WEBVTT - Fed Gets More Reasons to Delay Rate Cuts in Latest Data 0:00:02.920 --> 0:00:07.240 Bloomberg Audio Studios, Podcasts, radio news. 0:00:08.520 --> 0:00:12.880 This is Bloomberg Business Wait inside from the reporters and 0:00:13.080 --> 0:00:16.640 editors who bring you America's most trusted business magazine, plus 0:00:16.720 --> 0:00:20.840 global business, finance and tech news. The Bloomberg Business Week 0:00:20.880 --> 0:00:25.960 Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio. 0:00:27.400 --> 0:00:30.280 Carol Master, along with Shanali Bossick. Tim is out today. 0:00:31.080 --> 0:00:33.640 We did Chanali get through this week's inflation reports. We 0:00:33.800 --> 0:00:36.720 had retail sales, consumer sentiment, a lot of things, and 0:00:36.760 --> 0:00:39.000 as we've been saying, the next focal point is really 0:00:39.040 --> 0:00:40.040 next week's FED meeting. 0:00:40.120 --> 0:00:42.040 Yeah, and until then, it's kind of a holding pattern, 0:00:42.159 --> 0:00:44.440 is it. Though we do know some things inflation being 0:00:44.440 --> 0:00:46.159 a little hotter than expected across a. 0:00:46.080 --> 0:00:48.680 Few metrics we know the Fed cares about absolutely, but. 0:00:48.720 --> 0:00:51.640 Also that some of the economic data is starting to weaken, 0:00:51.800 --> 0:00:54.720 which also is not weak enough though to justify not 0:00:54.840 --> 0:00:55.480 cutting rates. 0:00:55.520 --> 0:00:57.480 Well, this is why it's like kind of difficult, I think, 0:00:57.480 --> 0:00:59.240 for investors to figure out it, which is why we 0:00:59.320 --> 0:01:01.600 lean on a couple of folks here at Bloomberg. Let's 0:01:01.640 --> 0:01:04.400 bring in Bloomberg News Economics reporter Steve Matthews. He's out 0:01:04.440 --> 0:01:07.560 there in our Atlanta Bureau and Bloomberg News Economics editor 0:01:07.600 --> 0:01:11.120 Molly Smith here in studio, both of you writing about 0:01:11.240 --> 0:01:13.480 the FED meeting and kind of the backdrop. Steve, I 0:01:13.480 --> 0:01:15.080 want to start with you. It is a top the 0:01:15.080 --> 0:01:17.880 most read on the Bloomberg on this Friday, has been 0:01:17.920 --> 0:01:20.520 there all day about the FED scene sticking with three 0:01:20.680 --> 0:01:24.200 cuts here in twenty twenty four. We get an update 0:01:24.319 --> 0:01:27.000 next week. Tell us about your thinking in the survey 0:01:27.040 --> 0:01:29.319 that you guys kind of came to this inclusion. 0:01:30.440 --> 0:01:33.479 Yeah, it's really interesting. We had a survey of forty 0:01:33.600 --> 0:01:37.520 nine economists and it's a very close call. It's not 0:01:37.600 --> 0:01:40.160 an easy call at all, but a majority of them 0:01:40.240 --> 0:01:42.880 believe that the FED will stick with three right cuts 0:01:42.920 --> 0:01:46.960 in the blot in the summary of Economic projections next week. 0:01:47.880 --> 0:01:50.640 More than a third say that they will shift to two. 0:01:51.040 --> 0:01:55.040 We've had we had a bad inflation report in January, 0:01:55.240 --> 0:01:58.320 just as past week we had a bad CPI worson 0:01:58.360 --> 0:02:02.520 expected and worson next affected a PPI. All of that 0:02:02.560 --> 0:02:09.320 goes into the FEDS inflation measure, the pc measure. So 0:02:09.560 --> 0:02:12.480 the thinking is that there will be at least it 0:02:12.560 --> 0:02:17.440 will take just two of the nineteen FMC participants to 0:02:17.600 --> 0:02:21.760 change their view on dots to shift from three cuts 0:02:21.800 --> 0:02:24.440 as being the median to two cuts being the median, 0:02:24.880 --> 0:02:30.520 and that could well jolt markets because markets are really 0:02:30.560 --> 0:02:33.640 not looking for that. So it's a close call and 0:02:33.720 --> 0:02:36.160 it's going to be really really interesting. 0:02:36.639 --> 0:02:36.959 Mollie. 