1
00:00:00,120 --> 00:00:06,800
Speaker 1: Boo, Bloomberg Audio Studios, Podcasts, radio news.

2
00:00:11,640 --> 00:00:15,440
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

3
00:00:15,480 --> 00:00:18,680
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

4
00:00:18,720 --> 00:00:22,280
Speaker 2: for insight from the best in markets, economics, and geopolitics

5
00:00:22,400 --> 00:00:24,920
Speaker 2: from our global headquarters in New York City. We are

6
00:00:24,920 --> 00:00:27,680
Speaker 2: live on Bloomberg Television weekday mornings from six to nine

7
00:00:27,720 --> 00:00:31,280
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

8
00:00:31,320 --> 00:00:33,960
Speaker 2: anywhere else you listen, and as always on the Bloomberg

9
00:00:34,040 --> 00:00:37,360
Speaker 2: Terminal and the Bloomberg Business app. Black Rock releasing their

10
00:00:37,360 --> 00:00:40,160
Speaker 2: twenty twenty five global outlook, writing we stay in risk

11
00:00:40,240 --> 00:00:43,440
Speaker 2: on as we look for transformation beneficiaries and go further

12
00:00:43,479 --> 00:00:46,680
Speaker 2: over weight US stocks as the AI theme broadens out.

13
00:00:46,680 --> 00:00:48,199
Speaker 2: Waeley of Black Rock is with us here in New

14
00:00:48,240 --> 00:00:49,360
Speaker 2: York Way. It's good to see you.

15
00:00:49,320 --> 00:00:50,800
Speaker 3: As always, Thanks for having me.

16
00:00:50,960 --> 00:00:54,720
Speaker 2: AI beneficiaries. At the moment, it's been the big AI enabler,

17
00:00:54,960 --> 00:00:56,840
Speaker 2: the likes of video, which has been the big winner.

18
00:00:56,840 --> 00:00:59,040
Speaker 2: How does that story change? What's the next phase of

19
00:00:59,080 --> 00:00:59,840
Speaker 2: this trend?

20
00:01:00,280 --> 00:01:03,240
Speaker 4: We continue to like the big tech part of the

21
00:01:03,320 --> 00:01:06,319
Speaker 4: AI beneficiary. So far this year they've been carrying the

22
00:01:06,360 --> 00:01:09,880
Speaker 4: way in terms of earnings growth. Looking at twelve months trailing,

23
00:01:09,920 --> 00:01:13,440
Speaker 4: Magnificent seven grew their earnings on a forty grew their

24
00:01:13,440 --> 00:01:16,679
Speaker 4: earnings by forty five percent a year on year basis

25
00:01:17,200 --> 00:01:20,839
Speaker 4: versus the rest of the market actually growing only four percent.

26
00:01:20,920 --> 00:01:24,440
Speaker 4: So there's a significant difference. Continues to be very, very concentrated,

27
00:01:24,520 --> 00:01:28,399
Speaker 4: but over time we do expect the beneficiaries through broaden out.

28
00:01:28,440 --> 00:01:31,600
Speaker 4: We're looking at energy, We're looking at utility, We're looking

29
00:01:31,640 --> 00:01:36,720
Speaker 4: at industrials as we build and finance the transformation right sources,

30
00:01:36,720 --> 00:01:38,399
Speaker 4: and we will have to look at the combination of

31
00:01:38,440 --> 00:01:42,840
Speaker 4: public and private market as the theme plays out. We

32
00:01:42,959 --> 00:01:46,080
Speaker 4: continue to think that this is an environment of transformation

33
00:01:46,360 --> 00:01:51,280
Speaker 4: rather than environment of your typical cycle. So, given all

34
00:01:51,280 --> 00:01:54,560
Speaker 4: these magaphorics, not just AI but also low carbon transition,

35
00:01:54,920 --> 00:01:59,600
Speaker 4: geopolitical fragmentation, we're learning real time what the longer term

36
00:01:59,640 --> 00:02:05,000
Speaker 4: trend is heading towards instead of the fluctuations around a typical, stable,

37
00:02:05,280 --> 00:02:08,600
Speaker 4: longer term trend, and that has significant implications on investing

38
00:02:08,680 --> 00:02:11,240
Speaker 4: over the long term. What is neutral in this environment?

39
00:02:11,320 --> 00:02:14,480
Speaker 1: Right way, You can't talk specifically about this deal that

40
00:02:14,560 --> 00:02:17,560
Speaker 1: Black Croc announced yesterday about buying this credit fud manager.

41
00:02:18,360 --> 00:02:22,280
Speaker 1: But you talked about the convergence of public and private markets,

42
00:02:22,480 --> 00:02:25,760
Speaker 1: how much you're increasing your allocation to private markets as

43
00:02:25,840 --> 00:02:28,680
Speaker 1: part of the sort of extra over overweight of this

44
00:02:28,800 --> 00:02:29,440
Speaker 1: broader theme.

