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Speaker 2: Anderra Gar and it joins us Bloomberg Intelligence Anrok, Thank
Speaker 2: you so much for joining us. Is this a tech
Speaker 2: pullback or is that just one part of the equation
Speaker 2: you see in the market.
Speaker 3: Yeah, I mean it is a minor tech pull back,
Speaker 3: but that's sometimes a healthy thing because if you look
Speaker 3: at it, over the last one and a half two years,
Speaker 3: we have seen a massive rally in all these technology
Speaker 3: stocks because of AI and right now we are a
Speaker 3: face of consolidation where the companies are spending a lot
Speaker 3: of money to expand capacity with the hope that they
Speaker 3: get more AI workloads down the road. So I think
Speaker 3: that's where we are right now. We're going to see
Speaker 3: this for a few quotos and see we think it's
Speaker 3: going to be a good twenty twenty five.
Speaker 2: I went to the inner Agrana FA screen today on
Speaker 2: Apple and I noticed that Apple in the last ten
Speaker 2: years has retired thirty seven percent of their diluted shares.
Speaker 2: I think historically, I can say anarag it's never happened before.
Speaker 2: Are we going to see this trend of massive free
Speaker 2: cash flow from these companies where all the noise of
Speaker 2: AI and all really doesn't matter. Yeah.
Speaker 3: When you see you know, all the tech companies, I
Speaker 3: think Apple really stands out because their AI policy or
Speaker 3: strategy is different than the other tech firms. Last night,
Speaker 3: they actually brought back about twenty six billion and shares
Speaker 3: that quarter. This is the highest we have seen. And
Speaker 3: this is a company that's not going to be spending
Speaker 3: billions in terms of expanding their data centers because they're
Speaker 3: rented from others. They're going to rent a large language
Speaker 3: model from everybody else, so they're tent to free cash
Speaker 3: flow is not going to be as much as it's.
Speaker 2: Going to be for Microsoft and Amazon.
Speaker 4: And you're only a five and a half percent pullback
Speaker 4: in the S and P I T index over the
Speaker 4: last week, So you're right, not so strong. But you know,
Speaker 4: talk to me about you know what we're seeing here?
Speaker 4: I mean, is this is this the beginning of I mean,
Speaker 4: should we be doubling down on growth? Should we shifting
Speaker 4: into quality here? I mean, what are your thoughts, so.
Speaker 3: Daman, when you look at it, there are two things
Speaker 3: that are played right now. Right now, we are at
Speaker 3: a phase when these companies are spending so much money
Speaker 3: and they cannot show a lot of the air revenue,
Speaker 3: so to investors are questioning whether that's going to happen.
Speaker 3: The second thing that you just mentioned is the rotation
Speaker 3: into value and rotation into small caps. And I think
Speaker 3: that's another play that's going to happen over the next
Speaker 3: several quarters because the disparity between the large cap in
Speaker 3: the hech world and the small companies in the deck
Speaker 3: world is massive at this point.
Speaker 2: I got to leave it there. Anerog I'm so sorry
Speaker 2: to short you this morning. The news flow just exceptional.
Speaker 2: He is a definitive on the cloud. Look for aniog
Speaker 2: Rana at Bloomberg Intelligence writing up Cloud Forward a couple
Speaker 2: of years ago. Here's the abstract. This chapter proposes a
Speaker 2: direct payment to individuals that would automatically be paid out
Speaker 2: early in a recession and then continue annually when the
Speaker 2: recession is severe. The outcome of this paper direct stimulus
Speaker 2: payments to individuals will be she will be hounded forever
Speaker 2: about the samb rule. We are honored on this job
Speaker 2: today to have Claudia Sum join us out of Michigan,
Speaker 2: off the Fed, of course, with new Sentry advisor definitive,
Speaker 2: and with a question the most followed economist in America today, Claudia,
Speaker 2: I don't want to get into cute, trite stuff. I'm
Speaker 2: not going to do the usual media interview. But what
Speaker 2: is the use of your rule? The wiggle room that
Speaker 2: it has. I think of DSGE, which you can go
Speaker 2: eight ways. How many ways can the sum rule go?
Speaker 2: Or is it ultra rigorous?
Speaker 5: It's it's a tool. It was part of a policy
Speaker 5: proposal and an idea to do more fiscal policy. Put
Speaker 5: it up, put it together ahead of time, design it
Speaker 5: well tied economic conditions, take some of the politics out
Speaker 5: in the crisis, and hit go right. This it was
Speaker 5: a tool to solve a problem. In the past, we
Speaker 5: haven't fought receptions as vigorously. It was developed before COVID
Speaker 5: and and so that's that's the idea of it. It's
Speaker 5: not and it's a tool. It needed to be simp well.
Speaker 5: It needed to summarize a lot that was going on
Speaker 5: in the economy. Frankly, we have an economy right now
Speaker 5: that's extremely hard to summarize. So it's having a rough
Speaker 5: go of it. And yet I'm glad it's help being
Speaker 5: helpful I think useful to some extent in the conversation
Speaker 5: right now.
Speaker 2: Let us look now at the jobs report of America
Speaker 2: coming out now, and it is a whoa huge depression.
