WEBVTT - UPS to Cut Jobs, US Consumer Confidence Climbs, Tech Earnings on Deck 0:00:01.440 --> 0:00:05.320 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:05.400 --> 0:00:08.079 weekdays at ten am Eastern on Affo card Playing and 0:00:08.240 --> 0:00:11.080 broud Otto with the Bloomberg Business app. Listen on demand 0:00:11.160 --> 0:00:16.000 wherever you get your podcasts, or watch us live on YouTube. 0:00:16.560 --> 0:00:18.400 You're a confident guy, John. 0:00:18.440 --> 0:00:21.520 The consumer confidence numbers just coming out from a conference board, 0:00:21.600 --> 0:00:24.119 man spot right on the forecast came in at one 0:00:24.200 --> 0:00:27.280 fourteen point eight. That was right in line with expectations, 0:00:27.320 --> 0:00:30.080 and notably it was a lot higher than last month, 0:00:30.120 --> 0:00:32.040 which was revised down to one zero eight. 0:00:32.120 --> 0:00:33.160 So nice pick up there. 0:00:33.880 --> 0:00:35.519 Let's break it down with somebody who kind of knows 0:00:35.560 --> 0:00:39.120 what's happening here, Dana Peterson, chief economist at the conference Board. 0:00:39.159 --> 0:00:41.479 It joins us via Zoom Data. It looks like a 0:00:41.520 --> 0:00:43.360 solid number. Put it in context for. 0:00:43.360 --> 0:00:47.519 Us, absolutely, we have the highest reading on consumer confidence 0:00:47.560 --> 0:00:50.320 in two years. A lot of it was led by 0:00:50.400 --> 0:00:54.080 the present situation where consumers are feeling good about their jobs, 0:00:54.120 --> 0:00:57.520 they're feeling good about the business situation, but also consumers 0:00:57.520 --> 0:01:00.280 are thinking that maybe we won't have a recession, and 0:01:00.320 --> 0:01:04.320 that also contributed to expectations which were above that threshold 0:01:04.400 --> 0:01:05.920 that usually signals or session. 0:01:06.240 --> 0:01:09.600 Yeah, before you came on, Dana, we did the Joelt's 0:01:09.640 --> 0:01:13.360 Job Opening survey, more evidence the labor market is just 0:01:13.520 --> 0:01:16.360 cooking along. How much does that play into this? 0:01:17.400 --> 0:01:20.440 We think it plays a huge role. Consumers continue to 0:01:20.440 --> 0:01:24.000 say that the labor market is good. Even most of 0:01:24.120 --> 0:01:26.440 last year they said the present situation was fine with 0:01:26.480 --> 0:01:29.000 regards to the labor market. Many of them are working. 0:01:29.319 --> 0:01:32.160 Companies are not letting people go because they're concerned about 0:01:32.240 --> 0:01:35.679 labor shortages, and so that's been benefiting the consumer and 0:01:35.720 --> 0:01:38.520 definitely supporting their finances and their incomes. 0:01:39.120 --> 0:01:42.399 And Dan, it's interesting here we're getting you know, as 0:01:42.480 --> 0:01:45.360 interest rates come down, Like just take the mortgage rate. 0:01:45.760 --> 0:01:47.640 Mortgage rates are coming down off their peak. They are 0:01:47.640 --> 0:01:49.600 still a lot higher than probably people would like though, 0:01:49.640 --> 0:01:51.800 but everybody's. 0:01:51.320 --> 0:01:51.800 Got a job. 0:01:51.800 --> 0:01:55.080 But once one, where are you looking at this economy 0:01:55.120 --> 0:01:57.040 to get a sense of really where it is and 0:01:57.040 --> 0:01:58.600 where it might be going here? 0:02:00.120 --> 0:02:01.760 Sure, So, I mean you have to look at the 0:02:01.800 --> 0:02:04.880 economy and look under the hood. So they're definitely areas 0:02:04.880 --> 0:02:08.560 of weakness. The housing market is still pretty weak as 0:02:08.680 --> 0:02:11.120 mortgage rates have come off, but there's still much higher, 0:02:11.120 --> 0:02:14.000 almost double what we saw a pre pandemic or even 0:02:14.400 --> 0:02:17.799 during the worst of the pandemic. Businesses are not investing 0:02:17.840 --> 0:02:19.840 that much, and we don't think government is going to 0:02:19.880 --> 0:02:22.480 be as big of a stimulator. But when you look 0:02:22.480 --> 0:02:24.959 at consumers, many of them are working. As we said, 0:02:25.000 --> 0:02:28.520 their real incomes are rising as inflation is falling, and 0:02:28.600 --> 0:02:32.400 so that's definitely propping up spending. But the key issue 0:02:32.480 --> 0:02:34.480 is can they continue to do so, and we're not 0:02:34.520 --> 0:02:36.639 sure about that given the amount of debt that's being 0:02:36.680 --> 0:02:37.600 piled up right now. 0:02:38.040 --> 0:02:41.160 Okay, and these numbers also to some extent, because they 0:02:41.200 --> 0:02:44.959 are good numbers, might actually be inflationary. You did mention 0:02:45.120 --> 0:02:46.280 consumer spending. 0:02:46.040 --> 0:02:49.840 Right, Well, the interesting thing is that in the right ends, 0:02:49.840 --> 0:02:53.720 consumers continue to complain about inflation and prices, so the 0:02:53.800 --> 0:02:57.120 price level is high even though inflation prices aren't rising 0:02:57.160 --> 0:02:59.480 as quickly as they were. But the good news is 0:02:59.480 --> 0:03:03.520 that inflation expectations continue to fall in our measure, and 0:03:03.520 --> 0:03:07.320 that's a signal that consumers are thinking that inflation is 0:03:07.360 --> 0:03:09.520 going to continue to decline, and so it might not 0:03:09.600 --> 0:03:12.600 be inflationary. Despite the fact that we have seen some 0:03:12.639 --> 0:03:15.440 pretty strong consumption, especially in the second half of last 0:03:15.480 --> 0:03:17.680 year and in the last few months of last year. 0:03:17.800 --> 0:03:21.919 Can you explain why those inflation expectations are important? I mean, 0:03:21.960 --> 0:03:25.119 do they tend to be sort of self fulfilling prophecies? 0:03:26.639 --> 0:03:29.760 Well, it can be. If inflation expectations are too high, 0:03:29.800 --> 0:03:34.600 then people say, well, you know, I'm just not going 0:03:34.680 --> 0:03:37.320 to spat and because I can't afford it, and I 0:03:37.360 --> 0:03:39.440 probably won't be able to afford things in the future. 0:03:39.800 --> 0:03:40.320 So with the. 0:03:40.240 --> 0:03:43.480 Expectations falling, that means consumers are thinking, oh, I'm going 0:03:43.520 --> 0:03:46.000 to get some relief later on. So that means I 0:03:46.040 --> 0:03:48.320 don't have to put my life on hold while I 0:03:48.360 --> 0:03:50.080 watch prices rise even faster. 0:03:51.040 --> 0:03:54.640 So, Dana at the conference board, are you guys thinking 0:03:54.680 --> 0:03:57.280 there's going to be a recession in twenty twenty four 0:03:57.440 --> 0:03:58.160 or or not? 0:03:58.240 --> 0:03:59.040 How do you think about that? 0:04:00.160 --> 0:04:02.280 Well, we do think the likelihood of a soft landing 0:04:02.320 --> 0:04:05.480 has definitely increased, but we're still there's still risks out 0:04:05.480 --> 0:04:08.800 there that you could have a recession. It's probably going 0:04:08.880 --> 0:04:11.240 to be short, it's probably going to be shallow. Why 0:04:11.280 --> 0:04:14.760 do we think that? Again, consumers do no longer have 0:04:14.880 --> 0:04:18.920 the massive supports from the stimulus checks. Also, many consumers 0:04:19.000 --> 0:04:22.640 are financing their purchases with debt. At some point that's 0:04:22.640 --> 0:04:24.480 going to come due and they have to pay it back. 0:04:25.480 --> 0:04:28.640 We also think that some businesses may come under pressure 0:04:29.000 --> 0:04:31.440 and start letting people go, and that will definitely put 0:04:31.440 --> 0:04:35.160 a debt in confidence and also spending. But the key 0:04:35.160 --> 0:04:38.680 thing is the labor market. If the labor market doesn't 0:04:38.760 --> 0:04:42.360 weaken much further, then you're probably going to see people 0:04:42.400 --> 0:04:44.960 continue to spend and we'll have that soft landing that 0:04:45.040 --> 0:04:46.080 the fet is hoping for. 0:04:46.480 --> 0:04:49.240 Are all consumers created equal or do you break this 0:04:49.400 --> 0:04:53.760 down into certain groups geographically or income wise? 0:04:55.000 --> 0:04:57.839 Yes, we do, and in fact every income group, with 0:04:57.880 --> 0:05:02.599 the exception of the wealthiest group, we're more optimistic in January, 0:05:03.320 --> 0:05:05.760 so that's definitely good news. Not sure what's going on 0:05:05.839 --> 0:05:11.760 with the wealthier folks spically, but the thing is that 0:05:11.839 --> 0:05:14.680 for the most part, consumers expect interest rates to be 0:05:14.760 --> 0:05:17.000 lower and they expect the stock market to be higher 0:05:17.040 --> 0:05:19.479 going forward. So you know, the folks who tend to 0:05:19.520 --> 0:05:22.479 have stocks are the wealthier folks. But the point is 0:05:22.520 --> 0:05:26.440 that every age group was feeling better in the month, 0:05:26.520 --> 0:05:30.080 so for the most part, consumers are much more optimistic 0:05:30.160 --> 0:05:31.560 now than they were a few months ago. 0:05:32.680 --> 0:05:38.120 Can I just real quick the political implications, What does 0:05:38.200 --> 0:05:41.240 it mean for a Joe Biden presidency. 0:05:41.960 --> 0:05:44.719 Well, I will say the election is months away, and 0:05:44.760 --> 0:05:47.280 that's kind of like an eternity right in terms of 0:05:47.320 --> 0:05:51.480 political terms. But you know, the key thing is, you know, 0:05:51.760 --> 0:05:54.719 it's probably gonna be domestic issues and things like the 0:05:54.760 --> 0:05:58.160 border and spending that may cause consumers to come out 0:05:58.160 --> 0:06:02.320 there and vote one way or the other. But certainly, 0:06:02.360 --> 0:06:04.359 if you know, the economy does take a bit of 0:06:04.360 --> 0:06:05.800 a swoon, we think it's going to be in the 0:06:05.800 --> 0:06:08.120 middle of this year and by the time we get 0:06:08.160 --> 0:06:12.159 to the election season, the economy should be recovering. And 0:06:12.240 --> 0:06:14.279 that's that's good for either candidate. 0:06:14.320 --> 0:06:14.599 Really. 0:06:15.040 --> 0:06:16.880 All right, Dan, I thank you so much. We appreciate that. 0:06:16.960 --> 0:06:19.080 Dan Peterson at the conference board. 0:06:20.880 --> 0:06:24.760 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:06:24.839 --> 0:06:27.880 weekdays at ten am Eastern on Apple car Play and 0:06:27.880 --> 0:06:30.760 Android Auto with the Bloomberg Business app. You can also 0:06:30.880 --> 0:06:34.080 listen live on Amazon Alexa from our flagship New York 0:06:34.120 --> 0:06:37.480 station just say Alexa, playing Bloomberg eleven thirty. 0:06:39.240 --> 0:06:41.560 In addition to all the economic data we have this week, 0:06:41.600 --> 0:06:43.640 in addition to all the earnings we have this week 0:06:43.640 --> 0:06:46.600 from some big tech companies, we also have a FEDER 0:06:46.640 --> 0:06:49.039 Reserve meeting tomorrow. I think I saw Michael Barr, I 0:06:49.040 --> 0:06:51.919 mean Michael McKee with his bag heading down to the 0:06:52.440 --> 0:06:53.000 cellar station. 0:06:53.160 --> 0:06:54.760 There's a Michael Barr on the FED too. 0:06:55.440 --> 0:06:58.240 I know exactly we're all at the one you were thinking. 0:06:58.000 --> 0:07:01.279 Of now, exactly, Bloomberg and tell Legence, Chief US Interest 0:07:01.360 --> 0:07:05.080 Rates strategis Ira Jersey joins us from Princeton, New Jersey 0:07:05.160 --> 0:07:09.840 via zoom So, Ira, I guess tomorrow. You know, obviously 0:07:09.840 --> 0:07:12.520 the rate, any movement in the rates is not expected tomorrow. 0:07:12.520 --> 0:07:15.840 What are you looking for in tomorrow's release and in 0:07:15.880 --> 0:07:17.680 the commentary from FED Chairman J Powell. 