WEBVTT - Surveillance: Positive Outlook with Golub 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.799 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.319 and of course on the Bloomberg terminal. What's important here is, 0:00:30.400 --> 0:00:32.559 as you mentioned bomb cyclone and what they did with 0:00:32.600 --> 0:00:35.400 Grand Funk RaRo, that takes us back to seventy seventy 0:00:35.440 --> 0:00:38.680 five and the equity gloom back then. Someone who's studied 0:00:38.680 --> 0:00:41.480 that he's way too young to remember. Jonathan Gollub joins 0:00:41.560 --> 0:00:44.920 US chief US equity optimist at Credit SUITEES. We're thrilled 0:00:44.920 --> 0:00:47.199 he could join swarning. I'm gonna get to your revisions, 0:00:47.200 --> 0:00:50.479 your mark down and earnings in that. But the answers 0:00:50.520 --> 0:00:52.800 after seventy four, I believe it was we went up 0:00:52.840 --> 0:00:55.440 thirty eight percent the next year and critically that the 0:00:55.560 --> 0:00:58.400 year after that we went up another eight percent. Is 0:00:58.440 --> 0:01:01.200 that the great surprise out there is an equity liftoff 0:01:01.520 --> 0:01:04.200 out there somewhere, Well, you know, I think it gets 0:01:04.240 --> 0:01:07.319 to something that that Lisa was saying, is what's good news. 0:01:07.400 --> 0:01:11.319 I mean right now, the backdrop is just becoming much 0:01:11.360 --> 0:01:14.440 more positive with respect to this idea that there's no 0:01:14.520 --> 0:01:17.920 recession coming in the next two or three quarters, and 0:01:18.040 --> 0:01:20.040 the market getting their head around that, which is why 0:01:20.080 --> 0:01:23.800 the vix has fallen and why stocks are racing ahead. Now. 0:01:23.840 --> 0:01:27.880 The problem is, eventually this does bite us in terms 0:01:28.040 --> 0:01:31.560 of two things. First of all, um companies are as 0:01:31.640 --> 0:01:35.200 inflation is falling, companies are losing pricing power, and that's 0:01:35.240 --> 0:01:38.600 not good for margins. So resilient consumer is actually a 0:01:38.640 --> 0:01:41.560 little bit of a headwind for profit margins, which is strange. 0:01:41.640 --> 0:01:46.120 And ultimately, this inflation doesn't magically go away, which is 0:01:46.160 --> 0:01:49.080 also a problem. You mark down earnings, Okay, you're doing 0:01:49.080 --> 0:01:51.840 tweaks here in the outlook. You got a page outlook. 0:01:51.880 --> 0:01:53.360 I didn't read it all. I read part of it. 0:01:53.600 --> 0:01:55.320 Do you know you know that you know the watermark 0:01:55.400 --> 0:01:57.400 that they have for us so that we don't steal 0:01:57.440 --> 0:02:00.520 their research. Do you know what this water mark said? 0:02:01.160 --> 0:02:03.480 I if this research gets out, we take away my 0:02:03.560 --> 0:02:06.120 egg nog. I couldn't believe Credit Suis did that. The 0:02:06.160 --> 0:02:09.520 compliance department in Credit Suez did that. I want to 0:02:09.520 --> 0:02:12.360 know if profits a place to hide. You were way 0:02:12.400 --> 0:02:16.600 out front in the bull call of selecting certain sectors 0:02:16.600 --> 0:02:19.920 certain stocks. Does profits save me if I have to 0:02:19.919 --> 0:02:22.360 own stocks? I don't think that's the way you should 0:02:22.360 --> 0:02:24.760 be looking at. And you're talking about, you know Gina's 0:02:24.800 --> 0:02:27.840 comment that what happens in the economy doesn't necessarily happen 0:02:27.840 --> 0:02:30.960 in the stock market. What happens last year corporate profits 0:02:31.400 --> 0:02:34.400 the outlook improved throughout the year, and the stock market 0:02:34.440 --> 0:02:37.519 had a terrible year because um, you know, interest rates 0:02:37.639 --> 0:02:40.399 rose and you know other factors like that. I think 0:02:40.440 --> 0:02:42.160 this year is gonna be a little bit different. I 0:02:42.160 --> 0:02:45.160 think that you actually have margins. I'm sorry, margins are 0:02:45.480 --> 0:02:47.079 going to get squeezed, and I think it's gonna be 0:02:47.160 --> 0:02:50.160 tougher on profits. But I think the stock market is 0:02:50.160 --> 0:02:51.600 going to be a little bit better on it. Like 0:02:51.680 --> 0:02:55.680 how much better double digit or weeks? A slow day, 0:02:55.680 --> 0:02:58.160 I need to make some news, let's go. No. I 0:02:58.160 --> 0:03:01.440 think it's gonna be a more modern returning year because 0:03:01.480 --> 0:03:03.440 I think that you're looking at something like down four 0:03:03.520 --> 0:03:06.440 or five profit growth, even if you don't have a 0:03:06.480 --> 0:03:09.280 recession because of a margin squeeze, it's coming. Have the 0:03:09.320 --> 0:03:11.560 companies that have already done the layoffs, and I'm thinking 0:03:11.560 --> 0:03:14.919 of tech, I'm thinking of certain industries. Even the banking 0:03:14.919 --> 0:03:17.720 industry is starting to do some bigger rounds of layoffs. 0:03:17.760 --> 0:03:20.560 And of course the semiconductor industry. Are they going to 0:03:20.600 --> 0:03:22.560 be in a better position or are they just a 0:03:22.639 --> 0:03:26.080 tea leaf for what's to come first? All when you 0:03:26.120 --> 0:03:28.280 look at and a lot of guys on Wall Street 0:03:28.440 --> 0:03:30.639 talk about all these layoffs because they're looking at tech 0:03:30.680 --> 0:03:33.880 and financial financials, but but in reality that the job 0:03:33.960 --> 0:03:37.840 market is just swimming in an unfilled you know, jobs 0:03:37.840 --> 0:03:41.040 and demand is incredibly i but what the story is 0:03:41.040 --> 0:03:44.160 is on tech in particular, is that and you know 0:03:44.200 --> 0:03:47.280 Thomas talking about profits, it's not one profit picture the 0:03:47.600 --> 0:03:51.160 tech universe. If you include the Amazons and the Googles 0:03:51.160 --> 0:03:54.360 and the facebooks and like, it's been a horrific environment. 0:03:54.400 --> 0:03:58.720 They've substantially lagged the market. Their their estimates are being 0:03:58.720 --> 0:04:02.200 revised lower and lower, and they're missing the lowered estimates 0:04:02.240 --> 0:04:05.240 as a group. And their outlook for growth, you know, 0:04:05.400 --> 0:04:08.000 it was weak. This is since the iPhone came out 0:04:08.000 --> 0:04:10.200 in two thousand eight. This is the worst year for 0:04:10.280 --> 0:04:14.520 tech related companies um that we've seen. The expectation is 0:04:14.560 --> 0:04:17.560 that next year we're gonna get this big bounce in 0:04:17.640 --> 0:04:19.840 tech earnings as we get for you know, we had 0:04:19.839 --> 0:04:22.039 this big pull forward. We're all staying at home. We're 0:04:22.040 --> 0:04:25.120 buying you know, stuff that in a lull afterwards, is 0:04:25.120 --> 0:04:27.200 gonna last longer than we think. Are you telling me 0:04:27.240 --> 0:04:29.440 to sell Apple? I mean, I don't know me. I'm 0:04:29.440 --> 0:04:31.520 in the triple leverage all cash fune. We know that. 0:04:31.600 --> 0:04:34.880 But are you telling people to sell Apple along with 0:04:34.920 --> 0:04:37.960 all the other challenges, Cathy? Is what what I'm saying 0:04:38.040 --> 0:04:40.159 is I think that this problem that we've had in 0:04:40.240 --> 0:04:43.880 tech is not a sentiment problem. It's an earnings problem. 0:04:43.960 --> 0:04:46.160 And it doesn't last for three or four quarters. It 0:04:46.279 --> 0:04:48.719 last for six or eight quarters. And a lot of 0:04:48.760 --> 0:04:51.200 these big tech companies that two or three years ago 0:04:51.240 --> 0:04:54.080 we said they have modest, they're impenetrable, and we talked 0:04:54.120 --> 0:04:56.520 in those terms. Um, a lot of those companies are 0:04:56.600 --> 0:05:01.000 are getting closer to totally addressable market, whether that's in 0:05:01.360 --> 0:05:04.279 hand sets or advertising or other things like that. So 0:05:04.320 --> 0:05:05.880 how do we get to forty fifty by the end 0:05:05.880 --> 0:05:09.000 of next year, given that you're expecting perhaps a bit 0:05:09.040 --> 0:05:12.800 more softness and techno leading. Well, there's other areas. So 0:05:12.839 --> 0:05:16.080 I think that energy where this this expectation that you're 0:05:16.080 --> 0:05:19.039 going to have a weakness