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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.

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Speaker 2: Join us each day for insight from the best an economics, geopolitics,

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Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 2: Spotify and anywhere you get your podcasts, and always on

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Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 1: The charm of Laura Ramas.

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Speaker 2: She comes from a foreign exchange background. She's chief US

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Speaker 2: economist at FS Investments and follows a data like an animal.

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Speaker 2: I love, Laura, how you're looking at real yields. I

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Speaker 2: just went in and looked not at the ten year

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Speaker 2: the vanilla reel yield, but the inflation adjusted five year yield.

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Speaker 2: It is I'm thunderstruck. We're out three standard deviations, We're

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Speaker 2: back to two thousand and nine. Are real yields now

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Speaker 2: where they have a real effect on the American economy.

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Speaker 3: I think we've seen that. We were just talking about autos.

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Speaker 3: These are the interest rates sensitive sectors that have been

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Speaker 3: impacted by FED hikes. The nominal part of the cycle.

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Speaker 3: I think as the FED sort of transitions to the

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Speaker 3: end of that, the decline that the edging down of

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Speaker 3: inflation has this insidious effect via the real rates channel,

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Speaker 3: and I think that's what we're going to continue to

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Speaker 3: feel in the housing market, in the auto market. It's

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Speaker 3: going to be a weight on consumers. You look at

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Speaker 3: the interest rate burden the households are facing. It's not catastrophic,

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Speaker 3: but it is a lot higher and hundreds of billions

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Speaker 3: of dollars matter.

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Speaker 1: What do you think this will do to commercial real estate?

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Speaker 2: I mean, I get it, it's not a big part

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Speaker 2: of the gdp PI, but it's emotional and your charm

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Speaker 2: as you're down in Philadelphia rooting for Bryce and the

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Speaker 2: rest of them. You're in Philadelphia, and the answer is

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Speaker 2: you don't have that Manhattan stars in your eye. What's

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Speaker 2: commercial real estate going to do in Philadelphia or in Phoenix?

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Speaker 3: Well, and those are two very different questions because I

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Speaker 3: think we've seen geographically regionally a huge dispersion amongst performance.

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Speaker 3: We're still very focused on finding the opportunity within a

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Speaker 3: sector that's going to have some clear problems, like the

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Speaker 3: Center business district, where you know we are also experiencing

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Speaker 3: a lower vacancy rate that seems to be settling in

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Speaker 3: well lower than pre COVID, but it doesn't mean there

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Speaker 3: is an opportunity. That's what you've got to love about

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Speaker 3: commercial real estate. There's so many sectors, multifamily, you know, industrial,

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Speaker 3: you're even seeing hospitality still doing pretty well again selectively.

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Speaker 3: So it's an area where you can really dig in

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Speaker 3: and find a lot of opportunity. You know, it's going

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Speaker 3: to find a new equilibrium. We're seeing that in housing,

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Speaker 3: we're seeing it in commercial real estate. But right now

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Speaker 3: you really want to be the bank, you want to

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Speaker 3: look towards income. There are ways to invest in commercial

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Speaker 3: real estate because it's going to continue to be a

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Speaker 3: really important sector for any portfolio to diversify into.

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Speaker 4: And Laura, this really speaks to your theme that you

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Speaker 4: don't necessarily think that we're going back to the era

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Speaker 4: of low rates and low inflation that we were pre pandemic.

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Speaker 4: How much is this the real issue? The threat that

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Speaker 4: the disinflation that we're seeing in autos, in housing, in

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Speaker 4: some other metrics is a headfake, and when that leads

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Speaker 4: to comps year over year in six months, that make

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Speaker 4: it easier for inflation to go higher.

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Speaker 3: This is exactly the point that I try to draw

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Speaker 3: out for people, because housing has been a primary example. Yes,

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Speaker 3: cyclical headwinds with interest rates, but structural tailwinds given the

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Speaker 3: underbuilding and underinvestment that we've had in this sector for years.

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Speaker 3: So as we look ahead, you know, unfortunately a forecast

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Speaker 3: is in a recession. Is in my forecast mild re

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Speaker 3: session looking ahead into the beginning of next year. But

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Speaker 3: it doesn't have to be severe. And the fact that

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Speaker 3: interest rates are now going to offer investors two way

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Speaker 3: risk is an absolute game changer. We've had forty years

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Speaker 3: of you know, with exceptions, but a trend of falling

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Speaker 3: interest rates, and it has caused people investors to change

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Speaker 3: their behavior over generations and looking ahead, if we get

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Speaker 3: this bounce in our star, I think we're seeing it,

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Speaker 3: you know, look at the look at the Bloomberg gag. Right,

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Speaker 3: it is flat on the year despite a lot of

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Speaker 3: up and down. You cannot lock in a price gain

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Speaker 3: and you're left relying on income that still is very

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Speaker 3: low relative to where inflation is.

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Speaker 5: Lara, thank you for your input. Lad run in there

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Speaker 5: of FS investments so com protty with a surrounded type

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Speaker 5: who doesn't want to talk about this multi Sepput Fundo

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Speaker 5: manager take Morkan asset management. Can you understand?

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Speaker 1: Amazon comes there?

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Speaker 6: And I love Glad as well.

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Speaker 5: Great movie, Thank you, thank you, we're recreating it. Let's

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Speaker 5: talk about this male kit on Friday we get some earnings.

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Speaker 5: We won't talk about your bank specifically, of course, for

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Speaker 5: obvious reasons. What do you expecting this earning season from

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Speaker 5: the banks? From big Tech and Ken This rally broaden out.

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Speaker 6: John, So it's going to look better than it did

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Speaker 6: in March. I think there were so many head fakes

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Speaker 6: and noise at the end of the first quarter that

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Speaker 6: even the Fed got faked out on right. They expected

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Speaker 6: us to be in recession by now. There were a

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Speaker 6: lot of people saying that by July and September the

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Speaker 6: Fed could be easy. And as you said, right, this

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Speaker 6: is a year where the narrative changes every single week.

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Speaker 6: And that's true, John. We are we have dropped our

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Speaker 6: recession probability from forty percent in March to twenty five percent. Now.

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Speaker 6: We are pretty highly convicted that we're in the midst

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Speaker 6: of a soft landing. So what does a soft landing

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Speaker 6: look like? Means that the economy can continue to grow

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Speaker 6: and avoid recession, and that's why we dropped our PROPAB.

