How do you guys think that's going to play out?
I mean, we still think that the Fed's going to be able to deliver about two cuts. Of course, we're a little bit more focused on the risk of tariffs coming earlier and curbing that. So we're a bit more long duration than perhaps what markets are pricing in right now. Right now, right there's a fifty percent chance for a second cut. We think that that can move high or
to fully price in two cuts. Yeah, because you know, we're a little bit more optimistic that the inflationary effect is not going to be as aggressive and that there's going to be that negative growth effect from immigration and higher tariffs, because right now we're seeing that consumers can't really take that much price.
I got to get this in January flies By. We're getting near a February jobs report. Yesterday I saw a nice study of potential revisions. Yeah By BLS model it in for us. How much does it bring it down.
Yeah, this is a huge catalyst. So probably it's going to revise down twenty twenty four payrolls by about eighty six thousand a month, So bringing that number down to closer to a one hundred and ten to one hundred and twenty thousand jobs a month.
Wow, what's okay to me? That's a wild number, Am I wrong?
No, it's going to be significant. I think that More important is probably what we see on the household survey, though, because the payroll survey, the establishment survey, is being pretty muddied by this immigration story. What you're seeing in the revisions is that they're really they're benchmarking to the QCW report, which tracks initial jobless names.
Okay, I got I got thirty seconds left. I got to make some news. When do we get five percent unemployment?
Not in our base case? And I think unemployment rate can actually not in our base case, not even in the barecase. No, listen, if we lose labor supply from immigration, that's down on the unemployment rate.
Yeah, that's right.
So how do we think that I so flunk that on the example.
I know exactly, I mean, I don't know.
It's interesting. So I have to see how that plays through time with the labor market because people me telling us it's been in the immigration okay, Park, So are you going to.
Give me a three to nine out unemployment if we get major revisions.
Which you know, yeah, I think for February, what we're going to want to be watching is what happens the unemployment rate. We're going to get changes to the number of people unemployed, changes to the labor force because it's rebunchmarking to new immigration numbers. We just want to know how tight the labor market is, so we want the unemployment sare well.
Thank you so much with MORGANA. Shelly. That was brilliant, folks.
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.
Greg Peters, with his leadership in fixed income, leads the way. Greg, am I clipping a coupon? Or can I dream of total return?
Thanks?
Tom, I think it's a little bit of both. But you talked about before I joined back to normal. This is what normal looks like. So I think what the expectation should be is clip the coupon, earn the yield, and this is what fixed income was ultimately designed for.
Right.
The era of zero interest rates and hoping for toal return is the abnormality.
This is normal.
Bronze, that exactly, Paul, and I was equity guys were just saying, bronze what he just.
Said exactly, So Greg in the fixed income market, now it feels like I got some options here. I mean, I can send it to your treasury with the US government four point three percent, or I can think about taking some credit risk. Where are you guys these days?
Yeah, so you know, credit risk is a little more tricky.
So the way I think about credit is that it's an affirmation of the growth story, meaning that credit spreads are quite quite tight. You know, the richest decile that we've seen over the past you know, thirty years, and that basically reaffirms the strong macro. Right, so the underlying economy is quite good, the corporate fundamentals equally as good, and so credit spreads reflect that from an investing perspective.
From our perspective, at PGM is are you really getting paid for the risk and the uncertainty and if things do go awry, And the answer is not really, So we're quite cautious on the credit side. And it's not a statement of fundamentals, it's a statement around valuations.
So Greg, for you guys at did you change your outlook, your philosophy, your return expectations after the election? Did anything change for your one way or the other now with a new administration.
Come in not decidedly.
I think the story that gets lost in here is that you know, before the election the economy was pretty strong, so this is a very different macro environment than Trump two point zero versus one point zero, at least from the starting place.
So no, not a lot has changed.
What has changed, though, is the move way from the focus around central banks and the FED and that policy and more around the uncertainty of government policy, and if you put it all together, I do think it has had an effect on the markets clearly, but from a bond market perspective, I think it has on the margin pushed up yields because of the concern around inflationary effects and then growth effects too, So you know, the big move in the bond market hasn't been around inflation. It's
been around real yields. I know you love that measure, Tom, and real yields are up, you know, almost seventy five basis points.
