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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business app. Beck let's talk about it,
Speaker 2: and I want to refer to what you told us
Speaker 2: coming into twenty twenty four. It's important to go back.
Speaker 2: This market was priced for six or seven rad cuds.
Speaker 2: You were saying that was nonsense. We wouldn't see ray
Speaker 2: cuts until the second half of twenty twenty four. What
Speaker 2: were you looking at that ultimately has played out in
Speaker 2: the fashion you expected.
Speaker 3: Good morning, It's so great to be here, John and Lisa.
Speaker 3: So back when we were here in December and we
Speaker 3: talked about the five or six rate cuts that were nonsense.
Speaker 3: Don't think that word was used, but certainly we felt
Speaker 3: that the market had priced in too many rate cuts.
Speaker 3: The view there was that inflation would remain sticky, and
Speaker 3: that's exactly what's played out. We've seen services inflation remained
Speaker 3: very straight, sticky, still above five percent. We've seen shelter
Speaker 3: inflation coming down, but not quite at where we would
Speaker 3: have liked it to be. And then yesterday, I must
Speaker 3: say it was very interesting to hear chair Powell sounds
Speaker 3: so confident about the deceleration, you know, to your point earlier, Lisa,
Speaker 3: he did say he's not gaining greater confidence, but he
Speaker 3: still seems to be quite sure that this is just
Speaker 3: a bump along the road. And for the most spot,
Speaker 3: he's focusing on the deceleration that we got in the
Speaker 3: second half of twenty twenty three and not so much
Speaker 3: on the acceleration in the first two months of the year.
Speaker 2: He's not lost confidence, and I think it's probably the headline,
Speaker 2: particularly after we had upside surprises on inflation prints what
Speaker 2: is in the inflation but right now beneath the surface
Speaker 2: and all the detail that he can take confidence from.
Speaker 3: So a couple of things that I was looking at
Speaker 3: yesterday is for us to get to core PCE at
Speaker 3: two point six percent, which is the revised core PCE,
Speaker 3: and you know, we kind of know what this month's
Speaker 3: data is going to be. Given the inputs on CPI
Speaker 3: and ppe PPI, I think the rest of the year,
Speaker 3: you'd have to be quite quite sure that you're going
Speaker 3: to get PCE at point one six or point one seven.
Speaker 3: So I guess that's one thing that they're relying on
Speaker 3: that even if shelter inflation on CPI remains strong, that
Speaker 3: it's PCE, which obviously we know has a lower weight
Speaker 3: that saves them a little bit. So I think that's
Speaker 3: one thing they're looking at. I also think that he
Speaker 3: focused yesterday a little bit when he was asked pressed
Speaker 3: on this question that non housing services they expect that
Speaker 3: to decelerate, so again their super core measure that is
Speaker 3: still at point four to seven, imagining that they expect
Speaker 3: that to come down. The one positive thing that I
Speaker 3: did see in this month's CPI print was, unlike the
Speaker 3: January print, the February every single services sector did not reaccelerate.
Speaker 3: We did see that in the jan print, which was
Speaker 3: scary to me this time around, when you looked at
Speaker 3: education and healthcare and medical services, all of those did
Speaker 3: come back to Trent, So I think that is a
Speaker 3: positive sign. And then finally, I mean Goods had that
Speaker 3: aberration for U scars. I think that's something we can
Speaker 3: see moderated based on Mannheim prices.
Speaker 1: So I understand why the front end of the yield
Speaker 1: curve would rally m hm. As John was mentioning this earlier,
Speaker 1: I have less of a clear sense of why you're
Speaker 1: seeing such a rally in the tenure with yields now
Speaker 1: at four point two percent, down from a high just
Speaker 1: earlier this month, a couple of days ago, over three
Speaker 1: and you've seen this come in around ten basis points
Speaker 1: the past couple of trading sessions. Does this make sense
Speaker 1: to you if the feed is basically saying that they're
Speaker 1: okay with inflation running a little bit hotter for a
Speaker 1: longer period of time.
Speaker 3: Yeah, to your point, I definitely agree that the front
Speaker 3: end makes sense. The rally that we saw made sense.
Speaker 3: I think on the tenure, look, it's just range bound, right,
Speaker 3: We've seen that four thirty one level a few times.
