1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:35,880 Speaker 2: Terminal and the Bloomberg Business app. 10 00:00:36,200 --> 00:00:37,760 Speaker 3: The New York Fed President. 11 00:00:37,440 --> 00:00:40,640 Speaker 2: John Williams pushing back against hawkish commentary from the FMC 12 00:00:40,800 --> 00:00:43,960 Speaker 2: and Wall Street now pricing in better than fifty percent 13 00:00:44,000 --> 00:00:47,160 Speaker 2: odds the federal cut race in December. FED Governor Stephen 14 00:00:47,200 --> 00:00:49,120 Speaker 2: Moram was the loan to cent for a fifty basis 15 00:00:49,120 --> 00:00:52,360 Speaker 2: point raid cup at last month FMC meeting, and Governor 16 00:00:52,400 --> 00:00:54,440 Speaker 2: Myron joins us now from more Governor Maron, good morning, 17 00:00:54,560 --> 00:00:55,800 Speaker 2: come for once again, thanks for. 18 00:00:55,760 --> 00:00:57,000 Speaker 4: Being here, Thanks for having me back. 19 00:00:57,000 --> 00:00:59,080 Speaker 2: We've got to start with the labor market, your reflections 20 00:00:59,120 --> 00:01:01,320 Speaker 2: and what we saw. Yes, does it lean one way 21 00:01:01,480 --> 00:01:01,840 Speaker 2: or the other? 22 00:01:02,200 --> 00:01:04,040 Speaker 5: Yeah, I mean I think the implications of yesterday were 23 00:01:04,040 --> 00:01:06,200 Speaker 5: obviously dubvish, and if anyone was on the fence, I 24 00:01:06,240 --> 00:01:07,839 Speaker 5: would hope that this would move them in the direction 25 00:01:07,920 --> 00:01:10,240 Speaker 5: of cutting. I mean, you saw the unemployment rate edged 26 00:01:10,319 --> 00:01:13,120 Speaker 5: up a bit. You know, you saw some other indicators 27 00:01:13,160 --> 00:01:16,560 Speaker 5: like an increase in permanent layoffs. You know, those are 28 00:01:16,640 --> 00:01:19,920 Speaker 5: indications that the labor market has been affected by restrictive 29 00:01:20,000 --> 00:01:22,800 Speaker 5: FED policy. And given the outlook for inflation, there's not 30 00:01:22,840 --> 00:01:24,640 Speaker 5: really much of a need to be as restrictive as 31 00:01:24,680 --> 00:01:24,960 Speaker 5: we are. 32 00:01:25,120 --> 00:01:26,759 Speaker 3: And yet on the committee we have pushed back. 33 00:01:26,800 --> 00:01:29,480 Speaker 2: Almost immediately after that, FED Governor Michael ba had this 34 00:01:29,560 --> 00:01:32,760 Speaker 2: to say, I'm concerned that we're seeing inflation still around 35 00:01:32,800 --> 00:01:35,319 Speaker 2: three percent. Inflation is closer to three than it is 36 00:01:35,360 --> 00:01:37,080 Speaker 2: to two. What do you make of that argument? How 37 00:01:37,080 --> 00:01:38,520 Speaker 2: percuisive is it. 38 00:01:37,840 --> 00:01:39,679 Speaker 5: It's not persuasive to me. 39 00:01:39,840 --> 00:01:41,120 Speaker 4: And I'll tell you why. 40 00:01:41,680 --> 00:01:43,959 Speaker 5: All of the inflation access, sorry, almost all of the 41 00:01:43,959 --> 00:01:47,280 Speaker 5: inflation access is a mirage. It's not indicative of supply 42 00:01:47,360 --> 00:01:49,440 Speaker 5: demand imbalances. And so, for example, if you look at 43 00:01:49,480 --> 00:01:52,280 Speaker 5: the housing market right market, rents have been running at 44 00:01:52,280 --> 00:01:55,160 Speaker 5: about one percent for a couple of years. Measured inflation 45 00:01:55,440 --> 00:01:57,680 Speaker 5: in the index is actually much higher than that because 46 00:01:57,720 --> 00:01:59,480 Speaker 5: it takes a really long time for the index to 47 00:01:59,520 --> 00:02:02,760 Speaker 5: converge to where market rents are. That's a statistical artifact, right, 48 00:02:02,760 --> 00:02:05,960 Speaker 5: That's an artifact of the statistical measurement process. It's indicative 49 00:02:06,000 --> 00:02:07,920 Speaker 5: of a supplied demand in balance that was there in 50 00:02:07,960 --> 00:02:11,760 Speaker 5: twenty twenty two, twenty twenty three. Montre policy works with lags. 51 00:02:11,800 --> 00:02:13,760 Speaker 5: It has to be set now for twenty twenty seven. 52 00:02:14,720 --> 00:02:17,080 Speaker 5: So when you look at the housing data, right you 53 00:02:17,120 --> 00:02:19,160 Speaker 5: see market rents running about one percent for a couple 54 00:02:19,200 --> 00:02:21,600 Speaker 5: of years. There's no supply demand in balance there. We 55 00:02:21,639 --> 00:02:24,440 Speaker 5: should not be setting policy for twenty twenty seven based 56 00:02:24,440 --> 00:02:26,360 Speaker 5: on a supply demand in balance that existed in twenty 57 00:02:26,400 --> 00:02:27,520 Speaker 5: twenty two or twenty twenty three. 58 00:02:27,560 --> 00:02:28,560 Speaker 4: That doesn't make any sense. 59 00:02:28,639 --> 00:02:31,560 Speaker 5: There's other things too, like portfolio management services which confuse 60 00:02:31,639 --> 00:02:34,320 Speaker 5: quantities for prices. This stuff is all well known. If 61 00:02:34,360 --> 00:02:36,600 Speaker 5: you look at market based measures of inflation, they're much 62 00:02:36,600 --> 00:02:38,240 Speaker 5: closer too than the ARC to three. So I think 63 00:02:38,280 --> 00:02:40,880 Speaker 5: that the excess, the overage is a mirage, and it's 64 00:02:40,880 --> 00:02:43,360 Speaker 5: a mistake to ask people to lose their jobs because 65 00:02:43,400 --> 00:02:44,959 Speaker 5: of the corks of the statistical measurement. 66 00:02:44,680 --> 00:02:46,280 Speaker 2: Process, and you've got to put out new foecasts on 67 00:02:46,320 --> 00:02:48,360 Speaker 2: December tenth as well, which is going to be complicated 68 00:02:48,360 --> 00:02:50,919 Speaker 2: by the fact we've had limited data more recently, How 69 00:02:50,919 --> 00:02:53,720 Speaker 2: relevant do you think the canidaentially is, because I'll i'llfer 70 00:02:53,760 --> 00:02:55,480 Speaker 2: you the perspective on more straight At the moment, it 71 00:02:55,480 --> 00:02:57,840 Speaker 2: goes something like this, the meeting's on the tenth, you 72 00:02:57,840 --> 00:03:00,240 Speaker 2: don't get the dates until the sixteenth. The FED kind 73 00:03:00,240 --> 00:03:01,919 Speaker 2: of constrained by that, they can't do kind of thing. 74 00:03:02,040 --> 00:03:03,240 Speaker 2: What's your perspective on that? 75 00:03:03,400 --> 00:03:05,079 Speaker 5: Yeah, So, as I said a moment ago, Monte policy 76 00:03:05,080 --> 00:03:06,560 Speaker 5: works with lags. It would be much easier if it 77 00:03:06,600 --> 00:03:09,280 Speaker 5: hit the economy immediately, but it doesn't. It works with lags, 78 00:03:09,520 --> 00:03:11,720 Speaker 5: so you have to set policy based on the forecast. 79 00:03:12,120 --> 00:03:15,160 Speaker 5: So the data matter insofar as they affect your forecast. 80 00:03:15,440 --> 00:03:17,520 Speaker 5: It doesn't make sense to be setting policy for where 81 00:03:17,520 --> 00:03:18,440 Speaker 5: the economy was three. 82 00:03:18,360 --> 00:03:19,600 Speaker 4: Or six months ago. 83 00:03:19,760 --> 00:03:21,560 Speaker 5: We should be setting policy based for where the economy 84 00:03:21,600 --> 00:03:23,239 Speaker 5: is going to be twelve to eighteen months from now. 85 00:03:23,720 --> 00:03:25,919 Speaker 4: And so if we have data, it gives us the 86 00:03:25,919 --> 00:03:27,200 Speaker 4: ability to update our forecast. 87 00:03:27,520 --> 00:03:30,000 Speaker 5: But the lack of data doesn't mean that we don't 88 00:03:30,000 --> 00:03:30,600 Speaker 5: have a forecast. 89 00:03:30,600 --> 00:03:31,480 Speaker 4: We did have a forecast. 90 00:03:31,520 --> 00:03:33,800 Speaker 5: It all gives us as opportunities to falsify our forecast. 