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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg terminal. What's important here is,

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Speaker 1: as you mentioned bomb cyclone and what they did with

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Speaker 1: Grand Funk RaRo, that takes us back to seventy seventy

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Speaker 1: five and the equity gloom back then. Someone who's studied

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Speaker 1: that he's way too young to remember. Jonathan Gollub joins

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Speaker 1: US chief US equity optimist at Credit SUITEES. We're thrilled

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Speaker 1: he could join swarning. I'm gonna get to your revisions,

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Speaker 1: your mark down and earnings in that. But the answers

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Speaker 1: after seventy four, I believe it was we went up

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Speaker 1: thirty eight percent the next year and critically that the

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Speaker 1: year after that we went up another eight percent. Is

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Speaker 1: that the great surprise out there is an equity liftoff

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Speaker 1: out there somewhere, Well, you know, I think it gets

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Speaker 1: to something that that Lisa was saying, is what's good news.

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Speaker 1: I mean right now, the backdrop is just becoming much

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Speaker 1: more positive with respect to this idea that there's no

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Speaker 1: recession coming in the next two or three quarters, and

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Speaker 1: the market getting their head around that, which is why

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Speaker 1: the vix has fallen and why stocks are racing ahead. Now.

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Speaker 1: The problem is, eventually this does bite us in terms

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Speaker 1: of two things. First of all, um companies are as

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Speaker 1: inflation is falling, companies are losing pricing power, and that's

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Speaker 1: not good for margins. So resilient consumer is actually a

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Speaker 1: little bit of a headwind for profit margins, which is strange.

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Speaker 1: And ultimately, this inflation doesn't magically go away, which is

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Speaker 1: also a problem. You mark down earnings, Okay, you're doing

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Speaker 1: tweaks here in the outlook. You got a page outlook.

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Speaker 1: I didn't read it all. I read part of it.

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Speaker 1: Do you know you know that you know the watermark

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Speaker 1: that they have for us so that we don't steal

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Speaker 1: their research. Do you know what this water mark said?

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Speaker 1: I if this research gets out, we take away my

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Speaker 1: egg nog. I couldn't believe Credit Suis did that. The

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Speaker 1: compliance department in Credit Suez did that. I want to

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Speaker 1: know if profits a place to hide. You were way

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Speaker 1: out front in the bull call of selecting certain sectors

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Speaker 1: certain stocks. Does profits save me if I have to

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Speaker 1: own stocks? I don't think that's the way you should

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Speaker 1: be looking at. And you're talking about, you know Gina's

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Speaker 1: comment that what happens in the economy doesn't necessarily happen

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Speaker 1: in the stock market. What happens last year corporate profits

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Speaker 1: the outlook improved throughout the year, and the stock market

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Speaker 1: had a terrible year because um, you know, interest rates

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Speaker 1: rose and you know other factors like that. I think

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Speaker 1: this year is gonna be a little bit different. I

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Speaker 1: think that you actually have margins. I'm sorry, margins are

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Speaker 1: going to get squeezed, and I think it's gonna be

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Speaker 1: tougher on profits. But I think the stock market is

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Speaker 1: going to be a little bit better on it. Like

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Speaker 1: how much better double digit or weeks? A slow day,

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Speaker 1: I need to make some news, let's go. No. I

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Speaker 1: think it's gonna be a more modern returning year because

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Speaker 1: I think that you're looking at something like down four

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Speaker 1: or five profit growth, even if you don't have a

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Speaker 1: recession because of a margin squeeze, it's coming. Have the

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Speaker 1: companies that have already done the layoffs, and I'm thinking

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Speaker 1: of tech, I'm thinking of certain industries. Even the banking

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Speaker 1: industry is starting to do some bigger rounds of layoffs.

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Speaker 1: And of course the semiconductor industry. Are they going to

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Speaker 1: be in a better position or are they just a

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Speaker 1: tea leaf for what's to come first? All when you

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Speaker 1: look at and a lot of guys on Wall Street

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Speaker 1: talk about all these layoffs because they're looking at tech

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Speaker 1: and financial financials, but but in reality that the job

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Speaker 1: market is just swimming in an unfilled you know, jobs

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Speaker 1: and demand is incredibly i but what the story is

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Speaker 1: is on tech in particular, is that and you know

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Speaker 1: Thomas talking about profits, it's not one profit picture the

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Speaker 1: tech universe. If you include the Amazons and the Googles

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Speaker 1: and the facebooks and like, it's been a horrific environment.

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Speaker 1: They've substantially lagged the market. Their their estimates are being

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Speaker 1: revised lower and lower, and they're missing the lowered estimates

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Speaker 1: as a group. And their outlook for growth, you know,

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Speaker 1: it was weak. This is since the iPhone came out

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Speaker 1: in two thousand eight. This is the worst year for

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Speaker 1: tech related companies um that we've seen. The expectation is

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Speaker 1: that next year we're gonna get this big bounce in

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Speaker 1: tech earnings as we get for you know, we had

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Speaker 1: this big pull forward. We're all staying at home. We're

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Speaker 1: buying you know, stuff that in a lull afterwards, is

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Speaker 1: gonna last longer than we think. Are you telling me

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Speaker 1: to sell Apple? I mean, I don't know me. I'm

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Speaker 1: in the triple leverage all cash fune. We know that.

