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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. Mohammad al Erin of

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Speaker 2: Queens College, Cambridge staying focused on the bond market and

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Speaker 2: writing some label twenty twenty four as US brink in

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Speaker 2: the return of bond Vigilantes. This greater focus on debt

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Speaker 2: and political stability is likely to continue into twenty five,

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Speaker 2: as will the extent of dispersion between the United States,

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Speaker 2: the Eurozone and Japan. Please to welcome a good friend

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Speaker 2: of all of ours, Muhammad al Aerian Muhammad, Good morning,

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Speaker 2: Good morning John, and a happy new year to years.

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Speaker 2: The final Derby Concerts January tenth, So say it, oh there,

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Speaker 2: Rose of Bloomberg Survivance Mohammed. Are the bond virgiliancies back

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Speaker 2: and if so, what's changed? Why are they back?

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Speaker 3: They're back because of three issues, as you know, John,

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Speaker 3: One is consistently stronger than expected US economic data. Two

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Speaker 3: is the understanding that inflation will be sticky, and three

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Speaker 3: is as we needed focus now on debt and deficits.

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Speaker 3: Put these three things together, the US leads a global

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Speaker 3: bond sell off, and then what that sell off does.

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Speaker 3: It picks vulnerabilities in the system and weaknesses, and it

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Speaker 3: wouldn't have been good afternoon Britain. Would have just been

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Speaker 3: afternoon Britain because they are facing the combination the emerging market,

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Speaker 3: combination of higher yields and lower currency, which is really

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Speaker 3: bad news for them right now.

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Speaker 2: How much of that is in their own control.

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Speaker 3: Some of it is in their own control, and it

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Speaker 3: is a golden opportunity for this government to redouble or

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Speaker 3: westart is economic approach, which has lost its way a

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Speaker 3: little bit in the last few months. But they will

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Speaker 3: be looking at the US jobs report and critically the

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Speaker 3: CPI coming up. You know, it's not so long ago,

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Speaker 3: Lisa that we used to say, okay, forget about CPI.

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Speaker 3: Inflation's under control all that matters the jobs report. Now

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Speaker 3: suddenly we've realized that both are in play, inflation and

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Speaker 3: the employment spot.

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Speaker 1: So when we say afternoon in Great Britain, because no

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Speaker 1: one's saying it's particularly good right now, what is better

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Speaker 1: for them an upside surprise to labor markets or downside

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Speaker 1: surprise at a time when potentially that could spur some

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Speaker 1: sort of risk off move, at a time when even

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Speaker 1: in the United States people really questioning the sustainability of

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Speaker 1: what's going on.

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Speaker 3: Yeah, and that's the if in the US you really

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Speaker 3: want an upside surprise, if we had the choice between

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Speaker 3: the two, you take an upside surprise. If you're in Britain,

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Speaker 3: you take a downside surprise. Yields have got to stabilize

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Speaker 3: otherwise you're risk triggering these dynamics that can really hurt.

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Speaker 3: So they would look, they would hope for a downside

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Speaker 3: surprise that brings yields down here and puts down the

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Speaker 3: pressure on their yields.

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Speaker 1: When you talk about bond vigilantes and how they find

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Speaker 1: the most vulnerable spots, how long is it before they

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Speaker 1: find the United States particularly vulnerable? And this sort of

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Speaker 1: goes to the heart of the question that Torsten Slock raised,

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Speaker 1: which is, it is highly unusual to see the long

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Speaker 1: end yield rise by one hundred basis points after a

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Speaker 1: series of one hundred basist points are very cuts from

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Speaker 1: the Federal Reserve. Do you have a sense that maybe

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Speaker 1: the US is one of those vulnerable spots at this

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Speaker 1: point in relative terms? No?

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Speaker 3: You know, you've heard me say over and over again,

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Speaker 3: the good, the bad, and the ugly. The good is

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Speaker 3: the US, The baddest China, and the UK is Europe,

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Speaker 3: including the UK. The ugly is Europe, including the UK.

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Speaker 3: So US, China, Europe, including the UK. They'll focus on

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Speaker 3: the ugly first and then they'll creed pop.

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Speaker 4: The US has.

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Speaker 3: A particularly a good spot because higher yields here associated

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Speaker 3: with stronger growth. That is not the case in Europe.

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Speaker 2: So why do you think the Federal Reserve is so confused?

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Speaker 2: At least they sound confused by some on these conference

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Speaker 2: back in December.

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Speaker 3: How much time do we have?

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Speaker 2: We've got enough time to get through it all.

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Speaker 3: Okay, So they've been confusing their analysis, they've been confused

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Speaker 3: in their communication, they've been confusing their approach. When you're

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Speaker 3: data dependent and you're just looking at the future through

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Speaker 3: the lens of the past. You will get more and

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Speaker 3: more confused as we go through these changes. And we

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Speaker 3: haven't even talked about policy uncertainty, which adds is the

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Speaker 3: reality is right now we could solve at different levels

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Speaker 3: of employment and inflation. Whatever scenario you had for recession,

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Speaker 3: soft landing, no landing, whatever probabilities you had, now each

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Speaker 3: of them is associated with different levels of inflation, and

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Speaker 3: that is new. So the Fed, and you've heard me

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Speaker 3: say this for a long time, has got to get

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Speaker 3: more strategic in this approach and has has got to

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Speaker 3: stop being excessively data dependent.

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Speaker 2: They say this word, this phrase that you use policy uncertainty,

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Speaker 2: and when I hear it, I just think Donald Trump.

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Speaker 2: Well they actually mean to say it's Donald Trump. And

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Speaker 2: you saw that in the minutes, and I think we

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Speaker 2: heard that in the news conference with Chairman Poal. I'm

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Speaker 2: struggling to understand this, and I'd love your opinion on this.

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Speaker 2: Why some officials on the Federal Reserve are willing to

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Speaker 2: preemp policy changes and factor that into their observations and

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Speaker 2: their forecasts, but unwilling to do so. When it was

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Speaker 2: Biden in the White House and he was pushing through

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Speaker 2: massive fiscal stimulus into a supply constrained economy, and they

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Speaker 2: sat there and let inflation rip. What explains the difference

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Speaker 2: between the behavior and response and the approach to two

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Speaker 2: different presidents.

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Speaker 3: No, you've got to ask them. We thought we understood

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Speaker 3: what the FED. How the FED approached this when Chapau said,

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Speaker 3: quote something along lines that we don't speculate, we don't predict,

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Speaker 3: and we don't assume anything about policies. So everybody assumed,

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Speaker 3: you know what, let's wait and see and what we're

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Speaker 3: hearing from the FED does not incorporate forecasts about policy changes.

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Speaker 3: And then the whole thing got modeled, and now some do,

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Speaker 3: some don't.

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Speaker 4: You're not quite sure what.

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Speaker 3: And I think this is part of a bigger issue,

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Speaker 3: which is FED communication has gotten really confused. Bill Dudley

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Speaker 3: had a really good piece in Rumor Opinion about this.

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Speaker 3: And it does matter because the FED is supposed to

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Speaker 3: reduce volatility, not contribute to volatility, and for the last

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Speaker 3: few years the FED has contributed to volatility.

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Speaker 1: How do they not contribute to volatility when they are

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Speaker 1: facing off with policies that offer up profoundly different contours

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Speaker 1: of inflation and growth?

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Speaker 3: So first of all, they've got to either take the

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Speaker 3: approach of this is what we think the baseline is,

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Speaker 3: we are gonna check it every single day against more

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Speaker 3: signs out of DC. Alternatively, we're not incorporating any new policies.

