The Market Rally and NATO Summit

Summary

Bloomberg Surveillance Podcast Summary

Episode: The Market Rally and NATO Summit
Date: July 7, 2026
Hosts & Contributors: Tom Keene, Paul Sweeney, Michael Green, Karen Moskow
Featured Guests: Stephen Major (Tradition Securities), Michael Darda (Roth Capital), Rose Gottemoeller (Former NATO Deputy Secretary General)

---

Episode Overview

This episode investigates the forces shaping global markets, the persistent rally in equities and bonds, evolving disinflation trends, currency dynamics amid geopolitical turmoil, the relentless advance of AI, and pivotal takeaways from the ongoing NATO summit. The hosts orchestrate in-depth conversations with leading economists, market strategists, and a former NATO leader, offering listeners a multi-dimensional analysis at the intersection of finance, technology, and global security.

---

Key Discussion Points

1. Disinflation, Bond Markets, and "Banana Republic" GDP

Featuring Stephen Major (Tradition Securities)
[01:56–08:21]

• Disinflationary Trends:
  • Stephen Major argues that, contrary to market expectations, inflation is easing due in large part to a sharp drop in energy prices.

    "It looks from the basis of the break evens that ... the markets believe in disinflation and clearly that's coming from the sharp drop in energy prices..." — Stephen Major [02:18]

  • Many investors were positioned for persistent inflation, but the "market is calling out the consensus view that we have strong growth forever and ever" [02:54].
• Yield Dynamics:
  • Real yields have increased as inflation expectations have fallen; the prospect of cuts, not hikes, is fueling optimism for a potential bond rally later in the year.

    "Just no more hikes and then the possibility of some cuts later this year or next year is the engine behind a possible bond rally..." — Stephen Major [03:43]

• Dollar Strength and Geopolitics:
  • The consensus earlier in 2026 was for a weaker US dollar, but the "war with Iran" and subsequent market moves have strengthened the currency.

    "We came into this year at one point priced for two or three cuts. We're now closer to one hike. ... I don't buy the ... de-dollarization type of view. ... The dollar movement is at the moment quite cyclical and structurally strong." — Stephen Major [04:45]

• Bond Market Strategies:
  • Major recommends buying TIPS (Treasury Inflation-Protected Securities), particularly in the five-year segment, and highlights newfound value in "owning the belly of the curve."

    "Buy tips outright... in the five year part of the curve. ... I think that there's value in those kind of trades." — Stephen Major [06:15]

• Light Moment: England in the World Cup:
  • Major discusses England’s football prospects, following their strong performance against Mexico, injecting a personal and humorous note amidst economic discourse.

    "If I get too optimistic, life has a funny way of checking me." — Stephen Major [07:25]

---

2. US Economic Resilience, Nominal GDP, and the Fed

Featuring Michael Darda (Roth Capital)
[09:24–15:44]

• US Nominal GDP Stability:
  • The US has maintained steady nominal GDP (5.4% over two years), despite major supply-side shocks (tariffs, energy spikes).

    "5.4%, that's the number for nominal GDP ... So nominal GDP has been steady, but we've been moving through a blizzard of supply side shocks..." — Michael Darda [09:47]

  • Darda credits the Fed’s steady hand—avoiding the restrictive monetary mistakes seen in the 1970s—for this stability.
• Disinflation and Inflation Expectations:
  • Darda is optimistic that inflation will moderate as oil shocks unwind, with muted longer-term inflation expectations in the bond market.

    "If you look at the bond market right now, longer term inflation expectations are very muted..." — Michael Darda [11:33]

  • He argues that as adverse supply shocks unwind:

    "You get less inflation and you get more real growth." [12:17]

• Labor Market Health:
  • Unemployment (4.2%) has remained at healthy, low levels; stability is the “name of the game,” though the Fed faces debate whether to adjust rates if the economy runs hotter.

    "This period of nominal stability ... has been associated with a labor market sustained [at] ... historically low level of unemployment..." — Michael Darda [13:29]

• Personal Anecdotes:
  • The hosts banter about Darda’s vacation in Mallorca, observe the robust Spanish tourism economy, and joke about his adventurous photos.
• Atmospheric Note:
  • Tom Keene remarks:

    "That constructive tone from Darda is not within the zeitgeist right now." [15:44]

---

3. AI Boom, Market History & China Tech

Featuring Michael Green, Paul Sweeney
[16:53–25:51]

• AI as a Closed-Loop System:
  • Michael Green likens the current AI investment cycle to a closed loop, where companies like Nvidia financially enable their own demand by helping customers finance chip purchases.

