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Speaker 1: Bloomberg Audio Studios.

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Speaker 2: Podcasts. Radio. News.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Catch us live weekdays

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Speaker 3: Four minutes away from the inflation report. Right now, Eric

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Speaker 3: Winograd with Damian Sassauer and me as we begin our coverage.

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Speaker 3: We are commercial free to the nine o'clock hour. Winograd,

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Speaker 3: David Rosenberg and Rob Sacken. That's the way that we roll. Eric,

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Speaker 3: what do you expect to see? What will this inflation

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Speaker 3: report state to America?

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Speaker 4: So I think what we expect, roughly in line with consensus,

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Speaker 4: sort of a mid-point two month-on-month print for the core

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Speaker 4: CPI figure. I think the message that that sends is

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Speaker 4: inflation is still higher than we would like, but it's

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Speaker 4: not running away. It is maybe not coming down as

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Speaker 4: fast as we would like. But it's not accelerating either.

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Speaker 4: And I think that that gives everyone a little bit

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Speaker 4: more time to see how things play out.

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Speaker 3: At Alliance Bernstein, do we get used to a 2%-ish

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Speaker 3: plus near 3% inflation? Can America survive with that elevated rate?

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Speaker 4: So in our forecasts for a long time now, we've

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Speaker 4: argued that inflation is going to be between two and

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Speaker 4: two and a half percent. Remember, pre-pandemic, it was running

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Speaker 4: between one and a half and two percent. So we

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Speaker 4: have always or for a long time expected it to

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Speaker 4: be somewhat higher.

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Speaker 5: I think three percent is too high.

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Speaker 4: But I think that between two and two and a

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Speaker 4: half is something that people can live with over time.

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Speaker 5: And that that to me is not disruptive.

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Speaker 6: Eric, our last guest was talking about the underlying driver's

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Speaker 6: inflation and that they are primarily supply shocks. You believe

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Speaker 6: the same thing. Are those supply shocks going to be resilient?

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Speaker 6: Are they durable or are they likely to fade in

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Speaker 6: the coming months?

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Speaker 5: So we expect that they will fade in the coming months. But,

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Speaker 5: you know, again, the.

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Speaker 4: Supply shocks are often driven by non-economic variables. And so

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Speaker 4: if the war in Iran persists or accelerates or, you know,

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Speaker 4: that there have been discussions in the market that perhaps

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Speaker 4: after the midterms that we might see an escalation, who knows?

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Speaker 4: The problem with supply shocks is you can't really forecast

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Speaker 4: them because they come from exogenous events. The one thing

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Speaker 4: that would give me pause if I were a member

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Speaker 4: of the FOMC today, you know, we're accustomed to looking

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Speaker 4: at inflation expectations over the long term and five and

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Speaker 4: ten year inflation expectations look just fine. There has been, though,

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Speaker 4: over the past few months, a march up in short

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Speaker 4: term inflation expectations. The New York Fed survey of one

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Speaker 4: year inflation expectations is marching higher. The University of Michigan

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Speaker 4: survey of one year inflation expectations has risen. That suggests

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Speaker 4: that economic actors, businesses and households are starting to extend.

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Speaker 5: How long temporary lasts.

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Speaker 7: Right.

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Speaker 5: We originally thought this would be a matter of months.

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Speaker 4: It now looks like maybe people are thinking this might

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Speaker 4: be well, maybe it might be more than a year.

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Speaker 5: That starts to stretch the definition of temporary.

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Speaker 4: And if that is something that continues, it might give

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Speaker 4: the Fed pause.

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Speaker 6: Eric, have you been surprised about the resiliency of the U.S. consumer,

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Speaker 6: the sustainability, the durability of demand strength here in the U.S.

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Speaker 5: Yes and no. At an aggregate level, yes. But if

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Speaker 5: you break it down, no.

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Speaker 4: The investor class, people who are invested in markets, look,

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Speaker 4: higher prices are an inconvenience, but they aren't really a

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Speaker 4: problem because the market has been so strong. If you

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Speaker 4: are paycheck to paycheck, however, the situation is very different.

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Speaker 4: And alongside the CPI release this morning, we'll get the

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Speaker 4: real average hourly earnings print, which is negative, which means

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Speaker 4: that if you are relying on your paycheck for your income,

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Speaker 4: you have lost ground over the last year. So we're

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Speaker 4: seeing two different economies, and the investor class has been

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Speaker 4: strong enough to pull the aggregates up. Mark Zandi at

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Speaker 4: Moody's has done work that says that the top 10%

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Speaker 4: of income earners are responsible for more than 50% of

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Speaker 4: the consumption in the economy. So that pay shape, that bifurcation,

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Speaker 4: gives you a stronger aggregate than I think many people feel.

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Speaker 3: A terrific sum into this report. Eric Winograd working off

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Speaker 3: the work of Dr. Zandi at Moody's. You know I've

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Speaker 3: talked about it, folks, to the point with Chris Waller

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Speaker 3: of saying there should be two R-stars in America. Back

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Speaker 3: to John Edwards years ago politically of talking about two

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Speaker 3: Americas out there right now. We're going to look at

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Speaker 3: one inflation report. coming up here. And of course, the

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Speaker 3: ramifications into the midterm elections with Eric Winograd and David Rosenberg.

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Speaker 3: Hear the report.

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Speaker 8: The Consumer Price Index for September is out, and it

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Speaker 8: shows consumer prices rising 0.6% for the month. That is

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Speaker 8: up from 0.4% in August. Year over year, consumer prices

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Speaker 8: rising 3.7%. That is more than the 3.6% expected. and

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Speaker 8: hotter than the 3.4% the prior month. When you exclude

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Speaker 8: volatile food and energy prices, taking a look at core

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Speaker 8: CPI month over month, rising to three-tenths of a percent.

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Speaker 8: That is right in line with the prior month and

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Speaker 8: hotter than estimates for 0.2%. Core CPI year over year

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Speaker 8: also coming in hotter than expected, up 2.6% versus the 2.4%

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Speaker 8: the prior month. Analysts were expecting a rise of 2.5%.

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Speaker 8: Of course, this inflation reading coming less than a day

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Speaker 8: after New York Fed President John Williams told Bloomberg News

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Speaker 8: he sees one more Fed interest rate hike this year

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Speaker 8: as appropriate, with no need for further tightening next year.

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Speaker 8: So once again, headline CPI accelerating in September, led by

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Speaker 8: prices for energy, airfares, and consumer electronics.

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Speaker 7: Core inflation.

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Speaker 8: Core, which is also, we know, closely watched, coming in

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Speaker 8: hotter than expected. Tom and Damian.

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Speaker 3: Alexis, thank you so much. Our economic report, and of course,

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Speaker 3: And the elasticity of equities, bonds, currencies, commodities, a two-year

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Speaker 3: yield was out five basis points. Higher yield now, seven

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Speaker 3: basis points, 4.86% as well. 10-year up five basis points.

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Speaker 3: Even the 30-year bond lifts three basis points over the

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Speaker 3: quiet point. Earlier, but in the foreign exchange market, Damien,

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Speaker 3: I look at Euro crushed, 111.60.

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Speaker 6: Well, I mean, look, the 10-year at 526 now. I mean,

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Speaker 6: that's not up five bips. Yes, it's five bips on

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Speaker 6: the day, but it was down two, two and a

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Speaker 6: half bips coming into the number. So that's a seven-bip U-turn,

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Speaker 6: so to speak. And my God, look at.

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Speaker 9: The two-year, 486, 4.86%.

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Speaker 3: Eric Winograd, Time and Alliance Bernstein to assess. Eric is like,

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Speaker 3: we're halfway to OMG. Is it an in-betweeny report for

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Speaker 3: the Fed?

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Speaker 5: Yeah, I think it is.

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Speaker 4: It's enough to keep October in play. But as you mentioned,

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Speaker 4: John Williams said that one more hike is appropriate, but

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Speaker 4: that he thinks they need more time to assess it.

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Speaker 4: Vice Chair Bowman said the same thing. Vice Chair Jefferson

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Speaker 4: said the same thing. You know, it's funny for a

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Speaker 4: Fed that Chair Wurst doesn't want to give forward guidance.

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Speaker 4: They've given us a lot of forward guidance. And most

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Speaker 4: of it seems to point toward December rather than October.

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Speaker 4: That's still our base case. I don't think this print

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Speaker 4: is hot enough to push them to move in October.

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Speaker 4: But you can't rule it out either. And so it is,

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Speaker 4: as you say, Tom, sort of an in-betweeny number.

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Speaker 3: Got to press the blue button, the Detroit Lions blue

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Speaker 3: button here in the studio. Eric, thank you this morning.

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Speaker 3: Eric Wernigrad leading our coverage on inflation. Lindsay Piegs in

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Speaker 3: this hour. Eric Wernigrad, Alliance Bernstein scheduled coming up. Rob

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Speaker 3: Sock and P.

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Speaker 4: Jim.

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Speaker 3: James Bianco will join us on short notice from Chicago,

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Speaker 3: joining us in studio. But now on the inflation report,

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Speaker 3: Damien Sessar and Tom Keene. And also, I should mention

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Speaker 3: as well, in celebration of 170 some pages, a new

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Speaker 3: book by David Rosenberg on top of his true expertise

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Speaker 3: on America's inflation. bear in the bullring rosenberg the movie

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Speaker 3: rights have been sold hollywood for those of you listening

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Speaker 3: uh this morning it is the first i think it's

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Speaker 3: the first book from david rosenberg you.

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Speaker 6: Know it's funny i was looking for it but i

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Speaker 6: had the name wrong i had beer in the bullring

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Speaker 6: not bear oh sorry i apologize david it is.

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Speaker 3: Good morning um you know i look at this uh

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Speaker 3: david i want to talk about the book first before

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Speaker 3: the end the inflation report. It is a wonderful study

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Speaker 3: and arc. Thank you so much for mentioning Richard Yamarone

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Speaker 3: in the acknowledgements who we all miss each and every day.

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Speaker 3: Let our data coverage as well. Let's start there. When

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Speaker 3: did you learn the study of a granular study of inflation?

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Speaker 9: Well, probably as my first day as a street economist

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Speaker 9: back in 1987, because inflation is one of the key

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Speaker 9: determinants of interest rates. And interest rates determine all asset

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Speaker 9: classes that you have to estimate where future cash flow

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Speaker 9: streams are coming from. So day one, October 1987, although

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Speaker 9: that day was probably focused more on deflation and the

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Speaker 9: stock market.

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Speaker 3: Was this with Merrill?

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Speaker 9: No, that was at the Bank of Nova Scotia.

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Speaker 3: Okay. But then you went to Merrill. How intimidated were

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Speaker 3: you working with Bill Farrell as a young buck?

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Speaker 9: Well, he was like an uncle to me and still is.

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Speaker 9: So he was actually the antithesis of stress. There was

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Speaker 9: a lot of stress being the chief economist of Merrill Lynch,

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Speaker 9: but he helped alleviate it quite a bit. And so

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Speaker 9: did Rich Bernstein, by the way. They did call me

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Speaker 9: the skunk at the picnic, but I did have a

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Speaker 9: few friends there. I've heard that reputation. It's in the book.

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Speaker 9: It's in the book.

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Speaker 3: In the celebration of bear in the bullring, Damien Sassar

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Speaker 3: with David Rosenberg.

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Speaker 6: Well, David, any inflation watcher knows it's all about protecting

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Speaker 6: your downside. It's also all about capital preservation. I've read

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Speaker 6: a lot of your work over the years about diversifying

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Speaker 6: into real assets, into infrastructure. Is now a time to

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Speaker 6: be doing that with yields at these levels? Because don't

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Speaker 6: cap rates rise? Doesn't it become more and more challenging

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Speaker 6: to hold some of these infrastructure assets, property, commercial real estate,

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Speaker 6: et cetera?

