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

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

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

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

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

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

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

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

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Speaker 2: Terminal and the Bloomberg Business app. Any if you had

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Speaker 2: any research rights in the data since the last meeting

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Speaker 2: of the FMC suggests the fifty basis point cut that

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Speaker 2: occurred was probably too much too soon. That raises the

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Speaker 2: risk the price inflation might stop moderating and the stock

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Speaker 2: prices might continue to melt up. Joined us now for

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Speaker 2: more ed Welcome to the program sir. Let's start with

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Speaker 2: the stock market. Are you calling this a melt up?

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Speaker 3: I think it has been a bit of a melt up.

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Speaker 3: I mean, look, we're looking at valuation multiples that are

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Speaker 3: getting right up there close to where we were right

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Speaker 3: before the tech wreck in the late nineteen nineties, we

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Speaker 3: saw a melt up that got the forward pe s

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Speaker 3: and P five hundred up to twenty five. Now we're

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Speaker 3: at twenty two, so it's starting to look like it ed.

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Speaker 2: We're seeing bond yields back up as well again this morning,

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Speaker 2: by two basis points of four to twenty six. Can

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Speaker 2: we sort of fold the election into this conversation as well?

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Speaker 2: Do you think the election and the GOP suite potentially

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Speaker 2: would open the way to a move back towards five

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Speaker 2: percent on a ten year Unfortunately.

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Speaker 3: It is a conceivable scenario that the bond vigilantes are

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Speaker 3: are definitely mounting up. I mean, the low bond yield

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Speaker 3: last a few weeks ago was three point sixty five percent,

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Speaker 3: and now we're at four point two six percent. I

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Speaker 3: think over night we got the four point four point

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Speaker 3: eight four point two eight five percent. So yeah, I

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Speaker 3: think there's a possibility here that if we get a

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Speaker 3: sweep either the Democrats or the Republicans, the bond market

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Speaker 3: will conclude that nothing will stop either party from spending

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Speaker 3: a lot, maybe cutting taxes a lot for some folks,

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Speaker 3: not for others, and all in all, continuing to widen

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Speaker 3: the deficit and the debt. Meanwhile, the interest payments continue

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Speaker 3: to accumulate, and we'll probably hit a trillion dollars, which

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Speaker 3: will make lots of headlines within the next few months.

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Speaker 4: And I have to say it's very compelling arguments. Me

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Speaker 4: and I worry about the deficit, and I watch the

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Speaker 4: bond auctions and I see the increasing size. And last

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Speaker 4: week I was in Washington, d C. With all of

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Speaker 4: these international central bankers, and these international bankers, and where

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Speaker 4: do all of their clients want to put their money?

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Speaker 4: Even with all these concerns, talking with the US election,

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Speaker 4: the deficit, the United States, they still want to come here.

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Speaker 4: So what is going to make people say, no, Moss,

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Speaker 4: we're done.

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Speaker 3: Well, that's a good point. I mean, the reality is

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Speaker 3: that the dollars actually strengthened at the same time as

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Speaker 3: the bond deal has gone up. So that's suggests that

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Speaker 3: there are people that are concluding that if the Fed,

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Speaker 3: if the bond vigilantis are getting the message out to

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Speaker 3: the Fed that they don't want any more rate cuts,

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Speaker 3: that they think it was premature. That strengthens the dollar,

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Speaker 3: which means that people are buying these bonds. So I

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Speaker 3: wouldn't get too excited about the bond you'll going up

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Speaker 3: to five percent, But it's certainly looking more realistic than

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Speaker 3: it did a few weeks ago. And a few weeks

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Speaker 3: ago we thought that the Fed that the cut prematurely,

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Speaker 3: that the economy was going to surprise them to the upside,

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Speaker 3: and that's exactly what's happened.

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Speaker 4: There's also been a contradiction here. People used to think

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Speaker 4: that higher bond yields would XCISEE a pretty big tax

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Speaker 4: on equity valuations. What we've seen is this melts up

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Speaker 4: continuing despite the melt up in yields. Yes, what we

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Speaker 4: have seen though, is a change with that rotation being

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Speaker 4: challenged to small caps and it's the other four hundred

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Speaker 4: and ninety three stocks. Do you think that that is

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Speaker 4: what this is going to look like into year end?

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Speaker 5: Well?

