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Speaker 2: Edward, your Denny needs no introduction.
Speaker 3: He is clearly one of the most philosophical and acute
Speaker 3: bulls out there. He speaks of the Roaring twenties and
Speaker 3: has been dead and we're thrilled to doctor Yodnny could
Speaker 3: join us for an extended conversation this morning. John Murphy,
Speaker 3: the giant of technical analysis, and a guy named Ed
Speaker 3: Hymen all agree like you that you have to meld
Speaker 3: things together. Talk to our audience that has missed the
Speaker 3: Yard Denny bullmarket of how you use economics to have
Speaker 3: the confidence to invest.
Speaker 4: Well, I think, first and foremost, you have to start
Speaker 4: with the data. I think a lot of economists and
Speaker 4: strategists sometimes start out with the conclusion of how they
Speaker 4: think things would fold, and then look for the data
Speaker 4: that will support it, especially the economists who tend to
Speaker 4: be on the pessimistic side about the US economy.
Speaker 5: I think the important thing is to be observant.
Speaker 4: And I've observed over the past three years that we've
Speaker 4: had the most widely anticipated recession of all times that
Speaker 4: never happened.
Speaker 5: It was a no show.
Speaker 4: And I think even now people aren't. It's kind of
Speaker 4: like Rodney Dangerfield. They're not giving the economy enough respect.
Speaker 5: It's amazingly resientied.
Speaker 3: And that's what percentage of the audience doesn't know who
Speaker 3: Rodney danger Fields, Right, you're taking himself un He was
Speaker 3: in Caddyshack. Believe it that Jar Denny, the economist James Kimmel,
Speaker 3: Jimmy Kimmel was going after Lawrence Cuddle over at Fox
Speaker 3: Biz last night. You and I i'mber Larry Cuddler at
Speaker 3: Paarsterns years ago, emphasizing the nominal statistic. Tell us what
Speaker 3: you glean right now from nominal GDP the idea of
Speaker 3: our real growth plus a very volatile inflation overlay.
Speaker 4: Well, I think right now, you know, like when you
Speaker 4: go over to Grandma's house and it's a long drive
Speaker 4: and the kids are in the back asking are we
Speaker 4: there yet?
Speaker 5: I think we're there.
Speaker 4: In terms of the so called nirvana norm for the economy,
Speaker 4: the dual mandate has been accomplished. We've got the unemployment
Speaker 4: rate at four percent, we've got real GDP rising up
Speaker 4: around three percent, and we got the inflation rate not
Speaker 4: quite a two percent, but somewhere around two and a
Speaker 4: half to three percent. And so the Fed has accomplished
Speaker 4: what it wants to do, which leads me to conclude
Speaker 4: that there's really no reason for the Fed to lower
Speaker 4: interest rates anymore. Indeed, I don't really think that there
Speaker 4: was much reason for them to lowered by one hundred
Speaker 4: basis points. And my friend, the friends the bond Vigelian,
Speaker 4: you seem to agree with me, because the BONDI rows
Speaker 4: one hundred basis points is the FED lowered the FED
Speaker 4: funds rate by one hundred basis points.
Speaker 6: So, ed, we did get that a little bit hotter
Speaker 6: than expected CPI inflation data a couple of days ago.
Speaker 6: Did that alter your view of maybe how this FED
Speaker 6: should proceed?
Speaker 5: Yeah?
Speaker 4: Well, you know, the way sometimes the way I look
Speaker 4: at these numbers is when they support my story, they're good.
Speaker 4: When they don't support my story, they're bad, or they're
Speaker 4: going to be revised. And I don't know that the
Speaker 4: CPI is going to be revised. But I think there
Speaker 4: are some funky things that happen at the beginning of
Speaker 4: the year. A lot of companies raise their prices. I
Speaker 4: know the data seasonally adjusted, but I'm not troubled by
Speaker 4: the inflation outlook. I think the important issue is productivity
Speaker 4: and unit labor costs as a result of that, and
Speaker 4: the productivity outlook has been productivity has been strong. I
Speaker 4: think it's going to get stronger and that's going to
Speaker 4: keep a lid on inflation.
Speaker 6: So what what's your view just in terms of taking
Speaker 6: risk here, ed we think about stocks, bonds, alternatives, Where
Speaker 6: do you see opportunities here given that economic backdrop, given
Speaker 6: that fedback drop.
Speaker 4: Well, you know, we've been bullish on the stock market
Speaker 4: since October of twenty twenty two, and there are a
Speaker 4: lot of opportunities back then, and now things are obviously
Speaker 4: much more expensive. I think from here on, I think
Speaker 4: maybe it's more like I hope that the rally in
Speaker 4: stocks continues based on earnings rather than valuation. If it
Speaker 4: keeps going up on valuation, we're faced with sort of
Speaker 4: like a nineteen nineties model of the stock market melting
Speaker 4: up and then melting down.
Speaker 5: But you know, that could just be a buying opportunity.
Speaker 4: It doesn't have to be a long term bear market,
Speaker 4: and I don't think it would be.
Speaker 3: Off the yard any over twenty two and good morning
Speaker 3: to the great technician Ralphia and Campora, Ralpha and Kompora
Speaker 3: who said the same thing. Up twenty one percent annualized
Speaker 3: since the your Denny call of October of two thousand
Speaker 3: and twenty two.
Speaker 2: We're on YouTube.
Speaker 3: Subscribe to Bloomberg Podcast, growing each and every day, learning
Speaker 3: as much as I can about this digital madness. Good
Speaker 3: morning to all of you outside America on YouTube. Just
Speaker 3: humbled by the international reach A special good morning today
Speaker 3: to ninety two nine FM Paul.
