Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: Terminal and the Bloomberg Business app. CPI coming in below expectations,
Speaker 2: trade us adding to bets for two more rate cuts
Speaker 2: this year, including one next Wednesday. David Kelly of JP
Speaker 2: Morgan Assen Management joins us. Now for more, David, let's
Speaker 2: start with the inflation data. Is three the new two?
Speaker 2: And is it going to stop this feder reserve from
Speaker 2: cunning interest rates?
Speaker 3: Well, I think the Fed's going to keep on cutting rates.
Speaker 3: It's generally a better than expected to report. But I
Speaker 3: think what a really show is we have a K
Speaker 3: shaped economy, and it's sort of a K shaped CPI report.
Speaker 3: The thing that really jumped out of me is first
Speaker 3: of all rental costs coming down. There's you know, we've
Speaker 3: got a big change in demographics here and rents are
Speaker 3: rental inflation is just going away. You also saw US
Speaker 3: vehicle prices full. I thought that was pretty interesting. And
Speaker 3: then the big thing here is core goods prices outside
Speaker 3: of food and energy. That's the stuff that should be
Speaker 3: hit by tariffs. But that's only up two tens of
Speaker 3: percent of one and a half percent year over year.
Speaker 3: It is clear that mainstream retailers don't believe they can
Speaker 3: pass on the tariff increases right now, and that's what's
Speaker 3: making this inflation rate a little bit tamer than people feared.
Speaker 4: David doesn't's just justify what the market's already sussed out,
Speaker 4: which is that inflation fears were overblown earlier this year.
Speaker 4: The Fed can keep cutting and potentially below three percent
Speaker 4: by the end of next year, and that it's not
Speaker 4: going to cause a huge inflation problem.
Speaker 3: Well, I never thought we had a long term inflation problem.
Speaker 3: But I think it is still early days on the
Speaker 3: tariff effects. So what's going to happen is right now
Speaker 3: retailers feel like they can't pass on the price increases.
Speaker 5: But early next year you're going to have this refund bonanza.
Speaker 3: The average incompact refund per household, we believe it's going
Speaker 3: to be able four thousand dollars. Last year is thirty
Speaker 3: two hundred dollars, and that is the exact time when
Speaker 3: retailers are going to feel like they can pass on
Speaker 3: these tariff increases. So I do think we've got a
Speaker 3: little bit of a spurred in tariff inflation still to come.
Speaker 3: But then you know, if nothing else happens, there isn't
Speaker 3: a lot of momentum in this economy, and it'll slow
Speaker 3: down again, and it'll cool down again. So I don't
Speaker 3: think we've got a long term inflation problem. My real
Speaker 3: question is, given how bubbly financial markets are, do you
Speaker 3: really need the Federal Reserve adding more liquidity to the
Speaker 3: party right now? Or should they just hang on in
Speaker 3: there and say this is enough liquidity?
Speaker 1: What are you saying?
Speaker 4: What are you seeing that really is bubbly Given the
Speaker 4: fact that earnings have exceeded expectations, the forecasts have exceeded expectations,
Speaker 4: and we're likely to see more of the same next week.
Speaker 3: With the tech earnings, valuations are extremely high for the
Speaker 3: over now. Obviously, it's a lot of it's concentrated in
Speaker 3: the mega cap stocks, but also profits is a share
Speaker 3: of GDP are extraordinarily high. So overall, the total valuable
Speaker 3: US market cap is about three hundred and sixty five
Speaker 3: percent of GDP right now. It was about two hundred
Speaker 3: and twelve percent before the tech bubble bursts back.
Speaker 5: In two thousand.
Speaker 3: It was eighty seven percent before the eighty seven stock
Speaker 3: market crash. So there's all you know, it's leverage upon leverage,
Speaker 3: high pe ratios on a very high level of earnings
Speaker 3: relative to GDP. Now, I still think this is a
Speaker 3: very good economy for equities, but I wouldn't say that
Speaker 3: you could call the market depressed at this stage. I
Speaker 3: think that, you know, one of the dangers here is
Speaker 3: that everybody gets out over their skis and then you
Speaker 3: have a significant market correction or a bear market.