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Speaker 3: I think if in fact, the market is starting to

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Speaker 3: perceive that the Fed isn't going to ease as much

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Speaker 3: as they thought after the fifty basis point cut on

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Speaker 3: September eighteenth, then I think the market starts to get

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Speaker 3: cool off to the idea that the Rustle two thousand

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Speaker 3: is going to outperform and go back to the S

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Speaker 3: and P five hundred and maybe even go back to

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Speaker 3: just seven of those stocks, a so called Magnificent seven,

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Speaker 3: and look to John's point, I don't want to get

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Speaker 3: too worried about a melt up here an evaluation basis.

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Speaker 3: If it turns out to be an earnings lead melt up,

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Speaker 3: we certainly have had Tesla for example. Maybe it wasn't

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Speaker 3: so much earnings as hype, but as you folks point out,

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Speaker 3: this is going to be a busy week for earnings,

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Speaker 3: and we could have some upside surprises from the Magnificent

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Speaker 3: seven which would drive the NASZAC to further record hize,

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Speaker 3: even in the face of bond yields going up.

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Speaker 1: I want to get back to where you see bond

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Speaker 1: yields going because you say that we could get higher

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Speaker 1: yields regardless if it's a Republican or Democrats sweep. When

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Speaker 1: you look at how the Senate races are looking to go,

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Speaker 1: it looks like you can pretty much take the dem

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Speaker 1: sweep off the table. If there's going to be a sweep,

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Speaker 1: it's likely going to be read So tell us a

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Speaker 1: little bit more what that could mean not just to

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Speaker 1: yield short terms and long terms, but also other assets.

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Speaker 3: Well, it gets as confusing as Trump's policies are confusing.

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Speaker 3: You know, the idea of raising tariffs across the board

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Speaker 3: by twenty percent and against China sixty percent is probably

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Speaker 3: a bargaining position. I mean, it's hard to imagine that

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Speaker 3: this administration would get advice from its own economists saying

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Speaker 3: that that would be a good idea because it certainly

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Speaker 3: would be inflationary, so bargaining chip for the deal maker

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Speaker 3: Trump would make sense, But as a realistic alternative to

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Speaker 3: taxes and incomes, that doesn't make that much sense. On

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Speaker 3: the other hand, Trump wants to produce more oil, which

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Speaker 3: would be disinflationary for the US, but there's no discussion

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Speaker 3: by either candidate about doing anything to reduce the deficits,

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Speaker 3: to deal with the debt, to deal with the exploding,

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Speaker 3: exploding interest and that interest expense of the government. So

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Speaker 3: I think the bond reaction to a sweep, as I said,

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Speaker 3: by either side. I want to be balanced about this,

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Speaker 3: but you're right, the sweep is looking increasingly if it's

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Speaker 3: going to happen, it would happen with Trump winning because

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Speaker 3: of what you said about the Senate and the House,

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Speaker 3: and in that scenario of the bond yield, I think

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Speaker 3: easily goes to four and a half percent.

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Speaker 1: Take us through what can happen if this election drags on,

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Speaker 1: or if it's contested.

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Speaker 3: I don't even want to think about that possibility. The

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Speaker 3: country is so partisan that, you know, we've been kind

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Speaker 3: of driving ourselves mad here with the political partisanship, and

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Speaker 3: to have a closely contested election, we'd be very unsettling

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Speaker 3: to the bond market, to the stock market, to all

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Speaker 3: of us. I think it would be resolved of obviously

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Speaker 3: at some point we will have a president, but if

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Speaker 3: it takes months, it could mean that the rest of

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Speaker 3: the year will not be a great one for the

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Speaker 3: financial markets.

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Speaker 2: That is the market nightmare very few want to see.

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Speaker 2: And thank you, sir if you HADENTNY research. Dollar strengthening

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Speaker 2: heading into the final week of the US election has

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Speaker 2: tried its way the economic impact of both candidates. Mark

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Speaker 2: McCormick of TD writing, we have painted the election as

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Speaker 2: a binary event, with massive tale rists on either side.

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Speaker 2: The data currently favors the dollar regardless of who wins,

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Speaker 2: suggesting to buy dollar dips into twenty twenty five, even

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Speaker 2: if Harris wins. Mark joined US now for more Mark,

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Speaker 2: welcome to the program. Let's just look ahead to next week,

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Speaker 2: give us the best case outcome for the stellar and

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Speaker 2: give us the worst case outcome for the US stella

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Speaker 2: which ones which.

