WEBVTT - Amazon Prime Day Sales, Blackstone Earnings 0:00:02.920 --> 0:00:08.520 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:00:13.920 --> 0:00:17.000 weekdays at ten am Eastern on Apple Car playing Android 0:00:17.040 --> 0:00:20.120 Auto with the Bloomberg Business App. Listen on demand wherever 0:00:20.200 --> 0:00:24.040 you get your podcasts, or watch us live on YouTube. 0:00:25.280 --> 0:00:28.320 US shoppers spend fourteen point two billion dollars during a 0:00:28.400 --> 0:00:31.120 prime day. I was not one of them, but that's 0:00:31.200 --> 0:00:33.160 up eleven percent from a year ago, as Lisa was reporting, 0:00:33.200 --> 0:00:35.120 so pretty solid results here. You got to like that 0:00:35.120 --> 0:00:38.279 if you're an Amazon follower. Punam Goyle. She is an 0:00:38.280 --> 0:00:42.760 Amazon follower, senior US equity, e commerce and retail analysts 0:00:42.760 --> 0:00:45.800 for Bloomberg Intelligence, joining us from Princeton, New Jersey via 0:00:45.840 --> 0:00:48.760 zoom pullm that the numbers Lisa was just reporting, you know, 0:00:48.800 --> 0:00:51.560 eleven billion. I'm fourteen point two billion dollars, eleven percent 0:00:51.600 --> 0:00:53.640 growth year every year. That seems pretty good to me. 0:00:53.920 --> 0:00:54.440 What do you think? 0:00:55.400 --> 0:00:57.440 Yeah, the numbers are great. You know, they continue to 0:00:57.480 --> 0:01:00.880 show that shoppers are focused on sales and their seating value, 0:01:01.040 --> 0:01:04.240 and when Amazon and others have events such as these, 0:01:04.600 --> 0:01:07.800 they do drive traffic and conversion onto the platforms. So 0:01:07.959 --> 0:01:12.320 really good numbers likely some pull forward and spend, so 0:01:12.400 --> 0:01:14.840 you will probably see things will taper off a little 0:01:14.840 --> 0:01:17.800 bit after the Prime Day sales event, but nonetheless a 0:01:17.920 --> 0:01:20.640 very strong start. It seems to three Q for Amazon. 0:01:20.800 --> 0:01:21.000 Yeah. 0:01:21.040 --> 0:01:22.960 I was just looking at eMarketer, which I know is 0:01:23.000 --> 0:01:24.920 an independent group that kind of looks at this stuff. 0:01:24.920 --> 0:01:27.520 They were expecting your shoppers to spend eight point two 0:01:27.560 --> 0:01:30.080 billion dollars on Amazon during the event, So I guess 0:01:30.080 --> 0:01:31.760 better than expected as a way to think about it. 0:01:32.720 --> 0:01:35.080 Yes, I mean the numbers are a little different because 0:01:35.080 --> 0:01:38.200 the numbers that Adobe reported are not just on Amazon, 0:01:38.200 --> 0:01:42.760 they're total online sales okay, but nonetheless very strong results, 0:01:42.800 --> 0:01:45.640 and they are better than Adobe's initial estimates for a 0:01:45.680 --> 0:01:47.240 ten point five percent increase. 0:01:47.840 --> 0:01:50.320 Average households spend one hundred and fifty two bucks on 0:01:50.400 --> 0:01:53.320 Amazon on Prime Day. That sounds like a good number 0:01:53.320 --> 0:01:54.680 as well. How does that stack out? 0:01:55.800 --> 0:01:58.760 It's like good number. We expected Amazon shoppers to shop 0:01:58.880 --> 0:02:01.040 less this year on Prime Day than last year according 0:02:01.080 --> 0:02:03.200 to our own survey that we ran ahead of Prime Day, 0:02:03.440 --> 0:02:06.760 so no surprise there. As you know, shoppers are crunched 0:02:06.800 --> 0:02:09.359 for cash and they are trying to be picky and 0:02:09.440 --> 0:02:12.359 choosy on where they spend what they spend shopping really 0:02:12.400 --> 0:02:14.839 on the lists that they had going into Prime Day. 0:02:15.120 --> 0:02:17.880 So we're seeing a little bit of that, but overall, 0:02:17.919 --> 0:02:21.679 more shoppers joined Prime Day this year, reported by Amazon, 0:02:21.960 --> 0:02:24.000 which proves to be even more encouraging because you know, 0:02:24.040 --> 0:02:27.400 when you see that, you know that trend hopefully holds 0:02:27.440 --> 0:02:31.040 up