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Speaker 2: Right now, we're gonna look at like the pro view
Speaker 2: of this odd bullmarket. I love what Stuart Kaiser and
Speaker 2: City Group says here is this is very you know, folks,
Speaker 2: This is like you know, geek talk, remain long US
Speaker 2: equity beta with tactical IWM upside and consider Vic's roll
Speaker 2: down trades.
Speaker 3: I translate a wise one.
Speaker 4: Well as much as I like to referred to as
Speaker 4: a geek. Good morning everybody. Look, I think the.
Speaker 5: Story here, if I were to summarize that is, we
Speaker 5: still like being long US equities.
Speaker 4: There's a lot of risk premium still in the VIX
Speaker 4: curve right now.
Speaker 5: I implied volatility is probably too high relative to how well
Speaker 5: the equity markets are raviot.
Speaker 3: It's out there.
Speaker 5: Exactly, and as that sort of compresses, it just gives
Speaker 5: another boost.
Speaker 4: To the upside. So as much as people are.
Speaker 5: Worried about valuation and positioning, there's still actually a fair
Speaker 5: amount of fear price in your market that needs to
Speaker 5: come out.
Speaker 3: Shout out to zero head. You makes a big deedle
Speaker 3: about this.
Speaker 2: When you hear the phrase short covering, translate that on
Speaker 2: the City group desk, it looks like the TV show
Speaker 2: industry translate what short covering means?
Speaker 5: Well, I think right now you have to think of
Speaker 5: what is what stocks are short and those have typically
Speaker 5: been like the lower quality stocks that people didn't want
Speaker 5: to kind of touch. So when you get short covering,
Speaker 5: what that's doing is it's putting pressure on the stocks
Speaker 5: that hedge funds sort of don't like, and that can
Speaker 5: be you know, really really painful for them at least
Speaker 5: short term in terms of their P and L. So
Speaker 5: what you're kind of doing is seeing a rotation into
Speaker 5: the stocks that hedge funds don't own, and again that
Speaker 5: could be un fund for them at least over a
Speaker 5: short term period.
Speaker 6: Is the market still overly concentrated in some of the
Speaker 6: X number of big tech names. Is that still a
Speaker 6: thing for this market?
Speaker 5: I think it definitely is. You know, I was in
Speaker 5: Europe a few weeks back, and I was surprised at
Speaker 5: how underweight the AI trade and underweight US.
Speaker 4: Tech they felt.
Speaker 5: So I think the international investor, particularly early this year,
Speaker 5: was trying to do the US exceptionalism as dead trade yep.
Speaker 5: And then you got you know, better news on tariffs
Speaker 5: and good news out of one Q earnings, and it
Speaker 5: just kind of forced them back into the market.
Speaker 3: See.
Speaker 5: I mean, I think there is a fair amount of
Speaker 5: call it concentration risk top ten s and p stocks
Speaker 5: or more of a third of market cap that's not
Speaker 5: going away, So it is. It is a kind of
Speaker 5: a key aspect driving returns right.
Speaker 6: Now, Espaishly, I don't see anything that's going to change that.
Speaker 6: I don't see anybody going out there and saying I
Speaker 6: want to go out.
Speaker 4: And buy value.
Speaker 6: What has to happen for that to broaden out, if
Speaker 6: you will, Yeah, I think.
Speaker 5: The broadening at this point has to come from economic
Speaker 5: growth and earnings. So if during earning season you are
Speaker 5: seeing a broadening out of that Ernie's growth, that can
Speaker 5: get people maybe a little bit downcap structured into that
Speaker 5: value trade. But to your point, I mean, the AI
Speaker 5: trade is just so powerful, even Google overnight yep. A
Speaker 5: lot of moving parts there, but a key of it
Speaker 5: is they increase their cap X by another ten billion dollars,
Speaker 5: and to the extent that that is still happening, it
Speaker 5: makes it hard for people not to be in that space.
Speaker 5: So I think that's kind of like we mentioned, being
Speaker 5: long quality, like that mag seven trade is still the
Speaker 5: core position for the most portfolios.
Speaker 4: And then why we.
Speaker 5: Like small cap is just you know, making sure we're
Speaker 5: not ignoring, you know, the rest of the market during
Speaker 5: earning season.
Speaker 4: So the quick answer would be, we need to see
Speaker 4: broader earnings.
Speaker 5: Growth and recession risks continue to get squeezed out of
Speaker 5: the market for that smaller cap, lower quality stock to work.
Speaker 2: There's a headline out there is sort of in the
Speaker 2: zeitgeist that I don't have the authority or data that
Speaker 2: the quants are really having a.
Speaker 3: Tough goal of it. What is a quant and why
Speaker 3: are they having a tough goal of it?
