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Speaker 2: Joining us now, someone never will have an encore career.
Speaker 2: Claudia sim is the anchor to our job's day. We're
Speaker 2: honored she could be with us in the revisions coming
Speaker 2: up here. Claudia, how aging is our population? So?
Speaker 3: I mean it's an ongoing process.
Speaker 4: I mean baby boomers who have moved into prime retirement.
Speaker 4: And you know, the demographics on the aging side move
Speaker 4: very slowly. The demographics that have been moving very quickly
Speaker 4: have been on the immigration side. That's really what's been pulling,
Speaker 4: say the payroll numbers around. But aging is happening, and
Speaker 4: that that is a that's a reality that's marching along
Speaker 4: right with these every month of data.
Speaker 5: Weekend, you know, Claudia, every time we talk about the
Speaker 5: labor market, what we now also have to incorporate into
Speaker 5: that discussion is AI quite simply as AI and net
Speaker 5: creator of jobs or net destroyer of jobs.
Speaker 6: What's what's your view at this early early stage.
Speaker 4: So we're at a very early stage and with AI,
Speaker 4: what this how this transforms our labor market and it
Speaker 4: will transform our labor market is going to depend on
Speaker 4: the leadership that we have in our businesses, our civic institutions,
Speaker 4: and our government. Right like AI is not in control,
Speaker 4: we are in control. It's a technology. It's a technology
Speaker 4: that has a lot of potential. It could go in
Speaker 4: a lot of different directions. It's not just about automating
Speaker 4: out workers. It can also be about empowering workers and
Speaker 4: making them you know, more valuable, higher paid, new opportunities.
Speaker 4: But it's but we don't know to where it's going.
Speaker 4: And so there's going to be decision makers who really,
Speaker 4: you know, shape the future of AI and the workforce.
Speaker 2: Claud your research not really emphasizes the revisions. So last
Speaker 2: time I got a one thirty pop, what happens to
Speaker 2: the markets if we go back to back plus one
Speaker 2: hundred numbers? I mean, no one's expecting that, are they? No?
Speaker 4: Yeah, And I think what we were looking for as
Speaker 4: we came into this year with signs of stabilization in
Speaker 4: the labor market, right, things had been slipping since midyear
Speaker 4: and we saw job creation really like hit a wall
Speaker 4: in the middle of last year, and so we're just
Speaker 4: looking stabilization.
Speaker 3: Right January was like more than stabilization.
Speaker 4: One hundred and thirty thousand payrolls unemployment rate taking down
Speaker 4: at tent that's not that's like getting better. I mean,
Speaker 4: we'll take that right like, that would be awesome. But
Speaker 4: even if we had some downard revisions to January, and
Speaker 4: we have a February payrolls number that is positive and
Speaker 4: kind of has some lyft to it, it could be
Speaker 4: fifty thousand, forty thousand something in there, and then I'm
Speaker 4: let me rate stay stable. Like that's going to check
Speaker 4: the box on stabilization, even if we get some downward
Speaker 4: revisions in prior months.
Speaker 5: So real quickly, wages, how do you think wage environment
Speaker 5: is right now?
Speaker 4: So we have seen you know, wages, wage growth slow,
Speaker 4: and we've seen a moderation. It's been very gradual, which
Speaker 4: is consistent with some softening of demand for workers. But
Speaker 4: the wage numbers, including last month, have still been you know,
Speaker 4: pretty they've been pretty solid. And even when we think
Speaker 4: about what's happening right now with gas prices and the
Speaker 4: energy shop coming to American consumers. Those wage growth numbers
Speaker 4: and the jobs are so important because this is the
Speaker 4: key buffer that Americans have for these higher costs, is
Speaker 4: to have a paycheck that's getting bigger and being able
Speaker 4: to find work if they want work.
Speaker 3: So that's a really critical backdrop.
Speaker 2: Some with us new central advisors that we're going to
Speaker 2: continue with doctor some here after we see the jobs report.
Speaker 2: Jennifer Lee of BEMO Capital Markets a NAT your level
Speaker 2: ubs will join us as well into the jobs report.
Speaker 2: Futures negative thirty six. Good morning, Wow.
Speaker 7: I'm Alexis Christophers, and these numbers just crossing the bloomberg now.
Speaker 7: The Labor Department says the US economy lost ninety two
Speaker 7: thousand jobs in February. That is worse than expected. We
Speaker 7: were looking at an additional fifty five thousand jobs. And
Speaker 7: of course this is compared to January when we added
Speaker 7: one hundred and thirty thousand jobs. The unemployment rate ticking
Speaker 7: up to four point four percent. The estimate there was
Speaker 7: four point three percent in the prior month was four
Speaker 7: point three percent. Checking wages month over month up slightly
Speaker 7: to four tenths of a percent. Estimates were for three
Speaker 7: tenths and earnings year over year also a bit hotter
Speaker 7: three point eight percent versus the three point seven percent expected.
Speaker 7: But again the headline here the economy lost many more
Speaker 7: jobs and expected ninety two thousand in the month of February.
Speaker 7: Estimates were for fifty five thousand. We also just got
Speaker 7: retail sales numbers out for the month of January and
Speaker 7: they were down two tenths of a percent versus the
Speaker 7: estimate of three tenths of a percent. As for market reaction,
Speaker 7: it is swift. The Dow futures now down more than
Speaker 7: four hundred points s and p futures off sixty four.
Speaker 2: Guys, alexis, thank you so much. Tenure Yield comes in
Speaker 2: with a vengeance. Four point one seven is now handle
Speaker 2: four point one zero. That's price up, yielded down in
Speaker 2: futures negative forty to negative sixty. Here, retail sales pretty
Speaker 2: much on track or the constructive revision. But Paul, I'm
Speaker 2: just going to before we go back to doctor, some
Speaker 2: change in non farm payrolls negative ninety two two months
Speaker 2: revision negative sixty nine. I might ball on it, Paul,
Speaker 2: but I think that's a negative one sixty one yep.
Speaker 5: Combine, Yeah, that is a sharp reversal in the short
Speaker 5: term labor market. Here again minus ninety two thousand. The
Speaker 5: consensus was for positive fifty five five thousand, and that
Speaker 5: two month payroll revision negative sixty.
