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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Lisa Abramoids along with Tom Keane and Jonathan Ferrell.

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Speaker 2: Join us each day for insight from the best in economics, geopolitics,

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Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 2: Spotify and anywhere you get your podcasts, and always on

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Speaker 2: Bloomberg dot com, the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 3: I'll be with us.

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Speaker 4: Now, let's talk about markets. Cee of cross Smark Global

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Speaker 4: Investments Pop, Good morning to here same. Let's talk about

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Speaker 4: retail sales twenty five minutes away. Are we going to

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Speaker 4: see that resilience in this US economy? This US consumer

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Speaker 4: in the data was set to say in this hour,

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Speaker 4: you just.

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Speaker 5: Put a lot of good things, the two of you

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Speaker 5: on the table. A soft landing is like putting a

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Speaker 5: thread into the needle and the eye of that needle

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Speaker 5: is shrinking. It's getting tougher and tougher. The com consumer

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Speaker 5: eventually will come to their niece. We always see at

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Speaker 5: the low end. We all see it with credit extension,

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Speaker 5: we see it. Wage growth is strong. How long will

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Speaker 5: it stay strong? And that is just fueled the consumer

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Speaker 5: and it's fueled our economy. And this thing is kept

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Speaker 5: ongoing despite all the things in the background that you

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Speaker 5: just put on the table, including the lagged effects of

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Speaker 5: the FED gone from zero to five and a quarter.

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Speaker 5: We have not felt all of that yet.

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Speaker 4: Let's unpack that it will happen eventually. Are we seeing

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Speaker 4: signs of it now? You mentioned credit? You can see

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Speaker 4: it through credit maybe one way. Another way it might

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Speaker 4: be to sit in the official data. We'll see that

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Speaker 4: at the bottom of the hour eight thirty. Another way

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Speaker 4: might be the earnings across those three things right now,

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Speaker 4: credit data, earnings. Are you seeing a slow down?

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Speaker 5: Not really, It's all lead indicators. The coincident indicators are positive.

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Speaker 5: Some of them are getting a little mixed. It's going

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Speaker 5: to take some more time to go there. We've been

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Speaker 5: since the first of the year saying recession starts sometimes

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Speaker 5: between labor day and the end of the year. Still

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Speaker 5: sticking with that. Think it's it's a mild recession, as

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Speaker 5: many do, although recessions left most people's vocabularies.

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Speaker 2: You know, but where does that recession come from? If

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Speaker 2: you do see the strength in consumers, and a lot

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Speaker 2: of people have pointed to the student loan issue. And

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Speaker 2: I was reading this article the survey by Credit Karma,

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Speaker 2: and it was showing that forty five percent of student

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Speaker 2: loan borrowers say that they are not going to repay.

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Speaker 2: They're basically going to be delinquent for twelve months because

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Speaker 2: they're not going to get penalized.

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Speaker 1: For being delinquent for twelve months.

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Speaker 2: So aren't we basically getting a self stimulus ongoing that

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Speaker 2: will remain in place for a while.

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Speaker 5: Well, it's been the story, and it's lasted a little

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Speaker 5: longer than many people thought, and it's still not finished.

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Speaker 5: But eventually consumers will come to the realization that things

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Speaker 5: are a lot more expensive. Inflation is still a problem.

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Speaker 5: They have no savings at the lower end of the

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Speaker 5: consumer bracket and that's a problem, and they're going to

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Speaker 5: have to retrench some or find a second job, and

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Speaker 5: they've already done that.

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Speaker 2: What's the hedge?

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Speaker 1: What's the defensive play?

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Speaker 2: At a time A lot one of the strongest companies

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Speaker 2: have incredibly high multiples, and you're looking at bond yields

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Speaker 2: that are not giving a consistent message.

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Speaker 5: Yeah, I think that within the equity market, you try

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Speaker 5: to focus on companies that are high earnings predictability, high

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Speaker 5: earnings persistence, and are not selling it crazy prices. That's

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Speaker 5: not a whole lot of places. I like the HMOs

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Speaker 5: for example. I've not given up on tech, but I

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Speaker 5: want to be careful what pe I'm paying for my tech.

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Speaker 5: So some of the semiconductor stocks, some of the software stocks,

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Speaker 5: they're not so cheap Visa MasterCard, two names. I still

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Speaker 5: like they've gotten more expensive. So you have to pick

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Speaker 5: your spots. And I come back to earnings persistence and

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Speaker 5: cash flow generation.

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Speaker 4: Let's talk about the retailers then, I'm deepot out this morning,

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Speaker 4: Walmart later this week, Thursday, Target tomorrow. Have they still

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Speaker 4: got that pricing power? Can they keep margins pretty steady

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Speaker 4: or do those margins get eaten away out eventually?

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Speaker 5: And I think we'll see some of that, Like now,

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Speaker 5: those margins get eaten away because you see, companies can

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Speaker 5: only raise prices so far, and you're already seeing consumers

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Speaker 5: begin to make noise and balk and stop buying some things.

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Speaker 5: It won't it won't be everything, but slowly but surely

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Speaker 5: you take the edge off. We have to operate on

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Speaker 5: eight cylinders to keep the thing where it is now

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Speaker 5: and even we back off to six, that's going to

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Speaker 5: disappoint a lot of people with stock selling where they.

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Speaker 4: Are the winness forget tech cruise lines, airlines. Are we

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Speaker 4: at that point where we've reached consumer price intolerance. They

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Speaker 4: just don't want to pay it anymore.

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Speaker 5: As you said a minute ago, people are flying around

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Speaker 5: going on an airplane and you know, every seat's taken.

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Speaker 5: So we're not there yet, but we'll get there.

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Speaker 2: Okay.

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Speaker 1: So what's going to get us there?

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Speaker 2: Because everyone's been saying this that the consumer eventually will

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Speaker 2: push back, and then they haven't, and then you go

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Speaker 2: out to eat and it costs twice what it used to.

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Speaker 2: I mean, honestly, this is the kind of increases that

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Speaker 2: you're seeing.

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Speaker 5: Yeah, so it was subtle. We had fifteen months in

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Speaker 5: a row of better than expected monthly employment numbers. Two

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Speaker 5: months have been below expectations, so their cracks beginning to develop.

