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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 1: And we did get this morning, an Marie a response
Speaker 1: from China yep.
Speaker 3: The Ministry of Commerce coming out and saying they vow
Speaker 3: to take measures to defend their rights.
Speaker 4: They say that.
Speaker 3: They resolutely oppose what the US is doing this morning
Speaker 3: with these tariffs. They say the decision is quote political manipulation,
Speaker 3: and also Lisa urging the US to cancel the ector
Speaker 3: tariffs and correct this quote wrongdoing.
Speaker 4: Let's see whether that works.
Speaker 1: Joining us for the rest of the hour is former
Speaker 1: National Economic Council Director Gary Cohene. Gary so much to
Speaker 1: work through here in terms of whether it's tariffs, whether
Speaker 1: it's the fiscal policy or whether it's the deficit.
Speaker 4: I want to start more broadly.
Speaker 1: This question of how much are from some of the
Speaker 1: fiscal policies directing investment theories right now in terms of
Speaker 1: where some of the money is going and what gates
Speaker 1: are being put up.
Speaker 5: Well, Look, fiscal policy and monetary policy are directly impacting
Speaker 5: how money is being spent, what money is available today,
Speaker 5: and I think that's even.
Speaker 6: A more important topic.
Speaker 5: We have gone through a pretty vicious cycle over the
Speaker 5: last four years where we went from a cycle of
Speaker 5: zero interest rates, an abundance of capital capital available for
Speaker 5: almost all startups in this country and funding at various
Speaker 5: stages of your progression from startup to early stage, to
Speaker 5: mid stage to late stage to IPO, to a place
Speaker 5: where we are today where there's very little investment capital
Speaker 5: available for young companies and startup companies and the IPO
Speaker 5: market just starting to reopen. So that is all a
Speaker 5: function of fiscal policy monetary policy, because they're interstricably linked.
Speaker 5: And when people were not getting a return on their
Speaker 5: capital in the bank and there was a zero risk return,
Speaker 5: zero risk assets out there, people bought assets that they
Speaker 5: thought could provide an enhanced return for them, so they
Speaker 5: were willing to take more risk. They were willing to
Speaker 5: invest in startup companies. Today you can go out and
Speaker 5: buy a six month treasure bill and get five point
Speaker 5: three five point four percent on a tax preferential asset.
Speaker 5: So we have changed the whole mentality of the way
Speaker 5: people think about holding capital, investing capital, recirculating capital. Also,
Speaker 5: with the capital markets have that then closed for so long.
Speaker 5: A lot of that capital that was invested in three four, five, six,
Speaker 5: seven years ago, many of those people thought it had
Speaker 5: a three four, five six year duration. They would get
Speaker 5: liquified by taking those companies public, and then they would
Speaker 5: recirculate that risk capital back into the financial markets. They
Speaker 5: have not been liquefied because the capital market has been closed,
Speaker 5: so therefore that risk capital does not get to recirculate back.
Speaker 6: So a little bit of.
Speaker 5: The natural cadence of capital moving in and out of
Speaker 5: risk assets has changed, both because of fiscal policy and
Speaker 5: monetary policy.
Speaker 1: There's a lot to impact right there, are you basically
Speaker 1: saying that On the monetary policy side, low rates usually
Speaker 1: benefit the smaller, more leverage companies. Rates go up, that
Speaker 1: benefits more some of the larger companies that are able
Speaker 1: to be sort of turn out their debt structures in
Speaker 1: a more considerable way. Are you saying that fiscal policy
Speaker 1: also benefits the bigger companies more because they're the ones
Speaker 1: that are eligible for some of these grants.
Speaker 6: I didn't really say what you're saying.
Speaker 5: I don't think higher rates help anyone. Okay, if you're
Speaker 5: a large company and you're still running a large debt portfolio,
Speaker 5: you're always you're always worried about your weighted average cost
Speaker 5: of debt.
Speaker 6: You're whackedy, so.
Speaker 5: You're thinking about what that is, and the lower it is,
Speaker 5: the better it is.
Speaker 6: You know, ultimately, at the end.
