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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Prisner. You can join Brian

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Speaker 1: Curtis and myself for the stories making news and moving

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Speaker 1: markets in the Apec region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: That poll by Bloomberg News and Morning Consult that came

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Speaker 2: out just recently with Donald Trump leading President Biden by

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Speaker 2: only a couple of percentage points. Joining us for some

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Speaker 2: discussion of this is Jody Schneider, political news director for

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Speaker 2: Bloomberg Television and Radio. How do you see it?

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Speaker 3: Yeah, I think you know, a lot of things can

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Speaker 3: be happening at the same time. So while we're all

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Speaker 3: very focused on the debate and his presidence, per performance

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Speaker 3: in the debate and what that could mean, there were

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Speaker 3: other things perhaps happening in those states, you know, over

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Speaker 3: the period he may have visited in those states. So

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Speaker 3: that's the kind of thing that could sway some people

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Speaker 3: and also the people who are who might have had

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Speaker 3: a pre election to vote for President Biden, even with

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Speaker 3: the poor performance in the debate. They may have been

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Speaker 3: pushed even more to that because of Donald Trump's performance

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Speaker 3: in terms of the more than thirty lives he told

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Speaker 3: on the stage, according to some accounts some counts of

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Speaker 3: what he said. So I think there's a number of

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Speaker 3: things going on there, but it's certainly interesting now. The

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Speaker 3: one the swing state poll that does show Biden trailing

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Speaker 3: the most in Pennsylvania done by seven points, and that's

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Speaker 3: going to be very problematic for him if he can't

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Speaker 3: start making up some of that gap.

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Speaker 1: Chody, I'm wondering if these data in any way change

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Speaker 1: some of the private conversation within the Democratic Party. I

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Speaker 1: know that Hakim Jeffries was speaking with some congressional Democrats today.

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Speaker 1: There are still a lot of folks that want Biden

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Speaker 1: to step aside as the nominee. I mean, this number

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Speaker 1: in and of itself really is not going to do

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Speaker 1: a lot, I would imagine to change that conversation.

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Speaker 3: Yeah, so we're seeing more Democrats, congressional Democrats come forward

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Speaker 3: and publicly say, well or certainly in a meeting with

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Speaker 3: Hackem Jeffries, that they want Joe Biden to step aside.

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Speaker 3: And these so called defections now include several Democratic leaders

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Speaker 3: of House committees. So that's the signal that even some

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Speaker 3: in the party who in the past have supported Joe

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Speaker 3: Biden want a new person at the top of the ticket.

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Speaker 3: This includes people like Gerald Nadler of New York, Adam

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Speaker 3: Smith of Washington State, Mark Takano of California, according to

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Speaker 3: people familiar with that discussion today.

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Speaker 2: So in the breakdown of the states, they're surprising, as

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Speaker 2: you mentioned, with Pennsylvania trailing by seven percentage points, but

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Speaker 2: leading in Wisconsin and Michigan, some pretty big states as well.

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Speaker 2: Anything really out from these individual states in your mind.

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Speaker 3: Yeah, So those three states you mentioned, of course, are

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Speaker 3: what we call the blue Wall states that effectively Joe

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Speaker 3: Biden needs to win to be able to become president.

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Speaker 3: Hillary Clinton lost those three states by small margins, but

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Speaker 3: she lost them in twenty sixteen. Joe Biden won them

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Speaker 3: in twenty twenty, and there's been a lot of talk

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Speaker 3: about if he doesn't get enough kind of voter enthusiasm

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Speaker 3: turnout in those states, he could lose them. So it's

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Speaker 3: really key in Pennsylvania's key, that's where he was born.

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Speaker 3: We saw him go there today try to kind of

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Speaker 3: rally the troops, and he did meet with him. Was

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Speaker 3: that the sitting senator's running Bob Casey was running for reelection,

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Speaker 3: has been up in the polls, and John Fetterman the

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Speaker 3: other senator from that state. So he's getting support there

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Speaker 3: from the party. But it's you that's the place he's

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Speaker 3: really going to need to do well. He spent a

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Speaker 3: lot of time there and being down seven points is

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Speaker 3: not a good sign at the stance of the game.

