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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. All right, Matt, I've

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Speaker 1: got an inflation data point for you. When I started

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Speaker 1: on Wall Street in nine six as an analyst to

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Speaker 1: Pain Webber, the House of Pain, Mike Salary's twenty two thousand,

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Speaker 1: five hundred dollars and now the kids are starting today

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Speaker 1: a two hundred thousand, hundred, ten thousand dollars um. That's inflation.

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Speaker 1: Let's bring in Street, not a not a Rodger, and

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Speaker 1: he's a financial reporter for Bloomberg News. Joins us here

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Speaker 1: in our Bloomberg Interactive Brokers studio. He's all vaxed up

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Speaker 1: and ready to go, and he's got the big take

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Speaker 1: story here. So sure, we've seen a lot of stories

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Speaker 1: over the last several weeks how investment banks are really

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Speaker 1: upping their pay for some of these entry level investment bankers.

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Speaker 1: What's going on. Well, if you asked the junior bankers

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Speaker 1: right now and the one thing that might please use,

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Speaker 1: they will tell you that it is the house of

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Speaker 1: pain all over watch right now, they're all bulking at

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Speaker 1: these hundred plus our work weeks. COVID, of course, has

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Speaker 1: made it a scenario where they're not in the same office,

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Speaker 1: where they're all maybe in their parents basements, in small

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Speaker 1: houses and tiny rooms, working like crazy. And we've had

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Speaker 1: this moment through the course of this year. It all

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Speaker 1: started with this leaked presentation out of Goldman SAX where

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Speaker 1: a bunch of thirteen first year analysts complains about the

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Speaker 1: rigors of their work life, and that seems to have

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Speaker 1: let a match across the industry. Clearly, the report ricocheted

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Speaker 1: around the industry because it resonated with so many folks,

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Speaker 1: and the companies have come out and tried to respond.

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Speaker 1: It started with words of sympathy. We moved on to

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Speaker 1: pelotons and one time bonuses to outright races, and it

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Speaker 1: seems that everyone has gravitated around this solution of more

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Speaker 1: pay to ease everyone's spin. Why more pay instead of

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Speaker 1: a fewer hours or um a better work life balance.

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Speaker 1: To be honest, Matt the honest answer that that really

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Speaker 1: will probably be because that's the easy solution. We have

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Speaker 1: a former analyst at Goldman SAX who who left last year,

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Speaker 1: who talks to us, and he talks to us about

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Speaker 1: this idea that when he was working these crazy as

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Speaker 1: that Goldman, he used to put on his headphones, blast

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Speaker 1: up this fake rain noise on his on his headsets,

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Speaker 1: going to the bathroom stalls, and just take these power naps.

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Speaker 1: That's the only way he could cope with it. And

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Speaker 1: he then left for another finance job, burnt out by

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Speaker 1: the strain, and is now a blogger, and he says

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Speaker 1: there are negative repercussions to that. It shows that the

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Speaker 1: fact that everyone is moving towards pay is that it's

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Speaker 1: very difficult to change in Paul and I were just

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Speaker 1: talking about the sole idea that when you look at

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Speaker 1: the culture right now compared to ten, twenty thirty years ago,

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Speaker 1: not a lot of that has changed. If you're in

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Speaker 1: your first year of your second years straight out of college,

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Speaker 1: that grunt work is still the core of it. There

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Speaker 1: are those who speaking out now and saying we're getting

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Speaker 1: burned out by this. Something has to change. Whereas the

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Speaker 1: successful folks in the industry will tell you you need

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Speaker 1: to do this. This is your stepping stone to greater

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Speaker 1: glory in this industry. And the payout truly is lavish

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Speaker 1: and extraordinary relative to anything else you see in the outside.

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Speaker 1: Would their pledges, this is what the this is what

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Speaker 1: the pledges were like in the fraternity exactly. And you know,

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Speaker 1: I'll tell you what it is different, Matt from you know,

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Speaker 1: prior just and it's just it's simply the pandemic. I mean.

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Speaker 1: One of the ways I got through, and I think

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Speaker 1: a lot of my peers got through those those very

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Speaker 1: difficult hours in the many weeks without a day off

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Speaker 1: and all that kind of stuff, was that the camaraderie

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Speaker 1: we had, you know, surrounded by fifty other analysts at

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Speaker 1: pain Webber. We supported each other. All my friends were

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Speaker 1: working in investment banks, so there's a support system there. Now,

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Speaker 1: these kids are you know, isolated in many of them

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Speaker 1: in their apartments, and I can't imagine having to deal

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Speaker 1: with you know, kind of the pressure there. But sure

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Speaker 1: doesn't seem like money is the answer to me. They

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Speaker 1: got to figure out a way here too, as Matt

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Speaker 1: was suggesting, kind of improved that work life balance, a

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Speaker 1: little bit of order. But Paul, what was the answer

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Speaker 1: back then? I mean you read um again the answer

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Speaker 1: Matt Lavins columns. The answer. The answer was to get

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Speaker 1: through it. You work through it, and eventually you become, um,

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Speaker 1: you know, the big man on campus. And then you're

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Speaker 1: not spending too much time in the office and you're

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Speaker 1: getting paid millions exactly. And I think the the answer

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Speaker 1: is you've got to get people back to the offices. Um.