0:07:18.480 --> 0:07:20.120 Yeah, tomorrow is going to be a very busy day 0:07:20.160 --> 0:07:22.680 for those of us in rates land. We not only 0:07:22.720 --> 0:07:25.960 have that FED meeting, but also the quarterly refunding announcement 0:07:25.960 --> 0:07:28.720 from the Treasury Department in the morning before that. So 0:07:28.840 --> 0:07:30.480 at the Fed, you know, we're going to be looking 0:07:30.480 --> 0:07:33.520 at listening for nuance. I think the statement probably doesn't 0:07:33.600 --> 0:07:37.440 change very much. But Jay Powell, I think will probably 0:07:37.800 --> 0:07:40.680 you know, need to guide the market as to whether 0:07:40.760 --> 0:07:42.320 or not they think there's going to be a cut 0:07:42.320 --> 0:07:44.880 in March or not. He was going to probably say 0:07:44.880 --> 0:07:47.520 every meeting is live, but at the same time, you know, 0:07:47.600 --> 0:07:50.880 some meetings are more alive than others. I would say so, 0:07:50.880 --> 0:07:54.040 so I think that if the FED is thinking about 0:07:54.040 --> 0:07:56.680 cutting in March, he really has to make that not 0:07:56.760 --> 0:07:58.560 abundantly clear, but I think he has to make it 0:07:58.600 --> 0:08:02.080 a little bit more clear that they're going to be 0:08:02.720 --> 0:08:04.720 going to be cutting in March. 0:08:04.960 --> 0:08:05.720 The other thing that. 0:08:05.680 --> 0:08:08.040 I think that Jay to listen for for j Powell 0:08:08.120 --> 0:08:10.920 is what's the path thereafter? So the market is not 0:08:11.040 --> 0:08:14.760 pricing for what Governor Waller mentioned a week and a 0:08:14.800 --> 0:08:17.320 half ago or so, which is we're not going to 0:08:17.400 --> 0:08:18.720 necessarily go at every meeting. 0:08:18.720 --> 0:08:19.600 We're going to go slow. 0:08:19.680 --> 0:08:23.000 We might only cut three times this year. The market 0:08:23.240 --> 0:08:25.240 doesn't believe that they're going to do that. The market 0:08:25.240 --> 0:08:27.680 things that the FED going slow is cutting twenty five 0:08:27.720 --> 0:08:31.920 basis points every meeting once they start, and so you 0:08:31.920 --> 0:08:34.000 know it's going to be hard maybe to jaw bone that, 0:08:34.400 --> 0:08:36.960 but I think Jay Powell will try to tomorrow. 0:08:37.440 --> 0:08:39.920 What's the big worry at the FED some sort of 0:08:40.600 --> 0:08:44.640 I don't know, Arthur Burns bumbled. You cut now and 0:08:44.679 --> 0:08:47.520 then inflation comes roaring back and you look like a moron. 0:08:48.640 --> 0:08:49.640 I think that's part of it. 0:08:50.200 --> 0:08:53.040 I think that the other issue that the Fed has 0:08:53.120 --> 0:08:55.320 is they're trying as they try to calibrate the Fed 0:08:55.320 --> 0:08:58.360 Fund rate is there's a feeling among a lot of 0:08:58.400 --> 0:09:00.439 economists and I think a lot of people the Federal 0:09:00.480 --> 0:09:04.960 Reserve that as inflation comes down, you have the real 0:09:05.040 --> 0:09:07.880 Fed fund rates of the Fed funds rate after adjusting 0:09:07.920 --> 0:09:10.960 for inflation, continues to rise, and that that will be 0:09:11.080 --> 0:09:15.520 too restrictive and tighten financial conditions. But I think the 0:09:15.559 --> 0:09:17.640 bigger issue that the Fed has right now is that 0:09:17.760 --> 0:09:20.920 financial conditions, instead of being tighter, even though that real 0:09:20.960 --> 0:09:24.000 Fed fund rate has been going up, they've actually been easing. 