Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: Terminal and the Bloomberg Business App. Naila Richardson of ADP
Speaker 2: joins us now for more. Following the lowest ADP we've seen,
Speaker 2: I believe since March twenty twenty three, Neil, good to
Speaker 2: see you great to see is almost behind it. How
Speaker 2: much weakness are we actually seeing?
Speaker 3: First off, I think it's important to underline the prominent
Speaker 3: trend in the ADP data, which is a slowdown in
Speaker 3: hiring momentum that's been from January through this year. That
Speaker 3: has been consistently valid every single month. What we did
Speaker 3: this month, though, was a statistical regularity.
Speaker 1: We do it every year.
Speaker 3: We announce it in February with the January release, which
Speaker 3: is to do an annual benchmarking. Normally this does not
Speaker 3: make news this month, it did. But what it does
Speaker 3: is it reattaches the ADP numbers to the source of
Speaker 3: truth that we have in the United States, which is
Speaker 3: this benchmark that comes from state Unemployment Insurance data, this
Speaker 3: kind of data that we see weekly with the jobless
Speaker 3: claims numbers. And the importance of that is, if you
Speaker 3: really want the perfect data set, you would have the
Speaker 3: comprehensiveness of the state UI data covering ninety five percent
Speaker 3: of US employees and the granularity of ADP data. We
Speaker 3: don't have that, So we make this trade off of
Speaker 3: ADP estimating that state data that comes out with a
Speaker 3: six month lag, we reattached to it every single year.
Speaker 4: So was it as bad as it looked yesterday? I mean,
Speaker 4: that's really what people want to know. This all sounds
Speaker 4: very complicated, and it sounds like, you know, there are
Speaker 4: a lot of things at play, But the granular data.
Speaker 1: Does it display the same kind.
Speaker 4: Of negativity if the bond market took notice of it yesterday?
Speaker 1: Yeah, it does.
Speaker 3: This is our best estimate of what hiring was in September.
Speaker 3: Negative thirty two thousand. That is our best estimate. It
Speaker 3: is our most robust estimate. It's rigorous, it's tied to
Speaker 3: the QCW. So no, you don't need to dismiss the number. Now,
Speaker 3: if you look at the series, we don't fully rebnchmark
Speaker 3: the year until February with the January release, but that
Speaker 3: September number is the number. So what it tells you
Speaker 3: Even if you look at the pre benchmarked series, which
Speaker 3: I did, of course you see the same trend. And
Speaker 3: this is what I want to underscore to your audience,
Speaker 3: because the takeaway is qualitative and the takeaway is firm
Speaker 3: validated that hiring momentum has slowed since the beginning of
Speaker 3: the year to a point where it is a week
Speaker 3: labor market in terms of hiring. It is not a
Speaker 3: week labor market in terms of layoffs. Very important to
Speaker 3: hold these two ideas together. The stock of the labor
Speaker 3: market is strong, the flow into the labor market is weak.
Speaker 3: The flow out of the labor market is weak.
Speaker 4: So is the market breaking or is it just an
Speaker 4: ongoing stagnation of the low fire, low higher that still
Speaker 4: has not broken in one way or another.
Speaker 1: We have a stagnant labor market.
Speaker 3: And all of that consumer spending that fueled Q two
Speaker 3: a three point eight percent growth rate we just saw
Speaker 3: was built on the backs of the labor market, because
Speaker 3: the labor market is supporting the consumer. So in that way,
Speaker 3: it's strength. But that strength is not strong enough in
Speaker 3: terms of consumer spending to create new jobs.
Speaker 1: That's a different level of.
Speaker 3: Economic productivity that we still need to see in the economy.
Speaker 3: That's missing the dynamism that leads to consistent job creation.
Speaker 1: We don't have it in the September number. This time
Speaker 1: tomorrow we.
Speaker 5: Would be debating and looking at the data. When it
Speaker 5: comes to the BLS report, we're not going to get it.
Speaker 5: What do you make of the shutdown? How much of
Speaker 5: an impact is it's going to have on the economy.
Speaker 3: You know, it depends on how long the government stays
Speaker 3: shut But what I will say is that the shutdown
Speaker 3: doesn't just affect federal workers. It does affect federal workers,
Speaker 3: but not just. If you think about all those private
Speaker 3: contract workers, the ones that operate the cafeterias, the ones
Speaker 3: in the national parks, the ones that drive government officials
Speaker 3: here and there, they are also without work as the
Speaker 3: government shuts down. So it's these reciprocal effects that I'll
Speaker 3: be watching in the private sector data to see if
Speaker 3: this leads to even more weakness and hiring because of
Speaker 3: all those private contractors in.