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Speaker 9: Well, over and beyond that, when I talk about hard assets,

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Speaker 9: I'm also thinking about commodities, principally base metals. pipelines, so

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Speaker 9: a lot of energy infrastructure. That's not really an interest

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Speaker 9: rate story. That is just purely based on future expected

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Speaker 9: supply and demand curves and how they're going to look.

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Speaker 9: I should throw gold in there as well. It's over

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Speaker 9: and beyond just, say, property. And in fact, I think

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Speaker 9: residential property is not a good place to be in

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Speaker 9: right now. But we just raised, actually, our allocation to

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Speaker 9: bonds to 30%. So we like these yields, both normal

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Speaker 9: and real, where they are right now, notwithstanding today's CPI number.

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Speaker 6: So when you look at the market, are you really

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Speaker 6: looking at it through the lens of an inflation-adjusted, a

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Speaker 6: real investor looking at where inflation expectations are going, where

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Speaker 6: they're going to be? And do you trust them? Do

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Speaker 6: you trust what break-evens are telling you today?

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Speaker 9: Well, I have no reason to think that they're not

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Speaker 9: to be trusted. It's just a residual from the nominals.

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Speaker 9: So why would you? I mean, I hear that. I

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Speaker 9: don't trust the break evens. You know, you had your

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Speaker 9: previous guest talking about one year inflation expectations. But when

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Speaker 9: you're talking about long duration assets like equities and like

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Speaker 9: fixed income and like real estate, why would you be

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Speaker 9: looking at one year expectations?

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Speaker 6: Well, isn't the 10-year nominal just a collection of one-year

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Speaker 6: forward rates? I mean, if you look at it that way,

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Speaker 6: I mean, it's certainly.

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Speaker 9: Yeah, but it's exactly one-year forward rate. So it's not

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Speaker 9: just a one-year rate. It's a one-year that's rolled over

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Speaker 9: over 10 years.

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Speaker 3: Exactly.

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Speaker 9: So the thing is that, look, there's a consistent story

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Speaker 9: here because it's not just in the tips break-evens that

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Speaker 9: have been really range-bound for the past five years. Where are,

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Speaker 9: for example, collective bargaining agreements going right now? What are

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Speaker 9: wage expectations doing? They were double where they are today,

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Speaker 9: back in that 2021-2022 non-transitory inflation period. Today, collective bargaining

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Speaker 9: agreements are containing annualized wage increases of around 3.5%. That

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Speaker 9: is not inflationary. And so when I look at the situation, again,

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Speaker 9: going beyond inflation, I mean, energy still affects the core.

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Speaker 9: Core came in a bit above expected. But you've got

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Speaker 9: airlines in there. You've got travel. You've got other things

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Speaker 9: that are first cousins to what energy is doing. But

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Speaker 9: I'm looking at the dollar. Is the dollar telling us

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Speaker 9: we have a big inflation problem? Is it telling us

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Speaker 9: that the Fed's got a big credibility problem? The answer

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Speaker 9: is no. Is gold reaching new highs? Is that an

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Speaker 9: inflationary signal? No. Money supply growth over 5%. It was

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Speaker 9: running double this time back in 2021, 2022.

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Speaker 10: No.

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Speaker 7: Wages?

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Speaker 9: Wages are decelerating. Nominal wages are decelerating, which is telling

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Speaker 9: you that slack is building up in the labour market. No,

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Speaker 9: and what about home prices? What about home prices? We

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Speaker 9: got existing home sales yesterday. Average prices were down 2.8%

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Speaker 9: sequentially down each of the past three months.

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Speaker 3: David Rosenberg with us here. Jim Bianco and Rob Sockin

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Speaker 3: coming up. Across America, we're commercial-free this half hour as

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Speaker 3: we look at America's inflation. Futures deteriorate, negative 25. VIX

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Speaker 3: not out to 16. VIX actually pretty good, 15.76. Two-year

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Speaker 3: yield now up a solid 10%. 12 basis points. For

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Speaker 3: Paul Sweeney, we may get a 5%. I don't think

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Speaker 3: Paul's coming home until we get a 5% two-year yield.

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Speaker 3: The 10-year yield right now, up nine, make it eight

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Speaker 3: basis points, 5.29%. David Rosenberg with us. The big, big

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Speaker 3: difference this time, David, and you are definitive in parsing inflation,

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Speaker 3: is the technology boom. Witness this odd nominal GDP. Witness

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Speaker 3: this morning's massive Chinese exports. How do you treat all

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Speaker 3: that AI boom with the rest of America flat on

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Speaker 3: its back?

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Speaker 9: Well, I mean, you mentioned China, which is now setting

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Speaker 9: their PPI number today. They're battling excess capacity and deflationary,

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Speaker 9: disinflationary situation domestically. The extent to which that's being exported

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Speaker 9: to the rest of the world, of course, is being

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Speaker 9: offset by what's happening on the energy side. So you

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Speaker 9: have to disentangle all these forces. You know, I'll just

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Speaker 9: say this. You know, we're freaking out over core inflation of, what, 2.6%.

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Speaker 9: When Paul Volcker left office in August of 1987, core

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Speaker 9: inflation was running at 4.2%, and he was viewed as

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Speaker 9: a hero. He was viewed as a hero. Today, you

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Speaker 9: have a two-handle on core inflation, and everybody is just

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Speaker 9: going hog-wild. I mean, there's monuments and plaques and trophies

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Speaker 9: built for Paul Volcker, the inflation dragon slayer. But when

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Speaker 9: he left office, core inflation had a forehandle. So I

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Speaker 9: think this comes down to, you know, I guess this

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Speaker 9: sentiment that's emerged, I think actually more on Wall Street

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Speaker 9: and more on the commentators that come on to shows

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Speaker 9: like yours. Because like I said, you're taking a look

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Speaker 9: at a bird's eye view of inflation. Right now, when

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Speaker 9: you're taking a look at the situations, We've had four

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Speaker 9: huge shocks within six years. We had the COVID shock

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Speaker 9: then coupled with the big fiscal shock, $ 2 trillion. Fiscal

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Speaker 9: stimulus checks just as the economy was reopening. Then we

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Speaker 9: had Russia-Ukraine shock. Then we had the tariff shock.

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Speaker 3: Right.

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Speaker 9: Now we have this shock. And that's why I was encouraged,

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Speaker 9: you know, when Kevin Morse was applying for the job.

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Speaker 3: Right.

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Speaker 9: He was telling us, doesn't talk about it anymore, about

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Speaker 9: the Dallas Fed, the Dallas PC trim mean, right? It's

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Speaker 9: what's it running at right now, 2.2%.

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Speaker 10: Okay.

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Speaker 3: I got to squeeze this in before we do the

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Speaker 3: interview of the year for us here. David Rosenberg with us,

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Speaker 3: Jim Bianco just walking into the studio. David, what do

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Speaker 3: the Montreal Canadiens need? I mean, they need Dylan Larkin

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Speaker 3: from the Detroit Red Wings, right?

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Speaker 9: Well, I totally agree. But, you know, what's the cost

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Speaker 9: of that? Like, we're going to give up Hayes, Bolduc.

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Speaker 3: A lot of Molson Beer.

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Speaker 9: Two first-round picks. I mean, I would love Larkin. I

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Speaker 9: would love Larkin. I would fly to Montreal and take

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Speaker 9: him out to Mois' steakhouse for like three weeks in

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Speaker 9: a row.

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Speaker 3: I'd take him to the cigar bar where you overlook

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Speaker 3: the Leonard Cohen wall, which is just huge as well.

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Speaker 3: This is a joy. Let me frame this for you.

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Speaker 3: One day at Davos, I'm sitting there with a laureate,

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Speaker 3: Joe Stiglitz, and Ken Rogoff shows up. And I interviewed...

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Speaker 3: Ken Rogoff and Joe Stiglitz at the same time with

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Speaker 3: two massively different views about international economics. We have in

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Speaker 3: the studio now, for those of you worldwide, including Chicago,

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Speaker 3: James Bianco with a view on inflation and David Rosenberg

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Speaker 3: from Toronto. with a view on inflation. And I would

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Speaker 3: say on a Venn diagram, we can find a common ground.

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Speaker 3: Jim Bianco, you're going to reaffirm that inflation here is there.

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Speaker 3: What's the Fed need to do off this report? Are

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Speaker 3: they behind the eight ball and need to raise rates

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Speaker 3: six times?

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Speaker 2: Well, I think if you put it into perspective, from

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Speaker 2: 2024 to 2026, the Fed cut rates 175 basis points

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Speaker 2: in six meetings, and the 10-year yield went up 130

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Speaker 2: basis points.

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Speaker 7: It's the first time.

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Speaker 2: In 50 years that we've seen an extended rate-cutting cycle

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Speaker 2: produce higher long-term rates. The message was that the market

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Speaker 2: was saying, you're too easy. And I think that that

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Speaker 2: message is continuing right now. I think we're stuck in

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Speaker 2: a three-ish percent inflation world.

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Speaker 7: We're not going up.

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Speaker 2: But I think the reason we're going to have a

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Speaker 2: hard time disinflating is from when China joined the WTO

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Speaker 2: in 2001 to 2020, goods inflation stuff was deflationary. It's

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Speaker 2: minus half a percent. Now it's nearly 2% inflation on goods.

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Speaker 2: And I think that that's because we've got deglobalization, we've

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Speaker 2: got tariffs, we've got wars. We've got chronic supply chain problems.

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Speaker 2: We're not going to get goods deflation again. And that's

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Speaker 2: a choice. David Rosenberg, I want to discuss it. This

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Speaker 2: goes back to David Malpass at Bear Stearns. The gimme

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Speaker 2: is that we have a vector of disinflation in goods.

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Speaker 2: Do you see that out there at some point?

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Speaker 9: Well, the answer is that we are seeing disinflation in

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Speaker 9: core goods. I didn't see what the year-over-year trend was today.

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Speaker 9: I haven't gone through the important detail. But let's just

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Speaker 9: say that through August, the year-over-year trend in core goods, CPI,

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Speaker 9: was running at 0.7%. And this doesn't have hedonics or imputations.

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Speaker 9: It's basically what you can see, touch, or feel. A

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Speaker 9: year ago, it was 1.5%. So this is what I'm

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Speaker 9: going to ask. I'll ask Jim and I, our good friends,

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Speaker 9: opposite sides of the trade. But where did the big

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Speaker 9: inflation come from from tariffs? Because the experts were saying

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Speaker 9: that after Liberation Day and the U.S. tariff rate went

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Speaker 9: from 2% to 15%, that core goods inflation was going

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Speaker 9: to go to 4% to 4.5%. We barely got above 2%.

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Speaker 9: And now we're at 0.7%. What happened to the tariff inflation? Well,

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Speaker 9: I'll tell you, it's because the labor market is weaker now.

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Speaker 9: than commonly perceived. That's why nominal wages are decelerating. So

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Speaker 9: this cost push inflation is hitting a wall in the

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Speaker 9: labor market. And you're not going to get sustainable inflation,

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Speaker 9: with all due respect to today's report, unless the labor

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Speaker 9: market plays ball, which it did in 2021 and 2022.

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Speaker 9: So the question becomes, who ate that inflation? from the tariffs?

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Speaker 9: Because we know the tariffs went up. Was it the

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Speaker 9: exporter not wanting to sacrifice market share in the U.S.

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Speaker 3: Market?

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Speaker 9: Was it the importer? Of origin? Was it suppliers along

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Speaker 9: the chain? Jim, are you surprised by this? I'll just

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Speaker 9: make this point. Only 25% of that tariff shock, okay,

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Speaker 9: made its way through to final inflation, and that was

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Speaker 9: not expected at the beginning.