Speaker 3: We got there, we're coming back off. I think between
Speaker 3: now and the next important print, which most likely is
Speaker 3: going to be the non farm payroll that we get
Speaker 3: I think we trade in a little range of bound
Speaker 3: fashion over the longer the medium period of time. Can
Speaker 3: we see yield curves steepen from here? Absolutely, I think
Speaker 3: that belly of the curve, looking at that three to
Speaker 3: seven year part, maybe even just a pittle of five
Speaker 3: year part, that's where you want to own fixed and come.
Speaker 3: I don't think you quite need to get to the
Speaker 3: tenure point. I think we can certainly see four thirty,
Speaker 3: maybe even four a little bit higher than that, But
Speaker 3: for now, I think it's range bound.
Speaker 1: So this is why I think the gold rally is
Speaker 1: actually quite interesting, sort of where do you get that
Speaker 1: ballast if longer term treasuries don't have the same features
Speaker 1: at a time where the Fed is willing to ease
Speaker 1: even though inflation isn't back down to their target, is
Speaker 1: there a sense that longer term bonds don't hold the
Speaker 1: same kind of ballast that they used to just simply
Speaker 1: because this is an economy that will tolerate higher inflation.
Speaker 3: I think that there is a sense that it's not
Speaker 3: just the inflation point, but the supply point. There is
Speaker 3: a sense that when you have this much supply coming
Speaker 3: to the markets and you have a yield curve that
Speaker 3: is still not pricing in enough term premium. There is
Speaker 3: a sense that you have better ballast in the value
Speaker 3: of the curve, so I don't think it's about fixed
Speaker 3: and CUM losing its ballast. We certainly have ballast here.
Speaker 3: I think it's in the two to five year point
Speaker 3: where you're much better off stepping out of cash or
Speaker 3: just diversifying away from equities too, so you don't need
Speaker 3: to step out into tens, twenties, thirties. Get it in
Speaker 3: the five year, get it in the seven year, get
Speaker 3: it in ig credit about six percent, get it in bank,
Speaker 3: which is, you know, sort of getting you that income
Speaker 3: in fixed income market. So I think that's kind of
Speaker 3: what investors should be thinking about. And I want to
Speaker 3: hit your point on gold. It's been interesting to see
Speaker 3: how equities and gold are making all time highs and
Speaker 3: I place a little bit of that in the inflation fear,
Speaker 3: but tips haven't done as well. So I think the
Speaker 3: way to play this might be an allocation into an
Speaker 3: asset class that actually appreciates with CPI, which of course
Speaker 3: is interesting link bonds, So just.
Speaker 2: To cut through that again, you think the opportunity might
Speaker 2: be in tips, more than what is already rally in,
Speaker 2: which is stocks and gold.
Speaker 3: Certainly, I think stocks can continue probably to do well,
Speaker 3: high quality stocks. So I think we might see a
Speaker 3: little bit of a small gap rally here, but what's
Speaker 3: going to work for the medium term is up in
Speaker 3: quality rally. And I think tips make a lot of sense.
Speaker 3: Front end tips, something like SDIP make a lot of sense.
Speaker 2: So that's fixed income. You touched on stocks. Let's just
Speaker 2: finish on our creative weekend. What is it about small
Speaker 2: caps that you would like at the moment? Really big
Speaker 2: out performance yesterday continues this morning.
Speaker 3: Oh, I was going to say that we don't think
Speaker 3: that small caps is going to be the output even
Speaker 3: though it did well yesterday for the longer period of time,
Speaker 3: you know, over the the next three to six monthstually
Speaker 3: large gap and quality that has done well, that has
Speaker 3: the earnings growth, that's going to continue to do well.
Speaker 3: I think the small gap is more of a rebound
Speaker 3: trade that's happening at the back of a dubbish fed,
Speaker 3: but I doubt how long it will last.
Speaker 2: That rebound continues this morning by three quarters of one
Speaker 2: percent on the russo Ghaghi love it as always Gagi
Speaker 2: Chandry a black rock. Richard Burnst state of Richard burst
Speaker 2: in advice, is not expecting any reductions this year, even
Speaker 2: suggesting there's a chance of a hike Richard, and plays
Speaker 2: to say is with this around the table, Richard, good
Speaker 2: morning to you.
Speaker 4: Good morning, John.
Speaker 2: Let's start at a press conference. What did you make
Speaker 2: of that just yesterday?
