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 Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Jake Piloski of TPW
Speaker 2: with Stock's coming off their thirty ninth record high this year.
Speaker 2: We'll catch up with Punam Goel of Bloomberg Intelligence as
Speaker 2: Nike is attempted to stage a comeback, and Matt Hornback
Speaker 2: of Morgan Stanley calling for a string of twenty five
Speaker 2: basis point raid cuts. We begin with our top story,
Speaker 2: Stock's coming off their thirty ninth all time high so
Speaker 2: far this year. Jake Peloski of TPW writing, the Fed's
Speaker 2: move is likely divorce. Even the iheard recession easters to
Speaker 2: give up on that point of view, there is no
Speaker 2: sign of recession. Anywhere. There is no major imbalance in
Speaker 2: any part of the US global economy. Jay joins us
Speaker 2: now for more Welcome to the program. I'm going to
Speaker 2: repeat that line again. There is no sign of a
Speaker 2: major imbalance in any part of the US global economy. Jay, China.
Speaker 2: Discuss what's happening in the world. Second launch economy.
Speaker 3: John, It's growing at almost five percent, which is more
Speaker 3: than twice as much as the number one economy in
Speaker 3: the world of the United States. And for all the
Speaker 3: doom and gloom and China look, as an investor, the
Speaker 3: question is what's in the price? And when you look
Speaker 3: at China performs equity.
Speaker 4: Wise, if you look at the valuation.
Speaker 3: My point is one example is Ali Baba right, the
Speaker 3: big tech SoC We're believers in a two tech stack thesis.
Speaker 3: China walling off its stack, US walling off tech and
Speaker 3: Ali Baba just announced that it now has the world's
Speaker 3: leading large language model, open source large language model.
Speaker 4: It's buying backstock at record levels.
Speaker 3: It trades at a fraction of the valuation of its
Speaker 3: US prs, and so to us, it's all in the price.
Speaker 3: And just note that k Web was up four and
Speaker 3: a half percent yesterday it broke back above its two
Speaker 3: hundred day moving average, and it's emblematic of what we
Speaker 3: want to do right here. You talked earlier in the
Speaker 3: lead up that I don't really care about a lot
Speaker 3: of what you and Lisa have been discussing. And you
Speaker 3: know that's not quite true, but it's truly mostly.
Speaker 2: Do you want to come back on this show again?
Speaker 3: And I would just make you two points before we
Speaker 3: talk about the investment opportunities that we see at TBW
Speaker 3: Advisory Number one.
Speaker 2: Jay, it's not a presentation, just a step at a time.
Speaker 2: Let's just start with your views on China and then
Speaker 2: Brama wants a follow up, Well on.
Speaker 5: A second, Jay, Actually, when it comes to China, I
Speaker 5: just have one word or one company to throw out
Speaker 5: at you. Mercedes Benz, how do you understand that with
Speaker 5: all of this optimism that you just expressed, Well, I.
Speaker 3: Express optimism about the tech stack and Ali Baba, I
Speaker 3: didn't say anything about auto companies. Look, we're big, but
Speaker 3: you know we have a TPW twenty model portfolio which
Speaker 3: is focused on future.
Speaker 4: Innovation and climate.
Speaker 3: So we're very focused on the China's leadership in Queen energy,
Speaker 3: renewables and evs and the simple fact is that China
Speaker 3: is eating the lunch of pretty much everyone but Tesla
Speaker 3: in terms of EV production activities, sales, innovation, et cetera.
Speaker 3: China is the world's innovator in queen energy, and the
Speaker 3: European auto companies are just watching their market share in China,
Speaker 3: which is a critical market for them, just simply disappear.
Speaker 3: And it's not even Mercedes Benz, it's Volkswagen, which is
Speaker 3: out talking about laying off thirty thousand employees in Germany
Speaker 3: for the first time in its ninety year history. There's
Speaker 3: a reason why Mario Dragi came out last week with
Speaker 3: the European Competitiveness Report instead that Europe needs to be
Speaker 3: more like what the US has been doing, public private partnership,
Speaker 3: venture capital, innovation at scale, and the automakers are certainly
Speaker 3: emblematic of that concern for Europe.
