1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,880 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:36,320 --> 00:00:39,360 Speaker 3: Stocks aiming to extend the year end rally, Victoria Fernandez 11 00:00:39,360 --> 00:00:42,479 Speaker 3: of Crossmark Global Investments, writing, we begin the year with 12 00:00:42,520 --> 00:00:46,480 Speaker 3: equity valuations at somewhat rich levels and lots of optimism 13 00:00:46,560 --> 00:00:50,000 Speaker 3: already baked into those valuations, setting a high bar for 14 00:00:50,080 --> 00:00:54,000 Speaker 3: positive surprises and paving the way for moderate returns. Victoria 15 00:00:54,080 --> 00:00:56,440 Speaker 3: joins us. Now, Victoria, thank you so much for joining us. 16 00:00:56,600 --> 00:00:58,960 Speaker 3: If the bar is so high for next year, do 17 00:00:58,960 --> 00:01:00,560 Speaker 3: you think we are going to see some sort of 18 00:01:00,560 --> 00:01:01,640 Speaker 3: correction in the markets? 19 00:01:02,960 --> 00:01:05,600 Speaker 4: I think we will and ray, and it's typical that 20 00:01:05,680 --> 00:01:08,520 Speaker 4: you'll see that in a midterm election anyway. So you 21 00:01:08,640 --> 00:01:10,920 Speaker 4: add in the element of coming into the year at 22 00:01:10,959 --> 00:01:13,960 Speaker 4: high valuations and you're setting yourself up for that. I mean, 23 00:01:14,000 --> 00:01:17,600 Speaker 4: you typically look at a midterm election year and coming 24 00:01:17,680 --> 00:01:21,280 Speaker 4: into that year, you've already priced in those pro growth components, 25 00:01:21,400 --> 00:01:25,720 Speaker 4: the optimism around things being positive after our new administration 26 00:01:25,840 --> 00:01:30,240 Speaker 4: comes into term, and as those positive elements actually come 27 00:01:30,319 --> 00:01:33,399 Speaker 4: to fruition in a midterm election year, you start to 28 00:01:33,440 --> 00:01:37,200 Speaker 4: see some pullback, some entry year corrections, sometimes up to 29 00:01:37,240 --> 00:01:40,679 Speaker 4: as much as fifteen, sixteen, seventeen percent, you can see. 30 00:01:40,720 --> 00:01:42,400 Speaker 5: So there's a lot of volatility. 31 00:01:42,640 --> 00:01:45,440 Speaker 4: You usually get higher yields, so we wouldn't be surprised 32 00:01:45,440 --> 00:01:47,600 Speaker 4: to see yields move a little bit higher as well. 33 00:01:48,200 --> 00:01:50,160 Speaker 4: Setting this up for a year where you're going to 34 00:01:50,160 --> 00:01:54,040 Speaker 4: see a lot of churning but have moderate returns, not 35 00:01:54,280 --> 00:01:55,800 Speaker 4: like we're going to you know, like we've seen the 36 00:01:55,840 --> 00:01:57,760 Speaker 4: last couple of years with these huge returns. 37 00:01:57,880 --> 00:01:59,720 Speaker 3: So do you think we're going to see investors want 38 00:01:59,760 --> 00:02:03,440 Speaker 3: to have more defensive trades? Could we see also rotation 39 00:02:03,600 --> 00:02:04,120 Speaker 3: in the market. 40 00:02:05,080 --> 00:02:08,800 Speaker 4: Yeah, we're already seeing some of that rotation, not necessarily 41 00:02:08,919 --> 00:02:12,800 Speaker 4: into staples per se. Right, Staples are still struggling, so 42 00:02:13,080 --> 00:02:16,200 Speaker 4: you're not getting that full on defensive shift. But what 43 00:02:16,360 --> 00:02:18,720 Speaker 4: you are seeing is people come out of some of 44 00:02:18,760 --> 00:02:23,240 Speaker 4: those high flyers, those hyperscalers, the high leverage tech or 45 00:02:23,280 --> 00:02:26,320 Speaker 4: not leverage, but the high valuation tech names that are 46 00:02:26,360 --> 00:02:28,880 Speaker 4: out there. You're seeing them trim those names back and 47 00:02:28,919 --> 00:02:32,320 Speaker 4: going into some areas where you're starting to see uptrends 48 00:02:32,400 --> 00:02:35,880 Speaker 4: in the sector. So whether it's healthcare, whether it's metals, 49 00:02:35,880 --> 00:02:39,559 Speaker 4: like you guys were talking about, we've seen it in financials, 50 00:02:39,600 --> 00:02:43,040 Speaker 4: We're seeing it in industrials. There's opportunities there to go 51 00:02:43,160 --> 00:02:47,400 Speaker 4: in Staples are still dragging, so we haven't seen, like 52 00:02:47,440 --> 00:02:49,760 Speaker 4: I said, that full rotation to defensive, but I think 53 00:02:49,800 --> 00:02:51,240 Speaker 4: you're going to want to have a little bit of 54 00:02:51,240 --> 00:02:52,400 Speaker 4: that in your portfolio. 55 00:02:52,800 --> 00:02:55,400 Speaker 5: If we get a typical midterm year like we normally do. 56 00:02:55,760 --> 00:02:58,400 Speaker 6: Let's sayce Victoria, it's going to be pretty quiet until 57 00:02:58,680 --> 00:03:01,680 Speaker 6: mid January when corporate earnings come out for the fourth 58 00:03:01,760 --> 00:03:04,560 Speaker 6: quarter numbers. And given that we had this government shut 59 00:03:04,560 --> 00:03:08,200 Speaker 6: down the longest on record, disrupt the flow of economic data, 60 00:03:08,280 --> 00:03:10,520 Speaker 6: it feels like there's going to be more importance placed 61 00:03:10,560 --> 00:03:14,080 Speaker 6: on what companies say, especially how the forecast things for 62 00:03:14,120 --> 00:03:17,280 Speaker 6: the coming year than what we've been getting from official data. 63 00:03:17,320 --> 00:03:19,520 Speaker 6: What are you thinking in terms of the big themes 64 00:03:19,680 --> 00:03:22,200 Speaker 6: you're anticipating from some of those sectors that you mentioned. 65 00:03:23,200 --> 00:03:26,560 Speaker 4: Yeah, I think everyone's going to be looking at the capex, 66 00:03:26,919 --> 00:03:30,280 Speaker 4: not just for those AI names, but across the board. 67 00:03:30,560 --> 00:03:31,600 Speaker 5: That's really a driver. 68 00:03:31,800 --> 00:03:33,600 Speaker 4: I think of some of the optimism that we have 69 00:03:33,800 --> 00:03:36,880 Speaker 4: is this increasing capex. Some of that do to the 70 00:03:36,880 --> 00:03:40,000 Speaker 4: OB three bill that was passed and the tax advantages 71 00:03:40,080 --> 00:03:43,680 Speaker 4: associated with that, but we know capex helps growth, it 72 00:03:43,720 --> 00:03:47,920 Speaker 4: gives you increased productivity, increase profitability, so people will be 73 00:03:48,000 --> 00:03:51,000 Speaker 4: watching for that CAPEX component. I think we're also going 74 00:03:51,040 --> 00:03:53,440 Speaker 4: to be looking at those retail names to see how 75 00:03:53,480 --> 00:03:56,920 Speaker 4: does that consumer continue to spend. We know there's this 76 00:03:57,040 --> 00:03:59,040 Speaker 4: divergence and it's going to be focused on the high 77 00:03:59,120 --> 00:04:02,840 Speaker 4: income consumer. Will they continue to support the economy with 78 00:04:02,920 --> 00:04:05,520 Speaker 4: their spending. So we'll be paying a lot of attention 79 00:04:05,600 --> 00:04:08,800 Speaker 4: to that and really what the expectations are for profit margins, 80 00:04:08,920 --> 00:04:11,840 Speaker 4: whether you're looking at EPs growth, revenue growth. 81 00:04:11,760 --> 00:04:12,840 Speaker 5: Or profit margins. 82 00:04:13,000 --> 00:04:17,000 Speaker 4: Those numbers are getting really high for twenty twenty six 83 00:04:17,080 --> 00:04:19,760 Speaker 4: and going into twenty twenty seven, I think people are 84 00:04:19,839 --> 00:04:22,480 Speaker 4: going to want to see can they actually see those 85 00:04:22,560 --> 00:04:24,880 Speaker 4: numbers come to fruition or are those going to be 86 00:04:24,920 --> 00:04:27,279 Speaker 4: pulled back some So those will all be elements to 87 00:04:27,320 --> 00:04:28,080 Speaker 4: watch in earnings. 