1 00:00:02,440 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 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 --> 00:00:37,920 Speaker 2: Terminal and the Bloomberg Business App. Mike Wilson's capitulated. He's 10 00:00:37,960 --> 00:00:40,560 Speaker 2: moved from forty five hundred to fifty four hundred and 11 00:00:40,600 --> 00:00:42,519 Speaker 2: all of that. Can we just start with the scube 12 00:00:42,840 --> 00:00:45,000 Speaker 2: the wide range of outcomes, because that was the headline 13 00:00:45,000 --> 00:00:47,600 Speaker 2: of the piece, the bear case versus the bull case. 14 00:00:47,640 --> 00:00:49,040 Speaker 2: Has it ever been this wide? 15 00:00:49,120 --> 00:00:51,680 Speaker 3: Well, not for us, I think for other people they've 16 00:00:51,680 --> 00:00:54,640 Speaker 3: had wider skews, And look, it just reflects the uncertainty 17 00:00:55,120 --> 00:00:57,200 Speaker 3: that has been the case for the last several years. 18 00:00:57,560 --> 00:00:59,959 Speaker 3: And quite frankly, I wouldn't be surprised if we had 19 00:01:00,040 --> 00:01:01,880 Speaker 3: both sides, you know, I mean, like that's kind of 20 00:01:01,880 --> 00:01:04,080 Speaker 3: the world we're in, which is, you know, think about 21 00:01:04,080 --> 00:01:05,480 Speaker 3: this year, and we talked about this at the beginning 22 00:01:05,480 --> 00:01:07,000 Speaker 3: of the year, which is, we had three sort of 23 00:01:07,040 --> 00:01:09,920 Speaker 3: equally similar opera, you know, sort of outcomes. One was 24 00:01:10,040 --> 00:01:12,080 Speaker 3: a soft landing is the goldilocks, which is kind of 25 00:01:12,080 --> 00:01:14,600 Speaker 3: consensus now and that's our house view. Then you have 26 00:01:14,640 --> 00:01:16,920 Speaker 3: the no landing, which is kind of a reacceleration, the 27 00:01:17,040 --> 00:01:20,399 Speaker 3: stickier inflation, even maybe a stagflationary outcome, which is what 28 00:01:20,480 --> 00:01:22,120 Speaker 3: the market was thinking about in April. 29 00:01:22,560 --> 00:01:23,720 Speaker 4: And now you're back to a soft line. 30 00:01:23,760 --> 00:01:25,759 Speaker 3: But you still can't rule out of recession either, right, 31 00:01:25,800 --> 00:01:28,600 Speaker 3: So like all of these are very possible, and you know, 32 00:01:28,640 --> 00:01:31,720 Speaker 3: they could all happen with a higher than normal degree 33 00:01:31,840 --> 00:01:32,959 Speaker 3: of you know, certainty. 34 00:01:33,319 --> 00:01:35,160 Speaker 4: So that's that's really. 35 00:01:34,880 --> 00:01:37,039 Speaker 3: The headline that should have been out is that, look, 36 00:01:37,120 --> 00:01:39,480 Speaker 3: nobody knows anything, right, I mean, and particularly at a 37 00:01:39,480 --> 00:01:42,240 Speaker 3: point in time, and I think maybe maybe our mistake 38 00:01:42,319 --> 00:01:44,000 Speaker 3: is just admitting that we don't know as much as 39 00:01:44,040 --> 00:01:48,080 Speaker 3: maybe everybody else claims to. That's called humility, something that 40 00:01:48,080 --> 00:01:49,559 Speaker 3: we've learned the hard way over life. 41 00:01:50,040 --> 00:01:51,200 Speaker 4: But anyways, the point here. 42 00:01:51,120 --> 00:01:53,400 Speaker 3: Is that the meat of our report this year or 43 00:01:53,440 --> 00:01:55,600 Speaker 3: this this update was really more about how do you 44 00:01:55,640 --> 00:01:59,760 Speaker 3: make money in an environment whe have basically zero percent 45 00:01:59,800 --> 00:02:01,880 Speaker 3: ups side and the base case and you could have 46 00:02:01,920 --> 00:02:03,880 Speaker 3: twenty percent upside or twenty percent downside. 47 00:02:03,920 --> 00:02:05,200 Speaker 4: And that's what clients pay us for. 48 00:02:05,280 --> 00:02:05,400 Speaker 5: Right. 49 00:02:05,440 --> 00:02:06,360 Speaker 4: It's the process. 50 00:02:06,520 --> 00:02:08,680 Speaker 3: It's understanding, Okay, what kind of environment and how are 51 00:02:08,680 --> 00:02:10,520 Speaker 3: we going to navigate that and manage that. So we 52 00:02:10,520 --> 00:02:12,760 Speaker 3: spend a large part of the report yesterday talking about 53 00:02:12,760 --> 00:02:16,919 Speaker 3: trade ideas, specific sector ideas. That's not the headline that 54 00:02:16,919 --> 00:02:19,560 Speaker 3: people want to write about. That's fine, and it's your prerogative, 55 00:02:20,120 --> 00:02:21,480 Speaker 3: but that's what we want to talk about. 56 00:02:21,600 --> 00:02:23,280 Speaker 2: That was never going to fit in the headline. We 57 00:02:23,280 --> 00:02:25,240 Speaker 2: will talk about some of that stuff in just a moment. 58 00:02:25,280 --> 00:02:27,440 Speaker 2: Let's talk about the headline just brief flake, Sure, are 59 00:02:27,480 --> 00:02:29,760 Speaker 2: you de emphasize in the fifty four hundred are you 60 00:02:29,800 --> 00:02:31,920 Speaker 2: saying as a price target is not actually that important 61 00:02:31,919 --> 00:02:32,600 Speaker 2: to you in the firm? 62 00:02:32,720 --> 00:02:33,280 Speaker 6: What is that? 63 00:02:33,440 --> 00:02:36,280 Speaker 3: Well, it's not important to most clients. Institutional clients don't 64 00:02:36,280 --> 00:02:38,200 Speaker 3: care about the target on the S and P. Five 65 00:02:38,200 --> 00:02:40,639 Speaker 3: finals to being honest, they're trying to pick stocks and look, 66 00:02:40,880 --> 00:02:42,239 Speaker 3: one of the most important things we talked about in 67 00:02:42,240 --> 00:02:45,040 Speaker 3: the report is alpha generation. This year has been spectacular. 68 00:02:45,600 --> 00:02:47,600 Speaker 3: The way we measure it with our client our client base, 69 00:02:47,600 --> 00:02:50,040 Speaker 3: which is significant, is this is the best alpha generation 70 00:02:50,160 --> 00:02:52,840 Speaker 3: alpha capture we've seen since we've started recording it since 71 00:02:52,880 --> 00:02:53,639 Speaker 3: twenty ten. 72 00:02:54,160 --> 00:02:56,440 Speaker 4: So that's what people care about. We're trying to help 73 00:02:56,480 --> 00:02:57,639 Speaker 4: them in their. 74 00:02:57,520 --> 00:03:01,720 Speaker 3: Process of Okay, what kinds of stocks work in this environment? Oh, 75 00:03:01,720 --> 00:03:04,120 Speaker 3: by the way, when we skew from these different outcomes, 76 00:03:04,280 --> 00:03:06,440 Speaker 3: you need to be ready to pivot towards different types 77 00:03:06,480 --> 00:03:07,240 Speaker 3: of securities. 78 00:03:07,320 --> 00:03:08,320 Speaker 4: Right now, like. 79 00:03:08,320 --> 00:03:11,600 Speaker 3: Our house call is it's a soft landing goldilocks outcome. 