1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,920 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,519 Speaker 2: Terminal and the Bloomberg Business app. Sarah Hunt of Alpied 10 00:00:37,560 --> 00:00:40,840 Speaker 2: Saxon words, writing this, the totality of the data seems 11 00:00:40,880 --> 00:00:44,440 Speaker 2: to have shifted, and that was a certainty last week, 12 00:00:44,680 --> 00:00:48,720 Speaker 2: sticking the soft landing now is being called into questions. 13 00:00:48,720 --> 00:00:50,519 Speaker 2: Sarah joins us now from Well, Sarah, good morning to you. 14 00:00:50,600 --> 00:00:51,120 Speaker 3: Good morning. 15 00:00:51,159 --> 00:00:54,480 Speaker 4: What changed to eight thirty Eastern time on Friday mornch I. 16 00:00:54,480 --> 00:00:57,120 Speaker 3: Think it started to change on Thursday and Friday, just 17 00:00:57,240 --> 00:00:59,680 Speaker 3: confirm the fact that the data was in fact getting weaker. 18 00:00:59,720 --> 00:01:03,040 Speaker 3: Those im numbers were weak on the manufacturing side, and 19 00:01:03,080 --> 00:01:05,039 Speaker 3: then you had a payrolls report that was much weaker 20 00:01:05,120 --> 00:01:07,280 Speaker 3: than people expected and There's been a lot of controversy 21 00:01:07,280 --> 00:01:11,640 Speaker 3: on the Perils Report of how much of how easy 22 00:01:11,720 --> 00:01:13,600 Speaker 3: is it to interpret the data, and whether or not 23 00:01:13,640 --> 00:01:15,760 Speaker 3: the birth death model makes a lot of difference. And 24 00:01:15,760 --> 00:01:17,840 Speaker 3: when the numbers were high, nobody worried, and now that 25 00:01:17,840 --> 00:01:19,840 Speaker 3: the numbers are coming down, people are really starting to 26 00:01:19,840 --> 00:01:22,080 Speaker 3: worry and you start to hear that conversation again, like 27 00:01:22,120 --> 00:01:24,400 Speaker 3: how strong was it really all year? And how strong 28 00:01:24,440 --> 00:01:26,120 Speaker 3: is employment? And I think that that's part of the 29 00:01:26,120 --> 00:01:28,759 Speaker 3: problem that you're having, and it just reinforced the fact 30 00:01:28,800 --> 00:01:30,000 Speaker 3: that you had weak ism numbers. 31 00:01:30,040 --> 00:01:32,480 Speaker 2: Let's shop up the equity market seven percent move lower 32 00:01:32,520 --> 00:01:36,160 Speaker 2: almost on small camps. Last week, financials got battered on Friday, 33 00:01:36,160 --> 00:01:38,360 Speaker 2: text get in hambered. This morning, banks it down again. 34 00:01:38,640 --> 00:01:40,640 Speaker 2: Is there any think about these moves that you want 35 00:01:40,680 --> 00:01:43,679 Speaker 2: to pick up the pieces anywhere anywhere at all? 36 00:01:43,760 --> 00:01:45,959 Speaker 3: I think the place that most people are going to 37 00:01:45,959 --> 00:01:47,880 Speaker 3: want to pick up the pieces is going to be technology. 38 00:01:47,920 --> 00:01:49,920 Speaker 3: Because I think you had a guest on earlier this 39 00:01:49,960 --> 00:01:51,840 Speaker 3: morning that made the point that the small cap trade 40 00:01:51,840 --> 00:01:53,360 Speaker 3: in the bank trade didn't make a lot of sense 41 00:01:53,360 --> 00:01:55,160 Speaker 3: if you thought the economy was going to get weaker. 42 00:01:55,400 --> 00:01:58,120 Speaker 3: So I would say that that also is true, and 43 00:01:58,160 --> 00:02:00,120 Speaker 3: that was one of those what else can we buy 44 00:02:00,120 --> 00:02:01,960 Speaker 3: trades as opposed to we really need to be in 45 00:02:02,000 --> 00:02:04,280 Speaker 3: these sectors right now. I think that some of what's 46 00:02:04,280 --> 00:02:06,600 Speaker 3: happening in tech is just you haven't really had a 47 00:02:06,600 --> 00:02:09,640 Speaker 3: correction in a long time. You had this market running 48 00:02:09,720 --> 00:02:12,120 Speaker 3: right up from January to July, and then we did 49 00:02:12,120 --> 00:02:14,480 Speaker 3: a complete U turn. So I think that that's where 50 00:02:14,480 --> 00:02:17,079 Speaker 3: people are going to want to be. To day Ive's point, 51 00:02:17,080 --> 00:02:18,480 Speaker 3: I don't think it's the end of the world, but 52 00:02:18,520 --> 00:02:21,640 Speaker 3: it certainly is a very fast correction and a very 53 00:02:21,639 --> 00:02:25,000 Speaker 3: strong correction when people were not necessarily expecting this much drama. 54 00:02:25,240 --> 00:02:27,440 Speaker 3: But you have so much that's happening on an unwind 55 00:02:27,480 --> 00:02:28,919 Speaker 3: of the carry trade. To your point on the end, 56 00:02:29,400 --> 00:02:32,640 Speaker 3: there's so many different mechanical pieces underneath that it's hard 57 00:02:32,680 --> 00:02:34,959 Speaker 3: to parse them all out because they're not obvious. It's 58 00:02:35,000 --> 00:02:37,560 Speaker 3: not one thing like earnings were terrible. They weren't, they 59 00:02:37,560 --> 00:02:39,600 Speaker 3: were okay. It's just a lot of different pieces. 60 00:02:39,680 --> 00:02:40,880 Speaker 5: But I wonder, even if tech. 61 00:02:40,800 --> 00:02:43,760 Speaker 6: Is the trade, is some of that huge enthusiasm we 62 00:02:43,800 --> 00:02:46,680 Speaker 6: had over AI. It's not just done in a market 63 00:02:46,800 --> 00:02:48,679 Speaker 6: where you need to worry about whether the FED is 64 00:02:48,720 --> 00:02:50,519 Speaker 6: going to cut or not. Can you really be so 65 00:02:50,600 --> 00:02:53,320 Speaker 6: hopeful on giving those companies more time to let their 66 00:02:53,360 --> 00:02:54,919 Speaker 6: AI plays play out. 67 00:02:55,160 --> 00:02:55,959 Speaker 1: Well, if you think. 68 00:02:55,800 --> 00:02:58,040 Speaker 3: About some of the parallels that the people had made 69 00:02:58,080 --> 00:02:59,760 Speaker 3: to like the two thousands, right, you had a lot 70 00:02:59,800 --> 00:03:02,240 Speaker 3: of companies in the two thousands that were selling to 71 00:03:02,840 --> 00:03:05,160 Speaker 3: customers that didn't have any money, so they were financing 72 00:03:05,200 --> 00:03:08,520 Speaker 3: their own customers. It was a whole different situation than what's. 73 00:03:08,320 --> 00:03:09,200 Speaker 5: Happening right now. 74 00:03:09,400 --> 00:03:11,880 Speaker 3: I think that AI is like dark fiberback then. People 75 00:03:11,919 --> 00:03:14,240 Speaker 3: are putting in capacity because they're not sure exactly how 76 00:03:14,240 --> 00:03:15,960 Speaker 3: they're going to use it, but they're pretty sure they're 77 00:03:15,960 --> 00:03:17,520 Speaker 3: going to find a use for it. Is that as 78 00:03:17,520 --> 00:03:18,880 Speaker 3: fast as people expect it to be? 79 00:03:18,960 --> 00:03:19,520 Speaker 5: Probably not. 80 00:03:19,760 --> 00:03:21,040 Speaker 4: Is it what people expect it to be. 81 00:03:21,080 --> 00:03:21,680 Speaker 1: It never is. 82 00:03:21,720 --> 00:03:24,480 Speaker 3: It always changes, So I don't think that that goes away. 83 00:03:24,520 --> 00:03:27,080 Speaker 3: And the companies that are bankrolling spending on this have 84 00:03:27,160 --> 00:03:29,840 Speaker 3: a ton of money. It's not like they're in trouble 85 00:03:29,880 --> 00:03:32,320 Speaker 3: in any way, shape or form. But the timing was 86 00:03:32,360 --> 00:03:34,239 Speaker 3: always going to be, you know, wall streets. 87 00:03:33,919 --> 00:03:34,640 Speaker 5: So quick immediate. 