Speaker 6: So are you talking about potentially if the Fed is
Speaker 6: cutting into strength, they'll be making an error this month.
Speaker 3: Yeah, because it's a different economy. And talking about well
Speaker 3: the Fen's going to tighten to lower inflation, forget about it.
Speaker 3: The federal reserves, short term ingistrates are not impacting growth,
Speaker 3: They're not impacting inflation, but they are impacting financial markets.
Speaker 3: And the big problem that we've had in this century
Speaker 3: of the two thousands hasn't been CPI inflation getting getting
Speaker 3: out of hand. It's asset bubbles, you know, whether it's
Speaker 3: housing bubbles or tech bubbles. And the Federal Reserve should
Speaker 3: not be in the business of blowing up bubbles. So
Speaker 3: I think they should, you know, just take it easy.
Speaker 3: I don't mind if they cut rates a little bitsier,
Speaker 3: but I certainly would have a problem if they cut
Speaker 3: rates below what they think neutral is if the economy
Speaker 3: is you know, is not threatened by a recession, because
Speaker 3: we are seeing money go into financial markets, go into
Speaker 3: financial assets and just not come out. And it's sort
Speaker 3: of it's kind of like a stuck valve, and the
Speaker 3: more money goes in, the more this this market just
Speaker 3: seems to accelerate upon itself.
Speaker 2: And David, if we ask Governor want of this question
Speaker 2: when he was on the program last week, we asked
Speaker 2: whether it's getting lolved into kind of interest rates and
Speaker 2: potentially reducing financial markets. David, do you think there's a
Speaker 2: problem with their interpretation of the dual mandate or just
Speaker 2: the your mandate.
Speaker 5: I think the dual mandate itself.
Speaker 3: I think that I think that if they need, Congress
Speaker 3: needs to recognize, they need to recognize that monetary policy
Speaker 3: has significant impacts on financial conditions, and therefore maintaining stable financial.
Speaker 5: Conditions should be part of the goal.
Speaker 3: It's kind of like with the ECB, who for years
Speaker 3: decided they didn't they weren't supposed to interview if one
Speaker 3: particular country got into significant economic distress and destabilize the eurosystem.
Speaker 3: And then finally Mario drag He said, look, if Greece
Speaker 3: is a problem, we're going to do something about Greece. Well,
Speaker 3: this is a similar situation where the mandate needs to
Speaker 3: be expanded a little to recognize the impact of FED
Speaker 3: policy on financial and other asset price bubbles, to try
Speaker 3: to prevent bubbles or busts, because of course that's what
Speaker 3: you bubble creates a bus and you want to have
Speaker 3: financial market stability, not just economic stability, and I think
Speaker 3: the Federal Reserve can have an impact on that.
Speaker 2: Stay with US multile impact surveillance coming up after this,
Speaker 2: a downside surprise on headline and core CPI unlocking some
Speaker 2: lower bondiolds this morning. Going into that Federal Reserve decision
Speaker 2: next Wednesday. Joining us now to discuss is Tiffany wanting
Speaker 2: of pimcod Tiffany welcome to the program. Is this a
Speaker 2: source of comfort for this Federal Reserve next week?
Speaker 7: Well, I mean, I don't know.
Speaker 8: I mean, I think certainly it's good news on the
Speaker 8: inflationary pressures. But the argument that we've been making, which
Speaker 8: I think is symptomatic of this report, is that the
Speaker 8: economic adjustment that we're seeing to tariffs is coming through
Speaker 8: less on a price adjustment, and instead companies are finding
Speaker 8: ways to defend margins by offsetting other costs. You know.
Speaker 8: I think the fact that you saw another headline this
Speaker 8: morning around a large retailer, you know that is doing
Speaker 8: you know, some layoffs at the you know, kind of
Speaker 8: higher executive levels.
Speaker 7: That's just in our minds symptomatic.
