Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 1: The charm of Laura Ramas.
Speaker 2: She comes from a foreign exchange background. She's chief US
Speaker 2: economist at FS Investments and follows a data like an animal.
Speaker 2: I love, Laura, how you're looking at real yields. I
Speaker 2: just went in and looked not at the ten year
Speaker 2: the vanilla reel yield, but the inflation adjusted five year yield.
Speaker 2: It is I'm thunderstruck. We're out three standard deviations, We're
Speaker 2: back to two thousand and nine. Are real yields now
Speaker 2: where they have a real effect on the American economy.
Speaker 3: I think we've seen that. We were just talking about autos.
Speaker 3: These are the interest rates sensitive sectors that have been
Speaker 3: impacted by FED hikes. The nominal part of the cycle.
Speaker 3: I think as the FED sort of transitions to the
Speaker 3: end of that, the decline that the edging down of
Speaker 3: inflation has this insidious effect via the real rates channel,
Speaker 3: and I think that's what we're going to continue to
Speaker 3: feel in the housing market, in the auto market. It's
Speaker 3: going to be a weight on consumers. You look at
Speaker 3: the interest rate burden the households are facing. It's not catastrophic,
Speaker 3: but it is a lot higher and hundreds of billions
Speaker 3: of dollars matter.
Speaker 1: What do you think this will do to commercial real estate?
Speaker 2: I mean, I get it, it's not a big part
Speaker 2: of the gdp PI, but it's emotional and your charm
Speaker 2: as you're down in Philadelphia rooting for Bryce and the
Speaker 2: rest of them. You're in Philadelphia, and the answer is
Speaker 2: you don't have that Manhattan stars in your eye. What's
Speaker 2: commercial real estate going to do in Philadelphia or in Phoenix?
Speaker 3: Well, and those are two very different questions because I
Speaker 3: think we've seen geographically regionally a huge dispersion amongst performance.
Speaker 3: We're still very focused on finding the opportunity within a
Speaker 3: sector that's going to have some clear problems, like the
Speaker 3: Center business district, where you know we are also experiencing
Speaker 3: a lower vacancy rate that seems to be settling in
Speaker 3: well lower than pre COVID, but it doesn't mean there
Speaker 3: is an opportunity. That's what you've got to love about
Speaker 3: commercial real estate. There's so many sectors, multifamily, you know, industrial,
Speaker 3: you're even seeing hospitality still doing pretty well again selectively.
Speaker 3: So it's an area where you can really dig in
Speaker 3: and find a lot of opportunity. You know, it's going
Speaker 3: to find a new equilibrium. We're seeing that in housing,
Speaker 3: we're seeing it in commercial real estate. But right now
Speaker 3: you really want to be the bank, you want to
Speaker 3: look towards income. There are ways to invest in commercial
Speaker 3: real estate because it's going to continue to be a
Speaker 3: really important sector for any portfolio to diversify into.
Speaker 4: And Laura, this really speaks to your theme that you
Speaker 4: don't necessarily think that we're going back to the era
Speaker 4: of low rates and low inflation that we were pre pandemic.
Speaker 4: How much is this the real issue? The threat that
Speaker 4: the disinflation that we're seeing in autos, in housing, in
Speaker 4: some other metrics is a headfake, and when that leads
Speaker 4: to comps year over year in six months, that make
Speaker 4: it easier for inflation to go higher.
Speaker 3: This is exactly the point that I try to draw
Speaker 3: out for people, because housing has been a primary example. Yes,
Speaker 3: cyclical headwinds with interest rates, but structural tailwinds given the
Speaker 3: underbuilding and underinvestment that we've had in this sector for years.
Speaker 3: So as we look ahead, you know, unfortunately a forecast
Speaker 3: is in a recession. Is in my forecast mild re
Speaker 3: session looking ahead into the beginning of next year. But
Speaker 3: it doesn't have to be severe. And the fact that
Speaker 3: interest rates are now going to offer investors two way
Speaker 3: risk is an absolute game changer. We've had forty years
Speaker 3: of you know, with exceptions, but a trend of falling
Speaker 3: interest rates, and it has caused people investors to change
Speaker 3: their behavior over generations and looking ahead, if we get
Speaker 3: this bounce in our star, I think we're seeing it,
Speaker 3: you know, look at the look at the Bloomberg gag. Right,
Speaker 3: it is flat on the year despite a lot of
Speaker 3: up and down. You cannot lock in a price gain
Speaker 3: and you're left relying on income that still is very
Speaker 3: low relative to where inflation is.
Speaker 5: Lara, thank you for your input. Lad run in there
Speaker 5: of FS investments so com protty with a surrounded type
Speaker 5: who doesn't want to talk about this multi Sepput Fundo
Speaker 5: manager take Morkan asset management. Can you understand?