Speaker 2: So Jake, for people seduced by your view of the world,
Speaker 2: I know it's a multi year view and a way
Speaker 2: of expressing it is the commodity market iron ore off
Speaker 2: the highs of the year, base metals copper off the
Speaker 2: highs for the year. What kind of moves you're looking
Speaker 2: for in commodities.
Speaker 3: Ja, Yeah, John, you know, surprise hit the nail on
Speaker 3: the head. That's where we want to focus right now.
Speaker 3: I wanted to mention the two strengths. One is in
Speaker 3: the global economy absorbing one of the most aggressive rate
Speaker 3: heights cycles in modern history without a recession. That's something
Speaker 3: we need to pay attention to. And likewise, in the
Speaker 3: equity markets, particularly in the US, new all time highs,
Speaker 3: as you noted it, thirty nine all time highs this year,
Speaker 3: while tech, the leadership sector in the lead dog Na video,
Speaker 3: is down twenty percent from its high.
Speaker 4: We have to respect the.
Speaker 3: Fact that trends are powerful and they are moving in
Speaker 3: the right direction, both in the global economy and in
Speaker 3: the risk asset markets.
Speaker 4: So what do we want to do here? How do
Speaker 4: we want to invest?
Speaker 3: We want to sell the things that have done well
Speaker 3: on the idea that there's going to be a recession,
Speaker 3: because there's not. And so we don't like fixed income
Speaker 3: Lisa talked about, you know, three point seven percent on
Speaker 3: the tenure unattractive if the neutral rate is three percent.
Speaker 3: We want to focus on a long the context of
Speaker 3: a long cycle, sustainable soft landing equals sustainable equals our
Speaker 3: global macro blue sky outlook, which we've talked about twenty
Speaker 3: twenty three to twenty twenty seven. We're now focusing on that,
Speaker 3: not the next quarter, not the next six months, the
Speaker 3: next several years. We hit We believe we're in a setup,
Speaker 3: and their commodities look really.
Speaker 4: Really attractive.
Speaker 3: Baa pointed out allocations to commodities are at a seven
Speaker 3: year low. Hedge funds are their most short commodities they've
Speaker 3: been in a decade, So there's a real opportunity there.
Speaker 3: There's a real opportunity in buying the laggards, things like
Speaker 3: small cap things like the non US markets, which are
Speaker 3: still ten to fifteen percent off their highs. China is
Speaker 3: forty percent off its I'm not going to say it's
Speaker 3: going to go to a.
Speaker 4: New high, but we want to be buying the laggards.
Speaker 3: If this is going to be a long cycle, a
Speaker 3: sustainable growth path, a fed cutting through twenty twenty six,
Speaker 3: that's what investors need to be paying attention to. We
Speaker 3: wrote a piece several weeks ago, zoom out not in Jay.
Speaker 6: All of this leads me to question what your view
Speaker 6: is and utility. It's one of the most loved areas
Speaker 6: out there, And I know that sounds like a hyper
Speaker 6: specific point with a lot of the calls you're making,
Speaker 6: but it seems like it's a one two punch. They've
Speaker 6: done really well just as a performance, but also they
Speaker 6: would benefit as a bond proxy both of those reasons.
Speaker 6: How much do you think that that very loved trade
Speaker 6: is not going to do so well well?
Speaker 3: Utilities that argue have done well in part because they're
Speaker 3: viewed as a recession hedge, and in part because they
Speaker 3: are viewed as being in one of the hot sectors,
Speaker 3: which is power generation for the data center and data
Speaker 3: centers and AI revolution, which we're big believers, and we
Speaker 3: own an ETF called grid Grid as our way to
Speaker 3: employ this, and grid just broke out and is at
Speaker 3: a new all time high.
Speaker 4: So that's the way we're playing it.
