WEBVTT - Bloomberg Surveillance: Jobless Claims Fall 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.360 --> 0:00:32.080 Let's get up front of Carl Worcadon, I got a 0:00:32.080 --> 0:00:35.159 bigger broad up question from Let's Go narrow tomorrow. How 0:00:35.200 --> 0:00:38.840 do you interpret average hourly earnings within the forty seven 0:00:38.920 --> 0:00:41.160 other measurements of wage growth that are. 0:00:41.080 --> 0:00:44.199 Out there well, Average early earnings are telling us that 0:00:44.840 --> 0:00:47.920 we are not there yet in terms of the FED 0:00:47.960 --> 0:00:51.280 being able to declare mission accomplished. Average oarly earnings running 0:00:51.280 --> 0:00:54.320 at four percent are still too hot for inflation to 0:00:54.360 --> 0:00:58.200 be sustainably at a two percent run rate, especially as 0:00:58.200 --> 0:01:00.440 we look at the core numbers. And even more important 0:01:00.440 --> 0:01:03.040 than average early earnings is the employment cost index wage 0:01:03.080 --> 0:01:05.800 and salary component that's running at four to six. It 0:01:05.880 --> 0:01:09.200 needs to be at three percent or less to be 0:01:09.280 --> 0:01:12.840 consistent with the two percent core PC inflation. So we 0:01:12.880 --> 0:01:15.680 are simply you know, there's lots of good progress. The 0:01:15.760 --> 0:01:19.440 glide path is looking in the right direction, but there 0:01:19.520 --> 0:01:23.240 is still further room to run before we can feel 0:01:23.280 --> 0:01:23.800 more comfortable. 0:01:23.880 --> 0:01:25.679 Karl, I got to go to sixty thousand feet here. 0:01:25.720 --> 0:01:28.399 You're really good at this. Peter Drucker, nineteen ninety one 0:01:28.520 --> 0:01:32.000 on the new productivity. Do we have any clue given 0:01:32.040 --> 0:01:36.120 our labor data that we're in right now, what the productivity, 0:01:36.200 --> 0:01:39.400 the efficiency, the efficacy of our labor is. 0:01:39.480 --> 0:01:41.320 I would suggest we're flying blind. 0:01:43.400 --> 0:01:47.119 I think we are still flying blind post pandemic tom 0:01:47.160 --> 0:01:50.680 and we've seen some wild swings and productivity due to 0:01:51.000 --> 0:01:55.600 labor shortages and then the rebound and participation. Lots of 0:01:56.240 --> 0:01:59.320 kind of wild swing factors are really distorting the numbers. 0:01:59.360 --> 0:02:03.120 That big surge we saw in GDP growth in Q three, 0:02:03.320 --> 0:02:06.880 of course distorts productivity. That's not the beginning of a trend. 0:02:06.880 --> 0:02:09.120 That was a one time flash in the pan. We 0:02:09.120 --> 0:02:11.760 can see that in the tracking forecast for Q four. 0:02:12.360 --> 0:02:14.920 So there really is still a lot of instability and 0:02:15.040 --> 0:02:17.200 noise that we have to look through to get a 0:02:17.200 --> 0:02:20.480 clearer perspective. Now, what I think does give us some 0:02:20.600 --> 0:02:24.040 sense of the trend. When we have extended periods of 0:02:24.280 --> 0:02:30.640 labor scarcity and high labor costs, typically that pushes businesses, 0:02:30.760 --> 0:02:34.720 encourages them to make the kind of productivity enhancing capital 0:02:34.760 --> 0:02:39.960 investments that do lead to a productivity boom. But we're 0:02:40.040 --> 0:02:42.360 still not out of the woods yet. The labor data 0:02:42.400 --> 0:02:45.560 does look to be moving to a more balanced state 0:02:45.639 --> 0:02:49.320 where maybe we have less labor cost pressure six months 0:02:49.360 --> 0:02:52.360 from now, for example, and then that would say maybe 0:02:52.400 --> 0:02:54.400 there'll be less of a productivity flare up than we 0:02:54.440 --> 0:02:57.519 might be anticipating. Of course, AI is a big wildcard, 0:02:57.560 --> 0:02:59.680 but I think it's a little bit too soon to 0:02:59.680 --> 0:03:03.840 be factoring that into the macroeconomic data on that kind of. 0:03:03.880 --> 0:03:05.720 Scale if you are just starting the program. We did 0:03:05.800 --> 0:03:08.480 just get a one two punch better than expected jobs 0:03:08.520 --> 0:03:10.880 data with the ADP orport coming in hotter than expected 0:03:10.919 --> 0:03:14.079 and that initial job was claims coming in lower than expected. 