1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:38,280 Speaker 2: Terminal and the Bloomberg Business App. Ohmar Aguila schwarmasset Management 10 00:00:38,320 --> 00:00:42,040 Speaker 2: CEO and CIO writing. Economic uncertainty is still high, So 11 00:00:42,120 --> 00:00:46,080 Speaker 2: think long term, stay disciplined, stay invested, and stay diversified. 12 00:00:46,240 --> 00:00:48,959 Speaker 2: No need to be a hero. Omar joins us now 13 00:00:48,960 --> 00:00:51,680 Speaker 2: for more. Omar, Welcome to the program, sir. Let's talk 14 00:00:51,720 --> 00:00:54,600 Speaker 2: about that economic uncertainty. How are you getting a clean 15 00:00:54,680 --> 00:00:56,680 Speaker 2: read on the economy in America? 16 00:00:58,000 --> 00:01:01,120 Speaker 3: Well, you know the big part of of the trade 17 00:01:01,160 --> 00:01:06,520 Speaker 3: offs right now between inflation, unemployment, economic deceleration and overall, 18 00:01:06,800 --> 00:01:09,959 Speaker 3: you know, the path that we're seem to be going here, 19 00:01:10,280 --> 00:01:14,280 Speaker 3: it is unclear how the consumers are actually driving you know, 20 00:01:14,319 --> 00:01:18,920 Speaker 3: the majority of economic growth we have seen so far 21 00:01:19,080 --> 00:01:23,320 Speaker 3: this case shape economy, where the top end of earners 22 00:01:23,440 --> 00:01:26,880 Speaker 3: continue to drive GDP growth, and the wealth affact coming 23 00:01:26,920 --> 00:01:30,399 Speaker 3: from equity markets, coming from housing, coming from anything else 24 00:01:30,440 --> 00:01:34,840 Speaker 3: seem to be very consistently supporting economic growth, where the 25 00:01:35,000 --> 00:01:39,080 Speaker 3: other part of the economy, the ower income consumers, seems 26 00:01:39,120 --> 00:01:42,000 Speaker 3: to be you know, suffering from you know, the pressures 27 00:01:42,040 --> 00:01:45,520 Speaker 3: on inflation, the increasing prices. So that sort of case 28 00:01:45,560 --> 00:01:48,120 Speaker 3: shape economy seems to be the one driving a lot 29 00:01:48,160 --> 00:01:51,040 Speaker 3: of these economic concernity and the trend seems to pointing 30 00:01:51,080 --> 00:01:52,320 Speaker 3: out towards deceleration. 31 00:01:52,960 --> 00:01:55,240 Speaker 1: No need to be a hero. I keep thinking about that. 32 00:01:55,440 --> 00:01:59,040 Speaker 1: The implication is focus on quality. As you say, what 33 00:01:59,080 --> 00:02:02,040 Speaker 1: does quality mean? How is the idea of quality changing 34 00:02:02,520 --> 00:02:06,440 Speaker 1: given the backdrop potentially of inflation, the backdrop given of 35 00:02:06,840 --> 00:02:10,400 Speaker 1: slow growth with this sort of persistent price pressure. 36 00:02:12,040 --> 00:02:15,519 Speaker 3: Yeah, the big part here, Lisa, is that we have 37 00:02:15,840 --> 00:02:19,519 Speaker 3: these forces that are sort of going at each other. 38 00:02:19,960 --> 00:02:22,760 Speaker 3: You know, inflation seems to be very sticky and stubborn. 39 00:02:23,480 --> 00:02:27,600 Speaker 3: We see in the economic value and the unemployment being 40 00:02:27,639 --> 00:02:31,120 Speaker 3: in these no higher, no fire situation. We see wage 41 00:02:31,160 --> 00:02:34,240 Speaker 3: growth still ticking up a little bit putting pressure on 42 00:02:34,280 --> 00:02:37,200 Speaker 3: inflation and something at some point is probably have to 43 00:02:37,240 --> 00:02:41,200 Speaker 3: give up. What that means is that in certain way 44 00:02:41,280 --> 00:02:47,200 Speaker 3: that deceleration supports stronger balance sheets, supports discipline in management, 45 00:02:48,760 --> 00:02:53,400 Speaker 3: supports capital expenditures, supports areas that define the quality of 46 00:02:53,440 --> 00:02:57,440 Speaker 3: a company. Where Corporate America is using all the potential 47 00:02:57,480 --> 00:03:00,400 Speaker 3: tailwinds coming from the economy to be able to manage 48 00:03:00,440 --> 00:03:02,800 Speaker 3: their business in a way that is consistent with what 49 00:03:02,880 --> 00:03:05,440 Speaker 3: the consumers expect, but at the same time have the 50 00:03:05,480 --> 00:03:09,160 Speaker 3: potential for a sustainable and that's the definition of quality, 51 00:03:09,360 --> 00:03:13,239 Speaker 3: sustainable earnings growth. When you put that into context, that's 52 00:03:13,280 --> 00:03:16,440 Speaker 3: what we refers to say, look for those companies that 53 00:03:16,560 --> 00:03:20,119 Speaker 3: allows you to stay invested, that continues to have strengthened 54 00:03:20,120 --> 00:03:22,440 Speaker 3: the balance sheets, and that will be stronger even if 55 00:03:22,480 --> 00:03:25,360 Speaker 3: the economy decelerates. So that's a big part of what 56 00:03:25,400 --> 00:03:27,360 Speaker 3: we have on both on fixed income as well as 57 00:03:27,440 --> 00:03:28,040 Speaker 3: on equities. 