Speaker 8: Of that that that they are I'm finding these other
Speaker 8: ways to cut costs. So you know what that means
Speaker 8: for the Federal Reserve is that there is some downside
Speaker 8: risk to the labor market here. So I don't I
Speaker 8: don't know that they should be you know completely, you know,
Speaker 8: taking a sigh of relief here. We need to see
Speaker 8: the labor market data obviously when the government reopens. But
Speaker 8: as as you and Mike mentioned, we do think they
Speaker 8: cut in October, you know, and of course the median
Speaker 8: expectation from the FED is that they'll cut again in December.
Speaker 2: How much the forward look can they give us at
Speaker 2: the October mating, Tiffany, when chem and Pal goes into
Speaker 2: the news conference, Hey doesn't have much visibility on anything
Speaker 2: right now. How much guidance can he offer us for
Speaker 2: December and beyond.
Speaker 8: Yeah, I mean, I think it's incredibly tricky, and I'm
Speaker 8: not sure that they will offer a lot of guidance.
Speaker 7: You know.
Speaker 8: I think they're going to they're gonna they're going to
Speaker 8: say that we don't have a lot of data to
Speaker 8: go on here. There's private sources of data, but even there,
Speaker 8: it appears that some of the Feds, you know, the
Speaker 8: previous sources of private data that they got in the
Speaker 8: labor market, maybe they're not getting anymore. So it is
Speaker 8: a much more tricky situation for the FED. You know,
Speaker 8: they're going to be looking at you know, markets and
Speaker 8: you know, and I think the news flow in order
Speaker 8: to kind of figure out what's going on here. And
Speaker 8: I think it's going to be really tough for him
Speaker 8: in terms of guiding any further tiffany.
Speaker 1: A lot of people have been looking at the housing.
Speaker 4: Market in particular as a sign of disinflation going forward,
Speaker 4: and one thing that Mike pointed to is owner's equivalent rent.
Speaker 4: Looking at this, it just looks like inflation and owner's
Speaker 4: equivalent rent has fallen to the lowest pace going back
Speaker 4: to twenty twenty one, with a pretty big decline, which
Speaker 4: is one thing that's giving fuel to some of the
Speaker 4: enthusiasm and pun markets this morning.
Speaker 1: I'm just wondering how big of a tell that is
Speaker 1: for you. Yeah.
Speaker 8: No, I mean I think that that the normalization in
Speaker 8: housing and rents is something that you know, the economics
Speaker 8: community has expected for some time, and I would argue
Speaker 8: that it's delayed, and it was delayed because we saw
Speaker 8: a really big immigration boom over the last couple of years.
Speaker 8: Now obviously that the immigration police has taken a big
Speaker 8: u turn, you're not seeing those tailwinds of you know,
Speaker 8: additional population coming into the United States needing housing, and
Speaker 8: as a result of that, you're seeing rens cool off
Speaker 8: quite a bit. So I don't think it's that surprising,
Speaker 8: you know, but I do think it's you know, one
Speaker 8: of one of the things that should give the Federal
Speaker 8: Reserve comfort, you know that they you know, the inflationary
Speaker 8: pressures outside of you know, some terraff related pass through
Speaker 8: are pretty benign at this point, given.
Speaker 4: The fact that we're seeing no inflationary pressures to note
Speaker 4: that really are even beyond what people expected, and you
Speaker 4: are getting these announcements you were talking about the target
Speaker 4: announcements without naming them, laying off about a thousand people
Speaker 4: and removing eight hundred jobs from their listings. We also
Speaker 4: saw GM announcing around of job cuts this morning. I'm
Speaker 4: just wondering how much these are just anecdotes and typical
Speaker 4: versus something that really is softening, that is behind the disinflation,
Speaker 4: as well as the concerns that the Fed has about
Speaker 4: the labor market.
Speaker 8: Yeah, I mean, I mean again, we think it's it's
Speaker 8: very symptomatic of how we see the economy that's ultimately
Speaker 8: adjusting to tariffs. You know, I think the really big
Speaker 8: surprise this year coming in, you know, coming into the
Speaker 8: year and thinking about tariffs is that you'd get some
Speaker 8: price level adjustment. And there's multiple ways that companies can
Speaker 8: adjust to this. You know, and I think what we're
Speaker 8: learning is that, you know, they're not fully adjusting prices
Speaker 8: and that they're trying to offset costs in other ways,
Speaker 8: you know.
