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Speaker 2: It's unfair to David Seefe. It's a chief economist for
Speaker 2: all developed markets at number and we're just to go,
Speaker 2: what's nominal GDP look like? What is the first derivative
Speaker 2: of consumption? No, we got to talk to him about
Speaker 2: he was at Harvard with Governor Myron and today a
Speaker 2: blistering article by Wonderful Time orlack or like at Bloomberg
Speaker 2: about our start, Professor Sief, Let's start with what is
Speaker 2: our start?
Speaker 3: Well, good morning, So our star is the real rate?
Speaker 4: So not counting inflation that would be neither expansionary or
Speaker 4: contractionary to the economy.
Speaker 2: How many plugins are in your calculation of our start?
Speaker 2: How many guesses?
Speaker 3: How many guesses?
Speaker 4: There are a lot of things that would go into it,
Speaker 4: but there are a couple of things that are by
Speaker 4: far the most important, please population growth being one of them,
Speaker 4: and rates of national savings being another.
Speaker 3: Very important aspect of it.
Speaker 2: There's a huge disagreement on this discuss how you approach
Speaker 2: it at Nimura. Is our start coming down back to
Speaker 2: what we remember pre COVID, or do we establish a
Speaker 2: new ur start at a higher interest rate.
Speaker 4: Well, so, I think the biggest thing when it comes
Speaker 4: to our star has really been a forty to forty
Speaker 4: five year trend, which has been.
Speaker 3: A slow and steady decline.
Speaker 4: Great moderation, yes, and that's more than anything else, I
Speaker 4: would say due to slowing population growth. It's been happening
Speaker 4: around the world, and the places where the neutral rate
Speaker 4: is the lowest and has been for decades are places
Speaker 4: like Japan.
Speaker 3: Where the population growth has been the way. So that
Speaker 3: is a very.
Speaker 4: Slow moving force, but one that probably over the course
Speaker 4: of decades is the single most important one out there.
Speaker 4: And so I think that what happened after Lehman in
Speaker 4: the Great Recession was that we, because of the overhang
Speaker 4: from that, our star really fell below what was the
Speaker 4: declining trend. And then COVID happened, and it was, for
Speaker 4: various reasons the opposite. It jumped up to above what
Speaker 4: was its longer run trend. And now I think we
Speaker 4: are certainly heading back towards that longer run trend. Now,
Speaker 4: what Governor Myron has proposed certainly is controversial in terms
Speaker 4: of some of the inputs he's put in and therefore
Speaker 4: the conclusions he's come out with. But I think that
Speaker 4: it's probably more people than not would agree that it
Speaker 4: has fallen or is falling in the post COVID era
Speaker 4: and may continue to fall further.
Speaker 2: So what did you cadge that? Well, I was like
Speaker 2: a lawyer, basically, he knows what he's doing.
Speaker 5: So, David, the Fed has cut twenty five basis points,
Speaker 5: and do you think they're going to proceed? What do
Speaker 5: you think the cadence is going to be of their
Speaker 5: kind of rate moves going forward?
Speaker 4: Yeah, you know, we have no reason to doubt the
Speaker 4: dot plot for the rest of the Powell's time in office,
Speaker 4: so especially for the rest of this year. So we
Speaker 4: think that they'll cut in October, and frankly, how could
Speaker 4: they not given that it looks like they're not going
Speaker 4: to necessarily have all the data they would December, we
Speaker 4: also think they will cut again, so it's not necessarily
Speaker 4: something we think is completely necessary to do, but they've
Speaker 4: put it out there that that's what they're going to do,
Speaker 4: despite the fact that they upgraded economic projections, and so
Speaker 4: hard to see them being knocked off of that, especially
Speaker 4: with the probably less data than normal or maybe no
Speaker 4: data coming out. And then we expect they'll cut once
Speaker 4: more under Powell in March. Then we think that post
Speaker 4: Powell there are probably another couple cuts coming, and that's
Speaker 4: really more of a matter of the next Fed chair,
Speaker 4: whoever it is, is probably going to be much more
Speaker 4: dubbish than Powell and at least receive some deference from
Speaker 4: the rest of the committee.
