Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business App. Stephanie Rath of Wolfe
Speaker 2: has one of the lowest estimates on the Street rising.
Speaker 2: We're looking for ninety thousand non farm payrolls, weather, seasonal factors,
Speaker 2: and the Canada alone suggests a substantial headwind. Stephanie joins
Speaker 2: us now for more. Stephanie, Good morning.
Speaker 3: Good morning.
Speaker 2: Is it too early to expect to see a hit
Speaker 2: from the policy volatility? Dan in Washington, No, I.
Speaker 4: Think we should start to see that companies probably pause
Speaker 4: on their hiring if we don't know what the outlook is.
Speaker 4: A lot of companies are quite uncertain about where things
Speaker 4: are going. It makes sense that they're gonna pause on hiring.
Speaker 4: And then from the comments that you just read, there's
Speaker 4: seasonal factors weighing on the print, calendar factors weighing on
Speaker 4: the print. It makes sense for it to be below
Speaker 4: one hundred.
Speaker 2: Has been described as a random number generator at time
Speaker 2: in the survey week claims are okay. Does that make
Speaker 2: a difference to you, No.
Speaker 4: Because the seasonal stuff is not really an effect of firing.
Speaker 4: It's more just timing around the survey week compared to
Speaker 4: last month there was bad weather. That doesn't mean that
Speaker 4: there was actual firing, so that shouldn't correlate with the
Speaker 4: claims data. This is more function of this particular non
Speaker 4: farm pails print.
Speaker 5: Does it matter which jobs end up getting removed or
Speaker 5: maybe seeing a weak performance in this report given the
Speaker 5: fact that there has been this ballast of healthcare as
Speaker 5: well as a couple of other sectors, including the government,
Speaker 5: that have really driven things over the past couple of years.
Speaker 4: Yeah, And I think that's something that we're going to
Speaker 4: see over the next couple of months, is the parts
Speaker 4: of the labor market that were really strong should start
Speaker 4: to slow down. Government in particular healthcare is well, especially
Speaker 4: since grants are likely to be slowing down healthcare hiring,
Speaker 4: and then on top of that, you should start to
Speaker 4: see the cyclical parts of the economy slow down. That
Speaker 4: one I don't expect for this print necessarily. I think
Speaker 4: we should see a sort of more gradual slowdown from
Speaker 4: that perspective. But we should start see construction, should see
Speaker 4: ahead wind from some of the weather stuff, healthcare, government
Speaker 4: sho should be a little bit softer in this print,
Speaker 4: and then in the next print things like rail employment,
Speaker 4: stuff that's actually tied to the goods economy. That's probably
Speaker 4: less of a story for this print. It's probably more
Speaker 4: about the Maypairels print.
Speaker 6: You know, this has been a really confusing moment.
Speaker 5: On one hand, a lot of people are predicting a
Speaker 5: lot of pain and potentially a real headwind to growth.
Speaker 5: On the other hand, you do have companies with drawing guidance.
Speaker 5: You have others like some of the travel companies cruise
Speaker 5: liners and hotels increasing theirseph fullier forecast because they see
Speaker 5: people still traveling, people still want to go around, The
Speaker 5: consumer is still strong.
Speaker 6: How do you pair these two.
Speaker 5: Ideas and put them together in some sort of outlook.
Speaker 4: I think it makes sense today the economy is fine.
Speaker 4: There will be something unificant headwinds in the next couple
Speaker 4: of months unless Trump pulls back the tariffs.
Speaker 7: On China in particular in a big way.
Speaker 4: So if he doesn't do that in the next couple
Speaker 4: of weeks, we might be on a sort of unsustainable
Speaker 4: path towards recession base cases.
Speaker 7: He probably pulls down.
Speaker 4: The tariffs on China in particular fairly notably in the
Speaker 4: next couple of weeks, otherwise we might be looking at
Speaker 4: bare shelves and COVID like environment.
Speaker 8: But it was a self inflicted one Stephanie, what's fairly
Speaker 8: notable in terms of pulling the tariffs down sixty percent?
Speaker 3: That still feels like to many people.
Speaker 4: In trade of bargo you need tariff rates to be
Speaker 4: below fifty five percent roughly all in. That includes the
Speaker 4: fentanyel tariffs, that includes the reciprocal tariffs. And then, by
Speaker 4: the way, you have to be cognizant that there are
Speaker 4: three oh one tariffs from the last trade war as well,
Speaker 4: some of them up to twenty five percent, right, so.
Speaker 3: It's a massive cumulative rate.
Speaker 8: You said something earlier, you said you don't expect companies
Speaker 8: to be hiring. They're on pause. Do you expect them
Speaker 8: to be firing at this moment.
Speaker 7: At this moment, probably not.
Speaker 4: There's just so much uncertainty, there was so much difficulty
Speaker 4: hiring in the past couple of years. It probably makes
Speaker 4: send for them to just pause for a little while.