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Speaker 1: But are you telling people to sell Apple along with

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Speaker 1: all the other challenges, Cathy? Is what what I'm saying

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Speaker 1: is I think that this problem that we've had in

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Speaker 1: tech is not a sentiment problem. It's an earnings problem.

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Speaker 1: And it doesn't last for three or four quarters. It

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Speaker 1: last for six or eight quarters. And a lot of

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Speaker 1: these big tech companies that two or three years ago

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Speaker 1: we said they have modest, they're impenetrable, and we talked

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Speaker 1: in those terms. Um, a lot of those companies are

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Speaker 1: are getting closer to totally addressable market, whether that's in

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Speaker 1: hand sets or advertising or other things like that. So

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Speaker 1: how do we get to forty fifty by the end

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Speaker 1: of next year, given that you're expecting perhaps a bit

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Speaker 1: more softness and techno leading. Well, there's other areas. So

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Speaker 1: I think that energy where this this expectation that you're

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Speaker 1: going to have a weakness in energy profits, I think

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Speaker 1: is going to be totally um wrong. I mean we're

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Speaker 1: seeing this right now that in the in the last

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Speaker 1: six months, the earnings estimates for the energy sector are

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Speaker 1: keep getting revised higher and higher, even though oil prices

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Speaker 1: are falling. So like, where's the magic there? And it's

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Speaker 1: a lack of refining capacity. And if we do end

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Speaker 1: up with oil prices rising, you know a bit, because

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Speaker 1: the economy is a little bit stronger and China reopens,

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Speaker 1: then these companies source. So I think that's an area

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Speaker 1: of strength that's probably underestimated. Tech on the other hand

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Speaker 1: of the down I didn't know this. I mean, folks,

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Speaker 1: years ago, Credit Suite was absolutely definitive on energy infrastructure

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Speaker 1: in the United States. His name was Mark Flannery. He's

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Speaker 1: over with Steve cohen By in New York mets bodies

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Speaker 1: at point seven. To you guys on the high ground,

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Speaker 1: I don't think a lot of people know this. What

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Speaker 1: does the subsets you have of energy tell you about

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Speaker 1: the great energy vet in the stock market? Well, I mean,

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Speaker 1: and we're talking, you know, it's interesting if you look

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Speaker 1: at US Energy company in North American UM Energy, that

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Speaker 1: you have each of the pieces separately. So you have

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Speaker 1: companies that do refining, a companies who do distribution and MP.

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Speaker 1: If you're looking at the big majors in Europe, they're

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Speaker 1: just big, fat, all companies and you have less of

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Speaker 1: that granularity that you see, you know, that thing in

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Speaker 1: the US with with with our big integrations. But but

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Speaker 1: we have a lot of and you can see that

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Speaker 1: those you know, those refining businesses are just levitating on

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Speaker 1: lack of refining capacity and nobody is putting it in.

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Speaker 1: So if you do have oil lift off and then

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Speaker 1: you actually get some upside in the more commodity sensitive

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Speaker 1: stuff like the MP name and the service name, the

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Speaker 1: sector is going to be a really big surprise. It's

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Speaker 1: absolutely a topic. The second area at least we're talking

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Speaker 1: about is is the consumer um just thinking about what's

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Speaker 1: going on. Their wages are staying higher, and the inflation

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Speaker 1: on the things they're buying is falling, and there's an

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Speaker 1: abundance of jobs. Consumer confidence. We've seen this now since

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Speaker 1: June and July. The consumer confidence data is ripping and

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Speaker 1: people aren't appreciating that the consumer is going to spend

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Speaker 1: a lot more money. It's going to keep us out

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Speaker 1: of recession. And that's another area optimism. Yeah, but that's

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Speaker 1: exactly it, right, I mean, even with optimism, the case

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Speaker 1: is converging on some of the bearish sentiment that we're

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Speaker 1: seeing from elsewhere. I will say America is gonna shop.

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Speaker 1: That's basically the takeaway that I had heard. They've got money,

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Speaker 1: they're going to spend it. Good John, thank you so

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Speaker 1: much right now. And this is really import And as

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Speaker 1: we talked to John Gobub earlier, there are two nine

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Speaker 1: thousand people at the Bank of America and Mr moynihan

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Speaker 1: called in this morning. Only Mark Command is working today

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Speaker 1: for the Bank of America. He's global ahead of US

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Speaker 1: short rate strategy at Bank of America. Thrilled he could

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Speaker 1: find time creeping into the holiday. Let me go to

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Speaker 1: short rates first, Mark, what is the efficacious way to

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Speaker 1: play the fixed income market into next year? If I'm

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Speaker 1: scared stiff? How do you do it? If you're a

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Speaker 1: feared Yeah, well, we think that the path of least

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Speaker 1: resistance is still going to be for the market to

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Speaker 1: try and nudge up the terminal rate at the front end.

