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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 3: Investors trying to claw their way out of recent worries
Speaker 3: about overvalued tech companies sigflation. Apollo Global Management president Jim
Speaker 3: Zelter joins us. Now, Jim, wonderful to see you. Thank
Speaker 3: you so much for being here.
Speaker 4: Always nice to be here.
Speaker 1: So let's start with the.
Speaker 3: Look ahead for next year, which is everything is awesome
Speaker 3: and what we're hearing from every single person who comes
Speaker 3: on the show, is it next year is going to
Speaker 3: be double digit gains in the S and P five
Speaker 3: hundred at the same time that you continue to get
Speaker 3: get grind out better returns from the debt space.
Speaker 1: Is there a contradiction here.
Speaker 5: Well, I would just say that the confidence sitting here
Speaker 5: in December about next year that anybody puts forth has
Speaker 5: to be taken with a little bit of skepticism because
Speaker 5: of the year we've just had. If you were here
Speaker 5: on this journey, this year obviously has been a turnis
Speaker 5: on volatility, and we've ended up in a place that
Speaker 5: many probably wouldn't have predicted. But as we sit here
Speaker 5: right now thinking about the year ahead, you're going to
Speaker 5: end this year with an extremely strong M and a
Speaker 5: calendar an M and a backlog in terms of what's
Speaker 5: actually been executed this year, but also in the pipeline
Speaker 5: of new deals. The expectations on the Bloomberg Economics page
Speaker 5: is a thirty percent chance of a recession next year,
Speaker 5: a little bit higher inflation, a little bit lower growth,
Speaker 5: And as we talked about a moment ago, one of
Speaker 5: the markets has to be wrong in this intersection right now,
Speaker 5: where many are saying we need to lower rates because
Speaker 5: of an economic slowdown and the other side saying earnings
Speaker 5: upside because of accelerating earnings from the mag seven and
Speaker 5: the four ninety three. Those both can't be correct or
Speaker 5: it's very, very unlikely that they'll both be correct.
Speaker 4: We're in the.
Speaker 5: Camp at Apollo, as Torson's been up here in many
Speaker 5: others that between the k shape economy and other demographic issues,
Speaker 5: we're going to probably see a deceleration of lower rates
Speaker 5: and a stronger economy in terms of m and a
Speaker 5: capex cycle, positive regulatory backdrop, and things of that nature.
Speaker 3: So if bonds and stocks can't both be right, and
Speaker 3: they seem to be in conflict right now, are you
Speaker 3: saying that stocks right and bonds have it wrong.
Speaker 5: I'm saying what's been surprising to all of it. If
Speaker 5: we take a big step back the last four or
Speaker 5: five years, the idea that the FED would raise rates
Speaker 5: so much that they did be starting in twenty two,
Speaker 5: we all predicted massive slow down in the US economy,
Speaker 5: tightening financial conditions, and we were all wrong. This US
Speaker 5: economy has been amazingly resilient. Now it's been resilient for
Speaker 5: organic reasons as well as a lot.
Speaker 4: Of fiscal spending.
Speaker 5: Obviously now the capex cycle, but the US economy has
Speaker 5: been in the most resilient for a variety of reasons,
Speaker 5: and our suspicion is that that will tend to continue
Speaker 5: in the year ahead. So I think if you look
Speaker 5: if you look at the gap in the last month
Speaker 5: or two of the MAG seven earnings growth and the
Speaker 5: four ninety three a year ago, it was like thirty
Speaker 5: thirty five percent. The growth rates of the MAG seven
Speaker 5: and the four ninety three in the last quarter was
Speaker 5: eleven percent, twenty two versus eleven. I believe so the
Speaker 5: rest of the US economy is doing somewhat better in
Speaker 5: light of the breadth of the AI cycle.
Speaker 3: How much is this really all predicated on the ongoing
Speaker 3: funding of the AI cycle. I mean, this is sort
Speaker 3: of the fear that you're seeing baked into markets right
Speaker 3: now is that there's a lot of debt coming into
Speaker 3: the space. Everything is leveraged to AI being the solution
Speaker 3: to absolutely every problem that we have.
Speaker 5: Well, I think you need to separate that a little
Speaker 5: bit on the equity side of the AI activity and
Speaker 5: re mentioned it at the start. Certainly, you've got the
Speaker 5: incumbents that have amazing business models, whether that's Alphabet, Meta
Speaker 5: and the other Microsoft and Amazon, and then you've got
Speaker 5: the upstart Open AI. They're all coming from a different situation.
Speaker 5: Once the four or five have incredibly strong balance sheets
Speaker 5: and incredibly strong capbex and shut me free cash flow,
Speaker 5: which they're going to allocate to the AAI equity story
Speaker 5: because for them it's an existential issue.
Speaker 4: So for that, that's the equity side of the equation.
Speaker 5: What you're really touching on is this question of the
Speaker 5: five to seven trillion that's expected to be needed to
Speaker 5: fund the data center and infrastructure capbecks of the.
Speaker 4: Next five to seven years.