Speaker 3: We don't really like the utilities at this point because
Speaker 3: they've been pretty well exposed, and we don't think rates
Speaker 3: are going lower, and we don't think there's going to
Speaker 3: be a recession rates on the long end, not on
Speaker 3: the short end obviously, So what we like is industrials, right.
Speaker 3: I think one of the surprises in the next couple
Speaker 3: of months is that the ism for manufacturing is going
Speaker 3: to break back up above fifty, and you look at
Speaker 3: what's leaving.
Speaker 4: I made the point about markets at all time.
Speaker 3: Highs, while tech is still well off its all time high, Industrials, financials,
Speaker 3: real estate. There are multiple sectors that are breaking out.
Speaker 3: And one of the things we like, in addition to
Speaker 3: industrials we just added a position is in consumer discretionary.
Speaker 3: You talked about FedEx, Amazon is very attractive.
Speaker 4: Tests is very interesting here.
Speaker 3: They make up forty percent of XLI, the consumer discretionary
Speaker 3: ETF and that's an example of where we're moving to
Speaker 3: as opposed to where we've been.
Speaker 2: This was Jake Pilowski's TED Talk, brought to you by
Speaker 2: tpwj's good to see you as always your good friends.
Speaker 2: You're welcome back, Anton, appreciate it. Let's talk about rates.
Speaker 2: The ray Cut euphoria is failing as Marcus begin to
Speaker 2: wander about underlying economic weakness. Forronica Clark of City saying
Speaker 2: powpaired a fifty basis point ray cup with an emphasis
Speaker 2: on the low level of the unemployment rate and confidence
Speaker 2: on the path ahead. We disagree with the view that
Speaker 2: recession risk is not elevated. A continued rise in unemployment
Speaker 2: will likely have them cutting faster than their dots. Imply
Speaker 2: Forronica joint Us. Now for more Forronica Carnic.
Speaker 7: Good morning.
Speaker 2: This is not going to be a therapy session.
Speaker 4: Don't worry.
Speaker 2: I'm not going to make it. That won't insult you
Speaker 2: with that, But I do want to talk about how
Speaker 2: you and the team thought about this on Wednesday, and
Speaker 2: for our audience who might not be familiar with the
Speaker 2: work that you and Andrew do. You were out front
Speaker 2: on the fifty basis point call. You said it was
Speaker 2: data dependent. The data came out, the data wasn't bad,
Speaker 2: and you changed the caller twenty five. What were you
Speaker 2: thinking when that dropped on Wednesday.
Speaker 7: Yeah, it's been a crazy couple of weeks. We did
Speaker 7: change our base case for Wednesday back to a twenty
Speaker 7: five basis point cut after we saw CPI a week
Speaker 7: ago stronger, you know details, stronger shelter inflation. Again, we
Speaker 7: were thinking maybe that was the easier compromise for the
Speaker 7: Hawks who are still concerned about inflation. But I think it,
Speaker 7: you know, on Wednesday, of course, when we got the
Speaker 7: fifty basis point cut, it is is definitely justifiable based
Speaker 7: on the weakening of the labor market. And we did
Speaker 7: learn that, you know, FED officials are kind of dismissive
Speaker 7: of stronger CPI. You know, Chair Powell was very dismissive
Speaker 7: of that stronger shelter reading, just expecting that that will
Speaker 7: slow and it is really the labor market.
Speaker 2: It's an important lesson for SILVI. So talk to us
Speaker 2: about what you'll be looking for between nine to m seven.
Speaker 2: What will guide the automate coal for you and the team.
Speaker 7: Right, well, we'll have two monthly employment reports, so that's
Speaker 7: of course perils and the unemployment rate. Those were really
Speaker 7: the most important of course watching you know, all the
Speaker 7: labor market data, you know, weekly initial jobless claims. But
Speaker 7: we do think this is a weakening labor market. We've
Speaker 7: seen that more pronounced in the last three or four months.
Speaker 7: Of course, that's what got us to the fifty basis
Speaker 7: point cut this week. I think that trend will continue.
