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 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordernt. 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 --> 00:00:24,920 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 --> 00:00:37,400 Speaker 2: Terminal and the Bloomberg Business App. Rick Reader is black 10 00:00:37,440 --> 00:00:40,120 Speaker 2: Rocks CIO of Global Fixed Thing Come, and it's widely 11 00:00:40,120 --> 00:00:42,200 Speaker 2: considered to be one of five contenders to replace fed 12 00:00:42,240 --> 00:00:45,320 Speaker 2: share Jay Powell. He writes, the following moving interest rates 13 00:00:45,360 --> 00:00:47,320 Speaker 2: lower is very much in line with what we do 14 00:00:47,440 --> 00:00:49,720 Speaker 2: know today, which is that the labor market is clearly 15 00:00:49,720 --> 00:00:53,120 Speaker 2: slowing to the point of potential store speed. Rick joins 16 00:00:53,159 --> 00:00:55,000 Speaker 2: us now for more. Rick and Monick, thanks thanks for 17 00:00:55,080 --> 00:00:56,680 Speaker 2: having us. Good to see my friend, it's been too long. 18 00:00:56,840 --> 00:00:57,160 Speaker 1: Thank you. 19 00:00:57,160 --> 00:00:59,840 Speaker 2: Welcome to the studio. We've got a labor market problem. 20 00:01:00,360 --> 00:01:02,279 Speaker 3: I don't and by the way, I don't think it's 21 00:01:02,280 --> 00:01:05,280 Speaker 3: a cyclical phenomenon. I think there is the way at least, 22 00:01:05,480 --> 00:01:08,720 Speaker 3: I think we have a productivity revolution that is pretty extraordinary, 23 00:01:08,720 --> 00:01:11,479 Speaker 3: and people point to AI as an exclusive driver of that. 24 00:01:12,080 --> 00:01:14,839 Speaker 3: If you look across what companies are doing, including second 25 00:01:14,920 --> 00:01:17,840 Speaker 3: quarter earnings, their quarter earnings, if you only dynamic around 26 00:01:18,040 --> 00:01:22,800 Speaker 3: around how do you think about logistics, freight management, predictive maintenance, 27 00:01:23,800 --> 00:01:27,280 Speaker 3: customer procurement, companies are doing more with less. And I 28 00:01:27,319 --> 00:01:29,440 Speaker 3: think that is a secular dynamic that's going to be 29 00:01:29,440 --> 00:01:31,839 Speaker 3: with us for a couple of years now. I think, 30 00:01:31,880 --> 00:01:33,440 Speaker 3: I mean, we can talk about there's a bit of 31 00:01:33,480 --> 00:01:36,480 Speaker 3: elevated inflation because of terras, but I think we're going 32 00:01:36,520 --> 00:01:38,199 Speaker 3: to be dealing with something. By the way, you also 33 00:01:38,200 --> 00:01:41,400 Speaker 3: put robotics, automation. You know, this to me is a 34 00:01:41,400 --> 00:01:44,119 Speaker 3: structural dynamic. I think full employment will be the challenge 35 00:01:44,120 --> 00:01:45,080 Speaker 3: for the next couple of years. 36 00:01:45,120 --> 00:01:48,960 Speaker 2: So we mentioned the spread between Ernie's growth fantastic, employment 37 00:01:49,000 --> 00:01:52,040 Speaker 2: growth terrible. How are we closing that gap? If ever? 38 00:01:52,840 --> 00:01:55,280 Speaker 3: So, I think, by the way, I actually think that's 39 00:01:55,320 --> 00:01:56,120 Speaker 3: not a coincident. 40 00:01:56,200 --> 00:01:57,560 Speaker 1: Those aren't coincident factors. 41 00:01:57,600 --> 00:02:00,320 Speaker 3: What's happening is companies literally the top line revenu is 42 00:02:00,360 --> 00:02:03,360 Speaker 3: pretty good generally. But what's happening is they're cutting costs 43 00:02:03,360 --> 00:02:06,360 Speaker 3: of good soul, they're cutting their SGNA costs, they're reducing 44 00:02:06,400 --> 00:02:09,680 Speaker 3: their cost infrastructure. By the way, AI is a technology, 45 00:02:09,680 --> 00:02:13,480 Speaker 3: there's historically been this dynamic of when you have new technology, 46 00:02:13,520 --> 00:02:17,480 Speaker 3: it moves people into other higher value jobs. And this technology, 47 00:02:17,520 --> 00:02:19,480 Speaker 3: by the way, I put robotics and automation on top 48 00:02:19,480 --> 00:02:22,960 Speaker 3: of that, autonomous driving, et cetera, is literally designed to 49 00:02:23,080 --> 00:02:24,240 Speaker 3: replace human input. 50 00:02:24,560 --> 00:02:27,919 Speaker 1: You have a dynamic that is pretty extraordinary that I think. 51 00:02:27,960 --> 00:02:30,000 Speaker 3: You know, if you know, as at central banker or 52 00:02:30,000 --> 00:02:32,320 Speaker 3: whatever is, you think about being anticipatory of where the 53 00:02:32,320 --> 00:02:34,320 Speaker 3: world is going. That is where the world is going, 54 00:02:34,360 --> 00:02:37,320 Speaker 3: and I think that is a challenge. Economy is doing fine, 55 00:02:37,520 --> 00:02:41,480 Speaker 3: divergent and quite frankly only operating on a couple of cylinders, 56 00:02:41,600 --> 00:02:45,359 Speaker 3: huge capex which we talk about from cloud, from infrastructure, 57 00:02:45,360 --> 00:02:50,000 Speaker 3: from power. And you've got higher income wealthy savers they're 58 00:02:50,000 --> 00:02:53,640 Speaker 3: doing great and supporting consumption in the economy. And then 59 00:02:53,720 --> 00:02:55,880 Speaker 3: you have the part of the economy that's interest rates 60 00:02:55,880 --> 00:02:58,919 Speaker 3: sensitive that's really struggling. And that's part of why I 61 00:02:58,919 --> 00:03:02,080 Speaker 3: think the interest rate tool needs to address low income 62 00:03:02,200 --> 00:03:05,280 Speaker 3: small business housing and that that's where I think you 63 00:03:05,400 --> 00:03:06,160 Speaker 3: square the circle. 64 00:03:06,280 --> 00:03:08,080 Speaker 2: So we've got to talk about this from two perspectives, 65 00:03:08,120 --> 00:03:10,320 Speaker 2: one as a policy maker, the other as an investor, 66 00:03:10,320 --> 00:03:12,400 Speaker 2: and one of course informs the other. Let's just sit 67 00:03:12,480 --> 00:03:15,680 Speaker 2: on policy for a moment. You're talking about maybe the 68 00:03:15,720 --> 00:03:18,080 Speaker 2: needs cut interest rates, but also the fact that some 69 00:03:18,120 --> 00:03:20,040 Speaker 2: of the pullback we're sent in hiring is not cyclical. 70 00:03:20,560 --> 00:03:22,720 Speaker 2: How can we address one with lower interest rates? Just 71 00:03:22,760 --> 00:03:23,800 Speaker 2: explore that for us a little bit. 72 00:03:23,919 --> 00:03:25,560 Speaker 3: Yeah, So, first of all, if you came down from 73 00:03:25,600 --> 00:03:27,800 Speaker 3: Mars and said, okay, so I've got five year inflation 74 00:03:27,880 --> 00:03:29,480 Speaker 3: break even, so trade in the market, you buy as 75 00:03:29,480 --> 00:03:31,520 Speaker 3: many as you want a two point three five percent 76 00:03:31,720 --> 00:03:34,560 Speaker 3: and you said okay, now set the price, and you said, okay, 77 00:03:34,560 --> 00:03:36,960 Speaker 3: two point three five percent inflation, and I clearly have 78 00:03:37,120 --> 00:03:39,640 Speaker 3: a slowing labor market, you would say, gosh, I don't 79 00:03:39,640 --> 00:03:41,960 Speaker 3: know if I set the rate at three, and then 80 00:03:42,000 --> 00:03:44,280 Speaker 3: I talked about okay, so now what's equilibrium on the 81 00:03:44,280 --> 00:03:47,960 Speaker 3: mortgage rate to create velocity in housing? And they're directly 82 00:03:48,000 --> 00:03:51,240 Speaker 3: related to what you said. Housing today is three quarters 83 00:03:51,240 --> 00:03:53,320 Speaker 3: of the wealth by people in the countries in housing. 84 00:03:53,640 --> 00:03:55,800 Speaker 3: We have a housing market that you know, you look 85 00:03:55,800 --> 00:03:57,600 Speaker 3: at the earnings into your horton you look at Leonar 86 00:03:57,720 --> 00:04:00,760 Speaker 3: By the way, I just saw an ISI builder survey 87 00:04:00,800 --> 00:04:03,480 Speaker 3: that show the softness. If you actually get the mortgage 88 00:04:03,560 --> 00:04:06,120 Speaker 3: rate down a bit, then what happens is all of 89 00:04:06,160 --> 00:04:08,640 Speaker 3: a sudden you get housing velocity. WHI is housing velocity 90 00:04:08,640 --> 00:04:11,480 Speaker 3: important because you get labor mobility today you can't move, 91 00:04:11,640 --> 00:04:12,200 Speaker 3: you lose your job. 92 00:04:12,240 --> 00:04:13,600 Speaker 1: You got to go somewhere else, you can't move. 93 00:04:13,920 --> 00:04:16,760 Speaker 3: Secondly, and I've set up before, for every home built 94 00:04:16,760 --> 00:04:19,200 Speaker 3: in this country, we hire three point one people. It's 95 00:04:19,240 --> 00:04:22,320 Speaker 3: pretty hard to ai building a house. So if you 96 00:04:22,360 --> 00:04:24,600 Speaker 3: can get some real estate velocity. And by the way, 97 00:04:24,680 --> 00:04:27,880 Speaker 3: it's a young people who are struggling today, young people 98 00:04:27,920 --> 00:04:31,040 Speaker 3: who aren't savers, who are borrowers, that's the way they 99 00:04:31,040 --> 00:04:33,080 Speaker 3: build wealth. That's the way you put people to work. 100 00:04:33,120 --> 00:04:35,240 Speaker 3: And so I think it is all a related concept. 101 00:04:35,560 --> 00:04:39,719 Speaker 3: Point being is by the way, I mean, if we 102 00:04:39,839 --> 00:04:42,599 Speaker 3: had to raise interest rates to where they were, but 103 00:04:42,680 --> 00:04:44,680 Speaker 3: if you said to me today, what's equilibrium, I don't 104 00:04:44,680 --> 00:04:46,560 Speaker 3: think it's where we sit today in the funds, right. 105 00:04:46,760 --> 00:04:50,000 Speaker 4: So how willing are you to allow or how willing 106 00:04:50,040 --> 00:04:53,000 Speaker 4: would you be to allow inflation to run above that? 107 00:04:53,080 --> 00:04:56,719 Speaker 4: Two percent target in order to run the economy hot 108 00:04:56,760 --> 00:04:58,240 Speaker 4: to allow for more job creation. 