Speaker 5: That's been the zip code of the numbers being being
Speaker 5: bantered around and today if you look at that number
Speaker 5: and aggregate and take us step back again, is the
Speaker 5: industry of that five trillion? About a trillion five will
Speaker 5: get funded from free cash flow of the of the hyperscalers.
Speaker 5: The next trillion five will get funded between project finance,
Speaker 5: private capital, and a variety of their debt markets. About
Speaker 5: a trillion and trillion a quarter will get done by
Speaker 5: the high grade investment grade market. So it leaves about
Speaker 5: a trillion trillion five. Where's that going to get financed?
Speaker 5: That's a question mark. What's the clearing price of that
Speaker 5: of that paper and so you know, we spent a
Speaker 5: lot of time thinking about that. That's those are the
Speaker 5: big picture moves that will really have an impact on
Speaker 5: pricing of the IG market, pricing of the high yield market,
Speaker 5: pricing of investment grade private credit.
Speaker 4: That's the big.
Speaker 5: Question that we're all grappling with if you're in these
Speaker 5: markets today.
Speaker 6: Last time you were on you talked about how financing
Speaker 6: these data centers is fundamentally different than in the past
Speaker 6: financing other technology projects.
Speaker 1: Why why are they so different?
Speaker 5: Well, the last thirty years in the US high yield
Speaker 5: and leverage finance market, for the most part, you've been
Speaker 5: financing companies that were disruptors, but they were not investment
Speaker 5: grade disruptors. Think of the cable companies, Think of healthcare companies,
Speaker 5: think of gaming, even companies like MCI in the regional airlines.
Speaker 5: This time with the hyperscalers. Again, if you look at
Speaker 5: the balance sheets of Microsoft and Google and Amazon, these
Speaker 5: are some of the greatest companies we've ever seen. Three
Speaker 5: four hundred billion in revenues, one hundred and fifty billion
Speaker 5: a year per company in.
Speaker 4: Free cash flow.
Speaker 5: So there is a counterparty to those businesses you're willing
Speaker 5: to take on much longer duration risk. If they are
Speaker 5: the tenant counterparty, then you might have been at an
Speaker 5: upstart MCI or an upstart airline. It's just a very
Speaker 5: different economic equation. It's great investment grade risk. It's challenging
Speaker 5: non investment grade risk.
Speaker 4: Now the pack of that.
Speaker 5: If you look at the investment grade market today, which
Speaker 5: is about eleven trillion, it's up from about three trillion
Speaker 5: ten years ago. That's really dominated by the financial services companies.
Speaker 5: The biggest issuers are JP Morgan, BAA, Wells, Morgan Stanley,
Speaker 5: the top seven or all banks. If the predictions about
Speaker 5: the AI data center boom are correct and the capital
Speaker 5: needs of the five trillion that I just mentioned will
Speaker 5: come through, you're going to look at the IG marketplace
Speaker 5: in the next five years. The top ten will be
Speaker 5: very different. It will have Meta, it will have Amazon,
Speaker 5: it will have Microsoft. If they do pursue that path
Speaker 5: of funding, which is one of the largest deepest markets
Speaker 5: eleven trillion, they're going to have.
Speaker 4: To access that.
Speaker 5: So when we step back and think about the next
Speaker 5: three to five years, we think about how the investment
Speaker 5: grade public mark market is going to change in context
Speaker 5: and risk. It's one thing financing some of the great
Speaker 5: financial services and banks in the world POSTGFC, our banks
Speaker 5: and our financial services companies are the strongest, healthiest in
Speaker 5: the world.
Speaker 4: You don't mind being a debt lender to those.
Speaker 5: These other companies are taking business models that have been amazing,
Speaker 5: business models that have been asset light, business models that
Speaker 5: have generated tremendous amounts of cash flow, and they're just
Speaker 5: changing the risk of being a lender to those companies.
Speaker 5: It's not bad risk, it's just different risk.
Speaker 1: It sounds like this year was the year of credit.
Speaker 3: We were talking about how the twenty twenty five banner
Speaker 3: year was credit.
Speaker 1: It sounds like next year isn't going to be.
Speaker 3: It sounds like next year the investment is in something
Speaker 3: that is more revenue stream based, that is maybe more
Speaker 3: equity driven, that isn't as leverage to the story that
Speaker 3: you're talking about, which is an increasing glut of issuance, potential,
Speaker 3: sticky inflation, and that's not that accommodative.
Speaker 5: I actually take the other side of that. I think
Speaker 5: it's actually a tremendous time to be in credit.
Speaker 1: I long there, I go.
Speaker 5: I think this is all about dispersion. It's picking the
Speaker 5: right names from the wrong names. It's about like people
Speaker 5: in credit are focused on credit, whether it's IG public,
Speaker 5: high yield private and it's the dispersion that we've been waiting.
Speaker 4: If you're if you're a forty year.
Speaker 5: Veteran of this business and it built a massive credit platform.
Speaker 4: We like dispersion.
Speaker 5: We like being in the middle of trying to pick
Speaker 5: the winners and losers because at the end of the day,
Speaker 5: that's just good credit picking. And I do think you're
Speaker 5: getting rewarded with base rates between three and four percent,
Speaker 5: and the clearing price for a lot of this capbex
Speaker 5: for these data centers going to be more challenging. That's
Speaker 5: when you can actually earn your keep by being a
Speaker 5: smart investor.