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Speaker 3: But does that get us from a 2.5% run rate,

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Speaker 3: Jim Bianco, to a 3% run rate on inflation? Just

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Speaker 3: the tariffs in place.

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Speaker 7: Well, it's more than just the tariffs.

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Speaker 2: It's also the chronic supply chain problems and the choice

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Speaker 2: of deglobalization. When the San Francisco Fed came out with

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Speaker 2: their study last week and said that tariffs accounted for

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Speaker 2: most of the goods inflation, the implication in that was, see,

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Speaker 2: if you just stop the tariffs, then the inflation goes away. No,

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Speaker 2: we don't want to stop the tariffs. That's our policy choice.

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Speaker 2: And because it's our policy choice, Dave, you're right. We're

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Speaker 2: at 7 tenths on CPI core. We're at about 1.8

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Speaker 2: on PCE core.

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Speaker 7: But we're not negative.

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Speaker 2: And that's been the big push up that's been keeping

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Speaker 2: inflation for 66 months.

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Speaker 7: Above 2%.

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Speaker 2: And I think it's going to continue to keep it

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Speaker 2: above 2%.

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Speaker 3: Damian Sassauer with David Rosenberg and Jim Bianco. What a

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Speaker 3: special treat.

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Speaker 6: Well, Jim, David, I'm hearing everything you're saying, but let's

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Speaker 6: look at the market here for just one second. I mean,

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Speaker 6: you've got the 10-year up to 5.3% now. It's a

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Speaker 6: nine and change, nine and change bips this morning. Only

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Speaker 6: 11 of the economists in Bloomberg survey of 73 thought

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Speaker 6: we were going to see a 0.3 month over month

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Speaker 6: on the core. So clearly the market is looking at

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Speaker 6: this data and trading off of it.

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Speaker 3: Are they right, David?

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Speaker 6: I mean, is the market just trying to, you know,

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Speaker 6: basically throw anything up on the wall and it's just basically,

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Speaker 6: you know, I mean, what do you think?

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Speaker 3: Where's the market?

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Speaker 9: For today, for today, the market is right. As you

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Speaker 9: just said, you got a point three. Mark was looking

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Speaker 9: for a point two on core. I am not a

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Speaker 9: big inflationist and I thought point two was actually sitting

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Speaker 9: in the bar pretty low. I think it's an outsized reaction.

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Speaker 9: I don't think this puts the Fed back in play

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Speaker 9: for the next meeting, but it probably raises the odds

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Speaker 9: for December. However, it doesn't alter my fundamental view because

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Speaker 9: I take, it comes down to what Tom Keene asked

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Speaker 9: at the beginning about my inflation approach. I take a

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Speaker 9: top-down view towards inflation. Today's reaction is natural in the

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Speaker 9: bond market. Do I think that it's a little extreme?

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Speaker 3: Right.

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Speaker 9: Because you missed by 0.1. Is that worth nine basis points?

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Speaker 3: Well, not really.

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Speaker 9: But it just shows you how the market was positioned.

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Speaker 9: We were down like two beeps before the number.

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Speaker 3: Let's do this. This is such a treat. Jim Bianco

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Speaker 3: and David Rosenberg from Chicago and Toronto in studio with us.

430
00:22:31,450 --> 00:22:33,810
Speaker 3: In New York. Jim, are you okay on your airplane?

431
00:22:33,850 --> 00:22:35,790
Speaker 3: You got a catch? Yeah, I'm good. Is the Gulf

432
00:22:35,810 --> 00:22:40,080
Speaker 3: Stream going out of Teterboro or Middletown? I wish it was.

433
00:22:40,560 --> 00:22:43,240
Speaker 3: It's going out of Terminal B. Bramall has the Gulf

434
00:22:43,260 --> 00:22:46,580
Speaker 3: Stream in Bangkok. In Bangkok, Mr. Warsh is going to speak.

435
00:22:46,600 --> 00:22:49,520
Speaker 3: So let's bring this back to the Fed. Jim Bianco,

436
00:22:49,540 --> 00:22:52,879
Speaker 3: let me start with you. There's a new Fed in town.

437
00:22:53,160 --> 00:22:56,790
Speaker 3: There's a new messaging. How does he message this core

438
00:22:57,150 --> 00:23:02,570
Speaker 3: creeping up? And as Damian mentioned, the two-year yield, 4.92%.

439
00:23:03,890 --> 00:23:06,870
Speaker 3: Sweeney's coming home when it's 5%.

440
00:23:06,869 --> 00:23:08,570
Speaker 2: So I want to build off of what David said

441
00:23:08,750 --> 00:23:13,450
Speaker 2: in that he doesn't message. Warsh doesn't message. He doesn't

442
00:23:13,490 --> 00:23:17,410
Speaker 2: want to give forward guidance. So in that vacuum, we

443
00:23:17,470 --> 00:23:21,010
Speaker 2: look to people like Williams or Philip Jefferson, the vice chairman,

444
00:23:21,609 --> 00:23:24,169
Speaker 2: and we assume that they're the new spokesman.

445
00:23:24,850 --> 00:23:27,189
Speaker 7: When did Philip Jefferson ever move markets before?

446
00:23:27,210 --> 00:23:28,510
Speaker 3: Is Waller the spokesman?

447
00:23:29,350 --> 00:23:32,080
Speaker 7: Well, that's the question. Is Waller the spokesman? No, we

448
00:23:32,100 --> 00:23:32,630
Speaker 7: don't know.

449
00:23:32,760 --> 00:23:36,320
Speaker 2: And that's why he wants us, us being the collective

450
00:23:36,359 --> 00:23:39,300
Speaker 2: of the market, not to overreact to one number. We're

451
00:23:39,340 --> 00:23:41,800
Speaker 2: overreacting to one number right now is what we're doing.

452
00:23:41,820 --> 00:23:43,300
Speaker 3: David, your thoughts on the new Fed?

453
00:23:43,440 --> 00:23:45,340
Speaker 9: Well, I'll get to that in a sec. But just

454
00:23:45,420 --> 00:23:49,380
Speaker 9: let's keep in mind that they focus on the PC deflator, right?

455
00:23:49,780 --> 00:23:53,790
Speaker 9: Like his new metric, the percentage of items going above

456
00:23:53,830 --> 00:23:57,210
Speaker 9: or below 3% is not the CPI. It's the PC deflator.

457
00:23:57,850 --> 00:24:00,030
Speaker 9: Like right now, my team is going and slicing and

458
00:24:00,050 --> 00:24:02,229
Speaker 9: dicing the data to see what the components mean for

459
00:24:02,250 --> 00:24:04,389
Speaker 9: the PC deflator and the core. And then we'll have

460
00:24:04,410 --> 00:24:07,810
Speaker 9: to get the PPI, especially the healthcare components to get

461
00:24:07,850 --> 00:24:09,950
Speaker 9: a view on that. So this is a hyper reaction,

462
00:24:09,990 --> 00:24:11,360
Speaker 9: but not the first time that we've seen it. My,

463
00:24:11,710 --> 00:24:16,480
Speaker 9: my view on this fed is, um, uh, you know, I,

464
00:24:16,580 --> 00:24:19,580
Speaker 9: I roll my eyes a lot at the stuff that

465
00:24:20,560 --> 00:24:25,919
Speaker 9: Morse talks about the economy, uh, He basically, at Jackson Hole,

466
00:24:26,700 --> 00:24:30,190
Speaker 9: talked about how the economy is resilient and strong and solid,

467
00:24:30,490 --> 00:24:34,080
Speaker 9: and then goes on to mention AI eight times. Mentions

468
00:24:34,119 --> 00:24:38,870
Speaker 9: housing once. Does anybody talk about housing? Do we actually

469
00:24:38,970 --> 00:24:41,750
Speaker 9: live and watch TV in a data center? I mean,

470
00:24:42,310 --> 00:24:44,690
Speaker 9: home prices are deflated. You knew home prices are down 7.5%

471
00:24:44,690 --> 00:24:49,190
Speaker 9: year over year. Home prices are cracking. It's a $ 50

472
00:24:48,800 --> 00:24:52,639
Speaker 9: trillion asset class. And here's the thing that we're not

473
00:24:52,680 --> 00:24:56,700
Speaker 9: talking about is how the BLS calculates shelter, OER, rent.

474
00:24:57,020 --> 00:24:59,340
Speaker 9: All the deflation that we're seeing in rents and in

475
00:24:59,380 --> 00:25:01,870
Speaker 9: home prices are not filtering just yet. They will with

476
00:25:01,910 --> 00:25:03,929
Speaker 9: the lag into the CPI data. Let me just give

477
00:25:03,950 --> 00:25:06,879
Speaker 9: you an example. All you're talking about today is core,

478
00:25:06,920 --> 00:25:12,119
Speaker 9: core goods. But let's take a look at ex-shelter core CPI. OK,

479
00:25:12,560 --> 00:25:14,420
Speaker 9: it's running two percent on the nose year over year.

480
00:25:15,859 --> 00:25:19,639
Speaker 9: So I don't know. Like, basically, Powell, when we had

481
00:25:19,660 --> 00:25:23,090
Speaker 9: the tariff shock, appropriately said, when you're in a dark room,

482
00:25:23,130 --> 00:25:25,930
Speaker 9: you stand still so you don't trip. Did he raise

483
00:25:25,950 --> 00:25:26,870
Speaker 9: rates because of tariffs?

484
00:25:27,230 --> 00:25:27,430
Speaker 10: No.

485
00:25:27,570 --> 00:25:30,650
Speaker 9: And he was right not to, in my opinion. But

486
00:25:30,730 --> 00:25:34,490
Speaker 9: what really unnerves me is here we had Warsh. When

487
00:25:34,530 --> 00:25:37,389
Speaker 9: he was applying for the job and cozying up to

488
00:25:37,410 --> 00:25:42,340
Speaker 9: the president, the Dallas Fed's trim mean core PC deflator,

489
00:25:42,420 --> 00:25:48,119
Speaker 9: which excludes the idiosyncratic noise in both directions in the data,

490
00:25:48,180 --> 00:25:53,210
Speaker 9: is running at 2.2%. And he never talks about it anymore.

491
00:25:53,330 --> 00:25:55,690
Speaker 3: And to be fair, Powell was very big on the trimming.

492
00:25:55,730 --> 00:25:57,820
Speaker 3: Damien Sasse with Jim Bianco.

493
00:25:57,859 --> 00:25:59,940
Speaker 6: Yeah, Jim, you know, I mean, we have midterms coming

494
00:25:59,960 --> 00:26:01,400
Speaker 6: up in less than a month here. And I'm just

495
00:26:01,460 --> 00:26:06,960
Speaker 6: looking at real average hourly earnings falling 0.7%.

496
00:26:05,560 --> 00:26:06,120
Speaker 3: Year over year.

497
00:26:06,200 --> 00:26:08,340
Speaker 6: And then you see the CPI data coming in hot.

498
00:26:08,420 --> 00:26:10,200
Speaker 6: I mean, how do you sell that through ahead of

499
00:26:10,220 --> 00:26:10,740
Speaker 6: the midterms?