0:03:14.080 --> 0:03:16.200 You could see an extension in the move with ten 0:03:16.240 --> 0:03:19.639 yure yields now creeping closer to that four percent three 0:03:19.720 --> 0:03:22.600 point nine to nine percent if you round up about 0:03:23.240 --> 0:03:26.560 just less than one basis point, Carl, how much are 0:03:26.560 --> 0:03:29.640 you looking at a market that is screaming that we 0:03:29.680 --> 0:03:32.600 are not going to have any recession anytime soon without 0:03:32.639 --> 0:03:34.000 some sort of exogenous shock. 0:03:36.080 --> 0:03:38.560 Well, I think the market signal is very important, but 0:03:38.880 --> 0:03:42.720 that market signal will be very subject to the macroeconomic 0:03:42.800 --> 0:03:45.880 data trend. And we are certainly moving to a slower 0:03:45.920 --> 0:03:48.560 pace of activity than where we were, for instance, in 0:03:48.640 --> 0:03:51.520 Q three of last year. So it is a slower 0:03:51.560 --> 0:03:53.720 profile in the first part of this year, which will 0:03:53.760 --> 0:03:58.920 mean less hiring that puts pressure on margins and revenue 0:03:58.920 --> 0:04:02.800 gains and whatnot, slower nominal GDP than those things tend 0:04:02.840 --> 0:04:05.040 to slow down as well, So it will be a 0:04:05.160 --> 0:04:08.360 challenging macro environment, which will be an environment in the 0:04:08.400 --> 0:04:11.000 first half of this year where the macro variables really 0:04:11.120 --> 0:04:14.000 do drive the narrative, as we'll get some clarity on 0:04:14.040 --> 0:04:17.200 whether it's a bumpy landing, soft landing, no landing, et cetera, 0:04:17.240 --> 0:04:20.120 et cetera. And so I think we do have to 0:04:20.240 --> 0:04:23.160 pay very careful attention to that tug of war between 0:04:23.320 --> 0:04:26.080 what markets are seeing in terms of FED easing and 0:04:26.120 --> 0:04:29.720 whatnot and what the macro data are suggesting. And as 0:04:29.760 --> 0:04:32.280 we look at the claims numbers, right, this is consistent 0:04:32.920 --> 0:04:34.920 with what we said ahead of the data which is 0:04:35.040 --> 0:04:38.359 it's not layoffs that are cooling the labor market at 0:04:38.400 --> 0:04:41.360 the moment, it's just a reduced appetite for hiring. 0:04:41.560 --> 0:04:43.640 You mentioned the market signal, Carl, and I think that 0:04:43.720 --> 0:04:46.760 really follows nicely onto what we saw yesterday in the 0:04:46.800 --> 0:04:49.520 meeting minutes. J Powell kind of dismissed this idea of 0:04:49.600 --> 0:04:53.080 financial conditions in the December FMC meeting, and then he 0:04:53.200 --> 0:04:56.239 inserted that back in, or somebody did in the meeting 0:04:56.279 --> 0:04:59.760 minutes for suddenly they're worried about this easing and financial 0:04:59.800 --> 0:05:04.279 can conditions. Do you think that basically the implied rate 0:05:04.279 --> 0:05:06.600 cuts that we have seen priced into the market through 0:05:06.640 --> 0:05:09.159 the end of last year have made it more difficult 0:05:09.440 --> 0:05:11.520 to really achieve that price stability in a way that 0:05:11.560 --> 0:05:13.720 we see with ongoing labor market strength. 