Speaker 1: Amazon comes there?
Speaker 6: And I love Glad as well.
Speaker 5: Great movie, Thank you, thank you, we're recreating it. Let's
Speaker 5: talk about this male kit on Friday we get some earnings.
Speaker 5: We won't talk about your bank specifically, of course, for
Speaker 5: obvious reasons. What do you expecting this earning season from
Speaker 5: the banks? From big Tech and Ken This rally broaden out.
Speaker 6: John, So it's going to look better than it did
Speaker 6: in March. I think there were so many head fakes
Speaker 6: and noise at the end of the first quarter that
Speaker 6: even the Fed got faked out on right. They expected
Speaker 6: us to be in recession by now. There were a
Speaker 6: lot of people saying that by July and September the
Speaker 6: Fed could be easy. And as you said, right, this
Speaker 6: is a year where the narrative changes every single week.
Speaker 6: And that's true, John. We are we have dropped our
Speaker 6: recession probability from forty percent in March to twenty five percent. Now.
Speaker 6: We are pretty highly convicted that we're in the midst
Speaker 6: of a soft landing. So what does a soft landing
Speaker 6: look like? Means that the economy can continue to grow
Speaker 6: and avoid recession, and that's why we dropped our PROPAB.
Speaker 6: The second pieces employment stay strong, and I think that's
Speaker 6: been the signal all along, Like there have been people
Speaker 6: like we're going in assession, we're going to over session.
Speaker 6: You need this labor market to crack, and that has
Speaker 6: has been very, very resilient overtime. And then the third
Speaker 6: piece is the easing has to get has to get
Speaker 6: pushed out, and that I think was one of the
Speaker 6: biggest misses this year was that there was so much
Speaker 6: easing priced into the back half of the year that
Speaker 6: had to go along with the crisis. You had to
Speaker 6: be long a crisis if you believed in an easing
Speaker 6: in the back half of this year. Now the deflation
Speaker 6: trajectory flattens out, that's certainly the case, which is why
Speaker 6: the easiest being priced out. You heard Mary Daily last night,
Speaker 6: two more hikes. I think that's appropriate. They're probably going
Speaker 6: to do one more hike than they're comfortable with because
Speaker 6: we're nowhere near our target of two percent core inflation.
Speaker 6: But it is an awesome time to be a multi
Speaker 6: asset investor. We were up ten percent in the first
Speaker 6: six months of this year in a balance fund nobody's
Speaker 6: talking about that, every tingting about Nvidia. I think the
Speaker 6: balance fund up ten percent is really exciting as well,
Speaker 6: and certainly more than that three month T bill that's
Speaker 6: at five percent. That's been my all year, and there's
Speaker 6: way too many people.
Speaker 2: I love your research, the concision of it. At the
Speaker 2: end you say, do this, do this, do this. But
Speaker 2: the phil camp for early idea here is you got
Speaker 2: to be in the market, Yes you got. I want
Speaker 2: you to talk right now to people who are scared stiff.
Speaker 2: What's the level of fear out in the street, because
Speaker 2: don't you have to go up with a wall worry?
Speaker 1: Yeah?
Speaker 6: So, and we've heard it all year. We've heard debt
Speaker 6: ceiling for a regional bank crisis. It was a foregone
Speaker 6: conclusion that there was gonna be a recession this year.
Speaker 6: Tom And I'm not talking people to get out of
Speaker 6: cash and go into equities. That's not what I'm saying.
Speaker 6: I'm saying when you're making a bet on a balanced,
Speaker 6: diversified portfolio, which by the way, has worked over so
Speaker 6: many years, you're not making a bet on stocks or bonds.
Speaker 6: You're making a bet on the relationship between those two
Speaker 6: asset classes, which was absolutely like inverted last year. Last
Speaker 6: year was the first year since nineteen seventy four that
Speaker 6: both stocks and bonds went down in the same year.
Speaker 6: And I came on this show and told you, you
Speaker 6: know what, we have the best forecasted return for the
Speaker 6: sixty forty that we've had since two thousand and ten
Speaker 6: coming into this year. So, Tom, those are the folks.
Speaker 1: That I'm after.
Speaker 6: They're sitting there in the three month tea bill. It's
Speaker 6: like the best hedge fund out there right at five
Speaker 6: plus percent, and they're saying, I'm safe here. Well, you
Speaker 6: know what, if the balance funds up ten percent in
Speaker 6: six months, their opportunity costs just went up.
Speaker 4: That said, you talked about the soft landing probability, which
Speaker 4: changes a bit. On disinflation, Yes, ongoing. We've seen disinflation
Speaker 4: with used car prices going down, as John mentioned, We've
Speaker 4: seen disinflation in some of the rental prices. We've seen
Speaker 4: disinflation even even from the smallest small business survey if
Speaker 4: you look out that starts to change later in the year.
