Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each
Speaker 2: day for insight from the best in markets, economics, and
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Speaker 2: Bloomberg Terminal and the Bloomberg Business app. Jonathan Pinkleer Ubs
Speaker 2: is still with us. Jonathan, We've been talking about the
Speaker 2: effort the Federal Reserve needs to go to to get
Speaker 2: inflation back down towards target. How much of that is
Speaker 2: being offset by what's happening in treasury, The amount of
Speaker 2: issients we're getting, the amount of fiscal easing we've seen.
Speaker 3: Yeah, you know, fiscal policy, you know, in our view,
Speaker 3: is a huge support to twenty twenty three. I mean,
Speaker 3: we all talked about, you know, the Biden administration programs
Speaker 3: at chipsacked the IRA and we're all watching sort of
Speaker 3: this extraordinary boom in chip manufacturing. A chip plant manufacturing construction,
Speaker 3: you know, all the related ev plant manufacturing construction. I mean,
Speaker 3: Structure's investment in twenty twenty three added roughly half a
Speaker 3: percentage point to year of year.
Speaker 4: The Q four Q for GDP said, you know, three
Speaker 4: percent GDP.
Speaker 3: You know, half a percentage point of that was the
Speaker 3: Structure's investment. Direct government spending and investment, the public sector
Speaker 3: investment add on a little bit of the deficit widening.
Speaker 3: It's a percentage point, so a third of the growth
Speaker 3: that we saw. And you know, we generally think that
Speaker 3: the government as being somewhat you know, kind of interest
Speaker 3: rates insensitive, right, so this was definitely some a thrust
Speaker 3: that the FED was forced to fight in twenty twenty
Speaker 3: three with higher rates that you know, really wasn't going
Speaker 3: to be affected by by by by monetary you keep.
Speaker 2: Saying twenty twenty three, can we talk about twenty twenty four.
Speaker 2: How sustainable is that? How much money is still being
Speaker 2: distributed every single day into the economy off the back
Speaker 2: of these programs.
Speaker 4: A lot less?
Speaker 3: I mean, if we think about it in terms of
Speaker 3: growth rates, you know, it's sort of like we moved
Speaker 3: up the level, you know, and now we've got these
Speaker 3: wider deficits and this level, but the level now is
Speaker 3: kind of staying the same for a while, and that
Speaker 3: means the impact on growth is essentially going to zero
Speaker 3: in twenty twenty four in our view, you know, And
Speaker 3: this is sort of a natural way of thinking about
Speaker 3: fiscal policy, right, you know, this is why it's countercyclical.
Speaker 3: You widen the deficit in bad times to but we've
Speaker 3: ended up sort of widening the deficit in good times
Speaker 3: we've had the growth benefit, and now we've got sort
Speaker 3: of the wider deficit and the growth impetus is sort
Speaker 3: of fading at this point.
Speaker 1: As an economist, do you think that the likelihood of
Speaker 1: the US Treasure Department more heavily weighting the issuance to
Speaker 1: T bills makes sense that basically you can basically capitalize
Speaker 1: on the demand for short term T bills T bill
Speaker 1: and chill what everyone's been talking about, and not lock
Speaker 1: in five percent yields over a longer period of time.
Speaker 1: Is that what we can infer from this announcement.
Speaker 3: So, I mean, you know, the Office of Dead Management,
Speaker 3: they are trying to minimize the interest expense for the taxpayer,
Speaker 3: you know, based on their calculations and depending upon history
Speaker 3: and how interest rates may or may not unfold, you know,
Speaker 3: you do want some mix between between bills and coupon issuance.
Speaker 3: I mean, there was a long debate pre COVID whether
Speaker 3: or not the US should turn out its debt A
Speaker 3: lot and a lot of those models actually don't say
Speaker 3: terming out the debt is really the most cost effective
Speaker 3: thing to do for the Treasury. But a lot of
Speaker 3: it's pretty uncertain too, right, I mean, it depends on
Speaker 3: the outlet for interest rates, inflation. You know, at this point,
Speaker 3: net interest payments are you know, more than defense spending.
Speaker 3: You know, you're talking three percent of nominal.
Speaker 4: GDP is just paying interest.
Speaker 3: It's almost twenty percent of federal governor government revenue. So
Speaker 3: you know, that could get a lot worse if rates
Speaker 3: stay high and inflation stays high, or it can get
Speaker 3: better if the.
