Latest / Bloomberg Intelligence / PCE Inflation Picks Up Ahead of Tariffs

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PCE Inflation Picks Up Ahead of Tariffs · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
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  Speaker 2: Latch of economic data today.
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  Speaker 3: We got the PCEE data, the inflation data, which is
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  Speaker 3: key for the Federal Reserve. I got the University of
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  Speaker 3: Michigan a sentiment data which is becoming more and more
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  Speaker 3: important to a lot of people's people try to sess
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  Speaker 3: out any potential impacts on this economy from changing terraff policies.
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  Speaker 3: So Michael McKee joins is here Bloomberg International Economics and
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  Speaker 3: Policy corspot It might be a lot of data points today.
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  Speaker 3: What kind of were you focusing on?
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  Speaker 4: Well, a couple of things, because the income and spending
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  Speaker 4: numbers were interesting. In their incomes were up, A lot
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  Speaker 4: of that was transfer payments, but wages still growing strongly
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  Speaker 4: about half a percent a month, and spending was rebounded
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  Speaker 4: some but most of that was durable goods and it
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  Speaker 4: probably was people buying ahead, trying to get ahead of
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  Speaker 4: tariffs which then are reflected in the University of Michigan numbers.
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  Speaker 4: The big drop in the headline number and the inflation
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  Speaker 4: numbers of one year inflation is now up to five
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  Speaker 4: percent and five to ten years up to four point
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  Speaker 4: one percent. That's going to get the FEDS attention. Inflation
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  Speaker 4: in the PCE numbers wasn't a big deal because it
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  Speaker 4: came in very close testaments. Although the core rose two
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  Speaker 4: point eight percent from two point seven percent, so that
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  Speaker 4: is a bit of bad news. And on a three
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  Speaker 4: month basis, the numbers are bad, but everybody kind of
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  Speaker 4: knew was coming with that.
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  Speaker 5: How much weight are you placing on this you miss report.
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  Speaker 4: It's a data point to look at and it gives
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  Speaker 4: you sort of context around what's going on. But consumer
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  Speaker 4: behavior doesn't necessarily follow consumer sentiment. People don't. It's not
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  Speaker 4: a good predictor for what's going to happen with consumer spending.
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  Speaker 4: It's more of a coincident predictor. And we've seen this
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  Speaker 4: decline for Michigan sentiment. When we get the retail numbers
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  Speaker 4: for March next month, we will probably see some softness
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  Speaker 4: because people were if they were feeling bad, they probably
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  Speaker 4: weren't spending.
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  Speaker 2: But it doesn't tell you what.
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  Speaker 4: They're going to do in the future.
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  Speaker 3: Consumers expect prices to rise at an annual rate of
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  Speaker 3: four point one percent over the next five to ten years,
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  Speaker 3: the highest since February of nineteen ninety three.
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  Speaker 2: So you were right to call that out.
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  Speaker 3: That's that's not nothing.
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  Speaker 2: So that you're right. That's going to get defense.
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  Speaker 4: Yeah, that's going to get defense attention. They don't like
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  Speaker 4: the idea that inflation expectations start to get unmoored. A
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  Speaker 4: lot's going to depend on what comes out of the
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  Speaker 4: White House next week. And because we're all just flying
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  Speaker 4: blind at this point, Tom Barkin from the Richmond FED
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  Speaker 4: said yesterday there's a fog of uncertainty. But this isn't
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  Speaker 4: your usual fog. This is a pull over to the
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  Speaker 4: side of the road and turn your brights on the
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  Speaker 4: kind of fog because you can't see a thing out there.
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  Speaker 4: And once we get some idea of what the tariffs
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  Speaker 4: are actually going to be, then people can start modeling
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  Speaker 4: them and we'll get a much better impression of what
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  Speaker 4: it might do to the economy.
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  Speaker 5: With all this uncertainty out there, how do you think
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  Speaker 5: that the FED is really mapping out their next steps.
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  Speaker 2: Well, they can't.
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  Speaker 4: I mean, they're doing some what if scenarios right now.
