WEBVTT - Jackson Hole's Impact on the Economy, Markets React 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 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.200 us live on YouTube. 0:00:27.400 --> 0:00:29.639 We are thrilled to get you started. In the seven 0:00:29.640 --> 0:00:33.680 o'clock Wall Street Time Hour with David Rosenberg of Rosenberger Research, 0:00:33.840 --> 0:00:38.239 absolutely definitive at Merrill. Let me explain why David Rosenberg 0:00:38.360 --> 0:00:41.000 was definitive years ago. He would put out a report Paul, 0:00:41.400 --> 0:00:43.400 and it wasn't patre on it. It was like the you know, 0:00:43.840 --> 0:00:47.240 like build in Germany with half dressed women on page 0:00:47.320 --> 0:00:50.080 three is where you got the real Rosenberg, not half 0:00:50.120 --> 0:00:53.920 t us women. You got his inflation's dissection. Okay. He 0:00:53.960 --> 0:00:57.639 would have every single line item of inflation lined up 0:00:57.680 --> 0:01:00.880 that became famous at Rosenberg and joins us this morning 0:01:00.920 --> 0:01:05.200 on the quality of our new inflation. David, what is 0:01:05.240 --> 0:01:10.320 the character of this inflation in twenty twenty five. 0:01:12.200 --> 0:01:16.640 Well, it's a real dichotomy, Tom, and a bit of 0:01:16.680 --> 0:01:21.560 a head scratcher, especially from the numbers that we got 0:01:21.600 --> 0:01:26.319 in July from the CPI and the PPI because you know, 0:01:26.400 --> 0:01:30.080 we're all expecting that the tariff impact is going to 0:01:30.160 --> 0:01:34.280 hit the good sector. But was really puzzling in both 0:01:34.319 --> 0:01:40.160 reports was the fact that service sector inflation isn't going away. 0:01:41.160 --> 0:01:43.560 And I think that's a bit of a problem for 0:01:43.600 --> 0:01:47.040 the Fed. I still think that, you know, the trend, 0:01:47.600 --> 0:01:51.040 the trend in inflation, we'll be heading lower. I wrote 0:01:51.080 --> 0:01:56.200 a report talking about something very nebulous otherwise known as 0:01:56.200 --> 0:01:59.440 the quantity theory of money in my daily yesterday, going 0:01:59.480 --> 0:02:03.720 through money supply growth which is starting to cool off, 0:02:03.760 --> 0:02:06.960 and money velocity which is flattening and in relation to 0:02:07.000 --> 0:02:09.560 where the real economy is, and then solving for inflation, 0:02:10.840 --> 0:02:13.760 and we're going to be getting towards the target are 0:02:13.760 --> 0:02:17.040 probably below, but not for another. 0:02:16.800 --> 0:02:17.880 Six to twelve months. 0:02:18.880 --> 0:02:22.760 So it's a trend, but it's not a present big reality, 0:02:23.120 --> 0:02:24.560 but it's out there. 0:02:24.680 --> 0:02:28.120 As we had stimulus in three Olivia Blanchard calls it 0:02:28.200 --> 0:02:32.079 the Biden stimulus, the back stimulus of COVID. I mean, 0:02:32.200 --> 0:02:34.400 is it just simply, David, as you say, you delay 0:02:34.800 --> 0:02:38.600 a disinflationarycall out eighteen months? Ay? Is it because of 0:02:38.639 --> 0:02:42.520 the stimulus of mister Trump's new legislation just passed. 0:02:45.080 --> 0:02:49.840 Well, you know what everybody calls stimulus from the big 0:02:49.880 --> 0:02:55.000 beautiful bill really isn't stimulus from the status quo. The 0:02:55.040 --> 0:02:58.840 biggest chunk of that was just maintaining the tax cuts 0:02:59.360 --> 0:03:03.120 from twenty seventeen in the personal sector. And then you 0:03:03.160 --> 0:03:06.480 could argue that the bells and whistles mostly from the 0:03:06.919 --> 0:03:14.240 depreciation allowance benefit insofar as that improves the capital spending picture, 0:03:14.400 --> 0:03:17.360 that is supply side growth that you would hope with 0:03:17.480 --> 0:03:23.639 generally productivity, which is antithetical. 