Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Joining
Speaker 1: Us Now, I'm really pleased to says I bet So Gallo,
Speaker 1: Algebra's head of macro Strategies formally head enough credit over
Speaker 1: at RBS. I bet I always gret to catch up
Speaker 1: with you, and I want to start there with the
Speaker 1: market risk assets rolling go over. But the bid into
Speaker 1: treasury is really mild. Why I think today it's seasonal effect.
Speaker 1: Investors bod duration at the end of the first quarter,
Speaker 1: and today there's a little bit of widening in yields.
Speaker 1: Having said that, we think that the growth momentum is fading,
Speaker 1: and UM, you know, all the idea of having four
Speaker 1: or three and a half percent yield conten your treasury,
Speaker 1: you know we're gonna have to wait a lot longer
Speaker 1: for that. So we are still in a bookmarket for bonds,
Speaker 1: and UM duration is still UM is still in demand
Speaker 1: from investors, not just in the US, but also across
Speaker 1: the world, in emerging market, local currency and in Europe,
Speaker 1: because remember, investors want also alternative to treasuries. Treasures are
Speaker 1: slowly losing say fav and status due to also political volatility.
Speaker 1: I bet so the front end is a very different story.
Speaker 1: Though despite the market dropping two down three percent seemingly
Speaker 1: at one point, the bid does not come into the
Speaker 1: front end of the treasury curve. There is a view
Speaker 1: in the market still that the FED will continue to
Speaker 1: deliver great hikes. Is that the right view from where
Speaker 1: you guys are sitting at Algebras. I believe that is
Speaker 1: still the case. And let's remember that the FED is
Speaker 1: hiking in an environment where the e c B and
Speaker 1: the b o J and other central banks are still dobbish,
Speaker 1: so they have the benefit of hiking without the long
Speaker 1: end of the curve moving wider. The long end of
Speaker 1: the curve in the end is very It's much more
Speaker 1: influential for for long term investment decisions by companies and
Speaker 1: also households buying buying homes with with long long end
Speaker 1: mortgages ten t any third year mortgages. So effectively the
Speaker 1: bo J and d c B are keeping the long
Speaker 1: end of the U s treatory stable and making the
Speaker 1: FED a favor. But overall um normalization across global central
Speaker 1: banks it's going to be a lot more difficult because
Speaker 1: growth momentum is fading and you know the impact of
Speaker 1: the fiscal stimus is fading, and instead of that, we're
Speaker 1: having you know, a trade a mild trade war or
Speaker 1: trade uh skirmish at the moment. So what we need
Speaker 1: to regain momentum here is is another physical effort, but
Speaker 1: at this time not by the US but by Europe
Speaker 1: or Japan, and I don't see that at the moment. Well,
Speaker 1: the backdrop to all of this at the moment is
Speaker 1: a higher volatility regimail bet. So we've got the VIX
Speaker 1: north of twenty. It bleeds a little bit lower today,
Speaker 1: but the story has been elevated volatility over the last
Speaker 1: couple of months. We had the Vick shock of about
Speaker 1: a month ago, and what's clear is it's taking a
Speaker 1: long long time to actually clear the decks and for
Speaker 1: volter to roll over south of twenty. Why is that happening?
Speaker 1: Why have we got this elevated volatility ragiume And just
Speaker 1: look at the term structure of the VIX at the
Speaker 1: moment Albert, so counterintuitively, it is still inverted. Can we
Speaker 1: remain like this for a lot longer? I think so.