Speaker 4: I have the unfortunate view of kind of viewing him
Speaker 4: as a bartender still pouring drinks. I think we haven't
Speaker 4: heard last call yet. And as you said, that's causing
Speaker 4: speculative assets to go up. And that's the natural reaction
Speaker 4: that should go on when the FED is going to
Speaker 4: provide a lot of liquidity in an already liquid environment.
Speaker 2: So what's the onset? Keep drinking, keep drinking, I suppose.
Speaker 4: I guess my confusion is that there's as you said,
Speaker 4: everything's going up. It seems to me that we should
Speaker 4: be seeing the cyclical sort of pro inflation side doing
Speaker 4: much better, and I'm not sure that's actually happening. And
Speaker 4: so I think there's still very much a speculative fervor
Speaker 4: within the market, whether it's a magnificent seven, whether it's cryptocurrencies,
Speaker 4: anything like that. I think that's kind of the warning
Speaker 4: sign out there. But the more economically sensitive stuff should
Speaker 4: be doing well.
Speaker 5: Well.
Speaker 1: You point to some of the more speculative stuff and
Speaker 1: they say magnificent seven, fabulous five if you want to
Speaker 1: take out Apple and Tesla. I am curious though about
Speaker 1: why that is speculative if the earnings are there, And
Speaker 1: that's basically the justification that everyone comes on the show gives.
Speaker 4: Right, I think it's not that they're bad companies. Right,
Speaker 4: there's always this notion that we have to worry that
Speaker 4: somehow these are bad companies. They're not bad companies. The
Speaker 4: question is are they you nique companies? And I don't
Speaker 4: think they are. Right in the latest reporting period, we
Speaker 4: have just for the S and P five hundred, one
Speaker 4: hundred and fifty companies growing earnings twenty five percent or more. Right,
Speaker 4: So what's and that only three of the Magnificent seven
Speaker 4: passed that screen. So there's clearly a lot of choice
Speaker 4: out there. Why would anybody focus on the Magnificent seven?
Speaker 4: And history says then when profit cycles traf and you
Speaker 4: start getting this broadening of the earnings base, that the
Speaker 4: market starts broadening. And that's kind of happening in fits
Speaker 4: and starts, but is not happening.
Speaker 1: The theory that we hear from a lot of strategists
Speaker 1: is that if the FED were to cut rates, that
Speaker 1: would actually allow the broadening out. It would allow some
Speaker 1: of the other four hundred and ninety five stocks to
Speaker 1: really gain some momentum, just because those are the most
Speaker 1: affected by high interest rates. Why do you disagree?
Speaker 4: I don't disagree with that. I think where my confusion
Speaker 4: is more that why would the Fed want to spur
Speaker 4: a speculative aspect to the stock market and to the
Speaker 4: financial markets period? Right, cryptocurrencies, Because ultimately bubbles or very
Speaker 4: speculative period if you don't like the word bubble, bubbles
Speaker 4: are inherently inflationary.
Speaker 2: Left the word bubble, I'm right?
Speaker 5: Oh yeah, okay, okay.
Speaker 4: And they're inherently inflationary because you misallocate capital within the economy, right,
Speaker 4: You allocate capital things you don't need, and you don't
Speaker 4: allocate capital things you do need, so ultimately you spur inflation.
Speaker 4: And I don't think the FED has thought that one.
Speaker 2: For where are the signs of euphoria right now? How
Speaker 2: do you identify that in stocks of the moment?
Speaker 4: I think if you look at just stocks for a second,
Speaker 4: if you look at the magnificent seven effect in environment
Speaker 4: where one hundred and fifty companies are growing earnings twenty
Speaker 4: five percent or more, that I would argue that to you.
Speaker 4: For you, that was the tech bubble. By the way,
Speaker 4: in nine nine two thousand, the profit cycle was accelerating
Speaker 4: the United States, but nobody cared. Everybody just wanted tech. Today,
Speaker 4: the profit cycles accelerating, nobody cares. They want seven stocks.
Speaker 4: So I was in the stock market, I would say
Speaker 4: that's the place where you see it the most.
