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Speaker 2: Terminal and the Bloomberg Business App. Mike Wilson's capitulated. He's
Speaker 2: moved from forty five hundred to fifty four hundred and
Speaker 2: all of that. Can we just start with the scube
Speaker 2: the wide range of outcomes, because that was the headline
Speaker 2: of the piece, the bear case versus the bull case.
Speaker 2: Has it ever been this wide?
Speaker 3: Well, not for us, I think for other people they've
Speaker 3: had wider skews, And look, it just reflects the uncertainty
Speaker 3: that has been the case for the last several years.
Speaker 3: And quite frankly, I wouldn't be surprised if we had
Speaker 3: both sides, you know, I mean, like that's kind of
Speaker 3: the world we're in, which is, you know, think about
Speaker 3: this year, and we talked about this at the beginning
Speaker 3: of the year, which is, we had three sort of
Speaker 3: equally similar opera, you know, sort of outcomes. One was
Speaker 3: a soft landing is the goldilocks, which is kind of
Speaker 3: consensus now and that's our house view. Then you have
Speaker 3: the no landing, which is kind of a reacceleration, the
Speaker 3: stickier inflation, even maybe a stagflationary outcome, which is what
Speaker 3: the market was thinking about in April.
Speaker 4: And now you're back to a soft line.
Speaker 3: But you still can't rule out of recession either, right,
Speaker 3: So like all of these are very possible, and you know,
Speaker 3: they could all happen with a higher than normal degree
Speaker 3: of you know, certainty.
Speaker 4: So that's that's really.
Speaker 3: The headline that should have been out is that, look,
Speaker 3: nobody knows anything, right, I mean, and particularly at a
Speaker 3: point in time, and I think maybe maybe our mistake
Speaker 3: is just admitting that we don't know as much as
Speaker 3: maybe everybody else claims to. That's called humility, something that
Speaker 3: we've learned the hard way over life.
Speaker 4: But anyways, the point here.
Speaker 3: Is that the meat of our report this year or
Speaker 3: this this update was really more about how do you
Speaker 3: make money in an environment whe have basically zero percent
Speaker 3: ups side and the base case and you could have
Speaker 3: twenty percent upside or twenty percent downside.
Speaker 4: And that's what clients pay us for.
Speaker 5: Right.
Speaker 4: It's the process.
Speaker 3: It's understanding, Okay, what kind of environment and how are
Speaker 3: we going to navigate that and manage that. So we
Speaker 3: spend a large part of the report yesterday talking about
Speaker 3: trade ideas, specific sector ideas. That's not the headline that
Speaker 3: people want to write about. That's fine, and it's your prerogative,
Speaker 3: but that's what we want to talk about.
Speaker 2: That was never going to fit in the headline. We
Speaker 2: will talk about some of that stuff in just a moment.
Speaker 2: Let's talk about the headline just brief flake, Sure, are
Speaker 2: you de emphasize in the fifty four hundred are you
Speaker 2: saying as a price target is not actually that important
Speaker 2: to you in the firm?
Speaker 6: What is that?
Speaker 3: Well, it's not important to most clients. Institutional clients don't
Speaker 3: care about the target on the S and P. Five
Speaker 3: finals to being honest, they're trying to pick stocks and look,
Speaker 3: one of the most important things we talked about in
Speaker 3: the report is alpha generation. This year has been spectacular.
Speaker 3: The way we measure it with our client our client base,
Speaker 3: which is significant, is this is the best alpha generation
Speaker 3: alpha capture we've seen since we've started recording it since
Speaker 3: twenty ten.
Speaker 4: So that's what people care about. We're trying to help
Speaker 4: them in their.
Speaker 3: Process of Okay, what kinds of stocks work in this environment? Oh,
Speaker 3: by the way, when we skew from these different outcomes,
Speaker 3: you need to be ready to pivot towards different types
Speaker 3: of securities.
Speaker 4: Right now, like.
Speaker 3: Our house call is it's a soft landing goldilocks outcome.
Speaker 3: We're not that confident that we want to make that
Speaker 3: bet fully. Like we think it's still late cycle, which
Speaker 3: means quality. Okay, large caps over small caps. Still, we
Speaker 3: like staples over discretionary. We have two defensive sectors overweight
Speaker 3: utilities and staples because that kind of protects against slowing
Speaker 3: growth risk. So there's a bunch of different things, but
Speaker 3: the main factor that's.
