1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,440 Speaker 2: Terminal and the Bloomberg Business App. To extend the conversation. 10 00:00:37,560 --> 00:00:40,640 Speaker 2: Joining us now is Jordan Rochester of Mazoo. Jordan, Welcome 11 00:00:40,680 --> 00:00:42,880 Speaker 2: to the program, sir. Let's get into this. This could 12 00:00:42,880 --> 00:00:44,800 Speaker 2: be a big moment, and I think the market's trying 13 00:00:44,840 --> 00:00:46,760 Speaker 2: to work out what kind of moment. Is this an 14 00:00:46,920 --> 00:00:49,479 Speaker 2: r Bay like type moment for the FX market or 15 00:00:49,560 --> 00:00:52,200 Speaker 2: dare I say a trust like moment for the bond market? 16 00:00:52,320 --> 00:00:55,760 Speaker 3: Which one it's not trus but it could be. Is 17 00:00:56,040 --> 00:00:59,440 Speaker 3: what the market's saying. This is sanaomics, This is the 18 00:00:59,440 --> 00:01:02,080 Speaker 3: new Verde of arbonomics, is what the market's thinking. But 19 00:01:02,120 --> 00:01:04,160 Speaker 3: I think John, we need to have some level of 20 00:01:04,200 --> 00:01:07,919 Speaker 3: caution's what politicians say, and there's what they do. And 21 00:01:08,000 --> 00:01:10,399 Speaker 3: what she can do with this current setup is pretty 22 00:01:10,400 --> 00:01:13,840 Speaker 3: difficult because the Arbe Nomics faction, the Arbe faction of 23 00:01:13,840 --> 00:01:17,320 Speaker 3: the LDP is much weaker after a lot of election 24 00:01:17,560 --> 00:01:20,160 Speaker 3: defeats in their seats, so roughly half the size of 25 00:01:20,200 --> 00:01:22,800 Speaker 3: what they were a year ago. So the message we've 26 00:01:22,800 --> 00:01:24,800 Speaker 3: been giving clients just now, this morning and over the 27 00:01:24,800 --> 00:01:28,200 Speaker 3: weekend is that Takeichi whilst she stands for a lot 28 00:01:28,200 --> 00:01:31,039 Speaker 3: of the policies that Arbinomics had, so that would lead 29 00:01:31,080 --> 00:01:34,200 Speaker 3: to looser monetary policy for sure than what should be 30 00:01:34,200 --> 00:01:36,360 Speaker 3: the case, and that would lead to a WEEKI yin 31 00:01:36,800 --> 00:01:38,960 Speaker 3: It's not really clear cut to me, because in order 32 00:01:39,000 --> 00:01:42,800 Speaker 3: to win the LDP election, she needed other factions to 33 00:01:42,840 --> 00:01:44,880 Speaker 3: help her get over the line, and a key part 34 00:01:44,880 --> 00:01:47,560 Speaker 3: of that was the Asso faction, who are more fiscally prudent, 35 00:01:47,960 --> 00:01:51,000 Speaker 3: and the intervention from the former Prime Minister Asso himself 36 00:01:51,200 --> 00:01:55,240 Speaker 3: to arguing to respect of the party member vote where 37 00:01:55,280 --> 00:01:57,560 Speaker 3: Takeichi overwhelmingly. 38 00:01:56,960 --> 00:01:59,440 Speaker 4: Won, is the key reason why she won this weekend. 39 00:01:59,560 --> 00:02:01,920 Speaker 3: But it also means that she'll probably have to point 40 00:02:01,920 --> 00:02:05,240 Speaker 3: appoint a finance minister who might actually see the market 41 00:02:05,240 --> 00:02:07,880 Speaker 3: move the of way, John, we might see the end 42 00:02:07,960 --> 00:02:09,600 Speaker 3: sell off and the sort of long end sell off 43 00:02:09,600 --> 00:02:12,200 Speaker 3: in Jdb's relax a bit once we know who the 44 00:02:12,240 --> 00:02:15,280 Speaker 3: finance minister is, if they are fiscally prudent and a 45 00:02:15,320 --> 00:02:19,799 Speaker 3: sort of continuation candidate for that role from the previous administration. 46 00:02:20,320 --> 00:02:22,800 Speaker 5: Jordan, how high is your conviction level that what she 47 00:02:22,960 --> 00:02:26,200 Speaker 5: does is somewhat different from what she says? Meaning are 48 00:02:26,200 --> 00:02:28,760 Speaker 5: you recommending the clients that they buy the yend here 49 00:02:29,600 --> 00:02:32,440 Speaker 5: with the dollar at one point fifty, surpassing that one 50 00:02:32,440 --> 00:02:34,919 Speaker 5: to fifty level versus the Japanese currency. 51 00:02:35,880 --> 00:02:38,160 Speaker 3: I'd say it depends on the timeline, so medium to high. 52 00:02:38,560 --> 00:02:41,440 Speaker 3: I'd say high conviction that with the current setup in 53 00:02:41,480 --> 00:02:44,440 Speaker 3: the Parliament, the LDP don't have a mandate, they don't 54 00:02:44,440 --> 00:02:47,320 Speaker 3: have a majority, They rely on a coalition part to 55 00:02:47,360 --> 00:02:49,720 Speaker 3: comito that doesn't even get them over the line. So 56 00:02:49,960 --> 00:02:52,440 Speaker 3: they're entering into coalition talks. So I've got a pretty 57 00:02:52,480 --> 00:02:56,280 Speaker 3: high conviction she can't suddenly do very large, bold policies 58 00:02:56,320 --> 00:02:59,120 Speaker 3: because she might lose members of her own party or 59 00:02:59,360 --> 00:03:03,000 Speaker 3: make those code talks quite difficult. For example, the consumption 60 00:03:03,120 --> 00:03:05,520 Speaker 3: tax cut, which is all the talk last time around, 61 00:03:05,639 --> 00:03:08,200 Speaker 3: in the elections last year. When it comes to take 62 00:03:08,240 --> 00:03:11,239 Speaker 3: Eachi's own beyond that watered down significantly. So I don't 63 00:03:11,240 --> 00:03:14,360 Speaker 3: think we're going to have a big fiscal agenda, that is, 64 00:03:14,919 --> 00:03:16,280 Speaker 3: until we see her polling. 65 00:03:16,840 --> 00:03:18,320 Speaker 4: Once we see the polling. 66 00:03:18,120 --> 00:03:20,560 Speaker 3: If the LDP shoots up to something of a forty 67 00:03:20,600 --> 00:03:24,400 Speaker 3: to fifty handle, if you see her own personal ratings improve, 68 00:03:24,960 --> 00:03:27,600 Speaker 3: then we can't rule out elections. And once she if 69 00:03:27,600 --> 00:03:30,359 Speaker 3: that happens, Lisa, if we get an election this time 70 00:03:31,080 --> 00:03:34,119 Speaker 3: or early next year, let's say, then I can't rule 71 00:03:34,120 --> 00:03:34,560 Speaker 3: that out. 72 00:03:34,680 --> 00:03:36,520 Speaker 5: It feels so much different though, even than a Liz 73 00:03:36,560 --> 00:03:39,320 Speaker 5: Trust moment Jordan, or potentially what could become a Liz 74 00:03:39,360 --> 00:03:42,240 Speaker 5: Trust moment, because this is global, this is Japan, this 75 00:03:42,400 --> 00:03:44,640 Speaker 5: is France, this is the United States. For the government 76 00:03:44,680 --> 00:03:47,560 Speaker 5: to shut down, where a lot of governments are showing 77 00:03:47,600 --> 00:03:50,680 Speaker 5: a real reluctance to climb down on deficits that have 78 00:03:50,760 --> 00:03:51,400 Speaker 5: been climbing. 