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Speaker 1: That would be if I were you know, because it's

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Speaker 1: not really gonna be the pay I don't think so, Sree.

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Speaker 1: Are we are we hearing from these companies that they're

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Speaker 1: thinking maybe a little bit out out of the box

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Speaker 1: maybe in terms of what to do here. Well, first,

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Speaker 1: let me take the other side of the bed with

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Speaker 1: the two of you, because I think what is perhaps

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Speaker 1: different today relative to two or three decades back, is

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Speaker 1: that the only road to paradise is not finance anymore. So,

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Speaker 1: even if you have a long, hard, bumpy road to

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Speaker 1: start with, you know that the payoff is going to

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Speaker 1: be great a few years down the road. Now, if

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Speaker 1: you're graduating from college, you have the lure of technology.

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Speaker 1: They are in great demands, so that the cream of

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Speaker 1: the crop, the top end of the talent pool is

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Speaker 1: being attracted from all sorts of industries and they have

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Speaker 1: the option of going into tech, They have the option

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Speaker 1: of starting their own companies. You don't want to slave

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Speaker 1: out two or three years as an analyst making slide

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Speaker 1: decks and presentations. When you when you see a couple

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Speaker 1: of young guys younger than three year old suddenly running

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Speaker 1: a hundred billion dollar company. When they have that lure,

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Speaker 1: banks have to do more than they have been doing

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Speaker 1: to be able to get that best talent. It's a

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Speaker 1: strong point so that basically there there are other ways

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Speaker 1: to be master of the universe. You don't have to

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Speaker 1: work for Goldman, Sachs Morgan Stanley, JP Morgan. You can

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Speaker 1: go even live in California, which has got to be

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Speaker 1: a better coast. I mean, you know, when I was

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Speaker 1: in business school, it was literally for the finance people

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Speaker 1: either went consulting or Wall Street. Now is shre is

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Speaker 1: mentioning technology and the other thing. Yes, I serve on

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Speaker 1: the board of the Business School with Duke. One of

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Speaker 1: the big things when you talk about the curriculum that

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Speaker 1: demand from students is for entrepreneurship. You know, and the

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Speaker 1: Street was saying, so you know again the investment banks

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Speaker 1: that the it's much more competitive, as you're saying, Street,

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Speaker 1: So it's almost like money might not be the go

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Speaker 1: to like it historically has been. Whenever, whenever there's a

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Speaker 1: problem on Wall Street, you can just throw money at

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Speaker 1: it and it solves itself. By the way through, what's

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Speaker 1: the pay like there? If you go work for fintech,

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Speaker 1: if you end up in California, Um, are they getting comparable?

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Speaker 1: Are they also getting a hundred hundred ten thousand to

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Speaker 1: start options? Yes, if you start off the base Bay,

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Speaker 1: I would argue is probably comparable. The banks will tell

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Speaker 1: you the Base Bay is not the full story. That's

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Speaker 1: just the sticker price to get them in the door.

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Speaker 1: Spend a year here and have a great year, much

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Speaker 1: like they've had in te where the banks have been

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Speaker 1: bathed in billions of dollars of extra profit. The bonuses

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Speaker 1: can start to look pretty chunky. You could be starting

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Speaker 1: to push one and that's a lot of money for

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Speaker 1: some who's But at the same time, when you go

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Speaker 1: to the West Coast and you think of, uh, the

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Speaker 1: startup lend the Silicon Valley, the idea that your stock

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Speaker 1: options may not have a ceiling. The idea that your

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Speaker 1: company could be wors so much more if it just

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Speaker 1: takes off. That has the kind of appeal and that's

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Speaker 1: the kind of thing that the banks are fighting against

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Speaker 1: right now. Plus you're wearing shorts and flip flops, so

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Speaker 1: I mean, there's so many other bonuses. I would say

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Speaker 1: probably to working out there. You're starting something, You're part

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Speaker 1: of a movement. Um, it's sexy. Um. Yeah, and you're

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Speaker 1: not in New York any case. Tree, thanks very much.

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Speaker 1: It's a great story. I recommend everybody check it out.

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Speaker 1: If you have a Bloomberg in front of you and

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Speaker 1: I big take go to get all of our deep dives,

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Speaker 1: and this is the latest. This is Bloomberg. I want

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Speaker 1: to bring in Frank Robinski's a chief macro strategist for

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Speaker 1: Eggon Asset Management have about foreigner and sixty four billion

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Speaker 1: dollars in assets under management. They're located in charmed city

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Speaker 1: that would be Baltimore, Maryland. Frank, I want to start

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Speaker 1: with you. I'm just reading some of your work here.

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Speaker 1: I'd love to get your thoughts on the labor economy. Um,

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Speaker 1: because people are thinking about inflation and and you could

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Speaker 1: argue inflation is really not going to be a big

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Speaker 1: issue unless we get a you know, we get wage inflation.

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Speaker 1: How do you kind of think about it yourself, Yes, exactly.