Speaker 4: Is the disinflation that we're seeing a head fake? And
Speaker 4: could that be a real potential risk list?
Speaker 6: So that's our biggest risk to our forecast if disinflation
Speaker 6: starts to trend higher towards the end of the year.
Speaker 6: So you know, when this base effect of June rolls
Speaker 6: off and we get this this move in, you know,
Speaker 6: on tomorrow's CPI number, the risk is and I think
Speaker 6: this is why that the base case has to be
Speaker 6: for central bankers to talk extremely hawkishly. They cannot afford
Speaker 6: to let the ten year treasury move lower and rate.
Speaker 6: Why because that controls the housing market, and if the
Speaker 6: housing market and the owner's equivalent rent part of this
Speaker 6: shows firmness towards the end of this year, you know,
Speaker 6: that's a scenario where you could have equities going down
Speaker 6: and bonds going down, not to the same extent of
Speaker 6: last year. Last year was a historical event, but that's
Speaker 6: probably our biggest risk, that that disinflationary curve starts to
Speaker 6: trend higher and instead of sticky inflation, accelerating inflation happens,
Speaker 6: and that would be our biggest risk.
Speaker 1: Now that's not our base case.
Speaker 6: We're not investing for that, but that is probably more
Speaker 6: of a risk than the US falling into recession by
Speaker 6: the end.
Speaker 5: What are you invested for three percent inflation? A return
Speaker 5: to two. Do you see anything compatible with a return
Speaker 5: to two right now?
Speaker 6: No, So we don't have enough of a growth kind
Speaker 6: of deterioration story, John, that would speed up a disinflationary
Speaker 6: back to two percent before the end of next year.
Speaker 6: Now that doesn't mean that you can invest in this
Speaker 6: market as long as the disinflationary process can you start.
Speaker 6: If it's flat, it's okay. Maybe you don't get the
Speaker 6: return in bonds, but maybe you start to get that
Speaker 6: breath story in what I call the S and P
Speaker 6: four ninety, which is everyone else to be able to
Speaker 6: to keep the market calls.
Speaker 1: Like twenty seven.
Speaker 2: You know I'm looking here, John, headline inflation four percent
Speaker 2: prior plunging to three point one percent survey.
Speaker 1: I don't think enough has been made about tomorrow.
Speaker 2: You get a headline inflation number, what if there comes
Speaker 2: into two point nine percent.
Speaker 5: That makes it out stunning.
Speaker 6: But they know that they know that last June's number
Speaker 6: was one point two percent, and that's rolling off. So
Speaker 6: if you get a high point one or a low
Speaker 6: point two, that's a base effect. That's not going to
Speaker 6: make them say let's wave a victory flag on inflation.
Speaker 6: And I think that's that's that's the real sick.
Speaker 5: I'm trying to make a six sign in brama. Got
Speaker 5: to take tomorrow morning work. Thanks okam party that JP
Speaker 5: Morgan Ascent Management.
Speaker 2: Top of the Google search message right now as Shakira
Speaker 2: and Sir Lewis Hamilton. There's got a lot of a
Speaker 2: lot of Google love coming off of the Formula one race.
Speaker 2: Right behind them and a Google search is Claudia Sam.
Speaker 2: She is an economist, a former FED economist and founder
Speaker 2: of Sam Consulting, and she has been out there and
Speaker 2: visible over the measurement of recession. We're thrilled that doctor
Speaker 2: Sam could join us this morning. Claudia, you mentioned California.
Speaker 2: It's ginormous, It's as big as the German economy, and
Speaker 2: all of a sudden, California's unemployment rate goes from three
Speaker 2: point eight percent up to four point five percent. Should
Speaker 2: we follow and be aware of California?
Speaker 7: So we should be watching every state, every labor market
Speaker 7: that we can remember. The FED is set for the
Speaker 7: national economy right so we can't expect the FED to
Speaker 7: get too excited about what's happening in California because right
Speaker 7: now we have to just this could be there are
Speaker 7: a lot of tech layoffs. There were big disruptions in
Speaker 7: the Bay Area. So what we're seeing in California could
Speaker 7: be unique to California, or I could mean that we're
Speaker 7: headed to slowing overall.
Speaker 1: What do you see in your data?
Speaker 2: I know, mid month you get a massive redo here,
Speaker 2: you'll have that out in ten days whatever, But what
Speaker 2: do you see right now?
Speaker 1: Let's get out in front.
Speaker 2: I need to make some news this morning, Claudia.
Speaker 7: Yeah, Well, the economy, the labor market is in a
Speaker 7: great place for people. So because they've been the workers
Speaker 7: have had the upper hand. When I look at the
Speaker 7: wage data, which I think a lot of people were,
Speaker 7: you know, wringing their hands over yesterday, it's like, how
Speaker 7: do you think you're going to get workers back into
Speaker 7: the labor market and deal with labor shorages if you
Speaker 7: don't pay them more like this is econ one oh one.