91 00:03:34,080 --> 00:03:37,000 Speaker 5: And there hasn't been anything in the data in the news, 92 00:03:37,160 --> 00:03:40,120 Speaker 5: in media stories, in private sector data, alternative data that's 93 00:03:40,120 --> 00:03:41,880 Speaker 5: available to us that would make us think that the 94 00:03:41,920 --> 00:03:44,680 Speaker 5: forecast is somehow nullified. And there's been a big shock 95 00:03:44,720 --> 00:03:47,080 Speaker 5: to it. So, if anything, all the information that we've 96 00:03:47,080 --> 00:03:51,480 Speaker 5: gotten the interim since September FMC has inclined to the 97 00:03:51,560 --> 00:03:55,000 Speaker 5: other side. You know, we got weaker inflation than people expected, 98 00:03:55,160 --> 00:03:58,680 Speaker 5: and we got a higher unemployment rate than folks were expecting, 99 00:03:58,720 --> 00:04:00,640 Speaker 5: so all of that information to push one in the 100 00:04:00,720 --> 00:04:01,400 Speaker 5: dubvish direction. 101 00:04:01,520 --> 00:04:03,280 Speaker 6: But they are still fed officials that are looking for 102 00:04:03,400 --> 00:04:05,840 Speaker 6: more data, and they have said they're data dependent. They 103 00:04:05,840 --> 00:04:08,040 Speaker 6: want that insurance that they're cutting right now and it's 104 00:04:08,080 --> 00:04:10,920 Speaker 6: the right time. Potentially the unemployment rate might be moving 105 00:04:11,000 --> 00:04:13,560 Speaker 6: up to four point five percent on December sixteenth. Would 106 00:04:13,560 --> 00:04:16,160 Speaker 6: you be in favor of just moving the meeting if 107 00:04:16,160 --> 00:04:19,640 Speaker 6: it meant others felt more reassured to cut interest rates 108 00:04:19,680 --> 00:04:20,200 Speaker 6: in December. 109 00:04:20,920 --> 00:04:23,400 Speaker 5: So you know, I haven't really thought about that, and 110 00:04:23,440 --> 00:04:25,520 Speaker 5: it's not a conversation that It's not a conversation that 111 00:04:25,560 --> 00:04:28,480 Speaker 5: I've been part of I mean, I agree the meeting dates, 112 00:04:28,480 --> 00:04:31,440 Speaker 5: see the meeting dates seem kind of arbitrary, But at 113 00:04:31,480 --> 00:04:33,200 Speaker 5: the same time, a lot of there's a lot of 114 00:04:33,200 --> 00:04:35,719 Speaker 5: stuff that gets done as a result of those meeting dates. 115 00:04:35,720 --> 00:04:39,600 Speaker 5: And you know, people have investments and contracts and other 116 00:04:39,680 --> 00:04:43,240 Speaker 5: decisions that are tied to the timing of the meeting date. 117 00:04:43,440 --> 00:04:45,479 Speaker 5: And I don't know to what extent moving those dates 118 00:04:45,480 --> 00:04:48,320 Speaker 5: would be disruptive for all that. So it's something that 119 00:04:48,360 --> 00:04:52,640 Speaker 5: I'm not sure about. But this ultimately comes down to 120 00:04:52,680 --> 00:04:55,479 Speaker 5: the question of data dependence. Is what you do when 121 00:04:55,480 --> 00:04:57,200 Speaker 5: you don't have a forecast or when you don't have 122 00:04:57,240 --> 00:05:00,480 Speaker 5: any confidence in your forecast. Right, we should be forecast, 123 00:05:00,600 --> 00:05:03,440 Speaker 5: not data dependent. Being excessively data dependent is to be 124 00:05:03,480 --> 00:05:05,800 Speaker 5: too backward looking. And if you're too backward looking, you 125 00:05:05,920 --> 00:05:07,760 Speaker 5: necessarily are going to have the wrong policies. 126 00:05:07,839 --> 00:05:09,599 Speaker 6: Yil daughter rights and he says, the only question that 127 00:05:09,640 --> 00:05:12,000 Speaker 6: matters for you is will you descend for fifty if 128 00:05:12,040 --> 00:05:14,200 Speaker 6: you believe it means not being able to push through 129 00:05:14,480 --> 00:05:16,200 Speaker 6: a twenty five basis point cut. 130 00:05:16,480 --> 00:05:18,400 Speaker 4: Yeah, so absolutely not. 131 00:05:18,640 --> 00:05:20,559 Speaker 5: I would absolutely vote for for a twenty five basis 132 00:05:20,600 --> 00:05:23,479 Speaker 5: one cut if my vote were the marginal vote. There's 133 00:05:23,480 --> 00:05:27,160 Speaker 5: no question about that. I you know, to do otherwise 134 00:05:27,160 --> 00:05:30,760 Speaker 5: would be to cause real harm to the economy for 135 00:05:31,880 --> 00:05:34,000 Speaker 5: purposes of vanity, and that's not who I am. 136 00:05:33,960 --> 00:05:36,840 Speaker 7: Going into next year talking about the forecast of what's 137 00:05:36,839 --> 00:05:38,800 Speaker 7: going to happen. A lot of economists to come on 138 00:05:38,839 --> 00:05:41,840 Speaker 7: the show expect a reacceleration on the backs of the 139 00:05:42,000 --> 00:05:45,560 Speaker 7: tax refunds and some of the other stimulative measures that 140 00:05:45,600 --> 00:05:48,520 Speaker 7: could come early next year. How do you factor that 141 00:05:48,720 --> 00:05:52,479 Speaker 7: into your forecast for ongoing weakness in the labor market 142 00:05:52,480 --> 00:05:53,080 Speaker 7: and the consumer. 143 00:05:53,720 --> 00:05:57,240 Speaker 5: Yeah, so I think that, you know, I have not 144 00:05:57,480 --> 00:06:03,760 Speaker 5: been a what I would think of as excessively pessimistic 145 00:06:04,040 --> 00:06:07,080 Speaker 5: on the economy. I do think policy is restrictive, and 146 00:06:07,120 --> 00:06:09,640 Speaker 5: I do think that it's too restrictive, and we don't 147 00:06:09,680 --> 00:06:11,880 Speaker 5: need to be. And the longer we remain restrictive, the 148 00:06:11,920 --> 00:06:14,279 Speaker 5: greater the chances that we are the source of an 149 00:06:14,320 --> 00:06:18,440 Speaker 5: economic downturn, which we should not seek to be. I 150 00:06:18,480 --> 00:06:22,080 Speaker 5: think that many of the many of the factors that 151 00:06:22,120 --> 00:06:23,839 Speaker 5: will be kicking in over the next twelve months that 152 00:06:23,920 --> 00:06:27,320 Speaker 5: might be supportive of GDP growth are things that necessarily 153 00:06:27,440 --> 00:06:30,680 Speaker 5: don't have hawk s implications for montary policy because they 154 00:06:30,720 --> 00:06:33,599 Speaker 5: affect the supply side. And when you think about things 155 00:06:33,720 --> 00:06:36,400 Speaker 5: like relaxing regulations, and I think that that has been 156 00:06:36,400 --> 00:06:40,880 Speaker 5: going on at actually impressive pace. These are things that 157 00:06:40,920 --> 00:06:42,920 Speaker 5: push out the supply side of the economy and therefore 158 00:06:42,960 --> 00:06:47,760 Speaker 5: don't necessarily create a demand excess of supply, right Monterey, 159 00:06:47,760 --> 00:06:50,280 Speaker 5: policy should be tight if demand is too much an 160 00:06:50,279 --> 00:06:52,279 Speaker 5: excess of supply, and if you push out the supply 161 00:06:52,320 --> 00:06:54,559 Speaker 5: side of the economy, then that's not something you worry about. 162 00:06:54,640 --> 00:06:57,280 Speaker 7: There's a duration mismatch here though, the idea that if 163 00:06:57,279 --> 00:07:00,320 Speaker 7: you reduce regulations and you allow people to build apply 164 00:07:01,480 --> 00:07:03,320 Speaker 7: that it takes a longer time than say, if you 165 00:07:03,320 --> 00:07:06,120 Speaker 7: give people two thousand dollars checks right up front that 166 00:07:06,160 --> 00:07:08,799 Speaker 7: they can spend immediately, or if they get a rebate 167 00:07:08,839 --> 00:07:11,800 Speaker 7: that's a lot bigger from their tax from their tax filings. 168 00:07:12,320 --> 00:07:14,800 Speaker 1: How do you factor in that timing mismatch? Would you 169 00:07:14,840 --> 00:07:15,680 Speaker 1: look through. 170 00:07:15,560 --> 00:07:18,880 Speaker 7: Any bump up in inflation next year from both stimulative 171 00:07:18,880 --> 00:07:21,280 Speaker 7: measures as well as the price increases that we're we're 172 00:07:21,320 --> 00:07:23,360 Speaker 7: hearing from a lot of retailers that they're going to 173 00:07:23,360 --> 00:07:23,920 Speaker 7: pass along. 