Speaker 5: Of the day, you sell your goods or you sell
Speaker 5: your services to your customers. Then you've got your expense line,
Speaker 5: which is usually the biggest line, and the expenses is
Speaker 5: salaries and costs. But then if you get down a
Speaker 5: little bit down, cost of debt is a big item.
Speaker 5: So to the extent that cost of debt goes up,
Speaker 5: the price of your goods or service has to go up.
Speaker 5: So companies, you know, either the profit margins contract as
Speaker 5: interest rates go up, or they have to raise the
Speaker 5: price of their goods.
Speaker 6: So in a perfect.
Speaker 5: World, no one really wants interest rates to go up,
Speaker 5: but there is a sort of middle ground where interest
Speaker 5: rates are a level low enough where they're not really
Speaker 5: affecting and the economy is growing without fiscal stimulus from
Speaker 5: the federal government. The question is really more when fiscal
Speaker 5: stimulus from the government comes in, how does that react.
Speaker 5: And right now we actually have one of the most
Speaker 5: unique periods of time because we've got, on one hand,
Speaker 5: we've got the Federal Reserve, which is trying to raise
Speaker 5: rates to slow down economic growth to get inflation under control,
Speaker 5: and we've got the federal government on fiscal policy on
Speaker 5: the other side, looking to invest capital to grow the economy.
Speaker 5: Those two things are countervailing forces. We don't see a
Speaker 5: lot of times in our economic history when we've got
Speaker 5: both of those things going on at.
Speaker 6: The same time. Usually we're in unison.
Speaker 5: Usually the Fed's trying to grow the economy by lowing
Speaker 5: rates and the government is trying to spend money to
Speaker 5: grow the economy.
Speaker 6: That's normally what you see.
Speaker 5: Is you're coming out of a very tough economic period.
Speaker 5: When you're in a very robust economic period, the Federal
Speaker 5: Reserve is raising interest rates trying to slow it down,
Speaker 5: and the federal government does not need to spend money
Speaker 5: because you're in a very robust economic time. This time
Speaker 5: it's very different than the historical past.
Speaker 1: As an investor, who do you bet on winning the
Speaker 1: FED or fiscal policy?
Speaker 6: You know, I don't know if there's a winner or
Speaker 6: a loser.
Speaker 5: I think you have to be realistic to what's going
Speaker 5: on and who's trying to do what. The Biden administration
Speaker 5: has been pretty consistent on their fiscal policy agenda. They
Speaker 5: have been trying to spend money and put money into
Speaker 5: the economy since day one, since the first COVID relief
Speaker 5: to one point nine trillion dollars they put in early,
Speaker 5: and they continuously find ways to put money into the economy,
Speaker 5: as recently as relief of student loans. So they're continuously
Speaker 5: looking at ways to fiscally stimulate the economy. The FED,
Speaker 5: on the other hand, is responding to the outcome of
Speaker 5: that money being put in the economy.
Speaker 6: There's a cause and.
Speaker 5: Effect, you know, many of us think there's the effect
Speaker 5: is so much money being put in the economy, the
Speaker 5: money supply expanding so quickly that you've got too much
Speaker 5: money chasing too few goods, and therefore you had an
Speaker 5: inflationary time, inflationary pressures. So the FED is responding to
Speaker 5: the to the effect of the cause, and they are
Speaker 5: raising rates trying to slow that down. So if I
Speaker 5: were going to bet the Biden administration will continue with
Speaker 5: fiscal stimulus. In fact, they have a lot of stimulus
Speaker 5: already approved where they have not given out the money,
Speaker 5: so that money has not fed through the economy, and
Speaker 5: the FED will continue to monitor the financial conditions, and
Speaker 5: most importantly, they'll continue to monitor the path of inflation
Speaker 5: based on the data that they get, and they will
Speaker 5: decide what great policy looks like based on that.
Speaker 3: Gary, I want to ask you about the next fiscal fight,
Speaker 3: which is the Trump error tax cuts. They are coming,
Speaker 3: they're expiring next year. Do you think they should be extended?
Speaker 6: So?
Speaker 5: I think tariffs is one of the most interesting topics
Speaker 5: that we dealt with when I was in the White House,
Speaker 5: and I think the Biden administration's dealing with now.
Speaker 6: You know, it's interesting.