Speaker 4: Of course, there's going to be still some hiring to
Speaker 4: some extent, there's just a business eased, the economy still growing,
Speaker 4: but to the extent that at the margin, if you're
Speaker 4: not sure you need the position, you might just kind
Speaker 4: of wait for the next couple of months, see how
Speaker 4: things play out, and then make a decision about whether
Speaker 4: you actually want to hire in that position.
Speaker 2: Later on this morning, we get consumer confidence numbers, and
Speaker 2: within that you offer to read on attitudes to the
Speaker 2: labor market, how difficult or hard it might be to
Speaker 2: get a job. And I think this is really important
Speaker 2: on taking the temperature not only for that, but also
Speaker 2: the potential for second round effects when it comes to
Speaker 2: inflation and price hikes. Now, if I'm worried about getting
Speaker 2: a job, how likely is it that I'm going to
Speaker 2: get a pay rise anytime soon, or at least ask
Speaker 2: for one.
Speaker 4: Probably less so, so you're probably going to start to
Speaker 4: see a little bit of deceleration from our wage perspective.
Speaker 4: The one thing is the immigration stuff actually has a
Speaker 4: different implication for the for the blue collar work or
Speaker 4: the lower end.
Speaker 3: So there is a bit of stuff.
Speaker 4: Happening kind of under the surface that is quite nuanced.
Speaker 4: So we might start to see an unusual tightening for
Speaker 4: blue collar worker, even though the white collar worker might
Speaker 4: actually be having a little bit more difficulty finding it.
Speaker 2: So, just for the record, ask for a pay rise, right,
Speaker 2: really please? Always?
Speaker 5: Okay, So that's you basically, So in some please.
Speaker 2: Rachel, this can become self fulfilling, don't you think People
Speaker 2: start to worry about these things, so they back off,
Speaker 2: they stop spending, and it takes on a life of its.
Speaker 5: Own, which is the reason why I think it's really
Speaker 5: salient that you mentioned these surveys and how people feel
Speaker 5: about their jobs, people staying longer, the quits rate. Later
Speaker 5: this morning, when we get that joelt Stata is going
Speaker 5: to be key in terms of people's confidence not just
Speaker 5: to ask for a raise, but to leave their jobs.
Speaker 5: And as we're talking about this ups and how's his plans?
Speaker 5: You got twenty thousand jobs this year as a result of.
Speaker 6: The Amazon tie up.
Speaker 5: You're seeing this on the margins, cost cutting coming more
Speaker 5: into the floor.
Speaker 2: Where is the consumer price tolerance right now going into
Speaker 2: potentially higher prices, not very high.
Speaker 4: So the biggest driver of consumer inflation expectations is past inflation.
Speaker 4: So today, the extent that consumers are worried about the
Speaker 4: inflation that we saw this time, they're quite worried about
Speaker 4: inflation that we're going to see in the future, in
Speaker 4: which case they're probably going to be pulling back on spending.
Speaker 4: They're gonna be very attuned to the prices that they're
Speaker 4: seeing on the shelves. So this is very different than
Speaker 4: the last trade war for a number of reasons. The magnitude,
Speaker 4: of course, but also where we are coming from, and
Speaker 4: in twenty eighteen we didn't have a period of inflation.
Speaker 3: People weren't really expecting inflation, they didn't really know what
Speaker 3: it felt like.
Speaker 4: This time, consumers field are very very different versus where
Speaker 4: we were.
Speaker 2: Amazon has a different idea of how this might play out.
Speaker 8: Right, Amazon, I think is gonna get very political and
Speaker 8: tru administration is not gonna like this. Punch Bowl says
Speaker 8: that they're going to add what the tariff rate is
Speaker 8: on top of the cumulative price. So if you're a
Speaker 8: consumer and you see something's five dollars and now it's
Speaker 8: ten to seven, whatever, you see the additional tariff input
Speaker 8: that is going to I think really irk the administration.
Speaker 2: Yeah, the politics of that is going to be interesting
Speaker 2: for the next few months or so if that's how
Speaker 2: it plays out. Stephanie's good to see you as always.
Speaker 2: Thanks for dropping by, Stephanie roth Lair of Wolf Research.
Speaker 2: Let's turn to a busy week of data ahead and
Speaker 2: a busy week for Washington as well. The Fed's next
Speaker 2: rate decision just a week away. Colin Martin of Chiles
Speaker 2: Swelb writing, while self data has been concerning, the hard
Speaker 2: data has held up well. If this week's data disappoints,
Speaker 2: the Fed won't necessarily react. Colin joint us now for more. Colin,
Speaker 2: good Mornick, Good morning, Tilson Slock Apollo. I don't know
Speaker 2: if you saw this. I'm going to share it with
Speaker 2: you now. The survey week for employment this week was
Speaker 2: the week after Liberation Day tariffs were announced. It goes
Speaker 2: on to say the consensus expects one hundred and thirty k.
Speaker 2: There are significant risk the number is going to be lower,
Speaker 2: perhaps even negative. What's your reaction to that.
Speaker 9: It'd be pretty disappointing.