0:03:21.480 --> 0:03:22.800 To an inflation view. 0:03:22.960 --> 0:03:26.799 So I don't really look at the fiscal side as 0:03:26.880 --> 0:03:31.160 being a source of inflation. Of course, the greater supply 0:03:31.320 --> 0:03:34.800 that we're seeing benchmarked against expectations is what's caused the 0:03:34.880 --> 0:03:37.440 back end of the yield curve to remain so elevated. 0:03:38.800 --> 0:03:43.000 But the inflation that we're seeing primarily is coming from 0:03:43.160 --> 0:03:46.760 the tariffs. For anybody that thinks that tariffs will not 0:03:46.840 --> 0:03:50.280 be at least near term inflationary seem to ignore the 0:03:50.320 --> 0:03:53.360 fact that it's the importer on record in the United 0:03:53.360 --> 0:03:55.040 States that actually pays the duty. 0:03:55.480 --> 0:03:57.920 Then the question is how's it going to get distributed 0:03:57.960 --> 0:03:58.960 through the supply chain. 0:04:00.280 --> 0:04:02.480 But I said the head scratcher, and it's just you know, 0:04:02.720 --> 0:04:05.680 one month's worth the data. But I was really surprised 0:04:05.720 --> 0:04:09.560 in July to see how stubborn the service sector was, 0:04:09.600 --> 0:04:11.440 because that's a part of the economy that I've been 0:04:11.480 --> 0:04:16.599 cooling off. But those inflation numbers across most of the services, 0:04:16.680 --> 0:04:20.440 not just shelter. We're a big upside surprise last month. 0:04:20.440 --> 0:04:22.400 I'm just hoping that it's not going to be sustained. 0:04:23.560 --> 0:04:23.880 David. 0:04:24.320 --> 0:04:27.200 Economic growth remainder this year going into next year. I 0:04:27.240 --> 0:04:30.400 think most folks are expecting it to continue to soften 0:04:30.839 --> 0:04:33.000 but still be some reasonable growth. 0:04:33.279 --> 0:04:37.320 How do you think about GDP, Well. 0:04:37.200 --> 0:04:40.800 You know, everybody is, I guess, redefined what reasonable is 0:04:41.240 --> 0:04:44.320 or what J. Powell describes as solid when we're barely 0:04:44.400 --> 0:04:48.960 running the economy so far this year, barely over a 0:04:49.000 --> 0:04:51.520 one percent annual rate. I mean, when I started the 0:04:51.560 --> 0:04:54.040 business in the mid eighties, you got down to a 0:04:54.120 --> 0:04:56.839 one handle on real GDP growth and people were talking 0:04:56.880 --> 0:04:59.520 about reasonable. People were talking about stall speed and then 0:04:59.560 --> 0:05:03.400 asking what the recession going to start. So the economy, 0:05:03.920 --> 0:05:08.120 I think, is sputtering. It's not even you know, without 0:05:08.160 --> 0:05:12.840 the proliferation of AI data centers and all the technology 0:05:12.880 --> 0:05:17.599 spending related to general AI, the economy would actually be 0:05:17.640 --> 0:05:20.960 in recession right now. That's been really the only underpinning, 0:05:21.279 --> 0:05:24.320 the only impetus to growth so far this year. So 0:05:24.839 --> 0:05:27.440 I'm thinking that the economy is going I don't see 0:05:27.440 --> 0:05:29.400 what the catalyst is going to be. Even with the 0:05:29.440 --> 0:05:31.920 big beautiful bill, it's not going to be adding a 0:05:31.960 --> 0:05:35.479 whole lot to growth a little bit, and I think 0:05:35.520 --> 0:05:38.440 that the tariff uncertainty is still going to be a 0:05:38.480 --> 0:05:41.560 big element that's going to provide an overhang on the 0:05:41.600 --> 0:05:45.200 economy going forward. And the Fat's going to be deliberately 0:05:45.240 --> 0:05:48.039 slow to cut interest rates, so that's going to have 0:05:48.080 --> 0:05:51.520 an impact negatively on the credit sensitive sectors of the economy. 