Speaker 5: The past, did you see it bleed into the private sector.
Speaker 3: Yeah, but it was always temporary. We know that the
Speaker 3: longest shut down that we've seen recently, it was thirty
Speaker 3: five days. That's a long time to be without a paycheck.
Speaker 3: I don't care who you are, it's a long time
Speaker 3: to be without a paycheck. And so that is going
Speaker 3: to have an effect in the labor market. It's going
Speaker 3: to have effect in consumer spending. But if we can
Speaker 3: get a reopening that's much shorter than that, we won't
Speaker 3: see such a strong pushback in the labor market when
Speaker 3: it comes to hired. I also will note that this
Speaker 3: just adds to the malaise of uncertainty that we've seen
Speaker 3: all year long. It's not just the data, it's not
Speaker 3: just the conditions. It's the fact that companies are going
Speaker 3: to operate through fog. If you're a private contractor, do
Speaker 3: you hire right now? And how much do you hire?
Speaker 3: That's the question before them. As the government is.
Speaker 4: Shut the entire morning, we've been talking to people who
Speaker 4: say that the US economy can keep running at this
Speaker 4: very slow pace and we can still see the incredible
Speaker 4: dynamism that's reflected in equity market pricing. Do you see
Speaker 4: the same relationship or do you think that there is
Speaker 4: a greater warning flag in the labor market and the
Speaker 4: dynamic that you're seeing there for the other side of
Speaker 4: the equation.
Speaker 3: You know, I feel like we are at this traffic
Speaker 3: light right now that is out You know what happens
Speaker 3: to traffic when the light is out right, You fall
Speaker 3: back on this, You take your turn.
Speaker 1: I'll take my turn.
Speaker 3: Sometimes we get that confused and we go at the
Speaker 3: same time, and once we're past the light, we're fine.
Speaker 3: That's where we are in the economy. We don't have
Speaker 3: the data we're used to seeing. There's some uncertainty about
Speaker 3: who goes next. We won't get the flow. There's bottlenecks.
Speaker 3: That's what comes up economic activity. But if you can
Speaker 3: get pass that into some clarity, we have all the
Speaker 3: ingredients in this economy to push forward with strong GDP
Speaker 3: growth as we saw in the second quarter. So some
Speaker 3: of this is just getting the lights literally back on
Speaker 3: and the data is still flowing. So we can keep
Speaker 3: that dynamism flowing.
Speaker 6: That's the data.
Speaker 4: But when it comes to hiring plans, if there is
Speaker 4: a greater degree of mergers and acquisitions and certainty at
Speaker 4: least from the economic trajectory, maybe not in the tariffs,
Speaker 4: do you expect the hiring to reaccelerate. Do you think
Speaker 4: this is going to break to the upside rather than
Speaker 4: further to the downside.
Speaker 3: I think there's a potential, but right now it is
Speaker 3: not clear where that trigger of dynamism comes from.
Speaker 1: For employers to hire, what do they need.
Speaker 3: They need clarity, they need strong consumer demand, and they
Speaker 3: need the ability to invest long term. So they have
Speaker 3: some of those elements in place. I think we're still
Speaker 3: missing the clarity, and that's a really important component of
Speaker 3: whether or not you can add to your headcount, which
Speaker 3: is a long term people investment. Now, one thing I'm
Speaker 3: hearing employers say is now, if we can't hire our workforce,
Speaker 3: let's make sure those workers we have are more engaged.
Speaker 3: And when I talk to big companies especially, there has
Speaker 3: been more attention on how to upscale their workers, train
Speaker 3: their workers, engage their workers, have more connection to get
Speaker 3: the most out of the people they have right now,
Speaker 3: even if they can't add to the headcount in a
Speaker 3: significant way.
Speaker 2: Keep your payper happy. That's what it's all about. A
Speaker 2: place are getting back to that.
Speaker 1: That's good.
Speaker 6: Yeah, did you hear it? Keep your people happy.
Speaker 4: I will get more out of them and milk them
Speaker 4: for all you can.
Speaker 1: And you can keep them happy.
Speaker 6: Whichever way you do it.
Speaker 1: Happy people are more productive.
Speaker 7: Are you there?
Speaker 8: Yeah?
Speaker 2: Stay with us. More Bloomberg Surveillance coming up after this.
