WEBVTT - Bloomberg Surveillance TV: September 20, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:38.000 Terminal and the Bloomberg Business App. Jake Piloski of TPW 0:00:38.040 --> 0:00:41.280 with Stock's coming off their thirty ninth record high this year. 0:00:41.440 --> 0:00:43.720 We'll catch up with Punam Goel of Bloomberg Intelligence as 0:00:43.840 --> 0:00:47.000 Nike is attempted to stage a comeback, and Matt Hornback 0:00:47.000 --> 0:00:50.000 of Morgan Stanley calling for a string of twenty five 0:00:50.080 --> 0:00:52.600 basis point raid cuts. We begin with our top story, 0:00:52.640 --> 0:00:55.120 Stock's coming off their thirty ninth all time high so 0:00:55.200 --> 0:00:58.320 far this year. Jake Peloski of TPW writing, the Fed's 0:00:58.360 --> 0:01:01.720 move is likely divorce. Even the iheard recession easters to 0:01:01.760 --> 0:01:03.920 give up on that point of view, there is no 0:01:03.960 --> 0:01:07.360 sign of recession. Anywhere. There is no major imbalance in 0:01:07.440 --> 0:01:11.680 any part of the US global economy. Jay joins us 0:01:11.720 --> 0:01:14.080 now for more Welcome to the program. I'm going to 0:01:14.080 --> 0:01:16.039 repeat that line again. There is no sign of a 0:01:16.120 --> 0:01:21.720 major imbalance in any part of the US global economy. Jay, China. 0:01:22.040 --> 0:01:24.959 Discuss what's happening in the world. Second launch economy. 0:01:26.520 --> 0:01:29.520 John, It's growing at almost five percent, which is more 0:01:29.600 --> 0:01:33.280 than twice as much as the number one economy in 0:01:33.280 --> 0:01:35.440 the world of the United States. And for all the 0:01:35.480 --> 0:01:38.920 doom and gloom and China look, as an investor, the 0:01:39.040 --> 0:01:42.199 question is what's in the price? And when you look 0:01:42.240 --> 0:01:46.600 at China performs equity. 0:01:46.200 --> 0:01:47.760 Wise, if you look at the valuation. 0:01:49.080 --> 0:01:52.080 My point is one example is Ali Baba right, the 0:01:52.120 --> 0:01:56.720 big tech SoC We're believers in a two tech stack thesis. 0:01:56.880 --> 0:02:00.840 China walling off its stack, US walling off tech and 0:02:01.000 --> 0:02:03.720 Ali Baba just announced that it now has the world's 0:02:03.800 --> 0:02:08.440 leading large language model, open source large language model. 0:02:09.080 --> 0:02:12.040 It's buying backstock at record levels. 0:02:12.520 --> 0:02:16.440 It trades at a fraction of the valuation of its 0:02:16.560 --> 0:02:19.400 US prs, and so to us, it's all in the price. 0:02:19.600 --> 0:02:22.720 And just note that k Web was up four and 0:02:22.760 --> 0:02:25.280 a half percent yesterday it broke back above its two 0:02:25.360 --> 0:02:28.960 hundred day moving average, and it's emblematic of what we 0:02:29.080 --> 0:02:32.120 want to do right here. You talked earlier in the 0:02:32.200 --> 0:02:34.359 lead up that I don't really care about a lot 0:02:34.360 --> 0:02:36.840 of what you and Lisa have been discussing. And you 0:02:36.880 --> 0:02:39.919 know that's not quite true, but it's truly mostly. 0:02:40.440 --> 0:02:42.040 Do you want to come back on this show again? 0:02:45.760 --> 0:02:48.480 And I would just make you two points before we 0:02:48.600 --> 0:02:52.480 talk about the investment opportunities that we see at TBW 0:02:52.600 --> 0:02:54.240 Advisory Number one. 0:02:54.320 --> 0:02:57.200 Jay, it's not a presentation, just a step at a time. 0:02:57.280 --> 0:02:58.880 Let's just start with your views on China and then 0:02:58.919 --> 0:03:01.080 Brama wants a follow up, Well on. 0:03:01.160 --> 0:03:05.280 A second, Jay, Actually, when it comes to China, I 0:03:05.400 --> 0:03:07.840 just have one word or one company to throw out 0:03:07.840 --> 0:03:10.480 at you. Mercedes Benz, how do you understand that with 0:03:10.520 --> 0:03:14.800 all of this optimism that you just expressed, Well, I. 0:03:14.800 --> 0:03:17.920 Express optimism about the tech stack and Ali Baba, I 0:03:17.919 --> 0:03:21.120 didn't say anything about auto companies. Look, we're big, but 0:03:21.280 --> 0:03:24.600 you know we have a TPW twenty model portfolio which 0:03:24.680 --> 0:03:26.560 is focused on future. 