WEBVTT - Surveillance: Sahm on Fed's Next Steps 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.079 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.640 anywhere you get your podcasts, and always on Bloomberg dot com, 0:00:26.640 --> 0:00:30.760 the Bloomberg Terminal, and the Bloomberg Business App. They have 0:00:30.800 --> 0:00:33.640 to be kept in separate offices in Washington. Claudia Sam 0:00:33.720 --> 0:00:37.320 joins us right now. Former Feederiserve economists with a blistering 0:00:37.360 --> 0:00:42.400 note yesterday on America's economic growth. You're channeling Michigan's Justin 0:00:42.440 --> 0:00:45.680 Wolfers at Claudia yesterday, and it goes off a five 0:00:45.760 --> 0:00:50.839 handle on GDP? Why is America so miserable? If we're 0:00:50.880 --> 0:00:54.840 popping four and a half five percent real GDP? Throw 0:00:54.920 --> 0:00:58.639 on the Claudia sim inflation. Why are we so miserable 0:00:58.720 --> 0:01:01.360 with seven percent nominal GDP? 0:01:03.360 --> 0:01:04.880 That's a tough one, right. 0:01:04.920 --> 0:01:07.959 There can, and there have been in the past, disconnects 0:01:08.040 --> 0:01:10.039 between the kind of numbers that we see about the 0:01:10.040 --> 0:01:14.000 total economy and what families are telling us about how. 0:01:13.920 --> 0:01:16.040 Things are going and where they think things are going. 0:01:16.319 --> 0:01:19.240 Sometimes families are correct, right, we don't want to discount this. 0:01:19.560 --> 0:01:22.760 And yet at this point we have gotten number, like 0:01:23.080 --> 0:01:26.120 just all kinds of readings on what's going on right now, 0:01:26.280 --> 0:01:29.640 and they look really good. So it's been a real 0:01:29.720 --> 0:01:33.400 slog since the pandemic began. Inflation has been high, but 0:01:33.480 --> 0:01:35.840 like things are good, especially the labor market. 0:01:36.080 --> 0:01:37.960 Tourist and Slack writes a beef note to Day to 0:01:38.000 --> 0:01:41.399 Apollo and it sums up the consensus of the FED. 0:01:41.520 --> 0:01:44.000 We're returning to two percent. Le Guards said that in 0:01:44.080 --> 0:01:46.840 Marrakesh we have to get back to two percent, I 0:01:46.920 --> 0:01:51.200 believe to paraphrase. And the Richmond Fed has a model 0:01:51.240 --> 0:01:54.600 which is a higher our start. Is this a Fed 0:01:54.680 --> 0:01:57.880 that's going to have the facts change when they change 0:01:58.040 --> 0:02:01.520 or they change when the facts change. 0:02:01.960 --> 0:02:06.480 Yeah, what we've seen so far is inflation is coming down, right, 0:02:06.560 --> 0:02:09.400 Like if we had seen it still sticking or going up, 0:02:09.440 --> 0:02:11.000 then okay, fine, our star's hired. 0:02:11.040 --> 0:02:13.360 They got to do more. Probably that is not what 0:02:13.400 --> 0:02:14.000 we've seen. 0:02:14.200 --> 0:02:17.639 All of these models are based on past historical relationships, 0:02:18.040 --> 0:02:20.480 and we're writing the playbook here and the FED has 0:02:20.480 --> 0:02:23.600 shown themselves capable of rewriting the playbook. They did that 0:02:23.639 --> 0:02:25.959 after the Great Recession, so they're going to go where 0:02:26.000 --> 0:02:29.400 the data takes them. But it's really tough when the 0:02:29.440 --> 0:02:32.520 typical guideposts just aren't working the way they. 0:02:32.400 --> 0:02:33.960 Have Chlouddie, what do you make of the fact that 0:02:34.000 --> 0:02:37.320 the Beige Book and other anecdotal data really has pointed 0:02:37.360 --> 0:02:40.640 to a real softening, a slow down pain I felt 0:02:40.720 --> 0:02:42.959 among the consumers, and the heart TATA keeps coming out 0:02:43.320 --> 0:02:46.120 surprisingly strong again and again and again. 