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Speaker 5: I don't want to come across as the economy's tanking

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Speaker 5: and you know, want to be a bear overall. I'm

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Speaker 5: just cautious. And I add to it, I said, all right,

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Speaker 5: I'll say it again. If the pe were fourteen, different story.

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Speaker 5: But you know, at the peak a couple of weeks ago,

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Speaker 5: I looked at my screen on trailing earnings twenty three

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Speaker 5: times earnings.

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Speaker 2: When you talk about being cautious, what's the ballast if

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Speaker 2: you talked about your equities, Is it cash?

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Speaker 1: Is it going into duration?

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Speaker 5: I think having some cash in your portfolio when he

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Speaker 5: yields five percent is not a stupid idea. Have you

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Speaker 5: been increasing it in the balanced accounts where we can

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Speaker 5: in the equity market neutral portfolios, We've been bringing our

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Speaker 5: ex exposure down in there for our cash exposure up. Yes,

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Speaker 5: bonds own some bonds. I'm not sure that we've seen

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Speaker 5: the high end yields yet, but I'd rather begin to

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Speaker 5: nibble it. You know, four and a quarter than three

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Speaker 5: and a half where we were not that long ago.

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Speaker 4: You think, start to go out along the curve, startlocking

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Speaker 4: some of the stuff in slowly.

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Speaker 3: Truly, Yes, I heard the same.

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Speaker 4: Thing from Lisa shatout over in Morgan Stanley. You think

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Speaker 4: we face that reinvestment risk rate cuts on the horizon.

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Speaker 5: That will happen at some point. So I want all

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Speaker 5: my eggs in the short term five percent basket. Look

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Speaker 5: a year ago, eighteen months ago, one and a half percent,

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Speaker 5: ten year Treasury. That was a bad deal four and

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Speaker 5: a quarter. I think I'll think about it.

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Speaker 3: It's unthinkable, isn't it. It wasn't let long ago. No,

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Speaker 3: it wasn't. That happened fast.

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Speaker 4: I know it really did, Bob, It's happening fast now.

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Speaker 4: Bob's good to see you. Thank you, sir, Thank you,

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Speaker 4: Bob Dole of cross Mark Global Investments. Jordan Rochester join

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Speaker 4: us now G ten FX strategist over Namura.

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Speaker 3: Jordan.

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Speaker 4: Great to catch up with you, buddy. Let's just start

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Speaker 4: in the UK at the Bank of England, record wage growth.

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Speaker 4: Are we bringing them back in for more rate hikes

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Speaker 4: to come?

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Speaker 3: John?

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Speaker 6: I think that wage number will definitely make the Bank

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Speaker 6: of England's absolutely think about raising rates the next meeting.

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Speaker 6: We think there'll be two more rate hikes this year,

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Speaker 6: so we already thought there was enough data to tell.

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Speaker 3: Them you should probably keep more hiking more.

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Speaker 7: I do think the.

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Speaker 6: Risks are that we get a weaker services CPI, perhaps

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Speaker 6: not this month, maybe next month, and that the risks

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Speaker 6: are actually tilted to just one hike rather than two.

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Speaker 6: The idea of having two maybe three would require a

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Speaker 6: reacceleration in that services CPI. So I always John think

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Speaker 6: that the labor markets the most lagged indicator to track

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Speaker 6: as a central banker. Rewind back two years ago, the ECB,

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Speaker 6: the Bank of England, all these other central banks that

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Speaker 6: are pointing out weak wages as a reason not to

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Speaker 6: raise rates was actually a ridiculous thing to look at

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Speaker 6: because you missed all of the energy and commodities inflation

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Speaker 6: that was coming. And it's why we are where we

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Speaker 6: are today with central banks having to make up for

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Speaker 6: lost time with all these rate hikes quite late on

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Speaker 6: in that cycle. John, so strong wages fantastic for those workers.

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Speaker 6: Pretty difficult for.

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Speaker 3: The Bank of England to turn dovish with those numbers.

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Speaker 3: Sterling positive or still in negative if they have to

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Speaker 3: hike more.

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Speaker 6: Well, look at the reaction today.

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Speaker 3: You're at Sterling is the way to look at it.

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Speaker 6: Sterling tried to rally and then it came back off

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Speaker 6: and you're Sterling's pretty much flat on the day. If

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Speaker 6: the banking and raise rates at twenty five based up

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Speaker 6: points like we expect, it wouldn't really move the needle

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Speaker 6: for stirring. I think what'll be really interesting is if

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Speaker 6: we get some more negative news on growth. We're starting

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Speaker 6: to see that in China for example, But we were

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Speaker 6: also having pretty dismal surveys out of the UK as well.

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Speaker 6: When it comes to price pressures, they're all turning lower.

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Speaker 6: Maybe at the next meeting we'll get a better sense

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Speaker 6: of whether that we will get that extra fifty. So

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Speaker 6: two twenty five is in a row.

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Speaker 2: How much is that weakness that we're seeing in China

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Speaker 2: bleeding through not only do the UK but Europe and

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Speaker 2: the euro I.

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Speaker 6: Think what you were saying earlier, Lisa is spot on.

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Speaker 6: There has been a little bit decoupling. You look at

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Speaker 6: the likes of risk on in the US market, the

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Speaker 6: move in US yields. Yet if you were to use

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Speaker 6: the usual frameworks when China slows down like this, usually

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Speaker 6: it's risk off and very dubvish, and it leads to

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Speaker 6: dollar strength. And this is kind of what we're seeing

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Speaker 6: in dollar C and H. So that's a clear trade.

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Speaker 6: We think dollar S and H gets to seven to fifty,

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Speaker 6: perhaps that's the sort.

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Speaker 3: Of move we're looking for.

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Speaker 6: We're doing it in a basket format, but it's not

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Speaker 6: leading to massive Euro dollar weakness, which is very odd.

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Speaker 6: And it's similar for sterling as well. It used to

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Speaker 6: be If C and H move like this, you would

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Speaker 6: absolutely have to be short euro. And the reason for

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Speaker 6: that is because of this decoupling, equities are rallying in

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Speaker 6: the US more broadly over the past few months, and

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Speaker 6: that's held up euro.