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Speaker 3: Sometimes you need a top down, you need the chair

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Speaker 3: to say this is the approach we're going to take

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Speaker 3: for now, because the muddled middle causes all sorts of

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Speaker 3: spillover effects that are not helpful at all to them.

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Speaker 1: So let's talk about the spillover effects. We've talked before

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Speaker 1: about how their at risk of maybe allowing inflation to

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Speaker 1: creep higher than have to hike rates later, the idea

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Speaker 1: of not recognizing inflation enough. There's the other side of things.

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Speaker 1: If they hold rates too high for too long, they

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Speaker 1: could cause a deterioration and dramatic iteration in the economy

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Speaker 1: right now, which is the bigger risk.

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Speaker 3: So the only reason we talk about the inflation risk

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Speaker 3: is because we compare it to an arbitrary target that

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Speaker 3: I'm willing to bet if we were to set today,

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Speaker 3: we would not set at two percent. We'd set at

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Speaker 3: two and a half to three. Every other indication of

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Speaker 3: inflation suggested inflation expectations are stable. It just was structurally

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Speaker 3: happening here and in the rest of the world, means

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Speaker 3: that you're going to run the economy for now at

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Speaker 3: a higher equilibrium inflation rate than before, and it's not.

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Speaker 4: So.

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Speaker 3: The reason why we're getting in this whole thing is

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Speaker 3: because we are judging ourselves against a target that itself

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Speaker 3: is not only arbitrary, but would not have been the

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Speaker 3: target we would have chosen today. I don't worry, honestly

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Speaker 3: about inflation until I have evidence that inflation expectations are

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Speaker 3: the anchored, and there's no evidence of that at all.

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Speaker 3: I do worry that if the FED truly believes that

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Speaker 3: it has to achieve two percent and wants to do it,

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Speaker 3: it's going to have to hike rates this year. And

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Speaker 3: if it hikes races this year, it's going to pull

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Speaker 3: the rug from under US growth. It's going to pull

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Speaker 3: the work from under US investment. This is how important

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Speaker 3: it is. So my expectation is that fudge they'll say,

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Speaker 3: we continue to pursue two percent, but down the road

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Speaker 3: they'll stick with a two and a half percent target

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Speaker 3: forecast for now, saying on the way to two percent,

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Speaker 3: but we will basically be living with a high inflation target.

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Speaker 2: Mohammed, We're lucky to have you. I'm Marie joins Us

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Speaker 2: now from Washington with admires of Raima James Amory.

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Speaker 3: I would see a good morning, Jonathan.

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Speaker 5: The clock is literally ticking for TikTok and today they're

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Speaker 5: going to have their day at the Supreme Court to

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Speaker 5: try to combat this bill and they will either be

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Speaker 5: banned unless they divest away from Byteedance, this Chinese company.

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Speaker 6: What do you think happens ed I think on January nineteenth,

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Speaker 6: TikTok ceases to exist here in the United States. I

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Speaker 6: think the wild card here is that under the law,

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Speaker 6: the President of the United States has an ability to

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Speaker 6: extend one time for ninety days. So the question that

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Speaker 6: I have is, come January twentieth, the next day, does

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Speaker 6: Trump activate that ninety day extension and is there a

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Speaker 6: deal worked out?

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Speaker 5: It sounds like he's going to because he's flip flopped

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Speaker 5: since his first time in office in the Oval Office

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Speaker 5: when he talked about the security concerns of TikTok that

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Speaker 5: now he thinks actually, in an interview with my colleagues

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Speaker 5: over the summer, talked about the fact that we if

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Speaker 5: you don't have TikTok, then Meta is too big, and

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Speaker 5: he understands a lot of individuals get their news from there.

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Speaker 5: It seems like he wants to keep it around. So

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Speaker 5: what are the options even if there's an extension.

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Speaker 6: So after the ninety days, one of the things we

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Speaker 6: went through the statute at Raymond James yesterday published a

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Speaker 6: report about this, and ultimately it is up to the

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Speaker 6: president to declar that what has happened with the divestment

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Speaker 6: or for foreign ownership has met the needs of the law.

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Speaker 6: And so as long as the president declars, it's okay.

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Speaker 6: The problem for Trump, though, is that if there is

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Speaker 6: not a divestment, a five thousand dollars per user fee

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Speaker 6: gets kicked in. And I don't think the app stores

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Speaker 6: at Apple or Google or Oracle's hosting of this wants

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Speaker 6: to exist because when you look at the number of users,

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Speaker 6: I add that up to about an eighty five billion

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Speaker 6: dollar fine. And unless you change the law or you

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Speaker 6: have this divested, it will cease to exist, assuming it

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Speaker 6: is upheld by the Supreme Court.

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Speaker 5: Who can buy this. This isn't even like Elon Musk

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Speaker 5: buying Twitter. This is an incredibly expensive company.

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Speaker 4: I assume the money would be there.

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Speaker 6: The bigger question for me is will the Chinese government

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Speaker 6: allow it to be sold, Because ultimately, if you yeah,

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Speaker 6: because you can open up the hood, you look in

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Speaker 6: in everything that the national security folks have said about

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Speaker 6: keystroke capture, about geolocation, about the algorithm potentially manipulating the

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Speaker 6: users of TikTok, all of that will be very apparent,

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Speaker 6: and we will know even more of how the Chinese

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Speaker 6: have been spying on Americans using a very popular app.

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Speaker 5: Trump will also be breaking with his national security advisor

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Speaker 5: and a secretary.

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Speaker 6: Of State, and I mean like Trump will break with

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Speaker 6: his administration whenever he wants. I do think it's important

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Speaker 6: that you highlight the kind of animis that he's had

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Speaker 6: towards Meta and towards the potential benefit to Instagram. Because

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Speaker 6: of this, it does look like some of that animis

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Speaker 6: might be reduced over the actions by Meta by Mark

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Speaker 6: Zuckerberg in recent weeks trying to get him okay.

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Speaker 5: Concerns grow on a daylight today when CNN comes out

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Speaker 5: and says that Chinese hackers breach Siphius in December, not

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Speaker 5: really as surprise, as Jonathan said, because we do know

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Speaker 5: that there was Chinese hackers breaching the Treasury Department, but

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Speaker 5: isn't this doesnes has become even more of a national

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Speaker 5: security concern And what's going to be the response from

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Speaker 5: Trump two point zero to Beijing.

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Speaker 6: Yeah, I mean, I think it is a extraordinary act

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Speaker 6: that we knew that there were Chinese hackers that access Treasury.

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Speaker 6: It was downplayed by Janet Yellen recently, but for them

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Speaker 6: to have hacked into Siphius, the Committee on Foreign Investment

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Speaker 6: into the United States, there was a deal that was

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Speaker 6: pending me Bon Steel trying to buy us steal. We're

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Speaker 6: looking at all of the potential national security concerns about

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Speaker 6: that me Bon's operations within China. For them to be

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Speaker 6: looking for exactly what was happening at Cyphius at that

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Speaker 6: time is a huge concern. And that's why I've always

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Speaker 6: said almost everything in DC related to China is bipartisan.

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Speaker 6: The only place you'd don't want to be is being

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Speaker 6: seen on being on China side.

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Speaker 5: Well, except for potentially one we are waiting for a

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Speaker 5: Commerce Department to come out and this was a bloomberg scoop.

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Speaker 4: But I know you've been.

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Speaker 5: Writing about it for months about Ai chips from Nvidia

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Speaker 5: and all roads really lead to China when it comes

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Speaker 5: to wanting to make those export controls tougher.

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Speaker 4: Correct.