Speaker 1: Do you think we're heading into a distress cycle.
Speaker 4: I don't see it.
Speaker 5: We are one of the largest historical players in the
Speaker 5: distressed arena. You look at the numbers in the last
Speaker 5: twelve months in the loan market, in the high yield market,
Speaker 5: they've actually come down in terms of the default rates,
Speaker 5: they were a little bit north of three four percent.
Speaker 5: They've actually declined. So on a three trillion plus high
Speaker 5: yield and loan market, defaults of two and a half
Speaker 5: three percent, that's sixty to ninety billion. I don't see
Speaker 5: an overwhelming amount. Now what I do see is I
Speaker 5: think you're going to get more secular distressed than cyclical distressed,
Speaker 5: and that's very important. When we think about secular distressed,
Speaker 5: I think that the development of AI will change broad
Speaker 5: business models. If we've talked a lot about healthcare technology,
Speaker 5: we've talked a lot about the outsourcing businesses, We've talked
Speaker 5: about software, enterprise software. The AI impact can have dramatic
Speaker 5: impact on those business models.
Speaker 4: And typically, when you go.
Speaker 5: Back in the underwriting memo and you think about your
Speaker 5: base case and your downside being down five, ten, fifteen percent,
Speaker 5: when you have secular dislocation, you've missed the downside by multiples,
Speaker 5: and that's what you're probably going to have. But again,
Speaker 5: I think that what I think is a great question
Speaker 5: because I think a lot of the topics that are
Speaker 5: being discussed right now about the role of banks and
Speaker 5: private credit, or the transparency of private credit, they're legitimate questions.
Speaker 5: But the bigger questions are, it's been a long time
Speaker 5: since we've had a credit cycle.
Speaker 4: We're going to have a credit cycle.
Speaker 5: That's normal, it's natural, it's a cleansing process of capitalism.
Speaker 5: And again, I think that when you have a business
Speaker 5: like we've been in where you have many companies that
Speaker 5: are more upstarts. We've been doing this. I've been doing
Speaker 5: it for forty years. We've been doing it Apollo for
Speaker 5: thirty five years. I feel comfortable about our ability. But
Speaker 5: you've got some tourus in this space, no doubt about it.
Speaker 3: And Jim, that question of affordability very much in the
Speaker 3: focus point, not just for the veneral Reserve but also
Speaker 3: the federal government.
Speaker 1: From the FED perspective.
Speaker 3: How much is seeming like the logical step to cut
Speaker 3: rates in response to affordability concerns at the lower end
Speaker 3: of the consumer base.
Speaker 5: You know, I know you've had Torsten on recently to
Speaker 5: talk about this. I do think the K shape economy
Speaker 5: and the demographics of that, it's really having an impact
Speaker 5: on the transmission mechanism of FED policy. I do think
Speaker 5: the last three to five years you've seen, whether it
Speaker 5: was this emergence of the K shape economy and our
Speaker 5: demographic shift of income and wealth, along with the evolution
Speaker 5: of our banking system, the evolution of dispersion, securitization, private capital,
Speaker 5: I think that's blunted the impact on monetary policy. And
Speaker 5: so you know, I well, I understand the impact of
Speaker 5: the view that rates are a bit higher than the
Speaker 5: nominal rate right now or the neutral rate issues me.
Speaker 5: I just don't see a huge other than confidence in
Speaker 5: the equity market. I don't see a reason to cut
Speaker 5: rates dramatically. But I do think there's no doubt this
Speaker 5: affordability issue. We saw it in New York, we saw
Speaker 5: it in the national we saw it in the various
Speaker 5: elections around the country, Virginia in other places. It's going
Speaker 5: to be a topic for this administration to.
Speaker 6: Deal with absolutely, and we've seen them actually backtrack on
Speaker 6: some issues because of it. Torsten'thlock actually published this morning
Speaker 6: talking about significant fiscal boost coming in twenty twenty six.
Speaker 6: When it comes to the One Being Beautiful Bill twenty
Speaker 6: twenty five, it was a lot of uncertainty. At least
Speaker 6: that's how people were viewing Washington. What do you view
Speaker 6: Washington for twenty twenty six. What's most important for you?
Speaker 5: Well, I think that certainly it would be interesting to
Speaker 5: see what happens with the Supreme Court and the tariffs.
Speaker 5: I still think that there's a lot of domestic initiatives
Speaker 5: in terms of large industrial capex, But from our perspective,
Speaker 5: this administration. You know, when you look back at it,
Speaker 5: you really have nine to twelve months to really get
Speaker 5: most of your activity done, and then the activity will
Speaker 5: be on the midterms next year. So I think that
Speaker 5: their ability to move in large swath domestic activities is
Speaker 5: going to be much more limited than.
Speaker 4: It was this year.
Speaker 6: So it's more of a wait and see and see
Speaker 6: how I think Sony digest it.
Speaker 1: Do you think they'll take more equity stakes.