Speaker 10: I mean, when we look at the labor market outlook,
Speaker 10: there's all these thoughts and concerns about what can happen
Speaker 10: as the tariffs are put in place over the next
Speaker 10: few months, and there isn't too much concern in the
Speaker 10: here and now opposite, you know, aside from what Wordslock
Speaker 10: just put out. I mean, I think the consensus estimate
Speaker 10: is one hundred and sixty five thousand something like that.
Speaker 10: If we were to see slow down here in April,
Speaker 10: I don't think that would change the FEDS calculus for
Speaker 10: next week.
Speaker 9: We kind of heard that from a lot of FED
Speaker 9: officials in terms.
Speaker 10: Of no move in May. Maybe it gets pulled up
Speaker 10: to June. I think it'd be bad for the markets, though,
Speaker 10: if we got that negative reading this early, this quickly,
Speaker 10: I think that'd be a pretty bad outcome.
Speaker 5: When you see the markets, you're talking risk assets in particular,
Speaker 5: and what we have seen so far is a real
Speaker 5: divergence between the front end of the yield curve, which
Speaker 5: has really signals a great more pain than certainly risk assets,
Speaker 5: whether it's credit instruments or whether it's equity ones. Do
Speaker 5: you think that that divergence needs to close to more
Speaker 5: weakness on the risk side of things, or do you
Speaker 5: think that people are pricing in an overly large response
Speaker 5: by the Federal Reserve.
Speaker 9: I don't think they are.
Speaker 10: If you look at the ten year treasury, for example,
Speaker 10: I mean, that's been hovering in that four to two
Speaker 10: to four five range. I think a lot of that
Speaker 10: comes down to potential confidence dollar concerns, things like that.
Speaker 10: If you look at the Fed funds futures market, they
Speaker 10: have been pricing in relatively aggressive cuts.
Speaker 9: We somewhat disagree with that.
Speaker 10: We don't think we're going to see that slow down
Speaker 10: as quickly as a three or four rate cut outcome suggests.
Speaker 10: But it does come down to the labor market. If
Speaker 10: we see that weakening, we think the Fed over time
Speaker 10: will react. We're seeing Powell kind of pivotal away a
Speaker 10: little bit. I think a week and a half ago
Speaker 10: he mentioned maybe we'll focus on the inflation mandate more
Speaker 10: than the labor market mandate. That seems to be the
Speaker 10: minority right now, based on concerns and comments we've heard
Speaker 10: from other Fed officials.
Speaker 6: This is a fascinating moment.
Speaker 5: Where a lot of Fi Crui of gold mis Sax
Speaker 5: yesterday came on the show, and so that he actually
Speaker 5: prefers credit risk to sovereign risk right.
Speaker 6: Now and talking about removing.
Speaker 5: From some of the volatility that you're seeing in treasury
Speaker 5: markets to really go with corporations that are telling you
Speaker 5: we have no clue, that are one after another saying
Speaker 5: we can't give you any forward guidance.
Speaker 6: Can you reconcile that? Do you agree with that?
Speaker 10: You know somewhat, But I guess it depends how much
Speaker 10: credit risk we're talking about. We're still a little bit
Speaker 10: cautious on the very low rated parts of the market,
Speaker 10: I mean junk in general. We're worried that spreads can
Speaker 10: blow out if we get this prolonged trade war investment creed.
Speaker 10: We're still pretty comfortable taking that risk. So, whether it's
Speaker 10: credit on the corporate side, whether it's municipal credit risk,
Speaker 10: we're okay there because the hard data leading up to
Speaker 10: now was generally okay. Corporations are in pretty solid footing,
Speaker 10: especially ig rated. We're looking at really strong balance sheets,
Speaker 10: plenty of liquid assets. If profits slow down, I think
Speaker 10: that might need more of a stock market issue that's
Speaker 10: an earnings issue, not a balance sheet issue, and we
Speaker 10: think they have really strong balance sheets right now. Again,
Speaker 10: IG issues. They've pushed back that maturity wall a little bit,
Speaker 10: so IG we're okay with.
Speaker 9: But we're not really taking low credit risk right now.
Speaker 6: This is a really tough time to be an investor.
Speaker 5: I have to say, I can just begin to imagine
Speaker 5: there's so many different themes that are kind of overlaid.
Speaker 5: You've got this question of credit versus software risk, and
Speaker 5: then you've got a question of just international appetite for
Speaker 5: US dollars nominated assets, and that has been one of
Speaker 5: the biggest shifts over the past few weeks, is that
Speaker 5: that's really been called into question. How much have you
Speaker 5: changed your allocation to shift away from US dollars to
Speaker 5: nominated assets, just to touch on the margins, to immunize
Speaker 5: yourself from that type of narrative that does seem to
Speaker 5: becoming entrenched in certain pockets.
Speaker 10: I could say we're talking about it a lot more
Speaker 10: with our clients than we were a few months ago
Speaker 10: and over the past few years. When we look at
Speaker 10: international markets a Schwab, it's not really a big aspect
Speaker 10: of what we look at I think most US investors
Speaker 10: from a bond standpoint, are probably under allocated to international debt.