Speaker 4: Fed starts cutting.
Speaker 1: I mean, in other words, on the way to frame
Speaker 1: this question is do you think that the Treasury is
Speaker 1: making a call that longer term interistrates are going to
Speaker 1: go lower? And if this isn't an opportune time to
Speaker 1: lock it in.
Speaker 3: I can't peer into Janet Yellen's and I can dry.
Speaker 3: But you know, I do think though that the Treasury
Speaker 3: is trying to balance what they're seeing on the yield curve.
Speaker 3: I mean, if that's sort of what you're getting at,
Speaker 3: and I think that's probably an appropriate thing to do
Speaker 3: for short term funding needs.
Speaker 4: Right.
Speaker 3: We certainly have seen in the money market's a reasonable
Speaker 3: appetite for bills. I mean, you can see that in
Speaker 3: all of the money that gets parked at the reverse
Speaker 3: repo facility at the FED. I mean, the money markets
Speaker 3: are still relatively a wash in cash, high levels of
Speaker 3: reserves in the banking system, so that would indicate, all
Speaker 3: else equal, that there's a lot of capacity for bill issuance.
Speaker 4: There.
Speaker 5: You talked about fiscal policy, so there's more money coming out,
Speaker 5: but there's also more people, which is propping up this
Speaker 5: economy we're witnessing. How do you see this potentially changing
Speaker 5: next year?
Speaker 3: Well, I mean, you know, I think the budget choices
Speaker 3: get hard, which is one complication, But the presidential election,
Speaker 3: you know, is a hugely consequential election for fiscal policy.
Speaker 3: You know, if we think about what's unfolding and tax policy,
Speaker 3: most to the individual side of the twenty seventeen tax
Speaker 3: cuts expires at the end of twenty twenty five, and
Speaker 3: because that's written in the current law, you know there
Speaker 3: is something that Congress and the next administration are going
Speaker 3: to want to address because otherwise it's going to be
Speaker 3: roughly a almost three trillion dollar tax increase over the
Speaker 3: subsequent ten years. The plans to pay for that are
Speaker 3: likely going to look very different comparing the Democrats to
Speaker 3: the Republicans. But that could have a huge amount of
Speaker 3: impact on fiscal policy as we look out to twenty
Speaker 3: five twenty.
Speaker 2: Secretary Yen And got a gritting on this on Capitol
Speaker 2: Hill just yesterday. I'll bring a quote up from her
Speaker 2: from her statement, we can make these investments while reducing
Speaker 2: the deficit by three trillion over a decade through a
Speaker 2: combination of smart savings and tank proposals. I want to
Speaker 2: bring in my McKee Mike Dan in Washington, you witness
Speaker 2: some of that hearing. I'm sure what'shing the tape being
Speaker 2: played back. What did you think of the proposals coming
Speaker 2: out in the administration. How do they do this? Make
Speaker 2: these investments while reduce the deficit by three trillion over
Speaker 2: a decade.
Speaker 6: They haven't put out an exact plan yet, but The
Speaker 6: important point for the administration is they do not plan
Speaker 6: to increase taxes on anyone making four hundred thousand dollars
Speaker 6: a year or less. Biden didn't mention that when he
Speaker 6: tweeted that the tax bills need to sunset because the
Speaker 6: deficit is too high. So there was a big back
Speaker 6: and forth up on the Hill about whether they would
Speaker 6: do that or not, yell and insisting they will do that.
Speaker 6: But there's going to have to be a way to
Speaker 6: make up some of the difference between the two sides,
Speaker 6: although we are going to have to also see, as
Speaker 6: Jonathan said, the results of the election, not only who's president,
Speaker 6: but who controls each House. If the Democrats are in
Speaker 6: charge of the House and send it, it's obviously easier
Speaker 6: to let the tax provisions expire. But if not, then
Speaker 6: we may end up with a real fight on our
Speaker 6: hands over how far they're willing to go.
Speaker 5: Both sides got her grilling on this because when Biden's
Speaker 5: campaign tweeted about this, he left out the fact that
Speaker 5: he wants to keep the tax cuts for families making
Speaker 5: under four hundred thousand. But my disis come down to
Speaker 5: the point that they're going to pay for this by
Speaker 5: raising taxes on everyone else above that threshold.