45
00:02:29,960 --> 00:02:35,200
Speaker 4: While private market has been growing significantly in recent years,

46
00:02:35,280 --> 00:02:39,280
Speaker 4: and looking ahead, a private market is expected to double

47
00:02:39,600 --> 00:02:42,440
Speaker 4: in AM by the end of the decade from the

48
00:02:42,480 --> 00:02:47,760
Speaker 4: twenty twenty three level. And with in that, actually infrastructure

49
00:02:47,840 --> 00:02:51,440
Speaker 4: and private credits are likely going to play a big

50
00:02:51,520 --> 00:02:54,600
Speaker 4: role both as we think about building the transformation and

51
00:02:54,680 --> 00:02:58,560
Speaker 4: also as we think about financing the transformation. And so far,

52
00:02:58,600 --> 00:03:01,280
Speaker 4: if you look at allocation to markets for a lot

53
00:03:01,280 --> 00:03:04,920
Speaker 4: of investors, they are quite heavily in real estate in

54
00:03:05,040 --> 00:03:10,040
Speaker 4: private equities. So private credit and infrastructure are really exposures

55
00:03:10,040 --> 00:03:12,200
Speaker 4: that we do think will grow both in terms of

56
00:03:12,200 --> 00:03:14,800
Speaker 4: the asset base but also in terms of their allocation

57
00:03:14,919 --> 00:03:16,000
Speaker 4: in investor portfolios.

58
00:03:16,080 --> 00:03:18,480
Speaker 1: That's where I wanted to go this question of what

59
00:03:18,520 --> 00:03:21,840
Speaker 1: it means to be even more bullish on US equitism in.

60
00:03:21,840 --> 00:03:22,680
Speaker 3: The story of AI.

61
00:03:23,440 --> 00:03:26,400
Speaker 1: Where are you focusing and getting more bullish and have

62
00:03:26,480 --> 00:03:28,560
Speaker 1: you ever been more bullish on some.

63
00:03:28,440 --> 00:03:29,120
Speaker 3: Of these names?

64
00:03:29,560 --> 00:03:32,040
Speaker 4: Well, right now, as you know, we have been bullish

65
00:03:32,080 --> 00:03:34,960
Speaker 4: on US equities for all of this year, so we're

66
00:03:35,000 --> 00:03:39,440
Speaker 4: dialing up risk taking even more because we do believe

67
00:03:39,480 --> 00:03:42,200
Speaker 4: that earnings can broaden out. Right, we talked about this

68
00:03:42,280 --> 00:03:44,960
Speaker 4: year being still quite concentrated in terms of Big Tech

69
00:03:45,200 --> 00:03:48,640
Speaker 4: doing the heavy lifting. Next year, Big Tech Magnificent seven

70
00:03:48,840 --> 00:03:52,240
Speaker 4: expected to grow their earnings like eighteen percent versus the

71
00:03:52,280 --> 00:03:54,640
Speaker 4: rest of the market a high single digit. You do

72
00:03:54,680 --> 00:03:57,720
Speaker 4: see the gap closing and that broadening out is one

73
00:03:58,040 --> 00:04:00,280
Speaker 4: reason that we believe there is more momentum for US

74
00:04:00,320 --> 00:04:03,680
Speaker 4: acodes to run higher. Another reason is that people look

75
00:04:03,680 --> 00:04:08,560
Speaker 4: at how expensive US athletes are, how concentrated US equities are.

76
00:04:08,680 --> 00:04:12,000
Speaker 4: Our study shows that if there are good reasons mega

77
00:04:12,040 --> 00:04:16,000
Speaker 4: forces structural forces that could potentially change the longer term trend,

78
00:04:16,279 --> 00:04:19,400
Speaker 4: the mean revert doesn't quite apply. Mean reverts to what

79
00:04:19,600 --> 00:04:23,000
Speaker 4: if the destination and the makeup of the destination is changing,

80
00:04:23,000 --> 00:04:25,640
Speaker 4: Which is why we're not over indexing on the current

81
00:04:25,720 --> 00:04:29,599
Speaker 4: valuation level, especially as we look at investing over the

82
00:04:29,640 --> 00:04:32,880
Speaker 4: tactical horizon of twenty twenty five and the near term.

83
00:04:33,040 --> 00:04:36,760
Speaker 4: Text cuts and deregulation talks can drive sentiment further, which

84
00:04:36,800 --> 00:04:37,880
Speaker 4: is why we're leaning into it.

85
00:04:37,960 --> 00:04:40,000
Speaker 5: When you look at your global outlook, you talk about

86
00:04:40,040 --> 00:04:43,359
Speaker 5: the focus on the United States and what you're seeing

87
00:04:43,400 --> 00:04:46,599
Speaker 5: in terms of security priorities, national economic priorities at the

88
00:04:46,640 --> 00:04:49,400
Speaker 5: expense of others. Who is the US winning at the

89
00:04:49,440 --> 00:04:53,120
Speaker 5: expensive when you look at it the biggest.

