WEBVTT - US Eco Data in Focus as Iran Tensions Simmer 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 --> 0:00:27.160 us live on YouTube. 0:00:27.640 --> 0:00:31.400 She is with Private Wealth, Chief investment strategist Private Wealth 0:00:31.440 --> 0:00:34.960 of Partners Group. Anastasia Mrosa joins us, and she is 0:00:35.000 --> 0:00:38.040 one of the select few that said, climb on board 0:00:38.640 --> 0:00:44.160 this American economic experiment and enjoy a multi year bull market. 0:00:44.280 --> 0:00:46.879 Are we gonna double digit again this year? Are we 0:00:46.920 --> 0:00:48.879 going to pop four years? Is it four years in 0:00:48.920 --> 0:00:49.240 a row? 0:00:49.440 --> 0:00:49.920 I double? 0:00:50.479 --> 0:00:52.240 I think we have a chance aid that for sure. 0:00:52.280 --> 0:00:53.760 I mean earlier in the year I thought we would 0:00:53.760 --> 0:00:56.360 have hit seven thousand and stayed there. We haven't managed 0:00:56.400 --> 0:00:59.600 to do that yet. We pulled back three or three 0:00:59.680 --> 0:01:01.880 or five. But the expectation for the year was around 0:01:01.880 --> 0:01:04.560 seven percent returns. So yes, Tom, we might get to 0:01:04.600 --> 0:01:07.520 that ten percent or more for this year. But you know, 0:01:07.600 --> 0:01:10.480 the broader back drop is supportive right on a number 0:01:11.280 --> 0:01:14.160 of different factors. The consumer side, I think is actually 0:01:14.200 --> 0:01:17.480 strengthening this year as we speak. The other notable development. 0:01:17.480 --> 0:01:20.160 For me, this week is all about CAPEX and CAPEX 0:01:20.200 --> 0:01:22.800 not only the United States and not only from hyperscalers, 0:01:22.840 --> 0:01:26.399 but CAPEX globally. We've got the European manufacturing numbers came 0:01:26.400 --> 0:01:30.000 out this morning and those popped quite significantly, driven by 0:01:30.040 --> 0:01:32.959 German physical stimulus. So you know, back to kind of 0:01:32.959 --> 0:01:36.119 the US economy though CAPEX also is an engine now 0:01:36.720 --> 0:01:38.399 and then housing maybe that'll pick up two. 0:01:38.800 --> 0:01:40.800 Yesterday Paul was way too optimistic. 0:01:41.160 --> 0:01:43.080 Yeah, I mean, I mean, I'm sorry, there's like an 0:01:43.120 --> 0:01:44.400 optimistic tone corner. 0:01:44.440 --> 0:01:46.920 There is a little bit good earnings out there on 0:01:47.080 --> 0:01:49.600 a stage. I'm looking at the WEI function here for 0:01:49.640 --> 0:01:52.920 the world equity indices. The US is doing fine as 0:01:52.920 --> 0:01:53.720 it did less year. 0:01:54.120 --> 0:01:55.720 But the rest of the world's doing better. 0:01:56.040 --> 0:02:00.320 Right, so rest of the world versus US outperform buy 0:02:00.320 --> 0:02:02.880 and large last year, Ye, same this year. How do 0:02:02.880 --> 0:02:06.000 you view kind of where to allocate geographically? 0:02:06.080 --> 0:02:06.280 Right? 0:02:06.640 --> 0:02:09.560 I think the way we see allocations is that you 0:02:09.600 --> 0:02:12.000 don't pick one or the other. You do both. You 0:02:12.040 --> 0:02:14.520 do US, you do Europe, you do Asia. And the 0:02:14.560 --> 0:02:16.400 reason for that, you know, if you think about the 0:02:16.400 --> 0:02:19.840 next five years, let's say it's all about localization, supply chains, 0:02:19.880 --> 0:02:22.560 it's on shoring. It's about you know, making sure you 0:02:22.600 --> 0:02:24.880 cater to the domestic consumer. So it used to be 0:02:24.960 --> 0:02:27.720 that you could allocate to a US multinational and that 0:02:27.760 --> 0:02:30.440 would get to the Europe exposure or China exposure. That's 0:02:30.480 --> 0:02:32.600 no longer the case. So that's why I think you 0:02:32.680 --> 0:02:35.760 have to invest in each specific region. But to bring 0:02:35.800 --> 0:02:38.000 it back to sort of the cyclical momentum, I think 0:02:38.040 --> 0:02:40.760 the reason why Europe is actually seeing an our performance 0:02:40.840 --> 0:02:44.760 versus the US because the US has this rolling AI scare. 