88 00:04:28,160 --> 00:04:30,839 Speaker 6: And I'm so glad you highlighted Capex because when the 89 00:04:30,960 --> 00:04:33,680 Speaker 6: AI build out first began, CAPEX was something that was 90 00:04:33,680 --> 00:04:36,480 Speaker 6: seen as almost a positive because it showed a company's 91 00:04:36,480 --> 00:04:40,640 Speaker 6: commitment to the future. However, increasingly it's become something of 92 00:04:40,640 --> 00:04:43,839 Speaker 6: a burden, something that stretches their balance sheet. What's the 93 00:04:43,960 --> 00:04:47,760 Speaker 6: sentiment towards capex Because if you don't have any ROI 94 00:04:47,800 --> 00:04:50,000 Speaker 6: to show for immediately, is it going to be seen 95 00:04:50,040 --> 00:04:50,600 Speaker 6: as a negative. 96 00:04:51,680 --> 00:04:52,680 Speaker 5: That's exactly right. 97 00:04:52,720 --> 00:04:54,440 Speaker 4: You've got to be able to see that there's some 98 00:04:54,640 --> 00:04:57,000 Speaker 4: kind of return that you're getting on the money that 99 00:04:57,040 --> 00:05:00,680 Speaker 4: you're investing, especially if it's disrupting your balance sheet, and 100 00:05:00,720 --> 00:05:02,680 Speaker 4: I think that's the issue people are going to watch. 101 00:05:02,720 --> 00:05:05,440 Speaker 4: It's very much company specific because you can look at 102 00:05:05,440 --> 00:05:08,719 Speaker 4: something like Oracle, where they're having to go to the 103 00:05:08,760 --> 00:05:11,480 Speaker 4: debt market, their free cash flow is going to be 104 00:05:11,839 --> 00:05:15,240 Speaker 4: drawn down significantly. That's a very different story than looking 105 00:05:15,320 --> 00:05:18,359 Speaker 4: at someone like an Alphabet, where they're still going to 106 00:05:18,360 --> 00:05:21,200 Speaker 4: have very strong free cash flow. Yes, they can go 107 00:05:21,240 --> 00:05:23,799 Speaker 4: to the debt market, but that free cash flow number 108 00:05:23,839 --> 00:05:26,600 Speaker 4: continues to be strong, so there's not as much concern 109 00:05:26,800 --> 00:05:28,919 Speaker 4: when it comes to a company like that. It'll really 110 00:05:28,960 --> 00:05:32,279 Speaker 4: be driving down into the balance sheet to see how 111 00:05:32,360 --> 00:05:36,120 Speaker 4: is the CAPEX going to affect cash flow going forward? 112 00:05:36,360 --> 00:05:39,040 Speaker 4: What does that mean in terms of earnings, What does 113 00:05:39,080 --> 00:05:41,159 Speaker 4: that mean in terms of dividends if it's a dividend 114 00:05:41,240 --> 00:05:44,119 Speaker 4: paying stock. Those are all elements that will play into 115 00:05:44,200 --> 00:05:47,560 Speaker 4: what CAPEX looks like for each specific company, But as 116 00:05:47,600 --> 00:05:52,000 Speaker 4: a whole, we know it's typically supportive of GDP and productivity, 117 00:05:52,279 --> 00:05:55,480 Speaker 4: so people will be they'll be biased towards positivity as 118 00:05:55,480 --> 00:05:57,000 Speaker 4: long as the balance sheets can handle it. 119 00:05:57,080 --> 00:05:59,160 Speaker 3: Picture you mentioned the midterm election years tend to be 120 00:05:59,279 --> 00:06:02,440 Speaker 3: high growth. What are you expecting from the administration to 121 00:06:02,480 --> 00:06:04,520 Speaker 3: make sure they keep that growth continuing. 122 00:06:05,600 --> 00:06:08,760 Speaker 4: Yeah, I think we're going to see not just some 123 00:06:08,800 --> 00:06:11,159 Speaker 4: stimulus coming for the consumer, but we'll see it for 124 00:06:11,240 --> 00:06:12,240 Speaker 4: corporations as well. 125 00:06:12,320 --> 00:06:14,440 Speaker 5: So we talked about CAPEX, what that looks like. 126 00:06:15,400 --> 00:06:15,840 Speaker 1: R and D. 127 00:06:15,960 --> 00:06:18,200 Speaker 4: There's going to be benefits associated with R and D 128 00:06:18,480 --> 00:06:23,279 Speaker 4: and building infrastructure here in the US, so that onshoing benefit, 129 00:06:23,480 --> 00:06:26,520 Speaker 4: but consumers as well. There's a lot of tax advantages 130 00:06:26,520 --> 00:06:29,680 Speaker 4: for consumers not just no tax on tips, but you're 131 00:06:29,720 --> 00:06:33,279 Speaker 4: looking at interest on car payments, You're looking at changes 132 00:06:33,320 --> 00:06:38,040 Speaker 4: in regards to salt taxes, in regards to the child deductions. 133 00:06:37,480 --> 00:06:37,960 Speaker 5: That you get. 134 00:06:38,000 --> 00:06:40,240 Speaker 4: There's a lot of elements there that I think will 135 00:06:40,240 --> 00:06:43,799 Speaker 4: be beneficial to the consumer as well that will lift 136 00:06:43,839 --> 00:06:46,680 Speaker 4: them up for at least probably the first half of 137 00:06:46,720 --> 00:06:48,760 Speaker 4: the year. Those are some of the things that I 138 00:06:48,800 --> 00:06:52,320 Speaker 4: think you'll see coming specifically from the administration. And there's 139 00:06:52,440 --> 00:06:55,240 Speaker 4: always talk about something new, right We're hearing talks about 140 00:06:55,839 --> 00:06:58,360 Speaker 4: checks being given because of the tariffs that have come 141 00:06:58,400 --> 00:07:01,280 Speaker 4: in and the elements that that are positive there, So 142 00:07:01,640 --> 00:07:05,000 Speaker 4: all sorts of things that I think could boost consumers 143 00:07:05,040 --> 00:07:07,720 Speaker 4: in the first quarter coming from the administration. And then 144 00:07:07,800 --> 00:07:09,600 Speaker 4: add on to some of the things you have like 145 00:07:09,640 --> 00:07:12,720 Speaker 4: the World's Cup coming, two hundred and fiftieth birthday party 146 00:07:12,720 --> 00:07:15,120 Speaker 4: for the nation, all of these things that will generate 147 00:07:15,480 --> 00:07:18,960 Speaker 4: more activities here in the US and generate more GDP. 148 00:07:19,400 --> 00:07:20,880 Speaker 1: So they're looking forward to the World Cup. 149 00:07:20,920 --> 00:07:23,520 Speaker 3: But when it comes to things like tax refunds, do 150 00:07:23,520 --> 00:07:26,000 Speaker 3: you think consumers because they know what's coming, do you 151 00:07:26,000 --> 00:07:28,280 Speaker 3: think consumers are already out there spending that money right now? 152 00:07:28,320 --> 00:07:30,840 Speaker 3: On the holiday season, They. 153 00:07:30,760 --> 00:07:33,560 Speaker 4: Might be in anticipation of that, so it could be 154 00:07:33,920 --> 00:07:35,800 Speaker 4: less of effect. It kind of goes to that point 155 00:07:35,800 --> 00:07:38,400 Speaker 4: that we're saying, where you come into the year with 156 00:07:38,520 --> 00:07:41,320 Speaker 4: a lot of those growth elements already built in for 157 00:07:41,400 --> 00:07:43,360 Speaker 4: your optimism for what you think is going to happen 158 00:07:43,360 --> 00:07:45,600 Speaker 4: in the market, and when it comes to fruition, there's 159 00:07:45,640 --> 00:07:46,680 Speaker 4: not much of an effect. 160 00:07:46,960 --> 00:07:47,960 Speaker 5: That could be part of it. 161 00:07:48,000 --> 00:07:50,240 Speaker 4: They could be spending that now, but it seems like 162 00:07:50,400 --> 00:07:53,800 Speaker 4: lower income consumers really are holding on right now. You're 163 00:07:53,840 --> 00:07:57,239 Speaker 4: not seeing savings rates go down tremendously, which is telling 164 00:07:57,320 --> 00:07:59,880 Speaker 4: us that it's the high income consumer that's really spent. 165 00:08:00,520 --> 00:08:01,800 Speaker 5: Low income consumers are. 166 00:08:01,720 --> 00:08:04,320 Speaker 4: Not dipping in to those savings just yet, and year 167 00:08:04,360 --> 00:08:08,360 Speaker 4: over year holiday spending for that cohort is actually negative, 168 00:08:08,600 --> 00:08:11,360 Speaker 4: So I think they're holding back a little bit, waiting 169 00:08:11,400 --> 00:08:13,840 Speaker 4: to see what happens, and a little bit of extra 170 00:08:13,920 --> 00:08:17,000 Speaker 4: cash coming in next quarter could be a benefit for them. 171 00:08:17,080 --> 00:08:19,600 Speaker 6: Well, high income consumers are spending in part because of 172 00:08:19,640 --> 00:08:22,000 Speaker 6: the wealth effect, and Marie has told us several times 173 00:08:22,000 --> 00:08:24,160 Speaker 6: about how the S and P five hundred closed at 174 00:08:24,160 --> 00:08:25,520 Speaker 6: a record high for a thirty. 