Speaker 7: I think we'll see more weakness in those two employment
Speaker 7: reports and it's another fifty in November.
Speaker 6: This to me is a really important point that you
Speaker 6: think that it's going to be just as aggressive going
Speaker 6: forward because of the weakness that we see. There's been
Speaker 6: a real question around just how well this transmission mechanism
Speaker 6: of the FED policy can actually help support the economy.
Speaker 6: Do you think that, given the reaction to this latest
Speaker 6: FED meeting, that will help stave off some of the
Speaker 6: weakness that you're expecting to see.
Speaker 2: I don't know.
Speaker 7: I mean a couple of months ago, the narrative was
Speaker 7: that the economy is so strong and the FED doesn't
Speaker 7: have to cut because of that, And now we're saying
Speaker 7: the economy is strong because the Fed is cutting. But
Speaker 7: what's changed in that period is the labor market data
Speaker 7: have weakened, and it just seems like that trend will
Speaker 7: will continue. These things are really hard to prevent. Once
Speaker 7: you do get raised substantially lower back to neutral, I
Speaker 7: think that, or maybe even a bit below neutral, I
Speaker 7: think that can you restimulate things. But we're still a
Speaker 7: long ways from that right now.
Speaker 6: Pauled out of it a VBS earlier, So they don't
Speaker 6: know anything that you don't know, So don't stop thinking that.
Speaker 6: It's not like there's some kind of sort of feeling
Speaker 6: underneath this fear of recession on the FED committee. How
Speaker 6: much do you think that that's true?
Speaker 7: I think there may be a bit or at least
Speaker 7: maybe Powell is a bit more worried than he's letting on.
Speaker 7: I mean, we are all looking at the same data,
Speaker 7: and he is looking at you know, falling hiring rates
Speaker 7: like we are. You know, maybe some early signs that
Speaker 7: there are actually a pickup in layoffs. The transitions for
Speaker 7: the last couple of months of people moving from employed
Speaker 7: to unemployed have actually increased, the highest since twenty sixteen.
Speaker 7: And I think he's worried that once you do see large,
Speaker 7: clear signs of layoffs, that's when it's too late. You
Speaker 7: want to get ahead of that.
Speaker 2: I'm going to take this conversation to the edge of ridiculous.
Speaker 2: But there were times I'm going to read the body language,
Speaker 2: now forgive me. There were times in that news conference
Speaker 2: where it found a little bit performative, it found a
Speaker 2: little bit false. The confidence things are great, Things are great,
Speaker 2: Ignore the fifty the size of it. This is a recalibration.
Speaker 2: Things are good. Okay, do not feel the same thing.
Speaker 6: Yeah, No, I felt the exact same thing, because there
Speaker 6: was you know, in previous times, in previous news conference.
Speaker 6: Is he was less practiced, he fumbled more, he didn't
Speaker 6: seem to have the same kind of I don't know,
Speaker 6: polish in the same kind of way. This was someone
Speaker 6: who is acting as a lawyer, which was the reason
Speaker 6: why that Kit Juke's comment was so interesting earlier this week.
Speaker 8: This was someone who was.
Speaker 6: Making a case more than say, delivering a message. That
Speaker 6: was his true message.
Speaker 2: It felt like a performance. Let's get back to race,
Speaker 2: Let's make a park there. Just let's get it out.
Speaker 2: It's out there now, Okay, let's get back to race.
Speaker 2: At least when I were talking about this earlier about
Speaker 2: whether how you view the rate cut path implied by
Speaker 2: the dot plot from here, whether that's a sailing or
Speaker 2: a flaw for interest rates. So Matt Hornback Morgan Stanley
Speaker 2: framed it better than I could. He said, if they're wrong,
Speaker 2: how are they wrong? And I think what you're ultimately
Speaker 2: saying is we should consider that ceiling for rates because
Speaker 2: they're going to get back to neutral quicker than they think.
Speaker 7: Right.