Speaker 4: Been working is quality.
Speaker 3: Quality has been the most consistent factor and we don't
Speaker 3: see that changing.
Speaker 1: I just want to say that if you wrote a
Speaker 1: headline saying nobody knows anything, I mean, we could do
Speaker 1: that every day, but it probably wouldn't really gain that
Speaker 1: much attraction. I am wondering if there are certain areas
Speaker 1: that would win in either scenario, the fifty four hundred
Speaker 1: or the forty five hundred.
Speaker 4: Well, I think that we lay that out once again,
Speaker 4: that's our bare case.
Speaker 3: A forty five hundred scenario is that's not really our
Speaker 3: bare case, that's our base.
Speaker 4: Case for a year end.
Speaker 3: Originally that obviously has proven to be wrong, mainly because
Speaker 3: of multiples, right. I think this is the main thing
Speaker 3: said that people have either gotten right or wrong in
Speaker 3: the last twelve months. Is that I mean a twenty
Speaker 3: one multiple is you know, in the top death style
Speaker 3: of the last eighty years. I mean that is an
Speaker 3: expensive multiple. So the question I think investors have to
Speaker 3: ask themselves is is that a fair multiple to be
Speaker 3: paying well and the goaldilocks, you know, perfect soft landing.
Speaker 4: I think that's plausible.
Speaker 3: But that's where we're trading, and that's why there's not
Speaker 3: a lot of upside at the index level.
Speaker 1: Which raises this question, are there specific sectors that win
Speaker 1: regardless of the overall index? Do you see certain areas
Speaker 1: that are kind of independent of this overall shift of
Speaker 1: whether there is this momentum in international money that pours
Speaker 1: in and keeps valuations high and sends them higher.
Speaker 4: It's large scamp quality.
Speaker 3: I mean, I mean that is what's continues to and
Speaker 3: by the way, it's not just high growth. It's also
Speaker 3: cyclicals can work in that. But it's still up the
Speaker 3: quality curve and we show it in the note very clearly.
Speaker 3: I mean, it's just it's the it's been the best
Speaker 3: carry factor for the last year, year and a half,
Speaker 3: which is a classic late cycle winner.
Speaker 4: Which is where we are.
Speaker 3: So you know, don't overthink that and don't try to
Speaker 3: be cute and say, well, I'm going to jump over
Speaker 3: here because I think there's better returns there could be.
Speaker 3: Look in the small cap and in the lower quality areas.
Speaker 3: We can't own nothing. I mean, it's very idiosyncratic. It's
Speaker 3: very idiosyncratic. It's not a factor that's carrying well. It's
Speaker 3: a okay, I have a stock specific idea. It's a
Speaker 3: low quality stock potentially that has a very unique story
Speaker 3: to itself.
Speaker 2: Next week's still for this market, as you know, it's
Speaker 2: tomorrow afternoon. We get numbers from Nvidia megacap Tech. What
Speaker 2: supports that fifty four hundred? What supports it? For you?
Speaker 2: Is it mega cap tech, the NVIDIAs of this world?
Speaker 2: Is it elsewhere?
Speaker 3: Well, it's basically you're assuming that multiple stay elevated.
Speaker 2: Right.
Speaker 3: You know, we didn't change our earnings forecasts in this report.
Speaker 3: We've had this sort of boom idea that we had
Speaker 3: the boom bust thesis for a while. We probably were
Speaker 3: early in calling for a recovery in earnings this year
Speaker 3: in twenty twenty five, so that didn't change. So you
Speaker 3: have earnings coming from a lot of different groups. Now,
Speaker 3: I would say the biggest contributors have been technology, Energy
Speaker 3: spent a big contributor surprisingly industrials because of all the
Speaker 3: spending that's going on fiscally. So those are three major
Speaker 3: sectors that are contributed to the earning story. But ultimately
Speaker 3: the fifty four hundred is being supported by policy, right
Speaker 3: by very loose fiscal and monetary policy. Now you may say, well,
Speaker 3: monetary policy is tight, not really. I mean we have
Speaker 3: an incredible amount of liquidity coming in to pay for
Speaker 3: that fiscal So to me, the risk in the story
Speaker 3: for the next six to twelve months is do the
Speaker 3: market start to balk at this unsustainable fiscal policy and
Speaker 3: the way that they're funding it, and we've wrote about this,
Speaker 3: you know, in detail. We have these liquidity provisions in
Speaker 3: place now, the reverse repo which everybody knows about. The
Speaker 3: Treasury General Account can be drained if necessary to pay
Speaker 3: for fiscal stemus in a budget if they need to.
