This is Bloomberg Business Week Daily,
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shaping today's complex economy. Plus,
global business, finance, and tech news
as it happens. Bloomberg Business Week
Daily with Carol Masser and Tim Stenbec
live on Bloomberg radio, television,
YouTube, and Bloomberg Originals. Hey,
thanks so much Joe to you and the team
down in Washington for keeping us
updated on everything out of Washington
DC and beyond over the last two hours.
As Joe mentioned, we are glued to the
monitors what's happening in the cabinet
room. We'll bring you any commentary,
live commentary as we do get it from the
president. You can also check out the
coverage on live go on the Bloomberg
terminal. It is Bloomberg Business Week
Daily. I'm Tim Stenc along with Isabelle
Lee from the Bloomberg News cross asset
team. She is in for Carol Masser on this
Tuesday afternoon. And here's the setup
on this Tuesday afternoon because
Isabelle, we are squarely focused on
everything happening outside of
Washington DC or emanating from
Washington DC on the president's push to
remove Federal Reserve Governor Lisa
Cook.
>> I know it really it really raises the
question of the fragility of the Federal
Reserve, their credibility and whether
this is really political and what will
be the president moving forward.
>> That story is informing our
conversations this afternoon. every
single one of them. We're going to be
speaking with uh Enda Curran. She's he's
global economy reporter. He's going to
be joining us in just a few minutes.
Also, we're going to talk to the co-head
of asset allocation and portfolio
manager over at GMO. Ben Winkler is
going to be joining us a little later as
well. Also, front and center, we are
going to be looking at comments from uh
Commerce Secretary Howard Lutnik. He
made them earlier. He suggested that the
government is looking at the defense
sector. Bloomberg Intelligence senior
defense analyst Wayne Sanders is going
to be joining us in just a minute. All
that and more coming up over the next
hour right here on Bloomberg Business
Week Daily. First up though, he has been
watching the markets. He is standing by.
Charlie Pellet is giving us an update. I
thank you very much. Little change
perhaps the key takeaway at this hour.
You mentioned Howard Lutnik and those
defense stocks specifically Loheed
Martin. Loheed Martin up now by 1.6%.
Little change though for the rest of the
major indexes and averages. Right now we
have got the S&P up two points, the Dow
lower by four and Nasdaq is advancing 12
now up by just under one/10enth of 1%.
The Bloomberg MAG 7 index trading lower
by 210 of 1%. Nvidia a big part of that
index. Nvidia up 9/10en of 1% it reports
tomorrow after the close of trading. And
right now the tenure at 4.25% with the
2-year 3.68% 68%. Spot gold up 510 of 1%
3381 the ounce. West Texas Intermediate
crude down 2.3% 6333
a barrel. We're keeping an eye on Apple
shares up 4/10en of 1%. Apple plans to
hold its fall product launch on
September 9th when the company is
expected to introduce an iPhone 17
lineup that includes a new skinnier
version of its signature device.
Recapping S&P just about flat on the day
up now under onetenth of 1%. I'm Charlie
Pellet. That is a Bloomberg Business
Flash.
>> Hey, thanks so much for that update,
Charlie Plet. As I mentioned, we're
keeping focused on everything happening
out of Washington DC to see the
president speaking at a cabinet meeting.
We're going to have more on that when he
does start to take questions. In the
meantime, also on our agenda today is
the latest with the New York City
mayoral election. Let's head on over to
Gracie Mansion where we find Bloomberg
News senior reporter Miles Miller. He's
on location there for a conversation
with New York City Mayor Eric Adams.
Hey, Miles.
>> That's right. And we're sitting down
with the mayor here in Gracie Mansion.
And the first thing we want to talk
about with the mayor is the National
Guard. You know, Donald Trump said just
yesterday, "If these mayors can't
control their streets, we will." And he
listed New York among the cities under
review for National Guard deployment. Do
you believe this is a real threat to New
York? Well, the partnership between the
federal government and the city and
state uh governments is extremely
important and I think there's a role we
need. My role is to make sure New
Yorkers are safe and the numbers are
showing. We're doing that and the
partnership of making sure guns don't
come into our city and that's what we
want to continue to do with the federal
government. We already uh collaborate
with the federal government every
morning 10:00 a.m. with Haida, city,
state, and federal authorities to go
after shooters and those who bring guns
into our cities.
>> Um when he talks about the National
Guard potentially coming here to New
York and in the event that that happens,
is there anything you could do to
counteract that? I mean, you know, what
what would it look like if National
Guard's members, you saw in DC, 2,000 of
them on the streets of Washington, if
they were here uh you know, on 90th
Street? Well, the the goal is the
relationship between the federal
government and DC is different than the
relationship between uh New York City
and the federal government. And again,
our communications with the federal
government is we we got this. Uh we
removed over 23,000 legal guns off our
streets. Uh we see we're witnessing
record levels of decreasing crimes,
homicides, and shootings in the first
six months and shooting victims in the
first seven months. And so we are very
clear, always have been. I have never
moved away from the public safety.