Speaker 2: With stocks rising after closing at record highs, John Stolfis
Speaker 2: of Oppenheimer calling for a street high seventy one hundred
Speaker 2: on the S and P by year Rent, writing this
Speaker 2: economic resilience, along with revenue, earnings growth and innovation across
Speaker 2: the sectors, remains key in our view to the market's
Speaker 2: ability to continue climbing the proverbial wall of worry. John
Speaker 2: joins us now for more. John and Mornig, good morning.
Speaker 2: It's that government shut down just another brick in that
Speaker 2: wall of worry.
Speaker 9: I think it's another brick in the wall, to quote
Speaker 9: Pink Floyd. But that said, we've seen the markets really
Speaker 9: overcome at traverse hurdles all along this year, and it
Speaker 9: is indeed it's the innovation, it's the rezillions, and it's
Speaker 9: a different structure in terms of the market itself. We
Speaker 9: believe in terms of participants.
Speaker 7: You know, the market is.
Speaker 9: Not just the guy with the monocle from the Monopoly game.
Speaker 9: You know, it's all kinds of people. And in the
Speaker 9: US it's multi generational people investing for longer term goals.
Speaker 9: So the disturbances that are caused by the potential for
Speaker 9: a short term or intermediate or longer term shutdown of
Speaker 9: less concern to them right away as opposed to getting
Speaker 9: money positioned for goals that maybe three, five, seven years.
Speaker 2: Can I build on that, John, Do you think some
Speaker 2: tension between different generations and how they have this market
Speaker 2: should be valued, Some tension between the boomers and what
Speaker 2: they think the appropriate multiple is for this stock market
Speaker 2: with a different sectimics.
Speaker 9: Most certainly, I think you know, when you look at
Speaker 9: people who've been the Boomer generation, stocks are cheap at
Speaker 9: the sixteen forward multiple. As you go forward in generationally,
Speaker 9: people are willing to pay higher multiples for growth. And
Speaker 9: I believe the reason why a lot of it comes
Speaker 9: from Ed Yardini, who's for years said that the what
Speaker 9: is it the Wilshire five thousand. There aren't enough stocks
Speaker 9: to really qualify that are publicly traded anymore. For that
Speaker 9: indicaes anymore because it's what is it about thirty five
Speaker 9: hundred stocks at thirty four hundred that you actually have
Speaker 9: to choose from? And the thought is here is it's
Speaker 9: supply and demand. It's the basic thing of economics, the
Speaker 9: demand for your technology, your hyper growers, the ones who
Speaker 9: are well established, deeply embedded in the lives of both
Speaker 9: business and the consumer, where we're all on the upgrade.
Speaker 7: Cycle whether we like it or not.
Speaker 9: As I always like to say, this is what's driving
Speaker 9: this market in many ways, and it differentiates not just generationally,
Speaker 9: but the difference between traders who are looking at at
Speaker 9: risk to capital a capital put at risk on a
Speaker 9: day to day, minute to minute basis, and intermediate to
Speaker 9: longer term investors. When I started in this business forty
Speaker 9: two years ago, hard to believe. It's not that I
Speaker 9: didn't think I'd lived this long. I didn't know how
Speaker 9: longyr would happened, but it was the retail investor would
Speaker 9: always come into the market, usually about once the market
Speaker 9: was up twenty percent and everybody knew it, and the
Speaker 9: cab driver was asking you for a hot tip if
Speaker 9: you saw you had a copy of the Wall Street
Speaker 9: Journal under your arm. Today people are very well informed
Speaker 9: by the financial media.
Speaker 7: They have all the arguments.
Speaker 9: You get to see the players actually express themselves and
Speaker 9: you see what is it the body language that people
Speaker 9: are using, you know, and it makes it it's actually
Speaker 9: it's remarkably more intimate than it was ever before, and
Speaker 9: people are better informed and better able to work. We'd
Speaker 9: like to think with financial advisors who are working as fiduciaries.
Speaker 4: They also are better sold in the story of the
Speaker 4: hopes and dreams of just how much AI can do.
Speaker 4: And there is a lot of truth to it. And
Speaker 4: history doesn't repeat, but it does rhyme. Back inthe dot
Speaker 4: com bubble boom and bust, there was aol you've got mail.
Speaker 1: We don't do that anymore. I mean some people still do,
Speaker 1: and you know, go bless you.
Speaker 4: But I'm just wondering going forward, how do you identify
Speaker 4: all of the money that's going to be wasted at
Speaker 4: a time where there's a lot of projections and not
Speaker 4: a lot of data, and what ultimately will happen or
Speaker 4: how it's going to be applied.