Speaker 6: Yes, what they've outlined in the past is that taxes
Speaker 6: go up for people above that threshold, of course, on
Speaker 6: a graduated basis, and business taxes corporate taxes will probably
Speaker 6: go up, but they won't go up to where they
Speaker 6: were before the original tax cuts.
Speaker 4: They'll go part of the way there.
Speaker 6: There was a hearing not long ago in which officials
Speaker 6: from the Biden administration were saying, look, the economy was
Speaker 6: fine with the tax We would be fine with tax
Speaker 6: rates that are a little bit lower, but not as
Speaker 6: high as they were.
Speaker 4: We don't have to go all the way back. They'll
Speaker 4: try to sell it that way.
Speaker 1: Jonathan Bingles still with us, and I am curious, Jonathan,
Speaker 1: is you listen to all these proposals, you listen to
Speaker 1: Jennie illens hearing yesterday and her speech coming later this week.
Speaker 1: How much dispersion is there about your potential outcomes for
Speaker 1: the economy based on the divergence and tax as well
Speaker 1: as tariff policy between the two candidates.
Speaker 4: Yeah.
Speaker 3: I mean we've written a fair bit on this, and
Speaker 3: it's it's a pretty big gap. I mean, you know,
Speaker 3: you know, in looking at some of the plans that
Speaker 3: have been put forward, and you know what we can
Speaker 3: glean from the campaigns. You know, it looks to us like,
Speaker 3: you know, essentially a Republican sweep. You know, so if
Speaker 3: former President Trump wins the presidency and the Republicans take
Speaker 3: both houses of Congress, that they would want to fully
Speaker 3: extend all of the tax cuts, potentially have some pay
Speaker 3: for us, but also reduced some other taxes. And you know,
Speaker 3: the Biden administration, it means what you can glean both
Speaker 3: from you know not you know, both from the president's
Speaker 3: budget prosals this year and last year. It is as
Speaker 3: Mike would say, you know, they would you know, fully
Speaker 3: extend the tax cuts for those making under households making
Speaker 3: under four hundred or potentially four hundred fifty thousand tax
Speaker 3: rise back to the old upper marginal the old marginal
Speaker 3: rates for those making over But then you could also
Speaker 3: work on corporate taxes, potentially raise the investment tax and
Speaker 3: maybe even capital gains taxes for upper income individuals. Those
Speaker 3: are very different outcomes. I mean, you really are over
Speaker 3: a ten year budget window talking about you know, trillions
Speaker 3: of dollars in differences between you know, what the deficits
Speaker 3: would look like under one set of plans or potential
Speaker 3: compromise or another. And I think we get a you know,
Speaker 3: the historical template for that is the expiration of Bush
Speaker 3: tax cuts in twenty twelve, which was very much a
Speaker 3: similar playbook. You know, the tax cuts expired for the
Speaker 3: upper income households were extended for those making under a
Speaker 3: certain threshold. So we sort of have run this playbook before,
Speaker 3: and we can see what sort of a divided government
Speaker 3: outcome might look like. But certainly the Republican wave offers
Speaker 3: a much different fiscal stance.
Speaker 1: Potentially, when does a deficit matter then economically? When is
Speaker 1: it actually a drag on the economy rather than a
Speaker 1: boost and this sort of fuel for American exceptionalism.
Speaker 3: Deficit, the deficit in some ways already matters. I mean,
Speaker 3: we saw a last fall, you know, term premium getting
Speaker 3: pushed around from the refunding announcements as we went from August,
Speaker 3: you know, through November. And I think we could also
Speaker 3: make a case that you know, we're already making choices
Speaker 3: that are difficult constrained by our you know, budget pressures,
Speaker 3: whether it's our defense spending, you know, our geopolitical posture,
Speaker 3: you know, you know, our fiscal stance and fiscal position
Speaker 3: now I think is already starting to influence policy and
Speaker 3: the choices we're making for the.
Speaker 1: Economy on this FED day. How seriously do you take
Speaker 1: proposals of eliminating the FED independence.
Speaker 3: Well, I worry. My hope is that cooler heads would prevail.
Speaker 3: You know, I think, you know, Congress obviously would play
Speaker 3: a very important role in the ability of any administration,
Speaker 3: through appointees or through legislation, to try to alter the
Speaker 3: position of the Federal Reserve system. But you know, as
Speaker 3: a former FED staffer, I think that you know, monetary
Speaker 3: policy independence is absolutely.
Speaker 4: Crucial for a well functioning.