Speaker 2: I got to do this right now.
Speaker 3: It is the tweet of the day, fred Lynn Red
Speaker 3: Sox saying that Bregman of the Houston Astros coming to
Speaker 3: the Red Sox reminds him of Rico Petrocelli.
Speaker 2: That's almost as important as the next question to Ed yard.
Speaker 6: Denning exactly so, Ed, we think about this equity market,
Speaker 6: and I guess that the FED is going to be
Speaker 6: more or less on the sidelines, maybe give us one
Speaker 6: or two cuts. Earnings have to be front and center. Yes,
Speaker 6: what's your view of this? Earning power of this market
Speaker 6: right here.
Speaker 5: I think the power is there.
Speaker 4: For the past three years, because we didn't think there
Speaker 4: would be an economy wide recession, we were among the
Speaker 4: highest forecasters for earnings, and indeed for this year, I
Speaker 4: think we're at the top with two hundred and eighty
Speaker 4: five dollars a share for the S and P five hundred,
Speaker 4: and then next year three hundred and twenty dollars a share,
Speaker 4: and then by twenty twenty nine four hundred dollars a year.
Speaker 4: So those kind of numbers at the current valuations can
Speaker 4: get us to seven thousand this year, eight thousand next
Speaker 4: year on the S and P five hundred and ten
Speaker 4: thousand by twenty twenty nine. So it's I think it's
Speaker 4: going to be earnings driven, and it's going to be
Speaker 4: a technology driven and productivity driven.
Speaker 3: And if we get a boom like that, and you're
Speaker 3: pretty lonely on that, I mean, the character of going
Speaker 3: out to twenty twenty seven, eight and nine is a
Speaker 3: lonely stance right now.
Speaker 2: A lot of people's long term is one year.
Speaker 3: And if we get this ed Yard Denny, do business
Speaker 3: practices get sloppy. I had a wonderful talk once with
Speaker 3: Robert crandall the giant of American airlines. Do people get
Speaker 3: goofy and misspend capex et cetera, et cetera as we
Speaker 3: go up the yard Denny Bull Market, Well, that's the
Speaker 3: beauty of American capitalism, right.
Speaker 4: There's a tremendous amount of money available for venture capital
Speaker 4: for startups, and it's kind of like throwing spaghetti on
Speaker 4: the wall. And I think a lot of these venture
Speaker 4: funds that's exactly what they do. They invest in a
Speaker 4: lot of these startups. They provide the capital they need
Speaker 4: to come up with their innovations, and some succeed, some fail.
Speaker 4: We always hear about the ones that succeed. We never
Speaker 4: hear about the ones that fail. But that's the nature of.
Speaker 5: You know, the the that's the nature of capitalism.
Speaker 3: Can tariffs, reciprocal tariffs trump economics can derail the Ardny
Speaker 3: Bull market?
Speaker 4: Well, you know a lot of people think so. But
Speaker 4: I'm very happy that they're using the word reciprocal rather
Speaker 4: than retaliatory. Retaliatory is what the Smooth Holly tariff was.
Speaker 4: In June of nineteen thirty, we raised our tariffs without
Speaker 4: any concerns about the impact in other countries and other
Speaker 4: countries retaliated, and we had a world depression. And then
Speaker 4: to get out of that, we passed the Congress passed
Speaker 4: the Reciprocal Tariff Act, which basically the basic theme of
Speaker 4: that was, please take this power out of our hands.
Speaker 4: We're too dangerous with tariffs. Let the president do it. Well,
Speaker 4: you know, the president's doing it again right now. And
Speaker 4: I think the fact that they're calling it reciprocal, and
Speaker 4: the President said it yesterday said look, we're just going
Speaker 4: to be fair and we're going to match their tariffs
Speaker 4: and if they want to talk about it to lower it,
Speaker 4: we'll do that. So I think this is all going
Speaker 4: to lead to lower tariffs, not higher tariffs, when all
Speaker 4: of a sudden.
Speaker 5: Done, and it could be pretty quick.
Speaker 4: I mean, you see how more leaders are coming to
Speaker 4: the White House to say, let's talk about these things
Speaker 4: before you slap them on.
Speaker 6: Yeah, let's switch gears a little bit to the fixed
Speaker 6: income space here. Where do you see opportunities? I mean,
Speaker 6: you know a lot of folks that can be pretty
Speaker 6: happy with a two year treasury at four point three percent.
Speaker 6: Is that kind of where they should be or should
Speaker 6: they take some credit risk?
Speaker 2: How do you think that fixed.
Speaker 4: That's yeah, that's our view is that the ten years
Speaker 4: should be four and a half percent plus minus twenty
Speaker 4: five basis points.
Speaker 5: As you mentioned.
Speaker 4: Before, that's normal and it's normal, and since it's where
Speaker 4: bond yields were before the Great Financial Crisis, before the
Speaker 4: Central Bank started to rig manipulate the bond yield and
Speaker 4: bring it close to zero, I think it's great that
Speaker 4: the US economy is demonstrated that it can live with
Speaker 4: these interest rates because they're fair. They're fair to investors
Speaker 4: who don't want to take a lot of risk and
Speaker 4: want to have something that's safe but getting a decent return.
Speaker 4: So I think the opportunity from the bond market they're
Speaker 4: probably in the corporate area, because corporations run their their
Speaker 4: finances better than the US government, as the Dose Committee
Speaker 4: has demonstrated.