88 00:03:34,680 --> 00:03:36,560 Speaker 3: I need to know immediately what's going to happen, And 89 00:03:36,600 --> 00:03:37,920 Speaker 3: that's not the way it's playing out. 90 00:03:37,960 --> 00:03:38,760 Speaker 5: And I think that that's. 91 00:03:38,640 --> 00:03:39,920 Speaker 3: Part of what you're seeing here as well. 92 00:03:40,000 --> 00:03:41,920 Speaker 6: But even so, when you do see these stocks swing 93 00:03:41,920 --> 00:03:43,720 Speaker 6: to the upside, the moves are huge. I mean, you 94 00:03:43,800 --> 00:03:46,680 Speaker 6: get again one hundred billion plus dollar moves on the 95 00:03:46,760 --> 00:03:49,320 Speaker 6: upside or on the downside for just a single name 96 00:03:49,600 --> 00:03:51,920 Speaker 6: like Nvidia. Does that make it harder just to stomach 97 00:03:51,960 --> 00:03:53,280 Speaker 6: to hold on to the ride. 98 00:03:53,720 --> 00:03:55,800 Speaker 3: It's one of the reasons why you're not supposed to 99 00:03:55,840 --> 00:03:57,760 Speaker 3: look at your wordfolo every day, right, But we do 100 00:03:57,880 --> 00:03:59,960 Speaker 3: anyway because that's what that's what we do for a living. 101 00:04:00,280 --> 00:04:02,320 Speaker 3: And I think the problem is just you had to 102 00:04:02,360 --> 00:04:04,400 Speaker 3: love large numbers. With a lot of these tech companies. 103 00:04:04,400 --> 00:04:07,200 Speaker 3: The earnings moved so fast fro Nvidia in particular because 104 00:04:07,200 --> 00:04:09,480 Speaker 3: people were scooping up those ships and they were being 105 00:04:09,480 --> 00:04:11,400 Speaker 3: able to charge higher prices for them. So then the 106 00:04:11,480 --> 00:04:13,600 Speaker 3: question becomes, Okay, when things settle down, what kind of 107 00:04:13,600 --> 00:04:15,800 Speaker 3: pricing can they get an amdal All of a sudden, 108 00:04:15,800 --> 00:04:17,719 Speaker 3: theres now becoming a player, which people thought that they 109 00:04:17,760 --> 00:04:19,160 Speaker 3: would be, but that didn't seem to be. And then 110 00:04:19,160 --> 00:04:20,720 Speaker 3: all of a sudden their earnings were good and they 111 00:04:20,720 --> 00:04:22,560 Speaker 3: were like, yes, look out for us. So there's a 112 00:04:22,600 --> 00:04:25,119 Speaker 3: lot of moving parts, and yes, those things swing around 113 00:04:25,120 --> 00:04:25,400 Speaker 3: a lot. 114 00:04:25,560 --> 00:04:26,960 Speaker 2: Let's just sit on the FED just for a moment. 115 00:04:27,120 --> 00:04:28,880 Speaker 2: You'll catch up with ed Ouh Senning a little bit 116 00:04:28,920 --> 00:04:31,480 Speaker 2: later this hour. He draws the distinction between a FED 117 00:04:31,480 --> 00:04:34,919 Speaker 2: cutting to become less restrictive and a FED cutting to 118 00:04:34,920 --> 00:04:37,800 Speaker 2: become accommodative. And I'm trying to work out where we're 119 00:04:37,800 --> 00:04:40,480 Speaker 2: going to be in September. Are we cutting to normalize 120 00:04:40,800 --> 00:04:42,680 Speaker 2: or are we cutting to address a growth shock, because 121 00:04:42,680 --> 00:04:44,880 Speaker 2: that's very different things. And I just wonder how different 122 00:04:44,920 --> 00:04:47,840 Speaker 2: your captain adication decisions would be based on what kind 123 00:04:47,839 --> 00:04:49,520 Speaker 2: of decision we actually get in September. 124 00:04:49,839 --> 00:04:51,640 Speaker 3: Well, that's part of the U turn, right, And that's 125 00:04:52,040 --> 00:04:53,880 Speaker 3: If the FED had cut last week, which I would 126 00:04:53,920 --> 00:04:56,120 Speaker 3: argue that they should have at least twenty five basis points, 127 00:04:56,440 --> 00:04:58,520 Speaker 3: then I think the amplitude of this would have been lower. 128 00:04:58,680 --> 00:05:01,040 Speaker 3: You still would have had a direction downtrend, but I 129 00:05:01,040 --> 00:05:03,280 Speaker 3: don't know if the amplitude would have been so high. 130 00:05:03,440 --> 00:05:05,640 Speaker 3: And I think part of the problem is that's what 131 00:05:05,720 --> 00:05:08,840 Speaker 3: they were moving towards, which is cutting to normalize, and 132 00:05:08,880 --> 00:05:11,680 Speaker 3: now the growth scares is making that shift to maybe 133 00:05:11,680 --> 00:05:13,880 Speaker 3: they're cutting because they have to and that's where the 134 00:05:14,600 --> 00:05:16,480 Speaker 3: fifty basis points I think is a push because I 135 00:05:16,520 --> 00:05:19,400 Speaker 3: don't think that they want to look that worried about 136 00:05:19,400 --> 00:05:20,200 Speaker 3: it in September. 137 00:05:20,480 --> 00:05:21,680 Speaker 4: But I think that if. 138 00:05:21,560 --> 00:05:23,200 Speaker 3: There really is a growth scare, I mean, we've been 139 00:05:23,200 --> 00:05:25,719 Speaker 3: trying to position for slower growth anyway, so it's not 140 00:05:26,400 --> 00:05:29,719 Speaker 3: like that's going to change our allocation too much. But 141 00:05:29,800 --> 00:05:33,359 Speaker 3: in the end, this quick turn from markets and perception 142 00:05:33,400 --> 00:05:35,719 Speaker 3: and investors from it's all fine, and we still have 143 00:05:35,760 --> 00:05:37,280 Speaker 3: growth to oh my god, the world is coming to 144 00:05:37,360 --> 00:05:40,120 Speaker 3: an end is really made all of the markets come down, 145 00:05:40,160 --> 00:05:42,240 Speaker 3: and I mean everything is coming down right now. So 146 00:05:42,279 --> 00:05:44,760 Speaker 3: I think that that's I don't think people are expecting 147 00:05:44,800 --> 00:05:45,880 Speaker 3: the amplitude. 148 00:05:45,360 --> 00:05:45,960 Speaker 5: Of that change. 149 00:05:46,040 --> 00:05:47,800 Speaker 2: Okay, So I put it another way, at least right 150 00:05:47,839 --> 00:05:51,320 Speaker 2: cuts worth buying, go right cuts, and I should sell. 151 00:05:51,480 --> 00:05:53,240 Speaker 3: Oh that's a tough one too, because I mean, I 152 00:05:53,320 --> 00:05:55,599 Speaker 3: think that the question about I was thinking about this 153 00:05:55,720 --> 00:05:58,480 Speaker 3: in the green room, the question about rate cuts and 154 00:05:58,520 --> 00:06:01,320 Speaker 3: what happens with rates When people are piling into treasuries 155 00:06:01,320 --> 00:06:04,040 Speaker 3: as a safety trade, it stops becoming about rates and 156 00:06:04,080 --> 00:06:07,039 Speaker 3: it starts becoming about safety. So it almost doesn't matter 157 00:06:07,080 --> 00:06:09,240 Speaker 3: in the near term because people are piling into treasuries 158 00:06:09,279 --> 00:06:11,760 Speaker 3: because that's someplace to put money, and I don't know 159 00:06:11,800 --> 00:06:13,920 Speaker 3: when that flips back to know, we really care about 160 00:06:13,920 --> 00:06:16,479 Speaker 3: what the Fed's doing, and that's why I'm buying bonds too. 161 00:06:16,640 --> 00:06:18,280 Speaker 3: I need to buy bonds because they're safe. 162 00:06:18,839 --> 00:06:20,400 Speaker 6: You mentioned what would happen if we got a fifty 163 00:06:20,400 --> 00:06:22,359 Speaker 6: basis point cut, Sarah. If the FED does do what 164 00:06:22,400 --> 00:06:25,719 Speaker 6: this market is saying, an inter meeting FED cut, what 165 00:06:25,760 --> 00:06:26,680 Speaker 6: would the reaction be? 166 00:06:27,360 --> 00:06:30,159 Speaker 3: I think, unfortunately, because they missed the opportunity last week, 167 00:06:30,200 --> 00:06:33,960 Speaker 3: the reaction to an inter meeting cut would be what 168 00:06:34,040 --> 00:06:35,920 Speaker 3: are they seeing that we don't see? And I think 169 00:06:35,960 --> 00:06:37,840 Speaker 3: that's what they don't want to do, right, That's what 170 00:06:37,880 --> 00:06:40,480 Speaker 3: markets don't want to have, is that kind of you know, 171 00:06:40,520 --> 00:06:42,280 Speaker 3: two weeks ago everything was fine, or a week ago 172 00:06:42,279 --> 00:06:43,839 Speaker 3: everything was fine, and now you feel like you have 173 00:06:43,880 --> 00:06:46,400 Speaker 3: to come and intervene when twenty five basis points to 174 00:06:46,480 --> 00:06:48,200 Speaker 3: be fair is not a huge cut. It's just that 175 00:06:48,200 --> 00:06:50,279 Speaker 3: people were worried that if they went twenty five, they 176 00:06:50,279 --> 00:06:52,960 Speaker 3: would expect that they keep going. And I don't that 177 00:06:53,400 --> 00:06:55,520 Speaker 3: kind of concern. I don't really understand. I think the 178 00:06:55,520 --> 00:06:57,520 Speaker 3: FED has more power than that, but they seem to 179 00:06:57,520 --> 00:06:59,760 Speaker 3: get trapped into perception, and I think that that's. 180 00:06:59,720 --> 00:07:00,440 Speaker 5: Part the issue. 181 00:07:00,480 --> 00:07:01,839 Speaker 2: I just want to make sure I walk away with 182 00:07:01,880 --> 00:07:03,880 Speaker 2: the right impression of where you were at currently. Do 183 00:07:03,880 --> 00:07:06,240 Speaker 2: you think the pendulum swung too far in the other direction? 184 00:07:06,360 --> 00:07:06,560 Speaker 1: Now? 185 00:07:06,640 --> 00:07:07,200 Speaker 5: Absolutely? 186 00:07:07,680 --> 00:07:09,440 Speaker 4: But I don't know. But it doesn't so in stocks 187 00:07:09,440 --> 00:07:12,160 Speaker 4: are in bonds, both both. 188 00:07:12,000 --> 00:07:13,840 Speaker 3: Right now because the bond is a panic where am 189 00:07:13,840 --> 00:07:15,360 Speaker 3: I going to put my money? And the stocks are, 190 00:07:15,440 --> 00:07:17,240 Speaker 3: Oh my goodness, the world is coming to an end. 191 00:07:17,480 --> 00:07:20,360 Speaker 3: But the question is, you know, did the whole Olympic stick? 192 00:07:20,400 --> 00:07:21,040 Speaker 5: The landing thing? 193 00:07:21,080 --> 00:07:23,560 Speaker 3: When does that knife stick? And does it keep falling? 194 00:07:23,600 --> 00:07:25,800 Speaker 3: And I don't know because things always move too far, 195 00:07:26,080 --> 00:07:28,560 Speaker 3: and there have been a lot of really levered trades 196 00:07:28,960 --> 00:07:31,520 Speaker 3: that are underneath all of this that, yeah, everything else 197 00:07:31,520 --> 00:07:33,560 Speaker 3: that are unwinding that we can't see, and that's where 198 00:07:33,560 --> 00:07:35,720 Speaker 3: it's hard to figure out where does that stop. I 199 00:07:35,720 --> 00:07:38,200 Speaker 3: think that this is an overreaction, but I don't know 200 00:07:38,240 --> 00:07:40,600 Speaker 3: when that overreaction stops, because I don't think that the 201 00:07:40,720 --> 00:07:43,120 Speaker 3: underneath is as bad as it has been in the 202 00:07:43,160 --> 00:07:45,400 Speaker 3: last couple of times the market's really had problem. 203 00:07:45,440 --> 00:07:47,440 Speaker 2: I'm just trying to work out where we actually really 204 00:07:47,480 --> 00:07:49,080 Speaker 2: are at the moment, and we'd ask this question a 205 00:07:49,080 --> 00:07:51,160 Speaker 2: few times over the last few weeks coming into that 206 00:07:51,240 --> 00:07:54,280 Speaker 2: unemployment report, if we triggered the psalm rule, and clearly 207 00:07:54,320 --> 00:07:55,560 Speaker 2: a psalm's going to have our own thoughts on our 208 00:07:55,600 --> 00:07:57,280 Speaker 2: own rule live late to this morning, So you should 209 00:07:57,280 --> 00:07:58,920 Speaker 2: look out for that, I said, if we triggered it 210 00:07:58,960 --> 00:08:01,520 Speaker 2: with this market behavior as if we're in a recession already, 211 00:08:02,040 --> 00:08:03,960 Speaker 2: even if the Fed policy makes that everyone else said, 212 00:08:03,960 --> 00:08:05,960 Speaker 2: would not with the market begin to behave like we're 213 00:08:05,960 --> 00:08:08,240 Speaker 2: in a recession or ready, and this tease up. I 214 00:08:08,240 --> 00:08:10,240 Speaker 2: think the data a little bit later. Let's say we 215 00:08:10,240 --> 00:08:12,440 Speaker 2: get M services and it comes in strong. Is that 216 00:08:12,560 --> 00:08:14,920 Speaker 2: data that this market's going to ignore because it's so 217 00:08:15,000 --> 00:08:16,960 Speaker 2: firmly fixated on the view that that's where we are 218 00:08:17,000 --> 00:08:20,000 Speaker 2: now a recession and it embraces weakness, that ignores strength. 219 00:08:20,000 --> 00:08:21,400 Speaker 2: I'm just trying to work out how we respond to 220 00:08:21,400 --> 00:08:24,560 Speaker 2: incoming information, how sensitive we are to strong data, how 221 00:08:24,600 --> 00:08:26,239 Speaker 2: sensitive we are to weak data. 222 00:08:26,400 --> 00:08:28,200 Speaker 3: Well, I think this goes back to Danny's point how 223 00:08:28,280 --> 00:08:32,040 Speaker 3: much of this is underlying mechanical trading problems and how 224 00:08:32,120 --> 00:08:33,800 Speaker 3: much of this is a reaction to the data. It 225 00:08:33,920 --> 00:08:36,439 Speaker 3: started as a reaction to data, and then it became 226 00:08:36,520 --> 00:08:38,920 Speaker 3: its own problem. And that's again the problem of highly 227 00:08:39,000 --> 00:08:41,200 Speaker 3: levered trades is that when they go against you, the 228 00:08:41,280 --> 00:08:44,240 Speaker 3: forced unwind is not necessarily things that people want to do, 229 00:08:44,440 --> 00:08:46,480 Speaker 3: but it's things that people have to do. So the 230 00:08:46,559 --> 00:08:50,640 Speaker 3: data can help slow that down, possibly, but it's not 231 00:08:50,720 --> 00:08:53,560 Speaker 3: as much reactive to data as it is reactive to 232 00:08:53,640 --> 00:08:56,640 Speaker 3: margin calls and to other issues that are underneath that 233 00:08:56,800 --> 00:08:59,240 Speaker 3: on the financial side. So I think that the data 234 00:08:59,280 --> 00:09:02,280 Speaker 3: would help, but bad data could make it worse. Good 235 00:09:02,360 --> 00:09:04,160 Speaker 3: data might make it a little bit better, but I 236 00:09:04,160 --> 00:09:06,440 Speaker 3: don't know how much that's going to stop this. This 237 00:09:06,520 --> 00:09:09,680 Speaker 3: has to stop on its own because there's some calming 238 00:09:09,720 --> 00:09:11,719 Speaker 3: down of forced selling, and I feel like that's what 239 00:09:11,840 --> 00:09:13,920 Speaker 3: we are right that right now, forced. 240 00:09:13,679 --> 00:09:16,520 Speaker 2: Buying at the Japanese yen as well, in particular. So Hun, 241 00:09:16,600 --> 00:09:29,240 Speaker 2: thank you, Vampire Saxon Woods, let's park all the price 242 00:09:29,280 --> 00:09:31,120 Speaker 2: action and just sit on this. I know many of 243 00:09:31,120 --> 00:09:33,640 Speaker 2: you have heard this phrase in the last few weeks. 