in energy profits, I think 0:05:19.160 --> 0:05:22.240 is going to be totally um wrong. I mean we're 0:05:22.240 --> 0:05:24.839 seeing this right now that in the in the last 0:05:25.040 --> 0:05:28.200 six months, the earnings estimates for the energy sector are 0:05:28.279 --> 0:05:31.200 keep getting revised higher and higher, even though oil prices 0:05:31.200 --> 0:05:33.520 are falling. So like, where's the magic there? And it's 0:05:33.560 --> 0:05:36.360 a lack of refining capacity. And if we do end 0:05:36.440 --> 0:05:39.640 up with oil prices rising, you know a bit, because 0:05:39.640 --> 0:05:42.680 the economy is a little bit stronger and China reopens, 0:05:43.120 --> 0:05:45.200 then these companies source. So I think that's an area 0:05:45.240 --> 0:05:48.080 of strength that's probably underestimated. Tech on the other hand 0:05:48.120 --> 0:05:49.960 of the down I didn't know this. I mean, folks, 0:05:50.040 --> 0:05:55.200 years ago, Credit Suite was absolutely definitive on energy infrastructure 0:05:55.200 --> 0:05:58.080 in the United States. His name was Mark Flannery. He's 0:05:58.120 --> 0:06:00.920 over with Steve cohen By in New York mets bodies 0:06:01.600 --> 0:06:04.480 at point seven. To you guys on the high ground, 0:06:04.560 --> 0:06:06.680 I don't think a lot of people know this. What 0:06:06.720 --> 0:06:10.520 does the subsets you have of energy tell you about 0:06:10.520 --> 0:06:14.080 the great energy vet in the stock market? Well, I mean, 0:06:14.320 --> 0:06:16.760 and we're talking, you know, it's interesting if you look 0:06:16.800 --> 0:06:20.160 at US Energy company in North American UM Energy, that 0:06:20.560 --> 0:06:22.279 you have each of the pieces separately. So you have 0:06:22.360 --> 0:06:25.680 companies that do refining, a companies who do distribution and MP. 0:06:26.000 --> 0:06:28.560 If you're looking at the big majors in Europe, they're 0:06:28.600 --> 0:06:30.960 just big, fat, all companies and you have less of 0:06:31.040 --> 0:06:39.640 that granularity that you see, you know, that thing in 0:06:39.680 --> 0:06:41.880 the US with with with our big integrations. But but 0:06:42.040 --> 0:06:43.880 we have a lot of and you can see that 0:06:43.960 --> 0:06:48.359 those you know, those refining businesses are just levitating on 0:06:48.480 --> 0:06:51.800 lack of refining capacity and nobody is putting it in. 0:06:51.960 --> 0:06:54.440 So if you do have oil lift off and then 0:06:54.480 --> 0:06:57.640 you actually get some upside in the more commodity sensitive 0:06:57.680 --> 0:07:00.520 stuff like the MP name and the service name, the 0:07:00.560 --> 0:07:02.440 sector is going to be a really big surprise. It's 0:07:02.440 --> 0:07:04.920 absolutely a topic. The second area at least we're talking 0:07:04.960 --> 0:07:08.240 about is is the consumer um just thinking about what's 0:07:08.279 --> 0:07:11.960 going on. Their wages are staying higher, and the inflation 0:07:12.040 --> 0:07:15.200 on the things they're buying is falling, and there's an 0:07:15.200 --> 0:07:18.880 abundance of jobs. Consumer confidence. We've seen this now since 0:07:18.960 --> 0:07:23.640 June and July. The consumer confidence data is ripping and 0:07:24.160 --> 0:07:27.200 people aren't appreciating that the consumer is going to spend 0:07:27.240 --> 0:07:28.680 a lot more money. It's going to keep us out 0:07:28.680 --> 0:07:34.320 of recession. And that's another area optimism. Yeah, but that's 0:07:34.320 --> 0:07:37.240 exactly it, right, I mean, even with optimism, the case 0:07:37.360 --> 0:07:39.920 is converging on some of the bearish sentiment that we're 0:07:39.920 --> 0:07:42.600 seeing from elsewhere. I will say America is gonna shop. 0:07:42.640 --> 0:07:45.040 That's basically the takeaway that I had heard. They've got money, 0:07:45.240 --> 0:07:48.240 they're going to spend it. Good John, thank you so 0:07:48.360 --> 0:08:00.360 much right now. And this is really import And as 0:08:00.360 --> 0:08:02.840 we talked to John Gobub earlier, there are two nine 0:08:03.080 --> 0:08:07.239 thousand people at the Bank