90
00:04:53,440 --> 00:04:57,560
Speaker 4: Well, when we look at twenty twenty five, US exceptionalism

91
00:04:58,000 --> 00:05:01,200
Speaker 4: is a theme that we expect to to play out

92
00:05:01,720 --> 00:05:06,240
Speaker 4: for the entirety of this year. Within equities. That means

93
00:05:06,240 --> 00:05:09,520
Speaker 4: that we prefer US accolades versus the rest of the world.

94
00:05:09,640 --> 00:05:11,200
Speaker 3: We use a.

95
00:05:11,240 --> 00:05:15,600
Speaker 4: UK aqualitly downgrade to fund our US aquity upgrade, so

96
00:05:15,680 --> 00:05:18,440
Speaker 4: there is a bit of a kind of leaning back

97
00:05:18,520 --> 00:05:22,320
Speaker 4: into US aquilas. But within duration within government bonds. Because

98
00:05:22,680 --> 00:05:27,160
Speaker 4: the US exceptionalism also is associated with greater fiscal spent,

99
00:05:27,400 --> 00:05:32,120
Speaker 4: we actually prefer international duration like UK guilts market over

100
00:05:33,320 --> 00:05:36,920
Speaker 4: government bond the US duration, where we expect term premier

101
00:05:37,120 --> 00:05:40,920
Speaker 4: to come back even more reflecting the higher fiscal trajectory.

102
00:05:41,000 --> 00:05:44,680
Speaker 4: We also continue to like quality income within a credit.

103
00:05:44,760 --> 00:05:47,039
Speaker 4: Even though spread is very very tight from a total

104
00:05:47,080 --> 00:05:51,120
Speaker 4: yield perspective, it is reasonable and the tighter spread really

105
00:05:51,160 --> 00:05:54,000
Speaker 4: reflect the fact that the government have become more indebted

106
00:05:54,160 --> 00:05:57,800
Speaker 4: and private sector has been actually managing their leverage somewhat

107
00:05:57,839 --> 00:05:58,599
Speaker 4: more reasonably.

108
00:05:58,760 --> 00:06:00,560
Speaker 2: Well, it's good to say thanks joining us here in

109
00:06:00,600 --> 00:06:02,719
Speaker 2: New York City. Thank you, Thank you very much, Willy

110
00:06:02,760 --> 00:06:14,599
Speaker 2: there of black Clok, the team over at Stay Street

111
00:06:14,640 --> 00:06:16,920
Speaker 2: right in the following. We expect the narrative of rake

112
00:06:17,000 --> 00:06:19,599
Speaker 2: cuts and resilience to hold in twenty twenty five and

113
00:06:19,640 --> 00:06:23,279
Speaker 2: for our projective soft landing to materialize. This landscape extends

114
00:06:23,279 --> 00:06:26,640
Speaker 2: our favorable outlook for equity markets. Lori Handel's Stay Street

115
00:06:26,839 --> 00:06:29,440
Speaker 2: joined us now for more. Laurie, welcome to the program.

116
00:06:29,480 --> 00:06:31,520
Speaker 2: Do you not think that the policy changes that we

117
00:06:31,560 --> 00:06:34,040
Speaker 2: could see in the next twelve months would be potent

118
00:06:34,160 --> 00:06:37,040
Speaker 2: enough to disrupt the kind of resilience that you're looking for.

119
00:06:38,200 --> 00:06:40,120
Speaker 3: Well, it's too early to tell.

120
00:06:40,240 --> 00:06:42,440
Speaker 6: I mean, obviously there are a number of cross currents

121
00:06:42,440 --> 00:06:45,440
Speaker 6: and what the Trump administration is proposing that could be

122
00:06:45,839 --> 00:06:47,920
Speaker 6: a threat to what we've seen as a soft landing

123
00:06:47,960 --> 00:06:48,320
Speaker 6: so far.

124
00:06:48,800 --> 00:06:49,600
Speaker 3: But until we.

125
00:06:49,520 --> 00:06:53,040
Speaker 6: Actually have the ink dried on some of those policies,

126
00:06:53,080 --> 00:06:55,400
Speaker 6: it's hard to know how those cross winds will actually

127
00:06:55,560 --> 00:06:56,799
Speaker 6: impact real economy.

128
00:06:57,120 --> 00:07:00,000
Speaker 2: The political changes elsewhere have been a threat to markets elsewhere,

129
00:07:00,000 --> 00:07:02,480
Speaker 2: and that's for sure. Check out the Euro holding onto

130
00:07:02,480 --> 00:07:05,080
Speaker 2: one of five. Briefly looking at one of four again

131
00:07:05,120 --> 00:07:07,600
Speaker 2: this morning over in South Korea. We've seen the disruption

132
00:07:07,680 --> 00:07:10,600
Speaker 2: there as well. Laurie is their scope for some performance

133
00:07:10,960 --> 00:07:12,840
Speaker 2: x US at a time when a lot of people

134
00:07:12,840 --> 00:07:16,000
Speaker 2: are on this program saying buy one thing by America.

135
00:07:17,200 --> 00:07:20,360
Speaker 6: Yeah, well, right now, we still are on the momentum Bandwig.

