Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: An absolutely fascinating news conference with Chairman Powell.
Speaker 3: Where do we start? Where do we end?
Speaker 2: A twenty five basis point reduction for the Federal Reserve
Speaker 2: as anticipated, but some drama over the last forty five
Speaker 2: minutes or so.
Speaker 3: Let's start with the equity market.
Speaker 2: On the S and P five hundred, we look a
Speaker 2: little something like this at all time highs up eight
Speaker 2: tenths of one percent. On the NASDAG we're up by
Speaker 2: one point six at the moment.
Speaker 3: Looking at the.
Speaker 2: Russell, we're up, down by about a tenth of one percent.
Speaker 2: Let's switch it up and get to the bond market
Speaker 2: and we'll go through these yields. Let's look at yields
Speaker 2: at the moment, down six basis points on twoes and
Speaker 2: down about eleven on tens. On a thirty year, we're
Speaker 2: down about eight basis points of the moment. On policy,
Speaker 2: this was really really subtle. Did they drop their easing bias?
Speaker 2: Not quite? Did they find a way to find some
Speaker 2: optionality without a doubt, effectively endorsing a view that we've
Speaker 2: had around this table over the last few hours. As
Speaker 2: times goes by, these decisions get a whole lot harder
Speaker 2: reluctance to endorse the September forecast, acknowledgment that downside risks
Speaker 2: have diminished. Awareness the White House policy could redefine the
Speaker 2: outlook as anticipated. A lot of questions on one thing,
Speaker 2: this week's election. Take a listen.
Speaker 4: In the near term, the election will have no effects
Speaker 4: on our policy decisions. Here, we don't know what the
Speaker 4: timing and substance of any policy changes will be. We
Speaker 4: therefore don't know what the effects on the economy would be, specifically,
Speaker 4: whether and to what extent those policies would matter for
Speaker 4: the achievement of our goal variables maximum employment and price stability.
Speaker 4: We don't guess, we don't speculate, and we don't assume.
Speaker 3: That's the take awaund the election.
Speaker 2: The obvious follow up to that question, are the September
Speaker 2: forecasts still valid?
Speaker 3: Take a listen.
Speaker 4: I think you take away a sense of some of
Speaker 4: the downside risks to economic activity having having been diminished
Speaker 4: with the Nipper revisions in particular, and so overall feeling
Speaker 4: good about economic activity. I think really the question is December,
Speaker 4: and you know by December we'll have we'll have more data.
Speaker 4: I guess one more employment report, two more inflation reports,
Speaker 4: and lots of other data. And you know we'll make
Speaker 4: a decision as we get to December.
Speaker 2: So obviously that decision in December will be totally data dependent.
Speaker 2: But that sounds you heard just the door slowly opening
Speaker 2: to a pause if they need to. Now that's policy.
Speaker 2: Let's talk about leadership. You want some tension in this
Speaker 2: news conference. Take a listen to this exchange from about
Speaker 2: twenty minutes ago.
Speaker 4: Some of the president's alex advisors have suggested that you
Speaker 4: should resign.
Speaker 1: If he asked you to leave, would you go? No?
Speaker 4: Can you follow up on do you think that legally
Speaker 4: you're not required to leave? No?
Speaker 2: No, and then no again, and a follow up question
Speaker 2: a little bit later in the news conference. The answer
Speaker 2: to that follow up Lisa, not permitted under the law.
Speaker 5: Even demotion is not necessarily permitted under law. The interesting
Speaker 5: aspect of this Number one, he was very definitive. Number two,
Speaker 5: he had a clear answer. It was clear that he
Speaker 5: had looked at that law ahead of this meeting and
Speaker 5: that it was fresh on his mind. It seems like
Speaker 5: this is going to be a very interesting transcript that
Speaker 5: we get in five years.
Speaker 6: There's two press conferences today, genis smiled at Colby Smiths
Speaker 6: de Lisman and all asking adult questions about the economics.
Speaker 6: I went to Craig Trres after his question, our great
Speaker 6: historian and economics, and I said, Craig finally, and with
Speaker 6: Craig Trus launching off John, we got into the emotion
Speaker 6: of this election and fed independence into twenty twenty five.
Speaker 2: We've got to separate these two issues, haven't we policy
Speaker 2: for December, which seems highly dependent on recent data and
Speaker 2: incoming data between now and then. Then the projections around
Speaker 2: policy which still feels some way off at the moment.
Speaker 2: There's nothing to model. I think it's basically what Sham
Speaker 2: and Pause said in that news conference. So let's park
Speaker 2: the politics just for a while. Just park the policy
Speaker 2: based on the data we've had since that September meeting
Speaker 2: and basically depending on the data we get when we.
Speaker 3: Go into December. That sounds like a feder reserve.
Speaker 2: That's t and us up for something that the former
Speaker 2: vice chair Richard Clara talked about in this program before
Speaker 2: that news conference started, that we could see Chair and
Speaker 2: Powell look to find some optionality going into December.
Speaker 5: That is what the market was looking at, and what
Speaker 5: I was looking at was a FED fund's futures, which actually,
Speaker 5: after pricing in a ninety ninety five percent chance of
Speaker 5: a FED rate cut in December as recently as the
Speaker 5: end of October, was pricing in a sixty percent chance
Speaker 5: as recently as a.
Speaker 1: Few minutes ago, as j. Powell was talking.
Speaker 5: Key question is how much does this turn up the
Speaker 5: volume on CPI that we get next Wednesday, especially given
Speaker 5: that he pinpointed just some stickiness in the latest inflation.