175 00:08:25,400 --> 00:08:27,200 Speaker 1: Ninth time on Wednesday. 176 00:08:27,680 --> 00:08:30,520 Speaker 6: If there's a sudden market pullback, if we see those 177 00:08:30,720 --> 00:08:33,559 Speaker 6: gains unravel, how quickly could we see the wealth effect 178 00:08:33,760 --> 00:08:34,600 Speaker 6: work in reverse. 179 00:08:35,960 --> 00:08:39,840 Speaker 4: Yeah, I think that's actually something we really need to watch, Scarlett. 180 00:08:39,920 --> 00:08:43,800 Speaker 4: So you're right, lower income consumers spend based on what 181 00:08:43,840 --> 00:08:46,600 Speaker 4: they're making, right, what their salaries are, and what the 182 00:08:46,679 --> 00:08:49,679 Speaker 4: job market looks like. High income consumers do spend based 183 00:08:49,679 --> 00:08:51,559 Speaker 4: on wealth effects. So as long as the market. 184 00:08:51,360 --> 00:08:53,240 Speaker 5: Is doing well, they're going to spend. 185 00:08:53,559 --> 00:08:56,760 Speaker 4: If we see that pullback, if we see the volatility 186 00:08:56,800 --> 00:08:58,960 Speaker 4: that we think we'll see in twenty twenty six, you 187 00:08:59,000 --> 00:09:01,640 Speaker 4: should see the high come consumer pull back a little bit. 188 00:09:01,760 --> 00:09:05,160 Speaker 4: They won't stop spending completely because they still have the 189 00:09:05,280 --> 00:09:08,680 Speaker 4: job component there, but as they see housing prices maybe 190 00:09:08,679 --> 00:09:10,199 Speaker 4: start to come back a little bit, as they see 191 00:09:10,240 --> 00:09:13,160 Speaker 4: the market pull back a little bit, their spending will 192 00:09:13,200 --> 00:09:14,600 Speaker 4: start to shift slightly. 193 00:09:14,640 --> 00:09:16,040 Speaker 5: I think that means you have to be a little 194 00:09:16,040 --> 00:09:16,520 Speaker 5: bit more. 195 00:09:16,400 --> 00:09:21,880 Speaker 4: Cautious on those more expensive retail companies that are out there. 196 00:09:22,080 --> 00:09:25,520 Speaker 4: Those high income retail companies will probably suffer a little 197 00:09:25,520 --> 00:09:28,040 Speaker 4: bit if that happens, so there'll be a much lower 198 00:09:28,120 --> 00:09:29,559 Speaker 4: level of spending that will occur. 199 00:09:29,679 --> 00:09:31,600 Speaker 3: Soterory, let's just send on the big debate going into 200 00:09:31,600 --> 00:09:34,000 Speaker 3: next year in financial markets, in terms of the fed's 201 00:09:34,120 --> 00:09:37,000 Speaker 3: next mute move, what are you pricing in for twenty 202 00:09:37,120 --> 00:09:37,679 Speaker 3: twenty six. 203 00:09:38,640 --> 00:09:41,680 Speaker 4: Yeah, we're really only pricing in one cut for twenty 204 00:09:41,720 --> 00:09:44,959 Speaker 4: twenty six. We think they'll hold in January just because 205 00:09:45,000 --> 00:09:47,439 Speaker 4: there's still a lot of unknowns going on. We did 206 00:09:47,480 --> 00:09:50,000 Speaker 4: have a strong GDP number, but they do have a 207 00:09:50,040 --> 00:09:53,760 Speaker 4: whole month of January to wait. They'll get more inflation numbers, 208 00:09:53,800 --> 00:09:54,960 Speaker 4: they'll get more job numbers. 209 00:09:54,960 --> 00:09:55,840 Speaker 5: We'll see what happens. 210 00:09:56,000 --> 00:09:59,040 Speaker 4: But the debate here, I really think is where is 211 00:09:59,160 --> 00:10:01,640 Speaker 4: neutral and how accommodative are. 212 00:10:01,520 --> 00:10:04,680 Speaker 5: We right now? I think that's the underlying battle that's 213 00:10:04,720 --> 00:10:05,120 Speaker 5: going on. 214 00:10:05,240 --> 00:10:08,080 Speaker 4: It's a FED and how accommodative do they want to 215 00:10:08,120 --> 00:10:11,280 Speaker 4: be in order to not stoke kind of the flames 216 00:10:11,280 --> 00:10:13,960 Speaker 4: of inflation. That'll be the battle we continue to see. 217 00:10:14,000 --> 00:10:16,840 Speaker 4: We think we're probably closer to neutral than what many 218 00:10:16,960 --> 00:10:20,400 Speaker 4: people think, which means they'll be fewer rate cuts going forward. 219 00:10:22,280 --> 00:10:25,720 Speaker 2: Stay with US Multilemberg. Savannah's coming up off to this. 220 00:10:35,080 --> 00:10:38,000 Speaker 3: Here's the latest US consumer confidence dropping for a fifth 221 00:10:38,040 --> 00:10:40,880 Speaker 3: consecutive month in December, according to fresh data from the 222 00:10:40,880 --> 00:10:44,200 Speaker 3: Conference Board. Aaron McLaughlin of the Conference board writing expect 223 00:10:44,240 --> 00:10:47,040 Speaker 3: real GDP growth to weaken amid a fragile balance of 224 00:10:47,080 --> 00:10:50,920 Speaker 3: resilient labor markets and softening consumer demand due to tariff 225 00:10:51,000 --> 00:10:54,080 Speaker 3: induced inflation. Aaron joins us now erin thank you so 226 00:10:54,160 --> 00:10:56,240 Speaker 3: much for joining us, and hopefully you had a lovely holiday. 227 00:10:56,440 --> 00:10:59,559 Speaker 3: When it comes to the consumer and the latest readout, 228 00:11:00,040 --> 00:11:02,720 Speaker 3: I was struck by how more consumers are actually starting 229 00:11:02,800 --> 00:11:05,760 Speaker 3: to actually be also worried about keeping their job. 230 00:11:06,760 --> 00:11:10,880 Speaker 7: Yes, so we find that consumers really tighten up when 231 00:11:10,920 --> 00:11:16,400 Speaker 7: they don't have jobs, And so the concept of deteriorating 232 00:11:16,480 --> 00:11:22,920 Speaker 7: business conditions, the weight of tariffs, and inflation all definitely 233 00:11:23,240 --> 00:11:29,199 Speaker 7: influence consumer spending and consumer sentiment. But concepts around rising unemployment, 234 00:11:29,240 --> 00:11:31,400 Speaker 7: we've seen it tick up now to four point six 235 00:11:31,960 --> 00:11:34,640 Speaker 7: in the concepts there are less jobs out there, jobs 236 00:11:34,640 --> 00:11:38,280 Speaker 7: are not as plentiful, will really weigh on the consumer. 237 00:11:38,360 --> 00:11:39,760 Speaker 1: In twenty twenty six. 238 00:11:39,960 --> 00:11:42,880 Speaker 6: We know that government shutdown did not help matters. It 239 00:11:42,920 --> 00:11:45,560 Speaker 6: made people feel more nervous, and it certainly created a 240 00:11:45,559 --> 00:11:48,640 Speaker 6: lot of uncertainty. And I know it's over, but I 241 00:11:48,720 --> 00:11:51,920 Speaker 6: bring this up because we could face another government shutdown 242 00:11:51,960 --> 00:11:53,240 Speaker 6: in January as well. 243 00:11:53,360 --> 00:11:55,320 Speaker 1: So how do we fold in. 244 00:11:55,360 --> 00:11:58,199 Speaker 6: The government shutdown and what that does to consumer sentiment 245 00:11:58,360 --> 00:12:01,439 Speaker 6: even as it's become a more freaking occurrence. 246 00:12:03,080 --> 00:12:05,280 Speaker 7: Well, that was the longest shutdown we've had in modern 247 00:12:05,360 --> 00:12:08,480 Speaker 7: history that we just had. It certainly impacted economists, it 248 00:12:08,600 --> 00:12:14,680 Speaker 7: impacted consumers, especially this year. Consumers are just facing it's 249 00:12:14,720 --> 00:12:22,080 Speaker 7: sort of constant news about politics, geopolitics, tariffs, inflation, and 250 00:12:22,120 --> 00:12:26,160 Speaker 7: that constant news impacts them, and so another government shutdown 251 00:12:26,200 --> 00:12:29,600 Speaker 7: will certainly also impact them, even if they don't feel 252 00:12:29,600 --> 00:12:32,960 Speaker 7: the immediate effects of a shutdown. And sort of the 253 00:12:33,000 --> 00:12:36,160 Speaker 7: news today and the concept that there could be rising 254 00:12:36,240 --> 00:12:40,760 Speaker 7: oil prices in oil and gasoline excluding fuel oil for 255 00:12:40,880 --> 00:12:46,640 Speaker 7: homes has been pretty low as on the inflation spectrum, 256 00:12:46,679 --> 00:12:50,440 Speaker 7: but even news like we're hearing today, if prices go up, 257 00:12:50,640 --> 00:12:52,360 Speaker 7: how does that impact consumers? 