of America and Mr moynihan 0:08:07.320 --> 0:08:10.280 called in this morning. Only Mark Command is working today 0:08:10.360 --> 0:08:12.600 for the Bank of America. He's global ahead of US 0:08:12.960 --> 0:08:15.680 short rate strategy at Bank of America. Thrilled he could 0:08:15.680 --> 0:08:18.840 find time creeping into the holiday. Let me go to 0:08:18.920 --> 0:08:24.760 short rates first, Mark, what is the efficacious way to 0:08:25.120 --> 0:08:28.920 play the fixed income market into next year? If I'm 0:08:29.120 --> 0:08:32.079 scared stiff? How do you do it? If you're a 0:08:32.200 --> 0:08:35.880 feared Yeah, well, we think that the path of least 0:08:35.920 --> 0:08:37.800 resistance is still going to be for the market to 0:08:37.880 --> 0:08:40.640 try and nudge up the terminal rate at the front end. 0:08:41.160 --> 0:08:43.520 The market right now is about twenty five basis points 0:08:43.520 --> 0:08:45.960 below where the Feds thought for the end of twenty 0:08:45.960 --> 0:08:48.800 three will be. And if you're a little worried about 0:08:48.800 --> 0:08:50.920 the outlook, we think that you want to be leaning 0:08:50.920 --> 0:08:53.120 along in the back end. We think that that is 0:08:53.160 --> 0:08:54.959 going to be a way to protect yourself against the 0:08:55.000 --> 0:09:00.200 slowing economy uh likely uh the funds in employment likely 0:09:00.240 --> 0:09:03.439 higher unemployment rate, moderating economy, and that's going to give 0:09:03.480 --> 0:09:06.640 the curve still a bit of a flattening bias, at 0:09:06.679 --> 0:09:09.720 least in the near term. We do think that go ahead, 0:09:09.800 --> 0:09:12.280 well your charm as you speak in English, there's a 0:09:12.320 --> 0:09:14.760 lot of people in fixed income where you can't understand 0:09:14.760 --> 0:09:18.800 it lining up behind uh brmo. Here. The number one 0:09:18.880 --> 0:09:22.320 question I get from people on the street is how 0:09:22.360 --> 0:09:24.880 long is it gonna take to make up a fifteen 0:09:24.960 --> 0:09:29.160 or eighteen percent loss in fixed income? And you've got 0:09:29.160 --> 0:09:33.319 an encyclopedic knowledge on this, is this a twelve month exercise? 0:09:33.360 --> 0:09:36.319 In eighteen month exercise? How do I get to back 0:09:36.360 --> 0:09:40.880 to break even on fixed income? How long will it take? Well, 0:09:40.880 --> 0:09:43.280 it depends on what your benchmark is. Um but look, 0:09:43.320 --> 0:09:45.320 we do think that fixed income is going to have 0:09:45.559 --> 0:09:48.640 increased value for investors over the course of the next 0:09:48.640 --> 0:09:51.800 twelve maybe twenty four months, and that simply because again 0:09:51.800 --> 0:09:54.640 you're gonna be seeing yields that are probably going to 0:09:54.720 --> 0:09:57.480 be moving lower. You're gonna be seeing yields that have 0:09:57.640 --> 0:10:01.319 value in portfolio and portfolio again as they serve as 0:10:01.360 --> 0:10:04.760 a hedge to risk off moves where it yields. When 0:10:04.760 --> 0:10:07.160 we see risk off will go down as opposed to up, 0:10:07.160 --> 0:10:10.400 some prices will increase, not decreases we saw over the 0:10:10.400 --> 0:10:12.920 course of two and that is going to mean that 0:10:13.000 --> 0:10:16.680 investors should be thinking more constructively about fixed income broadly, 0:10:17.080 --> 0:10:19.600 simply because you're gonna see that risk off of value 0:10:19.720 --> 0:10:22.520 return to fixed income, which it really lost over the 0:10:22.520 --> 0:10:27.000 course of two with very very elevated inflation. As inflation moderates, 0:10:27.040 --> 0:10:29.880 we do think that increases the attractiveness of fixed income 0:10:29.920 --> 0:10:32.680 and portfolios. And the way that we've been recommending clients 0:10:32.679 --> 0:10:36.240 play that is by being long towards the long end 0:10:36.240 --> 0:10:40.000 of the curve, viewing the long end more constructively. You 0:10:40.000 --> 0:10:41.960 could still see yields rise at the front end to 0:10:42.040 --> 0:10:44.400 some extent if the FED has to keep hiking over 0:10:44.400 --> 0:10:46.199 the course of next year, but we do think that 0:10:46.280 --> 0:10:48.680 the long end you're going to be somewhat protected because 0:10:48.720 --> 0:10:51.200 we expect that most yield increases are going to be 0:10:51.240 --> 0:10:55.000 bought by investors who see long end yields is increasingly attractive. 