Speaker 5: Despite a lot of rhetoric, the policies are starting to
Speaker 5: bend towards each other. It's hard to know the difference
Speaker 5: between the two let's call them candidates policies to tariffs,
Speaker 5: they're evaries.
Speaker 6: I'll talk about tariffs.
Speaker 5: So when you look at tariffs and you think about
Speaker 5: tariffs on things that we manufacture in the United States
Speaker 5: and we can sustain ourselves, I think it makes sense
Speaker 5: to tariff a country that is importing things in the United.
Speaker 6: States at a buli low cost.
Speaker 5: So we know that China has some real economic advantages.
Speaker 5: We know that they don't pay fair market labor. We
Speaker 5: know that they don't have a cost of capital. We
Speaker 5: know that they don't have environmental restrictions that US companies have,
Speaker 5: so we know they've got a competitive vantage.
Speaker 6: So if they're using that competitive.
Speaker 5: Vantage to dump products in the United States that we
Speaker 5: make and therefore they're displacing US manufacturers and US jobs,
Speaker 5: yes we should protect our border. On the flip side,
Speaker 5: if they are exporting and we are importing goods that
Speaker 5: we need that we do not make in the United
Speaker 5: States and there's no replacement for us in the United States,
Speaker 5: and we put a terrify on it, it basically becomes a
Speaker 5: consumption tax. You and I and all of us are
Speaker 5: going to buy those products. We're now just paying more
Speaker 5: for the same product.
Speaker 3: Do you think that we're going to see more of
Speaker 3: these walls go up, whether or not Biden or Trump
Speaker 3: get in the lighthouse next year, Like how high are
Speaker 3: we talking?
Speaker 5: You know, I think there's a thought right now that
Speaker 5: the walls should go higher. I think at some point
Speaker 5: there is diminishing re turns. You know, we've got a
Speaker 5: lot of historical data on putting tariffs in whether there
Speaker 5: were old steel tariffs on their other presence. When I
Speaker 5: was in the White House, we did a three oh
Speaker 5: one on washing machines, and if you look at the
Speaker 5: whole theory of what happened with washing machines, it's quite interesting. Yeah,
Speaker 5: we put teriffs on washing machines, but the prices of
Speaker 5: dryers went up equally with washing machines, because you know,
Speaker 5: the manufacturers think, well, people think washers and dryers cost
Speaker 5: the same thing, even one had even though one had
Speaker 5: terriffts on it and one didn't, you know, very inflationary
Speaker 5: to buy a washing machine and a dryer. Did it
Speaker 5: bring manufacturing back to the United States?
Speaker 6: Yes, it did.
Speaker 5: We brought the foreign manufacturers, you know, the LG's and
Speaker 5: the samsings that were that were importing in the United States.
Speaker 6: Did they open manufacturing United states, Yes they did.
Speaker 5: So we did create some jobs, but we really increased
Speaker 5: the price of the washing machine and the dryer. So
Speaker 5: there's a lot of historical data on what happens when
Speaker 5: you tariff.
Speaker 1: Bi WTI hovering around seventy nine dollars a barrel as
Speaker 1: traders await Ope's next move and inflation data. Meanwhile, on
Speaker 1: the other side, copper touching its highest level since twenty
Speaker 1: twenty two, fueled by forecasts of a global supply deficit.
Speaker 1: Jeff Curry of Carlisle joining US now and Jeff, that's
Speaker 1: where I want to start. Traditionally people focused on oil prices.
Speaker 1: Right now, what we're seeing is oil steadying. For seeing
Speaker 1: the rest of the oil, the rest of the commodity
Speaker 1: complex surging ahead, up some eight point two percent since
Speaker 1: the end of February.
Speaker 4: What makes for the divergence.
Speaker 7: Copper is the new oil. We put out a piece
Speaker 7: back in twenty twenty one. Now making these bullish arguments,
Speaker 7: and by the way, they haven't worked out. But I
Speaker 7: talk to a lot of people who will say copper
Speaker 7: is their highest conviction trade.
Speaker 8: I wear my copper bracelet right here. It is the
Speaker 8: highest conviction trade I've ever seen.
Speaker 7: If you've got decarbonization, green cap backs demand, AI, data
Speaker 7: center demand, military demand, it takes twelve, sometimes twenty six
Speaker 7: years to bring on new supply.