Speaker 1: When you talk about how they're fueling a bubble or
Speaker 1: some kind of speculative fervor, there is a question of
Speaker 1: whether their policy matters at all with respect to inflation. Right,
Speaker 1: this idea that what's spurring the speculative bubble is not
Speaker 1: Fed policy at all, it's something else, maybe fiscal, and
Speaker 1: that the FED is trying to respond to what they
Speaker 1: can control, commercial real estate, some of these other aspects
Speaker 1: which have felt the bite of it.
Speaker 4: Yeah, I think the key word and what you said
Speaker 4: there that I think is most iportant is the word
Speaker 4: respond That a lot of investors believe that the FED
Speaker 4: is somehow a leading indicator. The FED is a lagging indicator,
Speaker 4: always has been, maybe with it, maybe not the vulgar FED,
Speaker 4: but every FED has been a lagging indicator. You think
Speaker 4: about what they look at. They look at inflation and
Speaker 4: unemployment to lagging indicators, and they respond to lagging indicators.
Speaker 4: So that's the thing that I think presents the opportunity
Speaker 4: right now is that you've got leading indicators that are
Speaker 4: starting to get stronger, so building permits the other day
Speaker 4: a leading indicator of the economy getting stronger, but the
Speaker 4: FED is still reacting to the lagging indicators. I think
Speaker 4: that presents a tremendous investment opportunity because it says that
Speaker 4: we're likely to have more growth rather than less when
Speaker 4: the leading indicators are heating up and the FED is
Speaker 4: going to ease. That's that to me, says you're gonna
Speaker 4: see more growth raather than less, and that calls for cyclicals.
Speaker 2: This isn't just a tactical coal from you. We've been
Speaker 2: talking for a while about this. This is a long
Speaker 2: term coal, a change of regime. If you will, can
Speaker 2: you just explain that.
Speaker 4: Journal I think I think on top of what we're
Speaker 4: seeing with monetary policy and everything else. You've got the
Speaker 4: secular backdrop of globalization contracting, and I think that is
Speaker 4: the long term story. I know, all the excitement about
Speaker 4: AI and everything else, I think contracting globalization is the
Speaker 4: real story because the United States is now in the
Speaker 4: unfortunate position of having a massive trade deficit as globalization contracts.
Speaker 4: That is a really bad combination, and it means that
Speaker 4: the United States is going to have to rebuild our
Speaker 4: own capital stock. You know, people call this reshoring, near shoring, friends, shoring, infrastructure.
Speaker 4: You know, there's so many words for this, but it's
Speaker 4: all the same theme that we have to rebuild the
Speaker 4: United States capital stock. I think that is the most
Speaker 4: important story out there now.
Speaker 2: So what do you think is going to work this
Speaker 2: time in this site core that didn't work last time
Speaker 2: in a previous decade.
Speaker 4: I think small cap stocks, in particular, the area that
Speaker 4: I think that people aren't paying any attention to, which
Speaker 4: I don't understand as small and MidCap industrial stocks. Small
Speaker 4: and mid cap industrial stocks have outperformed the S and
Speaker 4: P five hundred over the last decade, even though small
Speaker 4: caps have not. Small and MidCap industrials have, which I
Speaker 4: think is the beginning sign of this kind of deglobalization
Speaker 4: rebuilding the American capital stock.
Speaker 1: Would you push back against people who say that bigger
Speaker 1: companies are better equipped to actually handle some of the
Speaker 1: volatility that we're seeing in inflation and just the global backdrop.
Speaker 4: I find the love of large companies very interesting. When
Speaker 4: I started my career, which was too long ago to
Speaker 4: talk about now I hate talking about because it just
Speaker 4: as I'm old. But when I started, senior analysts followed
Speaker 4: small companies because in the late seventies early eighties, it
Speaker 4: was a massive small camp rally and small comps were
Speaker 4: considered sexy, and so senior analysts followed small camp companies,
Speaker 4: and the big companies that were and that we're boring,
Speaker 4: we're followed by junior analysts because there was no excitement there.
Speaker 4: And as you go through the eighties and into the
Speaker 4: nineties and the investment banking cycle starts picking up, you
Speaker 4: find that starts switching. And so now you have everybody
Speaker 4: loving large caps saying small capsure no place to be,
Speaker 4: and I think we've gone one hundred and eighty degrees.
Speaker 4: I think it's an amazing thing to see when I
Speaker 4: think the opportunities are. So the way I describe to
Speaker 4: people is are there really only seven growth stories in
Speaker 4: the entire world? Are there only seven growth stories in
Speaker 4: the entire US economy?