Speaker 5: All Right, it looks like our government may shut down
Speaker 5: at midnight tonight. As an economist, do you.
Speaker 4: Care, well, we certainly, we certainly care for doing our jobs.
Speaker 4: I mean, this is this is where we is. What
Speaker 4: we do is we analyze government data. So it's going
Speaker 4: to be a little bit of a famine at first
Speaker 4: and then feast as the data eventually come out later
Speaker 4: and there's catch up.
Speaker 3: But in terms of the real.
Speaker 4: Economy, probably not so much. There will probably be a
Speaker 4: small hit to GDP from the lack of work going
Speaker 4: on in Q three or Q four A Q four
Speaker 4: I guess, because we're starting Q four tomorrow. But then
Speaker 4: we would expect there to be almost one for one
Speaker 4: catch up growth once the government reopened so Q one
Speaker 4: Q two of next year. I think that it's particularly
Speaker 4: important in that the lack of data coming out right
Speaker 4: as the FED is has tacked dubvishly does make it,
Speaker 4: as I said, more difficult for the to deviate from
Speaker 4: that because what would be the justification for doing so.
Speaker 4: So it may lead to monetary policy outcomes that once
Speaker 4: we then get the data, we're like, oh, well, maybe
Speaker 4: they shouldn't have done that. But for the real economy
Speaker 4: as a whole, it's hard to see this being such
Speaker 4: a huge deal.
Speaker 5: It seems like the consumer out there is in pretty
Speaker 5: solid shape here. How do you think about the US
Speaker 5: consumer in seventy percent of this economy.
Speaker 3: Yeah, we see the consumer as pretty strong, and we
Speaker 3: had an.
Speaker 4: Upside surprise a couple of weeks ago to retail sales,
Speaker 4: and generally speaking we've seen over a year of strength
Speaker 4: in retail sales, and that really we think reflects the
Speaker 4: fact that although there aren't a lot of hires going on,
Speaker 4: there really are very very low levels of layoffs.
Speaker 3: Going on in the economy.
Speaker 4: So the vibe may be one that the economy isn't
Speaker 4: that great, although even that is starting to change.
Speaker 3: But the hard data are pretty clear.
Speaker 2: But isn't it k shaped where the vibe is half
Speaker 2: the nation's flat in our backs, farmers screening for aid
Speaker 2: from the president, soybeans Brazil, all that we know the drill,
Speaker 2: any other people are packed in restaurants. Paul goes to that,
Speaker 2: Lisa and I can't afford.
Speaker 4: It's not necessarily an unfair characterization. The key thing, though,
Speaker 4: is that as long as the people who are currently
Speaker 4: spending money continue to feel good, they're going to continue
Speaker 4: to spend money. If people who are new entrants into
Speaker 4: the labor market are having more trouble than normal finding
Speaker 4: a job, and there is some of that, that's a
Speaker 4: real social issue, but it's not necessarily going to hurt
Speaker 4: the economic data over the short run, and that's what
Speaker 4: we're seeing.
Speaker 2: Data ce for this with the Murrow. We continue the
Speaker 2: chief economis for developed markets at the Murrow. Stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
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Speaker 2: Monica Garra joins US right Now US Policy Mortgage, seeingly
Speaker 2: wealth Management. What are the ramifications to someone in Illinois
Speaker 2: or Arizona of a government shutdown? I get Washington. What's
Speaker 2: it mean for the rest of the nation.
Speaker 6: It means jobs, Like you know, post office for example, could.
Speaker 2: You don't get your mail delivered?
Speaker 6: It can get delayed, right. It depends on how long
Speaker 6: this goes. You know, they start to shut down parts
Speaker 6: of the you know, non essential workers. If you're thinking
Speaker 6: about your local offices, et cetera, that could have an
Speaker 6: impact across different you know states.