Speaker 8: You can't come up with a better story.
Speaker 7: But the bottom line, we've been telling this story for
Speaker 7: three years, and maybe now it's beginning to work. I'm
Speaker 7: confident that this time it's liftof and I think we're
Speaker 7: going to see more momentum behind it because you have
Speaker 7: three sources of demand this time around, meaning green cap X,
Speaker 7: AI plus military. Back in twenty twenty one, all we
Speaker 7: had was the green capex demand, and now it's.
Speaker 8: In full force. Supplies not there, Inventories are tight.
Speaker 1: Prices have more than doubled going back to March of
Speaker 1: twenty twenty and I'm looking right now, how far more
Speaker 1: is there to rally at a time where you're still
Speaker 1: wearing your copper bracelet.
Speaker 7: I think, you know, our target was fifteen thousand dollars
Speaker 7: a ton, when it's trading you know, just a little
Speaker 7: bit above ten thousand as of this morning, which means
Speaker 7: you know, it's got a long ways to go.
Speaker 8: Where do we come up with that fifteen thousand? It
Speaker 8: was the highest real price ever reached in nineteen sixty
Speaker 8: eight during.
Speaker 7: That housing boom. So we don't know where demand destruction occurs.
Speaker 7: All we do know is that bringing on new supply
Speaker 7: is very difficult.
Speaker 8: So we're going to learn.
Speaker 7: Where those price levels are where you begin to kick
Speaker 7: out demand.
Speaker 8: But I go back to the two.
Speaker 7: Thousands and that's bullish on oil then as I am
Speaker 7: copper today. You know, oil ended up going up from
Speaker 7: twenty to one hundred and forty seven times, so you know,
Speaker 7: the upside on copper think is very significant.
Speaker 3: We're seeing a lot of supply when it comes to
Speaker 3: countries outside of OPEC. Plus, Jeff, do you think that
Speaker 3: potentially we're on a bearish trajectory when it comes to
Speaker 3: the oil market for this year and next.
Speaker 8: Absolutely not.
Speaker 7: You know that one of the big sources of oil
Speaker 7: supply over the last eighteen months came from sanctioned countries, you.
Speaker 8: Know, Venezuela, Iran, Russia.
Speaker 7: Yes, they've attacked these these sanctions and clapped down, but
Speaker 7: they don't come into effect until after the election one
Speaker 7: hundred and eighty days from now. So that's been one
Speaker 7: of the big drivers and also an energy to I
Speaker 7: don't forget the massive surge in coal production that occurred
Speaker 7: in China, Indonesia, and India over that same time period.
Speaker 7: So there's a lot of energy in the system that
Speaker 7: has backed up that needs to be eaten through. When
Speaker 7: we think about the underlying demand, you know, it's not
Speaker 7: spectacular like it is in.
Speaker 8: Copper, but it's rock solid.
Speaker 7: You know, it's well above long term average growth rates.
Speaker 8: You're going into the gasoline.
Speaker 7: Driving season jet fuel and by the way, I remember,
Speaker 7: global warming means your cooling season is going to create
Speaker 7: more demand. In the past, we didn't build inventory, so
Speaker 7: that three Q bowl story is still very much intact
Speaker 7: driven by fundamentals, even without any geopolitical risk price team.
Speaker 7: Also on oil, I want to note that when we
Speaker 7: look at positioning, it's down to the fourteen percentile.
Speaker 6: Now.
Speaker 7: This market is basically no long positioning in it right now,
Speaker 7: and we're still sitting at eighty three eighty four dollars
Speaker 7: a barrow, which is a testament to the underlying strength.
Speaker 6: You know.
Speaker 7: Putting it all together, I want to emphasize commodities are
Speaker 7: still the best performing an asset class despite the pullback
Speaker 7: in oil prices.
Speaker 9: Jeff, let's talk about gold for a moment. I'm not
Speaker 9: wearing any gold that I can hold up. But it's
Speaker 9: a time where investors can get real yields in short
Speaker 9: term parts of the market.
Speaker 10: Why are gold prices still.
Speaker 9: Going up and how much of that is activity by
Speaker 9: the central bankers.