109 00:04:58,600 --> 00:05:00,480 Speaker 1: Listen, it's a great question. I think. Every time you 110 00:05:00,760 --> 00:05:02,320 Speaker 1: think about these things, and I think about the same thing, 111 00:05:02,360 --> 00:05:02,800 Speaker 1: we take. 112 00:05:02,720 --> 00:05:05,000 Speaker 3: Risk, you sort of think about what are the quadrants 113 00:05:05,000 --> 00:05:05,640 Speaker 3: of risk? 114 00:05:05,720 --> 00:05:06,960 Speaker 1: What are you willing to underwrite? 115 00:05:07,279 --> 00:05:09,680 Speaker 3: So today, when I think about those quadrants, if you 116 00:05:09,680 --> 00:05:14,160 Speaker 3: were willing to take some labor and some overall inflation thing, 117 00:05:14,160 --> 00:05:16,400 Speaker 3: you think about, Okay, what are the sticky drivers of 118 00:05:16,440 --> 00:05:22,240 Speaker 3: inflation today? Healthcare, education, insurance. It's pretty hard use the 119 00:05:22,279 --> 00:05:25,400 Speaker 3: interest rate tool to get insurance costs down. It's pretty 120 00:05:25,440 --> 00:05:28,440 Speaker 3: hard to get healthcare, so the tool is not that robust. 121 00:05:29,240 --> 00:05:32,360 Speaker 3: And shelter is a sticky part of inflation that if 122 00:05:32,400 --> 00:05:35,040 Speaker 3: I actually get the rate down, I actually mitigate some. 123 00:05:35,000 --> 00:05:38,040 Speaker 1: Of that elevator. I'll mitigate the rental inflation. 124 00:05:38,160 --> 00:05:40,680 Speaker 3: So you know out there on one other thing, five 125 00:05:40,760 --> 00:05:44,080 Speaker 3: year inflation expectations are two point three five percent if 126 00:05:44,120 --> 00:05:46,040 Speaker 3: you were at two and three quarters. And by the way, 127 00:05:46,080 --> 00:05:48,680 Speaker 3: core PCEE the six month moving average core PC is 128 00:05:48,720 --> 00:05:51,919 Speaker 3: two point five. Let's say we're probably closer to three. 129 00:05:51,960 --> 00:05:55,279 Speaker 3: If you take the whole full construct of inflation. Three 130 00:05:55,400 --> 00:05:58,360 Speaker 3: is not an infectious. You know, you clearly don't see 131 00:05:58,360 --> 00:06:00,560 Speaker 3: it in terms of where people anticipate in If you're 132 00:06:00,600 --> 00:06:03,600 Speaker 3: running four or five, then I'd say, gosh. Or if 133 00:06:03,640 --> 00:06:07,120 Speaker 3: the three was trending higher on things and that the 134 00:06:07,160 --> 00:06:09,719 Speaker 3: interest rate tool impacted, then I think you'd have to 135 00:06:09,720 --> 00:06:11,240 Speaker 3: address that just to sort of. 136 00:06:11,200 --> 00:06:12,960 Speaker 4: Build on that this idea that three is okay, but 137 00:06:13,120 --> 00:06:16,160 Speaker 4: above that maybe not so much. There's a feeler that 138 00:06:16,200 --> 00:06:19,159 Speaker 4: there is an asymmetry in the timeframe of AI that 139 00:06:19,279 --> 00:06:21,760 Speaker 4: right now the buildout is going to be inflationary because 140 00:06:21,800 --> 00:06:25,960 Speaker 4: of the inflationary inputs of commodity costs, of just how 141 00:06:26,040 --> 00:06:29,320 Speaker 4: much lending and money this is generating on a broad scale. 142 00:06:29,880 --> 00:06:33,440 Speaker 4: The productivity gains that will cause disinflation will take a 143 00:06:33,480 --> 00:06:36,880 Speaker 4: lot longer to come into play. So how if you 144 00:06:36,920 --> 00:06:39,120 Speaker 4: were the head of the FED would you handle that? 145 00:06:39,839 --> 00:06:40,680 Speaker 1: So I take up morning. 146 00:06:40,760 --> 00:06:43,640 Speaker 3: So think about historically the way the interest rate tool worked. 147 00:06:43,800 --> 00:06:46,000 Speaker 3: It was a modulator of capacs. So you think about it, 148 00:06:46,080 --> 00:06:50,000 Speaker 3: go back sixties and seventies. The big spenders in manufacturing today. 149 00:06:50,600 --> 00:06:55,080 Speaker 3: My guess is OPENII and Vidia, Google, et cetera. It's 150 00:06:55,120 --> 00:06:58,080 Speaker 3: not the interest rate tool that is affecting CAPAX. They 151 00:06:58,120 --> 00:07:00,360 Speaker 3: are going to put that capex in because there is 152 00:07:00,400 --> 00:07:02,960 Speaker 3: a long run benefit for doing it, meaning the interest 153 00:07:03,000 --> 00:07:04,360 Speaker 3: rate tool doesn't really do a lot. 154 00:07:04,440 --> 00:07:05,920 Speaker 1: So I think, at the end of the day. 155 00:07:06,000 --> 00:07:08,520 Speaker 3: Does that create a little bit of inflation in the 156 00:07:08,560 --> 00:07:11,120 Speaker 3: areas you describe? I think so, But I think you 157 00:07:11,160 --> 00:07:14,000 Speaker 3: have to say, you know where are we going? And 158 00:07:14,000 --> 00:07:15,880 Speaker 3: I always say, being an investor for a long time, 159 00:07:16,280 --> 00:07:18,920 Speaker 3: you know the concept of data dependence. If you are 160 00:07:18,960 --> 00:07:21,120 Speaker 3: constantly in the rear view mirror trying to figure out 161 00:07:21,120 --> 00:07:23,000 Speaker 3: how would you invest is probably the wrong way to 162 00:07:23,000 --> 00:07:25,200 Speaker 3: do it. We are going through something that's very different. 163 00:07:25,240 --> 00:07:27,800 Speaker 3: We now are in a capex cycle. And then if 164 00:07:27,800 --> 00:07:29,480 Speaker 3: you break down the economy and say, okay, what is 165 00:07:29,560 --> 00:07:33,480 Speaker 3: driving GDP today. That's what's driving this capex and some 166 00:07:33,640 --> 00:07:35,600 Speaker 3: consumption from hire income people. 167 00:07:35,560 --> 00:07:38,600 Speaker 2: The key pace of the inflation story. Shouter, you touched 168 00:07:38,600 --> 00:07:42,280 Speaker 2: on it. You said something interesting. Interest rates down, shout, 169 00:07:42,440 --> 00:07:44,440 Speaker 2: costs down. Just explain that for us. 170 00:07:44,920 --> 00:07:46,720 Speaker 3: Yeah, so, I mean we have an inventory problem in 171 00:07:46,720 --> 00:07:48,720 Speaker 3: the country. And by the way, I mean look at 172 00:07:48,760 --> 00:07:51,720 Speaker 3: every piece of data, it shows the same thing. And so, 173 00:07:51,760 --> 00:07:53,840 Speaker 3: by the way, when the mortgage rate has come down 174 00:07:53,880 --> 00:07:56,880 Speaker 3: a bit post this recent fed drop in interest rates, 175 00:07:57,240 --> 00:07:59,520 Speaker 3: all of a sudden you're seeing an existing home sales pickup. 176 00:08:00,000 --> 00:08:02,520 Speaker 3: So we just saw the prepayment report for mortgages, and 177 00:08:02,600 --> 00:08:05,600 Speaker 3: all of a sudden you're seeing some acceleration, meaning you 178 00:08:05,640 --> 00:08:08,000 Speaker 3: don't have to get the interest rate tool down that much. 179 00:08:08,040 --> 00:08:10,840 Speaker 3: If you got the mortgage rate into the fives I'd 180 00:08:10,840 --> 00:08:13,680 Speaker 3: say mid to high fives, you would see some velocity 181 00:08:13,720 --> 00:08:16,320 Speaker 3: of housing. If you saw velocity of housing today, I 182 00:08:16,640 --> 00:08:19,240 Speaker 3: saw on deor Horton's numbers. They talked about they're doing 183 00:08:19,280 --> 00:08:21,800 Speaker 3: one percent first year mortgage and then I think it's 184 00:08:21,840 --> 00:08:25,880 Speaker 3: four point nine because they've got to subsidize the mortgage. Well, 185 00:08:25,880 --> 00:08:27,640 Speaker 3: what if der Horton didn't have to do that, and 186 00:08:27,640 --> 00:08:30,600 Speaker 3: what if the actual organically the rate was lower, they'd 187 00:08:30,600 --> 00:08:33,600 Speaker 3: build more houses. You create more inventory, You create more inventory, 188 00:08:33,640 --> 00:08:36,560 Speaker 3: you take the pressure off of rental rates, and you 189 00:08:36,600 --> 00:08:39,400 Speaker 3: start to bring inflation down. Plus the labor mobility that 190 00:08:39,840 --> 00:08:41,280 Speaker 3: is not an insignificant part of that. 191 00:08:41,400 --> 00:08:42,880 Speaker 2: Do you think the FED needs to think how sound 192 00:08:42,880 --> 00:08:45,040 Speaker 2: of the box beyond just interest rates? Is this something 193 00:08:45,040 --> 00:08:45,640 Speaker 2: else we can do? Hey? 194 00:08:45,720 --> 00:08:47,480 Speaker 3: Yeah, I mean listen, I think there is. I think 195 00:08:47,520 --> 00:08:49,800 Speaker 3: the FAT has a series of tools. The interest rate tool, 196 00:08:50,480 --> 00:08:52,600 Speaker 3: by the way today, nobody really borrows off the overnight 197 00:08:52,640 --> 00:08:55,200 Speaker 3: funding rate, the interest rate tool it used to be. 198 00:08:55,360 --> 00:08:57,560 Speaker 3: They think about how banks borrow a short they lent long. 199 00:08:57,640 --> 00:09:00,320 Speaker 3: Think we had a very different dynamic today the way 200 00:09:00,320 --> 00:09:02,640 Speaker 3: we tranch the debt in the economy. Think about how 201 00:09:02,640 --> 00:09:07,280 Speaker 3: we finance RESI, commercial asset box, credit cards, auto loans. 202 00:09:07,280 --> 00:09:09,920 Speaker 3: It's trunched. The front end of the yield curve doesn't 203 00:09:09,960 --> 00:09:12,760 Speaker 3: really do a lot. How you think about you know, 204 00:09:12,760 --> 00:09:14,600 Speaker 3: where is the ten year point? How do you think 205 00:09:14,600 --> 00:09:16,360 Speaker 3: about your balance sheet? How do you think about all 206 00:09:16,360 --> 00:09:18,880 Speaker 3: the other tools that are at your disposal, I think 207 00:09:18,920 --> 00:09:21,000 Speaker 3: are really important. Plus you got to think about what 208 00:09:21,080 --> 00:09:22,560 Speaker 3: is the effect of the currency etc. 209 00:09:22,880 --> 00:09:23,400 Speaker 1: Relative to that. 210 00:09:23,480 --> 00:09:26,400 Speaker 3: So anyway, I think the construct is much more complex 211 00:09:26,520 --> 00:09:28,840 Speaker 3: and much more quite frankly, you have a lot of 212 00:09:28,880 --> 00:09:31,880 Speaker 3: tools that create much more effectiveness. Then we're just going 213 00:09:31,920 --> 00:09:33,800 Speaker 3: to move the overnight funds right every six weeks. 