and drives more shopping on the platform even after 0:02:31.120 --> 0:02:31.639 Prime Day. 0:02:32.400 --> 0:02:35.359 You know, you see numbers like the Amazon Prime Day 0:02:35.440 --> 0:02:37.200 number of the eleven percent growth year every year. It 0:02:37.200 --> 0:02:39.800 seems like a really strong number. We had Retail sales 0:02:39.840 --> 0:02:43.240 earlier in the week came in better than expected. You know, 0:02:43.600 --> 0:02:45.840 I know the consumer's hurting out there. I know inflation's 0:02:45.880 --> 0:02:49.240 hitting a lot of folks really hard, but it doesn't 0:02:49.240 --> 0:02:51.959 seem like we're seeing in the spending. How do you 0:02:52.000 --> 0:02:53.160 guys think about it? What do you hear from the 0:02:53.160 --> 0:02:53.919 companies that you cover? 0:02:54.840 --> 0:02:57.040 Yeah, I think it depends on the retailers that you're 0:02:57.080 --> 0:02:59.280 looking at. I do think that, you know, we've talked 0:02:59.280 --> 0:03:02.360 about this in the past, where the value customer is 0:03:02.400 --> 0:03:05.120 trading down. We've seen that in the results earlier this 0:03:05.200 --> 0:03:07.960 year at Walmart, where numbers are strong because they are 0:03:08.040 --> 0:03:11.560 driving in more customers into their doors and online, and 0:03:11.600 --> 0:03:14.360 then the middle you know, the department stores. They continue 0:03:14.440 --> 0:03:17.440 to get squeezed to the large extent, and I think 0:03:17.520 --> 0:03:21.080 that trend will continue. So I do think that where 0:03:21.120 --> 0:03:25.120 there's the right product the right price, customers are going there. 0:03:25.280 --> 0:03:29.119 They're still going to experiences, They're going for convenience, which 0:03:29.160 --> 0:03:31.799 is where Amazon plays a big role. But they are 0:03:31.800 --> 0:03:35.080 being picky and choosy, and there will be some bifurcation 0:03:35.200 --> 0:03:39.280 when they report between the numbers because not everyone will 0:03:39.280 --> 0:03:41.640 do well as we're hearing and seeing in these numbers. 0:03:42.480 --> 0:03:45.240 It's only mid July, but I guess people with kids 0:03:45.280 --> 0:03:47.200 have to start thinking about back this school. My guys 0:03:47.200 --> 0:03:51.080 are all out of that stage, thankfully. What's the back 0:03:51.120 --> 0:03:53.800 to school season look like this year? What are the expectations. 0:03:54.720 --> 0:03:57.200 Yeah, the expectations are for back to school season sales 0:03:57.200 --> 0:03:59.320 to grow and Prime Day is going to help with that. 0:03:59.720 --> 0:04:02.760 This year's Prime Day event came a little later in 0:04:02.800 --> 0:04:05.320 the season, which means that more back to school shopping 0:04:05.400 --> 0:04:09.720 likely occurred, dorm shopping, etc. On the Prime Day sales event. 0:04:10.200 --> 0:04:14.640 That said, you know, you will see people buy backpacks, 0:04:14.720 --> 0:04:16.760 you will see them by supplies, you will see them 0:04:16.800 --> 0:04:20.680 shop for dorm room stuff and apparel. But at the 0:04:20.680 --> 0:04:23.279 same time, where are they shopping for that. I think 0:04:23.320 --> 0:04:25.400 the retailers that are going to drive that spend are 0:04:25.400 --> 0:04:27.880 continuing to be the same. It's going to be the Amazon's, 0:04:27.920 --> 0:04:30.560 It's going to be the walmarts, the targets where they 0:04:30.560 --> 0:04:32.440 can get the value that they're looking for. 0:04:33.600 --> 0:04:37.120 So what is the expectation for the holiday season this year? 0:04:38.440 --> 0:04:41.920 Are you guys forecasting growth in holiday spending? Because I 0:04:41.960 --> 0:04:44.440 know that's the big part for the big season for retailers. 0:04:45.279 --> 0:04:47.640 We are expecting growth this holiday season, but I do 0:04:47.640 --> 0:04:50.279 think there are challenges as we enter the holiday season. 