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Speaker 2: We welcome James Bianco. I will make it as clear
Speaker 2: as I can. No one with a not an exception
Speaker 2: of Mohammad Aalerian. No one nailed resilient inflation coming out
Speaker 2: of COVID like Jim Bianco. He joins US today with
Speaker 2: Bianco Research. Jim published moments ago at Apollo Global Management.
Speaker 2: Torsten slocked that huge respect from his time at Deutsche Bank.
Speaker 3: I quote Jim.
Speaker 2: Container ship departures from China to the US are collapsing.
Speaker 2: When consumers cannot get the the products they want from
Speaker 2: abroad and the products that are imported are more expensive.
Speaker 2: The outcome is a slow down in US consumer spending.
Speaker 2: Gim you know consumption seventy percent of GDP. Are you
Speaker 2: modeling out of tepid real GDP?
Speaker 3: Yeah?
Speaker 4: I think that the real growth in the economy is
Speaker 4: going to slow. I don't have it going anywhere to
Speaker 4: like a recession. I also think the other thing you
Speaker 4: got to keep in mind that gets very little discussion
Speaker 4: is the closing of the US border, because most of
Speaker 4: the population growth of the United States comes from immigration,
Speaker 4: whether it's illegal or legal, and that's going to dramatically
Speaker 4: slow and that's also going to slow down the economy
Speaker 4: as well. But again, I don't think these numbers are
Speaker 4: going to produce anywhere near an inflation or excuse me,
Speaker 4: a recession. And also I don't think that cutting interest
Speaker 4: rates is going to solve these problems. All cutting interest
Speaker 4: rates are going to do is try to inject what
Speaker 4: we have with steroids, and it's just going to produce
Speaker 4: more inflation.
Speaker 3: It's not going to produce higher growth. I'm not going
Speaker 3: to mince words, folks.
Speaker 2: The conversation that John Farrah yesterday with the Secretary of
Speaker 2: Treasury was the single best conversation I heard because it
Speaker 2: allowed us to hear best in theory. John Authors is
Speaker 2: quite critical. He'll be on later in the show. And
Speaker 2: now we have Jim beyonco. What does Bessen get wrong?
Speaker 2: Jim bionco about four or five, six, seven rate cuts?
Speaker 3: Everything? Could I say that he's basically he says such
Speaker 3: a gentleman.
Speaker 4: Yeah, he basically said, any model suggests that that interest
Speaker 4: rates should be cut by one and a half to
Speaker 4: one and three quarter percent. I'll come back and say
Speaker 4: to you that there's no model that says that if
Speaker 4: you have a three percent interest rate, that you should
Speaker 4: be cutting interest rates by that much. And John Author's
Speaker 4: authored does something about that yes esterday, and he'll.
Speaker 3: Talk more about that.
Speaker 4: That the idea that interest rates should go below the
Speaker 4: inflation rate when the inflation rate is this high is unprecedented.
Speaker 3: It's never been there when it's been above three percent.
Speaker 4: It should stay above the inflation rate by some premium.
Speaker 4: And that's why I think that the current funds rate
Speaker 4: at four and a quarter to four and a half
Speaker 4: is very close to neutral. And that's why I was
Speaker 4: saying earlier. If you want to cut interest rates and
Speaker 4: the FED looks like they're going to, you're not going
Speaker 4: to get the desired economic growth outcome.
Speaker 3: You're going to get an inflationary outcome.
Speaker 5: So Jim going back to the labor and again we're
Speaker 5: going to get initial jobs claims today, what is a
Speaker 5: reasonably I guess, decent growing economy. How many new jobs
Speaker 5: per month does an economy need that's growing in a
Speaker 5: decent clip.
Speaker 4: This is the question that economist seem to be skirting within.
Speaker 4: Population growth slowing as much as it has, and the
Speaker 4: President putting out a truth social post last week saying
Speaker 4: we might have net net negative immigration growth, more people
Speaker 4: leaving the country than entering for the first time in
Speaker 4: American history.
Speaker 3: The population growth might be down around zero.
Speaker 4: If that's the case, you can make the case that
Speaker 4: anything and now you quote the American Enterprise Institute is
Speaker 4: put pen to paper on this, anything around ten thousand
Speaker 4: jobs a month might be enough. So when we freaked
Speaker 4: out about nineteen thousand jobs, fourteen thousand jobs, seventy three
Speaker 4: thousand jobs, what we were doing is we were assuming
Speaker 4: this is the way it was when we had the
Speaker 4: border open and we needed eighty or one hundred thousand
Speaker 4: jobs a month. We're now in probably a ten thousand
Speaker 4: job a month range.
Speaker 3: And that is enough jobs.
Speaker 4: And again, if you're going to cut rates because ten
Speaker 4: thousand jobs is too small.
Speaker 3: You're just going to produce inflation. Bottle it, folks.
Speaker 2: What you just heard there from James biancle paul I
Speaker 2: hereby call it the Great Reset That yeah, I'm stealing
Speaker 2: that from Lisa Matteo. She has a great reset with
Speaker 2: on ustibles, but I'm calling it the great reset. People
Speaker 2: don't understand what mister Bianco said, and Paul, you know,
Speaker 2: I got a bunch of questions on this. Please step
Speaker 2: forward to your Paul and continue this discussion, Folks, this
Speaker 2: is so important in honor of Angus Madison about a
Speaker 2: changing America.
Speaker 5: Jim, as a result of kind of what we've just
Speaker 5: been talking about here is, are we in a world
Speaker 5: of just elevated inflationship?
Speaker 6: People get used to what they're paying in the supermarket.
Speaker 3: For example, I think we are.
Speaker 4: I mean, the Fed has a target of two percent.
Speaker 4: They cut interest rates last year, when in September of
Speaker 4: last year, a year ago, when the cornflation rate was
Speaker 4: over three, the cornflation rates three point one. Right now,
Speaker 4: they're about to cut interest rates again with it over three.
Speaker 3: Forget what they say. Forget that, you know, j Paul, you.
Speaker 4: Know, will say in a September press or that we're
Speaker 4: strongly committed to our two percent target.