    "If you are a customer of Nvidia and you borrow the money to buy the Nvidia chips, you don't spend much time negotiating the price. ... They’ve been able to manufacture the demand for their own chips." — Paul Sweeney [17:32]

• Comparison to Cisco/Vendor Financing in the 90s:
  • The panel draws strong analogies to the dot-com bubble, noting that vendor financing inflated demand then, just as with AI/server chips now.

    "This is the same phenomenon we saw in the late 1990s with vendor financing from Cisco." — Paul Sweeney [18:16]

• China’s AI Strategy:
  • China has rapidly adapted to US export restrictions, focusing on efficiency and reducing reliance on American tech.

    "China has responded as life always does when faced with restrictions. ... They're proceeding at an astonishing rate." — Paul Sweeney [20:23]

• Secondary Markets for Compute:
  • The discussion touches on “NEO cloud” and explains that surplus high-end chips are rapidly being shifted to secondary markets, not always for productive use.

    "Many of the individuals who purchase those incredibly expensive chips ... can't figure out what to do with them. ... They're basically putting them into the secondary market." — Paul Sweeney [21:16]

• Affordability Crisis & Inflation Perceptions:
  • Sweeney references his previous research on America’s hidden affordability crisis—how inflation’s impact is fundamentally different when wages and prices rise in lockstep, leaving many still “underwater.”

    "The affordability crisis is very real ... You're still underwater and you're potentially even more underwater. And that is really creating conditions ... more and more households are facing the life choices..." — Paul Sweeney [23:35]

• Sticky Prices and Consumer Experience:
  • Discussion highlights public frustrations: price increases have “reset the base,” and people experience inflation as permanently higher cost of living rather than just a rate of change.

    "The price increases, but I'm not seeing, I see occasionally some prices coming down, but it's just talking about the rate of inflation from a higher base." — Michael Green [24:49]

---

4. NATO at the Crossroads: Security, US Policy, and Russia

Featuring Rose Gottemoeller (Fmr. Deputy Secretary General, NATO)
[26:46–34:09]

• NATO’s Present Role and Ukraine:
  • Gottemoeller emphasizes that ending Russia’s aggression in Ukraine is the key priority for any lasting European security arrangement.

    "The first thing that NATO can do is help to resolve this war of Russian aggression in Ukraine. And that is the key issue..." — Rose Gottemoeller [27:41]

• US Perception of NATO & Trump Factor:
  • US public support for NATO has dropped (from 70s% to 50s%), attributed to strong criticism from Trump. Nevertheless, NATO is increasingly shouldering Europe’s conventional defense, aligning with longstanding US demands.

    "That is likely because of the very strong criticism that Donald Trump has directed at NATO. ... But as I see it, NATO is in fact taking on the responsibility for conventional defense in Europe..." — Rose Gottemoeller [28:37]

• US Military Overextension:
  • While US military is stretched globally, Gottemoeller stresses that this reach underpins global trade and stability; future rebalancing toward the Indo-Pacific is possible, with Europeans urged to “shoulder responsibility.”

    "There's a good reason why the US Armed forces are extended around the world. They have provided essentially peace through this post World War II era..." — Rose Gottemoeller [30:14]

• Ukraine’s War Prospects:
  • Ukraine has “blocked Russia out of the Black Sea” and excelled at drone defense, but needs US/Western help with missile interceptors.

    "They've mastered [drone defense]... but they need help to defend against these bigger ballistic missiles." — Rose Gottemoeller [31:46]

• Russia After Putin:
  • Gottemoeller warns of the risk of “more of the same”—Russia’s political structure remains security-service (KGB)-driven, though a technocratic successor is possible.

    "He has created a system in Russia that is very much based on the security services... So it could be a younger Putin clone." — Rose Gottemoeller [33:12]

---

Notable Quotes & Memorable Moments

• On market mis-positioning:

  "The market is calling out the consensus view that we have strong growth forever and ever." — Stephen Major [02:54]

• On the bond market shift:

  "Just no more hikes and then the possibility of some cuts later this year or next year is the engine behind a possible bond rally..." — Stephen Major [03:43]

• On US nominal GDP resilience:

  "Nominal GDP has been steady, but we've been moving through a blizzard of supply side shocks..." — Michael Darda [09:47]

• On the AI ‘vendor financing’ echo:

  "They’ve been able to manufacture the demand for their own chips. ... This is the same phenomenon we saw in the late 1990s with vendor financing from Cisco." — Paul Sweeney [17:32, 18:16]

• On affordability and inflation:

  "The affordability crisis is very real ... You're still underwater and you're potentially even more underwater." — Paul Sweeney [23:35]

• On Ukraine’s resilience:

  "They've mastered [drone defense]... but they need help to defend against these bigger ballistic missiles." — Rose Gottemoeller [31:46]

• On Russia’s future:

  "He has created a system...based on the security services ... could be a younger Putin clone." — Rose Gottemoeller [33:12]

