Carol Massar (1:32)

Bloomberg Audio Studios Podcasts Radio News this is Bloomberg.

Jacob Goldstein (1:40)

Business Week insight from the reporters and editors that bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg businessweek podcast with Carol Massar and Tim Stenovec on Bloomberg Radio.

Carol Massar (1:57)

What a Fed meeting.

Carol Massar (1:59)

Yeah.

Carol Massar (1:59)

What a market reaction.

Carol Massar (2:00)

Well, listen, I think it's so interesting to hear the conversation that the gang, the surveillance gang really just having on television and radio about, you know, was it hawkish? A little bit hawkish? Was it dovish? We certainly saw equities rally. We're coming off our best levels of the session, but nonetheless, Tim, we did see that immediate market reaction. Stocks moved up. We saw yields back off. I feel like I can't wait for the May meeting already.

Carol Massar (2:24)

Yeah, I'm already looking forward to that. And we're going to get a lot of data between now and then. To Carol, as we heard from Charlie, the Fed, as expected, held their benchmark rate steady for a second straight meeting, though they telegraphed expectations for slower carol economic growth and higher inflation.

Carol Massar (2:38)

Did indeed, Jay Powell saying the US Economy folks, it is strong overall and yet there are some signs of moderation.

Carol Massar (2:45)

Recent indications, however, point to a moderation.

Charles Hecker (2:47)

In consumer spending following the rapid growth.

Ryan Dietrich (2:50)

Seen over the second half of 2024. Surveys of households and businesses point to.

Carol Massar (2:56)

Heightened uncertainty about the economic outlook.

Tim Stenovec (2:59)

It remains to be seen how these.

Carol Massar (3:01)

Developments might affect future spending and investment.

Carol Massar (3:05)

That, of course, was Jay Powell at the press conference today a little bit earlier. As for market reaction, as we mentioned, we did see stocks rally and US treasury yields back off right after the decision. Let's get more though on what we heard from from the Fed today and what we saw in terms of market reaction. Keep in mind that we're going to be covering all of this over the next hour and a half. With us is Bloomberg Intelligence chief, US Interest rate strategist Ira Jersey, and Veronica Willis, Global Investment Strategist at Wells Fargo Investment Institute. Ira is at BI headquarters in Princeton, New Jersey. Veronica is in St. Louis. Hey Ira, I want to start with you. How did the Fed do you think on messaging and in assessing today's current US Economic backdrop and what it needs in terms of of monetary policy? And I am curious, did it feel more hawkish? Did it feel more dovish?

Ira Jersey (3:53)

What was your read so well, we have a natural language processing model that parses all the words and language from all of the opening statements and this one was incredibly neutral and it had been somewhat dovish last month. And you know, being as neutral as neutral can be, it was a little bit surprising maybe to see the treasury market rally a little bit and, and also bull bull steepen. So before the, before the Jay Powell started to speak, treasury yields were, were higher by a little bit on the day and then we rallied about 10 basis points in two year yields, you know, soon after he started to speak. So the market certainly took him as dovish. He wasn't hawkish by any stretch of the imagination. The one thing that I think is interesting is the dot plot. And you know, we thought that maybe the median dot would move down a little bit. It didn't. It stayed the same. So this is pretty unusual for the market actually to rally like it did or the rate market to rally like it did when the Fed didn't move the dots.

Carol Massar (4:51)

Well, Ira, I wanted to talk a little bit about that because it didn't seem like there was any certainty with regard to the Federal Reserve's economic outlook. We heard as much from Mike McKee on Bloomberg TV and Bloomberg Radio a little earlier. The Fed doesn't really know where we are. Why does the market think it knows where we are?

Ira Jersey (5:11)

Well, the market has to price something Right. So I think that the market probably took what what the Fed said, not so much that, that they're necessarily the Fed's going to be hawkish or dovish. But I think one of the things is, is that the, the market might be thinking hey, the Fed might make a policy mistake here because we are seeing a slowdown. But the Fed and the Fed dots are suggesting they're not going to cut rates very quickly and certainly not in the near term. And you really saw that that rally pick up after Jay Powell mentioned once again that he thought that they could, that, that they could be patient and they didn't have to be in a hurry. I mean the exact words were we're not in a hurry to make a rate adjustment. So that means we're here probably for another three to six months at least on, on the Fed funds rate.

Carol Massar (5:58)

Veronica, I want to bring you into this conversation in terms of markets. We've just been talking about this with Ira. I mean we certainly did see equity markets rally were off our highs of the session. We what's the investor read on this decision? Fed commentary. Do you feel like investors have it right? And has anything that we got from the Fed chair and from the FOMC today in its decision and commentary and revised outlook, has it changed your investment outlook?

Veronica Willis (6:25)

I think that investors are really looking at the kind of best case scenario where growth is going to slow enough to, to afford the Fed to do two or more cuts this year. And I think that's a little bit too optimistic. So the market may have been a little bit too optimistic today in response to this data or in response to what the Fed has said. And I think that it's more realistic to expect maybe one cut this year. And I think that the risk is a little bit more on the side that there might not be a cut this year versus two or more cuts. So I think it's just another example of the, the market kind of taking what it wants from what Powell says, taking what it wants from what the Fed has shown us and hoping for that best case scenario.