0:02:37.040 --> 0:02:38.920 Let's bring you in here to talk about what it 0:02:38.960 --> 0:02:42.359 means for what comes next, because even though people will 0:02:42.360 --> 0:02:45.280 be looking at that dot plot, what will fetch your 0:02:45.360 --> 0:02:49.640 Powe will say, the reality is between that FOMC meeting, 0:02:49.720 --> 0:02:52.320 the one we're having next week, and the next set 0:02:52.320 --> 0:02:55.720 of economic data before you have the potential set of 0:02:55.720 --> 0:02:57.760 cuts that you'll see, there's a lot of uncertainty. 0:02:58.080 --> 0:03:00.520 Yeah, and I don't think powers are going to give 0:03:00.560 --> 0:03:02.800 us a great idea of timing. It's all been so 0:03:03.000 --> 0:03:06.680 vague so far from him, from some other of the 0:03:06.680 --> 0:03:07.720 FED speakers. 0:03:07.720 --> 0:03:09.480 Say though, that we would get rate cuts this year. 0:03:09.680 --> 0:03:11.840 Yes, I mean, I mean look where right now at 0:03:11.919 --> 0:03:14.480 March fifteenth. There's a while ago from now to the 0:03:14.600 --> 0:03:17.000 end of the year. So and I think if anything 0:03:17.080 --> 0:03:19.040 more of what you hear that's a little bit more 0:03:19.080 --> 0:03:22.560 specific than this year is later this year, as in 0:03:22.880 --> 0:03:25.760 second half of this year. So I still think that 0:03:26.360 --> 0:03:29.720 I mean, you obviously have next week being the upcoming 0:03:29.720 --> 0:03:33.160 FED meeting. FED meeting, not really a whole lot of 0:03:33.160 --> 0:03:36.520 people seeing may as likely for a starting point June 0:03:36.520 --> 0:03:38.920 even less likely after this week. At that point, that 0:03:38.960 --> 0:03:41.960 gets you closer to July, and then September would be 0:03:41.960 --> 0:03:43.520 the next one. Then you're in the second half of 0:03:43.560 --> 0:03:45.280 the year, so still a very. 0:03:45.080 --> 0:03:48.120 Good closer to a presidential election. Even more so, well, 0:03:48.160 --> 0:03:49.760 you know, Steve, I mean, when it comes down to 0:03:49.800 --> 0:03:52.080 the data points, right, not all data points are equal, 0:03:52.160 --> 0:03:53.960 and I know the FED has a dual mandate, right, 0:03:54.000 --> 0:03:56.920 They're watching certainly the inflation rate. They're also watching unemployment, 0:03:57.400 --> 0:03:59.880 the labor market, maybe some softness, a little bit of 0:04:00.120 --> 0:04:03.240 still pretty tight. Inflation is what it's all about, right, 0:04:03.240 --> 0:04:04.960 and the FED is going to be vigilant on that, 0:04:05.120 --> 0:04:08.160 and that's going to determine ultimately how many rate cuts 0:04:08.200 --> 0:04:09.320 they do when we get to the end. 0:04:09.200 --> 0:04:10.760 Of the year. Yeah. 0:04:10.800 --> 0:04:13.840 Really, over the last year year and a half, inflation 0:04:14.000 --> 0:04:16.520 has been basically the only thing they've been looking at 0:04:16.520 --> 0:04:19.839 when they were raising rates. When they stopped, we've had 0:04:19.880 --> 0:04:25.359 basically good inflation reports until this year, and now that 0:04:25.520 --> 0:04:30.000 is slightly changing though in the last couple of months, 0:04:30.040 --> 0:04:33.560 the unemployment rate is ticked up to three point nine percent. 0:04:33.600 --> 0:04:37.320 It's the highest in two years. You're seeing a little 0:04:37.360 --> 0:04:40.599 bit more balance in the discussion of the different FED 0:04:40.640 --> 0:04:43.080 officials and those who are saying that they're going to 0:04:43.120 --> 0:04:47.000 stick with three rate cuts this year. Many of them 0:04:47.040 --> 0:04:49.760 are pointing to what's happening with the labor market that 0:04:50.200 --> 0:04:52.960 you know, they may be they may not want to 0:04:53.080 --> 0:04:58.120 change to two cuts because they want to have that 0:04:58.200 --> 0:05:01.760 option open to move relatively quickly if things get worse 0:05:01.800 --> 0:05:02.719 for the labor market. 