---

Timestamps for Key Segments

• Disinflation and Bond Market Analysis:
  [01:56–08:21] — Stephen Major interview
• US Nominal GDP, Labor, and Fed Policy:
  [09:24–15:44] — Michael Darda interview
• AI, Market Structure, and China’s Response:
  [16:53–25:51] — Michael Green and Paul Sweeney discussion
• NATO, Ukraine, and Russia:
  [26:46–34:09] — Rose Gottemoeller interview

---

Additional Observations

• The episode balances technical financial analysis with accessible analogies (e.g., dot-com bubble, "banana republic" GDP).
• There’s an undercurrent of cautious optimism—the US economy appears resilient, but inflation and geopolitical developments keep policymakers vigilant.
• The NATO segment offers an insider’s perspective on strategic realignment and the long-term risks in Russia, providing depth rarely heard in market-focused podcasts.

---

Conclusion

This episode offers a rich cross-section of today’s market moves, the deeper economic mechanisms at play, and the inextricable linkage between financial markets, technological disruption, and international geopolitics. With sharp commentary and direct insight from both practitioners and policymakers, listeners come away with a nuanced picture of unfolding opportunities and risks—from Main Street to Moscow.

---

Transcript

[Tom Keene]

Never bet against American Grit or American Energy.

[Paul Sweeney]

Through innovation, Venture Global is not only

[Michael Darda]

building some of the largest energy facilities in the world right here in the United States, but delivering American energy at

[Tom Keene]

a fraction of the cost in a

[Michael Darda]

fraction of the time. So while others are busy talking, we're busy building. That's Venture Global.

[Tom Keene]

That's unstoppable energy.

[Karen Moskow]

Healthcare doesn't always work great. If you've ever waited on a refill or couldn't schedule an appointment, you get it. That's the kind of stuff Optum is changing. They're using data and technology to integrate patient care, pharmacy and everything else. So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person how you need it. Optum is helping make healthcare work as one for everyone. Learn [e-mail] the thing about AI for

[Michael Darda]

business, it may not automatically fit the way your business works. At IBM we've seen this firsthand. But by embedding AI across hr, IT and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands

[Stephen Major]

of hours for strategic work.

[Michael Darda]

Now we're helping companies get smarter by

[Stephen Major]

putting AI where it actually pays off,

[Michael Darda]

deep in the work that moves the business. Let's create smarter business. IBM

[Bloomberg Announcer]

Bloomberg Audio Studios Podcasts Radio News. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7am 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.

[Tom Keene]

To Stephen Major is global macro adviser tradition. He is absolutely on the high ground of a broader disinflationary tendency. Stephen, thank you for your patience in waiting at the NAITO meetings. Do we still have in place a disinflationary tendency or is it unanchored?

[Stephen Major]

Well, it looks from the basis of the break evens that there is the markets believe in disinflation and clearly that's coming from the sharp drop in energy prices or at least from the oil price first of all. So that is disinflationary and it goes against the mainstream consensus view that was for higher inflation. I think that that's why it's so powerful for markets, Tom, because everyone was positioned for higher inflation and higher inflation risk premium. But you just don't see it happening. The market is going the other way now. I think that's interesting. Not everyone's agreeing with me because what's happening is people are reading the higher nominal and real yields which are a function of the Dropping inflation expectations and thinking that means the economy is going gangbusters. What it might be, but that's not what the data is telling me. So it's a different story. I think. I think the market is calling out the consensus view that we have strong growth forever and ever.

[Tom Keene]

I mean, this is the heart of the matter. I'm going to go to Jan Hatzius here at Goldman Sachs who's really established a disinflationary trend. What's the history of getting from Banana republic nominal GDP on down to the disinflation that Stephen Major and Yanahazi is, are comfortable with?

[Stephen Major]

Well, it's going to be a gentle transition, Tom. And I think that we all were conditioned around these kind of big bang sudden changes in market direction. But in fact it's happening very quietly under the H because if you look at nominal bond yields, not very much is happening. But you get so much more information by focusing on the real yield. The real yield has gone up because inflation expectations went down. Now my point is the market is priced for a much higher neutral rate than we've had in previous cycles. So just no more hikes and then the possibility of some cuts later this year or next year is the engine behind a possible bond rally starting in the third or fourth quarter.

[Michael Green]

Stephen, we came into 2026 and I think the consensus call was for a weaker US dollar. Then of course the war with Iran erupted and that dynamic has changed here. We've got a strengthening dollar here. How do you think about the currency markets here? Where do you see value?