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Speaker 6: The second pieces employment stay strong, and I think that's

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Speaker 6: been the signal all along, Like there have been people

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Speaker 6: like we're going in assession, we're going to over session.

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Speaker 6: You need this labor market to crack, and that has

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Speaker 6: has been very, very resilient overtime. And then the third

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Speaker 6: piece is the easing has to get has to get

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Speaker 6: pushed out, and that I think was one of the

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Speaker 6: biggest misses this year was that there was so much

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Speaker 6: easing priced into the back half of the year that

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Speaker 6: had to go along with the crisis. You had to

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Speaker 6: be long a crisis if you believed in an easing

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Speaker 6: in the back half of this year. Now the deflation

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Speaker 6: trajectory flattens out, that's certainly the case, which is why

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Speaker 6: the easiest being priced out. You heard Mary Daily last night,

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Speaker 6: two more hikes. I think that's appropriate. They're probably going

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Speaker 6: to do one more hike than they're comfortable with because

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Speaker 6: we're nowhere near our target of two percent core inflation.

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Speaker 6: But it is an awesome time to be a multi

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Speaker 6: asset investor. We were up ten percent in the first

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Speaker 6: six months of this year in a balance fund nobody's

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Speaker 6: talking about that, every tingting about Nvidia. I think the

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Speaker 6: balance fund up ten percent is really exciting as well,

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Speaker 6: and certainly more than that three month T bill that's

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Speaker 6: at five percent. That's been my all year, and there's

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Speaker 6: way too many people.

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Speaker 2: I love your research, the concision of it. At the

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Speaker 2: end you say, do this, do this, do this. But

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Speaker 2: the phil camp for early idea here is you got

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Speaker 2: to be in the market, Yes you got. I want

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Speaker 2: you to talk right now to people who are scared stiff.

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Speaker 2: What's the level of fear out in the street, because

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Speaker 2: don't you have to go up with a wall worry?

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Speaker 1: Yeah?

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Speaker 6: So, and we've heard it all year. We've heard debt

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Speaker 6: ceiling for a regional bank crisis. It was a foregone

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Speaker 6: conclusion that there was gonna be a recession this year.

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Speaker 6: Tom And I'm not talking people to get out of

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Speaker 6: cash and go into equities. That's not what I'm saying.

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Speaker 6: I'm saying when you're making a bet on a balanced,

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Speaker 6: diversified portfolio, which by the way, has worked over so

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Speaker 6: many years, you're not making a bet on stocks or bonds.

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Speaker 6: You're making a bet on the relationship between those two

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Speaker 6: asset classes, which was absolutely like inverted last year. Last

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Speaker 6: year was the first year since nineteen seventy four that

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Speaker 6: both stocks and bonds went down in the same year.

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Speaker 6: And I came on this show and told you, you

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Speaker 6: know what, we have the best forecasted return for the

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Speaker 6: sixty forty that we've had since two thousand and ten

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Speaker 6: coming into this year. So, Tom, those are the folks.

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Speaker 1: That I'm after.

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Speaker 6: They're sitting there in the three month tea bill. It's

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Speaker 6: like the best hedge fund out there right at five

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Speaker 6: plus percent, and they're saying, I'm safe here. Well, you

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Speaker 6: know what, if the balance funds up ten percent in

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Speaker 6: six months, their opportunity costs just went up.

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Speaker 4: That said, you talked about the soft landing probability, which

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Speaker 4: changes a bit. On disinflation, Yes, ongoing. We've seen disinflation

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Speaker 4: with used car prices going down, as John mentioned, We've

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Speaker 4: seen disinflation in some of the rental prices. We've seen

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Speaker 4: disinflation even even from the smallest small business survey if

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Speaker 4: you look out that starts to change later in the year.

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Speaker 4: Is the disinflation that we're seeing a head fake? And

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Speaker 4: could that be a real potential risk list?

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Speaker 6: So that's our biggest risk to our forecast if disinflation

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Speaker 6: starts to trend higher towards the end of the year.

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Speaker 6: So you know, when this base effect of June rolls

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Speaker 6: off and we get this this move in, you know,

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Speaker 6: on tomorrow's CPI number, the risk is and I think

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Speaker 6: this is why that the base case has to be

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Speaker 6: for central bankers to talk extremely hawkishly. They cannot afford

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Speaker 6: to let the ten year treasury move lower and rate.

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Speaker 6: Why because that controls the housing market, and if the

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Speaker 6: housing market and the owner's equivalent rent part of this

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Speaker 6: shows firmness towards the end of this year, you know,

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Speaker 6: that's a scenario where you could have equities going down

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Speaker 6: and bonds going down, not to the same extent of

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Speaker 6: last year. Last year was a historical event, but that's

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Speaker 6: probably our biggest risk, that that disinflationary curve starts to

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Speaker 6: trend higher and instead of sticky inflation, accelerating inflation happens,

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Speaker 6: and that would be our biggest risk.

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Speaker 1: Now that's not our base case.

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Speaker 6: We're not investing for that, but that is probably more

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Speaker 6: of a risk than the US falling into recession by

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Speaker 6: the end.

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Speaker 5: What are you invested for three percent inflation? A return

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Speaker 5: to two. Do you see anything compatible with a return

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Speaker 5: to two right now?

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Speaker 6: No, So we don't have enough of a growth kind

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Speaker 6: of deterioration story, John, that would speed up a disinflationary

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Speaker 6: back to two percent before the end of next year.

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Speaker 6: Now that doesn't mean that you can invest in this

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Speaker 6: market as long as the disinflationary process can you start.

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Speaker 6: If it's flat, it's okay. Maybe you don't get the

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Speaker 6: return in bonds, but maybe you start to get that

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Speaker 6: breath story in what I call the S and P

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Speaker 6: four ninety, which is everyone else to be able to

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Speaker 6: to keep the market calls.

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Speaker 1: Like twenty seven.

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Speaker 2: You know I'm looking here, John, headline inflation four percent

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Speaker 2: prior plunging to three point one percent survey.

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Speaker 1: I don't think enough has been made about tomorrow.

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Speaker 2: You get a headline inflation number, what if there comes

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Speaker 2: into two point nine percent.

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Speaker 5: That makes it out stunning.