0:05:51.880 --> 0:05:53.520 And it's not as if the rest of the world 0:05:53.600 --> 0:05:56.719 is actually operating at a very high level of economic 0:05:56.839 --> 0:05:59.920 activity that's going to come back and bite the export set. 0:06:00.200 --> 0:06:02.839 So I think the economy is going to remain very 0:06:02.920 --> 0:06:05.640 weak through the balance of this year and the next year. 0:06:05.720 --> 0:06:08.920 The only question is for the FED is is demand 0:06:09.000 --> 0:06:12.600 weakening and relation to what's happening on the supply side, 0:06:12.800 --> 0:06:16.799 because the supply side is also weakening alongside the demand side, 0:06:17.640 --> 0:06:20.480 and you know from an inflation standpoint, it's how those 0:06:20.520 --> 0:06:23.760 two curves demand a supply and the broad economy, how 0:06:23.800 --> 0:06:27.480 they're interacting, that's going to determine what the inflation outlook 0:06:27.600 --> 0:06:28.000 is going to be. 0:06:28.200 --> 0:06:31.120 David Rosenberg with us, we continue with mister Rosenberg. We 0:06:31.120 --> 0:06:35.240 welcome all of you across Canada and David's Toronto. Thank 0:06:35.240 --> 0:06:37.880 you for joining us and the way you listen to 0:06:37.960 --> 0:06:42.120 us and Serious XM and other outlets as well, Apple CarPlay, 0:06:42.160 --> 0:06:44.800 Android Auto, Good Morning on YouTube. It's building each and 0:06:44.880 --> 0:06:47.520 every day, Paul and I just sort of blown away 0:06:47.560 --> 0:06:52.160 by the whole Google YouTube experience. Subscribe to Bloomberg podcasts 0:06:52.800 --> 0:06:55.560 is the quickest way to get us and get us 0:06:55.560 --> 0:06:59.080 often as well. What he said there about ages ago, Paul, 0:06:59.480 --> 0:07:03.599 where one percent one point x percent economy was stall speed. 0:07:04.040 --> 0:07:05.760 Why has that talk gone away? 0:07:05.920 --> 0:07:06.680 I don't hear that. 0:07:07.000 --> 0:07:08.880 To me. It's a divide between the halves and they 0:07:08.880 --> 0:07:12.000 have nuts. Yeah, exactly, But I think David's dead on 0:07:12.480 --> 0:07:14.960 about how the recession language has changed. 0:07:15.760 --> 0:07:22.080 David, given that backdrop of slower growth percolating inflation, what 0:07:22.120 --> 0:07:24.080 are we going to hear from FAT chairman j Powell 0:07:24.120 --> 0:07:24.840 on Friday? 0:07:24.840 --> 0:07:26.120 From Jackson hol do you think. 0:07:28.360 --> 0:07:32.920 Well, you know, it's a it's a great question. You know, 0:07:33.120 --> 0:07:37.520 if this was September the tenth, say, a week before 0:07:37.560 --> 0:07:42.320 the FMC meeting, given that there's eighty five percent market 0:07:42.320 --> 0:07:45.440 based odds priced in for a twenty five basis point cut, 0:07:46.840 --> 0:07:51.239 he would probably acquiesce. But there's still a lot of time, 0:07:51.640 --> 0:07:54.520 and I don't think that Jay Powell in his mind 0:07:54.680 --> 0:07:57.400 thinks that we really have an eighty five percent chance 0:07:58.080 --> 0:08:00.240 of seeing a ray cut. So this is really more 0:08:00.240 --> 0:08:03.480 of a trade. I think over time, the Fed will 0:08:03.520 --> 0:08:06.880 cut rates at the right time, probably cut them aggressively 0:08:06.920 --> 0:08:09.200 in the next year, but again at the right time. 0:08:09.960 --> 0:08:12.200 I have a tough time believing that he's going to 0:08:12.240 --> 0:08:15.640 be talking dubvishly, at least relative to what's priced in. 0:08:15.960 --> 0:08:19.800 I would expect to see on Friday morning those eighty 0:08:19.800 --> 0:08:23.240 five percent market based odds of a September rate cut. 0:08:23.280 --> 0:08:26.360 I think they will be dial back. And I say 0:08:26.360 --> 0:08:30.040 that because, you know, everybody seems to believe that, because 0:08:30.120 --> 0:08:34.640 the thesis of the Jackson Olsymposium is about the labor market. 0:08:35.360 --> 0:08:37.679 Everybody seems to think, well, you know, we had a 0:08:37.720 --> 0:08:42.680 pukey July non form perial number downward revisions to the 0:08:42.720 --> 0:08:45.599 previous two months, so it's got to be duvish. 