WEBVTT - Markets Push Forward without Jobs Data 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.840 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.320 or watch us live on YouTube. 0:00:27.400 --> 0:00:31.800 We're thrilled did Is Taylor drops here? Our surveillance Swift 0:00:31.800 --> 0:00:35.600 correspondent Amy was Silverman joining us today. But the timing 0:00:35.640 --> 0:00:37.160 you're so important, I'm not going to give you any 0:00:37.159 --> 0:00:40.239 Taylor chat much today. Amy, She's had a derriv of 0:00:40.280 --> 0:00:45.159 strategy RBC. What did do the cross moment say about 0:00:45.159 --> 0:00:46.960 this moment for America? 0:00:48.320 --> 0:00:51.240 Well, look, the last time I came, Tom, we talked 0:00:51.280 --> 0:00:53.640 a little bit about the left tail and the right tail, 0:00:53.760 --> 0:00:56.640 and you know, part of our conversation was that I 0:00:56.720 --> 0:00:59.640 still felt like investors were more worried about that right tail. 0:01:00.160 --> 0:01:01.360 Here we are with over. 0:01:01.400 --> 0:01:04.840 With markets at all time highs SKEW is relatively low. 0:01:04.959 --> 0:01:07.200 You know, all the hedges that had been placed were 0:01:07.240 --> 0:01:11.200 not monetized because the markets kept going up. And when 0:01:11.200 --> 0:01:13.760 I talked to investors, they say, this just feels like 0:01:13.800 --> 0:01:15.360 the most reluctant rally. 0:01:15.760 --> 0:01:20.440 Roman Friedman, NYU I think he's very controversial. In economics, 0:01:20.760 --> 0:01:25.560 he would say the rehedge will kill you. Inside baseball, 0:01:26.040 --> 0:01:29.720 we've had this bull market, the hedges weren't monetized. They 0:01:29.800 --> 0:01:34.959 got to go out and rehedge. Can they rehedge opportunistically here? 0:01:35.760 --> 0:01:39.680 They certainly can. And of course, because everything's come in 0:01:39.680 --> 0:01:42.800 from a volatility perspective, it's not that expensive. But the 0:01:42.840 --> 0:01:46.200 reality is nobody's going to because markets are very short. 0:01:47.640 --> 0:01:52.880 Very I love it, yeah. 0:01:52.760 --> 0:01:55.440 Because because you know, when you're burned once twice, then 0:01:55.640 --> 0:01:57.800 shame on you. And so you know, you see it 0:01:57.800 --> 0:01:59.480 in some aspects of the market. You do see it 0:01:59.520 --> 0:02:01.800 in goal, but you don't see it as much in 0:02:01.920 --> 0:02:03.640 VIX and you don't see it as much in s 0:02:03.680 --> 0:02:07.120 and p hedges because that concentration risk keeps pushing the 0:02:07.200 --> 0:02:09.360 right tail to be more the fear than. 0:02:09.280 --> 0:02:09.720 The left hand. 0:02:09.800 --> 0:02:12.720 Can I editorialize from one Sweeney and Keene, we are 0:02:12.760 --> 0:02:14.359 so lucky, we're not running. 0:02:14.080 --> 0:02:14.919 Money running out. 0:02:16.200 --> 0:02:19.239 So are your clients looking to buy protection or is 0:02:19.280 --> 0:02:22.480 it or not? Because again I look at a VIX. 0:02:22.520 --> 0:02:23.839 That's the only thing I kind of look at because 0:02:23.840 --> 0:02:25.640 I'm simple and I don't see a lot of fear 0:02:25.639 --> 0:02:27.560 out there, So what are you seeing on your desk? 0:02:27.919 --> 0:02:30.880 So I will tell you post Liberation Day, we did 0:02:30.919 --> 0:02:34.440 have that big rally, and investors did hedge, and a 0:02:34.440 --> 0:02:35.840 lot of it was longer term, so a lot of 0:02:35.919 --> 0:02:39.280 it was for that September FOMC and then when that 0:02:39.320 --> 0:02:41.600 came and went not in the direction they had hoped 0:02:41.600 --> 0:02:44.440 from a hedging perspective, none of that premium was rolled. 