0:10:55.240 --> 0:10:57.720 Around three seventy five or should we push back close 0:10:57.760 --> 0:10:59.520 to four percent, we think that there's gonna be a 0:10:59.559 --> 0:11:02.640 lot of in risk from fixed income investors around those levels. 0:11:02.760 --> 0:11:05.880 If the word of the year one was transitory, the 0:11:05.880 --> 0:11:08.559 word of the year in two probably was pivot or 0:11:08.600 --> 0:11:10.160 step down or whatever you want to call it. When 0:11:10.160 --> 0:11:12.640 everybody groaned, you could argue there a couple other words 0:11:12.640 --> 0:11:14.839 in there. What's the word of the year in that 0:11:14.840 --> 0:11:19.080 everyone's going to kind of hang onto is the holy Grail? Yeah? 0:11:19.080 --> 0:11:20.480 I mean, I think the market is looking for a 0:11:20.520 --> 0:11:22.840 pause from the Fed. Um. That's going to be at 0:11:22.880 --> 0:11:25.520 least what the market is looking for from the Fed. Uh. 0:11:25.640 --> 0:11:28.760 The word of the year will probably be recession or 0:11:28.880 --> 0:11:33.040 maybe not a recession. Uh. Certainly, it's quite consensus that 0:11:33.080 --> 0:11:35.079 we're going to see the US economy and like that 0:11:35.200 --> 0:11:37.760 the global economy slowed down over the course of next year. 0:11:38.040 --> 0:11:40.760 And how quickly or slowly that happens is going to 0:11:40.800 --> 0:11:43.280 really be the focus in markets right now. The market 0:11:43.360 --> 0:11:45.560 is looking for a turn from the Fed, looking for 0:11:45.559 --> 0:11:47.600 a turn in the economy, it seems around the middle 0:11:47.600 --> 0:11:50.560 of next year UM. And whether or not the labor 0:11:50.600 --> 0:11:54.040 market cooperates, we think, is really the question of three. 0:11:54.600 --> 0:11:56.800 So Michael Harton at your colleague over a Bank America 0:11:56.840 --> 0:11:58.600 put out a note day where he was talking about 0:11:58.600 --> 0:12:01.640 the sixty portfolio hanging in there, how he likes small 0:12:01.679 --> 0:12:03.599 cap stocks, and he talked about how bonds should do 0:12:03.679 --> 0:12:05.400 well in the first half and not so well in 0:12:05.400 --> 0:12:07.240 the second half. And it sort of coheres with this 0:12:07.280 --> 0:12:09.360 idea that stocks will do badly in the first half 0:12:09.640 --> 0:12:12.719 and better in the second half. What happens to that 0:12:12.800 --> 0:12:15.880 call if the recession is pushed out, if there is 0:12:15.920 --> 0:12:19.120 this momentum driven by consumer sentiment that has come in 0:12:19.320 --> 0:12:23.720 much stronger than expected, Yeah, then the value of fixed 0:12:23.720 --> 0:12:26.880 income is going to be deferred for a time. UM. Certainly, 0:12:26.960 --> 0:12:29.760 if we see the economy that continues to do reasonably 0:12:29.800 --> 0:12:31.679 well again, you're going to see the front end continue 0:12:31.679 --> 0:12:34.079 to sell off. Is to fet is bias to keep hiking, 0:12:34.440 --> 0:12:38.120 keep moving, terminal more elevated, and with that you'll probably 0:12:38.120 --> 0:12:40.280 see the back end nudge up a little bit. The 0:12:40.320 --> 0:12:43.480 curve will become more inverted in that type of environment, 0:12:43.840 --> 0:12:46.000 and you'll have to wait a little while to really 0:12:46.000 --> 0:12:49.360 see that performance and fixed income that we anticipate. Um 0:12:49.480 --> 0:12:51.560 look at the market believes that the FED is going 0:12:51.600 --> 0:12:54.280 to be successful in engineering a slowdown. It's just a 0:12:54.320 --> 0:12:56.160 matter of how high does the terminal rate and have 0:12:56.360 --> 0:12:59.200 to go how long does it take to achieve that outcome. 