Speaker 3: They're cutting interest rates with it above three.
Speaker 4: So they're telling you that the two percent target is
Speaker 4: no longer the target is closer to three.
Speaker 3: Now why does that matter.
Speaker 4: Indeed, the website that does jobs did a study and
Speaker 4: they said something like thirty five or forty percent of
Speaker 4: the American public is not getting raises equal to the
Speaker 4: three percent inflation rate. So that's probably the bottom thirty
Speaker 4: five or forty percent of income. So we're just going
Speaker 4: to tell those people, sorry, your job is going to
Speaker 4: continue to give you raised increases above the inflation rate.
Speaker 4: So every time you go to store, you have to
Speaker 4: buy less things because prices are moving up faster than
Speaker 4: your paycheck. And that's where that becomes important. I know
Speaker 4: a lot of people want to stroke their shoulder. Ah two,
Speaker 4: make it three. What's the difference for a third of
Speaker 4: the country. It's a big difference if you can't get
Speaker 4: the inflation Jim, let me ask you the question again, folks.
Speaker 2: An interpolation is where you have a belief and you
Speaker 2: have something else to look at and you try to
Speaker 2: guess or interpolate what the numbers should be. So, Jim Bianco,
Speaker 2: if I have flat population growth as a general statement, and.
Speaker 3: I've got the way we frame.
Speaker 2: The unemployment rate, let's call it four point two four
Speaker 2: point three percent to pick a number when you when
Speaker 2: we do a Bianco interpolation is four point five percent
Speaker 2: the new five percent unemployment rate.
Speaker 4: No, I don't think it is at least in that
Speaker 4: regard because you know, not to get tu wonky, but
Speaker 4: the UH unemployment rate is measured on a household survey
Speaker 4: and that's one of the reasons why I think you
Speaker 4: saw with the payroll report falling, the unemployment rate didn't rise.
Speaker 4: We don't have with slow population growth, every month thousands
Speaker 4: of people entering the workforce, either they're turning eighteen, which
Speaker 4: is one way you can enter the workforce, or they're
Speaker 4: coming into the country new looking for a job. So
Speaker 4: that's why you could have slow imp payroll growth and
Speaker 4: not high unemployment. And I thought it was kind of
Speaker 4: interesting because Chairman pol has mentioned the supply of labor,
Speaker 4: which is their phrase for, you know, slowing population growth,
Speaker 4: and said he's more interested in the unemployment rate than
Speaker 4: he is in the payroll report, because if nobody's coming
Speaker 4: into the country and no one's looking for a job,
Speaker 4: these slow numbers may not produce higher unemployment. So I
Speaker 4: think that you know, the four point two number is
Speaker 4: what it used to be, and that's.
Speaker 3: Why it's not going up. The unemployment rate.
Speaker 4: It's four point two a year ago when we were
Speaker 4: still producing one hundred thousand.
Speaker 3: How do you carry this over to the equity market.
Speaker 2: If we talk about a flatline demographics, does that mean
Speaker 2: a more tipid demure stock market.
Speaker 4: Not initially. I mean the stock market is all about
Speaker 4: cheap money. And if they sees the FED is going
Speaker 4: to be cutting rates and it's celebrating the idea that
Speaker 4: cheaper borrowing costs are coming, and it's going to.
Speaker 3: Keep going from there.
Speaker 4: But over time, yes, it will take away some of
Speaker 4: the growth of the country. Nominal GDP will go down.
Speaker 4: That's real growth plus inflation. That should over time herd
Speaker 4: earnings and over time, let me go on another direction
Speaker 4: here for you, it should help to correct housing because
Speaker 4: one of the problems with housing is there's not enough houses.
Speaker 4: Everybody talks about the affordability crisis. When we have home
Speaker 4: prices at all time highs, we don't have enough houses. Well,
Speaker 4: if you slow down the number of people that meat
Speaker 4: houses over time, that should correct itself too.
Speaker 3: Now it's not all good.
Speaker 4: I mean, you'd rather have growing population faster than slower,
Speaker 4: But those are some of the immediate effects.
Speaker 5: If this continues, jim are you surprised that US dollars
Speaker 5: not rebounded like the US equity markets have rebounded.
Speaker 4: Not really, because I think what the dollar did was
Speaker 4: after Liberation Day, when it disconnected from interest rates, it reconnected,
Speaker 4: and so when you get lower interest rates in the US,
Speaker 4: you tend to get a lower dollar. When you get
Speaker 4: higher interest rates, you tend to get a higher dollar.
Speaker 4: So I think the big driver of the dollar right
Speaker 4: now is back. It wasn't for a while, but it's
Speaker 4: back to being interest rates. So as long as they're
Speaker 4: headed down, I think that's going to keep the dollar
Speaker 4: relatively weak.
Speaker 3: Most currency traders are playing this relative interest.
Speaker 4: Rate game, where can I get the highest interest rate,
Speaker 4: and if our rates are going down, it becomes less attractive.
Speaker 5: Hey, Jimmy, we pretty much three with the second quarter
Speaker 5: earnings here, How did they look to you? Hou's corporate
Speaker 5: America dealing with this current economic environment.
Speaker 3: It's looking great.
Speaker 4: I mean, more than eighty percent of the S and
Speaker 4: P five hundred companies beat. The guidance that the companies
Speaker 4: have given has been the most positive in four years.
Speaker 4: The outlook for the second half of the year looks
Speaker 4: very good.
Speaker 3: So at least in the interim.
Speaker 4: It looks like if you were to judge of Corporate
Speaker 4: America as an economic indicator.
Speaker 3: They're telling you that the economy is doing very well.