Speaker 2: Edgiar Denny.
Speaker 3: Next week, folks, and this is anticipated around Robert Shiftman's schedule,
Speaker 3: we are going to have Robert Schiffman of Bloomberg Intelligence
Speaker 3: in for an extended conversation on the lack of debt
Speaker 3: of the mag seven I.
Speaker 2: Mean, Edgiar Denny. You know, forget about Madigliani and the rest.
Speaker 3: The bottom line here is there is ample room to
Speaker 3: use debt for whatever cap.
Speaker 2: X or to diminish equity.
Speaker 3: I mean, we can issue a lot of debt out
Speaker 3: there in this American juggernaut economy, can't we.
Speaker 4: Well, the US government certainly has done that, and everybody,
Speaker 4: including the bomb vigilantis, are hoping that the Doge boys
Speaker 4: are successful.
Speaker 7: Do I detect a new phrase from thernetty continue, Well,
Speaker 7: it's it's the shootout in Doge City, right, So I
Speaker 7: can play with this one for a while.
Speaker 4: But yeah, I think where there is a capacity to
Speaker 4: borrow more but there's no need to borrow more is
Speaker 4: in the household sector. In the business sector, it's the
Speaker 4: government that's on the wrong course. And if the government
Speaker 4: kind of gets rained in, that crowds out less private
Speaker 4: sector and investments. But look at the Magnificent seven. They
Speaker 4: don't have to borrow money. They just generate a tremendous
Speaker 4: amount of cash flow corporate cash Corporate cash flow is
Speaker 4: at an all time record high, and so companies are
Speaker 4: cash rich, and they are investing in technology.
Speaker 3: And this is a great way to start a Friday
Speaker 3: here into a weekend of a bull market. Edwards, your
Speaker 3: Denny of your Denny research. I can't say enough about it.
Speaker 3: We protect the copyright of all. I guess get is
Speaker 3: wonderful readable research at Yard Denny. I can't say enough
Speaker 3: about the value of that.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch US Live
Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
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Speaker 3: Jay Hatfield with US right now with the Infrastructure Capital Management,
Speaker 3: will go to Lisa for the retail report and then
Speaker 3: talk retail sales the state of the economy with mister Hatfield.
Speaker 2: I gotta go Jay to what you're looking at now.
Speaker 3: It's something Paul's alluded to because he keeps watching for
Speaker 3: West Texas Intermediate with a sixty nine print. We're not
Speaker 3: there yet, but nobody's modeling out not to be dramatic
Speaker 3: a collapse in hydrocarbons, but just the bid falls away.
Speaker 3: When and how does that happen?
Speaker 8: Well, I guess one point where we have superior data
Speaker 8: is that the notion that Trump is going to be
Speaker 8: able to get the US producer to produce dramatically more
Speaker 8: is probably incorrect. They continue to be focused on capital return,
Speaker 8: return on invested CAPITALI saw Chevron laying people off.
Speaker 2: More than that CUGE. We're just doing a huge.
Speaker 8: Reason, right, So it wasn't really surprisingly partly because they're
Speaker 8: just ineffective managers. Wasn't really constraining that Biden wasn't really
Speaker 8: constraining US production. Is constraining US exports of natural gas,
Speaker 8: but not oil. And we gather water in the Permian
Speaker 8: and our indication is not like they're not going to
Speaker 8: produce more. They're just going to follow their normal paths.
Speaker 8: So that's not really a good bear case for oil.
Speaker 8: But what we observe, and I think it's most people agree,
Speaker 8: is that this administration is tremendous influence with particularly the
Speaker 8: Saudi's given that they've sold arms they used to be
Speaker 8: supporting the war with the Huties, and Trump is good
Speaker 8: at using his influence. So we believe that even if
Speaker 8: there's very strong Uranian restrictions on production, or even Russian
Speaker 8: because they're trying to resolve the war, that if oil
Speaker 8: prices go to eighty then he would call literally call
Speaker 8: OPEC and say produce more. And we saw that actually
Speaker 8: happen during the pandemic, so we I mean, there's always
Speaker 8: a range with oil, because we could see sixty, which
Speaker 8: could see eighty, But we just made a simple and
Speaker 8: said seventy. We were at eighty, so we think it's
Speaker 8: capped and all. That's important too, because everybody wants to
Speaker 8: talk about the inflationary impacts of Trump policies, but nobody
Speaker 8: wants to talk about any of the deflationary effects. Last
Speaker 8: point is just the dollars ultra strong. That matters for
Speaker 8: a while, so these but it's a very one sided
Speaker 8: conversation about inflation in our opinion.
Speaker 6: All right, I don't want to stay on that topic.
Speaker 6: You have in your notes here which is very clear
Speaker 6: inflation is always caused by excessive money supply growth as
Speaker 6: occurred during the pandemic, and never by tariffs and deportation.
Speaker 6: Talk to us about that, because I think a lot
Speaker 6: of the concern about tariffs and about deportations is that
Speaker 6: they will effect be inflation.
Speaker 8: Well, the first thing that it's strange that nobody's really
Speaker 8: pointed out is it's almost like we had the perfect
Speaker 8: experiment to prove monetary theory. Seventy five percent increase in
Speaker 8: the money spy, which netted down to sixty thirty eight
Speaker 8: percent nominal GDP twenty two percent inflation. So it worked perfectly.
Speaker 8: So the excess monetary growth translated inflation basically got Biden fired.
Speaker 8: So thank you, Chair Powell. But that worked perfectly. But
Speaker 8: nobody seems to care like that. Milton Friedman, you know,
Speaker 8: would be dancing in the streets.
