1 00:00:02,529 --> 00:00:05,370 Speaker 1: Bloomberg Audio Studios. Podcasts. 2 00:00:05,690 --> 00:00:06,210 Speaker 2: Radio. 3 00:00:06,660 --> 00:00:07,040 Speaker 3: News. 4 00:00:12,520 --> 00:00:16,660 Speaker 4: This is the Bloomberg Surveillance Podcast. Catch us live weekdays 5 00:00:16,720 --> 00:00:20,220 Speaker 4: at 7 a.m. Eastern on Apple CarPlay or Android Auto 6 00:00:20,280 --> 00:00:23,880 Speaker 4: with the Bloomberg Business app. Listen on demand wherever you 7 00:00:23,900 --> 00:00:26,980 Speaker 4: get your podcasts or watch us live on YouTube. 8 00:00:27,430 --> 00:00:29,120 Speaker 5: Mike Rhee is going to say I shouldn't do this. 9 00:00:29,180 --> 00:00:31,090 Speaker 5: Senior U.S. economist, RBC. 10 00:00:31,450 --> 00:00:34,070 Speaker 3: But I got a good ADP number 14 minutes ago. 11 00:00:34,790 --> 00:00:36,690 Speaker 3: And so I look at the yield and we are 12 00:00:36,690 --> 00:00:41,839 Speaker 3: 5.57 in the 30-year bond. Are you guys micro-looking at 13 00:00:41,960 --> 00:00:46,640 Speaker 3: yields coming off 18 lines of economic data here today? 14 00:00:47,420 --> 00:00:49,559 Speaker 2: I mean, you said it. There's a lot to digest, right? 15 00:00:49,659 --> 00:00:52,210 Speaker 2: So you're going to have the employment data. We got 16 00:00:52,250 --> 00:00:55,290 Speaker 2: the sneak peek this morning. We get the inflation data. 17 00:00:55,310 --> 00:00:58,529 Speaker 2: We get the revisions to GDP. And we do get 18 00:00:58,570 --> 00:01:01,010 Speaker 2: some of those other measures, I think, that are important 19 00:01:01,090 --> 00:01:04,750 Speaker 2: signs for AI investment. We do think that continues when 20 00:01:04,770 --> 00:01:07,900 Speaker 2: you look at things like durable goods order. So a 21 00:01:07,970 --> 00:01:10,860 Speaker 2: lot to unpack. But at the end of the day, 22 00:01:10,940 --> 00:01:14,300 Speaker 2: if everything is looking positive, I think you can expect 23 00:01:14,400 --> 00:01:15,800 Speaker 2: that rates continue to move higher. 24 00:01:16,750 --> 00:01:19,030 Speaker 6: I mean, let's just set oil aside because it whips 25 00:01:19,090 --> 00:01:21,630 Speaker 6: around every day based upon social media posts here. 26 00:01:22,250 --> 00:01:24,240 Speaker 7: Underlying inflation, how do you view that? 27 00:01:24,260 --> 00:01:28,480 Speaker 6: Because it's there, it's sticky, and I think it's definitely 28 00:01:28,500 --> 00:01:29,420 Speaker 6: got the attention of. 29 00:01:29,380 --> 00:01:31,400 Speaker 7: The Federal Reserve. How do you think about underlying inflation? 30 00:01:32,340 --> 00:01:35,399 Speaker 2: Yeah, we are concerned about it right now. And the 31 00:01:35,440 --> 00:01:37,240 Speaker 2: way we're thinking about it is kind of putting it 32 00:01:37,260 --> 00:01:41,230 Speaker 2: into three buckets. And you have your services, which we're 33 00:01:41,270 --> 00:01:43,830 Speaker 2: splitting out. You have the housing component, which we think 34 00:01:43,870 --> 00:01:47,230 Speaker 2: the disinflation there is largely done for this year. Maybe 35 00:01:47,250 --> 00:01:48,730 Speaker 2: you get a little help next year, but for the 36 00:01:48,770 --> 00:01:50,110 Speaker 2: most part, it's just going to move sideways. 37 00:01:50,170 --> 00:01:53,300 Speaker 5: And that's a big chunk of the bucket. 38 00:01:53,980 --> 00:01:58,640 Speaker 2: Then you have core services, ex-housing. And with the labor 39 00:01:58,660 --> 00:02:02,940 Speaker 2: market doing as well as it has been, there's really 40 00:02:02,980 --> 00:02:08,419 Speaker 2: little disinflation. So the wage component, what's contributing in terms 41 00:02:08,440 --> 00:02:11,720 Speaker 2: of compensation there, unlikely to provide any help. And when 42 00:02:11,760 --> 00:02:14,410 Speaker 2: you look at what's left to provide that help in 43 00:02:14,470 --> 00:02:18,220 Speaker 2: core goods, I'm concerned because when you think about the 44 00:02:18,260 --> 00:02:22,280 Speaker 2: energy story, it's freight prices that are starting to look 45 00:02:22,900 --> 00:02:26,820 Speaker 2: like they're moving higher. And when you look back at 2020, 46 00:02:26,820 --> 00:02:29,620 Speaker 2: they're comparable in terms of a year-over-year change. And that's 47 00:02:29,650 --> 00:02:31,630 Speaker 2: going to start to bleed through into the core goods space. 48 00:02:32,070 --> 00:02:35,130 Speaker 2: All of this says inflation's moving in the wrong direction. 49 00:02:35,770 --> 00:02:38,550 Speaker 6: Yeah. So, I mean, we'll see core PCE today on 50 00:02:38,570 --> 00:02:42,190 Speaker 6: an annualized basis, 3.3%. So that's not what the Fed 51 00:02:42,889 --> 00:02:46,200 Speaker 6: is looking for here. So- On the other side of 52 00:02:46,220 --> 00:02:49,400 Speaker 6: the equation, the labor market, I mean, it seems pretty 53 00:02:49,419 --> 00:02:52,260 Speaker 6: darn solid, right? Is there any cracks underneath the surface 54 00:02:52,600 --> 00:02:53,860 Speaker 6: that we should be paying attention to? 55 00:02:54,260 --> 00:02:56,459 Speaker 2: No, and we've been looking. We put a piece out 56 00:02:56,840 --> 00:03:00,320 Speaker 2: last week, and it's something I look at. Some of 57 00:03:00,360 --> 00:03:04,720 Speaker 2: these measures that most people don't pay attention to, things 58 00:03:04,760 --> 00:03:10,260 Speaker 2: like part-time work for economic reasons, aggregate hours. And when 59 00:03:10,280 --> 00:03:14,139 Speaker 2: you look at those, it's really hard to find any weakness. 60 00:03:14,680 --> 00:03:18,299 Speaker 2: The aggregate hours really continues to grow. That just shows 61 00:03:18,380 --> 00:03:22,120 Speaker 2: a continued demand for labor. And when you look at 62 00:03:22,160 --> 00:03:25,590 Speaker 2: things like part-time for economic reasons, again, suggesting hours aren't 63 00:03:25,630 --> 00:03:28,970 Speaker 2: being cut. In fact, they're being expanded. And I think 64 00:03:29,030 --> 00:03:33,290 Speaker 2: despite some of the Headlines about recent grads struggling. At 65 00:03:33,330 --> 00:03:35,150 Speaker 2: the end of the day, at a 4-1, it's hard 66 00:03:35,170 --> 00:03:37,050 Speaker 2: to argue there's weakness in the labor market right now. 67 00:03:37,330 --> 00:03:39,230 Speaker 5: Mike Reed with us as we go into the economics. 68 00:03:39,330 --> 00:03:40,970 Speaker 5: Alexis will have that for you in a moment. 69 00:03:41,430 --> 00:03:45,080 Speaker 3: The privilege he has of working with Francis Donald. 70 00:03:45,660 --> 00:03:48,140 Speaker 5: Five days a week. Mike's got to have patience. 71 00:03:48,920 --> 00:03:52,800 Speaker 3: Summarize, is it Nathan Jansen who does your Canadian-U.S. border? 72 00:03:53,300 --> 00:03:53,480 Speaker 6: Yes. 73 00:03:53,500 --> 00:03:57,310 Speaker 5: Are these reports, particularly PCE, affected by tariffs? 74 00:03:57,330 --> 00:03:57,510 Speaker 2: Yes. 75 00:03:58,480 --> 00:03:59,020 Speaker 5: Yeah, they are. 76 00:03:59,240 --> 00:04:02,160 Speaker 2: And so one of the things we're thinking about is 77 00:04:02,900 --> 00:04:05,240 Speaker 2: certainly on the Canadian side, how that's going to impact 78 00:04:05,260 --> 00:04:07,570 Speaker 2: the Canadian economy. It's going to be more impactful there. 79 00:04:08,570 --> 00:04:12,430 Speaker 2: You know, right now, based on the current environment, we 80 00:04:12,470 --> 00:04:16,409 Speaker 2: do think it could reduce employment there up to about 81 00:04:16,410 --> 00:04:17,690 Speaker 2: 90,000 jobs. 82 00:04:17,730 --> 00:04:19,979 Speaker 5: What about here? Is it part of our inflation plan? 83 00:04:20,980 --> 00:04:26,099 Speaker 2: As far as the direct tariffs on Canada, not so much. 84 00:04:26,640 --> 00:04:30,940 Speaker 2: We think it's more about kind of a negotiating strategy 85 00:04:30,980 --> 00:04:35,089 Speaker 2: between the two sides. But more broadly, we still have 86 00:04:35,570 --> 00:04:39,210 Speaker 2: tariffs that are in place. And one thing we're concerned 87 00:04:39,250 --> 00:04:42,050 Speaker 2: about is the rundown of the pre-tariff inventories that we 88 00:04:42,070 --> 00:04:44,790 Speaker 2: saw last year. We still think you have about a 89 00:04:44,850 --> 00:04:46,930 Speaker 2: quarter or two of inventory drawdown. 90 00:04:46,950 --> 00:04:49,339 Speaker 5: Inventory drawdown. Very interesting. Mike Reed with us. 91 00:04:49,350 --> 00:04:51,490 Speaker 3: We're going to come back, give you the best we 92 00:04:51,529 --> 00:04:53,570 Speaker 3: can on the economic analysis here. 93 00:04:54,290 --> 00:05:00,170 Speaker 5: Equities lift. Futures up 11 into the report. It's Bloomberg's surveillance. 