136
00:07:20,400 --> 00:07:23,320
Speaker 6: And also, I mean what worked well in twenty twenty

137
00:07:23,360 --> 00:07:26,320
Speaker 6: four is likely to persist in twenty twenty five, and

138
00:07:26,360 --> 00:07:29,640
Speaker 6: that suggests that US large cap in particular has room

139
00:07:29,680 --> 00:07:31,720
Speaker 6: to run here. But what we've also been talking about

140
00:07:31,800 --> 00:07:34,560
Speaker 6: is broadening out. So it's not just about the high

141
00:07:34,640 --> 00:07:38,120
Speaker 6: flying mag seven tech names. It's about financials, it's about

142
00:07:38,360 --> 00:07:42,520
Speaker 6: potentially energy, it's about other places like consumer discretionary that

143
00:07:42,600 --> 00:07:45,480
Speaker 6: may benefit from an upgrading of the US economic prospect.

144
00:07:45,600 --> 00:07:47,560
Speaker 3: So it's a little bit of a nuanced story.

145
00:07:47,600 --> 00:07:51,040
Speaker 6: But yes, sadly or not so sadly, we're still by

146
00:07:51,080 --> 00:07:53,080
Speaker 6: American large cap is our primary call.

147
00:07:53,320 --> 00:07:55,440
Speaker 1: I can't find one person who's not Laurie, And this,

148
00:07:55,520 --> 00:07:57,240
Speaker 1: to me is really a key question. How do you

149
00:07:57,320 --> 00:07:59,920
Speaker 1: hedge against the idea that at some point the moment

150
00:08:00,280 --> 00:08:01,480
Speaker 1: does run out?

151
00:08:01,720 --> 00:08:03,120
Speaker 3: Yeah, well, I think there are a couple of things

152
00:08:03,120 --> 00:08:03,560
Speaker 3: that we're doing.

153
00:08:03,560 --> 00:08:05,560
Speaker 6: I mean, first and foremost is we are trying to

154
00:08:05,560 --> 00:08:10,480
Speaker 6: avoid those higher, high flying names and looking at quality

155
00:08:10,600 --> 00:08:13,120
Speaker 6: or companies that can be a bit more durable through

156
00:08:13,160 --> 00:08:15,480
Speaker 6: this kind of cycle. The other thing is broadening out

157
00:08:15,480 --> 00:08:17,760
Speaker 6: a little bit, looking at small cap us for example,

158
00:08:17,760 --> 00:08:20,680
Speaker 6: which might have a little bit less vulnerability to some

159
00:08:20,720 --> 00:08:24,040
Speaker 6: of these global cross winds, and to look for a diversifiers.

160
00:08:24,080 --> 00:08:25,720
Speaker 6: So we have had a position in gold in our

161
00:08:25,760 --> 00:08:28,840
Speaker 6: portfolio because, as you've seen over the last couple of years,

162
00:08:28,840 --> 00:08:31,400
Speaker 6: stocks and bonds are often moving in locksteps. So getting

163
00:08:31,440 --> 00:08:34,320
Speaker 6: some diversification into the portfolio so that you have something

164
00:08:34,360 --> 00:08:35,840
Speaker 6: that's going to zig when the rest of the world's

165
00:08:35,840 --> 00:08:37,640
Speaker 6: eggs is very important for us as well.

166
00:08:37,800 --> 00:08:38,560
Speaker 3: This is important.

167
00:08:38,600 --> 00:08:41,880
Speaker 1: Are you basically saying that sixty forty and the concept

168
00:08:41,960 --> 00:08:44,800
Speaker 1: behind it has been upended that essentially we are looking

169
00:08:44,840 --> 00:08:47,439
Speaker 1: at bonds that no longer are the diversifier you're looking

170
00:08:47,440 --> 00:08:50,200
Speaker 1: at moving out into other types of companies and goals.

171
00:08:50,240 --> 00:08:53,800
Speaker 1: You didn't mention bonds once within that So at a

172
00:08:53,800 --> 00:08:57,160
Speaker 1: certain point does this have to fundamentally upend the way

173
00:08:57,200 --> 00:08:58,760
Speaker 1: people construct their portfolios?

174
00:09:00,280 --> 00:09:00,880
Speaker 3: Necessarily?

175
00:09:00,920 --> 00:09:02,520
Speaker 6: And in fact, I think in some ways we're in

176
00:09:02,520 --> 00:09:04,400
Speaker 6: a better position than we were a few years ago

177
00:09:04,480 --> 00:09:06,920
Speaker 6: when interest rates were zero. So at that point in time,

178
00:09:07,200 --> 00:09:09,440
Speaker 6: we were very much in the camp that bonds just

179
00:09:09,480 --> 00:09:12,400
Speaker 6: weren't providing into kinds of benefits that investors typically needed

180
00:09:12,400 --> 00:09:13,280
Speaker 6: to enjoy from them.

181
00:09:13,559 --> 00:09:15,560
Speaker 3: But we do now have some income in bonds.

