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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Chris fher Own

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Speaker 2: of Stratigus a bad company, writing for all the concerns

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Speaker 2: about tariff policy, the market still seems more worried about

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Speaker 2: growth than inflation. Chris joins us. Now for more, Chris,

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Speaker 2: go Mornic.

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Speaker 1: That's great to be here.

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Speaker 2: John kept going over your quote from the last time

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Speaker 2: we spoke to lower yields speak to some kind of

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Speaker 2: economic weakness or do they support sicklicality in the equity market.

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Speaker 2: Is the equity market answering that question now?

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Speaker 3: Well, yeah, I think that's what's been so important about

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Speaker 3: this move lower and yields over the last month or

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Speaker 3: so is it has not recatalyzed the leadership from the

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Speaker 3: market's more cyclical corners. I think that's a very big

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Speaker 3: change in the character of what we've seen, frankly over

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Speaker 3: the last eighteen months, where when you would get relief

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Speaker 3: in yields, you would re entertain this broadening of the market,

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Speaker 3: this cyclical or small cap leadership, and you just have

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Speaker 3: not seen that here to any great extent.

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Speaker 1: So what we ask is our.

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Speaker 3: Lower yields actually more reflective of maybe something sinister with

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Speaker 3: the economy moving forward? And listen, I think the jury

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Speaker 3: still out on that. Financials are still pretty good here,

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Speaker 3: Credit's still relatively calm, but it would be silly not

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Speaker 3: to even entertain that.

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Speaker 2: Here does credit confirm what's going to be the next question?

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Speaker 2: What do you see in credit in high yield, in

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Speaker 2: a more speculative parts of fixed in county, it's.

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Speaker 1: Still remarkably benign here.

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Speaker 3: That's why I don't want to get two over my

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Speaker 3: skis or too carried away with the growth scare call

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Speaker 3: or the market's putting in some big top call, because

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Speaker 3: at the end of the day, if something really sinister

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Speaker 3: is out there, you're going to see it through the

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Speaker 3: lens of where you typically see it weaker financials, weaker banks,

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Speaker 3: weaker credit, and we can't check those boxes yet.

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Speaker 1: So we're alert here. We put out a note last

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Speaker 1: week some reasons precaution.

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Speaker 3: I just don't want to get two over my skis

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Speaker 3: with that view yet until you begin to see changes

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Speaker 3: in financials and credit which you have not gotten yet.

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Speaker 4: Is there a larger takeaway here? And John was laughing

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Speaker 4: at me the other day when I said, actually, if

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Speaker 4: you get a good auction, that could be a bad

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Speaker 4: thing too right now, And he's like, it's a bad auction,

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Speaker 4: it's terrible. If it's a good auction, it's terrible. How

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Speaker 4: much more various can you get? But is it telling

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Speaker 4: of where valuations are in risk assets that a rally

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Speaker 4: into bonds could be viewed more for the negative And

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Speaker 4: if you get a sell off in bonds that also

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Speaker 4: could be some sort of hit to valuations at these levels.

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Speaker 1: Well, I'll make a couple of points.

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Speaker 3: I think, Lisa, what you described there is simply a

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Speaker 3: game of expectations. And I think we enter twenty twenty

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Speaker 3: five with the expectations game very full domestically and very

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Speaker 3: light elsewhere.

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Speaker 1: And what have we seen to start the year.

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Speaker 3: Here, we've seen Europe and China I think, easily exceed

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Speaker 3: low expectations, while we've strug here domestically to kind of

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Speaker 3: meet the bar of high valuation, maybe deteriorating technicals and

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Speaker 3: all the like. So that expectations juxtaposition was really I

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Speaker 3: thought the crux going into twenty five, and I think

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Speaker 3: it remains one going forward.

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Speaker 1: When you look at the inflation.

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Speaker 3: Impetus behind tariffs or immigration, the places where I would

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Speaker 3: expect to see it higher bond yields, you're just not

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Speaker 3: seeing it.

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Speaker 1: So again it comes back to.

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Speaker 3: The question maybe the market has more growth concerns on

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Speaker 3: its mind than it does inflation.

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Speaker 1: One last big point here.

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Speaker 3: While we've seen cycle coality weakened domestically, I think it's

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Speaker 3: important that we have not seen that elsewhere. Sickle coality

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Speaker 3: has not been extinguished globally, and syclicality is alive and

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Speaker 3: well in Europe, it's really alive and well in Asia

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Speaker 3: and China here, so it seems like, if anything, cycle

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Speaker 3: coality has just migrated to other parts of the world.

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Speaker 3: What are you Europe and China have in common? They

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Speaker 3: have much more accommodative of central bankers right now.

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Speaker 1: I think that's the big difference.

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Speaker 4: I think you now though, when you started by saying

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Speaker 4: it's been a game of expectations and a lot of

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Speaker 4: this is just simply the money moving to places where

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Speaker 4: it seems that evaluations maybe are a little less extreme.

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Speaker 1: Have we already overdone that?

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Speaker 4: I mean, is that basically what we've seen to date,

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Speaker 4: And now, any further decline in yields, any further deterioration equities,

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Speaker 4: has to come on true evidence, a really true weakness

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Speaker 4: in the US versus just simply a rejiggering of capital flows.

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Speaker 3: You know, I think we sit here ten year yield

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Speaker 3: went out at four twenty five yesterday, there maybe four.

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Speaker 1: Thirty this morning.