174 00:07:24,480 --> 00:07:27,120 Speaker 5: So you know, I wouldn't look through I wouldn't look 175 00:07:27,120 --> 00:07:32,280 Speaker 5: through bumps from checks like that, right, you know, I 176 00:07:32,280 --> 00:07:32,640 Speaker 5: don't think that. 177 00:07:32,680 --> 00:07:33,720 Speaker 4: I don't think they'd be able to. 178 00:07:33,720 --> 00:07:37,080 Speaker 5: However, a policy like that has been hasn't been formalized, 179 00:07:37,080 --> 00:07:39,840 Speaker 5: that hasn't been introduced. We don't know the parameters of it. 180 00:07:39,840 --> 00:07:41,920 Speaker 5: It's too early to sort of think about basing a 181 00:07:41,960 --> 00:07:44,320 Speaker 5: forecast on something like that. 182 00:07:44,480 --> 00:07:47,800 Speaker 4: What we do know is that is that the labor. 183 00:07:47,560 --> 00:07:49,520 Speaker 5: Market data have been coming in not as strong as 184 00:07:49,520 --> 00:07:52,080 Speaker 5: we'd like them to be in that policy is too restrictive, Governor. 185 00:07:51,840 --> 00:07:53,440 Speaker 2: If we can stay on inflation? Do you know when 186 00:07:53,440 --> 00:07:55,920 Speaker 2: we're going to get some inflation data? When are we 187 00:07:55,920 --> 00:07:58,679 Speaker 2: going to get that? Because we've heard about the payroll schedule. 188 00:07:58,720 --> 00:08:01,040 Speaker 2: I haven't really heard anything about the EPI schedule. You've 189 00:08:01,080 --> 00:08:02,920 Speaker 2: got any indication whatsoever when it's coming. 190 00:08:03,080 --> 00:08:05,440 Speaker 5: Yeah, the BLS put it out on its website this week. 191 00:08:05,480 --> 00:08:08,080 Speaker 5: I think that we're not going to get the November 192 00:08:08,600 --> 00:08:11,240 Speaker 5: CPI data until after the next FMC. 193 00:08:11,120 --> 00:08:13,080 Speaker 3: So we've got to wait for that too. We've got it, 194 00:08:13,160 --> 00:08:14,760 Speaker 3: we've got to waste that. Do you see that, Lisa? 195 00:08:14,880 --> 00:08:15,480 Speaker 1: Yes? I did. 196 00:08:15,520 --> 00:08:17,240 Speaker 7: I saw that we have to wait and it's not 197 00:08:17,320 --> 00:08:19,200 Speaker 7: clear exactly when we're going to get it. But there's 198 00:08:19,200 --> 00:08:21,080 Speaker 7: a real question going forward about when we might. 199 00:08:20,960 --> 00:08:22,200 Speaker 3: Get We don't have the day ship, but we don't 200 00:08:22,240 --> 00:08:24,520 Speaker 3: have the deal the date the data are on the website. 201 00:08:24,600 --> 00:08:27,440 Speaker 5: Yeah, the BLS has a has a has a list 202 00:08:27,440 --> 00:08:28,240 Speaker 5: of the release dates on. 203 00:08:28,240 --> 00:08:30,520 Speaker 3: The payrolls one. But I've missed the CPI one. 204 00:08:30,600 --> 00:08:32,880 Speaker 2: Which doesn't that just make it an even stronger case 205 00:08:33,000 --> 00:08:34,560 Speaker 2: just to wait and have this meeting when we've got 206 00:08:34,600 --> 00:08:35,280 Speaker 2: all this data. 207 00:08:35,640 --> 00:08:37,240 Speaker 3: Why is it that we have to wait so much 208 00:08:37,280 --> 00:08:38,719 Speaker 3: long before a governor. 209 00:08:38,760 --> 00:08:39,560 Speaker 4: Wait for the data? 210 00:08:39,760 --> 00:08:43,520 Speaker 5: Yes, well, because the government shutdown introduced a whole number 211 00:08:43,559 --> 00:08:46,160 Speaker 5: of snags into the data collection process, and so that 212 00:08:46,360 --> 00:08:49,040 Speaker 5: those snags mean extra time to collect the data, extra 213 00:08:49,080 --> 00:08:50,080 Speaker 5: time to process the data. 214 00:08:50,280 --> 00:08:52,440 Speaker 4: People have a logjam of work to get back to. 215 00:08:52,720 --> 00:08:54,640 Speaker 5: I mean we just you know, sort of spent several 216 00:08:54,679 --> 00:08:58,679 Speaker 5: years talking about talking talking about bull whips from supply chains, 217 00:08:58,760 --> 00:09:01,120 Speaker 5: right and you know, it's gets pulled in at once. 218 00:09:01,160 --> 00:09:02,760 Speaker 5: And when you have a government shut down, all the 219 00:09:02,760 --> 00:09:04,880 Speaker 5: government employees aren't working and they come back to work 220 00:09:04,880 --> 00:09:06,040 Speaker 5: and they've got a ton of work to do all 221 00:09:06,080 --> 00:09:09,239 Speaker 5: at once. And so you know, we have those bullwhips 222 00:09:09,600 --> 00:09:12,240 Speaker 5: in government data right now. And you know, if that 223 00:09:12,320 --> 00:09:14,520 Speaker 5: were a market, you'd see some inflation in the price 224 00:09:14,559 --> 00:09:14,920 Speaker 5: of data. 225 00:09:14,960 --> 00:09:15,920 Speaker 4: But it's not a market. 226 00:09:16,000 --> 00:09:17,840 Speaker 2: So give me for coming down with the hawkish hits. 227 00:09:17,840 --> 00:09:19,480 Speaker 2: But we got another one in the last twenty four 228 00:09:19,520 --> 00:09:21,880 Speaker 2: hours two and it came from Beth hammock laring interest 229 00:09:21,920 --> 00:09:24,240 Speaker 2: rights to support the labor market risk prolonging this period 230 00:09:24,280 --> 00:09:27,400 Speaker 2: of elevated inflation, and it could also encourage risk tanking 231 00:09:27,440 --> 00:09:29,840 Speaker 2: and financial markets. Can we finish on that last point, 232 00:09:30,040 --> 00:09:33,320 Speaker 2: risk taking and financial markets? How excessive is it and 233 00:09:33,320 --> 00:09:35,880 Speaker 2: should it be on the ritar of the f WEBC Sure? 234 00:09:35,920 --> 00:09:38,120 Speaker 5: So, first of all, as I said before, the excess 235 00:09:38,120 --> 00:09:40,920 Speaker 5: of inflation is a quirk of the statistical process, and 236 00:09:40,960 --> 00:09:42,720 Speaker 5: it is a mistake to ask people to lose their 237 00:09:42,800 --> 00:09:44,680 Speaker 5: jobs as a result of a quirk of the statistical 238 00:09:44,720 --> 00:09:47,880 Speaker 5: process on financial markets. You know, Look, I think that 239 00:09:47,920 --> 00:09:51,480 Speaker 5: lots of things affect financial markets. Tax policy does, regulation does, 240 00:09:51,920 --> 00:09:55,559 Speaker 5: technology like artificial intelligence does. It's a mistake to conflate 241 00:09:55,640 --> 00:09:57,880 Speaker 5: the stance of the status of financial markets with the 242 00:09:57,880 --> 00:10:00,600 Speaker 5: status of monetary policy. Right, and when you look at 243 00:10:00,640 --> 00:10:04,599 Speaker 5: us something as a financial markets as deeply connected to 244 00:10:05,600 --> 00:10:10,199 Speaker 5: monitor policy like interest rates. We've lived through periods of conundrums, right, 245 00:10:10,280 --> 00:10:13,560 Speaker 5: we're passing through of the Fed funds rate into longer 246 00:10:13,640 --> 00:10:16,200 Speaker 5: term interest rates was confusing to people. So it's just 247 00:10:16,240 --> 00:10:18,800 Speaker 5: a mistake to do a one for one mapping of 248 00:10:18,840 --> 00:10:20,240 Speaker 5: these things. And I think that when you look at 249 00:10:20,280 --> 00:10:22,800 Speaker 5: financial conditions, the financial condition that matters most for the 250 00:10:22,840 --> 00:10:26,520 Speaker 5: real economy is and remain, has been and remains housing, right, 251 00:10:26,559 --> 00:10:29,040 Speaker 5: And this is an area where financial conditions are not tight, 252 00:10:29,120 --> 00:10:31,199 Speaker 5: so are not loose. This is an area where financial 253 00:10:31,240 --> 00:10:34,600 Speaker 5: conditions are are still quite tight going out getting a mortgage. 254 00:10:34,600 --> 00:10:37,040 Speaker 5: You know, this is this is not something that's not 255 00:10:37,160 --> 00:10:39,800 Speaker 5: a financial condition that I would consider to be excessively easy. 256 00:10:40,520 --> 00:10:42,000 Speaker 5: And so I think it's I think it's a mistake. 