182
00:09:15,600 --> 00:09:18,480
Speaker 6: So despite the fact that equities have powered forward, you

183
00:09:18,520 --> 00:09:21,040
Speaker 6: know s and p up twenty five percent or so

184
00:09:21,120 --> 00:09:23,800
Speaker 6: on a year to day basis with fixed incomes, kind

185
00:09:23,840 --> 00:09:26,320
Speaker 6: of earning a coupon, it's still earning a coupon. So

186
00:09:26,960 --> 00:09:28,400
Speaker 6: it's really more about.

187
00:09:28,120 --> 00:09:29,440
Speaker 3: A nuanced positioning.

188
00:09:29,520 --> 00:09:32,800
Speaker 6: So definitely still retain that allocation of bonds we think

189
00:09:32,840 --> 00:09:35,600
Speaker 6: that they're going to return at least coupon perhaps plus.

190
00:09:35,920 --> 00:09:38,800
Speaker 3: But looking for other things, especially if we have some

191
00:09:39,160 --> 00:09:41,120
Speaker 3: you know, draw down risk in the equity markets.

192
00:09:41,280 --> 00:09:43,920
Speaker 5: Well, when you look at potential draw down risks in

193
00:09:43,920 --> 00:09:47,160
Speaker 5: the equity market next year, is it policy coming from Washington.

194
00:09:47,440 --> 00:09:49,679
Speaker 5: I know you're bullish in the fact that potentially we're

195
00:09:49,679 --> 00:09:51,960
Speaker 5: going to have these tax cuts looking at your research,

196
00:09:52,200 --> 00:09:55,240
Speaker 5: but how do you look at tax cuts potentially next

197
00:09:55,280 --> 00:09:57,440
Speaker 5: to the walls going up and higher tariffs.

198
00:09:58,080 --> 00:09:59,040
Speaker 3: I mean, this is the thing.

199
00:09:59,559 --> 00:10:04,360
Speaker 6: There are crosswins even within the stated policy objectives, right,

200
00:10:04,400 --> 00:10:08,200
Speaker 6: So if you think about immigration, potentially it takes labor

201
00:10:08,240 --> 00:10:11,800
Speaker 6: away from sectors that are already a little bit vulnerable.

202
00:10:11,960 --> 00:10:15,800
Speaker 6: Think housing, if you look at tariffs, obviously, that creates

203
00:10:15,880 --> 00:10:19,160
Speaker 6: vulnerability around the inflation front. We do think that the

204
00:10:19,200 --> 00:10:21,200
Speaker 6: Fed is going to cut here in December, but we

205
00:10:21,320 --> 00:10:23,760
Speaker 6: think that next year's cuts are a bit in jeopardy

206
00:10:23,760 --> 00:10:26,120
Speaker 6: as we wait for this agenda to kind.

207
00:10:25,960 --> 00:10:26,600
Speaker 3: Of play through.

208
00:10:26,679 --> 00:10:29,719
Speaker 6: So that's what's really tricky for investors right now is

209
00:10:29,760 --> 00:10:32,200
Speaker 6: it's hard to know precisely where the dost settles.

210
00:10:32,400 --> 00:10:34,680
Speaker 5: If investors wanted a base case for next year and

211
00:10:34,679 --> 00:10:37,880
Speaker 5: how potential Trump policies might impact the FED, would you say,

212
00:10:38,200 --> 00:10:40,840
Speaker 5: there's this idea of pauses for twenty twenty five or

213
00:10:40,840 --> 00:10:41,880
Speaker 5: even potentially a hike.

214
00:10:42,800 --> 00:10:42,959
Speaker 4: Yeah.

215
00:10:43,000 --> 00:10:46,120
Speaker 6: So we had originally penciled in four rate cuts in

216
00:10:46,160 --> 00:10:50,200
Speaker 6: twenty twenty five, and we're now really lowering that, looking

217
00:10:50,280 --> 00:10:53,480
Speaker 6: at maybe two, probably a pause around the beginning of

218
00:10:53,520 --> 00:10:56,200
Speaker 6: the year, in part to see how these policies do

219
00:10:56,320 --> 00:10:58,600
Speaker 6: shape up. And by the way, the Fed, if they

220
00:10:58,600 --> 00:11:00,880
Speaker 6: do cut this month and especial they cut for twenty

221
00:11:00,920 --> 00:11:02,880
Speaker 6: five business points still have kind one hundred basis points.

222
00:11:02,960 --> 00:11:05,319
Speaker 3: So while we think that's that there's more to.

223
00:11:05,280 --> 00:11:07,080
Speaker 6: Be done and we'd like to see them do more,

224
00:11:07,360 --> 00:11:09,600
Speaker 6: we think that it's likely that a pause in early

225
00:11:09,640 --> 00:11:11,160
Speaker 6: twenty twenty five is warranted.