0:12:59.480 --> 0:13:01.880 But we all they think they will be successful, and 0:13:01.960 --> 0:13:04.560 that's why we continue to have a constructive view on 0:13:04.679 --> 0:13:06.960 long end duration. Continue to think that tens are going 0:13:07.000 --> 0:13:10.280 to be rallying to about or so by the end 0:13:10.280 --> 0:13:13.480 of next year, and it may take more time for 0:13:13.920 --> 0:13:16.880 long end fixed income to really perform well, but we 0:13:16.960 --> 0:13:19.200 do think that you're going to see that performance over 0:13:19.240 --> 0:13:21.480 the course of three We certainly saw it in the 0:13:21.559 --> 0:13:24.360 last few weeks of two. Mark. One more question, if 0:13:24.400 --> 0:13:27.440 I can buried in your note, is really the tone 0:13:27.480 --> 0:13:29.839 of the moment. I'm really taken back by this from 0:13:29.880 --> 0:13:34.760 fixed income strategists. You guys are recoming closet economists. You're 0:13:34.800 --> 0:13:39.840 looking for quote labor cracking. Have we ever done this before? 0:13:39.880 --> 0:13:44.040 Have we ever modeled our fixed income space off the 0:13:44.160 --> 0:13:49.240 dynamics of the American labor economy. UM. You know, I 0:13:49.240 --> 0:13:52.480 think that probably implicitly we have in the past. But 0:13:52.600 --> 0:13:55.600 what's different about today in three is that we're all 0:13:55.640 --> 0:14:00.120 anticipating a recession. We're all anticipating a slowdown in the 0:14:00.120 --> 0:14:03.000 economy and the labor market. And in order to really 0:14:03.040 --> 0:14:05.160 see the front end of the curve start to perform, 0:14:05.480 --> 0:14:07.720 in order to see FED rate cuts that are going 0:14:07.760 --> 0:14:10.520 to be pulled forward and justified, you really need to 0:14:10.559 --> 0:14:14.120 see the labor market moderate, and that's not happening yet. 0:14:14.400 --> 0:14:17.360 So in many ways, this is the most expected, most 0:14:17.400 --> 0:14:21.480 anticipated recession ever, um, And really you need to see 0:14:21.480 --> 0:14:23.960 the labor market begin to moderate in order to think 0:14:24.000 --> 0:14:26.520 that the FED will be able to pause and eventually 0:14:26.520 --> 0:14:29.400 then move towards rate cuts. Markabata, thank you so much. 0:14:29.440 --> 0:14:37.200 With Bank of America. Right now, we continue on Washington, 0:14:37.280 --> 0:14:39.600 but digress from where Ane Marie Harden was on this 0:14:39.680 --> 0:14:43.200 historic moment yesterday, and we look forward to the domestic, 0:14:43.400 --> 0:14:47.320 ugly politics of which Henrietta Treys is truly expertus director 0:14:47.760 --> 0:14:53.120 of Policy Research at VEDA Partners. Henrietta Senator Schumer out 0:14:53.120 --> 0:14:56.240 with headlines here off the morning shows, and they've got 0:14:56.240 --> 0:15:00.320 to get business done. What actually happens in those ms 0:15:00.520 --> 0:15:05.440 on December three? What is the horse trading that actually 0:15:05.480 --> 0:15:09.280 goes on? Yeah, absolutely great question. They're working with the 0:15:09.320 --> 0:15:12.400 parliamentarian right now and trying to coordinate with Senator Mike Lee, 0:15:12.440 --> 0:15:15.400 Republican out of Utah to get an agreement on something 0:15:15.400 --> 0:15:20.200 called Title forty two, which is a controversial immigration component 0:15:20.320 --> 0:15:23.480 that President Trump put into effect back during the height 0:15:23.520 --> 0:15:27.240 of the COVID crisis and which expires. So they're trying 0:15:27.280 --> 0:15:30.240 to horse trade a vote on that amendment and exchange 0:15:30.280 --> 0:15:33.560 for passage of a one point seven trillion dollar omnibus 0:15:33.600 --> 0:15:36.880 spending bill. And every Senator and every House member what's that? 0:15:36.920 --> 0:15:39.400 And they're stocking this year. I expect they'll get it, 0:15:39.480 --> 0:15:42.640 but these fights take until the bitter end. Um. I'm 0:15:42.680 --> 0:15:46.880 hoping that votes. So to the imagery that we see 0:15:47.600 --> 0:15:50.440 in the South and state, folks, I'm as guilty of 0:15:50.520 --> 0:15:54.239 this as anyone removed from my life. But the imagery 0:15:54.320 --> 0:15:57.520 