Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Stephanie Roth of Wolf
Speaker 2: for Research right in this data this week has been disappointing.
Speaker 2: The labor market has decelerated, but it's not clear it's
Speaker 2: getting worse. Stephanie joins us now for more. Steph goodmonic,
Speaker 2: Good morning. Any signs of stabilization.
Speaker 3: Yeah, I mean we saw ADP looks better than where
Speaker 3: it's been. Of course, we're all now focusing on Tier
Speaker 3: three data because that's all we have to focus on.
Speaker 4: The challenge.
Speaker 3: Numbers have swooped a lot of people, but I have
Speaker 3: to say that is is based on headlines and we
Speaker 3: knew that ups for example, that was a big driver
Speaker 3: of the warehousing number that has happened throughout the course
Speaker 3: of this year, largely through attrition. We knew the Amazon
Speaker 3: number had come out, that was part of that the
Speaker 3: October data.
Speaker 5: So our sense is.
Speaker 3: That the land market has decelerated, that's what we're picking
Speaker 3: up here, but it doesn't appear to be actually necessarily
Speaker 3: getting worse. And then the picture for the economy on
Speaker 3: that go forward basis is actually pretty decent. We have
Speaker 3: likely tariff and certainty is fading to some extent.
Speaker 4: We know that we kind of.
Speaker 3: Have a floor in terms of tariffs. We have financial
Speaker 3: conditions have eased, we have fiscal stimulus is going to
Speaker 3: have a supporting impact on the low end consumer.
Speaker 6: So even though we're in.
Speaker 3: A place where the economy is kind of sluggish, the
Speaker 3: factors are looking pretty decent For twenty twenty six.
Speaker 1: You said something about the challenger job announcements or layoff
Speaker 1: planned cuts, and I think that it's really important the
Speaker 1: idea that a bulk of this could come from UPS
Speaker 1: and Amazon, both of which were reported, and has to
Speaker 1: do with warehousing on the UPS side and artificial intelligence
Speaker 1: on the Amazon side. How much are we conflating a
Speaker 1: single name story with a broader market trend where AI
Speaker 1: has already taking people's jobs.
Speaker 3: Yeah, I mean, I think that's the case of someone
Speaker 3: and the Amazon numbers aren't that large relative to the
Speaker 3: size of its workforce. So even though we've seen some
Speaker 3: of these layoff announcements that are tied to AI, some
Speaker 3: of this ends up coming out through attrition like the ups,
Speaker 3: and it's not entirely clear that AI has really been
Speaker 3: taking that many jobs so far. Looking forward, it might be,
Speaker 3: but if you look at a correlation between AI usage
Speaker 3: by industry and the slowdown in payrolls growth, you don't
Speaker 3: see much of a correlation outside of tech, professional services
Speaker 3: and then a little bit of finance. So it's not
Speaker 3: necessarily the explanatory story.
Speaker 1: Yet in the absence of non figm payrolls data, a
Speaker 1: lot of people are thinking big, asking large questions, filling
Speaker 1: time with other things. I'm just wondering how much people
Speaker 1: are trying to understand the AI growth story and how
Speaker 1: much it's propping up and frankly masking the weakness that
Speaker 1: we're seeing in other pockets, particularly from and we keep
Speaker 1: talking about fast casual restaurants just simply because that's the
Speaker 1: data that we have, but you know, it sort of
Speaker 1: speaks to a really lopsided economy heavily weighted to the
Speaker 1: AI story.
Speaker 3: So I mean, I think the case shaped economy story
Speaker 3: is right, but it's not necessarily the bottom part of
Speaker 3: that k is getting that much worse. We're just hearing
Speaker 3: a lot of company announcements related to that, and we
Speaker 3: don't have any other data to the up to the
Speaker 3: other side, which tends to capture the broader picture of
Speaker 3: the consumer. And then the AI story is driving a
Speaker 3: decent portion of growth, as R estimates or that it's
Speaker 3: nearly a quarter of the growth of not maybe a
Speaker 3: tiny bit less than that, but it's certainly not half
Speaker 3: of the growth, and it is part of the economy.