Speaker 5: Well, I mean on the QUANDT side, you know, these
Speaker 5: are folks that you know are really investing very systematically
Speaker 5: in box. Some I mean they wouldn't tell you they
Speaker 5: understand the box, you know from a distance. Why are they,
Speaker 5: you know, having some trouble? I would say that the
Speaker 5: S and P five hundred realized volatility is below ten
Speaker 5: percent right now, So the S ANDP is not moving
Speaker 5: very much. The factors that a quant my trade style stocks,
Speaker 5: value stocks, growth stocks, those have been incredibly volatile, much
Speaker 5: more violatile than the S and P five hundred itself.
Speaker 5: So if quants are under pressure, it's because the market
Speaker 5: isn't moving very much, but the tools they use are
Speaker 5: and that sort of dislocation can be really tricky for them.
Speaker 6: I'll just speak for myself, I'm very surprised, given all
Speaker 6: that's going on out there in the world, that the
Speaker 6: VIX is a fifteen Is that?
Speaker 4: What does that tell you?
Speaker 6: That there's just people are just owning a certain number
Speaker 6: of stocks, And I mean, I'm'm mat sure what that's
Speaker 6: telling me.
Speaker 4: Well, what part of it is the VIX itself.
Speaker 5: The number one fundamental determinant of the level of the
Speaker 5: VIX is S and P realized volatility. Okay, so if
Speaker 5: you were to take let's say ten or twenty day
Speaker 5: realize volatility on the SMP, you'd add about four and
Speaker 5: a half points to that. That's going to give you
Speaker 5: a quick and dirty on the VIX. The notable issue
Speaker 5: with the VIX, now to your point, the spot VIX
Speaker 5: is very low.
Speaker 4: But the VIX has a term structure, so you can
Speaker 4: trade the outlook for volatility for the next six to.
Speaker 2: Nine months, betting that that outlook will come to a
Speaker 2: lower VIX a greater optimism.
Speaker 5: Yes, we do believe that that additional volatility priced into
Speaker 5: the three to six months ahead outlook needs to come
Speaker 5: in as tariff news improves and the economic data.
Speaker 3: You can find out question lovelods.
Speaker 2: People just email me and said, it's get impatient, Stuart Kaiser,
Speaker 2: as simple as I can, how do you measure the
Speaker 2: exuberance or effervescence in the market now?
Speaker 3: Is it leverage? I mean, what's the oomph right now?
Speaker 4: I think what people are focusing on is number one, valuation.
Speaker 4: We've seen significant pe expansion for the S and P.
Speaker 5: I think you all touched on it earlier. Retail participation.
Speaker 5: These retail meme stocks are really starting to move a
Speaker 5: lot again and that's like a bull market trade, so
Speaker 5: we'll pay attention to that as well. But I think
Speaker 5: number one thing is evaluation, B.
Speaker 4: Level of the VIX. Three retail participation.
Speaker 2: Stuart Kaiser thinking so much greatly appreciated.
Speaker 1: You're listening to the Bloomberg surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Joining us right now, Brian Belski. We're talking to people
Speaker 2: that you know got it wrong. I learned from people
Speaker 2: that got it wrong. And I also got to talk
Speaker 2: to a wise guy who is a research note. Same
Speaker 2: as it ever was. Belski from Bemo Capital Markets joins us.
Speaker 2: And you hate him, folks, because he's got a long
Speaker 2: paragraph that Rockenhove.
Speaker 3: Brian can't write that long. Roucan over writes it.
Speaker 2: Then he's got two smaller paragraphs, and then he's got
Speaker 2: like you know, bookcase, Bearcase, and it takes you.
Speaker 3: An hour and a half to read it.
Speaker 2: It's so rich with data, facts over feelings.
Speaker 7: Again discuss by the way, it was Burlington Northern as
Speaker 7: I was making it, as I grew up in Wilmer, Minnesota,
Speaker 7: which was a train.
Speaker 3: And believe that you always want the rear roads.
Speaker 2: Of course, why would short lined and ready to get
Speaker 2: exactly facts?
Speaker 4: Here's the facts.
Speaker 7: You know, Nick Rockanov and I have worked together now
Speaker 7: for eighteen years and given what was going on in
Speaker 7: the market. Tom He's like, we have this saying in
Speaker 7: our in our group, we need an Uncle Brian comment.
Speaker 7: And the Uncle Brian comment was Brian write a one pager.
