WEBVTT - A Fed Rate Cut, Oil Slowdown, and Apple's AI Play 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.119 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:25.800 can also watch the show live on YouTube. 0:00:26.120 --> 0:00:27.640 Visit the Bloomberg. 0:00:27.200 --> 0:00:31.760 Podcast channel on YouTube to see the show weekday mornings 0:00:31.760 --> 0:00:35.000 from seven to ten am Eastern from our global headquarters 0:00:35.159 --> 0:00:39.000 in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:46.280 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:46.560 --> 0:00:50.280 I was at a university college, Dublin, coolest campus in Europe. 0:00:50.440 --> 0:00:54.600 Derek Halpenny with us. He is iconic with MUFG and automy. 0:00:54.680 --> 0:00:58.520 Clear they're a Japanese bank, it's inappropriate for mister Hallpenny 0:00:58.560 --> 0:01:03.360 to discuss the executive intervention processes of the bank. But 0:01:03.400 --> 0:01:05.560 we're thrilled you could join us. Head of Research Global 0:01:05.600 --> 0:01:09.880 Markets EMA for mu FG. Derek, it's just been way, 0:01:09.959 --> 0:01:12.880 way too long. Why is the dollar resilient? Is it 0:01:12.920 --> 0:01:15.559 about the dollar or is it about everybody else? 0:01:17.880 --> 0:01:22.920 I think primarily I would point more recently obviously to 0:01:23.160 --> 0:01:27.120 the shifting expectations about the FED higher for longer, the 0:01:27.200 --> 0:01:30.319 resilience of the data, which certainly by January febru time 0:01:30.360 --> 0:01:33.920 the markets we're not expecting. So this kind of latest 0:01:34.000 --> 0:01:37.920 leg stronger is more about the US dollar side, but 0:01:38.640 --> 0:01:41.960 certainly from our perspective in terms of the forecast going forward, 0:01:42.360 --> 0:01:45.880 I think it's important to remember the broader economic conditions 0:01:45.920 --> 0:01:47.800 and if you're going to be in a position to 0:01:47.800 --> 0:01:50.560 sell the US dollar, obviously you have to have currencies 0:01:50.600 --> 0:01:53.520 to buy, and up until now the global backdrop hasn't 0:01:53.520 --> 0:01:57.480 been particularly favorable. But we think that's changing, not dramatically, 0:01:58.000 --> 0:02:01.600 but enough to limit dollar by And of course the 0:02:01.600 --> 0:02:05.040 GDP data today in the UK is one small. 0:02:04.840 --> 0:02:08.320 Example exactly what is the outcoming? And Governor Bailey mentioned 0:02:08.360 --> 0:02:11.720 in that yesterday. Jack Halpenny, what does it mean for 0:02:11.760 --> 0:02:15.240 our listeners and viewers on YouTube if we have a 0:02:15.320 --> 0:02:18.240 stable dollar? I don't think there's enough talk about this, Paul. 0:02:18.240 --> 0:02:20.200 What if we get a stable dollar forward? 0:02:22.600 --> 0:02:26.400 Well, I think probably most center bankers for a start, 0:02:26.840 --> 0:02:31.760 would certainly welcome that. And I think you know, stable 0:02:31.919 --> 0:02:39.440 foreign exchange generally is indicative of relatively reasonable conditions more 0:02:39.480 --> 0:02:43.480 broadly in the financial markets, and I think FX stability 0:02:43.520 --> 0:02:51.120 going forward would obviously probably reflect a relatively coordinated monetary 0:02:51.120 --> 0:02:55.040 policy approach going forward. And again I think for broader 0:02:55.040 --> 0:03:00.240 financial market conditions, FX stability in that context would would 0:03:00.240 --> 0:03:00.720 be welcomed. 0:03:01.360 --> 0:03:04.240 So Derek, give us just kind of your broad overview 0:03:04.320 --> 0:03:07.120 what you have seen with the Japanese yen over the 0:03:07.200 --> 0:03:09.680 last several weeks. Again, we pushed up on that one 0:03:09.639 --> 0:03:12.600 to sixty level a couple of weeks ago where he 0:03:12.680 --> 0:03:14.600 caught people by surprise. Here, What do you think is 0:03:14.639 --> 0:03:15.320 going on at there? 