226
00:11:11,400 --> 00:11:13,360
Speaker 2: Luriy all the FED speak over the last few days,

227
00:11:13,400 --> 00:11:15,520
Speaker 2: just giving us the impression that they believe, these Fed

228
00:11:15,520 --> 00:11:18,000
Speaker 2: officials believe there's a long way to neutral. I was

229
00:11:18,040 --> 00:11:21,120
Speaker 2: going through some of what Fed Mary Mary Daily had

230
00:11:21,160 --> 00:11:23,800
Speaker 2: to say, Well, the Fed, Chicago Fed president goals, We

231
00:11:23,840 --> 00:11:26,240
Speaker 2: had to say Governor Waller more recently as well, where

232
00:11:26,280 --> 00:11:28,080
Speaker 2: are you on that? Just how far away are we

233
00:11:28,160 --> 00:11:30,000
Speaker 2: from what they consider neutral to be?

234
00:11:31,000 --> 00:11:32,840
Speaker 6: Oh, we agree there is a long way to go

235
00:11:32,960 --> 00:11:35,640
Speaker 6: for neutral, But the problem is that we could have

236
00:11:35,720 --> 00:11:39,760
Speaker 6: some inflationary pressures budding in the early part of twenty

237
00:11:39,880 --> 00:11:41,840
Speaker 6: twenty five, and so one of the things that they

238
00:11:41,960 --> 00:11:44,199
Speaker 6: also have to be very mindful of is that they

239
00:11:44,200 --> 00:11:47,480
Speaker 6: don't cut so aggressively that they're in a position of

240
00:11:47,520 --> 00:11:49,760
Speaker 6: having to hike more rapidly than they would have liked.

241
00:11:49,760 --> 00:11:52,720
Speaker 6: So we've always said that this inflation trajectory was not

242
00:11:52,920 --> 00:11:56,240
Speaker 6: going to be a sort of smooth one way direction.

243
00:11:56,679 --> 00:11:58,520
Speaker 6: There was likely to be able to bumps along the way.

244
00:11:58,559 --> 00:12:00,040
Speaker 3: So it's more a question.

245
00:11:59,840 --> 00:12:02,760
Speaker 6: Of timing, but we do think that neutral is quite

246
00:12:02,760 --> 00:12:03,600
Speaker 6: a bit lower from here.

247
00:12:03,800 --> 00:12:06,319
Speaker 2: Jim and Pound speaking at one forty later on this

248
00:12:06,360 --> 00:12:09,640
Speaker 2: south afternoon, Lurie, appreciate your time, enjoyed the outlook. Thank you.

249
00:12:09,720 --> 00:12:22,640
Speaker 2: Lori Heineld of State Street. Most Ian Lincoln with this

250
00:12:22,760 --> 00:12:25,520
Speaker 2: to say, the incoming federatric has been consistent in the

251
00:12:25,559 --> 00:12:28,000
Speaker 2: messaging that wild Rake Cup decisions are being made on

252
00:12:28,040 --> 00:12:31,360
Speaker 2: a meeting by meeting basis. There is appetite among committee

253
00:12:31,360 --> 00:12:33,640
Speaker 2: members for another move this month. Ian joins us now

254
00:12:33,640 --> 00:12:36,280
Speaker 2: for more Ian, good morning, good to see you. You've

255
00:12:36,320 --> 00:12:38,080
Speaker 2: identified this and I want to go straight to it.

256
00:12:38,200 --> 00:12:40,000
Speaker 2: Let's not bury the lead. What's the two year at

257
00:12:40,000 --> 00:12:42,679
Speaker 2: four twenty? Fed's coming out and saying we're all confident,

258
00:12:42,679 --> 00:12:44,360
Speaker 2: we're above neutral. We've got a long way to go.

259
00:12:44,400 --> 00:12:46,520
Speaker 2: They want to reduce interest rates. Yeah, we've got this

260
00:12:46,600 --> 00:12:49,600
Speaker 2: two year yield that has just stubbornly above four percent,

261
00:12:49,920 --> 00:12:52,439
Speaker 2: just sort of stuck there at four twenty. What's that about.

262
00:12:52,720 --> 00:12:55,280
Speaker 7: I think that the market at the moment is trading

263
00:12:55,640 --> 00:12:58,480
Speaker 7: is still treading the result of the election. They're more

264
00:12:58,520 --> 00:13:02,360
Speaker 7: worried about inflution or a surge of reflation. They're more

265
00:13:02,440 --> 00:13:05,760
Speaker 7: worried about what happens when there's a renewed trade war.

266
00:13:05,840 --> 00:13:08,960
Speaker 7: They're not listening to the Fed. They're not worried about

267
00:13:09,000 --> 00:13:12,120
Speaker 7: the FED cutting in December then going again in Q

268
00:13:12,240 --> 00:13:15,439
Speaker 7: one and Q two. In a typical environment, one would

269
00:13:15,440 --> 00:13:18,960
Speaker 7: expect effective FED funds, which on December eighteenth will be

270
00:13:19,320 --> 00:13:22,880
Speaker 7: four thirty three, to function as a ceiling phenomenal rates.

271
00:13:22,880 --> 00:13:25,960
Speaker 7: When the FED is cutting right now, we could very

272
00:13:25,960 --> 00:13:29,480
Speaker 7: easily find that uninverted sooner rather than later, which I

273
00:13:29,480 --> 00:13:32,600
Speaker 7: think would create an interesting dynamic for the market for sure.

