WEBVTT - Bloomberg Surveillance TV: November 6, 2024 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.360 Terminal and the Bloomberg Business app. Electoral College votes to 0:00:37.400 --> 0:00:39.760 steal a return to the White House. Ja Ploski of 0:00:39.800 --> 0:00:42.720 TPW Advisory is bank with us. He was with us 0:00:42.800 --> 0:00:47.199 what six hours ago? Ja, to see everybody glad to 0:00:47.200 --> 0:00:49.120 start with this, But you made a really bad call 0:00:49.159 --> 0:00:51.640 on this selection, Harris land slide. What went wrong? 0:00:52.360 --> 0:00:52.519 Oh? 0:00:52.600 --> 0:00:55.920 Thank you, John. I appreciate that, the conversation. I always 0:00:55.920 --> 0:01:00.240 love that. Well, look right, I mean, my dad is 0:01:00.400 --> 0:01:03.560 It's a good thing we're not paid to be political prognosticators. 0:01:03.600 --> 0:01:07.119 Because we were of the view that the Democrats would 0:01:07.120 --> 0:01:11.720 win women vote, abortion, youth vote, et cetera. None of 0:01:11.760 --> 0:01:14.800 that really materialized. What's really interesting after a few hours 0:01:14.840 --> 0:01:19.240 of sleep, is the idea of good economics has turned 0:01:19.240 --> 0:01:22.240 into bad politics for the Democrats right the Biden Harris 0:01:22.480 --> 0:01:26.399 administration best economic outcome in generations, the US is the 0:01:26.520 --> 0:01:30.440 envy of the world, best growth, lowest inflation, and the 0:01:30.480 --> 0:01:33.720 Trump policy mix, which I think economically speaking is going 0:01:33.760 --> 0:01:36.679 to prove to be not very good but was clearly 0:01:36.720 --> 0:01:40.479 good politics. And so as an investor here we are sitting, 0:01:40.520 --> 0:01:42.839 we need to think about exactly what we just discussed. 0:01:43.160 --> 0:01:44.520 You know, is it going to be a sweep, because 0:01:44.560 --> 0:01:46.680 that means the policy mix, more of it is likely 0:01:46.720 --> 0:01:50.600 to materialize. If it's not a sweep, then we'll see 0:01:50.600 --> 0:01:53.200 how it all plays out. But I think for US 0:01:53.200 --> 0:01:57.600 at TPW, we're focused on a long cycle opportunity, good 0:01:57.640 --> 0:02:01.520 global growth, good risk asset O tunity, and a lot 0:02:01.560 --> 0:02:05.360 of that depends on policy continuity. And I think what 0:02:05.400 --> 0:02:09.360 we're going to have in the US is clearly policy discontinuity. 0:02:09.720 --> 0:02:12.040 And the question is going to be how does that 0:02:12.120 --> 0:02:15.079 play out? And the setup I'm thinking about, like right 0:02:15.080 --> 0:02:17.520 now this morning on the way in here, was you 0:02:17.639 --> 0:02:21.560 have the US, which is an over owned expensive asset. 0:02:22.120 --> 0:02:26.079 Foreigners have never owned more of US financial assets at 0:02:26.080 --> 0:02:30.919 a time when the policy mix is deteriorating versus, for example, China, 0:02:31.360 --> 0:02:33.920 which is a cheap asset under owned just to finish 0:02:34.080 --> 0:02:37.840 cheap under owned, and arguably the policy mix is improving. 0:02:39.000 --> 0:02:42.560 City Economic Surprise Index turning up. Pmis above fifty, and 0:02:42.600 --> 0:02:44.359 I think we're going to see at the end of 0:02:44.440 --> 0:02:48.600 this week a further policy response by China because they 0:02:48.800 --> 0:02:52.760 understand that their growth right now is export driven and 0:02:52.840 --> 0:02:54.800 with tariffs that could be a big problem. 0:02:54.840 --> 0:02:56.760 I wasn't trying to interrupt you, but before we get 0:02:56.760 --> 0:02:58.840 to it, don't interrupt you. 0:03:00.120 --> 0:03:02.320 Criticizement. 0:03:05.040 --> 0:03:06.919 It's okay, it's a third. 