0:00

I'm Stephen Carroll, host of Bloomberg's Here's Why podcast.

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I'm dropping into your feed because we borrowed

0:04

Joe Weisenthal for our latest episode while he was

0:06

in London, so we wanted to share it

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with you. If you like it, you can subscribe

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to us wherever you usually listen. There is

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a link in the show notes. Enjoy. Bloomberg

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Audio Studios. Podcasts,

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radio, news. I'm

0:24

Stephen Carroll and this is Here's Why, where we

0:26

take one news story and explain it in just

0:28

a few minutes with our experts here at Bloomberg. People

0:35

getting really a bit tired. They

0:37

don't know, even if something's announced,

0:39

whether two days later it's not

0:41

changed again. So you really see

0:44

some fatigue of decision makers. That's

0:46

the CEO of Logistics giant DHL

0:48

Tobias Meyer. For executives like him,

0:50

navigating the near daily shifts in

0:52

US economic policy, it's like driving

0:54

through fog with no headlights. When

0:57

the rules are changing so quickly, it's

0:59

not as hard to keep up. It's almost

1:01

impossible to make decisions. Should a company

1:03

build a new factory? Order more supplies, hire

1:05

more workers, and where to do any

1:07

of this. And when you don't know what's

1:09

coming, you hit the brakes. But

1:12

we haven't, I don't think, spent enough time

1:14

talking about just the uncertainty out there. Operating

1:16

in this highly uncertain environment means...

1:18

slow. The higher uncertainty and greater risk

1:20

of recession. The fear that on

1:22

a daily basis you wake up in

1:24

the morning and not wondering whether

1:26

which sectors are going to have 25

1:28

percent tariffs, which countries are going

1:30

to be at 100 percent. That's where

1:32

the damage is caused. So

1:34

here's why uncertainty is

1:37

an economic killer. Joe

1:39

Weisenthal, host of Bloomberg's OddLots podcast, is with me

1:41

in London. Joe, great to see you. Thank you

1:43

for having me. I'm thrilled to be here. Tell

1:46

me. with your brain and

1:48

knowledge of these matters, how

1:50

can we define uncertainty in

1:52

this moment in 2025? Yeah,

1:55

I mean, it's a great question.

1:57

And I think there are sort of

1:59

two different elements, which is

2:01

one is, okay, we know there's

2:03

going to be a change in

2:05

the trading environment between the rest

2:07

of the world and the US,

2:09

right? Like that's obviously a done

2:11

deal. and nobody knows like

2:13

what type of arrangements will be

2:15

profitable in those environments and so

2:17

forth. So that's a form of

2:19

uncertainty. But then there's another, you

2:21

know, the more deeper form of uncertainty

2:23

is, yes, we know there's going to

2:25

be a change, but we don't know

2:27

to what, right? And part of that

2:29

is I don't think, you know, the

2:31

White House has clearly articulated

2:34

what it wants the new

2:36

environment to be. There's a message

2:38

uncertainty because various people speak

2:40

for the White House on behalf

2:42

of the White House, and

2:44

there's a lot of ambiguity about

2:46

the degree to which anything

2:48

they say actually reflects the thinking

2:50

of the administration. And when

2:52

I say the administration, I only

2:54

mean the president because, you know, typically

2:56

one would think there is a

2:58

coherent message, but I don't think there

3:01

is. There's you know, there's rivals

3:03

within the White House that have different

3:05

priorities. And I think that even

3:07

the president himself, while he has some

3:09

intuitions that, you know, he believes

3:11

that tariffs are a tool that can

3:13

be used to revive the US

3:15

manufacturing sector, the degree to which that

3:17

policy is cemented seems still very

3:19

up in the air. Can we say

3:21

that it's more uncertain now than

3:23

it has been in Years, longer.