80 00:03:12,040 --> 00:03:14,680 Speaker 3: We're not that confident that we want to make that 81 00:03:14,720 --> 00:03:16,880 Speaker 3: bet fully. Like we think it's still late cycle, which 82 00:03:16,919 --> 00:03:20,679 Speaker 3: means quality. Okay, large caps over small caps. Still, we 83 00:03:21,000 --> 00:03:24,880 Speaker 3: like staples over discretionary. We have two defensive sectors overweight 84 00:03:25,000 --> 00:03:27,720 Speaker 3: utilities and staples because that kind of protects against slowing 85 00:03:27,760 --> 00:03:30,079 Speaker 3: growth risk. So there's a bunch of different things, but 86 00:03:30,200 --> 00:03:31,720 Speaker 3: the main factor that's. 87 00:03:31,520 --> 00:03:32,560 Speaker 4: Been working is quality. 88 00:03:32,680 --> 00:03:34,760 Speaker 3: Quality has been the most consistent factor and we don't 89 00:03:34,760 --> 00:03:35,480 Speaker 3: see that changing. 90 00:03:35,680 --> 00:03:36,960 Speaker 1: I just want to say that if you wrote a 91 00:03:36,960 --> 00:03:38,960 Speaker 1: headline saying nobody knows anything, I mean, we could do 92 00:03:39,000 --> 00:03:41,680 Speaker 1: that every day, but it probably wouldn't really gain that 93 00:03:41,760 --> 00:03:45,120 Speaker 1: much attraction. I am wondering if there are certain areas 94 00:03:45,120 --> 00:03:47,800 Speaker 1: that would win in either scenario, the fifty four hundred 95 00:03:48,160 --> 00:03:49,280 Speaker 1: or the forty five hundred. 96 00:03:49,920 --> 00:03:51,760 Speaker 4: Well, I think that we lay that out once again, 97 00:03:51,920 --> 00:03:52,560 Speaker 4: that's our bare case. 98 00:03:52,600 --> 00:03:55,760 Speaker 3: A forty five hundred scenario is that's not really our 99 00:03:55,760 --> 00:03:56,840 Speaker 3: bare case, that's our base. 100 00:03:56,640 --> 00:03:57,400 Speaker 4: Case for a year end. 101 00:03:57,400 --> 00:04:00,640 Speaker 3: Originally that obviously has proven to be wrong, mainly because 102 00:04:00,640 --> 00:04:03,360 Speaker 3: of multiples, right. I think this is the main thing 103 00:04:03,640 --> 00:04:06,640 Speaker 3: said that people have either gotten right or wrong in 104 00:04:06,640 --> 00:04:09,080 Speaker 3: the last twelve months. Is that I mean a twenty 105 00:04:09,680 --> 00:04:12,800 Speaker 3: one multiple is you know, in the top death style 106 00:04:13,000 --> 00:04:14,920 Speaker 3: of the last eighty years. I mean that is an 107 00:04:15,000 --> 00:04:18,120 Speaker 3: expensive multiple. So the question I think investors have to 108 00:04:18,160 --> 00:04:20,680 Speaker 3: ask themselves is is that a fair multiple to be 109 00:04:20,760 --> 00:04:24,120 Speaker 3: paying well and the goaldilocks, you know, perfect soft landing. 110 00:04:24,160 --> 00:04:25,160 Speaker 4: I think that's plausible. 111 00:04:25,360 --> 00:04:27,120 Speaker 3: But that's where we're trading, and that's why there's not 112 00:04:27,160 --> 00:04:29,520 Speaker 3: a lot of upside at the index level. 113 00:04:29,320 --> 00:04:32,479 Speaker 1: Which raises this question, are there specific sectors that win 114 00:04:32,720 --> 00:04:35,800 Speaker 1: regardless of the overall index? Do you see certain areas 115 00:04:35,839 --> 00:04:38,760 Speaker 1: that are kind of independent of this overall shift of 116 00:04:38,800 --> 00:04:41,599 Speaker 1: whether there is this momentum in international money that pours 117 00:04:41,600 --> 00:04:43,719 Speaker 1: in and keeps valuations high and sends them higher. 118 00:04:43,760 --> 00:04:44,840 Speaker 4: It's large scamp quality. 119 00:04:44,960 --> 00:04:46,720 Speaker 3: I mean, I mean that is what's continues to and 120 00:04:46,720 --> 00:04:48,400 Speaker 3: by the way, it's not just high growth. It's also 121 00:04:48,520 --> 00:04:51,000 Speaker 3: cyclicals can work in that. But it's still up the 122 00:04:51,080 --> 00:04:53,920 Speaker 3: quality curve and we show it in the note very clearly. 123 00:04:54,000 --> 00:04:56,400 Speaker 3: I mean, it's just it's the it's been the best 124 00:04:56,480 --> 00:04:59,000 Speaker 3: carry factor for the last year, year and a half, 125 00:04:59,080 --> 00:05:01,320 Speaker 3: which is a classic late cycle winner. 126 00:05:01,120 --> 00:05:02,000 Speaker 4: Which is where we are. 127 00:05:02,360 --> 00:05:05,520 Speaker 3: So you know, don't overthink that and don't try to 128 00:05:05,560 --> 00:05:07,560 Speaker 3: be cute and say, well, I'm going to jump over 129 00:05:07,600 --> 00:05:09,800 Speaker 3: here because I think there's better returns there could be. 130 00:05:10,000 --> 00:05:12,800 Speaker 3: Look in the small cap and in the lower quality areas. 131 00:05:13,160 --> 00:05:16,520 Speaker 3: We can't own nothing. I mean, it's very idiosyncratic. It's 132 00:05:16,600 --> 00:05:19,880 Speaker 3: very idiosyncratic. It's not a factor that's carrying well. It's 133 00:05:19,920 --> 00:05:22,080 Speaker 3: a okay, I have a stock specific idea. It's a 134 00:05:22,120 --> 00:05:25,360 Speaker 3: low quality stock potentially that has a very unique story 135 00:05:25,360 --> 00:05:25,919 Speaker 3: to itself. 136 00:05:26,120 --> 00:05:27,680 Speaker 2: Next week's still for this market, as you know, it's 137 00:05:27,680 --> 00:05:31,159 Speaker 2: tomorrow afternoon. We get numbers from Nvidia megacap Tech. What 138 00:05:31,279 --> 00:05:34,200 Speaker 2: supports that fifty four hundred? What supports it? For you? 139 00:05:34,320 --> 00:05:36,160 Speaker 2: Is it mega cap tech, the NVIDIAs of this world? 140 00:05:36,279 --> 00:05:36,960 Speaker 2: Is it elsewhere? 141 00:05:37,200 --> 00:05:40,479 Speaker 3: Well, it's basically you're assuming that multiple stay elevated. 142 00:05:40,560 --> 00:05:40,720 Speaker 2: Right. 143 00:05:41,360 --> 00:05:44,120 Speaker 3: You know, we didn't change our earnings forecasts in this report. 144 00:05:44,320 --> 00:05:47,120 Speaker 3: We've had this sort of boom idea that we had 145 00:05:47,279 --> 00:05:49,840 Speaker 3: the boom bust thesis for a while. We probably were 146 00:05:49,839 --> 00:05:52,320 Speaker 3: early in calling for a recovery in earnings this year 147 00:05:52,360 --> 00:05:54,680 Speaker 3: in twenty twenty five, so that didn't change. So you 148 00:05:54,720 --> 00:05:56,560 Speaker 3: have earnings coming from a lot of different groups. Now, 149 00:05:56,560 --> 00:06:00,719 Speaker 3: I would say the biggest contributors have been technology, Energy 150 00:06:00,800 --> 00:06:04,200 Speaker 3: spent a big contributor surprisingly industrials because of all the 151 00:06:04,279 --> 00:06:07,040 Speaker 3: spending that's going on fiscally. So those are three major 152 00:06:07,040 --> 00:06:09,799 Speaker 3: sectors that are contributed to the earning story. But ultimately 153 00:06:09,839 --> 00:06:13,479 Speaker 3: the fifty four hundred is being supported by policy, right 154 00:06:13,680 --> 00:06:17,719 Speaker 3: by very loose fiscal and monetary policy. Now you may say, well, 155 00:06:17,760 --> 00:06:20,120 Speaker 3: monetary policy is tight, not really. I mean we have 156 00:06:20,160 --> 00:06:22,200 Speaker 3: an incredible amount of liquidity coming in to pay for 157 00:06:22,240 --> 00:06:25,239 Speaker 3: that fiscal So to me, the risk in the story 158 00:06:25,320 --> 00:06:28,320 Speaker 3: for the next six to twelve months is do the 159 00:06:28,360 --> 00:06:33,480 Speaker 3: market start to balk at this unsustainable fiscal policy and 160 00:06:34,520 --> 00:06:36,720 Speaker 3: the way that they're funding it, and we've wrote about this, 161 00:06:36,800 --> 00:06:40,120 Speaker 3: you know, in detail. We have these liquidity provisions in 162 00:06:40,160 --> 00:06:42,719 Speaker 3: place now, the reverse repo which everybody knows about. The 163 00:06:42,760 --> 00:06:45,839 Speaker 3: Treasury General Account can be drained if necessary to pay 164 00:06:45,880 --> 00:06:48,160 Speaker 3: for fiscal stemus in a budget if they need to. 165 00:06:48,279 --> 00:06:50,279 Speaker 3: And the Fed has already said they're going to start 166 00:06:50,279 --> 00:06:53,839 Speaker 3: tapering QT. Well, that's like a trillion dollars of liquidity. 