Speaker 2: Of course not.
Speaker 4: There has to be a lot more. That's where the
Speaker 4: opportunity is.
Speaker 2: What if there only seven growth stories people care about?
Speaker 2: It doesn't matter how much you talk about it, it
Speaker 2: doesn't change things. Well, money's gone passive, the way we
Speaker 2: invest has changed, and the winners just keep on winning.
Speaker 2: How do you change that?
Speaker 4: So, John, that's kind of the argument that people say, Well,
Speaker 4: value investing ever come back?
Speaker 3: Right?
Speaker 4: And my point is that everything in life is centered
Speaker 4: around Everything we do is centered on value. If I
Speaker 4: tried to sell you a Volkswagen for a Bentley price,
Speaker 4: you would not buy it.
Speaker 6: Right.
Speaker 4: We all understand value, but for some reason there's periods
Speaker 4: in the stock market where people say it doesn't matter.
Speaker 4: I think this presents a tremendous opportunity for value. Given
Speaker 4: that nobody cares about it anymore.
Speaker 2: You're gonna be sticking with us. We'll continue this conversation.
Speaker 2: Richard Vanstein, that of Ape advises. Stephanie Roth of wolf
Speaker 2: Race sets joins us. Now for more, Stephanie, we need
Speaker 2: to begin that good morning to you need to start
Speaker 2: with those projections. What jumped off the page for you
Speaker 2: when you open that document yesterday, by far.
Speaker 5: Was the GDP number. I mean, seeing that jump by
Speaker 5: seventy basis points in combination with inflation bumping by twenty
Speaker 5: basis points and the median dot being unchanged, that just
Speaker 5: tells you that we're seeing one a supply side dynamic
Speaker 5: in terms of GDP that's not going to bring too
Speaker 5: much inflation. And by the way, the inflation upward revision
Speaker 5: was kind of just a marked market and that's what
Speaker 5: Powers said yesterday.
Speaker 2: So directionally it feels like a contradiction, but when you
Speaker 2: go into the details like that, you don't think it
Speaker 2: is a big contradiction.
Speaker 5: Well, I think it tells you something a little bit
Speaker 5: about the reaction function. It's maybe shifted to some extent,
Speaker 5: and that well, maybe they can see slightly higher inflation
Speaker 5: and they'll be okay with it because they see the
Speaker 5: path coming down and they're not worried about strong growth anymore.
Speaker 5: Last year, that was something that they were legitimately concerned
Speaker 5: about strong growth would bring inflation, and now they see
Speaker 5: strong growth as not necessarily inflationary because that's coming from
Speaker 5: the supply side of the economy.
Speaker 1: So what's inflationary and how much control do they have
Speaker 1: over it.
Speaker 5: Inflationary could still be the labor market. If that labor
Speaker 5: supply doesn't actually come through, then that's where you could
Speaker 5: run into some challenges. If you continue to see really
Speaker 5: strong payrolls growth and the labor supply doesn't come through,
Speaker 5: then that becomes a challenge. But the trends in terms
Speaker 5: of immigration is looking a lot stronger if you look
Speaker 5: at the recent CBO projections, there could be a lot
Speaker 5: more labor supply coming from immigration that could really help.
Speaker 1: I guess I'm struggling to understand whether the Fed is
Speaker 1: had any influence over inflation at all, because essentially, if
Speaker 1: what we're saying is that it comes from other factors
Speaker 1: that are un related to interest rates, so that doesn't
Speaker 1: really matter if you move them up or if you
Speaker 1: move them down, then what are we even talking about
Speaker 1: with the FED care Like, what is their role in
Speaker 1: bringing down inflation If the inflation that we're looking at
Speaker 1: is not related to their policy?
Speaker 5: I mean, some of it was transitory, and you had
Speaker 5: this conversation up here before. Is that they just had
Speaker 5: they had to in terms of risk management, they had
Speaker 5: to raise rates aggressively because in case that wasn't true,
Speaker 5: they would have been had a real problem. That would
Speaker 5: have been nineteen seventy style inflation. So they would have
Speaker 5: had a real problem on their hands. So it's hard
Speaker 5: to disentangle what was transitory and what was driven by
Speaker 5: FED policy. Was probably a combination of both, but the
Speaker 5: transitory factor seemed to be perhaps some of the more
Speaker 5: important ones here.
