WEBVTT - Bloomberg Surveillance: US Retail Sales Dip; Government Shutdown Threat Eases 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.439 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.840 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business app. 0:00:30.160 --> 0:00:33.440 This is a joy what happens with young economists as 0:00:33.479 --> 0:00:37.280 you read their research and you go, oh, they're quite competent. 0:00:37.880 --> 0:00:40.080 Not long ago and far away, but a few years ago. 0:00:40.120 --> 0:00:43.879 That was Michelle Meyer absolutely owning the parsing of the 0:00:43.920 --> 0:00:47.400 American consumer. She worked for a small bank in Manhattan 0:00:47.640 --> 0:00:51.560 and is now Chief Economists North America from MasterCard Economics. 0:00:51.720 --> 0:00:52.479 You own the. 0:00:52.440 --> 0:00:55.240 Analysis I put you and Allen Zetner together. You own 0:00:55.280 --> 0:00:58.760 the analysis of the American consumer. Have we stopped spending? 0:00:59.240 --> 0:01:01.880 We clearly have not stop spending. Far from it, and 0:01:02.160 --> 0:01:04.800 think about the data this morning. It was an incredible 0:01:04.840 --> 0:01:09.680 combination of continued strength and retail spend, of rebound in 0:01:09.720 --> 0:01:12.600 Empire State manufacturing, which shows that there's still a need 0:01:12.640 --> 0:01:16.560 for more goods production, which is because consumers are still spending, 0:01:16.880 --> 0:01:19.399 and on top of that, you're getting some relief on 0:01:19.480 --> 0:01:22.240 the pricing side. So it's a really nice combination. 0:01:22.600 --> 0:01:25.560 I hate asking this question, and I'm stunned. It's my 0:01:25.640 --> 0:01:29.680 first time I've asked it. On November fifteenth, what's back 0:01:29.720 --> 0:01:31.720 to what's a holiday season look like? 0:01:31.800 --> 0:01:36.440 What's Black Friday? And then Black Monday and this and that? 0:01:36.760 --> 0:01:39.880 What does this retail madness did January look like? 0:01:40.400 --> 0:01:43.720 Well, it is a longer holiday season. We've learned that 0:01:43.800 --> 0:01:47.560 over the last few years, and it's a heavily promotional 0:01:47.640 --> 0:01:51.160 based holiday season, and part of that is because of 0:01:51.200 --> 0:01:54.240 the fact that there's so much demand out there to 0:01:54.280 --> 0:01:56.440 buy online. I mean, think about the numbers we just 0:01:56.480 --> 0:01:59.360 saw this morning. Our spending post numbers saw just over 0:01:59.400 --> 0:02:02.760 eight percent year of your growth in e commerce sales. 0:02:02.840 --> 0:02:05.840 So you know, you're seeing a consumer that is certainly 0:02:05.880 --> 0:02:08.840 exploring many different channels of spending, including online, and that 0:02:08.880 --> 0:02:11.480 creates a lot more opportunities for them to get products, 0:02:11.800 --> 0:02:15.000 and it also creates a lot more need for retailers 0:02:15.040 --> 0:02:17.480 to compete with these big moments in time where they 0:02:17.480 --> 0:02:20.440 offer promotions, and I think that's what's going to be indicative. 0:02:20.480 --> 0:02:22.280 So we'll learn a lot from the Black Friday period, 0:02:22.320 --> 0:02:23.840 and it's approaching very quickly. 0:02:24.000 --> 0:02:29.760 How sustainable is this combination of both robust retail sales 0:02:30.080 --> 0:02:32.720 and disinflation or even outright goods deflation. 0:02:34.080 --> 0:02:36.520 So I think you have to consider the different categories. 