Speaker 1: The short answer is financial markets are a lot more
Speaker 1: fragile with corninative easing. For ten years, we had a
Speaker 1: recovering the economy, but we have built fragilities embedded in
Speaker 1: the market. Investors have been buying equities for yields, have
Speaker 1: been buying bonds for capital gains. A lot of investors
Speaker 1: have been selling volatility, and markets overall have become a
Speaker 1: lot more one sided, with more passive strategies that that
Speaker 1: heard into the same trades. So we end up with
Speaker 1: a pyramid of trades that we've discussed over the last month,
Speaker 1: where a lot of trades, a lot of strategies depend
Speaker 1: on continued fiscal continued march ary steamuless, on interest rates
Speaker 1: staying low, and political stability, and gradually some of the
Speaker 1: assumptions at the bottom of the pyramids are are are
Speaker 1: basically falling apart. So I think the market, you know,
Speaker 1: we're still in a growing economy, but the market needs
Speaker 1: to deal with this increased fragility. Volatility is going to
Speaker 1: remain high, and this is one of the trades I
Speaker 1: like the most to to to bet on volatility staying
Speaker 1: in a higher range within that bet. Are there a
Speaker 1: lot of opportunities out there? Or is there Vertegalo managing
Speaker 1: for the coupon? I mean, can you actually may whether
Speaker 1: you go along short or whatever the creative aspect is
Speaker 1: the trade. Can you can you actually make a trade happen,
Speaker 1: you know, and get a total return or is it
Speaker 1: to manage to the coupon? In fixed income, we're with
Speaker 1: stills think that duration outside of the US is interesting.
Speaker 1: So European periphery and also emerging market local currency bonds
Speaker 1: in Russia and Brazil. So there is a flight of
Speaker 1: capital away from the U S which has been increasing
Speaker 1: over the last you know, ten years, has been the
Speaker 1: destination of a lot of the serve into other assets.
Speaker 1: So it fixed to come at relative trade works. In equities,
Speaker 1: we're focusing on shorts. Johnny, you want a theme for April?
Speaker 1: What Mr Gallo just said there the bad the idea,
Speaker 1: the observation of money moving out of the US. That's
Speaker 1: a really interesting trend. I think that's been a trend
Speaker 1: through the first quarter as well. A lot of people
Speaker 1: talking about that after the back of some of the
Speaker 1: issues the market issues here in the United States. How bad.
Speaker 1: I didn't miss that short equities, short equities where because
Speaker 1: as a house Algebras has been incredibly bullish on the
Speaker 1: continent in Europe. So so where are you short equities?
Speaker 1: I mean, overall, we still keep a positive bias because
Speaker 1: the economy has grown in but we've been buying protection
Speaker 1: on these sectors that we you know, we thought were
Speaker 1: the most over valued. So we're talking about the US
Speaker 1: and and tech and you know, no one knows if
Speaker 1: the correction has been uh, if the correction is done now,
Speaker 1: But generally the markets which we think are still undervalued
Speaker 1: are emerging markets Europe and Japan, which haven't benefited from
Speaker 1: earnings uplift over the last five six months as much
Speaker 1: as the US and and you know, haven't benefited from
Speaker 1: investor flows as much. So valuations are lower and earning
Speaker 1: earning expectations are a little bit more moderate outside of
Speaker 1: the US. Now, obviously, the question is whether there will
Speaker 1: be another big tail event, another big sell off. No
Speaker 1: one knows the answer to that um, but generally, you know,
Speaker 1: we're we're mildly cautious at the moment um we're closing
Speaker 1: some of our shorts as the market has already corrected again,
Speaker 1: but we do think volatility will stay in a high range.
Speaker 1: So UM, I don't think we are going to go
Speaker 1: back to goldilocks now. Bet so. Your bread and butter
Speaker 1: is credit, and credit hasn't been great in Europe over
Speaker 1: the last month or so. It's been phenomenal since the
Speaker 1: c B started its bombining program. Where are you guys
Speaker 1: on credit right now Europe versus the US, and how
Speaker 1: are you exposed for it? We're looking for places to hide.
Speaker 1: There's less, less and less. Europe is still one of them.
Speaker 1: Balance feets are less levered than the U S. D.
Speaker 1: C B is still very dorvish and worries about periphery spread.
Speaker 1: So in Europe you still have UM, you still have Greece,
Speaker 1: you still have Portugal, and also BTPs in Italy didn't widen,
Speaker 1: even though the election outcome is uncertain, because there is
Speaker 1: demand for substitutes to to dollar assets. Bank debt. Banks
Speaker 1: are going to do better in an inflation in an
Speaker 1: environment where inflation is slowly picking up an interest rate
Speaker 1: or slowly picking up globally, so there's a few niches.
Speaker 1: There is not trade with a massive capital appreciation, but
Speaker 1: you can get a decent coupon in some markets were
Speaker 1: central banks are still Dobbs Alberta Gala, thank you so
Speaker 1: much with Algebras this morning greatly. I appreciate John. That's
Speaker 1: always valuable. You know he's got he's got a real
Speaker 1: European focus. I get there was work at Royal Bank
Speaker 1: of Scotland for years, but it's really interesting about flows.