Speaker 2: It is a woe statistic as well. I'm going to
Speaker 2: go through this for a bit before we go to
Speaker 2: Claudia Sam, and we're going to see major major market
Speaker 2: moves here. S ANDP down seventy five points right now,
Speaker 2: Nastack down one, three eighty two. The tenure yield off
Speaker 2: of the numbers, which I'll give you in a moment, folks,
Speaker 2: the ten years in seventeen basis points for Global Wall Street,
Speaker 2: I'm not kidding. Ginormous fits the Friday morning tone three
Speaker 2: point eight zero percent. Here are the numbers, and I
Speaker 2: have the revisions. Now. The revision is a weaker statistic
Speaker 2: stick from two oh six down to one seventy nine.
Speaker 2: The summed revision is negative twenty nine thousand. The non
Speaker 2: farm payrolls is one hundred and fourteen thousand below doctor
Speaker 2: Wong statistic below the survey of one seventy five. The
Speaker 2: unemployment rate explodes is too much, but I am in
Speaker 2: the media four point one percent to a higher level
Speaker 2: four point three percent. We'll have Claudiusom speak on this
Speaker 2: here in a moment. Tepe earnings on a month over
Speaker 2: month basis, which is what IRA Jersey looks at, it
Speaker 2: comes in weaker point three becomes point two weekly earnings,
Speaker 2: a revision weaker, the actual statistic three point seven becomes
Speaker 2: three point six. You get the tone that we see
Speaker 2: out there. Labor participation actually is somewhat constructive. The underemployment rate,
Speaker 2: Alan green SPAN's favorite statistic explodes is the correct word,
Speaker 2: seven point four percent to seven point eight percent. The
Speaker 2: vics out two big figures two point twenty nine. That's
Speaker 2: some p futures at negative eighty seven Claudia Sam I've
Speaker 2: got to ask the media question, is this some rule
Speaker 2: in a force at this.
Speaker 5: Moment get triggered?
Speaker 6: Yeah?
Speaker 5: Wow, Yeah, So that puts it up over it's half
Speaker 5: a percentage point threshold. Noting that comes off of historical experience.
Speaker 5: That doesn't necessarily tell us where you know, we are
Speaker 5: right at this moment saying a recession. This has seen
Speaker 5: way too much momentum in the unemployment rate in recent months,
Speaker 5: I mean four point three percent. Right, this is not
Speaker 5: so whether we are at that moment of a recession
Speaker 5: or not. This is your build into substantial weakening in
Speaker 5: the labor market, right like we have seen. Potentially all
Speaker 5: is not lost. We are you know, the bottom's offing out.
Speaker 5: We should never panic. There are policy tools, there are
Speaker 5: levers and and you know, again I don't overread one
Speaker 5: data point, but this isn't one data point. So I
Speaker 5: think the case now for hey, we're normalizing. We didn't
Speaker 5: need to slow things down some probably generally speaking. But
Speaker 5: now the question is, okay, so we've had enough slowing here,
Speaker 5: what levels this out? And that I think I don't
Speaker 5: have the answer for that.
Speaker 2: Claudius big One, an economist of Merit Claudia Sam by
Speaker 2: the name of Stanley Fisher once lectured me and otherworthies
Speaker 2: that the percentage move is important. The fact is we've
Speaker 2: gone up zero point nine percent from a three point
Speaker 2: four percent unemployment to a four point three percent, and
Speaker 2: that percentage change is ginormous. I'm going to give that
Speaker 2: to you folks in a moment. This is something you
Speaker 2: can do on the Bloomberg. It's actually way way cool,
Speaker 2: to say the least. We've had a twenty six percent
Speaker 2: increase in the unemployment rate pandemic adjusted. I get it.
Speaker 2: How does that fit into your historical perspective, doctor somem
Speaker 2: on a move in the unemployment rate.
Speaker 5: We have had a lot of disruptions in the labor force,
Speaker 5: so the supply of workers even go back to beginning
Speaker 5: of the pandemic, millions of people dropping out, and then
Speaker 5: we had labor shortages, and then we had larger immigration
Speaker 5: coming in. Like this has just been a lot and
Speaker 5: we all know personally, and then also in the economy,
Speaker 5: adjustments can be hard if they are big and sunny,
Speaker 5: and we've had a lot of that, and so this
Speaker 5: is absolutely in there. In these increases in the unemployment rate,
Speaker 5: we are still working through disruptions, and yet it's some
Speaker 5: like underneath that is also a much more typical, pernicious,
Speaker 5: not good increase in the unemployment rate of just there's
Speaker 5: less demand for workers, and if workers don't have paychecks,
Speaker 5: they can't spend, and then that's the momentum that gets going.
Speaker 5: So it's you know, there's it's it's the volume is
Speaker 5: turned up louder than usual on them rule. So I
Speaker 5: don't look at this and big pictures say we or
Speaker 5: in a recession. But I look at this and I say,
Speaker 5: we're We're not in a good We're not headed in
Speaker 5: a good drug.
Speaker 2: Does you mean get one more question in here? She
Speaker 2: has to speak to President Biden.
Speaker 6: Or no, Claudia.
Speaker 4: You know, I'm a huge Guns and Roses fan, and
Speaker 4: I love the song Patients, But I mean, waiting for
Speaker 4: waiting sake is no way to conduct policy. That's not me,
Speaker 4: that's Neil Dudda. Talk to us about what happens in September. Now,
Speaker 4: is this enough for the FED to move.
Speaker 6: That should have moved, should have moved already.
Speaker 5: Yeah, this was a discussion. It's a discussion I have
Speaker 5: been in. The FED needs to start the rest of
Speaker 5: the economy was normalizing, the rest of the economy was
Speaker 5: cooling off. The FED needed to do the same thing.
Speaker 2: Okay, but Claudia, Okay, I'm gonna go Claudia.
Speaker 7: But they can.
