WEBVTT - Bloomberg Surveillance: Jobs & Election (Podcast) 0:00:02.440 --> 0:00:07.520 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:16.360 This is the Bloomberg Surveillance Podcast. Catch us live weekdays 0:00:16.400 --> 0:00:19.880 at seven am Eastern on applecar Player, Android Auto with 0:00:19.920 --> 0:00:23.360 the Bloomberg Business App. Listen on demand wherever you get 0:00:23.360 --> 0:00:26.239 your podcasts, or watch us live on YouTube. 0:00:26.720 --> 0:00:29.720 We now turn to Claudia sam without question my Economists 0:00:29.760 --> 0:00:32.839 of the Year for two twenty five or impact her 0:00:33.680 --> 0:00:37.879 informed debate off the Simmer role. Of course, all of it, 0:00:38.000 --> 0:00:40.959 you know, really focused on Jackson Hole, and she had 0:00:40.960 --> 0:00:43.400 a dinner at Jackson Hole, folks. I couldn't go to 0:00:43.440 --> 0:00:47.400 it because a golf stream was leaving Dodge. But Claudia 0:00:47.479 --> 0:00:50.640 Sim with huge influence here in twenty twenty four, so 0:00:50.640 --> 0:00:52.320 I got to go just to the ratios and I 0:00:52.320 --> 0:00:55.400 look at the unemployment rate four point one percent, the 0:00:55.520 --> 0:01:02.000 quiescence there. The revisions are a little more less enthusiastic 0:01:02.080 --> 0:01:05.479 than maybe what we saw twenty nine days ago. I'm 0:01:05.520 --> 0:01:08.120 just looking at you know, there's eight nine six statistics here, 0:01:08.200 --> 0:01:13.360 manufacturing payrolls negative six thousand, and the revision features up 0:01:13.400 --> 0:01:15.560 twenty three, now up twenty there's a little bit of 0:01:15.560 --> 0:01:19.240 a pullback, and the equity MARKETSIVIX twenty two point zero eight. 0:01:19.520 --> 0:01:22.280 Paul Sweeney always going to the two year yeo Apolic 0:01:22.360 --> 0:01:23.319 comes in with a vengeance. 0:01:23.360 --> 0:01:25.080 Here, that's the point one two percent. 0:01:25.200 --> 0:01:26.560 Yeah, four point one two percent. 0:01:26.640 --> 0:01:28.720 So again the revision's time just from the last month, 0:01:29.480 --> 0:01:31.960 changing non farm payrolls, we were at two fifty four 0:01:32.080 --> 0:01:33.839 now revised down to two twenty three, so a little 0:01:33.840 --> 0:01:37.080 bit weaker. But again the headline today twelve thousand changing 0:01:37.120 --> 0:01:39.640 non farm payrolls. Consensus was one hundred thousand. But again 0:01:39.680 --> 0:01:42.440 the economists have been warning us that, you know, we 0:01:42.560 --> 0:01:44.840 had the hurricanes, we've got some various strikes, and that's 0:01:44.880 --> 0:01:46.520 going to make this number, you know, a little bit tough. 0:01:46.680 --> 0:01:50.120 This Yeah, and again the net revision is a negative 0:01:50.280 --> 0:01:51.200 one twelve. 0:01:52.000 --> 0:01:53.000 So it's easy math. 0:01:53.080 --> 0:01:57.040 I take twelve thousand positive minus one twelve is a 0:01:57.080 --> 0:02:00.240 negative one hundred thousand. Claudius sim is going, and why 0:02:00.280 --> 0:02:03.880 am I dealing with these financial media tools, she joins 0:02:03.960 --> 0:02:06.960 us right now, I mean the value here, Claudie, is 0:02:07.000 --> 0:02:11.160 going to be am I correct massive revisions thirty sixty 0:02:11.280 --> 0:02:15.160 even ninety days out. 0:02:14.600 --> 0:02:17.920 When not even necessarily revisions, we could just see next 0:02:17.960 --> 0:02:21.760 month's number be a big, strong positive, right, kind of unwinded. 