0:03:17.280 --> 0:03:19.160 Yeah, I think I think this is really interesting. Like 0:03:19.200 --> 0:03:22.560 obviously the price action last week, you know, I can 0:03:22.600 --> 0:03:26.120 say that it certainly looks like there was there was intervention, 0:03:26.440 --> 0:03:29.720 there's there's that's that's pretty obvious. And I think there's 0:03:29.800 --> 0:03:36.800 definitely an elevated level of concern politically, at least in 0:03:36.880 --> 0:03:40.520 relation to the depreciation of the Japanese yen. That has 0:03:40.560 --> 0:03:44.400 an impact on household consumption, It has an impact on 0:03:44.520 --> 0:03:49.560 household sentiment, and there is still a chance that the 0:03:49.680 --> 0:03:55.040 Kashida administration will push for a general election before the 0:03:55.200 --> 0:04:02.040 LDP leadership elections in September. Certainly from Kashida as standpoints, 0:04:02.120 --> 0:04:06.200 having a general election victory, the measure of victory, of 0:04:06.200 --> 0:04:10.600 course we can determine and debate that raises his prospects 0:04:10.680 --> 0:04:15.120 of remaining leader after the leadership election in September, So 0:04:15.560 --> 0:04:19.440 I wouldn't rule it out. And certainly politically there's definitely 0:04:19.440 --> 0:04:22.240 an elevated level of concerns. And of course we've had 0:04:22.240 --> 0:04:25.760 this meeting this week between Governor Ueda and Prime Minister Kashida. 0:04:26.200 --> 0:04:28.960 Luida has then come out and the BOJ certainly seems 0:04:29.000 --> 0:04:32.080 a lot more hawkish now today than there were a 0:04:32.080 --> 0:04:35.080 week ago, and that certainly raises the prospect of a 0:04:35.120 --> 0:04:39.320 more active BOJ policy stance going forward from here. 0:04:39.960 --> 0:04:44.120 So if the US dollar is maybe stabilized, maybe even 0:04:44.120 --> 0:04:46.359 if there's a little bit of softness in the US dollar, 0:04:46.800 --> 0:04:49.440 when you talk to your clients, do they have combetists 0:04:49.440 --> 0:04:51.000 go ahead and buy anything else that used to be 0:04:51.040 --> 0:04:51.440 the dollar? 0:04:55.839 --> 0:04:58.960 Well, you know, look at Japan and today we've had 0:04:59.240 --> 0:05:04.279 data on cross border flows, and you know, foreign investor 0:05:04.360 --> 0:05:10.839 appetite for Japanese equities remains very, very strong. And again, 0:05:11.160 --> 0:05:15.159 you know, I think if there's a fundamental, compelling story 0:05:15.640 --> 0:05:21.720 to tell, investors are interested notwithstanding the high levels of rates, 0:05:21.760 --> 0:05:25.920 notwithstanding the very high level of the US dollar, that 0:05:26.000 --> 0:05:29.880 points to potential volatility ahead if there's a real fundamental 0:05:29.960 --> 0:05:32.720 story that can trump all of that, and I think 0:05:32.720 --> 0:05:35.200 that's what's going on in Japan at the moment, where 0:05:35.240 --> 0:05:41.039 clearly corporate Japan is changing, dividend yields are picking up, 0:05:41.400 --> 0:05:45.080 share buybacks are picking up, focus on return on equity, 0:05:45.839 --> 0:05:49.520 and that is a compelling story in terms of Japanese 0:05:49.560 --> 0:05:50.360 equities at the moment. 0:05:50.480 --> 0:05:52.520 So what is your six months out play on yen? 0:05:52.640 --> 0:05:54.880 Which pair do you take on yen here to make 0:05:54.960 --> 0:05:56.400 a speculation? 0:05:58.400 --> 0:06:01.080 Well, you know, I think in in terms of where 0:06:01.120 --> 0:06:05.760 we've had probable intervention and given our view in terms 0:06:05.800 --> 0:06:08.960 of where the rates pricing across G ten is at 0:06:08.960 --> 0:06:13.599 the moment, and by that I mean there's more pushback 0:06:13.800 --> 0:06:17.120 on yields to come back down based on our view 0:06:17.120 --> 0:06:19.640 that the FED is going to cut three times this year, 0:06:21.000 --> 0:06:22.599 and given the fact that we think the BOJ is 0:06:22.600 --> 0:06:26.000 going to raise rates in July, possibly on the same 0:06:26.080 --> 0:06:28.800 day that the FED is cutting, I do think there's 0:06:28.839 --> 0:06:34.080 scope there for dolly en to move certainly back into 0:06:34.080 --> 0:06:36.880 the one forties, for there to be a bigger move 0:06:36.920 --> 0:06:38.200 than maybe what the markets are expecting. 