Speaker 3: There are a lot of people who are employed and
Speaker 3: investing in CAPBAX and that is a support for growth
Speaker 3: that is durable.
Speaker 7: Stephanie, I want to pick up here on your point
Speaker 7: that the market has kind of an investors have kind
Speaker 7: of moved past the tariff story. What if IEPA, though,
Speaker 7: does get struck down by the Supreme Court.
Speaker 4: Then they'll recreate it.
Speaker 3: So we're really talking about here is about one hundred
Speaker 3: billion dollars windfall to companies potentially depending on how this
Speaker 3: all plays out in terms of Terraff refunds.
Speaker 6: They might be eligible to get.
Speaker 3: Otherwise, on a forward looking basis, the Administration is likely
Speaker 3: to recreate the Terraff structure very similar to how it
Speaker 3: stands today, which is why the bond market doesn't necessarily
Speaker 3: have to react so significantly.
Speaker 7: But it will take a lot longer to recreate that
Speaker 7: structure using two thirty, twos, three or ones. When would
Speaker 7: the hit beyond consumers if they have to recreate that structure.
Speaker 6: I don't know if it will end up being that big.
Speaker 3: Of a hit on consumers in the sense that companies
Speaker 3: have raised the prices, they're not going to lower the
Speaker 3: prices as the worst. We're not going to see much
Speaker 3: volatility depending on how the terra structure works. So companies
Speaker 3: have slowly moved their pricing mechanism higher. They know, especially
Speaker 3: if it ends up getting struck down, they know that
Speaker 3: it will largely be recreated. The Administration will certainly communicate that,
Speaker 3: in which case the pricing effects will continue to kind
Speaker 3: of be the case, and then companies will maybe more
Speaker 3: slowly pass through the price increases. Our estimates suggests that
Speaker 3: about sixty a little above sixty percent of the tariffs
Speaker 3: that we that are implemented and expected have been absorbed
Speaker 3: by parts of the supply chain, so it's the exporter,
Speaker 3: the retailer, and the consumer. So we've already gone through
Speaker 3: a lot of it. There is certainly more to come,
Speaker 3: which is why we should see upper pressure un prices
Speaker 3: for the next six months.
Speaker 6: Was oktober Chairpound's last right cut?
Speaker 3: No, I think he'll probably do one more, Yeah, just
Speaker 3: the one. I think he'll do one more, and then
Speaker 3: we'll probably get an additional one to two beyond that.
Speaker 6: You see a difference between the leadership.
Speaker 2: Once he's gone, we're gonna have a more damage fed
Speaker 2: after may or do you think it's going to be
Speaker 2: just as conflicted, just as readlocks, just as goodlocked.
Speaker 3: I think we'll see, of course that the chair may
Speaker 3: be dubbished themselves, but that doesn't mean the committee is
Speaker 3: going to go alongside that. We've seen a committee that
Speaker 3: is certainly divided. That's been quite clear over the past
Speaker 3: couple of months. So our expectation is they're not going
Speaker 3: to really change policy that much as a result, and yes,
Speaker 3: they probably will want to cut a couple more times
Speaker 3: beyond that, just to get to something that they think
Speaker 3: is closer to neutral, and the economy will probably be
Speaker 3: in a decent place throughout.
Speaker 8: Much of next year.
Speaker 2: Stay with us, mul Bloomberg saving up after this. Bran
Speaker 2: Gandra Stifel rights the following. Some Democrats will likely see
Speaker 2: Tuesday's election as a validation of that shutdown strategy. The
Speaker 2: chances of the shutdown last thing it to the next
Speaker 2: week and be umed have increased. Brian, Welcome to the program.
Speaker 2: Are you suggesting that those wins are more relevant than
Speaker 2: the potential chaos across the country's airports.