Speaker 2: Is Chair Paul going to get Trump fired? Yeh possibly? Yes?
Speaker 2: How what will be that problem?
Speaker 8: We have ultra tight monetary policy right now. The thing
Speaker 8: to look at is monetary supply. Money supplied growth. It's
Speaker 8: negative three so that implies deflation. In fact, we'll see
Speaker 8: about retail sales is a lagging indicator. But we think
Speaker 8: the economy is slowing.
Speaker 3: This morning with a blistering note on tightening off the
Speaker 3: Fed balance sheet as well.
Speaker 8: Right, so the key dynamics everybody debates is monetary policy tight.
Speaker 8: When you're shrinking that I supply three percent, that's extremely tight.
Speaker 3: Okay, let's do this, Cha Hatfield with us. We're going
Speaker 3: to come back. He's with infrastructure at Capital Management. We're
Speaker 3: going to stagger to retail sales report out of Friday
Speaker 3: with Valentine, one hundred and fourteen percent are work from
Speaker 3: home today future is a negative seven to features in
Speaker 3: negative one oh five. The vics fifteen point two three.
Speaker 3: Don't really know what to make of it all other
Speaker 3: than here we are with the yields where they are
Speaker 3: in retail sales matters. There's a number of lines of
Speaker 3: retail sales else in that control group is what I
Speaker 3: focus on.
Speaker 2: So let's look at that.
Speaker 9: And this is for January month over month retail sales.
Speaker 6: The survey was for.
Speaker 9: A decrease of two tens of percent. Came in a
Speaker 9: decrease of nine tenths of a percent. So you see
Speaker 9: the difference there. When you take autos and gas out
Speaker 9: of the picture, it goes down to about down a
Speaker 9: half a percent. And then we want to hit import
Speaker 9: prices because we've been talking about that so much with tariffs.
Speaker 9: The expectation was for an increase of four tens percent
Speaker 9: increase about three tenths of a percent. Now let's see
Speaker 9: the reaction on Wall Street, a little bit of a dip.
Speaker 9: We have NAZAC futures down to tenth of a percent,
Speaker 9: twenty six points down. Futures down now two tenths of
Speaker 9: a percent, s and P future still down about a
Speaker 9: tenth of a percent. Moving on to the bond space,
Speaker 9: we have the two year yield at four point two
Speaker 9: seven percent, that's off about three basis points. A ten
Speaker 9: year yield four point five zero percent, and that's down
Speaker 9: about two basis points.
Speaker 2: Tom, Lisa, thanks so much.
Speaker 3: Shield's come in, as Lisa mentioned, and the ten year
Speaker 3: really yield two point zero five percent is in a
Speaker 3: little bit nowhere near the ninety nine level. That's really
Speaker 3: my demarcation, but to four digits two point zero four
Speaker 3: seven zero and a ten year real yield dollars showing
Speaker 3: further weakness and dx y one O eight one oh
Speaker 3: seven now one oh six point seventy four, So sort
Speaker 3: of quiescent field.
Speaker 2: There, although the revisions went up. So it's sort of
Speaker 2: a soup to say.
Speaker 3: The least our economic indicators and all that Lisa Matteo
Speaker 3: does on economics, it's brought to you by Oppenheimer. Oppenheimer
Speaker 3: focuses the power of their thinking on you, creating customized
Speaker 3: plans to help achieve their goals. Put the power of
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Speaker 6: Paul so Jay looking at the retail sales again, weaker
Speaker 6: than expected. Here, talk to us about your.
Speaker 2: View of the FED here.
Speaker 6: I mean there's a concern that the FED is chronically
Speaker 6: behind the curve because they look at historical data helping
Speaker 6: of a problem is is that for you?
Speaker 8: That's an enormous problem the FED, Well, they really have
Speaker 8: three problems, but that's the biggest.
Speaker 2: Okay, so as.
Speaker 8: You know, because I was I believe leading to charge
Speaker 8: on this, but you and okay, so in early twenty one,
Speaker 8: because we of course do look at oil that matters,
Speaker 8: and we look at other indicators of housing costs like
Speaker 8: housing prices, but now we use just market rents. Because
Speaker 8: there's this thing called the Internet and you can see it.
Speaker 8: Maybe the BLS should start using that. But so the
Speaker 8: FED seems to know this, but then they're so slavishly
Speaker 8: focused on this two percent like it's some it came
Speaker 8: down in a tablet from God. But when you we
Speaker 8: actually publish on our website which they don't read that,
Speaker 8: if you adjust that to market, then core PC guys
Speaker 8: like two point one. In core CPI is like one
Speaker 8: point nine. So they should be really concerned about having
Speaker 8: ultra tight monetary policy and just continuing to cut it.
Speaker 8: Meeting I don't have to do an emergency cut. But
Speaker 8: they're completely off that page. They've driven the ten year
Speaker 8: up one hundred basis points and risked a recession in
Speaker 8: the housing market.
Speaker 3: When you were at you Kill Davis, did they teach
Speaker 3: the biblical fed they was said about tablets.
Speaker 2: Well, they actually did.
Speaker 8: And I think that's the big advantage because it was
Speaker 8: forty five short years ago, and monitorism used to be
Speaker 8: more popular now Keynesianism. You know, it's obviously most universities
Speaker 8: are liberal and if you're knsy and it's wonderful because
Speaker 8: all government spending is great. So I don't even hear
Speaker 8: any monitorisms.
