Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: This is a joy what happens with young economists as
Speaker 2: you read their research and you go, oh, they're quite competent.
Speaker 2: Not long ago and far away, but a few years ago.
Speaker 2: That was Michelle Meyer absolutely owning the parsing of the
Speaker 2: American consumer. She worked for a small bank in Manhattan
Speaker 2: and is now Chief Economists North America from MasterCard Economics.
Speaker 1: You own the.
Speaker 2: Analysis I put you and Allen Zetner together. You own
Speaker 2: the analysis of the American consumer. Have we stopped spending?
Speaker 3: We clearly have not stop spending. Far from it, and
Speaker 3: think about the data this morning. It was an incredible
Speaker 3: combination of continued strength and retail spend, of rebound in
Speaker 3: Empire State manufacturing, which shows that there's still a need
Speaker 3: for more goods production, which is because consumers are still spending,
Speaker 3: and on top of that, you're getting some relief on
Speaker 3: the pricing side. So it's a really nice combination.
Speaker 2: I hate asking this question, and I'm stunned. It's my
Speaker 2: first time I've asked it. On November fifteenth, what's back
Speaker 2: to what's a holiday season look like?
Speaker 1: What's Black Friday? And then Black Monday and this and that?
Speaker 2: What does this retail madness did January look like?
Speaker 3: Well, it is a longer holiday season. We've learned that
Speaker 3: over the last few years, and it's a heavily promotional
Speaker 3: based holiday season, and part of that is because of
Speaker 3: the fact that there's so much demand out there to
Speaker 3: buy online. I mean, think about the numbers we just
Speaker 3: saw this morning. Our spending post numbers saw just over
Speaker 3: eight percent year of your growth in e commerce sales.
Speaker 3: So you know, you're seeing a consumer that is certainly
Speaker 3: exploring many different channels of spending, including online, and that
Speaker 3: creates a lot more opportunities for them to get products,
Speaker 3: and it also creates a lot more need for retailers
Speaker 3: to compete with these big moments in time where they
Speaker 3: offer promotions, and I think that's what's going to be indicative.
Speaker 3: So we'll learn a lot from the Black Friday period,
Speaker 3: and it's approaching very quickly.
Speaker 4: How sustainable is this combination of both robust retail sales
Speaker 4: and disinflation or even outright goods deflation.
Speaker 3: So I think you have to consider the different categories.
Speaker 3: I mean, when you looked at CPI yesterday, you certainly
Speaker 3: saw some categories like these big durable goods like your
Speaker 3: refrigerators back seeing some price declines. But for many other things,
Speaker 3: like many services, for example, you are still seeing some
Speaker 3: price increases. So part of the drop in prices for
Speaker 3: some of these goods simply reflects the fact that prices
Speaker 3: increased too much out of a pandemic because of supply
Speaker 3: chain issues, because of higher costs, and now it's reverting
Speaker 3: a bit more to something more normal, right, So that
Speaker 3: means in real terms you will see some support in
Speaker 3: terms of some of these items moving through. In nominal terms,
Speaker 3: you could see some move down in terms of overall spend.
Speaker 3: So it really depends on why inflation is moving, and
Speaker 3: that is a function of the type of product and
Speaker 3: how things evolved coming out of the pandemic.
Speaker 4: When you put it together, does this seem like a
Speaker 4: recipe for this goldilocks soft landing, or does this seem
Speaker 4: to paint the picture of a federal reserve that needs
Speaker 4: to do more and of an economy that has way
Speaker 4: too much momentum to really achieve the disinflation that a
Speaker 4: lot of people are baking into market evaluations.
Speaker 3: I think the data is shaping up in a way
Speaker 3: that's really favorable at the moment because you continue to
Speaker 3: have economic growth. Look at the third quarter GDP numbers,
Speaker 3: that was fairly broad based economic activity, not just consumers
Speaker 3: but also businesses investing inventories getting much more manageable and
Speaker 3: in stock So you know, things have been evolving remarkably
Speaker 3: well in terms of the real economy, taking out some
Speaker 3: of the excesses, labor market coasting into a litt bit
Speaker 3: of a slower trajectory for job growth, but still expansionary,
Speaker 3: while you get this relief on the inflation front. So
Speaker 3: how much of that is because of monetary policy, how
Speaker 3: much of that is because of the nature of the
Speaker 3: shock that we had initially, We'll see it's probably a
Speaker 3: bit of both. But it's evolving really quite quite nicely,
Speaker 3: and obviously exceeding many people's expectations.
Speaker 5: Out there.
Speaker 2: We talked about the interest expense and the debt and
Speaker 2: the deficit earlier with Mia mcguinnis. Let's talk about the
Speaker 2: average charge card is twenty five twenty six percent interest,
Speaker 2: migrating up now to twenty eight twenty nine percent interest.
Speaker 2: I find thirty percent to be almost criminal. But you
Speaker 2: people look at this daily, is that interest rate goes up,
Speaker 2: do we spend less?