500
00:26:11,660 --> 00:26:13,840
Speaker 2: You have a very difficult time selling that through the

501
00:26:13,880 --> 00:26:16,230
Speaker 2: end of the midterms. And I'll just feed off of

502
00:26:16,290 --> 00:26:18,230
Speaker 2: what David said. You know, when you were talking about

503
00:26:18,270 --> 00:26:21,950
Speaker 2: what Warsh was saying in Jackson Hole, my question to

504
00:26:21,970 --> 00:26:24,510
Speaker 2: you is, was he speaking to an audience of one,

505
00:26:24,930 --> 00:26:27,649
Speaker 2: the president, or was he speaking to everybody? Because mentioning

506
00:26:27,670 --> 00:26:30,380
Speaker 2: the economy is great and mentioning AI eight times sounds

507
00:26:30,390 --> 00:26:33,159
Speaker 2: like he's speaking to the president during that speech more

508
00:26:33,200 --> 00:26:35,080
Speaker 2: than he was speaking to the larger audience.

509
00:26:35,480 --> 00:26:37,800
Speaker 7: And this lights into your.

510
00:26:37,220 --> 00:26:37,719
Speaker 3: Question, right?

511
00:26:37,740 --> 00:26:37,859
Speaker 9: Right.

512
00:26:39,130 --> 00:26:40,709
Speaker 2: Why do a lot of people think the Fed's not

513
00:26:40,730 --> 00:26:42,810
Speaker 2: going to raise rates in October but raise rates in December?

514
00:26:42,910 --> 00:26:45,149
Speaker 7: I've read a lot of street research, and their argument

515
00:26:45,190 --> 00:26:46,600
Speaker 7: is it's a week before the midterms.

516
00:26:46,930 --> 00:26:51,040
Speaker 2: So they're openly saying, we're going to make a political decision.

517
00:26:51,580 --> 00:26:55,359
Speaker 2: And so the Fed seems to be more politicized than

518
00:26:55,380 --> 00:26:57,600
Speaker 2: we've seen in a long time because of this.

519
00:26:58,580 --> 00:27:00,139
Speaker 6: Well, we have retail sales coming up at the end

520
00:27:00,160 --> 00:27:01,700
Speaker 6: of the week. I mean, does this take a little

521
00:27:01,720 --> 00:27:03,940
Speaker 6: bit of pressure off of that data? I mean, like, again,

522
00:27:04,000 --> 00:27:06,000
Speaker 6: you know, It's.

523
00:27:05,880 --> 00:27:08,560
Speaker 3: A boom economy. Can you stay? I'm really worried about

524
00:27:08,580 --> 00:27:10,659
Speaker 3: your plane flight. You okay? I can stay. Okay. We're

525
00:27:10,700 --> 00:27:12,379
Speaker 3: going to do this, folks. I'm making it up as

526
00:27:12,460 --> 00:27:16,620
Speaker 3: I go. Jim Bianco, David Rosenberg now, Rob Socken's people,

527
00:27:17,380 --> 00:27:19,910
Speaker 3: steam coming out of their ears at PGM right now.

528
00:27:20,230 --> 00:27:23,750
Speaker 3: We're going to have Rob Socken top of the 9

529
00:27:23,750 --> 00:27:26,469
Speaker 3: o'clock hour as well. So we're going to continue with

530
00:27:26,490 --> 00:27:29,929
Speaker 3: Jim Bianco and David Rosenberg and go from there. I

531
00:27:29,990 --> 00:27:33,149
Speaker 3: want you two to answer my ARCH question. None of

532
00:27:33,280 --> 00:27:37,260
Speaker 3: us have seen a nominal GDP like this that we

533
00:27:37,440 --> 00:27:40,300
Speaker 3: all know must come down. Let me start with you,

534
00:27:40,340 --> 00:27:42,240
Speaker 3: Jim Bianco, so then you can stand up and leave

535
00:27:42,260 --> 00:27:45,850
Speaker 3: to get the Gulf Stream. How will our nominal GDP

536
00:27:45,910 --> 00:27:49,810
Speaker 3: come down to something normal for David Rosenberg?

537
00:27:51,170 --> 00:27:53,150
Speaker 7: I think it is normal, for starters.

538
00:27:53,300 --> 00:27:54,400
Speaker 3: Six and a half percent.

539
00:27:54,500 --> 00:27:57,580
Speaker 7: Oh, well, the latest quarterly number. It's the old normal.

540
00:27:57,820 --> 00:28:00,140
Speaker 2: But yeah, the latest quarterly number is a little bit hot.

541
00:28:00,260 --> 00:28:02,460
Speaker 2: I was thinking more of like a longer run average

542
00:28:02,500 --> 00:28:06,710
Speaker 2: of around five-ish or so, which is three-ish something inflation,

543
00:28:06,730 --> 00:28:07,310
Speaker 2: two-ish something.

544
00:28:07,350 --> 00:28:09,870
Speaker 3: What's the damage to the stock market if we pull

545
00:28:09,910 --> 00:28:12,490
Speaker 3: it down to five-ish or 4.8%?

546
00:28:12,490 --> 00:28:12,850
Speaker 7: Nothing.

547
00:28:13,430 --> 00:28:16,540
Speaker 2: And the reason I would argue it's nothing is we

548
00:28:17,160 --> 00:28:20,379
Speaker 2: are anchoring ourselves to 2010 to 2020. We had zero

549
00:28:20,420 --> 00:28:22,920
Speaker 2: interest rates for all those years. And somehow we think

550
00:28:22,980 --> 00:28:25,459
Speaker 2: it's normal. And now we look at five and we

551
00:28:25,500 --> 00:28:27,480
Speaker 2: freak out that this is crushing the economy.

552
00:28:27,780 --> 00:28:28,260
Speaker 3: It's not.

553
00:28:28,500 --> 00:28:29,300
Speaker 7: This is normal.

554
00:28:29,880 --> 00:28:32,920
Speaker 2: Zero was abnormal. How do I know that everybody's anchoring themselves?

555
00:28:32,940 --> 00:28:35,330
Speaker 2: The president is demanding zero on the funds rate, zero

556
00:28:35,350 --> 00:28:39,170
Speaker 2: to one. The Treasury Secretary is talking about financial repression

557
00:28:39,230 --> 00:28:40,630
Speaker 2: by being in the House.

558
00:28:40,690 --> 00:28:43,370
Speaker 3: To bring rates down. Your driver in the Bentley just called.

559
00:28:43,450 --> 00:28:45,490
Speaker 3: You've got to go. Jim Bianco, thank you so much.

560
00:28:45,530 --> 00:28:48,470
Speaker 3: He's got an airplane to catch here. Bianco Research can't

561
00:28:48,530 --> 00:28:51,570
Speaker 3: say enough about it. David Rosenberg to wrap up. David,

562
00:28:51,850 --> 00:28:54,770
Speaker 3: we've never seen a nominal GDP like this. Bob Farrell's

563
00:28:54,810 --> 00:28:57,910
Speaker 3: never seen it. Richard Bernstein's never seen it. Can we

564
00:28:57,990 --> 00:29:02,390
Speaker 3: move down from this nominal GDP to something normal without damage?

565
00:29:02,450 --> 00:29:02,730
Speaker 11: Yes.

566
00:29:04,080 --> 00:29:06,720
Speaker 9: We've seen it many times in the past. And let

567
00:29:06,740 --> 00:29:08,380
Speaker 9: me just say one thing here. This is not a

568
00:29:08,400 --> 00:29:12,510
Speaker 9: boom economy, okay? We have 2% real and the rest

569
00:29:12,590 --> 00:29:14,790
Speaker 9: is nominal. But just keep in mind when you're talking

570
00:29:14,810 --> 00:29:18,910
Speaker 9: about nominal GDP and you're talking about inflation, inflation, somebody's

571
00:29:18,950 --> 00:29:22,890
Speaker 9: pricing power is somebody else's cost squeeze. So let's not

572
00:29:22,950 --> 00:29:28,450
Speaker 9: talk about nominal GDP being some great thing when basically 70%

573
00:29:28,450 --> 00:29:31,420
Speaker 9: of the nominal GDP is coming from prices and costs

574
00:29:31,460 --> 00:29:34,940
Speaker 9: and 30% is coming from real economic activity. Because historically,

575
00:29:34,980 --> 00:29:39,130
Speaker 9: what was normal was that the inflation component was half

576
00:29:39,650 --> 00:29:42,320
Speaker 9: and the real component was half. This is a lopsided economy.

577
00:29:42,340 --> 00:29:45,400
Speaker 9: It ain't no boom. 2% real growth, I'm sorry, no

578
00:29:45,440 --> 00:29:49,140
Speaker 9: growth in employment in the past year and real wages contracting,

579
00:29:49,580 --> 00:29:54,500
Speaker 9: that ain't no boom. What's it going to take? We

580
00:29:54,680 --> 00:29:57,770
Speaker 9: ran the analysis last And we found that absent the

581
00:29:57,810 --> 00:29:59,810
Speaker 9: four shocks we've had in the past six years, core

582
00:29:59,850 --> 00:30:03,209
Speaker 9: and headline inflation today would be south of 2%. So

583
00:30:03,250 --> 00:30:06,830
Speaker 9: what we have to see is the end of these shocks.

584
00:30:07,230 --> 00:30:08,930
Speaker 9: And who knows what's going to happen? Is this war

585
00:30:08,950 --> 00:30:10,830
Speaker 9: with Iran going to continue? What are the Houthis going

586
00:30:10,850 --> 00:30:15,010
Speaker 9: to be doing with Saudi Arabia? What about Russia, Ukraine?

587
00:30:15,090 --> 00:30:18,050
Speaker 9: So we are vulnerable to these shocks. But this is

588
00:30:18,110 --> 00:30:22,920
Speaker 9: not some... ingrained inflation in the system, okay? This is

589
00:30:22,980 --> 00:30:26,200
Speaker 9: basically one shock after another shock. So if these shocks

590
00:30:26,960 --> 00:30:30,720
Speaker 9: ever subside, we saw when the tariff shock subsided, right?

591
00:30:30,980 --> 00:30:33,870
Speaker 9: The tariff shock subsided. Everybody knows that is now in

592
00:30:33,900 --> 00:30:36,990
Speaker 9: the rearview mirror, okay? We saw, I said before, the

593
00:30:38,130 --> 00:30:41,110
Speaker 9: part that it affected the most, which is core goods inflation,

594
00:30:41,470 --> 00:30:43,670
Speaker 9: has been cut in half in the past year. So

595
00:30:43,710 --> 00:30:46,090
Speaker 9: we ended one shock and saw in real time in

596
00:30:46,110 --> 00:30:51,560
Speaker 9: the laboratory what does happen to underlying goods inflation. So

597
00:30:51,800 --> 00:30:55,469
Speaker 9: if these shocks cross our fingers, ever fade away like

598
00:30:55,490 --> 00:30:58,470
Speaker 9: the tariff shock did, then we will see headline and

599
00:30:58,490 --> 00:31:01,410
Speaker 9: core gravitate down towards 2%, which, by the way, is

600
00:31:01,490 --> 00:31:05,940
Speaker 9: exactly what that Dallas Fed's trim mean PC deflator is

601
00:31:05,980 --> 00:31:09,000
Speaker 9: telling us. And when you talk to me about Warsh,

602
00:31:09,080 --> 00:31:11,520
Speaker 9: I don't know why nobody ever asked him, what happened

603
00:31:11,540 --> 00:31:13,840
Speaker 9: to that indicator that you said forever was your favorite

604
00:31:13,860 --> 00:31:15,140
Speaker 9: inflation indicator? It no longer exists.

605
00:31:15,270 --> 00:31:17,870
Speaker 3: The changes that go along. Damien Sessar, one more question

606
00:31:17,890 --> 00:31:18,730
Speaker 3: for David Rosenberg.

607
00:31:18,750 --> 00:31:20,910
Speaker 6: So inflation prints this week are not just about the US.