Speaker 3: And the Fed has already said they're going to start
Speaker 3: tapering QT. Well, that's like a trillion dollars of liquidity.
Speaker 3: That's pretty loose right to pay for the fiscal So
Speaker 3: to me, does the market and I think this is
Speaker 3: just something we're watching very carefully. Last fall when multiples
Speaker 3: came down hard, it was because rates were going up
Speaker 3: due to term premium widening. Mean the bond market we're
Speaker 3: starting to push back on this strategy right now, that's
Speaker 3: not a problem. So one of the things we're going
Speaker 3: to be watching, you know, to change our view on
Speaker 3: how things trade at the index level is does the
Speaker 3: term premium start to widen again?
Speaker 4: We don't know, but that's what we're going to be watching.
Speaker 2: So big risk factor is in the bond market, and
Speaker 2: in the bond market, the big focus is November. Does
Speaker 2: this have a political twist to it? An election call
Speaker 2: embedded in it?
Speaker 4: Well?
Speaker 3: I mean yes, and no, because I wouldn't say either
Speaker 3: party has shown any fiscal discipline, right, So in other words,
Speaker 3: I think we're going to get a strong fiscal support
Speaker 3: no matter who wins the election, both in Congress or
Speaker 3: at the presidential level. The real question for markets is
Speaker 3: how does it get funded?
Speaker 4: How is it funded?
Speaker 3: Can they fund it at a reasonable rate? Right now,
Speaker 3: the bond market seems very relaxed about that feature, which
Speaker 3: is why multiples have expanded again.
Speaker 1: So if the bond market stays relaxed about this, but
Speaker 1: there's a lot of people prick that it will and
Speaker 1: believe me, I get very excited about auctions, but every
Speaker 1: week people tell me that I shouldn't because there's plenty
Speaker 1: of interest at these levels. If there isn't pushback, then
Speaker 1: fifty four hundred is that too conservative?
Speaker 4: Maybe you could be.
Speaker 3: I mean, look, I can make a case for seventeen times,
Speaker 3: which is when our target was originally for this year,
Speaker 3: seventeen eighteen times. I can make a case for twenty
Speaker 3: one times. I can make case for twenty two times.
Speaker 3: That's the problem, right, We don't know, So that's why
Speaker 3: we have a wider skew.
Speaker 4: And I would say this, Lisa, that the.
Speaker 3: Target will be more determined, probably by multiples than we're
Speaker 3: going to be wildly surprised on earnings. Okay, unless it's recession,
Speaker 3: of course, then you'll be surprising the downside. But I
Speaker 3: don't like the earnings haven't really moved that much for
Speaker 3: twenty twenty four and twenty five. Right, If you think
Speaker 3: about since October, which is with the low last fall,
Speaker 3: twenty twenty four, earnings estimates are up a couple percent.
Speaker 3: You know, the market's a twenty five thirty, so it's
Speaker 3: all multiple. So this is why you just need to
Speaker 3: be alert to think changing potentially in the bomb market first,
Speaker 3: and then that will feed into the equity multiples.
Speaker 7: When you talk about fiscal spending, to go back to
Speaker 7: John's point earlier in the election, it's very different what
Speaker 7: the fiscal spending may be used on depending on who
Speaker 7: wins the White House. You're talking about potentially industrials, the
Speaker 7: green energy economy. This is a new industrial policy from
Speaker 7: the Biden administration that could continue or it could stop
Speaker 7: short if it's Trump. How are you thinking about twenty
Speaker 7: twenty five, Well.
Speaker 3: I mean, look, I think the industrial policy will remain strong.
Speaker 3: I mean, that's our reshoring thing, which was part of
Speaker 3: the Trump administration.
Speaker 4: So half of the industrial policy.