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Speaker 5: Well, Like I said, it's a binary event with like

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Speaker 5: two large tail rists on either side. So obviously the

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Speaker 5: most bullish for the dollars of red wave, largely again

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Speaker 5: because number one, you get tariffs immediately on day one,

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Speaker 5: as soon as Trump takes over. The second thing is

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Speaker 5: you can have fiscal support and deregulation and all the

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Speaker 5: things that are great ingredients that are cocktails for outperformance

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Speaker 5: US equities. And I'd say on the other side, the

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Speaker 5: thing that kind of confuses the market the most, or

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Speaker 5: is probably the most bearish for the dollar, is a

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Speaker 5: blue wave, but it's probably the most unlikely scenario. Betting

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Speaker 5: markets have it about ten percent, largely again because what

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Speaker 5: you could do is you undermine the equity market. I

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Speaker 5: think the most important thing to think about for this

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Speaker 5: election is the number one thing that's been driving the

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Speaker 5: currency market is not rates differentials, it's equity market performance.

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Speaker 2: With that in mind, then Mark, what do you think

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Speaker 2: is actually outperforming already in pricing gain the election outcome?

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Speaker 2: Because a lot of people in the equity market are

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Speaker 2: look into financials and saying that maybe that's a lean

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Speaker 2: to a Trump wain and maybe that's so for done

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Speaker 2: and maybe we get reversal of that through next week.

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Speaker 2: Do you see any sign if that taking place in

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Speaker 2: fas with that in mind.

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Speaker 5: Well, I think one component. It's been really interesting. We

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Speaker 5: talked about this a lot this entire year. There's really

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Speaker 5: no macro theme that's driving markets. Like for the first

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Speaker 5: start of the year, we talked about inflation, then we

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Speaker 5: talked about growth. Now we're talking about inflation again, probably

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Speaker 5: because we forgot to talk about inflation for a little while.

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Speaker 5: So the number one factor that we see that is

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Speaker 5: kind of underscoring what's driving market performance is mean reversion

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Speaker 5: expressed or positioning. So I would highlight that through the

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Speaker 5: move that we saw recently in the dollar, the dollar

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Speaker 5: was basically short on our positioning models, so we had

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Speaker 5: a very like we had a perfect storm of US

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Speaker 5: data outperforming the rest of the world, which has actually

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Speaker 5: been happening through most of the summer, but the market's

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Speaker 5: woken up to it. We've also seen again the FED

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Speaker 5: took a huge risk by cutting fifty basis points and

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Speaker 5: now we're starting to see that could backlash a little bit.

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Speaker 5: And also again the positioning was built into a single

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Speaker 5: narrative which was only about the slowdown in Theo's economy,

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Speaker 5: and now all these things have come back to mark

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Speaker 5: they were positioned incorrectly. Data dependence leaves us again very

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Speaker 5: focused on a month or six weeks of data that

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Speaker 5: basically in turn catches markets offt guard when the pendulum

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Speaker 5: SLINKs too far in the other direction. So I think

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Speaker 5: a big piece of this right now is that the

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Speaker 5: dollar looks fundamentally positive. Data is doing better than what

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Speaker 5: we're seeing in Europe and China. And I know markets

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Speaker 5: are like very focused on the China Simules package, but

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Speaker 5: to me, the China Simuls package is a second half

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Speaker 5: of twenty twenty five story that things are going to

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Speaker 5: get worse before they get better. So again the key

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Speaker 5: theme here is that the macro situation is evolving into

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Speaker 5: what is a more bullish fundamental story for the dollar,

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Speaker 5: regardless of who wins.

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Speaker 4: Some people who are skeptical of the dollar point to gold,

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Speaker 4: and they say gold's been a moonshop because people are

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Speaker 4: worried about the dollar and worried about the idea of

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Speaker 4: people having faith that this truly can be the reserve currency.

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Speaker 4: Not necessarily next year, the year after, but say in

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Speaker 4: ten twenty years. Do you look at gold, given the

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Speaker 4: fact that it's almost doubled in price since the beginning

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Speaker 4: of over over the past five years, if you take

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Speaker 4: a look at that, does that make you at all

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Speaker 4: concerned about this dollar call?