94 00:05:01,360 --> 00:05:04,600 Speaker 8: And the Fed's preferred inflation gauge is out, and it 95 00:05:04,680 --> 00:05:09,599 Speaker 8: shows inflation heated up in August. The personal consumption expenditures 96 00:05:09,700 --> 00:05:13,930 Speaker 8: price index rising three-tenths of a percent month over month 97 00:05:13,990 --> 00:05:17,289 Speaker 8: as consumers paid more for many goods and services. Year 98 00:05:17,450 --> 00:05:22,789 Speaker 8: over year, though, the PCE index up 3.4%. This is 99 00:05:22,910 --> 00:05:27,700 Speaker 8: less than the 3.7% expected and less than the 3.7% 100 00:05:27,700 --> 00:05:31,420 Speaker 8: we saw the prior month. Let's move to core PCE, 101 00:05:31,460 --> 00:05:34,479 Speaker 8: which excludes volatile food and energy prices. Month over month, 102 00:05:34,960 --> 00:05:38,770 Speaker 8: rising 0.2%, so less than the 0.3% expected. And right 103 00:05:38,790 --> 00:05:41,870 Speaker 8: in line with the prior month, core PCE year over 104 00:05:41,910 --> 00:05:45,690 Speaker 8: year also coming in a bit softer here, up 3% 105 00:05:45,690 --> 00:05:51,370 Speaker 8: versus estimates for 3.3%. The prior month was also 3.3%. 106 00:05:51,370 --> 00:05:56,380 Speaker 8: Wireless telephone services and airfares driving core inflation higher. Meantime, 107 00:05:56,680 --> 00:06:01,400 Speaker 8: consumer spending rebounding sharply in August, up 9 tenths of 108 00:06:01,440 --> 00:06:04,080 Speaker 8: a percent in line with estimates and a lot higher 109 00:06:04,120 --> 00:06:06,440 Speaker 8: than the 2 tenths of a percent rise we saw 110 00:06:06,500 --> 00:06:10,750 Speaker 8: the prior month. Meantime, personal incomes up a scant two-tenths 111 00:06:10,850 --> 00:06:12,910 Speaker 8: of a percent. So we were spending more than we 112 00:06:12,950 --> 00:06:14,590 Speaker 8: were bringing in. So once again, a bit of a 113 00:06:14,630 --> 00:06:18,910 Speaker 8: surprise here. A softer than expected read on PCE. PCE 114 00:06:19,130 --> 00:06:24,540 Speaker 8: up 3% core, that is, year over year. Estimates were 115 00:06:24,600 --> 00:06:28,740 Speaker 8: for 3.3%. So still, guys, well above the Fed's 2% target. 116 00:06:28,760 --> 00:06:30,640 Speaker 8: But a bit better than expected. 117 00:06:30,680 --> 00:06:32,370 Speaker 5: Tom and Paul. Alexis, thanks so much. 118 00:06:32,430 --> 00:06:35,669 Speaker 3: Markets, the futures up 10 now, up 33. NASDAQ up 119 00:06:36,190 --> 00:06:39,110 Speaker 3: half a percent as well. Yields come in and they 120 00:06:39,310 --> 00:06:44,050 Speaker 3: begin to come in as people digest Alexis's report. 10-year 121 00:06:44,070 --> 00:06:47,910 Speaker 3: yield in three basis points, 5.20 percent. 122 00:06:47,950 --> 00:06:48,590 Speaker 5: We're advantaged. 123 00:06:48,650 --> 00:06:51,160 Speaker 3: Mike Reed with us because Francis Donald and Mike Reed 124 00:06:51,200 --> 00:06:56,520 Speaker 3: do nominal GDP analysis. Like nobody, major shout out to 125 00:06:56,560 --> 00:07:05,130 Speaker 3: the economists who noted domestic nominal GDP. Mike, 6.1% GDP 126 00:07:05,190 --> 00:07:09,250 Speaker 3: price index plus upward revision on. 127 00:07:09,210 --> 00:07:11,910 Speaker 5: GDP annualized, 2.2. 128 00:07:11,910 --> 00:07:15,950 Speaker 3: I'm rocking 8% simplistic nominal GDP. 129 00:07:16,510 --> 00:07:20,980 Speaker 5: That's a banana republic. How do we bring that down successfully? 130 00:07:22,250 --> 00:07:23,990 Speaker 2: I don't know if you can, I mean, this, a 131 00:07:24,030 --> 00:07:26,490 Speaker 2: big part of this is the AI story. And if 132 00:07:27,410 --> 00:07:29,890 Speaker 2: the fed is in a hiking cycle, that's not going 133 00:07:29,910 --> 00:07:34,730 Speaker 2: to stop the continued investment we see in AI. As 134 00:07:34,750 --> 00:07:38,130 Speaker 2: we saw earlier, look, the data for the consumer is concerning. 135 00:07:38,170 --> 00:07:42,510 Speaker 2: You have spending outpacing incomes, you have inflation moving in 136 00:07:42,540 --> 00:07:45,480 Speaker 2: the wrong direction. Yes, we got a weaker number than expected, 137 00:07:45,540 --> 00:07:48,600 Speaker 2: but I think that's due to methodology. So looking ahead, 138 00:07:49,640 --> 00:07:52,910 Speaker 2: This is just, you have forces at play that aren't 139 00:07:52,950 --> 00:07:55,590 Speaker 2: going to be resolved by a hiking cycle. 140 00:07:55,610 --> 00:07:57,070 Speaker 7: And you mentioned the spending here. 141 00:07:57,090 --> 00:08:04,180 Speaker 6: I mean, personal income rose 0.2%. Personal spending rose 0.9%. 142 00:08:04,180 --> 00:08:07,540 Speaker 7: That's not sustainable. I can't keep hitting my credit card 143 00:08:08,100 --> 00:08:08,540 Speaker 7: every week. 144 00:08:08,440 --> 00:08:08,860 Speaker 9: For that stuff. 145 00:08:09,430 --> 00:08:11,590 Speaker 2: Oh, and that's where we're really concerned. One of the 146 00:08:11,630 --> 00:08:15,630 Speaker 2: measures I like in this report is the measure of 147 00:08:15,910 --> 00:08:18,710 Speaker 2: non-mortgage personal interest payments. And when you look at that 148 00:08:18,770 --> 00:08:20,910 Speaker 2: as a share of disposable personal income, which is the 149 00:08:20,950 --> 00:08:24,720 Speaker 2: same denominator as the saving rate, it's about 2.5%. So 150 00:08:24,880 --> 00:08:28,060 Speaker 2: I'm curious to see what it is today. But when 151 00:08:28,100 --> 00:08:31,100 Speaker 2: you think about what's ahead, if the Fed continues to hike, 152 00:08:32,080 --> 00:08:34,470 Speaker 2: that's going to move higher. And the number that concerns 153 00:08:34,500 --> 00:08:37,630 Speaker 2: me is 2.8%. If you take out the COVID recession, 154 00:08:37,750 --> 00:08:41,689 Speaker 2: the past three recessions prior to that, when you've hit 2.8% 155 00:08:41,690 --> 00:08:44,910 Speaker 2: of that non-mortgage personal interest payment, we've gone into recession. 156 00:08:45,010 --> 00:08:48,760 Speaker 2: So that is to say, It's really something that's going 157 00:08:48,840 --> 00:08:50,280 Speaker 2: to squeeze consumers. 158 00:08:50,500 --> 00:08:52,949 Speaker 5: Okay, repeat that again. That's so important. You said what 159 00:08:53,000 --> 00:08:54,380 Speaker 5: is 2.8%? 160 00:08:54,380 --> 00:08:58,270 Speaker 2: So it's the amount of interest consumers are paying in 161 00:08:58,309 --> 00:09:02,110 Speaker 2: terms of non-mortgage payments. So things like credit card loans, 162 00:09:02,150 --> 00:09:04,410 Speaker 2: auto loans, student loans, any personal loans. 163 00:09:04,450 --> 00:09:07,530 Speaker 5: All the other loans we have. And that's becoming elevated. 164 00:09:08,490 --> 00:09:11,590 Speaker 2: And it didn't shift lower when the Fed was cutting. 165 00:09:12,470 --> 00:09:15,189 Speaker 2: And so if you continue to see consumers, to your point, 166 00:09:16,179 --> 00:09:19,040 Speaker 2: use credit cards to spend. This is going to continue 167 00:09:19,059 --> 00:09:19,540 Speaker 2: to squeeze them. 168 00:09:20,040 --> 00:09:22,000 Speaker 5: Mike, don't be a stranger. Mike Reed with us. Thank 169 00:09:22,020 --> 00:09:24,500 Speaker 5: you so much. RBC, I'm sorry, folks. 170 00:09:25,020 --> 00:09:28,510 Speaker 3: RBC people, it's the Royal Bank of Canada and always 171 00:09:28,710 --> 00:09:32,630 Speaker 3: will be. Mike Reed of RBC to give us perspective. 172 00:09:33,010 --> 00:09:36,270 Speaker 3: Futures up 30 now. They launch a NASDAQ up four-tenths 173 00:09:36,770 --> 00:09:38,880 Speaker 3: of a percent. The VIX comes in from that 16 level. 174 00:09:40,220 --> 00:09:43,560 Speaker 3: To 15.76, a little bit of dollar weakness here. Haven't 175 00:09:43,580 --> 00:09:47,439 Speaker 3: seen that since Eric Winograd was, you know, ages ago 176 00:09:47,559 --> 00:09:51,980 Speaker 3: studying Chinese history. I mean, I'm looking here, 10-year yield 177 00:09:52,020 --> 00:09:55,620 Speaker 3: in two basis points. I'm shocked a 30-year bond doesn't 178 00:09:55,660 --> 00:10:00,440 Speaker 3: come in 5.56 as all sorts of good things. We 179 00:10:00,480 --> 00:10:03,940 Speaker 3: have wonderful conversations today. You go from Max Kettner to 180 00:10:03,960 --> 00:10:08,100 Speaker 3: Mike Reed. Now, Eric Winograd with his chief economist, Alliance Bernstein, 181 00:10:08,340 --> 00:10:14,120 Speaker 3: always with important perspective. I look, Eric, at where we 182 00:10:14,520 --> 00:10:20,920 Speaker 3: are in your idea that inflation– is sticky and not accelerating. 183 00:10:21,800 --> 00:10:23,960 Speaker 3: I think to all our listeners, that's the key debate. 