Speaker 7: So I took out the took out the template, wrote
Speaker 7: that old pager. And the reason why I did that is,
Speaker 7: you know, we have a process and a discipline that
Speaker 7: we've had for managing money now for over twenty years
Speaker 7: and doing this strategy gig for now. It's my thirty
Speaker 7: sixth year and we've been blessed and fortunate to work
Speaker 7: at a bunch of amazing firms and we were really
Speaker 7: blessed to run eleven billion dollars at BEMO now for
Speaker 7: thirteen years. And what we said in April when we
Speaker 7: moved our target from sixty seven hundred and sixty one hundred,
Speaker 7: we said.
Speaker 4: Discretion is the better part of valor.
Speaker 7: We can't have a target that's out there thirty five
Speaker 7: percent willy nilly Pollyanna based on exogenous events that made
Speaker 7: us worried about at sixty one hundred. Now, those events
Speaker 7: we believe in terms of the signposts that we look
Speaker 7: for changed, so we went back to our original original
Speaker 7: target of sixty seven hundred.
Speaker 4: We think the bull market is very much alive.
Speaker 7: We also caution investors in the note in June saying
Speaker 7: market targets are an academic situation. It has nothing to
Speaker 7: do with running money. If you are basing your strategies
Speaker 7: on a strategist market target, get out of the business.
Speaker 7: You should be running money in terms of your process
Speaker 7: and discipline. And what we said in April is said
Speaker 7: we're not changing anything. We're not changing anything in terms
Speaker 7: of our sectors in the stocks we own. That resulted,
Speaker 7: and I'm very humble to say that that resultant in
Speaker 7: the best quarterly performance I've ever had running money. Now,
Speaker 7: you don't judge by just a quarter, you judge by
Speaker 7: longer term. So we look at the last twelve months
Speaker 7: of our the returns on our portfolios out ten of
Speaker 7: our benchmarks, we crushed them. And the reason is is
Speaker 7: that we stuck with these great stocks. If we like
Speaker 7: them at ten, we like them even more at eight
Speaker 7: and that actually paid off again. So we think the
Speaker 7: bull market is very much alive. Doesn't mean that we're
Speaker 7: not going to have days and weeks like looks like
Speaker 7: we're going to be little squad she here, let's call it,
Speaker 7: but that's all about investing financials.
Speaker 6: That's one of the groups that people have been talking
Speaker 6: about it for a while. How do you guys think
Speaker 6: about financials. We have some really good numbers out of
Speaker 6: the big banks.
Speaker 7: Really good numbers, and we've been very resolute in terms
Speaker 7: of our thinking and feeling on financials. We think it's
Speaker 7: the really big and they're really small. At the end
Speaker 7: of the day, no matter how much financial services tends
Speaker 7: to screw up this business as alation, it's a relationship
Speaker 7: business and that's where the small banks with beautiful balance
Speaker 7: sheets and great cash flow and great relationships with their
Speaker 7: customers are going to win. Paul, But I think where
Speaker 7: people missed it is that they were too to fixate
Speaker 7: on the negativity surrounding the big banks. I think the
Speaker 7: big banks can We'll continue to benefit from these multi
Speaker 7: lines of business. We've said this for three or four
Speaker 7: years now. So whether or not it's Morgan, Stanley, Goldman, Sachs,
Speaker 7: Bank of America, former Employer City Group, JP Morgan, you're
Speaker 7: gonna have quarters that training is gonna do well, and
Speaker 7: you have quarters that wealth management doing well.
Speaker 2: Riyan Milski with US I was thunderstruck Brian by Google's
Speaker 2: number just today.
Speaker 3: The double digit nature of it, the across the board confidence.
Speaker 2: Talk to people that just say, if it's too good
Speaker 2: to be true, it's going to end. The tech thing,
Speaker 2: the Mag ten, the Mag forty, the sixty stocks in
Speaker 2: the Belski universe, someday it's going to end. How do
Speaker 2: you handle that emotion?
Speaker 7: Well, because it is emotion. It's not based on the facts.
Speaker 7: You want to buy these companies that are masterful in
Speaker 7: their craft, that have amazing management teams, that have great
Speaker 7: cash flow, and have I would say binary decisions made
Speaker 7: about them that everybody agrees on, I e. We're never
Speaker 7: going to use search again, which is which is ridiculous.
Speaker 7: And oh, by the way, searches up in the quarter.
Speaker 4: We actually double.
Speaker 7: Down on Google and we added it to our value
Speaker 7: portfolio because we love to buy broken growth. Oh yeah,
Speaker 7: but when the stock was down in April, we put
Speaker 7: it in our value portfolio.
Speaker 4: Why because it's a broken growth?
Speaker 3: Is Apple a broken growth story?
Speaker 5: No?
Speaker 7: I think Apple is a cash machine. You never want
Speaker 7: to ever bet against the US consumer. And let's put
Speaker 7: a semi colon space and you never want that against Apple.
