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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: of the Council of Foreign Relations, writing final days come
Speaker 2: down to turn out? Does the floating garland of garbage
Speaker 2: in soult reminded where the recon voters in swing states
Speaker 2: of Trump's poor treatment of the island after Hurricane Maria,
Speaker 2: seeing massive backlash, But will they vote on it? This
Speaker 2: could make or break the election?
Speaker 1: Heid?
Speaker 2: He joined us now for more, Hidy, just elaborate on
Speaker 2: that your thoughts on the last few days, this word
Speaker 2: garbage and how it may shake up this election.
Speaker 3: Rice. So I actually I'm paying a lot less attention
Speaker 3: to the Trump comments on garbage than what happened at
Speaker 3: Madison Square Garden on the floating island of garbage comments.
Speaker 3: And I think the reason that I'm thinking that is
Speaker 3: because right now it really does come down to turn out.
Speaker 3: The polls are razorsin in the states that matter, in
Speaker 3: the communities that matter. And so if you're undecided and
Speaker 3: you haven't voted yet, what's going to make you decide?
Speaker 3: If you're ambivalent, and you are, you know, you need
Speaker 3: an actual reason to vote. Is what Trump's talking about,
Speaker 3: going to actually, you know, turn the dial for you.
Speaker 3: Because I think his I think his supporters are pretty
Speaker 3: you know, they're they're pretty committed, and if they haven't
Speaker 3: voted already, they're probably going to vote for him regardless
Speaker 3: of the garbage comment. For the Puerto Rican community, I
Speaker 3: think it's really a wild card.
Speaker 4: That's That's what I'm paying attention to.
Speaker 3: Because the comment at the event at Madison Square Garden,
Speaker 3: even though Trump did not make it himself, he never
Speaker 3: apologized for it, and it insulted and reminded Puerto Rican
Speaker 3: voters in swing states of Trump's poor treatment of the
Speaker 3: island after Hurricane Maria, about the way he delayed aid
Speaker 3: and then when he got there two weeks after a
Speaker 3: devastating hurricane.
Speaker 4: He threw a bunch of paper towels at the crowd.
Speaker 3: And so, you know, it's a question of whether or
Speaker 3: not these very large Puerto Rican specifically populations in these
Speaker 3: swing states. And Marius talking about Pennsylvania. Half a million
Speaker 3: Puerto Ricans live in Pennsylvania, in a state that Joe
Speaker 3: Biden when he won last time, it was on eight
Speaker 3: eighty thousand votes. So you know, we're talking about very
Speaker 3: large numbers who could decide they're really not very happy
Speaker 3: about what they saw four years more than four years
Speaker 3: ago in the treatment of Puerto Ricans.
Speaker 4: It was insulting and it could move the dial Heidi.
Speaker 5: Of course, the flip side of this is a large
Speaker 5: part of Individuals can also be turned off on the
Speaker 5: President of the United States comments that half of Trump's
Speaker 5: supporters are quote garbage and Kamala Harris is now having
Speaker 5: to clean up Joe Biden's comments. Is he doing more
Speaker 5: damage to her every time he goes out and speaks.
Speaker 3: So I think that it was unfortunate that he used
Speaker 3: that that that language, and it obviously harkened back to
Speaker 3: to uh to comments that were made during the campaign
Speaker 3: with with Trump and with with Hillary Clinton.
Speaker 4: So you know, but.
Speaker 3: Again, if you are going to it's really about a
Speaker 3: narrow swath of voters.
Speaker 4: And what can what can motivate them.
Speaker 3: To change their decision or if they are turned off
Speaker 3: of politics and just want to sit this election out,
Speaker 3: what can make them actually get up out of their
Speaker 3: house and actually cast that vote. And I don't I
Speaker 3: don't know if press in Biden's comments, which we're not reflected,
Speaker 3: we're not we're not re electing President Biden, if they
Speaker 3: actually are going to move the dial for that very
Speaker 3: important group of undecided or ambivalent voters.
Speaker 5: How do how do you think she sticks the landing
Speaker 5: when it comes to the economy the ft this morning
Speaker 5: calls Kamala Harris's other electoral foe inflation. This continuously shows
Speaker 5: up in polls. How does she distance herself in these
Speaker 5: final days in these swing states from the current administration
Speaker 5: when it comes to inflation.