0:05:03.000 --> 0:05:05.760 Steve, what about the election? You know, Carol alluded to 0:05:05.800 --> 0:05:08.200 it a little bit here, but given how much pressure 0:05:08.240 --> 0:05:10.880 there is on the FED to fight inflation, and inflation 0:05:11.080 --> 0:05:14.760 going into the election is still such a massive concern 0:05:14.839 --> 0:05:18.159 for so many Americans, wouldn't there be some pressure on 0:05:18.200 --> 0:05:21.520 the FED here equally not to cut well. 0:05:21.920 --> 0:05:25.840 The Fed, no doubt, is really really focused on inflation, 0:05:26.400 --> 0:05:30.479 and you will hear words every time that Chair Palell speaks. 0:05:30.480 --> 0:05:34.040 He's going to say, we're firmly committed to getting inflation 0:05:34.200 --> 0:05:36.719 back to the two percent targeted and that is an 0:05:36.800 --> 0:05:40.880 overriding goal and it causes pain for everyone, And he's 0:05:40.920 --> 0:05:43.280 going to say all of the right things to kind 0:05:43.320 --> 0:05:48.000 of express concern on inflation. So that is a factor, 0:05:48.560 --> 0:05:54.040 but the timing of meetings is also a factor of 0:05:54.680 --> 0:05:57.200 One of the leading economists, Vince ryan Hard, he used 0:05:57.200 --> 0:05:59.680 to work with the FED, was making the point that 0:06:00.080 --> 0:06:02.640 in some ways it will be easier for the FED 0:06:02.720 --> 0:06:05.919 to move in June than September. At one point he 0:06:06.080 --> 0:06:09.479 was forecasting the first move in September. Now he's in June. 0:06:09.839 --> 0:06:14.039 Because if you had your first move in September, which 0:06:14.080 --> 0:06:16.520 if you had two cuts, it might make sense to 0:06:16.520 --> 0:06:19.840 do September and December. If you were doing that, that 0:06:19.880 --> 0:06:23.000 would be like the last meeting before the presidential election. 0:06:23.120 --> 0:06:25.800 And do you really want to be cutting rights the 0:06:26.200 --> 0:06:30.200 last meeting before the presidential election. I mean, there would 0:06:30.200 --> 0:06:33.359 be lots of accusations. As much as the FED is 0:06:33.440 --> 0:06:37.000 avowedly nonpartisan, there would be accusations that were moving for 0:06:37.000 --> 0:06:41.279 political reasons, and they want to avoid that impression altogether. 0:06:41.839 --> 0:06:44.200 Yeah, just to piggyback off of what Steve said there, 0:06:44.240 --> 0:06:46.960 that in addition to the FED preaching that they are 0:06:47.000 --> 0:06:49.440 firmly committed to bring inflation to two percent, they will 0:06:49.520 --> 0:06:53.359 just as equally be preaching that they are an independent institution, 0:06:53.520 --> 0:06:55.240 that they are not political and that they will not 0:06:55.320 --> 0:06:58.599 wait into politics whatsoever. So I kind of have a 0:06:58.640 --> 0:07:01.599 hard time seeing how you make I think the argument 0:07:01.640 --> 0:07:04.159 could go either way. If if you cut in June 0:07:04.200 --> 0:07:07.520 versus September, of like, how that could be politically motivated 0:07:07.520 --> 0:07:09.080 in either way. I think there are a lot of 0:07:09.080 --> 0:07:11.040 ways to slice and dice that. But either way, they're 0:07:11.080 --> 0:07:13.120 going to be focused on inflation and what the data 0:07:13.160 --> 0:07:13.600 tells them. 0:07:13.720 --> 0:07:15.360 Yeah, and I will say in talking with I have 0:07:16.680 --> 0:07:20.800 a member of the White House Economic Team. We talked 0:07:20.840 --> 0:07:24.280 with Daniel Hornig ahead of remember his name, Deputy director 0:07:24.280 --> 0:07:26.200 with the National Economic Council yesterday and when I asked 0:07:26.240 --> 0:07:28.080 him something about the two percent target, He's like, hey, 0:07:28.120 --> 0:07:29.560 we don't tell the FED what to do. We stay 0:07:29.600 --> 0:07:33.360 away from that. Steve having said that, you know, I 0:07:33.360 --> 0:07:36.080 think about when you're like driving on ice, and I'm 0:07:36.080 --> 0:07:37.640 not saying that that this is kind of what the 0:07:37.680 --> 