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Speaker 1: The market right now is about twenty five basis points

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Speaker 1: below where the Feds thought for the end of twenty

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Speaker 1: three will be. And if you're a little worried about

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Speaker 1: the outlook, we think that you want to be leaning

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Speaker 1: along in the back end. We think that that is

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Speaker 1: going to be a way to protect yourself against the

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Speaker 1: slowing economy uh likely uh the funds in employment likely

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Speaker 1: higher unemployment rate, moderating economy, and that's going to give

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Speaker 1: the curve still a bit of a flattening bias, at

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Speaker 1: least in the near term. We do think that go ahead,

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Speaker 1: well your charm as you speak in English, there's a

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Speaker 1: lot of people in fixed income where you can't understand

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Speaker 1: it lining up behind uh brmo. Here. The number one

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Speaker 1: question I get from people on the street is how

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Speaker 1: long is it gonna take to make up a fifteen

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Speaker 1: or eighteen percent loss in fixed income? And you've got

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Speaker 1: an encyclopedic knowledge on this, is this a twelve month exercise?

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Speaker 1: In eighteen month exercise? How do I get to back

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Speaker 1: to break even on fixed income? How long will it take? Well,

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Speaker 1: it depends on what your benchmark is. Um but look,

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Speaker 1: we do think that fixed income is going to have

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Speaker 1: increased value for investors over the course of the next

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Speaker 1: twelve maybe twenty four months, and that simply because again

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Speaker 1: you're gonna be seeing yields that are probably going to

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Speaker 1: be moving lower. You're gonna be seeing yields that have

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Speaker 1: value in portfolio and portfolio again as they serve as

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Speaker 1: a hedge to risk off moves where it yields. When

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Speaker 1: we see risk off will go down as opposed to up,

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Speaker 1: some prices will increase, not decreases we saw over the

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Speaker 1: course of two and that is going to mean that

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Speaker 1: investors should be thinking more constructively about fixed income broadly,

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Speaker 1: simply because you're gonna see that risk off of value

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Speaker 1: return to fixed income, which it really lost over the

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Speaker 1: course of two with very very elevated inflation. As inflation moderates,

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Speaker 1: we do think that increases the attractiveness of fixed income

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Speaker 1: and portfolios. And the way that we've been recommending clients

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Speaker 1: play that is by being long towards the long end

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Speaker 1: of the curve, viewing the long end more constructively. You

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Speaker 1: could still see yields rise at the front end to

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Speaker 1: some extent if the FED has to keep hiking over

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Speaker 1: the course of next year, but we do think that

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Speaker 1: the long end you're going to be somewhat protected because

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Speaker 1: we expect that most yield increases are going to be

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Speaker 1: bought by investors who see long end yields is increasingly attractive.

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Speaker 1: Around three seventy five or should we push back close

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Speaker 1: to four percent, we think that there's gonna be a

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Speaker 1: lot of in risk from fixed income investors around those levels.

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Speaker 1: If the word of the year one was transitory, the

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Speaker 1: word of the year in two probably was pivot or

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Speaker 1: step down or whatever you want to call it. When

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Speaker 1: everybody groaned, you could argue there a couple other words

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Speaker 1: in there. What's the word of the year in that

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Speaker 1: everyone's going to kind of hang onto is the holy Grail? Yeah?

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Speaker 1: I mean, I think the market is looking for a

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Speaker 1: pause from the Fed. Um. That's going to be at

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Speaker 1: least what the market is looking for from the Fed. Uh.

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Speaker 1: The word of the year will probably be recession or

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Speaker 1: maybe not a recession. Uh. Certainly, it's quite consensus that

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Speaker 1: we're going to see the US economy and like that

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Speaker 1: the global economy slowed down over the course of next year.

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Speaker 1: And how quickly or slowly that happens is going to

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Speaker 1: really be the focus in markets right now. The market

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Speaker 1: is looking for a turn from the Fed, looking for

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Speaker 1: a turn in the economy, it seems around the middle

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Speaker 1: of next year UM. And whether or not the labor

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Speaker 1: market cooperates, we think, is really the question of three.