Speaker 7: Well, I think, for.
Speaker 9: One, is if we just go back to if we
Speaker 9: just go back to as recently as the tech bubble,
Speaker 9: things were practically primitive versus where we are today.
Speaker 7: I can remember working at another well.
Speaker 9: Known firm headquarters on Broadway in nineteen ninety seven, and
Speaker 9: suddenly you would find the internet would go out, you know,
Speaker 9: and when you would go home to connect to the corp,
Speaker 9: you'd have, you know.
Speaker 7: Sometimes a little device would be and all that stuff.
Speaker 9: Today's we still have problems with technology, but it's very
Speaker 9: well established and the ideas you know, well, I can
Speaker 9: remember putting dimes in a payphone.
Speaker 7: People don't even know what a payphone used to look like.
Speaker 9: I can see sometimes I see an old architecture in
Speaker 9: our building which another firm had before us.
Speaker 7: There's actually a group of things and no phone anymore.
Speaker 7: But what are these things for.
Speaker 9: They're for the press as they exit exited, to write
Speaker 9: things down. But where we are today, I think a
Speaker 9: lot of the stuff will likely prove disappointing, but the
Speaker 9: core will be it's already being invested in and utilized
Speaker 9: to create greater efficiencies.
Speaker 4: I guess you talk about the babies being.
Speaker 1: Thrown out with the bathwater.
Speaker 4: I don't see any babies, and I don't see any
Speaker 4: bathwater being thrown out either.
Speaker 1: Nothing's being thrown out.
Speaker 4: So how do you identify what that means?
Speaker 7: Well, I'd say actually, on a day to day basis.
Speaker 7: You know, I'm not solely a strategist.
Speaker 9: I also manage money for the firm, both ETF portfolio
Speaker 9: with passive indices and then individual stock portfolio. And we've
Speaker 9: seen a considerable broadening of the rally that has suddenly
Speaker 9: rewarded sectors like industrials. We've seen better attention played to utilities,
Speaker 9: both on as it looks like the FED is going
Speaker 9: to be cutting rates going forward, not necessarily enthusiastically, but
Speaker 9: on a down payment kind of basis, to show.
Speaker 7: That the rate hike cycle is over.
Speaker 9: What you have effectively is you've got utilities are no
Speaker 9: longer considered as much of a risk as a bomb
Speaker 9: proxy because it looks like interest rates are coming down.
Speaker 9: Healthcare has caught a bid as a result of one
Speaker 9: company's efforts to reduce prices in the last couple of days.
Speaker 9: I'd mentioned the name of the company because I manage money.
Speaker 9: The firm doesn't let me.
Speaker 7: I want to be pitching stocks that I might or
Speaker 7: might not own.
Speaker 5: Saying on the FED, how difficult is the end of
Speaker 5: October's meeting going to be? If this government shutdown is prolonged.
Speaker 5: We know we're not likely going to get tomorrow's perils report,
Speaker 5: but then what about CPI on October fifteenth as well?
Speaker 5: They might not have all the most relevant up to
Speaker 5: date data.
Speaker 9: I think, you know, I think it's close enough to
Speaker 9: the September meeting that I think we kind of got
Speaker 9: a fairly good idea that the the dot plots showed
Speaker 9: that there would likely be a cut in October, and
Speaker 9: I think we're close enough in terms of the data.
Speaker 9: I think the question would be to December, what's going
Speaker 9: to happen there? And hopefully by then this will be
Speaker 9: behind us, this whole question of the shot.
Speaker 2: Jo'll never mind the Bathwart said, this has been a
Speaker 2: pool party now for six months, and it's getting wilder.
Speaker 2: I think spring Break don't want to go there. Look
Speaker 2: at the valuations we're seeing in private markets, five hundred
Speaker 2: billion dollars on the startup now, John, I'm just trying
Speaker 2: to work out, you know, never mind the risk a version.
Speaker 2: I don't see any I saw a bunch of dead
Speaker 2: issuents in September, and people start to get pretty excited
Speaker 2: about the future. Still on top of that, when do
Speaker 2: you start to get concerned?
Speaker 9: Well, you know, I play in the public markets as
Speaker 9: opposed to the private markets, so one to inform the other.