274
00:13:32,800 --> 00:13:34,800
Speaker 3: So who's right? Is a FED right or is the

275
00:13:34,840 --> 00:13:35,319
Speaker 3: market right?

276
00:13:36,120 --> 00:13:39,040
Speaker 7: At this moment, I think that the FED is correct

277
00:13:39,080 --> 00:13:43,040
Speaker 7: in continuing to normalize rates because they're normalizing rates, not

278
00:13:43,360 --> 00:13:47,640
Speaker 7: because the economy is slowing, not because the jobs market

279
00:13:47,679 --> 00:13:50,800
Speaker 7: has turned over, but because they believe they have won

280
00:13:50,840 --> 00:13:53,160
Speaker 7: the war on inflation. And I think that's a nuance

281
00:13:53,160 --> 00:13:57,160
Speaker 7: that we as at market often overlook. Normalization is not easying,

282
00:13:57,320 --> 00:14:00,400
Speaker 7: it's just cutting back to neutral time.

283
00:14:00,760 --> 00:14:02,560
Speaker 1: And this really does go to the point that I

284
00:14:02,600 --> 00:14:04,480
Speaker 1: think the sort of battle of the e ens I'm

285
00:14:04,480 --> 00:14:07,240
Speaker 1: going to call that all morning really goes to where

286
00:14:07,240 --> 00:14:08,679
Speaker 1: you can take a look at something like the Jolts

287
00:14:08,720 --> 00:14:12,200
Speaker 1: report and say it's either really solid and shows ongoing strength,

288
00:14:12,280 --> 00:14:15,000
Speaker 1: or you could see that the overall trend is downward.

289
00:14:15,840 --> 00:14:17,960
Speaker 1: What's the right signal at a time when you hear

290
00:14:18,000 --> 00:14:21,480
Speaker 1: companies that are talking about reinvesting in their businesses hiring

291
00:14:22,200 --> 00:14:25,880
Speaker 1: after the election uncertainty has been resolved, really leaning into

292
00:14:25,880 --> 00:14:28,240
Speaker 1: the whole idea of American exceptionalism.

293
00:14:29,040 --> 00:14:32,720
Speaker 7: Well, I'm very sympathetic to Ian's argument that we are

294
00:14:32,800 --> 00:14:35,480
Speaker 7: overdue for a spike in the unemployment rate. The trend

295
00:14:35,560 --> 00:14:39,040
Speaker 7: has been lower, but the reality is the data continues

296
00:14:39,120 --> 00:14:42,200
Speaker 7: to show a resilient labor market as a theme. We

297
00:14:42,240 --> 00:14:45,160
Speaker 7: have an unemployment rate at four point one percent that's

298
00:14:45,280 --> 00:14:48,120
Speaker 7: very low by historic standards. The concern, and I think

299
00:14:48,480 --> 00:14:50,920
Speaker 7: is shared among a lot of the EANs that I know,

300
00:14:51,520 --> 00:14:55,120
Speaker 7: is that there's going to be an eventual spike in

301
00:14:55,160 --> 00:14:58,680
Speaker 7: the unemployment rate that then gets the consumer on their on.

302
00:14:58,680 --> 00:15:00,920
Speaker 5: Foot when it comes to the a port on Friday.

303
00:15:00,960 --> 00:15:03,800
Speaker 5: What number would give the Fed a reason to say

304
00:15:03,840 --> 00:15:04,240
Speaker 5: we're going to.

305
00:15:04,240 --> 00:15:04,840
Speaker 3: Stay on pause.

306
00:15:05,640 --> 00:15:09,720
Speaker 7: We need to see a very significant headline print or

307
00:15:10,120 --> 00:15:13,320
Speaker 7: a three handle on the unemployment rate. You give me

308
00:15:13,680 --> 00:15:17,520
Speaker 7: three fifty headline payrolls and I drop the unemployment rate,

309
00:15:17,880 --> 00:15:21,400
Speaker 7: then the question becomes in this legitimate question is neutral

310
00:15:21,440 --> 00:15:24,880
Speaker 7: in fact higher? Have we not been as restrictive as

311
00:15:24,960 --> 00:15:27,600
Speaker 7: five point fifty might have been in prior cycles. I

312
00:15:27,720 --> 00:15:30,880
Speaker 7: really think it ultimately comes down to whether or not

313
00:15:31,200 --> 00:15:35,920
Speaker 7: we see a unexpectedly higher CPI number, not payrolls, because

314
00:15:36,120 --> 00:15:38,920
Speaker 7: again to the point, they're cutting because they believe they've

315
00:15:38,920 --> 00:15:41,400
Speaker 7: won the war on inflation, not because they're worried about jobs.

316
00:15:41,520 --> 00:15:41,720
Speaker 4: Right.

