1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:36,400 Speaker 2: Terminal and the Bloomberg Business apps. 10 00:00:36,440 --> 00:00:37,640 Speaker 3: Out to run Temple send this. 11 00:00:38,000 --> 00:00:40,120 Speaker 2: I still see you upside for USA Cares, but we'll 12 00:00:40,159 --> 00:00:42,800 Speaker 2: have to be driven by earning's growth from here. So far, 13 00:00:42,880 --> 00:00:44,600 Speaker 2: the upside in the S and P has been narrow, 14 00:00:44,680 --> 00:00:47,080 Speaker 2: but I expect the earnings growth to broaden out as 15 00:00:47,120 --> 00:00:50,400 Speaker 2: we move through twenty twenty four with better participation from 16 00:00:50,440 --> 00:00:53,519 Speaker 2: other sectors beyond the tech and communications services and the 17 00:00:53,600 --> 00:00:55,400 Speaker 2: FAB five runs with us around the table. 18 00:00:55,480 --> 00:00:56,640 Speaker 3: Morning Run, Good morning. 19 00:00:56,640 --> 00:00:58,880 Speaker 2: We're not talking about MAX seven, We're talking about Fab five. 20 00:00:59,720 --> 00:01:00,480 Speaker 4: We draw well. 21 00:01:00,520 --> 00:01:02,160 Speaker 1: If you look at the year today, basically Apple and 22 00:01:02,200 --> 00:01:05,520 Speaker 1: Tesla have been a drag, even including yesterday's gains from Tesla. 23 00:01:05,319 --> 00:01:06,720 Speaker 4: So really it's the five stocks. 24 00:01:06,880 --> 00:01:09,080 Speaker 1: If I look at the earnings results so far this quarter, 25 00:01:09,520 --> 00:01:11,840 Speaker 1: all of the earnings growth this five stocks again, so 26 00:01:11,880 --> 00:01:13,800 Speaker 1: we're back in that story that we've had for the 27 00:01:13,880 --> 00:01:16,320 Speaker 1: last two and a quarter years where the rest of 28 00:01:16,360 --> 00:01:18,160 Speaker 1: the S and P five hundred is really not giving 29 00:01:18,200 --> 00:01:19,520 Speaker 1: us much to get excited about. 30 00:01:19,760 --> 00:01:21,560 Speaker 4: But I think that's going to change as we move 31 00:01:21,560 --> 00:01:22,039 Speaker 4: through the year. 32 00:01:22,160 --> 00:01:24,279 Speaker 3: What sounds you is going to change, well, part. 33 00:01:24,160 --> 00:01:25,800 Speaker 1: Of it is I look at and say, the only 34 00:01:25,880 --> 00:01:28,880 Speaker 1: way this demand for AI and technology investment can be 35 00:01:28,920 --> 00:01:31,600 Speaker 1: sustained is if the customers get a return on investment. 36 00:01:32,040 --> 00:01:34,280 Speaker 1: Companies aren't going to keep pouring money into these products 37 00:01:34,319 --> 00:01:37,480 Speaker 1: and services unless they see some benefits. The key question 38 00:01:37,520 --> 00:01:39,720 Speaker 1: to me is how quickly do we see those benefits? 39 00:01:40,000 --> 00:01:41,920 Speaker 1: Do they show up in the twenty twenty four pn L. 40 00:01:41,959 --> 00:01:44,759 Speaker 1: I'm a little skeptical. I'm hopeful on that front. But 41 00:01:44,800 --> 00:01:46,880 Speaker 1: more importantly, I think as we start looking at the 42 00:01:46,920 --> 00:01:50,960 Speaker 1: prospect of rate cuts, not just rate increases, interest expense 43 00:01:51,000 --> 00:01:53,720 Speaker 1: will shift income statements in the market. And I think 44 00:01:53,720 --> 00:01:57,680 Speaker 1: we're basically seeing an ongoing demand that shifted from goods 45 00:01:57,720 --> 00:02:00,680 Speaker 1: towards services, and that should also brought learning growth. 46 00:02:00,880 --> 00:02:02,840 Speaker 5: This was a story about six months ago too, and 47 00:02:02,920 --> 00:02:04,800 Speaker 5: a lot of people are talking about eventually we'd start 48 00:02:04,840 --> 00:02:07,480 Speaker 5: to see things broadening out with rate cuts, and then 49 00:02:07,480 --> 00:02:10,720 Speaker 5: I got pushed out three months, then another three months. Basically, 50 00:02:10,880 --> 00:02:13,440 Speaker 5: are we in purgatory until we get the sense that 51 00:02:13,440 --> 00:02:14,960 Speaker 5: the Fed is actually going to cut rates and if 52 00:02:15,000 --> 00:02:16,960 Speaker 5: they don't, you're not going to get a broadening out 53 00:02:16,960 --> 00:02:18,840 Speaker 5: from the FAB five for the foreseeable future. 54 00:02:19,639 --> 00:02:22,360 Speaker 1: Well, I guess this is where a key underlying assumption 55 00:02:22,400 --> 00:02:24,960 Speaker 1: for me is I'm still optimistic on the inflation front. 56 00:02:25,320 --> 00:02:28,000 Speaker 1: I fully recognized the first quarter was an ugly surprise. 57 00:02:28,160 --> 00:02:30,040 Speaker 1: Right January, I thought, okay, we can look at this 58 00:02:30,080 --> 00:02:32,600 Speaker 1: and maybe it's a January anomaly. We got February and 59 00:02:32,600 --> 00:02:35,040 Speaker 1: February was much better, but then March was kind of 60 00:02:35,080 --> 00:02:38,160 Speaker 1: crushing in terms of that optimism. We had service inflation 61 00:02:38,280 --> 00:02:40,440 Speaker 1: X shelter go from five point one percent annualized in 62 00:02:40,480 --> 00:02:42,760 Speaker 1: the fourth quarter to eight point seven in the first quarter. 63 00:02:43,160 --> 00:02:45,560 Speaker 1: Core PCE went from one point six to four point four. 64 00:02:46,240 --> 00:02:48,120 Speaker 1: I still think as we moved through the year, you're 65 00:02:48,160 --> 00:02:50,480 Speaker 1: going to see the labor markets showing us an easing 66 00:02:50,480 --> 00:02:52,880 Speaker 1: of tightness. And I think we're going to see that 67 00:02:52,880 --> 00:02:55,680 Speaker 1: pricing pressure in the service sector start to ease. One 68 00:02:55,720 --> 00:02:58,519 Speaker 1: of my favorite anecdotes, by the way, auto insurance has 69 00:02:58,560 --> 00:03:01,440 Speaker 1: been basically eighty basis points of the three point eight 70 00:03:01,440 --> 00:03:04,560 Speaker 1: percent of core CPI over the last year. It's three 71 00:03:04,600 --> 00:03:07,160 Speaker 1: and a half percent of the index. Now, auto insurance 72 00:03:07,200 --> 00:03:08,520 Speaker 1: rates are still going to go up for the next 73 00:03:08,560 --> 00:03:10,000 Speaker 1: six months, probably, but. 74 00:03:10,040 --> 00:03:11,560 Speaker 4: Not at twenty two percent annualized. 75 00:03:11,639 --> 00:03:13,480 Speaker 5: Steeper shoot of though, of Massujo would say, you can 76 00:03:13,560 --> 00:03:15,480 Speaker 5: cherry pick what you want, you still will have you 77 00:03:15,600 --> 00:03:16,760 Speaker 5: you can get to two percent. 