0:07:40.280 economic situation is, but you know, how you top the 0:07:40.320 --> 0:07:44.360 brakes so that, you know, could the FED try and 0:07:44.400 --> 0:07:46.800 do something earlier rather than later and then maybe leave 0:07:46.840 --> 0:07:48.320 it alone for a couple of months to give it 0:07:48.360 --> 0:07:50.560 some breathing room just in case that there is like 0:07:50.600 --> 0:07:54.280 you talked about some signs of maybe some slowing down 0:07:54.280 --> 0:07:56.239 in the labor market, just to make sure we don't 0:07:56.680 --> 0:08:01.080 ultimately slide into some kind of signal downturn. 0:08:02.160 --> 0:08:06.760 That is absolutely an option. You heard Vice Chair Jefferson 0:08:06.800 --> 0:08:10.520 in a recent speech before the FED went into blackout say, 0:08:10.760 --> 0:08:14.320 you know he referred back to the mid nineteen nineties 0:08:14.640 --> 0:08:19.000 when Alan Greenspan had a right cut and then pause 0:08:19.160 --> 0:08:24.760 for several meetings before resuming cuts. And you know he 0:08:24.840 --> 0:08:27.200 was kind of holding that out as you know, one 0:08:27.280 --> 0:08:29.680 option that they could do. They could do a move 0:08:29.720 --> 0:08:33.040 and then hold for on pause for a few meetings. 0:08:33.480 --> 0:08:36.480 And you know that is absolutely an option. And if 0:08:36.520 --> 0:08:38.560 they're not really sure or if they want to keep 0:08:38.559 --> 0:08:41.000 their options open, that would be a good way to 0:08:41.040 --> 0:08:42.040 do it real quickly. 0:08:42.320 --> 0:08:44.760 Molly ten seconds. What would surprise you in terms of 0:08:44.800 --> 0:08:46.079 the FED meeting next week. 0:08:46.679 --> 0:08:50.200 Probably looking more at the outlook for their inflation projections, 0:08:50.240 --> 0:08:53.520 if they saw maybe mark those up a bit, wouldn't 0:08:53.520 --> 0:08:55.760 be surprised as much if maybe there were modifications to 0:08:55.800 --> 0:08:58.360 the growth forecast, But seeing changes to the inflation on 0:08:58.480 --> 0:08:59.960 that would definitely be market moving. 0:09:00.040 --> 0:09:02.640 That would certainly get the market investors' attention us, Steve, 0:09:02.760 --> 0:09:04.880 same thing ten fifteen seconds to you. A big surprise 0:09:04.920 --> 0:09:06.400 would be what from the FED next week? 0:09:06.440 --> 0:09:09.640 If anyone dissents, I would be surprised because I think, 0:09:10.080 --> 0:09:14.280 you know and talking about the FED big non political. 0:09:14.720 --> 0:09:17.360 I think this is a period of time when they 0:09:17.400 --> 0:09:20.400 want to be united. Some of them are appointed by Republicans, 0:09:20.400 --> 0:09:22.600 some by Democrats. They want to show that they are 0:09:22.640 --> 0:09:23.840 non political, don't they. 0:09:23.880 --> 0:09:25.199 At the end of the meeting, all the hands go 0:09:25.280 --> 0:09:26.880 in the middle of the table and they go yay, 0:09:26.880 --> 0:09:28.880 all for one. No if they don't hold by y'all 0:09:29.360 --> 0:09:31.400 come by ya all right, guys, thanks so much, have 0:09:31.480 --> 0:09:34.080 a great week and Molly Smith, economics edit at Bloomberg News. 0:09:34.080 --> 0:09:36.920 Here in studio. Steve Matthews, of course, our economics reporter 0:09:36.960 --> 0:09:39.200 at Bloomberg News out there in Atlanta Bureau. 0:09:40.040 --> 0:09:43.439 You're listening to the Bloomberg Business Week podcast. Can'tch just 0:09:43.600 --> 0:09:46.839 Live weekday afternoons from two to five pm Eastern Listen 0:09:46.880 --> 0:09:49.040 on Apple car Play and and brout Auto with a 0:09:49.040 --> 0:09:53.319 Bloomberg Business app or wan't us live on YouTube. 