0:08:46.080 --> 0:08:48.160 But I think what's going to come out of it. 0:08:47.920 --> 0:08:52.400 Mostly is a sign that, yes, labor demand is on 0:08:52.440 --> 0:08:54.320 the decline, but guess what, and this is what I 0:08:54.360 --> 0:09:00.240 mentioned before, labor supply is also on the decline. How 0:09:00.280 --> 0:09:03.839 those two wash out is going to depend on what 0:09:03.880 --> 0:09:05.800 the Fed's reaction function is going to be. 0:09:06.600 --> 0:09:07.959 So I think that there's going to be a lot 0:09:08.000 --> 0:09:08.720 of surprises. 0:09:08.760 --> 0:09:11.120 I think that he's not going to sound uber hawkish, 0:09:11.240 --> 0:09:12.920 but I think that benchmark. 0:09:12.440 --> 0:09:13.400 Against US priced in. 0:09:13.520 --> 0:09:16.280 I think there will be disappointment, and I think there's 0:09:16.280 --> 0:09:20.000 actually a good chance despite all the political pressure, because 0:09:20.480 --> 0:09:22.679 you've got to FED chairman, he'll be gone after May. 0:09:22.760 --> 0:09:25.680 He is going to be determined to preserve his legacy 0:09:26.800 --> 0:09:28.800 and I think he's going to block out the noise 0:09:28.840 --> 0:09:32.080 from the White House. So my sense is that and 0:09:32.120 --> 0:09:34.800 this is from a Bond bull, but I think over 0:09:34.800 --> 0:09:37.240 the near term the outlook is clouded. I think that 0:09:37.280 --> 0:09:41.720 although you have some descents, and remember that Vulcar, you know, 0:09:41.800 --> 0:09:44.360 back in the mid eighties would sometimes face a meeting 0:09:44.760 --> 0:09:49.160 with at least three descents, so that could happen, but 0:09:49.200 --> 0:09:52.000 the chairman is usually in control, and I have a 0:09:52.040 --> 0:09:54.840 tough time believing that he's going to sound as dumpish 0:09:54.880 --> 0:09:56.600 as what the markets have priced in right now. 0:09:57.840 --> 0:10:01.880 David, are you surprised that the equity market have rebounded 0:10:02.600 --> 0:10:04.319 the way that they have coming off thus one of 0:10:04.360 --> 0:10:06.720 those terarf concerns. 0:10:06.200 --> 0:10:08.560 Earlier in this year, and if so, does what does 0:10:08.600 --> 0:10:09.079 that tell you? 0:10:10.720 --> 0:10:13.280 It tells me that there is a ton of speculation 0:10:14.080 --> 0:10:18.559 in the marketplace, especially as it relates to the productivity 0:10:18.880 --> 0:10:25.199 and return on investment assumptions coming from the technology boom. 0:10:25.320 --> 0:10:28.120 So you know, we're reliving to some extent, not fully, 0:10:28.160 --> 0:10:30.960 to some extent, what happened late nineteen nineties. This usually 0:10:31.000 --> 0:10:35.200 happens after a major shift in the technology curve. The 0:10:35.240 --> 0:10:37.959 markets get way ahead of themselves, and I think that 0:10:37.960 --> 0:10:40.240 that's been a big part of it. Of course, you've 0:10:40.280 --> 0:10:43.760 also seen the market broadened out, even in this very 0:10:44.000 --> 0:10:46.600 weak economic environment. I mean, it's not a recession but 0:10:46.679 --> 0:10:51.319 one percent plus growth, But you've seen the market broaden out. 0:10:51.400 --> 0:10:52.880 I think a lot of that has come. 0:10:52.840 --> 0:10:55.080 Most recently from this view that the Fed is going 0:10:55.160 --> 0:10:58.800 to ride the cavalry and start cutting interest rates next month. 0:10:59.080 --> 0:11:02.400 I think that's where the folly might be but you know, 0:11:02.720 --> 0:11:04.840 I'm taking a look at this market, you know, and 0:11:05.080 --> 0:11:07.959 look at where real rates are, you know, roughly two 0:11:08.040 --> 0:11:12.520 hundred basis points benchmarked against what like a pe multiple 0:11:13.080 --> 0:11:17.040 forward of round twenty three. You know, if this says 0:11:17.160 --> 0:11:19.960 not a bubble in the equity market, and I know 0:11:20.040 --> 0:11:23.319 that people view that as a very emotional word. If 0:11:23.360 --> 0:11:26.480 it's not a bubble, it's a giant sud. Okay, So 0:11:26.600 --> 0:11:31.040 we're just back into a psychology of a bubble mentalities 0:11:31.080 --> 0:11:32.720 that pertains to the broad equity market. 