Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. The optimism over a
Speaker 2: US China trade deal pushing bond your tire. The move
Speaker 2: comes as investors price in another rate cut Later this week,
Speaker 2: Gray Pilisipgian fixed income right in the following near term
Speaker 2: dynamics remain challenging, policy sensitive and under fiscal stress, which
Speaker 2: may add pressure on ras. Great joins us now for more.
Speaker 2: Greig welcome back. Do you think supplier shoes might reassert
Speaker 2: themselves as a problem in the coming months.
Speaker 3: I don't think supply is so much a problem in
Speaker 3: the coming months, but I think next year is a
Speaker 3: very different supply story. But I think the bigger issue
Speaker 3: is you know you saw it in the CPI release,
Speaker 3: is that you are seeing inflation pressures away from rents
Speaker 3: and oer right, and I expect that to continue into
Speaker 3: next year. And what I really worry about is that
Speaker 3: investors are very much of the mind the Fed's going
Speaker 3: to continue to cut inflation is you know, a twenty
Speaker 3: twenty one story largely contented with and I think the
Speaker 3: risk is you're cutting into a higher growth, higher inflation environment,
Speaker 3: and the question is what does the bond market think
Speaker 3: about that?
Speaker 2: Ultimately, So, Greg, your point is interesting because this market
Speaker 2: took comfort from what was happening with shelter, but you're
Speaker 2: taking anxiety from what happens everybody else, everywhere else. Great,
Speaker 2: do you think the market's going to come round to
Speaker 2: your point of view?
Speaker 4: And why?
Speaker 5: Well?
Speaker 3: So, I think the shelter component has been an incredible
Speaker 3: disinflationary driver this year, and that's actually given kind of
Speaker 3: the broad CPI or disinflation numbers cover right. But as
Speaker 3: we go into next year, you'll have continued pressure around
Speaker 3: those goods, particularly those you know affected by Karras. And
Speaker 3: you know this is a story that's leaking out over time.
Speaker 3: This is not a one shot type of idea, and
Speaker 3: so next year you have shelter either flattening out or
Speaker 3: even maybe moving higher. And that just changes the game,
Speaker 3: I think, and I think that is underappreciated.
Speaker 6: Right now, I'm looking at break even rates that are
Speaker 6: at the lowest levels going back to earlier this year.
Speaker 6: I'm looking at inflation expectations over the longer term. It's
Speaker 6: just falling significantly over the past couple of months.
Speaker 4: Why do you think that is?
Speaker 6: I mean, why do you think the market so profoundly
Speaker 6: disagrees with this higher inflation, higher growth view, at least
Speaker 6: based on market measurements.
Speaker 5: I don't know. That is something that really confounds me.
Speaker 3: Honestly when I think about you know, next year, you know,
Speaker 3: that is the most central.
Speaker 5: Figure that I look at. So what has a twofold effect?
Speaker 5: Number one?
Speaker 3: Obviously it's a market measure around longer term inflation. But also,
Speaker 3: you know, there's lots of talk around the Fed. You know,
Speaker 3: what happens with the Lisa cookcase, what happens with the
Speaker 3: new FED shair, you know what happens to the kind
Speaker 3: of the path of rates. Are we really moving to
Speaker 3: this really easy type of environment? And if the market
Speaker 3: starts to get spooked around that that's going to manifest
Speaker 3: itself not only in the US dollar, but in five
Speaker 3: or five year break even. So I look at that
Speaker 3: and I do scratch my head, and you know, for
Speaker 3: my money, that is something that I'm kind of looking
Speaker 3: the other way.
Speaker 5: What I think it should be higher, not lower?
Speaker 6: How much are you actually betting against some of these
Speaker 6: longer data bonds? I mean, right now we're looking at
Speaker 6: a corporate sector that's in pretty good shape. You can
Speaker 6: make the argument that you should get sprighter, tighter spreads.
Speaker 6: And at the same time, when you look at the
Speaker 6: government bond market, there's a sort of mystery wrapped in
Speaker 6: an enigma, and why is it being priced in more?
Speaker 6: How actively aggressively are you betting against where things are now?
Speaker 5: Well, we'll mix it.
Speaker 3: Incredibly tricky is just the the uncertainty component around not
Speaker 3: only caraffs. Right, we have a Supreme Case Court court
Speaker 3: case that's coming to you know what happens you know
Speaker 3: after that? Well, and then there's lots of worries I
Speaker 3: guess around changes and issuance changes and you know, buybacks,
Speaker 3: and so investors are a little leary to you know,
Speaker 3: lean too much into the curve steepner in the back
Speaker 3: end of the curve in particular, just because you can
Speaker 3: see that change in dynamics that could kind.