Speaker 10: With the dollar being as strong as it's been over
Speaker 10: the past few years, there hasn't been as much of
Speaker 10: a case because you have that yield disadvantage when you
Speaker 10: consider other global developed markets. If the outlook is for
Speaker 10: the dollar to weaken a little bit from here, then
Speaker 10: the case can be made to shift a little bit
Speaker 10: to international assets. We're not saying go nuts, We're not
Speaker 10: saying go overweight, but it probably makes sense, especially when.
Speaker 9: You talk about the idea of a.
Speaker 10: Loss of confidence or sovereign risk. You don't hear about
Speaker 10: those concerns with some of the higher rated issuers and
Speaker 10: say Europe for example. So I think it's a decent option,
Speaker 10: but really just for investors who are probably un are
Speaker 10: allocated right now versus Hey take all your money out
Speaker 10: of the US and go into Europe for example.
Speaker 3: You said you're talking to your clients about this.
Speaker 8: Are they nervous about us losing something like reserve status?
Speaker 9: Yes, full stop. I mean that's over the past few
Speaker 9: weeks we've done.
Speaker 3: You've never heard this before.
Speaker 9: We get it a lot.
Speaker 10: It's a question that it always lingers, especially when you
Speaker 10: have the idea of rising debts, rising deficits. There's no
Speaker 10: shortage of concerns about the outlook for the dollar and
Speaker 10: how investors should be positioned. But over the past few weeks,
Speaker 10: especially since so called Liberation Day, the client events and
Speaker 10: requests for communications have been through the roof no supply,
Speaker 10: no surprise, and that's a major concern. The question is
Speaker 10: what's going on with treasury, with foreigners potentially selling our debt,
Speaker 10: what's the outlook for the dollar. We try not to
Speaker 10: be too alarmist about it. We don't think the dollar
Speaker 10: is going to lose its reserve currency status overnight. I
Speaker 10: think there could be a risk over the long run.
Speaker 10: If the goal here by the Trump administration is to
Speaker 10: reduce those trade deficits, then maybe that means we have
Speaker 10: less of a capital account surplus, and it means foreigners
Speaker 10: over time don't need to hold as many dollars. It's
Speaker 10: a very long term view, though, so we're trying not
Speaker 10: to be alarmist. Obviously there's concerns out there, but we're
Speaker 10: not saying you need to get out of the dollar
Speaker 10: or dollar denominated assets right now.
Speaker 2: It's not something that happens. I have an eye something
Speaker 2: that happens gradually, and we have start to say this
Speaker 2: type place the dollar stats awaken goldsteins to appreciate that's
Speaker 2: been a story for the last couple of years now.
Speaker 2: And some of the people would also point to the
Speaker 2: state of cufs. We've seen this well, less of a
Speaker 2: willingness to hold the long bonped particularly moments of strengths
Speaker 2: and equity markets. You're not even seeing sensual signs of
Speaker 2: this stime to accumulate.
Speaker 9: What do you mean by.
Speaker 10: Starting to accumulate with foreign investors and nervousness about long term.
Speaker 2: Debt, nervousness about holding US assets, particularly a time of stress.
Speaker 10: You know, I don't know if it's so much a nervousness.
Speaker 10: I think it's just a gradual shift away. Hey, there's a.
Speaker 9: Lot going on right now. And if you're a foreign.
Speaker 10: Investor, and it seems like it might be private investors
Speaker 10: as opposed to turn for banks, obviously these are negative
Speaker 10: headlines if you're a foreigner, just the idea of maybe
Speaker 10: I don't want to hold that asset right now. But John,
Speaker 10: you hit the nail on the head. It's a long
Speaker 10: term potential shift This takes years for something like this
Speaker 10: to happen, and it's not our outlook great now, mainly
Speaker 10: because where else can you go? I mean, the dollar
Speaker 10: is still the most held asset, the most traded asset,
Speaker 10: so it's not something that we're worried about right now.
Speaker 2: And if you've been away for a while and came
Speaker 2: back and saw de x y A ninety nine, you
Speaker 2: probably wouldn't freak out.
Speaker 9: That's for sure.
Speaker 2: Going to see a Colin appreciate it as always, Colin
Speaker 2: mouse in there of Charles Swam on the latest Savita
Speaker 2: SUPERMANI but Bank for America writing, the only thing to
Speaker 2: fear is fear itself. Folks are worried about a recession,
Speaker 2: so they are acting recession rate speed and achieving policy
Speaker 2: clarity is healthy essence. Savita joined us now for more Sevita,
Speaker 2: good morning.
Speaker 3: It's good to see it.
Speaker 7: I'm morning great to see.
Speaker 2: A lot of cuts to outlooks. We're seeing suspensions of
Speaker 2: guidance repeatedly across the board from Corporate America this morning.
Speaker 2: What does that mean for you and the team.
Speaker 11: Yeah, well, I mean it's not great, It's definitely not good.