Speaker 1: It's something I gotta read a lot more about. Yeah,
Speaker 1: and now Better, let's be very clear, has done a
Speaker 1: phenomenal job moving from RBS to to Algebras to head
Speaker 1: up the macro Credit Fund, to Algebras delivering a one
Speaker 1: year return tom in credit over the last year, which
Speaker 1: I think is really significant in the global bond market
Speaker 1: and credit markets have just over seven percent, which is
Speaker 1: one had have a return over the last year for
Speaker 1: many credit investors. Yeah, that was with smoke and or mirrors,
Speaker 1: um smoking a couple of merrors. N Better Gallop Algebra's
Speaker 1: head of macro strategist John Farrell, and Tom Keane with
Speaker 1: this now seth masters for years with Bernstein. He's now
Speaker 1: a private investor looking at Angel like companies. John wants
Speaker 1: to go to Spotify, and I want to do that.
Speaker 1: But quickly here, you are fluent in Mandarin. Right, did
Speaker 1: your mother make you do that? And for a third
Speaker 1: grade or fifth grade or something? No, I did that
Speaker 1: in college. To myself, you inflicted it upon yourself. What
Speaker 1: do you think of striving Upper East Side mothers that
Speaker 1: go you need to learn Mandarin? How do you respond
Speaker 1: to that? I think it's um predictable because the same
Speaker 1: people would have been saying, you've got to learn Japanese
Speaker 1: and exactly um. But I hope that some of the
Speaker 1: kids come out of that really enriched with the ability
Speaker 1: to at least a culture in the history. Yeah, John,
Speaker 1: I had a little different upbringing. My mother looked at
Speaker 1: me and said, you've got to learn English. You know
Speaker 1: where that one. Let's go to spot that work. I'm
Speaker 1: still trying to work it out. Seth. It's always great
Speaker 1: to get your insight on on something. And what I
Speaker 1: think is really interesting about Spotify today is no new shares,
Speaker 1: no new capital, just setting a price in public markets,
Speaker 1: and what we've seen over the last few years in
Speaker 1: private markets, it's incredibly rich valuations and money just literally
Speaker 1: flooding flying towards absolutely everything and anything because an angel investor. Now,
Speaker 1: do you look at that situation in private markets as
Speaker 1: one of which whether it's too much cash being thrown
Speaker 1: at everything, or do you draw a line somewhere to
Speaker 1: say that, actually it doesn't work like that. Well, it's
Speaker 1: a really great question, and I think it's very nuanced
Speaker 1: because there are different segments of that market. When companies
Speaker 1: are first started, they actually aren't necessarily that highly priced
Speaker 1: because the risk is stratospheric. Very few new companies actually
Speaker 1: succeed as they moved through the process of success, though
Speaker 1: at some point they become attractive to venture capitalists and
Speaker 1: maybe then to private equity investors. And what's happened is
Speaker 1: so much money has gone into equity funds and venture
Speaker 1: capital funds that I think right now those areas have
Speaker 1: gotten extremely fully priced, or probably overpriced. That's why we're
Speaker 1: seeing more down rounds and also more I p O
Speaker 1: s coming out below the last private valuation. Well, it's
Speaker 1: very hard to get a read on what Spotify will
Speaker 1: actually price that today there is no IPO price. They
Speaker 1: will bring this to market, they'll bring the bus and
Speaker 1: sellers together and hopefully they'll establish a price in a
Speaker 1: couple of hours, but when there will be a price
Speaker 1: there eventually, But it's very hard to gauge from what
Speaker 1: happened in the private markets what will ultimately happen in
Speaker 1: the public markets. How do you gauge at the moment
Speaker 1: the ability of these companies to go from being private
Speaker 1: to going public and achieving the kind of valuations they've
Speaker 1: achieved in private markets. Well, I think it depends on
Speaker 1: two things. Um One is the specifics of the individual
Speaker 1: deal and to the overall environment in which it happens.
Speaker 1: And the problem is these companies don't control the ladder.
Speaker 1: Spotify probably dearly wishes it had done this a month
Speaker 1: or two ago, but now it's too late to fix that, right.
