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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 3: The New York Fed President.
Speaker 2: John Williams pushing back against hawkish commentary from the FMC
Speaker 2: and Wall Street now pricing in better than fifty percent
Speaker 2: odds the federal cut race in December. FED Governor Stephen
Speaker 2: Moram was the loan to cent for a fifty basis
Speaker 2: point raid cup at last month FMC meeting, and Governor
Speaker 2: Myron joins us now from more Governor Maron, good morning,
Speaker 2: come for once again, thanks for.
Speaker 4: Being here, Thanks for having me back.
Speaker 2: We've got to start with the labor market, your reflections
Speaker 2: and what we saw. Yes, does it lean one way
Speaker 2: or the other?
Speaker 5: Yeah, I mean I think the implications of yesterday were
Speaker 5: obviously dubvish, and if anyone was on the fence, I
Speaker 5: would hope that this would move them in the direction
Speaker 5: of cutting. I mean, you saw the unemployment rate edged
Speaker 5: up a bit. You know, you saw some other indicators
Speaker 5: like an increase in permanent layoffs. You know, those are
Speaker 5: indications that the labor market has been affected by restrictive
Speaker 5: FED policy. And given the outlook for inflation, there's not
Speaker 5: really much of a need to be as restrictive as
Speaker 5: we are.
Speaker 3: And yet on the committee we have pushed back.
Speaker 2: Almost immediately after that, FED Governor Michael ba had this
Speaker 2: to say, I'm concerned that we're seeing inflation still around
Speaker 2: three percent. Inflation is closer to three than it is
Speaker 2: to two. What do you make of that argument? How
Speaker 2: percuisive is it.
Speaker 5: It's not persuasive to me.
Speaker 4: And I'll tell you why.
Speaker 5: All of the inflation access, sorry, almost all of the
Speaker 5: inflation access is a mirage. It's not indicative of supply
Speaker 5: demand imbalances. And so, for example, if you look at
Speaker 5: the housing market right market, rents have been running at
Speaker 5: about one percent for a couple of years. Measured inflation
Speaker 5: in the index is actually much higher than that because
Speaker 5: it takes a really long time for the index to
Speaker 5: converge to where market rents are. That's a statistical artifact, right,
Speaker 5: That's an artifact of the statistical measurement process. It's indicative
Speaker 5: of a supplied demand in balance that was there in
Speaker 5: twenty twenty two, twenty twenty three. Montre policy works with lags.
Speaker 5: It has to be set now for twenty twenty seven.
Speaker 5: So when you look at the housing data, right you
Speaker 5: see market rents running about one percent for a couple
Speaker 5: of years. There's no supply demand in balance there. We
Speaker 5: should not be setting policy for twenty twenty seven based
Speaker 5: on a supply demand in balance that existed in twenty
Speaker 5: twenty two or twenty twenty three.
Speaker 4: That doesn't make any sense.
Speaker 5: There's other things too, like portfolio management services which confuse
Speaker 5: quantities for prices. This stuff is all well known. If
Speaker 5: you look at market based measures of inflation, they're much
Speaker 5: closer too than the ARC to three. So I think
Speaker 5: that the excess, the overage is a mirage, and it's
Speaker 5: a mistake to ask people to lose their jobs because
Speaker 5: of the corks of the statistical measurement.
Speaker 2: Process, and you've got to put out new foecasts on
Speaker 2: December tenth as well, which is going to be complicated
Speaker 2: by the fact we've had limited data more recently, How
Speaker 2: relevant do you think the canidaentially is, because I'll i'llfer
Speaker 2: you the perspective on more straight At the moment, it
Speaker 2: goes something like this, the meeting's on the tenth, you
Speaker 2: don't get the dates until the sixteenth. The FED kind
Speaker 2: of constrained by that, they can't do kind of thing.
Speaker 2: What's your perspective on that?
Speaker 5: Yeah, So, as I said a moment ago, Monte policy
Speaker 5: works with lags. It would be much easier if it
Speaker 5: hit the economy immediately, but it doesn't. It works with lags,
Speaker 5: so you have to set policy based on the forecast.
Speaker 5: So the data matter insofar as they affect your forecast.
Speaker 5: It doesn't make sense to be setting policy for where
Speaker 5: the economy was three.
Speaker 4: Or six months ago.
Speaker 5: We should be setting policy based for where the economy
Speaker 5: is going to be twelve to eighteen months from now.
Speaker 4: And so if we have data, it gives us the
Speaker 4: ability to update our forecast.
Speaker 5: But the lack of data doesn't mean that we don't
Speaker 5: have a forecast.
Speaker 4: We did have a forecast.
Speaker 5: It all gives us as opportunities to falsify our forecast.