0:03:06.720 --> 0:03:07.639 Down or fourth time. 0:03:09.919 --> 0:03:10.160 Vote. 0:03:11.280 --> 0:03:14.320 There's a question here about whether you than fade this 0:03:14.520 --> 0:03:17.919 move if you believe that actually this is not the 0:03:18.000 --> 0:03:20.480 right policy. To put your mouth the money where your 0:03:20.520 --> 0:03:20.960 mouth is. 0:03:20.880 --> 0:03:23.520 Well, that's a great question, and I thought about that, 0:03:23.600 --> 0:03:26.280 and tactically, I think you have to enjoy the bounce, right, 0:03:26.680 --> 0:03:30.920 and the reasons are multifold. First, seasonality, this is the 0:03:30.960 --> 0:03:34.400 best three months of the year for stocks. Positioning is 0:03:34.480 --> 0:03:37.200 pretty light, right you're seeing that play out. You don't 0:03:37.240 --> 0:03:39.440 have five percent moves, two percent moves in the S 0:03:39.480 --> 0:03:42.280 and P if everybody's already long, so people de risked. 0:03:42.320 --> 0:03:47.160 Now they have to re risk. Technicals are supportive, and importantly, 0:03:47.200 --> 0:03:50.120 most importantly, fundamentals are supportive. Right, we're just coming out 0:03:50.120 --> 0:03:53.280 of Q three earnings. They were double what the expectation 0:03:53.520 --> 0:03:57.480 was going into the earning season. The projection was four percent, 0:03:57.560 --> 0:04:00.280 ended up being around nine percent. And most important, I 0:04:00.280 --> 0:04:03.320 think we've seen a complete collapse in the VIX. That's 0:04:03.360 --> 0:04:05.800 what needs to be up on these charts here for Bloomberg. Right, 0:04:05.880 --> 0:04:09.560 the VIX has gone from twenty five to fifteen in 0:04:09.600 --> 0:04:10.720 a matter of hours. 0:04:10.880 --> 0:04:12.560 I was on TV last night. He's producing. 0:04:12.640 --> 0:04:16.479 Now I need a new job on the screen. 0:04:16.560 --> 0:04:18.000 Let's go, I need a new job. 0:04:20.240 --> 0:04:22.720 Yes, exactly, something's gonna work. 0:04:22.880 --> 0:04:24.239 I think you just take over. 0:04:24.160 --> 0:04:25.640 So your tripolar world. 0:04:25.960 --> 0:04:29.120 Even though your political conviction was wrong, your market conviction 0:04:29.240 --> 0:04:30.320 in a sense was accurate. 0:04:30.560 --> 0:04:32.479 Yeah, exactly. Which is It goes back to what I 0:04:32.480 --> 0:04:34.960 said last night. Remember my miakup but I think it 0:04:35.000 --> 0:04:38.359 was twelve to fifty last night was look, do you 0:04:38.360 --> 0:04:40.280 want to be the old market saying do you want 0:04:40.320 --> 0:04:42.400 to be right or do you want to make money right? 0:04:43.000 --> 0:04:44.839 And I struggle with that for years because I was 0:04:45.040 --> 0:04:47.000 my background as a cell size strategist, and so you 0:04:47.040 --> 0:04:49.839 want to be right, really important as a seal size strategist, 0:04:50.040 --> 0:04:54.000 As an investor and an advisor, we want to make money, 0:04:54.279 --> 0:04:58.160 and so we're fully invested, we're long equities, we are 0:04:58.279 --> 0:05:01.560 completely out of treasury. So this asymove is not affecting 0:05:01.640 --> 0:05:03.799 us in any way, shape or form other than helping 0:05:03.880 --> 0:05:04.760 us beat our benchmark. 0:05:04.800 --> 0:05:05.960 Well, but it's tight to get back in. 0:05:06.279 --> 0:05:08.800 Yeah, you know, that's good. That's again the question to 0:05:08.839 --> 0:05:12.280 be asked, I think, and you know, it's a little 0:05:12.320 --> 0:05:15.200 tempting tactically again because as I said last night, going 0:05:15.240 --> 0:05:19.120 into this week, the long end of the treasury market 0:05:19.320 --> 0:05:22.200 is represented by ETFs, was massively oversold. 0:05:22.400 --> 0:05:22.599 Right. 