0:06:38.320 --> 0:06:40.240 We're going to get you. That's twenty big figures, are 0:06:40.279 --> 0:06:42.080 fifteen big figures. We got to get you. Back on 0:06:42.200 --> 0:06:45.640 Derek Halpennie, thank you so much from MUFG there on 0:06:46.440 --> 0:06:58.760 foreign exchange. I'm going to break a rule here, folks. 0:06:58.839 --> 0:07:02.320 Usually because they are always so product product touchy feely 0:07:02.400 --> 0:07:05.400 with Apple, they go to Dan Ives and they go, 0:07:05.480 --> 0:07:07.200 you know, should I get the brown one or the 0:07:07.240 --> 0:07:10.000 red one? You know, I don't do that. I do 0:07:10.120 --> 0:07:12.440 financials and like can you make money or lose money 0:07:12.480 --> 0:07:15.000 in Apple? And all that? Right now, I'm gonna rip 0:07:15.080 --> 0:07:17.520 up the script with Daniel Ives. He's with web Bush 0:07:17.880 --> 0:07:22.239 on Apple, Dan Apple Insider, Mark German and the others. 0:07:22.880 --> 0:07:25.320 They have a lot of paragraphs right now on what 0:07:25.440 --> 0:07:29.600 AI is going to do for the iPhone? Is it 0:07:29.800 --> 0:07:34.120 nothing more than a glorified search engine enhancement? 0:07:36.320 --> 0:07:40.360 I disagree, And I think this is the start of 0:07:40.520 --> 0:07:45.280 a game changing strategy at Apple with AI, and I 0:07:45.280 --> 0:07:48.080 think it's gonna be on AI services as well as 0:07:48.080 --> 0:07:51.240 on the iPhone. But Tom, they're not putting their new 0:07:51.440 --> 0:07:56.080 chip to focus on AI. If this is just for 0:07:56.240 --> 0:07:57.160 enhance search. 0:07:58.240 --> 0:08:00.320 Okay, well, what's it for? I mean, right now on 0:08:00.360 --> 0:08:03.200 a Friday in May, Paul you mentioned the June meeting, 0:08:03.360 --> 0:08:06.200 is like, you know, Ive goes to that he ws 0:08:06.200 --> 0:08:09.920 a tuxedo. You should see the color of that tuxedo. Dan, 0:08:10.400 --> 0:08:14.080 I think there's a mystery here on what AI is 0:08:14.120 --> 0:08:16.680 going to mean for the public on the toy they 0:08:16.680 --> 0:08:19.080 all carry around. Do you agree at least that there's 0:08:19.120 --> 0:08:19.640 a mystery. 0:08:20.760 --> 0:08:23.920 Yeah, but I think the mystery in the popcorn moment 0:08:24.280 --> 0:08:29.200 that's gonna be revealed at WWDC next month by Cook. 0:08:29.280 --> 0:08:32.240 I think it's going to start what I really view 0:08:32.280 --> 0:08:35.520 is probably the most important event for Apple in a decade, 0:08:36.040 --> 0:08:39.559 because it's unveiling AI on services, what I believe is 0:08:39.600 --> 0:08:42.520 going to be in a new AI app store and 0:08:42.800 --> 0:08:45.080 the start of it, and then what's going to be 0:08:45.080 --> 0:08:48.880 built into iPhone sixteen. From an LM perspective. 0:08:49.320 --> 0:08:51.959 Hey, Dan and Tom. I bumped into Dan at Newark 0:08:52.000 --> 0:08:54.480 Airport yesterday. I was going up to Boston. He's getting 0:08:54.480 --> 0:08:55.800 off the Red Eye from San Francisco. 0:08:56.000 --> 0:08:59.800 No idea what's going on middle place? I have no 0:08:59.840 --> 0:09:02.400 I I mean the web Bush golf stream usually doesn't 0:09:02.440 --> 0:09:02.719 go down. 0:09:02.800 --> 0:09:05.720 I know, I know that he's fine with the people. Hey, Dan, 0:09:06.040 --> 0:09:08.959 when you talk to investors, what's the biggest challenge here 0:09:09.000 --> 0:09:11.000 for this stock? I see it down four percent year 0:09:11.040 --> 0:09:15.280 to date, which for Apple is really really underperformance. Is 0:09:15.320 --> 0:09:16.240 it China? 