Speaker 5: And there hasn't been anything in the data in the news,
Speaker 5: in media stories, in private sector data, alternative data that's
Speaker 5: available to us that would make us think that the
Speaker 5: forecast is somehow nullified. And there's been a big shock
Speaker 5: to it. So, if anything, all the information that we've
Speaker 5: gotten the interim since September FMC has inclined to the
Speaker 5: other side. You know, we got weaker inflation than people expected,
Speaker 5: and we got a higher unemployment rate than folks were expecting,
Speaker 5: so all of that information to push one in the
Speaker 5: dubvish direction.
Speaker 6: But they are still fed officials that are looking for
Speaker 6: more data, and they have said they're data dependent. They
Speaker 6: want that insurance that they're cutting right now and it's
Speaker 6: the right time. Potentially the unemployment rate might be moving
Speaker 6: up to four point five percent on December sixteenth. Would
Speaker 6: you be in favor of just moving the meeting if
Speaker 6: it meant others felt more reassured to cut interest rates
Speaker 6: in December.
Speaker 5: So you know, I haven't really thought about that, and
Speaker 5: it's not a conversation that It's not a conversation that
Speaker 5: I've been part of I mean, I agree the meeting dates,
Speaker 5: see the meeting dates seem kind of arbitrary, But at
Speaker 5: the same time, a lot of there's a lot of
Speaker 5: stuff that gets done as a result of those meeting dates.
Speaker 5: And you know, people have investments and contracts and other
Speaker 5: decisions that are tied to the timing of the meeting date.
Speaker 5: And I don't know to what extent moving those dates
Speaker 5: would be disruptive for all that. So it's something that
Speaker 5: I'm not sure about. But this ultimately comes down to
Speaker 5: the question of data dependence. Is what you do when
Speaker 5: you don't have a forecast or when you don't have
Speaker 5: any confidence in your forecast. Right, we should be forecast,
Speaker 5: not data dependent. Being excessively data dependent is to be
Speaker 5: too backward looking. And if you're too backward looking, you
Speaker 5: necessarily are going to have the wrong policies.
Speaker 6: Yil daughter rights and he says, the only question that
Speaker 6: matters for you is will you descend for fifty if
Speaker 6: you believe it means not being able to push through
Speaker 6: a twenty five basis point cut.
Speaker 4: Yeah, so absolutely not.
Speaker 5: I would absolutely vote for for a twenty five basis
Speaker 5: one cut if my vote were the marginal vote. There's
Speaker 5: no question about that. I you know, to do otherwise
Speaker 5: would be to cause real harm to the economy for
Speaker 5: purposes of vanity, and that's not who I am.
Speaker 7: Going into next year talking about the forecast of what's
Speaker 7: going to happen. A lot of economists to come on
Speaker 7: the show expect a reacceleration on the backs of the
Speaker 7: tax refunds and some of the other stimulative measures that
Speaker 7: could come early next year. How do you factor that
Speaker 7: into your forecast for ongoing weakness in the labor market
Speaker 7: and the consumer.
Speaker 5: Yeah, so I think that, you know, I have not
Speaker 5: been a what I would think of as excessively pessimistic
Speaker 5: on the economy. I do think policy is restrictive, and
Speaker 5: I do think that it's too restrictive, and we don't
Speaker 5: need to be. And the longer we remain restrictive, the
Speaker 5: greater the chances that we are the source of an
Speaker 5: economic downturn, which we should not seek to be. I
Speaker 5: think that many of the many of the factors that
Speaker 5: will be kicking in over the next twelve months that
Speaker 5: might be supportive of GDP growth are things that necessarily
Speaker 5: don't have hawk s implications for montary policy because they
Speaker 5: affect the supply side. And when you think about things
Speaker 5: like relaxing regulations, and I think that that has been
Speaker 5: going on at actually impressive pace. These are things that
Speaker 5: push out the supply side of the economy and therefore
Speaker 5: don't necessarily create a demand excess of supply, right Monterey,
Speaker 5: policy should be tight if demand is too much an
Speaker 5: excess of supply, and if you push out the supply
Speaker 5: side of the economy, then that's not something you worry about.
Speaker 7: There's a duration mismatch here though, the idea that if
Speaker 7: you reduce regulations and you allow people to build apply
Speaker 7: that it takes a longer time than say, if you
Speaker 7: give people two thousand dollars checks right up front that
Speaker 7: they can spend immediately, or if they get a rebate
Speaker 7: that's a lot bigger from their tax from their tax filings.
Speaker 1: How do you factor in that timing mismatch? Would you
Speaker 1: look through.
Speaker 7: Any bump up in inflation next year from both stimulative
Speaker 7: measures as well as the price increases that we're we're
Speaker 7: hearing from a lot of retailers that they're going to
Speaker 7: pass along.