0:05:22.880 --> 0:05:27.000 The RSI Relative strength Index for the seven to ten 0:05:27.080 --> 0:05:30.840 year etf I e F was fifteen. They don't really 0:05:30.839 --> 0:05:34.240 get down around fifteen very often. So tactically, I think 0:05:34.279 --> 0:05:37.240 you're probably I wouldn't be a seller if I were 0:05:37.320 --> 0:05:39.240 as an owner of treasuries right here the long end. 0:05:39.560 --> 0:05:41.760 But I think the bigger question is the deficit and 0:05:41.839 --> 0:05:45.320 clearly again the Trump policy mix. It's not just my 0:05:45.800 --> 0:05:48.840 point of view. Pretty much every independent person who looked 0:05:48.839 --> 0:05:52.080 at it or a Group, Moody's, Goldman, Peterson. 0:05:51.680 --> 0:05:52.119 Et cetera. 0:05:53.279 --> 0:05:57.000 It's bad for inflation, it's bad for the deficit, it's 0:05:57.080 --> 0:06:01.400 bad for rates, and theoretically should be bad for growth. 0:06:01.440 --> 0:06:03.520 But I think there's an idea that this is going 0:06:03.560 --> 0:06:05.279 to be a hothouse effect, which is what you guys 0:06:05.279 --> 0:06:05.839 have been talking about. 0:06:05.960 --> 0:06:07.800 So what are you looking for to decide whether or 0:06:07.839 --> 0:06:10.919 not to bite the bullet sell stocks by bonds. 0:06:13.839 --> 0:06:16.120 Part of it is to see the makeup of the 0:06:16.120 --> 0:06:19.760 houses it a trifecta. Part of it is to kind 0:06:19.800 --> 0:06:22.719 of like see what China does right, because there's going 0:06:22.800 --> 0:06:24.480 to be a response. Well, you know, we're global, we're 0:06:24.560 --> 0:06:28.200 multi asset, so we have the whole world is our oyster, 0:06:28.600 --> 0:06:30.719 and there are going to be opportunities to play. I 0:06:30.760 --> 0:06:33.640 think for now, as I said, we enjoy the bounce, 0:06:33.680 --> 0:06:37.280 We enjoy the ride, and we think about, you know, 0:06:37.360 --> 0:06:39.800 at some point, maybe lightening up. I think for the US, 0:06:39.839 --> 0:06:41.320 I mean, I think the call for US is going 0:06:41.400 --> 0:06:44.800 to be if we really do believe in the tripolar 0:06:44.800 --> 0:06:49.720 world competition between China, the US, and Europe. China has 0:06:49.839 --> 0:06:52.880 taken the high ground in the clean energy space. You know, 0:06:52.920 --> 0:06:57.320 Trump wants to and EVS et cetera. The real fight 0:06:57.360 --> 0:07:01.560 now is AI. Uh and I don't see that. This is, 0:07:01.880 --> 0:07:04.880 you know, where the two countries are separating their tech stacks. 0:07:05.200 --> 0:07:08.640 That's our whole thesis with China tech. And you know, 0:07:08.680 --> 0:07:10.600 I think the issue right now is do you want 0:07:10.640 --> 0:07:14.360 to press that bet right so you reduce the US 0:07:15.160 --> 0:07:19.400 and you go further into Asia, which has been down 0:07:19.480 --> 0:07:21.640 five weeks in a row, is cheap and under owned. 0:07:21.680 --> 0:07:23.120 I mean, those are the things you want to play. 0:07:23.240 --> 0:07:25.440 As you said, you want to end EVS. Tesla is 0:07:25.480 --> 0:07:26.920 absolutely soaring today. 0:07:27.080 --> 0:07:29.920 Well that's the must. Well do you think is the biggest. 0:07:29.600 --> 0:07:33.120 Loser in terms of your tripolar world with this composition 0:07:33.200 --> 0:07:34.600 we see in Washington. 0:07:34.840 --> 0:07:39.000 The US clearly because Europe has got to respond. They 0:07:39.040 --> 0:07:42.880 know that the whole Drogy report on competitiveness was we 0:07:42.960 --> 0:07:45.680 got to do more of the things that China and 0:07:45.720 --> 0:07:47.720 the US are doing. And to us, there's a new 0:07:47.760 --> 0:07:50.920 industrial policy mix that is being implemented around the world. 