0:02:47.880 --> 0:02:50.639 Right, I don't look at the latest numbers that we've seen, 0:02:50.680 --> 0:02:53.400 particularly that five percent GDP growth it appears we're headed 0:02:53.400 --> 0:02:56.119 at and say, oh, things are accelerating, We're going back 0:02:56.200 --> 0:02:57.960 up to where we are. I think this is a 0:02:58.080 --> 0:03:01.040 sign that we're bumping around a pretty good place in 0:03:01.120 --> 0:03:04.520 terms of a sustainable recovery. Obviously that's not going to 0:03:04.520 --> 0:03:07.400 be felt by everyone. You can absolutely find people to 0:03:07.480 --> 0:03:10.680 give very heartbreaking stories about what has happened to them. 0:03:11.200 --> 0:03:13.440 And yet we do have to look at the totality 0:03:13.440 --> 0:03:17.440 of data and it's like across the board looking really good, 0:03:17.480 --> 0:03:19.840 like we could keep up a sustainable pace that looks 0:03:19.880 --> 0:03:21.919 a lot like, if not a little better than where 0:03:21.960 --> 0:03:22.720 we were before. 0:03:22.760 --> 0:03:23.440 The pandemic. 0:03:23.919 --> 0:03:26.720 So do you think that this is becoming problematic for 0:03:26.760 --> 0:03:27.680 the inflation story? 0:03:27.760 --> 0:03:27.919 Right? 0:03:27.960 --> 0:03:30.280 I mean, in other words, is this growth incompatible with 0:03:30.320 --> 0:03:33.000 inflation continuing to go down to two percent? Or are 0:03:33.040 --> 0:03:35.480 you basically arguing but it doesn't matter if we get 0:03:35.520 --> 0:03:37.640 back down to two percent and that that really needs 0:03:37.640 --> 0:03:39.440 to be what perhaps fetcher J. 0:03:39.520 --> 0:03:40.800 Powell talks about today. 0:03:41.720 --> 0:03:44.200 We're going back to two percent like the Fed. The 0:03:44.240 --> 0:03:47.640 Fed is absolutely capable of getting us there, and they 0:03:47.680 --> 0:03:49.840 may get a little too antsy and we get there 0:03:49.920 --> 0:03:52.600 with a lot of disruption and potentially a recession. I 0:03:52.640 --> 0:03:55.280 don't question that target. It's as made up as three 0:03:55.320 --> 0:03:58.360 percent would be. So you know, there's nothing magical here. 0:03:59.080 --> 0:04:02.320 We haven't seen signs of this being difficult. Inflation is 0:04:02.360 --> 0:04:05.920 still chipping away down. It's a different story if we 0:04:05.960 --> 0:04:08.960 start getting stuck, and then you've got to think harder 0:04:08.960 --> 0:04:09.760 about what's next. 0:04:09.800 --> 0:04:12.520 What is so with all our good analysis of recession 0:04:12.560 --> 0:04:15.000 and Michael McKee with us in Washington as well to 0:04:15.040 --> 0:04:17.360 the two of you, I've got one question. Mike. Let 0:04:17.360 --> 0:04:20.800 me start with you. Our audience on radio and television 0:04:21.040 --> 0:04:25.680 is looking at a mortgage rate of eight percent. It's 0:04:25.760 --> 0:04:31.120 either outright shock or how do we adjust to that? 0:04:31.400 --> 0:04:34.040 Is citizens, how do we adjust to that within our 0:04:34.120 --> 0:04:37.120 daily life? From where you sit, Mike, is the fedaware 0:04:37.680 --> 0:04:39.640 that a thirty year mortgage is eight percent? 0:04:41.360 --> 0:04:43.760 Oh? Of course they are, and I've talked to many 0:04:43.839 --> 0:04:46.080 of them about that, and they do recognize it is 0:04:46.160 --> 0:04:48.719 a bit of a problem in conundrum because they've raised 0:04:48.800 --> 0:04:51.720 rates and sort of killed the housing market because they're 0:04:51.720 --> 0:04:55.080 in a different situation than we have been since I 0:04:55.120 --> 0:04:59.440 can remember, where their rate increases are so much higher 0:04:59.480 --> 0:05:01.760 than what we but were able to take out mortgages 0:05:01.800 --> 0:05:06.000 at that Nobody wants to sell their houses. The thought 0:05:06.320 --> 0:05:09.040 seems to be that if they start coming back down, 0:05:09.120 --> 0:05:11.799 they will get to a level, maybe in the threes, 0:05:12.720 --> 0:05:15.920 where mortgage rates will come down to four or five percent, 0:05:15.960 --> 0:05:18.559 and people might start buying again because that won't seem 0:05:18.600 --> 0:05:19.120 too bad. 0:05:19.200 --> 0:05:20.320 But yeah, that's going to take a. 0:05:20.320 --> 0:05:23.240 While, obviously, Claudia, bring us over to academics as well. 0:05:23.240 --> 0:05:25.440 You're writing the next paper at Jackson Hole here on 0:05:25.480 --> 0:05:28.320 the American housing market. Are we at a point, Lisa 0:05:28.360 --> 0:05:30.279 and I've talked about this. Are we at a point 0:05:30.400 --> 0:05:33.359 where for elites like you, the housing market doesn't matter? 