Speaker 5: Of catch investors by surprise.
Speaker 3: So I think there's a tentative nature around it, so
Speaker 3: I see it more.
Speaker 5: Cleanly, you know, from twoes tens in that part of
Speaker 5: the curve.
Speaker 3: As you go further out, you're you're more exposed to,
Speaker 3: you know, these certain vagaries.
Speaker 2: Greg that's the treasury market. We've touched on the supply there,
Speaker 2: we'll get suns this week. Let's talk about the corporate supply.
Speaker 2: This is coming this week as well. And what is financing?
Speaker 2: Is this market still wide open for this kind of
Speaker 2: debt issuance to finance the campex stories that we've been
Speaker 2: talking about the media every single day.
Speaker 3: It is for now. So there's just a tremendous amount
Speaker 3: you know. I started to scratch my head, you know,
Speaker 3: as you go out the curve, particularly on the unsecured side.
Speaker 3: So there's been some deals in the marketplace that really
Speaker 3: don't make a lot of sense to me necessarily, you know,
Speaker 3: but this is a tremendous build out.
Speaker 5: There's a tremendous amount of circularity around it.
Speaker 3: So this is, you know, something that I think makes
Speaker 3: sense today. But as we go through this cycle, I
Speaker 3: worry about the refinancing aspect and ultimately the AI you know,
Speaker 3: adoption and the return on investment that these companies need
Speaker 3: in order to make sense. And that's what starts to
Speaker 3: worry with me. But as of right now, Jonathan, the
Speaker 3: markets are open. Everyone's all in on the AI trade,
Speaker 3: both sides of the debt and equity aisle. But at
Speaker 3: some point there has to be a return on that
Speaker 3: invested capital, and you know, we shall see.
Speaker 2: Well, Greg, with that in mind, how closely does someone
Speaker 2: like you watch the earnings as they come in on
Speaker 2: Wednesday on Thursday?
Speaker 3: Yeah, So I think earnings are incredibly important here. Uh,
Speaker 3: you know, we have these long term structural issues that
Speaker 3: we worry about, but honestly, from an investor standpoint, right
Speaker 3: you worry about the cash flows and the earnings in
Speaker 3: the here and now. So I think it's crucial to
Speaker 3: kind of keep this market afloat, you know, as long
Speaker 3: as you see you know, a pretty reasonably strong corporate
Speaker 3: environment and backdrop, I don't really see this full market changing,
Speaker 3: you know, anytime soon. So it's about the near term
Speaker 3: data that's allowing investors to kind of look past maybe
Speaker 3: some of the longer term structural issues that we talked about,
Speaker 3: namely fed independence and you know some other areas.
Speaker 2: Stay with us mobile impeck Savanda's coming up off to this.
Speaker 2: I got to talk about this market and the amount
Speaker 2: of M and A activity we've seen over the summer
Speaker 2: and into the end of the year. Over nine hundred
Speaker 2: billion dollars in deals completed so far this year, with
Speaker 2: another one point one trillion in the works, on pace
Speaker 2: for a fifty nine percent rise from a year ago.
Speaker 2: Vitas Paduto of RBC Capital Markets US writing the market
Speaker 2: tone has shifted from waiting for an optimal window to
Speaker 2: moving into execution mode. More discussions of large deals, more preparation,
Speaker 2: mo momentum, Vita joint just now for more vitok.
Speaker 4: And morning, good morning.
Speaker 7: Good to be here.
Speaker 4: But we spoke honey recently. Things picking up even more.
Speaker 7: Yes, I mean, I just think about the past.
Speaker 8: I was here at the beginning of the month and
Speaker 8: just the tone has just talked about has clearly shifted.
Speaker 8: We've gone from trying to time the right window, and
Speaker 8: we always talk to clients about the importance of being
Speaker 8: prepared to execute on your strategic initiatives and being prepared
Speaker 8: to access the window when it opens. Well, the window
Speaker 8: feels open, and I think we're into full execution mode
Speaker 8: of many of our clients.
Speaker 6: Could you have this a sense of how much it's accelerating, I.
Speaker 7: Mean, just to give you a sense.
Speaker 8: In this past couple of weeks, the volume year to date,
Speaker 8: both from a global perspective and from a US perspective,
Speaker 8: has exceeded full year last year. So just to kind
Speaker 8: of you know, and we've also seen where total volume
Speaker 8: was up about twenty eight to thirty.