0:02:36.560 --> 0:02:39.040 I mean, when you looked at CPI yesterday, you certainly 0:02:39.160 --> 0:02:42.440 saw some categories like these big durable goods like your 0:02:43.080 --> 0:02:49.360 refrigerators back seeing some price declines. But for many other things, 0:02:49.360 --> 0:02:52.000 like many services, for example, you are still seeing some 0:02:52.160 --> 0:02:55.760 price increases. So part of the drop in prices for 0:02:55.800 --> 0:02:58.600 some of these goods simply reflects the fact that prices 0:02:58.639 --> 0:03:02.160 increased too much out of a pandemic because of supply 0:03:02.280 --> 0:03:05.799 chain issues, because of higher costs, and now it's reverting 0:03:05.800 --> 0:03:09.160 a bit more to something more normal, right, So that 0:03:09.240 --> 0:03:11.680 means in real terms you will see some support in 0:03:11.760 --> 0:03:14.840 terms of some of these items moving through. In nominal terms, 0:03:14.840 --> 0:03:17.959 you could see some move down in terms of overall spend. 0:03:18.160 --> 0:03:21.920 So it really depends on why inflation is moving, and 0:03:21.960 --> 0:03:25.040 that is a function of the type of product and 0:03:25.120 --> 0:03:27.200 how things evolved coming out of the pandemic. 0:03:27.240 --> 0:03:29.400 When you put it together, does this seem like a 0:03:29.440 --> 0:03:33.600 recipe for this goldilocks soft landing, or does this seem 0:03:33.600 --> 0:03:35.880 to paint the picture of a federal reserve that needs 0:03:35.920 --> 0:03:38.960 to do more and of an economy that has way 0:03:39.040 --> 0:03:42.120 too much momentum to really achieve the disinflation that a 0:03:42.120 --> 0:03:45.200 lot of people are baking into market evaluations. 0:03:45.280 --> 0:03:46.800 I think the data is shaping up in a way 0:03:46.840 --> 0:03:50.720 that's really favorable at the moment because you continue to 0:03:50.760 --> 0:03:54.000 have economic growth. Look at the third quarter GDP numbers, 0:03:54.280 --> 0:03:58.400 that was fairly broad based economic activity, not just consumers 0:03:58.400 --> 0:04:04.560 but also businesses investing inventories getting much more manageable and 0:04:04.600 --> 0:04:08.160 in stock So you know, things have been evolving remarkably 0:04:08.480 --> 0:04:11.520 well in terms of the real economy, taking out some 0:04:11.600 --> 0:04:15.360 of the excesses, labor market coasting into a litt bit 0:04:15.360 --> 0:04:18.880 of a slower trajectory for job growth, but still expansionary, 0:04:19.440 --> 0:04:22.200 while you get this relief on the inflation front. So 0:04:22.320 --> 0:04:24.880 how much of that is because of monetary policy, how 0:04:24.920 --> 0:04:27.359 much of that is because of the nature of the 0:04:27.400 --> 0:04:30.440 shock that we had initially, We'll see it's probably a 0:04:30.440 --> 0:04:33.320 bit of both. But it's evolving really quite quite nicely, 0:04:33.400 --> 0:04:35.479 and obviously exceeding many people's expectations. 0:04:35.480 --> 0:04:35.719 Out there. 0:04:35.800 --> 0:04:37.560 We talked about the interest expense and the debt and 0:04:37.560 --> 0:04:41.200 the deficit earlier with Mia mcguinnis. Let's talk about the 0:04:41.240 --> 0:04:44.640 average charge card is twenty five twenty six percent interest, 0:04:45.279 --> 0:04:48.239 migrating up now to twenty eight twenty nine percent interest. 0:04:48.800 --> 0:04:52.640 I find thirty percent to be almost criminal. But you 0:04:52.760 --> 0:04:56.200 people look at this daily, is that interest rate goes up, 0:04:56.480 --> 0:04:57.599 do we spend less? 0:04:58.120 --> 0:05:01.680 So what we're looking at overall is how monetary policy 0:05:01.760 --> 0:05:04.360 is transmitting into the economy broadly. So when you think 0:05:04.400 --> 0:05:07.320 about who's borrowing out there, there's companies that are borrowing 0:05:07.360 --> 0:05:10.120 in terms of the expansionary needs. There's consumers that are 0:05:10.120 --> 0:05:11.840 borrowing in terms of whether or not they want to 0:05:11.839 --> 0:05:13.960 buy a home or a big ticket item that might 0:05:14.000 --> 0:05:18.440 require some leverage. So higher interest rates are certainly transmitting 0:05:18.440 --> 0:05:20.719 into the economy. You can see it today with the 0:05:20.720 --> 0:05:24.120 retail sales number that's Mike just my friends. Around housing 0:05:24.160 --> 0:05:27.000 related items, furniture, some of these bigger ticket items that 0:05:27.120 --> 0:05:31.760 require debt. You are seeing some hit to those types suspending. 