Speaker 7: Well, I think a big difference between this commodity rally
Speaker 7: and any other commodity rally most any human being alive.
Speaker 8: Has ever seen before is it's not accompanied.
Speaker 7: With dollar resigning. I meaning think about the petro dollar system.
Speaker 7: Oil prices go up, Saudi Arabia accumulates more dollars, they
Speaker 7: plow it into US treasuries, puts downward pressure on rates.
Speaker 7: Dollar begins to weaken, which reinforces the reflation, and it
Speaker 7: becomes a virtuous cycle between oil prices and the dollar,
Speaker 7: reinforcing higher commodity prices.
Speaker 8: That's not playing out this time.
Speaker 7: Why because many of the bricks country back in November
Speaker 7: of last year, decided to start to trade with one
Speaker 7: another using local currencies and then settle the differences in gold.
Speaker 8: So what we've replaced.
Speaker 7: Dollar recycling with is gold recycling, and that has created
Speaker 7: this upticking gold despite a stronger dollar. Normally, you would
Speaker 7: look at the fundamentals today and you would go, oh,
Speaker 7: gold should be going down, real rates are higher, dollars stronger.
Speaker 8: Those are all the dynamics that put down where pressure
Speaker 8: on gold. Instead, gold's going up.
Speaker 7: What's driving it is that strong demand coming out of
Speaker 7: these emerging markets where they're now recycling into gold as
Speaker 7: opposed to US treasuries creating that dollar recycling theme. So
Speaker 7: this still things still has more lights to it. You know,
Speaker 7: we see more upside in gold prices from here.
Speaker 1: I guess, Jeff, what we're trying to get at is
Speaker 1: there some stories that people have been banding about all year,
Speaker 1: whether it's the ev transition or some of the great
Speaker 1: buildout that's going to require more copper usage, whether it's
Speaker 1: some of the central banks shifting more to why do
Speaker 1: they have so.
Speaker 4: Much further to go?
Speaker 1: If it's a lot being priced in and speculators coming
Speaker 1: in and trying to get ahead of them and putting
Speaker 1: it up even further, what gives you a sense that
Speaker 1: there could be a catalyst for another leg higher in
Speaker 1: the near term.
Speaker 8: Because you need to destroy demand right now. You're running
Speaker 8: on fumes of.
Speaker 7: Very low inventories, particularly of copper. You have no way
Speaker 7: to bring on new to supply.
Speaker 8: Once you're rout, when.
Speaker 7: Prices began to spike, they got a spike high enough
Speaker 7: to bring demand back in line with supply. That's we're
Speaker 7: going to find out where that elasticity of demand really exists.
Speaker 8: The only one way you.
Speaker 7: Can ever observe is going back to the nineteen sixties,
Speaker 7: which suggests maybe it's fifteen.
Speaker 8: Thousand, but we really don't know. We're going to find out.
Speaker 7: We didn't find out in the two thousands bull market
Speaker 7: because China was never forced into a situation where it
Speaker 7: had to consume and you had to ration demand out.
Speaker 7: That's why we peeked out in that ten thousand dollars
Speaker 7: ton range to where we are right now. So going forward,
Speaker 7: no inventory, remember really strong demand from all those sources
Speaker 7: you talked about, There's not enough to go around.
Speaker 8: Somebody's going to have to drop.
Speaker 7: Out, and that's where we're going to find out where
Speaker 7: the high the high print is on this market.
Speaker 3: Jeff, if I could just go back to your answer
Speaker 3: earlier on the oil market, and you see this very
Speaker 3: bullish market happening, and you see potentially we're not even
Speaker 3: at peak driving season. If we do see gasoline prices
Speaker 3: in the United States go pass four dollars a gallon.
Speaker 3: Are you expecting the US to tap the spr.
Speaker 7: Yeah, there's a lot of other levers that can pull
Speaker 7: to put downward pressure on oil prices.
Speaker 8: That's why, you know, I'm far more bullish on.