0:07:51.680 --> 0:07:54.920 To compete in AI, to compete with climate mitigation, to 0:07:55.000 --> 0:07:59.160 compete in conflict, you need public private partnership because it's 0:07:59.200 --> 0:08:02.560 too much money for the private sector alone, and the 0:08:02.600 --> 0:08:05.360 public sector doesn't have the expertise. So who can marry 0:08:05.400 --> 0:08:08.680 that best is going to be the winner. And I 0:08:08.680 --> 0:08:11.760 think you also have to think about immigration. Who can 0:08:11.880 --> 0:08:16.960 leverage the immigration to improve their growth profile is also 0:08:17.440 --> 0:08:20.160 going to be a winner. And in the policy mix 0:08:20.240 --> 0:08:25.040 that the Trump team has laid out to date, it's 0:08:25.160 --> 0:08:29.239 anti pretty much all of that. And so you know, strategically, 0:08:29.400 --> 0:08:32.120 as I said, the US de hallor is the most 0:08:32.320 --> 0:08:36.640 over owned, it's expensive, and the policy mix, in our view, 0:08:36.760 --> 0:08:37.559 is deteriorating. 0:08:37.600 --> 0:08:39.040 There's a lot to unpack there. I just want to 0:08:39.040 --> 0:08:41.880 pick out a few things. The former president now president 0:08:41.920 --> 0:08:44.120 atlect has been quite clear that he wants national champions, 0:08:44.520 --> 0:08:46.319 which is why there's the proposal on the campaign to 0:08:46.400 --> 0:08:49.480 drop the corporate tax rate to fifteen percent with conditions 0:08:49.480 --> 0:08:52.839 for domestic manufacturing. Now, you said, when asked who's the 0:08:52.880 --> 0:08:54.640 biggest loser, you said the US, and then you said, 0:08:54.679 --> 0:08:56.920 clearly it's a clearly piece of it. I'm going to 0:08:56.920 --> 0:08:58.400 push back on because it's not so clear to a 0:08:58.400 --> 0:09:00.680 lot of people watching the program right now acknowledge that. 0:09:00.960 --> 0:09:02.560 At the moment, I think you called it a hot 0:09:02.600 --> 0:09:05.600 house theory. Right now in America, that's what it feels like. 0:09:06.080 --> 0:09:08.800 It feels like, if you're investing in America, you'll do well. 0:09:09.240 --> 0:09:11.480 If you're trying to export to America you might have 0:09:11.480 --> 0:09:14.280 a problem. That house theory. What's the biggest hole in 0:09:14.280 --> 0:09:15.480 the window right now? 0:09:15.520 --> 0:09:19.480 Well, I mean, I think it's JP Morgan who laid 0:09:19.480 --> 0:09:23.120 out the case that if Trump implements the sixty percent 0:09:23.240 --> 0:09:27.360 tariff on all China imports, that will lead to almost 0:09:27.360 --> 0:09:31.559 a halving of the earnings growth that's expected for twenty 0:09:31.600 --> 0:09:34.200 twenty five. In other words, the earnings are expected to 0:09:34.200 --> 0:09:36.679 grow by about thirty five bucks next year from this 0:09:36.760 --> 0:09:40.400 year twenty five five to twenty four, the tariff effect 0:09:40.520 --> 0:09:44.720 will carve out fifteen dollars. This is JP Morgan's estimates. 0:09:44.720 --> 0:09:47.160 They got, you know, reams of economists thinking about this stuff. 0:09:47.600 --> 0:09:50.160 And so you're basically talking about taking your earnings growth 0:09:50.200 --> 0:09:52.640 and having it at a time when you know you're 0:09:52.679 --> 0:09:55.760 not going to get multiple expansion. So it's all about 0:09:55.760 --> 0:09:58.560 the earnings growth. Your three in a bull market tends 0:09:58.600 --> 0:10:01.200 to be the year of rest. We are going into 0:10:01.280 --> 0:10:06.200 year three, that's historically the case, typically single digit returns. 0:10:07.240 --> 0:10:11.240 And so I think that the idea of national champions Sure, 0:10:11.400 --> 0:10:14.240 that's why Tess was probably a Rocking Musk is going 0:10:14.320 --> 0:10:16.840 to be one of the national champions. But I think 0:10:16.920 --> 0:10:21.120 overall the whole thrust of the US policy mix has 0:10:21.160 --> 0:10:27.000 been reshoring right and reshoring with a dollar getting more expensive. 