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Speaker 1: Can it last?

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Speaker 2: And I noticed that you actually abandoned your strong Euro

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Speaker 2: call recently, and you said, you know what, I actually

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Speaker 2: see it being a bit.

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Speaker 1: Weaker from here.

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Speaker 2: What triggers that, if not the bad data out of

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Speaker 2: China and this concern around the inability to stimulate.

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Speaker 6: The hardest part about effects, Lisa is there's three pillars

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Speaker 6: to consider. One is what's going on with equities, Two

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Speaker 6: what's going on with rates, and three what's going on

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Speaker 6: with commodities. And for quite some time I was leaning

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Speaker 6: on that equity pillar. The sort of rally we'd had

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Speaker 6: in equities over the past few months was one of

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Speaker 6: the reasons we had that uro dollar call.

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Speaker 3: We're looking for top side.

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Speaker 6: We still are by year end, but in the short

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Speaker 6: term I see the other two pillars really dominating, which

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Speaker 6: is the rates market says ur dollars should be towards

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Speaker 6: one oh five. That's not a good thing where we

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Speaker 6: are at current levels. And of course, with commodities, we've said,

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Speaker 6: we've had a much higher and oil prices and natural

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Speaker 6: gas one of the biggest imports for the Euro Area.

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Speaker 6: Energy supply crisis has perked up recently of late, so

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Speaker 6: it's maybe more nervous watching dollar s and h moved

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Speaker 6: the way it is. Default risks building in China, low

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Speaker 6: credit demand, we saw new one loans collapse. That in

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Speaker 6: the short term, given we've got not very little data

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Speaker 6: now until we get the next CPI and NFP reports,

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Speaker 6: and we've got Jackson Hole, but I think in the

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Speaker 6: short term that they're not catalysts enough to boost euro.

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Speaker 6: I'm surprised euro wasn't on an one eleven handle after

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Speaker 6: that CPI report. So a few disappointments with the reactions

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Speaker 6: in the market and going forward over the next two

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Speaker 6: weeks only Jackson Hole to really talk about. That's not

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Speaker 6: a reason to be long euro dollar. But we are

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Speaker 6: long Euro versus Norway, and we are long euroversus Sterling,

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Speaker 6: so there are still eurobside bias in.

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Speaker 3: Our view, Jordan.

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Speaker 4: What you just described smeus like Eurozone stagflation is that

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Speaker 4: what it is.

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Speaker 3: Well, inflation's going to.

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Speaker 6: Come down, John, It's going to come down quite quickly

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Speaker 6: according to the sort of PPI and surveys. So the

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Speaker 6: stagflation concerns, I think we're more last year's story. But

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Speaker 6: the growth numbers Zew's this morning were pretty disappointing. I

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Speaker 6: thought maybe we start to see positive momentum in European

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Speaker 6: data surprises. They were so weak that maybe they improved,

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Speaker 6: but ultimately the surveys suggests that it's going to be

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Speaker 6: a pretty weak outlook for European growth. And my problem

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Speaker 6: on that side is I'm not sure where the next

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Speaker 6: stimulus is going to come from. The Fed's not cutting

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Speaker 6: rates until March next year, the ECB is not going

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Speaker 6: to be talking about cutting rates until later the next

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Speaker 6: year October November time. China's not doing a big fiscal

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Speaker 6: steamer so far. So it is a combination that makes

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Speaker 6: it really hard for me to see why surveys and

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Speaker 6: growth surveys should really pick up. So yes, and answer

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Speaker 6: your question, it's still a bit like stagflation, but hopefully

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Speaker 6: that inflation component comes down.

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Speaker 3: So Jordan, just quickly you think the guard is done.

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Speaker 5: We do.

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Speaker 6: We do think the ECB is done because we think

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Speaker 6: that the data over the next few months will develop

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Speaker 6: in such a way they'll justify no more rate hikes.

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Speaker 6: I think the ECB and the FED have both introduced

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Speaker 6: the skip concept, and hopefully by the time we get

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Speaker 6: a few more reports that will then say we don't

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Speaker 6: maybe need to hike at all. The banking in a

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Speaker 6: weird place where they don't give that sort of strong

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Speaker 6: forward guidance about skipping or not. Hopefully we start to

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Speaker 6: see that build up as a narrative for the UK

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Speaker 6: as well in the next few months too.

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Speaker 4: I've got a birthday present for you. We're not going

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Speaker 4: to talk about Eston Villa, Okay, I'm just gonna let

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Speaker 4: you go. We won't talk about the score over the weekend.

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Speaker 4: Short and happy birthday song.

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Speaker 3: Cheers guys, Rochester and Namura Jordan. Thank you.

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Speaker 2: Lindsay pigs As, someone who's been calling for reeds to

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Speaker 2: be much higher, potentially even with a six handoff for

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Speaker 2: the Federal Reserve to get inflation under control, joins us

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Speaker 2: right now. She is a chief economist at Stifel.

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Speaker 1: Lindsay, what's your view.

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Speaker 2: On why we saw such a big upside surprise on

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Speaker 2: retail sales?

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Speaker 8: Well, this certainly was a stronger than expected report. And

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Speaker 8: no doubt this will boost optimates that because of the

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Speaker 8: resilience of the consumer, we can achieve that soft landing.

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Speaker 8: But I would push back a little bit in the

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Speaker 8: sense that we don't need to put too much focus

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Speaker 8: on one month's numbers. What we have seen is a

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Speaker 8: tremendous amount of volatility in terms of consumer activity month

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Speaker 8: to month, suggesting that yes, while this was a welcome

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Speaker 8: step in the right direction, consumers are increasingly shifting the

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Speaker 8: goods and services in their basket on a month to

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Speaker 8: month basis, something that they do, something we do as

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Speaker 8: consumers when we are increasingly concerned about our financial footing.