79 00:03:51,600 --> 00:03:54,400 Speaker 1: They want to still lean on that deficit lever. 80 00:03:54,280 --> 00:03:56,920 Speaker 5: Which is the reason why you see bond yields creeping higher, 81 00:03:56,920 --> 00:03:59,760 Speaker 5: particularly in the thirty year denomination. At what point does 82 00:03:59,800 --> 00:04:02,360 Speaker 5: the collective story taken on a life of its own. 83 00:04:03,480 --> 00:04:05,640 Speaker 3: It already is I think it is happening right now. 84 00:04:05,680 --> 00:04:08,200 Speaker 3: So as you mentioned, the US with its own fiscal issuance, 85 00:04:08,240 --> 00:04:10,840 Speaker 3: Germany with its own fiscal issuance, and now France of 86 00:04:10,880 --> 00:04:13,360 Speaker 3: course has been with the largest death sit in the 87 00:04:13,720 --> 00:04:16,320 Speaker 3: euro area or flagging that point. So the only one 88 00:04:16,360 --> 00:04:18,440 Speaker 3: that stands out as not actually joining in with the 89 00:04:18,440 --> 00:04:21,120 Speaker 3: party is the UK because of the fiscal rules that 90 00:04:21,120 --> 00:04:23,960 Speaker 3: the chance has thrown on themselves. But Japan is very 91 00:04:23,960 --> 00:04:26,640 Speaker 3: acutely aware of this problem. The Ministry of Finance has 92 00:04:26,680 --> 00:04:28,880 Speaker 3: been reducing the auction sizes in the long end to 93 00:04:28,920 --> 00:04:32,000 Speaker 3: try and deal with that. But what's changed in the 94 00:04:32,040 --> 00:04:35,159 Speaker 3: sort of functioning of the Japanese JGB market is the 95 00:04:35,200 --> 00:04:38,560 Speaker 3: demand from life insurance insurers for long end jgbs has 96 00:04:38,600 --> 00:04:41,359 Speaker 3: collapsed versus what it used to be. And actually the 97 00:04:41,400 --> 00:04:44,200 Speaker 3: majority of the trading volumes in jgbs from the ten 98 00:04:44,279 --> 00:04:47,480 Speaker 3: year onwards is from foreigners, and so this means that 99 00:04:47,560 --> 00:04:49,400 Speaker 3: you get these sort of big moves as you've seen 100 00:04:49,440 --> 00:04:52,479 Speaker 3: today thanks to foreigners being the overwhelmingly large share of 101 00:04:52,520 --> 00:04:56,400 Speaker 3: trading volume in ultra long end jgb's, but also around 102 00:04:56,400 --> 00:04:59,280 Speaker 3: the tenure bucket onwards as well. So all in all, 103 00:04:59,400 --> 00:05:02,280 Speaker 3: when everyone's suing at the same time, something will break. 104 00:05:02,680 --> 00:05:05,080 Speaker 3: I'm not sure how when politicians will take note, but 105 00:05:05,080 --> 00:05:06,919 Speaker 3: I think they are already, and I think that's why 106 00:05:07,120 --> 00:05:10,920 Speaker 3: the LDP's fiscal prudence wing has played a large influence 107 00:05:11,120 --> 00:05:13,520 Speaker 3: in Takhi's changed in her opinions Jordan. 108 00:05:13,600 --> 00:05:15,760 Speaker 2: In addition to that, the role of the central bank, 109 00:05:15,800 --> 00:05:17,120 Speaker 2: I think there's a big question up in the air 110 00:05:17,160 --> 00:05:19,680 Speaker 2: about that, so let's discuss it. Traditionally, if this was 111 00:05:19,720 --> 00:05:22,560 Speaker 2: the United States, we'd be talking about a pro fiscal 112 00:05:22,640 --> 00:05:26,000 Speaker 2: stimulus party or leader. We'd be talking about title monetary 113 00:05:26,040 --> 00:05:28,480 Speaker 2: policy to offset some of dan. That wasn't a conversation 114 00:05:28,520 --> 00:05:31,480 Speaker 2: in Japan overnight. In fact, the pricing of rate hikes 115 00:05:31,520 --> 00:05:34,240 Speaker 2: in the future actually came in now Jord And I wonder, 116 00:05:34,680 --> 00:05:37,800 Speaker 2: is this really a unique independent central bank? What is 117 00:05:37,839 --> 00:05:40,240 Speaker 2: going on with a central bank story in the relationship 118 00:05:40,240 --> 00:05:41,800 Speaker 2: between the government and the BOJ. 119 00:05:42,800 --> 00:05:45,960 Speaker 3: All these independent central banks all they are, for example, 120 00:05:46,000 --> 00:05:47,640 Speaker 3: the FED, they answer to Congress, so there is a 121 00:05:47,680 --> 00:05:49,839 Speaker 3: political sort of influence on all of them. 122 00:05:50,360 --> 00:05:51,880 Speaker 4: A Bank of England, ECB, etc. 123 00:05:52,520 --> 00:05:55,040 Speaker 3: When it comes to the BOJ, there is a pretty 124 00:05:55,080 --> 00:05:58,640 Speaker 3: strong level of political cooperation. It's written into the bank 125 00:05:58,680 --> 00:06:02,680 Speaker 3: Coajapan's charter. Now this we've seen this before. Arbenomics is 126 00:06:02,720 --> 00:06:05,760 Speaker 3: a clear case of this, where most people assume that 127 00:06:05,880 --> 00:06:09,040 Speaker 3: Arbenomics was both fiscal easing and monetary Sure, it was, 128 00:06:09,240 --> 00:06:12,719 Speaker 3: but Arbenenomics actually leaned heavily on the monetary policy side 129 00:06:13,000 --> 00:06:15,440 Speaker 3: of that story, and we saw the Bank Japan expand 130 00:06:15,440 --> 00:06:18,600 Speaker 3: the QE and so forth, eventually going negative rates too. 131 00:06:18,960 --> 00:06:21,320 Speaker 3: So there is the potential for Takeiachi to play a 132 00:06:21,360 --> 00:06:23,760 Speaker 3: large role. If you think back to last year, Prime 133 00:06:23,760 --> 00:06:26,719 Speaker 3: Minister sheba this history behind this. John one day after 134 00:06:26,760 --> 00:06:28,840 Speaker 3: becoming Prime minister, he said now is probably not the 135 00:06:28,920 --> 00:06:31,160 Speaker 3: right time for the BOJA to raise rates, and they 136 00:06:31,200 --> 00:06:34,839 Speaker 3: delayed that rate hike from October through to January. 