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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: terminal and the Bloomberg Business app.

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Speaker 1: And we did get this morning, an Marie a response

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Speaker 1: from China yep.

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Speaker 3: The Ministry of Commerce coming out and saying they vow

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Speaker 3: to take measures to defend their rights.

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Speaker 4: They say that.

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Speaker 3: They resolutely oppose what the US is doing this morning

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Speaker 3: with these tariffs. They say the decision is quote political manipulation,

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Speaker 3: and also Lisa urging the US to cancel the ector

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Speaker 3: tariffs and correct this quote wrongdoing.

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Speaker 4: Let's see whether that works.

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Speaker 1: Joining us for the rest of the hour is former

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Speaker 1: National Economic Council Director Gary Cohene. Gary so much to

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Speaker 1: work through here in terms of whether it's tariffs, whether

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Speaker 1: it's the fiscal policy or whether it's the deficit.

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Speaker 4: I want to start more broadly.

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Speaker 1: This question of how much are from some of the

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Speaker 1: fiscal policies directing investment theories right now in terms of

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Speaker 1: where some of the money is going and what gates

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Speaker 1: are being put up.

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Speaker 5: Well, Look, fiscal policy and monetary policy are directly impacting

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Speaker 5: how money is being spent, what money is available today,

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Speaker 5: and I think that's even.

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Speaker 6: A more important topic.

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Speaker 5: We have gone through a pretty vicious cycle over the

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Speaker 5: last four years where we went from a cycle of

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Speaker 5: zero interest rates, an abundance of capital capital available for

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Speaker 5: almost all startups in this country and funding at various

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Speaker 5: stages of your progression from startup to early stage, to

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Speaker 5: mid stage to late stage to IPO, to a place

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Speaker 5: where we are today where there's very little investment capital

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Speaker 5: available for young companies and startup companies and the IPO

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Speaker 5: market just starting to reopen. So that is all a

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Speaker 5: function of fiscal policy monetary policy, because they're interstricably linked.

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Speaker 5: And when people were not getting a return on their

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Speaker 5: capital in the bank and there was a zero risk return,

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Speaker 5: zero risk assets out there, people bought assets that they

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Speaker 5: thought could provide an enhanced return for them, so they

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Speaker 5: were willing to take more risk. They were willing to

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Speaker 5: invest in startup companies. Today you can go out and

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Speaker 5: buy a six month treasure bill and get five point

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Speaker 5: three five point four percent on a tax preferential asset.

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Speaker 5: So we have changed the whole mentality of the way

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Speaker 5: people think about holding capital, investing capital, recirculating capital. Also,

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Speaker 5: with the capital markets have that then closed for so long.

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Speaker 5: A lot of that capital that was invested in three four, five, six,

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Speaker 5: seven years ago, many of those people thought it had

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Speaker 5: a three four, five six year duration. They would get

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Speaker 5: liquified by taking those companies public, and then they would

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Speaker 5: recirculate that risk capital back into the financial markets. They

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Speaker 5: have not been liquefied because the capital market has been closed,

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Speaker 5: so therefore that risk capital does not get to recirculate back.

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Speaker 6: So a little bit of.

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Speaker 5: The natural cadence of capital moving in and out of

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Speaker 5: risk assets has changed, both because of fiscal policy and

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Speaker 5: monetary policy.

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Speaker 1: There's a lot to impact right there, are you basically

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Speaker 1: saying that On the monetary policy side, low rates usually

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Speaker 1: benefit the smaller, more leverage companies. Rates go up, that

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Speaker 1: benefits more some of the larger companies that are able

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Speaker 1: to be sort of turn out their debt structures in

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Speaker 1: a more considerable way. Are you saying that fiscal policy

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Speaker 1: also benefits the bigger companies more because they're the ones

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Speaker 1: that are eligible for some of these grants.

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Speaker 6: I didn't really say what you're saying.

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Speaker 5: I don't think higher rates help anyone. Okay, if you're

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Speaker 5: a large company and you're still running a large debt portfolio,

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Speaker 5: you're always you're always worried about your weighted average cost

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Speaker 5: of debt.

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Speaker 6: You're whackedy, so.

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Speaker 5: You're thinking about what that is, and the lower it is,

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Speaker 5: the better it is.

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Speaker 6: You know, ultimately, at the end.

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Speaker 5: Of the day, you sell your goods or you sell

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Speaker 5: your services to your customers. Then you've got your expense line,

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Speaker 5: which is usually the biggest line, and the expenses is

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Speaker 5: salaries and costs. But then if you get down a

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Speaker 5: little bit down, cost of debt is a big item.

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Speaker 5: So to the extent that cost of debt goes up,

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Speaker 5: the price of your goods or service has to go up.

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Speaker 5: So companies, you know, either the profit margins contract as

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Speaker 5: interest rates go up, or they have to raise the

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Speaker 5: price of their goods.

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Speaker 6: So in a perfect.

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Speaker 5: World, no one really wants interest rates to go up,

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Speaker 5: but there is a sort of middle ground where interest

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Speaker 5: rates are a level low enough where they're not really

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Speaker 5: affecting and the economy is growing without fiscal stimulus from

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Speaker 5: the federal government. The question is really more when fiscal

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Speaker 5: stimulus from the government comes in, how does that react.