Speaker 6: Nine thousand toms. So that is the big numbers across
Speaker 6: the tape.
Speaker 2: Claudia sm this as we continue with all of good
Speaker 2: work here. These are the kind of numbers, Claudia where
Speaker 2: amateurs like me go, okay, that means diminished GDP? Is
Speaker 2: that correct that all of the sun's back to a
Speaker 2: lesser real GDP where we're on the sum recession.
Speaker 4: Watch, So not necessarily you know this, so clearly these
Speaker 4: numbers from February are not in like you know, checking
Speaker 4: the box on signs of stabilization in the labor market.
Speaker 3: Right, we're losing jobs.
Speaker 4: Un'mplating rate ticked up. This is not a good sign.
Speaker 4: This actually sits pretty consistently, especially get the last three
Speaker 4: months with what we saw all of last year. The
Speaker 4: US economy last year created almost no jobs on net right,
Speaker 4: and at the same time, consumer spending increased, business investment
Speaker 4: in creed GDP.
Speaker 3: Rose for the year on.
Speaker 4: Right, it may we can talk about concentration. We can
Speaker 4: talk about what sectors it's in, but we have already
Speaker 4: been for a year in a jobless expansion.
Speaker 3: So unfortunately, what the February.
Speaker 4: Data, with this latest labor market data suggests is that's
Speaker 4: still where we're at right And we have been looking
Speaker 4: for signs that hiring was picking up, and you know
Speaker 4: that January gave some the Januor Employment report gave some
Speaker 4: signs of that. January still is a really strong number,
Speaker 4: even with down revisions. It's all you know, it's close
Speaker 4: to one hundred and thirty thousand still, But I mean, clearly,
Speaker 4: to lose ninety thousand jobs on net in February is
Speaker 4: a real problem, Claudia.
Speaker 3: It's a it's a we're not creating jobs. It's that question.
Speaker 3: Is it a problem?
Speaker 4: That's a whole separate And this has been a really
Speaker 4: difficult conversation to have, but we've been in this for
Speaker 4: well over a year now.
Speaker 6: So Claudia, what's just it? What do we know about
Speaker 6: the supply of labor?
Speaker 5: We know that this administration is effectively closed down the border,
Speaker 5: reducing supply of labor to some indust trees, you know,
Speaker 5: whether it be housing, construction, agricultural, hospitality. What do we
Speaker 5: know with a year's worth of data here as to
Speaker 5: the supply of labor.
Speaker 4: Well, the estimates with immigration come in, it takes some time.
Speaker 4: We have you know, updated estimates from the Census Bureau,
Speaker 4: we have updated estimates from Congressional Budget Office. They're pulling
Speaker 4: in a lot of different pieces of data. These are
Speaker 4: still in flux, but it is very clear directionally, and
Speaker 4: it's also very clear in terms of magnitudes. These are
Speaker 4: large down shifts and immigration and immigrants have been kind
Speaker 4: of on the margin additional workers in recent years. So
Speaker 4: it does like directionally this makes sense, and I think
Speaker 4: that is important to keep in context these shifts in
Speaker 4: job creation, going from you.
Speaker 3: Know, hundreds of thousands of jobs created on net.
Speaker 4: Not that long ago, to not creating any and if
Speaker 4: maybe even destroying jobs on net in the US economy,
Speaker 4: Like that is a dramatic shift.
Speaker 3: And the unemployment rate has drifted up I word, four
Speaker 3: point four percent.
Speaker 4: So like we have to keep the like the magnitudes
Speaker 4: and the drama on the payroll side. It's not just
Speaker 4: about we can demand it is this supply and that's
Speaker 4: a policy choice, but keep an eye on like the
Speaker 4: unemployer rate has drifted up, and that is there is
Speaker 4: still a problem. This is not just about supply. We
Speaker 4: don't have enough demand for workers.
Speaker 2: I mean, Claudia, do your point in a flat economy.
Speaker 2: I just did a three month moving average, folks in
Speaker 2: the back of my HP twelve c oh. Yeah. And
Speaker 2: the bottom line here is we've generated five six hundred
Speaker 2: and sixty jobs over the last ninety days per month.
Speaker 2: I mean that is I've never seen that. That's like
Speaker 2: a flat economy. I have, Claudia quickly here. I mean,
Speaker 2: there's a lot of negative statistics. Claudia, what does a
Speaker 2: FED do with this information if labor matters?
Speaker 4: So they're watching They're watching all of this very carefully.
Speaker 4: I think the unemployment really does some a lot of
Speaker 4: this up. The fact that you know, you're the unemployer
Speaker 4: rate did tick up. We're still at low levels. It
Speaker 4: has been drifting up gradually. They're going to keep I mean,
Speaker 4: this returns some attention to the downside risks to employment, right,
Speaker 4: this is all about the employment risks. The inflation risk
Speaker 4: Today brought some of those employment risks back into focus.
Speaker 3: But this is still.
Speaker 4: Largely a labor market that looks like it's working relatively well,
Speaker 4: not a recessionary dynamic, but a very unusual dynamic.
Speaker 2: Okay, it's unusual, but I mean there's a lot of
Speaker 2: people flat on their back in this country. Claudia saying,
Speaker 2: cut interest rates. If Waller in company, goals be in company,
Speaker 2: Hast in company, if they cut interest rates, does that
Speaker 2: help the labor economy or is it now removed?
Speaker 4: Cutting interest rates is a way to stimulate demand, whether
Speaker 4: that's you know, consumer is going out making bigger purchases
Speaker 4: they have to take out, you know, on their credit cards,
Speaker 4: buying a home, businesses making investment equipment. Where like, it's
Speaker 4: a channel that can help. It is not all powerful.
Speaker 4: It's a very blunt tool, but you know that's the
Speaker 4: tool that FEDS got and it is very clear from
Speaker 4: this power fed they will defend the labor market if
Speaker 4: they need to.
Speaker 2: Doctor Sum, thank you so much for supporting us in
Speaker 2: your note and all your work with this, Claudia Sum,
Speaker 2: with this this morning with New Century Advisors. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 2: A wonderful brief here from Eric Vanastron joining us in studio,
Speaker 2: chief investment officer at Lazard. What have you change in
Speaker 2: your call in the last seven days? I mean, you know,
Speaker 2: I'm sitting here, it's like the time Keen Employment Act
Speaker 2: is like the news Solul's crazy. But what are you
Speaker 2: writing differently now than eight days ago?