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Speaker 6: But they know that they know that last June's number

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Speaker 6: was one point two percent, and that's rolling off. So

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Speaker 6: if you get a high point one or a low

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Speaker 6: point two, that's a base effect. That's not going to

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Speaker 6: make them say let's wave a victory flag on inflation.

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Speaker 6: And I think that's that's that's the real sick.

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Speaker 5: I'm trying to make a six sign in brama. Got

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Speaker 5: to take tomorrow morning work. Thanks okam party that JP

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Speaker 5: Morgan Ascent Management.

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Speaker 2: Top of the Google search message right now as Shakira

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Speaker 2: and Sir Lewis Hamilton. There's got a lot of a

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Speaker 2: lot of Google love coming off of the Formula one race.

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Speaker 2: Right behind them and a Google search is Claudia Sam.

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Speaker 2: She is an economist, a former FED economist and founder

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Speaker 2: of Sam Consulting, and she has been out there and

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Speaker 2: visible over the measurement of recession. We're thrilled that doctor

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Speaker 2: Sam could join us this morning. Claudia, you mentioned California.

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Speaker 2: It's ginormous, It's as big as the German economy, and

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Speaker 2: all of a sudden, California's unemployment rate goes from three

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Speaker 2: point eight percent up to four point five percent. Should

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Speaker 2: we follow and be aware of California?

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Speaker 7: So we should be watching every state, every labor market

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Speaker 7: that we can remember. The FED is set for the

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Speaker 7: national economy right so we can't expect the FED to

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Speaker 7: get too excited about what's happening in California because right

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Speaker 7: now we have to just this could be there are

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Speaker 7: a lot of tech layoffs. There were big disruptions in

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Speaker 7: the Bay Area. So what we're seeing in California could

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Speaker 7: be unique to California, or I could mean that we're

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Speaker 7: headed to slowing overall.

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Speaker 1: What do you see in your data?

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Speaker 2: I know, mid month you get a massive redo here,

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Speaker 2: you'll have that out in ten days whatever, But what

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Speaker 2: do you see right now?

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Speaker 1: Let's get out in front.

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Speaker 2: I need to make some news this morning, Claudia.

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Speaker 7: Yeah, Well, the economy, the labor market is in a

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Speaker 7: great place for people. So because they've been the workers

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Speaker 7: have had the upper hand. When I look at the

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Speaker 7: wage data, which I think a lot of people were,

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Speaker 7: you know, wringing their hands over yesterday, it's like, how

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Speaker 7: do you think you're going to get workers back into

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Speaker 7: the labor market and deal with labor shorages if you

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Speaker 7: don't pay them more like this is econ one oh one.

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Speaker 7: So to me, seeing that we're still adding jobs, it's

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Speaker 7: really good. So people find a way to turn it

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Speaker 7: into really bad. But I won't do that, Claudia.

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Speaker 4: I love your note where he said it's not hard

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Speaker 4: to find an angry macroeconomist. Macroeconomist at this point everyone's

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Speaker 4: made mistakes, and everyone's trying to figure out how to

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Speaker 4: carve out a niche for themselves to explain what just happened.

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Speaker 4: How do you understand the dissonance between everyone's expectations of

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Speaker 4: where the economy was headed and what actually has happened.

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Speaker 7: Well, as I started there, every macroeconomist has missed something

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Speaker 7: this time, right, and they're very different things that we've missed.

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Speaker 7: So and really, people get kind of not happy when

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Speaker 7: they're making calls and they're not getting it. They sometimes

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Speaker 7: get even less happy when they look around and see

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Speaker 7: people who've made big mistakes all over the news. So

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Speaker 7: I think that's where you know I pointed out in

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Speaker 7: this piece you're referencing on Bidenomics, is that you know,

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Speaker 7: like you got to take it with a grain of salt,

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Speaker 7: always what your advisors come to you with. And I

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Speaker 7: think right now, unless they're bringing a lot of nuance,

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Speaker 7: it could do more damage than good.

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Speaker 4: But what are we misunderstanding just to the point of

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Speaker 4: the making mistakes, and we've all made plenty of them,

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Speaker 4: but what are we misunderstanding about pandemic economics as Tom

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Speaker 4: would call it, or where we are in the recovery,

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Speaker 4: or where we are in the distortions, whether it's California

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Speaker 4: people moving away from there or the Northeast, or even

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Speaker 4: people's propensity to switch jobs shift locations, spend more than

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Speaker 4: they otherwise would to capitalize an experience that they were

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Speaker 4: denied during twenty twenty.

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Speaker 7: Right, So I think it's all in there. The economy

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Speaker 7: is upside down and backwards, and we need to be

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Speaker 7: aware that every data release you get could be leading

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Speaker 7: us astray because it's not clear yet are we doing

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Speaker 7: the rebalancing or are we going down? And we'll know

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Speaker 7: more about that in a few months. In terms of

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Speaker 7: you know what went wrong, I certainly was expected that

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Speaker 7: the economy, the supply would come back online more quickly

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Speaker 7: than it did. And I think on the other side,

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Speaker 7: we see this disinflation right now without unemployment rising, which

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Speaker 7: is a huge puzzle to macroeconomists that would use models

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Speaker 7: like the Phillips curve. So you know, we'll keep going

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Speaker 7: at it. And that's where as analysts, if we dig

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Speaker 7: deep in the data, that's kind of where we should

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Speaker 7: stay in terms of grounding our analysis.

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Speaker 2: Claudia, what I love about when you come on is

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Speaker 2: my brain gets going and I'm doing research I usually

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Speaker 2: have never done, Like, I've never done.

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Speaker 1: This, folks.

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Speaker 2: Out of the percent of GDP of America, and there's

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Speaker 2: like twenty three states or so with under one percent

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Speaker 2: of America's GDP, they're tiny. You know, we know the

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Speaker 2: names Texas and California make up twenty three percent of

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Speaker 2: American GDP. Do people like you focus more on those

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Speaker 2: big states or do you aggregate everything together?

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Speaker 7: Frankly, there hasn't been a lot of work, say at

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Speaker 7: the FED on regional effects. They have experts in the

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Speaker 7: building who are not economists, and yet they don't play

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Speaker 7: an integral role. I think, you know, we need to

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Speaker 7: pay attention to states because they could be the canary

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Speaker 7: in the coal mine, Like if we could get ahead

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Speaker 7: of this even a little bit, if we get a recession,

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Speaker 7: that's important. I will say states like Texas and particularly Florida,

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Speaker 7: like they have more than recovered their losses and employment.