0:03:26.200 --> 0:03:27.639 Innovation and climate. 0:03:27.960 --> 0:03:32.079 So we're very focused on the China's leadership in Queen energy, 0:03:32.160 --> 0:03:36.520 renewables and evs and the simple fact is that China 0:03:36.680 --> 0:03:40.720 is eating the lunch of pretty much everyone but Tesla 0:03:41.320 --> 0:03:45.760 in terms of EV production activities, sales, innovation, et cetera. 0:03:46.160 --> 0:03:49.840 China is the world's innovator in queen energy, and the 0:03:49.880 --> 0:03:54.360 European auto companies are just watching their market share in China, 0:03:54.400 --> 0:03:57.520 which is a critical market for them, just simply disappear. 0:03:57.560 --> 0:04:00.560 And it's not even Mercedes Benz, it's Volkswagen, which is 0:04:00.600 --> 0:04:04.800 out talking about laying off thirty thousand employees in Germany 0:04:05.160 --> 0:04:08.160 for the first time in its ninety year history. There's 0:04:08.200 --> 0:04:11.560 a reason why Mario Dragi came out last week with 0:04:11.640 --> 0:04:15.320 the European Competitiveness Report instead that Europe needs to be 0:04:15.360 --> 0:04:19.120 more like what the US has been doing, public private partnership, 0:04:19.480 --> 0:04:25.400 venture capital, innovation at scale, and the automakers are certainly 0:04:25.560 --> 0:04:29.159 emblematic of that concern for Europe. 0:04:29.440 --> 0:04:31.800 So Jake, for people seduced by your view of the world, 0:04:31.839 --> 0:04:33.720 I know it's a multi year view and a way 0:04:33.720 --> 0:04:36.880 of expressing it is the commodity market iron ore off 0:04:36.880 --> 0:04:38.919 the highs of the year, base metals copper off the 0:04:38.960 --> 0:04:40.760 highs for the year. What kind of moves you're looking 0:04:40.800 --> 0:04:41.520 for in commodities. 0:04:41.600 --> 0:04:45.280 Ja, Yeah, John, you know, surprise hit the nail on 0:04:45.320 --> 0:04:47.279 the head. That's where we want to focus right now. 0:04:47.480 --> 0:04:49.640 I wanted to mention the two strengths. One is in 0:04:49.680 --> 0:04:53.040 the global economy absorbing one of the most aggressive rate 0:04:53.120 --> 0:04:58.400 heights cycles in modern history without a recession. That's something 0:04:58.400 --> 0:05:01.120 we need to pay attention to. And likewise, in the 0:05:01.160 --> 0:05:04.880 equity markets, particularly in the US, new all time highs, 0:05:04.880 --> 0:05:08.080 as you noted it, thirty nine all time highs this year, 0:05:08.480 --> 0:05:13.000 while tech, the leadership sector in the lead dog Na video, 0:05:13.520 --> 0:05:15.560 is down twenty percent from its high. 0:05:16.320 --> 0:05:17.640 We have to respect the. 0:05:17.680 --> 0:05:21.480 Fact that trends are powerful and they are moving in 0:05:21.520 --> 0:05:24.760 the right direction, both in the global economy and in 0:05:24.880 --> 0:05:26.320 the risk asset markets. 0:05:26.480 --> 0:05:28.040 So what do we want to do here? How do 0:05:28.080 --> 0:05:28.919 we want to invest? 0:05:29.560 --> 0:05:32.080 We want to sell the things that have done well 0:05:32.120 --> 0:05:34.279 on the idea that there's going to be a recession, 0:05:34.720 --> 0:05:37.720 because there's not. And so we don't like fixed income 0:05:38.200 --> 0:05:40.680 Lisa talked about, you know, three point seven percent on 0:05:40.760 --> 0:05:44.479 the tenure unattractive if the neutral rate is three percent. 