Carol Massar (7:12)

I mean what was the most important part of what we got from the Fed chair, Veronica, in your view today?

Veronica Willis (7:17)

Yeah, I think what was really interesting were his thoughts around the consumer and how that might impact future economic data. I think that's something that's becoming more and more important just considering how important that consumer spending is to driving our economy. And so the Fed is watching really closely all of these sentiment surveys that have come out with consumers feeling uncertain about their ability to continue to spend. We haven't necessarily seen that flowing through very strongly in any of the heart data, but it's something we're watching very closely, and I think it's something that the Fed is watching very closely as well.

Carol Massar (7:53)

May Ira, come on back in here. Given what we heard from Fed Chair Jay Powell today, and we think about sort of the upcoming economic data that we get, what is the next catalyst that you have your eye on?

Ira Jersey (8:05)

So, you know, we're like, in this weird place. So we do get the PC deflator next week. And, you know, I'm not sure that that's really going to matter a whole lot because we kind of know what it is given we've gotten the inputs to that. So, so it's going to wind up being things like some of the survey data, the ISM data that we get in two weeks. Plus, the, plus the payroll report obviously is the big one. I think something else that's going to be interesting is the implementation of the slowing of runoff. So, you know, it hasn't gotten a lot of attention. Only had one question at the very end of the press conference. But the Federal Reserve is again, halving the amount of quantitative tightening it's doing, and it's only going to have about $20 billion of runoff come April 1. And I think that that's something that is kind of flying under the radar. And how will that affect liquidity in markets? Once that's implemented, I think will be an interesting thing to look out for.

Carol Massar (8:56)

Are you already looking forward to the May meeting, Ira?

Ira Jersey (9:01)

I'm looking for. I look forward to every meeting, but we don't. We get the minutes between then, you know, the minutes will be really interesting because there was a lot to unpack in this meeting and this meeting. So the minutes could be really an interesting read when we get them in three weeks.

Carol Massar (9:15)

I was going to say, Carol, he's not as boring as you and me where we're, you know, we're just like already looking forward to the May meeting. Hey, Ira, before we let you go, what was one question that you didn't get answered from Jay Powell today?

Ira Jersey (9:27)

Yeah, I think it was a little bit about their, about the balance sheet and how they see the balance sheet reacting with the economy. He has been asked that before, but it's been a little while. And given that they, that they did take action today by, by slowing the pace of asset runoff, that I think that can be pretty important. And he wasn't asked about the other side of the balance sheet. Right. So, so the asset runoff occurs and then eventually we're going to have a time when there's not enough liquidity. And we know that there's been issues with the standing repo facility and some of the ways that they conduct liquidity activities and actions. And he wasn't asked at all about that either. So I would be really interested to, you know, kind of dig into those weeds because this is the plumbing of the entire financial economy that we have. So if, if the financial economy, the repo market and the funding markets break, everything else comes crashing down as we saw in 2008. Right. So we have to make sure that the Fed has the tools in order to handle that once we get to the lowest comfortable level of reserves.

Carol Massar (10:29)

All right, we're going to leave it there. So much appreciate both of you and your views on all of this. Bloomberg Intelligence Chief US Interest Rate Strategist Ira Jersey and Veronica Willis, Global Investment Strategist at Wells Fargo Investment Institute Pinpointing the genetic changes that predispose us to disease Identifying the roots of mental illness, Treating congenital anomalies even before birth At Boston Children's Hospital, we're investing in children's health today to ensure the well being of adults tomorrow. As home to the world's largest pediatric research enterprise and more than 260 specialty programs, Boston Children's is where the world comes for answers.

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Carol Massar (13:11)

Tim, you know, we think about Ryan Dietrich a lot and we've been hoping to catch up with him. So we're so grateful that we're going to get to him in just a moment because we just want to remind everybody he has been a US Stock optimist and right in his market recession calls for the last couple of years. He nailed it back in 2023, also 2024. And when we talked him with him in December, he said the bull run had more room to run.

Carol Massar (13:34)

He did, however, early last month. Note that history shows us that as an Eagles super bowl victory could tank the stock market, something that was making the rounds on social media did note, Carol, that success for Philadelphia sports teams has previously been followed by troubled times in the US Economy and markets. I mean, how do you even make sense of this stuff? It's like talk about somebody who like, you know, reads astrological charts.

Carol Massar (13:58)

I don't know. I think, you know, you never know where the market can take its cues from. So. All right, let's see what Brian has to say. He is back with us and he is chief market strategist at the RIA and also platform for advisors, the Carson Group. He is with us. Where are you, Ryan, today?

Carol Massar (14:12)

Cincinnati.

Carol Massar (14:13)

Cincinnati. So, so tell us, the Eagles won, Are we doomed?

Ryan Dietrich (14:19)

Well, that's a playful one. We don't blindly invest in that. But historically, when a team from Philadelphia has won the World Series or a Super bowl, trouble has come. For the stock market. Talking 2008, you're talking the early 80s double recession. You've got the crash of 29 in there. Now that's playful. I, you know, we're not getting too worked up on that. But the big question is, is this surprising, right, that we had some volatility? Yes. I came over The I've come on for a while saying we're pretty optimistic, but we've been also pointing out the first quarter of a post election year is usually not that great. The first quarter after a 20% gain, usually not that great. The first quarter. The last 20 years, stocks are actually negative for the year on average until like March 16, March set. March 17, March right where we bottomed, you know, potentially now. And I guess welcome to March Madness. I know this is the radio. I think, I think I'm on YouTube. I've got my Xavier shirt on. Xavier boy. I'm in Cincinnati. They played tonight in the first four up in Dayton. I'm going, we're going to take out Texas. Just wanted to say that. Sorry to my friends.