257 00:10:42,040 --> 00:10:44,160 Speaker 5: And I think it's also a mistake, as I said before, 258 00:10:44,800 --> 00:10:50,600 Speaker 5: to ask people to experience job losses because you think 259 00:10:50,640 --> 00:10:52,320 Speaker 5: the stock market is too high. I don't know what 260 00:10:52,360 --> 00:10:54,880 Speaker 5: the right level for the stock market is. And I 261 00:10:54,920 --> 00:10:57,440 Speaker 5: think that it's it's a very challenging question to be 262 00:10:57,520 --> 00:10:59,840 Speaker 5: able to answer credibly, and to say that we need 263 00:10:59,880 --> 00:11:03,280 Speaker 5: to create job losses in order to sort of restore 264 00:11:03,320 --> 00:11:04,960 Speaker 5: the stock market to some level that we think is 265 00:11:05,000 --> 00:11:07,560 Speaker 5: more reflective of fair value is just not a policy 266 00:11:07,640 --> 00:11:08,240 Speaker 5: view that I hold. 267 00:11:08,480 --> 00:11:09,960 Speaker 7: A lot of people have come on this show and 268 00:11:10,000 --> 00:11:12,280 Speaker 7: said that right now the FED is stuck between a 269 00:11:12,320 --> 00:11:15,000 Speaker 7: conundrum of the K shaped economy where you have people 270 00:11:15,040 --> 00:11:17,000 Speaker 7: at the upper end who are doing just fine and 271 00:11:17,040 --> 00:11:19,719 Speaker 7: are supporting consumption, and people on the lower end who 272 00:11:19,720 --> 00:11:22,880 Speaker 7: are experiencing lack of wage gains and they're experiencing those 273 00:11:22,960 --> 00:11:24,600 Speaker 7: job losses more significantly. 274 00:11:25,320 --> 00:11:28,360 Speaker 1: How concerned are you about sort of your dual. 275 00:11:28,240 --> 00:11:31,120 Speaker 7: Roles of trying to help prop up and prevent some 276 00:11:31,160 --> 00:11:34,280 Speaker 7: of those job losses from really escalating, while at the 277 00:11:34,320 --> 00:11:37,880 Speaker 7: same time, potentially cutting rates would exacerbate that case shape, 278 00:11:37,920 --> 00:11:41,520 Speaker 7: and you only exacerbate what you're seeing with respect to 279 00:11:41,600 --> 00:11:42,640 Speaker 7: the wealth divide. 280 00:11:42,960 --> 00:11:48,560 Speaker 5: So Congress didn't task us with addressing all social problems 281 00:11:48,559 --> 00:11:50,240 Speaker 5: in the world, in equality one of them. 282 00:11:50,280 --> 00:11:51,040 Speaker 4: They tasked us with. 283 00:11:51,240 --> 00:11:55,840 Speaker 5: Tackling aggregate maximum employment and stable prices. And so therefore 284 00:11:55,920 --> 00:11:59,600 Speaker 5: the right policy to take is to stabilize employment and prices, 285 00:12:00,320 --> 00:12:02,720 Speaker 5: and that's the policy. That's the policy that I support. 286 00:12:03,120 --> 00:12:05,880 Speaker 5: I do think though, while discussing the subject of inequality, 287 00:12:06,120 --> 00:12:08,040 Speaker 5: it would be much worse for the people at the 288 00:12:08,080 --> 00:12:10,840 Speaker 5: lower end of the income distribution if the unemployment rate 289 00:12:10,840 --> 00:12:13,400 Speaker 5: continued to go up as a result of our policies. 290 00:12:14,080 --> 00:12:16,360 Speaker 5: That's not something that they would be that they would welcome, 291 00:12:16,360 --> 00:12:17,800 Speaker 5: and it's not something that I would welcome either. 292 00:12:17,920 --> 00:12:19,560 Speaker 6: Governor arts with the President this week and you have 293 00:12:19,559 --> 00:12:21,679 Speaker 6: an office and I asked him about the FED interviews. 294 00:12:21,800 --> 00:12:23,800 Speaker 6: It says lots of names, we may go the standard 295 00:12:23,800 --> 00:12:25,720 Speaker 6: way quote, it's nice every once in a while to 296 00:12:25,760 --> 00:12:28,960 Speaker 6: go politically correct. Out of the names that we know 297 00:12:29,120 --> 00:12:31,400 Speaker 6: that are being interviewed, who is politically correct? 298 00:12:32,240 --> 00:12:34,839 Speaker 4: You know, I don't really know the answere we worked. 299 00:12:34,559 --> 00:12:36,920 Speaker 6: For the presidents. You understand how his mind works. Do 300 00:12:36,960 --> 00:12:39,200 Speaker 6: you think it means someone that is currently on the board, 301 00:12:39,360 --> 00:12:42,439 Speaker 6: like a Governor Waller or someone that's very close to 302 00:12:42,520 --> 00:12:44,400 Speaker 6: him in your former colleague Kevin has it. 303 00:12:44,840 --> 00:12:46,600 Speaker 5: Yeah, So I mean it should be pretty clear that 304 00:12:46,640 --> 00:12:48,240 Speaker 5: I just always say what's on my mind, and therefore 305 00:12:48,240 --> 00:12:50,440 Speaker 5: I don't even know what politically correct is. So I 306 00:12:50,440 --> 00:12:52,560 Speaker 5: don't even know how to begin addressing that, you know, 307 00:12:52,600 --> 00:12:53,560 Speaker 5: But look, I don't. 308 00:12:53,400 --> 00:12:55,480 Speaker 6: Make care seeing too politically correct right now? 309 00:12:55,520 --> 00:12:56,880 Speaker 4: Actually am I I've. 310 00:12:56,679 --> 00:12:58,640 Speaker 5: Never been accused of that before, so hey, you know, 311 00:12:58,880 --> 00:12:59,920 Speaker 5: I'm happy to have it first. 312 00:13:00,200 --> 00:13:02,000 Speaker 3: Going a very diplomatic it's going to see you. Thanks 313 00:13:02,040 --> 00:13:02,800 Speaker 3: to drop them by. 314 00:13:03,480 --> 00:13:07,000 Speaker 2: Stay with us more Bloomberg Surveillance coming up after this, 315 00:13:15,600 --> 00:13:18,760 Speaker 2: Gil Lauria of DA Davidson remaining bullish on in Vidia, 316 00:13:18,880 --> 00:13:21,920 Speaker 2: reiterating his by rating and price target of two fifty 317 00:13:21,920 --> 00:13:24,360 Speaker 2: on the stock. Gill joined us now for more get welcome. 318 00:13:24,480 --> 00:13:26,600 Speaker 2: I think we've still got to reflect on what happened yesterday. 319 00:13:26,840 --> 00:13:29,680 Speaker 2: How is this name suddenly looking so French out. 320 00:13:31,200 --> 00:13:33,640 Speaker 8: Well, I think for the last couple of years, in 321 00:13:33,800 --> 00:13:36,880 Speaker 8: video has driven the market, and yesterday something happened around 322 00:13:36,960 --> 00:13:40,280 Speaker 8: ten forty five Eastern and the market started driving in video, 323 00:13:40,440 --> 00:13:43,240 Speaker 8: something that really has nothing to do with then video. 324 00:13:43,280 --> 00:13:47,320 Speaker 8: The results were very, very good, and more importantly, back 325 00:13:47,360 --> 00:13:51,840 Speaker 8: to the conversation you've been having so far this hour, Microsoft, Amazon, 326 00:13:51,880 --> 00:13:56,160 Speaker 8: in Google and Video's main customers have all the customers, 327 00:13:56,200 --> 00:14:00,400 Speaker 8: They have all the business customers through open Ai and Thenthropic, 328 00:14:00,480 --> 00:14:03,800 Speaker 8: they have most of the consumer customers as well. And 329 00:14:03,840 --> 00:14:05,960 Speaker 8: what they told us a couple of years, a couple 330 00:14:06,000 --> 00:14:09,960 Speaker 8: of weeks ago, is that they're seeing an acceleration in demand, 331 00:14:10,840 --> 00:14:15,839 Speaker 8: so they're able to build out these compute infrastructure for 332 00:14:16,120 --> 00:14:19,760 Speaker 8: contract that are already committed. So their customers, which again 333 00:14:19,840 --> 00:14:23,880 Speaker 8: is pretty much every other company, and most consumers are 334 00:14:23,880 --> 00:14:26,920 Speaker 8: booking demand in advance and willing to pay for it. 335 00:14:26,960 --> 00:14:31,560 Speaker 8: So to be precise, here, Amazon, Microsoft and Google are 336 00:14:31,720 --> 00:14:35,160 Speaker 8: generating very good returns on their investment in terms of 337 00:14:35,200 --> 00:14:38,200 Speaker 8: the build out of the data center. It's their customers 338 00:14:38,200 --> 00:14:41,920 Speaker 8: that are not yet generating returns but are booking so 339 00:14:42,040 --> 00:14:46,200 Speaker 8: much demand in advance that it looks like they feel 340 00:14:46,520 --> 00:14:50,920 Speaker 8: they believe that they will generate those returns. So the 341 00:14:51,000 --> 00:14:54,640 Speaker 8: results from Nvidia reflected that acceleration and demand. They were 342 00:14:54,880 --> 00:14:58,640 Speaker 8: very good. That's why the stock opened up. Something else 343 00:14:58,720 --> 00:15:00,960 Speaker 8: happened yesterday at ten four forty five Eastern. 