0:05:45.000 --> 0:05:48.560 We want to focus on a long the context of 0:05:48.600 --> 0:05:54.720 a long cycle, sustainable soft landing equals sustainable equals our 0:05:54.760 --> 0:05:58.239 global macro blue sky outlook, which we've talked about twenty 0:05:58.279 --> 0:06:01.599 twenty three to twenty twenty seven. We're now focusing on that, 0:06:02.480 --> 0:06:06.280 not the next quarter, not the next six months, the 0:06:06.320 --> 0:06:09.560 next several years. We hit We believe we're in a setup, 0:06:09.880 --> 0:06:11.880 and their commodities look really. 0:06:11.680 --> 0:06:12.520 Really attractive. 0:06:12.880 --> 0:06:16.160 Baa pointed out allocations to commodities are at a seven 0:06:16.240 --> 0:06:20.400 year low. Hedge funds are their most short commodities they've 0:06:20.400 --> 0:06:23.840 been in a decade, So there's a real opportunity there. 0:06:24.080 --> 0:06:27.440 There's a real opportunity in buying the laggards, things like 0:06:27.600 --> 0:06:31.279 small cap things like the non US markets, which are 0:06:31.600 --> 0:06:34.640 still ten to fifteen percent off their highs. China is 0:06:34.720 --> 0:06:36.680 forty percent off its I'm not going to say it's 0:06:36.720 --> 0:06:37.240 going to go to a. 0:06:37.160 --> 0:06:40.240 New high, but we want to be buying the laggards. 0:06:40.480 --> 0:06:43.200 If this is going to be a long cycle, a 0:06:43.240 --> 0:06:47.559 sustainable growth path, a fed cutting through twenty twenty six, 0:06:48.360 --> 0:06:50.680 that's what investors need to be paying attention to. We 0:06:50.720 --> 0:06:54.840 wrote a piece several weeks ago, zoom out not in Jay. 0:06:55.320 --> 0:06:57.520 All of this leads me to question what your view 0:06:57.600 --> 0:06:59.719 is and utility. It's one of the most loved areas 0:06:59.760 --> 0:07:01.400 out there, And I know that sounds like a hyper 0:07:01.400 --> 0:07:05.880 specific point with a lot of the calls you're making, 0:07:05.920 --> 0:07:08.200 but it seems like it's a one two punch. They've 0:07:08.200 --> 0:07:12.040 done really well just as a performance, but also they 0:07:12.040 --> 0:07:15.040 would benefit as a bond proxy both of those reasons. 0:07:15.080 --> 0:07:17.240 How much do you think that that very loved trade 0:07:17.840 --> 0:07:21.080 is not going to do so well well? 0:07:21.640 --> 0:07:26.280 Utilities that argue have done well in part because they're 0:07:26.400 --> 0:07:29.920 viewed as a recession hedge, and in part because they 0:07:30.040 --> 0:07:32.840 are viewed as being in one of the hot sectors, 0:07:32.880 --> 0:07:37.800 which is power generation for the data center and data 0:07:37.920 --> 0:07:42.040 centers and AI revolution, which we're big believers, and we 0:07:42.080 --> 0:07:46.480 own an ETF called grid Grid as our way to 0:07:46.480 --> 0:07:49.400 employ this, and grid just broke out and is at 0:07:49.720 --> 0:07:50.880 a new all time high. 0:07:51.160 --> 0:07:53.080 So that's the way we're playing it. 0:07:53.200 --> 0:07:55.680 We don't really like the utilities at this point because 0:07:55.680 --> 0:07:59.160 they've been pretty well exposed, and we don't think rates 0:07:59.160 --> 0:08:01.400 are going lower, and we don't think there's going to 0:08:01.400 --> 0:08:04.440 be a recession rates on the long end, not on 0:08:04.480 --> 0:08:08.400 the short end obviously, So what we like is industrials, right. 0:08:08.440 --> 0:08:10.360 I think one of the surprises in the next couple 0:08:10.400 --> 0:08:14.080 of months is that the ism for manufacturing is going 0:08:14.120 --> 0:08:16.440 to break back up above fifty, and you look at 0:08:16.440 --> 0:08:17.080 what's leaving. 0:08:17.160 --> 0:08:19.360 I made the point about markets at all time. 0:08:19.200 --> 0:08:24.840 Highs, while tech is still well off its all time high, Industrials, financials, 0:08:25.240 --> 0:08:29.440 real estate. There are multiple sectors that are breaking out. 0:08:29.920 --> 0:08:31.880 And one of the things we like, in addition to 0:08:32.520 --> 0:08:36.520 industrials we just added a position is in consumer discretionary. 