Speaker 2: This is something you said when the news conference is on.
Speaker 2: Lisa and I were talking about this, and you said,
Speaker 2: this is a Federal Reserve that prepared for this moment.
Speaker 2: The very fact that he responded in this fashion, that
Speaker 2: he responded to the questions in such direct way coming
Speaker 2: into next year, it sets up some real tension for
Speaker 2: twenty twenty five and perhaps even beyond.
Speaker 5: Because this is not a FED that is just being
Speaker 5: passive and hoping people don't ask the questions. This is
Speaker 5: a FED that's very prepared. They were prepared in how
Speaker 5: they were going to answer it. They were prepared even
Speaker 5: for the yield move question, saying that we only take
Speaker 5: it into consideration when it has been that way for
Speaker 5: a prolonged period of time. Again, this is setting up
Speaker 5: tests for the market to take a consideration into consideration
Speaker 5: at a time when they are saying they're opening the
Speaker 5: door to responding by not necessarily cutting.
Speaker 3: Intocember equity markets.
Speaker 2: Right now, session highs, record highs on the S and
Speaker 2: P five hundred up by nine tens of one percent yesterday,
Speaker 2: a big sell off and fixed income TK this afternoon.
Speaker 2: We're seeing a bit of a rally Yield Stowa across the.
Speaker 6: Camp, a bit of a rally. John, Do you have
Speaker 6: your six thousand banner ready? I mean you don't have
Speaker 6: an SBX six thousand bannerred.
Speaker 3: Now TK seventeen points away. Yeah, we're far away.
Speaker 6: We can't do Dow forty four thousand banner, but we
Speaker 6: can do SBX six thousand.
Speaker 3: I'm sure they get that.
Speaker 2: The present elect will be very interested in doing now.
Speaker 2: He wouldn't have one thousand.
Speaker 3: He will be through next time year.
Speaker 2: I said earlier on in the program this morning, it's
Speaker 2: funny you mentioned this. Stewart Kaiser City was sitting right
Speaker 2: there this morning and he said, you know, TK likes
Speaker 2: to down, and I said, I'm trying to change that,
Speaker 2: and going into next year, I'm trying to change President
Speaker 2: elect as well, to make sure that maybe he shifts
Speaker 2: away from that to the S and P five hundred.
Speaker 1: I think that you have an equal chance at both.
Speaker 3: Exactly.
Speaker 6: Here's my response.
Speaker 3: No, but what about him?
Speaker 2: No, And I'm sure the President elect would say the
Speaker 2: same thing. Rick Reader joined us now from black Rot,
Speaker 2: one of the very best in global fixed income and
Speaker 2: cross asset in markets worldwide. Rick, welcome to the program.
Speaker 2: You followed that news conference. Let's just start with your
Speaker 2: first takeaway, Rick, what's your big one?
Speaker 7: So, first of all, say, there's some drama there, and
Speaker 7: I thought that was interesting.
Speaker 8: Listen.
Speaker 7: I think I agree with that comments that they have
Speaker 7: to introduce some balance. I think in December, listen, I
Speaker 7: think the takeaway is they still think readers restrictive. I
Speaker 7: still think you got to get that fronds rate down
Speaker 7: four or ish. I think that you got it. You're
Speaker 7: going to go in December. I think you got to
Speaker 7: get the you know, you gotta be really careful about
Speaker 7: the mortgage rate in this country. We could talk about,
Speaker 7: but I think they're going to go in December. I
Speaker 7: think he's got that that that's part of the plan.
Speaker 7: But then as you get into next year, listen, I mean,
Speaker 7: you got it. You've got what could be a pretty
Speaker 7: significant policy change setup policy changes, and I think the
Speaker 7: dots when you go back to the September forecast, I
Speaker 7: think you gotta, you know, really think about that and evaluate.
Speaker 7: I think that's going to be one of the most
Speaker 7: fascinating things going forward is how do they adjust terminal
Speaker 7: rate from here? How do they adjust where they project
Speaker 7: growth to be when you're going to go through it
Speaker 7: could be some pretty significant evolution from here.
Speaker 2: So, Rick, because I go through the cannon drove the
Speaker 2: FEDERASERF there's two dates with some asterisks over the next
Speaker 2: six months or so, and those little stars in the
Speaker 2: corner of those dates mean you get some projections at
Speaker 2: those meetings. So the next one is December eighteenth, and
Speaker 2: then as we work forward into the following year, we're
Speaker 2: going to get a decision from the federaserv in twenty
Speaker 2: twenty five in the spring a March nineteenth, a March
Speaker 2: nineth teenth, Rick, we'll have a new president who may
Speaker 2: be already coming forward with some policies and some big tariffs. Rick,
Speaker 2: do you think it's still too early on March nineteenth
Speaker 2: to expect this veneras f to bank in some policy
Speaker 2: from DJT the former president and President elect Donald Trump.
Speaker 7: Can I can I also say that we'll wait and see.
Speaker 8: Listen.
Speaker 7: I think that. I think that.
Speaker 1: Listen.
Speaker 7: I think you're going to have to evaluate that policy.