0:04:50.560 --> 0:04:53.960 Keep in mind that the retail calendar is different this year, 0:04:54.000 --> 0:04:57.039 so it is a tougher calendar. Comparison. Last year was 0:04:57.200 --> 0:04:59.799 very very strong. Last year had some extra selling days, 0:05:00.120 --> 0:05:04.080 so the calendar shakes up as being a headwind and 0:05:04.120 --> 0:05:06.920 going into the holiday season. That said, with elections and 0:05:07.000 --> 0:05:09.840 just so many other things happening this year, we do 0:05:09.880 --> 0:05:12.360 think the consumer is going to be a little diverted, 0:05:12.680 --> 0:05:15.400 so retailers will have to work harder to capture their 0:05:15.440 --> 0:05:18.359 spend and it will be a tougher holiday season. But 0:05:18.400 --> 0:05:20.680 we do see some growth still this year. 0:05:21.839 --> 0:05:24.440 What are we seeing just in the dynamic punum of 0:05:24.600 --> 0:05:28.799 the of the bricks and mortar versus e commerce Because 0:05:28.800 --> 0:05:30.560 we had gone through i'm going to say almost a 0:05:30.600 --> 0:05:36.200 generation of downsizing retail footprint in the United States, and 0:05:36.240 --> 0:05:37.520 I kind of got the sense that they're in a 0:05:37.560 --> 0:05:40.120 pandemic that kind of slowed, if not reversed a little bit. 0:05:40.120 --> 0:05:43.640 Where are we on that dynamic beyond between I need 0:05:43.640 --> 0:05:46.560 to own some brick and mortar versus you know, I 0:05:46.600 --> 0:05:48.600 can kind of go lean more heavily on retail. 0:05:48.760 --> 0:05:52.480 On etail, sure, so I think, you know, we'll always 0:05:52.520 --> 0:05:55.000 need brick and mortar store. They don't think they go away. 0:05:55.040 --> 0:05:57.279 But we've talked about this before. I do think we 0:05:57.320 --> 0:06:00.320 need some balance, and we're still continuing to push forward 0:06:00.400 --> 0:06:04.000 on that balance. There will be more consolidation in retail. 0:06:04.680 --> 0:06:08.200 I think it's necessary because we still are overstored. But 0:06:08.279 --> 0:06:11.000 at the same time, we have retailers coming in from 0:06:11.040 --> 0:06:14.760 abroad that are expanding. Whether it's the Primarks once again 0:06:14.760 --> 0:06:17.760 of value play, or whether it's the Alds and some 0:06:17.800 --> 0:06:21.720 of the Grosers. We are seeing them take space as 0:06:21.760 --> 0:06:23.919 they encroach on the US landscape. 0:06:24.080 --> 0:06:24.839 That's that our. 0:06:24.839 --> 0:06:29.480 Estimates call for retail sales growing to a third, retail 0:06:29.520 --> 0:06:31.840 sales growing to a third of total retail sales, up 0:06:31.839 --> 0:06:36.599 from twenty five percent last year. So still high single digit, 0:06:36.720 --> 0:06:40.080 double digit growth in the online landscape for the next 0:06:40.160 --> 0:06:43.320 five to seven years, which means that people will be 0:06:43.400 --> 0:06:46.480 shopping less eforic and mortars and more online. And we 0:06:46.560 --> 0:06:49.039 saw that trend come back, you know, right after the pandemic, 0:06:49.400 --> 0:06:52.359 you saw this rush to stores because people wanted the 0:06:52.400 --> 0:06:55.760 experience of seeing things, touching things being out there. But 0:06:55.880 --> 0:06:58.400 now they've normalized again and we are seeing the shift 0:06:58.480 --> 0:07:00.000 back to shopping more online. 0:07:00.760 --> 0:07:03.240 All right, interesting stuff. Put them Goyle, Thank you so 0:07:03.320 --> 0:07:06.040 much for joining us. Put Them Goyle, Senior US e 0:07:06.080 --> 0:07:09.440 Commerce and Retail Annis Bloomberg Intelligence. Joining us via zoom 0:07:09.520 --> 0:07:11.560 from Princeton. 0:07:11.760 --> 0:07:15.640 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:07:15.720 --> 0:07:17.560 weekdays at ten am Eastern on. 0:07:17.600 --> 0:07:19.800 Apple card Play and Android Auto with. 0:07:19.760 --> 0:07:22.640 The Bloomberg Business app. You can also listen live on 0:07:22.720 --> 0:07:25.960 Amazon Alexa from our flagship New York station. Just say 0:07:26.040 --> 0:07:29.120 Alexa play Bloomberg eleven thirty. 