Speaker 2: This just raised an important question though, when the chairman
Speaker 2: is asked and when FED officials aroused, are we sufficiently restrictive?
Speaker 2: And they point to the labor market as evidence that
Speaker 2: they are? Are they right to point the labor market
Speaker 2: as evidence that they are sufficiently restrictive.
Speaker 5: Well, that's a tough one, I mean, and Pwell talked
Speaker 5: about his models and it was, you know.
Speaker 2: A very big we could sit here in all degree,
Speaker 2: there is a massive supply site dynamics taking place now
Speaker 2: that is leading to changes in the labor market. How
Speaker 2: can we draw a dot edline all the way back
Speaker 2: to the federal Reserve based on that?
Speaker 5: I mean, I think that's a tough one. It's probably
Speaker 5: a combination of the labor supply or the labor market
Speaker 5: just coming back into better balance, partially because companies who
Speaker 5: have had excess demand for labor kind of satisfied that
Speaker 5: and productivity picked up. So a lot of it was
Speaker 5: a little bit of luck and a little bit of
Speaker 5: some of the hikes doing their job.
Speaker 1: Some people were talking about the awkwardness of basically the
Speaker 1: FED fighting fiscal stimulus and that that was kind of
Speaker 1: going to be where we were this year, And it
Speaker 1: seems as though everyone's talking about spending that's still coming
Speaker 1: back into the market or coming into the market from
Speaker 1: the federal government and a FED that's okay with that
Speaker 1: and doesn't see that as inflationary and doesn't see the
Speaker 1: need to really offset that with materially higher rates for longer.
Speaker 1: Does that ring true to you that basically they're on
Speaker 1: the same page with trying to stimulate not suppress.
Speaker 3: I mean to some extent.
Speaker 5: And last here was a good indication we still had
Speaker 5: a decently strong fiscal and pull certainly more so than
Speaker 5: people expected, partially related to play retention credits and all
Speaker 5: kinds of you know, funky things happening under the surface
Speaker 5: that weren't necessarily expected. The chip spending, which which the
Speaker 5: take up was really quite strong. So yeah, those two
Speaker 5: are in conflict to some extent. But as long as
Speaker 5: inflation is coming back down towards two percent, like that's
Speaker 5: kind of okay.
Speaker 1: So how much are you upgrading your growth expectations just
Speaker 1: generally for the United States if this is basically the
Speaker 1: reaction function and the reality that we're in.
Speaker 5: I mean, we were at two point four percent for
Speaker 5: this year and we've been expecting free cuts, So for us,
Speaker 5: we haven't had to change it. That said, from where
Speaker 5: we were six months ago before Powell pivoted, we were
Speaker 5: looking at one and a half percent GDP growth. So
Speaker 5: we kind of made that similar type of adjustment in
Speaker 5: anticipation of the FED being able to be dubbished for longer,
Speaker 5: partially because our expectation is inflation should come back down
Speaker 5: towards two percent with growth still being okay.
Speaker 2: Well, the chairman says we're committed to getting inflation back
Speaker 2: to talk. It is he less committed now that mightbe
Speaker 2: was a company back in August twenty twenty two.
Speaker 5: No, I think he's still just as committed. I think
Speaker 5: he's just convinced that inflation is on the right path.
Speaker 5: And to be fair, he talked about the seasonal problems
Speaker 5: and I very much agree with that. I mean, if
Speaker 5: you look back to core PC inflation in November, it
Speaker 5: was up nine basis points in December's fourteen basis points.
Speaker 5: That wasn't the trend either, and he highlighted that.
Speaker 2: And that's fair, Mi McKay. Is not why you can
Speaker 2: call this a bump in the route. Destination has not changed.
Speaker 6: This is what they've predicted all along. The only question
Speaker 6: is are they going to be right about the fact
Speaker 6: that it was transitory and then things start to fall
Speaker 6: back down again. There are some categories that are surprising
Speaker 6: used cars surprised this last time. And we have no
Speaker 6: idea what will happen with energy the way it's been
Speaker 6: bouncing around. But their view is we're going to get
Speaker 6: sort of a natural disinflation.
Speaker 2: To continue the tea word agtrovites people.
Speaker 6: I didn't use that.
Speaker 2: You kind of did, think you did.
Speaker 1: A presitory that's what we're talking about.