Speaker 2: Well, twelve years ago, sixteen days shutdown. The jobs day
Speaker 2: was October fourth. It came out October twenty seconds.
Speaker 3: So we get it just delayed, I guess.
Speaker 5: I mean, so is there what does that mean for markets?
Speaker 5: What are you telling your clients about a government shutdown?
Speaker 5: I kind of feel like it's we kind of do
Speaker 5: this somewhat frequently. It's not that big a deal. What
Speaker 5: are you telling your clients?
Speaker 6: I mean, on average you get markets s five hundred
Speaker 6: rallying four point four percent during times of government shutdown
Speaker 6: regardless of life.
Speaker 5: Market's rallied during a shutdown.
Speaker 6: Rally during through the shutdown, so essentially they see through it.
Speaker 6: They stay exuberant. But the where you see any sort
Speaker 6: of pullback or correction, it's around those industries and sectors
Speaker 6: that have heavy reliance on contracts, right, like defense, like
Speaker 6: healthcare in certain instances, and we think, especially on defense,
Speaker 6: right that that could be a nice buy opportunity.
Speaker 5: So what are we doing here as it relates to
Speaker 5: do you care who gets blamed for this? Do we
Speaker 5: care if it's the Democrats or the Republicans, the Trump administration?
Speaker 3: Do we care about that stuff?
Speaker 5: We just want the market that I mean, we want
Speaker 5: the government to kind of do what it has to
Speaker 5: do and maybe get open at some point.
Speaker 6: I mean, do we care? I would say writ large, No,
Speaker 6: the blame piece is not as critical, right, It's about
Speaker 6: what actually happens through the cycle, how long it goes. Now,
Speaker 6: what's important for us politically, though, is to understand those dynamics,
Speaker 6: right that the Democrats want that ACA subsidy extension, the
Speaker 6: GOP is you know, against it. But then there's this
Speaker 6: additional element that could be thrown in where the White
Speaker 6: House could come in trying to use this as a
Speaker 6: catalyst for impoundments or enforcement control, meaning right that they're
Speaker 6: going to withhold potential funding for certain non ideologically aligned
Speaker 6: you know, programs and agency act takes.
Speaker 2: Let's talk about the job we're gonna Nathan Dean againhos
Speaker 2: expert on this, But Monica, do you assume it? Morgan Stanley,
Speaker 2: the president will handle this differently than any other president
Speaker 2: has ever handled a shutdown. That's that's the heart of
Speaker 2: the matter, right.
Speaker 6: Right, I mean that's where the impoundment piece comes into play.
Speaker 5: Right.
Speaker 6: We saw him do that with Ukraine funding, so there
Speaker 6: is a precedent. And so while they're not going to
Speaker 6: get these mass layoffs, right, we've seen that that's not
Speaker 6: going to happen.
Speaker 3: You could get.
Speaker 6: A this essentially this as an excuse or a catalyst
Speaker 6: to then come in and say, well, you know, we
Speaker 6: want to go harder on these c energy components. Right
Speaker 6: at the EPA, we're going to stop funding for that.
Speaker 6: And if you get that dynamic, that's the sort of
Speaker 6: stick off ramp that gets the Democrats to the table.
Speaker 6: The carrot off ramp is do you get those rural
Speaker 6: state GOP members allowed enough voice to then come together
Speaker 6: with Democrats to get those ACA subsidy extensions.
Speaker 5: I look at President Trump, but I think he's hitting
Speaker 5: it out of the ballpark every day, it seems like.
Speaker 5: Yet people tell me these approval ratings aren't very good.
Speaker 2: How do you guys square that?
Speaker 6: And I think you have to take it. You have
Speaker 6: to take too These two things separately. Markets are separate.
Speaker 6: Then social issues and things that might be potentially driving
Speaker 6: fears with voters, and those two things are very different.