Speaker 8: Well, let me first say I'm a big supporter of
Speaker 8: the Tom Keen Employment Act.
Speaker 2: So but that's we're working for you. Alexis doesn't agree
Speaker 2: with you, That's.
Speaker 8: I think the sharpest investors are the ones who are
Speaker 8: willing to change their minds when the facts on the
Speaker 8: ground change. And what we've seen over the last seven
Speaker 8: days is a pretty dramatic rethinking of the global supply picture.
Speaker 2: For energy in particular.
Speaker 8: We've seen a staggering surge in the price of oil
Speaker 8: as the traffic in the Strait of War moves has
Speaker 8: slowed down as dramatically as it has. But I still
Speaker 8: think markets are thinking of it like a short term disruption.
Speaker 8: I think there's still a little bit of recency bias
Speaker 8: from the twenty twenty five Iran episode, which is fundamentally
Speaker 8: very different from this one. And I still don't think
Speaker 8: markets have fully appreciated the cost to global growth, to
Speaker 8: global supply chains, and to domestic inflation here in the
Speaker 8: United States from a persistent and disruption of the Straits.
Speaker 5: So the underlying economic data in the US is still
Speaker 5: generally very healthy. Yeah, when you look at GDP growth,
Speaker 5: we'll get the jobs data today, inflation. But this situation
Speaker 5: in Iran, you know, I guess the market is kind
Speaker 5: of telling us.
Speaker 6: We're prepared to look through it to the other side.
Speaker 5: Is that a fair assumption here or what point does
Speaker 5: it become problematic?
Speaker 6: Is it three four or five, six weeks?
Speaker 5: That kind of thing.
Speaker 8: Well, I think you're absolutely right in terms of what
Speaker 8: the market is discounting. The market is trying to look
Speaker 8: through it. Even though you know, these oil price moves
Speaker 8: look big. The stock market moves this week feel painful
Speaker 8: in the grand scheme of things. US equities are just
Speaker 8: at the bottom of the range they've been since October.
Speaker 8: Oil still off its heights from since the since the
Speaker 8: Ukrainian invasion. But I think that that relative sanguinity that
Speaker 8: relative calm is out of line with the level of
Speaker 8: fundamental risks in the backdrop here. And that's why I
Speaker 8: think paying close attention to traffic in the Gulf is
Speaker 8: going to be very important.
Speaker 2: Eric turnin this here we're going to continue. Jane Folio
Speaker 2: over at Rabobank just tweaks hero she goes weaker Euro
Speaker 2: from a one seventeen down to one sixteen is a
Speaker 2: view right now, Euro with a really difficult week one
Speaker 2: fifteen sixty two with dxy pushing up against one hundred.
Speaker 2: I mean that's consensus gets a view here. Oops, it's wrong,
Speaker 2: Like the massive week dollar call doesn't look so good
Speaker 2: right now? Right What does consensus and economics into this
Speaker 2: job's report into retail sales? What's a consensus call in
Speaker 2: economics where the Van Nostri and Radar is up.
Speaker 8: Well, I think you got to separate the structural, the
Speaker 8: structural and the cyclical here. And I think the big
Speaker 8: the structural context coming into the Iranian episode and coming
Speaker 8: into the jobs report today is that the US economy
Speaker 8: has been I like to call it more concentrated, that
Speaker 8: it's been really in living memory. The way consumers spend
Speaker 8: it's really driven by the top of the income distribution,
Speaker 8: the way businesses invest, it's all concentrat in AI data centers,
Speaker 8: we have a very concentrated set of demand factors on
Speaker 8: both the consumption side and the investment side of the US,
Speaker 8: and that's contributed to strong overall growth. But it's also
Speaker 8: more fragile than this level of economic growth normally is.
Speaker 8: And that's why X factors like this energy shock, the
Speaker 8: risk of a slowing labor market, and that's why we'll
Speaker 8: be watching today's report very closely. All threaten to disrupt
Speaker 8: that generally strong growth we've seen here today.
Speaker 5: This shape economy, this case shaped consumer, it's been with
Speaker 5: us for a long time.
Speaker 6: Is it problematic?
Speaker 5: I know it's problematic for the people on the lower
Speaker 5: end of the K, But for sure, overall economy, the
Speaker 5: numbers that we get on our ecoscreen, they seem pretty
Speaker 5: thrown good.
Speaker 6: Is that?
Speaker 5: But structurally can this economy continue with such a disparity?
Speaker 2: Yeah?
Speaker 8: So the reason I think it's problematic for a lot
Speaker 8: of reason is not least because of the large portrait
Speaker 8: of Americans who aren't seeing the income growth that one
Speaker 8: would expect from this level of aggregate economic strength. But
Speaker 8: It's also worry because the most persistent growth, the growth
Speaker 8: we can have the most confidence in his MACROI as macroeconomists,
Speaker 8: is the broadest growth, and when it gets concentrated like this,
Speaker 8: it's more prone to disruption from geopolitical shock, which we've
Speaker 8: had it aful lot of lately, and from supply constraints.
Speaker 8: And I think this particular geopolitical shock is going to
Speaker 8: increase those supply constraints.
Speaker 2: And before the jobs report fifteen sixteen minutes away from
Speaker 2: all that data, Claudiusom will be with us. Let me
Speaker 2: look at the list here. I don't have naughty love.
Speaker 2: It will be with this ubs and the Equity Marcus
Speaker 2: Jennifer Lee from Demo Capital, Marcus, just wonderful. Benjamin Ladler,
Speaker 2: who has the Mother of All calls, a guy named
Speaker 2: Kevin Has's going to stop by, I believe, talking to
Speaker 2: John Ferrell as well. Austin gools me late late in
Speaker 2: the show today. Right now, Eric Faestron with us. Okay,
Speaker 2: I'm gonna get you in trouble. There's a guy, Adam
Speaker 2: Posen at the Peterson Institute who do to co write
Speaker 2: with a guy named or Zegg, and they have basically
Speaker 2: suggested inflation will be more are persistent. Do you agree
Speaker 2: with Lizard's Peter or Zag that we are going to
Speaker 2: see a persistent wage inflation, We are going to see
Speaker 2: a persistent overall inflation which is not in the markets
Speaker 2: at this time.