Speaker 5: So you know, I wouldn't look through I wouldn't look
Speaker 5: through bumps from checks like that, right, you know, I
Speaker 5: don't think that.
Speaker 4: I don't think they'd be able to.
Speaker 5: However, a policy like that has been hasn't been formalized,
Speaker 5: that hasn't been introduced. We don't know the parameters of it.
Speaker 5: It's too early to sort of think about basing a
Speaker 5: forecast on something like that.
Speaker 4: What we do know is that is that the labor.
Speaker 5: Market data have been coming in not as strong as
Speaker 5: we'd like them to be in that policy is too restrictive, Governor.
Speaker 2: If we can stay on inflation? Do you know when
Speaker 2: we're going to get some inflation data? When are we
Speaker 2: going to get that? Because we've heard about the payroll schedule.
Speaker 2: I haven't really heard anything about the EPI schedule. You've
Speaker 2: got any indication whatsoever when it's coming.
Speaker 5: Yeah, the BLS put it out on its website this week.
Speaker 5: I think that we're not going to get the November
Speaker 5: CPI data until after the next FMC.
Speaker 3: So we've got to wait for that too. We've got it,
Speaker 3: we've got to waste that. Do you see that, Lisa?
Speaker 1: Yes? I did.
Speaker 7: I saw that we have to wait and it's not
Speaker 7: clear exactly when we're going to get it. But there's
Speaker 7: a real question going forward about when we might.
Speaker 3: Get We don't have the day ship, but we don't
Speaker 3: have the deal the date the data are on the website.
Speaker 5: Yeah, the BLS has a has a has a list
Speaker 5: of the release dates on.
Speaker 3: The payrolls one. But I've missed the CPI one.
Speaker 2: Which doesn't that just make it an even stronger case
Speaker 2: just to wait and have this meeting when we've got
Speaker 2: all this data.
Speaker 3: Why is it that we have to wait so much
Speaker 3: long before a governor.
Speaker 4: Wait for the data?
Speaker 5: Yes, well, because the government shutdown introduced a whole number
Speaker 5: of snags into the data collection process, and so that
Speaker 5: those snags mean extra time to collect the data, extra
Speaker 5: time to process the data.
Speaker 4: People have a logjam of work to get back to.
Speaker 5: I mean we just you know, sort of spent several
Speaker 5: years talking about talking talking about bull whips from supply chains,
Speaker 5: right and you know, it's gets pulled in at once.
Speaker 5: And when you have a government shut down, all the
Speaker 5: government employees aren't working and they come back to work
Speaker 5: and they've got a ton of work to do all
Speaker 5: at once. And so you know, we have those bullwhips
Speaker 5: in government data right now. And you know, if that
Speaker 5: were a market, you'd see some inflation in the price
Speaker 5: of data.
Speaker 4: But it's not a market.
Speaker 2: So give me for coming down with the hawkish hits.
Speaker 2: But we got another one in the last twenty four
Speaker 2: hours two and it came from Beth hammock laring interest
Speaker 2: rights to support the labor market risk prolonging this period
Speaker 2: of elevated inflation, and it could also encourage risk tanking
Speaker 2: and financial markets. Can we finish on that last point,
Speaker 2: risk taking and financial markets? How excessive is it and
Speaker 2: should it be on the ritar of the f WEBC Sure?
Speaker 5: So, first of all, as I said before, the excess
Speaker 5: of inflation is a quirk of the statistical process, and
Speaker 5: it is a mistake to ask people to lose their
Speaker 5: jobs as a result of a quirk of the statistical
Speaker 5: process on financial markets. You know, Look, I think that
Speaker 5: lots of things affect financial markets. Tax policy does, regulation does,
Speaker 5: technology like artificial intelligence does. It's a mistake to conflate
Speaker 5: the stance of the status of financial markets with the
Speaker 5: status of monetary policy. Right, and when you look at
Speaker 5: us something as a financial markets as deeply connected to
Speaker 5: monitor policy like interest rates. We've lived through periods of conundrums, right,
Speaker 5: we're passing through of the Fed funds rate into longer
Speaker 5: term interest rates was confusing to people. So it's just
Speaker 5: a mistake to do a one for one mapping of
Speaker 5: these things. And I think that when you look at
Speaker 5: financial conditions, the financial condition that matters most for the
Speaker 5: real economy is and remain, has been and remains housing, right,
Speaker 5: And this is an area where financial conditions are not tight,
Speaker 5: so are not loose. This is an area where financial
Speaker 5: conditions are are still quite tight going out getting a mortgage.
Speaker 5: You know, this is this is not something that's not
Speaker 5: a financial condition that I would consider to be excessively easy.
Speaker 5: And so I think it's I think it's a mistake.