Speaker 7: Base metals copper than I am on oil, particularly until
Speaker 7: you get after the election. Because you know, when you
Speaker 7: look at what drives elections, what drives the populace focus,
Speaker 7: it is the economy and inflation. So keeping oil prices
Speaker 7: and gasoline prices under wraps over the course of the
Speaker 7: next six months I think is going to be critical
Speaker 7: to the administration and the government. And we've seen this
Speaker 7: play out election after election, so I can't see why
Speaker 7: this one would be any different. What is that limit
Speaker 7: you know on the oil means you can get up
Speaker 7: into the high nineties. Maybe you know, you could toppo
Speaker 7: over one hundred or something like that in the midst
Speaker 7: of the cooling season, but you know, would it be lasting. No,
Speaker 7: it's not like the underlying copper story where it doesn't
Speaker 7: really impact the underlying inflation. Now you throw in something
Speaker 7: like a you know, some surprise problem in the Middle
Speaker 7: East or something like that that could open up the upside.
Speaker 7: But I think you know, you're you're going to see
Speaker 7: governments around the world doing everything they can to fight this.
Speaker 7: In One of the ways is you know, turning a
Speaker 7: blind eye to you know, sanctioned oil, sanctioned.
Speaker 8: Products, you know. So there's a lot of methods.
Speaker 7: Other than tapping the spr that can be used to
Speaker 7: you know.
Speaker 8: Also relaxing environmental regulations.
Speaker 7: We've seen them use that in the past as well,
Speaker 7: So there's lots of tools at their disposal.
Speaker 1: Jeff Carry of Carlisle, thank you so much. Keep wearing that,
Speaker 1: you know, copper bracelet until you hit fifty thousand or
Speaker 1: bus Thank you so much. Crude slightly down, But this
Speaker 1: is a market that really is on hold as we
Speaker 1: wait for some sort of sign of a catalyst of
Speaker 1: whether we're heading toward that immaculate disinflation or maybe not immaculate,
Speaker 1: but at least a soft landing versus stagflation. Brian Lovett,
Speaker 1: who is with us for the hour, I want to
Speaker 1: ask you about the latest Bank of America fund manager survey,
Speaker 1: which came out and showed investor optimism at some of
Speaker 1: the strongest levels that we've seen going back to twenty
Speaker 1: twenty one, even as investors are expecting a deterioration in
Speaker 1: earnings and a deterioration in the economic growth trajectory. Is
Speaker 1: this entirely dependent on the FED cutting.
Speaker 9: Well, it's not entirely dependent on the FED cutting. You know,
Speaker 9: as I had said, if you look at years like
Speaker 9: O six, you look at yours like twenty nineteen or
Speaker 9: even now, market can do very well with the FED
Speaker 9: on hold. So the good nominal growth environment has been supportive.
Speaker 10: I do suspect like the Bank of America survey.
Speaker 9: Says that things will slow you think about slow down.
Speaker 9: We'll see if the FED feels comfortable cutting within that.
Speaker 10: I think they would like to.
Speaker 9: But I think what investors are looking to is over
Speaker 9: the next few years we're going to be normalizing the
Speaker 9: yell curve. And if you can normalize the yield curve
Speaker 9: without a meaningful without having had a meaningful disruption and
Speaker 9: economic activity, that should.
Speaker 10: Be a positive. I've said over and over that.
Speaker 9: Peak inflation, peak tightening, peak interest rates over the next
Speaker 9: few years should be good for equities, and I continue
Speaker 9: to stand by that, which is the reason why I'm.
Speaker 4: This fund manager survey Amrie.
Speaker 1: We did see this optimism of several rate cuts this year,
Speaker 1: even with a deterioration and backdrop. Because of this promise
Speaker 1: of potentially peak yields, Michael Hartnan over a Bank of
Speaker 1: America did raise the specter of stagflash, which is something
Speaker 1: that Jay Powell has shrugged.
Speaker 4: Off, left off. There is no stag there is no flation.
Speaker 1: This is the biggest headwind right now that.
Speaker 4: A lot of people say to equities. A lot of
Speaker 4: people are saying it's equities.
Speaker 3: David Malpass, former head of the World Bank, this is
Speaker 3: his whole thesis into what we're actually seeing in some
Speaker 3: of the data he's looking at. But I look to
Speaker 3: the global fund manager survey sentiment not as closed eyes
Speaker 3: and sell levels, but risk assets are vulnerable to more
Speaker 3: evidence of stagflation. Brian, do you see any evidence of stagflation?