Speaker 4: So it's really it's a hard it's a hard narrative.
Speaker 3: I mean, people are actually people are generally hurting from
Speaker 3: the fact that the goods, you know, the everyday goods,
Speaker 3: cost more than they than they did pre COVID. I
Speaker 3: guess what I would what I would suggest is that
Speaker 3: you know, looking it's not just looking back over the
Speaker 3: last four years, it's looking forward to what what a
Speaker 3: blanket teariff policy across all you know, the whole the
Speaker 3: whole world of ten to twenty percent and sixty percent
Speaker 3: on China, What that actually could mean for inflation? Well,
Speaker 3: it's probably they're you know, those kind of tariffs are
Speaker 3: inflationary tariffs.
Speaker 4: We you know, we've had for many years.
Speaker 3: We know what they do, what they're They're inflationary, and
Speaker 3: it depends if they are tactical and targeted versus across
Speaker 3: the board.
Speaker 4: I don't think I don't think that.
Speaker 3: That voters really understand that that that Trump, saying that
Speaker 3: he is tariff man, can get into the Oval Office
Speaker 3: day one and actually without any checks and balance, he
Speaker 3: can actually implement his across the board tariff policy.
Speaker 4: That would be inflationary. And what does that mean.
Speaker 3: It means that it's going to impact consumers intermediate inputs,
Speaker 3: like for every every business that's part of a supply chain.
Speaker 4: You can count on retaliation.
Speaker 3: You'll blow up all of our our FTAs with countries,
Speaker 3: and our allies will push back pretty pretty heartily against
Speaker 3: us in a world where we actually need our allies,
Speaker 3: we don't need to alienate our allies. So I think
Speaker 3: that there are you know, it's not only inflation, but
Speaker 3: you could have both, you know, commercial inflation and and
Speaker 3: geopolitical reactions that would be highly negative. What does the
Speaker 3: FED do, We're talking about the FED for next week.
Speaker 3: What does the FED do if they're facing you know,
Speaker 3: challenges to inflation on the on one side, and then
Speaker 3: spillovers that might impact credit markets, mortgages, company borrowing, You're
Speaker 3: going to be in a very different, a very different
Speaker 3: dynamic if we come January and.
Speaker 4: You have massive across the board tariffs.
Speaker 1: And post id or what are you watching in the
Speaker 1: final days of the election race.
Speaker 3: So you know, again it's the markets are are not
Speaker 3: a good predictor of of of who's going to be
Speaker 3: in this in this election, who's going to win this election.
Speaker 3: But I do think that the fact that you've had
Speaker 3: a lot of women show up in early voting, You've
Speaker 3: had and the gender divide plays very much into into
Speaker 3: Harris's into Harris's camp.
Speaker 4: The fact that.
Speaker 3: You do have these narrow, these narrow populations, who can
Speaker 3: actually you really determine the election one way or the other,
Speaker 3: and we just don't know. Anyone who tells you they
Speaker 3: know who's gonna win doesn't know what they're talking about.
Speaker 3: We are neck and neck right now, and we're not
Speaker 3: going to know until until the votes are finally counted,
Speaker 3: and that might not be next next Tuesday, might not
Speaker 3: be next week.
Speaker 2: Don't say that, Heidi, hoping it's so low by THENI
Speaker 2: do you appreciate your time as always, Hidi cree by
Speaker 2: Redik of the Council on Farm Relations. Seth Carpenter, the
Speaker 2: chief Global economist that Mark and Stanley is with us
Speaker 2: around the table, Seth to sixteen. Should I ignore the
Speaker 2: random number generator tomorrow morning at eight thirty Eastern if
Speaker 2: it's weak based on the fact the jobless claims are
Speaker 2: this slow?
Speaker 6: Absolutely. I think if it's weak, even if today hadn't
Speaker 6: been two sixteen, you would have still ignored the random
Speaker 6: number generator. The bottom line is the labor market's actually
Speaker 6: pretty healthy. I think the two sixteen is consistent with that.
Speaker 6: I think the fact that you're getting a little bit
Speaker 6: of a drift up in the continuing claim says, boy,
Speaker 6: you know, maybe people aren't getting rehired as quickly, but
Speaker 6: there's not a wave of layoffs, and that, for me
Speaker 6: is what's fundamental.
