00:00:02 Speaker 1: Bloomberg Audio Studios. 00:00:04 Speaker 2: Podcasts. 00:00:05 Speaker 1: Radio. 00:00:06 Speaker 3: News. 00:00:12 Speaker 1: This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. 00:00:27 Speaker 3: So she got a promotion, which means she gets to keep her frequent flyer miles. Global Chief Investment Strategist at BlackRock. Thrilled that Gargi Chaudhry could join us here. So when they gave you a new title, what do they do? Do they like Take you out to dinner or, you know, get an extra Starbucks coffee? 00:00:47 Speaker 2: Good morning, friends. It's great to be here. Well, when you get a promotion, they tell you that you have to travel to a few different places. 00:00:55 Speaker 3: You think so? 00:00:57 Speaker 2: And you get to do your old job and. 00:00:58 Speaker 3: Your new job. So that's wonderful. What are you telling, in your travels, what are you telling equity investors away from America about American exceptionalism? and about the American AI equity market? 00:01:13 Speaker 2: So I was just in Asia for a couple of weeks. It was fantastic. And this question about how should I diversify away from the concentration of AI came up a lot. And we are telling investors that AI remains our strongest conviction, whether you do that in the US, whether you do that in Korea, whether you do that in Taiwan, that remains our strongest conviction. But more and more, given the concentration in the markets, you do need to be thinking about parts of the market. We call it the beyond AI trade. And we talk about this in our latest fall investment directions, where we talk about, hey, look at parts of the market like healthcare, which historically, when you've had the semiconductor sell-off, has held in better. Look at parts of the market like dividends, where again, if you're focusing on near-term cash flows, obviously paying dividends, That has, especially in the July sell-off, been a better hedge for the AI trade. So investors outside of the U.S. like the AI trade, but they want opportunities to diversify away, and they're looking for ideas to do that, both in broad markets, but also looking at places like India and Japan as some of the drivers of the non-AI move in the markets. 00:02:22 Speaker 4: By the way, I love your investment deck. It's so user-friendly. I love the format that BlackRock uses. I would steal it if I were still into the deck. 00:02:30 Speaker 3: Is a deck a PowerPoint? Yeah, and it's just easy to use. 00:02:33 Speaker 4: I mean, having built a thousand of these over my career, I like this format here. 00:02:37 Speaker 3: You say outside the U.S. 00:02:38 Speaker 4: You prefer emerging markets. Talk to us about that. What is an emerging market for you, and why do you like them? 00:02:45 Speaker 2: You know, as being someone from the emerging markets, when I started in the market, you know, call it 25 years ago, a huge amount of focus on EM was around, you know, what's the dollar doing? What is the domestic trajectory of balance sheets, et cetera? Right now, today, the new emerging market, when you look at the composition of something like IEMG, which is our iShares EM ticker, it's very much pivoted towards the AI name. 00:03:14 Speaker 1: Really? 00:03:14 Speaker 2: The three biggest components of that are China, Korea, and Taiwan. And what you're getting there is a lot of earnings growth. And a huge amount of AI. So we are, because we're convicted on the AI theme, we're definitely telling investors EM is another way. It's a new EM. It's not the old EM. It is going to give you earnings growth of 44% that you didn't get in the past. The positioning of the dollar does matter, but in an AI world, maybe a little less so. 00:03:45 Speaker 4: Do I get this AI exposure in emerging markets at a lower valuation? 00:03:49 Speaker 5: Because I can. 00:03:50 Speaker 2: Get NVIDIA today at 17 times. 00:03:53 Speaker 3: NVIDIA is 17 times earnings? 00:03:56 Speaker 2: That is one of the things that we're pointing out in investment directions given the pullback in the summer, given the massive leverage unwind that we all know that took place in the summer. You're going back to countries like Korea and Taiwan, given the earnings growth at a much lower P.E. than you were in the beginning of the year. So better valuations given some of the volatility. But I do want to be clear of one thing. I think there is volatility ahead in the markets. We're constructive, but constructive doesn't mean calm. 00:04:26 Speaker 3: Henry McVeigh stopped by the other day, Bloomberg Money with KKRP. and he's talking about a regime change where 60-40 is dead, and you gotta plug in alternatives. Do you agree at BlackRock that alternatives is part of everyone's long-term portfolio? 