0:11:33.000 --> 0:11:35.120 David, thank you so much for a morning briefing. And 0:11:35.160 --> 0:11:39.959 Alicia Levine coming up. Mister Rosenberg with Rosenberg Research. Stay 0:11:40.000 --> 0:11:43.880 with us. More from Bloomberg Surveillance coming up after this. 0:11:51.120 --> 0:11:54.680 You're listening to the Bloomberg Surveillance Podcast. Catch us Live 0:11:54.760 --> 0:11:57.920 weekday afternoons from seven to ten am Eastern Listen on 0:11:58.000 --> 0:12:02.080 Applecarplay and Android Otto The Bloomberg Business Up, or watch 0:12:02.120 --> 0:12:03.520 us live on YouTube. 0:12:03.840 --> 0:12:07.000 Michael Greer with US now headed US Policy, Morgan Stanley. 0:12:07.280 --> 0:12:09.000 She walked in and she's got a sentence in her 0:12:09.080 --> 0:12:11.960 note Paul in English. I couldn't understand it. Let's go 0:12:12.000 --> 0:12:14.760 to French, where I really can't understand it. Note to 0:12:14.800 --> 0:12:20.840 plugand preoccupacion a leo xuel a lie a capacity to 0:12:20.960 --> 0:12:24.920 release reverse repo. Enough, Okay, let's go a week at 0:12:25.000 --> 0:12:29.480 short term your study. And this is percolating out there 0:12:29.480 --> 0:12:32.960 in the IRA Jersey world. We're doing T bills for 0:12:33.040 --> 0:12:36.720 a new fiscal deficit. How does that fold over into 0:12:36.760 --> 0:12:40.760 what I call the short term trust market, the repo market. 0:12:41.120 --> 0:12:43.840 Now, what's been interesting about this is if you think 0:12:43.880 --> 0:12:46.360 about the rebuilt market being drained as well as the 0:12:46.400 --> 0:12:49.679 Treasury General account is coming down when they refill the 0:12:49.720 --> 0:12:52.400 Treasury General Account, which they have to do post Ovva, 0:12:53.040 --> 0:12:56.000 you're going to actually be pulling liquidity out of the 0:12:56.000 --> 0:12:58.679 financial system. So what that What does that mean? Means 0:12:58.800 --> 0:13:02.160 get more volatility on the short end. And we've had 0:13:02.280 --> 0:13:06.280 a fed that Cince Yellen has been doubling down right 0:13:06.400 --> 0:13:09.640 on short end issuance, right on T bills. You had 0:13:09.679 --> 0:13:13.959 Trump be initially critical of that essence. Now all in 0:13:14.520 --> 0:13:17.160 and then we have sort of this move with this 0:13:17.280 --> 0:13:20.319 pro crypto policy, right, So try to pull it all 0:13:20.360 --> 0:13:23.800 together here where if you do have more stable coin, 0:13:23.960 --> 0:13:26.080 or if you do have more digital assets that are 0:13:26.320 --> 0:13:29.200 linked right or anchored to the dollar, you have to 0:13:29.240 --> 0:13:31.240 have more T bil issuance. So this is going to 0:13:31.280 --> 0:13:33.120 be a continued trend in rbs. 0:13:33.120 --> 0:13:37.680 So there's an explosion of T bills three months, three. 0:13:37.480 --> 0:13:40.760 Month t bills, yeah, three months and under three. 0:13:40.559 --> 0:13:43.640 Months and under Paul help me here, there's an explosion 0:13:43.880 --> 0:13:47.200 of T bills and you're saying money comes out of 0:13:47.240 --> 0:13:51.360 the system. In the old commercial paper days, that was 0:13:51.400 --> 0:13:55.120 not good, right, right? Is this something or listen, you 0:13:55.120 --> 0:13:58.760 know people like me who don't understand this. Is this 0:13:58.760 --> 0:14:00.760 something we should start thinking about it. 0:14:00.840 --> 0:14:02.720 So there's two things you have to think about if 0:14:02.720 --> 0:14:04.360 we're if we're gonna just let's keep it to a 0:14:04.360 --> 0:14:07.960 two month window right now. If you're thinking about September, 0:14:08.520 --> 0:14:13.000 if and a October potential government shutdown, right, and you 0:14:13.040 --> 0:14:16.720 have you have more T bill issuance pulling liquidity out 0:14:16.920 --> 0:14:21.240 potential government shutdown. They can't issue conditions stay tight, Okay. 0:14:22.280 --> 0:14:27.040 Once they start spending that OBBBA money, then the liquidity 0:14:27.040 --> 0:14:29.560 issues start to loosen up. I don't think the twenty 0:14:29.560 --> 0:14:31.800 five basis point. If there's a twenty five basis point 0:14:31.800 --> 0:14:35.440 cut in September is going to really offset that tightness. 