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  Speaker 4: But I think starting on Wednesday, everybody's gonna be working
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  Speaker 4: overtime at all the FED offices trying to come up
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  Speaker 4: with ideas for this. And then Friday we hear from j. Powell,
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  Speaker 4: so we'll get straight from the horse. We'll get what
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  Speaker 4: the FED thinks of all this. They may not have
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  Speaker 4: a great idea yet, and as some Albert Alberto Musselam
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  Speaker 4: from Saint Louis said earlier this week, it's the second
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  Speaker 4: round effects that worry you. It's you know, obviously prices
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  Speaker 4: are going to go up for certain goods that come
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  Speaker 4: across the border, but then how does that affect other
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  Speaker 4: goods that are either manufactured here or brought in, and
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  Speaker 4: how does it affect consumers expectations.
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  Speaker 2: It's probably gonna take some.
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  Speaker 4: Months before we have a real view.
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  Speaker 3: Well, last night up in Greenwich, Connecticut, I had an
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  Speaker 3: interviewed former FED Vice Chairman Richard Clarida, and I think
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  Speaker 3: the biggest takeaway was he doesn't think DOSEE is going
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  Speaker 3: to come to the Federal Reserve Bank, but you can't
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  Speaker 3: say for sure. But that was one of the questions
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  Speaker 3: from the crowd, you know.
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  Speaker 4: So, yeah, it's an interesting situation because the FED is
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  Speaker 4: theoretically an independent agency under law, and the Trump administration
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  Speaker 4: seems to not care about that being the law.
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  Speaker 2: The twelve regional banks.
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  Speaker 4: Are essentially private, they're not, They're only quasi governmental, and
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  Speaker 4: so the theory is doose can't affect them, right, but
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  Speaker 4: who Yeah, what.
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  Speaker 2: Good is theory these days? Exactly?
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  Speaker 3: All right, Michael McKay, thank you so much for joining us.
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  Speaker 3: As always, Michael McKey, international economics and policy correspondent for
• 5:09
  Speaker 3: Bloomberg News, joining us live here in our Bloomberg Inactive
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  Speaker 3: Brokers studio.
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  Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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  Speaker 3: Let's check in with Nathan Dean. Nathan Dean is our
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  Speaker 3: senior policy Alice or Bloomberg Intelligence. He's down in Washington,
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  Speaker 3: d C. That's his lot in life, and he follows
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  Speaker 3: all the policy stuff coming out of Washington. You know,
• 5:42
  Speaker 3: there's so much stuff coming out there that all I
• 5:43
  Speaker 3: do is just read his stuff because I know he's
• 5:45
  Speaker 3: focusing on the important stuff, and if he's looking at it,
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  Speaker 3: I'm going to look at it. Nathan Dean, thanks so
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  Speaker 3: much for joining us. Nathan, talk to us about terroris.
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  Speaker 3: I think we've got Liberation Day next Wednesday. What's the
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  Speaker 3: feeling inside the beltwagh about how this administration's pursuing trade policy.
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  Speaker 6: Yeah, so you know, April second, Liberation Day, it's going
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  Speaker 6: to be a really fast day.
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  Speaker 2: Lots of red lines on the terminal that day.
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  Speaker 6: But I think that what's going to happen is you're
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  Speaker 6: going to see a combination of tariffs that actually come
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  Speaker 6: in immediately, you know, President Trump. You know, we've been
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  Speaker 6: talking about automobiles all week, for example. You're also going
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  Speaker 6: to see some additional tariffs that are maybe just announcements
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  Speaker 6: saying and I think this is going to be more
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  Speaker 6: in the reciprocal camp, saying, like a tariff on a
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  Speaker 6: certain country. We're looking at the European Union and we're
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  Speaker 6: interested to see what the White House does in terms
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  Speaker 6: of value added tacks, because the White House has taking
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  Speaker 6: the approach that that is considered a tariff, and then
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  Speaker 6: subsequently you are going to see the creation of this
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  Speaker 6: external revenue service. I think this is just a rebranding
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  Speaker 6: of an already existing agency or an already existing group.
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  Speaker 2: And I think this is more of a pr.
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  Speaker 6: Exercise to showcase how many tariffs come in so ultimately
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  Speaker 6: the Republicans can pass a tax package later this year.
