Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keane, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: Right now, we're going to go to Henry Hoaternet in
Speaker 2: Japan and with her is Admiral John Kirby's National Security
Speaker 2: Council Coordinator for Strategic Communications. This for America at the
Speaker 2: G seven meetings.
Speaker 3: Thanks Tom, And that's right.
Speaker 4: He's on the ground less than four hours and Admiral
Speaker 4: Kirby is joining Bloomberg first here as he lands with
Speaker 4: the President for this really important G seven summit. But
Speaker 4: of course the President is scrapping the remainder of this
Speaker 4: forum trip. You was supposed to have Papa New Guinea
Speaker 4: and Australia. How much I think that domestic policy concerns
Speaker 4: are undermining the foreign policy goals of this administration.
Speaker 5: It's not about undermining our foreign policy goals. I mean
Speaker 5: the President has really revitalized. He's really put a lot
Speaker 5: of energy, particularly into this part of the world. I mean,
Speaker 5: here we are in Japan for the G seven. You know,
Speaker 5: just a few weeks ago in San Diego, we were
Speaker 5: standing next to Prime Minister Arabanas and Prime Minister Sunak
Speaker 5: to unveil the next phase of the Akas Agreement. And
Speaker 5: of course he's already had a chance to meet with
Speaker 5: all the Pacific Island leaders at the White House last year.
Speaker 5: We'll do another one here in the near future. So
Speaker 5: we have invested a lot of time and energy into
Speaker 5: this particular part of the world. And today's today's visit,
Speaker 5: this G seven, I think is just further proof of that.
Speaker 4: But at the same time, the President loves to use
Speaker 4: these moments like a G seven.
Speaker 3: He reminds the world America is back.
Speaker 4: He tries to draw parallels for democracy visa the autocracies,
Speaker 4: what's going on in terms of Beijing, what happens in Russia.
Speaker 6: How hard is it for him to.
Speaker 4: Deliver that message to other leaders.
Speaker 3: When he was supposed to be the first.
Speaker 4: US president to go to Papua New Guinea, he was
Speaker 4: supposed to go meet the Quad in Australia, and this
Speaker 4: is where he wants to spend his time, like you said,
Speaker 4: in the Asia Pacific.
Speaker 5: But the president knows and so do these leaders leaders
Speaker 5: of democratic democratic nations, that if you don't, if you
Speaker 5: don't take care of the nation's dead, if you allow
Speaker 5: the United States to default, virtually nothing else matters in
Speaker 5: terms of what you're trying to do around the world.
Speaker 5: You know, I heard comments to know BI analysts that
Speaker 5: our credibility in the region is suffering because you know,
Speaker 5: we're not going on two other stops, but the credibility
Speaker 5: really suffers if we end up, you know, being a
Speaker 5: debtor nation if we default.
Speaker 4: That was the message I got in Nagata from the
Speaker 4: foreign ministers.
Speaker 5: Well, a president, I'm a deadbeat nation that our international
Speaker 5: credibility standing suffers. So the President is doing the right
Speaker 5: thing here. He's obviously the G seven is important. A
Speaker 5: lot of things to discuss while we're here in Japan.
Speaker 5: We can reschedule a trip to Australia, we can reschedule
Speaker 5: a trip to Papula, Nigina, which you can't reschedule. You
Speaker 5: can't reschedule the looming debt ceiling deadline. That is a
Speaker 5: hard fixed thing, and we've got to make sure we
Speaker 5: get these negotiations through.
Speaker 4: Critics will say, then the President didn't manage this correctly.
Speaker 4: He should have been speaking to Speaker McCarthy earlier so
Speaker 4: he didn't have to cancel his foreign trip. But do
Speaker 4: you think the president here in the g set will
Speaker 4: be able to say to leaders, well, West will not
Speaker 4: default on its debt.
Speaker 5: Well, the president's optimistic. He said that before we left.
Speaker 5: He said that he's optimistic that we'll get there. And
Speaker 5: so that's one of the reasons why we're going home
Speaker 5: a little bit early, so that he can be there
Speaker 5: to make sure the Congress does its job. But let's
Speaker 5: go back a little second on the talking to Speaker McCarthy.
Speaker 5: Not defaulting is a congressional duty. It's in the constitution.
Speaker 5: There didn't need to be negotiations over the debt. Now
Speaker 5: the President is willing to sit down and talk to
Speaker 5: Speaker McCarthy about the budget and appropriations, and we'll do that.
Speaker 5: But when it comes to raising the debt ceiling, that
Speaker 5: is something that has been done seventy eight times under
Speaker 5: democratic and Republican administrations, without negotiations, without having to have
Speaker 5: an argument about it. So there's no reason for I mean,
Speaker 5: the argument that we should have talked to X number
Speaker 5: of days ago, this should be this is a congressional
Speaker 5: duty there. They should just simply do their job.
Speaker 4: This is something we're going to be closely watching here
Speaker 4: from the sidelines of the G seven when it comes
Speaker 4: to of course, one of the biggest elephants in the
Speaker 4: room is going to be China. We know the US
Speaker 4: wants to go after economic coersion that's coming out of China. Also,
Speaker 4: the Papua New Guinea trip was about deterring Beijing. Is
Speaker 4: there a concern from the White House that potentially when
Speaker 4: it comes to say, Papa New Guinea, that Beijing is
Speaker 4: trying to do a security agreement like they did with
Speaker 4: the Solomon Islands. How concerned is it about making sure
Speaker 4: that countries like that are on board what the US
Speaker 4: is doing well.
Speaker 5: The trip in Papua New Guinea was not about deterring China.
Speaker 5: It was about again revitalizing, reinvigorating our vast network of
Speaker 5: alliances and partnerships in this region, a network by the way,
Speaker 5: that China can't even close to match, just can't get there.
