WEBVTT - Bloomberg Surveillance: Outperformance in Tech 0:00:05.040 --> 0:00:08.639 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:08.680 --> 0:00:12.040 with Paul Sweeney. Join us each day for insight from 0:00:12.039 --> 0:00:16.200 the best in economics, finance, investment, and international relations. You 0:00:16.239 --> 0:00:19.599 can also watch the show live on YouTube. Visit the 0:00:19.600 --> 0:00:24.360 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:24.360 --> 0:00:27.400 mornings from seven to ten am Eastern from our global 0:00:27.440 --> 0:00:32.080 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:32.440 --> 0:00:36.000 or anywhere else you listen, and always i Bloomberg Radio, 0:00:36.159 --> 0:00:39.360 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:39.560 --> 0:00:40.120 We need more. 0:00:40.200 --> 0:00:43.760 Cameron Dawson joining us now our futures at negative three 0:00:44.680 --> 0:00:50.839 is Cameron Dawson unbelievably pression about losing the cliches go 0:00:50.920 --> 0:00:51.479 to cash. 0:00:51.680 --> 0:00:52.479 She's not there. 0:00:52.760 --> 0:00:55.080 She's in the market, in the game, and of course 0:00:55.080 --> 0:00:58.720 it's seen a bull market from October. Let's go there 0:00:58.760 --> 0:01:02.000 first of about six album before Paul Sweeney jumps in 0:01:02.040 --> 0:01:05.360 with real market talk. And the answer here is we 0:01:05.400 --> 0:01:08.640 did all this technology investment in the pandemic and now 0:01:08.640 --> 0:01:12.440 it's in place, and I think there's a complete underestimation 0:01:12.640 --> 0:01:18.240 of margin strength forward because they're going to apply I'm not. 0:01:18.200 --> 0:01:20.720 Talking about Microsoft, I'm talking about DuPont. 0:01:20.920 --> 0:01:23.840 Yeah, I mean, never bet against the great American might 0:01:23.880 --> 0:01:27.440 of expanding margins. We've been talking about peak margins year 0:01:27.560 --> 0:01:29.960 after year after year, and yet we've continued to press 0:01:30.000 --> 0:01:32.319 to new all time highs. I think a good question 0:01:32.360 --> 0:01:36.120 of that is how much is that technology related versus globalization, 0:01:36.240 --> 0:01:38.600 which of course was a big driver of better margins 0:01:38.680 --> 0:01:42.120 through before the pandemic. But we have to also appreciate 0:01:42.200 --> 0:01:44.760 during the pandemic one of the key sources of margin 0:01:44.880 --> 0:01:49.360 upside was revenue growth. It was incremental margins falling, falling 0:01:49.360 --> 0:01:51.640 down to the bottom line. When you grow revenues a 0:01:51.680 --> 0:01:54.440 lot a lot more of that falls down, and that 0:01:54.480 --> 0:01:57.680 came from pricing power. So the question for twenty twenty 0:01:57.720 --> 0:02:00.680 four and twenty twenty five, with a market that's pricing 0:02:00.720 --> 0:02:04.480 in peak margins or a new all time high margins, 0:02:04.960 --> 0:02:08.120 is can you get those all time high margins without 0:02:08.560 --> 0:02:11.480 pricing power and revenue growth given inflation has abated. 0:02:11.800 --> 0:02:14.240 So I get I'm just looking at the earnings forecast 0:02:14.320 --> 0:02:16.280 kind of bottoms up for the S and P five hundred, 0:02:16.320 --> 0:02:18.120 kind of high single digit, low double digit. 0:02:18.840 --> 0:02:19.280 I don't know. 0:02:19.560 --> 0:02:21.360 I'm not sure how much confidence we should have in 0:02:21.360 --> 0:02:23.560 those numbers. I know I've got my FED going to 0:02:23.600 --> 0:02:25.560 help us by being rates down, But do I still 0:02:25.600 --> 0:02:27.120 have earnings risk in the marketplace. 