Speaker 7: So to me, seeing that we're still adding jobs, it's
Speaker 7: really good. So people find a way to turn it
Speaker 7: into really bad. But I won't do that, Claudia.
Speaker 4: I love your note where he said it's not hard
Speaker 4: to find an angry macroeconomist. Macroeconomist at this point everyone's
Speaker 4: made mistakes, and everyone's trying to figure out how to
Speaker 4: carve out a niche for themselves to explain what just happened.
Speaker 4: How do you understand the dissonance between everyone's expectations of
Speaker 4: where the economy was headed and what actually has happened.
Speaker 7: Well, as I started there, every macroeconomist has missed something
Speaker 7: this time, right, and they're very different things that we've missed.
Speaker 7: So and really, people get kind of not happy when
Speaker 7: they're making calls and they're not getting it. They sometimes
Speaker 7: get even less happy when they look around and see
Speaker 7: people who've made big mistakes all over the news. So
Speaker 7: I think that's where you know I pointed out in
Speaker 7: this piece you're referencing on Bidenomics, is that you know,
Speaker 7: like you got to take it with a grain of salt,
Speaker 7: always what your advisors come to you with. And I
Speaker 7: think right now, unless they're bringing a lot of nuance,
Speaker 7: it could do more damage than good.
Speaker 4: But what are we misunderstanding just to the point of
Speaker 4: the making mistakes, and we've all made plenty of them,
Speaker 4: but what are we misunderstanding about pandemic economics as Tom
Speaker 4: would call it, or where we are in the recovery,
Speaker 4: or where we are in the distortions, whether it's California
Speaker 4: people moving away from there or the Northeast, or even
Speaker 4: people's propensity to switch jobs shift locations, spend more than
Speaker 4: they otherwise would to capitalize an experience that they were
Speaker 4: denied during twenty twenty.
Speaker 7: Right, So I think it's all in there. The economy
Speaker 7: is upside down and backwards, and we need to be
Speaker 7: aware that every data release you get could be leading
Speaker 7: us astray because it's not clear yet are we doing
Speaker 7: the rebalancing or are we going down? And we'll know
Speaker 7: more about that in a few months. In terms of
Speaker 7: you know what went wrong, I certainly was expected that
Speaker 7: the economy, the supply would come back online more quickly
Speaker 7: than it did. And I think on the other side,
Speaker 7: we see this disinflation right now without unemployment rising, which
Speaker 7: is a huge puzzle to macroeconomists that would use models
Speaker 7: like the Phillips curve. So you know, we'll keep going
Speaker 7: at it. And that's where as analysts, if we dig
Speaker 7: deep in the data, that's kind of where we should
Speaker 7: stay in terms of grounding our analysis.
Speaker 2: Claudia, what I love about when you come on is
Speaker 2: my brain gets going and I'm doing research I usually
Speaker 2: have never done, Like, I've never done.
Speaker 1: This, folks.
Speaker 2: Out of the percent of GDP of America, and there's
Speaker 2: like twenty three states or so with under one percent
Speaker 2: of America's GDP, they're tiny. You know, we know the
Speaker 2: names Texas and California make up twenty three percent of
Speaker 2: American GDP. Do people like you focus more on those
Speaker 2: big states or do you aggregate everything together?
Speaker 7: Frankly, there hasn't been a lot of work, say at
Speaker 7: the FED on regional effects. They have experts in the
Speaker 7: building who are not economists, and yet they don't play
Speaker 7: an integral role. I think, you know, we need to
Speaker 7: pay attention to states because they could be the canary
Speaker 7: in the coal mine, Like if we could get ahead
Speaker 7: of this even a little bit, if we get a recession,
Speaker 7: that's important. I will say states like Texas and particularly Florida,
Speaker 7: like they have more than recovered their losses and employment.
Speaker 7: So it's you want to look at the states, but
Speaker 7: that's not going to be the place you stop with
Speaker 7: the analysis.
Speaker 2: Where do you look with the analysis? What do you
Speaker 2: look at with the analysis? Is you try to measure
Speaker 2: a sum like recession?
Speaker 7: Yeah, I had no idea this was going to become
Speaker 7: such a thing, because you know, I've developed this Sam
Speaker 7: rule in order to start up fiscal policy send out
Speaker 7: the checks. But you know people want to use it
Speaker 7: as an indicator. That's fine. But the Sam rule is
Speaker 7: not a forecast tool, right that does It does not
Speaker 7: tell us about where we're going. It tells us about
Speaker 7: where we are. So but knowing early in a recession
Speaker 7: that we're in one, that's that's helpful to know.