Speaker 5: Yeah.
Speaker 8: Absolutely.
Speaker 7: The last couple, you know, summary of Economic productions has
Speaker 7: almost felt like a marketing to market. This is where
Speaker 7: the market already is in terms of rate cuts. It's
Speaker 7: also a marking to market in terms of the unemployment rate.
Speaker 7: Obviously they had to raise that this week. And we're always,
Speaker 7: of course you first and foremost, basing our FED view
Speaker 7: on where we think the data are headed. And we
Speaker 7: don't think the data are going to evolve in a
Speaker 7: way that's consistent with that SEP, and they're going to
Speaker 7: have to do more.
Speaker 6: How much do you think that the reaction function of
Speaker 6: the FED is biased toward bigger cuts? I mean, how
Speaker 6: much do you think that that's what this signaled, rather
Speaker 6: than they wanted to start big and then move gradually.
Speaker 7: I think I think it's a pretty low bar to
Speaker 7: get some more larger cuts. Just we are very far
Speaker 7: from neutral. Paul has said a number of times that
Speaker 7: there's ample room to be cutting if if something goes wrong,
Speaker 7: and you do want to quickly get back to neutral
Speaker 7: in a in a weakening labor market, not get back
Speaker 7: to neutral a year from now.
Speaker 2: So media adults did this for this year and next year.
Speaker 2: The long dot did this came out just to touch
Speaker 2: How are you thinking about that long dot?
Speaker 8: Yeah?
Speaker 7: That is it is interesting. I do think there is
Speaker 7: that sense in which you know, maybe neutral way it's
Speaker 7: at least nominally are a bit higher. We wouldn't disagree
Speaker 7: with that, so sure, Yeah, three three and a half percent.
Speaker 7: I think that's probably fair. We essentially have them getting
Speaker 7: back to there, like a three percent kind of terminal rate,
Speaker 7: and I think that's fair. I would worry that, you know,
Speaker 7: even if that is a neutral rate, maybe they have
Speaker 7: to get a bit below neutral.
Speaker 2: Even poltonovany VPS came out and said, what did the
Speaker 2: high rates achieve? Not a whole lot? What the low
Speaker 2: rates achieve? Even if you go back to below neutral?
Speaker 2: What are we stimulating? Yeah, part of the economics.
Speaker 7: I mean, I think high rates did achieve, you know,
Speaker 7: bringing inflation down. I think, you know, mession contributes in
Speaker 7: the sense in that way. Yeah, we saw housing slowing.
Speaker 7: We should see shelter inflation slowing at some point because
Speaker 7: of that, demand of courses is much weaker. But of course,
Speaker 7: you know that also means that there has been this
Speaker 7: increase in non employment. You would expect lower rates to eventually,
Speaker 7: you know, restimulate sectors like manufacturing or housing. But it
Speaker 7: will probably take a couple of quarters to see that.
Speaker 2: What did po rents the fantasy?
Speaker 6: I fan to see who we are?
Speaker 2: Yeah, yeah, I love that.
Speaker 6: I love the small rants, the sort of small frustrations.
Speaker 2: Everyone who didn't go with the fifty exactly got something to,
Speaker 2: you know, get annoyed about. It's great, Veronica, can we
Speaker 2: finish on housing at the price shelter? We've had so
Speaker 2: many different views on this that ultimately, if you unlock
Speaker 2: all that inventory, that supply prices actually might go down
Speaker 2: as interest rates get cut. How are you thinking about
Speaker 2: the forces this channel for interest rights to work in
Speaker 2: the housing marketing.
Speaker 7: Yeah, I think that is true eventually, but we're still
Speaker 7: a long way before we maybe get some kind of
Speaker 7: of supply response. I think we have seen rates coming down.
Speaker 7: Of course, mortgage rates have come down. We're watching, you know,
Speaker 7: the weekly data on mortgage applications filed for home purchases.