0:02:27.760 --> 0:02:29.280 I think that we have to keep our heat on 0:02:29.320 --> 0:02:32.280 a swivel for that, because what's underlying those ten and 0:02:32.280 --> 0:02:35.720 eleven percent earnings growth is an acceleration and top line 0:02:35.880 --> 0:02:38.280 not just in twenty four but also in twenty twenty 0:02:38.280 --> 0:02:42.080 five as well as those new record margins. Now we 0:02:42.200 --> 0:02:44.560 have a lot of levers to pull, things like possibly 0:02:44.600 --> 0:02:46.720 going back to M and A, which could help with 0:02:46.800 --> 0:02:50.680 deal activity, utilizing the balance sheet possibly a little bit 0:02:50.720 --> 0:02:53.400 more as people feel better. But I think that the 0:02:53.560 --> 0:02:57.480 other very important point is that earning sestiments have been 0:02:57.560 --> 0:03:01.240 eroding over the last four months, and so as we've 0:03:01.280 --> 0:03:04.560 seen the market rally, you've seen learning systems actually come in, 0:03:05.120 --> 0:03:07.640 meaning that this is all multiple expansion. 0:03:07.760 --> 0:03:10.880 So how do you think about valuation in this marketplace? 0:03:10.880 --> 0:03:12.959 I mean, it used to be when I was a kid, 0:03:13.000 --> 0:03:16.600 fifteen times was the market. Now it's eighteen, nineteen, twenty 0:03:16.639 --> 0:03:19.639 times for the market. How do you feel about valuation here? 0:03:19.840 --> 0:03:21.000 Yeah, I am. 0:03:21.760 --> 0:03:24.320 I'm open to the idea that the backdrop of the 0:03:24.320 --> 0:03:29.000 market sector kind of dispersion does support a higher multiple 0:03:29.120 --> 0:03:32.960 over the long run. However, if you're looking at twenty 0:03:33.040 --> 0:03:36.320 point one times forward earnings, there are only two times 0:03:36.360 --> 0:03:39.160 in the last forty years. We traded above that level 0:03:39.560 --> 0:03:42.680 during the tech bubble in the two thousands and during 0:03:42.720 --> 0:03:46.280 the pandemic policy bubble. And I call it that because 0:03:46.320 --> 0:03:49.920 you saw valuations expand when money supplied grow thirty percent, 0:03:50.080 --> 0:03:52.640 the Fed balance sheet increased by five trillion dollars in 0:03:52.640 --> 0:03:54.760 real interest rates for negative one percent. 0:03:55.080 --> 0:03:57.240 Not to go Steve Ross on you from MIT, but 0:03:57.280 --> 0:03:59.400 does factor investment here forward matter? 0:03:59.520 --> 0:04:01.680 And in that if we assume in any. 0:04:01.480 --> 0:04:04.680 Bull markets seventy percent of the stocks underperform, thirty percent 0:04:04.800 --> 0:04:08.320 drive the boat? Or obviously that's not a cliche, let's 0:04:08.360 --> 0:04:12.840 call that a tutology. Okay, great, but de factor choices 0:04:13.000 --> 0:04:17.440 matter forward? Or is it earnings analysis, securities and analysis 0:04:17.520 --> 0:04:18.960 that really drives the ship. 0:04:19.320 --> 0:04:21.960 For us, it's the factors that are related to earnings, 0:04:22.040 --> 0:04:24.960 such yes, such as looking at free cash flow generation. 0:04:25.200 --> 0:04:27.720 Free cash flow is such an important driver of being 0:04:27.760 --> 0:04:31.000 able to reinvest in your business because that gives you 0:04:31.080 --> 0:04:33.919 that effective flywheel effect. We don't want to be investing 0:04:33.960 --> 0:04:36.839 in companies mostly at this point in the cycle that 0:04:37.080 --> 0:04:41.400 cannot self fund themselves. We want companies that are agnostic 0:04:41.440 --> 0:04:42.520 to wear interest rates. 0:04:42.360 --> 0:04:43.680 Are so how many companies are this? 0:04:43.760 --> 0:04:47.600 There's like four you know, I mean, I mean, there's Bloomberg, LP, 0:04:47.839 --> 0:04:48.800 there's Apple. You know. 0:04:49.360 --> 0:04:50.680 Okay, how many companies? 0:04:50.720 --> 0:04:53.320 I love what you just said, except this weekend I'm 0:04:53.320 --> 0:04:54.400 going to you know, nobody's going to do. 0:04:54.560 --> 0:04:56.760 They're not going to do like a Monte Carlos. 0:04:56.279 --> 0:04:58.479 Survey or whatever that SMB five hundred. 0:04:58.640 --> 0:05:02.480 How many stocks out there meet the Cameron Dawson analysis. 