Speaker 2: There's percolating a zeitgeist that the fiscal bill that the
Speaker 2: President spearheaded through will not bring in more Texas. There's
Speaker 2: a huge assumption text revenue will go up. What does
Speaker 2: Morgan Stanley say?
Speaker 6: And our view we think, I think that if you're
Speaker 6: looking at earnings, if you're looking at the markets, tax
Speaker 6: revenues are likely to increase right more in this next pull.
Speaker 6: That doesn't mean it's going to be for the long run,
Speaker 6: right And so we think short term we could get
Speaker 6: some nice tax receipts here towards the end of the year,
Speaker 6: but then into twenty twenty five, we still do expect
Speaker 6: a slow down. And that's because you're looking at positive
Speaker 6: GDP numbers right nominal six point eight percent. Where do
Speaker 6: you go from there?
Speaker 5: Right?
Speaker 2: Twenty seconds? Nobody cares. All we care about is TSA.
Speaker 2: If there's a government shut down, what happens to TSA?
Speaker 6: TSA I believe is going to be deemed essential.
Speaker 2: So just just rocks.
Speaker 3: You don't have to have to worry about that.
Speaker 5: With the Gulf Stream just going out.
Speaker 2: No, no, that's true. I just no, I'm not. I'm
Speaker 2: going to Middletown further out. Okay, yeah, further out it's
Speaker 2: too congested.
Speaker 5: Yep.
Speaker 2: Monica Grera, thank you so much, Executive director, head of
Speaker 2: US Policy at Morgan Stanley Wealth Management. 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
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Speaker 1: say Alexa play Bloomberg eleven thirty.
Speaker 2: We have in studio. We've spent weeks trying to get
Speaker 2: her in here. Suki Cooper joins us. What's it like
Speaker 2: working with Steven Englander at Standard Charter amazing English.
Speaker 7: I'm inspired every day. It's fantastic.
Speaker 2: Inspire us with a broader commodity trend. Rishue Sherman would say,
Speaker 2: we're waiting for a super commodity trend. Is it upon us,
Speaker 2: Suki Cooper?
Speaker 7: We still see further highs for the gold markets. We've
Speaker 7: seen a number of factors driving the market and it's changed.
Speaker 7: At the start of this year we saw a shift
Speaker 7: away from central bank flows driving the market to ETFs
Speaker 7: becoming much more important, and now we've seen the correlation
Speaker 7: between real yields and gold coming back. The macro environment
Speaker 7: is increasingly important to ranging from concerns around the US
Speaker 7: potential shutdown government shutdown, to the scope for FED to
Speaker 7: cut rates, further ranging to tariff concerns as well. All
Speaker 7: of these factors are playing into safe have and demand
Speaker 7: for gold.
Speaker 5: Is there a valuation called ever for gold and other
Speaker 5: precious metals or is it just people are buying them?
Speaker 5: They're buying them. I just never know how to value gold,
Speaker 5: get a sense when it's expensive gold.
Speaker 7: I think you need to view it as a commodity
Speaker 7: and a currency. So when when investor appetite is lacking.
Speaker 7: That's when the jewelry market, the physical market becomes important.
Speaker 7: So like the nineteen nineties, that's when the jewelry markets
Speaker 7: set the floor for gold. And that's what was happening
Speaker 7: over the last couple of years. It was really that
Speaker 7: central bank demand that was not just seting the floor
Speaker 7: but driving it higher. But now we're seeing it behave
Speaker 7: as a currency, and that's when these external factors like
Speaker 7: the dollar become much more important.
Speaker 2: Would say to me, hey, stupid, ask her about the
Speaker 2: Pacific Rim Indonesia freeport. They had a terrible accident there
Speaker 2: and I did a lot with FCX years ago. Where
Speaker 2: is Suki Cooper and the given supply of stuff in
Speaker 2: the commodity space, are we running out of iron ore?