Speaker 3: So what we're looking at overall is how monetary policy
Speaker 3: is transmitting into the economy broadly. So when you think
Speaker 3: about who's borrowing out there, there's companies that are borrowing
Speaker 3: in terms of the expansionary needs. There's consumers that are
Speaker 3: borrowing in terms of whether or not they want to
Speaker 3: buy a home or a big ticket item that might
Speaker 3: require some leverage. So higher interest rates are certainly transmitting
Speaker 3: into the economy. You can see it today with the
Speaker 3: retail sales number that's Mike just my friends. Around housing
Speaker 3: related items, furniture, some of these bigger ticket items that
Speaker 3: require debt. You are seeing some hit to those types suspending.
Speaker 3: So I think the high level of interest rates goes
Speaker 3: back to Lisa's point around how the FED is trying
Speaker 3: to calibrate this economy with some easing of real growth
Speaker 3: but still allowing inflation to come down.
Speaker 2: Okay, you're out of the game, but I'm going to
Speaker 2: ask you the game question here, which is what is
Speaker 2: your twelve months for to real GDP? Like, what's your
Speaker 2: twenty twenty You're talking to fancy people at MasterCard, and
Speaker 2: you know they don't want to charge cards. They want
Speaker 2: to know what Michelle Meyer thinks about the economy. What's
Speaker 2: your twenty twenty four real GDP call?
Speaker 3: So the good news is that we are I'm still
Speaker 3: in the game, and that we are still running at
Speaker 3: still absolutely that is who I am as a person,
Speaker 3: as an economist. When I look ahead, I mean this
Speaker 3: year we had an economy that ran above its underlying trend.
Speaker 3: So we're trending right now, given where GDP is for
Speaker 3: real growth somewhere between two point four percent right now
Speaker 3: in twenty twenty three. As we look ahead to twenty
Speaker 3: twenty four, we're probably going to see some moderation closer
Speaker 3: to the underlying trend growth rate of the economy closer
Speaker 3: to trend.
Speaker 6: Didn't answer, Ye's.
Speaker 1: Still in the game.
Speaker 6: I'm still I got to total.
Speaker 1: Go away. Michelle Meyer's MasterCard.
Speaker 2: There somewhere in the blur of the last four or
Speaker 2: five days through my small little brain, would somebody get
Speaker 2: Diane SWUNKA You know, I just said she has such
Speaker 2: a perspective different from three zip codes in New York,
Speaker 2: And I guess all of this is her academic work
Speaker 2: at the University of Michigan Longo. She's putting a penalty
Speaker 2: box there. At one point she was stealing signs from.
Speaker 1: The Federal Reserve.
Speaker 2: Is I think it's a football joke there, Yeah, dian
Speaker 2: Swank understands Michigan's I guess in the penalty box, Diane Swank,
Speaker 2: is it free and clear? Is your own Powell not
Speaker 2: in the penalty box. I've asked this question four times,
Speaker 2: but with immense respect to your work and your holistic
Speaker 2: look at business data. Is it mission accomplished? Finally, for
Speaker 2: the FED, it's.
Speaker 7: Not mission accomplished because if that is still going to
Speaker 7: hold rates higher for longer. But we're done with right
Speaker 7: hikes and that's what we've been saying, and that's what
Speaker 7: we believe. That's the good news out there is that
Speaker 7: it does look like the soft landing is not only
Speaker 7: possible but probable. But the journey is not yet over,
Speaker 7: and the endurance part comes next, and that's what the
Speaker 7: FED is watching closely. They still expect to see growth
Speaker 7: below potential in order to have that soft landing occur.
Speaker 7: That's one of those technical things that consumers don't really like,
Speaker 7: because growth below potential is a rise in unemployment, which
Speaker 7: in fact we've already seen. Most of that rise we
Speaker 7: saw over the summer was because more people were looking
Speaker 7: for jobs, not because of mass layoffs than in October
Speaker 7: when we saw unemployment move up to three point nine percent,
Speaker 7: it was because we also saw the spillover effects of
Speaker 7: strikes as well.
Speaker 2: When I look at this economy and all the different
Speaker 2: narratives that are out there right now, the heart of
Speaker 2: the matter for me is fully employed America. Butter stop
Speaker 2: with what Austin Goolsby brilliantly said yesterday. Is a believer
Speaker 2: in a new productivity, a new regime of productivity that's
Speaker 2: going to make the job for everybody out there easier.
Speaker 1: Do you buy it?
Speaker 7: Well, we are seeing a major increase in productivity, and
Speaker 7: I think during the frenzy, the hiring frenzy that we saw,
Speaker 7: we know from ADP data that's locked at this more closely,
Speaker 7: many firms stopped hiring people. Then add on top of
Speaker 7: it the loss and hiring an educational attainment due to
Speaker 7: the pivot online itself. And now we're unwinding that and
Speaker 7: people are actually learning the jobs they have. Overlay that
Speaker 7: with innovation and technology and leveraging the technologies we were
Speaker 7: forced to use as we moved online, and you do
Speaker 7: get higher productivity growth, and that is helping to bring
Speaker 7: down inflation as well. The problem for most consumers, of course,
Speaker 7: is that the level of prices are still very high.