Carol Massar (15:20)

Okay, that's okay. You can make market predictions and you can also make your bracket predictions as well. Ryan. So you did say, and I want to make sure you said this, you said that we did bottom for this cycle, is that right?

Ryan Dietrich (15:33)

Well, I mean, put some pressure on me, but yeah, we think we did. I mean, listen, there's a couple of ways to look at this. We had a regular 10% correction. Didn't have one last year. Right. All the fear came up when I took a look at previous 12 times the market went into a correction but did not go into a bear market. That's our base case. We do not see a bear market. Tim, five of those times you bottomed the day you went into a correction. So that'd be last Thursday. And everybody was very beed up last Thursday, rightfully so. A lot of scary headlines. And then we had that back to back 90% updates on the S&P 500. So 90% of the stocks in the S&P 500 of two days in a row that historically is quite bullish. Right. Six months later you're up like 15% on average. Higher 10 out of 11 times. That's just one data piece. But I think we had a buying thrust with extreme negativity and now we're in the second half of March was historically pretty strong seasonally and now we've got the Fed. Listen, you guys talked about it. I know we can talk about a little more. Were they really that dovish? I don't think so, but I think it was a relief for the market and clearly we saw what yields did and the market in general. But hey, you know, we're not going to complain after the run we had.

Carol Massar (16:39)

Wait, so net net. You also said we would be up around 20% this year in US stocks so you do still believe that.

Ryan Dietrich (16:49)

Well, our. Well, let's see here what we.

Carol Massar (16:51)

Back in December. That was back in December.

Ryan Dietrich (16:53)

Well, understood. Yeah. We came out early this year with between 12 and 15% in the United States, we think and we think that's very likely still Carol, now what we're doing with the money we run. Well, we've, we've been in gold. She whiz. I think April of 2023 added some more gold. We were very, very overweight. US stocks for a while came on with you. But we've kind of done some tinkering, if you will with some models we run for our Carson Partners. We've got some Treasuries for the first time in a while. We do have about a 20% allocation to international stocks. But we are overweight equities. It's. That's the way to go. But you know, we think other parts can do well. But to answer your specific question. Yeah, we think, you know, stock market, I don't, we're down now after today's rally, 3 or 4% for the year. We think it can still hit double digits which, which sounds like a long way away, but it's very possible.

Carol Massar (17:35)

Ryan, are you trimming, are you trimming gold and adding to international equities? Are you adding to US equities right now? What exactly is your team doing?

Ryan Dietrich (17:45)

Great, great question there. So as of now, no, I mean gold is boy, it is. It's a monster. And it's incredible how well it's done what we've done. We've actually gone to some low ball. Right. We sold some high Vol stocks earlier this year, went into low Vol because again, as this cycle ages, maybe more volatility. To be honest, we weren't crazy about the mega cap or mag sevens. I'm trying to say Mag 7. I know came on the most of last year saying more neutral tech. Sometimes we get weird looks when we said that. But now we're seeing this rotation and again the lifeblood of a bull market is rotation. Right. So tech isn't doing quite as well. That's okay. We're seeing leadership from other areas, but areas like low volatility, industrials, financials, we think those are going to continue pretty well. And honestly they have. I know financials had a big pullback recently. Recently, but we still pretty optimistic that that's a group that's probably still going to lead as financials.

Carol Massar (18:33)

You know, we just talked with our TV colleagues. We made fun of them but you know, because we had a fun story to chat about, but they had a serious one about Oppenheimer cutting Goldman, Jeffries and Carlisle on the M and A outlook, noting that the M and A rebound likely delayed or canceled. There were a lot of expectations coming into this Trump market environment and this administration, President Trump, that it was just going to be go, go, go in terms of the business environment, the market environment, it's not exactly playing out like everybody expected. I don't think, you know, Trump first term is exactly playing out like Trump's second term, at least far so, you know, if tariffs stay, if new policies come, if regulations maybe aren't so friendly, if M and A doesn't come back, I mean, is that a very different market environment then in your view? And maybe your expectations for 12 or 15% gains on the S and P are not then realistic?

Ryan Dietrich (19:26)

Now, those are great points, I will say. I heard you guys talking about Denny's and Sausage and Pancakes where I came on. I was kind of jealous I didn't get to talk about that. Love Denny's. But you get in, you get into it here. And I think what people thought when President Trump won was you're going to get a couple of things right. Deregulation, better taxes and tariffs, in that order. We're not getting in that order, as we all know, you know, so if the, you know, animal spirits is a popular word coming into this year, clearly those have been screeched to a halt, if you will, when you look at some of the sentiment, polls, software, soft data, sentiment polls and things like that. But again, I guess you could say we're optimistic that, yes, we're all worked up over tariffs and rightfully so. April 2, as everybody knows, is that big day. But the market, I think new markets can go up on good news, markets can go up on bad news. I mean, five years ago now, bad news.