0:02:22.080 --> 0:02:24.720 They're really we had two major hurricanes and we had 0:02:24.760 --> 0:02:27.240 a strike happening in the period that we're trying to 0:02:27.280 --> 0:02:30.840 measure jobs. It probably really was a hit to the jobs. Now, 0:02:30.919 --> 0:02:33.520 I will say I feel pre vindicated. My substack piece 0:02:33.560 --> 0:02:36.000 this week that was the preview for this was talking 0:02:36.000 --> 0:02:39.480 about this could be our negative payroll print, and it's 0:02:39.760 --> 0:02:41.480 it's not negative. So I was wrong on that one, 0:02:41.520 --> 0:02:43.240 but it is this was a low print. And the 0:02:43.360 --> 0:02:46.320 argument there is even if we had even if like 0:02:46.400 --> 0:02:49.360 the reality is we're kind of moving along at trend growth, 0:02:49.400 --> 0:02:51.480 which is a little under two hundred thousand, like that 0:02:51.639 --> 0:02:54.720 was the pace before the pandemic. Well, you get one 0:02:54.800 --> 0:02:57.799 hundred thousand knocked off because of hurricanes and the strike, 0:02:57.840 --> 0:03:00.960 which was Governor Chris Waller's as sestimate of what that 0:03:01.000 --> 0:03:03.800 effect would be. And then you take into account that 0:03:03.800 --> 0:03:08.680 these are survey estimates, they are imprecise. The BLS tells 0:03:08.760 --> 0:03:12.880 us that always the confidence interval around an estimate is 0:03:12.960 --> 0:03:17.000 over one hundred thousand jobs. So we really that number, 0:03:17.040 --> 0:03:20.280 that twelve thousand we got today that could be entirely 0:03:20.360 --> 0:03:23.040 consistent with the labor market that's growing at Trent and frankly, 0:03:23.080 --> 0:03:26.000 the un employment rate staying low. That really goes in 0:03:26.040 --> 0:03:26.480 that court. 0:03:26.760 --> 0:03:27.400 Let me get out that. 0:03:27.480 --> 0:03:28.720 This was more disruptions. 0:03:28.840 --> 0:03:29.600 Let me get out front. 0:03:29.600 --> 0:03:31.840 It's November one, so it's not tacky. If I was 0:03:31.880 --> 0:03:34.639 saying she was our economist of the Year in September, 0:03:34.639 --> 0:03:35.520 that would be tacky. 0:03:35.560 --> 0:03:37.120 But come on November one. 0:03:37.280 --> 0:03:40.680 Neil Dutta last year killed it with his optimism on 0:03:40.840 --> 0:03:45.160 three percentage GDP. Claudius, I'm killed it this year, charging 0:03:45.200 --> 0:03:48.320 the debate here on our labor economy. She's a New 0:03:48.320 --> 0:03:51.880 Century Advisors, Claudius, I'm SIA next month joining us right 0:03:51.920 --> 0:03:55.280 now in studio Ellen Zenner, she runs an Apple iPhone 0:03:55.360 --> 0:03:57.840 Like no one do you need an iPhone sixteen to 0:03:57.880 --> 0:03:59.080 go through the data faster? 0:03:59.240 --> 0:04:00.880 Now normally going this. 0:04:01.120 --> 0:04:02.000 Is my work phone. 0:04:02.200 --> 0:04:05.360 I am a Android Samsummer. 0:04:05.480 --> 0:04:07.000 Yeah, I'm that age guys. 0:04:07.160 --> 0:04:10.480 Yeah, as I'm forced to use an iPhone and I 0:04:10.480 --> 0:04:12.280 only know how to check email slow motion. 0:04:12.400 --> 0:04:15.880 Lisa Shllett has the iPhone sixteen pro Ellen Center with 0:04:16.000 --> 0:04:19.440 us now, of course, with Morgan Stanley's Global Investment Office. 0:04:19.560 --> 0:04:24.680 You linked consumption into labor like nobody I know. We 0:04:24.760 --> 0:04:27.960 had a buoyant consumption number are we taking it all 0:04:28.000 --> 0:04:31.240 from savings and is it a fake labor economy? 0:04:31.600 --> 0:04:32.520 No, not at all. 0:04:32.880 --> 0:04:35.040 I mean, look, new data that we got some weeks 0:04:35.040 --> 0:04:38.719 ago showed that it turns out we've spent a lot 0:04:38.760 --> 0:04:42.640 more than we thought, and savings was still higher because 0:04:42.640 --> 0:04:45.159 income numbers are just been revised up that much. 0:04:45.760 --> 0:04:48.000 So we still got income that's really robust. 