Speaker 8: I'm happy to give you a list of topics on
Speaker 8: which I disagree with my boss, but on this one,
Speaker 8: Peter and I are in the same place. I think
Speaker 8: the markets are generally far too calm about the inflation picture.
Speaker 2: They've been kind of.
Speaker 8: Well to sleep a bit by the fact that the
Speaker 8: headline CPI has calmed down, and you know, Peter made
Speaker 8: that call before the episode this week. I think the
Speaker 8: oil disruption we're seeing is obviously going to juice the
Speaker 8: inflation numbers.
Speaker 6: In a meaningful way.
Speaker 8: But here's the key point, Tom. It's not just the
Speaker 8: impact of the oil shock that we've already seen. It's
Speaker 8: the fact that the broader supply picture bleeds through to
Speaker 8: a much broader global constellation of goods and services and inflation,
Speaker 8: and to my mind, really increases the risk of upside price.
Speaker 2: Ground and Peter the brilliant supply and analysis here two
Speaker 2: three years ago on COVID as well, So with the
Speaker 2: jobs report last month was oops. Well that was positive.
Speaker 2: Are we going to get another oops report here where
Speaker 2: you got a three month moving average which is oops
Speaker 2: better than the gloom Crew?
Speaker 8: Well, I think I heard Chris Waller. Just tell your
Speaker 8: colleagues he expects January to be revised down meaningfully. I
Speaker 8: do think January looks like a pretty significant upside outlier
Speaker 8: in the pace of job growth we've seen recently. I
Speaker 8: think it's very important here tom to balance the supply
Speaker 8: constraints that have been pulling job growth down to and
Speaker 8: not confuse them with slowing demand, which I think is
Speaker 8: one of the one of the bigger forward looking worries
Speaker 8: we have right now.
Speaker 5: Supreme Court recently struck down the IEPA tariffs, but we
Speaker 5: still have a lot of terriffs out there. But the
Speaker 5: market again seems to have looked through generally after that
Speaker 5: April time frame last you look through these tariffs. What
Speaker 5: is the economic impact of these tariffs.
Speaker 1: Do you think?
Speaker 8: I think the markets have looked through the tariffs because
Speaker 8: the inflation data has given them permission to. Because the
Speaker 8: inflation data so far has been much softer than most economists,
Speaker 8: including me, by the way, would have expected given the
Speaker 8: magnitude of terroiffs we've seen now, that's much more likely
Speaker 8: to be a delay in the tariff impact than a
Speaker 8: miss on the tariff impact. And that's part of the
Speaker 8: reason we expect me you know, we expect an elevated
Speaker 8: risk of hotter inflation over the course of this year.
Speaker 2: You were the Assistant Secretary of the Treasury for Economic
Speaker 2: Policy under President Biden. What did you learn there? I mean,
Speaker 2: a fancy guy like you, with all your work at
Speaker 2: Blackrocket now at Lazard, you wandered by Yelle to get
Speaker 2: pizza in a lot of great, wonderful work out of Pennsylvania.
Speaker 2: What was the biggest lesson learned in your public service
Speaker 2: at Treasury?
Speaker 8: I mean I came away from that job deeply, deeply
Speaker 8: inspired by the manner and the courage with which public servants,
Speaker 8: not just in the Biden administration, but including the career
Speaker 8: officials that worked closely with us throughout, were able to
Speaker 8: balance economic rigor and understanding the intellectual arguments with understanding
Speaker 8: the way they affected human beings.
Speaker 2: So if we pop three months, this is like an
Speaker 2: Orzeg question. If we pop three months moving average sub
Speaker 2: one hundred thousand, non farm payrolls. You're telling me that's
Speaker 2: politically acceptable.
Speaker 8: Absolutely not. I think the slowdown in job growth we've
Speaker 8: seen over the past couple of years is evidence that
Speaker 8: the you know, it's evidence that some of the shifts
Speaker 8: we've seen in the way the labor market's been able
Speaker 8: to grow, some of the tighter constraintsprised on supply by
Speaker 8: immigration policy in particular, are resulting in lower growth in
Speaker 8: the United States would otherwise be able to deliver.
Speaker 2: This is like gossip with Taylor Swift. What's the thing
Speaker 2: I've gotten that one? What is the most? What is
Speaker 2: the thing you and Orzag are most not in the
Speaker 2: same page on? What do you argue about?
Speaker 8: Now you are going to I think that the conversational alzar.
Speaker 8: We always described the conversational lazar as being about contextual alpha,
Speaker 8: which is, we do our quantitative, rigorous work, but we
Speaker 8: put it against a backdrop of what's going on in
Speaker 8: the geopolitical environment overall. And I think that mix of quality,
Speaker 8: aative and quantitative is really at the center of how
Speaker 8: we develop use, but also creates a lot of debate
Speaker 8: and creates some you know, I think a lot of
Speaker 8: open questions about whether the whether the Supreme Court's ruling
Speaker 8: on tariffs creates more or less uncertainty. I think right now,
Speaker 8: I think it's a good thing they did that, But
Speaker 8: I think.
Speaker 2: We'll sum it up on the back of a three postcards.
Speaker 2: Do we get solid GDP out of your contextual reality?
Speaker 8: I still think this year is more likely than not
Speaker 8: to deliver above potential growth overall, But there's a lot
Speaker 8: of risks. Tom and your listeners need to pay close
Speaker 8: to tell us.
Speaker 2: What did you say like ambiguity?
Speaker 7: Grammatically grammatically ambiguitous, ambiguous, ambiguous, Yes, thank you, there's nothing.
Speaker 8: Eric, Eric, We try to be grammatically precise.
Speaker 2: Eric, thank you so much. On this job is that
Speaker 2: he is with Lizard Asset Management. Stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on Apple,
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Speaker 2: We start strong with Kevin Gordon with Charles Schwab working
Speaker 2: would live in a starders what's the place like if
Speaker 2: Kathy Jones retires? I mean it's not good.