167 00:06:54,080 --> 00:06:56,760 Speaker 3: That's pretty loose right to pay for the fiscal So 168 00:06:56,800 --> 00:06:59,120 Speaker 3: to me, does the market and I think this is 169 00:06:59,200 --> 00:07:02,880 Speaker 3: just something we're watching very carefully. Last fall when multiples 170 00:07:02,880 --> 00:07:05,160 Speaker 3: came down hard, it was because rates were going up 171 00:07:05,279 --> 00:07:08,760 Speaker 3: due to term premium widening. Mean the bond market we're 172 00:07:08,800 --> 00:07:12,200 Speaker 3: starting to push back on this strategy right now, that's 173 00:07:12,240 --> 00:07:14,160 Speaker 3: not a problem. So one of the things we're going 174 00:07:14,200 --> 00:07:16,560 Speaker 3: to be watching, you know, to change our view on 175 00:07:16,600 --> 00:07:18,560 Speaker 3: how things trade at the index level is does the 176 00:07:18,640 --> 00:07:20,200 Speaker 3: term premium start to widen again? 177 00:07:20,320 --> 00:07:22,160 Speaker 4: We don't know, but that's what we're going to be watching. 178 00:07:22,200 --> 00:07:24,480 Speaker 2: So big risk factor is in the bond market, and 179 00:07:24,520 --> 00:07:28,280 Speaker 2: in the bond market, the big focus is November. Does 180 00:07:28,320 --> 00:07:30,640 Speaker 2: this have a political twist to it? An election call 181 00:07:30,800 --> 00:07:31,480 Speaker 2: embedded in it? 182 00:07:31,840 --> 00:07:32,080 Speaker 4: Well? 183 00:07:32,280 --> 00:07:34,840 Speaker 3: I mean yes, and no, because I wouldn't say either 184 00:07:35,240 --> 00:07:38,280 Speaker 3: party has shown any fiscal discipline, right, So in other words, 185 00:07:38,320 --> 00:07:41,200 Speaker 3: I think we're going to get a strong fiscal support 186 00:07:41,680 --> 00:07:44,560 Speaker 3: no matter who wins the election, both in Congress or 187 00:07:44,600 --> 00:07:48,400 Speaker 3: at the presidential level. The real question for markets is 188 00:07:48,560 --> 00:07:50,320 Speaker 3: how does it get funded? 189 00:07:50,680 --> 00:07:51,520 Speaker 4: How is it funded? 190 00:07:51,840 --> 00:07:54,520 Speaker 3: Can they fund it at a reasonable rate? Right now, 191 00:07:54,600 --> 00:07:58,640 Speaker 3: the bond market seems very relaxed about that feature, which 192 00:07:58,720 --> 00:08:00,400 Speaker 3: is why multiples have expanded again. 193 00:08:00,560 --> 00:08:02,720 Speaker 1: So if the bond market stays relaxed about this, but 194 00:08:02,720 --> 00:08:04,440 Speaker 1: there's a lot of people prick that it will and 195 00:08:04,480 --> 00:08:06,640 Speaker 1: believe me, I get very excited about auctions, but every 196 00:08:06,640 --> 00:08:09,360 Speaker 1: week people tell me that I shouldn't because there's plenty 197 00:08:09,400 --> 00:08:13,280 Speaker 1: of interest at these levels. If there isn't pushback, then 198 00:08:13,320 --> 00:08:15,360 Speaker 1: fifty four hundred is that too conservative? 199 00:08:15,680 --> 00:08:16,640 Speaker 4: Maybe you could be. 200 00:08:16,720 --> 00:08:18,760 Speaker 3: I mean, look, I can make a case for seventeen times, 201 00:08:18,800 --> 00:08:21,080 Speaker 3: which is when our target was originally for this year, 202 00:08:21,200 --> 00:08:23,320 Speaker 3: seventeen eighteen times. I can make a case for twenty 203 00:08:23,320 --> 00:08:25,000 Speaker 3: one times. I can make case for twenty two times. 204 00:08:25,000 --> 00:08:27,920 Speaker 3: That's the problem, right, We don't know, So that's why 205 00:08:27,960 --> 00:08:29,000 Speaker 3: we have a wider skew. 206 00:08:29,280 --> 00:08:32,280 Speaker 4: And I would say this, Lisa, that the. 207 00:08:32,280 --> 00:08:36,520 Speaker 3: Target will be more determined, probably by multiples than we're 208 00:08:36,520 --> 00:08:39,880 Speaker 3: going to be wildly surprised on earnings. Okay, unless it's recession, 209 00:08:39,880 --> 00:08:41,839 Speaker 3: of course, then you'll be surprising the downside. But I 210 00:08:42,240 --> 00:08:44,400 Speaker 3: don't like the earnings haven't really moved that much for 211 00:08:44,440 --> 00:08:46,320 Speaker 3: twenty twenty four and twenty five. Right, If you think 212 00:08:46,320 --> 00:08:49,400 Speaker 3: about since October, which is with the low last fall, 213 00:08:49,960 --> 00:08:52,959 Speaker 3: twenty twenty four, earnings estimates are up a couple percent. 214 00:08:53,480 --> 00:08:55,719 Speaker 3: You know, the market's a twenty five thirty, so it's 215 00:08:55,800 --> 00:08:58,400 Speaker 3: all multiple. So this is why you just need to 216 00:08:58,480 --> 00:09:01,839 Speaker 3: be alert to think changing potentially in the bomb market first, 217 00:09:01,880 --> 00:09:03,640 Speaker 3: and then that will feed into the equity multiples. 218 00:09:03,720 --> 00:09:05,640 Speaker 7: When you talk about fiscal spending, to go back to 219 00:09:05,679 --> 00:09:09,679 Speaker 7: John's point earlier in the election, it's very different what 220 00:09:09,720 --> 00:09:12,000 Speaker 7: the fiscal spending may be used on depending on who 221 00:09:12,040 --> 00:09:15,040 Speaker 7: wins the White House. You're talking about potentially industrials, the 222 00:09:15,080 --> 00:09:17,679 Speaker 7: green energy economy. This is a new industrial policy from 223 00:09:17,679 --> 00:09:20,360 Speaker 7: the Biden administration that could continue or it could stop 224 00:09:20,360 --> 00:09:22,680 Speaker 7: short if it's Trump. How are you thinking about twenty 225 00:09:22,679 --> 00:09:24,040 Speaker 7: twenty five, Well. 226 00:09:23,960 --> 00:09:26,360 Speaker 3: I mean, look, I think the industrial policy will remain strong. 227 00:09:26,400 --> 00:09:28,679 Speaker 3: I mean, that's our reshoring thing, which was part of 228 00:09:28,679 --> 00:09:29,600 Speaker 3: the Trump administration. 229 00:09:29,760 --> 00:09:32,000 Speaker 4: So half of the industrial policy. 