[Stephen Major]

Well, yeah, we came into this year at one point priced for two or three cuts. We're now closer to one hike. So that's a 4, a 425 basis point move. That's 100 basis points. So explanation of what's going on with bond yields is just down to market expectations around the Fed. But people are dressing it up as if it's something else, something more structural. I don't buy the, the anti globalization or the de dollarization type of view. I think that one's been really checked out this year. Many people were expecting the dollar would suffer because some of the geopolitical events, some of the sanctions type of risk that has been there these years. Maybe the oil price could be denominated in other currencies than the dollar. But in fact I look at it and the data says dollar transactions are still strong. The majority of trade and transactions in securities still goes through the dollar. So the dollar movement is at the moment quite cyclical and structurally Strong. I would say that we might lose some of the cyclical support for the dollar in the second half, but the structural foundation is still very much in place. But I don't think there'll be a big move in the dollar. I think that you'll see a gradual decline in yields. But the dollar is holding up pretty well.

[Michael Green]

Stephen, in the global bond market here, where do you see the best value these days?

[Stephen Major]

Well, the cleanest way to express what's happened with real yields is just to buy the tips. Buy tips outright. In the five year part of the curve, those yields have been moving towards 2%. That's double most measures of Fed neutrality. A more sophisticated way of doing it is to position in the curve. So to own the bonds in the belly, which could be anywhere between 5 and 10 and just hold them outright, or to sell the longer maturities, say out to 30 year and buy the five year. But I think that there's value in those kind of trades. And by the way, for me to start recommending steepness is quite a big change because I generally don't like steepness as a trade. But I think the way the market's priced, you are now paid for owning the belly of the curve.

[Tom Keene]

Steve Major, we got to run here, but you know, the, the basic idea is we're really interested in price up, yield down. And in all that, what happened to West Ham after Declan Rice left, I mean, West Ham tanks, Declan Rice goes off, he's on England. Can Declan Rice, can they get it done for England this World Cup?

[Stephen Major]

Well, look, that, that result against Mexico, against the, the challenges of altitude and the crowd and the historical track record and what all the shenanigans around the start time and all that, I think they did pretty well. And most of the British press is supporting the idea that that was one of the greatest performances of England ever. So, so it's going to be interesting. There is a path now through to the final, but let's be modest about the problems. I find that if I get too optimistic, life has a funny way of checking me.

[Tom Keene]

Well, we wouldn't want that when I'm rooting for Tottenham. I mean, I'm sc. I'm terribly scarred here. One final question. Do you see England, France being a spectacular final?

[Stephen Major]

Well, I just hope that you're supporting England now that the US is out, Tom, and I'm hoping that all of America is supporting England now. I think it would be a brilliant final and it would be a very close call as to who would win.

[Tom Keene]

See Paul, how he did that without talking about West Ham. Yeah, he's gifted to do it. Stephen Major, thank you so much. Stay with us. More from Bloomberg Surveillance coming up after this.

[Karen Moskow]

Get the news you need in just 15 minutes.

[Michael Darda]

Start your day with Bloomberg Daybreak, the

[Tom Keene]

podcast with a global view on the stories that matter.

[Rose Gottemoeller]

I'm Nathan Hager.

[Karen Moskow]

And I'm Karen Moscow. Join us each morning for curated stories

[Rose Gottemoeller]

on current events, politics, business and foreign

[Tom Keene]

relations, plus one conversation on the day's biggest developments, all in just 15 minutes.

[Rose Gottemoeller]

Subscribe to Bloomberg Daybreak for a precise,

[Karen Moskow]

thoughtful take on the stories that matter.

[Tom Keene]

Listen to Bloomberg Daybreak each morning on Apple, Spotify, Spotify or anywhere you listen.

[Bloomberg Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

Right now for Global Wall Street, a really important briefing with Michael Darda of Roth Capital. I look Michael Darda with the question I keep coming up with. Is the nominal GDP we have, is it a dart of Banana Republic? I mean how much are we goose in the economy with our inflation and with some form of stable GDP?

[Michael Darda]

Great to be on with you, Tom. Look, 5.4%, that's the number for nominal GDP, not for the last quarter, but for the last two years. It's really been even longer than that. So nominal GDP has been steady, but we've been moving through a blizzard of supply side shocks, tariffs last year, a big energy spike this year that's now fortunately unwound. And so when you have volatility in the supply side of the economy that tends to influence nominal growth a lot less, it just changes the composition. Real growth and inflation go in opposite directions when you have a supply side shock. So this backdrop of super stable, very steady, modest nominal GDP growth is a testament to the Fed basically getting it correct under Chairman Powell. And we know that because we've moved through these shocks without the business cycle slipping away on us. I mentioned this the last time I was on it goes back to the Bernanke Gertler Watson research of 1997 where they looked back at the upheaval from the oil shocks of the 1970s and concluded that most of that damage was due to the imposition of restrictive monetary policy. Well, the Fed didn't do it that this time in Paul this is the

[Tom Keene]

euro distinction, which is austerity is a comfort for Europe where we don't do that post Bernanke Yep.