Speaker 9: I mean, I know we're sad.
Speaker 6: I mean, you know we're so sidly earned it.
Speaker 9: But I'm yes, personally and professionally, we're all set just
Speaker 9: but we we're happy.
Speaker 2: For Kathy. That's a really cuge commitment now by her
Speaker 2: to Schwab. Our commitment to you is you people are
Speaker 2: the kings of patients. Just as from you from sixty
Speaker 2: thousand feet there's a war, do you change your asset allocation.
Speaker 9: In response to it in a knee jerk way?
Speaker 10: No.
Speaker 9: I mean our message around any sort of geopolitical conflict
Speaker 9: has always has always been that not to say that
Speaker 9: it doesn't matter or that it won't you won't start
Speaker 9: to see any impact from it. And I do think
Speaker 9: that you know to the points that you are all
Speaker 9: just making around some of these these moves and prices,
Speaker 9: and this is an environment where rate of change and
Speaker 9: level both matter. Typically there's sort of some distinction between
Speaker 9: the two. But I think from a consumer perspective, but
Speaker 9: also eventually maybe from a business confidence perspective, there is
Speaker 9: potential for this to sort of shake things out a
Speaker 9: little bit more. But I mean this is a day
Speaker 9: by day yeah, development, developing situation, I mean we're sort
Speaker 9: of one cease fire announcement away from everything, sort of
Speaker 9: just reversing sharply and aggressively.
Speaker 2: Yeah, exactly right.
Speaker 5: So what is the message to the SCHWAP clients, Because
Speaker 5: I'm sure the phone calls are coming in fast and furious.
Speaker 5: You guys, go speak to your big room full of
Speaker 5: SCHWAP clients, and before you even get into your prepared remarks,
Speaker 5: they like, what do we do?
Speaker 9: Yeah, I mean the message around I mean, it always
Speaker 9: sounds like some sort of boring message around diversification, but
Speaker 9: that really is the best way to sort of hedge.
Speaker 9: This s lowercase age hedge. If you think about even
Speaker 9: coming into this year, before this started, you were still
Speaker 9: seeing that international outperformance relative to the US, but now
Speaker 9: it's kind of reversing a little bit. Where of course,
Speaker 9: because of the exposure that some other countries mainly in
Speaker 9: the European region but also Asia that they have to
Speaker 9: the Middle least because of energy and oil, the US
Speaker 9: has clearly gotten a bid. You could see that clearly
Speaker 9: within the dollars. So I think that you know, that's
Speaker 9: sort of been the important messages. You don't want to
Speaker 9: go all in or all out on one particular asset
Speaker 9: class at the expense of the other, and we're sort
Speaker 9: of living that in real time, especially over the past
Speaker 9: five days.
Speaker 5: We're going to get some jobs data today that is
Speaker 5: an important data point for our federal Reserve.
Speaker 6: How do you think the FED is.
Speaker 5: Going to be taking in some of this economic data
Speaker 5: that's going to be coming.
Speaker 9: So, you know, I think that they're increasingly in a
Speaker 9: tough spot in the sense that I think it's getting
Speaker 9: just harder to argue for cuts in this environment. And
Speaker 9: you know, I was listening actually to Claudia Sum. I
Speaker 9: know you're going to have around, but most recently just
Speaker 9: a few minutes ago, talking about sort of this kind
Speaker 9: of tricky nature of where inflation is averaging closer to
Speaker 9: three percent, but the fact that you know, we'll see
Speaker 9: what happens at eight thirty. There is some stabilization happening
Speaker 9: in the labor market, and if you take out the
Speaker 9: federal payroll data, the private workforce in payrolls has been
Speaker 9: rebounding and a pretty meaningfully over the past several months.
Speaker 9: I think that it's a good thing from an economic standpoint,
Speaker 9: but I I think that that is sort of keeping
Speaker 9: the FED in a really tough position, especially if it's
Speaker 9: worsh coming in in June and still you know, tilting dubbish.
Speaker 9: I just think that's going to be tough at least
Speaker 9: in the first first half of.
Speaker 2: The year across the nation worldwide. On YouTube, subscribe to
Speaker 2: Bloomberg cod podcasts our number one way to get in
Speaker 2: touch with us here on a daily basis. Kevin Gordon
Speaker 2: of Charles Schwab with this this morning, Oil eighty nine
Speaker 2: dollars really right out to new highs here off of
Speaker 2: the war, and we're seeing it in futures negative forty
Speaker 2: three as well. Barry to your note, you're starting to
Speaker 2: rationalize and I'm just seeing this in the last forty
Speaker 2: eight hours. MAG seven may be showing signs of life.
Speaker 2: Is that the right way to look at the Belingered
Speaker 2: tech area. Yeah, I think.
Speaker 9: I mean, you go through these cycles now, you know,
Speaker 9: every other year it feels where you get sort of
Speaker 9: this big sentiment wash out for a group like the
Speaker 9: max S. Even I would expand it to, you know,
Speaker 9: beyond just those seven names and probably include you know,
Speaker 9: all three sectors really communication services, discretionary and then tech
Speaker 9: and you know, as I mentioned, we're sort of one
Speaker 9: headline away from you know, a lot of this momentum
Speaker 9: reversing where oil prices come lower for some reason because
Speaker 9: of a ceasefire announcement. Maybe not saying that that's our projection,
Speaker 9: but those kinds of swings in this environment where sentiment
Speaker 9: has now gotten so stretched in one direction for an
Speaker 9: area like software in the broader tech sector, and then
Speaker 9: vice versa for some of these deeper cyclicals like energy.
Speaker 9: You know, sometimes you sort of have to pay attention
Speaker 9: to what could snap in terms of that anti momentum.
Speaker 2: Well, Richard Bernstein iconic at Merrilynch just absolutely wonderful, great
Speaker 2: books on growth and value. Leading indicators continue to show strength,
Speaker 2: probabilities and timing of FED rate cuts increasingly seem too optimistic.
Speaker 2: That's the underlying percolation here. Yep.
Speaker 6: Absolutely, Kevin.
Speaker 5: Earnings were pretty much through the earning cycle, pretty darn
Speaker 5: good earnings. The outlook maybe a little conservative buy a
Speaker 5: lot of companies understandably. So here, how is the earnings
Speaker 5: environment out there for you guys as it relates to
Speaker 5: can it support this valuation?