214 00:09:33,880 --> 00:09:34,640 Speaker 1: Like the balance sheet. 215 00:09:34,880 --> 00:09:37,680 Speaker 4: How much would you be open to see the Fed 216 00:09:37,760 --> 00:09:39,120 Speaker 4: use the balance sheet a little bit more? 217 00:09:39,320 --> 00:09:39,480 Speaker 1: So? 218 00:09:39,520 --> 00:09:42,000 Speaker 3: I think the construct of the balance sheet is important. 219 00:09:42,480 --> 00:09:45,199 Speaker 3: So I think people don't realize there's a notional dynamic, 220 00:09:45,240 --> 00:09:47,600 Speaker 3: and there's a DVO one, there's a duration dynamic further 221 00:09:47,640 --> 00:09:50,360 Speaker 3: out the yield curve. I am sympathetic to should we 222 00:09:50,440 --> 00:09:53,160 Speaker 3: keep the balance sheet around the same level, but you 223 00:09:53,200 --> 00:09:55,760 Speaker 3: could be really effective. So today the US Treasury eighty 224 00:09:55,840 --> 00:09:58,400 Speaker 3: nine percent of what the US Treasury finances is at 225 00:09:58,440 --> 00:10:00,880 Speaker 3: the zero to two year point eighty And think about 226 00:10:00,880 --> 00:10:02,720 Speaker 3: if you're a company, would you ever finance in the 227 00:10:02,760 --> 00:10:03,200 Speaker 3: one year. 228 00:10:04,000 --> 00:10:06,520 Speaker 1: It's crazy, but that's where we are today, and it 229 00:10:06,559 --> 00:10:09,080 Speaker 1: is what it is. So there's not that much float. 230 00:10:09,160 --> 00:10:11,360 Speaker 3: Actually, longer on the curve, there's reason why people put 231 00:10:11,360 --> 00:10:13,360 Speaker 3: on steepeners. I think get squeezed out of steepeners because 232 00:10:13,360 --> 00:10:15,520 Speaker 3: there's not that much float. You don't have to use 233 00:10:15,559 --> 00:10:17,880 Speaker 3: that much balance sheet. But if you thought about, gosh, 234 00:10:17,960 --> 00:10:20,160 Speaker 3: the construct of the balance sheet, if we used more 235 00:10:20,200 --> 00:10:22,720 Speaker 3: of it further out the curve, we let runoff happen 236 00:10:22,800 --> 00:10:26,120 Speaker 3: on the front. If you can keep the stability of 237 00:10:26,240 --> 00:10:28,199 Speaker 3: the back end. So if you can keep the tenure, 238 00:10:29,040 --> 00:10:31,200 Speaker 3: you know, we got to the tenure was three ninety. 239 00:10:31,559 --> 00:10:33,520 Speaker 3: If the tenure was three and a half to four 240 00:10:33,800 --> 00:10:37,959 Speaker 3: stable and rate vault, rate volatility came down all of 241 00:10:38,000 --> 00:10:39,880 Speaker 3: a sudden, you'd see mortgage spreads. 242 00:10:39,520 --> 00:10:40,040 Speaker 1: Could come in. 243 00:10:40,600 --> 00:10:43,280 Speaker 3: Then you'd get and by the way, deregulation the banking system, 244 00:10:43,600 --> 00:10:45,920 Speaker 3: then you get mortgage velocity moving. So, by the way, 245 00:10:45,920 --> 00:10:48,080 Speaker 3: I don't think we're that far away. And by the way, 246 00:10:48,080 --> 00:10:49,760 Speaker 3: you know this concept that you have to get the 247 00:10:49,840 --> 00:10:51,440 Speaker 3: rate down hundreds of basis points. 248 00:10:51,880 --> 00:10:53,760 Speaker 1: I just think we're not that far away. Just get 249 00:10:53,760 --> 00:10:54,200 Speaker 1: it there and. 250 00:10:54,280 --> 00:10:57,040 Speaker 3: Keep volatility of the rate market at a stable level, 251 00:10:57,280 --> 00:10:59,280 Speaker 3: and then you'll see a system that will operate pretty well. 252 00:11:00,240 --> 00:11:01,839 Speaker 2: Going back to the late eighties, how much fun you 253 00:11:01,920 --> 00:11:02,600 Speaker 2: have in right now? 254 00:11:03,520 --> 00:11:05,840 Speaker 3: I mean, I mean I said before, this is the 255 00:11:05,840 --> 00:11:08,480 Speaker 3: best investment environment I've ever seen. I mean not because 256 00:11:08,559 --> 00:11:11,160 Speaker 3: stocks are going to go straight up. I mean you 257 00:11:11,320 --> 00:11:15,679 Speaker 3: have diversions that is great for investing. You have technology 258 00:11:15,679 --> 00:11:19,199 Speaker 3: that's changing, and so the ability to look at tech stocks, healthcare, tech, 259 00:11:19,720 --> 00:11:20,280 Speaker 3: to look. 260 00:11:20,080 --> 00:11:21,760 Speaker 1: At you know, where some of the financials. How you 261 00:11:21,760 --> 00:11:23,160 Speaker 1: create velocity in the system. 262 00:11:23,520 --> 00:11:26,480 Speaker 3: And then you know the earlier conversation and we were 263 00:11:26,480 --> 00:11:29,200 Speaker 3: talking about the break like now at the income levels. 264 00:11:29,200 --> 00:11:31,000 Speaker 3: As long as this interest rate stays here, you know 265 00:11:31,040 --> 00:11:33,880 Speaker 3: what's ironic as commercially, you know, I prefer the interest 266 00:11:33,920 --> 00:11:35,920 Speaker 3: rate to stay here because it's I mean, this is 267 00:11:35,920 --> 00:11:38,000 Speaker 3: pretty good. We can create portfolios, we run the CTF 268 00:11:38,040 --> 00:11:40,840 Speaker 3: called BINK and you know, creating six six in a quarter, 269 00:11:40,840 --> 00:11:43,520 Speaker 3: we're running almost six thirty. Now you don't have to 270 00:11:43,559 --> 00:11:44,719 Speaker 3: take a lot of risk, you don't have to go 271 00:11:44,760 --> 00:11:47,400 Speaker 3: out the yield curve. That's pretty good. So anyway, I think, 272 00:11:47,440 --> 00:11:49,200 Speaker 3: and by the way, the options market, I think the 273 00:11:49,240 --> 00:11:52,840 Speaker 3: best opportunities are in the options market rate options, equity options, 274 00:11:53,200 --> 00:11:55,079 Speaker 3: and you could manage your CONVEXI so you can be 275 00:11:55,200 --> 00:11:57,880 Speaker 3: long equities and then buy a lot of you can 276 00:11:57,920 --> 00:12:00,719 Speaker 3: overwrite your single name stocks, you can buy downs. It's 277 00:12:00,760 --> 00:12:01,480 Speaker 3: a fun environment. 278 00:12:01,480 --> 00:12:03,920 Speaker 2: Well, leslen into BINK. You mentioned here the ices, flexple 279 00:12:03,960 --> 00:12:06,760 Speaker 2: active income ETF. What kind of things have you been 280 00:12:06,800 --> 00:12:08,439 Speaker 2: doing over the past six months. 281 00:12:08,440 --> 00:12:09,920 Speaker 3: You know we've been you know, the cool thing about 282 00:12:09,960 --> 00:12:12,760 Speaker 3: being active is you can move around because the regime shifts. 283 00:12:13,000 --> 00:12:15,599 Speaker 3: And while I was describing earlier, like where do you 284 00:12:15,640 --> 00:12:18,040 Speaker 3: think the interest rate should be? The true interestrates an't 285 00:12:18,040 --> 00:12:20,480 Speaker 3: going to move very far. So you know we're keeping 286 00:12:20,520 --> 00:12:23,080 Speaker 3: our interest rate duration. You know, in and around four 287 00:12:23,160 --> 00:12:26,520 Speaker 3: years we've moved a little bit out of the very 288 00:12:26,559 --> 00:12:29,079 Speaker 3: front end because it's pricing a lot now in terms 289 00:12:29,120 --> 00:12:31,360 Speaker 3: of where this FED is going to go. Then we've 290 00:12:31,360 --> 00:12:34,240 Speaker 3: done we've shifted some of our credit into mortgages quite frankly, 291 00:12:34,240 --> 00:12:36,320 Speaker 3: if you believe rate volatility is going to be down, 292 00:12:37,080 --> 00:12:39,960 Speaker 3: mortgage has become interesting, and credit spreads have gotten pretty tight, 293 00:12:40,000 --> 00:12:43,320 Speaker 3: particularly us investern grade has gotten pretty tight, so we've 294 00:12:43,400 --> 00:12:46,000 Speaker 3: rotated out of that. We've bought a little bit of 295 00:12:46,040 --> 00:12:48,840 Speaker 3: EM recently, I would say recently over the last six months. 296 00:12:48,840 --> 00:12:50,400 Speaker 1: We haven't bought a YM in a long time. 297 00:12:51,480 --> 00:12:53,640 Speaker 3: You know, if you believe the dollar is contained, EM 298 00:12:53,679 --> 00:12:56,800 Speaker 3: becomes pretty interesting and the yields, you know, relative to 299 00:12:56,880 --> 00:12:59,040 Speaker 3: high yield, the yields and EM are attractive. 300 00:12:59,080 --> 00:13:00,679 Speaker 1: So we've cut a little bit of high yield. 301 00:13:01,200 --> 00:13:03,880 Speaker 3: We've got a good amount of investment grade credit, and 302 00:13:03,920 --> 00:13:06,680 Speaker 3: we've rotated. So today I think our average rating is AS, 303 00:13:06,679 --> 00:13:08,160 Speaker 3: which is pretty good. So it gives us a little 304 00:13:08,200 --> 00:13:09,920 Speaker 3: bit of room to do some things. 305 00:13:09,960 --> 00:13:13,040 Speaker 4: Like you said something that was interesting there, which is 306 00:13:13,120 --> 00:13:15,040 Speaker 4: you don't have to go very far out the risk 307 00:13:15,080 --> 00:13:18,280 Speaker 4: curve in order to get income now because yields are high. 308 00:13:18,600 --> 00:13:20,800 Speaker 4: If the FED were to cut rates, does that make 309 00:13:20,840 --> 00:13:22,320 Speaker 4: you more inclined to take more risk? 310 00:13:23,360 --> 00:13:24,720 Speaker 3: Yeah, I mean I have to say, you know, for 311 00:13:25,080 --> 00:13:27,040 Speaker 3: two decades, part of why I'm so excited about where 312 00:13:27,040 --> 00:13:29,040 Speaker 3: we are today. For two decades, it was like I 313 00:13:29,080 --> 00:13:30,600 Speaker 3: got to buy high yield at three and a half 314 00:13:30,600 --> 00:13:33,560 Speaker 3: and four and it doesn't feel natural. But now if 315 00:13:33,600 --> 00:13:35,480 Speaker 3: you have the risk free rate, particularly in the front 316 00:13:35,559 --> 00:13:37,200 Speaker 3: end here, gosh, I put a little bit of spread 317 00:13:37,240 --> 00:13:39,880 Speaker 3: on it. Now I get what is ample yield. With 318 00:13:40,000 --> 00:13:42,199 Speaker 3: default rates that are not that elevated. You are seeing 319 00:13:42,240 --> 00:13:44,800 Speaker 3: some bubbling defaults in a couple of places. 