Speaker 2: Well, One of the best things to come to the
Speaker 2: crew David Tamborelli invented over at Bloomberg is a quick
Speaker 2: use of cash at a giving company. I reviewed the
Speaker 2: cash generation YEP of Apple yesterday.
Speaker 3: I've said this before.
Speaker 2: Folks, to me, it's like a nineteenth or even eighteenth
Speaker 2: century Hong Kong trading company.
Speaker 3: Yep. They just meant profit and they don't want to
Speaker 3: talk about it.
Speaker 6: So, Brian, how do we think about broad One of
Speaker 6: the themes today we discussed with several of our guests is
Speaker 6: just that concentration risk that's still in the broader market
Speaker 6: here and so just kind of coming to mind because
Speaker 6: we had such good numbers out of Google here.
Speaker 4: How do you guys think about that?
Speaker 8: Is it risk?
Speaker 4: Is it just the new.
Speaker 3: World we're in.
Speaker 7: It's partially in the new world in but it's it's
Speaker 7: going back to the talking head theme that we said,
Speaker 7: same as that ever was if you go back to
Speaker 7: nineteen ninety five ninety six, it was a concentrated market
Speaker 7: in terms of the nifty fifty, and those nifty fifty
Speaker 7: stocks where the big liquidity stocks like Procter and Gambill, Gillette,
Speaker 7: Coca Cola, Pepsi. People bought those stocks because of liquidity.
Speaker 7: They're worried about coming out of the commercial banking crisis
Speaker 7: that you were worried about at Rauscher, and I was
Speaker 7: worried about it, Dane back in ninety fourth. Anyway, I
Speaker 7: do believe that this notion of broadening out was proved
Speaker 7: by decent performance in Europe and emerging markets, and I
Speaker 7: think that's going to follow through with finally with value
Speaker 7: in small gap again. I think ten years from now
Speaker 7: we're going to be kicking ourselves if we didn't known
Speaker 7: more small cap.
Speaker 3: When will you know to go long healthcare?
Speaker 7: Oh, it's a great way, is a great question.
Speaker 2: That's the Belski Recanova mechanism to say, finally get on healthcare.
Speaker 4: We're underweight.
Speaker 7: We've been underweighted all year, and then when people started
Speaker 7: buying in being the year to be defensive. From a
Speaker 7: fundamental perspective, we saw problems with the pipelines, we saw
Speaker 7: problems with the cash flow, we saw problems with the
Speaker 7: rhetoric in terms of the vaccines, and so we've been
Speaker 7: focused more on Gilead, the biotechs, even Unite Healthcare.
Speaker 4: We bought more Unite.
Speaker 7: Healthcare because I think people made too much negative rhetoric
Speaker 7: on that as well. So Tom, I think once we
Speaker 7: see a broader direction and a more more signs of
Speaker 7: broadening out, healthcare and financials are the cheapest sector. Financials
Speaker 7: have the fundamentals. Healthcare right now could be a value trap.
Speaker 7: We need to see more earnings come in through and
Speaker 7: then we'll feel better about that.
Speaker 2: You need to see quarterly sequential earnings that you're looking
Speaker 2: at free cash flow.
Speaker 3: We're in the income statement. You're looking in healthcare to say.
Speaker 7: Let's go religan at earnings first, and then we're seeing
Speaker 7: on the earnings revision side. I want to see earnings
Speaker 7: revisions again being contrariant. I want to see earnings revisions
Speaker 7: completely blow out and be negative. Then I'll feel better
Speaker 7: about healthcare.
Speaker 3: Brian Goski, thank you so much for joining the BMO
Speaker 3: Capital Marcus too sure to visit.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Coarclay, and Android
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Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: Someone that does critical research at JP Morgan, working with
Speaker 2: Bruce Keas and Michael Feroli, is out of the Booth School, Chicago,
Speaker 2: driving all their academic work here in New York City.
Speaker 2: We're thrilled that he could join.
Speaker 3: Us this morning.
Speaker 2: Michael, I got to go back X number of years
Speaker 2: where you stopped American economics.
Speaker 3: With the potential GDP estimate of our economy. Given the turmoil,
Speaker 3: can JP Morgan calculate what our potential GDP is now
Speaker 3: or with all the trade upset? And that is it
Speaker 3: impossible to calculate?
Speaker 8: I would say impossible.
Speaker 9: I mean it's always going to be an estimate of
Speaker 9: a latent variable, so you're never going to know for sure.
Speaker 9: But right now, certainly it seems like you know, as
Speaker 9: you know, Tom, economists like to divide their estimate of
Speaker 9: separate theirs and to trend growth and the trend labor
Speaker 9: supply and trend labor productivity. Labor supply is certainly downshifting
Speaker 9: pretty notably here over the past year, just given trends
Speaker 9: in immigration policy in the foreign born labor force.