58 00:03:28,120 --> 00:03:33,160 Speaker 1: Can you find more quality, more reliability in corporations versus 59 00:03:33,240 --> 00:03:34,280 Speaker 1: governments right now? 60 00:03:35,880 --> 00:03:38,520 Speaker 3: You know, corporations have been very disciplined over the entire 61 00:03:38,560 --> 00:03:41,080 Speaker 3: period since the pandemic, and if you actually look at 62 00:03:41,120 --> 00:03:43,120 Speaker 3: a big part of the driver, you can see it 63 00:03:43,120 --> 00:03:46,040 Speaker 3: in the credit market. The credit spreads have been incredibly tight, 64 00:03:46,160 --> 00:03:49,040 Speaker 3: and most importantly, not only the level, but if you 65 00:03:49,200 --> 00:03:52,000 Speaker 3: actually see the level of volatility of the credit market, 66 00:03:52,160 --> 00:03:55,000 Speaker 3: is actually very surprising to just see that, even though 67 00:03:55,000 --> 00:03:58,160 Speaker 3: we have seen all kinds of uncertainty coming from headlines 68 00:03:58,200 --> 00:04:02,200 Speaker 3: and everything else, we see this incredibly you know, well 69 00:04:02,240 --> 00:04:05,920 Speaker 3: positioned for for quiet quality companies. What leverage has not 70 00:04:06,040 --> 00:04:08,840 Speaker 3: been high, you know, obvious lead their companies that have 71 00:04:09,000 --> 00:04:11,200 Speaker 3: done it and that have been in the process of 72 00:04:11,240 --> 00:04:15,640 Speaker 3: potentially you know, disappointing in terms of their future, but 73 00:04:15,800 --> 00:04:18,880 Speaker 3: overall that quality is being very faired in credit. When 74 00:04:18,920 --> 00:04:22,520 Speaker 3: you think about governments, deficits have ballooned, and you actually 75 00:04:22,520 --> 00:04:24,480 Speaker 3: see what's going on in the UK, what's going on 76 00:04:24,560 --> 00:04:27,520 Speaker 3: in the United States. You know clearly you know, a 77 00:04:27,520 --> 00:04:30,400 Speaker 3: little a little bit of that defense expending as well 78 00:04:30,440 --> 00:04:33,760 Speaker 3: as capital expenditures that has been positive for the economy. 79 00:04:33,920 --> 00:04:36,279 Speaker 3: It obviously puts a little bit more pressure on the 80 00:04:36,400 --> 00:04:39,120 Speaker 3: long part of the fixed income curve. You can actually 81 00:04:39,200 --> 00:04:41,680 Speaker 3: see just that level of volatility and that we see 82 00:04:41,800 --> 00:04:44,040 Speaker 3: in the in the long end of the of the 83 00:04:44,160 --> 00:04:45,160 Speaker 3: of the Yale curve. 84 00:04:45,360 --> 00:04:47,159 Speaker 4: This is why it's so challenging when you look at 85 00:04:47,200 --> 00:04:48,880 Speaker 4: what the Supreme Court has in front of them. This 86 00:04:48,920 --> 00:04:52,040 Speaker 4: could actually impact potentially what bonds do, given the fact 87 00:04:52,040 --> 00:04:54,760 Speaker 4: that trillions of dollars coming to United States from terrorists 88 00:04:54,839 --> 00:04:57,880 Speaker 4: is supposed to be depleting the deficit. Omar, if we 89 00:04:57,880 --> 00:05:00,760 Speaker 4: were to see the Supreme Court strike down what is 90 00:05:00,800 --> 00:05:02,920 Speaker 4: going on with AIPA and the President United States, what 91 00:05:02,920 --> 00:05:04,440 Speaker 4: would that mean for the bond market. 92 00:05:05,680 --> 00:05:10,000 Speaker 3: Well, first of all, the things that are actually very clear. 93 00:05:10,080 --> 00:05:13,240 Speaker 3: The trend for the Yeald curve is too steeper. I 94 00:05:13,240 --> 00:05:17,039 Speaker 3: think we are convinced, you know, in our research that 95 00:05:17,279 --> 00:05:20,680 Speaker 3: you know, overall, the uncertainty and the long end long 96 00:05:20,839 --> 00:05:23,120 Speaker 3: end of the yeal curve you know, will continue. We 97 00:05:23,160 --> 00:05:25,520 Speaker 3: see that even just in the last twenty four hours 98 00:05:25,680 --> 00:05:28,440 Speaker 3: where we see volatility on the third year you know 99 00:05:28,560 --> 00:05:31,680 Speaker 3: yield on bonds you know, being you know, quite dramatic. 100 00:05:32,240 --> 00:05:35,200 Speaker 3: A lot of that is because a inflation expectations, but 101 00:05:35,240 --> 00:05:37,360 Speaker 3: two it's also you know, what will be the long 102 00:05:37,480 --> 00:05:40,520 Speaker 3: term you know views in terms of the deficit regarding 103 00:05:40,839 --> 00:05:44,160 Speaker 3: you know, to the setup that may happen within certain entireists. 104 00:05:44,200 --> 00:05:47,279 Speaker 3: It's kind of interesting to see that uncertainty tireiffs you know, 105 00:05:47,360 --> 00:05:50,000 Speaker 3: started by affecting sort of the short part of the 106 00:05:50,080 --> 00:05:52,719 Speaker 3: Yeald curve and now has been pushed towards towards the 107 00:05:52,760 --> 00:05:55,120 Speaker 3: long end of the curve precisely for what would you 108 00:05:55,240 --> 00:05:58,120 Speaker 3: just describe which is a big part of why, you know, 109 00:05:58,240 --> 00:06:01,000 Speaker 3: the the the middle of the curve seems to be 110 00:06:01,040 --> 00:06:04,520 Speaker 3: the one that has been the most stable, and even 111 00:06:04,560 --> 00:06:06,880 Speaker 3: with the yield curve you know, starts to steepend, you 112 00:06:06,920 --> 00:06:10,000 Speaker 3: can actually still see some stability in that area. 113 00:06:11,040 --> 00:06:14,520 Speaker 2: Stay with US multil Index savanas coming up off to this, 114 00:06:23,800 --> 00:06:26,480 Speaker 2: joining us Nasmonic Aguerra of Molch and Stanley to discuss 115 00:06:26,520 --> 00:06:28,800 Speaker 2: some of this Just how much deficit risk is in 116 00:06:28,839 --> 00:06:31,080 Speaker 2: play with this core decision. 