Speaker 5: Economy, but it's mandated by Congress. Something that potentially the president,
Speaker 5: former president, which maybe the future president could do unilatery
Speaker 5: as tariffs. And he talked about this extensively in the
Speaker 5: sit down with Time magazine, and he said potentially that
Speaker 5: ring around the country that he calls it could be
Speaker 5: more than ten percent. And he says, I also don't
Speaker 5: believe that the cost.
Speaker 1: Will go up that much.
Speaker 5: How inflationary is say a ten percent or bigger terriff
Speaker 5: for all around the United States.
Speaker 3: Well, if it's on everything you know, you could imagine
Speaker 3: that you know, this is going to feed through, you know,
Speaker 3: pretty quickly and broadly to consumer prices. You know, it's
Speaker 3: really going to hinge on is it everybody is? Is
Speaker 3: it just imports from China? I mean, I think that's
Speaker 3: sort of the crucial question that we're all trying to
Speaker 3: grapple with, right whether or not they really are going
Speaker 3: to follow through with it, and whether or not, you know,
Speaker 3: Congress could have a role in stepping in. They've delegated
Speaker 3: a fair amount of trade authority to the executive branch
Speaker 3: in the US through these various provisions national security, trade protectionism,
Speaker 3: et cetera. But you know, there is also a chance
Speaker 3: that you know, Congress could weigh on this issue as
Speaker 3: well and try to limit the amount and breadth of
Speaker 3: the terriffs because it would impact other treaty arrangements that
Speaker 3: we have.
Speaker 2: He can do a ton with executive action, that's for sure.
Speaker 2: Jonathan is good to see Jonathan pingle thebias the Mosielle
Speaker 2: Davis writing quote, the FED wants to maintain optionality to
Speaker 2: ease in julyle September, but acknowledges the diminishing window, adding
Speaker 2: Twward's point to a test of five percent for ten
Speaker 2: yere yields. LL joined us. Now for more. Let's talk
Speaker 2: about those tailwinds towards five percent. Can you list them?
Speaker 4: Yeah? Yeah.
Speaker 7: We think there's a high probability and high confidence level
Speaker 7: that we hit five percent. And and part of that
Speaker 7: reason is there's three components to a nominal interest rate
Speaker 7: a ten year yield.
Speaker 4: One is your break even inflation.
Speaker 7: We see the inflation prints going higher, so break even
Speaker 7: inflation should go higher.
Speaker 4: The other one is.
Speaker 7: Your real rate or your tips, and that incorporates a
Speaker 7: couple things. It incorporates the future view of monetary policy,
Speaker 7: of which that's changing, especially with the partial pivot that
Speaker 7: we expect today. So that's higher yields there as well
Speaker 7: as the risk premium and the risk premium impacted by
Speaker 7: inflation and supply. So when you have all the components
Speaker 7: of a yield pointing towards higher yields and wirer yields,
Speaker 7: it increases the confidence level and.
Speaker 4: Probability that you get to that level.
Speaker 7: So that's how we're looking at it, and we do
Speaker 7: see a test of five percent coming up.
Speaker 2: Test is an important word. What about sustaining that level?
Speaker 2: How difficult. Might that be?
Speaker 7: That's a great question. In the short term it won't
Speaker 7: be difficult, but in the longer term it'll be difficult.
Speaker 4: You know. This is one of the things where we
Speaker 4: will be buying at.
Speaker 7: Five percent above and part of the reason is higher
Speaker 7: yield and the market discounting even higher yields than where
Speaker 7: the present is in the future in regards to forwards,
Speaker 7: higher yields will accelerate us towards the.
Speaker 4: End of a business cycle. You know.
Speaker 7: It's that reflexology of reflexivity of interest rate market. So
Speaker 7: we don't see us being sustainably above five percent, but
Speaker 7: we could go with a five and a quarter, But
Speaker 7: we do see lower rates by one year from this time.
Speaker 1: This is something we hear a lot, both on the
Speaker 1: bond and stock side. That will be buyers into weakness, right,
Speaker 1: we'll be buyers into any kind of sell off. Are
Speaker 1: you a buyer now or are you waiting for that
Speaker 1: five percent level? Are you waiting to sort of see
Speaker 1: the whites of a five percent yield's eyes?
Speaker 4: No great question. And actually last time I was on
Speaker 4: the shoal was early March, and.