0:02:44.760 --> 0:02:48.200 What investors tell me right now is they're looking at 0:02:48.240 --> 0:02:51.080 alternate venues, so that could be you know, call options 0:02:51.120 --> 0:02:53.320 on gold. Even though that's run too, they at least 0:02:53.320 --> 0:02:56.359 feel like it's a little bit less correlated. And then 0:02:56.639 --> 0:02:59.240 what they're waiting for is and I'm interested in what 0:02:59.280 --> 0:03:01.160 consensus is here, but I think if we get any 0:03:01.200 --> 0:03:03.800 sort of five to ten percent draw down, investors are 0:03:03.800 --> 0:03:06.640 actually going to buy that dip still. It's actually that's 0:03:06.760 --> 0:03:10.200 why I think you get this market that feels nosebleed, 0:03:10.280 --> 0:03:12.600 and yet we're still doing that retail chase. 0:03:12.720 --> 0:03:15.120 So in the Greek letter, someone that I look at, folks, 0:03:15.120 --> 0:03:18.240 this is from aerospace engineering, is THETA, which is time 0:03:18.919 --> 0:03:22.600 guessing the time function, measuring the time function on the 0:03:22.800 --> 0:03:25.960 X axis. Can you do of theta study now or 0:03:26.000 --> 0:03:30.240 with a shutdown, no jobs report, all the other distractions 0:03:30.480 --> 0:03:34.200 tailors drop. You can't measure out on the X axis 0:03:34.280 --> 0:03:36.400 right now? Is that what this is really about? 0:03:36.720 --> 0:03:36.960 Yes? 0:03:36.960 --> 0:03:38.320 And no? And you know what I would say, Tom, 0:03:38.480 --> 0:03:42.280 in terms of THETA it's good from the perspective of 0:03:42.480 --> 0:03:45.920 if you were selling that Volatiley premium low as it 0:03:46.000 --> 0:03:50.120 is because everything's been can kicked. It's good for someone 0:03:50.120 --> 0:03:52.840 who's just writing it out right because all the event 0:03:53.000 --> 0:03:55.880 risk has now been pushed out. The question and options 0:03:56.040 --> 0:03:59.400 is always a timing question. Right now, the options market 0:03:59.520 --> 0:04:03.200 is pricing that we will get a resolution before the October. 0:04:03.320 --> 0:04:05.080 I'm going to get one more nerd question in here 0:04:05.160 --> 0:04:07.760 with Amy with Silverman RBC, Good morning across the nation, 0:04:07.880 --> 0:04:11.240 Good morning Global and American Wall Street. We're thrilled you 0:04:11.280 --> 0:04:14.360 whether where they work at Princeton and all that she's 0:04:14.360 --> 0:04:16.920 done for the Royal Bank of Canada. Amy, was Silverman 0:04:17.120 --> 0:04:20.760 really treasured here as well? What tal Love would say, 0:04:21.680 --> 0:04:24.640 fooled by randomness is forget about all this pro Wall 0:04:24.640 --> 0:04:27.400 Street thing. Look at the hedge fund report from Catherine 0:04:27.600 --> 0:04:31.760 Burton yesterday, the non performance of hedge funds. Tala would say, 0:04:31.800 --> 0:04:34.440 you can't figure it out, you take little bits of 0:04:34.480 --> 0:04:38.240 money and go way out, THEATA way out and buy 0:04:38.480 --> 0:04:39.799 the bet you want to bet. 0:04:40.080 --> 0:04:41.080 Is that efficacious? 0:04:41.120 --> 0:04:41.320 Now? 0:04:41.920 --> 0:04:45.280 Look, and there are tail funds that do that. And 0:04:45.480 --> 0:04:47.520 it's a function of why do we go so far 0:04:47.640 --> 0:04:50.080 up because we don't know exactly when the timing is, 0:04:50.120 --> 0:04:53.240 but we do feel like that reckoning could occur, and 0:04:53.320 --> 0:04:56.279 of course it's not that expensive. But again, markets are 0:04:56.360 --> 0:04:59.000 very short term. We just got burned on the September 0:04:59.080 --> 0:05:01.479 FMC not going your way, and you place those hedges 0:05:01.520 --> 0:05:04.239 and now you're dragging a little on something that's ripped. 0:05:04.520 --> 0:05:07.240 It's very hard to talk people into stuff like that, nerd. 0:05:07.000 --> 0:05:09.280 Folks, But I just tell you you're getting a window 0:05:09.400 --> 0:05:13.159 here into the real world. Jordan Rochester over at Namura, 0:05:13.440 --> 0:05:16.839 you can't miszoo. Excuse me, miszoo. You can't even understand 0:05:16.880 --> 0:05:18.440 his report. It's just Greek to. 0:05:18.400 --> 0:05:19.280 Make too much Greek there. 