Speaker 7: I mean, we're going to get more data on tariffs,
Speaker 7: We're going to get more data on how we deal
Speaker 7: with spending deficits. Listen. I think there are some extremes
Speaker 7: that gets said in a when you go through an
Speaker 7: election campaign like this, how aggressive will be on tariffs,
Speaker 7: how aggressive will be uncutting spending? And then I think
Speaker 7: you're going to start to see some clarity. You're going
Speaker 7: to see by the way, and you're going to see
Speaker 7: what a cabinet looks like. You're going to see who
Speaker 7: the people are. You're going to have a sense for
Speaker 7: those personalities and they you know what their disposition is
Speaker 7: with regard to policy. So yes, I think in March
Speaker 7: then you are going to have you're going to have
Speaker 7: to evaluate that and nine and have to evaluate what
Speaker 7: it means for the forward growth forecast that's Edrica.
Speaker 5: One thing really stood out to me in the press conference,
Speaker 5: and yes, it was the no and the preparation for
Speaker 5: that question, but also this focus on inflation being a
Speaker 5: little bit stickier than in prior readings, and to me
Speaker 5: that was notable because it seemed like they had left
Speaker 5: inflation for dead.
Speaker 1: That wasn't even part of the mandate.
Speaker 5: It was, you know, sort of autopilot cutting until you
Speaker 5: sort of get to a certain place and then you
Speaker 5: wait and see how much does this turn the volume
Speaker 5: up on CPI that comes out on Wednesday?
Speaker 1: It does.
Speaker 7: I mean, it's gonna listen, I think one man's opinion
Speaker 7: or more our team's forecast. Listen, we think most of
Speaker 7: the descent and inflation has happened. You know, we think
Speaker 7: you've got tremendous goods deflation. Now you've got base effects
Speaker 7: that aren't a tailwind going forward. What does service inflation
Speaker 7: do from here? I mentioned it earlier. I think shelters
Speaker 7: a really big deal and part of why I think
Speaker 7: you got to get that rate down. You know, you
Speaker 7: have you see you know what you've seen over the
Speaker 7: last month. You look at housing affordability still a problem.
Speaker 7: Housing starts are low, building permits are low, existing home
Speaker 7: sales are low. You have a problem today, chilters. You're
Speaker 7: not getting enough home building. You look at all the
Speaker 7: home builder earnings, you know, pretty rough because they're subsidizing
Speaker 7: mortgages or subsidizing houses through through their bottom line. Listen,
Speaker 7: I think you're going to get the rate down. You
Speaker 7: got to get housing moving more efficiently, and that, by
Speaker 7: the way, that'll bring shelter inflation down. But that's been
Speaker 7: the thing that's sticky. But yeah, I think we're going
Speaker 7: to focus on what these in particularly I focus on
Speaker 7: service inflation. Where are we going to be over the
Speaker 7: next couple of months, And I think it's going to
Speaker 7: be pretty important. I think most of the benefit you've
Speaker 7: seen it play out already.
Speaker 6: Rick, it's away from your rema. I was talking with
Speaker 6: Derek Belchunis are et face BlackRock's got an interesting bitcoin
Speaker 6: moments from printing seventy seven thousand, equities are moving, bonds
Speaker 6: are moving in the way we've discussed what does bitcoin
Speaker 6: at seventy seven thousand signal to fixed income into equities
Speaker 6: and for that matter, to the dollar.
Speaker 7: These are good questions, hard questions.
Speaker 8: Listen.
Speaker 7: I will say one thing. I mean, obviously, what bitcoing
Speaker 7: is reflecting is a change, potential change in policy and
Speaker 7: a more favorable disposition towards crypto. I think that's point
Speaker 7: one and that's clearly the big driver. Second one that
Speaker 7: I'll throw out there that I think is robust. Listen,
Speaker 7: we got to deal with debt and deficits and what
Speaker 7: does it mean for currency going forward? And listen, I
Speaker 7: mean it's a scarce asset. It's becoming more scarce. And
Speaker 7: I think, and I will tell you from doing a
Speaker 7: lot of client meetings, people more and more thinking about
Speaker 7: real assets. People are thinking about, gosh in a different world.
Speaker 7: You know, what does it mean? You know, we got
Speaker 7: to get our spending down because our debt is too large.
Speaker 7: Do I own some scarce assets, some harp some real assets?
Speaker 7: And I think that's playing through obviously, alongside the bigger
Speaker 7: one being a more favorable disposition from policy in terms
Speaker 7: of where that is. But Gosh, I hear more and
Speaker 7: more about real assets. It's not just crypto, but in
Speaker 7: other places.
Speaker 3: Rick, I've got to follow on that.
Speaker 2: I really want to understand from your perspective, whether you
Speaker 2: see signs at the moment of people pushing back because
Speaker 2: of the deficits. So let's take yesterday's price action as
Speaker 2: just a snapshot of where things are out. So we
Speaker 2: saw a big self and fixed income. And typically if
Speaker 2: this was EMSA and we saw moves like that and
Speaker 2: I was worried about the fiscal position of that country,
Speaker 2: we'd see the currency weakness too.
Speaker 3: But you didn't see that yesterday. You saw a lot
Speaker 3: of dollar strength.
Speaker 2: So I'm wondering, from your perspective outside of that, whether
Speaker 2: you are already seeing signs of pushback and whether you'd
Speaker 2: expect to see it pop up in the US dollar
Speaker 2: anytime soon.
Speaker 3: If it's all.
Speaker 7: So, I think the first thing people react to is
Speaker 7: you got a change in policy, tariffs, stronger dollar generally,
Speaker 7: and I think that's a market tends to knee jerk market.