0:10:27.320 --> 0:10:29.720 Those two things don't compute. So that's a big hole 0:10:29.760 --> 0:10:30.160 in my view. 0:10:30.200 --> 0:10:32.320 I'm going to suggest those JP Morgan economists sounds too 0:10:32.360 --> 0:10:34.360 unhappy this morning. The stock is up by six point 0:10:34.360 --> 0:10:36.880 five in the pre market. Jay, It's good to see 0:10:36.880 --> 0:10:39.280 you and seriously appreciate your time night and this morning. 0:10:39.559 --> 0:10:40.160 Thanks be great. 0:10:40.240 --> 0:10:42.200 I mean, one of the things that's great about this 0:10:42.360 --> 0:10:44.480 is that you have to think in real time, right, 0:10:44.559 --> 0:10:47.600 So by coming on and engaging in this debate and dialogue, 0:10:47.679 --> 0:10:49.800 you know, it makes our process better. And so we 0:10:49.840 --> 0:10:52.960 appreciate it. And good luck to everybody, and hopefully the 0:10:52.960 --> 0:10:54.400 next time we see each other we'll all have had 0:10:54.400 --> 0:10:55.240 a little bit more rest. 0:10:55.320 --> 0:10:57.800 We'll see us soon, Thank you, Sir j Filoski. There 0:10:57.920 --> 0:11:11.320 TPW advisory attention. Turning to the FED rate decision, Torston 0:11:11.360 --> 0:11:14.319 slock of Apollo expanding a twenty five basis point rate 0:11:14.360 --> 0:11:16.400 cut add in quote. We don't expect the FED will 0:11:16.440 --> 0:11:19.640 cut interest rates in December. Torston joint US for more Torston, 0:11:19.640 --> 0:11:21.559 Good morning, running. I'm not sure if you've been to bed, 0:11:21.600 --> 0:11:23.839 so let's start with the election. Good night, good evening, 0:11:23.840 --> 0:11:26.040 wherever you want to go. I want to understand whether 0:11:26.080 --> 0:11:28.200 this has changed anything for you or just cemented what 0:11:28.240 --> 0:11:29.120 you were already thinking. 0:11:29.400 --> 0:11:32.280 Well, I think, of course what always comes with elections 0:11:32.360 --> 0:11:34.040 is and now we need to figure out what policies 0:11:34.040 --> 0:11:34.800 are actually. 0:11:34.480 --> 0:11:35.520 Going to be implemented. 0:11:35.840 --> 0:11:38.680 It's clear that yesterday, at around just before nine pm, 0:11:38.720 --> 0:11:41.120 we found out what the Trump trade really was, namely 0:11:41.160 --> 0:11:43.520 that rates were going higher, the dollar was going up, 0:11:43.640 --> 0:11:46.360 and starks were going up. So from that, of course 0:11:46.400 --> 0:11:48.720 we could derive that, well, if this continues, it does, 0:11:48.760 --> 0:11:51.520 on the one hand, mean easier financial conditions because as 0:11:51.520 --> 0:11:53.480 a stark mike going up, but it also means tighter 0:11:53.520 --> 0:11:55.920 financial conditions because long rates are going up. So now 0:11:55.960 --> 0:11:58.080 they challenge for markets is to figure out why are 0:11:58.160 --> 0:12:00.240 long rates going up. Are they going up because of 0:12:00.280 --> 0:12:03.640 the economy expected to even better, or are long rates 0:12:03.679 --> 0:12:05.199 going up because of worries. 0:12:04.880 --> 0:12:06.200 About fiscal sustainability? 0:12:06.440 --> 0:12:08.560 And this becomes a very important debate, namely, what would 0:12:08.559 --> 0:12:10.720 the term premium meaning what will happen to the part 0:12:10.760 --> 0:12:12.880 of rates that in long rates that have nothing to 0:12:12.920 --> 0:12:16.040 do with FED expectations. So therefore the conclusion is that 0:12:16.080 --> 0:12:18.000 we still need to wait and see what policies actually 0:12:18.040 --> 0:12:18.400 will come. 0:12:18.480 --> 0:12:20.880 Which one do you think it is and why? What's 0:12:20.920 --> 0:12:21.280 it sout? 0:12:21.400 --> 0:12:23.240 If I look at my Bloomberg screen and the term 0:12:23.240 --> 0:12:25.400 premium coming both from the San Francisco FED and the 0:12:25.440 --> 0:12:27.600 New York FED, they both say that the term premium 0:12:27.679 --> 0:12:30.040 in the last six seven weeks has been going up 0:12:30.080 --> 0:12:31.400 more than fifty basis points. 