0:05:19.320 --> 0:05:23.640 Yeah, Amy, who who your typical clients on your desk? 0:05:23.720 --> 0:05:26.520 Are they hedge funds? Are they long only funds? Who's 0:05:26.520 --> 0:05:29.120 a typical client of yours that really wants to talk 0:05:29.120 --> 0:05:31.360 about options and hedging and that type of thing. 0:05:31.839 --> 0:05:33.960 Yeah, I would say it's a good mix So there's 0:05:34.000 --> 0:05:37.359 long only as asset managers, there's pensions, and then there's 0:05:37.360 --> 0:05:40.400 hedge funds. I'll tell you know, hedge funds can be 0:05:40.440 --> 0:05:42.880 a little bit more nimble and what they do, and 0:05:43.120 --> 0:05:45.920 what we've seen a lot of them do is rent 0:05:46.000 --> 0:05:48.360 the small cap rally, so you know, they don't want 0:05:48.360 --> 0:05:50.120 to go all in. So you're seeing a lot of 0:05:50.120 --> 0:05:53.320 these IWM call spreads, which on an absolute level have 0:05:53.360 --> 0:05:56.279 actually done fine because they're saying, we don't want to wait, 0:05:56.400 --> 0:05:58.680 we don't want to sit on this concentration risk. When 0:05:58.720 --> 0:06:02.040 we do see some sort of spread whining. In that case, 0:06:02.040 --> 0:06:05.640 it was a volatility spread between IWM and q's let's 0:06:05.680 --> 0:06:09.400 take advantage of that. So you are seeing nimbleness from 0:06:09.440 --> 0:06:11.760 the community that can do it. I think it's a 0:06:11.800 --> 0:06:14.520 little bit of a struggle, you know, for the long only. However, 0:06:14.680 --> 0:06:17.960 if they've been in the right handful of names, uh, 0:06:18.040 --> 0:06:20.600 they've done okay. And if they haven't, that that drag 0:06:20.680 --> 0:06:21.400 is quite painful. 0:06:21.800 --> 0:06:23.560 Dumb question of the day. 0:06:23.720 --> 0:06:26.560 Do your clients want to hedge their fixed income portfolios 0:06:26.600 --> 0:06:27.920 as well? And if so, how do they do that? 0:06:28.400 --> 0:06:31.080 They certainly do, That just wouldn't be my Alley and 0:06:31.160 --> 0:06:33.919 the sense that we only focus on equities. Okay, but 0:06:33.960 --> 0:06:36.080 I will tell you there's been a lot of translation 0:06:36.279 --> 0:06:39.480 because there's so many liquid fixed income proxies, So an 0:06:39.640 --> 0:06:43.919 HyG or a TLT, you're seeing fixed income focused hedge 0:06:43.920 --> 0:06:47.600 funds and asset managers actually traffic more in equity derivatives 0:06:47.920 --> 0:06:50.240 because there is a decent amount of liquidity in these 0:06:50.279 --> 0:06:51.720 proxy ETFs. 0:06:51.560 --> 0:06:56.839 On the equity side, do they hedge with ETFs? 0:06:57.520 --> 0:06:59.919 And so how do they? How are ETFs? How's that 0:07:00.080 --> 0:07:00.760 change your world? 0:07:01.720 --> 0:07:03.600 I mean for us, it's changed for the better because 0:07:03.600 --> 0:07:05.920 I just feel like there's more tools in our toolbox. 0:07:05.960 --> 0:07:08.560 You know, twenty years ago, I couldn't say, hey, go 0:07:08.600 --> 0:07:11.120 out and buy an HyG so the high yield proxy 0:07:11.160 --> 0:07:15.560 ETF foot spread you wouldn't get that liquidity nowadays, especially 0:07:15.600 --> 0:07:18.320 because I think the end of the day, everything is 0:07:18.440 --> 0:07:21.600 rates focused, no matter if you're a tourist or you're 0:07:21.640 --> 0:07:25.240 specializing in it. Thank you use these as something that 0:07:25.280 --> 0:07:28.040 you would do instead of CDX, and it's relatively liquid 0:07:28.080 --> 0:07:29.080 and it gives you timing. 