230 00:09:31,679 --> 00:09:33,920 Speaker 3: Is potentially green energy and half of it, I would say, 231 00:09:33,960 --> 00:09:37,080 Speaker 3: is reshoring in the de globalization trend. So there's going 232 00:09:37,120 --> 00:09:40,400 Speaker 3: to be spending either way. It may be redirected, like 233 00:09:40,480 --> 00:09:43,240 Speaker 3: I could see maybe the energy policy shifting back towards 234 00:09:43,280 --> 00:09:46,960 Speaker 3: traditional energy, but I would be surprised if spending is 235 00:09:47,040 --> 00:09:51,280 Speaker 3: curtailed in a meaningful way. From that standpoint, I think 236 00:09:51,280 --> 00:09:53,560 Speaker 3: we will see changes or differences is in maybe in 237 00:09:53,600 --> 00:09:56,240 Speaker 3: the tariffs, although recently that seemed to be more aligned. 238 00:09:56,720 --> 00:09:58,920 Speaker 3: And then of course immigration is a big one, and 239 00:09:58,960 --> 00:10:01,520 Speaker 3: that was a huge surprise this year that really nobody 240 00:10:01,559 --> 00:10:04,960 Speaker 3: saw it coming around the label to positive labor shock 241 00:10:05,000 --> 00:10:05,720 Speaker 3: from immigration. 242 00:10:06,040 --> 00:10:06,920 Speaker 4: So to me, that's a while. 243 00:10:07,080 --> 00:10:09,560 Speaker 3: That's probably the single biggest wildcard depending out who. 244 00:10:09,480 --> 00:10:10,040 Speaker 4: Wins the election. 245 00:10:10,280 --> 00:10:12,319 Speaker 2: Bigger not tighter is if you coming from men and 246 00:10:12,400 --> 00:10:14,719 Speaker 2: Zentner and the team Molk and Stanley, this economy can 247 00:10:14,960 --> 00:10:18,679 Speaker 2: grow without it getting tighter and generating inflation pressure. Are 248 00:10:18,679 --> 00:10:20,520 Speaker 2: you saying that could flip the other way pretty quickly 249 00:10:20,679 --> 00:10:21,800 Speaker 2: based on the outcome the election? 250 00:10:22,280 --> 00:10:25,720 Speaker 3: I think, well, depending on how things behave if policy 251 00:10:25,760 --> 00:10:28,520 Speaker 3: really changes, But yeah, sure, you if you all of 252 00:10:28,559 --> 00:10:31,320 Speaker 3: a sudden shut the borders down, and you know Trump's 253 00:10:31,320 --> 00:10:35,120 Speaker 3: talking about deporting people, that would be a negative labor shock, 254 00:10:35,240 --> 00:10:36,040 Speaker 3: and then we'd be in. 255 00:10:35,960 --> 00:10:36,840 Speaker 4: A reverse situation. 256 00:10:37,040 --> 00:10:39,120 Speaker 3: So look, right now, I think the election is literally 257 00:10:39,120 --> 00:10:41,040 Speaker 3: a fifty to fifty I mean, I mean the polls 258 00:10:41,040 --> 00:10:43,160 Speaker 3: are right there forty eight, forty nine to fifty percent 259 00:10:43,320 --> 00:10:44,440 Speaker 3: for both sides. 260 00:10:44,480 --> 00:10:46,600 Speaker 4: So this is not an issue yet. 261 00:10:46,280 --> 00:10:48,680 Speaker 3: We talked about this in the note two, which is 262 00:10:48,720 --> 00:10:51,840 Speaker 3: that volatility and election years typically doesn't start picking up 263 00:10:51,920 --> 00:10:54,760 Speaker 3: until August September, So I think it'll be okay for 264 00:10:54,800 --> 00:10:56,040 Speaker 3: the next month or this is not going to be 265 00:10:56,040 --> 00:10:59,480 Speaker 3: a topic, but it can come at as quickly, probably 266 00:10:59,559 --> 00:11:01,320 Speaker 3: post conventions. 267 00:11:10,880 --> 00:11:13,320 Speaker 2: With us around a table Deutsche Banks Mattlasi joining us, 268 00:11:13,360 --> 00:11:16,719 Speaker 2: also Aberdeen's Luk here look heickmore. If I may go 269 00:11:16,800 --> 00:11:20,440 Speaker 2: through the lineup again today Williams Boss the Baking bah, 270 00:11:20,600 --> 00:11:23,880 Speaker 2: Walla Collins, Ande Mester all speaking once again, Luke. What 271 00:11:24,040 --> 00:11:26,040 Speaker 2: is left to know that we don't know already from 272 00:11:26,080 --> 00:11:26,840 Speaker 2: these officials. 273 00:11:28,320 --> 00:11:29,440 Speaker 6: Yeah, it's tough, isn't it. 274 00:11:29,520 --> 00:11:31,839 Speaker 5: I Mean we've been talking about Table Mountain earlier in 275 00:11:31,880 --> 00:11:34,600 Speaker 5: the year. In the films, they're all deck chairs waiting 276 00:11:34,640 --> 00:11:38,080 Speaker 5: around at the top can't see a thing below them. 277 00:11:38,440 --> 00:11:40,840 Speaker 5: If you've ever been there, it's like that so often. 278 00:11:40,520 --> 00:11:42,679 Speaker 6: And that lack of visibility. 279 00:11:43,600 --> 00:11:46,360 Speaker 5: It's useful to have all these BED speakers with us 280 00:11:46,440 --> 00:11:48,000 Speaker 5: now to get a sense of where they are, what 281 00:11:48,040 --> 00:11:51,600 Speaker 5: they're thinking. But they don't see any further than we see, 282 00:11:51,760 --> 00:11:54,079 Speaker 5: and we need to see the data change. 283 00:11:54,120 --> 00:11:55,080 Speaker 6: I think it is changing. 284 00:11:55,120 --> 00:11:57,280 Speaker 5: I think there's early signs of it changing, and they 285 00:11:57,320 --> 00:11:58,760 Speaker 5: need to see the data change. So I think this 286 00:11:58,880 --> 00:12:01,400 Speaker 5: whole thing that might was talking about, the three month 287 00:12:01,520 --> 00:12:05,320 Speaker 5: visibility period feels about right set hand and feels about right, 288 00:12:06,160 --> 00:12:09,680 Speaker 5: but in years time will be hundred basis points line rates. 289 00:12:10,120 --> 00:12:13,600 Speaker 2: Mattmasseetti if you had enough a FED speak, Yeah, yeah, 290 00:12:13,720 --> 00:12:13,920 Speaker 2: you know. 291 00:12:14,040 --> 00:12:17,560 Speaker 8: I think we're hearing obviously a pack calendar today. A 292 00:12:17,559 --> 00:12:19,480 Speaker 8: lot of it is not related to the outlook. We 293 00:12:19,760 --> 00:12:21,720 Speaker 8: have a lot of commencement speeches on the docket, so 294 00:12:21,800 --> 00:12:24,920 Speaker 8: I'm focused on a few things. One we had Jefferson yesterday. 295 00:12:25,040 --> 00:12:27,559 Speaker 8: I think hearing from the vice chair is important. He 296 00:12:27,920 --> 00:12:30,480 Speaker 8: noted that the fed's forecast essentially for core PC at 297 00:12:30,520 --> 00:12:32,720 Speaker 8: the end of this month is basically twenty six basis points. 298 00:12:33,200 --> 00:12:36,320 Speaker 8: We're talking about getting progress that is definitely progressed from 299 00:12:36,360 --> 00:12:38,160 Speaker 8: the very strong princes that we had earlier this month, 300 00:12:38,360 --> 00:12:40,760 Speaker 8: earlier this year. But we also have to know the 301 00:12:40,800 --> 00:12:42,800 Speaker 8: context that is still well above the fed's objective. It's 302 00:12:42,800 --> 00:12:45,400 Speaker 8: still annualizes to above three percent today. I would have 303 00:12:45,440 --> 00:12:47,120 Speaker 8: like Governor Waller, you know, in the past he has 304 00:12:47,160 --> 00:12:50,559 Speaker 8: given actually some decent for guidance about the deity. He's 305 00:12:50,559 --> 00:12:52,040 Speaker 8: looking at the number of prints that he would likely 306 00:12:52,120 --> 00:12:54,080 Speaker 8: to see. Perhaps he doesn't go that far. I think 307 00:12:54,120 --> 00:12:56,400 Speaker 8: the FED is fully pulled back from calendard based guidance 308 00:12:56,440 --> 00:12:58,600 Speaker 8: at this point in time. But the reality is that 309 00:12:58,640 --> 00:13:01,800 Speaker 8: the FED is highly data dependent. Forecasting the high frequency 310 00:13:01,880 --> 00:13:04,200 Speaker 8: data is hard in this environment, and so the data 311 00:13:04,240 --> 00:13:06,760 Speaker 8: should do more in terms of market moves than the 312 00:13:06,760 --> 00:13:07,640 Speaker 8: FED speakers should. 