Speaker 7: Yeah?
Speaker 2: I think so.
Speaker 9: I think you know a lot of the valuation access
Speaker 9: that has come in and that froth that has come
Speaker 9: in has been concentrated in some of these higher flyers
Speaker 9: that tend to be, you know, overvalued relative to the
Speaker 9: rest of the market, or have tended to be overvalued
Speaker 9: relative to the rest of the market. You know, from
Speaker 9: an earning's perspective, I think this is a really central
Speaker 9: piece of talking about this conflict or any sort of
Speaker 9: geopolitical instability we've seen this year. The sort of framework
Speaker 9: that I've used to you know, help kind of guide
Speaker 9: through this environment over the past year, you can really
Speaker 9: date it back to Liberation Day, has been the distinction
Speaker 9: between what is a front page risk and what is
Speaker 9: bottom line risk for the market. And you know, we
Speaker 9: often get the question. I was just speaking at client
Speaker 9: events in southern California and also Vermont over the past week,
Speaker 9: and there's this sort of discomfort that people have around
Speaker 9: how is the market just completely looking through this? I mean,
Speaker 9: the S and P five hundred largely unchanged over the
Speaker 9: past several months, and to me, from an earning standpoint,
Speaker 9: until this materially starts to hit bottom line estimates for
Speaker 9: the S and P five hundred, you're not going to
Speaker 9: see as viscerable response from the S and p. So
Speaker 9: it's an uncomfortable way of thinking about it because of
Speaker 9: the humanity angle to all of this. But if you're
Speaker 9: looking at it dispassionately like the market does, it's an
Speaker 9: important distinction.
Speaker 2: If you go from southern California to Vermont, do you
Speaker 2: demand Liz's golf stream?
Speaker 3: No, golf stream, No, we are a commercial howl.
Speaker 2: God's name do you get from southern California?
Speaker 9: I had to stop over here, so I stopped in
Speaker 9: New York first, and then I and then I went
Speaker 9: over to snow.
Speaker 6: Vermont during ski season.
Speaker 3: I see what excuse me?
Speaker 2: Now that we're here, Kevin, can we pause? Pray? Tell?
Speaker 2: How are snow conditions in Colorado?
Speaker 5: Well, I'm heading out to Colorado Sunday. They're not great,
Speaker 5: but it's still the Rocky Mountains and we'll take it.
Speaker 6: Well better in California. And I know dumped on Yep, Yeah,
Speaker 6: it was.
Speaker 5: So my cohort. They said, hey, let's go to Japan,
Speaker 5: that's where the snow is. And I'm like, I'm not
Speaker 5: going to Japan.
Speaker 2: What's a lift ticket? I looked at a lift ticket
Speaker 2: at Bristol Mountain in Western New York. Big drop, ye
Speaker 2: tiny Mountain one hundred bucks a day, Primetime, three twenty five,
Speaker 2: three twenty five. Imagine taking a family skiing like my
Speaker 2: dad back Canniflash about it, Kevin, what's screening well for
Speaker 2: you guys these days? Whether it's an industry or a factor,
Speaker 2: How are you What do you guys talk to your
Speaker 2: clients about these days?
Speaker 9: Well, I mean the factors in some of the sectors
Speaker 9: skew in terms of what looks what looks good moving forward,
Speaker 9: are actually somewhat aligned in terms of a lot of
Speaker 9: the earning stability coming back for you know, I called
Speaker 9: the rest of the market, so everything except those those
Speaker 9: hyperscalers and the sectors that they occupy. So you know,
Speaker 9: with whether it's industrials, which has actually shown pretty solid
Speaker 9: broad based strength recently, or even parts of communication services
Speaker 9: that's a very very concentrated sector. I mean, Meta and
Speaker 9: alphabet makeup about eighty percent of that of that, so
Speaker 9: it's a pretty you know that we always sort of
Speaker 9: make that distinction, but everything from an earning stability and
Speaker 9: profit margin stability standpoint, that's those are the factors that
Speaker 9: we've continued to emphasize, and again, similar to diversification, sounds
Speaker 9: boring when you think about it and when you talk
Speaker 9: about it. But in this environment where you've got so
Speaker 9: much potential for whiplash, it really matters in terms of
Speaker 9: keeping stability in a portfolio.
Speaker 2: Do you guys have an S and P target?
Speaker 6: We don't.
Speaker 2: We don't do that. You don't do that. No, lucky you? Lucky?
Speaker 9: Yes, and lucky our clients, because I don't know with
Speaker 9: you know, forty million clients, I'm not sure how that's helpful.
Speaker 2: The magic of schwell, what are you hearing from retail
Speaker 2: schwab across this country?
Speaker 9: So in all the events I've done in the past
Speaker 9: couple of weeks, there is still this, and I think
Speaker 9: it is actually in somewhat keeping with what we've seen
Speaker 9: in the inflation data year to date, some more evidence
Speaker 9: of this tariff pass through, but there is still more
Speaker 9: of this consternation and discomfort around what our price is
Speaker 9: going to look like this year because the general public
Speaker 9: has just recovered.
Speaker 2: So my brain's going, nominal GDP will hold up, whether
Speaker 2: it's lousy, real GDP two percent, whatever, you throw on
Speaker 2: a three percent or plus inflation rate, and that's enough
Speaker 2: to have corporations keep going, oh yeah, I mean revenue, yes,
Speaker 2: tif Ernie.
Speaker 9: But admittedly though with the split between large and then
Speaker 9: small and medium sized companies, I think that that you know,
Speaker 9: I know it's an overused term at this point, but
Speaker 9: the nature of that k you know, how you sort
Speaker 9: of describe the economy, it's still very much there. I
Speaker 9: do think that because of what happened with labor last
Speaker 9: year and how much companies pulled back on hiring, especially
Speaker 9: at the smaller end, maybe there was net negative hiring
Speaker 9: for for small businesses in America that did help us,
Speaker 9: you know, sort of cushion some of their profit margins,
Speaker 9: and now I think that is benefiting some of their
Speaker 9: forward earnings estimates.
