Trump Blasts Xi on Trade as Tariffs Loom
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This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Joining us now in just an incredibly important time. I think in all the years that I've talked to Robert Kaplan, maybe this is the most important moment.

time the chaos out there the confusion that we have on steel tariffs and tweets at two o'clock in the morning a lot of unusual truths behavior not tweets they're truths truths truth excuse me and fist in fiscal discussion a four-hour conversation with robert kaplan of the dallas fed of harvard business school and of course always his goldman sachs

Robert Kapp on the Dallas Fed website is easily one of the two or three most interesting of our Federal Reserve System. And there is a brilliant article two days ago about a place 25 miles northwest of El Paso called Santa Teresa, New Mexico, where they build an export-import hub for

into Mexico. I mean, this is the granularity of what we're dealing, it's like the bridge in Windsor, Canada, except it's Santa Teresa in New Mexico. With all your experience, Robert Kaplan, how turned upside down is our export-import relations? Well, it's challenging right now because if you're going to domicile

manufacturing in the United States, the relationship between Canada and Mexico,

with Canada and Mexico are critical, meaning we tend to source goods which are helped by cheap labor from Mexico and cheaper natural resources from Canada. And so you have these hubs like the one you mentioned in New Mexico that have been situated to facilitate integrated logistics and supply chain arrangements, other import-export arrangements,

which are critical to North America and have allowed North America on the margin to take share from Asia. And so the recent tariff events have basically put sand in the gears of some of those relationships and made it more challenging.

These are the granularities, folks, that are so important. Robert Kaplan, when you were running the Fed in Dallas, did you ever visit the LVMH factory in Alvarado, Texas? I don't think I did, but I visited lots of sites there.

north of the border and south of the border, and I learned about the velocity, the frequency of goods going back and forth across the border. - Do you have a confidence we can supply an American manufacturing might? I mean, folks, Bob Kaplan is one of the most qualified people on this question, I know. He's a business guy working in economics. Robert Kaplan, can we actually develop

a skilled american manufacturing working force we can develop it but it's expensive that's the issue most companies i talk with want to be able to use either mexico canada to some extent even vietnam which is more farther afield but they want they use these logistics and supply chain arrangements because if you did it all in the united states their judgment is

because costs are higher, that it would not be globally competitive. This allows them to domicile in the United States, predominantly manufacture in the United States. And if they didn't have those relationships, it would be harder to do. Damien Sassar with me this morning, Robert Kaplan here, expert on EM in the Pacific Rim as well with Bloomberg LP. Damien? Mr. Kaplan, sir, I'd like to ask you about global growth, right? I mean, as Tom just pointed out, right, we are seeing a weaker dollar.

weaker oil. We are seeing fiscal stimulus out of the U.S., China, and the EU. And more importantly, we're seeing monetary stimulus out of the emerging markets, right? Because basically China's dumping in a lot of them and they're basically suppressing inflation domestically. Isn't this good for global growth? I mean, walk me through this. Yeah. So going into this year,

uh we had a oversupply and still do of goods globally china over capacity is a big part of that story so goods have been disinflating including by the way in the united states the inflation issue was in services not in goods the global goods disinflation continues except

There's a question whether it will continue in the United States because of what we do on tariffs. But the fact of the matter is, we've had this goods oversupply. What the tariffs have done is cause businesses around the world, and particularly in the United States, to pause.

and be more uncertain as to how they're going to redo logistics and supply chains. Remember, only 12% of U.S. GDP is manufacturing. We import another 12% in goods. We're basically a service economy, but these tariffs have created uncertainty in both goods and services, not just here but globally, which have put a damper on growth. And that's what you're seeing.

mr kaplan sir i'd like to get your opinion on some of the things we're seeing out here on the long end of the u.s treasury curve 10 30 steepening i mean it's not a u.s specific phenomenon we're seeing similar price action across global fixed income in europe and japan etc and you know my question for you is that more a function not not of growth expectations and 30-year real yields breaking out but but is it more just the players at that end of the market the

the limited number of players, the lack of market depth. I'm just talking lifers, pension funds, endowments. There's just not that many of them out there. So talk to us a little bit about what you're witnessing out on the long end. It's a supply and a demand issue, first of all.