That's the prerequisite to our
prosperity. And we're going to continue
to do an amazing job. And if the federal
government wants to communicate with us
and ask us to go to other municipalities
and help them see what we're doing,
we're willing to do that because the
Safe America is a safe New York City and
we want to help any way we can.
>> Yeah. I want to ask you about um
November election as it relates to that.
Um, you know, one of your opponents,
Andrew Cuomo, has said, "If mom Donnie
gets in office, then Trump takes control
of New York City, then Trump does put
the National Guard here." Do you think
that could happen?
>> Uh, Andrew would say anything to anyone
to get elected. Uh, he created this. He
passed the cannabis laws. I had to close
down 1500 cannabis shops because of the
failed law he passed. He did the bail
reform. That's the revolving door
criminal justice system that we're
looking at. He closed psychiatric beds.
So every time you see someone put
someone on the subway track because of
severe mental health illness or stab
three innocent in New Yorkers, you have
to ask yourself, why do we close those
beds? Raise the age. We're seeing young
people are victims of crimes more and
more and they're shooters as well. These
are all of his bills. I had to fix his
mess. And so Madani's call to uh defund
police, his calls to legalize
prostitution, his calls to calls to
empty Riker's Island, they're two of the
same people. New York has come too far
to go backwards with either one of them.
>> When I heard the president talk
yesterday about cashless bail, you know,
I immediately thought of you because you
have been one of the people who has
talked about bail reform. Um, your
police commissioner talked about bail
reform on Friday with the friendly fire
incident involving the officer. Uh, the
president signing an executive order uh
directing DOJ to look at these
jurisdictions that have done cashless
bail. What's your take on that?
>> Well, I have been clear and I don't
believe if someone uh steals an apple
that we should hold them in jail because
they can't afford uh to get out. But if
you are possessing an illegal one uh
weapon, you commit one of the seven
major crime categories uh in our city,
uh you are repeatedly an offender, uh we
need to look at the criminal justice
system that allows you to continue to go
back and you pre repeat the crime. Uh we
saw what happened with the custom border
patrol agent. These were repeated
offenders. We just had a shooting over
the weekend. uh the individuals in jaw
involved, they had several gun arrests.
That just can't continue to happen. And
so using bail appropriately, I think it
would help us deal with the public
safety issue we're facing in the city.
>> The president said, you know, crime has
continued to rise when they have
cashless bail. Is that something that's
happened here in the city?
>> Uh when you remove bail on those who
commit serious crimes, it will impact
your public safety. We're we are
witnessing that over and over again.
>> The school uh system comes back next
week. Um should parents fear for ICE to
be in their schools? You know, in
Washington, that was a big fear as they
went back to school yesterday with ICE
saying that they may come to some
schools of students. We saw a student in
Queens, 6 years old, um deported by ICE
with with her mother
>> with with a family. And so we want to be
clear, ICE has not been in our schools.
uh ICE only way they could uh come into
the schools with clear judicial warrants
or if they are uh looking at a condition
where someone is fleeing running into
the school a dangerous person but that's
the role of our police officers to do so
and we have been extremely consistent
around this children should go to school
they're not going to be fearful of
having ICE come into their schools their
directives indicate that as well uh
people should go to the hospital if they
need medical care, they should call the
police if they need police assistance.
And I know personally what happens when
you fail to do that. Uh my rookie years
as a police officer, I had a Chinese
immigrant that was afraid to call the
police when he was being robbed. I took
actions while I was off duty, but he was
extremely fearful. People can't live in
the shadows. That creates disorder and
we don't want that.
>> Let's go back to your career in a
transit police. It's where you met
Ingred Lewis Martin's husband, obviously
someone you've known a long time. I
just, you know, we heard from you on
Friday, but what does when you hear some
of the allegations in the indictment
and, you know, indictments just show a
piece of of what is being alleged. And
what did you make of of the some of the
allegations you heard?
>> Well, first of all, let's think about
this for a moment. Uh, like I said,
Ingred's like a sister to me and uh I'm
pretty sure you have close relationships
in your life and the first thing you
want to do is not allow people their due
process. And when you're dealing with
criminal cases, every word you say could
harm that person who's dealing with that
case. And I'm not going to do anything
to harm someone that's like a sister to
me. I'm very clear. She's in my prayers.
She has an attorney. And anything that's
dealing with that case should be uh
brought to her attorney. I would not do
anything that's going to be harmful to
someone that's like a sister to me. How
would you say your your week was last
week? Because you had the situation with
Ingred, Jesse, um Jesse Hamilton as well
and then you also had the situation with
Winnie Greco. Um just what your thoughts
on what happened with Winnie Greco and
then also you know it was you I saw by
Friday it was it was a week.