0:02:44.919 --> 0:02:47.680 You know, maybe it's software names, maybe it's wealth tech names, 0:02:48.040 --> 0:02:50.360 and so the AI exposure has not been a positive 0:02:50.400 --> 0:02:53.120 to the market. But I think even beyond that, there 0:02:53.200 --> 0:02:55.960 is something positive happening in Europe. It is the German 0:02:56.000 --> 0:02:58.280 fiscal stimulus that I mentioned that is showing up in 0:02:58.280 --> 0:03:02.480 the manufacturing momentum. It is also the fact that Europe 0:03:02.480 --> 0:03:04.919 is striking deals of its own. You know, fifty percent 0:03:04.919 --> 0:03:07.000 of global GDP is covered by some sort of a 0:03:07.000 --> 0:03:09.880 trade deal with EU now, the latest one being with India, 0:03:10.200 --> 0:03:12.320 so that's a big deal. And then you have this 0:03:12.440 --> 0:03:16.480 bifurcation between the Northern Europe versus southern and Southern being 0:03:16.480 --> 0:03:20.560 more services oriented, consumption oriented, so that's holding up well too. 0:03:21.040 --> 0:03:23.840 So we've always liked Europe. We invested about thirty nine 0:03:23.880 --> 0:03:27.640 percent of Summer solutions in Europe. But I think there 0:03:27.680 --> 0:03:29.519 is a cyclical upside to it as well. 0:03:29.560 --> 0:03:33.000 Now in the US market, we've seen a pronounced rotation 0:03:33.080 --> 0:03:36.480 starting I guess in late October November. Is that a 0:03:36.520 --> 0:03:39.480 short term trade or is that something more prominent, do 0:03:39.520 --> 0:03:41.880 you think or because it's we've in the US market's 0:03:41.880 --> 0:03:44.160 always been led by tech, always led by tech. But yeah, 0:03:44.240 --> 0:03:45.680 it seems to be rotation a little bit. 0:03:45.840 --> 0:03:48.120 I mean, it feels a little different to me this time, 0:03:48.280 --> 0:03:50.440 you know. And no, I don't think the hyperscala trade 0:03:50.480 --> 0:03:53.160 has gone. I don't think the semic inductors are not 0:03:53.280 --> 0:03:56.000 going to perform. But I do think there's this realization 0:03:56.120 --> 0:03:59.360 that for the last maybe ten years, it's been software's 0:03:59.440 --> 0:04:01.560 world and all been living in it, and software was 0:04:01.600 --> 0:04:04.200 eating the world and so on, and it's been sort 0:04:04.240 --> 0:04:07.280 of you know, the business model that's acid light, that's 0:04:07.320 --> 0:04:10.400 what's benefited. But as I think about going forward, it 0:04:10.480 --> 0:04:13.600 might be that we're in the acid heavy economy once again. 0:04:13.760 --> 0:04:17.159 It's about physical assets, tangible assets. They can be made 0:04:17.200 --> 0:04:20.159 obsolete by the stroke of AI overnight. 0:04:20.360 --> 0:04:22.800 You're brilliant on this in New Mexico years ago. Let's 0:04:22.800 --> 0:04:23.320 bring it in. 0:04:23.920 --> 0:04:28.000 What happens to your world if the hyperscalers decide to 0:04:28.040 --> 0:04:32.000 grow up and actually issued debt like Google did the 0:04:32.120 --> 0:04:35.080 other day. I look at that, you know, zbody one 0:04:35.120 --> 0:04:37.600 on one up but bu and it's just got to 0:04:37.640 --> 0:04:39.600 be a plus plus plus for confidence. 