The world and the United States is in the middle of this, is much more highly leveraged than we were right before COVID. US is a good example. Debt to GDP or net debt was in the 70s. It's now over 100%. The Western world and the developed world is more leveraged. And as a result of that, there's more paper to sell at the long end of the curve. On the other hand,

global buyers are very aware of that. And they're more reluctant to buy duration because they're worried, as we saw from Silicon Valley Bank and First Republic, you can lose a lot of money if you overdo it in buying duration. So we have a supply and demand issue. That's why the administration, the Trump administration came into office saying, we're going to try to chip away at that debt and that leverage because we're worried about the term premium.

AND IT DOESN'T SEEM TO BE MATERIALIZING, BUT THAT WAS THE MOTIVATION. ROBERT KAPLAN WITH US, FOLKS. WE WELCOME ALL OF YOU ON YOUR COMMUTE ACROSS THE NATION. GOOD MORNING, SERIOUS XM CHANNEL 121, FLABBERGASTED BY THE SUPPORT ON THE OLDEST OF DIGITAL MEDIA. GOOD MORNING, ANDROID AUTO. I WAS IN A CAR YESTERDAY WITH ANDROID AUTO. GOOD TO SEE THAT AS WELL. THEY WERE LISTENING TO A

Bloomberg 1130, I guess, through Android Auto. Thank you. Apple CarPlay. Good morning on YouTube. It's our new digital distribution. Robert Kaplan said, Tom, you got to get with it. So we did this YouTube thing and subscribe to Bloomberg podcast. It's shocking, the digital distribution. Robert Kaplan, that goes to the innovation of America. We've all noted the

distinction of Europe versus America, the technology shift in America, the innovation, it's going to a part of America. How do we drag the rest of America into our new technology, our new productivity? - Yeah, so technology-enabled disruption has been with us for now the last several years. And oh, by the way, if you've lost your job in the United States in the last 10 years,

In the past, it might have been due to globalization. In the last 10 years, it's due to technology-enabled disruption. And that disruption is accelerating. AI will accelerate it.

What we're seeing, when I talk to clients across sectors in the United States and globally, it's affecting every single sector. Any sector, in goods and services, you name it, is being affected by this. The challenge is when a worker loses his or her job or their job gets restructured because of technology issues,

Can we retrain them so they can stay employed either in that business or find a high productive job in another business? And that's where the United States has been lagging. We need to improve early childhood literacy, secondary education, digital divide skills training.

And we have not been as quick to do that, I would say, as other countries. Mr. Kaplan, sir, private credit is consolidating. Private equity fundraising has plunged by more than a third over the first three months of this year. I'm curious to hear your thoughts on, quote unquote, shadow financing here in the U.S. You know, I'm hearing about these continuation vehicles deteriorating, see a low demand, weak M&A. You're getting in trouble, David.

You know, I want to know if another year of muted realizations, Tom, are going to sour long-term investors on the asset class. Well, so let's go through what's going on. First of all, as I just said, there's more business uncertainty. Valuations have recovered, but they're more muted. Cost of financing has gone up.

you know the we talked about duration long end of the curve is stickier and all that feeds together and makes it harder uh to either do monetizations or uh or or to do new transactions and so um

What we're seeing is it's not that the equity markets and other markets aren't open for monetizations. I think a lot of the firms feel like if the prices they could sell out today are lower than some cases where they have the asset marked. And so there's indigestion in the system. It won't last forever.