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Speaker 8: So while this is again beating the expectations for the market,

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Speaker 8: I wouldn't necessarily say that this is a trend that

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Speaker 8: can continue to rise, particularly against the backdrop drop of

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Speaker 8: some of these factors that prove artificial support drawing down

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Speaker 8: savings a last sputtering of state and local stimulus. We

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Speaker 8: see hardship withdraws from four to one k's up over

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Speaker 8: forty percent on a year over year basis. But while

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Speaker 8: this will provide a temporary support, this is not an

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Speaker 8: indefinite support to the consumer.

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Speaker 2: So where does this fit in Lindsay to your view

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Speaker 2: that you previously had, that the FED had a lot

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Speaker 2: more work to do, that they had to get to

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Speaker 2: a level that nobody was gaming out or very few

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Speaker 2: of six percent or north of that.

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Speaker 8: Well, I think this is going to make the Fed's

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Speaker 8: job more difficult because the longer it takes for the

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Speaker 8: labor market for the consumer to show that needed weakness

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Speaker 8: or respond to earlier policy tightening, the more aggressive the

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Speaker 8: response from the FED must be, thus ensuring an eventual downturn.

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Speaker 8: So the notion that the fact that consumer has continued

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Speaker 8: to be resilient across the first five hundred and twenty

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Speaker 8: five basis points supporting the notion of a soft landing, No,

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Speaker 8: I would argue it's quite the opposite. That simply means

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Speaker 8: the Fed will have to be more aggressive raising rates

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Speaker 8: higher and keeping rates higher for longer than investors had anticipated,

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Speaker 8: suggesting that the downturn potentially and eventually will come and

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Speaker 8: may be more more aggressive, more of a downturn than

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Speaker 8: previously anticipated. If the Fed didn't need to raise rates

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Speaker 8: quite as much, lindsa squash out inflation.

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Speaker 2: Lindsay said two things, raise rates higher and keep them

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Speaker 2: there for longer, and those are worthy ideas that people had,

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Speaker 2: But some people are starting to think, Okay, what if

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Speaker 2: the Fed is done with how high they're going to

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Speaker 2: raise rates, but they are going to keep them there

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Speaker 2: for longer. And that's what we're seeing priced into the

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Speaker 2: market gradually with some of the highest longer term expectations

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Speaker 2: for FED funds rates that we've seen in this cycle.

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Speaker 1: At what point does that cause more damage in your view?

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Speaker 8: Well, I think it's certainly going to cause more damage. Again,

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Speaker 8: the more pressure on the FED to respond. Now, if

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Speaker 8: we continue to see this type of resilience, if we

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Speaker 8: continue to see a third quarter GDP surpass earlier expectations

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Speaker 8: or surpass what we saw in the second quarter, I

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Speaker 8: think the FED doesn't necessarily need to continue to raise

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Speaker 8: rates indefinitely. But once they reached that sufficiently restrictive level,

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Speaker 8: as you mentioned, we've long conceded that will be six

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Speaker 8: percent or above, the Feed is likely going to be

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Speaker 8: forced to keep us at that elevated level for some time.

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Speaker 8: The FET itself has said rate cuts are not in

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Speaker 8: their base case scenario for twenty twenty three, but even

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Speaker 8: twenty twenty four remains a sizable question mark. If we

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Speaker 8: aren't able to see that intended result. Remember, the feed

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Speaker 8: is raising rates to tap down consumption, tap down investment,

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Speaker 8: and result in a slower level of activity in order

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Speaker 8: to get that more benign inflation. But thus far the

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Speaker 8: economy is pushing very hard against the intentions of tighter

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Speaker 8: monetary policy.

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Speaker 2: If you are just joining us, we are just seeing

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Speaker 2: the ramifications of retail sales numbers that came in significantly

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Speaker 2: higher than expected. We're seeing the overall month over month

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Speaker 2: headline number of zero point seven percent versus expectations of

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Speaker 2: zero point four percent. The control group, which does factor

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Speaker 2: into the US gross domestic product figure, came in at

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Speaker 2: one percent from the expected zero point five percent. We

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Speaker 2: are seeing two year yield surge past five percent, ten

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Speaker 2: year yields and thirty year yields both reaching the highest

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Speaker 2: level since October, climbing up. We're seeing thirty year yields

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Speaker 2: four point three two percent. Lindsay Piagsa of Stefol with

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Speaker 2: us and Lindsey, I really want to get your sense

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Speaker 2: of what could potentially halt this spending. You're saying it

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Speaker 2: can't persist. You're not going to see this forever. Some

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Speaker 2: people have pointed to the student loan repayments that are

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Speaker 2: going to start in October.

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Speaker 1: Do you give credence to.

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Speaker 2: This sort of idea that we could see some sort

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Speaker 2: of tightening and and fiscal tightening on that front going forward.

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Speaker 8: Oh. Absolutely, But there's a number of factors. And remember,

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Speaker 8: even with this monthly increase of beating expectations, when we

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Speaker 8: take a step back and look at the longer term momentum,

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Speaker 8: it's very clear that consumers are beginning to slow their activity.

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Speaker 8: Coming out of the gate from the Great Shutdown, we

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Speaker 8: had double digit growth, then we slowed to eight to six.

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Speaker 8: Now we're talking about bouncing around two percent on an

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Speaker 8: annual basis. So while still positive, the consumer has clearly

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Speaker 8: pulled back. And these other factors, as you mentioned, monthly

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Speaker 8: payments for student loans, additional housing payments coming back online.

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Speaker 8: This is going to compound the pressure on the consumer. Now,

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Speaker 8: there are some temporary supports that we're still tapping into.

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Speaker 8: There still is a sputtering of state and local stimulus.

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Speaker 8: Consumers are turning to four oh one ks, Consumers are

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Speaker 8: ramping up credit card debt, and with the relative health

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Speaker 8: of the balance sheet, meaning we paid down debt during

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Speaker 8: the closure during the pandemic, there still is some wiggle

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Speaker 8: room for the consumer to expand that balance sheet. So

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Speaker 8: I'm certainly not suggesting that the consumer is going to

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Speaker 8: immediately fall off a cliff. But what we are seeing

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Speaker 8: is these indefinite supports beginning to wane, putting additional pressure

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Speaker 8: on the consumer eventually as we head further into the

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Speaker 8: second half of the year.