0:09:54.080 --> 0:09:56.360 Hey, our next guest says, the alchemy of low rates 0:09:56.400 --> 0:09:59.480 is over. Feels like a very timely conversation. Considering we're 0:09:59.480 --> 0:10:01.680 getting ready for the next FED meeting next week, let's 0:10:01.679 --> 0:10:04.360 get to it. Jeff Klingelhoffer is head of investments for 0:10:04.400 --> 0:10:08.040 Thornberg Investment Management. They've got some forty four billion dollars 0:10:08.080 --> 0:10:12.120 in assets under management. Joining Chanel and me here in studio. Welcome, Welcome, 0:10:12.160 --> 0:10:13.720 How are you doing well? 0:10:13.800 --> 0:10:14.600 Thank you for having me. 0:10:14.760 --> 0:10:16.480 Well, it's great to have you here. And I feel 0:10:16.480 --> 0:10:18.920 like it's an environment, depending on the day, depending on 0:10:18.960 --> 0:10:23.400 the data points, kind of certainly shapes the mood of 0:10:23.559 --> 0:10:26.480 investors a lot to digest. Is there a way that 0:10:26.559 --> 0:10:28.640 you sum up today's investment environment? 0:10:29.200 --> 0:10:31.079 Yeah, I think honestly, the way I would sum it 0:10:31.160 --> 0:10:33.640 up is we are looking to the forward, looking for 0:10:33.679 --> 0:10:36.080 the FED. Right, We're looking to a lot of complacency 0:10:36.080 --> 0:10:38.680 in the market, a lot of uncertainty. The data tells 0:10:38.760 --> 0:10:42.679 us that, unfortunately, the consumer isn't nearly as strong as 0:10:42.720 --> 0:10:44.920 the data is telling us. They're taking on more debt, 0:10:44.960 --> 0:10:48.079 they're dipping into savings, they're defaulting on that additional debt. 0:10:48.640 --> 0:10:49.600 Yet here we have. 0:10:49.679 --> 0:10:50.600 Market talked about. 0:10:50.600 --> 0:10:50.880 Oddly. 0:10:51.040 --> 0:10:55.160 Yeah, markets are very complacent. Pe multiples looking forward are 0:10:55.240 --> 0:10:58.559 very high. Right, spreads on bonds are very very tight, 0:10:58.880 --> 0:11:01.640 Earnings expectations run very high. So what I would say is, 0:11:01.679 --> 0:11:05.240 it's not that embarrashed. We're really really struggling to square 0:11:05.320 --> 0:11:07.319 up what we're seeing in the data versus what markets 0:11:07.320 --> 0:11:07.920 are telling us. 0:11:07.920 --> 0:11:10.200 You know, I think Wall Street does this thing. Big investors, 0:11:10.200 --> 0:11:13.319 they shun off, they shrug off the pains and the consumer. 0:11:13.679 --> 0:11:16.480 But there is a point at which the real economy 0:11:16.760 --> 0:11:19.480 starts to meet the market. And where is that overlap? 0:11:20.120 --> 0:11:22.080 Yeah, I mean I would characterize it. There's been a 0:11:22.120 --> 0:11:24.800 bit of a runaway train recently in terms of sentiment 0:11:24.840 --> 0:11:27.280 to the positive side. And what I worry about as 0:11:27.320 --> 0:11:29.600 we start to see data points that continue to affirm 0:11:29.640 --> 0:11:32.640 the economy is slowing, higher rates are actually having an 0:11:32.679 --> 0:11:35.720 impact that we may see the exact opposite and markets 0:11:35.760 --> 0:11:39.040 pull back. We'll be watching the Fed very closely next week. Right, 0:11:39.040 --> 0:11:40.920 we've in the face of a couple of very strong 0:11:40.960 --> 0:11:43.760 inflation prints the market. The Fed is looking at the 0:11:43.760 --> 0:11:45.800 dot plot. Because the Fed tells us they're going to 0:11:45.840 --> 0:11:48.920 cut rates three times this year. I continue to push back. 0:11:49.000 --> 0:11:51.840 They told us they were going to be very reactive 0:11:51.840 --> 0:11:53.760 on the way up. They need to see inflation above 0:11:53.800 --> 0:11:56.040 two percent, and they needed to stay think it was 0:11:56.080 --> 0:11:58.920 going to stay there, right, the famous transitory language. I 0:11:59.000 --> 0:12:01.080 worry even the FED themself elves they might be making 0:12:01.120 --> 0:12:03.640 a policy mistake on the belief that they're going to 0:12:03.679 --> 0:12:06.000 cut rates in the face of this higher inflation in 0:12:06.120 --> 0:12:08.120 order to prevent that true slowdown. 