>> Yeah. No, not to me. Um I had 237,000
migrants and asylum seekers. I inherited
COVID. I inherited a city that was
heaging jobs. uh had thousands of
illegal guns on our streets, ghost cars
on our streets, cannabis shops uh open.
People rode off New Yorkers. Not only
were was I dealing with those who were
committing crimes, had to deal with rats
everywhere. But look, everywhere that we
dealt with, we got up every day and we
did the job.
>> The red envelope in in a in a potato
chip bag. I mean, when you heard about
this and what did you think of it?
>> First, I want to go back. More jobs in
our city history. 12 months of u of
tourism. uh 12 months of Broadway, the
best in the city's history, uh
unemployment drop, crime drop, illegal
vehicles off our street, all of those
things. Uh I'm not going to be judged by
a red envelope in a paper bag. I'm going
to be judged by how I
>> how I improved the lives of New Yorkers.
It was a stupid thing to do. I don't
understand the conversation she had with
the reporter. I don't have the history
of it. It's not not something that we
would do in our campaign. I made that
clear. I don't know what that was about.
And now she's no longer volunteering or
she was never employee of the campaign
and she was longtime no longer in uh
city hall. So only the reporter and
Winnie can explain to us exactly what
that was about. I don't know what it was
about and it's not acceptable um
behavior on my part.
>> Let's talk campaign because we've talked
about the campaign plenty of times.
Private meetings, public meetings, you
know, where have you. um you're polling
in the single digits behind Mdani. You
know, I've heard you talk about um you
know, the the state of the race um when
you were running last time, but that was
sort of during the primary. Now we're in
the general election. Just tell me sort
of what's your strategies uh to win in
November um and and how you how you
think you could pull through.
>> Well, a couple of things. As I said over
and over again, when you look at this
distance from the primary to uh the
election, the same time period, Madani
was at 1%. No one called for him to step
out of the race. And if we did, we would
have been premature because he won the
primary. And we need to be clear that
that seems to be a fact that everyone is
missing. We also missing the fact that I
was in third place in 2021 behind Andrew
Yang, who was beating me by double
digits. Some polls have me in double
digits. Some polls have me in single
digits. Polls had uh Andrew up Andrew
Cuomo up by 10% before the election. He
lost by 12%. He was up 36%.
So when you start to talk about the
polls, the only poll that matters on
election day, who's going to have the
most votes? I must do what I'm good at
doing, campaigning, getting my
information out to the public so they
can see the success of where we were and
where we are. This city has turned
around. I mean, if we want to be honest
about it or not, and I have to explain
that to the voters.
>> So, the message is Eric Adams is staying
in no matter what.
>> Yes.
>> You're not signing any pledge.
>> Yes, I'm staying in no matter what. Who
created the pledge, Andrew? you know,
uh, one candidate that was at 1% in the
poll all of a sudden said whoever's up
by a certain number in September, uh,
should win. That's all Andrew's
creation. Trust me when I tell you, he
creates these scenarios so that people
can believe he's doing the right thing.
He was he lost the race, $35 million, up
by double digits, didn't get out in
campaign, and he lost the race. people
heard his message already.
>> Let's get to some Bloomberg topics here.
Um, you know, one of your biggest
accomplishments that you've stated has
been city of Yes. Um, just tell me, you
know, what it took to get that through.
Um, housing a big issue for, you know,
voters and for people who own homes
here, who want to own homes here. You
you have a lack of places to to put
homes, but city changed that. just you
know explain how how that's worked out
>> in so many ways you know u many people
talk about affordability but never use
their offices to actually produce
affordability like I said five people
running for office three people don't
have a record one person is running from
uh his record I have a record city of
yes is going to produce housing
throughout the city because housing New
York is is not just a Manhattan or
Brooklyn or areas that would gentrify
gentrify. It's the entire city. Never
before have we witnessed this most
comprehensive um housing and resoning
policy in the history of our city. Uh we
have uh built uh renovated and planned
resoning for 426,000
units of housings in the next decade. I
mean this is unbelievable when you think
about it. We did it in three and a half
years. That number is larger than 12
years of Bloomberg, eight years of
Delasio combined in three and a half
years. We are the most housing forward
administration in the history of this
city. And we got projects off the ground
that many have tried like Willis Point
2400 units of affordable housing.
Flushing airport of hundreds of using of
units of affordable housing union built.
And so city of Yes is part of the
overall package that we've that we're
doing five resonance in each buddy
burrow 50,000 of 50,000 units of housing
that's coming out of that. So we know
New Yorkers must be housed but you got
to match housing
with using the resources of city to make
the city affordable. decreasing the cost
of child care, universal child care, no
income tax for low-income New Yorkers,
none at all of what we have done.
>> Well, that sounds that sounds like, you
know, like no income tax for low-income
New Yorkers sounds a lot like a Mam
Donnie proposal and, you know, that that
requires going to Albany to get that
done. People may say, you know, you've
been in office for, you know, nearly
four years. You know, how come we you
haven't been able to get that done? Um,
you know, just make the case for how how
you could get that done. uh you know
with with four more years.