117 00:06:31,320 --> 00:06:35,440 Speaker 5: A significant amount. You know, the OBVA added four point 118 00:06:35,440 --> 00:06:37,760 Speaker 5: five trillion to the to the deficit and the last 119 00:06:37,800 --> 00:06:40,559 Speaker 5: you know estimate that they gave when they modeled things out. 120 00:06:41,080 --> 00:06:43,600 Speaker 5: When we're thinking about this revenue, we're looking at about 121 00:06:43,640 --> 00:06:47,920 Speaker 5: you know, twenty billion plus a month. That's a huge shift. 122 00:06:47,920 --> 00:06:51,120 Speaker 5: It was five billion prior monthly. So again there's a 123 00:06:51,160 --> 00:06:53,520 Speaker 5: lot at risk here when you're looking at that two 124 00:06:53,640 --> 00:06:56,880 Speaker 5: to three trillion dollars range of revenue that they're expecting. 125 00:06:57,200 --> 00:06:59,359 Speaker 5: That's enough to really offset a lot of those budget 126 00:06:59,360 --> 00:07:01,400 Speaker 5: hawk concerns right especially around the deficit. 127 00:07:01,520 --> 00:07:04,720 Speaker 1: And this is one reason why Marcus haven't freaked out 128 00:07:04,839 --> 00:07:07,440 Speaker 1: at some of the budget deficit concerns. There is a 129 00:07:07,520 --> 00:07:10,040 Speaker 1: question of why there hasn't been more of a response 130 00:07:10,080 --> 00:07:11,640 Speaker 1: in the long end of the yield curve to this 131 00:07:11,760 --> 00:07:15,200 Speaker 1: court ruling. And some people argue, well, that revenue will 132 00:07:15,240 --> 00:07:17,400 Speaker 1: keep coming in regardless one way or another. Do you 133 00:07:17,440 --> 00:07:18,120 Speaker 1: agree with that. 134 00:07:18,640 --> 00:07:20,760 Speaker 5: Yeah, So it's our base case that even if the 135 00:07:20,800 --> 00:07:23,440 Speaker 5: Supreme Court does rule against Trump, that, you know, if 136 00:07:23,480 --> 00:07:25,840 Speaker 5: there's a will, there's a way, And we've seen that 137 00:07:25,960 --> 00:07:30,239 Speaker 5: not just through them exploring other options of loving tariffs 138 00:07:30,240 --> 00:07:32,720 Speaker 5: through different federal agencies, but also through different you know, 139 00:07:32,840 --> 00:07:35,240 Speaker 5: sections of tarifflaw. You know section two thirty two, Section 140 00:07:35,320 --> 00:07:38,119 Speaker 5: three oh one. There's a ton there's a whole list. 141 00:07:38,680 --> 00:07:41,240 Speaker 5: We recently published a report where we really get into 142 00:07:41,240 --> 00:07:43,640 Speaker 5: the details on each one, the timeframes, how it works, 143 00:07:43,800 --> 00:07:46,480 Speaker 5: and while some are limited, they can layer these and 144 00:07:46,640 --> 00:07:48,880 Speaker 5: there are some that are more long term. So there 145 00:07:48,920 --> 00:07:51,800 Speaker 5: are options out there, and I think that markets understand 146 00:07:51,840 --> 00:07:54,600 Speaker 5: that and that they're trying to look through any volatility 147 00:07:54,680 --> 00:07:55,680 Speaker 5: around the Supreme Court. 148 00:07:55,800 --> 00:07:59,000 Speaker 4: Direction of travel is clear they're going to find a 149 00:07:59,040 --> 00:08:01,760 Speaker 4: way to increased tariffs even if the Supreme Court does 150 00:08:01,800 --> 00:08:03,880 Speaker 4: strike this down. But do you think the Supreme Court 151 00:08:03,960 --> 00:08:06,320 Speaker 4: is that your base case? Will they uphold di Bote 152 00:08:06,320 --> 00:08:07,040 Speaker 4: they strike it down. 153 00:08:07,680 --> 00:08:09,920 Speaker 5: I'm not the expert on the Supreme Court, but what 154 00:08:09,960 --> 00:08:11,760 Speaker 5: I can say is I think that there is a 155 00:08:11,920 --> 00:08:15,520 Speaker 5: strong likelihood that they will rule in favor of the President, 156 00:08:16,080 --> 00:08:18,000 Speaker 5: and then if not, right, it's just how do we 157 00:08:18,040 --> 00:08:20,720 Speaker 5: get there? And we also have to remember that right now, 158 00:08:20,720 --> 00:08:22,960 Speaker 5: the terriffs are still in place, so it's not like 159 00:08:23,000 --> 00:08:27,400 Speaker 5: they've completely rolled off. We're still collecting revenues right as 160 00:08:27,440 --> 00:08:29,680 Speaker 5: we go along. And even if we do end up 161 00:08:29,680 --> 00:08:34,280 Speaker 5: with a patchwork and say you get ten billion a month, 162 00:08:34,320 --> 00:08:36,560 Speaker 5: that's still double what we were receiving before, and that 163 00:08:36,679 --> 00:08:38,000 Speaker 5: is a help towards that deficit. 164 00:08:38,120 --> 00:08:40,040 Speaker 4: How messy is that unwind going to be? 165 00:08:40,120 --> 00:08:40,360 Speaker 2: Though? 166 00:08:40,640 --> 00:08:43,120 Speaker 4: If they were half, if they were going to have 167 00:08:43,160 --> 00:08:45,520 Speaker 4: to potentially give back some of those funds, I mean, 168 00:08:45,559 --> 00:08:47,520 Speaker 4: it would be it would be messy. 