0:05:15.440 --> 0:05:18.440 I think that the easing of financial conditions, which is 0:05:18.440 --> 0:05:22.479 pretty substantial. Our own BMP Financial Conditions Index would say that, 0:05:22.760 --> 0:05:24.599 you know, the moves from the highs are equivalent to 0:05:24.800 --> 0:05:28.320 maybe one hundred basis points of FED cuts. That complicates 0:05:28.400 --> 0:05:31.279 the exit process. Now the FED knows full well that 0:05:31.320 --> 0:05:34.360 when they shift from the risk of there being more 0:05:34.440 --> 0:05:37.279 hikes to either being on perma hold or moving to 0:05:37.360 --> 0:05:40.120 a lower policy rate, that there's always going to be 0:05:40.160 --> 0:05:43.279 that kind of easing of financial conditions that takes place, 0:05:43.320 --> 0:05:46.080 but absolutely this does complicate the process. We heard that 0:05:46.160 --> 0:05:48.640 in the minutes, the line that said, you know, the 0:05:48.680 --> 0:05:51.440 easing of financial conditions, you know, the scope or the 0:05:51.480 --> 0:05:55.200 magnitude of it could jeopardize the Fed's path. If we 0:05:55.240 --> 0:05:58.479 have a real reacceleration in the economy, then that last 0:05:58.520 --> 0:06:01.880 mile in the inflation fight becomes more difficult, and that's 0:06:01.920 --> 0:06:04.440 going to slow down the FED in that process. What 0:06:04.480 --> 0:06:07.359 I thought was interesting in the minutes was the you know, 0:06:07.400 --> 0:06:10.159 the usually the FED has the boilerplate language, if it's hotter, 0:06:10.240 --> 0:06:13.520 we'll go higher, if it's cooler, will go lower, and 0:06:13.560 --> 0:06:15.599 they didn't do that. It was i think on page 0:06:15.640 --> 0:06:18.400 eight of the minutes where they talked about, you know, 0:06:18.480 --> 0:06:21.520 kind of maybe empty or somewhat empty rhetoric about saying 0:06:21.560 --> 0:06:24.240 that you know, there's a possibility of more hikes. Then 0:06:24.279 --> 0:06:26.320 they went on to say there's a possibility that we 0:06:26.400 --> 0:06:30.920 could take longer to pivot towards cuts, But they never 0:06:31.120 --> 0:06:33.320 then added the other side of the scale, which is 0:06:33.440 --> 0:06:35.680 and if things are cooler, we could go sooner, so 0:06:35.760 --> 0:06:38.880 that tells you they're very sensitive to the market reaction 0:06:39.400 --> 0:06:41.080 to the December press conference. 0:06:40.800 --> 0:06:43.480 Carl, the fact that we were all wrong last year 0:06:43.839 --> 0:06:47.600 and that we got this wonderfully buoyant economy and right now, John, 0:06:47.640 --> 0:06:50.680 a three point eight percent statistic on the unemployment rate. 0:06:51.200 --> 0:06:55.120 Guestimate for tomorrow, Carl, are we fully employed? I mean, 0:06:55.200 --> 0:06:58.039 there's a lot of Americans flat on her back, but 0:06:58.120 --> 0:06:59.960 are we fully employed in America? 0:07:02.120 --> 0:07:05.120 As we look at the aggregate data right the unemployment 0:07:05.200 --> 0:07:09.000 rate below four percent, If we look at the wage trends, 0:07:09.440 --> 0:07:12.560 I think it's pretty apparent that we have been in 0:07:12.600 --> 0:07:16.640 a period of full employment and that largely explains those 0:07:16.640 --> 0:07:19.760 wage pressures. Now the labor market is cooling. So while 0:07:19.800 --> 0:07:22.760 we may be fully employed now on the eve of 0:07:22.840 --> 0:07:25.760 the December jobs report, by the middle of the year 0:07:25.880 --> 0:07:30.000 or later, I think that there could be a hotter 0:07:30.120 --> 0:07:33.480 debate about whether we still are at full employment, because 0:07:33.480 --> 0:07:35.640 we will see those wage pressures coming down as the 0:07:35.680 --> 0:07:39.560 unemployment rate drifts higher, and that will create some slack, 0:07:39.640 --> 0:07:43.840 which is a welcome development after the last two years 0:07:44.080 --> 0:07:48.080 post pandemic environment to get us that last mile back 0:07:48.120 --> 0:07:51.520 to two percent. Of course, full employment is very important, 0:07:51.520 --> 0:07:55.680 but as Jerome Powell reminds us in nearly every press conference, right, 0:07:55.840 --> 0:07:59.360 price stability is the bedrock or the foundation of a 0:07:59.400 --> 0:08:03.040 stable act. So we can't just push the unemployment rate 0:08:03.080 --> 0:08:07.280 as low as we can go without taking into consideration 0:08:07.400 --> 0:08:11.360 that trade off with the with the inflation dynamics. And 0:08:11.400 --> 0:08:13.960 that was actually something that was highlighted in the Minutes 0:08:14.040 --> 0:08:16.720 yesterday as well, where now policymakers are starting to think 0:08:16.760 --> 0:08:19.880 about the tradeoff on the dual mandate, you know, so 0:08:20.360 --> 0:08:23.520 there's more weighting to both factors on the dual mandate 0:08:23.960 --> 0:08:26.360 relative to where we were over the last several quarters. 