WEBVTT - Fed Injects Cash for Third Day as Calm Returns 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penel Podcast. I'm Paul swing you 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.560 at Bloomberg dot com. We are seeing the repo rate 0:00:23.600 --> 0:00:25.200 that got a lot of people all bent out of 0:00:25.200 --> 0:00:27.560 shape a couple of days ago come down further as 0:00:27.600 --> 0:00:30.120 a New York Fed engages in a third day of 0:00:30.160 --> 0:00:34.080 its repo facility, trying to inject calm into this basic 0:00:34.200 --> 0:00:37.120 plumbing of the financial system. Here joining us, Tom Kennedy, 0:00:37.280 --> 0:00:39.800 Global head of Macro and fixed Income Strategy at JPMorgan 0:00:39.840 --> 0:00:43.360 Private Bank. Here in our Bloomberg and Active Broker Studios. Tom, 0:00:43.400 --> 0:00:45.960 I'm wondering if we could start talking about the takeaways 0:00:46.000 --> 0:00:48.800 from this whole episode. Does this mean that the Federal 0:00:48.840 --> 0:00:51.800 Reserve allowed its balance sheet to just get too small 0:00:51.880 --> 0:00:56.319 as it allowed it to shrink with quantitative tightening? Yes, yes, 0:00:56.400 --> 0:01:01.600 all right, So why why the amount of liquidity that 0:01:01.680 --> 0:01:05.840 a very dynamic US economy needs is impossible to know 0:01:05.920 --> 0:01:08.280 in exact real time. You can see it and see 0:01:08.280 --> 0:01:11.840 indicators of a certain amount of excess reserves, which I'm 0:01:11.840 --> 0:01:14.959 gonna call liquidity for the sake of this discussion, um 0:01:15.080 --> 0:01:17.640 that you need for the economy to function. The analogy 0:01:17.720 --> 0:01:19.920 is that I use this in my own personal life. 0:01:20.120 --> 0:01:23.080 When I was in college, didn't have a job, wasn't 0:01:23.080 --> 0:01:25.920 really spending much. My checking account could have relatively small 0:01:25.959 --> 0:01:29.919 balance in it. It was very small. Trust me. Fast forward, 0:01:30.040 --> 0:01:32.360 you have a family, you have a job, you have debt, 0:01:32.840 --> 0:01:35.360 you have more liability needs, and you need to have 0:01:35.360 --> 0:01:38.160 more cash in your checking checking account. Same analogy can 0:01:38.160 --> 0:01:41.920 be applied to the US economy. This economy has grown 0:01:42.200 --> 0:01:45.520 remarkably over the last ten years, and the repo market 0:01:45.560 --> 0:01:47.800 signals this week are telling us about one point three 0:01:47.840 --> 0:01:50.600 trillion in reserves. Is just not enough liquidity. And I'm 0:01:50.600 --> 0:01:53.840 fully aware of the the technical issues of the supply 0:01:53.840 --> 0:01:55.640 and demand that happened over the last couple of weeks, 0:01:55.680 --> 0:01:58.040 But I think we can, for for most people out there, 0:01:58.080 --> 0:02:00.840 smooth through that and say there's just not enough liquidity 0:02:00.840 --> 0:02:04.080 in the system. Despite the popular belief that liquidity is 0:02:04.080 --> 0:02:07.400 a wash in the system and repo markets. This this week, 0:02:07.400 --> 0:02:11.079 I've been telling us that the FED comes out with 0:02:11.320 --> 0:02:15.440 temporary operations. They're just putting cash and liquidity into the system. 0:02:15.560 --> 0:02:19.280 They this is a temporary fix for a permanent problem. 0:02:19.320 --> 0:02:22.440 They are going to need eventually to have the balance 0:02:22.480 --> 0:02:25.720 sheet continue to Expand that's not QUEI, that's just to 0:02:25.760 --> 0:02:28.840 make sure there's enough liquidity in the system. Shouldn't be inflationary. 0:02:29.200 --> 0:02:31.079 If it's not, que how do they do it? Yeah? 0:02:31.080 --> 0:02:33.680 The good pointly so that the mechanics are the same, 0:02:34.400 --> 0:02:37.560 but the objective and the end goal are different. In 0:02:37.680 --> 0:02:39.560 a place where you need to make sure there's enough liquidity, 0:02:39.639 --> 0:02:43.480 you're injecting just enough to make sure markets function shouldn't 0:02:43.520 --> 0:02:46.280 be inflationary because you're just making sure you're checking account 0:02:46.360 --> 0:02:48.560 for the sake of this example, has enough to meet 0:02:48.560 --> 0:02:52.760 your demands. QUEI is by even more bonds that are 0:02:52.840 --> 0:02:56.520 that are necessary for liquidity in the in the attempt 0:02:56.600 --> 0:02:59.960 to really pull you lower and stimulate inflation. Different objective, 0:03:00.480 --> 0:03:04.720 same mechanical um implementation that needs to be done. What 0:03:04.800 --> 0:03:07.040 if the FED decides doesn't agree with you and decides 0:03:07.320 --> 0:03:08.840 this is just a short term blip. We don't need 0:03:08.840 --> 0:03:10.360 to do really anything. We don't have to grow this 0:03:10.360 --> 0:03:14.440 balance too much. Repo rates will continue to remain high. 0:03:14.639 --> 0:03:17.720 And I mean this week, overnight repo traded north of 0:03:17.800 --> 0:03:21.320 nine percent for a period of time. It's quite simple 0:03:21.360 --> 0:03:23.680 to realize that if you're receiving a yield on an 0:03:23.720 --> 0:03:26.280 instrument that you own. Let's just say it's a ten 0:03:26.320 --> 0:03:29.080 year treasury that holds a coupon of two, and to 0:03:29.240 --> 0:03:32.400 finance that security at nine percent, obviously that's a negative 0:03:32.440 --> 0:03:34.600 carry position and can't go on for very long. So 0:03:34.760 --> 0:03:37.560 levered players in a system, if the FED doesn't address this, 0:03:38.240 --> 0:03:41.040 will not be able to function. So the FED currently 0:03:41.080 --> 0:03:44.600 has one point three trillion dollars of non treasury or 0:03:44.600 --> 0:03:47.880 mortgage backed securities debt that is liquidity for this purpose 0:03:47.920 --> 0:03:52.880 corrects the excess reserves on the liability on the liability side, 0:03:52.920 --> 0:03:55.360 or is about one point three one point three trillion dollars? 0:03:55.360 --> 0:03:58.560 How much should it be? I don't know. I don't 0:03:58.600 --> 0:04:01.080 think that they know either. I think that all they're 0:04:01.080 --> 0:04:04.320 realizing is it's not enough right now. And this is 0:04:04.360 --> 0:04:06.280 this is kind of the This is where the art 0:04:06.360 --> 0:04:09.240 of central banking meets what I think is perceived science. 0:04:09.720 --> 0:04:12.080 Um the economy is so dynamic. They don't know the 0:04:12.160 --> 0:04:14.080 dot on this dot on this day, we need one 0:04:14.120 --> 0:04:16.719 point four chilion. They don't know, so they have to 0:04:16.800 --> 0:04:19.800 feel it a little bit, and the repo market is 0:04:19.920 --> 0:04:22.440 sending them a signal they don't have enough. Okay, So 0:04:23.000 --> 0:04:25.159 the consequences are pretty dire, right that we could end 0:04:25.240 --> 0:04:28.159 up with a liquidity crunch, even a downturn or some 0:04:28.200 --> 0:04:30.680 sort of seizure. You know, levered players could get blown 0:04:30.720 --> 0:04:32.920 out of the water. UH could pull back. This is 0:04:32.920 --> 0:04:35.400 a private debt, private equity, you know, all sorts of 0:04:35.760 --> 0:04:40.799 levered currency funds um Looking at that right, I'm wondering 0:04:40.880 --> 0:04:43.119 on the flip side, the fasure serve comes out starts 0:04:43.160 --> 0:04:45.279 to buy a lot more bonds that we're just trying 0:04:45.320 --> 0:04:48.799 to manage the situation. How do they distinguish that from 0:04:48.839 --> 0:04:52.280 trying to ease financial conditions. The communication there's a communication 0:04:52.360 --> 0:04:55.280 challenge with this. This hasn't been a part of their 0:04:55.320 --> 0:04:58.160 tool kit for ten years. They over the next six 0:04:58.240 --> 0:04:59.920 eight weeks ahead of the actor re meaning there's gonna 0:05:00.040 --> 0:05:02.520 you're gonna hear lots of education from them to distinguish 0:05:02.560 --> 0:05:05.320 the two UH, and that's gonna be vitally important. There 0:05:05.400 --> 0:05:07.920 is no one in the United States better position to 0:05:07.960 --> 0:05:09.839 do this than the New York FED. They're gonna do 0:05:09.960 --> 0:05:12.200 a great job doing it, but there's there needs to 0:05:12.200 --> 0:05:14.000 be more education on this, and I expect them to 0:05:14.000 --> 0:05:16.800 start that as soon as possible. Did you hear anything 0:05:16.800 --> 0:05:20.479 from Chairman Pal yesterday on that issue? Yeah? I think he. 0:05:20.960 --> 0:05:22.600 I read him as saying we're gonna learn a lot 0:05:22.600 --> 0:05:24.880 over the next six weeks as they try to feel 0:05:25.000 --> 0:05:28.479 where the level of access reserves is required. Um and 0:05:28.520 --> 0:05:30.040 I also interpreted him as they're going to do a 0:05:30.080 --> 0:05:32.320 lot of work on how much the balance sheet needs 0:05:32.320 --> 0:05:34.760 to grow. And my expectation out of yesterday is that 0:05:34.760 --> 0:05:36.480 they're going to come up with an announcement in October 0:05:36.520 --> 0:05:39.200 about how to start expanding the balance sheet again to 0:05:39.279 --> 0:05:42.880 meet these liquidity needs. Just not do kuwie, just real quick. 0:05:42.920 --> 0:05:45.159 Giving your experience at the New York FED, do you 0:05:45.200 --> 0:05:47.200 think that they will get it right eventually or do 0:05:47.240 --> 0:05:49.719 you think that this will remain a real problem. Confident 0:05:49.720 --> 0:05:52.480 they're gonna get it right. The team there can do it. 0:05:53.000 --> 0:05:56.280 I think the art of doing this is is what's 0:05:56.279 --> 0:05:58.560 important here. They had to feel where the stress points 0:05:58.560 --> 0:06:01.440 were I think it caught and by surprise, quite candidly, 0:06:01.960 --> 0:06:04.359 this came a lot sooner than than myself and I 0:06:04.360 --> 0:06:06.640 thought then. I think they thought as well, and Powell 0:06:06.720 --> 0:06:09.839 more or less admitted that yesterday. Um, but they're gonna 0:06:09.880 --> 0:06:13.760 fix it, and these temporary market operations are vital and 0:06:13.760 --> 0:06:16.080 they're doing them. But again it's a temporary fix. They 0:06:16.080 --> 0:06:18.640 need the permanent fix. Uh, and they'll give it to us. 0:06:18.920 --> 0:06:21.320 Tom Kennedy thinks so much for joining us. Tom Kennedy's 0:06:21.360 --> 0:06:23.719 global head of macro and fixing come strategy at JP 0:06:23.839 --> 0:06:27.680 Morgan Private Bank. Educating us and our listeners on the 0:06:27.760 --> 0:06:32.159 repo market clearly a challenge head for the Federal Reserve 0:06:32.240 --> 0:06:50.520 to manage that part of the yield curve is people 0:06:50.560 --> 0:06:52.680 doubt with our Saudi Arabia really will be able to 0:06:52.720 --> 0:06:55.479 bring all their production back online all that soon. The 0:06:55.560 --> 0:06:59.000 question is how much higher will it go? Joining us now, 0:06:59.240 --> 0:07:01.680 we are so pleased to say, Bob Ryan, she's trying 0:07:01.720 --> 0:07:04.520 to just focused on commodity and energy strategy for b 0:07:04.680 --> 0:07:07.520 c A research. Bob, where do you think the price 0:07:07.560 --> 0:07:09.680 of oil is going? I'm looking at crude on then 0:07:09.680 --> 0:07:15.560 IMEX right now at fifty and sly three cents of barrel. Yeah, 0:07:15.600 --> 0:07:19.680 thank you for having me. UM. That's tough to say. UM. 0:07:19.720 --> 0:07:22.640 You know, we're UM right now trying to figure out 0:07:23.440 --> 0:07:26.520 how fast storage is going to be drawn while Saudia 0:07:26.640 --> 0:07:32.360 is repairing Opcake. Mostly we did some scenario analysis just 0:07:32.560 --> 0:07:35.760 at the margin, not saying this is where UM prices 0:07:35.800 --> 0:07:38.320 are going to go. But you know, the marginal impact 0:07:38.480 --> 0:07:44.080 of UM delays in bringing these facilities back online UM 0:07:44.480 --> 0:07:48.960 could push you, you know, through eighty dollars UH in 0:07:49.080 --> 0:07:53.600 the first half of next year. So UM. That's not 0:07:53.640 --> 0:07:57.960 to say it will happen. UM. What most likely happens 0:07:58.080 --> 0:08:01.960 is commercial inventory keeps drawing down and at a certain point, 0:08:02.040 --> 0:08:06.160 if you know, we see the forward curves in crude oil, 0:08:06.240 --> 0:08:09.640 the Brent and the w t I start to really backwardate, UM, 0:08:09.680 --> 0:08:13.600 that'll be a signal or an indication that UM spr 0:08:13.680 --> 0:08:16.640 barrels are probably going to be needed. UM. And you 0:08:16.680 --> 0:08:18.560 know it wouldn't surprise me at all if the d 0:08:18.640 --> 0:08:21.880 o E in the US is keeping track of that. UM. 0:08:21.920 --> 0:08:24.080 You know what's happening to the evolution of the curve. 0:08:24.600 --> 0:08:26.280 You know, if I'm looking at Brent right now, it 0:08:26.280 --> 0:08:29.160 looks like the curve is steepening just a little bit 0:08:29.920 --> 0:08:32.720 as the market works through this. So I think that's 0:08:32.760 --> 0:08:36.600 the big thing to start keeping track of m as 0:08:36.600 --> 0:08:39.640 we go to the end of September, when you know, 0:08:39.640 --> 0:08:43.120 the Aramco folks have been saying that, um, you know, 0:08:43.160 --> 0:08:46.480 the repair should be mostly done. You know, markets waiting 0:08:46.679 --> 0:08:50.160 and waiting to see what happens. But my expectations we 0:08:50.200 --> 0:08:53.719 do see storage start to draw, prices move up backwardation, 0:08:54.200 --> 0:08:57.400 Uh Stevens, So, Bob, what is what do you think 0:08:57.440 --> 0:09:00.600 the market is kind of discounting today about maybe an 0:09:00.760 --> 0:09:05.600 escalation even of tensions between Iran and Saudi Arabian perhaps 0:09:05.920 --> 0:09:07.839 the U S. I know it's you know, almost impossible 0:09:07.880 --> 0:09:10.760 to handicap, but do you think the market is expecting 0:09:11.080 --> 0:09:12.600 this thing to get maybe even a little bit worse 0:09:14.320 --> 0:09:18.120 it could? Um, you know, our our assumption is is 0:09:18.160 --> 0:09:23.200 that the Trump administration is going to more than likely 0:09:23.240 --> 0:09:28.079 retaliate in some form militarily, but not in a way 0:09:28.120 --> 0:09:31.120 that escalates this to a full out you know war 0:09:31.520 --> 0:09:34.040 between the US and Iran or between the US and 0:09:34.040 --> 0:09:39.079 it's GCC allies and Iran. UM more than likely. Um, 0:09:39.120 --> 0:09:42.520 you know, it's it's going to be a message it's 0:09:42.559 --> 0:09:46.680 not going to be um, you know, a declaration of war. Um. 0:09:46.880 --> 0:09:49.719 It's interesting also the Iranian foreign minister I saw a 0:09:49.800 --> 0:09:53.360 headline going across was saying that any attack on Iran 0:09:53.400 --> 0:09:56.400 itself would be or would result in all out war. 0:09:56.520 --> 0:09:59.800 So that you know, both sides are are as. We 0:10:00.000 --> 0:10:02.680 that in our morning meeting this morning. Um, you know, 0:10:02.760 --> 0:10:05.040 there's there's a lot of loud barking on both sides, 0:10:05.080 --> 0:10:09.080 but um, we don't think it escalates to that extent. 0:10:09.679 --> 0:10:12.400 But you don't know. I mean that the big thing 0:10:12.960 --> 0:10:16.880 with these kinds of confrontations is that, um, you know, 0:10:16.920 --> 0:10:19.400 they could spin out. You know, you could have inadvertent 0:10:19.840 --> 0:10:25.400 um uh you know, consequences that quickly get out of 0:10:25.400 --> 0:10:28.120 control and and and the hard thing is containing it. Uh, 0:10:28.280 --> 0:10:30.520 you know, once you set something in motion. Well, so 0:10:30.600 --> 0:10:33.840 let's talk about sort of the asymmetric risks associated with 0:10:33.880 --> 0:10:39.000 a potential conflict over the escalation that we've seen with Iran. 0:10:39.840 --> 0:10:43.760 How high could oil prices go versus decline if there 0:10:43.840 --> 0:10:46.679 is no conflict, if it gets resolved, if Saudi Arabia 0:10:46.720 --> 0:10:49.400 gets the production on board, and things just chug along 0:10:49.440 --> 0:10:53.600 the way they had been. Um, you know, prices would 0:10:53.600 --> 0:10:57.559 be probably fairly well contained, and then you know, you'd 0:10:57.679 --> 0:11:00.199 go back to the OPEQ plus or what we call 0:11:00.280 --> 0:11:04.360 OPEC two point oh UM managing production trying to you know, 0:11:04.480 --> 0:11:08.440 get control of the storage levels globally. UM. The eighth 0:11:08.480 --> 0:11:13.480 symmetry is if you do get something, um, you know, 0:11:13.559 --> 0:11:17.640 some kinetic activity between uh, you know, the US and Iran, 0:11:17.720 --> 0:11:21.199 just as an example, that threatens the street of hor moves, 0:11:21.800 --> 0:11:25.200 then markets would really start to price in you know, 0:11:25.679 --> 0:11:29.640 large price moves to the upside. UM. If we uh 0:11:29.880 --> 0:11:32.680 see this thing resolved and you know, we go back 0:11:32.679 --> 0:11:35.560 to status quo ante as it were, UM, you know, 0:11:35.600 --> 0:11:38.400 we probably come back down to you know, holding around 0:11:39.720 --> 0:11:44.679 this year, you know, maybe into the seventies next year. UM. 0:11:44.720 --> 0:11:47.280 You know, a lot of it depends on what happens 0:11:47.280 --> 0:11:52.520 to the UM production management of OPEC plus and the 0:11:52.840 --> 0:11:57.200 impact on demand. UM. As we move forward, high prices 0:11:57.280 --> 0:12:02.760 will oil sequel h more than likely start destroying demand, 0:12:02.760 --> 0:12:04.959 particularly if you get a dollar rally on the back 0:12:05.000 --> 0:12:08.800 of that, you know, everybody uh flies to safe havens, 0:12:09.320 --> 0:12:13.160 the US dollar being one of them. That'll effectively raise 0:12:13.280 --> 0:12:16.480 the local currency cost of oil around the world outside 0:12:16.520 --> 0:12:20.280 the US, and UM, you'll get demand destruction on the 0:12:20.280 --> 0:12:22.400 back of that. So you'll have high absolute prices in 0:12:22.520 --> 0:12:26.840 US dollars, but you will also have high local currency prices, 0:12:26.920 --> 0:12:31.000 and that will start to a road demand and and 0:12:31.040 --> 0:12:34.360 the higher goes the more significant that erosion will become. So, 0:12:34.440 --> 0:12:38.080 but before the attacks on the Saudi facility, I think 0:12:38.080 --> 0:12:40.760 the narrative in the in the oil market was people 0:12:40.760 --> 0:12:44.000 really focusing on demand and what a slowing global economy 0:12:44.040 --> 0:12:47.560 means for oil putting some pressure on on crude. What 0:12:47.600 --> 0:12:51.120 does your demand model say, you know, you know, x 0:12:51.160 --> 0:12:55.199 out some of the concerns in the Middle East. Yeah, 0:12:55.200 --> 0:12:58.320 if we just you know, take our base case, you know, 0:12:58.600 --> 0:13:01.840 exactly as you say, X that out. Um, you know, 0:13:01.880 --> 0:13:05.040 our expectation is that demand this year grows on average 0:13:05.080 --> 0:13:07.160 like one point two million barrels a day, So we're 0:13:07.200 --> 0:13:10.920 a little above the I E A. And I think 0:13:10.960 --> 0:13:12.959 the E I A is probably at about one million 0:13:12.960 --> 0:13:15.480 a day. Next year, we're at one point four one 0:13:15.520 --> 0:13:18.680 point five all l sequel, Right, you know, we we 0:13:18.760 --> 0:13:24.000 get this massive fiscal and monetary stimulus globally. Um, you know, 0:13:24.120 --> 0:13:27.440 it revives demand, it starts to it not starts to 0:13:27.559 --> 0:13:32.880 it undoes a lot of the uh tightness and financial 0:13:32.920 --> 0:13:36.080 conditions that were brought on by the FED tightening cycle 0:13:36.200 --> 0:13:39.080 last year, as well as the d leveraging campaign in 0:13:39.160 --> 0:13:42.240 China which took a lot of liquidity from the system. 0:13:42.280 --> 0:13:46.319 So those two things we're just starting to show up 0:13:46.559 --> 0:13:48.640 or had started to show up, you know, in second 0:13:48.640 --> 0:13:51.240 half of last year, first half of this year. That 0:13:51.280 --> 0:13:54.200 should be undone with all that stimulus coming into the system. 0:13:54.280 --> 0:13:59.200 So we would be much more bullish demand growth next 0:13:59.280 --> 0:14:01.840 year as all the stimulus comes in. But you know, 0:14:01.880 --> 0:14:04.960 we are in uncertain territory here. Yeah, very good, Bob, 0:14:05.000 --> 0:14:07.199 Thanks so much for joining us. Bob Bryan, chief Strategist 0:14:07.240 --> 0:14:10.400 Commodity and Energy Strategy for bc A Research, giving us 0:14:10.400 --> 0:14:13.520 his thoughts on the global oil market. Obviously a tremendous 0:14:13.559 --> 0:14:16.640 amount of volatility experienced over the last week or so 0:14:16.800 --> 0:14:20.160 given the attack on the Saudi facility and what that 0:14:20.200 --> 0:14:40.320 means for the supply side of the equation. So to 0:14:40.400 --> 0:14:42.160 get some more data there, we welcome our next guest, 0:14:42.200 --> 0:14:46.520 automan