Speaker 2: So what my monitorism is out of vogue? What is
Speaker 2: the part of monitorism that our listeners and viewers should
Speaker 2: pay attention to.
Speaker 8: Well, I've looked at the monetary base every week. That's
Speaker 8: a M. I learned that from you. Actually, I used
Speaker 8: to think it's better to call M zero or MO,
Speaker 8: so it comes out every weeks. That's an advantage over
Speaker 8: one M one. And if you just follow that indicator,
Speaker 8: you'll never miss a big cycle except the pandemic. Things
Speaker 8: like the pandemic. So in other words, you know, we
Speaker 8: were on saying, well it might spy went up seventy
Speaker 8: five percent. Do we need to be geniuses that that
Speaker 8: we're going to have inflation? Do we really think it's
Speaker 8: transitory or now or a better example, great financial crisis.
Speaker 8: We had zero percent monetary growth for four years before
Speaker 8: the economy blew up. Now we have three percent negative.
Speaker 8: So we would have said before as I guess I
Speaker 8: did that, Oh we think retail sales lags, but.
Speaker 2: We could be weak.
Speaker 8: Well, this is really weak negative point eight, and nobody
Speaker 8: cares about. The last GDP print was only two point three.
Speaker 2: We're going to get you.
Speaker 3: On before the next FED made in to talk about this.
Speaker 3: It's a thing from a different time and place.
Speaker 2: As well.
Speaker 3: On Monitorism, Jay Hatfield is with infrastructure and we thank
Speaker 3: him for the infracap as well.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday,
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Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: Now, let me explain why this is important.
Speaker 3: Lindsay Pigson was my Economist of the Year last year.
Speaker 3: There's other people that have got it right. Forget about disinflation.
Speaker 3: There's going to be a sticky inflation. L Aeran out
Speaker 3: front of this. Jim Bianco was out front of this,
Speaker 3: but no one wrote week after week after week intelligently
Speaker 3: about this, like doctor Pigs and she dark as the
Speaker 3: door of the studio.
Speaker 2: Today she is with STIFA Financial.
Speaker 3: Lindsey again, congratulations because the data that we saw this
Speaker 3: week clearly alludes.
Speaker 2: To your tone.
Speaker 3: And I got Richard Clarita in the ft saying disinflation
Speaker 3: tendency is placed Edward Yardenny into seven o'clock hours, Is
Speaker 3: a disinflationary tendency is in place? Is it's a disinflationary
Speaker 3: tendency in place?
Speaker 10: Well, the data doesn't seem to suggest that. The data
Speaker 10: suggests that we did have strong disinflation, but as of
Speaker 10: last year, that trend now remains increasingly uncertain, with many
Speaker 10: of these key metrics moving to the sideways, and more
Speaker 10: recently we've seen an acceleration right with the PPI the
Speaker 10: CPI accelerating for the past three four months, some of
Speaker 10: these underlying key metrics more than double the FEDS intended target.
Speaker 10: That doesn't give me more FED officials much confidence that
Speaker 10: we're going to reinstate that disinflation.
Speaker 3: Yeah, I saw audit insurance up eleven percent. You're in
Speaker 3: the wheelhouse of this. In the Midwest, there's a cottage
Speaker 3: industry Dallas, Chicago, Cleveland of taking the seventy eight things
Speaker 3: or whatever that make up inflation.
Speaker 2: I want to pick up this, I want to pick
Speaker 2: up that. I want to pick up this other thing
Speaker 2: as well.
Speaker 3: Our Paul and my viewers and listeners hate that because
Speaker 3: they're paying the bills.
Speaker 10: Correct.
Speaker 3: What are people feeling away from the contrived CPIS series, Well,
Speaker 3: if we.
Speaker 10: Look at this morning's retail sales numbers, we know exactly
Speaker 10: how consumers are feeling. Even if we parse out some
Speaker 10: of the weather effects or some of the effects from
Speaker 10: the fires that we saw in the recent times, what
Speaker 10: we're seeing is consumers responding to the ongoing burden of
Speaker 10: elevated prices, and that's forcing somewhat of a pullback in expenditures. Now, again,
Speaker 10: this isn't an end all. We have seen consumers spending
Speaker 10: at a relatively resilient, relatively robust pace, to be honest,
Speaker 10: for the past several months, but that burden of higher
Speaker 10: prices is forcing a slowdown in the pace of consumption
Speaker 10: for consumers, and that's going to be a big challenge
Speaker 10: for top line GDP. As we know, the consumer is
Speaker 10: the backbone to the economy.
Speaker 6: So if I'm of the Federal Reserve, do I stick
Speaker 6: with A I mean, you could argue this data suggest
Speaker 6: that maybe they should in fact be thinking about cutting rates,
Speaker 6: and maybe that whole discussion of maybe lifting rates that's
Speaker 6: completely off the table. How do you think the FED
Speaker 6: is going to interpret this retail SALESPAP.
Speaker 10: I think the Fed is looking at the data coupled
Speaker 10: with the hotter than expected reads on CPI and PPI
Speaker 10: saying we need to be firmly positioned on the sideline
Speaker 10: to allow the data to further evolve. Give us time
Speaker 10: to assess the data and assess the impact of the
Speaker 10: incoming fiscal policies that are coming down the pipeline. So
Speaker 10: the FED wants to take its time, be patient, and
Speaker 10: as Chair Paul has said, they are in no rush
Speaker 10: to move policy at this point. Remember they've already made
Speaker 10: a series of policy mistakes along the way. They relate
Speaker 10: to the inflation taming party on the front end. They
Speaker 10: didn't raise rates high enough on the back end. Now
Speaker 10: what we're stuck with is stubbornly elevated inflation and rising
Speaker 10: fears of potentially emerging weakness on the consumer side or
Speaker 10: in the labor market.