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Speaker 1: So Michael Harton at your colleague over a Bank America

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Speaker 1: put out a note day where he was talking about

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Speaker 1: the sixty portfolio hanging in there, how he likes small

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Speaker 1: cap stocks, and he talked about how bonds should do

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Speaker 1: well in the first half and not so well in

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Speaker 1: the second half. And it sort of coheres with this

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Speaker 1: idea that stocks will do badly in the first half

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Speaker 1: and better in the second half. What happens to that

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Speaker 1: call if the recession is pushed out, if there is

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Speaker 1: this momentum driven by consumer sentiment that has come in

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Speaker 1: much stronger than expected, Yeah, then the value of fixed

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Speaker 1: income is going to be deferred for a time. UM. Certainly,

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Speaker 1: if we see the economy that continues to do reasonably

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Speaker 1: well again, you're going to see the front end continue

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Speaker 1: to sell off. Is to fet is bias to keep hiking,

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Speaker 1: keep moving, terminal more elevated, and with that you'll probably

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Speaker 1: see the back end nudge up a little bit. The

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Speaker 1: curve will become more inverted in that type of environment,

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Speaker 1: and you'll have to wait a little while to really

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Speaker 1: see that performance and fixed income that we anticipate. Um

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Speaker 1: look at the market believes that the FED is going

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Speaker 1: to be successful in engineering a slowdown. It's just a

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Speaker 1: matter of how high does the terminal rate and have

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Speaker 1: to go how long does it take to achieve that outcome.

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Speaker 1: But we all they think they will be successful, and

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Speaker 1: that's why we continue to have a constructive view on

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Speaker 1: long end duration. Continue to think that tens are going

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Speaker 1: to be rallying to about or so by the end

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Speaker 1: of next year, and it may take more time for

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Speaker 1: long end fixed income to really perform well, but we

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Speaker 1: do think that you're going to see that performance over

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Speaker 1: the course of three We certainly saw it in the

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Speaker 1: last few weeks of two. Mark. One more question, if

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Speaker 1: I can buried in your note, is really the tone

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Speaker 1: of the moment. I'm really taken back by this from

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Speaker 1: fixed income strategists. You guys are recoming closet economists. You're

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Speaker 1: looking for quote labor cracking. Have we ever done this before?

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Speaker 1: Have we ever modeled our fixed income space off the

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Speaker 1: dynamics of the American labor economy. UM. You know, I

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Speaker 1: think that probably implicitly we have in the past. But

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Speaker 1: what's different about today in three is that we're all

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Speaker 1: anticipating a recession. We're all anticipating a slowdown in the

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Speaker 1: economy and the labor market. And in order to really

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Speaker 1: see the front end of the curve start to perform,

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Speaker 1: in order to see FED rate cuts that are going

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Speaker 1: to be pulled forward and justified, you really need to

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Speaker 1: see the labor market moderate, and that's not happening yet.

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Speaker 1: So in many ways, this is the most expected, most

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Speaker 1: anticipated recession ever, um, And really you need to see

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Speaker 1: the labor market begin to moderate in order to think

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Speaker 1: that the FED will be able to pause and eventually

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Speaker 1: then move towards rate cuts. Markabata, thank you so much.

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Speaker 1: With Bank of America. Right now, we continue on Washington,

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Speaker 1: but digress from where Ane Marie Harden was on this

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Speaker 1: historic moment yesterday, and we look forward to the domestic,

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Speaker 1: ugly politics of which Henrietta Treys is truly expertus director

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Speaker 1: of Policy Research at VEDA Partners. Henrietta Senator Schumer out

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Speaker 1: with headlines here off the morning shows, and they've got

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Speaker 1: to get business done. What actually happens in those ms

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Speaker 1: on December three? What is the horse trading that actually

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Speaker 1: goes on? Yeah, absolutely great question. They're working with the

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Speaker 1: parliamentarian right now and trying to coordinate with Senator Mike Lee,

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Speaker 1: Republican out of Utah to get an agreement on something

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Speaker 1: called Title forty two, which is a controversial immigration component

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Speaker 1: that President Trump put into effect back during the height

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Speaker 1: of the COVID crisis and which expires. So they're trying

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Speaker 1: to horse trade a vote on that amendment and exchange

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Speaker 1: for passage of a one point seven trillion dollar omnibus

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Speaker 1: spending bill. And every Senator and every House member what's that?

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Speaker 1: And they're stocking this year. I expect they'll get it,

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Speaker 1: but these fights take until the bitter end. Um. I'm

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Speaker 1: hoping that votes. So to the imagery that we see

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Speaker 1: in the South and state, folks, I'm as guilty of

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Speaker 1: this as anyone removed from my life. But the imagery

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Speaker 1: that we're seeing down south is shocked Washington and frankly

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Speaker 1: shocked the nation of all political persuasion. How does that

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Speaker 1: story change once this agreement is made? What is the

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Speaker 1: new immigration policy? Dare I say? Of December. That's a

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Speaker 1: great question. I mean, honestly, speaking with staff on both

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Speaker 1: sides of the aisle, Democrats and Republicans, there are a

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Speaker 1: handful of bills out there, and all of the business

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Speaker 1: and community and every economist is looking at the labor

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Speaker 1: shortage and saying we need everything from seasonal workers too

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Speaker 1: high skilled workers, and there are bills out there to

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Speaker 1: accomplish all of those things while simultaneously addressing the border.

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Speaker 1: But we are too far into unfortunately presidential election cycle

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Speaker 1: to even get close to having an immigration bill passed

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Speaker 1: in the next three days, let alone the next two years.