608
00:31:20,930 --> 00:31:22,890
Speaker 6: They've been happening all over the world. I mean, we've

609
00:31:22,910 --> 00:31:25,870
Speaker 6: seen China, we've seen Japan with inflation coming in lower

610
00:31:25,910 --> 00:31:28,470
Speaker 6: than expected. We've seen inline inflation coming out of places

611
00:31:28,510 --> 00:31:32,110
Speaker 6: like Germany and India. So these inflationary pressures, are they

612
00:31:33,280 --> 00:31:35,520
Speaker 6: to what we're seeing here in the U.S.? Or is

613
00:31:35,540 --> 00:31:37,160
Speaker 6: this being felt globally?

614
00:31:37,180 --> 00:31:41,270
Speaker 9: Well, don't forget that each individual country has their statistical

615
00:31:41,330 --> 00:31:43,370
Speaker 9: agency measuring inflation differently.

616
00:31:43,410 --> 00:31:43,850
Speaker 3: Tomatoes.

617
00:31:43,930 --> 00:31:48,430
Speaker 9: Okay, so basically, the way we measure shelter is completely

618
00:31:48,450 --> 00:31:50,510
Speaker 9: out of line with what shelter costs are doing. That's

619
00:31:50,530 --> 00:31:53,209
Speaker 9: the one area where we're not seeing inflation. We're not

620
00:31:53,230 --> 00:31:55,460
Speaker 9: seeing inflation in house prices, and we're not seeing inflation

621
00:31:55,500 --> 00:31:58,340
Speaker 9: in rents. The way that it's treated by the BLS

622
00:31:59,020 --> 00:32:00,960
Speaker 9: makes the inflation numbers in the United States look higher

623
00:32:00,980 --> 00:32:02,320
Speaker 9: than it does in many other countries in the world.

624
00:32:03,700 --> 00:32:05,959
Speaker 6: That's interesting. I didn't realize that. So basically, shelter, which

625
00:32:06,020 --> 00:32:08,360
Speaker 6: is such a large component, is actually almost biased to

626
00:32:08,400 --> 00:32:09,900
Speaker 6: the upside here in the U.S.

627
00:32:10,680 --> 00:32:13,340
Speaker 9: If you stuck in residential rents, which are still deflating

628
00:32:13,380 --> 00:32:16,380
Speaker 9: year over year, and you stuck in home prices, depending

629
00:32:16,420 --> 00:32:20,060
Speaker 9: on the measure you want to use, underlying inflation and

630
00:32:20,100 --> 00:32:22,860
Speaker 9: headline would be at or below 2% right now.

631
00:32:23,400 --> 00:32:26,080
Speaker 3: I've got to finish strong here with David Rosenberg. The

632
00:32:26,120 --> 00:32:29,510
Speaker 3: book is Bear in the Bull Room for Global Wall Street.

633
00:32:29,570 --> 00:32:34,230
Speaker 3: It is a fabulous vignette. into the career of Mr. Rosenberg.

634
00:32:34,710 --> 00:32:36,690
Speaker 3: And I look at this and I just simply say

635
00:32:36,750 --> 00:32:40,840
Speaker 3: with your idea, we always regress to the mean. David

636
00:32:40,900 --> 00:32:43,480
Speaker 3: Rosenberg on this uncommon bull market.

637
00:32:44,760 --> 00:32:48,420
Speaker 9: Bob Farrell's rule number one. Look, I think that, and

638
00:32:49,460 --> 00:32:53,480
Speaker 9: I said this at the grants conference yesterday, that I

639
00:32:53,520 --> 00:32:55,760
Speaker 9: won't call it a bubble, okay? That just gets people

640
00:32:55,820 --> 00:32:58,300
Speaker 9: really upset. But I am going to say that in

641
00:32:58,320 --> 00:33:00,360
Speaker 9: my 40 years in the business, I have not seen

642
00:33:00,820 --> 00:33:04,790
Speaker 9: such widespread imbalances, divergences, and extremes, by the way, not

643
00:33:04,830 --> 00:33:09,450
Speaker 9: just in the market, where 10 companies comprise more than 40%

644
00:33:09,450 --> 00:33:12,530
Speaker 9: of the market cap. We already knew about concentration risk

645
00:33:12,610 --> 00:33:16,170
Speaker 9: back in the late 1990s when that was less than 30% share.

646
00:33:17,130 --> 00:33:21,630
Speaker 9: But the bifurcation in the economy, bifurcation in the economy,

647
00:33:22,160 --> 00:33:25,150
Speaker 9: You know, when you talked about the consumer before, we

648
00:33:25,190 --> 00:33:28,150
Speaker 9: have hardly any real disposable income growth in the past year.

649
00:33:28,170 --> 00:33:31,530
Speaker 9: We have almost no employment growth. And so I think

650
00:33:31,570 --> 00:33:34,230
Speaker 9: that the mean reversion has to be that people actually

651
00:33:34,250 --> 00:33:36,530
Speaker 9: start to see the economy for what it is, because

652
00:33:37,130 --> 00:33:40,130
Speaker 9: the gap between personal income and corporate income is unprecedented.

653
00:33:40,930 --> 00:33:43,570
Speaker 9: And the gap between what's happening in the rest of

654
00:33:43,590 --> 00:33:45,410
Speaker 9: the economy and AI.

655
00:33:45,430 --> 00:33:48,250
Speaker 3: Okay, I got to leave it there. David, you and

656
00:33:48,290 --> 00:33:50,610
Speaker 3: Jim Bianco, thank you so much for that moment. That

657
00:33:50,670 --> 00:33:54,230
Speaker 3: was just magical to have someone looking at embedded inflation

658
00:33:54,590 --> 00:33:59,160
Speaker 3: and Mr. Rosenberg collegially disagreeing with his good friend, Jim Bianco.

659
00:33:59,850 --> 00:34:03,750
Speaker 3: Lindsay Piegs are with us. We had Eric Winograd, David Rosenberg,

660
00:34:03,790 --> 00:34:06,470
Speaker 3: Jim Bianco. That was gold. And now we finish this

661
00:34:06,530 --> 00:34:10,779
Speaker 3: inflation coverage strong with Rob Socken, who's been more than patient.

662
00:34:10,820 --> 00:34:13,640
Speaker 3: Thank you so much. Do you adjust your Fed call here?

663
00:34:13,719 --> 00:34:17,280
Speaker 3: You've been aggressive about a call. I mean, this tilts

664
00:34:17,420 --> 00:34:19,080
Speaker 3: towards the Socken view, right?

665
00:34:19,219 --> 00:34:20,080
Speaker 7: Yeah, absolutely.

666
00:34:20,120 --> 00:34:23,640
Speaker 11: I mean, we've had three rate hikes this year, September, October, December,

667
00:34:24,090 --> 00:34:26,370
Speaker 11: since the beginning of June. I mean, even before Kevin

668
00:34:26,390 --> 00:34:28,609
Speaker 11: Walsh started. And it was based on this view that

669
00:34:28,930 --> 00:34:32,570
Speaker 11: that fundamentally inflation is going to stay high, growth's above trend,

670
00:34:32,590 --> 00:34:37,989
Speaker 11: the labor market's stable. inflation is broad-based. And we saw

671
00:34:38,030 --> 00:34:40,110
Speaker 11: that in today's data. This was in line with our

672
00:34:40,130 --> 00:34:43,989
Speaker 11: forecast 0.3 on core CPI. I think this fuels, it

673
00:34:44,030 --> 00:34:46,110
Speaker 11: doesn't seal the deal that October is going to happen,

674
00:34:46,489 --> 00:34:48,969
Speaker 11: but we like our call here. And if anything, it

675
00:34:48,989 --> 00:34:50,430
Speaker 11: could be more hikes than what we have in the

676
00:34:50,450 --> 00:34:51,270
Speaker 11: base case.

677
00:34:51,370 --> 00:34:54,630
Speaker 3: Rosenberg just in is more benign. He says the greater

678
00:34:54,710 --> 00:34:59,550
Speaker 3: economy is in disinflation where AI is nuts. What Pichum's

679
00:34:59,590 --> 00:35:02,010
Speaker 3: saying is you got to aggregate the whole thing, right?

680
00:35:02,030 --> 00:35:02,110
Speaker 7: Yes.

681
00:35:02,630 --> 00:35:05,290
Speaker 11: Yeah, I think AI is part of the story. But

682
00:35:05,330 --> 00:35:08,770
Speaker 11: if you look at just the number of items that

683
00:35:08,810 --> 00:35:11,950
Speaker 11: are running with elevated inflation rates, it's not just an

684
00:35:12,010 --> 00:35:16,770
Speaker 11: AI story. It's high energy. It's maybe some still tariff

685
00:35:16,790 --> 00:35:20,170
Speaker 11: pass-through that's happening through the data. And it's still very sticky,

686
00:35:20,510 --> 00:35:24,310
Speaker 11: non-shelter services inflation. That is not AI related. It's shown

687
00:35:24,410 --> 00:35:25,710
Speaker 11: no signs of cooling.

688
00:35:25,870 --> 00:35:29,970
Speaker 3: Bill Hartman just publishing at BMO Capital Markets. Lincoln's off today.

689
00:35:30,050 --> 00:35:33,050
Speaker 3: We're from home or something. Quote, it was a troubling

690
00:35:33,150 --> 00:35:37,290
Speaker 3: round of inflation data. That from Lincoln and Bill Hartman.

691
00:35:37,370 --> 00:35:40,149
Speaker 6: Rob, we have the Fed meeting on October 28th. I mean,

692
00:35:40,170 --> 00:35:42,130
Speaker 6: that's only two weeks away and not a lot of

693
00:35:42,170 --> 00:35:44,790
Speaker 6: data between now and then. We have retail sales on Friday.

694
00:35:44,850 --> 00:35:47,759
Speaker 6: How much pressure does this put on some of these

695
00:35:47,780 --> 00:35:49,600
Speaker 6: data points between now and the 28th?

696
00:35:49,860 --> 00:35:52,300
Speaker 11: I think for retail sales, I don't think there's a

697
00:35:52,320 --> 00:35:54,640
Speaker 11: lot of pressure there because we're coming off a very

698
00:35:54,739 --> 00:35:57,500
Speaker 11: strong run rate for the consumer. All of the data

699
00:35:57,520 --> 00:35:59,860
Speaker 11: are very volatile. That's something we've been highlighting. So you

700
00:35:59,900 --> 00:36:02,170
Speaker 11: could easily get a bit of payback in that data,

701
00:36:02,210 --> 00:36:04,590
Speaker 11: but you look at the trends and It's a strong growth,

702
00:36:04,630 --> 00:36:08,650
Speaker 11: strong consumer backdrop. I think the PPI data is important tomorrow.

703
00:36:09,610 --> 00:36:10,290
Speaker 9: But you're right.

704
00:36:10,650 --> 00:36:13,240
Speaker 11: It's really going to come down to does the Fed

705
00:36:13,300 --> 00:36:15,420
Speaker 11: want to hike with the type of data universe we

706
00:36:15,440 --> 00:36:18,299
Speaker 11: see up to this point? We think they will. We

707
00:36:18,340 --> 00:36:20,140
Speaker 11: think Warsh is going to be able to get the

708
00:36:20,219 --> 00:36:22,270
Speaker 11: votes to do it. Are you kidding me?

709
00:36:22,410 --> 00:36:25,230
Speaker 3: The midterms? Marsh is going to say to them at

710
00:36:25,290 --> 00:36:28,950
Speaker 3: the Eccles building, guys, you got to protect my back

711
00:36:28,989 --> 00:36:29,750
Speaker 3: with the president.

712
00:36:29,770 --> 00:36:30,850
Speaker 9: Do you like your job?

713
00:36:31,330 --> 00:36:34,540
Speaker 3: Exactly. Thank you. Are you kidding me? You think there

714
00:36:34,580 --> 00:36:36,700
Speaker 3: could be an October rate increase?