Speaker 7: And I think the fact that you're seeing this.
Speaker 8: AI investment boom and some broadening out just in the
Speaker 8: diffusion of AI technology, companies are hoping to get some
Speaker 8: labor saving cost benefits here and investing in capital because
Speaker 8: of the tax the new tax law, the One Big
Speaker 8: Beautiful Bill Act, you know, gives you pretty big you know,
Speaker 8: tax tax incentives with upfront capital expensing. So I think
Speaker 8: companies are really just making this adjustment, you know, more
Speaker 8: so through the labor market and in terms of the
Speaker 8: federal reserve, and they're mandate. You know, that just suggests
Speaker 8: that they have more room to start to uh, you know,
Speaker 8: to adjust policy back towards neutral. If they do cut
Speaker 8: two more times this year, they would be uh, you know,
Speaker 8: three three and a half, which is kind of the
Speaker 8: upper end of the range of neutral estimates that they have.
Speaker 8: And so getting back there and making that adjustment, you know,
Speaker 8: seems very reasonable to us, just given the information that's
Speaker 8: coming in tifically.
Speaker 6: When you say labor saving cost benefits, should we all
Speaker 6: be expecting more layoffs then to be announced in twenty
Speaker 6: twenty six.
Speaker 8: Well, I mean, I think the the economy will will
Speaker 8: need to go through an adjustment as a result of
Speaker 8: you know, these these transitions that we're seeing, whether it
Speaker 8: be you know, the policy related transitions this year or
Speaker 8: you know this tech uh you know sort of tech
Speaker 8: transition that we're seeing. You know, it does seem like
Speaker 8: AI is moving pretty quickly, you know. I think it's
Speaker 8: you know, it's it's still uncertain how how much productivity
Speaker 8: gains will will actually will actually get and how that
Speaker 8: will you know, save costs for companies, you know, but
Speaker 8: I think it we are starting to see the effects
Speaker 8: of that.
Speaker 7: I think you could start to see.
Speaker 8: It at announcements layoff announcements as well at some of
Speaker 8: the tech companies. You know, it is displacing some workers. Now,
Speaker 8: I think what's harder to understand is, you know, eventually
Speaker 8: it will also create new jobs.
Speaker 7: And how quickly will that happen and what.
Speaker 8: Those new jobs will be is more difficult to forecast.
Speaker 8: But I think at least in the near term you
Speaker 8: will see some you know, some labor saving you know,
Speaker 8: displacement here and the companies need that and are forced
Speaker 8: to try to get it because they have more terar
Speaker 8: for related costs.
Speaker 2: Stay with US mult Bloomberg Surveillance Coming up after this,
Speaker 2: President Donald Trump and Chinese President Chaing Ping is set
Speaker 2: to meet on Thursday in South Korea as the world's
Speaker 2: two lunchest economies looked at East trade sentience. To extend
Speaker 2: the conversation, George Pollack of Signum joined US. Now for more, George,
Speaker 2: that's Guy's for the issue rare raths, soybeans, and then
Speaker 2: we've got the issues around fence and O. Of those three,
Speaker 2: what's the higher, Rocky, what's the more difficult one to achieve?
Speaker 9: I think for the President, the most difficult one to
Speaker 9: achieve is rare earth because China understands that with rare
Speaker 9: earths they have the US and a disadvantageous position. And
Speaker 9: they remember when these tiers were first implemented earlier this year,
Speaker 9: the car manufacturers came to the president and said, if
Speaker 9: you don't get the rare earths started, we're going to
Speaker 9: have to shut down production. And China knows that, and
Speaker 9: that's where the President's probably going to have to be
Speaker 9: most aggressive. But at the same time, understand China has
Speaker 9: the advantage.
Speaker 6: Is China sending any signals that they're prepared to walk
Speaker 6: back what they plant, what they have been doing when
Speaker 6: it comes to rare earth.