0:05:35.520 --> 0:05:38.039 Not just for me, right, there were a lot of 0:05:38.080 --> 0:05:41.320 people that refinanced or purchase housing when we had a 0:05:41.480 --> 0:05:44.280 very low interest rate. I mean, the housing market has 0:05:44.320 --> 0:05:47.599 been very disrupted, both in a really good place and 0:05:47.600 --> 0:05:49.560 now in a really bad place. This has been a 0:05:49.560 --> 0:05:51.840 tough cycle. And those who timed it properly, and there 0:05:51.839 --> 0:05:55.880 were millions of Americans who refinance their homes. They're in 0:05:55.920 --> 0:05:58.240 a good place right now, and like you said, it 0:05:58.279 --> 0:05:59.000 does make it treat. 0:05:59.040 --> 0:06:00.720 They don't want to sell. They don't want to let 0:06:00.720 --> 0:06:01.080 go of that. 0:06:01.440 --> 0:06:04.119 Lisa, we're completely colored by this in New York City, 0:06:04.120 --> 0:06:08.760 which is a completely wacko original housing market. To me, 0:06:08.920 --> 0:06:11.600 this is the art we have to live in our houses. 0:06:12.279 --> 0:06:14.280 I believe that. You know, like every month it's a 0:06:14.320 --> 0:06:18.120 mortgage payment or a rent payment, And these numbers, to me, 0:06:18.279 --> 0:06:21.440 have a greater effect than anything else. 0:06:21.520 --> 0:06:22.240 We talk about. 0:06:22.480 --> 0:06:26.040 Eight percent mortgage filters into everybody's pocketbook. 0:06:26.160 --> 0:06:28.880 It affects our mobility and their willingness to move, especially 0:06:28.920 --> 0:06:31.680 given the fact that it's going to be unaffordable for 0:06:31.680 --> 0:06:33.640 the vast majority of people to do so. Claudia, I 0:06:33.640 --> 0:06:35.400 just want to bring that together full circle with this 0:06:35.480 --> 0:06:38.720 idea of the conundrum that a lot of investors have 0:06:38.839 --> 0:06:41.680 right now. Are we seeing a world that can manage 0:06:41.720 --> 0:06:44.479 with five percent rates and keep the growth profile that 0:06:44.560 --> 0:06:46.680 you're talking about and that we're just seeing today with 0:06:46.760 --> 0:06:49.440 claims coming in the lowest since January. Is that what 0:06:49.480 --> 0:06:50.279 we are witnessing. 0:06:51.480 --> 0:06:54.279 It's too soon to tell, but we are absolutely setting 0:06:54.360 --> 0:06:57.839 up what could be. You know, the really important piece 0:06:57.839 --> 0:06:59.880 of this would be productivity picks up. 0:07:00.440 --> 0:07:01.960 That we're talking about growth. 0:07:01.720 --> 0:07:03.800 Is not just quarter to quarter, but we can really 0:07:03.800 --> 0:07:06.320 sustain it at a higher rate, then we can deal 0:07:06.360 --> 0:07:07.920 with the higher interust rates. 0:07:07.920 --> 0:07:09.560 There are some glimmers of hope. 0:07:10.400 --> 0:07:12.520 I mean, that's all productivity looks like right now in 0:07:12.560 --> 0:07:13.280 the data. 0:07:13.400 --> 0:07:14.600 But that's the path. 0:07:14.640 --> 0:07:17.280 And then we need Chair Powel to have a green 0:07:17.320 --> 0:07:21.000 span moment and be like, you know, growth has picked up, 0:07:21.040 --> 0:07:22.120 but we're not there yet. 0:07:22.120 --> 0:07:24.520 He shouldn't do that today when he does the Q and. 0:07:24.560 --> 0:07:25.800 A, when we're there. 