0:05:32.000 --> 0:05:34.720 So I think the high level of interest rates goes 0:05:34.760 --> 0:05:37.200 back to Lisa's point around how the FED is trying 0:05:37.240 --> 0:05:41.480 to calibrate this economy with some easing of real growth 0:05:41.520 --> 0:05:44.000 but still allowing inflation to come down. 0:05:44.040 --> 0:05:45.640 Okay, you're out of the game, but I'm going to 0:05:45.680 --> 0:05:47.640 ask you the game question here, which is what is 0:05:47.680 --> 0:05:50.240 your twelve months for to real GDP? Like, what's your 0:05:50.279 --> 0:05:53.760 twenty twenty You're talking to fancy people at MasterCard, and 0:05:53.960 --> 0:05:55.640 you know they don't want to charge cards. They want 0:05:55.640 --> 0:05:58.320 to know what Michelle Meyer thinks about the economy. What's 0:05:58.360 --> 0:06:00.560 your twenty twenty four real GDP call? 0:06:00.720 --> 0:06:02.400 So the good news is that we are I'm still 0:06:02.440 --> 0:06:04.600 in the game, and that we are still running at 0:06:05.640 --> 0:06:09.320 still absolutely that is who I am as a person, 0:06:09.360 --> 0:06:12.400 as an economist. When I look ahead, I mean this 0:06:12.520 --> 0:06:16.000 year we had an economy that ran above its underlying trend. 0:06:16.080 --> 0:06:18.880 So we're trending right now, given where GDP is for 0:06:19.000 --> 0:06:22.200 real growth somewhere between two point four percent right now 0:06:22.279 --> 0:06:24.760 in twenty twenty three. As we look ahead to twenty 0:06:24.800 --> 0:06:28.120 twenty four, we're probably going to see some moderation closer 0:06:28.160 --> 0:06:31.719 to the underlying trend growth rate of the economy closer 0:06:31.800 --> 0:06:32.240 to trend. 0:06:33.160 --> 0:06:34.479 Didn't answer, Ye's. 0:06:34.360 --> 0:06:34.920 Still in the game. 0:06:35.080 --> 0:06:37.840 I'm still I got to total. 0:06:39.279 --> 0:06:41.479 Go away. Michelle Meyer's MasterCard. 0:06:41.480 --> 0:06:48.040 There somewhere in the blur of the last four or 0:06:48.120 --> 0:06:52.000 five days through my small little brain, would somebody get 0:06:52.080 --> 0:06:55.160 Diane SWUNKA You know, I just said she has such 0:06:55.160 --> 0:06:58.880 a perspective different from three zip codes in New York, 0:06:59.400 --> 0:07:02.320 And I guess all of this is her academic work 0:07:02.360 --> 0:07:06.159 at the University of Michigan Longo. She's putting a penalty 0:07:06.160 --> 0:07:08.520 box there. At one point she was stealing signs from. 0:07:08.400 --> 0:07:09.200 The Federal Reserve. 0:07:10.000 --> 0:07:14.400 Is I think it's a football joke there, Yeah, dian 0:07:14.520 --> 0:07:19.600 Swank understands Michigan's I guess in the penalty box, Diane Swank, 0:07:19.760 --> 0:07:22.000 is it free and clear? Is your own Powell not 0:07:22.800 --> 0:07:25.840 in the penalty box. I've asked this question four times, 0:07:25.840 --> 0:07:29.400 but with immense respect to your work and your holistic 0:07:29.480 --> 0:07:33.880 look at business data. Is it mission accomplished? Finally, for 0:07:33.960 --> 0:07:35.880 the FED, it's. 0:07:35.680 --> 0:07:38.200 Not mission accomplished because if that is still going to 0:07:38.280 --> 0:07:41.120 hold rates higher for longer. But we're done with right 0:07:41.160 --> 0:07:43.120 hikes and that's what we've been saying, and that's what 0:07:43.120 --> 0:07:45.880 we believe. That's the good news out there is that 0:07:45.960 --> 0:07:48.600 it does look like the soft landing is not only 0:07:48.720 --> 0:07:52.200 possible but probable. But the journey is not yet over, 0:07:52.720 --> 0:07:55.600 and the endurance part comes next, and that's what the 0:07:55.680 --> 0:07:59.760 FED is watching closely. They still expect to see growth 0:08:00.280 --> 0:08:04.720 below potential in order to have that soft landing occur. 