244 00:09:33,679 --> 00:09:35,440 Speaker 2: In fact, for the last few months, we've been talking 245 00:09:35,440 --> 00:09:38,040 Speaker 2: about the so called Psalm rule, the rise of the 246 00:09:38,120 --> 00:09:41,480 Speaker 2: unemployment rate in July triggering the Psalm rule, a recession 247 00:09:41,520 --> 00:09:44,280 Speaker 2: indicator for so many which has a perfect track record 248 00:09:44,280 --> 00:09:47,160 Speaker 2: over the past half century. Claudia sam herself of New 249 00:09:47,160 --> 00:09:50,480 Speaker 2: Century advisors, saying this, I don't look at this and 250 00:09:50,559 --> 00:09:53,079 Speaker 2: big pictures say we are in recession. But I look 251 00:09:53,120 --> 00:09:55,440 Speaker 2: at this and I say we're not headed in a 252 00:09:55,480 --> 00:09:59,200 Speaker 2: good direction. Claudia joins us. Now for more, Claudia famous, 253 00:09:59,200 --> 00:10:01,040 Speaker 2: if you weren't already, I think you know that. Anyway, 254 00:10:01,080 --> 00:10:03,079 Speaker 2: it's great to catch up with you. I just want 255 00:10:03,120 --> 00:10:05,680 Speaker 2: to take a beat and just sit on this from moment. Claudya, 256 00:10:05,720 --> 00:10:07,880 Speaker 2: let's go from the very beginning. Tell us what the 257 00:10:07,880 --> 00:10:11,160 Speaker 2: psund rule is, what you wanted it to be used for, 258 00:10:11,600 --> 00:10:14,360 Speaker 2: and whether you think it's applicable in Alpa market like 259 00:10:14,400 --> 00:10:15,080 Speaker 2: this one. 260 00:10:16,360 --> 00:10:19,400 Speaker 1: So the origin of the recession indicator was in a 261 00:10:19,440 --> 00:10:23,360 Speaker 1: proposal I had to improve fiscal policy, put it on 262 00:10:23,440 --> 00:10:27,240 Speaker 1: autopilot automatic stabilizers in a recession. It's a rule in 263 00:10:27,280 --> 00:10:30,240 Speaker 1: the sense of not the economy must do something. It 264 00:10:30,320 --> 00:10:33,240 Speaker 1: was a rule in the sense of policymakers do something. 265 00:10:33,840 --> 00:10:37,320 Speaker 1: It may end up playing out that way. So, but 266 00:10:37,480 --> 00:10:39,120 Speaker 1: what the idea of it was was to look at 267 00:10:39,160 --> 00:10:42,920 Speaker 1: the historical record in the United States and find the pattern, 268 00:10:43,040 --> 00:10:45,839 Speaker 1: find the unemployment rate, increase. It's very important to look 269 00:10:45,840 --> 00:10:50,120 Speaker 1: at changes at which in the past the US has 270 00:10:50,200 --> 00:10:53,520 Speaker 1: been in a recession months into a recession. This is 271 00:10:53,559 --> 00:10:56,840 Speaker 1: not a forecast, right, and so it's just trying to 272 00:10:56,840 --> 00:11:01,439 Speaker 1: capture and yet it is absolutely true it doesn't have 273 00:11:01,520 --> 00:11:03,760 Speaker 1: to be that way this time. And frankly, if we 274 00:11:03,840 --> 00:11:05,760 Speaker 1: look at all of what we know about the US 275 00:11:05,800 --> 00:11:09,400 Speaker 1: economy right now, it is very unlikely that we are 276 00:11:09,520 --> 00:11:12,680 Speaker 1: in a recession. And yet a really important question is 277 00:11:12,679 --> 00:11:15,880 Speaker 1: where are we headed. And those changes in the unemployment 278 00:11:15,920 --> 00:11:18,960 Speaker 1: rate that the sambrule picks up on, they do not 279 00:11:19,160 --> 00:11:21,920 Speaker 1: look encouraging, right, They're headed in the wrong direction, and 280 00:11:21,960 --> 00:11:24,160 Speaker 1: that momentum is what can get us in trouble. 281 00:11:24,679 --> 00:11:27,079 Speaker 6: So, Claudia, for just all of those people out there 282 00:11:27,320 --> 00:11:29,720 Speaker 6: who are talking about your name, who are talking about 283 00:11:29,760 --> 00:11:32,080 Speaker 6: the same rule, using as an excuse to sell, using 284 00:11:32,120 --> 00:11:35,160 Speaker 6: as an excuse to say that the FED should be moving. 285 00:11:34,920 --> 00:11:36,720 Speaker 5: Sooner, Just what do you say to those people? 286 00:11:39,559 --> 00:11:42,840 Speaker 1: Calm is important in a moment like this, regardless of 287 00:11:42,880 --> 00:11:46,160 Speaker 1: what indicator data points you're looking at. You know, the 288 00:11:46,200 --> 00:11:49,319 Speaker 1: fear does no good. And this, again, this was trying 289 00:11:49,360 --> 00:11:52,760 Speaker 1: to give a simple summary of one piece of the 290 00:11:53,320 --> 00:11:56,120 Speaker 1: US economy, the labor market is very important. There's a 291 00:11:56,160 --> 00:11:59,800 Speaker 1: lot of complications right now. Again it's this balance between 292 00:12:00,720 --> 00:12:03,920 Speaker 1: calm but take it seriously. Right, Like, there is slowing 293 00:12:03,920 --> 00:12:06,600 Speaker 1: in the US economy, and we have seen that the 294 00:12:06,640 --> 00:12:09,880 Speaker 1: point is to keep that slowing from really pulling us 295 00:12:09,880 --> 00:12:13,200 Speaker 1: in reverse. We're not there yet. Usually dissemble by the 296 00:12:13,240 --> 00:12:16,640 Speaker 1: time it triggers, we're past that point. Right, So there 297 00:12:16,679 --> 00:12:20,080 Speaker 1: is this opportunity of as I said, the Federal Reserve 298 00:12:20,120 --> 00:12:22,720 Speaker 1: has a lot of place to ease there is. We 299 00:12:22,840 --> 00:12:25,920 Speaker 1: do come into this in a position of strength, broadly speaking, 300 00:12:25,920 --> 00:12:28,760 Speaker 1: in the economy. So that's really important for weathering a 301 00:12:28,800 --> 00:12:32,280 Speaker 1: storm like this that has many different contributors to it. 302 00:12:32,280 --> 00:12:36,000 Speaker 6: Today, I didn't mean to use your pun as a segue, 303 00:12:36,080 --> 00:12:38,280 Speaker 6: but I want to in terms of storm and weathering 304 00:12:38,320 --> 00:12:40,720 Speaker 6: it because on Friday there was just this huge debate 305 00:12:40,760 --> 00:12:43,640 Speaker 6: when the numbers dropped of people saying, look, don't believe 306 00:12:43,640 --> 00:12:46,040 Speaker 6: the numbers you're going to see because they will revert quickly. 307 00:12:46,080 --> 00:12:47,839 Speaker 6: Because a lot of it has to do with weather, 308 00:12:47,920 --> 00:12:49,840 Speaker 6: A lot of it has to do with Hurricane Beryl. 309 00:12:50,160 --> 00:12:52,320 Speaker 6: But by the way, the BLS comes out and says 310 00:12:52,559 --> 00:12:56,360 Speaker 6: there's no discernible impact which side of this do fall on, Claudia, 311 00:12:56,400 --> 00:12:59,240 Speaker 6: Whether the numbers we saw on Friday are something that 312 00:12:59,280 --> 00:13:02,199 Speaker 6: can somewhat re verse because it's a weather impact. 313 00:13:03,000 --> 00:13:05,079 Speaker 1: Is absolutely the case that any indicator, and the so 314 00:13:05,320 --> 00:13:08,679 Speaker 1: rule fits into this, should not be designed to overreact 315 00:13:08,760 --> 00:13:11,199 Speaker 1: to one months of data. Right, So this looks it 316 00:13:11,280 --> 00:13:15,319 Speaker 1: smooths across months. The pattern it's responding to is a 317 00:13:15,360 --> 00:13:19,600 Speaker 1: gradual increase, gradual steady increase in unemployment over the past year. Right, 318 00:13:19,640 --> 00:13:24,240 Speaker 1: So there's that in terms of weather effects. I the 319 00:13:24,280 --> 00:13:26,960 Speaker 1: beer of Labor Statistics has the ability and the experience 320 00:13:27,040 --> 00:13:29,439 Speaker 1: to look very carefully at the geographic data to get 321 00:13:29,480 --> 00:13:32,439 Speaker 1: a sense of where its effects are. I think they 322 00:13:32,480 --> 00:13:37,880 Speaker 1: take those statements very seriously, and I agree with them 323 00:13:38,000 --> 00:13:39,920 Speaker 1: for a lot of reason, including their statement that the 324 00:13:40,000 --> 00:13:44,000 Speaker 1: unemployment raid specifically the ambos On was not affected the 325 00:13:44,080 --> 00:13:48,520 Speaker 1: labor force status was not affected being home because being 326 00:13:48,679 --> 00:13:51,320 Speaker 1: unable to work because of the weather doesn't flip you 327 00:13:51,480 --> 00:13:54,160 Speaker 1: out of being employed to unemployed. So it gets really 328 00:13:54,200 --> 00:13:57,880 Speaker 1: technical in that, but absolutely that one month that was 329 00:13:57,920 --> 00:14:00,280 Speaker 1: a big surprise was a negative one a prior of 330 00:14:00,320 --> 00:14:02,800 Speaker 1: just some of them. Reverse is probably the right one, 331 00:14:02,960 --> 00:14:05,400 Speaker 1: but it is the context of the year as a whole, 332 00:14:05,920 --> 00:14:10,359 Speaker 1: and even moderate slowing. And this increase in the unemployment 333 00:14:10,480 --> 00:14:15,240 Speaker 1: rate has been in the past consistent with early in recession. 