Speaker 8: Probably more in question is.
Speaker 9: Productivity growth, which has shown a little bit of life
Speaker 9: after being pretty moribun than the last expansion. You know, however,
Speaker 9: I think maybe the case for a productivity renaissance is
Speaker 9: perhaps a bit premature. We're seeing productivity growth since the
Speaker 9: end of the last expansion something like one point seven
Speaker 9: versus one point five or six prior to that.
Speaker 2: The productivity miracle that AI promises, do you sense that
Speaker 2: it's distributable across all of America or do the productivity
Speaker 2: gains of AI just go to the fancy people that
Speaker 2: has that have a fancy computer at home, like Lisa Mateo.
Speaker 3: Yeah.
Speaker 8: So, first of all, one thing I would say is,
Speaker 8: so far.
Speaker 9: We don't think we've really seen the productivity gains in
Speaker 9: the aggregate data right when we look across industries that
Speaker 9: you don't really see much of a correlation between industry
Speaker 9: productivity performance in this expansion so far and industry AI
Speaker 9: usage intensity. So I think we're really talking about something
Speaker 9: that's more speculative than what we see in the data.
Speaker 9: I think, certainly, when we think speculatively, almost all the
Speaker 9: models economic models of AI would suggest that it's going
Speaker 9: to lead to a lower labor share of income, more
Speaker 9: national income going to capital, and the people who own
Speaker 9: own basically own the data centers and owned the code.
Speaker 6: So, Michael, we had just earlier this morning time when
Speaker 6: I were speaking with someone from the Yale Budget Lab
Speaker 6: kind of highlighting maybe some of the economic impacts of
Speaker 6: a tariff regime, which is going to look a lot
Speaker 6: different than it did before President Trump took office. How
Speaker 6: do you guys factor that into your GDP forecast, your
Speaker 6: inflation forecasts.
Speaker 9: Yeah, so the you know, in the near term being
Speaker 9: the next like one to four quarters, we're really thinking
Speaker 9: about tariffs for what they are, which is a tax,
Speaker 9: you know, attacks of perhaps around four hundred billion dollars
Speaker 9: that it's going to be distributed somehow between businesses and households,
Speaker 9: and to the extent is to street more to households.
Speaker 9: That's going to show up in higher prices. The higher
Speaker 9: it's going to be an indirect tax via higher prices.
Speaker 9: So we're kind of thinking right now that that four
Speaker 9: hundred billion dollars, you know, most of it probably ends
Speaker 9: up in higher prices rather than the lower margins. I
Speaker 9: guess also for the near term, one thing we and
Speaker 9: others have been watching is whether, you know, uncertainty over
Speaker 9: trade policy is headwind to capital spending.
Speaker 8: And that's been more of a again.
Speaker 9: More of a forecast and anything we're seeing in the data. Perhaps,
Speaker 9: you know, if you want to be an optimist, you
Speaker 9: can make the case here that you know, if we
Speaker 9: get past August one, the uncertainty may head down, and
Speaker 9: that headwind to capex may may may turn lower as well,
Speaker 9: you know, in the in the I guess more medium term, we,
Speaker 9: like almost all neoclassically trained economists, tend to think that
Speaker 9: tariffs will reduce you know, aggurate welfare because you are
Speaker 9: going to be shifting if your may have full employment,
Speaker 9: yes you're going to have manufacturing job grow, but you're
Speaker 9: going to have all other jobs decline and you're going
Speaker 9: to have higher priced manufacturing goods here in the US.
Speaker 9: But that's something probably you have to look out maybe
Speaker 9: at least one or two years to think about.
Speaker 6: Given that background, Michael, how does our does that impact
Speaker 6: the way our Federal Reserve looks at its rate policy?
Speaker 9: Do you think, well, it's it's one of many things
Speaker 9: that they're thinking about there. You know, as Powell and
Speaker 9: others have said, you face a difficult trade off if
Speaker 9: it's lower growth and higher inflation. You know, right now
Speaker 9: we and the market are thinking that it tilts the
Speaker 9: FED toward easier policy. Once we get past the hump
Speaker 9: in tear off pass through, which could be you know,
Speaker 9: in a few months, then I think you can turn
Speaker 9: your attention to growth. But look, I would also say
Speaker 9: that in an environment in which inflation expectations on the
Speaker 9: household side remain high on the market side, you know
Speaker 9: our higher, you can't be two uh you know, itchy finger,
Speaker 9: itchy you know trigger finger here to cut rage?