Speaker 2: Are we running out of gold? Its new supply and
Speaker 2: Frankie the softs as well.
Speaker 7: When we look at the gold markets, the supply has
Speaker 7: been very easily absorbed. And yes, this Grasburg force majeure
Speaker 7: has meant that we've seen supply coming offline. We're going
Speaker 7: to see quite a sharp run.
Speaker 2: Force masure is French. If you go to the University
Speaker 2: of Birmingham, yep, I have no idea what it means continue.
Speaker 7: But next year they're looking for a decline in a
Speaker 7: put around about thirty five percent, so that means around
Speaker 7: about seventeen tons, and we'll be offline. And yes, it
Speaker 7: tightens the market, but these are the sort of flows
Speaker 7: we can see in the ETFs on a daily basis,
Speaker 7: so the market can absorb such a last but it
Speaker 7: just tightens our underlying balance.
Speaker 5: I mean, we all talk about gold rightfully, so up
Speaker 5: forty five percent year to date, but spots silver and
Speaker 5: that's up like sixty sixty percent this year. What's driving that?
Speaker 7: Silver to me is a fascinating market given its vast
Speaker 7: array of and usage. But until this year, silver had
Speaker 7: been lacking golds at performance, and that was partially because
Speaker 7: central bank demand was driving gold and silver didn't have
Speaker 7: that kicker, even though it's deeply undersupplied for the past
Speaker 7: three years. But this year, because we've seen gold now
Speaker 7: pivoting to driving FOLLO on those macro factors, silver's now
Speaker 7: started to ride on its coattails and relatively is underinvested.
Speaker 7: So those ETF flows in silver are picking up at
Speaker 7: even faster pace. And almost three thousand tons.
Speaker 2: Tell us about the things off division. I mean with
Speaker 2: standard Charter bank to look to Australia in iron ore,
Speaker 2: is the dynamic of iron ore into Shanghai iron ore?
Speaker 2: Is it normal? The flows to China.
Speaker 7: And all iron is not a market that I look
Speaker 7: at in detail, so I can't take it up. But
Speaker 7: looking at the gold flows into China, that's something that
Speaker 7: we can and kind of want to and we see
Speaker 7: that China's appetite for goals app type for commodities remain strong.
Speaker 7: Whether we're looking at copper markets.
Speaker 2: Copper and people used to like the copper inventories. Do
Speaker 2: they have like a strategic copper reserve? They have like
Speaker 2: seven fort knoxes of copper out there.
Speaker 7: There's some commodities where we're starting to see a build.
Speaker 7: We haven't got visible data on how much strategic stockware
Speaker 7: it might be, but markets like platinum, we've seeing imports
Speaker 7: far outpacing consumption.
Speaker 2: Shukie Cooper with she is with the Standard Charter bank
Speaker 2: and just definitive and come odities stay with us. More
Speaker 2: 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 otto
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Speaker 2: To the newspapers, Lisa, what do you have?
Speaker 8: Okay, So yesterday we talked about the NFL announcing Bad
Speaker 8: Bunny the super Bowl halftime performer. Okay, now there's a controversy.
Speaker 8: The stories are starting to come out. So he's basically,
Speaker 8: you know Grammy Award winning artist Fresh Office residency in
Speaker 8: Puerto Rico, And that's kind of what's sparking the backlash
Speaker 8: a little bit.
Speaker 3: He decided on the.
Speaker 8: Residency instead of performing in the US because he said
Speaker 8: he was worried about ice agents using it as an
Speaker 8: opportunity to scoop up migrants. So that's sparking some online
Speaker 8: protests from you know, MAGA influencers, conservative social media accounts.
Speaker 8: And then not only that, but the Wall Street Journal
Speaker 8: actually has an article too how how Swifties are upset
Speaker 8: because they thought that she.
Speaker 3: Would be performing at the super Bowl. Remember that was
Speaker 3: the whole thing.