From the you know, end of the third quarter.
So it's been a real yield move which comports really well to the equity story. So it's the rerating of growth that you're seeing across the bond market and the equity.
You can come on anytime, Greg Peters with us, with Peach, and we will continue here. We welcome all of you on your commute. Huge response College Station, Texas. Just men were the fans started say good morning to all of you in Texas and of course on YouTube across the nation. After your commute in your office at home YouTube subscribe to Bloomberg Podcast. Greg and my ute, A guy named John Templeton took me by myself. I was so honored, and he said in a Tennessee accent, Tom, there will
be a shortage of bonds. I saw the French oat auction the other day and was flabbergasted at the interest, Greg Peters, is there a shortage of bills, notes and bonds?
There is what we call the opposite of a shortage, So there's just a deluge and that's what you're seeing across the globe, honestly, is that you're seeing this on lenting supply of sovereign debt hitting the market. There's lots of chatter within the bond market around this notion of term premium, which is really, if you distill it, it is.
Supply and demand.
How much additional premium do investors require? And you know that's on the rise, and the reason why it's on the rise is because there is this legitimate and growing concern around the debt and deficit and quite frankly, there's just so much supply hitting the global bond market that there has to be a repricing in term premium. So no, sir John, you know, we kind of have the opposite issue.
The real question that you know we're pondering and it doesn't seem to have any effect, is this potential crowding out effect. Right, So the theory is there's just so much sovereign paper hitting the market that crowds out of corporate paper. But we haven't seen that either. So there's such a demand for fixed income securities globally that we haven't seen any sense of crowding out.
Greg.
We hear a lot about US exceptionalism as it relates to economic matters. How do you guys think about fixed income opportunities outside the United States.
Yeah, so I'm definitely been on this US exceptionalism story. The opportunities this year are actually pretty broad, and so what's different about this year versus the previous few years, I think is the dispersion, the disparity and the various dislocations. So we're in a different macro than we were, So you're seeing different inflation regimes, you're seeing different growth regimes, and of course as a response, different kind of central
bank actions. So there's actually better opportunities to go global today than.
It's been in some time.
Right, So you know the curves are priced differently, they should be priced differently.
So you know, the opportunities in.
The UK relative to the US, relative to parts of the Eurozone at all, is quite robust. It's just not one single market. It is truly a global market, and I think there's alpha to be sourced there.
Greg. Maybe a Robert Tripper tem Percelly question, but I'll go to you on it. Do you stay up at night, worried about the debt and the deficit or do we have a growth rate that can sustain this madness?
I do worry about it.
The scary part about the debt and deficit is that there's no magical number. There's there's no you know, one hundred and fifty percent debt to DP whatever you want to call, and the markets wake up and say this is a p problem. And you're getting a whiff of it globally, right. You clearly got it from the Minji mini budget crisis in the UK. You got it again in the UK in the fall. You're seeing it in France. So when you're in such an indebted society, these things matter,
you just don't know when it matters. So I do believe that the risk on the table for the global markets, the US market is a debt and deficit, and so it's really important for policy makers to not ignore it.
I know that's a double negative, but.
To focus on it, to say, hey, this does matter, because I do worry about, you know, the.
Bond market taking over here.
So I think this is the number one issue on the table going forward, and it just cannot be ignored.
So what are the right now where do you see just the best value in the marketplace? Great, because I know we've talked that. You mentioned credit spreads are so tight here, where's value if anywhere?
Yeah, So, I mean I do think it's back to normal, which is a carry market. So we're not looking for this fantastic full return type of marketplace. So it's about carry, and so we're building portfolios based on carry. And so we want to just own what we call kind of safe credit that just rolls down the curve, flip the coupon, and not take a tremendous amount of credit risk just because we don't think we're getting paid for it. Structured products is an area that really fits that bill well.
And then.
You know, even though we're tactical, but if you kind of zoom out and think about what fixed income does in an overall acid alloication scheme, it is the protective measures, right, and so if the world does, you know, go pair shaped, things don't play out fundamentally as we think, having duration in a balance portfolio is critically important and really helpful. So we really think there's scope for that in.