00:04:42 Speaker 2: I won't go so far as to say that 60-40 is ultimately dead. What I would say is that you need different sorts of diversification in your portfolio, and you need to fund that from both the equity as well as the fixed income portion of your portfolio. So absolutely. We're telling investors, add things like liquid alts in your portfolio, which is giving you diversification without directionality. Liquid alternatives. Again, having strategies that can be market neutral. So you're not going up in the same direction with the same beta as the broad index. 00:05:15 Speaker 3: Is gold a liquid alt? 00:05:17 Speaker 2: Gold is not. But the iShares sticker, I-A-L-T, I-ALT, as we love to call it, is a liquid alternative. Again, think of traditional hedge fund strategies available in an ETF wrapper, which is much more useful to everyone. Main thing here is you're not taking the market direction and you're still getting returns, diversified sources of returns. 00:05:38 Speaker 3: So what kind of assets are liquid alts in? 00:05:42 Speaker 2: It's in a whole host of assets. It's in the fixed income market. 00:05:45 Speaker 3: It's in the equity market. Oriental rugs? I mean, you know, come on. No, no, no. 00:05:48 Speaker 2: Public markets. It's in fixed income. It's in equities. It's in FX. But at the same time, you're taking long, short positions. There's so much of that. You're, you know, especially given the AI disruption, taking advantage of the short side of the market as well as the AI beneficiaries and non-AI. 00:06:04 Speaker 4: Tom, your iShares systematic alternative ETF thing, Majigi, iALT, it's up 18% this year. 00:06:11 Speaker 5: So just straight up into the. 00:06:13 Speaker 3: It is non-correlated with NVIDIA. 00:06:14 Speaker 2: It is non-correlated to broad markets. And I would also say that in this world where you're getting that AI risk in both stocks and bonds, given the IG issuance that you guys were just talking about, having that non-correlated risk without the beta is really important. So IALT, as one way of adding non-correlated, diversified risk without taking the directionality. So won't go as far as to say 60-40 is dead. There's definitely a lot of income and fixed income to be found. So definitely be clipping that with tickers like BlackRock income. Having said that, think about adding alternatives to your portfolio sourced from both fixed income and equities. 00:06:53 Speaker 3: Can I ask a question? 00:06:54 Speaker 4: Yeah, do it. 00:06:55 Speaker 3: Can we go off script? Sure, absolutely. Do you do the triathlon in the Hudson River? 00:06:59 Speaker 2: I have done it. 00:07:00 Speaker 3: Is it like a current? Like you go in and all of a sudden you're waving at the Statue of Liberty? 00:07:07 Speaker 2: Not that far, but there is a little bit. There can be some current. There can also be jellyfish. 00:07:11 Speaker 3: Do you swim? There can be jellyfish? 00:07:14 Speaker 4: That can. 00:07:14 Speaker 3: Do you swim across? Do you swim to Jersey? 00:07:17 Speaker 2: You swim down. You swim downstream. So the New York City Triathlon, which happens every summer, you swim down from sort of the 70s or 80s down to the. 00:07:27 Speaker 3: I'm thinking she doesn't use the Peloton. 00:07:29 Speaker 4: No, I think with the floaties, just kind of cruising down on the current. That's how I. 00:07:33 Speaker 5: Would do it. 00:07:34 Speaker 4: The triathlon people, there's just something going on there. 00:07:37 Speaker 3: I interviewed the guy who did it, like won a lot. I'm sure you know the gentleman. And he said the biggest mistake he made was to overtrain. And the moment he started resting between workouts, he got better. 00:07:50 Speaker 4: Okay. 00:07:51 Speaker 3: I'll never forget that. 00:07:52 Speaker 5: Yeah, I'm all for the rest. 00:07:53 Speaker 3: So I'm resting. 00:07:54 Speaker 4: I can sit on the sofa with the best of them. You know, Gargi, I mean, I don't know what you guys do over there, BlackRock. This is good deck. I'm all ready to go here. You know, this is a shout out to your junior analysts who put this together. 00:08:07 Speaker 2: They love hearing this. 00:08:08 Speaker 3: I have 20 seconds. What was the greatest insight in Asia that you saw? Away from the grind. What was the Asian insight you saw? 00:08:18 Speaker 2: Look, I think here in the U.S., most investor portfolios have had a big underweight growth. to EM markets, to Asian markets in particular. 