Speaker 9: I think China's understanding of this rare issue is we
Speaker 9: haven't really done anything, and what we have done was
Speaker 9: more a response to your restrictions, and all we're doing
Speaker 9: is setting up a new licensing regiment. Rare earth are
Speaker 9: going to continue to come out, and you don't have
Speaker 9: to worry. It's be happy with the status quote. But
Speaker 9: you decided to change things up and you've decided to
Speaker 9: overreact and become more pugnacious.
Speaker 6: Well, it's not just a new regime when it comes
Speaker 6: to rare Earth's any material that China exports it has
Speaker 6: an ounce of a trace of a rare earth needs
Speaker 6: to get a specific export license, which is why the
Speaker 6: Europeans are even considering using their anti coercion tool, George.
Speaker 6: The fact that the Europeans are willing to go to
Speaker 6: the third rail, a tool they've never used in any negotiation,
Speaker 6: is that at the moment helping the United States into
Speaker 6: Thursday's meeting.
Speaker 9: I think for the President from Scott Bessen's O viewpoint,
Speaker 9: it is helping, It is helping the president give him
Speaker 9: a more global power and a more global idea that
Speaker 9: this can't go on. But at the same time, China's
Speaker 9: responded to this as that's great that you're united, but
Speaker 9: we still have the advantage and we don't understand why
Speaker 9: you're being so aggressive with us back and why you're
Speaker 9: deciding to play it so fast and loose.
Speaker 6: So what's your case then, for Thursdays, it's just a
Speaker 6: continuing rolling truth.
Speaker 9: Our base case is a continuing rolling truth where the
Speaker 9: US and China understand the current situation where the presence
Speaker 9: of threating increased tariffs and the continuing threat that is
Speaker 9: a new licensing regime kind of rolls back to an
Speaker 9: extent where we get back to the Geneva London understanding.
Speaker 9: But that doesn't mean it's a positive situation because we're
Speaker 9: still going to be having these situations pop up every
Speaker 9: couple of weeks where either the President is frustrated or
Speaker 9: China is frustrated.
Speaker 4: In the fact, in the past few weeks, it seems
Speaker 4: like the US has been trying to mend relations with
Speaker 4: a number of traditional allies and create closer ties, which
Speaker 4: is the reason why, in the wake of the announced
Speaker 4: meeting between Jijinpang and President Trump, the new tensions with
Speaker 4: Canada are interesting.
Speaker 1: How do you sort of understand.
Speaker 4: That in the bigger sphere of negotiations with.
Speaker 9: China in terms of the attentions with Canada. The way
Speaker 9: we view this is Canada's right now between a rock
Speaker 9: and a hard place within the Canola tariffs and ev
Speaker 9: tears they've placed on China, and they need to get
Speaker 9: that restarted. But at the same time they need to
Speaker 9: deal with USMCA renegotiation. And we've always thought that USMCA
Speaker 9: is going to be an aggressive renegotiation from the President
Speaker 9: and things like transhipment and rules of origin are going
Speaker 9: to come into play. And I think for the President,
Speaker 9: he's making clear to Canada, you're either with US the
Speaker 9: United States, or are you with China. You can't get both.
Speaker 4: This feels like a long game of leverage, and that's
Speaker 4: sort of been the big question between the US and China.
Speaker 1: Who has the leverage, And people argue on both sides.
Speaker 4: China having the leverage and rare earth minerals, maybe the
Speaker 4: US having a bit of an edge when it comes
Speaker 4: to technology, and just the.
Speaker 1: Dynamism in the US economy. I just wonder how much.
Speaker 4: You expect there to be some discussion of Russia and
Speaker 4: oil purchases, how much that's on the table versus just
Speaker 4: getting there and figuring out how to job own and
Speaker 4: kind of poke your elbows out, sort of have the
Speaker 4: same thing that we have right now.
Speaker 9: I have no doubt that there's people in the White
Speaker 9: House who would like to discuss Russia, whould like to
Speaker 9: discuss oil. But I think the President's made clear hisorities are,
Speaker 9: among other things, fentanel and soybeans, and I think that's
Speaker 9: where his focus is going to be. He is thinking
Speaker 9: short term right now, and his most likely his biggest
Speaker 9: short term weakness is the farmers, and is their inability
Speaker 9: to get assistance during the shutdown, and inability to get
Speaker 9: assistance because China, what for the first time in seven
Speaker 9: years in September did not purchase a single soybean.