Speaker 1: The only thing they can do is run their business
Speaker 1: as effectively as they can. And look, the reason that
Speaker 1: they're doing this is because they know they need to
Speaker 1: provide some liquidity to some of their investors and and
Speaker 1: and keep key talent. That's that's what this is about.
Speaker 1: I read the zeitgeist today, and folks, I want to
Speaker 1: make clear Spotify is gone beyond usual Wall Street talk
Speaker 1: to actually people are curious about this transaction. Mark Mahaney.
Speaker 1: RBC Capital has got a big pop out to two
Speaker 1: hundred dollars for share Fine. The real under the real
Speaker 1: backstory is how institutional shareholders will behave versus retail. Do
Speaker 1: you buy that idea that there are two different markets
Speaker 1: and they will react differently on a transaction? Uh, well, yeah,
Speaker 1: I think that there there's truth in that. It's also
Speaker 1: to that institutions are not monolithic and sometimes neither our
Speaker 1: retail investors. The whether or not those two forces coincide
Speaker 1: is the key question, because if you have a lot
Speaker 1: of excitement from both institutions and retail, that's when you
Speaker 1: get nice pops um. Sometimes though, you actually have cross currents.
Speaker 1: I don't know what will happen, obviously, and it's fair
Speaker 1: you don't know, I don't know fair, or you know
Speaker 1: what's going to happen. Jack, I'm looking at the spread
Speaker 1: of buys on Spotify today and the buys go from
Speaker 1: target prices of eight to a target price of T twenty.
Speaker 1: I would say that spread on the buys just tells
Speaker 1: you that many of these analysts have no idea where
Speaker 1: this is going to price today. I would also say,
Speaker 1: based on this Spotify IPO just raise a question whether
Speaker 1: the I p O now is just about the exit
Speaker 1: and not raising capital and whether that's a broader story
Speaker 1: or whether that's a Spotify story. Which one is it?
Speaker 1: Seth I think it can be either. I think it
Speaker 1: depends on whether or not you need to raise capital
Speaker 1: or whether you need to provide some liquidity to the
Speaker 1: moment in private markets if you want to raise capital,
Speaker 1: which you can, So why go public? Where did we Well?
Speaker 1: I don't mean to interrupt, I just this is can
Speaker 1: you can we get set Masters back for our six
Speaker 1: hour program we're doing on Spotify program. We're doing six
Speaker 1: hours Spotify for this is fascinating. Seth Masters, thank you
Speaker 1: so much today and we've got to get you back
Speaker 1: to continue this discussion when Spotify is either eighty or
Speaker 1: what was the other bye? That's from our BC. That's
Speaker 1: that's Mr Mahany. Yeah, when he's a full disclosure. Mr
Speaker 1: Mahoney has a respect of Bloomberg Surveillance as well. Seth
Speaker 1: Masters for years with Bursday and we thank him as
Speaker 1: he goes out and looks for angelic type of companies.
Speaker 1: Michael Jesus with Morgan Stanley, John Farrell help us with
Speaker 1: Michael's USUS son Washington, Morgan Stanley's chief US public policy strategist,
Speaker 1: Michael J's tech getting absolutely hammered over the last few weeks,
Speaker 1: and the presidents had had a hand to play this administration.
Speaker 1: Are we going to see the policy or just the rhetoric? Well,
Speaker 1: the rhetoric at first. Uh. And so the first and
Speaker 1: foremost when it comes to to any kind of regulation
Speaker 1: or tech regulation in particular, is you gotta know exactly
Speaker 1: what you want to regulate and how you want to
Speaker 1: regulate it. And as far as we can see, policymakers
Speaker 1: are still trying to understand the complexity of the issue.
Speaker 1: So um uh. And you know, there's not much existing
Speaker 1: law that we can tell that the president can sort
Speaker 1: of act on unilaterally by kind of rewriting regulation. So um.
Speaker 1: I think the pressure is clearly there. There's clearly a
Speaker 1: bipartisan push um for more regulatory issues on on tech,
Speaker 1: but it's unclear exactly what the path is. So you
Speaker 1: have to you have to praise in that Washington serious
Speaker 1: about this, But what exactly it's gonna look like it's
Speaker 1: going to take wild developed? Well, Michael human, Washington is
Speaker 1: serious about what because there's a bipartisan pushing Congress, I
Speaker 1: assume around the personal data issue. Then within the White
Speaker 1: House there's a separate issue. The President seems to be
Speaker 1: renewing his attack on Amazon. They're two very very different stories.
