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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Jonathan Pinkleer Ubs

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Speaker 2: is still with us. Jonathan, We've been talking about the

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Speaker 2: effort the Federal Reserve needs to go to to get

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Speaker 2: inflation back down towards target. How much of that is

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Speaker 2: being offset by what's happening in treasury, The amount of

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Speaker 2: issients we're getting, the amount of fiscal easing we've seen.

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Speaker 3: Yeah, you know, fiscal policy, you know, in our view,

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Speaker 3: is a huge support to twenty twenty three. I mean,

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Speaker 3: we all talked about, you know, the Biden administration programs

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Speaker 3: at chipsacked the IRA and we're all watching sort of

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Speaker 3: this extraordinary boom in chip manufacturing. A chip plant manufacturing construction,

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Speaker 3: you know, all the related ev plant manufacturing construction. I mean,

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Speaker 3: Structure's investment in twenty twenty three added roughly half a

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Speaker 3: percentage point to year of year.

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Speaker 4: The Q four Q for GDP said, you know, three

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Speaker 4: percent GDP.

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Speaker 3: You know, half a percentage point of that was the

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Speaker 3: Structure's investment. Direct government spending and investment, the public sector

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Speaker 3: investment add on a little bit of the deficit widening.

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Speaker 3: It's a percentage point, so a third of the growth

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Speaker 3: that we saw. And you know, we generally think that

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Speaker 3: the government as being somewhat you know, kind of interest

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Speaker 3: rates insensitive, right, so this was definitely some a thrust

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Speaker 3: that the FED was forced to fight in twenty twenty

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Speaker 3: three with higher rates that you know, really wasn't going

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Speaker 3: to be affected by by by by monetary you keep.

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Speaker 2: Saying twenty twenty three, can we talk about twenty twenty four.

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Speaker 2: How sustainable is that? How much money is still being

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Speaker 2: distributed every single day into the economy off the back

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Speaker 2: of these programs.

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Speaker 4: A lot less?

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Speaker 3: I mean, if we think about it in terms of

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Speaker 3: growth rates, you know, it's sort of like we moved

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Speaker 3: up the level, you know, and now we've got these

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Speaker 3: wider deficits and this level, but the level now is

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Speaker 3: kind of staying the same for a while, and that

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Speaker 3: means the impact on growth is essentially going to zero

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Speaker 3: in twenty twenty four in our view, you know, And

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Speaker 3: this is sort of a natural way of thinking about

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Speaker 3: fiscal policy, right, you know, this is why it's countercyclical.

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Speaker 3: You widen the deficit in bad times to but we've

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Speaker 3: ended up sort of widening the deficit in good times

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Speaker 3: we've had the growth benefit, and now we've got sort

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Speaker 3: of the wider deficit and the growth impetus is sort

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Speaker 3: of fading at this point.

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Speaker 1: As an economist, do you think that the likelihood of

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Speaker 1: the US Treasure Department more heavily weighting the issuance to

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Speaker 1: T bills makes sense that basically you can basically capitalize

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Speaker 1: on the demand for short term T bills T bill

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Speaker 1: and chill what everyone's been talking about, and not lock

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Speaker 1: in five percent yields over a longer period of time.

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Speaker 1: Is that what we can infer from this announcement.

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Speaker 3: So, I mean, you know, the Office of Dead Management,

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Speaker 3: they are trying to minimize the interest expense for the taxpayer,

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Speaker 3: you know, based on their calculations and depending upon history

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Speaker 3: and how interest rates may or may not unfold, you know,

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Speaker 3: you do want some mix between between bills and coupon issuance.

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Speaker 3: I mean, there was a long debate pre COVID whether

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Speaker 3: or not the US should turn out its debt A

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Speaker 3: lot and a lot of those models actually don't say

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Speaker 3: terming out the debt is really the most cost effective

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Speaker 3: thing to do for the Treasury. But a lot of

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Speaker 3: it's pretty uncertain too, right, I mean, it depends on

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Speaker 3: the outlet for interest rates, inflation. You know, at this point,

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Speaker 3: net interest payments are you know, more than defense spending.

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Speaker 3: You know, you're talking three percent of nominal.

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Speaker 4: GDP is just paying interest.

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Speaker 3: It's almost twenty percent of federal governor government revenue. So

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Speaker 3: you know, that could get a lot worse if rates

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Speaker 3: stay high and inflation stays high, or it can get

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Speaker 3: better if the.

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Speaker 4: Fed starts cutting.

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Speaker 1: I mean, in other words, on the way to frame

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Speaker 1: this question is do you think that the Treasury is

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Speaker 1: making a call that longer term interistrates are going to

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Speaker 1: go lower? And if this isn't an opportune time to

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Speaker 1: lock it in.