0:07:29.440 --> 0:07:32.120 So with that brilliant phrase which I totally agree with 0:07:32.160 --> 0:07:36.200 from Painful Losses, can I suggest that part of the 0:07:36.320 --> 0:07:40.840 rates focus is what's driving MEG seven higher, which is 0:07:40.920 --> 0:07:45.280 a recalculation of their cash flows in terminal. 0:07:44.880 --> 0:07:46.559 Value one hundred percent. 0:07:46.640 --> 0:07:48.680 And you know, the one thing I'll say, the big 0:07:48.840 --> 0:07:52.000 change to me post COVID is you can't rely on 0:07:52.040 --> 0:07:55.239 these traditional correlations, right, you can't rely on your heads 0:07:55.360 --> 0:07:58.040 just being a sixty to forty portfolio. I think MAG 0:07:58.160 --> 0:08:01.040 seven changed a lot of that. And then you look 0:08:01.040 --> 0:08:04.800 at the intercorrelation between MAG seven which has then relatively low, 0:08:05.080 --> 0:08:07.600 and people are scratching their heads and they say, how 0:08:07.640 --> 0:08:09.840 is it that you're all integrated into each other's supply 0:08:10.000 --> 0:08:13.200 chains that yet this correlation isn't that high. And so 0:08:13.360 --> 0:08:15.960 I do think that's why you're seeing these different expressions 0:08:15.960 --> 0:08:18.560 of hedges Tom that weren't necessarily the case five years ago. 0:08:18.720 --> 0:08:21.440 I mean it was silver an RBC with this extended conversation, 0:08:21.560 --> 0:08:24.120 a treat on it. On Jobs Day Friday at a 0:08:24.320 --> 0:08:27.760 thirty Claudia sum will be with us. We're honored to 0:08:27.800 --> 0:08:32.120 have doctor Sam with us today. So within the MAG 0:08:32.280 --> 0:08:36.280 seven and all that, there's a recalculation here. How do 0:08:36.320 --> 0:08:39.600 you take the fundamental story and how does that look 0:08:39.880 --> 0:08:41.640 like when you look at it? Can you look at 0:08:41.679 --> 0:08:44.800 the cross moments of Microsoft. I mean, what do they 0:08:44.840 --> 0:08:45.240 look like? 0:08:45.679 --> 0:08:46.280 Absolutely? 0:08:46.520 --> 0:08:46.640 So. 0:08:46.840 --> 0:08:50.280 One thing I'll tell you is when we were looking, 0:08:50.440 --> 0:08:52.800 you know, basically four or five years ago, at this 0:08:52.880 --> 0:08:55.960 point when the AI news was slowly starting to become 0:08:56.040 --> 0:08:59.360 part of the conversation. The first time you really saw 0:08:59.400 --> 0:09:03.160 that bullish element was in Nvidia calls. So they started 0:09:03.160 --> 0:09:05.480 to skew invert. All that means is the call option 0:09:05.600 --> 0:09:08.880 bid became so vast relative to the put option bid. 0:09:08.960 --> 0:09:11.840 Before that happened, the only time we saw that level 0:09:11.840 --> 0:09:14.800 of exuberance was in the meme stocks. And when people 0:09:14.840 --> 0:09:16.600 saw it on the meme stocks, they said, this is 0:09:17.120 --> 0:09:19.680 a tempest and a teapot. This isn't going to happen 0:09:19.760 --> 0:09:22.480 on bigger names. And then guess what it happened on 0:09:22.559 --> 0:09:25.000 all the Mag seven names. And so now the market 0:09:25.080 --> 0:09:27.360 has really start to pay attention to the Mag seven 0:09:27.400 --> 0:09:30.440 cross moments because they determine the cross moments of the 0:09:30.600 --> 0:09:32.880 entire index. You know, this is twenty five to fifty 0:09:32.920 --> 0:09:35.440 percent depending on your index, and you have to watch it. 0:09:35.600 --> 0:09:36.439 The cross moments. 0:09:36.520 --> 0:09:41.800 Folks are starting with variants, the different dynamics of the moment. 0:09:41.880 --> 0:09:46.520 For example, kretosis is the fungus Lisa Matteo's daughter. 0:09:46.400 --> 0:09:48.160 Has between her toes. 0:09:48.240 --> 0:09:54.880 It's also I think it's the third cross moment or mesocrtatic, leptokritatic, 0:09:55.640 --> 0:09:57.920 something like that. Paul Amy did. 0:09:57.800 --> 0:09:59.560 Better on this than me, exactly. 