0:04:40.520 --> 0:04:43.440 Well, that's right. And the reason why they're confident to 0:04:43.480 --> 0:04:45.600 do so is because they have the free cash flow 0:04:45.720 --> 0:04:48.960 to do that. And you know, although to Paul's point, 0:04:48.960 --> 0:04:51.920 the markets were fearful and the spreads were somewhat widening, 0:04:52.080 --> 0:04:53.600 you know, back at the tail end of last year, 0:04:53.680 --> 0:04:56.080 the realization is they have hundreds of billions of free 0:04:56.080 --> 0:04:59.000 cash flow and you know, just cash on the sideline, 0:04:59.040 --> 0:05:02.159 so they can afford to issue that debt. The reason, 0:05:02.200 --> 0:05:03.880 tomm I think there is such a great deal of 0:05:03.880 --> 0:05:08.440 confidence for hyperscalers is because they do see the future 0:05:08.480 --> 0:05:11.560 potential growth in their cloud revenues and whether it's Google, 0:05:11.680 --> 0:05:14.360 whether it's others. You know, you see that hockey stick 0:05:14.400 --> 0:05:18.440 infliction higher in cloud revenues. That's important. They also see 0:05:18.440 --> 0:05:21.240 the revenues of their customers the likes of open AI 0:05:21.360 --> 0:05:24.400 Andthropic and others, and those have been going up substantially 0:05:24.440 --> 0:05:24.840 as well. 0:05:25.640 --> 0:05:27.880 Earnings were I don't know about eighty percent the way 0:05:27.880 --> 0:05:30.039 through the S and P five hundred reporting earnings. They 0:05:30.080 --> 0:05:33.120 look pretty solid to me. Are they enough to support 0:05:33.120 --> 0:05:34.679 this market here going forward? 0:05:35.120 --> 0:05:38.360 They do look solid? Absolutely, And you know, I think 0:05:38.400 --> 0:05:42.120 what's actually really interesting, too, Paul, is that even earnings 0:05:42.120 --> 0:05:45.080 for software companies that we've worried about also look solid. 0:05:45.320 --> 0:05:49.200 Will look through a number of software companies and sixty 0:05:49.240 --> 0:05:52.559 percent or so of them reported and eighty to one hundred, 0:05:52.640 --> 0:05:56.360 depending on the sector of reported positive earning surprise and 0:05:56.400 --> 0:05:59.600 earnings growth of twenty or thirty percent, so that alleviates 0:05:59.600 --> 0:06:02.120 some fee in that particular pocket of the market. And 0:06:02.160 --> 0:06:04.599 then beyond that for the market in general, take a 0:06:04.600 --> 0:06:07.400 look at the profit margin. It's going up, is gone 0:06:07.480 --> 0:06:10.600 up despite tariffs, and we're looking for you record thirteen 0:06:10.640 --> 0:06:15.719 point nine percent profit margin. That's likely driven by an me. 0:06:15.720 --> 0:06:17.719 Make it to Tyler, say we make it the Supreme 0:06:17.720 --> 0:06:19.919 Court thing today? Couldn't they? Yeah? I mean they're definitely 0:06:19.920 --> 0:06:21.640 gonna they give them away of the hockey game. 0:06:21.720 --> 0:06:24.200 So I hope not we don't want that. 0:06:24.480 --> 0:06:26.560 We don't have that Anasta Jamres. 0:06:26.560 --> 0:06:29.719 So we continue where the chief investment strategiest Partners Group 0:06:30.040 --> 0:06:32.559 nailed the bull market to see be direct. 0:06:32.800 --> 0:06:34.720 Is this the Partners Group of Switzerland? 0:06:35.200 --> 0:06:38.080 It is, of course yes. 0:06:38.720 --> 0:06:40.560 All a soup costs forty dollars in a. 0:06:40.560 --> 0:06:42.080 Wrestle, it's quite a lot. 0:06:43.839 --> 0:06:45.840 Does the Swiss want to buy America? 0:06:45.880 --> 0:06:49.160 Because we have a different different people saying they're saying, well, 0:06:49.440 --> 0:06:51.360 you know, people are sort of upset with President Trump, 0:06:51.440 --> 0:06:53.040 da da da da da, but they really want to 0:06:53.080 --> 0:06:58.600 buy America. To the Swiss institutions and continental europe institutions, 0:06:58.880 --> 0:07:00.960 do they want to buy micro Look? 0:07:01.040 --> 0:07:04.720 I think the realization for all institutions globally is that 0:07:04.920 --> 0:07:07.800 you might disagree with the current policies, you might disagree 0:07:07.839 --> 0:07:10.360 with the current tactics, but not to invest in America 0:07:10.480 --> 0:07:13.080 is not an investor's best interest. You know, you think 0:07:13.120 --> 0:07:16.680 about the corporate tax rate and again the fiscal stimulus 0:07:16.720 --> 0:07:18.560 that we have come in into the US. You look 0:07:18.600 --> 0:07:20.880 at the innovation, you