0:08:36.880 --> 0:08:40.320 You talked about FedEx, Amazon is very attractive. 0:08:40.440 --> 0:08:42.320 Tests is very interesting here. 0:08:42.920 --> 0:08:47.600 They make up forty percent of XLI, the consumer discretionary 0:08:47.880 --> 0:08:51.280 ETF and that's an example of where we're moving to 0:08:51.840 --> 0:08:53.240 as opposed to where we've been. 0:08:53.600 --> 0:08:56.160 This was Jake Pilowski's TED Talk, brought to you by 0:08:56.200 --> 0:08:58.720 tpwj's good to see you as always your good friends. 0:08:58.720 --> 0:09:11.480 You're welcome back, Anton, appreciate it. Let's talk about rates. 0:09:11.559 --> 0:09:14.240 The ray Cut euphoria is failing as Marcus begin to 0:09:14.280 --> 0:09:17.439 wander about underlying economic weakness. Forronica Clark of City saying 0:09:17.640 --> 0:09:20.400 powpaired a fifty basis point ray cup with an emphasis 0:09:20.480 --> 0:09:23.200 on the low level of the unemployment rate and confidence 0:09:23.200 --> 0:09:25.680 on the path ahead. We disagree with the view that 0:09:25.720 --> 0:09:29.080 recession risk is not elevated. A continued rise in unemployment 0:09:29.280 --> 0:09:32.520 will likely have them cutting faster than their dots. Imply 0:09:32.679 --> 0:09:34.800 Forronica joint Us. Now for more Forronica Carnic. 0:09:34.880 --> 0:09:35.360 Good morning. 0:09:35.440 --> 0:09:37.080 This is not going to be a therapy session. 0:09:37.160 --> 0:09:37.679 Don't worry. 0:09:37.679 --> 0:09:39.120 I'm not going to make it. That won't insult you 0:09:39.160 --> 0:09:40.440 with that, But I do want to talk about how 0:09:40.480 --> 0:09:42.960 you and the team thought about this on Wednesday, and 0:09:43.000 --> 0:09:44.720 for our audience who might not be familiar with the 0:09:44.720 --> 0:09:46.960 work that you and Andrew do. You were out front 0:09:46.960 --> 0:09:49.439 on the fifty basis point call. You said it was 0:09:49.520 --> 0:09:52.079 data dependent. The data came out, the data wasn't bad, 0:09:52.120 --> 0:09:54.640 and you changed the caller twenty five. What were you 0:09:54.679 --> 0:09:56.199 thinking when that dropped on Wednesday. 0:09:56.400 --> 0:09:58.880 Yeah, it's been a crazy couple of weeks. We did 0:09:58.960 --> 0:10:01.440 change our base case for Wednesday back to a twenty 0:10:01.440 --> 0:10:04.000 five basis point cut after we saw CPI a week 0:10:04.000 --> 0:10:07.959 ago stronger, you know details, stronger shelter inflation. Again, we 0:10:07.960 --> 0:10:11.000 were thinking maybe that was the easier compromise for the 0:10:11.040 --> 0:10:14.160 Hawks who are still concerned about inflation. But I think it, 0:10:14.360 --> 0:10:15.960 you know, on Wednesday, of course, when we got the 0:10:15.960 --> 0:10:18.839 fifty basis point cut, it is is definitely justifiable based 0:10:18.840 --> 0:10:21.679 on the weakening of the labor market. And we did 0:10:21.760 --> 0:10:24.000 learn that, you know, FED officials are kind of dismissive 0:10:24.000 --> 0:10:27.080 of stronger CPI. You know, Chair Powell was very dismissive 0:10:27.120 --> 0:10:29.920 of that stronger shelter reading, just expecting that that will 0:10:29.920 --> 0:10:31.600 slow and it is really the labor market. 0:10:31.760 --> 0:10:33.600 It's an important lesson for SILVI. So talk to us 0:10:33.640 --> 0:10:35.640 about what you'll be looking for between nine to m seven. 