344 00:15:01,280 --> 00:15:02,800 Speaker 9: I imagine we'll find out. 345 00:15:02,720 --> 00:15:07,400 Speaker 8: Something like some liquidation of a fund, somebody selling the 346 00:15:07,440 --> 00:15:08,960 Speaker 8: AI portfolio as a whole. 347 00:15:09,480 --> 00:15:11,920 Speaker 9: It had little to do if nothing, within video. 348 00:15:12,200 --> 00:15:14,000 Speaker 7: That's aid Gil, and I hear you about sort of 349 00:15:14,040 --> 00:15:16,880 Speaker 7: the technical selling or this question about whether there were 350 00:15:17,040 --> 00:15:18,120 Speaker 7: some weekends. 351 00:15:17,640 --> 00:15:19,000 Speaker 1: That were flushed out yesterday. 352 00:15:19,200 --> 00:15:20,960 Speaker 7: There is this broader fear about in video, and you've 353 00:15:20,960 --> 00:15:23,560 Speaker 7: seen it in the stock performance even leading into the earnings. 354 00:15:23,560 --> 00:15:24,840 Speaker 1: That the earnings were not able. 355 00:15:24,600 --> 00:15:27,440 Speaker 7: To assuage that, yes, people are willing to buy all 356 00:15:27,480 --> 00:15:30,200 Speaker 7: these chips, but whether they're able to without borrowing a 357 00:15:30,240 --> 00:15:32,840 Speaker 7: lot of money is another question. You talk about how 358 00:15:32,880 --> 00:15:35,920 Speaker 7: there is this expectation of the profits to follow some 359 00:15:36,040 --> 00:15:38,160 Speaker 7: of the spending, but you see the likes of Open Eye, 360 00:15:38,360 --> 00:15:41,480 Speaker 7: as you yourself said yesterday, is the classic example of 361 00:15:41,520 --> 00:15:43,840 Speaker 7: fake it until you make it. Why do the accounts 362 00:15:43,880 --> 00:15:47,000 Speaker 7: receivables not concern you? The idea that this is a 363 00:15:47,080 --> 00:15:49,760 Speaker 7: huge bill and the cost of it is leaving some 364 00:15:50,040 --> 00:15:51,680 Speaker 7: looking elsewhere to try to raise the money. 365 00:15:53,400 --> 00:15:56,760 Speaker 8: Yeah, so that's it's a good important question to start 366 00:15:56,800 --> 00:16:00,680 Speaker 8: asking ourselves what's healthy and real and what's unhealthy and 367 00:16:00,720 --> 00:16:01,240 Speaker 8: not real. 368 00:16:01,760 --> 00:16:05,120 Speaker 9: So I talked about the healthy part. Amazon, Microsoft, Google. 369 00:16:05,400 --> 00:16:06,720 Speaker 9: They're buying all the. 370 00:16:06,680 --> 00:16:09,000 Speaker 8: Nvidio chips they can get, by the way, that does 371 00:16:09,080 --> 00:16:14,520 Speaker 8: include Google. While Google is using its TPUs extensively, and 372 00:16:14,560 --> 00:16:17,000 Speaker 8: by the way, the TPU is really the only competitive 373 00:16:17,040 --> 00:16:20,360 Speaker 8: product in the market to nvideo, they're using it extensively. 374 00:16:20,400 --> 00:16:22,480 Speaker 8: They're still buying as many nvidio chips as they can 375 00:16:22,640 --> 00:16:25,480 Speaker 8: to help provide those to their customers. 376 00:16:25,800 --> 00:16:27,280 Speaker 9: That's all healthy behavior. 377 00:16:27,640 --> 00:16:31,880 Speaker 8: The unhealthy behavior you're mentioning has to do with startups 378 00:16:32,320 --> 00:16:36,480 Speaker 8: borrowing money at very high rates, making promises they can't keep. 379 00:16:36,640 --> 00:16:39,000 Speaker 8: That's the poster childs for that are open AI and 380 00:16:39,080 --> 00:16:43,840 Speaker 8: core Weave that really and in amongst each other, making 381 00:16:43,880 --> 00:16:47,080 Speaker 8: these big promises, borrowing a lot of money to build 382 00:16:47,160 --> 00:16:50,960 Speaker 8: data centers, that part of the demand isn't real. Now importantly, 383 00:16:51,000 --> 00:16:55,640 Speaker 8: it's not even necessary. If those two didn't exist, Microsoft, Amazon, 384 00:16:55,640 --> 00:16:57,840 Speaker 8: Google would still be buying the same amount of chips. 385 00:16:58,000 --> 00:17:01,440 Speaker 9: If not more. But we do have to keep pointing. 386 00:17:01,040 --> 00:17:03,480 Speaker 8: To the bad behavior to Nvidia giving a dollar to 387 00:17:03,560 --> 00:17:07,520 Speaker 8: Core core Weave, borrowing nine dollars and using eight of 388 00:17:07,560 --> 00:17:11,560 Speaker 8: the ten to buy in Nvidia chips, then having to 389 00:17:11,600 --> 00:17:13,680 Speaker 8: pay a dollar of interest rate and only getting fifty 390 00:17:13,760 --> 00:17:14,880 Speaker 8: cents of profit. 391 00:17:15,680 --> 00:17:17,879 Speaker 9: That's unhealthy. That needs to stop. 392 00:17:18,320 --> 00:17:21,280 Speaker 8: You mentioned in video's receivable as in inventory that has 393 00:17:21,359 --> 00:17:24,880 Speaker 8: come up yesterday. But if you look historically, we are 394 00:17:24,960 --> 00:17:28,440 Speaker 8: still at These numbers are just so big that if 395 00:17:28,480 --> 00:17:32,120 Speaker 8: you look at them as a ratio, so the account 396 00:17:32,119 --> 00:17:34,359 Speaker 8: sociable is a ratio of revenue is actually within the 397 00:17:34,440 --> 00:17:38,240 Speaker 8: historical range. Inventories is a percent of cost, and good 398 00:17:38,320 --> 00:17:42,040 Speaker 8: sold within the historical range. So there's not a specific 399 00:17:42,119 --> 00:17:46,520 Speaker 8: concern about those numbers for Nvidia, it's more concern about 400 00:17:46,840 --> 00:17:50,639 Speaker 8: are we letting bad behavior enter the system? Which the 401 00:17:50,720 --> 00:17:54,000 Speaker 8: main indicator of that is how much debt is fueling 402 00:17:54,040 --> 00:17:56,840 Speaker 8: the data center build out. As long as it's cash 403 00:17:56,920 --> 00:17:59,359 Speaker 8: on hand from the big players and their cash flow, 404 00:18:00,080 --> 00:18:04,080 Speaker 8: that's healthy behavior that they're putting behind real demand. If 405 00:18:04,080 --> 00:18:08,240 Speaker 8: we start lending to upstarts to build data centers, that's 406 00:18:08,359 --> 00:18:08,840 Speaker 8: the risk. 407 00:18:09,200 --> 00:18:11,719 Speaker 7: Yeah, we just have about thirty seconds here. What do 408 00:18:11,760 --> 00:18:13,960 Speaker 7: you think the blow up of some of the unhealthy 409 00:18:13,960 --> 00:18:15,240 Speaker 7: players is going to look like. 410 00:18:15,359 --> 00:18:18,560 Speaker 1: For the healthy ecosystem? 411 00:18:19,040 --> 00:18:22,920 Speaker 8: So the shareholders and debt holders of those companies are 412 00:18:22,920 --> 00:18:26,000 Speaker 8: going to get wiped out. But the big companies that 413 00:18:26,040 --> 00:18:29,359 Speaker 8: I keep going back to Microsoft, Amazon, Google, they'll end 414 00:18:29,400 --> 00:18:31,800 Speaker 8: up buying assets at pennies on the dollars, So they're 415 00:18:31,800 --> 00:18:32,640 Speaker 8: going to win anyway. 416 00:18:33,720 --> 00:18:46,240 Speaker 2: Stay with US. Multilemberg surveillance coming up after this. The 417 00:18:46,359 --> 00:18:49,000 Speaker 2: Fense December Interest Right decision very much in down a 418 00:18:49,040 --> 00:18:53,160 Speaker 2: growing number of policymakers expressing concerns of additional rancounts. Cluarly 419 00:18:53,160 --> 00:18:55,840 Speaker 2: Assum of New Century Advisors, writing the employment report for 420 00:18:55,880 --> 00:18:59,199 Speaker 2: September didn't sensor any arguments of the FED, and that 421 00:18:59,240 --> 00:19:02,159 Speaker 2: boss is the FED against action. Claudia joins us now 422 00:19:02,200 --> 00:19:04,360 Speaker 2: for more. Claudia, welcome to the program. Let's talk about 423 00:19:04,400 --> 00:19:06,240 Speaker 2: that job's report. What was your impression of it? Was 424 00:19:06,240 --> 00:19:07,960 Speaker 2: that a strong report or a week one? 425 00:19:09,760 --> 00:19:10,879 Speaker 4: It was a mixed report. 