Speaker 7: And let's face it, you know, consumer sentiment hit its
Speaker 7: record high for University of Michigan Centiment Index in Chau
Speaker 7: two thousand. Yeah, I threw that in. Although I did
Speaker 7: go to Chicago too. They won the first Heisman Trophy
Speaker 7: right now with a lack of scandals, which a little better.
Speaker 1: Did you go to the Goldsby speech?
Speaker 2: I mean, you're such a hitter out there in Chicago?
Speaker 2: Did you darken the door for the Golsby speech?
Speaker 7: I wasn't at this one. I've been at many of them,
Speaker 7: and I'll be at one on December first with them.
Speaker 7: What about Hey, Dana speaking as well.
Speaker 8: What do you feel how do you kind of view
Speaker 8: the consumer here? We got some retail sales data today
Speaker 8: that came in a little bit better than expected, yet target,
Speaker 8: you know, still seeing some some challenges out there with
Speaker 8: the reported numbers, and of course we'll hear from Walmart tomorrow.
Speaker 8: What's what's your sense of the consumer out there?
Speaker 7: This is a consumer that shown remarkable endurance. Remember October
Speaker 7: is when the first student loans for about twenty three
Speaker 7: million student borrowers were due. Of course, they started paying
Speaker 7: those loans already in August while ahead of time, front
Speaker 7: running the interest accruing on those loans. But we know
Speaker 7: that student loan, your payments are going to crimp consumer spending.
Speaker 7: And I think what's also important is we're seeing the
Speaker 7: biggest trade offs everything within grocery stores. They're spending more
Speaker 7: at grocery stores than at restaurants during the month, and
Speaker 7: after adjusting for inflation, they're still spending more at grocery
Speaker 7: stores because it's really expensive after adjusting for inflation to
Speaker 7: go out to restaurants. That said, there's a lot of
Speaker 7: trade offs within that as well. Beef prices hit a
Speaker 7: record high during the month of October in that's due
Speaker 7: to the fact that we had all these droughts. That's
Speaker 7: in the herds, and I think, you know, the effects
Speaker 7: of those kinds of shocks are what really matter to consumers.
Speaker 7: And even as the FED is combating inflation the pace
Speaker 7: at which prices increase, many consumers who finally saw their
Speaker 7: wages level up only got to spend a moment in
Speaker 7: the sun before they were burned by inflation, and they're
Speaker 7: still playing catchup from those earlier increases exactly.
Speaker 8: So, you know, in terms of the consumer here we
Speaker 8: have the unemployment rate officially at three point nine percent.
Speaker 8: What do you think the FED would like to see
Speaker 8: that rate? Do they feel like it needs to drift
Speaker 8: a little bit higher before they get a sense that
Speaker 8: this economy really is cooling?
Speaker 7: Well, I hate to use the word like, because I
Speaker 7: think that's a little pejorative in this context. I think
Speaker 7: they think it needs to go a little above four
Speaker 7: percent in order to get the full derailing of inflation
Speaker 7: and to be able to really cut rates as we
Speaker 7: move into twenty twenty five. I think we're going to
Speaker 7: see rate cuts by the middle of twenty twenty four,
Speaker 7: but the descent on rates is going to be much
Speaker 7: less graduate much slower than the acent on rates, and
Speaker 7: I think that's very important to remember as well. The
Speaker 7: Center Reserve is really pretty pleased with the fact that
Speaker 7: so far until we had that October blip, which was
Speaker 7: by an external shock the strikes, that we were able
Speaker 7: to really see more people looking for jobs rather than
Speaker 7: layoffs contributing to unemployment, more data.
Speaker 2: Checks and all this turmoil, the vix goes to constructively bullish.
Speaker 2: We are higher above fourteen and now at fourteen point eight,
Speaker 2: a better VIX number off of yesterday. Dow up one hundred,
Speaker 2: SPX up sixteen points, doing better than call it nine o'clock,
Speaker 2: futures up four tenths of a percent, NASDAK up half
Speaker 2: a percent as well. We're with Diane's swank this morning
Speaker 2: of KPMG. Diane, my great theory is corporations are going
Speaker 2: to adapt and adjust. How do they adapt and adjust?
Speaker 2: Is it just going to be one expense reduction?