0:08:05.040 --> 0:08:07.840 That's one of those technical things that consumers don't really like, 0:08:07.880 --> 0:08:11.280 because growth below potential is a rise in unemployment, which 0:08:11.320 --> 0:08:14.200 in fact we've already seen. Most of that rise we 0:08:14.240 --> 0:08:16.360 saw over the summer was because more people were looking 0:08:16.400 --> 0:08:19.520 for jobs, not because of mass layoffs than in October 0:08:19.760 --> 0:08:22.760 when we saw unemployment move up to three point nine percent, 0:08:23.280 --> 0:08:26.080 it was because we also saw the spillover effects of 0:08:26.160 --> 0:08:27.600 strikes as well. 0:08:27.960 --> 0:08:30.920 When I look at this economy and all the different 0:08:31.000 --> 0:08:33.160 narratives that are out there right now, the heart of 0:08:33.160 --> 0:08:38.240 the matter for me is fully employed America. Butter stop 0:08:38.360 --> 0:08:42.679 with what Austin Goolsby brilliantly said yesterday. Is a believer 0:08:42.840 --> 0:08:47.600 in a new productivity, a new regime of productivity that's 0:08:47.640 --> 0:08:50.720 going to make the job for everybody out there easier. 0:08:50.840 --> 0:08:51.480 Do you buy it? 0:08:52.520 --> 0:08:55.520 Well, we are seeing a major increase in productivity, and 0:08:55.559 --> 0:08:58.800 I think during the frenzy, the hiring frenzy that we saw, 0:08:59.160 --> 0:09:02.160 we know from ADP data that's locked at this more closely, 0:09:02.480 --> 0:09:05.160 many firms stopped hiring people. Then add on top of 0:09:05.200 --> 0:09:08.480 it the loss and hiring an educational attainment due to 0:09:08.520 --> 0:09:11.960 the pivot online itself. And now we're unwinding that and 0:09:12.000 --> 0:09:15.719 people are actually learning the jobs they have. Overlay that 0:09:15.760 --> 0:09:19.520 with innovation and technology and leveraging the technologies we were 0:09:19.559 --> 0:09:23.199 forced to use as we moved online, and you do 0:09:23.280 --> 0:09:26.320 get higher productivity growth, and that is helping to bring 0:09:26.360 --> 0:09:29.520 down inflation as well. The problem for most consumers, of course, 0:09:29.880 --> 0:09:32.760 is that the level of prices are still very high. 0:09:33.160 --> 0:09:35.959 And let's face it, you know, consumer sentiment hit its 0:09:36.000 --> 0:09:39.440 record high for University of Michigan Centiment Index in Chau 0:09:40.240 --> 0:09:42.760 two thousand. Yeah, I threw that in. Although I did 0:09:42.800 --> 0:09:45.120 go to Chicago too. They won the first Heisman Trophy 0:09:46.080 --> 0:09:48.800 right now with a lack of scandals, which a little better. 0:09:49.080 --> 0:09:50.600 Did you go to the Goldsby speech? 0:09:50.600 --> 0:09:52.640 I mean, you're such a hitter out there in Chicago? 0:09:52.679 --> 0:09:55.199 Did you darken the door for the Golsby speech? 0:09:55.320 --> 0:09:57.240 I wasn't at this one. I've been at many of them, 0:09:57.240 --> 0:09:59.360 and I'll be at one on December first with them. 0:10:00.000 --> 0:10:02.240 What about Hey, Dana speaking as well. 0:10:02.600 --> 0:10:04.360 What do you feel how do you kind of view 0:10:04.440 --> 0:10:07.320 the consumer here? We got some retail sales data today 0:10:07.320 --> 0:10:09.320 that came in a little bit better than expected, yet target, 0:10:09.840 --> 0:10:12.120 you know, still seeing some some challenges out there with 0:10:12.160 --> 0:10:14.520 the reported numbers, and of course we'll hear from Walmart tomorrow. 0:10:14.760 --> 0:10:16.760 What's what's your sense of the consumer out there? 0:10:17.320 --> 0:10:20.840 This is a consumer that shown remarkable endurance. Remember October 0:10:20.920 --> 0:10:23.400 is when the first student loans for about twenty three 0:10:23.440 --> 0:10:26.000 million student borrowers were due. Of course, they started paying 0:10:26.000 --> 0:10:29.640 those loans already in August while ahead of time, front 0:10:29.679 --> 0:10:32.680 running the interest accruing on those loans. But we know 0:10:32.840 --> 0:10:35.880 that student loan, your payments are going to crimp consumer spending. 