Carol Massar (20:15)

But there's good news. There's good news, there's good news, there's bad news, there's bad news. Do you feel comfortable in this market environment that we're not going to have a lot of surprises and unexpected things coming our way?

Ryan Dietrich (20:24)

Well, put it this way, we do, because we're still overweight equities and the unconstrained models we run, we're about six 76 equities. 60 is considered, you know, kind of right down the middle. So yes, we're overweight. And again, a lot of it has to do with that over the top negative sentiment. I'm sure other guests have talked about some of these things. We saw a huge put to call ratio spike last Thursday. But the one that AAII cinnamon pole. I know there's some flaws in this one, but three weeks in a row, 55 bears. All right. We haven't seen that since the March 2009 lows. Just the, the random indicator. I have just hearing from people I haven't heard from for years that are very worried on what we're calling a kind of run of the mill normal 10% correction. You tend to see a lot of years that could be bullish with those lowered expectations. And today the Fed, were they really that dovish? Honest to goodness, I don't know if they really were, but they weren't hawkish and the market liked it.

Carol Massar (21:10)

Ryan, 20 seconds left. What makes you change your view that this will be an up year for the equity index?

Ryan Dietrich (21:16)

Yeah. To turn us a little more cautious or negative. I think a more of a spike in credit spreads. Right. We are not seeing, seeing stress in the credit market some. Yes, but, but Tim, we're just simply not seeing that there's less stress now than it was in March. I'm sorry in August when we had that very scary yen carry trade unwind. So that's the thing we watch. We're not seeing it yet.

Tim Stenovec (21:32)

All right.

Carol Massar (21:32)

Going to leave it.

Carol Massar (21:33)

Ryan Dietrich. Yeah, go ahead, Carol.

Ryan Dietrich (21:35)

No savior.

Carol Massar (21:37)

Always fun, always fun. You keep us on our toes. Ryan Dietrich, chief market strategist at the Carson Group.

Jacob Goldstein (21:44)

This is the Bloomberg Businessweek podcast. Listen live each weekday starting at 2pm 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 11:30 wanted to get to some.

Carol Massar (22:03)

Of the big news of the day. President Trump started phone talks today with Ukrainian counterpart Volodymyr Zelensky a day after the US President's conversation with Vladimir Putin failed to win Russia's commitment to a 30 day cease fire in Ukraine. Now earlier today on Bloomberg, surveillance on TV and rad. President Trump's special envoy Steve Witkoff said that he believes President Putin is operating in good faith and that an end to the war could be soon.

Charles Hecker (22:28)

On Monday we actually have the technical teams going.

Ira Jersey (22:30)

And why?

Charles Hecker (22:31)

Because that's what we're down to.

Ira Jersey (22:33)

We don't, we don't need to have the larger, the larger overarching discussions that's.

Charles Hecker (22:38)

Been had and it was completed yesterday.

Ira Jersey (22:40)

Between the two leaders. They agreed on a pathway to, to.

Charles Hecker (22:46)

Some cease fire conditions today and to a full on cease fire that will.

Ira Jersey (22:51)

Be negotiated over the coming days. I actually think in a couple of.

Charles Hecker (22:54)

Weeks we're going to get to it again.

Carol Massar (22:56)

That's Steve Witkoff, President Trump's special envoy earlier on Bloomberg Surveillance. We also heard yesterday from the White House after that two and a half hour call between Presidents Trump and Putin, the White House readout that the two leaders agreed that a future with an improved bilateral relationship between the United States and Russia has huge upside side this includes enormous economic deals and geopolitical stability when peace has been achieved. So the question is, can there be enormous economic deals, business deals between the two nations? And if this feels a little bit like deja vu, you are right. A new book, outlooks adjust that and the recent experiment in capitalism from the 1990s until 2022 when global companies set up shop in Russia. Writing about that is Charles Hecker. He's a journalist and risk management consultant. His book just out this month, is Zero Sum the Arc of International Business in Russia. He has spent 40 years working in the Soviet Union and Russia, and he joins Tim and me on this Wednesday. So delighted to have you here with us, Charles, I do want to first ask you about what's been going on over the last couple of days and the, the conversations between the presidents of the United States, Ukraine and Russia. Does this look like to you, like lasting diplomacy being worked out, peace negotiations being worked out? What's your read, especially with your knowledge of Russia and Putin?

Charles Hecker (24:14)

I think right now somewhere we're between sort of two steps forward, one step back, or maybe even one step forward, two steps back. I mean, from today's conversation between President Trump and President Zelensky, we can at least draw the conclusion that the two presidents are once again sort of speaking regularly, speaking normally and without the anger and the hostility that we saw of a couple of weeks ago that really set this process back dramatically. So we have a bit of a victory there in that the two presidents are communicating as far as the actual peace agreement or the cease fire between Russia and Ukraine, both sides are already accusing each other of violating that this morning. So there were attacks allegedly from Russia on Ukrainian energy installations. And Russia says that Ukraine is doing the exact same thing back.

Carol Massar (25:00)

So when Steve Witkoff says he believes that, I think he said to some extent, well, some of these attacks were already happening or I don't know, I guess the devil and timing is always in the detail. The devil's in the details. He believes that President Putin is acting in good faith. Your knowledge of President Putin and how he does things, do you, do you.