78 00:03:16,520 --> 00:03:19,120 Speaker 6: Any which way. What would you have to see and 79 00:03:19,160 --> 00:03:19,360 Speaker 6: some of. 80 00:03:19,320 --> 00:03:22,239 Speaker 5: The numbers that are coming out starting with ECI, going 81 00:03:22,240 --> 00:03:24,680 Speaker 5: to adults that we get tomorrow, going to the payrolls 82 00:03:24,720 --> 00:03:27,519 Speaker 5: report on Friday as well as ISM data, what would 83 00:03:27,520 --> 00:03:30,120 Speaker 5: you have to see the change of view, Well. 84 00:03:29,960 --> 00:03:32,040 Speaker 1: I guess what I would want to see back to 85 00:03:32,080 --> 00:03:34,400 Speaker 1: the data this week. I think the ECI is probably 86 00:03:34,400 --> 00:03:36,720 Speaker 1: one of the best metrics for wage growth. It's fully 87 00:03:36,720 --> 00:03:40,200 Speaker 1: comprehensive wages and benefits. It also works better in terms 88 00:03:40,200 --> 00:03:42,320 Speaker 1: of adjusting for mixshift. If you look at average hourly 89 00:03:42,360 --> 00:03:44,760 Speaker 1: earnings that we're going to get on Friday, that can 90 00:03:44,760 --> 00:03:46,680 Speaker 1: be skewed. If you get more low paying jobs, it 91 00:03:46,680 --> 00:03:48,920 Speaker 1: makes wage growth look lower, so that one is probably 92 00:03:49,000 --> 00:03:52,240 Speaker 1: less valuable. So on ECI want to see basically anywhere 93 00:03:52,240 --> 00:03:54,640 Speaker 1: from a ninety zero hundred basis point reading. It'd be 94 00:03:54,680 --> 00:03:57,200 Speaker 1: great if we saw something below that. I don't know 95 00:03:57,200 --> 00:03:58,760 Speaker 1: if we see a one point two one point three 96 00:03:58,800 --> 00:04:01,280 Speaker 1: that's going to spook the markets. I think if we 97 00:04:01,320 --> 00:04:04,920 Speaker 1: look at the Jolt stata questionable in terms of reliability. 98 00:04:04,920 --> 00:04:07,000 Speaker 1: If you look at the response rate to the Jolt survey, 99 00:04:07,040 --> 00:04:09,760 Speaker 1: it's gone from sixty five to seventy percent pre pandemic 100 00:04:09,960 --> 00:04:12,400 Speaker 1: to thirty or thirty five percent, So some people do 101 00:04:12,520 --> 00:04:15,000 Speaker 1: question if the data is there's reliable. I like to 102 00:04:15,040 --> 00:04:17,640 Speaker 1: watch the quits rate within the Jolt stata. That tells 103 00:04:17,680 --> 00:04:20,159 Speaker 1: you are people finding better jobs where they're getting higher 104 00:04:20,200 --> 00:04:21,000 Speaker 1: wages and they're moving. 105 00:04:21,040 --> 00:04:22,360 Speaker 4: So it's another anecdote. 106 00:04:22,720 --> 00:04:24,719 Speaker 1: And then on Friday we'll wait and see the market 107 00:04:24,800 --> 00:04:27,320 Speaker 1: is saying around two hundred and forty thousand new nonfarm payrolls. 108 00:04:27,640 --> 00:04:29,359 Speaker 1: We need about one hundred and thirty to one hundred 109 00:04:29,360 --> 00:04:31,640 Speaker 1: and forty thousand in a typical environment to keep pace 110 00:04:31,720 --> 00:04:34,560 Speaker 1: with population growth. If we get a big upside surprise 111 00:04:34,560 --> 00:04:37,120 Speaker 1: and more positive revisions. You know, that's going to make 112 00:04:37,160 --> 00:04:39,719 Speaker 1: me a little more nervous that maybe this economy is reaccelerating. 113 00:04:39,720 --> 00:04:41,280 Speaker 1: And by the way, if I take this alongside the 114 00:04:41,360 --> 00:04:45,040 Speaker 1: data out of Europe this morning, upside surprises across the Eurozone, 115 00:04:45,440 --> 00:04:48,919 Speaker 1: positive albeit marginal commentary coming out of the Pollitt Burou 116 00:04:48,960 --> 00:04:51,280 Speaker 1: in China, you know, there is a risk that there's 117 00:04:51,279 --> 00:04:53,640 Speaker 1: a reacceleration here and that would basically undermine some of 118 00:04:53,680 --> 00:04:54,719 Speaker 1: my optimism on inflation. 119 00:04:54,880 --> 00:04:56,800 Speaker 7: To John's point earlier, so do you think Europe and 120 00:04:56,880 --> 00:04:59,799 Speaker 7: China are catching up to the US exceptionalism that maybe 121 00:04:59,880 --> 00:05:01,239 Speaker 7: is petering out? 122 00:05:01,400 --> 00:05:02,839 Speaker 4: That might be a little too optimistic. 123 00:05:02,880 --> 00:05:04,760 Speaker 1: I guess I look at Europe and saying going from 124 00:05:04,839 --> 00:05:08,160 Speaker 1: zero to something positive is really great. But you know, 125 00:05:08,640 --> 00:05:10,880 Speaker 1: I do think there will be improvement this year. And 126 00:05:10,920 --> 00:05:12,800 Speaker 1: I would also note, you know, I think the case 127 00:05:12,800 --> 00:05:15,400 Speaker 1: for the ECB cutting rates is a lot stronger. I mean, 128 00:05:15,680 --> 00:05:18,640 Speaker 1: you basically don't have debating and we're not debating whether 129 00:05:18,680 --> 00:05:21,760 Speaker 1: Europe is reaccelerating. We're basically, you know, there's it's clear 130 00:05:21,800 --> 00:05:24,000 Speaker 1: that Europe's going from zero to something very low on 131 00:05:24,080 --> 00:05:27,479 Speaker 1: growth and inflation has been smoothly decelerating in Europe. So 132 00:05:27,640 --> 00:05:29,400 Speaker 1: I think you're going to get one hundred basis points 133 00:05:29,400 --> 00:05:32,560 Speaker 1: of rate cuts from the ECB this year. And very importantly, 134 00:05:33,040 --> 00:05:36,000 Speaker 1: monetary policy decisions in Europe have a more immediate and 135 00:05:36,080 --> 00:05:39,000 Speaker 1: magnified impact on the economy than the UMS because a 136 00:05:39,000 --> 00:05:41,240 Speaker 1: lot more of the corporate rate is floating rate and 137 00:05:41,320 --> 00:05:43,599 Speaker 1: a lot more of the household debt is floating rate. 138 00:05:43,839 --> 00:05:46,240 Speaker 5: So right now you're saying that your base case is 139 00:05:46,279 --> 00:05:48,360 Speaker 5: you're going to get inflation coming in lower and you're 140 00:05:48,360 --> 00:05:48,599 Speaker 5: going to. 141 00:05:48,600 --> 00:05:49,480 Speaker 6: Get some rate cuts. 142 00:05:50,040 --> 00:05:53,600 Speaker 5: What's the playbook if you do see that reacceleration inflation 143 00:05:53,920 --> 00:05:55,960 Speaker 5: and that case comes to play. 144 00:05:56,560 --> 00:05:58,479 Speaker 1: Yeah, if you get a reacceleration, then I think the 145 00:05:58,480 --> 00:06:00,360 Speaker 1: FED ends up keeping rates where they are. I don't 146 00:06:00,360 --> 00:06:02,360 Speaker 1: think you're going to see the Fed raising rates from here. 147 00:06:02,400 --> 00:06:04,839 Speaker 1: I don't buy into that hawkish thesis at all. I 148 00:06:04,839 --> 00:06:06,240 Speaker 1: think five and a quarter to five and a half 149 00:06:06,240 --> 00:06:08,680 Speaker 1: on FED funds is plenty tight in real terms. 