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Speaker 3: To year average in yields is right about here, about

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Speaker 3: four to twenty. So basically the last two years you've

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Speaker 3: made no progress.

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Speaker 1: For as much as.

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Speaker 3: You want to take credit for yields lower here, the

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Speaker 3: reality is no one's really made any money on either side.

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Speaker 1: It's been a range.

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Speaker 3: So I think at the end of the day, where

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Speaker 3: where's the bottom end of that range? Somewhere around three

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Speaker 3: ninety three eighty. I think underneath that then you'd really

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Speaker 3: begin to say, whoa, whoa, whoa. Wait a second, what

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Speaker 3: is the market really messaging about the economy here? So

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Speaker 3: I think we're okay here, I think we're in some range.

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Speaker 3: The market's digesting these expectations. What we don't want to

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Speaker 3: see is the interrols get any worse. We're sitting here

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Speaker 3: with sixty sixty five percent of stocks.

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Speaker 1: Of the tuner day moving average.

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Speaker 3: Don't want to see that much under fifty percent. That

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Speaker 3: turns a split market into a band market.

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Speaker 2: What you described over the equitcy level Europe versus the

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Speaker 2: United States, China versus the United States, is also taking

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Speaker 2: place at a fixed income level. We shall find really interesting.

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Speaker 2: We closed out last year and tenure government bond yiards

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Speaker 2: in America are climbing. In China, they're cratering, they're rolling

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Speaker 2: over aggressively. And if you look at the chance to

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Speaker 2: start the year, it's like we flipped. What explains that story?

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Speaker 3: Yeah, I think really important change there. And you know,

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Speaker 3: we've been very much in this camp that what was

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Speaker 3: beginning to play out in China over the last year

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Speaker 3: was very reflective of what two thousand and eight, two

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Speaker 3: thousand and nine looked like here domestically, where you were

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Speaker 3: in this financial crisis and you just couldn't get stabilization

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Speaker 3: until particularly the short end of the bond market stabilized.

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Speaker 1: We've now seen that in China.

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Speaker 3: I mean two yeields in China are up fifty fifty

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Speaker 3: five basis points over the last five or six weeks.

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Speaker 3: I think that is essential to really changing the tide

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Speaker 3: and changing the narrative.

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Speaker 1: Remember, you've had these kind of fits.

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Speaker 3: And starts of rallies in China over the last year,

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Speaker 3: but this is the first one where bond yields have

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Speaker 3: actually gone that I think.

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Speaker 1: Is a really important change. Also, look at the leadership

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Speaker 1: in China.

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Speaker 3: Discretionary is trouncing, Staples, financials have broken out. Tech and

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Speaker 3: semis are your leadership. It is a really clean leadership

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Speaker 3: set up in China. I think it's suggestive of the

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Speaker 3: market saying we're past the worst of the economic recession.

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Speaker 4: There.

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Speaker 2: It's a massive sentiment shift banked up by high up

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Speaker 2: bond y odes. Stay signed. We've got this big dislocation

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Speaker 2: going on in the equity market. The MAC seven down

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Speaker 2: ten percent from old time highs and December, what do

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Speaker 2: you in the same top clients to do with that, now,

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Speaker 2: what's the approach to tech?

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Speaker 1: So when you kind of take them one by one,

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Speaker 1: and you know.

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Speaker 3: I'll say this as someone who's not a particularly level

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Speaker 3: sensitive investor analyst. I like to think more about the

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Speaker 3: character of a market or what the leadership looks like.

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Speaker 3: But I think this is a year where you do

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Speaker 3: have to be very level sensitive because this MAG seven

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Speaker 3: is not monolithic anymore. And you know, you look at

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Speaker 3: Nvidia up modestly after what seemed like good numbers. That

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Speaker 3: always raises an eyebrow to me when you can't respond

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Speaker 3: to good numbers. But the reality is it's a stock

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Speaker 3: that's been dead money for seven or eight months. It

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Speaker 3: really has not made a new high since about June.

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Speaker 3: I mean, there was a fractional new high late last year,

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Speaker 3: but really has not been a new high since June.

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Speaker 1: I think as long as that's under.

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Speaker 3: One forty one forty four, it's probably the same story

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Speaker 3: kind of dead money here when you look at MAG

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Speaker 3: seven or just large keptech broadly. I think the other

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Speaker 3: big story, though, is it peaked relative to the SMP

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Speaker 3: the exact same day that dollar again peaked July tenth

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Speaker 3: of twenty twenty four, So to think these two things

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Speaker 3: are not related. I think would be silly. What's been

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Speaker 3: a bigger driver of flow east to west than yen

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Speaker 3: carry over the last decade, So.

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Speaker 1: To the degree that's changed, I think it's important.

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Speaker 4: That's exactly where I wanted to go. And how much

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Speaker 4: is this in tandem with the fact that the dollars

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Speaker 4: weekend versus strengthened so far? How much do you see

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Speaker 4: a stickiness to that reversal inflows, this idea that countries

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Speaker 4: that used to be huge investors in the US suddenly

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Speaker 4: are seeing more to favor at home.

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Speaker 3: Yeah, I mean, what's the first rule that you learn

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Speaker 3: in this business is capital goes where capital was treated best.

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Speaker 3: And I think for a long time, when the interest

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Speaker 3: rate was fixed or suppressed, that that rule was thrown out.