0:10:35.760 --> 0:10:37.760 What will guide the automate coal for you and the team. 0:10:37.920 --> 0:10:40.719 Right, well, we'll have two monthly employment reports, so that's 0:10:40.720 --> 0:10:43.839 of course perils and the unemployment rate. Those were really 0:10:43.880 --> 0:10:46.520 the most important of course watching you know, all the 0:10:46.559 --> 0:10:49.600 labor market data, you know, weekly initial jobless claims. But 0:10:49.679 --> 0:10:52.400 we do think this is a weakening labor market. We've 0:10:52.400 --> 0:10:54.960 seen that more pronounced in the last three or four months. 0:10:55.400 --> 0:10:57.160 Of course, that's what got us to the fifty basis 0:10:57.160 --> 0:10:59.760 point cut this week. I think that trend will continue. 0:10:59.800 --> 0:11:02.080 I think we'll see more weakness in those two employment 0:11:02.120 --> 0:11:04.040 reports and it's another fifty in November. 0:11:04.400 --> 0:11:06.319 This to me is a really important point that you 0:11:06.360 --> 0:11:08.160 think that it's going to be just as aggressive going 0:11:08.200 --> 0:11:10.880 forward because of the weakness that we see. There's been 0:11:10.880 --> 0:11:15.360 a real question around just how well this transmission mechanism 0:11:15.440 --> 0:11:18.439 of the FED policy can actually help support the economy. 0:11:18.480 --> 0:11:21.600 Do you think that, given the reaction to this latest 0:11:21.600 --> 0:11:24.120 FED meeting, that will help stave off some of the 0:11:24.160 --> 0:11:25.760 weakness that you're expecting to see. 0:11:26.200 --> 0:11:26.600 I don't know. 0:11:26.640 --> 0:11:28.760 I mean a couple of months ago, the narrative was 0:11:28.800 --> 0:11:31.280 that the economy is so strong and the FED doesn't 0:11:31.280 --> 0:11:33.960 have to cut because of that, And now we're saying 0:11:33.960 --> 0:11:35.960 the economy is strong because the Fed is cutting. But 0:11:36.000 --> 0:11:38.440 what's changed in that period is the labor market data 0:11:38.440 --> 0:11:40.640 have weakened, and it just seems like that trend will 0:11:40.679 --> 0:11:44.680 will continue. These things are really hard to prevent. Once 0:11:44.720 --> 0:11:47.760 you do get raised substantially lower back to neutral, I 0:11:47.800 --> 0:11:50.400 think that, or maybe even a bit below neutral, I 0:11:50.400 --> 0:11:53.400 think that can you restimulate things. But we're still a 0:11:53.400 --> 0:11:54.520 long ways from that right now. 0:11:54.720 --> 0:11:56.760 Pauled out of it a VBS earlier, So they don't 0:11:56.760 --> 0:11:58.800 know anything that you don't know, So don't stop thinking that. 0:11:58.880 --> 0:12:02.440 It's not like there's some kind of sort of feeling 0:12:02.640 --> 0:12:06.600 underneath this fear of recession on the FED committee. How 0:12:06.640 --> 0:12:08.480 much do you think that that's true? 0:12:09.320 --> 0:12:11.120 I think there may be a bit or at least 0:12:11.160 --> 0:12:13.480 maybe Powell is a bit more worried than he's letting on. 0:12:13.640 --> 0:12:15.760 I mean, we are all looking at the same data, 0:12:16.240 --> 0:12:18.920 and he is looking at you know, falling hiring rates 0:12:18.960 --> 0:12:22.520 like we are. You know, maybe some early signs that 0:12:22.559 --> 0:12:26.160 there are actually a pickup in layoffs. The transitions for 0:12:26.200 --> 0:12:28.320 the last couple of months of people moving from employed 0:12:28.320 --> 0:12:31.400 to unemployed have actually increased, the highest since twenty sixteen. 0:12:32.080 --> 0:12:35.360 And I think he's worried that once you do see large, 0:12:35.760 --> 0:12:38.040 clear signs of layoffs, that's when it's too late. You 0:12:38.080 --> 0:12:38.840 want to get ahead of that. 0:12:38.880 --> 0:12:40.920 I'm going to take this conversation to the edge of ridiculous. 0:12:40.960 --> 0:12:42.840 But there were times I'm going to read the body language, 0:12:42.880 --> 0:12:45.120 now forgive me. There were times in that news conference 0:12:45.120 --> 0:12:47.440 where it found a little bit performative, it found a 0:12:47.440 --> 0:12:50.200 little bit false. The confidence things are great, Things are great, 0:12:50.240 --> 0:12:52.960 Ignore the fifty the size of it. This is a recalibration. 