Speaker 7: Percent globally and US wise at the.
Speaker 8: End of the third quarter, we're now talking about up
Speaker 8: thirty five to thirty eight percent. We've seen some larger
Speaker 8: deals announced, especially across the technology space the healthcare space,
Speaker 8: but more importantly, we've also seen the tone of the
Speaker 8: dialogue out there has become more active. Clearly there's some
Speaker 8: larger companies talking about divestitures strategic initiatives, publicly announcing that
Speaker 8: they're considering alternatives, and so those are all, you know,
Speaker 8: big signs. At the same time, I would still label
Speaker 8: it as a cautious environment. I'm not seeing clients cut corners.
Speaker 8: I'm not seeing them rush into something. I think boards
Speaker 8: are certainly checking, dotting every I, crossing every te They're
Speaker 8: making sure they've done their full diligence.
Speaker 7: They're making sure that.
Speaker 8: The financing they're going to use is buttoned up, especially
Speaker 8: as we're heading into an environment where maybe there's some
Speaker 8: concerns about some of the financial structures that have been
Speaker 8: used historically.
Speaker 6: So this, to me is fascinating, the idea that you're
Speaker 6: seeing something and it speaks to what people talk about
Speaker 6: with AI. It looks frothy, but it's not a bubble yet.
Speaker 4: I'm gona.
Speaker 6: It looks like it's getting really heated, but it's not
Speaker 6: a bubble yet. It's not really problematic, And I just
Speaker 6: wonder what's the motivation behind this. Is it because you
Speaker 6: are seeing the expectation for FEDERI cuts. Is it because
Speaker 6: there's more policy certainties?
Speaker 4: It's just catch up?
Speaker 8: Yeah, I think it's a clearer environment in terms of
Speaker 8: being able to execute your strategical initiatives. From a government perspective,
Speaker 8: a regulatory review perspective, We're seeing clients consider transactions that
Speaker 8: maybe nine twelve months ago they would not have stepped
Speaker 8: into because they were concerned about would the government approved
Speaker 8: this transaction. And so I think there's been a more
Speaker 8: constructive tone out of the agencies. We've seen them certainly
Speaker 8: accept remedies much more so in terms of you go
Speaker 8: into a transaction you say, well, this might be an issue,
Speaker 8: but I'll consider these divestitures to satiate the regulators. And
Speaker 8: I think that's become an environment where you can think
Speaker 8: about how to constructively do something.
Speaker 6: Other particular industries that you're saying, we're both activities. It's
Speaker 6: the banking industry. Is this the tech sector in particular?
Speaker 6: What are the deregulatory areas that are getting produced by
Speaker 6: the current laws.
Speaker 8: I mean, as we talked about last time, it's always
Speaker 8: a technology and healthcare. And you look at the Aligned
Speaker 8: Data Center's deal on ho Logic in the past month
Speaker 8: or a few weeks as two of the largest deals
Speaker 8: announced here today, and they highlight those two sectors that
Speaker 8: are always leading the pace. We're seeing some around energy.
Speaker 8: I think we're seeing a fair bit around financial services.
Speaker 8: We certainly saw a significant bank deal announced this morning.
Speaker 8: I think there's more being talked about there and I
Speaker 8: think that's an area where if you look at what
Speaker 8: the regulators from that perspective are considering.
Speaker 7: They're allowing more of those to come together.
Speaker 9: When it comes to the government shutdown, has it been
Speaker 9: a pediment yet?
Speaker 7: Not yet.
Speaker 8: I think it's noise that's being monitored. On November fifth,
Speaker 8: it'll become the longest shutdown in history.
Speaker 7: I think the we talked about it.
Speaker 8: Last time, the poly markets now are you know, are betting.
Speaker 8: I think it's fifty two percent it's going to be
Speaker 8: November sixteenth or beyond. I think the vacuum of data
Speaker 8: is starting to cause some concerns because I think it's
Speaker 8: becoming more about expectation and estimates as we're seeing you.
Speaker 7: Know, what's going on there. You know that we're going
Speaker 7: to hear a.