3:25

How do we sort of

3:27

measure uncertainty? I mean, you can

3:29

look at the markets for

3:31

one example. Well, look, I think,

3:33

you know, in the two

3:35

big recent crises that we had,

3:37

there were clear goals during

3:39

COVID. The goal was to stop

3:41

the spread of the disease and then

3:43

from an economic side to sort of

3:45

replace all the lost money, you

3:48

know, all the lost economic activity for those

3:50

months during lockdown. In 2008 and

3:52

2009, the goal was to stop

3:54

a bank run. And there was

3:56

a lot that they didn't know

3:58

at the time and they certainly,

4:00

you know, may have misjudged the

4:02

speed and scale through which the

4:04

financial system was deteriorating in 2008

4:06

and 2009. But the goal was

4:08

to stop. a bank run. In

4:11

this case, you know, as they say, the

4:13

call is coming from inside the house. And

4:15

so you don't really know

4:17

what the goal is. Is

4:19

the goal to improve our

4:21

ability to manufacture high -tech

4:24

things that are important for

4:26

national security? Maybe. Is the

4:28

goal to fundamentally restructure the

4:30

economy such that everyone or

4:32

a lot more people are

4:34

in what we call Production

4:36

work is the goal to

4:38

stop the flow of fentanyl

4:40

is the goal to slow

4:42

international migration. So whereas in the

4:44

last two crises, there was certainly a lot of uncertainty

4:47

and there was a lot of debating about, well,

4:49

what's it going to take and how long will it

4:51

take to stop the spread of a pandemic or

4:53

a bank run, etc. I don't

4:55

think we actually even know what the

4:57

goal is here. And so in some

4:59

sense, I would say, again, there are

5:01

various attempts to measure uncertainty, there are

5:03

market based measures, there are sentiment based

5:05

measures. But I would say there is

5:08

a degree of uncertainty now that It

5:10

is in way incomparable to any recent

5:12

crisis. What's the macro picture when

5:14

we have this level of uncertainty given that,

5:16

as you say, it doesn't really have a

5:18

parallel to something we've looked at before? Well,

5:20

look, at a minimum, it's

5:22

very hard to imagine any company

5:24

in the world committing to

5:26

serious investment right now. And what

5:28

I mean by investment, obviously,

5:30

is opening up new locations, opening

5:32

up new production facilities, expanding

5:34

headcount, et cetera. Why would anyone?

5:36

do that in this environment.

5:38

And that's at a minimum. Furthermore,

5:41

there has been this hit

5:43

to financial markets of financial tightening,

5:46

as they say. And so stock prices

5:48

have gone down, yields on government

5:50

debt have gone up, credit

5:52

spreads have gotten wider. So there

5:54

is just an increased cost of

5:56

doing business already on the financial

5:58

side. And then you layer in

6:00

the actual literal increase cost of

6:03

doing business because the goods that

6:05

a company imports, whether they're for

6:07

resale or whether their inputs to

6:09

production have also gone up. So

6:11

you layer in the inherent policy

6:13

uncertainty in the fact that until

6:15

there's some policy stability, no one

6:17

is going to do anything new,

6:19

on top of the fact that

6:21

the existing costs were on day -to

6:23

-day operations for both financial and

6:25

goods have gone up. And this

6:27

is why many people believe we're

6:30

either going into a recession in

6:32

the U .S. or that we're already

6:34

in one. At what

6:36

point do businesses, consumers,

6:38

markets simply get used to things being so

6:40

uncertain? Is there a point at which that

6:42

we all just sort of shrug and move

6:44

on? It's hard to

6:46

imagine that you can ever fully

6:48

shrug and move on, but the answer

6:51

to that persistent uncertainty is to

6:53

take fewer risks, to shore up your

6:55

balance sheet. to cut everything that

6:57

you can theoretically cut. You know, it's

6:59

interesting, like in 2022, when there

7:01

was significant inflation, there were a lot

7:04

of concerns then, you know, the

7:06

Federal Reserve was jacking up interest rates.

7:08

And so there was a lot

7:10

of concerns then, I was like, are

7:12

we going to go into a

7:14

recession? But one of the overriding dynamics

7:17

of that period was this visceral

7:19

fear of companies to be short of

7:21

labor, because 2020, 2021,

7:24

2022, 2023, was

7:26

probably the first time in recent corporate

7:28

history where companies realized that there is

7:30

not an endless supply of workers out

7:33

there. And so you had restaurants like,

7:35

oh, we literally can't operate, right? Because

7:37

we can't find the workers in this

7:39

environment. And so what that means is

7:41

that there was this real reluctance to

7:43

fire anyone because you might think, well,

7:45

you know, things are uncertain, but I

7:47

can't fire anyone because the last thing

7:49

I want to do is to be

7:51

caught short labor again. I just had

7:53

this very visceral experience of being short.

7:56

We're in a very different environment right

7:58

now. You know, arguably even

8:00

going into middle of February, which

8:02

is when the turbulence really began, there

8:04

were signs of economic slowdown a little

8:06

bit that may have nothing to do with

8:09

Trump. Maybe, you know, it's time for

8:11

like the Federal Reserve to cut rates signs

8:13

of the housing market, which is very

8:15

important stalling out. So even then,

8:17

there was probably already this sort

8:19

of negative growth impulse emerging in

8:21

the US economy. And

8:23

so I think this time around, right

8:25

now, I suspect that

8:28

inside many companies, the

8:30

conversations are about what can we cut?

8:32

We want to preserve capital. We want

8:34

to preserve cash. We want to preserve

8:36

operational flexibility just to survive to the

8:38

next month or the next half or

8:40

the next quarter. Where do we look

8:42

for signs that things are calming down,

8:44

that things are becoming more certain? I

8:46

mean, look, I'm a big fan of

8:48

the stock market as an indicator. The

8:51

stock market is not as volatile

8:53

as it was. The

8:55

policy environment, I guess, you know,

8:57

is less fluid than it seemed

8:59

like a week ago, right? Although

9:01

that could change at any moment.

9:03

could change, you know, but like

9:05

the pace of new news that's

9:07

coming out has slowed down a

9:09

little bit. You know, there's only

9:11

so far you can really Go

9:13

with that. So like at the

9:15

margins, things are more certain than

9:17

they were a week ago, but

9:20

we're just talking marginal changes. And we'll

9:22

have to watch them to see where things

9:24

go next. Joe, great to have you us.

9:26

Thanks for having me. Joe Weisenthal, host of

9:28

the Brilliant Odd Lots podcast and author

9:30

of its newsletter. Thank you. For more explanations

9:32

like this from our team of 3 ,000

9:34

journalists and analysts around the world, go to

9:36

bloomberg.com slash explainers. I'm

9:38

Stephen Carroll. This is Here's Why. I'll be

9:40

back next week with more. Thanks for listening. Advantage,

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