258 00:12:53,240 --> 00:12:55,160 Speaker 6: The administration has been out there trying to paint a 259 00:12:55,160 --> 00:12:58,439 Speaker 6: picture of a robust economy. Howard Lutnik, the Commerce Secretary, 260 00:12:58,520 --> 00:13:01,600 Speaker 6: went on to talk about the third quarter of growing 261 00:13:01,600 --> 00:13:03,800 Speaker 6: more than four percent and how that was a sign 262 00:13:03,960 --> 00:13:07,680 Speaker 6: that things were better. He also mistakenly equated that with 263 00:13:07,760 --> 00:13:12,120 Speaker 6: an increase in people's pay as well. How is that contradiction, 264 00:13:12,160 --> 00:13:14,880 Speaker 6: that seeming contradiction of data that shows the economies holding well, 265 00:13:15,040 --> 00:13:19,520 Speaker 6: holding up well, balancing with this sense from consumers that 266 00:13:19,559 --> 00:13:22,319 Speaker 6: things are not getting better necessarily, especially on the job front. 267 00:13:23,360 --> 00:13:26,440 Speaker 7: Well, consumers are not paying attention to GDP the way 268 00:13:26,440 --> 00:13:30,480 Speaker 7: that we are in the way that economists and business 269 00:13:30,520 --> 00:13:34,040 Speaker 7: and financial markets are necessarily paying attention to these readings. 270 00:13:34,240 --> 00:13:37,920 Speaker 7: What they really feel is the effects of prices for 271 00:13:38,000 --> 00:13:41,400 Speaker 7: things that they buy every week, every day, every month. 272 00:13:41,679 --> 00:13:45,200 Speaker 7: And so those things include coffee, which has gone up 273 00:13:45,240 --> 00:13:49,320 Speaker 7: in price twenty to forty percent, Beef and other proteins 274 00:13:49,360 --> 00:13:51,959 Speaker 7: at the grocery store have gone up, and some big 275 00:13:52,080 --> 00:13:55,720 Speaker 7: structural costs have really not come down, the cost of 276 00:13:55,760 --> 00:13:59,880 Speaker 7: housing and in particular insurance, and the price of a more, 277 00:14:00,280 --> 00:14:02,800 Speaker 7: while it has come down a little bit, is nowhere 278 00:14:02,840 --> 00:14:07,440 Speaker 7: near as low as it was pre pandemic. And so 279 00:14:07,559 --> 00:14:10,880 Speaker 7: when you see some of these really big price structural 280 00:14:10,960 --> 00:14:14,199 Speaker 7: changes happen, that also weighs on consumer sentiment. 281 00:14:14,600 --> 00:14:18,360 Speaker 3: What about when you look at trade induced inflation? 282 00:14:18,800 --> 00:14:20,600 Speaker 1: What are you looking at for next year? Given the 283 00:14:20,600 --> 00:14:21,200 Speaker 1: fact that. 284 00:14:21,200 --> 00:14:27,120 Speaker 3: This administration will be renegotiating USMCA. 285 00:14:25,240 --> 00:14:30,640 Speaker 7: We really think that federal policy, particularly around trade and tariffs, 286 00:14:30,680 --> 00:14:33,680 Speaker 7: is going to have a huge impact on consumers next year. 287 00:14:34,400 --> 00:14:39,160 Speaker 7: Our three largest trading partners are Mexico, followed by China, 288 00:14:39,240 --> 00:14:43,320 Speaker 7: followed by Canada. Those three trading partners, our agreements with 289 00:14:43,360 --> 00:14:45,560 Speaker 7: them are not settled. You know. We sort of kick 290 00:14:45,600 --> 00:14:48,160 Speaker 7: the can down the road twelve months from China from 291 00:14:48,200 --> 00:14:51,640 Speaker 7: November of this past year to November of next year. 292 00:14:51,720 --> 00:14:55,760 Speaker 7: And then the USMCA, which is essentially NATA version two, 293 00:14:56,120 --> 00:15:00,760 Speaker 7: will enter a version three phase as it can be negotiated, 294 00:15:00,920 --> 00:15:03,760 Speaker 7: and that deadline is in July. And there is so 295 00:15:04,040 --> 00:15:07,480 Speaker 7: much that we just trade between our three largest trading 296 00:15:07,520 --> 00:15:11,520 Speaker 7: partners that there is really the potential for a lot 297 00:15:11,720 --> 00:15:16,120 Speaker 7: higher inflation and price pressures on consumers for some items 298 00:15:16,120 --> 00:15:21,480 Speaker 7: that we get that again, are include non discretionary as 299 00:15:21,520 --> 00:15:23,560 Speaker 7: well as discretionary items like food. 300 00:15:24,320 --> 00:15:26,440 Speaker 2: Stay with US mult Bloomberg surveillance. 301 00:15:26,520 --> 00:15:38,960 Speaker 3: Coming up after this, Ukrainian President Vladimir Lensky saying he 302 00:15:38,960 --> 00:15:39,480 Speaker 3: plans to. 303 00:15:39,520 --> 00:15:41,200 Speaker 1: Meet with Trump in the coming days. 304 00:15:41,440 --> 00:15:44,560 Speaker 3: Zlensky signaling a lot could be decided before the new year. 305 00:15:44,640 --> 00:15:46,800 Speaker 1: After a Christmas Day sit down with. 306 00:15:46,960 --> 00:15:50,320 Speaker 3: US envoys Steve Wikoff and Jared Kushner, Ed Mills of 307 00:15:50,400 --> 00:15:54,040 Speaker 3: Raymond James joins US. Now, so, ed, you do have 308 00:15:54,200 --> 00:15:56,920 Speaker 3: Zelenski looking like he's going to be going over to Florida, 309 00:15:56,960 --> 00:15:58,960 Speaker 3: mar A Laga, where the President will be for the 310 00:15:59,000 --> 00:16:02,680 Speaker 3: remainder of the Smith New Year holiday. Do you think 311 00:16:02,720 --> 00:16:06,760 Speaker 3: potentially we could get a deal before twenty twenty six, a. 312 00:16:06,760 --> 00:16:07,760 Speaker 8: Marie, It's possible. 313 00:16:07,840 --> 00:16:11,120 Speaker 9: I think that there is probably more to work out 314 00:16:11,160 --> 00:16:14,680 Speaker 9: on the Russian side. I think Zelenski is trying to 315 00:16:14,840 --> 00:16:19,160 Speaker 9: find what he can get with the American contingent here 316 00:16:19,200 --> 00:16:21,760 Speaker 9: because I think he wants to put pressure on Putin 317 00:16:22,280 --> 00:16:25,760 Speaker 9: right now. The twenty point plan that Zelensky and the 318 00:16:25,800 --> 00:16:31,040 Speaker 9: Americans have agreed to is probably unacceptable to Putin. This 319 00:16:31,120 --> 00:16:33,160 Speaker 9: here is trying to reverse some of the pressure that 320 00:16:33,240 --> 00:16:36,840 Speaker 9: has come onto him in the recent months, especially that 321 00:16:37,000 --> 00:16:40,800 Speaker 9: kind of pre Thanksgiving deadline that the Trump administration had 322 00:16:40,800 --> 00:16:43,640 Speaker 9: put on him. So I'd say there's going to be progress, 323 00:16:44,080 --> 00:16:47,920 Speaker 9: But I don't think people are really expecting that what 324 00:16:48,520 --> 00:16:52,080 Speaker 9: Zelensky and Trump workout will be acceptable to Putin, at 325 00:16:52,160 --> 00:16:54,320 Speaker 9: least in the near term. We probably need at least 326 00:16:54,320 --> 00:16:56,360 Speaker 9: one more round of this before things get settled. 