0:07:30.240 --> 0:07:31.760 Let's talk to from Earning Shore. We had a big 0:07:32.360 --> 0:07:35.400 earnings play coming out of the financial services Blackstone profit. 0:07:36.360 --> 0:07:39.880 Blackstone just huge, huge asset manager. It's just amazing how 0:07:39.920 --> 0:07:43.120 big they've become on global Wall Street. But their profit 0:07:43.160 --> 0:07:46.160 missed estimates as real estate exit slow. Let's bring in 0:07:46.160 --> 0:07:49.080 Paul Goldberg. He follows that part of the financial services 0:07:49.080 --> 0:07:52.560 sector for us. Paul Blackstone doesn't get any bigger, more 0:07:52.600 --> 0:07:56.160 influential from an asset management perspective than our friends at Blackstone. 0:07:56.440 --> 0:07:58.160 Talk to us about the quarter they just reported. 0:08:00.080 --> 0:08:02.680 Thank you for having me. The quarter was more and 0:08:02.680 --> 0:08:04.960 more or less as expected. You did mention and missed 0:08:04.960 --> 0:08:08.720 by a few pennies. But a lot of the profitability 0:08:08.840 --> 0:08:12.040 depends on realization activity, which was slow, and it wasn't 0:08:12.080 --> 0:08:14.200 just the real estate. It was kind of on the 0:08:14.440 --> 0:08:19.239 slower end across the segments and the strategies that they cover. 0:08:19.880 --> 0:08:22.960 So I don't think it's surprising. And what we've saw 0:08:23.400 --> 0:08:25.800 is what we're kind of seeing in the headlines. The 0:08:25.840 --> 0:08:29.880 private equity is improving but slowly. Real estate's still kind 0:08:29.880 --> 0:08:32.240 of dragging its feet, and the private credit is being 0:08:32.360 --> 0:08:35.960 very strong. So the profitability that they showed was very 0:08:36.040 --> 0:08:37.080 much along those lines. 0:08:37.640 --> 0:08:41.559 What are they saying about the real commercial real estate business? 0:08:41.600 --> 0:08:43.560 Because when I think about that business. I think about 0:08:43.600 --> 0:08:46.080 the Blackstones of the world, I think about Morgan Stanley. 0:08:46.080 --> 0:08:49.160 They've always been big investors in real estate. What are 0:08:49.200 --> 0:08:52.400 the smart people telling you about that part of the market. 0:08:53.920 --> 0:08:56.880 The smart people that Blackstone said, we got out of 0:08:56.920 --> 0:09:00.720 that market, so not not completely. So there's still a 0:09:00.720 --> 0:09:03.200 few percentage of the portfolio in the US real estate, 0:09:03.240 --> 0:09:06.880 and they still mention that it's pretty painful and globally 0:09:06.920 --> 0:09:09.200 there is some commercial real estate that they're in, but 0:09:09.400 --> 0:09:13.240 three quarters of the real estate portfolio is in multifamily 0:09:13.720 --> 0:09:17.760 logistic data centers where they're pushing with their AI. It's 0:09:17.800 --> 0:09:21.720 a very different composition. Can you see idiosyncratic pains, something 0:09:21.960 --> 0:09:25.200 going out of line, Yes, absolutely, But in terms of 0:09:25.240 --> 0:09:28.240 the future growth, I think they're positioned quite differently from 0:09:28.280 --> 0:09:30.000 the kind of seen from the banks. 0:09:30.320 --> 0:09:32.680 And Blackstone is up about three and a half percent today, 0:09:32.880 --> 0:09:35.360 the stock at a fifty two week high. What are 0:09:35.360 --> 0:09:38.320 they saying about deal activity here? Because I know Paul, 0:09:38.360 --> 0:09:41.880 the m and A market, the IPO market the last 0:09:41.960 --> 0:09:44.240 couple of years has been pretty slow, so it's tough 0:09:44.240 --> 0:09:47.000 for the Blackstones of the world to kind of realize 0:09:47.280 --> 0:09:50.520 and get some liquidity on their investments. What are they 0:09:50.520 --> 0:09:51.120 saying about that? 0:09:52.080 --> 0:09:55.839 Yeah, so some green shoots there some improvement in second quarter, 0:09:55.920 --> 0:09:59.320 although obviously not material enough to lift the earnings, but 