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Speaker 3: I can't peer into Janet Yellen's and I can dry.

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Speaker 3: But you know, I do think though that the Treasury

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Speaker 3: is trying to balance what they're seeing on the yield curve.

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Speaker 3: I mean, if that's sort of what you're getting at,

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Speaker 3: and I think that's probably an appropriate thing to do

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Speaker 3: for short term funding needs.

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Speaker 4: Right.

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Speaker 3: We certainly have seen in the money market's a reasonable

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Speaker 3: appetite for bills. I mean, you can see that in

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Speaker 3: all of the money that gets parked at the reverse

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Speaker 3: repo facility at the FED. I mean, the money markets

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Speaker 3: are still relatively a wash in cash, high levels of

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Speaker 3: reserves in the banking system, so that would indicate, all

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Speaker 3: else equal, that there's a lot of capacity for bill issuance.

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Speaker 4: There.

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Speaker 5: You talked about fiscal policy, so there's more money coming out,

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Speaker 5: but there's also more people, which is propping up this

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Speaker 5: economy we're witnessing. How do you see this potentially changing

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Speaker 5: next year?

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Speaker 3: Well, I mean, you know, I think the budget choices

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Speaker 3: get hard, which is one complication, But the presidential election,

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Speaker 3: you know, is a hugely consequential election for fiscal policy.

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Speaker 3: You know, if we think about what's unfolding and tax policy,

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Speaker 3: most to the individual side of the twenty seventeen tax

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Speaker 3: cuts expires at the end of twenty twenty five, and

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Speaker 3: because that's written in the current law, you know there

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Speaker 3: is something that Congress and the next administration are going

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Speaker 3: to want to address because otherwise it's going to be

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Speaker 3: roughly a almost three trillion dollar tax increase over the

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Speaker 3: subsequent ten years. The plans to pay for that are

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Speaker 3: likely going to look very different comparing the Democrats to

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Speaker 3: the Republicans. But that could have a huge amount of

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Speaker 3: impact on fiscal policy as we look out to twenty

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Speaker 3: five twenty.

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Speaker 2: Secretary Yen And got a gritting on this on Capitol

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Speaker 2: Hill just yesterday. I'll bring a quote up from her

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Speaker 2: from her statement, we can make these investments while reducing

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Speaker 2: the deficit by three trillion over a decade through a

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Speaker 2: combination of smart savings and tank proposals. I want to

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Speaker 2: bring in my McKee Mike Dan in Washington, you witness

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Speaker 2: some of that hearing. I'm sure what'shing the tape being

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Speaker 2: played back. What did you think of the proposals coming

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Speaker 2: out in the administration. How do they do this? Make

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Speaker 2: these investments while reduce the deficit by three trillion over

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Speaker 2: a decade.

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Speaker 6: They haven't put out an exact plan yet, but The

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Speaker 6: important point for the administration is they do not plan

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Speaker 6: to increase taxes on anyone making four hundred thousand dollars

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Speaker 6: a year or less. Biden didn't mention that when he

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Speaker 6: tweeted that the tax bills need to sunset because the

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Speaker 6: deficit is too high. So there was a big back

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Speaker 6: and forth up on the Hill about whether they would

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Speaker 6: do that or not, yell and insisting they will do that.

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Speaker 6: But there's going to have to be a way to

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Speaker 6: make up some of the difference between the two sides,

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Speaker 6: although we are going to have to also see, as

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Speaker 6: Jonathan said, the results of the election, not only who's president,

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Speaker 6: but who controls each House. If the Democrats are in

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Speaker 6: charge of the House and send it, it's obviously easier

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Speaker 6: to let the tax provisions expire. But if not, then

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Speaker 6: we may end up with a real fight on our

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Speaker 6: hands over how far they're willing to go.

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Speaker 5: Both sides got her grilling on this because when Biden's

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Speaker 5: campaign tweeted about this, he left out the fact that

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Speaker 5: he wants to keep the tax cuts for families making

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Speaker 5: under four hundred thousand. But my disis come down to

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Speaker 5: the point that they're going to pay for this by

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Speaker 5: raising taxes on everyone else above that threshold.

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Speaker 6: Yes, what they've outlined in the past is that taxes

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Speaker 6: go up for people above that threshold, of course, on

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Speaker 6: a graduated basis, and business taxes corporate taxes will probably

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Speaker 6: go up, but they won't go up to where they

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Speaker 6: were before the original tax cuts.

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Speaker 4: They'll go part of the way there.