>> Well, no, we already we already got it
done. There is no income tax for
low-inccome New Yorkers. And then what
you do is each year you go to Albany,
they call it a 10 cup day for a reason.
You go up there to beg for your
proposal. But look at each year. Each
year we got exactly the things we asked
for. Mail control. Uh we got the no
income tax. We got housing reform. uh
renovating our office spaces into
permanent housing and low-income
housing. Uh we got the public safety
initiative. We got the uh involuntary
removal. So you you're seeing each year
we brought back what we needed from the
city. And so in three years and 8 months
we've done a great job with partnering
with our Aubony lawmakers. And that's
Mayor Eric Adams talking directly to
Bloomberg terminal customers and
listeners all around the world. I'll
send it back to the studio.
>> Hey, thanks so much. Miles Miller's
Bloomberg News senior reporter up there
at Gracie Mansion along with Mayor Eric
Adams, of course, the mayor of New York
City. I do want to bring in Shri Taylor
right now. She's Bloomberg reporter who
covers New York City. I think the big
takeaway that I had from Miles's
interview just now was this mayor is
staying in the race. He said, quote,
"I'm staying in no matter what." This
despite many different polls showing him
far behind Zoran Mani, even far behind
Andrew Cuomo, and in some cases behind
Curtis Leewa, the Republican challenger,
>> right? I mean, he clearly has a lot of
ground to cover, but that's not
discouraging him, which I think is very
interesting. Um, considering usually uh
the incumbent is the more popular
candidate, but right now we have Mumani
and even Cuomo who are kind of um in
very very close um competition with each
other and then he's just trailing super
far behind.
>> What is the sentiment towards Eric Adams
and what does he need to do to really
clinch that win?
>> Uh the sentiment is not great. As we
know, our mayor has been embroiled in
controversy for years now and you know,
especially during his current campaign.
Um, you know, his former top adviser is
facing fresh charges over allegations
that she accepted bribes and, you know,
steering city contracts for asylum
seeker shelters uh to property owners.
So, um, the sentiment isn't very
positive. I think in order to clinch the
win, he kind of needs to win over the
crowd that's back in Cuomo right now,
which is um moderate to right-leaning
folks, um you know, the wealthier
citizens and and you know, folks like
that.
>> Miles really pressed him on the the
scandal, the alleged scandals last week,
the the $100 bills in the potato chip
bag, the challenges that he's had with a
former senior adviser who's found
herself wrapped up uh in alleged uh
wrongdoing. and uh he he he didn't he
didn't want to touch it. He basically
pushed back and and used that as an
opportunity to talk about his
accomplishments under his close to four
years, three and a half years as mayor
of New York City. It's certainly a media
strategy, but is is that the type of
thing that the voters are going to focus
on? Do the alleged scandals um the
what he's found himself wrapped on up in
during his tenure, does that matter with
voters? Right. Well, you know, I'd say
deflecting has kind of been his style,
uh, you know, ever since his his, you
know, larger scandal when it came to
Turkey and and the flights. Um, you
know, he says he's very good at
campaigning and getting his information
out to the public. He said he's staying
no matter what and has remained kind of
steadfast in maintaining his innocence
in just about every scandal that has
stirred up um during his tenure and and
during this campaign. So, I think he's
going to continue. that's what's he
claims is working for him and I think
that's what he's going to continue to
do. Um what I'm seeing is that I think
that um New Yorkers are ready for a
politician that is taking accountability
um on the backdrop of you know the Trump
administration and and a lot of the um
you know members that are coming that
are kind of coming out of there and the
scandals that are coming out of there.
So I think that um you know citizens are
kind of looking for a change and and
might want something fresher. All right,
she Taylor covers New York City. She's a
reporter for Bloomberg News. Appreciate
you joining us. And also, thank you to
Miles Miller for that interview with
Mayor Eric Adams. Now to our top story
and among the most read, the most read
on the Bloomberg terminal. What is going
on with the Federal Reserve? President
Trump, just to remind everybody, move to
Federal Reserve Governor Lisa Cook
following allegations that she falsified
mortgage documents. It's a dramatic
escalation in the president's battle for
more control over the US central bank
that unnerved investors. The president
is right now taking questions in a
cabinet meeting. If you do want to
follow along, you can check it out live
on the Bloomberg terminal live go and we
will bring you updates as he answers
questions. In a letter though posted
last night on True Social, the president
said he had quote sufficient cause to
fire Cook based on the allegations from
a White House ally that she made false
statements to one or more mortgage
loans. Lisa Cook, for her part, said
that President Trump has no authority to
fire her and she will not step down. Her
lawyer issued a statement on Tuesday
saying she would sue. I want to bring in
Enda Curran, Bloomberg News global
economy reporter. He joins us from our
Washington DC bureau. And the president
has never fired a Federal Reserve
governor before. The law does say,
quote, "A Fed member can be removed for
cause by the president. Based on the
folks you've spoken to, the analysis
that you've read, the reading of the
law, does this count as for cause?"