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Speaker 1: I'm going to go out on a limb here. I mean,

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Speaker 1: if the people that were surveyed as a part of

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Speaker 1: this morning Console Bloomberg News poll, we're aware of mister

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Speaker 1: Biden's or President Biden's issues during the debate, we don't

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Speaker 1: see maybe a tremendous amount of movement in the polling.

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Speaker 1: I'm wondering, is there a way to look through Biden

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Speaker 1: in and of himself and to see Kamala Harris as

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Speaker 1: a part of that ticket. Does this in any way

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Speaker 1: reflect mild positivity on Harris at all?

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Speaker 3: I'm not so sure, and we kind of ask that directly.

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Speaker 3: I think part of what is probably going on here,

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Speaker 3: and again to Gregory's point, there could be several things

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Speaker 3: going on here is that there is a real concern

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Speaker 3: among brothers, among Democrats, and Joe Biden has been saying

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Speaker 3: this all along, that he is the best person to

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Speaker 3: beat Donald Trump. There's a lot of thinking in the

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Speaker 3: party still that that's the case. Now. Some of these

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Speaker 3: House members and others who are saying you should be replaced,

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Speaker 3: clearly don't think that, but a lot of people do

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Speaker 3: think that it's very late in the game to be

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Speaker 3: making a change. If it was Kamala Harris, her polling

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Speaker 3: hasn't been very strong. There's some thinking that she would

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Speaker 3: be a likely successor. She's on the ticket already, she's

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Speaker 3: been vetted, and they would be able to continue the

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Speaker 3: campaign as it were in terms of the money. If

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Speaker 3: it's somebody else, that kind of throws the party into chaos,

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Speaker 3: at least for a period of time, And the thinking

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Speaker 3: is that that makes them vulnerable, more vulnerable to perhaps

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Speaker 3: bigger losses against Ella Trump.

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Speaker 2: Another that you mentioned just touched on briefly, and Greg

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Speaker 2: talked about as well as the issue of democracy now

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Speaker 2: rivaling immigration, how that could play into Biden's hands.

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Speaker 3: Yeah, and there's some of the party, then, some very

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Speaker 3: prominent people in the party are saying that President Biden

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Speaker 3: should focus on the issues where Donald Trump is vulnerable.

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Speaker 3: So much of the talk since a week ago Thursday

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Speaker 3: has been about that debate performance, so that he needs

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Speaker 3: to change the message back to things like reproductive rights,

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Speaker 3: back to what they've done to health the economy.

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Speaker 2: Yeah, Jody, thank you for joining us. Jody Schneider, a

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Speaker 2: political news director for Bloomberg TV and Radio. Nancy Davis,

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Speaker 2: Founder and portfolio manager of Quadratic Capital Management, Nancy, we

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Speaker 2: like to stir things up a little bit, so true

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Speaker 2: or false, It's evident to everyone except the FED that

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Speaker 2: the tide has turned on the economy and on jobs,

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Speaker 2: and the FED is behind the curve now in signaling

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Speaker 2: a cut in rates.

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Speaker 4: True or false, It's hard to say because the obviously

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Speaker 4: the jobs number on Friday, especially the revisions were much weaker.

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Speaker 4: But the Fed's balance sheet is still ginormous. You know,

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Speaker 4: they really were just kind of only hiking policy rates

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Speaker 4: and not really you know, the quantitative tightening that we've experienced,

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Speaker 4: especially with the bailout around Silicon Valley Bank March last year,

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Speaker 4: you know, still has kept the supply of money alive

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Speaker 4: and well, so I think you know, I'm kind of

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Speaker 4: going to go with inflation is definitely priced to fall

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Speaker 4: to two percent. Everyone is very confident that PAL has

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Speaker 4: got this and can start rate cuts, but I don't

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Speaker 4: know if it's the right thing to do yet, TVD.