0:12:08.240 --> 0:12:10.400 So are you saying, because we've had like Towrdsen's lack 0:12:10.400 --> 0:12:12.360 of apollo management, We've all been talking about it was 0:12:12.360 --> 0:12:14.240 a most red story in the Bloomberg that we could 0:12:14.280 --> 0:12:17.000 maybe not get rate cuts this year. Maybe we shouldn't 0:12:17.040 --> 0:12:18.040 get racuts this year. 0:12:18.400 --> 0:12:20.840 Yeah, I'd be a little bit hesitant to say we're 0:12:20.840 --> 0:12:22.680 not going to see a single rate cut. That's where 0:12:22.720 --> 0:12:25.240 I was leading into this, But in reality, the Fed 0:12:25.320 --> 0:12:27.480 is telling us they're probably going to cut rates. What 0:12:27.520 --> 0:12:29.240 I would discount is I don't think they're going to 0:12:29.320 --> 0:12:31.599 cut three times. I think a reasonable base case for 0:12:31.679 --> 0:12:33.880 my view is we'll probably get a single rate cut 0:12:33.920 --> 0:12:36.920 in recognition that inflation isn't running at nine percent, it 0:12:36.960 --> 0:12:38.560 is coming down to three. 0:12:38.880 --> 0:12:40.120 But they don't maybe they. 0:12:40.040 --> 0:12:42.079 Don't need to actually get to two in an incredibly 0:12:42.120 --> 0:12:43.920 fast way, so they're probably going to hold it there 0:12:43.960 --> 0:12:46.920 for a little bit. Longer and adjust their expectations higher. 0:12:46.960 --> 0:12:49.000 Now, the other question is when we've been talking kind 0:12:49.000 --> 0:12:52.040 of just before we got on air about how tomorrow 0:12:52.240 --> 0:12:56.600 is actually the second anniversary since the FED began this 0:12:56.760 --> 0:13:01.000 FED rate hiking cycle, So how long before begins the 0:13:01.080 --> 0:13:02.080 rate cutting one? 0:13:02.080 --> 0:13:03.400 Does it have to be after the election? 0:13:04.160 --> 0:13:06.120 I don't think it has to be after the election. 0:13:06.400 --> 0:13:08.480 I mean my base case would be towards the late summer. 0:13:08.840 --> 0:13:10.520 But what I would say is Wall Street, We on 0:13:10.600 --> 0:13:12.560 Wall Street made a mistake on the back of a 0:13:12.679 --> 0:13:15.480 very fast, very high interest rate hiking cycle. It was 0:13:15.600 --> 0:13:19.080 reasonable to assume that those long and variable lags would 0:13:19.080 --> 0:13:21.680 be a little bit shorter than we're historically accustomed to. 0:13:22.360 --> 0:13:25.280 But history tells us it's about two years before higher 0:13:25.360 --> 0:13:27.720 rates actually start to have a byte. And to your point, 0:13:27.760 --> 0:13:29.959 here we sit two years later and it is having 0:13:30.000 --> 0:13:32.600 a bite. So I think it's around the corner. It 0:13:32.640 --> 0:13:34.440 is slow, but I think it's around the corner, right, 0:13:34.440 --> 0:13:36.679 because we see every single day the data is coming 0:13:36.720 --> 0:13:39.079 in just slightly weaker than markets expect to make. 0:13:39.120 --> 0:13:43.880 The connection between like an Nvidia that's up eighty percent 0:13:44.000 --> 0:13:49.120 this year with the stuff we're seeing on everyday Americans 0:13:49.160 --> 0:13:51.400 what's the connection that maybe we should be making. 0:13:52.200 --> 0:13:53.800 I don't know if we should be making a connection. 0:13:53.840 --> 0:13:55.599 And that's one of the challenges. Right We've got a 0:13:55.720 --> 0:13:58.920 very bifurcated market. A couple of very large companies the 0:13:59.040 --> 0:14:02.040 hype around AI are really what's driving the market higher. 0:14:02.440 --> 0:14:04.040 But the entirety of the rest of the S and 0:14:04.040 --> 0:14:06.560 P five hundred, right the four hundred and ninety three, 0:14:06.600 --> 0:14:08.280 if you will, they're struggling. 