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Speaker 5: And right now we actually have one of the most

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Speaker 5: unique periods of time because we've got, on one hand,

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Speaker 5: we've got the Federal Reserve, which is trying to raise

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Speaker 5: rates to slow down economic growth to get inflation under control,

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Speaker 5: and we've got the federal government on fiscal policy on

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Speaker 5: the other side, looking to invest capital to grow the economy.

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Speaker 5: Those two things are countervailing forces. We don't see a

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Speaker 5: lot of times in our economic history when we've got

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Speaker 5: both of those things going on at.

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Speaker 6: The same time. Usually we're in unison.

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Speaker 5: Usually the Fed's trying to grow the economy by lowing

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Speaker 5: rates and the government is trying to spend money to

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Speaker 5: grow the economy.

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Speaker 6: That's normally what you see.

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Speaker 5: Is you're coming out of a very tough economic period.

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Speaker 5: When you're in a very robust economic period, the Federal

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Speaker 5: Reserve is raising interest rates trying to slow it down,

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Speaker 5: and the federal government does not need to spend money

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Speaker 5: because you're in a very robust economic time. This time

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Speaker 5: it's very different than the historical past.

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Speaker 1: As an investor, who do you bet on winning the

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Speaker 1: FED or fiscal policy?

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Speaker 6: You know, I don't know if there's a winner or

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Speaker 6: a loser.

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Speaker 5: I think you have to be realistic to what's going

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Speaker 5: on and who's trying to do what. The Biden administration

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Speaker 5: has been pretty consistent on their fiscal policy agenda. They

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Speaker 5: have been trying to spend money and put money into

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Speaker 5: the economy since day one, since the first COVID relief

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Speaker 5: to one point nine trillion dollars they put in early,

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Speaker 5: and they continuously find ways to put money into the economy,

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Speaker 5: as recently as relief of student loans. So they're continuously

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Speaker 5: looking at ways to fiscally stimulate the economy. The FED,

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Speaker 5: on the other hand, is responding to the outcome of

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Speaker 5: that money being put in the economy.

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Speaker 6: There's a cause and.

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Speaker 5: Effect, you know, many of us think there's the effect

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Speaker 5: is so much money being put in the economy, the

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Speaker 5: money supply expanding so quickly that you've got too much

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Speaker 5: money chasing too few goods, and therefore you had an

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Speaker 5: inflationary time, inflationary pressures. So the FED is responding to

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Speaker 5: the to the effect of the cause, and they are

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Speaker 5: raising rates trying to slow that down. So if I

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Speaker 5: were going to bet the Biden administration will continue with

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Speaker 5: fiscal stimulus. In fact, they have a lot of stimulus

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Speaker 5: already approved where they have not given out the money,

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Speaker 5: so that money has not fed through the economy, and

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Speaker 5: the FED will continue to monitor the financial conditions, and

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Speaker 5: most importantly, they'll continue to monitor the path of inflation

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Speaker 5: based on the data that they get, and they will

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Speaker 5: decide what great policy looks like based on that.

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Speaker 3: Gary, I want to ask you about the next fiscal fight,

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Speaker 3: which is the Trump error tax cuts. They are coming,

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Speaker 3: they're expiring next year. Do you think they should be extended?

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Speaker 6: So?

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Speaker 5: I think tariffs is one of the most interesting topics

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Speaker 5: that we dealt with when I was in the White House,

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Speaker 5: and I think the Biden administration's dealing with now.

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Speaker 6: You know, it's interesting.

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Speaker 5: Despite a lot of rhetoric, the policies are starting to

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Speaker 5: bend towards each other. It's hard to know the difference

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Speaker 5: between the two let's call them candidates policies to tariffs,

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Speaker 5: they're evaries.

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Speaker 6: I'll talk about tariffs.

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Speaker 5: So when you look at tariffs and you think about

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Speaker 5: tariffs on things that we manufacture in the United States

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Speaker 5: and we can sustain ourselves, I think it makes sense

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Speaker 5: to tariff a country that is importing things in the United.

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Speaker 6: States at a buli low cost.

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Speaker 5: So we know that China has some real economic advantages.

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Speaker 5: We know that they don't pay fair market labor. We

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Speaker 5: know that they don't have a cost of capital. We

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Speaker 5: know that they don't have environmental restrictions that US companies have,

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Speaker 5: so we know they've got a competitive vantage.

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Speaker 6: So if they're using that competitive.

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Speaker 5: Vantage to dump products in the United States that we

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Speaker 5: make and therefore they're displacing US manufacturers and US jobs,

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Speaker 5: yes we should protect our border. On the flip side,

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Speaker 5: if they are exporting and we are importing goods that

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Speaker 5: we need that we do not make in the United

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Speaker 5: States and there's no replacement for us in the United States,

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Speaker 5: and we put a terrify on it, it basically becomes a

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Speaker 5: consumption tax. You and I and all of us are

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Speaker 5: going to buy those products. We're now just paying more

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Speaker 5: for the same product.

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Speaker 3: Do you think that we're going to see more of

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Speaker 3: these walls go up, whether or not Biden or Trump

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Speaker 3: get in the lighthouse next year, Like how high are

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Speaker 3: we talking?