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Speaker 6: There was a hearing not long ago in which officials

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Speaker 6: from the Biden administration were saying, look, the economy was

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Speaker 6: fine with the tax We would be fine with tax

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Speaker 6: rates that are a little bit lower, but not as

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Speaker 6: high as they were.

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Speaker 4: We don't have to go all the way back. They'll

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Speaker 4: try to sell it that way.

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Speaker 1: Jonathan Bingles still with us, and I am curious, Jonathan,

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Speaker 1: is you listen to all these proposals, you listen to

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Speaker 1: Jennie illens hearing yesterday and her speech coming later this week.

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Speaker 1: How much dispersion is there about your potential outcomes for

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Speaker 1: the economy based on the divergence and tax as well

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Speaker 1: as tariff policy between the two candidates.

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Speaker 4: Yeah.

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Speaker 3: I mean we've written a fair bit on this, and

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Speaker 3: it's it's a pretty big gap. I mean, you know,

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Speaker 3: you know, in looking at some of the plans that

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Speaker 3: have been put forward, and you know what we can

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Speaker 3: glean from the campaigns. You know, it looks to us like,

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Speaker 3: you know, essentially a Republican sweep. You know, so if

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Speaker 3: former President Trump wins the presidency and the Republicans take

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Speaker 3: both houses of Congress, that they would want to fully

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Speaker 3: extend all of the tax cuts, potentially have some pay

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Speaker 3: for us, but also reduced some other taxes. And you know,

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Speaker 3: the Biden administration, it means what you can glean both

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Speaker 3: from you know not you know, both from the president's

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Speaker 3: budget prosals this year and last year. It is as

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Speaker 3: Mike would say, you know, they would you know, fully

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Speaker 3: extend the tax cuts for those making under households making

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Speaker 3: under four hundred or potentially four hundred fifty thousand tax

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Speaker 3: rise back to the old upper marginal the old marginal

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Speaker 3: rates for those making over But then you could also

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Speaker 3: work on corporate taxes, potentially raise the investment tax and

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Speaker 3: maybe even capital gains taxes for upper income individuals. Those

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Speaker 3: are very different outcomes. I mean, you really are over

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Speaker 3: a ten year budget window talking about you know, trillions

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Speaker 3: of dollars in differences between you know, what the deficits

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Speaker 3: would look like under one set of plans or potential

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Speaker 3: compromise or another. And I think we get a you know,

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Speaker 3: the historical template for that is the expiration of Bush

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Speaker 3: tax cuts in twenty twelve, which was very much a

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Speaker 3: similar playbook. You know, the tax cuts expired for the

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Speaker 3: upper income households were extended for those making under a

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Speaker 3: certain threshold. So we sort of have run this playbook before,

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Speaker 3: and we can see what sort of a divided government

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Speaker 3: outcome might look like. But certainly the Republican wave offers

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Speaker 3: a much different fiscal stance.

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Speaker 1: Potentially, when does a deficit matter then economically? When is

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Speaker 1: it actually a drag on the economy rather than a

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Speaker 1: boost and this sort of fuel for American exceptionalism.

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Speaker 3: Deficit, the deficit in some ways already matters. I mean,

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Speaker 3: we saw a last fall, you know, term premium getting

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Speaker 3: pushed around from the refunding announcements as we went from August,

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Speaker 3: you know, through November. And I think we could also

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Speaker 3: make a case that you know, we're already making choices

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Speaker 3: that are difficult constrained by our you know, budget pressures,

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Speaker 3: whether it's our defense spending, you know, our geopolitical posture,

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Speaker 3: you know, you know, our fiscal stance and fiscal position

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Speaker 3: now I think is already starting to influence policy and

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Speaker 3: the choices we're making for the.

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Speaker 1: Economy on this FED day. How seriously do you take

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Speaker 1: proposals of eliminating the FED independence.

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Speaker 3: Well, I worry. My hope is that cooler heads would prevail.

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Speaker 3: You know, I think, you know, Congress obviously would play

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Speaker 3: a very important role in the ability of any administration,

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Speaker 3: through appointees or through legislation, to try to alter the

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Speaker 3: position of the Federal Reserve system. But you know, as

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Speaker 3: a former FED staffer, I think that you know, monetary

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Speaker 3: policy independence is absolutely.

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Speaker 4: Crucial for a well functioning.

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Speaker 5: Economy, but it's mandated by Congress. Something that potentially the president,

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Speaker 5: former president, which maybe the future president could do unilatery

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Speaker 5: as tariffs. And he talked about this extensively in the

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Speaker 5: sit down with Time magazine, and he said potentially that

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Speaker 5: ring around the country that he calls it could be

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Speaker 5: more than ten percent. And he says, I also don't

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Speaker 5: believe that the cost.