Speaker 9: In the minds of some Democrats? Yes, I mean not
Speaker 9: all Democrats. I don't think, Jonathan, that you can paint
Speaker 9: with too broader brush. I think there are some more
Speaker 9: aggressive Democrats, some more firebrand type Democrats, who see Tuesday's
Speaker 9: results of a validation of their strategy and they think
Speaker 9: they have the wind at their back and they are
Speaker 9: going to double down and push for more.
Speaker 4: Then you do have some moderates who want a solution.
Speaker 9: And look, I think you can argue that you know,
Speaker 9: Tuesday's election results gave us a split view of the
Speaker 9: Democratic part nationally. Uh the firebrands one in New York,
Speaker 9: but the more moderates one in Virginia in New Jersey.
Speaker 4: So there is a bit of.
Speaker 9: A split among Democrats about what their strategy is going forward.
Speaker 7: And in Virginia, the exit polls said that the shutdown
Speaker 7: was weighing on the workers, those individuals that went out
Speaker 7: to vote. Obviously, they house so many of these federal workers.
Speaker 7: Can you see Virginia senators signing up for clean resolution?
Speaker 4: You know, it's a great question, Amory.
Speaker 9: I mean, because Virginia is, you know, among the two
Speaker 9: one of the two states that's grand zero along with
Speaker 9: Maryland in terms of government workers. But the two Democratic
Speaker 9: senators have have pretty much held strong. I haven't detected
Speaker 9: that they're breaking from the rest of the group yet
Speaker 9: and joining the more moderates who are are pushing for
Speaker 9: a reopening.
Speaker 4: I may be missing something on that, but they are.
Speaker 4: Those are two.
Speaker 9: People that I would I would look to very closely
Speaker 9: to see if there's going to be a break among Democrats,
Speaker 9: if they're is going to be real progress in these talks.
Speaker 4: You would think that Senators Kine and Warner would be front.
Speaker 7: And the center wouldn't just be enough as an off
Speaker 7: ramp for the Democrats to get a vote Senate majority
Speaker 7: Leader Foon put a vote on the floor for the
Speaker 7: enhanced expiring healthcare subsidies or do they actually need a
Speaker 7: plan to extend them.
Speaker 4: That's the big question again. I think it shows the
Speaker 4: split in the Democratic Party. I think this.
Speaker 9: I think for some Centrists they would be okay with it,
Speaker 9: but the firebrands for now are pressuring them not to
Speaker 9: not to give in on that. And so so far,
Speaker 9: I think the louder voices in the party, the more
Speaker 9: aggressive voices are in the party, are winning out, you know,
Speaker 9: in terms of party unity and keeping everybody on the
Speaker 9: same page. At some point, though, if we get into
Speaker 9: the weekend or next week and we have those those
Speaker 9: airline delays and the cuts in social safety net programs
Speaker 9: really start to get to the bone, maybe then you'll
Speaker 9: see a change in uh in tactics and strategy among
Speaker 9: the Democrats. But I gotta say, I mean, it's been
Speaker 9: impressive to watch them stay unified, whether you agree with
Speaker 9: their policy or not. Their their sense of unity has
Speaker 9: been pretty impressive throughout this.
Speaker 1: What's your sense about the reduction in flights that we
Speaker 1: are seeing right now in the mandate coming from the FAA.
Speaker 1: Do you think that this is actually a safety issue
Speaker 1: or do you think this is trying to raise the
Speaker 1: pressure to get some sort of conclusion sooner.
Speaker 4: Oh, I wouldn't be that cynical, Lisa. I mean, look,
Speaker 4: and I'm somebody who you know.
Speaker 9: My flight was in canceled last night, but I ran
Speaker 9: into a bunch of delays, So I mean, I think
Speaker 9: travelers are really going to start to feel it. But no,
Speaker 9: there's politics going on here. You know, let's go back
Speaker 9: to Casavlonica. Shock that there's gambling going on. I'm shocked
Speaker 9: that there's that there's politics going on here. I'm sure
Speaker 9: there is a level of safety uh at work here,
Speaker 9: but there's a level of politics as well.