0:09:59.679 --> 0:10:02.240 A talk to us about liquidity in your marketplace. If 0:10:02.240 --> 0:10:04.320 you come up with a nice strategy for your client 0:10:05.160 --> 0:10:08.400 and that actually get executed efficiently in the markets today, 0:10:08.440 --> 0:10:10.240 how has it liquidity changed in the future As an 0:10:10.280 --> 0:10:11.640 options market it you. 0:10:11.679 --> 0:10:15.040 Know, it's been incredible. So first, liquidity depending on what 0:10:15.080 --> 0:10:18.240 you're trading, your standard suite of indices or mag seven, 0:10:18.280 --> 0:10:21.400 what have you highly liquid from an options perspective. The 0:10:21.440 --> 0:10:23.880 second thing I would say is we've had a lot 0:10:23.920 --> 0:10:26.760 of duration shrinkage, so the folks. 0:10:26.440 --> 0:10:27.640 That creation shrink. 0:10:27.559 --> 0:10:30.920 Yes, duration, so the tenors of the options that are traded. 0:10:31.160 --> 0:10:33.439 And this is a huge theme for us. It used 0:10:33.480 --> 0:10:35.840 to be that one month was your short duration, and 0:10:35.840 --> 0:10:37.840 then it used to be one week, and then Cibo 0:10:38.000 --> 0:10:39.599 came out with a lot of zero day to x 0:10:39.760 --> 0:10:43.360 rate and that's been the duration. So things happened very 0:10:43.480 --> 0:10:46.880 rapidly in our markets. But at the same time, guys, 0:10:47.200 --> 0:10:49.560 we also get less of a signal, so you know 0:10:49.640 --> 0:10:52.040 that GPS that used to give you maybe one thousand 0:10:52.040 --> 0:10:53.800 feet to make that left turn, we're getting like a 0:10:53.920 --> 0:10:56.920 day now because you don't see people place those bets 0:10:57.000 --> 0:11:00.319 until one day before. So I as a strategist can't 0:11:00.679 --> 0:11:01.920 on the one day paper that I. 0:11:01.880 --> 0:11:04.679 Don't understand if you get a jump condition one way 0:11:04.760 --> 0:11:07.320 or the other, how does that affect mere mortals out 0:11:07.320 --> 0:11:09.920 there with a long term horizon of one week or 0:11:09.920 --> 0:11:10.439 one month? 0:11:11.120 --> 0:11:13.480 You know, That's why if you look back to what 0:11:13.520 --> 0:11:16.040 I would consider crises, so where the market kind of 0:11:16.040 --> 0:11:19.640 gives you these one two standard divation moves, the velocity 0:11:19.720 --> 0:11:23.120 tom is much faster. So think back to April twenty 0:11:23.120 --> 0:11:26.200 twenty four, think back to Liberation Day this year. The 0:11:26.320 --> 0:11:28.840 velocity of those moves up and down, that's a really 0:11:28.840 --> 0:11:29.240 sharp V. 0:11:29.440 --> 0:11:32.160 Can I go full NERD to end? So it's slew rates. 0:11:32.360 --> 0:11:32.839 That's what you do. 0:11:33.000 --> 0:11:35.720 You take electrical engineering folks and bring You're sitting in 0:11:35.760 --> 0:11:38.080 a classroom with Princeton and you're going, why am I 0:11:38.120 --> 0:11:41.319 in an engineering course? If I'm looking at finance, it's 0:11:41.360 --> 0:11:44.880 about slur rates? Are the slur rates for our four 0:11:44.880 --> 0:11:47.600 to oh one k the same as they used to be? 0:11:48.400 --> 0:11:51.040 I think in the sense that if you're if you 0:11:51.120 --> 0:11:53.000 have a four oh one K, you're supposed to kind 0:11:53.000 --> 0:11:55.319 of close your eyes and not worry about it. So 0:11:55.760 --> 0:11:58.280 in that sense, if you're a long term investor, I 0:11:58.280 --> 0:12:01.280 don't think it really changes anything. However, if you're us 0:12:01.640 --> 0:12:04.000 and you live and breathe this day day at, day 0:12:04.040 --> 0:12:05.920 in and day out, and then you know you're someone 0:12:05.960 --> 0:12:07.600 on the other side who's got a quarter end to 0:12:07.600 --> 0:12:10.400 worry about or month in Mars, it does become a 0:12:10.400 --> 0:12:13.600 little bit problematic because you do have these potholes, you know, 0:12:13.679 --> 0:12:15.920 I like driving Analoga's even though I don't drive, and like, 0:12:15.960 --> 0:12:19.360 there's a lot more potholes that could happen than when 0:12:19.400 --> 0:12:20.680 the Tenors were a lot longer. 