0:09:59.440 --> 0:10:03.560 they're seeing getting better into a second half and most 0:10:03.559 --> 0:10:05.360 of it and they kind of mentioned it three months 0:10:05.400 --> 0:10:07.480 ago on the earnings call. We'll probably have to wait 0:10:07.520 --> 0:10:09.240 till the end of the year and go into the 0:10:09.280 --> 0:10:12.640 twenty five for material improvement. And that's what you're kind 0:10:12.679 --> 0:10:16.160 of seen in the consensus reflected that people do see 0:10:16.800 --> 0:10:20.640 a significant lift. And in terms of activity, they deployed 0:10:20.640 --> 0:10:24.160 thirty four billion dollars. They had almost forty billion dollars 0:10:24.160 --> 0:10:27.720 of being closed during the quarter. So the activity is improving. 0:10:27.880 --> 0:10:29.839 It's not at the twenty twenty one levels, and it 0:10:29.840 --> 0:10:33.400 will take some time to get back there, but it's better. 0:10:34.120 --> 0:10:37.080 Hey, Paul, you know when you think Blackstoney thinks Stephen Schwartzman, 0:10:37.160 --> 0:10:39.480 the chairman, the CEO, the co founder, one of the 0:10:39.559 --> 0:10:43.840 all time greats of the giants in private equity. He's 0:10:43.880 --> 0:10:46.680 seventy seven years old. And I know Jonathan Gray there 0:10:46.800 --> 0:10:49.880 is the president's COO and he's fifty four. What is 0:10:49.880 --> 0:10:52.680 a succession plan there at Blackstone? 0:10:54.320 --> 0:10:56.600 You did mention the two figures and it kind of 0:10:56.640 --> 0:11:00.720 looks pretty straight at the moment unless things engine. But 0:11:00.800 --> 0:11:04.920 Jonathan Gray has been doing a great job and Schwartzman 0:11:05.120 --> 0:11:07.920 is not planning to step away as we see in 0:11:07.960 --> 0:11:10.560 at the moment. But there's a line of succession that's 0:11:10.600 --> 0:11:11.560 clearly there. 0:11:12.160 --> 0:11:15.080 Paul, Are they is Blackson in a capital raise mode? 0:11:15.080 --> 0:11:15.240 Now? 0:11:15.240 --> 0:11:18.080 Where are they in terms of their capital. 0:11:18.400 --> 0:11:21.120 I think with one point one trillion dollars of assets 0:11:21.120 --> 0:11:25.480 on management and different buckets that I discussed earlier, they 0:11:25.679 --> 0:11:30.560 constantly in the fundraising mode. So the big areas where 0:11:30.559 --> 0:11:35.080 they fundraising, they fundraising, and infrastructure they're fundraising, and mentioned 0:11:35.160 --> 0:11:39.320 data centers, then fundraising in wealth strategies. They have already 0:11:39.360 --> 0:11:41.800 two hundred and forty billion dollars of assets that in 0:11:41.840 --> 0:11:45.439 different wealth strategies. Early in the year. Last year we 0:11:45.520 --> 0:11:49.240 had some issues where you saw some outflows from wealth strategies. 0:11:49.440 --> 0:11:53.079 They all positive this quarter, so those are so those 0:11:53.120 --> 0:11:55.440 are good things. And then they talked about the big 0:11:55.520 --> 0:11:59.240 flagship funds. They're raising more of them in the second 0:11:59.679 --> 0:12:03.480 half and even more coming back in twenty twenty five, 0:12:03.679 --> 0:12:05.920 which helps their peace YEP. 0:12:06.280 --> 0:12:08.680 Absolutely all right, Paul, thanks very much, appreciate it. As 0:12:08.720 --> 0:12:11.960 always Paul Goldberg. He's a senior echoanalyst Bloomberg Intelligence. He 0:12:12.000 --> 0:12:14.719 covers a lot of those asset managers, the kqrs, the 0:12:14.760 --> 0:12:17.560 blackstones of the world. He also covers the Canadian banks, 0:12:17.960 --> 0:12:19.720 so he does it all for Bloomberg Intelligence. He's then 0:12:19.800 --> 0:12:20.320 in Princeton. 0:12:21.840 --> 0:12:25.720 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:12:25.800 --> 0:12:29.120 weekdays at ten am Eastern on AFOCAR, playing Android otto 0:12:29.240 --> 0:12:32.160 with the Bloomberg Business App. Listen on demand wherever you 0:12:32.240 --> 0:12:36.360 get your podcasts, or watch us live on YouTube. 