Speaker 7: You know, that's going to be a series of I
Speaker 7: think we're already seeing the adaption occur, and it's evolution
Speaker 7: more of a revolution than an evolution, and that is
Speaker 7: that after more than a decade of ulter low rates
Speaker 7: and some business models that were built entirely on ultra
Speaker 7: low rates still adapt to a more normal economy that
Speaker 7: has higher rates to it, and they have to deal
Speaker 7: with the higher wage levels that they leveled up to,
Speaker 7: and that means they got to make their workers more
Speaker 7: productive to be able to continue paying those wages without
Speaker 7: mass layoffs. And that's where I think we're going. I
Speaker 7: think we are going to see productivity growth continue to
Speaker 7: be elevated. That's the good news. I think also it's
Speaker 7: important to remember the tire meets the road on productivity
Speaker 7: growth when you combine innovation and technology with our human capital,
Speaker 7: and how valuable it is. When you really level the
Speaker 7: boats together two together, that's when you get the big benefits.
Speaker 2: Sure theory there is how the Cubs stole the Milwaukee
Speaker 2: Brewer's managers.
Speaker 1: I mean you get that.
Speaker 2: She's like consulting the Chicago Cubs. How do we jump
Speaker 2: started Creid Council bring them down to Chicago? Paul slip
Speaker 2: in one more?
Speaker 8: All right, So, Diane, I mean we have our President
Speaker 8: Biden in San Francisco meeting with President she. How do
Speaker 8: you figure China into your economic outlook here? What do
Speaker 8: you what do you what would you like to see.
Speaker 8: What do you think we're going to see.
Speaker 7: I think it's important that you know we can't deglobalization
Speaker 7: is a bit of a myth. We're seeing trading blocks
Speaker 7: that have moved, and more training within blocks rather than
Speaker 7: across blocks, which is actually boosting global trade. That's more
Speaker 7: friction in the global economy and ultimately more risk of
Speaker 7: supply chocks and more fragile supply chains. So I think
Speaker 7: the concept of de risking is something that is a
Speaker 7: relative concept. I understand there's geopolitical and strategic issues we
Speaker 7: need to deal with with China, but these are the
Speaker 7: two largest economies in the world. We're talking about China
Speaker 7: and the US, and it's better to have better relations
Speaker 7: than intense relations and intensifying geopol tensions between the two.
Speaker 2: Dane swanp KPMG. They're chief economists, thank you. The grace
Speaker 2: of Bloomberg's surveillance is we don't throw up films of
Speaker 2: people being wrong or people being right.
Speaker 1: This is a tough, tough.
Speaker 2: Business gaming out equities, bonds, currencies, commodities.
Speaker 1: If we tossed up.
Speaker 2: A video John and Lisa Anastasia Amroso on the market
Speaker 2: a number of months ago. She held Lisa's hand and said, Lisa,
Speaker 2: It'll be okay.
Speaker 1: A chief investor strategist and what and correct bull joins us. Now,
Speaker 1: is this the second Is this the.
Speaker 2: Second bull market off the October lows thirteen months ago?
Speaker 1: Are we clicking in with a.
Speaker 2: New bullmarket lift?
Speaker 9: I mean, I think this is giving investors a lot
Speaker 9: of faith and hope into the year end. You know, Tom,
Speaker 9: It's amazing how quickly things shift, And just in the
Speaker 9: last couple of weeks we went from really bad technicals
Speaker 9: to really a great technical setup. And I think what's
Speaker 9: likely to happen now is the chase into your end
Speaker 9: is on and it's going to involve a lot of stakeholders,
Speaker 9: whether it's this systematic traders, whether hedge funds that were
Speaker 9: called too short, whether it's all the cash eight trillion
Speaker 9: of it on the sideline. So I do think that
Speaker 9: we well, I was initially going to say drift higher
Speaker 9: into your end based on yesterday. We might rip higher
Speaker 9: into your end, but I do think we'll finish higher.
Speaker 10: Let's discuss what worked yesterday. Small caps, discretionary real a state.
Speaker 10: Is that what you think works going into your end?
Speaker 9: Well, I think tech is going to continue to work
Speaker 9: into your end because if you look at unprofitable tech,
Speaker 9: for example, it also rallied pretty massively yesterday as well.
Speaker 9: You know the reason I hesitate when it comes to
Speaker 9: consumer discretionary. You know, I love the target beat this morning,
Speaker 9: but it does feel like a bit of a one off.
Speaker 9: And you know, if we look at some of the
Speaker 9: surveys of consumer spending consumer spending intentions, consumers are likely
Speaker 9: to be slower and likely to be more discerning and
Speaker 9: the I want to look for promotions. So you know,
Speaker 9: maybe this everything rally does take consumer dis questioningly higher
Speaker 9: with it, but from a quality perspective, and where I
Speaker 9: have the most convictions on margins, on growth, on secular opportunity, John,
Speaker 9: I think it's still tech.
Speaker 4: Okay, So how much is this baking in both the
Speaker 4: ongoing profits and also yields going lower given that valuations
Speaker 4: are already pretty high considering how high the alternative is.