Speaker 2: Jim, I think your comments on the Secretary Treasure are
Speaker 2: apt and against John on authors is scathing, and we
Speaker 2: have them on here later. At the beginning, I thought
Speaker 2: John Farrell was brilliant. At the beginning, Jim Bianco, the
Speaker 2: Secretary walked through his belief of the diffusion of tariffs
Speaker 2: from the export country to the importer at the shore,
Speaker 2: to the consumer, and to me, with all I've read,
Speaker 2: including Douglas within the classic at Dartmouth, it was all
Speaker 2: Greek to me, critique the Trump vestent theory that the
Speaker 2: consumer won't pick up the burden of these tariffs, and
Speaker 2: the zeitgeist. This morning, folks, is Michael Barr. He is
Speaker 2: every morning in the food court, folks. Michael Barr has
Speaker 2: a bowl. It's a bowl of raisin bran with a
Speaker 2: banana on it, but it's actually a bowl of bananas
Speaker 2: with some raisin brand I mean, I mean, Jim Bianco,
Speaker 2: the bananas alone are already killing us. Are these tariffs
Speaker 2: going to pass on to the consumer unlike what the
Speaker 2: Secretary of Treasury says.
Speaker 3: I think eventually they are.
Speaker 4: You're right, there's three people that can Let's bear remind
Speaker 4: that terraffs are up by about a quarter of a
Speaker 4: trillion dollars, So to put it in the vernacular, somebody's
Speaker 4: paying an extra two hundred and fifty billion dollars for
Speaker 4: product that we weren't because of tariffs. Who's paying that?
Speaker 4: We got three choices? The export country. That means China
Speaker 4: cuts its rates, cuts its prices, Japan cuts its prices
Speaker 4: of things that they ship to the United States. That
Speaker 4: might have been happening in the first thirty or sixty
Speaker 4: days after Liberation Day.
Speaker 3: But it looks like it's reversing right now.
Speaker 4: They did it as a panic right away, didn't know
Speaker 4: what to do, but now they're starting to reverse that
Speaker 4: and bring it up. The other one is the importer,
Speaker 4: the company that imports it. They're going to cut their
Speaker 4: prices to the consumer. Well, as I mentioned with Corporate America,
Speaker 4: margins are fine and Corporate America earnings.
Speaker 3: Are doing fine. There's no sign that they're eating a quarter.
Speaker 4: For trillion dollars worth of prices. So that leaves the
Speaker 4: price at the store that will eventually start to go up,
Speaker 4: and there's some evidence that those prices are starting to
Speaker 4: remember in May, June, July what you were paying for
Speaker 4: with stuff that was already imported without tariffs. But as
Speaker 4: you get into August, September, October, and further now, the
Speaker 4: stuff that's going to be on the shelves have that
Speaker 4: tariff price embedded in it, and that's going to start
Speaker 4: to creep higher.
Speaker 2: Jim, this has been absolutely brilliant. Thank you so much
Speaker 2: Jim Bianco with us today. I really appreciate it. Bianco
Speaker 2: Research can't say no, folks, this is what surveillance is about,
Speaker 2: the conversation back and forth, not to say someone's.
Speaker 3: Wrong or right, but to engage the debate, and we
Speaker 3: see that right now. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: This is Joy And as we were talking earlier about
Speaker 2: options of Greek letters, the movements of the market, we
Speaker 2: continue you with Dean Kurrent and scrilled that he could
Speaker 2: be with us today with macro risk advisors.
Speaker 3: Know I'm kid about it.
Speaker 2: I mean my father said, we are almost named Greek
Speaker 2: letters alpha, beta, gamma, delta.
Speaker 3: You didn't do that to your children, did you, No,
Speaker 3: you just spare them, Spare them the Greek letters.
Speaker 2: One of them is theta, which is the guestiment or
Speaker 2: misjudgment of the time function.
Speaker 3: How badly do.
Speaker 2: You see us misjudging our economics now with a tariff
Speaker 2: overlay that completely screws up our theta, completely screws up
Speaker 2: our exxes.
Speaker 7: Well, I would first want to start with the reality
Speaker 7: that Theta has very much been on the mind of
Speaker 7: those who have paid money to own options.
Speaker 6: Options are valuable assets.
Speaker 7: I always say the right to change your mind is
Speaker 7: at the heart of options, and that's valuable bud you
Speaker 7: pay for it. And Theta is a reflection of the
Speaker 7: decay of that option price as time goes on. And
Speaker 7: in an environment in which the S and P is
Speaker 7: realizing ten, there was a stretch for the triple Q
Speaker 7: even over the course of a month where they realize
Speaker 7: was just eight.
Speaker 6: That's a lot of data.
Speaker 7: Your option, your insurance that you've paid for is decaying
Speaker 7: over time when you're not getting the moves, And I think,
Speaker 7: you know, that's an important thing you're looking forward. In
Speaker 7: terms of thinking about tariffs and trying to understand the
Speaker 7: lags with which they operate. I think that's a big thing.
Speaker 7: You know, people say monetary policy operates with lags. I
Speaker 7: think the same can be said for tariffs.
Speaker 3: I should advice with Dean Kerner.
Speaker 2: The amateur piles into an option certain that they're certain,
Speaker 2: and they lose their money. Nassen teleb is one example,
Speaker 2: says bet little bits of money farther out. Discuss those
Speaker 2: two hugely different approaches, right.
Speaker 7: So, I think in an environment of shortening attention spans,
Speaker 7: where it's just the latest tweet, it seems everything is
Speaker 7: happening on a very compressed time horizon. And I think
Speaker 7: investing is an example of that, where we've got this
Speaker 7: proliferation of zero days to expiration options, and I think
Speaker 7: there's with that, there is a misjudging very consistently by
Speaker 7: investors where they look at the nominal price of an
Speaker 7: option and they think, oh, that's a very low price,
Speaker 7: but it's only got one day to expiration. And so
Speaker 7: it's just not worth that much. The opposite's also true.
Speaker 7: Investors misjudge the value of time with respect to longer
Speaker 7: term options, and so you know, as an example with
Speaker 7: the private credit, really what you're doing there is you're
Speaker 7: clipping some coupon some excess yield, but you have given
Speaker 7: away a lot of optionality. And that optionality is the
Speaker 7: right to change your mind, the right to unwind your portfolio.
Speaker 7: So when time horizons get extended without the ability to
Speaker 7: make decisions very quickly, you're effectively in some way short optionality.