0:10:36.240 --> 0:10:38.120 And I think what's also important is we're seeing the 0:10:38.200 --> 0:10:41.800 biggest trade offs everything within grocery stores. They're spending more 0:10:41.840 --> 0:10:44.920 at grocery stores than at restaurants during the month, and 0:10:44.960 --> 0:10:47.840 after adjusting for inflation, they're still spending more at grocery 0:10:47.840 --> 0:10:51.080 stores because it's really expensive after adjusting for inflation to 0:10:51.160 --> 0:10:53.960 go out to restaurants. That said, there's a lot of 0:10:54.000 --> 0:10:56.840 trade offs within that as well. Beef prices hit a 0:10:56.880 --> 0:11:00.600 record high during the month of October in that's due 0:11:00.640 --> 0:11:02.640 to the fact that we had all these droughts. That's 0:11:02.760 --> 0:11:05.520 in the herds, and I think, you know, the effects 0:11:05.600 --> 0:11:08.560 of those kinds of shocks are what really matter to consumers. 0:11:08.600 --> 0:11:12.200 And even as the FED is combating inflation the pace 0:11:12.200 --> 0:11:15.800 at which prices increase, many consumers who finally saw their 0:11:15.800 --> 0:11:19.200 wages level up only got to spend a moment in 0:11:19.240 --> 0:11:22.120 the sun before they were burned by inflation, and they're 0:11:22.120 --> 0:11:25.640 still playing catchup from those earlier increases exactly. 0:11:25.720 --> 0:11:27.920 So, you know, in terms of the consumer here we 0:11:27.960 --> 0:11:30.480 have the unemployment rate officially at three point nine percent. 0:11:30.520 --> 0:11:33.679 What do you think the FED would like to see 0:11:33.679 --> 0:11:35.480 that rate? Do they feel like it needs to drift 0:11:35.679 --> 0:11:38.800 a little bit higher before they get a sense that 0:11:39.280 --> 0:11:40.560 this economy really is cooling? 0:11:41.000 --> 0:11:42.720 Well, I hate to use the word like, because I 0:11:42.760 --> 0:11:45.640 think that's a little pejorative in this context. I think 0:11:45.679 --> 0:11:48.240 they think it needs to go a little above four 0:11:48.280 --> 0:11:51.320 percent in order to get the full derailing of inflation 0:11:51.400 --> 0:11:54.240 and to be able to really cut rates as we 0:11:54.320 --> 0:11:56.280 move into twenty twenty five. I think we're going to 0:11:56.320 --> 0:11:58.480 see rate cuts by the middle of twenty twenty four, 0:11:58.559 --> 0:12:01.240 but the descent on rates is going to be much 0:12:01.360 --> 0:12:05.280 less graduate much slower than the acent on rates, and 0:12:05.320 --> 0:12:07.880 I think that's very important to remember as well. The 0:12:07.960 --> 0:12:10.640 Center Reserve is really pretty pleased with the fact that 0:12:10.800 --> 0:12:14.080 so far until we had that October blip, which was 0:12:14.120 --> 0:12:17.439 by an external shock the strikes, that we were able 0:12:17.520 --> 0:12:20.080 to really see more people looking for jobs rather than 0:12:20.480 --> 0:12:23.400 layoffs contributing to unemployment, more data. 0:12:23.200 --> 0:12:26.880 Checks and all this turmoil, the vix goes to constructively bullish. 0:12:26.920 --> 0:12:31.000 We are higher above fourteen and now at fourteen point eight, 0:12:31.120 --> 0:12:34.760 a better VIX number off of yesterday. Dow up one hundred, 0:12:35.200 --> 0:12:39.559 SPX up sixteen points, doing better than call it nine o'clock, 0:12:39.640 --> 0:12:42.920 futures up four tenths of a percent, NASDAK up half 0:12:42.960 --> 0:12:48.080 a percent as well. We're with Diane's swank this morning 0:12:48.120 --> 0:12:52.480 of KPMG. Diane, my great theory is corporations are going 0:12:52.520 --> 0:12:56.320 to adapt and adjust. How do they adapt and adjust? 0:12:56.480 --> 0:12:58.440 Is it just going to be one expense reduction? 