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  Speaker 6: But again, lots of things happening, and we just continue
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  Speaker 6: to go back to our clients and say there's a
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  Speaker 6: lot of bluster out there, but incrementally these tariffs are
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  Speaker 6: coming on board. And for those in the auto space,
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  Speaker 6: you know exactly how the impact is.
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  Speaker 5: I mean, everyone really is bracing for April. Second, what
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  Speaker 5: are people feeling on the ground as you talk to sources,
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  Speaker 5: especially since we did get that tariff news for autos
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  Speaker 5: that was a bigger magnitude than expected.
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  Speaker 6: So you know, this is where it's kind of hard
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  Speaker 6: because there is a boy crying wolf mentality going around
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  Speaker 6: some people, and especially I think in some of the
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  Speaker 6: investors I talked to you from New York because they
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  Speaker 6: say that President Trump says we're going to do reciprocal tariffs,
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  Speaker 6: We're going to do on everything, and then Bloomberg News
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  Speaker 6: has great reportings saying no it's going to be sectoral instead.
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  Speaker 6: But I do think that there is this anticipation that
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  Speaker 6: something is going to happen on Tuesday. Look, President Trump
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  Speaker 6: is hyped it up. So if it's automobiles, it's pharmaceutical,
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  Speaker 6: potentially it could be recicrable tariffs on countries like that,
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  Speaker 6: that something is coming on April. Second, I would look
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  Speaker 6: for the reporting over this weekend to see if we
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  Speaker 6: get any indication of that, because usually it will start
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  Speaker 6: to leak out. I would say about twelve twenty four
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  Speaker 6: hours in advance of Tuesday. But you know, come Tuesday,
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  Speaker 6: there's going to be a lot of red lines on
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  Speaker 6: the terminal.
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  Speaker 3: It's interesting, Nathan. We were talking to major Garrett CBS
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  Speaker 3: Television and he's going to be hosting Face Nation this Sunday.
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  Speaker 3: He says their program has been out to the White
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  Speaker 3: House asking for a voice on TARIS and they've gotten
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  Speaker 3: no response. And he was suggesting that perhaps that means
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  Speaker 3: the White House is not ready to really talk about
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  Speaker 3: their policies because they don't haven't decided on it yet.
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  Speaker 3: Would that surprise you No.
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  Speaker 6: Actually, I think that's in line with our expectation as well.
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  Speaker 6: I mean, look, ultimately it's just one person, this is
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  Speaker 6: President Trump. So yes, you could talk to the Department
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  Speaker 6: of Commerce, you could talk to the US Trade Representative,
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  Speaker 6: you could talk to State and you're going to get
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  Speaker 6: three separate different answers on what.
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  Speaker 2: This tariff policy is.
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  Speaker 6: Now, why do we think President Trump's doing tariffs fairness?
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  Speaker 6: But ultimately I think a lot of it is trying
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  Speaker 6: to drive manufacturing back to the United States. But if
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  Speaker 6: you are another country and you give President Trump a
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  Speaker 6: great deal, he could say, I want to have a
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  Speaker 6: great deal. So again, it's very hard to predict. But
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  Speaker 6: incrementally these tariffs are coming on board. And we just continued,
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  Speaker 6: why is our clients that you have to prepare for them?
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  Speaker 6: Because you don't want to be the boy who's cried
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  Speaker 6: wolf too many times.
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  Speaker 5: Nathan's the leadest with this department. That's been in all
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  Speaker 5: the headlines. What's going on with Doze right now?
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  Speaker 6: So you know, bloomerg News is reporting the DOGE has
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  Speaker 6: just meant gone over to the SEC this morning. This
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  Speaker 6: is the first time that you know, it's been reported
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  Speaker 6: that they're over there. But Elon Musk also just gave
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  Speaker 6: a little bit of a tidbit yesterday saying that he
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  Speaker 6: anticipates a lot of DOGE work we up by the
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  Speaker 6: end of May, and that could be good for Tesla investors,
• 9:28
  Speaker 6: especially those that want Elon Musk to return back to
• 9:31
  Speaker 6: the car companies. So I would say that, you know,
• 9:34
  Speaker 6: the DOGE Committee is still going through all the different
• 9:36
  Speaker 6: agencies and they're still looking for areas to cut, but
• 9:39
  Speaker 6: in terms of cutting the deficit, they really need Congress
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  Speaker 6: to do that because mandatory spending, there's not so much
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  Speaker 6: DOACHE can do there unilaterally. So I would just say
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  Speaker 6: that I think what's going to happen is the DOGE
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  Speaker 6: is going to continue to work in these agencies for
• 9:52
  Speaker 6: the next few months. But as we get closer to
• 9:54
  Speaker 6: this tax extension debate, in this mandatory spending and debates
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  Speaker 6: on Medicaid for example, that's and I think a lot
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  Speaker 6: of the big ticket items are going to be debated
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  Speaker 6: because DOJ I don't think is going to be able
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  Speaker 6: to touch the mandatory spending right now.