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Speaker 5: You know, I think there's a thought right now that

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Speaker 5: the walls should go higher. I think at some point

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Speaker 5: there is diminishing re turns. You know, we've got a

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Speaker 5: lot of historical data on putting tariffs in whether there

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Speaker 5: were old steel tariffs on their other presence. When I

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Speaker 5: was in the White House, we did a three oh

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Speaker 5: one on washing machines, and if you look at the

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Speaker 5: whole theory of what happened with washing machines, it's quite interesting. Yeah,

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Speaker 5: we put teriffs on washing machines, but the prices of

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Speaker 5: dryers went up equally with washing machines, because you know,

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Speaker 5: the manufacturers think, well, people think washers and dryers cost

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Speaker 5: the same thing, even one had even though one had

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Speaker 5: terriffts on it and one didn't, you know, very inflationary

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Speaker 5: to buy a washing machine and a dryer. Did it

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Speaker 5: bring manufacturing back to the United States?

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Speaker 6: Yes, it did.

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Speaker 5: We brought the foreign manufacturers, you know, the LG's and

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Speaker 5: the samsings that were that were importing in the United States.

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Speaker 6: Did they open manufacturing United states, Yes they did.

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Speaker 5: So we did create some jobs, but we really increased

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Speaker 5: the price of the washing machine and the dryer. So

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Speaker 5: there's a lot of historical data on what happens when

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Speaker 5: you tariff.

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Speaker 1: Bi WTI hovering around seventy nine dollars a barrel as

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Speaker 1: traders await Ope's next move and inflation data. Meanwhile, on

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Speaker 1: the other side, copper touching its highest level since twenty

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Speaker 1: twenty two, fueled by forecasts of a global supply deficit.

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Speaker 1: Jeff Curry of Carlisle joining US now and Jeff, that's

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Speaker 1: where I want to start. Traditionally people focused on oil prices.

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Speaker 1: Right now, what we're seeing is oil steadying. For seeing

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Speaker 1: the rest of the oil, the rest of the commodity

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Speaker 1: complex surging ahead, up some eight point two percent since

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Speaker 1: the end of February.

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Speaker 4: What makes for the divergence.

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Speaker 7: Copper is the new oil. We put out a piece

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Speaker 7: back in twenty twenty one. Now making these bullish arguments,

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Speaker 7: and by the way, they haven't worked out. But I

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Speaker 7: talk to a lot of people who will say copper

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Speaker 7: is their highest conviction trade.

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Speaker 8: I wear my copper bracelet right here. It is the

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Speaker 8: highest conviction trade I've ever seen.

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Speaker 7: If you've got decarbonization, green cap backs demand, AI, data

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Speaker 7: center demand, military demand, it takes twelve, sometimes twenty six

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Speaker 7: years to bring on new supply.

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Speaker 8: You can't come up with a better story.

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Speaker 7: But the bottom line, we've been telling this story for

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Speaker 7: three years, and maybe now it's beginning to work. I'm

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Speaker 7: confident that this time it's liftof and I think we're

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Speaker 7: going to see more momentum behind it because you have

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Speaker 7: three sources of demand this time around, meaning green cap X,

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Speaker 7: AI plus military. Back in twenty twenty one, all we

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Speaker 7: had was the green capex demand, and now it's.

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Speaker 8: In full force. Supplies not there, Inventories are tight.

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Speaker 1: Prices have more than doubled going back to March of

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Speaker 1: twenty twenty and I'm looking right now, how far more

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Speaker 1: is there to rally at a time where you're still

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Speaker 1: wearing your copper bracelet.

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Speaker 7: I think, you know, our target was fifteen thousand dollars

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Speaker 7: a ton, when it's trading you know, just a little

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Speaker 7: bit above ten thousand as of this morning, which means

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Speaker 7: you know, it's got a long ways to go.

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Speaker 8: Where do we come up with that fifteen thousand? It

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Speaker 8: was the highest real price ever reached in nineteen sixty

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Speaker 8: eight during.

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Speaker 7: That housing boom. So we don't know where demand destruction occurs.

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Speaker 7: All we do know is that bringing on new supply

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Speaker 7: is very difficult.

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Speaker 8: So we're going to learn.

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Speaker 7: Where those price levels are where you begin to kick

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Speaker 7: out demand.

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Speaker 8: But I go back to the two.

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Speaker 7: Thousands and that's bullish on oil then as I am

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Speaker 7: copper today. You know, oil ended up going up from

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Speaker 7: twenty to one hundred and forty seven times, so you know,

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Speaker 7: the upside on copper think is very significant.

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Speaker 3: We're seeing a lot of supply when it comes to

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Speaker 3: countries outside of OPEC. Plus, Jeff, do you think that

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Speaker 3: potentially we're on a bearish trajectory when it comes to

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Speaker 3: the oil market for this year and next.

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Speaker 8: Absolutely not.

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Speaker 7: You know that one of the big sources of oil

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Speaker 7: supply over the last eighteen months came from sanctioned countries, you.

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Speaker 8: Know, Venezuela, Iran, Russia.

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Speaker 7: Yes, they've attacked these these sanctions and clapped down, but

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Speaker 7: they don't come into effect until after the election one

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Speaker 7: hundred and eighty days from now. So that's been one

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Speaker 7: of the big drivers and also an energy to I

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Speaker 7: don't forget the massive surge in coal production that occurred

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Speaker 7: in China, Indonesia, and India over that same time period.