Speaker 7: And it's a big reason why I think at this
Speaker 7: moment where I see uncertainty really building and uncertainty being
Speaker 7: inconsistent with the price of insurance, I think it's very
Speaker 7: important to do two things for your portfolio. One, as
Speaker 7: you need to stay long in the S and P.
Speaker 7: I say, it's a benchmark that's very easy to track,
Speaker 7: very difficult to beat, but overlay some insurance basic put
Speaker 7: spread insurance on the S and P five hundred, and
Speaker 7: then also really search for diversifying assets. For me, those
Speaker 7: are gold and bitcoin. I think those are valuable overlays
Speaker 7: on a portfolio.
Speaker 3: At this time in.
Speaker 5: Your market, the futures and options market. Are your clients
Speaker 5: are they buying protection these days? Are they buying risk
Speaker 5: these days? What are they doing well?
Speaker 6: I think it's impossible not to be long risk.
Speaker 3: Boy.
Speaker 7: That S and P is a beast of a bench markets.
Speaker 7: You know, it's long the capex cycle, it's long the megacaps,
Speaker 7: which are delivering so much you know, return, they're delivering
Speaker 7: so much of the of the earth earnings twelve percent
Speaker 7: year over year earnings. But they are buying protection and
Speaker 7: they're frustrated. You know, Tom used that word theta. There's
Speaker 7: an old saying in markets. Theta is the rent on gamma,
Speaker 7: which is gamma is the good part. Gamma gama is
Speaker 7: what you want. It's the convexity that Tom talks about.
Speaker 7: It's the right to change your mind. Theda is the
Speaker 7: tough part. That's the bleed, and there has been a.
Speaker 6: Lot of it.
Speaker 7: You know, we have had gone through a period. Just
Speaker 7: to give you another statistic, the HyG right, which is
Speaker 7: the junk bond ETF This is moving over the last
Speaker 7: month less than twenty basis points a day. It's it's
Speaker 7: as if the index was closed for a month. And again,
Speaker 7: what happens is option prices get pulled down.
Speaker 6: When there's that little movement.
Speaker 7: And so the setup here as we enter what I
Speaker 7: think is a seasonally valuable time to own options. As
Speaker 7: we come back from vacation, people sharpen their pencils after
Speaker 7: Labor Day, and it just tends to be the case
Speaker 7: with some consistency that there is a little bit more
Speaker 7: of a risk off character to the market late September
Speaker 7: through October. So I think this is a time when
Speaker 7: at least our advice to our clients at Macro Risk
Speaker 7: Advisors is, let's take a very good look at your
Speaker 7: portfolio what it's exposed to, and overlay some protection. Don't
Speaker 7: break the bank, because you can over insure yourself.
Speaker 3: That's for sure.
Speaker 7: You can buy too much protection and if it doesn't
Speaker 7: pay off, your left sacrificing return. But there are easy
Speaker 7: to do basic and I would argue cheap option overlays.
Speaker 6: To do that can protect the portfolio.
Speaker 7: What's the one you like the most, really simple, something
Speaker 7: like a two month put spread on the SMP struck
Speaker 7: it five percent out of the money is your top strike.
Speaker 7: And then to reduce the cost of it, which is
Speaker 7: important because again the realized volatility is low, so you
Speaker 7: can't spend too much. So sell something like a twenty
Speaker 7: percent out of the money put that's going to get
Speaker 7: you through October, which is again that seasonal period of
Speaker 7: higher evolve.
Speaker 3: Can you hedge MAG seven?
Speaker 6: Listen?
Speaker 7: The MAG seven is forty percent of the sub or
Speaker 7: at least the top ten stocks. That's not the MAG seven,
Speaker 7: but the top ten stocks are forty percent. They're also
Speaker 7: remarkably twenty six percent of the MSCI World Index.
Speaker 6: That's the top ten.
Speaker 3: I did not know that.
Speaker 2: That's the American MAG seven are one quarter of the
Speaker 2: ginormous global index.
Speaker 7: It's incredible, you know, I think I just saw a
Speaker 7: statu was probably on the Bloomberg terminal. In Vidia is
Speaker 7: bigger than the entire German stock market in terms of marketing.
Speaker 3: How do you hedge that?
Speaker 2: I mean, you know, you know, I know everybody out
Speaker 2: there owns Nvidia and you're never going to sell it.
Speaker 2: Adults in the pro market can't do that. How do
Speaker 2: you hedge protect yourself?
Speaker 6: Yeah?
Speaker 7: And I think this is a really important point. It's
Speaker 7: something I keep coming back to, is that these stocks
Speaker 7: have hedged themselves. The correlation between Microsoft and Google or
Speaker 7: in Vidia and Amazon, they're just, you know, unbelievably low,
Speaker 7: and so I think people that's a that's a blind
Speaker 7: spot for investors is that because these things are uncorrelated,
Speaker 7: they're very low in terms of the overall volatility S
Speaker 7: and P five hundred. And if we've learned one thing,
Speaker 7: it's that missizing is your biggest risk, and that comes
Speaker 7: from underestimating volatility. So honestly, back to the the put
Speaker 7: spread on the S and P five hundred, because these
Speaker 7: things are such a big part of the market cap,
Speaker 7: just don't put spreads on the S and P.
Speaker 3: Did I see some Beata come in here?
Speaker 6: I mean you got sometimes I name him Ebsalon.
Speaker 3: You got your key there in terms for you?
Speaker 4: Right?
Speaker 3: You make them work? I do.
Speaker 7: We've he's on the terminal, he's doing spreadsheets. It's been
Speaker 7: it's been really fun. It's been a great summix generation
Speaker 7: coming up.
Speaker 3: This is just great. How you do it?
Speaker 2: I wish Bernard de Pierre was here, one of the
Speaker 2: giants of derivative mathematics, wanders through our food court from
Speaker 2: day to day. There's this thing called Eto's dilemma, which burnandapere.
Speaker 2: That'd be great for your son to be plun I'm
Speaker 2: going to figure that out. Dean Current, thank you so much,
Speaker 2: really really wonderful.