00:08:27 Speaker 3: And they're not. 00:08:27 Speaker 2: It is fantastic to see the diversification portfolio sitting down with Asian investors that care about the midterms, that have views around how to be allocated in different U.S. sectors. So it's the diversification in the portfolios that was really impressive. 00:08:42 Speaker 3: Got to go. Gargi Shoddy, congratulations on new duties at BlackRock. We're thrilled that she could join us. 00:08:49 Speaker 6: Stay with us. 00:08:50 Speaker 3: More from Bloomberg Surveillance coming up after this. 00:09:00 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. 00:09:13 Speaker 3: This is indeed a joy on many levels. First of all, he actually in the index mentions the Boston Red Sox. 00:09:18 Speaker 6: Does he? 00:09:19 Speaker 3: One citation, page 61. It was a fluke. All right, Rubenstein joins us now. The new book, Inside the Owner's Box, Conversations on Power and Leadership in Sports. David, I've got to take a moment here. You dedicate this book to the wonderful Robert Barnett. He represents me and my family. He represents you. It was tragic to lose Bob Barnett. What did Bob Barnett mean to Washington and to Baltimore? 00:09:44 Speaker 7: Well, Bob Barnett was a friend of mine from law school. I've known him, knew him for about 50 years. And Bob developed a practice where he represented law former presidents of the United States, senators, secretaries of state, in getting book deals or media deals, and therefore he represented me for many years in every book that I ever wrote and many other people much more prominent than me. 00:10:04 Speaker 6: So when he. 00:10:05 Speaker 7: Died about a year ago from a tragic cancer, it really was a real loss for people in Washington, D.C. 00:10:11 Speaker 3: Wonderful. Inside the owner's box, our team, I just steal. We have Orioles fans on our team, Paul. 00:10:17 Speaker 6: I know that. 00:10:17 Speaker 3: Absolutely. 00:10:19 Speaker 5: Exactly right. 00:10:20 Speaker 4: So, David, in your book, you interview owners of major league sports teams. 00:10:25 Speaker 5: Across the sports spectrum. 00:10:28 Speaker 4: Robert Kraft of the Patriots, Ted Leonsis of the Washington Capitals and the Wizards, and my Lawrence Hill classmate, Joe Sy of the Brooklyn Nets. What's some of the commonalities, David, that you found in your discussions with some of these these owners here? 00:10:43 Speaker 7: Well, very few owners actually, as children, expected to be owners. 00:10:46 Speaker 6: I never expected to be an owner. 00:10:48 Speaker 7: Young people probably want to be athletes, not owners. But eventually, when they get older, they realize their athletic skills are not as great as they once wanted them to be. And then the owners that actually become owners, the people that become owners, they're really more obsessed with winning. 00:11:02 Speaker 6: Than they are with making money. 00:11:04 Speaker 7: I interviewed owners, and I wrote a book, in part because when I was becoming an owner... I was looking for books on what it was like to be an owner, and there were relatively few owner books that I could find. And so I thought if I could interview other owners, I would get a sense of why they became owners, and I would give my own story about why I became an owner of the Baltimore Orioles, my hometown baseball team. 00:11:25 Speaker 4: David, you know, there once was a time when owning a major sports franchise was the game for millionaires. And then it became the game for billionaires. And now we've got institutional money coming into the ownership. I think about the Los Angeles Dodgers. I think about the NFL allowing private equity to own minority stakes. And of course, corporate ownership of the English Premier League teams. Where does this go from here. 00:11:49 Speaker 6: Do you think? 00:11:51 Speaker 7: Well, the reason this is happening is in part because the values of franchises have gone up so much that very few individuals can buy a team. 00:11:58 Speaker 6: So, for example, NFL franchises. 00:12:00 Speaker 7: Which are now worth $ 10 billion plus, very few individuals can write a check that can buy a team for $ 10 billion. 00:12:07 Speaker 6: Therefore, you need to get outside money. 00:12:09 Speaker 7: The NFL now allows teams to buy, certain private equity firms, to buy up to 10 percent. Other private leagues allow sovereign wealth funds to invest, all in minority stakes. We haven't gone to the point yet where a private equity firm or a sovereign wealth fund can own a major American franchise in control, but that could happen down the road. 00:12:29 Speaker 6: Who knows? 