Speaker 4: We're speaking with Claudias Sam of some consulting who is
Speaker 4: famed for her some rule with respect to employment. We're
Speaker 4: about twenty four hours away from CPI in the United States,
Speaker 4: the headline is supposed to drop from four percent to
Speaker 4: three point one percent year over year. That is the
Speaker 4: headline figure core less so to five percent from five
Speaker 4: point three percent. Claudia, what are the big concerns that
Speaker 4: we've been hearing about from a lot of our guests
Speaker 4: this morning? Is a head fake when it comes to
Speaker 4: disinflation in the US and the pace of it. We
Speaker 4: have seen used car prices come down, we have seen
Speaker 4: rents come down. We have seen some certain peripheral areas
Speaker 4: of the economy show signs of disinflating. Is it enough
Speaker 4: and is it showing signs of consistency to bring us
Speaker 4: where we need the FED where the FED would like
Speaker 4: us to go.
Speaker 7: We're still in a place of a lot of uncertainty,
Speaker 7: and the FED leans much more on the you know,
Speaker 7: the the using unemployment versus inflation. So that's more of
Speaker 7: like a rule of thumb, and we're so far off that,
Speaker 7: right We're back to the days of before the recession
Speaker 7: when unemployment was so low and yet inflation didn't pick up,
Speaker 7: and it's like, what is going on? So I think,
Speaker 7: you know, we've carried that uncertainty about how those relationships
Speaker 7: work into the present and that's partly why I think
Speaker 7: we come out of this with some reason. From the
Speaker 7: macro profession.
Speaker 4: Right now, I'm also watching specific sectors, whether it's autos
Speaker 4: and the idea of prices going down for use cars.
Speaker 4: I'm looking at the housing market, the mystery of why
Speaker 4: housing prices having cracked at a time when mortgage rates
Speaker 4: are the highest going back since two thousand and sixteen,
Speaker 4: I believe at the earliest, actually further than that, I
Speaker 4: think it was more than that decades. Claudia, what sector
Speaker 4: are you looking at for a tea leaf in order
Speaker 4: to project where we are headed with inflation?
Speaker 7: Well, I think you listen to the news cycle and
Speaker 7: you hear things like I had not planned on last
Speaker 7: week doing state dependent p SOM rules, right, but I
Speaker 7: did so. In terms of industry, it's like you go
Speaker 7: after where the story is. You know, you look in
Speaker 7: the it the tech and see it like what does
Speaker 7: that look like? And actually some of it. There's some
Speaker 7: places where we had really a lot of trouble bringing
Speaker 7: workers in, like Staton local government. They're like one of
Speaker 7: the big additions right now. So again that looks like
Speaker 7: rebalancing to me. But like you said, you're going to
Speaker 7: pick up and follow any sector that is right still
Speaker 7: higher inflation.
Speaker 2: Claudia, I just had a nightmare. I was thinking about
Speaker 2: you as a FED president or a FED governor. We
Speaker 2: want can you see Claudia at the Echoles building around
Speaker 2: the table.
Speaker 4: I think she's take close to that.
Speaker 2: Michelle Smith will get her a Starbucks.
Speaker 1: Claudia. The character of the descent right now at the FED, I.
Speaker 2: Mean we know that if you were there there would
Speaker 2: be a visible psalm descent, no question about it. What's
Speaker 2: the nature the character of our non descent descent at
Speaker 2: the FED.
Speaker 7: So I think it's really unfortunate that you have like
Speaker 7: straight line votes and then you get to see a
Speaker 7: summary of economic projections that there's clearly disagreement, right, Like,
Speaker 7: I don't know why they are shy about saying that.
Speaker 7: You know, there's a lot of moving pieces here and
Speaker 7: we there ought to be somebody and some of these
Speaker 7: people have been openly for a pause, right and then
Speaker 7: there's been some openly Fed officials openly for going forward.
Speaker 7: How do you get a pause out of that? You
Speaker 7: think you're going to do twenty five basis points more twice?
Speaker 7: Why aren't you doing it now?
Speaker 2: Right?
Speaker 7: Like that, everything was very puzzling with the Fed.
Speaker 2: Claudia, Sam, thank you so much, greatly appreciate it. Congratulations
Speaker 2: on the impact doctor Salm is having on our slow
Speaker 2: down stagnation recession debate. Joining us down This is important
Speaker 2: for Global Wall Street. It's a really intelligent note for
Speaker 2: Northwestern Mutual Brunch. Shooty joins us their CIO, and buried
Speaker 2: in the note is a really important observation that we've downplayed.
Speaker 2: I've been as guilty if this as anyone, Brent, and
Speaker 2: that is you look abroad at the developed nation equities
Speaker 2: and you say that they are remarkable, that they are
Speaker 2: remarkably cheap. We're beginning to hear this in our analysis.