Speaker 7: You usually can only focus on one thing at a time,
Speaker 7: and I think it was focused on that. I don't
Speaker 7: do a client meeting today. We're not The first or
Speaker 7: second question is about the debt. It isn't about the
Speaker 7: debt of the country. The deficits were running. I think
Speaker 7: this administration is going to have to this Congress is
Speaker 7: going to have to address there's too much debt coming do.
Speaker 7: If you said to me next year, like Lisa said,
Speaker 7: We're going to be laser focused on inflation. We're also
Speaker 7: going to be laser focused on auctions because we're issuing
Speaker 7: so much debt every single week. Every client wants to
Speaker 7: know and I think gets to that question of why
Speaker 7: people are buying real assets. How the thing about, by
Speaker 7: the way, equities are an operating leverage machine on GDP
Speaker 7: and car fank you think about what does well in
Speaker 7: this environment. Equities still do well. But I gosh, every
Speaker 7: client meeting I go to, people want to talk about
Speaker 7: the debt. And I think it is definitely going to
Speaker 7: become much much more of the regular dialogue in everything
Speaker 7: we do. Investor, by the way, not just financial investors,
Speaker 7: corporate CEOs, CFOs, how they think about cap x, R
Speaker 7: and D. I think it's going to be a big
Speaker 7: deal going forward.
Speaker 5: Can you just elaborate on that in terms of when
Speaker 5: we'll actually see it in a more dramatic fashion, because
Speaker 5: you can make a lot of arguments for why yilts
Speaker 5: have gone up, and frankly J.
Speaker 1: Powell said, I'm not going to parse out.
Speaker 5: What's what, but some of it could be deficits, some
Speaker 5: of it could be the political regime, some of it
Speaker 5: could be better than expected growth. I don't even know.
Speaker 5: I don't care it's going to stop anyway. At what
Speaker 5: point do you say this is real and this is
Speaker 5: actually a risk premium that's being put on for the
Speaker 5: first time.
Speaker 1: In a long time.
Speaker 7: Yeah, you know, we'd say a couple of things that,
Speaker 7: you know, Listen, it's hard to parse any individual movement
Speaker 7: that takes place in markets. But I think more and more,
Speaker 7: you know, by the way you look at what's happened
Speaker 7: to the credit markets. Spreads keep tightening, spreads keep tightening.
Speaker 7: You know, I've said this before. If you go through
Speaker 7: some of the companies today, high free cash flow, don't
Speaker 7: borrow on the front end of the curve, don't have
Speaker 7: any financing, don't have a maturity wall. I then think
Speaker 7: about the US government. We threaten a default every couple
Speaker 7: of years. We borrow at the front end. And the
Speaker 7: immense size of bill COUPONSI bill auctions we do every week,
Speaker 7: coupon auctions we do every week. Listen, I think it
Speaker 7: is you know, it's part of why every auction you
Speaker 7: got to watch, you know, is the particularly in the
Speaker 7: back end of the curve. Listen, I think there's going
Speaker 7: to continue to be a strong bid to you know.
Speaker 7: And by the way, part of why I like portfolios
Speaker 7: clip a lot of yield in the front end. Just
Speaker 7: keep clipping that yield, clipping that yield, you know, the
Speaker 7: back end. I think it's going to be a big
Speaker 7: focus going forward. Like you said, you know, we've never
Speaker 7: had I would argue in the US, it's not just
Speaker 7: the amount of debt, it's the debt service. We're talking
Speaker 7: about interest rates. We used to print treasury bills at
Speaker 7: zero percent, one percent, you know. Now we're printing huge
Speaker 7: size treasury bills every week at high level. So it's
Speaker 7: going to be it's going to be a big focus.
Speaker 7: And you know, is there one event listen, I think
Speaker 7: auctions are going to be are going to be worth watching,
Speaker 7: and I listen to the shape of the curve, you
Speaker 7: know what. I would say one last thing, and I
Speaker 7: think JPO was very clear and right. In this markets
Speaker 7: can be wrong a lot. You know, we had we
Speaker 7: priced two hard landings already this year. Markets can get
Speaker 7: crazy extreme one way or the other. But I think
Speaker 7: you've got to watch over time the premium we're paying
Speaker 7: in this country for the amount of debt that we're
Speaker 7: going to issue, what it means for the currency, and
Speaker 7: what it means, you know, for how much how much
Speaker 7: will people absorb, not justically but internationally.
Speaker 2: Rick, I've had a couple of whispers, and I'd love
Speaker 2: your response to this. From a couple of banks, they're
Speaker 2: anticipated that maybe credit trades through treasuries, investment grade US
Speaker 2: corporate credit trading through treasuries. I'd love your view on that.
Speaker 2: Is that possible because for some companies, we're not that
Speaker 2: far away. Do you think we could see that in
Speaker 2: the next twelve months.
Speaker 7: Sir Jonathan, I never thought if you go back a
Speaker 7: few years ago, I never thought. We've talked about it
Speaker 7: years ago. Remember we were funding companies a negative yield,
Speaker 7: Like I never thought that would happen. Do you remember that
Speaker 7: in Europe? Like we're lending company and I remember it
Speaker 7: explaining to my kids, like I'm lending money to the
Speaker 7: companies that negative I'm paying them to take my money.
Speaker 7: But then, you know, explaining why bons where they are
Speaker 7: starting to hard to explain anyway. So is it possible.
Speaker 7: It's definitely possible. You know, the supply demand dynamics are
Speaker 7: quite different, and it's definitely possible. I mean the spread
Speaker 7: tightening you're seeing across the board is pretty powerful. Listen,
Speaker 7: one thing, ultimately, taxing authority is a really big deal.