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Speaker 7: So it's you want to look at the states, but

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Speaker 7: that's not going to be the place you stop with

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Speaker 7: the analysis.

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Speaker 2: Where do you look with the analysis? What do you

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Speaker 2: look at with the analysis? Is you try to measure

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Speaker 2: a sum like recession?

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Speaker 7: Yeah, I had no idea this was going to become

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Speaker 7: such a thing, because you know, I've developed this Sam

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Speaker 7: rule in order to start up fiscal policy send out

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Speaker 7: the checks. But you know people want to use it

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Speaker 7: as an indicator. That's fine. But the Sam rule is

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Speaker 7: not a forecast tool, right that does It does not

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Speaker 7: tell us about where we're going. It tells us about

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Speaker 7: where we are. So but knowing early in a recession

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Speaker 7: that we're in one, that's that's helpful to know.

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Speaker 4: We're speaking with Claudias Sam of some consulting who is

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Speaker 4: famed for her some rule with respect to employment. We're

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Speaker 4: about twenty four hours away from CPI in the United States,

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Speaker 4: the headline is supposed to drop from four percent to

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Speaker 4: three point one percent year over year. That is the

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Speaker 4: headline figure core less so to five percent from five

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Speaker 4: point three percent. Claudia, what are the big concerns that

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Speaker 4: we've been hearing about from a lot of our guests

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Speaker 4: this morning? Is a head fake when it comes to

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Speaker 4: disinflation in the US and the pace of it. We

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Speaker 4: have seen used car prices come down, we have seen

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Speaker 4: rents come down. We have seen some certain peripheral areas

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Speaker 4: of the economy show signs of disinflating. Is it enough

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Speaker 4: and is it showing signs of consistency to bring us

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Speaker 4: where we need the FED where the FED would like

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Speaker 4: us to go.

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Speaker 7: We're still in a place of a lot of uncertainty,

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Speaker 7: and the FED leans much more on the you know,

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Speaker 7: the the using unemployment versus inflation. So that's more of

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Speaker 7: like a rule of thumb, and we're so far off that,

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Speaker 7: right We're back to the days of before the recession

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Speaker 7: when unemployment was so low and yet inflation didn't pick up,

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Speaker 7: and it's like, what is going on? So I think,

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Speaker 7: you know, we've carried that uncertainty about how those relationships

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Speaker 7: work into the present and that's partly why I think

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Speaker 7: we come out of this with some reason. From the

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Speaker 7: macro profession.

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Speaker 4: Right now, I'm also watching specific sectors, whether it's autos

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Speaker 4: and the idea of prices going down for use cars.

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Speaker 4: I'm looking at the housing market, the mystery of why

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Speaker 4: housing prices having cracked at a time when mortgage rates

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Speaker 4: are the highest going back since two thousand and sixteen,

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Speaker 4: I believe at the earliest, actually further than that, I

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Speaker 4: think it was more than that decades. Claudia, what sector

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Speaker 4: are you looking at for a tea leaf in order

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Speaker 4: to project where we are headed with inflation?

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Speaker 7: Well, I think you listen to the news cycle and

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Speaker 7: you hear things like I had not planned on last

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Speaker 7: week doing state dependent p SOM rules, right, but I

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Speaker 7: did so. In terms of industry, it's like you go

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Speaker 7: after where the story is. You know, you look in

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Speaker 7: the it the tech and see it like what does

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Speaker 7: that look like? And actually some of it. There's some

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Speaker 7: places where we had really a lot of trouble bringing

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Speaker 7: workers in, like Staton local government. They're like one of

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Speaker 7: the big additions right now. So again that looks like

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Speaker 7: rebalancing to me. But like you said, you're going to

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Speaker 7: pick up and follow any sector that is right still

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Speaker 7: higher inflation.

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Speaker 2: Claudia, I just had a nightmare. I was thinking about

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Speaker 2: you as a FED president or a FED governor. We

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Speaker 2: want can you see Claudia at the Echoles building around

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Speaker 2: the table.

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Speaker 4: I think she's take close to that.

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Speaker 2: Michelle Smith will get her a Starbucks.

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Speaker 1: Claudia. The character of the descent right now at the FED, I.

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Speaker 2: Mean we know that if you were there there would

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Speaker 2: be a visible psalm descent, no question about it. What's

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Speaker 2: the nature the character of our non descent descent at

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Speaker 2: the FED.

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Speaker 7: So I think it's really unfortunate that you have like

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Speaker 7: straight line votes and then you get to see a

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Speaker 7: summary of economic projections that there's clearly disagreement, right, Like,

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Speaker 7: I don't know why they are shy about saying that.

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Speaker 7: You know, there's a lot of moving pieces here and

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Speaker 7: we there ought to be somebody and some of these

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Speaker 7: people have been openly for a pause, right and then

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Speaker 7: there's been some openly Fed officials openly for going forward.

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Speaker 7: How do you get a pause out of that? You

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Speaker 7: think you're going to do twenty five basis points more twice?

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Speaker 7: Why aren't you doing it now?

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Speaker 2: Right?

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Speaker 7: Like that, everything was very puzzling with the Fed.

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Speaker 2: Claudia, Sam, thank you so much, greatly appreciate it. Congratulations

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Speaker 2: on the impact doctor Salm is having on our slow

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Speaker 2: down stagnation recession debate. Joining us down This is important

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Speaker 2: for Global Wall Street. It's a really intelligent note for

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Speaker 2: Northwestern Mutual Brunch. Shooty joins us their CIO, and buried

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Speaker 2: in the note is a really important observation that we've downplayed.

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Speaker 2: I've been as guilty if this as anyone, Brent, and

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Speaker 2: that is you look abroad at the developed nation equities

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Speaker 2: and you say that they are remarkable, that they are

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Speaker 2: remarkably cheap. We're beginning to hear this in our analysis.

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Speaker 2: What equities abroad are remarkably cheap?