00:12:30 Speaker 3: David Rubenstein, Inside the Owner's Box. Folks, this is the sports book of the year. It is absolutely piercing. Let me give you one example. I had a great dad who was a man of spirituality. He was of limited financial means. He had a small dry goods business, but he was really a person who was a spiritual leader. He was head of all synagogues of Massachusetts for 12 years. He never watched TV. And then as a kid, Robert Kraft went on to win six Super Bowls. I mean, a guy like Kraft, I mean, what he did to pick up the, I think it was the Boston Patriots then. Not even, give us a vignette into Robert Kraft, David, and what you learned from him. 00:13:12 Speaker 7: Well, Robert Kraft was born in Boston. He went to college at Columbia. He actually played football at Columbia University. And later retained his love of football. But he built a business in the packaging business. 00:13:25 Speaker 6: And basically that was his life. 00:13:27 Speaker 7: And then an opportunity came along to buy a stadium that football team was played in. And later he bought the team itself. And then he won six Super Bowls. He's now been to 11 Super Bowls. And I think in the recent era, nobody's been to as many Super Bowls and nobody's won as many Super Bowls. 00:13:43 Speaker 6: And Bob Kraft loves the game of football. 00:13:45 Speaker 7: And now he also owns the Revolution, which is the men's soccer team in Boston. So he's given a great deal to this professional sports world. 00:13:53 Speaker 6: And obviously he had a. 00:13:54 Speaker 7: Very famous quarterback named Tom Brady. He drafted in the sixth round, but later became, I guess, the greatest quarterback of all time. 00:14:02 Speaker 3: Page 57. Did David Rubenstein bring Pete Alonzo to the Orioles? 00:14:08 Speaker 7: Well, you know, I bought the Orioles in part because I wanted to help my hometown of Baltimore. Baltimore, when I was growing up, was a much bigger city, more vibrant. It's had some challenges. And I thought that I hadn't philanthropically done enough for Baltimore compared to other places. And I thought if I could buy the team and revive it a bit, it would help downtown Baltimore and help Baltimore generally. So far, I haven't been as successful in the field as I would like, but I've enjoyed the experience. It's just that I try to remind people that I'm just an owner, and when people come up to me for autographs or selfies, I try to remind them that I'm not a player. But sometimes when eight-year-old boys come up, what are you supposed to say? I'm not that significant. Don't get my autograph. So I sign the autograph, but I don't really think that. 00:14:50 Speaker 6: They're going to sell on eBay for more than a penny or two. 00:14:52 Speaker 3: The Rubenstein different folks, if you gaze at the perfect Camden Yards, he's not up in the fancy box. Rubenstein is in row, not row one, row like two or three-ish near the dugout. He's got a head on. He's going incognito. 00:15:07 Speaker 4: David, as owner of the Baltimore Orioles, do you believe there will be a work stoppage in Major League Baseball next year? 00:15:14 Speaker 6: I don't think I know what will happen. 00:15:16 Speaker 7: I think the commissioner has convinced all owners that the best thing we can do is let the commissioner and his team try to negotiate a deal. So I think rather than get myself in trouble and get banned from baseball, I'm going to say, we'll just see what the negotiators come up with. I just honestly don't know what will happen. But clearly, I hope that we have a full season. 00:15:35 Speaker 3: David, I have to digress here just in the final questions that we have. We have an institution, I was watching this TV show, The Americans, from like 13 years ago, of David Rubenstein's Washington, D.C. And they're doing the beauty shots. And off in the distance is a beauty shot of a horizontal, gorgeous 60s architecture, the Kennedy Center. It's front and center now in debate. David, what is the best outcome for the Kennedy Center after President Trump? 00:16:06 Speaker 7: Well, I chaired the Kennedy Center board for 14 years, and I was on the board for 20 years. And I obviously care a lot about the Kennedy Center. I think I gave the Kennedy Center more than $ 100 million in philanthropic contributions. And I want the Kennedy Center to thrive. It was set up as a bipartisan, nonpartisan performing arts center as a living memorial to President Kennedy. 00:16:26 Speaker 6: And that's what it should be. 00:16:28 Speaker 7: And I'm very hopeful that at some point we can return it to a nonpartisan, bipartisan performing arts center that everybody wants to go to and perform at. 00:16:36 Speaker 3: Right. You and I adore Charlie Cook. Amy Walker's doing such a beautiful job at the Cook Political Report. Charlie Cook wrote an essay yesterday for the Cook Political Report. It was absolutely scathing about how the Democratic Party can't get organized to take on this midterm or, frankly, after President Trump. What does the Democratic Party need to do to coalesce around the values of David Rubenstein and Robert Barnett of another time and place? 