150 00:06:09,279 --> 00:06:13,320 Speaker 4: And again I appreciate the question. 151 00:06:13,080 --> 00:06:15,279 Speaker 1: But when I look at the data, there's one part 152 00:06:15,279 --> 00:06:18,000 Speaker 1: where there's a lot of uncertainty, and that's really the 153 00:06:18,080 --> 00:06:19,120 Speaker 1: service ex shelter. 154 00:06:19,640 --> 00:06:21,200 Speaker 4: If we look at the shelter inflation. 155 00:06:21,320 --> 00:06:24,240 Speaker 1: We know from the ZILO observed rent index, then inflation 156 00:06:24,279 --> 00:06:26,640 Speaker 1: there has basically declined sharply. It still hasn't shown up 157 00:06:26,640 --> 00:06:29,320 Speaker 1: in the CPI, but historically there's a one year lag 158 00:06:29,400 --> 00:06:31,200 Speaker 1: between ZILO and CPI PCE. 159 00:06:31,920 --> 00:06:32,880 Speaker 4: Based on ZILO, we know. 160 00:06:32,920 --> 00:06:35,200 Speaker 1: Inflation from rent has gone from sixteen percent two years 161 00:06:35,200 --> 00:06:37,599 Speaker 1: ago to less than three point six percent for the 162 00:06:37,640 --> 00:06:40,720 Speaker 1: last nine consecutive months. CPI is still printing six so 163 00:06:40,760 --> 00:06:42,760 Speaker 1: we know that part of inflation is coming down. We 164 00:06:42,800 --> 00:06:44,680 Speaker 1: know core goods prices are still going to be soft 165 00:06:44,680 --> 00:06:46,880 Speaker 1: because we can watch the Manheim Used car price Index. 166 00:06:47,200 --> 00:06:50,400 Speaker 1: So when I piece it together for basically sixty nine 167 00:06:50,440 --> 00:06:53,520 Speaker 1: percent of core CPI, I know inflation is staying lower, 168 00:06:53,560 --> 00:06:55,880 Speaker 1: going lower. So I guess I have a hard time 169 00:06:55,920 --> 00:06:59,520 Speaker 1: with the thesis that overall inflation is accelerating. I don't 170 00:06:59,520 --> 00:07:01,880 Speaker 1: see that as likely, and I think we'd be better 171 00:07:01,920 --> 00:07:04,080 Speaker 1: off focusing on what is the base case. We've gone 172 00:07:04,080 --> 00:07:06,920 Speaker 1: from nine percent inflation to close to three. There's been 173 00:07:06,920 --> 00:07:09,360 Speaker 1: a lot of progress, Real interest rates are up a lot, 174 00:07:09,720 --> 00:07:11,240 Speaker 1: and I think it's time for the FED to basically 175 00:07:11,240 --> 00:07:13,360 Speaker 1: start focusing on the other leg of the dual mandate. 176 00:07:13,400 --> 00:07:15,400 Speaker 1: Which luckily they don't have to worry about because the 177 00:07:15,440 --> 00:07:17,640 Speaker 1: job market is strong. But if we can have a 178 00:07:17,640 --> 00:07:19,560 Speaker 1: three and a half percent unemployment rate and still get 179 00:07:19,560 --> 00:07:21,360 Speaker 1: to the inflation target, that's how we should be thinking 180 00:07:21,360 --> 00:07:22,120 Speaker 1: about later this year. 181 00:07:22,160 --> 00:07:22,640 Speaker 3: Two phraces. 182 00:07:22,680 --> 00:07:25,600 Speaker 2: I want to one pack with you plenty tight, plenty progress, 183 00:07:26,040 --> 00:07:28,480 Speaker 2: plenty tye. What evidence is there that with plenty tie 184 00:07:28,680 --> 00:07:31,000 Speaker 2: and on the plenty progress, how much evidence is there 185 00:07:31,040 --> 00:07:33,240 Speaker 2: that that's just a supply side story, not a demand 186 00:07:33,280 --> 00:07:35,840 Speaker 2: one driven by the FED, which you say is plenty tight. 187 00:07:36,000 --> 00:07:37,560 Speaker 1: I'm really glad you went there because I think one 188 00:07:37,600 --> 00:07:39,440 Speaker 1: of the other things that's happened is we look at 189 00:07:39,840 --> 00:07:42,840 Speaker 1: growth expectations in the US. The consensus for twenty twenty four, 190 00:07:43,160 --> 00:07:45,280 Speaker 1: sorry ECFC on your Bloomberg termine a new way you 191 00:07:45,280 --> 00:07:46,040 Speaker 1: would got is two. 192 00:07:45,960 --> 00:07:46,679 Speaker 4: Point four percent. 193 00:07:46,880 --> 00:07:48,760 Speaker 1: You want to make sure I'm fresh two point four 194 00:07:48,800 --> 00:07:50,480 Speaker 1: percent for this year. If you go back to October, 195 00:07:50,520 --> 00:07:52,760 Speaker 1: it was fifty basis points. So there's a lot of 196 00:07:52,760 --> 00:07:55,280 Speaker 1: optimism around economic growth in the US, but there are 197 00:07:55,320 --> 00:07:58,200 Speaker 1: signs of cracks. If you look in the consumer mortgage 198 00:07:58,240 --> 00:08:00,920 Speaker 1: and credit card delinquencies are up forty You're on year 199 00:08:01,000 --> 00:08:05,160 Speaker 1: now again from a very low base autodelinquencies up twenty percent. 200 00:08:05,800 --> 00:08:07,800 Speaker 1: In the Wall Street Journal this morning, there's another article 201 00:08:07,840 --> 00:08:10,120 Speaker 1: about how many commercial real estate loans are coming to 202 00:08:10,160 --> 00:08:13,120 Speaker 1: The Mortgage Banker Association is saying nine hundred and twenty 203 00:08:13,160 --> 00:08:15,400 Speaker 1: nine billion dollars of maturities this year, two hundred and 204 00:08:15,400 --> 00:08:17,680 Speaker 1: six billion of what's your office. You're going to see 205 00:08:17,800 --> 00:08:21,320 Speaker 1: defaults on commercial property. We saw another bank failure in 206 00:08:21,320 --> 00:08:23,360 Speaker 1: the last week. You're going to see more bank failures. 207 00:08:23,600 --> 00:08:26,119 Speaker 1: There are going to be news stories that come through 208 00:08:26,440 --> 00:08:28,480 Speaker 1: that start to chip away at some of this optimism. 209 00:08:28,480 --> 00:08:30,680 Speaker 1: And so I think it's a little easy to get 210 00:08:30,720 --> 00:08:33,559 Speaker 1: caught up in the excitement of current data and to say, 211 00:08:33,880 --> 00:08:37,000 Speaker 1: you know what tightness. But the reality is monetary policy 212 00:08:37,040 --> 00:08:39,760 Speaker 1: acts with long and variable lags, and I think we're 213 00:08:39,760 --> 00:08:41,560 Speaker 1: going to see some of those lags come into play 214 00:08:41,600 --> 00:08:44,480 Speaker 1: this year, as the consumers depleted their excess savings, has 215 00:08:44,480 --> 00:08:48,400 Speaker 1: trouble paying their debts, and as corporates actually find carrying 216 00:08:48,400 --> 00:08:51,680 Speaker 1: these much higher interest expenses gets pretty difficult over time. 217 00:08:51,800 --> 00:08:54,400 Speaker 2: The show answer is Way Run Temple of Last Run, 218 00:08:54,480 --> 00:08:58,480 Speaker 2: Thank You, Sir, Love, a real time conversation supported by Blomberg. 