Speaker 5: I don't have a view on that. In particular, they've
Speaker 5: had a handful. Certainly, they need to deal with some
Speaker 5: of the domestic issues with regard to chip manufacturing in
Speaker 5: the US. A lot of the activities that were approved
Speaker 5: in the Chips Act with the prior administration have not
Speaker 5: been put to work, So that's an ongoing need for
Speaker 5: national security and other reasons for them to deal with.
Speaker 5: So that would that would be on the agenda in
Speaker 5: terms of manufacturing, But I'm not sure I see a
Speaker 5: lot of equity stakes as part.
Speaker 4: Of the plan.
Speaker 6: I know you can't and on potential live deals. There
Speaker 6: is this paramount offer Forearner Brothers. It would be financed
Speaker 6: by Apollo according to reporting. Do you see this environment
Speaker 6: the regulatory environment ripe for deals in a lot of
Speaker 6: these spaces.
Speaker 5: You know, I think there's a reason why the M
Speaker 5: and A market will have a near record performance this
Speaker 5: year in terms of volume, north of five trillion. Certainly
Speaker 5: you have an administration that's much more comfortable with large
Speaker 5: industrial mergers, and certainly those larger transactions are able to
Speaker 5: garner very large financing packages. People want to invest in
Speaker 5: high quality companies, and certainly, whether it's industrial consolidation or
Speaker 5: media consolidation, those types of activities garner a lot of
Speaker 5: attention and confidence.
Speaker 3: Is there a lot of to get done between now
Speaker 3: and the end of the year, or is everyone pretty
Speaker 3: much packing it up, putting their crystal balls on.
Speaker 1: Look, we're going to the beach.
Speaker 7: No.
Speaker 5: I think these are very robust markets. There's a lot
Speaker 5: of activity going on right now. The market will probably
Speaker 5: shut down in two and a half weeks or so
Speaker 5: for a little bit of a global respite, and the
Speaker 5: predictions and the crystal balls will come out, But there's
Speaker 5: still a fair amount of activity going on, and I
Speaker 5: think the pipelines are fairly well built into the first quarter,
Speaker 5: so I would suspect a busy first quarter as well.
Speaker 3: The crystal balls already around, Jim, come on, they already
Speaker 3: come out because people are looking for something to talk about.
Speaker 1: Twenty twenty six is already done in dusted.
Speaker 3: People are talking about twenty twenty seven at this point.
Speaker 5: Can you imagine we have to have people watch TV
Speaker 5: and sell newspapers.
Speaker 4: So it's important to all of.
Speaker 2: Us stay with us. Multiple impex saviidance coming up off
Speaker 2: to this.
Speaker 3: Sticking with the Fed ahead of next week's meeting. Lindsay
Speaker 3: p exem stiphail clearly in the inflation camp of worries, writing,
Speaker 3: while inflation held steady in September, the lack of down
Speaker 3: improvement from a still elevated level raises concerns that any
Speaker 3: further policy easing could risk an acceleration of price pressures.
Speaker 1: Lindsay joins us.
Speaker 3: Now, Lindsay, thank you so much for being with us.
Speaker 1: I want to start there.
Speaker 3: Why are you still concerned about inflation worries being the
Speaker 3: pre eminent concern at a time when it seems like
Speaker 3: the FED has moved more to the employment side of
Speaker 3: the equation.
Speaker 7: Well, it does seem at least some FED officials have
Speaker 7: shifted their focus away from price stability to full employment,
Speaker 7: But there are still a number of FED officials that
Speaker 7: have come out to highlight the need to remain focused
Speaker 7: on reinstating price stability after years of allowing price pressures
Speaker 7: to remain above that two percent target. Now we have
Speaker 7: made considerable progress in terms of reining in that growth
Speaker 7: in the aftermath of the pandemic, but we've never been
Speaker 7: able to get back to that point of price stability,
Speaker 7: And now with this lack of downward momentum, it does
Speaker 7: suggest that the FED might have reached a neutral position
Speaker 7: in policy appropriate now to take a position a sidelined
Speaker 7: position without further rate cuts, without further risk of inciting inflation.
Speaker 7: Particularly now, there are a number of upside risks as
Speaker 7: we look out to the end of the year and
Speaker 7: turn the calendar page into twenty twenty six. So now
Speaker 7: is not the time to entirely divert focus away from
Speaker 7: achieving price stability.
Speaker 1: Wenzi, do you.
Speaker 6: Think that the FED has enough information and data given
Speaker 6: what happened with the government.
Speaker 1: Shutdown to make a decision next week.
Speaker 7: I think the FED has a good read on what's
Speaker 7: happening in terms of the underlying momentum in terms of
Speaker 7: cost pressures. Again, we haven't seen necessarily all of the
Speaker 7: data moved to the upside, but we haven't seen any
Speaker 7: indications of a material downward momentum in inflation, and as such,
Speaker 7: I do think, coupled with the fact that consumer still
Speaker 7: remains on far from robust but solid footing, the economy
Speaker 7: is on track for a plus three percent growth pace,
Speaker 7: and we continue to see again not robust, but positive
Speaker 7: solid job creation, I think the Fed should air on
Speaker 7: the side of caution, moving to the sideline, allowing for
Speaker 7: a further understanding of the evolution of both the price
Speaker 7: and the labor data before making any additional policy adjustments.