Speaker 7: We at that point in time we were tactically long
Speaker 7: we switched that over that time. We are short because
Speaker 7: our confidence level and hitting five percent is increasing with
Speaker 7: the numbers that we're seeing, as well as there's other
Speaker 7: tailwinds behind getting to five percent. You know, if you
Speaker 7: have Japanese intervention, that's possible treasury bond selling.
Speaker 4: They're the highest holders.
Speaker 7: Of treasury, so they do have a lot of US
Speaker 7: dollar on hand, but if they work through that any
Speaker 7: more US dollars, they sell treasuries. Combine that with a
Speaker 7: lot of technical aspects in the market in regards to
Speaker 7: no one has any higher yield hedges on to your
Speaker 7: point in your question, so people will panic as we
Speaker 7: get there, So we think it accelerates upon itself. So
Speaker 7: we are tactically short now and we will cover that
Speaker 7: at five percent and start going along.
Speaker 1: You talk about some of the supply and demand dynamics
Speaker 1: behind this increasing conviction around five percent, You talk about
Speaker 1: the potential sellers. I want to talk about the idea
Speaker 1: of the US Treasure Department. We do get the refunding,
Speaker 1: the quarterly refunding announcement in about forty minutes time. We'll
Speaker 1: get some sort of details about how they plan to
Speaker 1: fund a deficit that is increasing how much is that
Speaker 1: plying into your call for a five percent yield.
Speaker 7: It's significant and it's not just the refining announcement of
Speaker 7: what the next auction sizes will be, but it's a
Speaker 7: cumulative effect. You know, last week we had record two years,
Speaker 7: record five years, seven years, you know, and it's the
Speaker 7: whole curve of debt that's increasing. So that will definitely
Speaker 7: have impact. And what we haven't seen in.
Speaker 4: Treasury yields is risk premium.
Speaker 7: And part of what you need risk premium for is
Speaker 7: increasing supply because it has an impact on the dollar
Speaker 7: in the long term. So you want to make sure
Speaker 7: you're getting a return and your money back and to
Speaker 7: ensure that in this environment, you need more risk premium.
Speaker 7: And we don't have risk premium in yields yet, and
Speaker 7: treasury supply would be one of the reasons why we
Speaker 7: do start getting that.
Speaker 2: Oh, do you see this competing for capital elsewhere? More specifically,
Speaker 2: is it competing for capital in credit? You seeinge any
Speaker 2: sign of that.
Speaker 7: I'm going to answer it in two parts. The immediate
Speaker 7: answer is no, no signs at all. Like look at
Speaker 7: the boeing, is ten billion in bonds being new supply
Speaker 7: bonds being issued this week and eighty billion of bids.
Speaker 7: There is a lot of cash. So even if it
Speaker 7: does compete, there's.
Speaker 4: Still so much cash there.
Speaker 7: That was eight times oversubscribed on one of the largest
Speaker 7: issues in history of.
Speaker 4: Bond issues, so there's room for it to compete.
Speaker 7: But to the second part to this question, which is
Speaker 7: a really good question, it's the reason why we see
Speaker 7: higher tips and higher real yields. When your economy is
Speaker 7: so resilient and growing so fast, what the Treasury and
Speaker 7: what the Fed has to do is take the money
Speaker 7: out of the growth economy to slow it down. And
Speaker 7: the only way you do that is by high having
Speaker 7: higher savings rates as reflected by your tips yield. So
Speaker 7: although we're at highs we haven't seen in probably fifteen
Speaker 7: years around, we haven't tested the high of last November.
Speaker 7: We're going to test that as well, but we'll probably
Speaker 7: make new fis in tips as well, because you have
Speaker 7: to take money out of the growth economy into the
Speaker 7: savings economy, and you only do that with higher real yields.
Speaker 1: I'm looking right now actually at tenure real yields, and
Speaker 1: we're looking at two point three percent, as you said,
Speaker 1: the highest since last November. As you look out, I
Speaker 1: mean there's real divide about where yields are going to
Speaker 1: end up. You said, if we get to five percent,
Speaker 1: that will expedite the sort of tumbling down to another
Speaker 1: level that's a lot lower, simply because it will slow
Speaker 1: the economy. What is that lower level? How big could
Speaker 1: that rally be? Versus say, not as much as people think,
Speaker 1: just because there isn't the same kind of disinflation that's
Speaker 1: down the pipeline in the same kind of way that
Speaker 1: there was pre pandemic.