Well, as you mentioned, this is both
fastm moving and unprecedented. So,
there's a lot here that nobody's quite
sure in terms of how it will play out on
the legal side of this. Obviously, the
president has taken the decision that he
announced last night as you outlined
using this justification for cause. Uh
Governor Cook of course is pushing back
against that will have her own uh legal
defense h against president's decision.
But there is a lot of discussion around
what this at cause uh clause actually
means. Does it cover a fed officials
time in office? Does it cover what they
did before they went into office? Um do
the circumstances that are surrounding
Miss Cook at the moment? Did they um
classify? Do they meet the bar the bar
for what could be considered at cause?
The these are questions that I've seen
several academics asking this morning
and throughout the day. So there's no
clear answer on it. There's clearly
going to be a whole legal side of this
that will take some time to play out in
the courts. And then there's the policy
side, the practical side, which is on
paper a h you have critics saying it's a
clear direct attack on on the Fed and
Fed's independence. Uh it opens up
potentially a new seat on the board
presumably for someone who wants who has
the same economic view as President
Trump, which is one of for lower
interest rates. And that in itself feeds
through to a very different policy
debate in the months ahead in terms of
where interest rates are going. So as I
say a very the legal side of this which
there seems to be a lot of uncertainty
and that will take its time to play out
through the courts and then there's the
implication for policy for the Fed as an
institution and the policy side and and
where that goes from here as well.
>> But what legal arguments is Cook's team
likely to make in defense of her
position? What grounds does she and her
team have under existing statutes?
Well, we're waiting to see what that
defense will be. Governor Cook has made
the point that she will be responding.
She will not be bullied out of office.
That's been the point she has made
before and her lawyers commented today
that they will be mounting their own
legal defense and all of this. So, in
due process, those details are expected
to come out. But clearly, uh the big
talking point is this idea that a
governor can be dismissed u for being
for at cause that's hasn't been tested
before. There isn't precedent for this.
So the definition of that is kind of in
the eye of the beholder. Obviously
critics of in this case Governor Cook
make the point that it it um it fits
that uh definition. Uh those who are
critical of what the White House is
doing accusing this of being a political
witch hunt make the point that that it
doesn't. So obviously there's clearly
split opinion on that. But that's
obvious that's where the legal argument
will probably rest uh in terms of how at
cause is defined and agreed on in the
weeks and maybe months ahead through the
courts. And one of the reasons we wanted
to speak with you is because you cover
the global economy. You understand the
role of central banks throughout the
world and the distinct role they have in
different countries, countries where
there isn't necessarily the same
precedent of independence from politics
that there is in the United States. I'm
wondering about global implications for
this or economic implications perhaps if
the president is successful in removing
Lisa Cook.
>> Oh, it's very important. I mean, if just
for argument's sake, say by the end of
this process, it's it's been agreed that
the Fed's independence has been uh
damaged somewhat. It seemed to now be
much more within the political realm at
the whim of the White House, for
example, as critics say. Well, that
sends a powerful signal to the rest of
the world because a lot of these smaller
central banks in in economies around the
world take their lead from the Fed. It's
the world's most powerful uh central
bank. You know, it's it's the standard
setter for what's hap for what has
happened in central bank independence
over the past few decades. So, you could
argue it could be a domino effect. And
that's certainly what the those who are
concerned about what's happening with
the Fed are saying right now that if the
Fed goes others will follow other
politicians other parliaments other
presidents will pile similar criticism
on their central banks. Now not all
central banks are independent. Certainly
in the emerging world they are not.
China is obviously being a case in point
but nonetheless there is academic
literature that makes a point that
having that central bank operating at
arms length from the electoral cycle
from the political process has on
balance been better in terms of the
economic results it has returned now to
be clear it's not saying they're not
totally removed from democratic
oversight they come under their
parliaments they come under Congress
there are checks and balances
>> but there's an argument that keeping it
that bit arms from the electoral cycle
has proven to be better for the economy
over
Well, we are speaking with Endocurrent.
He's a global economy reporter for
Bloomberg News. We're also monitoring
what's happening in the uh White House
right now. The president having a
cabinet meeting. Secretary of Defense
Pete Hegth is speaking now. We will
bring you any headlines and updates as
we do get them.
>> And what might be the political
motivations behind targeting Lisa Cook
specifically? We know that her term is
not set to expire until 2038.
Well, again, the White House would say
that this is not a political campaign or
strategy against the Fed, but plenty of
observers and critics make the point
that this all feeds into the idea that
President Trump wants interest rates
come down much faster than the Fed is
signaling and he wants them down for a
variety of reasons, not at least to
bring down borrowing costs or
refinancing costs for the government.