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Speaker 3: The window that rolls back and the fact that I

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Speaker 3: mean look at Japanese tow year yield to Japanese ten yearyields.

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Speaker 3: I think they tell you the whole story. We're going

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Speaker 3: to get more from the BOJ. I think the BOJ

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Speaker 3: is going a surprise on the hawker side. I think

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Speaker 3: dollar yen is telling us that, but not just dollar yen.

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Speaker 3: Look at every yen pair right sterling yen AuCN euro yen.

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Speaker 3: You have put a major, major bottom in en. So again,

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Speaker 3: what a stronger yen mean going forward? I think less

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Speaker 3: money moving east to west. Whereas that impact, well, what's

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Speaker 3: been the biggest receiver of these flows over the last decade.

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Speaker 3: So I don't think these things are entirely coincident. I

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Speaker 3: do think there's some causality here as well.

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Speaker 2: We've been building up at dollar long for the best

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Speaker 2: part of a decade plus dollar denominates in assets, and

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Speaker 2: part of that story has been big tech and a

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Speaker 2: Max seven And that's.

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Speaker 4: The reason why the idea that we're talking about the

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Speaker 4: dollar yen and how that coheres with the peak that

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Speaker 4: we saw in Magnificent seven is really important to me.

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Speaker 4: I keep thinking about the credit pockets that the Japanese

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Speaker 4: investors COLO has collateralized loan obligations, that Japanese investors are

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Speaker 4: some of the biggest investors in What is this due

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Speaker 4: to potential dislocations down the pike? Really interesting?

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Speaker 2: Chris Smart, as always, you're one of the best. Appreciate it, Chris,

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Speaker 2: for I'm there, oshatigas Towston Stock of Apollo writing the

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Speaker 2: consensus expects total dough related job cuts to be three

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Speaker 2: hundred thousand. However, studies show that for every federal employee

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Speaker 2: there are two contractors. As a result, layoffs could potentially

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Speaker 2: be closer to one million. Torston joins us now for

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Speaker 2: more Torston, good morning morning. Haven't seen austerity for a

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Speaker 2: while in this country? Are we about to see it?

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Speaker 1: Well?

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Speaker 5: I think there are two important dimensions for margarets of this.

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Speaker 5: First of all, if the contentual system that's are right

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Speaker 5: and various numbers out there. But if we do see

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Speaker 5: layoffs around three hundred thousand, that raises the first question, Nami,

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Speaker 5: is that a big number a small number. Total employment

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Speaker 5: of the US is about one hundred and sixty million.

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Speaker 5: In that context, three hundred thousand is not a lot.

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Speaker 5: Total number of unemployed is about seven million. In that context,

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Speaker 5: three hundred thousand is not really a lot. And the

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Speaker 5: total number of people change jobs every month is about

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Speaker 5: five million, so in that context is not really a lot.

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Speaker 5: But if we do take into account that suddenly also

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Speaker 5: contracts are now being canceled and for every federal employee

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Speaker 5: there are two contractors, maybe then we could have another

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Speaker 5: six hundred thousand. That also could be impacted. So first,

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Speaker 5: which is a number day thirty, it becomes important to

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Speaker 5: think about what would implications be if we do see

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Speaker 5: numbers in the five hundred thousands to a million in

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Speaker 5: terms of layoffs. The second thing is also that if

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Speaker 5: we're not start thinking about well, if they are in

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Speaker 5: total about three million federal workers and there are again

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Speaker 5: two contracts that six million contractors, that brings you to

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Speaker 5: nine million people and therefore potentially nine million families that

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Speaker 5: are now being impacted by potentially having the risk of layoffs.

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Speaker 5: So that's why the numbers we got earlier this week

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Speaker 5: for consumer confidence could potentially be a reflection that a

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Speaker 5: lot of people are now being impacted by the risk

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Speaker 5: of potentially seeing layoffs, and that maybe why consumer confidence

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Speaker 5: took such a significant hit earlier this week.

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Speaker 2: You know, the longer term hope. The hope is that

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Speaker 2: as the federal government steps out, the private sector will

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Speaker 2: step in and we increase the dynamism of the American

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Speaker 2: economy over time. That's the destination. How painful is this

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Speaker 2: journey going to be?

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Speaker 5: Well, so that's why any adjustment in any economy, when

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Speaker 5: you take people out of one sector, government, transportation, healthcare,

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Speaker 5: whatever sex it is you want to change as a politician,

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Speaker 5: if you take them out and you want to reallocate

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Speaker 5: them to another sector. Absolutely, it does involve periods of unemployment.

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Speaker 5: It potentially also involves people who do not have the

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Speaker 5: skills to go into the other sectors that you want

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Speaker 5: to bring them into. So, yes, any adjustment in any

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Speaker 5: economy would be involving some pain, in this case in

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Speaker 5: the form of a high employment rate.

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Speaker 4: I'm going to ask you a question that you asked

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Speaker 4: this morning. Sentiment bad, hard, data good? How long can

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Speaker 4: it continue?

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Speaker 5: So the answer to that, of course, is that the

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Speaker 5: incoming data, as you talk about, of course all the time,

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Speaker 5: at the moment, is really strong. The number of people

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Speaker 5: flying on airplanes is strong, the number of people going

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Speaker 5: to broadway shows are strong. Spending on credit cards is strong.