334 00:14:15,320 --> 00:14:18,439 Speaker 1: So we might not be there, but we're getting uncomfortably 335 00:14:18,600 --> 00:14:19,960 Speaker 1: close to that situation. 336 00:14:20,560 --> 00:14:23,000 Speaker 2: Cloda, you've worked at the Federal Reserve. You know better 337 00:14:23,040 --> 00:14:26,360 Speaker 2: than most how that institution operates, how slowly it can 338 00:14:26,440 --> 00:14:29,160 Speaker 2: move sometimes. How do you think it's going to respond 339 00:14:29,200 --> 00:14:31,680 Speaker 2: to this data, not just on Friday, but the data 340 00:14:31,680 --> 00:14:34,240 Speaker 2: from Thursday as well as we go into Jackson Hoe 341 00:14:35,640 --> 00:14:36,400 Speaker 2: on a day like. 342 00:14:36,400 --> 00:14:40,160 Speaker 1: Today, when, as you said, the panic word is loubing 343 00:14:40,240 --> 00:14:42,800 Speaker 1: large for many people. The fact that the Federal Reserve 344 00:14:42,880 --> 00:14:45,360 Speaker 1: is slow moving and deliberate, it's a good thing. The 345 00:14:45,480 --> 00:14:50,200 Speaker 1: last thing we need is them joining into that kind 346 00:14:50,240 --> 00:14:53,240 Speaker 1: of that energy, that emotional energy, and yet they're watching 347 00:14:53,280 --> 00:14:57,840 Speaker 1: it very carefully. The market functioning, liquid these are all 348 00:14:58,200 --> 00:15:00,480 Speaker 1: you know. The reason that we have the Fed is 349 00:15:00,520 --> 00:15:03,240 Speaker 1: to make sure the markets keep functioning. Monetary policy then 350 00:15:03,320 --> 00:15:06,400 Speaker 1: came later, right, So there is this aspect of them 351 00:15:06,480 --> 00:15:10,920 Speaker 1: being diligent in terms of them looking at Friday's report 352 00:15:11,200 --> 00:15:15,800 Speaker 1: and changing dramatically their views on a September rate change. 353 00:15:15,800 --> 00:15:19,280 Speaker 1: I think that that would be unlike them, and I 354 00:15:19,320 --> 00:15:21,960 Speaker 1: think it would be premature. Right they're pointed in the 355 00:15:22,040 --> 00:15:25,840 Speaker 1: right direction. They have some time to get there, but yes, 356 00:15:25,880 --> 00:15:28,480 Speaker 1: they are slow moving, particularly when it comes to the 357 00:15:28,560 --> 00:15:29,440 Speaker 1: economic data. 358 00:15:29,880 --> 00:15:32,560 Speaker 2: How do you imagine they'll frame that first interest rate cut? 359 00:15:32,720 --> 00:15:34,000 Speaker 2: Do you think that's going to be framed as a 360 00:15:34,000 --> 00:15:37,680 Speaker 2: mid cycle adjustment, the process towards sort of normalization, or 361 00:15:37,680 --> 00:15:40,640 Speaker 2: the first step towards taking a more accommodative stance. Given 362 00:15:40,680 --> 00:15:42,440 Speaker 2: what's developing, how do you think they're going to frame it? 363 00:15:42,480 --> 00:15:43,880 Speaker 2: Just give them what we know so far. 364 00:15:45,000 --> 00:15:49,240 Speaker 1: In the September feels like a lifetime away right now. Yeah, 365 00:15:49,520 --> 00:15:54,760 Speaker 1: I think they if they can. The FED likes to 366 00:15:54,920 --> 00:15:57,880 Speaker 1: move in on the path it's set out. The path 367 00:15:57,920 --> 00:16:01,480 Speaker 1: it has set out is to begin normalizing interest rates. 368 00:16:01,520 --> 00:16:04,840 Speaker 1: Because inflation is normalized and we are in you know, 369 00:16:05,320 --> 00:16:08,000 Speaker 1: kind of everything is planned in that right direction. I 370 00:16:08,000 --> 00:16:10,680 Speaker 1: think they're going to want to keep to that narrative 371 00:16:10,720 --> 00:16:14,200 Speaker 1: and to that path if they can. You know, the 372 00:16:14,320 --> 00:16:18,720 Speaker 1: last few days have called into question whether that is appropriate. 373 00:16:18,720 --> 00:16:20,600 Speaker 1: It will be appropriate at that point. And I will 374 00:16:20,640 --> 00:16:22,240 Speaker 1: say one thing for the Fed, you know it is 375 00:16:22,320 --> 00:16:24,240 Speaker 1: it is very deliberate. It can be very slow moving. 376 00:16:25,080 --> 00:16:28,560 Speaker 1: But when the facts change and it gets its mind 377 00:16:28,600 --> 00:16:30,880 Speaker 1: around it, it will move and it will do what 378 00:16:30,920 --> 00:16:33,240 Speaker 1: it has to do. And we are in a position 379 00:16:33,320 --> 00:16:35,760 Speaker 1: right now where they have the ability to do quite 380 00:16:35,760 --> 00:16:37,560 Speaker 1: a bit, and that is notable. 381 00:16:38,000 --> 00:16:39,840 Speaker 6: And John made the point that both City and JP 382 00:16:39,880 --> 00:16:42,280 Speaker 6: Morgan have changed their call now to see two consecutive 383 00:16:42,320 --> 00:16:45,680 Speaker 6: fifty basis points cuts from the Fed. Claude, what difference 384 00:16:45,880 --> 00:16:49,560 Speaker 6: does it actually make moving twenty five or fifty in September. 385 00:16:52,640 --> 00:16:57,560 Speaker 1: It it will all it all fits within the context 386 00:16:57,600 --> 00:17:01,640 Speaker 1: of that moment. Right for someone changing to fifty point cuts, 387 00:17:01,680 --> 00:17:05,919 Speaker 1: particularly consecutive ones, that's that's a pretty dire outlook for 388 00:17:05,960 --> 00:17:08,639 Speaker 1: the economy when we get to that point. Or you 389 00:17:08,640 --> 00:17:13,000 Speaker 1: know in the intervening that that's not where my baseline is. 390 00:17:13,040 --> 00:17:15,159 Speaker 1: I don't think that's where the fence is. I mean, 391 00:17:15,200 --> 00:17:18,560 Speaker 1: looking at the data and where we're at. And yet 392 00:17:18,840 --> 00:17:21,600 Speaker 1: you know, clearly if we were seeing large moves like 393 00:17:21,640 --> 00:17:24,800 Speaker 1: that out of the gate, there's there's a real problem. 394 00:17:25,560 --> 00:17:29,080 Speaker 1: But you know, but we saw some big moves out 395 00:17:29,080 --> 00:17:31,400 Speaker 1: of the gate and fighting inflation in twenty twenty two 396 00:17:31,400 --> 00:17:34,119 Speaker 1: in the other direction, and you know, you you the 397 00:17:34,160 --> 00:17:36,800 Speaker 1: FED will take its policy to where it needs to 398 00:17:36,840 --> 00:17:39,440 Speaker 1: be to the conditions in the economy. 399 00:17:40,040 --> 00:17:42,840 Speaker 2: Chlodia, we appreciate your time. Just fantastic to space you 400 00:17:42,880 --> 00:17:45,920 Speaker 2: passed some Clodia Son of New Century advises. 