317
00:15:41,880 --> 00:15:43,560
Speaker 5: So when you look at twenty twenty five and you

318
00:15:43,560 --> 00:15:45,600
Speaker 5: alluded to this, this idea that the market is taking

319
00:15:45,600 --> 00:15:48,040
Speaker 5: the cues from the political economy, the policies that might

320
00:15:48,080 --> 00:15:50,280
Speaker 5: come out of Washington, what does that mean for the

321
00:15:50,280 --> 00:15:51,600
Speaker 5: Fed come January?

322
00:15:52,720 --> 00:15:55,840
Speaker 7: Well, there are only so many things that Trump can

323
00:15:55,880 --> 00:15:59,560
Speaker 7: do when he immediately takes office without Congress. So I

324
00:15:59,560 --> 00:16:02,240
Speaker 7: think that the Fed pauses in January to see what

325
00:16:02,280 --> 00:16:05,400
Speaker 7: those things are. So they take that median off, They

326
00:16:05,440 --> 00:16:08,280
Speaker 7: reassess the situation, They see the trajectory of growth, They

327
00:16:08,320 --> 00:16:12,320
Speaker 7: see if the type of tariffs that are announced are

328
00:16:12,320 --> 00:16:14,560
Speaker 7: the type that they would characterize as a tax on

329
00:16:14,720 --> 00:16:18,640
Speaker 7: the consumer or would really trigger reflation. I suspect it

330
00:16:18,640 --> 00:16:21,560
Speaker 7: will be more of a tax on the consumer, a

331
00:16:21,560 --> 00:16:24,360
Speaker 7: one off increase in CPI, and then we just move forward.

332
00:16:24,480 --> 00:16:26,160
Speaker 1: And do you think that people are under estimating the

333
00:16:26,280 --> 00:16:28,400
Speaker 1: chance of a slowdown, a material slow down in the

334
00:16:28,480 --> 00:16:32,320
Speaker 1: US economy as everyone talks about incredible profitability and this

335
00:16:32,480 --> 00:16:36,160
Speaker 1: incredible boom in the stock market and beyond.

336
00:16:36,960 --> 00:16:40,480
Speaker 7: I would say that at this moment people are underestimating

337
00:16:40,520 --> 00:16:42,880
Speaker 7: the chance that we have a slowdown. What I'm the

338
00:16:42,920 --> 00:16:46,880
Speaker 7: most concerned about is historically the FED has been very

339
00:16:46,880 --> 00:16:49,560
Speaker 7: successful at taking the edges off of the cycle on

340
00:16:49,600 --> 00:16:51,600
Speaker 7: the upside and the cycle on the downside. This is

341
00:16:51,640 --> 00:16:54,240
Speaker 7: what central banks are designed to do, and that has

342
00:16:54,320 --> 00:16:58,760
Speaker 7: resulted in all the major corrections occurring as in the

343
00:16:58,760 --> 00:17:02,920
Speaker 7: form of a crisis. So where are the imbalances? Rucker

344
00:17:03,040 --> 00:17:05,600
Speaker 7: high stock prices speaks to this idea that there's a

345
00:17:05,640 --> 00:17:08,160
Speaker 7: lot of optimism out there, and a lot of optimism

346
00:17:08,280 --> 00:17:11,639
Speaker 7: that's overlooking the potential downside. So a little bit nervous

347
00:17:11,680 --> 00:17:14,320
Speaker 7: in terms of valuations in the equity space as well

348
00:17:14,359 --> 00:17:15,720
Speaker 7: as generally in risk assets.

349
00:17:15,800 --> 00:17:17,600
Speaker 2: Try and set policy for that. The two way risk

350
00:17:17,800 --> 00:17:20,399
Speaker 2: into twenty twenty five, both to the upside and to

351
00:17:20,440 --> 00:17:21,080
Speaker 2: the downside.

352
00:17:21,200 --> 00:17:23,840
Speaker 1: Yeah, well, I have to say I'm not a little

353
00:17:23,880 --> 00:17:25,720
Speaker 1: happy that I don't have to do it. So good

354
00:17:25,760 --> 00:17:27,840
Speaker 1: luck to all the people on the committee.

355
00:17:27,840 --> 00:17:30,800
Speaker 2: Good luck to Chairman exactly, who speaks later on this afternoon. Ian,

356
00:17:30,840 --> 00:17:32,400
Speaker 2: thank you, it's going to see it. Thank you, sir

357
00:17:32,520 --> 00:17:36,879
Speaker 2: Inlingan there of BEMO. This is the Bloomberg Sevenance podcast,

358
00:17:37,000 --> 00:17:40,919
Speaker 2: bringing you the best in markets, economics, antient politics. You

359
00:17:40,920 --> 00:17:43,719
Speaker 2: can watch the show live on Bloomberg TV weekday mornings

360
00:17:43,720 --> 00:17:46,679
Speaker 2: from six am to nine am Eastern. Subscribe to the

361
00:17:46,680 --> 00:17:50,199
Speaker 2: podcast on Apple, Spotify, or anywhere else you listen, and

362
00:17:50,240 --> 00:17:53,119
Speaker 2: as always on the Bloomberg Terminal and the Bloomberg Business

363
00:17:53,119 --> 00:17:53,320
Speaker 2: opp