Speaker 9: That's well, I think to some extent with the selectivity
Speaker 9: there and what is chosen to move into the private
Speaker 9: equity market is not necessarily everything that play, I think
Speaker 9: that's something to look at as we go forward, and that,
Speaker 9: as you mentioned, the money that's being thrown at this
Speaker 9: one particular deal is like the valuation is rather worrisome,
Speaker 9: except if you consider how much is already developed. This
Speaker 9: is much, you know, This isn't the primitive stage of
Speaker 9: people saying someday we will have a million eyeballs on
Speaker 9: our website. This is companies that know you need billions
Speaker 9: of eyeballs and you need to be well capitalized. And
Speaker 9: there is it's not just well capitalized, but the likelihood
Speaker 9: of cash flow generation pretty quickly from here to there.
Speaker 7: Because this week I was at a due diligence.
Speaker 9: Meeting in an ETF firm management firm that has ETFs
Speaker 9: right and they're technology people just talking about all the
Speaker 9: investment that's being made here, but by smart people who
Speaker 9: are educated and deeply involved in tech for maybe forty
Speaker 9: or fifty years.
Speaker 2: Stay with us, Multilinpex Savannas coming up off to this,
Speaker 2: stocks reaching record highs despite the chaos on Capitol Hill.
Speaker 2: Sarah Hunt of Alpine Saxon words, writing, the government shutdown
Speaker 2: may or may not impact a raft of data for investors.
Speaker 2: This may be the trickiest part, at least in the
Speaker 2: net term. Sarah joins us now for more. Sarah, good
Speaker 2: morning morning. Do you think this will hold back risk
Speaker 2: appetite this month? No sound of that just yet. Do
Speaker 2: you think it will?
Speaker 10: It depends a lot on how long everything takes and
Speaker 10: what kind of data comes out in the interim and
Speaker 10: sort of and the kickoff of Q three earning season, right,
Speaker 10: so all these things are going to be important. Earning
Speaker 10: season is going to take on even more importance if
Speaker 10: we have a lack of government data because people want
Speaker 10: to see what companies say. But I think this morning
Speaker 10: the news on chat TBT was one of those open ai.
Speaker 10: It was one of those things that certainly helps the
Speaker 10: situation and doesn't hurt it.
Speaker 2: It just built on that a little bit more, Why
Speaker 2: does it how the situation sitting here this morning and
Speaker 2: understanding that you've got this private company staying private worth
Speaker 2: five hundred billion dollars, what is the help?
Speaker 10: Because the question has been all along this AI has
Speaker 10: been fueling this rally. Right, you take that out and
Speaker 10: all of a sudden, the statistics do not look nearly
Speaker 10: as good. And if you see cracks in that story
Speaker 10: with the other problems that are going on, I think
Speaker 10: you have issues the fact that you saw a.
Speaker 6: Data point that's positive.
Speaker 10: Take it as you want, whether or not that's too bubbly,
Speaker 10: or whether or not it's anything else. The bottom line
Speaker 10: is people are willing to put up some serious money
Speaker 10: to be a part of that story.
Speaker 6: And that's still the case.
Speaker 10: That is going to help the equity markets just because
Speaker 10: it underlies that foundation and it gives it more confidence.
Speaker 1: So don't fight AI.
Speaker 4: Is there increasingly a feeling in your mind, don't fight
Speaker 4: the FED in terms of supporting the rest of the
Speaker 4: non AI universe that hasn't fared as well well.
Speaker 10: I think the FED had a very tough has a
Speaker 10: very tough job going into the next couple of months.
Speaker 10: A lack of data doesn't help it at all. And
Speaker 10: to your point, the ADP numbers, people are going to
Speaker 10: look at that, They're going to look at any non
Speaker 10: government data that comes out, because until we get government
Speaker 10: data out, you don't have enough information. But directionally speaking,
Speaker 10: I think that that one of the reasons you saw
Speaker 10: that happen yesterday is that people thought, well, this is
Speaker 10: another excuse to cut rais whether or not that actually
Speaker 10: solves any problems or does what it's supposed to do
Speaker 10: is another question. But the idea that it's coming is
Speaker 10: still positive for equity markets.
Speaker 4: I just wonder how long you can turbocharge growth before
Speaker 4: inflation becomes a problem.
Speaker 1: A lot of people have said it's not.
Speaker 4: And at the same time, you start thinking, if we're
Speaker 4: already above that two percent target and you add juice
Speaker 4: to it, already is a strong economy, albeit concentrated in AI.
Speaker 1: Doesn't that become a real concern later this year?
Speaker 10: Well, I still don't think that we've seen the true
Speaker 10: dynamics of the tariff pricing in pricing right, So whether
Speaker 10: or not that's going to come in as the price
Speaker 10: level raised or it's inflation, I don't think that that's
Speaker 10: really come through. You've seen big waves of inventory every
Speaker 10: time there's been a pullback in timing on those tariffs.
