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Speaker 2: Claudia Sam with us right now.
Speaker 3: And the squishing of the numbers, Claudia, are they squishy
Speaker 3: now because of the pandemic or because of immigration trends
Speaker 3: or do we just need to get used to this
Speaker 3: at the turn of the year.
Speaker 4: Today's data. There's a lot of moving pieces with today's data,
Speaker 4: just because we had large revisions to both the payroll
Speaker 4: employment and the household employment, and you know, and some
Speaker 4: things aren't as comparable from December to January and household
Speaker 4: so this is just a really tricky one to get
Speaker 4: down into the details of it.
Speaker 5: So I wouldn't So it's kind of.
Speaker 4: More of a January effect with like bringing a lot
Speaker 4: of data in.
Speaker 5: But it brought brush. I mean, I agree with your
Speaker 5: characterization the payrolls.
Speaker 4: You got to take that, you know, a set of
Speaker 4: them together, not focus on just this latest number, because again,
Speaker 4: hitting consensus with all these moving pieces was going to
Speaker 4: be tricky today. And those payrolls look good.
Speaker 6: I think it is.
Speaker 4: You know, that's kind of a warm average hourly earnings
Speaker 4: number on the wages. But the other wage data that
Speaker 4: we've gotten has has looked more moderate, So you know,
Speaker 4: there's plenty here to pour through.
Speaker 2: I'm struggling for news here, Paul. I got d x
Speaker 2: Y back to one away, so I got a stronger dollar,
Speaker 2: stronger dollars. Claudia Simon is saying, nobody cares.
Speaker 7: But you know we SMP futures down just thirteen points,
Speaker 7: nasnack down fifty six and to your treasure yield. Iss
Speaker 7: Chonnis is reporting for basis points four and a quarter
Speaker 7: percent right here, Claudia, So what's the next data point here?
Speaker 7: If you have a sense that the labor markets remains solid,
Speaker 7: what's the next data point that you will be looking for?
Speaker 7: And you think the Fed will be looking at.
Speaker 2: Right?
Speaker 4: Well, this very much continues the Feds. You know, the
Speaker 4: labor market's in a good place. We have the luxury
Speaker 4: of time we can wait and see. So what are
Speaker 4: they waiting to see? They're waiting to see what happens
Speaker 4: with inflation? Right, So the next most important data are
Speaker 4: with the CPI and to see if we continue to
Speaker 4: make progress and everything they've got here today kind of
Speaker 4: lets them stay in that, you know, on that trajectory.
Speaker 3: Okay, Claudia, thank you so much. Claudiam just love having
Speaker 3: you with us. Honored around this job's report with New
Speaker 3: Century Advisors. Ellen Zenner's ad a little time to ponder
Speaker 3: the data. I'm going to go back to what the
Speaker 3: hitters are doing. Like in late winter, you don't go
Speaker 3: to Patagonia for fly fishing. You go to the Trinity
Speaker 3: River in California, or the you know, Schinunck or Salmon
Speaker 3: or whatever in Oregon or that. Ellen Zenner. Morgan Stanley
Speaker 3: joins us on the wealth effect. This is where I
Speaker 3: met you years ago was a consumer effect, which is
Speaker 3: now a wealth effect supporting this GDP in this labor economy.
Speaker 2: Have you ever seen a wealth effect like this?
Speaker 8: It's pretty large, it's pretty large.
Speaker 2: I agree.
Speaker 8: Do you want to venture to say how long ago.
Speaker 6: It was that we met three or four years ago? Okay?
Speaker 8: But I'll tell you what I love most about the
Speaker 8: report this morning is listening to the dulcet tones of
Speaker 8: John Tucker read off the numbers I mean, I want
Speaker 8: him to read me payroll numbers each night so that
Speaker 8: I can go to bed like a lullaby.
Speaker 2: Yes, he puts us to sleep here too.
Speaker 3: What do you see in the jobs report around this
Speaker 3: misgust on growth and the wealth effect that we're living.
Speaker 8: Well, the thing is, look, we've been really surprised at
Speaker 8: just how strong the economy has remained even through all
Speaker 8: the FED hikes. And yes, they cut rates one hundred
Speaker 8: basis points, but then you have this tremendous and yields
Speaker 8: which would tighten financial conditions, and you'd think we'd get
Speaker 8: some slowing.
Speaker 6: Out of that.
Speaker 8: And so now you get these revisions and you look
Speaker 8: at the second half of twenty twenty four and it
Speaker 8: looks even stronger in the labor market than what we
Speaker 8: had thought, and looks a bit more in line with
Speaker 8: the strong GDP growth that we were getting. So there's
Speaker 8: just there's just no slowing here. And you know, I
Speaker 8: have to give props to my former team, the US
Speaker 8: economics team at Morgan Stanley Research, because they had one
Speaker 8: forty on. Okay, now, if they were way off, I
Speaker 8: wouldn't mention that, of course, but they had one forty
Speaker 8: because of wild fires.
Speaker 6: And you could definitely, I mean I would be at
Speaker 6: a higher number.
Speaker 8: On Oh I'm sure I would have been way off,
Speaker 8: thanks Tom. But but the you know, these these numbers
Speaker 8: even have the weather effects in there. I mean, you
Speaker 8: can look at the number of people that were right
Speaker 8: the fire that's and the and so you look at
Speaker 8: the number of people that were not at work due
Speaker 8: to natural disaster, weather or that sort of thing, and
Speaker 8: it was outside. So you know that this would have
Speaker 8: been a stronger number without it. And we've just got
Speaker 8: a great trajectory on the labor market. Now. The FED,
Speaker 8: I believe, took a hard pause last year. They used
Speaker 8: boilerplate language that was basically, we'll let you know when
Speaker 8: we're going to move again. And clearly there's no consensus
Speaker 8: on the FED to do anything but sit here, and
Speaker 8: so that's going to make it even difficult, more difficult,
Speaker 8: or raise the bar for them to see the kind
Speaker 8: of data that would mean they need to cut. So
Speaker 8: I completely agree with Claudia. They're just going to hang
Speaker 8: out here. They're looking golden for making that decision to stop.