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Speaker 8: Well, I think there's many parts of the market that

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Speaker 8: are actually cheap. Considered that US small and midcaps trade

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Speaker 8: at thirteen to fourteen times earnings that are marked down

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Speaker 8: ten to fifteen percent. So I can trast and compare

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Speaker 8: that to the large cap US equities, which is where

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Speaker 8: everybody has want to have been for the past few years,

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Speaker 8: and they trade at twenty times earnings, and so I

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Speaker 8: think you were mentioning short, mid and long term. Unfortunately,

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Speaker 8: I'm more of a pastmist. I do think there is

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Speaker 8: a recession that is likely. I know that narrative has changed,

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Speaker 8: and I think that puts more of a wet blanket

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Speaker 8: on equities in the near term. But I do think

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Speaker 8: in the middle medium term, I do think the parts

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Speaker 8: of the market that are cheap will do well coming

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Speaker 8: out of what I believe will be a shortened, shallow recession.

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Speaker 8: And that's where I encourage people to position their portfolios

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Speaker 8: more towards those areas such as US small, US mid

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Speaker 8: and dare I even say international equities, which I know

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Speaker 8: have underperformed for some time but are remarkably cheap and

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Speaker 8: I expect better days in the outsite side of the recession.

436
00:22:17,960 --> 00:22:19,080
Speaker 1: Are there tech.

437
00:22:19,119 --> 00:22:22,320
Speaker 2: Growth performers in the mid cap area?

438
00:22:23,560 --> 00:22:25,400
Speaker 8: Yeah, but how much do you want to pay for those?

439
00:22:25,440 --> 00:22:27,199
Speaker 8: I mean, I know that AI's been the craze. I

440
00:22:27,200 --> 00:22:28,920
Speaker 8: know that earnings growth has slowed, and that's why people

441
00:22:28,960 --> 00:22:31,560
Speaker 8: have gravitated back towards those. But it reminds me a

442
00:22:31,560 --> 00:22:33,359
Speaker 8: lot of ninety nine nine two thousand, where that was

443
00:22:33,400 --> 00:22:37,040
Speaker 8: the narrative in the next seven years. Those names did

444
00:22:37,080 --> 00:22:40,080
Speaker 8: well from an earnings perspective, but not from a price perspective.

445
00:22:40,480 --> 00:22:42,320
Speaker 8: And so I know, not every time in history rise,

446
00:22:42,359 --> 00:22:44,320
Speaker 8: but this time period feels a lot like ninety nine

447
00:22:44,359 --> 00:22:46,439
Speaker 8: to two thousand in so many different ways than that

448
00:22:46,520 --> 00:22:47,600
Speaker 8: being one of the primary ones.

449
00:22:48,080 --> 00:22:50,880
Speaker 4: Tom earlier said that it's almost silly to discuss recession

450
00:22:50,880 --> 00:22:54,800
Speaker 4: and all the gloom and doom. Earlier was perhaps not

451
00:22:55,040 --> 00:22:58,280
Speaker 4: looking at the actual data, which showed a strong economy.

452
00:22:58,920 --> 00:23:02,120
Speaker 4: How do you parlay that into a soft and shallow

453
00:23:02,200 --> 00:23:07,520
Speaker 4: recession that could just ameliorate some of the inflationary pressures

454
00:23:07,640 --> 00:23:10,919
Speaker 4: just enough to keep growth going on this kind of sphere.

455
00:23:10,960 --> 00:23:12,840
Speaker 4: Do you think that that is the most likely outcome

456
00:23:12,880 --> 00:23:16,840
Speaker 4: at a time when there is still this inflationary pressure

457
00:23:17,000 --> 00:23:19,200
Speaker 4: that's rearing up on the back end of the year.

458
00:23:20,280 --> 00:23:23,080
Speaker 8: I mean, I think current inflationary pressures as measured by

459
00:23:23,119 --> 00:23:26,399
Speaker 8: CPI are highly linked to COVID that is now in

460
00:23:26,440 --> 00:23:28,640
Speaker 8: the river view mirror and are going away. But that's

461
00:23:28,680 --> 00:23:31,159
Speaker 8: not the big concern the FED. The big concern is wages.

462
00:23:31,320 --> 00:23:34,280
Speaker 8: Every economic cycle ends when you run out labor market slack,

463
00:23:34,560 --> 00:23:37,240
Speaker 8: and that's where we're at unless people come back to

464
00:23:37,280 --> 00:23:39,879
Speaker 8: the labor market. And so if you look historically, the

465
00:23:39,920 --> 00:23:43,800
Speaker 8: FED hikes rates aggressively as wages reach four percent on

466
00:23:44,040 --> 00:23:46,680
Speaker 8: non supervisory and production workers. That's where the last three

467
00:23:46,720 --> 00:23:49,200
Speaker 8: economic cycles have ended. And we're at four point seven

468
00:23:49,240 --> 00:23:51,480
Speaker 8: percent year over year right now. I don't think the

469
00:23:51,480 --> 00:23:53,880
Speaker 8: FED stops until they see the labor market crack, which

470
00:23:53,920 --> 00:23:56,160
Speaker 8: I think we call recession. And so I think about

471
00:23:56,160 --> 00:23:59,040
Speaker 8: this liquidity tournique that's on the US economy, and I

472
00:23:59,080 --> 00:24:02,040
Speaker 8: think that means a recept is likely in the coming quarters.

473
00:24:02,480 --> 00:24:05,560
Speaker 8: The good news is that I do believe unless you

474
00:24:05,600 --> 00:24:08,280
Speaker 8: think the real nuturrate has changed from two point five percent,

475
00:24:08,640 --> 00:24:11,880
Speaker 8: we're above five. There is plenty of room if inflation

476
00:24:12,000 --> 00:24:14,000
Speaker 8: is gone, for the FED to cut rates to kind

477
00:24:14,000 --> 00:24:16,440
Speaker 8: of help cushion that blow. And when you contemplate the

478
00:24:16,480 --> 00:24:20,560
Speaker 8: consumer still has ample savings and likely will after this recession,

479
00:24:20,880 --> 00:24:22,679
Speaker 8: I think that's why it's short and shallow what.

480
00:24:22,840 --> 00:24:25,439
Speaker 4: Keeps you up at night. That could potentially challenge that

481
00:24:25,560 --> 00:24:28,440
Speaker 4: assumption of a short and shallow to something that looks

482
00:24:28,480 --> 00:24:30,400
Speaker 4: more traditional in terms of recession.