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  Speaker 3: All right, So we got the DOGE, we got the tarriffs.
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  Speaker 3: Big one for Wall Street is taxes. Talk to us
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  Speaker 3: about just the broad tax package and the tax discussion
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  Speaker 3: as it kind of fits in with budgets and all
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  Speaker 3: that kind of stuff.
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  Speaker 2: That's the big stuff.
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  Speaker 6: Yeah, this is the big, beautiful bill that President Trump
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  Speaker 6: likes to talk about. Essentially, they want to extend the
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  Speaker 6: twenty seventeen tax cuts. Now, in order to do that,
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  Speaker 6: using this process they called reconciliation, Congress has to figure
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  Speaker 6: out how to pay for around four point six trillion
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  Speaker 6: dollars and they have lots of time.
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  Speaker 2: They have to do it by the end of this year.
• 10:40
  Speaker 6: But next week we are seeing momentum on the Senate
• 10:42
  Speaker 6: adopting a budget resolution. Now, if you see this headline
• 10:45
  Speaker 6: comes out says Senate adopts tax package, they're adopting a blueprint.
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  Speaker 2: There's no specifics in here.
• 10:51
  Speaker 6: All they're doing is adopting a blueprint that allows them
• 10:53
  Speaker 6: to continue to negotiate. Now, Speaker Johnson wants everything wrapped
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  Speaker 6: up by Memorial Day. I don't think he can get there.
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  Speaker 6: I would be more I would think it's going to
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  Speaker 6: more likely be after the August recess. But the biggest
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  Speaker 6: question what comes to the taxes is that, yes, I
• 11:06
  Speaker 6: do think the taxes are going to be extended, but
• 11:09
  Speaker 6: what's the impact on the deficit. Because if they Republicans
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  Speaker 6: can't figure out a way to make this budget neutral,
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  Speaker 6: then potentially you could get in a situation where the
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  Speaker 6: deficit increases even more than what the Doge Committee's trying
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  Speaker 6: to do. I think they'll eventually try and figure something out,
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  Speaker 6: but it's one of the biggest questions for investors at
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  Speaker 6: this point.
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  Speaker 5: And how are Democrats viewing this?
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  Speaker 6: The Democrats are out of the picture on this because
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  Speaker 6: what the Republicans are doing is that they're using this
• 11:34
  Speaker 6: process called reconciliation. This is the same way President Biden
• 11:37
  Speaker 6: put the Inflation Reduction Act, the same process that President
• 11:39
  Speaker 6: Obama put Obamacare through, but allows you to avoid the
• 11:42
  Speaker 6: Democrats and avoid the filibuster. And you need a majority
• 11:45
  Speaker 6: vote in the House, the majority vote in the Senate.
• 11:47
  Speaker 2: And this is why at least the Phonic.
• 11:49
  Speaker 6: Was pulled back from the un ambassadorship, because the Republicans
• 11:52
  Speaker 6: need every single vote in that House in order to
• 11:55
  Speaker 6: move this tax package forward.
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  Speaker 3: So what's the timing here of some of this? Like
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  Speaker 3: again I got back to I'm going to pay attention
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  Speaker 3: when there's money involved, when Congress has going to be
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  Speaker 3: allocating money here. So for some of these tax packages,
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  Speaker 3: is it really a year end do we have that
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  Speaker 3: much time or do we have some interim mileposts that
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  Speaker 3: need to be hit.