0:12:20.840 --> 0:12:24.360 Rockton's daughter has Taylor coming in new from Target today. 0:12:24.480 --> 0:12:28.040 Target's promise they'll deliver it today. How will the. 0:12:28.040 --> 0:12:31.480 Silverman House consume the new Tailor. 0:12:31.679 --> 0:12:34.840 Tom I have sixteen tickets to the Tailor Swafe release 0:12:34.880 --> 0:12:38.640 party tonight, Wow for for my seven year old and 0:12:38.720 --> 0:12:41.440 my eleven year old and their friends. So I'm you're 0:12:41.520 --> 0:12:45.360 welcome to go. You're old, go get a movie theater 0:12:45.480 --> 0:12:48.040 where they I don't even know at this point, but everyonce. 0:12:48.080 --> 0:12:51.680 There's a lot of glitter involved in nail art and tattoos. 0:12:51.800 --> 0:12:54.679 So I'm getting ready. I might need a drink before then. 0:12:55.240 --> 0:12:56.840 Your offspring address appropriately. 0:12:57.520 --> 0:12:59.920 They've been planning this outfit, you know, it's part of 0:13:00.160 --> 0:13:01.079 this is part of the arc. 0:13:01.240 --> 0:13:03.200 So what are you smiling about over there? 0:13:03.400 --> 0:13:04.000 He's right. 0:13:04.960 --> 0:13:08.559 The girl's plan for this were very like, very cool. 0:13:08.640 --> 0:13:10.720 That is, so they all go to a movie theater 0:13:10.960 --> 0:13:12.800 and there's a video of something. 0:13:13.040 --> 0:13:15.720 I believe she's got some you know, behind the scenes. 0:13:15.720 --> 0:13:17.720 I don't know, but that's my guest Beatles. 0:13:18.080 --> 0:13:19.679 I think it's a same you were. 0:13:20.200 --> 0:13:21.920 I mean, I haven't seen anything like. 0:13:21.880 --> 0:13:26.840 This that's brilliant, and that the only equivalent was Beatlestone's 0:13:26.920 --> 0:13:27.880 nineteen sixty four. 0:13:27.960 --> 0:13:30.480 Yeah, I will say this, folks. 0:13:30.640 --> 0:13:32.760 And I listened on the headphones. I previewed all those 0:13:32.800 --> 0:13:35.280 songs to give you the songs. Amy called up and said, 0:13:35.280 --> 0:13:37.920 I'm not coming on unless you do all Taylor, and 0:13:38.360 --> 0:13:42.319 it's all out of Virginia Beach. There are these miracle 0:13:42.440 --> 0:13:47.240 people in Virginia Peach, John Haynes, a giant named Serban 0:13:47.280 --> 0:13:52.360 Ganeo who's very private, and Taylor's albums are manufactured essentially 0:13:53.000 --> 0:13:57.839 by three geniuses in Virginia Beach and the sound when 0:13:57.880 --> 0:14:01.320 you put it on, She's nobody sparing a penny here. 0:14:01.920 --> 0:14:05.840 It's world class. It's world class fidelity. 0:14:06.080 --> 0:14:09.200 Amy was sober. Thank you so much. Stay with us. 0:14:09.440 --> 0:14:12.680 More from Bloomberg Surveillance coming up after this. 0:14:19.920 --> 0:14:23.520 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:14:23.560 --> 0:14:26.760 weekday afternoons from seven to ten am Eastern Listen on 0:14:26.800 --> 0:14:30.480 Applecarplay and Android Auto with the Bloomberg Business app, or 0:14:30.600 --> 0:14:32.080 watch us live on YouTube. 0:14:32.360 --> 0:14:35.120 Our conversation of the Day on the American economy, Claudia 0:14:35.200 --> 0:14:38.440 sam joins us chief economists at New Century Advisors. 0:14:38.680 --> 0:14:42.200 Normally jobs day. What do you think, Dad, No, we're 0:14:42.240 --> 0:14:43.040 not going to do that. 0:14:43.160 --> 0:14:45.560 She's out of Michigan with all of her front rate 0:14:46.200 --> 0:14:50.320 Federal Reserve academics, doctor somem not in a recession, but 0:14:50.400 --> 0:14:51.520 on the spirit. 