0:05:02.600 --> 0:05:04.960 Well, to put a number on it. When we think 0:05:05.000 --> 0:05:08.360 about our equity strategies, whether it's growth, value or international, 0:05:08.440 --> 0:05:11.720 each have about thirty five stocks in them. So to 0:05:11.760 --> 0:05:14.039 get to the cream of the crop. It's a pretty 0:05:14.640 --> 0:05:15.200 type filter. 0:05:15.720 --> 0:05:17.960 Nothing else matters today. 0:05:18.000 --> 0:05:19.120 You and I can go home right now. 0:05:19.160 --> 0:05:19.360 Yep. 0:05:19.800 --> 0:05:23.480 What Cameron Dawson said there, folks, is gospel. She's looking 0:05:23.520 --> 0:05:27.599 at thirty five stocks. Let's double it, seventy stocks. The 0:05:27.640 --> 0:05:30.400 streets out there looking at three thousand stocks because it's 0:05:30.400 --> 0:05:32.080 a marketing employ to keep us busy. 0:05:32.560 --> 0:05:33.800 There's like seventy stocks. 0:05:33.880 --> 0:05:36.680 You can actually put My lecture's over continue. 0:05:36.520 --> 0:05:38.960 What sectors do you guys like right now at Cameron, 0:05:39.000 --> 0:05:42.279 I mean, I'm wondering, do I is tech still going 0:05:42.360 --> 0:05:44.119 to lead this market going forward? 0:05:44.279 --> 0:05:47.000 For example, I'm so torn. It's definitely a head and 0:05:47.040 --> 0:05:49.240 a heart kind of moment because what I see with 0:05:49.320 --> 0:05:53.080 tech is that you see a lot of concentration positioning 0:05:53.160 --> 0:05:56.640 becoming very crowded. It's saw huge inflows, forty billion dollars 0:05:56.680 --> 0:05:59.680 of inflows. It's also very expensive. It's trading at its 0:05:59.680 --> 0:06:05.240 twenty one peak valuation, so COVID policy era pat valuation. However, 0:06:05.760 --> 0:06:09.159 Tech and communications are the only sectors in the S 0:06:09.200 --> 0:06:11.920 and P five hundred that have seen positive earnings revisions 0:06:11.960 --> 0:06:15.600 in the last six months. So until you see earnings 0:06:15.640 --> 0:06:19.880 revisions for value type sectors turn positive, I don't think 0:06:19.960 --> 0:06:21.600 that value can outperform. 0:06:21.680 --> 0:06:24.400 Okay, Pharaoh's not here. I mean, I gotta do soccer 0:06:24.440 --> 0:06:26.080 talk with you. Only I'm gonna get through the day. 0:06:26.080 --> 0:06:28.800 Boy, I got to wake up from the surveillance nap. 0:06:28.839 --> 0:06:31.560 I got Tottenham Manchester City today in the FA Cup. 0:06:32.200 --> 0:06:33.480 Do you think the Tots can do it? 0:06:33.560 --> 0:06:40.000 I've never been more nervous to answer a questions. 0:06:37.760 --> 0:06:40.880 John Pharaoh. That's all there is. Turn around it's like 0:06:40.960 --> 0:06:41.640 it's there. 0:06:41.800 --> 0:06:44.279 It's like it's like it's like, you know, all I 0:06:44.320 --> 0:06:47.440 can say, folks, this is a ginormous. 0:06:46.640 --> 0:06:49.480 Game three pm, Paul, this afternoon. 0:06:49.000 --> 0:06:50.440 Really and it's Tom Now. 0:06:50.839 --> 0:06:53.040 Adele's going to be there, Emma's going to be there, 0:06:53.080 --> 0:06:54.320 coming back from Australia. 0:06:54.560 --> 0:06:54.800 Wow. 0:06:54.920 --> 0:06:57.040 They called me up, they say they'd be there. You know, 0:06:57.080 --> 0:06:59.839 bring John Yep. It's like a huge game at Manchester. 0:07:00.200 --> 0:07:02.800 He should win. All right, we'll tune in, we'll see. 0:07:02.839 --> 0:07:03.880 Thanks for the soccer talk. 0:07:04.480 --> 0:07:04.960 That is great. 0:07:06.000 --> 0:07:07.440 Okay, you did not off. 0:07:07.279 --> 0:07:09.200 There, very good entertaining. 