401 00:17:54,760 --> 00:17:55,280 Speaker 4: Shoting us now. 402 00:17:55,280 --> 00:17:58,000 Speaker 2: It's Andrew home Hosts of City and Steven Stanley of Santanta. 403 00:17:58,040 --> 00:17:59,440 Speaker 2: A gens is try to catch up with you bugs 404 00:17:59,440 --> 00:18:01,000 Speaker 2: the when it comes to you first entry. Because you wrap 405 00:18:01,080 --> 00:18:03,959 Speaker 2: with the big cop on Friday, fifty basis points in September, 406 00:18:04,320 --> 00:18:07,000 Speaker 2: Goldman's to stick him with twenty five. They think maybe 407 00:18:07,000 --> 00:18:09,880 Speaker 2: you should wait for payrolls to come out for August. 408 00:18:09,960 --> 00:18:12,879 Speaker 2: In September, why they run, Why is it now the 409 00:18:12,960 --> 00:18:14,359 Speaker 2: right time to make the call? Why are you so 410 00:18:14,440 --> 00:18:15,600 Speaker 2: convinced by Friday? 411 00:18:15,600 --> 00:18:16,000 Speaker 4: STATESA. 412 00:18:16,080 --> 00:18:17,720 Speaker 7: Yeah, when we came out with the fifty basis point 413 00:18:17,760 --> 00:18:20,040 Speaker 7: call for September, we also think they'll go fifty basis 414 00:18:20,040 --> 00:18:22,800 Speaker 7: points again in November. That was just after the jobs report. 415 00:18:22,840 --> 00:18:24,320 Speaker 7: And I think that the key thing of the jobs 416 00:18:24,320 --> 00:18:27,080 Speaker 7: report is not that the unemployment rate rose to four 417 00:18:27,119 --> 00:18:29,880 Speaker 7: point three percent. It's not one month of data. It's 418 00:18:29,920 --> 00:18:32,840 Speaker 7: that we now have four consecutive months of the unemployment 419 00:18:32,920 --> 00:18:36,000 Speaker 7: rate rising and accelerating. So if the Fed is trying 420 00:18:36,000 --> 00:18:37,480 Speaker 7: to get a soft landing. You have a lot of 421 00:18:37,520 --> 00:18:40,720 Speaker 7: momentum upwards in the unemployment rate that you need to stop. 422 00:18:41,080 --> 00:18:43,720 Speaker 7: If you're trying to stop that kind of slowing momentum, 423 00:18:43,840 --> 00:18:46,520 Speaker 7: that means rate should be down, maybe at neutral, maybe 424 00:18:46,560 --> 00:18:47,360 Speaker 7: below neutral. 425 00:18:47,520 --> 00:18:48,879 Speaker 5: Well, where's neutral from here? 426 00:18:49,080 --> 00:18:51,160 Speaker 7: Most people would say at least two hundred basis points 427 00:18:51,200 --> 00:18:53,600 Speaker 7: below where we are, So fifty basis points in September 428 00:18:53,680 --> 00:18:55,480 Speaker 7: is really just getting started. That's why we have fifty 429 00:18:55,480 --> 00:18:58,439 Speaker 7: again in November. I base case they don't do this 430 00:18:58,480 --> 00:18:59,520 Speaker 7: emergency cut. 431 00:18:59,320 --> 00:19:02,440 Speaker 4: But it's possible, possible. What would make it happen? 432 00:19:02,760 --> 00:19:04,880 Speaker 7: I think further sell off in risk assets and seeing 433 00:19:04,960 --> 00:19:07,600 Speaker 7: that broadened. Right, it can't just be about the tech sector. 434 00:19:07,680 --> 00:19:09,480 Speaker 7: It has to be broad It has to be in 435 00:19:09,480 --> 00:19:12,399 Speaker 7: credit markets and credit spreads, widening liquidity issues. 436 00:19:12,560 --> 00:19:13,840 Speaker 5: Those are the kind of things that could get the 437 00:19:13,880 --> 00:19:14,560 Speaker 5: Fed to move early. 438 00:19:14,720 --> 00:19:17,080 Speaker 6: Stephen, you're skeptical of that that they could go fifty, 439 00:19:17,320 --> 00:19:18,960 Speaker 6: that they more likely to go twenty five? 440 00:19:19,040 --> 00:19:19,800 Speaker 5: Why? Yeah? 441 00:19:20,280 --> 00:19:23,520 Speaker 8: I think well, first of all, I mean the key 442 00:19:23,600 --> 00:19:26,080 Speaker 8: thing for the FED right now is inflation, and I 443 00:19:26,080 --> 00:19:29,120 Speaker 8: don't think that we've gotten over the hump on inflation yet. 444 00:19:29,119 --> 00:19:31,680 Speaker 8: We had four bad numbers. We've had two good numbers. 445 00:19:32,320 --> 00:19:34,760 Speaker 8: I mean, I did my forecast last month for CPI 446 00:19:34,800 --> 00:19:36,399 Speaker 8: and I got point three for the core CPI. 447 00:19:36,480 --> 00:19:37,600 Speaker 5: I don't think the Fed's going to. 448 00:19:37,520 --> 00:19:41,439 Speaker 8: Be cutting dramatically in that sort of an environment. I 449 00:19:41,440 --> 00:19:42,960 Speaker 8: also don't think the economies that week. 450 00:19:43,119 --> 00:19:45,000 Speaker 5: I mean, I mean, Andrew's. 451 00:19:44,720 --> 00:19:46,919 Speaker 8: Right about the unemployment rate, but if you look at 452 00:19:46,920 --> 00:19:49,719 Speaker 8: the totality of the labor market data, it's certainly not 453 00:19:50,000 --> 00:19:52,280 Speaker 8: signaling that the unemployment rate is giving us an accurate 454 00:19:52,320 --> 00:19:53,760 Speaker 8: signal what's going on in the labor market. 455 00:19:53,800 --> 00:19:56,000 Speaker 6: But again, as Andrew says, if it's not the level, 456 00:19:56,240 --> 00:19:58,159 Speaker 6: it's the trend. Is the trend not concerning, it's not 457 00:19:58,359 --> 00:19:59,280 Speaker 6: enough for the FED to step in. 458 00:20:00,000 --> 00:20:00,240 Speaker 5: Again. 459 00:20:00,320 --> 00:20:04,320 Speaker 8: I mean, look, household survey is a very noisy set 460 00:20:04,359 --> 00:20:04,680 Speaker 8: of data. 461 00:20:04,720 --> 00:20:05,960 Speaker 5: It's a very small sample. 462 00:20:07,680 --> 00:20:13,080 Speaker 8: If we were seeing dramatic pick up in jobless claims, 463 00:20:13,160 --> 00:20:15,720 Speaker 8: if the Jolts data were supportive, if you know, all 464 00:20:15,760 --> 00:20:18,160 Speaker 8: the other survey data that we were seeing was supportive 465 00:20:18,160 --> 00:20:21,240 Speaker 8: of a dramatic cut in or a dramatic weakening in 466 00:20:21,280 --> 00:20:23,639 Speaker 8: the labor market, I'd be more convinced. But as it is, 467 00:20:23,680 --> 00:20:26,399 Speaker 8: I see that as more there's a lot of noise 468 00:20:26,440 --> 00:20:27,160 Speaker 8: in that number. 469 00:20:27,200 --> 00:20:28,479 Speaker 2: Of my view, I want to pick up on your 470 00:20:28,480 --> 00:20:30,840 Speaker 2: point on inflation. I think it's really important and it's 471 00:20:30,840 --> 00:20:33,800 Speaker 2: hardly been talked about for the last few days. We've 472 00:20:33,840 --> 00:20:36,680 Speaker 2: got the next print on August fourteenth. Peter chev Academy 473 00:20:36,800 --> 00:20:38,560 Speaker 2: published this over the weekend and he said, if the 474 00:20:38,600 --> 00:20:40,840 Speaker 2: FED does anything that looks or smells like there eager 475 00:20:40,920 --> 00:20:43,720 Speaker 2: to embrace the FED put, we would likely see inflation. 476 00:20:44,160 --> 00:20:46,560 Speaker 2: Starting with risk assets. They're caught between a rock and 477 00:20:46,600 --> 00:20:49,520 Speaker 2: a hard place in terms of being able to be aggressive. 478 00:20:49,960 --> 00:20:51,639 Speaker 2: Why do you disagree with that, Andrew? Why do you 479 00:20:51,640 --> 00:20:53,879 Speaker 2: think they're not as constrained as perhaps Stephen and the 480 00:20:53,960 --> 00:20:55,600 Speaker 2: likes of Peter Cheer are suggestic. 