But we're in the middle of it right now where we've got some indigestion, where it's why you're not seeing more transactions, more modernizations, more equity offerings and mergers because of it. Okay, come on. Robert Kaplan, to Damien's good question, and you're one of the great, I think of you and Richard Fisher as being like at the apex of this, of the link between economics, finance.

and investment. Robert Kaplan, as simple as I can, mark to market in private equity and private credit, is it a challenge right now? It's a challenge right now. And I think many private equity firms will tell you that it's not that they couldn't sell the asset, they're just not happy with where they could sell it. And they want to do monetizations, but they want to do them at more attractive valuations.

What do you expect from the Fed here to finish up here, Robert Kaplan? A number of firms are saying they will do nothing until into 2026. I mean, on an ex-post basis, that's the safest path for Mr. Powell, isn't it? I don't know about that. So they'll take it. It may turn out that way, but that's not – I don't think the Fed is planning that.

It's taking up one meeting at a time. And the reason it's shortening up the time horizon is you've got a tax bill that's in that's that we don't know what it without stimulative it's going to be. We have tariffs that haven't been set yet. And so this uncertainty needs to get clarified before the Fed can be clear on what it wants to do next. And

And that may take at least until the fall. But I wouldn't assume that the Fed won't act this year, but the Fed can't prejudge that and can't be rigid about it. And so that's why you're seeing them be noncommittal and they'll continue to be noncommittal.

Robert Kaplan, thank you so much for the generous time this morning. Vice Chairman at Goldman Sachs, always associated with Harvard Business School and his federal, I say his, Mr. McTeer and the rest are saying his. It's not his bank. Robert Kaplan and the Dallas Fed, thank you.

If this government spending in defense goes towards things like R&D that have dual-use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long-lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

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You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Every time a crisis shows up, a new institution shows up that's magical. It is the Budget Lab Institute.

at Yale with the backing of Pete Peterson's foundation and many other good people, Martha Gimbel and Ernie Tedeschi and the others driving this forward. And they've had a profound impact on analysis and clearing through the, to pardon the phrase, the BS of the moment. Ernie Tedeschi joins us from the Budget Lab this morning. Ernie, what's the number one message you would send to both Republicans and Democrats in Congress?

Number one message is that where we're at right now is not riding our fiscal ship.

We need $10 trillion of deficit reduction over the next decade just to stabilize our debt to GDP, which is probably all the United States needs. We don't need to balance the budget fully. We just need to stabilize, get debt growing at the same rate as the economy. And what they're doing in Congress right now is not even close to that.

It's a $4 trillion bill if you make permanent all of the tax cuts in it.

And even if you include tariff revenue, tariff revenue is only raising $2 trillion at this point. So we're still making the debt situation worse. The critics of Ernie Tedeschi, Martha Gimbel, and the rest, what they would say is the growth rate is too gloomy at CBO. We're going to be more optimistic about mourning in America. We're going to get a better little G and life will go on.

Is that possible, feasible, remotely, could that be a constructive outcome? I mean, look, any more growth that we can get is nice. It's cherry on top. But extra growth that we get,

is not nearly going to be enough to solve the problem for us. So even if we had 3% growth sustained for a decade, which is infeasible, most economists think that trend growth in the United States is 2%, we would not stabilize the debt to GDP over 10 years alone by getting to 3% growth.

And, you know, this bill, they go above and beyond just straight TCGA extension. So there's probably going to be a little bit of fiscal impulse in the short run. But this bill is not going to get us to 3 percent growth persistently, especially when you add on top the tariffs that they've passed, which, you know, shave off half a point of growth this year and keep, you know, GDP persistently lower in the long run.

Ernie, I know you and your team have done a lot of work on this, but I think most market practitioners believe the effective tariff rate by the end of this year is going to come in somewhere between 15 to 18 percent. Yet, you know, I mean, recession probabilities are like down and basically people are calling for the U.S. economy. I mean, I think it's growing at a four percent plus clip here in the second quarter. So, look, we all wanted Nick's Pacers to go nine games. But just where is this catch up of the hard to the soft data here?