0:04:48.640 --> 0:04:50.920 And I agree with Claudia that there is still a 0:04:51.000 --> 0:04:53.279 lot of disruption in these numbers, and this probably is 0:04:53.360 --> 0:04:56.600 consistent with a labor market growing at trend, and so 0:04:56.640 --> 0:05:00.800 we're still producing enough income to support consumption. I mean, 0:05:00.880 --> 0:05:04.440 look at consumption of lower income consumers. They are really 0:05:04.480 --> 0:05:07.240 going to love these lower gas prices that frees up 0:05:07.240 --> 0:05:11.080 a lot of buying power as well. So still yeah, yeah, 0:05:11.120 --> 0:05:16.520 and wage growth is still healthy while inflation's coming down. 0:05:16.600 --> 0:05:18.600 So you got real wages that are positive, You've got 0:05:18.600 --> 0:05:21.560 gas prices that are lower, and so you're getting some 0:05:21.600 --> 0:05:23.920 support coming back for lower income households as well. 0:05:24.760 --> 0:05:27.080 So you mentioned the average hourly earnings on a year 0:05:27.120 --> 0:05:31.320 of a year basis four percent. That's pretty solid, right, 0:05:31.360 --> 0:05:34.160 I mean, give us a sense of historically where that 0:05:34.240 --> 0:05:35.839 number typically comes in. 0:05:36.200 --> 0:05:41.520 Well, that number, so look average hourly earnings in this report. 0:05:41.760 --> 0:05:45.240 It's a tiny sample and it can be distorted from 0:05:45.279 --> 0:05:48.000 month to month depending on what hours worked do so 0:05:48.200 --> 0:05:52.000 it's a calculation thing. And so four percent average dollity 0:05:52.040 --> 0:05:54.200 earnings on you over your basis, you would say, gosh, 0:05:54.279 --> 0:05:56.880 that's a little bit higher than what would be consistent 0:05:56.920 --> 0:06:00.120 with the fed's two percent goal. But you look, I'll 0:06:00.120 --> 0:06:03.159 get the Employment Cost Index, which came out this week. 0:06:03.600 --> 0:06:05.760 That was Yellen's favorite measure. It continues to be the 0:06:05.760 --> 0:06:09.760 Fed's favorite measures moment. It's a much more comprehensive measure 0:06:10.400 --> 0:06:14.240 of wages and labor costs. And that is absolutely right 0:06:14.240 --> 0:06:17.320 now consistent with the fed's two percentle which means that 0:06:17.400 --> 0:06:18.039 yes it is. 0:06:18.120 --> 0:06:20.280 It is healthy. So you're right, it's healthy, but it's 0:06:20.320 --> 0:06:20.680 not too. 0:06:21.160 --> 0:06:23.640 Amazing, not too fast. I'm bringing it up while you're talking. 0:06:24.279 --> 0:06:27.760 ECI from five percent five percent into three point nine 0:06:27.800 --> 0:06:31.360 percent year of year nowhere near back to two point 0:06:32.040 --> 0:06:36.279 seventy five percent, sort of pre pandemic as well. You know, 0:06:36.279 --> 0:06:38.240 we should talk to her about hourly earnings. In the 0:06:38.240 --> 0:06:40.200 effect of the Yankees defense, I. 0:06:40.160 --> 0:06:42.520 Mean, and I want to talk about the Yankees, I can't. 0:06:42.600 --> 0:06:44.960 I turned it off at the eighth inning on Monday. 0:06:45.680 --> 0:06:47.800 I turned it off in that last game. 0:06:48.600 --> 0:06:50.080 I was just I was disgusted. 0:06:50.240 --> 0:06:53.400 I choose a third row with Ellen. 0:06:53.440 --> 0:06:55.000 What do you think this Federal Reserve should do with 0:06:55.120 --> 0:06:56.000 data like this? 0:06:56.520 --> 0:06:58.360 Here to any other data we've seen over the last 0:06:58.480 --> 0:07:01.960 several weeks as a get together, next week cut cut? 0:07:02.240 --> 0:07:02.640 Yeah? 0:07:02.680 --> 0:07:03.159 How much? 0:07:03.279 --> 0:07:04.400 Yeah? Twenty five? 0:07:04.480 --> 0:07:09.400 Okay, Yeah, the the the economy's fine. And every time 0:07:09.440 --> 0:07:12.520 we get great data, the market wants to pressure and say, well, 0:07:12.520 --> 0:07:14.760 the Fed doesn't need to do more here, but what 0:07:14.920 --> 0:07:17.880 is cheripalganas stress next week? Yeah, the economy is fine, 0:07:17.880 --> 0:07:20.520 the economy is great, so let's keep it there. Let's 0:07:20.600 --> 0:07:23.120 keep it there. And look, we've got ample room to cut. 0:07:23.160 --> 0:07:24.680 We don't know where neutral is, so we're going to 0:07:24.760 --> 0:07:27.679 baby step it there. I mean, they're in a great position, 0:07:27.760 --> 0:07:30.880 having started the cutting cycle before the election, so they're 0:07:30.880 --> 0:07:34.160 in a great position. If there's some something that impacts 0:07:34.160 --> 0:07:36.480 the outlook for the economy, you can speed up rate 0:07:36.520 --> 0:07:39.560 cuts easily, you can pull rate cuts forward. I'm more 0:07:39.560 --> 0:07:42.840 in the camp of the risk of more than less 0:07:43.200 --> 0:07:43.840 from the Fed. 0:07:44.360 --> 0:07:46.840 We are so thrilled, folks, So this job stay covers. 