483
00:24:31,119 --> 00:24:33,800
Speaker 8: The FED keeps hiking, and so I worry every single

484
00:24:33,880 --> 00:24:36,320
Speaker 8: time the labor market comes out and shows supposed strength,

485
00:24:36,760 --> 00:24:38,920
Speaker 8: and the FED keeps hiking into that because they want

486
00:24:38,960 --> 00:24:41,840
Speaker 8: to see it completely gone. I think they've probably already

487
00:24:41,880 --> 00:24:44,800
Speaker 8: gone too far. If they continue to go based upon

488
00:24:45,119 --> 00:24:49,040
Speaker 8: some belief that inflation is not completely back to two percent,

489
00:24:49,520 --> 00:24:52,159
Speaker 8: I think every sign points in that direction. If they

490
00:24:52,240 --> 00:24:54,520
Speaker 8: keep going, and they go further and further until they

491
00:24:54,520 --> 00:24:56,840
Speaker 8: get the labor market to crack, then I think you're

492
00:24:56,880 --> 00:24:59,520
Speaker 8: going to see or could see something that's a bit deeper.

493
00:25:00,000 --> 00:25:02,760
Speaker 5: You said supposed strength. Is there more to this labor

494
00:25:02,760 --> 00:25:05,200
Speaker 5: market that makes the eye from your perspective, I.

495
00:25:05,119 --> 00:25:06,679
Speaker 8: Mean, this is where I think people look at the

496
00:25:06,720 --> 00:25:08,400
Speaker 8: data over the past year and it's been very odd.

497
00:25:08,400 --> 00:25:11,800
Speaker 8: You saw household employment last year for many months actually

498
00:25:12,040 --> 00:25:14,600
Speaker 8: be flat. So from my belief, February to November of

499
00:25:14,680 --> 00:25:18,320
Speaker 8: last year, houseold employment rose whopping two hundred thousand total,

500
00:25:19,160 --> 00:25:21,160
Speaker 8: while non farm pray rolls rolls two point eight million

501
00:25:21,600 --> 00:25:24,600
Speaker 8: this recession commentary, does anybody realize that gross domestic income

502
00:25:24,640 --> 00:25:27,040
Speaker 8: has actually been negative for two quarters. That's the opposite

503
00:25:27,080 --> 00:25:29,480
Speaker 8: of gross domestic product. And so I think there's just

504
00:25:29,520 --> 00:25:33,280
Speaker 8: so many conflicting data points. You have a post COVID

505
00:25:33,320 --> 00:25:35,720
Speaker 8: recovery that's quite odd, and I think the FED is

506
00:25:35,760 --> 00:25:38,560
Speaker 8: reacting to different data that is more strong, and they

507
00:25:38,600 --> 00:25:41,439
Speaker 8: won't stop until they see it weakening, and hopefully they

508
00:25:41,440 --> 00:25:43,240
Speaker 8: don't go too far and want it to weaken so

509
00:25:43,280 --> 00:25:45,760
Speaker 8: substantially that it does cause that deeper recession.

510
00:25:45,800 --> 00:25:47,640
Speaker 5: How hard is it to be bullish with that kind

511
00:25:47,680 --> 00:25:49,959
Speaker 5: of analysis and what the FED is doing well?

512
00:25:50,000 --> 00:25:52,520
Speaker 8: I joined Tima Bramowitz a few months ago and became

513
00:25:52,600 --> 00:25:55,440
Speaker 8: much more barriers for the first time in many quarters.

514
00:25:55,440 --> 00:25:58,400
Speaker 8: And you know, I think there's good news in it.

515
00:25:58,400 --> 00:25:59,959
Speaker 8: It's more along the lines that you do see. Part

516
00:26:00,000 --> 00:26:01,600
Speaker 8: it's the market that are chieved, and I think for

517
00:26:01,640 --> 00:26:04,280
Speaker 8: people who invested in bonds for years when rates were

518
00:26:04,280 --> 00:26:07,479
Speaker 8: at one and three quarters on the Barcley's aggregate bond indecks,

519
00:26:07,680 --> 00:26:11,200
Speaker 8: they're not five percent. So you have the opportunity, I believe,

520
00:26:11,240 --> 00:26:14,520
Speaker 8: to hedge your portfolio against downside by investing in bonds,

521
00:26:14,680 --> 00:26:17,159
Speaker 8: which I think offer real value in a period of

522
00:26:17,160 --> 00:26:18,920
Speaker 8: time where I think inflation is going back to two

523
00:26:18,920 --> 00:26:21,320
Speaker 8: percent and a hedge against equities once again, which I

524
00:26:21,320 --> 00:26:22,960
Speaker 8: know they weren't last year, but I think they'll return

525
00:26:23,000 --> 00:26:26,440
Speaker 8: to their historical kind of a role of actually balancing

526
00:26:26,440 --> 00:26:27,560
Speaker 8: downside of equity markets.

527
00:26:27,640 --> 00:26:31,720
Speaker 5: See Brandma Brent, thank you, franciating Northwestern Mutual, Thank you, sir.

528
00:26:35,800 --> 00:26:38,720
Speaker 2: We welcome all of you across this nation to a

529
00:26:38,760 --> 00:26:43,359
Speaker 2: conversation with Jonathan Miller. He's president and CEO of Miller Samuel.

530
00:26:43,760 --> 00:26:45,879
Speaker 2: All I can say, folks is go to the Miller

531
00:26:45,960 --> 00:26:49,280
Speaker 2: Samuel website and look at what he has wrought. He

532
00:26:49,359 --> 00:26:53,960
Speaker 2: owns the high ground on owning and renting dynamics in

533
00:26:54,080 --> 00:26:58,040
Speaker 2: major cities and indeed the nation. Jonathan Miller, what is

534
00:26:58,080 --> 00:27:01,920
Speaker 2: the trend right now that's not in zeitgeist and all that?

535
00:27:02,000 --> 00:27:05,399
Speaker 2: Miller Samuel data. What's the number one thing that people

536
00:27:05,480 --> 00:27:07,040
Speaker 2: aren't talking about.