Speaker 7: And do we get to the point where I've heard
Speaker 7: some people suggest that the longer they do wait, the
Speaker 7: odds actually go up that the next move would be
Speaker 7: a rate hike. Are you in that camp or I
Speaker 7: have a hard time thinking about hiking rates.
Speaker 8: Well, there's an odd there's odds on it. I don't
Speaker 8: know that they're very high. But you know, think about
Speaker 8: back in the mid nineties, we had a mid cycle
Speaker 8: growth correction and the Fed cut rates and then held
Speaker 8: steady at that time about seventy five basis point cut
Speaker 8: and rates we cut rates one hundred basis points this time.
Speaker 8: Then they held steady, the economy started strengthening again, and
Speaker 8: rates increased again at some point, right, And so I
Speaker 8: don't know that it raises the odds, Like just pausing
Speaker 8: for this long means we're going to get a reacceleration
Speaker 8: in the economy. But that is that's a plausible outcome.
Speaker 8: I would put a lower probability than the next move
Speaker 8: being a cut. And we still have a tremendous amount
Speaker 8: of policy uncertainty.
Speaker 3: Right, is the unemployment rate four point one percent down
Speaker 3: a tick to four point zero percent, I mean three
Speaker 3: point nine is a lot lower from four than four
Speaker 3: point one to four point zero.
Speaker 2: Does that matter to you that you know it's going
Speaker 2: in the way nobody expected.
Speaker 8: Now, I think what matters is looking at the underlying
Speaker 8: details and saying what caused the drop and the unemployment rate?
Speaker 8: Is it lower labor force participation? People just left the
Speaker 8: labor Is it because more people joined and were able
Speaker 8: to find jobs?
Speaker 3: Right?
Speaker 6: So that comes down to that household employment.
Speaker 5: Report and a lot of deeper data.
Speaker 8: Yeah, a lot of deeper data. Unemployment rates one of
Speaker 8: the hardest things to parse. It takes a lot of
Speaker 8: time because there's a lot of undercurrents and what drives.
Speaker 3: Okay, I want to go back to wealth effect because
Speaker 3: this is something the American consumer, folks, is what Ellen
Speaker 3: Zentner knows. For those of you on YouTube and across
Speaker 3: this nation in your commute, Ellen Zenner and Morgan Stanley
Speaker 3: with us right now, Christiana cat Many.
Speaker 2: Scheduled to be with us.
Speaker 3: Thrilled to Rebecca Patterson with this as well, but right
Speaker 3: now Zentner of Thematic Macro Investing at Morgan Stanley. Okay,
Speaker 3: just suggesting seven nights, six days, single occupancy boat package,
Speaker 3: Belize fly fishing. You sell some shares of Nvidia and
Speaker 3: for eight and twenty five dollars you're fishing in belize,
Speaker 3: which I'm sure you've done. I mean, the answer here
Speaker 3: is the wealth effect to me is enormous right now
Speaker 3: when I look at the idiocy of some of these stock.
Speaker 8: Books, yea, and believe you can do uh, you could
Speaker 8: do fishing from the beach for rooster fish.
Speaker 6: Look that up? See what that crazy looking skillet?
Speaker 8: No, you slap them and send them back on their way.
Speaker 8: So look, the wealth effect is, as you said.
Speaker 6: It's really strong.
Speaker 8: Now the the it's much stronger than it's been in
Speaker 8: my memory of practicing as an economist to get it.
Speaker 6: And so there are a couple of things here.
Speaker 8: Is it so one we have created a tremendous amount
Speaker 8: of wealth, and so one are we spending the same
Speaker 8: amount out of that wealth that we normally do?
Speaker 6: It's just wealth?
Speaker 8: Is that high? That is one possibility? Or is the
Speaker 8: still some lingering effects of COVID which taught us we're
Speaker 8: all going to die tomorrow and so spend it?
Speaker 6: If you got it?
Speaker 7: Interesting?
Speaker 6: So is it that the marginal propensit you consume.
Speaker 8: That's a great economist term, tom You like that marginal
Speaker 8: propension to consume out of wealth may just be higher?
Speaker 8: And so does that fade the further we get away
Speaker 8: from COVID further it's in the rear view mirror. Or
Speaker 8: does it just stay that high because now we've had
Speaker 8: some structural shift.
Speaker 3: You've seen research on this. I mean, you're in a
Speaker 3: casperg seat to see research.
Speaker 6: We have done this research.
Speaker 2: Well do you see that? To me, it's it's an
Speaker 2: unspoken huge deal. Am I wrong?
Speaker 6: Yeah? So what what I see, what I what I
Speaker 6: believe I.
Speaker 8: See in the numbers is that it's just the amount
Speaker 8: of wealth that has been created has just been that large.
Speaker 8: I think that, well, we're seeing we're in the midst
Speaker 8: of seeing the data is quite lagged on this, that
Speaker 8: that the marginal propensity you consume out of wealth is
Speaker 8: returning back to normal, but that the wealth we've created is.
Speaker 3: Just that high.
Speaker 7: Yeah, it's just I mean, and it kind of goes
Speaker 7: back to that issue in this US consumer. If this
Speaker 7: consumer owns assets, stocks by on real estate, feeling very
Speaker 7: good about the world. Yeah, and think about it, don't
Speaker 7: that inflation kick has been even more pronounced.