Speaker 11: We're seeing the revision ratio, just a number of cuts
Speaker 11: to number of raises to earnings approaching all time lows.
Speaker 11: Guidance is being suspended.
Speaker 7: That's a hit.
Speaker 11: I mean, we saw the same thing during COVID, probably
Speaker 11: more so during COVID because there was a much higher
Speaker 11: level of uncertainty.
Speaker 7: And what we found was the companies that continued.
Speaker 11: To guide actually traded at the widest premium to the
Speaker 11: non guiders or the suspenders that we've seen. So I
Speaker 11: think right now people want transparency, investors want to know,
Speaker 11: So that's that's one thing we're watching. I think what's
Speaker 11: interesting is that in the last week we've heard more
Speaker 11: companies talk about mitigation tactics for tariffs.
Speaker 7: Than we did in prior weeks.
Speaker 11: So I think that what we're in right now is
Speaker 11: the environment where corporates are doing what they always do,
Speaker 11: which is adapt, you know, figure out where they can,
Speaker 11: you know, kind of change things around the edges. And
Speaker 11: on top of that, we're seeing kind of a defer
Speaker 11: of big decisions. So it almost feels like we're in
Speaker 11: this phase where there's.
Speaker 7: No hiring, but no firing.
Speaker 11: There's you know, no new capital committed to projects, but
Speaker 11: projects aren't necessarily being canceled, and I think that's both
Speaker 11: good and bad.
Speaker 7: I mean, this pause.
Speaker 11: The longer it lasts, you know, the worse it gets
Speaker 11: for the economy. But at least we're not seeing just
Speaker 11: this sort of reactive firing canceling, you know, kind of
Speaker 11: a downdraft and activity.
Speaker 2: This is important for the data that comes on Friday Pace.
Speaker 2: When you say adapt, then if they're not firing, how
Speaker 2: are they adapting?
Speaker 3: What are they doing?
Speaker 11: So what they're doing is they're sort of shifting supply chain.
Speaker 11: They're thinking about more manufacturing in the US.
Speaker 7: I think that the idea that we've seen this.
Speaker 11: Movie before, back in twenty eighteen, especially with respect to China,
Speaker 11: gives companies a little bit more confidence that they know
Speaker 11: how to negotiate this.
Speaker 7: So I think that's a positive.
Speaker 11: What's interesting, though, is that you're hearing more weakness around
Speaker 11: consumer and even in consumer staples. So if you think
Speaker 11: you can hide in the food stocks and the you know,
Speaker 11: the defense not necessarily working this time, and I think
Speaker 11: that's also noteworthy. I will tell you, I mean everything
Speaker 11: we're looking at really points us in one direction, which
Speaker 11: is large cap value. And I feel like it's almost
Speaker 11: this kind of unassailable theme in an environment where the
Speaker 11: risks are you know, potentially higher yields, and we can
Speaker 11: talk about that potentially higher inflation, because what we're seeing
Speaker 11: right now on the table from a policy standpoint, is
Speaker 11: mostly inflationary, and in that environment, you really don't want
Speaker 11: to be in bonds.
Speaker 7: You want to be in dividends. Rustle one thousand.
Speaker 11: Value companies have a much higher tether to non discretionary spend,
Speaker 11: either services or goods.
Speaker 7: Think about it.
Speaker 11: I mean, if we're in an environment where we're cutting back,
Speaker 11: we're still going to pay insurance, We're still going to
Speaker 11: be utilities, heating, et cetera. So I think those types
Speaker 11: of areas of the market should hold up quite well.
Speaker 7: And the value.
Speaker 11: Index, the large pat value index has kind of consistently
Speaker 11: outperformed the growth indexes here, So I think I think
Speaker 11: that's where you really want to be to sort of
Speaker 11: cover yourself as opposed to just going pure defense of
Speaker 11: you know, kind of the old school defense playbook.
Speaker 5: Yeah, to your point, some of the consumer staples craft
Speaker 5: hignds came out in cited worse than consumer sentiment and
Speaker 5: cut their forecast. Evidently, Oscar Myer Sausages as well as
Speaker 5: your hines catch up, but not necessarily moving off the
Speaker 5: shelves as quickly as in the past.
Speaker 7: You said you've latched talk about hot sogs.
Speaker 5: Yeah, well, I mean maybe that's something else. Maybe that's
Speaker 5: John in terms of healthcare exactly.
Speaker 3: Baby.
Speaker 5: You know, if you check your blood and then you
Speaker 5: check that oscar wedding, that's my boot.
Speaker 6: You talk about yields, let's go there.
Speaker 5: You have a very non consensus call on what US
Speaker 5: equity markets are implying about where treasure yields could go.
Speaker 6: Yeah, seven percent?
Speaker 7: Really seven percent?
Speaker 11: So this is this is the analysis we said, Okay,
Speaker 11: equities and the core sector is actually quite unlevered and
Speaker 11: unusually healthy when it comes to leverage because all that
Speaker 11: leverage sits on.
Speaker 7: Government balance sheets.