184 00:10:24,120 --> 00:10:24,719 Speaker 5: Discuss that. 185 00:10:25,120 --> 00:10:28,280 Speaker 10: Yeah, look, when the Fed embarks on a tightening cycle, 186 00:10:28,350 --> 00:10:30,870 Speaker 10: typically it's because inflation is going up. That's not really 187 00:10:30,890 --> 00:10:33,170 Speaker 10: what we're seeing here. We're just seeing it not come down. 188 00:10:33,530 --> 00:10:35,449 Speaker 10: And if you look at today's data, there's more of 189 00:10:35,490 --> 00:10:38,990 Speaker 10: that in there, right? The PCE index, the core PCE 190 00:10:39,020 --> 00:10:42,470 Speaker 10: index are running above the Fed's target, but they're gradually 191 00:10:42,550 --> 00:10:44,950 Speaker 10: moving in the right direction. And so that's a different 192 00:10:45,070 --> 00:10:47,080 Speaker 10: type of tightening cycle than many people are used to. 193 00:10:47,090 --> 00:10:50,090 Speaker 10: They're not trying to slow the economy. They're not trying 194 00:10:50,450 --> 00:10:53,829 Speaker 10: to crimp things down here. They're just trying to accelerate 195 00:10:53,870 --> 00:10:54,430 Speaker 10: this process. 196 00:10:54,450 --> 00:10:55,960 Speaker 7: So what happens with the next. 197 00:10:55,720 --> 00:10:58,540 Speaker 5: To the second, the third? We had someone in earlier 198 00:10:58,640 --> 00:11:01,500 Speaker 5: five rate increases. It's nonlinear. 199 00:11:01,940 --> 00:11:06,150 Speaker 3: When do those rate increases click in? to bring your 200 00:11:06,309 --> 00:11:09,110 Speaker 3: inflation where it is down to something more acceptable. 201 00:11:09,190 --> 00:11:11,350 Speaker 10: So that's the classic challenge for central banking, is that 202 00:11:11,370 --> 00:11:13,949 Speaker 10: you can raise rates today and it doesn't move inflation tomorrow. 203 00:11:14,010 --> 00:11:16,229 Speaker 10: It takes nine to 12 months. And that, to me, 204 00:11:16,330 --> 00:11:19,569 Speaker 10: particularly in an environment where you're trying to get inflation 205 00:11:19,910 --> 00:11:22,200 Speaker 10: to move just a little bit quicker, is a recipe 206 00:11:22,220 --> 00:11:25,540 Speaker 10: for a very gradual cycle. There's no urgency here, right? 207 00:11:25,760 --> 00:11:28,800 Speaker 10: Inflation is not accelerating. They just need to get conditions 208 00:11:28,860 --> 00:11:31,079 Speaker 10: or they believe they need to get conditions a little 209 00:11:31,120 --> 00:11:33,640 Speaker 10: bit tighter to make it go a little faster. To me, 210 00:11:33,660 --> 00:11:36,860 Speaker 10: that's a recipe for a constrained, gradual cycle rather than 211 00:11:36,880 --> 00:11:38,060 Speaker 10: a rapid, aggressive one. 212 00:11:38,700 --> 00:11:38,960 Speaker 3: U.S. 213 00:11:39,140 --> 00:11:43,840 Speaker 6: Second quarter GDP was revised up to 2.2 percent annualized 214 00:11:43,900 --> 00:11:46,900 Speaker 6: compared with the second estimate of 1.5 percent. Chairman Powell 215 00:11:47,120 --> 00:11:50,500 Speaker 6: would say that's solid. That is solid. So, I mean, 216 00:11:51,410 --> 00:11:54,599 Speaker 6: the economy is strong. But part of the cost of 217 00:11:54,640 --> 00:11:57,610 Speaker 6: having a strong economy is having a certain amount of inflation. 218 00:11:58,490 --> 00:12:01,930 Speaker 6: And some folks are coming in here saying, hey, the 219 00:12:01,950 --> 00:12:04,710 Speaker 6: 10-year yield at five and a quarter, whatever it is, 220 00:12:05,110 --> 00:12:07,070 Speaker 6: that's consistent with how this economy is growing. 221 00:12:07,510 --> 00:12:08,370 Speaker 7: Is that fair? 222 00:12:09,750 --> 00:12:11,050 Speaker 10: I guess I would look at it and say, yes, 223 00:12:11,070 --> 00:12:12,860 Speaker 10: the economy is solid. And the way I think the 224 00:12:12,880 --> 00:12:15,100 Speaker 10: Fed is thinking about this is the economy is solid 225 00:12:15,260 --> 00:12:17,839 Speaker 10: enough to allow them to embark on a cycle to 226 00:12:17,980 --> 00:12:20,220 Speaker 10: get inflation to come down a little faster. If the 227 00:12:20,260 --> 00:12:22,420 Speaker 10: labor market were weak, if the economy were weak, they 228 00:12:22,440 --> 00:12:24,819 Speaker 10: probably wouldn't be doing that. They'd figure the economy would 229 00:12:24,840 --> 00:12:27,319 Speaker 10: bring inflation down on its own. As far as the 230 00:12:27,340 --> 00:12:30,250 Speaker 10: 10-year yield, what's really interesting is if you look not 231 00:12:30,280 --> 00:12:32,170 Speaker 10: just at the last rate move, but go back to 232 00:12:32,190 --> 00:12:34,070 Speaker 10: the last several rate moves, all of which were cuts, 233 00:12:34,130 --> 00:12:36,770 Speaker 10: by the way, right? This cycle is unusual because when 234 00:12:36,790 --> 00:12:39,449 Speaker 10: the Fed was cutting rates, long bond yields were going up. 235 00:12:39,800 --> 00:12:41,640 Speaker 10: And now that they've raised rates, long bond yields are 236 00:12:41,660 --> 00:12:44,540 Speaker 10: still going up. So that tells us that this cycle 237 00:12:44,580 --> 00:12:45,240 Speaker 10: isn't really. 238 00:12:45,080 --> 00:12:45,660 Speaker 7: About the Fed. 239 00:12:46,840 --> 00:12:47,660 Speaker 5: What is it about? 240 00:12:47,980 --> 00:12:50,240 Speaker 10: You know, that is a mystery. And I'm sure that 241 00:12:50,260 --> 00:12:51,840 Speaker 10: you have lots of people who come in here to you. 242 00:12:51,860 --> 00:12:53,780 Speaker 5: There's an elephant in the room called the debt and 243 00:12:53,800 --> 00:12:54,260 Speaker 5: the deficit. 244 00:12:54,300 --> 00:12:54,559 Speaker 3: Sure. 245 00:12:55,140 --> 00:12:57,400 Speaker 10: But that's been true for a very long time. And 246 00:12:57,440 --> 00:13:00,920 Speaker 10: there's no particular reason to think it's accelerating. Well, during 247 00:13:00,960 --> 00:13:03,540 Speaker 10: the entirety of this cycle, the answer to that is yes. 248 00:13:03,880 --> 00:13:06,059 Speaker 10: And there is nothing that changed at the point when 249 00:13:06,080 --> 00:13:08,860 Speaker 10: long bond yields started to go up. I strongly agree 250 00:13:08,900 --> 00:13:11,140 Speaker 10: with you that that plays a role in this, but 251 00:13:11,160 --> 00:13:12,380 Speaker 10: I don't think it's the only. 252 00:13:12,240 --> 00:13:13,120 Speaker 7: Variable at play. 253 00:13:13,420 --> 00:13:16,740 Speaker 10: Yes, we're running irresponsible fiscal policy. To have a 6% 254 00:13:16,740 --> 00:13:20,260 Speaker 10: of GDP budget deficit in an economy that is strong 255 00:13:20,330 --> 00:13:22,670 Speaker 10: or solid or stable or whatever you want to pick 256 00:13:23,170 --> 00:13:26,470 Speaker 10: doesn't make any sense. You combine that with policy volatility 257 00:13:26,490 --> 00:13:29,630 Speaker 10: and unpredictability, right? You have tariffs on, tariffs off. You 258 00:13:29,650 --> 00:13:32,810 Speaker 10: have oil prices up. You have oil prices down. Geopolitics on, 259 00:13:32,850 --> 00:13:36,620 Speaker 10: geopolitics off. the Treasury Department changing its issuance calendar, we're 260 00:13:36,640 --> 00:13:39,760 Speaker 10: intervening in FX markets. All of those argue for higher 261 00:13:39,800 --> 00:13:42,010 Speaker 10: risk premium as well. So when I look at where 262 00:13:42,050 --> 00:13:44,110 Speaker 10: the long bond yield is, I don't think it's any 263 00:13:44,429 --> 00:13:47,569 Speaker 10: one explanation. I think it's a smorgasbord of all these 264 00:13:47,630 --> 00:13:49,770 Speaker 10: different variables that are combining to put it there. 265 00:13:50,770 --> 00:13:54,469 Speaker 6: Chairman Warsh is just absolutely adamant about getting that inflation 266 00:13:54,490 --> 00:13:57,390 Speaker 6: number down to 2%. Based upon my two semesters of 267 00:13:57,450 --> 00:14:00,380 Speaker 6: economics at Duke, I feel like I'm an expert, I 268 00:14:00,410 --> 00:14:04,060 Speaker 6: don't see the real magic of 2%. I mean, we're 269 00:14:04,300 --> 00:14:08,060 Speaker 6: at 3% core PCE today that just got reported. Maybe 270 00:14:08,080 --> 00:14:10,780 Speaker 6: that's where our economy is. I mean, we're reshoring all 271 00:14:10,820 --> 00:14:13,880 Speaker 6: this stuff. We're cutting immigration, so we've got some wage inflation. 272 00:14:14,160 --> 00:14:15,760 Speaker 7: I don't know. Maybe that's the new number. 273 00:14:16,230 --> 00:14:19,030 Speaker 10: So the magic of 2%, and you're right, there's nothing 274 00:14:19,070 --> 00:14:21,510 Speaker 10: magical about 2%. When the Fed picked 2%, they picked 275 00:14:21,590 --> 00:14:23,790 Speaker 10: it because it seemed like a reasonable number and because 276 00:14:23,850 --> 00:14:25,390 Speaker 10: the New Zealand Central Bank. 277 00:14:25,250 --> 00:14:26,350 Speaker 7: Picked 2% first. 278 00:14:26,410 --> 00:14:29,010 Speaker 10: It's not like there was some deep mathematical analysis that 279 00:14:29,050 --> 00:14:30,590 Speaker 10: concluded 2% was optimal. 280 00:14:30,950 --> 00:14:32,910 Speaker 7: But now that you've picked it, that's the target. 