look at the margins, you look 0:07:20.880 --> 0:07:24.120 at the productivity gates. It's really difficult not to allocate 0:07:24.200 --> 0:07:27.680 capital here. I will say one question mark for investors 0:07:27.800 --> 0:07:29.960 has been around the direction of the US dollar, and 0:07:30.000 --> 0:07:32.800 if the dollar weakness continues, does that actually eat away 0:07:33.000 --> 0:07:37.160 at your return significantly? You know, we're of the view 0:07:37.280 --> 0:07:39.240 then you know, we're at a point where there should 0:07:39.280 --> 0:07:43.160 be some more stable conditions between the euro dollar, for example. 0:07:43.280 --> 0:07:46.240 So with that as a backdrop, the capital flows definitely 0:07:46.240 --> 0:07:47.400 should continue to the US. 0:07:47.840 --> 0:07:49.560 How about what are we doing in the bond market here? 0:07:49.960 --> 0:07:51.640 I can sit in into your treasure and get three 0:07:51.640 --> 0:07:55.280 and a half percent. Are you suggesting your clients take 0:07:56.040 --> 0:07:57.360 credit risk above and beyond that? 0:07:58.480 --> 0:08:02.000 Yes, I mean for a you know, more risk averse, 0:08:02.160 --> 0:08:04.520 you know, individual perhaps looing at the shorter term of 0:08:04.960 --> 0:08:07.600 the US curve might make sense. But you know, we're 0:08:07.640 --> 0:08:10.480 also investors in private credit, and you know, private credit, 0:08:10.600 --> 0:08:13.440 despite the headlines that are out there, we see fundamentals 0:08:13.480 --> 0:08:15.600 that are still quite solid. I can elaborate on that 0:08:15.720 --> 0:08:17.720 in just a minute. But we also see the yields 0:08:17.760 --> 0:08:20.600 that have come down from twelve percent, but they're hovering, 0:08:20.680 --> 0:08:23.000 let's say around nine or ten percent, which is still 0:08:23.080 --> 0:08:27.400 quite attractive in a world where rates elsewhere are going down. Now, 0:08:27.520 --> 0:08:30.640 back to the solid fundamentals of private credit. First of all, 0:08:30.720 --> 0:08:33.840 default rates are holding steady and they're quite low. They're 0:08:33.840 --> 0:08:36.439 also bifurcated. You know, if you're in the cyclical industry 0:08:36.679 --> 0:08:39.280 like autos, yes you're going to see a higher default rate. 0:08:39.400 --> 0:08:40.040 If you are a. 0:08:40.280 --> 0:08:43.839 Non sponsor backed credit, you might see a higher default rate. 0:08:43.960 --> 0:08:46.840 But if you look at the sponsor backed especially secular 0:08:47.040 --> 0:08:49.880 growth credits, we're looking at a fall rate of one 0:08:50.000 --> 0:08:52.360 one and a half percent, which is quite low and 0:08:52.440 --> 0:08:55.160 quite normal. So and even in software pally, I would 0:08:55.200 --> 0:08:57.240 say for private credit, we're still seeing a default rate 0:08:57.320 --> 0:09:00.160 that's half what it is for the index. So a 0:09:00.240 --> 0:09:02.760 lot of the noise that's out there is noise, and 0:09:03.240 --> 0:09:06.000 I think investors would be well served to take some 0:09:06.240 --> 0:09:07.120 risk in private credit. 0:09:07.840 --> 0:09:08.880 Yeah, you mentioned software. 0:09:08.920 --> 0:09:12.040 We've seen such a rotation out of software stocks as 0:09:12.080 --> 0:09:15.240 part of that AI concern. Rippling through the market is 0:09:15.320 --> 0:09:17.760 a time. I mean a lot of these names, you're like, well, 0:09:17.840 --> 0:09:20.280 I always wanted to buy them, but they were too expensive. Yeah, 0:09:20.400 --> 0:09:23.280 it's now time to I hate the falling knife scenario, 0:09:23.360 --> 0:09:26.080 but it seems like some of these names are pretty attractive. 0:09:26.400 --> 0:09:29.040 I think some of them are, but that's the key word. 0:09:29.120 --> 0:09:31.839 There is some you know, I wouldn't necessarily step in 0:09:31.920 --> 0:09:34.319 and buy the full index or the full ETF because 0:09:34.559 --> 0:09:38.040 some parts of the software universe have sold off rightfully. 