00:17:07 Speaker 6: Well, we'll see what happens in the elections. 00:17:09 Speaker 7: The midterm elections, traditionally, a president loses about 25 House seats and about two or three Senate seats. 00:17:16 Speaker 6: We don't know what will happen. 00:17:18 Speaker 7: We've only had one experience like this before, which was a president was in a second term that was non-consecutive. And that was Grover Cleveland in the late 1800s. And that was not a great outcome for his party. He lost 133 seats in the House, the greatest loss ever. Now, I don't know whether anything like that could happen again. 00:17:37 Speaker 6: I don't think so. 00:17:38 Speaker 7: But I suspect that it will be difficult for the Republicans to hold on to both houses in this midterm election based on the polling data that I've seen from the Cook Report and other places. 00:17:47 Speaker 6: But time will tell. And you never know how people are going to vote in the last minute. 00:17:51 Speaker 3: You going to Orioles-Yankees tonight at Yankee Stadium? You know what I mean? It's coming up, right? 00:17:57 Speaker 7: No, tonight we have a game in Camden Yards, a rainout game we have to play against the Toronto. The Yankees are coming up in the future after this series is over in Baltimore. 00:18:10 Speaker 6: Yes. 00:18:10 Speaker 3: Defeat them. David Rubenstein. Thank you. Thank you so much. I can't say enough about this, folks. 00:18:17 Speaker 6: Stay with us. 00:18:18 Speaker 3: More from Bloomberg Surveillance coming up after this. 00:18:29 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. 00:18:41 Speaker 3: Joining us now for an economic break. Love having her on with ITR up in Boston. Lauren Seidel-Baker joins us right now. Lauren, excuse me. 00:18:52 Speaker 6: Still have the plague, folks. 00:18:54 Speaker 3: Lauren, is nominal GDP just going to sustain? As you look out, does top line GDP come under 5% or is it forever like? 00:19:04 Speaker 8: I would never say forever, but for a while we do have a runway here. I think 2027 we'll see moderately slower growth, but still quite solid. A lot of this year's, especially CapEx and business spending decisions, A lot of that's been pulled into 2026. So I would expect some of these kind of macro factors to take a breather in 2027. The consumer is the one that I'm personally watching very closely. We are seeing real personal incomes declining now. So with all of this inflation, our income is just not quite able to keep pace. That's going to be a bit of a downside for next year. But I don't see any recession, certainly. And I do see these rather elevated growth rates. 00:19:43 Speaker 3: And Paul, Neil Dutter writing in Business Insider over the weekend, that's where he focused on his prediction of a slump. consumer. 00:19:50 Speaker 4: I read everything he writes, that's for sure. Lauren, I'm just looking at WTI crude oil now, just below $ 90 a barrel, but it's. 00:19:57 Speaker 6: All over the place here. 00:19:59 Speaker 4: I think what a lot of folks are trying to, maybe even the Federal Reserve is trying to figure out, what's kind of the core underlying inflation? How do you kind of think about that? 00:20:09 Speaker 8: So the Federal Reserve, we've heard new metrics for core inflation. You know, it's not just that core PCE anymore. Are we going to a trimmed mean or some of these other measures? Overall, what we do here at ITR Economics is we look at this holistically, not just the, say, CPI or core PCE or any of those kind of headline numbers. We really want to see what are folks actually feeling. That's going to be different for different consumer segments right now. So again, comping that to incomes to see where are we on a real basis. If we do want to go deeper into the consumer, we currently see that lending conditions are loosening. So maybe it's easier to get that credit if you need it. We don't see our personal savings balances really hanging in as strongly. So I think of the consumer's legs of a stool. 00:20:51 Speaker 5: How do they combat this inflation? 00:20:54 Speaker 8: As for what that exact number is, we could argue about it all day, but the point is they're feeling it. 00:20:58 Speaker 3: I mean, when you were at Wellesley, and of course, this is under the giant Carl case that we miss every day. Lawrence Seidel Baker, Chapter 23 of any given intro economics book links the stock market into economics. Do you do that? Do you link equity performance that we see now into your view of the economy forward? 