Charles Hecker (25:23)

Think he is, well, one of President Trump's predecessors in the White House, when talking about Russia, always said, trust but verify. And, you know, there hasn't been a whole lot of verification going on lately. And what we do know is that President Putin has in the past gone back on his word when it comes to holding off on attacking Ukraine.

Carol Massar (25:41)

Right.

Charles Hecker (25:42)

And so with what happened this morning and with the fact that the timing, as you suggest, is still incredibly vague on when this is all going to start and when the cease fire will kick off, we still don't know first of all, what President Putin's word is and when or if he'll start to obey it.

Carol Massar (26:00)

So I just want to get your thoughts about where we are in your view, if this actually is the beginning of the end of the war. You mentioned that both sides are already not agreeing to what had been agreed upon, but you also said that it's good news that the US Is speaking to both of these parties. Do you actually think this is the beginning of the end of the war?

Charles Hecker (26:21)

It might be. I mean, I think if this is the beginning of the end of the war, it's going to take a lot of longer than any of us anticipate and a lot longer than any of the actors in these negotiations are telling us. I mean, we know, look, that the strategic driver for Putin behind all of this is to keep fighting. So when he says that he's engaged in cease fire negotiations, when he says that he's interested in a cease fire, he's really not being entirely genuine with his counterparties, because really what Putin wants to do is to continue to press on. He thinks he's winning on the ground in Ukraine. His progress has been a little bit better than previously. And right now, there's very little incentive for him to stop.

Carol Massar (27:00)

So that's the perfect place to sort of transition to business in Russia over the last few decades, something that you've been writing about and that you know a lot about. If we were talking to you three years ago, we'd be talking to you about all the American businesses that have announced that they've stopped doing business in Russia as a result of Russia's invasion of Ukraine. I think a lot of people then would have thought this is going to have huge economic consequences and effects on the country and might cause Russia to think twice about what it's doing militarily. That obviously didn't happen, right?

Charles Hecker (27:34)

Well, exactly right. I mean, if we were talking about this precisely three years ago, what we would be talking about is absolute sort of streams of Western executives stampeding towards Moscow's airports, among other places, trying to get out of the country. And this was exactly three years ago, a time when international offices, European and American offices, were physically emptying out of expats and of Russian employees who were desperate to leave the country because the full scale invasion was kicking off. And so if we look at it now, you know, the US Business community is looking at the negotiations between Trump and Putin, and they sense that sanctions relief is in the air. And there are active conversations now in the companies that left Russia three years ago about going back. Not everyone will do it, but everyone is talking about it.

Carol Massar (28:32)

Yet, you know, you write or you note that in like one generation, we saw Russia open its doors and then close them again. So, I mean, what ultimately rules in Russia? Is it money? Is it business? Is it politics?

Charles Hecker (28:47)

Well, you're right. I mean, the last generation in Russia was one of the biggest experiments in global capitalism ever. You had this emerging market opening up during a time when companies were globalizing rapidly and everyone rushed in to Russia following the collapse of the Soviet Union. You know, for companies to go back, it is partially all about money, but it's about that and a lot more. It's about a change to the risk reward equation. And in the 1990s, just about anything that you did in Russia, almost any kind of Western business activity made money. It was really like, you know, plant any seed and it would grow.

Carol Massar (29:27)

Right.

Charles Hecker (29:28)

That is no longer the case. Companies that want to go back to Russia, want to or are thinking about going back, are not going back to the Russia of the 1990s, not going back to the real go go days of the 2000. It's very different now.

Carol Massar (29:40)

Well, talk to us about this. And this is something Tim and I talked about with Angela Stent, who has understands Putin, understands Russia too. And I said, you know, what is today's Russia? What is Putin's Russia? Is it a great power? Is it a great economy? You know, what are their businesses, their alliances? Like, what do we need to know? And some of it I asked facilities, when I said, is it a great economy? But I mean, what is it today?

Charles Hecker (30:02)

Well, you know, there were a lot of people, not Angela Stent, who's one of my idols in the field of Soviet and Russian studies from way back in the day, you know, there were people that said that Russia was a gas station with nukes. And, you know, that is a vast underestimation of Russia's role in the global economy. And we understood that when Russian gas and oil and all of that came under sanctions or oil came under sanctions. And when the Europeans tried to chase gas out of their pipelines, we understood what happened to prices. We also understood what happened on global grain markets after the start of the full scale invasion. So Russia is a lot more plugged into the global economy than we ever thought and perhaps even more than we think, particularly in the area of precious metals, rare earth metals, critical minerals. These are places where Russia has significant strategic deposits that are useful not just to Russia, but to everybody else around the world. So, you know, there is reason to go back in. There are companies that are thinking about it. But look, the war lasted a lot longer and is lasting a lot longer than anybody ever thought. And enormous changes have taken place on the ground, politically and economically in Russia. And if you're thinking of going about going back, you have to be thinking, well, what kind of Russia is waiting for us?

Carol Massar (31:18)

Well, what kind of. What did Russian businesses, Charles, do to replace American businesses and Western businesses that left? We all saw stories of McDonald's, for example, pulling out. That was such a prominent example because of what happened in the, when the fall of the Soviet Union happened and that first McDonald's opened up in Russia. But we saw this sort of Russian version of McDonald's come in. What has been, what has happened on the ground since American and Western businesses have left?