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Speaker 6: Yeah, So as early as today, and it's going to

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Speaker 6: happen between now in January twentieth, there's going to be

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Speaker 6: a final export control rule that comes out from the

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Speaker 6: Biden administration. This is going to be focused on the

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Speaker 6: number of AI chips that are going to countries that

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Speaker 6: we have concerns about. Now we've blocked almost everything going

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Speaker 6: to China or to Russia. We're going to allow everything

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Speaker 6: to continue to go to our closest allies, but there's

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Speaker 6: going to be a tier two company or country list

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Speaker 6: where we're going to put caps on how much can

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Speaker 6: the Middle East get, how much can Southeast Asia receive. Now,

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Speaker 6: generally speaking, I would have expected this to be bipartisan,

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Speaker 6: but you have Ted Cruz tweeting out last night strong opposition.

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Speaker 6: You have Nvidia coming out with strong opposition. So the

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Speaker 6: question I.

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Speaker 5: Have is as going to allies or because the time.

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Speaker 6: No, because they're going to restrict it going into some

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Speaker 6: Southeast Asian in Middle Eastern countries. The real issue here

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Speaker 6: is almost all of our export controls usually deals with

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Speaker 6: the physical location. But when you're developing data centers and

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Speaker 6: you can access that via the cloud, it might not

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Speaker 6: matter if that AI chip can't go into China. If

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Speaker 6: you build that data center in Malaysia or you build

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Speaker 6: that data center in the UAE, if they have that

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Speaker 6: cloud access to it, they've essentially had that technology. So

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Speaker 6: the chips are going to be limited, and there's going

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Speaker 6: to be new rules related to data centers to make

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Speaker 6: sure that they are certified and verified that they're not

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Speaker 6: giving this technology to China.

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Speaker 5: So if you have Republicans already coming out and saying

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Speaker 5: we don't want to see this happen, Biden administration is

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Speaker 5: doing it on literally their final days in office. Does

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Speaker 5: Trump reverse it?

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Speaker 6: I think it's going to be hard for him to reverse.

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Speaker 6: What they're going to do is it's an interim final

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Speaker 6: rule DC speak to It goes into effect immediately, but

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Speaker 6: there's an opportunity for the Trump administration to put the

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Speaker 6: final tweaks on that. If the caps are too low,

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Speaker 6: look for foreign governments to be very transactional. I think

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Speaker 6: Saudi Arabia will put a lot of pressure that if

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Speaker 6: their cap is too low, Other Gulf countries, other kind

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Speaker 6: of parts of the tariff conversation. This could be a

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Speaker 6: tit for tat hey, I'm willing to do X, Y

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Speaker 6: and Z to avoid tariffs, including trying to remove these

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Speaker 6: these AI caps. Is actually going to give Trump a

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Speaker 6: new tool in his negotiations globally in terms of what

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Speaker 6: does the US have someone that these other countries want.

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Speaker 5: I just want to finally end on this point. You're

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Speaker 5: talking to everyone on the Hill about the process of

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Speaker 5: how his agenda gets accomplished. The bond market, though, is

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Speaker 5: focused on the price.

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Speaker 3: What do you think we're going to.

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Speaker 5: See in terms of how big this bill is going

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Speaker 5: to be?

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Speaker 6: Yeah, So I put the over under as it relates

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Speaker 6: to both an extension of the tax cuts and if

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Speaker 6: we do an immigration energy defense bill at one point

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Speaker 6: point nine trillion, why do I do that? Because that

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Speaker 6: was the cost of the American Rescue Plan. I don't

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Speaker 6: see Republicans doing a bill bigger than build back better

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Speaker 6: for Biden, and so I do think that we're on

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Speaker 6: the under of that.

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Speaker 5: But extending the tax cuts is yes.

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Speaker 6: Ten years of the tax cuts is four point six

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Speaker 6: trillion dollars. Four or five years of the tax cuts

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Speaker 6: is about one point five trillion. What would you do?

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Speaker 6: I probably see it goes to four or five years.

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Speaker 6: The original was eight. You say, hey, we did about

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Speaker 6: half as good in trying to get those other things.

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Speaker 6: People have been too focused on the ten year extension.

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Speaker 6: I think it ends with a much shorter extension.

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Speaker 5: Ed Mills, thank you so much for joining me in

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Speaker 5: the studio this morning. From DC Jonathan a long list

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Speaker 5: of issues that the incoming Trump administration is going to

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Speaker 5: deal with, TikTok, export controls, and of course trying to

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Speaker 5: get this agenda through which ed Mill says could be

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Speaker 5: under true trillion dollars.

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Speaker 2: I might a freie time thank you with this amount

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Speaker 2: of tybe with Stephanie Roth the Wold Race, said Stephanie,

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Speaker 2: and wanted, that's quite a number.

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Speaker 7: What you might here is I mean, first of all,

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Speaker 7: it is quite a number, but average early earnings were

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Speaker 7: point two eight. So this is kind of a goldilocks

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Speaker 7: type of report, and this in a way, of course,

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Speaker 7: markets are training it as a hotish print, but the

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Speaker 7: reality is that wages are growing at below four percent,

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Speaker 7: even with job gains running the strong.

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Speaker 2: So we don't have to stop talking about interests, right

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Speaker 2: hikes anytime soon at the Federal Reserve.

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Speaker 7: I don't think we have to be talking about hikes,

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Speaker 7: but we have to start thinking about when is the

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Speaker 7: FED going to be pausing?

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Speaker 4: That's in the real question.

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Speaker 1: Well now, I think that that's what people are saying, right,

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Speaker 1: they're on pause period.

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Speaker 4: I think the question is where they're going to revive.

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Speaker 1: I want to go to the point that you're making

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Speaker 1: about inflation and that this does sort of question just

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Speaker 1: how much inflationary pressure is under the hood of some

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Speaker 1: of these gains. How accurate I have the average hourly

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Speaker 1: earnings actually been when it comes to inflationary pressures. Because ultimately,

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Speaker 1: if people have jobs, they have been shown the willingness,

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Speaker 1: particularly of millennials and paying premium form seats on airplanes

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Speaker 1: and other things. I mean, there still is the impetus

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Speaker 1: to spend if you have a job.

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Speaker 7: Yeah, I mean it all comes down to the labor market.

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Speaker 7: If the labor market remains healthy, then people are going

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Speaker 7: to go out and spend. The thing is that wage

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Speaker 7: growth is still running, you know that four percent, which

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Speaker 7: given where productivity is, the FED can kind of accept

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Speaker 7: something like that. So, and the FED has said this

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Speaker 7: a couple of times that they don't believe that the

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Speaker 7: labor market is really causing significant inflationary pressures. So now

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Speaker 7: the question is just that can the fence they stay

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Speaker 7: on pause from here or can they cut one.

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Speaker 4: Or two more times.

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Speaker 3: So Wednesday's ADP numbers on earnings showed a difference between

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Speaker 3: four percent wage increases for those who are on the

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Speaker 3: same job seven percent for those who are changing jobs.

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Speaker 3: And the question becomes, if we continue to create so

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Speaker 3: many jobs, if vacancy is awaited a six month high,

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Speaker 3: at what point do earnings become the lagging indicator? At

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Speaker 3: what point do earnings respond to what's happening in terms

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Speaker 3: of the quantity of jobs.

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Speaker 7: Yeah, and that's that's the trend that we saw, you know,

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Speaker 7: in twenty twenty two and twenty twenty three, and the

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Speaker 7: labor markets are to heat heat, heat up. Is that

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Speaker 7: there was that d differentiation between job switchers and job stayers,

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Speaker 7: and that is something to keep a close eye on.