281 00:14:32,960 --> 00:14:34,380 Speaker 5: And in order to retain their credibility. 282 00:14:37,720 --> 00:14:40,140 Speaker 10: They feel like they need to adhere to that 2% target. 283 00:14:40,680 --> 00:14:43,180 Speaker 10: I believe and have believed for a long time that 284 00:14:43,400 --> 00:14:46,109 Speaker 10: in the grand scheme of things, they'll be satisfied if 285 00:14:46,190 --> 00:14:48,710 Speaker 10: inflation runs between two and two and a half, as 286 00:14:48,750 --> 00:14:52,890 Speaker 10: long as inflation expectations stay contained, precisely because there is 287 00:14:52,970 --> 00:14:55,950 Speaker 10: no magic to 2%, right? What they're really looking for, 288 00:14:56,270 --> 00:14:58,350 Speaker 10: what any central bank is really looking for is the 289 00:14:58,410 --> 00:15:01,480 Speaker 10: idea that when households and when businesses make their plans, 290 00:15:01,880 --> 00:15:03,500 Speaker 10: they don't think about. 291 00:15:03,340 --> 00:15:04,500 Speaker 7: Inflation, right? 292 00:15:05,400 --> 00:15:08,920 Speaker 10: And that's what they're targeting. And I suspect that for 293 00:15:08,960 --> 00:15:12,680 Speaker 10: most people, the difference between 2% inflation and 2.25% inflation 294 00:15:13,020 --> 00:15:14,800 Speaker 10: is a rounding error that they won't perceive in their 295 00:15:14,820 --> 00:15:17,500 Speaker 10: daily life. But in order to get back to that point, 296 00:15:17,880 --> 00:15:20,479 Speaker 10: the Fed believes that they need to reinforce their credibility. 297 00:15:20,500 --> 00:15:23,340 Speaker 10: And that's what they're doing by starting what, again, what 298 00:15:23,380 --> 00:15:25,760 Speaker 10: I expect to be a limited tightening cycle, but by 299 00:15:25,820 --> 00:15:26,820 Speaker 10: raising rates at this point. 300 00:15:27,140 --> 00:15:28,320 Speaker 5: Eric Winograd, thank you so much. 301 00:15:28,350 --> 00:15:30,830 Speaker 3: With Alliance Bernstein this morning out of Dartmouth with all 302 00:15:30,870 --> 00:15:34,130 Speaker 3: of his good academics here. And to have back-to-back Mike 303 00:15:34,190 --> 00:15:36,650 Speaker 3: Reed and Eric Winograd is what it's about. 304 00:15:38,550 --> 00:15:39,150 Speaker 5: Stay with us. 305 00:15:39,450 --> 00:15:42,670 Speaker 12: More from Bloomberg Surveillance coming up after this. 306 00:15:49,950 --> 00:15:53,560 Speaker 4: You're listening to the Bloomberg Surveillance Podcast. Catch us live 307 00:15:53,640 --> 00:15:55,720 Speaker 4: weekday afternoons from 7 to 10 a.m. 308 00:15:55,760 --> 00:15:56,160 Speaker 1: Eastern. 309 00:15:56,260 --> 00:15:59,560 Speaker 4: Listen on Apple CarPlay and Android Auto with the Bloomberg 310 00:15:59,580 --> 00:16:00,180 Speaker 4: Business app. 311 00:16:00,400 --> 00:16:02,100 Speaker 1: Or watch us live on YouTube. 312 00:16:02,460 --> 00:16:02,920 Speaker 7: This is Joe. 313 00:16:02,940 --> 00:16:05,450 Speaker 5: I've been saying for like three weeks, get Nordvik. Get Nordvik. 314 00:16:05,900 --> 00:16:08,310 Speaker 5: You can't get Nordvik. He's still recovering from the World Cup. 315 00:16:08,690 --> 00:16:09,840 Speaker 5: Jens Nordvik joins us. 316 00:16:09,910 --> 00:16:13,230 Speaker 3: Exciting data with his wonderful work on foreign exchange, but 317 00:16:13,270 --> 00:16:18,450 Speaker 3: it's really broadened out. Does foreign exchange tell us, inform us, 318 00:16:18,990 --> 00:16:23,960 Speaker 3: is the deepest system about fixed income, about commodities right now? 319 00:16:23,980 --> 00:16:27,320 Speaker 11: I think it's pretty clear that the epicenter of what 320 00:16:27,340 --> 00:16:29,680 Speaker 11: has been happening over the last couple of weeks, couple 321 00:16:29,700 --> 00:16:33,600 Speaker 11: of months, really, has been the fixed income market. And, like, we. 322 00:16:35,150 --> 00:16:39,480 Speaker 11: We merged Exanta data with Vanda earlier this year to 323 00:16:39,500 --> 00:16:42,540 Speaker 11: get the equity coverage as a part of what we 324 00:16:42,620 --> 00:16:46,560 Speaker 11: offer and even the equity space. All the questions are 325 00:16:46,620 --> 00:16:50,950 Speaker 11: fixed income related now. When is this dramatic rise going 326 00:16:50,970 --> 00:16:53,650 Speaker 11: to stop? When is equity going to be okay again? 327 00:16:54,170 --> 00:16:55,590 Speaker 11: I think that epicenter is very clear. 328 00:16:55,610 --> 00:16:58,670 Speaker 5: Do you need dollar to break as a change agent? 329 00:16:58,730 --> 00:16:59,390 Speaker 5: Do you need to see DXY go $ 199. 330 00:16:59,290 --> 00:16:59,350 Speaker 2: 94? 331 00:16:59,330 --> 00:17:00,690 Speaker 5: Does it need to finally break? 332 00:17:05,490 --> 00:17:09,630 Speaker 11: So I think we're in this kind of really interesting environment, right, 333 00:17:09,710 --> 00:17:13,679 Speaker 11: where currency markets haven't really moved that much, except the 334 00:17:13,740 --> 00:17:17,460 Speaker 11: Korean won that has been on this crazy AI, maybe 335 00:17:17,500 --> 00:17:22,400 Speaker 11: not crazy, understandable AI trend. But I think what we're 336 00:17:22,440 --> 00:17:26,620 Speaker 11: looking to in currency markets is we're going to get 337 00:17:27,070 --> 00:17:30,890 Speaker 11: to a point where the fixed income markets are going 338 00:17:30,910 --> 00:17:33,550 Speaker 11: to be at a kind of breaking point where we're 339 00:17:33,570 --> 00:17:35,760 Speaker 11: going to have to have some kind of intervention, right? 340 00:17:35,780 --> 00:17:39,020 Speaker 11: We can't have 30-year yields continuing to go up, you know, 341 00:17:39,180 --> 00:17:41,060 Speaker 11: every few months, 50 basis points. It's not going to 342 00:17:41,080 --> 00:17:43,980 Speaker 11: be sustainable. And we've seen it already in the U.S., right? 343 00:17:44,280 --> 00:17:45,940 Speaker 11: Scott Besson came in and said we're going to try 344 00:17:45,980 --> 00:17:49,609 Speaker 11: to stabilize with the buybacks. You discussed it earlier this morning, right? 345 00:17:49,630 --> 00:17:52,330 Speaker 11: It hasn't really had a huge impact so far, right? 346 00:17:52,369 --> 00:17:53,050 Speaker 7: But eventually. 347 00:17:53,740 --> 00:17:57,460 Speaker 11: we'll have to have some type of backstop from central 348 00:17:57,500 --> 00:17:59,689 Speaker 11: bank balance sheet to other balance sheet to stop it. 349 00:18:00,090 --> 00:18:02,330 Speaker 11: And that will be when the currencies react, right? Because 350 00:18:02,369 --> 00:18:05,209 Speaker 11: that's when the market can see, okay, there's a liquidity 351 00:18:05,250 --> 00:18:08,370 Speaker 11: that's coming in to stop the yields rising, and that's 352 00:18:08,410 --> 00:18:10,600 Speaker 11: going to then move into the currencies. We're not there yet, 353 00:18:10,930 --> 00:18:12,719 Speaker 11: but I think this year is a transition year where 354 00:18:12,740 --> 00:18:13,580 Speaker 11: we'll get to that point. 355 00:18:14,119 --> 00:18:15,940 Speaker 6: Jens, just looking at your notes here, and as you 356 00:18:16,040 --> 00:18:20,359 Speaker 6: talk about the long end moving higher, you talk about 357 00:18:20,400 --> 00:18:23,220 Speaker 6: a corporate bond deal that may be impacting the paramounts 358 00:18:23,260 --> 00:18:26,660 Speaker 6: in the market was $ 52 billion worth of investment grade, 359 00:18:26,700 --> 00:18:29,220 Speaker 6: high yield bank loan, a lot of paper coming into 360 00:18:29,240 --> 00:18:33,820 Speaker 6: the market, but I've never heard or seen anybody discussing 361 00:18:33,840 --> 00:18:37,609 Speaker 6: whether a corporate bond deal could impact the broader treasury market. 362 00:18:37,920 --> 00:18:41,450 Speaker 11: No, I think it's, it's when the markets are so 363 00:18:41,630 --> 00:18:45,189 Speaker 11: on edge, as we're seeing right now, like the catalyst 364 00:18:45,250 --> 00:18:47,730 Speaker 11: kind of broadens out and even smaller things can actually 365 00:18:47,750 --> 00:18:51,449 Speaker 11: kind of destabilize the market. So, Obviously, there's a lot 366 00:18:51,490 --> 00:18:55,169 Speaker 11: of focus on the hyperscale issuance, which is now starting 367 00:18:55,210 --> 00:18:58,439 Speaker 11: to compete in the long end with the US Treasury 368 00:18:58,480 --> 00:19:03,959 Speaker 11: market as being an equally important issuer from the US Treasury. 369 00:19:04,119 --> 00:19:06,510 Speaker 11: It's something that a couple of years ago, if I've 370 00:19:06,550 --> 00:19:08,760 Speaker 11: said that on- Do you agree with that? When we 371 00:19:08,800 --> 00:19:12,010 Speaker 11: do the projections into 2007, it looks like the issuance 372 00:19:12,119 --> 00:19:16,270 Speaker 11: above 10-year, because the data centers are very long-term financing projects, 373 00:19:16,770 --> 00:19:19,750 Speaker 11: it could be of roughly the same magnitude as the 374 00:19:19,790 --> 00:19:22,130 Speaker 11: Treasury is. Yeah. If I come here and said this 375 00:19:22,150 --> 00:19:23,750 Speaker 11: a couple of years ago, you'd probably kick me out 376 00:19:23,810 --> 00:19:26,169 Speaker 11: of the studio saying, okay, what are you smoking? 