Speaker 5: And I think it's also a mistake, as I said before,
Speaker 5: to ask people to experience job losses because you think
Speaker 5: the stock market is too high. I don't know what
Speaker 5: the right level for the stock market is. And I
Speaker 5: think that it's it's a very challenging question to be
Speaker 5: able to answer credibly, and to say that we need
Speaker 5: to create job losses in order to sort of restore
Speaker 5: the stock market to some level that we think is
Speaker 5: more reflective of fair value is just not a policy
Speaker 5: view that I hold.
Speaker 7: A lot of people have come on this show and
Speaker 7: said that right now the FED is stuck between a
Speaker 7: conundrum of the K shaped economy where you have people
Speaker 7: at the upper end who are doing just fine and
Speaker 7: are supporting consumption, and people on the lower end who
Speaker 7: are experiencing lack of wage gains and they're experiencing those
Speaker 7: job losses more significantly.
Speaker 1: How concerned are you about sort of your dual.
Speaker 7: Roles of trying to help prop up and prevent some
Speaker 7: of those job losses from really escalating, while at the
Speaker 7: same time, potentially cutting rates would exacerbate that case shape,
Speaker 7: and you only exacerbate what you're seeing with respect to
Speaker 7: the wealth divide.
Speaker 5: So Congress didn't task us with addressing all social problems
Speaker 5: in the world, in equality one of them.
Speaker 4: They tasked us with.
Speaker 5: Tackling aggregate maximum employment and stable prices. And so therefore
Speaker 5: the right policy to take is to stabilize employment and prices,
Speaker 5: and that's the policy. That's the policy that I support.
Speaker 5: I do think though, while discussing the subject of inequality,
Speaker 5: it would be much worse for the people at the
Speaker 5: lower end of the income distribution if the unemployment rate
Speaker 5: continued to go up as a result of our policies.
Speaker 5: That's not something that they would be that they would welcome,
Speaker 5: and it's not something that I would welcome either.
Speaker 6: Governor arts with the President this week and you have
Speaker 6: an office and I asked him about the FED interviews.
Speaker 6: It says lots of names, we may go the standard
Speaker 6: way quote, it's nice every once in a while to
Speaker 6: go politically correct. Out of the names that we know
Speaker 6: that are being interviewed, who is politically correct?
Speaker 4: You know, I don't really know the answere we worked.
Speaker 6: For the presidents. You understand how his mind works. Do
Speaker 6: you think it means someone that is currently on the board,
Speaker 6: like a Governor Waller or someone that's very close to
Speaker 6: him in your former colleague Kevin has it.
Speaker 5: Yeah, So I mean it should be pretty clear that
Speaker 5: I just always say what's on my mind, and therefore
Speaker 5: I don't even know what politically correct is. So I
Speaker 5: don't even know how to begin addressing that, you know,
Speaker 5: But look, I don't.
Speaker 6: Make care seeing too politically correct right now?
Speaker 4: Actually am I I've.
Speaker 5: Never been accused of that before, so hey, you know,
Speaker 5: I'm happy to have it first.
Speaker 3: Going a very diplomatic it's going to see you. Thanks
Speaker 3: to drop them by.
Speaker 2: Stay with us more Bloomberg Surveillance coming up after this,
Speaker 2: Gil Lauria of DA Davidson remaining bullish on in Vidia,
Speaker 2: reiterating his by rating and price target of two fifty
Speaker 2: on the stock. Gill joined us now for more get welcome.
Speaker 2: I think we've still got to reflect on what happened yesterday.
Speaker 2: How is this name suddenly looking so French out.
Speaker 8: Well, I think for the last couple of years, in
Speaker 8: video has driven the market, and yesterday something happened around
Speaker 8: ten forty five Eastern and the market started driving in video,
Speaker 8: something that really has nothing to do with then video.
Speaker 8: The results were very, very good, and more importantly, back
Speaker 8: to the conversation you've been having so far this hour, Microsoft, Amazon,
Speaker 8: in Google and Video's main customers have all the customers,
Speaker 8: They have all the business customers through open Ai and Thenthropic,
Speaker 8: they have most of the consumer customers as well. And
Speaker 8: what they told us a couple of years, a couple
Speaker 8: of weeks ago, is that they're seeing an acceleration in demand,
Speaker 8: so they're able to build out these compute infrastructure for
Speaker 8: contract that are already committed. So their customers, which again
Speaker 8: is pretty much every other company, and most consumers are
Speaker 8: booking demand in advance and willing to pay for it.
Speaker 8: So to be precise, here, Amazon, Microsoft and Google are
Speaker 8: generating very good returns on their investment in terms of
Speaker 8: the build out of the data center. It's their customers
Speaker 8: that are not yet generating returns but are booking so
Speaker 8: much demand in advance that it looks like they feel
Speaker 8: they believe that they will generate those returns. So the
Speaker 8: results from Nvidia reflected that acceleration and demand. They were
Speaker 8: very good. That's why the stock opened up. Something else
Speaker 8: happened yesterday at ten four forty five Eastern.