Speaker 2: Can you tell me, George, your day on the calendar
Speaker 2: was circled when you think the shutdown finishes.
Speaker 9: I think we're still taking the place that this ends
Speaker 9: in November first for US Democrats. Send Democrats understand that
Speaker 9: at November first, the open care healthcare woman opens up.
Speaker 9: Republican voters are going to see the other premiums increase,
Speaker 9: and for Democrats that will be well will be negative
Speaker 9: for voters. Democrats will be able to say we wanted
Speaker 9: to fix this, Republicans were the one.
Speaker 5: Who said no.
Speaker 6: So you're basically saying it ends November first because Democrats
Speaker 6: will line up for the continuing resolution, not because they
Speaker 6: struck a deal with Republicans on healthcare.
Speaker 9: I think we will have to happen as Senator Schumer
Speaker 9: will have to walk with a hard line to not
Speaker 9: go down, but to navigate his caucus and to allow
Speaker 9: either the retiring members or the more moderate members to
Speaker 9: vote for it, and then message saying Democrats wanted to
Speaker 9: fix your healthcare. Democrats wanted you to avoid these premiums,
Speaker 9: but Republicans were the one who are saying no. And
Speaker 9: that will be the I guess the Democratic win will
Speaker 9: be one making healthcare an issue in the elect In
Speaker 9: the election, two Democrats being able to take the eighty
Speaker 9: twenty side of an issue the eighty side of an
Speaker 9: eighty twenty issue, and Democrats being able to say Republicans
Speaker 9: are the ones to blame for what is happening with
Speaker 9: your premiums, and if you want to punish them, the
Speaker 9: best way to do that is to vote for us.
Speaker 10: Stay with us.
Speaker 2: More Bloomberg Surveillance coming up after this, stocks rising, its
Speaker 2: markets are way. The latest read on inflation, John Stoffers
Speaker 2: of Oppenheimer writing, our intermediate and longer term outlook for
Speaker 2: the US economy and the stock market remains decidedly drum
Speaker 2: roll bullish, John, the most bullish man on the street.
Speaker 2: Let to see a second month, to see you too.
Speaker 2: Let's get to somebody these questions regarding inflation. How relevant
Speaker 2: is this morning CPISA to today's market.
Speaker 11: I think as long as it comes in in line
Speaker 11: or close to inline, I think we'll be fine. If
Speaker 11: it's a drastic surprise, then of course to higher inflation,
Speaker 11: not so. And if it's also much lower inflation than
Speaker 11: people say, we're in trouble. Is the Fed going to
Speaker 11: do fifty in set of twenty five? So it's any
Speaker 11: kind of action that can create BIPs for the traders
Speaker 11: you have to watch for. But we think it'll be
Speaker 11: it'll come in line with expectations, and we think that
Speaker 11: we're going to cut tomorrow.
Speaker 2: It's important today next week, it shapes perceptions of feder
Speaker 2: reserve policy for next week and beyond. Does it shape
Speaker 2: perceptions of money policy for next week and beyond?
Speaker 11: You know, I think it's We've said for a long time,
Speaker 11: we think the Fed is making down payments to Main
Speaker 11: Street and to Wall Street to give them an idea. Indeed,
Speaker 11: this this monetary tightening policy period is ending, not ending
Speaker 11: as quick or as deep in terms of the cuts
Speaker 11: as both Main Street and Wall Street would like. But sometimes,
Speaker 11: you know, you can't always get what you want, but
Speaker 11: you may find you get what you need.
Speaker 4: You know, Well, at this point, we're looking at earnings
Speaker 4: that are coming in better than expected. We're looking at
Speaker 4: a FED that's going to look past any kind of CPI.
Speaker 1: Print and cut rates.
Speaker 4: And yet yes, you're bullish at the same time you're
Speaker 4: talking about going up in quality.