Speaker 9: Yeah, I mean everything is working in the right direction
Speaker 9: right now. Clearly this is a huge yield story. But
Speaker 9: when it comes to big tech, for example, you know, yes,
Speaker 9: yields help from the valuation perspective, But what I also
Speaker 9: like about big tech for example, is that earnings growth
Speaker 9: is there over and above the S and P. For example,
Speaker 9: for the next year or two, the average earnings growth
Speaker 9: is about sixteen percent. So and by the way, valuations,
Speaker 9: I know people say big tech or tech generally is expensive,
Speaker 9: but when you adjust for that earnings growth, it's actually
Speaker 9: not that expensive. And when you start looking at individual stocks,
Speaker 9: maybe forty times forward earnings on Nvidia, maybe that seems expensive,
Speaker 9: but when you expand the chart, it's not actually off
Speaker 9: the chart, so to speak. So everything is relative.
Speaker 4: What's the balance of risks? We've been talking about that
Speaker 4: throughout the morning for next year, as people get enthusiastic
Speaker 4: into year end, is it a better than an expected
Speaker 4: economic picture or is it some sort of recession that
Speaker 4: really feeds into a profit recession as well.
Speaker 9: Yeah, so we have to decouple the view into your
Speaker 9: end versus what might happen in twenty twenty four. And
Speaker 9: I think the reason for this optimist for twenty twenty
Speaker 9: three has been this is a soft landing year. This
Speaker 9: has proven to be a soft landing year. Now I
Speaker 9: think something harder may have to happen in twenty twenty four.
Speaker 6: And here's really the big question.
Speaker 9: Which is going to determine the direction of the markets
Speaker 9: in twenty twenty four is how quickly does the FED
Speaker 9: cut or do they cut? If they cut, then I
Speaker 9: think we're off to the races, and this is they
Speaker 9: go in all on risk moment. But if they don't cut,
Speaker 9: if they stay persistent, then I think some of the
Speaker 9: bold may be disappointed.
Speaker 2: Do we underestimate the ability of corporations to adjust? Twenty
Speaker 2: four months ago of screaming about that we saw Target.
Speaker 2: Today they've had a real, real post pandemic challenge. I guess, John,
Speaker 2: what's it up right now? Forty two?
Speaker 10: It's twenty five?
Speaker 1: Okay, who's keeping count?
Speaker 2: But the answer is I still think it's underestimated in
Speaker 2: FED centric, rate centric New York City that I'm sorry,
Speaker 2: each and every corporation out there is.
Speaker 1: Going to adapt and adjust. What are they going to
Speaker 1: do next year?
Speaker 9: Yes, corporations are adjusting, and the case of Target, it
Speaker 9: took them a while, but those inventories were eventually paired back.
Speaker 9: I think what corporations may struggle with next year until
Speaker 9: and unless the FED pivots is the refinancing bill of
Speaker 9: some of their corporate debt. And by the way, This
Speaker 9: goes across the spectrum. It's the US government which has
Speaker 9: to refinance about thirty five percent of the debt between
Speaker 9: now and the end of next year, is the commercial
Speaker 9: real estate operators that have to refile a lot of the.
Speaker 6: Debt, and then it's corporate.
Speaker 9: So you know, the reason, Tom, why I think we
Speaker 9: haven't seen more of an adverse impact is because the
Speaker 9: percentage of floating rate has been low and companies have
Speaker 9: not had a lot of fixed rate maturities that needed
Speaker 9: to be refinanced.
Speaker 6: That does start to change next year.
Speaker 9: So if the FED doesn't cut, I think it does
Speaker 9: become harder for corporates and how do they adjust well,
Speaker 9: if margins get squeezed, I think cost cutting is the
Speaker 9: next measure.
Speaker 10: Does that make life difficult for certain parts of the
Speaker 10: equity market given the nature of high yield issuers.
Speaker 6: Yeah, it does.
Speaker 9: The parts of the market that I worry about, or
Speaker 9: leverage loans for example, which have already had a full
Speaker 9: year of rates.
Speaker 6: Around five percent.
Speaker 9: And if you look at the net interst coverage ratios,
Speaker 9: there were about three and a half times going.
Speaker 6: Into the year for a lot of those issues.
Speaker 9: There are one times today, maybe one point three, So
Speaker 9: how does that picture change next year, especially if you
Speaker 9: have some slow down in.
Speaker 6: The top line for high yield.
Speaker 9: I'm a little bit less worried because you do have
Speaker 9: generally higher quality and better fundamentals, and there's a small
Speaker 9: portion of high.
Speaker 6: Yield that needs to be rolled over next year.
Speaker 9: But from a broader economic perspective, and especially when I
Speaker 9: think about the banking sector, if you start to have
Speaker 9: more charge offs, incrementally more delinquencies, some default and by
Speaker 9: the way, venture capital bankruptcies have been on the rise,
Speaker 9: so all of that does start to impact some sector
Speaker 9: of the economy, which I think is the bank.
Speaker 10: Can we finish on the banks kind of left for
Speaker 10: dead at times this year and for good reason earlier
Speaker 10: in spring. What's your view on them into twenty four?