Speaker 7: That really hasn't picked up at all. I think the
Speaker 7: issue is that, yes, lower rates will stimulate demand for housing,
Speaker 7: but now we also have the issue of a weakening
Speaker 7: labor market and weakening consumer health offsetting that, and that
Speaker 7: might be the more overwhelming driver in the next couple
Speaker 7: of quarters.
Speaker 2: It's a final question. Next move twenty five fifty fifty
Speaker 2: fifty doesn't change it the city, it's going to see
Speaker 2: it joining us now and please to say Tom Becker
Speaker 2: of Black Rock, Tom, Good.
Speaker 8: Morning, morning, it's going to see.
Speaker 2: I feel like this narrative has gone back and forth
Speaker 2: for the best part of two years. Heard landing self
Speaker 2: heartblanding self, no lending, heartblanding self lending. What is it now?
Speaker 1: So we've got a bit of a different view than
Speaker 1: kind of Veronica's view there. So we're still in the
Speaker 1: no lending camp. So this economy to us has been
Speaker 1: a five to six percent nominal economy pretty consistently for
Speaker 1: two years now, and so some quarters it looks like
Speaker 1: inflation's a little too hot, then another quarter growths a
Speaker 1: little bit hotter. But you've been trading off with this
Speaker 1: economy kind of operating in this notably higher nominal kind
Speaker 1: of range than it was a pre pandemic. We think
Speaker 1: that's set to continue. The economy is much less interest
Speaker 1: rate sensitive than it was pre pandemic.
Speaker 8: People termed up their mortgages.
Speaker 1: A lot of the spending that we're seeing in industrials
Speaker 1: is coming from kind of a guns and butter two
Speaker 1: point zero what we're calling kind of you know, this
Speaker 1: fiscal policy reindustrialization on shoring, near shoring. That stuff is
Speaker 1: driving kind of interest rate insensitive spending back into the economy,
Speaker 1: and we think the consumer is actually really well set
Speaker 1: up here. They've got household balance sheets in really good
Speaker 1: shape in terms of wealth. They're earning much stronger wage
Speaker 1: growth than they were kind of pre pandemic. This is
Speaker 1: like nineteen nineties cy wage growth, and so that sets
Speaker 1: them up really well with interest income coming back into
Speaker 1: their flow. And we think inflation is settling now in
Speaker 1: a two point five to three percent range. FED seems
Speaker 1: okay with that here, but that's kind of a no
Speaker 1: landing outlook from our persent.
Speaker 2: And I think at one point the interest right sensitivity
Speaker 2: is that symmetrical or asymmetrical. If we weren't sensitive on
Speaker 2: the way up, are we sensitive on the way down?
Speaker 1: So I think if you just look at when people
Speaker 1: urn how much time people had to turn out debt,
Speaker 1: both corporate treasures households, they had all of twenty twenty
Speaker 1: all of twenty twenty one. That debt is still pretty
Speaker 1: fixed rate for a number of years here. So we
Speaker 1: don't think there's a lot of sensitivity for a lot
Speaker 1: of the spending. And that's kind of how the economies
Speaker 1: behave the last.
Speaker 8: Couple of years.
Speaker 1: So we think that's kind of set to continue their
Speaker 1: pockets of weakness, and I think, you know, a fifty
Speaker 1: point basis cut definitely is going to you know, bolster
Speaker 1: those parts of the economy that had been a little
Speaker 1: bit more. But overall, the economy is performing like it
Speaker 1: doesn't really get impacted by kind of these these swings
Speaker 1: and rates we've had the last.
Speaker 8: Couple of years.
Speaker 6: I want to put that on a real no landing
Speaker 6: hard lighting, soft linking, soft lighting, hard landing party. I
Speaker 6: think that was as so many last I mean, it
Speaker 6: was really absolutely perfect. It kind of brought back, you know, flashes.
Speaker 6: This idea of the no landing is a US specific story.
Speaker 6: I don't think that Germany is feeling no landing right now.
Speaker 6: How do you sort of play the idea that the
Speaker 6: US has been the dominant overweight for so long, continues
Speaker 6: to look like it's probably the strongest economy on a
Speaker 6: relative basis, yet is still at pretty high valuations.