0:07:10.080 --> 0:07:21.800 Please, you'd kill him. 0:07:22.000 --> 0:07:24.000 Conviction to be in the market, as you often say, 0:07:24.040 --> 0:07:27.360 Bob do all cross Mark Global Investments. He's the CEO 0:07:27.560 --> 0:07:30.040 and CIO over there, but he's been on the street 0:07:30.360 --> 0:07:34.760 folks for many, many years. I first started following his 0:07:34.800 --> 0:07:37.280 work when he was a Chief investment Officer Maryland's Investment 0:07:37.320 --> 0:07:40.280 Management down there, and that's sprawling Princeton campus back in 0:07:40.360 --> 0:07:43.360 the day. Bob, thanks so much for joining us here. 0:07:43.520 --> 0:07:45.520 I mean, you know, I think if we just look 0:07:45.600 --> 0:07:48.400 back a little bit, Bob, that November December last year 0:07:48.440 --> 0:07:50.679 caught a lot of people by surprise with the big 0:07:50.760 --> 0:07:54.360 rip up in markets, and then we kind of start 0:07:54.400 --> 0:07:58.160 twenty four still still looking pretty solid here. How do 0:07:58.200 --> 0:08:01.440 you think about these markets after that big, big finish 0:08:01.480 --> 0:08:02.360 to twenty twenty three. 0:08:03.200 --> 0:08:05.600 First of all, happy Friday, guys. Yes, it was an 0:08:05.680 --> 0:08:11.000 unbelievable rally in November December stocks truck mid teens. 0:08:11.200 --> 0:08:11.440 Yep. 0:08:11.600 --> 0:08:14.040 That's like a year and a half's work in two 0:08:14.080 --> 0:08:17.800 months over the long term, and that's a big number. 0:08:17.800 --> 0:08:20.800 And of course it all came because the Fed said, 0:08:21.080 --> 0:08:25.520 not explicitly, we're gonna pivot, We're done raising rates, and 0:08:25.560 --> 0:08:28.880 you know, it's happy, happy land again, and bonds took off, 0:08:28.920 --> 0:08:32.120 and stocks took off, took off, and credit spreads narrowed. 0:08:32.840 --> 0:08:34.800 We came into the year, we had a little bit 0:08:34.840 --> 0:08:38.040 of a hangover. I'm not convinced we aren't gonna get 0:08:38.080 --> 0:08:41.520 some more of that. On the average stock having done 0:08:41.559 --> 0:08:46.000 well with those small stocks catching up in November December, 0:08:46.320 --> 0:08:48.720 has lagged or down year to date, while the broad 0:08:48.760 --> 0:08:51.440 averages you guys point out are up a bit. So 0:08:51.920 --> 0:08:54.920 I'm all concerned, And my biggest concern is earnings, which 0:08:54.920 --> 0:08:56.080 we can talk about if you like. 0:08:56.360 --> 0:08:58.280 Absolutely that's where I wanted to go. Bob, I kind 0:08:58.280 --> 0:09:00.599 of felt like, just looking at that performance at the 0:09:00.640 --> 0:09:02.360 end of last year, it was, as you mentioned on 0:09:02.400 --> 0:09:06.400 that fed pivot. So I'm wondering, now, now what's the driver? 0:09:06.520 --> 0:09:08.080 And I kind of feel like, as a former equity 0:09:08.120 --> 0:09:12.000 analyst who still thinks earnings matter, I think earnings need 0:09:12.040 --> 0:09:14.200 to really come through here. I'm not sure we're gonna 0:09:14.520 --> 0:09:16.760 get it here. How do you think about the earnings 0:09:16.800 --> 0:09:17.680 risk here in this market? 0:09:18.679 --> 0:09:23.480 I think the risk exists, especially with PE ratios over twenty. 0:09:23.880 --> 0:09:26.120 You know, if the PE were fifteen or sixteen, maybe 0:09:26.120 --> 0:09:29.320 we could relax on earnings. But not true fourth quarter 0:09:29.320 --> 0:09:32.959 earnings they're coming through fast and furious. On October first, 0:09:33.000 --> 0:09:36.200 when that quarter started, analysts expected earnings to be up 0:09:36.240 --> 0:09:40.120 for the quarter seven percent. That number is now plus one. 0:09:40.880 --> 0:09:43.880 From plus seven to plus one. That's a much bigger 0:09:43.920 --> 0:09:47.559 decline than usual. Of course, they set up so there 0:09:47.559 --> 0:09:50.760 are beats, and the beats last I saw are running 0:09:50.760 --> 0:09:54.400 in the low sixty percents, which is the lowest we've 0:09:54.400 --> 0:09:58.520 seen in quite some time. And analysts have not done 0:09:58.520 --> 0:10:01.280 a whole lot yet to their twenty twenty four numbers. 