0:07:46.840 --> 0:07:49.200 You have Claudia sim with wis constant hundred before with 0:07:49.320 --> 0:07:52.080 Eiu and to have doctor Sam with us, and then 0:07:52.160 --> 0:07:55.200 Ellen Zendner Lizaye Saunders is on deck looking at the 0:07:55.200 --> 0:08:00.400 equity market response, particularly out beyond the election, and then 0:08:00.480 --> 0:08:04.240 Ira Jersey will uh show up with us? We don't 0:08:04.280 --> 0:08:06.000 care at all what Irah thinks all we want to 0:08:06.000 --> 0:08:07.240 do is talk about Astonville. 0:08:07.640 --> 0:08:08.360 I thought it was all you. 0:08:08.280 --> 0:08:09.760 Want to do is have a man on the show, 0:08:09.800 --> 0:08:12.360 because it's an all woman This is the all woman warning. 0:08:12.640 --> 0:08:14.640 You know, I don't think there's any you know, we 0:08:14.680 --> 0:08:15.800 didn't do that diversity. 0:08:16.760 --> 0:08:18.800 It's about diversity. 0:08:19.280 --> 0:08:21.520 We it just worked out that way. 0:08:22.440 --> 0:08:24.080 How I would it just so happens all the women 0:08:24.120 --> 0:08:26.000 are the experts. It just worked out that way. 0:08:27.480 --> 0:08:28.240 As tough as. 0:08:28.200 --> 0:08:31.600 Nails, Ellen, How about the consumer here? I mean the 0:08:31.600 --> 0:08:35.560 consumers employed, the consumers getting wage gains, inflation's coming down. 0:08:36.120 --> 0:08:37.880 How do you feel about the US consumer these days? 0:08:38.000 --> 0:08:41.559 I think the used consumers is it's I would say great, 0:08:41.760 --> 0:08:43.400 except that we still have a lot of our eggs 0:08:43.400 --> 0:08:46.200 in one basket. The wealthy consumer is still driving the 0:08:46.200 --> 0:08:50.360 majority of spending. But but like I said, I'm encouraged 0:08:51.440 --> 0:08:55.600 at some of the developments for lower income groups that 0:08:55.640 --> 0:08:59.000 we're continuing to create jobs, wages are growing. 0:08:59.520 --> 0:09:01.200 This is import We're going to stop here, gas price. 0:09:01.200 --> 0:09:02.040 This is really. 0:09:01.800 --> 0:09:04.920 Important, folks. We're going to take the Morgan Stanley continuum 0:09:04.960 --> 0:09:07.560 me here right now, let's take it into death siles 0:09:07.600 --> 0:09:12.320 tenth of economy. The pandemic stereotype is the rich did well, 0:09:12.440 --> 0:09:15.439 no surprise there, and the lower one and two death 0:09:15.480 --> 0:09:18.080 siles were benefited because they were taking care of the rich. 0:09:18.520 --> 0:09:21.920 What does that death sile construction look like into Q 0:09:22.120 --> 0:09:23.679 one twenty twenty. 0:09:23.360 --> 0:09:26.280 Five, so well, the hope is that that the spending 0:09:26.360 --> 0:09:31.840 is diffused more across those death siles. So before COVID, 0:09:32.000 --> 0:09:35.320 the top the top quintiles, so the top two death 0:09:35.320 --> 0:09:39.199 stiles represented about forty percent of consumer spending. That bumped 0:09:39.280 --> 0:09:42.000 up to forty five percent of consumer spending. And it's 0:09:42.040 --> 0:09:42.760 stayed there. 0:09:43.280 --> 0:09:44.079 It's still there. 0:09:44.160 --> 0:09:44.880 It's still there. 