Speaker 3: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Kim Dawson briefs Now with NEWIG. What does an under
Speaker 2: fifteen vix mean to you?
Speaker 8: It means calm waters that this market has been extraordinarily
Speaker 8: resilient in digesting headlines that we might have thought could
Speaker 8: cause more volatility, mostly in a month like August where
Speaker 8: trading volumes are lighter, But this market continues to just
Speaker 8: power on. And we think it's driven by two key things.
Speaker 8: The first one being that liquid remains very abundant, and
Speaker 8: the second thing is that earning sestaments are going up.
Speaker 8: Risk assets love it when earning sestaments and growth estimates
Speaker 8: are going up. So when you dis sill it down
Speaker 8: to those two things, you can see why we've been resilient.
Speaker 8: But of course it makes you raise an eyebrow. If
Speaker 8: we're thinking we could becoming complacent.
Speaker 5: Any rotations out of what's really been working, what's always
Speaker 5: seemly been working. The big cap tech names that we've
Speaker 5: seen any are people trying to broaden that at all.
Speaker 9: Yesterday was a big rotation day.
Speaker 8: Under the surface, it looked calm on the surface of
Speaker 8: the S and P five hundred, but kind of like
Speaker 8: a duck spinning its legs under the water, we were
Speaker 8: seeing huge rotations where you saw the Nasdaq AI trades
Speaker 8: all trade off rather sharply, and things like Russell two
Speaker 8: thousand doing all a lot under yesterday.
Speaker 3: But that could be a one off, right, I mean
Speaker 3: in this environment, yes, how does someone like you bet
Speaker 3: on a rotational shift?
Speaker 8: Well, I think the one thing that we've been noting
Speaker 8: over the course of the last few days is that
Speaker 8: growth versus value has gone parabolic in the last month
Speaker 8: or so, meaning that growth is outperformed value almost in
Speaker 8: a straight line up. And what we see is after
Speaker 8: each of those parabolic moves we had one in December
Speaker 8: of last year, we had one in July of last year,
Speaker 8: that you typically see a correction, meaning just a reversion
Speaker 8: back to the means. So We wouldn't be surprised if
Speaker 8: you saw growth take a breather because it's been so strong,
Speaker 8: But that doesn't mean it's not still in the nuptrend,
Speaker 8: which it still very much is.
Speaker 5: How much do we eat? Does this market need the
Speaker 5: FED to cut? Do they need a gradual cut, did
Speaker 5: they need something more aggressive? We've had talk of a
Speaker 5: fifty basis point cut kind of creep into the conversation,
Speaker 5: not just twenty five in September.
Speaker 9: It's the why they're cutting, which is so important.
Speaker 8: If they are cutting because growth is much weaker than expected,
Speaker 8: we're marking down forecasts, then then doing a fifty basis
Speaker 8: point cut because the economy.
Speaker 9: Needs the stabilization. That's not good for markets.
Speaker 8: If they're cutting because they can they want to get
Speaker 8: to this idea of neutral inflation, has moderated, growth is
Speaker 8: slowish and still healthy, then that's a place where markets
Speaker 8: tend to celebrate.
Speaker 9: But it's two very different scenarios.
Speaker 2: I know you weren't listening to the show earlier, Kim,
Speaker 2: because you're outside in autographs.
Speaker 3: But the bottom the bottom line is off the best.
Speaker 2: In the interview with Jonathan Farrow yesterday, this idea of
Speaker 2: cutting rates massively has a massive ambiguity to I mean,
Speaker 2: you know, on a microeconomic basis, it could cut either way.
Speaker 8: Well, there was a line down Lexington for the autographs
Speaker 8: if you were wondering. The second one is that it
Speaker 8: really depends on where economic surprises go. For the response
Speaker 8: to rate cuts last year, when the Fed cut rates
Speaker 8: by one hundred basis points and the ten year went
Speaker 8: up by one hundred basis points, is because economic surprises
Speaker 8: were going straight up, data coming in better than expected,
Speaker 8: as well as GDP forecasts being revised higher.
Speaker 9: They were being revised hired by almost seventy basis points
Speaker 9: during those months.
Speaker 3: Do you have a.
Speaker 2: Clue what earnings are lending? Nine to thirty, were going
Speaker 2: to be ten sixteen, ten seventeen, ish, technology will be
Speaker 2: November one?
Speaker 3: Did any clue? How do you do it?
Speaker 8: Well, we're in the two seventyish range for twenty twenty five.
Speaker 8: We do know the earnings have continued to come in
Speaker 8: better than expected. Look at the second quarter eleven point
Speaker 8: eight percent growth versus the four point nine percent that
Speaker 8: was expected going into the quarter. But then as you
Speaker 8: turn your eyes to twenty twenty six, there's about a
Speaker 8: three hundred dollars estimate for S and P five hundred earnings.
Speaker 8: That includes not only an acceleration in the top line,
Speaker 8: but over one hundred bases points of margin expansion. So
Speaker 8: there's some optimism. That's are you being contemplated?
Speaker 2: So we come down at least I had the right language.
Speaker 2: Crater captures it. And then we come back a little
Speaker 2: bit here and we stagger economic data to economic data. Cam,
Speaker 2: what's someone with a portfolio supposed to do?
Speaker 3: Do you ignore this? Yeah?
Speaker 9: Well it does feel kind of staggy.
Speaker 8: It's we've been calling it stagflation light, where we're saying
Speaker 8: that doesn't taste great, less filling this idea that it's
Speaker 8: not your full stagflation heavy that you got in the
Speaker 8: seventies with higher unemployment and soaring inflation. But this is
Speaker 8: an environment that is harder for earnings growth to operate in.
Speaker 9: It's one thing when earnings.
Speaker 8: Are strong because you have strong real GDP plus inflation,
Speaker 8: but weaker real GDP plus inflation is something that is
Speaker 8: harder for risk assets. So with valuations trading so high,
Speaker 8: we are not surprised to see this be a cause
Speaker 8: for volatility.