0:10:01.360 --> 0:10:04.520 Is the fourth quarter is disappointing them a bit. They're 0:10:04.520 --> 0:10:07.120 waiting for the conference calls to figure out how to 0:10:07.160 --> 0:10:09.600 take how much to take twenty twenty four down, those 0:10:09.679 --> 0:10:10.839 numbers will come down some more. 0:10:10.840 --> 0:10:12.520 In my view, Bloomberg surveillance. 0:10:12.800 --> 0:10:16.200 Retirement planning, We're never retiring, so we'll talk about it 0:10:16.240 --> 0:10:19.520 for you, Bob Dahl, let's talk about retirement planning. 0:10:20.120 --> 0:10:22.000 Rebalancing is all out there. 0:10:22.080 --> 0:10:25.480 If I had to rebail whatever the timeline is, quarterly, 0:10:25.600 --> 0:10:29.640 semi annual, yearly, every five years, whatever I would have 0:10:29.679 --> 0:10:33.400 sold Microsoft six years ago, or at least lightened up. 0:10:33.760 --> 0:10:36.880 You need to explain to me the marketing racket of 0:10:37.000 --> 0:10:41.800 target date funds. You fought against that your entire career. 0:10:42.320 --> 0:10:45.040 What's the problem with over rebalancing. 0:10:46.720 --> 0:10:49.480 So the first problem of those target day funds is 0:10:49.720 --> 0:10:52.880 I think they're too conservative. You know, if we retired 0:10:52.920 --> 0:10:56.160 at sixty five and died at sixty six, different story. 0:10:56.640 --> 0:10:59.800 But life expectancy continues to get longer. So the mixes 0:10:59.800 --> 0:11:03.559 are and my view, too conservative. And then when you rebalance, 0:11:03.600 --> 0:11:07.319 you constantly rebellance out of things that are working into 0:11:07.400 --> 0:11:10.760 things that are not. There's some merit to that on 0:11:10.800 --> 0:11:14.320 a long term basis, But if you're already starting too conservative, 0:11:14.880 --> 0:11:17.720 you can really rip into your retirement savings. 0:11:17.720 --> 0:11:20.560 Well, Sweeney, you nailed this with your first question of 0:11:20.600 --> 0:11:24.560 the morning, saying what about holding your winners in that 0:11:24.720 --> 0:11:26.880 The guy that lectured me on this was a gentleman 0:11:26.920 --> 0:11:29.880 from Saint Louis. I've never forgiven him for not buying 0:11:29.880 --> 0:11:31.640 the cardinals from the Bush family. 0:11:31.760 --> 0:11:33.880 Benjamin S. Edwards, a third of a G. 0:11:34.120 --> 0:11:34.600 Edwards. 0:11:34.720 --> 0:11:40.200 Ben Edwards would scream at me, do not sell your winners, 0:11:40.240 --> 0:11:41.400 Bob Dahl one. 0:11:41.280 --> 0:11:44.320 Oh one, Hey, Bob, twenty twenty four, whether way like 0:11:44.360 --> 0:11:46.520 it or not, is an election year. You've been through 0:11:46.640 --> 0:11:50.480 so many cycles, Bob, does this factor into your outlook? 0:11:50.520 --> 0:11:52.800 What do you tell your clients here in what could 0:11:52.880 --> 0:11:55.480 be a volatile, you know, electoral cycle. 0:11:55.520 --> 0:11:59.920 Hell yeah, I think have patients. Don't look for stock 0:12:00.160 --> 0:12:03.800 where you think the valuation's going to go up, the earnings, 0:12:03.840 --> 0:12:07.320 the cash flow. Just be very cautious in terms of 0:12:07.360 --> 0:12:10.960 the kinds of things you're buying. That's advice all the time, 0:12:10.960 --> 0:12:13.720 but in periods of uncertainty, in periods when the PE's 0:12:13.800 --> 0:12:17.040 over twenty, you've got to pay attention to that. The 0:12:17.080 --> 0:12:20.520 election is going to create some uncertainty. Of course, the 0:12:20.559 --> 0:12:23.800 nominees are just about wrapped up about the earliest ever. 0:12:23.920 --> 0:12:27.400 So this general election campaign's going to seem like years. 