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Speaker 5: Capick's outlook by corporates is also strong. But how long

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Speaker 5: time can we have this uncertainty about both consumer confidence

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Speaker 5: being weak and also policy uncertainty being so elevated and

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Speaker 5: potentially for a more extended period. And the answer to

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Speaker 5: that is that at some point you begin to worry

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Speaker 5: about that it will impact hiring decisions, They will impact

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Speaker 5: spending decisions by companies. So the answer to your question,

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Speaker 5: Lisa is at eight thirty and potentially also already as

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Speaker 5: soon as next week when we get the imployment report,

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Speaker 5: we will begin to figure out is this uncertainty just

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Speaker 5: talk an uncertainty or it is just something that actually

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Speaker 5: will begin to impact spending decisions by businesses and by households.

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Speaker 4: And this really is the key question. Heading into the

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Speaker 4: remainder of the year. You were really strong about the

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Speaker 4: idea that inflation wasn't coming down as quickly as people

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Speaker 4: expected last year, and you were saying that essentially you

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Speaker 4: didn't see the need for all of the cuts that

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Speaker 4: we saw last year that led to the ten year

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Speaker 4: yield rising. Is that the same thing here amid all

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Speaker 4: of this uncertainty or do you think that the rally

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Speaker 4: that we're seeing in bonds reflects a great weakness that

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Speaker 4: could be a longer lasting.

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Speaker 5: It is still the case because if you really think

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Speaker 5: about what's going going on, we are turning towards the

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Speaker 5: world with more segmentation. This is not only the US.

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Speaker 5: We had the German's elections on Sunday, and segmentation means

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Speaker 5: that countries are essentially saying we are no longer interested

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Speaker 5: in importing as many goods, and if we do import them,

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Speaker 5: they have to be more expensive. That's inflationary. Also, generally speaking,

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Speaker 5: there's also a drive towards saying we're not.

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Speaker 1: Interested in immigration.

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Speaker 5: That means that that's also inflationary, in particular for wages

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Speaker 5: and industrial policies in different countries are also now different.

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Speaker 5: Different countries have different interests. That also basically means less competition,

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Speaker 5: which also means more inflation. So on a number of

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Speaker 5: different fronts, you can both have at the same time

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Speaker 5: higher inflation and weaker growth, which is a definition of stackflation.

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Speaker 5: It is a stackflationary shock when you see inflation going

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Speaker 5: up and growth slowing down, And that just happens to

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Speaker 5: be the backdrop for the conversation that we're having in

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Speaker 5: markets at the moment.

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Speaker 2: Is the fat cutsing or hiking gets to that?

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Speaker 5: Well, of course, the fat now has the choice in

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Speaker 5: the dual manday to figure out how much weight do

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Speaker 5: we want to put on slowing growth and how much

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Speaker 5: weight do we want to put on inflation is taking

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Speaker 5: higher so far more recently they have certainly been more

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Speaker 5: worried about the inflation side of the dual mandate. But

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Speaker 5: if growth does slow more meaningfully, if you're on a

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Speaker 5: planner rate potentially already had eight thirty to day and

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Speaker 5: definitely Friday next week and the following month begins to

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Speaker 5: go up. I do think the FED will begin to

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Speaker 5: put more weight on the growth risks with the argument

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Speaker 5: that that potentially you will eventually drag inflation down. But

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Speaker 5: it's a very difficult spot for having stackflation as the

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Speaker 5: input into the fit decision.

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Speaker 2: Sounds like you're making a bit of a change, though

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Speaker 2: a bit of a.

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Speaker 5: Turn, absolutely, because we're getting worried about the challenges coming

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Speaker 5: from initiatives not only in the US but globally in

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Speaker 5: terms of what's coming from politicians, in terms of the

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Speaker 5: restrictions on immigration, what's happening with tariffs, and also industrial

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Speaker 5: policies that generally speaking, again are things that are inflationary.

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Speaker 2: Do you think task cuts by the end of the

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Speaker 2: year can change that conversation.

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Speaker 5: So I'll come back by the end of the end.

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Speaker 5: We'll have that discussion at that time. But I think

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Speaker 5: that's what's most important now is that the initial policies

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Speaker 5: that have come out on the table are inflationary. Namely

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Speaker 5: terrrists moving higher and also potentially something being done across

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Speaker 5: the board towards the different countries, and the more that

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Speaker 5: we have the risk that we will both have higher

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Speaker 5: prices and less sales, the more markets you would be

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Speaker 5: preparing themselves for the risk that expectationary scenario might be

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Speaker 5: playing out.

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Speaker 2: Tolson slack of apollo, Toston, lots to think about it.

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Speaker 2: Appreciate it, sir, Thank you to begin to stand with

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Speaker 2: equities questioning Kaira after invidious mixed earnings report, Binky shadow

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Speaker 2: with Deutsche Bank still optimistic, looking for the S and

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Speaker 2: P five hundred to end the year as seven k

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Speaker 2: Binky joins us now for more banking. Good morning, good morning,

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Speaker 2: give us a reason to be optimistic. Let's start there.

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Speaker 6: Well, let's talk a little bit about the confidence issue

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Speaker 6: that we were talking about and the pullback basically in

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Speaker 6: both measures that we have or for consumer confidence. I

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Speaker 6: mean the points that you know I would not is

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Speaker 6: confidence is actually not a very good indicator or driver

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Speaker 6: basically of spending. And you only need to look at

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Speaker 6: the last prior to two years when confidence was low

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Speaker 6: and spending was great.

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Speaker 2: You could argue, and I.