313 00:13:07,760 --> 00:13:09,640 Speaker 1: Luke was saying that he thinks that you actually are 314 00:13:09,679 --> 00:13:12,080 Speaker 1: starting to see a turn in the data. There is 315 00:13:12,160 --> 00:13:14,679 Speaker 1: something going on under the hood that's consistent. Do you 316 00:13:14,760 --> 00:13:17,079 Speaker 1: agree that that there is this feeling not only does 317 00:13:17,120 --> 00:13:19,440 Speaker 1: inflation but weakness. It's coming through maybe more than the 318 00:13:19,480 --> 00:13:21,600 Speaker 1: overlaw overall data might suggest. 319 00:13:21,880 --> 00:13:26,280 Speaker 8: Yeah, you look at economic surprises, they're negative. Now on average, 320 00:13:26,440 --> 00:13:29,560 Speaker 8: the inflation data did improve in the last month, but 321 00:13:29,600 --> 00:13:32,520 Speaker 8: it's too high IFED needs a lot more evidence on that. 322 00:13:32,840 --> 00:13:34,880 Speaker 8: Some caution I have around these three month rates that 323 00:13:34,920 --> 00:13:38,160 Speaker 8: everybody's talking about. Everybody thinks that there's residual seasonality in 324 00:13:38,200 --> 00:13:40,040 Speaker 8: the data. We get stronger prints earlier in the year, 325 00:13:40,040 --> 00:13:41,560 Speaker 8: we get weaker prints in the back half of the year. 326 00:13:41,880 --> 00:13:43,960 Speaker 8: If that is true, and I believe it is, the 327 00:13:44,000 --> 00:13:47,160 Speaker 8: FED should be cautious about overinterpreting three months of data 328 00:13:47,240 --> 00:13:50,840 Speaker 8: if it does improve broadly. More broadly, you had some 329 00:13:50,920 --> 00:13:54,200 Speaker 8: giveback on the retail sales data that was probably welcome from. 330 00:13:54,080 --> 00:13:54,960 Speaker 4: The Fed's perspective. 331 00:13:55,280 --> 00:13:57,800 Speaker 8: You have a labor market that did soften a little bit, 332 00:13:58,120 --> 00:14:00,880 Speaker 8: but the context is we grew above three percent last year. 333 00:14:01,000 --> 00:14:03,360 Speaker 8: The land of FED is tracking very strong GDP growth. 334 00:14:03,360 --> 00:14:03,839 Speaker 4: For Q two. 335 00:14:04,280 --> 00:14:07,080 Speaker 8: It is softer, but it's not obvious at this point 336 00:14:07,080 --> 00:14:09,240 Speaker 8: that it's soft enough to get inflation back down to target. 337 00:14:09,280 --> 00:14:11,560 Speaker 1: Softer but not soft, as John's been talking about quite 338 00:14:11,559 --> 00:14:14,000 Speaker 1: a bit. I am wondering if, from your perspective, if 339 00:14:14,040 --> 00:14:17,920 Speaker 1: there is a signal with in specific areas like retail sales. 340 00:14:18,080 --> 00:14:22,120 Speaker 1: We see this discussion around more discretion price cuts from target. 341 00:14:22,200 --> 00:14:23,760 Speaker 1: All of these types of things that are leaving us 342 00:14:23,760 --> 00:14:26,760 Speaker 1: feeling like things might be shifting, but not enough to 343 00:14:26,840 --> 00:14:28,520 Speaker 1: change the narrative. How do you interpret this? 344 00:14:30,120 --> 00:14:33,760 Speaker 5: Yeah, I can see the thing too, But I'm also 345 00:14:33,840 --> 00:14:35,560 Speaker 5: looking at what's going on with companies. 346 00:14:36,040 --> 00:14:39,080 Speaker 6: Are they spending? Are they capex plans growing? And they're not. 347 00:14:40,080 --> 00:14:42,320 Speaker 6: The federal budget is. 348 00:14:42,560 --> 00:14:46,680 Speaker 5: Probably a big p now that's starting to be less 349 00:14:46,680 --> 00:14:50,880 Speaker 5: of a stimulus going forward. So consumer may be stalling, 350 00:14:50,920 --> 00:14:54,480 Speaker 5: maybe not going down, but stalling that. Companies are happy 351 00:14:54,480 --> 00:14:58,320 Speaker 5: diagonaled cat quite frankly, and the federal government participation may 352 00:14:58,320 --> 00:15:00,680 Speaker 5: be easing off a little bit. All of those are 353 00:15:00,840 --> 00:15:03,360 Speaker 5: just those early warning sides. I mean, it may be 354 00:15:03,640 --> 00:15:05,880 Speaker 5: that will pass is in the next two to three 355 00:15:05,920 --> 00:15:08,240 Speaker 5: months and we get back and stare these levels of 356 00:15:08,280 --> 00:15:10,520 Speaker 5: interest rates to you next year. But I don't think 357 00:15:10,560 --> 00:15:12,880 Speaker 5: that's where we are. I think we are in a 358 00:15:12,920 --> 00:15:15,720 Speaker 5: period where that in the thirty yield curve is starting 359 00:15:15,760 --> 00:15:19,600 Speaker 5: to bind, is hitting consumers, companies, and the fiscal side 360 00:15:19,640 --> 00:15:20,720 Speaker 5: from the government's changing. 361 00:15:21,080 --> 00:15:22,680 Speaker 7: Matt, you read a lot about the labor market in 362 00:15:22,680 --> 00:15:25,280 Speaker 7: your most recent note. What are these factors that can 363 00:15:25,320 --> 00:15:28,040 Speaker 7: be a tight labor market but also low turn. 364 00:15:28,480 --> 00:15:31,360 Speaker 8: Yeah, so the labor market is fascinating. At the moment, 365 00:15:31,520 --> 00:15:33,480 Speaker 8: you have a very low un employment rate. We're turning 366 00:15:33,480 --> 00:15:35,200 Speaker 8: out two hundred and forty thousand jobs per month on 367 00:15:35,240 --> 00:15:38,000 Speaker 8: average over three six twelve month period. At the same time, 368 00:15:38,000 --> 00:15:39,480 Speaker 8: when you look at some of these other indicators, the 369 00:15:39,560 --> 00:15:41,880 Speaker 8: quits rate, the hiring rate, it actually does show what 370 00:15:42,000 --> 00:15:43,880 Speaker 8: looks like some weakness. The quits rate is the lowest 371 00:15:43,880 --> 00:15:45,680 Speaker 8: since twenty eighteen, the hiring rates of the lowest since 372 00:15:45,720 --> 00:15:48,920 Speaker 8: twenty fourteen. Those are typically associated with a much higher 373 00:15:49,000 --> 00:15:50,920 Speaker 8: unemployment rate, you know, probably something in the four and 374 00:15:50,960 --> 00:15:53,520 Speaker 8: a half to five percent range. So understanding what's going 375 00:15:53,520 --> 00:15:57,160 Speaker 8: on there, I think is absolutely critical. It is the 376 00:15:57,200 --> 00:16:00,440 Speaker 8: result of a very low layoff rate. Now I don't 377 00:16:00,480 --> 00:16:02,400 Speaker 8: think it's just about labor hoarding. If it was just 378 00:16:02,440 --> 00:16:05,640 Speaker 8: about labor hoarding, you expect productivity growth to be quite low. 379 00:16:05,680 --> 00:16:07,760 Speaker 8: Productivity growth of the past year is actually quite strong. 