Speaker 8: Exactly exactly, And well, we're a service's economy. Sixty percent
Speaker 8: of all spending as services. So you slap tariffs on goods,
Speaker 8: and you're going to deepen that trend that good spending
Speaker 8: has been slowing and that services spending has been taking share,
Speaker 8: and we're going to still go out and spend on
Speaker 8: all the services we can.
Speaker 7: So how do you think about over there? Morgan standing
Speaker 7: this whole terariff discussion over the last couple of months.
Speaker 8: So I think it's it creates an extremely uncertain backdrop.
Speaker 8: We are just starting to see a lot of the
Speaker 8: business surveys show sentiment damage from the uncertain around tariffs.
Speaker 8: It's awfully hard to make business decisions in this environment.
Speaker 6: And so as this.
Speaker 8: Volatility around tariffs, do we or don't we put them
Speaker 8: on continues? I think even if you're not, if your
Speaker 8: bottom line isn't hit from tarrafs, you're going to start
Speaker 8: You're going to start building precaution.
Speaker 3: Every time you're on I learned something. A rooster fish
Speaker 3: is four feet lawn, sometimes one hundred pounds.
Speaker 2: Have you caught one?
Speaker 5: Now?
Speaker 8: I haven't caught one hundred pounds four foot rooster fish?
Speaker 2: Are they like barracuda?
Speaker 8: They're just one hell of an ugly looking fish.
Speaker 7: But you're in belieze, so who cares?
Speaker 8: Yeah, you're in belieze.
Speaker 2: That's the wealth effect. With Ellen Zender, thank you so much.
Speaker 3: With Morgan Stanley, just absolutely extraordinary. I've got a little
Speaker 3: Zenner driving the market higher. We were reading the screen
Speaker 3: and now a little bit of green. Critically, the VIX
Speaker 3: comes in fifteen point zero zero on the Vicks you
Speaker 3: gotta I'll tell you a fourteen. I don't see a
Speaker 3: fourteen yet. Maybe we're there and I missed it. Yields
Speaker 3: higher three basis points in the ten year yield four
Speaker 3: point four to six percent. And yes I followed the
Speaker 3: ten year really yield fraction on two point zero two
Speaker 3: out to two point zero four. We had some dollar
Speaker 3: strength off of this. What a treat to go from
Speaker 3: Claudia sam and Ellen Zenner over to the wonderful efforts
Speaker 3: of Rebecca Patterson tying it all together and particularly with
Speaker 3: her expertise on foreign exchange. She's a senior fellow at
Speaker 3: the Consul on Foreign Relations and had parchment out at
Speaker 3: Bridgewater and at Best in her trust as well.
Speaker 2: Rebecca, good morning, the prost morning, the prosperous America.
Speaker 3: That is the backdrop for this four point zero percent
Speaker 3: on employment rate.
Speaker 2: Does it continue?
Speaker 3: Do you have a sustaining nature to our real GDP.
Speaker 9: Well, you know, when I think about the economy, and
Speaker 9: we know that consumption is the majority of what drives
Speaker 9: our growth. To understand what the consumer does, you have
Speaker 9: to think about their ability to spend. Do they have
Speaker 9: the money and the job, which today underscored that they do,
Speaker 9: and do they have the confidence to spend. They might
Speaker 9: have money, but they don't want to spend it. That's
Speaker 9: what we've seen in China. In the case of the US,
Speaker 9: I think we do still have both confidence and ability.
Speaker 9: The latest confidence surveys, although very bifurcated by political affiliation,
Speaker 9: still trending higher. So for the short term at least,
Speaker 9: I think that the consumer continues to drive this, and
Speaker 9: that's clearly very positive for the stock market broadly speaking.
Speaker 9: That said, what we know has driven the wealth effect
Speaker 9: housing equities primarily. Anything that happens that really spokes the
Speaker 9: stock market could cause this higher income consumer to pause
Speaker 9: as well quickly, and we know there's risks to that
Speaker 9: from possible policy announcements from the new administration or even
Speaker 9: things like we saw in the last week or so.
Speaker 9: A deep seek you it doesn't take much at these
Speaker 9: valuations to cause equities to get a little bit skittish.
Speaker 7: So, Rebecca, if you step back here and think about it,
Speaker 7: put the jobs number in context. It's what we're seeing
Speaker 7: from some of the policy decisions of this Trump administration.
Speaker 7: The economy right now is in pretty good shape on
Speaker 7: it as which to the labor market inflation. Yet to
Speaker 7: talk about tariffs continues to be an uncertainty. And what
Speaker 7: do you make of some of the economic policies and
Speaker 7: rhetoric we're hearing out of Washington.
Speaker 9: Well, there's four that I think we're all focused on
Speaker 9: in terms of the economy and markets, and that is trade, taxes, immigration, regulation,
Speaker 9: And at the end of the day, what happens to
Speaker 9: these markets and to our economy will depend on the
Speaker 9: timing of those and the magnitude. And unfortunately we don't
Speaker 9: have a lot of clarity.
Speaker 5: Regulation.
Speaker 9: We probably have a little more I think that will
Speaker 9: becoming deregulation, But the problem with it is it doesn't
Speaker 9: happen overnight. There is a process that this administration will
Speaker 9: have to follow and it'll take a couple of quarters
Speaker 9: to actually be felt in the economy. On immigration, we
Speaker 9: know the trend, but we don't know the magnitude, and
Speaker 9: the magnitude will matter for the labor force and for wages.
Speaker 5: Trade.