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Speaker 1: Will go up that much.

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Speaker 5: How inflationary is say a ten percent or bigger terriff

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Speaker 5: for all around the United States.

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Speaker 3: Well, if it's on everything you know, you could imagine

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Speaker 3: that you know, this is going to feed through, you know,

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Speaker 3: pretty quickly and broadly to consumer prices. You know, it's

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Speaker 3: really going to hinge on is it everybody is? Is

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Speaker 3: it just imports from China? I mean, I think that's

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Speaker 3: sort of the crucial question that we're all trying to

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Speaker 3: grapple with, right whether or not they really are going

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Speaker 3: to follow through with it, and whether or not, you know,

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Speaker 3: Congress could have a role in stepping in. They've delegated

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Speaker 3: a fair amount of trade authority to the executive branch

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Speaker 3: in the US through these various provisions national security, trade protectionism,

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Speaker 3: et cetera. But you know, there is also a chance

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Speaker 3: that you know, Congress could weigh on this issue as

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Speaker 3: well and try to limit the amount and breadth of

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Speaker 3: the terriffs because it would impact other treaty arrangements that

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Speaker 3: we have.

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Speaker 2: He can do a ton with executive action, that's for sure.

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Speaker 2: Jonathan is good to see Jonathan pingle thebias the Mosielle

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Speaker 2: Davis writing quote, the FED wants to maintain optionality to

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Speaker 2: ease in julyle September, but acknowledges the diminishing window, adding

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Speaker 2: Twward's point to a test of five percent for ten

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Speaker 2: yere yields. LL joined us. Now for more. Let's talk

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Speaker 2: about those tailwinds towards five percent. Can you list them?

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Speaker 4: Yeah? Yeah.

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Speaker 7: We think there's a high probability and high confidence level

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Speaker 7: that we hit five percent. And and part of that

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Speaker 7: reason is there's three components to a nominal interest rate

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Speaker 7: a ten year yield.

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Speaker 4: One is your break even inflation.

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Speaker 7: We see the inflation prints going higher, so break even

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Speaker 7: inflation should go higher.

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Speaker 4: The other one is.

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Speaker 7: Your real rate or your tips, and that incorporates a

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Speaker 7: couple things. It incorporates the future view of monetary policy,

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Speaker 7: of which that's changing, especially with the partial pivot that

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Speaker 7: we expect today. So that's higher yields there as well

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Speaker 7: as the risk premium and the risk premium impacted by

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Speaker 7: inflation and supply. So when you have all the components

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Speaker 7: of a yield pointing towards higher yields and wirer yields,

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Speaker 7: it increases the confidence level and.

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Speaker 4: Probability that you get to that level.

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Speaker 7: So that's how we're looking at it, and we do

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Speaker 7: see a test of five percent coming up.

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Speaker 2: Test is an important word. What about sustaining that level?

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Speaker 2: How difficult. Might that be?

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Speaker 7: That's a great question. In the short term it won't

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Speaker 7: be difficult, but in the longer term it'll be difficult.

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Speaker 4: You know. This is one of the things where we

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Speaker 4: will be buying at.

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Speaker 7: Five percent above and part of the reason is higher

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Speaker 7: yield and the market discounting even higher yields than where

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Speaker 7: the present is in the future in regards to forwards,

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Speaker 7: higher yields will accelerate us towards the.

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Speaker 4: End of a business cycle. You know.

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Speaker 7: It's that reflexology of reflexivity of interest rate market. So

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Speaker 7: we don't see us being sustainably above five percent, but

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Speaker 7: we could go with a five and a quarter, But

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Speaker 7: we do see lower rates by one year from this time.

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Speaker 1: This is something we hear a lot, both on the

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Speaker 1: bond and stock side. That will be buyers into weakness, right,

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Speaker 1: we'll be buyers into any kind of sell off. Are

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Speaker 1: you a buyer now or are you waiting for that

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Speaker 1: five percent level? Are you waiting to sort of see

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Speaker 1: the whites of a five percent yield's eyes?

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Speaker 4: No great question. And actually last time I was on

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Speaker 4: the shoal was early March, and.

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Speaker 7: We at that point in time we were tactically long

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Speaker 7: we switched that over that time. We are short because

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Speaker 7: our confidence level and hitting five percent is increasing with

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Speaker 7: the numbers that we're seeing, as well as there's other

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Speaker 7: tailwinds behind getting to five percent. You know, if you

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Speaker 7: have Japanese intervention, that's possible treasury bond selling.