0:09:44.960 --> 0:09:47.840 The top two quintiles are more than sixty percent of 0:09:47.880 --> 0:09:50.560 consumer spending. And so what you want to see is 0:09:50.640 --> 0:09:54.680 we start to have some share come back to lower 0:09:54.720 --> 0:09:58.320 income households because they're contributing more broadly to consumers. 0:09:58.320 --> 0:10:00.960 But you haven't seen this yet. Into the election. 0:10:01.520 --> 0:10:04.400 Haven't seen it yet, right, and that's important right into 0:10:04.400 --> 0:10:07.520 the election. Yes, we haven't seen any to interpolate. 0:10:06.880 --> 0:10:10.880 Those death sile analysis to say that the haves have 0:10:11.000 --> 0:10:14.240 a GDP of four or five six percent real GDP 0:10:14.720 --> 0:10:16.439 and the have nots are near recession. 0:10:17.320 --> 0:10:19.240 Well, the have nots have been in recession for a 0:10:19.280 --> 0:10:21.920 couple of years. I would say that they're emerging from that. 0:10:22.640 --> 0:10:29.439 What delayed them moving into recession was that incredible savings 0:10:29.480 --> 0:10:32.680 cushion that they received when we put in all the 0:10:32.679 --> 0:10:35.960 stimulus during COVID. Once they spent through that savings, but 0:10:36.040 --> 0:10:40.040 still we're dealing with extraordinarily high rent inflation, food inflation, 0:10:41.120 --> 0:10:46.520 energy prices inflation, you know that, and wage growth that 0:10:46.679 --> 0:10:50.160 was not outpacing inflation. That's when they were in recession, 0:10:50.480 --> 0:10:53.720 and you could follow companies that cater to them and 0:10:53.800 --> 0:10:56.520 the troubles that they were having. You could see it, 0:10:56.559 --> 0:10:59.280 and the products consumers were buying. It was all being 0:10:59.360 --> 0:11:01.679 supported by wealthy. We don't want to have our eggs 0:11:01.760 --> 0:11:06.320 in one basket, right. We want consumer spending to diffuse more. 0:11:06.120 --> 0:11:07.400 Broadly across households. 0:11:07.400 --> 0:11:11.080 We want all households to participate in the expansion, and 0:11:11.160 --> 0:11:14.520 so we do have some positive developments here. Wages are 0:11:14.559 --> 0:11:17.840 growing on an inflation adjusted basis, the gas prices to 0:11:17.920 --> 0:11:21.160 all of that, right, they've still got very high cost 0:11:21.200 --> 0:11:25.319 of living just in terms of housing costs. As the 0:11:25.360 --> 0:11:28.240 FED cuts rates, you know that the market prices in 0:11:28.320 --> 0:11:32.280 the whole path of Fed cuts immediately. Fed even hints 0:11:32.320 --> 0:11:36.000 at doing something. What doesn't move yet until they actually 0:11:36.040 --> 0:11:38.800 cut rates. Are the rates say that you pay on 0:11:38.880 --> 0:11:41.920 your credit card debt, and it is younger and lower 0:11:41.920 --> 0:11:44.760 income households that revolve a lot of that credit card debt. 0:11:44.960 --> 0:11:47.440 And so as the Fed continues to cut rates, that's 0:11:47.480 --> 0:11:49.920 going to take some pressure off of them as well. 0:11:50.559 --> 0:11:53.800 We're talking Pennsylvania swing steak Gurz out there trying every 0:11:53.840 --> 0:11:59.280 beer today. Have you ever brown trout fished in Pennsylvania? 0:11:59.440 --> 0:12:02.560 Like real, it's like nineteenth century trout fishing. 0:12:02.559 --> 0:12:03.400 Have you ever done that? 0:12:03.920 --> 0:12:06.560 Yeah, that's that's where we go for small stream fishing. 0:12:06.679 --> 0:12:09.599 Small stream and a half foot rod is perfect, a 0:12:09.679 --> 0:12:11.320 flick of the wrist, It's very easy. 0:12:11.360 --> 0:12:12.160 Small streams. 0:12:12.480 --> 0:12:15.200 The brown trouts are fierce there. 0:12:15.880 --> 0:12:16.160 Really. 0:12:16.400 --> 0:12:19.640 Yeah, you're going after out west. 0:12:19.800 --> 0:12:25.480 Yeah, compared to ten inch twelve inch little brown trout. 0:12:25.600 --> 0:12:29.160 Fierce they're fears, fierce fighters. 0:12:29.000 --> 0:12:32.480 Catching release or like we cook in thechen release. You're 0:12:32.520 --> 0:12:34.160 not cooking a cot release. 