[Michael Green]

Michael, you talked about the real and nominal GDP So what is your implicit inflation call here? I've got oil back, you know, 69 handle for WTI crude oil is my inflation fears. Can we, can we take that out of the market here?

[Michael Darda]

Yeah, I'm fairly optimistic here. You know, a few weeks ago Fed president John Williams, I thought, gave a really important speech when he talked about the fact that, you know, current settings for monetary policy looked about right to bring inflation back to target. You know, he has a longer horizon looking out to 2027. But keep in mind that if you look at the bond market right now, longer term inflation expectations are very muted and they stayed muted through the oil shock. And that's based on investors putting their money on the line. And so I think if we can have a little bit of patience here. I know obviously the Fed has overshot the target by five years, but you know, the last year plus that's really been due to these supply side disturbances. So as long as they're keeping nominal growth moving in a moderate positive direction, I think these inflation rates are going to come down on the headline level. I, I think, you know, we look out over the next few quarters, we're going to see a pretty significant disinflation there. So, you know, the unraveling of an adverse supply shock. What does it do? It changes the composition a nominal in a favorable way, you get less inflation and you get more real growth. As it stands, the tracking estimates for real growth have actually held up exceptionally well in the U. S. I mean, it's really been a resilient economy. So the question is, is the Fed going to be hiking interest rates now as we move forward with this resilient economy, even with the oil shock unwinding? And we think they're going to be pretty patient on any prospective tightening.

[Michael Green]

How about on the other side of the equation for this Federal Reserve on the labor market? It seems like, I don't know, everybody who wants a job has a job. I see a 4.3% unemployment rate. That's about as good as it gets, it seems like. How do you think about the labor market?

[Michael Darda]

Yeah, absolutely. 4.2, that's a good number. You know, same number that we had two years ago. Right. Summer of 2024, we were right at the same level of 4.2. So this period of nominal stability that the Fed has engineered, obviously, you know, following a big goof in 21 and 22 where policy was way too easy. But over the course of the last two or three years, this nominal stability has been associated with a labor market sustained A relatively full, quite historically low level of unemployment and underemployment. You could throw the U6 rate in there as well for some of the conspiracy theorists. And that's, you know, that's recently pulled back a bit, but it's essentially at the same level that we were observing well over a year ago. So stability is the, is the name of the game here. Now the question comes up, what happens if the unemployment rate keeps falling and the business cycle does heat up as we move into the back of the year? And, and that's really going to be the debate going on at the Fed about whether they should take back some of those emergency rate cuts or not.

[Tom Keene]

Michael, before you go, I mean, Paul, the way Michael Darter rules is we get photos. He and the dogs went to Mallorca, Spain.

[Michael Green]

Okay.

[Tom Keene]

And so we get, we get, we get, you know, Darta jumping off cliffs. Did you go to California and jump off a 90 foot cliff?

[Michael Darda]

No, Tom, I didn't. But that, that photo I think my wife sent is from Mallorca sp and that was just a few days ago. So yeah, we've had a little bit of fun as well.

[Tom Keene]

Like it's like one of those Apple, you know those Apple TV movies. Clandestine. Michael Dart in black and white.

[Michael Green]

Yep.

[Tom Keene]

On the coast of Spain. What did you learn about the Spanish economy? Boom. Vacation.

[Michael Darda]

Yeah, I mean obviously, obviously the lens through which I'm, I'm looking here is pretty narrow, Tom, but it looks like things are, are pretty strong. You know, a lot of tourist activity in town, you know, inside Palma and obviously biased. But you know, the food and the culture is top notch. So big.

[Stephen Major]

Yeah.

[Tom Keene]

You know, with Dart and with the way he rolls, you should see the kennel that the dogs go to.

[Michael Green]

Yeah.

[Tom Keene]

It's like the Ritz Carlton kennel. It's unbelievable. Michael Darda, thank you so much. They're a nominal gv. I can't convey enough, folks, that constructive tone from DART is not within the zeitgeist right now. Stay with us. More from Bloomberg. Bloomberg's Surveillance coming up after this.

[Karen Moskow]

The Bloomberg Sustainable Business Summit returns to Singapore on July 22. Our 5th annual Asia Pacific Summit will explore how business and finance leaders are shaping the next phase of globalization by strengthening resilience and driving a multi speed energy transition across Asia's diverse markets. Join us for solutions driven discussions and networking opportunities. Thank you to our summit advisor, Bangkok Bank. Learn more at BloombergLive.com SBS-Singapore.