Speaker 8: FED decision later this week, likely to be a rate
Speaker 8: cut again. And so I think part of it the
Speaker 8: longer it goes on, as soon as we start seeing
Speaker 8: you know, we joked earlier about you know, how many
Speaker 8: flights people are on and the fact that you're starting
Speaker 8: to see some delays, whether it's over the weekend and
Speaker 8: a lot of the business travel going on. You know,
Speaker 8: government employees are starting to miss paychecks. I think more
Speaker 8: and more of that happening, you're going to see it
Speaker 8: impact things. And certainly, you know when you start getting longer,
Speaker 8: you're start impacting GDP going forward. Now there's always an
Speaker 8: argument that you recapture it at some point, but you
Speaker 8: know that starts to become a concern.
Speaker 2: You mentioned the feder reserve. How relevant are those right
Speaker 2: reductions to the broadest story. I think acceleration that you've articulated, Yeah.
Speaker 7: We talked about it last time. I mean, I think
Speaker 7: it's helpful.
Speaker 8: I think it's a good signal, but I also think
Speaker 8: when you look at the overall environment and what people
Speaker 8: are thinking about. You know, there was a CEO confidence
Speaker 8: survey that just came out a couple of weeks ago
Speaker 8: from the Conference Board, and it was basically flat to
Speaker 8: the third quarter. It's sort there's a strong view going forward,
Speaker 8: but it's certainly cautious, and it's right at the mid
Speaker 8: planet about forty eight, where fifty is kind of a
Speaker 8: neutral level. But when you look at what CEOs identified
Speaker 8: as their number one concerns, it's geopolitical instability at the
Speaker 8: top of the list.
Speaker 7: Trade and tariffs was up there and it dropped to fifth.
Speaker 8: The other ones that they are concerned about is the
Speaker 8: uptick and sort of innovations.
Speaker 7: Around AI and how they impact their businesses. And so
Speaker 7: when you look at what.
Speaker 8: CEOs are thinking about, even though they might not be
Speaker 8: impacted by geopolitical issues somewhere else, they're still thinking about it.
Speaker 7: It's that noise externally.
Speaker 2: The financial conditions just is not the complaint. Right now,
Speaker 2: credit spreads the signatent equity markets we've been talking about
Speaker 2: at omnig sky high.
Speaker 6: Yeah, right now it seems like there's a window that's
Speaker 6: open even though you've got benchmark yields above four percent.
Speaker 6: If you look at the tenure, I mean, it just
Speaker 6: sort of goes to this question of what is it
Speaker 6: that could potentially style me some of this activity and
Speaker 6: does it suggest that maybe this is closer to neutral
Speaker 6: than anything else because companies are able to.
Speaker 4: Adapt to this well.
Speaker 8: I think the other thing is if start noticing what's
Speaker 8: the commentary is when earnings announcements are being made, you
Speaker 8: hear mention of the shutdown that you're not hearing about
Speaker 8: the significant impact on their businesses. I think you're hearing
Speaker 8: some caution and saying, well, maybe you know, quote unquote,
Speaker 8: are we in a bubble? Or you know, should we
Speaker 8: be careful what we're taking on. But they're still proceeding,
Speaker 8: so they're thinking about it. And I think everybody has
Speaker 8: a lot of history here and doesn't want to be
Speaker 8: caught as the party that's jumping in at the last
Speaker 8: minute when things are going in a difficult direction.
Speaker 2: Have you seen the leftage cycle start yet? Have you
Speaker 2: started to see that come into some of these days.
Speaker 7: A little bit?
Speaker 8: And I think the larger deals are are set up
Speaker 8: in an appropriate fashion because the largest players in the credits,
Speaker 8: in the credit cycle or the credit environment are participating
Speaker 8: in those transactions. I think when you're hearing some noise
Speaker 8: in places that have had issues from a financing structure perspective,
Speaker 8: it's really been some ancillary players that have been in
Speaker 8: those transactions and so it's been less of a concern.
Speaker 8: But you know, Jonathan, I think the we're sitting here
Speaker 8: with corporate it's probably the healthiest that.
Speaker 7: I've seen them in decades.
Speaker 8: And again, you go through the financial crisis, you go
Speaker 8: through COVID. COVID demonstrated there was a resilience in balance
Speaker 8: sheets and also a resilience in business models. You learn
Speaker 8: to pivot quickly you learn not to just take one
Speaker 8: path going forward. You thought about multiple paths, and you
Speaker 8: were able to make decisions and move your business. You
Speaker 8: think about earlier this year and how quickly a lot
Speaker 8: of companies shifted and brought business, you know, back on shore.
Speaker 7: And you don't hear of that that tone as much anymore.