320 00:13:45,360 --> 00:13:46,560 Speaker 1: So you know, I think the thing. 321 00:13:46,440 --> 00:13:48,320 Speaker 3: That we would do is, you know, I know what 322 00:13:48,360 --> 00:13:50,640 Speaker 3: we would do is if rates come down. You know, 323 00:13:50,679 --> 00:13:53,040 Speaker 3: I'm not a believer, and this is what blows you up. 324 00:13:53,280 --> 00:13:55,080 Speaker 3: I'm not a Believer's gosh, I I got to keep 325 00:13:55,080 --> 00:13:57,120 Speaker 3: that yield. I gotta get my risk up. You just 326 00:13:57,200 --> 00:13:59,280 Speaker 3: have to absorb it and say, you know what, I'm 327 00:13:59,280 --> 00:14:02,400 Speaker 3: going to run at run six twenty five or so. 328 00:14:02,840 --> 00:14:04,680 Speaker 3: I'm going to run five and three quarters of six. 329 00:14:05,000 --> 00:14:06,679 Speaker 3: But you know what will happen is the cash rate 330 00:14:06,720 --> 00:14:08,360 Speaker 3: will come down and people say, gosh, you know what, 331 00:14:08,400 --> 00:14:09,520 Speaker 3: cash is only getting me two and a. 332 00:14:09,520 --> 00:14:10,199 Speaker 1: Half to three. 333 00:14:10,520 --> 00:14:13,640 Speaker 3: That's any you know, inflation, even if inflation's three like, 334 00:14:13,720 --> 00:14:14,560 Speaker 3: it's still pretty great. 335 00:14:15,000 --> 00:14:16,719 Speaker 4: Very few people on Wall Street they are saying, you 336 00:14:16,800 --> 00:14:18,440 Speaker 4: know what, I can just live with less income. 337 00:14:18,720 --> 00:14:21,480 Speaker 1: It's okay, I won't stretch too far. I'll be disciplined and. 338 00:14:21,440 --> 00:14:23,760 Speaker 4: Maybe I'll just take less cash and I'll commit. 339 00:14:23,480 --> 00:14:24,200 Speaker 2: To the economy. 340 00:14:24,320 --> 00:14:27,320 Speaker 4: At what point can you imagine that things start to 341 00:14:27,320 --> 00:14:29,840 Speaker 4: get a bit excessive, especially given the fact that there 342 00:14:29,880 --> 00:14:31,880 Speaker 4: is a lot of cash right now looking for a home. 343 00:14:32,520 --> 00:14:34,000 Speaker 3: So, by the way, it's a funny thing is you 344 00:14:34,040 --> 00:14:36,280 Speaker 3: say that, you know, we live in a competitive environment. 345 00:14:36,320 --> 00:14:38,080 Speaker 1: We can't just sit back. I mean, it is a 346 00:14:38,080 --> 00:14:38,880 Speaker 1: tough business. 347 00:14:39,280 --> 00:14:41,760 Speaker 3: We have competitors and people that are out there say, gosh, 348 00:14:41,840 --> 00:14:44,400 Speaker 3: I can get you more yield, and listen. I think 349 00:14:44,400 --> 00:14:45,520 Speaker 3: one of the things you have to do is you 350 00:14:45,560 --> 00:14:47,800 Speaker 3: have to keep your volatility as long as you always 351 00:14:47,800 --> 00:14:50,960 Speaker 3: think about what's your yield per unit of volatility? Today equities, 352 00:14:51,040 --> 00:14:53,640 Speaker 3: I think equities are are still going up fifteen to 353 00:14:53,640 --> 00:14:56,080 Speaker 3: twenty percent from where they are over the next year. 354 00:14:56,400 --> 00:14:59,080 Speaker 3: So I'm just trying to keep our volatility at a reasonable place. 355 00:14:59,600 --> 00:15:02,920 Speaker 3: What is excessive? You know, there's some things that are 356 00:15:02,960 --> 00:15:07,200 Speaker 3: bubbling in the markets that are mostly in privates that. 357 00:15:07,240 --> 00:15:09,320 Speaker 1: Are gosh, I don't I don't get any cash. 358 00:15:09,080 --> 00:15:11,120 Speaker 3: Flow for two or three years. What's the multiple you 359 00:15:11,200 --> 00:15:13,440 Speaker 3: put on that? Like that stuff is hard. There are 360 00:15:13,440 --> 00:15:15,600 Speaker 3: some really good business models, you say, I see it 361 00:15:16,000 --> 00:15:18,880 Speaker 3: and it's almost definitional, you know. You see some parts 362 00:15:18,920 --> 00:15:21,600 Speaker 3: of it where people are stretched and in some of 363 00:15:21,600 --> 00:15:24,480 Speaker 3: the credit markets where some of the levels get aggressive. 364 00:15:24,520 --> 00:15:26,160 Speaker 3: Part of why we've rotated some of the investment preate. 365 00:15:26,200 --> 00:15:28,000 Speaker 3: It doesn't do that much for us anymore at those 366 00:15:28,000 --> 00:15:30,600 Speaker 3: spread levels. But I don't, you know, I don't see 367 00:15:30,720 --> 00:15:34,680 Speaker 3: like you saw before the financial crisis, excessive low you know, 368 00:15:34,800 --> 00:15:38,680 Speaker 3: low covenant or easy covenants, high LTV financing. 369 00:15:38,720 --> 00:15:39,000 Speaker 1: I don't. 370 00:15:39,040 --> 00:15:41,880 Speaker 3: I don't see that yet today at the around the 371 00:15:42,000 --> 00:15:43,760 Speaker 3: edges a little bit, but not not really. 372 00:15:44,000 --> 00:15:49,800 Speaker 2: Fifteen to twenty percent on stocks now the double digit Yeah. 373 00:15:48,560 --> 00:15:49,560 Speaker 1: You know, I don't. I think. 374 00:15:49,600 --> 00:15:52,240 Speaker 3: I mean, I think we're living through history because if 375 00:15:52,240 --> 00:15:56,280 Speaker 3: we're what you asked about before, because productivity and roe 376 00:15:56,720 --> 00:15:59,240 Speaker 3: is so spectacular. And by the way, I don't think 377 00:15:59,240 --> 00:16:01,680 Speaker 3: it's five hundred stocks. I think it's by the way 378 00:16:01,680 --> 00:16:03,280 Speaker 3: we were stat yesterday, if you take the S and 379 00:16:03,280 --> 00:16:06,080 Speaker 3: P fifteen hundred, it's is this right that I heard 380 00:16:06,120 --> 00:16:08,680 Speaker 3: it was twenty two percent off the highs. I thought 381 00:16:08,720 --> 00:16:10,720 Speaker 3: that number of rust constrat to work with Dougleman that 382 00:16:10,760 --> 00:16:13,600 Speaker 3: I thought that was extraordinary. If you take the highest 383 00:16:13,720 --> 00:16:17,960 Speaker 3: ROE businesses, you know, let's say it's thirty stocks, fifty stocks, tech, healthcare, 384 00:16:18,000 --> 00:16:20,760 Speaker 3: attach some of the financials. They're doing really well. They 385 00:16:20,760 --> 00:16:23,040 Speaker 3: throw off a lot of earnings. They're roe is high, 386 00:16:23,040 --> 00:16:25,680 Speaker 3: and they buy back huge amounts of stock. You know, 387 00:16:25,840 --> 00:16:29,320 Speaker 3: small cap don't really know, but there's enough stocks with 388 00:16:29,440 --> 00:16:31,760 Speaker 3: enough market cap that I think will get you that 389 00:16:31,800 --> 00:16:32,360 Speaker 3: sort of return. 390 00:16:32,480 --> 00:16:35,640 Speaker 2: Stay with market weight on the sm P five hundred. No, 391 00:16:35,840 --> 00:16:36,680 Speaker 2: it's the concentration. 392 00:16:37,080 --> 00:16:37,760 Speaker 1: I mean, we're long. 393 00:16:37,920 --> 00:16:40,840 Speaker 3: I mean we're you know, we're you know, we've reduced 394 00:16:40,880 --> 00:16:43,640 Speaker 3: a little bit of beta. When when equity volatility picks up, 395 00:16:43,680 --> 00:16:45,440 Speaker 3: I have to bring my beta down a little bit, 396 00:16:45,480 --> 00:16:49,280 Speaker 3: but I'm still running long. And you know, days like yesterday, 397 00:16:49,800 --> 00:16:52,000 Speaker 3: you know, and you know single name you know, we 398 00:16:52,040 --> 00:16:55,000 Speaker 3: get these earnings reports and single name vault is high 399 00:16:55,040 --> 00:16:57,360 Speaker 3: because you know, if company does own hit these excessive numbers, 400 00:16:57,600 --> 00:17:00,200 Speaker 3: they hit the stock. Yeah, so you can still do 401 00:17:00,240 --> 00:17:02,240 Speaker 3: some things to protect some downside. And by the way, 402 00:17:02,640 --> 00:17:07,240 Speaker 3: interest rates, if you believe the FED is moving orbeit deliberately, 403 00:17:07,760 --> 00:17:10,520 Speaker 3: interest rates actually act as a reasonable hedge. Again, so 404 00:17:10,800 --> 00:17:13,240 Speaker 3: there's some correlation or rate that's allowing us to run 405 00:17:13,760 --> 00:17:14,640 Speaker 3: a moderate. 406 00:17:14,400 --> 00:17:19,560 Speaker 2: Rom Stay with us. More Bloomberg surveillance coming up after this. 407 00:17:28,600 --> 00:17:30,880 Speaker 2: Here's the view of Sarah House of Wells Fargo. Right 408 00:17:30,920 --> 00:17:33,560 Speaker 2: in the absence of broad based layoffs suggests that jobs 409 00:17:33,600 --> 00:17:35,679 Speaker 2: market is holding together even if the risk of a 410 00:17:35,720 --> 00:17:39,479 Speaker 2: more meaningful slowdown cannot be ruled out. Sarah joined us 411 00:17:39,480 --> 00:17:41,119 Speaker 2: now for more. Sarah, welcome to the show. Just to 412 00:17:41,119 --> 00:17:43,679 Speaker 2: pick upon those headlines from the Treasury secretary. If we 413 00:17:43,720 --> 00:17:46,480 Speaker 2: start seeing two thousand dollars tax rebates, if we see 414 00:17:46,520 --> 00:17:50,360 Speaker 2: significant relief early next year, how would that change your routelook? 