0:12:28.040 --> 0:12:29.840 So yeah, exactly just what we all need. 0:12:29.840 --> 0:12:32.880 Maybe the TV stations with all the advertising dollars, maybe 0:12:32.880 --> 0:12:36.920 they'll benefit here, So, Bob, you know, I'm also wondering, 0:12:36.920 --> 0:12:38.880 as I talked to a lot of investors, did the 0:12:38.960 --> 0:12:42.440 move we saw in the markets again in November December 0:12:42.679 --> 0:12:45.120 was I kind of buy the rumor and now sell 0:12:45.160 --> 0:12:47.800 the news because what can the Fed do? The expectations 0:12:47.840 --> 0:12:49.400 already kind of in the market, it seems like. 0:12:50.600 --> 0:12:54.080 Their expectations, and then summer in the market, as you know, 0:12:54.120 --> 0:12:57.600 we got at one point the expectation that Fed fund 0:12:57.600 --> 0:13:00.719 futures were saying seven cuts by the this year. That's 0:13:00.760 --> 0:13:03.120 backed off the six. I think it's gonna be more 0:13:03.200 --> 0:13:06.880 like three or four. I think inflation remain sticky, especially 0:13:06.920 --> 0:13:09.680 wage rate inflation, and it's gonna be tough for the 0:13:09.720 --> 0:13:12.640 FED to do as much as the future's curve is suggesting. 0:13:12.920 --> 0:13:15.880 So yes, we've bought the rumor. I think there'll be 0:13:15.960 --> 0:13:18.920 some disappointing news to come if we can't get six cuts. 0:13:19.280 --> 0:13:22.160 Bob, do I want to finish up here just with 0:13:22.440 --> 0:13:26.160 the oddity of the moment, which is cash at five percent, 0:13:26.679 --> 0:13:29.360 What actually happens if rates come down? I mean, pria 0:13:29.360 --> 0:13:32.120 miser over JP Morgan is saying the ten year real 0:13:32.200 --> 0:13:33.800 rate's gonna come down to here one percent. 0:13:34.080 --> 0:13:35.280 I'll believe it when I see it. 0:13:35.720 --> 0:13:40.040 But if we get lower yields on money market funds, 0:13:40.360 --> 0:13:43.360 how does that change our retirement investing? 0:13:44.600 --> 0:13:48.240 Look, I think, and that's probably I hope inevitable we 0:13:48.320 --> 0:13:50.760 get that at some point Tom. The problem it will 0:13:50.800 --> 0:13:55.400 probably be because the economy is disappointing, and that's why 0:13:55.440 --> 0:13:58.000 those rates will come down. That means earnings will disappoint 0:13:58.080 --> 0:14:01.520 even more that we're discussing here, which I think creates 0:14:02.280 --> 0:14:05.959 some sell off in stock. So the best beneficiary of 0:14:06.040 --> 0:14:08.880 here to down one hundred basis points and short rates 0:14:09.040 --> 0:14:10.679 is probably bonds out the curve. 0:14:11.080 --> 0:14:11.720 We'll have to see. 0:14:11.720 --> 0:14:14.120 Bob Dol, thank you so much, greatly appreciate with grossmark 0:14:14.880 --> 0:14:21.720 this one of your This is an important interview, and 0:14:21.760 --> 0:14:23.480 this is what's great about this. When you go to 0:14:23.520 --> 0:14:27.119 Trinity and Dublin. The answer is you develop internal humility. 0:14:27.120 --> 0:14:30.400 And David Kelly owns a high ground. I'm being humble 0:14:30.480 --> 0:14:34.480 in his certitude. He's with JP Morgan, they're chief global strategist. 0:14:35.120 --> 0:14:37.480 David Kelly, you had one of the great insights hedged 0:14:37.480 --> 0:14:41.600 this year, which is, at some point non farm payrolls. 0:14:41.240 --> 0:14:42.760 Are gonna go negative. There's gonna be a. 0:14:42.760 --> 0:14:46.120 Vector of a lower growth than non farm payrolls. 0:14:46.120 --> 0:14:47.680 Well, okay, it didn't happen. I get it. 0:14:48.080 --> 0:14:51.560 You know, it's very good employment here. How do you 0:14:51.600 --> 0:14:54.600 adjust your trend? There a non farm payrolls going from 0:14:54.600 --> 0:14:57.560 say one hundred and seventy thousand down to zero. What's 0:14:57.800 --> 0:15:00.240 that timeline rule? 0:15:00.320 --> 0:15:03.200 Growth was a little bit stronger than we thought in 0:15:03.320 --> 0:15:05.920 the second half of the year. I still think that 0:15:05.960 --> 0:15:08.360 there's enough volatility in those payroll numbers and in the 0:15:08.400 --> 0:15:10.840 seasonals that at some stage over the next few months 0:15:11.080 --> 0:15:14.120 you might get that negative payroll number. But you know, 0:15:14.320 --> 0:15:17.200 the headline is what we've seen in the second half 0:15:17.200 --> 0:15:19.400 of the last year is US economy can grow faster 0:15:19.920 --> 0:15:20.960 without growing hotter. 