219 00:08:58,320 --> 00:09:10,800 Speaker 3: At its terminal we love that. Thanks for around of time. 220 00:09:10,800 --> 00:09:13,120 Speaker 2: But a city's rough, cell kids cities rough, selk can 221 00:09:13,200 --> 00:09:15,680 Speaker 2: joins us. Now looking ahead to the federal self tomorrow 222 00:09:15,720 --> 00:09:17,959 Speaker 2: and the data on Friday, let's talk about the data 223 00:09:18,240 --> 00:09:18,960 Speaker 2: that we just got. 224 00:09:19,200 --> 00:09:20,720 Speaker 3: How much does that change things tomorrow? 225 00:09:21,440 --> 00:09:24,520 Speaker 8: You know, this is a challenging print for the Fed. 226 00:09:24,720 --> 00:09:28,160 Speaker 8: It's not quite a nightmare, but it's something akin maybe 227 00:09:28,160 --> 00:09:29,800 Speaker 8: to a really bad dream. 228 00:09:30,200 --> 00:09:31,600 Speaker 6: You know, coming in a one. 229 00:09:31,559 --> 00:09:35,760 Speaker 8: To two is just evidence that the inflation data, the 230 00:09:35,800 --> 00:09:38,400 Speaker 8: wage growth data, is moving in the wrong direction to 231 00:09:38,400 --> 00:09:41,920 Speaker 8: be consistent with their target. And you already got a 232 00:09:41,960 --> 00:09:44,959 Speaker 8: lot of hints of that with the Q one inflation data. 233 00:09:45,400 --> 00:09:48,400 Speaker 8: And you know, a saving grace may have been if 234 00:09:48,480 --> 00:09:52,400 Speaker 8: wage growth showed continue signs of cooling on a quarterly basis. 235 00:09:52,440 --> 00:09:55,480 Speaker 8: But I think putting all that data together, it's going 236 00:09:55,559 --> 00:09:58,200 Speaker 8: to be very hard for Powell not to lean a 237 00:09:58,200 --> 00:10:01,080 Speaker 8: bit more hawkish into these figures and really see they're 238 00:10:01,200 --> 00:10:05,000 Speaker 8: say they're not seeing the progress on inflation that they 239 00:10:05,080 --> 00:10:07,319 Speaker 8: need to be confident to start to ease policy. 240 00:10:07,559 --> 00:10:10,120 Speaker 5: This one point two percent increase in the employment cost 241 00:10:10,200 --> 00:10:12,560 Speaker 5: index for the quarter was the biggest advance of a year. 242 00:10:12,920 --> 00:10:15,640 Speaker 5: We're looking at a reacceleration at a time or even 243 00:10:15,679 --> 00:10:17,760 Speaker 5: city group. You believe that there is going to be 244 00:10:17,840 --> 00:10:20,640 Speaker 5: a rapid deceleration and still a significant number of rate 245 00:10:20,679 --> 00:10:23,280 Speaker 5: cuts later this year. Does this make the rethink that. 246 00:10:23,720 --> 00:10:26,559 Speaker 8: I think it's very challenging, because you know, our base 247 00:10:26,640 --> 00:10:29,400 Speaker 8: case has been based on a market slowing in the 248 00:10:29,440 --> 00:10:32,720 Speaker 8: economy as you get later in the year, and that 249 00:10:32,840 --> 00:10:34,840 Speaker 8: on its own would give the Fed more confidence than 250 00:10:34,880 --> 00:10:36,360 Speaker 8: inflation would continue to cool. 251 00:10:36,760 --> 00:10:39,240 Speaker 6: But you've seen the start of this year. 252 00:10:39,679 --> 00:10:42,400 Speaker 8: You know, GDP growth came in a bit softer than expected, 253 00:10:42,400 --> 00:10:44,559 Speaker 8: but domestic demand was running near three percent, So I 254 00:10:44,559 --> 00:10:48,439 Speaker 8: would call that a pretty strong economy. Labor market indicators 255 00:10:48,440 --> 00:10:52,240 Speaker 8: are cooling but still at pretty solid levels, and as 256 00:10:52,280 --> 00:10:55,360 Speaker 8: I mentioned, the wage growth data just not cooling enough 257 00:10:55,400 --> 00:10:58,920 Speaker 8: for them that they can have confidence that the inflation 258 00:10:59,040 --> 00:11:01,560 Speaker 8: moved back to target. I think really the data, both 259 00:11:01,600 --> 00:11:04,400 Speaker 8: on the activity side and the inflation side are kind 260 00:11:04,400 --> 00:11:05,319 Speaker 8: of moving against that. 261 00:11:05,679 --> 00:11:09,000 Speaker 5: There's also a challenge in this the thesis that some 262 00:11:09,080 --> 00:11:11,120 Speaker 5: of the employment numbers that have been really robust have 263 00:11:11,160 --> 00:11:14,559 Speaker 5: been entirely driven by immigration, which has been disinflationary. You know, 264 00:11:14,640 --> 00:11:17,559 Speaker 5: we've gotten full employment without inflation. Do you think that 265 00:11:17,600 --> 00:11:21,200 Speaker 5: these data that actually strip out some of the wage 266 00:11:21,200 --> 00:11:23,920 Speaker 5: adjustments that we're seeing in some of the overarching payrolls 267 00:11:24,000 --> 00:11:27,720 Speaker 5: numbers really presents a significant problem for that thesis. 268 00:11:28,040 --> 00:11:30,120 Speaker 6: Yeah, you know, then this is really key. 269 00:11:30,240 --> 00:11:32,240 Speaker 8: You know, we get a lot of data throughout the 270 00:11:32,320 --> 00:11:36,760 Speaker 8: quarter on the labor market, on wages, it's really when 271 00:11:36,800 --> 00:11:39,280 Speaker 8: you get to the employment cost index that that's sort 272 00:11:39,320 --> 00:11:41,440 Speaker 8: of supposed to be the be all, end all for 273 00:11:41,559 --> 00:11:44,280 Speaker 8: wage growth. That is by far the best measure and 274 00:11:44,360 --> 00:11:47,640 Speaker 8: indicator of wage pressures in the economy because, as you said, 275 00:11:47,640 --> 00:11:50,120 Speaker 8: it controls for composition, a variety of other factors. 276 00:11:50,240 --> 00:11:51,120 Speaker 6: Now, it's not perfect. 277 00:11:51,200 --> 00:11:55,240 Speaker 8: Maybe we are seeing some distortions in the first quarter 278 00:11:55,640 --> 00:11:59,040 Speaker 8: due to bigger price gains and wage gains that are 279 00:11:59,040 --> 00:12:00,080 Speaker 8: hard to seasonally edge. 280 00:12:00,200 --> 00:12:01,079 Speaker 6: Just or control for. 281 00:12:01,520 --> 00:12:03,720 Speaker 8: But this is supposed to be the one that the 282 00:12:03,720 --> 00:12:06,600 Speaker 8: Fed hangs has had on to tell really where wages 283 00:12:06,840 --> 00:12:09,079 Speaker 8: are going. So I do think this is this is 284 00:12:09,080 --> 00:12:10,400 Speaker 8: pretty difficult news for them. 285 00:12:10,480 --> 00:12:12,400 Speaker 7: If wages are too high and companies are keeping up 286 00:12:12,400 --> 00:12:15,599 Speaker 7: with these higher costs, could this spell then maybe layoffs? 