0:09:16.440 --> 0:09:17.280 Is it Ai? 0:09:17.600 --> 0:09:20.599 How do you prioritize kind of what Apple needs to 0:09:20.640 --> 0:09:22.160 get right over the next you know, one to two 0:09:22.200 --> 0:09:23.000 to three years. 0:09:23.800 --> 0:09:26.600 Yeah, it's a great question. I think it's really it's 0:09:26.760 --> 0:09:30.079 China because that we're used to seeing that as growth 0:09:30.200 --> 0:09:33.800 and it's actually been negative. But if you look out 0:09:33.840 --> 0:09:37.480 over the next six twelve months, the headwind becomes a talent. 0:09:37.760 --> 0:09:41.440 I mean, China, I think starts to grow next few quarters. 0:09:41.520 --> 0:09:44.760 June will be its last negative quarter. And that's why 0:09:44.840 --> 0:09:47.320 right now in New York City, cab drivers barish and Apple. 0:09:47.480 --> 0:09:51.400 But you have this pent up upgrade cycle, two into 0:09:51.400 --> 0:09:54.720 seventy million that have an upgrade, and four plus years 0:09:55.360 --> 0:09:58.360 plus now AI coming to Cooper Tino with one hundred 0:09:58.360 --> 0:10:00.960 and ten billion dollar buy back. I mean, that's like 0:10:01.040 --> 0:10:03.000 going up against Brunt in the playoffs. 0:10:03.720 --> 0:10:06.439 Good, good analogy, Mike. The concern in the back of 0:10:06.480 --> 0:10:08.520 my mind, Dan, and I'm guessing I'm not the only one. 0:10:08.600 --> 0:10:13.840 Is this growing? I guess cold war between China and 0:10:13.880 --> 0:10:19.560 the West. That's spilling over into consumer behavior and maybe 0:10:19.640 --> 0:10:22.680 people on the margin are not going to buy Apple 0:10:22.720 --> 0:10:24.720 products to the same degree they did in the past 0:10:24.800 --> 0:10:27.560 because of that. Is that did the numbers show that 0:10:27.600 --> 0:10:27.880 at all? 0:10:29.120 --> 0:10:34.920 I think the doomsday scenarios never really came true this quarter. 0:10:35.080 --> 0:10:37.760 I mean that's and I think that was that was 0:10:37.840 --> 0:10:41.679 evident because yeah, they have some geopolitical ahead winds the 0:10:41.760 --> 0:10:45.440 Huawei issues, but you build the best products in the 0:10:45.480 --> 0:10:49.640 world like they do. Consumers, whether they're in China, New 0:10:49.720 --> 0:10:53.360 Jersey or wherever else, they're gonna want iPhones. 0:10:54.000 --> 0:10:56.880 All right, So at this developer conference, how do you 0:10:56.920 --> 0:10:59.800 think it's gonna play out? Because it feels like they're 0:10:59.800 --> 0:11:02.000 all is important to Apple, They're always important to the stock, 0:11:02.040 --> 0:11:04.640 but this one because there may be this AI component, 0:11:05.000 --> 0:11:07.319 what do you what would you like to see happen 0:11:07.440 --> 0:11:09.680 at this June uh get together? 0:11:10.400 --> 0:11:12.880 Yeah, and this and German's talked about this, but this 0:11:12.960 --> 0:11:16.080 is all focused on developers, yep. So the big thing 0:11:16.240 --> 0:11:22.400 here is really them unveiling a foundational platform for developers 0:11:22.440 --> 0:11:26.560 where they're gonna build AI apps within the app store. 0:11:27.360 --> 0:11:28.559 And what that's really gonna do? 0:11:28.640 --> 0:11:30.360 I mean, kings King's. 0:11:30.040 --> 0:11:33.360 Talked about this a lot. But the A as AI 0:11:33.480 --> 0:11:38.160 comes to the consumer, it has to come through Apple 0:11:38.760 --> 0:11:42.880 till Apple dives into deep of the pool AI and 0:11:42.920 --> 0:11:44.040 then it could all start. 0:11:45.160 --> 0:11:47.520 I feel like I'm doing a lovelte conversation. This is 0:11:47.559 --> 0:11:50.520 so non time keen Dan Ives and so we're are 0:11:50.559 --> 0:11:53.360 Google and Apple frenemies right now? I mean, if they 0:11:53.400 --> 0:11:57.560 need the Google platform to make AI happen, how does that? 0:11:57.720 --> 0:12:01.439 How forget about the regulation in the litigation? This weekend, 0:12:01.480 --> 0:12:04.679 they're gonna chit chat over an expensive latte out in 0:12:04.800 --> 0:12:06.559 Cooper Tino. Are they fre enemies? 