Speaker 2: Paul, Walmart the last twelve months, you taught me to
Speaker 2: look at this and thes up thirty one percent. Right
Speaker 2: now the pe is forty eight Walmart.
Speaker 6: For a retailer, it's well, it's more.
Speaker 2: I would have flunked CFA if they'd asked me.
Speaker 6: That question, I know, absolutely.
Speaker 5: So, you know, Kevin, we have seen, I guess since
Speaker 5: late last year, a rotation in this market away from
Speaker 5: some of the growthy sectors of the market and maybe
Speaker 5: some more value maybe small in mid capin is that
Speaker 5: a short term trade or is that something that you
Speaker 5: guys think has maybe some some legs.
Speaker 6: Here in it.
Speaker 9: No think we think it has legs, I mean admittedly,
Speaker 9: and we always make the clear sort of distinction that
Speaker 9: it's never going to happen in a straight line. Of course,
Speaker 9: you're kind of learning that over the past couple of
Speaker 9: days at times small caps are getting hit harder than
Speaker 9: large caps as an example, But I think of it
Speaker 9: kind of in a broader context, not just small versus
Speaker 9: large in the US, but x US versus the US.
Speaker 9: Of course, there's been more pressure in the past week
Speaker 9: in areas like Europe, as I mentioned, with their energy
Speaker 9: exposure to the Middle East. However, I do think that
Speaker 9: if you look at some of the PMI deat and
Speaker 9: look some of the economic data around the world, even
Speaker 9: for you know, the Global Composite PMI that just came
Speaker 9: out recently for February, the strength in Asia and Asia Pacific,
Speaker 9: in Europe has been you know, it's been better than
Speaker 9: the US. They've been stronger and they've seen you know,
Speaker 9: stronger accelerating growths of rates of growth. So I think
Speaker 9: that you have to sort of pay attention to that
Speaker 9: that it's not necessarily just a weaker dollar story. I
Speaker 9: think that was kind of a twenty twenty five story.
Speaker 9: Now I think it's translating into sort of more tangible
Speaker 9: growth prospects for the rest of the world. Not saying
Speaker 9: that it's this boom, but you know, the market's going
Speaker 9: to trade off of those rates of change and differentials.
Speaker 2: What does earning season look like, I mean, or upon
Speaker 2: the end of the calendar quarter here March thirty one,
Speaker 2: I guess April twentieth, April fifteenth, we start to go
Speaker 2: through the ballet again.
Speaker 9: Yeah, well, look, well, I think that the focus is
Speaker 9: still going to because because of how much you know,
Speaker 9: we're in this sort of AI centric economy and market.
Speaker 9: I'm still I think the focus is really going to
Speaker 9: be again on those hyperscalers and how much they're going
Speaker 9: to up their CAPBECS budgets. Because that was really the
Speaker 9: decisive turning point for this rotation last October, when we
Speaker 9: were in that earning season and you started to see
Speaker 9: those announcements roll through where they started to add up
Speaker 9: to you know, a third of S and P five
Speaker 9: hundred caps.
Speaker 6: That's when the rotation really.
Speaker 9: Started to kick into to hire gear, So I think
Speaker 9: that is still going to be a focal point for earnings.
Speaker 5: You know, what we've seen in cellofs before is Schwab
Speaker 5: customer stepping and buying a market, retail buying, buying the
Speaker 5: market being reached, buying the dips. I mean, when you
Speaker 5: go out to southern California and a Vermont, do you
Speaker 5: get that sense that your clients want to buy dips,
Speaker 5: want to continue to be bullish.
Speaker 9: I do still get that sense, and I think a
Speaker 9: lot of it. And I know we talked about this
Speaker 9: last time that I was here with Wizan, and we
Speaker 9: all had a conversation about this. You know, I think
Speaker 9: that's still the fact that in the post pandemic era,
Speaker 9: we really haven't had what I think of as a
Speaker 9: real bear market. And I think it's more important in
Speaker 9: terms of duration, not necessarily death. And I think actually
Speaker 9: the nature of that, the fact that the bear markets
Speaker 9: we've had have been so shortened, you know, relatively short lived,
Speaker 9: that has sort of conditioned the average retail trader, and
Speaker 9: especially the newer trader these days, or newer investor, to
Speaker 9: sort of step right in when you're down twenty or
Speaker 9: twenty five percent. So to me, the next time we
Speaker 9: do get a bear market, and if it is more
Speaker 9: protracted it, if it lasts longer and it's associated with
Speaker 9: some economic pain, that to me will be the real
Speaker 9: test for that that Cohorative Traders.
Speaker 2: Thank you for coming in. Thank you, it's always good
Speaker 2: to see you. Stay with us. More from Bloomberg Surveillance
Speaker 2: coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast US Live weekday
Speaker 1: afternoons from seven to ten am Eastern. Listen on Apple,
Speaker 1: Karplay and Android Otto with the Bloomberg Business app, or
Speaker 1: watch US Live on YouTube.
Speaker 2: Brian Gardner joins US chief Washington War policy Strategists. It's
Speaker 2: Steifel with all his work at Keith, Briett and Woods
Speaker 2: over the years. Wonderful to have you here. I heard
Speaker 2: a group.
Speaker 6: I think we're gonna go mister Gardner first.
Speaker 5: Okay, excuse because let's get the policy stuff right out
Speaker 5: of the way.
Speaker 2: I'm sorry Brian Gardner with this. I'm confused here because
Speaker 2: we're it's jobs Day. I'm going on here, Brian Gardner
Speaker 2: with us right now. It's Steph O. Brian. I look
Speaker 2: at where we are and there's this confusion over conflict
Speaker 2: in war, it's Stefel. Is this a conflict or is
Speaker 2: this a war?
Speaker 10: I'm not going to speak for the firm time because
Speaker 10: I probably get myself in a little bit of trouble,
Speaker 10: But I mean, I'll use the president's words himself. He's
Speaker 10: referred to it as a war. I mean, obviously there
Speaker 10: are folks up on Capitol Hill that want to avoid
Speaker 10: that term. But the President on several occasions said, you know,
Speaker 10: I got to get back to the war. So when
Speaker 10: bombs start dropping and people are being killed, it's a war.