Speaker 7: Listen our call from December and we said it on
Speaker 7: surveillance as well as we see the range of ten
Speaker 7: year yields in the US at five percent to three
Speaker 7: and a quarter. So I think a move to five
Speaker 7: and a quarter accelerates that move back to a three handle.
Speaker 7: Do we see it this year? No, highly unlikely, but
Speaker 7: Q one next year, Q two next year, it's a
Speaker 7: very real possibility that we see three against three handle,
Speaker 7: three and a half, three and a quarter. So we
Speaker 7: do see us possibly testing the lower end again, but
Speaker 7: first it takes higher yields to do that, to trigger that.
Speaker 2: Oh, you've been absolutely phenomenal this year. I say every
Speaker 2: time I catch out with you just absolutely brilliant. This
Speaker 2: was a clinic once again. Oh Davis, there of beam up.
Speaker 2: We'll begin with that top story Marcus on edge ahead
Speaker 2: of the fat decision. US Equity's closing out a difficult
Speaker 2: April with the worst day since January. To discuss Tony
Speaker 2: Dispiritso of Blackrock joined us. Now for more, Tony, you
Speaker 2: describe yourself as actively bullish. Could you help us understand
Speaker 2: what that means in practice?
Speaker 4: Sure?
Speaker 8: So, John, What I mean by that is in terms
Speaker 8: of the market, I'm pretty positive, right, I think we're
Speaker 8: in a decent setup. We've got earnings that are growing
Speaker 8: quite nicely for the first time in a while, right,
Speaker 8: So you know, right now as are running a little
Speaker 8: above three percent. By the end of the quarter, by
Speaker 8: the end of the reporting season, we should be close
Speaker 8: to high single digits, close to double digits. So I
Speaker 8: think the economy, I actually think is doing well. Yes,
Speaker 8: there's some bumps along the road, but generally the trajectory
Speaker 8: is quite positive. Earnings growth quite positive. So it's good
Speaker 8: for the market. But where I get really excited is
Speaker 8: the opportunity for active management. And I think about that
Speaker 8: as it's skill times the opportunity set, and the opportunity
Speaker 8: set is dispersion, and right now I see a lot
Speaker 8: of dispersion. I mean, I've heard you talk about that
Speaker 8: this morning. Some companies doing really well, some companies doing
Speaker 8: really poorly, very big differences in valuations amongst companies. To me,
Speaker 8: that's a stock picker's paradise. And so that's why I
Speaker 8: use the word actively bullish, bullish about the markets, but
Speaker 8: particularly bullish about the opportunity set for skilled active managers
Speaker 8: in this market.
Speaker 2: Tonny, what do you make of these big moves that
Speaker 2: were seeing Peter chiev Academy start at the week by
Speaker 2: asking whether the ten percent was the new one percent?
Speaker 2: Just in terms of inter day moves post earnings for
Speaker 2: megacamp names. What do you make of some of these moves?
Speaker 2: Just double digit moves here, there and everywhere.
Speaker 8: Yeah, so you're right, the moves have been quite large.
Speaker 8: I mean part of that is, like, look, the market
Speaker 8: has changed a lot where you know, even though we
Speaker 8: had a a tough April, the market's still up twenty
Speaker 8: percent since the October lows, it's still up six percent
Speaker 8: year to date, and so I think, yes, there's some
Speaker 8: volatility under the scene. Again, volatility is good for a
Speaker 8: skilled stock picker, but generally the trajectory of the market
Speaker 8: is still quite nicely up.
Speaker 1: Some people were talking about a rolling recession that's basically
Speaker 1: cleaned out certain sectors, and then we were from Pat
Speaker 1: max Ktner essentially that it's been a rolling Goldilocks and
Speaker 1: that basically you just have to lean into this goldilocks narrative.
Speaker 1: Is that what you see a rolling Goldilocks that's sort
Speaker 1: of going through different sectors right now is highlighting and
Speaker 1: putting a halo around AI and energy, and we'll roll
Speaker 1: somewhere else pretty soon.