Speaker 9: I mean again, I don't know, No one knows. My
Speaker 9: gut is we are going to see more tariffs and
Speaker 9: it's a matter of time. I think once we get
Speaker 9: those April reports back to the President's desk, that'll give
Speaker 9: him the green light.
Speaker 5: To take his next step on tariffs.
Speaker 9: And I would expect we will see tariffs on Europe
Speaker 9: and very likely some.
Speaker 5: More on China, Canada, Mexico. We'll see Tea live.
Speaker 3: The Bloomberg Terminal Folks has great analysis leading the charge
Speaker 3: today end Ocurr and Chris Ansey as well in IRA
Speaker 3: Jersey helping out on the unemployment report. Rebecca, here's the
Speaker 3: first line this from end Ocurr in our Global Economy Reporter.
Speaker 3: The annual revisions now showed job growth averaged one hundred
Speaker 3: and sixty six thousand a month. That would be a
Speaker 3: slowdown from an initially report at one hundred and eighty
Speaker 3: six thousand pace. To me, that's pretty much quiescent. I mean,
Speaker 3: they're down, but they weren't the gloom that many people
Speaker 3: were modeling.
Speaker 9: Yeah, I would guess the federal Reserve today is very
Speaker 9: happy and we're seeing a moderation in the pace of
Speaker 9: job growth, but very very resilient labor market data showing
Speaker 9: us that this economy can continue to grow at above
Speaker 9: its potential long term rate. So maybe no rate cuts
Speaker 9: forthcoming in the near term. That's already priced in that
Speaker 9: we don't get a rate cut probably till midyear. But
Speaker 9: at the same time, the normalization of the labor market
Speaker 9: also means they don't need to be too worried at
Speaker 9: this moment about having to go the other way in titan.
Speaker 2: I mean, we're going to have Anna wan on with
Speaker 2: this later. She'll be expert in that, Paul.
Speaker 3: But basically the revision was what Mike McKee talked about was, Yeah,
Speaker 3: it's a revision, but get over it.
Speaker 2: It's just that a revision.
Speaker 5: Yes, agreed, we have them every year.
Speaker 2: Soa.
Speaker 7: We heard from the Secretary of the Treasury, Thank you
Speaker 7: very much, Rebecca. We heard from the Secretary and Treasury
Speaker 7: in an interview saying love to talk down the ten
Speaker 7: year yields. I know you have some thoughts on this.
Speaker 7: How do you think the administration thinks about interest rates?
Speaker 9: Yeah, it was really striking to me. That Treasury Secretary
Speaker 9: best highlighted that they're focused on not letting the ten
Speaker 9: year yield rise too much. I don't remember in my
Speaker 9: career focus on the ten year yield via Treasury Secretary.
Speaker 5: Given the size of our debt, the.
Speaker 9: Increase in our borrowing costs, the interest we have to
Speaker 9: pay on our debt, it makes sense.
Speaker 5: But then how does he do it right?
Speaker 9: If you can't the treasury market is twenty seven trillion dollars,
Speaker 9: It's not that easy to manipulate. And when I think,
Speaker 9: what can he do If they can limit the unfunded
Speaker 9: increase in our deficit so you get lots of pay
Speaker 9: for us and maybe it doesn't go up as much
Speaker 9: as some of the estimates, that would probably provide some
Speaker 9: relief that we're not going to have to increase bond
Speaker 9: supply a huge amount. He could try, and this is
Speaker 9: something to keep an eye on and we should talk
Speaker 9: more about it in a future date. Stable Coins stable
Speaker 9: coins right now on a decent amount of short term
Speaker 9: treasury securities as their reserves to keep their peg to
Speaker 9: the dollar. And this administration is very focused on increasing
Speaker 9: the use of stable coins around the world, in part
Speaker 9: because they know that's going to be a good source
Speaker 9: of treasury demand. We're on the front end of the
Speaker 9: long end, but still, you know, I think he can
Speaker 9: also look at treasury issuance and even though he posed
Speaker 9: yelling for this, he could issue more debt as needed
Speaker 9: shorter maturity than longer maturity. So he has a few tools.
Speaker 9: It's interesting to see which levers he pulls in the
Speaker 9: coming months and quarters to do this. But if we
Speaker 9: have strong growth like we had today, that's a benign
Speaker 9: reason for the yield to go up, but it will
Speaker 9: go up.
Speaker 3: It's tacking of me, Rebecca, to get out to March
Speaker 3: seven and the next unemployment rate. That's when your beach
Speaker 3: season clicks in. Right, we're getting close to forty fifty, Rebecca.
Speaker 3: I look at March seven, and you mentioned the fiscal
Speaker 3: structure and pegging the tenure yield. I mean we rolled
Speaker 3: into March. Is it correct to say with the nearest
Speaker 3: fiscal crisis.
Speaker 9: That we owe you mean with the debt ceiling or
Speaker 9: just the size of the days?
Speaker 2: Yeah, just as general for our listeners and YouTube viewers.
Speaker 3: The bottom line is we get out thirty days and
Speaker 3: it's a whole new world.
Speaker 2: After all, A fiscal stress.
Speaker 5: Yeah.
Speaker 9: I mean we are facing some major debt related fiscal
Speaker 9: challenges this year. We're going to have to see an
Speaker 9: increase or an abolition of the debt ceiling that's being
Speaker 9: discussed in Congress. I think we will get through that.
Speaker 9: I'm not sure which path they'll take, but I don't
Speaker 9: think we're going to have a crisis this time with
Speaker 9: the Republican controlled Congress. What's more important to me is
Speaker 9: how the reconciliation goes for the budget that they're going
Speaker 9: to try to pass this year.