Speaker 2: They're still still watching the cool belief of this feder reserve. Ultimately,
Speaker 2: it's just a word that that's scad of using.
Speaker 6: Well, they got pilloried for using it. We were just
Speaker 6: coming out of the pandemic, and they weren't totally wrong.
Speaker 6: It was a question of timing. What is the definition
Speaker 6: of transitory? But a lot of things that went up
Speaker 6: in price because the supply wasn't there now have come
Speaker 6: down in price because supply chains have normalized.
Speaker 1: Sephanie, what's not transitory? What are the aspects you're watching
Speaker 1: that give you some pause with respect to the steady
Speaker 1: pace down?
Speaker 3: I mean of some of the.
Speaker 5: Service sector inflation is still running kind of hot, and
Speaker 5: I still believe maybe the transitory is not the right word,
Speaker 5: because it's probably a function of the labor market having
Speaker 5: been strong. It's just a lagged effect of that. So
Speaker 5: I would say that's not necessarily transitory. It's real inflation
Speaker 5: that's happened. People are really traveling, And there are some
Speaker 5: areas within the service sector where you're continuing to see
Speaker 5: fairly firm inflation prints. But that as the labor market
Speaker 5: has cool that should continue to slow down. But that's
Speaker 5: something that I'm keeping probably the closest eye on. And
Speaker 5: people were talking about the super core inflation, and for
Speaker 5: some reason they've stopped talking about it, But I still
Speaker 5: think that that's important. That's kind of what we're talking
Speaker 5: about here.
Speaker 1: Meanwhile, I keep going back to Rick Readers' concepts around
Speaker 1: inflation and how it really isn't driven by Chair Powell.
Speaker 1: He says, in part is driven by Taylor Swift and
Speaker 1: the fact that we've been able to see some of
Speaker 1: these potential things. He didn't actually so that I'm putting words
Speaker 1: in his mouth, but he did talk about how there
Speaker 1: are some independent of the FED kinds of trends like
Speaker 1: the era's tour or you know, the message.
Speaker 2: Message from Rick now just to say what is prime
Speaker 2: So looking apen, he just.
Speaker 4: Used all of those things.
Speaker 1: I mean, how much is the discretionary spending of consumers
Speaker 1: that it's still kind of a concern that they can
Speaker 1: shell out ten thousand dollars for a ticket.
Speaker 5: Yeah, I mean, I think that that's the story that
Speaker 5: we've had over the past couple of years, is people
Speaker 5: have had a lot of discretionary income. Some of that
Speaker 5: was this excess cash that was saved up from the pandemic,
Speaker 5: and that's largely worked its way through Now it's only
Speaker 5: sitting in the top incomeerners. And you know that that's
Speaker 5: that's they're probably not going to not going to spend
Speaker 5: it to that same extent. But now that you're starting
Speaker 5: to see these things normalize, excess cash has slowed down.
Speaker 5: Now we're looking in an environment where GDP growth should
Speaker 5: actually trend something like like two percent, which is what
Speaker 5: the Fed's looking for.
Speaker 2: They're going on the Icon of the Seas, apparently to
Speaker 2: listen to theirs. Can't believe Sebastian Page went on the
Speaker 2: Icon of the Sea.
Speaker 3: He was he was.
Speaker 1: Sort of proud of it, and then very much backed away.
Speaker 1: That's the pedal against.
Speaker 2: Seeing the ship that cruise liner. I kind of the
Speaker 2: seas three blocks touch a cruise, would you know? I
Speaker 2: saw that face look perfect?
Speaker 1: How many adults they are doing it for themselves versus
Speaker 1: their kids. I mean, ultimately, if you can get a
Speaker 1: vacation where you don't have to actually cater to anyone
Speaker 1: and they can.
Speaker 2: Just love it. Tom's gone on a cruise, sok Is
Speaker 2: loughing gift time of his life in Touch of Me yesterday,
Speaker 2: absolutely loving.
Speaker 1: Does he like the water slide?
Speaker 2: I'm not sure he went on the water slide.
Speaker 1: Okay, good, we'll ask him.
Speaker 2: It's live like, there's just some things that no one
Speaker 2: needs to say. Stephanie thank you, Thank you very much,
Speaker 2: Stephanie rothbare Wolf Research. This is the Bloomberg Surveillance podcast,
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