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Speaker 6: Think it's an open question as to whether the decline

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Speaker 6: in consumer confidence. You know, it does impact at the

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Speaker 6: end of the day, some of the spending on big

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Speaker 6: ticket items, but that's sort of still out there, is

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Speaker 6: the way I would put it. But there isn't a

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Speaker 6: robust relationship with overall spending, so it might just be

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Speaker 6: more of rotation. But on consumer confidence, I would argue that,

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Speaker 6: you know, it does tend to have an impact on

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Speaker 6: presidential job approval ratings. We also saw that over the

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Speaker 6: last two years, so it does matter. But I would argue,

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Speaker 6: bigger picture, for equities, what matters is the business cycle,

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Speaker 6: and that's in argue what's much more important is really

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Speaker 6: CEO confidence. And here, you know, the clock's been taking

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Speaker 6: rather fast basically, so we actually don't have good readings

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Speaker 6: on CEO confidence from the typical providers. I mean, they're dating,

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Speaker 6: that's all.

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Speaker 2: Things called though, So what are they saying on the

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Speaker 2: call exactly?

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Speaker 6: And that's what I was going to get into. So

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Speaker 6: every quarter we write a report about what companies are

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Speaker 6: saying and the last one is called and it's a

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Speaker 6: quote from a company living in a climate basically of

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Speaker 6: uncertain optimism. So the optimism still outweighs the uncertainty, but

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Speaker 6: that of course can change.

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Speaker 2: But you know, bigger picture.

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Speaker 6: If you take a look at the S and P

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Speaker 6: five hundred since the election, so it's almost four months now,

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Speaker 6: we've been in a very very very tight range. It's

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Speaker 6: plus minus less than two percent on either side, so

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Speaker 6: very sharp, very furious moves, but really going nowhere. And

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Speaker 6: so I would say most the best explanation of the

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Speaker 6: last four months of why we are up one day

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Speaker 6: is because we were down yesterday, and what we were

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Speaker 6: down today is because we were up. Yeah, I mean

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Speaker 6: that's what the price basically ben.

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Speaker 2: So check out yesterday. You look at where we closed.

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Speaker 6: Yesterday, right at the middle of the rangeecond. So you know,

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Speaker 6: we can talk a lot about that what's driving every tick,

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Speaker 6: but that's not kind of like normally what we do.

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Speaker 6: We're just kind of doing that because it's such a

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Speaker 6: tight run.

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Speaker 1: So let's take this a step further.

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Speaker 4: You said that we're in an environment of uncertainty, and

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Speaker 4: that seems to be what you're hearing on a lot.

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Speaker 1: Of these calls.

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Speaker 4: How long does it have to be where this environment

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Speaker 4: of uncertainty persists in this level of uncertainty about forward

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Speaker 4: looking policy before you start to question your seven thousand

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Speaker 4: price target on the SMP.

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Speaker 1: Yeah.

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Speaker 6: So you know, first I would say, we've been in

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Speaker 6: a very very tight range for almost four months. But

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Speaker 6: you just take one step further back and you look

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Speaker 6: at basically the S and P coming out of the

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Speaker 6: October twenty twenty two loads. We're actually in the middle

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Speaker 6: of that channel. So the big picture hasn't changed yet,

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Speaker 6: and that's a very very very steep channel, is the

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Speaker 6: way that I would put it. That's twenty three to

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Speaker 6: twenty four percent at an annual rate. Obviously, if we

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Speaker 6: continue to go sideways, at some point we will break

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Speaker 6: the lower end of the channel, and that's sort of

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Speaker 6: you know, April sometimes, so there's still some time. And

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Speaker 6: I think about the uncertainty issue, it's really about the

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Speaker 6: cumulative impact of that uncertainty over time. So far, I

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Speaker 6: would say, you know, limited impacts, but of course you know,

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Speaker 6: if you continue along like this, you're very vulnerable to

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Speaker 6: negative shocks because you know that's where we are.

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Speaker 1: But what I would also say is one.

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Speaker 6: Of the things that's basically keeping us in the range.

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Speaker 6: I mean, the issues or concerns that the market has

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Speaker 6: that we've been talking about. I would argue sort of

439
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Speaker 6: capping the upside. If you think about this market from

440
00:19:48,640 --> 00:19:51,240
Speaker 6: a demand supply point of view, this is a market

441
00:19:51,280 --> 00:19:54,440
Speaker 6: where in the absence of any new news, the market

442
00:19:54,560 --> 00:19:57,440
Speaker 6: is going to go up. So you want an optimistic take.

443
00:19:57,880 --> 00:20:00,840
Speaker 6: You know, there's three elements of demand supply. There's changes

444
00:20:00,880 --> 00:20:05,760
Speaker 6: in positioning, which is coming down because of the uncertainty.

445
00:20:05,840 --> 00:20:07,000
Speaker 2: But still overweight.

446
00:20:07,280 --> 00:20:09,840
Speaker 6: You have flows that are basically continued. So if I

447
00:20:09,880 --> 00:20:12,040
Speaker 6: take a look at the last five days in the US,

448
00:20:12,320 --> 00:20:14,720
Speaker 6: you know, lots of market jitters hold on twenty five

449
00:20:14,760 --> 00:20:19,880
Speaker 6: billion in inflows, and we just had earnings at you know,

450
00:20:19,920 --> 00:20:22,480
Speaker 6: fifteen percent year and year, and so that's where the

451
00:20:22,480 --> 00:20:25,160
Speaker 6: buybacks are coming from. So in the absence of news,

452
00:20:25,200 --> 00:20:27,920
Speaker 6: this market flows or rolls up, is the way I

453
00:20:27,920 --> 00:20:28,399
Speaker 6: would put it.