0:12:07.840 --> 0:12:10.840 Oh? I mean I'd say they're just actually friends and 0:12:10.960 --> 0:12:13.559 to some extent that that's getting closer and closer because 0:12:13.559 --> 0:12:17.160 they need each other. You will, Google needs Apple just 0:12:17.200 --> 0:12:20.280 like Apple needs Google. And that's something when it comes 0:12:20.280 --> 0:12:28.120 to AI. What's what's made them more BFFs is actually Microsoft. 0:12:28.720 --> 0:12:33.960 Because this Microsoft has aggressively really wed this. It's actually 0:12:34.120 --> 0:12:37.440 forced Apple and Google to look in the mirror and 0:12:37.520 --> 0:12:41.160 realize instead of enemies, they're actually friends. 0:12:41.160 --> 0:12:43.079 The great thing about chat with Dan Ives Thomas, you 0:12:43.120 --> 0:12:45.440 can just go all over the place. So I'm gonna 0:12:45.440 --> 0:12:46.079 switch gear. 0:12:46.040 --> 0:12:48.360 Just tearing them up on the live chat. Everybody wants 0:12:48.360 --> 0:12:50.400 to know where he got his shirt up. I mean, 0:12:50.800 --> 0:12:52.839 you know, they don't care about Apple. They just you know, 0:12:53.240 --> 0:12:55.040 did you get that at Lord and Taylor? That's what 0:12:55.080 --> 0:12:55.719 they want to know. 0:12:56.280 --> 0:12:58.959 Now I got I got this one in this in Milan. 0:12:59.240 --> 0:13:01.360 It's no, this is It's like it's like a pul 0:13:01.880 --> 0:13:03.160 special right from Milan. 0:13:04.360 --> 0:13:11.000 Can we have Dan luxury for me? Is like ll Beam. 0:13:12.880 --> 0:13:13.959 At the thrift store? 0:13:14.000 --> 0:13:16.000 Can you see Dana eyes and ll Beam? Now of 0:13:16.080 --> 0:13:17.320 course they don't. 0:13:18.320 --> 0:13:21.079 Hey Dan, I'm looking at our good friends Tesla and 0:13:21.200 --> 0:13:25.040 stock down thirty percent here? How does that narrative need 0:13:25.160 --> 0:13:27.360 to change for Elon, you know, over the next several 0:13:27.480 --> 0:13:29.839 quarters here to get this stock moving. 0:13:30.840 --> 0:13:31.080 Yeah. 0:13:31.240 --> 0:13:34.559 Look, I mean obviously it's been a dark few quarters, 0:13:34.600 --> 0:13:37.200 but I think it all started with this last conference 0:13:37.240 --> 0:13:40.439 call in terms of turning it around. What I've used 0:13:40.440 --> 0:13:43.640 this up thirty thousand dollars vehicle next year. They've had 0:13:43.640 --> 0:13:47.040 to make some difficult cost cuts, but now I think 0:13:47.120 --> 0:13:50.640 growth will start to return in China. That's the key. 0:13:51.360 --> 0:13:54.160 And then you look at this time ahead it's really 0:13:54.240 --> 0:13:58.920 full self driving autonomous. That vision now is starting to 0:13:58.960 --> 0:14:02.640 become something close to reality. And that's the longer term 0:14:02.760 --> 0:14:05.880 Tesla story here is that you know they've been through 0:14:05.960 --> 0:14:08.959 this before. This is not the end of the Tesla 0:14:09.000 --> 0:14:11.079 growth story. It's still second third in it. 0:14:11.559 --> 0:14:14.079 Dan, I gotta get some news out here. I mean, 0:14:14.080 --> 0:14:16.080 you're in the office, you go back to your house. 0:14:16.120 --> 0:14:18.920 I understand you're published at any moment. You're out at 0:14:18.960 --> 0:14:21.440 a two fifty on Apple? Can we make some news 0:14:21.440 --> 0:14:23.520 here with a price lift? Can you go? Can you 0:14:23.560 --> 0:14:25.920 give me two seventy here on Bloomberg Serioce? 