0:07:25.840 --> 0:07:32.000 This is great, Claudie s thank you so much, Marques 0:07:32.080 --> 0:07:34.320 for one place to say, joined us around now, Secretary 0:07:34.400 --> 0:07:37.040 esp fantastic to catch up with you, sir. As always, 0:07:37.080 --> 0:07:39.400 I wanted to lean on your experience in the administration. 0:07:39.760 --> 0:07:42.960 We've seen some landmark accords come out of the Trump administration, 0:07:43.040 --> 0:07:46.800 the Abraham Accords, just establishing diplomatic relations between israelom places 0:07:46.840 --> 0:07:48.960 we never thought we would. We were hopeful that was 0:07:49.000 --> 0:07:52.520 going to take place with Saudi Arabia and Israel. It hasn't. 0:07:52.760 --> 0:07:54.800 Mark Are wee learning that there is some forces in 0:07:54.840 --> 0:07:56.400 the Middle East that just don't want peace? 0:07:58.160 --> 0:08:01.920 Yes, of course we do, and that is Iran principally, 0:08:02.440 --> 0:08:05.560 and then the proxy groups around the region that they 0:08:05.600 --> 0:08:10.040 support Hamas, has Blah, the Hutis, the Shia militia. 0:08:09.640 --> 0:08:10.360 Groups in Iraq. 0:08:10.400 --> 0:08:13.280 Look, I think a big part of what motivated Hamas 0:08:13.320 --> 0:08:16.040 to attack at this time and the way they did, 0:08:16.680 --> 0:08:19.920 was the fact that the normalization accord between the Saudis 0:08:19.920 --> 0:08:23.040 and Israelis was moving forward, albeit slowly, but moving forward. 0:08:23.480 --> 0:08:25.679 And of course if it was concluded on the terms 0:08:25.680 --> 0:08:27.680 that we knew that were leaking out, that would have 0:08:27.720 --> 0:08:30.720 meant a tremendous shift of power back to the Palestinian authority, 0:08:30.840 --> 0:08:32.520 which of course we know the Hamas is. 0:08:34.480 --> 0:08:35.040 Opposed to. 0:08:35.120 --> 0:08:39.079 Right, there's friction between Fatah and Hamas, and of course 0:08:39.160 --> 0:08:44.160 the Hamas's benefactors Iran would also be hurt by normalization 0:08:44.200 --> 0:08:47.000 because you'd finally see an alignment or an emerging alignment 0:08:47.040 --> 0:08:51.520 between the Arab States and Israel against Persia against Iran. 0:08:51.600 --> 0:08:55.160 So I think those are principal reasons why this attack happened. 0:08:55.160 --> 0:08:58.440 At this time, the political battle will be engaged to 0:08:58.559 --> 0:09:04.040 look back to twenty twenty. Hindsight Secretary, what I'm fascinated 0:09:04.120 --> 0:09:10.800 by is how we prosecute a military affair with Israeli forces. Okay, fine, 0:09:11.440 --> 0:09:16.880 against terrorist groups. We've never really done this, have we. 0:09:16.880 --> 0:09:19.520 Well, I mean, you could argue that our response after 0:09:19.600 --> 0:09:22.040 nine to eleven when we went into Afghanistan first to 0:09:22.120 --> 0:09:25.079 displace the Taliban and then of course the pursuit of 0:09:27.920 --> 0:09:31.280 al Qaeda and eventually ISIS et cetera, was part of that. 0:09:31.320 --> 0:09:33.360 We of course, yes, we went after ISIS in Syria 0:09:33.400 --> 0:09:35.679 as well, So but I get your point. Look, it's 0:09:35.800 --> 0:09:38.760 very tough. You have an army built for big, heavy, 0:09:38.760 --> 0:09:44.040 conventional fights, an extraordinary soft capability, going into a heavily populated, 0:09:44.840 --> 0:09:47.800 dense area, trying to root out militants among the public, 0:09:47.840 --> 0:09:50.880 and having to fight in multiple dimensions right on the ground, 0:09:50.960 --> 0:09:53.640 above the ground and below the ground, and it's going 0:09:53.679 --> 0:09:55.280 to be quite a bloody and messy affair. 0:09:56.040 --> 0:09:58.640 What would do screaming eagles do I mean, you know, 0:09:58.679 --> 0:10:03.080 you've got tangible experience here. Do they do a massive 0:10:03.160 --> 0:10:06.719 bombardment I'll of World War two, say, and then go in? 0:10:07.160 --> 0:10:09.600 Or do you expect them to prosecute something different? 