0:13:00.000 --> 0:13:01.960 You know, that's going to be a series of I 0:13:01.960 --> 0:13:05.320 think we're already seeing the adaption occur, and it's evolution 0:13:05.679 --> 0:13:07.840 more of a revolution than an evolution, and that is 0:13:07.880 --> 0:13:10.480 that after more than a decade of ulter low rates 0:13:10.480 --> 0:13:13.480 and some business models that were built entirely on ultra 0:13:13.520 --> 0:13:17.160 low rates still adapt to a more normal economy that 0:13:17.240 --> 0:13:19.839 has higher rates to it, and they have to deal 0:13:19.880 --> 0:13:21.960 with the higher wage levels that they leveled up to, 0:13:22.000 --> 0:13:24.079 and that means they got to make their workers more 0:13:24.120 --> 0:13:27.760 productive to be able to continue paying those wages without 0:13:27.840 --> 0:13:30.480 mass layoffs. And that's where I think we're going. I 0:13:30.480 --> 0:13:32.840 think we are going to see productivity growth continue to 0:13:32.840 --> 0:13:36.040 be elevated. That's the good news. I think also it's 0:13:36.040 --> 0:13:38.720 important to remember the tire meets the road on productivity 0:13:38.720 --> 0:13:43.520 growth when you combine innovation and technology with our human capital, 0:13:43.800 --> 0:13:46.560 and how valuable it is. When you really level the 0:13:46.600 --> 0:13:50.439 boats together two together, that's when you get the big benefits. 0:13:50.520 --> 0:13:53.679 Sure theory there is how the Cubs stole the Milwaukee 0:13:53.720 --> 0:13:55.240 Brewer's managers. 0:13:55.440 --> 0:13:56.240 I mean you get that. 0:13:57.760 --> 0:14:00.880 She's like consulting the Chicago Cubs. How do we jump 0:14:00.960 --> 0:14:04.199 started Creid Council bring them down to Chicago? Paul slip 0:14:04.240 --> 0:14:04.920 in one more? 0:14:04.960 --> 0:14:07.880 All right, So, Diane, I mean we have our President 0:14:07.960 --> 0:14:12.240 Biden in San Francisco meeting with President she. How do 0:14:12.280 --> 0:14:14.920 you figure China into your economic outlook here? What do 0:14:14.960 --> 0:14:16.560 you what do you what would you like to see. 0:14:16.600 --> 0:14:17.760 What do you think we're going to see. 0:14:18.760 --> 0:14:22.800 I think it's important that you know we can't deglobalization 0:14:23.000 --> 0:14:25.040 is a bit of a myth. We're seeing trading blocks 0:14:25.080 --> 0:14:28.120 that have moved, and more training within blocks rather than 0:14:28.160 --> 0:14:32.880 across blocks, which is actually boosting global trade. That's more 0:14:33.000 --> 0:14:37.200 friction in the global economy and ultimately more risk of 0:14:37.280 --> 0:14:40.400 supply chocks and more fragile supply chains. So I think 0:14:40.440 --> 0:14:43.200 the concept of de risking is something that is a 0:14:43.240 --> 0:14:47.280 relative concept. I understand there's geopolitical and strategic issues we 0:14:47.320 --> 0:14:49.520 need to deal with with China, but these are the 0:14:49.520 --> 0:14:52.440 two largest economies in the world. We're talking about China 0:14:52.720 --> 0:14:56.280 and the US, and it's better to have better relations 0:14:56.640 --> 0:15:01.760 than intense relations and intensifying geopol tensions between the two. 0:15:02.000 --> 0:15:16.080 Dane swanp KPMG. They're chief economists, thank you. The grace 0:15:16.240 --> 0:15:19.120 of Bloomberg's surveillance is we don't throw up films of 0:15:19.200 --> 0:15:21.240 people being wrong or people being right. 0:15:21.280 --> 0:15:22.400 This is a tough, tough. 0:15:22.200 --> 0:15:25.720 Business gaming out equities, bonds, currencies, commodities. 