0:12:53.040 --> 0:12:55.240 Things are good. Okay, do not feel the same thing. 0:12:55.320 --> 0:12:57.160 Yeah, No, I felt the exact same thing, because there 0:12:57.240 --> 0:12:59.920 was you know, in previous times, in previous news conference. 0:13:00.120 --> 0:13:04.959 Is he was less practiced, he fumbled more, he didn't 0:13:04.960 --> 0:13:07.400 seem to have the same kind of I don't know, 0:13:07.800 --> 0:13:10.120 polish in the same kind of way. This was someone 0:13:10.160 --> 0:13:11.880 who is acting as a lawyer, which was the reason 0:13:11.920 --> 0:13:14.760 why that Kit Juke's comment was so interesting earlier this week. 0:13:14.920 --> 0:13:15.719 This was someone who was. 0:13:15.679 --> 0:13:19.480 Making a case more than say, delivering a message. That 0:13:19.760 --> 0:13:20.800 was his true message. 0:13:20.800 --> 0:13:22.920 It felt like a performance. Let's get back to race, 0:13:23.040 --> 0:13:24.920 Let's make a park there. Just let's get it out. 0:13:25.120 --> 0:13:26.839 It's out there now, Okay, let's get back to race. 0:13:26.880 --> 0:13:29.080 At least when I were talking about this earlier about 0:13:29.120 --> 0:13:31.720 whether how you view the rate cut path implied by 0:13:31.720 --> 0:13:33.679 the dot plot from here, whether that's a sailing or 0:13:33.720 --> 0:13:36.319 a flaw for interest rates. So Matt Hornback Morgan Stanley 0:13:36.320 --> 0:13:38.480 framed it better than I could. He said, if they're wrong, 0:13:38.720 --> 0:13:41.080 how are they wrong? And I think what you're ultimately 0:13:41.120 --> 0:13:43.600 saying is we should consider that ceiling for rates because 0:13:43.600 --> 0:13:46.400 they're going to get back to neutral quicker than they think. 0:13:46.559 --> 0:13:46.719 Right. 0:13:46.800 --> 0:13:46.959 Yeah. 0:13:47.000 --> 0:13:47.520 Absolutely. 0:13:47.559 --> 0:13:50.320 The last couple, you know, summary of Economic productions has 0:13:50.320 --> 0:13:52.880 almost felt like a marketing to market. This is where 0:13:52.920 --> 0:13:55.600 the market already is in terms of rate cuts. It's 0:13:55.640 --> 0:13:57.920 also a marking to market in terms of the unemployment rate. 0:13:57.960 --> 0:14:01.480 Obviously they had to raise that this week. And we're always, 0:14:01.559 --> 0:14:04.760 of course you first and foremost, basing our FED view 0:14:04.760 --> 0:14:06.720 on where we think the data are headed. And we 0:14:06.720 --> 0:14:08.320 don't think the data are going to evolve in a 0:14:08.360 --> 0:14:10.280 way that's consistent with that SEP, and they're going to 0:14:10.360 --> 0:14:10.840 have to do more. 0:14:11.280 --> 0:14:13.240 How much do you think that the reaction function of 0:14:13.240 --> 0:14:15.440 the FED is biased toward bigger cuts? I mean, how 0:14:15.480 --> 0:14:17.280 much do you think that that's what this signaled, rather 0:14:17.320 --> 0:14:20.200 than they wanted to start big and then move gradually. 0:14:20.600 --> 0:14:22.560 I think I think it's a pretty low bar to 0:14:22.600 --> 0:14:25.840 get some more larger cuts. Just we are very far 0:14:25.880 --> 0:14:28.560 from neutral. Paul has said a number of times that 0:14:29.000 --> 0:14:31.840 there's ample room to be cutting if if something goes wrong, 0:14:32.400 --> 0:14:34.440 and you do want to quickly get back to neutral 0:14:34.520 --> 0:14:36.560 in a in a weakening labor market, not get back 0:14:36.600 --> 0:14:37.720 to neutral a year from now. 0:14:38.000 --> 0:14:40.880 So media adults did this for this year and next year. 0:14:41.000 --> 0:14:43.520 The long dot did this came out just to touch 0:14:43.560 --> 0:14:44.920 How are you thinking about that long dot? 0:14:45.040 --> 0:14:45.280 Yeah? 0:14:45.280 --> 0:14:47.800 That is it is interesting. I do think there is 0:14:47.920 --> 0:14:50.120 that sense in which you know, maybe neutral way it's 0:14:50.120 --> 0:14:53.080 at least nominally are a bit higher. We wouldn't disagree 0:14:53.120 --> 0:14:56.000 with that, so sure, Yeah, three three and a half percent. 