Speaker 9: A very mixed view on them into twenty twenty four,
Speaker 9: because in earlier on the show, I did say that,
Speaker 9: you know, I was kind of warming up to the
Speaker 9: bank sector because we were expecting the capital market activity
Speaker 9: to pick up. That really didn't pan out so far
Speaker 9: in the fall of this year, and I'm not sure
Speaker 9: that it does in twenty twenty four.
Speaker 6: So if you have lackluster capital market activity, in twenty twenty.
Speaker 9: Four, and then on top of that you do have
Speaker 9: those higher delinquencies, defaults, and charge offs. That comes back
Speaker 9: to roots for the banking sector. So I appreciate the
Speaker 9: rally that they're participating in, but that would not be
Speaker 9: my top pic today.
Speaker 4: You sound actually less optimistic than you did a bunch
Speaker 4: of months ago, quite a bit less optimistic. Can you
Speaker 4: frame that out just how much you think some of
Speaker 4: the gains have already been paked in.
Speaker 9: Yeah, I definitely sound less optimistic your end rally nowithstanding.
Speaker 9: And the reason for that is because a lot of
Speaker 9: investors coming into the year expected this to be maybe
Speaker 9: even a recession a year, or at least very lackluster
Speaker 9: economic growth, and instead we got close to five percent
Speaker 9: GDP in.
Speaker 6: The third quarter.
Speaker 9: So a lot of people are now in the soft
Speaker 9: landing camp and are not even.
Speaker 6: Talking about recession.
Speaker 9: But if you think about this, you know, the longer
Speaker 9: rates stayed at the current levels, and by the way,
Speaker 9: if inflation falls and real rates start to pick up
Speaker 9: the relationship we also talked about previously, then we are
Speaker 9: going to get in restrictive territory relative to the neutral rate,
Speaker 9: and that's when you start to worry about the FED
Speaker 9: stays therefore too long, then that's what caused historically a recession. Well,
Speaker 9: I do worry about that, and I don't think it's
Speaker 9: in people's consensus numbers right now.
Speaker 2: Is my takeaway here that Amoroso is on the edge.
Speaker 10: Of bramo ye and it gets maybe less constructive gone
Speaker 10: into twenty five to.
Speaker 6: Be a long year of twenty four. So we can't
Speaker 6: just you know, prepare for the whole thing.
Speaker 2: That's the joy that I hurt six months ago.
Speaker 9: Oh, the joy is here. The joy is into your
Speaker 9: end and you know, you know, I do think that. Look,
Speaker 9: the FED for now seems to be behind us until
Speaker 9: mid December. You know, I think some of the worst
Speaker 9: Fed Treasury auctions are behind us.
Speaker 6: Okay, So that's the joy.
Speaker 1: The conversation.
Speaker 10: The joy was on the screen over the last twenty
Speaker 10: four and made away and I say, you're constructive so
Speaker 10: many times right to be and stay camo. So if
Speaker 10: I capital it.
Speaker 2: The Henrietta Trace joins US now economic policy research director
Speaker 2: at Vada Partners. Henrietta, with all your years of experience
Speaker 2: in Washington, and how polarized is the polarity right now?
Speaker 11: I mean, they are just at each other's throats, almost literally. Certainly,
Speaker 11: the stories out of DC yesterday were just shocking. Frankly,
Speaker 11: they have to go on recess. I am so thankful
Speaker 11: that they have agreed to this kick the can approach.
Speaker 11: As you mentioned before, I think we're just going to
Speaker 11: be doing this again, and I'm not optimistic that it's
Speaker 11: going to stop in January or in February when the
Speaker 11: two current deadlines exist. We're going to be doing this
Speaker 11: every couple of months for the rest of twenty twenty four.
Speaker 12: So we should get used to this.
Speaker 11: Kind of acrimony government shutdown risks. Those headlines should just
Speaker 11: be permanently emblazoned every couple of months in the newsreel.
Speaker 10: We've got those headlines ready to go hendriady through the
Speaker 10: whole at twenty twenty four. Can you just frame how
Speaker 10: big this fight over spending might be just next year.
Speaker 11: You know, it's just loud. It's not a big fight.
Speaker 11: It's just a loud fight. They are not getting any
Speaker 11: reductions in federal spending. This is a clean cr There
Speaker 11: will be a minimum of about one hundred billion dollars
Speaker 11: an additional aid that goes out across domestic and international priorities.
Speaker 11: We are not fighting about spending cuts. We are fighting
Speaker 11: about the process. The Freedom Caucus came up with the
Speaker 11: idea of doing this laddered approach. It was rejected, resuscitated,
Speaker 11: and then finally included in part in this deal. But
Speaker 11: it contains no spending cuts, and there's no scenario where
Speaker 11: the second tranche, which includes defense and foreign operations spending,
Speaker 11: is going to expire after they reach a deal on
Speaker 11: the first couple of appropriations bills. So this is a
Speaker 11: lot of sound, This is a lot of bark very
Speaker 11: little bite.