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Speaker 4: They're the highest holders.

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Speaker 7: Of treasury, so they do have a lot of US

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Speaker 7: dollar on hand, but if they work through that any

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Speaker 7: more US dollars, they sell treasuries. Combine that with a

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Speaker 7: lot of technical aspects in the market in regards to

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Speaker 7: no one has any higher yield hedges on to your

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Speaker 7: point in your question, so people will panic as we

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Speaker 7: get there, So we think it accelerates upon itself. So

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Speaker 7: we are tactically short now and we will cover that

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Speaker 7: at five percent and start going along.

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Speaker 1: You talk about some of the supply and demand dynamics

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Speaker 1: behind this increasing conviction around five percent, You talk about

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Speaker 1: the potential sellers. I want to talk about the idea

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Speaker 1: of the US Treasure Department. We do get the refunding,

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Speaker 1: the quarterly refunding announcement in about forty minutes time. We'll

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Speaker 1: get some sort of details about how they plan to

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Speaker 1: fund a deficit that is increasing how much is that

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Speaker 1: plying into your call for a five percent yield.

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Speaker 7: It's significant and it's not just the refining announcement of

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Speaker 7: what the next auction sizes will be, but it's a

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Speaker 7: cumulative effect. You know, last week we had record two years,

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Speaker 7: record five years, seven years, you know, and it's the

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Speaker 7: whole curve of debt that's increasing. So that will definitely

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Speaker 7: have impact. And what we haven't seen in.

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Speaker 4: Treasury yields is risk premium.

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Speaker 7: And part of what you need risk premium for is

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Speaker 7: increasing supply because it has an impact on the dollar

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Speaker 7: in the long term. So you want to make sure

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Speaker 7: you're getting a return and your money back and to

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Speaker 7: ensure that in this environment, you need more risk premium.

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Speaker 7: And we don't have risk premium in yields yet, and

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Speaker 7: treasury supply would be one of the reasons why we

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Speaker 7: do start getting that.

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Speaker 2: Oh, do you see this competing for capital elsewhere? More specifically,

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Speaker 2: is it competing for capital in credit? You seeinge any

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Speaker 2: sign of that.

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Speaker 7: I'm going to answer it in two parts. The immediate

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Speaker 7: answer is no, no signs at all. Like look at

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Speaker 7: the boeing, is ten billion in bonds being new supply

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Speaker 7: bonds being issued this week and eighty billion of bids.

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Speaker 7: There is a lot of cash. So even if it

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Speaker 7: does compete, there's.

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Speaker 4: Still so much cash there.

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Speaker 7: That was eight times oversubscribed on one of the largest

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Speaker 7: issues in history of.

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Speaker 4: Bond issues, so there's room for it to compete.

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Speaker 7: But to the second part to this question, which is

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Speaker 7: a really good question, it's the reason why we see

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Speaker 7: higher tips and higher real yields. When your economy is

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Speaker 7: so resilient and growing so fast, what the Treasury and

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Speaker 7: what the Fed has to do is take the money

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Speaker 7: out of the growth economy to slow it down. And

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Speaker 7: the only way you do that is by high having

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Speaker 7: higher savings rates as reflected by your tips yield. So

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Speaker 7: although we're at highs we haven't seen in probably fifteen

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Speaker 7: years around, we haven't tested the high of last November.

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Speaker 7: We're going to test that as well, but we'll probably

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Speaker 7: make new fis in tips as well, because you have

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Speaker 7: to take money out of the growth economy into the

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Speaker 7: savings economy, and you only do that with higher real yields.

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Speaker 1: I'm looking right now actually at tenure real yields, and

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Speaker 1: we're looking at two point three percent, as you said,

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Speaker 1: the highest since last November. As you look out, I

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Speaker 1: mean there's real divide about where yields are going to

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Speaker 1: end up. You said, if we get to five percent,

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Speaker 1: that will expedite the sort of tumbling down to another

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Speaker 1: level that's a lot lower, simply because it will slow

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Speaker 1: the economy. What is that lower level? How big could

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Speaker 1: that rally be? Versus say, not as much as people think,

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Speaker 1: just because there isn't the same kind of disinflation that's

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Speaker 1: down the pipeline in the same kind of way that

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Speaker 1: there was pre pandemic.

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Speaker 7: Listen our call from December and we said it on

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Speaker 7: surveillance as well as we see the range of ten

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Speaker 7: year yields in the US at five percent to three

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Speaker 7: and a quarter. So I think a move to five

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Speaker 7: and a quarter accelerates that move back to a three handle.