Speaker 3: Is potentially green energy and half of it, I would say,
Speaker 3: is reshoring in the de globalization trend. So there's going
Speaker 3: to be spending either way. It may be redirected, like
Speaker 3: I could see maybe the energy policy shifting back towards
Speaker 3: traditional energy, but I would be surprised if spending is
Speaker 3: curtailed in a meaningful way. From that standpoint, I think
Speaker 3: we will see changes or differences is in maybe in
Speaker 3: the tariffs, although recently that seemed to be more aligned.
Speaker 3: And then of course immigration is a big one, and
Speaker 3: that was a huge surprise this year that really nobody
Speaker 3: saw it coming around the label to positive labor shock
Speaker 3: from immigration.
Speaker 4: So to me, that's a while.
Speaker 3: That's probably the single biggest wildcard depending out who.
Speaker 4: Wins the election.
Speaker 2: Bigger not tighter is if you coming from men and
Speaker 2: Zentner and the team Molk and Stanley, this economy can
Speaker 2: grow without it getting tighter and generating inflation pressure. Are
Speaker 2: you saying that could flip the other way pretty quickly
Speaker 2: based on the outcome the election?
Speaker 3: I think, well, depending on how things behave if policy
Speaker 3: really changes, But yeah, sure, you if you all of
Speaker 3: a sudden shut the borders down, and you know Trump's
Speaker 3: talking about deporting people, that would be a negative labor shock,
Speaker 3: and then we'd be in.
Speaker 4: A reverse situation.
Speaker 3: So look, right now, I think the election is literally
Speaker 3: a fifty to fifty I mean, I mean the polls
Speaker 3: are right there forty eight, forty nine to fifty percent
Speaker 3: for both sides.
Speaker 4: So this is not an issue yet.
Speaker 3: We talked about this in the note two, which is
Speaker 3: that volatility and election years typically doesn't start picking up
Speaker 3: until August September, So I think it'll be okay for
Speaker 3: the next month or this is not going to be
Speaker 3: a topic, but it can come at as quickly, probably
Speaker 3: post conventions.
Speaker 2: With us around a table Deutsche Banks Mattlasi joining us,
Speaker 2: also Aberdeen's Luk here look heickmore. If I may go
Speaker 2: through the lineup again today Williams Boss the Baking bah,
Speaker 2: Walla Collins, Ande Mester all speaking once again, Luke. What
Speaker 2: is left to know that we don't know already from
Speaker 2: these officials.
Speaker 6: Yeah, it's tough, isn't it.
Speaker 5: I Mean we've been talking about Table Mountain earlier in
Speaker 5: the year. In the films, they're all deck chairs waiting
Speaker 5: around at the top can't see a thing below them.
Speaker 5: If you've ever been there, it's like that so often.
Speaker 6: And that lack of visibility.
Speaker 5: It's useful to have all these BED speakers with us
Speaker 5: now to get a sense of where they are, what
Speaker 5: they're thinking. But they don't see any further than we see,
Speaker 5: and we need to see the data change.
Speaker 6: I think it is changing.
Speaker 5: I think there's early signs of it changing, and they
Speaker 5: need to see the data change. So I think this
Speaker 5: whole thing that might was talking about, the three month
Speaker 5: visibility period feels about right set hand and feels about right,
Speaker 5: but in years time will be hundred basis points line rates.
Speaker 2: Mattmasseetti if you had enough a FED speak, Yeah, yeah,
Speaker 2: you know.
Speaker 8: I think we're hearing obviously a pack calendar today. A
Speaker 8: lot of it is not related to the outlook. We
Speaker 8: have a lot of commencement speeches on the docket, so
Speaker 8: I'm focused on a few things. One we had Jefferson yesterday.
Speaker 8: I think hearing from the vice chair is important. He
Speaker 8: noted that the fed's forecast essentially for core PC at
Speaker 8: the end of this month is basically twenty six basis points.