377 00:19:28,690 --> 00:19:32,189 Speaker 6: But this bond sell-off, it's been a global issue. It's 378 00:19:32,210 --> 00:19:35,470 Speaker 6: not just the U.S. So what is that telling you? 379 00:19:36,560 --> 00:19:39,880 Speaker 11: Yeah, so we've seen it over the last couple of years, right, 380 00:19:39,940 --> 00:19:43,790 Speaker 11: that global bond markets are so tied to the U.S. 381 00:19:43,850 --> 00:19:47,750 Speaker 11: that it's quite hard to see any decoupling. But I 382 00:19:47,810 --> 00:19:49,590 Speaker 11: do think if you look at the curve shapes, you 383 00:19:49,609 --> 00:19:53,180 Speaker 11: can see. like the most extreme example is Switzerland, right, 384 00:19:53,200 --> 00:19:55,740 Speaker 11: where they have no debt. You don't have curve steepening there. 385 00:19:55,780 --> 00:19:58,969 Speaker 11: So there is some differences. And I would also say 386 00:19:59,010 --> 00:20:01,370 Speaker 11: if you look at this week, right, and even today, 387 00:20:01,990 --> 00:20:05,200 Speaker 11: like which curves are steepening, The U.S. curve is still 388 00:20:05,220 --> 00:20:09,359 Speaker 11: steepening today. The French curve is still steepening today. So 389 00:20:10,480 --> 00:20:14,390 Speaker 11: that does seem to be a trend where, OK, global 390 00:20:14,430 --> 00:20:16,750 Speaker 11: bond yields are correlated, right? But the slope of the 391 00:20:16,790 --> 00:20:19,790 Speaker 11: curve is more problematically steep in the places where the 392 00:20:19,850 --> 00:20:21,250 Speaker 11: debt issues are the most severe. 393 00:20:21,510 --> 00:20:23,210 Speaker 3: Jens Nordvik with us with the Castani. 394 00:20:23,230 --> 00:20:24,750 Speaker 5: We're going to continue with him coming up. 395 00:20:25,590 --> 00:20:29,490 Speaker 3: Lisa Abramo is with Ken Griffin on his very important 396 00:20:29,530 --> 00:20:33,280 Speaker 3: day for Pittsburgh's Carnegie Mellon as they look to Miami, 397 00:20:33,320 --> 00:20:36,000 Speaker 3: I'll give you a treatment on there in a moment. 398 00:20:36,140 --> 00:20:39,960 Speaker 3: We are advantaged to have Jens Nordvig with us with 399 00:20:40,000 --> 00:20:45,850 Speaker 3: these headlines. Let me go through these bombshell headlines. BMW 400 00:20:45,990 --> 00:20:51,770 Speaker 3: of Germany targets shedding a fifth of managers for AI. 401 00:20:52,730 --> 00:20:56,979 Speaker 3: BMW targets three to five percent automaking return on sales 402 00:20:57,080 --> 00:21:01,609 Speaker 3: two years out. BMW expects management cuts to be completed 403 00:21:01,670 --> 00:21:06,189 Speaker 3: by summer of next year. BMW's management job cuts are 404 00:21:06,250 --> 00:21:10,929 Speaker 3: part of an AI buyout, whatever that means. BMW to 405 00:21:11,030 --> 00:21:16,050 Speaker 3: add more high-end models above the X7. BMW to reduce 406 00:21:16,190 --> 00:21:20,430 Speaker 3: variance to discontinue some models. I look at this yen 407 00:21:20,530 --> 00:21:23,430 Speaker 3: and it just speaks of the impact of China. I mean, 408 00:21:23,470 --> 00:21:27,750 Speaker 3: it just screams for Volkswagen, BMW, for Ford and Jim. 409 00:21:27,990 --> 00:21:31,970 Speaker 3: Your thoughts on how China is pricing their goods? 410 00:21:33,020 --> 00:21:36,480 Speaker 11: Yeah, absolutely. A couple of decades ago, there was this 411 00:21:36,520 --> 00:21:40,280 Speaker 11: concern that Japan was going to take over, right? And 412 00:21:41,600 --> 00:21:45,220 Speaker 11: the Japanese automakers were gaining market share from everybody, including 413 00:21:45,260 --> 00:21:48,679 Speaker 11: the U.S. ones. And now we look at what's happening 414 00:21:48,720 --> 00:21:52,240 Speaker 11: in China, right? And the speed at which China is 415 00:21:52,280 --> 00:21:55,640 Speaker 11: taking market share globally is so much faster than what 416 00:21:55,660 --> 00:22:00,270 Speaker 11: Japan ever did. And obviously the headlines you're reading out, right, 417 00:22:00,290 --> 00:22:03,010 Speaker 11: is a reflection of that. Like German car producers are 418 00:22:03,330 --> 00:22:06,859 Speaker 11: just really pressured Number one, because they don't sell cars 419 00:22:06,920 --> 00:22:10,080 Speaker 11: in China almost at all anymore. And number two, because 420 00:22:10,100 --> 00:22:14,330 Speaker 11: they're also getting threatened at home from the EVs. So 421 00:22:14,910 --> 00:22:17,750 Speaker 11: this is a very challenging situation for Germany. The only 422 00:22:17,850 --> 00:22:20,550 Speaker 11: offset they have really is that some of that production 423 00:22:20,590 --> 00:22:24,980 Speaker 11: capacity is moving to military production because Germany is ramping 424 00:22:25,040 --> 00:22:28,540 Speaker 11: up their defense spending. That's the only offset. But we 425 00:22:28,580 --> 00:22:31,419 Speaker 11: also have the much higher natural gas prices. So the 426 00:22:31,460 --> 00:22:32,920 Speaker 11: challenges are multifold. 427 00:22:33,340 --> 00:22:35,460 Speaker 3: Don't be a stranger. Jens Nordvik, thank you so much 428 00:22:35,480 --> 00:22:38,460 Speaker 3: for the Exante. Brilliant research notes. I will say his 429 00:22:38,540 --> 00:22:42,780 Speaker 3: book of a lifetime ago on the Euro was absolutely definitive. 430 00:22:44,700 --> 00:22:45,310 Speaker 5: Stay with us. 431 00:22:45,619 --> 00:22:48,850 Speaker 12: More from Bloomberg Surveillance coming up after this. 432 00:22:56,130 --> 00:22:59,740 Speaker 4: You're listening to the Bloomberg Surveillance Podcast. Catch us live 433 00:22:59,800 --> 00:23:01,880 Speaker 4: weekday afternoons from 7 to 10 a.m. 434 00:23:01,940 --> 00:23:02,360 Speaker 1: Eastern. 435 00:23:02,440 --> 00:23:05,720 Speaker 4: Listen on Apple CarPlay and Android Auto with the Bloomberg 436 00:23:05,740 --> 00:23:06,360 Speaker 4: Business app. 437 00:23:06,560 --> 00:23:08,300 Speaker 1: Or watch us live on YouTube. 438 00:23:08,840 --> 00:23:10,460 Speaker 5: Let me explain Paul Sankey, folks. 439 00:23:10,970 --> 00:23:13,790 Speaker 3: For years, you'd get the Deutsche Bank Research, and this 440 00:23:13,830 --> 00:23:14,950 Speaker 3: is before the Internet. 441 00:23:15,310 --> 00:23:18,930 Speaker 5: It was chiseled in granite. It was chiseled in granite. 442 00:23:20,900 --> 00:23:22,460 Speaker 3: Excuse me. 443 00:23:22,480 --> 00:23:23,220 Speaker 5: Let's go. 444 00:23:23,280 --> 00:23:24,459 Speaker 7: Let's get into this right here. 445 00:23:24,480 --> 00:23:25,479 Speaker 9: Chiseled into ground. 446 00:23:25,700 --> 00:23:28,600 Speaker 7: Chiseled into ground. We used to get the paper research reports. 447 00:23:29,000 --> 00:23:29,540 Speaker 7: All right. 448 00:23:29,660 --> 00:23:31,960 Speaker 6: You know, we were sitting here with Paul Sankey, lead 449 00:23:32,020 --> 00:23:34,260 Speaker 6: analyst at Sankey Research. He is the go-to voice on 450 00:23:34,300 --> 00:23:37,570 Speaker 6: global energy. Paul, I've been reading over the last 24, 451 00:23:37,570 --> 00:23:40,220 Speaker 6: 48 hours that a lot of crude is getting through 452 00:23:40,240 --> 00:23:42,140 Speaker 6: the Strait of Hormuz, like a lot of crude. 453 00:23:42,540 --> 00:23:44,060 Speaker 7: Why is Brent still at $ 103? Why are we trading 454 00:23:44,119 --> 00:23:44,720 Speaker 7: this stuff at $ 80 a barrel? 455 00:23:46,740 --> 00:23:49,149 Speaker 9: Well, I think it's going to come down because, yes, 456 00:23:49,180 --> 00:23:51,520 Speaker 9: you know, the numbers we're getting are actually 20 million 457 00:23:51,560 --> 00:23:53,830 Speaker 9: barrels a day right now, the very latest. 458 00:23:53,970 --> 00:23:54,670 Speaker 5: So the U.S. 459 00:23:54,710 --> 00:23:59,850 Speaker 9: Has absolutely thrown the military, the Air Force particularly, into, 460 00:23:59,869 --> 00:24:03,620 Speaker 9: for example, I was told they have eight F-15s constantly 461 00:24:03,840 --> 00:24:06,540 Speaker 9: running up and down the petrol line to protect the 462 00:24:06,640 --> 00:24:10,600 Speaker 9: petrol line. And the F-15s apparently... faster than the drones. So, 463 00:24:10,740 --> 00:24:13,460 Speaker 9: you know, it makes you wonder about Top Gun and stuff. But, 464 00:24:14,000 --> 00:24:16,560 Speaker 9: you know, what strikes me, obviously, is the enormous expense 465 00:24:16,600 --> 00:24:20,330 Speaker 9: of this effort. And it's clearly an all-in military effort 466 00:24:20,440 --> 00:24:23,510 Speaker 9: by the US to. 467 00:24:22,670 --> 00:24:23,650 Speaker 5: Get the oil flowing. 