0:15:21.560 --> 0:15:23.760 So the inflation rate is right on. 0:15:23.680 --> 0:15:25.080 Where the Fed thought it was going to be in 0:15:25.120 --> 0:15:29.800 their December forecasts. But growth is a good deal stronger 0:15:29.920 --> 0:15:31.840 three point one percent a year over year growth in 0:15:31.880 --> 0:15:34.400 the fourth quarter, which is very good news. This is 0:15:34.400 --> 0:15:37.360 actually a very healthy economy, good productivity growth, and inflation 0:15:37.400 --> 0:15:38.200 is still coming down. 0:15:38.720 --> 0:15:41.000 So David, I kind of agree with you. The numbers 0:15:41.000 --> 0:15:44.240 seem pretty solid. Yet the sentiment out there and just 0:15:44.360 --> 0:15:47.440 the general reportings, people don't feel like the economy is 0:15:47.480 --> 0:15:51.920 doing that well. And then University of Michigan last week 0:15:51.960 --> 0:15:54.960 put a big, big, consumer you know, positive number out 0:15:54.960 --> 0:15:57.240 there in terms of expectations, and I know, as a 0:15:57.280 --> 0:15:59.960 Michigan State man, you don't like to quote the universe 0:16:00.040 --> 0:16:03.400 in Michigan consumer survey, but it's pretty big out there. 0:16:03.880 --> 0:16:04.760 Talk to us about. 0:16:04.640 --> 0:16:06.960 Sentiment out there in the marketplace. What are you feeling 0:16:06.960 --> 0:16:09.400 here as you kind of do work. 0:16:10.120 --> 0:16:12.480 Yeah, you know, even when I was working in Michigan State, 0:16:12.720 --> 0:16:15.600 we had a close relationship with the University of Michigan 0:16:15.600 --> 0:16:18.280 and their Consumer Sentiment project, which is a very old project. 0:16:19.200 --> 0:16:21.680 But what I think we're seeing a little bit of 0:16:21.680 --> 0:16:23.480 a break in the ice here because we were in 0:16:23.480 --> 0:16:27.840 an extraordinary situation even as recently as two or three 0:16:27.840 --> 0:16:30.880 months ago, where you had, you know, by the number 0:16:30.960 --> 0:16:33.120 is a top quintile economy. I mean, it was a 0:16:33.160 --> 0:16:35.480 really good economy in terms of inflation coming down and 0:16:35.520 --> 0:16:38.240 unemployed really low for a long time, and yet you 0:16:38.320 --> 0:16:41.320 had a bottom quintile attitude. People felt just awful about it. 0:16:41.640 --> 0:16:43.840 And if you have good number after good number after 0:16:43.920 --> 0:16:46.680 good number of the economy, eventually confidence bounces. 0:16:46.840 --> 0:16:48.080 And that is what we've seen. 0:16:48.480 --> 0:16:52.080 And I think that's important because once confidence begins to balance, 0:16:52.320 --> 0:16:54.640 it begins to gather on itself, and people, you know, 0:16:54.680 --> 0:16:57.360 start reporting in a good economy and saying, you know, well, though, 0:16:57.440 --> 0:17:00.000 there is opportunity here. So I think I think confidence 0:17:00.120 --> 0:17:02.240 will get better. It's still lower and will I think 0:17:02.240 --> 0:17:05.520 continue to be lower than the numbers would justify. But 0:17:05.600 --> 0:17:07.360 we are seeing some improvement of confidence here. 0:17:07.400 --> 0:17:09.920 You know, I'm just speaking for the average consumer out there. 0:17:10.000 --> 0:17:12.040 I look at gasoline prices and that just filled up 0:17:12.040 --> 0:17:16.080 the new car two dollars and ninety seven cents a gallon. 0:17:16.119 --> 0:17:16.760 That was awesome. 0:17:16.760 --> 0:17:19.600 Down at the Jersey Shore, everything's better down at the shore, 0:17:19.680 --> 0:17:22.040 of course. But then even mortgage rates are coming down, 0:17:22.080 --> 0:17:25.520 so the couple of things that really hit people's pocketbook 0:17:25.840 --> 0:17:28.280 are coming down. And maybe that's kind of coming through 0:17:28.320 --> 0:17:29.520 some of the official data. 0:17:30.320 --> 0:17:33.320 Well, yeah, I think lower gasoline prices are really important. 