537
00:27:08,160 --> 00:27:11,920
Speaker 9: Well, I think I think that housing prices are going

538
00:27:11,960 --> 00:27:16,199
Speaker 9: to rise more than we think they are. That just

539
00:27:16,240 --> 00:27:19,240
Speaker 9: in the last few months, things have really rebounded price wise,

540
00:27:20,040 --> 00:27:23,320
Speaker 9: and it's because I don't think there's enough a sort

541
00:27:23,359 --> 00:27:28,080
Speaker 9: of consideration given to how much listing inventory is falling

542
00:27:28,119 --> 00:27:32,720
Speaker 9: off trend, meaning that new listings entering the market declining

543
00:27:33,640 --> 00:27:38,399
Speaker 9: because people are heavily wedded to their three percent thirty

544
00:27:38,440 --> 00:27:42,119
Speaker 9: year fixed and it's going to take a while for

545
00:27:42,240 --> 00:27:43,680
Speaker 9: that connection.

546
00:27:43,400 --> 00:27:45,280
Speaker 1: To well, that's a key point. John.

547
00:27:45,320 --> 00:27:47,960
Speaker 2: On the X axis, how long is a while? Is

548
00:27:48,000 --> 00:27:50,479
Speaker 2: this a two year, three year workout or is this

549
00:27:50,520 --> 00:27:52,600
Speaker 2: an eight or ten year workout?

550
00:27:53,480 --> 00:27:57,360
Speaker 9: No, I think it's probably a one to two year

551
00:27:57,560 --> 00:28:02,120
Speaker 9: maybe maybe more towards two than one, But I think

552
00:28:02,160 --> 00:28:03,960
Speaker 9: it's a while. I mean, one of the things that

553
00:28:04,000 --> 00:28:09,800
Speaker 9: we learn is that homeowners take one to two years

554
00:28:09,840 --> 00:28:14,640
Speaker 9: to capitulate to market conditions, and also too that people

555
00:28:16,359 --> 00:28:20,440
Speaker 9: you know this they have you know, it's shelter, they

556
00:28:20,520 --> 00:28:24,000
Speaker 9: have personal needs, and at some point we see more

557
00:28:24,080 --> 00:28:26,919
Speaker 9: people having to move into the market. The problem is

558
00:28:26,920 --> 00:28:29,840
Speaker 9: that mortgage rates for those people are more than double

559
00:28:29,880 --> 00:28:34,200
Speaker 9: what they were but we're also seeing bidding wars expand

560
00:28:34,440 --> 00:28:38,160
Speaker 9: because of the shortage, the chronic shortage of supply. So

561
00:28:38,200 --> 00:28:39,800
Speaker 9: I think this is a couple of.

562
00:28:39,800 --> 00:28:42,360
Speaker 4: Years out, Jonathan does to sort of give a sense

563
00:28:42,360 --> 00:28:44,400
Speaker 4: of what we're talking about. Is this on average in

564
00:28:44,400 --> 00:28:46,760
Speaker 4: the US or is this in select markets that are

565
00:28:46,760 --> 00:28:49,840
Speaker 4: hot or hotter like New York right now at least

566
00:28:50,240 --> 00:28:51,840
Speaker 4: in other areas.

567
00:28:52,600 --> 00:28:55,640
Speaker 9: I see it as a US. I cover about fifty

568
00:28:55,680 --> 00:29:01,480
Speaker 9: different housing markets for real estate brokerage Juggle, and we're

569
00:29:01,520 --> 00:29:06,720
Speaker 9: seeing the same pattern everywhere, whether it's Southern California, Texas, Florida,

570
00:29:08,080 --> 00:29:12,040
Speaker 9: you know, d C, Boston, New York City. New York

571
00:29:12,040 --> 00:29:16,080
Speaker 9: City is probably one of the more robust in terms

572
00:29:16,120 --> 00:29:22,880
Speaker 9: of activity, just because their sort of housing boom, if

573
00:29:22,920 --> 00:29:25,720
Speaker 9: you call it, was interrupted a little bit early by

574
00:29:25,960 --> 00:29:29,000
Speaker 9: changing FED policy, because they relate to the party. If

575
00:29:29,000 --> 00:29:31,200
Speaker 9: we push this, this is a national condition.

576
00:29:31,720 --> 00:29:34,120
Speaker 4: If we push this forward, Jonathan, tomorrow, we get CPI

577
00:29:34,240 --> 00:29:36,960
Speaker 4: and the headline inflation read in the US, and a

578
00:29:37,000 --> 00:29:38,880
Speaker 4: lot of people are expecting some of the year over

579
00:29:38,960 --> 00:29:43,440
Speaker 4: year comps with respect to rent coming in quite significantly.

580
00:29:43,680 --> 00:29:46,080
Speaker 4: Because of the fact that we did see a slowdown

581
00:29:46,120 --> 00:29:48,680
Speaker 4: at least in the appreciation of home prices. Do you

582
00:29:48,720 --> 00:29:53,480
Speaker 4: think people are overstating how much rents can either plateau

583
00:29:53,840 --> 00:29:57,560
Speaker 4: or even decline given the trends that you're seeing, with

584
00:29:57,680 --> 00:30:01,640
Speaker 4: pricing probably increasing more than people expect in the housing sphere.

585
00:30:02,640 --> 00:30:06,240
Speaker 9: I think it's an overstatement. And also too, I don't

586
00:30:06,360 --> 00:30:09,360
Speaker 9: I don't see the two markets as sort of a

587
00:30:09,440 --> 00:30:12,760
Speaker 9: knee jerk reaction where one instantly changes over the other.

588
00:30:12,880 --> 00:30:16,920
Speaker 9: I think, uh, you know, the rental market is mixed.

589
00:30:17,000 --> 00:30:20,120
Speaker 9: Where we're seeing certainly areas where rents are going down

590
00:30:21,400 --> 00:30:26,000
Speaker 9: New York Metro that's not happening. It's very vibrant, so

591
00:30:26,080 --> 00:30:30,440
Speaker 9: it's hard to imagine, you know, any kind of sudden move.

592
00:30:30,480 --> 00:30:32,280
Speaker 9: I think this is I think we're going to be

593
00:30:32,360 --> 00:30:35,800
Speaker 9: sort of stuck in this position for for a while,

594
00:30:35,960 --> 00:30:39,480
Speaker 9: unless there's a meaningful economic event like a recession, which

595
00:30:40,200 --> 00:30:42,959
Speaker 9: has been forecast for them in six months from now.

596
00:30:43,040 --> 00:30:46,080
Speaker 9: For the last two years, you know, we're sort of

597
00:30:46,120 --> 00:30:48,560
Speaker 9: stuck at the moment. And I think time is what

598
00:30:48,720 --> 00:30:54,720
Speaker 9: changes homeowners' positions in terms of bringing property onto the market.