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Speaker 7: But as of now, the you know, the wage data

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Speaker 7: have been fairly contained and if we didn't see a

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Speaker 7: a wage price spiral on twenty twenty two and twenty

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Speaker 7: twenty three, it's very unlikely we'll see at this time

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Speaker 7: around that was the the real strength in the labor market,

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Speaker 7: and it didn't really unfold into something that was out

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Speaker 7: of controlled wage inflation. So this time I don't anticipate

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Speaker 7: that will be the case. To get to your your

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Speaker 7: your question earlier, how accurate is is the wage data

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Speaker 7: from month to month?

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Speaker 4: Not great?

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Speaker 7: This this probably was had some calendar effects that pushed

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Speaker 7: down some of the data, but on a year of

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Speaker 7: a year basis, it's in line close to to what

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Speaker 7: the ECI is saying, which is kind of the gold

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Speaker 7: standard anyway, So I would say, y, you know, yeah,

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Speaker 7: maybe it was uh artificially depressed by some of the

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Speaker 7: calendar effects, but the reality is wage growth is running

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Speaker 7: a something close to four percent, which is somewhat tolerable.

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Speaker 4: For the FED.

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Speaker 3: So how confident can we be that we don't get

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Speaker 3: these second round effect because some economists will tell you

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Speaker 3: it's not surprising. We didn't get it two twenty twenty

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Speaker 3: three because people had no memory of inflation, so they

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Speaker 3: didn't think that they needed to adjust. Now three years later,

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Speaker 3: people have a fresh memory of inflation. So can we

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Speaker 3: be as confident that it's just one off? We don't

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Speaker 3: get the anticipatory wage demands. We don't get anticipatory price increases,

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Speaker 3: I mean.

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Speaker 7: And that's gonna be the challenge for the Fed of

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Speaker 7: just probably why they're going to have to sort of

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Speaker 7: wait this out for a little while. And with tariffs,

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Speaker 7: of course, that makes it a little bit more challenging.

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Speaker 7: But I think at the end of the day, we'll

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Speaker 7: see that the inflation is probably gonna, say, sticky somewhere

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Speaker 7: between two and two and a half percent. But I

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Speaker 7: don't think we're risking three four five percent like we

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Speaker 7: saw last time. So I think this challenge is the

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Speaker 7: narrative that inflation is gonna easily get back down towards

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Speaker 7: two percent, but something that we saw the last time

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Speaker 7: has to be driven by supply chain issues, which we

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Speaker 7: currently don't really have.

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Speaker 2: If you want just join, I guess welcome to the program.

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Speaker 2: Just moments ago, a big upside surprise on a pay

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Speaker 2: roaster pull coming in at T fifty six the estimate

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Speaker 2: one to sixty five unemployment drum them back as well,

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Speaker 2: to four point one percent from four point two. Off

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Speaker 2: the back of that, some big moves in the bond market,

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Speaker 2: particularly the front end of the curve. The two year

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Speaker 2: up by double digits. Off the back of that, as

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Speaker 2: you might expand some dollar strength. Euro dollar getting closer

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Speaker 2: and closer to break in one oh two. And if

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Speaker 2: you check out the equity market, equity features down across

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Speaker 2: the board on the S and P five hundred, down

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Speaker 2: by point eight on the rustle of small caps, negative

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Speaker 2: by one point seven percent. We'll see if all of

441
00:21:23,280 --> 00:21:25,960
Speaker 2: this sticks. We are on five percent watch on a

442
00:21:26,040 --> 00:21:28,600
Speaker 2: thirty eight yield Lisa. The higher the session four ninety

443
00:21:28,640 --> 00:21:29,800
Speaker 2: nine eighty one, and.

444
00:21:29,760 --> 00:21:32,560
Speaker 1: We're pushing back the potential for our first rate cut

445
00:21:32,760 --> 00:21:35,320
Speaker 1: of twenty twenty five from the federal Reserve to at

446
00:21:35,359 --> 00:21:38,160
Speaker 1: one point October. Now we're back to September, but really

447
00:21:38,200 --> 00:21:40,879
Speaker 1: pushing it back. This is where we start to wonder,

448
00:21:40,920 --> 00:21:44,600
Speaker 1: particularly the small cap area, how much this becomes restrictive

449
00:21:44,720 --> 00:21:47,880
Speaker 1: for a small subset of companies. And I think about housing,

450
00:21:47,960 --> 00:21:50,240
Speaker 1: I think about mortgage rates and how much that can

451
00:21:50,320 --> 00:21:53,280
Speaker 1: remain dissonant from the rest of the strength from elsewhere.

452
00:21:53,400 --> 00:21:56,280
Speaker 1: Before you know it actually calls into question some of

453
00:21:56,280 --> 00:21:56,960
Speaker 1: these dynamics.

454
00:21:57,000 --> 00:21:59,080
Speaker 2: Joining us now is Jeff Rosenberg of Blank Rock. He's

455
00:21:59,080 --> 00:22:00,960
Speaker 2: got thoughts on this market, and I'm sure Jeff first

456
00:22:01,000 --> 00:22:03,240
Speaker 2: the votes you, Sarah, and welcome to the program. Your

457
00:22:03,280 --> 00:22:05,600
Speaker 2: reaction to that number you from twelve minutes ago.

458
00:22:06,720 --> 00:22:09,320
Speaker 8: Yeah, well, clearly it's a strong number, and that's the

459
00:22:09,560 --> 00:22:12,520
Speaker 8: that's the market reaction. That's the first point. Second thing

460
00:22:12,600 --> 00:22:15,439
Speaker 8: is the retail component here. It's worth kind of like

461
00:22:15,520 --> 00:22:18,200
Speaker 8: thinking about what's going on here. So it's it's having

462
00:22:18,320 --> 00:22:21,679
Speaker 8: kind of an effect in two parts of the report.

463
00:22:21,840 --> 00:22:24,760
Speaker 8: The retail numbers are underlying are stronger because of the

464
00:22:24,800 --> 00:22:29,199
Speaker 8: shift between November being negative because of the lateness of

465
00:22:29,440 --> 00:22:32,199
Speaker 8: Thanksgiving and Black Friday, so you're seeing a little bit

466
00:22:32,240 --> 00:22:34,800
Speaker 8: of a flattering on the headline number. The other thing

467
00:22:34,920 --> 00:22:37,720
Speaker 8: is that that average hourly earnings which your last guest

468
00:22:38,080 --> 00:22:40,240
Speaker 8: was talking about, which is kind of like the oh,

469
00:22:40,280 --> 00:22:41,639
Speaker 8: it's maybe not so strong.

470
00:22:41,680 --> 00:22:43,560
Speaker 4: We don't have to worry about inflation.

471
00:22:43,200 --> 00:22:47,800
Speaker 8: Because it's you know, a weaker average hourly earnings print.

472
00:22:47,800 --> 00:22:49,639
Speaker 8: You gotta be careful. And the question was, you know,

473
00:22:49,680 --> 00:22:53,240
Speaker 8: how reliable is it on these monthly payroll reports. The

474
00:22:53,280 --> 00:22:55,800
Speaker 8: problem is the mixed shift really can mess with that

475
00:22:55,920 --> 00:22:59,639
Speaker 8: number and the boost to retail this month, maybe factoring

476
00:22:59,680 --> 00:23:02,239
Speaker 8: in those tend to be lower paying jobs, and so

477
00:23:02,320 --> 00:23:05,679
Speaker 8: it may be actually understating the average hour of the earnings,

478
00:23:05,680 --> 00:23:07,840
Speaker 8: which if you didn't have that mixshift, this may actually

479
00:23:07,840 --> 00:23:10,919
Speaker 8: be even a stronger picture, which is then the third point.