0:14:25.920 --> 0:14:28.880 Well, well, what I will tell you, Tom Will I 0:14:28.920 --> 0:14:33.320 think the AI story is worth forty to fifty dollars 0:14:33.480 --> 0:14:37.640 per share to the Apple store, and that is not 0:14:37.840 --> 0:14:42.360 being factored in here. Sentiments negative and we I think 0:14:42.400 --> 0:14:45.760 we sit here a year from now and and that's 0:14:45.800 --> 0:14:48.520 that's gonna be what I've used a game changer. It's 0:14:48.520 --> 0:14:52.640 the underestimation of Cook and Coopatina with am. 0:14:52.560 --> 0:14:54.800 Can I put a headline out ives of Milan? 0:14:55.320 --> 0:14:55.520 Yes? 0:14:55.720 --> 0:14:59.520 Sure, Apple three hundred dollars a share? Did I hear that? Dan? 0:14:59.600 --> 0:15:04.240 I've thank you with web Bush's the way the shirt. 0:15:04.480 --> 0:15:06.680 You know, I don't know what to say that. I've 0:15:06.720 --> 0:15:09.120 never done that folks. I've never done more touchy pheely 0:15:09.160 --> 0:15:11.680 with Dan ives on Apple, but I think this AI 0:15:11.800 --> 0:15:18.920 thing a real mystery and a real debate. David Miracle 0:15:19.000 --> 0:15:21.160 is one of the toughest PhDs in the land that 0:15:21.360 --> 0:15:25.320 under Greg Man Q at Harvard with Golden Sacks, David, 0:15:25.360 --> 0:15:26.680 thank you so much for joining. I want to get 0:15:26.720 --> 0:15:30.120 to immigration in a moment. How much algebra was there 0:15:30.160 --> 0:15:33.840 with Man Q. I mean, I can't fathom the algebra 0:15:33.920 --> 0:15:36.080 rigger you had to put up with under Greg Man Q. 0:15:37.960 --> 0:15:40.560 Well, you do move from algebra to calculus when you 0:15:40.720 --> 0:15:41.680 stick around millions. 0:15:43.200 --> 0:15:46.200 Okay, Well, David, thank you for being with us. Your 0:15:46.320 --> 0:15:48.680 essay on immigration is the debate of the moment for 0:15:48.720 --> 0:15:52.080 this nation. With your research at Goldben Sachs, can you 0:15:52.120 --> 0:15:57.120 say that immigration has moved the needle on our labor economy? 0:15:57.880 --> 0:15:59.920 I think it's you know, it's clearly had a mechanic 0:16:00.040 --> 0:16:03.440 whole impact on things like job growth and GDP growth. 0:16:03.760 --> 0:16:07.040 That part's pretty easy. More people, more entrance to the workforce, 0:16:07.120 --> 0:16:09.600 you can put more people to work. GDP can grow 0:16:09.640 --> 0:16:13.040 a little bit faster. Maybe the more contentious part is 0:16:13.080 --> 0:16:15.960 what impact all of this had on wage growth and inflation, 0:16:16.600 --> 0:16:18.720 where you know, we saw a big increase at a 0:16:18.760 --> 0:16:22.800 time when immigration was extremely low because the borders were 0:16:22.840 --> 0:16:25.000 closed and fewer people were coming. Then we saw a 0:16:25.040 --> 0:16:28.960 big decline in wage growth and inflation when immigration surged, 0:16:29.000 --> 0:16:32.000 and it naturally raises the question is there's some link there. 0:16:32.600 --> 0:16:36.120 My take is it probably did play a modest and 0:16:36.200 --> 0:16:40.440 secondary role as one of several factors. But you know, 0:16:40.480 --> 0:16:43.800 I don't think it was the main story. Normally. You know, 0:16:43.880 --> 0:16:46.480 a lot of people I think quickly think of immigrants 0:16:46.480 --> 0:16:48.360 as well. You have more workers that should help to 0:16:48.400 --> 0:16:51.600 rebalance the labor market. Economists is of course going to 0:16:51.640 --> 0:16:53.760 point out, well, you know, now that they've come to 0:16:53.760 --> 0:16:55.840 the US, they're consuming in the US as well, not 0:16:55.960 --> 0:16:58.360 just producing in the US, so you've boosted both supply 0:16:58.520 --> 0:17:02.080 and demand, and under normal conditions, I'd probably say is 0:17:02.080 --> 0:17:04.280 I think most people would say that it would be 0:17:04.280 --> 0:17:07.119 a wash, that it doesn't matter too much that you know, 0:17:07.160 --> 0:17:10.440 when we economists and markets think about forecasting wage growth 0:17:10.480 --> 0:17:13.400 and inflation, this is just not something at the top 0:17:13.440 --> 0:17:16.640 of our list that we're considering. I do think this 0:17:16.800 --> 