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Speaker 7: So there's a lot of energy in the system that

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Speaker 7: has backed up that needs to be eaten through. When

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Speaker 7: we think about the underlying demand, you know, it's not

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Speaker 7: spectacular like it is in.

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Speaker 8: Copper, but it's rock solid.

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Speaker 7: You know, it's well above long term average growth rates.

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Speaker 8: You're going into the gasoline.

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Speaker 7: Driving season jet fuel and by the way, I remember,

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Speaker 7: global warming means your cooling season is going to create

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Speaker 7: more demand. In the past, we didn't build inventory, so

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Speaker 7: that three Q bowl story is still very much intact

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Speaker 7: driven by fundamentals, even without any geopolitical risk price team.

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Speaker 7: Also on oil, I want to note that when we

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Speaker 7: look at positioning, it's down to the fourteen percentile.

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Speaker 6: Now.

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Speaker 7: This market is basically no long positioning in it right now,

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Speaker 7: and we're still sitting at eighty three eighty four dollars

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Speaker 7: a barrow, which is a testament to the underlying strength.

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Speaker 6: You know.

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Speaker 7: Putting it all together, I want to emphasize commodities are

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Speaker 7: still the best performing an asset class despite the pullback

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Speaker 7: in oil prices.

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Speaker 9: Jeff, let's talk about gold for a moment. I'm not

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Speaker 9: wearing any gold that I can hold up. But it's

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Speaker 9: a time where investors can get real yields in short

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Speaker 9: term parts of the market.

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Speaker 10: Why are gold prices still.

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Speaker 9: Going up and how much of that is activity by

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Speaker 9: the central bankers.

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Speaker 7: Well, I think a big difference between this commodity rally

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Speaker 7: and any other commodity rally most any human being alive.

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Speaker 8: Has ever seen before is it's not accompanied.

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Speaker 7: With dollar resigning. I meaning think about the petro dollar system.

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Speaker 7: Oil prices go up, Saudi Arabia accumulates more dollars, they

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Speaker 7: plow it into US treasuries, puts downward pressure on rates.

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Speaker 7: Dollar begins to weaken, which reinforces the reflation, and it

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Speaker 7: becomes a virtuous cycle between oil prices and the dollar,

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Speaker 7: reinforcing higher commodity prices.

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Speaker 8: That's not playing out this time.

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Speaker 7: Why because many of the bricks country back in November

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Speaker 7: of last year, decided to start to trade with one

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Speaker 7: another using local currencies and then settle the differences in gold.

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Speaker 8: So what we've replaced.

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Speaker 7: Dollar recycling with is gold recycling, and that has created

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Speaker 7: this upticking gold despite a stronger dollar. Normally, you would

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Speaker 7: look at the fundamentals today and you would go, oh,

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Speaker 7: gold should be going down, real rates are higher, dollars stronger.

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Speaker 8: Those are all the dynamics that put down where pressure

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Speaker 8: on gold. Instead, gold's going up.

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Speaker 7: What's driving it is that strong demand coming out of

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Speaker 7: these emerging markets where they're now recycling into gold as

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Speaker 7: opposed to US treasuries creating that dollar recycling theme. So

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Speaker 7: this still things still has more lights to it. You know,

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Speaker 7: we see more upside in gold prices from here.

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Speaker 1: I guess, Jeff, what we're trying to get at is

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Speaker 1: there some stories that people have been banding about all year,

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Speaker 1: whether it's the ev transition or some of the great

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Speaker 1: buildout that's going to require more copper usage, whether it's

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Speaker 1: some of the central banks shifting more to why do

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Speaker 1: they have so.

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Speaker 4: Much further to go?

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Speaker 1: If it's a lot being priced in and speculators coming

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Speaker 1: in and trying to get ahead of them and putting

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Speaker 1: it up even further, what gives you a sense that

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Speaker 1: there could be a catalyst for another leg higher in

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Speaker 1: the near term.

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Speaker 8: Because you need to destroy demand right now. You're running

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Speaker 8: on fumes of.

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Speaker 7: Very low inventories, particularly of copper. You have no way

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Speaker 7: to bring on new to supply.

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Speaker 8: Once you're rout, when.

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Speaker 7: Prices began to spike, they got a spike high enough

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Speaker 7: to bring demand back in line with supply. That's we're

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Speaker 7: going to find out where that elasticity of demand really exists.

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Speaker 8: The only one way you.

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Speaker 7: Can ever observe is going back to the nineteen sixties,

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Speaker 7: which suggests maybe it's fifteen.

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Speaker 8: Thousand, but we really don't know. We're going to find out.

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Speaker 7: We didn't find out in the two thousands bull market

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Speaker 7: because China was never forced into a situation where it

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Speaker 7: had to consume and you had to ration demand out.

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Speaker 7: That's why we peeked out in that ten thousand dollars

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Speaker 7: ton range to where we are right now. So going forward,

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Speaker 7: no inventory, remember really strong demand from all those sources

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Speaker 7: you talked about, There's not enough to go around.

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Speaker 8: Somebody's going to have to drop.

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Speaker 7: Out, and that's where we're going to find out where

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Speaker 7: the high the high print is on this market.

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Speaker 3: Jeff, if I could just go back to your answer

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Speaker 3: earlier on the oil market, and you see this very

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Speaker 3: bullish market happening, and you see potentially we're not even

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Speaker 3: at peak driving season. If we do see gasoline prices

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Speaker 3: in the United States go pass four dollars a gallon.