Speaker 9: I imagine we'll find out.
Speaker 8: Something like some liquidation of a fund, somebody selling the
Speaker 8: AI portfolio as a whole.
Speaker 9: It had little to do if nothing, within video.
Speaker 7: That's aid Gil, and I hear you about sort of
Speaker 7: the technical selling or this question about whether there were
Speaker 7: some weekends.
Speaker 1: That were flushed out yesterday.
Speaker 7: There is this broader fear about in video, and you've
Speaker 7: seen it in the stock performance even leading into the earnings.
Speaker 1: That the earnings were not able.
Speaker 7: To assuage that, yes, people are willing to buy all
Speaker 7: these chips, but whether they're able to without borrowing a
Speaker 7: lot of money is another question. You talk about how
Speaker 7: there is this expectation of the profits to follow some
Speaker 7: of the spending, but you see the likes of Open Eye,
Speaker 7: as you yourself said yesterday, is the classic example of
Speaker 7: fake it until you make it. Why do the accounts
Speaker 7: receivables not concern you? The idea that this is a
Speaker 7: huge bill and the cost of it is leaving some
Speaker 7: looking elsewhere to try to raise the money.
Speaker 8: Yeah, so that's it's a good important question to start
Speaker 8: asking ourselves what's healthy and real and what's unhealthy and
Speaker 8: not real.
Speaker 9: So I talked about the healthy part. Amazon, Microsoft, Google.
Speaker 9: They're buying all the.
Speaker 8: Nvidio chips they can get, by the way, that does
Speaker 8: include Google. While Google is using its TPUs extensively, and
Speaker 8: by the way, the TPU is really the only competitive
Speaker 8: product in the market to nvideo, they're using it extensively.
Speaker 8: They're still buying as many nvidio chips as they can
Speaker 8: to help provide those to their customers.
Speaker 9: That's all healthy behavior.
Speaker 8: The unhealthy behavior you're mentioning has to do with startups
Speaker 8: borrowing money at very high rates, making promises they can't keep.
Speaker 8: That's the poster childs for that are open AI and
Speaker 8: core Weave that really and in amongst each other, making
Speaker 8: these big promises, borrowing a lot of money to build
Speaker 8: data centers, that part of the demand isn't real. Now importantly,
Speaker 8: it's not even necessary. If those two didn't exist, Microsoft, Amazon,
Speaker 8: Google would still be buying the same amount of chips.
Speaker 9: If not more. But we do have to keep pointing.
Speaker 8: To the bad behavior to Nvidia giving a dollar to
Speaker 8: Core core Weave, borrowing nine dollars and using eight of
Speaker 8: the ten to buy in Nvidia chips, then having to
Speaker 8: pay a dollar of interest rate and only getting fifty
Speaker 8: cents of profit.
Speaker 9: That's unhealthy. That needs to stop.
Speaker 8: You mentioned in video's receivable as in inventory that has
Speaker 8: come up yesterday. But if you look historically, we are
Speaker 8: still at These numbers are just so big that if
Speaker 8: you look at them as a ratio, so the account
Speaker 8: sociable is a ratio of revenue is actually within the
Speaker 8: historical range. Inventories is a percent of cost, and good
Speaker 8: sold within the historical range. So there's not a specific
Speaker 8: concern about those numbers for Nvidia, it's more concern about
Speaker 8: are we letting bad behavior enter the system? Which the
Speaker 8: main indicator of that is how much debt is fueling
Speaker 8: the data center build out. As long as it's cash
Speaker 8: on hand from the big players and their cash flow,
Speaker 8: that's healthy behavior that they're putting behind real demand. If
Speaker 8: we start lending to upstarts to build data centers, that's
Speaker 8: the risk.
Speaker 7: Yeah, we just have about thirty seconds here. What do
Speaker 7: you think the blow up of some of the unhealthy
Speaker 7: players is going to look like.
Speaker 1: For the healthy ecosystem?
Speaker 8: So the shareholders and debt holders of those companies are
Speaker 8: going to get wiped out. But the big companies that
Speaker 8: I keep going back to Microsoft, Amazon, Google, they'll end
Speaker 8: up buying assets at pennies on the dollars, So they're
Speaker 8: going to win anyway.
Speaker 2: Stay with US. Multilemberg surveillance coming up after this. The
Speaker 2: Fense December Interest Right decision very much in down a
Speaker 2: growing number of policymakers expressing concerns of additional rancounts. Cluarly
Speaker 2: Assum of New Century Advisors, writing the employment report for
Speaker 2: September didn't sensor any arguments of the FED, and that
Speaker 2: boss is the FED against action. Claudia joins us now
Speaker 2: for more. Claudia, welcome to the program. Let's talk about
Speaker 2: that job's report. What was your impression of it? Was
Speaker 2: that a strong report or a week one?