0:17:20.240 recent episode, though, was a little bit different, because if 0:17:20.240 --> 0:17:22.920 you remember back to the beginning, of the immigration surge, 0:17:23.160 --> 0:17:26.399 we had probably the tightest peacetime labor market in the 0:17:26.480 --> 0:17:29.280 history of the United States. So I think under those 0:17:29.400 --> 0:17:33.560 unique circumstances where you had a huge supply demand imbalance 0:17:33.600 --> 0:17:37.119 in the labor market, and in particular, the low wage 0:17:37.160 --> 0:17:39.960 part of the labor market was just red hot, generating 0:17:40.040 --> 0:17:43.640 really hot wage growth. Under those unique circumstances, I think 0:17:43.680 --> 0:17:46.800 it's fair to say that an influx of another million, 0:17:47.000 --> 0:17:49.720 mostly low wage workers probably helped cool. 0:17:50.119 --> 0:17:53.560 So, David, given that backdrop here, how would you characterize 0:17:53.560 --> 0:17:55.840 the US labor market. We've got, I guess, a headline 0:17:55.880 --> 0:17:58.959 of three point nine percent unemployment, three point eight percent unemployment. 0:17:59.560 --> 0:18:01.359 How do you characterized the labor market? How do you 0:18:01.359 --> 0:18:03.560 think the FED views the US labor market? 0:18:04.880 --> 0:18:09.360 Yeah, I think basically we've restored the pre pandemic balance, 0:18:09.560 --> 0:18:12.000 but things are a little bit more complicated. So if 0:18:12.000 --> 0:18:13.800 you look at a lot of different measures of how 0:18:13.840 --> 0:18:16.800 tight the labor market is, the unemployment rate, our jobs 0:18:16.840 --> 0:18:21.320 workers gap, survey based measures, many other data points, and 0:18:21.359 --> 0:18:23.840 you just average all of them, the average is basically 0:18:23.880 --> 0:18:26.680 where it was in twenty nineteen, down a long way 0:18:26.680 --> 0:18:29.000 from twenty twenty two. I think the FED would say 0:18:29.440 --> 0:18:32.159 that's ideal. In twenty nineteen, we kind of had the 0:18:32.240 --> 0:18:35.400 you know, in retrospect, the best of all possible worlds, 0:18:35.440 --> 0:18:38.719 abundant job opportunities, low unemployment, but we didn't have an 0:18:38.760 --> 0:18:42.439 inflation problem. By twenty twenty two, we'd probably overshot. You know, 0:18:42.480 --> 0:18:45.919 twenty nineteen was one of the tightest labor markets in history. 0:18:45.960 --> 0:18:49.359 Twenty twenty two was kind of drastically tighter, and I 0:18:49.359 --> 0:18:52.600 think most FED officials concluded that's not the right place 0:18:52.640 --> 0:18:55.920 to be, especially when you have a big inflation problem. 0:18:57.000 --> 0:18:58.560 At this point, though, I think, you know, we can 0:18:58.640 --> 0:19:00.760 kind of say now and fact, we could say by 0:19:00.840 --> 0:19:04.479 last fall that we have restored that pre pandemic balance. 0:19:04.560 --> 0:19:07.520 The reason I say it's more complicated is that there's 0:19:07.600 --> 0:19:11.520 more dispersion among these indicators. They tell a less consistent story, 0:19:12.359 --> 0:19:14.080 and you know, that means you can be a little 0:19:14.080 --> 0:19:17.000 bit less confident about where we are than if they 0:19:17.040 --> 0:19:18.600 all told exactly the same story. 0:19:19.240 --> 0:19:22.560 Hey, David, I'm looking at your team's note from early April. 0:19:22.600 --> 0:19:25.119 You talk about GDP forecast a little bit higher than 0:19:25.160 --> 0:19:30.040 consensus PCE inflation falling pretty significantly, leading maybe the FED 0:19:30.040 --> 0:19:32.080 to cut maybe as many as three times this year. 0:19:32.119 --> 0:19:35.200 Is that's still the Goldman Sex call? 0:19:35.240 --> 0:19:38.040 We think twice at this point, once in July, once 0:19:38.080 --> 0:19:40.119 in November. And you know, I'd be the first to 0:19:40.200 --> 0:19:43.720 acknowledge that that decision is going to be very, very 0:19:43.760 --> 0:19:47.280 sensitive to very small surprises on the inflation data. With 0:19:47.680 --> 0:19:49.679 you know, I don't think anyone can be certain about. 