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Speaker 3: Are you expecting the US to tap the spr.

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Speaker 7: Yeah, there's a lot of other levers that can pull

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Speaker 7: to put downward pressure on oil prices.

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Speaker 8: That's why, you know, I'm far more bullish on.

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Speaker 7: Base metals copper than I am on oil, particularly until

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Speaker 7: you get after the election. Because you know, when you

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Speaker 7: look at what drives elections, what drives the populace focus,

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Speaker 7: it is the economy and inflation. So keeping oil prices

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Speaker 7: and gasoline prices under wraps over the course of the

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Speaker 7: next six months I think is going to be critical

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Speaker 7: to the administration and the government. And we've seen this

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Speaker 7: play out election after election, so I can't see why

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Speaker 7: this one would be any different. What is that limit

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Speaker 7: you know on the oil means you can get up

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Speaker 7: into the high nineties. Maybe you know, you could toppo

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Speaker 7: over one hundred or something like that in the midst

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Speaker 7: of the cooling season, but you know, would it be lasting. No,

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Speaker 7: it's not like the underlying copper story where it doesn't

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Speaker 7: really impact the underlying inflation. Now you throw in something

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Speaker 7: like a you know, some surprise problem in the Middle

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Speaker 7: East or something like that that could open up the upside.

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Speaker 7: But I think you know, you're you're going to see

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Speaker 7: governments around the world doing everything they can to fight this.

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Speaker 7: In One of the ways is you know, turning a

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Speaker 7: blind eye to you know, sanctioned oil, sanctioned.

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Speaker 8: Products, you know. So there's a lot of methods.

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Speaker 7: Other than tapping the spr that can be used to

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Speaker 7: you know.

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Speaker 8: Also relaxing environmental regulations.

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Speaker 7: We've seen them use that in the past as well,

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Speaker 7: So there's lots of tools at their disposal.

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Speaker 1: Jeff Carry of Carlisle, thank you so much. Keep wearing that,

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Speaker 1: you know, copper bracelet until you hit fifty thousand or

403
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Speaker 1: bus Thank you so much. Crude slightly down, But this

404
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Speaker 1: is a market that really is on hold as we

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Speaker 1: wait for some sort of sign of a catalyst of

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Speaker 1: whether we're heading toward that immaculate disinflation or maybe not immaculate,

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Speaker 1: but at least a soft landing versus stagflation. Brian Lovett,

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Speaker 1: who is with us for the hour, I want to

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Speaker 1: ask you about the latest Bank of America fund manager survey,

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Speaker 1: which came out and showed investor optimism at some of

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Speaker 1: the strongest levels that we've seen going back to twenty

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Speaker 1: twenty one, even as investors are expecting a deterioration in

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Speaker 1: earnings and a deterioration in the economic growth trajectory. Is

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Speaker 1: this entirely dependent on the FED cutting.

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Speaker 9: Well, it's not entirely dependent on the FED cutting. You know,

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Speaker 9: as I had said, if you look at years like

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Speaker 9: O six, you look at yours like twenty nineteen or

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Speaker 9: even now, market can do very well with the FED

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Speaker 9: on hold. So the good nominal growth environment has been supportive.

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Speaker 10: I do suspect like the Bank of America survey.

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Speaker 9: Says that things will slow you think about slow down.

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Speaker 9: We'll see if the FED feels comfortable cutting within that.

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Speaker 10: I think they would like to.

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Speaker 9: But I think what investors are looking to is over

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Speaker 9: the next few years we're going to be normalizing the

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Speaker 9: yell curve. And if you can normalize the yield curve

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Speaker 9: without a meaningful without having had a meaningful disruption and

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Speaker 9: economic activity, that should.

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Speaker 10: Be a positive. I've said over and over that.

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Speaker 9: Peak inflation, peak tightening, peak interest rates over the next

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Speaker 9: few years should be good for equities, and I continue

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Speaker 9: to stand by that, which is the reason why I'm.

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Speaker 4: This fund manager survey Amrie.

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Speaker 1: We did see this optimism of several rate cuts this year,

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Speaker 1: even with a deterioration and backdrop. Because of this promise

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Speaker 1: of potentially peak yields, Michael Hartnan over a Bank of

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Speaker 1: America did raise the specter of stagflash, which is something

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Speaker 1: that Jay Powell has shrugged.

439
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Speaker 4: Off, left off. There is no stag there is no flation.

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Speaker 1: This is the biggest headwind right now that.

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Speaker 4: A lot of people say to equities. A lot of

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Speaker 4: people are saying it's equities.

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Speaker 3: David Malpass, former head of the World Bank, this is

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Speaker 3: his whole thesis into what we're actually seeing in some

445
00:21:15,720 --> 00:21:17,760
Speaker 3: of the data he's looking at. But I look to

446
00:21:17,800 --> 00:21:21,399
Speaker 3: the global fund manager survey sentiment not as closed eyes

447
00:21:21,480 --> 00:21:25,360
Speaker 3: and sell levels, but risk assets are vulnerable to more

448
00:21:25,400 --> 00:21:28,959
Speaker 3: evidence of stagflation. Brian, do you see any evidence of stagflation?