And by targeting governors on the board,
in this case, Miss Cook, um it gives him
an opportunity to replace her and put
on, as I mentioned earlier, somebody who
shares the same economic worldview as
President Trump, which would be one for
lower interest rates. So remember, it's
not just this particular governor's seat
that's up for grabs at the moment or
potentially up for for decision. We have
um former governor Cougler seat became
vacant a few weeks ago. We have the
nomination of Mr. Moran for that in the
White House. Then of course we have the
interview process that's kicking off
soon for the Fed chair. Uh if you look
over the six say the six month window
period ahead as potentially significant
change coming for the personnel who run
the Fed and it's an opportunity for
President Trump of course who put in
appointees to his liking which by
extension would lend would lean towards
view that it could be a dovish board
willing to be more accommodating for
what the White House wants. That's what
all of the concern and critics are
saying about this process. Um, as I say,
the White House say it's not a political
campaign, but there's plenty of
skepticism around that.
>> And Curran, Bloomberg News, global
economy reporter. Also, he was up late
because as soon as I saw this news cross
last night, I turned on Bloomberg TV and
there he was. End of Curran giving the
latest to our team in Asia on the
Federal Reserve independence and the
firing, as President Trump wants to do,
of Governor Lisa Cook. Well, the dollar
fell, longdated, bond yields rose, and
stocks wavered as President Trump's push
to remove Fed Governor Lisa Cook fueled
concerns about central bank independence
and inflation risks. It's not just that,
though. It's also Nvidia tomorrow. We've
been saying there's a lot riding on that
report. It's the world's biggest stock.
It makes up 3% of the global market cap
of all public companies. We'll bring
those numbers to you as soon as they
cross tomorrow. This is the backdrop for
our conversation with Ben Inker. He's
co-head of asset allocation portfolio
manager at GMO. It's the Boston-based
asset manager co-founded by Jeremy
Grantham with $70 billion in assets
under management. Ben looks closely at
mega cap concentration. So yeah, Nvidia
certainly on his radar. He joins us from
Boston. Ben, we're going to talk about
the Mag 7 in the in the US in the
context of the rest of the world. But
first, the threat of Fed independence,
what we were just talking about with
Endo Curran who covers the global
economy. the president saying he will
fire Fed Governor Lisa Cook if he is
successful. Does it change your view of
US markets?
>> Uh it probably doesn't change my view
all that much because we're pretty
skeptical of uh of at least the US uh
stock market uh these days. uh it would
have it would create some more concerns
for us about uh US bonds um and uh
create more concern about the US dollar
because I think if the president is
successful in bullying uh the Federal
Reserve into lowering interest rates
more than the economy warrants, uh the
two places that that comes out are
long-term bonds uh and the dollar. uh
and the dollar by virtue of being quite
overvalued today could fall really quite
hard.
>> Do do the president's attacks on the
Federal Reserve confirm your skepticism?
Does it essentially give you evidence
that saying, "Hey, we are right in our
call to be skeptical of US equities
right now."
>> Well, I we do think it is part of one of
the key problems for US companies right
now. Uh the US stock market is trading
at a big premium to the rest of the
world. That is an issue. The US dollar
is very overvalued. that is an issue.
But the other thing we really worry
about for the US is the US is facing a
series of supply shocks uh that the rest
of the world is not. So we've got the
tariffs which increase inflation and and
decrease economic activity. We've got uh
the the move against immigrants uh which
tends to do the same. And then we've got
this uncertainty problem uh where we
have an administration that makes its
decisions apparently by tweet uh and
where you really don't know week to week
what is going to happen and that makes
it very difficult for US-based
businesses to make good long-term
investment decisions. This is part and
parcel of that problem. Um, so while I
certainly hope uh the administration
does not succeed in pushing uh a FUD
governor off of the board on the basis
of a criminal referral because you can
have a criminal referral on just about
anyone for just about no reason at all.
Uh so I hope it doesn't happen. If it
does, it's another sign of uh policy
uncertainty in a country that is
suddenly a wash in it.
And we know that you are a skeptic of US
equities because of their high
valuations, but the Magnificent Six
dominate US equity performance. What
breaks their momentum and what will you
replace them with if they falter?
>> Yeah, I mean to be clear, we are quite
skeptical of the fact that the U the
average US company trades at a big
premium to the average company in the
rest of the world. the Magnificent Six,
which is the Magnificent 7x Tesla,
because Tesla is not only a very
different company, it's also a much much
more expensive company than the rest.
Um, the Magnificent Six have been
extraordinary in their ability to
continue to grow at a scale where other
companies in the past have really hit
limits to growth. Now, they're trading
around 30 times earnings on average.
That's Lord knows that's not cheap. if
they can maintain their uh kind of past
levels of growth, it's still a perfectly
reasonable valuation for them. The
question is can they maintain it? Uh
we're not honestly sure. One of the
things that is very different from the
past is they have hugely ramped up their
aggregate capex. These were always very
capital-like businesses had wonderful
free cash flow and today they are
investing in aggregate hundreds of
billions of dollars in property, plant
and equipment and it's a huge bet that
they are going to be able to make a lot
of money out of AI. Will that come true?