481 00:20:56,080 --> 00:20:59,359 Speaker 7: There are medium term concerns about inflation. I'm not discounting 482 00:20:59,400 --> 00:21:00,960 Speaker 7: that at all. But in terms of the near term, 483 00:21:01,119 --> 00:21:03,800 Speaker 7: you have financial conditions that are tightening right now, are 484 00:21:03,840 --> 00:21:07,159 Speaker 7: tightening rapidly, and as we say here, and if the 485 00:21:07,200 --> 00:21:10,919 Speaker 7: FED doesn't push against that tightening and financial conditions, you 486 00:21:10,960 --> 00:21:14,520 Speaker 7: will actually end up slowing the US economy by more. 487 00:21:14,600 --> 00:21:14,679 Speaker 1: So. 488 00:21:14,720 --> 00:21:17,760 Speaker 7: What they're dealing with right now is risk management, where yes, 489 00:21:17,840 --> 00:21:21,480 Speaker 7: there are some concerns about inflation, but cutting rates. 490 00:21:21,520 --> 00:21:22,119 Speaker 5: Now, if they. 491 00:21:22,000 --> 00:21:24,920 Speaker 7: Cut fifty basis points in September, that's already priced into 492 00:21:24,960 --> 00:21:27,359 Speaker 7: the market. That's not going to cause equity prices to rally. 493 00:21:27,359 --> 00:21:29,600 Speaker 7: They need to over deliver on what's priced at this 494 00:21:29,640 --> 00:21:32,160 Speaker 7: point to get equity prices just to stop selling off. 495 00:21:32,200 --> 00:21:33,560 Speaker 2: This is where I'm a little bit confused. It was 496 00:21:33,600 --> 00:21:35,720 Speaker 2: only a few months ago we had people asking whether 497 00:21:35,720 --> 00:21:38,760 Speaker 2: we need to hike again. How much of a clear 498 00:21:38,880 --> 00:21:41,439 Speaker 2: sort of sight have you got on how tight we 499 00:21:41,480 --> 00:21:43,840 Speaker 2: actually are right now? How do we know that we're 500 00:21:43,920 --> 00:21:46,360 Speaker 2: as restrictive as you are making out we are. 501 00:21:46,720 --> 00:21:49,760 Speaker 7: I think the clearest evidence is from the labor market. 502 00:21:49,840 --> 00:21:53,680 Speaker 7: That's been our guiding light throughout this cycle and continues 503 00:21:53,760 --> 00:21:56,000 Speaker 7: to be. If you look at the Jolts report, for instance, 504 00:21:56,200 --> 00:21:59,680 Speaker 7: the hiring rate has just consistently been falling, falling below 505 00:21:59,680 --> 00:22:02,119 Speaker 7: prep endemic rates, falling out. If you look at the 506 00:22:02,200 --> 00:22:05,439 Speaker 7: leisure and hospitality sector and the JOLT survey, the hiring 507 00:22:05,520 --> 00:22:08,320 Speaker 7: rate is the lowest we've ever seen outside of two 508 00:22:08,320 --> 00:22:10,639 Speaker 7: thousand and eight. It's lower than it was in twenty twenty. 509 00:22:10,800 --> 00:22:12,480 Speaker 7: So it is harder to get a job at a 510 00:22:12,480 --> 00:22:15,400 Speaker 7: restaurant right now than it's been in very deep recessions. 511 00:22:15,640 --> 00:22:17,560 Speaker 5: That's telling us that we have some real softness there. 512 00:22:17,720 --> 00:22:19,480 Speaker 2: Check out this movement a bond mark. You've been talking 513 00:22:19,520 --> 00:22:21,640 Speaker 2: about it for a while. Two year versus ten year. 514 00:22:21,680 --> 00:22:24,560 Speaker 2: The two year is down twenty three basis points. The 515 00:22:24,600 --> 00:22:26,600 Speaker 2: ten year is down just twelve. And look at the 516 00:22:26,600 --> 00:22:30,560 Speaker 2: difference between the two. There is a positive sloping difference 517 00:22:30,600 --> 00:22:32,439 Speaker 2: now on that yield curve, Danny, I haven't been able 518 00:22:32,440 --> 00:22:34,240 Speaker 2: to say that for quite a while. Now the difference 519 00:22:34,240 --> 00:22:37,200 Speaker 2: between the two is now positive a single basis point. 520 00:22:37,240 --> 00:22:38,800 Speaker 6: And there have been so many people who have said 521 00:22:38,800 --> 00:22:41,720 Speaker 6: that when this happens, this is the recession indicator, not 522 00:22:41,800 --> 00:22:44,720 Speaker 6: the thing being negative, not a being inverted, that it's 523 00:22:44,800 --> 00:22:47,880 Speaker 6: uninverting that finally causes the recession. Steve, do you want 524 00:22:47,880 --> 00:22:50,760 Speaker 6: to take any indication from this at all? 525 00:22:51,160 --> 00:22:51,720 Speaker 4: I'd like to. 526 00:22:51,720 --> 00:22:54,680 Speaker 5: Let the dust settle a little bit. This seems like. 527 00:22:54,720 --> 00:22:57,399 Speaker 8: Not a good day to be taking your fundamental signals. No, 528 00:22:57,720 --> 00:23:00,959 Speaker 8: I think to Jonathan's point before or I mean, what 529 00:23:01,000 --> 00:23:03,320 Speaker 8: we really need right now is we need more data 530 00:23:03,640 --> 00:23:06,359 Speaker 8: and we do get the ISM nine manufacturing today, the 531 00:23:06,400 --> 00:23:09,080 Speaker 8: consensus looks for it to bounce above fifty. Boy, that 532 00:23:09,119 --> 00:23:11,880 Speaker 8: would I would imagine change the way people were thinking 533 00:23:11,920 --> 00:23:12,640 Speaker 8: at least a little. 534 00:23:12,680 --> 00:23:14,120 Speaker 2: Do you think it would put this story to bed, 535 00:23:14,280 --> 00:23:15,920 Speaker 2: because we said one of the problems with this week 536 00:23:16,000 --> 00:23:17,720 Speaker 2: is that actually the Canada for the economic data is 537 00:23:17,800 --> 00:23:20,119 Speaker 2: quite light. Funny, really got two points to play with. 538 00:23:20,200 --> 00:23:21,879 Speaker 2: One is the ism at ten and the other is 539 00:23:22,119 --> 00:23:25,920 Speaker 2: jobless claims on Thursday. Is one strong ism services print 540 00:23:26,000 --> 00:23:28,240 Speaker 2: sufficient to put this to bed? Or do you think 541 00:23:28,320 --> 00:23:30,399 Speaker 2: the mood this market said will just ignore strength and 542 00:23:30,440 --> 00:23:32,080 Speaker 2: embrace weakness for the rest of this month. 543 00:23:32,640 --> 00:23:35,560 Speaker 8: It seems like an awfully strong panic mode this morning, 544 00:23:35,600 --> 00:23:36,199 Speaker 8: So I don't know. 545 00:23:36,280 --> 00:23:38,520 Speaker 2: Maybe we'll see, Andrew, this is tough, and I think 546 00:23:38,520 --> 00:23:40,159 Speaker 2: this is what everyone's got to sort of embrace and 547 00:23:40,240 --> 00:23:42,359 Speaker 2: confront right now for the next couple of hours and 548 00:23:42,400 --> 00:23:45,000 Speaker 2: through this week, how sensitive this market will be to 549 00:23:45,080 --> 00:23:48,320 Speaker 2: incoming data, strong data and weak data alike. 550 00:23:48,480 --> 00:23:50,680 Speaker 7: It's a really difficult moment. It's a really difficult moment 551 00:23:50,680 --> 00:23:53,080 Speaker 7: for the Fed. Danny said it earlier. You have the 552 00:23:53,119 --> 00:23:56,280 Speaker 7: market that started responding to the economy. Now you're going 553 00:23:56,320 --> 00:23:58,679 Speaker 7: to have the economy that's responding to the market as 554 00:23:58,720 --> 00:24:02,520 Speaker 7: these financial conditions, and it actually raises further the probability 555 00:24:02,680 --> 00:24:04,040 Speaker 7: that we're inter recession. 556 00:24:03,640 --> 00:24:05,320 Speaker 5: Right now or that will soon be in a recession. 557 00:24:05,640 --> 00:24:08,120 Speaker 6: Could we get an intermeding cut then if this thing 558 00:24:08,240 --> 00:24:08,560 Speaker 6: kind of. 559 00:24:08,480 --> 00:24:10,920 Speaker 5: Snowballs, that's the question. I think you do need to 560 00:24:10,960 --> 00:24:11,520 Speaker 5: see more here. 561 00:24:11,520 --> 00:24:13,680 Speaker 7: I don't think this is enough for an intermeting cut, 562 00:24:13,760 --> 00:24:16,199 Speaker 7: but that has to be something we put some probability on. 563 00:24:16,240 --> 00:24:19,400 Speaker 6: At this point, it's even any probability of that for. 564 00:24:19,400 --> 00:24:22,680 Speaker 8: You, not unless the world absolutely falls apart. 