454
00:20:28,640 --> 00:20:31,439
Speaker 4: You just said was really interesting, this idea that actually

455
00:20:31,440 --> 00:20:34,000
Speaker 4: the uncertainty might be dampening the upside that we otherwise

456
00:20:34,040 --> 00:20:36,000
Speaker 4: would be seeing, and that this market would be a

457
00:20:36,040 --> 00:20:39,879
Speaker 4: substantially higher if there was more certainty around some of

458
00:20:39,920 --> 00:20:42,480
Speaker 4: the policy going forward. Are you saying that you reject

459
00:20:42,520 --> 00:20:46,119
Speaker 4: the idea that the index level cannot go up significantly

460
00:20:46,200 --> 00:20:49,760
Speaker 4: or to that seven thousand level because of the big

461
00:20:49,800 --> 00:20:52,000
Speaker 4: tech dominance and the fact that trade is over. Do

462
00:20:52,040 --> 00:20:54,000
Speaker 4: you reject that and you think that those could lead

463
00:20:54,240 --> 00:20:57,439
Speaker 4: the reason why there is pessimism There is also tied

464
00:20:57,720 --> 00:21:00,520
Speaker 4: to this uncertainty and this lack of convict No.

465
00:21:00,600 --> 00:21:03,080
Speaker 6: I think this is you know, I mean, it's not

466
00:21:03,119 --> 00:21:06,440
Speaker 6: even a pullback. We have five percent pullback since August

467
00:21:06,640 --> 00:21:07,200
Speaker 6: last year.

468
00:21:08,480 --> 00:21:11,040
Speaker 2: We're just flat, right. Is there something going on in

469
00:21:11,080 --> 00:21:13,119
Speaker 2: the internals that gets your attention? Do you see a

470
00:21:13,119 --> 00:21:17,480
Speaker 2: growth scale warming up in any way? There is clearly.

471
00:21:17,560 --> 00:21:21,720
Speaker 6: I mean so again, you know this morning we are up.

472
00:21:21,800 --> 00:21:24,360
Speaker 6: The last couple of days we were down, and so

473
00:21:25,119 --> 00:21:32,119
Speaker 6: we are analysis versus defensive one yields down, equities down,

474
00:21:32,160 --> 00:21:35,639
Speaker 6: which is what we saw. That's you know, telling you

475
00:21:35,720 --> 00:21:39,639
Speaker 6: basically that you know, the market is concerned about growth,

476
00:21:39,680 --> 00:21:42,439
Speaker 6: because that's I mean, that's a classic reaction to or

477
00:21:42,800 --> 00:21:46,760
Speaker 6: market response to growth concerns. If you look at cyclicals

478
00:21:46,840 --> 00:21:50,600
Speaker 6: versus defensives, it's the same reading. So there is clearly,

479
00:21:50,920 --> 00:21:54,080
Speaker 6: you know, some concern basically about growth, how big it

480
00:21:54,160 --> 00:21:56,320
Speaker 6: is and how far it goes? Yeah, I mean, you know,

481
00:21:56,359 --> 00:22:00,280
Speaker 6: it's an open question. I mean, I think this cycle

482
00:22:00,320 --> 00:22:04,080
Speaker 6: has been very, very strong and is likely to remain strong.

483
00:22:04,560 --> 00:22:06,920
Speaker 6: I think big changes in policy.

484
00:22:06,600 --> 00:22:07,480
Speaker 1: Are a risk.

485
00:22:09,040 --> 00:22:10,399
Speaker 6: Rather than our baseline view.

486
00:22:10,359 --> 00:22:13,120
Speaker 4: So market weight or equal weight, which is your preference?

487
00:22:14,480 --> 00:22:18,800
Speaker 6: Equal weight, But that's simply because you know, positioning in

488
00:22:18,840 --> 00:22:21,399
Speaker 6: megacap growth in tech is still on the higher side.

489
00:22:21,560 --> 00:22:24,639
Speaker 6: Growth is slowing just a little bit, not as much

490
00:22:24,680 --> 00:22:27,679
Speaker 6: as we expected, but positioning is still too high for

491
00:22:27,720 --> 00:22:30,600
Speaker 6: the kind of growth that we're getting, So it's vulnerable,

492
00:22:32,160 --> 00:22:33,040
Speaker 6: somewhat vulnerable.

493
00:22:33,040 --> 00:22:34,800
Speaker 2: I would say you're stripping out the muscle of big

494
00:22:34,840 --> 00:22:36,760
Speaker 2: tech by doing that, and big tech is a place

495
00:22:36,760 --> 00:22:38,480
Speaker 2: where we have had to pull back on a max

496
00:22:38,520 --> 00:22:40,720
Speaker 2: seven of as much as ten percent from record highs.

497
00:22:40,880 --> 00:22:42,960
Speaker 2: Does that not get your interest? Is that not interesting

498
00:22:43,000 --> 00:22:43,159
Speaker 2: to you?

499
00:22:43,800 --> 00:22:46,439
Speaker 6: It's definitely interesting and it's definitely important, but it's in

500
00:22:46,480 --> 00:22:49,440
Speaker 6: line with our thesis, so I don't quote unquote worry

501
00:22:49,440 --> 00:22:49,840
Speaker 6: about it.