00:21:20 Speaker 8: I'm going to get it tattooed on my forehead. The stock market is not the economy. 00:21:24 Speaker 3: There we go. 00:21:25 Speaker 8: We want to watch the stock market, right? There's something happening there. But right now, that is not telling us the key economic story. It is, I think, representative of what sectors might be driving some of this growth as we talk AI, data centers, and I mean... As your previous guest said, where that trickles down to the electrification, to this new power generation that we're needing and all of those other capabilities. At the end of the day, that is driving a lot of the activity across especially the B2B space right now. And that is in fact driving higher pricing in some of these key components. It's not quite the golden screw problem that we had back during COVID and the immediate aftermath, but there are certainly demand factors that are pulling up pricing in certain sectors that are being felt much more widespread than just in the data center space. So I'm looking at it as a nice kind of benchmark, something to pay attention to, but I would never put my economic takeaways from the asset prices. 00:22:20 Speaker 4: So, Lauren, just as it relates to AI spending, it's been such a major part of the U.S. equity market story, now the fixed income market as well. It's also been a big story of just kind of GDP in general, economic growth. How concerned are you that to the extent AI spending pulls back, that would have broader economic impacts here? 00:22:44 Speaker 8: Again, it certainly could, as that has been where the growth is concentrated. But that growth, as rapid as it has been and as just eye-popping as these percentages are, it still is not the vast majority of our economy. If I'm looking at GDP, two-thirds of that is driven by the consumer. The remaining third, it's roughly evenly divided between business investment and government spending. So We're already at a rather small wedge. Even if AI were to dry up tomorrow, clearly there would be an impact, but it's not going to be half of all GDP. 00:23:16 Speaker 3: Growth, right? 00:23:17 Speaker 8: There certainly is a lot else going on here in the economy. We are a very large economy here in the United States, the largest in the world on a GDP basis, and that is being supported by so many other factors. AI is just the one with the high growth right now. 00:23:32 Speaker 3: Do you link your Fed expectation to trying to manage a slowdown in the economy. 00:23:41 Speaker 5: Um, Fed expectations. 00:23:43 Speaker 8: I mean, I have been saying that inflation is the key driver for, I don't know how many years now, um, that we were expecting rates to start moving higher at some point. We, we reached that point here this month. So I'm still watching for inflation again, at the end of the day, the labor market is holding in quite well. I don't think that side of the slowdown really. 00:24:02 Speaker 5: Needs to be managed. 00:24:03 Speaker 8: Obviously these folks are paying attention to so many different factors, but But if we're just going by that strict dual mandate, inflation is the thing they need to worry about. And I see that being a pressure from. 00:24:15 Speaker 5: AI, right? 00:24:15 Speaker 8: That is one of the key drivers here behind higher pricing. So I think that is the more immediate focus. Longer term, anything can happen. 00:24:22 Speaker 3: Have you downloaded Muse yet from Meta? 00:24:25 Speaker 5: I have not. 00:24:26 Speaker 4: That's a hot tip. 00:24:27 Speaker 2: I'm going to have to go do that today. 00:24:28 Speaker 3: Paul Sweeney's way out in front of us. I have no idea what to do with it, even if I download it. I'm playing with it. 00:24:34 Speaker 4: I don't know. 00:24:35 Speaker 3: I'll figure it out. Well, good for you. I mean, seriously. Lawrence Seidel Baker, thank you so much. Economist, ITR Economics. 00:24:44 Speaker 6: Stay with us. 00:24:45 Speaker 3: More from Bloomberg Surveillance coming up after this. 00:24:55 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:25:08 Speaker 3: Let's get right to it. I see Matt Lozetti on Fed Day. And I get like one question in, and it's really not focused because you've got to go talk to Deutsche Bank clients worldwide. Matt was in the studio right now. I just got to ask you, and this is the heritage of Deutsche Bank economics, to take nominal GDP in a roaring economy, and there's different sets of outcomes if we try to bring ourselves down from a roaring economy. Which outcome do you guess between dampened real growth and dampened inflation? Where are we at three years on this boom economy? 