327 00:16:56,400 --> 00:16:59,320 Speaker 3: Well, as you we're speaking, Dimitri Peskov is speaking right now, 328 00:16:59,360 --> 00:17:01,960 Speaker 3: and he's saying Russia has analyzed the information on the 329 00:17:01,960 --> 00:17:05,320 Speaker 3: peace plans, according to the TAST news agency, or you 330 00:17:05,400 --> 00:17:09,160 Speaker 3: shake off. They're saying that contacted US representatives. He's been 331 00:17:09,400 --> 00:17:12,399 Speaker 3: one of the main negotiations. Senior Russian diplomat at the 332 00:17:12,480 --> 00:17:15,560 Speaker 3: table and the Kremlin saying it is contact the US 333 00:17:15,720 --> 00:17:18,800 Speaker 3: on Ukraine peace plan. Do you think Putin is just 334 00:17:18,800 --> 00:17:22,280 Speaker 3: playing for time or do you think they are serious 335 00:17:22,600 --> 00:17:24,080 Speaker 3: about getting to an agreement. 336 00:17:25,200 --> 00:17:27,280 Speaker 9: I think that they are open to an agreement. I 337 00:17:27,280 --> 00:17:30,280 Speaker 9: think that they are really going to be looking at 338 00:17:30,280 --> 00:17:32,480 Speaker 9: these territorial concessions. 339 00:17:32,840 --> 00:17:34,520 Speaker 8: And I think this is really what it comes down to. 340 00:17:34,440 --> 00:17:38,399 Speaker 9: Emory, because what is the future of the Dumbos region. 341 00:17:38,840 --> 00:17:42,880 Speaker 9: How much does Ukraine have to fully kind of acknowledge 342 00:17:42,920 --> 00:17:46,560 Speaker 9: that Russia has kind of certain parts of this territory. 343 00:17:46,680 --> 00:17:49,119 Speaker 9: How much of it is a de militarized zone. How 344 00:17:49,200 --> 00:17:52,040 Speaker 9: much does Ukraine get to control this, How much does 345 00:17:52,880 --> 00:17:53,960 Speaker 9: Russia get to control this? 346 00:17:54,240 --> 00:17:55,800 Speaker 8: I think that's the critical issue. 347 00:17:56,200 --> 00:17:58,960 Speaker 9: The second issue is even if you kind of create 348 00:17:59,000 --> 00:18:01,800 Speaker 9: a de militari zone, what are the security guarantees. I 349 00:18:01,800 --> 00:18:04,600 Speaker 9: think that Zelensky and Ukraine are willing to give up 350 00:18:05,440 --> 00:18:08,919 Speaker 9: more of that territory, at least as a demilitary size 351 00:18:09,000 --> 00:18:10,800 Speaker 9: zone if they get. 352 00:18:10,600 --> 00:18:12,440 Speaker 8: Those kind of security guarantees. 353 00:18:12,760 --> 00:18:15,520 Speaker 9: But if there's not the security guarantees, they're not willing 354 00:18:15,520 --> 00:18:17,600 Speaker 9: to do that. And I do think that Putin is 355 00:18:17,640 --> 00:18:20,359 Speaker 9: not going to be okay with the security guarantees that 356 00:18:20,440 --> 00:18:23,200 Speaker 9: Zelensky wants, and are probably not going to be okay 357 00:18:23,200 --> 00:18:27,399 Speaker 9: with a demilitary zone. They want more territorial concessions, I 358 00:18:27,400 --> 00:18:29,639 Speaker 9: think than what the US and Ukraine are willing to 359 00:18:29,640 --> 00:18:30,320 Speaker 9: give at this point. 360 00:18:30,400 --> 00:18:33,000 Speaker 6: So these are all pretty familiar sticking points thinks that 361 00:18:33,040 --> 00:18:36,280 Speaker 6: have really locked both sides into their respective positions for 362 00:18:36,359 --> 00:18:39,840 Speaker 6: months now. And what about Europe Henry was mentioning earlier, 363 00:18:40,040 --> 00:18:41,960 Speaker 6: Europe is kind of missing in all of this. And 364 00:18:42,160 --> 00:18:46,360 Speaker 6: if Zelensky goes to mar Lago on Sunday, does your 365 00:18:46,440 --> 00:18:47,440 Speaker 6: play any role in this? 366 00:18:48,480 --> 00:18:48,840 Speaker 8: They could? 367 00:18:48,920 --> 00:18:51,000 Speaker 9: I think what we've seen, Scarlett is that Europe has 368 00:18:51,040 --> 00:18:54,080 Speaker 9: played a bit of a backstop. 369 00:18:53,680 --> 00:18:54,760 Speaker 8: To these negotiations. 370 00:18:54,800 --> 00:18:57,199 Speaker 9: If they seem as if they are going too far 371 00:18:57,840 --> 00:19:01,280 Speaker 9: towards Russia, if they are seen going kind of to 372 00:19:03,200 --> 00:19:07,720 Speaker 9: aggressive towards Ukraine, there are kind of key constituencies within 373 00:19:07,760 --> 00:19:10,320 Speaker 9: Europe that step up. I do think what we're going 374 00:19:10,359 --> 00:19:12,400 Speaker 9: to see if we do have a demilitarized zone. 375 00:19:12,760 --> 00:19:15,320 Speaker 8: How much do NATO or European forces. 376 00:19:15,640 --> 00:19:18,440 Speaker 9: I lean more towards European forces, so it's not seen 377 00:19:18,440 --> 00:19:22,240 Speaker 9: as a specific NATO operation could be part of that 378 00:19:22,320 --> 00:19:24,800 Speaker 9: security guarantee in that area. But they just want to 379 00:19:24,800 --> 00:19:26,920 Speaker 9: make sure that Ukraine is not on the wrong end 380 00:19:26,920 --> 00:19:29,560 Speaker 9: of any of these negotiations, so they stay out for now, 381 00:19:29,760 --> 00:19:31,879 Speaker 9: but if it goes in the wrong direction, they step 382 00:19:31,960 --> 00:19:34,359 Speaker 9: up that diplomatic pressure on the US envoy. 383 00:19:34,480 --> 00:19:37,560 Speaker 6: Okay, And of course we are anticipating a visit between 384 00:19:37,840 --> 00:19:42,120 Speaker 6: Zelenski and Trump in the coming days. According to Vladimir Zelenski, 385 00:19:42,240 --> 00:19:43,800 Speaker 6: I also want to get your take on what happened 386 00:19:43,840 --> 00:19:46,640 Speaker 6: over the holiday, which is the US launching Christmas Day 387 00:19:46,720 --> 00:19:51,040 Speaker 6: military strikes in Nigeria against the ISIS targets. And of 388 00:19:51,040 --> 00:19:53,800 Speaker 6: course we had known that in November the President threatened 389 00:19:54,000 --> 00:19:57,520 Speaker 6: possible military action if the government did not halt the 390 00:19:57,640 --> 00:19:58,800 Speaker 6: killing of Christians. 391 00:19:59,359 --> 00:20:00,159 Speaker 1: Talk a little bit. 392 00:20:00,040 --> 00:20:02,520 Speaker 6: About why now and whether this is a one time 393 00:20:02,640 --> 00:20:05,399 Speaker 6: action or this is the start of something more sustained. 394 00:20:06,280 --> 00:20:08,439 Speaker 9: Yeah, so President Trump has said this is at the 395 00:20:08,440 --> 00:20:11,719 Speaker 9: request of the government. He does view kind of the 396 00:20:11,760 --> 00:20:14,520 Speaker 9: defeat of ISIS during his first term as his signature 397 00:20:15,280 --> 00:20:19,760 Speaker 9: geopolitical kind of military achievement of that first term. To 398 00:20:19,800 --> 00:20:22,720 Speaker 9: the extent that he is going to have requests and 399 00:20:22,800 --> 00:20:25,280 Speaker 9: it is against ISIS, I don't think that there's anything 400 00:20:25,320 --> 00:20:29,399 Speaker 9: that he would hold back trying to go after that group. 401 00:20:29,920 --> 00:20:31,960 Speaker 9: So I do think at this point, I think you 402 00:20:31,960 --> 00:20:36,160 Speaker 9: would consider this as contained. But if there are other needs, 403 00:20:36,200 --> 00:20:40,119 Speaker 9: he's absolutely willing to do this. It is unusual to 404 00:20:40,160 --> 00:20:43,840 Speaker 9: have strikes under the Trump administration. He so far has 405 00:20:43,880 --> 00:20:46,760 Speaker 9: been fairly limited in how aggressive he wants to be 406 00:20:47,440 --> 00:20:50,639 Speaker 9: with some of that proactive military use. So that was 407 00:20:50,920 --> 00:20:53,879 Speaker 9: keep me more in that contained camp versus this is 408 00:20:53,920 --> 00:20:55,720 Speaker 9: the start of something news well. 409 00:20:55,720 --> 00:20:57,639 Speaker 3: At the same time, ed he did promise on the 410 00:20:57,640 --> 00:21:00,440 Speaker 3: campaign trail to not entangle the United States any more 411 00:21:00,480 --> 00:21:02,720 Speaker 3: foreign conflicts. Is this going to be a problem with 412 00:21:02,800 --> 00:21:05,359 Speaker 3: his base when it comes to the midterm elections. 