0:14:56.040 --> 0:14:59.080 I think that's probably fair. We essentially have them getting 0:14:59.080 --> 0:15:02.760 back to there, like a three percent kind of terminal rate, 0:15:03.000 --> 0:15:05.680 and I think that's fair. I would worry that, you know, 0:15:05.720 --> 0:15:08.000 even if that is a neutral rate, maybe they have 0:15:08.040 --> 0:15:09.160 to get a bit below neutral. 0:15:09.200 --> 0:15:12.200 Even poltonovany VPS came out and said, what did the 0:15:12.240 --> 0:15:14.520 high rates achieve? Not a whole lot? What the low 0:15:14.640 --> 0:15:16.800 rates achieve? Even if you go back to below neutral? 0:15:16.840 --> 0:15:18.880 What are we stimulating? Yeah, part of the economics. 0:15:18.920 --> 0:15:20.880 I mean, I think high rates did achieve, you know, 0:15:21.160 --> 0:15:23.880 bringing inflation down. I think, you know, mession contributes in 0:15:23.880 --> 0:15:26.720 the sense in that way. Yeah, we saw housing slowing. 0:15:26.760 --> 0:15:29.840 We should see shelter inflation slowing at some point because 0:15:29.840 --> 0:15:33.960 of that, demand of courses is much weaker. But of course, 0:15:34.040 --> 0:15:35.800 you know that also means that there has been this 0:15:35.840 --> 0:15:39.840 increase in non employment. You would expect lower rates to eventually, 0:15:39.880 --> 0:15:43.240 you know, restimulate sectors like manufacturing or housing. But it 0:15:43.280 --> 0:15:44.920 will probably take a couple of quarters to see that. 0:15:45.200 --> 0:15:47.080 What did po rents the fantasy? 0:15:47.080 --> 0:15:48.160 I fan to see who we are? 0:15:48.280 --> 0:15:49.600 Yeah, yeah, I love that. 0:15:49.640 --> 0:15:52.880 I love the small rants, the sort of small frustrations. 0:15:53.000 --> 0:15:55.600 Everyone who didn't go with the fifty exactly got something to, 0:15:55.640 --> 0:15:58.400 you know, get annoyed about. It's great, Veronica, can we 0:15:58.440 --> 0:16:01.480 finish on housing at the price shelter? We've had so 0:16:01.520 --> 0:16:04.160 many different views on this that ultimately, if you unlock 0:16:04.200 --> 0:16:08.040 all that inventory, that supply prices actually might go down 0:16:08.120 --> 0:16:10.120 as interest rates get cut. How are you thinking about 0:16:10.120 --> 0:16:12.480 the forces this channel for interest rights to work in 0:16:12.480 --> 0:16:13.200 the housing marketing. 0:16:13.400 --> 0:16:16.200 Yeah, I think that is true eventually, but we're still 0:16:16.240 --> 0:16:18.400 a long way before we maybe get some kind of 0:16:18.400 --> 0:16:21.680 of supply response. I think we have seen rates coming down. 0:16:21.720 --> 0:16:24.640 Of course, mortgage rates have come down. We're watching, you know, 0:16:24.640 --> 0:16:28.200 the weekly data on mortgage applications filed for home purchases. 0:16:28.240 --> 0:16:30.480 That really hasn't picked up at all. I think the 0:16:30.520 --> 0:16:33.440 issue is that, yes, lower rates will stimulate demand for housing, 0:16:33.720 --> 0:16:36.120 but now we also have the issue of a weakening 0:16:36.200 --> 0:16:39.560 labor market and weakening consumer health offsetting that, and that 0:16:39.680 --> 0:16:41.880 might be the more overwhelming driver in the next couple 0:16:41.920 --> 0:16:42.280 of quarters. 