380 00:16:07,960 --> 00:16:10,120 Speaker 8: You expect people not to be working their workers very 381 00:16:10,120 --> 00:16:10,560 Speaker 8: long hours. 382 00:16:10,600 --> 00:16:11,800 Speaker 4: That that's not really happening. 383 00:16:12,120 --> 00:16:13,720 Speaker 8: So I think we don't understand. 384 00:16:13,280 --> 00:16:13,960 Speaker 4: It all that well. 385 00:16:14,280 --> 00:16:18,240 Speaker 8: I speculate that this big burst in labor market trend 386 00:16:18,280 --> 00:16:20,320 Speaker 8: that took place, basically everybody was able to quit their 387 00:16:20,400 --> 00:16:22,640 Speaker 8: jobs around the pandemic and it led to this much 388 00:16:22,680 --> 00:16:24,440 Speaker 8: better matching between employers and employees. 389 00:16:24,480 --> 00:16:25,000 Speaker 4: We also have a. 390 00:16:25,000 --> 00:16:27,440 Speaker 8: Lot more flexibility in the labor market with work from home. 391 00:16:27,760 --> 00:16:29,080 Speaker 4: If that's true, you should. 392 00:16:28,800 --> 00:16:31,240 Speaker 8: Have less people cutting their jobs, less lay also taking place, 393 00:16:31,280 --> 00:16:33,800 Speaker 8: less hires, but also big productivity gains, which is at 394 00:16:33,880 --> 00:16:35,160 Speaker 8: least is what we're seeing over the past year. 395 00:16:35,280 --> 00:16:38,200 Speaker 2: Mid cycle adjustment. It's a phrase that I first read 396 00:16:38,000 --> 00:16:40,800 Speaker 2: in your research. I think a lot of other people 397 00:16:40,840 --> 00:16:43,280 Speaker 2: started to think about it in the months afterwards. You've 398 00:16:43,280 --> 00:16:45,160 Speaker 2: put forward this idea that what we're going to get 399 00:16:45,160 --> 00:16:47,400 Speaker 2: as a complic counts and maybe that's it a high 400 00:16:47,480 --> 00:16:50,760 Speaker 2: neutral rate as well? What underpinds that view? Where did 401 00:16:50,840 --> 00:16:52,800 Speaker 2: that come from, Matt, Because the world seemybe is coming 402 00:16:52,840 --> 00:16:53,880 Speaker 2: around to your perspective. 403 00:16:54,280 --> 00:16:56,440 Speaker 8: Yeah, so, I think when you look at the FED historically, 404 00:16:57,000 --> 00:16:59,800 Speaker 8: oftentimes they are cutting because they're seeing recessionary dynamics that 405 00:17:00,600 --> 00:17:02,680 Speaker 8: and when that happens, they cut aggressively. They cut well 406 00:17:02,680 --> 00:17:05,000 Speaker 8: blowed what they think the neutral rate might be. We 407 00:17:05,040 --> 00:17:07,159 Speaker 8: have two historical examples where they're not cutting because we 408 00:17:07,200 --> 00:17:09,440 Speaker 8: have a weak economy, but they're cutting because maybe there's 409 00:17:09,440 --> 00:17:11,760 Speaker 8: some downside risks or inflation has come off a lot. 410 00:17:12,040 --> 00:17:12,960 Speaker 4: That's the mid nineteen. 411 00:17:12,800 --> 00:17:16,160 Speaker 8: Nineties and twenty nineteen. Both episodes had three twenty five 412 00:17:16,160 --> 00:17:19,520 Speaker 8: basis point rate cuts the mid cycle adjustment. So as 413 00:17:19,520 --> 00:17:20,800 Speaker 8: we look at the outlook and if we think it 414 00:17:20,840 --> 00:17:23,399 Speaker 8: is only about inflation at least upfront, I think it's 415 00:17:23,440 --> 00:17:25,400 Speaker 8: more likely that the Fed does call it three twenty 416 00:17:25,400 --> 00:17:28,320 Speaker 8: five basis points pauses at that point in time until 417 00:17:28,320 --> 00:17:30,520 Speaker 8: they either see some weakness in the economy or inflation 418 00:17:30,560 --> 00:17:31,800 Speaker 8: is all the way back down to their target. 419 00:17:31,880 --> 00:17:33,320 Speaker 1: I want to get to Luke in just a second, 420 00:17:33,320 --> 00:17:35,120 Speaker 1: but match just to follow up. Then, doesn't a mid 421 00:17:35,119 --> 00:17:37,639 Speaker 1: cycle adjustment indicate that we have some idea of what 422 00:17:37,680 --> 00:17:38,479 Speaker 1: the neutral rate is? 423 00:17:39,480 --> 00:17:41,560 Speaker 8: I think the mid cycle adjustment gives you the sense 424 00:17:41,560 --> 00:17:43,800 Speaker 8: that they think they're well above where the neutral rate is. 425 00:17:43,880 --> 00:17:47,000 Speaker 8: Are they, I think, according to any metric that they are. 426 00:17:47,240 --> 00:17:49,000 Speaker 8: I mean, I don't think it's as low as the 427 00:17:49,680 --> 00:17:51,240 Speaker 8: two point six percent they have in their long run 428 00:17:51,280 --> 00:17:53,879 Speaker 8: off lot. We think neutral and nominal terms is somewhere 429 00:17:53,880 --> 00:17:56,200 Speaker 8: closer to three and three quarters to four, which is 430 00:17:56,200 --> 00:17:58,640 Speaker 8: at the upper range of what everybody's saying. But we're 431 00:17:58,680 --> 00:18:01,280 Speaker 8: still one hundred and fifty basis pointoints above that range, 432 00:18:01,320 --> 00:18:04,360 Speaker 8: So I do think that they are restrictive. From that perspective, 433 00:18:04,400 --> 00:18:06,240 Speaker 8: I think it will flow through to the economy over time, 434 00:18:06,280 --> 00:18:08,600 Speaker 8: and they can take out some insurance rate cuts, but 435 00:18:08,680 --> 00:18:11,520 Speaker 8: there's massive uncertainty about where neutral is, and so just 436 00:18:11,600 --> 00:18:13,760 Speaker 8: plowing forward to what they think neutral is probably not 437 00:18:13,800 --> 00:18:14,320 Speaker 8: the correct path. 438 00:18:14,359 --> 00:18:16,320 Speaker 1: This is actually one of the critical questions for investors. 439 00:18:16,400 --> 00:18:17,840 Speaker 1: Luke id Love you awigh in on this, because we 440 00:18:17,840 --> 00:18:20,159 Speaker 1: were talking to Mike Wilson earlier, and frankly, one of 441 00:18:20,200 --> 00:18:22,879 Speaker 1: the biggest mysteries to him has been the interplay of 442 00:18:22,920 --> 00:18:27,280 Speaker 1: incredibly loose fiscal policy and monetary policy that's restrictive when 443 00:18:27,280 --> 00:18:30,119 Speaker 1: it comes to rates, but not necessarily beyond that with 444 00:18:30,240 --> 00:18:34,040 Speaker 1: balance sheet issues and the repo lines. What's your take 445 00:18:34,280 --> 00:18:37,400 Speaker 1: on just how much you're following what the FED does, 446 00:18:37,440 --> 00:18:40,639 Speaker 1: not just with rates but beyond and that interplay in 447 00:18:40,720 --> 00:18:42,680 Speaker 1: order to just get more and more bullish because there's 448 00:18:42,720 --> 00:18:44,879 Speaker 1: just still so much liquidity in the market. 