Speaker 1: What do you lend more weight to at the moment
Speaker 1: as far as you think something might actually happen in
Speaker 1: terms of policy. Well, you know, the the Amazon thing
Speaker 1: is interesting in the sense that it don't clear me
Speaker 1: exactly what the president wants to do, so we're paying
Speaker 1: a lot of attention to it. But you know, other
Speaker 1: than the President expressing a grievance on Amazon, which is
Speaker 1: which you know, by his own words, is related to
Speaker 1: um their media coverage of him as well, it's hard
Speaker 1: to suss out exactly what he wants to change there.
Speaker 1: Whereas the tech regulatory issue, there's actually some some clear
Speaker 1: grievances that need to be addressed. So it's hard for
Speaker 1: me to gain out exactly what the US hypothechically could
Speaker 1: do on Amazon. It's not sure where they want to
Speaker 1: change the tech issue there. There's there's some clear implications
Speaker 1: of what they want to do. Is just a question
Speaker 1: of taking time to actually get down that path. When
Speaker 1: you dovetail your work with your economist, Ellen Zanner. How
Speaker 1: do you treat the new fiscal policy and fiscal realities
Speaker 1: to come? Is it a second quarter event or does
Speaker 1: that way for later in the year. Um, probably more
Speaker 1: of a later in the year story. So we've been
Speaker 1: talking a lot about UM, what fiscal policy actually delivers,
Speaker 1: and you know, we think it's it's pretty clear what
Speaker 1: it delivers from a macro perspective. It adds a few
Speaker 1: tens um, you know our GDP. But you know, the
Speaker 1: question is, UM, what do we actually get for those deficits?
Speaker 1: And UM, do we get something more sustainable beyond that?
Speaker 1: And a lot of that is gonna have to do
Speaker 1: with corporate behavior and what some of the corporate incentives
Speaker 1: created by tax reforms were. And some of our questions
Speaker 1: are basically, UM, did we actually extend the cycle? And
Speaker 1: if not, UM, if the cycle is going to kind
Speaker 1: of end or start to slow around the same time
Speaker 1: as some of these corporate incentives created by tax reforms
Speaker 1: start to roll off, like immediate expensing um, and they
Speaker 1: could possibly sync up with things like a more restrictive
Speaker 1: intersductibility on the corporate side, you get a lot of
Speaker 1: pro cyclical behavior um at the wrong time. So you know,
Speaker 1: all we think about is we we know, we know
Speaker 1: almost by definition that growth is better this year than
Speaker 1: it would have been um without the tax reform. But
Speaker 1: what do they get us beyond that? That's what we
Speaker 1: have to price in now. And that's a lot more complicated.
Speaker 1: And and would you agree with me that within the
Speaker 1: machinery of fiscal analysis, we really haven't seen good analysis yet.
Speaker 1: I mean, this stuff is heavy lifting, and that comes
Speaker 1: in April, we're gonna begin to see people really think
Speaker 1: about what the dynamics are of guns and butter financing. Yeah,
Speaker 1: I mean, I think that's right. And there was obviously
Speaker 1: the big debate around tax reform as to how much
Speaker 1: it would really increase the deficit. The static analysis was
Speaker 1: one a half trillion and um, the dynamic analysis said
Speaker 1: it'll only be you know, once a one point two.
Speaker 1: And you know, then if you believe the president's rhetoric
Speaker 1: or some of the you know, the real optimists within
Speaker 1: his own parties to actually I think it was Secretary
Speaker 1: of Manuchi and who said, actually, we're gonna um get
Speaker 1: in next for a trillion dollars of revenue office it's
Speaker 1: not ann increase the depths at all. Um So the
Speaker 1: the the sort of truer depth inside of the story
Speaker 1: starts to become more clear over the course of the year.