0:08:26.400 --> 0:08:28.960 Hey, Cole, just quickly, just to recamp expectations tomorrow. 0:08:29.000 --> 0:08:30.600 What are the numbers for you in a team. 0:08:32.160 --> 0:08:35.840 Well, I'm eyeing this hissing sound in the labor market. 0:08:35.880 --> 0:08:39.120 We're gradually losing momentum. So I think one sixty five 0:08:39.280 --> 0:08:41.760 ish on the number, which now turns out to be 0:08:41.880 --> 0:08:44.920 just slightly below the consensus forecast, and I would watch 0:08:45.000 --> 0:08:48.199 for some slack and the unemployment rate. I actually think 0:08:48.400 --> 0:08:50.440 maybe a two tenths increase up to three point nine 0:08:50.520 --> 0:08:54.240 percent with still those persistent wage pressures in the background. 0:08:54.559 --> 0:08:57.880 Keep in mind, inflation is a liking indicator, and so 0:08:58.040 --> 0:08:58.800 is labor inflation. 0:08:58.960 --> 0:09:02.160 Colt Rick adonad it Happy New Year, sir, cal Ricotono, 0:09:02.280 --> 0:09:09.679 BMP parapath joining us now, Katy Kaminski, chief research strategist 0:09:09.840 --> 0:09:13.480 of Apfasimplex, punishing that bond market, Katie, you were sure, 0:09:13.679 --> 0:09:15.560 We talked about it. It felt good for a while. 0:09:15.600 --> 0:09:18.439 Then this market turned, Katie. I guess you're still sure 0:09:18.520 --> 0:09:20.200 after the pain of the last couple of months and 0:09:20.360 --> 0:09:22.240 what changed for you? 0:09:22.280 --> 0:09:26.200 No, trend signals have finally turned long, and I think 0:09:26.200 --> 0:09:30.000 this is an epic signal for the market because we 0:09:30.120 --> 0:09:34.200 have been short for nine quarters. This has been one 0:09:34.240 --> 0:09:38.400 of the longest shorts in trend falling history over the 0:09:38.480 --> 0:09:41.320 last twenty to forty years. And I think this is 0:09:41.400 --> 0:09:45.040 important because it signals the end of the tightening cycle 0:09:45.400 --> 0:09:48.520 and it suggests that we're going through a regime change 0:09:49.120 --> 0:09:51.240 and that we need to start looking at the next 0:09:51.240 --> 0:09:54.840 phase of the bond market. And for me, that's looking 0:09:54.880 --> 0:09:57.679 for a steepral yield curve and I'm trying to think 0:09:57.720 --> 0:10:00.640 about what is going to be the catalyst for that as. 0:10:00.520 --> 0:10:01.760 The next phase of this trade. 0:10:01.840 --> 0:10:03.880 It's one thing not to be short, Katie, it's another 0:10:03.920 --> 0:10:07.200 thing to be aggressively long Where does trend following signal 0:10:07.280 --> 0:10:07.679 send you? 0:10:08.640 --> 0:10:10.520 So right now there's still rather muted. 0:10:10.760 --> 0:10:12.360 But I think the key that we're going to have 0:10:12.400 --> 0:10:15.280 to watch is how fast are cuts coming? And I 0:10:15.320 --> 0:10:17.439 also think we have to be a little bit nervous too. 0:10:17.480 --> 0:10:20.120 We need to watch what's happening with supply and treasuries, 0:10:20.440 --> 0:10:22.160 to look at the end of the curve to see 0:10:22.160 --> 0:10:25.440 what's happening there as well as we try to navigate 0:10:25.440 --> 0:10:28.040 this year as weaker data might come in and as 0:10:28.080 --> 0:10:30.560 we try to roll over debt throughout the year. So 0:10:30.600 --> 0:10:31.880 I think this is going to be a year to 0:10:31.960 --> 0:10:34.319 watch the shape of the curve and to see where 0:10:34.640 --> 0:10:36.080 the curve actually settles out. 0:10:36.400 --> 0:10:38.360 When you talk about a steepening in the yield curve, 0:10:38.400 --> 0:10:40.079 it can come from two places. It can come from 0:10:40.120 --> 0:10:43.160 short term yields coming down in response to FED rate cuts, 0:10:43.240 --> 0:10:46.680 or it could come to from longer term yields rising aggressively. 