449 00:18:45,880 --> 00:18:48,679 Speaker 5: You need that equity to be always increasing, and I 450 00:18:48,680 --> 00:18:51,320 Speaker 5: think with that's behind us, I think we are getting 451 00:18:51,320 --> 00:18:53,760 Speaker 5: through balance sheet roll off. I think we are getting 452 00:18:53,840 --> 00:18:58,159 Speaker 5: through shifted in the kind of FED tries to control 453 00:18:58,200 --> 00:19:01,520 Speaker 5: the economy. It's more interesting than every other tool that 454 00:19:01,560 --> 00:19:04,920 Speaker 5: they've used in the last fifteen odd years, and that 455 00:19:05,000 --> 00:19:06,760 Speaker 5: should start coming through at the moment. 456 00:19:06,800 --> 00:19:08,760 Speaker 6: It's not. You're right, liquidity's massive. 457 00:19:08,800 --> 00:19:12,320 Speaker 5: Credit markets are seeing new issues like we have never 458 00:19:12,400 --> 00:19:16,760 Speaker 5: seen and that's soaking up money too. But again, unless 459 00:19:16,800 --> 00:19:20,640 Speaker 5: it's incrementally increasing, we will start to see that down 460 00:19:20,720 --> 00:19:23,800 Speaker 5: to start to hit us over the next quarter two quarters. 461 00:19:23,800 --> 00:19:25,960 Speaker 5: I don't know, right, it will come through this year 462 00:19:26,040 --> 00:19:30,240 Speaker 5: for sure. So it does come back, doesn't it About 463 00:19:30,920 --> 00:19:33,600 Speaker 5: do the Fed need to act and are they better 464 00:19:33,680 --> 00:19:36,560 Speaker 5: to start acting before they have to start acting? And 465 00:19:36,800 --> 00:19:40,639 Speaker 5: as we were saying earlier on normally we get fast 466 00:19:40,680 --> 00:19:43,640 Speaker 5: rate cuts, this time is slowing rate cuts at stay 467 00:19:43,680 --> 00:19:45,920 Speaker 5: two this year, two three next year. 468 00:19:46,400 --> 00:19:47,679 Speaker 6: I'm probably a little lower than that. 469 00:19:47,760 --> 00:19:49,840 Speaker 5: I think on the neutral rate maybe two and a 470 00:19:49,840 --> 00:19:52,639 Speaker 5: half to three rather than something over three. But we 471 00:19:52,680 --> 00:19:55,560 Speaker 5: do need to see evidency inflations, Okay, into the long 472 00:19:55,640 --> 00:19:56,200 Speaker 5: term as well. 473 00:19:56,320 --> 00:19:58,400 Speaker 2: Look, I've got ten seconds. Give us a trade. What's 474 00:19:58,400 --> 00:19:59,679 Speaker 2: your favorite right now? 475 00:20:00,840 --> 00:20:01,080 Speaker 6: Sure? 476 00:20:01,560 --> 00:20:06,199 Speaker 5: Short call eighty one seven a half eight percent, no 477 00:20:06,320 --> 00:20:09,000 Speaker 5: interest rate risk and very little risk of not being 478 00:20:09,080 --> 00:20:10,600 Speaker 5: called luke kikmore. 479 00:20:10,760 --> 00:20:14,080 Speaker 2: Thank you, sir, appreciate it. Deutsch Banks Mattlazeli alongside him 480 00:20:14,080 --> 00:20:16,320 Speaker 2: with Aberdeen's Luke Kikmore gents appreciate it. 481 00:20:16,359 --> 00:20:16,719 Speaker 6: Thank you. 482 00:20:26,720 --> 00:20:30,119 Speaker 2: Low's beating sales estimates and Macy's beating profit estimates. The 483 00:20:30,160 --> 00:20:34,280 Speaker 2: department store warning that consumers will remain quote discerning in 484 00:20:34,320 --> 00:20:37,800 Speaker 2: their discretionary purchases. Chuck Grum of Godon Haskett right in this, 485 00:20:37,960 --> 00:20:40,480 Speaker 2: if trends have seen a further step down, this would 486 00:20:40,520 --> 00:20:43,840 Speaker 2: suggest to us that deeper consumer issues are servicin, which 487 00:20:43,840 --> 00:20:47,720 Speaker 2: would be most problematic for the lower income of price retailers. 488 00:20:47,760 --> 00:20:50,120 Speaker 2: Chuck Grum is with us from God and Haskett. Now, Chuld, 489 00:20:50,200 --> 00:20:52,440 Speaker 2: I start with Macy's. What do you take away from 490 00:20:52,680 --> 00:20:56,240 Speaker 2: a raise to guidance but ultimately once again conveying that 491 00:20:56,240 --> 00:20:58,320 Speaker 2: that consumer is somewhat cautious. 492 00:20:59,040 --> 00:21:01,439 Speaker 9: Yeah, I mean, the mass not were decent this morning. 493 00:21:01,800 --> 00:21:04,840 Speaker 9: Comps came in a little bit better. Gross margins, however. 494 00:21:04,600 --> 00:21:05,200 Speaker 4: Were weaker. 495 00:21:05,600 --> 00:21:07,359 Speaker 9: They noted in their release they had to move some 496 00:21:07,400 --> 00:21:10,680 Speaker 9: summer seasonal and spring seasonal items uh to get inventories 497 00:21:10,680 --> 00:21:12,800 Speaker 9: in better shape. So that was that was smart for them, 498 00:21:12,800 --> 00:21:15,840 Speaker 9: and then they essentially kept guidance intact and nudged it 499 00:21:15,920 --> 00:21:18,479 Speaker 9: up both the low end and the top end by 500 00:21:18,520 --> 00:21:21,080 Speaker 9: about five cents, So what we can take care and 501 00:21:21,119 --> 00:21:23,280 Speaker 9: you can also look at the Low's numbers, which also 502 00:21:23,359 --> 00:21:24,639 Speaker 9: came in a little bit better. You can see the 503 00:21:24,680 --> 00:21:28,200 Speaker 9: preaction on both stocks that you know, the numbers weren't 504 00:21:28,280 --> 00:21:30,920 Speaker 9: weren't terrible, weren't much worse than expected. 505 00:21:31,600 --> 00:21:32,359 Speaker 4: But we do agree. 506 00:21:32,440 --> 00:21:35,439 Speaker 9: We think the consumer is discerning right now and we 507 00:21:35,520 --> 00:21:37,639 Speaker 9: expect that that trend to probably continue for most of 508 00:21:37,640 --> 00:21:38,199 Speaker 9: the year with. 509 00:21:38,240 --> 00:21:40,880 Speaker 1: The numbers better than expected, because these retailers are doing 510 00:21:40,920 --> 00:21:43,480 Speaker 1: a good job at figuring out where consumers are willing 511 00:21:43,520 --> 00:21:46,399 Speaker 1: to spend, or are they better than expected, because the 512 00:21:46,400 --> 00:21:49,480 Speaker 1: consumers may be discerning, but they're still spending quite a bit. 513 00:21:50,560 --> 00:21:51,359 Speaker 4: Probably neither. 514 00:21:51,359 --> 00:21:53,480 Speaker 9: Actually, I mean that most of the beats are really 515 00:21:53,520 --> 00:21:57,600 Speaker 9: below the below the line. In case Macy's, their esten 516 00:21:57,640 --> 00:22:00,199 Speaker 9: are it was a little bit better, and in the 517 00:22:00,240 --> 00:22:02,840 Speaker 9: case of Lows, the gross margins actually a little bit better. 518 00:22:02,840 --> 00:22:04,919 Speaker 9: And like I said, the top line pretty much intact, 519 00:22:05,080 --> 00:22:07,760 Speaker 9: you know, a little bit better. So we'll see how 520 00:22:07,800 --> 00:22:09,600 Speaker 9: it plays out over the next few days. We have 521 00:22:09,600 --> 00:22:11,760 Speaker 9: a lot of earnings coming up with Target and TJ 522 00:22:11,920 --> 00:22:14,719 Speaker 9: tomorrow follow by b Jason Ross on Thursday and then 523 00:22:14,760 --> 00:22:17,120 Speaker 9: and then a lot more actually next week as well. 524 00:22:17,400 --> 00:22:17,640 Speaker 2: Chuck. 