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Speaker 1: Housing inflation is killing me, it is absolutely right, And

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Speaker 1: and rental is getting crazy too as well over here

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Speaker 1: in the States. Talk to us about kind of the

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Speaker 1: labor market from your perspective. Sure, and thank you for

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Speaker 1: having me, guys, great to be back. So one thing

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Speaker 1: we're looking for is is a normalization in the labor

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Speaker 1: market consistent with the normalization in the economy. And one

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Speaker 1: one area where we haven't seen this as intering the watches.

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Speaker 1: You look at the enormous numbers of job openings out there,

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Speaker 1: and and that would historically you know that those are

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Speaker 1: positively correlated with unemployment right as is a lot of people.

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Speaker 1: You know, a lot of job opening you would expect

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Speaker 1: on employment to to to be quite low. So if

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Speaker 1: you go throughout time, you can chart that and it

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Speaker 1: creates a curve. But what we've seen in this recovery

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Speaker 1: is that curve is blown out, meaning given the enormous

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Speaker 1: number of job openings, unemployment should be down in the

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Speaker 1: threes and right now we're called, you know, five percent

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Speaker 1: the headline, but if you're just for low participation, you're

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Speaker 1: probably more in in in the sevens. So there's really

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Speaker 1: been this kind of disconnect and something that we're when

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Speaker 1: if we want to get a full normalization, we're expecting

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Speaker 1: to see that that that curve kind of come back

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Speaker 1: more to historical level. So right now, what that's saying is,

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Speaker 1: you know there's some type of COVID related mismatch or

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Speaker 1: or or you know something in the labor market from COVID.

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Speaker 1: Uh that that's that, you know, as opposed to your

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Speaker 1: kind of historical cycles. It's my favorite curve by the way. Um,

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Speaker 1: you've got your Bell curve, you've got your Phillips curve,

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Speaker 1: you know, but the beverage curve I think is the

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Speaker 1: best one. And at some point, don't you have to

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Speaker 1: see Paul and I talked to h business owners all

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Speaker 1: the time and CEOs and ce os that just can't

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Speaker 1: get enough people in chairs, can't get enough people to work,

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Speaker 1: and they're having to raise um pay. I mean, we're

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Speaker 1: we're gonna talk about a little bit later on Wall

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Speaker 1: Street they're doing it as well. Um, don't you have

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Speaker 1: to see wage inflation. Well, so if the demand for

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Speaker 1: labors outstripping the supply in the long run, yes, right,

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Speaker 1: But what the question is the supply of labor going

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Speaker 1: to come back? And that's where when you look at

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Speaker 1: you know, as we head into the fall, there's a

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Speaker 1: couple issues that are going to be rectified that could

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Speaker 1: create a big increase in the supply of labor. So

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Speaker 1: you know that those being UM, you know, schools are

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Speaker 1: largely going to be back in person, so you free

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Speaker 1: up some potential labor in the parents that had to

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Speaker 1: be home. You have the the exploration of enhanced Unemployment

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Speaker 1: insurance UM, and then you also have your ongoing health concerns.

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Speaker 1: And if you finally get a a FDA formal approval

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Speaker 1: of one of the vaccines, you know that could would

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Speaker 1: help the vaccination process. So as those things play out,

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Speaker 1: you could see an unleashing of the the supply of labor,

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Speaker 1: which you know, to your point, now, now you're supply demand,

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Speaker 1: you know, it starts to become more balanced when it

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Speaker 1: comes to labor, so we could actually start to you know,

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Speaker 1: cool off the wage increases. I mean, right now, it's

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Speaker 1: your point. We're trying to get people back into the

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Speaker 1: labor force. Labor force participation is very low, but you know,

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Speaker 1: as people, if they start to come back, especially in size,

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Speaker 1: then it could start putting a cooling pressure on under

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Speaker 1: the under those prices, on those wage increases. All right, Franks,

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Speaker 1: So given that economic backdrop, that labor backdrop, how are

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Speaker 1: you at at Egon kind of thinking about your allocation

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Speaker 1: of capital here in terms of generating maximum returns? Certainly, well,

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Speaker 1: we still think this is a very positive environment for

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Speaker 1: assets that are lever to nominal growth, so mainly equities

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Speaker 1: and low quality credit. Um, you know, were our forecast

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Speaker 1: is we're gonna above trend growth for many quarters to come.

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Speaker 1: And you know, maybe the it's you know, not six percent,

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Speaker 1: but it's four percent. But again you know that that's

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Speaker 1: real growth. But you think of nominal growth, so you

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Speaker 1: add the inflation side to that. You know, we could

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Speaker 1: have nominal growth in the high single digits for the

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Speaker 1: next year and a half. And you look at at

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Speaker 1: the quarterly earnings reports, just from the second quarter, even

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Speaker 1: the first quarter as well, it's the same theme. Revenues

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Speaker 1: are beating, margins are strong, and you're seeing enormous beats

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Speaker 1: on the earnings line and hence the the earnings forecast

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Speaker 1: continue to get taken up and we think, you know

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Speaker 1: that that's been a big story for two thousand twenty one,

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Speaker 1: but when we look into twenty two, we see that

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Speaker 1: continuing and you look at the at the S and

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Speaker 1: p of you know, call it to twenty now is

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Speaker 1: is the consensus ballpark? You know that that we think

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Speaker 1: that could easily be a two thirty thirty five numbers.