0:10:10.559 --> 0:10:12.880 Look, I think we've seen the bombardment so far. At 0:10:12.880 --> 0:10:14.360 some point they're going to have to move in and 0:10:14.400 --> 0:10:17.080 go street by street, block by block. I think part 0:10:17.080 --> 0:10:19.320 of the reason why you see so many air strikes 0:10:19.360 --> 0:10:22.200 is they're rubbling buildings. I will tell you know, you 0:10:22.240 --> 0:10:23.559 refer back to my time with the one hundred and 0:10:23.600 --> 0:10:27.040 first Airborne when we were in southern Iraq at the 0:10:27.040 --> 0:10:30.720 Gulf four. We want to avoid cities because city fighting 0:10:30.800 --> 0:10:33.679 is really tough. It consumes a lot of soldiers, not 0:10:33.760 --> 0:10:35.920 just those you lose, but you have to leave people behind. 0:10:36.360 --> 0:10:38.560 And again when you're fighting in multiple dimensions, this is 0:10:38.559 --> 0:10:40.520 really tough. So I think they go block by block, 0:10:40.840 --> 0:10:43.760 being very careful to avoid civil civilian casualties. 0:10:43.960 --> 0:10:45.079 At some point they occupy. 0:10:45.160 --> 0:10:47.320 But the really big question that we don't know yet 0:10:47.440 --> 0:10:49.560 is what's the end state. What happens when they're done, 0:10:49.559 --> 0:10:51.600 Because at some point they're going to pull out. They 0:10:51.600 --> 0:10:54.080 want to pull out and do what vacuum do you create? 0:10:54.120 --> 0:10:57.160 Do you somehow politically get the Palestinian authority to come in? 0:10:57.600 --> 0:11:00.959 Is there some type of inter Arab peace peace keeping 0:11:01.000 --> 0:11:03.760 group that comes in. Those are the big unanswered questions. 0:11:03.920 --> 0:11:05.160 What does the end state look like? 0:11:05.640 --> 0:11:09.320 Secretary, you were Defense secretary under the former President Trump. 0:11:09.520 --> 0:11:11.559 How would have his response been different to what we're 0:11:11.559 --> 0:11:12.160 seeing today. 0:11:13.880 --> 0:11:16.240 I'm not sure that it would be different in this moment. 0:11:16.480 --> 0:11:18.160 I would argue that it would be different with regard 0:11:18.200 --> 0:11:21.000 to Ukraine and other countries, but with thee Israel, given 0:11:21.040 --> 0:11:24.840 the close connections between our countries, our peoples, so much 0:11:24.840 --> 0:11:27.280 to share between our two countries, I'm not sure it 0:11:27.280 --> 0:11:30.640 would be that much different. Although I would say that 0:11:30.720 --> 0:11:33.520 I think Trump would probably take a harder line and 0:11:33.760 --> 0:11:35.480 a more public line against Iran. 0:11:35.960 --> 0:11:37.320 I've argued for that in the past. 0:11:37.800 --> 0:11:40.480 I know Secretary of State Pompeo has, and I would 0:11:40.480 --> 0:11:42.680 like to see more from the Biden administration about connecting 0:11:42.720 --> 0:11:44.400 the dots back to Iran, because I think at the 0:11:44.480 --> 0:11:46.880 end of the day, while Israel can go in and 0:11:46.920 --> 0:11:50.120 decapitate Jumas and try and suppress them, unless you deal 0:11:50.160 --> 0:11:53.000 with the country Iran again, who's funding and training and 0:11:53.000 --> 0:11:56.160 supporting them. Then I think Jimas just crops back up 0:11:56.200 --> 0:11:56.680 over time. 0:11:57.000 --> 0:11:58.800 How do you deal with Iran? I mean this has 0:11:58.840 --> 0:12:01.560 been one of the big quagmi for a lot of nations, 0:12:01.640 --> 0:12:05.240 especially given that people want to avoid World War three. 0:12:06.400 --> 0:12:06.600 Yeah. 0:12:06.679 --> 0:12:09.199 Look, I'm not arguing for strikes on Iran right now, 0:12:09.200 --> 0:12:10.880 but I do think we should see a consensus some 0:12:10.920 --> 0:12:14.640 more emerging first between the Western democracies United States, Europe 0:12:14.640 --> 0:12:17.000 and elsewhere about really finally. 