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Speaker 1: Why do you say that, Well, there's so much.

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Speaker 4: Money out there still with the amount of balance sheet.

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Speaker 4: The quantitative tightening that they did do was really small.

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Speaker 4: They've actually reduced the caps entirely, for you know, in

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Speaker 4: the last recent meeting. They're still allowing mortgages to roll off,

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Speaker 4: but it's still tiny compared to the amount of q

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Speaker 4: that was done even the eight weeks after the start

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Speaker 4: of the COVID pandemic in the US. I'm talking March

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Speaker 4: twenty twenty, and that eight weeks after the start of COVID,

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Speaker 4: Remember the Fed came out, PAL cut interest rates all

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Speaker 4: you know, Sunday evening for the Asian Open right in

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Speaker 4: the right in March twenty twenty, and there was more

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Speaker 4: QE done in that eight week period than there was

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Speaker 4: in the nine previous years of QI. So the balance

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Speaker 4: sheet is still enormous, and they've really only been kind

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Speaker 4: of tightening policy on one side with policy rates and

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Speaker 4: the yield curve has been inverted longer than ever ever

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Speaker 4: in our history, of our lifetime. So you know, the market,

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Speaker 4: you know, there's still a lot of supply of money

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Speaker 4: out there, even though inflation expectations have fallen.

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Speaker 2: Yeah, and you can also argue that the jobs report

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Speaker 2: wasn't exactly weak even though the unemployment rate ticked up

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Speaker 2: to four point one percent. That's a rounding thing. It

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Speaker 2: was four point zero five four, so really just smacked

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Speaker 2: doub in the middle between four and four point one.

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Speaker 4: And then also the private sector was weak. The government

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Speaker 4: numbers looked really strong, but I think you know, if

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Speaker 4: you you know, put a skeptic had ons as a

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Speaker 4: Bureau of Labor Statistics, the revisions from the last jobs report,

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Speaker 4: which looked super hot, were massive, and the private sector

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Speaker 4: is showing weakness. So that's what I mean by weakness.

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Speaker 1: Where do you see yields going between now and the

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Speaker 1: end of the year.

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Speaker 4: Well, the yield curve in the US is much more

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Speaker 4: inverted than anywhere else in the world. If you look

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Speaker 4: at you know, say Japan's two tens swap curve, you know,

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Speaker 4: on your Bloomberg terminal, you can see it's positive sixty

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Speaker 4: two basis points right now the US, the two tens

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Speaker 4: SOFA curve in dollars is negative sixty, So it's literally,

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Speaker 4: you know, same same sixty number, but exactly the opposite.

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Speaker 4: And I think that that's really a sign of how

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Speaker 4: much the market does believe that the FED is going

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Speaker 4: to be cutting rates because people are buying duration. But

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Speaker 4: there's a lot of expectations that, you know, inflation is

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Speaker 4: the thing in the past, and I'm not convinced even

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Speaker 4: though it's being priced into markets that way.

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Speaker 2: We had a little discussion earlier about artificial intelligence and

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Speaker 2: whether or not it's something that is allowing companies to

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Speaker 2: monetize as some of the excitement about the theme. We

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Speaker 2: had a downgrade on Nvidia that was from one research

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Speaker 2: or in New Street, But then we also had Samsung's

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Speaker 2: very strong earnings on Friday, a fifteen full jump in

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Speaker 2: operating profit. When you look at artificial intelligence and the

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Speaker 2: earnings of some of the top companies, is that enough

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Speaker 2: to kind of outweigh whatever we see from the FED.

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Speaker 3: Well.