that we're seeing down south is shocked Washington and frankly 0:15:57.560 --> 0:16:01.240 shocked the nation of all political persuasion. How does that 0:16:01.400 --> 0:16:06.040 story change once this agreement is made? What is the 0:16:06.080 --> 0:16:11.360 new immigration policy? Dare I say? Of December. That's a 0:16:11.400 --> 0:16:14.680 great question. I mean, honestly, speaking with staff on both 0:16:14.720 --> 0:16:16.800 sides of the aisle, Democrats and Republicans, there are a 0:16:16.800 --> 0:16:19.280 handful of bills out there, and all of the business 0:16:19.320 --> 0:16:22.040 and community and every economist is looking at the labor 0:16:22.040 --> 0:16:24.920 shortage and saying we need everything from seasonal workers too 0:16:24.960 --> 0:16:27.240 high skilled workers, and there are bills out there to 0:16:27.320 --> 0:16:30.720 accomplish all of those things while simultaneously addressing the border. 0:16:31.120 --> 0:16:35.760 But we are too far into unfortunately presidential election cycle 0:16:36.040 --> 0:16:38.480 to even get close to having an immigration bill passed 0:16:38.480 --> 0:16:41.480 in the next three days, let alone the next two years. 0:16:41.880 --> 0:16:43.920 So quite frankly, I don't think there's gonna be a 0:16:43.960 --> 0:16:47.160 material change at the border. UM. I imagine they'll find 0:16:47.240 --> 0:16:50.560 some sort of convenient off ramp to get around Senator 0:16:50.640 --> 0:16:53.480 Lee's amendment. UM, but it probably will not change a 0:16:53.480 --> 0:16:56.960 whole lot. And I am not anticipating anything material to 0:16:57.280 --> 0:16:59.440 come out of reform, whither at the executive level or 0:16:59.480 --> 0:17:02.600 the allegious lation on immigration before this year is out, 0:17:02.640 --> 0:17:04.119 and then again, as I mentioned, probably not for the 0:17:04.160 --> 0:17:07.000 next two years either. Henrietta. After them internal elections, people 0:17:07.040 --> 0:17:09.040 were talking about a move to the center, that there 0:17:09.040 --> 0:17:11.640 would be more of a collaborative kind of feel, more 0:17:11.680 --> 0:17:15.679 of a rejection of the truly hyperpartisanship of Washington d 0:17:15.760 --> 0:17:18.479 C over the past decade or two or three. How 0:17:18.560 --> 0:17:20.400 much does that actually fly in the face of what's 0:17:20.400 --> 0:17:23.239 actually happening as we count down to a deadline and 0:17:23.280 --> 0:17:26.400 are getting grid luck. I mean, right now we're gonna 0:17:26.440 --> 0:17:29.520 get bipartisan deal on the surface, but you're going to 0:17:29.600 --> 0:17:32.760 see this bell passed with almost exclusively Democratic support in 0:17:32.800 --> 0:17:35.119 the House and hopefully something in the range of about 0:17:35.119 --> 0:17:38.000 seventy votes in the Senate. So the Senate will be bipartisan, 0:17:38.280 --> 0:17:40.760 the House will not be. And you know, if you 0:17:40.800 --> 0:17:43.400 want to tie it into the speech yesterday, UM from 0:17:43.400 --> 0:17:46.359 President Zelinski, it is notable that there were only eighty 0:17:46.359 --> 0:17:49.840 five Republicans members of the House. There there are two 0:17:50.119 --> 0:17:53.720 d and thirteen of them at least. That incredible event, 0:17:54.119 --> 0:17:58.119 coupled with partisanship at its most extreme, I think was 0:17:58.160 --> 0:18:00.280 really well illustrated. And that's what next year is gonna 0:18:00.359 --> 0:18:02.800 look like as well. Um, they're trying to tie in 0:18:02.920 --> 0:18:06.080 Department of Homeland Security funding. Um, they're going to be 0:18:06.119 --> 0:18:09.680 impeachment trials. I'm not expecting any legislation will pass. It's 0:18:09.760 --> 0:18:12.800 remotely material until we get to the Farm Bill, which 0:18:12.840 --> 0:18:16.880 will have material implications for snap benefits UM, and then 0:18:17.200 --> 0:18:19.680 the debt ceiling, which will have to deal with around 0:18:19.760 --> 0:18:22.680 September and will probably be a very ugly fight. UM. 0:18:22.720 --> 0:18:24.919 And the reason we're getting this omnibus