Speaker 7: And there's one thing that I think is usually important
Speaker 7: for the next couple of years. There's been a massive
Speaker 7: transfer of money from the public sector of the private Chector.
Speaker 7: The private sector has got I think the numbers two
Speaker 7: hundred and twenty trillion of net worth. The asset coverage
Speaker 7: in the United States is pretty darn good. How do
Speaker 7: you get at that asset coverage? How do you get
Speaker 7: at that net worth to send some of that money
Speaker 7: back to the government versus what they've transferred to the
Speaker 7: private sector. And that's going to be the evolution that
Speaker 7: I think this administration is going to have to navigate.
Speaker 6: John, your insight there is critical. At least thirty five
Speaker 6: years ago, I had the privilege of hearing John Templeton
Speaker 6: say the same idea the credit would trade through full
Speaker 6: faith and credit. Then it was unbelievable. Now it's unbelievable,
Speaker 6: but it's a critical insight.
Speaker 2: Yeah, but you heard what Rick said there, and it's
Speaker 2: really important. Through the pandemic, there was a massive transfer
Speaker 2: of money top and it was from the self righn
Speaker 2: to corporate America to individuals, the households, Which is why
Speaker 2: what we've seen ultimately because of policy coming out of
Speaker 2: the pandemic is the balance sheets the corporates are better.
Speaker 2: Balance sheets from households were rock solid. And what got weaker?
Speaker 2: Where is the leverage the sovereign? Now, Rick, you followed
Speaker 2: that up and said that ultimately that's going to have
Speaker 2: to be a source of revenue.
Speaker 3: But that's not the policy proposal.
Speaker 2: The policy proposal, as you know, is to drop corporate
Speaker 2: tax rates from twenty one to fifteen with conditions, which
Speaker 2: is domestic manufacturing. I get all of that, Rick, Are
Speaker 2: you basically saying that at some point we need to
Speaker 2: understand that that's what we need to do, even if
Speaker 2: it's not what we want to do. And Rick, for
Speaker 2: that to happen, you need guardrails, You need constraining forces,
Speaker 2: and I don't see any sign of that from many
Speaker 2: policy makers in Washington. And ultimately, it means it needs
Speaker 2: to come from the market. And the question is, Rick,
Speaker 2: it's the question we've asked for a decade plus. Will
Speaker 2: the market actually provide those forces? Will they constrain the
Speaker 2: hopes of fiscal policy? Makers the tax cut hopes from campaigning.
Speaker 2: Do you think the market will be a constraining factor
Speaker 2: or not?
Speaker 7: The answer is yes. Listen, I think policy generally doesn't react.
Speaker 7: You know, hopefully I'm wrong in this case, but generally
Speaker 7: policy doesn't react to the sharks right next to the boat.
Speaker 8: Yeah.
Speaker 7: And I think you know, the markets will usually and
Speaker 7: to anticipate things, and by the way, I often anticipate
Speaker 7: them too early or wrong. But I think the markets
Speaker 7: are going to be a great barometer for what policy
Speaker 7: needs to adjust to. So you know, I'm hoping it's
Speaker 7: not egregious in terms of how that manifests itself. And
Speaker 7: I will say one thing and we get debate tax policy,
Speaker 7: marginal tax rates. Listen, I think the US economy, there's
Speaker 7: only one way that you bring the debt down. You
Speaker 7: got to outrun it and nominal GDP. We have to grow.
Speaker 7: Economy's got to grow. There's a series of initiatives you
Speaker 7: can have. You can have fiscal spend as long as
Speaker 7: it's got velocity to it and that the economy is growing.
Speaker 7: And then the cost of the debt has to come down,
Speaker 7: and the shear size of the debt has to come down.
Speaker 7: And then we slowly bring the debt problem down in
Speaker 7: this country. But I think it has to be a
Speaker 7: whole series of initiatives and quite frankly, policy needs to
Speaker 7: create confidence of investors of the general populace that they're
Speaker 7: moving the boat in that direction. And by the way,
Speaker 7: confidence is hugely powerful. You can do a tremendous amount.
Speaker 7: Your comment or it's comment about emerging markets the one
Speaker 7: thing US has, and you look at the faith in
Speaker 7: the fat and the faith in the in the confidence
Speaker 7: that will ultimately do the right thing. But I think
Speaker 7: you think that's going to be really critical going forward.
Speaker 2: Rick, you're a money manager. Can we finish there on
Speaker 2: what you've been doing? Were selling bonds yesterday?
Speaker 7: No? The uh no, not yesterday. But you listen to me,
Speaker 7: you know, I would just say, if you know, listen
Speaker 7: there without getting specific in terms of things we're doing.
Speaker 7: You know, I think there was regulatory change, or I
Speaker 7: think there's potential regulatory change. The financials are interesting. I
Speaker 7: think fixed income products like mortgages are interesting. When you
Speaker 7: change the regulatory dynamic around banks and their ability to
Speaker 7: buy different things, so you know, those assets have become
Speaker 7: more interesting. Listen, I think equities are rightly moving in
Speaker 7: the direction they should move with with a series of
Speaker 7: initiatives that could stimulate growth here going forward. So you know,
Speaker 7: I like, I like parts of the equity market, and
Speaker 7: that's so that's been And then you know the other
Speaker 7: side of it is that you know something that I'm
Speaker 7: just going to keep persisting on the front to the
Speaker 7: belly of the curve, yielding assets, credit, securitized assets Europe
Speaker 7: where you buy credit, et cetera. Like, if you just
Speaker 7: keep clipping this yield it is I mean, even if
Speaker 7: rates move up somewhat, you're still able to build portfolios.