0:19:50.119 --> 0:19:52.320 Well when you look at the you know, with you 0:19:52.400 --> 0:19:55.120 and your Hatzia is having to put together a call 0:19:55.200 --> 0:19:58.639 Peter Oppenheimer over in London, you put together call do 0:19:58.680 --> 0:20:03.280 you have not certitude? But do you have a confidence 0:20:03.320 --> 0:20:05.520 in the summer and into the end of the year. 0:20:06.200 --> 0:20:08.800 Are you basically flying blind till you do your next 0:20:08.840 --> 0:20:13.240 conference call to figure out what the view is? Well? 0:20:13.280 --> 0:20:16.159 There, you know, there's always some interplay between the economic 0:20:16.240 --> 0:20:19.919 side and the market side. We try to incorporate that 0:20:20.240 --> 0:20:23.359 through our Financial Conditions index framework, and so it's very 0:20:23.359 --> 0:20:25.439 helpful to be able to work with our strategists to 0:20:25.480 --> 0:20:29.800 get some sense of how that impulse from changing financial 0:20:29.840 --> 0:20:32.600 conditions broadly might matter for our economic forecast. 0:20:32.680 --> 0:20:35.000 So where's your nominal GDP call? Now, that's been one 0:20:35.000 --> 0:20:37.520 of our themes this morning, is a lot of people 0:20:37.560 --> 0:20:40.639 looking at resilient rates figure in a resilient inflation in 0:20:40.680 --> 0:20:44.080 that you know, we may not get nominal GDP under 0:20:44.160 --> 0:20:47.080 four percent or can you can you be more cautious? 0:20:48.119 --> 0:20:50.840 Yeah, so we would have it this year at a 0:20:50.880 --> 0:20:53.639 little bit over five percent, but by the end of 0:20:53.680 --> 0:20:56.720 twenty twenty five approaching that four percent number you mentioned. 0:20:57.320 --> 0:20:58.920 Wow, Wow, interesting. 0:20:59.160 --> 0:21:02.680 So David, us about the consumer here? The US consumer? 0:21:03.320 --> 0:21:04.120 What's your call here? 0:21:04.160 --> 0:21:05.440 I know we're going to hear from Walmart and a 0:21:05.480 --> 0:21:07.840 bunch of other retailers in the coming week or so 0:21:07.880 --> 0:21:09.359 when we'll get a better handle on it, But how 0:21:09.359 --> 0:21:11.360 do you guys think about the US consumer? 0:21:11.600 --> 0:21:11.840 Sure? 0:21:11.880 --> 0:21:13.960 Look, I think there's been a bit of a disconnect 0:21:13.960 --> 0:21:16.720 between how we and other people looking at macro data 0:21:16.760 --> 0:21:18.760 would think about this and how people who have been 0:21:19.080 --> 0:21:21.879 focused on some of these company reports might think about it. 0:21:21.960 --> 0:21:24.360 Our take is a little bit more optimistic. I think 0:21:24.359 --> 0:21:28.359 of this as a pretty simple, straightforward story, basically the 0:21:28.400 --> 0:21:31.760 twenty twenty three story, just in water down form. What 0:21:31.840 --> 0:21:33.280 I mean by that is, you know, there was a 0:21:33.280 --> 0:21:36.159 lot of gloominess in twenty twenty three too, but we 0:21:36.200 --> 0:21:38.439 looked at the data and we thought, real income is 0:21:38.480 --> 0:21:41.040 going to grow at a pretty robust pace. People's spending 0:21:41.080 --> 0:21:45.840 power is growing robustly because wages are growing faster than inflation. 0:21:45.920 --> 0:21:48.280 We're putting a lot of people to work, and there 0:21:48.280 --> 0:21:51.560 are a couple other sources of income like interest income 0:21:51.600 --> 0:21:54.600 and some government transfers that we kind of knew were coming. 0:21:54.960 --> 0:21:57.879 And if your income's rising quickly and household balance sheets 0:21:57.920 --> 0:22:01.400 are basically the strongest in history than the natural assumption 0:22:01.520 --> 0:22:04.320 I think is that consumption keeps growing at a healthy pace. 0:22:04.720 --> 0:22:06.960