0:12:16.720 --> 0:12:19.280 Tightening down economic sanctions on Iran. 0:12:19.440 --> 0:12:21.680 You could go after their energy exports and I know 0:12:21.720 --> 0:12:23.920 what that does to the energy markets, and then you 0:12:23.920 --> 0:12:26.600 could talk about further isolation of them. I just don't 0:12:26.600 --> 0:12:30.160 think we've seen a concerted effort over the past five, six, 0:12:30.200 --> 0:12:32.240 seven years, and certainly over the past couple. In fact, 0:12:32.480 --> 0:12:36.160 some would argue that the administration has been so eager 0:12:36.240 --> 0:12:38.600 to find a nuclear deal with Iran that we've given 0:12:38.600 --> 0:12:39.200 them too much. 0:12:39.240 --> 0:12:40.560 And look, there's a good case to be. 0:12:40.559 --> 0:12:42.400 Made for that, but I think we finally we need 0:12:42.440 --> 0:12:44.280 to recognize that Iran is at the root of all 0:12:44.320 --> 0:12:44.880 these problems. 0:12:45.040 --> 0:12:47.360 As Secretary asker, if we can finish on drawing on 0:12:47.400 --> 0:12:49.400 your experience, what do you suppose is happening right now? 0:12:49.440 --> 0:12:51.240 What we're going to think from the outside looking in 0:12:51.640 --> 0:12:54.360 is a period of intense deploymacy, a troop build up, 0:12:54.640 --> 0:12:56.680 seemingly on the brink of a full ground invasion. What 0:12:56.720 --> 0:12:59.320 do you suppose is happening right now on the ground 0:12:59.360 --> 0:13:00.960 and what do you think going to see in a 0:13:00.960 --> 0:13:01.920 coming weeks and months. 0:13:02.760 --> 0:13:05.360 Look, I think from the Israeli side, they're gathering intelligence, 0:13:05.400 --> 0:13:08.199 they're prepping their forces, they're talking about their battle plans, 0:13:08.760 --> 0:13:10.760 doing some final training and making sure they know the 0:13:10.800 --> 0:13:12.199 game plan to go in and how they're going to 0:13:12.240 --> 0:13:12.679 deal with it. 0:13:13.120 --> 0:13:14.600 I think that's happening at that level. 0:13:14.640 --> 0:13:18.080 At the same time, they're reinforcing their northern front with 0:13:18.160 --> 0:13:20.320 regard to Hesblo and southern Leblon, and they also have 0:13:20.360 --> 0:13:22.120 to keep a presence in the West Bank in case 0:13:22.160 --> 0:13:25.160 that rises up. I think President Binen's done make good 0:13:25.200 --> 0:13:27.520 moves moving the carrier strike groups into the eastern med 0:13:27.520 --> 0:13:29.440 The Marines will soon be following in there as well. 0:13:29.760 --> 0:13:32.080 But one thing that has been talked about is this, Look, 0:13:32.120 --> 0:13:35.640 if Hesbelah opens up a front in the north, we're 0:13:35.679 --> 0:13:37.800 going to get involved. We have to at this point, 0:13:37.840 --> 0:13:41.520 given what we've said about deterring Hesbla, Iran and others, 0:13:41.880 --> 0:13:43.880 and so if Hesblah opens up a real front there, 0:13:43.920 --> 0:13:47.800 i'd see American involvement happening with tomahawks, strikes, maybe airstrikes, 0:13:48.160 --> 0:13:49.880 But we have to talk about that. And as you know, 0:13:49.960 --> 0:13:52.680 there's the grander chessboard out there with regard to diplomacy. 0:13:53.400 --> 0:13:55.439 Please to see Tony blinking going around the region. 0:13:55.440 --> 0:13:58.120 I think it's important that we try and keep that 0:13:58.280 --> 0:14:02.600 Saudi Israeli normalization deal on hold, make sure it's not dead. 0:14:02.640 --> 0:14:04.880 At some point we're going to resurrect that because in 0:14:04.920 --> 0:14:08.199 my view, if Jimas and Iran hates that deal, those 0:14:08.240 --> 0:14:10.480 are two good reasons to pursue it, and I think 0:14:10.520 --> 0:14:12.600 it would really change the dynamics of the region. 0:14:12.600 --> 0:14:14.120 You got about a minute left. If we could explore 0:14:14.120 --> 0:14:16.360 the following, I think it would be beneficial. Is Turkey 0:14:16.400 --> 0:14:19.360 the missing linkit? Where does Turkey stand in all of this? 0:14:20.920 --> 0:14:22.200 Turkey stands in every place. 