0:09:24.120 --> 0:09:26.120 So you have credit spreads that are very tight. You 0:09:26.160 --> 0:09:28.840 have consumer lending rates that, while they're much higher than 0:09:28.840 --> 0:09:32.320 they were, they've come down significantly from their peak. And 0:09:32.400 --> 0:09:35.680 in large part that's because the market is expecting the 0:09:35.720 --> 0:09:38.800 Federal Reserve to cut interest rates very aggressively starting in 0:09:39.280 --> 0:09:42.200 May and then continuing to cut into twenty twenty five. 0:09:42.880 --> 0:09:45.720 And that's adjusted a lot of the different borrowing rates 0:09:45.720 --> 0:09:48.520 and a lot of the other things that go into 0:09:48.679 --> 0:09:52.360 different financial conditions measures. And because of that, that's one 0:09:52.400 --> 0:09:54.959 reason why I think that the Fed wants to say, Okay, 0:09:54.960 --> 0:09:56.640 we're going to go slow because they don't want to 0:09:56.679 --> 0:10:01.079 ease financial conditions even more and have another inflationary impulse. 0:10:01.080 --> 0:10:02.240 So, like you said, John, like. 0:10:02.520 --> 0:10:05.040 That's really the fear that the FED has is that 0:10:05.080 --> 0:10:07.480 they might be the cause of yet more inflation in 0:10:07.520 --> 0:10:09.240 the future and that the job's not done. And you're 0:10:09.240 --> 0:10:11.520 going to hear that again, the job's not quite done, 0:10:11.600 --> 0:10:13.959 but we're happy with the progress made so far. That's 0:10:14.160 --> 0:10:16.360 that's going to be probably the opening line from Jay 0:10:16.400 --> 0:10:19.200 Powell when he talks about monetary policy and inflation. 0:10:19.760 --> 0:10:22.240 Hey, Iriti, earlier this morning, we had a cloudi assam 0:10:22.360 --> 0:10:27.000 on some consulting and formerly the Fed. She says, the 0:10:27.040 --> 0:10:30.520 Fed's already too late. They should have already started cutting rates. 0:10:31.360 --> 0:10:33.520 Is that widely held out there? How do you think 0:10:33.520 --> 0:10:33.880 about that? 0:10:34.880 --> 0:10:37.600 Yeah, there were some people who, certainly and some investors 0:10:37.600 --> 0:10:40.680 that think that they should be just because the economy 0:10:40.679 --> 0:10:44.360 has slowed significantly, and you have seen that, you know, 0:10:44.400 --> 0:10:47.280 that gap widened between inflation and the FED fundt rate. 0:10:47.480 --> 0:10:49.520 But then there's a whole slew of others who look 0:10:49.559 --> 0:10:52.000 at the real economy and look at what happened with 0:10:52.040 --> 0:10:54.200 retail sales. You had the Jolts data that was just 0:10:54.240 --> 0:10:56.560 out a couple of minutes ago that showed that job 0:10:56.600 --> 0:10:58.520 openings actually increased in December. 0:10:59.440 --> 0:11:01.640 The quick rate, though, kept on falling. 0:11:01.320 --> 0:11:02.880 So I think that there was kind of a mixed 0:11:02.880 --> 0:11:06.600 picture there in terms of the job market from that reading. 0:11:06.920 --> 0:11:10.800 But the but nonetheless, the the economy seems to be 0:11:10.840 --> 0:11:15.400 holding up decently right now. So so again, like if 0:11:15.400 --> 0:11:19.360 if the Federal Reserve is behind the curve, as Missam suggested, 0:11:19.960 --> 0:11:22.320 h then you know, certainly we don't see that in 0:11:22.360 --> 0:11:25.160 the hard data. We do see it in other things 0:11:25.240 --> 0:11:27.800 like some of the some of the survey data. But again, 0:11:27.880 --> 0:11:31.079 like you just had on data from the UH from 0:11:31.120 --> 0:11:35.120 the Conference Board, the Conference Board survey of consumer confidence 0:11:35.240 --> 0:11:38.960 was decent today. So again there's all these mixed signals 0:11:39.000 --> 0:11:41.920 right now. Mixed signals usually do lead to a turn 0:11:42.160 --> 0:11:46.079 in the economy, but it's much slower this time than 0:11:46.120 --> 0:11:49.280 you might have expected it during prior cycles. And I 0:11:49.280 --> 0:11:50.679 think a large part of that is we still have 0:11:50.720 --> 0:11:51.800 a big fiscal impulse rate. 0:11:51.800 --> 0:11:53.080 We still have deficits that are. 0:11:52.920 --> 0:11:55.960 Going to be approaching two trillion dollars this fiscal year 0:11:56.000 --> 0:11:58.360 and over the next couple of fiscal years, so that 0:11:58.400 --> 0:12:01.560 will keep the economy a little bit more robust than 0:12:01.559 --> 0:12:04.920 it would be normally. And then secondly, you still have 0:12:05.480 --> 0:12:08.600 consumers that don't have any lack of appetite to spend. 