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  Speaker 6: Well, you know, the biggest interim on I would say
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  Speaker 6: there's really three things the markets should be paying attention
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  Speaker 6: to for twenty twenty five. The first is tariffs. We
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  Speaker 6: talked about that. The second is the debt ceiling. Now
• 12:23
  Speaker 6: there's a lot of debt ceiling discussion and when this
• 12:26
  Speaker 6: is going to happen. Most people think that X date,
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  Speaker 6: the date in which treasury runs out, is going to
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  Speaker 6: be in late.
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  Speaker 2: July and August. Congress is going to have to figure
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  Speaker 2: out something.
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  Speaker 6: Now President Trump wants to include this in that one big,
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  Speaker 6: beautiful bill, but we're telling our clients it doesn't matter
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  Speaker 6: whether it's included or not. We do think Congress is
• 12:42
  Speaker 6: going to raise the debt ceiling, and I don't think
• 12:45
  Speaker 6: you know, you could see some headlines and some scary
• 12:47
  Speaker 6: headlines associated with fixed ink of markets, but I think
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  Speaker 6: Congress is going to be able to figure that out
• 12:52
  Speaker 6: and then this tax debate extending it by the end
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  Speaker 6: of the year. And I would just say that you know,
• 12:56
  Speaker 6: Congress in Washington, whether it's Republican controlled, they're Democrat controlled,
• 13:00
  Speaker 6: they don't like doing things until.
• 13:01
  Speaker 2: They absolutely have to do it.
• 13:03
  Speaker 6: So you see this debate, you see these political headlines,
• 13:06
  Speaker 6: and you see these red lines in the terminal. But
• 13:08
  Speaker 6: I don't think until they're actually faced with this idea
• 13:11
  Speaker 6: that unless they do something, then bad things happen.
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  Speaker 2: That's when you get a deal.
• 13:15
  Speaker 3: Headline crossing the Bloomberg terminal. Trump Carney agreed to meet
• 13:19
  Speaker 3: after Canada's election, So again, maybe they can dial the
• 13:22
  Speaker 3: rhetoric down a little bit. They're speaking of raising the
• 13:25
  Speaker 3: debt sling my number four offspring call for me yesterday.
• 13:27
  Speaker 3: He wanted to raise effectively the debt ceiling. I said no,
• 13:31
  Speaker 3: And this is what Congress has to say. I told him,
• 13:33
  Speaker 3: do one of two things, or both cut your spending
• 13:35
  Speaker 3: or generate more revenue for yourself. And that's basically I
• 13:38
  Speaker 3: don't know why Congress can't say that.
• 13:41
  Speaker 5: If only a transferred. I'm curious here we're talking about.
• 13:45
  Speaker 5: We're looking at Paul Atkins, right. This is Trump's nominee
• 13:48
  Speaker 5: to the chair of the SEC. He's saying that his
• 13:51
  Speaker 5: top priority in that role would be establishing a new
• 13:53
  Speaker 5: framework for crypto regulation. What are you hearing on this?
• 13:57
  Speaker 6: Yeah, so yesterday, Senator sorry, a Commissioner ACT. Former Commissioner
• 14:01
  Speaker 6: Akins had his Senate confirmation hearing, and it was very
• 14:03
  Speaker 6: positive for the crypto industry. In his opening statement, he said, look,
• 14:07
  Speaker 6: and I'm paraphrasing here, I want to bring regulatory clarity
• 14:10
  Speaker 6: to an industry that doesn't have it, and that's just
• 14:13
  Speaker 6: the noise to you know, that's what essentially Robinhood and
• 14:16
  Speaker 6: coinbase and a lot of these other crypto players want
• 14:19
  Speaker 6: to hear. Now, you know, we do think he's going
• 14:21
  Speaker 6: to be confirmed. We don't think that there's really going
• 14:23
  Speaker 6: to be any hiccups with that. And I think he's
• 14:25
  Speaker 6: going to have three major priorities in twenty twenty five,
• 14:28
  Speaker 6: crypto essentially making the enforcement risk decrease to the point
• 14:32
  Speaker 6: where it's not so much of a risk anymore. I
• 14:34
  Speaker 6: would also note that crypto and the ICEC only has
• 14:36
  Speaker 6: authority over securities, so for things like bitcoin or considered commodities,
• 14:40
  Speaker 6: Congress still needs to act on this. The second thing
• 14:43
  Speaker 6: is just bringing capital formation back. This is you know,
• 14:45
  Speaker 6: a lot of things in terms of private credit, making
• 14:48
  Speaker 6: it easier for investors to invest into private funds. There's
• 14:51
  Speaker 6: some rule makings that he potentially could do there and
• 14:54
  Speaker 6: then finally market structure. Now this is important for like
• 14:57
  Speaker 6: the New York Stock Exchange NASDAK Commissioner Atkins, it didn't
• 15:00
  Speaker 6: really exactly like the way that market structure developed back
• 15:03
  Speaker 6: in the early two thousands.