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Speaker 1: What do you expect j Powell to say in Jackson

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Speaker 1: Hole next week? Given all of this, I think one of.

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Speaker 8: The biggest questions that investors have is for how long?

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Speaker 8: And that's really what I think Chair Powell is going

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Speaker 8: to focus on. It's not necessarily how high, because it

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Speaker 8: seems as if the Committee is of one mind that

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Speaker 8: we're nearing that terminal level. Whether it's one, two, maybe

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Speaker 8: even three additional rate hikes, we're up near that sufficiently

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Speaker 8: restrictive level. But how long will the Fed need to

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Speaker 8: raise rate or keep rate excuse me, at that elevated level.

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Speaker 8: I also think he's going to talk about the context

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Speaker 8: of inflation against monetary policy. How does the FED respond

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Speaker 8: if we see a reversal in inflationary pressures? Is that

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Speaker 8: even a scenario that the Fed is considering, and how

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Speaker 8: does the committee balance the risk between raising rates even

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Speaker 8: higher than previously expected slowing the economy, against the risks

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Speaker 8: of wanting to obtain that two percent inflation target. So

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Speaker 8: there's a lot of questions that investors are going to

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Speaker 8: be listening for that I'm going to be listening for

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Speaker 8: in terms of how to gauge the Fed's mindset on

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Speaker 8: these broader, broader themes for inflation and monetary policy.

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Speaker 1: Lindsay Pigs of Stefha.

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Speaker 4: Joining us now on Washington and the latest developments down

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Speaker 4: in Georgia. Terry Haynes, founder of panchea policy Terry wanted

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Speaker 4: for to catch up with you, sir, always thoughtful our

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Speaker 4: conversations together. We mentioned this in the last couple of hours,

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Speaker 4: and I think it's the appropriate place to start. We've

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Speaker 4: got cases now in New York, in Washington, d C.

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Speaker 4: And Florida in Georgia. Terry, how do you rank those

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Speaker 4: just in terms of importance?

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Speaker 9: Oh, importance. I think it's far too early to tell.

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Speaker 9: For one reason that you and Lisa were just talking about,

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Speaker 9: which is the timing of the cases. You know, there's

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Speaker 9: a whole there's a lot of different ways you can

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Speaker 9: slice these things federal versus state, racketeering versus conspirators, all

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Speaker 9: kinds of things. I'd rank them in order of how

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Speaker 9: they're actually going to come to trial, and to some extent,

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Speaker 9: excuse me, and to some extent it matters greatly, you know, Frankly,

440
00:20:55,240 --> 00:20:57,440
Speaker 9: I think whether they're televised or not, as you say,

441
00:20:57,560 --> 00:21:00,520
Speaker 9: I mean, the closer people see what's apply going on

442
00:21:00,640 --> 00:21:03,439
Speaker 9: and why they're going to have more of an opportunity

443
00:21:03,920 --> 00:21:04,920
Speaker 9: to make up their minds on it.

444
00:21:05,240 --> 00:21:07,840
Speaker 2: Terry, can you elaborate a little bit why is the

445
00:21:07,920 --> 00:21:11,240
Speaker 2: televisation of this important? You said to make up their minds,

446
00:21:11,520 --> 00:21:14,000
Speaker 2: but what do you think the outcome will be of

447
00:21:14,400 --> 00:21:16,480
Speaker 2: having it very much in the public eye.

448
00:21:17,760 --> 00:21:21,080
Speaker 9: I think there's just an immediacy to television, frankly, And

449
00:21:22,080 --> 00:21:23,840
Speaker 9: you know, I think we've seen that over the past

450
00:21:24,720 --> 00:21:28,919
Speaker 9: sixty seventy years just in terms of how people perceive

451
00:21:29,119 --> 00:21:32,199
Speaker 9: candidates and people choose candidates. So you know, very broadly

452
00:21:32,320 --> 00:21:37,239
Speaker 9: there's that. But secondly, there is a debate, more than

453
00:21:37,280 --> 00:21:40,840
Speaker 9: a debate in the country about whether this is politicized

454
00:21:41,280 --> 00:21:45,680
Speaker 9: prosecution or whether there's something here. So there's going to

455
00:21:45,720 --> 00:21:48,399
Speaker 9: be an awful lot of pressure on the Fulton County

456
00:21:48,520 --> 00:21:51,600
Speaker 9: DA to show that these charges are real and they're

457
00:21:51,680 --> 00:21:55,000
Speaker 9: not the kind of standard splash that prosecutors do. You know,

458
00:21:55,119 --> 00:21:58,520
Speaker 9: prosecutors tend to go, you know, go in front of

459
00:21:58,560 --> 00:22:01,320
Speaker 9: grand juries, particularly how big you go broad you get

460
00:22:01,359 --> 00:22:04,760
Speaker 9: the maximum you can from the grand jury. In this case,

461
00:22:04,840 --> 00:22:08,080
Speaker 9: it's going to be you know, did she overstep? Does

462
00:22:08,119 --> 00:22:11,960
Speaker 9: she actually have evidence? And you know, and of course

463
00:22:12,000 --> 00:22:13,960
Speaker 9: the other side has a great deal to say about

464
00:22:14,320 --> 00:22:17,520
Speaker 9: how to interpret the evidence. So you know, this is

465
00:22:17,560 --> 00:22:20,520
Speaker 9: going to be on a pretty big stage, and even

466
00:22:20,600 --> 00:22:21,840
Speaker 9: more so if it's the first one.

467
00:22:22,280 --> 00:22:26,200
Speaker 2: Terry, there's a real question around the different polls of

468
00:22:26,280 --> 00:22:29,080
Speaker 2: the political sphere right now and how people are going

469
00:22:29,119 --> 00:22:32,639
Speaker 2: to respond to court cases that most of America or

470
00:22:32,720 --> 00:22:37,040
Speaker 2: many of Americans have already decided about regardless of what's happened. Yet,

471
00:22:37,680 --> 00:22:39,520
Speaker 2: what do you think the outcome will be to some

472
00:22:39,640 --> 00:22:41,879
Speaker 2: sort of conclusion of the trial, if there is some

473
00:22:41,960 --> 00:22:43,880
Speaker 2: sort of conviction. I mean, I'm just trying to play

474
00:22:43,960 --> 00:22:47,160
Speaker 2: out the political risks here on a social level.