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Speaker 7: Do we see it this year? No, highly unlikely, but

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Speaker 7: Q one next year, Q two next year, it's a

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Speaker 7: very real possibility that we see three against three handle,

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Speaker 7: three and a half, three and a quarter. So we

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Speaker 7: do see us possibly testing the lower end again, but

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Speaker 7: first it takes higher yields to do that, to trigger that.

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Speaker 2: Oh, you've been absolutely phenomenal this year. I say every

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Speaker 2: time I catch out with you just absolutely brilliant. This

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Speaker 2: was a clinic once again. Oh Davis, there of beam up.

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Speaker 2: We'll begin with that top story Marcus on edge ahead

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Speaker 2: of the fat decision. US Equity's closing out a difficult

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Speaker 2: April with the worst day since January. To discuss Tony

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Speaker 2: Dispiritso of Blackrock joined us. Now for more, Tony, you

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Speaker 2: describe yourself as actively bullish. Could you help us understand

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Speaker 2: what that means in practice?

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Speaker 4: Sure?

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Speaker 8: So, John, What I mean by that is in terms

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Speaker 8: of the market, I'm pretty positive, right, I think we're

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Speaker 8: in a decent setup. We've got earnings that are growing

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Speaker 8: quite nicely for the first time in a while, right,

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Speaker 8: So you know, right now as are running a little

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Speaker 8: above three percent. By the end of the quarter, by

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Speaker 8: the end of the reporting season, we should be close

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Speaker 8: to high single digits, close to double digits. So I

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Speaker 8: think the economy, I actually think is doing well. Yes,

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Speaker 8: there's some bumps along the road, but generally the trajectory

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Speaker 8: is quite positive. Earnings growth quite positive. So it's good

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Speaker 8: for the market. But where I get really excited is

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Speaker 8: the opportunity for active management. And I think about that

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Speaker 8: as it's skill times the opportunity set, and the opportunity

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Speaker 8: set is dispersion, and right now I see a lot

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Speaker 8: of dispersion. I mean, I've heard you talk about that

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Speaker 8: this morning. Some companies doing really well, some companies doing

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Speaker 8: really poorly, very big differences in valuations amongst companies. To me,

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Speaker 8: that's a stock picker's paradise. And so that's why I

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Speaker 8: use the word actively bullish, bullish about the markets, but

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Speaker 8: particularly bullish about the opportunity set for skilled active managers

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Speaker 8: in this market.

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Speaker 2: Tonny, what do you make of these big moves that

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Speaker 2: were seeing Peter chiev Academy start at the week by

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Speaker 2: asking whether the ten percent was the new one percent?

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Speaker 2: Just in terms of inter day moves post earnings for

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Speaker 2: megacamp names. What do you make of some of these moves?

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Speaker 2: Just double digit moves here, there and everywhere.

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Speaker 8: Yeah, so you're right, the moves have been quite large.

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Speaker 8: I mean part of that is, like, look, the market

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Speaker 8: has changed a lot where you know, even though we

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Speaker 8: had a a tough April, the market's still up twenty

437
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Speaker 8: percent since the October lows, it's still up six percent

438
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Speaker 8: year to date, and so I think, yes, there's some

439
00:21:10,840 --> 00:21:14,479
Speaker 8: volatility under the scene. Again, volatility is good for a

440
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Speaker 8: skilled stock picker, but generally the trajectory of the market

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Speaker 8: is still quite nicely up.

442
00:21:21,520 --> 00:21:24,000
Speaker 1: Some people were talking about a rolling recession that's basically

443
00:21:24,000 --> 00:21:26,000
Speaker 1: cleaned out certain sectors, and then we were from Pat

444
00:21:26,040 --> 00:21:29,159
Speaker 1: max Ktner essentially that it's been a rolling Goldilocks and

445
00:21:29,200 --> 00:21:31,920
Speaker 1: that basically you just have to lean into this goldilocks narrative.

446
00:21:32,160 --> 00:21:34,640
Speaker 1: Is that what you see a rolling Goldilocks that's sort

447
00:21:34,680 --> 00:21:37,920
Speaker 1: of going through different sectors right now is highlighting and

448
00:21:37,960 --> 00:21:41,200
Speaker 1: putting a halo around AI and energy, and we'll roll

449
00:21:41,200 --> 00:21:42,240
Speaker 1: somewhere else pretty soon.