Speaker 5: Five of our seven Treaty alliances are in this part
Speaker 5: of the world, and a lot of people don't realize that.
Speaker 5: So I mean there's a lot of a lot of
Speaker 5: network of partnerships and alliances here that we're trying to
Speaker 5: try to bolster. And we will still have discussions and
Speaker 5: some deliverables with Papua New Guinea. You'll see that even
Speaker 5: though we're not making that stop, we'll see.
Speaker 1: Those move forward.
Speaker 5: I can't speak for what China's doing with each individual
Speaker 5: Pacific Island nation. They have used a mix of intimidation
Speaker 5: and coersion economic and security wise to try to have
Speaker 5: their way in this part of the world. We are
Speaker 5: not asking countries to choose between the United States and China.
Speaker 5: They get to decide what their bilateral relationships look like
Speaker 5: and who they associate with and what that association looks like.
Speaker 5: What we are doing is trying to show in demonstrable
Speaker 5: way in ways that the United States is a reliable, stable,
Speaker 5: credible partner in this part of the world and around
Speaker 5: the world, and to give people alternatives to the coercion
Speaker 5: and the intimidation that the Chinese tend to demonstrate.
Speaker 4: How close are g seven leaders aligned on this point
Speaker 4: on making sure they are deemed risking from China, most notably,
Speaker 4: I'm thinking of Europe and Emmanuel Malcaran after his visit
Speaker 4: where he said that Europe actually has strategic autonomy when
Speaker 4: it comes to China.
Speaker 5: China is going to be key on the agenda here
Speaker 5: in Japan, and I think you're going to see the
Speaker 5: G seven leaders all speak with one voice about the
Speaker 5: challenges that China poses here in the Endo Pacific and
Speaker 5: around the world, but also what some of the opportunities
Speaker 5: are as the G seven nations are to compete, to
Speaker 5: compete fairly, but to compete well with China.
Speaker 3: Broad strokes of.
Speaker 4: Words, though, will there be any action visa E China
Speaker 4: and the G seven.
Speaker 5: Well, I'm not going to get ahead of the of
Speaker 5: the discussions, and the G seven leaders will absolutely spend
Speaker 5: quite a bit of time here as you would expect
Speaker 5: they would certainly here in Japan talking about the challenges
Speaker 5: that the PRC represents. They will think, I'm convinced of
Speaker 5: it that you'll see at the end of those discussions
Speaker 5: that they'll all speak with one voice about about how
Speaker 5: we need to treat that particular competition from not just
Speaker 5: from a security perspective, from an economic perspective, from a
Speaker 5: diplomatic perspective.
Speaker 4: Adamal John Kirby, thank you so much for joining Bloomberg TV.
Speaker 4: That was, of course, the National Security counselor Strategic Communications
Speaker 4: Director John Kirby, his first interview on the ground. He's
Speaker 4: been here for under four hours here and here as Shima, Japan.
Speaker 6: Spend most of that traffling from the airport. So to
Speaker 6: an interview with an Marie mh great work. Has always
Speaker 6: looking forward to converridge to the G seven.
Speaker 2: Ellen Ze joins us now quarters on from a transitory
Speaker 2: economics and Ellen, in your note today, you are framing
Speaker 2: out a.
Speaker 1: New job economy.
Speaker 2: We are at a two hundred and fifty thousand run
Speaker 2: rate on non farm payrolls, and you have a stunning
Speaker 2: observation of a path to forty thousand non farm payrolls.
Speaker 2: How close are we do that?
Speaker 1: Yeah?
Speaker 7: So I think we can hit that late summer tom
Speaker 7: And you know, look, you want to assume that things
Speaker 7: are linear, which they're never linear. Then if you look
Speaker 7: at the slowdown that we've had and just project that
Speaker 7: forward and say, knowing nothing else, let's just assume that continues,
Speaker 7: you would be down below one hundred thousand within a
Speaker 7: couple of prints. So, look, we see a slowing path
Speaker 7: for job gains here, but we don't see a cliff,
Speaker 7: And I think that's very important. Claims are still low,
Speaker 7: companies are still doing more labor hoarding than they are
Speaker 7: laying off. We see an employment gap that still needs
Speaker 7: to get filled, and so I think there's a lot
Speaker 7: of support here that, Yeah, let's be realistic. Things are slowing,
Speaker 7: but this is not a cliff that we're headed toward
Speaker 7: for job gains.
Speaker 2: This is, Lisa, to me, the conundrum for you, me
Speaker 2: and John into May into June into July is we
Speaker 2: don't have a clue what the is. Ellen mentions the
Speaker 2: linear flows here on labor no.
Speaker 8: Clue given the fact that it is slow. How does
Speaker 8: a feder respond to a slow burn, Given the fact
Speaker 8: that they are continuing to say inflations are pre eminent
Speaker 8: concern and inflation has been sticky, Ellen, can they afford
Speaker 8: to not hike rates again if we continue to see
Speaker 8: just a slow grind lower but not that quickly and
Speaker 8: inflation is still higher.
Speaker 7: Yeah, So, Lisa, I think it's a good question. Inflation
Speaker 7: is moving in the right direction, but very stubbornly so,
Speaker 7: and it's not moved down clearly and convincingly as Chair
Speaker 7: pal has wanted. But that was not a prerequisite to
Speaker 7: them stopping hiking, right that is a prerequisite to when
Speaker 7: they make adjustments, say normalizing policies. Inflation has down a lot,
Speaker 7: So right now we think they're at the point where, yes,
Speaker 7: it's arguable on the FED whether they are in restrictive territory.
Speaker 7: How far are they in restrictive territory? Are they close enough?
Speaker 7: We think that they're close enough. But the arguments that
Speaker 7: you are, the points that you make, would suggest that
Speaker 7: you need to keep that peak rate.