169 00:08:47,559 --> 00:08:50,720 Speaker 5: You know, if you're thinking about even negotiations with the EU. 170 00:08:50,960 --> 00:08:53,280 Speaker 5: You know they're trying to proceed proceed as you know, 171 00:08:53,360 --> 00:08:56,560 Speaker 5: business as usual, but they're being very cognizant that some 172 00:08:56,600 --> 00:08:59,120 Speaker 5: of these things may have to be unwound if things 173 00:08:59,200 --> 00:09:03,120 Speaker 5: are unstable. Now, what's interesting is that when other foreign 174 00:09:04,000 --> 00:09:06,520 Speaker 5: entities have been asked in the recent days, you know, 175 00:09:06,800 --> 00:09:10,079 Speaker 5: how are you approaching this, they're still continuing negotiations as 176 00:09:10,120 --> 00:09:12,480 Speaker 5: if things are in play, and so we have to, 177 00:09:12,559 --> 00:09:14,400 Speaker 5: you know, keep that in mind that there's a strong 178 00:09:14,480 --> 00:09:17,040 Speaker 5: belief that tariffs are coming one way or the other. 179 00:09:17,280 --> 00:09:20,120 Speaker 1: So this sounds very technical, but I have been getting 180 00:09:20,559 --> 00:09:23,640 Speaker 1: a little bit overly technical recently. The stay from the 181 00:09:23,679 --> 00:09:26,920 Speaker 1: court only goes to October fourteenth. To keep these tariffs on, 182 00:09:27,559 --> 00:09:30,400 Speaker 1: the Supreme Court has to decide to take this up 183 00:09:30,760 --> 00:09:34,600 Speaker 1: and then rule on it, and that stay expires. What 184 00:09:34,800 --> 00:09:38,080 Speaker 1: happens then, I mean, can't companies go to the government 185 00:09:38,120 --> 00:09:39,880 Speaker 1: and say, can you give me my money back because 186 00:09:40,000 --> 00:09:41,600 Speaker 1: I paid you a couple of billion dollars. 187 00:09:42,400 --> 00:09:45,360 Speaker 5: It's unclear to me if that's retroactive, right, so if 188 00:09:45,360 --> 00:09:48,160 Speaker 5: you're already paying you know, I'm not sure about the 189 00:09:48,160 --> 00:09:50,400 Speaker 5: logistics there. I doubt it is. I'm sure the money 190 00:09:50,440 --> 00:09:53,280 Speaker 5: that the government has collected will stay in the treasury 191 00:09:53,320 --> 00:09:56,920 Speaker 5: where it's safe and sound. I would say the biggest 192 00:09:56,960 --> 00:09:59,240 Speaker 5: concern for us from a markets lens, right, is that 193 00:09:59,280 --> 00:10:02,720 Speaker 5: if there's more polatility here, especially for businesses come October, 194 00:10:02,840 --> 00:10:05,120 Speaker 5: you know, are people going to hold cash on the sidelines? 195 00:10:05,280 --> 00:10:07,280 Speaker 5: Are they going to continue to wait on say, cap 196 00:10:07,360 --> 00:10:11,360 Speaker 5: box expenditures. What is the longer term economic impact right 197 00:10:11,400 --> 00:10:13,480 Speaker 5: from that VOLATILITYA. 198 00:10:13,679 --> 00:10:17,199 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. 199 00:10:26,240 --> 00:10:28,960 Speaker 2: Let's turn to the economy and to retailers may see 200 00:10:29,000 --> 00:10:31,760 Speaker 2: surging twenty percent in Wednesday's trading following an up be 201 00:10:31,920 --> 00:10:34,640 Speaker 2: forecast on the consumer. The retail team at Goldman Sex 202 00:10:34,679 --> 00:10:38,120 Speaker 2: writing quote, where there continues to be concerns around spending behavior, 203 00:10:38,160 --> 00:10:41,640 Speaker 2: we remain cautiously optimistic going into twenty twenty six. Joining 204 00:10:41,720 --> 00:10:44,240 Speaker 2: us now from the Goldman sax Global Retailing Conference is 205 00:10:44,280 --> 00:10:48,040 Speaker 2: Goldman's leader Peril analyst Brooke roach Brook. Welcome to the program. 206 00:10:48,120 --> 00:10:51,360 Speaker 2: Let's just talk about this. So the retailers are talking 207 00:10:51,440 --> 00:10:53,880 Speaker 2: up a better story. The economic data is not so 208 00:10:54,000 --> 00:10:56,000 Speaker 2: great at the moment. What's the call from you and 209 00:10:56,040 --> 00:10:59,280 Speaker 2: the team? 210 00:10:59,360 --> 00:11:02,280 Speaker 6: Good morning and thank you. It's great to be with 211 00:11:02,320 --> 00:11:05,360 Speaker 6: you this morning from the Goldman Sachs Global Retailing Conference. 212 00:11:05,440 --> 00:11:08,280 Speaker 6: This is our thirty second annual conference and we're with 213 00:11:08,320 --> 00:11:12,480 Speaker 6: nearly eighty companies talking about strategy and what's happening in 214 00:11:12,480 --> 00:11:16,280 Speaker 6: the state of retail. Bottom line is that the consumer 215 00:11:16,440 --> 00:11:17,720 Speaker 6: remains resilient. 216 00:11:19,320 --> 00:11:21,640 Speaker 1: This is what we're hearing from a lot of different companies, 217 00:11:21,679 --> 00:11:23,720 Speaker 1: And yesterday I was there and I was speaking with 218 00:11:23,800 --> 00:11:28,000 Speaker 1: one CEO who said, it's sort of like a flat surface, 219 00:11:28,040 --> 00:11:28,840 Speaker 1: a hard surface. 