287 00:12:16,400 --> 00:12:20,400 Speaker 8: Well, you know, right now, what we're seeing is labor 288 00:12:20,440 --> 00:12:23,600 Speaker 8: market has been fairly strong terms of hiring wage growth 289 00:12:23,600 --> 00:12:26,880 Speaker 8: has been somewhat elevated, inflation's falling, so real rages have 290 00:12:26,920 --> 00:12:30,319 Speaker 8: been pretty have been pretty good, and that's fueling ongoing 291 00:12:30,360 --> 00:12:34,120 Speaker 8: strength and consumer spending, which in turn is fueling more 292 00:12:34,160 --> 00:12:36,319 Speaker 8: strength in the labor market. 293 00:12:36,880 --> 00:12:38,120 Speaker 6: And so and right now we're. 294 00:12:38,000 --> 00:12:41,040 Speaker 8: Really not seeing much appetite for layoffs. So I think 295 00:12:41,080 --> 00:12:43,400 Speaker 8: more likely is you could get an environment where the 296 00:12:43,440 --> 00:12:48,040 Speaker 8: economy stays resilient, but inflation just stays much stickier than 297 00:12:48,280 --> 00:12:49,240 Speaker 8: expect Mamma kay. 298 00:12:49,240 --> 00:12:50,960 Speaker 2: We wanted to bring it back into the conversation on 299 00:12:51,000 --> 00:12:52,480 Speaker 2: the lip of market. Can we talk about some of 300 00:12:52,520 --> 00:12:54,160 Speaker 2: the numbers we're expecting to get out in the next 301 00:12:54,160 --> 00:12:59,000 Speaker 2: few days tomorrow, IDP and Jolts Thursday claims Friday Pairos, 302 00:12:59,120 --> 00:13:00,800 Speaker 2: what are even the same fun is done? 303 00:13:00,960 --> 00:13:01,080 Speaker 4: Well? 304 00:13:01,120 --> 00:13:04,439 Speaker 9: I think the Fed and therefore me are most focused 305 00:13:04,480 --> 00:13:09,160 Speaker 9: on Friday's excuse me, payrolls, because that'll tell us something 306 00:13:09,200 --> 00:13:12,320 Speaker 9: about how tight the labor market is and whether this 307 00:13:12,400 --> 00:13:15,600 Speaker 9: wage pressure will continue. If we continue to get the 308 00:13:15,640 --> 00:13:19,200 Speaker 9: same kind of job creation, it doesn't suggest any relief 309 00:13:19,240 --> 00:13:21,960 Speaker 9: on the wage side unless there's a big addition to 310 00:13:22,640 --> 00:13:25,120 Speaker 9: the labor force. So it is something the FED is 311 00:13:25,160 --> 00:13:29,439 Speaker 9: going to be watching Jolts was important less important now 312 00:13:29,520 --> 00:13:31,880 Speaker 9: it's been coming down. As long as it continues to 313 00:13:31,880 --> 00:13:34,560 Speaker 9: come down, vacant number of vacancies continue to come down, 314 00:13:34,679 --> 00:13:37,720 Speaker 9: the Fed will be less concerned about that. So I 315 00:13:37,720 --> 00:13:41,760 Speaker 9: think it's really the payrolls creation number and perhaps wages 316 00:13:41,800 --> 00:13:45,160 Speaker 9: and salaries within that that are going to attract the 317 00:13:45,200 --> 00:13:50,520 Speaker 9: most attention from policymakers. Unfortunately, after their decision this time. 318 00:13:50,440 --> 00:13:51,240 Speaker 3: Mike, I get a drink. 319 00:13:51,240 --> 00:13:53,400 Speaker 2: It's going to catch up with the key there breaking 320 00:13:53,440 --> 00:13:56,160 Speaker 2: down the economics day to get into the Federal Reserve tomorrow. 321 00:13:56,360 --> 00:13:59,120 Speaker 2: Payrolls in our survey, the estimate two hundred and forty thousand, 322 00:14:00,240 --> 00:14:03,520 Speaker 2: you've got no tid two hudred ky on Friday. We's 323 00:14:03,520 --> 00:14:05,559 Speaker 2: that coming from? And why do you expect downside risk 324 00:14:05,600 --> 00:14:07,520 Speaker 2: from here? What's guiding that view? I know it's a 325 00:14:07,559 --> 00:14:10,720 Speaker 2: house few of a city, Andrew tannisis every time it 326 00:14:10,760 --> 00:14:12,760 Speaker 2: comes on, where's that house few coming from? 327 00:14:13,040 --> 00:14:13,240 Speaker 4: Yeah? 328 00:14:13,280 --> 00:14:15,920 Speaker 8: Absolutely, And we are expecting the labor market to still 329 00:14:15,920 --> 00:14:18,640 Speaker 8: hold up well, as you said in this report, and 330 00:14:18,679 --> 00:14:21,720 Speaker 8: the idea of the economy slowing is that we are 331 00:14:21,760 --> 00:14:25,240 Speaker 8: starting to see in some areas a few cracks. In particular, 332 00:14:25,320 --> 00:14:28,120 Speaker 8: if I was highlight on the labor market side. If 333 00:14:28,120 --> 00:14:30,440 Speaker 8: you look at some of the small business indicators that 334 00:14:30,480 --> 00:14:33,720 Speaker 8: we track, those are looking kind of worrying, especially in 335 00:14:33,880 --> 00:14:37,320 Speaker 8: the survey data within the NFIB that would argue that 336 00:14:37,440 --> 00:14:40,680 Speaker 8: slow that hiring is likely to slow A fair amount. 337 00:14:41,520 --> 00:14:42,800 Speaker 6: That being said has noted. 338 00:14:42,920 --> 00:14:45,080 Speaker 8: You know, the data have been kind of going against 339 00:14:45,120 --> 00:14:47,880 Speaker 8: it in the first quarter, and we've seen upside surprises 340 00:14:47,920 --> 00:14:50,880 Speaker 8: and payrolls throughout the first quarter and over two hundred 341 00:14:50,920 --> 00:14:54,600 Speaker 8: thousand in aprils a fairly in a is fairly strong number, 342 00:14:54,680 --> 00:14:55,400 Speaker 8: So you. 343 00:14:55,360 --> 00:14:58,160 Speaker 6: Know, that's kind of the basis for it. But right 344 00:14:58,200 --> 00:15:00,760 Speaker 6: now I think the labor markets holding up fairly well. 345 00:15:00,920 --> 00:15:03,160 Speaker 5: There's been an ongoing debate through the show this morning 346 00:15:03,280 --> 00:15:05,800 Speaker 5: about whether or not FED chair of J. Powell is 347 00:15:05,800 --> 00:15:07,680 Speaker 5: going to be interesting at all, but also whether he's 348 00:15:07,680 --> 00:15:09,640 Speaker 5: going to answer the question about whether a rate hike 349 00:15:09,800 --> 00:15:12,000 Speaker 5: could potentially be on the table for any reason. 350 00:15:12,400 --> 00:15:13,280 Speaker 6: You don't think it would be. 351 00:15:13,600 --> 00:15:16,360 Speaker 5: You think that we're sufficiently restrictive, but do you think 352 00:15:16,400 --> 00:15:18,600 Speaker 5: that this is a federal reserve that has to indicate 353 00:15:19,040 --> 00:15:22,680 Speaker 5: some level of sort of I don't know, retracement from 354 00:15:22,720 --> 00:15:25,880 Speaker 5: the pivot last year, just simply because you need an 355 00:15:25,880 --> 00:15:30,320 Speaker 5: economy to run cooler with a market that really. 