0:14:08.440 --> 0:14:10.400 But we have seen a little bit of a broadening out. 0:14:10.640 --> 0:14:13.280 We have, but just earlier this week we saw a 0:14:13.280 --> 0:14:16.720 survey out of small businesses that suggest forward looking hiring 0:14:16.760 --> 0:14:19.479 plans are coming down, and they're consistent with that slowdown, 0:14:19.880 --> 0:14:22.280 and so there is a very big disconnect. And even 0:14:22.320 --> 0:14:25.120 on some of the AI we have concerns because they're 0:14:25.120 --> 0:14:27.760 spending a lot of money historically a lot more than 0:14:27.760 --> 0:14:30.880 they have spent, and their return on that invested capital 0:14:30.920 --> 0:14:34.320 is coming down. So if Wall Street doesn't see that 0:14:34.360 --> 0:14:37.720 return pick up, I worry that that sentiment could soften. 0:14:37.440 --> 0:14:39.200 Their So you know how there was a point in 0:14:39.240 --> 0:14:41.000 time where people looked at some of these big tech 0:14:41.000 --> 0:14:43.960 companies and almost saw them as a haven. Here do 0:14:44.040 --> 0:14:47.400 you think that that same dynamic is starting to face 0:14:47.680 --> 0:14:50.560 the semiconductor stocks. Do you think that in some ways 0:14:50.840 --> 0:14:53.680 that if you believe that a job market is softening, 0:14:53.800 --> 0:14:56.800 or if you believe that there are some struggles in 0:14:56.840 --> 0:14:59.760 the broader environment, that there's still would be investment potentially 0:14:59.800 --> 0:15:03.960 int AI. I mean, does that start to also drop 0:15:04.000 --> 0:15:07.400 off in a way that no longer justifies these valuations. 0:15:07.800 --> 0:15:10.280 Well, what I'll say is, I think semiconductors traditionally are 0:15:10.320 --> 0:15:13.320 actually a fairly cyclical investment and they've bucked that trend 0:15:13.360 --> 0:15:15.960 because of the hype around AI, and every company in 0:15:16.000 --> 0:15:18.080 the world feels like they have to jump in, they 0:15:18.120 --> 0:15:20.840 have to play catchup. But I think, just like the 0:15:20.840 --> 0:15:23.360 Internet or just like robotics, right, AI is something that's 0:15:23.360 --> 0:15:25.480 going to really work to shape the world, not over 0:15:25.520 --> 0:15:27.640 the next one or two or three years. It's over 0:15:27.680 --> 0:15:28.760 the next decades. 0:15:28.440 --> 0:15:29.400 To runways longer. 0:15:29.520 --> 0:15:32.080 So the cycle probably should be longer. But the hype 0:15:32.160 --> 0:15:35.440 has really moved forward to a very savage question. 0:15:36.640 --> 0:15:37.680 I love the savage question. 0:15:37.680 --> 0:15:40.120 The savage question is if companies are investing in this 0:15:40.240 --> 0:15:42.320 environment where dollars are harder to come by, do they 0:15:42.320 --> 0:15:44.960 invest in AI or do they invest in the marginal job. 0:15:45.360 --> 0:15:47.160 I think over time it's going to have to move 0:15:47.200 --> 0:15:49.840 back towards that marginal job because again, what we're not 0:15:49.880 --> 0:15:52.560 seeing is the return on invested capital. So there's a 0:15:52.560 --> 0:15:55.160 bit just like in markets, there's that fear of missing 0:15:55.200 --> 0:15:57.720 out FOMO you have to rush in because it's worked 0:15:57.720 --> 0:16:00.320 across twenty twenty three and twenty twenty four. I feel 0:16:00.320 --> 0:16:02.440 like companies are also playing that catch up. They hear 0:16:02.440 --> 0:16:04.720 their peers are investing in AI, and therefore they have 0:16:04.760 --> 0:16:06.960 to invest in AI. But that should change. 0:16:06.720 --> 0:16:09.680 Do you invest in? So is there an AI play 0:16:09.680 --> 0:16:11.920 that you guys have been investing too in because do 0:16:11.960 --> 0:16:13.800 you kind of have to or your investors are asking 0:16:13.840 --> 0:16:14.040 you to. 0:16:14.680 --> 0:16:16.440 It's less because of that. But what I would say 0:16:16.480 --> 0:16:18.120 is what we want to find is companies with very 0:16:18.120 --> 0:16:20.360 strong modes. And so in the face of all of 0:16:20.360 --> 0:16:23.640 this uncertainty, this data that suggests on one level the 0:16:23.640 --> 0:16:26.520 economy is doing well GDP for instance, but then gross 0:16:26.560 --> 0:16:29.160 domestic income should say the same thing, but it says 0:16:29.160 --> 0:16:32.720 something very opposite. We're really focusing on companies that surround 0:16:32.760 --> 0:16:35.360 the mode around AI. So companies like sk Heinex right 0:16:35.360 --> 0:16:38.000 still involved in that cycle, but not wrapped up in 0:16:38.040 --> 0:16:41.080 nearly the same amount of hype and pe multiple Where else. 0:16:40.880 --> 0:16:43.200 Are you putting Would you commit new money in this environment? 