0:12:31.520 --> 0:12:32.480 So that's telling you that. 0:12:32.520 --> 0:12:34.760 Rates in the long end are going up for reasons 0:12:34.800 --> 0:12:37.880 that have nothing to do with FED expectations. So now 0:12:37.880 --> 0:12:40.640 it becomes therefore a little question about okay, so if 0:12:40.880 --> 0:12:42.680 rates are going up for reasons that have nothing to 0:12:42.720 --> 0:12:45.320 do with FED expectations, what could those other reasons then be? 0:12:45.720 --> 0:12:49.720 And traditionally one interpretation has been that markets do focus 0:12:49.760 --> 0:12:52.800 on fiscal sustainability, and given that both candidates have been 0:12:52.800 --> 0:12:55.920 scored by the Penwarden Budget Model and the Committee for 0:12:55.920 --> 0:12:59.200 a Fair Responsible Budget, that we will have more deficits 0:12:59.200 --> 0:13:00.160 both under Harris. 0:12:59.920 --> 0:13:00.520 And the Trump. 0:13:00.679 --> 0:13:02.959 One interpretation has been that rates have generally been going 0:13:03.040 --> 0:13:04.720 up in the last month or a little bit more 0:13:04.880 --> 0:13:07.840 because of renewed worries about the fiscal situation. 0:13:08.120 --> 0:13:09.320 That's that said. 0:13:09.320 --> 0:13:12.360 This morning, what we're seeing is small caps ripping. What 0:13:12.400 --> 0:13:15.160 we're seeing is some of the consumer cyclical stocks ripping, 0:13:15.400 --> 0:13:18.680 some of the lower rated credits actually doing very well, 0:13:18.720 --> 0:13:21.800 which absolutely flies against this idea that it's going to 0:13:21.840 --> 0:13:24.720 be tighter financial conditions that constrains the economy. Instead, it 0:13:24.840 --> 0:13:29.400 suggests something about growth reaccelerating. Are you saying that this 0:13:29.480 --> 0:13:32.040 is an inconsistent response for the market or can you 0:13:32.080 --> 0:13:33.640 take that as sort of a signal here? 0:13:33.720 --> 0:13:36.680 Well for small cap in particular, absolutely, rates higher for 0:13:36.720 --> 0:13:40.120 longer is negative because let's remember that forty percent of 0:13:40.120 --> 0:13:43.079 the Russell two thousand have no earnings on negative earnings, 0:13:43.120 --> 0:13:45.640 so that means that Russell two thousand companies are characterized 0:13:45.840 --> 0:13:48.960 by having no covers ratios, meaning very little earnings to 0:13:49.040 --> 0:13:51.320 pay for the interest payment. So that's of course negative 0:13:51.400 --> 0:13:54.080 for small caps. What's positive for small caps is likely, 0:13:54.280 --> 0:13:56.360 first of all, we may get now go more growth, 0:13:56.600 --> 0:13:59.480 but also from a regulatory perspective, if we now have 0:13:59.760 --> 0:14:02.720 that the Republicans are going to at least as the 0:14:02.760 --> 0:14:05.520 market textbook would say, create an environment that is in 0:14:05.559 --> 0:14:08.200 the market's language more business friendly. Well, that would also 0:14:08.280 --> 0:14:10.880 be a reason then why small caps should now benefiting. 0:14:10.880 --> 0:14:13.000 So there's a talk of walk going on between tier 0:14:13.000 --> 0:14:15.880 financial conditions meaning higher interest expenses and at the same 0:14:15.920 --> 0:14:18.880 time what could be characterized more tailwinds to the business environment. 0:14:18.960 --> 0:14:20.480 I'm trying to get my head around this because i 0:14:20.520 --> 0:14:22.360 want to understand how the Fed's going to grapple with 0:14:22.440 --> 0:14:24.760 this tomorrow and how FED share Jpowell is going to 0:14:24.760 --> 0:14:27.680 signal about yields going higher on the long end that 0:14:27.800 --> 0:14:31.680 extensibly should be tightening financial conditions. But aren't it if 0:14:31.720 --> 0:14:34.040 you see ism services like what we saw yesterday, But 0:14:34.080 --> 0:14:36.360 aren't if you see what we're seeing in the employment market, 0:14:36.560 --> 0:14:38.520 at what point does it become a concern? 