Speaker 2: Stay with us, Multilemberg, Savannah's coming up off to this,
Speaker 2: Terry Hines Sepanche Policy, John just Nafam, Terry Week four.
Speaker 2: What's the day circled on your Accountada? When this gets real?
Speaker 10: Oh?
Speaker 1: I think sometime right before Thanksgiving.
Speaker 11: And I imagine you know I've been saying since before
Speaker 11: the shutdown start, that you know not only was this
Speaker 11: politically generated, but that Democrats had the ability to decide
Speaker 11: when it was when it was finished by merely by
Speaker 11: agreeing to continue to negotiate on the Obamacare subsidy temporary increase.
Speaker 11: And so they can do that, And meanwhile, the pain
Speaker 11: will continue to mount, as you all have talked about,
Speaker 11: and neither side ultimately is going to want to be
Speaker 11: the primary blamed for all this. So I think you
Speaker 11: probably have a truce called some time before Thanksgiving, Terry.
Speaker 9: Something interesting happened last week where you had the two
Speaker 9: Democratic senators from Georgia decide to vote with the Republicans
Speaker 9: and also a Senator Fetterman from Pennsylvania in paying essential
Speaker 9: workers like air traffic controllers. Are we going to see
Speaker 9: more of that?
Speaker 5: Yeah?
Speaker 1: I think so.
Speaker 11: There's going to be a lot of kind of one
Speaker 11: shot bills with different constituencies that might not yet be
Speaker 11: getting paid and all aret all that. But you know,
Speaker 11: underneath that, what that shows is a kind of growing
Speaker 11: disquiet on the Democratic side with the shutdown strategy. Generally
Speaker 11: they're willing to give their leadership to be the benefit
Speaker 11: of the doubt, but that's also wearing kind of thin.
Speaker 9: We also have elections up coming November fourth, a big
Speaker 9: one with the New York City mayor race and also
Speaker 9: governor elections and Prop fifty in California. Is that going
Speaker 9: to affect how certain Senators show up to vote? Maybe
Speaker 9: after the elections take place.
Speaker 11: Well, I think it affects how the senators make known
Speaker 11: to their leadership the willingness to continue I've been telling
Speaker 11: people for a couple of weeks now. This was not
Speaker 11: a political opportunity Republicans sought, but it's one that they
Speaker 11: now sees what they want. What they want on next
Speaker 11: week in November is to be able to say to
Speaker 11: the public, Look, the Democratic Party is now the party
Speaker 11: of Mamdani, the new New York City mayor, and you
Speaker 11: have being report publicans here, you have hokl and Jefferies
Speaker 11: and schum were all kind of bowing to him, and that,
Speaker 11: you know, that's the future of the Democratic Party. And
Speaker 11: then they also want to point out that the balloon
Speaker 11: likely gets let out of the Democratic Centrists in Virginia
Speaker 11: and New Jersey. It's a little bit too much for
Speaker 11: them to hope that the Republicans win in either case.
Speaker 11: But what they will be able to say is, look,
Speaker 11: you know the uh these people barely squeak through in
Speaker 11: years where they should have done much better and they haven't.
Speaker 1: So you know, the balloon of the ears out of that.
Speaker 11: Particular balloon, and what you got is kind of the
Speaker 11: Mom Donnie Party. And I think folks, frankly in midtown
Speaker 11: Manhattan underestimate just how how powerful a message that is
Speaker 11: in the broader the broader public.
Speaker 6: How much does the shutdown really play into local elections
Speaker 6: like that.
Speaker 11: Not much at all, really, there is you know, more
Speaker 11: in Virginia than in New Jersey because you have a
Speaker 11: contingent in northern Virginia. I mean, the Virginia's turned a
Speaker 11: purple state, but it has turned into a tale of
Speaker 11: two states.
Speaker 1: If you're in northern Virginia.
Speaker 11: You're in heavy government employee territory, and outside of Northern
Speaker 11: Virginia you're not. But Northern Virginians are already by and
Speaker 11: large heavily Democratic and motivated to vote for the Democrat
Speaker 11: span Burger anyway, So I don't know that it makes
Speaker 11: a huge difference otherwise, although they're trying to try to
Speaker 11: pump up less so own New Jersey Terry.
Speaker 6: I'm wondering what you think of Congress being shut down
Speaker 6: at the Congress hasn't come back to the table so
Speaker 6: far for another vote since I believe September nineteenth, And
Speaker 6: this has been a strategy for Majority House Speaker Mike Johnson,
Speaker 6: where he said, look, it's up to the Senate. The
Speaker 6: Senate needs to take action, then Congress can get behind
Speaker 6: what they do. Do you think that that has been
Speaker 6: a prudent strategy or one that has really diminished the
Speaker 6: executive branch of the House of Representatives.