Speaker 8: We're talking about getting progress that is definitely progressed from
Speaker 8: the very strong princes that we had earlier this month,
Speaker 8: earlier this year. But we also have to know the
Speaker 8: context that is still well above the fed's objective. It's
Speaker 8: still annualizes to above three percent today. I would have
Speaker 8: like Governor Waller, you know, in the past he has
Speaker 8: given actually some decent for guidance about the deity. He's
Speaker 8: looking at the number of prints that he would likely
Speaker 8: to see. Perhaps he doesn't go that far. I think
Speaker 8: the FED is fully pulled back from calendard based guidance
Speaker 8: at this point in time. But the reality is that
Speaker 8: the FED is highly data dependent. Forecasting the high frequency
Speaker 8: data is hard in this environment, and so the data
Speaker 8: should do more in terms of market moves than the
Speaker 8: FED speakers should.
Speaker 1: Luke was saying that he thinks that you actually are
Speaker 1: starting to see a turn in the data. There is
Speaker 1: something going on under the hood that's consistent. Do you
Speaker 1: agree that that there is this feeling not only does
Speaker 1: inflation but weakness. It's coming through maybe more than the
Speaker 1: overlaw overall data might suggest.
Speaker 8: Yeah, you look at economic surprises, they're negative. Now on average,
Speaker 8: the inflation data did improve in the last month, but
Speaker 8: it's too high IFED needs a lot more evidence on that.
Speaker 8: Some caution I have around these three month rates that
Speaker 8: everybody's talking about. Everybody thinks that there's residual seasonality in
Speaker 8: the data. We get stronger prints earlier in the year,
Speaker 8: we get weaker prints in the back half of the year.
Speaker 8: If that is true, and I believe it is, the
Speaker 8: FED should be cautious about overinterpreting three months of data
Speaker 8: if it does improve broadly. More broadly, you had some
Speaker 8: giveback on the retail sales data that was probably welcome from.
Speaker 4: The Fed's perspective.
Speaker 8: You have a labor market that did soften a little bit,
Speaker 8: but the context is we grew above three percent last year.
Speaker 8: The land of FED is tracking very strong GDP growth.
Speaker 4: For Q two.
Speaker 8: It is softer, but it's not obvious at this point
Speaker 8: that it's soft enough to get inflation back down to target.
Speaker 1: Softer but not soft, as John's been talking about quite
Speaker 1: a bit. I am wondering if, from your perspective, if
Speaker 1: there is a signal with in specific areas like retail sales.
Speaker 1: We see this discussion around more discretion price cuts from target.
Speaker 1: All of these types of things that are leaving us
Speaker 1: feeling like things might be shifting, but not enough to
Speaker 1: change the narrative. How do you interpret this?
Speaker 5: Yeah, I can see the thing too, But I'm also
Speaker 5: looking at what's going on with companies.
Speaker 6: Are they spending? Are they capex plans growing? And they're not.
Speaker 6: The federal budget is.
Speaker 5: Probably a big p now that's starting to be less
Speaker 5: of a stimulus going forward. So consumer may be stalling,
Speaker 5: maybe not going down, but stalling that. Companies are happy
Speaker 5: diagonaled cat quite frankly, and the federal government participation may
Speaker 5: be easing off a little bit. All of those are
Speaker 5: just those early warning sides. I mean, it may be
Speaker 5: that will pass is in the next two to three
Speaker 5: months and we get back and stare these levels of
Speaker 5: interest rates to you next year. But I don't think
Speaker 5: that's where we are. I think we are in a
Speaker 5: period where that in the thirty yield curve is starting
Speaker 5: to bind, is hitting consumers, companies, and the fiscal side
Speaker 5: from the government's changing.
Speaker 7: Matt, you read a lot about the labor market in
Speaker 7: your most recent note. What are these factors that can
Speaker 7: be a tight labor market but also low turn.
Speaker 8: Yeah, so the labor market is fascinating. At the moment,
Speaker 8: you have a very low un employment rate. We're turning
Speaker 8: out two hundred and forty thousand jobs per month on
Speaker 8: average over three six twelve month period. At the same time,
Speaker 8: when you look at some of these other indicators, the
Speaker 8: quits rate, the hiring rate, it actually does show what
Speaker 8: looks like some weakness. The quits rate is the lowest
Speaker 8: since twenty eighteen, the hiring rates of the lowest since
Speaker 8: twenty fourteen. Those are typically associated with a much higher
Speaker 8: unemployment rate, you know, probably something in the four and
Speaker 8: a half to five percent range. So understanding what's going
Speaker 8: on there, I think is absolutely critical. It is the
Speaker 8: result of a very low layoff rate. Now I don't
Speaker 8: think it's just about labor hoarding. If it was just
Speaker 8: about labor hoarding, you expect productivity growth to be quite low.