220 00:11:28,960 --> 00:11:29,559 Speaker 2: Under the hood. 221 00:11:29,760 --> 00:11:31,880 Speaker 1: There's a lot going on and a lot of molecules 222 00:11:31,920 --> 00:11:33,440 Speaker 1: that are kind of battling each other, but it all 223 00:11:33,520 --> 00:11:35,760 Speaker 1: comes together to kind of a flat surface. What are 224 00:11:35,760 --> 00:11:37,720 Speaker 1: people looking at that could potentially break it to the 225 00:11:37,840 --> 00:11:41,880 Speaker 1: upside the sort of stealthy bull case that we keep 226 00:11:41,880 --> 00:11:42,520 Speaker 1: hearing about. 227 00:11:45,320 --> 00:11:48,160 Speaker 6: That's a very good question. I think overall, as we 228 00:11:48,200 --> 00:11:50,520 Speaker 6: put together all of the various inputs of what might 229 00:11:50,559 --> 00:11:53,960 Speaker 6: be driving consumer discretionary demand on a go forward basis, 230 00:11:54,280 --> 00:11:57,040 Speaker 6: we see a better outlook into twenty twenty six, with 231 00:11:57,120 --> 00:12:01,840 Speaker 6: discretionary cash flow modestly stronger across income quintiles, and with 232 00:12:01,920 --> 00:12:05,800 Speaker 6: some real opportunities for consumers to engage with great product 233 00:12:05,840 --> 00:12:09,319 Speaker 6: and great retailers. What we're seeing overall is that trends 234 00:12:09,360 --> 00:12:11,920 Speaker 6: have been better throughout the back to school season, and 235 00:12:12,040 --> 00:12:14,959 Speaker 6: this strong back to school season start is real is 236 00:12:15,040 --> 00:12:17,720 Speaker 6: much better than expected, and I think there is a 237 00:12:17,880 --> 00:12:21,520 Speaker 6: view from many retailers that there is some cautious optimism 238 00:12:21,559 --> 00:12:24,920 Speaker 6: that hopefully this will continue. But I think retailers are 239 00:12:25,040 --> 00:12:27,880 Speaker 6: very cognizant that there is a tougher com be head 240 00:12:28,120 --> 00:12:30,920 Speaker 6: and that there is some uncertainty on what the pricing 241 00:12:30,960 --> 00:12:34,120 Speaker 6: backdrop might mean and what that might mean for consumer engagement. 242 00:12:34,280 --> 00:12:37,280 Speaker 6: From a demand perspective, the good news is that we 243 00:12:37,400 --> 00:12:39,640 Speaker 6: haven't yet seen price less to see of demand and 244 00:12:39,760 --> 00:12:42,560 Speaker 6: back to school has been strong, so what could break it? 245 00:12:42,840 --> 00:12:45,480 Speaker 6: I think there's a lot of questions on what could 246 00:12:45,480 --> 00:12:48,520 Speaker 6: be the case for consumers in terms of their mood 247 00:12:48,880 --> 00:12:51,280 Speaker 6: or what might be happening, But we believe that the 248 00:12:51,320 --> 00:12:52,760 Speaker 6: outlook is fairly robust. 249 00:12:53,040 --> 00:12:55,120 Speaker 1: What you just said there is actually really important, the 250 00:12:55,200 --> 00:12:58,040 Speaker 1: idea that a lot of these retailers are increasing prices 251 00:12:58,080 --> 00:12:59,959 Speaker 1: and people are still buying. In other words, they say 252 00:13:00,200 --> 00:13:03,480 Speaker 1: have the power to increase prices and it's not destructing demand, 253 00:13:03,760 --> 00:13:06,080 Speaker 1: and you're seeing that pretty much across the board. They're 254 00:13:06,120 --> 00:13:09,200 Speaker 1: able to raise prices in select ways. Do they have 255 00:13:09,240 --> 00:13:11,280 Speaker 1: a sense of whether this is coming from wealthy individuals, 256 00:13:11,320 --> 00:13:13,800 Speaker 1: whether this is coming particularly from more luxury sectors, or 257 00:13:13,800 --> 00:13:16,600 Speaker 1: whether this is across the board through all the tiers 258 00:13:16,720 --> 00:13:17,880 Speaker 1: of different income levels. 259 00:13:20,920 --> 00:13:23,120 Speaker 6: I think at this point retailers are trying to do 260 00:13:23,200 --> 00:13:26,240 Speaker 6: their best to protect the consumer and to protect their businesses, 261 00:13:26,520 --> 00:13:30,760 Speaker 6: but they are seeing some cost increases overall. At this juncture, 262 00:13:30,840 --> 00:13:34,360 Speaker 6: we've only seen modest price increases across the board based 263 00:13:34,400 --> 00:13:37,160 Speaker 6: on what retailers are telling us, but there is some 264 00:13:37,400 --> 00:13:39,920 Speaker 6: question about what that price might look like into the 265 00:13:39,920 --> 00:13:42,280 Speaker 6: back half of the year as we think about that 266 00:13:43,679 --> 00:13:46,360 Speaker 6: the change so far, given that it has been modest 267 00:13:46,360 --> 00:13:48,960 Speaker 6: and it hasn't been broad based across the board as 268 00:13:49,120 --> 00:13:52,240 Speaker 6: far as what retailers are saying right now, consumers have 269 00:13:52,280 --> 00:13:55,360 Speaker 6: been able to absorb these price increases. They do have 270 00:13:55,480 --> 00:13:58,679 Speaker 6: higher discretionary cash flow in they do have a stronger 271 00:13:58,720 --> 00:14:01,960 Speaker 6: wallet right now, and so far, it does appear that 272 00:14:02,040 --> 00:14:03,840 Speaker 6: many retailers are looking to try it to do it 273 00:14:03,840 --> 00:14:06,480 Speaker 6: in a way that won't hurt the consumer, whether that 274 00:14:06,640 --> 00:14:10,240 Speaker 6: is a mixshift into different types of products or categories, 275 00:14:10,440 --> 00:14:11,439 Speaker 6: or otherwise. 