137 00:06:35,040 --> 00:06:36,720 Speaker 4: So tak Each you might say the same thing. 138 00:06:37,400 --> 00:06:39,279 Speaker 3: We've only had one tweet from her and one victory 139 00:06:39,320 --> 00:06:42,000 Speaker 3: speech so far, and so we haven't got enough information. 140 00:06:42,120 --> 00:06:44,520 Speaker 3: But what I will say is it's very different to Arbonomics. 141 00:06:44,520 --> 00:06:47,359 Speaker 3: When inflation was that near zero. Inflation has been above 142 00:06:47,360 --> 00:06:49,239 Speaker 3: two for the past two to three years in Japan, 143 00:06:49,480 --> 00:06:51,080 Speaker 3: and the aim of this government is to try and 144 00:06:51,080 --> 00:06:54,360 Speaker 3: bring inflation down. You don't really achieve that by stopping 145 00:06:54,360 --> 00:06:56,520 Speaker 3: the Bank Japan from raising rates, So John, I think 146 00:06:56,680 --> 00:06:57,800 Speaker 3: they still raise rates. 147 00:06:58,000 --> 00:06:59,680 Speaker 4: October is clearly. 148 00:06:59,440 --> 00:07:01,680 Speaker 3: Much less likely now because the BOJ might want to 149 00:07:01,680 --> 00:07:03,760 Speaker 3: wait and see what the budget will be. So that 150 00:07:03,839 --> 00:07:07,200 Speaker 3: makes December or January still live meetings. But if you're 151 00:07:07,200 --> 00:07:09,400 Speaker 3: to ask me, John, I'd be paid the October meeting. 152 00:07:09,680 --> 00:07:11,600 Speaker 3: I think the risk reward is still there. The Bank 153 00:07:11,640 --> 00:07:14,520 Speaker 3: Japan has lined up loads of speeches this month. We'll 154 00:07:14,520 --> 00:07:16,520 Speaker 3: hear from Governor you Wade to himself later this week 155 00:07:16,560 --> 00:07:19,840 Speaker 3: as well. The data is strong in Japan. It all 156 00:07:19,840 --> 00:07:22,040 Speaker 3: adds up to a rate hike. John, Apart from the 157 00:07:22,080 --> 00:07:24,239 Speaker 3: politics and the uncertainty. 158 00:07:25,080 --> 00:07:25,720 Speaker 1: Stay with us. 159 00:07:26,040 --> 00:07:38,640 Speaker 2: More Bloomberg surveillance coming up after this. Another week of 160 00:07:38,680 --> 00:07:41,360 Speaker 2: economic data at risk as the government shut down enters 161 00:07:41,440 --> 00:07:44,679 Speaker 2: it's sixth day. Paul Donovan of UBS Global Wealth Management 162 00:07:44,720 --> 00:07:47,280 Speaker 2: right in the following. The problem is that alternatives like 163 00:07:47,360 --> 00:07:50,520 Speaker 2: sentiment surveys are even worse, and that's all the markets 164 00:07:50,560 --> 00:07:52,480 Speaker 2: will be left to work with. Paul joined us now 165 00:07:52,480 --> 00:07:54,480 Speaker 2: for more. Paul, you're one of our favorites. It's great 166 00:07:54,480 --> 00:07:57,360 Speaker 2: to finally catch up with you after a period of time. Paul, 167 00:07:57,400 --> 00:07:59,400 Speaker 2: I wanted to get your opinion on this. I've heard 168 00:07:59,400 --> 00:08:02,200 Speaker 2: a lot of people's say, we're flying blind without the data. 169 00:08:02,280 --> 00:08:03,679 Speaker 2: Were we flying blind already? 170 00:08:05,240 --> 00:08:08,320 Speaker 6: We were flying blind, we were perhaps flying quite a 171 00:08:08,360 --> 00:08:13,360 Speaker 6: thick fog. So for about fifteen years, economists have been 172 00:08:13,800 --> 00:08:18,360 Speaker 6: complaining about the deteriorating quality of economic data. Nobody fills 173 00:08:18,360 --> 00:08:23,320 Speaker 6: in surveys anymore. Structural change means that we're missing parts 174 00:08:23,360 --> 00:08:25,680 Speaker 6: of the economy. You know, where in the employment report 175 00:08:25,760 --> 00:08:29,880 Speaker 6: is the TikTok content creator and parties and bias. The 176 00:08:29,920 --> 00:08:33,160 Speaker 6: political bias in the States is getting extreme, and people 177 00:08:33,160 --> 00:08:36,640 Speaker 6: are answering according to their political views, not according to 178 00:08:37,000 --> 00:08:39,800 Speaker 6: what's happening actually happening in their lives. So we've had 179 00:08:39,800 --> 00:08:43,679 Speaker 6: this problem for some time. But the official data did 180 00:08:44,120 --> 00:08:46,440 Speaker 6: the best of a bad job. It did the best 181 00:08:46,480 --> 00:08:50,200 Speaker 6: that it could in order to filter out some of 182 00:08:50,240 --> 00:08:52,800 Speaker 6: this noise and give us an idea about where the 183 00:08:52,880 --> 00:08:55,120 Speaker 6: economy was performing in real time. 184 00:08:55,480 --> 00:08:56,240 Speaker 1: So how does it. 185 00:08:56,240 --> 00:08:59,079 Speaker 5: Change going forward that we don't even have that right 186 00:08:59,200 --> 00:09:02,520 Speaker 5: that we end up in the realm of speculation and 187 00:09:02,679 --> 00:09:04,800 Speaker 5: rumor at a time where people just take all of that, 188 00:09:04,840 --> 00:09:06,400 Speaker 5: put it together and say, well, stocks have to just 189 00:09:06,480 --> 00:09:07,120 Speaker 5: keep going up. 190 00:09:08,320 --> 00:09:10,440 Speaker 6: So this is where I think things do start to 191 00:09:10,440 --> 00:09:13,760 Speaker 6: get tricky. Pads a little bit less for the equity 192 00:09:13,840 --> 00:09:17,600 Speaker 6: market than for the bond market. Because of course, corporate data, 193 00:09:18,160 --> 00:09:20,800 Speaker 6: as long as companies are honest, is going to be 194 00:09:21,000 --> 00:09:24,480 Speaker 6: still reliable. So the earnings reports that come out, the 195 00:09:24,520 --> 00:09:27,520 Speaker 6: corporate announcements that are legally obliged the companies are legally 196 00:09:27,559 --> 00:09:30,240 Speaker 6: obliged to put out, that should all be okay. But 197 00:09:30,400 --> 00:09:33,480 Speaker 6: the bigger macro picture is getting more confused, and some 198 00:09:33,559 --> 00:09:37,360 Speaker 6: of it is reliant on what we're seeing elsewhere in 199 00:09:37,360 --> 00:09:40,320 Speaker 6: the world. You know, how do we judge US trade data? Well, 200 00:09:40,400 --> 00:09:42,680 Speaker 6: let's see what other countries are saying when they're talking 201 00:09:42,720 --> 00:09:45,000 Speaker 6: about exports to the States, for example, we're having to 202 00:09:45,000 --> 00:09:47,440 Speaker 6: back out data some of the time. 203 00:09:48,360 --> 00:09:50,400 Speaker 5: You made a really good point, Paul in your recent 204 00:09:50,480 --> 00:09:53,120 Speaker 5: notes that right now the market is treating the shutdown 205 00:09:53,200 --> 00:09:57,200 Speaker 5: it's going on in Washington, DC as negligible, something that 206 00:09:57,280 --> 00:09:59,200 Speaker 5: will maybe cause a loss of economic activity. 