Speaker 5: Yeah, I mean you see this again, This inflation data
Speaker 5: on the PPI level, the producer level well higher than expected,
Speaker 5: well higher than the last period. It suggests that maybe
Speaker 5: somewhere in the machinery out there there is a.
Speaker 3: Higher price pressure.
Speaker 5: And then the question, I guess, becomes, at what extent,
Speaker 5: if ever, does it get to the consumer.
Speaker 8: We're run rating at over three hundred billion dollars of
Speaker 8: tariff revenue raise, so at this point someone is paying
Speaker 8: for it. And in the CPI data it looked like
Speaker 8: the consumers aren't paying for it yet they saw the
Speaker 8: business pan, but the PPI is telling you that businesses
Speaker 8: are paying for it.
Speaker 2: This is really important, Cam. I mean, I got nothing
Speaker 2: to do tonight, and I'm looking. I'm looking at Newark,
Speaker 2: New Jersey, and for five thousand, four hundred dollars, me
Speaker 2: and missus Kan can sidle up really close the infinity
Speaker 2: circle to see one Catherine Perry.
Speaker 9: I'm going to that.
Speaker 5: Unbelievable, What a what.
Speaker 3: A small world Perry.
Speaker 2: I mean, she's just like what she did with Greg
Speaker 2: Wells is just amazing, the songs, how they've endured.
Speaker 8: Look, I'm considering dressing up as a shark, specifically love shark.
Speaker 3: Okay, do you have Rockstar Infinity Circle seats.
Speaker 9: I doubt that, Yes, I doubt that.
Speaker 2: It's almost sold out. I mean he's killing it. Newark
Speaker 2: Prudential Center, Newark. Cam Dawson will be there.
Speaker 3: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also watch us
Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal.
Speaker 2: Tina Fordham joins now for a good conversation to find
Speaker 2: the moment here and frame not only Alaska, but after Alaska.
Speaker 3: Tina, let's start with Helsinki. They're older.
Speaker 2: I think we have a good understanding of mister Trump
Speaker 2: being older. In what way is Vladimir Putin older as
Speaker 2: compared to Helsinki in the first Trump administration.
Speaker 10: Well, in fact, I've just returned from Helsinki for the
Speaker 10: Geoeconomics Week where there was a lot of discussion about
Speaker 10: this meeting. And you know what lessons my have been
Speaker 10: learned since twenty eighteen when President Trump last met with
Speaker 10: Putin again didn't have others.
Speaker 3: In the room.
Speaker 10: No one is exactly sure what was said, but have
Speaker 10: both sides learned to understand each other better. Well, you
Speaker 10: can see what President Trump is coming into this meeting with.
Speaker 10: There's both, you know, more bad cop than we're used
Speaker 10: to from from Trump to Putin. He's insisting that a
Speaker 10: ceasefire emerged from this, but he's coming in with some some.
Speaker 3: Carrots as well.
Speaker 10: And so for Putin, who has been you know, running
Speaker 10: Russia for twenty five years and does think in geopolitical
Speaker 10: terms more than in transactional terms. You know, Putin's playing
Speaker 10: a long game and he has said, you know, one
Speaker 10: of his most famous quotes is that the greatest catastrophe
Speaker 10: geopolitical catastrophe was the collapse of the Soviet Union. So
Speaker 10: you have one leader coming in with a transactional perspective.
Speaker 10: He wants to do a deal and then go straight
Speaker 10: to a second meeting. I think Putin is going to
Speaker 10: do a bait and switch on this one.
Speaker 5: So, Tina, what are the expectations here? Usually when you
Speaker 5: get a summit of the leaders of Russia's left Soviet
Speaker 5: Union in the US, it's months and months of preparation
Speaker 5: by underlings and then the two principles, come in and
Speaker 5: sign a couple of documents and take photographs and claim victory.
Speaker 6: That's not the case.
Speaker 10: Here, is it, Well, not at all, And so it
Speaker 10: strikes fear in the hearts of diplomats and foreign policy types,
Speaker 10: because you never want to put your your leader in
Speaker 10: a position where he's not sure what's going to come
Speaker 10: out of the discussion. Right. You want to you know,
Speaker 10: game out the possibilities. You want to have your you know,
Speaker 10: your your responses in reserve. You don't want to leave
Speaker 10: a chance. That's not the way that Trump works. He
Speaker 10: said before that he likes to decide at the last minute.
Speaker 10: He likes things to be less scripted, less choreographed. The
Speaker 10: risk for Ukraine and for Europe is that Trump wings
Speaker 10: it and accepts something that Putin suggests, which maybe sounds reasonable,
Speaker 10: but Putin will have an ulterior motive behind it.
Speaker 5: So, Tina, how unusual is it for this type of
Speaker 5: discussion to take place without one of the principles? That
Speaker 5: being Ukraine there? What can how limit? How much does
Speaker 5: that limit? What can I actually get done?
Speaker 3: Well?
Speaker 10: Putin likes this construct right, It returns him to the
Speaker 10: position of Russia being a great power, as it was
Speaker 10: during the Soviet era. And I said before this that
Speaker 10: he was never going to allow Zelensky to be in
Speaker 10: the room for two reasons. One is that would elevate
Speaker 10: Zelensky to being his peer, which he doesn't accept. And
Speaker 10: second because he doesn't accept that Ukraine is a real country.
Speaker 10: So it is going to be difficult to have this
Speaker 10: trilateral meeting ever take place. But what Putin wants to
Speaker 10: happen is to get hold of the concessions that that
Speaker 10: Trump is ready to offer him. There's been some talk
Speaker 10: of sanctions removal on aircraft for example, and you know,
Speaker 10: kind of get on that new trajectory that will allow
Speaker 10: Russia to you know, rejoin the international financial system across.
Speaker 3: The nation and worldwide.
Speaker 2: Tina Fordham Fordham Global Foresight with us this morning here
Speaker 2: on the summit, and Reardon landing momentarily in Alaska, will
Speaker 2: have complete coverage starting early early tomorrow from Anchorage. Tina,
Speaker 2: Mister Trump has to calculate his term.