0:12:34.280 --> 0:12:36.880 You're not cooking up three of them, you know, surf Elzabone. 0:12:36.880 --> 0:12:40.560 Saunders would be charged. She'd have the grill going, yeah, out. 0:12:40.440 --> 0:12:43.199 There doing hey, maybe maybe a brook trout here? 0:12:43.240 --> 0:12:45.800 And where's your secret stream in Pennsylvania? Don't give this 0:12:45.960 --> 0:12:48.640 the name? But what which beer is it? 0:12:48.640 --> 0:12:49.360 It makes no sense. 0:12:49.440 --> 0:12:49.680 Tom. 0:12:49.720 --> 0:12:52.079 You said the word secret. What's your secret stream? And 0:12:52.120 --> 0:12:53.720 it's no longer a secret anymore? 0:12:54.559 --> 0:12:57.840 See Ellen Saner, thank you so much for jobs today. 0:12:57.920 --> 0:13:01.760 Let's move on to someone constructive. Okay, Alen Xander with Burgocilli. 0:13:01.960 --> 0:13:04.640 This is great, Claudius, I'm Ellen Zetner here with your 0:13:04.720 --> 0:13:08.719 job market inequities improve a perfect security into Liz and 0:13:09.000 --> 0:13:10.960 Saunder wouldn't know a brown trout if it hit her 0:13:11.000 --> 0:13:14.439 over the head, Liz Anne, I look at futures up thirty, 0:13:14.880 --> 0:13:18.800 I look at the mag seven hysteria. Liz Anne, I'm 0:13:18.840 --> 0:13:22.079 begging get us into Q one twenty twenty five. 0:13:22.480 --> 0:13:24.480 What is our commitment to equities? 0:13:26.240 --> 0:13:28.960 Well, I do worry a little bit about some some 0:13:29.120 --> 0:13:32.000 froth in the market. Although you've had some weakness that 0:13:32.080 --> 0:13:34.560 might ease a little bit of that even outside of 0:13:34.600 --> 0:13:38.600 traditional investor sentiment measures. You know, the consumer competence report 0:13:38.640 --> 0:13:41.120 that came out, which was better in terms of headline confidence, 0:13:41.160 --> 0:13:44.160 also had a record high percentage of respondent saying they 0:13:44.160 --> 0:13:47.600 thought stock prices would be higher. So you see another 0:13:47.720 --> 0:13:50.800 behavioral data. So as I think between now and the 0:13:50.840 --> 0:13:54.360 first part of twenty twenty five, especially now with twenty 0:13:54.360 --> 0:13:59.200 five estimates coming down for earnings, my biggest concern is 0:13:59.280 --> 0:14:02.920 just that back of a little bit of frauthy sentiment 0:14:02.960 --> 0:14:05.199 all l sequel. I think that means if you get 0:14:05.200 --> 0:14:08.640 any kind of negative catalyst, I don't know that today's 0:14:08.679 --> 0:14:11.000 weaker jobs report would be that because of what in 0:14:11.120 --> 0:14:15.160 first for bed policy. That to me is the background 0:14:15.240 --> 0:14:16.600 risk heatting into twenty twenty five. 0:14:17.240 --> 0:14:19.920 To my essay of the year two years ago, which 0:14:20.000 --> 0:14:23.560 was a brilliant effort by Lawrence MacDonald on the wall 0:14:23.720 --> 0:14:26.880 of money that was out there in twenty twenty two, 0:14:27.360 --> 0:14:30.040 liz Ane Saunders, is there a wall of money still 0:14:30.080 --> 0:14:31.920 out there trying to find a warm place. 0:14:32.840 --> 0:14:35.680 Well, A lot of people point to the six trillion 0:14:35.720 --> 0:14:39.840 plus in my market funds as some wall that could 0:14:39.840 --> 0:14:42.280 come into the equity market. I'm not sure I agree 0:14:42.320 --> 0:14:44.760 with that assessment. I think that a lot of that 0:14:44.840 --> 0:14:47.520 money is pretty sticky. A lot of that money came 0:14:47.520 --> 0:14:51.160 in because of higher yields and out of riskier areas, 0:14:51.200 --> 0:14:53.840 whether it's on the fixed income side of things or 0:14:53.880 --> 0:14:55.800 in the equity side of things. And actually, if you 0:14:55.800 --> 0:15:00.920 look historically at the early part of cutting cycles, money 0:15:00.960 --> 0:15:04.320 actually continues to flow into money market funds, not in 0:15:04.360 --> 0:15:08.560 the opposite direction. So I don't view that as some 0:15:08.840 --> 0:15:11.920 imminent wall of money that could find its way into equities. 