480
00:23:11,000 --> 00:23:13,920
Speaker 8: You know, this is just financial conditions tightening because it's

481
00:23:14,040 --> 00:23:16,960
Speaker 8: less need for the FED to cut. You know, we

482
00:23:17,119 --> 00:23:19,879
Speaker 8: priced out most of that, Most of that shift happened

483
00:23:19,920 --> 00:23:23,840
Speaker 8: in the FOMC December meeting. But this is even further

484
00:23:23,920 --> 00:23:26,119
Speaker 8: pushing it along the way. Now, Jonathan, you asked, you know,

485
00:23:26,200 --> 00:23:27,920
Speaker 8: does that mean, you know, when do we start talking

486
00:23:27,960 --> 00:23:29,560
Speaker 8: about the FED having to high rates?

487
00:23:29,600 --> 00:23:29,760
Speaker 4: No?

488
00:23:29,760 --> 00:23:32,480
Speaker 8: No, no, this is pricing out any need for the

489
00:23:32,520 --> 00:23:35,760
Speaker 8: FED to be cutting and pushing on my long standing

490
00:23:35,800 --> 00:23:37,640
Speaker 8: you know refrain every time I come on the show.

491
00:23:37,640 --> 00:23:43,120
Speaker 8: It's just financial conditions are really undermining the fed's view

492
00:23:43,240 --> 00:23:48,240
Speaker 8: that their policy is really that tight, and so they

493
00:23:48,280 --> 00:23:49,680
Speaker 8: don't need to be worried about.

494
00:23:49,480 --> 00:23:50,600
Speaker 4: How tight their policy is.

495
00:23:50,640 --> 00:23:53,359
Speaker 8: And so this is pricing out some of those future

496
00:23:53,400 --> 00:23:55,639
Speaker 8: cuts for twenty twenty five, not that we had that

497
00:23:55,720 --> 00:23:57,919
Speaker 8: many priced in to begin with.

498
00:23:58,119 --> 00:24:00,440
Speaker 1: Jeff, you've asked and answered most of the questions we had,

499
00:24:00,480 --> 00:24:01,840
Speaker 1: So I do want to go to this question of

500
00:24:01,840 --> 00:24:02,480
Speaker 1: what do you do with this?

501
00:24:02,640 --> 00:24:02,800
Speaker 7: Right?

502
00:24:03,040 --> 00:24:05,320
Speaker 1: I mean, are you does this make you more bearish

503
00:24:05,359 --> 00:24:07,600
Speaker 1: on equities or does it actually make you more bullish,

504
00:24:07,680 --> 00:24:09,520
Speaker 1: because ultimately you're not going to find the value in

505
00:24:09,600 --> 00:24:11,680
Speaker 1: fixed income. It is going to come from the growth

506
00:24:11,720 --> 00:24:14,800
Speaker 1: and the strength that we just saw reflected. Yeah.

507
00:24:14,920 --> 00:24:16,399
Speaker 4: Yeah, and you touched on it as well.

508
00:24:16,440 --> 00:24:18,960
Speaker 8: You know, it's a good report, and Muhammed's first point

509
00:24:19,119 --> 00:24:22,280
Speaker 8: was like, hey, this is good news. Is American exceptionalism.

510
00:24:22,280 --> 00:24:24,520
Speaker 8: This is a strong economy. You know, that should be

511
00:24:24,600 --> 00:24:27,600
Speaker 8: good for stocks and risky assets. And I think that

512
00:24:27,720 --> 00:24:30,960
Speaker 8: ultimately is the case. I think the market and the

513
00:24:31,040 --> 00:24:34,480
Speaker 8: valuations have to get over the idea that you're facing

514
00:24:34,520 --> 00:24:35,880
Speaker 8: some higher interest rates.

515
00:24:36,040 --> 00:24:38,120
Speaker 4: I think from the fixed income lens.

516
00:24:37,800 --> 00:24:41,359
Speaker 8: The higher interest rates are actually bringing value relative value

517
00:24:41,359 --> 00:24:45,240
Speaker 8: back to fixed income. You know, we've really shifted the

518
00:24:45,359 --> 00:24:48,960
Speaker 8: pricing of how much do we need the FED to support.

519
00:24:49,080 --> 00:24:52,159
Speaker 8: You talked in the earlier segment about the asymmetry. I

520
00:24:52,280 --> 00:24:54,679
Speaker 8: very much agree with that that the asymmetry is now

521
00:24:54,800 --> 00:24:57,680
Speaker 8: kind of more in favor of fixed income in terms

522
00:24:57,720 --> 00:25:00,840
Speaker 8: of how much war rates can go higher versus the potential.

523
00:25:00,480 --> 00:25:01,439
Speaker 4: For them to go lower.

524
00:25:01,680 --> 00:25:04,199
Speaker 8: And we priced out a lot of that expectation of

525
00:25:04,200 --> 00:25:07,359
Speaker 8: the support from the FEN. I think that's helpful to

526
00:25:07,440 --> 00:25:09,639
Speaker 8: the pricing of the bond market and the kind of

527
00:25:09,680 --> 00:25:11,600
Speaker 8: the selloff that we're seeing here in the front end,

528
00:25:11,840 --> 00:25:16,480
Speaker 8: you know, leading, I think that has reinforced the attractiveness

529
00:25:16,520 --> 00:25:18,840
Speaker 8: of yield in the front end of the yield curve.

530
00:25:19,280 --> 00:25:21,960
Speaker 3: Jeff, it seems that we're very comfortable with the notion

531
00:25:22,160 --> 00:25:25,640
Speaker 3: that this pushes back whatever weight hikes, who weight cuts

532
00:25:25,680 --> 00:25:27,760
Speaker 3: we're going to get and we're going to get fewer,

533
00:25:27,840 --> 00:25:32,280
Speaker 3: et cetera. But the minute someone mentions a weight hike,

534
00:25:33,080 --> 00:25:35,399
Speaker 3: everybody gets really really uncomfortable. So no, no, no, we're not

535
00:25:35,400 --> 00:25:39,600
Speaker 3: there yet. What does it take to get there? I

536
00:25:39,640 --> 00:25:42,080
Speaker 3: think it takes a lot to get there.

537
00:25:42,119 --> 00:25:45,720
Speaker 8: I mean that's a very big swing, and obviously what

538
00:25:45,800 --> 00:25:47,879
Speaker 8: it takes to get there, Muhammad, And you know this

539
00:25:48,119 --> 00:25:52,359
Speaker 8: is it's inflation, and not just like the somewhat unease

540
00:25:52,880 --> 00:25:56,680
Speaker 8: of sticky inflation, but a complete change in the narrative

541
00:25:56,800 --> 00:26:00,879
Speaker 8: that for all the forecasting of the underlying opponents and

542
00:26:00,960 --> 00:26:04,440
Speaker 8: the imputed data and our understanding of inflation, that we've

543
00:26:04,480 --> 00:26:08,720
Speaker 8: just gotten that so wrong. And there's a reacceleration in inflation.

544
00:26:08,800 --> 00:26:11,639
Speaker 8: I think you have to have a reacceleration, not the

545
00:26:11,760 --> 00:26:15,480
Speaker 8: slowing in the movement to two percent, to shift the

546
00:26:15,520 --> 00:26:19,439
Speaker 8: FED and the markets expectation that this goes to tightening,

547
00:26:19,520 --> 00:26:22,040
Speaker 8: I think it's a very high bar to get there,

548
00:26:22,080 --> 00:26:26,640
Speaker 8: and we're really just pricing out the last few expected cuts.