Speaker 3: He's legacy building. I think Paul had a great phrase
Speaker 3: for that.
Speaker 2: I guess there are there midterm elections, there's senatorial elections.
Speaker 2: We have a presidential election in twenty twenty eight. Putin's
Speaker 2: serving two terms. He just had an election last year.
Speaker 2: So is he a lane duck president or is he
Speaker 2: president for life?
Speaker 3: In Russia?
Speaker 10: Well, he's president for life. I mean, I think that's
Speaker 10: an easy answer. There's there's no bench, there are no successors.
Speaker 10: You know, everyone always talks about the lifespan of Russian men. Clearly,
Speaker 10: you know, Putin has the the you know, the best
Speaker 10: in medical care. He seems very robust. He's not going anywhere,
Speaker 10: and no one else is authorized to take decisions.
Speaker 9: So he loves this idea of he.
Speaker 10: And Trump together mano amano, you know, the freight, the
Speaker 10: fate of the free world. That's a very comfortable position
Speaker 10: for him, and likes it too, because he doesn't like middlemen.
Speaker 2: Okay, but Trump has to face American politics and the
Speaker 2: reality of what I believe is still a democracy.
Speaker 3: What is the incentive for.
Speaker 2: Vladimir Putin to do anything here except a photographic moment.
Speaker 10: So the US has been very clear that they want
Speaker 10: an agreement of a ceasefire. The reason why I said
Speaker 10: my prediction is for a bait and switch is that
Speaker 10: I think that Putin has to say yes, I'll agree
Speaker 10: to a ceasefire. But with a bunch of conditions that
Speaker 10: won't be met. And so what he wants is to
Speaker 10: get to that second meeting, to start to get sanctions reversal,
Speaker 10: and to bank on Trump's impatience with the duration of
Speaker 10: this conflict. The other thing he wants to do. Putin
Speaker 10: wants to do is is roll the clock back to
Speaker 10: that meeting with Zielensky in the Oval office, you know,
Speaker 10: being told off for not saying thank you you. It
Speaker 10: was after that that that that Trump started talk to
Speaker 10: talk about secondary sanctions. I don't think that Trump wants
Speaker 10: to sanction Putin. We saw what his preference is to
Speaker 10: sanctioned countries like India, ostensibly for buying cheap Russian gas.
Speaker 10: So you know, markets have got themselves convinced of taco.
Speaker 10: Switzerland didn't get taco, Indian India didn't get taco. But
Speaker 10: China and Russia keep getting a pass to your points
Speaker 10: about the midterms. You know, it's it's quite evident what
Speaker 10: the play here is to generate you know a lot
Speaker 10: of wins, a lot of you know, uh peace deals agreed,
Speaker 10: whether that's between Armenia, AzID Bai John or or elsewhere.
Speaker 10: To have a strong record to to run on. But
Speaker 10: history suggests that that the Russia Ukraine conflict will will
Speaker 10: most likely wear on Tina.
Speaker 5: Yesterday there was a call between President Trump and the
Speaker 5: leaders of the European Union, including Presidents Landscape. Presumably I
Speaker 5: guess the preview President Trump's plan for the summit.
Speaker 6: Do we know what was said on that call?
Speaker 5: Do we know of any agreements came from that call?
Speaker 10: Well, what we know is that the European leaders certainly
Speaker 10: feel like it was a good conversation. Maybe they're putting
Speaker 10: a brave face on it. Jd Vance has been here
Speaker 10: in the UK. There's lots of talk in political circles
Speaker 10: that he understands the context more than he did before.
Speaker 9: And there is a sense that.
Speaker 10: They the US will not kind of sell the farm
Speaker 10: when it comes to the terms of a deal. But
Speaker 10: you know, Land for Peace is going to be very
Speaker 10: concerning for Europe because the strong sense is that after Ukraine,
Speaker 10: next come the Baltic States.
Speaker 2: Yeah, okay, thank you, let's let's end on that. I
Speaker 2: think I just mentioned this with Leona fix over in Germany.
Speaker 2: I mean to me, it's okay, let's bring it up, folks,
Speaker 2: Tina Fordham, are we essentially heading towards a European Domino
Speaker 2: theory with Vladimir Putin.
Speaker 10: Not yet, not yet, but you can see who's building
Speaker 10: up their military and who's meeting and exceeding that NATO
Speaker 10: two percent target to five percent. It's all the countries
Speaker 10: that are closest to Russia, and that is something that
Speaker 10: I think if you're outside of this part of the world,
Speaker 10: it can be very perplexing. It's not just a matter
Speaker 10: of ending the war. It's about the terms, because a
Speaker 10: bad peace deal in Ukraine is a green light further
Speaker 10: Russian incursions.
Speaker 3: Tina.
Speaker 2: One final question. We've got to get back markets. But
Speaker 2: I just think this is just absolutely critical. Do you
Speaker 2: assume is a grizzled pro of international relations, that we're
Speaker 2: onto some new regime or after Trump, do we find
Speaker 2: ourselves back somehow?
Speaker 3: To name your theory the.
Speaker 2: Washington Consensus, zacharias post American world, I'll let you name
Speaker 2: six other theories.
Speaker 3: You're better than I am.
Speaker 2: But are we like beyond what we grew up with
Speaker 2: or do we revert back to that somewhere out there?
Speaker 10: I think that I interpret President Trump's positions on changing
Speaker 10: the US role in both the security and the economic
Speaker 10: order as something that capitalized upon maybe a vague sense
Speaker 10: amongst the American population that the system wasn't working for them.
Speaker 10: So for the US to withdraw itself the global order
Speaker 10: that it created post World War two is dramatic. But
Speaker 10: we saw this in microcosm here in the UK with Brexit.
Speaker 10: It's very difficult to unscramble the egg. You know. Trade
Speaker 10: data tells us that globalization is continuing, but the world
Speaker 10: is a security first world, and I think that is
Speaker 10: the part that market participants and business leaders have had
Speaker 10: trouble coming to terms with.
Speaker 2: Terrific brief Thank you, thank you, Thank you, Tina fordham
Speaker 2: Ford and Global Foresight.