475
00:22:48,400 --> 00:22:51,080
Speaker 9: Well, I think firstly, and I've said this to you

476
00:22:51,240 --> 00:22:55,119
Speaker 9: all before, I think there is greater uncertainty around the

477
00:22:55,160 --> 00:22:59,960
Speaker 9: twenty twenty four presidential election because you have an increased

478
00:23:00,240 --> 00:23:04,359
Speaker 9: risk for an uncertainty about Trump and about Biden. On

479
00:23:04,960 --> 00:23:07,960
Speaker 9: Trump specifically, I think what you've got is a situation

480
00:23:08,119 --> 00:23:11,480
Speaker 9: where you know, if there's a conviction. My instinct is

481
00:23:11,600 --> 00:23:15,159
Speaker 9: what happens is that it accelerates this death by a

482
00:23:15,240 --> 00:23:18,320
Speaker 9: thousand paper cuts process where people say, you know what,

483
00:23:19,480 --> 00:23:24,400
Speaker 9: regardless of Trump policies, regardless of whatever, you know, movement,

484
00:23:24,640 --> 00:23:27,919
Speaker 9: you know, kind of anti establishment movement I think exists here,

485
00:23:28,960 --> 00:23:31,440
Speaker 9: I'd be better off with another candidate. So I tend

486
00:23:31,520 --> 00:23:35,800
Speaker 9: to think that the more the prosecutions start landing home,

487
00:23:36,800 --> 00:23:39,920
Speaker 9: the more that the Republican electorate turns elsewhere.

488
00:23:40,480 --> 00:23:42,720
Speaker 2: Right now, Terry, is you game out that political risk?

489
00:23:42,800 --> 00:23:45,160
Speaker 2: Can you talk to different clients? What are you telling

490
00:23:45,240 --> 00:23:47,399
Speaker 2: them to prepare for? What is the way that it

491
00:23:47,440 --> 00:23:50,760
Speaker 2: will manifest itself if we're not focused as much on say,

492
00:23:50,880 --> 00:23:53,720
Speaker 2: debt reduction or some of the tangibles nuts and bolts

493
00:23:54,119 --> 00:23:55,280
Speaker 2: of fiscal governance.

494
00:23:56,200 --> 00:23:58,600
Speaker 9: Well, I say a couple of things. One is that

495
00:23:59,359 --> 00:24:04,879
Speaker 9: the the first action in the presidential primary process is

496
00:24:05,000 --> 00:24:08,080
Speaker 9: five months I think from today. I mean, you know, Iowa,

497
00:24:08,119 --> 00:24:11,200
Speaker 9: I think it's five months from today. So you know,

498
00:24:11,280 --> 00:24:13,840
Speaker 9: that's a very long time in politics, and there are

499
00:24:14,359 --> 00:24:18,160
Speaker 9: examples all over the board about how you have somebody

500
00:24:18,200 --> 00:24:20,560
Speaker 9: that was leading in the polls today, you know, didn't

501
00:24:20,640 --> 00:24:25,639
Speaker 9: win different primary challenges. So you know, number one, there's that.

502
00:24:25,920 --> 00:24:28,960
Speaker 9: Number two, keep your eye on the panoply of things

503
00:24:29,000 --> 00:24:31,920
Speaker 9: that are going on in Washington, you know, not just

504
00:24:32,040 --> 00:24:35,240
Speaker 9: the Trump matter or the Biden matter. You've got just

505
00:24:35,320 --> 00:24:38,280
Speaker 9: in the next few months. You've got a i think

506
00:24:38,280 --> 00:24:41,919
Speaker 9: a shutdown likelihood, a government shutdown likelihood at sixty percent.

507
00:24:42,800 --> 00:24:46,320
Speaker 9: You've got probably no meaningful action on debt and fiscal

508
00:24:46,440 --> 00:24:51,040
Speaker 9: which markets are increasingly interested in. You've got everything from

509
00:24:51,160 --> 00:24:55,040
Speaker 9: the China economy to the Ukraine Russia matter to think about,

510
00:24:55,960 --> 00:24:58,240
Speaker 9: you know, bank capital standards, and all the way down

511
00:24:58,280 --> 00:25:02,520
Speaker 9: to John's favorite topic, UFO. So, uh, you know, what

512
00:25:02,680 --> 00:25:05,560
Speaker 9: we've got is a situation here where there's an awful

513
00:25:05,680 --> 00:25:08,439
Speaker 9: lot of risk coming out of Washington on a variety

514
00:25:08,480 --> 00:25:11,440
Speaker 9: of fronts, all at once, and it would behooves investors

515
00:25:11,480 --> 00:25:13,760
Speaker 9: to pay attention to all of it, not just this

516
00:25:13,880 --> 00:25:15,040
Speaker 9: particular bread and circus.

517
00:25:15,280 --> 00:25:17,720
Speaker 3: Terry, how did you know that? How did you know that? Terry?

518
00:25:17,800 --> 00:25:20,520
Speaker 3: How real is this down in DC? When you watch

519
00:25:20,600 --> 00:25:21,800
Speaker 3: these hearings. How real is it?

520
00:25:22,840 --> 00:25:26,520
Speaker 9: Which part the UFO was obviously, Terry. You know, the

521
00:25:27,080 --> 00:25:29,280
Speaker 9: cheap and easy line is to say, anybody that watches

522
00:25:29,440 --> 00:25:33,399
Speaker 9: Washington with regularity, uh, you know, does believe in uh

523
00:25:33,880 --> 00:25:36,480
Speaker 9: you know that that there's something out there that you know,

524
00:25:36,800 --> 00:25:41,360
Speaker 9: is affecting things that isn't us. You know, I think

525
00:25:41,400 --> 00:25:44,679
Speaker 9: there's an awful lot of circumstantial evidence on the UFO matters.

526
00:25:44,720 --> 00:25:46,879
Speaker 9: There always has been, and you know, they're going to

527
00:25:46,960 --> 00:25:49,000
Speaker 9: need to get to the next step to start convincing people.