Yeah, it's a great point. We're at 15% effective rate right now. And we think that that takes off half a point of growth off of 2025. Now, look, we want to be very sober about what that means. Half a point off of growth is a significant headwind to the US economy. But on the other hand, if you thought that the US economy was 2% in 2025 and you shave off half a point, you're at 1.5%.

Which is, you know, not as great as it was, but that's not recessionary by itself. I will say, though, what we don't capture in our modeling is the uncertainty effects of tariffs. And so what I tell people is that we probably don't have a central estimate in our estimates of tariff effects. We're probably a floor in terms of the effect.

So there is still more recession risk than there was a year ago. A special treat, Ernie Chodesky with us for an extended conversation this morning with the Budget Lab. All of his work for Ed Hyman at Evercore ISI over the years. Just a real treat, folks, within the market and the futures up 13. What's going on? You know what? It is about our debt and deficit. Ernie, I was weaned on how Bronner's The Debt and the Deficit

accrual accounting and all that. I don't want to go into this too early in the morning to go into that. You are magical because you had to work for Ed Hyman. You had to work with the granularity of the American economy that Ed Hyman and Ed Yardeni, frankly, invented at CJ Lawrence years ago. When you look at the granularity of the American economy, does this debt and deficit break us or do we just keep going with the American dream?

- So on the one hand, I don't think that it breaks the US treasury market. I think you would need something close to a meteor strike or maybe a debt ceiling impasse to fully break the treasury market. If we're talking about just adding to our debt, I think it's gonna have a mostly linear effect. I think it's going to just keep adding to interest rates. Now there's a limit to that. We can obviously go too far, but I don't think that that's a short run risk.

On the other hand, like when you look at estimates of the term premium, term premium is up and it's up not just because of debt, it's up because of tariffs as well. You know, the big discontinuity in the rise in the term premium recently was after April 2nd, not after we got news about what was going on in Congress. So I think what we need to appreciate, without getting too Pollyannish here, what we need to appreciate is that it's not just

at the debt. It's that investors are reacting to this new reality of trade and the risk that the United States is not going to be as central to world financial markets as it was in the past. Ernie, are the changes we're witnessing, I'm talking dollar hedging by Asian lifers, defined benefit conversion by European pensions like the Dutch, JGB losses harvesting by the BOJ, are these structural or is it short term in nature?

I mean, I think that they're mostly strong. I think it's mostly short term right now. I think that they are mostly reacting to idiosyncratic factors in those countries, things like insurance companies in Japan, just the fact that the BOJ has less demand in general right now because they have such relative to Japan high inflation. I think also a lot of investors are reacting to the change in the short run U.S. outlook.

But look, I wouldn't call anything structural yet because nobody knows what the final tariff rate is going to be in the United States. I would say that the court decision, the U.S. Court of International Trade, if anything, heightened the uncertainty rather than diminishing it because now we have uncertainty bands that –

reach to 0% tariffs, right? That's not my likeliest outcome. But now it's a plausibility that the courts could strike down most of the Trump administration tariffs. And so you as a business or a consumer, it's even more uncertain now what things are going to look like in

the year. Ernie, some of the largest and most venerable fund managers in the country, DoubleLine, PIMCO, TCW, are avoiding the 30-year. In fact, some of them are actually recommending to short the 30-year. But then I think about the negative carry associated on a mark-to-market basis with shorting treasuries. Talk to us a little bit about what exactly is going on out there at the long end of the curve from a practitioner standpoint. I mean, is there going to be a bid? Is there demand? And at what level do you think people just start to kind of get weed back into that market?