Speaker 5: It's not lost and they have a lot of life.
Speaker 2: Claudia got Neil Dudda coming up. Okay, Damien nailed it. Okay,
Speaker 2: let's just forget process. We're out of a pandemic. Everybody.
Speaker 2: Krugman's going now now, now, dud is going now now, now,
Speaker 2: Sim's going now now now. Do they have to save
Speaker 2: face and wait till something Chember twenty one, or can
Speaker 2: they come out and go you know, when the facts change,
Speaker 2: we change, like Bill Dudley and I'm sorry, make the
Speaker 2: adjustment at four point thirty pm this afternoon. Why not,
Speaker 2: doctor Somem.
Speaker 5: They have an ability to do whatever they think is appropriate.
Speaker 5: In no way, shape or form. Do I think panic
Speaker 5: should be the theme for today or for any day
Speaker 5: of the Federal Reserve? Frankly, and they will need to
Speaker 5: assess the situation. And this was not this was not
Speaker 5: good data in the let's wait. But again, this is
Speaker 5: again not overreacting. Not you can't go back and redo
Speaker 5: policy decisions. They have a lot of tools at their disposal,
Speaker 5: and we should be very thankful that there are these
Speaker 5: policy adjustments that can be made that will help Claudia.
Speaker 2: Thank you so much, honored you could attend this morning.
Speaker 2: Doctor Somem without question the most influential economist in America
Speaker 2: right now. With New Century Advisors. We turned to Neil
Speaker 2: Dudda who's lost patient. He has an optimism on the
Speaker 2: American economy, and he's really pulled back and said, let's go,
Speaker 2: how where is the dota optimism this morning? NEI help
Speaker 2: me out here. I need to be optimistic. Where are
Speaker 2: you optimistic on the American economy?
Speaker 8: Well, if you wanted me to say something optimistic, guy,
Speaker 8: that go what Paul Claudia said, So thankful to be
Speaker 8: on after her. Quite an act to follow, Thanks Tom.
Speaker 8: But you know I would just I would just say
Speaker 8: that we don't need a troubled asset relief program, we
Speaker 8: don't need a resolution Trust Corporation. I mean, the problem
Speaker 8: with the economy is that monetary policy is too tight,
Speaker 8: and that means the looser monetary policy can help resolve
Speaker 8: the problem. And so you know, from my perspective, the
Speaker 8: Fed can just keep cutting until the economy turns, and
Speaker 8: there's a lot of room for them to do so.
Speaker 8: So I think that would be the optimistic sort of
Speaker 8: spin on things, is that, you know, the FED has
Speaker 8: plenty of ammunition to kind of you know, course correct here.
Speaker 8: I think they'll use it. And you know, this isn't
Speaker 8: about household balance sheet deflation. This isn't about corporate balance
Speaker 8: sheet recessions like oh one, This isn't about an asset
Speaker 8: bubble bursting. This is just about monetary policy being too tight.
Speaker 8: You know, the writing has been on the wall for months. Okay,
Speaker 8: I mean this sort of let's wait, you know, we
Speaker 8: get you know, spooked by first quarter data and waiting
Speaker 8: for the sake of waiting. I mean, this is what
Speaker 8: happens when you play that game. Okay, And look, I
Speaker 8: mean I agree that it's not worth panicking. And I
Speaker 8: don't think that this means that the feed should move
Speaker 8: inter meeting or anything like that. But let's be absolutely
Speaker 8: clear about why this is happening. The writing has been
Speaker 8: on the wall for months. They didn't have a story
Speaker 8: to tell for why inflation would pick up. Every single
Speaker 8: monetary policy ruled that they look at. That's in their
Speaker 8: Monetary Policy report every time they go before Congress has
Speaker 8: been saying the same thing for months, which is a
Speaker 8: less restrictive policy stances required. Now we're going to act
Speaker 8: all surprised when you know the labor markets slong in
Speaker 8: a more material way. And I will say, I mean,
Speaker 8: I do think it's going to get worse before it
Speaker 8: gets better, because when you look at some of the
Speaker 8: details within this report, you know, goods producing industries saw
Speaker 8: a pickup over the month, tom construction employment rose over
Speaker 8: the month. What do we know about residential investment over
Speaker 8: the summer. It's going nowhere. So the Fed's been kind
Speaker 8: of playing this game of chicken with the corporate sector,
Speaker 8: where you know, the data has been strong, and so
Speaker 8: the FED feels like they don't need to move, but
Speaker 8: the data has also been strong because the corporate sector
Speaker 8: thinks it's going to move.
Speaker 2: Let me get it, let me know, let me get
Speaker 2: a data check in here. And Damien wants to crush you.
Speaker 2: The VICS folks at twenty level up to a twenty
Speaker 2: one point twenty six Anileti's aged off that two point
Speaker 2: sixty seven full points here on the VICS were now
Speaker 2: negative ninety seven on the Standard Ports five hundred eight
Speaker 2: percent down, Nasdaq down two point five seven up percent.
Speaker 2: Damien says, I don't care about the equity market.
Speaker 6: I'm looking at that's right, that's right, ten year yield.
Speaker 2: For three point I'm looking at the thirty year bond
Speaker 2: thinking it's a ten yere.
Speaker 4: You're missing the big one here, You're missing the big
Speaker 4: one here. Dollar yen down two and a half, big
Speaker 4: figures to one forty, a stronger yen, dollar.
Speaker 2: Weaker because they think the Fed's gonna cut.
Speaker 4: So, Neil, I have to ask you this traditional seave havens.