502
00:22:50,000 --> 00:22:51,480
Speaker 2: That's why you think people should be.

503
00:22:53,160 --> 00:22:55,879
Speaker 6: I think it's still a bit early because positioning is

504
00:22:55,960 --> 00:23:00,840
Speaker 6: high and growth is slowing, and positioning is you know,

505
00:23:02,560 --> 00:23:05,600
Speaker 6: in line with sort of megacap growth and tech continuing

506
00:23:05,680 --> 00:23:10,000
Speaker 6: where it is and arguably even accelerating, which we think

507
00:23:10,119 --> 00:23:11,120
Speaker 6: is very unlikely.

508
00:23:11,240 --> 00:23:13,640
Speaker 2: Thanky, it's going to say, as always, looking for seven

509
00:23:13,720 --> 00:23:15,560
Speaker 2: K and the S and P five hundred binky chant

510
00:23:15,560 --> 00:23:27,560
Speaker 2: of there of Delutsche Bank joining us. Now to extend

511
00:23:27,560 --> 00:23:31,600
Speaker 2: the conversation, Laurence A delveaka of ITR economics. Lauren, welcome

512
00:23:31,600 --> 00:23:33,800
Speaker 2: to the program. Let's just recap the economics eight. So

513
00:23:33,840 --> 00:23:35,400
Speaker 2: I'm sure you looked over some of it and heard

514
00:23:35,440 --> 00:23:37,360
Speaker 2: the commentary from Mike mckaye. What do you think.

515
00:23:38,800 --> 00:23:41,320
Speaker 7: Overall? No change to the outlook, This is kind of

516
00:23:41,359 --> 00:23:44,520
Speaker 7: business as usual. No change to the GDP numbers. Growth

517
00:23:44,600 --> 00:23:47,760
Speaker 7: is still slowing but staying positive. So I do see

518
00:23:47,800 --> 00:23:51,120
Speaker 7: these jobless numbers as a little bit of a hindrance. Again,

519
00:23:51,240 --> 00:23:53,520
Speaker 7: as you just said, one week does not make a trend,

520
00:23:53,520 --> 00:23:55,840
Speaker 7: even one month does not make a trend. But we're

521
00:23:55,960 --> 00:23:58,800
Speaker 7: getting that continued story of a little bit of directional

522
00:23:58,800 --> 00:24:01,560
Speaker 7: deterioration in the labor mark. But coming from such an

523
00:24:01,600 --> 00:24:03,960
Speaker 7: incredibly tight starting point, we had this.

524
00:24:04,000 --> 00:24:06,679
Speaker 2: Room to lose a lot. We've seen the economic data soften,

525
00:24:06,720 --> 00:24:09,960
Speaker 2: though the soft data has got softer, the survey data

526
00:24:10,040 --> 00:24:12,360
Speaker 2: on the consumer. We saw that in you Mitch last Friday,

527
00:24:12,680 --> 00:24:15,159
Speaker 2: saw it from the conference board earlier this week. How

528
00:24:15,200 --> 00:24:17,200
Speaker 2: much attention. Do you pay for those numbers and typically

529
00:24:17,200 --> 00:24:19,320
Speaker 2: when you start to see them weaken like that, do

530
00:24:19,359 --> 00:24:21,680
Speaker 2: you see it bleed into the hot data eventually?

531
00:24:23,320 --> 00:24:26,600
Speaker 7: Consumer sentiment data, I pay almost no attention to what

532
00:24:26,640 --> 00:24:29,720
Speaker 7: we see right now, especially from the Michigan data, is

533
00:24:29,720 --> 00:24:33,200
Speaker 7: that it just diverges so much by Republican or Democrat.

534
00:24:33,480 --> 00:24:36,520
Speaker 7: How I personally feel about my own inflation rate, right,

535
00:24:36,560 --> 00:24:38,280
Speaker 7: do I own my home or do I see my

536
00:24:38,359 --> 00:24:42,480
Speaker 7: rents going up? So consumer sentiment is a notoriously terrible

537
00:24:42,640 --> 00:24:45,240
Speaker 7: leading indicator. What I'm more focused on is something like

538
00:24:45,400 --> 00:24:49,480
Speaker 7: CEO sentiment, And all of those surveys are showing more optimism,

539
00:24:49,520 --> 00:24:52,719
Speaker 7: showing higher growth expectations for this year, showing more demand

540
00:24:52,720 --> 00:24:55,720
Speaker 7: to be hiring, especially in the second half of this year.

541
00:24:56,000 --> 00:24:59,440
Speaker 7: So I think for the more reliable leading indicators, that's

542
00:24:59,480 --> 00:25:01,960
Speaker 7: where we bill do see green shoots. It's just going

543
00:25:02,040 --> 00:25:04,440
Speaker 7: to be modeling through the political noise in the short term.

544
00:25:04,480 --> 00:25:05,320
Speaker 7: On the consumer front.