450
00:21:43,480 --> 00:21:45,800
Speaker 8: Yes, I wouldn't use the Goldilocks word, but I do

451
00:21:45,880 --> 00:21:49,639
Speaker 8: see this rolling recession recovery, so to speak. And I

452
00:21:49,640 --> 00:21:53,040
Speaker 8: think that's a lot to do with the dance of COVID,

453
00:21:53,119 --> 00:21:56,800
Speaker 8: the push and pull where we've seen you know, chip shortages,

454
00:21:56,880 --> 00:22:01,480
Speaker 8: then chips surpluses for example, We've seen step changes in inflation,

455
00:22:02,119 --> 00:22:05,200
Speaker 8: you know, auto costs, insurance, et cetera, and so all

456
00:22:05,280 --> 00:22:08,240
Speaker 8: that's created this, as you put at, this kind of

457
00:22:08,359 --> 00:22:11,600
Speaker 8: rolling recession. So twenty twenty two really tough year for

458
00:22:11,680 --> 00:22:15,520
Speaker 8: technology companies. They responded by cutting costs and then you know,

459
00:22:15,560 --> 00:22:18,240
Speaker 8: twenty twenty three, you have a better cost base and

460
00:22:18,320 --> 00:22:21,959
Speaker 8: improving revenues, and you have an earning you know, explosion,

461
00:22:21,960 --> 00:22:24,719
Speaker 8: a positive earning explosion. You know, when I look at

462
00:22:24,760 --> 00:22:27,760
Speaker 8: the market right now, the market's very concentrated in this

463
00:22:27,880 --> 00:22:29,159
Speaker 8: Magnificent seven.

464
00:22:28,960 --> 00:22:29,560
Speaker 4: So to speak.

465
00:22:29,600 --> 00:22:33,440
Speaker 8: And if you look at the earnings estimates, the Magnificent seven,

466
00:22:33,480 --> 00:22:36,119
Speaker 8: earnings growth has been quite hot, a lot higher than

467
00:22:36,160 --> 00:22:39,359
Speaker 8: the rest of the market, and the valuations reflect that.

468
00:22:39,400 --> 00:22:42,119
Speaker 8: What's interesting is if you look out at quarterly earnings

469
00:22:42,240 --> 00:22:45,480
Speaker 8: estimates by the end of this year, the estimates for

470
00:22:45,560 --> 00:22:49,399
Speaker 8: the Mag seven versus the rest of the market basically normalize,

471
00:22:49,400 --> 00:22:52,159
Speaker 8: the equalize, and yet you're paying a lot more for

472
00:22:52,240 --> 00:22:54,840
Speaker 8: the Mag seven. Now, I think the Mag seven, the

473
00:22:54,880 --> 00:22:57,679
Speaker 8: earnings will probably come out a little better than what

474
00:22:57,760 --> 00:23:00,359
Speaker 8: the estimates are, but still it'll be pretty close to

475
00:23:00,400 --> 00:23:03,119
Speaker 8: equal And I think that goes again to this idea

476
00:23:03,119 --> 00:23:06,080
Speaker 8: of the market broadening out and that being an opportunity

477
00:23:06,119 --> 00:23:08,280
Speaker 8: for stock pickers, and I think we will see that

478
00:23:08,359 --> 00:23:10,360
Speaker 8: over the next several quarters.

479
00:23:10,640 --> 00:23:13,200
Speaker 1: How challenged is this broadening out thesis, not just from

480
00:23:13,200 --> 00:23:15,320
Speaker 1: the FED holding rates where they are, but this idea

481
00:23:15,359 --> 00:23:18,359
Speaker 1: that we're seeing a consumer that does seem to be pinched.

482
00:23:18,359 --> 00:23:21,119
Speaker 1: I mean, we're talking about Starbucks, we're talking about McDonald's.

483
00:23:21,119 --> 00:23:25,639
Speaker 1: We're also talking about Amazon. Apart from AWS highlighting a

484
00:23:25,680 --> 00:23:28,840
Speaker 1: real slowdown in terms of online purchases. How much do

485
00:23:28,880 --> 00:23:31,679
Speaker 1: you see that as really hampering an ability to broaden

486
00:23:31,720 --> 00:23:33,119
Speaker 1: out at a time where there really is a two

487
00:23:33,200 --> 00:23:36,119
Speaker 1: speed economy, where there is a growing number of people

488
00:23:36,320 --> 00:23:37,080
Speaker 1: really struggling.

489
00:23:39,119 --> 00:23:42,480
Speaker 8: So I actually think that's a healthy part of the process.

490
00:23:43,640 --> 00:23:46,520
Speaker 8: What we're hearing when I speak to individual company CEOs, etc.