I don't know. Uh if it does not uh it is
one of the most, you know, economically
meaningful bets we've ever seen uh from
the stock market. uh and could be a real
problem for them.
>> Why do you think US premium has
persisted despite its stronger growth
overseas?
>> You know, it's it's funny. I think some
of it is the reflected the reflected
glow of the MAG 6. Um because of the MAG
6, the aggregate S&P has done better
fundamentally. Right now, that
fundamental outperformance is a piece of
it. The dollar has been a big source of
the outperformance because the dollar
has appreciated by a lot over the last
decade versus every other currency on
the planet. And then the valuation in
the US over the last decade has really
expanded relative to the rest of the
world. But there is this base of sort of
fundamental outperformance all of which
is owed to the mag six. Um so the mag
six have been amazing over the last
decade. They're expensive but they're
amazing. Uh the rest of the US has not
been amazing uh but has still captured
some of the glow um uh because they've
been more associated with the with the
mag six than uh companies outside the
US. Uh and that I just don't see how
it's sustainable because those companies
are going to have to do a lot better
than they have in the past to justify
their valuations. We're speaking with
Ben Anker, co-head of asset allocation,
portfolio manager at GMO, of course, uh
the co-founded firm by Jeremy Grantham,
$70 billion in assets under management.
Uh Ben, on on the valuation side when it
comes to the the MAG Six, I know you've
talked about US stocks being more highly
valued uh than international stocks. And
if we look at stocks in the US,
obviously that's based on where
investors think they're going to go. You
said it it is it could be justified if
they continue their growth rate as the
way they've been growing in in recent
years. What would you say though to
someone who says well the US is a unique
environment from a regulatory
perspective uh from an economic power
perspective from an international
relations perspective and there is this
premium in the US because well we have a
regulatory environment that allows for
that that essentially says okay well
that is justified that the rest of the
world doesn't have and indeed we haven't
seen outperformance of the rest of the
world save for the first few months of
this year. We'll see what the future
brings. But isn't the US doesn't the US
deserve to have a premium on it based on
those factors?
>> Uh look, if the US deserves to have a
premium, it would be on the basis of
having a higher return on capital than
we have in the rest of the world. There
are plenty of countries where there are
not a lot of regulations over what
companies do. Most of the emerging world
doesn't have that many regulations. The
return on capital isn't necessarily that
brilliant. They aren't wonderful places
to operate. The US has been a good place
for businesses to operate. One, we are a
very big market. Two, we have had a
regulatory system that is very
rules-based, very kind of slow to
change. Uh, and it has been a good base
to try to sell to the rest of the world.
All of that is under threat right now.
Um the US is not such a brilliant place
to be as a base for the rest of the
world because things like uh steel and
aluminum cost a lot more in the US than
they do anywhere else on earth because
we have the big uh the big tariffs on
them. From a regulatory perspective,
while the biggest um you know the the
the biggest victims might be uh
companies uh providing wind power or
looking to do so, we today operate in a
world where the regulatory environment
is much less predictable. Um and
unfortunately we also now operate in an
environment where it is pretty clear
that the way you want to get ahead at
least as a very large cap company is
getting in the good graces of the
government which is a very different
game than we have had for the last
80 years in the US and that uh you know
that pushes towards rentseeking
behavior. It pushes towards corrupt
behavior. It is not a situation where
you would say aha these are the
companies that should be trading at a
premium to the rest of the world. That
is more like what we have seen in
countries like Russia or China where in
general people have said ooh well if
you're going to invest there you better
have a discount uh to make up for the
fact that you don't know what the
government is going to do and the
incentives for companies are not
necessarily profit maximizing for
shareholders. you know, u speaking of of
Washington and we're gonna have more
questions on this. The president is uh
having a cabinet meeting right now.
We're monitoring it. It uh if he does
start to take questions, we will bring
you those questions and answers as soon
as we get them. Uh check out live go on
the Bloomberg terminal to see that right
now. Ben, uh on that the idea of the US
government taking a stake in these
companies, uh as you mentioned, it does
concern you. We did hear from Howard
Lutnik earlier on CNBC who said the idea
of taking a stake in a defense company
such as Loheed Martin for example uh
could be talked about at a certain point
in the future. What's the warning that
you have for US involvement, US
government involvement in private
enterprise?
>> Well, you know, the basic problem is as
the government gets more involved in
private enterprise, uh the needs of
shareholders take a back seat. Um, and
that isn't obviously, you know, that
that isn't necessarily the absolute
worst thing in the world. Uh, but we do
see and we have seen time and time again
where businesses are more answerable to
the government than they are to their
standard owners. Uh, you get less good
business decisions. Um, now on the other
hand, if you are a defense contractor,
it may well be in your interest to have
the government take a stake because if
you are one where the government has not
taken a stake, maybe you're less likely
to win the next competition.