Speaker 10: So the companies have been absorbing a lot. There's a
Speaker 10: point at which that flips, that script flips, and I
Speaker 10: don't know where we are with that yet, But as
Speaker 10: that sort of comes in, I don't see.
Speaker 6: How it can be beneficial.
Speaker 1: So what are you worried about now?
Speaker 5: Because you don't sound like you're that worried about a
Speaker 5: bubble when it comes to AI, you don't sound that
Speaker 5: worried about a government shutdown.
Speaker 10: I worry about a lot of things. I wouldn't go
Speaker 10: so far as to say I'm not worried about a bubble.
Speaker 10: But the problem with that is that bubbles can go
Speaker 10: on a lot longer than we can think about whether
Speaker 10: or not they should. And if there is enough real
Speaker 10: money chasing that right now, as opposed to the whole
Speaker 10: argument about debt and debt or financing that came back
Speaker 10: around with that big.
Speaker 6: Deal right So, as long as there is, as long as.
Speaker 10: People are putting up money to help solve that problem,
Speaker 10: I think it's less of an issue. I think it
Speaker 10: becomes one when people start to worry about whether or
Speaker 10: not there's any actual productivity that's going to come out
Speaker 10: of this efficiency that's going to come out of this,
Speaker 10: and I think that that's still one of those questions that.
Speaker 6: We're struggling with.
Speaker 5: It's a good point the end of the nineties when
Speaker 5: Greenspan talked about rational xuberances. We had a bull market
Speaker 5: run for four years.
Speaker 1: But how do you time it?
Speaker 10: That is a great question, and that is the problem
Speaker 10: because you only see that in retrospect when people finally
Speaker 10: start to look back and go, you know what, we
Speaker 10: were wrong at X point, at why point, at Z point.
Speaker 10: Right now, we're still looking at that and saying there's
Speaker 10: still a lot of promise. We collectively as investors. I'm
Speaker 10: not speaking about us just generally personally, but the investment
Speaker 10: community is willing to look at that and say that
Speaker 10: there's a whole wave coming and even though you know
Speaker 10: they will be inefficiencies in that way, if people aren't
Speaker 10: sure where they're going to be yet, so at some
Speaker 10: point it starts to be cluegy where you don't get
Speaker 10: some people coming out and saying this is helping our margins,
Speaker 10: this is doing that for us. We need to see
Speaker 10: that come through and that's still a promise right now,
Speaker 10: and market loves a good story.
Speaker 2: There seems to be some great division over the balance
Speaker 2: of risk. I think the Fed's got one view and
Speaker 2: the market's got another. The Federal Reserve believes the biggest
Speaker 2: risk right now is downside risk to employment, and a
Speaker 2: lot of people in markets are coming around to the
Speaker 2: idea that the biggest risk might be upside risk to inflation,
Speaker 2: and they're chasing that because the Fed's going to respond
Speaker 2: to one and not the other. This is what Tawson's
Speaker 2: lack of Apollo said just yesterday. Upside risk to inflation
Speaker 2: are growing, particularly if the FED continues to cut interest rates,
Speaker 2: and he believes his whole profession continue to underestimate this
Speaker 2: economy and the resilience of it. Are you coming round
Speaker 2: to that side of things as well.
Speaker 8: Well.
Speaker 10: It's interesting because the resilience of the economy also bakes
Speaker 10: in a number of things, you know. So Kelsey Vera
Speaker 10: was just talking about the difference between big corporations and
Speaker 10: small corporations, So it bakes in a lot of positive
Speaker 10: movements across the entire strata. I don't know that the
Speaker 10: entire strata is performing that well but from markets perspective,
Speaker 10: it doesn't really matter. Lower and consumers aren't doing that well,
Speaker 10: stock market doesn't mind. They don't spend the most money anyway.
Speaker 10: If you can continue to see cash flow in those
Speaker 10: big companies, it's less of an issue than if Main
Speaker 10: Street is struggling on the smaller side.
Speaker 6: So it really does depend.
Speaker 10: But I do think that inflation is an issue, and
Speaker 10: I do think that it could be a.
Speaker 6: Bigger issue going forward.
Speaker 10: But if we're not going to get some of that data,
Speaker 10: it makes it easier to ignore. On the other hand,
Speaker 10: I think that it is definitely something that continues to
Speaker 10: flow through, and that's going to be tricky because what
Speaker 10: happens with that is you fix margins by getting rid
Speaker 10: of people, and then the labor question becomes even more problematic,
Speaker 10: and then the FED is in a very difficult place,
Speaker 10: which I sort of think they are anyway.