356 00:15:30,360 --> 00:15:33,440 Speaker 6: Does sell off. And this is a key point. 357 00:15:33,520 --> 00:15:36,400 Speaker 8: And I think for the FED, and you've heard Pal 358 00:15:36,560 --> 00:15:39,320 Speaker 8: say something along these lines, they do feel they're restrictive. 359 00:15:39,600 --> 00:15:42,400 Speaker 8: They would rather just hang out at these levels for 360 00:15:42,520 --> 00:15:45,680 Speaker 8: longer than have to raise rates. Again, I don't think 361 00:15:45,720 --> 00:15:48,840 Speaker 8: it's completely off the table. I think it would take 362 00:15:48,960 --> 00:15:52,320 Speaker 8: something like an acceleration in inflation from where we are 363 00:15:53,120 --> 00:15:56,560 Speaker 8: and a continued acceleration through the year to really get 364 00:15:56,600 --> 00:15:58,680 Speaker 8: that conversation on the table of raising race. 365 00:15:58,800 --> 00:16:00,000 Speaker 6: So I don't think you'll lean into it. 366 00:16:00,040 --> 00:16:02,119 Speaker 8: I think you'll still say that they feel they're restrictive, 367 00:16:02,760 --> 00:16:04,560 Speaker 8: but that they could hang out here for longer if 368 00:16:04,560 --> 00:16:05,080 Speaker 8: they need to. 369 00:16:05,320 --> 00:16:06,840 Speaker 5: Do you think he's going to be boring or do 370 00:16:06,840 --> 00:16:08,240 Speaker 5: you think he's going to come out and try to 371 00:16:08,240 --> 00:16:09,800 Speaker 5: make people feel a little bit more bearish. 372 00:16:10,080 --> 00:16:11,480 Speaker 6: I think he's going to be a little bit a 373 00:16:11,520 --> 00:16:12,440 Speaker 6: little bit boring. 374 00:16:12,720 --> 00:16:16,000 Speaker 8: I would expect him to come in and say that, 375 00:16:17,560 --> 00:16:19,360 Speaker 8: you know, not to say the fetcher is ever boring, 376 00:16:19,400 --> 00:16:23,400 Speaker 8: but uh, they'll come back colistically and basically say that 377 00:16:23,920 --> 00:16:25,960 Speaker 8: exactly we're seeing that they're not. They don't have enough 378 00:16:26,000 --> 00:16:29,840 Speaker 8: confidence yet. They had that the economy remains resilient. They 379 00:16:29,840 --> 00:16:31,920 Speaker 8: do think inflation will move back down to target, but 380 00:16:31,960 --> 00:16:33,320 Speaker 8: the data are kind of moving against them. 381 00:16:33,320 --> 00:16:35,040 Speaker 2: Would you like us to do a shout tomorrow when 382 00:16:35,040 --> 00:16:37,200 Speaker 2: we don't have to you know, we don't. 383 00:16:37,000 --> 00:16:39,480 Speaker 6: Have to turn up a him were you loving? 384 00:16:39,840 --> 00:16:41,480 Speaker 2: Just you know, for the people who make the promos, 385 00:16:42,200 --> 00:16:43,760 Speaker 2: who are in the news room, if you want to 386 00:16:43,760 --> 00:16:44,640 Speaker 2: put that promo on. 387 00:16:44,880 --> 00:16:45,920 Speaker 3: Yeattle bit later. 388 00:16:46,520 --> 00:16:48,960 Speaker 2: Just tight the three guests we've had this morning, that 389 00:16:49,080 --> 00:16:52,240 Speaker 2: just site's going to be boring and suggesting Sham and 390 00:16:52,280 --> 00:16:55,400 Speaker 2: Poushi and Aim spake. Robisk assists. Rob's going to say it. 391 00:16:55,440 --> 00:16:56,040 Speaker 3: Thank you, sir. 392 00:17:05,480 --> 00:17:09,040 Speaker 2: A gross amandalinam right in this policy normalization in response 393 00:17:09,080 --> 00:17:12,600 Speaker 2: to improved inflation is a supportive backdrop for credit, and 394 00:17:12,680 --> 00:17:15,400 Speaker 2: extended delay beyond twenty twenty four for rate cuts because 395 00:17:15,440 --> 00:17:18,600 Speaker 2: of economic strength would likely be more easily digested by 396 00:17:18,640 --> 00:17:21,520 Speaker 2: credit versus a postponement of rate cuts because of a 397 00:17:21,640 --> 00:17:26,080 Speaker 2: sustained reacceleration of inflation. Mana joins us, now for more, Amanda, 398 00:17:26,119 --> 00:17:29,240 Speaker 2: this is brilliant. Not all rate cuts are created equally, 399 00:17:29,320 --> 00:17:30,960 Speaker 2: not all delays are either. 400 00:17:31,480 --> 00:17:32,600 Speaker 3: Is this a healthy delay? 401 00:17:33,119 --> 00:17:35,320 Speaker 10: Well, good morning, Thank you for having me so far, 402 00:17:35,440 --> 00:17:37,760 Speaker 10: it seems like a healthy delay because it's supported by 403 00:17:37,840 --> 00:17:41,239 Speaker 10: resilient growth. I think the concern that we have is 404 00:17:41,280 --> 00:17:44,320 Speaker 10: that the longer that these rate cuts are postponed, the 405 00:17:44,359 --> 00:17:47,200 Speaker 10: more credence we get to the possibility of rate hikes, 406 00:17:47,480 --> 00:17:51,280 Speaker 10: and that uncertainty around monetary policy is just not a 407 00:17:51,320 --> 00:17:53,600 Speaker 10: great backdrop for credit. It's not a great backdrop for 408 00:17:53,760 --> 00:17:56,679 Speaker 10: M and A or deal making. It's clarity on the 409 00:17:56,720 --> 00:18:00,560 Speaker 10: macro that we need, not necessarily a favorable macro in 410 00:18:00,640 --> 00:18:03,080 Speaker 10: terms of rate reductions. It's really that clarity its key. 411 00:18:03,119 --> 00:18:04,879 Speaker 2: So that's why we're focused on what we've had so 412 00:18:04,920 --> 00:18:07,159 Speaker 2: far this year has been a pretty resilient credit market 413 00:18:07,200 --> 00:18:09,639 Speaker 2: in the face of a repricing of interest rates higher. 414 00:18:09,800 --> 00:18:11,760 Speaker 2: What's behind that resilience if you could go through the 415 00:18:11,760 --> 00:18:12,640 Speaker 2: list for US, so. 416 00:18:12,640 --> 00:18:15,520 Speaker 10: A couple of things. One is resilient growth, and I 417 00:18:15,520 --> 00:18:18,720 Speaker 10: think that's been particularly important for speculative grade issuers that 418 00:18:18,760 --> 00:18:21,359 Speaker 10: are more growth sensitive, so IG issuers have more of 419 00:18:21,359 --> 00:18:23,520 Speaker 10: a cushion they can handle a downturn in growth. High 420 00:18:23,560 --> 00:18:27,240 Speaker 10: yield and leverage loan issuers not the same defensiveness there, 421 00:18:27,560 --> 00:18:28,640 Speaker 10: So growth is number one. 422 00:18:28,720 --> 00:18:30,000 Speaker 3: Two is the yield backdrop. 423 00:18:30,040 --> 00:18:33,320 Speaker 6: We've talked about this before. Spreads are tight, but yields. 