Speaker 2: The hurricane impact doesn't seem to be there. Last week
Speaker 2: already predated. Those numbers were actually below the hurricane impact
Speaker 2: the pre hurricane hit. And then you've got the strikes.
Speaker 2: So we're not seeing any real mushrooming into the economy
Speaker 2: off the back of these strikes either. How do you
Speaker 2: frame a downside surprise like this. I'm still scratching my head.
Speaker 2: What are we doing here down at two sixteen?
Speaker 6: I mean, this is the question we keep asking ourselves.
Speaker 6: So this whole expansion, we've been on the constructive side
Speaker 6: of things. When it was hard landing versus soft landing,
Speaker 6: we said soft landing. When it was late summer and
Speaker 6: we got a week jobs report, we said, don't worry
Speaker 6: about the economy as strong and people through rotten garbage
Speaker 6: ass Untilda said, we were ugly and stupid. If we've
Speaker 6: been wrong, it's because we've been insufficiently optimistic. And I
Speaker 6: think these numbers are really consistent with a super healthy
Speaker 6: job market.
Speaker 1: So then why should the FED cut rates next week?
Speaker 6: I think the Fed's view on this is going to be.
Speaker 6: Inflation's coming down, it's clearly off its peaks, it's trending down.
Speaker 6: The number we got today it is a little bit
Speaker 6: of sort of wobbling around in it, but I think
Speaker 6: the trend is still pretty clearly down, and so from
Speaker 6: their perspective, you can still lower rates from where we are,
Speaker 6: be restrictive, try to take a little bit more steam
Speaker 6: out of the economy without jeopardizing the prospect of growth.
Speaker 6: So I think they're trying to walk this very fine
Speaker 6: balance of being tight but not too tight.
Speaker 1: I'm looking right now at the PCEE data. Within all
Speaker 1: of this, you see a strong labor market and see
Speaker 1: pce inflation data that came in slightly above expectations. At
Speaker 1: what point does that get people's attention? At what point
Speaker 1: do central bankers start caring about the inflation rate again?
Speaker 6: Well, I think we saw, for example, in Q one
Speaker 6: of this year, they really cared a lot. Everyone was
Speaker 6: gearing up for them to start cutting in the beginning
Speaker 6: of the year, and then Q one data were strong
Speaker 6: surprise to the upside, and they pushed off the rate
Speaker 6: cuts obviously until September. So I think it needs two things. One,
Speaker 6: a couple more months of upside surprises, because we really
Speaker 6: have had things come down. You'll remember Chris Waller from
Speaker 6: the FED. So the reason he went for fifty basis
Speaker 6: points instead of twenty five was because inflation data had
Speaker 6: surprised them to the upside. So a month or two
Speaker 6: to the upside isn't going to change the fundamentals. And
Speaker 6: then he needed to be compositionally. The stuff that we
Speaker 6: know has a lot of inertia, like housing inflation that
Speaker 6: sort of wobbled for a little while, it wasn't clear,
Speaker 6: and then it came down again. And I think as
Speaker 6: long as those really core pieces no pun intended on inflation,
Speaker 6: as long as there's really central parts of inflation keep
Speaker 6: trending down, then I think they're going to feel comfortable.
Speaker 5: Most voices on the FMC said they didn't want to
Speaker 5: see to cherry in the labor market.
Speaker 4: That was part of their reasons.
Speaker 6: Mission accomplished.
Speaker 5: Right, Seriously, what do they come out and say in
Speaker 5: terms of the assessment of the labor market on Thursday.
Speaker 6: I think you're going to see words along the lines
Speaker 6: of solid, robust, healthy. The unemployment rate is four point
Speaker 6: two percent, so it's up off of the lows we
Speaker 6: had had an unemployment rate that was around three and
Speaker 6: a half percent. So I think you have to be
Speaker 6: able to say that there's been some cooling. If you
Speaker 6: look at the job openings data from where it was
Speaker 6: when the labor mark was tight tightest, you have to
Speaker 6: say there's been some cooling. So I think in that regard,
Speaker 6: you know they're fine. The pendulum had swung a bit
Speaker 6: too far. People got a little bit too breathless over
Speaker 6: a couple of week months of jobs data. We're not deteriorating.