Speaker 3: Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple, Cocklay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg Term And all.
Speaker 3: Ladies and gentlemen, missus Matteo the New.
Speaker 11: Space Popular Demand. Okay, I want to start with Walmart. Okay,
Speaker 11: they're the country's largest private employer. As you know, right,
Speaker 11: but it's making this move to keep and attract new
Speaker 11: workers because it is extending this popular employee perk. It
Speaker 11: is a ten percent discount are nearly all grocery purchases
Speaker 11: at its stores and online. That's huge those prices of
Speaker 11: groceries now nowadays. So in the past, what they did
Speaker 11: is that it applied to like fresh produce, general merchandise,
Speaker 11: but it didn't include things like milk, which is big,
Speaker 11: you know, pasta, frozen pizza, meat. It didn't include except
Speaker 11: during the holidays like November and December. So now they're
Speaker 11: bringing that back. And what it also does, it brings
Speaker 11: it back closer to the competition because, for example, you
Speaker 11: have Whole Foods, who's owned by Amazon, and they offer
Speaker 11: workers a twenty percent discount you know, on their items.
Speaker 11: Obviously their items are more expensive, but Target offers a
Speaker 11: twenty percent discount on fresh and frozen produce for their
Speaker 11: workers too, So this is really people are struggling to
Speaker 11: pay the grocery bill and this is a huge help
Speaker 11: for families. So that was a big, big, big, big
Speaker 11: move by Walmart.
Speaker 3: I want to make clear, folks, you don't we make
Speaker 3: jokes about it.
Speaker 2: There's nobody around the table here that's worried about the
Speaker 2: marginal banana.
Speaker 3: But the answer is this is serious stuff. I mean,
Speaker 3: particularly for children.
Speaker 2: Remember you used to look at a bag of groceries
Speaker 2: and go, that costs me, you know, like eight dollars
Speaker 2: or twelve. Now you look at a bag of groceries
Speaker 2: and go, it's like.
Speaker 5: Rent yep, yep, it's it's big.
Speaker 6: And we saw that.
Speaker 5: Yeah, the prices went up during the pandemic, and we said,
Speaker 5: are they ever going to come down?
Speaker 3: And they kind of knew they were.
Speaker 6: They're not next.
Speaker 11: Okay, Paul, when you go to Italy you can actually
Speaker 11: bring your pup with you at a pet hotel.
Speaker 5: I don't think they want anything to do with Shamus.
Speaker 11: Shamus can live in luxury.
Speaker 6: Okay.
Speaker 11: This is a new trend in Italy because apparently families
Speaker 11: have been having fewer kids, but the number of pets
Speaker 11: in households in Italy have been on the rise. So
Speaker 11: the country's pet service industry has really been exploding. So
Speaker 11: in Rome Airports its newest luxury hotel. It's called dog Relay.
Speaker 11: I'm sorry if I'm not pronouncing it right. It's r
Speaker 11: E l Ai S.
Speaker 9: Thank you. There you go.
Speaker 11: It can house about forty pets, but they get underfloor cooling,
Speaker 11: air conditioning, lavender oil sense, Arnica massages.
Speaker 6: Okay, this communal garden.
Speaker 9: They even have large screens so.
Speaker 11: You can video call your pet when you miss them.
Speaker 3: I'm looking to bring Fido here. It's a cap sig. Yes,
Speaker 3: I want to know. Can we bring that bill and
Speaker 3: canal fee to the hassler next time? Okay, here's the answer.
Speaker 2: Hassler Roma does not allow dogs. Please choose a different
Speaker 2: pet friendly hotel in row An Crush.
Speaker 11: Now, as far as the price, though, I'm not sure
Speaker 11: what you pay when you when you board your pets
Speaker 11: because I'm not familiar with it, but their prices are
Speaker 11: from about forty six dollars to seventy dollars a day.
Speaker 3: Is that expensive?
Speaker 4: Is that?
Speaker 3: Is that fun?
Speaker 12: Okay, Well, it's cheaper for me to pay the pair
Speaker 12: to come over and take care of the beasts then
Speaker 12: to go to the kenmel Kemel Fee's outrageous.
Speaker 11: This last one, yeah, quick one. David Ellison he wants
Speaker 11: to make more TV shows and movies. He plans a
Speaker 11: boost film TV production. Yes, Paramount sky Dance more content
Speaker 11: for Paramounts streaming and produce as many as twenty movies
Speaker 11: a year. He's putting on the list of priorities. He
Speaker 11: wants a third film in the Top Gun series. He
Speaker 11: wants more Star Trek. So this is what he's talking to.
Speaker 11: This the film studio, it hasn't turned an annual profit
Speaker 11: since like twenty twenty two, so it's a big thing
Speaker 11: for them.
Speaker 5: Yeah, it's tough, you know, you have to have these.
Speaker 5: You have to scale, You have to put out a
Speaker 5: lot of films, like maybe a dozen big budget films
Speaker 5: if you're more and more hits, no, just to get
Speaker 5: you know, three or four that get you that billion
Speaker 5: dollar global box office. And they didn't have they weren't
Speaker 5: doing that, and they don't have the franchises that that
Speaker 5: Disney has.
Speaker 6: But maybe Top Gun at three.
Speaker 3: Look at how many.
Speaker 5: Mission Impossible cruises put out, like you know, six, seven,
Speaker 5: eight of those did sing with Top Gun.
Speaker 2: Do the sequels still do? Like I know there's like
Speaker 2: Jurassic Park eight or whatever else?
Speaker 6: You know, they trend down for the most cases.
Speaker 5: Yeah, but everyone a while you get a top you know,
Speaker 5: a Drastka Park four that that's great.
Speaker 2: You know, newspapers let us go by email, by text,
Speaker 2: by live chat on YouTube.
Speaker 3: Should we do Newspapers Tomorrow? With Lisa Mateo.
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each weekday,
Speaker 1: seven to ten am Easter and on Bloomberg dot com,
Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app.
Speaker 1: You can also watch us live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal