WEBVTT - Volatility Skew Shows Defensive Tilt in Markets 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.200 us live on YouTube. 0:00:27.640 --> 0:00:31.200 Julian Emmanuel With is chief equity quantitative strategist at Evercourt 0:00:31.520 --> 0:00:35.040 Isi with an incredible note. I can't say enough about this. 0:00:35.280 --> 0:00:38.200 I mean, is Stephen Fandozi doing all the work. He's 0:00:38.280 --> 0:00:42.800 doing a lot of work. With the summary paragraph you have, 0:00:42.880 --> 0:00:46.400 which is like ten sentences long, maybe eight sentences long, 0:00:46.640 --> 0:00:49.839 how do you create the math? How do you collate 0:00:49.880 --> 0:00:53.840 in your summary where earnings are modeling up fifteen point 0:00:53.920 --> 0:00:54.600 six percent? 0:00:55.040 --> 0:01:00.520 It's you know, really taking all the statistics and extraplating 0:01:00.760 --> 0:01:05.440 the potential surprises and the beat percentages. I mean, there 0:01:05.520 --> 0:01:09.080 is an enormous, as you know, amount of statistical work 0:01:09.120 --> 0:01:12.160 that goes into it. But the bottom line is this 0:01:12.319 --> 0:01:14.480 is another extraordinary earnings. 0:01:14.600 --> 0:01:16.760 You even look like Bill Murray. It's ground on day 0:01:16.840 --> 0:01:19.600 every ninety days. The world's coming to an end. Ball yep. 0:01:19.920 --> 0:01:22.640 And then Julian goes, no, double digit, what a shock? 0:01:22.760 --> 0:01:24.560 Double digit double digit Julian. 0:01:24.640 --> 0:01:26.200 So what are you looking for in earnings? What do 0:01:26.200 --> 0:01:29.040 you think the market's looking for in earnings this period? 0:01:29.560 --> 0:01:31.840 So the issue with. 0:01:32.360 --> 0:01:35.640 The start of this season is there was an expectation 0:01:36.080 --> 0:01:38.319 that it was going to be as strong. It's actually 0:01:38.440 --> 0:01:43.360 incrementally stronger than expected. But the reason the market hasn't gone, 0:01:43.480 --> 0:01:46.800 you know, streaming through seven thousand on the S and P, 0:01:47.120 --> 0:01:50.280 is that after the last several quarters where you had 0:01:50.360 --> 0:01:54.760 surprises on the order of six percent or so above 0:01:54.840 --> 0:01:58.880 the baseline expectation, getting you to that double digit number, 0:01:59.200 --> 0:02:02.440 we thought it would happen again. It is happening again. 0:02:03.320 --> 0:02:07.880 But the underlying messages it sets the table for twenty 0:02:07.920 --> 0:02:10.440 twenty six very effectively, Julian. 0:02:10.560 --> 0:02:13.480 Starting late October early November, we started to see a 0:02:13.480 --> 0:02:16.240 little bit of a rotation in the market, you know, 0:02:16.280 --> 0:02:18.320 maybe out of some of the tech names into some 0:02:18.360 --> 0:02:20.840 of the more value maybe smaller mid cap. 0:02:21.880 --> 0:02:24.600 Is that a longer term trend? Is that something we 0:02:24.639 --> 0:02:26.919 should play in twenty six? How do you think about that? 0:02:27.000 --> 0:02:30.680 Well, from our point of view, it actually started when 0:02:30.880 --> 0:02:35.320 healthcare started to recoup the underperformance of the prior year, 0:02:35.560 --> 0:02:38.600 when the government shut down the first time I've lost 0:02:38.600 --> 0:02:42.079 track of the number. The government shuts down, and then 0:02:42.320 --> 0:02:45.160 what you got toward the end of the year was 0:02:45.160 --> 0:02:49.760 the start of the rotation away from technology because you 0:02:49.840 --> 0:02:53.880 had some disappointment on earnings and you had concerns about debt, 0:02:54.160 --> 0:02:55.800 and then to start January. 0:02:55.880 --> 0:02:57.440 It's very typical for. 0:02:57.480 --> 0:03:01.160 These areas to have performed the prior years laggers. In 0:03:01.240 --> 0:03:04.720 our mind, it is one of those things that in 0:03:05.080 --> 0:03:09.079 projecting seventy seven point fifty at year end twenty twenty 0:03:09.080 --> 0:03:12.200 six on the S and B five oh NERD technology, 0:03:12.480 --> 0:03:15.800 because of the waiting and the index, the math drives 0:03:15.840 --> 0:03:19.160 the fact that it should and in our mind, there's 0:03:19.320 --> 0:03:22.400 enough negative sentiment for the wall of worry to be 0:03:22.440 --> 0:03:24.880 overcome that it will regain the leadership. 0:03:25.440 --> 0:03:28.720 So for tech to regain that leadership, is that simply 0:03:28.760 --> 0:03:31.360 a function. That's where the earnings are, that's where the 0:03:31.360 --> 0:03:32.240 cash flow growth is. 0:03:33.040 --> 0:03:35.600 Well, it's that, but if you look at the last 0:03:35.600 --> 0:03:39.600 few weeks, it's also where the speculation has not been 0:03:39.720 --> 0:03:44.119 okay okay. So in fact, the fact that it's come 0:03:44.160 --> 0:03:47.720 off the boil in gold and silver is likely going 0:03:47.760 --> 0:03:49.680 to be a tailwind for technology. 0:03:49.880 --> 0:03:52.280 June Emmanuel Ever cry I sorry with this a lengthy 0:03:52.280 --> 0:03:55.560 conversation to get a started run on YouTube. Subscribe to 0:03:55.600 --> 0:04:00.360 Bloomberg podcasts on YouTube, growing each and every day. We 0:04:00.440 --> 0:04:03.680 had some youngsters over, you know, the kids, had some 0:04:03.760 --> 0:04:06.800 youngster they're so hip, and of course they don't they 0:04:06.800 --> 0:04:10.160 don't do YouTube. Now they've spent the whole time talking 0:04:10.160 --> 0:04:14.040 about Bruno Mars and the Grammys. But you know, on YouTube, 0:04:14.880 --> 0:04:18.200 we're doing a digital distribution there. Tell me about revenues. 0:04:18.400 --> 0:04:20.520 You know, I look at Pepsi. They're cutting prices on 0:04:20.960 --> 0:04:24.400 Cheetos and and all that. There's a real battle here 0:04:24.880 --> 0:04:28.560 to sustain a nominal GDP revenue stream are we. 0:04:30.120 --> 0:04:33.680 It's actually stunning, quite frankly, that revenue looks like it's 0:04:33.720 --> 0:04:36.839 going to come in north of seven percent growth. 0:04:36.720 --> 0:04:38.400 Blended five hundred. 0:04:38.760 --> 0:04:42.039 I mean, it's you and I have never said that now, yeah, 0:04:42.160 --> 0:04:45.960 and and and and it is really points to the 0:04:46.160 --> 0:04:51.600 extraordinary resilience of the economy. And and and frankly, again, 0:04:52.279 --> 0:04:57.560 this idea that as as uncomfortable as it is when 0:04:57.600 --> 0:05:01.480 we see this affordability issue, the fact is is that 0:05:01.640 --> 0:05:05.880 for now, and this is changing at the margin because 0:05:05.880 --> 0:05:08.680 of this kind of commentary, is that as long as 0:05:08.720 --> 0:05:12.520 the employment picture is as strong as it is, revenue 0:05:12.600 --> 0:05:15.160 can continue to be as strong as it is. 0:05:15.240 --> 0:05:17.560 What do you see about use of free cash flow? 0:05:17.600 --> 0:05:20.800 I got a four percent dividend lifted PEPSI they announced it. 0:05:20.880 --> 0:05:24.560 Not an Apple like share buyback, but nevertheless, are non 0:05:24.680 --> 0:05:28.200 tech companies getting like Apple where they're trying to really 0:05:28.200 --> 0:05:29.680 deploy cash to shareholders? 0:05:29.720 --> 0:05:29.760 No? 0:05:29.880 --> 0:05:35.400 That yeah, and that's that's an ongoing trend, but accelerating 0:05:35.600 --> 0:05:39.599 again because when you look at twenty twenty six, what 0:05:39.680 --> 0:05:43.320 you see is a macro backdrop where you're going to have, 0:05:43.520 --> 0:05:47.240 you know, stimulus via the one big beautiful bill, You're 0:05:47.240 --> 0:05:51.799 going to have stimulus via two maybe three FED rate cuts, 0:05:52.160 --> 0:05:55.320 and so you really don't need to have the war 0:05:55.480 --> 0:05:59.359 chest ready, as corporate America does from time to time 0:05:59.640 --> 0:06:01.880 in n anticipation of a market slowdown. 0:06:02.400 --> 0:06:04.840 Boy, Tom, I'm looking at another big tech naque Pollunteer 0:06:04.880 --> 0:06:08.920 Technology forecast revenue for FISTOL twenty six that's expected to 0:06:08.960 --> 0:06:11.720 grow sixty one percent this year. 0:06:11.760 --> 0:06:14.039 Holy count. So it stocked up on. 0:06:15.720 --> 0:06:16.479 The No. 0:06:17.279 --> 0:06:19.279 I mean, I'm in the triple levers doll cash run, 0:06:19.320 --> 0:06:21.600 so who cares? But I look at a folks, I'm 0:06:21.640 --> 0:06:23.160 not going to mention the name of the company. But 0:06:23.160 --> 0:06:26.359 I got a bell Weather toothpased company that I just 0:06:26.400 --> 0:06:29.359 sort of use Paul. It's popped in like two weeks 0:06:29.680 --> 0:06:32.000 up twenty percent a boring toothpaste. 0:06:32.279 --> 0:06:34.080 Little rotation there, but because. 0:06:34.000 --> 0:06:37.120 Yeah, rotation, and also I think used the cash. 0:06:36.920 --> 0:06:40.479 Yep, Julian, we saw twenty twenty five US equity markets 0:06:40.480 --> 0:06:43.040 did very, very well, but many markets outside of the 0:06:43.120 --> 0:06:45.800 US did way better than the US. How do you 0:06:45.839 --> 0:06:47.720 think about the US versus rest of the world from me? 0:06:47.839 --> 0:06:50.880 So that actually goes back to Tom's last observation on 0:06:50.960 --> 0:06:54.200 the toothpaste company. Part of that was the fact that 0:06:54.240 --> 0:06:57.279 the US dollar has fallen as far as it has 0:06:57.279 --> 0:07:00.279 over the last year, and that Paul has driven a 0:07:00.320 --> 0:07:03.080 lot of this outperformance of the rest of the world. 0:07:03.279 --> 0:07:07.320 You know, in our mind, the dollar did make a 0:07:07.480 --> 0:07:11.640 significant multi year peak last year at about this time, 0:07:12.040 --> 0:07:15.280 similar to you had a multi year dollar down trend 0:07:15.520 --> 0:07:18.040 from two thousand and one to two thousand and seven. 0:07:18.240 --> 0:07:20.560 And the bottom line there, and we think the bottom 0:07:20.600 --> 0:07:24.440 line over the longer term here is that you saw 0:07:24.840 --> 0:07:29.960 rest of world outperformance over that long period because of 0:07:30.000 --> 0:07:33.280 the dollar weakness. Now, what we would say here is 0:07:33.320 --> 0:07:35.800 that it is not likely that you're going to have 0:07:36.240 --> 0:07:40.240 a dramatic rest of the world outperformance kick in until 0:07:40.320 --> 0:07:44.080 the AI trade peaks. And you know, we believe the 0:07:44.160 --> 0:07:47.280 AI trade has a lot further to run, not. 0:07:47.400 --> 0:07:49.520 Just valuation in the market. How you frame that conversation 0:07:49.600 --> 0:07:52.880 with your clients these days, Well, the last year has 0:07:52.920 --> 0:07:53.840 been a transition. 0:07:54.520 --> 0:08:00.400 Is that you know, most value oriented investors had to 0:08:00.440 --> 0:08:04.000 make the leap of faith, as did we into this 0:08:04.200 --> 0:08:08.160 idea that this is one of these times where valuations 0:08:08.480 --> 0:08:12.040 are higher than normal due to the potential for this 0:08:12.240 --> 0:08:16.560 productivity bump from AI and due to the fact that 0:08:16.560 --> 0:08:19.600 there's just an enormous amount of liquidity in the system 0:08:19.720 --> 0:08:24.920 right now, and so so you know, it's an put 0:08:24.960 --> 0:08:28.640 it this way, if we get to a point where 0:08:28.680 --> 0:08:32.800 people are no longer questioning valuations, that's when we're going 0:08:32.880 --> 0:08:35.600 to start worrying. We hope that time doesn't happen. 0:08:36.520 --> 0:08:38.920 What's screening well for you guys these days? Is it 0:08:38.960 --> 0:08:41.800 a sector? Is it a factor out there? What's screening 0:08:41.840 --> 0:08:42.360 well for you guys? 0:08:42.440 --> 0:08:46.160 These says Well, interestingly, what we like is this concept 0:08:46.280 --> 0:08:50.400 of low leverage. Okay, and normally you might think that 0:08:50.400 --> 0:08:56.120 that would be something reasonably defensive in anticipation of a downturn. 0:08:56.360 --> 0:08:59.599 But no, what it actually is is a manifestation of 0:09:00.080 --> 0:09:04.760 rporate America's ability to generate free cash flow and in 0:09:04.840 --> 0:09:08.600 fact lower leverage. Happens to be found in some of 0:09:08.600 --> 0:09:11.520 the marquee names across technology. 0:09:11.600 --> 0:09:14.200 For instance, how do you dovetail in Christian de Gua's work. 0:09:14.360 --> 0:09:17.560 I mean, you know, he's acclaimed as a Fed watcher 0:09:17.600 --> 0:09:20.800 and all that are you taking? Are you on an 0:09:20.800 --> 0:09:25.360 Emmanuel worsh watch? Well, a worsh watch. 0:09:27.120 --> 0:09:32.160 I think the concerns around the hawkishness are probably overdone. 0:09:32.840 --> 0:09:37.040 If you think about Donald Trump's propensity to nominate an 0:09:37.080 --> 0:09:40.719 overtly hawkish FED chair, it just doesn't make a ton 0:09:40.760 --> 0:09:46.080 of sense. Christian's view is that this year is stronger, 0:09:46.400 --> 0:09:51.040 not hotter, which actually will give the you know, the 0:09:51.080 --> 0:09:55.280 Fed chair an ability to cut rates again, a boost 0:09:55.400 --> 0:09:57.320 for the economy and markets. 0:09:57.400 --> 0:10:00.600 Bring it down to basics, like people that that don't 0:10:00.640 --> 0:10:07.040 read your fabulous earning summary your conviction to buy new 0:10:07.160 --> 0:10:11.160 shares here? I get it if somebody's on board this bullmarket, 0:10:11.520 --> 0:10:14.160 But do you have a conviction that you should acquire 0:10:14.760 --> 0:10:15.920 shares here? 0:10:16.200 --> 0:10:19.040 So this is how you think about bull market cycles. Okay, 0:10:19.440 --> 0:10:23.720 and it makes sense when you think about the last 0:10:23.840 --> 0:10:27.920 year in particular, lots and lots of macronoids, lots of 0:10:28.040 --> 0:10:31.679 things to disrupt the narrative, scare people. At the end 0:10:31.679 --> 0:10:34.960 of the day, earnings kept going. And the four things 0:10:35.400 --> 0:10:39.160 that we think are hallmarks of the end of a 0:10:39.160 --> 0:10:43.360 bullmarket a recession, a FED that's more likely to hike 0:10:43.480 --> 0:10:46.880 than cut, longer term yields moving. 0:10:46.760 --> 0:10:48.280 You know, dramatically higher. 0:10:48.480 --> 0:10:51.200 By that we mean closer to five percent, and then 0:10:51.400 --> 0:10:56.599 overt FOMO or you know, you know, incredible capital markets intensity. 0:10:57.080 --> 0:10:59.680 None of those have been present, and so for us, 0:11:00.360 --> 0:11:03.040 the recipe is the bull market has further to go, 0:11:04.000 --> 0:11:06.520 and if you're under invested, you probably want to get 0:11:06.559 --> 0:11:10.120 to where you feel like, you know, you're reasonably fully invested. 0:11:10.520 --> 0:11:12.400 We haven't really talked about the FED here. We're gonna 0:11:12.400 --> 0:11:15.160 get a new FED chairman. I guess we're getting rape cuts. 0:11:15.160 --> 0:11:18.040 How do you factor in just the FED into your 0:11:18.240 --> 0:11:20.000 equity kind of mosaic there. 0:11:20.160 --> 0:11:22.920 Well, again, you go back to last week and and 0:11:23.160 --> 0:11:29.840 that presser was fortunately happily non dramatic. 0:11:30.320 --> 0:11:32.480 Okay, there's all this, you. 0:11:32.440 --> 0:11:35.280 Know, back and forth in the background, and at the 0:11:35.400 --> 0:11:38.840 end of the day, the messages the economy is doing fine, 0:11:38.880 --> 0:11:41.640 thank you very much, and that we will end up 0:11:41.760 --> 0:11:45.320 being in a position where at some point in the 0:11:45.360 --> 0:11:49.080 future we will be able to reduce rates and you know, 0:11:49.360 --> 0:11:52.320 on a measured basis. Chilian Emmanuel, thank you so much. 0:11:52.360 --> 0:11:55.199 Can't say enough about the It's not every day. It's 0:11:55.200 --> 0:11:57.160 like every three days you put out you're earning song. 0:11:57.320 --> 0:11:59.240 No, no, every day. 0:11:59.480 --> 0:12:02.320 Every day your team is putting it out, not you. 0:12:03.120 --> 0:12:06.439 Stephen Fandozi, Mike Chu and Barack Hurwitz. 0:12:06.960 --> 0:12:10.600 Superstars there there. Jun Emmanuel, thank you so much. Evercore I, 0:12:10.600 --> 0:12:15.439 I really appreciate it. Stay with us. More from Bloomberg 0:12:15.559 --> 0:12:17.600 Surveillance coming up after this. 0:12:24.840 --> 0:12:28.440 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:12:28.520 --> 0:12:31.640 weekday afternoons from seven to ten am Eastern Listen on 0:12:31.760 --> 0:12:35.120 Apple Karplay and Android Otto with the Bloomberg Business app, 0:12:35.320 --> 0:12:38.600 or watch us live on YouTube's. 0:12:37.600 --> 0:12:40.839 The great thing about billions or industry is there's always 0:12:40.880 --> 0:12:44.680 a wacko economist who studied social studies at Harvard and 0:12:44.760 --> 0:12:49.920 became actually hugely acclaimed in housing economics, and wandered over 0:12:49.960 --> 0:12:52.920 to see Adam Posen at the Peterson Institute. That must 0:12:52.920 --> 0:12:56.200 be Jed Coco with us right now. How in God's 0:12:56.280 --> 0:12:59.440 name did you end up at the Peterson Institute? How 0:12:59.480 --> 0:13:00.280 did that happen? 0:13:00.120 --> 0:13:02.520 But it is where some of the most thoughtful and 0:13:02.679 --> 0:13:05.120 natual economists are. It's a great place to be. It's 0:13:05.120 --> 0:13:07.600 a fantastic community and Adams wonderful. Was it like a 0:13:07.600 --> 0:13:10.480 one hand in the Washington Post or you know, well, 0:13:10.520 --> 0:13:12.480 I used to be the chief economist, And indeed, so, 0:13:12.559 --> 0:13:14.440 of course I have to tell you that, you know, 0:13:14.679 --> 0:13:19.600 it's one of those jobs that happened outside of those postings. 0:13:19.600 --> 0:13:21.319 But it's great to be there. A couple I got. 0:13:21.320 --> 0:13:23.800 I asked one housing questionnaire before we get to your 0:13:23.840 --> 0:13:27.640 important work with Peterson Institute. I'm the American labor disaster. 0:13:28.440 --> 0:13:33.319 You own granular housing research. You did as far as 0:13:33.320 --> 0:13:37.240 I'm concerned, you did it before anybody else. With all 0:13:37.280 --> 0:13:40.160 the data we now have in the Internet about housing, 0:13:40.520 --> 0:13:44.199 what's your summary of twelve months and five years forward 0:13:44.280 --> 0:13:45.920 in residential housing. 0:13:46.640 --> 0:13:49.199 So we are at a point where, of course rates 0:13:49.200 --> 0:13:53.880 are still high. There is strong construction on the multifamily side, 0:13:54.120 --> 0:13:58.599 but residential construction is where both tariffs and immigration. 0:13:58.640 --> 0:13:59.560 Both pose a risk. 0:14:00.880 --> 0:14:06.520 Those two big policy uncertainties are headwinds for residential construction. 0:14:06.760 --> 0:14:09.079 And the good news is that prices are not rising 0:14:09.600 --> 0:14:12.320 as fast as they were, so there might be some 0:14:12.800 --> 0:14:15.199 easing of affordability concerns. But you know, we went from 0:14:15.200 --> 0:14:17.560 a world back, you know, back when we talked in 0:14:17.559 --> 0:14:19.040 the days that I was at truly I lived in 0:14:19.040 --> 0:14:21.960 San Francisco, and everybody talked about housing affordability, but it 0:14:22.040 --> 0:14:24.400 was thought of as mostly a local issue. Then a 0:14:24.400 --> 0:14:26.360 few years ago, when I was at the Commerce Department 0:14:26.400 --> 0:14:29.880 traveling around the country talking to mayor's economic developments around 0:14:29.880 --> 0:14:34.560 the country, every place felt that housing affordability was one 0:14:34.600 --> 0:14:37.880 of their biggest labor market challenges. Rapid City, South Dakota, Syracuse, 0:14:37.960 --> 0:14:40.200 New York. I would go there ask what's holding back 0:14:40.240 --> 0:14:43.600 economic development, and the answer was we don't have enough housing. 0:14:43.600 --> 0:14:46.400 And I thought, really like, this is you know, I 0:14:46.440 --> 0:14:48.360 think of this as a San Francisco in New York issue, 0:14:48.360 --> 0:14:52.680 but it became a nationwide issue. Now as we're seeing 0:14:52.880 --> 0:14:56.480 more construction, particularly the multifamily side, those price increases are 0:14:56.560 --> 0:15:01.080 easing a teriffs and immigration both still our headwinds for construction. 0:15:01.200 --> 0:15:04.800 Jeff Coco with US he invented the Internet study of 0:15:04.920 --> 0:15:08.520 housing for US at truly years ago. Back then, Paul 0:15:08.600 --> 0:15:11.640 he was in San Francisco in Avocado six days a week. 0:15:11.480 --> 0:15:12.800 At Green's restaurant they did. 0:15:12.920 --> 0:15:17.840 Now he's at the capitol of grill and pounded sakestpos. 0:15:16.480 --> 0:15:19.000 The New York Strip jed talk to us about immigration. 0:15:19.080 --> 0:15:21.880 One of the concerns when President Trump came to office 0:15:21.880 --> 0:15:25.360 in a much stricter immigration policy was, aside from any 0:15:25.400 --> 0:15:28.080 social issues, was the economic impact would be felt in 0:15:28.080 --> 0:15:31.160 a number of areas, including supply of labor, which would 0:15:31.160 --> 0:15:35.920 impact some really important industries like agricultural, like home building, 0:15:36.720 --> 0:15:37.720 like the service sector. 0:15:38.520 --> 0:15:40.440 I don't think we've seen that in the data, have we? 0:15:40.640 --> 0:15:42.920 So we have seen that. Just start looking by the 0:15:43.160 --> 0:15:47.320 monthly jobs numbers. Okay, that headline number that we all watch. 0:15:48.200 --> 0:15:50.480 It used to be that we expected a break even 0:15:50.600 --> 0:15:52.320 rate to get the lid market study of about one 0:15:52.400 --> 0:15:55.560 hundred and seventy thousand jobs a month. Now that's something 0:15:55.720 --> 0:15:59.240 under fifty thousand jobs of Okay, fifty today is a 0:15:59.280 --> 0:16:02.600 reasonably good number, given how much more slowly the workforce 0:16:02.680 --> 0:16:05.520 is growing. The main reason for that is the slow 0:16:05.560 --> 0:16:09.360 down in immigration. Immigrants, of course, are disproportionately working age. 0:16:10.000 --> 0:16:12.320 When we have a huge shift in immigration policy that 0:16:12.400 --> 0:16:16.360 slows down the rate of immigration, the economy grows more slowly. 0:16:16.440 --> 0:16:20.280 We're seeing that particularly in sectors that rely on immigrants 0:16:20.280 --> 0:16:24.840 more than others. Construction, home, healthcare, food, manufacturing. You know, 0:16:24.920 --> 0:16:28.480 these are all sectors that have not grown in terms 0:16:28.520 --> 0:16:30.760 of their jobs, are even shrunk in the past year 0:16:31.480 --> 0:16:33.200 under current immigration policy. 0:16:33.240 --> 0:16:36.840 Feels underreported to me because quite frankly, I've been looking. 0:16:36.600 --> 0:16:38.640 For that in the news slow and I see it. 0:16:38.680 --> 0:16:43.680 I don't see the you know, the beef factory, you know, 0:16:43.800 --> 0:16:47.280 slaughterhouse shutting down for Hormel or whomever. I don't see 0:16:47.320 --> 0:16:50.960 these big companies saying we can't build the houses because 0:16:50.960 --> 0:16:53.440 we don't have the workers. We can't pick the I 0:16:53.440 --> 0:16:56.280 haven't seen the stories where fruits and vegetables are going 0:16:56.320 --> 0:16:58.600 bad in California because nobody's there to pick them. 0:16:59.200 --> 0:17:01.640 I just feel like it's not happening. 0:17:01.840 --> 0:17:05.080 Yeah, So in the data, we see it as flat 0:17:05.240 --> 0:17:08.040 or slow growth rather than faster growth. So it is 0:17:08.119 --> 0:17:12.400 not a decline of ten or twenty percent in employment 0:17:12.400 --> 0:17:15.200 in these sectors. It's not a huge drop in production, 0:17:15.920 --> 0:17:19.280 but it means almost all the job growth has been 0:17:19.359 --> 0:17:23.120 in sectors that don't particularly rely on immigrants in the workforce. 0:17:23.480 --> 0:17:26.920 If we get to five percent unemployment, is it the same? 0:17:26.960 --> 0:17:28.720 I mean Adam Post and I would know that in 0:17:28.760 --> 0:17:32.000 August of sixty four, the Red Sox were in last place. 0:17:32.800 --> 0:17:36.679 Is five percent unemployment now like five percent unemployment in 0:17:36.760 --> 0:17:38.639 nineteen sixty four? I don't buy it. 0:17:39.280 --> 0:17:45.760 So the biggest difference today with unemployment compared to sixties, nineties, 0:17:46.200 --> 0:17:50.720 twenty tens is the relatively low unemployment rate is still 0:17:50.760 --> 0:17:53.160 hand in hand with very low hiring. It's a very 0:17:53.200 --> 0:17:57.240 low turn economy right now. The hiring rate is what 0:17:57.320 --> 0:18:00.600 we typically see when unemployment is close to eight percent. 0:18:00.760 --> 0:18:02.280 Of course, unemployment actually is it? 0:18:02.440 --> 0:18:05.919 I want to say that again. Right now, the hiring. 0:18:05.600 --> 0:18:09.520 Rate, the rate at which employers are bringing new people on, 0:18:10.119 --> 0:18:12.919 is at the lowest level since twenty twelve, except for 0:18:12.920 --> 0:18:16.000 a brief moment during the pandemic. That low level is 0:18:16.040 --> 0:18:19.399 typically what we see when unemployment is at eight percent. 0:18:19.720 --> 0:18:22.639 One hundred and four percent of our listeners agree with 0:18:22.760 --> 0:18:26.000 what you just said. Do you sense any urgency at 0:18:26.040 --> 0:18:30.720 the Peterson Institute for Washington with our moldly eight percent 0:18:30.840 --> 0:18:32.440 unemployment like economy. 0:18:32.600 --> 0:18:35.520 So I think we see this in the consumer sentiment. 0:18:35.640 --> 0:18:37.639 You know, we see this very clearly in the surveys 0:18:37.760 --> 0:18:40.320 that ask people how likely do you think it is 0:18:40.359 --> 0:18:41.040 you could find a. 0:18:41.000 --> 0:18:42.399 New job if you lost yours? 0:18:42.560 --> 0:18:45.280 How good an economy is this for finding a job? 0:18:45.680 --> 0:18:48.080 So I think this explains some of what we see 0:18:48.480 --> 0:18:52.680 in consumer sentiment. But that is not the headline number. Yeah, 0:18:52.680 --> 0:18:55.560 of course, the headline number is the unemployment rate. 0:18:55.600 --> 0:19:00.159 Okay, but Briga Warsh has the cut rates because we 0:19:00.240 --> 0:19:02.960 have an eight percent unemployment economy, so. 0:19:02.920 --> 0:19:05.480 It is it is not an eight percent of unemployment economy. 0:19:05.480 --> 0:19:08.720 The hiring rate makes it feel like an eight percent 0:19:08.800 --> 0:19:11.879 unemployment economy for people who are looking for work, and 0:19:11.920 --> 0:19:12.720 so we see. 0:19:12.480 --> 0:19:13.840 This for young people. 0:19:13.960 --> 0:19:16.560 Young people are much less likely to be working than 0:19:16.600 --> 0:19:19.240 they were a year ago, even though middle age and 0:19:19.240 --> 0:19:20.960 older adults, if anything, are more. 0:19:20.920 --> 0:19:22.240 Likely to be working a year ago. 0:19:22.520 --> 0:19:27.160 So the pain in this low hiring rate is concentrated. 0:19:27.400 --> 0:19:29.800 It's still a strong labor market if you already. 0:19:29.440 --> 0:19:30.000 Have a job. 0:19:30.560 --> 0:19:35.399 Real earnings are essentially at record levels, so it's a 0:19:35.640 --> 0:19:39.040 very strong labor market for people who have a stable 0:19:39.119 --> 0:19:41.840 job that are not worried about losing having to find one. 0:19:42.280 --> 0:19:45.440 But it's a very tough market if you need to 0:19:45.480 --> 0:19:46.160 get a new job. 0:19:46.880 --> 0:19:49.960 What role does AI play in the labor market? I e. 0:19:50.200 --> 0:19:52.560 We don't need as many new workers in the economy 0:19:52.560 --> 0:19:55.840 because AI is making the existing employees more efficient. 0:19:55.920 --> 0:19:57.639 Is that? Do we see that in the numbers? 0:19:57.720 --> 0:19:58.680 We don't see it yet. 0:19:58.760 --> 0:20:01.320 Okay, this low higher rate is not because of AI. 0:20:01.680 --> 0:20:05.520 The hiring rate has been falling even before the launch 0:20:05.640 --> 0:20:09.200 of the public launch of champ GPT. The low hiring 0:20:09.280 --> 0:20:13.920 rate really started after the pandemic and the pandemic recovery, 0:20:14.080 --> 0:20:18.320 when there was some over hiring at many firms. Of Course, 0:20:18.359 --> 0:20:21.960 the effective AI longer term is anyone's guests on the 0:20:22.000 --> 0:20:25.560 labor market. There will be disruption, there will be rough transition, 0:20:26.400 --> 0:20:30.959 and there are lessons from history from technological changes. 0:20:31.119 --> 0:20:33.600 Even if the. 0:20:32.880 --> 0:20:36.600 Ultimate effect of those past lessons don't look anything like AI, 0:20:37.000 --> 0:20:40.639 we do know about what transitions look like, what disruptions 0:20:40.680 --> 0:20:44.600 look like. Disruptions are especially bad if they're geographically concentrated. 0:20:44.840 --> 0:20:48.720 They're especially bad if people can't easily move to new jobs, 0:20:48.760 --> 0:20:53.160 if they don't have health insurance benefits that let them 0:20:53.280 --> 0:20:54.320 easily move across church. 0:20:54.400 --> 0:20:56.160 Let we get one more in here. You got Chad Bone, 0:20:56.200 --> 0:20:59.920 you got Olivier Blanchard, you got the emeritus William Klein, 0:21:00.080 --> 0:21:02.120 one of my heroes. You get to work with these 0:21:02.160 --> 0:21:05.960 guys every day. The summation of Peterson Institute on. 0:21:06.119 --> 0:21:12.879 Tariffs, UH, the tariffs clearly pose risks. We see this 0:21:13.160 --> 0:21:18.280 in declining manufacturing employment. Some of the effects are still 0:21:18.320 --> 0:21:20.920 too soon to show up in the data. A lot 0:21:20.960 --> 0:21:24.760 of it is playing out in uncertainty, and so you know, 0:21:24.800 --> 0:21:28.560 the risks from tariffs are definitely not behind us. Some 0:21:28.640 --> 0:21:32.679 of this is not even what we've seen yet in 0:21:32.760 --> 0:21:34.600 terms of impact on prices and output. 0:21:34.840 --> 0:21:37.920 But what is likely brewing because of uncertainty? 0:21:38.720 --> 0:21:41.119 I get, I got eight more. We gotta go, We 0:21:41.119 --> 0:21:44.720 got a week before you got to you gotta come back. 0:21:44.840 --> 0:21:46.760 I mean, I just want to talk Zillo and truly, 0:21:47.480 --> 0:21:52.520 I mean I can't emphasize enough. Jed Coco invented the 0:21:52.600 --> 0:21:55.920 madness of our internet real estate world. I mean, you're 0:21:55.920 --> 0:21:59.280 at home sitting on the like six houses of the 0:21:59.359 --> 0:22:00.600 Juicy Yep. 0:22:00.800 --> 0:22:02.560 You know all the time, it's all Jed Cocos, and 0:22:02.600 --> 0:22:05.119 it makes you a much better consumer. You know what 0:22:05.160 --> 0:22:05.720 the comps are? 0:22:05.760 --> 0:22:07.600 Are we better consumers now in real estate. 0:22:07.680 --> 0:22:09.800 Joy Aricley, we are better data nerds. 0:22:10.320 --> 0:22:12.119 Hes Yes, I'll take you. 0:22:12.160 --> 0:22:12.360 Yeah. 0:22:12.440 --> 0:22:15.960 Good Jed Coco, thank you so much for the Peterson Institute. Brilliant. 0:22:16.000 --> 0:22:20.760