Speaker 3: There for quite some time.
Speaker 7: And I think that's the argument that the FED will
Speaker 7: lean on that as inflation slowly comes down.
Speaker 3: But they're holding rates high.
Speaker 7: Policy actually maintains its restrictive territory, and in fact it's
Speaker 7: even more restrictive throughout the year, and I think that's
Speaker 7: what policymakers ultimately will lean on.
Speaker 8: Ell And we were talking about this earlier and Tom
Speaker 8: asked the question, do we have a sense of what
Speaker 8: the new neutral really is? Do we have a sense
Speaker 8: of what it takes to really take some of the
Speaker 8: momentum out of an economy? That has defied all expectations
Speaker 8: that were incredibly gloomy heading into the year. What's your view,
Speaker 8: Do we have a better sense of what that neutral
Speaker 8: rate is?
Speaker 7: So I would say that, you know, very cynical of
Speaker 7: me to say that neutral does not exist.
Speaker 3: We're never at neutral.
Speaker 7: We pass it up and you know in hindsight whether
Speaker 7: you're at neutral, below neutral, above neutral. But we're always
Speaker 7: reaching for these sort of fictitious metrics or goals. What
Speaker 7: the Fed does know or can see is that things
Speaker 7: are slowing. We think they're going to be very slow
Speaker 7: in the middle of this the middle two quarters of
Speaker 7: this year. And that's an economy with a backdrop of
Speaker 7: banking pressures, of ball financial conditions that you might not
Speaker 7: want to push it further, but you want to maintain
Speaker 7: the option to hike.
Speaker 3: Again if you need to.
Speaker 7: And I think that's that's something that we have to consider.
Speaker 7: There are two sided risks. After the pause here, I
Speaker 7: got to rip.
Speaker 1: Up the script. You've done it with me before.
Speaker 2: Don't panic here, And the answer is that we're going
Speaker 2: to talk to Ellen Zenner foreign exchange strategist. Moments ago,
Speaker 2: Euro dollar solid one ten forever just breached through a
Speaker 2: one oh eight to a weaker euro one oh seven
Speaker 2: point ninety nine right now on YU dollar. To me,
Speaker 2: the great unspoken, along with your idea of NFP down
Speaker 2: well under one hundred thousand, is resilient to stronger dollar.
Speaker 2: Dovetail that into your call, do we get a resilient
Speaker 2: dollar again with the certitude out there the consensus of
Speaker 2: dollar weakness.
Speaker 7: Look, I think that you know, currency movements are very important,
Speaker 7: and of course where strategists are, you know, shorter term
Speaker 7: tactical tactically on the dollar matter a good deal. But
Speaker 7: I think there's going to be a realization here that
Speaker 7: the economy is not collapsing, and in fact a realization that, yes,
Speaker 7: we think the FED is paused here, but there are
Speaker 7: meread options for policy after that. Right, It's very easy
Speaker 7: to get inflation down from seven percent to four percent,
Speaker 7: is very difficult to get inflation down from four percent
Speaker 7: to two percent, and that might take more work from
Speaker 7: the FED after they pause. So I think it's more
Speaker 7: of that realization creeping in that five point one percent
Speaker 7: is the peak now, but they may have to move
Speaker 7: higher at some point.
Speaker 2: At least to me, this is so important. Dovetailing in
Speaker 2: what Ian Lincoln said, with what Ellen Zender said and
Speaker 2: the idea of the asymmetric call, and this is frankly
Speaker 2: Hollendhorst as well. Do you get a symmetric call where
Speaker 2: you get rates up or the Zenner pause and we
Speaker 2: don't understand the duration of that pause, and that's where
Speaker 2: you get the dollar.
Speaker 8: Dynamic to come in well, and we also have the
Speaker 8: sense that Europe perhaps has seen the bulk of the
Speaker 8: gains and perhaps their signs that the other side of
Speaker 8: the trade isn't doing as well as the resilience of
Speaker 8: the US economy. Ellen to that point. We were talking
Speaker 8: with Jim Bianco of Bianco Research earlier and one of
Speaker 8: the big fears about the US was the banking crisis
Speaker 8: that wasn't or the banking crisis that hasn't yet materialized,
Speaker 8: and he said it's too soon to say all clear,
Speaker 8: which a lot of people have been saying. Do you
Speaker 8: agree with this idea of a bank walk of sort
Speaker 8: of assets just kind of tiptoeing out the door over
Speaker 8: a longer period of time, more akin to the nineteen
Speaker 8: eighties SNL crisis that still hasn't fully transpired.
Speaker 7: Yeah, So I think, look, we've had a shock to
Speaker 7: the system that takes time to flow through. I don't
Speaker 7: believe this is a credit crunch where we've just choked
Speaker 7: off the flow of credit to the economy, but it's
Speaker 7: clearly a credit cycle, and it's coming also from a
Speaker 7: drop in loan demand. So I agree we can't assume
Speaker 7: that we're past sort of these evils lurking around the corner.
Speaker 7: But I think one of the difficult things here, which
Speaker 7: is very different from the eighties, is that banks are
Speaker 7: now having to contend with sentiment. So think of a
Speaker 7: bank that's had an equity event, right, and equity investor
Speaker 7: does not want to own that stock, so the stock
Speaker 7: goes down, and then like clockwork, within days outflows of
Speaker 7: deposits because you're suspicious of is that bank where I'm
Speaker 7: holding my money safe.
Speaker 3: So it's a sentiment.
Speaker 7: And then you've got bank runs that move at the
Speaker 7: speed of light, that are electronic now. And so this
Speaker 7: is all something that the banking system has to contend
Speaker 7: with and I think will continue to weigh on credit
Speaker 7: availability and lending for some time.