Charles Hecker (31:45)

Yeah, a lot of different things have happened since, since Western and American companies left. And that is that you're absolutely right to point out that a number of significant western brands, including McDonald's, which everybody loves to look at when we're talking about Russia. But other companies like Starbucks for example, had a massive presence in Russia and they're gone too. They've been taken over by local Russian owners. They were sold when those two companies decided that they wanted out. And so what those companies have been doing has been winning, growing and maintaining market share and trying to sort of run businesses. And right now it's very difficult to understand whether the current owners of McDonald's or Starbucks or any of the other companies that left, you know how keen they are to sell those back to the people that they bought them for just a couple of years ago. The other thing that's happened on the market is that companies from non sanctioning countries have moved in, and that includes countries like Turkey and China. They've taken over market share, they've moved in and it's going to be difficult for returning companies to dislodge them.

Carol Massar (32:53)

So it raises the question about initially why the companies left during the invasion in your view, Was it because it was seen as not ethical to do business and support a country that had this invasion? Was it because of American regulations or was it an actual business decision?

Charles Hecker (33:14)

There were a few different decisions. In some cases, sanctions made it illegal to do business in Russia. And there were companies that just had to get out because there was no way that they could transact in Russia at all without violating sanctions. Other companies looked at the reputational risk of doing business in Russia, and you had significant external pressure on these companies, saying, why are you still in Russia? You're paying taxes to the Russian government. The Russian government is using that money to buy weapons to kill Ukrainians, so what are you doing there? Companies felt that reputational pressure and they left. And then there were companies that for whom it was easier to leave because maybe Russia wasn't that big a market. Maybe they weren't doing all that well there anyway, and why bother with all of the difficulty of doing business in this kind of environment? And so they also packed up and left.

Carol Massar (34:03)

One of the things I want to ask you and I thought about this, Charles. We are talking with Charles Hecker, journalist and risk management consultant. His book out this month, Zero Sum the Arc of International Business in Russia, Spending Some Four Decades in Russia in the Former Soviet Union. You know, I think we think that introduce capitalism, introduce Western businesses, whether it's China, whether it's Russia, that these countries, these places will become liberal democracies. And here we are again, seeing that it really doesn't work. So is it not going to work if we continue to what's. What's wrong with our thinking or why is it not working?

Charles Hecker (34:42)

One of the lessons that we have to have learned on exiting Russia is that the assumption we made, just as you said, Carol, the assumption that we made on the way in, that engaging with Russia economically and commercially and sending Big Macs to Russia would transform the country somehow into a mirror image of the west or into at least a sort of liberal democracy that we could get along with. And, you know, I think we've learned over the years whether we're talking about Russia or we're talking about China, for example, or other countries that, you know, eating Big Macs doesn't make you a democrat, you know, little D Democrat. And so, you know, if companies once again go back to Russia and think, look, you know, we're going to be on the ground and we're going to give this a chance, and we think that Russia may reform, that's a mistaken assumption. And, you know, we realize that perhaps a little bit too slowly. I don't want to be too judgmental about our experience in Russia over the past generation, but it was a flawed assumption.

Carol Massar (35:42)

So President Trump seems to want to create economic ties between the US And Russia. Some say, you know, the diplomacy or lack thereof or whatever you want to call it that we've had between the US And Russia. And President Putin so far has not created a better relationship. So maybe this could, is that even possible with your knowledge of President Putin, how he runs the country, his type of leadership? I mean, is there some good that could come out of this?

Charles Hecker (36:12)

I think President Putin is going to remain resolutely hostile to the west going.

Carol Massar (36:17)

Forward, United States included.

Charles Hecker (36:18)

Yes, absolutely, the west, you know, capital W, bold face letters. He is going to remain hostile to the west in the United States and he will see them as enemy nations and he will take a very skeptical view towards companies that come from those countries. And so he certainly doesn't believe that allowing Western companies into Russia or American companies into Russia is, you know, an overwhelming good for the Russian economy or certainly for the Russian political system. And that's something that companies are going to have to manage and overcome and be extremely acutely aware of if or when they go back in.

Carol Massar (36:57)

Tim, I know you had a quick one last question.

Carol Massar (37:00)

Yeah, Charles, would you recommend that companies just don't go back to Russia?

Charles Hecker (37:08)

Companies are going to make up their minds about this based on how they view the risk reward decision. And look, there are companies out there in, for example, the energy sector in natural resources, in metals and minerals and mining that have really robust appetites for risk and cast iron stomachs for managing it. They will probably go back and they're going to do it carefully. They've done this before. They're doing business in places like Iraq right now. So they'll go back to Russia and we'll see how they survive.

Carol Massar (37:36)

Listen, so love this. Hope we can get you back real soon because we know that this is going to be certainly an ongoing and kind of story that will probably go on for a while. Charles, thank you so much. Good luck with the book.

Charles Hecker (37:46)

It's a pleasure. Thank you.

Carol Massar (37:47)

A pleasure is ours as well. Charles Hecker, journalist, risk management consultant Book just out. It is called Zero Sum the Arc of International Business in Russia.