Speaker 8: After they got engaged, and all the Swifties are like, yes,
Speaker 8: She's going to be in the half time, you know,
Speaker 8: performing at the super Bowl. It's not going to happen,
Speaker 8: but it's not the first time. Sometimes there's controversy behind
Speaker 8: some of the performers that they picked, like Kendricks Blomar, Beyonce.
Speaker 8: There were some controversy Shakira j Lo's halftime performances. There
Speaker 8: were some controversy.
Speaker 2: Shakira killed it. I Kira killed it.
Speaker 8: They did all right, but you can't please everyone, I guess.
Speaker 8: But those are kind of the backlash that's starting to commit.
Speaker 3: But he's still set.
Speaker 8: I mean, his residency was phenomenal.
Speaker 3: Loved it, loved it.
Speaker 8: Watch it on Amazon.
Speaker 2: A little bias there, like a home bias.
Speaker 3: On Puerto Rico.
Speaker 8: Yes, okay, this is on the back of yesterday story
Speaker 8: from Bloomberg News. The Financial Times has a little bit
Speaker 8: more on the record number of mega deals in the
Speaker 8: third quarter.
Speaker 3: So we kind of talked about this yesterday.
Speaker 8: When you had that fifty five billion leverage by out
Speaker 8: of Electronic Arts. So they crunch the numbers they put
Speaker 8: together from London Stock Exchange Group, Global mergers acquisitions activity
Speaker 8: passed one trillion dollars in the third quarter. Fourteen deals
Speaker 8: valued in excess of ten billion dollars announced globally, and
Speaker 8: it's kind of like this. It's turnaround from you know,
Speaker 8: uncertainty over tariff. So things are starting to change, People
Speaker 8: starting to do some deals. The biggest one you know
Speaker 8: remember Union Pacific, that eighty five billion dollar takeover of
Speaker 8: Northern so Northern, Norfolk Southern. But the big breakups too,
Speaker 8: like remember Craft Hines carried doctor Pepper.
Speaker 5: So it's kind of all this where people kind of
Speaker 5: thought in President Trump was elected that maybe there'd be
Speaker 5: more deal activity low, you know, less regulatory scrutiny, more
Speaker 5: deals happenings. Maybe this is this is what we're getting.
Speaker 8: Yeah, because I remember they were they were also you
Speaker 8: know it put it like a pause on IPO's for
Speaker 8: a bit, you know, with the Arabs and all that uncertainty.
Speaker 7: But things are.
Speaker 8: Picking up back. Maybe, yes, I know you love that. Okay,
Speaker 8: this is some advice from Bill ny the science guy. Okay,
Speaker 8: who doesn't love Bill Moore the science guy. Okay, how
Speaker 8: to keep your brain healthy. Okay, here's what you have
Speaker 8: to do, because this is what he does. He's sixty
Speaker 8: nine years old. He talked about it. Crossword puzzles. There
Speaker 8: you go every day, you do you see, you do
Speaker 8: your No, what's the word did I do it all?
Speaker 2: Crossrood puzzles like helpful.
Speaker 3: I've been doing it since I was like ten years old.
Speaker 4: Are you good?
Speaker 2: I've never come plead I'm useless. Every day you get
Speaker 2: better at it?
Speaker 3: Yes, yes you do? Okay, Yeah, Mom's until Friday.
Speaker 5: Then I hit him a walk Friday.
Speaker 3: Okay.
Speaker 8: So he also does like little things to keep his brain,
Speaker 8: like designing, making model trains, physical activity. Do you know
Speaker 8: he bikes three times a week and he swing dances.
Speaker 8: He says that is a big thing that keeps him
Speaker 8: kind of active and learning new things. You know, that's
Speaker 8: all about keeping that, you know, the brain in check.
Speaker 8: But he is busy.
Speaker 5: Bill Nida science guy. I love him.
Speaker 3: I love that guy.
Speaker 2: Very good at Lisa Manteo, thank you so much, us
Speaker 2: the newspapers.
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