528
00:25:49,280 --> 00:25:52,520
Speaker 4: Terry, Thank you, sir, Terry Haynes, a panteer policy Then

529
00:25:52,600 --> 00:26:06,440
Speaker 4: in Washington, Drew Reading joined US Now home builders analysts

530
00:26:06,440 --> 00:26:09,000
Speaker 4: for Bloomberg Intelligence Stree, can we start with Home Depot.

531
00:26:09,200 --> 00:26:10,680
Speaker 3: What have you learned from the numbers this morning?

532
00:26:11,280 --> 00:26:14,000
Speaker 7: Yeah, so Home Depot had a modest beat, same sort

533
00:26:14,000 --> 00:26:16,760
Speaker 7: of sales down two percent. Expectations were for declind of

534
00:26:16,760 --> 00:26:19,359
Speaker 7: about four percent. I mean, this was pretty much in

535
00:26:19,520 --> 00:26:21,960
Speaker 7: line with what we were expecting. There's been some noise

536
00:26:22,119 --> 00:26:25,480
Speaker 7: quarter to quarter with lumber and weather. The key takeaway

537
00:26:25,560 --> 00:26:28,320
Speaker 7: is that they reaffirmed their four year guidance calling for

538
00:26:28,400 --> 00:26:31,680
Speaker 7: a decline of two to five percent, which includes a

539
00:26:31,720 --> 00:26:34,879
Speaker 7: backdrop of the broader home improvement market falling five to

540
00:26:35,040 --> 00:26:38,919
Speaker 7: ten percent. So you know, they reaffirmed this back at

541
00:26:38,920 --> 00:26:40,760
Speaker 7: their investor day a couple of months ago, so not

542
00:26:40,840 --> 00:26:44,119
Speaker 7: a whole lot of new news from this release. They

543
00:26:44,200 --> 00:26:47,399
Speaker 7: did confirm that they're still caution among consumers and that

544
00:26:47,480 --> 00:26:50,280
Speaker 7: big ticket discretionary projects are still under a little bit

545
00:26:50,320 --> 00:26:50,720
Speaker 7: of pressure.

546
00:26:50,960 --> 00:26:51,680
Speaker 3: For get big tech.

547
00:26:51,760 --> 00:26:53,639
Speaker 4: One of the stories of the year in the acuity

548
00:26:53,720 --> 00:26:56,000
Speaker 4: market has been this rip roaring rally in the home

549
00:26:56,040 --> 00:26:57,960
Speaker 4: builders through later and I were just talking about how

550
00:26:58,040 --> 00:27:01,240
Speaker 4: frozen this housing market is in America. Can you put

551
00:27:01,240 --> 00:27:03,520
Speaker 4: some numbers on that, just how frozen our things at

552
00:27:03,560 --> 00:27:03,960
Speaker 4: the moment.

553
00:27:04,359 --> 00:27:06,560
Speaker 7: Yeah, So if you look at the existing home market,

554
00:27:07,480 --> 00:27:10,240
Speaker 7: sales are down more than thirty percent from their peak.

555
00:27:10,720 --> 00:27:12,720
Speaker 7: I looked at the thirty year mortgage rate before I

556
00:27:12,800 --> 00:27:14,600
Speaker 7: came on this morning, and we're at seven and a

557
00:27:14,720 --> 00:27:17,639
Speaker 7: quarter percent, So, I mean, that's kind of startling. And

558
00:27:17,840 --> 00:27:20,560
Speaker 7: just to give you some perspective of how out of

559
00:27:20,600 --> 00:27:24,240
Speaker 7: whack rates and prices seem, home prices would have to

560
00:27:24,320 --> 00:27:27,320
Speaker 7: fall somewhere around thirty five percent in order for monthly

561
00:27:27,400 --> 00:27:31,080
Speaker 7: payments relative to incomes to fall back to trend levels. Now,

562
00:27:31,320 --> 00:27:34,359
Speaker 7: we don't think that's going to happen. The main reason

563
00:27:34,920 --> 00:27:37,280
Speaker 7: is because the market is frozen. There's no inventory in

564
00:27:37,320 --> 00:27:39,480
Speaker 7: the existing home market, and that's really what's put the

565
00:27:39,520 --> 00:27:43,160
Speaker 7: builders in a unique situation. They've been able to bring

566
00:27:43,600 --> 00:27:46,520
Speaker 7: new product to market. They've been able to help customers

567
00:27:46,560 --> 00:27:49,520
Speaker 7: make their monthly payments work by offering great buydowns. So

568
00:27:49,600 --> 00:27:51,760
Speaker 7: they've kind of been in the sweet spot with higher rates,

569
00:27:51,840 --> 00:27:54,360
Speaker 7: which is something we know we and others didn't really

570
00:27:54,440 --> 00:27:55,640
Speaker 7: expect coming into this year.

571
00:27:56,000 --> 00:27:58,479
Speaker 2: Bear with me, Drew, But immediately I started thinking, does

572
00:27:58,560 --> 00:28:00,679
Speaker 2: this mean that when the FED cut rates, or if

573
00:28:00,720 --> 00:28:02,520
Speaker 2: they've cut rates, maybe they're going to hold rates here

574
00:28:02,560 --> 00:28:03,360
Speaker 2: for a very long time.

575
00:28:03,640 --> 00:28:05,800
Speaker 1: Most people expect them rates to go down, that.

576
00:28:05,920 --> 00:28:08,720
Speaker 2: Home builders will sell off, that that will actually reduce

577
00:28:09,080 --> 00:28:11,800
Speaker 2: some of the proposition that they offer at a time

578
00:28:12,119 --> 00:28:13,879
Speaker 2: where you start to see a little bit more loosening

579
00:28:13,960 --> 00:28:14,760
Speaker 2: in the housing market.

580
00:28:15,160 --> 00:28:17,360
Speaker 7: So it's an interesting question. And the reason I said

581
00:28:17,359 --> 00:28:19,440
Speaker 7: that they're uniquely positioned is because we think they could

582
00:28:19,480 --> 00:28:22,560
Speaker 7: benefit in the current environment where rates are around seven

583
00:28:22,600 --> 00:28:24,120
Speaker 7: and they're buying them down to five and a half.