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Speaker 2: It doesn't.

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Speaker 5: I think what's interesting is again you have to think about, like,

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Speaker 5: what are the assets that people want to hold in

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Speaker 5: an environment where there's geopolitical uncertainty we're dealing with, with

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Speaker 5: my opinion, structurally higher inflation than what we saw before

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Speaker 5: the pandemic, in a world where what are your bigger

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Speaker 5: risks towards a recession or higher inflation? And I think

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Speaker 5: in that environment, like more people are focused on hard assets,

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Speaker 5: and those hard assets provide a decent hedge relative to

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Speaker 5: say fixed income. So I think if you were to

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Speaker 5: think about what's my asset allocation mix, and still you

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Speaker 5: want to belong yous equities, which gives you an exposure

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Speaker 5: to bus dollar. If you think about even an asset

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Speaker 5: allocation mix we talked about in our election piece for

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Speaker 5: next year is yes, Asia has the ability to grow

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Speaker 5: their economy. They have savings that they've exported to the

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Speaker 5: rest of the world. Europe does not have the ability

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Speaker 5: to grow to economies you've talked about this morning. I've

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Speaker 5: hurt in prior pieces. But like France is spending too much,

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Speaker 5: Germany doesn't spend enough. And again, if you look at

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Speaker 5: if you think about the dragging report, everything that's been

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Speaker 5: coming out of Europe is focused on the industrial audio sector,

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Speaker 5: which is something that there's a reason why there's terarifs

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Speaker 5: being put in these sectors. And there's a reason why

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Speaker 5: China is the world's largest export of automobiles right now.

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Speaker 5: So if you think about the growth and the equity

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Speaker 5: and all these stories, the US equity market still offers

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Speaker 5: probably the best risk adjusted performance relative.

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Speaker 6: To other classes.

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Speaker 5: We could see a rotation to Asian equities where currencies

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Speaker 5: are undervalued, but that still leaves Europe somewhere far behind

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Speaker 5: everywhere else. And gold is still an asset that you

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Speaker 5: want to hold onto.

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Speaker 6: Because what we're.

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Speaker 5: Seeing is coordinated fiscal and monetary policy with inflation above.

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Speaker 2: Target mark, We've got to leave it there. I appreciate it.

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Speaker 2: Stain just got some breaking news on blowing care. Matt McCormick,

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Speaker 2: the of TD. We're just over a week until election

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Speaker 2: deck Blimberg reporting more registered Republicans have already voted in Arizona, Nevada,

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Speaker 2: and North Carolina. They're Democrats, Henrietta Trace of Vada. Palmer's writing,

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Speaker 2: it is distinctly possible that a victor is named in

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Speaker 2: the twenty twenty four election by Wednesday. If not. The

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Speaker 2: worst case scenario pandemic year level disruption suggests developments could

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Speaker 2: come through Friday and possibly Saturday, as was the case

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Speaker 2: in twenty twenty. Henrietta joins US now for more So, Henrietta,

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Speaker 2: so let's get to your base case. Do we get

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Speaker 2: at twenty sixteen or a twenty twenty.

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Speaker 6: I think we're looking more at twenty sixteen.

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Speaker 7: I think a lot of the disparities, discrepancies, any concerns

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Speaker 7: at the local and county level amongst the electors.

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Speaker 6: You know, they're fully stabbed.

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Speaker 7: They have gone through the twenty twenty two midterm elections,

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Speaker 7: They've gone through all these lawsuits. I think all the

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Speaker 7: teaser crossed and the eyes are dotted, and we will

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Speaker 7: have an outcome on Wednesday. I'm optimistic, Henrietta, But what do.

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Speaker 1: You make of Maricopa County election officials saying could take

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Speaker 1: anywhere from ten to thirteen days.

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Speaker 6: Yeah, I mean, they're definitely preparing us for the worst.

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Speaker 7: But I believe Arizona and Nevada in particular were uniquely

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Speaker 7: sort of embarrassed by the way the twenty twenty election

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Speaker 7: took so long to call, and a lot of that

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Speaker 7: disruption came from the occupant of the White House. So

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Speaker 7: I think that this time around they will be very

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Speaker 7: diligent and careful about how they're reporting, and then hopefully

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Speaker 7: we won't have to depend on just one state to

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Speaker 7: decide or to know who wins the election. Maybe in

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Speaker 7: the House for sure, I think it'll take all week

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Speaker 7: to get a solution, but I'm hopeful that the rest

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Speaker 7: of the country will give us a decisive solution.