Speaker 2: Can we show a little I'm in audible here with
Speaker 2: Michael Feroli and JP Morgan, we can do.
Speaker 3: This, folks.
Speaker 5: Sure.
Speaker 3: All weekend people go, my god, Tom, you're so smart.
Speaker 3: Just how do you keep up on economics?
Speaker 2: I know it? Eight oh five on Friday, Farole drops
Speaker 2: the Weekly Prospects of JP Morgan, which is invented by
Speaker 2: Melman and Kasmin years ago, and I read it cover
Speaker 2: to cover, so I'm smarter on the weekend, So everybody thinks,
Speaker 2: time King, it's brilliant. It's Thursday, Michael Faroli, do you
Speaker 2: put Weekly Prospects together today to get it ready for tomorrow.
Speaker 9: We're working on it all week, certainly thinking about the
Speaker 9: forecast for the week ahead.
Speaker 8: That's a week you know, that's.
Speaker 9: A process that starts a long time ago, and then
Speaker 9: you know, as the data come in, we can.
Speaker 8: When perils are on Friday, we have to hold off
Speaker 8: longer than then.
Speaker 2: You have to stay up and put it out at
Speaker 2: nine pm and ruin my Friday. Michael Faroli, your chart
Speaker 2: last week, which was just stunning, folks, is inflation adjusted
Speaker 2: consumer spending and inflation adjusted good spending. What does it symbolize,
Speaker 2: Michael Faroli, that we flatlined December of last year.
Speaker 8: Yeah, so that's a bit of a it's a bit
Speaker 8: of a mystery, right.
Speaker 10: Because most of the metrics of household financial performance look,
Speaker 10: you know, looks still pretty healthy.
Speaker 9: Credit performance looks good. So I think it's a few
Speaker 9: things maybe you're seeing. You have had a down shift,
Speaker 9: as you mentioned in real disposable income, some of that
Speaker 9: just the slowing and overall labor market growth. You did
Speaker 9: see a bit of a drift up also in the
Speaker 9: saving right, so there may be a little bit of
Speaker 9: caution here earlier in the year, perhaps you know, some
Speaker 9: of the policy uncertainties affect in businesses, but households as well.
Speaker 2: Michael, when you're putting this out on Friday night. You
Speaker 2: and Michael Hanson like your work from home. I mean,
Speaker 2: you're so gone. Is Murat Tashi? Is Murat in the
Speaker 2: office like putting this thing out Friday night eating pizza.
Speaker 8: We're mostly in the office most of the week.
Speaker 3: I would say he got that done. Okay.
Speaker 2: I'm sure mister Diamond's buying quality pizza for you there
Speaker 2: on Friday night.
Speaker 3: Michael Feroli, thank you as so much, folks. I can't
Speaker 3: say enough.
Speaker 2: About what Robert Melman invented at JP Morgan, and I'm
Speaker 2: sure Michael Feroli and Bruce Kasman could go literally back
Speaker 2: before Melman.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg Terminal.
Speaker 2: In every crisis, in every political moment, there's an institution
Speaker 2: that just gets the win behind them and takes off.
Speaker 3: It is the Budget Lab at Yale.
Speaker 2: All sorts of good people there and Natasha Sarah driving
Speaker 2: the ship and we're thrilled that she could join us today. Natasha,
Speaker 2: how did you put the Budget Lab at Yale together.
Speaker 3: Well, you know, you came out of working for Laurence
Speaker 3: Summer as you did this, you were a treasury in that.
Speaker 3: How did you piece together the Budget Lab at Yale?
Speaker 11: Well, you know, thanks so much for having me and
Speaker 11: for asking what a fun way to start the morning.
Speaker 11: I worked in government alongside some of my co founders
Speaker 11: and colleagues the Budget Lab Martha Gimbal and Danny Yagan
Speaker 11: and folks you know, well like Ernie Tadeshi. And when
Speaker 11: we got out of government, what we realized was there
Speaker 11: was really this whole with respect to the ability to
Speaker 11: do the kind of really rapid response policy analysis that
Speaker 11: the Budget Lab has started to do, and also to
Speaker 11: analyze some of these like longer term economic impacts from
Speaker 11: doing things like investing in children or doing tax reform,
Speaker 11: and so knowing that, we decided to try and take
Speaker 11: a pass at it ourselves.
Speaker 3: And I think it's been.
Speaker 11: Really, really rewarding the last year since we launched.
Speaker 2: Your daily summary. Folks go to the Budget Lab at Yale.
Speaker 2: Their Daily Summary is at first on a first order condition,
Speaker 2: it's heartbreaking. But forget about that, Natasha, of all the
Speaker 2: statistics of the public losing two three hundred dollars per
Speaker 2: household of bombing our trade back to nineteen thirty three,
Speaker 2: which is the statistic from Ernie that gets your most attention.