Speaker 1: And you know, then of course the question is, uh,
Speaker 1: you know, going forward over the long term, um, have
Speaker 1: we done as much as we can you know, cumulatively
Speaker 1: in terms of fiscal expansion. Is the room for more
Speaker 1: fiscal expansion in the next downturn? And that's hypothetically one
Speaker 1: of the um you know, one of the issues we
Speaker 1: had that markets are gonna have to account for it
Speaker 1: here and I think it's one of the real you know,
Speaker 1: there's a whole host of policy issues where in seventeen
Speaker 1: you've got good stuff, you've got to account for the
Speaker 1: more complicated story. This is one of them. It's not
Speaker 1: the only thing that's driving markets, but it adds to
Speaker 1: the volatility. And Jim Farrell Michaels has had a great,
Speaker 1: great concept which was this is the dessert before vegetables.
Speaker 1: President O, you would understand that, so you'd have you
Speaker 1: have the chocolate in the ice cream, have the fancy
Speaker 1: expensive cakes that you're known to wander by with. I
Speaker 1: understand you have your less like what children would do. Yes, yeah,
Speaker 1: you do it the other way around. I still do
Speaker 1: because I'm an adult now and I can. Michael Jesus.
Speaker 1: Just to wrap things up, the third policy tool that
Speaker 1: I want to get to you is with trade. And
Speaker 1: we're reporting this morning that NAFTA and the United States,
Speaker 1: the United States pushing NAFTA partners to come up with
Speaker 1: a preliminated deal to announce next week. Do you see
Speaker 1: things settling down on the trade side or ramping up again?
Speaker 1: Can I say both? You can, but you've gotta tell
Speaker 1: me where. Yeah. Yeah, well so, I mean the problem is,
Speaker 1: or at least the problem from an investor's perspective, is
Speaker 1: that in order for the administration to achieve what it
Speaker 1: probably wants to achieve here, which is a relatively benign
Speaker 1: negotiative outcomes, both in terms of NAFTA and in terms
Speaker 1: of China, Uh, it's following a negotiating path that requires
Speaker 1: them to kind of ramp up the risk, ramp up
Speaker 1: the escalatory rhetoric. And so you follow a risky path,
Speaker 1: you sort of play with fire to get to um
Speaker 1: hopefully a benign outcome. So because of that, you're supposed
Speaker 1: to think about this at least from our perspective, we're
Speaker 1: supposed to think about this as we're ultimately going to
Speaker 1: end up in a place it's not two different economically
Speaker 1: from where we started. But the risk that we deviate
Speaker 1: from that path along the way um is pretty bad.
Speaker 1: So there's going to be we think, in the end,
Speaker 1: a fair amount of the escalation, but there's a lot
Speaker 1: of escalation in the interim. So it kind of feels
Speaker 1: like we're headed towards smooth Holly, but we ultimately end
Speaker 1: up in a place that looks more like Bush two
Speaker 1: steel terrfors and was certainly nowhere near smooth Holy. Let's
Speaker 1: be let's be clear about that. The average tariff of
Speaker 1: the United States compared to its compared to yesteryear is
Speaker 1: radically different. Michael Jesus, thank you so much, Morgan Stanley,
Speaker 1: James Sweeney, whar this with Credit sweetz always eighteen ways
Speaker 1: to go with James Sweeney, Let's start there in the
Speaker 1: micro data with the chief economists for for Credit sweet
Speaker 1: Um James Sweeney. When you look at frequent data, monthly data,
Speaker 1: is that more valuable or do you want more smoothed
Speaker 1: quarterly and annual data which has better value? Well, It
Speaker 1: really depends on what the question is. But we do
Speaker 1: we do spend a lot of time in the in
Speaker 1: the short term month on months data, but we basically
Speaker 1: I would say that view has more of a kind
Speaker 1: of quarterly so we we kind of have a sense
Speaker 1: of what the noise is and what the signal is.
Speaker 1: Right now, there's a slowdown in manufacturing growth momentum globially,
Speaker 1: and understanding the kind of very high frequency data is
Speaker 1: really the best way to see that. I bring that
Speaker 1: up because right now a massive conundrum over our economic
Speaker 1: growth where we are what the one quarter winter subpar
Speaker 1: Q one is versus where we're gonna be Let me
Speaker 1: not ask a dumb question, because give us a general
Speaker 1: statement on the Credit Suites view on America's economic growth. Well,
Speaker 1: America's economic growth is quite good right now. So I mean,
Speaker 1: the labor market has been delivering around four and a
Speaker 1: half percent annualized growth in in total nominal labor income.