0:12:08.640 --> 0:12:11.160 So I think that there's a lot of good things 0:12:11.160 --> 0:12:13.040 still going on in the economy that are going to 0:12:13.120 --> 0:12:16.320 delay I think a recession and a major downturn until 0:12:16.400 --> 0:12:19.240 much later this year and maybe even into twenty twenty five. 0:12:19.360 --> 0:12:21.880 All Right, you brought up fiscal iris, so let's talk 0:12:21.920 --> 0:12:24.520 about the Treasury cut. What do they do yesterday? They 0:12:24.559 --> 0:12:29.120 cut their quarterly borrowing estimate, which I mean to me, 0:12:29.240 --> 0:12:31.000 on the surface, that sounds pretty good. 0:12:32.320 --> 0:12:33.280 Yeah, so it's a good thing. 0:12:33.440 --> 0:12:37.439 They cut it by a by about fifty five billion dollars. 0:12:37.840 --> 0:12:40.520 The Treasury Department, what they do is they have a 0:12:40.559 --> 0:12:43.480 forecast for a quarter ahead, and they almost always get 0:12:43.480 --> 0:12:45.600 it at least a little bit wrong. Right, we all 0:12:45.760 --> 0:12:51.160 don't forecast perfectly what's going to happen. So they cut 0:12:51.240 --> 0:12:56.120 the borrowing estimate for this quarter primarily because it looks 0:12:56.120 --> 0:12:58.199 like revenue has been coming in a little bit stronger. 0:12:58.240 --> 0:13:00.920 Speaning tax revenue has been coming and a little bit 0:13:00.960 --> 0:13:05.559 stronger than they anticipated. And spending has been you know 0:13:05.880 --> 0:13:09.280 about about flat and the fact that so we can 0:13:09.320 --> 0:13:13.880 spend more, Well that's maybe that's part of it, but 0:13:15.080 --> 0:13:17.920 it does mean that deficits are running going to be 0:13:18.040 --> 0:13:21.360 running a little bit lower than we initiatively anticipated. 0:13:21.880 --> 0:13:24.000 It was pretty close to our estimates. We were actually 0:13:24.000 --> 0:13:25.600 a little bit lower than that. We were one of 0:13:25.600 --> 0:13:27.600 the lower people within the consensus. 0:13:27.679 --> 0:13:29.040 A lot of people thought that they were going to 0:13:29.040 --> 0:13:31.400 be around eight hundred billion dollars in net borrowing. We 0:13:31.400 --> 0:13:33.880 thought it would be under closer to seven hundred. It 0:13:34.000 --> 0:13:36.880 kind of came in the middle of that. So, yeah, 0:13:36.920 --> 0:13:39.560 so that means that the Treasury Department probably won't issue 0:13:39.600 --> 0:13:42.120 as many tea bills as we thought, but they still, 0:13:42.200 --> 0:13:45.280 we think, will increase the amount of two year notes, 0:13:45.320 --> 0:13:46.839 three year notes, all the way out to thirty year 0:13:46.920 --> 0:13:49.280 debt issue a little bit more of that because right 0:13:49.320 --> 0:13:52.120 now they're issuing a ton of tea bills compared to 0:13:52.840 --> 0:13:55.480 how much they were issuing of other debt. And you know, 0:13:55.480 --> 0:13:57.640 there's only so much appetite that's going to be out 0:13:57.640 --> 0:14:01.000 there for short end paper, especially once the Federal Reserve 0:14:01.000 --> 0:14:04.800 gets going and starts to start to lower interest rates, and. 0:14:04.800 --> 0:14:07.840 I rich just you know, on these auctions remind us 0:14:07.880 --> 0:14:09.960 again like who's buying this stuff? 