Speaker 4: It was a mixed report.
Speaker 10: I mean, you definitely saw the themes of job creation
Speaker 10: has been very slow. Payroll numbers were encouraging, but not
Speaker 10: encouraging enough. And frankly, you know, a real warning sign
Speaker 10: in the report was that the unemployment rate moved up again.
Speaker 10: This is the third consecutive monthly increase that we've seen,
Speaker 10: and that really does reinforce that the weakness in demand
Speaker 10: is outstripping whatever is slowing down in labor supply that
Speaker 10: we've seen this year.
Speaker 2: That argument is the argument of Governor Waller and others. Claudia,
Speaker 2: I've heard that argument that we're close to store speed
Speaker 2: and we should probably get in front of it. How
Speaker 2: compelling is that argument going to be on December tenth
Speaker 2: to the rest of the committee.
Speaker 10: Frankly, I don't think there's a compelling argument on either
Speaker 10: side right now. You know, we just don't have a
Speaker 10: real clear picture of what's happening in the economy. This
Speaker 10: was data on September, right this is months past now,
Speaker 10: and you can and what they're arguing about rightly, So
Speaker 10: it's about the risks they're facing the economy. I mean,
Speaker 10: my base case is still that we muddle through this,
Speaker 10: we don't have a recession, inflation comes back down. But
Speaker 10: I am very concerned, as is Governor Waller, about the
Speaker 10: downside risk to employment. I can see the case also
Speaker 10: for the risk of inflation getting stuck above target.
Speaker 9: Right.
Speaker 10: So that's what they're arguing about, are these risks, and
Speaker 10: it's very hard to make a compelling case with the
Speaker 10: data that we have, So they're going to go down
Speaker 10: to the wire on this one.
Speaker 7: Claudia, what's the difference if they cut in December if
Speaker 7: they cut in January.
Speaker 10: Well, so monetary policy takes time to work its way
Speaker 10: through the economy. So if what we're seeing are signs
Speaker 10: of a labor market that is slowing down to a
Speaker 10: point that it really goes over the edge, well you
Speaker 10: would want to be doing those cuts as soon as possible.
Speaker 10: You know, if you wait until you have clarity, If
Speaker 10: the Fed waits until it sees clear signs of deterioration
Speaker 10: in the labor market, they have waited too long.
Speaker 9: That's the big risk.
Speaker 7: Claudia, they have seen signs of true deterioration, but it's
Speaker 7: in the lower income cohorts and we're seeing that pretty consistently.
Speaker 7: And it rais a sort of deeper question about the FED.
Speaker 7: Is it the Fed's job to try to close.
Speaker 1: The ke shaped gap that we have in the economy.
Speaker 10: So the Fed's mandate is for the economy overall, Right,
Speaker 10: they don't pick and choose demographic groups parts of the country, Like,
Speaker 10: that's just not their mandate, right, And they don't have
Speaker 10: tools that are that finely tuned to think.
Speaker 1: About specific groups.
Speaker 10: Now, what I will say is the FED can look
Speaker 10: at groups that are typically marginalized, say on the labor market,
Speaker 10: that can often be a signal of a broader weakness
Speaker 10: that's starting to build, right, Like, you know, not everybody
Speaker 10: gets hit first, right, And so I think that is
Speaker 10: where they pay a lot of attention to where things
Speaker 10: are happening on the margins. But it's not that they
Speaker 10: can use that as a justification or kind of target
Speaker 10: their policy quaudia.
Speaker 6: Since the FED is going to meet and then six
Speaker 6: days later we get more employment reports, what do they
Speaker 6: need to be looking at that potentially settle the argument?
Speaker 6: It's at the FED before December tenth.
Speaker 10: Right, so there is still information that the FED will
Speaker 10: get before they go into their December tenth meeting. They'll
Speaker 10: get the Jeweled statu so they'll have another read on
Speaker 10: the hiring rate the layoff.
Speaker 1: Rate for October. On the first day of their meeting,
Speaker 1: we're going to get the Beige Book.
Speaker 10: I think the Beige Book could be really important for
Speaker 10: trying to get a sense of this argument about how
Speaker 10: resilient is demand. It's qualitative, but it is designed to
Speaker 10: be comprehensive, right, And I think that's one where we
Speaker 10: don't have the GDP statistics, and so we don't have
Speaker 10: these comprehensive measures of the demand. That's going to be
Speaker 10: very important. I mean, they're going to keep gathering every
Speaker 10: piece of evidence they can. What is unfortunate is the
Speaker 10: piece of data that could settle the debate at the
Speaker 10: FED is that November unemployment rate. And they're not going
Speaker 10: to have it when they vote.