468 00:24:23,670 --> 00:24:26,550 Speaker 9: And that's succeeding. I think the problem is, you know, 469 00:24:26,590 --> 00:24:29,469 Speaker 9: what happens once we get through the midterms, because it's 470 00:24:29,530 --> 00:24:33,770 Speaker 9: clearly an unsustainably expensive effort right now. And what you're seeing, 471 00:24:33,790 --> 00:24:37,040 Speaker 9: I was just looking at the charts, is actually Year forward, 472 00:24:37,220 --> 00:24:40,170 Speaker 9: crude is now moving up quite aggressively. So you're above 473 00:24:40,170 --> 00:24:43,890 Speaker 9: 80 for one year delivery. So, you know, this time 474 00:24:43,930 --> 00:24:45,990 Speaker 9: next year, the price of oil has gone up quite 475 00:24:46,050 --> 00:24:46,370 Speaker 9: a lot. 476 00:24:46,550 --> 00:24:46,990 Speaker 7: Why is that? 477 00:24:47,010 --> 00:24:49,649 Speaker 9: Because I think everything you're looking at now is pointing 478 00:24:49,690 --> 00:24:52,890 Speaker 9: towards 2027 being a problem as well, you know, because 479 00:24:52,930 --> 00:24:55,690 Speaker 9: we've drawn down, we've run through the six or seven 480 00:24:55,770 --> 00:24:58,070 Speaker 9: buffers that we had in global oil, which would be 481 00:24:58,590 --> 00:25:00,629 Speaker 9: some of the less well-known ones were, for example, that 482 00:25:00,670 --> 00:25:04,719 Speaker 9: Saudi and UAE had major inventories in Asia already stored. 483 00:25:05,260 --> 00:25:08,740 Speaker 9: An obvious one is the Strategic Petroleum Reserve. Those are 484 00:25:08,760 --> 00:25:11,720 Speaker 9: getting tight. There is another release of the Strategic Petroleum 485 00:25:11,740 --> 00:25:14,280 Speaker 9: Reserve coming through, but you've gone from one and a 486 00:25:14,320 --> 00:25:16,800 Speaker 9: half million barrels a day of drawdown to more like 487 00:25:16,800 --> 00:25:19,980 Speaker 9: 150,000 barrels a day there, and that simply can't go 488 00:25:20,070 --> 00:25:25,109 Speaker 9: on forever. So this is a short-term sort of sugar 489 00:25:25,170 --> 00:25:29,290 Speaker 9: rush of crude that we're getting that is clearly, I 490 00:25:29,310 --> 00:25:31,910 Speaker 9: don't think the US military effort can be sustained, quite frankly, 491 00:25:31,950 --> 00:25:32,970 Speaker 9: at this level of expense. 492 00:25:33,540 --> 00:25:35,280 Speaker 7: When you get the oil out, then what do we 493 00:25:35,320 --> 00:25:36,800 Speaker 7: do with it? We got to refine it, right? 494 00:25:37,040 --> 00:25:39,280 Speaker 9: That's the second problem is that I keep saying you're 495 00:25:39,300 --> 00:25:41,700 Speaker 9: pushing on a string. And the fact of the matter 496 00:25:41,760 --> 00:25:45,050 Speaker 9: is the constraint is not crude. The constraint is diesel. 497 00:25:45,070 --> 00:25:47,990 Speaker 9: And we're getting almost no diesel out of the Straits 498 00:25:48,030 --> 00:25:52,470 Speaker 9: of Hormuz. The Kuwait refinery used to supply 60% of 499 00:25:52,510 --> 00:25:55,910 Speaker 9: Heathrow's jet fuel. That's all now missing. And you really 500 00:25:55,930 --> 00:25:59,820 Speaker 9: have basically an energy crisis again in Europe that We're 501 00:25:59,859 --> 00:26:01,780 Speaker 9: hoping it won't be as bad as it might be 502 00:26:01,820 --> 00:26:04,060 Speaker 9: because we're looking for a warm winter with El Nino. 503 00:26:04,260 --> 00:26:07,010 Speaker 9: But I think we're also looking at a very volatile winter. 504 00:26:07,070 --> 00:26:10,190 Speaker 9: As you know, we just had a nor'easter here in September. 505 00:26:10,290 --> 00:26:13,949 Speaker 9: That's very early. It's not unknown. But it looks like 506 00:26:13,970 --> 00:26:19,100 Speaker 9: we might have energy disruptions from force majeure, from God 507 00:26:19,140 --> 00:26:20,280 Speaker 9: himself or herself. 508 00:26:20,300 --> 00:26:20,500 Speaker 13: Right. 509 00:26:20,940 --> 00:26:23,440 Speaker 5: Paul Sankey with us, folks. Sankey Research. Thrilled he could 510 00:26:23,460 --> 00:26:24,859 Speaker 5: be with us today. 511 00:26:24,920 --> 00:26:26,740 Speaker 3: I should say in the plague that I'm getting over, 512 00:26:27,380 --> 00:26:29,760 Speaker 3: now I have two people on the Bloomberg Money Team, Paul, 513 00:26:29,780 --> 00:26:31,000 Speaker 3: with us out today. 514 00:26:31,380 --> 00:26:32,760 Speaker 5: Yes, I saw that. 515 00:26:32,820 --> 00:26:34,869 Speaker 3: Folks, if you've got this flu thing going around, this 516 00:26:35,119 --> 00:26:36,990 Speaker 3: pneumonia thing, go to the doctor. 517 00:26:37,290 --> 00:26:40,590 Speaker 5: Don't be a hero. I can't say enough the care 518 00:26:40,609 --> 00:26:42,990 Speaker 5: I've gotten. We're working it in every day. 519 00:26:43,290 --> 00:26:45,730 Speaker 3: Paul Sankey, I think Paul's dead on here in that 520 00:26:45,770 --> 00:26:49,370 Speaker 3: the public is looking at simplistic politicians. 521 00:26:50,150 --> 00:26:51,030 Speaker 5: And their rhetoric. 522 00:26:51,490 --> 00:26:55,379 Speaker 3: If you were talking to the politicians with their simplistic, 523 00:26:55,940 --> 00:27:00,399 Speaker 3: you know, primetime news soundbites, what would you say to 524 00:27:00,460 --> 00:27:03,780 Speaker 3: them that they need to understand? What's the come-to-Jesus moment 525 00:27:04,100 --> 00:27:05,240 Speaker 3: the politicians need? 526 00:27:06,180 --> 00:27:08,000 Speaker 9: I think free markets, you know, I think the idea 527 00:27:08,020 --> 00:27:11,110 Speaker 9: that we would ban diesel exports in order to short-term 528 00:27:11,140 --> 00:27:14,410 Speaker 9: bring the price down because the Russians banned diesel exports 529 00:27:14,470 --> 00:27:17,030 Speaker 9: and the Chinese banned diesel exports, you know, that's one 530 00:27:17,070 --> 00:27:20,409 Speaker 9: of the sort of Comparisons that makes you realize what 531 00:27:20,430 --> 00:27:22,389 Speaker 9: a terrible idea it is It's like no, you know, 532 00:27:22,410 --> 00:27:25,250 Speaker 9: we got to this position of the world's biggest oil 533 00:27:25,270 --> 00:27:29,200 Speaker 9: and gas producer and exporter an amazing position that's greatly 534 00:27:29,240 --> 00:27:32,300 Speaker 9: underestimated by almost everybody in terms of the benefits that 535 00:27:32,340 --> 00:27:34,820 Speaker 9: it's brought to the US and Then to turn around 536 00:27:34,859 --> 00:27:37,510 Speaker 9: and start mucking around with it at the margin in 537 00:27:37,550 --> 00:27:38,970 Speaker 9: a way that you know you get a six you 538 00:27:38,990 --> 00:27:41,530 Speaker 9: get a whatever it'd be a 90-day benefit of lower 539 00:27:41,550 --> 00:27:44,930 Speaker 9: diesel prices and And you get a 20-year discount for 540 00:27:44,970 --> 00:27:48,129 Speaker 9: not being an investable place to put money in refining. 541 00:27:48,170 --> 00:27:50,149 Speaker 3: So then how do you perceive, say, next summer, a 542 00:27:50,690 --> 00:27:53,890 Speaker 3: gallon of gas or a gallon of diesel or just 543 00:27:53,910 --> 00:27:54,760 Speaker 3: the price of Brent? 544 00:27:54,859 --> 00:27:57,980 Speaker 9: Well, one comparison that we're using regularly is if you're 545 00:27:58,000 --> 00:28:01,320 Speaker 9: at 650 diesel, you're at $ 250 a barrel. I think 546 00:28:01,359 --> 00:28:03,619 Speaker 9: that would help people realize what the issue is. You've 547 00:28:03,640 --> 00:28:06,060 Speaker 9: got $ 100 crude, you've got 250 diesel, and we use diesel. 548 00:28:07,160 --> 00:28:09,680 Speaker 9: everything that is out there is that because of what's 549 00:28:09,700 --> 00:28:12,220 Speaker 9: happened in Hormuz and because it looks like it's Structurally 550 00:28:12,260 --> 00:28:14,680 Speaker 9: going to be very risky what's happening here as well 551 00:28:14,720 --> 00:28:17,820 Speaker 9: as the Iranians have no radar So they're just randomly 552 00:28:17,859 --> 00:28:20,520 Speaker 9: throwing missiles hoping to hit a boat, you know, it's 553 00:28:20,560 --> 00:28:23,770 Speaker 9: a very inefficient way to do it, thankfully But it 554 00:28:23,850 --> 00:28:25,910 Speaker 9: really tells you they're not stopping, you know, we're gonna 555 00:28:25,950 --> 00:28:29,270 Speaker 9: have to either continue massive military presence down there you 556 00:28:29,290 --> 00:28:32,209 Speaker 9: know that military presence right now is causing massive spikes 557 00:28:32,270 --> 00:28:35,530 Speaker 9: in tanker rates because the tankers are The state companies 558 00:28:35,590 --> 00:28:37,830 Speaker 9: are using the state ships to get through the strait 559 00:28:37,869 --> 00:28:40,170 Speaker 9: because they're prepared to risk. And then they're putting it 560 00:28:40,250 --> 00:28:44,170 Speaker 9: on commercial tankers outside the straits. That's adding $ 25 a 561 00:28:44,310 --> 00:28:47,650 Speaker 9: barrel to the price of crude to get from Saudi 562 00:28:47,690 --> 00:28:50,410 Speaker 9: to China. Last year, it was under $ 2 a barrel. 