0:14:11.440 --> 0:14:14.000 So it's mostly domestic investment funds. When you look at 0:14:14.040 --> 0:14:19.600 at at treasury auctions, like last week we had the 0:14:19.600 --> 0:14:23.040 five year and the seven year, so you have investors 0:14:23.040 --> 0:14:24.880 who are just saying, Okay, look we're not going to 0:14:24.920 --> 0:14:27.600 buy the seven year. The seven year went terribly. Excuse me, 0:14:27.600 --> 0:14:29.760 the five year went terribly, The seven year did okay. 0:14:30.160 --> 0:14:33.640 Because I think people are getting preparing themselves for the 0:14:33.680 --> 0:14:36.880 Federal Reserve cutting interest rates, and usually longer term debt 0:14:36.960 --> 0:14:40.960 does better when the Fed's cutting interest rates. So you 0:14:41.040 --> 0:14:43.840 have you know, people going out and buying that. Look, 0:14:43.880 --> 0:14:47.680 savings is still high. There's still relatively high savings rates 0:14:47.680 --> 0:14:50.240 compared to what we had, you know, a decade or 0:14:50.320 --> 0:14:52.960 so ago, So there's still people that have money to 0:14:53.000 --> 0:14:55.520 put to work. And with interest rates closer to four 0:14:55.560 --> 0:15:00.480 percent instead of zero, treasuries are an attractive option instead 0:15:00.480 --> 0:15:02.800 of buying maybe riskier assets that have the chance of 0:15:02.800 --> 0:15:07.800 the fault. Maybe if revenues slip or profitability slips because 0:15:07.840 --> 0:15:10.000 you think that there's going to be a recession, then 0:15:10.120 --> 0:15:13.840 you rotate out of other fixed income instruments, into treasuries 0:15:14.040 --> 0:15:16.440 and also just you know, put your incremental savings into 0:15:16.480 --> 0:15:17.400 treasury securities. 0:15:17.440 --> 0:15:20.880 All right, put on your politics hat, you guys in 0:15:20.920 --> 0:15:23.600 the treasury markets, you must game all sorts of things, 0:15:23.720 --> 0:15:28.880 like if there's something unexpectedly happens in the election that 0:15:29.360 --> 0:15:32.400 you know your candidate doesn't win but the other guy does, 0:15:33.640 --> 0:15:37.200 have you gained that what are all the different possibilities? 0:15:37.760 --> 0:15:42.200 Yeah, it's interesting because, yeah, you know, the conventional wisdom 0:15:42.240 --> 0:15:44.560 might be that if there's a Republican in the White 0:15:44.600 --> 0:15:48.120 House in Congress, that maybe there'll be somewhat more fiscally responsible. 0:15:48.800 --> 0:15:51.560 That actually, historically has not been the case. That typically 0:15:51.560 --> 0:15:54.480 when you have one party that controls the White House 0:15:54.560 --> 0:15:58.040 and both houses of Congress, deficits go up. Right, Democrats 0:15:58.080 --> 0:16:00.640 spend more money, Republicans cut taxes, But both of those 0:16:00.680 --> 0:16:03.600 have the same net effect of increasing budget deficits and 0:16:03.640 --> 0:16:06.600 increasing the amount of treasury supply that needs to come out. 0:16:06.640 --> 0:16:10.760 And quite frankly, you know, there's probably very little at 0:16:10.760 --> 0:16:12.600 this point, over the next year or two that can 0:16:12.640 --> 0:16:15.600 be done to quell the two trillion ish dollars of 0:16:15.640 --> 0:16:16.680 deficit that's coming. 0:16:16.720 --> 0:16:19.840 Regardless of who's in the White House. You know our expectation. 0:16:20.200 --> 0:16:22.000 I think the most important thing that's going to come 0:16:22.040 --> 0:16:24.600 out of this election is not even the fiscal stuff. 0:16:24.640 --> 0:16:27.480 It's really who's going to be the next FED chair? Right, 0:16:27.720 --> 0:16:31.160 if Joe Biden wins the presidency again, maybe J Powell 0:16:31.160 --> 0:16:34.720 will be reappointed. I think that's pretty unlikely if Donald 0:16:34.760 --> 0:16:37.040 Trump or another Republican were to win the White House, 0:16:37.600 --> 0:16:39.440 that J Powell would wind up staying in a seat. 0:16:39.480 --> 0:16:41.680 I mean, we have to remind everybody J Powell was 0:16:41.760 --> 0:16:44.320 Donald Trump's pick, right. 0:16:44.200 --> 0:16:46.320 And quite frankly, when that came out, I was pretty 0:16:46.320 --> 0:16:49.280 surprised that Donald Trump picked him because J. Powell is 0:16:49.400 --> 0:16:53.480 kind of a mainstream Federal Reserve governor was at the time, 0:16:54.280 --> 0:16:57.000 I had expected Donald Trump to pick someone who would 0:16:57.000 --> 0:17:01.920 be more definitively doubvish than that a mainstream economy or 0:17:02.000 --> 0:17:02.720 mainstream person. 