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Speaker 1: So quite frankly, I don't think there's gonna be a

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Speaker 1: material change at the border. UM. I imagine they'll find

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Speaker 1: some sort of convenient off ramp to get around Senator

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Speaker 1: Lee's amendment. UM, but it probably will not change a

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Speaker 1: whole lot. And I am not anticipating anything material to

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Speaker 1: come out of reform, whither at the executive level or

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Speaker 1: the allegious lation on immigration before this year is out,

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Speaker 1: and then again, as I mentioned, probably not for the

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Speaker 1: next two years either. Henrietta. After them internal elections, people

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Speaker 1: were talking about a move to the center, that there

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Speaker 1: would be more of a collaborative kind of feel, more

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Speaker 1: of a rejection of the truly hyperpartisanship of Washington d

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Speaker 1: C over the past decade or two or three. How

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Speaker 1: much does that actually fly in the face of what's

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Speaker 1: actually happening as we count down to a deadline and

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Speaker 1: are getting grid luck. I mean, right now we're gonna

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Speaker 1: get bipartisan deal on the surface, but you're going to

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Speaker 1: see this bell passed with almost exclusively Democratic support in

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Speaker 1: the House and hopefully something in the range of about

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Speaker 1: seventy votes in the Senate. So the Senate will be bipartisan,

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Speaker 1: the House will not be. And you know, if you

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Speaker 1: want to tie it into the speech yesterday, UM from

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Speaker 1: President Zelinski, it is notable that there were only eighty

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Speaker 1: five Republicans members of the House. There there are two

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Speaker 1: d and thirteen of them at least. That incredible event,

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Speaker 1: coupled with partisanship at its most extreme, I think was

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Speaker 1: really well illustrated. And that's what next year is gonna

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Speaker 1: look like as well. Um, they're trying to tie in

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Speaker 1: Department of Homeland Security funding. Um, they're going to be

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Speaker 1: impeachment trials. I'm not expecting any legislation will pass. It's

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Speaker 1: remotely material until we get to the Farm Bill, which

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Speaker 1: will have material implications for snap benefits UM, and then

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Speaker 1: the debt ceiling, which will have to deal with around

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Speaker 1: September and will probably be a very ugly fight. UM.

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Speaker 1: And the reason we're getting this omnibus now is so

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Speaker 1: Kevin McCarthy can wait to deal with the debt ceiling

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Speaker 1: until September instead of having to fight that fight right

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Speaker 1: out of the gate. Inwree. I'm glad you mentioned the

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Speaker 1: debt ceiling debate. It has particular poignancy as you see

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Speaker 1: borrowing costs rise to the degree that they have. How

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Speaker 1: much do you think that that will actually get a

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Speaker 1: growing number of Congress members on board to reduce the deficit,

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Speaker 1: to really pull back on some of the issuance. None. Uh, there,

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Speaker 1: There's no way you're gonna see any physical austerity actually

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Speaker 1: come to pass. There will be no spending cuts. There

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Speaker 1: will be a lot of job owning about it. They'll

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Speaker 1: talk about it extensively, I imagine, there will be headline

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Speaker 1: skin will probably get down to the wire. But when

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Speaker 1: you talk with staff, it's pretty clear they already know

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Speaker 1: the path forward and it's not even gonna be via

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Speaker 1: finding a new number to replace the thirty one point

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Speaker 1: four trillion dollars in debt ceiling authority Treasury currently has.

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Speaker 1: We already know it's going to be a suspension, which

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Speaker 1: was a Banner era development that would um suspend the

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Speaker 1: debt ceiling, give Treasury blank check to operate through X

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Speaker 1: date because it's a lot easier to vote for a

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Speaker 1: date than it is to vote for a thirty two

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Speaker 1: trillion dollar debt ceiling. And they don't want those optics.

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Speaker 1: So I'm not inspecting any of start from this, Henry.

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Speaker 1: I think you said the presidential race has already started

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Speaker 1: for two years from now. You're a grizzled veteran at this.

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Speaker 1: When do we hear from President Biden? When do we

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Speaker 1: hear from President Trump? And when do we hear from

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Speaker 1: another ten worthies? Or is that really what January awaits?

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Speaker 1: I think so my latest conversations with administrative staff, excuse me,

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Speaker 1: administration staff, we're suggesting that right after the holidays, President

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Speaker 1: Biden is geared up and read to announce. Um. That's

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Speaker 1: contrary to what my original expectation was. I thought President

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Speaker 1: former President Trump would not announce on that President Biden

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Speaker 1: would therefore also not announced. But the incredible showing that

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Speaker 1: Democrats had in the midterm elections has materially changed that

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Speaker 1: trajectory um and from everything I see Democrats and President

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Speaker 1: Biden in particular or geared up to to launch right

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Speaker 1: after we get back from the holidays, Henrietta, thank you

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Speaker 1: so much. Henria Trey's Vada partners here as Congress staggers

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Speaker 1: is typical, I should say to a year end closes.

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Speaker 1: It has been an interesting two thousand twenty two for

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Speaker 1: Andrew hollen Worst and Veronica Clark economists. It's City Group.