Speaker 6: Lisa brought this up earlier if potentially it's a hawkish cut,
Speaker 6: but what you're describing is maybe maybe we have a
Speaker 6: dubvish pause next week.
Speaker 7: Is that correct? Not necessarily a dubbish pause. I think
Speaker 7: we're looking for more of a neutral pause. I think
Speaker 7: the FED at this point is pretty well divided between
Speaker 7: those that have that lingering fear of price pressures and
Speaker 7: those that are facing this emerging concern of weakness on
Speaker 7: the labor market front. So I do think the FED
Speaker 7: could very clearly articulate a neutral pause push policy to
Speaker 7: the sideline, say we're not going to make any unnecessary
Speaker 7: movements until we have a better read on prices and
Speaker 7: the labor market. Given there are risks to both sides
Speaker 7: of the fed s dual mandate.
Speaker 3: Lindsay, when you say inflation pressures are still in the system,
Speaker 3: there is a real question of what those inflation pressures
Speaker 3: look like percent. A lot of people say we can
Speaker 3: handle four percent, not so much. How much are you
Speaker 3: seeing an actual unmooring of inflation expectations in a way
Speaker 3: that feels unsustainable and unduly punitive rather than two and
Speaker 3: a half.
Speaker 1: Percent, say, or two point eight percent.
Speaker 7: Well, I think at the current read right around two
Speaker 7: and a half ish percent, I think the Fed would
Speaker 7: be willing to tolerate that longer term. But my concern
Speaker 7: is these upside pressures that are still coming down the pipeline.
Speaker 7: Should we see a stronger than expected growth profile at
Speaker 7: year end, or a stronger more spendy consumer as we
Speaker 7: now enter this key holiday shopping season, or turning the
Speaker 7: corner into twenty twenty six, should businesses now begin to
Speaker 7: pass through more of those cost increases to the end
Speaker 7: consumer that were previously absorbed into the bottom line now
Speaker 7: that inventories have been drawn down significantly, any one or
Speaker 7: combination of those factors could add significant upward pressure to
Speaker 7: inflation going forward. So it's not necessarily where we sit
Speaker 7: right now, but the risk to prices pressures as we
Speaker 7: look out to the remote aiming months of the re
Speaker 7: maining weeks excuse me, of the year, and into twenty
Speaker 7: twenty six.
Speaker 3: Lisie, just real quick here going forward, I'm curious how
Speaker 3: effective you think monetary policy really is in tackling some
Speaker 3: of the issues that are pre eminem, particularly when it
Speaker 3: comes to the key shaped economy, in questions around just
Speaker 3: how much wages are not keeping pace at the lower end.
Speaker 7: Well, wages still are relatively positive. We see about this
Speaker 7: four percent ish, but you're right, a lot of that
Speaker 7: growth has been isolated to the upper end of the
Speaker 7: income spectrum, fueling a lot of the activity on the
Speaker 7: retail side in the upper echelon, and so we don't
Speaker 7: see necessarily this broad based expenditure. When we talk about
Speaker 7: the consumer being solid, we do have to be somewhat
Speaker 7: careful painting with a broad brush because a lot of
Speaker 7: that momentum has come from this underlying increase in asset
Speaker 7: valuations fueling trillions tens of trillions of dollars in wealth.
Speaker 7: But again that's very much much isolated to the middle
Speaker 7: or the upper end of the income spectrum, as we're
Speaker 7: talking about property ownership participation in the equity market, which
Speaker 7: those at the lower end, statistically speaking, are less likely
Speaker 7: to own property or have a stake in the equity market.
Speaker 7: So we do see again not necessarily the fed'sibility to
Speaker 7: completely afiliorate this K shaped recovery. But there is a
Speaker 7: role of monetary policy, but a delicate one. We have
Speaker 7: to make sure that we're attentive to both that labor
Speaker 7: market and the price data components of that recovery.
Speaker 2: Stay with us. Multile Impex Savannah's coming up after this.
Speaker 3: Stocks edging higher following a week start to the trading month.
Speaker 3: Katie Kaminski of Alpha Simplex Group writing ratecut optimism has
Speaker 3: boosted small cap and mid cuff.
Speaker 1: Stocks more than AI big tech.
Speaker 3: Overall investor sentiment has stabilized, but fears still remain for overvaluation.
Speaker 1: Katie joins us.
Speaker 3: Now, Katie, I wanted to start with your understanding of
Speaker 3: what actually has been happening in markets over the past
Speaker 3: couple of trading sessions. It seems like there is an
Speaker 3: increasing breakdown in risk led by bitcoin, maybe a bit
Speaker 3: of a stabilization.
Speaker 1: But from a technical standpoint, what do you see.
Speaker 8: This is a good point because what we have seen,
Speaker 8: you've definitely seen a breakdown in some of the recent trends.
Speaker 8: There has been a shift in sentiment overall, and you're
Speaker 8: starting to see some deterioration in some of the key themes,
Speaker 8: of course gold being something that has been selling off today,
Speaker 8: and it is also surprising that you're also seeing yields
Speaker 8: higher when rate cut optimism should be a positive for them.