Yeah, it's a good question. So, you know, what we've seen, you know, we've particularly seen the 30-10 spread rising lately. I think that that is primarily being driven by fiscal concerns right now.

it'll be interesting to see sort of as we get more news on tariffs. Tariffs are in a funny way offsetting that concern a little bit because they obviously raise revenue while at the same time slowing growth. So if tariffs diminish because of court cases or because the Trump administration comes to deals with other countries, it'll be interesting. It's actually quite uncertain what effect that's going to have

on the long end. If we raise more tariff revenue, that might on the one hand assuage fiscal concerns, but it might also raise growth doubts about the U.S. Ernie, thank you so much. Ernie Tedeschi with us, the Budget Lab at Yale. Can't say enough about how they have just overnight definitively changed the fiscal dialogue in America. That's a real treat. This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple Podcasts.

This is a joy with a fabulous old world perspective. I think of Rubini Taleb and so many others coming out of the Levant and points east of there in Persia.

in Iran. And joining us right now is Sasan Garamani, president and CEO at SGH Macro Advisors, associated with Medley for years. Wonderful to have you here. Thank you so much. Thank you, Tom. Good to be here. You've got such a different perspective. And I think of China. I think of like Baghdad and the Sassoon family from a zillion years ago. Nobody understands

the heritage of Persia and the greater Persia in setting up the Pacific Rim over centuries. And so you've got this one with your family. You have this wonderful perspective on China. Do we understand China or are we ugly Americans? I think we're increasingly understanding China. And I think the evolution of our thinking has changed over time. And quite simply, it's gone from from a

trading partner and to increasingly to a competitor and increasingly to an aggressive competitor. And I think, you know, we get a lot of missives from Beijing and I read through them and I'm always

almost shocked by the adversarial tone and strategy really towards vis-a-vis the United States. Our bet, in the Secretary of Treasury's bet, is they're going to amend to a United States x-axis, a United States timeline.

I see no evidence of that. If I read Albert Harani on the Mediterranean from Persia to Morocco, I don't see a U.S. timeline. I don't see a U.S. timeline in China. Am I wrong? I think what you're referring to or what you're alluding to is a timeline on trade negotiations in particular, but maybe more broadly, I'm sure you're looking at this as well. Just culturally.

Yes and no. I think that what we are seeing in China, and if you look in particular vis-a-vis negotiations with the U.S., there is a narrative that China can hold out for 50 years, 100 years, whatever. And there is a strategic imperative to try to put the squeeze on the U.S. You're seeing that with rare earth minerals and all these other negotiating strategies.

leverage points, but China needs a deal as well. Underneath the numbers, there's some weakness. There's weakness in the consumer spending. You had a very big stimulus boost in the fall of last year, and that's starting to tail off a little bit now. What does the U.S. administration not get about China? What do they not get about China? I think that the administration has...

thinks that they can, especially the president, thinks that he can break through more quickly on negotiations and the decision-making process. And the Chinese keep insisting that the negotiations be conducted from the technical and deputy level up. And so the apparatus is slower.

than I think than what the administration believes. They put a lot of faith in this Trump-Xi call that should be coming this week or next week for a breakthrough. And I think there'll be some positive noises coming out of it because I do think both sides want to de-escalate. But as far as getting a concrete agreement, like the Chinese have put together a deal between rare earths and China.

the semiconductor band and they want to have a trade off to loosen those and that's going to be hard to come by.

So Sam Karamani with us, SGH macro advisors, thrilled that he's with us today. I would be remiss if I didn't ask you about the Western stereotypes of Persia and the overwhelming reality I've seen across my life is a basic idea. It's the only thing standing in the greater Mideast with a legitimate middle class. And somehow, some way we're going to migrate

Iran from 1979 on back to something new and more benevolent. Is there any hope for that? Or do you just give it up? Not that we would go back to a Shah structure, but that we would amend back to some form of new government.

I'm not sure about the form of new government, but I do think that the progress is very real on the nuclear negotiations. I was talking with a friend of mine who's very knowledgeable on these issues, John Alterman at CSIS. I don't know if you know him. And I said, I think after 65 years...

Whatever the math is. 55 years that this might be the deal. And he said, I don't think this is the deal, but I think this is a deal. And we're getting very close on that. So I think on the economic front, that we might see some loosening. But the government is very entrenched there. So I don't see...