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Speaker 1: They were way out front on a terminal rate above

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Speaker 1: five percent. I give them credit with Anna Wong of

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Speaker 1: Bloomberg Economics as well, and they reaffirmed that this morning.

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Speaker 1: Veronica Clark, I don't know if you've seen this data.

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Speaker 1: We've been chatting about it, but to be very or direct,

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Speaker 1: this data confirms the Holland Horst rate, doesn't it. Yeah, Yeah,

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Speaker 1: it's a bit interesting to see markets move on a

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Speaker 1: third release of GDP. You know, we've gotten this data

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Speaker 1: a couple of times already. These are revisions, but they

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Speaker 1: were pretty big revisions on both headline growth number stronger consumption,

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Speaker 1: you know, that's all where you want to see the

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Speaker 1: strength and activity is consumption and investment um. And then

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Speaker 1: I think especially that core PC number revised higher. Um.

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Speaker 1: You know, markets are really hoping to see a softer

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Speaker 1: inflation now and we're really not getting it yet. What

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Speaker 1: is your interpretation where the chairman desperately needs a lousy

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Speaker 1: labor market, he's not getting it. But what is the

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Speaker 1: study that you have of the disinflation path forward? Do

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Speaker 1: you see a greater disinflation everything considered? Yeah, I mean

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Speaker 1: I think we will get you some overall softer inflation

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Speaker 1: prints three um, but it will be because initially because

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Speaker 1: of things like goods prices that are much weaker. Um.

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Speaker 1: We know that shelter prices and inflation measures should be

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Speaker 1: softening with housing market that's already softer. Um. But yeah,

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Speaker 1: you really do need to see a listening in the

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Speaker 1: labor market to be convinced that that that third component,

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Speaker 1: that non shelter services you know, will come back down

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Speaker 1: to two pc, because we really don't see your path

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Speaker 1: for that to happen until the labor market loosens. And

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Speaker 1: we were talking about this with leafarage. There's a real

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Speaker 1: disconnect here between your outlook for what's going to happen,

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Speaker 1: between his outlook for what's going to happen, between the

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Speaker 1: Fed's outlook with what's going to happen next year and

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Speaker 1: what the market is saying. And I'm almost surprised that

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Speaker 1: the market didn't respond more. Albeit this is the third

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Speaker 1: read of a GDP for third quarter, and this is

432
00:22:45,119 --> 00:22:48,960
Speaker 1: also initial jobless claims. But still the evidence keeps coming

433
00:22:49,000 --> 00:22:51,760
Speaker 1: in that you are seeing strength, you are seeing resilience,

434
00:22:51,800 --> 00:22:54,560
Speaker 1: and that the Fed will make good on what they're saying.

435
00:22:54,760 --> 00:22:57,800
Speaker 1: What will it take to trigger a reset in terms

436
00:22:57,840 --> 00:23:02,720
Speaker 1: of market expectations? Focused on the last two CPI reports, right,

437
00:23:02,800 --> 00:23:05,240
Speaker 1: you know we've had you know, to software reports. You know,

438
00:23:05,240 --> 00:23:08,400
Speaker 1: if you just listen to the CPI data, it would

439
00:23:08,440 --> 00:23:09,719
Speaker 1: tell you that the FED was going to be more

440
00:23:09,760 --> 00:23:13,520
Speaker 1: hawkish than they thought, than than what most economists we're thinking. Um,

441
00:23:13,560 --> 00:23:16,160
Speaker 1: So maybe that's the right move now, but I would

442
00:23:16,160 --> 00:23:18,800
Speaker 1: really caution against that because you know, we get into

443
00:23:20,000 --> 00:23:22,080
Speaker 1: and you know, we'd still have some upside risks, even

444
00:23:22,240 --> 00:23:25,119
Speaker 1: things like used car prices which wholesale measures are rising

445
00:23:25,160 --> 00:23:27,359
Speaker 1: again there, um, and you do have a lot of

446
00:23:27,440 --> 00:23:30,080
Speaker 1: upside risk to those non shelter services. If you look

447
00:23:30,119 --> 00:23:32,000
Speaker 1: at where wage growth has been, it's telling you that

448
00:23:32,040 --> 00:23:34,480
Speaker 1: those those prices should be higher. Still. I'm glad you

449
00:23:34,480 --> 00:23:36,400
Speaker 1: mentioned used cars. We've been talking about it all morning

450
00:23:36,440 --> 00:23:39,240
Speaker 1: because CarMax came out with their earnings report well below

451
00:23:39,520 --> 00:23:42,520
Speaker 1: what people were expecting. You're seeing those shares plunge. It's

452
00:23:42,520 --> 00:23:46,000
Speaker 1: also raising concerns about it's pure Carvana and other used

453
00:23:46,000 --> 00:23:49,040
Speaker 1: car dealerships and just generally this idea. This is where

454
00:23:49,040 --> 00:23:51,959
Speaker 1: you're getting the disinflation prices for used cars that were