449
00:21:29,160 --> 00:21:30,480
Speaker 9: I like the way Lisa put it, and I was

450
00:21:30,480 --> 00:21:32,640
Speaker 9: going to say, I don't see stag and I don't.

451
00:21:32,440 --> 00:21:36,480
Speaker 4: See Flationwell, exactly, So let's.

452
00:21:36,240 --> 00:21:37,200
Speaker 10: Start with flation.

453
00:21:37,520 --> 00:21:40,440
Speaker 9: If you look in the bond market, whether it's the

454
00:21:40,480 --> 00:21:42,720
Speaker 9: three year break, even the five year break, even the

455
00:21:42,720 --> 00:21:46,280
Speaker 9: bond markets expectation for inflation, they're all very stable, very

456
00:21:46,400 --> 00:21:49,800
Speaker 9: much within the Fed's comfort zone. Now with regards to stag,

457
00:21:49,800 --> 00:21:52,320
Speaker 9: it's certainly not a stag economy.

458
00:21:52,359 --> 00:21:53,800
Speaker 10: Are things going to slow?

459
00:21:53,920 --> 00:21:57,760
Speaker 9: Well, yeah, that's ultimately what we wanted to have happen.

460
00:21:57,880 --> 00:22:02,920
Speaker 9: As things slow, inflationary pressure should moderate. You're already starting

461
00:22:02,920 --> 00:22:05,399
Speaker 9: to see it when everybody talks about the momentum of

462
00:22:05,400 --> 00:22:08,440
Speaker 9: inflation over the last few months. Hasn't been too much

463
00:22:08,440 --> 00:22:11,960
Speaker 9: on the consumer side. Very critically, it hasn't been wages.

464
00:22:12,480 --> 00:22:15,520
Speaker 9: Wages have been generally benign. It's been a lot of

465
00:22:15,520 --> 00:22:19,120
Speaker 9: important inflation. And what are you starting to see already

466
00:22:19,160 --> 00:22:21,760
Speaker 9: with commodity prices, what are you starting to see.

467
00:22:21,680 --> 00:22:23,879
Speaker 10: With oil kind of moving down?

468
00:22:24,080 --> 00:22:27,240
Speaker 9: And so I think that what ends up happening when

469
00:22:27,240 --> 00:22:29,439
Speaker 9: we get to these pivot points, And Lisa, you started

470
00:22:29,440 --> 00:22:34,199
Speaker 9: the show at that pivot point, People for whatever reason,

471
00:22:34,440 --> 00:22:38,439
Speaker 9: think of the worst environment that they can imagine.

472
00:22:38,040 --> 00:22:40,960
Speaker 4: Right, Grafic thinking, yeah, you're watching Lisa.

473
00:22:41,320 --> 00:22:44,680
Speaker 9: Yeah, all, well, she just said pivot She didn't say

474
00:22:44,680 --> 00:22:46,960
Speaker 9: patashrophic all of a sudden, it's going to be the

475
00:22:47,000 --> 00:22:48,720
Speaker 9: nineteen seventies again.

476
00:22:48,840 --> 00:22:50,280
Speaker 10: And yet this is a very different environment.

477
00:22:50,280 --> 00:22:52,040
Speaker 9: If you look at the misery index, which is the

478
00:22:52,119 --> 00:22:56,080
Speaker 9: unemployment rate plus inflation, it's historically quite low right.

479
00:22:56,119 --> 00:22:58,560
Speaker 10: That doesn't suggest stagflation. Now, could it move?

480
00:22:58,920 --> 00:22:59,200
Speaker 6: Yeah?

481
00:22:59,240 --> 00:23:02,640
Speaker 10: But what is inflation going? I don't think it's heading

482
00:23:02,720 --> 00:23:03,240
Speaker 10: higher here.

483
00:23:03,400 --> 00:23:04,800
Speaker 1: Part of the problem that a lot of people are

484
00:23:04,800 --> 00:23:08,440
Speaker 1: looking at, and including Philip Jefferson yesterday of the Fed

485
00:23:08,480 --> 00:23:10,520
Speaker 1: when he was speaking, is we just have seen this

486
00:23:10,560 --> 00:23:11,800
Speaker 1: persistency to inflation.

487
00:23:11,920 --> 00:23:12,920
Speaker 4: And what we've seen.

488
00:23:12,880 --> 00:23:16,640
Speaker 1: Is an actual acceleration, a reacceleration in the first core

489
00:23:16,760 --> 00:23:19,680
Speaker 1: inflation data versus the last quarter of last year.

490
00:23:19,760 --> 00:23:21,120
Speaker 4: This could be a year over year comps.

491
00:23:21,240 --> 00:23:22,920
Speaker 1: But you take a look yesterday as a New York

492
00:23:22,960 --> 00:23:27,199
Speaker 1: Fed consumer sentiment survey and inflation expectations.

493
00:23:26,520 --> 00:23:29,240
Speaker 4: And you could see they are creeping higher. And it's not.

494
00:23:29,280 --> 00:23:31,920
Speaker 1: Just just broad based, but also for home prices, which

495
00:23:31,920 --> 00:23:33,720
Speaker 1: were supposed to be the most affected.

496
00:23:33,280 --> 00:23:34,520
Speaker 4: By keeping rates where they are.