A Zilder, Senior Director Economics and Global Research Chair 0:14:46.600 --> 0:14:49.200 at the Conference Board. Automan he joined us in our 0:14:49.200 --> 0:14:52.320 Bloomberg Interactive Broker Studio. Thanks so much for coming in 0:14:52.680 --> 0:14:56.080 what is your data telling you? I know you've reported 0:14:56.080 --> 0:14:59.360 the data for August. Good morning, great to be here, 0:14:59.400 --> 0:15:03.160 thanks for having me. And um, the ALII for August 0:15:03.280 --> 0:15:08.080 just came out, and as your viewers listeners now that 0:15:08.840 --> 0:15:12.160 the ALII is a forward looking gauge of the economy, 0:15:12.400 --> 0:15:16.960 and in August it remained unchanged. So what's the implication, 0:15:17.040 --> 0:15:19.160 I mean, is that good, bad, or just basically just 0:15:19.240 --> 0:15:22.480 don't even think about it now? So the ALII trends 0:15:22.520 --> 0:15:26.960 have been kind of flattening, um, and they're still rising 0:15:27.080 --> 0:15:30.360 around the same level as earlier in the year, but 0:15:30.480 --> 0:15:33.280 not as fast as we had seen in the previous years. 0:15:33.360 --> 0:15:36.800 So that just tells me that we are settling into 0:15:37.000 --> 0:15:40.560 a slower growth economy. Uh, kind of going back to 0:15:40.640 --> 0:15:43.240 the long term trend? What is the long term trend? 0:15:43.320 --> 0:15:46.200 Kind of from your perspective. So at the conference board, 0:15:46.240 --> 0:15:48.680 we estimate that long term trend to be right around 0:15:48.680 --> 0:15:51.360 two percent growth. Okay, So right now, as we look 0:15:51.400 --> 0:15:53.360 at the economy, look at all the data that's coming 0:15:53.360 --> 0:15:55.320 out and even some of the micro data we see 0:15:55.320 --> 0:15:57.200 from companies and earnings and so on and so forth, 0:15:57.480 --> 0:16:00.400 the US economies seems to be a story of Okay, 0:16:00.480 --> 0:16:04.880 manufacturing not so good and maybe even worrisome not so good, 0:16:04.920 --> 0:16:07.400 but the consumer is still very strong. Is that kind 0:16:07.400 --> 0:16:09.760 of what your data is showing you. That's essentially what 0:16:09.800 --> 0:16:11.920 we see in the leading indicators to when you look 0:16:11.960 --> 0:16:15.440 at the households and consumers, they're kind of holding up 0:16:15.480 --> 0:16:19.160 the economy. But when you look at manufacturing, new orders 0:16:19.160 --> 0:16:23.240 and manufacturing, especially for capital goods, there's a lot more 0:16:23.320 --> 0:16:26.200 weakness that's kind of holding the index down. One thing 0:16:26.200 --> 0:16:29.040 that's kind of interesting, we keep getting a positive reads 0:16:29.160 --> 0:16:33.640 on housing data today. Another one with used sales, used 0:16:33.680 --> 0:16:36.880 home sales coming in stronger than expected and as one 0:16:37.040 --> 0:16:40.600 part of the leading economic indicator. That is one area 0:16:40.960 --> 0:16:42.880 that's that was sort of a big positive, right, a 0:16:42.880 --> 0:16:46.640 big contributor. Yeah, housing permits made a positive contribution to 0:16:46.760 --> 0:16:49.560 the index, and that is good news for the economy 0:16:49.560 --> 0:16:53.360 because housing overall is a leading sector for the overall 0:16:53.440 --> 0:16:57.960 US economy. But jobless claims was a negative contributor. And 0:16:57.960 --> 0:16:59.560 I want you to talk about that since we do 0:16:59.640 --> 0:17:02.040 talk at the consumer kind of holding up the