276 00:14:11,440 --> 00:14:13,520 Speaker 2: Broke before you go. Can we lend some thoughts to 277 00:14:13,559 --> 00:14:15,839 Speaker 2: the idea that maybe the C suite I think is 278 00:14:15,880 --> 00:14:18,839 Speaker 2: struggling with this cultural moment in America as well. I'd 279 00:14:18,880 --> 00:14:20,880 Speaker 2: love your thoughts on this, And while you're hearing from 280 00:14:20,880 --> 00:14:23,880 Speaker 2: management teams, I'm thinking more recently of Cracker Barrel almost 281 00:14:23,920 --> 00:14:27,720 Speaker 2: blowing its south up American Eagle leaning into controversy and 282 00:14:27,760 --> 00:14:29,520 Speaker 2: it benefits them. The stock is up nice in the 283 00:14:29,520 --> 00:14:32,440 Speaker 2: pre market so far this morning. What's your understanding of 284 00:14:32,480 --> 00:14:34,800 Speaker 2: how the C suite is wrestling with this moment? 285 00:14:37,760 --> 00:14:40,520 Speaker 6: You know, I don't know about your specific examples that 286 00:14:40,560 --> 00:14:43,160 Speaker 6: you gave, but what I would say is that retailers 287 00:14:43,200 --> 00:14:46,560 Speaker 6: are focused on engaging with their core consumer. They're investing 288 00:14:46,600 --> 00:14:49,600 Speaker 6: more in marketing, They're looking to try and create better 289 00:14:49,760 --> 00:14:53,280 Speaker 6: products that will drive strong consumer demand, regardless of what 290 00:14:53,280 --> 00:14:55,720 Speaker 6: the macro backdrop looks like. And we're seeing more and 291 00:14:55,760 --> 00:14:58,120 Speaker 6: more retailers lean into that. And we heard that a 292 00:14:58,160 --> 00:15:02,600 Speaker 6: lot yesterday with various about marketing, consumer engagement, and great 293 00:15:02,680 --> 00:15:03,200 Speaker 6: new product. 294 00:15:05,080 --> 00:15:08,600 Speaker 2: Stay with us more Bloomberg Surveillance coming up after this. 295 00:15:17,760 --> 00:15:21,640 Speaker 2: Sibant is Chaffer of self Gen remaining slightly cautious, writing this, well, 296 00:15:21,680 --> 00:15:24,080 Speaker 2: the hope is for lower policy rates to stimulate the 297 00:15:24,080 --> 00:15:27,080 Speaker 2: mortgage market. That could bag fire. We could see a 298 00:15:27,120 --> 00:15:30,360 Speaker 2: repeat of last September when a fifty basis point rate 299 00:15:30,400 --> 00:15:34,480 Speaker 2: cut resulted in higher long end yields. Sibantra joins us 300 00:15:34,480 --> 00:15:36,600 Speaker 2: now for more savantric go morning, Good morning. Going to 301 00:15:36,600 --> 00:15:38,200 Speaker 2: pick up on the line of questioning that we finished 302 00:15:38,200 --> 00:15:41,600 Speaker 2: the last interview, Is this federal reserve cutting into strength? 303 00:15:42,440 --> 00:15:44,080 Speaker 7: It feels like it because if you look at a 304 00:15:44,120 --> 00:15:46,760 Speaker 7: lot of the data that's come in, economic surprises have 305 00:15:46,840 --> 00:15:49,760 Speaker 7: been to the positive side. You know, the growth momentum 306 00:15:49,800 --> 00:15:52,320 Speaker 7: into the second quarter is also on the positive side. 307 00:15:52,560 --> 00:15:55,840 Speaker 7: Inflation is high and sticky, the job market is Mike 308 00:15:55,920 --> 00:15:58,520 Speaker 7: McKee was pointing out there's no hirings, there's no firings. 309 00:15:58,640 --> 00:16:01,800 Speaker 7: It's in a state of stasis. So to me, it 310 00:16:01,880 --> 00:16:04,400 Speaker 7: feels like that, plus all of the fiscal stimulus that 311 00:16:04,440 --> 00:16:07,880 Speaker 7: could potentially come down the pike could be something that 312 00:16:08,200 --> 00:16:11,000 Speaker 7: could move the markets higher. So it feels to me 313 00:16:11,120 --> 00:16:13,120 Speaker 7: like some of these cuts that are priced into the 314 00:16:13,120 --> 00:16:17,440 Speaker 7: market are more preemptive than really something that's warranted. 315 00:16:17,680 --> 00:16:19,720 Speaker 1: Is this something that's tradable now or is this a 316 00:16:19,760 --> 00:16:22,240 Speaker 1: sort of warning shot ahead of what could be a 317 00:16:22,280 --> 00:16:23,760 Speaker 1: tumultuous couple of months. 318 00:16:24,000 --> 00:16:24,400 Speaker 2: I think so. 319 00:16:24,440 --> 00:16:26,400 Speaker 7: I mean, the market's pricing in nearly six cuts between 320 00:16:26,440 --> 00:16:29,680 Speaker 7: now and the end of next year. The markets, you know, 321 00:16:29,760 --> 00:16:32,720 Speaker 7: people are looking at a cut and maybe three cuts 322 00:16:32,760 --> 00:16:35,640 Speaker 7: this year. To me, it feels like if they cut 323 00:16:36,040 --> 00:16:38,320 Speaker 7: sooner and more aggressively, they won't be able to cut 324 00:16:38,320 --> 00:16:40,440 Speaker 7: as much next year. So the neutral rate is going 325 00:16:40,520 --> 00:16:42,480 Speaker 7: to have to be a lot higher given the fact 326 00:16:42,520 --> 00:16:44,800 Speaker 7: that inflation is still high and stick into the risk 327 00:16:44,880 --> 00:16:47,960 Speaker 7: is that you could see a reacceleration of inflationary pressure. 