207 00:09:59,240 --> 00:10:00,599 Speaker 4: It will just be hooped. 208 00:10:00,320 --> 00:10:04,120 Speaker 5: Potentially in a couple weeks, in months time. Why do 209 00:10:04,200 --> 00:10:06,200 Speaker 5: you think this time really could be different? 210 00:10:07,600 --> 00:10:09,840 Speaker 6: So as a baseline, I don't think it is going 211 00:10:09,920 --> 00:10:12,440 Speaker 6: to be different. We get this with every shutdown, you 212 00:10:12,520 --> 00:10:18,280 Speaker 6: get a period where data economic activity is suppressed and 213 00:10:18,280 --> 00:10:22,160 Speaker 6: then you get a period where you rebound, the back 214 00:10:22,200 --> 00:10:25,800 Speaker 6: pay is paid back, that kind of thing. The only 215 00:10:25,960 --> 00:10:29,520 Speaker 6: real difference this time is that US President Trump has 216 00:10:30,120 --> 00:10:34,559 Speaker 6: talked about possibly firing some more government employees. 217 00:10:34,800 --> 00:10:35,400 Speaker 1: Now that is. 218 00:10:35,400 --> 00:10:38,680 Speaker 6: Different because then, of course you're not getting the rebound 219 00:10:38,760 --> 00:10:42,840 Speaker 6: from those employees. You are also potentially creating some fear 220 00:10:42,880 --> 00:10:47,319 Speaker 6: of unemployment amongst people both in and outside the government sector. 221 00:10:47,720 --> 00:10:51,560 Speaker 6: That would be a more troubling situation because you would 222 00:10:51,559 --> 00:10:54,840 Speaker 6: get the slowdown, but the rebound that we normally would 223 00:10:54,880 --> 00:10:57,840 Speaker 6: see would be a lot more muted. I would regard 224 00:10:57,880 --> 00:10:59,560 Speaker 6: that very much as the risk case, not as the 225 00:10:59,559 --> 00:11:01,680 Speaker 6: base case. The base case, I think is this is 226 00:11:01,679 --> 00:11:04,079 Speaker 6: going to be like every other shutdown, you know, down 227 00:11:04,080 --> 00:11:06,360 Speaker 6: in week one, up in week two, that kind of thing. 228 00:11:06,600 --> 00:11:11,079 Speaker 6: But there is that risk if some employees are going 229 00:11:11,120 --> 00:11:13,840 Speaker 6: to lose their jobs permanently as a result of the shutdown. 230 00:11:14,000 --> 00:11:16,040 Speaker 2: Paul, I think we all hope you're absolutely right and 231 00:11:16,080 --> 00:11:17,640 Speaker 2: we do bounce back and just get back to work, 232 00:11:17,640 --> 00:11:19,840 Speaker 2: get back to business, and this economy grows. The other 233 00:11:19,880 --> 00:11:21,920 Speaker 2: thing we wanted to talk to you about was inflation, 234 00:11:22,440 --> 00:11:25,840 Speaker 2: market based expectations of inflation, how the FED measures things, 235 00:11:25,920 --> 00:11:28,800 Speaker 2: and ultimately how consumers experience it. Paul, I've heard you 236 00:11:28,840 --> 00:11:31,560 Speaker 2: in the past talk about frequency bias. Could you explain 237 00:11:31,600 --> 00:11:34,560 Speaker 2: that as a concept in economics and why that's important 238 00:11:34,559 --> 00:11:38,320 Speaker 2: to the difference between how consumers feel and what the 239 00:11:38,360 --> 00:11:39,199 Speaker 2: FED is tracking. 240 00:11:40,760 --> 00:11:42,840 Speaker 1: So this is a very important point. 241 00:11:43,040 --> 00:11:47,560 Speaker 6: Everybody is guilty of frequency bias. That is to say, 242 00:11:47,760 --> 00:11:49,960 Speaker 6: you know, you remember the price is the Snickers bar 243 00:11:50,120 --> 00:11:52,840 Speaker 6: you buy every day. You do not remember the price 244 00:11:52,880 --> 00:11:56,400 Speaker 6: of a television you buy every three, four or five years. 245 00:11:56,880 --> 00:12:01,160 Speaker 6: And so as a result, when prices change in high 246 00:12:01,240 --> 00:12:04,480 Speaker 6: frequency purchases, it sort of sticks in your mind. And 247 00:12:04,640 --> 00:12:07,720 Speaker 6: every time I go to the vending machine at work, 248 00:12:07,760 --> 00:12:09,760 Speaker 6: I think, oh, that price has gone up. I remember 249 00:12:09,800 --> 00:12:12,160 Speaker 6: when it used to cost seventy pence and now it's 250 00:12:12,160 --> 00:12:14,720 Speaker 6: costing me ninety pence, And it sticks in your mind, 251 00:12:15,240 --> 00:12:19,760 Speaker 6: and that then colors the view of inflation that you have. 252 00:12:20,240 --> 00:12:23,880 Speaker 6: The fact that the television is twenty percent cheaper than 253 00:12:24,120 --> 00:12:26,320 Speaker 6: the last one you bought seven years ago, you don't 254 00:12:26,360 --> 00:12:28,960 Speaker 6: remember that because you can't remember what you paid in 255 00:12:29,000 --> 00:12:29,480 Speaker 6: the past. 256 00:12:29,840 --> 00:12:31,520 Speaker 1: So the problem that. 257 00:12:31,440 --> 00:12:35,319 Speaker 6: We have is that when you see basically rising food 258 00:12:35,480 --> 00:12:40,240 Speaker 6: and rising fuel prices, those are prices that consumers will 259 00:12:40,280 --> 00:12:44,000 Speaker 6: remember and that will create a sense of dissatisfaction when 260 00:12:44,040 --> 00:12:47,480 Speaker 6: you have food and fuel inflation. If you have an 261 00:12:47,520 --> 00:12:51,840 Speaker 6: overall fairly benign inflation environment and there's something weird going 262 00:12:51,840 --> 00:12:55,680 Speaker 6: on with food supply, that can create a peculiar situation 263 00:12:55,800 --> 00:12:58,200 Speaker 6: where the central banker is saying, no, inflation isn't a 264 00:12:58,240 --> 00:13:00,559 Speaker 6: problem at all, and the consumer saying, no, the cost 265 00:13:00,600 --> 00:13:02,240 Speaker 6: of living goes up. Look how much I had to 266 00:13:02,280 --> 00:13:06,439 Speaker 6: pay the supermarket this week. So that's really the issue. 