0:15:11.960 --> 0:15:14.360 I think that's probably a good chunk of that is 0:15:14.400 --> 0:15:15.080 pretty sticky. 0:15:16.440 --> 0:15:19.360 Luzanne, what are you seeing from earnings so far this quarter? 0:15:19.360 --> 0:15:21.600 We had started off strong with the big banks, We've 0:15:21.640 --> 0:15:24.840 had a bunch of tech earnings. What are you seeing 0:15:24.840 --> 0:15:26.160 and what do you think the market needs to see 0:15:26.160 --> 0:15:26.720 from earnings? 0:15:27.320 --> 0:15:29.640 Well, this is obviously a big week with five of 0:15:29.760 --> 0:15:33.560 Magnificent seven reporting, and in terms of Meta and Microsoft, 0:15:33.880 --> 0:15:36.720 at least a quick glance, they didn't look bad. But 0:15:37.240 --> 0:15:39.520 at the expense side of things, I think it's the 0:15:39.560 --> 0:15:43.280 monetization story that really kicked in in the second quarter. 0:15:43.600 --> 0:15:46.640 I think it's continued in the third quarter. Reporting season, 0:15:46.720 --> 0:15:51.360 which is the vast amount of expenses associated with AI, 0:15:51.560 --> 0:15:55.280 not just among the director indirect AI players, but across 0:15:55.280 --> 0:15:59.480 the spectrum of industries and sectors, and maybe the time 0:15:59.560 --> 0:16:04.200 gap between those investments and the monetization thereof, either from 0:16:04.240 --> 0:16:07.720 a revenue perspective or a productivity perspective. So I think 0:16:07.760 --> 0:16:10.360 we're continuing that theme and it helps to explain some 0:16:10.440 --> 0:16:12.120 of the weakness like yesterday and tech. 0:16:12.400 --> 0:16:15.080 We're going to go CEFA inside baseball. Right now, Lizzie 0:16:15.120 --> 0:16:21.200 and I am apoplectic over this simplistic income statement analysis 0:16:21.320 --> 0:16:22.720 of the financial media. 0:16:23.320 --> 0:16:24.479 You got to pull. 0:16:24.280 --> 0:16:29.440 In profit, distribution of profit, use of cash is the buzzword, 0:16:29.840 --> 0:16:34.320 and even into improved balance sheet dynamics. Are we slaves 0:16:34.400 --> 0:16:38.000 to a simple income statement analysis or do you see 0:16:38.000 --> 0:16:40.640 more out there when you look at free cash flow, 0:16:40.720 --> 0:16:43.160 free cash flow growth and what it means to a 0:16:43.240 --> 0:16:44.440 dominant balance sheet. 0:16:45.400 --> 0:16:47.920 I do see more of that out there, especially as 0:16:47.960 --> 0:16:50.800 you move away from the dominant cap weighted indexes like 0:16:50.840 --> 0:16:52.640 the S and P and the NASDAC and you go 0:16:52.760 --> 0:16:56.040 into some of the smaller cap indexes within say the 0:16:56.120 --> 0:16:58.440 Rustle two thousand. I think that's where you do see 0:16:58.440 --> 0:17:02.440 that factor differentiation that is more acute, whether it's high 0:17:02.480 --> 0:17:05.919 interest coverage versus low interest coverage, or zombie companies versus 0:17:05.960 --> 0:17:09.960 non zombie companies, profitability type factors to your point, Tom, 0:17:10.800 --> 0:17:13.760 high return on equity, strong free cash flow, And as 0:17:13.800 --> 0:17:15.719 you know because we've talked about it a ton on 0:17:15.720 --> 0:17:20.600 this program, is I think that factor orientation, maybe not 0:17:20.800 --> 0:17:24.080 instead of a sector orientation, but as an overlay to 0:17:24.240 --> 0:17:27.320 that sector orientation, I think has been crucial and I 0:17:27.359 --> 0:17:30.920 think will continue to be crucial. There's much more consistency 0:17:31.520 --> 0:17:34.359 in performance at the factor level than there is at 0:17:34.400 --> 0:17:35.160 the sector level. 0:17:35.240 --> 0:17:38.200 Well, you just heard their folks as gospel, liz Ane Saunders. 