Speaker 2: Clodia, why can't they? Why why don't we just reschedule
Speaker 2: the meeting? Is that difficult today?
Speaker 10: I think they would see that as being very disruptive,
Speaker 10: And you know, I think to Governor Waller's point, you
Speaker 10: know it is a data driven FED, but it's not
Speaker 10: like it must have a data point right like you
Speaker 10: do have to take what you have, form an outlook,
Speaker 10: think about the risk, make the case. I think what's
Speaker 10: just hard right now is they're missing because of the
Speaker 10: government shut down, because of you know, these delays that
Speaker 10: are just an unfortunate reality we have right now. They're
Speaker 10: missing some of these data points that would settle debates.
Speaker 10: So they're just going to have to work through this
Speaker 10: and come to the best decision they can. But I
Speaker 10: think anything that'd be as abrupt as you know, moving
Speaker 10: the media, they're not going to want to go.
Speaker 1: Down that path.
Speaker 2: Stay with US multil Iomberg Surveillance coming up after this
Speaker 2: stocks saying to end a roller coaster week on a
Speaker 2: positive note that seeming ubs Global Wealth Management releasing their
Speaker 2: outlook for next year writing continued strong capex and growing
Speaker 2: evidence of AI monetization will fuel further gains for AI
Speaker 2: links stocks in twenty six. We expect the S and
Speaker 2: P five hundred to reach seventy seven high hundred by
Speaker 2: the end of next year. Or Rika halfrom Machali ups
Speaker 2: joined this now for more or Ricakamonic Good say let's
Speaker 2: get to that price target, what's the road towards AK
Speaker 2: So what we believe.
Speaker 11: Is that the macro headwinds that we were facing in
Speaker 11: twenty twenty five are actually turning into tailwinds in twenty
Speaker 11: twenty six.
Speaker 1: We have that dual engine of both.
Speaker 11: Fiscal and monetary policy stimulus, in particular in the first
Speaker 11: half of next year. We have, of course, on the
Speaker 11: one hand, now the rate cuts typically hitting with two
Speaker 11: to three quarters of transmission. Then we have the refunds
Speaker 11: from one big beautiful bill, and we also have more
Speaker 11: investments into infrastructure and defense, so that's a very supportive
Speaker 11: physical environment. And then we think inflation is also going
Speaker 11: to be rather contained. We have three disinflationary forces in
Speaker 11: our mind that we are seeing. One, we are going
Speaker 11: to anniversary the tariffs in April, and then we have
Speaker 11: what we think is going to be slower wage growth
Speaker 11: because of the slack in the labor market, and then
Speaker 11: also finally shelter inflation coming down.
Speaker 1: So with that a benign backdrop to inflation.
Speaker 11: We also think there may be one more rate cut
Speaker 11: in the box for December, but again, if not December,
Speaker 11: then January, and ultimately, as you said, if the terminal
Speaker 11: rate that matters and not necessarily a one month delay.
Speaker 2: You just offered us the ingredients for year round melter,
Speaker 2: but it's not materializing. How would you describe what's developing
Speaker 2: before our eyes right now in the last few days,
Speaker 2: the last few weeks.
Speaker 11: Yeah, I think the key question right now is really
Speaker 11: about AI, and in our mind, the AI story has
Speaker 11: significantly changed. It's no longer about compute, it's about cash flows.
Speaker 11: And at the latest in the third quarter Microsoft earnings,
Speaker 11: we learned that some of the big private companies that
Speaker 11: are offering intelligence services are actually still heavy loss making,
Speaker 11: and the question is will they generate enough cash flows
Speaker 11: to pay for all these commitments to infrastructure. And at
Speaker 11: the same time, what we're seeing is that the benefits
Speaker 11: of AI are going to actually be eccruped by companies
Speaker 11: that are us using AI, and I think that warrants
Speaker 11: a new playbook on AI investing.
Speaker 1: So does this really marked the shift?
Speaker 7: I mean, is this the turning point that you see
Speaker 7: a new playbook as coming into play for lack of
Speaker 7: a better word, as people look to who's taking on
Speaker 7: this new technology and deploying it in a way to
Speaker 7: increase their efficiency.
Speaker 11: Yes, if we look just at the last three years,
Speaker 11: we're almost getting close to the three year anniversary of
Speaker 11: chet SPT. We have seen that those AI seven, those
Speaker 11: enablers and videos, the broadcoms A and DAMS, microns, and
Speaker 11: then also the hyperscale is that they have lovely gained
Speaker 11: about ten trillion in market value over three years. Yet
Speaker 11: the AI users haven't really appreciated as much. And so
Speaker 11: for us, this is now the opportunity to pivot and
Speaker 11: invest in those companies that use AI for advertising, for coding,
Speaker 11: for automation of business processes, and we particularly think that
Speaker 11: the healthcare sector is a really interesting.