413 00:21:06,040 --> 00:21:08,800 Speaker 9: I think as long as it's specific, it's targeted, I 414 00:21:08,880 --> 00:21:11,840 Speaker 9: think it is kind of couched in. We cannot let 415 00:21:11,920 --> 00:21:15,119 Speaker 9: isis kind of reconstitute or kind of get stronger in 416 00:21:15,240 --> 00:21:18,880 Speaker 9: any sort of fashion. Memory and also the fact that 417 00:21:19,160 --> 00:21:22,360 Speaker 9: he would probably kind of couch this in the targeting 418 00:21:22,400 --> 00:21:26,760 Speaker 9: of Christians, something that from a political perspective. 419 00:21:26,760 --> 00:21:29,120 Speaker 8: Is in a pretty decent standing. 420 00:21:29,480 --> 00:21:31,159 Speaker 9: That's why I did say that I think this is 421 00:21:31,200 --> 00:21:34,480 Speaker 9: probably more contained than a start of something new. Something 422 00:21:34,520 --> 00:21:37,600 Speaker 9: that he has done quite well with his base is 423 00:21:37,720 --> 00:21:41,200 Speaker 9: trying to maintain that contained military conflict, and he's kind 424 00:21:41,240 --> 00:21:43,040 Speaker 9: of ticked off more of the items that he has 425 00:21:43,080 --> 00:21:48,159 Speaker 9: negotiated peace between kind of Israel in kind of the 426 00:21:48,160 --> 00:21:51,440 Speaker 9: conflict in Gaza, other kind of areas where he's working 427 00:21:51,480 --> 00:21:54,920 Speaker 9: on with kind of Thailand, Cambodia. He has this whole 428 00:21:54,960 --> 00:21:58,440 Speaker 9: list of things that he has stopped globally. So containment 429 00:21:58,600 --> 00:22:01,399 Speaker 9: is the base case here. He also always wants to 430 00:22:01,400 --> 00:22:03,919 Speaker 9: project US strength and so he's not going to be 431 00:22:04,000 --> 00:22:06,040 Speaker 9: shy if he's requested and it is needed. 432 00:22:06,280 --> 00:22:08,960 Speaker 3: What's going on with you as strength in Venezuela. It's 433 00:22:08,960 --> 00:22:12,960 Speaker 3: been six days that the US continuously is trying to 434 00:22:13,000 --> 00:22:16,679 Speaker 3: pursue this sanctioned oil tanker that's linked to Venezuela. 435 00:22:16,760 --> 00:22:17,320 Speaker 1: Do you see the. 436 00:22:17,240 --> 00:22:21,280 Speaker 3: Administration just trying to control the sanctioned oil or do 437 00:22:21,320 --> 00:22:23,720 Speaker 3: you think this is part of a bigger regime change? 438 00:22:24,359 --> 00:22:25,160 Speaker 8: Yeah, am Marie. 439 00:22:25,200 --> 00:22:27,119 Speaker 9: What I've told clients at Raymond James is this is 440 00:22:27,280 --> 00:22:30,560 Speaker 9: part of a re establishment by the Trump administration of 441 00:22:30,600 --> 00:22:34,280 Speaker 9: the Monroe Doctrine. I do think that we are looking 442 00:22:34,320 --> 00:22:37,919 Speaker 9: at kind of North and South America as America's sphere 443 00:22:37,920 --> 00:22:40,119 Speaker 9: of influence. I also think this is a bit of 444 00:22:40,160 --> 00:22:42,840 Speaker 9: a shot across the bow and a warning sign to 445 00:22:42,960 --> 00:22:46,440 Speaker 9: Mexico and to the extent that the drug cartels are 446 00:22:46,480 --> 00:22:49,280 Speaker 9: the kind of underlying issue here. I think that this 447 00:22:49,359 --> 00:22:52,399 Speaker 9: is a warning to Mexico, where he has already labeled 448 00:22:52,400 --> 00:22:56,640 Speaker 9: the drug cartels in Mexico as terrorist organizations. If President 449 00:22:56,680 --> 00:23:00,120 Speaker 9: Scheinbam does not get that under control, he's willing to 450 00:23:00,119 --> 00:23:03,160 Speaker 9: take additional action. I think the big debate that I've 451 00:23:03,160 --> 00:23:05,080 Speaker 9: had with clients at Raymond James is that to the 452 00:23:05,080 --> 00:23:07,760 Speaker 9: extent that we are re establishing our sphere of influence, 453 00:23:08,200 --> 00:23:10,439 Speaker 9: is that going to make it harder for us to 454 00:23:10,480 --> 00:23:14,000 Speaker 9: push back as Putin wants that more territorial concern and 455 00:23:14,080 --> 00:23:16,880 Speaker 9: what his former sphere of influence is, Is it going 456 00:23:16,920 --> 00:23:19,080 Speaker 9: to be harder to push back against she if he 457 00:23:19,119 --> 00:23:22,840 Speaker 9: gets more aggressive against Taiwan. So a near term that's 458 00:23:22,880 --> 00:23:25,600 Speaker 9: a projection of strength by this administration, but it could 459 00:23:25,600 --> 00:23:29,000 Speaker 9: have significant unintended consequences on the geopolitical stage. 460 00:23:30,040 --> 00:23:33,520 Speaker 2: Stay with US Multblemberg. Savannah's coming up off. 461 00:23:33,280 --> 00:23:33,560 Speaker 9: To this. 462 00:23:42,520 --> 00:23:45,520 Speaker 3: Stocks pulling back just ever so slightly after natching fresh 463 00:23:45,560 --> 00:23:48,360 Speaker 3: records highs as the Santa Claus rally really sets in. 464 00:23:48,600 --> 00:23:51,640 Speaker 3: George Kunkalvas of MUFG, looking ahead to twenty twenty six, 465 00:23:51,720 --> 00:23:54,840 Speaker 3: runing quote a growth set of risks that will require 466 00:23:54,960 --> 00:23:59,879 Speaker 3: careful navigation, particularly around concentrated risk market valuations and we 467 00:24:00,240 --> 00:24:01,000 Speaker 3: labor markets. 468 00:24:01,359 --> 00:24:02,199 Speaker 1: George joins us. 469 00:24:02,200 --> 00:24:04,840 Speaker 3: Now, George, thank you so much for joining us. So 470 00:24:04,920 --> 00:24:06,800 Speaker 3: you don't sound so merry this morning when you. 471 00:24:06,720 --> 00:24:08,200 Speaker 1: Look ahead to twenty twenty six. 472 00:24:08,480 --> 00:24:10,679 Speaker 3: What are potentially how you're looking at in terms of 473 00:24:10,800 --> 00:24:11,720 Speaker 3: risk and rewards. 474 00:24:12,280 --> 00:24:15,280 Speaker 10: Yeah, the twenty twenty five obviously was a year full 475 00:24:15,280 --> 00:24:19,000 Speaker 10: of disruptions, ended with markets near the highs as you're 476 00:24:19,000 --> 00:24:23,439 Speaker 10: describing it, volatility declining, all that seems like you know 477 00:24:23,480 --> 00:24:26,320 Speaker 10: it could continue. But those sort of setups were the 478 00:24:26,359 --> 00:24:28,720 Speaker 10: ones that are the most precarious given the sort of 479 00:24:28,760 --> 00:24:31,479 Speaker 10: backdrop you're talking about. The geopolitical at the beginning, we 480 00:24:31,520 --> 00:24:33,600 Speaker 10: are really focused and have been focused on the labor market, 481 00:24:33,920 --> 00:24:36,160 Speaker 10: and we need to have this economy of broaden out 482 00:24:36,160 --> 00:24:39,760 Speaker 10: and not just be really concentrated both in income distributions, 483 00:24:39,800 --> 00:24:42,240 Speaker 10: but also in the tech sector, we need a broadening 484 00:24:42,280 --> 00:24:44,080 Speaker 10: out of the economy to really change our view. 485 00:24:44,440 --> 00:24:46,159 Speaker 1: Do you think we will see your broadening out? And 486 00:24:46,200 --> 00:24:47,520 Speaker 1: if so, how do you time this? 487 00:24:49,000 --> 00:24:51,280 Speaker 10: Yeah, it's likely. Some of the key kind of indicators 488 00:24:51,280 --> 00:24:54,240 Speaker 10: to watch out for, is you real small businesses really 489 00:24:54,320 --> 00:24:56,160 Speaker 10: start to pick up the hiring pace. Is that something 490 00:24:56,160 --> 00:24:58,920 Speaker 10: that we can kind of keep a real time assessment 491 00:24:58,960 --> 00:25:00,560 Speaker 10: as we go through the course of the beginning of 492 00:25:00,600 --> 00:25:03,000 Speaker 10: the year. You know, we are concerned about the potential 493 00:25:03,040 --> 00:25:05,440 Speaker 10: head faith at the beginning of the year. Probably we'll 494 00:25:05,440 --> 00:25:08,200 Speaker 10: see benefits from the fiscal policy that was put in 495 00:25:08,240 --> 00:25:10,480 Speaker 10: place with a big, beautiful bill, But then will that 496 00:25:10,600 --> 00:25:12,080 Speaker 10: be sustainable into the second half of the year. 497 00:25:12,119 --> 00:25:13,119 Speaker 8: That's really the big question. 