Speaker 5: They have to pass this year.
Speaker 9: What kind of shenanigans are used to make the math
Speaker 9: look better? Both parties do this, so I'm not pointing
Speaker 9: a finger, but there are going to be some shenanigans.
Speaker 5: And then how much is that increase?
Speaker 9: And what is the market going to tolerate If we're
Speaker 9: putting tariffs on our biggest buyers from overseas of treasuries,
Speaker 9: are they going to be looking more towards gold and
Speaker 9: we're going to keep seeing new all time hyes for gold.
Speaker 3: There I'm not going to get a gold call from
Speaker 3: Christina KATMANI Rebecca Patterson, can you print through three thousand
Speaker 3: gold for US?
Speaker 5: I wouldn't rule it out.
Speaker 9: I learned when I left the cell side you don't
Speaker 9: have to give numbers and dates anymore. That is the
Speaker 9: hardest part of a cell side analyst. Since I don't
Speaker 9: have to, I'm not going to Tom, but good try with.
Speaker 2: A cell side firm. The Console of Foreign Relations.
Speaker 3: Rebecca Patterson, thank you so much, and now we turn
Speaker 3: for this is just a kids say this commercial for
Speaker 3: this is just brilliant intellectual.
Speaker 2: Content on YouTube on radio.
Speaker 3: And we finished strong, strong, strong with Invesco Senior portfolio manager.
Speaker 3: That doesn't even describe our abilities Christina Kamani as well.
Speaker 2: When you make a prediction, do you avoid level and
Speaker 2: the time frame? Is that something you've learned to do?
Speaker 10: You can only choose so many time, level, direction, hard
Speaker 10: to get all three right at the same time.
Speaker 2: Help me here with the yield? Now, is it normal?
Speaker 2: That's some question Sweeny would ask.
Speaker 5: Is it normal?
Speaker 6: Is it normal like the here or what?
Speaker 3: Oh? We had this four year window of negati of
Speaker 3: yields and wicked low rates and now we're back here
Speaker 3: and we better get used to it after this job's report.
Speaker 2: Should we get used to where yields are? Right? Now? Look?
Speaker 10: I think we've kind of been in this consistent thesis
Speaker 10: for the last couple of months that four twenty five,
Speaker 10: four to seventy five are probably reasonable bounds for the tenure.
Speaker 10: And I think there's going to be a lot of
Speaker 10: noise within there, and we sit and say, our only
Speaker 10: certainty here is uncertainty. We have all of this this
Speaker 10: information flow coming from DC. What are the priorities of
Speaker 10: the administration? How do we get them? What's the order,
Speaker 10: what's the magnitude? And I think that's going to cause
Speaker 10: noise out the back end, and where there's a lot
Speaker 10: more stability is in the front end, because I think
Speaker 10: the FED is very comfortably on hold as they wait
Speaker 10: for kind of more clarity on what the path is
Speaker 10: for real econ data.
Speaker 7: All right, So then it becomes like we answer kind
Speaker 7: of the duration question a little bit. How about the
Speaker 7: credit quality question, because again, somebody can sit there at
Speaker 7: a two year treasury at four and a quarter percent,
Speaker 7: that's not a bad living.
Speaker 2: Do I do that?
Speaker 7: Or do I take some credit risk? Do I go
Speaker 7: high yield leverage loans?
Speaker 5: How do you guys?
Speaker 10: Yeah, So when we think about that, I think we're
Speaker 10: really happy to say we think that the front end
Speaker 10: is a great anchor in the market and you no
Speaker 10: longer have negative carry to where policy rates are, and
Speaker 10: then you can build interesting portfolios around front end assets.
Speaker 10: And that's where we're willing to take some credit risk
Speaker 10: and look at mortgages that inherently have some selling fall
Speaker 10: component to them. So credit as a whole, i'd say, again,
Speaker 10: like we have our credit specialists within Invesco, but the
Speaker 10: way we're looking at it, certainly short duration double b's
Speaker 10: look really interesting. There's mortgages, there's mortgages in Europe and
Speaker 10: the UK that look interesting.
Speaker 2: Where are you un duration? I mean to me, it's
Speaker 2: just absolutely fascinating. We mentioned earlier.
Speaker 3: Should John Tucker get the two year CD or the
Speaker 3: five year CD? That's a really important question right now,
Speaker 3: isn't it.
Speaker 10: It is absolutely And you take a step back and
Speaker 10: we live back in a world of babs, right, bonds
Speaker 10: are back and that's there is definitely value there. However,
Speaker 10: you look in the last year, were the best performing
Speaker 10: asset out there?
Speaker 5: Right?
Speaker 10: Because you've had this negative an inverted yield curve and whatnot.
Speaker 10: So when we think about duration and where we want
Speaker 10: to be in the curve, I think there needs to
Speaker 10: be more turn premium built in a bit for depending
Speaker 10: on what we get fiscal wise, And it's really around
Speaker 10: the front ends that there is value.
Speaker 7: So again, if I'm in the FED a reserve, I
Speaker 7: look at today's data, I think I have a little
Speaker 7: bit more conviction, like I don't have to do anything.
Speaker 7: I mean, how long do I just take a few
Speaker 7: months off here or what do I do?
Speaker 10: Our base case, I think is that the FED can
Speaker 10: comfortably or right. One data point doesn't change the FED thesis. Two,
Speaker 10: maybe they start to get worried in one direction or
Speaker 10: the next. And three is really when they can start
Speaker 10: to react. And if you think of we have a
Speaker 10: new administration, we have a massive amount of different policies
Speaker 10: coming down the pike. Even if you go through the
Speaker 10: list tariffs, will it have a bigger negative growth, negative
Speaker 10: confidence impact or will it be an inflation impact?