Speaker 8: Productivity growth of the past year is actually quite strong.
Speaker 8: You expect people not to be working their workers very
Speaker 8: long hours.
Speaker 4: That that's not really happening.
Speaker 8: So I think we don't understand.
Speaker 4: It all that well.
Speaker 8: I speculate that this big burst in labor market trend
Speaker 8: that took place, basically everybody was able to quit their
Speaker 8: jobs around the pandemic and it led to this much
Speaker 8: better matching between employers and employees.
Speaker 4: We also have a.
Speaker 8: Lot more flexibility in the labor market with work from home.
Speaker 4: If that's true, you should.
Speaker 8: Have less people cutting their jobs, less lay also taking place,
Speaker 8: less hires, but also big productivity gains, which is at
Speaker 8: least is what we're seeing over the past year.
Speaker 2: Mid cycle adjustment. It's a phrase that I first read
Speaker 2: in your research. I think a lot of other people
Speaker 2: started to think about it in the months afterwards. You've
Speaker 2: put forward this idea that what we're going to get
Speaker 2: as a complic counts and maybe that's it a high
Speaker 2: neutral rate as well? What underpinds that view? Where did
Speaker 2: that come from, Matt, Because the world seemybe is coming
Speaker 2: around to your perspective.
Speaker 8: Yeah, so, I think when you look at the FED historically,
Speaker 8: oftentimes they are cutting because they're seeing recessionary dynamics that
Speaker 8: and when that happens, they cut aggressively. They cut well
Speaker 8: blowed what they think the neutral rate might be. We
Speaker 8: have two historical examples where they're not cutting because we
Speaker 8: have a weak economy, but they're cutting because maybe there's
Speaker 8: some downside risks or inflation has come off a lot.
Speaker 4: That's the mid nineteen.
Speaker 8: Nineties and twenty nineteen. Both episodes had three twenty five
Speaker 8: basis point rate cuts the mid cycle adjustment. So as
Speaker 8: we look at the outlook and if we think it
Speaker 8: is only about inflation at least upfront, I think it's
Speaker 8: more likely that the Fed does call it three twenty
Speaker 8: five basis points pauses at that point in time until
Speaker 8: they either see some weakness in the economy or inflation
Speaker 8: is all the way back down to their target.
Speaker 1: I want to get to Luke in just a second,
Speaker 1: but match just to follow up. Then, doesn't a mid
Speaker 1: cycle adjustment indicate that we have some idea of what
Speaker 1: the neutral rate is?
Speaker 8: I think the mid cycle adjustment gives you the sense
Speaker 8: that they think they're well above where the neutral rate is.
Speaker 8: Are they, I think, according to any metric that they are.
Speaker 8: I mean, I don't think it's as low as the
Speaker 8: two point six percent they have in their long run
Speaker 8: off lot. We think neutral and nominal terms is somewhere
Speaker 8: closer to three and three quarters to four, which is
Speaker 8: at the upper range of what everybody's saying. But we're
Speaker 8: still one hundred and fifty basis pointoints above that range,
Speaker 8: So I do think that they are restrictive. From that perspective,
Speaker 8: I think it will flow through to the economy over time,
Speaker 8: and they can take out some insurance rate cuts, but
Speaker 8: there's massive uncertainty about where neutral is, and so just
Speaker 8: plowing forward to what they think neutral is probably not
Speaker 8: the correct path.
Speaker 1: This is actually one of the critical questions for investors.
Speaker 1: Luke id Love you awigh in on this, because we
Speaker 1: were talking to Mike Wilson earlier, and frankly, one of
Speaker 1: the biggest mysteries to him has been the interplay of
Speaker 1: incredibly loose fiscal policy and monetary policy that's restrictive when
Speaker 1: it comes to rates, but not necessarily beyond that with
Speaker 1: balance sheet issues and the repo lines. What's your take
Speaker 1: on just how much you're following what the FED does,
Speaker 1: not just with rates but beyond and that interplay in
Speaker 1: order to just get more and more bullish because there's
Speaker 1: just still so much liquidity in the market.