Speaker 4: Given the fact that there was not Israel or Ukraine
Speaker 4: funding in this current bill, how likely do you think
Speaker 4: that will get done by January?
Speaker 6: By February?
Speaker 4: Does it even matter considering the spending that's coming out
Speaker 4: of different pockets.
Speaker 12: That's a really important question.
Speaker 11: And I think a lot of this is tied up
Speaker 11: with Minoriti leader maccaddeal and how much cloud he continues
Speaker 11: to have with the party.
Speaker 12: I think we can't underestimate the.
Speaker 11: Impact of the loss in Kentucky for the governor's race
Speaker 11: that materially acted his standing with his own conference in
Speaker 11: the Senate Republican Caucus. And I think that's a big
Speaker 11: problem for Ukraine AID. I was surprised in my last
Speaker 11: round of meetings in DC how little support there is
Speaker 11: for Ukraine versus what there has been from the United
Speaker 11: States for the last year and eight months. It is
Speaker 11: really a iffy question on whether Ukraine aid gets provided
Speaker 11: at all. I do think that keeping Israel aid off
Speaker 11: of the cr that they're passing now creates at.
Speaker 12: Least a pathway.
Speaker 11: But when you tie Ukraine to the border and recognize
Speaker 11: that we haven't had border security legislation pass in a
Speaker 11: decade or more, you really have a problem.
Speaker 12: So I think that it is good news that we
Speaker 12: don't have a bill yet. It keeps soap alive.
Speaker 11: But I would dim my expectations for robust aid to
Speaker 11: Ukraine and Israel. Obviously is another problem that is splitting
Speaker 11: the Democratic Party just in half, just ripping it apart.
Speaker 11: So those packages are going to be really hard to
Speaker 11: come by, and I wouldn't be surprised that they didn't
Speaker 11: get it till January.
Speaker 4: You know, it's getting harder and harder to parse through
Speaker 4: the signal from the noise in Washington, d C. We
Speaker 4: have all these real, tangible, important issues and yet we
Speaker 4: are focusing on scuffles both in the Senate that Bernie
Speaker 4: Sanders had to and with a wooden gavel, and then
Speaker 4: this the accusation that Kevin McCarthy elbowed fellow Republican Congress
Speaker 4: member Tim Burchett during some of the contentious negotiations. Are
Speaker 4: any of these important to you on a policy or
Speaker 4: just functional level?
Speaker 11: There is no policy, So I think Tom, you actually
Speaker 11: just made a statement about how if you don't have
Speaker 11: your fiscal house in order, you can enact policy.
Speaker 12: That's exactly what's happening.
Speaker 11: There is no policy, so we're only talking about fiscal austerity.
Speaker 11: There's no discussion about passing a year in tax build
Speaker 11: that's of any kind of merit.
Speaker 12: They're running around punching each other in.
Speaker 11: The back because they have gripes and qualms with who's
Speaker 11: a liar, who has trustworthiness. There is no policy, there's
Speaker 11: no uniting policy that drives the House of publican conference,
Speaker 11: which is in control, and that means that the Senate
Speaker 11: can't get their act together or get their work done.
Speaker 11: And it's really been a darth of leadership that I
Speaker 11: think is exacerbated by Mitch McConnell being on the way out,
Speaker 11: and a speaker that is untested with no real leadership
Speaker 11: mandate to work with on the Republican side. So I
Speaker 11: think there is no policy. I don't think we will
Speaker 11: be voting on any meaningful legislation next year. They cannot
Speaker 11: move forward on impeachment. They can't move forward on you know,
Speaker 11: impeaching even the Homeland Security secretary. They don't have a
Speaker 11: plan for the border that is comprehensive or can pass
Speaker 11: with the Republican conference. When you have these type majorities
Speaker 11: and a lack of leadership, this is where you land.
Speaker 11: So we just have these short term fights about federal spending.
Speaker 11: Thankfully we don't have to deal with the debt ceiling
Speaker 11: next year. That would have been a real problem.
Speaker 10: Well, Henry Ti, given everything you've just said, doesn't that
Speaker 10: make it all the more amazing that we managed to
Speaker 10: find an agreement in the House yesterday.
Speaker 11: I mean, you know, yes, and I don't want to
Speaker 11: be just contrarian, but they're up. The scenario where we
Speaker 11: shut down is even worse because there's no path to reopen.
Speaker 11: So if you shut down the government, we will be
Speaker 11: shut down for quite some time. People talk about, oh,
Speaker 11: we couldn't possibly go past two weeks because you'd missed
Speaker 11: a pay cycle. The last time we did this, for
Speaker 11: no good reason, with no end in sight, we shut
Speaker 11: down for thirty five days, right over the Christmas holidays.
Speaker 12: I think the one thing.
Speaker 11: That's kept my optimism alive contrary to a lot of
Speaker 11: popular opinion, with you know, twenty percent or less odds
Speaker 11: that we'd shut down all year, is.
Speaker 12: Basically that the alternative is worse.