Speaker 1: So you're not that cynical, but it could be true, right,
Speaker 1: I am curious, but I am curious. You know, there
Speaker 1: was this move yesterday that I thought was pretty telling
Speaker 1: when senators, Republican senators push back against President Trump, and
Speaker 1: after that breakfast they signaled that they were not going
Speaker 1: to nuke the filibuster akin to what he was looking for.
Speaker 10: How big of a deal is that?
Speaker 9: In longer term, it's a big deal because it has
Speaker 9: ramifications for both parties going forward in the short term.
Speaker 4: You know, I think it's starting to signal that and
Speaker 4: we have to read this in the.
Speaker 9: Context of Tuesday's results, that some Republicans are going to
Speaker 9: start to look in terms of self preservation and they're
Speaker 9: not going to be as locked up with the White
Speaker 9: House as they have been, and they probably are going
Speaker 9: to feel a little bit more looking longer term to
Speaker 9: what's in their best interest, not just what their relationship
Speaker 9: is like with the White House at any given moment.
Speaker 6: Brian, if you go to hotel, it's the one on
Speaker 6: the Canada.
Speaker 1: No.
Speaker 9: I mean, Jonathan, I could, I could give you, you know,
Speaker 9: Monday or Tuesday. But you know, I was so wrong
Speaker 9: at the beginning of the shutdown when I really thought
Speaker 9: it was going to be a shorter uh stalemate than
Speaker 9: it has.
Speaker 4: Proven to be.
Speaker 9: And I think, not just me, but talking to people
Speaker 9: up on the hill, I think they've given up on
Speaker 9: trying to handicap this as well. I thought it, you know,
Speaker 9: after Tuesday, I thought it would go into the weekend.
Speaker 9: I think maybe we get into early next week and
Speaker 9: there's an out, but you know, who knows.
Speaker 4: At this point.
Speaker 9: I think I think a lot of us have been
Speaker 9: I have underestimated how long this.
Speaker 4: Would go on.
Speaker 2: Stay with us multiple IMPERG surveillance coming up after this.
Speaker 2: Not the level of you Bes Global Weath's management rightting
Speaker 2: well Alephated valuations continue to raise concerns and could lead
Speaker 2: to increased volatility. We believe the underlying fundamentals remain strong
Speaker 2: and consider market pullbacks as bank up two Now they
Speaker 2: get joined us now.
Speaker 6: For more Nadia, good morning, good morning. What happened to
Speaker 6: the year? Und mounts up? Where did it go? What
Speaker 6: went wrong?
Speaker 8: It's only been a week, John, We think that it's
Speaker 8: still there. Right of course, investors are again confronted with
Speaker 8: this wall of worry. Just we have the government shut down,
Speaker 8: we have concerns around AI spending. We have hawkish you know,
Speaker 8: rhetoric from the fad but that could cost some volatility
Speaker 8: in the near term as we know it.
Speaker 6: But we do think.
Speaker 8: That that wall of warry will be climbed because the
Speaker 8: fundamentals are there. When you look at the urning season,
Speaker 8: you know, above expectations, even our elevated expectations for ten
Speaker 8: percent EPs growth through the quarter. When it's all said
Speaker 8: and done, we could get something in the midteen. So
Speaker 8: we think that that will continue to support the market
Speaker 8: once we get through this shoppiness. And now, so why
Speaker 8: we think that there's not going to be any sort
Speaker 8: of significant pull box because we do think that, particularly
Speaker 8: on the institutional side, we'll step.
Speaker 6: In and buy. I'm with you.
Speaker 2: It tells you something about the market when you get
Speaker 2: to three percent move on tech stocks and the best
Speaker 2: not pumping champagne. They've had a tough year, particularly off
Speaker 2: the loads of April. Let's talk about the move into
Speaker 2: year end and the subtle science we're getting from the
Speaker 2: price section in response to earnings, Lisa's going through a
Speaker 2: range of equities that we've seen report earnings, decent earnings,
Speaker 2: and this market is pushed back.
Speaker 6: That's new.