0:14:51.280 --> 0:14:53.200 Of the American economy. 0:14:53.520 --> 0:14:55.920 Claudia got a great line which alludes to my book 0:14:56.000 --> 0:14:59.240 years Ago, which is a steal from Ken Rogoff. Are 0:14:59.240 --> 0:15:02.760 we flying on one engine? You say we're not. You say 0:15:02.760 --> 0:15:09.960 we have impaired vision. Define America's impaired vision? Right? 0:15:10.040 --> 0:15:12.320 Well, I mean this is the time where we come 0:15:12.360 --> 0:15:16.680 together every month and wait to find out the latest, 0:15:16.720 --> 0:15:19.360 the best reading that we have on what's happened in 0:15:19.360 --> 0:15:22.760 the labor market, and we don't have it today, Like 0:15:22.800 --> 0:15:25.920 we're not going to have that discussion. So that's to me, 0:15:26.120 --> 0:15:29.560 we're not flying blind. There's a lot of information about 0:15:29.640 --> 0:15:33.280 the economy that we're getting, you know, even as the 0:15:33.280 --> 0:15:36.400 federal government has shut down, but we're missing a really 0:15:36.440 --> 0:15:40.600 important piece of information. So our vision is impaired. And 0:15:40.680 --> 0:15:45.880 what's really frustrating is the September employment report exists right like, 0:15:45.960 --> 0:15:49.120 these numbers are sitting there. It's just because the workers 0:15:49.120 --> 0:15:52.440 who would normally put that up weren't deemed essential. You know, 0:15:52.480 --> 0:15:55.720 we're just speculating connection, and that's really unfortunate. 0:15:55.400 --> 0:15:57.880 On a news basis, Doctor some does a president of 0:15:57.880 --> 0:16:01.160 the United States get briefed on the numbers that exist 0:16:01.240 --> 0:16:02.760 that we don't see. 0:16:03.960 --> 0:16:06.600 Given the timing of the shutdown, it should not have 0:16:06.800 --> 0:16:08.840 made its way all the way to the president. Typically 0:16:08.880 --> 0:16:12.240 the president also the FED chair would see this employment 0:16:12.280 --> 0:16:16.120 report the night before, so Thursday night and the government 0:16:16.120 --> 0:16:19.400 shutdown on Wednesday. But again, but it is the choice 0:16:19.440 --> 0:16:20.800 of the White House at the end of the day. 0:16:20.840 --> 0:16:23.280 Who are the essential federal workers. So it is a 0:16:23.400 --> 0:16:25.120 choice of the White House as to whether or not 0:16:25.160 --> 0:16:26.800 we have these data this morning or not. 0:16:27.400 --> 0:16:28.640 All right, Claudia. 0:16:28.720 --> 0:16:31.400 In the absence of the government data, maybe a little 0:16:31.400 --> 0:16:35.600 bit more attention is focused on the ADP employment number. 0:16:35.600 --> 0:16:37.720 A decline of thirty two thousand in September and a 0:16:37.880 --> 0:16:42.280 downwardly revised decline of three thousand in August. I think 0:16:42.320 --> 0:16:44.960 that caught some people by surprise. How did you look 0:16:44.960 --> 0:16:45.560 at that number? 0:16:47.120 --> 0:16:47.320 Right? 0:16:47.440 --> 0:16:51.360 So absolutely we should be looking at the private sector numbers. 0:16:51.720 --> 0:16:54.760 ADP often gets a lot of interest and attention. One 0:16:54.800 --> 0:16:57.360 thing that ADP does is in September, it's a time 0:16:57.400 --> 0:17:01.200 where they update their model to help them take you know, 0:17:01.320 --> 0:17:04.240 the what they're looking at are the clients of ADP. 0:17:04.480 --> 0:17:07.520 They're a large payroll processor, but they don't process every 0:17:07.560 --> 0:17:10.200 payroll in the country, and so they need to use 0:17:10.400 --> 0:17:13.560 data from the pure of labor statistics to take their 0:17:13.560 --> 0:17:17.280 client data and make it more representative all you know, 0:17:17.680 --> 0:17:22.359 all payrolls, all businesses. And unfortunately that happens in September. 