424 00:18:32,960 --> 00:18:35,360 Speaker 10: Are really attractive in the context of the post financial 425 00:18:35,359 --> 00:18:38,000 Speaker 10: crisis era. So if you're an insurance company, a pension 426 00:18:38,040 --> 00:18:39,639 Speaker 10: and endowment, you're looking for yield. 427 00:18:39,840 --> 00:18:40,400 Speaker 3: It's been an. 428 00:18:40,280 --> 00:18:43,959 Speaker 10: Attractive area to deploy credit, deploy capital into credit, but 429 00:18:44,160 --> 00:18:46,520 Speaker 10: it's not been resilient across the board. I heard your 430 00:18:46,560 --> 00:18:49,280 Speaker 10: earlier segment where you were talking about kind of triple c's. 431 00:18:49,520 --> 00:18:52,240 Speaker 10: It is true that Triple c's outperformed on a total 432 00:18:52,240 --> 00:18:55,320 Speaker 10: return basis, but that's largely been driven by rates because 433 00:18:55,359 --> 00:18:58,560 Speaker 10: Triple c's are less duration sensitive than say Double b's 434 00:18:58,600 --> 00:19:00,399 Speaker 10: that high end of the high old spectrum. If you 435 00:19:00,480 --> 00:19:03,679 Speaker 10: isolate credit spreads, which I would argue is actually the 436 00:19:03,720 --> 00:19:08,000 Speaker 10: true measure of credit risk at Triple c's have been lagging. 437 00:19:08,040 --> 00:19:10,119 Speaker 10: And so if you take the index level spread of 438 00:19:10,200 --> 00:19:14,040 Speaker 10: high yield two ninety nine very tight, that would suggest 439 00:19:14,080 --> 00:19:16,520 Speaker 10: that Triple c should actually be somewhere around six hundred. 440 00:19:16,520 --> 00:19:19,520 Speaker 10: They're around seven to twenty and spread. So Triple c's 441 00:19:19,640 --> 00:19:22,440 Speaker 10: on a spread measure, which I believe again is isolating 442 00:19:22,480 --> 00:19:25,119 Speaker 10: that credit risk has not kept pace with the tightening overall. 443 00:19:25,440 --> 00:19:27,760 Speaker 10: That's also true in the loan market, where triple c's 444 00:19:27,760 --> 00:19:30,119 Speaker 10: have lagged, so the market is efficient and telling you 445 00:19:30,160 --> 00:19:32,240 Speaker 10: that not all of these companies can navigate high for 446 00:19:32,320 --> 00:19:33,280 Speaker 10: longer the same way. 447 00:19:33,160 --> 00:19:35,760 Speaker 5: And that also expresses some concern about a lack of 448 00:19:35,760 --> 00:19:38,040 Speaker 5: clarity around what the path of rates is going to 449 00:19:38,080 --> 00:19:40,840 Speaker 5: be and how punitive that's going to potentially be for companies. 450 00:19:40,880 --> 00:19:43,320 Speaker 5: Earlier this morning, we had Julian Emmanuel who was talking 451 00:19:43,359 --> 00:19:45,560 Speaker 5: about popping in the question, and he was talking about 452 00:19:45,600 --> 00:19:48,600 Speaker 5: how someone maybe Michael McKee is going to ask the Fed, well, 453 00:19:48,840 --> 00:19:52,000 Speaker 5: under what circumstances could you imagine ever hiking rates or 454 00:19:52,040 --> 00:19:54,320 Speaker 5: is that off the table? Do you also think that 455 00:19:54,320 --> 00:19:57,040 Speaker 5: that actually could really cause a massive dislocation in credit? 456 00:19:57,080 --> 00:19:59,640 Speaker 5: If he answers, yes, we think that we could under 457 00:19:59,680 --> 00:20:00,600 Speaker 5: certain circumstances. 458 00:20:00,680 --> 00:20:03,359 Speaker 10: Right, So two things I'm watching for tomorrow. One is 459 00:20:03,359 --> 00:20:06,200 Speaker 10: is there an acknowledgment that we are at peak policy rates? 460 00:20:06,240 --> 00:20:07,919 Speaker 10: It seems to me like maybe the chair wants to 461 00:20:07,920 --> 00:20:11,240 Speaker 10: step back from overstating that emphasis like he has in 462 00:20:11,280 --> 00:20:13,960 Speaker 10: the past, So that's one. Two is how patient will 463 00:20:14,000 --> 00:20:17,159 Speaker 10: they be to get down to their policy objective? So 464 00:20:17,320 --> 00:20:20,080 Speaker 10: how many more months of this kind of middle ground 465 00:20:20,160 --> 00:20:24,920 Speaker 10: of not sustained reacceleration but also not declining inflation. Can 466 00:20:24,960 --> 00:20:27,280 Speaker 10: they tolerate? So that's what I'm watching for tomorrow as 467 00:20:27,280 --> 00:20:31,000 Speaker 10: it relates to credit. Yes, it will have implications, but 468 00:20:31,040 --> 00:20:35,200 Speaker 10: I would expect that theme of dispersion, not widespread market disruption, 469 00:20:35,359 --> 00:20:38,639 Speaker 10: to remain intact. One of the really interesting points so 470 00:20:38,760 --> 00:20:41,679 Speaker 10: far this year is that over thirty percent of the 471 00:20:41,760 --> 00:20:44,080 Speaker 10: defaults that we've seen in twenty twenty three, and this 472 00:20:44,160 --> 00:20:45,880 Speaker 10: trend has continued in twenty twenty. 473 00:20:45,640 --> 00:20:47,320 Speaker 4: Four, has been repeat to faulters. 474 00:20:47,640 --> 00:20:50,280 Speaker 10: So these are companies that have previously filed and they're 475 00:20:50,320 --> 00:20:53,480 Speaker 10: filing again, or they've previously completed a distressed exchange and 476 00:20:53,720 --> 00:20:56,080 Speaker 10: they're doing another one. Why do I mention that, It's 477 00:20:56,119 --> 00:20:58,280 Speaker 10: because a lot of these companies that are under stressed 478 00:20:58,280 --> 00:21:00,280 Speaker 10: are not coming as a surprise to the market. Right, 479 00:21:00,359 --> 00:21:03,680 Speaker 10: So long as we have this high for longer environment, 480 00:21:03,760 --> 00:21:07,280 Speaker 10: what you would expect is that the same troubled sectors, 481 00:21:07,480 --> 00:21:10,800 Speaker 10: capital structures that were kept afloat by low rates but 482 00:21:10,880 --> 00:21:14,400 Speaker 10: are not actually growing in a capital efficient way, would 483 00:21:14,400 --> 00:21:17,879 Speaker 10: remain under stress. Does that cause broad market disruption and credit? 484 00:21:17,920 --> 00:21:20,040 Speaker 10: I think the bar is still high for that. What 485 00:21:20,160 --> 00:21:22,960 Speaker 10: could cause that is a sustained reacceleration flat. 486 00:21:22,720 --> 00:21:26,240 Speaker 5: Well, especially because Dan Greenhouse Solicilia was saying that basically 487 00:21:26,440 --> 00:21:29,960 Speaker 5: this isn't my mother's high yield market. That this has changed, right, 488 00:21:30,000 --> 00:21:32,040 Speaker 5: and then essentially we're looking at something that's grown up 489 00:21:32,080 --> 00:21:34,320 Speaker 5: and become much better quality. Does that mean that the 490 00:21:34,400 --> 00:21:37,119 Speaker 5: risk has migrated to private credit where you have a 491 00:21:37,240 --> 00:21:40,320 Speaker 5: higher degree of less tested companies. 