What is the biggest myth of Iran that Americans have right now? If I travel 50 miles south of Tehran, say, to all that heritage, the gorgiosity of Iran and all the ancient history and the rugs as a stereotype and that, what's the biggest myth Americans get wrong about your Persia? Oops.

I think it's really the attitude of the Iranian people towards Americans in particular. And we've used since 1979 to see a lot of hostility in the Middle East towards the U.S. You see that from the government. But the Iranian people are very friendly towards foreigners in general and Americans in particular, actually. And people get really... People who travel there, there's an amazing...

CNN did show Anthony Bourdain where he went to Iran. I don't know if you saw this, one of the classics. And people get surprised by how they roll out the rug, so to speak. Sasan, thank you so much. Greatly, greatly appreciate your attendance today. Sasan Garamani with us, President and the Chief Executive Officer. SGH Macro Advises, an important note there, with some optimism on a China-U.S. discussion as well.

If this government spending in defense goes towards things like R&D that have dual-use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long-lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

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This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. This is a great honor and incredibly well-timed.

Sheila is with Jeffrey. She was legendary winning all sorts of awards from I and the rest and now with Jeffrey's and what's different every sell side analyst folks is different. Sheila is bulletproof at

at the relationship inside the beltway to your economy, premium, and business class seat on a commercial airline. We're going to stay really today on the safety of the American system coming out of FAA and defense and all. Sheila, thrilled to have you here. I'm going to cut right to the chase on the airline business, WCBS.

Delta, hold. Air Canada, hold. Hold, hold, hold, hold, hold. United, a buy. What's unique about United versus all? It's your only buy. Why? We really like its offering internationally, premium. We think it can catch up to Delta, and their strategy is to grow those premium seats. Right.

And we think it has an edge. Delta is the clear leader in premium, but we think United is catching up and American is far behind. Can you do something about luggage at CDG in Paris? I don't know, but three international trips in the next six weeks. I do think that there's some brook away with Newark.

But the runway is opening up early. Scott Kirby's inviting people back, folks back to EWR. And we'll see. Across this nation, without question, this is the most important conversation of the day. Do you perceive a damaged safety to our air system because of Washington budget challenges?

A little bit. You know, I've spoken with the former FAA administrators. There's so much data out there and there's systems that we could put in place that will prevent the next crashes. I was with three corporates yesterday, Leidos, SAIC, Raytheon Parsons. They all make equipment for air traffic controllers or train them or make software systems. We just need to move some of those forward and President Trump is doing part of that. Well, Sheila, doesn't Trump's budget proposal boost spending not only on shipbuilding port infrastructure, but on air traffic control as well? It

It does, but it takes time. There's, you know, the air traffic controllers are unionized and, you know, the equipment takes years to put in place. So I think one of the things this administration is doing positively is moving things forward. How do you think the military buildup in the E.

I mean, we got that news that the European Commission approved a joint venture between BAE, Leonardo and Mitsubishi overnight. I mean, talk to us a little bit about this buildup that's coming, this fiscal spend on military out of the EU. How's that impacting your sector? So I actually think the best place, a way to play European defense is two stocks in my coverage, LHX and Northrop. I was with the CEO of Northrop yesterday morning.

And the news came out on NATO air defense buildup. So NATO right now, they're barely spending the 2%. Their goal is to spend 5% in total, of which 3.5% is on actual equipment. What I think is going to happen is the European industrial base is going to build their own fighters. They're going to support their home teams, right? So that might leave F-35 out in the cold, but the backlog's fine through 2030, so it's fine. But what they do need is air missile systems

the systems and the missiles they don't yet have in place. The weapons and the fighters, they could make themselves. So Northrop and LHX for that. - What do you think about this kill switch in the F-35 that everybody's been talking about as being, 'cause I don't think that's it. Isn't it just like the data package needs to be constantly updated by the US and that's the real risk with owning F-35s in Europe?