Speaker 9: I like the way Lisa put it, and I was
Speaker 9: going to say, I don't see stag and I don't.
Speaker 4: See Flationwell, exactly, So let's.
Speaker 10: Start with flation.
Speaker 9: If you look in the bond market, whether it's the
Speaker 9: three year break, even the five year break, even the
Speaker 9: bond markets expectation for inflation, they're all very stable, very
Speaker 9: much within the Fed's comfort zone. Now with regards to stag,
Speaker 9: it's certainly not a stag economy.
Speaker 10: Are things going to slow?
Speaker 9: Well, yeah, that's ultimately what we wanted to have happen.
Speaker 9: As things slow, inflationary pressure should moderate. You're already starting
Speaker 9: to see it when everybody talks about the momentum of
Speaker 9: inflation over the last few months. Hasn't been too much
Speaker 9: on the consumer side. Very critically, it hasn't been wages.
Speaker 9: Wages have been generally benign. It's been a lot of
Speaker 9: important inflation. And what are you starting to see already
Speaker 9: with commodity prices, what are you starting to see.
Speaker 10: With oil kind of moving down?
Speaker 9: And so I think that what ends up happening when
Speaker 9: we get to these pivot points, And Lisa, you started
Speaker 9: the show at that pivot point, People for whatever reason,
Speaker 9: think of the worst environment that they can imagine.
Speaker 4: Right, Grafic thinking, yeah, you're watching Lisa.
Speaker 9: Yeah, all, well, she just said pivot She didn't say
Speaker 9: patashrophic all of a sudden, it's going to be the
Speaker 9: nineteen seventies again.
Speaker 10: And yet this is a very different environment.
Speaker 9: If you look at the misery index, which is the
Speaker 9: unemployment rate plus inflation, it's historically quite low right.
Speaker 10: That doesn't suggest stagflation. Now, could it move?
Speaker 6: Yeah?
Speaker 10: But what is inflation going? I don't think it's heading
Speaker 10: higher here.
Speaker 1: Part of the problem that a lot of people are
Speaker 1: looking at, and including Philip Jefferson yesterday of the Fed
Speaker 1: when he was speaking, is we just have seen this
Speaker 1: persistency to inflation.
Speaker 4: And what we've seen.
Speaker 1: Is an actual acceleration, a reacceleration in the first core
Speaker 1: inflation data versus the last quarter of last year.
Speaker 4: This could be a year over year comps.
Speaker 1: But you take a look yesterday as a New York
Speaker 1: Fed consumer sentiment survey and inflation expectations.
Speaker 4: And you could see they are creeping higher. And it's not.
Speaker 1: Just just broad based, but also for home prices, which
Speaker 1: were supposed to be the most affected.
Speaker 4: By keeping rates where they are.
Speaker 1: So at a certain point you have to look at
Speaker 1: that and say, hold on a second. We can dismiss
Speaker 1: this as going to be disinflation, but we expected that
Speaker 1: pivot point last year.
Speaker 4: We expected that pivot point six months ago.
Speaker 1: If you ignore what the data is actually showing, that
Speaker 1: will be another error.
Speaker 10: Correct.
Speaker 9: Although the question is when we see things ticking up
Speaker 9: a little, they're off of low levels. Some of it's
Speaker 9: being driven or relatively low level, some of it's being
Speaker 9: driven by commodities, and some of it's likely being driven
Speaker 9: If you look in the Consumer Price Index report by
Speaker 9: some of the lagged effects of shelter housing in rents
Speaker 9: had come down over a year ago, particularly rents.
Speaker 10: I mean, I don't know which one.
Speaker 9: We want to look at, but if we believe the
Speaker 9: Zillo numbers or others, those rent numbers should be down
Speaker 9: by now, so it's not being captured necessarily in the
Speaker 9: Consumer Price Index FEDS preferred measure of inflation below three percent,
Speaker 9: that's the core personal consumption expenditure. As I mentioned earlier,
Speaker 9: the tips break evens relatively benign. So I think what
Speaker 9: the I wonder if the consumer when they're being asked,
Speaker 9: are they thinking about the high cost of living, which
Speaker 9: is now part of our life, or are they thinking
Speaker 9: about the change and the change and the rate of change.