492 00:21:40,840 --> 00:21:43,359 Speaker 10: Actually, I don't think that the risk has migrated to 493 00:21:43,400 --> 00:21:46,840 Speaker 10: private credit. I think in syndicated high yield, syndicated leverage loans, 494 00:21:46,840 --> 00:21:49,439 Speaker 10: and private credit, you can find vulnerable companies anywhere. And 495 00:21:49,480 --> 00:21:51,960 Speaker 10: in fact, what we're actually seeing is an overlapping of 496 00:21:52,000 --> 00:21:54,800 Speaker 10: the addressable market between public credit and private credit, where 497 00:21:54,840 --> 00:21:58,080 Speaker 10: companies are demonstrated access to both. I just I really 498 00:21:58,119 --> 00:22:00,920 Speaker 10: think what it is is that say, take triple c's 499 00:22:00,960 --> 00:22:03,200 Speaker 10: in the US higheld market. This is using Bloomberg data, 500 00:22:03,280 --> 00:22:06,240 Speaker 10: interest coverage is one point one times. Just the margin 501 00:22:06,320 --> 00:22:10,800 Speaker 10: of cushion to navigate a prolonged environment of high interest 502 00:22:10,920 --> 00:22:15,080 Speaker 10: rates is very, very slim, and for most of the 503 00:22:15,119 --> 00:22:17,560 Speaker 10: credit market, we don't view a twenty five or fifty 504 00:22:17,600 --> 00:22:20,520 Speaker 10: basis point rate cut as material or game changing in 505 00:22:20,560 --> 00:22:23,200 Speaker 10: terms of their capital structure, But there are some companies 506 00:22:23,240 --> 00:22:25,639 Speaker 10: where they actually do need that, and I think what 507 00:22:25,680 --> 00:22:27,440 Speaker 10: the market is telling you is you is that on 508 00:22:27,480 --> 00:22:31,240 Speaker 10: the margin there will continue to be dispersion. I think 509 00:22:31,240 --> 00:22:34,600 Speaker 10: there are some themes like the repeat defaulters that we've mentioned. 510 00:22:35,040 --> 00:22:37,760 Speaker 10: Loan only capital structures have also been leading the charge 511 00:22:37,760 --> 00:22:40,520 Speaker 10: in terms of defaults, not surprising. So there are pockets 512 00:22:40,520 --> 00:22:42,880 Speaker 10: of vulnerability that you can find, but I don't think 513 00:22:42,920 --> 00:22:44,440 Speaker 10: that it's a wholesale shift in risk. 514 00:22:44,640 --> 00:22:46,680 Speaker 2: Could you give us some perspective on the all in 515 00:22:46,800 --> 00:22:48,520 Speaker 2: yield opportunity right now? 516 00:22:48,720 --> 00:22:50,320 Speaker 3: Great is it? How big is it? So? 517 00:22:50,560 --> 00:22:54,840 Speaker 10: On a percentile basis using the post financial crisis period, 518 00:22:54,880 --> 00:22:58,480 Speaker 10: it ranks around the eightieth to ninetieth percentile, depending upon 519 00:22:58,960 --> 00:23:01,200 Speaker 10: the region and the race that you're seeing. So what 520 00:23:01,400 --> 00:23:03,720 Speaker 10: is that saying. It's saying that actually eighty or ninety 521 00:23:03,720 --> 00:23:06,080 Speaker 10: percent of the time yields have been lower than where 522 00:23:06,119 --> 00:23:09,800 Speaker 10: we are now. On the spread perspective, it's the exact opposite, 523 00:23:09,880 --> 00:23:13,480 Speaker 10: where we're kind of hovering around the ten percent percent tile. 524 00:23:13,560 --> 00:23:16,560 Speaker 10: So basically spreads have been wider than this year. 525 00:23:17,119 --> 00:23:17,480 Speaker 3: Help made? 526 00:23:17,800 --> 00:23:17,960 Speaker 5: Is it? 527 00:23:18,000 --> 00:23:20,119 Speaker 3: Good opportunity? This is a great opportunity. 528 00:23:20,320 --> 00:23:23,080 Speaker 10: This is so maybe this is a little too nerdy 529 00:23:23,119 --> 00:23:26,439 Speaker 10: for early morning TV. So yes, it's a great opportunity 530 00:23:26,480 --> 00:23:28,639 Speaker 10: to deploy in an all end yield basis, but we 531 00:23:28,680 --> 00:23:33,240 Speaker 10: acknowledge that the opportunity for material spread tightening is pretty limited, 532 00:23:33,680 --> 00:23:36,000 Speaker 10: just given that we're at two ninety nine the post 533 00:23:36,080 --> 00:23:38,200 Speaker 10: financial crisis average for high yielders around. 534 00:23:37,960 --> 00:23:38,680 Speaker 6: Four to six days. 535 00:23:38,880 --> 00:23:41,520 Speaker 2: You see an equity investors migrate into your world. Because 536 00:23:41,560 --> 00:23:43,879 Speaker 2: we had a guest Lisa mentioned Dan Solis earlier, Dan 537 00:23:43,960 --> 00:23:46,320 Speaker 2: Greenhouse of Solace earlier on the program, and he was 538 00:23:46,320 --> 00:23:49,719 Speaker 2: talking about very specifically about energy. He thought, relatively speaking, 539 00:23:49,760 --> 00:23:53,000 Speaker 2: the opportunity was better in equity than it was in credit. 540 00:23:53,040 --> 00:23:54,760 Speaker 2: Could you describe maybe a similar dynamic. 541 00:23:54,880 --> 00:23:56,639 Speaker 10: I would say on the margin, we actually kind of 542 00:23:56,640 --> 00:24:00,399 Speaker 10: see the opposite where we see equity investors on and 543 00:24:00,440 --> 00:24:02,760 Speaker 10: I would say this is very on the margin, take 544 00:24:02,800 --> 00:24:05,160 Speaker 10: some chips off the table after some pretty strong performance 545 00:24:05,200 --> 00:24:07,680 Speaker 10: and deploy into credit to lock in some yields. But 546 00:24:07,680 --> 00:24:10,159 Speaker 10: I would say the conversation can go either way. It 547 00:24:10,160 --> 00:24:12,199 Speaker 10: really depends on what the risk tolerance is, where the 548 00:24:12,200 --> 00:24:13,040 Speaker 10: sector focus is. 549 00:24:13,200 --> 00:24:15,600 Speaker 2: Appreciate the depths, Amanda, thank you, thank you so much 550 00:24:15,600 --> 00:24:19,280 Speaker 2: for Madam Lning there. This is the Bloomberg Surveillance Podcast, 551 00:24:19,440 --> 00:24:23,320 Speaker 2: bringing you the best in markets, economics, angio politics. You 552 00:24:23,359 --> 00:24:26,119 Speaker 2: can watch the show live on Bloomberg TV weekday mornings 553 00:24:26,160 --> 00:24:29,080 Speaker 2: from six am to nine am Eastern. Subscribe to the 554 00:24:29,119 --> 00:24:32,600 Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and 555 00:24:32,680 --> 00:24:35,520 Speaker 2: as always, on the Bloomberg Terminal and the Bloomberg Business 556 00:24:35,520 --> 00:24:35,760 Speaker 2: app