0:12:37.120 --> 0:12:39.120 Matt Miller sitting in for Alex Steel here today on 0:12:39.200 --> 0:12:41.680 Paul Sooney. You live here on our Bloomberg Interactive Brokers studio, 0:12:41.760 --> 0:12:44.600 streaming live on YouTube as well. 0:12:44.640 --> 0:12:44.880 Here. 0:12:44.920 --> 0:12:47.720 We had a raft of economic data recently, including today, 0:12:47.760 --> 0:12:49.840 we had the initial jobless claims. Give me a little 0:12:49.840 --> 0:12:51.959 bit higher than expect it. But I don't know. The 0:12:52.080 --> 0:12:54.880 question I think is has this been a reserve already 0:12:54.880 --> 0:12:57.000 gotten us a soft landing. I don't know. It feels 0:12:57.000 --> 0:12:59.040 like it ticking with a professional who does the stuff 0:12:59.080 --> 0:13:01.920 for a living wall this joins us in studio. How 0:13:01.920 --> 0:13:03.560 good is that? So he gets a gold star. He's 0:13:03.559 --> 0:13:07.040 the chief economist over at RSM Joe, how's our FED 0:13:07.080 --> 0:13:08.559 done here in landing this economy? 0:13:08.679 --> 0:13:09.000 Okay? 0:13:09.040 --> 0:13:10.319 So you know, when we look back on this in 0:13:10.360 --> 0:13:11.880 a number of years, we're gonna think the FED did 0:13:11.920 --> 0:13:16.119 an extraordinary did an extraordinary thing, a real policy achievement 0:13:16.360 --> 0:13:19.160 in bringing the US economy in for soft landing after 0:13:19.320 --> 0:13:21.959 hiking the federal funds rate by five hundred and fifty 0:13:21.960 --> 0:13:24.680 basis points. You know what, the FED was truly data dependent. 0:13:25.000 --> 0:13:27.520 We wouldn't be waiting for a September cut to be cutting. 0:13:27.600 --> 0:13:27.920 Now. 0:13:28.200 --> 0:13:29.760 As a matter of fact, if you're all out there, 0:13:29.800 --> 0:13:32.400 look at the tayl on your Bloomberg terminal. 0:13:32.840 --> 0:13:34.880 Ah, the tailor rule. I love that function. 0:13:34.960 --> 0:13:38.960 Actually, you can estimate the Fed's reaction function using four 0:13:39.000 --> 0:13:41.880 percent as a non accelering rate of inflation and unemployment. 0:13:42.040 --> 0:13:44.760 That's the Fed's estimate, and I would suggest a neutral 0:13:44.800 --> 0:13:48.240 rate of one point one. You get an optimal rate 0:13:48.360 --> 0:13:52.440 of three point nine percent, which implies the Fed's policy rate, people, 0:13:52.640 --> 0:13:54.320 is way too tight. 0:13:54.440 --> 0:13:56.400 Why do you choose a neutral rate of one point one? 0:13:56.440 --> 0:13:57.120 Isn't it higher? 0:13:57.640 --> 0:13:57.720 No? 0:13:57.840 --> 0:14:00.640 I think it's actually well, the Fed on Williams thinks 0:14:00.640 --> 0:14:04.240 it two point five. Now I'm double that and it 0:14:04.480 --> 0:14:07.840 indeed may be higher. That's something that's unobservable. We do 0:14:07.920 --> 0:14:10.680 our best to make that estimate, Matt. But I think 0:14:10.679 --> 0:14:14.120 that that's appropriate given where the economy is and the 0:14:14.160 --> 0:14:17.280 structural changes that we're going through, because I think we're 0:14:17.280 --> 0:14:19.680 all pretty much here in Wall Street in agreement that 0:14:20.000 --> 0:14:22.960 rates are going to be higher for longer because inflation 0:14:23.400 --> 0:14:25.080 is not going to be what it was for the 0:14:25.080 --> 0:14:26.640 twenty years prior to the pandemic. 0:14:26.680 --> 0:14:29.200 It's just not due to the just you know, the. 0:14:29.120 --> 0:14:32.480 Distortions around movement of supply chains back to friendly countries, 0:14:32.680 --> 0:14:35.480 and the geopolitical tensions that are going to cause problems 0:14:35.520 --> 0:14:37.000 no matter who's in the White House. 0:14:37.400 --> 0:14:43.040 Now if we get a Trump presidency, I'm fascinated by 0:14:43.080 --> 0:14:48.000 some of his proposals because the whole premise of you know, 0:14:48.040 --> 0:14:51.200 the Republican Party is that Biden caused this inflation, and 0:14:51.240 --> 0:14:53.720 Biden inflation is bad and they're going to stop inflation. 