Speaker 4: I'm looking at where to buy gold bars right now,
Speaker 4: and I'm one s There's crossco. There are places though
Speaker 4: they limit how much you can buy. You have to
Speaker 4: be a member, and then it's only one bar per person.
Speaker 4: I'm looking at this, how much is that sort of
Speaker 4: the solution increasingly for people I know that you say
Speaker 4: that personally is one thing, but increasingly how mainstream is
Speaker 4: that type of investing really becoming?
Speaker 10: Well, I think that gold and to some degree bitcoin,
Speaker 10: and I wouldn't call gold a bitcoin, you know, digital
Speaker 10: gold or anything else, but they are ways to express
Speaker 10: an opinion that the system itself is going to have
Speaker 10: some problems and that government all currencies are going to
Speaker 10: have to value against something. Right, So gold is one
Speaker 10: of those things that people look at and say, I
Speaker 10: can buy gold. It's going to It doesn't matter if
Speaker 10: it's a year US thing or if it's a japan
Speaker 10: US thing.
Speaker 6: I know that if currencies.
Speaker 10: Are going to be devalued, i've got something that should
Speaker 10: rise in value. And whether or not that's a truism
Speaker 10: or people argue it, or it's just you know, people
Speaker 10: are chasing it. Central banks are going back to buying
Speaker 10: gold to some degree. They certainly seem to have been
Speaker 10: on the non oecd side. So I think that there
Speaker 10: is room for that to move because it hasn't moved
Speaker 10: in so very long, and we just topped inflation adjusted
Speaker 10: gold prices in the seventies and eighties, and that is
Speaker 10: one of those technical markers that people look for.
Speaker 4: Well, is that something where you're starting to credibly look
Speaker 4: at that as a real slice of the sort of
Speaker 4: more risk averse side of portfolio in a way that
Speaker 4: you hadn't before.
Speaker 10: Well, I think the tricky thing is that after it's
Speaker 10: had such a big run, it almost seems difficult to say,
Speaker 10: now this is the time to go ahead and say
Speaker 10: that this should be a part of your portfolio.
Speaker 6: If it was before, you're feeling pretty good about it.
Speaker 10: If it isn't, now you're looking at that going can
Speaker 10: I jump in here and buy something that's elevated so much?
Speaker 10: And I think this goes back to all risk assets
Speaker 10: are going in one direction and whether or not that
Speaker 10: can continue. And it's difficult to jump in and say, yes,
Speaker 10: I want to put a chunk of something in the
Speaker 10: asset that's run that much. But you could certainly layer
Speaker 10: in a little bit and see what happens so that
Speaker 10: it gives you a chance to layer in a little
Speaker 10: bit more, just because it's an opposite to larger financial systems.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this,
Speaker 2: Sticking with Marcus Spinky shadotoutsche Bank is one of the
Speaker 2: most polish on the street with a year rend target
Speaker 2: of seven k.
Speaker 7: He writes.
Speaker 2: In our reading, however, equity positioning is only moderately overweight,
Speaker 2: and we see gross not rate as the primary driver.
Speaker 2: To focus on banking joints us now for more banking.
Speaker 8: Good morning, good morning. Let's get into this.
Speaker 2: A lot of people would look at this market and say, well,
Speaker 2: everyone must be very, very long and overweight.
Speaker 8: What do you read?
Speaker 6: What are you looking at?
Speaker 2: That's howsually something different.
Speaker 11: So overall equity market positioning in our reading.
Speaker 8: Is clearly overweight.
Speaker 11: So if you think about it on a Z score basis,
Speaker 11: normally we are in a range between minus one and
Speaker 11: plus one, or read in round numbers, would be that
Speaker 11: the market's position basically at plus a half foero point.
Speaker 8: Five, So clearly overweight, but not extreme.
Speaker 11: But the related point that I would make is that
Speaker 11: that overweight is coming in our reading entirely from the
Speaker 11: positioning of systematic strategies. So if you think back to April,
Speaker 11: then well there's April the second, which is lead into
Speaker 11: April the ninth, and you have had basically on April
Speaker 11: the second, you know what I would describe really as
Speaker 11: a volved shock so you have the victim the fifties,
Speaker 11: and then you have the relent on policies on April
Speaker 11: the ninth, and vol starts to basically come down. You
Speaker 11: get a strong recovery, and so the trend and volve
Speaker 11: basically coming down is pushing up by rules the positioning
Speaker 11: of systematic strategies. I would say the much larger part
Speaker 11: of the investor base the discretionary investors as opposed to
Speaker 11: systematic investors, and discretionary investors you want to think about
Speaker 11: as basically fundamentals based investors. Their positioning is basically at
Speaker 11: neutral by early July, and in our reading continues basically
Speaker 11: to hug neutral.