Speaker 11: So if you look at the leverage ratio between corporates
Speaker 11: and the government, complete opposites.
Speaker 7: And if you apply the math, so what we.
Speaker 11: Found is that investors will pay a higher multiple if
Speaker 11: leverage risk is lower. If you apply that math to
Speaker 11: where bond yields are where the US government is it
Speaker 11: spits out yields around seven percent, it's a much higher
Speaker 11: level of return that investors need to see in an
Speaker 11: environment where leverage.
Speaker 7: Is so high.
Speaker 5: This is following the logic that the math is the
Speaker 5: same for US sovereign risks. I mean, it's it's the
Speaker 5: back of the envelope. But this raises this real question,
Speaker 5: which is, if there is a credit risk component to
Speaker 5: US sovereign debt, how much does that impede the equity
Speaker 5: story in the United States? Given that a lot of
Speaker 5: guests who come on this show say once ten year
Speaker 5: treasure yields hit five percent, forget about it, you're going
Speaker 5: to see some losses in equities.
Speaker 7: Yeah, I don't necessarily think so.
Speaker 11: I mean, let's say we're kind of becoming more like
Speaker 11: an emerging market. Sometimes emerging market equities do really well,
Speaker 11: especially when they're unlevered and there's potential for growth.
Speaker 7: And I think that's where we are today. So if
Speaker 7: you look past.
Speaker 11: Tariffs and you think about what the administration is trying
Speaker 11: to do, we're trying to get America manufacturing again. We're
Speaker 11: already seeing the seeds sewn for that story over the
Speaker 11: last four to eight years. So I think that the
Speaker 11: idea that stocks have to implode if yields hit five
Speaker 11: percent is completely false. In fact, we've looked at a
Speaker 11: lot of We've looked at this a lot of different ways.
Speaker 7: I mean, think about it.
Speaker 11: Yields right now are not unusually high. Seven percent sounds
Speaker 11: really high, but it's you know, we've been there, We've
Speaker 11: been higher in the past, and stocks have done okay,
Speaker 11: especially dividend yielding stocks. So I think this is an
Speaker 11: environment where we have to kind of recalibrate to what's
Speaker 11: actually going on.
Speaker 7: The US government.
Speaker 11: Debt levels are at you know, off the grid. We've
Speaker 11: never seen this before. We're seeing a closed economy. We're
Speaker 11: seeing signs of a closed economy. We're seeing signs of inflation.
Speaker 11: We want to see growth in the US. That's what
Speaker 11: the policymakers are trying to get. And all of that
Speaker 11: is likely to push up bond yields on the long end.
Speaker 3: Yeah.
Speaker 10: Right.
Speaker 8: The administration, though, is targeting lower yields. If it hit
Speaker 8: seven percent, does that mean they failed?
Speaker 7: I don't know if it's failing.
Speaker 11: I mean, I think it's just sort of we're all
Speaker 11: anchoring to super low rates over the last twenty thirty years,
Speaker 11: and they've been falling the entire time. But think about
Speaker 11: where we are now. I mean, rate cycles last for decades.
Speaker 11: We were in a multi decade period where interest rates
Speaker 11: were falling, So I just think we should we just
Speaker 11: sort of gear ourselves for the idea that interest rates
Speaker 11: rising even from here is not necessarily anathema for stocks
Speaker 11: from a policy perspective.
Speaker 7: I mean, nobody's calling me about, you know, if rates
Speaker 7: we hire or have we failed?
Speaker 11: But I think that the idea is if rates move higher,
Speaker 11: but growth is accompanying that rate move, that's not a failure.
Speaker 11: It's actually kind of a more normal boom time economy.
Speaker 11: And I just think we're so not used to that
Speaker 11: because we haven't seen that in such a long time.
Speaker 2: Why they're high that was important. Is it going to
Speaker 2: be the boom time economy that takes rates higher or
Speaker 2: is it going to be something else.
Speaker 11: I think it's a whole bunch of things. The good
Speaker 11: case is positive growth. The bad case is sovereign risk.
Speaker 11: It's also a lack of demand for US treasuries because
Speaker 11: the buyers, you know, foreign buyers have left the building
Speaker 11: the FED used to buy treasuries.
Speaker 7: I mean, one could argue.
Speaker 11: That if we get to five percent on rates, the
Speaker 11: FED will step back in and start buying.
Speaker 7: But I think even there.
Speaker 11: You know, we've got an environment where, you know, again
Speaker 11: going back over time, we're just all looking at the
Speaker 11: last ten to twenty years, and we're thinking that five
Speaker 11: percent seems unsustainable.
Speaker 7: Companies aren't geared for it. Companies are actually very geared
Speaker 7: for a higher rate in vironment.
Speaker 11: They've paid down debt, they've locked in very low fixed
Speaker 11: rate obligations. Consumer balance sheets are pristine. I mean, for
Speaker 11: the most part, you're seeing you know, you're seeing some
Speaker 11: frame around the edges. But when you think about what
Speaker 11: just happened, the government gave the private sector a whole
Speaker 11: bunch of money. True, right, so what do you want
Speaker 11: to buy the government or the private sector.