Speaker 1: So just add up everyone's paychecks. They've been growing at
Speaker 1: four and a half percent for about ten years. That
Speaker 1: that growth is essentially continuing. So the mix of what's
Speaker 1: driving it is a jobs as it wages shifting is
Speaker 1: shifting a little bit. But basically that the payroll income
Speaker 1: is coming in, um, that's going a little bit farther
Speaker 1: because taxes have gone down a little bit recently. And
Speaker 1: on the business side, profit income is strong and businesses
Speaker 1: are getting a little more confident and investment plans are rising.
Speaker 1: So if you're looking at consumption and investment, the data
Speaker 1: have been good, real rightly, the outlook is good. It's
Speaker 1: it's further by basically income and cash flows and you know, otherwise,
Speaker 1: you know, trade a little. The drag, housing it the
Speaker 1: drag from the thirty thousand foot view of James Sweeney,
Speaker 1: we go down to the reality. John Tucker joining us
Speaker 1: at this morning. Are we seeing pay up in Texas down?
Speaker 1: Mr Tucker, Well, with the payroll, yeah, they're they're taking
Speaker 1: less out of my paycheck. But just just sending my
Speaker 1: cough and ignore him. This is important. But the property
Speaker 1: taxes are going up. James Sweeney. I bring this up
Speaker 1: because we get huge mail when guys like you saying
Speaker 1: comes her up and Texas are down, and most of
Speaker 1: our our our listeners and viewers just say, really, so,
Speaker 1: so where is Texas down? Where our taxes down? So well,
Speaker 1: withholding this are down according to the new withholding schedule,
Speaker 1: so you know, basically disposed income after tax and come
Speaker 1: we'll go up a little faster than it did last year. Um,
Speaker 1: So it's it's straightforward. I mean, whether that should change
Speaker 1: the outlook for the economy is essentially is a different question.
Speaker 1: I mean, we know that taxes have gone down most
Speaker 1: of the people who are paying that most taxes, which
Speaker 1: are very high income people. So you know, we don't
Speaker 1: have the consumption outlook profoundly interesting. As a result of
Speaker 1: the tax tax plan. There was a great bloom review
Speaker 1: piece North Smith, I believe, which really emphasized our need
Speaker 1: to grow exports in America. What is the export import
Speaker 1: dynamic now is we try to figure out where economic
Speaker 1: growth is well. The big change is a lot of
Speaker 1: the tech sector has basically left the country in the
Speaker 1: last ten or fifteen years and moved to Asia. And
Speaker 1: so what that means is when you have this kind
Speaker 1: of stimulus and this pickup in business investment that we're seeing,
Speaker 1: then you're naturally going to get a surgeon imports. And
Speaker 1: we are getting that surge and imports now. So no,
Speaker 1: our exports are benefiting somewhat from good global growth. And
Speaker 1: global trade volumes which are rebounding from slump from a
Speaker 1: couple of years ago. But um, but really the short
Speaker 1: term story is that imports are surging business equipment. I mean,
Speaker 1: one of the most stunning charts we have is the
Speaker 1: is the trade balance in capital goods, which as a
Speaker 1: share of capital goods sales in the US is kind
Speaker 1: of more than minus fift in deficit right now. And
Speaker 1: it used to be kind of used to meaning ten
Speaker 1: years ago, used to be kind of close to flat
Speaker 1: on on trend. So we've moved into this enormous structural
Speaker 1: trade deficit in capital goods, which includes a lot of
Speaker 1: business equipment. And the reason is because a lot of
Speaker 1: factories basically have relocated to Asia in the last in
Speaker 1: the last fifteen years. So in a roundabout sense, all
Speaker 1: this stimulus and this pickup in business activity, which is
Speaker 1: increasing GDP on the investment line, is subtracting GDP on
Speaker 1: the trade balance line through this surge of imports, and
Speaker 1: hence the decline in the in the in the kind
Speaker 1: of net trade number got to can't tell me the
Speaker 1: Credit Swits managing director and chief economists, thanks for listening
Speaker 1: to the Bloomberg surveillance podcast. Subscribe and listen to interviews
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Speaker 1: I'm on Twitter at Tom Keene before the podcast. You
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