545
00:25:05,560 --> 00:25:07,520
Speaker 4: Just to give some perspective, the two hundred and forty

546
00:25:07,560 --> 00:25:10,239
Speaker 4: two thousand of the initial job as claims that were

547
00:25:10,280 --> 00:25:14,679
Speaker 4: reported was in tandem last seen on December sixth, and

548
00:25:14,720 --> 00:25:18,199
Speaker 4: then previously seen much higher than that in October, So

549
00:25:18,240 --> 00:25:20,800
Speaker 4: these numbers have been jumping around, Lauren. To your point

550
00:25:20,880 --> 00:25:23,880
Speaker 4: that said, when it comes to policy changes, we were

551
00:25:23,920 --> 00:25:26,600
Speaker 4: speaking with Torston Slock of Apollo, and he was noting

552
00:25:26,880 --> 00:25:30,199
Speaker 4: that for every federal employee, there are two contractors that

553
00:25:30,359 --> 00:25:34,679
Speaker 4: also lose their jobs. Are you expecting a significant footprint

554
00:25:35,119 --> 00:25:37,919
Speaker 4: in these reports that really stem from some of the

555
00:25:37,960 --> 00:25:39,000
Speaker 4: DOJE efforts in DC?

556
00:25:41,000 --> 00:25:44,359
Speaker 7: Significant is the keyword there. I don't see that happening

557
00:25:44,400 --> 00:25:46,840
Speaker 7: at least yet. There's so much uncertainty even with the

558
00:25:46,880 --> 00:25:51,399
Speaker 7: reported numbers of you. DOJ's self reported savings have come

559
00:25:51,480 --> 00:25:56,600
Speaker 7: under questions. So I think the grand economic story is

560
00:25:56,640 --> 00:25:59,520
Speaker 7: that there are still skills gaps right, especially on the

561
00:25:59,520 --> 00:26:02,640
Speaker 7: manufacturing in the construction front. Maybe some of these other

562
00:26:02,680 --> 00:26:05,240
Speaker 7: sectors like federal workers, like tech. That's where we do

563
00:26:05,320 --> 00:26:09,280
Speaker 7: see a little bit more laxness in the labor market,

564
00:26:09,480 --> 00:26:11,760
Speaker 7: But generally this is still a tight market.

565
00:26:11,960 --> 00:26:12,639
Speaker 2: We still see a.

566
00:26:12,600 --> 00:26:15,479
Speaker 7: Lot of opportunity from that kind of core or median

567
00:26:15,600 --> 00:26:19,760
Speaker 7: us consumer. So we'll watch very closely, but we do

568
00:26:19,880 --> 00:26:21,879
Speaker 7: need some people at least at work in the federal

569
00:26:21,920 --> 00:26:23,359
Speaker 7: government for it to keep on turning.

570
00:26:23,480 --> 00:26:23,760
Speaker 3: Lauren.

571
00:26:23,800 --> 00:26:26,120
Speaker 4: One other thing that Torson Slock was saying, is that

572
00:26:26,560 --> 00:26:28,879
Speaker 4: all of what we're getting right now the muddel is

573
00:26:28,880 --> 00:26:32,120
Speaker 4: setting up a stagflationary like environment, and that you could

574
00:26:32,160 --> 00:26:34,359
Speaker 4: get a slowing in growth at the same time that

575
00:26:34,400 --> 00:26:36,719
Speaker 4: you get a pop at inflation. And I'm looking at

576
00:26:36,720 --> 00:26:38,760
Speaker 4: some of the numbers and I understand that they're backward

577
00:26:38,760 --> 00:26:41,199
Speaker 4: looking and at there're revisions. But if you take a

578
00:26:41,200 --> 00:26:44,760
Speaker 4: look at core PCE prices in the fourth quarter GDP,

579
00:26:44,880 --> 00:26:47,359
Speaker 4: they were revised upwards two point seven percent from the

580
00:26:47,400 --> 00:26:50,200
Speaker 4: initially reported two and a half percent. I just wonder

581
00:26:50,240 --> 00:26:52,879
Speaker 4: at what point you start to see inflation concerns bleed

582
00:26:52,920 --> 00:26:55,880
Speaker 4: into some of the data and then in turn into markets.

583
00:26:57,200 --> 00:26:59,679
Speaker 7: I do see inflation concerns. We'll get the new PCEE

584
00:26:59,760 --> 00:27:02,040
Speaker 7: data tomorrow, and that one's going to be very closely

585
00:27:02,160 --> 00:27:04,919
Speaker 7: watched because, as I keep saying, one month does not

586
00:27:04,960 --> 00:27:07,280
Speaker 7: make a trend, but does two months does three months.

587
00:27:07,280 --> 00:27:11,560
Speaker 7: We've started to see this relatively sustained inflation a little

588
00:27:11,560 --> 00:27:13,880
Speaker 7: bit more too, the upside of what the market has expected.

589
00:27:14,000 --> 00:27:17,320
Speaker 7: So I fully expect inflation to be coming back, especially

590
00:27:17,320 --> 00:27:19,440
Speaker 7: by the second half of this year, but I think

591
00:27:19,440 --> 00:27:22,199
Speaker 7: that timing might be leading a little bit earlier in

592
00:27:22,280 --> 00:27:25,720
Speaker 7: some of these key categories that are really pressuring our consumer.

593
00:27:25,960 --> 00:27:28,800
Speaker 2: Lauren, appreciate your time. Still constructive on a consumer for

594
00:27:28,880 --> 00:27:33,639
Speaker 2: the moment, Laurence Delbanker. There of ITR Economics. This is

595
00:27:33,680 --> 00:27:39,080
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596
00:27:39,320 --> 00:27:41,800
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597
00:27:41,840 --> 00:27:45,080
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599
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