498 00:25:13,600 --> 00:25:16,199 Speaker 6: Yeah, I've seen several notes, including yours George, mentioning the 499 00:25:16,240 --> 00:25:19,560 Speaker 6: World Cup as a catalyst for first half growth GDP 500 00:25:19,600 --> 00:25:24,000 Speaker 6: in particular. Would that would certainly help specific hosting cities, 501 00:25:24,040 --> 00:25:26,840 Speaker 6: but how meaningful would that impact be an aggregate? 502 00:25:28,080 --> 00:25:30,360 Speaker 10: Look at me. Look, it's hard to kind of quantify specifically, 503 00:25:30,680 --> 00:25:33,520 Speaker 10: but look, next year, you have the hallmarks of potentially 504 00:25:33,920 --> 00:25:36,320 Speaker 10: pretty exciting year. You have the World Cup, you have 505 00:25:36,359 --> 00:25:38,400 Speaker 10: the US is two hundred and fifty, the anniversary. I'm 506 00:25:38,440 --> 00:25:41,440 Speaker 10: sure that between up until these fourth of July, I 507 00:25:41,440 --> 00:25:43,639 Speaker 10: think that the is going to be kind of a 508 00:25:43,680 --> 00:25:47,320 Speaker 10: buoyant sort of spending pattern amongst US consumers. The question 509 00:25:47,480 --> 00:25:50,880 Speaker 10: is like, is it concentrated, will kind of even out 510 00:25:50,880 --> 00:25:52,159 Speaker 10: over the year, And I think those are the big 511 00:25:52,240 --> 00:25:53,280 Speaker 10: questions to kind of think of that. 512 00:25:53,640 --> 00:25:55,560 Speaker 6: You also have the midterm elections, and we know that 513 00:25:55,640 --> 00:25:58,360 Speaker 6: midtrum election years tend to be high growth years. As 514 00:25:58,400 --> 00:26:01,480 Speaker 6: with everything else, investors do tend to price in the 515 00:26:01,520 --> 00:26:04,000 Speaker 6: benefits before they actually filter through the economy. 516 00:26:04,280 --> 00:26:06,080 Speaker 1: Where is this going to be most apparent? 517 00:26:06,160 --> 00:26:08,639 Speaker 6: Is it going to be in equities, in treasuries and 518 00:26:08,680 --> 00:26:10,000 Speaker 6: the dollar in commodities. 519 00:26:11,600 --> 00:26:13,800 Speaker 10: Look, I mean this is interesting because a lot of 520 00:26:13,800 --> 00:26:16,440 Speaker 10: these sort of views I think are largely probably sent 521 00:26:16,480 --> 00:26:19,920 Speaker 10: to your point. I mean, the dollar was week this year, 522 00:26:19,960 --> 00:26:21,720 Speaker 10: but most of the weakness came at the beginning of 523 00:26:21,720 --> 00:26:24,679 Speaker 10: the year, and we've been basically going sideways. You know, 524 00:26:24,720 --> 00:26:27,359 Speaker 10: the movement in precious metals has been off the charts. 525 00:26:27,640 --> 00:26:30,240 Speaker 10: Stocks continue to grind higher. Now, if a lot of 526 00:26:30,240 --> 00:26:33,480 Speaker 10: that was capturing the news of both that pivoting towards 527 00:26:33,480 --> 00:26:35,600 Speaker 10: more easier policy a lot of that's kind of baked 528 00:26:35,640 --> 00:26:37,439 Speaker 10: in the cake, and so the question is what's the 529 00:26:37,480 --> 00:26:39,639 Speaker 10: follow through. I think that it's going to be hard 530 00:26:39,680 --> 00:26:40,920 Speaker 10: to meet some of these expectations. 531 00:26:41,280 --> 00:26:43,080 Speaker 1: Last time you were on, it was an early in November. 532 00:26:43,119 --> 00:26:44,520 Speaker 3: You were on with John and Lisa, and you were 533 00:26:44,560 --> 00:26:48,280 Speaker 3: talking about the market internally starting to look exhausted and 534 00:26:48,400 --> 00:26:51,400 Speaker 3: ripe at least for correction. But here we are December 535 00:26:51,400 --> 00:26:54,480 Speaker 3: twenty sixth, and we had on Wednesday before Christmas a 536 00:26:54,520 --> 00:26:58,280 Speaker 3: thirty ninth record high. When it comes to equities, do 537 00:26:58,320 --> 00:27:03,119 Speaker 3: you think we could see a meaningful can recalibration inequities 538 00:27:03,119 --> 00:27:04,080 Speaker 3: in twenty twenty. 539 00:27:03,840 --> 00:27:06,879 Speaker 8: Six looks so in between. 540 00:27:06,880 --> 00:27:09,480 Speaker 10: Nothing's linear, and we did have a minor correction or 541 00:27:09,520 --> 00:27:13,760 Speaker 10: a minor pullback I should say, in November before Thanksgiving, 542 00:27:13,800 --> 00:27:15,720 Speaker 10: and then since then it's been off to the races, 543 00:27:16,240 --> 00:27:19,000 Speaker 10: very typical the end of the year type rally. Also 544 00:27:19,119 --> 00:27:21,760 Speaker 10: very typical of a low VALL environment. We have had 545 00:27:22,359 --> 00:27:25,320 Speaker 10: the VIX very low rate volatiley declining. All of this 546 00:27:25,359 --> 00:27:28,680 Speaker 10: is kind of engendered further is taking. We do think 547 00:27:28,720 --> 00:27:30,520 Speaker 10: that you know, there's going to be a meaningful correction 548 00:27:30,600 --> 00:27:32,560 Speaker 10: at some point over the course of twenty twenty six. 549 00:27:32,960 --> 00:27:35,040 Speaker 3: When it comes to how you're thinking about the Federal Reserve, 550 00:27:35,080 --> 00:27:36,560 Speaker 3: you say, a lot of this is baked in. When 551 00:27:36,600 --> 00:27:38,760 Speaker 3: you say baked in, do you mean one more ray 552 00:27:38,800 --> 00:27:40,240 Speaker 3: cut or two more ray cuts? 553 00:27:41,800 --> 00:27:45,200 Speaker 10: Look, so the market has about one and a half 554 00:27:45,280 --> 00:27:48,080 Speaker 10: two cuts basically in the back of their mind priced 555 00:27:48,080 --> 00:27:49,280 Speaker 10: into the forward curve. 556 00:27:49,760 --> 00:27:52,520 Speaker 8: It's actually visible, you know. We think it's all about 557 00:27:52,520 --> 00:27:53,080 Speaker 8: the sequencing. 558 00:27:53,119 --> 00:27:56,399 Speaker 10: It depends on what takes place, who's pulling, you know, 559 00:27:56,480 --> 00:27:59,520 Speaker 10: the actual rate cuts forward, you know, is going to 560 00:27:59,520 --> 00:28:02,600 Speaker 10: be under our pals, you know, kind of last few meetings, 561 00:28:02,720 --> 00:28:05,159 Speaker 10: we think, you know, maybe one more cut under the 562 00:28:05,160 --> 00:28:07,679 Speaker 10: current sort of FED, and then in the future we 563 00:28:07,680 --> 00:28:10,080 Speaker 10: don't know. There's been a lot of questions about FED independence, 564 00:28:10,119 --> 00:28:13,080 Speaker 10: and we'll FED cut for the right reasons or for 565 00:28:13,160 --> 00:28:15,840 Speaker 10: other motives. Either way. We think that the Fed's probably 566 00:28:15,840 --> 00:28:18,439 Speaker 10: cut further than what's priced into the market. But if 567 00:28:18,440 --> 00:28:20,280 Speaker 10: they cut from more than more than two times, I 568 00:28:20,280 --> 00:28:22,840 Speaker 10: think something has change in the macro sense. So if 569 00:28:22,880 --> 00:28:25,320 Speaker 10: the Fed's cutting more than twice next year, something's kind 570 00:28:25,320 --> 00:28:27,520 Speaker 10: of weakened in the economy. That justifies it. 571 00:28:27,760 --> 00:28:29,920 Speaker 6: Yeah, your view is that the FED will cut rates 572 00:28:30,080 --> 00:28:32,520 Speaker 6: three to four times in twenty twenty six, and of 573 00:28:32,560 --> 00:28:35,159 Speaker 6: course it is expectations of lower rates that's helping to 574 00:28:35,320 --> 00:28:38,640 Speaker 6: support those commodity prices, gold and silver prices in particular. 575 00:28:38,960 --> 00:28:42,080 Speaker 6: What is different George about gold run this time versus 576 00:28:42,120 --> 00:28:44,840 Speaker 6: say in October when it peaked at about forty three 577 00:28:44,880 --> 00:28:47,160 Speaker 6: eighty one and a lot of people saw that run 578 00:28:47,240 --> 00:28:48,120 Speaker 6: up as overheated. 