Speaker 2: We haven't been seeing that over previous quarters. They've been
Speaker 2: rewarded for decent earnings. What's changed.
Speaker 8: I think what's changed is that you know, evaluations, people
Speaker 8: are focused on the valuations. Also, you're seeing some weakness
Speaker 8: in tech and that's causing some nervousness. And it's fair
Speaker 8: for you know, tech investors to start to say, where's
Speaker 8: the monetization of this? But realistically it will take some
Speaker 8: time to get there, but I think you're starting to
Speaker 8: see evidence of that. If you look at the earning
Speaker 8: seas and particularly around cloud growth, right that's where you're
Speaker 8: seeing the monetization. You've see a AWS printed twelve twenty
Speaker 8: percent year over year growth on acceleration of two hundred
Speaker 8: basis points from the last quarter. You've seen a similar
Speaker 8: acceleration from Google thirty four percent, and then micros off also,
Speaker 8: you know forty percent in terms of the Azure revenue growth.
Speaker 8: Ultimately is a supply constraint that's holding back even those
Speaker 8: high growth. So we do think that investors will come back,
Speaker 8: you know, and reassess some of these fundamentals and realize
Speaker 8: that they actually have been quite strong.
Speaker 1: Jonathan, you can dismiss the pullback that we've seen over
Speaker 1: the past week is just saying, okay, it's just been
Speaker 1: one week. That said, you have seen a shift where
Speaker 1: momentum and that whole.
Speaker 10: Trade has been unwinding.
Speaker 1: We've seen that meme stocks, We've seen that with bitcoin,
Speaker 1: We've seen that even on the peripherez of gold. We've
Speaker 1: seen that with a number of some non profitable techniques
Speaker 1: that also got bid up.
Speaker 10: What do you think is behind that look.
Speaker 8: Reality is, did the market run fast too fast, too
Speaker 8: quickly in the last month. You can make that argument, yes,
Speaker 8: and so taking.
Speaker 10: Some off the table.
Speaker 8: It's a natural sort of course in terms of, you know,
Speaker 8: a pullback. We haven't even gotten to five percent, and
Speaker 8: I think once you get to that five or six
Speaker 8: is or even seven percent, which you don't think you're
Speaker 8: going to get to, then you're going to see money
Speaker 8: start to come back into the market. So I think
Speaker 8: it's just sort of a reallocation and looking for those
Speaker 8: opportunities where particularly some on the laguer side, even in healthcare,
Speaker 8: I think the money will start to flow into that.
Speaker 8: And so it's taken a little bit all over the
Speaker 8: table on some of the winners, and then I think
Speaker 8: in the year end you start to see some of
Speaker 8: the laggers get a bit.
Speaker 10: On the index level.
Speaker 1: It hasn't been that big of a drawdown, and you
Speaker 1: take a look at an index of MEME stocks. It
Speaker 1: was down five percent yesterday, it's down seventeen percent from
Speaker 1: the peak. At what point do you think that some
Speaker 1: of these losses will affect retail appetite and retail psychology.
Speaker 6: Given what a big role they've played.
Speaker 1: Maybe not in the overall total market cap, but certainly
Speaker 1: when it came to comes to trading volumes.
Speaker 8: Yes, you're absolutely right. The retails of investors have been
Speaker 8: a big buyer of this market. But again, I think
Speaker 8: it goes back to reallocating some of those resources to
Speaker 8: other parts of the market, the main stocks. At the
Speaker 8: end of the day, it's going to be the earners
Speaker 8: that is going to drive this market, and so I
Speaker 8: think that you are going to see those quality names
Speaker 8: start to get a bit again. Taking out some of
Speaker 8: the front of the market is a healthy part of
Speaker 8: the process, Lisa. In our view, we don't want this
Speaker 8: market to run up too quickly. As we were discussing earlier.