0:09:38.120 --> 0:09:40.240 So you know, first of all, if you looked at 0:09:40.559 --> 0:09:44.800 the valuation before the valuation was based on annual recurring 0:09:44.840 --> 0:09:47.520 revenue growth, that would assume to be x. But now 0:09:47.640 --> 0:09:49.800 that ARR growth has come down for a lot of 0:09:49.880 --> 0:09:51.880 those names, and maybe it's not ever going to get 0:09:51.920 --> 0:09:55.360 back to those twenty twenty one levels because of agentic AI. 0:09:55.640 --> 0:09:57.360 So are you going to pay the same multiple or 0:09:57.480 --> 0:09:59.920 is the low multiple attractive if you have lower revenues? 0:10:00.320 --> 0:10:00.719 Maybe not. 0:10:01.040 --> 0:10:03.719 I wouldn't step in there, but some incumbents are worth 0:10:03.760 --> 0:10:04.160 looking at it. 0:10:04.200 --> 0:10:06.760 My essay a couple of years ago, Lawrence McDonald was 0:10:06.840 --> 0:10:10.920 just brilliant on the absolute wall of money that has 0:10:11.000 --> 0:10:13.439 to find a place to go in investment. 0:10:13.960 --> 0:10:14.640 It's still there. 0:10:14.800 --> 0:10:19.000 Isn't after the amoroso bull market of the last five years. 0:10:19.920 --> 0:10:22.680 I mean like it's tech season now, I mean every 0:10:24.000 --> 0:10:26.599 pick the calendar date. You know better than me, Anastasia. 0:10:27.040 --> 0:10:29.720 There's just still this just wall of money that's got 0:10:29.840 --> 0:10:30.679 to find a place to go. 0:10:30.880 --> 0:10:31.000 Right. 0:10:31.080 --> 0:10:33.040 There is there is, and it's really coming from a 0:10:33.080 --> 0:10:35.280 lot of different places. You know, if you think about 0:10:35.400 --> 0:10:37.840 kind of the consumer side of it. This year in particular, 0:10:37.920 --> 0:10:40.600 we're looking for higher refunds. Some of it will twenty 0:10:40.640 --> 0:10:42.880 four percent year of year. Some of them will find 0:10:42.880 --> 0:10:44.840 its way into consumption, but some of it will find 0:10:44.880 --> 0:10:48.920 itself an investing If I think about the institutional capital worldwide, 0:10:49.000 --> 0:10:51.000 you have some some of the sovereign wealth funds that 0:10:51.080 --> 0:10:55.560 are benefiting or example, from continued sales of natural resources, 0:10:55.640 --> 0:10:58.360 and so you have that steady stream of revenue that's 0:10:58.360 --> 0:11:00.439 finding its way into the market. And then you know, 0:11:00.480 --> 0:11:03.120 if you think about corporates, and we talked about margins, 0:11:03.160 --> 0:11:07.360 we talked about the cash accumulations, that too is adding 0:11:07.440 --> 0:11:09.480 to it. So you know, maybe Tom kind of the 0:11:09.559 --> 0:11:12.679 extension to your question, well, is there too much money 0:11:12.720 --> 0:11:15.520 and especially in private markets, you know, chasing some of 0:11:15.600 --> 0:11:18.880 these deals, And yes, there's an increasing amount of capital, 0:11:19.000 --> 0:11:21.240 but I would say there's an increasing amount of opportunity 0:11:21.400 --> 0:11:21.760 as well. 0:11:22.000 --> 0:11:23.959 Alexis and Paul and I we have no life, so 0:11:24.040 --> 0:11:26.760 I've got to ask. One of the most famous restaurants 0:11:26.840 --> 0:11:29.840 in the world, folks is where Partners Group. 0:11:29.920 --> 0:11:33.400 It's like the lunch room for Partners Group in Switzerland. 0:11:33.960 --> 0:11:36.599 Is Zoom Yeah, it's the I'm going to butcher the 0:11:36.640 --> 0:11:40.840 pronunciation guesthouse wrath scaler. Did you go to the seventeenth 0:11:40.960 --> 0:11:45.760 century guest house rest scalar? I think an overpriced Swiss lunch. 0:11:46.440 --> 0:11:46.959 I did not. 0:11:47.480 --> 0:11:50.280 I had a wonderful Swiss dinner at a restaurant the 0:11:50.520 --> 0:11:53.000 name I cannot remember. But no that I will put 0:11:53.040 --> 0:11:53.520 that on my list. 0:11:53.600 --> 0:11:59.040 Hold, they have Swiss prim Rin's enter coat, brom butter, Belpernol. 