584
00:28:24,600 --> 00:28:26,919
Speaker 7: But if rates fall back to five and a half percent,

585
00:28:27,080 --> 00:28:30,880
Speaker 7: naturally you've expanded the buyer pool, so it increases mobility.

586
00:28:30,920 --> 00:28:33,560
Speaker 7: So we think even in that environment, builders can still

587
00:28:33,600 --> 00:28:35,680
Speaker 7: do well. I think the biggest risk, and it's not

588
00:28:35,760 --> 00:28:38,160
Speaker 7: something we're seeing now, is that you get more stress

589
00:28:38,200 --> 00:28:40,880
Speaker 7: in the labor market and unemployment starts to spike. That's

590
00:28:40,880 --> 00:28:43,719
Speaker 7: where you would start to see pressures on home prices

591
00:28:43,760 --> 00:28:47,400
Speaker 7: and more supply coming to market because there's forced selling activity.

592
00:28:48,320 --> 00:28:50,520
Speaker 7: That's just something we haven't had to this point.

593
00:28:50,760 --> 00:28:52,640
Speaker 2: Home builders have also been in a sweet spot because

594
00:28:52,640 --> 00:28:55,560
Speaker 2: you've seen lumber prices come in and from home depots earnings,

595
00:28:55,640 --> 00:28:57,440
Speaker 2: that's been actually a headwind for them.

596
00:28:57,520 --> 00:28:58,280
Speaker 1: That's been a problem.

597
00:28:58,320 --> 00:29:01,760
Speaker 2: They've actually seen margins come in with some of their

598
00:29:01,840 --> 00:29:03,360
Speaker 2: supplies and their sales increase.

599
00:29:03,480 --> 00:29:05,560
Speaker 1: Not able to be passed along as much. How much?

600
00:29:06,280 --> 00:29:08,640
Speaker 2: Is that kind of one of the variables that can

601
00:29:08,720 --> 00:29:10,520
Speaker 2: back up a home builder or not if you start

602
00:29:10,520 --> 00:29:11,959
Speaker 2: to see lumber prices go back up.

603
00:29:12,200 --> 00:29:12,400
Speaker 9: Yeah.

604
00:29:12,440 --> 00:29:15,320
Speaker 7: So right now, profitability for the builders in terms of

605
00:29:15,400 --> 00:29:19,080
Speaker 7: gross margin has benefited from the fall and lumber prices.

606
00:29:19,120 --> 00:29:22,000
Speaker 7: We expect that to continue over the near term, but

607
00:29:22,040 --> 00:29:24,400
Speaker 7: they have started to take back higher and that could

608
00:29:24,440 --> 00:29:27,760
Speaker 7: add some pressure to margins alongside the increased use of

609
00:29:27,800 --> 00:29:30,440
Speaker 7: sales incentives. So it's certainly something to watch because obviously,

610
00:29:30,480 --> 00:29:32,800
Speaker 7: as you would expect, lumber is the biggest component of

611
00:29:32,840 --> 00:29:33,200
Speaker 7: a house.

612
00:29:34,160 --> 00:29:36,840
Speaker 2: When, Drew, do you expect mortgage rates as you mentioned

613
00:29:36,880 --> 00:29:38,360
Speaker 2: seven and a quarter seven and a half percent if

614
00:29:38,400 --> 00:29:41,160
Speaker 2: you look at bank right, when will that actually trickle

615
00:29:41,240 --> 00:29:43,520
Speaker 2: out into valuations in a more material way? Are we

616
00:29:43,640 --> 00:29:46,440
Speaker 2: just basically saying that because of the term structure, it's

617
00:29:46,520 --> 00:29:49,080
Speaker 2: not going to have the ramifications that anyone expected it

618
00:29:49,120 --> 00:29:49,280
Speaker 2: to have.

619
00:29:50,080 --> 00:29:53,920
Speaker 7: Yeah, it's certainly an interesting dynamics that's taken shape. And

620
00:29:54,000 --> 00:29:57,239
Speaker 7: I think the reason that higher rates aren't having an

621
00:29:57,280 --> 00:30:01,200
Speaker 7: impact on home prices and the evaluation houses is because

622
00:30:01,200 --> 00:30:04,120
Speaker 7: there's no supply. In order for a price see to

623
00:30:04,200 --> 00:30:06,440
Speaker 7: see a dramatic decline, you'd have to have that forced

624
00:30:06,520 --> 00:30:10,160
Speaker 7: selling activity, which would be associated with an economic recession

625
00:30:10,200 --> 00:30:14,959
Speaker 7: and rising unemployment. We've got very well healed borrowers out there.

626
00:30:15,040 --> 00:30:18,200
Speaker 7: We haven't seen those exotic loans this cycle, so we

627
00:30:18,360 --> 00:30:21,080
Speaker 7: have good borrowers. They're locked into low fixed rates, so

628
00:30:21,120 --> 00:30:23,840
Speaker 7: there's really no reason for them to be forced to

629
00:30:23,920 --> 00:30:26,040
Speaker 7: sell absent on broader economic recession.

630
00:30:26,200 --> 00:30:28,120
Speaker 4: Dre Can you give me that number again? For those

631
00:30:28,160 --> 00:30:30,640
Speaker 4: that missed it, what the housing prices need to fall

632
00:30:30,720 --> 00:30:32,920
Speaker 4: by to go back to trend repayment levels.

633
00:30:33,480 --> 00:30:35,840
Speaker 7: So in the existing home market, home prices would have

634
00:30:35,960 --> 00:30:38,640
Speaker 7: to fall about thirty five percent in order for that

635
00:30:38,760 --> 00:30:41,120
Speaker 7: monthly payment relative to income to kind of fall back

636
00:30:41,160 --> 00:30:42,160
Speaker 7: to those trend levels.

637
00:30:42,000 --> 00:30:45,520
Speaker 4: We talked about thirty five percent, Jay. Thank you Drevenning

638
00:30:45,520 --> 00:30:46,760
Speaker 4: there Bloomberg Intelligence.

639
00:30:48,480 --> 00:30:51,880
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640
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646
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