Speaker 4: No one likes bonds, no one likes gold, no one
Speaker 4: likes the end. But look at what's happening here in
Speaker 4: this market. But some of these moves are pretty pretty big,
Speaker 4: and it is obviously an illiquid summer.
Speaker 6: Are some of these moves over done or is then
Speaker 6: more to go?
Speaker 8: I mean, I think it's probably overdone for now. But
Speaker 8: I wouldn't be like selling a fixed income here just
Speaker 8: because we had a sharp move. I mean, I think
Speaker 8: you know, you probably take opportunities with yields going up
Speaker 8: to kind of build on your on your position. I
Speaker 8: do think that, like I said, I think the data
Speaker 8: is going to dictate a lot of these sort of
Speaker 8: you know, high frequency lows. And like I said, I
Speaker 8: think that data is going to look worse before it
Speaker 8: looks better. And so I think for me that means,
Speaker 8: you know, there's additional moment I mean like something like
Speaker 8: downward revision, something Time's been talking about. You know, we
Speaker 8: know that downward revisions have a momentum to them, right,
Speaker 8: So the fact that the numbers are being revised down
Speaker 8: kind of sets the table for the sort of direction
Speaker 8: travel data.
Speaker 2: Yeah, we heard that from Claudia Sama as well and
Speaker 2: Sam and Dudda with us is great. Let me tell you, folks,
Speaker 2: we are commercial free across the nation to the end
Speaker 2: of the hour. Ira Jersey will join us now he's
Speaker 2: publishing Bloomberg Intelligence. They're interest rate outlook. We are thrilled
Speaker 2: in moments all the m Moletti with us, from all
Speaker 2: Spring Global Investments on the value that's out there is
Speaker 2: we see a dearth of growthiness this morning and with
Speaker 2: us right now Neil Dutta futures at negative one hundred
Speaker 2: on the standard reports down futures at negative five an
Speaker 2: give the VIC twenty one point fourth Street. Damien to mister.
Speaker 4: Dutter, I'd like to ask you about that dearth of growthiness, Neil.
Speaker 4: I mean, that's a great way of putting at the
Speaker 4: ten year real yield down to one point six nine percent,
Speaker 4: off another seven basis points on this news. Talk to
Speaker 4: us a little bit about I mean, it's sticky here
Speaker 4: in New York, right, it's hot outside, but sticky inflation
Speaker 4: seems like it's the thing of the past.
Speaker 6: Now.
Speaker 4: If I never hear sticky again, that might be too soon.
Speaker 4: Talk to us about inflation. Is that something we have
Speaker 4: just no interest in anymore? Is it all about growth
Speaker 4: in this market?
Speaker 8: Well, I don't have any interest in inflation anymore. I
Speaker 8: think that was that was last year's story. It's a
Speaker 8: bit ridiculous again, Damien. It has to do with what's
Speaker 8: the mechanism, right, unit labor costs have been below one
Speaker 8: percent for the last.
Speaker 2: Couple of quarters.
Speaker 8: I mean, for crying out loud, where the where's the
Speaker 8: inflationary impulse? The inflationary impulse from the labor market has
Speaker 8: been non existence, in my opinion, for at least three
Speaker 8: quarters two to three quarters. Okay, the Fed is just
Speaker 8: now saying that, So you know, I think this is
Speaker 8: really a function of number one. They were spooked by
Speaker 8: the first quarter data, even though data, they didn't understand
Speaker 8: why it rose. It rose, and they kind of they
Speaker 8: sort of took more signal from that than they should have.
Speaker 8: It was more noise than signal. And they're allowing, you know,
Speaker 8: the specter of the nineteen seventies to haunt them. But
Speaker 8: the difference, the key distinction between this period and that
Speaker 8: period is that was a period of falling productivity growth.
Speaker 8: This has been one where productivity has largely been normalizing.
Speaker 2: That's the key. That's that's you know, I gotta interrupt
Speaker 2: because that's the absolute key insight right now. I don't
Speaker 2: know which war they're reliving, but they're reliving a new
Speaker 2: war because we have new productivity. We talked to Clarida.
Speaker 2: It's pretty good. You have Richard Clarida, Bill Dudley, Claudius,
Speaker 2: Sam and Neil Dudda. I mean that's a group of
Speaker 2: well anymous give one more to Duddy here before he
Speaker 2: goes and works. Well.
Speaker 4: No, it's a new beta regime for sure, but you know,
Speaker 4: the old playbook seems to be kind of working here.
Speaker 4: Investment Grade credit just crushing on this move in US
Speaker 4: treasury yields. And if you're right and there's you know,
Speaker 4: not that much wrong with the corporate sector here in
Speaker 4: the US, is that is that a fixed in comassa
Speaker 4: class that you want to own right now?
Speaker 8: Yeah? I mean, look like I said, I think just
Speaker 8: to take it back, it's we have a period of
Speaker 8: pain I think ahead of us. I mean, the next
Speaker 8: few weeks could get bumpy unless there's some kind of
Speaker 8: surprise FED meeting. I don't think they'll do that because
Speaker 8: I think that might invite more panic than than it's worth.