563 00:28:50,970 --> 00:28:54,690 Speaker 9: So you have a structural transport increase. This week, Tom, 564 00:28:54,710 --> 00:28:56,950 Speaker 9: just on Monday, I was at the Total Energies Analyst 565 00:28:56,990 --> 00:28:59,970 Speaker 9: Meeting here at Columbus Circle. And a couple of things 566 00:29:00,010 --> 00:29:02,230 Speaker 9: they did, one I thought was brilliant, is that Total 567 00:29:02,300 --> 00:29:06,520 Speaker 9: Energies voluntarily put a cap on gasoline and diesel prices 568 00:29:06,560 --> 00:29:09,720 Speaker 9: in France. So the company actually did it themselves. And 569 00:29:09,760 --> 00:29:11,820 Speaker 9: that would be a suggestion to me for a Valero. 570 00:29:12,220 --> 00:29:16,120 Speaker 9: You know, let's get, you know, 100,000, 200,000 barrels of 571 00:29:16,380 --> 00:29:19,480 Speaker 9: price capped diesel to the farmers. And that will probably 572 00:29:20,000 --> 00:29:23,800 Speaker 9: satisfy the politicians a lot. But broadly speaking, because of 573 00:29:23,840 --> 00:29:27,459 Speaker 9: the enhanced risk, you actually need higher inventories, arguably, than 574 00:29:27,500 --> 00:29:30,240 Speaker 9: you were holding before the crisis. And inventories have been 575 00:29:30,820 --> 00:29:33,460 Speaker 9: radically drawing down. So a couple of important numbers just 576 00:29:33,660 --> 00:29:37,090 Speaker 9: to finish. You drew down 4 million barrels a day 577 00:29:37,110 --> 00:29:40,380 Speaker 9: of global inventory suddenly in September. So the drawdown suddenly 578 00:29:40,440 --> 00:29:44,320 Speaker 9: accelerated because we'd blown through the buffers that we talked about. 579 00:29:45,400 --> 00:29:47,340 Speaker 9: And then, of course, you lost the petrol lines. So 580 00:29:47,360 --> 00:29:50,120 Speaker 9: the market got panicky, and that's why we're at 100. 581 00:29:50,120 --> 00:29:52,700 Speaker 9: But at the same time, actually, the US military effort 582 00:29:52,740 --> 00:29:55,930 Speaker 9: was massively ramping up the crude, which takes 50 days 583 00:29:56,010 --> 00:29:58,430 Speaker 9: to reach its destination. So I think we're going to 584 00:29:58,510 --> 00:30:01,450 Speaker 9: come off these level of crude prices quite aggressively, assuming 585 00:30:01,470 --> 00:30:03,910 Speaker 9: they maintain the 20 million barrels a day of exports 586 00:30:03,950 --> 00:30:07,060 Speaker 9: that they're achieving right now, apparently. But you're going to 587 00:30:07,080 --> 00:30:09,440 Speaker 9: remain in a major issue for diesel because you're actually 588 00:30:09,480 --> 00:30:12,100 Speaker 9: doing nothing to address the diesel problem. The other thing 589 00:30:12,120 --> 00:30:17,500 Speaker 9: I'm watching, Tom, finally, is just whether or not treasury rates, 590 00:30:17,660 --> 00:30:20,260 Speaker 9: interest rates disconnect from oil. Because as you know, for 591 00:30:20,300 --> 00:30:23,810 Speaker 9: the past eight weeks, six weeks, we've had a one-on-one 592 00:30:23,980 --> 00:30:26,430 Speaker 9: oil moves a percent. Those guys, you know, you can 593 00:30:26,450 --> 00:30:26,810 Speaker 9: just check. 594 00:30:27,370 --> 00:30:28,090 Speaker 5: Overlay the charts. 595 00:30:28,450 --> 00:30:31,130 Speaker 9: I've just seen this week the beginning of oil trading off, 596 00:30:31,190 --> 00:30:34,020 Speaker 9: but the interest rates continuing to rise. And I think 597 00:30:34,040 --> 00:30:35,840 Speaker 9: that's going to be very scary for the market if 598 00:30:35,900 --> 00:30:36,380 Speaker 9: that starts. 599 00:30:36,560 --> 00:30:37,520 Speaker 5: Get one more in here, Paul. 600 00:30:37,540 --> 00:30:37,959 Speaker 11: All right. 601 00:30:38,000 --> 00:30:41,460 Speaker 6: Here's the simplistic question of the day, because I'm sure 99% 602 00:30:41,460 --> 00:30:43,780 Speaker 6: of our audience wants to just know this. 603 00:30:44,680 --> 00:30:45,630 Speaker 7: When do we get back to normal? 604 00:30:46,250 --> 00:30:48,450 Speaker 6: Do we ever get back to where we were January, 605 00:30:48,770 --> 00:30:51,790 Speaker 6: December in terms of global energy and all the way 606 00:30:51,830 --> 00:30:54,310 Speaker 6: from your world in the oil fields all the way 607 00:30:54,330 --> 00:30:57,250 Speaker 6: down to my pump on Route 36 in the Jersey Shore? 608 00:30:57,410 --> 00:30:59,130 Speaker 9: Look, I tell you this. My standard line is if 609 00:30:59,150 --> 00:31:01,600 Speaker 9: you're worried about World War III, you shouldn't be because 610 00:31:01,620 --> 00:31:04,640 Speaker 9: you're in it. And, you know, this is World War III, 611 00:31:04,680 --> 00:31:07,500 Speaker 9: and there's a number of higher levels than the usual 612 00:31:07,600 --> 00:31:11,120 Speaker 9: trench warfare in Ukraine. You have a situation here where 613 00:31:11,140 --> 00:31:14,300 Speaker 9: you have an AI World War. You have a finance 614 00:31:14,380 --> 00:31:17,010 Speaker 9: World War. You know, we call it OFACs against UCAVs, 615 00:31:17,050 --> 00:31:21,110 Speaker 9: which is the U.S. sanctions against drones. And that's just, that's, 616 00:31:21,150 --> 00:31:24,200 Speaker 9: you can split the world east-west basically with a second 617 00:31:24,240 --> 00:31:29,340 Speaker 9: frontline through Tokyo and Korea and Taiwan and Australia. How 618 00:31:29,360 --> 00:31:31,680 Speaker 9: do we resolve this? I really would love to see 619 00:31:31,700 --> 00:31:34,620 Speaker 9: the Chinese get on the same page as us. But, 620 00:31:34,700 --> 00:31:37,280 Speaker 9: you know, I think Wall Street always supported Trump taking 621 00:31:37,380 --> 00:31:41,400 Speaker 9: on China. The execution at times has been suboptimal, we 622 00:31:41,420 --> 00:31:43,959 Speaker 9: can say. But I think the general idea is, you know, 623 00:31:44,010 --> 00:31:46,890 Speaker 9: was that we have to make some sort of new 624 00:31:46,930 --> 00:31:49,710 Speaker 9: industrial policy in the U.S. and reduce the power of 625 00:31:49,770 --> 00:31:53,570 Speaker 9: China over time. And that's, you know, hopefully something that 626 00:31:53,590 --> 00:31:56,290 Speaker 9: can happen in the future. But at the moment, it's 627 00:31:56,330 --> 00:31:58,970 Speaker 9: pretty intractable. It's pretty difficult to see how we normalize, 628 00:31:59,030 --> 00:32:01,910 Speaker 9: certainly how we normalize ever again the straightforward moves because 629 00:32:02,470 --> 00:32:03,890 Speaker 9: it's a structural damage that we've. 630 00:32:04,510 --> 00:32:07,450 Speaker 5: Paul, thank you, thank you, thank you. Paul Sankey, folks, 631 00:32:07,770 --> 00:32:10,750 Speaker 5: with us here. Stay with us. 632 00:32:11,050 --> 00:32:14,280 Speaker 12: More from Bloomberg Surveillance coming up after this. 633 00:32:21,460 --> 00:32:22,420 Speaker 1: Julie Beals is incredibly gifted. 634 00:32:22,440 --> 00:32:24,170 Speaker 4: I knew her ages ago at Merrill Lynch when she 635 00:32:24,390 --> 00:32:26,490 Speaker 4: was 15. 636 00:32:40,230 --> 00:32:42,240 Speaker 3: And she's worked her way through with some sterling West 637 00:32:42,300 --> 00:32:46,020 Speaker 3: Coast academics at Kane, Anderson, Rudnick. So usually we talk 638 00:32:46,040 --> 00:32:48,640 Speaker 3: to her about, you know, economic and that. But Julie, 639 00:32:48,680 --> 00:32:52,770 Speaker 3: your note is just incredibly prescient on AI. You've been 640 00:32:52,830 --> 00:32:55,970 Speaker 3: going to the boring meetings of people trying to figure 641 00:32:56,030 --> 00:32:59,330 Speaker 3: out data centers and all that. Here's George Noble, the 642 00:32:59,370 --> 00:33:04,050 Speaker 3: giant of fidelity overseas this morning. This anthropic IPO is 643 00:33:04,070 --> 00:33:09,330 Speaker 3: the most dangerous deal I've seen in my 45-year career. Julie, 644 00:33:09,390 --> 00:33:14,840 Speaker 3: from your perspective, where are the mega people? Where is AI? 645 00:33:14,980 --> 00:33:19,360 Speaker 3: Sam Altman, Darius played on Saturday Night Live this weekend. 646 00:33:19,740 --> 00:33:22,200 Speaker 3: Where are they in six months, or for that matter, 647 00:33:22,300 --> 00:33:22,940 Speaker 3: six years? 648 00:33:24,440 --> 00:33:25,820 Speaker 7: Oh my gosh, that is a big question. 