Speaker 3: And I'll let you pick six months, twelve months, whatever
Speaker 3: your duration is real GDP a nominal GDP and does
Speaker 3: that allow central Banker to the world, Donald Trump to
Speaker 3: get his low rate regime.
Speaker 2: I mean, where are you on real and nominal No.
Speaker 10: I think it's going to be very difficult for the
Speaker 10: administration to see a realized reduction in rates as they
Speaker 10: would like to see. Now that that's nothing against the current.
Speaker 2: Ministers buoyant, solid real GDP.
Speaker 10: I think real GDP is sub one percent for the
Speaker 10: next twelve to eighteen months. I think that's going to
Speaker 10: be very difficult to get above when we look at
Speaker 10: these still elevated inflation levels and we see this loss
Speaker 10: of momentum, a clear loss of momentum under I've never.
Speaker 2: Said this, Paul, nominal under four.
Speaker 10: Percent, nominal under four you're killing me. It's not necessarily
Speaker 10: a rosy outlook, but I think it's a realistic outlook
Speaker 10: that we have to contend with.
Speaker 2: Can the Red Sox win this year? Can they take
Speaker 2: the pennant?
Speaker 10: I wouldn't be able to speak intelligently about that.
Speaker 2: You weren't talking sub forenomenal.
Speaker 10: I think it's a realistic one, Tom. That's why I'm
Speaker 10: so concerned about stagflation. This FED is so concerned about
Speaker 10: avoiding negative growth that they're willing to tolerate above target
Speaker 10: inflation for a prolonged period of time, eventually choking offside
Speaker 10: potential extreme plate.
Speaker 3: I mean, we're just nobody's listening today. It's Valentine's Day.
Speaker 3: You work clubs blue, Thank you, Lindsey. If you get
Speaker 3: that scenario, what does that do to non farm payrolls
Speaker 3: the unemployment rate.
Speaker 10: Well, we've already seen non farm payrolls lose momentum over
Speaker 10: the past couple of years. We're talking about an average
Speaker 10: pace of one sixty six since the start of last year.
Speaker 10: So if we continue to see this erosion in the
Speaker 10: upside potential of the economy, I think we get closer
Speaker 10: to one twenty one thirty on a monthly basis. That
Speaker 10: drives the unemployment rate up into that range of full
Speaker 10: employment as the FED has been looking at for quite
Speaker 10: some time, and that gives them somewhat of a more
Speaker 10: stable labor market. We're not concerned about overheating, but it
Speaker 10: does perpetual.
Speaker 3: Yeah, I don't agree, Vice Chairman Trump, Paul's going to
Speaker 3: go mental. That's what's going to happen.
Speaker 6: Well, are you concerned about these inflation risks that may
Speaker 6: or may not come from tariffs and from changing immigration policy.
Speaker 6: We had a guest on earlier Tennis say, that's not
Speaker 6: the problem. The problems always is money supply. Don't worry
Speaker 6: about the tariff and things like that.
Speaker 10: Do you worry about the ten I'm concerned about the
Speaker 10: already ingrained level of inflation in the economy. That's my
Speaker 10: primary concern. The implementation or the use of tariffs to
Speaker 10: negotiate better trade deals, to negotiate cooperation and international conflicts,
Speaker 10: or to cooperate in terms of more stringent immigration rules.
Speaker 10: That's where I think the administration is ultimately headed. So
Speaker 10: I think the most dire scenario of forty sixty percent
Speaker 10: tariffs being implemented, that's really off the table. I think
Speaker 10: a more realistic scenario is a much more diluted or
Speaker 10: muted scenario.
Speaker 3: So what you're not doing a fixed income ballet? But
Speaker 3: what's your fixed income regime?
Speaker 4: Here?
Speaker 3: Do you see a ten year real yield peaking out
Speaker 3: two point two zero comes down to one ninety nine
Speaker 3: right now two oh three? Are you looking for the
Speaker 3: real yielded you completely break down to like a one seventy.
Speaker 10: Not entirely, because remember the things that are going to
Speaker 10: keep the longer end of the curve elevated. Is this
Speaker 10: wake up call that investors have been having for exactly
Speaker 10: about thirty four trillion dollars in debt, a deficit pushing
Speaker 10: up to seven percent, double the historic normal. So I
Speaker 10: do think that investors they have pushed that to the wayside,
Speaker 10: and they pushed it to the wayside last year amid
Speaker 10: the notion of the Fed eventually cutting rates. But if
Speaker 10: the downside potential for monetary policy is essentially stalled and
Speaker 10: we see fiscal policy continue to expand the balance sheet,
Speaker 10: I think that's going to provide a very solid floor
Speaker 10: to longer term rates.
Speaker 6: So when we see in retail sales data points like
Speaker 6: today that are significantly weaker than expected, does that call?
Speaker 2: Is that a one off fires? Winter weather?
Speaker 6: Which I hate using the weather, but a lot of
Speaker 6: people do, including every retail analyst out there. Is that
Speaker 6: a one off or is that something that we should
Speaker 6: really be concerned about?