Speaker 8: But the FED is going to get eventually on the
Speaker 8: right side of the eight ball here. This is this,
Speaker 8: there's absolutely no reason to worry about inflation at the moment,
Speaker 8: with the unemployment rate rising, unit labor costs slowing, oil
Speaker 8: prices collapsing. I mean, it's just a ridiculous thing to
Speaker 8: be even considering. So that means I think the FED
Speaker 8: is going to you know, start to you know, unload
Speaker 8: the cannon a little bit. And you know, for for
Speaker 8: Wall Street, I think what I'll be telling my clients
Speaker 8: is fifty twenty five, twenty five, one hundred basis points
Speaker 8: of rape cuts straight out the gate I think the
Speaker 8: FED has the space to do it, and I think
Speaker 8: that's the prudent approach at the moment.
Speaker 2: That's the prude twenty seconds, Neil data because the Mledi's
Speaker 2: going to walk out of the studio if I don't
Speaker 2: get to her. When you say fifty, you're the first
Speaker 2: person to say this. Do they signal fifty, Neil Datta
Speaker 2: or do they keep it a surprise and shock us?
Speaker 2: September twenty one.
Speaker 9: I say they signal, I mean they should signal it,
Speaker 9: and but I think more importantly is the guidance they said,
Speaker 9: say that they're willing to do what it takes to
Speaker 9: stabilize the count right provide that inflation continues to slow.
Speaker 2: Neil, thank you so much. It's great to have Claudius
Speaker 2: sim and Neil Dudda with us with this report and again,
Speaker 2: futures at negative ninety three down, futures negative four sixty six.
Speaker 2: Mletti with us here. She wanted to go. You know,
Speaker 2: she's in Milwaukee. Did you survive the convention in Milwaukee?
Speaker 6: I did.
Speaker 1: I stayed kind of far away from it, so far for.
Speaker 2: Like you couldn't even get to your offices right.
Speaker 1: Well, luckily we are still in the suburbs in monomoally calls,
Speaker 1: so I didn't have to, but we're moving downtown.
Speaker 2: How do you I'm so honored you're here today because
Speaker 2: we're doing traditional long only byside, we're trying to do
Speaker 2: a short term, three year view. And you can hear
Speaker 2: the cacophony here from doctor s and mister Dutta. How
Speaker 2: do you use what you're hearing right now?
Speaker 1: Yeah, well, you've had you know, some of the smartest
Speaker 1: people on the show already this morning, and it's really
Speaker 1: interesting to hear what they had to say. And certainly
Speaker 1: we pay attention to the macro to the top down,
Speaker 1: but what's been maybe more interesting to me as an
Speaker 1: investor is the signals that we've been seeing from the
Speaker 1: bottom up right looking at companies, listening to what they've
Speaker 1: been saying and telling us. And there certainly has been signals,
Speaker 1: and you know, we're seeing it in the reporting season.
Speaker 1: We've seen it not just in the numbers, but more
Speaker 1: importantly in the outlook and those cracks really are real.
Speaker 4: Yeah, well, consumer spending and whatnot. You but you know,
Speaker 4: I'm looking at other data points. It depends which data
Speaker 4: points you look at. Tom, you know this credit card
Speaker 4: delinquencies look fine. I mean, I know, can the consumers
Speaker 4: ur you know, kind of taking it on the chin
Speaker 4: and bit here, but you know, fundamentally things seem to
Speaker 4: be fine here in the US. You know, is there
Speaker 4: room for people to buy the dip here?
Speaker 6: You know?
Speaker 1: One, I think people tend to panic when they see
Speaker 1: moves like these. I think it's actually healthy because you
Speaker 1: had something priced into the market that likely was not sustainable.
Speaker 1: And the more we take out here, the better chance
Speaker 1: we have of not having a big disaster when things change.
Speaker 1: And so there are opportunities. Volatility brings opportuntunity. We're going
Speaker 1: to see more volatility.
Speaker 2: Well, okay, we see more volatility. We've got to VIX
Speaker 2: up twenty one point four to one right now, folks
Speaker 2: back to almost an August normal given the sweat of
Speaker 2: August over three decades, anim letty, Intel's adjusting. Okay, let's
Speaker 2: call it a train wreck to be polite. But within
Speaker 2: the securities analysis at all Spring and the legacy of
Speaker 2: Milwaukee strong, how do you adapt to the revenue shortfall?
Speaker 2: Church and Dwight Toothpaste baking soda came in with OSG
Speaker 2: organic sales growth a little like today's City Group went
Speaker 2: to a sell on an iconic New Jersey company. How
Speaker 2: do you adapt to the new revenue tepidness?
Speaker 1: You know, I mean tem I think one of the
Speaker 1: things that you talk about a lot, which I think
Speaker 1: is really important. It's more than just earnings, right, It's
Speaker 1: been top line growth. Top line growth has been tep it,
Speaker 1: to say the least for the majority of the market,
Speaker 1: except for we're kind of those concentrated names that we've seen,
Speaker 1: and you know, so when you see decceleration of growth,
Speaker 1: it's a sign. That's what I meant from those bottom
Speaker 1: up cycles or the bottom up signals. The opportunity set though,
Speaker 1: that lies in front of us is there's still names
Speaker 1: in each sector, not at all, but like most sectors
Speaker 1: that have been washed away, that still can outperform in
Speaker 1: a changing market.
Speaker 2: Let me do a reset here, folks, if you're just
Speaker 2: joining us a difficult and challenging jobs report you heard
Speaker 2: on Bloomberg Surveillance. Claudia Sam, formerly with the FED the
Speaker 2: Brookings Institution, Claudia Sam's saying her sum rule is in effect.