• 15:05
  Speaker 2: So I think he could do some tweaking.
• 15:06
  Speaker 6: There, but that's going to be more of a long
• 15:08
  Speaker 6: term strategy than a short term.
• 15:09
  Speaker 3: You're a fount of knowledge, dude, I don't know how
• 15:11
  Speaker 3: you keep it all straight. Nathan Dean, senior policy analyst
• 15:14
  Speaker 3: at Bloomberg Intelligence down there in DC, he's in the swamps.
• 15:18
  Speaker 3: We throw him down there. Somehow he figures it all
• 15:20
  Speaker 3: out and he puts it down. He's got great research.
• 15:22
  Speaker 3: Go to b I, go look at the policy stuff.
• 15:24
  Speaker 3: He tells you what's going on in Washington, what it
• 15:27
  Speaker 3: means for markets, what it means for individual industries, individual companies.
• 15:31
  Speaker 3: That's kind of research Nathan and his team are doing
• 15:33
  Speaker 3: down there in Washington. And as we can tell just
• 15:35
  Speaker 3: in the market performance this year, you got to know
• 15:37
  Speaker 3: what's going on in DC because it moves markets in
• 15:40
  Speaker 3: a big way.
• 15:43
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 15:47
  Speaker 1: weekdays at ten am Eastern on Applecarclay and Android Auto
• 15:50
  Speaker 1: with the Bloomberg Business app. Listen on demand wherever you
• 15:54
  Speaker 1: get your podcasts, or watch us live on YouTube.
• 15:57
  Speaker 3: Let's not geopolitics here, because that remained front and center,
• 16:01
  Speaker 3: not just on a geopolitical front, but also for investors
• 16:04
  Speaker 3: and financial markets. Kristin Sorry, Kirsten Fontain Rose joins us.
• 16:07
  Speaker 3: She's a president of Red six Solutions. She's also a
• 16:11
  Speaker 3: senior Fellow at the Atlanta Council. I was a senior
• 16:13
  Speaker 3: director for the Middle East in the last US administration.
• 16:16
  Speaker 3: Kirsten talk to us about how this world order is
• 16:19
  Speaker 3: being reshaped here, the US pulling back on a lot
• 16:23
  Speaker 3: of its prior commitments, whether you know it's some Europe
• 16:27
  Speaker 3: or other parts of the world, and we saw some
• 16:29
  Speaker 3: European countries, most notably Germany, say we're going to have
• 16:32
  Speaker 3: to step up here. How do you think this process
• 16:35
  Speaker 3: is going to play out over the next six months, year,
• 16:37
  Speaker 3: two years, three years.
• 16:39
  Speaker 7: In the US perspective, this europe stepping up is really
• 16:42
  Speaker 7: good news. It's an ask that has been taking place
• 16:45
  Speaker 7: for several years now and wasn't really taken seriously by
• 16:47
  Speaker 7: Europe until the US came in and said the post
• 16:50
  Speaker 7: World War two global order that gave a US security
• 16:54
  Speaker 7: umbrella and provided sort of unlimited assistance in terms of
• 16:58
  Speaker 7: both humanitarian assistants and development assistance is crazy expensive and frankly,
• 17:04
  Speaker 7: it's been bankrupting the US, and for this kind of
• 17:07
  Speaker 7: world order to continue, the rest of the world is
• 17:11
  Speaker 7: going to have to put some skin in the game.