Speaker 1: How do you pair those two ideas?
Speaker 5: Well?
Speaker 11: You know, I think you have to be realistic in
Speaker 11: that the market has genuinely shown that it's still a
Speaker 11: little bit nervous about small and midcaps.
Speaker 10: You have these days when we go.
Speaker 11: Risk off, where they don't go completely risk off in
Speaker 11: a traditional sense. They're not running out of the market,
Speaker 11: but all of a sudden, you'll see the smalls in
Speaker 11: the mids will get a good day, you know, versus
Speaker 11: the large caps. But when it comes down to it,
Speaker 11: people are concerned that perhaps the economy is weaker than perceived.
Speaker 11: We're in this blackout period without without any data flow.
Speaker 11: So the thought really is, it's you hug the large caps. Also,
Speaker 11: the large cap stocks appear to be the most resilient
Speaker 11: when it comes to earnings. If you look at the
Speaker 11: earnings reports for the last earning season fourth quarter, first quarter,
Speaker 11: second quarter, and thus far third quarter, this looks good.
Speaker 4: I love a good cliche on a Friday morning. What
Speaker 4: inning are we in here? Just because that is sort
Speaker 4: of a question, given that some people were talking about
Speaker 4: almost recession like conditions earlier this year that have really
Speaker 4: revived in a sort of reacceleration now into the beginning
Speaker 4: of next year.
Speaker 11: Yeah, I'd say, you know, we've thought for a long
Speaker 11: time because of the change in the federal reserves policy
Speaker 11: and the way it acts, how quick it acts, and
Speaker 11: how communicative it is, that essentially we've for a long
Speaker 11: period been it's an extended mid cycle. I like to
Speaker 11: say the economic cycle is as wide as the Amazon
Speaker 11: and we mean the river.
Speaker 10: Okay, because it's been going on for a long time.
Speaker 11: How often have you heard from the bears were light
Speaker 11: cycle that all of a sudden some of the most
Speaker 11: bearished in the past are saying we're actually coming to
Speaker 11: early cycle.
Speaker 10: And we're going back. But no, I think it's it's
Speaker 10: a big fat mid cycle.
Speaker 11: And it's because between the federal reserve policy that's Ben
Speaker 11: Bernanki legacy, as well as increased use of technology creating
Speaker 11: greater efficiencies for both the consumer and business, and experience
Speaker 11: that's been garnered from all these things, whether it was
Speaker 11: the financial crisis, COVID coming out of COVID, supply chain,
Speaker 11: trade wars, all this stuff, it's you know, it's it's
Speaker 11: better than expected.
Speaker 10: And it's resilience. It's not you know, what was the old.
Speaker 11: Word they used to host robust. Heck with robust, I
Speaker 11: will take resilience.
Speaker 10: Is what I like.
Speaker 1: Well, you in a very long term view.
Speaker 6: Short term though there's a lot of policy uncertainty, what
Speaker 6: gives you the most angst?
Speaker 11: And Marie, it's the the well, what gives me the
Speaker 11: most angst has very little to do a lot of
Speaker 11: times with the market. It's just that the popularism of
Speaker 11: socialism and communism, which are failed ideologies, is rising in
Speaker 11: different places around the world. But I think related to
Speaker 11: what keeps me up at night is just I look
Speaker 11: at valuations, and as long as it's recognized that valuations
Speaker 11: are probably higher than historical standards would have us at
Speaker 11: this point, what we're believing is that people are investing
Speaker 11: more seriously than ever before, at least in the US,
Speaker 11: because they recognize social security will simply not be the
Speaker 11: same percentage of income and retirement, and people are worried
Speaker 11: that they might live too long. They don't want to
Speaker 11: lose their living standards, and so people go to equities,
Speaker 11: which historically have proven to be past performance no guarantee
Speaker 11: of future results. But it's that equities have shown resilience
Speaker 11: in dealing with inflation, changes in the economy, changes in
Speaker 11: tread in trend. It's good to own a good business.
Speaker 2: This must be a generational thing. Who do you know
Speaker 2: the worries about living too long?