Speaker 8: So I would argue.
Speaker 11: That actually positioning today despite the run up in the market,
Speaker 11: is a source of upside because if you look at
Speaker 11: the positioning of discretionary investors and what drives it historically,
Speaker 11: it's exactly what you would think it.
Speaker 8: Is, which is earnings growth.
Speaker 11: And so if you look at the relationship between discretionary
Speaker 11: investor positioning historically and S and P five hundred earnings growth,
Speaker 11: it's a pretty compelling relationship. There are, of course, disconnects
Speaker 11: from time to time when other things are in focus.
Speaker 11: And if you look at their neutral positioning today, it's
Speaker 11: positioned for growth in the very low single digits one
Speaker 11: two three percent. It moves around we and their positioning.
Speaker 11: Like I said, you know, it's been this way since July.
Speaker 11: That's when we were getting second quarter earnings which came
Speaker 11: in at ten percent year and year growth nine and
Speaker 11: a half percent. And if you think about what we're
Speaker 11: going to start getting in a couple of weeks, our.
Speaker 8: Take or preview would be that we're likely.
Speaker 11: To get, you know, actually somewhat of a pickup in
Speaker 11: growth in earnings growth closer to sort of eleven percent,
Speaker 11: and so the pressure is on. I would argue for
Speaker 11: discretionary investors to buy in basically to this recovery, where
Speaker 11: they haven't. They've only been focused on the risks, is
Speaker 11: what we would argue.
Speaker 4: So this is the reason why you upgraded your target
Speaker 4: for the S and P four year end two seven thousand,
Speaker 4: that was earlier in September. I'm just wondering how much
Speaker 4: you see that continuing through twenty twenty six to lead
Speaker 4: to some of the real ball cases that we've heard
Speaker 4: of seventy seven, seventy eight hundred on the S and p.
Speaker 1: Five hundred.
Speaker 11: Yeah, so you know, our target for this year end
Speaker 11: is seven thousand, and the way I would put it is,
Speaker 11: actually it's a reinstating of our target. At the beginning
Speaker 11: of the year, we cut our numbers, our earnings numbers,
Speaker 11: and our market view. We remain sort of constructive that
Speaker 11: we would get a relent on policies and we would
Speaker 11: go a lot higher. But at the end of the day,
Speaker 11: I mean, I think the simple fact is, and as
Speaker 11: some of the guests earlier were saying, basically, you know,
Speaker 11: you just don't.
Speaker 8: See a lot of stuff with the data.
Speaker 11: I mean if you think about I mean, the reason
Speaker 11: for cutting the tariffs, and they look to be having,
Speaker 11: you know, a much more modest impact than.
Speaker 8: We basically thought.
Speaker 11: If I look at earnings, you know, so you started
Speaker 11: with macro growth. I mean, we got the second quarter
Speaker 11: of recovery. We could say the three point eight percent
Speaker 11: is partly a recovery from you know, slow down in
Speaker 11: Q one, but we're in Q three now and the
Speaker 11: Atlanta FED at last read was pretty close to four percent.
Speaker 8: So on macro growth, you know, not much is showing up.
Speaker 11: And I would actually argue that a lot of negativity
Speaker 11: and sort of the macro consensus that we would get,
Speaker 11: you know, pretty significant slowing. That's that's a that's.
Speaker 8: A positive catalyst.
Speaker 11: And it's a mini version really of what happened in
Speaker 11: twenty twenty three, when the macro consensus, you know, persistently
Speaker 11: looked basically for a recession that didn't come. And so
Speaker 11: what you've got is basically fifteen months of positive macro
Speaker 11: data surprises, and markets are not necessarily go down when
Speaker 11: you're getting continuously positive surprises. We're having a mini version
Speaker 11: of the same thing. If you look at the City
Speaker 11: Group data surprise index kind of went vertical late last week,
Speaker 11: and so, I mean, you know, discretionary investor positioning is
Speaker 11: exactly actually in line with the macro consensus of a
Speaker 11: slowdown in growth and a slowdown in earnings growth.
Speaker 8: But we're not getting those things.
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