0:12:01.559 --> 0:12:04.439 No idea for like seventy dollars. Put me down. I 0:12:04.520 --> 0:12:06.400 think that's like Selberry's state. 0:12:06.240 --> 0:12:08.720 AT's sake, it sounds great. 0:12:09.200 --> 0:12:11.280 What is it like working for the Swiss? I mean, 0:12:11.600 --> 0:12:14.480 this is very cool. But you go right to get there? 0:12:14.640 --> 0:12:17.200 Yes, to go to Zurich. Zuog is about a thirty 0:12:17.240 --> 0:12:20.040 four minute drive from there on the east coast of 0:12:20.160 --> 0:12:25.160 the lake. There are a lot of lakes. There are 0:12:25.160 --> 0:12:26.959 a lot of lakes and a lot of mountains. But no, 0:12:27.080 --> 0:12:30.880 it's a partners group. Has been an exceptional place to 0:12:31.000 --> 0:12:33.240 be at and it's we've got a thirty year history, 0:12:33.280 --> 0:12:35.600 actually a thirty year anniversary for us as this. 0:12:35.720 --> 0:12:38.800 Year shops run out of you know, between Boulder and Denver. Right, 0:12:39.920 --> 0:12:41.679 So you go she goes to zug and as the 0:12:41.720 --> 0:12:43.680 barley soup and then she goes out there and his ELK. 0:12:44.240 --> 0:12:46.360 Yeah, that's right. And we do also have a presence 0:12:46.400 --> 0:12:48.640 in New York. But you know there's a lot of 0:12:48.720 --> 0:12:50.920 investment processes that have been in place for a long time, 0:12:51.000 --> 0:12:53.560 and you know that that does come with Swiss discipline. 0:12:53.559 --> 0:12:56.480 I think the thing that strikes me is the the 0:12:56.760 --> 0:12:59.560 global perspective that we're able to bring to our clients 0:13:00.600 --> 0:13:03.680 in the integration that we have within our team. 0:13:03.720 --> 0:13:05.520 So what your research onw is telling me is your 0:13:05.559 --> 0:13:06.120 long Europe. 0:13:07.640 --> 0:13:11.120 Yes, we are thirty forty percent has been an allocation 0:13:11.280 --> 0:13:13.439 to Europe and we're up towards the higher range of 0:13:13.520 --> 0:13:15.920 that right now, Straight company Swiss. 0:13:16.040 --> 0:13:18.400 Oh yeah absolutely, But Paul, I mean I think you know, 0:13:18.520 --> 0:13:21.120 we can do a remote from Scenic zoog Yep from 0:13:21.160 --> 0:13:23.000 the guesthouse Reth Skelet. 0:13:23.080 --> 0:13:25.800 It's like Wicked famous restaurant, and we'll let's. 0:13:25.640 --> 0:13:28.360 Make it happen. We'll make it happen. 0:13:28.480 --> 0:13:33.440 Anastajamarosa Partners Groups in Switzerland and Broomfield, Colorado. 0:13:33.000 --> 0:13:34.400 Thank you so much for joining us. 0:13:36.280 --> 0:13:40.360 Stay with us. More from Bloomberg Surveillance coming up after this. 0:13:47.720 --> 0:13:51.280 You're listening to the Bloomberg Surveillance Podcast. Catch US Live 0:13:51.360 --> 0:13:54.480 weekday afternoons from seven to ten am Eastern Listen on 0:13:54.600 --> 0:13:58.240 Applecarplay and Android Atto with the Bloomberg Business app, or 0:13:58.440 --> 0:13:59.880 watch US Live on YouTube. 0:14:00.400 --> 0:14:02.319 So Alexis mentioned the math, I want to go over it, 0:14:02.360 --> 0:14:03.760 and Lindsay's going to tell me what to do. 0:14:03.800 --> 0:14:04.679 You're Lindsay, Pigs. 0:14:05.280 --> 0:14:10.160 This was Stifel nominal GDP last time around, ending September 0:14:10.280 --> 0:14:14.520 thirty was a China like eight point three percent, Paul. 0:14:14.600 --> 0:14:17.719 If you add in the one percent government shutdown, we 0:14:17.880 --> 0:14:21.440 go from five point one percent published nominal to six 0:14:21.560 --> 0:14:24.880 point one Ish. I'm going to say, there is Well 0:14:25.240 --> 0:14:28.640 joining us, the Queen of Ish in economics, Lindsay Pigs 0:14:29.280 --> 0:14:31.600 joining us. What do you do with these numbers? Lindsay, 0:14:31.680 --> 0:14:35.400 how do you format the view forward? Given the plethora 0:14:35.560 --> 0:14:37.600 of data in the last ten minutes. 