415 00:17:51,560 --> 00:17:53,440 Speaker 5: Yeah, so I think already we're looking for a pick 416 00:17:53,520 --> 00:17:56,080 Speaker 5: up next year just because you have some pretty favorable 417 00:17:56,119 --> 00:17:58,760 Speaker 5: tax policy coming out where consumers are going to get 418 00:17:58,800 --> 00:18:01,520 Speaker 5: pretty big refunds come the early part of the year, 419 00:18:01,960 --> 00:18:04,720 Speaker 5: and so if you add two thousand dollars rebate checks 420 00:18:04,760 --> 00:18:06,520 Speaker 5: on top of that, I think you would get a 421 00:18:06,560 --> 00:18:10,040 Speaker 5: meaningful pickup in spending through the first few months of 422 00:18:10,080 --> 00:18:12,439 Speaker 5: the year that could help, I think balance out. I 423 00:18:12,440 --> 00:18:16,840 Speaker 5: think more of the components of GDP that we're seeing 424 00:18:16,880 --> 00:18:21,480 Speaker 5: where maybe it's at least temporarily a broader based increase 425 00:18:21,880 --> 00:18:24,800 Speaker 5: in overall consumption rather than one that's being driven more 426 00:18:24,960 --> 00:18:28,040 Speaker 5: by your asset owning higher income household. 427 00:18:28,000 --> 00:18:29,879 Speaker 4: Sarah, we saw a taste of this, and I know 428 00:18:29,920 --> 00:18:32,040 Speaker 4: it's not the same thing, but during the pandemic era 429 00:18:32,200 --> 00:18:34,960 Speaker 4: checks that people got, and a lot of people attribute 430 00:18:35,040 --> 00:18:38,159 Speaker 4: the inflation that we saw in the pandemic era to 431 00:18:38,560 --> 00:18:41,080 Speaker 4: some of those particular checks. Do you think that there'll 432 00:18:41,080 --> 00:18:43,280 Speaker 4: be a similar dynamic or do you think these are 433 00:18:43,320 --> 00:18:45,280 Speaker 4: too small and not regular enough. 434 00:18:45,040 --> 00:18:48,160 Speaker 5: To have that kind of transmission mechanism. Well, I think 435 00:18:48,200 --> 00:18:50,760 Speaker 5: there are a couple important differences there. So yes, if 436 00:18:50,760 --> 00:18:55,320 Speaker 5: you're injecting cash directly into households, especially your lower income households, 437 00:18:55,480 --> 00:18:57,800 Speaker 5: they're going to go and turn around and spend that. 438 00:18:58,000 --> 00:19:00,760 Speaker 5: But there's other sides of this that that are different, 439 00:19:00,840 --> 00:19:03,520 Speaker 5: So you don't have the same degree of supply constraints. 440 00:19:03,520 --> 00:19:06,720 Speaker 5: You don't have. I think the labor supply issues that 441 00:19:06,760 --> 00:19:08,960 Speaker 5: we had at that time, where it wasn't just the 442 00:19:09,040 --> 00:19:11,240 Speaker 5: increase in demand that I think led to the pandemic 443 00:19:11,240 --> 00:19:13,879 Speaker 5: air inflation, but it was some pretty unique supply factor. 444 00:19:14,040 --> 00:19:18,600 Speaker 5: So I think overall rebate checks, even the larger tax 445 00:19:18,600 --> 00:19:20,560 Speaker 5: refunds that we're expecting. I think that's going to make 446 00:19:20,600 --> 00:19:24,760 Speaker 5: it harder for inflation to continue to grind lower. But 447 00:19:24,960 --> 00:19:27,240 Speaker 5: I don't think that it would be something that would 448 00:19:27,240 --> 00:19:33,040 Speaker 5: necessarily respark ained a sustained pickup in inflation. Again, I 449 00:19:33,040 --> 00:19:36,800 Speaker 5: think it would just more derail the path, or at 450 00:19:36,880 --> 00:19:40,080 Speaker 5: least a slow the path of disinflation that's set for 451 00:19:40,119 --> 00:19:41,320 Speaker 5: the second half of next year. 452 00:19:41,520 --> 00:19:46,199 Speaker 4: Sarah, the implication here is faster growth, potentially an expanded's 453 00:19:46,200 --> 00:19:48,480 Speaker 4: fiscal deficit in order to finance a lot of the 454 00:19:48,520 --> 00:19:51,520 Speaker 4: programs that are being proposed likely will be proposed heading 455 00:19:51,520 --> 00:19:54,800 Speaker 4: into the midterms, not just by one party, Frankly, both 456 00:19:54,840 --> 00:19:57,919 Speaker 4: parties talking about similar types of responses. How are you 457 00:19:57,960 --> 00:20:00,840 Speaker 4: factoring that in your economic look at a time where 458 00:20:00,840 --> 00:20:03,360 Speaker 4: there already have been some concerns raised about the US 459 00:20:03,400 --> 00:20:04,879 Speaker 4: fiscal trajectory. 460 00:20:05,400 --> 00:20:07,920 Speaker 5: Right, So, I think, again, if we're talking about one 461 00:20:07,960 --> 00:20:10,280 Speaker 5: off checks, this is only a temporary boost, So this 462 00:20:10,320 --> 00:20:14,119 Speaker 5: is not something that's going to be fundamentally sustaining the 463 00:20:14,119 --> 00:20:16,879 Speaker 5: outlook for the consumer. And to the extent that it 464 00:20:16,960 --> 00:20:20,320 Speaker 5: does increase the deficit, then you're going to be seeing 465 00:20:20,359 --> 00:20:23,199 Speaker 5: some of that feedback into yields, which is also going 466 00:20:23,240 --> 00:20:26,440 Speaker 5: to flow through to other things, so potentially mortgage rates, 467 00:20:26,440 --> 00:20:29,760 Speaker 5: and so it's not a panacea for I think really 468 00:20:29,920 --> 00:20:33,600 Speaker 5: reviving anot the sluggish pace of growth that we think 469 00:20:33,640 --> 00:20:35,720 Speaker 5: we're hitting here in the fourth quarter, maybe in some 470 00:20:35,760 --> 00:20:38,880 Speaker 5: of the early parts of the first quarter, given that 471 00:20:38,960 --> 00:20:40,840 Speaker 5: there are going to be some feedback sides of this, 472 00:20:41,000 --> 00:20:43,440 Speaker 5: and in terms of what happens with borrowing. 473 00:20:43,080 --> 00:20:45,920 Speaker 2: Costs, Sarah, what should anchor our view of the labor 474 00:20:45,920 --> 00:20:47,720 Speaker 2: market right now? I think that's the question of the 475 00:20:47,760 --> 00:20:50,240 Speaker 2: year for the labor market. Employment growth is super low, 476 00:20:50,600 --> 00:20:52,960 Speaker 2: the unemployment rate is also low as well. Do you 477 00:20:52,960 --> 00:20:56,560 Speaker 2: think the employment growth maybe overstates the weakness or does 478 00:20:56,560 --> 00:20:58,679 Speaker 2: the unemployment rate overstate the strength? 479 00:21:00,040 --> 00:21:02,800 Speaker 5: Yeah, so I think the hiring rate, I think it 480 00:21:02,880 --> 00:21:05,720 Speaker 5: does overstate the weakness, given that some of this is supply. 481 00:21:06,240 --> 00:21:08,000 Speaker 5: But I think we can't chalk it all up to 482 00:21:08,240 --> 00:21:11,720 Speaker 5: the immigration story, for example, or just the ongoing population 483 00:21:11,800 --> 00:21:14,760 Speaker 5: aging where we are seeing demand continue to weakend. So 484 00:21:14,800 --> 00:21:17,880 Speaker 5: look at indeed postings, look at the pmis, whether it's 485 00:21:17,880 --> 00:21:21,200 Speaker 5: the ISMS or the FED still showing employment in contraction 486 00:21:21,680 --> 00:21:24,080 Speaker 5: in contraction territory, and so I think there still is 487 00:21:24,440 --> 00:21:27,480 Speaker 5: a demand problem here, and I think even if that 488 00:21:27,560 --> 00:21:30,600 Speaker 5: break even rate is lower, that still portends something for 489 00:21:30,760 --> 00:21:34,399 Speaker 5: what's happening with household income and therefore spending power. But 490 00:21:34,520 --> 00:21:37,240 Speaker 5: when we step back, and I think that main point 491 00:21:37,280 --> 00:21:39,160 Speaker 5: that we need to keep in mind it is where 492 00:21:39,200 --> 00:21:41,080 Speaker 5: we are in terms of that overall balance. That's what 493 00:21:41,200 --> 00:21:44,000 Speaker 5: the FED is looking at, and I think there we 494 00:21:44,040 --> 00:21:47,680 Speaker 5: are seeing some softening, but not in a material or 495 00:21:47,760 --> 00:21:50,560 Speaker 5: quick way. So it's just this gradual, ongoing softening that's 496 00:21:50,840 --> 00:21:53,760 Speaker 5: keeping the FED on edge, but not definitive in terms 497 00:21:53,760 --> 00:21:55,920 Speaker 5: of the labor market really being in trouble here. 498 00:21:56,040 --> 00:21:59,120 Speaker 2: Sarah, what is your best guess for the federalserve on December. 499 00:21:58,840 --> 00:22:02,399 Speaker 5: Tenth, So we still have that they'll cut another twenty 500 00:22:02,400 --> 00:22:05,320 Speaker 5: five basis points, So obviously that's a close call where 501 00:22:05,560 --> 00:22:07,600 Speaker 5: it doesn't look like we're going to get even the 502 00:22:07,720 --> 00:22:09,960 Speaker 5: November data that we usually would have had with the 503 00:22:10,000 --> 00:22:13,040 Speaker 5: shutdown ending. I think the CPI we're not going to 504 00:22:13,040 --> 00:22:15,560 Speaker 5: have that for November, so it's going to be a 505 00:22:15,600 --> 00:22:18,359 Speaker 5: close call of whether you get November employment. But I 506 00:22:18,400 --> 00:22:21,479 Speaker 5: think the overall position of look, we need to move 507 00:22:21,520 --> 00:22:25,119 Speaker 5: closer to neutral inflation. Yes, it's being temporarily held up 508 00:22:25,520 --> 00:22:28,400 Speaker 5: by tariffs, but you're not seeing that spillover into services 509 00:22:28,440 --> 00:22:31,800 Speaker 5: path there is still lower I think that still supports 510 00:22:31,840 --> 00:22:35,360 Speaker 5: the argument of moving towards neutral. And I think when 511 00:22:35,400 --> 00:22:38,199 Speaker 5: you look at the voter composition too, that some of 512 00:22:38,240 --> 00:22:40,560 Speaker 5: the more outspoken hawks are the people who have come 513 00:22:40,600 --> 00:22:43,720 Speaker 5: out and said, look, I'm having trouble supporting another cut. 514 00:22:43,920 --> 00:22:46,200 Speaker 5: They're not voter. So I think when push comes to shove, 515 00:22:46,240 --> 00:22:49,760 Speaker 5: we'll get that additional twenty five basis point cuts in December. 