>> Ben, speaking of the president, we got
to leave it there. Ben Inker, co-head of
asset allocation, portfolio manager at
GMO. Let's go to Washington DC to the
White House and hear from President
Trump. Among the headlines, uh, the
president says he wants to stay in DC
longer than 30 days, referring to
National Guard troop presence in
Washington DC. Speaking of defense,
we're watching companies in aerospace
and defense. This is the uh S15
aerospace, S&P 500 aerospace companies.
It's up 1.7%
at 23 names in there. 21 are higher as
we speak. Close to every name higher.
This after Commerce Secretary Howard
Lutnik suggested the government is
looking at the defense sector for
potential stakes in companies. For more,
we bring in Wayne Sanders. He's
Bloomberg intelligence senior defense
analyst who before joining Bloomberg was
a colonel in the US Army. He specialized
in technology, intelligence, operational
planning, and counterinsurgency. Wayne
joins us from our bureau in Washington
DC. Wayne, the secretary singled out
Loheed Martin, claiming the company
makes much of its revenue because of the
US government. He said, quote on CNBC,
quote, "They are basically an arm of the
US government." Is that a fair
assessment in your view? Are they an arm
of the US government?
>> Well, I think it's I think it's fair to
say that uh that they're driven by the
demand that comes from uh from the
Pentagon, right? So, when you look at
their long-range missile capabilities,
air defense, all of those things, it's
being driven by one customer, and that
is uh the US government, and they're
they're backed by the contracts that
they end up getting awarded at that
time. Hey,
>> if the government were to take stakes in
defense contractors like Loheed Martin,
how might this reshape the economics of
the defense industry and how will it
affect R&D investment to profit margins?
>> Well, I think that one of the things you
really have to look at is um the the way
that the market set up uh for the DoD
already uh is something that is already
a long pole in the tent, right? You look
at things that they call the valley of
death uh to be able to survive the
market. And that's why you see a lot of
the defense primes, they have the money
necessary to be able to say, "I have
this capability two years when Congress
gives me the money for it. I'll be able
to put it towards that defense
contractor." Um if you put something in
like this, you're going to start to
politicize part of that market
competition. uh you're going to start to
run into some problems where you're
looking at um
uh there's normally like 19 checks and
balances within the acquisition program
in the DoD uh that allows to make sure
that there's no conflict of interest and
you're going to potentially run into
some of that. Um I see that it would
work well in areas where the defense
industrial base like critical minerals
and ship building and potentially even
munitions production where it would make
sense. Uh but that's not specific to a
company, right? uh you know MP Minerals
was one of the ones that that started
this from a critical minerals
perspective. Um but you're you're seeing
that it's trying to focus on a specific
area in which the industry is harder
harder to invest in. Um but areas where
there's plenty of competition like long
range munitions and um and ground uh you
know ground vehicles and fighter jets
those are some of the areas where uh I
think the market already competes well
in that and I don't think that uh
getting involved in that would would
play well for the market.
>> What kind of influence would government
gain on company strategy and governance
by holding significant stakes and how do
you think this will affect perhaps
management decision-m
>> automatically?
>> Can you can you say that again? Sorry, I
couldn't hear you.
>> How do you think um government owning a
significant stake will affect decision-m
in the company or just the company
strategy in general?
>> Well, I think I think both, right? Uh if
you look at how you're actually setting
it up, if you have that government stake
uh in that, then you're obviously going
to have an inside view of what's going
on. So, I think that plays a piece of
it. I think from the government decision
perspective is one of the risks that you
need to worry about is when you look at
a program that may not be going well,
right? In the current construct, if you
look at something like the future attack
reconnaissance aircraft, something like
that, right? The army came in and said,
"This isn't a good investment. We're
going to go in a different direction,
it's built to be able to cut that that
tie." But if the government owns 10%.
Are they going to be even willing to do
that? And who actually makes that cut?
Where is the definition? Where is the
legal definition that's going to come in
to say uh as as Mr. Lai talked about
today was where is America adding
fundamental value to your business? Uh
that that specific statement. Okay.
Well, then most of the areas within the
defense capacity somewhat falls within
that, right? So, it would have to be a
clearly defined thing uh in order for
the market to understand where to go
from there.
>> Wayne, appreciate you joining us. Always
great to get some time with you. Also
appreciate your patience standing by in
DC as the president was speaking. That's
Wayne Sanders. He's Bloomberg
intelligence defense analyst joining us
from Washington DC. If you're sticking
with us on Bloomberg Business Week
Daily, we got a great program coming up.
We are all over the latest out of
Washington on Fed Governor Lisa Cook.
The market implications if the
president's successful in firing her and
removing her from the board of
governors. Also, the market reaction,
what it means for Fed independence, and
more. That's next.