Speaker 4: You know, what I.
Speaker 11: Find incredibly compelling is something that's a little further down.
Speaker 11: All those statistics are fascinating, and I think we're now
Speaker 11: up to effective terror freight based on our latest analysis
Speaker 11: that includes Japan of around twenty so that's like the
Speaker 11: highest since nineteen eleven. But what I find super interesting
Speaker 11: is that we have seen in since January, the effective
Speaker 11: terif rate change on some thirty five days in this administration.
Speaker 11: So we are basically seeing this movement up down in
Speaker 11: this uncertainty that I think is impacting the economy in
Speaker 11: real ways that you're actually starting to see. So I
Speaker 11: just find looking at that graph and kind of watching
Speaker 11: these movements incredibly interesting.
Speaker 6: So, given that we may see an effective teriff rate
Speaker 6: of around a twenty percent ish, what does that mean
Speaker 6: for economic growth? What does that mean for inflation?
Speaker 11: Yeah, Well, based on our estimates, what we're expecting to
Speaker 11: see in the short run is a two percentage point
Speaker 11: increase across the board, which translates to what you were
Speaker 11: describing about a two thousand plus dollar impact on higher
Speaker 11: prices for households or lower nominal incomes depending on what
Speaker 11: the Federal Reserve decides to do in response to this
Speaker 11: new trade environment. And what you're also going to see
Speaker 11: as a result of the fact that you are going
Speaker 11: to be pushing up effect of tariff rate so substantially
Speaker 11: is you're actually going to see the economy be smaller
Speaker 11: in the future than it would be in the absence
Speaker 11: of these tariffs. And so our estimates are that we're
Speaker 11: seeing about a point eight percentage point decrease in GDP
Speaker 11: over the long run as a result of some of
Speaker 11: the policies that this administration is pursuing.
Speaker 6: The administration will say, Okay, there may be some short
Speaker 6: term economic headwinds, but on the flip side, they're generating
Speaker 6: a lot of tariff revenue.
Speaker 4: Can you explain that math?
Speaker 11: Yeah, So it's true. For what it's worth, the tariffs
Speaker 11: are going to raise, based on their current rate, about
Speaker 11: two point five trillion dollars over the course of the
Speaker 11: next decade. And you know, given our fiscal position, which
Speaker 11: we've been able to talk about in the past, like
Speaker 11: raising revenue is actually something we need to do. It's important.
Speaker 11: It is more important frankly today than it was a
Speaker 11: few weeks ago, given the deficit busting tax and spending
Speaker 11: bill that Congress just passed. But importantly, tariffs are an
Speaker 11: incredibly inefficient way to raise revenue right precisely because what
Speaker 11: they're doing is shrinking the economy and creating a ton
Speaker 11: of distortions. And they're also being born disproportionately by people
Speaker 11: who consume significantly, So this is like the bottom forty
Speaker 11: percent sees an impact on their incomes that's like three
Speaker 11: times as high as the very top. So they're regressive
Speaker 11: and inefficient.
Speaker 2: Natasha, thank you so much, Satasha, Sarah too short a visit.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: say Alexa play Bloomberg eleven thirty.
Speaker 2: The newspapers today really quite something. She was making edits
Speaker 2: and amendments to it.
Speaker 3: I know it was a changeable. Curiously to say, what
Speaker 3: was the macha you mentioned.
Speaker 12: With dirty with a dirty Macha A dirty Yes, I
Speaker 12: will make one and I will put it out on
Speaker 12: Twitter so that everybody knows. Okay, yes, I will make
Speaker 12: it in the pantry.
Speaker 3: It's a thing, is it? Like Senka.
Speaker 4: Knows what the kids are doing.
Speaker 12: It takes kind of the edge off of macha because
Speaker 12: you put the espresso in with it, so it tastes
Speaker 12: a little bit better, I feel.
Speaker 6: But yes, because Macha by itself tastes terrible.
Speaker 3: Yes, save me. This is like chasing Sandborn.
Speaker 12: We need to we need to up your drink game.
Speaker 9: Tom.
Speaker 3: Okay.
Speaker 12: This is for sports fans because they might have another
Speaker 12: option to get their fixed. So listen up. The Wall
Speaker 12: Street Journal saying NBC Universal reportedly considering launching a sports
Speaker 12: cable network could debut as early as the fall, and
Speaker 12: Sorcerers saying, so the channel is going to primarily carry
Speaker 12: sports at are also streamed on Peacock, and they could
Speaker 12: also be offered to cable and satellite distributors. It's part
Speaker 12: of the specialty packages of similar channels. But this is
Speaker 12: a surprise for them because you know, usually they're struggling
Speaker 12: with viewers cutting the cord, you know, and they're turning
Speaker 12: to streaming. So it's also in the process of spinning
Speaker 12: off its cable networks into that new company. That's what
Speaker 12: NBC Universal is going through now. But I mean, live
Speaker 12: sports is a huge business and you see it.