Speaker 8: It's given those people who have been waiting on the
Speaker 8: sideline and an opportunity, and there is a lot of
Speaker 8: cash still on the sideline, particularly those institutional investors that
Speaker 8: has missed some of this rally that we think that
Speaker 8: we'll make up just kind of close that on the
Speaker 8: performance gap into year end, that we'll come back into
Speaker 8: this market, but again focusing on those more quality areas,
Speaker 8: and that's sort of the mean nonprofitable areas of the market.
Speaker 7: Nadia, the government shut down continues to drag on any
Speaker 7: of this. What's going on the market being driven at
Speaker 7: this moment a little bit right by policy uncertainty in Washington.
Speaker 8: I think, so particularly around what it could do to
Speaker 8: consumer sentiments and what it could do to spend spending
Speaker 8: going forward. Reality is people aren't getting paid and if
Speaker 8: that weighs on the sentiment, particularly into the holiday season,
Speaker 8: you could see some pullback, particularly in some of the
Speaker 8: consumer names, So that starting to drag on the market
Speaker 8: on the margin. But I think, you know, as we've
Speaker 8: been discussing this more in that as we approach the
Speaker 8: holiday season, particularly Thanksgiving, you're likely to see the government
Speaker 8: start to take this a little bit more seriously in
Speaker 8: terms of what is doing to the American consumer and
Speaker 8: reopen the government. I mean, I hear from my mom
Speaker 8: who runs our church pantry that the reality is you're
Speaker 8: seeing long lines there. So people are suffering, right and
Speaker 8: I think that there are will there are calling their
Speaker 8: representative just sort of reopen the stuff.
Speaker 10: I think the.
Speaker 7: Government reopens before Thanksgiving.
Speaker 6: I do, I do.
Speaker 8: We do think that it's not a guaranteed. Look, you know,
Speaker 8: nothing is ever guaranteed, but it does feel that way
Speaker 8: that momentum is building to reopen this government in the
Speaker 8: next couple of weeks.
Speaker 6: Stay with us.
Speaker 2: More Blomberg surveillance coming up after this.
Speaker 6: Infest.
Speaker 2: The struggling to reach consensus on the state of the
Speaker 2: economy with alternative dake to sending mixed signals. Premiser of
Speaker 2: JP Morgan writing, we remained in a self lending but
Speaker 2: I don't see any scientific economy reaccelerating and resuscue to
Speaker 2: the downside. On the labor market, Prayer joints us now
Speaker 2: for more preaking Monic Marning. No payroll dates are eight
Speaker 2: thirty Eastern times, so when they're talking about challenger job cuts.
Speaker 2: Now typically we dignore challenger job cuts. How much is
Speaker 2: that takes are actually worth?
Speaker 10: So I mean a.
Speaker 5: Lot of this ADP. You have to look at the
Speaker 5: totality of data. I do miss payrolls. Let's spend a
Speaker 5: second saying it was good data. I just never thanked
Speaker 5: it before, and now two months in hero we haven't
Speaker 5: had It's not just the header we asked, well, we
Speaker 5: have a lot of data. Like somebody asked me the
Speaker 5: other day, you probably have nothing to do, I said,
Speaker 5: I have more work because I'm now looking at the totalities.
Speaker 5: You have to look at ADP, the details challenger. We
Speaker 5: always looked at it, but you had like the king
Speaker 5: of all data with payrolls, and we.
Speaker 10: Don't have that. But we are looking.
Speaker 5: We're looking at earnings releases. We're still in that soft landing,
Speaker 5: and I think that's why.
Speaker 10: The Fed's been cutting and now the FEDS saying.
Speaker 5: Well, we need more data, so you know, data dependent
Speaker 5: FED data dependent market is now looking at more creative
Speaker 5: ways of data. But I think there's a fairly consistent
Speaker 5: picture of there are these structural positives, right you talk
Speaker 5: about the soft landing. Companies are solid and they're adapting
Speaker 5: to all these macroshocks, tariffs, immigration, they're managing and that's
Speaker 5: why earnings have been rock solid. We haven't even seen
Speaker 5: the you know, like leverage go up, so it's not
Speaker 5: as if they're they're borrowing to make ends meet. The
Speaker 5: margins are strange, staying strong. Consumer spending is strong, but
Speaker 5: we have that case shape consumer, case shape corporate sector
Speaker 5: and that's the consistent theme. But the labor market is
Speaker 5: slowing and we're still in that low higher low fire.