0:14:35.440 --> 0:14:37.120 And then in the next two months, So I do 0:14:37.160 --> 0:14:40.440 think we should be ready for more volatile market in 0:14:40.480 --> 0:14:42.040 this you know, two month window. 0:14:42.640 --> 0:14:44.800 I say, Paul, this is why Bessett wants us to 0:14:44.840 --> 0:14:47.080 go through four or five six rake cups. Yeah, I 0:14:47.160 --> 0:14:48.200 mean it's the real reason. 0:14:48.320 --> 0:14:52.160 Do you think a government shutdown is likely possible? 0:14:52.240 --> 0:14:54.200 How do you guys thinking about that? Hey handicapping nun? 0:14:54.360 --> 0:14:57.320 Yeah, I mean I think it's likely. And when we're 0:14:57.320 --> 0:15:01.800 thinking about the uh, you know know over under on it, 0:15:01.920 --> 0:15:05.720 I would say, you know, this is probably the most 0:15:06.480 --> 0:15:10.320 tenuous point for the Democratic Party in recent history, right 0:15:10.360 --> 0:15:13.240 as far as having a message, a vision, a direction 0:15:13.680 --> 0:15:16.440 from a cohesive lens. One thing that did not work 0:15:16.480 --> 0:15:20.120 out for them was when they kept the government open 0:15:20.280 --> 0:15:22.520 under Schumer earlier this year, right when they when they 0:15:22.640 --> 0:15:25.960 voted for that continuing resolution, And so it could be 0:15:26.040 --> 0:15:30.200 potentially politically expedient for them right to hold a hard 0:15:30.240 --> 0:15:31.280 line is there? 0:15:31.440 --> 0:15:34.160 I mean, but I don't even know who's the voice 0:15:34.200 --> 0:15:37.040 of or actually running the Democratic Party in this country 0:15:37.120 --> 0:15:39.480 right now, no idea. I haven't heard from them since 0:15:39.760 --> 0:15:41.080 January one. 0:15:41.360 --> 0:15:44.320 I think that's the feeling from most folks. And so 0:15:44.720 --> 0:15:47.600 when you see someone like a. 0:15:47.560 --> 0:15:49.920 Politician, i'd be jumping into that void, wouldn't I. 0:15:50.000 --> 0:15:52.920 Well, you see someone like Gavin Newsom, you know, taking 0:15:52.960 --> 0:15:55.840 some punches and people seem on their end, right, we're 0:15:55.880 --> 0:15:58.000 thinking about the spectrum of politics on that end of 0:15:58.040 --> 0:16:01.120 the of the spectrum our responding positive. So I see 0:16:01.120 --> 0:16:03.440 that as a green light for playing hardball in a 0:16:03.480 --> 0:16:07.120 way that Democrats don't typically do around budget. So this 0:16:07.160 --> 0:16:08.920 could be one of those outlier moments. 0:16:09.800 --> 0:16:11.960 If we do get a government shut down in October, 0:16:12.520 --> 0:16:15.640 is it a couple of days, is it something longer? 0:16:15.800 --> 0:16:17.160 And how should we think about that? 0:16:17.480 --> 0:16:20.640 I think the longest we've ever gone is about thirty days, 0:16:20.680 --> 0:16:24.440 about a month. Eight days is the average eight days? 0:16:24.480 --> 0:16:27.120 Eight days is the average shutdown? Thirty days. Once you 0:16:27.160 --> 0:16:30.720 get over that past thirty days, then you start compromising 0:16:30.760 --> 0:16:35.880 government workers, rent payments, ability to within a paycheck to 0:16:35.920 --> 0:16:39.960 paycheck type scenario, and Democrats do tend to try to 0:16:39.960 --> 0:16:42.320 avoid that. So you could see them come back and 0:16:42.440 --> 0:16:43.920 reopen the government in that window. 0:16:44.440 --> 0:16:48.680 Link the stock market into your world of US policy 0:16:48.840 --> 0:16:50.480 or are they de linked? 