579 00:28:48,760 --> 00:28:51,640 Speaker 10: Well, I think the whole year of precious level move 580 00:28:52,920 --> 00:28:56,920 Speaker 10: is something that is very telling of a both you know, 581 00:28:56,960 --> 00:28:59,640 Speaker 10: there's a view around the commodity needs for sort of 582 00:28:59,680 --> 00:29:03,000 Speaker 10: the new technology in the new economy that's evolving, but 583 00:29:03,040 --> 00:29:06,520 Speaker 10: I think it's also a referendum on sort of thet policy. 584 00:29:06,720 --> 00:29:09,600 Speaker 10: The Fed did go from basically not wanting to cut, 585 00:29:09,640 --> 00:29:14,200 Speaker 10: pivoting towards cutting stopping QT, and then introducing a version 586 00:29:14,200 --> 00:29:16,680 Speaker 10: of not QI the reserve management, which is going to 587 00:29:16,680 --> 00:29:18,360 Speaker 10: add a lot of liquidity into the banking system. So 588 00:29:18,400 --> 00:29:20,959 Speaker 10: I think that the precious metals is definitely picked up 589 00:29:20,960 --> 00:29:22,560 Speaker 10: on that way earlier than other markets. 590 00:29:22,760 --> 00:29:24,680 Speaker 6: Yeah, you can also argue the precious metals are part 591 00:29:24,720 --> 00:29:27,800 Speaker 6: of that debasement trade too, where people are straying away 592 00:29:27,880 --> 00:29:31,520 Speaker 6: from the dollar and treasuries and moving to precious metals. 593 00:29:31,560 --> 00:29:34,400 Speaker 6: And indeed bitcoin as well, although we haven't seen crypto 594 00:29:34,520 --> 00:29:38,960 Speaker 6: really participate in this leg of the rise in gold 595 00:29:39,040 --> 00:29:42,360 Speaker 6: and silver. How do you fit bitcoin and what's happening 596 00:29:42,400 --> 00:29:46,480 Speaker 6: in that speculative part of the market int your overall thinking, So. 597 00:29:46,520 --> 00:29:49,680 Speaker 10: Yeah, obviously I look at crypto or these sort of 598 00:29:49,760 --> 00:29:52,360 Speaker 10: alternative assets more from the lens of the macro. What 599 00:29:52,400 --> 00:29:55,520 Speaker 10: it's telling us about liquidity more in general, and the 600 00:29:55,560 --> 00:29:58,840 Speaker 10: preferences amongst liquidity, the fact that it's going into kind 601 00:29:58,840 --> 00:30:02,000 Speaker 10: of harder you know, more of the older sort of 602 00:30:02,000 --> 00:30:05,600 Speaker 10: precious metals versus the new age version of digital goal. 603 00:30:06,320 --> 00:30:08,000 Speaker 10: I think it's telling you something that there's a preference 604 00:30:08,000 --> 00:30:11,840 Speaker 10: to more safety versus what is still prove unproving sort 605 00:30:11,840 --> 00:30:13,880 Speaker 10: of technology, and how long it's going to last, and 606 00:30:13,960 --> 00:30:16,560 Speaker 10: what's the true valuation of bitcoin. It's not something that's 607 00:30:16,600 --> 00:30:18,560 Speaker 10: in my wheelhouse, but in general, it's telling you from 608 00:30:18,600 --> 00:30:21,400 Speaker 10: a macro sense that there's a preference for kind of 609 00:30:21,400 --> 00:30:24,160 Speaker 10: the more traditional forms of alternative assets. 610 00:30:24,280 --> 00:30:26,840 Speaker 3: We've seen in the entire commodity space, though left higher. 611 00:30:26,920 --> 00:30:30,200 Speaker 3: Copper has been on an absolute tear as well. When 612 00:30:30,280 --> 00:30:33,480 Speaker 3: it comes to the concerns in the commodity space, the 613 00:30:33,520 --> 00:30:37,120 Speaker 3: physical commodities that are used across supply chains, like silver 614 00:30:37,200 --> 00:30:39,640 Speaker 3: and copper. There's some concern that potentially will get more 615 00:30:39,680 --> 00:30:42,000 Speaker 3: tariffs in twenty twenty six. How do you think about 616 00:30:42,040 --> 00:30:45,320 Speaker 3: trade policy given there's some key dates coming up when 617 00:30:45,320 --> 00:30:48,000 Speaker 3: it comes to this administration and some of the trade 618 00:30:48,000 --> 00:30:49,920 Speaker 3: policies they've enacted in twenty twenty five. 619 00:30:52,440 --> 00:30:55,320 Speaker 10: Obviously we're still waiting on them sort of key information, 620 00:30:57,120 --> 00:30:59,280 Speaker 10: but we do know that tarris obviously are a key 621 00:30:59,320 --> 00:31:02,760 Speaker 10: sort of platform agenda item that's not going to go away. 622 00:31:02,840 --> 00:31:06,520 Speaker 10: So there's a baseline of expectations around tariffs, and then 623 00:31:06,560 --> 00:31:08,760 Speaker 10: the question is do we get more secutorial tariffs as 624 00:31:08,760 --> 00:31:11,280 Speaker 10: you're alluding to, you know, we do think that you know, 625 00:31:11,440 --> 00:31:14,959 Speaker 10: this this full impact of tariffs is not just an 626 00:31:14,960 --> 00:31:18,240 Speaker 10: inflationary sort of phenomenon, and maybe it's you know, toward 627 00:31:18,280 --> 00:31:20,720 Speaker 10: its course there We don't know, but I think it's 628 00:31:20,760 --> 00:31:23,600 Speaker 10: more about the sort of impacts and indecision that it 629 00:31:23,640 --> 00:31:26,200 Speaker 10: does on planning, especially around the sort of you know, 630 00:31:27,000 --> 00:31:29,280 Speaker 10: items like commodities. So I do think that, you know, 631 00:31:29,280 --> 00:31:31,400 Speaker 10: the trade policy will have an impact on that side 632 00:31:31,440 --> 00:31:32,200 Speaker 10: of things as well. 633 00:31:32,520 --> 00:31:36,560 Speaker 3: Does it complicate potentially corporations and whether or not they 634 00:31:36,560 --> 00:31:39,120 Speaker 3: are going to and when they may pass on more 635 00:31:39,120 --> 00:31:40,520 Speaker 3: of these costs to consumers. 636 00:31:41,360 --> 00:31:44,120 Speaker 10: Well, look, I think that you know, what we've noticed 637 00:31:44,400 --> 00:31:48,200 Speaker 10: thus far is just a sort of hesitancy to kind 638 00:31:48,240 --> 00:31:53,080 Speaker 10: of pass through fully the tariff effect and improfit margins 639 00:31:53,120 --> 00:31:55,360 Speaker 10: have been kind of absorbing some of that. I think 640 00:31:56,120 --> 00:31:57,480 Speaker 10: there will come a time and I think we're getting 641 00:31:57,480 --> 00:32:00,280 Speaker 10: close to that point where companies will not be ass 642 00:32:00,320 --> 00:32:02,040 Speaker 10: and absorbing these sort of profit costs and they're going 643 00:32:02,080 --> 00:32:04,520 Speaker 10: to try to pass on to the consumers. Now, if 644 00:32:04,520 --> 00:32:09,120 Speaker 10: it's towards the industrial sort of mid production, business to 645 00:32:09,160 --> 00:32:13,400 Speaker 10: business sort of inputs that they're assessing and seeing if 646 00:32:13,440 --> 00:32:15,800 Speaker 10: they can negotiate with their partners, maybe they can pass 647 00:32:15,800 --> 00:32:19,200 Speaker 10: on some of it. But instead of us consumer outright, 648 00:32:19,280 --> 00:32:20,560 Speaker 10: I think that they're going to have a challenge to 649 00:32:20,560 --> 00:32:22,160 Speaker 10: do so, and it's going to eventually have to hit 650 00:32:22,160 --> 00:32:22,840 Speaker 10: their margins. 651 00:32:24,240 --> 00:32:27,800 Speaker 2: This is the Bloomberg Savlans podcast, bringing you the best 652 00:32:27,840 --> 00:32:31,160 Speaker 2: in markets, economics, angiot politics. You can watch the show 653 00:32:31,200 --> 00:32:34,160 Speaker 2: live on Bloomberg TV weekday mornings from six am to 654 00:32:34,280 --> 00:32:38,040 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 655 00:32:38,200 --> 00:32:40,440 Speaker 2: or anywhere else you listen, and as always on the 656 00:32:40,440 --> 00:32:42,880 Speaker 2: Bloomberg terminal and the Bloomberg Business app.