426 00:19:11,320 --> 00:19:14,320 Speaker 10: I mean, you definitely saw the themes of job creation 427 00:19:14,520 --> 00:19:19,320 Speaker 10: has been very slow. Payroll numbers were encouraging, but not 428 00:19:19,640 --> 00:19:23,040 Speaker 10: encouraging enough. And frankly, you know, a real warning sign 429 00:19:23,080 --> 00:19:25,840 Speaker 10: in the report was that the unemployment rate moved up again. 430 00:19:25,920 --> 00:19:28,840 Speaker 10: This is the third consecutive monthly increase that we've seen, 431 00:19:29,240 --> 00:19:32,080 Speaker 10: and that really does reinforce that the weakness in demand 432 00:19:32,240 --> 00:19:35,080 Speaker 10: is outstripping whatever is slowing down in labor supply that 433 00:19:35,119 --> 00:19:35,960 Speaker 10: we've seen this year. 434 00:19:36,160 --> 00:19:39,320 Speaker 2: That argument is the argument of Governor Waller and others. Claudia, 435 00:19:39,359 --> 00:19:41,600 Speaker 2: I've heard that argument that we're close to store speed 436 00:19:41,840 --> 00:19:44,040 Speaker 2: and we should probably get in front of it. How 437 00:19:44,040 --> 00:19:46,880 Speaker 2: compelling is that argument going to be on December tenth 438 00:19:46,960 --> 00:19:48,120 Speaker 2: to the rest of the committee. 439 00:19:49,760 --> 00:19:52,280 Speaker 10: Frankly, I don't think there's a compelling argument on either 440 00:19:52,359 --> 00:19:55,080 Speaker 10: side right now. You know, we just don't have a 441 00:19:55,119 --> 00:19:57,560 Speaker 10: real clear picture of what's happening in the economy. This 442 00:19:57,680 --> 00:20:00,400 Speaker 10: was data on September, right this is months past now, 443 00:20:00,960 --> 00:20:04,560 Speaker 10: and you can and what they're arguing about rightly, So 444 00:20:04,760 --> 00:20:07,560 Speaker 10: it's about the risks they're facing the economy. I mean, 445 00:20:07,600 --> 00:20:09,840 Speaker 10: my base case is still that we muddle through this, 446 00:20:09,920 --> 00:20:12,600 Speaker 10: we don't have a recession, inflation comes back down. But 447 00:20:12,680 --> 00:20:15,240 Speaker 10: I am very concerned, as is Governor Waller, about the 448 00:20:15,240 --> 00:20:19,000 Speaker 10: downside risk to employment. I can see the case also 449 00:20:19,160 --> 00:20:22,160 Speaker 10: for the risk of inflation getting stuck above target. 450 00:20:22,480 --> 00:20:22,640 Speaker 9: Right. 451 00:20:22,680 --> 00:20:24,679 Speaker 10: So that's what they're arguing about, are these risks, and 452 00:20:24,760 --> 00:20:27,800 Speaker 10: it's very hard to make a compelling case with the 453 00:20:27,880 --> 00:20:30,159 Speaker 10: data that we have, So they're going to go down 454 00:20:30,200 --> 00:20:31,320 Speaker 10: to the wire on this one. 455 00:20:31,520 --> 00:20:34,199 Speaker 7: Claudia, what's the difference if they cut in December if 456 00:20:34,200 --> 00:20:36,440 Speaker 7: they cut in January. 457 00:20:37,600 --> 00:20:41,560 Speaker 10: Well, so monetary policy takes time to work its way 458 00:20:41,560 --> 00:20:44,720 Speaker 10: through the economy. So if what we're seeing are signs 459 00:20:44,840 --> 00:20:47,840 Speaker 10: of a labor market that is slowing down to a 460 00:20:47,920 --> 00:20:50,080 Speaker 10: point that it really goes over the edge, well you 461 00:20:50,119 --> 00:20:53,119 Speaker 10: would want to be doing those cuts as soon as possible. 462 00:20:53,600 --> 00:20:55,479 Speaker 10: You know, if you wait until you have clarity, If 463 00:20:55,480 --> 00:20:58,800 Speaker 10: the Fed waits until it sees clear signs of deterioration 464 00:20:58,920 --> 00:21:00,800 Speaker 10: in the labor market, they have waited too long. 465 00:21:01,200 --> 00:21:02,040 Speaker 9: That's the big risk. 466 00:21:02,200 --> 00:21:05,120 Speaker 7: Claudia, they have seen signs of true deterioration, but it's 467 00:21:05,160 --> 00:21:08,399 Speaker 7: in the lower income cohorts and we're seeing that pretty consistently. 468 00:21:08,800 --> 00:21:11,119 Speaker 7: And it rais a sort of deeper question about the FED. 469 00:21:11,280 --> 00:21:14,119 Speaker 7: Is it the Fed's job to try to close. 470 00:21:13,760 --> 00:21:16,399 Speaker 1: The ke shaped gap that we have in the economy. 471 00:21:17,640 --> 00:21:20,600 Speaker 10: So the Fed's mandate is for the economy overall, Right, 472 00:21:20,640 --> 00:21:24,000 Speaker 10: they don't pick and choose demographic groups parts of the country, Like, 473 00:21:24,040 --> 00:21:25,840 Speaker 10: that's just not their mandate, right, And they don't have 474 00:21:25,880 --> 00:21:28,200 Speaker 10: tools that are that finely tuned to think. 475 00:21:28,080 --> 00:21:29,119 Speaker 1: About specific groups. 476 00:21:29,160 --> 00:21:30,840 Speaker 10: Now, what I will say is the FED can look 477 00:21:30,840 --> 00:21:33,760 Speaker 10: at groups that are typically marginalized, say on the labor market, 478 00:21:34,080 --> 00:21:38,160 Speaker 10: that can often be a signal of a broader weakness 479 00:21:38,240 --> 00:21:41,000 Speaker 10: that's starting to build, right, Like, you know, not everybody 480 00:21:41,000 --> 00:21:43,240 Speaker 10: gets hit first, right, And so I think that is 481 00:21:43,240 --> 00:21:45,160 Speaker 10: where they pay a lot of attention to where things 482 00:21:45,160 --> 00:21:47,600 Speaker 10: are happening on the margins. But it's not that they 483 00:21:47,640 --> 00:21:50,439 Speaker 10: can use that as a justification or kind of target 484 00:21:50,480 --> 00:21:52,080 Speaker 10: their policy quaudia. 485 00:21:52,119 --> 00:21:53,560 Speaker 6: Since the FED is going to meet and then six 486 00:21:53,640 --> 00:21:56,959 Speaker 6: days later we get more employment reports, what do they 487 00:21:57,000 --> 00:22:00,000 Speaker 6: need to be looking at that potentially settle the argument? 488 00:22:00,040 --> 00:22:03,560 Speaker 6: It's at the FED before December tenth. 489 00:22:03,200 --> 00:22:05,840 Speaker 10: Right, so there is still information that the FED will 490 00:22:05,840 --> 00:22:08,720 Speaker 10: get before they go into their December tenth meeting. They'll 491 00:22:08,720 --> 00:22:12,080 Speaker 10: get the Jeweled statu so they'll have another read on 492 00:22:12,320 --> 00:22:14,160 Speaker 10: the hiring rate the layoff. 493 00:22:13,920 --> 00:22:15,760 Speaker 1: Rate for October. On the first day of their meeting, 494 00:22:16,080 --> 00:22:17,200 Speaker 1: we're going to get the Beige Book. 495 00:22:17,240 --> 00:22:19,399 Speaker 10: I think the Beige Book could be really important for 496 00:22:19,520 --> 00:22:21,800 Speaker 10: trying to get a sense of this argument about how 497 00:22:21,840 --> 00:22:25,439 Speaker 10: resilient is demand. It's qualitative, but it is designed to 498 00:22:25,480 --> 00:22:27,919 Speaker 10: be comprehensive, right, And I think that's one where we 499 00:22:27,920 --> 00:22:30,040 Speaker 10: don't have the GDP statistics, and so we don't have 500 00:22:30,119 --> 00:22:33,000 Speaker 10: these comprehensive measures of the demand. That's going to be 501 00:22:33,080 --> 00:22:35,240 Speaker 10: very important. I mean, they're going to keep gathering every 502 00:22:35,280 --> 00:22:38,919 Speaker 10: piece of evidence they can. What is unfortunate is the 503 00:22:39,000 --> 00:22:41,159 Speaker 10: piece of data that could settle the debate at the 504 00:22:41,160 --> 00:22:44,080 Speaker 10: FED is that November unemployment rate. And they're not going 505 00:22:44,160 --> 00:22:45,119 Speaker 10: to have it when they vote. 506 00:22:45,359 --> 00:22:47,920 Speaker 2: Clodia, why can't they? Why why don't we just reschedule 507 00:22:48,000 --> 00:22:49,639 Speaker 2: the meeting? Is that difficult today? 