715
00:36:36,980 --> 00:36:39,460
Speaker 11: I think for the midterms are there. I don't think

716
00:36:39,500 --> 00:36:42,900
Speaker 11: they would have started a rate hiking cycle going into

717
00:36:42,960 --> 00:36:45,410
Speaker 11: right before the midterms. But the fact that they started

718
00:36:45,450 --> 00:36:48,470
Speaker 11: in September and the fact that Warsh has been signaling

719
00:36:48,510 --> 00:36:51,130
Speaker 11: this hawkish path since the middle of the summer, I

720
00:36:51,190 --> 00:36:55,169
Speaker 11: actually think it looks more political to skip October, given

721
00:36:55,190 --> 00:36:57,969
Speaker 11: they're telling us we have a big inflation problem, but

722
00:36:58,070 --> 00:36:59,990
Speaker 11: there's no urgency. We think there's a lot of urgency

723
00:37:00,050 --> 00:37:01,259
Speaker 11: here to raise rates.

724
00:37:01,280 --> 00:37:03,319
Speaker 6: That's the credibility question again, right? I mean, I thought

725
00:37:03,340 --> 00:37:05,900
Speaker 6: we were past this with Fed credibility being called into question,

726
00:37:05,920 --> 00:37:07,680
Speaker 6: but I guess not, right? I mean, like, you know,

727
00:37:07,719 --> 00:37:09,660
Speaker 6: if you're gaming the market, if you're a Fed watcher,

728
00:37:09,680 --> 00:37:11,410
Speaker 6: you really got to be thinking midterms here, no?

729
00:37:11,680 --> 00:37:14,339
Speaker 11: Yeah, I mean, the challenge here is now they're in

730
00:37:14,440 --> 00:37:17,779
Speaker 11: even a tighter spot because before you had some data

731
00:37:17,820 --> 00:37:20,930
Speaker 11: that could argue for a pause. You had downward revisions

732
00:37:20,989 --> 00:37:23,870
Speaker 11: to inflation. You had a softer than expected jobs report.

733
00:37:24,310 --> 00:37:26,390
Speaker 11: We think that those weren't the right signal. We think

734
00:37:26,410 --> 00:37:28,130
Speaker 11: if you look at the trends, it's still a stable

735
00:37:28,170 --> 00:37:31,649
Speaker 11: labor market. It's still hot inflation. But now going into

736
00:37:31,670 --> 00:37:34,810
Speaker 11: the meeting. With how hot the inflation numbers are coming in,

737
00:37:35,290 --> 00:37:37,560
Speaker 11: if they don't hike, they're going to have a real challenge.

738
00:37:37,580 --> 00:37:39,780
Speaker 7: And you might get a pretty big response.

739
00:37:39,380 --> 00:37:41,299
Speaker 11: On the long end of the yield curve if they

740
00:37:41,340 --> 00:37:43,320
Speaker 11: don't hike at this meeting, that markets are going to

741
00:37:43,340 --> 00:37:45,020
Speaker 11: get more concerned that they're not going to get inflation

742
00:37:45,060 --> 00:37:45,700
Speaker 11: under control.

743
00:37:45,800 --> 00:37:49,750
Speaker 3: My first study today, Rob Salkin, was Chinese exports were

744
00:37:49,989 --> 00:37:57,570
Speaker 3: absolutely jaw-dropping. The Bloomberg essay out of Hong Kong was just... Folks,

745
00:37:57,650 --> 00:38:01,170
Speaker 3: I can't say enough paragraph to paragraph about how America

746
00:38:01,230 --> 00:38:04,989
Speaker 3: doesn't understand the China boom. Does that continue?

747
00:38:05,430 --> 00:38:05,649
Speaker 7: Yeah.

748
00:38:05,890 --> 00:38:08,430
Speaker 11: I mean, on the China side, what you've seen, if

749
00:38:08,450 --> 00:38:11,189
Speaker 11: you go back to last year, a lot of expectations

750
00:38:11,230 --> 00:38:13,610
Speaker 11: that when high tariffs came on China from the U.S.,

751
00:38:14,070 --> 00:38:15,969
Speaker 11: it would slow down the economy. And what we've seen

752
00:38:16,030 --> 00:38:20,590
Speaker 11: is an incredibly resilient, adaptable export machine from China. And

753
00:38:20,610 --> 00:38:23,870
Speaker 11: they've been able to find export markets even beyond the U.S.

754
00:38:23,910 --> 00:38:27,069
Speaker 11: and grow their market share Eventually, I think that their

755
00:38:27,130 --> 00:38:30,940
Speaker 11: economic model, they have to broaden out the consumer spending element.

756
00:38:31,219 --> 00:38:33,259
Speaker 11: But over this year and the next few years, I

757
00:38:33,280 --> 00:38:35,020
Speaker 11: think this export machine can keep going.

758
00:38:35,340 --> 00:38:38,610
Speaker 3: Rob, thank you so much. You're a trooper. Can we

759
00:38:38,650 --> 00:38:40,549
Speaker 3: make a note, Cy? Can we be sure Rob gets

760
00:38:40,610 --> 00:38:42,509
Speaker 3: in in the next 10 days? I need to get

761
00:38:42,550 --> 00:38:44,910
Speaker 3: an update from him. He takes the Hinkley. They have

762
00:38:44,950 --> 00:38:47,260
Speaker 3: a Pigeon, folks. You don't know this. Across the Hudson River,

763
00:38:47,550 --> 00:38:48,980
Speaker 3: they have a Hinkley picnic boat.

764
00:38:49,100 --> 00:38:49,520
Speaker 9: Is that right?

765
00:38:49,700 --> 00:38:52,299
Speaker 3: Yeah, they take the boat. They don't use transportation. They

766
00:38:52,340 --> 00:38:54,640
Speaker 3: have a Hinkley picnic boat that comes right across the

767
00:38:54,680 --> 00:38:55,219
Speaker 3: Hudson River.

768
00:38:55,440 --> 00:38:57,060
Speaker 6: Well, I thought they were in Newark. I thought they

769
00:38:57,080 --> 00:38:59,150
Speaker 6: go to Teterboro, grab the chopper. You know, they fly in.

770
00:38:59,160 --> 00:39:00,600
Speaker 6: They land on the top of the Bloomberg building.

771
00:39:00,680 --> 00:39:03,969
Speaker 3: It's great. Rob Sockin, thank you so much. Greatly appreciate it.

772
00:39:03,969 --> 00:39:08,410
Speaker 3: We'll get you back in here real soon. Stay with us.

773
00:39:08,710 --> 00:39:11,950
Speaker 3: More from Bloomberg Surveillance coming up after this.

774
00:39:19,200 --> 00:39:22,800
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live

775
00:39:22,880 --> 00:39:24,969
Speaker 1: weekday afternoons from 7 to 10 a.m.

776
00:39:25,010 --> 00:39:25,410
Speaker 9: Eastern.

777
00:39:25,510 --> 00:39:28,810
Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg

778
00:39:28,830 --> 00:39:31,320
Speaker 1: Business app. or watch us live on YouTube.

779
00:39:31,560 --> 00:39:35,940
Speaker 3: Ted Mortensen is definitive. David George, by the way, yesterday

780
00:39:36,000 --> 00:39:39,920
Speaker 3: was brilliant, was just brilliant. But on technology, we are

781
00:39:39,980 --> 00:39:44,670
Speaker 3: going to stop. calm down and listen to Ted Mortensen

782
00:39:44,690 --> 00:39:49,380
Speaker 3: with his years of expertise on technology. What's the biggest

783
00:39:49,540 --> 00:39:54,040
Speaker 3: thing we're getting wrong in the zeitgeist about AI? The

784
00:39:54,080 --> 00:39:55,560
Speaker 3: demand is historic.

785
00:39:55,840 --> 00:39:59,140
Speaker 10: I mean, you look at ASML's report, look at Samsung's report,

786
00:39:59,180 --> 00:40:04,380
Speaker 10: look at Micron's report. Now they're booking into 29 and 30.

787
00:40:04,380 --> 00:40:07,640
Speaker 10: So we've never seen this kind of demand versus supply

788
00:40:07,880 --> 00:40:08,560
Speaker 10: metric ever.

789
00:40:09,060 --> 00:40:11,660
Speaker 3: When I look at this Ted Mortensen, it comes down

790
00:40:11,700 --> 00:40:14,950
Speaker 3: to the unit dynamics, huge demand is a general statement,

791
00:40:15,530 --> 00:40:18,989
Speaker 3: but also the price disinflation. We have people going, we're

792
00:40:19,030 --> 00:40:23,850
Speaker 3: disinflating tokens, usage goes up, et cetera. Do we underestimate

793
00:40:23,910 --> 00:40:26,420
Speaker 3: the profit challenges forward?

794
00:40:27,900 --> 00:40:30,980
Speaker 7: In the near term, probably. In the long term, not.

795
00:40:31,580 --> 00:40:35,380
Speaker 10: This infrastructure build is very positive and, quite frankly, Tom,

796
00:40:35,440 --> 00:40:39,450
Speaker 10: very inflationary. I'm on so many conference calls, and every

797
00:40:39,489 --> 00:40:43,489
Speaker 10: single conference call's GPUs or raw semis are up 15%

798
00:40:43,489 --> 00:40:48,009
Speaker 10: to 20%. Memory is up triple digits. So in this

799
00:40:48,090 --> 00:40:52,030
Speaker 10: inflation report, we do have at least a near-term inflation

800
00:40:52,070 --> 00:40:53,050
Speaker 10: infrastructure issue.

801
00:40:53,630 --> 00:40:55,810
Speaker 6: In the last three weeks, you rightly point out, Ted,

802
00:40:55,890 --> 00:41:00,049
Speaker 6: that over $ 250 billion in funding has been raised or

803
00:41:00,090 --> 00:41:03,450
Speaker 6: proposed from Anthropic and SpaceX and OpenAI, on and on.

804
00:41:03,790 --> 00:41:06,790
Speaker 6: You know, Is this going to crowd out investors in

805
00:41:06,830 --> 00:41:07,890
Speaker 6: other fixed income asset classes?

806
00:41:08,390 --> 00:41:11,020
Speaker 10: I think it already is. And I think you have

807
00:41:11,060 --> 00:41:14,480
Speaker 10: to look at these two components. One is the debt market.

808
00:41:14,739 --> 00:41:21,160
Speaker 10: And I think from IPMs, they took notice of $ 250

809
00:41:20,719 --> 00:41:23,520
Speaker 10: billion coming to market on the debt market. So it

810
00:41:23,620 --> 00:41:27,219
Speaker 10: is stretched. But more importantly, the equity capital markets to

811
00:41:27,320 --> 00:41:30,920
Speaker 10: fuel this growth have to stay open. And that window

812
00:41:31,020 --> 00:41:34,540
Speaker 10: has to be wide open for the names like OpenAI

813
00:41:34,580 --> 00:41:38,140
Speaker 10: and Anthropic and others Unfortunately, in the last three weeks,

814
00:41:38,219 --> 00:41:42,870
Speaker 10: we've seen three major tech companies postpone IPOs. So that

815
00:41:42,930 --> 00:41:46,290
Speaker 10: window has closed a bit, and it has to stay open.

816
00:41:46,590 --> 00:41:48,770
Speaker 6: Ted, what are your thoughts on a secondary market for

817
00:41:48,830 --> 00:41:52,230
Speaker 6: GPUs and compute systems? I mean, is this a good thing?

818
00:41:52,270 --> 00:41:54,680
Speaker 6: Does this allow investors to really underwrite.

819
00:41:54,239 --> 00:41:57,820
Speaker 3: Their residual value? Or do you buy a computer this weekend?