516 00:22:50,520 --> 00:22:53,800 Speaker 2: Stay with us, multiple impex Savidans coming up off to 517 00:22:53,880 --> 00:23:05,040 Speaker 2: this big question for all of us tracking the markets, 518 00:23:05,080 --> 00:23:08,000 Speaker 2: when do we get the economic data? The National Economic 519 00:23:08,000 --> 00:23:10,240 Speaker 2: Council Director Kevin has had this to send the last 520 00:23:10,240 --> 00:23:12,600 Speaker 2: twenty four hours. I've been told that some of the 521 00:23:12,680 --> 00:23:16,560 Speaker 2: surveys were never actually completed, so will never perhaps even 522 00:23:16,560 --> 00:23:18,960 Speaker 2: though what happened in that month. What does that tell 523 00:23:19,040 --> 00:23:20,840 Speaker 2: to you abound the October data that. 524 00:23:20,800 --> 00:23:23,119 Speaker 4: We're not getting CPI period full stop. I mean, or 525 00:23:23,160 --> 00:23:24,560 Speaker 4: if we do, it's going to be so muddy that 526 00:23:24,560 --> 00:23:26,680 Speaker 4: people are going to really struggle to understand what exactly. 527 00:23:26,720 --> 00:23:27,239 Speaker 1: It looks like. 528 00:23:27,440 --> 00:23:29,920 Speaker 4: We are going to get September jobs report that probably 529 00:23:29,960 --> 00:23:32,600 Speaker 4: will be number one possibly early next week after that 530 00:23:33,040 --> 00:23:35,640 Speaker 4: kind of a pot shot, whether it's retail sales, whether 531 00:23:35,680 --> 00:23:38,520 Speaker 4: it's other peripheral data points to indicate inflation. But right 532 00:23:38,520 --> 00:23:40,320 Speaker 4: now it seems like we're kind of going to be 533 00:23:40,359 --> 00:23:42,720 Speaker 4: in that fog for maybe forever. When it comes to 534 00:23:42,920 --> 00:23:43,760 Speaker 4: that one month period. 535 00:23:43,840 --> 00:23:45,240 Speaker 2: It's not going to be fun for the next few months. 536 00:23:45,280 --> 00:23:47,000 Speaker 2: John Labor, if you're as your group joined us now 537 00:23:47,000 --> 00:23:49,560 Speaker 2: for more, John, welcome to the program. What's your understanding 538 00:23:49,560 --> 00:23:51,760 Speaker 2: of the data we will get and won't get in 539 00:23:51,800 --> 00:23:52,760 Speaker 2: the coming weeks. 540 00:23:53,320 --> 00:23:56,480 Speaker 6: Well, the BLS and the BA are still shutdown, so 541 00:23:56,560 --> 00:23:59,200 Speaker 6: we don't know exactly what their plans are. I'd expect 542 00:23:59,240 --> 00:24:01,240 Speaker 6: to probably announce something by the end of this week 543 00:24:01,560 --> 00:24:05,240 Speaker 6: or maybe Monday of next week. A timeline for when 544 00:24:05,520 --> 00:24:08,880 Speaker 6: they will get these reports out some of them. They 545 00:24:08,880 --> 00:24:11,760 Speaker 6: can collect the data. November is looking dicey right now 546 00:24:11,760 --> 00:24:14,200 Speaker 6: because this is the reference week for payrolls. They could 547 00:24:14,240 --> 00:24:16,120 Speaker 6: always push that back a week and collect the data 548 00:24:16,200 --> 00:24:18,520 Speaker 6: next week and then release the November data a week 549 00:24:18,640 --> 00:24:22,200 Speaker 6: later in December. That's what they've done in previous shutdowns. 550 00:24:22,240 --> 00:24:25,040 Speaker 6: But we really have no precedent for anything like what 551 00:24:25,080 --> 00:24:28,120 Speaker 6: we've seen here in the twenty eighteen shutdown, the government 552 00:24:28,160 --> 00:24:31,840 Speaker 6: was partially funded, so data releases weren't disrupted, And in 553 00:24:31,880 --> 00:24:34,680 Speaker 6: twenty thirteen, which is the closest analog, you had a 554 00:24:34,680 --> 00:24:36,639 Speaker 6: two week delay and then you had some delay in 555 00:24:36,720 --> 00:24:39,199 Speaker 6: other some of these reports coming out. I do think 556 00:24:39,240 --> 00:24:41,120 Speaker 6: it's right we'll just never know some of the things 557 00:24:41,119 --> 00:24:44,760 Speaker 6: from October. The employer survey, we probably can get some 558 00:24:44,880 --> 00:24:48,280 Speaker 6: pieces of that from October. But the household survey, I 559 00:24:48,280 --> 00:24:51,000 Speaker 6: think they probably just won't release anything and we'll be 560 00:24:51,000 --> 00:24:52,040 Speaker 6: flying blind on that month. 561 00:24:52,160 --> 00:24:54,000 Speaker 2: John gave us a reality check. Come in New York, 562 00:24:54,040 --> 00:24:56,479 Speaker 2: we come a financial markets. Obviously there's a home bus. 563 00:24:56,560 --> 00:24:59,240 Speaker 2: So we think this is really really important. Even on 564 00:24:59,240 --> 00:25:01,600 Speaker 2: the radar of people down at Washington d C. 565 00:25:02,680 --> 00:25:04,800 Speaker 6: No, this is not an issue that's come up, I 566 00:25:04,800 --> 00:25:06,760 Speaker 6: think in any of the shutdown discussions. 567 00:25:06,560 --> 00:25:07,760 Speaker 7: It's a distraction. 568 00:25:08,440 --> 00:25:12,040 Speaker 6: This is about Democrats wanted to reign in the Trump administration. 569 00:25:12,119 --> 00:25:15,159 Speaker 6: It's about healthcare costs, it's about a whole bunch of 570 00:25:15,160 --> 00:25:17,159 Speaker 6: other things except data. I mean, these are kind of 571 00:25:17,440 --> 00:25:21,200 Speaker 6: would be in Washington, would be considered extremely wonky issues, 572 00:25:21,400 --> 00:25:24,720 Speaker 6: and nobody on Capitol Hill is walking out about this stuff. 573 00:25:24,840 --> 00:25:26,879 Speaker 4: Yeah, but there is a larger takeaway here, John and 574 00:25:26,880 --> 00:25:29,040 Speaker 4: I was looking at the history of government shutdowns. There've 575 00:25:29,080 --> 00:25:32,239 Speaker 4: been six since nineteen ninety. They're getting progressively longer. They 576 00:25:32,240 --> 00:25:35,120 Speaker 4: were two to three days under Ronald Reagan and George W. Bush. 577 00:25:35,640 --> 00:25:37,919 Speaker 4: Under President Clinton, it was as much as twenty one 578 00:25:37,960 --> 00:25:41,119 Speaker 4: days under President Obama, sixteen days under President from one 579 00:25:41,160 --> 00:25:43,200 Speaker 4: point oh thirty five days, and now here we are 580 00:25:43,440 --> 00:25:46,239 Speaker 4: at forty two plus days. I'm just wondering what this 581 00:25:46,320 --> 00:25:49,320 Speaker 4: means about Congress's ability to get anything done and whether 582 00:25:49,640 --> 00:25:51,919 Speaker 4: January thirtieth is the next D Day where we're going 583 00:25:51,960 --> 00:25:53,160 Speaker 4: to get another government shutdown. 584 00:25:53,960 --> 00:25:55,280 Speaker 6: Yeah. I mean, I think you've hit the nail on 585 00:25:55,320 --> 00:25:58,680 Speaker 6: the head here. The federal budget process is fundamentally broken. 586 00:25:59,000 --> 00:26:02,200 Speaker 6: It's been broken for probably a decade now. And as 587 00:26:02,240 --> 00:26:05,240 Speaker 6: it kind of creaks and cracks and Washington becomes more 588 00:26:05,280 --> 00:26:08,440 Speaker 6: partisan and things become harder to do, I think the 589 00:26:08,440 --> 00:26:11,320 Speaker 6: brokenness of the federal budget system becomes more obvious and 590 00:26:11,400 --> 00:26:15,240 Speaker 6: starts having real world consequences. Congress hasn't completed the appropriation 591 00:26:15,359 --> 00:26:19,840 Speaker 6: cycle on time in years. The idea of even doing 592 00:26:19,840 --> 00:26:22,960 Speaker 6: a budget for reasons other than doing a reconciliation bill 593 00:26:23,280 --> 00:26:26,000 Speaker 6: is basically laughable, And I think what you're going to 594 00:26:26,040 --> 00:26:29,840 Speaker 6: see is increased likelihood of shutdowns. Now in the past, 595 00:26:29,880 --> 00:26:33,040 Speaker 6: what we've seen is that nobody really wins from a shutdown. 596 00:26:33,119 --> 00:26:35,359 Speaker 6: Members come out of that saying gosh, I don't want 597 00:26:35,400 --> 00:26:37,640 Speaker 6: to do that again. I'm not sure that's what you're 598 00:26:37,680 --> 00:26:41,640 Speaker 6: going to see this time around, given how long everything 599 00:26:41,680 --> 00:26:44,879 Speaker 6: functioned just fine under the shutdown government. I mean, a 600 00:26:45,080 --> 00:26:48,800 Speaker 6: huge portion of federal workers were considered essential meeting. They 601 00:26:48,800 --> 00:26:50,879 Speaker 6: could do their jobs but not get paid. And it 602 00:26:50,960 --> 00:26:54,119 Speaker 6: wasn't until flight delays really started kicking in and you 603 00:26:54,160 --> 00:26:56,600 Speaker 6: had this issue with snap benefits that people started to 604 00:26:56,640 --> 00:26:59,040 Speaker 6: really feel the real world pain. But I think that 605 00:26:59,080 --> 00:27:00,720 Speaker 6: one of the lessons of this shutdown is that a 606 00:27:00,760 --> 00:27:03,480 Speaker 6: week or two or longer shutting down the government really 607 00:27:03,520 --> 00:27:05,720 Speaker 6: isn't that big of a deal. President Trump can fly 608 00:27:05,760 --> 00:27:08,240 Speaker 6: around the globe making peace deals, tearing down the East Wing, 609 00:27:08,480 --> 00:27:11,400 Speaker 6: and it doesn't affect people's lives until you get much 610 00:27:11,480 --> 00:27:12,560 Speaker 6: deeper into the shutdown. 