Speaker 5: Is it a right?
Speaker 10: Which one of these things?
Speaker 5: Is it going to be? So I think that that.
Speaker 10: That tells you the FED says we need right a
Speaker 10: series of data to have comfort.
Speaker 3: But to that wonderful summer you just gave, do you
Speaker 3: then pull in your maturity your duration? Yeah?
Speaker 6: I think you do by two weeks.
Speaker 10: Look, we're kind of again you can tactically be playing
Speaker 10: duration out the curve. I think we're getting Will we
Speaker 10: probably test five percent tens again or at some point
Speaker 10: this year?
Speaker 2: Sure?
Speaker 6: Are we there yet?
Speaker 5: Do we need to be massively short?
Speaker 9: No?
Speaker 5: I don't think so.
Speaker 10: I think you can tactically play out the curve where
Speaker 10: you want to own and there's value is two's and
Speaker 10: fives and kind of anchoring some assets there.
Speaker 3: What's the excitement out there right now into the spring
Speaker 3: of this year in bonds?
Speaker 2: Is there a lot of new issuance? Are you getting
Speaker 2: called up all the time?
Speaker 5: There is definitely is sending you on junket stable.
Speaker 10: There's definitely a lot of issuance coming down the pike.
Speaker 10: And I think again, as the US market and the
Speaker 10: kind of that dominance in the world, there will there's
Speaker 10: always money that's going into there. I think when we
Speaker 10: look across the markets that we look at, which are
Speaker 10: rates and em and credit, what's interesting to us is
Speaker 10: really FX from here, like there's a lot of potentials.
Speaker 10: Yen can be a real mover from here. You have
Speaker 10: a lot of commentary from the administration about a strong dollar,
Speaker 10: but does that really play out for a strong dollar
Speaker 10: or do we have some like weaker dollar tendencies kind
Speaker 10: of in the next six months.
Speaker 7: Mergery markets tell us where you see opportunity or is
Speaker 7: everything tied to China.
Speaker 11: I don't know how to look at it.
Speaker 10: I think it's really idiosyncratic from here. So I think
Speaker 10: if you talk to em specialists, they will. But I
Speaker 10: think like some of the focuses are these like Egypt
Speaker 10: people are excited about, and Turkey, and there's like Argentina
Speaker 10: is a great story, right like there are these, but
Speaker 10: like Argentina is a hard asset story, or right like
Speaker 10: they're where people are concerned. Are China terrorists? Mexico there's
Speaker 10: so much noise. Brazil has its own idios and growth
Speaker 10: and politics and what's going on there. So it's really
Speaker 10: I don't think you can say latantly.
Speaker 2: Do your work. Yeah. A woman of Villanova.
Speaker 6: Eagles, Oh, I don't know.
Speaker 5: I'm gonna go.
Speaker 10: I grew up outside of Boston. My husband would tell
Speaker 10: me that I'm supposed to be a Giants fan, but
Speaker 10: I'm gonna go Taylor Swift fan.
Speaker 5: So cheerous the.
Speaker 3: Last Power, Okay, the Power, Well, Christina's how they get
Speaker 3: to one hundred and fifty.
Speaker 2: Thank you.
Speaker 3: Just always brilliant to have Claudia Simon, ellen Zett or
Speaker 3: Rebecca Patterson so Christina. Just incredible set of academics there
Speaker 3: to get you through this job day.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten a m.
Speaker 5: Eastern.
Speaker 1: Listen on Applecarplay and Android Otto with the Bloomberg Business app,
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Speaker 3: I did a great job on this in technology yesterday,
Speaker 3: and I got to rip up the script forget about Amazon.
Speaker 2: I got to go to the headline tech giant. Work
Speaker 2: Day lays off.
Speaker 3: One thousand, seven hundred and fifty employees and shift AI.
Speaker 2: Is this Paul Sweeney and Tom Keen and jam Tucker's future?
Speaker 12: No, no, no, not at all. I know Workday has
Speaker 12: laid off some people, but I don't think it has
Speaker 12: to do with AI. The Really what happening is when
Speaker 12: you look at most companies, the headcount growth on the
Speaker 12: white collared area is not as much. So what's happening
Speaker 12: is for Workday, the seat count growth is not getting there.
Speaker 12: But that doesn't mean that they are now growing. They're
Speaker 12: still going to grow subscription sales north of fifteen percent.
Speaker 12: So one of the things the company did last year
Speaker 12: was change their focus to talk about you know, seventeen
Speaker 12: eighteen percent growth right on the top line to around
Speaker 12: fifteen percent with a lot of margin expansion. So what
Speaker 12: you're seeing right now is, you know, basically they are
Speaker 12: giving margin back to the to the invent.
Speaker 7: So Amazon last night an a rock. Its kind of
Speaker 7: sounds a little bit similar to Microsoft saying that they
Speaker 7: can't keep up with a demand for their AI products.
Speaker 7: Can you explain what we're seeing in the industry, what
Speaker 7: are the constraints?
Speaker 12: This is really you know, a rush towards doing land
Speaker 12: crab right now. You've got to have the infrastructure ready
Speaker 12: when clients want to deploy more of the products. So
Speaker 12: one of the things that you will see is companies
Speaker 12: are experimenting with AI. So they are starting with a
Speaker 12: small project, then they are expanding it, but they need
Speaker 12: an infrastructure around it. This is something that we have
Speaker 12: been saying for several years that the best way to
Speaker 12: do that is on a cloud infrastructure rather than doing
Speaker 12: it in house, because first of all, it's scalable, it's cheaper,
Speaker 12: and more importantly, the cost for you is variable. You're
Speaker 12: not going to be able to, you know, come up
Speaker 12: with buying those AI service and GPUs in house yourself.