549
00:26:26,359 --> 00:26:27,320
Speaker 4: In twenty twenty five.

550
00:26:27,359 --> 00:26:29,000
Speaker 2: Well, Jeff, let me put it another way, then, how

551
00:26:29,080 --> 00:26:31,080
Speaker 2: high is the boun to cut again given what we've

552
00:26:31,119 --> 00:26:32,399
Speaker 2: just seen over the past few months.

553
00:26:33,680 --> 00:26:35,880
Speaker 8: Yeah, you know, I don't think the bar to cut

554
00:26:35,920 --> 00:26:40,399
Speaker 8: again and to change the expectations on cuttings that high either.

555
00:26:40,480 --> 00:26:42,600
Speaker 8: I mean, look at what we went through last year

556
00:26:42,640 --> 00:26:47,360
Speaker 8: in terms of the swings in market expectations on what

557
00:26:47,400 --> 00:26:49,879
Speaker 8: the FED would do and the FED zone forecasting on

558
00:26:49,920 --> 00:26:53,080
Speaker 8: what it would do, and the extreme data dependence here.

559
00:26:53,119 --> 00:26:58,000
Speaker 8: So the bar to more cutting is we're seeing that

560
00:26:58,080 --> 00:27:02,240
Speaker 8: stabilization in inflation, not the risk on inflation, and for

561
00:27:02,280 --> 00:27:06,000
Speaker 8: whatever reason, obviously not the story today. You're seeing that

562
00:27:06,200 --> 00:27:09,360
Speaker 8: slow down that the FED is feared in the labor markets,

563
00:27:09,400 --> 00:27:13,160
Speaker 8: and a couple of data points on labor markets again,

564
00:27:13,200 --> 00:27:15,560
Speaker 8: now what we're seeing today sub one hundred, you know,

565
00:27:16,080 --> 00:27:20,919
Speaker 8: pictures increases in unemployment rates. You get two reports in

566
00:27:20,920 --> 00:27:24,359
Speaker 8: a row of that, you can very quickly shift the

567
00:27:24,440 --> 00:27:27,080
Speaker 8: narrative back to O, the Fed's got to cut two

568
00:27:27,160 --> 00:27:31,119
Speaker 8: maybe three because of this extreme data dependence that we

569
00:27:31,200 --> 00:27:33,640
Speaker 8: have the FED driving market expectations.

570
00:27:33,640 --> 00:27:36,359
Speaker 1: I see Stephanie Ross nodding along. I do want to

571
00:27:36,400 --> 00:27:38,880
Speaker 1: just point out that briefly the thirty year yield did

572
00:27:38,960 --> 00:27:41,359
Speaker 1: hop above five percent before coming back down, but it's

573
00:27:41,440 --> 00:27:43,879
Speaker 1: right now four point nine up there, it is five percent.

574
00:27:44,320 --> 00:27:45,919
Speaker 1: Once again, you're shaking your head. Do you agree with

575
00:27:45,960 --> 00:27:46,440
Speaker 1: what he's saying?

576
00:27:46,520 --> 00:27:49,240
Speaker 7: Yeah, I agree. The Fed's been data dependent, but like

577
00:27:49,359 --> 00:27:51,560
Speaker 7: very much on every data point right, So to the

578
00:27:51,560 --> 00:27:53,439
Speaker 7: extent that we have another couple of prints that are

579
00:27:53,480 --> 00:27:55,560
Speaker 7: a little bit softer in the beginning part of you know,

580
00:27:55,600 --> 00:27:57,760
Speaker 7: in the next couple of months, then the narrative can

581
00:27:57,800 --> 00:27:59,879
Speaker 7: shift to some extent. We've seen every three months in

582
00:27:59,880 --> 00:28:02,800
Speaker 7: the market has been swinging from soft landing, the hard

583
00:28:02,920 --> 00:28:05,719
Speaker 7: landing to no landing, and realistically you're probably somewhere in between.

584
00:28:05,960 --> 00:28:08,359
Speaker 7: So base case at this point is that you know,

585
00:28:08,400 --> 00:28:10,199
Speaker 7: the narrative is gonna continue for a while, then you're

586
00:28:10,240 --> 00:28:13,600
Speaker 7: gonna have the Q one inflation seasonality problems again. So

587
00:28:13,640 --> 00:28:15,119
Speaker 7: it's probably gonna be towards the middle part of the

588
00:28:15,200 --> 00:28:17,240
Speaker 7: year when the when we could start talking about potential

589
00:28:17,240 --> 00:28:17,720
Speaker 7: cuts again.

590
00:28:18,200 --> 00:28:21,280
Speaker 3: So Stephanie said, the data. The FED is data dependent,

591
00:28:21,359 --> 00:28:24,199
Speaker 3: not only overall, but every single data point, which of

592
00:28:24,240 --> 00:28:26,160
Speaker 3: course power would push back on you and say no, no,

593
00:28:26,800 --> 00:28:30,399
Speaker 3: And that makes us all data dependent, right, and it

594
00:28:30,440 --> 00:28:34,480
Speaker 3: makes us all add volatility to a market because we

595
00:28:34,600 --> 00:28:37,919
Speaker 3: all we get swung around. Doesn't that bother you? Doesn't

596
00:28:37,920 --> 00:28:40,440
Speaker 3: it bother you that everybody has become so data dependent.

597
00:28:40,800 --> 00:28:41,160
Speaker 4: It does.

598
00:28:41,200 --> 00:28:43,560
Speaker 7: Nobody should be caring about the unemployment rate to three

599
00:28:43,600 --> 00:28:46,120
Speaker 7: decimals and averagellit yearning to the same kind of thing.

600
00:28:46,120 --> 00:28:48,680
Speaker 7: I just had that conversation with Tom Keane earlier. It

601
00:28:48,680 --> 00:28:52,000
Speaker 7: makes us uncomfortable, but we all have to We all

602
00:28:52,000 --> 00:28:54,560
Speaker 7: are in this, in this environment, even though they're trying

603
00:28:54,600 --> 00:28:56,720
Speaker 7: to steer us away from that. In theory, the FED

604
00:28:56,760 --> 00:28:58,840
Speaker 7: continues to get swung around by every data point, So

605
00:28:58,880 --> 00:29:00,800
Speaker 7: then we all have to focus on the same thing

606
00:29:00,840 --> 00:29:03,880
Speaker 7: and figure out every new once within every single print.

607
00:29:04,320 --> 00:29:06,600
Speaker 7: The retail thing is a good point in the sense

608
00:29:06,600 --> 00:29:09,200
Speaker 7: that it was minus twenty nine last time and now

609
00:29:09,240 --> 00:29:12,600
Speaker 7: it's jumped back up forty three. Realistically, that drove some

610
00:29:12,680 --> 00:29:15,080
Speaker 7: of the strength and you know, you probably should smooth

611
00:29:15,080 --> 00:29:16,840
Speaker 7: that out but we're in an environment that it's going

612
00:29:16,920 --> 00:29:18,800
Speaker 7: to be tough, and by the way, next print, we're

613
00:29:18,800 --> 00:29:20,720
Speaker 7: gonna be impacted by all of the fires, and that's

614
00:29:20,720 --> 00:29:22,440
Speaker 7: going to be a really messy data point as well.

615
00:29:22,520 --> 00:29:24,800
Speaker 3: Do you think of any fed that got swung around

616
00:29:24,840 --> 00:29:27,240
Speaker 3: as much as this feed is getting swung around? I mean,

617
00:29:27,280 --> 00:29:30,000
Speaker 3: I think back of the financial I mean I think

618
00:29:30,000 --> 00:29:32,000
Speaker 3: back of so many bigger episodes.