611 00:27:12,640 --> 00:27:15,600 Speaker 4: Yeah, but John, to John's point earlier when he was 612 00:27:15,640 --> 00:27:17,479 Speaker 4: talking about the fact that we may not get this 613 00:27:17,560 --> 00:27:20,440 Speaker 4: data ever, in terms of data that was not collected 614 00:27:20,480 --> 00:27:24,400 Speaker 4: during the reference period, Greg Daco over at ey Parthenon 615 00:27:24,480 --> 00:27:26,720 Speaker 4: said that about twenty percent of the economic hit from 616 00:27:26,760 --> 00:27:30,920 Speaker 4: the government shutdown probably will be permanent, just simply because 617 00:27:31,240 --> 00:27:35,040 Speaker 4: there is sort of this lost activity economic activity. I'm 618 00:27:35,080 --> 00:27:38,320 Speaker 4: just wondering, does this change the landscape for investors, for 619 00:27:38,440 --> 00:27:42,040 Speaker 4: corporations trying to maneuver in a world that is affected 620 00:27:42,040 --> 00:27:45,119 Speaker 4: by a government shutdown, even if most people don't feel it. 621 00:27:46,440 --> 00:27:48,679 Speaker 6: I think that if you're thinking about the future and 622 00:27:48,760 --> 00:27:50,840 Speaker 6: thinking about possibilities of what the future is going to 623 00:27:50,840 --> 00:27:52,880 Speaker 6: look like, you've got to have a much wider range 624 00:27:52,920 --> 00:27:56,200 Speaker 6: of outcomes on your radar and prepare for those outcomes. 625 00:27:56,359 --> 00:27:59,160 Speaker 6: You could have an even longer government shutdown in January. 626 00:27:59,280 --> 00:28:01,560 Speaker 6: There could be no government shutdown in January. You could 627 00:28:01,560 --> 00:28:03,600 Speaker 6: have the Democrats take back the House next year, and 628 00:28:03,600 --> 00:28:05,760 Speaker 6: then you get an even longer shutdown coming in twenty 629 00:28:05,800 --> 00:28:07,960 Speaker 6: twenty seven. So I think there's a lot of different 630 00:28:07,960 --> 00:28:11,239 Speaker 6: possibilities here. You can't rule anything out. And I think 631 00:28:11,280 --> 00:28:13,959 Speaker 6: that the fact is that the policymakers just aren't going 632 00:28:14,000 --> 00:28:17,720 Speaker 6: to respond until their constituents are feeling pain. And right now, 633 00:28:17,800 --> 00:28:20,560 Speaker 6: I mean, it's possible that this government shutdown. Everyone walks 634 00:28:20,560 --> 00:28:22,320 Speaker 6: out of this and says boy that was more painful 635 00:28:22,359 --> 00:28:24,720 Speaker 6: than we thought. And to your point, the data is 636 00:28:24,800 --> 00:28:27,560 Speaker 6: that the economic pain is permanent. But I don't get 637 00:28:27,560 --> 00:28:30,119 Speaker 6: the sense that's happening right now. But we'll see how 638 00:28:30,119 --> 00:28:31,120 Speaker 6: people feel in a few weeks. 639 00:28:31,200 --> 00:28:33,520 Speaker 2: John, things a change in dan in Washington, and can 640 00:28:33,560 --> 00:28:36,120 Speaker 2: we just ramp things up by leaning on your experience? 641 00:28:36,480 --> 00:28:40,240 Speaker 2: You know the Capital well, Nancy Pelosi is stepping a side, 642 00:28:40,280 --> 00:28:43,360 Speaker 2: she's retiring, centered a sham er, is under immense pressure. 643 00:28:43,440 --> 00:28:46,600 Speaker 2: You worked alongside. They form a leader Mitch McConnell longtime 644 00:28:46,680 --> 00:28:50,480 Speaker 2: later of the Republican Party. What's left of Washington DC 645 00:28:51,200 --> 00:28:53,520 Speaker 2: that you knew so well? 646 00:28:54,080 --> 00:28:54,520 Speaker 1: Very little? 647 00:28:54,600 --> 00:28:57,240 Speaker 6: I mean, I think you look at the committees on 648 00:28:57,280 --> 00:28:59,960 Speaker 6: Capitol Hill. They don't do much anymore. They're not producing legislation. 649 00:29:00,440 --> 00:29:03,720 Speaker 6: Lawmakers are no longer kind of growing. The senior lawmakers 650 00:29:03,720 --> 00:29:05,959 Speaker 6: that are going to be running the show in the 651 00:29:05,960 --> 00:29:08,760 Speaker 6: next five to ten years aren't ones that grew up 652 00:29:08,760 --> 00:29:11,200 Speaker 6: in this era of bipartisan compromise where they came to 653 00:29:11,280 --> 00:29:14,040 Speaker 6: Washington to do legislation and get bills done. There are 654 00:29:14,040 --> 00:29:16,160 Speaker 6: people that came up in an age of Donald Trump 655 00:29:16,160 --> 00:29:18,320 Speaker 6: and social media, and I think that creates a different 656 00:29:18,440 --> 00:29:22,320 Speaker 6: set of incentives for lawmakers. It makes lawmaking harder. Congress 657 00:29:22,320 --> 00:29:25,120 Speaker 6: has abdicated a lot of its responsibilities, and the public 658 00:29:25,120 --> 00:29:28,560 Speaker 6: doesn't take it very seriously. So I think on Capitol 659 00:29:28,640 --> 00:29:30,479 Speaker 6: Hill at least you're going to get a much weaker 660 00:29:30,520 --> 00:29:33,120 Speaker 6: generation of leaders and no disrespect to the people who 661 00:29:33,120 --> 00:29:33,480 Speaker 6: are there. 662 00:29:33,520 --> 00:29:33,760 Speaker 7: Now. 663 00:29:33,960 --> 00:29:35,920 Speaker 6: This is just a broader trend, and I think it 664 00:29:35,960 --> 00:29:39,200 Speaker 6: means that Congress takes itself out of the governing game 665 00:29:39,440 --> 00:29:41,960 Speaker 6: and puts itself into a full time campaign mode. That's 666 00:29:42,000 --> 00:29:44,920 Speaker 6: going to define more and more of the noise and policymaking. 667 00:29:44,960 --> 00:29:46,160 Speaker 6: Your hearing out of Washington. 668 00:29:46,560 --> 00:29:50,000 Speaker 2: Stay with us. Multiple IMPERG surveillance coming up after this. 669 00:29:59,280 --> 00:30:01,280 Speaker 2: Stok's rising invest as a way the end of the 670 00:30:01,280 --> 00:30:04,440 Speaker 2: government's shutdown and the release of a lot I mean 671 00:30:04,480 --> 00:30:07,400 Speaker 2: a lot of delayed data. Matt Meskin of John Hancock writing, 672 00:30:07,440 --> 00:30:09,520 Speaker 2: bad news is bad news, especially when it comes to 673 00:30:09,520 --> 00:30:13,240 Speaker 2: the jobs market and the FED being caukish. Regardless, markets 674 00:30:13,240 --> 00:30:17,120 Speaker 2: have a trade. The headline's mentality that is far from fundamental. 675 00:30:17,280 --> 00:30:19,520 Speaker 2: Matt joins us. Now for moret that last line, What 676 00:30:19,560 --> 00:30:20,240 Speaker 2: did you mean by that? 677 00:30:21,400 --> 00:30:23,000 Speaker 7: Well, I was just talking about you guys. 678 00:30:23,080 --> 00:30:27,200 Speaker 8: Mentioning vibes here it's a vibe market, and it's all 679 00:30:27,320 --> 00:30:29,720 Speaker 8: driven from settlement for the most part. And really what 680 00:30:29,760 --> 00:30:33,120 Speaker 8: we're seeing is this jaws kind of presenting itself from 681 00:30:33,320 --> 00:30:37,680 Speaker 8: the weaker economic data and the markets continuing to advance. 682 00:30:38,120 --> 00:30:40,080 Speaker 7: You know, at the end of the day's sentiment. 683 00:30:39,880 --> 00:30:44,360 Speaker 8: Is a very powerful short term market force, and we 684 00:30:44,400 --> 00:30:46,479 Speaker 8: are seeing momentum investors. 685 00:30:45,960 --> 00:30:48,600 Speaker 7: Around the world really allocy. 686 00:30:48,400 --> 00:30:52,720 Speaker 8: Towards stocks because they're rallying even in these mornings. Now 687 00:30:52,720 --> 00:30:56,840 Speaker 8: you're not even getting necessarily a narrative of why things 688 00:30:56,840 --> 00:30:59,840 Speaker 8: are up other than it was up yesterday, and so 689 00:31:00,240 --> 00:31:02,400 Speaker 8: we really see it even at the beginning of the week. 690 00:31:02,600 --> 00:31:05,680 Speaker 8: On Sundays, it used to be Sunday Funday, and now 691 00:31:05,720 --> 00:31:08,760 Speaker 8: it's Sundays are a time where markets open and there's 692 00:31:08,840 --> 00:31:12,280 Speaker 8: usually some sort of headline that hits the markets first thing. 693 00:31:12,760 --> 00:31:17,560 Speaker 8: So Monday morning we open stronger and that sets the 694 00:31:17,640 --> 00:31:20,000 Speaker 8: vibe or the tone for the week. In our view, 695 00:31:20,120 --> 00:31:22,320 Speaker 8: this is a time where you want to think about 696 00:31:22,400 --> 00:31:26,000 Speaker 8: more defensive or conservative options to four portfolios and not 697 00:31:26,120 --> 00:31:29,760 Speaker 8: to really overweight risk and over your skis in terms 698 00:31:29,800 --> 00:31:33,040 Speaker 8: of risk at these kind of levels. But it's been 699 00:31:33,200 --> 00:31:36,240 Speaker 8: a very strong year for markets, and we'll take it. 700 00:31:36,400 --> 00:31:38,240 Speaker 2: So, Matt, let's unpack some of this and let's start 701 00:31:38,280 --> 00:31:40,880 Speaker 2: with the data, the job's data. How relevant is the 702 00:31:40,960 --> 00:31:44,160 Speaker 2: job's data to a market that's been driven by technology 703 00:31:44,240 --> 00:31:46,600 Speaker 2: that is aren't could be holding back jobs data? 704 00:31:47,840 --> 00:31:50,120 Speaker 8: Yeah, John, I mean this is the circular feedback loop 705 00:31:50,160 --> 00:31:52,760 Speaker 8: that everyone's really highlighting is. You know, it doesn't matter 706 00:31:52,800 --> 00:31:55,400 Speaker 8: about the jobs because these companies are running more efficient. 707 00:31:55,480 --> 00:31:57,920 Speaker 7: The AI is helping them. 708 00:31:58,000 --> 00:32:00,800 Speaker 8: Increase earnings, and as long as those earnings are going up, 709 00:32:01,120 --> 00:32:03,480 Speaker 8: that helps the stock market. It makes sense, right, Well, 710 00:32:03,760 --> 00:32:07,280 Speaker 8: the missing lynchpin of this argument is that you need 711 00:32:07,320 --> 00:32:11,080 Speaker 8: the US consumer to spend. There is no more powerful 712 00:32:11,160 --> 00:32:14,520 Speaker 8: economic for us globally than the US consumer. And if 713 00:32:14,560 --> 00:32:18,040 Speaker 8: the US consumer doesn't have a job, they can't spend. 714 00:32:18,600 --> 00:32:21,680 Speaker 8: And that's where we struggle to find this feedback loop 715 00:32:22,120 --> 00:32:25,640 Speaker 8: and why we think that the weaker job's data really 716 00:32:25,760 --> 00:32:27,880 Speaker 8: is going to present weaker consumer spending. 