entire 0:17:02.080 --> 0:17:06.120 expansion here, is that sort of a warning sign, right, 0:17:06.200 --> 0:17:09.919 So the consumer of obviously is uh supported by the 0:17:10.520 --> 0:17:14.240 good jobs growth and where we would be worried if 0:17:14.280 --> 0:17:17.520 that's going to be changing. And the leading indicators for 0:17:17.640 --> 0:17:21.920 employment have started to soften, and unemployment claims is one 0:17:21.960 --> 0:17:25.360 of those. So it's not really surprising to see some 0:17:25.480 --> 0:17:30.040 softening in the labor market um, but employment is still 0:17:30.080 --> 0:17:35.080 growing and that's supporting jobs, income and consumer spending. When 0:17:35.119 --> 0:17:38.880 do you when does your data, you're leading economic indicator 0:17:39.200 --> 0:17:41.600 start flashing a red sign to you when you see 0:17:41.760 --> 0:17:45.560 multiple months of declines, is it is what's kind of 0:17:45.040 --> 0:17:49.280 the big flash point for your indicator exactly. So what 0:17:49.320 --> 0:17:52.320 I'm looking for in the leading indicators is where whether 0:17:52.560 --> 0:17:57.280 it's falling consistently over several months, it's a gauge of 0:17:57.640 --> 0:18:01.600 future economic activity that's six to nine months ahead. And 0:18:01.720 --> 0:18:06.800 the peak in the leading index forms on average about 0:18:06.840 --> 0:18:10.399 twelve months ahead of the economy turning down. So that 0:18:10.560 --> 0:18:14.199 is the leading relationship and uh, so far we're not 0:18:14.320 --> 0:18:16.719 really seeing that sort of a peak forming in the 0:18:16.840 --> 0:18:21.080 leading indicators. So I'm looking right now and many Roman, 0:18:21.160 --> 0:18:24.760 the CEO of PIMCO, said that he expects US growth 0:18:24.760 --> 0:18:27.800 to hover slightly above one percent for the first half 0:18:27.880 --> 0:18:31.240 of which is substantially lower than it is currently do 0:18:31.280 --> 0:18:34.280 you think that's plausible based on these indicators. So the 0:18:34.359 --> 0:18:39.639 indicators are really consistent with the economy slowing um just 0:18:39.880 --> 0:18:43.000 around two percent, So that's a little more pessimistic than 0:18:43.040 --> 0:18:46.680 what we're seeing in sort of the fundamentals of the economy. 0:18:47.440 --> 0:18:50.520 A lot of people are nervous about the future because 0:18:50.560 --> 0:18:53.879 they look at interest rates yield spreads, but that's really 0:18:53.880 --> 0:18:56.880 only one part of the leading indicators, uh, and it's 0:18:56.880 --> 0:19:01.560 not really widespread across other components. So it's perhaps a 0:19:01.600 --> 0:19:05.199 little bit more pessimistic than what the leading economic indicators 0:19:05.760 --> 0:19:08.119 may show. Adamana Aziel Durham, thank you so much for 0:19:08.160 --> 0:19:11.640 being with us, Senior director of Economics and Global Research 0:19:12.000 --> 0:19:15.160 at the conference board, joining us here in our Bloomberg 0:19:15.200 --> 0:19:18.600 Interactive Broker Studios. Thanks for listening to the Bloomberg P 0:19:18.680 --> 0:19:21.240 and L podcast. You can subscribe and listen to interviews 0:19:21.240 --> 0:19:25.040 at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, 0:19:25.119 --> 0:19:27.879 I'm on Twitter at pt Sweeney, I'm Lisa Abram Woyd's 0:19:27.880 --> 0:19:30.920 I'm on Twitter at Lisa abram woits one before the podcast. 0:19:30.920 --> 0:19:33.520 You can always catch us worldwide on Bloomberg Radio.