0:14:38.640 --> 0:14:39.760 What are the red flags to you? 0:14:40.120 --> 0:14:40.560 Exactly? 0:14:40.600 --> 0:14:43.680 So that's why tomorrow is easy for the FIT. December 0:14:43.800 --> 0:14:46.320 is really difficult, because now we get to the very 0:14:46.320 --> 0:14:49.120 difficult situation that we already even before the election, had 0:14:49.160 --> 0:14:53.320 ISM services going up really significantly, including the employment component. 0:14:53.560 --> 0:14:56.720 We've all been assuming now for several quarters. Oh employment 0:14:56.800 --> 0:14:59.640 is slowing down, non farm payables will gradually weaken. But 0:14:59.680 --> 0:15:01.240 then so certainly we began to see of course in 0:15:01.320 --> 0:15:04.080 September none five payers went up. October was distorted by 0:15:04.080 --> 0:15:06.280 the weather, but if we get a payback from the 0:15:06.360 --> 0:15:08.800 weather in here the day data for November, and on 0:15:08.840 --> 0:15:11.520 top of that we're already seeing ism services for employment 0:15:11.600 --> 0:15:13.720 also going up. The challenge for the FIT is that 0:15:13.840 --> 0:15:17.320 both organically, if you will, the economy is actually still 0:15:17.440 --> 0:15:20.280 in a good spot, and now you have some questions about, well, 0:15:20.280 --> 0:15:22.080 what type of policy will come. We will have more 0:15:22.120 --> 0:15:24.480 fiscal policy, will we have there for more support to 0:15:24.520 --> 0:15:26.680 the economy. That will then become the challenge for them 0:15:26.760 --> 0:15:28.480 in terms of what they should be doing in December. 0:15:28.560 --> 0:15:31.520 Well, Torston, the highly regarded Cook Political Report, just put 0:15:31.560 --> 0:15:33.320 on notes saying the most likely outcome now is a 0:15:33.360 --> 0:15:36.600 GOP trifector. Former Speaker of the House Kevin McCarthy just 0:15:36.640 --> 0:15:38.680 texted me saying the Republicans will keep the House. This 0:15:38.720 --> 0:15:40.760 is someone that knows the House very well and also 0:15:40.840 --> 0:15:43.560 knows those California districts very well. So there is this 0:15:43.680 --> 0:15:47.200 trifecta what policy can actually get done? 0:15:47.280 --> 0:15:47.480 Well? 0:15:47.520 --> 0:15:50.240 So now we go all back and look at the 0:15:50.280 --> 0:15:53.440 Penwaton budget model, which had a quantification of what would 0:15:53.440 --> 0:15:57.640 be the implications for GDP of the potential here of 0:15:57.960 --> 0:16:00.280 red sweep, And the answer to that is that we 0:16:00.320 --> 0:16:02.680 will generally see a boost to the economy. We will 0:16:02.680 --> 0:16:05.200 probably also see some boost to inflation, which will certainly. 0:16:04.960 --> 0:16:06.000 Complicate the feeds job. 0:16:06.280 --> 0:16:08.520 So that's why it remains to be seen what of 0:16:08.560 --> 0:16:11.040 the things that the Trump has talked about he will 0:16:11.040 --> 0:16:13.560 be implementing. But if we do get a rid sweep, 0:16:13.600 --> 0:16:16.240 then certainly we should be going back and studying hard 0:16:16.520 --> 0:16:19.280 what has the quantified models been showing in terms of 0:16:19.280 --> 0:16:21.120 the implications for the economy. 0:16:21.160 --> 0:16:23.040 How does j Powell talk about this tomorrow? 0:16:24.160 --> 0:16:27.480 Well, it's a very difficult challenge for him here because obviously, 0:16:27.680 --> 0:16:29.880 if we agree that tomorrow is easy with twenty five 0:16:29.880 --> 0:16:33.200 basis points cut, then how do you start to talk 0:16:33.240 --> 0:16:36.080 about including this in your forecast. I think that one 0:16:36.080 --> 0:16:37.840 way that he might begin to talk about it is 0:16:37.840 --> 0:16:40.240 to say, well, we just don't know what exactly will happen. 