525 00:22:17,680 --> 00:22:19,560 Speaker 7: When it comes to Macy's, you know, we've been looking 526 00:22:19,560 --> 00:22:22,480 Speaker 7: at the Blooe Mercury numbers versus flagship Macy's, and bloem 527 00:22:22,480 --> 00:22:25,679 Speaker 7: Mercury is doing very well. What does that tell you 528 00:22:25,720 --> 00:22:27,880 Speaker 7: about the state of the consumer on the upper end 529 00:22:28,080 --> 00:22:28,880 Speaker 7: and the lower end. 530 00:22:29,680 --> 00:22:30,400 Speaker 4: That's a great point. 531 00:22:30,400 --> 00:22:33,200 Speaker 9: Actually, Bloommrking numbers were up. I believe the four and 532 00:22:33,200 --> 00:22:37,160 Speaker 9: a half percent relative to Macy's being down. Bloomingdale's pretty 533 00:22:37,200 --> 00:22:39,159 Speaker 9: much flat. I mean, I think what we're learning is 534 00:22:39,200 --> 00:22:42,119 Speaker 9: the lower income customer is under the greatest amount of stress. 535 00:22:42,320 --> 00:22:44,800 Speaker 9: The upper income customer because the housing prices and where 536 00:22:44,800 --> 00:22:47,520 Speaker 9: they are and the wealth effect of the equity markets 537 00:22:47,520 --> 00:22:49,480 Speaker 9: being strong over the past couple of years, are are 538 00:22:49,520 --> 00:22:53,480 Speaker 9: are more resilient' that's not new. I think the question 539 00:22:53,520 --> 00:22:56,199 Speaker 9: that Mohammad pointed out in his pre comments, you know, 540 00:22:56,240 --> 00:22:58,280 Speaker 9: are we going to see the middle incomes start to 541 00:22:58,320 --> 00:23:00,359 Speaker 9: come under pressure? And that's something we are going to, 542 00:23:00,480 --> 00:23:02,240 Speaker 9: you know, try to discern over the next few days 543 00:23:02,320 --> 00:23:03,200 Speaker 9: and into next week. 544 00:23:03,320 --> 00:23:04,919 Speaker 2: The Chuck, do you think Target might give us some 545 00:23:04,920 --> 00:23:06,360 Speaker 2: information on that front. 546 00:23:07,480 --> 00:23:09,720 Speaker 9: Well, I mean targets numbers should should come in close 547 00:23:09,720 --> 00:23:12,280 Speaker 9: to expectations, down three to four percent. They did announce 548 00:23:12,320 --> 00:23:16,840 Speaker 9: surprisingly a big rollback program, lowering the prices on close 549 00:23:16,880 --> 00:23:20,720 Speaker 9: to five thousand items. Is that reactionary? Is that proactive? 550 00:23:20,880 --> 00:23:23,440 Speaker 9: You know, we'll find out tomorrow. Given what Walmart's been 551 00:23:23,480 --> 00:23:25,680 Speaker 9: doing on rollbacks. I think they noted that their rollback 552 00:23:25,960 --> 00:23:28,679 Speaker 9: count is up forty five percent in the first quarter. 553 00:23:29,000 --> 00:23:30,760 Speaker 9: And the consumer is looking for a value and looking 554 00:23:30,800 --> 00:23:33,920 Speaker 9: for lower prices, So it's intelligent on the part of 555 00:23:33,960 --> 00:23:36,760 Speaker 9: target to do that. Is that supplier funded? Is that 556 00:23:36,800 --> 00:23:38,879 Speaker 9: coming out of their own pocket? That's something you know, 557 00:23:38,920 --> 00:23:41,080 Speaker 9: we'll be looking for clarity on tomorrow morning. 558 00:23:41,240 --> 00:23:43,440 Speaker 2: Yeah, that's the margin question, Chuck, what's your base case 559 00:23:43,480 --> 00:23:44,040 Speaker 2: on that question. 560 00:23:45,440 --> 00:23:47,760 Speaker 9: I think it's probably a combination of both. I think 561 00:23:47,760 --> 00:23:50,240 Speaker 9: a lot of the suppliers are looking to move units, 562 00:23:50,800 --> 00:23:53,720 Speaker 9: and I think that in that case that you know, 563 00:23:53,720 --> 00:23:57,000 Speaker 9: if it's similar to what we've heard out of out 564 00:23:57,000 --> 00:23:59,760 Speaker 9: of Walmart, I think it's probably margin neutral. But again, 565 00:23:59,840 --> 00:24:01,720 Speaker 9: we need to see, we need to hear from the 566 00:24:01,720 --> 00:24:03,879 Speaker 9: company to turn to learn more on that. But like 567 00:24:03,920 --> 00:24:05,760 Speaker 9: I said, I think it's I think it's the smart 568 00:24:05,800 --> 00:24:10,280 Speaker 9: and proactive thing to do, given that the consumer wants value. Historically, 569 00:24:10,600 --> 00:24:13,080 Speaker 9: Target's prices tend to be five to ten percent higher 570 00:24:13,119 --> 00:24:15,119 Speaker 9: than Walmart, So it's something they need to address. In 571 00:24:15,119 --> 00:24:18,199 Speaker 9: our opinion. Are they funding that through their media network? 572 00:24:18,200 --> 00:24:20,919 Speaker 9: Are they funding it through other parts? That's probably the 573 00:24:20,920 --> 00:24:22,640 Speaker 9: case as our assumption, Chuck. 574 00:24:22,680 --> 00:24:25,280 Speaker 2: When Walmart say trade down, are they saying trade down 575 00:24:25,320 --> 00:24:27,960 Speaker 2: from Target? Is that who they're talking about? Who loses 576 00:24:27,960 --> 00:24:29,040 Speaker 2: when they talk about that theme? 577 00:24:30,119 --> 00:24:32,080 Speaker 9: Yeah, I mean it could be Kroger, it could be Target, 578 00:24:32,119 --> 00:24:35,240 Speaker 9: it could be could be all the above. It's probably 579 00:24:35,280 --> 00:24:37,080 Speaker 9: Target to a degree though. I mean that tends to 580 00:24:37,080 --> 00:24:40,800 Speaker 9: be the most where the greatest customer overlap is. And 581 00:24:41,080 --> 00:24:43,320 Speaker 9: as you heard from Walmart, the greatest share gains they 582 00:24:43,359 --> 00:24:47,000 Speaker 9: had yes leer last week was on the upper income customer. 583 00:24:47,080 --> 00:24:49,040 Speaker 9: The customer makes more than one hundred thousand dollars a year. 584 00:24:49,080 --> 00:24:51,119 Speaker 9: And then the key for Walmart really, you know, they 585 00:24:51,160 --> 00:24:53,320 Speaker 9: saw this coming out of the global financial crisis ten 586 00:24:53,400 --> 00:24:55,920 Speaker 9: years ago, ten fifteen years ago, but they they did 587 00:24:55,920 --> 00:25:00,120 Speaker 9: not retain those customers. And that's the real opportunity for 588 00:25:00,119 --> 00:25:03,040 Speaker 9: for Walmart, and that's why they're doing more rollbacks. That's 589 00:25:03,080 --> 00:25:05,800 Speaker 9: why they're investing in story models. So we think the 590 00:25:05,840 --> 00:25:09,280 Speaker 9: prospects are good there for Walmart to retain those customers. 591 00:25:09,280 --> 00:25:11,960 Speaker 2: Interesting, Chuck, one of the best. Thank you, sir, almost there, 592 00:25:12,000 --> 00:25:13,920 Speaker 2: so it was like such a long earning season, Chuck 593 00:25:13,920 --> 00:25:18,080 Speaker 2: crom there. This is the Bloomberg Surveillance Podcast, bringing you 594 00:25:18,359 --> 00:25:21,760 Speaker 2: the best in markets, economics, angiot politics. You can watch 595 00:25:21,760 --> 00:25:24,520 Speaker 2: the show live on Bloomberg TV weekday mornings from six 596 00:25:24,600 --> 00:25:28,960 Speaker 2: am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 597 00:25:29,119 --> 00:25:31,320 Speaker 2: or anywhere else you listen, and as always, on the 598 00:25:31,359 --> 00:25:33,720 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.