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Speaker 1: So with that kind of earnings momentum, we think it's

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Speaker 1: very positive for for the equity story. Have you ever

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Speaker 1: seen anything like this? By the way, Frank, I mean

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Speaker 1: you have uh pretty long career. You worked for spear

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Speaker 1: Leads and Kellogg as a trader, right um, you've you've

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Speaker 1: worked in Zurich, Switzerland, you worked for ubs Um and

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Speaker 1: now you're an agon over the last twenty years, I

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Speaker 1: just haven't seen this kind of appreciating market. It seems

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Speaker 1: like we're just barreling headlong into a bubble. Well it's

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Speaker 1: what I First of all, no, I haven't seen it.

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Speaker 1: It seems like everything's been compressed right the whole cycle.

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Speaker 1: You know, we've gone from the early cycle right into

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Speaker 1: you know, mid cycle and it's only been in the

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Speaker 1: little over a year, so you think of last cycle

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Speaker 1: was over a decade, so things are being very compressed. Um.

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Speaker 1: You know when you think of bubble as well, I

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Speaker 1: think of kind of relative prices out there, and I think,

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Speaker 1: you know, if you talk about a bubble with equities, well,

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Speaker 1: but what's you know, part of the attraction or large

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Speaker 1: attraction in the equity story is the lack of attraction

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Speaker 1: on the fixed fixed income side. Right a ten year

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Speaker 1: at you know, one thirty. I mean that's the the

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Speaker 1: dividend yield on the SMP five hundred um, you know,

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Speaker 1: without the upside. So you know, I kind of look

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Speaker 1: at the relative game and say, well, you know, if

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Speaker 1: you have to own assets, I mean you know, you

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Speaker 1: you could on cash or gold like plants doing um.

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Speaker 1: But to me, you know, there's still an attraction in

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Speaker 1: that relative value game, uh, for for that equity story

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Speaker 1: where cash flows are still growing at a very strong rate.

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Speaker 1: Great talking to you, Frank, Thanks so much for your time.

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Speaker 1: Frank Robinski their chief macro strategists aggon asset Management. I

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Speaker 1: want to bring announce Todd Superman. He joins us from

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Speaker 1: Superman Compliance Services. He is a founding principle there out

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Speaker 1: of Philadelphia and UM Todd we when we when we

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Speaker 1: talk about crypto, and there's been so much reporting on

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Speaker 1: Gary Gensler and questions about how he would address you know,

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Speaker 1: bitcoin and the entire crypto market. It strikes me that well,

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Speaker 1: not only with crypto, but with a number of things.

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Speaker 1: There's a lot of talk from the SEC, a lot

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Speaker 1: of warnings, a lot of speeches, but not a lot

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Speaker 1: of actual regulation. I can get my hands round. Yeah,

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Speaker 1: I think that's right, um. I And hi guys, good,

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Speaker 1: good to talk to you. Yeah, I think that's right. UM.

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Speaker 1: But that's not unusual, and I'm not sure necessarily foretells

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Speaker 1: what's going to happen or not happen. The s C

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Speaker 1: does this, They start talking about issues, they mean public statements,

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Speaker 1: a lot of speeches, they float some weather balloons or

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Speaker 1: some trial lowser case and then and then, uh, they'll

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Speaker 1: see what happens. UM. I think Gary guns are getting

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Speaker 1: involved with UM. This idea of crypto exchanges have to

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Speaker 1: do reporting for taxes is a start. At least the

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Speaker 1: the SEC came out with a specific position. UM. And

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Speaker 1: there's obviously been a lot of talk about whether or

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Speaker 1: not the SEC is going to approve a bitcoin e

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Speaker 1: t F, And there's a there's a whole backlog of

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Speaker 1: of firms that have done filings there. That's kind of right.

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Speaker 1: I wanted to go, Todd, give me a sense of

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Speaker 1: where we are with a bitcoin e t F. It

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Speaker 1: seems the demand is clearly there in the marketplace, but

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Speaker 1: the regulators just aren't short. Just give us a lay

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Speaker 1: of the land. Yeah, Well, first of all, there are

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Speaker 1: there are crypto funds out there not registered with the SEC,

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Speaker 1: but there's lots of ways you can invest in pool

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Speaker 1: financial products throughout the world that have crypto exposure. Um,

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Speaker 1: I think where the SC is gonna go, they're gonna

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Speaker 1: prove something that they've already said that a closed end fund,

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Speaker 1: not a mutual fund, a restricted redeemed redemption fund. You can.

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Speaker 1: You can invest in crypto or a piece of encrypto.

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Speaker 1: But there's a couple of ways looking as one investing

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Speaker 1: in crypto directly like like directly in bitcoin, there's the

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Speaker 1: firms there's funds and invest in bitcoin futures or other

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Speaker 1: crypto futures, and then there's also firms out there that

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Speaker 1: invest in companies that have exposure to cryptocurrency and not

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Speaker 1: unlike you saw with the early cannabis funds. So they

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Speaker 1: may not be actually crypto crypto currencies, but there they're

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Speaker 1: firms that play in that marketplace. The SC is gonna

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Speaker 1: do something on the open end side. They I think

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Speaker 1: they have to. There's so much pressure building up and

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Speaker 1: and the reality is there's so much demand for this.