455
00:23:52,000 --> 00:23:54,080
Speaker 1: sky high, where some people were saying, we're a bubble,

456
00:23:54,440 --> 00:23:58,280
Speaker 1: are disinflating, are deflating? How much further does that have

457
00:23:58,400 --> 00:24:01,320
Speaker 1: to go? Is that a twenty two story or will

458
00:24:01,359 --> 00:24:05,960
Speaker 1: that deflation continue next year? Yeah, this is a really

459
00:24:06,000 --> 00:24:09,120
Speaker 1: tricky component because you know, it's not necessarily telling us,

460
00:24:09,359 --> 00:24:11,800
Speaker 1: you know, much about underlying inflation trends. You know, this

461
00:24:11,920 --> 00:24:14,840
Speaker 1: was the supply driven type of inflation that we had

462
00:24:14,840 --> 00:24:17,840
Speaker 1: as early as one UM, and we have had you know,

463
00:24:17,920 --> 00:24:20,359
Speaker 1: pretty big declines for the last two cep I reports.

464
00:24:20,359 --> 00:24:23,199
Speaker 1: That's been a big reason why we've run below you know,

465
00:24:23,280 --> 00:24:25,600
Speaker 1: point forwards or you know that we were running I

466
00:24:25,640 --> 00:24:28,480
Speaker 1: mean you see some of that, I think again in December. Um,

467
00:24:28,560 --> 00:24:31,480
Speaker 1: but the best measures we have of where of where

468
00:24:31,520 --> 00:24:34,400
Speaker 1: these car prices are going or some of these wholesale measures.

469
00:24:34,600 --> 00:24:36,879
Speaker 1: We got data earlier this week from the Mannheim Index

470
00:24:36,920 --> 00:24:39,600
Speaker 1: that showed those actually are starting to increase again. UM.

471
00:24:39,640 --> 00:24:42,000
Speaker 1: So it's not to clear downward trend as we're getting

472
00:24:42,000 --> 00:24:44,600
Speaker 1: into tree. I think the issue there is, you know,

473
00:24:44,640 --> 00:24:47,400
Speaker 1: inventories of cars are just still very short, and that's

474
00:24:47,440 --> 00:24:51,399
Speaker 1: keeping dealers from cutting prices to dramatically. Vernica if we

475
00:24:51,440 --> 00:24:54,439
Speaker 1: get a Hall and Horse rate. There's just this belief

476
00:24:54,480 --> 00:24:56,919
Speaker 1: out there the world ends as we know it now.

477
00:24:56,960 --> 00:25:00,640
Speaker 1: I know City Group Economics doesn't believe that, But what

478
00:25:00,720 --> 00:25:05,280
Speaker 1: does our world look like with a five plus terminal rate?

479
00:25:05,600 --> 00:25:07,800
Speaker 1: I think into the outlooks of next year, there's a

480
00:25:07,920 --> 00:25:11,680
Speaker 1: huge mystery to that. Yeah, I mean, I think our

481
00:25:11,760 --> 00:25:15,240
Speaker 1: our rate of five to five fifty. Um. You know

482
00:25:15,240 --> 00:25:17,879
Speaker 1: it's not necessarily the most dire situation. You know, we

483
00:25:17,920 --> 00:25:20,879
Speaker 1: do have the unemployment rate rising. Um. You know that

484
00:25:21,000 --> 00:25:23,320
Speaker 1: is enough of as a high enough rate to cause

485
00:25:23,480 --> 00:25:26,399
Speaker 1: a mild recession. Um, but we're not talking you know,

486
00:25:26,440 --> 00:25:29,040
Speaker 1: seven eight percent unemployment. We've got it getting too bit

487
00:25:29,080 --> 00:25:34,119
Speaker 1: about do you see an evidence of a labor market troubled?

488
00:25:34,440 --> 00:25:37,960
Speaker 1: I just don't. I don't see the evidence other than

489
00:25:38,000 --> 00:25:40,600
Speaker 1: the flash of tech and maybe the flash of every

490
00:25:40,640 --> 00:25:45,400
Speaker 1: financial institution except City Group. UM. Yeah, I just don't

491
00:25:45,440 --> 00:25:49,000
Speaker 1: see the evidence. No. We we wouldn't yet either. Um.