0:15:25.720 --> 0:15:26.520 If we tossed up. 0:15:26.480 --> 0:15:31.440 A video John and Lisa Anastasia Amroso on the market 0:15:31.800 --> 0:15:34.680 a number of months ago. She held Lisa's hand and said, Lisa, 0:15:34.840 --> 0:15:35.920 It'll be okay. 0:15:36.240 --> 0:15:41.200 A chief investor strategist and what and correct bull joins us. Now, 0:15:41.400 --> 0:15:42.840 is this the second Is this the. 0:15:42.880 --> 0:15:46.400 Second bull market off the October lows thirteen months ago? 0:15:46.680 --> 0:15:47.960 Are we clicking in with a. 0:15:47.960 --> 0:15:49.360 New bullmarket lift? 0:15:49.560 --> 0:15:51.520 I mean, I think this is giving investors a lot 0:15:51.560 --> 0:15:54.080 of faith and hope into the year end. You know, Tom, 0:15:54.120 --> 0:15:56.960 It's amazing how quickly things shift, And just in the 0:15:57.040 --> 0:15:59.760 last couple of weeks we went from really bad technicals 0:16:00.120 --> 0:16:02.400 to really a great technical setup. And I think what's 0:16:02.520 --> 0:16:05.200 likely to happen now is the chase into your end 0:16:05.400 --> 0:16:08.080 is on and it's going to involve a lot of stakeholders, 0:16:08.080 --> 0:16:11.400 whether it's this systematic traders, whether hedge funds that were 0:16:11.400 --> 0:16:14.400 called too short, whether it's all the cash eight trillion 0:16:14.440 --> 0:16:17.240 of it on the sideline. So I do think that 0:16:17.320 --> 0:16:20.080 we well, I was initially going to say drift higher 0:16:20.160 --> 0:16:22.920 into your end based on yesterday. We might rip higher 0:16:22.920 --> 0:16:25.440 into your end, but I do think we'll finish higher. 0:16:25.520 --> 0:16:30.320 Let's discuss what worked yesterday. Small caps, discretionary real a state. 0:16:30.840 --> 0:16:33.640 Is that what you think works going into your end? 0:16:34.080 --> 0:16:36.640 Well, I think tech is going to continue to work 0:16:36.680 --> 0:16:39.080 into your end because if you look at unprofitable tech, 0:16:39.120 --> 0:16:42.920 for example, it also rallied pretty massively yesterday as well. 0:16:43.280 --> 0:16:46.040 You know the reason I hesitate when it comes to 0:16:46.080 --> 0:16:49.120 consumer discretionary. You know, I love the target beat this morning, 0:16:49.160 --> 0:16:51.040 but it does feel like a bit of a one off. 0:16:51.080 --> 0:16:52.520 And you know, if we look at some of the 0:16:52.520 --> 0:16:57.080 surveys of consumer spending consumer spending intentions, consumers are likely 0:16:57.160 --> 0:16:59.720 to be slower and likely to be more discerning and 0:16:59.720 --> 0:17:02.280 the I want to look for promotions. So you know, 0:17:02.320 --> 0:17:05.520 maybe this everything rally does take consumer dis questioningly higher 0:17:05.520 --> 0:17:08.240 with it, but from a quality perspective, and where I 0:17:08.280 --> 0:17:13.160 have the most convictions on margins, on growth, on secular opportunity, John, 0:17:13.200 --> 0:17:14.120 I think it's still tech. 0:17:14.200 --> 0:17:16.760 Okay, So how much is this baking in both the 0:17:16.840 --> 0:17:20.760 ongoing profits and also yields going lower given that valuations 0:17:20.760 --> 0:17:24.600 are already pretty high considering how high the alternative is. 0:17:25.400 --> 0:17:27.760 Yeah, I mean everything is working in the right direction 0:17:27.840 --> 0:17:30.960 right now. Clearly this is a huge yield story. But 0:17:31.080 --> 0:17:33.560 when it comes to big tech, for example, you know, yes, 0:17:33.680 --> 0:17:36.879 yields help from the valuation perspective, But what I also 0:17:37.000 --> 0:17:39.719 like about big tech for example, is that earnings growth 0:17:39.840 --> 0:17:42.480 is there over and above the S and P. For example, 0:17:42.480 --> 0:17:44.920 for the next year or two, the average earnings growth 0:17:45.000 --> 0:17:48.520 is about sixteen percent. So and by the way, valuations, 0:17:48.520 --> 0:17:51.240 I know people say big tech or tech generally is expensive, 0:17:51.280 --> 0:17:54.040 but when you adjust for that earnings growth, it's actually 0:17:54.080 --> 0:17:57.400 not that expensive. And when you start looking at individual stocks, 0:17:57.520 --> 0:18:02.480 maybe forty times forward earnings on Nvidia, maybe that seems expensive, 0:18:02.560 --> 0:18:05.760 but when you expand the chart, it's not actually off 0:18:05.800 --> 0:18:08.400 the chart, so to speak. So everything is relative. 