Speaker 8: Ellen when you talk about the bank walk and later
Speaker 8: this year, does it become that much more sort of
Speaker 8: pronounced as a result of the FED remaining on hold
Speaker 8: if the economy is also slowing in a commensurate level.
Speaker 8: So basically the relative yield that you're getting on those
Speaker 8: T bills is that much better.
Speaker 7: Yeah, So look, I think for banks it comes down
Speaker 7: to liquidity. And you know, you can look at it
Speaker 7: one way and say, well, banks are accessing the facility
Speaker 7: that the FED is put in place, or they might
Speaker 7: be accessing the discount window. But ultimately the other side
Speaker 7: is the way I would look at That's a good thing.
Speaker 7: Banks need liquidity and they're accessing it, and so that
Speaker 7: alone will help banks work through this.
Speaker 1: Ellen. I wanted one fine question.
Speaker 2: There's a guy named Gorman, I think it's the first
Speaker 2: name is James Gorman, and he said a number of
Speaker 2: months ago something like and he said it with that accent.
Speaker 2: He's got that, you know, that Australian thing going. He said,
Speaker 2: with some fury. If they can eat in a restaurant
Speaker 2: and so they can come to work. I'm fascinated what
Speaker 2: you see nationwide on back to work. It's a big
Speaker 2: debate in Manhattan, but are we going to go back
Speaker 2: to work?
Speaker 1: In America?
Speaker 3: So we are going back to work?
Speaker 7: I think when I've traveled around the country, I find
Speaker 7: a good deal of regional differences in terms of people
Speaker 7: that are back to work full time almost full time.
Speaker 3: Look, why does this need to be a worry?
Speaker 7: I mean, yes, office space for commercial real estate is
Speaker 7: working through problems resizing. It's more of a Tier B
Speaker 7: and Tier C market than a Tier A problem. But still,
Speaker 7: we don't have to be in five days a week.
Speaker 7: That's not what new work arrangements need to look like.
Speaker 3: We do need to connect.
Speaker 2: See in a restaurant in Soho. We'll try to ignore
Speaker 2: mister Gorman if we can. Ellen Zatner with Morgan Stanley
Speaker 2: working for the James.
Speaker 6: Gorman, we've found a bill. She joins us around a tangle.
Speaker 6: Bamba rhin Hop, the head of USA allocation at Voye
Speaker 6: Investment Management, Barbara, good morning, Good morning, your bullish Why.
Speaker 9: Well, Look, we think there are a couple of things
Speaker 9: that are likely to go right. Inflation is still going
Speaker 9: in the right direction. Yields are very supportive but have
Speaker 9: come off of their highs. That gives the pe multiple
Speaker 9: for the S and P five hundred a little bit
Speaker 9: of wind at its back. But mostly we think that
Speaker 9: it's going to be the economic data is slowing enough
Speaker 9: that the FED is able to take their foot off
Speaker 9: of the brakes and maybe take a break or a
Speaker 9: pause in their hiking cycle, and that is a very
Speaker 9: good tailwind for the equity market.
Speaker 10: At this point, you've.
Speaker 8: Been perhaps painfully along the US over the rest of
Speaker 8: the world, and this is been sort of a contrarian trade.
Speaker 8: Is everyone piled into Europe and the rest of the
Speaker 8: world that's harding to shift around the margins at least
Speaker 8: this week. What gives you confidence that has staying power
Speaker 8: and that you'll basically be able to say.
Speaker 10: I was right all along, It just took a little bit.
Speaker 9: We never say that, Lisa, But nonetheless, look, we think
Speaker 9: that the US has some really good qualities to it right,
Speaker 9: So the Federal Reserve was one of the first central
Speaker 9: banks to start raising interest rates. Inflation in the US
Speaker 9: peaked a number of months ago. It's on the right
Speaker 9: trajectory and going in the right direction, if not fast
Speaker 9: enough for all market participants. But in Europe, think about this,
Speaker 9: A lot of bad news had been in the price
Speaker 9: in the.
Speaker 10: Fourth quarter of last year.
Speaker 9: A lot of things didn't happen, so not necessarily incrementally
Speaker 9: good news, but the disaster scenario didn't happen. You need
Speaker 9: things to go in the right direction for Europe to
Speaker 9: continue to work. A lot of fund managers are indeed
Speaker 9: putting assets out there. We're seeing asset allocators start to
Speaker 9: put money overseas. That's generally when the data to really
Speaker 9: start breaking your way. If you think the US has
Speaker 9: an information problem, Europe has a much bigger one and
Speaker 9: a much stickier one, and their central bank is much
Speaker 9: further behind the curve than the US is. So at
Speaker 9: the margin, we think that the US is likely to
Speaker 9: outpace the rest of the world.
Speaker 1: The US to talk place.
Speaker 2: Let's be blunt more than anyone we talk to. Voya
Speaker 2: is America first? Which five does a dollar fold into that?
Speaker 2: I mean to me the big surprise here. No one
Speaker 2: is looking for resilient.
Speaker 1: Or strong dollar. John dxy A one.
Speaker 2: Oh three level BBDXY twelve thirty.
Speaker 1: Six, All of a sudden resilient dollar.
Speaker 2: Is that part of the America first story?
Speaker 9: Well, look, you don't necessarily need the currency going in
Speaker 9: your direction in order for the US to do well.
Speaker 9: I think part of it also is the visibility that
Speaker 9: you have on the US is actually quite good. The
Speaker 9: US consumer is holding in there quite well, even in
Speaker 9: the face of job openings coming down in some rebalance
Speaker 9: in the labor market. So the US just has more
Speaker 9: strength to it, and we think that's what the margin
Speaker 9: a relatively good thing.
Speaker 2: So you inter meeting with retailer high net worth individuals
Speaker 2: with Voya and they go, we own eighty five five
Speaker 2: percent of our portfolios Apple.