497
00:23:34,720 --> 00:23:36,320
Speaker 1: So at a certain point you have to look at

498
00:23:36,359 --> 00:23:39,240
Speaker 1: that and say, hold on a second. We can dismiss

499
00:23:39,280 --> 00:23:42,119
Speaker 1: this as going to be disinflation, but we expected that

500
00:23:42,160 --> 00:23:43,240
Speaker 1: pivot point last year.

501
00:23:43,320 --> 00:23:45,160
Speaker 4: We expected that pivot point six months ago.

502
00:23:45,640 --> 00:23:48,919
Speaker 1: If you ignore what the data is actually showing, that

503
00:23:48,960 --> 00:23:49,920
Speaker 1: will be another error.

504
00:23:51,080 --> 00:23:51,639
Speaker 10: Correct.

505
00:23:51,800 --> 00:23:55,480
Speaker 9: Although the question is when we see things ticking up

506
00:23:55,560 --> 00:23:59,240
Speaker 9: a little, they're off of low levels. Some of it's

507
00:23:59,280 --> 00:24:01,840
Speaker 9: being driven or relatively low level, some of it's being

508
00:24:01,960 --> 00:24:05,560
Speaker 9: driven by commodities, and some of it's likely being driven

509
00:24:05,560 --> 00:24:07,879
Speaker 9: If you look in the Consumer Price Index report by

510
00:24:07,920 --> 00:24:11,240
Speaker 9: some of the lagged effects of shelter housing in rents

511
00:24:11,320 --> 00:24:14,359
Speaker 9: had come down over a year ago, particularly rents.

512
00:24:14,400 --> 00:24:15,800
Speaker 10: I mean, I don't know which one.

513
00:24:15,640 --> 00:24:17,720
Speaker 9: We want to look at, but if we believe the

514
00:24:17,840 --> 00:24:20,960
Speaker 9: Zillo numbers or others, those rent numbers should be down

515
00:24:21,119 --> 00:24:24,119
Speaker 9: by now, so it's not being captured necessarily in the

516
00:24:24,160 --> 00:24:29,439
Speaker 9: Consumer Price Index FEDS preferred measure of inflation below three percent,

517
00:24:29,520 --> 00:24:33,280
Speaker 9: that's the core personal consumption expenditure. As I mentioned earlier,

518
00:24:33,320 --> 00:24:36,080
Speaker 9: the tips break evens relatively benign. So I think what

519
00:24:36,119 --> 00:24:39,879
Speaker 9: the I wonder if the consumer when they're being asked,

520
00:24:39,960 --> 00:24:42,440
Speaker 9: are they thinking about the high cost of living, which

521
00:24:42,520 --> 00:24:45,359
Speaker 9: is now part of our life, or are they thinking

522
00:24:45,440 --> 00:24:48,200
Speaker 9: about the change and the change and the rate of change.

523
00:24:49,200 --> 00:24:50,760
Speaker 9: It's kind of like everything I learned I needed to

524
00:24:50,880 --> 00:24:52,880
Speaker 9: know in kindergarten, everything I learned I needed to learn

525
00:24:52,880 --> 00:24:53,960
Speaker 9: in calculus class.

526
00:24:54,200 --> 00:24:56,600
Speaker 10: So ultimately this is like that.

527
00:24:57,240 --> 00:25:00,840
Speaker 9: Ultimately this is going to in my opinion, it's going

528
00:25:00,880 --> 00:25:04,360
Speaker 9: to moderate. We'll look back and say, remember we were

529
00:25:04,359 --> 00:25:07,000
Speaker 9: worried that the economy was too strong, the consumer was

530
00:25:07,040 --> 00:25:10,280
Speaker 9: too strong, it was all inflationary. Then we'll be in

531
00:25:10,359 --> 00:25:14,159
Speaker 9: a slowdown and the market will do a ten percent

532
00:25:14,200 --> 00:25:16,359
Speaker 9: decline in a slowdown, and we'll be saying, gee, I

533
00:25:16,400 --> 00:25:19,520
Speaker 9: wish I really miss those strong nominal growth days.

534
00:25:19,920 --> 00:25:22,199
Speaker 3: The thing is, though, and when Lisa brings up the

535
00:25:22,240 --> 00:25:25,520
Speaker 3: New York Fed one year inflation expectations to survey, the

536
00:25:25,600 --> 00:25:28,640
Speaker 3: bank said that responders project inflation a year from now

537
00:25:28,680 --> 00:25:32,440
Speaker 3: at three point three percent. That's much higher than where

538
00:25:32,440 --> 00:25:36,879
Speaker 3: we are today. How much does that inflationary concern on

539
00:25:36,920 --> 00:25:40,320
Speaker 3: top of consumer's minds change how they're potentially going to

540
00:25:40,320 --> 00:25:41,960
Speaker 3: go out and spend the remainder of the year.

541
00:25:42,000 --> 00:25:43,480
Speaker 9: Well, we're starting to see, if you look at the

542
00:25:43,560 --> 00:25:47,160
Speaker 9: Michigan survey, the consumer is starting to say that these

543
00:25:47,240 --> 00:25:50,320
Speaker 9: prices are becoming some are problematic.

544
00:25:50,520 --> 00:25:52,240
Speaker 10: And so remember the.