599
00:30:55,120 --> 00:30:58,360
Speaker 4: How is the tenor of the purchases of homes changed

600
00:30:58,760 --> 00:31:02,120
Speaker 4: If people aren't necessarily taking out a thirty year mortgage

601
00:31:02,120 --> 00:31:04,480
Speaker 4: in the same way. But maybe they're getting a loan

602
00:31:04,560 --> 00:31:07,560
Speaker 4: from the actual homebuilder to buy a home, or maybe

603
00:31:07,840 --> 00:31:10,959
Speaker 4: they're refinancing someone else's alan and putting their name on

604
00:31:11,000 --> 00:31:13,080
Speaker 4: it to get the lower rate. I mean, how is

605
00:31:13,360 --> 00:31:17,520
Speaker 4: the nature of the financing just shifted completely to avoid

606
00:31:17,560 --> 00:31:20,600
Speaker 4: paying the punitive rates that are currently instated at the

607
00:31:20,600 --> 00:31:21,280
Speaker 4: headline level.

608
00:31:21,960 --> 00:31:25,960
Speaker 9: Well, Iley's marvel at the discussion about affordability is centered

609
00:31:26,000 --> 00:31:29,360
Speaker 9: on the thirty year fixed and that's sort of the benchmark.

610
00:31:29,440 --> 00:31:33,280
Speaker 9: But I've been through many cycles and you see people

611
00:31:33,480 --> 00:31:36,160
Speaker 9: work through that, work around that. Just for the reason,

612
00:31:36,320 --> 00:31:39,840
Speaker 9: just with the examples that you gave, homebuilders are doing

613
00:31:39,840 --> 00:31:45,840
Speaker 9: a lot of offerings on financing, buying down rates. People

614
00:31:45,920 --> 00:31:52,040
Speaker 9: are getting five ones, seven ones, ten ones as a

615
00:31:52,040 --> 00:31:55,400
Speaker 9: way to reduce the payment. I mean, there's a lot

616
00:31:55,440 --> 00:31:58,240
Speaker 9: of things that we didn't have to do two years

617
00:31:58,240 --> 00:32:02,760
Speaker 9: ago because they're was on the floor that no longer exists.

618
00:32:03,160 --> 00:32:06,200
Speaker 2: Joe Miller, I'm fascinated what you would say in a

619
00:32:06,280 --> 00:32:08,960
Speaker 2: case of New York, to Governor Hogel of Buffalo and

620
00:32:09,000 --> 00:32:12,080
Speaker 2: New York City in the state, or to Mayor Adams

621
00:32:12,160 --> 00:32:15,840
Speaker 2: or Frankly, the mayors the governors of Florida, or even

622
00:32:15,880 --> 00:32:18,959
Speaker 2: the way you cover the fancy people out in Colorado

623
00:32:19,280 --> 00:32:22,360
Speaker 2: with eight thousand square feet in Aspen. What would you

624
00:32:22,400 --> 00:32:27,880
Speaker 2: say to public officials about the national outrage that to

625
00:32:27,920 --> 00:32:28,560
Speaker 2: be selfish.

626
00:32:28,720 --> 00:32:30,000
Speaker 1: Our kids can't afford to.

627
00:32:29,960 --> 00:32:34,280
Speaker 9: Live, right, So we go through this, it seems like

628
00:32:34,400 --> 00:32:37,959
Speaker 9: we've been We've had this conversation a decade ago. And

629
00:32:38,320 --> 00:32:43,200
Speaker 9: more than that, there's too much volatility in housing. One

630
00:32:43,240 --> 00:32:46,320
Speaker 9: of the biggest problems is we just need to build more.

631
00:32:47,120 --> 00:32:50,600
Speaker 9: The challenge is to make it middle class. Florida Bill

632
00:32:50,760 --> 00:32:54,240
Speaker 9: forty percent of the middle class were sort of wiped

633
00:32:54,280 --> 00:32:56,840
Speaker 9: out of the ability to buy a house in the

634
00:32:57,040 --> 00:33:03,800
Speaker 9: last year. It's I mean, John, ability, affordability means.

635
00:33:03,680 --> 00:33:04,920
Speaker 2: Now, I'm going to run out of time here, but

636
00:33:04,960 --> 00:33:06,600
Speaker 2: I want to get this in. I think it's too important.

637
00:33:06,720 --> 00:33:09,040
Speaker 2: All the media. I'm as guilty as this as anyone.

638
00:33:09,440 --> 00:33:12,200
Speaker 2: All the media wants to look. As Lisa mentioned, OMG,

639
00:33:12,320 --> 00:33:15,520
Speaker 2: the luxury people are putting six million dollars all cash

640
00:33:15,560 --> 00:33:19,000
Speaker 2: into four thousand square feet where they can see, you know, Connecticut,

641
00:33:19,120 --> 00:33:21,960
Speaker 2: and you know they can see Pennsylvania over.

642
00:33:21,760 --> 00:33:22,200
Speaker 1: To the west.

643
00:33:22,200 --> 00:33:26,400
Speaker 2: Forget about that on the Upper East side over past

644
00:33:26,520 --> 00:33:30,120
Speaker 2: Third Avenue, where people are just trying to do rent

645
00:33:30,200 --> 00:33:33,560
Speaker 2: on Second and First Avenue. What's your prediction for the

646
00:33:33,600 --> 00:33:35,440
Speaker 2: next twelve months.

647
00:33:36,200 --> 00:33:39,640
Speaker 9: I think that rents are probably going to peak at

648
00:33:39,640 --> 00:33:45,080
Speaker 9: the by the end of the summer, maybe sooner. But

649
00:33:45,200 --> 00:33:48,680
Speaker 9: I see them stuck at some sort of plateau, not

650
00:33:48,680 --> 00:33:53,240
Speaker 9: not seeing any meaningful decline. And that's kind of where

651
00:33:53,240 --> 00:33:55,560
Speaker 9: we're in in the rental market. Maybe rents aren't going

652
00:33:55,600 --> 00:33:58,160
Speaker 9: to be rising, but they're not going to be falling.

653
00:33:58,600 --> 00:34:01,280
Speaker 2: John Miller, Thank you so much. Hugely valuable with Miller,

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00:34:01,360 --> 00:34:06,920
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