0:14:22.240 --> 0:14:26.240 I mean, they straddle multiple fences right they're criticizing Israel 0:14:26.320 --> 0:14:28.960 right now. They obviously have a large Muslim population, but 0:14:29.000 --> 0:14:33.400 they're also active in southern Turkey, northern Iraq, going after 0:14:33.960 --> 0:14:36.680 our friends and partners there. I mean, they play this 0:14:36.760 --> 0:14:39.360 game multiple angles. You know, on one hand, they're with 0:14:39.440 --> 0:14:41.960 us in NATO, but he's supporting PUT in another areas. 0:14:42.040 --> 0:14:44.040 And of course what we're not talking about is there's 0:14:44.040 --> 0:14:47.560 a conflict emerging between Armenia and Azerbaijan not too far away. 0:14:48.000 --> 0:14:50.240 So you see the world fracturing here in these different 0:14:50.240 --> 0:14:54.000 spots at this time, and they it all traces its 0:14:54.080 --> 0:14:55.080 roots back decades. 0:14:55.680 --> 0:14:57.320 In many cases, I'm with you, some of these key 0:14:57.400 --> 0:15:00.720 issues just totally off the radar right now. Let's catch 0:15:00.800 --> 0:15:03.320 up again soon. Marquesper There, the former US Defense Secretary 0:15:03.360 --> 0:15:16.640 and author of a sacred oath can scarce them with 0:15:16.760 --> 0:15:20.080 us CIO at the New h Wath Camerack go in morning. 0:15:20.120 --> 0:15:20.560 Good morning. 0:15:20.640 --> 0:15:23.000 Let's talk about a struggle for those airlines at the moment. 0:15:23.080 --> 0:15:24.880 Is that just one sector? Does that tell you something 0:15:24.880 --> 0:15:28.000 about consumer discretation respend in more broadly? What is it? 0:15:28.200 --> 0:15:29.880 Yeah? Where's the ZEMPIC when you need it? 0:15:30.480 --> 0:15:33.280 I think that what we're seeing here is this dynamic 0:15:33.640 --> 0:15:36.800 that we are still very much in a late cycle economy, 0:15:36.880 --> 0:15:39.200 that there are winners and there are losers. There are 0:15:39.240 --> 0:15:42.840 those with pricing power and those without pricing power. You 0:15:42.880 --> 0:15:46.760 see it this morning, Netflix pricing power, Tesla no pricing power. 0:15:46.880 --> 0:15:49.320 That has something to do with small ticket item versus 0:15:49.400 --> 0:15:51.640 large ticket item, but it also has to do with 0:15:51.840 --> 0:15:54.880 interest rates and the cost of capital makes the operating 0:15:54.960 --> 0:15:58.560 environment more difficult. So in late cycle you have to 0:15:58.560 --> 0:16:01.880 be hyper selective when you're picking your equities because there 0:16:01.920 --> 0:16:05.640 will be those that stumble, I love love love your note. 0:16:05.760 --> 0:16:07.800 You go right to the top line. You look at 0:16:07.800 --> 0:16:12.080 the nominal GDP inflation overlay. You've got the Magnificent seven 0:16:12.200 --> 0:16:15.800 sales growth up something like thirty five percent year of 0:16:15.800 --> 0:16:18.160 a year. Nobody's talking about the top line. 0:16:18.400 --> 0:16:21.000 Yeah, it's extraordinary, and part of that top line is 0:16:21.080 --> 0:16:23.920 because they have that great pricing power. Some of that 0:16:24.160 --> 0:16:27.040 is skewed by Nvidia. It's pretty wild. And Video is 0:16:27.080 --> 0:16:30.320 going to grow earnings by one thousand percent this quarter, 0:16:30.880 --> 0:16:33.280 one thousand percent. But even if you remove in Video 0:16:33.360 --> 0:16:36.000 that the Magnificent seven will still be growing earnings by 0:16:36.040 --> 0:16:39.440 sixty percent. So if you take out the Magnificent seven 0:16:39.520 --> 0:16:42.920 from this quarter's earnings, earnings would be down four percent 0:16:43.080 --> 0:16:46.160 versus the down one percent to flat that's currently projected. 0:16:46.400 --> 0:16:48.080 Is that priced aunority. 