Speaker 1: Oh, it's a very prudent strategy.
Speaker 11: You know, I know, I'm aware of the New York
Speaker 11: Times thinks it's not, but by and large it is.
Speaker 11: You know, he's you know, he's got to herd cats
Speaker 11: every day Johnson does. And you know, giving the cats
Speaker 11: a playpen in Washington well, with a lot of microphones
Speaker 11: and cameras around him is an opportunity for mischief. So
Speaker 11: it's much better that he keep them out. It's also
Speaker 11: much better frankly for him that he defends kind of
Speaker 11: the institution of the House and what the House did
Speaker 11: on shutdown and frankly say it's up to the Senate
Speaker 11: to figure it out. You know, it makes it easier
Speaker 11: for him on those two levels. So I think it's
Speaker 11: probably a good, good idea.
Speaker 2: It's Harry, what is the future of the Democratic Party?
Speaker 2: Can we just finish on that? Governor Hooko gets booed
Speaker 2: everywhere she goes establishment leaders down in Washington.
Speaker 10: D C.
Speaker 2: Reluctant to endorse the guys leading at the polls here
Speaker 2: in New York City. What's the future of this party?
Speaker 11: They're going to have to have a you know, they're
Speaker 11: going to have to have a I'm just going to
Speaker 11: say cleansing, and that's obviously a bad thought. But the
Speaker 11: idea is that they've they've got to come through both
Speaker 11: generationally and in terms of ideas. They've got to reconnect
Speaker 11: with people and not just pretend to. They've got to
Speaker 11: try to figure out how to move people forward. We've
Speaker 11: had a generation here. I've indiciting both parties by saying, so,
Speaker 11: we've had a generation here where people have decided to
Speaker 11: play politics instead of solving problems. The party that gets
Speaker 11: back to solving problems first and best wins. There's a
Speaker 11: high perception that the Democratic Party now is the party
Speaker 11: of rich people and has completely disconnected from its working roots.
Speaker 1: And the Republicans have run in and have come into
Speaker 1: that whole.
Speaker 11: Democrats have got to get back to the get back
Speaker 11: to that and get back to figuring out how things
Speaker 11: ought to run and what they are actually for. Or
Speaker 11: you know, kind of all the ball of Hollywood, this
Speaker 11: or that or the other isn't going to make a difference.
Speaker 2: Stay with us more Bloomberg Surveillance coming up after this.
Speaker 2: The White House naming five finalists to replace Fetchair Japound,
Speaker 2: including Gamuna Chris Waller, with the FED widely expected account
Speaker 2: rates at Wednesday's meeting. Joining us now to discuss is Veronica,
Speaker 2: clark A City, Veronica and Mornick. Good morning, Ray Cut.
Speaker 2: Noil done for Wednesday. Caun't seem to find anyone who
Speaker 2: disagrees with that hash guidance? Can they provide beyond Wednesday's meeting?
Speaker 10: Yeah, probably not a whole lot. We haven't had any data,
Speaker 10: of course. I think if anything in the day that
Speaker 10: we have had obviously CPI on Friday, should give them
Speaker 10: a bit more confidence. Yeah, inflation is slowing, labor market
Speaker 10: is weakening, but they probably can't give us a whole
Speaker 10: lot of guidance right now, we have no data.
Speaker 2: How comfortable should we be with the data we have got,
Speaker 2: which is inflation at three percent?
Speaker 5: Yeah?
Speaker 10: Yeah, I mean it's not where the Fed obviously wants
Speaker 10: to be. But I do think they'll they'll find some
Speaker 10: encouraging details in that data that we got on Friday.
Speaker 10: We had particularly soft alter inflation. I think that will
Speaker 10: be an encouraging development. We haven't seen a ton of
Speaker 10: the terror related inflation. Maybe more of that is still coming,
Speaker 10: but I think this is slower details than you know,
Speaker 10: they should be comfortable with.
Speaker 6: Yeah, I thought also the owner's equivalent rent was really interesting,
Speaker 6: the fact that it came down to the lowest going
Speaker 6: back to twenty twenty one. I was looking at this thinking, Okay,
Speaker 6: well I can buy this story, and then a couple
Speaker 6: of people message me and say, all right, you numskull.