565 00:24:23,640 --> 00:24:26,640 Speaker 2: You're not impressed by these colds. It's all you really think. 566 00:24:26,680 --> 00:24:28,720 Speaker 2: This is just a panic that could be over pretty quickly. 567 00:24:29,080 --> 00:24:31,320 Speaker 2: That's why it sounds like characterization. 568 00:24:31,480 --> 00:24:33,879 Speaker 8: Yeah, yeah, I mean, look, the FED is going to 569 00:24:33,920 --> 00:24:38,480 Speaker 8: be easing soon in my mind, you know, more likely 570 00:24:38,520 --> 00:24:41,879 Speaker 8: than not now September rather than November. But and I 571 00:24:41,880 --> 00:24:43,879 Speaker 8: think once they start to go, they're probably going to 572 00:24:43,960 --> 00:24:46,320 Speaker 8: be going in a series of moves. But I just 573 00:24:46,400 --> 00:24:50,440 Speaker 8: don't see the need for a kind of a panicked rush. 574 00:24:50,480 --> 00:24:53,080 Speaker 4: Would they still call this amid cycle adjustment? Do you think? 575 00:24:53,240 --> 00:24:55,040 Speaker 2: Or they tell us they're on the path to normalizing, 576 00:24:55,080 --> 00:24:56,760 Speaker 2: on the path to getting accommodative. 577 00:24:57,280 --> 00:24:59,960 Speaker 8: I think it well, I think it's a path to normalization, 578 00:25:00,560 --> 00:25:04,119 Speaker 8: But whether that leads ultimately to a commodative or not. 579 00:25:04,240 --> 00:25:05,359 Speaker 5: I think remains to be seen. 580 00:25:05,400 --> 00:25:06,840 Speaker 4: Andrew, how do you think they'll frame things? 581 00:25:08,359 --> 00:25:10,320 Speaker 7: I think I agree with Stephen though, that they will 582 00:25:10,359 --> 00:25:13,440 Speaker 7: see this as the need to normalize policy rates. 583 00:25:13,480 --> 00:25:14,800 Speaker 5: At least that will be the first move here. 584 00:25:14,800 --> 00:25:18,440 Speaker 7: Now it might move to a need to move to accommodative. 585 00:25:18,560 --> 00:25:21,280 Speaker 7: We've heard from Caair Powell they think rates are restrictive here, 586 00:25:21,359 --> 00:25:23,240 Speaker 7: and I guess that's my broader. 587 00:25:22,920 --> 00:25:23,600 Speaker 5: Point this morning. 588 00:25:23,760 --> 00:25:26,240 Speaker 7: Why would you be restrictive when the equity market is 589 00:25:26,280 --> 00:25:29,000 Speaker 7: selling off and the unemployment rate is rising, you wouldn't be. 590 00:25:29,200 --> 00:25:31,120 Speaker 7: So they'll be looking pretty quickly to move rates down 591 00:25:31,160 --> 00:25:32,359 Speaker 7: towards at least three percent. 592 00:25:32,440 --> 00:25:33,280 Speaker 4: But if we want to live with. 593 00:25:33,240 --> 00:25:35,320 Speaker 6: The philosophy if the Fed should do the least damage 594 00:25:35,320 --> 00:25:39,280 Speaker 6: in this scenario, is hiking aggressively or before September not 595 00:25:39,400 --> 00:25:42,400 Speaker 6: doing damage in terms of them signaling we're worried about 596 00:25:42,440 --> 00:25:44,159 Speaker 6: something that there is an emergency. 597 00:25:44,240 --> 00:25:46,080 Speaker 7: Yeah, I mean, I think that's exactly what they need 598 00:25:46,119 --> 00:25:48,480 Speaker 7: to negotiate here. And I think you heard that tension 599 00:25:48,560 --> 00:25:51,600 Speaker 7: from Chicago Fed President goals Be on Friday. Not wanting 600 00:25:51,640 --> 00:25:54,719 Speaker 7: to sound like they're over responding, not wanting to spook 601 00:25:54,760 --> 00:25:55,480 Speaker 7: the market. 602 00:25:55,520 --> 00:25:55,879 Speaker 5: Further. 603 00:25:56,040 --> 00:25:58,879 Speaker 7: But the reality is the sentiment is shifting, and it 604 00:25:58,920 --> 00:26:00,680 Speaker 7: has shifted, and they'll have to respond to that. 605 00:26:00,800 --> 00:26:02,800 Speaker 6: But see, Stephen, that's why I wonder to your point, 606 00:26:03,000 --> 00:26:05,680 Speaker 6: why there can't be something bigger, because it feeds back 607 00:26:05,720 --> 00:26:07,760 Speaker 6: on itself and you get that negative wealth effect, you 608 00:26:07,840 --> 00:26:11,240 Speaker 6: get conditions tightening, maybe more than they should, which gets 609 00:26:11,240 --> 00:26:12,480 Speaker 6: a bigger reaction from the FED. 610 00:26:13,200 --> 00:26:13,440 Speaker 5: Yeah. 611 00:26:13,440 --> 00:26:15,160 Speaker 8: Well, I mean this has been one of the problems 612 00:26:15,160 --> 00:26:17,400 Speaker 8: for the FED all through this cycle is that financial 613 00:26:17,400 --> 00:26:20,800 Speaker 8: conditions have been easy, right. I mean, they raise rates, 614 00:26:20,800 --> 00:26:23,119 Speaker 8: they talk about how policies a restrictive, but if you 615 00:26:23,160 --> 00:26:26,600 Speaker 8: look at broader financial conditions indicies, they've all been very 616 00:26:26,640 --> 00:26:30,119 Speaker 8: easy up until the last few days. And now we 617 00:26:30,200 --> 00:26:33,439 Speaker 8: have to weigh you know, deterioration and risk assets versus 618 00:26:33,440 --> 00:26:34,879 Speaker 8: the big rally that we're seeing in. 619 00:26:37,000 --> 00:26:37,639 Speaker 5: Interest rates. 620 00:26:37,680 --> 00:26:41,720 Speaker 8: So I think they're certainly cognizant of that. But I 621 00:26:41,720 --> 00:26:44,760 Speaker 8: think the underpinnings for the economy are still pretty solid. 622 00:26:44,840 --> 00:26:48,520 Speaker 8: And the one problem that this economy has conceivably is 623 00:26:48,560 --> 00:26:51,160 Speaker 8: that FED policy is super tight, and that's something that's 624 00:26:51,240 --> 00:26:53,600 Speaker 8: very easy to fix. So we'll just see whether that 625 00:26:53,640 --> 00:26:54,560 Speaker 8: comes fast or slow. 626 00:26:54,640 --> 00:26:56,560 Speaker 2: Asais last weight Chaman pound a great with you. I 627 00:26:56,600 --> 00:26:58,879 Speaker 2: just wonder how much has changed since Friday. Andrew, do 628 00:26:58,920 --> 00:27:01,639 Speaker 2: you think if they have that information to hand on Wednesday, 629 00:27:01,720 --> 00:27:03,040 Speaker 2: we would have seen a different decision. 630 00:27:03,200 --> 00:27:03,360 Speaker 1: Yeah. 631 00:27:03,400 --> 00:27:04,800 Speaker 5: I think we would have seen a card on Wednesday 632 00:27:04,800 --> 00:27:06,040 Speaker 5: if they knew this was going to be the job 633 00:27:06,080 --> 00:27:06,480 Speaker 5: to report. 634 00:27:06,880 --> 00:27:10,000 Speaker 2: Amazing, Andrew, Thank you, sir, Andrew Hanhorser City Stephen Stanley 635 00:27:10,000 --> 00:27:11,159 Speaker 2: are santantaire to the two of you. 636 00:27:11,200 --> 00:27:11,520 Speaker 4: Thank you. 637 00:27:12,520 --> 00:27:16,080 Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best 638 00:27:16,080 --> 00:27:19,400 Speaker 2: in markets, economics, angio politics. You can watch the show 639 00:27:19,440 --> 00:27:22,399 Speaker 2: live on Bloomberg TV weekday mornings from six am to 640 00:27:22,520 --> 00:27:26,280 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 641 00:27:26,440 --> 00:27:28,680 Speaker 2: or anywhere else you listen, and as always, on the 642 00:27:28,680 --> 00:27:31,120 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.