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Speaker 1: If the SC doesn't do it, someone else will. Another

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Speaker 1: regulator will get involved, either in the United States but

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Speaker 1: more likely, you know, off shore. This is gonna be

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Speaker 1: a market that's gonna be big worldwide in the future.

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Speaker 1: You know, maybe the you know, the British authorities will

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Speaker 1: get involved and want to be the regulator of choice

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Speaker 1: and then theyll on that market. So I think, yes,

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Speaker 1: he's going to have to step in, and I think

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Speaker 1: they will, all right. So that's the hot compliance UM

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Speaker 1: issue that we've been talking about lately. Before that, it

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Speaker 1: was UM all surrounding game stop and payment for order

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Speaker 1: order flow. It seems to be something that I guess

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Speaker 1: Joe six Pac thinks it's bad, or at least um

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Speaker 1: Joe Congressman thinks it's bad. But as far as I

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Speaker 1: can tell, having gone through the mechanics, um. As you know,

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Speaker 1: and as deeply as I could, payment forward or flow

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Speaker 1: seems to benefit the retail investors that Congress wants to

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Speaker 1: protect it can um. I think the factual question is

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Speaker 1: is it look retail investors, whether they be on the

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Speaker 1: investment side or the brokerage side of the trading side,

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Speaker 1: they're expensive to service. That is the That is a fact.

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Speaker 1: And someone's got to get paid to service them. Right.

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Speaker 1: So you know this idea that well the clearing brokers

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Speaker 1: will pay back to people like Robin Hood money for

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Speaker 1: the service and get get the trading. It seems seems

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Speaker 1: like a great idea so long as the end client

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Speaker 1: is at least not worse off than paying a straight

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Speaker 1: up commission. So I think that question is an open right.

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Speaker 1: I mean, that's right, that's right, which and I just

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Speaker 1: wait more question because who's better off here? Are you

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Speaker 1: better off paying a straight up commission and knowing what

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Speaker 1: it is, or you better sort of paying a soft

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Speaker 1: cost because your your execution isn't as great because there's

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Speaker 1: pail and going back and forth. And I think as

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Speaker 1: of now, I would say to a large extent, paying

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Speaker 1: forward follows and more of a marketing gimmick than a

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Speaker 1: true benefit to end clients. I do think it can

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Speaker 1: be a benefit to end clients, but the question becomes,

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Speaker 1: if there really is true benefit to the retail clients,

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Speaker 1: someone's gonna have to pay for that, alright, Todd, So,

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Speaker 1: Gary Geinstl of the new Sheriff on Wall Street, if

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Speaker 1: you will, what do you think is kind of his

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Speaker 1: top items on his agenda? Because you could argue he's

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Speaker 1: got a very full plate here. Yeah, well you you've

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Speaker 1: hit on two of them. You know, he's got a

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Speaker 1: lot of pressure on crypto. I'm not sure that was

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Speaker 1: his number one agenda going in, but it's only become

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Speaker 1: the way. I think the game stop thing and paying

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Speaker 1: forward flow got ahead of him. I don't think that

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Speaker 1: was certainly a big issue before that. But you've got

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Speaker 1: a lot of big issues. You've got things like regulation,

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Speaker 1: best interest, suitability and uh and whether that's going to

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Speaker 1: get revisited again. UM. You have things like uh UM,

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Speaker 1: A lot of talk around how to regulate firms that

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Speaker 1: hire sort of miscreant brokers and how they're going to

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Speaker 1: regulate that um, and then the market making activity are

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Speaker 1: they is he gonna go back on some of the

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Speaker 1: stuff that Clayton did around credited investors and private placements.

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Speaker 1: I think those are huge issues, um, that are facing

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Speaker 1: the marketplace. So I and then of course we're all

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Speaker 1: worried about you know, this market has been a bowl

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Speaker 1: market for how many years? Um. You know, things get

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Speaker 1: really kind of ugly, as we all know when when

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Speaker 1: things go sideways, and and that's almost an inevitability of

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Speaker 1: the question is when that's gonna happen. I think that's

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Speaker 1: that's on his mind. Well, he's got to be cracking skulls,

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Speaker 1: and I wonder we only got twenty seconds. But does

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Speaker 1: he try and broaden the SEC's mandate naming everything that

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Speaker 1: he can see a security? That's been his history. That

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Speaker 1: was that was his history when he was at the CFTC.

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Speaker 1: He tried to be very broad in his regulatory reach.

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Speaker 1: And it's I like to say, regulators like to regulate.

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Speaker 1: That's right. Everything's a nail if you're a carpenter. All right, Todd,

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Speaker 1: Thanks very much, Todd. Superman there. He is the founding

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Speaker 1: principle of Superman Compliance Services. He's got a twenty five

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Speaker 1: year career on Wall Street UM as general counsel and

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Speaker 1: representing people on the buy on the South side. So

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Speaker 1: he's um great expert material for us on these issues.