Speaker 2: She said that the moment after this job's report with
Speaker 2: Reek revisions as well, futures not as bad as they
Speaker 2: were ten minutes ago, negative eighty five. The VIX is
Speaker 2: going to give me three big figures right now, two
Speaker 2: point seven to one figures, twenty one point twenty four
Speaker 2: on the VIX as well. The ten year yield is
Speaker 2: what Damien Sasaur noticed in ten basis points. Now, excuse me,
Speaker 2: I'm still looking at the thirty year mod Damien, my
Speaker 2: brain's failing back three point eight four percent on a
Speaker 2: ten year yield right now, Damien sas Hour to En
Speaker 2: Maletti of all Spring.
Speaker 4: It was a lot easier on to get long the
Speaker 4: ten year when it was at four and a quarter
Speaker 4: just a few weeks back. Now we're at what three
Speaker 4: eighty on the ten year. I mean, talk to us
Speaker 4: about duration, talk to us about the demand frame incrementally
Speaker 4: yield in the fixed income market. Does that make sense
Speaker 4: right now?
Speaker 1: I think it does. I mean one of the things
Speaker 1: that we put out in our outlook piece going back
Speaker 1: at the end of last year was this was going
Speaker 1: to be a year for fixed income. We also kind
Speaker 1: of warned about some softening of the economy. Now, look,
Speaker 1: we're midsummer or of late summer, and we're starting to
Speaker 1: see these turns. But we do think that there's been
Speaker 1: an opportunity. Our fixed income teams have been increasing duration
Speaker 1: and you know, kind of believe that this would be
Speaker 1: the environment we would see. And so I think there's
Speaker 1: still is opportunity out there. You just have to pick
Speaker 1: your points. To Neil's point early.
Speaker 2: One final question, I got twenty seconds. What is the
Speaker 2: quality of a first place Milwaukee Brewers?
Speaker 1: I mean, you know, Tom, I'll take it, but as
Speaker 1: you know, it's still early in this season, and so
Speaker 1: we'll just hold our breath and cross our fingers, hold
Speaker 1: our breath.
Speaker 6: How about that contract for Jordan Love though, huh, he's
Speaker 6: got a Green Bay.
Speaker 1: You know, if we could actually get three all Start
Speaker 1: Hall of Fame quarterbacks in a row, I mean, it
Speaker 1: would be a miracle.
Speaker 2: But okay, there we go. What matters Amlodi of Wisconsin,
Speaker 2: thank you so much. In Milwaukee legendary strong and of
Speaker 2: course with Allspring investments coming up, the Secretary of Labor
Speaker 2: Julie Sue will join us at nine oh two as
Speaker 2: our scheduling. There Katherine Greifeld and Amory Horden leading that
Speaker 2: conversation with the government on this difficult labor challenge joining
Speaker 2: us now, and Damien, I want you to lead off
Speaker 2: here with Ira Jersey of that, and I want to
Speaker 2: explain this, folks. Lifetime ago you had on the desk
Speaker 2: at Credit Suite a guy named Dominic Constant and a
Speaker 2: young lad, Irid Jersey, young lad and they were read
Speaker 2: voraciously on the street for times like this. Why did
Speaker 2: you go to Ira Jersey on the love fest? We
Speaker 2: see him? Fixed income?
Speaker 4: Ira, the FED has been in a deferred asset position
Speaker 4: for the last twenty two months. That means it receives
Speaker 4: less coupon income than it pays out on its bond holdings.
Speaker 4: Talk to us about this quarterly funding announcement. Talk to
Speaker 4: us about the FED potentially issuing more or the Treasure
Speaker 4: issuing more tea bows than coupone. Talk to us about
Speaker 4: the reserve rep But facility talked to us about what's
Speaker 4: going on the front end here.
Speaker 10: Wow, Damian, I thought we were going to talk about
Speaker 10: the three seventy eight target that we just hit on
Speaker 10: our on one of our charts.
Speaker 6: That we've thank you for highlighting that, Ira.
Speaker 10: What of our cmts And we bounced right off of
Speaker 10: that and it's right for right now.
Speaker 2: Bolding I'll do that in a moment. But Damien's asking
Speaker 2: the pro question into the week and iral what's liquidity
Speaker 2: look like.
Speaker 10: Yeah, so liquidity in the treasury market has is not terrible,
Speaker 10: right that treasuries are still one of the most liquid assets,
Speaker 10: but relative to where it was. You know, when Dominic
Speaker 10: and I were were on the trading desk at Credit
Speaker 10: Sueese a decade or so ago, it was definitely it's
Speaker 10: definitely weekend since then. And there's a couple of reasons
Speaker 10: for that, right. One is, yes, the Federal Reserve is
Speaker 10: running off its balance sheet. But one of the big
Speaker 10: changes that that's occurred in liquidity and in the front endarticular,
Speaker 10: is the fact that you have different repo products, right,
Speaker 10: so you just don't have a market, a funding market
Speaker 10: that's kept up with the size and growth of the
Speaker 10: amount of treasuries out there. Plus you have regulations like
Speaker 10: Dodd frank is a non trivial regulation as well, because
Speaker 10: now you have less relative value players in the market.
Speaker 10: You don't have hedge funds who were trying to clip
Speaker 10: a basis point and a half of relative value between
Speaker 10: off the run and on the run treasuries in the
Speaker 10: same size that you used to have because the leverage
Speaker 10: just isn't available as to prime brokers and the like
Speaker 10: not having the same balance get capacity.
Speaker 2: Over the weekend. For our listeners and viewers, they're going
Speaker 2: to look at their CD and say, why didn't I
Speaker 2: lock in with this move in the tenure? Will we
Speaker 2: see cash in America? Look for a new spot come Nday. Yeah.