Speaker 7: We have the CTF bink you're still able to create
Speaker 7: this portfolio six and a half percent yield. That's pretty spectacular.
Speaker 7: With inflation running at two you can be two point
Speaker 7: three percent. So that's my key is like, just let's
Speaker 7: keep buying this yield and hold this yield in the
Speaker 7: front of the belly and then let people take the
Speaker 7: risk further out the yield curve.
Speaker 3: Rick, this was awesome.
Speaker 2: It's going to catch have this appreciate it, Rick Rater
Speaker 2: with black Rock, when do you begin with that conversation?
Speaker 3: So let's at chew over.
Speaker 5: Yeah, Well, First of all, he was talking about inflation
Speaker 5: possibly being sticky even before what it transpired in Washington, DC.
Speaker 5: I love his response to you about were you selling bonds?
Speaker 3: We like Morgatis well on banks.
Speaker 1: We like banks, we like stocks.
Speaker 5: But this to me is really the key to pay,
Speaker 5: which is how much can you buy the front end
Speaker 5: clip the coupon? Is this making cash great again essentially
Speaker 5: for people who want to sort of get some income
Speaker 5: on their margins but then go into asset classes that
Speaker 5: are going to be less vulnerable to a potential inflationary shops.
Speaker 2: Just a guess, and I haven't hunt directly. I'm not
Speaker 2: sure if the Trump administration is looking to make cash
Speaker 2: great again, but we'll see.
Speaker 3: I guess maybe that is a go.
Speaker 5: Well, maybe it's make crypto gritty, And actually I think
Speaker 5: that it's make dollar less great so that it's weaker,
Speaker 5: although it seems like that's somewhat contradictor.
Speaker 3: Let's get to Mima kay.
Speaker 2: My mckaby was in that room in that news conference,
Speaker 2: and Mike McKay at some point there was some tension
Speaker 2: with Sham and Pow.
Speaker 9: Were you surprised, No, I don't think anybody was surprised
Speaker 9: we got about as much out of him as we
Speaker 9: thought we would get. On the issue of Donald Trump
Speaker 9: and the elections, he just answered with one word and
Speaker 9: then one sentence. No, he's not going to resign if asked,
Speaker 9: and it's not permitted by law for the president to
Speaker 9: demote anybody on the FED. And there wasn't as many
Speaker 9: questions along those lines as maybe we thought there would
Speaker 9: be because he was so definitive on those two answers.
Speaker 9: I think what you got today was two different news
Speaker 9: conference messages. One was to the people inside the beltwigh
Speaker 9: here in Washington about his relationship with Donald Trump, and
Speaker 9: the other is to the markets. And that Rick picked
Speaker 9: up on this very well. The FED does not know
Speaker 9: what it's going to do. There are a lot of
Speaker 9: cross currents coming in twenty twenty five.
Speaker 3: So if you think that the FED.
Speaker 9: Is on some sort of path because of the last
Speaker 9: sep in the last dot plot, you're going to probably
Speaker 9: be wrong. The FED has a lot to keep an
Speaker 9: eye on, not just with the president, but with everything
Speaker 9: else going on in the world.
Speaker 5: With respect to the message to the market, he was
Speaker 5: asked about the fact that the Federal moved the reference
Speaker 5: to gaining confidence on inflation, and he basically said, there's
Speaker 5: nothing to see here. It was just a semantic issue
Speaker 5: that we already said that and we're not going to
Speaker 5: repeat it.
Speaker 1: Do you buy that?
Speaker 3: I do?
Speaker 9: And that was the conclusion that not only I came
Speaker 9: to when I read this statement in the lock up,
Speaker 9: but all the other reporters basically came to as well,
Speaker 9: We've seen this before. When they start changing policy, they
Speaker 9: give a rationale for that, we're moving in the direction
Speaker 9: or we're getting close to where we need to be,
Speaker 9: and then after that they're already there, so they don't
Speaker 9: need to keep repeating that. They just took it out,
Speaker 9: as he said, for clarity.
Speaker 2: Mike McKay, I'm the latest in that news conference. Might
Speaker 2: we'll have a longer conversation tomorrow when you get back
Speaker 2: to New York City. What a news conference with chem
Speaker 2: and Pound, Tom Constant with us now of Miszoo.
Speaker 3: Tom, welcome to the program.
Speaker 2: We'll just give you the opportunity to share your initial
Speaker 2: takes from that news conference and then we'll get into it.
Speaker 3: What's that for you?
Speaker 10: It was pretty much as expected in the sense that
Speaker 10: he's still committing to the easing cycle. I think this
Speaker 10: sort of new news might be, where might they pause
Speaker 10: in the context of the new policy regime that we'll
Speaker 10: be getting with a change in the administration.
Speaker 8: But the idea is, I think.
Speaker 10: There are you know, are subjects of the data really shocking.
Speaker 10: They're kind of on an auto pilot to get rates
Speaker 10: down to around four percent and the early part of
Speaker 10: that next year, and then we take it from there.
Speaker 10: If they have to respond to policies that adjust the
Speaker 10: balance of risks, for example, then you know they'll.
Speaker 8: They'll they'll figure that out then.
Speaker 10: But the election itself isn't really affecting what we thought
Speaker 10: any way they were going to do.