Speaker 12: You just go and rent it out. So that's what
Speaker 12: everybody is doing right now, ensuring that they don't left
Speaker 12: they don't get left behind when you see a surge
Speaker 12: of demand coming in.
Speaker 7: So how do you stack up kind of the competitive
Speaker 7: landscape for AI am thinking of the big players Amazon,
Speaker 7: you know, Microsoft or Google. How is it shaping up here?
Speaker 12: Yeah, let's talk about the fold companies. For sure, Microsoft
Speaker 12: absolutely in the lead, but that is because of the chat,
Speaker 12: GPT and open AI relationship. Bulk of the revenue that
Speaker 12: they are generating is from consumer apps. For the other
Speaker 12: three companies, which is Google, Amazon, and even Meta, they
Speaker 12: don't have consumers app that they can monetize that way.
Speaker 12: Meta actually doesn't even have a cloud business, so we
Speaker 12: don't know how they can monetize it. So let's look
Speaker 12: at Google and Amazon. Bulk of their AI revenues come
Speaker 12: going to come from enterprises, and enterprises are slow in
Speaker 12: embracing it, and even if they have paid an application,
Speaker 12: the contribution to the bottom line of cloud is very
Speaker 12: small compared to a consumer app. So all three are
Speaker 12: working with enterprises. Microsoft has the luxury of getting all
Speaker 12: the you know tokens when you are searching on JACKGBT,
Speaker 12: on your foe.
Speaker 3: On this job stay commercial free within this half hour,
Speaker 3: will do the same at eight thirty as well. Michael
Speaker 3: McKee scheduled to be with us on the confusion of
Speaker 3: the revisions. Michael Barrow will darken the door, and also
Speaker 3: a bit of the Secretary of Treasury conversation from yesterday.
Speaker 3: Right now, we do better with the aniog rana of
Speaker 3: Bloomberg Intelligence anerog If you need to do a log
Speaker 3: linear extrapolation of the aniog rana world down the income statement,
Speaker 3: which line correlates most with your future guess of what
Speaker 3: these AI giants will do? Is it operating income, is ITITA?
Speaker 3: Is it free cash flow? Or is it just simply revenues.
Speaker 12: Yeah, so this twenty twenty five is going to be
Speaker 12: a year off capital expenditure and margin compression. When you
Speaker 12: look at somebody like an AWS, for example, they improve
Speaker 12: their margins in twenty twenty four by ten percentage points.
Speaker 12: So in twenty three the operating margin was twenty seven
Speaker 12: pers and in twenty four it was thirty seven percent.
Speaker 12: That's a big jump for AWS and now next year
Speaker 12: we think it's going to compress at least by one
Speaker 12: hundred to two hundred basis points, if not more because
Speaker 12: of the investments. Longer term, this is one of the
Speaker 12: most amazing business models of all times. You can see
Speaker 12: margins north of forty percent, but for at least for
Speaker 12: the near term, we're going to see compression. So that's
Speaker 12: the most important KPI right now. In terms of the
Speaker 12: cloud growth rate, as supply comes into online, we should
Speaker 12: see cloud growth rate improve, but most likely in the
Speaker 12: second half of this year.
Speaker 7: On our one of the I guess themes of the
Speaker 7: last quarter or so is these big tech companies just
Speaker 7: ramping up their capex like materially not just a billion
Speaker 7: to here or billionaire, but tens of billions.
Speaker 2: Do we like that?
Speaker 11: See?
Speaker 12: Again, depends on your time horizon if you're going to
Speaker 12: trade till you know, the Super Bowl, but perhaps not.
Speaker 12: But when you think about this business model in the
Speaker 12: long run, you really are creating such a massive mode
Speaker 12: around the businesses with high fixed costs right now. But
Speaker 12: at the end of the day, these had very strong
Speaker 12: unit economics that once you get up your scale, you know,
Speaker 12: you will see a lot of that fall to the
Speaker 12: bottom line, and that creates a bigger barrier for somebody
Speaker 12: to break into this market.
Speaker 3: You know the thing about it, you thinking about an Runa,
Speaker 3: it's great. I mean, you know, you look at his energy.
Speaker 3: You look at all that's going on out there, the
Speaker 3: whole slang thing that Lisa is talking about.
Speaker 2: I mean, he's high energy.
Speaker 3: I mean he's he's like, you know, there's like slang
Speaker 3: within tech for these people that are high strung, wound
Speaker 3: up and all that.
Speaker 2: That's Interact Runna, Interact. Thank you.
Speaker 3: This is really I learned a lot there, really really
Speaker 3: really good. Appreciate it. Interuct Runa on the cloud with
Speaker 3: Bloomberg Intelligence.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 3: Now and I'm confused over what was the number revision
Speaker 3: of eight hundred, I'm guessing eighteen thousand. I believe Kevin
Speaker 3: Hassett just told John Farrow it was a million. What
Speaker 3: was the revision statistic?
Speaker 2: Do we know?
Speaker 11: Well? The one that we're running with, Tom, is that
Speaker 11: the revisions show that Joe's market averaged about one hundred
Speaker 11: and sixty thousand jobs a month last year, which is
Speaker 11: below the initially reported one hundred and eighty six thousand.
Speaker 11: So that's the number that we're running with. And I
Speaker 11: also I did hear mister House to make the point
Speaker 11: it was he's counted up to I think he said
Speaker 11: a million odd. But so you know, you can look
Speaker 11: at this two as of course the President Rum's administration.