Speaker 8: So I think that just highlights the amount of uncertainty
Speaker 8: and the potential for risk off sentiment when people are
Speaker 8: concerned about high valuations.
Speaker 3: One thing that really I was looking forward to speaking
Speaker 3: with you, Katie, because when you're following trends, sometimes you
Speaker 3: can find the pivot points and understand there something different here.
Speaker 1: We're not going to see.
Speaker 3: Maybe the melt up rally that we typically do in
Speaker 3: December heading into year end. Are you sensing that there
Speaker 3: is some sort of pivot going on under the hood
Speaker 3: in markets?
Speaker 8: Well, this is a very good point because technically December
Speaker 8: is generally one of the better months for equity markets.
Speaker 1: There tends to be a lot of positive.
Speaker 8: Sentiment, but I think in the backdrop of some tepid
Speaker 8: economic information, some weaker labor data, people are getting a
Speaker 8: little more nervous. So there is some indication at least
Speaker 8: with some of the price reversals that we've seen. I
Speaker 8: think some of these other asset classes like bitcoin, even
Speaker 8: now gold selling off some suggests that there is chance
Speaker 8: for some deterioration in equity markets.
Speaker 9: Katie, isn't japan Ism the waiting on AIPA, or is
Speaker 9: the market just basically looking for an excuse to hold
Speaker 9: pat at the moment, especially when there's a number of
Speaker 9: questions still going into year end, most notably the Fed
Speaker 9: next week.
Speaker 8: This is a good point because there's not a lot
Speaker 8: of data to hang on to. It is definitely mixed data,
Speaker 8: and I think with concerns of over evaluation and just
Speaker 8: how exposed many investors are to these themes, there is
Speaker 8: some clear uncertainty there. But what's interesting to me is
Speaker 8: you see like small cap has been doing a lot better,
Speaker 8: for example, than big tech, and that's just a little bit.
Speaker 1: Of a reversal from what we've seen typically this.
Speaker 8: Year, So you're just seeing a little bit of pivoting,
Speaker 8: a little bit of changing direction, which suggests that we
Speaker 8: might be in for a change and trend moves at
Speaker 8: some point.
Speaker 6: Lisa pointed out that the PCEE data we're going to
Speaker 6: get on Friday is very stale.
Speaker 1: This is from September.
Speaker 6: So when you look at the data coming out, what
Speaker 6: do you want to hang your hat on.
Speaker 1: Ah, that's a good question.
Speaker 8: I mean, obviously we'll start to get more data next week.
Speaker 8: I'd say that there's not a lot for investors to
Speaker 8: hang on to at this point, and it really is
Speaker 8: sort of the end of the year, which tends to
Speaker 8: be a very positive environment. So I think they're focused
Speaker 8: much more on sort of following the narrative for rate.
Speaker 1: Cuts for next week.
Speaker 8: That seems to be the only major thing to follow
Speaker 8: and see what's going on. But you're correct, there's not
Speaker 8: a lot of very pivotal data that's going to help
Speaker 8: us figure out what's really going on.
Speaker 3: Well, this goes back to something you were saying earlier.
Speaker 3: If you're following rate cuts, why are yields rising.
Speaker 1: Exactly?
Speaker 8: I mean, I would guess that that's probably a reaction
Speaker 8: to what is going on in Japan. Clearly we saw
Speaker 8: the potential for hikes there, causing treasure yields to move upwards.
Speaker 8: Besides that, I mean, it is slightly counterintuitive for yields
Speaker 8: to be rising going into a potential for rate cut.
Speaker 1: But this just may have to do with some of
Speaker 1: the uncertainty.
Speaker 8: I know that there's been a lot of discussion about
Speaker 8: disagreement within the Fed, so that may be causing.
Speaker 1: A little bit of jitters in the bond markets.
Speaker 3: Yesterday we did see ten year and two year Japanese
Speaker 3: bond yields and reach the highest levels that we've seen
Speaker 3: going back to two thousand and eight. The expectation was
Speaker 3: that you were going to see a rate hike at
Speaker 3: the next Bank of Japan meeting. That said earlier in
Speaker 3: the morning, it wasn't when we saw the yields creep higher.
Speaker 3: It was after the ism manufacturing data, and then as
Speaker 3: Cameron Dawson was pointing out, it was after this story
Speaker 3: about Costco potentially actually laying the groundwork to reclaim some
Speaker 3: of the revenue some of the tariffs that they paid
Speaker 3: over the course of this year in the case of
Speaker 3: a Supreme Court ruling which of these narratives makes the
Speaker 3: most sense to you, or.
Speaker 1: Do you think that there's something else entirely.
Speaker 8: Well, this is I mean, really it's very tricky, right
Speaker 8: because you have market moves that seem counterintuitive to general
Speaker 8: macroeconomic themes, such as the FED rate cuts.
Speaker 1: Then you have you know, Japan, which is moving in
Speaker 1: a different.