0:17:38.200 --> 0:17:41.879 What are the factor constructive tone of MAG seven? 0:17:42.119 --> 0:17:44.800 Which factors benefit meg seven? 0:17:45.680 --> 0:17:49.919 Well, they are the most part very strong cash generation companies, 0:17:51.160 --> 0:17:55.520 and not just the MAG seven but the megacap tech 0:17:55.640 --> 0:17:59.119 tech related kind of names. They really took advantage of 0:17:59.240 --> 0:18:03.480 the rate backdrop that preceded the hiking cycle. And in 0:18:03.560 --> 0:18:06.879 most cases, many of these megacap companies are earning more 0:18:06.920 --> 0:18:10.120 interest on their cash and they're paying interest on that. 0:18:10.119 --> 0:18:13.280 They're not at the mercy of where we sit in 0:18:13.320 --> 0:18:15.880 this cycle. The one thing I want to say though 0:18:15.920 --> 0:18:19.080 about the mag seven is the moniker was created when 0:18:19.119 --> 0:18:22.040 those were the seven largest stocks in the S and 0:18:22.040 --> 0:18:24.920 P five hundred. Last year, they were not the seven 0:18:25.000 --> 0:18:28.480 best performing stocks, but they were all very strong performers. 0:18:28.720 --> 0:18:30.960 That's not the case this year. They're not even the 0:18:31.000 --> 0:18:33.879 seven largest stocks anymore. Tessel's not even in the top 0:18:33.920 --> 0:18:36.879 ten anymore. You have to go down to ranking number 0:18:36.880 --> 0:18:38.760 three hundred and fifty three within the S and P 0:18:38.880 --> 0:18:42.800 five hundred to capture all seven of those names. If 0:18:42.800 --> 0:18:45.000 you look at the top ten best performers in the SMP, 0:18:45.320 --> 0:18:47.879 only one of them is in the Magnificent seven, and 0:18:47.880 --> 0:18:50.240 it's not even the best performer. The best performer is 0:18:50.280 --> 0:18:53.480 the utility. So I think we have to change our mindset. 0:18:53.520 --> 0:18:57.280 We get wrapped into these monikers in these groupings, even 0:18:57.320 --> 0:19:00.359 if they fail to represent what they did when the 0:19:00.400 --> 0:19:04.679 idea was first created. Berkshire Hathaway is now number seven. 0:19:04.800 --> 0:19:07.520 I haven't heard anybody suggesting that gets put into the 0:19:07.560 --> 0:19:12.240 MAGS seven. So a broader thinking around market construction. 0:19:13.200 --> 0:19:15.600 Lizen gotta leave it there. We look forward to getting 0:19:15.640 --> 0:19:17.280 you on again soon. Lizzie Saunder. 0:19:17.400 --> 0:19:20.440 Of course at Connick with Charles Schwab. 0:19:25.840 --> 0:19:30.120 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:19:30.200 --> 0:19:33.720 starting at seven am Eastern on Applecarplay and Android Auto 0:19:33.800 --> 0:19:36.680 with the Bloomberg Business app. You can also listen live 0:19:36.760 --> 0:19:39.960 on Amazon Alexa from our flagship New York station Just 0:19:40.040 --> 0:19:43.480 Say Alexa playing Bloomberg eleven thirty Jessica Taylor. 0:19:43.560 --> 0:19:48.240 She is exquisite on Senate Dynamics and she publishes this morning. 0:19:48.560 --> 0:19:50.359 Jessica, thank you so much for joining us. 0:19:50.400 --> 0:19:53.359 Love the cook political report telling people to shut up 0:19:53.359 --> 0:19:56.840 and subscribe. At the bottom of your note, you've got 0:19:56.840 --> 0:20:00.800 a bar chart of money made, money earned, money coming 0:20:00.840 --> 0:20:05.560 in versus vote. What's a correlation of money coming in 0:20:05.680 --> 0:20:10.280 Nebraska Osborne and Fisher? What's a correlation of money coming 0:20:10.320 --> 0:20:12.320 in to electoral outcome? 0:20:13.359 --> 0:20:13.479 Well? 0:20:13.520 --> 0:20:15.520 I think that when you have a state like Nebraska, 0:20:15.560 --> 0:20:19.159 this very Republican, and you have Dan Osborne, who's an independent, 0:20:19.240 --> 0:20:21.520 trying to stress that he's not a Democrat, even though 0:20:21.520 --> 0:20:23.400