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Speaker 1: This is Bloomberg. Well, the Federal Reserve remains uh certainly

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Speaker 1: on the front burner for these markets. We have the

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Speaker 1: f O MC meetings. A minute released today to pim

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Speaker 1: Wall Street Time and of Courts Jackson Hole get together

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Speaker 1: Laton next week. Danielle di Martino, both CEO and director

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Speaker 1: of intelligence for Quill Intelligence, also a former advisor to

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Speaker 1: Dallas feder Reserve MNY Bloomberg opinion contributor Joints is here.

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Speaker 1: Plus she's also author of the book fed Up, an

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Speaker 1: Insider's take on why the Federal Reserve is bad for America.

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Speaker 1: So we're gonna get a lot of fed speak over

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Speaker 1: the next week or so. Danielle, what are you listening for? Well,

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Speaker 1: I'm listening really too. I'm down to listening to two voices,

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Speaker 1: that of J. Powell and the New York Feds John Williams.

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Speaker 1: I would have added a third vice chair Clarata, but

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Speaker 1: it seems that if they've buried him somewhere in a

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Speaker 1: basis because we don't hear from him anymore. He was

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Speaker 1: very big on inflation expectations triggering FED policy shifts. And

429
00:21:44,040 --> 00:21:47,359
Speaker 1: now that we have indeed seen longer term inflation expectations

430
00:21:47,440 --> 00:21:51,640
Speaker 1: pick up, Clarida is curiously quiet. Where do you see

431
00:21:51,840 --> 00:21:54,560
Speaker 1: longer term inflation expectations? Because when I look at you,

432
00:21:54,760 --> 00:21:58,240
Speaker 1: mish Um five to ten years, it's only three percent.

433
00:22:00,560 --> 00:22:03,520
Speaker 1: Well yeah, but but remember three percent is a leap

434
00:22:03,720 --> 00:22:07,320
Speaker 1: above where it used to be. Uh, and and three

435
00:22:07,359 --> 00:22:10,360
Speaker 1: percent for FED policy would certainly not be a comfort

436
00:22:10,480 --> 00:22:14,800
Speaker 1: zone and it wouldn't be within their flexible framework either

437
00:22:14,960 --> 00:22:18,160
Speaker 1: if it was to get to three percent and Harper however,

438
00:22:18,320 --> 00:22:20,480
Speaker 1: at that level, I guess that's really what I'm asking.

439
00:22:20,600 --> 00:22:22,920
Speaker 1: That's really what I'm asking, Daniel, is three percent because

440
00:22:24,160 --> 00:22:28,040
Speaker 1: I've seen three point one percent mentioned as the historical average.

441
00:22:28,160 --> 00:22:31,680
Speaker 1: So um is three percent and expectations too high for

442
00:22:31,720 --> 00:22:34,760
Speaker 1: the FED? I think, I think it is uh. And

443
00:22:34,800 --> 00:22:36,680
Speaker 1: I think that that makes things very uncomfortable to the

444
00:22:36,720 --> 00:22:40,320
Speaker 1: FED because they're extremely remiss to make a move right

445
00:22:40,359 --> 00:22:44,560
Speaker 1: now because of what's happened subsequent to their meeting in July.

446
00:22:44,760 --> 00:22:46,520
Speaker 1: And I of course refer to the slow down here.

447
00:22:46,880 --> 00:22:49,840
Speaker 1: We saw this morning that that single family housing permits,

448
00:22:49,840 --> 00:22:52,800
Speaker 1: which is the most leading indicator of residential real estate

449
00:22:52,920 --> 00:22:56,000
Speaker 1: that's at a zero uh, you know, bio traffic. According

450
00:22:56,040 --> 00:22:59,760
Speaker 1: to the National Association Homebuilders, that's a year low. Mortgage

451
00:22:59,760 --> 00:23:02,360
Speaker 1: apple locations down in six of the last eight weeks

452
00:23:02,400 --> 00:23:06,080
Speaker 1: for purchases. So the FED is seeing interest rate sensitive sectors,

453
00:23:06,359 --> 00:23:09,480
Speaker 1: despite being at the zero bound, begin to slow. We've

454
00:23:09,480 --> 00:23:12,720
Speaker 1: got auto sales slow three months running. So this is

455
00:23:12,800 --> 00:23:16,200
Speaker 1: a very This is a very difficult situation because the

456
00:23:16,320 --> 00:23:18,000
Speaker 1: last thing they want to do is indicate that they're

457
00:23:18,080 --> 00:23:21,480
Speaker 1: tightening when the economy slowing. Yeah, it SENTI I looked

458
00:23:21,480 --> 00:23:23,159
Speaker 1: at some of that data, Danielle. I was wondering, like

459
00:23:23,240 --> 00:23:26,160
Speaker 1: on the real estate data, because I just sold my house,

460
00:23:26,200 --> 00:23:29,359
Speaker 1: so paying attention to that stuff. There's just no supply

461
00:23:29,480 --> 00:23:32,600
Speaker 1: of housing, so maybe that's a reason. And there's no cars,

462
00:23:33,160 --> 00:23:35,399
Speaker 1: so maybe that's a reason that they're not selling cars.

463
00:23:35,520 --> 00:23:39,399
Speaker 1: I mean, is this technical or or in fact showing

464
00:23:39,440 --> 00:23:43,159
Speaker 1: some fundamental slowness? Do you think in this economy? I

465
00:23:43,240 --> 00:23:46,040
Speaker 1: think that this is where the message gets really convoluted.