0:14:38.120 --> 0:14:40.480 Well, I think when we dig through some of the details, 0:14:40.520 --> 0:14:43.080 we're going to see that it's pretty messy, particularly given 0:14:43.120 --> 0:14:45.600 that the economy was shut down for almost half of 0:14:45.680 --> 0:14:48.280 that three month period. Now, the President says it shaved 0:14:48.320 --> 0:14:51.320 off about two points. The BA says it shaved off 0:14:51.320 --> 0:14:54.680 about one percent. So we know that there was a 0:14:54.800 --> 0:14:58.400 significant damping down effect, regardless of whether it's one or 0:14:58.440 --> 0:15:01.560 two percentage points. So parsing through some of the details, 0:15:01.640 --> 0:15:04.080 I think the more important figure to focus on right 0:15:04.160 --> 0:15:07.160 now to really gauge the underlying momentum of the economy 0:15:07.640 --> 0:15:10.880 is let's strip out inventories, let's strip out trade. Let's 0:15:10.880 --> 0:15:14.560 look at real final sales to domestic purchasers, which rose 0:15:14.600 --> 0:15:17.640 at two point four percent, more in line with what 0:15:17.800 --> 0:15:20.760 we saw in the third quarter at two point nine percent. 0:15:21.000 --> 0:15:23.760 Well, that's like, that's brilliant and I really really buy 0:15:23.840 --> 0:15:27.520 this angle from years ago at Fidelity with Betina Dalton. 0:15:27.560 --> 0:15:30.560 And the bottom line, Paul is that's a pretty good 0:15:30.720 --> 0:15:32.080 number number. 0:15:32.760 --> 0:15:34.640 I think it's a pretty good number. And how about 0:15:34.640 --> 0:15:36.880 the inflation outlook there, lindsay, if you're given that the 0:15:37.800 --> 0:15:40.760 economy is growing at a solid rate, what's the inflation 0:15:40.920 --> 0:15:41.840 story on top of that. 0:15:42.880 --> 0:15:46.000 Well, as you know, I have been long concerned about 0:15:46.080 --> 0:15:48.640 inflation and the Fed's lack of focus on inflation. So 0:15:48.720 --> 0:15:50.680 we see this pick up to two point nine percent, 0:15:51.360 --> 0:15:53.800 and that is in the wrong direction. We don't see 0:15:53.840 --> 0:15:57.440 this ongoing improvement of disinflation that the FED remains very 0:15:57.480 --> 0:16:00.680 optimistic that we're going to achieve eating back to two 0:16:00.760 --> 0:16:04.520 percent as the forecast by twenty twenty eight. Now, any improvement, 0:16:04.560 --> 0:16:07.480 of course, is welcome, but I do expect inflation to 0:16:07.600 --> 0:16:10.960 remain elevated nearer that three percent pace for some time, 0:16:11.440 --> 0:16:13.520 which will keep pressure on the bed to remain on 0:16:13.600 --> 0:16:14.200 the sideline. 0:16:14.280 --> 0:16:16.880 She so under sells it. I mean she was my 0:16:17.040 --> 0:16:19.160 Economist of the year one year or two years, three 0:16:19.200 --> 0:16:22.400 years ago, I can't remember. Lindsay with Jim Bianco was 0:16:22.640 --> 0:16:26.200 out front with Mohamma and Larian. You know what, folks, 0:16:26.440 --> 0:16:28.119 Inflation is going to be resilient. 0:16:28.520 --> 0:16:29.280 She nailed it. 0:16:30.000 --> 0:16:32.280 So, Lindsay, talk to us about kind of how you 0:16:32.320 --> 0:16:35.320 think the Fed is digesting the numbers we had today, 0:16:35.520 --> 0:16:37.680 some of the labor data we had last week, the 0:16:37.920 --> 0:16:39.760 CPI data we had last week. 0:16:39.960 --> 0:16:41.400 How are they putting it all together? Do you think? 