Speaker 8: Direction, and as you just pointed out, you're also seeing
Speaker 8: some weakness in labor data and manufacturing, which paints a
Speaker 8: more concerning picture about the general US economy. And especially
Speaker 8: if you're thinking about long term bonds, you know, there
Speaker 8: may be some questions of whether or not rates can
Speaker 8: stay low for long if the you know, if we
Speaker 8: sort of don't know what's going on next.
Speaker 1: So you're right, it's very tricky right now.
Speaker 6: When you start thinking about the FED meeting next week,
Speaker 6: the market is making this idea of another interest rate cut,
Speaker 6: but you're talking about maybe some disagreement at the Federal Reserve.
Speaker 6: Do you think there's a potential that they stay patent
Speaker 6: on pause.
Speaker 1: Right now? The market is not thinking that.
Speaker 8: But given the level of disagreement, the level of uncertainty,
Speaker 8: and the wide range of potential outcomes, I think we
Speaker 8: haven't had this level of disagreement in the FED for
Speaker 8: almost thirteen years or longer. So just given that sort
Speaker 8: of range of outcomes, there's always a probability you're going
Speaker 8: to have more disagreement or more disappointment than if you
Speaker 8: have a lot of consensus on the FED.
Speaker 6: If the FED does pause and does not cut interest rates,
Speaker 6: will there be a Santa Rally at least A started
Speaker 6: the program off this morning.
Speaker 1: That's that's a good question.
Speaker 8: I mean, that could definitely put a pause on a
Speaker 8: Santarelli because you look at how small cap US stocks
Speaker 8: have really reacted. There's clearly that would be a headwind
Speaker 8: for many equity investors, and I do think that could be,
Speaker 8: you know, a potential negative for equity markets should they
Speaker 8: not deliver as people expect.
Speaker 2: Stay with us multiple IMPEG surveillance coming up.
Speaker 3: After this, the National Retail Federation forecasting twenty twenty five
Speaker 3: holiday sales to exceed one trillion dollars for the first time.
Speaker 3: Joining US now, I'm so pleased to say is Matt
Speaker 3: sha CEO and President of the National Retail Federation.
Speaker 1: Matt, thank you so much for being with us.
Speaker 3: First, I just want to get a sense of how
Speaker 3: much that one trillion dollar figure and how much some
Speaker 3: of the increases that we've seen in sales during this
Speaker 3: holiday shopping season have really stemmed from just higher prices,
Speaker 3: not next necessarily a greater degree of volume.
Speaker 10: Well, good morning, Happy to be with you today to
Speaker 10: talk about the big holiday weekend on Cyber Tuesday now,
Speaker 10: but we had a great weekend. We had tens of
Speaker 10: millions of Americans out shopping. We're going to be releasing
Speaker 10: the results of the weekend on our holiday call at
Speaker 10: eleven o'clock this morning, eleven Eastern. So I think what
Speaker 10: we saw was retailers delivering real value to consumers. And
Speaker 10: while there have been some price increases throughout the system
Speaker 10: through this whole year, retailers have worked very, very hard
Speaker 10: to keep delivering value for customers and to avoid passing
Speaker 10: on any price increases. So we're looking at maybe one
Speaker 10: percent price increases on food, and really for the last
Speaker 10: couple of years, we've been seeing on the good side,
Speaker 10: flat to down on inflation.
Speaker 4: So there's real growth there.
Speaker 10: With a four percent forecast, our forecast three point seven
Speaker 10: to four point two percent, we'll see real.
Speaker 4: Growth this year.
Speaker 10: And I think you saw some great deals over the
Speaker 10: weekend and some retailers that we're really winning with customers.
Speaker 3: So let's talk about this period of discounting. It was
Speaker 3: a Black Friday, then it was Cyber Monday, where actually
Speaker 3: there are potentially steeper discounts averaging thirty one percent compared
Speaker 3: with twenty eight percent of Black Friday. Now we're onto,
Speaker 3: you know, let's go teetotaling Tuesday or something. I mean,
Speaker 3: it seems like it's just continuing in terms of the
Speaker 3: sales and the promotions. Does that indicate that retailers are
Speaker 3: looking to clear their shelves?
Speaker 1: So does that indicate that there.
Speaker 3: Just is a need to generate eyeballs or is it
Speaker 3: just that they feel like they want to give a
Speaker 3: sense of value to their customers.
Speaker 10: Well, I think there are a couple of things happening here.
Speaker 10: First of all, I think we begin with inventory levels,
Speaker 10: and inventory levels are in a very good place on
Speaker 10: a historic basis.
Speaker 4: So we're about one point one point.
Speaker 10: Three, which means we've got a little more than a
Speaker 10: month's supply for a month's worth of sale. So they're
Speaker 10: not holding too much inventory. They've got the right inventory
Speaker 10: in place. I think it's a very competitive retail environment.