Speaker 10: I suspect that people are turning out some of their
Speaker 10: shorter term assets and they will do that, you know,
Speaker 10: particularly I don't want to say the smart money, but
Speaker 10: away from retail investors. And that's one of the reasons
Speaker 10: something like two year notes are going to catch probably
Speaker 10: even a bigger bit than you've already seen, because you're
Speaker 10: going to have people saying, Okay, look I'll walk in
Speaker 10: three and a half percent now because because in the
Speaker 10: future I might not be able to get that in
Speaker 10: my money market. Right, So you wind up with with people,
Speaker 10: you know, terming out their debt now interestingly, at least
Speaker 10: in the near term, and from relative value, something like
Speaker 10: the five year sector might actually outperform because the market's
Speaker 10: going to keep on adjusting to where the terminal rate
Speaker 10: of the FED is going to be. And one of
Speaker 10: the things we've been harping on is the three and
Speaker 10: a half percent that persisted for the last four or
Speaker 10: five months we thought was actually too high. So that's
Speaker 10: one reason why we think that the front end is
Speaker 10: going to even do better than it has so far.
Speaker 4: So you mean to get one more quick one in here,
Speaker 4: Ira two ten's nine point four basis points negative nine
Speaker 4: point four. We are almost to positive territory. I mean,
Speaker 4: talk to us about the curve. What should we be
Speaker 4: looking for there?
Speaker 10: Yeah, so continued bull steepening in the curve. It won't
Speaker 10: be a straight line, right, We'll wind up getting a
Speaker 10: okay data report at some point, will probably bounce back
Speaker 10: and people take off those treets, but we'll continue to
Speaker 10: see that that that curve slowly uninvert.
Speaker 6: Again.
Speaker 10: This is like a leverage issue because right now, with
Speaker 10: since the FED hasn't actually cut interest rates yet, right now,
Speaker 10: those those curve trades are very negative carry. So you
Speaker 10: have to have high conviction to stay in the bull
Speaker 10: steepener right now. But I think you can have more
Speaker 10: and more conviction, and that will occur, particularly after the
Speaker 10: FED finally you know, makes its first cut and it
Speaker 10: looks like now in September's almost a shoe in Iira.
Speaker 2: Thank you so much, Ira Jersey, who will publish this
Speaker 2: afternoon and look at Bloomberg Intelligence for that a required
Speaker 2: read for a weekend Global Wall Street. We're thrilled to
Speaker 2: doctor Harris could join us this morning. Ethan, I slotted
Speaker 2: this in is a three hour conversation, and that got
Speaker 2: mixed by the hair household is well, how does a
Speaker 2: FED get out of this position? Do they wait for
Speaker 2: September twenty one? Do they job on it in speeches?
Speaker 2: What's the process you see with your study the history
Speaker 2: of the FED that they put in place to September
Speaker 2: twenty one?
Speaker 7: Well, I mean the FED has been very lucky for
Speaker 7: the last couple of years, and suddenly their luck has
Speaker 7: turned dramatically against them. They were ready to cut, and
Speaker 7: then inflation comes in in the high side and they go,
Speaker 7: oh wait a minute. Then they have a July FMC
Speaker 7: meeting before they see the jobs report, and jobs report
Speaker 7: comes in very weak, and so now in hindsight they
Speaker 7: probably wish they had cut at the July meeting, But
Speaker 7: going into that meeting, given beforecasts or payrolls, Nope, not
Speaker 7: going to do it. I think they have to start talking.
Speaker 7: It's very hard in August because most of these guys
Speaker 7: are out of vacation. I think my earlier had mentioned
Speaker 7: that the board seems to be all out in vaiation.
Speaker 7: But they need to start talking. They need to September's
Speaker 7: definitely happened, Ethan.
Speaker 2: I got to get one question in here because Damian
Speaker 2: Sassar you should see it, folks. I'm sitting in our
Speaker 2: radio studio here for those of you on radio, and
Speaker 2: sas hours literally writing his must read em economic and
Speaker 2: financial note here off of this jobs before, which is
Speaker 2: actually it's not a sausage gets made of Bloomberg Ethan Harris.
Speaker 2: I brought this up with Richard Clarta, Columbia Economics, and
Speaker 2: you know it's it's simple here. I see massive regret
Speaker 2: a version. We got comment of Taversky one oh one.
Speaker 2: They're really really concerned about making a mistake. Do you
Speaker 2: sense that? No?
Speaker 7: I think I Mike had said this earlier in response
Speaker 7: to the question that they certainly at this stage they
Speaker 7: think they're behind the curve, but given the infra at hand, no,
Speaker 7: I mean, you had we let's kind of forget the
Speaker 7: first four months of this year. You had terrible inflation data.
Speaker 7: It wasn't just a little high, it was running at
Speaker 7: double the rate they wanted to see, and so it
Speaker 7: put a big you know, it really put a whole
Speaker 7: halt on the whole idea of rate cuts. Now they've
Speaker 7: gotten the script has flipped very fast. So yeah, I
Speaker 7: do think that they worry about the credibility of the FED.
Speaker 7: We know that in the nineteen seventies the FED made
Speaker 7: massive mistakes around inflation. We know that this FED started
Speaker 7: to hike too late in twenty twenty two and had
Speaker 7: to catch up. So yeah, there's a little bit of
Speaker 7: that legacy. You don't want to be remembered as Arthur,
Speaker 7: want to be remembered as Paul Volker. But you know,
Speaker 7: within the scheme of things, they're a little behind the curve.