619
00:29:31,960 --> 00:29:36,240
Speaker 2: To go post pandemic, post pandemic. This Federal Reserve allowed

620
00:29:36,280 --> 00:29:39,200
Speaker 2: the administration of the time to come out with huge

621
00:29:39,200 --> 00:29:42,120
Speaker 2: fiscal plans and the supplying constrained economy and just say.

622
00:29:41,920 --> 00:29:42,680
Speaker 4: We'll look through it.

623
00:29:42,920 --> 00:29:46,120
Speaker 2: We'll look through it. They weren't dated data dependent. Then

624
00:29:46,160 --> 00:29:48,959
Speaker 2: they waited the change in behavior on the f WEMC.

625
00:29:49,400 --> 00:29:53,160
Speaker 2: I hear a lot of economists present company excluded a

626
00:29:53,160 --> 00:29:55,120
Speaker 2: lot of economists who are more keen to defend the

627
00:29:55,160 --> 00:29:59,400
Speaker 2: institution that provide critical analysis of it. That's really problematic

628
00:29:59,440 --> 00:30:02,800
Speaker 2: for me. For economists on Wall Street who are held

629
00:30:02,880 --> 00:30:05,240
Speaker 2: bent on making sure that their friends at the FMC

630
00:30:05,400 --> 00:30:08,120
Speaker 2: still give them access to have conversations at NAPE, etc.

631
00:30:08,760 --> 00:30:10,960
Speaker 2: They're actually just calling things out for the way they

632
00:30:11,000 --> 00:30:15,960
Speaker 2: see it. This Federal Reserve has behaved very differently under Biden,

633
00:30:16,760 --> 00:30:20,080
Speaker 2: and it's changed when Donald Trump has come into power.

634
00:30:20,480 --> 00:30:23,560
Speaker 2: They've opened the door to those accusations themselves with that

635
00:30:23,640 --> 00:30:26,720
Speaker 2: news conference back in December, without a doubt.

636
00:30:26,720 --> 00:30:28,680
Speaker 3: Do you agree, No, I agree that now we have

637
00:30:28,720 --> 00:30:32,640
Speaker 3: a FED that's navigating two things, the monetary policy landscape

638
00:30:32,680 --> 00:30:33,920
Speaker 3: and the political landscape.

639
00:30:34,520 --> 00:30:37,720
Speaker 4: It's not navigating one thing anymore. It's not navigating two things.

640
00:30:37,760 --> 00:30:38,960
Speaker 3: And we just have to keep.

641
00:30:38,840 --> 00:30:39,360
Speaker 4: That in mind.

642
00:30:39,560 --> 00:30:43,400
Speaker 2: Why wasn't it navigating the political landscape two three years ago? Well,

643
00:30:43,480 --> 00:30:45,640
Speaker 2: it's clear that fiscal policy was in the driving sea.

644
00:30:45,840 --> 00:30:50,120
Speaker 3: I think two three years ago they were asleep and

645
00:30:50,280 --> 00:30:54,440
Speaker 3: the worsh to call inflation transitory. Ignoring the policy side,

646
00:30:54,480 --> 00:30:57,960
Speaker 3: ignoring all the uncertainty was a big mistake. And because

647
00:30:58,000 --> 00:31:01,960
Speaker 3: of that, they became extremely data dependent and they don't

648
00:31:02,000 --> 00:31:04,640
Speaker 3: even want to look forward anymore. And it's ironic because

649
00:31:04,640 --> 00:31:06,920
Speaker 3: we're dealing with markets that are supposed to be looking forward.

650
00:31:07,000 --> 00:31:09,560
Speaker 3: We're supposed to be discounting the future, right, and yet

651
00:31:09,600 --> 00:31:12,920
Speaker 3: we've all become completely dependent on what's just happened.

652
00:31:13,760 --> 00:31:16,000
Speaker 4: It's absurd, but that is what happens.

653
00:31:15,920 --> 00:31:19,760
Speaker 3: When the institution, with the printing press in the basement

654
00:31:20,400 --> 00:31:23,160
Speaker 3: decides that it will become excessively data dependent. It turns

655
00:31:23,240 --> 00:31:25,120
Speaker 3: us all into extreme data dependence.

656
00:31:25,280 --> 00:31:26,800
Speaker 2: They may again at the end of this month, we'll

657
00:31:26,800 --> 00:31:29,080
Speaker 2: get two more data points before then. CPI is one,

658
00:31:29,200 --> 00:31:32,640
Speaker 2: the inauguration is another. What's this news conference, this mating

659
00:31:32,720 --> 00:31:34,800
Speaker 2: rather going to look like at the end of this month.

660
00:31:35,200 --> 00:31:36,080
Speaker 3: Yeah, I mean I.

661
00:31:36,120 --> 00:31:39,160
Speaker 7: Think we're going to well, let's first talk about maybe CPI,

662
00:31:39,280 --> 00:31:42,280
Speaker 7: because that we're looking for something that should be a

663
00:31:42,320 --> 00:31:44,200
Speaker 7: little bit more soft, something Z point two four percent

664
00:31:44,240 --> 00:31:47,040
Speaker 7: on core, which you know should should be Okay, I

665
00:31:47,040 --> 00:31:49,360
Speaker 7: don't think it's going to change anybody, especially after this print.

666
00:31:49,400 --> 00:31:52,600
Speaker 7: This print made the CPI a lot less important. And

667
00:31:52,600 --> 00:31:54,960
Speaker 7: then we're going to have to see from the Trump administration,

668
00:31:55,360 --> 00:31:57,440
Speaker 7: what are we what's going to happen in terms of immigration.

669
00:31:57,520 --> 00:31:59,320
Speaker 7: That's going to be one of the biggest things that's

670
00:31:59,360 --> 00:32:01,880
Speaker 7: going to happen, probably right off the bat. How M

671
00:32:02,000 --> 00:32:03,840
Speaker 7: how much or how M how how aggresive are they

672
00:32:03,880 --> 00:32:05,600
Speaker 7: gonna go? It's probably gonna be at the uh A

673
00:32:05,720 --> 00:32:07,360
Speaker 7: Y a lot of a lot of you know, I'll

674
00:32:07,440 --> 00:32:09,920
Speaker 7: bark at the beginning, and then realistic, we're not gonna

675
00:32:09,920 --> 00:32:12,440
Speaker 7: see that much deportations because that's gonna require funding that

676
00:32:12,520 --> 00:32:14,120
Speaker 7: they don't have, and it's probably just gonna be people

677
00:32:14,240 --> 00:32:18,440
Speaker 7: rolling off the humanitarian parole uh in TPC. But that's

678
00:32:18,480 --> 00:32:20,040
Speaker 7: gonna be a big thing to watch out for. And

679
00:32:20,040 --> 00:32:21,800
Speaker 7: then the second is what a w what's gonna happen?

680
00:32:21,800 --> 00:32:24,920
Speaker 7: From a tariff perspective, we haven't really heard much specifics. Uh,

681
00:32:24,960 --> 00:32:27,240
Speaker 7: you know, we're we're we're l we're winding back to

682
00:32:27,560 --> 00:32:29,880
Speaker 7: the announcement on Canada and Mexico. Are we gonna get

683
00:32:29,880 --> 00:32:31,800
Speaker 7: more of that? Probably not, and we're not hearing much

684
00:32:31,840 --> 00:32:33,880
Speaker 7: of it. But those are the two things we're looking

685
00:32:33,880 --> 00:32:38,160
Speaker 7: out for most from him tariffs and uh uh tariffs

686
00:32:38,160 --> 00:32:41,080
Speaker 7: and uh what we're h hearing from integration perspective.