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Carol Massar (40:24)

Down Crew 9 back on Earth. Yes indeed, everybody. Yes, those two NASA astronauts whose planned short trip to space became one that left them in orbit for nine months. Yes, you know they are back on planet Earth. Butch Willmore and Suni Williams coming home to United States. Though that is a bit differently. Or different I should say. It's got a new president, a new Republican controlled Congress in a world that some would say is being turned upside down by new US Policies. Now, those two NASA astronauts also returned to Earth in a Space X craft which is of course, you know, Space X a part of the Elon Musk empire. So too is Doge, the entity that is tasked with an ever widening mission to seemingly remake the US Government and that includes cuts in spending and in the federal workforce. So we thought it was time to do kind of a check on all things Elon and Tesla and Space X and Doge and more. To do that we have back with us Bloomberg Businessweek columnist Max Chaff Kid. He is co host of the Lining podcast, author of the Contrarian, Peter Thiel and Silicon Valley's Pursuit of Power. Max is here in our Bloomberg Interactive Broker studio. Of course, Tim out there in our San Francisco bureau. Max, good to have you here. We were talking a lot going on. Well, you know, we find we were thinking about Elon today and like he's in this kind of funny spot. He finally brings these two astronauts that I know NASA doesn't want us to use the word stranded, but we're stranded up in space. They were safe. But Space X brings him home. At the same time, you've got a judge, a federal judge, ruling that Musk likely exercised uncontrolled unconstitutional power in the Trump administration's efforts to shutter the US Agency that manages foreign aid. I mean, there's so much going on, the highs and lows that seem to be Elon, how do you, because you continually have to kind of put it all together, make sense. How do you put it all together?

Tim Stenovec (42:13)

Well, I think of course this Space X mission is a, is a demonstration of all that that company has achieved. They are the main way that America gets its astronauts to and from and cargo to and from the International Space Station. There was this, there is this competing effort that the Boeing craft that is going slower and Elon Musk, as you said, stepping in now, I think the problem here is Musk. I think in his mind and when you look at like some of the things he said about what he wants out of the Trump administration, he just sort of expects Trump to essentially give a bunch more contracts to Space X. I think in these court rulings and in some of the pushback, we're seeing political pushback as well as pushback from consumers, like some of this, these vandal, then, you know, vandalistic acts on Tesla stores and so on, we're seeing that that may proved to be more difficult than I think maybe the Elon Musk, you know, super fans would have believed.

Carol Massar (43:15)

What do you mean? By that, Max, how is that more difficult?

Tim Stenovec (43:18)

Well, I think there's political. Well, sort of a couple of things. One is we're starting to see sustained political opposition not just to Donald Trump, right, whose poll numbers have, have dipped a little bit in most polls since he took office, but also, but even more so to Elon Musk. Elon Musk's has gone from being a very popular public figure to being an unpopular public figure, even, even more unpopular than Donald Trump or like a typical Republican politician. And so, so that is going to be a challenge. That's a challenge because, you know, Democrats and Republicans are consumers and if people are generally mad at Elon Musk, they may not buy Tesla's. We're seeing that show up in some of the Tesla sales data. I think it's also a challenge if we're talking about some sort of effort to hand SpaceX another contract. Now of course NASA did use Space X to bring these astronauts back, but as you said, Carol, they didn't really have an option. And what Elon Musk is going to be talking about and is talking about to some extent are contracts where there are other options. So this rural broadband program where Musk and his supporters would very much like the emphasis to go away from fiber optic to satellite, that is going to have political opposition. We're seeing opposition in Italy where Giorgio Maloney, who's of course a Musk ally there have been, there's been talk of giving Space X Starlink, the satellite division of Space X, a big contract. We're seeing opposition there. And then I think you're even starting to see little hints of opposition to, you know, what you might see as a more transactional thing in the US where if Elon Musk were to get what he wants, he would get like a giant Mars contract. Now I think that is going to be, as I said, it's going to be difficult. They're going to be senators, congressmen who are, who, who are in the States where these other legacy aerospace contractors are, who are not going to be happy about that.

Carol Massar (45:08)

There's also business challenges too, Max, and I'm curious about your thoughts on this. We got news this week that show me is actually raising its target for a number of vehicles that it plans to deliver this year. BYD comes out with this five minute charging essentially equivalent of going into a gas station, filling up your gas tank. Tesla doesn't have that technology. In the US you can't get these Chinese autos, but around the world you certainly can. It seems like there are Some real business realities that the Tesla empire is running into.

Tim Stenovec (45:37)

Yes, I mean, we would be talking about these challenges even if the politics were working perfectly for Elon Musk. You talked about China. We've seen Chinese automakers make huge strides. And you're right, Tesla is protected to some extent because these Chinese companies are not in the US but Tesla gets about 40% of its sales from China. So, so this is like a direct threat to its business. Also, these companies are operating in other regions where Tesla, you know, collects a percentage of its sales. So, so even today this is a problem. And then the other thing you're seeing is a lot of these Chinese automakers are offering basically their own versions of what Tesla calls full self driving. This is a advanced driver assistance software suite and they're effectively giving this software away. The Tesla bulls had been expecting that they would be able to charge huge sums of money for Tesla. Full self driving right now, cost about 100 bucks a month now. And when Musk has talked about, he said it's going to get even more expensive because if you could take a nap in your car, that would be worth even more what we're now, I think there are reasons to be skeptical. I wouldn't, you know, if you're driving down the highway right now, I wouldn't take any sleeping pills and trust the Tesla. But, but that said, even if that technology were to pan out, even if it were to do exactly what Elon Musk says it's going to do, there are potentially other companies doing the same thing for less money. And that's a challenge.