now is so 0:18:25.000 --> 0:18:27.159 Kevin McCarthy can wait to deal with the debt ceiling 0:18:27.200 --> 0:18:29.720 until September instead of having to fight that fight right 0:18:29.720 --> 0:18:32.040 out of the gate. Inwree. I'm glad you mentioned the 0:18:32.080 --> 0:18:35.240 debt ceiling debate. It has particular poignancy as you see 0:18:35.280 --> 0:18:38.080 borrowing costs rise to the degree that they have. How 0:18:38.160 --> 0:18:39.879 much do you think that that will actually get a 0:18:39.920 --> 0:18:43.760 growing number of Congress members on board to reduce the deficit, 0:18:43.840 --> 0:18:49.320 to really pull back on some of the issuance. None. Uh, there, 0:18:49.359 --> 0:18:53.240 There's no way you're gonna see any physical austerity actually 0:18:53.280 --> 0:18:55.479 come to pass. There will be no spending cuts. There 0:18:55.480 --> 0:18:57.000 will be a lot of job owning about it. They'll 0:18:57.040 --> 0:18:59.880 talk about it extensively, I imagine, there will be headline 0:19:00.040 --> 0:19:02.280 skin will probably get down to the wire. But when 0:19:02.280 --> 0:19:04.240 you talk with staff, it's pretty clear they already know 0:19:04.320 --> 0:19:06.840 the path forward and it's not even gonna be via 0:19:06.960 --> 0:19:10.000 finding a new number to replace the thirty one point 0:19:10.000 --> 0:19:13.000 four trillion dollars in debt ceiling authority Treasury currently has. 0:19:13.240 --> 0:19:15.320 We already know it's going to be a suspension, which 0:19:15.359 --> 0:19:20.080 was a Banner era development that would um suspend the 0:19:20.160 --> 0:19:24.560 debt ceiling, give Treasury blank check to operate through X 0:19:24.680 --> 0:19:26.200 date because it's a lot easier to vote for a 0:19:26.280 --> 0:19:27.840 date than it is to vote for a thirty two 0:19:27.880 --> 0:19:29.920 trillion dollar debt ceiling. And they don't want those optics. 0:19:29.920 --> 0:19:32.960 So I'm not inspecting any of start from this, Henry. 0:19:33.000 --> 0:19:36.280 I think you said the presidential race has already started 0:19:36.880 --> 0:19:40.639 for two years from now. You're a grizzled veteran at this. 0:19:41.040 --> 0:19:43.840 When do we hear from President Biden? When do we 0:19:43.920 --> 0:19:46.360 hear from President Trump? And when do we hear from 0:19:46.359 --> 0:19:50.200 another ten worthies? Or is that really what January awaits? 0:19:51.520 --> 0:19:55.159 I think so my latest conversations with administrative staff, excuse me, 0:19:55.160 --> 0:19:58.959 administration staff, we're suggesting that right after the holidays, President 0:19:58.960 --> 0:20:01.080 Biden is geared up and read to announce. Um. That's 0:20:01.119 --> 0:20:04.320 contrary to what my original expectation was. I thought President 0:20:04.359 --> 0:20:07.160 former President Trump would not announce on that President Biden 0:20:07.160 --> 0:20:10.520 would therefore also not announced. But the incredible showing that 0:20:10.600 --> 0:20:13.280 Democrats had in the midterm elections has materially changed that 0:20:13.520 --> 0:20:17.959 trajectory um and from everything I see Democrats and President 0:20:18.000 --> 0:20:20.960 Biden in particular or geared up to to launch right 0:20:20.960 --> 0:20:23.040 after we get back from the holidays, Henrietta, thank you 0:20:23.080 --> 0:20:26.959 so much. Henria Trey's Vada partners here as Congress staggers 0:20:27.200 --> 0:20:31.520 is typical, I should say to a year end closes. 0:20:31.560 --> 0:20:45.600 It has been an interesting two thousand twenty two for 0:20:45.800 --> 0:20:50.720 Andrew hollen Worst and Veronica Clark economists. It's City Group. 0:20:51.000 --> 0:20:54.280 They were way out front on a terminal rate above 0:20:54.359 --> 0:20:56.720 five percent. I give them credit with Anna Wong of 0:20:56.760 --> 0:21:00.439 Bloomberg Economics as well, and they reaffirmed that this morning. 0:21:00.880 --> 0:21:03.040 Veronica Clark, I don't know if you've seen this data. 0:21:03.119 --> 0:21:06.840 We've been chatting about it, but to be very or direct, 0:21:07.000 --> 0:21:13.040