0:16:42.120 --> 0:16:42.280 Well? 0:16:42.280 --> 0:16:44.000 I think right now the Fed is looking at this 0:16:44.320 --> 0:16:48.120 moderate trend line in activity as a justification for their 0:16:48.240 --> 0:16:51.320 earlier decision to cut rates. Remember, over the past two years, 0:16:51.320 --> 0:16:53.760 we're now one hundred and seventy five basis points closer 0:16:54.360 --> 0:16:59.000 or arguably at now that neutral level. But the reacceleration 0:16:59.320 --> 0:17:02.400 in payroll in the latest report. The pickup as we 0:17:02.440 --> 0:17:06.159 saw this morning in inflation is going to really solidify 0:17:06.280 --> 0:17:08.920 now their position on the sidelines. As we saw in 0:17:09.000 --> 0:17:12.520 the minutes yesterday, there were some members that we're considering 0:17:12.600 --> 0:17:15.720 that we're willing to consider a rate hike scenario. I 0:17:15.800 --> 0:17:18.240 don't think we're there quite yet. This is a FED 0:17:18.720 --> 0:17:22.240 that has been willing to tolerate above target inflation for years, 0:17:22.640 --> 0:17:25.639 So simply maintaining this three ish percent isn't going to 0:17:25.720 --> 0:17:28.720 move the needle. But they are sending the signal to 0:17:28.800 --> 0:17:32.040 the marketplace that they're focused on inflation and that should 0:17:32.080 --> 0:17:34.960 help rein in market excuse me, inflation expectations. 0:17:35.119 --> 0:17:37.320 We have a PhD in economics. You can say ish 0:17:37.520 --> 0:17:40.840 yep with quality Lindsay, I mean, I mean. The bottom 0:17:40.920 --> 0:17:44.159 line here is it's a K shaped economy. We're going 0:17:44.240 --> 0:17:46.600 to get all sorts of mail. You guys are nuts. 0:17:46.680 --> 0:17:49.920 You have no idea to struggle out here after fourteen 0:17:50.000 --> 0:17:51.120 minutes of analysis. 0:17:51.480 --> 0:17:54.119 How K shaped is our K shaped America? 0:17:55.000 --> 0:17:57.520 Well, I would argue it's not necessarily a K shaped, 0:17:57.600 --> 0:17:59.400 but more of an E shaped recovery. 0:17:59.560 --> 0:18:00.920 It's going to be uneven. 0:18:01.119 --> 0:18:04.879 Certainly, there is this dichotomy across classes, particularly as we 0:18:05.000 --> 0:18:09.200 see household net worth significantly increase for those at the 0:18:09.280 --> 0:18:12.879 upper end of the income spectrum as a result of 0:18:12.960 --> 0:18:15.440 a run up in asset prices via the housing market 0:18:15.520 --> 0:18:18.600 the equity market, a benefit which the middle class and 0:18:18.680 --> 0:18:22.040 the lower end of the income spectrum has not benefited from. 0:18:22.520 --> 0:18:25.480 But we do see other stimulants coming out into the economy, 0:18:25.560 --> 0:18:28.840 the One Big Beautiful Bill Act averting a reset to 0:18:28.960 --> 0:18:32.280 a higher tax rate. This won't necessarily provide a windfall 0:18:32.359 --> 0:18:35.520 to spending, but it will help to maintain the current 0:18:35.640 --> 0:18:38.879 levels of expenditures across those different rungs in the E 0:18:39.000 --> 0:18:43.159 shaped recovery so on. Even yes, but not necessarily a 0:18:43.320 --> 0:18:47.320 K shaped where some are particularly perpetually i should say, 0:18:47.359 --> 0:18:50.440 doing better and others are losing momentum. 0:18:50.800 --> 0:18:53.560 How much of an impact are you expecting, lindsay from 0:18:54.119 --> 0:18:56.560 some of the President's legislation, the One Big Beautiful Bill, 0:18:56.640 --> 0:18:59.800 I mean, are you factoring that into your GDP forecast, 0:19:00.040 --> 0:19:03.040 your consumer spending forecast? How is that impacting things? 0:19:03.560 --> 0:19:06.360 Well, we're looking at the overall impact on the economy 0:19:06.440 --> 0:19:09.840 for twenty twenty six to be upwards of several tenths 0:19:09.880 --> 0:19:12.080 of a percentage point. Now, that doesn't seem like a lot. 0:19:12.200 --> 0:19:14.639 But again, as we're looking at an economy at a 0:19:14.720 --> 0:19:17.680 growth rate at two point two percent last year, any 0:19:17.760 --> 0:19:21.760 additional boost to consumers or businesses it is a welcome 0:19:21.840 --> 0:19:24.880 step in the right direction. But right now, I think 0:19:24.920 --> 0:19:26.879