• 17:13
  Speaker 7: So the US has a national debt right now that
• 17:15
  Speaker 7: costs it two billion dollars per day to simply pay
• 17:18
  Speaker 7: the interest on That is the cost of maintaining this
• 17:22
  Speaker 7: kind of security umbrella, this kind of assistance umbrella, and
• 17:25
  Speaker 7: without other countries carrying a little bit more of the burden,
• 17:28
  Speaker 7: the US simply can't continue that kind of world order.
• 17:31
  Speaker 7: So this is more balancing in the US view. It's
• 17:34
  Speaker 7: more asking others to just put a little more of
• 17:37
  Speaker 7: their own money, resources, manpower time into the places around
• 17:41
  Speaker 7: the world that they are closer to that are more
• 17:43
  Speaker 7: relevant to their own national security interests than.
• 17:45
  Speaker 2: To the US.
• 17:47
  Speaker 5: Let's talk a little bit more about defense spending in Europe.
• 17:50
  Speaker 5: I cover US defense contractors and people have been a
• 17:53
  Speaker 5: bit curious about what the implications will be of a
• 17:56
  Speaker 5: potential Titan military spending budget, but when you put that
• 17:59
  Speaker 5: against a lot of European arms makers, they're actually doing
• 18:02
  Speaker 5: quite well, especially as they're amping up their defense spend.
• 18:05
  Speaker 5: Can you just talk a bit about what's going on there.
• 18:08
  Speaker 7: Sure this might be really good for the European defense
• 18:11
  Speaker 7: sector that often loses out to larger companies in the
• 18:14
  Speaker 7: US that have a lot more money to put into
• 18:16
  Speaker 7: R and D and the like, and recently even to
• 18:18
  Speaker 7: Israeli companies as they've expanded their offerings. But for the
• 18:21
  Speaker 7: US right now, this means we will see some of
• 18:23
  Speaker 7: our own companies around the world losing contracts. We've seen
• 18:26
  Speaker 7: that already, even in places like the UAE where other
• 18:29
  Speaker 7: offerings have been preferred in recent years. So this might
• 18:32
  Speaker 7: give Europe a chance to boost its own domestic economies
• 18:35
  Speaker 7: with a little more of the defense sector becoming more
• 18:38
  Speaker 7: robust as they're buying more of their own products and
• 18:40
  Speaker 7: selling to each other. The US readiness requirements will sustain
• 18:45
  Speaker 7: our own defense industry, so that's not really a concern here.
• 18:48
  Speaker 7: The one problem is that for Europe this could impact
• 18:51
  Speaker 7: NATO's interoperability. NATO is an example of one of those
• 18:54
  Speaker 7: times when the whole is greater than the sum of
• 18:56
  Speaker 7: its parts, and if each country is producing its own
• 18:58
  Speaker 7: defense platforms, this could use NATO forces some of its hearts,
• 19:02
  Speaker 7: you know, that whole. It could also lead to defense
• 19:05
  Speaker 7: sector fratricide potentially where there's not enough budget in any
• 19:08
  Speaker 7: single country to do the kind of R and D
• 19:10
  Speaker 7: that would be required or to sustain an independent industry.
• 19:13
  Speaker 7: The result could be kind of reductions in production or
• 19:16
  Speaker 7: in quality. So we hope we don't see that happen.
• 19:19
  Speaker 7: One of the other concerns is that watching Europe have
• 19:22
  Speaker 7: these competitive defense sector rising plans means that if you're putent,
• 19:27
  Speaker 7: you're watching this and saying, my plan is working. I'm
• 19:30
  Speaker 7: driving wedges between Western States.
• 19:34
  Speaker 3: That was kind of one of my thoughts here. I
• 19:36
  Speaker 3: kind of thought NATO was a good thing since nineteen
• 19:39
  Speaker 3: forty five, but maybe that needs to change in composition,
• 19:43
  Speaker 3: I think to me, as a guide in the wool
• 19:46
  Speaker 3: Wall Street Guide, to me, it all comes down the money.
• 19:48
  Speaker 3: I can see a scenario where Germany's got the money.
• 19:51
  Speaker 3: Maybe Poland can do it because of their geographic proximity Russia.
• 19:55
  Speaker 3: They've been doing it anyway, But how about everybody else?
• 19:58
  Speaker 3: Is Spain Italy portrait and some of these other countries.
• 20:01
  Speaker 3: Do they have the money to do anything meaningful here?