687
00:32:41,240 --> 00:32:43,840
Speaker 1: Jeff, as an investor who has to take a longer

688
00:32:43,920 --> 00:32:47,840
Speaker 1: term view, how do you remain independent from the successive

689
00:32:47,920 --> 00:32:50,320
Speaker 1: data dependence? So we were just talking about how do

690
00:32:50,360 --> 00:32:54,000
Speaker 1: you have any conviction with calls at a time where

691
00:32:54,040 --> 00:32:56,920
Speaker 1: people are talking about how much the parameters could change

692
00:32:57,200 --> 00:33:00,640
Speaker 1: based on whether it's CPI or whether it's Jan twentieth

693
00:33:00,720 --> 00:33:01,560
Speaker 1: and the inauguration.

694
00:33:03,720 --> 00:33:06,880
Speaker 8: Yeah, it's really recognizing, you know, the things that you

695
00:33:07,400 --> 00:33:09,960
Speaker 8: think you can forecast and recognizing the things.

696
00:33:09,680 --> 00:33:11,840
Speaker 4: That are just not forecastable.

697
00:33:11,920 --> 00:33:14,719
Speaker 8: And we have a little saying if you can't forecast,

698
00:33:15,560 --> 00:33:18,479
Speaker 8: and I would put all of the policy uncertainties that

699
00:33:18,600 --> 00:33:22,400
Speaker 8: were just described in that category, then you have to observe.

700
00:33:23,800 --> 00:33:25,800
Speaker 8: And so you just kind of like know what you

701
00:33:25,840 --> 00:33:27,920
Speaker 8: can kind of control, and know what you can't control,

702
00:33:28,000 --> 00:33:30,240
Speaker 8: know what you can forecast, know what you can't forecast,

703
00:33:30,880 --> 00:33:34,160
Speaker 8: try not to overreact to every data point. But on

704
00:33:34,400 --> 00:33:37,360
Speaker 8: the fiscal policy, I mean that is that is basically

705
00:33:37,400 --> 00:33:41,560
Speaker 8: the story for the twenty twenty five outlooks is uncertainty

706
00:33:41,640 --> 00:33:45,240
Speaker 8: and unforecastability. So we're gonna have to kind of recognize

707
00:33:45,280 --> 00:33:47,360
Speaker 8: that and we're going to sit back, We're going to

708
00:33:47,440 --> 00:33:51,320
Speaker 8: be patient, We're going to observe, and then you know,

709
00:33:51,360 --> 00:33:54,200
Speaker 8: as the information becomes more clear, that's when you can

710
00:33:54,240 --> 00:33:55,600
Speaker 8: take action in your portfolio.

711
00:33:55,600 --> 00:33:57,200
Speaker 4: Is to try to do it ahead of time.

712
00:33:57,840 --> 00:34:00,240
Speaker 8: I think you just have to recognize that it's a

713
00:34:00,400 --> 00:34:04,320
Speaker 8: very difficult exercise both forecasting what is going to be

714
00:34:04,360 --> 00:34:07,280
Speaker 8: the policy and equally forecasting what is going to be

715
00:34:07,320 --> 00:34:11,799
Speaker 8: the market reaction to that. Getting both of those rights

716
00:34:11,960 --> 00:34:14,319
Speaker 8: very unlikely. So you're going to have to sit back

717
00:34:14,719 --> 00:34:16,400
Speaker 8: and wait for the data to reveal itself.

718
00:34:16,480 --> 00:34:19,200
Speaker 2: Hey, Jeff, appreciate your time, sir. As always, Jeff Rosenberg,

719
00:34:19,239 --> 00:34:21,880
Speaker 2: there at blankrupt will take a step back and a

720
00:34:21,920 --> 00:34:24,280
Speaker 2: big deep breath and look ahead to see PI next Wednesday,

721
00:34:24,440 --> 00:34:25,879
Speaker 2: as well as some bank earnings too.

722
00:34:26,040 --> 00:34:26,360
Speaker 4: Mohamma.

723
00:34:26,440 --> 00:34:28,719
Speaker 2: Just a final thought around the table. We came into

724
00:34:28,719 --> 00:34:33,520
Speaker 2: twenty five thinking about US exceptionalism and global divergence. And

725
00:34:33,560 --> 00:34:35,680
Speaker 2: Lisa and I've been talking about this for a number

726
00:34:35,680 --> 00:34:38,160
Speaker 2: of days now, number of weeks. The extent to which

727
00:34:38,200 --> 00:34:41,319
Speaker 2: we can keep stretching that rubber band, how far can

728
00:34:41,360 --> 00:34:43,600
Speaker 2: we take that, How much oxygen is left in that

729
00:34:43,640 --> 00:34:46,399
Speaker 2: story before we get these negative feedback loops and things

730
00:34:46,400 --> 00:34:47,640
Speaker 2: start to move in the other direction.

731
00:34:48,320 --> 00:34:50,319
Speaker 3: I mean, that's a great question, and I'm not sure

732
00:34:50,320 --> 00:34:52,719
Speaker 3: I can answer that, but I can tell you that

733
00:34:52,760 --> 00:34:55,759
Speaker 3: the theme of dispersion is really important because there's a

734
00:34:55,800 --> 00:34:58,719
Speaker 3: limit to how long you can run a system with

735
00:34:58,800 --> 00:35:02,920
Speaker 3: significant dispersion. And we have two main discerssion issue US

736
00:35:03,600 --> 00:35:05,680
Speaker 3: visay the rest of the world. The hope is the

737
00:35:05,680 --> 00:35:08,120
Speaker 3: rest of the world comes up to the US. The

738
00:35:08,200 --> 00:35:10,160
Speaker 3: fears of the rest of the world drags the US down,

739
00:35:10,560 --> 00:35:14,320
Speaker 3: and then within our economy, low income versus the rest.

740
00:35:14,760 --> 00:35:17,840
Speaker 3: Low income is the struggling right now. We must not

741
00:35:17,920 --> 00:35:24,480
Speaker 3: forget that, and these numbers cannot make us not also

742
00:35:24,480 --> 00:35:26,720
Speaker 3: consider what's happening at that end, because at some point

743
00:35:27,040 --> 00:35:29,239
Speaker 3: that we can can migrate up. So the theme we're

744
00:35:29,239 --> 00:35:33,440
Speaker 3: going to be talking about a lot is forget about averages,

745
00:35:33,719 --> 00:35:36,520
Speaker 3: look at sectors, and that is in the marketplace. We've

746
00:35:36,520 --> 00:35:39,840
Speaker 3: gone from a market focus to a theme focus, and

747
00:35:39,880 --> 00:35:41,880
Speaker 3: now it's going to all be about individual names.

748
00:35:42,440 --> 00:35:46,000
Speaker 2: This is the Bloomberg Surveillance podcast, bringing you the best

749
00:35:46,040 --> 00:35:49,359
Speaker 2: in markets, economics, antient politics. You can watch the show

750
00:35:49,400 --> 00:35:52,360
Speaker 2: live on Bloomberg TV weekday mornings from six am to

751
00:35:52,480 --> 00:35:56,239
Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

752
00:35:56,360 --> 00:35:58,600
Speaker 2: or anywhere else you listen, and, as always on the

753
00:35:58,600 --> 00:36:05,480
Speaker 2: Bloomberg terminal, bloom Bag bestess out, mhmm.