Speaker 1: Yeah, sure, so I think you picked on the poster
Speaker 1: child of kind of the weak man of Europe. If
Speaker 1: we look broadly across Europe, the perferey is booming. Perfecy
Speaker 1: hasn't looked this good in decades. So look at Italy,
Speaker 1: look at Spain, They're doing great. Canada lagging a little
Speaker 1: bit more. Canada's more interest rates sensitive, Germany is more
Speaker 1: Russia and China sensitive. So you definitely have economies that
Speaker 1: are a little bit weaker, but their nominal growth is
Speaker 1: higher too, their wage growth is higher too, And so
Speaker 1: you've got developed markets with all time tight labor markets.
Speaker 1: We think the US labor market's much tighter than kind
Speaker 1: of you know, maybe this recent rise in unemployment, you know, bigets,
Speaker 1: but you've got kind of Japan kind of firing on
Speaker 1: all cylinders, strong CPI data overnight. In the totality, we
Speaker 1: think Europe looks pretty robust, and the valuations there in
Speaker 1: the positioning are light, and so we're a macro tactical team.
Speaker 1: We look for kind of opportunities where the narrative is negative,
Speaker 1: where people are focusing on Germany but maybe missing that
Speaker 1: the periphery and the rest of Europe look better, and
Speaker 1: so over the summer and then more recently we've been
Speaker 1: stepping into kind of tactical lungs outside the US.
Speaker 8: So I agree with you completely.
Speaker 1: So like the US does look well held overbought. Every
Speaker 1: time people kind of step out and go into foreign markets,
Speaker 1: there's a French election, or there's like the kind of
Speaker 1: the Bungled press conference and the boj so like, let
Speaker 1: me just go back to the US.
Speaker 8: We think that that kind.
Speaker 1: Of that creates opportunity and creates kind of pockets of
Speaker 1: you know, good pricing for us to kind of step
Speaker 1: into these strong global companies and strong industries.
Speaker 6: No one's listening. Is it just that you look to
Speaker 6: go to places that you actually want to go to.
Speaker 6: It's sort of our fun to go to.
Speaker 5: I feel like that's part of it.
Speaker 6: I've been to Japan ten times. I've been to Greece
Speaker 6: check out their beaches and then invested, you know, I mean,
Speaker 6: is that basically what people are doing.
Speaker 1: I think Americans have been spending in those places. So
Speaker 1: we just did a podcast on Taylor swift Era's effect
Speaker 1: in Europe and so much that you've got kind of
Speaker 1: countries like Sweden where they had all time high month
Speaker 1: month services inflation just because she did three shows in Sockholm.
Speaker 8: So and that's a.
Speaker 1: Lot of Americans flying over because they're like, oh, it's
Speaker 1: cheaper than going the meadow lands, and so I think
Speaker 1: that there is this People are spending differently. People are
Speaker 1: not behaving like they think their jobs are in danger.
Speaker 1: And I think the income this late last labor market report,
Speaker 1: you can say, oh, look the trend job, the kind
Speaker 1: of the creation of jobs a.
Speaker 8: Little bit lower.
Speaker 1: Hours are up, wages are up, and so that's money
Speaker 1: in people's pockets that they're spending. And I think in
Speaker 1: these foreign markets, nominal incomes are higher, so unemployment rates
Speaker 1: are low, and people are making more than they were
Speaker 1: in the last decade. We think they're kind of going
Speaker 1: to start spending it more and savings rates can come
Speaker 1: down in Europe and they can kind of unlock a
Speaker 1: consumer that they haven't had for years.
Speaker 2: I had a great line the other day, and it
Speaker 2: was borderline insulting. It was don't invest in countries with
Speaker 2: grain and the flag. And Italy was part of that story.