F-35 has had a lot of issues, but so has every major development program. It just, this one seems to be plagued consistently. We're on lot 18 of production, lot 19 is coming up, and we still have upgrades that are just gaining stability after the last four years. Well, let's tear up the script here. We saw China weighs ordering hundreds of Airbus jets in some major deal, but then we're also hearing that negotiations are breaking down. I mean, how do you make sense of all this?

So this is the way I simply think about it. China's 15% of air traffic, so they're going to take 15% of planes. Whether that's Airbus or Boeing, I don't really mind. I actually rather it be Airbus because then Boeing has a more diverse customer base and doesn't have risk on with a single country in 2040 when Comac actually gets to build planes. I'm going to go to stock pick, but I want to recapitulate this. I think it's so important. You see an urgency here.

to fix the safety after the horror of what we saw at Reagan X number of months ago? - I think the number of air traffic controllers we have is quite small.

You know, I haven't been able to verify this, but I think Newark has something like 40% more passengers coming through since 2019. Okay. But the number of air traffic controllers is stagnant at 20. Everyone listening to this program knows that's insane. Do you suggest a new urgency to fix this now?

More air traffic controllers. The attrition rate is quite high. SAIC, the company I saw yesterday. Well, come on, just pay them more. Or increase the age. They have a 55-year retirement limit, which the union is pushing back on. Okay, well, maybe that, you know, Sheila, where I stand on that. But isn't it just simply these are air traffic controllers. They control our lives. Lift the wage. Does that work?

I think what has happened in aerospace and defense, and because it's such an interesting topic,

it's such a specified industry, whether it's shipbuilding, whether it's air traffic control, you can't find those folks on the street. And those wages might not, you know, yes, lift the wage, but also the age. And it's a hard profession. You don't find those folks off the street. I hate you. You told me to buy Woodward, WWD, Fort Collins, Colorado. I told you to buy August 1st, 2024 at $150. $150, it's done a double. Okay, what is Woodward Inc., WWD?

Woodward is a small cap supplier, which there aren't a lot of because everybody's been taken out. Rockwell Collins, B, Aerospace, my favorite companies to cover back in the day. What Woodward does is half of its business is aerospace, half is energy. Think about it is it makes, it controls energy in an aircraft,

or an aircraft engine, or an industrial gas turbine. So it makes actuators, fuel control systems. It has about $300,000 worth of content on a 737 MAX. So much smaller than other big suppliers like a Raytheon or a Honeywell, but gaining steam and gaining share.

You know, I'd like to go back to what you were saying earlier about raising the retirement age on air traffic controllers, because that means that Tom has life after Bloomberg, right? I can see him with the glowy sticks and the headphones. Have you ever been in the room, Sheila, where these guys are doing this? No, I haven't had that privilege. It must be quite stressful.

Just as stressful as being in this room right now. It is. It's a lot like this. Oh, it's so stressful. Cut it with a knife. Sheila Carol, with Jeffers, we greatly appreciate it. Thank you. I can't say enough about her synthesis of aviation. United as a vibe.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say, Alexa, play Bloomberg 1130.

This is a joy. Eric Rosen stops by, and we could go a couple ways here. With his work on Wall Street, we could do like private credit, private this, credit trading, da-da-da-da-da. We could do his philanthropy, including pediatric commitment to Weill Cornell. Forget about it. He's down in Florida now, and from coast to coast, people are like, is Boca going to fall into the ocean? Okay, Boca, 3-3-4-3-2, four beds, John Tucker, six baths,

It's substantial, 6,500 square feet. It's popping 29.5 million, but it just had a $5 million price cut. Eric Rosen, is Florida real estate falling into the ocean?