Speaker 10: Consumers are under some pressure at the lower end, but
Speaker 10: they're still out there spending and we're on track to
Speaker 10: have a very good year overall, probably in the four
Speaker 10: percent range for the year. And what we're seeing is
Speaker 10: consumers are being very deliberate, very thoughtful, very purposeful. They've
Speaker 10: got lots of information at their fingertips. They're really looking
Speaker 10: for the best deals. They can find the best value
Speaker 10: based on the things they need and want. So I
Speaker 10: think what we see is a competitive landscape. Inventory levels
Speaker 10: in a good place, Margins are holding up very well
Speaker 10: for retailers across the board, and the promotions we've seen
Speaker 10: have been planned promotion, so there's you know, this is
Speaker 10: all part of a planned rollout for the holiday season,
Speaker 10: and I think thus Fart's going really well. We're off
Speaker 10: to a great start for the five day holiday weekend
Speaker 10: here for Thanksgiving.
Speaker 6: Matt to Lisa's point, though, maybe we call it tarty
Speaker 6: transaction Tuesday. I am getting non sit up emails this
Speaker 6: morning about how cyber Monday has been quote extended, and
Speaker 6: to be honest, I actually took advantage of them very
Speaker 6: early this morning. Something I forgot I wanted to purchase
Speaker 6: are you saying that is all planned and this basically
Speaker 6: just becomes a discount week or does it actually show
Speaker 6: that these retailers are really desperate to try to get
Speaker 6: eyeballs and individuals back on their site.
Speaker 10: Well, I think, Amory. I think one thing we've seen
Speaker 10: is the holiday season has been extended over the last
Speaker 10: several years, and certainly since the pandemic, We've seen consumers
Speaker 10: beginning their shopping much much earlier than was traditionally the case,
Speaker 10: and we see retailers delivering those deals all the way
Speaker 10: back into the summer and throughout the fall. So what
Speaker 10: we're seeing now, I think is a continuation of that.
Speaker 10: They're going to continue to be day by day, week
Speaker 10: by week, different kinds of promotions, different kinds of rollouts
Speaker 10: that are going to be designed to attract consumer engagement
Speaker 10: throughout the holiday season. And I think that this has
Speaker 10: all been This is a thoughtful series of deliberate sort
Speaker 10: of promotions that are out there. They're planned, they're responding
Speaker 10: to what consumers are looking for. And I think back
Speaker 10: to the competitive landscape that we're operating in. We're not
Speaker 10: in the period where every retailer is a winner and
Speaker 10: every business is going to win the way we saw
Speaker 10: in twenty one, twenty two, twenty three. Even this is
Speaker 10: an environment which it's much more competitive, and so retailers
Speaker 10: are trying to distinguish themselves in the marketplace deliver that
Speaker 10: real value. And value is I think more complicated. It's
Speaker 10: not just price. For some consumer's value is price, but
Speaker 10: it can be quality, it can be selection, it can
Speaker 10: be convenience when it comes to fulfillment delivery. So when
Speaker 10: consumers say they're looking for value, they're looking for something
Speaker 10: that makes them feel they got what they paid for,
Speaker 10: and that might be a great quality item, that might
Speaker 10: be an item that gets delivered more quickly than they
Speaker 10: could get it from another competitor. So I think there's
Speaker 10: a whole series of things that we use when we
Speaker 10: say value, we're talking about a series of different kinds
Speaker 10: of experiences based on the consumer. And again, you know,
Speaker 10: we'll talk more about this at eleven this morning, but
Speaker 10: we saw retailers really delivering value through this weekend. The
Speaker 10: numbers were good, traffic was good online in store, So
Speaker 10: I think we're off to a very healthy holiday season.
Speaker 6: Stepping away from the holiday season for a moment, can
Speaker 6: you give us a sense of how retailers are dealing
Speaker 6: with tariffs and this potential of AEPA being struck down.
Speaker 6: Are they talking about potentially benefiting for the reimbursements that
Speaker 6: might be needed to be paid back to them if
Speaker 6: the Supreme Court deems that AEPA was illegal.
Speaker 10: Well, I think what we've seen this year, and again
Speaker 10: going back to the pandemic we've seen for the last
Speaker 10: five years, this great period of disruption, this period of uncertainty, unpredictability,
Speaker 10: even volatility across the market, things that are outside the
Speaker 10: control of a retail business or any business for that matter.
Speaker 10: And so I think as we look forward, retailers again
Speaker 10: are focused on the things they can can control and
Speaker 10: what they can control. Their relationship with their partners, their suppliers.
Speaker 10: They can be creative and thoughtful about the way they're
Speaker 10: handling their sourcing, their inventory, they're importing, the way they're
Speaker 10: communicating with customers. Those are all things they can control.
Speaker 10: What the court does or doesn't do when it finally
Speaker 10: issues a decision on the tariffs, I think that's something
Speaker 10: that we can't control, our members can't control, and we'll
Speaker 10: handle that when we get to it. So I don't
Speaker 10: think anyone's counting on a result one way or the other.
Speaker 4: It's what we're.
Speaker 10: Looking for is certainty, predictability, something that will smooth out
Speaker 10: the relationships in the supply chain, and the court will
Speaker 10: make a decision and we'll certainly go from there based
Speaker 10: on what the court decides.
Speaker 2: This is the bloomberg S Events podcast, bringing you the
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Speaker 2: Blue Bug Terminal and the Bloomberg Based this out
Speaker 5: Mm hmm