649 00:33:25,840 --> 00:33:28,380 Speaker 13: I think the real challenge that they have is that 650 00:33:28,440 --> 00:33:32,400 Speaker 13: they're in this chasm in their business model where they 651 00:33:32,520 --> 00:33:36,540 Speaker 13: really are just huge users of capital, and they need 652 00:33:36,580 --> 00:33:38,800 Speaker 13: that in order to continue their growth, and they need 653 00:33:38,860 --> 00:33:41,300 Speaker 13: the growth in order to continue to draw investors in. 654 00:33:41,800 --> 00:33:43,120 Speaker 1: And I think that the problem that. 655 00:33:43,060 --> 00:33:46,620 Speaker 13: They have is that They've unleashed this technology and taken 656 00:33:46,760 --> 00:33:50,060 Speaker 13: very little responsibility for a lot of the problems that 657 00:33:50,080 --> 00:33:50,540 Speaker 13: it has. 658 00:33:50,660 --> 00:33:50,920 Speaker 3: Right. 659 00:33:51,040 --> 00:33:52,840 Speaker 13: And I don't think that that's something that people are 660 00:33:52,860 --> 00:33:53,600 Speaker 13: going to put up with. 661 00:33:53,680 --> 00:33:53,900 Speaker 9: Right. 662 00:33:53,960 --> 00:33:57,830 Speaker 13: Like if my kid in preschool bit another kid, that's 663 00:33:57,900 --> 00:34:00,130 Speaker 13: on me. I can't just, you know, pretend that that 664 00:34:00,190 --> 00:34:02,790 Speaker 13: wasn't on me. And I think that that's the real 665 00:34:02,830 --> 00:34:04,670 Speaker 13: struggle is we're looking for them to have some real 666 00:34:04,710 --> 00:34:07,710 Speaker 13: accountability or else why should these models be as large 667 00:34:07,750 --> 00:34:08,210 Speaker 13: as they are? 668 00:34:08,489 --> 00:34:12,750 Speaker 3: George Noble brilliantly quotes the American for the Canadian philosopher 669 00:34:12,810 --> 00:34:13,550 Speaker 3: Wayne Gretzky. 670 00:34:14,440 --> 00:34:15,760 Speaker 5: You've got to skate to the puck. 671 00:34:16,280 --> 00:34:18,549 Speaker 3: Julie knows this because he was iconic at the LA 672 00:34:18,610 --> 00:34:23,370 Speaker 3: Kings as well. Now the puck is going to the customer, Mr. 673 00:34:23,430 --> 00:34:26,210 Speaker 5: Noble says, and the customer is scared. 674 00:34:26,310 --> 00:34:28,930 Speaker 3: Is there a customer out there, Julie, based on the 675 00:34:28,989 --> 00:34:31,770 Speaker 3: meetings you've gone to at Morgan Stanley and other shops? 676 00:34:33,750 --> 00:34:36,549 Speaker 13: I think there absolutely is a customer, and I think 677 00:34:36,590 --> 00:34:39,839 Speaker 13: that this technology has applications that are going to be 678 00:34:40,070 --> 00:34:43,239 Speaker 13: really life-changing for all of us. The problem is trying 679 00:34:43,280 --> 00:34:46,120 Speaker 13: to predict it with any kind of certainty is, to me, really, 680 00:34:46,160 --> 00:34:49,680 Speaker 13: really difficult. Think if you were an accountant when spreadsheets 681 00:34:49,700 --> 00:34:51,960 Speaker 13: came out. You would be pretty worried about your job, 682 00:34:52,000 --> 00:34:54,880 Speaker 13: but if you look forward, we've actually hired more accountants 683 00:34:55,000 --> 00:34:55,620 Speaker 13: over time. 684 00:34:56,040 --> 00:34:56,860 Speaker 7: So it's really. 685 00:34:56,640 --> 00:34:59,380 Speaker 13: Difficult to know exactly what the implications of the technology 686 00:34:59,460 --> 00:35:02,060 Speaker 13: are going to be. I think I like investing in 687 00:35:02,140 --> 00:35:04,580 Speaker 13: companies that I think will be beneficiaries of it from 688 00:35:04,640 --> 00:35:06,820 Speaker 13: a standpoint of they're going to integrate it and become 689 00:35:06,860 --> 00:35:10,160 Speaker 13: more profitable on their own side, rather than saying, I 690 00:35:10,200 --> 00:35:11,989 Speaker 13: want to be in the picks and shovels because I 691 00:35:12,010 --> 00:35:14,549 Speaker 13: just don't know what the duration is and how big 692 00:35:14,590 --> 00:35:15,790 Speaker 13: it's going to really need to get. 693 00:35:16,190 --> 00:35:18,730 Speaker 3: Julie Beal with us right now with an active market, 694 00:35:18,770 --> 00:35:21,489 Speaker 3: Dow up 26 points. Paul, I got to go. I 695 00:35:21,530 --> 00:35:24,969 Speaker 3: got a headline here, Italian bond risk. It's now up 696 00:35:25,030 --> 00:35:28,430 Speaker 3: in a full stick, 100 beats. French Germany has just 697 00:35:28,510 --> 00:35:32,339 Speaker 3: exploded out seven basis points to 125. If you don't 698 00:35:32,360 --> 00:35:34,440 Speaker 3: know what that means, it doesn't matter. We'll say it 699 00:35:34,460 --> 00:35:38,029 Speaker 3: in French later. But then, Paul, the 30-year bond, we 700 00:35:38,090 --> 00:35:39,950 Speaker 3: all understand that, rounded up 5.61%. 701 00:35:39,950 --> 00:35:40,129 Speaker 2: Yep. 702 00:35:42,770 --> 00:35:45,930 Speaker 3: Julie Beal can't move up to 6,000 square. 703 00:35:45,690 --> 00:35:47,190 Speaker 5: Feet in Hollywood. Exactly. 704 00:35:47,739 --> 00:35:50,799 Speaker 6: Julie, how does higher interest rate environments, which Thomas is 705 00:35:51,219 --> 00:35:53,339 Speaker 6: pointing out, just moving more and more on the high 706 00:35:53,380 --> 00:35:55,839 Speaker 6: end here, what does that mean for stock investors, maybe 707 00:35:55,900 --> 00:35:57,220 Speaker 6: small and mid-cap investors? 708 00:35:57,719 --> 00:35:58,600 Speaker 7: It's got to be a headwind. 709 00:36:00,300 --> 00:36:03,560 Speaker 13: I think if you're thinking about small cap as a group, 710 00:36:03,719 --> 00:36:06,270 Speaker 13: in general, higher interest rates are harder because most of 711 00:36:06,290 --> 00:36:08,290 Speaker 13: them are borrowing at the banks, and so they're on 712 00:36:08,310 --> 00:36:11,170 Speaker 13: variable rates. And a lot of them are highly levered. 713 00:36:11,530 --> 00:36:13,529 Speaker 13: I think if you can avoid companies that have a 714 00:36:13,550 --> 00:36:15,840 Speaker 13: lot of leverage, that's what you definitely want to be doing. 715 00:36:16,160 --> 00:36:18,219 Speaker 13: But the reason why interest rates are going up is 716 00:36:18,280 --> 00:36:22,240 Speaker 13: important too, right? If it's solely about inflation... that's not great. 717 00:36:22,300 --> 00:36:24,910 Speaker 13: But if it's also about their strong economic growth and 718 00:36:24,930 --> 00:36:28,550 Speaker 13: their strong labor markets, that tends to be actually better 719 00:36:28,610 --> 00:36:30,410 Speaker 13: for small caps. You have to kind of take a 720 00:36:30,430 --> 00:36:31,560 Speaker 13: more nuanced look at it. 721 00:36:32,710 --> 00:36:36,029 Speaker 6: So how are we thinking about just an environment where 722 00:36:36,640 --> 00:36:39,460 Speaker 6: this stock market has been driven by earnings and earnings 723 00:36:39,500 --> 00:36:42,760 Speaker 6: have just been extraordinary over the last several quarters? 724 00:36:43,620 --> 00:36:46,180 Speaker 7: What's the earnings growth story looking going forward from your perspective? 725 00:36:47,180 --> 00:36:49,610 Speaker 13: I think going forward, we want to continue seeing a 726 00:36:49,690 --> 00:36:52,350 Speaker 13: broadening of the growth in earnings, right? The numbers have 727 00:36:52,370 --> 00:36:56,390 Speaker 13: been pretty eye-popping, but the problem is that it's concentrated 728 00:36:56,650 --> 00:36:59,819 Speaker 13: in technology with a huge chunk of it being the 729 00:36:59,910 --> 00:37:02,319 Speaker 13: revaluations of these private. 730 00:37:02,040 --> 00:37:02,739 Speaker 12: Companies, right? 731 00:37:02,880 --> 00:37:07,420 Speaker 13: Non-operating earnings, not actually selling more stuff, but... non-operating earnings 732 00:37:07,920 --> 00:37:10,030 Speaker 13: and then what we're seeing in energy and it's hard 733 00:37:10,070 --> 00:37:12,589 Speaker 13: to know how long that improvement in earnings is going 734 00:37:12,610 --> 00:37:15,270 Speaker 13: to last we want to see more breadth into manufacturing 735 00:37:15,650 --> 00:37:17,710 Speaker 13: and into other pockets of the economy in order to 736 00:37:17,750 --> 00:37:20,590 Speaker 13: feel really really confident that the growth is durable. 737 00:37:21,090 --> 00:37:23,319 Speaker 3: Julie, thank you so much. Have to run with breaking news, 738 00:37:23,340 --> 00:37:26,180 Speaker 3: but just love, love, love your research. Julie Beal with 739 00:37:26,219 --> 00:37:28,560 Speaker 3: his chief market strategist, Kane Anderson Rudnick. 740 00:37:28,760 --> 00:37:33,690 Speaker 4: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, 741 00:37:33,810 --> 00:37:38,060 Speaker 4: and anywhere else you get your podcasts. Listen live each weekday, 742 00:37:38,060 --> 00:37:43,500 Speaker 4: 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, 743 00:37:43,820 --> 00:37:46,880 Speaker 4: and the Bloomberg Business app. You can also watch us 744 00:37:46,960 --> 00:37:50,960 Speaker 4: live every weekday on YouTube and always on the Bloomberg Terminal.