328 00:16:48,080 --> 00:16:50,960 Speaker 7: So the market to me feels like it's overpricing cuts 329 00:16:51,000 --> 00:16:51,920 Speaker 7: between now and the end of. 330 00:16:51,880 --> 00:16:54,880 Speaker 1: Next year, even with the political impetus, right, I mean, 331 00:16:54,920 --> 00:16:57,320 Speaker 1: how do you sort of overlay any kind of political 332 00:16:57,320 --> 00:17:00,560 Speaker 1: interference with this given that right now this is a 333 00:17:00,600 --> 00:17:03,600 Speaker 1: FED that has a dubbish bias and may have an 334 00:17:03,600 --> 00:17:05,760 Speaker 1: even more dubbish bias by the time we get around 335 00:17:05,800 --> 00:17:06,560 Speaker 1: to twenty twenty six. 336 00:17:06,680 --> 00:17:08,479 Speaker 7: So that's the part that's stricty, and I think that 337 00:17:08,480 --> 00:17:10,280 Speaker 7: that's part of the reason why the market's pricing in 338 00:17:10,320 --> 00:17:11,600 Speaker 7: six cuts by the end of next year. So the 339 00:17:11,600 --> 00:17:13,679 Speaker 7: market's really looking at what the FED could do as 340 00:17:13,720 --> 00:17:16,919 Speaker 7: opposed to what the FED should do. So to me, 341 00:17:17,000 --> 00:17:20,240 Speaker 7: it's very hard to really kind of separate the two aspects. 342 00:17:20,320 --> 00:17:23,160 Speaker 7: One is, if you have a very dubbish committee next 343 00:17:23,240 --> 00:17:25,840 Speaker 7: year that could really change the dynamics in the market. 344 00:17:26,000 --> 00:17:28,520 Speaker 7: But over the long run, that to me leads to 345 00:17:28,600 --> 00:17:31,320 Speaker 7: FED credibility. A lot of times we look at the 346 00:17:31,359 --> 00:17:35,159 Speaker 7: market and say that, you know, the bond market is 347 00:17:35,560 --> 00:17:38,080 Speaker 7: very complacent right now. Volatility is very very low, but 348 00:17:38,119 --> 00:17:40,399 Speaker 7: you could see a pretty significant set off in bonds. 349 00:17:40,520 --> 00:17:42,840 Speaker 7: Vonnie is in a very short amount of time if 350 00:17:43,240 --> 00:17:45,080 Speaker 7: there is a crisis of confidence, but. 351 00:17:45,040 --> 00:17:46,919 Speaker 4: There isn't right now. How much are you going to 352 00:17:46,920 --> 00:17:51,080 Speaker 4: be watching this Stephen Myern Senate confirmation hearing just to really, 353 00:17:51,160 --> 00:17:53,520 Speaker 4: as Terry Haynes put it, read the body language of 354 00:17:53,560 --> 00:17:55,439 Speaker 4: the Senate, which, at the end of the day, the 355 00:17:55,520 --> 00:17:58,000 Speaker 4: purview of the Fed does belong to Congress. 356 00:17:58,680 --> 00:18:01,160 Speaker 7: Yeah, I mean it is important. We will be paying 357 00:18:01,200 --> 00:18:04,880 Speaker 7: attention to what's he's saying, but it's really a committee 358 00:18:04,920 --> 00:18:07,240 Speaker 7: this decision as of now. It really depends on what 359 00:18:07,280 --> 00:18:09,800 Speaker 7: the composition of the committee is going to be next year, 360 00:18:10,280 --> 00:18:13,400 Speaker 7: who President Trump nominates to be the next FED chair. 361 00:18:13,880 --> 00:18:15,760 Speaker 7: So again there's a lot of uncertainty, but there's a 362 00:18:15,800 --> 00:18:18,959 Speaker 7: lot of complacency I think in the bond markets. You know, 363 00:18:19,119 --> 00:18:21,720 Speaker 7: just going back into the last say, you know, a 364 00:18:21,800 --> 00:18:26,280 Speaker 7: few years, we've seen many episodes when when bond years 365 00:18:26,320 --> 00:18:29,359 Speaker 7: arisen sharply. We saw, you know, one hundred hundred and fifty 366 00:18:29,320 --> 00:18:33,159 Speaker 7: basis points of bonniears rise after you know, August of 367 00:18:33,520 --> 00:18:36,480 Speaker 7: twenty twenty three, when you know the treasury issuance, you know, 368 00:18:36,520 --> 00:18:39,840 Speaker 7: coup punishment size has changed. We saw a pretty decent 369 00:18:39,880 --> 00:18:42,600 Speaker 7: sell off in bonds even last year when the FED 370 00:18:42,640 --> 00:18:45,560 Speaker 7: cut rates by fifty basis points. So, you know, to me, 371 00:18:45,680 --> 00:18:49,040 Speaker 7: it feels like there is just that feeling that everything 372 00:18:49,080 --> 00:18:51,840 Speaker 7: is going to be status quo when there's just a 373 00:18:51,880 --> 00:18:54,399 Speaker 7: lot of uncertainty coming down the pike, whether it be 374 00:18:54,400 --> 00:18:56,720 Speaker 7: FED independence, whether it be the trajectory for debt and 375 00:18:56,720 --> 00:19:00,080 Speaker 7: deficits not just in the US but also globally and 376 00:19:00,160 --> 00:19:04,119 Speaker 7: other kind of you know, extreme age factors like terrots 377 00:19:04,640 --> 00:19:07,399 Speaker 7: and that. Working through the legal system, I think you. 378 00:19:07,400 --> 00:19:09,359 Speaker 2: Build an incredible case. But what's been surprising for me 379 00:19:09,480 --> 00:19:12,280 Speaker 2: is just how stable the treasury market actually has been. Yes, 380 