0:10:47.000 --> 0:10:49.600 Are you basically saying because you are no longer short 0:10:49.679 --> 0:10:51.840 treasuries that you see it more coming from the front 0:10:51.960 --> 0:10:55.160 end with more aggressive rate cutting cycle than people are expecting. 0:10:55.960 --> 0:10:58.440 Well, that's the trade that everyone's focused on and I 0:10:58.440 --> 0:11:01.160 think that's where everyone's focus. Now you're just mentioning it 0:11:01.280 --> 0:11:04.440 that you know, we're focused on how soon our cut's coming, 0:11:05.200 --> 0:11:07.440 and when are we going to see the shorter end 0:11:07.440 --> 0:11:09.720 of the curve sort of deep in so that we 0:11:09.800 --> 0:11:12.160 have this this more stepl curve, I think where you 0:11:12.240 --> 0:11:14.840 have to worry. The typical thing that would be the 0:11:14.920 --> 0:11:19.000 challenge is if we start to see more challenging effects 0:11:19.040 --> 0:11:21.960 on the long end of the curve, aka you know, poor, 0:11:22.320 --> 0:11:24.480 poorer fixed income market on the long end. So that 0:11:24.520 --> 0:11:27.960 would happen if we had trouble in terms of valuations 0:11:27.960 --> 0:11:31.120 for debt, and so that would happen if we had poor, 0:11:31.440 --> 0:11:34.400 you know, poor auctions in the treasury market. So that's 0:11:34.400 --> 0:11:35.800 something I'm going to be watching this year. 0:11:36.040 --> 0:11:38.160 Kay, Let's talk to Global Wall Street right now. That 0:11:38.200 --> 0:11:44.320 hangs on your every word on trend based CTA technical analysis. 0:11:44.640 --> 0:11:47.000 So we had a trend to a higher yield than 0:11:47.000 --> 0:11:52.000 a tenure we've rolled over the indeterminate point I call soup. 0:11:52.440 --> 0:11:55.440 Are we in a trend of soup now indeterminate? Or 0:11:55.480 --> 0:11:58.880 can you state that we have a trend towards lower yield? 0:11:59.000 --> 0:12:03.280 Is a trend in place of higher prices and lower yield. 0:12:04.040 --> 0:12:07.200 So we hit the inflection point and we've started moving 0:12:07.280 --> 0:12:13.400 towards longer, longer signals, especially in most asset classes, particularly equities. 0:12:13.920 --> 0:12:17.960 We've also seen very strong short signals in the US dollar, 0:12:18.320 --> 0:12:21.120 so we've really seen that inflation trade that we were 0:12:21.600 --> 0:12:25.760 seeing for pretty much two years dissipate and move past 0:12:25.800 --> 0:12:27.920 a point where we're moving towards a new trend. 0:12:28.520 --> 0:12:31.960 You sound like Luisa Mada there talking about dissipation. What 0:12:32.120 --> 0:12:35.400 will it take to get trend in place where there's 0:12:35.440 --> 0:12:39.240 a permanence to week dollar, a permanence to lower yield. 0:12:40.600 --> 0:12:45.200 I think rate cuts as expected would definitely continue that 0:12:45.280 --> 0:12:48.560 trend strongly, of course, not as weak data if we 0:12:48.600 --> 0:12:53.120 continue to see this sort of soft landing be a possibility, 0:12:54.040 --> 0:12:56.400 and I think that is going to be in question, 0:12:56.480 --> 0:12:59.440 of course, because my general view this year is that 0:12:59.440 --> 0:13:02.360 we're going to see a lot of variation in outcomes. 0:13:03.080 --> 0:13:06.240 I want to point out one key fact a bond 0:13:06.320 --> 0:13:11.760 volatility still remains elevated and bond stock correlation still remains positive. 