Speaker 3: All the time.
Speaker 6: I think what's happening here is they this is the
Speaker 6: first year of a huge NBA contract, and they can't
Speaker 6: make money solely on the peacock streaming. They have to
Speaker 6: have some type of cable offering despite the fact that
Speaker 6: people are cutting the cord, so they have to have
Speaker 6: this NBA product on this many platforms money.
Speaker 3: Can come in.
Speaker 2: I mean, it's a rumor speculation New York Post three
Speaker 2: pm yesterday, mister Bezos is possibly as a passing interest
Speaker 2: in the Death Stars CNBC. Okay, fine, but Paul, is
Speaker 2: this the future where these ginormous month like Bezos could
Speaker 2: to sell a boat and buy CNBC?
Speaker 3: Is this what we're talking about where megabucks people go
Speaker 3: out and buy.
Speaker 6: These properties that potentially and that would be a little
Speaker 6: problematic because you have to talk about the editorial independence
Speaker 6: of some of these things.
Speaker 4: So that's a concern for a lot of people.
Speaker 2: And the great Catherine Rample leaving the Washington Post yesterday.
Speaker 3: That was a bombshell. Excuse me, Lisa, I interrupt.
Speaker 12: That's okay, it's okay, Okay. The next one, I got
Speaker 12: an email this morning from a regular guest here on
Speaker 12: the show. I cannot reveal my sources, okay, but said it.
Speaker 3: Was a great morning.
Speaker 11: This is.
Speaker 12: This is a good one because I can relate. Okay,
Speaker 12: if people don't see when I first come in here
Speaker 12: to the show in the morning, I'm carrying my water,
Speaker 12: I've got my phone, I've got my yoga okay, and
Speaker 12: I've got my lipstick, and I have my headphones, and
Speaker 12: I walk in here like a mad woman.
Speaker 4: Okay.
Speaker 12: But this is actually a trend. Okay. So the New
Speaker 12: York Times has this article. You got to check it out.
Speaker 12: It's called the claw Grip. Okay. Women are posting on
Speaker 12: social media how many items they can carry at once.
Speaker 12: The record is fifteen. I believe this. This is despite
Speaker 12: you know, bigger bags or the trend.
Speaker 7: Right.
Speaker 12: So the theory behind it, there is one is that
Speaker 12: it's a reaction because you know, women feel that they
Speaker 12: don't have the functional pockets like men do, so they're
Speaker 12: kind of sounding off against this. But now you have
Speaker 12: these products that are coming out like a phone case
Speaker 12: by road that includes a lipstick holder.
Speaker 3: Genius genius is cleared, Yeah, weightless. Don't you just get
Speaker 3: a bigger bag? I can see you with the traders,
Speaker 3: Joe Toad.
Speaker 12: I mean, but then I have to like haul this
Speaker 12: thing around and search through it to try and find
Speaker 12: what I want. That's things get lost in the bag.
Speaker 12: So I just carry You should see.
Speaker 4: Me when I tick?
Speaker 3: Can we brock it up?
Speaker 2: Can we get one of the interns to help miss
Speaker 2: Matteo in the morning so that she's lined up with
Speaker 2: a gluten free lipstick and all the rest of it
Speaker 2: before the show starts.
Speaker 3: Get twenty seconds? Twenty seconds?
Speaker 12: Okay, forget about the hot summer beach travel. The new
Speaker 12: thing is cool locations. So this is what USA Today
Speaker 12: is saying. They're saying people are tired of the crowded,
Speaker 12: hot places and they want to go to cooler places.
Speaker 4: That are less cracky.
Speaker 3: You're a huge deal.
Speaker 12: Yes, yes, yes, And even here they're talking about western
Speaker 12: North Carolina. Right head to the Appalachian Mountains Mount Mitchell. Okay,
Speaker 12: you gotta go to hiking smoking New England, not Cape Cod,
Speaker 12: but New Hampshire's Mount Washington Valley. Beautiful. You gotta check
Speaker 12: it out. Jersey Bretton Woods Now Northern Michigan.
Speaker 4: Yes, I've heard about that r City, Michigan.
Speaker 12: You gotta go over there to get the nice cool
Speaker 12: breeze off the cooler water.
Speaker 2: So thank you, Lisa, greatly appreciate. It's the Newspapers with
Speaker 2: Lisa Matteo.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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