Speaker 5: Let's talk about the other big event next week, and
Speaker 5: that's the election. You're spending a lot of time talking
Speaker 5: to clients and something that was interesting in your notes
Speaker 5: is there seems to be differential for clients that are
Speaker 5: in the United States and those abroad, and what is
Speaker 5: that centering around.
Speaker 6: So I think one of the key parts is tariffs. Right,
Speaker 6: the elections going to have, from a top down macro perspective,
Speaker 6: three key policy implications tariffs, immigration, and fiscal policy. And
Speaker 6: to a person, when I'm oversees all investors are convinced
Speaker 6: former President Trump, if re elected, will go back to
Speaker 6: putting in tariffs. And there's just no doubt in their mind.
Speaker 6: I think there's a bit more debate and difference of
Speaker 6: opinion on this side of the Atlantic, people who think
Speaker 6: either oh, well, it's going to be a negotiating tactic,
Speaker 6: or if in fact he announces it and it ends
Speaker 6: up being bad for the market, for the economy, then
Speaker 6: it won't come through. So I think that's an interesting
Speaker 6: dichotomy of views.
Speaker 2: You've got to work out who wins. You've got to
Speaker 2: work out the make up the division of government, if
Speaker 2: the risk one, if there's a sweep. If it's not
Speaker 2: a sweep, then you've got to work out whether the
Speaker 2: promise becomes reality once you've got there. Okay, let's just
Speaker 2: deal with this. If you take everything that's been said
Speaker 2: on the campaign trail, a stagflation reproposal from the Trump side,
Speaker 2: is that how you see things at more con Stanley.
Speaker 6: Absolutely, we were to literally take everything that's been said.
Speaker 6: Let's just deal with tariffs that we were talking about before.
Speaker 6: If you had in January sixty percent tariffs on everything
Speaker 6: imported from China, ten percent tariffs imported from everything around
Speaker 6: the world, I think that pushes up inflation, and that
Speaker 6: probably happens first the numbers we've calculated are in the
Speaker 6: nine tenths of a percentage point kind of boost, but
Speaker 6: the dragged to growth could be as much as one
Speaker 6: and a half percent. I mean, I think it really
Speaker 6: is important, and that ignores the immigration side of things.
Speaker 6: The reason we had three plus percent growth for a
Speaker 6: year year and a half and inflation continuing to fall
Speaker 6: is because we've had this big ad to the labor force.
Speaker 2: How different is the Harris proposal as things stand when
Speaker 2: you go through that big eighty two page document on
Speaker 2: the website, eighty two pages long, when you go through that,
Speaker 2: how different is the proposal?
Speaker 6: Well, I mean, I think again, going back to teriffs
Speaker 6: as an example, I look at what the Biden administration
Speaker 6: has done. They put tariffs on electric vehicles coming in
Speaker 6: from China. Boy, that's almost entirely rhetorical, right. There aren't
Speaker 6: that many electric vehicles that have been imported in the
Speaker 6: United States from China, so it's not have anywhere near
Speaker 6: the same effect. We can look back to twenty eighteen
Speaker 6: twenty nineteen and see the hit to industrial production industrial
Speaker 6: output from that wave of tariffs. I think there's a
Speaker 6: pretty meaningful difference.
Speaker 2: Markt anticipants a running around saying not a big deal,
Speaker 2: We'll work through this. Stocks go up up into the right.
Speaker 2: That's what the chat always looks like for a long time.
Speaker 2: Do you think this does have the potential to really
Speaker 2: redefine things years out this election? Do you think it's
Speaker 2: not important?
Speaker 6: I do think so. I do think so. The rejiggering
Speaker 6: of the global supply chain, the rejiggering of global economic interactions,
Speaker 6: that's real. That's been going on for some time. It
Speaker 6: got accelerated with tariffs. I think this another round of tariffs,
Speaker 6: another trade war, could in fact accelerate the rejiggering in
Speaker 6: ways that maybe we can't fully anticipate.
Speaker 2: Seth, it's got to see you as always, Thank you, sir.
Speaker 2: Good luck over the next week. Seth campens there of
Speaker 2: more ca and Stantley going into payrolls tomorrow, jumping in
Speaker 2: the seat. Lindsay Rose, I've goma sex asset management. Let's
Speaker 2: good to see you.