Speaker 5: But how long can that last? As the labor supply grows.
Speaker 5: You know, people graduate from college, you need jobs. So
Speaker 5: I don't know if it can last forever.
Speaker 10: For now, we're in a soft landing.
Speaker 5: I think owning credit fixed and comes doing what it's
Speaker 5: supposed to do. So I think you know that's how
Speaker 5: we're sort of position.
Speaker 6: You mentioned a feder reserve. The consensus view of the
Speaker 6: FED at least a month ago. The bias of the FED.
Speaker 2: People believe if the spies existed anyway, is that they
Speaker 2: wouldn't deviate from the top club, even if they didn't
Speaker 2: get the economic data. You mentioned the FED and maybe
Speaker 2: that view changing. Is that just usting goes to be
Speaker 2: at the Chicago Fed, or is that the core of
Speaker 2: the committee?
Speaker 5: Now? I think there is no core. I think there's
Speaker 5: a huge division in the FED. And it's not just
Speaker 5: in terms of risks around the labor market, risks around inflation.
Speaker 10: It's also on the neutral rate.
Speaker 5: I mean, I was concerned about this debate that we're
Speaker 5: having at the FED maybe six months from now.
Speaker 10: It's happening a little earlier.
Speaker 5: But if you look at the neutral rate, there are
Speaker 5: people saying it's two seventy five and four.
Speaker 10: We're right at four.
Speaker 5: So I think what Chapao said, because we need data
Speaker 5: to tell us which way to lean. I think both
Speaker 5: sides at the FED the division both are equally vocal.
Speaker 10: There are those that are highlighting.
Speaker 5: That the labor market's slowing, and then there are those
Speaker 5: that are single inflation.
Speaker 10: Still above target and we don't know what's neutral.
Speaker 5: Financial conditions are easy, and so you can almost argue
Speaker 5: will FED cuts make a difference. They do make a difference,
Speaker 5: particularly if that neutral rate is at three. So I
Speaker 5: think that to real action function. I think the chip
Speaker 5: out said there is no clear reaction function. I think
Speaker 5: there was a slight shift the data. Lack of data.
Speaker 5: You can tell that the FED might be on my
Speaker 5: camp like Stott of data and missing it. So if
Speaker 5: we don't get data, I think they might even pause.
Speaker 5: But I do think economy outlook matters as much as
Speaker 5: the reaction function. We got a sense of a more
Speaker 5: hawkish reaction function. But if the economic data continues Challenger
Speaker 5: as part of it, If the layoffs start, this is
Speaker 5: not a job market where layoffs will get absorbed quickly,
Speaker 5: and I think that's where the FED. Then maybe they
Speaker 5: don't cut in December, and then they cut more aggressively
Speaker 5: next year if the economy continues to slow.
Speaker 1: I put a put into chatchipt write a poem about
Speaker 1: non farm pails, and I think it broke chatcheapts. It
Speaker 1: still hasn't come up with the poem, so hopefully we
Speaker 1: can get.
Speaker 10: That for you.
Speaker 1: I am curious, though, do you think that if the
Speaker 1: Fed does not cut rates in December because of a
Speaker 1: lack of data, that it will prompt you to want
Speaker 1: to go into longer term bonds On the margins, it
Speaker 1: will hamper growth more significantly and tamp down any inflation risk.
Speaker 5: I do think if they don't cut, and they suggest
Speaker 5: that this is it, then you can have concerns around
Speaker 5: maybe long end bonds we're supposed to price in a
Speaker 5: weaker economic outlook. You'll get some froth out of the market.