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Speaker 1: A theme that I've been hearing from sources a lot

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Speaker 1: on both sides that Democrats are actually running a very

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Speaker 1: good ground game, especially in these swing states. But you're

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Speaker 1: actually seeing, and so are we. A lot of Republicans

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Speaker 1: are going out and voting early. Are they catching up

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Speaker 1: to that ground game.

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Speaker 7: It's the ground game right now, and the pull forward

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Speaker 7: vote is incredible in a number of states, including Nevada,

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Speaker 7: there are double the amount of election day Republicans from

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Speaker 7: twenty twenty voting early this cycle. So this message that

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Speaker 7: you saw on the Big Joe Botron at MSG last

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Speaker 7: night was vote early. The Republican Party across various swing states,

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Speaker 7: including Pennsylvania and Georgia as well, have spent millions of

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Speaker 7: dollars trying to educate their voters to vote early, vote

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Speaker 7: in person. Democrats still predominantly vote early in mail in ballots,

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Speaker 7: So we're waiting for that data, for example, out of

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Speaker 7: Clark County in Nevada, to catch up. But what we're

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Speaker 7: going to need and what Democrats will need going forward,

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Speaker 7: is to see what the turnout is on election day,

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Speaker 7: and in particular this week, this is a week where

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Speaker 7: a lot of the younger voters turnout early if they're

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Speaker 7: going to vote. Mostly right now, it's rural, white, older

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Speaker 7: voters who are turning.

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Speaker 8: Out, which is a disproportionately Republican demographic, Henrietta, we know

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Speaker 8: that once you go out and vote early, then whether

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Speaker 8: Kamala Harris or Donald Trump, you could focus on some

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Speaker 8: of those margins potentially to get out then on election Day,

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Speaker 8: and you say this all comes down to the suburbs.

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Speaker 6: Who wins the suburbs, Yeah, that is the game.

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Speaker 7: In twenty sixteen, Hillary Clinton lost the suburbs, and I

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Speaker 7: think it was only by about two points, but it

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Speaker 7: was enough to lose the entire election. This is your

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Speaker 7: suburbs outside of Philadelphia, outside of Pittsburgh, key portions of

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Speaker 7: Michigan and Wisconsin. In twenty twenty, Joe Biden narrowly won

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Speaker 7: them back again by I think two points, so he

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Speaker 7: was able to claw back those suburban voters. Kamala Harris

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Speaker 7: currently leads nationally with suburban voters by six points. So

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Speaker 7: we spend a lot of time talking about the youth

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Speaker 7: Latino and youth mail vote. Obviously they'll be a part

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Speaker 7: of the conversation as we're talking about Puerto Rico being

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Speaker 7: a floating pile of garbage and things like that. But

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Speaker 7: that is what turns off the suburban married voter, and

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Speaker 7: they disproportionately vote in elections, and they have been the

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Speaker 7: clincher for either candidate in the last two cycles and

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Speaker 7: probably will be again in this third cycle. They're voting

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Speaker 7: more than they did in twenty twenty, while cities and

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Speaker 7: urban dwellers are voting less and Royal voters are voting.

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Speaker 6: More than they did in twenty twenty.

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Speaker 7: So it's the suburban vote that is integral and critical.

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Speaker 6: To this election right now.

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Speaker 4: So you push that forward, Henriette. Are you saying that

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Speaker 4: Kamala Harris is more support than the polls are giving her?

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Speaker 7: Harris has more support with voters who matter more again,

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Speaker 7: because they vote more. They are a larger demographic, and

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Speaker 7: they are the ones that are persuadable more than anything else.

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Speaker 7: You know, you've lost the cities that those voters are

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Speaker 7: going to Democrats, and you've lost the rols those voters

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Speaker 7: are going far to Donald Trump. It's the voters in

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Speaker 7: the middle in suburbia that are swinging back and forth

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Speaker 7: between twenty sixteen being pro Trump and then twenty twenty

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Speaker 7: decided they didn't like what they had gotten for the

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Speaker 7: last four years, and now under Kamala Harris running at

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Speaker 7: the top of the ticket, they have swung pretty substantially

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Speaker 7: in her direction and away from Donald Trump. And their

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Speaker 7: turnout is what's going to be the biggest bang for

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Speaker 7: your back population wise, to split these states.