Speaker 1: What else do we do?
Speaker 2: Come on, we all own Apple, and as an outrage,
Speaker 2: what do we do after Apple?
Speaker 9: Well, the good news is when you saw some like
Speaker 9: relatively good news on the debt ceiling yesterday, you saw
Speaker 9: some of those other parts of the market that haven't
Speaker 9: done relatively well start to pick up. So midcaps, small caps,
Speaker 9: even real estate investment trust yesterday did a bit better.
Speaker 1: Exxon is a mid cap in case you're.
Speaker 9: Taking announce John, But I would say the thing is
Speaker 9: if you can see some broadening of the leadership, that
Speaker 9: is a relatively good thing. But you've had now a
Speaker 9: leadership across the entire globe, right, So what's been doing
Speaker 9: well over the past five months has been US tech
Speaker 9: and European luxury goods, right, So seeing a broadening out
Speaker 9: of the strength of the market is a good sign.
Speaker 6: Just to be glad. Do you expect that to continue
Speaker 6: that boarding out?
Speaker 10: We would certainly hope.
Speaker 9: So the inflation data in the US we think is
Speaker 9: likely to go our way, and we also see that
Speaker 9: potentially getting through this debt sealing problem is good. I
Speaker 9: would note if the US economy tends to be too strong,
Speaker 9: or if the inflation data starts to break higher, that
Speaker 9: goes right in the face of how we're positioned in
Speaker 9: our portfolios. But we think at least for the next
Speaker 9: couple of months, things are going to go our way.
Speaker 6: Just to be super super clear and specific here, we
Speaker 6: know the most crowded triads at least indicated by the
Speaker 6: Bank of American Film Manager Survey, long tech short banks. Right,
Speaker 6: are you leaning in the other direction?
Speaker 11: Then?
Speaker 9: Look, I think you've got to be a real, real
Speaker 9: brave person to buy the banks at this point. But
Speaker 9: remember we're top down global, so I'm not making sector decisions,
Speaker 9: compositioning more in terms of countries and in terms of
Speaker 9: style tilts. So, but we think that the US is
Speaker 9: probably the strongest place to be. I mean, you know,
Speaker 9: at this point, thinking about the rest of the world,
Speaker 9: the only other place that I would probably really think
Speaker 9: about allocating to might be parts of Japan because it
Speaker 9: looks like it's so cheap and it has a big
Speaker 9: benefit to it from the currency at this point.
Speaker 10: But for US, the US is probably the place to be.
Speaker 8: Just to tie this conversation back to what we were
Speaker 8: speaking about with Max Kettner of HSBC earlier, he was saying,
Speaker 8: it's not really a sector kind of market, it's and
Speaker 8: everything on or everything off kind of market. This is
Speaker 8: why acid allocators are their hair out right now. Are
Speaker 8: you finding that it's the same thing, but it's country
Speaker 8: specific everything on in one country or one region everything
Speaker 8: off in that region.
Speaker 9: Yeah, I think it's more regional probably than specific countries.
Speaker 9: Right these markets can be very thin. When you have
Speaker 9: narrow leadership, you have to be on the right side
Speaker 9: of pretty much everything. It's very difficult to go into
Speaker 9: risk on and risk off positions. You have to really
Speaker 9: pick where you see the best visibility, and the best
Speaker 9: visibility for our part is.
Speaker 10: In the US right now.
Speaker 8: Is big tech sort of a necessary play within that
Speaker 8: that basically you have to kind of ride the big
Speaker 8: tech wave, and that's basically what's going to distinguish the
Speaker 8: US from the rest of the world.
Speaker 9: Well, we think that big tech actually did a couple
Speaker 9: of things right. Also, remember last year all of the
Speaker 9: layoff headlines were in big tech firms, right, So big
Speaker 9: tech took a very big view in terms of trying
Speaker 9: to right size some of their cost measurements for the
Speaker 9: difficult investment environment that specifically that segment of the market
Speaker 9: was feeling last year.
Speaker 10: So they took some of their medicine early.
Speaker 9: And then of course they have the benefit of this
Speaker 9: whole AI big.
Speaker 10: Boom that's going on right now.
Speaker 9: So look, could tech take a breather, Absolutely, But I
Speaker 9: would say that probably the best part of it is
Speaker 9: the dynamics for them are probably a bit stronger than
Speaker 9: the rest of because they took their medicine last year.
Speaker 2: I'm looking to a small cap United Health Group and
Speaker 2: everybody keeps talking medicine, medicine, medical health, whatever the sector
Speaker 2: categories are. Is that part of an American play.
Speaker 9: Look, small caps have really been beaten down post sv base.
Speaker 10: Small caps have really taken it on the chin.
Speaker 9: You probably need to get some of these recession fears
Speaker 9: off of the table in order to go very long small.
Speaker 2: What about medical across small mid and large cap as well.
Speaker 9: Again, I can't talk to sectors that we don't invest
Speaker 9: that way in our funds.
Speaker 1: You can't talk sectors.
Speaker 9: I can't. I really we invest more so in terms
Speaker 9: of top down global macro. Look, I do think that
Speaker 9: there are I can't talk United, I can talk health care,
Speaker 9: I can talk utilities.
Speaker 10: I can talk technology.
Speaker 2: I don't want yousar United, but talk to me about medicine, healthcare.
Speaker 1: We're all getting older, we are going to work.
Speaker 8: Well.
Speaker 10: Look at the place.
Speaker 9: Look at the cover of the Financial Times. It was
Speaker 9: all of this morning about you know that you have
Speaker 9: to right size pensions, public pensions because you have an
Speaker 9: aging population. If it's not healthcare, I don't know where
Speaker 9: it is.
Speaker 6: That we got the answer to your question.