508 00:22:51,600 --> 00:22:54,520 Speaker 10: I think they would see that as being very disruptive, 509 00:22:54,760 --> 00:22:57,080 Speaker 10: And you know, I think to Governor Waller's point, you 510 00:22:57,080 --> 00:22:59,159 Speaker 10: know it is a data driven FED, but it's not 511 00:22:59,320 --> 00:23:01,720 Speaker 10: like it must have a data point right like you 512 00:23:02,040 --> 00:23:05,360 Speaker 10: do have to take what you have, form an outlook, 513 00:23:05,440 --> 00:23:07,680 Speaker 10: think about the risk, make the case. I think what's 514 00:23:07,840 --> 00:23:10,000 Speaker 10: just hard right now is they're missing because of the 515 00:23:10,040 --> 00:23:12,320 Speaker 10: government shut down, because of you know, these delays that 516 00:23:12,400 --> 00:23:15,320 Speaker 10: are just an unfortunate reality we have right now. They're 517 00:23:15,359 --> 00:23:18,119 Speaker 10: missing some of these data points that would settle debates. 518 00:23:18,160 --> 00:23:19,959 Speaker 10: So they're just going to have to work through this 519 00:23:20,400 --> 00:23:22,840 Speaker 10: and come to the best decision they can. But I 520 00:23:22,840 --> 00:23:25,919 Speaker 10: think anything that'd be as abrupt as you know, moving 521 00:23:25,920 --> 00:23:27,640 Speaker 10: the media, they're not going to want to go. 522 00:23:27,640 --> 00:23:28,359 Speaker 1: Down that path. 523 00:23:30,080 --> 00:23:33,600 Speaker 2: Stay with US multil Iomberg Surveillance coming up after this 524 00:23:42,720 --> 00:23:44,760 Speaker 2: stocks saying to end a roller coaster week on a 525 00:23:44,800 --> 00:23:47,919 Speaker 2: positive note that seeming ubs Global Wealth Management releasing their 526 00:23:47,920 --> 00:23:51,439 Speaker 2: outlook for next year writing continued strong capex and growing 527 00:23:51,480 --> 00:23:55,160 Speaker 2: evidence of AI monetization will fuel further gains for AI 528 00:23:55,240 --> 00:23:57,480 Speaker 2: links stocks in twenty six. We expect the S and 529 00:23:57,520 --> 00:24:00,760 Speaker 2: P five hundred to reach seventy seven high hundred by 530 00:24:00,800 --> 00:24:03,240 Speaker 2: the end of next year. Or Rika halfrom Machali ups 531 00:24:03,359 --> 00:24:06,400 Speaker 2: joined this now for more or Ricakamonic Good say let's 532 00:24:06,400 --> 00:24:09,320 Speaker 2: get to that price target, what's the road towards AK 533 00:24:10,600 --> 00:24:11,720 Speaker 2: So what we believe. 534 00:24:11,520 --> 00:24:13,720 Speaker 11: Is that the macro headwinds that we were facing in 535 00:24:13,760 --> 00:24:16,760 Speaker 11: twenty twenty five are actually turning into tailwinds in twenty 536 00:24:16,800 --> 00:24:17,480 Speaker 11: twenty six. 537 00:24:17,840 --> 00:24:19,920 Speaker 1: We have that dual engine of both. 538 00:24:19,800 --> 00:24:23,960 Speaker 11: Fiscal and monetary policy stimulus, in particular in the first 539 00:24:23,960 --> 00:24:26,720 Speaker 11: half of next year. We have, of course, on the 540 00:24:26,720 --> 00:24:29,800 Speaker 11: one hand, now the rate cuts typically hitting with two 541 00:24:29,880 --> 00:24:33,320 Speaker 11: to three quarters of transmission. Then we have the refunds 542 00:24:33,320 --> 00:24:36,400 Speaker 11: from one big beautiful bill, and we also have more 543 00:24:36,440 --> 00:24:40,880 Speaker 11: investments into infrastructure and defense, so that's a very supportive 544 00:24:40,920 --> 00:24:43,919 Speaker 11: physical environment. And then we think inflation is also going 545 00:24:43,960 --> 00:24:47,359 Speaker 11: to be rather contained. We have three disinflationary forces in 546 00:24:47,400 --> 00:24:49,679 Speaker 11: our mind that we are seeing. One, we are going 547 00:24:49,680 --> 00:24:52,520 Speaker 11: to anniversary the tariffs in April, and then we have 548 00:24:52,760 --> 00:24:54,679 Speaker 11: what we think is going to be slower wage growth 549 00:24:54,880 --> 00:24:57,000 Speaker 11: because of the slack in the labor market, and then 550 00:24:57,080 --> 00:24:59,240 Speaker 11: also finally shelter inflation coming down. 551 00:24:59,560 --> 00:25:02,800 Speaker 1: So with that a benign backdrop to inflation. 552 00:25:03,119 --> 00:25:05,439 Speaker 11: We also think there may be one more rate cut 553 00:25:05,640 --> 00:25:08,280 Speaker 11: in the box for December, but again, if not December, 554 00:25:08,320 --> 00:25:11,200 Speaker 11: then January, and ultimately, as you said, if the terminal 555 00:25:11,280 --> 00:25:14,080 Speaker 11: rate that matters and not necessarily a one month delay. 556 00:25:14,160 --> 00:25:16,320 Speaker 2: You just offered us the ingredients for year round melter, 557 00:25:16,840 --> 00:25:19,840 Speaker 2: but it's not materializing. How would you describe what's developing 558 00:25:19,920 --> 00:25:21,800 Speaker 2: before our eyes right now in the last few days, 559 00:25:21,800 --> 00:25:22,560 Speaker 2: the last few weeks. 560 00:25:23,359 --> 00:25:25,639 Speaker 11: Yeah, I think the key question right now is really 561 00:25:25,720 --> 00:25:30,240 Speaker 11: about AI, and in our mind, the AI story has 562 00:25:30,280 --> 00:25:35,000 Speaker 11: significantly changed. It's no longer about compute, it's about cash flows. 563 00:25:35,440 --> 00:25:38,480 Speaker 11: And at the latest in the third quarter Microsoft earnings, 564 00:25:38,480 --> 00:25:41,040 Speaker 11: we learned that some of the big private companies that 565 00:25:41,200 --> 00:25:44,920 Speaker 11: are offering intelligence services are actually still heavy loss making, 566 00:25:45,440 --> 00:25:48,720 Speaker 11: and the question is will they generate enough cash flows 567 00:25:48,960 --> 00:25:52,959 Speaker 11: to pay for all these commitments to infrastructure. And at 568 00:25:52,960 --> 00:25:55,719 Speaker 11: the same time, what we're seeing is that the benefits 569 00:25:55,760 --> 00:25:59,560 Speaker 11: of AI are going to actually be eccruped by companies 570 00:25:59,560 --> 00:26:02,360 Speaker 11: that are us using AI, and I think that warrants 571 00:26:02,480 --> 00:26:04,480 Speaker 11: a new playbook on AI investing. 572 00:26:04,760 --> 00:26:06,520 Speaker 1: So does this really marked the shift? 573 00:26:06,560 --> 00:26:08,560 Speaker 7: I mean, is this the turning point that you see 574 00:26:08,880 --> 00:26:11,520 Speaker 7: a new playbook as coming into play for lack of 575 00:26:11,560 --> 00:26:15,160 Speaker 7: a better word, as people look to who's taking on 576 00:26:15,600 --> 00:26:17,960 Speaker 7: this new technology and deploying it in a way to 577 00:26:18,040 --> 00:26:19,200 Speaker 7: increase their efficiency. 578 00:26:20,000 --> 00:26:22,080 Speaker 11: Yes, if we look just at the last three years, 579 00:26:22,119 --> 00:26:24,560 Speaker 11: we're almost getting close to the three year anniversary of 580 00:26:24,640 --> 00:26:28,760 Speaker 11: chet SPT. We have seen that those AI seven, those 581 00:26:28,880 --> 00:26:33,199 Speaker 11: enablers and videos, the broadcoms A and DAMS, microns, and 582 00:26:33,200 --> 00:26:37,160 Speaker 11: then also the hyperscale is that they have lovely gained 583 00:26:37,200 --> 00:26:40,680 Speaker 11: about ten trillion in market value over three years. Yet 584 00:26:40,800 --> 00:26:44,640 Speaker 11: the AI users haven't really appreciated as much. And so 585 00:26:44,680 --> 00:26:47,280 Speaker 11: for us, this is now the opportunity to pivot and 586 00:26:47,400 --> 00:26:51,640 Speaker 11: invest in those companies that use AI for advertising, for coding, 587 00:26:51,880 --> 00:26:55,959 Speaker 11: for automation of business processes, and we particularly think that 588 00:26:56,000 --> 00:26:58,560 Speaker 11: the healthcare sector is a really interesting. 