466
00:23:46,240 --> 00:23:50,480
Speaker 1: And if you look at the if you look, for example,

467
00:23:50,720 --> 00:23:55,760
Speaker 1: at at the sales per one thousand population in cars

468
00:23:56,080 --> 00:23:59,040
Speaker 1: in July that was forty seven units per one thousand Americans.

469
00:23:59,560 --> 00:24:02,960
Speaker 1: If you tell account below and the Great Recession, that's

470
00:24:03,040 --> 00:24:06,800
Speaker 1: the lowest in the history of the series back. There's

471
00:24:06,840 --> 00:24:08,920
Speaker 1: a good chance that we are at a point right

472
00:24:08,960 --> 00:24:13,639
Speaker 1: now of having reached saturation in many of these higher

473
00:24:13,840 --> 00:24:17,120
Speaker 1: end purchases. And that's what we're actually starting to hear

474
00:24:17,200 --> 00:24:19,320
Speaker 1: from homebuilders and good friends with I V. Selman and

475
00:24:19,440 --> 00:24:21,879
Speaker 1: what she's hearing from her homebuilders is that there's major

476
00:24:21,960 --> 00:24:24,640
Speaker 1: pushback in terms of the desire to buy a home

477
00:24:24,760 --> 00:24:28,520
Speaker 1: right now. It's not just a supply constraint story, especially

478
00:24:28,600 --> 00:24:30,920
Speaker 1: as you see lumber prices come down, which will be

479
00:24:31,000 --> 00:24:33,920
Speaker 1: a huge relief on the cost front. So are we

480
00:24:34,000 --> 00:24:38,120
Speaker 1: going to see at some point of deflation in home prices.

481
00:24:40,640 --> 00:24:43,399
Speaker 1: I think that I think as crazy as that notion

482
00:24:43,600 --> 00:24:46,880
Speaker 1: would seem to be, Uh, there's certainly the risk out

483
00:24:46,960 --> 00:24:50,159
Speaker 1: there because we've seen a run up to record levels

484
00:24:50,240 --> 00:24:53,920
Speaker 1: of home price appreciation and again we're seeing serious pushback.

485
00:24:54,359 --> 00:24:57,520
Speaker 1: Sticker shock was the word that was used most often

486
00:24:57,560 --> 00:24:59,320
Speaker 1: when it when it comes to home prices. I was

487
00:24:59,400 --> 00:25:01,840
Speaker 1: driving around a little town where I've been looking to

488
00:25:01,880 --> 00:25:04,600
Speaker 1: buy a home, uh for two years now, and every

489
00:25:04,680 --> 00:25:07,440
Speaker 1: single price said, every single for sale sign said price

490
00:25:07,520 --> 00:25:09,320
Speaker 1: reduced I mean, this is this is the kind of

491
00:25:09,320 --> 00:25:11,080
Speaker 1: ante data that makes you sit sit up and say,

492
00:25:11,119 --> 00:25:15,439
Speaker 1: oh wait, the tightest turning. Every one of those signs

493
00:25:15,560 --> 00:25:19,680
Speaker 1: in my town say under contract, and uh it's I

494
00:25:19,880 --> 00:25:22,880
Speaker 1: think it's kind of regional there. But so for sure, dude,

495
00:25:22,920 --> 00:25:25,720
Speaker 1: I was just back with you, Paul, looking around at

496
00:25:25,760 --> 00:25:29,800
Speaker 1: houses in Bronxville. I couldn't find a decent three bedroom

497
00:25:29,880 --> 00:25:31,879
Speaker 1: house for less than two million dollars. I mean, they

498
00:25:31,920 --> 00:25:34,240
Speaker 1: were just the two million dollar houses were just boxes,

499
00:25:34,760 --> 00:25:38,040
Speaker 1: dilapidated boxes. I couldn't metro believe it, Metro New York.

500
00:25:38,080 --> 00:25:40,840
Speaker 1: It's it's just crazy. So Danielle, let's assume we we

501
00:25:41,000 --> 00:25:43,159
Speaker 1: we do get to the point where the FED needs

502
00:25:43,280 --> 00:25:45,879
Speaker 1: to taper, needs to think about rates. How will it

503
00:25:45,960 --> 00:25:49,000
Speaker 1: actually look because it's been a while since a lot

504
00:25:49,040 --> 00:25:51,000
Speaker 1: of us have kind of experienced this, So how is

505
00:25:51,040 --> 00:25:54,560
Speaker 1: that actually gonna look to us? Well, if you if

506
00:25:54,600 --> 00:25:56,320
Speaker 1: you can sip at the fact that Christopher Waller is

507
00:25:56,359 --> 00:25:58,320
Speaker 1: a board member, right, last time we had a board

508
00:25:58,359 --> 00:26:00,719
Speaker 1: members descent was Mark So I think it was two

509
00:26:00,760 --> 00:26:03,359
Speaker 1: thousand to two thousand three, when Greenspan was in office.