[Bloomberg Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

We're rocking it with Michael Green. Y equals 19.093 times an exponential function of 0.7218. Now r squared of 62, which is sprightly to say the least. Michael Green joins us now. Simplify asset management. I love it. The thermodynamics of AI, you know, I'm addicted to it. To me it's a closed loop system and it's got to be some kinetic energy release to explain the thermodynamics around what I see as a closed loop feeding on itself system.

[Paul Sweeney]

Well, I think it means two separate components. When we talk about the closed loop with AI, what we're really referring to is the financing mechanism that's allowing the acquisition of customers either through guaranteeing debt contracts or by lending the money directly in the form of equity investments, etc. If you are a customer of Nvidia and you borrow the money to buy the Nvidia chips, you don't spend much time negotiating the price. And it's really that simple. They've been able to manufacture the demand for their own chips. How long that continues and how long it allows the exceptional profit margins very, very hard to know. This is the same phenomenon we saw in the late 1990s with vendor financing from Cisco. So we know that eventually this runs out. The customers ultimately have to be generating profit.

[Tom Keene]

We got to stop here and review this. Paul's got eight question. I so so so agree that it's a Cisco redux. Explain to the young the Cisco moment.

[Paul Sweeney]

1980:9008:99 Just like today when AI is the frontier, then it was the Internet or the ability to launch web pages, customer fronts, online storefronts, et cetera. In order to do that in that time period, it was very hardware intensive build out. You had to actually build out your own servers. There was no cloud component that you could lease. That's been one of the innovations that's occurred over the last 20 years for the very simple reason that it's become phenomenally cheap for people to access in order to obtain that equipment in relatively short supply. In the late 1990s, Cisco had basically a monopoly and was able to lend the money to customers who would pay the most to access it. The validity of those debt contracts ultimately became very much in question when we discovered that web websites built at exceptionally high cost, offering subsidized access to consumer products was not a particularly good business. And as that collapsed, we ultimately discovered that the profits that Cisco had been reporting were radically overstated. They retreated and we had what we call the dot com cycle. Whether that plays out this time or not, I'm not entirely certain. Because I'm not entirely certain. It's the exact same mechanism. As we've discussed over and over and over again, there's an alternate source of the bid. This time it really is just the American employees plowing their money into 401ks that is assisting and driving the valuations and performance that we're seeing. And that in turn creates the incentive that says, hey, you should spend a ton of money here.

[Michael Green]

So what's the AI play vis a vis China? I feel like we're not paying enough attention to what China is doing with AI, but I just feel like they're there in a big way and I just don't know when we're going to see it, how we're going to see it.

[Paul Sweeney]

Well, I think that's really one of the critical things to remember is that our competition in 1999 was Canada. It was Nortel. Canada is a wonderful country. It's quite large.

[Tom Keene]

Bringing back memories, I know, isn't it fantastic?

[Paul Sweeney]

That's what happens when you get old. But we sit here and reminisce about events gone by. The unfortunate reality is that we're not paying enough attention to what's happening in China. And China has responded as life always does when faced with restrictions. They have been limited in their ability to access chips. That has forced them to focus on efficiency. It's forced them to reduce their reliance on American technology and they're proceeding at an astonishing rate.

[Tom Keene]

Jim Chanos lectured me on the NEO cloud. I think a week and a half after that lecture we see Meta being very Neo cloud and others. The NEO cloud to me is basically a constructed AI server. Like it's like an AWS and Amazon Web Services, right?

[Paul Sweeney]

Absolutely.

[Tom Keene]

To me this overwhelms everything out there. I mean, it's a no brainer. Am I naive?

[Paul Sweeney]

Well, what it's telling you is, is that many of the individuals who purchase those incredibly expensive chips with extraordinarily high gross margins can't figure out what to do with them.

[Tom Keene]

Thank you.

[Paul Sweeney]

So they're basically putting them into the secondary market. This is no different than what eventually happens in markets like gold, where secondary sales ultimately swamp primary production as prices push to new all time highs. So we are seeing effectively incremental supply come into the market, not just from the primary sales from Nvidia and others, but now from their customers who in many ways are competing with that underlying demand.

[Michael Green]

So but all I, when I listen to the Jensen Huangs of the of the world and other folks within the AI ecosystem, all I hear is insatiable demand for compute for just AI capabilities. I don't know how to parse that other than I think these guys know what they're talking about, but I don't know.

[Paul Sweeney]

Well, listen, I think they know what they're talking about as well and certainly to their face they're actually seeing that among other things, if you're meta or your X AI for example that wants to maintain optionality to that, you're not going to cancel your contracts and in fact you're going to try to keep your place in line. You're not entirely sure how this is going to play out and the costs of doing so are relatively low. So I have no doubt that from Nvidia's perspective they see a surplus of demand. There's also the simple reality that companies trading at very high valuations have to sell a story to their customers, consumers or to their investors that say, hey, here's why we were worth so much, right? We're going to sell cars to the universe. Whether that works out or not, we can't possibly know yet.