A balance way. And so that's that's where we see the value.
Very cool, Greg we're going to zoom in and know we see this on YouTube, folks, Gregor and Peters with arsenal Merch in the office. I mean, Greg, do they have a chance of catching Liverpool here? What do you think?
I don't think so, Tom, but I think they're a better position than the Tots the.
Edge of relegation. I mean, get out they called do you know, Paul, they call the standings of tables the tables the tables if you're informed you look at the NFL tables, or that the Tots are on the edge of relegation. I mean, it's like an outrage to say, at least Greg Peters, thank you with I learned a lot there that was really wonderful.
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 app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Or say good morning to you, and of course the front pages. It's a Lisa Matteo Hour. Lisa, what do you have this morning?
All right?
This one actually is some good news. So a new study says college enrollment rebounded since the pandemic. This was a study the National Student Clearinghouse Research Center, so the data says undergraduate enrollment neared sixteen million in the fall of twenty twenty four. But this really stood out. Freshman headcounts grew five point five percent. A big part of that enrollment of students over the age of twenty one, so I'm not sure if those who were putting it
off are now going back. And then the traditional freshmen that come right out of high school a lot of them, the biggest rate were from students from low income neighborhoods, particularly community colleges. But what really stands out to me is this is the time where the fast form was such a headache. It was a nightmare for parents, and despite ile that, the college enrollment is still going up.
And because it comes at a time when people really are questioning the value of a college education, given the cost is a worshiper the debt that a lot of kids have to take on to get that degree. Is it better to go to a trade school or to do some on the path or the community college community country exactly.
I don't look at Reddit too much, but a little bit of the Reddit feed that comes in to my my email feed. The angst of kids having to pay these tuitions sixty seventy ninety thousand years. Yep. Sometimes it's out of control.
It is.
And there's actually there's an article in the terminal too if you look it up, that says financial aid is increasing, so hopefully that's going to help. But I've been my daughter's on the college and we've been to open houses and they are packed, like official the administries are saying this is like some of the highest rates.
COVID thing is it.
Is exactly okay, this is also post COVID thing. The wall streets are has this article here. Their screens are taken over classrooms right kindergarten through high school. But educators are starting to wonder and question if this is really
helping or hurting kids learning. So there's a debate, right the teachers saying that they help create more engaging lessons, but then you have others are saying it's distracting, it's burning out teachers because now teachers have to find a way from stopping students playing the online games and watching videos in between when they're in the classroom. So they're saying it's distraction. Parents are trying to take their kids opt out of technology. Some students are just tired of it in general.
So it justs this debate.
Yeah, same, do you think like I have trouble taking an exam on the screen. I flunk the last thirty Bloomberg exams. But but do you think you retain us much off an iPad? I don't think so.
I think no. I think when I write, I retain it.
That's mine.
Yes, I totally agree with that, and I keep trying to, you know, tell my doy like you're still doing the flash cards and writing it out, and you know, because I feel like it helps you remember it a lot better.
For each company I covered on Wall Street for thirty years, I had a notebook for each company for all my notes, for all the earnings releases. I had like fifty notebooks for Disney, fifteen notebooks for and all my notes were done, I felt like when you wrote it down, but that's just me.
Maybe can we have five second audible?
Yes?
Afterthought, just got our best report card. Oh goodness, there you go.
No chromebook in his home. Continue And this one I found interesting because remember Tuesday when Larry Ellison you know, co founder of Oracle shared the stage of White House President Trump. They announced that Stargate deal. Well now sources telling New York pos that that backing it could save his son David Skydance Media to gain that approval that it needs to merge with Paramount. They're saying, maybe that's
some of the reason behind it. Paramount also considering settling a ten billion dollar lawsuit President Trump filed against the company over bias ahead of the merger, so that kind of stood out when he.
Sat up there.
There's no regulatory problem for Skydance buying Paramount, but to the extent that there's any litigation out there, maybe currying favorite with the president's not the worst thing we've seen it time and again.
Thank you so much too, Thank you so much on 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 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