0:16:51.320 --> 0:16:54.920 I would say right now they are de linked. I 0:16:54.960 --> 0:17:01.880 think there's this lookthrough on TEARFF policy than the main driver, right, 0:17:01.880 --> 0:17:04.000 But for us we want to, you know, dig a 0:17:04.000 --> 0:17:06.080 little bit deeper and see you know which sectors in 0:17:06.160 --> 0:17:09.560 industry could be impacted beyond just tariffs. And that's where 0:17:09.600 --> 0:17:12.399 government shutdown has become important. When you're thinking about the 0:17:12.400 --> 0:17:16.960 longer term. That's your heavy government contract industries, Defense and healthcare? 0:17:17.080 --> 0:17:17.920 Are the are the top? 0:17:18.119 --> 0:17:19.080 Are the top sectors. 0:17:19.359 --> 0:17:21.880 We just took a poll of one hundred people out 0:17:21.920 --> 0:17:24.360 on YouTube, and one hundred and two of them did 0:17:24.400 --> 0:17:28.280 not understand our repo discussion. Yeah, it's amazing. How that? 0:17:28.760 --> 0:17:32.399 What's it like lecturing people interns at Morgan Stanley on 0:17:32.600 --> 0:17:33.399 repo market. 0:17:34.080 --> 0:17:37.240 I try not to, so next time I won't. 0:17:37.440 --> 0:17:39.840 Okay, this has been Greg. Monica Guerra, thank you for 0:17:39.880 --> 0:17:45.200 confusing me evermore. She is with Morgan Stanley. Stay with us. 0:17:45.440 --> 0:17:48.680 More from Bloomberg Surveillance coming up after this. 0:17:55.920 --> 0:17:59.480 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:17:59.560 --> 0:18:02.600 weekday afternoons from seven to ten am. E's durn Listen 0:18:02.640 --> 0:18:06.200 on Apple, Karplay and Android Otto with the Bloomberg Business app, 0:18:06.400 --> 0:18:08.120 or watch us live on YouTube. 0:18:08.320 --> 0:18:10.919 We're in Talk Equities with Alisha Levine, head of Investment 0:18:11.000 --> 0:18:14.440 Strategy Equities B and Why But unfortunately that's not why 0:18:14.480 --> 0:18:17.199 she was a book. She and I are sharing the 0:18:17.320 --> 0:18:20.680 youngest Cherub off to college. Paul, do you remember when 0:18:20.720 --> 0:18:23.760 the youngest cherub went off stuck? That starts junior. The 0:18:23.800 --> 0:18:27.880 difference here is Alicia Laviv's offspring is taking like real 0:18:28.000 --> 0:18:29.520 manly courses. 0:18:29.720 --> 0:18:35.200 Ye, mechanical engineering. I'm frightened. 0:18:35.560 --> 0:18:38.480 I'm chemistry, physics. 0:18:37.520 --> 0:18:41.080 Calculus, and thank god, a freshman writing class. 0:18:41.320 --> 0:18:45.520 Thought is somewhere north of the River sen taking introduction 0:18:45.680 --> 0:18:49.480 to Catherine Deneuve and the path to Bridget Bardow. There's 0:18:49.520 --> 0:18:50.000 a difference. 0:18:50.200 --> 0:18:52.160 That's more fun. That's more fun. 0:18:53.080 --> 0:18:54.359 We're surviving, aren't we. 0:18:54.920 --> 0:18:57.840 It's hard. It's the last one is brutal, brutal. 0:18:58.480 --> 0:19:01.120 It's just like it's like terrible. Well, plus, we're broke 0:19:01.160 --> 0:19:03.200 because we've paid umpteen million. 0:19:02.960 --> 0:19:04.639 Dollars, will be working till we're ninety. 0:19:04.800 --> 0:19:07.800 We're gonna we're never gonna retire. With that said, if 0:19:07.840 --> 0:19:10.560 I'm in a four to oh one K, I'm hearing 0:19:10.600 --> 0:19:12.800 lots of go to cash. I don't buy it. 0:19:13.200 --> 0:19:15.080 You can't buy it. You can't go to cash. We've 0:19:15.119 --> 0:19:19.080 had this conversation now for several years. The cash trade 0:19:19.280 --> 0:19:25.639 is very specific when the FED is hiking rates and 0:19:26.240 --> 0:19:29.520 either the market is experiencing a true selloff. We think 0:19:29.560 --> 0:19:33.400 what's happening now is your typical air pocket. In the summer, 0:19:34.320 --> 0:19:36.760 we had this mess rent run up. I mean, at 0:19:36.760 --> 0:19:40.480 one point NASIK was up fifty six percent from the 0:19:40.520 --> 0:19:44.160 April eighth lows, the S and P up thirty four percent. 