Speaker 5: You need that equity to be always increasing, and I
Speaker 5: think with that's behind us, I think we are getting
Speaker 5: through balance sheet roll off. I think we are getting
Speaker 5: through shifted in the kind of FED tries to control
Speaker 5: the economy. It's more interesting than every other tool that
Speaker 5: they've used in the last fifteen odd years, and that
Speaker 5: should start coming through at the moment.
Speaker 6: It's not. You're right, liquidity's massive.
Speaker 5: Credit markets are seeing new issues like we have never
Speaker 5: seen and that's soaking up money too. But again, unless
Speaker 5: it's incrementally increasing, we will start to see that down
Speaker 5: to start to hit us over the next quarter two quarters.
Speaker 5: I don't know, right, it will come through this year
Speaker 5: for sure. So it does come back, doesn't it About
Speaker 5: do the Fed need to act and are they better
Speaker 5: to start acting before they have to start acting? And
Speaker 5: as we were saying earlier on normally we get fast
Speaker 5: rate cuts, this time is slowing rate cuts at stay
Speaker 5: two this year, two three next year.
Speaker 6: I'm probably a little lower than that.
Speaker 5: I think on the neutral rate maybe two and a
Speaker 5: half to three rather than something over three. But we
Speaker 5: do need to see evidency inflations, Okay, into the long
Speaker 5: term as well.
Speaker 2: Look, I've got ten seconds. Give us a trade. What's
Speaker 2: your favorite right now?
Speaker 6: Sure?
Speaker 5: Short call eighty one seven a half eight percent, no
Speaker 5: interest rate risk and very little risk of not being
Speaker 5: called luke kikmore.
Speaker 2: Thank you, sir, appreciate it. Deutsch Banks Mattlazeli alongside him
Speaker 2: with Aberdeen's Luke Kikmore gents appreciate it.
Speaker 6: Thank you.
Speaker 2: Low's beating sales estimates and Macy's beating profit estimates. The
Speaker 2: department store warning that consumers will remain quote discerning in
Speaker 2: their discretionary purchases. Chuck Grum of Godon Haskett right in this,
Speaker 2: if trends have seen a further step down, this would
Speaker 2: suggest to us that deeper consumer issues are servicin, which
Speaker 2: would be most problematic for the lower income of price retailers.
Speaker 2: Chuck Grum is with us from God and Haskett. Now, Chuld,
Speaker 2: I start with Macy's. What do you take away from
Speaker 2: a raise to guidance but ultimately once again conveying that
Speaker 2: that consumer is somewhat cautious.
Speaker 9: Yeah, I mean, the mass not were decent this morning.
Speaker 9: Comps came in a little bit better. Gross margins, however.
Speaker 4: Were weaker.
Speaker 9: They noted in their release they had to move some
Speaker 9: summer seasonal and spring seasonal items uh to get inventories
Speaker 9: in better shape. So that was that was smart for them,
Speaker 9: and then they essentially kept guidance intact and nudged it
Speaker 9: up both the low end and the top end by
Speaker 9: about five cents, So what we can take care and
Speaker 9: you can also look at the Low's numbers, which also
Speaker 9: came in a little bit better. You can see the
Speaker 9: preaction on both stocks that you know, the numbers weren't
Speaker 9: weren't terrible, weren't much worse than expected.
Speaker 4: But we do agree.
Speaker 9: We think the consumer is discerning right now and we
Speaker 9: expect that that trend to probably continue for most of
Speaker 9: the year with.
Speaker 1: The numbers better than expected, because these retailers are doing
Speaker 1: a good job at figuring out where consumers are willing
Speaker 1: to spend, or are they better than expected, because the
Speaker 1: consumers may be discerning, but they're still spending quite a bit.
Speaker 4: Probably neither.
Speaker 9: Actually, I mean that most of the beats are really
Speaker 9: below the below the line. In case Macy's, their esten
Speaker 9: are it was a little bit better, and in the
Speaker 9: case of Lows, the gross margins actually a little bit better.
Speaker 9: And like I said, the top line pretty much intact,
Speaker 9: you know, a little bit better. So we'll see how
Speaker 9: it plays out over the next few days. We have
Speaker 9: a lot of earnings coming up with Target and TJ
Speaker 9: tomorrow follow by b Jason Ross on Thursday and then
Speaker 9: and then a lot more actually next week as well.