Speaker 7: De'll catch up. I'm confident that.
Speaker 2: Ethan Harris, with his folks of course, Leman in the
Speaker 2: Bank of America for years, actively out on LinkedIn, can't
Speaker 2: say enough about that. Damien to doctor.
Speaker 4: Harris, Doctor Harris, I was reading your note from earlier
Speaker 4: this week titled slow and Steady wins the Race, and
Speaker 4: I mentioned earlier I'm a big guns and rosens fan.
Speaker 4: I love the song Patients. But yeah, Neil dudda talking
Speaker 4: about fifty basis points in September, and you're saying the
Speaker 4: Fed's behind the curve here, is there a chance that
Speaker 4: the market start pricing that in more confidently.
Speaker 7: Well they have, you know, by the way, Neil and
Speaker 7: I worked together for quite a while. He's a good
Speaker 7: friend of mine, and I think this is a good,
Speaker 7: healthy debate. I think I was wrong. I think with
Speaker 7: this job's number to me was a bit of a
Speaker 7: kind of hit me pretty hard looking. It's looking on
Speaker 7: like things are weakening fast and you'd like to see
Speaker 7: and it's the payroll number that I'm most worried about it.
Speaker 7: It's just started to look shaky when they go fifty. Well,
Speaker 7: the market's now pricing in about a seventy percent chance
Speaker 7: of a fifty basis point move at the September meeting.
Speaker 7: That's a really high probability. You really have to believe
Speaker 7: the economy is heading into a recession to get the
Speaker 7: kind of cuts that are priced into the market now.
Speaker 7: Now I think the risk of recessions rising, and that
Speaker 7: that slow but steady story's getting is losing its its validity.
Speaker 7: But to go fifty in September, we're going to have
Speaker 7: to see an even worse jobs report and continued soft
Speaker 7: inflation readings. So I think the market's overreacted. It's pricing
Speaker 7: in FED going at every meeting, including this fifty basis
Speaker 7: point kickoff.
Speaker 2: Cut it.
Speaker 7: It's just a it's you know, the buond market overreacts,
Speaker 7: and today I think is an overreaction.
Speaker 6: Tom.
Speaker 4: You noticed how doctor Harris remembers working with Neil Doab.
Speaker 4: He doesn't remember working with me at Lehman Brothers back
Speaker 4: in the early two thousands.
Speaker 6: Thanks about that. Thanks for that, doctor Harris. You know,
Speaker 6: I mean trying to forget but.
Speaker 2: His bonus in February one year and a half.
Speaker 4: I mean, come on, did that doctor Harris talked with?
Speaker 4: I mean, there's a lot of ambiguity here about where
Speaker 4: US treasure yields are headed next, obviously, but when the
Speaker 4: consensus seems to be that we're gonna have a steeper
Speaker 4: curve certainly two tens. What are your thoughts here? Curve
Speaker 4: is now at what negative nine basis points? I mean,
Speaker 4: are we going to get there sooner rather than later?
Speaker 7: I think over time the curve house is steeping. I
Speaker 7: mean the the the risk premium priced into the bomb
Speaker 7: market is crazy low. The bomb market's pricing again, no
Speaker 7: risk of inflation going forward, no term premium. You know,
Speaker 7: it's just it's just a matter of when.
Speaker 1: Now.
Speaker 7: Of course the Fed. When the Fed starts cutting, it
Speaker 7: helps steep in the curve. But there's a more long
Speaker 7: run story here, which is just that the curve doesn't
Speaker 7: make any sense.
Speaker 2: I meanthan they're coming out of the woodwork. Not only
Speaker 2: is Neil Duddy email again, Robert Sink is emailing and
Speaker 2: he's even more retired than Ethan Harris.
Speaker 7: Bob sin should be more required than me.
Speaker 2: Bob Cinch really makes the important observation Anawong that we
Speaker 2: got birth death issues and let me let me quote
Speaker 2: exactly Robert Sinch. There is a residual seasonal adjustment problem.
Speaker 2: Ethan Harris, Are we going to have all this data
Speaker 2: amendous down as Anawong says, thirty thousand non farm payroll?
Speaker 7: Yeah, I think that the estimates of modest kind of
Speaker 7: continued revisions where they go back and look at whether
Speaker 7: they're counting workers right and taking into account pers and
Speaker 7: deaths of companies, there'll probably be some downward revisions but
Speaker 7: the question is are they going to justify a recession call,
Speaker 7: and that's that's a long way. I mean, we've been
Speaker 7: getting payroll numbers of two hundred thousand plus. I don't
Speaker 7: think you're going to revise that away, but they could slice,
Speaker 7: you know, some tens of thousand is off of these numbers,
Speaker 7: and it may we may find out, with the benefit
Speaker 7: of hindsight that the economy has slowed a lot more
Speaker 7: than we thought. Certainly that's what the unemployment rates saying,
Speaker 7: it's been going steadily up. Some of that may be
Speaker 7: because the market is a lot weaker than we think,
Speaker 7: and some of it's because of labor coming back. But yeah,
Speaker 7: I think there'll be some downward revisions and historial show
Speaker 7: this was a period that we thought.
Speaker 2: Ethan Harris, my people will be in touch with your people.
Speaker 2: We're pulling you out of retirement. We're looking for a
Speaker 2: weekly slot. Ethan Harris, author of Bernanke's Fed. We're waiting
Speaker 2: for Jeromes Fed, Probel's Fed as well. But Ethan Harris
Speaker 2: there of course with the Bank of America years ago.
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