Speaker 8: Yes, I wouldn't use the Goldilocks word, but I do
Speaker 8: see this rolling recession recovery, so to speak. And I
Speaker 8: think that's a lot to do with the dance of COVID,
Speaker 8: the push and pull where we've seen you know, chip shortages,
Speaker 8: then chips surpluses for example, We've seen step changes in inflation,
Speaker 8: you know, auto costs, insurance, et cetera, and so all
Speaker 8: that's created this, as you put at, this kind of
Speaker 8: rolling recession. So twenty twenty two really tough year for
Speaker 8: technology companies. They responded by cutting costs and then you know,
Speaker 8: twenty twenty three, you have a better cost base and
Speaker 8: improving revenues, and you have an earning you know, explosion,
Speaker 8: a positive earning explosion. You know, when I look at
Speaker 8: the market right now, the market's very concentrated in this
Speaker 8: Magnificent seven.
Speaker 4: So to speak.
Speaker 8: And if you look at the earnings estimates, the Magnificent seven,
Speaker 8: earnings growth has been quite hot, a lot higher than
Speaker 8: the rest of the market, and the valuations reflect that.
Speaker 8: What's interesting is if you look out at quarterly earnings
Speaker 8: estimates by the end of this year, the estimates for
Speaker 8: the Mag seven versus the rest of the market basically normalize,
Speaker 8: the equalize, and yet you're paying a lot more for
Speaker 8: the Mag seven. Now, I think the Mag seven, the
Speaker 8: earnings will probably come out a little better than what
Speaker 8: the estimates are, but still it'll be pretty close to
Speaker 8: equal And I think that goes again to this idea
Speaker 8: of the market broadening out and that being an opportunity
Speaker 8: for stock pickers, and I think we will see that
Speaker 8: over the next several quarters.
Speaker 1: How challenged is this broadening out thesis, not just from
Speaker 1: the FED holding rates where they are, but this idea
Speaker 1: that we're seeing a consumer that does seem to be pinched.
Speaker 1: I mean, we're talking about Starbucks, we're talking about McDonald's.
Speaker 1: We're also talking about Amazon. Apart from AWS highlighting a
Speaker 1: real slowdown in terms of online purchases. How much do
Speaker 1: you see that as really hampering an ability to broaden
Speaker 1: out at a time where there really is a two
Speaker 1: speed economy, where there is a growing number of people
Speaker 1: really struggling.
Speaker 8: So I actually think that's a healthy part of the process.
Speaker 8: What we're hearing when I speak to individual company CEOs, etc.
Speaker 8: What I hear is a consumer being more selective. And
Speaker 8: I think that's a function of this step change, so
Speaker 8: to speak in prices that we've seen. And I see
Speaker 8: that as a good thing because when I look consumer
Speaker 8: spending and consumer savings, I see a consumer that's been
Speaker 8: spending above at an above trend rate, meaning the consumer
Speaker 8: savings rate is too low. It's hovering just over three percent.
Speaker 8: Normal is much more like six percent, right, And so
Speaker 8: I like the fact that the consumer is getting a
Speaker 8: little bit more selective, a little bit more conservative. I
Speaker 8: think that's good for the long run. The other positive
Speaker 8: I see that we haven't talked about is just productivity
Speaker 8: growth and population growth. Both of those have surprised positively,
Speaker 8: and that's also helping to sustain the economy even though
Speaker 8: the consumer is being more conservative.
Speaker 5: Tony, you spent a lot of time on your note
Speaker 5: talking about the election and the fact that actually companies
Speaker 5: aren't talking about it, even though many are saying that
Speaker 5: this is the most consequential election in our lifetime. Is
Speaker 5: that just because these two individuals are no knowns.
Speaker 8: Yeah, it's pretty interesting, right, because we've gone back since
Speaker 8: the elections, going back to two thousand twelve, and you
Speaker 8: you know, using our AI techniques, have gone back in
Speaker 8: read through effectively conference called transcripts, and companies are talking
Speaker 8: less at this stage.
Speaker 4: Now.
Speaker 8: We would expect it to increase as we get closer election,
Speaker 8: but fewer companies are talking about the election. I agree
Speaker 8: with you. I think it's largely because we have two
Speaker 8: known candidates, and I don't think the you know, we
Speaker 8: also are going to have I think no matter how
Speaker 8: it comes out, we're gonna have a lot of close calls,
Speaker 8: whether that's at the presidency, whether it's at the House
Speaker 8: or the Senate, and so I think that means not
Speaker 8: big policy changes from here.
Speaker 2: I think they all understand the pitfalls of talking about
Speaker 2: politics now as well, Tony, Tony, It's going to hear
Speaker 2: from you as always, Tony Dispirito of Black Rock There.
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Speaker 2: the Bloomberg Terminal and buck burst this out. Mm hmm