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Speaker 4: I do think there's been a huge rise really since

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Speaker 4: the financial crisis with systematics strategies, and I feel like

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Speaker 4: the AI models, many of them are momentum based, and

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Speaker 4: so they're just kind of magnifying the theme that we've

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Speaker 4: already had, which is kind of essentially buy what's going

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Speaker 4: up and sell what's going down. And you know, I

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Speaker 4: don't know, you know, obviously everybody wants a lot of

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Speaker 4: different portfolio styles in your portfolio, but having kind of

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Speaker 4: that group bank around, you know, systematic only, and AI

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Speaker 4: is sort of an extension of being systematic. I don't

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Speaker 4: love all kind of the momentum out there because some

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Speaker 4: of these the valuations have gotten crazy. And then there's

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Speaker 4: some you know, pockets of value in the market, but

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Speaker 4: some people are saying that small caps are over, that

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Speaker 4: it's not even an asset class anymore, and inflation expectations

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Speaker 4: are all you know, right around. If you look at

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Speaker 4: Breake Evens on Bloomberg, on your Bloomberg terminal, you can

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Speaker 4: see they're all right, you know, hugging in the US

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Speaker 4: around two percent. So there are pockets of value, but

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Speaker 4: it's not stuff that's been going up. It's stuff that's

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Speaker 4: been going down.

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Speaker 1: I just want to be clear, at least in my

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Speaker 1: own mind. I mean, when we're talking about AI, you

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Speaker 1: seem to pick up on the theme of using artificial

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Speaker 1: intelligence and trading strategies. And yes, there has been a

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Speaker 1: lot written about the degree to which AI will impact

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Speaker 1: banking and financial services in a meaningful way. But I

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Speaker 1: think what I heard Brian kind of getting at was

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Speaker 1: this idea that we're going to see such an increase

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Speaker 1: in worker productivity that that will necessarily as a result

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Speaker 1: of the application of AI, will that will necessarily make

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Speaker 1: it easier for the FED to become accommodative. Are we

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Speaker 1: on the same paychere? I just want to make sure

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Speaker 1: that I'm understanding where we are in the conversation.

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Speaker 4: Well, I guess it's all about timing, because if we

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Speaker 4: just play that forward and productivity increases a ton, let's

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Speaker 4: just say that happens. Eventually, there are going to be

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Speaker 4: a lot less humans that are going to be needed

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Speaker 4: to do the same job. Right, the circle comes kind

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Speaker 4: of full force, and we're going to have a problem

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Speaker 4: with the unemployment rate going higher. So I think we

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Speaker 4: do have to keep in mind that the FED has

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Speaker 4: dual mandates and AI might increase productivity in the short term,

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Speaker 4: but it also might mean that people are going to

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Speaker 4: be you know, look at many countries and regions that

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Speaker 4: have had technology disrupt the labor force and really cause chaos.

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Speaker 4: So it might be good in the short term, but

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Speaker 4: I think long term it could potentially be something that

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Speaker 4: people should be concerned about.

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Speaker 2: If we could also broaden the conversation to France, because

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Speaker 2: it's a really big story. This morning, money managers had

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Speaker 2: fretted about the right in France. Now they'll be fretting

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Speaker 2: about the left. How should American investors be approaching this?

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Speaker 4: It was definitely a surprise. I think everybody was really

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Speaker 4: concerned with the right leading, and she actually came in third.

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Speaker 4: From what I've seen over the weekend, you know, I

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Speaker 4: think the currency is definitely something to watch. You know,

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Speaker 4: the dollar has been really strong. The end has been

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Speaker 4: very weak, but it is it is a surprise to see.

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Speaker 4: That's how how the voters came out.

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Speaker 1: Last question before we let you go has to do

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Speaker 1: with politics, geopolitics. We referenced the French election. We've got

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Speaker 1: an election here in the US in a couple of months.

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Speaker 1: I mean, do you have a view what are the

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Speaker 1: signals that you're getting when you look at market pricing,

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Speaker 1: whether it's the bond market, whether it's the equity market.

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Speaker 1: Is there anything that concerns you as we get closer

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Speaker 1: to the election, Are you getting signals right now that

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Speaker 1: are maybe a little cautionary.