0:17:33.320 --> 0:17:35.520 But what also happened though, in the last few years, 0:17:35.560 --> 0:17:37.919 we had a big increase in food prices yep. And 0:17:37.960 --> 0:17:40.280 the problem is that people remember what the food used 0:17:40.280 --> 0:17:42.679 to cost and then what it costs now, and that 0:17:42.800 --> 0:17:44.560 jars on them a little bit. So I think that's 0:17:44.640 --> 0:17:48.119 part of the story. But you know, lower gasing prices 0:17:48.160 --> 0:17:50.119 will will help. And then the one other thing I 0:17:50.119 --> 0:17:52.080 think is very important is high rents. I mean, there 0:17:52.080 --> 0:17:53.960 are a lot of people in America who rent, and 0:17:54.080 --> 0:17:57.760 rent is still very high relative disposable income, and so 0:17:57.840 --> 0:18:00.680 it's still a struggle and I think people that's what 0:18:00.680 --> 0:18:03.199 all reflecting the confidence numbers. But over time it is 0:18:03.200 --> 0:18:05.800 a good economy. He's generating strong real wage growth. But 0:18:05.920 --> 0:18:07.920 right now, you know, wages are growing fastization. 0:18:08.240 --> 0:18:09.879 I think the mood should continue to improve. 0:18:10.160 --> 0:18:13.000 David, You've got such a great background here from University 0:18:13.040 --> 0:18:16.880 College London over Intos. Paul mentioned Michigan State, Lansing, Michigan 0:18:17.520 --> 0:18:21.000 and East Lancing, and I got a lot of emails 0:18:21.000 --> 0:18:25.560 this week criticizing me because basically it's a fancy people 0:18:25.600 --> 0:18:29.240 on the east coast, West coast, and there's flyover America, 0:18:29.720 --> 0:18:32.080 and I would take it even further to say Wisconsin, 0:18:32.160 --> 0:18:35.520 there's Madison, and then there's basically you know, there's these 0:18:35.680 --> 0:18:40.040 academic center holes where things are good, maybe Ames Iowa. 0:18:40.080 --> 0:18:43.240 You know, I'm saying that, But David, how partitioned is America? 0:18:43.760 --> 0:18:46.920 From where you sit, We're saying it's a boom economy, 0:18:47.200 --> 0:18:49.960 and I'm getting a lot of emails says, who, I mean, 0:18:50.040 --> 0:18:52.080 how partitioned are we? Well? 0:18:52.119 --> 0:18:54.280 I think we are politically very partitioned. 0:18:54.280 --> 0:18:56.840 I feel very fortunate that when I arrived in America, 0:18:56.960 --> 0:18:59.520 I headed straight for the middle of the country Lansing, Michigan, 0:19:00.040 --> 0:19:02.600 and even heard about But you do get a sense 0:19:02.600 --> 0:19:04.879 of how people in the middle of the country feel. 0:19:05.040 --> 0:19:07.040 But there is a big political divide here. There's also 0:19:07.720 --> 0:19:10.440 an income divide. If you're in the top ten percent 0:19:10.520 --> 0:19:13.360 or top twenty percent of households, you're probably doing fine. 0:19:13.760 --> 0:19:15.240 If in the bottom eighty. 0:19:15.000 --> 0:19:18.840 Percent, you had that inflation, you had some some wage increases. 0:19:18.880 --> 0:19:20.879 But you know, there are services which are that sixty 0:19:20.920 --> 0:19:25.879 percent of families live paycheck to paycheck, and that's pretty grim, 0:19:26.040 --> 0:19:29.280 you know, year after year after year, particularly when you 0:19:29.320 --> 0:19:31.720 go through the pandemic and all this sort of social 0:19:31.800 --> 0:19:34.840 isolation that caused from particularly given the social media feed 0:19:34.840 --> 0:19:37.040 the cable media feeds. So there's a lot of negative 0:19:37.080 --> 0:19:40.880 news being inflicted upon people who are just scraping by, 0:19:40.960 --> 0:19:43.560 and I think that that leads to this mood, even 0:19:43.560 --> 0:19:45.800 though when we look at the numbers, the economy is 0:19:46.200 --> 0:19:48.520