510
00:26:03,840 --> 00:26:07,400
Speaker 1: When you consider this, the skepticism and criticism from even

511
00:26:07,480 --> 00:26:10,359
Speaker 1: on his board, you've got three voting members rotating and

512
00:26:10,440 --> 00:26:14,040
Speaker 1: in January who are also would prefer to start with

513
00:26:14,080 --> 00:26:17,879
Speaker 1: mortgage vestaturities tapering, because again, what's what we've seen in

514
00:26:17,920 --> 00:26:19,920
Speaker 1: the home in the home market, that's what I would

515
00:26:19,960 --> 00:26:23,320
Speaker 1: look to see, and very very slight level. I wouldn't

516
00:26:23,359 --> 00:26:26,080
Speaker 1: look to Jackson Hole though, in defiance of what most

517
00:26:26,240 --> 00:26:29,440
Speaker 1: servants are saying for Powell to give the signal, I

518
00:26:29,560 --> 00:26:32,879
Speaker 1: think that that first signal might come more likely that

519
00:26:33,040 --> 00:26:35,440
Speaker 1: second to last week of September with the next F

520
00:26:35,640 --> 00:26:39,560
Speaker 1: one S meeting. I want to ask your take on

521
00:26:39,760 --> 00:26:44,920
Speaker 1: the the infrastructure plan and the spending that the the

522
00:26:45,119 --> 00:26:48,560
Speaker 1: US has gotten courts sort of numb to. Is there

523
00:26:48,560 --> 00:26:51,360
Speaker 1: going to come a point when it's a problem spending

524
00:26:51,520 --> 00:26:54,680
Speaker 1: you know, one to three four trillion dollars in a

525
00:26:54,760 --> 00:26:58,159
Speaker 1: bill every year. You know, rates are so low it

526
00:26:58,240 --> 00:27:00,800
Speaker 1: seems like it's a four portable to do it now.

527
00:27:02,920 --> 00:27:04,880
Speaker 1: And that, of course is the theory, and that has

528
00:27:04,960 --> 00:27:08,360
Speaker 1: been the theory since December fift eight when the Fed

529
00:27:08,480 --> 00:27:11,080
Speaker 1: Reserve took the Fed funds right down to the zero bound.

530
00:27:11,320 --> 00:27:14,200
Speaker 1: And boy have we borrowed like gangbusters since then. Based

531
00:27:14,280 --> 00:27:17,240
Speaker 1: on that theory, based on that premise. Uh. But to

532
00:27:17,280 --> 00:27:20,399
Speaker 1: answer your question, I think I think the pace that

533
00:27:20,440 --> 00:27:23,600
Speaker 1: we're talking about spread out over eight years for some

534
00:27:23,720 --> 00:27:27,440
Speaker 1: of the infrastructure spending plans that we've seen the Senate approved.

535
00:27:27,960 --> 00:27:30,720
Speaker 1: I mean, that's not the stuff of nightmares. It's when

536
00:27:30,800 --> 00:27:33,800
Speaker 1: you're giving out lots and lots of cash to households

537
00:27:33,880 --> 00:27:37,280
Speaker 1: and running up real, honest to God's spending super super fast.

538
00:27:37,600 --> 00:27:41,600
Speaker 1: That's when it gets problematic from an investor perspective. From

539
00:27:41,680 --> 00:27:45,120
Speaker 1: from a foreign perspective, we saw foreign investors jumped right

540
00:27:45,160 --> 00:27:47,800
Speaker 1: back into the treasury market in the latest month of

541
00:27:47,880 --> 00:27:50,159
Speaker 1: data that we have, which shows that there's really not

542
00:27:50,359 --> 00:27:53,240
Speaker 1: that much anxiety. But again, the United States remains the

543
00:27:53,280 --> 00:27:57,480
Speaker 1: most attractive horse in the glue factory. Oh boy, but

544
00:27:57,600 --> 00:28:00,440
Speaker 1: it's okay that we have all right, So I guess

545
00:28:00,440 --> 00:28:02,840
Speaker 1: we're an athlete because we only have twenty seconds. But Danielle,

546
00:28:02,840 --> 00:28:05,320
Speaker 1: it's always great talking to you. Thanks so much for

547
00:28:05,440 --> 00:28:10,600
Speaker 1: joining us. Danielle DiMartino uh booth there from Quill Intelligence.

548
00:28:10,640 --> 00:28:13,040
Speaker 1: He's the CEO and director of intelligence there. Of course,

549
00:28:13,080 --> 00:28:15,440
Speaker 1: she's a former advisor of the Dallas Federal Reserve and

550
00:28:15,520 --> 00:28:18,680
Speaker 1: also a Bloomberg Opinion contributor. When we're lucky, we get

551
00:28:18,760 --> 00:28:23,000
Speaker 1: to have Danielle's opinion on our on our page. Type

552
00:28:23,040 --> 00:28:27,240
Speaker 1: O P I N go for that. This is Bloomberg.

553
00:28:28,000 --> 00:28:31,080
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can

554
00:28:31,119 --> 00:28:34,879
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever

555
00:28:35,000 --> 00:28:38,640
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

556
00:28:38,920 --> 00:28:42,400
Speaker 1: at Matt Miller three and on false Sweeney I'm on

557
00:28:42,440 --> 00:28:45,360
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always

558
00:28:45,400 --> 00:28:47,240
Speaker 1: catch us worldwide at Bloomberg Radio