589 00:26:58,119 --> 00:26:59,960 Speaker 1: Way to actually play AI. 590 00:27:00,280 --> 00:27:02,399 Speaker 7: So does this mean that you're going to see that 591 00:27:02,520 --> 00:27:06,320 Speaker 7: rotation out of some of these big, big cap, large 592 00:27:06,359 --> 00:27:09,720 Speaker 7: cap tech companies and into things like healthcare, things like 593 00:27:09,760 --> 00:27:12,800 Speaker 7: financial sector, things like Walmart as we saw yesterday as 594 00:27:12,840 --> 00:27:15,439 Speaker 7: they renamed themselves as a tech company. Or do you 595 00:27:15,480 --> 00:27:19,920 Speaker 7: see this as potentially everything goes up or the index goes. 596 00:27:19,720 --> 00:27:21,719 Speaker 1: Down, but you see some winners in the bunch. 597 00:27:22,880 --> 00:27:25,040 Speaker 11: At the minimum, we think or we suggest that you 598 00:27:25,160 --> 00:27:29,160 Speaker 11: diversify that AI monetization risk of it. The math can work. 599 00:27:29,200 --> 00:27:32,040 Speaker 11: Of course, there's some path to that math working. 600 00:27:32,440 --> 00:27:33,680 Speaker 1: But at the same time. 601 00:27:33,520 --> 00:27:36,160 Speaker 11: There is a lot of uncertainty all these private companies 602 00:27:36,240 --> 00:27:38,600 Speaker 11: really going to make it. And I think for us, 603 00:27:38,600 --> 00:27:42,040 Speaker 11: this is an opportunity just broaden out our exposure to 604 00:27:42,119 --> 00:27:45,320 Speaker 11: AI and rethinking how we want to invest in this. 605 00:27:45,680 --> 00:27:48,119 Speaker 11: We don't think AI is a bubble. The technology is 606 00:27:48,119 --> 00:27:52,320 Speaker 11: not a bubble. Technology is real. The OROI is tangible. 607 00:27:52,520 --> 00:27:56,600 Speaker 11: But we want to now again expand our investment universe 608 00:27:56,720 --> 00:27:58,720 Speaker 11: of how to capitalize on this new technology. 609 00:27:58,760 --> 00:28:00,600 Speaker 6: When you look at capitalizing on it and you look 610 00:28:00,640 --> 00:28:04,080 Speaker 6: at the adopters you're interested in, say healthcare other industries, 611 00:28:04,119 --> 00:28:07,720 Speaker 6: does that mean job losses Not necessarily. 612 00:28:07,760 --> 00:28:10,320 Speaker 11: I think it could also be of just doing more 613 00:28:10,440 --> 00:28:12,520 Speaker 11: of what we're doing, or doing it faster and more 614 00:28:12,560 --> 00:28:16,240 Speaker 11: cost efficient. You know, in healthcare in particular, the cost 615 00:28:16,320 --> 00:28:20,160 Speaker 11: of bringing a drug to market has arisen exponentially over 616 00:28:20,160 --> 00:28:23,800 Speaker 11: the last few years and decades, and so AI can 617 00:28:23,840 --> 00:28:27,080 Speaker 11: bring down that cost curve from clinical trial or drug 618 00:28:27,080 --> 00:28:29,800 Speaker 11: discovery all the way to clinical trials, and I think 619 00:28:29,840 --> 00:28:33,639 Speaker 11: this is a big opportunity for that sector to drive 620 00:28:33,840 --> 00:28:35,200 Speaker 11: better operating efficiencies. 621 00:28:35,280 --> 00:28:37,800 Speaker 2: We've had a few of these conversations now and we 622 00:28:37,880 --> 00:28:39,720 Speaker 2: often spend about ten minutes with a guest, and I 623 00:28:39,760 --> 00:28:41,480 Speaker 2: would say about eighty percent of it is on the 624 00:28:41,480 --> 00:28:43,960 Speaker 2: stuff we just discussed, and hardly any of it's on 625 00:28:44,000 --> 00:28:46,600 Speaker 2: federal reserve and interest rates. Now we've just in the 626 00:28:46,640 --> 00:28:48,800 Speaker 2: market with a big turnaround this morning, at least at 627 00:28:48,880 --> 00:28:51,160 Speaker 2: least's pointed out how viciously things have changed in terms 628 00:28:51,200 --> 00:28:53,360 Speaker 2: of expectations. It makes me want to just how relevant 629 00:28:53,400 --> 00:28:55,600 Speaker 2: you and the team think monetary policy might be to 630 00:28:55,680 --> 00:28:59,000 Speaker 2: the outlook and how relevant it is for stocks going forward. 631 00:28:59,200 --> 00:29:01,080 Speaker 11: No, we think it's relevant, and we actually use three 632 00:29:01,080 --> 00:29:04,520 Speaker 11: perspectives in our equity framework, which is macrovi fed of 633 00:29:04,520 --> 00:29:07,160 Speaker 11: course plays a big role in We use also the 634 00:29:07,160 --> 00:29:10,200 Speaker 11: bottom up fundamentals, so valuation right, that's a big part 635 00:29:10,200 --> 00:29:13,360 Speaker 11: of our process, but also these structural trends like AI, 636 00:29:13,440 --> 00:29:17,360 Speaker 11: electrification and longevity, which for us determine asset prices. 637 00:29:17,560 --> 00:29:19,760 Speaker 1: So for us, all three perspectives do matter. 638 00:29:20,120 --> 00:29:24,040 Speaker 11: Sometimes the market decides to focus on certain areas of 639 00:29:24,080 --> 00:29:26,520 Speaker 11: these three lenses, and I think as an investor used 640 00:29:26,560 --> 00:29:28,520 Speaker 11: to have to stay attuned to where the market is 641 00:29:28,520 --> 00:29:32,360 Speaker 11: currently focus and pivot, but all three are very relevant. 642 00:29:32,440 --> 00:29:34,560 Speaker 11: Of course, over the last three years, it's been all 643 00:29:34,600 --> 00:29:37,920 Speaker 11: about AI and then particularly about AI enable US. 644 00:29:38,040 --> 00:29:40,320 Speaker 3: It has been toightly dominant, that's for sure, which is the. 645 00:29:40,320 --> 00:29:42,480 Speaker 7: Reason why it's hard to understand whether that hurts or 646 00:29:42,520 --> 00:29:44,880 Speaker 7: helps the Fed's case to cut rates, because ultimately what 647 00:29:44,920 --> 00:29:47,800 Speaker 7: people are saying is if the FED cuts rates more significantly, 648 00:29:47,960 --> 00:29:53,200 Speaker 7: that helps evaluation story, proposition, the multiple story for AI stocks. 649 00:29:53,600 --> 00:29:56,320 Speaker 7: But if they don't, then what does that do for 650 00:29:56,360 --> 00:29:57,880 Speaker 7: the rest of the economy. I mean, there's so many 651 00:29:58,000 --> 00:29:59,800 Speaker 7: questions here, which is the reason why you see the 652 00:30:00,000 --> 00:30:03,320 Speaker 7: existential angst for a lot of these FOMC members about 653 00:30:03,720 --> 00:30:06,960 Speaker 7: igniting a bubble in financial markets in order to help 654 00:30:07,360 --> 00:30:10,080 Speaker 7: cater to the weakness that they're seeing in the labor market. 655 00:30:10,280 --> 00:30:12,160 Speaker 7: This is a conundrum that they're going to have to 656 00:30:12,160 --> 00:30:12,680 Speaker 7: grapple with. 657 00:30:12,720 --> 00:30:13,760 Speaker 1: But they only have a door man date. 658 00:30:13,800 --> 00:30:17,480 Speaker 2: You've got twenty five penciled in for December another rate cut. 659 00:30:18,000 --> 00:30:20,480 Speaker 11: We have too more rates cut cancel in And really 660 00:30:20,520 --> 00:30:22,480 Speaker 11: the reason, as you've had is the week labor market 661 00:30:22,480 --> 00:30:24,480 Speaker 11: and all the alternative data that we have been seeing. 662 00:30:24,480 --> 00:30:25,200 Speaker 3: We now because they. 663 00:30:25,160 --> 00:30:28,600 Speaker 11: Have to wait until December sixteenths to know more about 664 00:30:28,600 --> 00:30:31,400 Speaker 11: the labor market. But the data suggests that the labor 665 00:30:31,440 --> 00:30:32,960 Speaker 11: market is still weak, and we think. 666 00:30:32,800 --> 00:30:33,680 Speaker 1: We have two more cuts. 667 00:30:33,720 --> 00:30:34,560 Speaker 3: It just seems ridiculous. 668 00:30:34,600 --> 00:30:35,800 Speaker 1: It doesn't need to be this right. 669 00:30:36,040 --> 00:30:38,280 Speaker 4: Read to the day. 670 00:30:38,320 --> 00:30:41,880 Speaker 2: This is the Bloomberg Sevenans podcast, bringing you the best 671 00:30:41,880 --> 00:30:45,200 Speaker 2: in markets, economics, antient politics. You can watch the show 672 00:30:45,280 --> 00:30:48,200 Speaker 2: live on Bloomberg TV weekday mornings from six am to 673 00:30:48,360 --> 00:30:52,120 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 674 00:30:52,240 --> 00:30:54,480 Speaker 2: or anywhere else you listen, and as always, on the 675 00:30:54,520 --> 00:30:56,920 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.