[Tom Keene]

I made a chart today for Richard Clarida of CPI. Back 20 years folks. Back to Alexis Christopher. It's Ute and I looked at a 2% goal for the Fed and you know, I was surprised. On a four year old presidential moving average we actually succeeded at some form of 2% inflation and then things changed. What's the permanence of this new higher inflation after your earth shaking study 90 days ago of affordability in America, Americans are living this in real time. It's not like the old days.

[Paul Sweeney]

It's not like the old days. And part of the challenge that we are facing. What you're referring to is the piece I released last November, my life a lie. The $140,000 poverty line that got an incredible amount of pushback but is now actually increasingly being shown to be correct. And so we are actually seeing growing awareness that the affordability crisis is very real. There are two key criteria to understand. One is the way you and I think about inflation is a year over year change in the price level. And that makes perfect sense from an economic standpoint. The problem is once you're underwater, once your spending exceeds your income, if your income and inflation match, which the Federal Reserve or the BLS would look at and say hey, this is fantastic, real wages were flat or real wages grew very slightly. You're still underwater and you're potentially even more underwater. And that is really creating conditions under which more and more households are facing the life choices that they need to make under a calendar basis. Do we get married, do we have children, et cetera. And choosing to opt out of that process, that's causing social frustration. The desire is not gone, the ability is increasing.

[Tom Keene]

I would say, Paul, the major debate we're having is this, do we get back to some form of disinflationary tendency, I mean, away from the politics into November?

[Michael Green]

What we saw just from the pandemic is that the price increases, but I'm not seeing, I see occasionally some prices coming down, but it's just talking about the rate of inflation from a higher base. And that's not, that's where I think most people have a lot of problems.

[Paul Sweeney]

And that's what I was referring to with the price level right when we've had this conversation with people and people feel that we are gaslighting them and we say that inflation is by and large transitory. In all seriousness, when we have a war in the Middle east and gasoline prices spike, to get a CPI number that is coincidentally timed almost perfectly to the low at the end of February and effectively the high that we've experienced at the end of May, you're going to see inflation. There's no way around it. To only get 4% inflation as measured on a year over year basis is actually pretty remarkably low relative, relative to the history that we would have expected. Go back and look at the 1990s, for example, with the invasion of the attacks against Iraq and Desert Storm, Desert Shield.

[Tom Keene]

You watching the football?

[Paul Sweeney]

I'm not watching the football.

[Tom Keene]

Stay with us. More from Bloomberg Surveillance coming up after this.

[Karen Moskow]

This week on Leaders with me, Francine Lacqua, I speak to tennis legend Rafa Nadal about how he stayed competitive despite injuries.

[Paul Sweeney]

I was able to enjoy the victories

[Rose Gottemoeller]

probably more than if I will not have this issue.

[Michael Darda]

One iconic match in my mind was

[Tom Keene]

I am almost dead and whether he misses playing.

[Paul Sweeney]

I don't miss tennis because there was

[Rose Gottemoeller]

nothing else to offer.

[Karen Moskow]

Listen and watch Leaders with me, Francine Lacqua, on Bloomberg Television or wherever you get your podcasts.

[Bloomberg Announcer]

You're listening to the Bloomberg Survey. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

The punditry is in full force. People that wandered by, they read three books and they're an expert or you live it. Rose Gottemuller is the kind of diplomat that we don't have enough of. They're in retreat in this modern age stage. She's the former deputy secretary general of Naito, the former undersecretary of state for arms control and international security. Rose, thank you so much for joining us for a four hour conversation. I look, Rose, I look, Rose, at the cacophony here. So what can NATO do off of the Atlantic Charter of I think it was 1941 to the new modern NATO to help with arms control from the Finland border all the way down to Tehran?

[Rose Gottemoeller]

Well, the first thing that NATO can do is help to resolve this war of Russian aggression in Ukraine. And that is the key issue that will have to be resolved before we can think about a European security architecture that I hope will provide mutual predictability and stability for everyone. 1 and that includes the aggressors, the Russian Federation, but obviously must include every NATO member and the NATO partner states across Europe and right up to the borders of Asia, as you've said. Turkey, of course, is a NATO member state as well. And so their security and stability relies on NATO, as we see from this Ankara summit of NATO going on this week.

