Hi. I'm Stephen Carroll, host of Bloomberg's Here's Why podcast. I'm dropping into your feed because we borrowed Joe Wisenthal for our latest episode while he was in London, so we wanted to share it with you. If you like it, you can subscribe to us wherever you usually listen. There is a link in the show notes Enjoy Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, and this is Here's Why, where we take one new story and explain it in
just a few minutes with our experts. Here at Bloomberg, people getting really a bit tired.
They don't know even if something's announced whether two days later it's not changed again. So you really see some fatigue of decision makers.
That's the CEO of Logistics Giant DHL, Tobias Meyer. For executives like him navigating the near daily shifts in US economic policy, it's like driving through fog with no headlights. When the rules are changing so quickly, it's not just hard to keep it's almost impossible to make decisions. Should a company build a new factory, order more supplies, hor or more workers, and where to do any of this? And when you don't know what's coming. You hit the brakes.
But we haven't I don't think spent enough time talking about just the uncertainty out there.
Operating in this highly uncertain environment means go slow.
The higher uncertainty and greater risk of recession, the fear that on a daily basis, you wake up in the morning and not wondering whether which sectors again to have twenty five percent towers, which country's twerffs again to be at one hundred percent. That's where the damage is caused. So here's why uncertainty is an economic killer. Joe Wisenthal, host of Bloomberg's Odd Lots podcasters with me in London. Joe, great to see you, Thank.
You for having me, thrilled to be here.
Tell me, with your brain and knowledge of these matters, how can we define uncertainty in this moment in twenty twenty five.
Yeah, I mean it's a great question, and I think there are sort of two different elements, Which is one is okay, we know there's going to be a change in the trading environment between the rest of the world and the US, right, like that's obviously a done deal, and nobody knows like what type of arrangements will be
profitable in those environments and so forth. So that's a form of uncertainty, but that there's another, you know, the more deeper form of uncertainty is, yes, we know there's going to be a change, but we don't know to what right. And part of that is I don't think, you know, the White House has clearly articulated what it
wants the new environment to be. There's a message uncertainty because various people speak for the White House on behalf of the White House, and there's a lot of ambiguity about the degree to which anything they say actually reflects the thinking of the administration. And when I say the administration, I only mean the president because you know, typically one would think there is a coherent message, but I don't think there is. There's you know, there's rivals within the
White House that have different priorities. And I think that even the President himself, well, he has some intuitions that you know, he believes that tariffs are a tool that can be used to revive the US manufacturing sector. The degree to which that policy has cemented seems still very up in the air.
Can we say that it's more uncertain now that it has been in years. Yeah, I'm sure. How do we sort of measure uncertainty? I mean, you can look at the mats for one example.
Well, look, I think you know, in the two big recent crises that we had, there were clear goals. During COVID, the goal was to stop the spread of the disease and then from an economic side, to sort of replaced all the lost money, you know, all the lost economic activity for those months during lockdown in two thousand and eight and two thousand and nine. The goal was to
stop a bank run. And there was a lot that they didn't know at the time, and they certainly, you know, may have misjudged the speed and scale through which the financial system was deteriorating in two thousand and eight and two thousand and nine. But the goal is to stop a bank run. In this case, you know, as they say, the call is coming from inside the house, so you don't really know what the goal is. Is the goal to improve our ability to manufacture high tech things that
are important for national security? Maybe is the goal to fundamentally restructure the economy such that everyone or a lot more people are in what we call production work. Is the goal to stop the flow of fentanyl is the goal to slow international migration. So whereas in the last two crises, there is certainly a lot of uncertainty, and there's a lot of debating about, well, what's it going to take and how long will it take to stop the spread of a pandemic or a bank run, et cetera.
I don't think we actually even know what the goal is here, and so in some sense, I would say, again, there are various attempts to measure uncertainty. There are market based measures, there are sentiment based measures. But I would say there is a degree of uncertainty now that is in a way incomparable to any recent crisis.
What's the macro picture when we have this level of uncertainty, given that, as you say, it doesn't really have a parallel something we've looked at before.
Well, look, at a minimum, it's very hard to imagine any company in the world committing to like serious investment right now. And what I mean by investment obviously is opening up new locations, opening up new production facilities, expanding headcount, et cetera. Why would anyone do that in this environment? And that's at a minimum. Furthermore, there has been this hit to financial markets of financial tightening, as they say, and so stock prices have gone down, yields on government
debt have gone up, credit spreads have gotten wider. So there is just an increased cost of doing business already on the financial side, and then you layer in the actual literal increase cost of doing business because the goods that a company imports, whether they're for resale or whether
their inputs to production, have also gone up. So you layer in the inherent policy uncertainty and the fact that until there's some policy stability, no one is going to do anything new, on top of the fact that the existing cost we're on day to day operations for both financial and goods have gone up. And this is why many people believe we're either going into a recession in the US or that we're already in one.
At what points do businesses, consumers, markets simply get used to things being so uncertain. Is there a point at which that we all just sort of shrug and move on.
It's hard to imagine that you can ever fully shrug and move on. But the answer to that persistent uncertainty is to take fewer risks to shore up your balance sheet. To cut everything that you can theoretically cut. You know, it's interesting, like in twenty twenty two, when there was significant inflation, there were a lot of concerns. Then you know, the Federal Reserve was jacking up interest rates and so there was a lot of a concern. Then I was like, oh,
we're going to go into a recession. But one of the overriding dynamics of that period was this visceral fear of companies to be short of labor. Because twenty twenty, twenty twenty one, twenty twenty two, twenty twenty three, it was probably the first time in recent corporate history where companies realized that there is not an endless supply of workers out there. I'd say, you ahead, restaurants like, oh, we literally can't operate right because we can't find the
workers in this environment. And so what that means is that there was this real reluctance to fire anyone because you might think, well, you know, things are uncertain, but I can't fire anyone because the last thing I want to do is to be caught short labor. Again. I just had this very visceral experience of being short. We're
in a very different environment right now. You know, arguably, even going into middle of February, which is when the turbulence really began, there were signs of economic slow down a little bit that may had nothing to do with Trump. Maybe you know, it's time for like the fit of reserve to cut rates, signs of the housing market, which is very important stalling out. So even then there was probably already this sort of negative growth impulse emerging in
the US economy. And so I think this time around right now, I suspect that inside many companies the conversations are about what can we cut. We want to preserve capital, we want to preserve cash, we want to preserve operational flexibility, just to survive to the next month, of the next half of the next quarter.
Where do we look for signs that things are calming down, that things are becoming more certain.
I mean, look, I'm a big fan of the stock market as an indicator. The stock market is not as volatile as it was. The policy environment, I guess, you know, is less fluid that it seemed like a we ago, right although that could change it change, you know, but like the pace of new news that's come out is slowed down a little bit. You know, there's only so
far you can really go with that. So like at the margins, things are more certain than they were a week ago, but we're just talking marginal changes.
And we'll have to watch them to see where things go next. Joe, great to have you, Thanks for having me. Joe Wisenthal Houst is brilliant to Odd Lots podcast and author of its newsletter. Thank you. For more explanations like this from our team of three thousand journalists and analysts around the world, go to Bloomberg dot com slash explainers. I'm Stephen Carroll. This is Here's why. I'll be back next week with more. Thanks for listening.