Carol Massar (47:00)

I feel like the million, billion, trillion dollar question though, Max, is is there information that Elon Musk is getting working within the government that is going to give him this incredible, incredible advantage or access to data? I think about, you know, the AI, you know, startup that he's involved in and like all this stuff. Is there stuff or do we not even know that he is getting access, that even if he leaves tomorrow that he has an advantage in some way?

Tim Stenovec (47:25)

I mean he has, I think that in theory, yes, you know, AI systems rely on huge sums of data. If Elon Musk were able to like funnel a bunch of, if data were to leak from the federal government into Grok, you know, Elon Musk's large language model, that could in theory help grok. But I think there are a number of reasons, not that I don't know that that's the most likely scenario or the most concerning scenario. There would be ethical issues, legal issues, issues of personal privacy, and also I just think that the political advantages he has by being close to Trump probably vastly outweigh whatever, you know, you know, incremental data. There are a lot of data sets, a lot of financial data sets out there. I do think some of these agencies that are being, you know, as, you know, the Trump administration and supporters see it reformed, as its critics would say gutted, were agencies that were investigating Elon Musk, were holding Elon Musk companies back. You know, ex. Elon Musk's, you know, the new name for Twitter, has been trying to launch these payment services, effectively mobile banking through, you know, the company that you use to send memes. And, and the CFPB has been one of the barriers there. Like cfpb, you know, is, has been, you know, it's in the courts now. But, but the Trump administration is essentially attempting to shut it down. Nitsa, the highway regulators, they have been investigating Tesla. There are ways in which Musk could sort of clear a path in terms of, from a regulatory perspective. But again, all these things are going to create political consequences, downstream political consequences. And, and that those, it's going to be primarily Democrats. That's who we're seeing protesting in front of Tesla stores. But I would not be surprised if you also see some Republicans with concerns about this stuff as well.

Carol Massar (49:19)

Well, it seems like now, Max, the courts are really, as Carol mentioned in our intro, the courts have not reined in, but they've certainly said that some of what Elon Musk has done is, is not allowed, especially with regard to usaid. You know, there are questions whether or not these employees can actually go back to work and if they're going to be reinstated full time. We don't know the answer to that yet. But are the courts reining him in?

Tim Stenovec (49:49)

Yes, the courts are reining in Doge and, or at least maybe creating a situation where the, the, what Musk is doing is not going to have a huge long term effect or even that it may end up costing more money. Because of course, if you have to, if you lay a bunch of people off, you spend a bunch of people, spend a bunch of money laying people off and then you have to spend a bunch of money bringing them back online, that, that ends up costing more money. So there is a, there is a way in which some of the, some, some of this stuff that's working its way through the core courts ends up sort of blunting the impact of Doge. I mean, it's important to remember Musk is not the only actor within the Trump administration. Who's or within the Republican Party who's trying to rein in parts of the federal government. And so, so Trump is trying to do this as well. Congress will certainly, I think, at least attempt to put some of this into law. So there will be, you know, Musk will have some support. It's not just going to be Musk versus the courts.

Carol Massar (50:45)

Should we assume that as long as Elon's deep pockets are around to support the Republicans and Trump's doings, that he's going to stick around? I think there's a lot of discussion about, you know, when does the president get tired of Elon? Right.

Tim Stenovec (51:02)

Yes. That's the conventional wisdom is at some point, Trump will get tired of seeing Elon Musk's, you know, face, you know, on TV or newspapers, hearing people talk about it when they should be talking about all the great things he's done, get frustrated and he'll get sort of iced out. I think that is not very likely. And it's for the exact reason you just said, Carol. Musk is a major donor to the Republican campaign, to Republican campaigns. He will be a major force, by his own account anyway, in the midterm elections. And really, he is a very important ally to, for President Trump, because if Trump is trying to do something and there's opposition from Congress, he has this very, very, very, very wealthy friend, Elon Musk, who can fund a primary challenge. The other thing is we saw this infomercial, you know, at the White House where Trump, you know, talked about all the wonderful things about Tesla and in fact, bought a Tesla, you know, on the South Lawn of the White House. You know, really helpful or potentially very helpful to Tesla. You know, that seemed to be the goal. And around the same time, the New York Times reported that Musk had promised to put $100 million into Trump's own PACs. So Musk is still donating money on top of the roughly 300 million he put into the 2024 cycle. He said he's gonna put more into his own PACs. He, in fact, is funding this Wisconsin State Supreme Court race. They're gonna be more races, and he's giving Trump money. I mean, he is a very, very important ally. I, I think the real question is, does Musk get tired of this? Does Musk start to wonder, do I really want to have a day to day role? And how much is that day to day role hurting my companies? Because you look at the stock price, investors are not super happy.

Carol Massar (52:44)

All right? Always a lot going on, and so appreciate it. Keeps us busy. I'm always confused. How many more headlines is it Trump versus like we get in any given day? Max Chapkin thank you so much Columnist with Bloomberg Business we co host of the Elon in podcast which you can can find wherever you get your podcast. Also on the Bloomberg and@Bloomberg.com this is.

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