0:16:40.400 --> 0:16:42.440 We don't know which of these policy will be implemented. 0:16:42.480 --> 0:16:44.320 So we have a list of things that Trump has 0:16:44.320 --> 0:16:46.640 talked about, and they have all been quantified by a 0:16:46.720 --> 0:16:48.080 number of different institutions. 0:16:48.120 --> 0:16:49.960 But what of these things will actually come. 0:16:49.800 --> 0:16:52.400 Through and in what aut of magnitude becomes a very 0:16:52.400 --> 0:16:53.160 important issue. 0:16:53.200 --> 0:16:54.960 Of course, for the FIT we can play around with 0:16:55.000 --> 0:16:57.280 this a little bit. Does anyone start auditioning to say 0:16:57.520 --> 0:16:58.440 chair and POW's job. 0:16:59.200 --> 0:17:01.040 Well, as we all know, his term will run out 0:17:01.040 --> 0:17:03.800 in May of twenty twenty six So now we're already 0:17:03.840 --> 0:17:05.560 begin to have in the second half of next year 0:17:05.560 --> 0:17:07.640 a debate about who should be the next fit Chuere 0:17:07.640 --> 0:17:09.359 And of course this will also become a very important 0:17:09.359 --> 0:17:10.560 part of these gossion in markets. 0:17:10.560 --> 0:17:12.600 We're going to have it right now. Wait doesn't that 0:17:12.600 --> 0:17:13.880 debate start right now? 0:17:13.960 --> 0:17:16.399 One hundred percent, especially because what we were talking about 0:17:16.480 --> 0:17:19.399 with Thomas Hoenig. I think we cannot emphasize enough the 0:17:19.440 --> 0:17:21.439 tools that the FED has are not just cutting rates. 0:17:21.600 --> 0:17:24.560 They also are quantitative easing. They also are bond purchases 0:17:24.560 --> 0:17:26.119 at a time where there's a real question about the 0:17:26.160 --> 0:17:28.040 long end. And I wonder how long before we start 0:17:28.080 --> 0:17:28.720 talking about. 0:17:28.480 --> 0:17:30.840 That, Tolson? Just one final question, how similar is this 0:17:30.880 --> 0:17:33.800 to twenty sixteen when we were waiting for the tax 0:17:33.840 --> 0:17:36.360 cuts to come from the Trump administration and we having 0:17:36.440 --> 0:17:39.320 similar conversations with FED officials. I remember the news conferences, 0:17:39.320 --> 0:17:41.159 I remember the FED speakers at the time. It was 0:17:41.440 --> 0:17:43.280 at what point do you start to bake this into 0:17:43.280 --> 0:17:45.640 projections and they had to wait until it became reality. 0:17:46.040 --> 0:17:48.119 Is it much worse than that? Is it the same? 0:17:48.440 --> 0:17:49.560 Do you see some parallels here? 0:17:49.600 --> 0:17:51.680 This is very different because at the time we had 0:17:51.680 --> 0:17:55.440 two policies. We had lower taxes, the TCG traump text cuts, 0:17:55.600 --> 0:17:58.119 and then we had the same time tarriffs. Now we 0:17:58.200 --> 0:18:01.040 don't have significant text cuts, at least of the same magnitude. 0:18:01.200 --> 0:18:03.120 So if the terrorists are now going to be even 0:18:03.160 --> 0:18:06.320 bigger than what we had in twenty seventeen, then you 0:18:06.320 --> 0:18:08.040 can begin to wonder, well, if we don't have the 0:18:08.119 --> 0:18:11.680 offsetting effect that terriffs will generally speaking lead to higher 0:18:11.760 --> 0:18:13.320 prices and generally. 0:18:12.920 --> 0:18:14.720 Speaking the risk of lower sales. 0:18:15.000 --> 0:18:17.359 There was an offsetting positive effect to the lower sales 0:18:17.400 --> 0:18:19.480 part by the tax cuts, and we don't have that 0:18:19.520 --> 0:18:22.399 magnitude of tax cut. Potentially, there are some suggestions that 0:18:22.440 --> 0:18:24.960 he has talked about lowering corporate tax rates to fifteen 0:18:24.960 --> 0:18:28.159