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Speaker 4: Well, nobody's worried about the election when you just look

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Speaker 4: at the data of the volatility markets, volatility especially things

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Speaker 4: like you know, you would expect rate volatility. When we

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Speaker 4: started twenty twenty four, we had over six cuts priced

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Speaker 4: in from the Fed this year, and those have been

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Speaker 4: you know, evaporated over the course of all this strong

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Speaker 4: data in the first you know, half of the year,

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Speaker 4: so volatility has fallen dramatically. Interest rate ball is down

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Speaker 4: about thirty percent year to date, which which really kind of,

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Speaker 4: you know, doesn't make a ton of sense when you

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Speaker 4: look at the fundamentals and the fiscal situation and even

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Speaker 4: you know, there's no election premiums, it's pretty pretty complacent.

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Speaker 4: So maybe maybe the news over the weekend with France

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Speaker 4: is sort of, you know, going to remind people that

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Speaker 4: you can't really predict outcomes and you have to be

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Speaker 4: diversified to be prepared for any sort of scenario because

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Speaker 4: nobody has a crystal ball.

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Speaker 1: Shucks, Nancy, thank you so much for joining us. I

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Speaker 1: was hoping that you might have one Nancy Davis, their

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Speaker 1: founder portfolio manager at Quadratic Capital Management, joining from Greenwich, Connecticut.

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Speaker 2: We're joined by Eric Stirner, chief investment officer at a

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Speaker 2: Fallen Wealth Management. So interesting time. The jobs report in

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Speaker 2: the US leaves people questioning a little bit the second

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Speaker 2: side of the FED mandate. How do you think that

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Speaker 2: FED Chief J. Powell will calibrate his arguments in front

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Speaker 2: of Congress this week?

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Speaker 5: Yeah? Well, thanks for having me. And like you said,

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Speaker 5: the FED dual mandate to promote maximum employment and stable

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Speaker 5: prices is coming more into balance. Before it was all

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Speaker 5: about inflation and the job market is so hot. Now

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Speaker 5: we're really seeing some cooling here. And even we've heard

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Speaker 5: some FED talk, well much FED talk over the last

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Speaker 5: few weeks, and some officials expressing concern about the softening

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Speaker 5: labor market. I mean, we see the unemployment rate up

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Speaker 5: to four point one percent. You know, it's still a

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Speaker 5: great unemployment rate, but the highest has been since October

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Speaker 5: twenty twenty one. And even the Jultu report showed one

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Speaker 5: point two to job vacancies for every unemployed person in May,

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Speaker 5: which is the lowest ratio since twenty twenty one. So

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Speaker 5: I think there is more of a balance there. And

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Speaker 5: I also think the good news as far as being

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Speaker 5: optimistic of potentially two rate cuts for this year, is

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Speaker 5: really the lone sticking point in inflation is shelter, and

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Speaker 5: Powell's acknowledged the housing shortage that the US has and

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Speaker 5: it's going to take years to normalize. So if that's

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Speaker 5: the last sticky component, you know, I think that could

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Speaker 5: pave the way to two rate cuts later this year.

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Speaker 1: Is it possible that the first cut would come as

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Speaker 1: soon as September?

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Speaker 5: In year view, that's what I believe. I know that

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Speaker 5: there's some chatter that we get a great CPI report

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Speaker 5: this week that potentially July is back on the table.

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Speaker 5: I'm not buying that. I think this as we can

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Speaker 5: get one is September and then potentially a second one

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Speaker 5: in December.

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Speaker 2: So what I was thinking was that maybe we all

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Speaker 2: know that Jaypal kind of leans a little bit towards

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Speaker 2: the dutish side, but he's had to stay firm and

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Speaker 2: the FED has stayed firm the five hundred and fifty

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Speaker 2: basis points. He's there and has been there for a

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Speaker 2: long time. But it seems like that it's turning now

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Speaker 2: and it seems like this week, if he doesn't show

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Speaker 2: some likeliness to alter the message that yet rate cuts

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Speaker 2: are coming and it might be September, We'll still watch

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Speaker 2: the data. What if he doesn't indicate that, I feel like,

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Speaker 2: you know, you could you could see some selling in

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Speaker 2: the stock market that people would just say, look, the

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Speaker 2: Fed's behind the curve. They missed it on the upside,

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Speaker 2: they're going to miss it on the downside.