0:17:02.800 --> 0:17:07.080 I can't call J. Powell an economists, but nonetheless, you know, 0:17:07.200 --> 0:17:08.240 the next the. 0:17:08.200 --> 0:17:11.000 Next FED chair might be the most important thing from 0:17:11.080 --> 0:17:13.840 a treasury market and from a rates market point of 0:17:13.880 --> 0:17:16.040 view that's going to come out of the election cycle. 0:17:16.160 --> 0:17:19.040 So who do people say might be their pick for 0:17:19.359 --> 0:17:24.120 for FED chair might be one of the more interesting 0:17:24.119 --> 0:17:26.040 things that comes out of the election. If people are 0:17:26.080 --> 0:17:27.960 askedt out of debate or in a town hall or 0:17:28.000 --> 0:17:30.399 something like that, I would certainly be interested to know 0:17:30.840 --> 0:17:33.880 is J. Powell likely to be reappointed or if not him, 0:17:33.920 --> 0:17:34.680 then who else? 0:17:35.040 --> 0:17:39.080 But I always thought, I mean, my conventional wisdom was that, yeah, 0:17:39.119 --> 0:17:42.080 the president makes the pick on the advice of well 0:17:42.119 --> 0:17:45.240 pretty much everybody on Wall Street, because if he gets 0:17:45.280 --> 0:17:48.560 that wrong, you know, you can just kiss your you 0:17:48.600 --> 0:17:50.600 know what, goodbye. 0:17:50.840 --> 0:17:53.119 Yeah, but there are a number of people who I 0:17:53.119 --> 0:17:56.639 think Wall Street would be okay with. But there's people 0:17:56.760 --> 0:18:00.360 along the spectrum, right, Like, you know, if you chose 0:18:00.359 --> 0:18:03.119 someone like Lyle Brainerd over Powell, then you know, you 0:18:03.240 --> 0:18:06.760 get a slightly different outlook on there, you know, Governor Waller. 0:18:06.760 --> 0:18:07.840 Versus versus J. 0:18:07.960 --> 0:18:11.240 Powell again, like you'd have just some nuanced differences in 0:18:11.280 --> 0:18:14.040 the policy outcomes that you might actually get just because 0:18:14.040 --> 0:18:17.399 those those people have different opinions. So you know, if 0:18:17.440 --> 0:18:19.840 you wind up with you go through a whole slew 0:18:19.880 --> 0:18:23.000 of former governors or former Fed president, you know, Federal 0:18:23.720 --> 0:18:27.520 Federal Reserve, regional FED Bank chairs like you know, James 0:18:27.560 --> 0:18:30.400 Bullard for examples out there, and he might have even 0:18:30.440 --> 0:18:32.520 a different take and uh, you know, might be more 0:18:32.520 --> 0:18:33.760 hawkish or dubvish and some. 0:18:33.760 --> 0:18:35.040 Of the other potential picks. 0:18:35.080 --> 0:18:36.919 So but but and I think all of those, if 0:18:36.920 --> 0:18:40.440 they're known quantities could probably Wall Street would probably be 0:18:40.480 --> 0:18:43.040 okay with them. Uh, it's just a matter of you know, 0:18:43.160 --> 0:18:45.679 what what price level you get. If you pick a 0:18:45.680 --> 0:18:48.359 more hawkish person, then maybe, you know, stocks go down. 0:18:48.440 --> 0:18:50.159 But it's not that the market's not going to function, 0:18:50.240 --> 0:18:52.440 and it's not that you know, the treasury market is 0:18:52.440 --> 0:18:55.040 suddenly going to implode because you picked you know, one 0:18:55.080 --> 0:18:57.880 person who was more more or less a duvish mainstream 0:18:57.920 --> 0:18:59.560 person or a hawkish mainstream person. 0:19:00.000 --> 0:19:02.280 All right, Ira, great stuff has always really appreciate you 0:19:02.359 --> 0:19:05.000 checking in with us. Ira Jersey, chief US interest rate 0:19:05.040 --> 0:19:06.639 strategist for Bloomberg Intelligence. 0:19:08.040 --> 0:19:11.920 You're listening to the Bloomberg Intelligence podcast. 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