Speaker 10: Well, you know, but everybody the same thing. Do you
Speaker 10: know if you want not at all?
Speaker 11: If you look at it though, if you look at
Speaker 11: the another year with the report in terms of investor behavior,
Speaker 11: it's cross generational, so you still have among the youth,
Speaker 11: you still have the desire to gamble a in a
Speaker 11: bull market.
Speaker 10: It's the crypto, it's gold or silver.
Speaker 2: Way Ama that bus to take resks, don't you?
Speaker 10: Oh, and you need that. It's good for liquidity.
Speaker 11: But they also are investing seriously on the other side
Speaker 11: of it because they recognize that this social security. It's
Speaker 11: not that the politicians are going to eliminate it. That
Speaker 11: would be like an insurance company default and those people
Speaker 11: would never get elected ever again to anything. But they
Speaker 11: recognize it just will not be the same support that
Speaker 11: it was, the same safety.
Speaker 2: I think America gets it. I think it's the Europeans
Speaker 2: that don't. The state is just not going to be
Speaker 2: there for them, particular our generation in the coming decades.
Speaker 2: The state is not going to be there for them
Speaker 2: in the same way. Do you see the Europeans doing
Speaker 2: the same thing to invest to participate in capitalism in
Speaker 2: a secuity market.
Speaker 11: I think from a cultural perspective, it's more difficult to
Speaker 11: move towards that You've begun to see it, just in
Speaker 11: terms of if you look at elections in Europe, if
Speaker 11: you look at the way the market is beginning to
Speaker 11: respond to needs for development of technology to some extent.
Speaker 11: All of that shows that things are changing, but slower
Speaker 11: because it has been you know, Europe and the UK
Speaker 11: have been steeped in socialistic practices that are big government
Speaker 11: and that's expensive bureaucracy for the services provided.
Speaker 10: And there's a move that's beginning to happen.
Speaker 11: It's a pendulum that's slow, and politically it's gosh. You
Speaker 11: have to you have to avoid missing the signal for
Speaker 11: all the noise on a day to day basis. But
Speaker 11: the market is telling us this is actually manageable and
Speaker 11: if anything, the alternative to cooler heads prevailing is much
Speaker 11: too awful to move towards well.
Speaker 1: And this is really the key question.
Speaker 4: Are things better than expectations this morning out of Europe
Speaker 4: or pmis that actually came in better than expected led
Speaker 4: by Germany Francis its own story. I'm just wondering how
Speaker 4: much you can get excited there or how much you
Speaker 4: really are staying focused on the United States based on
Speaker 4: the underperformance of the dollars so far this year, and
Speaker 4: based in the fact that you do have the base
Speaker 4: of people who very much are going to invest in
Speaker 4: preparation for reduced benefits.
Speaker 11: Down the line, I would have to say we're still
Speaker 11: overweight US, but we say meaningful exposure to both developed
Speaker 11: international markets as well as emerging markets because there you've
Speaker 11: got combination of valuation demographics where they are on the
Speaker 11: timeline of their financial history at an attractive area.
Speaker 10: But we would have to.
Speaker 11: Say in the US, it's accountability, transparency and governance for
Speaker 11: all the arguments that we have. We do have all
Speaker 11: you just see it in all the court action that
Speaker 11: happens in Washington. You've got people can still work things.
Speaker 11: There's a potential to work things out. The other thing
Speaker 11: is the dollar. When I look at it, this is
Speaker 11: the Bloomberg A Dollar Index, which is my favorite because
Speaker 11: it includes the emerging markets as well as the ephas.
Speaker 10: What you've got is it was up last year.
Speaker 11: It was up about seven point nine eight percent, to
Speaker 11: get too specific, and this year it's down something like
Speaker 11: somewhere between eight and ten depending what day you look
Speaker 11: at it.
Speaker 10: It's down.
Speaker 11: Essentially, it's just giving back after a period of the
Speaker 11: dollar being so incredibly strong. Because in an uncertain world,
Speaker 11: when things get really bad, all the world moves towards Poppa,
Speaker 11: which looks like Uncle Sam.
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