Speaker 2: What equities abroad are remarkably cheap?
Speaker 8: Well, I think there's many parts of the market that
Speaker 8: are actually cheap. Considered that US small and midcaps trade
Speaker 8: at thirteen to fourteen times earnings that are marked down
Speaker 8: ten to fifteen percent. So I can trast and compare
Speaker 8: that to the large cap US equities, which is where
Speaker 8: everybody has want to have been for the past few years,
Speaker 8: and they trade at twenty times earnings, and so I
Speaker 8: think you were mentioning short, mid and long term. Unfortunately,
Speaker 8: I'm more of a pastmist. I do think there is
Speaker 8: a recession that is likely. I know that narrative has changed,
Speaker 8: and I think that puts more of a wet blanket
Speaker 8: on equities in the near term. But I do think
Speaker 8: in the middle medium term, I do think the parts
Speaker 8: of the market that are cheap will do well coming
Speaker 8: out of what I believe will be a shortened, shallow recession.
Speaker 8: And that's where I encourage people to position their portfolios
Speaker 8: more towards those areas such as US small, US mid
Speaker 8: and dare I even say international equities, which I know
Speaker 8: have underperformed for some time but are remarkably cheap and
Speaker 8: I expect better days in the outsite side of the recession.
Speaker 1: Are there tech.
Speaker 2: Growth performers in the mid cap area?
Speaker 8: Yeah, but how much do you want to pay for those?
Speaker 8: I mean, I know that AI's been the craze. I
Speaker 8: know that earnings growth has slowed, and that's why people
Speaker 8: have gravitated back towards those. But it reminds me a
Speaker 8: lot of ninety nine nine two thousand, where that was
Speaker 8: the narrative in the next seven years. Those names did
Speaker 8: well from an earnings perspective, but not from a price perspective.
Speaker 8: And so I know, not every time in history rise,
Speaker 8: but this time period feels a lot like ninety nine
Speaker 8: to two thousand in so many different ways than that
Speaker 8: being one of the primary ones.
Speaker 4: Tom earlier said that it's almost silly to discuss recession
Speaker 4: and all the gloom and doom. Earlier was perhaps not
Speaker 4: looking at the actual data, which showed a strong economy.
Speaker 4: How do you parlay that into a soft and shallow
Speaker 4: recession that could just ameliorate some of the inflationary pressures
Speaker 4: just enough to keep growth going on this kind of sphere.
Speaker 4: Do you think that that is the most likely outcome
Speaker 4: at a time when there is still this inflationary pressure
Speaker 4: that's rearing up on the back end of the year.
Speaker 8: I mean, I think current inflationary pressures as measured by
Speaker 8: CPI are highly linked to COVID that is now in
Speaker 8: the river view mirror and are going away. But that's
Speaker 8: not the big concern the FED. The big concern is wages.
Speaker 8: Every economic cycle ends when you run out labor market slack,
Speaker 8: and that's where we're at unless people come back to
Speaker 8: the labor market. And so if you look historically, the
Speaker 8: FED hikes rates aggressively as wages reach four percent on
Speaker 8: non supervisory and production workers. That's where the last three
Speaker 8: economic cycles have ended. And we're at four point seven
Speaker 8: percent year over year right now. I don't think the
Speaker 8: FED stops until they see the labor market crack, which
Speaker 8: I think we call recession. And so I think about
Speaker 8: this liquidity tournique that's on the US economy, and I
Speaker 8: think that means a recept is likely in the coming quarters.
Speaker 8: The good news is that I do believe unless you
Speaker 8: think the real nuturrate has changed from two point five percent,
Speaker 8: we're above five. There is plenty of room if inflation
Speaker 8: is gone, for the FED to cut rates to kind
Speaker 8: of help cushion that blow. And when you contemplate the
Speaker 8: consumer still has ample savings and likely will after this recession,
Speaker 8: I think that's why it's short and shallow what.
Speaker 4: Keeps you up at night. That could potentially challenge that
Speaker 4: assumption of a short and shallow to something that looks
Speaker 4: more traditional in terms of recession.
Speaker 8: The FED keeps hiking, and so I worry every single
Speaker 8: time the labor market comes out and shows supposed strength,
Speaker 8: and the FED keeps hiking into that because they want
Speaker 8: to see it completely gone. I think they've probably already
Speaker 8: gone too far. If they continue to go based upon
Speaker 8: some belief that inflation is not completely back to two percent,
Speaker 8: I think every sign points in that direction. If they
Speaker 8: keep going, and they go further and further until they
Speaker 8: get the labor market to crack, then I think you're
Speaker 8: going to see or could see something that's a bit deeper.
Speaker 5: You said supposed strength. Is there more to this labor
Speaker 5: market that makes the eye from your perspective, I.