267 00:13:06,280 --> 00:13:08,680 Speaker 2: Paul, is that the situation now is that how you 268 00:13:08,800 --> 00:13:11,480 Speaker 2: describe things and does it shape consumer behavior? 269 00:13:12,720 --> 00:13:14,600 Speaker 6: Well, what we've got at the moment, it's quite interesting. 270 00:13:14,600 --> 00:13:17,319 Speaker 6: It's sort of a reverse of what happened under the 271 00:13:17,400 --> 00:13:21,000 Speaker 6: last administration. So in the last administration, inflation was coming down, 272 00:13:21,240 --> 00:13:25,520 Speaker 6: nobody really believed it because food price inflation was very high. 273 00:13:25,559 --> 00:13:29,439 Speaker 6: There was an episode of profit led inflation from food retail. 274 00:13:30,080 --> 00:13:34,360 Speaker 6: What has been happening this year until recently, his fuel 275 00:13:34,400 --> 00:13:39,240 Speaker 6: prices have been subdued. Food prices until recently have not 276 00:13:39,320 --> 00:13:42,880 Speaker 6: been a particularly big problem, but durable goods prices have 277 00:13:42,960 --> 00:13:46,760 Speaker 6: gone from falling to rising. And so you've got the 278 00:13:46,800 --> 00:13:49,080 Speaker 6: reverse problem there that you've got inflation that people are 279 00:13:49,120 --> 00:13:50,679 Speaker 6: not necessarily. 280 00:13:50,080 --> 00:13:50,880 Speaker 1: So aware of. 281 00:13:51,200 --> 00:13:53,880 Speaker 6: But what we've been seeing more recently in the States 282 00:13:54,120 --> 00:13:57,120 Speaker 6: is food price inflation has been ticking up. Things like 283 00:13:57,160 --> 00:13:59,960 Speaker 6: the price of beef, for example, has gone up very 284 00:14:00,200 --> 00:14:04,400 Speaker 6: very dramatically. Coffee prices are soaring, and that is going 285 00:14:04,440 --> 00:14:07,920 Speaker 6: to be more visible. So I think the noise from 286 00:14:08,000 --> 00:14:13,240 Speaker 6: consumers about inflation, the political anxiety about inflation is likely 287 00:14:13,280 --> 00:14:15,920 Speaker 6: to be ramping up as we see these higher food 288 00:14:15,920 --> 00:14:17,320 Speaker 6: prices starting to emerge. 289 00:14:18,880 --> 00:14:22,560 Speaker 2: Stay with us more Bloomberg Surveillance coming up after this. 290 00:14:31,600 --> 00:14:32,400 Speaker 1: Sick in wit tech. 291 00:14:32,600 --> 00:14:35,160 Speaker 2: Jake Goldberg of Seaport calling the recent moves in AI 292 00:14:35,600 --> 00:14:40,040 Speaker 2: bubble like behavior. Jake Goldberg joins us now for more. Jay, 293 00:14:40,040 --> 00:14:42,320 Speaker 2: Welcome to the program, sir. You've got a rare soar 294 00:14:42,400 --> 00:14:45,560 Speaker 2: rating on Nvidia. Let's just talk about that line bubble 295 00:14:45,760 --> 00:14:49,680 Speaker 2: like behavior. Does the announcement from AMD and open Ai 296 00:14:49,960 --> 00:14:51,000 Speaker 2: speak to some of that for you? 297 00:14:51,920 --> 00:14:55,120 Speaker 7: Absolutely, It's quite an interesting thing to wake up to 298 00:14:55,240 --> 00:14:58,560 Speaker 7: this morning. We have a company that's giving away ten 299 00:14:58,560 --> 00:15:02,520 Speaker 7: percent of its start to to a startup that doesn't 300 00:15:02,560 --> 00:15:05,400 Speaker 7: have positive free cash flow to buy tens. 301 00:15:05,200 --> 00:15:06,520 Speaker 1: Of billions of dollars of their products. 302 00:15:06,520 --> 00:15:09,400 Speaker 7: Somewhere down the line, and that company's stock is up 303 00:15:09,440 --> 00:15:13,360 Speaker 7: thirty percent. You know, on the face of it, I 304 00:15:13,360 --> 00:15:14,800 Speaker 7: haven't had time to parse it, but it looks like 305 00:15:14,840 --> 00:15:17,920 Speaker 7: a great, good deal for AMD over the long term. 306 00:15:18,640 --> 00:15:23,800 Speaker 7: But it just, you know, the market reaction seems to 307 00:15:23,880 --> 00:15:27,880 Speaker 7: be looking at only the positives and applying a zero 308 00:15:27,880 --> 00:15:31,160 Speaker 7: percent discount rate to future events, not looking through the 309 00:15:31,160 --> 00:15:31,600 Speaker 7: whole deal. 310 00:15:31,920 --> 00:15:34,200 Speaker 5: At the same time, Jay, in the past, we've seen 311 00:15:34,560 --> 00:15:38,000 Speaker 5: earnings outperform again and again and again from these companies, 312 00:15:38,040 --> 00:15:39,680 Speaker 5: and a lot of people will come on and say, 313 00:15:40,040 --> 00:15:44,880 Speaker 5: if you look at the price to the actual income level, 314 00:15:45,200 --> 00:15:47,800 Speaker 5: you've seen multiples come down, not go up, even with 315 00:15:47,880 --> 00:15:51,280 Speaker 5: prices going up significantly. What about that story doesn't work 316 00:15:51,320 --> 00:15:53,000 Speaker 5: for you in the same way that it did, say 317 00:15:53,240 --> 00:15:54,000 Speaker 5: three years ago. 318 00:15:55,120 --> 00:15:59,720 Speaker 7: So I think, Look, I'm not a bear on AI 319 00:15:59,840 --> 00:16:01,880 Speaker 7: and general. I think AI has the potential to be 320 00:16:02,000 --> 00:16:05,520 Speaker 7: very important. But no technology gets adopted in a straight line. 321 00:16:06,200 --> 00:16:08,920 Speaker 7: They're always going to be fits and starts. We saw 322 00:16:08,960 --> 00:16:12,040 Speaker 7: that with the Internet, we saw that with with mobile. 323 00:16:12,160 --> 00:16:14,080 Speaker 7: These things go up and down, they don't just keep 324 00:16:14,120 --> 00:16:18,640 Speaker 7: running forever. And I think just assuming drawing straight lines, 325 00:16:18,720 --> 00:16:21,600 Speaker 7: extrapolating from where we are today into some sort of 326 00:16:21,640 --> 00:16:22,560 Speaker 7: never ending future. 