Speaker 4: Good to see you.
Speaker 2: Got to start with this economic data. Is there anything
Speaker 2: not to like? Jobis claims GDP looks pretty.
Speaker 7: Good, looks good, looks fine, looks quiet. I think that's
Speaker 7: something that's a big relief right now. There is a
Speaker 7: lot of volatility priced into the market. If you look
Speaker 7: at the move index, which is looking at radevall over October,
Speaker 7: it's gone, like you were saying, top to the right.
Speaker 7: For equities, it has made a move for sure in October.
Speaker 7: This is a good day of quiet. I think the
Speaker 7: event will actually be month end at the end of
Speaker 7: the day, not the data this morning wet me through.
Speaker 7: Why so, there's actually going to be a pretty decent rebalancing.
Speaker 7: So if you think about how bonds have performed in
Speaker 7: October versus what's gone on with equities, you want to
Speaker 7: shift your portfolio given the outperformance and equities you have
Speaker 7: the normal month end extension, which happens always with indices
Speaker 7: in the bond market, so there has to be kind
Speaker 7: of this natural buying of duration. But there's going to
Speaker 7: be this additional, much bigger thing of asset allocation at
Speaker 7: equities into bonds.
Speaker 1: So are you saying that essentially this is noise and
Speaker 1: it's the technical unders that really will drive yields lower
Speaker 1: regardless of what happens with all of these different events
Speaker 1: next week.
Speaker 7: Well, today's story is going to be the month end story.
Speaker 7: The things that happen over the next week are actually
Speaker 7: big beside from the data prints, we've got auctions, we've
Speaker 7: got threes, we've got the bond, we have obviously the election,
Speaker 7: and then we lead up to f OMC. So not
Speaker 7: necessarily that yields are going to go lower for the
Speaker 7: rest of the week. I think we're in a moment
Speaker 7: of a lot of volatility between now and then. But
Speaker 7: today's movement, I think is really month end.
Speaker 1: Do you see a shift in the narrative though right now?
Speaker 1: Or people have just been underestimating how strong this economy is,
Speaker 1: and that has been the theme again and again and
Speaker 1: yet again here as we wait for potentially weakness that
Speaker 1: may not show up tomorrow in the jobs report. Is
Speaker 1: there a sense that there could be a reacceleration in
Speaker 1: inflation in a more meaningful way? Is that starting to
Speaker 1: come back to the table and the discussions that you're having.
Speaker 7: Yeah, and that's been a big explanation for what's happened
Speaker 7: with yields. I mean, the amazing thing is the FED
Speaker 7: cut fifty basis points and we're now six d basis
Speaker 7: for one's higher across the curve. That is pretty tremendous,
Speaker 7: And a big part of that is a concern about
Speaker 7: inflation because growth just is that good. But I think
Speaker 7: on a going forward, we've got a lot of noise
Speaker 7: that's going to happen in the next week, but things
Speaker 7: are going to calm down and I think we'll have
Speaker 7: a lot more certainty. And the way we actually are
Speaker 7: talking with clients right now is that you've got a
Speaker 7: huge opportunity with this move up in yields. The economy
Speaker 7: is good. The FED has the power to do what
Speaker 7: it needs to do. And where we were a month
Speaker 7: ago was much lower yielts or a little bit past that,
Speaker 7: earlier than September eighteenth, earlier than the cut was. You're
Speaker 7: waiting on the FED to see if they are going
Speaker 7: to go and how much they're going to go. Well,
Speaker 7: now you actually have an entry point of higher yields
Speaker 7: and you know that the Fed's going that's a home
Speaker 7: run and this is a great opportunity to be in
Speaker 7: fixed income.
Speaker 5: Is there a chance they skip though and push this
Speaker 5: decision to November December.
Speaker 7: There's always some probability around skip, but we think the
Speaker 7: conversation around skip is really something of twenty twenty five.
Speaker 7: We feel pretty good that the Fed's going to go
Speaker 7: twenty five next week. They're going to go twenty five
Speaker 7: again in December. That puts them in a really good spot.
Speaker 7: They've done some hard work at chopping some wood there
Speaker 7: of one hundred basis points. Then they can pause and
Speaker 7: survey what's going on.
Speaker 5: They have to pause, right because policy in twent twenty five.
Speaker 5: Does anyone have any idea what that's going to look like?
Speaker 4: We do not know right now.
Speaker 7: I think you're absolutely right, but they will start to
Speaker 7: have an inclination. We'll obviously know a lot more. We
Speaker 7: may not know an election day who's actually one and
Speaker 7: how everything else shakes out, but we'll know pretty soon
Speaker 7: and what those policies do look like. It's going to
Speaker 7: take time, though, to your point, to implement them. And
Speaker 7: so for us right now, I think a lot of
Speaker 7: people want to talk about how do you trade the election?
Speaker 7: It's not about trading the election, right It's about where
Speaker 7: do you want to be from a long term portfolio allocation.
Speaker 7: For us, we think it's really important from a strategic
Speaker 7: value perspective to get bonds into your portfolio, and we
Speaker 7: think there's no time like the present.
Speaker 2: So treasury is a big pace of that. Given the
Speaker 2: rise we've seen in yodes across the curve by about
Speaker 2: fifty basis points. How YOD spreads a super time on
Speaker 2: a historical basis two seventy six. Right now, how do
Speaker 2: you frame that for clients at the moment? What's the
Speaker 2: opportunity look like? In coporate credit and.
Speaker 4: A corporate credit is tight.
Speaker 7: But I think what's so amazing right now is that
Speaker 7: you've got a ton of volatility in the rates market.
Speaker 7: We've had no volatility in the credit market. So what's
Speaker 7: behind that? So we start to unpack it. What's behind
Speaker 7: that is there's not a recession. Balance sheets are strong.
Speaker 7: Management companies are doing the right thing. But when you
Speaker 7: go underneath the hood of the car and look at
Speaker 7: what's happening in high yield, something that's flagging for us
Speaker 7: is just how well Triple cs so the lowest of
Speaker 7: low in high yield have performed on the past month.
Speaker 7: That to us is a little bit of a complacency indicator.
Speaker 7: So not all those companies make sense, not all those
Speaker 7: balance sheets make sense, and it has been off to
Speaker 7: the races for Triple C's. That for US says this
Speaker 7: is really important to have an active manager in this
Speaker 7: environment because yes, maybe Triple c's did well this month.
Speaker 7: Long term, there are a lot of companies there that
Speaker 7: aren't going to do well, and you want to make
Speaker 7: sure you're in the right spot.
Speaker 2: How were you navigating? What are the right spots? So
Speaker 2: imagine there's an uping quality bias. What are the right
Speaker 2: spots right now? In corporate America?
Speaker 7: Right for us, it's really kind of a curve thing
Speaker 7: and a quality thing. We've spoken before about like the
Speaker 7: front end of the corporate curve. We think that that's
Speaker 7: going to do a lot better than the back end.
Speaker 7: So that's how we're positioned in terms of maturities, and
Speaker 7: then we are down in quality and investment grade. Triple
Speaker 7: B companies are doing all the right things to stay
Speaker 7: investment grade. They don't want to be in high yield.
Speaker 7: And then in high yield we're up in quality in
Speaker 7: those double b's and single bees and specific names that
Speaker 7: we like.
Speaker 1: Do you expect more tech related issueans coming into the
Speaker 1: fore not necessarily tied to tech, but tied to some
Speaker 1: of the investments in the infrastructure around them that you
Speaker 1: expect them and they're talking about having.
Speaker 7: To make Yeah, there's definitely going to be CAPEX and
Speaker 7: it's interesting you bring up the capex expenditures on tech
Speaker 7: that is actually back to areas of corporate credit we
Speaker 7: have to think about and be more cautious on, one
Speaker 7: of which is utilities. When it comes to spending, that's
Speaker 7: a spend we're actually really concerned about in terms of
Speaker 7: the capex that's needed for going green. So that kind
Speaker 7: of the drivers of who needs to spend and for
Speaker 7: what and are they going to be worthwhile projects or
Speaker 7: are they really just wanting to be on a drain
Speaker 7: in regulatory that really guides the sectors that we like
Speaker 7: and those that we stay away from.
Speaker 2: It's a fascinating sector right now, that's for sure. Lindsay.
Speaker 2: Is wonderful to catch up with you, as always, appreciate it.
Speaker 2: Thank you, Lindsay Rosma there of Gorm and Sachs. This
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