Speaker 10: Do you think well, I think we can explain away
Speaker 10: a lot of the weakness because of the weather, because
Speaker 10: of the fires. But I think it's also reflective of
Speaker 10: this underlying pressure as we talked about, because of this
Speaker 10: rising and elevated rate environment, cost environment for consumers. I
Speaker 10: think it's also a reflection of consumers uncertainty about what
Speaker 10: is coming down the pipeline. And we saw that reflective
Speaker 10: and consumer confidence taking a sizable dip at the start
Speaker 10: of the year. So consumers understand that right now their
Speaker 10: financial footing is very much a question mark, and that's
Speaker 10: playing into their near term decisions of expenditures and their
Speaker 10: confidence for the longer run.
Speaker 3: Forget about the pigs of theater of a sub one
Speaker 3: percent real GDP.
Speaker 2: Let's go halfway there.
Speaker 3: We get to one point seven percent real GDP for
Speaker 3: some quarter. It's out there somewhere. When do they cut rates?
Speaker 3: That's got to be almost not a force measure, but
Speaker 3: it's almost a right now, I would say, in the
Speaker 3: framework of people, almost a crisis. Well to get a
Speaker 3: one seven statistics.
Speaker 10: But It's important to understand the motivation behind the rate
Speaker 10: cuts because I think at this point when we look
Speaker 10: at the FEDS motivation. Early on, it was to counteract
Speaker 10: the fear of emerging weakness in the labor market which
Speaker 10: failed to materialize, as well as a desire to pass
Speaker 10: through as much relief as possible before the uncertainty of
Speaker 10: the new fiscal policy agenda was coming into play. Now
Speaker 10: the motivation shifts to simply diverting policy from still firm
Speaker 10: territory back towards neutral as the economy normalizes.
Speaker 3: So what are we going to do with a one
Speaker 3: point seven percent real GDP and the mortgage rates seven
Speaker 3: percent down?
Speaker 2: Tell me what the housing market does.
Speaker 6: Yeah, that's going to be a challenge right there. Lindsay,
Speaker 6: talk to us about inflation and when the consumers, When
Speaker 6: do we stop complaining about inflation? When do we say,
Speaker 6: my pressure of coin flakes down, but my presce of
Speaker 6: cornflakes is twenty five percent higher than it was before
Speaker 6: the pandemic, but it's been there for three four years now,
Speaker 6: When do I stop saying complaining about that jump in
Speaker 6: my precious cornflakes and say, oh, it's only up two
Speaker 6: percent year?
Speaker 2: Every year.
Speaker 10: Well, I think we actually did see that over the
Speaker 10: past couple of years, this expectation of consistent monthly increases
Speaker 10: of point two point three, even point four to your point.
Speaker 10: But I do think at this turn of the of
Speaker 10: the road, consumers have reached a precipice where they're going
Speaker 10: to be increasingly unable to continue to foot that consistent
Speaker 10: price increase. And that's where it's starting to weigh now
Speaker 10: on these shopping decisions, on these consumption decisions, on consumer confidence. Remember,
Speaker 10: consumers have been increasingly reliant on buy now, pay later options,
Speaker 10: but that only lasts for so long. With credit card
Speaker 10: balances at one point two trillion, delinquencies are starting to
Speaker 10: tick higher now, not meaningfully so. I think when we
Speaker 10: look at the vulnerabilities of the household balance sheet, they're
Speaker 10: still relatively moderate, but we're starting to see indications of
Speaker 10: again that emerging profound weekly.
Speaker 3: This is really profound. I mean, this is really really
Speaker 3: a good conversation, folks. To summarize, Lindsay Piggs is looking
Speaker 3: for real GDP really to come, inflation to be a
Speaker 3: little slower stagflation in order. Good morning, Professor Summers. If
Speaker 3: we start with any central bank as ex post and
Speaker 3: you've nailed this. How ex post is your own Powell,
Speaker 3: particularly given White House pressures.
Speaker 2: Well, remember, I'm looking for a rate cut call. Can
Speaker 2: I get one? It's Valentine's Day? Can we again?
Speaker 6: Right now?
Speaker 10: The Fed still is desperately trying to provide additional relief,
Speaker 10: but they're only going to be able to do that
Speaker 10: if they see inflation arrest this upward trend. They don't
Speaker 10: even need to see inflation resume the disinflationary trend. They
Speaker 10: just need to be convinced that we're going to continue
Speaker 10: to move sideways with no further upward pressure. And or
Speaker 10: we see sizeable indications of emerging weakness in the labor market.
Speaker 10: But we need one or both of those scenarios in
Speaker 10: order to justifi an additional rate cut. Now, will we
Speaker 10: see significant rate reductions under that scenario?
Speaker 2: Likely?
Speaker 10: No one, at most two. But again that is further
Speaker 10: justified as policy remains in firm territory and we want
Speaker 10: to get back towards neutral.
Speaker 6: All right, Lindsay, it's pictures and catchers, baseball seasons back.
Speaker 6: Can I ask you a Chicago question. You're Chicago native,
Speaker 6: absolutely Cubs, white Sox. What determines whether you're a Cubs
Speaker 6: fan or White Sox. And it's as simply geography.
Speaker 10: It is geography. It's proximity. Yes, it's where you live.
Speaker 10: If you're on the north side versus the south side,
Speaker 10: and so how.
Speaker 6: Does that work out for us? Your north side you're
Speaker 6: a wet fan.
Speaker 10: If you're on the north side, you're you're typically a
Speaker 10: Cubs fan. On the south side you typically root for
Speaker 10: the White Sox.
Speaker 6: Really, it's not like handed down like here's Yankees. I
Speaker 6: think it's kind of who your parents are.
Speaker 10: And how there may be some of that over the
Speaker 10: generation card line is typically designated towards say, I.