327 00:16:23,800 --> 00:16:24,960 Speaker 1: That's not how things are going to work. 328 00:16:25,000 --> 00:16:28,320 Speaker 7: And I think we need just a little degree of 329 00:16:28,800 --> 00:16:31,240 Speaker 7: caution around some of this stuff, where a lot of 330 00:16:31,240 --> 00:16:36,280 Speaker 7: these things are getting very extended, just based on what 331 00:16:36,400 --> 00:16:39,280 Speaker 7: the actual deployments are looking like and returns that the 332 00:16:39,360 --> 00:16:41,480 Speaker 7: hyperscalers are getting on their investments. 333 00:16:41,720 --> 00:16:43,800 Speaker 5: What do you think is the most speculative at this point, Jay, 334 00:16:43,800 --> 00:16:45,680 Speaker 5: I know that your call is on in Video, which 335 00:16:45,720 --> 00:16:48,880 Speaker 5: is notable given all of the buy ratings that we 336 00:16:48,920 --> 00:16:51,320 Speaker 5: see on it, But beyond that is in Vidia the 337 00:16:51,320 --> 00:16:52,840 Speaker 5: biggest defender right now in your mind? 338 00:16:53,600 --> 00:16:54,960 Speaker 1: Well, I think the whole thing. 339 00:16:55,920 --> 00:16:58,760 Speaker 7: We have this sort of massive AI spend taking place 340 00:16:58,840 --> 00:17:01,240 Speaker 7: right now, but if you boil it all down, it's 341 00:17:01,280 --> 00:17:07,560 Speaker 7: really six companies that are driving all of that. Microsoft, Amazon, Google, Meta, 342 00:17:07,920 --> 00:17:10,480 Speaker 7: open Ai, Microsoft, and. 343 00:17:12,000 --> 00:17:14,440 Speaker 1: I understand that their. 344 00:17:13,920 --> 00:17:16,800 Speaker 7: Imperatives and why they're doing this, but I think it 345 00:17:16,920 --> 00:17:21,960 Speaker 7: is worth reflecting on that it's just six companies and 346 00:17:22,200 --> 00:17:25,760 Speaker 7: none of them actually have a very clear return on 347 00:17:25,800 --> 00:17:28,520 Speaker 7: their investment even in the works. They're sort of spending 348 00:17:28,520 --> 00:17:31,280 Speaker 7: it because everyone else is spending. And then you have 349 00:17:31,320 --> 00:17:35,640 Speaker 7: open Ai, who who is an incredibly capable company coming 350 00:17:35,640 --> 00:17:38,000 Speaker 7: with great models, but at the same time, you know 351 00:17:38,000 --> 00:17:41,280 Speaker 7: they're free, casual, and negative. So I think that sort 352 00:17:41,320 --> 00:17:43,440 Speaker 7: of calls in the question the sustainability of all this. 353 00:17:43,640 --> 00:17:47,760 Speaker 2: And J's bringing in multiple sectors. It's energy, it's the 354 00:17:47,800 --> 00:17:51,520 Speaker 2: capital providers, it's tech. I know based on some of 355 00:17:51,560 --> 00:17:54,160 Speaker 2: your writing that you think this could exacerbate problems further 356 00:17:54,200 --> 00:17:55,680 Speaker 2: down the road. Could you build on that just a 357 00:17:55,720 --> 00:17:59,240 Speaker 2: little bit, that the concentration exacerbates the downside risk. 358 00:18:00,119 --> 00:18:01,880 Speaker 1: I think that's that's absolutely the case. 359 00:18:01,920 --> 00:18:04,040 Speaker 7: Where you know, when I hear my colleagues on the 360 00:18:04,040 --> 00:18:09,040 Speaker 7: morning call talk about energy and pipelines and materials, you know, 361 00:18:09,640 --> 00:18:12,200 Speaker 7: and they all talk about the AI element to their 362 00:18:12,359 --> 00:18:15,000 Speaker 7: stocks growth, that just makes me pause. Like I've been 363 00:18:15,000 --> 00:18:18,720 Speaker 7: covering semiconductors for over twenty years now, and I've always 364 00:18:18,720 --> 00:18:20,800 Speaker 7: had good relationships with my peers, but we usually never 365 00:18:20,800 --> 00:18:22,520 Speaker 7: talk about each other's stocks. There's never been a lot 366 00:18:22,560 --> 00:18:26,800 Speaker 7: of overlap, and here we have everybody talking about the 367 00:18:27,760 --> 00:18:28,480 Speaker 7: same themes. 368 00:18:29,040 --> 00:18:31,200 Speaker 1: It makes me wonder, Jane. 369 00:18:31,200 --> 00:18:33,959 Speaker 2: The energy piece of it is interesting. There has been 370 00:18:33,960 --> 00:18:37,040 Speaker 2: a broader conversation people acknowledge the potential for constraints. Do 371 00:18:37,080 --> 00:18:39,280 Speaker 2: you think that's going to be the first constraint the 372 00:18:39,320 --> 00:18:40,840 Speaker 2: thing that shakes this up quickly. 373 00:18:41,640 --> 00:18:44,040 Speaker 7: Absolutely right, I mean, and I look at in video 374 00:18:44,119 --> 00:18:46,000 Speaker 7: like I'm cautious on in video. I think if my 375 00:18:46,320 --> 00:18:48,360 Speaker 7: rating here is more of an underperformed than a cell, 376 00:18:48,400 --> 00:18:52,399 Speaker 7: I wouldn't short in video. But the issue is at 377 00:18:52,400 --> 00:18:54,840 Speaker 7: this point in videos is kind of all the good 378 00:18:54,840 --> 00:18:56,760 Speaker 7: news is priced into in video and none of the 379 00:18:56,760 --> 00:18:59,199 Speaker 7: potential downside is priced in. There are a lot of 380 00:18:59,200 --> 00:19:02,000 Speaker 7: things that can go go wrong that are beyond their control, 381 00:19:02,600 --> 00:19:04,840 Speaker 7: and you know top of that list is electricity. 382 00:19:05,359 --> 00:19:05,560 Speaker 1: Right. 383 00:19:05,800 --> 00:19:07,960 Speaker 7: We don't know to the extent to which Open Aye 384 00:19:08,040 --> 00:19:09,440 Speaker 7: is going to be able to deliver on all these 385 00:19:09,960 --> 00:19:13,280 Speaker 7: all these electricity numbers they put out there, and like 386 00:19:13,320 --> 00:19:16,480 Speaker 7: in just the last week they've talked about adding sixteen 387 00:19:16,520 --> 00:19:21,480 Speaker 7: gigawatts of compute capacity. I don't think anyone knows exactly 388 00:19:21,480 --> 00:19:23,000 Speaker 7: where all that power is going to come from. They 389 00:19:23,000 --> 00:19:25,879 Speaker 7: have maybe some rough ideas, but I don't think all 390 00:19:25,920 --> 00:19:28,640 Speaker 7: those are are a lock and that that's a real 391 00:19:28,760 --> 00:19:30,359 Speaker 7: that's a real problem. I think it's going to pause 392 00:19:30,440 --> 00:19:33,280 Speaker 7: things somewhere down the road, Jay, how far are. 393 00:19:33,160 --> 00:19:36,680 Speaker 5: We from some sort of energy related constraint on how 394 00:19:36,800 --> 00:19:40,160 Speaker 5: much the promises of expansion can really meet reality. 