545
00:25:52,320 --> 00:25:55,080
Speaker 9: Recent move we've had to move in oil prices, we've

546
00:25:55,080 --> 00:25:59,240
Speaker 9: had to move in gasoline prices. Those are starting to moderate,

547
00:25:59,240 --> 00:26:02,119
Speaker 9: at least on the oil side, starting to moderate here.

548
00:26:02,280 --> 00:26:05,040
Speaker 9: And so remember we started this by saying can the

549
00:26:05,040 --> 00:26:08,640
Speaker 9: consumer hang in right? And the consumer saying things are

550
00:26:09,160 --> 00:26:11,920
Speaker 9: things are likely to slow here a bit. You saw

551
00:26:11,960 --> 00:26:14,800
Speaker 9: it in the Home Depot numbers, and so we shouldn't

552
00:26:14,800 --> 00:26:17,640
Speaker 9: be you know, we shouldn't be well on this side.

553
00:26:17,680 --> 00:26:20,040
Speaker 9: The sentiment says inflation is going to keep going, but

554
00:26:20,080 --> 00:26:24,440
Speaker 9: the numbers are showing that they're moderating. Again, from our perspective,

555
00:26:24,480 --> 00:26:29,320
Speaker 9: if we look at the consumer momentum, pretty benign, wages,

556
00:26:29,400 --> 00:26:33,119
Speaker 9: pretty benign. A lot of it has been this implore

557
00:26:33,200 --> 00:26:35,200
Speaker 9: price inflation that now seems to be moderating.

558
00:26:35,320 --> 00:26:36,200
Speaker 4: You mentioned Home Depot.

559
00:26:36,280 --> 00:26:38,080
Speaker 1: Let's just give you a rerun of that if you

560
00:26:38,119 --> 00:26:40,800
Speaker 1: are just joining us. They did report earnings, comparable sales

561
00:26:40,840 --> 00:26:42,960
Speaker 1: coming in light down two point eight percent versus the

562
00:26:43,080 --> 00:26:45,800
Speaker 1: estimate of two point two percent. You could see customer

563
00:26:45,840 --> 00:26:49,600
Speaker 1: transactions were down about expected about one percent. The key

564
00:26:49,640 --> 00:26:51,560
Speaker 1: here and why you're not seeing a bigger move really

565
00:26:51,640 --> 00:26:54,400
Speaker 1: is that they still keep all of their twenty twenty.

566
00:26:54,080 --> 00:26:55,159
Speaker 4: Five year forecasts.

567
00:26:55,200 --> 00:26:58,440
Speaker 1: The comparable sales about still down at one percent, sales

568
00:26:58,440 --> 00:27:01,000
Speaker 1: still increasing by about one percent, earnings per share growth

569
00:27:01,040 --> 00:27:04,080
Speaker 1: about one percent. So this really does seem to point

570
00:27:04,119 --> 00:27:05,160
Speaker 1: to stability.

571
00:27:05,480 --> 00:27:07,440
Speaker 4: As we heard from Brian.

572
00:27:07,960 --> 00:27:11,679
Speaker 1: Here is also this idea that yes, there is a

573
00:27:11,720 --> 00:27:14,880
Speaker 1: softness due to people maybe not moving. I've already done

574
00:27:14,880 --> 00:27:17,000
Speaker 1: a lot of the home improvement, but there is this

575
00:27:17,119 --> 00:27:20,280
Speaker 1: sense that people still have money to spend. If there

576
00:27:20,400 --> 00:27:23,200
Speaker 1: is one takeaway, Brian from this earning season, what would

577
00:27:23,240 --> 00:27:24,800
Speaker 1: you say it is It's.

578
00:27:24,640 --> 00:27:28,040
Speaker 10: A mixed picture. But I would say the biggest takeaway is.

579
00:27:28,000 --> 00:27:30,440
Speaker 9: That everybody thought we'd be in a recession by twenty

580
00:27:30,480 --> 00:27:33,639
Speaker 9: twenty three, and we're still growing earnings ten percent in

581
00:27:33,680 --> 00:27:37,639
Speaker 9: the quarter, and so it's still a good nominal growth backdrop.

582
00:27:37,800 --> 00:27:41,720
Speaker 9: And everybody's worried whether inflation's two eight to three percent

583
00:27:41,840 --> 00:27:46,679
Speaker 9: three three. Remember, businesses make money in nominal terms, and

584
00:27:46,720 --> 00:27:51,040
Speaker 9: so a good nominal growth environment is supportive for corporate profitability.

585
00:27:51,040 --> 00:27:53,679
Speaker 9: And what I say to you know, investors, if you

586
00:27:53,680 --> 00:27:55,480
Speaker 9: know they were so worried we'd be in a deep

587
00:27:55,560 --> 00:27:58,480
Speaker 9: economic downturn by now, the reality is things still are

588
00:27:58,520 --> 00:28:01,360
Speaker 9: good and companies are still benefit. It's mixed, right, We're

589
00:28:01,400 --> 00:28:04,199
Speaker 9: seeing more from tech, We're seeing more from financials than

590
00:28:04,240 --> 00:28:07,320
Speaker 9: perhaps energy or some other parts of the market, but

591
00:28:07,359 --> 00:28:09,439
Speaker 9: again another good earnings period.

592
00:28:10,160 --> 00:28:13,720
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593
00:28:13,720 --> 00:28:17,080
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594
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