0:14:53.840 --> 0:14:54.000 Right. 0:14:54.040 --> 0:14:57.240 But Trump wants to cut taxes. 0:14:57.400 --> 0:14:58.280 I'm happy about that. 0:14:58.400 --> 0:15:00.520 Yes, I know you're not fighting against that, but he 0:15:00.560 --> 0:15:03.520 wants to basically give us a ton of cash. Plus 0:15:03.560 --> 0:15:08.600 he wants to put tariffs on everything that's inflationary. Right, 0:15:08.640 --> 0:15:11.320 those two things are inflationary. And he wants to stop 0:15:11.360 --> 0:15:15.560 immigration and deport all of the illegal immigrants that are 0:15:15.600 --> 0:15:19.560 already here, so that would tighten the labor pool. That's inflationary. 0:15:19.600 --> 0:15:23.000 Seems like everything he wants to do is inflationary. Is 0:15:23.040 --> 0:15:25.520 he just not going to follow through on this stuff? No? 0:15:25.680 --> 0:15:28.320 Actually, after the four years of Trump, I actually take 0:15:28.400 --> 0:15:32.040 him at his word. Literally, that's what he intends to do. Right, 0:15:32.120 --> 0:15:35.040 So if you look at expectations on Wall Street, matter 0:15:35.120 --> 0:15:39.080 of fact, look at the WRP screen FED Funds probabilities 0:15:39.640 --> 0:15:42.440 market's pricing in one hundred basis points of cuts over 0:15:42.480 --> 0:15:46.800 the next five meetings. Okay, if Donald Trump is elected, 0:15:46.880 --> 0:15:49.200 that's a big if. And if he's not a very 0:15:49.200 --> 0:15:51.600 big if, well, I don't want to go there now. 0:15:51.640 --> 0:15:52.480 Gods are strong. 0:15:52.640 --> 0:15:55.080 Yeah, I agree, and I see that, and we're all 0:15:55.440 --> 0:15:58.440 adjusting our base case for twenty twenty five as we speak. 0:15:58.800 --> 0:16:01.960 But if he gets in, and if he follows through 0:16:01.960 --> 0:16:05.520 on this, unemployment rate's going to fall, Wage prices are 0:16:05.520 --> 0:16:06.880 going to go up. The FED is going to be 0:16:06.960 --> 0:16:11.120 worried about a wage price spiral. Right, then the FED 0:16:11.200 --> 0:16:14.480 will reverse course and begin hiking rates and there's where 0:16:14.520 --> 0:16:16.520 we get into what I think is the single biggest 0:16:16.680 --> 0:16:20.160 economic and financial risk of a potentially second Trump administration 0:16:20.480 --> 0:16:24.040 the independence of the Central Bank. I'm not talking about personalities. 0:16:24.360 --> 0:16:28.520 Whether Palace fired, stays, goes is immaterial. It's the instrumental 0:16:28.520 --> 0:16:30.120 independence of the FED that's at risk. 0:16:30.160 --> 0:16:33.760 I'm glad you mentioned that. Jason Furman, who was the 0:16:33.800 --> 0:16:40.320 head of the National Economic Council for Obama. Right, he 0:16:40.360 --> 0:16:44.560 tweeted out that he has selected recently announced policies and 0:16:44.640 --> 0:16:47.360 ranked them in terms of how consequentially bad they would be. 0:16:47.920 --> 0:16:50.520 Number one is the ten percent across the board tariffs. 0:16:50.560 --> 0:16:52.920 This is Furman's opinion, not mine. Number two is the 0:16:52.960 --> 0:16:55.600 four and a half trillion of tax cuts. Number three 0:16:55.800 --> 0:16:58.480 is threatening independence of the Fed. I would have thought 0:16:58.480 --> 0:17:01.920 that'd be a little bit higher. Number four is permanent 0:17:02.400 --> 0:17:05.520 tax free tips. I don't see why that matters. Nobody 0:17:05.520 --> 0:17:08.760 ever claims tips anyway. And then number five is the 0:17:08.800 --> 0:17:11.880 five percent cap on rent increases that Biden has floated. 0:17:11.960 --> 0:17:14.000 Okay, so number five, I just want to be on 0:17:14.040 --> 0:17:15.760 the record that's not a good idea. 0:17:16.119 --> 0:17:17.560 It might make things worse. 