Speaker 9: It's kind of like everything I learned I needed to
Speaker 9: know in kindergarten, everything I learned I needed to learn
Speaker 9: in calculus class.
Speaker 10: So ultimately this is like that.
Speaker 9: Ultimately this is going to in my opinion, it's going
Speaker 9: to moderate. We'll look back and say, remember we were
Speaker 9: worried that the economy was too strong, the consumer was
Speaker 9: too strong, it was all inflationary. Then we'll be in
Speaker 9: a slowdown and the market will do a ten percent
Speaker 9: decline in a slowdown, and we'll be saying, gee, I
Speaker 9: wish I really miss those strong nominal growth days.
Speaker 3: The thing is, though, and when Lisa brings up the
Speaker 3: New York Fed one year inflation expectations to survey, the
Speaker 3: bank said that responders project inflation a year from now
Speaker 3: at three point three percent. That's much higher than where
Speaker 3: we are today. How much does that inflationary concern on
Speaker 3: top of consumer's minds change how they're potentially going to
Speaker 3: go out and spend the remainder of the year.
Speaker 9: Well, we're starting to see, if you look at the
Speaker 9: Michigan survey, the consumer is starting to say that these
Speaker 9: prices are becoming some are problematic.
Speaker 10: And so remember the.
Speaker 9: Recent move we've had to move in oil prices, we've
Speaker 9: had to move in gasoline prices. Those are starting to moderate,
Speaker 9: at least on the oil side, starting to moderate here.
Speaker 9: And so remember we started this by saying can the
Speaker 9: consumer hang in right? And the consumer saying things are
Speaker 9: things are likely to slow here a bit. You saw
Speaker 9: it in the Home Depot numbers, and so we shouldn't
Speaker 9: be you know, we shouldn't be well on this side.
Speaker 9: The sentiment says inflation is going to keep going, but
Speaker 9: the numbers are showing that they're moderating. Again, from our perspective,
Speaker 9: if we look at the consumer momentum, pretty benign, wages,
Speaker 9: pretty benign. A lot of it has been this implore
Speaker 9: price inflation that now seems to be moderating.
Speaker 4: You mentioned Home Depot.
Speaker 1: Let's just give you a rerun of that if you
Speaker 1: are just joining us. They did report earnings, comparable sales
Speaker 1: coming in light down two point eight percent versus the
Speaker 1: estimate of two point two percent. You could see customer
Speaker 1: transactions were down about expected about one percent. The key
Speaker 1: here and why you're not seeing a bigger move really
Speaker 1: is that they still keep all of their twenty twenty.
Speaker 4: Five year forecasts.
Speaker 1: The comparable sales about still down at one percent, sales
Speaker 1: still increasing by about one percent, earnings per share growth
Speaker 1: about one percent. So this really does seem to point
Speaker 1: to stability.
Speaker 4: As we heard from Brian.
Speaker 1: Here is also this idea that yes, there is a
Speaker 1: softness due to people maybe not moving. I've already done
Speaker 1: a lot of the home improvement, but there is this
Speaker 1: sense that people still have money to spend. If there
Speaker 1: is one takeaway, Brian from this earning season, what would
Speaker 1: you say it is It's.
Speaker 10: A mixed picture. But I would say the biggest takeaway is.
Speaker 9: That everybody thought we'd be in a recession by twenty
Speaker 9: twenty three, and we're still growing earnings ten percent in
Speaker 9: the quarter, and so it's still a good nominal growth backdrop.
Speaker 9: And everybody's worried whether inflation's two eight to three percent
Speaker 9: three three. Remember, businesses make money in nominal terms, and
Speaker 9: so a good nominal growth environment is supportive for corporate profitability.
Speaker 9: And what I say to you know, investors, if you
Speaker 9: know they were so worried we'd be in a deep
Speaker 9: economic downturn by now, the reality is things still are
Speaker 9: good and companies are still benefit. It's mixed, right, We're
Speaker 9: seeing more from tech, We're seeing more from financials than
Speaker 9: perhaps energy or some other parts of the market, but
Speaker 9: again another good earnings period.
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