0:16:43.240 --> 0:16:46.240 As you lay it out, Yeah, The biggest takeaway from 0:16:46.320 --> 0:16:49.480 what I'm talking with clients this week is that uncertainty 0:16:49.560 --> 0:16:51.600 is very high. It's not that I think we are 0:16:51.680 --> 0:16:54.280 heading into a recession. It's that the possibility when we 0:16:54.280 --> 0:16:57.200 look at data and we pair these disparate indicators, right, 0:16:57.240 --> 0:17:00.400 things like the establishment survey versus the household surveys, very 0:17:00.520 --> 0:17:01.160 very different thing. 0:17:01.240 --> 0:17:02.960 We've talked a lot about the mixed data points that 0:17:03.000 --> 0:17:03.520 make it tough. 0:17:03.680 --> 0:17:06.439 It's pull back. It's just you don't have to be 0:17:06.480 --> 0:17:09.320 investing in these runaway sectors in order to be involved 0:17:09.320 --> 0:17:12.880 in the markets. So fixed income continues to look tremendously interesting. 0:17:12.960 --> 0:17:13.120 Right. 0:17:13.200 --> 0:17:16.919 Income opportunities across the globe are very high. Global dividend 0:17:16.960 --> 0:17:18.600 pain stocks look very attractive to it. 0:17:18.640 --> 0:17:21.160 I think so on fixed income with where spreads are today. 0:17:21.359 --> 0:17:24.480 Less on spreads, but treasuries right and low four percents 0:17:24.520 --> 0:17:27.480 is still historically, at least over a reasonable history the 0:17:27.560 --> 0:17:30.639 last fifteen twenty years is a very interesting starting place. 0:17:30.920 --> 0:17:33.040 But the reason why I think fixed income in particular 0:17:33.119 --> 0:17:35.680 is interesting is because we debate what the FED is 0:17:35.720 --> 0:17:37.480 going to do. I don't think the next move is 0:17:37.520 --> 0:17:38.960 going to be a hike. It will be a cut. 0:17:39.000 --> 0:17:41.159 I do think it's much longer. But the beauty of 0:17:41.200 --> 0:17:43.640 it is central banks around the world can cut if 0:17:43.680 --> 0:17:44.440 we get that recession. 0:17:44.440 --> 0:17:45.960 Wait did you just say I don't think the next 0:17:45.960 --> 0:17:47.600 move is going to be a hike? So is that 0:17:47.640 --> 0:17:50.240 even a possibility we should keep in our narrative. 0:17:50.440 --> 0:17:52.199 I think it's absolutely we need to keep it in 0:17:52.200 --> 0:17:56.360 our narrative. Right, central banks run an objective where they 0:17:56.400 --> 0:17:59.200 have to react to incoming data. The challenges is inflation 0:17:59.240 --> 0:18:01.680 has stopped falling, and if anything, it's actually started to 0:18:01.720 --> 0:18:05.679 reaccelerate in some sectors. So I think it's premature to 0:18:05.680 --> 0:18:07.679 talk about a hike, but it's not off the table. 0:18:07.760 --> 0:18:11.800 Wow, great conversation. Come back soon. Jeff Klingelhoff, our head 0:18:11.800 --> 0:18:14.840 of investments at Thornberg Investment Management, joining us in studio. 0:18:17.119 --> 0:18:21.000 You're listening to the Bloomberg Business Week podcast. Listen live 0:18:21.080 --> 0:18:24.439 each weekday starting at two pm Easter on Applecarplay and 0:18:24.440 --> 0:18:27.440 Android Auto with the Bloomberg Business ad You can also 0:18:27.520 --> 0:18:31.040 listen live on Amazon Alexa from our flagship New York station, 0:18:31.400 --> 0:18:34.159 just say Alexa playing Bloomberg eleven thirty. 0:18:35.600 --> 0:18:37.919 We've been watching a few commodities in the mining space. 0:18:38.160 --> 0:18:40.160 This is prices for two of the world's most important 0:18:40.200 --> 0:18:43.960