Speaker 6: Donickive's the theme of a Trump administration has growth at
Speaker 6: any cost, pushing against all this is going to be
Speaker 6: a nominal GDP left When you sum things together with
Speaker 6: Steve Rashudo, do you just assume a run rate five
Speaker 6: percent nominal GDP or can I even look for an
Speaker 6: animal spirit towards six percent?
Speaker 10: Well, I definitely think there's a there's an animal spirit
Speaker 10: sing out there. That's pretty interesting. I Mean, the the
Speaker 10: only caveat is when we went through tarifs before, you know,
Speaker 10: when they started to sort of hit it wasn't clear
Speaker 10: in twenty nineteen that the animal spirits were exactly kicking in,
Speaker 10: and the fact had to get into extra easing mode
Speaker 10: by then. So I think there is certainly some definitely
Speaker 10: uncertainty around the whole thing right now. Though you know
Speaker 10: the issue is a lad market. You know it's not great.
Speaker 10: I mean, employment growth is sort of stagnating. I would
Speaker 10: say the economy has been bifurcated. You've had some very
Speaker 10: strong sectors, some weak sectors, and you know, if it
Speaker 10: wasn't for the latest, you know that the election, we'd
Speaker 10: still be in the mode whereby the FED would be
Speaker 10: preemptively trying to cut rates quite quickly to stop unemployment
Speaker 10: going up. So we can't forget that, and we're going
Speaker 10: to have a few more months whereby, if animal spirits
Speaker 10: don't kick up, you might still well see unemployment rising
Speaker 10: above where the FED expects it to be. And therefore,
Speaker 10: you know, some disappointment. I mean, growth itself is a
Speaker 10: bit of a lagging indicator, and it really reflects the
Speaker 10: average of the economy, doesn't reflect the underlying weaknesses and
Speaker 10: some of the sectors.
Speaker 6: If we expect the unexpected is a year go through
Speaker 6: parody or dare I say one on three maybe and
Speaker 6: you answer one sixty will signal a new resilient and
Speaker 6: stronger dollar.
Speaker 8: Well, I mean it really should do.
Speaker 10: I mean, you know, if, especially if you're going to
Speaker 10: start pricing for the tariff. So again, what we don't
Speaker 10: know is whether the tariff threat it's just a threat,
Speaker 10: whether it's going to be enacted. If you are going
Speaker 10: to enact taris, then you know there is obviously the
Speaker 10: risk the dollar is going to basically go up, and
Speaker 10: that's a big part of that. And then you get
Speaker 10: into the you know, the instance of the tariff is
Speaker 10: obviously falling onto the exporters. The consumer is going to
Speaker 10: be somewhat protected. You know, that's where we might end
Speaker 10: up getting. But you know, Trump is Trump, and so
Speaker 10: you know it could well be just a big bargaining
Speaker 10: chip and we might not get the full force of
Speaker 10: the tariffs. I would say one thing about tarast so
Speaker 10: is we do actually need them if he's genuine about
Speaker 10: his tax cuts and the modification to the tax law,
Speaker 10: and next year, you do need the tariffs to actually
Speaker 10: pay for that. So you know, I'm guessing we're going
Speaker 10: to get the tariffs in the.
Speaker 5: End, I'm just putting the policy aside. And there have
Speaker 5: been other changes that have happened in the past three
Speaker 5: four weeks that also were addressed here. Yields have gone
Speaker 5: up because of economic surprises to the upside, Inflation on
Speaker 5: the margins has been slightly stickier. There have been questions
Speaker 5: about why long term yals are so high, and frankly,
Speaker 5: my risk assets don't care because there are basically treating
Speaker 5: it like it's for the right reason. At what point
Speaker 5: do these yields force the FED to take notice in
Speaker 5: a way that they don't have to now they can
Speaker 5: just dismiss it as a blit.
Speaker 1: Potentially, well, I.
Speaker 10: Do think a lot of the moving yields is obviously
Speaker 10: being driven by term premium, what we call term premium,
Speaker 10: and they're good reasons for why term premium is rising.
Speaker 10: One of them is taris, but another one is obviously
Speaker 10: the fiscal supply, So that means you kind of get
Speaker 10: this sort of steepening pressure through the yield market, and
Speaker 10: it's obviously consistent with the deficit concerns that are being
Speaker 10: coming out of the new policy regime forthcoming. In terms
Speaker 10: of how that affects risk ass is really a balancing act.
Speaker 10: If you have term premium going up normally, all else equal,
Speaker 10: risk ass would suffer. However, if on the other side
Speaker 10: of that, you're getting a sort of higher level of growth,
Speaker 10: let's say because of the fiscal stimulus coming through, then
Speaker 10: that really does kind of easily overwhelm the impact of
Speaker 10: term premium. So premium has been very low, so to
Speaker 10: expect it to sort of go up is not unreasonable.
Speaker 10: It's almost if you like normalizing by some models we
Speaker 10: look at, and if you can take a quid pro
Speaker 10: quo and say, well, look, we're going to have higher
Speaker 10: growth coming out of all of this, then there's no
Speaker 10: reason for risk asses to perform badly. And I think
Speaker 10: that's kind of where we are. So we're in the
Speaker 10: sort of, you know, best of all possible worlds in
Speaker 10: the sense where risk acids are okay.
Speaker 8: And yes, long term yields are.