491
00:23:47,119 --> 00:23:51,359
Speaker 8: What I hear is a consumer being more selective. And

492
00:23:51,400 --> 00:23:53,679
Speaker 8: I think that's a function of this step change, so

493
00:23:53,760 --> 00:23:57,960
Speaker 8: to speak in prices that we've seen. And I see

494
00:23:57,960 --> 00:24:00,760
Speaker 8: that as a good thing because when I look consumer

495
00:24:00,840 --> 00:24:04,320
Speaker 8: spending and consumer savings, I see a consumer that's been

496
00:24:04,640 --> 00:24:07,840
Speaker 8: spending above at an above trend rate, meaning the consumer

497
00:24:07,920 --> 00:24:11,600
Speaker 8: savings rate is too low. It's hovering just over three percent.

498
00:24:12,040 --> 00:24:14,760
Speaker 8: Normal is much more like six percent, right, And so

499
00:24:14,920 --> 00:24:17,040
Speaker 8: I like the fact that the consumer is getting a

500
00:24:17,040 --> 00:24:19,800
Speaker 8: little bit more selective, a little bit more conservative. I

501
00:24:19,840 --> 00:24:23,520
Speaker 8: think that's good for the long run. The other positive

502
00:24:23,560 --> 00:24:27,359
Speaker 8: I see that we haven't talked about is just productivity

503
00:24:27,400 --> 00:24:32,920
Speaker 8: growth and population growth. Both of those have surprised positively,

504
00:24:33,359 --> 00:24:37,120
Speaker 8: and that's also helping to sustain the economy even though

505
00:24:37,160 --> 00:24:38,879
Speaker 8: the consumer is being more conservative.

506
00:24:39,600 --> 00:24:41,200
Speaker 5: Tony, you spent a lot of time on your note

507
00:24:41,240 --> 00:24:43,880
Speaker 5: talking about the election and the fact that actually companies

508
00:24:43,880 --> 00:24:45,960
Speaker 5: aren't talking about it, even though many are saying that

509
00:24:46,000 --> 00:24:49,119
Speaker 5: this is the most consequential election in our lifetime. Is

510
00:24:49,160 --> 00:24:51,719
Speaker 5: that just because these two individuals are no knowns.

511
00:24:53,640 --> 00:24:58,080
Speaker 8: Yeah, it's pretty interesting, right, because we've gone back since

512
00:24:58,520 --> 00:25:02,120
Speaker 8: the elections, going back to two thousand twelve, and you

513
00:25:02,119 --> 00:25:05,200
Speaker 8: you know, using our AI techniques, have gone back in

514
00:25:05,240 --> 00:25:10,160
Speaker 8: read through effectively conference called transcripts, and companies are talking

515
00:25:10,280 --> 00:25:11,119
Speaker 8: less at this stage.

516
00:25:11,119 --> 00:25:11,239
Speaker 4: Now.

517
00:25:11,240 --> 00:25:13,600
Speaker 8: We would expect it to increase as we get closer election,

518
00:25:13,960 --> 00:25:17,080
Speaker 8: but fewer companies are talking about the election. I agree

519
00:25:17,080 --> 00:25:19,280
Speaker 8: with you. I think it's largely because we have two

520
00:25:19,400 --> 00:25:23,879
Speaker 8: known candidates, and I don't think the you know, we

521
00:25:23,920 --> 00:25:25,840
Speaker 8: also are going to have I think no matter how

522
00:25:25,840 --> 00:25:27,840
Speaker 8: it comes out, we're gonna have a lot of close calls,

523
00:25:27,880 --> 00:25:30,399
Speaker 8: whether that's at the presidency, whether it's at the House

524
00:25:30,520 --> 00:25:33,199
Speaker 8: or the Senate, and so I think that means not

525
00:25:33,440 --> 00:25:35,000
Speaker 8: big policy changes from here.

526
00:25:35,080 --> 00:25:37,040
Speaker 2: I think they all understand the pitfalls of talking about

527
00:25:37,080 --> 00:25:39,280
Speaker 2: politics now as well, Tony, Tony, It's going to hear

528
00:25:39,280 --> 00:25:41,760
Speaker 2: from you as always, Tony Dispirito of Black Rock There.

529
00:25:42,400 --> 00:25:45,960
Speaker 2: This is the Bloomberg Sevenants podcast, bringing you the best

530
00:25:45,960 --> 00:25:49,040
Speaker 2: in markets, economics, an Giet politics. You can watch the

531
00:25:49,080 --> 00:25:52,159
Speaker 2: show live on Bloomberg TV weekday mornings from six am

532
00:25:52,200 --> 00:25:55,359
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533
00:25:55,640 --> 00:25:58,480
Speaker 2: Spotify or anywhere else you listen, and as always on

534
00:25:58,520 --> 00:26:05,440
Speaker 2: the Bloomberg Terminal and buck burst this out. Mm hmm