• 20:03
  Speaker 7: They may not be able to hear right, Places like
• 20:06
  Speaker 7: Germany and Poland and Sweden will probably be able to
• 20:09
  Speaker 7: sustain the increases in the defense budget that they've been promising.
• 20:12
  Speaker 7: Other places may have a tougher time. But if I'm Europe,
• 20:16
  Speaker 7: what I'm going to do is divide up competencies. Instead
• 20:19
  Speaker 7: of every country trying to create an entirely independent defense sector,
• 20:23
  Speaker 7: I'm going to look at where there are competitive advantages
• 20:26
  Speaker 7: of each one of those defense sectors, who's good at what,
• 20:28
  Speaker 7: and perhaps then put all the eggs in those baskets,
• 20:31
  Speaker 7: if you will, kind of divide and conquer about what
• 20:33
  Speaker 7: kind of capabilities need to be built, and understand that
• 20:36
  Speaker 7: perhaps all of NATO would buy this one thing from
• 20:39
  Speaker 7: this one country or the like. And I'm not recommending
• 20:41
  Speaker 7: pushing the US to where it is no longer a player.
• 20:44
  Speaker 7: That interoperability is entirely critical. But if Europe sees that
• 20:47
  Speaker 7: it needs to get more skin in the game to
• 20:49
  Speaker 7: keep the US there, that's the way they could do it.
• 20:53
  Speaker 5: We had a story in the Bloomberg Terminal today that
• 20:54
  Speaker 5: said Russia says it wants to balance relations with the
• 20:57
  Speaker 5: US and China. As we think about these dyni between
• 21:00
  Speaker 5: these three countries, the US, ourselves, Russia, and China, how
• 21:05
  Speaker 5: is that developing and how are we thinking about that
• 21:07
  Speaker 5: when we think about defense.
• 21:09
  Speaker 7: We've heard this kind of argument before, and it's almost
• 21:12
  Speaker 7: like Russia's taking a page of the playbook of Saudi Arabia,
• 21:16
  Speaker 7: for instance, And what it means to us is, if
• 21:20
  Speaker 7: you are Russia, you have seen such a depleted state
• 21:23
  Speaker 7: of readiness in your own military, such a depleted position
• 21:26
  Speaker 7: in your own defense sector. I mean, they've been forced
• 21:28
  Speaker 7: to buy drone blueprints from Iran, and they used to
• 21:31
  Speaker 7: be the great innovators in that part of the world.
• 21:33
  Speaker 7: So they're talking about turning to China because China continues
• 21:36
  Speaker 7: to develop at a pretty rapid pace new defense technologies
• 21:40
  Speaker 7: in preparation for what they see is also a standoff
• 21:42
  Speaker 7: with the US, and Russia is hoping that this will
• 21:45
  Speaker 7: be a little bit of a threat when they come
• 21:47
  Speaker 7: to the table on negotiations with the US and separately
• 21:50
  Speaker 7: with Ukraine. Russia is saying, we have this lever, we
• 21:54
  Speaker 7: have this bargaining chip because we plan to grow closer
• 21:56
  Speaker 7: to China. Who will then help us bolster our own defense.
• 22:00
  Speaker 7: The question we would have for Russia is with what money?
• 22:03
  Speaker 7: How are you going to finance any kind of large
• 22:06
  Speaker 7: defense spends or joint ventures with China. China's economy also
• 22:10
  Speaker 7: would have a tech time affording it, So we think
• 22:12
  Speaker 7: there's a lot of brain power, but maybe not a
• 22:14
  Speaker 7: lot of resource behind that.
• 22:16
  Speaker 3: Kirsten, thank you so much for joining us. We really
• 22:18
  Speaker 3: benefit from getting a few minutes of your time. Kirsten
• 22:20
  Speaker 3: fontin Rose. She is the president of Red six Solutions,
• 22:23
  Speaker 3: more than twenty years in the US national defense apparatus
• 22:28
  Speaker 3: in various roles here, so getting her thoughts on I
• 22:30
  Speaker 3: at the changing landscape here in global armaments, global military alliances.
• 22:36
  Speaker 3: So we'll see how that plays out.
• 22:38
  Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,
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• 22:46
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• 23:03
  Speaker 3: Yeah