Speaker 10: Rising, but they're not rising so much that they're going
Speaker 10: to unravel the story for riskases. And bear in mind
Speaker 10: the FED is in restrictive mode, so by the fact
Speaker 10: that they can reduce their short term rates, it will
Speaker 10: help anchor the curve lower. So you may well have
Speaker 10: higher term premium, but if short rates are still falling
Speaker 10: at the other end, then the whole curve is somewhat
Speaker 10: getting anchored, which is actually quite good news, and it
Speaker 10: does avoid one.
Speaker 8: Of the problems we had last year.
Speaker 10: If you recall, I used to I call it the
Speaker 10: Liz Trust moment, where when if the FED threatens higher
Speaker 10: yields at the front end and you have a term
Speaker 10: premium a rising in terms of hurting the long end,
Speaker 10: that's really bad news for risk assets because that kind
Speaker 10: of unravels, you know, both sides of the equation, so
Speaker 10: to speak.
Speaker 5: You said a number of things there, or one aspect
Speaker 5: as you said that the FED is clearly in restrictive
Speaker 5: territory at this point and it will be easing J.
Speaker 10: Tup.
Speaker 5: Powell actually maybe casts a little bit of question around
Speaker 5: just how restrictive they were, saying that they're trying to
Speaker 5: get down to a place and then adjust that they
Speaker 5: can figure out what that neutral rate is. Do you
Speaker 5: think that he was opening the door to pausing in
Speaker 5: December to not necessarily cutting more for the rest of
Speaker 5: this year.
Speaker 10: I for a feel that they're pretty much an auto
Speaker 10: pilot for a December cut. I definitely think he's opening
Speaker 10: the door to a pause, let's say within the next
Speaker 10: six months. So they're not going to sort of run
Speaker 10: all the way down to three percent, which is where
Speaker 10: they have that neutral rate, but they could definitely pause
Speaker 10: around four percent. Pausing around four and a half is
Speaker 10: a little premature, particularly since they haven't even seen wouldn't
Speaker 10: have seen the new administration come in, So you know,
Speaker 10: to my mind, you know, not yes is the pause,
Speaker 10: and therefore they can sort of plow through, you know,
Speaker 10: into a Q one easing and then pause, pause. Then
Speaker 10: in terms of neutral and where it is, obviously no
Speaker 10: one really knows where it is, but you know, we've
Speaker 10: done some interesting work to suggest that if interest rates
Speaker 10: don't come down, employment in certain sectors will continue to
Speaker 10: slow and go negative. And that's this kind of preemptive
Speaker 10: aspect of why they want to bring down rates, and
Speaker 10: that's kind of where, you know, why I feel that
Speaker 10: neutral is not here. It's probably not a four percent
Speaker 10: and it's probably close to three percent, but we'll see
Speaker 10: in the end.
Speaker 8: So what a.
Speaker 6: Constant and Rashido say about a run rate of non
Speaker 6: firm payrolls? I mean, can you get non firm payrolls
Speaker 6: permanent under one hundred thousand, or can you even go
Speaker 6: to a negative statistic?
Speaker 10: Well, I think, I mean clearly you can, and I
Speaker 10: think that's that's the problem. I mean, Powell himself said,
Speaker 10: the lad market has eased enough, you can't. You don't
Speaker 10: really want to have payrolls running one hundred thousand or so.
Speaker 10: And the reason or less the reason is because layoffs
Speaker 10: are still very low. The layoff rate is still running
Speaker 10: below one point two percent of the employed workforce, the idea.
Speaker 10: Before COVID, the layoff rate was in a range of
Speaker 10: one point two to one point four percent. So adjusting
Speaker 10: layoffs higher, which will be reflected, for example, in the
Speaker 10: claims data going higher and normalizing if you like, with
Speaker 10: employment growth down in around one hundred thousand or so,
Speaker 10: you will see unemployment rate rising well above the FED forecast.
Speaker 10: So you have to have basically pay rolls accelerating or
Speaker 10: somehow cross your fingers and hope layoffs never actually go up.
Speaker 8: And we're in a new world where companies just won't
Speaker 8: fire people.
Speaker 10: And in a way, that comes back to the animal spirits,
Speaker 10: animal spirits to either not lay off or animal spirits
Speaker 10: to hire more people and get pay rolls accelerating. Just
Speaker 10: keep the unemployment rates where it is in line with
Speaker 10: where the FED would like to see it in the
Speaker 10: medium term.
Speaker 2: Heydan, this was great. It's going to hear from you, sir.
Speaker 2: It's been too long. Don constant there of miszoo on
Speaker 2: a federal reserve. We'll do this all over again in December.
Speaker 2: But the key one, I think circle it on the
Speaker 2: calendar for twenty twenty five March nineteenth March nineteenth, Spring
Speaker 2: of twenty twenty five when they have to produce some
Speaker 2: new forecasts with some new policies in mind.
Speaker 5: Maybe especially as the third finishes out the first one
Speaker 5: hundred DS. It raises this real question how many of
Speaker 5: the policy implementations have really affected the trajectory of the economy.
Speaker 5: And they can't use this as a punt. We'll see
Speaker 5: what we see, they'll have seen, and they'll have to react.
Speaker 2: The Fed is reactionary, The market is anticipatory. The Fed
Speaker 2: is reacting to the data. This market is anticipating changes
Speaker 2: to policy, and a lot of that right now hinges
Speaker 2: on what happens with the House and whether we get
Speaker 2: this GOP suite from New York City that does it
Speaker 2: for us. Thank you very much, reducing Bloomberg TV and
Speaker 2: radio