Speaker 1: It took like four questions to get it over.
Speaker 6: Sorry, I don't know, Bob.
Speaker 10: We'll get tough crowd this morning.
Speaker 2: Give us perspective here working with Dana Telsea always as
Speaker 2: Joseph Feldman, just really quite good Terse Terse reports.
Speaker 1: What did you do?
Speaker 2: I mean, let's get out front of your research. I
Speaker 2: need to front run you and Dana this morning. Do
Speaker 2: you change your view on Walmart with this optimism we're
Speaker 2: getting in the last hour.
Speaker 1: I don't think so.
Speaker 12: I think you want to stick with Walmart here, especially
Speaker 12: in the environment where we're in at the moment, and
Speaker 12: you know, we're hearing from so many of the retailers
Speaker 12: that there's a lot more concern about the second quarter,
Speaker 12: concern about the economy, what it's going to look like
Speaker 12: in the second half, and for times, Walmart tens to shine.
Speaker 2: Data was legendary Bergdorf Goodman as a kid, she was
Speaker 2: like twelve years old, and if somebody who's caught shoplifting,
Speaker 2: they had the babysit Danta, you know, for years. Joe
Speaker 2: Feldman on shrink, on the theft we saw with Target yesterday.
Speaker 1: Is there a shrink at Walmart?
Speaker 12: Yeah, there's absolutely shrink happening at Walmart. They haven't called
Speaker 12: it out quite the same way Target has, but you know,
Speaker 12: all the retailers are dealing with the shrink issue, the theft,
Speaker 12: organized crime. It's a big deal, and I think it's
Speaker 12: a big part of the equation for a lot of
Speaker 12: the retailers. It's a big number, maybe less as a
Speaker 12: percentage of the overall total sales for Walmart, but the
Speaker 12: dollar amount might be as high or if not higher,
Speaker 12: I would think at a Walmart relative to Target. And
Speaker 12: it's not just these two. Again, this is a cross
Speaker 12: retail and the retailers really need to work work with
Speaker 12: local authorities to find ways to try to stop this
Speaker 12: because the current way to do it is you have
Speaker 12: to lock down a lot of products in the stores
Speaker 12: and it makes it for not the great shopping experience
Speaker 12: for the consumer. It really feels uncomfortable for those that
Speaker 12: are not there for theft, they just want to buy stuff.
Speaker 8: Putting that aside and giving the fact that this is
Speaker 8: going to be a policy consideration going forward, there is
Speaker 8: a question about what period we're in. You said these
Speaker 8: times that we're in, what times are we in? Are
Speaker 8: they at one of strength with the consumer having spending
Speaker 8: power or not.
Speaker 12: So it's been very confusing. We're getting lots of mixed signals.
Speaker 12: We believe the consumer is a bit stronger than most
Speaker 12: belit may otherwise believe. The reason I say that is
Speaker 12: you're seeing spending on consumables, household essentials, basic items. People
Speaker 12: are keeping their food on the table and keeping the
Speaker 12: house running. At the same time, you're continuing to see
Speaker 12: increases in sales dining out entertainment, going to sporting events, travel,
Speaker 12: all of those service oriented economy is still actually doing
Speaker 12: fairly well. I do think we're going to see spending
Speaker 12: slow a bit, broadly speaking, but those pockets of the
Speaker 12: economy right now would sort of indicate that the consumer
Speaker 12: still has some money to spend.
Speaker 6: Now.
Speaker 12: I agree, they're not spending on discretionary goods, and we
Speaker 12: don't expect that to pick up much this year. I
Speaker 12: think you're going to see more of the same where
Speaker 12: and then you could start to parse it out by
Speaker 12: income level, where the higher income people are the ones
Speaker 12: that are really spending on the services the load to
Speaker 12: middle income they're the ones just focus on getting food
Speaker 12: on the table, keeping the household afloat.
Speaker 8: In Walmart's earnings, it's kind of a microcosm of the
Speaker 8: broader story. At a lot of fronts, you've got people
Speaker 8: who are downshifting perhaps to grocery, and grocery certainly does
Speaker 8: account for a significant amount of volume, but the profit
Speaker 8: really comes from the other areas, and you can see
Speaker 8: that the margin is expanding there like it is at
Speaker 8: other companies as well. In other words, the imput prices
Speaker 8: that they experience they can pass that all along and
Speaker 8: then some and consumers will keep buying and buying more
Speaker 8: than expected. How long can this last that they actually
Speaker 8: just can increase their profit margins and just expect the
Speaker 8: consumer will eat the price increase.
Speaker 12: I think what we're seeing a lot of the profit
Speaker 12: margin increase from Walmart and some of the others, it
Speaker 12: actually relates to greater efficiencies and getting better leverage. And
Speaker 12: if you look at comparisons from a year ago, supply
Speaker 12: chain costs through the roof, those have come down pretty significantly,
Speaker 12: so that is providing some cushion. I think, you know,
Speaker 12: as far as food and consumables and basics go, Walmart
Speaker 12: especially passes things through pretty quickly. So as prices have
Speaker 12: been moderating, which we're hearing inflation is starting to moderate
Speaker 12: on that side, they're passing that through.
Speaker 2: Joe c Ifa one oh one, you got a single
Speaker 2: digit nomenal GDP grower. They're bringing pennies down to the
Speaker 2: bottom line. And I'm joining enjoying a forward view on
Speaker 2: Walmart of a twenty four multiple. You got to be
Speaker 2: kidding me, how do you, really, with great respect, how
Speaker 2: do you and Dana adapt to a twenty four multiple
Speaker 2: on the biggest aircraft carry in the water going through
Speaker 2: the water at four knots.
Speaker 12: Well, it's a big aircraft carrier that's becoming sleeker. They're
Speaker 12: doing more with higher margin businesses advertising online. They're transforming there.