0:17:22.440 --> 0:17:24.679 So and they told us in the press release that 0:17:24.800 --> 0:17:28.960 updating their model that actually shaved a good bit off 0:17:29.000 --> 0:17:32.520 of their September and also their their August numbers, So 0:17:32.600 --> 0:17:35.199 I think it's important. In the release they stress that, 0:17:35.640 --> 0:17:38.359 you know, even after they did the benchmark revision pulled 0:17:38.359 --> 0:17:43.639 in their new data, the trend was unchanged, right, So 0:17:43.760 --> 0:17:47.359 they are seeing a slowing in job creation. But I 0:17:47.359 --> 0:17:50.560 think if you look at the headline numbers that ADP printed, 0:17:50.640 --> 0:17:53.560 you might be like, oh, wow, the slowing is really 0:17:53.600 --> 0:17:56.480 picking up, right, that sign of detrioration that we're all 0:17:56.520 --> 0:17:59.080 so worried about and watching for, and even ADP in 0:17:59.119 --> 0:18:01.520 their release that was not the way they interpret their data. 0:18:01.600 --> 0:18:04.120 So it was just another market like, you know, job 0:18:04.160 --> 0:18:07.520 creation is really slow, and that feeds this narrative of 0:18:07.520 --> 0:18:08.320 the downside risk. 0:18:08.480 --> 0:18:10.520 Claudia sim with this. So we're getting briefed here, and 0:18:10.560 --> 0:18:13.200 of course we do better with Claudia some Governor Myron 0:18:13.240 --> 0:18:15.840 will be with us at nine point thirty two this morning, 0:18:15.880 --> 0:18:17.400 that is scheduled. 0:18:17.440 --> 0:18:18.960 Claudia, back in your ute. 0:18:19.000 --> 0:18:22.520 I'm sure at Michigan you were doing the University of 0:18:22.560 --> 0:18:29.560 Michigan's research seminar and quantitative economics the Michigan State output gap. 0:18:30.000 --> 0:18:34.560 Can we measure the output gap that Myron of Harvard 0:18:34.640 --> 0:18:35.600 is so fired up. 0:18:35.520 --> 0:18:41.879 About well output gaps are any measure of slack. Slack 0:18:41.960 --> 0:18:44.520 frankly is going to be an estimate, right, You're going 0:18:44.520 --> 0:18:45.919 to need a model, You're going to need to make 0:18:45.960 --> 0:18:49.280 a lot of assumptions. So we can certainly have differences 0:18:49.320 --> 0:18:51.919 of opinion about how those are put together, but you 0:18:51.960 --> 0:18:55.720 know the ingredients of because at the end of the day, 0:18:55.720 --> 0:18:58.280 the thing that we don't observe we get measures of, 0:18:58.359 --> 0:19:01.480 say GDP growth, These are estimates, they get revised, but 0:19:01.560 --> 0:19:04.360 we can go out and measure that. The thing that's 0:19:04.359 --> 0:19:06.399 important for the gap is you have to get an 0:19:06.480 --> 0:19:10.320 estimate of what's potential, like what's the best we could 0:19:10.359 --> 0:19:13.080 be doing. And that's the piece that you know, you 0:19:13.119 --> 0:19:17.199 can have discussions and changes. Big changes in immigration like 0:19:17.320 --> 0:19:20.080 that can affect what potential output is, big changes in 0:19:20.200 --> 0:19:23.639 technology and productivity that can affect what potential output is. 0:19:24.080 --> 0:19:26.920 So you know, I think it's it's an art more 0:19:27.080 --> 0:19:31.040 like science to get at those but you know that 0:19:31.080 --> 0:19:34.320 these measures of slacker are really important. And I will 0:19:34.359 --> 0:19:36.800 mention bringing it back to today and the data we're missing. 0:19:37.200 --> 0:19:39.760 The big thing that we don't have from the private sectors. 0:19:39.800 --> 0:19:43.399 We don't have a measure of slack in the labor market. 0:19:43.440 --> 0:19:47.679 The unemployment rate is one of those you know, fits 0:19:47.680 --> 0:19:50.919 in that measure of like workers looking for work that 0:19:51.040 --> 0:19:53.520 don't have it versus workers who do have work. 0:19:54.240 --> 0:19:56.399