Speaker 2: For a long time in Europe. The white people view
Speaker 2: Europe was that Germany is strong and Italy's wake, and
Speaker 2: it's the complete opposite it now on the continent, when
Speaker 2: you look to take that exposure you alluded to it
Speaker 2: just to touch. We used to talk about it through
Speaker 2: the currency, but now the currency is hound backed by
Speaker 2: developments in China, what's happening in Germany. How do you
Speaker 2: take that exposure? If you just want to get exposure
Speaker 2: to Italy specifically, Yeah, so you can.
Speaker 8: Buy the index. That's what we do.
Speaker 1: We buy the local index, the foot cy mid get
Speaker 1: exposure to kind of the broad set of Italian companies.
Speaker 1: You've got banks in there, they're doing well, it's spreads
Speaker 1: coming in, but you've got a lot of kind of
Speaker 1: services based companies that aren't exposed to kind of Russian
Speaker 1: gas or to Chinese exports.
Speaker 8: So that's the way we do it there.
Speaker 1: Since we're top down macro investors, we focus on that
Speaker 1: country dimension. So we're going in the local you know,
Speaker 1: we separate the currency bet from from the local equity
Speaker 1: market bet, and so we can be underweight dollars, but
Speaker 1: we can also be kind of long a foreign kind
Speaker 1: of you know, local equity.
Speaker 2: I've got a question on a on the Bloomberg terminal
Speaker 2: from the Bloombag subscriber. I think a lot of people
Speaker 2: might have a similar question. You keep referring to high
Speaker 2: normal with GDP. Of course, high prices have been a
Speaker 2: big factor in that. If you think things going to
Speaker 2: hold up at these kind of levels. What's your routlook
Speaker 2: for inflation? At least it's been talking about steeper curves
Speaker 2: and gold breaking out as well. What's your outlook for inflation?
Speaker 8: We think we've settled in this new higher range. Three
Speaker 8: three is a new two.
Speaker 1: I think two and a half to three here because
Speaker 1: we've had kind of a bit of a weakening after
Speaker 1: a strong Q one. But we think services inflation is
Speaker 1: going to really underpin higher inflation rates. You've got consumers
Speaker 1: consuming in a services based economy, but you've also got
Speaker 1: a lot of structural changes. Insurance markets are kind of
Speaker 1: a multi year repricing to kind of higher nominal valuations.
Speaker 1: Insurance rates in California going up twenty five thirty forty
Speaker 1: percent for households, and that feeds through into the economy.
Speaker 1: Restaurants have to raise their prices to deal with that.
Speaker 1: And so I think there are these slower moving effects
Speaker 1: that are underappreciated as people focused month on month, or
Speaker 1: you know, was it jet fuel this month? Was it, oh,
Speaker 1: we are this it's like, but if you look at
Speaker 1: that slower moving kind of dynamic of sticky services inflation.
Speaker 8: It's not just the US.
Speaker 1: It's happening across all these developed markets, tight labor markets,
Speaker 1: people spending more of their wage growth, and that's feeding
Speaker 1: through the kind of sticky services inflation. So China can
Speaker 1: bring down goods inflation for a few quarters like it
Speaker 1: has and then you're like, oh, you know, false dawn,
Speaker 1: you know we've landed. But I think then it bounces
Speaker 1: back up if you get a surprise stimulus program, Drogy,
Speaker 1: I think a call to arms for fiscal In Europe,
Speaker 1: they always react too slow, but I think in Europe
Speaker 1: you should think they're going forward. There might be some
Speaker 1: fiscal there might be another kind of upward surprise there.
Speaker 2: This was one of the sharpest conversations we've had this week.
Speaker 2: Appreciate perspective.
Speaker 8: Come back soon.
Speaker 2: This is the Bloomberg Seventans podcast, bringing you the best
Speaker 2: in markets, economics, an giet politics. You can watch the
Speaker 2: show live on Bloomberg TV weekday mornings from six am
Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple,
Speaker 2: Spotify or anywhere else you listen, and as always on
Speaker 2: the Live bug terminal and look Bloomberg Business out
Speaker 6: Mm hmm.