395 00:19:40,920 --> 00:19:44,520 Speaker 7: I think it's a little a little beyond my my scope, 396 00:19:44,720 --> 00:19:48,479 Speaker 7: like I'm just a humble semiconductor analyst, But I do 397 00:19:48,480 --> 00:19:50,520 Speaker 7: think we start to see more concerned about that in 398 00:19:50,640 --> 00:19:51,120 Speaker 7: next year. 399 00:19:52,520 --> 00:19:54,760 Speaker 5: At what point do you see this also being a 400 00:19:54,840 --> 00:19:57,920 Speaker 5: question of the US versus China, especially given deep seek 401 00:19:57,960 --> 00:20:01,000 Speaker 5: I mean, do you think that that kind of issue 402 00:20:01,040 --> 00:20:02,640 Speaker 5: is going to come to the four that there could 403 00:20:02,680 --> 00:20:06,960 Speaker 5: be some new innovation that renders some of the big 404 00:20:07,000 --> 00:20:10,000 Speaker 5: tech companies more obsolete in short order? 405 00:20:11,000 --> 00:20:12,040 Speaker 1: Well, I think that is. 406 00:20:12,640 --> 00:20:15,840 Speaker 7: It's this weird dichotomy we have where the US has 407 00:20:15,920 --> 00:20:19,480 Speaker 7: chips but not all of electricity. China has all the 408 00:20:19,480 --> 00:20:23,639 Speaker 7: electricity they need but not enough chips. So both sides 409 00:20:23,960 --> 00:20:27,159 Speaker 7: face their own constraints. But I do think there are 410 00:20:27,160 --> 00:20:30,520 Speaker 7: going to be some pretty significant I don't want to 411 00:20:30,560 --> 00:20:34,160 Speaker 7: say breakthroughs, but sort of advances in China as companies 412 00:20:34,200 --> 00:20:38,680 Speaker 7: like Huawei find new ways to build their own domestic 413 00:20:38,680 --> 00:20:40,440 Speaker 7: supply chain that gets. 414 00:20:40,240 --> 00:20:41,960 Speaker 1: Them out from under these US restrictions. 415 00:20:42,119 --> 00:20:44,760 Speaker 7: They probably won't be as good as the best at 416 00:20:44,840 --> 00:20:47,040 Speaker 7: Nvidia and amb have to offer, but they may be 417 00:20:47,080 --> 00:20:50,240 Speaker 7: good enough for them to push ahead. There's a lot 418 00:20:50,280 --> 00:20:52,640 Speaker 7: of an immense amount of AI talent in China. 419 00:20:53,359 --> 00:20:54,399 Speaker 1: I don't want to overstate it. 420 00:20:54,760 --> 00:20:56,760 Speaker 7: I think the US still has a pretty big lead 421 00:20:56,800 --> 00:21:00,720 Speaker 7: in terms of just sort of fundamental foundational models, but 422 00:21:00,760 --> 00:21:03,320 Speaker 7: there's an incredible amount of talent in China, and I 423 00:21:03,359 --> 00:21:06,160 Speaker 7: think they're not as constrained as the US government might think. 424 00:21:06,520 --> 00:21:08,679 Speaker 2: Jay, just to finish on that, when you frame it 425 00:21:08,720 --> 00:21:10,800 Speaker 2: in the following terms, when you say that China has 426 00:21:10,800 --> 00:21:13,600 Speaker 2: the electricity, not the chips, that the US has the 427 00:21:13,680 --> 00:21:16,280 Speaker 2: chips but maybe has the energy constraints, which problem is 428 00:21:16,320 --> 00:21:17,040 Speaker 2: easier to fix? 429 00:21:19,200 --> 00:21:22,160 Speaker 7: I think it's going to be China getting around US 430 00:21:22,200 --> 00:21:25,159 Speaker 7: sanctions one way or another, probably by building their own 431 00:21:25,200 --> 00:21:25,720 Speaker 7: supply chain. 432 00:21:27,280 --> 00:21:27,920 Speaker 1: Stay with US. 433 00:21:28,240 --> 00:21:40,680 Speaker 2: More Bloomberg Surveillance coming up after this. Lindsay px RA 434 00:21:40,760 --> 00:21:43,200 Speaker 2: stif will joined US now for more Lindsay, we didn't 435 00:21:43,200 --> 00:21:45,119 Speaker 2: get payrolls. We're still waiting for that. We might not 436 00:21:45,160 --> 00:21:47,600 Speaker 2: get CPI. We will get a FED meeting at the 437 00:21:47,680 --> 00:21:50,200 Speaker 2: end of the month. I'm told they're essential. If they meet, 438 00:21:50,280 --> 00:21:53,560 Speaker 2: Lindsay and they don't have CPI and they don't have payrolls, 439 00:21:53,720 --> 00:21:56,159 Speaker 2: do they make the decision to cut interest rates? 440 00:21:56,680 --> 00:21:59,760 Speaker 8: Well, I think even without an updated look at the data. 441 00:22:00,080 --> 00:22:02,679 Speaker 8: I think the conversation is going to be very fierce 442 00:22:02,720 --> 00:22:04,720 Speaker 8: in the sense that we do have this growing number 443 00:22:04,720 --> 00:22:08,040 Speaker 8: of FED officials that is increasingly concerned about the lingering 444 00:22:08,119 --> 00:22:11,240 Speaker 8: level of inflation, that elevated level of inflation, and those 445 00:22:11,280 --> 00:22:13,800 Speaker 8: that are focused more on the weakness of employment. So 446 00:22:13,880 --> 00:22:16,560 Speaker 8: even without a new data point, I think this conversation 447 00:22:16,720 --> 00:22:19,399 Speaker 8: is going to intensify and complicate the ability for the 448 00:22:19,440 --> 00:22:23,600 Speaker 8: FED to justify any further movement, and the lack of data, 449 00:22:23,640 --> 00:22:26,000 Speaker 8: I think is going to reinforce the need for a 450 00:22:26,000 --> 00:22:29,680 Speaker 8: more patient, cautious approach to policy from here. 451 00:22:30,240 --> 00:22:32,399 Speaker 5: What date are you watching right now, lindsay, given that 452 00:22:32,480 --> 00:22:35,399 Speaker 5: the gold standard data, which is flawed, yes, but also 453 00:22:35,480 --> 00:22:38,600 Speaker 5: is probably the best that we've got, what are you 454 00:22:38,640 --> 00:22:39,720 Speaker 5: focusing on instead? 