Speaker 5: Hey, Brian, politically speaking, is this war a net positive
Speaker 5: or net negative for the president here? Because this is
Speaker 5: a president at least in his first term, said he
Speaker 5: doesn't want anything to do with any of these entanglements.
Speaker 10: Yeah, so we're Paul, We're in the fog of war.
Speaker 10: So it's it's tough to see forward and how this
Speaker 10: is all going to play out longer term. But I
Speaker 10: think there is risk longer term. Short term, there's not
Speaker 10: a lot of risk right now, you know, a write
Speaker 10: down political partisan divides on support for the war. But
Speaker 10: longer term he has he does have to be careful
Speaker 10: that part of his coalition more than just the America
Speaker 10: first diehards start to peel away if there were to
Speaker 10: be boots on the ground. Now we're not close to that.
Speaker 10: The administration is really pushed back on that idea. But
Speaker 10: if somehow things were to change and there are boots
Speaker 10: on the ground, I think the political dynamic changes, and
Speaker 10: he just runs the risk generally of being seen as
Speaker 10: being too focused on foreign policy when Americans clearly want
Speaker 10: a focus on economic and domestic policy. That goes back
Speaker 10: to twenty twenty four and it is still the case today.
Speaker 5: And Brian, what we saw in some of the governor
Speaker 5: elections last year in Virginia, New Jersey and some other
Speaker 5: places was affordability was issue number one. And we're hearing
Speaker 5: reports that gasoling prices are really starting to surge across America,
Speaker 5: twenty five cents a gallon higher just in the last
Speaker 5: week or so. That can't be politically good for this
Speaker 5: administration or the party in general, exactly.
Speaker 10: Look, if this is sorry to use the word, if
Speaker 10: this is transitory and markets correct and oil drops back
Speaker 10: to its previous level, gas gives back its gains, that's
Speaker 10: one thing.
Speaker 6: But if this is longer lasting, that's a problem.
Speaker 10: And just going back since you mentioned those elections in November,
Speaker 10: I mean, keep him on the context of that, not
Speaker 10: just the shutdown, which everybody pays attention to, but the
Speaker 10: president had been in Asia before then, and I think
Speaker 10: again it kind of reiterated this perception that maybe he's
Speaker 10: more focused on foreign policy than domestic policy.
Speaker 6: I think that's a real risk for him.
Speaker 2: Wonderful half hour for you folks into the job. Stay
Speaker 2: in twenty five minutes. Claudius sam will join us to
Speaker 2: give you that great coverage we try to do for
Speaker 2: you with the release of the data. Eric van Astron
Speaker 2: with his shortly chief investment officer at Lizard Asset Management
Speaker 2: right now, Brian Gardner, Chief Washington Policy Strategies, it's default
Speaker 2: fold in the elections of Tuesday, I guess the elections
Speaker 2: for the mid year. It started this Tuesday with all
Speaker 2: that we saw, particularly in Texas and the Carolina as well.
Speaker 2: Brian Gardner, is the election season rush now? With all
Speaker 2: of our uproar in March, are we doing a May
Speaker 2: or June fever of a midterm?
Speaker 6: Yeah?
Speaker 10: It just feels time that every cycle starts earlier and earlier.
Speaker 10: I mean, I'm already getting questions about twenty twenty eight
Speaker 10: much less than midterm.
Speaker 2: So yeah, we're we're already.
Speaker 10: Yeah, we're already into the cycle, especially the midterm cycle,
Speaker 10: and that's going to flow through to Congress and legislation
Speaker 10: and what cannot get done. The legislative window is narrowing.
Speaker 10: It's closing much faster than we have seen in the past.
Speaker 10: So we are deep into election.
Speaker 2: Season inside the beltwagh who has the most money? I'm told,
Speaker 2: I'm lectured that money matters. Gura does this? Tell me
Speaker 2: this Bloomberg this weekend with David Girl, look for that
Speaker 2: here tomorrow. I mean, help me here, Brian, who's got
Speaker 2: money up to the eyeballs? It matters until it doesn't.
Speaker 10: Tom I mean, we can go back and look at
Speaker 10: a couple of campaigns that have already occurred. The notable
Speaker 10: state election state legislative election in Texas a couple of
Speaker 10: weeks ago, where a Democrat won the seat, took it
Speaker 10: from Republicans that had held it for quite a long time.
Speaker 10: The Democratic candidate was outspent ten to one. So I mean,
Speaker 10: you have to match the message in the moment. Money matters.
Speaker 10: Directly to your question, both parties have more than enough money.
Speaker 6: I think Republican.
Speaker 3: Parties, the party apparatus.
Speaker 10: Is in really good shape compared to Democrats, who know
Speaker 10: the DNC I think is not in a good cash situation.
Speaker 10: But at the candidate level, I think Democratic candidates are
Speaker 10: in very good shape, especially in those key swing districts.
Speaker 10: They're flush with money. They're going to have enough. But
Speaker 10: I think we yeah, money matters, but I think we
Speaker 10: overplay it. It's more about the message and the.
Speaker 5: Moment, Brian, most folks feel like the House is certainly
Speaker 5: in play. How about the Senate in terms of the
Speaker 5: Democrats taking control.
Speaker 10: So Democrats would need a four seat pickup in the Senate,
Speaker 10: and numerically they have the upper hand because Republicans are
Speaker 10: defending more seats than our Democrats. So you say, okay,
Speaker 10: they have more pickup opportunities, but when you look at
Speaker 10: where those seats are, where the contested seats are, Republicans
Speaker 10: are in a much stronger position in the Senate than
Speaker 10: they are in the House. As we sit here today, Paul,
Speaker 10: I would say Republicans have a pretty good chance, certainly
Speaker 10: over fifty to fifty. I'm putting it probably in the
Speaker 10: sixty sixty five, maybe seventy percent chance of retaining the Senate.
Speaker 10: Let's see how the situation with Iran unfolds. Let's come
Speaker 10: back in three, four or five months. It could be
Speaker 10: in a different environment, but based on what we know today,
Speaker 10: even with a tough political environment for Republicans, I think
Speaker 10: they're in a good position to keep the Senate.
Speaker 2: Brian Gardner, thank you so much, Chief Washington policy strategist.
Speaker 2: Steve greatly appreciate that.
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