Speaker 6: This is backward looking data that was done over the
Speaker 6: past year and is completely lagging, and when you look
Speaker 6: at current indicators they show something different.
Speaker 10: What's your response, Yeah, I don't actually think the current
Speaker 10: indicators show anything that different. You know, it is a
Speaker 10: very lagging indicator, of course, But when you look at
Speaker 10: all the forward leading measures, you know Zillow New Rents,
Speaker 10: home prices, home prices has been falling for a lot
Speaker 10: of this year. It seems like that kind of trend
Speaker 10: can continue.
Speaker 6: At the same time, you are seeing other points spike upward.
Speaker 6: In particular are some of the good sectors, and you
Speaker 6: see a lot of companies saying that they're still going
Speaker 6: to pass long additional price hikes. At what point do
Speaker 6: you start to look at this and say, it's not
Speaker 6: so clean. Even though we already knew it wasn't so clean,
Speaker 6: it's even more difficult to really discern what's going on.
Speaker 10: Yeah, I mean relative to how we were forecasting the
Speaker 10: tariff pass through maybe six months ago, though I think
Speaker 10: for most people we have been surprised that we haven't
Speaker 10: seen more pass through it at this point. I think that, unfortunately,
Speaker 10: does speak to consumers just can't handle these big, one
Speaker 10: time kind of price increases. It has to be spread
Speaker 10: out over many months, which could give the appearance that, yeah,
Speaker 10: inflation is maybe a bit sticky, but it's still that
Speaker 10: softer demand backdrop that means you can't pass on these
Speaker 10: big price increases.
Speaker 7: All at once.
Speaker 9: Doesn't It also mean that corporate America has been resilient
Speaker 9: in terms of mitigating some of the price hikes.
Speaker 7: Yeah, so what does it mean for next year?
Speaker 9: Do they start to maybe have to lay people off?
Speaker 5: Yeah?
Speaker 10: I do worry that, you know, the more you can't
Speaker 10: pass on the price increase to consumers, that is eating
Speaker 10: at profit margins for longer. We already know that businesses
Speaker 10: are trying to cut labor costs, and they've been doing that.
Speaker 10: They're not hiring anyone, But I would worry that you
Speaker 10: can only not hire people for so long before the
Speaker 10: next step is layoffs. We don't see the signs of
Speaker 10: that yet, but that is I think still a risk.
Speaker 9: We're in this data desert with the twenty seventh day
Speaker 9: of a government shutdown. We had the inflation on Friday,
Speaker 9: but that was one and done according to the White House.
Speaker 9: How long could the FED continuously cut rates if we
Speaker 9: remain in a government shutdown and don't have data.
Speaker 10: Yeah, it's getting tricky obviously, because you know there is
Speaker 10: the division among FED officials, a group of people who
Speaker 10: maybe don't want to cut anymore at all, and people
Speaker 10: who want to cut each meeting this year.
Speaker 7: It is hard.
Speaker 10: But I think the shutdown itself, if it really is
Speaker 10: lasting that long, that is a drag on growth in itself, except.
Speaker 2: We won't see the data. That's where the risk management
Speaker 2: argument loses some oxygen. I think in the next meeting
Speaker 2: in December, if you don't have the data to convert
Speaker 2: the hawks on the committee, yeah, how are they going
Speaker 2: to vote?
Speaker 4: They're going to forecast it to next year.
Speaker 10: I mean, we'll have to deal with the data that
Speaker 10: we do have. Obviously, we'll have the surveys. Isms probably
Speaker 10: get more important. The FED will probably put more weight
Speaker 10: maybe than I would on something like ADP employment.
Speaker 7: But Yeah, it is tricky.
Speaker 2: Are you seeing sufficient deterioration and the other indicators.
Speaker 10: It doesn't seem like we're getting that break yet. We fortunately,
Speaker 10: probably one of the best data points to have. We
Speaker 10: are getting claims. We are getting the weekly job as
Speaker 10: claims data. We just have to aggregate it ourselves. From
Speaker 10: the states. We have seen continuing claims starting to tick
Speaker 10: up again. Initial claims are still low, but that's going
Speaker 10: to be an important one.
Speaker 2: Let us say on initial claims, do just thank gif
Speaker 2: you in the team pause that maybe the labor market
Speaker 2: is not as bad as you and some of the
Speaker 2: tubs on the committee thinks it is.
Speaker 7: Yeah, it is tricky.