Speaker 8: Mean, this is where I think people look at the
Speaker 8: data over the past year and it's been very odd.
Speaker 8: You saw household employment last year for many months actually
Speaker 8: be flat. So from my belief, February to November of
Speaker 8: last year, houseold employment rose whopping two hundred thousand total,
Speaker 8: while non farm pray rolls rolls two point eight million
Speaker 8: this recession commentary, does anybody realize that gross domestic income
Speaker 8: has actually been negative for two quarters. That's the opposite
Speaker 8: of gross domestic product. And so I think there's just
Speaker 8: so many conflicting data points. You have a post COVID
Speaker 8: recovery that's quite odd, and I think the FED is
Speaker 8: reacting to different data that is more strong, and they
Speaker 8: won't stop until they see it weakening, and hopefully they
Speaker 8: don't go too far and want it to weaken so
Speaker 8: substantially that it does cause that deeper recession.
Speaker 5: How hard is it to be bullish with that kind
Speaker 5: of analysis and what the FED is doing well?
Speaker 8: I joined Tima Bramowitz a few months ago and became
Speaker 8: much more barriers for the first time in many quarters.
Speaker 8: And you know, I think there's good news in it.
Speaker 8: It's more along the lines that you do see. Part
Speaker 8: it's the market that are chieved, and I think for
Speaker 8: people who invested in bonds for years when rates were
Speaker 8: at one and three quarters on the Barcley's aggregate bond indecks,
Speaker 8: they're not five percent. So you have the opportunity, I believe,
Speaker 8: to hedge your portfolio against downside by investing in bonds,
Speaker 8: which I think offer real value in a period of
Speaker 8: time where I think inflation is going back to two
Speaker 8: percent and a hedge against equities once again, which I
Speaker 8: know they weren't last year, but I think they'll return
Speaker 8: to their historical kind of a role of actually balancing
Speaker 8: downside of equity markets.
Speaker 5: See Brandma Brent, thank you, franciating Northwestern Mutual, Thank you, sir.
Speaker 2: We welcome all of you across this nation to a
Speaker 2: conversation with Jonathan Miller. He's president and CEO of Miller Samuel.
Speaker 2: All I can say, folks is go to the Miller
Speaker 2: Samuel website and look at what he has wrought. He
Speaker 2: owns the high ground on owning and renting dynamics in
Speaker 2: major cities and indeed the nation. Jonathan Miller, what is
Speaker 2: the trend right now that's not in zeitgeist and all that?
Speaker 2: Miller Samuel data. What's the number one thing that people
Speaker 2: aren't talking about.
Speaker 9: Well, I think I think that housing prices are going
Speaker 9: to rise more than we think they are. That just
Speaker 9: in the last few months, things have really rebounded price wise,
Speaker 9: and it's because I don't think there's enough a sort
Speaker 9: of consideration given to how much listing inventory is falling
Speaker 9: off trend, meaning that new listings entering the market declining
Speaker 9: because people are heavily wedded to their three percent thirty
Speaker 9: year fixed and it's going to take a while for
Speaker 9: that connection.
Speaker 1: To well, that's a key point. John.
Speaker 2: On the X axis, how long is a while? Is
Speaker 2: this a two year, three year workout or is this
Speaker 2: an eight or ten year workout?
Speaker 9: No, I think it's probably a one to two year
Speaker 9: maybe maybe more towards two than one, But I think
Speaker 9: it's a while. I mean, one of the things that
Speaker 9: we learn is that homeowners take one to two years
Speaker 9: to capitulate to market conditions, and also too that people
Speaker 9: you know this they have you know, it's shelter, they
Speaker 9: have personal needs, and at some point we see more
Speaker 9: people having to move into the market. The problem is
Speaker 9: that mortgage rates for those people are more than double
Speaker 9: what they were but we're also seeing bidding wars expand
Speaker 9: because of the shortage, the chronic shortage of supply. So
Speaker 9: I think this is a couple of.
Speaker 4: Years out, Jonathan does to sort of give a sense
Speaker 4: of what we're talking about. Is this on average in
Speaker 4: the US or is this in select markets that are
Speaker 4: hot or hotter like New York right now at least
Speaker 4: in other areas.
Speaker 9: I see it as a US. I cover about fifty
Speaker 9: different housing markets for real estate brokerage Juggle, and we're
Speaker 9: seeing the same pattern everywhere, whether it's Southern California, Texas, Florida,
Speaker 9: you know, d C, Boston, New York City. New York
Speaker 9: City is probably one of the more robust in terms
Speaker 9: of activity, just because their sort of housing boom, if
Speaker 9: you call it, was interrupted a little bit early by
Speaker 9: changing FED policy, because they relate to the party. If
Speaker 9: we push this, this is a national condition.