00:25:48 Speaker 5: I mean, you're absolutely right to highlight it. 00:25:50 Speaker 9: We're at 6.5% nominal GDP growth year over year. And so I think last week when we were chatting, there's been a lot of maybe pushback on the Fed for hiking into a supply shock. And And it is true that there are supply shocks ongoing. But I think we've been arguing that there's also a pretty robust demand backdrop driving nominal GDP growth higher. Our baseline is that we will see inflation come down over time. But it's been our baseline that the Fed needs to tighten monetary policy to get there. So you probably have some slowing over time in real growth, but also inflation coming down ultimately over time. I think Chair Warsh is outlining a view, hopefully, where It's mostly an inflation story, and the real economy can continue to chug along. I think you're hearing Fed officials beginning to debate a little bit more how much pain might be required to get inflation down. I think Goolsbee, Chicago Fed president, this week also brought that back. And so we're not there yet, I think, from a full debate from a Fed perspective, but it's possible that we get there next year. 00:26:50 Speaker 4: Matt, a lot of smart folks are telling me, stop whining about interest rates being higher at 5% for the 10-year. We've got a nominal GDP of 6% or whatever percent is higher than This is where rates kind of should be given that kind of economic growth. How do you think about the interest rate environment with the economic backdrop here? 00:27:07 Speaker 9: Yeah, I think that there's probably nothing unusual about where interest rates are given the economic backdrop and certainly given the fiscal picture. I think the unusual nature of it is when we compare it to what we saw between the GFC and the pandemic, that very unusual zero interest rate environment. And there was a debate, I think, after the pandemic about what has fundamentally changed that has either it pushed us more fully away from that environment and returned us to normal, or would we get back there? You know, it's our view that it was anomalous, the zero interest rate environment between the 2010s and the GFC, that that was driven by deleveraging that you'd seen, fiscal policy that was contractive, unusual monetary policy that we saw across the globe. Those are all behind us. We have an investment boom ongoing, you have fiscal policy, which is very supportive. debt-to-GDP ratios that are rising. There's no need for low interest rates today. 00:28:00 Speaker 3: Matt Lozetti with us. Damian Sassar on deck for Global Wall Street. Mr. Lozetti is with Deutsche Bank at the Time Warner Center, except they renamed it the Lozetti Center over there in the corner of Central Park as well. I interviewed Fokerts Landau driving all of your work, I think the day Putin walked into Ukraine or the day after. And he absolutely nailed the fiscal impetus to come. Are we living off continued COVID stimulus or is this a new stimulus that we're in right now? 00:28:34 Speaker 5: I don't think this is really about COVID stimulus. 00:28:36 Speaker 3: We're beyond that. 00:28:37 Speaker 5: We are beyond that. 00:28:38 Speaker 9: In the U.S., we had the one big beautiful bill last year, which provided tax cuts and a tailwind to the economy. And then you just have AI-related investment, which is driving, you know, it's a critical source. 00:28:48 Speaker 5: Of investment spending. 00:28:49 Speaker 3: Okay, so what happens after that? 00:28:51 Speaker 9: Well, the question is, when is after that, I think. 00:28:55 Speaker 3: Okay, both. 00:28:56 Speaker 9: And I think after that is not over the next six to 12 months. After that might be beyond that window. 00:29:02 Speaker 3: Okay. 00:29:03 Speaker 9: You do have a consumer, however, that is also growing pretty strongly. If you look at the Atlanta Fed, they're tracking 4% annualized growth for real consumer spending in Q3. 00:29:12 Speaker 3: Unbelievable. 00:29:14 Speaker 9: That's the strongest growth that we've seen there in several years. That is about labor income. You have a labor market that is actually turning around. You have 4.3% nominal income growth coming for the consumer, but also big wealth effects, and that is tied into the AI trade. 00:29:29 Speaker 4: Looking at your stock, Deutsche Bank, I did not see this, Tom. Deutsche Bank, over the last five years, compounded annual growth of 28%. They're killing it. That is amazing. I did not see that coming. 00:29:39 Speaker 3: It was a weak moment. Peter Hooper hired Matt Lizetian. Stock went straight up. 00:29:43 Speaker 6: They more than righted this shit there. 