0:13:11.880 --> 0:13:15.240 Those are two technical factors that are very different than 0:13:15.360 --> 0:13:18.920 the classic regime, so we need to navigate those first 0:13:19.080 --> 0:13:21.800 before we can figure out sort of have we moved 0:13:21.960 --> 0:13:24.160 to sort of back to where we were or are 0:13:24.160 --> 0:13:25.079 we moving somewhere else? 0:13:25.080 --> 0:13:26.960 Ok, Katie, let's finish that. We caught it with someone. 0:13:27.320 --> 0:13:29.640 Just yesterday from JP, Mork and Lisa mentioned them. Phil 0:13:29.679 --> 0:13:31.840 Camporari talked about sixty to forty being back and the 0:13:31.880 --> 0:13:34.000 forty with an amble you to play defense. 0:13:34.040 --> 0:13:36.000 Is there any reason to believe that it is back? 0:13:36.080 --> 0:13:38.719 You're seeing anything that suggests that correlation is going back 0:13:38.720 --> 0:13:41.280 to what some people might call slightly more intuitive. 0:13:43.160 --> 0:13:46.240 I think everyone wants that, but I think the worry 0:13:46.400 --> 0:13:49.440 is what I just said. We're seeing very different asset 0:13:49.440 --> 0:13:50.680 class relationships. 0:13:51.240 --> 0:13:52.440 So we need to. 0:13:52.400 --> 0:13:57.720 Watch inflation and watch for how inflation behaves because inflation 0:13:58.000 --> 0:14:01.600 changes the nature of asset class relationships. If we should 0:14:01.600 --> 0:14:05.440 see inflation have upside risk potential, we will see more 0:14:05.520 --> 0:14:08.679 challenge that sixty forty narrative if in fact we can 0:14:08.760 --> 0:14:10.079 keep inflation under control. 0:14:10.200 --> 0:14:12.079 I agree the sixty forty is. 0:14:12.000 --> 0:14:14.720 A good place to be, but so watching inflation and 0:14:14.800 --> 0:14:16.680 keeping that in check, And that's why the Fed is 0:14:16.720 --> 0:14:21.040 probably being more conservative and being careful because they want 0:14:21.040 --> 0:14:22.080 to make sure that's the case. 0:14:22.240 --> 0:14:24.880 Casey appreciate the update. Happy New Year. It's going to 0:14:24.920 --> 0:14:26.640 catch up. Katy Commnce to give appasimplex. 0:14:37.160 --> 0:14:40.560 Edward Mills joins US ed Mills, Washington policy analyst at 0:14:40.640 --> 0:14:44.040 Raymond James, and you've got a very domestic note today 0:14:44.120 --> 0:14:48.520 with domestic issues. John Ferrell mentions the idea of our 0:14:48.680 --> 0:14:53.640 foreign wars. Is there a foreign policy stance among Republicans 0:14:53.960 --> 0:14:55.840 and Democrats on Capitol Hill. 0:14:57.480 --> 0:15:00.200 Tom, They're trying to find that, and I think that 0:15:00.240 --> 0:15:03.360 they do wrap it from a domestic agenda. What we're 0:15:03.440 --> 0:15:06.480 looking at for a January agenda is not just funding 0:15:06.560 --> 0:15:10.720 the United States government, but it's the national security issues. 0:15:10.880 --> 0:15:12.960 And so you have the supplemental. 0:15:12.360 --> 0:15:16.360 Looming in the background for Israel, for Ukraine, for Taiwan. 0:15:16.720 --> 0:15:19.520 But Republicans are saying, if we're talking about national security, 0:15:19.760 --> 0:15:22.360 we also have to talk about the border. So that's 0:15:22.360 --> 0:15:26.080 why Republicans were at the southern border yesterday. 0:15:25.720 --> 0:15:28.200 Right pushing four those border protections. 0:15:29.040 --> 0:15:31.720 But the problem for them is that they continue to 0:15:31.800 --> 0:15:34.880 lose members and they're down to two hundred and nineteen. 0:15:35.320 --> 0:15:37.640 Usually you need two eighteen to get something through the House. 0:15:38.000 --> 0:15:41.120 So they have really strong border policies, but right now 0:15:41.320 --> 0:15:42.720 they don't have the votes. 0:15:43.040 --> 0:15:48.000 What does the Democrat party view on a national security 0:15:48.080 --> 0:15:49.320 issue at the border? 0:15:49.360 --> 0:15:50.640 Do they agree? 0:15:50.880 --> 0:15:53.480 Is it a nuanced do they flat out disagree with 0:15:53.520 --> 0:15:54.400 Speaker Johnson? 0:15:55.400 --> 0:15:57.760 So I think it's a little bit nuanced. 