[Michael Green]

Rose, how do you think NATO views the US Here these days? It feels like, you know, when the US Went into Iran, they reported that we did not really consult with our NATO allies. Anything NATO is viewing the US These

[Rose Gottemoeller]

days, apparently NATO is viewed less well by the US Public than it has been historically. When I was deputy secretary general and NATO was celebrating its 75th birthday at the time time NATO was really quite popular, 70% or more of the US public, that number has dropped now into the 50s, evidently. But I think that is likely because of the very strong criticism that Donald Trump has directed at NATO. And as you know, he's unrelenting on the airwaves and in social media. So people are listening to that and they say, hey, well, maybe NATO isn't helping us so much. But as I, I see it, NATO is in fact taking on the responsibility for conventional defense in Europe, just as the Trump administration has demanded. And so I do think that in general, NATO is serving the US Interests well and honestly. Also, I think the US Public is going to bounce back about NATO when they see the results of Trump's demands to spend more on their own defense.

[Tom Keene]

I look at this, Madam Secretary, and I say to myself, well, the president announced with Mr. Erdogan an hour ago that he's cured nine wars or eight wars. Paul, I can't remember the count right now. What everybody thinks about domestic politics is our military overextended through Washington, through, say, the Navy in San Diego, through our NATO effort in Brussels. Is America's military might just simply overextended?

[Rose Gottemoeller]

It is kind of amusing because Trump claimed when he was running for office that he would never launch a war in the Middle East, a war of choice in the Middle east. But that's exactly what, what he did. So. Well, there goes campaign promises. I guess many politicians are guilty of that. But in any event, you know, the U.S. armed forces were designed in the wake of World War II to help, help provide for security around the world. And it's that security and predictability on which the health of our modern economy is based. If it weren't for the fact that the US Navy was operating in both the Atlantic and Pacific, really around the world, we wouldn't see the straits through which our trade passes. We wouldn't see those open. We wouldn't see freedom of passage for commercial ships everywhere. So there's a good reason why the US Armed forces are extended around the world. They have provided essentially peace through this post World War II era. Now the question is, what's going to happen? Trump says he wants to shift the balance to the Indo Pacific in order to confront China, and the Europeans are left to defend themselves. That is, I think, something that they can take on because they are strong economies and they have been, frankly, freeloading on the United States, not spending enough on their own defense. So let's take the bright side and say they're finally shouldering some responsibility.

[Michael Green]

Rose, with your experience, how do you think the situation with Ukraine and Russia plays itself out and over what time frame?

[Rose Gottemoeller]

I take very seriously the public stance that Zelenskyy has taken in recent days. And I've long seen how the Ukrainians have been able to deny the Russian Sea control in the Black Sea. You know, they use their small seed drones like they're basically like motorboats with explosives on to really destroy major naval ships of the Russian Federation. And that's blocked Russia out of the Black Sea. And they've also stopped them on the battlefield. So now Zelenskyy says we're taking to the air and this war will be won with this missile duel that's going on between Russia and Ukraine. And Ukrainians are very good missiles. They have shown that. So the question now is, what about air defense? They are not doing well defending against ballistic missiles because the United States and its allies are them Patriot missile defense interceptors. So the problem now is can they improve their missile defenses. They're doing great against drones. You know, they've mastered that. In fact, the Middle east, other places are clamoring for their drone defense systems, but they need help to defend against these bigger ballistic missiles.

[Tom Keene]

One final question. You are expert, I think, of Marshall Goldman, Angela Stent and the others that have advantaged us over the years in conversation. What's after Putin?

[Rose Gottemoeller]

Well, it could be more of the same, unfortunately. He has created a system in Russia that is very much based on the security services and they have brought on a younger generation. So it could be a younger Putin clone. We'll have to see. My hope is that they have quite a few skilled, more technocratic leaders, people who really know, for example, the international economy and banking system, people who care about the economy of Russia being healthy going forward. So perhaps it could be one of those more technocratic types, less security service, less KGB type. And that I think would be a good perhaps outcome in general. But I worry that what we are seeing is the, the, the continuation of a system of security service, KGB rule in, in Russia, which ends up being a kind of mafia style leadership. And I fear that for the future

[Tom Keene]

of Russia, this has been the highlight of our day with all that we've done in Ankara with Oliver Crook and Annmarie Horden. Deputy Secretary, thank you so much, Rose gotten Mueller's service to the nation in too many instances, including the Deputy Secretary General of the North Atlantic Treaty Organization.

[Bloomberg Announcer]

This is the Bloomberg Surveillance Podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 7 to 10am 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.

[Karen Moskow]

Hi, I'm Carol Massar with a helpful tip to keep you plugged in throughout the market day. Subscribe to the Stock Movers Report from Bloomberg. These are short audio episodes, five minutes or less, delivered right to your podcast feed. Stock Movers fills you in on the day's winners and losers on Wall street and tells you about the news and data that's driving those gains and losses. Why spend all day watching tickers scroll across your screen? Subscribe to Stock Movers today on Apple, Spotify or anywhere else you listen.