Speaker 1: Way to actually play AI.
Speaker 7: So does this mean that you're going to see that
Speaker 7: rotation out of some of these big, big cap, large
Speaker 7: cap tech companies and into things like healthcare, things like
Speaker 7: financial sector, things like Walmart as we saw yesterday as
Speaker 7: they renamed themselves as a tech company. Or do you
Speaker 7: see this as potentially everything goes up or the index goes.
Speaker 1: Down, but you see some winners in the bunch.
Speaker 11: At the minimum, we think or we suggest that you
Speaker 11: diversify that AI monetization risk of it. The math can work.
Speaker 11: Of course, there's some path to that math working.
Speaker 1: But at the same time.
Speaker 11: There is a lot of uncertainty all these private companies
Speaker 11: really going to make it. And I think for us,
Speaker 11: this is an opportunity just broaden out our exposure to
Speaker 11: AI and rethinking how we want to invest in this.
Speaker 11: We don't think AI is a bubble. The technology is
Speaker 11: not a bubble. Technology is real. The OROI is tangible.
Speaker 11: But we want to now again expand our investment universe
Speaker 11: of how to capitalize on this new technology.
Speaker 6: When you look at capitalizing on it and you look
Speaker 6: at the adopters you're interested in, say healthcare other industries,
Speaker 6: does that mean job losses Not necessarily.
Speaker 11: I think it could also be of just doing more
Speaker 11: of what we're doing, or doing it faster and more
Speaker 11: cost efficient. You know, in healthcare in particular, the cost
Speaker 11: of bringing a drug to market has arisen exponentially over
Speaker 11: the last few years and decades, and so AI can
Speaker 11: bring down that cost curve from clinical trial or drug
Speaker 11: discovery all the way to clinical trials, and I think
Speaker 11: this is a big opportunity for that sector to drive
Speaker 11: better operating efficiencies.
Speaker 2: We've had a few of these conversations now and we
Speaker 2: often spend about ten minutes with a guest, and I
Speaker 2: would say about eighty percent of it is on the
Speaker 2: stuff we just discussed, and hardly any of it's on
Speaker 2: federal reserve and interest rates. Now we've just in the
Speaker 2: market with a big turnaround this morning, at least at
Speaker 2: least's pointed out how viciously things have changed in terms
Speaker 2: of expectations. It makes me want to just how relevant
Speaker 2: you and the team think monetary policy might be to
Speaker 2: the outlook and how relevant it is for stocks going forward.
Speaker 11: No, we think it's relevant, and we actually use three
Speaker 11: perspectives in our equity framework, which is macrovi fed of
Speaker 11: course plays a big role in We use also the
Speaker 11: bottom up fundamentals, so valuation right, that's a big part
Speaker 11: of our process, but also these structural trends like AI,
Speaker 11: electrification and longevity, which for us determine asset prices.
Speaker 1: So for us, all three perspectives do matter.
Speaker 11: Sometimes the market decides to focus on certain areas of
Speaker 11: these three lenses, and I think as an investor used
Speaker 11: to have to stay attuned to where the market is
Speaker 11: currently focus and pivot, but all three are very relevant.
Speaker 11: Of course, over the last three years, it's been all
Speaker 11: about AI and then particularly about AI enable US.
Speaker 3: It has been toightly dominant, that's for sure, which is the.
Speaker 7: Reason why it's hard to understand whether that hurts or
Speaker 7: helps the Fed's case to cut rates, because ultimately what
Speaker 7: people are saying is if the FED cuts rates more significantly,
Speaker 7: that helps evaluation story, proposition, the multiple story for AI stocks.
Speaker 7: But if they don't, then what does that do for
Speaker 7: the rest of the economy. I mean, there's so many
Speaker 7: questions here, which is the reason why you see the
Speaker 7: existential angst for a lot of these FOMC members about
Speaker 7: igniting a bubble in financial markets in order to help
Speaker 7: cater to the weakness that they're seeing in the labor market.
Speaker 7: This is a conundrum that they're going to have to
Speaker 7: grapple with.
Speaker 1: But they only have a door man date.
Speaker 2: You've got twenty five penciled in for December another rate cut.
Speaker 11: We have too more rates cut cancel in And really
Speaker 11: the reason, as you've had is the week labor market
Speaker 11: and all the alternative data that we have been seeing.
Speaker 3: We now because they.
Speaker 11: Have to wait until December sixteenths to know more about
Speaker 11: the labor market. But the data suggests that the labor
Speaker 11: market is still weak, and we think.
Speaker 1: We have two more cuts.
Speaker 3: It just seems ridiculous.
Speaker 1: It doesn't need to be this right.
Speaker 4: Read to the day.
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