Speaker 4: If we push this forward, Jonathan, tomorrow, we get CPI
Speaker 4: and the headline inflation read in the US, and a
Speaker 4: lot of people are expecting some of the year over
Speaker 4: year comps with respect to rent coming in quite significantly.
Speaker 4: Because of the fact that we did see a slowdown
Speaker 4: at least in the appreciation of home prices. Do you
Speaker 4: think people are overstating how much rents can either plateau
Speaker 4: or even decline given the trends that you're seeing, with
Speaker 4: pricing probably increasing more than people expect in the housing sphere.
Speaker 9: I think it's an overstatement. And also too, I don't
Speaker 9: I don't see the two markets as sort of a
Speaker 9: knee jerk reaction where one instantly changes over the other.
Speaker 9: I think, uh, you know, the rental market is mixed.
Speaker 9: Where we're seeing certainly areas where rents are going down
Speaker 9: New York Metro that's not happening. It's very vibrant, so
Speaker 9: it's hard to imagine, you know, any kind of sudden move.
Speaker 9: I think this is I think we're going to be
Speaker 9: sort of stuck in this position for for a while,
Speaker 9: unless there's a meaningful economic event like a recession, which
Speaker 9: has been forecast for them in six months from now.
Speaker 9: For the last two years, you know, we're sort of
Speaker 9: stuck at the moment. And I think time is what
Speaker 9: changes homeowners' positions in terms of bringing property onto the market.
Speaker 4: How is the tenor of the purchases of homes changed
Speaker 4: If people aren't necessarily taking out a thirty year mortgage
Speaker 4: in the same way. But maybe they're getting a loan
Speaker 4: from the actual homebuilder to buy a home, or maybe
Speaker 4: they're refinancing someone else's alan and putting their name on
Speaker 4: it to get the lower rate. I mean, how is
Speaker 4: the nature of the financing just shifted completely to avoid
Speaker 4: paying the punitive rates that are currently instated at the
Speaker 4: headline level.
Speaker 9: Well, Iley's marvel at the discussion about affordability is centered
Speaker 9: on the thirty year fixed and that's sort of the benchmark.
Speaker 9: But I've been through many cycles and you see people
Speaker 9: work through that, work around that. Just for the reason,
Speaker 9: just with the examples that you gave, homebuilders are doing
Speaker 9: a lot of offerings on financing, buying down rates. People
Speaker 9: are getting five ones, seven ones, ten ones as a
Speaker 9: way to reduce the payment. I mean, there's a lot
Speaker 9: of things that we didn't have to do two years
Speaker 9: ago because they're was on the floor that no longer exists.
Speaker 2: Joe Miller, I'm fascinated what you would say in a
Speaker 2: case of New York, to Governor Hogel of Buffalo and
Speaker 2: New York City in the state, or to Mayor Adams
Speaker 2: or Frankly, the mayors the governors of Florida, or even
Speaker 2: the way you cover the fancy people out in Colorado
Speaker 2: with eight thousand square feet in Aspen. What would you
Speaker 2: say to public officials about the national outrage that to
Speaker 2: be selfish.
Speaker 1: Our kids can't afford to.
Speaker 9: Live, right, So we go through this, it seems like
Speaker 9: we've been We've had this conversation a decade ago. And
Speaker 9: more than that, there's too much volatility in housing. One
Speaker 9: of the biggest problems is we just need to build more.
Speaker 9: The challenge is to make it middle class. Florida Bill
Speaker 9: forty percent of the middle class were sort of wiped
Speaker 9: out of the ability to buy a house in the
Speaker 9: last year. It's I mean, John, ability, affordability means.
Speaker 2: Now, I'm going to run out of time here, but
Speaker 2: I want to get this in. I think it's too important.
Speaker 2: All the media. I'm as guilty as this as anyone.
Speaker 2: All the media wants to look. As Lisa mentioned, OMG,
Speaker 2: the luxury people are putting six million dollars all cash
Speaker 2: into four thousand square feet where they can see, you know, Connecticut,
Speaker 2: and you know they can see Pennsylvania over.
Speaker 1: To the west.
Speaker 2: Forget about that on the Upper East side over past
Speaker 2: Third Avenue, where people are just trying to do rent
Speaker 2: on Second and First Avenue. What's your prediction for the
Speaker 2: next twelve months.
Speaker 9: I think that rents are probably going to peak at
Speaker 9: the by the end of the summer, maybe sooner. But
Speaker 9: I see them stuck at some sort of plateau, not
Speaker 9: not seeing any meaningful decline. And that's kind of where
Speaker 9: we're in in the rental market. Maybe rents aren't going
Speaker 9: to be rising, but they're not going to be falling.
Speaker 2: John Miller, Thank you so much. Hugely valuable with Miller,
Speaker 2: Samuel Douglas element Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify,
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