Speaker 12: They're kind of meeting in the middle with Amazon. If
Speaker 12: you think about it, think about the valuation that Amazon
Speaker 12: trades at. You know, Walmart has gotten a lot more
Speaker 12: efficient with their online business. They've grown that they have
Speaker 12: a marketplace very much like Amazon, which is highly profitable.
Speaker 12: They've got more third party sellers coming on. So there's
Speaker 12: a lot that Walmart's doing to kind of borrow from
Speaker 12: the Amazon playbook that would argue that they are becoming
Speaker 12: a more dominant and more important retailer, building their ecosystem
Speaker 12: in more profitable ways and therefore require or what Warren
Speaker 12: maybe not require, but Warren's a higher valuation.
Speaker 6: Interesting. JII, We've got to leave it that, Thank you, sir.
Speaker 6: I've found that that's how seafans recruit.
Speaker 2: Who does give me information as James bionco president and
Speaker 2: founder of Bianco Research, who does a really allegic effort
Speaker 2: here on economics and dovetailing it into the state we're
Speaker 2: in and then, as John mentioned, there's the debt and
Speaker 2: the deficit. I read Hail Bronner Bernstein years ago, just
Speaker 2: the Bible on all the sum of our fears here.
Speaker 2: How a fear are you of the debt debate?
Speaker 11: I'm probably more aligned with Wall Street. I mean, there's
Speaker 11: two types of people when you talk about the debt debate.
Speaker 11: There's those put it in Bloomberg terms that Anne Marie
Speaker 11: Harton would interview, that would tell you there's a forty
Speaker 11: or fifty percent chance that we're going to default. And
Speaker 11: then there's the Wall Street types that will tell you
Speaker 11: that there's a three or four percent chance that we're
Speaker 11: going to default. I'm probably in the three or four
Speaker 11: percent chance that we're actually going to see a default.
Speaker 11: We're going to see a lot of political theater. And
Speaker 11: I think what the markets heard from Speaker McCarthy the
Speaker 11: other day was that the President has appointed somebody to
Speaker 11: negotiate with him. So that means we're going to get
Speaker 11: a deal. And I think that a deal is largely
Speaker 11: expected in the market, and if there was not a deal,
Speaker 11: that would be the surprise.
Speaker 6: So there's a market call to make as well. In
Speaker 6: that what is your market call around the story.
Speaker 3: You mean around the debt ceiling.
Speaker 6: Well, if you believe it's not price, then you also
Speaker 6: believe you acknowledge to some degree there is some risk here.
Speaker 3: There is risk.
Speaker 11: Do you think that risk is I think, well, I
Speaker 11: think that risk is really in the short term bill market,
Speaker 11: and I think that that risk is potentially in the
Speaker 11: banking system. Remember that treasury bills treasury securities are used
Speaker 11: as reserves. That's a fancy way saying there are another
Speaker 11: form of money, is what they are. And if we
Speaker 11: were to default on those, we would throw the banking
Speaker 11: system into complete chaos because their reserves that they use
Speaker 11: would no longer be worth anything, at least for the
Speaker 11: day or two or three or however long we didn't
Speaker 11: pay them. That's the risk that you would face if
Speaker 11: we were to have a default. And there is a
Speaker 11: risk out there right now that if this negotiation falls apart.
Speaker 11: I don't think it will, but that is your risk.
Speaker 11: So you've got to use a fancy word, any symmetric risk.
Speaker 11: If there's a deal, there's gonna be very little movement
Speaker 11: in the market. If there isn't a deal, we're going
Speaker 11: to have to reprice the markets.
Speaker 6: Then whether it's a problem the FED has a solution. Typically,
Speaker 6: do they have a solution for that?
Speaker 11: I don't think they do, nor do I think they should.
Speaker 11: This is a political issue, is what this is. We
Speaker 11: elected congressmen and senators to represent us, and if they're
Speaker 11: in their infamite wisdom decide to represent us by defaulting
Speaker 11: on its debt, we'd have to figure that out.
Speaker 6: If that becomes a market functioning issue, doesn't the FEED
Speaker 6: have a role to play?
Speaker 11: It does to some extent, but you also have to
Speaker 11: be careful that you're not undoing the will of Congress.
Speaker 11: Where where does one and the other? That's why I
Speaker 11: think that this will get resolved because it is all
Speaker 11: on Congress. If this happens, if we have a debt default,
Speaker 11: it is not on the FED for mitigating it.
Speaker 8: What's the next crisis? Then? If this gets off the
Speaker 8: crisis off the table, then what do people focus on next?
Speaker 11: Well, I think we go back to focusing on the
Speaker 11: banking crisis. And I think we go back to focusing
Speaker 11: on you know, go back to the Senior Loan Officer survey.
Speaker 11: Do we see lending you know, tighten up and continue
Speaker 11: to tighten up? And do we see problems then metastasized
Speaker 11: because lending is going to continue to tighten. And then
Speaker 11: I think the other one would probably be, if you know,
Speaker 11: going with my forecast, do we see a bottom of
Speaker 11: inflation this summer, and then does the FED come up
Speaker 11: short of their target and does all the talk of
Speaker 11: cuts in the funds rate by the end of the
Speaker 11: year kind of go away?
Speaker 8: Do you feel like people are exhausted by the pessimism
Speaker 8: that they've heard the sky is falling for so long
Speaker 8: and it hasn't happened, that they're basically tuning it out
Speaker 8: and basically saying, yeah, yeah, yeah, you've been wrong, which
Speaker 8: is basically some of the messaging that I keep hearing.
Speaker 8: How much is that really kind of prevailing?
Speaker 2: Oh?