Speaker 2: Chuck.
Speaker 7: When it comes to Macy's, you know, we've been looking
Speaker 7: at the Blooe Mercury numbers versus flagship Macy's, and bloem
Speaker 7: Mercury is doing very well. What does that tell you
Speaker 7: about the state of the consumer on the upper end
Speaker 7: and the lower end.
Speaker 4: That's a great point.
Speaker 9: Actually, Bloommrking numbers were up. I believe the four and
Speaker 9: a half percent relative to Macy's being down. Bloomingdale's pretty
Speaker 9: much flat. I mean, I think what we're learning is
Speaker 9: the lower income customer is under the greatest amount of stress.
Speaker 9: The upper income customer because the housing prices and where
Speaker 9: they are and the wealth effect of the equity markets
Speaker 9: being strong over the past couple of years, are are
Speaker 9: are more resilient' that's not new. I think the question
Speaker 9: that Mohammad pointed out in his pre comments, you know,
Speaker 9: are we going to see the middle incomes start to
Speaker 9: come under pressure? And that's something we are going to,
Speaker 9: you know, try to discern over the next few days
Speaker 9: and into next week.
Speaker 2: The Chuck, do you think Target might give us some
Speaker 2: information on that front.
Speaker 9: Well, I mean targets numbers should should come in close
Speaker 9: to expectations, down three to four percent. They did announce
Speaker 9: surprisingly a big rollback program, lowering the prices on close
Speaker 9: to five thousand items. Is that reactionary? Is that proactive?
Speaker 9: You know, we'll find out tomorrow. Given what Walmart's been
Speaker 9: doing on rollbacks. I think they noted that their rollback
Speaker 9: count is up forty five percent in the first quarter.
Speaker 9: And the consumer is looking for a value and looking
Speaker 9: for lower prices, So it's intelligent on the part of
Speaker 9: target to do that. Is that supplier funded? Is that
Speaker 9: coming out of their own pocket? That's something you know,
Speaker 9: we'll be looking for clarity on tomorrow morning.
Speaker 2: Yeah, that's the margin question, Chuck, what's your base case
Speaker 2: on that question.
Speaker 9: I think it's probably a combination of both. I think
Speaker 9: a lot of the suppliers are looking to move units,
Speaker 9: and I think that in that case that you know,
Speaker 9: if it's similar to what we've heard out of out
Speaker 9: of Walmart, I think it's probably margin neutral. But again,
Speaker 9: we need to see, we need to hear from the
Speaker 9: company to turn to learn more on that. But like
Speaker 9: I said, I think it's I think it's the smart
Speaker 9: and proactive thing to do, given that the consumer wants value. Historically,
Speaker 9: Target's prices tend to be five to ten percent higher
Speaker 9: than Walmart, So it's something they need to address. In
Speaker 9: our opinion. Are they funding that through their media network?
Speaker 9: Are they funding it through other parts? That's probably the
Speaker 9: case as our assumption, Chuck.
Speaker 2: When Walmart say trade down, are they saying trade down
Speaker 2: from Target? Is that who they're talking about? Who loses
Speaker 2: when they talk about that theme?
Speaker 9: Yeah, I mean it could be Kroger, it could be Target,
Speaker 9: it could be could be all the above. It's probably
Speaker 9: Target to a degree though. I mean that tends to
Speaker 9: be the most where the greatest customer overlap is. And
Speaker 9: as you heard from Walmart, the greatest share gains they
Speaker 9: had yes leer last week was on the upper income customer.
Speaker 9: The customer makes more than one hundred thousand dollars a year.
Speaker 9: And then the key for Walmart really, you know, they
Speaker 9: saw this coming out of the global financial crisis ten
Speaker 9: years ago, ten fifteen years ago, but they they did
Speaker 9: not retain those customers. And that's the real opportunity for
Speaker 9: for Walmart, and that's why they're doing more rollbacks. That's
Speaker 9: why they're investing in story models. So we think the
Speaker 9: prospects are good there for Walmart to retain those customers.
Speaker 2: Interesting, Chuck, one of the best. Thank you, sir, almost there,
Speaker 2: so it was like such a long earning season, Chuck
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