Speaker 2: But when I hear you, Suviat, I hear you talking
Speaker 2: about the potential for earnings, I don't hear you talking
Speaker 2: about the potential for what people will pay for those earnings.
Speaker 2: And when you talk about higher solvereign risk. When I
Speaker 2: start to think about that, when I start to think
Speaker 2: about what could happen to the self reign, that makes
Speaker 2: me think that people won't be willing to pay for
Speaker 2: earnings in the same way they were, particularly foreign investors.
Speaker 2: We have built up an incredible long on dollar assets yeah,
Speaker 2: over the last decade, what kind of multiply you put
Speaker 2: in on that very optimistic count.
Speaker 11: Look, it's yeah, it's it's tricky because I think the
Speaker 11: S and P today is a very different animal than
Speaker 11: it's been historically. So saying a fifteen multiple, which is
Speaker 11: the long term average, you just slap that on and
Speaker 11: that's what you get.
Speaker 7: What you get. I don't think that's fair.
Speaker 11: I think that's overly punitive because when you look at
Speaker 11: the market today, it's you know, higher margin industries with
Speaker 11: a lot of potential to become even even higher. When
Speaker 11: you think about old economy sectors that can use a
Speaker 11: lot of this automation and tools, and you know, little
Speaker 11: AI sprinkled in to get more asset light and you
Speaker 11: know kind of improve margins and improve earnings variability. So
Speaker 11: I think a multiple of twenty seems completely reasonable. In fact,
Speaker 11: we ran this analysis where we looked at the S
Speaker 11: and P five hundred versus other global benchmarks. Granted the
Speaker 11: SMP is trading in the stratosphere, everything else is super cheap. Now,
Speaker 11: if you adjust for sector mix, if you adjust for earnings, volatility, leverage,
Speaker 11: consumer aspects, you actually come to a conclusion that the
Speaker 11: SMP isn't that expensive relative to these other benchmarks.
Speaker 7: So I think by just sort of painting this.
Speaker 11: Historical app everything has to trade at the same level.
Speaker 11: I think we're sort of oversimplifying really important details about.
Speaker 2: US corporate bigdose of optimism this morning from Savita Subramani,
Speaker 2: but Bank for Americas VETA, thank you. Kathy Postchansik of Nationwide, writing,
Speaker 2: we think the economy out of just one hundred and
Speaker 2: twenty thousand jobs in April, Kathy joins us now to
Speaker 2: discuss Kathy, welcome to the program. One twenty we at
Speaker 2: risk of something much much lower.
Speaker 12: Well, good morning, John.
Speaker 1: Well, yeah, I do do think the risks are on
Speaker 1: the downside, but it's a bit early to look for
Speaker 1: the real negative numbers in payroll or they hit from
Speaker 1: the government layoffs and the hit to healthcare and even
Speaker 1: the cyclical sectors.
Speaker 12: I think that's going to be a few months from now.
Speaker 1: But we certainly have seen businesses just pull in their
Speaker 1: hiring range. And given that we do see churn in
Speaker 1: the labor market every month, the fact that you're just
Speaker 1: seeing companies paralyzed right and not hiring, that does impart
Speaker 1: a downward bias to the number.
Speaker 5: Kathy, are there specifics that you're looking for with in
Speaker 5: like under the hood of the headline number that's going
Speaker 5: to be important to see.
Speaker 12: Yeah, No, absolutely.
Speaker 1: You know, one of the main engines of growth in
Speaker 1: payrolls has really been the healthcare and a social assistance sector.
Speaker 12: Those sectors are.
Speaker 1: Very much related and dependent on federal government activity and support.
Speaker 1: So we think those are areas that we'll start to see,
Speaker 1: you know, some softening, and then that means overall non
Speaker 1: farm payrolls you know, start the week, and really if
Speaker 1: you looked at like kind of what we would call
Speaker 1: the core cyplical sector, we had already seen the labor
Speaker 1: market losing some steam, but overall healthcare, education, any even
Speaker 1: the government sector was boosting the overall headline number.
Speaker 5: Katy. We're going to get a host of other data
Speaker 5: before that, including the Jolts information, which includes the quits rate.
Speaker 6: We'll get some more consumer confidence.
Speaker 5: As John was just mentioning, I'm just wondering from your
Speaker 5: vantage point, as you look forward, how you reconcile the
Speaker 5: gap that we have seen between the soft data and
Speaker 5: the hard data. Do you agree with some of the
Speaker 5: earlier people earlier guests on the show said it's probably
Speaker 5: a four to six month lag before you see a
Speaker 5: similar type of deterioration in the hard data.
Speaker 12: Yeah, I would agree with that.
Speaker 1: I mean, maybe i'd say a little shorter, you know,
Speaker 1: three to six months, but by and large, you know,
Speaker 1: the movement in the soft data has been so pronounced
Speaker 1: you really have be careful of shrugging that off. Sometimes
Speaker 1: it can be a little bit misleading, especially the confidence numbers.