0:19:44.600 --> 0:19:47.840 That is a hit, that is those are historic runs 0:19:48.280 --> 0:19:51.440 and so you're hitting the typical air pocket. Well, well, 0:19:51.600 --> 0:19:53.880 you know what will J. Powell deliver on Friday? Will 0:19:53.880 --> 0:19:56.919 he be hawkisht of You know, it's not going to 0:19:56.960 --> 0:19:59.119 be fifty I think this is just noise. You know, 0:19:59.119 --> 0:20:03.160 earnings number are going up. Corporate America has been much 0:20:03.200 --> 0:20:06.200 more resilient than feared, and some numbers are going higher 0:20:06.200 --> 0:20:08.719 for twenty twenty five and twenty twenty six. Ultimately, like 0:20:08.840 --> 0:20:10.840 other times, this will be a buying opportunity. 0:20:11.440 --> 0:20:13.440 What did you make of the earning season that we 0:20:13.560 --> 0:20:16.200 just completed. Kind of came in better than expected, although 0:20:16.240 --> 0:20:18.480 maybe the bar was lowered for. 0:20:18.400 --> 0:20:20.119 The street, but the numbers came in pretty solid. 0:20:20.200 --> 0:20:23.760 The numbers came in very solid, about twelve percent when 0:20:23.800 --> 0:20:26.639 about four percent was expected. As part of the reason 0:20:26.680 --> 0:20:29.440 you had that tour and run in the market because 0:20:29.440 --> 0:20:32.320 the earnings were just solid and coming in as a 0:20:32.320 --> 0:20:34.359 result of that, you know, the first half of the 0:20:34.480 --> 0:20:38.480 year came in much better than expected. Lowered expectations for sure, 0:20:38.800 --> 0:20:42.000 but lowered to a point where it matched why the 0:20:42.040 --> 0:20:44.719 market dropped so much, you know, in March and April, 0:20:45.200 --> 0:20:48.080 and so you're having numbers also moving higher for the 0:20:48.080 --> 0:20:49.720 rest of the year. I think it's not talked about, 0:20:49.760 --> 0:20:52.120 actually what's going on in financial sector. The numbers are 0:20:52.119 --> 0:20:55.640 going higher there, that's not reflected in Nasdaq, and that's 0:20:55.640 --> 0:20:57.639 part of what the run has been about has been 0:20:57.680 --> 0:20:59.720 financials as well. We spent a lot of time talking 0:20:59.760 --> 0:21:03.600 about tech, bright shiny object everybody owns them, you know, 0:21:03.640 --> 0:21:07.199 so therefore vulnerable. But financials have been terrific also as 0:21:07.200 --> 0:21:08.920 well as industrials. 0:21:08.640 --> 0:21:11.000 Mentioned I see in just kind of your sectors, utilities 0:21:11.000 --> 0:21:11.719 and industrials. 0:21:11.760 --> 0:21:12.400 Is that kind of the. 0:21:14.200 --> 0:21:17.399 I don't know, bringing stuff back to America and manufacturing 0:21:17.400 --> 0:21:18.560 and just kind of all that. 0:21:18.880 --> 0:21:21.440 It's the data center build out, data, it's the data 0:21:21.480 --> 0:21:24.359 center build out. Of course, if the FED is cutting 0:21:24.480 --> 0:21:25.720 utilities will do well. 0:21:25.760 --> 0:21:27.800 Also simply on the interest rate play. 0:21:28.240 --> 0:21:31.960 But we're really looking at a structural change in the 0:21:32.080 --> 0:21:36.240 US economy where capital is flowing. I think what hasn't 0:21:36.240 --> 0:21:38.560 been talked about is the One Big Beautiful Bill. We 0:21:38.640 --> 0:21:42.520 talk about tariffs night and day, but we haven't talked 0:21:42.520 --> 0:21:46.040 about the incentives buried in the One Big Beautiful Bill 0:21:46.160 --> 0:21:49.720 for data center build up, for capex, and investment in structures. 0:21:50.359 --> 0:21:53.880 In the most recent earning season, two hundred and seventy 0:21:53.960 --> 0:21:59.119 five companies mentioned that the tax provisions within the bill 0:21:59.560 --> 0:22:02.000 are going to be positive for their earnings and for 0:22:02.040 --> 0:22:05.159 their businesses, and that has really been under the radar, 0:22:05.520 --> 0:22:07.800