Speaker 6: Don't have a great feel for Chicago. I love Chicago.
Speaker 6: I don't have a good feel for what drives kind
Speaker 6: of those things. So I'm glad you cleared that for.
Speaker 3: Us, Lindsay Pigs, So thank you so much.
Speaker 2: Really thought provoking.
Speaker 10: We can't say.
Speaker 2: From it is as well.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 3: Look, it's the front pages. We're gonna do that right now.
Speaker 3: We're do that with Lisa Mateo. It's a special edition
Speaker 3: of our Front Pages report.
Speaker 2: I'm so far behind. I'm like trying to get a
Speaker 2: fat X on the rock Valentine's Day card for Lisa. Oh,
Speaker 2: it's it's it's there.
Speaker 5: He is.
Speaker 2: I hope he gets a royalty on that, Lisa, what
Speaker 2: do you got? Thank you?
Speaker 9: Well, it's been cold here right rain snow, it's been
Speaker 9: kind of miserable, but we are getting closer to outdoor
Speaker 9: dining season. April first is the day when you start
Speaker 9: to see everything come out. The problem is that there's
Speaker 9: a backlog of applications. So the Department of Transportation, they're
Speaker 9: the ones that approved the licenses for them to build
Speaker 9: the sheds and do all that.
Speaker 2: This is the street, so we still do that.
Speaker 9: We're still doing it because remember they took them down
Speaker 9: last year because some of them were an iore and
Speaker 9: that kind of Yeah, a lot of them. So the
Speaker 9: Department of Transportation has to approve the licenses. So about
Speaker 9: four thousand applications have been submitted, thirty nine have been
Speaker 9: approved out of four thousands.
Speaker 6: I didn't know we were still doing that.
Speaker 9: We're still doing it. So now they're kind of giving
Speaker 9: the restaurants the green light. If they put in the application,
Speaker 9: they can build the shed up April first if they
Speaker 9: apply by the certain rules.
Speaker 6: But it's just OK, it's a pretty well, it's good
Speaker 6: for them.
Speaker 2: It's a little bit of an just being in Paris.
Speaker 3: I wish we had the sidewalks of Paris so the
Speaker 3: cafes were comfortable outside, right.
Speaker 2: But our sidewalks are just too narrow.
Speaker 6: Yeah, I mean they're dining was great during the pandemic.
Speaker 6: Thank goodness, it's saved.
Speaker 5: I think a lot of.
Speaker 6: Restaurants for consumers, but I don't know how much.
Speaker 3: I don't want Dan doctor Off full disclosure. Folks used
Speaker 3: to work her huge support of mine, Thank you, Dan.
Speaker 3: Dan doctor Off provided leadership here on the safety issue
Speaker 3: of them. And what Lisa you're talking about is the
Speaker 3: now what.
Speaker 2: Yeah, right, right? Interesting? What do you got We'll.
Speaker 6: See what happens.
Speaker 9: Okay, More adults are actually eating off of the kids menu.
Speaker 9: So there was a study that came out a number
Speaker 9: of kids meals placed by adults ro was twenty eight
Speaker 9: percent last year compared with twenty nineteen. The reason why
Speaker 9: the smaller portions right, lower calories because a lot more
Speaker 9: people on the weight loss drugs, so now they need the.
Speaker 2: Smaller portion issue cue, so they go.
Speaker 9: To the kids menu, cheaper prices to and hey, you
Speaker 9: get a toy you know to go with it, or
Speaker 9: price to come along.
Speaker 3: I literally go Paul to a certain restaurant, pretty fancy
Speaker 3: in the Upper East Side because their portions are smaller. Yep,
Speaker 3: it's not what was the one one of the big chains,
Speaker 3: like their gimmick was you would go home with fans
Speaker 3: full of stuff.
Speaker 9: Yeah, or even you go to like to a diner
Speaker 9: and your plate for like breakfast is enormous.
Speaker 2: We split it.
Speaker 6: We will split our dinner a lot do they do that?
Speaker 6: Or do and sometimes you get a charge and sometimes
Speaker 6: I just ordered the appetizer thing. But the exception is
Speaker 6: crack a barrel. You go in near full bore country
Speaker 6: boy breakfast, bring it on.
Speaker 9: Yeah, but you're right all right, but there And the
Speaker 9: thing is there's an age limit, right, it's like twelve
Speaker 9: and under or something. A lot of restaurants, but.
Speaker 6: There was.
Speaker 2: Paul Sweeney at two am and Shay Waff you would
Speaker 2: see Carolina exactly. I got an exam and statistics. Please
Speaker 2: help me.
Speaker 9: Next, okay, last one, the rise of the three pointer. Okay,
Speaker 9: they're saying it's kind of changing basketball. They don't know
Speaker 9: if it's for the good or for the you know,
Speaker 9: for the worst. Steph Curry, of course, a big thanks
Speaker 9: to this, because you established yourself the best long range shooter.
Speaker 9: So now these generations of basketball players who watch him
Speaker 9: and look up to him growing.
Speaker 6: Up are now in the NBA.
Speaker 9: So now you have more of these guys shooting from
Speaker 9: the outside. Even the taller guys, the over seven footers
Speaker 9: are shooting behind the three pointly, I know.
Speaker 6: Just the evolution of the game, I mean, and all
Speaker 6: the If you can't shoot the three, I don't know
Speaker 6: how you get to a good college.
Speaker 2: Come on, they should knock the thing backs three feet
Speaker 2: or four feet.
Speaker 6: They could, they could, and then the players will adjust.
Speaker 3: That, you know.
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