0:16:48.480 --> 0:16:50.520 I think it is. I think it is to an 0:16:50.560 --> 0:16:54.160 extent because you've seen so much multiple expansion. It doesn't 0:16:54.200 --> 0:16:56.240 mean that these still aren't great companies, but if you 0:16:56.280 --> 0:17:00.080 look at the direction of growth, it slows materially going 0:17:00.120 --> 0:17:03.000 into next year. What you see is in video, for example, 0:17:03.120 --> 0:17:06.440 one thousand percent goes to thirty three percent. You see 0:17:06.480 --> 0:17:10.920 similar decelerations for other Magnificent seven names. The market cares 0:17:10.960 --> 0:17:13.200 about second derivatives, so I think it'll be a really 0:17:13.280 --> 0:17:17.600 interesting test for leadership next year as we see that deceleration. 0:17:18.240 --> 0:17:21.200 John was asking about American airlines and whether some of 0:17:21.240 --> 0:17:23.879 the disappointments that we've seen from America and from United 0:17:24.320 --> 0:17:27.040 are specific to this sector or whether there's a broader 0:17:27.480 --> 0:17:30.280 withdrawal from consumer spending that you're seeing on the ground. 0:17:30.359 --> 0:17:32.600 Is there a dissonance between some of the official data 0:17:33.040 --> 0:17:35.159 and the anecdotal data like what we got in the 0:17:35.200 --> 0:17:38.280 Beige Book that points to a much more substantial slowing down. 0:17:38.640 --> 0:17:43.240 Yeah, there is dissidents there. There's also within the credit 0:17:43.240 --> 0:17:45.960 card data that was the big head scratcher. All the 0:17:46.000 --> 0:17:48.560 credit card data seem to point to a slowing and 0:17:48.640 --> 0:17:50.920 consumer of demand. We did not see that. Of course, 0:17:50.920 --> 0:17:53.800 in retail sales. The best explanation I've heard of that 0:17:54.000 --> 0:17:58.280 is because the measurement period was after the credit card 0:17:58.359 --> 0:18:01.000 data was starting to roll over. So I think what 0:18:01.000 --> 0:18:03.800 we're starting to see is at the margin, consumer spending 0:18:03.960 --> 0:18:07.000 is starting to soften, but it's not broad enough yet 0:18:07.000 --> 0:18:08.760 that it's falling off a cliff. And part of that 0:18:08.920 --> 0:18:11.240 is just because the labor market still remains so tight 0:18:11.280 --> 0:18:13.359 and wage growth still remains rather robust. 0:18:13.560 --> 0:18:17.040 So what's your prescription except for load the boat on apple? 0:18:17.119 --> 0:18:20.119 Julian Emmanuel writes a piercing note today with Edheimen at 0:18:20.119 --> 0:18:23.680 Evercore Isi. They still are on recession twenty twenty four, 0:18:23.720 --> 0:18:26.800 but he says a defensive tilt is essential. Do you 0:18:26.880 --> 0:18:29.560 agree or can you be more optimistic and buy shares today? 0:18:30.040 --> 0:18:32.760 I think the defensives are certainly washed out right now. 0:18:32.840 --> 0:18:35.960 You look at big, huge put option buying within the staples, 0:18:35.960 --> 0:18:38.920 for example. Utilities are very washed up, but there's still 0:18:39.040 --> 0:18:42.479 very much in down trends. Our preferred way is to 0:18:42.520 --> 0:18:45.760 say we're willing to own cyclical names as long as 0:18:45.800 --> 0:18:49.080 they're high quality, meaning companies that have good balance sheets 0:18:49.080 --> 0:18:51.720 have strong free cash flow, but the overlay on that 0:18:51.960 --> 0:18:55.040 has to be valuation discipline, because the higher you go 0:18:55.119 --> 0:18:58.000 in valuation, the more you have room to fall as 0:18:58.080 --> 0:19:00.919 valuations come in, as growth X spectations come in. 0:19:01.400 --> 0:19:04.240 Let's finish where you started a zenpic. You seen in 0:19:04.280 --> 0:19:08.240 the performance of some of these packaged foodstocks. Yeah, brutal, 0:19:08.600 --> 0:19:11.720 it's brutal Mondale's tom than something like twenty percent is 0:19:11.760 --> 0:19:14.520 the peak earlier this year? How much is that stock 0:19:14.880 --> 0:19:17.000 that company going to change this market? 0:19:18.200 --> 0:19:20.640 Look, I think that as long as what you're seeing 0:19:20.760 --> 0:19:23.480