00:19:12,280 --> 00:19:15,320 Speaker 2: we've had stepning in America like we've had stepening in Europe, 381 00:19:15,440 --> 00:19:17,600 Speaker 2: but this step ning has been completely different. It's been 382 00:19:17,640 --> 00:19:20,040 Speaker 2: led by the front end. Tens and thirties have been 383 00:19:20,359 --> 00:19:24,360 Speaker 2: really resilient, really resilient relative to some of the chaos 384 00:19:24,359 --> 00:19:27,080 Speaker 2: in France, some of the chaos in the UK. What's 385 00:19:27,119 --> 00:19:30,040 Speaker 2: supporting the treasury market right now? Maybe that's an interesting 386 00:19:30,119 --> 00:19:32,520 Speaker 2: question to ask, what is supporting this? What is keeping 387 00:19:32,560 --> 00:19:35,359 Speaker 2: tens at four to twenty thirties away from five percent? 388 00:19:36,359 --> 00:19:39,560 Speaker 7: So I think that when you look at the composition 389 00:19:39,680 --> 00:19:42,120 Speaker 7: of where people can invest, I mean, clearly the front 390 00:19:42,240 --> 00:19:45,359 Speaker 7: end is speG defed expectations and market is pricing in 391 00:19:45,440 --> 00:19:47,400 Speaker 7: as I said, a lot of cuts over the next year, 392 00:19:47,440 --> 00:19:50,280 Speaker 7: in year and a half, and then when that trades 393 00:19:50,400 --> 00:19:52,800 Speaker 7: matched out, investors kind of move on to the belly 394 00:19:52,800 --> 00:19:55,720 Speaker 7: of the curve. And the belly is really where you've 395 00:19:55,760 --> 00:19:57,840 Speaker 7: seen a lot of the flows. I mean, the two 396 00:19:57,920 --> 00:20:01,119 Speaker 7: S five curve actually inverted a few times. You're seeing 397 00:20:01,119 --> 00:20:03,240 Speaker 7: a lot of demand for the five and tenure part 398 00:20:03,240 --> 00:20:05,879 Speaker 7: of the yell curve, and investors broad is speaking a 399 00:20:05,960 --> 00:20:09,520 Speaker 7: concern about putting money beyond that tenure sector because there's 400 00:20:09,520 --> 00:20:11,560 Speaker 7: a lot of volatility in the very long end, not 401 00:20:11,760 --> 00:20:14,280 Speaker 7: just from the debt and deficit trajectory for the US, 402 00:20:14,640 --> 00:20:17,760 Speaker 7: but also what's happening globally. You're looking at, you know, 403 00:20:17,920 --> 00:20:22,719 Speaker 7: the picture in Japan or you know the political you know, 404 00:20:22,840 --> 00:20:27,560 Speaker 7: unrest in France. That all argues for longer, higher long 405 00:20:27,640 --> 00:20:32,000 Speaker 7: end yields. So really the the center of gravity for 406 00:20:32,040 --> 00:20:33,880 Speaker 7: the treasure market seems to be the value of the curve. 407 00:20:34,040 --> 00:20:36,600 Speaker 2: So last year they dropped raised one hundred basis points. 408 00:20:36,800 --> 00:20:38,080 Speaker 2: It was a rose of the long end by one 409 00:20:38,160 --> 00:20:40,280 Speaker 2: hundred basis points. What are you actually looking for its 410 00:20:40,280 --> 00:20:42,040 Speaker 2: a year end? What kind of number. 411 00:20:43,240 --> 00:20:46,760 Speaker 7: You know? The To me, it feels like the tenure 412 00:20:46,840 --> 00:20:49,680 Speaker 7: yield is still going to stay between four and four 413 00:20:49,680 --> 00:20:52,080 Speaker 7: and a half percent. Yes, to me, the risk is 414 00:20:52,080 --> 00:20:54,680 Speaker 7: that we might actually start drifting towards four and a 415 00:20:54,720 --> 00:20:58,200 Speaker 7: half percent if the market starts to get concerned about 416 00:20:58,560 --> 00:21:01,879 Speaker 7: kind of the inflationary you know, impact of tariffs that 417 00:21:02,040 --> 00:21:05,000 Speaker 7: feeding through, or if there's any sort of concern over 418 00:21:05,480 --> 00:21:09,639 Speaker 7: fed credibility. But you know, the different sectors of the 419 00:21:09,720 --> 00:21:12,360 Speaker 7: yelcre are still going to remain ranged by where. I'm 420 00:21:12,400 --> 00:21:15,160 Speaker 7: really concerned about years getting unhinged. Just in the very 421 00:21:15,200 --> 00:21:17,480 Speaker 7: long end. I think thirty eight yelds could very easily 422 00:21:17,480 --> 00:21:19,560 Speaker 7: get to four to five twenty five. I mean, we 423 00:21:19,600 --> 00:21:23,080 Speaker 7: saw a lot of volatility in just this week in 424 00:21:23,119 --> 00:21:26,760 Speaker 7: the thirty year, so it's very conceivable that you start seeing, 425 00:21:27,119 --> 00:21:29,920 Speaker 7: you know, that sort of you know, concern play out 426 00:21:29,920 --> 00:21:31,040 Speaker 7: in the very long end of the YEO CRE. 427 00:21:31,840 --> 00:21:35,399 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 428 00:21:35,400 --> 00:21:38,480 Speaker 2: in markets, economics, an gio politics. You can watch the 429 00:21:38,520 --> 00:21:41,520 Speaker 2: show live on Bloomberg TV weekday mornings from six am 430 00:21:41,680 --> 00:21:44,840 Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, 431 00:21:45,080 --> 00:21:47,960 Speaker 2: Spotify or anywhere else you listen, and as always on 432 00:21:47,960 --> 00:21:50,440 Speaker 2: the Bloomberg Terminal and the Bloomberg Business app.