Speaker 5: People who have only bought an acid because they think
Speaker 5: the Fed's going to cut rates, then they start to
Speaker 5: move away. But I do think if they don't cut,
Speaker 5: they're still going to keep that put alive, meaning they're
Speaker 5: going to say, look, as the economy slows, now we're
Speaker 5: data dependent, we can cut aggressively. This FED has not
Speaker 5: been shy under Chepaul. They've hiked at seventy five increments.
Speaker 5: They cut fifty last year, but they are a data
Speaker 5: dependent FED.
Speaker 1: How much of an unwined do you expect in say,
Speaker 1: some of the riskier assets, whether it's riskier credit or
Speaker 1: certainly what we've seen with memestacks. I know you're not
Speaker 1: focused on that, but I wonder how much that's a
Speaker 1: direct response the FED might not be cutting as aggressively and.
Speaker 10: Might be closer to dumb than people had expected.
Speaker 5: I mean, there is a lot of liquidity in the system,
Speaker 5: and the FED stopping QT was part of that as well.
Speaker 5: Now they are not increasing the size of the balance sheet,
Speaker 5: but I wonder do people look at the size of
Speaker 5: the balance sheet growing, which I think is going to
Speaker 5: happen either it's December or next year because of reserves.
Speaker 5: I think reserves are close to neutral. We talk about
Speaker 5: neutral FED funds. We should talk about neutral reserves as well.
Speaker 10: Worth there.
Speaker 5: So I wonder if okay, the Fed's not you know, cutting,
Speaker 5: but the FEDS growing the balance sheet, so you might
Speaker 5: get you know, liquidity staying high and it can.
Speaker 10: Sort of propel more of that.
Speaker 5: But I think in general, we talked about remember cockreatures,
Speaker 5: just not that long ago, I mean there are excesses
Speaker 5: in I would say every market, and our job is
Speaker 5: to find them and make sure we minimize the cockroaches.
Speaker 5: And that requires a lot of credit work, you know,
Speaker 5: where you have to understand the company, and I think
Speaker 5: it's people who maybe not doing that that might be
Speaker 5: then at risk of some of that froth coming out
Speaker 5: because you know, we don't know what neutral is.
Speaker 10: I mean, I think.
Speaker 5: It's closer to three, but what if it is closer
Speaker 5: to four because financial conditions, liquidity is high and so
Speaker 5: you may not get a big decline in interest rates.
Speaker 5: That's when you want to make sure you own the
Speaker 5: companies that don't need lower rates to make their payments.
Speaker 7: Prayer you talk about this in your notes. How are
Speaker 7: you thinking about the risk of what's going on at
Speaker 7: the Supreme Court in terms of AEPA.
Speaker 5: There was a lot of discussion. I think the bond
Speaker 5: market got really nervous. And you know, these are large
Speaker 5: numbers if the Supreme Court does rule these tariffs illegal.
Speaker 5: We're talking ninety hundred billion of tariff numbers.
Speaker 10: That's a large number.
Speaker 5: But look at the you know, the Treasury has the
Speaker 5: cash cash balance has been growing, so I don't see
Speaker 5: a case where they have to suddenly come out and
Speaker 5: issue a lot. I think interest rates rose. Saying the
Speaker 5: deficits are problem. The deficit is a long term problem.
Speaker 10: I mean, or at.
Speaker 5: Seven percent deficit of GDP, that's going to go to
Speaker 5: seven point two. I think the bond markets slightly overreacted
Speaker 5: the president. It's the signature policy of the president. He said,
Speaker 5: it's the most beautiful word in the dictionary for him.
Speaker 5: So if it is struck illegal here, they've got section one,
Speaker 5: twenty two, thirty two three or one. I mean, I'm
Speaker 5: no constitutional lawyer or lawyer.
Speaker 10: But I think they're going to find ways.
Speaker 5: It's going to be harder and maybe not as blanket,
Speaker 5: and Congress needs to be involved. But I think you're still.
Speaker 10: Going to get those tariffs. I don't see the tariff
Speaker 10: number really going down.
Speaker 5: So I think if the market overreacts, I think that's
Speaker 5: an opportunity on any Supreme Court.
Speaker 10: Headline.
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