820
00:41:57,840 --> 00:42:00,060
Speaker 7: No, I'm just talking trade here, Tom. Come on.

821
00:42:00,360 --> 00:42:02,640
Speaker 6: No, but seriously, I mean, imagine a secondary market where

822
00:42:02,660 --> 00:42:06,900
Speaker 6: you can actually get forward pricing on what compute costs.

823
00:42:06,980 --> 00:42:08,950
Speaker 6: I mean, wouldn't that make your job a little bit easier?

824
00:42:10,300 --> 00:42:15,330
Speaker 10: I think it's indicative of the early cycle of the

825
00:42:15,370 --> 00:42:16,330
Speaker 10: infrastructure build.

826
00:42:16,810 --> 00:42:18,070
Speaker 9: We can't meet demand.

827
00:42:18,150 --> 00:42:22,649
Speaker 10: So an old GPU is going up on price almost 20%

828
00:42:22,650 --> 00:42:23,930
Speaker 10: if it's not being utilized.

829
00:42:24,450 --> 00:42:26,500
Speaker 7: I think that's a near-term issue.

830
00:42:26,600 --> 00:42:28,480
Speaker 10: Long-term, I think that mitigates.

831
00:42:28,780 --> 00:42:31,520
Speaker 3: Distinguish Ted Mortensen with his folks with Barrett with decades.

832
00:42:31,580 --> 00:42:34,780
Speaker 3: I will get to his comments on the United States Navy,

833
00:42:34,820 --> 00:42:37,870
Speaker 3: of which he has a great commitment coming out of

834
00:42:37,910 --> 00:42:42,030
Speaker 3: the academy years ago. What's the thing about the Mag

835
00:42:42,030 --> 00:42:46,750
Speaker 3: 7 that provides a distinctive feature? I mean, Oracle, CDS,

836
00:42:46,830 --> 00:42:49,800
Speaker 3: or the Moon, parse the Mag 7 for us.

837
00:42:50,590 --> 00:42:52,589
Speaker 7: It's all about free cash flow, Tom, right now.

838
00:42:52,750 --> 00:42:55,450
Speaker 3: And Microsoft is doing better than the others. You bet.

839
00:42:55,450 --> 00:42:58,450
Speaker 10: $ 19 billion. I don't think they can spend on infrastructure

840
00:42:58,489 --> 00:43:00,450
Speaker 10: like they would. So you're going to see them have

841
00:43:00,489 --> 00:43:04,959
Speaker 10: an unbelievably good report on Azure and Copilot, as well

842
00:43:05,000 --> 00:43:07,960
Speaker 10: as their free cash flowing around $ 25 billion a quarter.

843
00:43:09,050 --> 00:43:11,450
Speaker 10: Same thing with Apple. The reason why Apple is up

844
00:43:11,680 --> 00:43:13,000
Speaker 10: every single day.

845
00:43:12,860 --> 00:43:15,180
Speaker 7: Is $ 30.

846
00:43:13,700 --> 00:43:17,319
Speaker 10: Billion of free cash flow. My clients are going to

847
00:43:17,360 --> 00:43:18,719
Speaker 10: balance sheet some free cash flow.

848
00:43:19,080 --> 00:43:22,100
Speaker 6: So, Ted, the million-dollar question, as you say, is whether

849
00:43:22,160 --> 00:43:25,040
Speaker 6: or not investors are going to get defensive into your end.

850
00:43:25,080 --> 00:43:27,270
Speaker 6: If they do indeed get defensive, obviously that's not good

851
00:43:27,310 --> 00:43:27,730
Speaker 6: for tech.

852
00:43:28,090 --> 00:43:28,969
Speaker 3: What sectors is it good for?

853
00:43:30,180 --> 00:43:32,440
Speaker 10: I think one of the, where I'm seeing a little

854
00:43:32,480 --> 00:43:35,730
Speaker 10: bit of sector rotation right now is in the semiconductor index.

855
00:43:35,810 --> 00:43:38,810
Speaker 10: It's been weak for the last couple of days, pretty brutally. Uh,

856
00:43:39,310 --> 00:43:42,310
Speaker 10: an attribution is key with all my portfolio managers. If

857
00:43:42,330 --> 00:43:45,100
Speaker 10: you look at the socks, it was up 87% from

858
00:43:45,120 --> 00:43:48,460
Speaker 10: the peak. That's a good decade return in a year. Um,

859
00:43:49,200 --> 00:43:52,910
Speaker 10: Where I'm seeing some interest in rotation is going from

860
00:43:52,989 --> 00:43:54,509
Speaker 10: infrastructure into software.

861
00:43:54,870 --> 00:43:57,150
Speaker 3: Take Microsoft, ServiceNow, CRM.

862
00:43:57,750 --> 00:44:00,750
Speaker 10: Those are the names that, if you really look long-term

863
00:44:01,210 --> 00:44:04,020
Speaker 10: on the enterprise adoption of AI, those are three companies

864
00:44:04,200 --> 00:44:06,560
Speaker 10: that are going to fuel the AI revolution.

865
00:44:06,860 --> 00:44:09,880
Speaker 3: And for all of us listening across the nation, frankly

866
00:44:09,940 --> 00:44:13,779
Speaker 3: around the world, in continental Europe, in the Middle East

867
00:44:13,800 --> 00:44:18,140
Speaker 3: with Ted Mortensen combining your engineering and technology with your

868
00:44:18,180 --> 00:44:22,840
Speaker 3: public service to the nation. Give us a technology update

869
00:44:23,030 --> 00:44:26,750
Speaker 3: of the drones to come. We all have this uninformed

870
00:44:26,950 --> 00:44:31,109
Speaker 3: fear of drones. How legitimate is that fear?

871
00:44:32,860 --> 00:44:34,240
Speaker 7: The genie is out of the bottle.

872
00:44:34,700 --> 00:44:39,640
Speaker 10: And if we would ever restrict AI development, we're putting

873
00:44:39,680 --> 00:44:43,990
Speaker 10: our defense industry complex at a huge disadvantage versus China.

874
00:44:45,210 --> 00:44:47,930
Speaker 10: The amount of AI that's going into new defense budgets

875
00:44:48,030 --> 00:44:48,710
Speaker 10: is immense.

876
00:44:49,450 --> 00:44:51,670
Speaker 3: This has been wonderful. Too short a visit. Thank you

877
00:44:51,690 --> 00:44:54,830
Speaker 3: so much for being with us today. Ted Mortensen is

878
00:44:54,870 --> 00:44:58,420
Speaker 3: with Barrett and Definitive. We know with many others, including

879
00:44:58,790 --> 00:45:01,370
Speaker 3: Wayne Sanders, the public service to the nation, which is

880
00:45:01,410 --> 00:45:19,700
Speaker 3: a good perspective. Stay with us. More from Bloomberg surveillance

881
00:45:19,780 --> 00:45:21,129
Speaker 3: coming up after this.

882
00:45:28,370 --> 00:45:31,980
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live

883
00:45:32,060 --> 00:45:34,140
Speaker 1: weekday afternoons from 7 to 10 a.m.

884
00:45:34,180 --> 00:45:34,580
Speaker 9: Eastern.

885
00:45:34,680 --> 00:45:37,980
Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg

886
00:45:38,000 --> 00:45:40,520
Speaker 1: Business app or watch us live on YouTube.

887
00:45:40,860 --> 00:45:44,740
Speaker 3: We are so privileged now with the turmoil, turmoil in Brazil,

888
00:45:45,260 --> 00:45:48,960
Speaker 3: in Mexico to have with us someone genuinely expert. who

889
00:45:49,000 --> 00:45:51,469
Speaker 3: has lived in, he is from Mexico with his public

890
00:45:51,530 --> 00:45:55,210
Speaker 3: service to the people of Mexico. Ernesto Ravilla is chief economist,

891
00:45:55,690 --> 00:45:59,330
Speaker 3: Latin America. It's Citigroup. I need to explain this first

892
00:45:59,350 --> 00:46:03,129
Speaker 3: because my family was in Mexico City ages ago for

893
00:46:03,150 --> 00:46:07,130
Speaker 3: a small bank there called Citibank. It goes back to 1929,

894
00:46:07,130 --> 00:46:15,600
Speaker 3: the original domestic American experiment to go south. I mean, Citigroup,

895
00:46:16,140 --> 00:46:22,700
Speaker 3: has a huge historic exposure to South America and Latin America. Completely, Tom.

896
00:46:23,040 --> 00:46:26,219
Speaker 12: Argentina was actually the first global branch of Citi. So

897
00:46:26,239 --> 00:46:29,089
Speaker 12: the presence of Citi in Latin America, South America, has

898
00:46:29,110 --> 00:46:31,220
Speaker 12: been there for a long time, more than 100 years

899
00:46:31,260 --> 00:46:34,330
Speaker 12: in many countries. And right now we turn very constructive

900
00:46:34,370 --> 00:46:37,049
Speaker 12: on the region, seeing it from the street level.

901
00:46:37,610 --> 00:46:40,790
Speaker 3: Translate the politics. We'll get to Mexico. And good morning

902
00:46:40,830 --> 00:46:43,330
Speaker 3: to the Mexican government. I'm told all sorts of people

903
00:46:43,790 --> 00:46:46,719
Speaker 3: across Mexico City listen to us each morning within the

904
00:46:46,780 --> 00:46:50,320
Speaker 3: Scheinbaum administration. We thank you so much for your attention

905
00:46:50,719 --> 00:46:53,939
Speaker 3: south of our border. But go further down. There seems

906
00:46:53,980 --> 00:46:59,339
Speaker 3: to be a political seismic change. from El Paso on

907
00:46:59,360 --> 00:47:02,080
Speaker 3: down to Argentina. Do you buy it that there's a

908
00:47:02,180 --> 00:47:05,509
Speaker 3: permanent change in the politics? Definitely.

909
00:47:05,610 --> 00:47:09,109
Speaker 12: The political pendulum, Tom, has changed from left to right

910
00:47:09,489 --> 00:47:12,370
Speaker 12: in most of the region. We have had a super

911
00:47:12,469 --> 00:47:15,850
Speaker 12: cycle of elections in Latin America since the fourth quarter

912
00:47:15,870 --> 00:47:18,529
Speaker 12: of 2025. And most of those elections have turned to

913
00:47:18,570 --> 00:47:21,509
Speaker 12: the right. There's a discussion where this is cyclical. Is

914
00:47:21,570 --> 00:47:25,180
Speaker 12: it an establishment sentiment? Or is it something more structural?

915
00:47:25,219 --> 00:47:26,320
Speaker 7: We think it's the latter.

916
00:47:26,719 --> 00:47:27,259
Speaker 3: We will see.

917
00:47:27,719 --> 00:47:31,239
Speaker 12: But this has had meaningful impact on investor sentiment and

918
00:47:31,440 --> 00:47:34,629
Speaker 12: the business-friendly approach that these governments.

919
00:47:34,330 --> 00:47:35,529
Speaker 3: Are going to have. Hold on, Ernesto.

920
00:47:35,570 --> 00:47:39,450
Speaker 6: Are we really talking about elections being good in Latin America,

921
00:47:39,489 --> 00:47:41,790
Speaker 6: being business-friendly for Latin America?

922
00:47:41,969 --> 00:47:42,890
Speaker 3: For a change, right?

923
00:47:42,910 --> 00:47:43,990
Speaker 7: It's unbelievable.

924
00:47:44,130 --> 00:47:47,129
Speaker 12: Remember the pink tide in the early 2000s, the moving

925
00:47:47,170 --> 00:47:49,870
Speaker 12: to the left, more populism, less market-friendly policies?

926
00:47:50,250 --> 00:47:51,910
Speaker 7: Now we're going to the other side.