00:29:45 Speaker 5: I wish that were true. 00:29:46 Speaker 4: So, Matt, what are we talking about here on the labor side here? Is it still kind of a... Slow to no hire, slow to no fire kind of world out there? Because, boy, 4.2 or whatever the unemployment rate is really seems full employment to me. 00:29:59 Speaker 9: Yeah, so I think we're going through kind of phases here. The clear slowdown that took place last year, that had motivated the Fed to go through another cycle of rate cuts. But since then, I think there's been a clear bottoming. There's been a stabilization that's happened in the labor market. And we are potentially entering a phase where the labor market is tightening more meaningfully. We have job gains that are above the break-even rate that is needed to keep the unemployment rate steady. We saw yesterday's ADP weekly data is consistent with 80,000 private sector jobs per month. That's well above levels that we think are needed. And with that, you've seen the unemployment rate decline, broader measures of labor market slack decline as well, early stages of wage growth beginning to pick up. So now I think the question is, are we simply stabilizing here where we are? Or is there a reacceleration that could take place? 00:30:45 Speaker 3: There's a lot of people out there looking for a slower consumer. You're looking for, to be clear here, within core domestic final sales say. You're looking for a reacceleration. 00:30:57 Speaker 9: Look, I think in the labor market, those are the trends at the moment. There are clear cross currents for the consumer. 00:31:02 Speaker 3: Fair. 00:31:02 Speaker 9: The labor market is turning. You have wage growth that is showing a little bit of an uptick. At the same time, energy prices are a clear headwind for that. You mentioned interest rates and mortgage rates. So those are also headwind. I think on balance, you keep a consumer kind of closer to where it is. But in the absence of what's happening in the energy market, I think you would see stronger consumer spending. 00:31:22 Speaker 3: Matt, we don't care. Okay, here's what I got. I got UCLA playing California. I got UCLA playing San Diego. And then last week, 3-0 UCLA did it to Purdue in an in-league game. Now they're going to play an in-league game against Wisconsin, I think. Oregon, okay, I'll go with that. That's West Coast, I think. And then Maryland. How do you, how do you, did you, did you play football at UCLA? I can't remember. 00:31:49 Speaker 5: So I played football in high school, not at UCLA. 00:31:53 Speaker 3: UCLA is part of the Big Ten. It's like the world turned upside down. 00:31:57 Speaker 9: It's difficult to kind of fully comprehend. I was watching USC play Rutgers over the weekend. And that was an in-conference game, which was incredibly unusual. 00:32:08 Speaker 3: Is the Rose Bowl lost its magnificent pass? 00:32:11 Speaker 5: I don't think it can. 00:32:13 Speaker 9: I mean, that's a beautiful place to go watch football on a beautiful setting. 00:32:16 Speaker 3: Have you been there with like 104,000 people? 00:32:18 Speaker 5: Yeah, I saw UCLA, USC while I was at grad school. 00:32:20 Speaker 3: The Deutsche Bank tickets. 00:32:22 Speaker 5: I know, that was in grad school. 00:32:23 Speaker 4: Yeah, I see like the women's field hockey team from, pick any school, UCLA, in an airport coming to Piscataway, New Jersey to play Rutgers. 00:32:31 Speaker 6: I'm like, how is that possible? Makes sense. 00:32:33 Speaker 5: The travel schedule has to be insane. 00:32:34 Speaker 4: I don't know how the kids do it. 00:32:35 Speaker 3: What's Binkram Shada think of the equity markets here? 00:32:39 Speaker 9: Look, Binky, who's our U.S. equity strategist, has stayed with his call for $ 8, 000 on the. 00:32:44 Speaker 5: S & P 500. Whoa, whoa, whoa. 00:32:45 Speaker 3: He's absolutely nailed this bull market. 00:32:49 Speaker 5: He has, and he's stuck with the view. 00:32:52 Speaker 9: I think kind of consistent with what I'm outlining for the real economy, which I think is this broadening out that you see in the labor market. You actually see some broadening out within the consumer. I think he's noted that you see that within earnings growth as well. It is not simply about AI anymore, that you've had a broadening out across companies and sectors in terms of earnings growth. And so he stuck with his view of 8,000 for the end of the year. 00:33:12 Speaker 3: Matt Lazzetti, thank you so much. From UCLA, and of course, always Chief U.S. Economist at Deutsche Bank as well. 00:33:18 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.