0:18:08.520 --> 0:18:10.639 What's the balance of risks? We've been talking about that 0:18:10.680 --> 0:18:13.960 throughout the morning for next year, as people get enthusiastic 0:18:14.119 --> 0:18:16.080 into year end, is it a better than an expected 0:18:16.160 --> 0:18:21.000 economic picture or is it some sort of recession that 0:18:21.040 --> 0:18:23.200 really feeds into a profit recession as well. 0:18:23.359 --> 0:18:25.919 Yeah, so we have to decouple the view into your 0:18:26.000 --> 0:18:28.520 end versus what might happen in twenty twenty four. And 0:18:28.560 --> 0:18:31.160 I think the reason for this optimist for twenty twenty 0:18:31.200 --> 0:18:34.399 three has been this is a soft landing year. This 0:18:34.480 --> 0:18:36.800 has proven to be a soft landing year. Now I 0:18:36.840 --> 0:18:40.200 think something harder may have to happen in twenty twenty four. 0:18:40.600 --> 0:18:42.959 And here's really the big question. 0:18:43.080 --> 0:18:44.879 Which is going to determine the direction of the markets 0:18:44.920 --> 0:18:47.880 in twenty twenty four is how quickly does the FED 0:18:47.960 --> 0:18:51.080 cut or do they cut? If they cut, then I 0:18:51.080 --> 0:18:53.560 think we're off to the races, and this is they 0:18:53.640 --> 0:18:57.080 go in all on risk moment. But if they don't cut, 0:18:57.080 --> 0:18:59.680 if they stay persistent, then I think some of the 0:18:59.720 --> 0:19:01.080 bold may be disappointed. 0:19:01.200 --> 0:19:05.560 Do we underestimate the ability of corporations to adjust? Twenty 0:19:05.600 --> 0:19:08.879 four months ago of screaming about that we saw Target. 0:19:08.920 --> 0:19:12.400 Today they've had a real, real post pandemic challenge. I guess, John, 0:19:12.400 --> 0:19:13.800 what's it up right now? Forty two? 0:19:14.480 --> 0:19:16.040 It's twenty five? 0:19:16.119 --> 0:19:18.320 Okay, who's keeping count? 0:19:18.520 --> 0:19:21.920 But the answer is I still think it's underestimated in 0:19:22.400 --> 0:19:26.359 FED centric, rate centric New York City that I'm sorry, 0:19:26.440 --> 0:19:28.600 each and every corporation out there is. 0:19:28.400 --> 0:19:30.520 Going to adapt and adjust. What are they going to 0:19:30.560 --> 0:19:31.200 do next year? 0:19:31.560 --> 0:19:34.200 Yes, corporations are adjusting, and the case of Target, it 0:19:34.240 --> 0:19:37.680 took them a while, but those inventories were eventually paired back. 0:19:38.440 --> 0:19:41.960 I think what corporations may struggle with next year until 0:19:42.000 --> 0:19:45.400 and unless the FED pivots is the refinancing bill of 0:19:45.440 --> 0:19:47.639 some of their corporate debt. And by the way, This 0:19:47.720 --> 0:19:50.680 goes across the spectrum. It's the US government which has 0:19:50.680 --> 0:19:53.199 to refinance about thirty five percent of the debt between 0:19:53.200 --> 0:19:55.480 now and the end of next year, is the commercial 0:19:55.560 --> 0:19:58.760 real estate operators that have to refile a lot of the. 0:19:58.760 --> 0:19:59.919 Debt, and then it's corporate. 0:20:00.480 --> 0:20:03.399 So you know, the reason, Tom, why I think we 0:20:03.480 --> 0:20:07.080 haven't seen more of an adverse impact is because the 0:20:07.320 --> 0:20:11.160 percentage of floating rate has been low and companies have 0:20:11.200 --> 0:20:13.440 not had a lot of fixed rate maturities that needed 0:20:13.440 --> 0:20:14.280 to be refinanced. 0:20:14.480 --> 0:20:16.240 That does start to change next year. 0:20:16.280 --> 0:20:18.880 So if the FED doesn't cut, I think it does 0:20:18.920 --> 0:20:22.200 become harder for corporates and how do they adjust well, 0:20:22.280 --> 0:20:25.359 if margins get squeezed, I think cost cutting is the 0:20:25.359 --> 0:20:25.919 next measure. 0:20:26.040 --> 0:20:28.159 Does that make life difficult for certain parts of the 0:20:28.200 --> 0:20:32.360 equity market given the nature of high yield issuers. 0:20:31.840 --> 0:20:32.640 Yeah, it does. 0:20:32.760 --> 0:20:34.639 The parts of the market that I worry about, or 0:20:34.720 --> 0:20:37.520