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Speaker 5: Yeah, that's certainly the fear in the markets right now

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Speaker 5: because I mean, we're seeing retail sales cool, consumer spending cool,

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Speaker 5: and I think there is you know, some concerns out

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Speaker 5: there and at that it's going to hold on tighter

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Speaker 5: than it does and that's it doesn't have a great

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Speaker 5: track record as far as executing a soft landing. Uh.

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Speaker 5: I think Pale is also kind of trying to learn

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Speaker 5: from some of the mistakes I call the mistakes in

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Speaker 5: the past that you know, anytime he's said anything over

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Speaker 5: the last year and a half that's slightly dubbished, the

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Speaker 5: markets sometimes could just take off with that and and

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Speaker 5: really loosing financial conditions. So I think he's trying to

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Speaker 5: balance that too and hold his cards tight just uh,

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Speaker 5: for for that reason, But it will be interesting to

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Speaker 5: hear more comments directly from Powell. I think Powell does

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Speaker 5: want to cut rates in September, and you know, the

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Speaker 5: data will will tell the story. But clearly the last

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Speaker 5: few months, even though we had a few unexpected surprises

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Speaker 5: of the upside and inflation in the first quarter, we've

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Speaker 5: seen a lot of uh, you know, cooler inflation reports

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Speaker 5: and cooler labor market reports to go along with it.

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Speaker 5: So I think, uh, I think we are definitely set

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Speaker 5: up to the first cut coming in September.

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Speaker 1: So you're a wealth manager and I'm going to bet

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Speaker 1: to that most of your clients are higher net worth.

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Speaker 1: What's the signal that you're getting as we get closer

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Speaker 1: to this election, particularly everything that's been in the news

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Speaker 1: now after that presidential debate.

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Speaker 5: Yeah, well, what I tend to tell my clients is election.

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Speaker 5: The stock market performance in election years is right on

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Speaker 5: par with its performance in non election years. But but

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Speaker 5: the one consistent characteristic that election years have is the

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Speaker 5: elevated volatility, and we haven't really seen that in equity markets.

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Speaker 5: We've seen that in the fixed income markets, but not

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Speaker 5: in equity market so far this year. And I think

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Speaker 5: we are going to see increased volatility. I think we're

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Speaker 5: starting to see that now. And even you know, after

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Speaker 5: that last debate, we saw our treasury yields go up

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Speaker 5: because concerns about the potentially Trump's tax cuts and increased spending.

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Speaker 5: Not that either candidate really has an answer to the

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Speaker 5: growing deficit, but I just remind my clients that that

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Speaker 5: you know, there's gonna it's gonna be bumpy, but but

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Speaker 5: typically the market will take off after November, but you

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Speaker 5: spend that uncertainty is behind us. So I just tell

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Speaker 5: them to stay disciplined to their plan and try to

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Speaker 5: uh keep their political views in the in the voting polls.

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Speaker 2: And even if even if August is sometimes a rough period.

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Speaker 2: Uh So, you know, the AI trade has been one

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Speaker 2: of the biggest themes of the year. We've had plenty

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Speaker 2: of days lately where Nvidia has been selling off because

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Speaker 2: of AI, and you know, Apple and Amazon have been

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Speaker 2: gaining because of AI. Uh So, you know, it shows

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Speaker 2: that people are are quite unsure here. How do you

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Speaker 2: feel about AI?

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Speaker 5: Yeah, I mean, it's it's an incredible story and it's

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Speaker 5: going to really increase productivity across so many different sectors,

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Speaker 5: and it's carried the market for the last, you know,

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Speaker 5: eighteen months, and I think it's important to maintain some

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Speaker 5: exposure to those megatacks. But the good news is that

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Speaker 5: I think we're going to see a lot more broadening

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Speaker 5: in the market.

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Speaker 2: Eric Sterner, a Chief investment officer at a Pollen Wealth Management.

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Speaker 1: This has been the Bloomberg Daybreak Asia podcast, bringing you

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