455 00:22:40,640 --> 00:22:42,840 Speaker 8: Well, I think right now, again, we still have a 456 00:22:42,880 --> 00:22:45,639 Speaker 8: lot of information on the price side. We're still waiting 457 00:22:45,640 --> 00:22:47,600 Speaker 8: to see whether or not we see an updated CPI 458 00:22:47,680 --> 00:22:50,000 Speaker 8: and PPI report, but we have a lot of information 459 00:22:50,160 --> 00:22:53,080 Speaker 8: coming down the pipeline to suggest that inflation is not 460 00:22:53,280 --> 00:22:57,080 Speaker 8: necessarily headed back to that two percent price level. We 461 00:22:57,160 --> 00:22:59,720 Speaker 8: see some of the Fed's preferred measures of inflation, the 462 00:22:59,720 --> 00:23:03,199 Speaker 8: piece the core PC still up near three percent, with 463 00:23:03,280 --> 00:23:07,240 Speaker 8: the most recent reports suggesting some upward momentum in the pipeline. 464 00:23:07,359 --> 00:23:10,000 Speaker 8: So again, I think it's very important that the FED 465 00:23:10,119 --> 00:23:13,919 Speaker 8: stays focused on that mandate for price stability, even with 466 00:23:14,240 --> 00:23:17,720 Speaker 8: early signs of a cooling in top line hiring. The 467 00:23:17,720 --> 00:23:21,320 Speaker 8: FED should not completely abandon that price stability component, which 468 00:23:21,359 --> 00:23:24,760 Speaker 8: it's failed to reinstate years now post the pandemic. 469 00:23:24,880 --> 00:23:27,080 Speaker 5: At the same time, we did see that job openings 470 00:23:27,240 --> 00:23:30,280 Speaker 5: per unemployed people that ratio felt to the lowest in 471 00:23:30,320 --> 00:23:33,120 Speaker 5: twenty twenty one in the recent JOLT survey. We did 472 00:23:33,119 --> 00:23:35,760 Speaker 5: see the non farm payrolls in August that was highly 473 00:23:35,760 --> 00:23:38,560 Speaker 5: concerning to some people, and we did see pretty significant 474 00:23:38,600 --> 00:23:42,560 Speaker 5: download re visions to the overall payrolls figures for the 475 00:23:42,640 --> 00:23:44,880 Speaker 5: year ended in March. At what point do you give 476 00:23:44,920 --> 00:23:47,280 Speaker 5: credence to the idea that there really is a significant 477 00:23:47,320 --> 00:23:49,919 Speaker 5: shift in the labor market that does also warrant attention 478 00:23:50,000 --> 00:23:50,480 Speaker 5: by the Fed. 479 00:23:51,240 --> 00:23:53,760 Speaker 8: Well, we also see that jobless claims, while volatile, are 480 00:23:53,840 --> 00:23:56,640 Speaker 8: still in a very low tight range. We also see 481 00:23:56,640 --> 00:23:59,680 Speaker 8: the unemployment rate is still stubbornly down near four percent. 482 00:24:00,600 --> 00:24:03,040 Speaker 8: So I think at the very least, the labor market 483 00:24:03,119 --> 00:24:06,000 Speaker 8: data are not all pointing in the same direction, which 484 00:24:06,040 --> 00:24:08,280 Speaker 8: isn't to say we ignore the data points that are 485 00:24:08,280 --> 00:24:10,560 Speaker 8: on the weaker side, but it's to say it's not 486 00:24:10,600 --> 00:24:13,720 Speaker 8: an alarm bell quite yet. It's something to watch, it's 487 00:24:13,760 --> 00:24:16,280 Speaker 8: something to be aware of. That being said, this is 488 00:24:16,320 --> 00:24:19,600 Speaker 8: a very aged recovery, and I would expect, particularly given 489 00:24:19,640 --> 00:24:23,160 Speaker 8: the reduction in international flows, that the need for top 490 00:24:23,280 --> 00:24:26,280 Speaker 8: lying hiring to slow. As we heard from Chair Powell, 491 00:24:26,440 --> 00:24:29,919 Speaker 8: he previously noted that full employment was roughly around one 492 00:24:30,000 --> 00:24:31,960 Speaker 8: hundred and twenty five one hundred and fifty thousand in 493 00:24:32,080 --> 00:24:35,359 Speaker 8: terms of payrolls. Well, he has significantly rised that lower, 494 00:24:35,560 --> 00:24:38,720 Speaker 8: and I think that's a more reasonable expectation for top 495 00:24:38,800 --> 00:24:42,879 Speaker 8: line growth, not necessarily an expanding labor market, but certainly 496 00:24:43,000 --> 00:24:46,040 Speaker 8: enough to keep stability in place in today's labor market. 497 00:24:46,240 --> 00:24:48,200 Speaker 2: Lindsay, can we pay that view with what's happening in 498 00:24:48,240 --> 00:24:52,040 Speaker 2: stock markets and more broadly financial conditions. Do you think 499 00:24:52,080 --> 00:24:56,040 Speaker 2: the feeder reserve is risking misplacing its anchor around the 500 00:24:56,080 --> 00:24:59,400 Speaker 2: labor market, around the step down in payrolls, and ultimately 501 00:24:59,440 --> 00:25:04,520 Speaker 2: fueling financial accesses and pockets of let's call it exuberance 502 00:25:04,920 --> 00:25:07,920 Speaker 2: right now? Is that a financial stability concern that needs consider. 503 00:25:09,119 --> 00:25:11,399 Speaker 8: It really is, and this is something that we've seen before. 504 00:25:11,680 --> 00:25:13,919 Speaker 8: We look at investors and they seem to be trading 505 00:25:14,000 --> 00:25:17,479 Speaker 8: up on good data. That means the economy is relatively solid, 506 00:25:17,520 --> 00:25:20,439 Speaker 8: trading up on bad data as well. Because this is 507 00:25:20,440 --> 00:25:23,320 Speaker 8: that FED put the expectation that the FED will jump 508 00:25:23,359 --> 00:25:27,680 Speaker 8: in and provide monetary policy support with additional policy easing, 509 00:25:28,040 --> 00:25:32,159 Speaker 8: even at the expense of maintaining still elevated inflation. And 510 00:25:32,240 --> 00:25:34,560 Speaker 8: so I do think that the market has become complacent 511 00:25:35,000 --> 00:25:39,320 Speaker 8: that the FED will continue to support the economy regardless 512 00:25:39,359 --> 00:25:42,200 Speaker 8: of the balance in terms of the risks on both 513 00:25:42,240 --> 00:25:44,640 Speaker 8: sides of the mandate tilting to one side or the other. 514 00:25:45,600 --> 00:25:49,160 Speaker 2: This is the Bloomberg Seventans podcast, bringing you the best 515 00:25:49,160 --> 00:25:52,720 Speaker 2: in markets, economics, antiopolitics. You can watch the show live 516 00:25:52,840 --> 00:25:55,800 Speaker 2: on Bloomberg TV weekday mornings from six am to nine 517 00:25:55,880 --> 00:25:59,560 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 518 00:25:59,600 --> 00:26:02,240 Speaker 2: anywhere else you listen, and as always on the Bloomberg 519 00:26:02,320 --> 00:26:04,160 Speaker 2: Terminal and the Bloomberg Business app. 520 00:26:08,280 --> 00:26:08,760 Speaker 3: Mm hmm.