0:15:58.280 --> 0:16:00.800 In the bill that filled in the Senate in December, 0:16:00.880 --> 0:16:04.800 there were some border funding provisions. What we have right 0:16:04.880 --> 0:16:08.280 now is that Democrats understand that they need to do 0:16:08.360 --> 0:16:11.360 more on the border. There's been negotiations, but they certainly 0:16:11.360 --> 0:16:13.680 don't want to go as far as House Republicans have 0:16:13.720 --> 0:16:16.800 been pushing for. They call it HR two, that Protect 0:16:16.800 --> 0:16:21.360 the Border Act. That's real changes to asylum, that's changes 0:16:21.560 --> 0:16:24.120 to kind of e verify systems in the United States, 0:16:24.280 --> 0:16:27.400 that's rebuilding the Trump border wall. Those are a step 0:16:27.440 --> 0:16:29.800 too far for Democrats. What I think we have to 0:16:29.840 --> 0:16:32.440 see is that Democrats have to go further than they're 0:16:32.480 --> 0:16:35.440 comfortable with to get the other provisions. But we are 0:16:35.480 --> 0:16:38.320 in that period of trying to figure out exactly where 0:16:38.320 --> 0:16:40.240 that line is, and so we're going to go right 0:16:40.320 --> 0:16:43.320 up to it and potentially have a government shutdown come 0:16:43.440 --> 0:16:46.920 January nineteenth or February second, the two funding deadlines that 0:16:46.960 --> 0:16:48.080 are approaching very. 0:16:48.000 --> 0:16:49.600 Quickly here, That's where I wanted to go in there 0:16:49.640 --> 0:16:51.240 seems to be a sort of a subtle shift in 0:16:51.280 --> 0:16:53.800 the Republican party moving away from just tying some of 0:16:53.840 --> 0:16:58.480 the border kinds of security provisions to funding for Ukraine 0:16:58.520 --> 0:17:00.880 and Israel, to moving it more broadly to shutting down 0:17:00.920 --> 0:17:02.640 the government if they don't get what they want. Does 0:17:02.680 --> 0:17:04.960 that make it so much more likely that we are 0:17:05.000 --> 0:17:07.000 going to get the government shutdown? It doesn't even matter. 0:17:08.080 --> 0:17:10.720 It's a great question, Lisa, and I think that we're 0:17:10.840 --> 0:17:13.560 kind of right on that precipice of either grand bargain 0:17:14.040 --> 0:17:18.480 or bust because we probably have to watch what develops 0:17:18.520 --> 0:17:21.480 in the Senate. But you do have this sense that 0:17:21.520 --> 0:17:24.479 Republicans want to fight, that they want to show that 0:17:24.520 --> 0:17:27.639 they are pushing for border security and want to push 0:17:27.640 --> 0:17:31.240 for more than what Democrats want, and sometimes by having 0:17:31.280 --> 0:17:37.280 that shutdown really elevates their point. However, Republicans also want 0:17:37.280 --> 0:17:39.640 to have the ability to say they got something done 0:17:39.880 --> 0:17:43.040 that when they run for reelection here in November, that 0:17:43.080 --> 0:17:45.560 they can point to an accomplishment, and so that's where 0:17:45.560 --> 0:17:48.280 the Grand bargain comes in. There is still a strong 0:17:48.320 --> 0:17:52.960 desire in DC to support Israel, Ukraine, Taiwan through defense 0:17:53.000 --> 0:17:56.080 supplemental and if you can put that all together, and 0:17:56.160 --> 0:17:58.280 we have to remember that even if we shut down 0:17:58.320 --> 0:18:00.600 the government, at some point, we're going to reopen it. 0:18:00.640 --> 0:18:03.080 So it's just a question of how far and how 0:18:03.200 --> 0:18:06.120 much drama there is. But at Raymond James we always 0:18:06.160 --> 0:18:10.560 do point out that in past government shutdowns, on average, 0:18:10.680 --> 0:18:12.159 the S and P five hundred has been up by 0:18:12.160 --> 0:18:13.119 three point two percent. 0:18:13.200 --> 0:18:16.040 So from a market perspective, we. 0:18:16.040 --> 0:18:18.159 Kind of tend to discount the fact that the government 0:18:18.160 --> 0:18:20.719 could shut down because it always reopens. 