717 00:32:28,040 --> 00:32:30,480 Speaker 7: You're already having weak consumer confidence. 718 00:32:31,000 --> 00:32:33,000 Speaker 8: Now to us, this means the FED will end up 719 00:32:33,040 --> 00:32:35,760 Speaker 8: cutting more than the market thinks. Right now, the FED 720 00:32:35,840 --> 00:32:39,040 Speaker 8: is actually, in our view, over compensating a bit because 721 00:32:39,080 --> 00:32:40,920 Speaker 8: they think they're going to be more hawk Excuse me, 722 00:32:41,000 --> 00:32:43,400 Speaker 8: dubvish into twenty twenty six, so they're being a bit 723 00:32:43,400 --> 00:32:46,640 Speaker 8: more hawkish now. It is really fascinating to see stocks 724 00:32:46,680 --> 00:32:50,720 Speaker 8: really kind of just float through that with minimal impact. 725 00:32:50,840 --> 00:32:54,080 Speaker 8: But in our view, the weaker jobs data is very 726 00:32:54,120 --> 00:32:56,480 Speaker 8: material for this economy and markets in time. 727 00:32:56,600 --> 00:32:58,240 Speaker 4: Matt, why do you reject the argument that in the 728 00:32:58,280 --> 00:32:59,880 Speaker 4: beginning of next year we're going to get tax free 729 00:33:00,280 --> 00:33:02,840 Speaker 4: and all sorts of other stimulative measures that really cause 730 00:33:02,880 --> 00:33:03,800 Speaker 4: a boost to consumption. 731 00:33:05,040 --> 00:33:06,640 Speaker 7: Yeah, at the end of the day, the jobs market, 732 00:33:06,720 --> 00:33:07,760 Speaker 7: like I said, is so important. 733 00:33:07,800 --> 00:33:09,720 Speaker 8: And when you look at these eight whether it's the 734 00:33:09,840 --> 00:33:13,120 Speaker 8: Challenger layoff announcement, so the ADP data, and you look 735 00:33:13,160 --> 00:33:16,520 Speaker 8: at prior periods when it rose or when it caused 736 00:33:16,520 --> 00:33:19,280 Speaker 8: the initial jobs comes to arise, or the unemployment rates arise. 737 00:33:19,720 --> 00:33:23,280 Speaker 8: It's usually about a month and a half lag time 738 00:33:23,360 --> 00:33:27,200 Speaker 8: between the initial layoff announcements and when it hits the data. 739 00:33:27,600 --> 00:33:30,000 Speaker 8: And really, if you kind of time that out here, 740 00:33:30,080 --> 00:33:32,880 Speaker 8: it's the beginning of twenty twenty six, when initial jobs 741 00:33:32,880 --> 00:33:35,640 Speaker 8: claimed starts to rise, the unemployment rate starts to rise. 742 00:33:35,760 --> 00:33:37,840 Speaker 8: And you think about this, the unemployment rate, the last 743 00:33:37,920 --> 00:33:40,320 Speaker 8: data point we had was four point three percent in 744 00:33:40,360 --> 00:33:45,240 Speaker 8: August at five percent. Usually that's a recession, and we're 745 00:33:45,280 --> 00:33:48,920 Speaker 8: already likely ticking up. I mean, yesterday Goldman Sachs said 746 00:33:49,280 --> 00:33:52,200 Speaker 8: that more likely than not, we had a fifty thousand 747 00:33:52,440 --> 00:33:56,720 Speaker 8: job decline here in October. If that was actually the 748 00:33:56,760 --> 00:34:01,200 Speaker 8: release of that national non farm payroll, in our view, 749 00:34:01,240 --> 00:34:04,000 Speaker 8: that would have been a shock to the system. And 750 00:34:04,080 --> 00:34:06,600 Speaker 8: so that's what I struggle with, is if you're telling 751 00:34:06,640 --> 00:34:08,399 Speaker 8: me that there's all these, you know, kind of good 752 00:34:08,400 --> 00:34:11,279 Speaker 8: things coming in the pipeline, the other side of this 753 00:34:11,520 --> 00:34:14,320 Speaker 8: is we're still going to be catching up on weaker 754 00:34:14,480 --> 00:34:17,880 Speaker 8: data that really hasn't been released here in the last 755 00:34:17,920 --> 00:34:18,360 Speaker 8: month or so. 756 00:34:18,640 --> 00:34:19,440 Speaker 1: Matt that our. 757 00:34:19,320 --> 00:34:21,239 Speaker 4: Word was kind of jarring for me because I haven't 758 00:34:21,239 --> 00:34:23,600 Speaker 4: heard it in so long, and no one's talking about recession. 759 00:34:23,640 --> 00:34:25,319 Speaker 4: I mean, that seems to be nowhere on any of 760 00:34:25,320 --> 00:34:27,880 Speaker 4: the earnings calls from come corporate executives. 761 00:34:27,400 --> 00:34:28,200 Speaker 2: Across the specter. 762 00:34:28,520 --> 00:34:31,120 Speaker 4: We're not hearing mentions of an economic slowdown or anything 763 00:34:31,200 --> 00:34:32,839 Speaker 4: like that. It really is coming at the slowest pace 764 00:34:32,840 --> 00:34:34,560 Speaker 4: in terms of mentions of that. Going back to two 765 00:34:34,560 --> 00:34:37,840 Speaker 4: thousand and seven, what does conservative mean in terms of investing? 766 00:34:37,880 --> 00:34:39,840 Speaker 4: Does it mean just hide out in the tenure or 767 00:34:39,880 --> 00:34:43,640 Speaker 4: does it mean actually high value companies that are also 768 00:34:43,680 --> 00:34:47,560 Speaker 4: facing pretty elevated valuations in addition to yes, various steady 769 00:34:47,560 --> 00:34:48,240 Speaker 4: cash streams. 770 00:34:49,360 --> 00:34:51,040 Speaker 8: Yeah, so at the end of the day, there are 771 00:34:51,080 --> 00:34:54,400 Speaker 8: companies that are growing earnings. We do like higher quality companies. 772 00:34:54,480 --> 00:34:56,680 Speaker 8: Quality has not been in favor of this year. It's 773 00:34:56,719 --> 00:34:59,640 Speaker 8: been more of a low quality rally, but in our 774 00:34:59,760 --> 00:35:02,520 Speaker 8: view we would position higher quality. In the equity space, 775 00:35:02,880 --> 00:35:06,480 Speaker 8: we are looking at infrastructure related equities across Europe right now. 776 00:35:06,480 --> 00:35:07,600 Speaker 7: You're seeing Europe rally. 777 00:35:08,360 --> 00:35:11,440 Speaker 8: Some of that is infrastructure related, utility type businesses that 778 00:35:11,480 --> 00:35:15,400 Speaker 8: are throwing off dividends. They've got great earnings, so infrastructure 779 00:35:15,440 --> 00:35:17,520 Speaker 8: related equities is one way to do it. We are 780 00:35:17,560 --> 00:35:19,960 Speaker 8: looking at in the bond market, like you said, I mean, 781 00:35:20,000 --> 00:35:23,080 Speaker 8: we're still getting nearly a five percent yield here, and 782 00:35:23,200 --> 00:35:25,600 Speaker 8: yields have come down this year, but if the tenure 783 00:35:25,680 --> 00:35:28,200 Speaker 8: did drop a low four percent, which is support, we 784 00:35:28,239 --> 00:35:31,440 Speaker 8: think there's more return potential there. So there's still a 785 00:35:31,440 --> 00:35:34,160 Speaker 8: lot of income and return potential out of the bond 786 00:35:34,200 --> 00:35:35,640 Speaker 8: market in our view. 787 00:35:35,640 --> 00:35:36,319 Speaker 7: Though on the. 788 00:35:36,200 --> 00:35:38,799 Speaker 8: Equity side, we're more neutral on US large cap. We're 789 00:35:38,840 --> 00:35:44,239 Speaker 8: overweight MidCap. To get more diversified exposure, better valuations, and 790 00:35:44,280 --> 00:35:47,319 Speaker 8: we're underweight small cap because frankly, there's just so much 791 00:35:47,400 --> 00:35:49,160 Speaker 8: nonprofitable businesses. 792 00:35:48,719 --> 00:35:51,040 Speaker 7: There, so it's a lot of playle lowering data. 793 00:35:51,239 --> 00:35:53,799 Speaker 2: Talk about vibes, the ultimate vibes. Try to the years 794 00:35:53,880 --> 00:35:57,040 Speaker 2: Europe dressing up one percent GDP as if it's an 795 00:35:57,040 --> 00:35:59,680 Speaker 2: next best big thing. Matt, you already want to stand 796 00:35:59,719 --> 00:36:01,200 Speaker 2: Europe and equities into twenty six. 797 00:36:02,600 --> 00:36:04,960 Speaker 8: So we would look to trimin's strength here and it's 798 00:36:05,000 --> 00:36:08,320 Speaker 8: been this year is probably years worth of returns and 799 00:36:08,400 --> 00:36:11,200 Speaker 8: you look back over time, I mean whether it's Italy. 800 00:36:11,200 --> 00:36:14,359 Speaker 7: Or Spain, I mean Spanish stocks, who would have thought. 801 00:36:14,360 --> 00:36:17,600 Speaker 8: I mean, the economy is doing great, so congratulations on 802 00:36:17,760 --> 00:36:21,000 Speaker 8: that front. But really the stock market there is trading 803 00:36:21,040 --> 00:36:24,560 Speaker 8: almost like it's another entity. And a lot of these 804 00:36:25,080 --> 00:36:28,760 Speaker 8: markets are trading almost like they're just ticker symbols versus 805 00:36:28,960 --> 00:36:32,279 Speaker 8: a company or a country, And we want to be 806 00:36:32,719 --> 00:36:34,640 Speaker 8: notified if we want to be mindful of that that 807 00:36:34,719 --> 00:36:36,759 Speaker 8: we're not really just day traders here. We're not just 808 00:36:36,880 --> 00:36:39,400 Speaker 8: trading these for momentum, and we want to look at 809 00:36:39,400 --> 00:36:42,759 Speaker 8: the underline fundamentals. But yeah, Europe is on fire this 810 00:36:42,920 --> 00:36:46,600 Speaker 8: year European financials breaking out here and again. That is 811 00:36:46,640 --> 00:36:50,359 Speaker 8: a sentiment and indicator. There's positive vibes globally right now. 812 00:36:51,600 --> 00:36:55,120 Speaker 2: This is the Bloomberg Sevenics podcast, bringing you the best 813 00:36:55,160 --> 00:36:58,480 Speaker 2: in markets, economics, antient politics. You can watch the show 814 00:36:58,560 --> 00:37:01,440 Speaker 2: live on Bloomberg TV day mornings from six am to 815 00:37:01,640 --> 00:37:05,320 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 816 00:37:05,520 --> 00:37:07,759 Speaker 2: or anywhere else you listen, and as always, on the 817 00:37:07,760 --> 00:37:10,160 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.