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Speaker 4: It's pretty controversial, Henrietta. What you're saying, based in the

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Speaker 4: polling that we've seen in just sort of the momentum

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Speaker 4: and what we've seen embedding markets which have given Donald

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Speaker 4: Trump the clear lead. Where are people wrong in their analysis?

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Speaker 4: Is it just a suburban voter or is there something

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Speaker 4: else in terms of what the deciding factors really are.

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Speaker 6: Well, I spent all.

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Speaker 7: Week last week with investors up in New York, and

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Speaker 7: I would say that the street is even more bullish

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Speaker 7: on Trump winning than the predictive markets are. Last I

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Speaker 7: check pridtive markets, where like sixty one percent that Trump

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Speaker 7: would win, I'd say on the street it's more.

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Speaker 6: Like seventy percent.

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Speaker 7: So there is this high degree of conviction, and the

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Speaker 7: early voting data out of Nevada is painting a very

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Speaker 7: leak picture for Democrats.

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Speaker 6: So there's reason to be excited.

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Speaker 7: Unfortunately, it's just too early to get fully on board

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Speaker 7: the Trump train and put your bets on the market

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Speaker 7: right now in a way that suggests that there is

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Speaker 7: no time for change. There is a whole another week

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Speaker 7: of early voting in most states, and then obviously we

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Speaker 7: have election Day where turnout is going to be the

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Speaker 7: name of the game. So I think that the street

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Speaker 7: is picking up accurately on state of Nevada.

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Speaker 6: But that's not the story that the rest of the

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Speaker 6: nation is telling us. Yeah, it could be, but it's

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Speaker 6: pretty early.

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Speaker 2: Henry. So we spoke to against this morning that said,

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Speaker 2: for the business world, for the tech titans, the writing

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Speaker 2: might be on the wall. Let's talk about some of

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Speaker 2: the tech titans. After the assessmin attempt on Donald Trump

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Speaker 2: back in the summer, we had an interview. We spoke

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Speaker 2: to the Meta CEO, Mark Zuckerberg, who referred to that

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Speaker 2: as being badass. And then we saw Jeff Bezos's Washington

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Speaker 2: Post over the weekend failed to endorse a candidate, some

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Speaker 2: people suggesting that maybe it's because Bezos was worried about

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Speaker 2: an incoming Trump administration. And then we heard on the

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Speaker 2: Rogan podcast, so the Alphabet ceo had given the former

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Speaker 2: president at call as well to congratulate him on his

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Speaker 2: campaign event A McDonald to what a hit it was

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Speaker 2: on Google. What do you think that they sense is

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Speaker 2: coming from the Republican leadership that might affect them?

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Speaker 7: That's a great question. I mean, you're going to have

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Speaker 7: anti trust on the docket next year. We have a

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Speaker 7: massive tax bill that we have to write. The taras

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Speaker 7: are also going to be a concern, not just that,

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Speaker 7: but expert control restrictions, inbound and outbound investment restrictions. I

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Speaker 7: think all those pieces are really integral. But the reality

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Speaker 7: is there's a five trillion dollar tax bill that we're

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Speaker 7: going to be writing next year, and all these corporations,

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Speaker 7: particularly any that are Ali national, have a lot of

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Speaker 7: skin in the game on this one, So it makes

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Speaker 7: sense to try to make sure you have bridges mended

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Speaker 7: with everybody potentially that could win. I think there should

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Speaker 7: be a lot of focus on the House members and

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Speaker 7: the House races. Those are pretty predominantly in coastal states

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Speaker 7: this year, so New York and California. If I were

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Speaker 7: those tech titans that I was trying to really influence

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Speaker 7: the outcome of the election and focus on the House

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Speaker 7: members just as much as.

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Speaker 6: The White House.

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Speaker 2: Im Retta, appreciate your views and your perspective the analysis

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Speaker 2: there from Henrita Trace of Vader Partners. This is the

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Speaker 2: Bloomberg Surveillance podcast, bringing you the best in markets, economics,

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Speaker 2: angiot politics. You can watch the show live on Bloomberg

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Speaker 2: the Bloomberg Business Amp.