0:16:42.280 --> 0:16:45.240 It's a final question. Next move twenty five fifty fifty 0:16:45.400 --> 0:16:49.000 fifty doesn't change it the city, it's going to see 0:16:49.000 --> 0:17:01.200 it joining us now and please to say Tom Becker 0:17:01.520 --> 0:17:02.640 of Black Rock, Tom, Good. 0:17:02.480 --> 0:17:03.720 Morning, morning, it's going to see. 0:17:04.040 --> 0:17:05.760 I feel like this narrative has gone back and forth 0:17:05.760 --> 0:17:07.680 for the best part of two years. Heard landing self 0:17:07.720 --> 0:17:11.400 heartblanding self, no lending, heartblanding self lending. What is it now? 0:17:11.960 --> 0:17:14.560 So we've got a bit of a different view than 0:17:14.720 --> 0:17:17.840 kind of Veronica's view there. So we're still in the 0:17:17.880 --> 0:17:21.520 no lending camp. So this economy to us has been 0:17:21.840 --> 0:17:25.439 a five to six percent nominal economy pretty consistently for 0:17:25.480 --> 0:17:28.199 two years now, and so some quarters it looks like 0:17:28.200 --> 0:17:31.200 inflation's a little too hot, then another quarter growths a 0:17:31.240 --> 0:17:33.520 little bit hotter. But you've been trading off with this 0:17:33.600 --> 0:17:38.680 economy kind of operating in this notably higher nominal kind 0:17:38.720 --> 0:17:41.200 of range than it was a pre pandemic. We think 0:17:41.240 --> 0:17:44.879 that's set to continue. The economy is much less interest 0:17:44.960 --> 0:17:46.840 rate sensitive than it was pre pandemic. 0:17:47.359 --> 0:17:48.760 People termed up their mortgages. 0:17:49.320 --> 0:17:52.720 A lot of the spending that we're seeing in industrials 0:17:52.840 --> 0:17:55.080 is coming from kind of a guns and butter two 0:17:55.080 --> 0:17:57.280 point zero what we're calling kind of you know, this 0:17:57.320 --> 0:18:02.680 fiscal policy reindustrialization on shoring, near shoring. That stuff is 0:18:02.760 --> 0:18:06.440 driving kind of interest rate insensitive spending back into the economy, 0:18:07.080 --> 0:18:09.320 and we think the consumer is actually really well set 0:18:09.400 --> 0:18:12.520 up here. They've got household balance sheets in really good 0:18:12.560 --> 0:18:16.359 shape in terms of wealth. They're earning much stronger wage 0:18:16.359 --> 0:18:18.679 growth than they were kind of pre pandemic. This is 0:18:18.680 --> 0:18:22.520 like nineteen nineties cy wage growth, and so that sets 0:18:22.520 --> 0:18:26.040 them up really well with interest income coming back into 0:18:26.200 --> 0:18:29.399 their flow. And we think inflation is settling now in 0:18:29.440 --> 0:18:32.960 a two point five to three percent range. FED seems 0:18:33.000 --> 0:18:35.200 okay with that here, but that's kind of a no 0:18:35.400 --> 0:18:36.640 landing outlook from our persent. 0:18:36.720 --> 0:18:39.040 And I think at one point the interest right sensitivity 0:18:39.280 --> 0:18:41.960 is that symmetrical or asymmetrical. If we weren't sensitive on 0:18:42.000 --> 0:18:43.600 the way up, are we sensitive on the way down? 0:18:44.200 --> 0:18:46.600 So I think if you just look at when people 0:18:46.800 --> 0:18:49.480 urn how much time people had to turn out debt, 0:18:49.480 --> 0:18:53.600 both corporate treasures households, they had all of twenty twenty 0:18:53.640 --> 0:18:56.719 all of twenty twenty one. That debt is still pretty 0:18:56.760 --> 0:18:59.040 fixed rate for a number of years here. So we 0:18:59.080 --> 0:19:01.760 don't think there's a lot of sensitivity for a lot 0:19:01.760 --> 0:19:04.160 of the spending. And that's kind of how the economies 0:19:04.200 --> 0:19:05.000 behave the last. 0:19:04.840 --> 0:19:05.440 Couple of years. 0:19:06.840 --> 0:19:09.080 So we think that's kind of set to continue their 0:19:09.160 --> 0:19:12.119 pockets of weakness, and I think, you know, a fifty 0:19:12.119 --> 0:19:14.680 point basis cut definitely is going to you know, bolster 0:19:14.840 --> 0:19:16.800 those parts of the economy that had been a little 0:19:16.840 --> 0:19:19.600 bit more. But overall, the economy is performing like it 0:19:19.600 --> 0:19:22.960