Well, thanks for having me on again. It's great to be with you. So things have definitely slowed down, right? So a handful of events have taken place. We've seen a huge uptick in prices over the last five or six years, two or 300%. We've seen mortgage rates go up. We've seen much higher insurance rates tripled in many cases. And

The result is we're definitely seeing pressure on the low end. The lower end houses are definitely staying on the market longer. Inventory in Florida is 183,000 units as of the end of April. And it was at the lows in 2022, 35,000 units. And before COVID, it was 129,000 units. So you're seeing much more inventory. And at the high end, the choices stuff in Miami and Palm Beach on the water, 40, 50 million, 60 million tends to sell pretty well.

Everything else is on the market longer. And you're seeing price reductions and inventory build. I think of the macro flows, like middle class people in Florida saying, I'm done with this. They're moving to Georgia. They're moving to the Carolinas. Or I think of the money of South America and Central America, uh,

coming in, is that money still flowing in from nations to the south? Yeah. I mean, so listen, the great migration has slowed. What we saw in 2022 and 2021, we're not seeing those numbers anymore. But we saw a flurry of buying from Californians post the Palisades fires that they were displaced.

I said, uh, one of my friend brokers, uh, was showing a, showing houses. And, uh, one day, four out of the five, you know, other real estate brokers who are friends, uh, friends is a strong term acquaintances. I misspoke. I misspoke acquaintances. Uh,

in one day, four out of the five people that showed up for a very expensive open house were all displaced, you know, all from California. I should say you're with Douglas Elliman. Sean Tucker, would you like to... I'm going to guess your customers don't care about mortgage rates. Do they care about homeowners insurance and getting homeowners insurance? Well, so homeowners insurance rates have gone up double, triple, or quadruple depending on where you are. And if you have a mortgage, you have to have

hurricane insurance. You have to have insurance. And so a lot of most of the focus folks that I focus on are not super focused on interest rates. But one of my friends has a two point five percent mortgage and their insurance got canceled.

And it went from $17,000 to $85,000 for a year with much worse coverages, higher deductibles. So he didn't want to repay his mortgage because he had such a cheap mortgage. But most of the high-end buyers are not super focused on mortgage rates. But under $1 million, $2 million, you're seeing it. And I spoke with someone who said that three of their showings, three of their listings that are in the $1 million to $3 million range

are offering $40,000 for the buyers to buy down mortgage rates so that instead of paying 7%, they're paying 4%, 4.5% to make their monthly payments more affordable. So rates are definitely a factor. Okay, the weaker dollar, how does that influence the foreign buyers? You know, in Miami, there's a lot more foreign buyers than other places, but...

You know, I think it's too soon. I don't think we've seen a flurry of new buying from foreigners, but they're always in Miami. You have a lot, a lot, a lot of Americans come there. So what is the hurricane insurance on a one point one million price cut? Thirty five thousand twenty two hundred square feet, four bedroom, three bath and scenic Boca three, three, four, nine, eight.

What's the insurance on that? Well, I can only say, I don't, I can't quote that to Mr. McHouse, but I would say it's probably up two to three times, especially are you near the water? Are you inland by 10 miles or are you near the beach? Because that makes a big. Near the beach, not on the beach, but near the beach. So, you know, Barwood, Michael Barwood lived there.

Yeah. So, I mean, whatever it was, it's probably up two and a half times in the last four years. Give me a rough number. I don't, you know, nobody's listening here. Just give me a number. You know, I'm thinking about what my insurance rates are. You know, it would be hard for me to guess. I don't know what.

Would you like to guess, John, since I'm not going to get an answer out of Mr. Rosen? I'll guess, but I'll be polite and won't say anything. Well, here, no, I'll ask this. What are your commissions? What are they? Is it still 6% or is that negotiable? It's always negotiable. You know, at the high end, you know, they have a commission. And is that going to go, is the future of real estate transactions, is that under threat, those commissions? Yes.

Listen, you know, there's been a lot of talk about it, but the commissions for high-end product, people continue to pay for it. So...

but it's negotiable. Thank you for coming in. Really appreciate it. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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