Speaker 11: You're saying this makes the point that Joe's market was
Speaker 11: weaker than that. Yeah, it looked, and clearly clearly it
Speaker 11: was as a Generald revision. But of course there are
Speaker 11: others who are saying revision it wasn't as material as expected,
Speaker 11: and it still shows overall the jobs marketers has held up.
Speaker 3: Okay, how important getting to March seventh is the fiscal
Speaker 3: state of Endocurrens Washington, We've had a bit of chaos here,
Speaker 3: or I should say a lack of clarity or noise
Speaker 3: in this January report. Is the February report going to
Speaker 3: be even crazier?
Speaker 11: Well, if we are at such early stages of a
Speaker 11: major new policy rollout by this new administration, come that
Speaker 11: it's going to become clear. I mean, it's interesting the
Speaker 11: January figures. There had been some expectation that maybe the
Speaker 11: wildfires or the severe winter weather would have impacted, but
Speaker 11: there was no discernible impact. Now we go into February,
Speaker 11: you look around, what are the variables with one of
Speaker 11: the big talking points of courses, what's happening with the
Speaker 11: federal workforce. We have reported tens of thousands making that
Speaker 11: buyout offer from the government, But will that surface? When
Speaker 11: will that surface and in which month of the data
Speaker 11: for example? So you know, I think for now, the
Speaker 11: jobs data is probably, as you wore, will carry on
Speaker 11: this particular path, subject to what's going on in the economy.
Speaker 11: But when these big policy changes start to impact one
Speaker 11: way or another, that's probably going to take time. I mean,
Speaker 11: can think about it as deportation. There is the trade
Speaker 11: and Tireff's policy, and then there is the what's happening
Speaker 11: with the public workforce. President Trump's team will say that
Speaker 11: will drive investment. You just heard mister has to make
Speaker 11: the same point, it will drive invest in the create jobs.
Speaker 11: Some economists are more cautious on outcomes, so it's like
Speaker 11: a few months become clear, I think.
Speaker 7: And mister has also made the point to a question
Speaker 7: from John Pharaoh, that it was not a trade war
Speaker 7: with Canada and Mexico, it was a drug war. And
Speaker 7: then John followed up with Okay, well, how are you
Speaker 7: going to have these discussions with Europe? What's the view
Speaker 7: from Europe about trade United States?
Speaker 3: Ye?
Speaker 11: Well, I mean it's very interesting because on paper, clearly
Speaker 11: President Trump came along and threatened these tariffs on Canada
Speaker 11: and Mexico at the beginning, at least over the Fenstal,
Speaker 11: the a litle drugs trade and on illegally immigration, that
Speaker 11: was using tariffs as a tool in a space beyond
Speaker 11: the merchandise goods. But I think also as the commentary
Speaker 11: proceeded from the White House progressed, there was also several
Speaker 11: references to the goods deficit with both and particular Canada
Speaker 11: came in for a swing there and at one point.
Speaker 11: There was a reference to Canadian defense spending as well.
Speaker 11: So it's interesting that mister Hassett said, why would you
Speaker 11: have a trade war with your neighbors because it looked
Speaker 11: like they're riding that way last weekend. But he's he
Speaker 11: has narrow the focus back down.
Speaker 3: The Fentanel and the current of our global had a
Speaker 3: global economics and of course all of his work in
Speaker 3: Asia during the pandemic. And I think you've got a
Speaker 3: wonderful prism coming from the Pacific rim over to Washington.
Speaker 3: How Barbell is the American la economy the way we
Speaker 3: describe it, and as the haves the have nots, some
Speaker 3: of us have a certain persuasion.
Speaker 2: Go back to John.
Speaker 3: Edwards on a lawn in Louisiana a million years ago
Speaker 3: talking about two Americas.
Speaker 2: From where where you sit with your team.
Speaker 3: How too much to Americas are we?
Speaker 11: Well, I think there's clearly that is an issue, Tom.
Speaker 11: I mean the headline the I agreate that it does
Speaker 11: point to a strong economy. It's holding up the jobs
Speaker 11: market as we see today holding up okay, and companies
Speaker 11: are hiring, wages going up, and unemployment rate actually fell.
Speaker 11: But clearly, you know there are plenty of people who
Speaker 11: don't necessarily feel like they're experiencing any kind of an
Speaker 11: upswinging the economy. You look at the condoms and how's
Speaker 11: the market, the cost of a mortgage credit.
Speaker 3: Tourists, the recent article the Creid Tourist was absolutely magnificent
Speaker 3: on food lines across this nation.
Speaker 11: That's right, Tom. So there is you know, that chunk
Speaker 11: of the sorry who clearly aren't really any economic uplift,
Speaker 11: And we saw it in the election results. You know,
Speaker 11: on paper, a strong economy going into last year's election,
Speaker 11: but of course we now know that people are very
Speaker 11: upset about the price and the cost of living. So
Speaker 11: clearly this new administration has an opportunity to address a
Speaker 11: lot of that, and they have identified living costs and
Speaker 11: inflation as one of their key priorities for example. But
Speaker 11: of course the question is the balancing act. Can they
Speaker 11: pull off all of these big believers that they want
Speaker 11: to pull without also hurting the economy. That's going to
Speaker 11: be the big drink.
Speaker 2: And the Chiefs are eagles, I.
Speaker 11: Think probably as a grateful guest here tell them. I'll
Speaker 11: go with the Chiefs. But I'm no expert on NFL apps.
Speaker 3: We can't many with the Chiefs, currents going with the
Speaker 3: Chiefs there and the current thank you so much, t
Speaker 3: Live just precious, can't say enough about it at Christansian
Speaker 3: and the current out on Tea Live with really good analysis.
Speaker 2: For the users of.
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