927
00:47:52,110 --> 00:47:53,640
Speaker 6: So now that takes me to my next question.

928
00:47:53,680 --> 00:47:55,480
Speaker 3: Bolsonaro, let's say Flavio gets elected.

929
00:47:55,780 --> 00:47:57,600
Speaker 6: How on earth is he going to cut $ 40 billion

930
00:47:57,680 --> 00:47:59,879
Speaker 6: out of Brazil's budget? What comes next? I mean, that's

931
00:47:59,960 --> 00:48:01,420
Speaker 6: one of the few central banks in the world that's

932
00:48:01,440 --> 00:48:03,879
Speaker 6: actually cutting rates here. So talk to us about what

933
00:48:03,920 --> 00:48:05,540
Speaker 6: that means for investors in Brazil.

934
00:48:06,340 --> 00:48:08,879
Speaker 12: So Brazil has a great opportunity in front. I mean,

935
00:48:09,160 --> 00:48:12,660
Speaker 12: there are many tailwinds. Commodity prices are high. But there's

936
00:48:12,680 --> 00:48:16,700
Speaker 12: the fiscal challenge that you just highlighted. Bolsonaro is coming

937
00:48:16,719 --> 00:48:20,700
Speaker 12: in strong with support. He's the big favorite to win

938
00:48:20,719 --> 00:48:23,390
Speaker 12: the election. He has Congress on his side. At least

939
00:48:24,010 --> 00:48:27,710
Speaker 12: there is more on the right side of Congress. But

940
00:48:27,830 --> 00:48:30,430
Speaker 12: he will have to do a big fiscal reform and deregulation.

941
00:48:30,810 --> 00:48:33,469
Speaker 12: So far, it seems that it's in his plans, that

942
00:48:33,590 --> 00:48:35,550
Speaker 12: his economic team is going to be very strong.

943
00:48:35,950 --> 00:48:37,850
Speaker 7: And asset prices have reflected that.

944
00:48:37,890 --> 00:48:38,870
Speaker 3: They have moved quite a lot.

945
00:48:39,190 --> 00:48:41,320
Speaker 6: So when you and Dirk Willer are around your war,

946
00:48:41,469 --> 00:48:43,000
Speaker 6: you're in the war room, you're thinking about how to

947
00:48:43,020 --> 00:48:45,900
Speaker 6: tell investors how to invest in Latin America. You know,

948
00:48:45,920 --> 00:48:48,420
Speaker 6: I'm looking at the equity markets. I'm looking at the

949
00:48:48,440 --> 00:48:51,509
Speaker 6: Brazilian Ibovespa. I mean, yeah, OK, it's up 28% in

950
00:48:51,550 --> 00:48:54,770
Speaker 6: local terms, up over 40% in dollar terms, and the

951
00:48:54,810 --> 00:48:57,840
Speaker 6: same for Colombia and some of these other. So, I mean, equities,

952
00:48:57,880 --> 00:48:59,899
Speaker 6: I mean, a lot of it might already be priced in, no?

953
00:49:00,420 --> 00:49:00,759
Speaker 7: That's right.

954
00:49:00,800 --> 00:49:02,940
Speaker 12: There's a lot priced in. Now it will depend on

955
00:49:02,980 --> 00:49:07,100
Speaker 12: execution and implementation. That's the next leg. The global tailwinds

956
00:49:07,160 --> 00:49:09,940
Speaker 12: are still there. First, Latin America is far away from conflict.

957
00:49:10,270 --> 00:49:12,640
Speaker 12: So it's a good place to hide and to diversify.

958
00:49:13,060 --> 00:49:16,800
Speaker 12: Then you have strong commodities, a weak dollar, the political cycle.

959
00:49:17,590 --> 00:49:20,450
Speaker 12: But now it's up to Latin Americans. and we have

960
00:49:20,489 --> 00:49:24,839
Speaker 12: to weather the current shocks. Locally, you have El Nino. Globally,

961
00:49:24,860 --> 00:49:26,419
Speaker 12: you have higher long-term rates.

962
00:49:26,820 --> 00:49:28,739
Speaker 3: I have to ask, and I'm going to be put

963
00:49:28,760 --> 00:49:32,859
Speaker 3: in the Jane Frazier compliance chair, major timeout chair. Jane

964
00:49:32,880 --> 00:49:35,279
Speaker 3: is tough as nails. She has Kate Moore watch over

965
00:49:35,300 --> 00:49:37,739
Speaker 3: me while I sit there. I have to ask with

966
00:49:37,780 --> 00:49:40,960
Speaker 3: your public service to Mexico. I think from sea to

967
00:49:41,020 --> 00:49:45,570
Speaker 3: shining sea, Americans in our stereotype tend to look north

968
00:49:45,640 --> 00:49:49,950
Speaker 3: to Canada and all the tariff stuff in that. Guess what?

969
00:49:50,250 --> 00:49:53,770
Speaker 3: Mexico is as large, if not larger, away from autos,

970
00:49:54,430 --> 00:49:58,509
Speaker 3: maybe some of the natural resources, as well. How do

971
00:49:58,550 --> 00:50:04,710
Speaker 3: you perceive the tariff dynamic between the Scheinbaum administration in

972
00:50:04,810 --> 00:50:08,509
Speaker 3: Mexico and the administration after President Trump?

973
00:50:09,260 --> 00:50:13,110
Speaker 12: Well, it's definitely noisy. Remember, Mexico is the main trading

974
00:50:13,170 --> 00:50:14,330
Speaker 12: partner of the U.S.

975
00:50:15,510 --> 00:50:18,830
Speaker 3: I think most of our listeners and viewers, including Tom King,

976
00:50:18,870 --> 00:50:19,529
Speaker 3: don't know that.

977
00:50:20,219 --> 00:50:23,480
Speaker 12: It is amazing how Mexico has surpassed China and Canada

978
00:50:23,520 --> 00:50:25,840
Speaker 12: to be the main trading partner of the U.S. And

979
00:50:25,910 --> 00:50:27,859
Speaker 12: even in the last 10 years, that trade has only

980
00:50:27,910 --> 00:50:31,630
Speaker 12: increased despite the noise and the renegotiation of NAFTA into

981
00:50:31,750 --> 00:50:34,730
Speaker 12: USMCA and so on. So Mexico is ideally positioned to

982
00:50:34,770 --> 00:50:36,910
Speaker 12: benefit despite the noise.

983
00:50:37,070 --> 00:50:39,070
Speaker 3: And we see that in the data. One more delicate

984
00:50:39,110 --> 00:50:43,890
Speaker 3: question before Damien saves the interview. The stereotype here is

985
00:50:43,910 --> 00:50:48,600
Speaker 3: the violence of Mexico, the societal... angst of the cartels

986
00:50:48,840 --> 00:50:53,910
Speaker 3: wrapped around the business spirit and entrepreneurism of Mexico. What's

987
00:50:53,950 --> 00:50:58,730
Speaker 3: the biggest myth people watching Netflix or, you know, whatever

988
00:50:58,790 --> 00:51:03,149
Speaker 3: TV show, what's the biggest myth we get about the violence? What's,

989
00:51:03,270 --> 00:51:06,260
Speaker 3: what do we get wrong about the violence in your Mexico?

990
00:51:06,500 --> 00:51:09,080
Speaker 12: So let me start by acknowledging that it's, it's, it's

991
00:51:09,120 --> 00:51:11,300
Speaker 12: a problem. It's a big concern, not only in Mexico,

992
00:51:11,340 --> 00:51:14,560
Speaker 12: but it has spread through Latin America. Big organized crime

993
00:51:14,620 --> 00:51:18,990
Speaker 12: has diversified out of criminal activities into the real economic activity.

994
00:51:19,270 --> 00:51:19,990
Speaker 12: So it's a concern.

995
00:51:20,370 --> 00:51:21,049
Speaker 3: But I would say the.

996
00:51:21,030 --> 00:51:25,589
Speaker 12: Myth is that there's huge swaths of economic activity and

997
00:51:25,790 --> 00:51:28,660
Speaker 12: regions in Mexico that are doing very well. You have

998
00:51:28,800 --> 00:51:33,060
Speaker 12: high productive sectors, especially the export-oriented sectors. You have very

999
00:51:33,300 --> 00:51:36,090
Speaker 12: safe cities, for example, in Mexico City. So it's definitely

1000
00:51:36,110 --> 00:51:39,230
Speaker 12: a concern that the government needs to take head on.

1001
00:51:40,410 --> 00:51:44,600
Speaker 12: But the economy continues trading with the U.S. and hopefully

1002
00:51:44,660 --> 00:51:46,160
Speaker 12: growing more going into the future.

1003
00:51:46,520 --> 00:51:50,200
Speaker 6: Ernesto, you referenced the geographic distance between Latin American economies

1004
00:51:50,260 --> 00:51:52,180
Speaker 6: and the war in the Middle East, what's going on

1005
00:51:52,200 --> 00:51:54,440
Speaker 6: with Russia and Ukraine. And you mentioned that as more

1006
00:51:54,460 --> 00:51:57,380
Speaker 6: of a defensive approach. I look at some of these returns.

1007
00:51:57,420 --> 00:51:59,180
Speaker 6: There's one country, one of the big six in Latin

1008
00:51:59,200 --> 00:52:01,560
Speaker 6: America that's really lagged, and that's Chile. What's going on

1009
00:52:01,580 --> 00:52:01,919
Speaker 6: in Chile?

1010
00:52:02,790 --> 00:52:05,569
Speaker 12: Chile, I think it's a fascinating tale, and I hope

1011
00:52:05,610 --> 00:52:08,719
Speaker 12: it's not a cautionary one for the rest. Chile, as

1012
00:52:08,739 --> 00:52:12,530
Speaker 12: you know, has strong macro fundamentals. It's an investment-grade country,

1013
00:52:12,590 --> 00:52:16,520
Speaker 12: very strong fiscal. And they already did the political transition

1014
00:52:16,580 --> 00:52:20,880
Speaker 12: towards more market-friendly and business-friendly. But now, President Kast is

1015
00:52:20,920 --> 00:52:24,759
Speaker 12: having trouble enacting his reform agenda. And that's the implementation

1016
00:52:24,800 --> 00:52:27,800
Speaker 12: risk that I was alluding to before. Chile is growing

1017
00:52:27,840 --> 00:52:30,239
Speaker 12: very little this year, but we expect a recovery the

1018
00:52:30,280 --> 00:52:30,620
Speaker 12: next year.

1019
00:52:30,800 --> 00:52:33,200
Speaker 3: Thank you so much for joining us today. Really, really

1020
00:52:33,800 --> 00:52:34,400
Speaker 3: appreciate it.

1021
00:52:34,440 --> 00:52:34,640
Speaker 10: Great.

1022
00:52:34,739 --> 00:52:37,279
Speaker 3: Thank you. Thank you. Ernest Ruvillo with us. He is

1023
00:52:37,400 --> 00:52:41,540
Speaker 3: with Citigroup, driving all of their study of the economy,

1024
00:52:41,620 --> 00:52:45,450
Speaker 3: the political economy of Latin America. and South America. Thank

1025
00:52:45,469 --> 00:52:46,390
Speaker 3: you so much for that.

1026
00:52:46,590 --> 00:52:51,509
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,

1027
00:52:51,630 --> 00:52:55,890
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,

1028
00:52:55,890 --> 00:53:01,330
Speaker 1: 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn,

1029
00:53:01,650 --> 00:53:04,710
Speaker 1: and the Bloomberg Business app. You can also watch us

1030
00:53:04,810 --> 00:53:08,820
Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal.

1031
00:53:12,080 --> 00:53:12,640
Speaker 4: Thank you.