0:17:17.680 --> 0:17:19.960 And I mean not just on the supply side of 0:17:20.320 --> 0:17:22.080 you know, people there won't mean a center for builders 0:17:22.119 --> 0:17:24.679 to build homes. People will not want to move, and 0:17:24.760 --> 0:17:26.359 we'll have the same problem in the realm market we 0:17:26.440 --> 0:17:28.920 have as in the in the home buying market. That's 0:17:29.000 --> 0:17:31.760 not a good move. But you know, I followed Jason 0:17:31.960 --> 0:17:34.800 and Jase. By the way, Jason Fremant is an excellent economist, 0:17:35.000 --> 0:17:36.840 and I envy the people get to take EC ten 0:17:36.920 --> 0:17:39.560 over at Harvard from him these days. All right, he's 0:17:39.560 --> 0:17:44.040 a professor, that's right, That course is absolutely fantastic. But 0:17:44.080 --> 0:17:46.480 the thing is, you know what the people who follow 0:17:46.520 --> 0:17:48.760 him wrote back. They disagreed with him. It was the 0:17:48.760 --> 0:17:51.240 FED independence that was number one. I think Jason was 0:17:51.240 --> 0:17:52.000 taken a little bit of. 0:17:52.000 --> 0:17:55.200 Back, but right, well, I think his premise is that 0:17:56.520 --> 0:18:01.560 it wouldn't be possible to threaten FED independence. Donald Trump 0:18:01.720 --> 0:18:04.320 seems to want to. But still you've got to rank 0:18:04.359 --> 0:18:04.880 them in order. 0:18:05.119 --> 0:18:09.640 So I saw Liz trust was at the GOP convention. Yeah, 0:18:09.680 --> 0:18:11.280 they might want to be thinking about what ahead of 0:18:11.359 --> 0:18:13.480 Lettuce means, right, because if they were to try to 0:18:13.520 --> 0:18:16.520 do something like that, you know, we would begin talking 0:18:16.520 --> 0:18:19.960 about the Bond vigilantes, whoever those guys are. By the way, 0:18:19.960 --> 0:18:22.200 you know, live in Austin, Texas these days. I've seen 0:18:22.520 --> 0:18:24.159 one of the guys from zz Top and I'm like, 0:18:24.200 --> 0:18:25.000 that's what a bond. 0:18:24.840 --> 0:18:27.880 Vigilant is sweet, right, that's a great face, Right. 0:18:27.720 --> 0:18:29.840 That's that's what a bond vigilante looks like. 0:18:30.200 --> 0:18:33.040 But they will they will be back quickly, and it 0:18:33.080 --> 0:18:35.960 will be painful if the GOP attempts to do that 0:18:36.320 --> 0:18:39.840 or do something something more ridiculous. It's like to value 0:18:39.840 --> 0:18:41.800 the dollar, right, Yeah. 0:18:41.320 --> 0:18:43.480 So we got the ten year treasury at four point 0:18:43.520 --> 0:18:45.600 one six percent. Where's that going to be year end? 0:18:45.640 --> 0:18:45.960 Do you think? 0:18:46.040 --> 0:18:48.080 Okay, so my year in target was four point two 0:18:48.119 --> 0:18:51.159 with some downside risk. I still think that's you know, 0:18:51.400 --> 0:18:54.320 in intact, I think that when the Fed gets to 0:18:54.359 --> 0:18:57.879 the point where it begins to telegraph it's cutting rates, 0:18:57.920 --> 0:19:01.160 probably right after the July thirty first meeting, you begin 0:19:01.200 --> 0:19:03.199 to see the front end of the curve begin to 0:19:03.240 --> 0:19:05.320 move down. Because what we're going to be doing here 0:19:05.359 --> 0:19:06.840 is this is a good thing, right, is we want 0:19:06.880 --> 0:19:08.720 the price of money to be positive. We want a 0:19:08.720 --> 0:19:12.280 turn premium that's positive on the on the yield curve, right, 0:19:12.720 --> 0:19:14.440 We're going to get a dis inversion of the yield 0:19:14.480 --> 0:19:18.040 curve next year. Hey, guys, this is what's supposed to happen. 0:19:18.359 --> 0:19:20.800 This is what financial markets are supposed to look like 0:19:21.119 --> 0:19:24.679 pre two thousand and you know, pre GFC. Right, Yeah, 0:19:24.840 --> 0:19:27.320 we're going back to the future and it's a good thing. 0:19:27.400 --> 0:19:30.880 So we'll get so we will have then we will 0:19:30.880 --> 0:19:34.280 have had two years of inverted yield curve and no 0:19:34.440 --> 0:19:35.280 real recession. 0:19:35.520 --> 0:19:36.280 Well, Matt, as. 0:19:36.160 --> 0:19:38.400 You know, I'm a firm believer in that the yield 0:19:38.440 --> 0:19:41.480