Speaker 10: We're getting into the time of year which this happened
Speaker 10: last year. Also where there is this residual seasonality pattern
Speaker 10: in the data, where we had the weakness in summer
Speaker 10: twenty twenty four and then things seem to stabilize. I
Speaker 10: think that seasonal pattern comes from this lack of hiring.
Speaker 10: This is a time of year when you're not usually
Speaker 10: hiring a bunch of people, but you're not laying anyone
Speaker 10: off either. The issue is when we saw that happen
Speaker 10: last year, it never got better, right, We just repeated
Speaker 10: it this summer.
Speaker 6: How much does the QT plan really matter the balance sheet?
Speaker 6: And there was some flirting with that in some of
Speaker 6: the recent speaks, as speeches from Fed shir Jpwell that
Speaker 6: they were planning on stopping some of the shrinking of
Speaker 6: their balance sheet. Is that important to understand what the
Speaker 6: directionality is for them in terms of policy?
Speaker 2: Yeah?
Speaker 10: I think maybe my takeaway from it is just a
Speaker 10: lesson that the FED is extra cautious right when we
Speaker 10: started to maybe get to the point where maybe reserves
Speaker 10: are not so abundant, maybe they're just ample they're maybe
Speaker 10: talking about ending it earlier. I don't think they'll announce
Speaker 10: anything this week. It's maybe you end of this year
Speaker 10: into Q one, but they are extra cautious when it
Speaker 10: comes to everything.
Speaker 6: What's the takeaway from you and Andrew That you've had
Speaker 6: an ultra dubvish FED for a long time, You've had
Speaker 6: inflationary shocks, you have an ongoing inflationary shock, and that
Speaker 6: the knee jerk response is to risk managed the downside
Speaker 6: in the labor market, regardless of which I was talking
Speaker 6: about that three.
Speaker 4: Percent inflation rate.
Speaker 6: How do you understand why the market isn't pricing at
Speaker 6: a greater degree of inflation longer term.
Speaker 10: Yeah, I mean maybe speaks to some confidence in the FED. Right,
Speaker 10: we haven't seen the long run inflation expectations going higher.
Speaker 10: If we did see that, obviously that's a game changer.
Speaker 10: But I think the market is taking what we see
Speaker 10: in the labor market data, and that is not a
Speaker 10: scenario that creates inflation, right, a weaker labor market.
Speaker 2: And a huge freecount about the erosion of institutional credibility.
Speaker 2: It's just when you look at market based indicators don't
Speaker 2: quite see the same.
Speaker 4: Thing at all.
Speaker 6: I mean, if you take a look at long term
Speaker 6: inflation expectations, they've come down in the ten years. The
Speaker 6: cleanest read on that, I just thought it was notable.
Speaker 6: In an interview in the Financial Times over the weekend,
Speaker 6: Scott Bessett talked about his strategy. What he said is
Speaker 6: we want the most America first policies that are possible
Speaker 6: without incurring market wrath. And he was saying, unlike most
Speaker 6: of my predecessors, have a very healthy skepticism of elite institutions,
Speaker 6: but I have a healthy regard for the market and
Speaker 6: that is very much a focus of us.
Speaker 4: As he goes through crafting policy, and.
Speaker 9: He almost felt vindicated in that interview. Who's talking about
Speaker 9: where the hell is the market risk? He's looking at
Speaker 9: basically all time highs when it comes to the S
Speaker 9: and P. Five hundred. It's interesting when it comes to
Speaker 9: the Fed. The President told us we're getting a Christmas
Speaker 9: gift end of the year. We will have a name
Speaker 9: by the end of the year of what next year
Speaker 9: potentially policy path forward will look like.
Speaker 2: Think the Treasury Secretary's done a good job of mind
Speaker 2: time on that issue, just stretching things out the land,
Speaker 2: things into your end. There was a feeling at one
Speaker 2: point in the summer you'd gain that decision maybe around
Speaker 2: September time.
Speaker 4: It's been pushed down a number of months.
Speaker 9: Remember that's when they were jaw boning mister tooleate J.
Speaker 9: Powell and the President had called him. Now that the
Speaker 9: Fed is cutting I think it's the FED that gave
Speaker 9: the Treasury time to make this process a little bit
Speaker 9: longer than they were expecting.
Speaker 2: Just quickly, Veronica, of the names on the screen, you
Speaker 2: and a team's got to pick yet, No, don't want
Speaker 2: to go there, opinions.
Speaker 7: Yeah, soon.
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Speaker 2: Terminal and the Bloomberg Business app. Mm hmm