0:18:21.240 --> 0:18:24.360 Talking about drama, Donald Trump, we're talking about January fifteenth, 0:18:24.400 --> 0:18:26.760 We've got the Iowa CAUCUSUS. Then we've got New Hampshire 0:18:27.000 --> 0:18:29.920 on January twenty third, where we have the first primary 0:18:30.000 --> 0:18:33.240 in the country. How much does it change the calculus 0:18:33.440 --> 0:18:37.160 if Donald Trump, as expected, wins the primary races in 0:18:37.200 --> 0:18:39.240 those two states and we do get the sort of 0:18:39.240 --> 0:18:41.560 feeling that he once again is at the helm very 0:18:41.600 --> 0:18:42.919 much of the Republican Party. 0:18:43.680 --> 0:18:45.880 So, Lisa, I think at that point what you would 0:18:45.920 --> 0:18:48.200 see is that the voice of Donald Trump becomes even 0:18:48.200 --> 0:18:50.600 more important in congressional fits. 0:18:50.960 --> 0:18:51.440 Right now. 0:18:51.520 --> 0:18:53.840 A lot of the times when he sends out a 0:18:53.840 --> 0:18:57.520 message or sets of policy stands, it's. 0:18:57.240 --> 0:18:59.880 Noticed in DC, but it's not truly followed. 0:19:00.160 --> 0:19:03.679 If he re establishes himself as the head or the 0:19:03.680 --> 0:19:06.760 de facto head of the Republican Party and looks like 0:19:06.800 --> 0:19:09.160 it's going to be the nominee, then if he comes 0:19:09.200 --> 0:19:12.720 out and says kill this bill, don't vote for this, 0:19:12.880 --> 0:19:16.520 you have to fight stronger on border security. That makes 0:19:16.560 --> 0:19:20.040 it much harder for Republicans to cut the deal. And 0:19:20.080 --> 0:19:22.560 so that's putting pressure to try to do it sooner 0:19:22.600 --> 0:19:24.800 rather than later. If they can get it done by 0:19:24.800 --> 0:19:28.480 that January nineteenth deadline, that is after the Iowa caucuses, 0:19:28.720 --> 0:19:33.080 but before that, momentum could build. Alternatively, if you have 0:19:33.160 --> 0:19:36.240 someone like a Nicky Haley emerge, I think the markets 0:19:36.440 --> 0:19:39.240 would start to kind of search because there is a 0:19:39.520 --> 0:19:43.480 sense that she is a stronger candidate against Biden, the 0:19:43.600 --> 0:19:47.160 likely Democratic nominee, and it gives a little bit more 0:19:47.160 --> 0:19:51.800 wiggle room for House Republicans and House or Republicans generally 0:19:51.840 --> 0:19:53.720 in DC to potentially cut that deal. 0:19:53.880 --> 0:19:55.480 That's the range of outcomes said, You've got to tell 0:19:55.520 --> 0:19:57.240 me a base case for the next month. 0:19:57.400 --> 0:19:57.760 What a thing? 0:19:57.880 --> 0:20:03.480 So, yeah, the base case is drama breakmanship. It does 0:20:03.520 --> 0:20:06.480 seem like we could easily get that government shut down. 0:20:07.160 --> 0:20:10.679 But from a market perspective, yeah, I tell clients to 0:20:10.760 --> 0:20:11.800 kind of pay attention to. 0:20:11.760 --> 0:20:14.200 That longer term provision. 0:20:14.480 --> 0:20:17.359 I do think we will get government funded, we will 0:20:17.400 --> 0:20:20.959 get defend supplemental, we will get something on the border. 0:20:21.200 --> 0:20:22.679 It's just a question of timing. 0:20:22.760 --> 0:20:23.920 John, Thank you, buddy. 0:20:24.040 --> 0:20:25.960 Going to catch up a new year, Sir at Mills 0:20:25.960 --> 0:20:33.760 there of Raymond James. Steve Trent says American Airlines, American 0:20:33.800 --> 0:20:36.879 Airlines analyst over a city is still optimistic. Right in 0:20:36.920 --> 0:20:40.960 this premium economy, traffic flow, international momentum and loyalty and 0:20:41.000 --> 0:20:44.600 co prended card strength should continue to support network airline 0:20:44.880 --> 0:20:47.760 revenue TK. That is the constructive view from Steve and 0:20:47.800 --> 0:20:48.160 a team. 0:20:48.320 --> 0:20:51.040 Mister Trent owns a high ground on this. You do 0:20:51.080 --> 0:20:55.600 this with the grind at Stuyvesant, then under Pennsylvania, then 0:20:55.640 --> 0:20:57.640