Speaker 1: But when you spoke about the conference board consumer confidence data,
Speaker 1: when I'm going to zero in on is all the
Speaker 1: labor market readings, and particularly I want to see the
Speaker 1: expectations for more jobs or you know, jobs are fewer
Speaker 1: out there, and looking at the labor differential that I
Speaker 1: think is meaningful, and also consumers' expectations about income going forward.
Speaker 1: Usually that survey shows is very like an American attitude
Speaker 1: the future incomes will be up. What we've seen is
Speaker 1: some breakdown on that and people becoming a little more
Speaker 1: pessimistic about future income. That can obviously influence current consumer spending.
Speaker 8: But at the moment we do see consumers also front loading,
Speaker 8: wanting to get ahead of the tariffs. What does this
Speaker 8: mean for spending at the second half of the year, Kathy.
Speaker 12: So the data very skewed by the terriffs.
Speaker 1: You know, you were talking about Mike was talking about
Speaker 1: the import data.
Speaker 12: You know, yes, imporart is going.
Speaker 1: To drag on GDP, but consumption is going to keep
Speaker 1: it elevated more than it otherwise would be.
Speaker 12: So it's very skewed.
Speaker 1: But that's pulling forward means it's just a lot less
Speaker 1: consumption in the second half of the year, regardless of
Speaker 1: what happens on the teriff Fright, Like, even if there
Speaker 1: was if you bought an auto or a big ticket item,
Speaker 1: you're not going to be buying one.
Speaker 12: In the second half of the year.
Speaker 1: So that's certainly going to be a negative for consumer
Speaker 1: spending in GDP growth in the second half of the year.
Speaker 8: John has broughtup this point a lot. If you're going
Speaker 8: out and you're spending on big ticket items, say a
Speaker 8: car or some sort of suv, are you actually nervous
Speaker 8: about losing your job?
Speaker 12: Well, it's a great question. I would say no.
Speaker 1: I think that you know, buying lads to those are
Speaker 1: people who are just trying to get ahead of the
Speaker 1: price increase. I think if you're worried about losing your job,
Speaker 1: you probably hold on to your current car and just
Speaker 1: run it as long as you can, or looked to
Speaker 1: the used car market, which that's also going to feel
Speaker 1: upward pressure right in prices. We saw that during COVID,
Speaker 1: So I think that's a really good point. And even
Speaker 1: in you know, our outlook, and I would say the
Speaker 1: vast majority of others I've seen, you know it's going
Speaker 1: to either be a borderline recession or if you get
Speaker 1: a recession, at this point, most of.
Speaker 12: Us thinking mild.
Speaker 1: That means the unemploym rate goes up to five percent,
Speaker 1: that's still overall all historically pretty good labor market. But
Speaker 1: it's this uncertainty that is really I think killing the
Speaker 1: economy right now.
Speaker 3: Kathy.
Speaker 2: As we've seen, the Chairman of the Federal Reserve has
Speaker 2: chosen to prioritize anchoring inflation expectations. I just wonder from
Speaker 2: your perspective, how you imagine that might shape his approach
Speaker 2: the next Week's may think, yeah.
Speaker 1: He's going to have to walk a tightrope as many
Speaker 1: times he does, especially during the press conference, but.
Speaker 12: I don't think he'll back away from that.
Speaker 1: I know some others have suggest been a little more
Speaker 1: devish right, some FED officials, but I think he'll maintain
Speaker 1: this idea the inflation expectations. How the worst outcome for
Speaker 1: them is it becomes embedded and becomes more persistent. One
Speaker 1: of the things I worry about is the roll out
Speaker 1: of the terriffs, Like we're still waiting to see if
Speaker 1: there's going to be additional sectoral tariffs. The longer that
Speaker 1: process gets elongated, the more inflation shock can be persistent.
Speaker 10: Right.
Speaker 12: I'd almost rather have all the terriffs at once.
Speaker 1: I mean, it's not good for the economy, but in
Speaker 1: terms of inflation, it is really hard to gauge.
Speaker 12: Then what's you know, transitory verse persistent.
Speaker 2: Kathy, what's your take on some of the pressure that's
Speaker 2: come from the President on the chairman of the Federal Serve?
Speaker 2: How does that reshape the optics of them trying to
Speaker 2: ease sometime soon?
Speaker 1: You know, I think Chairman Pow would say he ignores that,
Speaker 1: and they're a political and they're only looking the data,
Speaker 1: and I think by and large data is the case.
Speaker 1: I just worry a little bit about the optics for
Speaker 1: market and investors how they interpret that.
Speaker 12: And it could be that you know, they.
Speaker 1: Ease for the right reasons, but the market second guesses
Speaker 1: at and that would be bad, right, And then you
Speaker 1: get of long term interest rates rising by short term
Speaker 1: interest rates are lower because of inflation expectations rising, or
Speaker 1: an extra term premia embedded on the long end.
Speaker 2: Kathy got to leave it there, Kathy pill chance it
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