492
00:25:49,040 --> 00:25:50,439
Speaker 1: But I think you know, if you start with the

493
00:25:50,440 --> 00:25:53,159
Speaker 1: assumption that the FED will do what it takes to

494
00:25:53,240 --> 00:25:56,520
Speaker 1: control inflation. Um, in our view, that's getting rates at

495
00:25:56,600 --> 00:26:00,919
Speaker 1: least to five fifty potential upset. Still, that means that

496
00:26:01,200 --> 00:26:03,200
Speaker 1: they need to see a loosening in the labor market,

497
00:26:03,400 --> 00:26:05,200
Speaker 1: and we're not seeing it yet, you know for sure,

498
00:26:05,720 --> 00:26:07,520
Speaker 1: But as we're getting into the middle of next year,

499
00:26:07,560 --> 00:26:10,280
Speaker 1: we would expect that you're seeing starting to rise in

500
00:26:10,359 --> 00:26:13,600
Speaker 1: the Unflowers, Veronica, stay with US radio and television. Good

501
00:26:13,600 --> 00:26:15,879
Speaker 1: morning to you. An economic set of data at a

502
00:26:16,280 --> 00:26:20,680
Speaker 1: thirty here that moved the markets, no question about that. Yes,

503
00:26:20,800 --> 00:26:24,560
Speaker 1: it's a Thursday before the holiday. Yes it's boring. No,

504
00:26:24,720 --> 00:26:28,760
Speaker 1: it's not futures to tier eight negative twenty futures less

505
00:26:28,840 --> 00:26:32,280
Speaker 1: or so I'm gonna call it down nastic on seven

506
00:26:32,280 --> 00:26:35,399
Speaker 1: tests percent. Excuse me there? Twenty point three six on

507
00:26:35,480 --> 00:26:38,520
Speaker 1: the VIX and Lisa, you earmarked now at three basis

508
00:26:38,520 --> 00:26:41,639
Speaker 1: points a two year yield higher yield four point too.

509
00:26:42,520 --> 00:26:44,960
Speaker 1: I guess it's a Jerome Powell. He is going to

510
00:26:45,080 --> 00:26:48,639
Speaker 1: raise rates. Feel. It's a feel that perhaps we can't

511
00:26:48,680 --> 00:26:51,520
Speaker 1: be complacent in this bet that we're just going to

512
00:26:51,560 --> 00:26:55,200
Speaker 1: continue with a disinflationary impulse in Veronica, and we start

513
00:26:55,240 --> 00:26:59,000
Speaker 1: going into the granularity underneath it, it becomes very interesting

514
00:26:59,040 --> 00:27:00,960
Speaker 1: because we can see that some of the disinflation and

515
00:27:01,040 --> 00:27:04,879
Speaker 1: goods changes course next year. Are there other areas like

516
00:27:05,000 --> 00:27:08,480
Speaker 1: that where some of the the aspects of the inflationary

517
00:27:08,560 --> 00:27:11,719
Speaker 1: that have brought down inflation this year will reverse and

518
00:27:11,720 --> 00:27:14,160
Speaker 1: go the other way next year. I think about oil prices,

519
00:27:14,200 --> 00:27:17,159
Speaker 1: gasoline costs, I think about what you're talking about with

520
00:27:17,240 --> 00:27:20,160
Speaker 1: used cars. Are there other components as well to cause

521
00:27:20,280 --> 00:27:25,080
Speaker 1: more goods inflation next year than people are currently accounting for? Yeah?

522
00:27:25,080 --> 00:27:28,320
Speaker 1: I think there There definitely are still some underappreciated maybe

523
00:27:28,359 --> 00:27:31,600
Speaker 1: upside risk to goods prices. I think most people expect that,

524
00:27:31,640 --> 00:27:35,119
Speaker 1: you know, supply chains have been correcting goods demand as

525
00:27:35,160 --> 00:27:38,240
Speaker 1: much softer. Yes, commodity prices are lower too, um, and

526
00:27:38,280 --> 00:27:41,600
Speaker 1: that means you know, softer core goods prices. But there

527
00:27:41,600 --> 00:27:43,600
Speaker 1: are some upside risks, you know, if we're you know,

528
00:27:43,640 --> 00:27:46,480
Speaker 1: getting into a cold winter, you know, higher energy costs,

529
00:27:46,840 --> 00:27:49,680
Speaker 1: um China reopening. You know, if there's you know a

530
00:27:49,760 --> 00:27:52,040
Speaker 1: lot of people who are are falling ill and not

531
00:27:52,080 --> 00:27:54,639
Speaker 1: being able to work, and that creates new supply issues.

532
00:27:54,680 --> 00:27:57,280
Speaker 1: You know that there's definitely some upside risk to goods broadly,

533
00:27:57,359 --> 00:28:01,520
Speaker 1: not just cars. Veronica, thank you so much, greatly appreciated,

534
00:28:01,640 --> 00:28:04,159
Speaker 1: Veronica Clark wus A City Group. This is the Bloomberg

535
00:28:04,200 --> 00:28:08,520
Speaker 1: Surveillance Podcast. Thanks for listening. Join us live weekdays from

536
00:28:08,560 --> 00:28:11,920
Speaker 1: seven to ten am Eastern on Bloomberg Radio and on

537
00:28:12,000 --> 00:28:16,320
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538
00:28:16,560 --> 00:28:21,480
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00:28:21,960 --> 00:28:26,640
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540
00:28:26,760 --> 00:28:30,360
Speaker 1: Bloomberg dot com, and of course on the terminal. I'm

541
00:28:30,400 --> 00:28:33,119
Speaker 1: Tom Keene, and this is Bloomberg