Speaker 11: I think it's prevailing quite a bit. I mean, you know,
Speaker 11: it goes all the way back to the pandemic, when
Speaker 11: we had the ultimate pessimism we were all going to die,
Speaker 11: that was what we had for the pandemic, and then
Speaker 11: we all didn't die, so and then we've kind of
Speaker 11: recovered it's yell from that. So yeah, I mean, I
Speaker 11: think there's a lot of frustration. I'll go back to
Speaker 11: what I said earlier. The markets haven't done anything. So
Speaker 11: no one is right, no one is wrong. You know,
Speaker 11: the optimists are still waiting for the breakout and the
Speaker 11: pessimists are still waiting for the breakdown, and that this
Speaker 11: just continues in the frustration continues to build.
Speaker 8: If there is no debt ceiling default, right, and we
Speaker 8: do have that sense by the next FED meeting, and
Speaker 8: we don't really have a sense of ongoing stress that's
Speaker 8: really coming to a head in the banking system. How
Speaker 8: much of a disruptive force would fedbee if they actually
Speaker 8: did hike rates at the June meeting.
Speaker 11: Oh, I think they would be a hugely disruptive force
Speaker 11: if they If they continued to hike rates, they would
Speaker 11: exacerbate the bank walk. I mean, this is becoming the
Speaker 11: national pastime right now, is pullet your phone and brag
Speaker 11: about your money market fund. It's no longer about a
Speaker 11: mean stock anymore. And that would just exacerbate that and
Speaker 11: at higher rates will then definitely filter through in the economy.
Speaker 11: I'm county for one that still thinks that rates matter
Speaker 11: and that if the FED wants to raise I know
Speaker 11: that's a wild thought, yeah, but if the FED wants
Speaker 11: to raise rates, it's going to really hurt the economy.
Speaker 2: Band was everybody modeling a six percent money market fund
Speaker 2: I mean, imagine that.
Speaker 8: We actually think Lindsay pigs I was talking about a
Speaker 8: six percent fed funds rate still on the table, even
Speaker 8: though everyone's taking that off and then triple over cat.
Speaker 1: Thank you it's worked out well.
Speaker 2: You had a two and twenty payout last year this year,
Speaker 2: I don't think we're gonna do it. Ralphankaport, you're a CMT.
Speaker 2: You want to adore Ralphank. I know he was on
Speaker 2: the show and Ralph said October was the SPX bearmark low.
Speaker 2: We're up fourteen percent SPX off the Akompoor low.
Speaker 1: That to me is stunning.
Speaker 2: Nobody's talking about this, and a lot of people missed
Speaker 2: this lift off this low, didn't they.
Speaker 11: Yes, so we've for six months and fourteen percent off
Speaker 11: the low. But I would also say, if you wanted
Speaker 11: to back up and look at the January high, we've
Speaker 11: only retraced half story.
Speaker 1: Get me on my story here. Don't give me this
Speaker 1: technical analysis stuff. Go with the story.
Speaker 11: Yeah, you know, the market has lifted off the low,
Speaker 11: but what I'm saying is it's still well away from
Speaker 11: the highs and it's been reandering sideways. So you know,
Speaker 11: I see a market without a conclusion right now in
Speaker 11: terms of the sideways. It's waiting to see what comes next.
Speaker 2: Remember the first time you read John Maggie, this is
Speaker 2: a textbook, John, written in nineteen forty something. You read
Speaker 2: Maggie and a support and support and resistance in the
Speaker 2: bottom line, John is you can make up any story
Speaker 2: you want.
Speaker 1: So I got a story. I'm coming from the October
Speaker 1: low and the smart guy over here is going no,
Speaker 1: you got to bring it back further. And it's not
Speaker 1: that glorious of a story. Technical analysis stock tr by
Speaker 1: John Maggie.
Speaker 6: So my favorite story right now, allow me to share
Speaker 6: it with you. I can get behind this bill in Washington,
Speaker 6: d C. There no pay for Congress during default or
Speaker 6: shut down act. It's doesn't that sound great? Awesome?
Speaker 1: Who's a sponsor?
Speaker 6: The sponsor Representatives Abigail Spenberger Democrat, Virginia Bran Fitzpatrick Republican Pennsylvania.
Speaker 6: Love that, Love that. So this is what NBC is saying.
Speaker 6: A bipartisan bill set to be unveiled today with block
Speaker 6: members of Congress from getting paid off. The US Center's
Speaker 6: debt default or if the government shuts down. I think
Speaker 6: we're all on board, which means one thing. If we're
Speaker 6: all on board, they certainly aren't down in Congress.
Speaker 8: This is revenge of the middle, this is revenge of
Speaker 8: the sentences. Right, it's revenge of the guys. What are
Speaker 8: we doing here trying to gain political points in holding
Speaker 8: the US's future in hand?
Speaker 6: Can you get behind that, gym Oh, of course I
Speaker 6: can get behind that.
Speaker 11: I think we should go with when we hit the
Speaker 11: debt ceiling and retroactively stop paying him.
Speaker 6: Since January, I've said all along, just pairm and tee bills,
Speaker 6: pam T boats.
Speaker 11: Pay them in January first, t bulls in January eighth,
Speaker 11: T bulls.
Speaker 8: To do that.
Speaker 6: I want leader in the Eurozone debt crisis. They should.
Speaker 6: They should have been paid in in BTPs and in
Speaker 6: Greek debt. Pay the German politicians in Greek debt. Thanks quick.
Speaker 2: The most important masters Bamberger is x Cia and she
Speaker 2: won her primary fifty to forty eight percent.
Speaker 1: She's in the middle, and that's what the middle of
Speaker 1: Americas think.
Speaker 6: Hey Jim, this is great. Love it you, jimp Boncov Research.
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Speaker 1: Thanks for listening. I'm Tom Keen, and this is Bloomberg