Speaker 11: Shutting down means we stay shut down for quite some time.
Speaker 11: Everybody looks incompetent, and you can't have these fights about
Speaker 11: fiscal austerity and spending. If you're shut down, it starts
Speaker 11: to have a material negative impact. So I mean they're
Speaker 11: both bad options, but shutting down is the worst.
Speaker 10: One, with lots of them looking competent when it's open. Henritta,
Speaker 10: trace their evade partners, Henritta, thank you.
Speaker 1: I don't talk to Jim Bartak ahead.
Speaker 2: Let us get briefs here to say the marriage Jennifer
Speaker 2: Bartash's marriage counselor joins us with Bloomberg Intelligence.
Speaker 1: Jen thank you so much for joining.
Speaker 2: I want you to explain what falls to the bottom line.
Speaker 2: Home depot has a net income margin of nine is
Speaker 2: tennis cents. Target I was shocked is three or a
Speaker 2: moldy four cents on the dollar.
Speaker 1: Is anybody making money in this business?
Speaker 5: Good morning, Tom. It's a good question, and it's definitely
Speaker 5: one of the challenges that we always see in this
Speaker 5: retail sector. But I have to say, Targets results today
Speaker 5: we're very encouraging, you know, and it does give a
Speaker 5: little bit of optimism for the fourth quarter. So when
Speaker 5: they beat across the board with revenue same store sales,
Speaker 5: you know, we did see a great increase in margin.
Speaker 5: That's all really because some of the productivity initiatives that
Speaker 5: they put in place are starting to really help take
Speaker 5: cost out of the business.
Speaker 10: Willmont anst on this news as well. It's up in
Speaker 10: a free market, buying more than one point two percent. Jen,
Speaker 10: will hear from that company tomorrow. What is the read
Speaker 10: across from that company to the other.
Speaker 5: Well, I think that Target having better than expected results
Speaker 5: really only means good things for Walmart. Walmart does tend
Speaker 5: to outperform in environments where people are pulling back or
Speaker 5: being very careful with their spending, and so I think
Speaker 5: that a better than expected result today may lead to
Speaker 5: a very good outlook for tomorrow as well.
Speaker 4: But Jen, how do you parse through just the management
Speaker 4: side of things versus the macro call on a management
Speaker 4: side of saying Target seemed to work down fourteen percent
Speaker 4: of some of its excess inventory, leading to some of
Speaker 4: this boost.
Speaker 12: Does that really.
Speaker 4: Cross over to some sort of read through in the
Speaker 4: broader consumer.
Speaker 5: Well, I think that what we've seen is across a
Speaker 5: lot of retailers, they've had to figure out their inventory
Speaker 5: in kind of this post pandemic world. We went through
Speaker 5: a phase where everybody was stockpiling inventory so that they've
Speaker 5: had stuff available, then they had too much and they
Speaker 5: had to clear it out, and now they're trying to
Speaker 5: find the right equal librium. And being down versus last
Speaker 5: year where there were still concerns about supply chain constraints
Speaker 5: just shows that we're really getting back to that equilibrium
Speaker 5: and we're seeing it across multiple retailers, and so I
Speaker 5: think what's important is that inventory is down that much,
Speaker 5: but they are already stock for holiday, So to us,
Speaker 5: that also means that they should be able to sell
Speaker 5: through a good portion of their inventory over the holiday
Speaker 5: season and not end up in the same position they
Speaker 5: were in where they had to have a lot of
Speaker 5: Markdown's post holiday.
Speaker 4: Jen Yesterday we were talking about drug stores in certain
Speaker 4: cities that are putting pictures of toilet paper behind the
Speaker 4: shelves and then having people ask request for it to
Speaker 4: be delivered to them from the back of this store.
Speaker 4: Target did talk about theft to our shrink as they
Speaker 4: call it, and saying it's still weighing on their margins
Speaker 4: in a material way.
Speaker 6: What do you make of this?
Speaker 4: How long are we going to hear about this in
Speaker 4: earnings and is this just simply an excuse for margin
Speaker 4: pressure or is this something that is going to become
Speaker 4: increasingly concerning for both investors as well as the corporate executives.
Speaker 5: What we usually see in longer term cycles is that
Speaker 5: theft escalates whenever the consumer is under pressure, and as
Speaker 5: inflation is coming down, that actually should be a little
Speaker 5: bit of a release on that pressure. With regards to
Speaker 5: theft and the losses that retailers are having. You know,
Speaker 5: people generally want to do the right thing, and Target
Speaker 5: in particular has been very vocal about theft levels. We've
Speaker 5: saw some store closures where they said it was just
Speaker 5: not profitable to operate, but We do think that as
Speaker 5: inflation comes down, that should easy get a little bit
Speaker 5: easier going forward.
Speaker 2: John, you don't you bihold cell, but I want you
Speaker 2: to note a four percent dividend, an eleven percent five
Speaker 2: year dividend growth.
Speaker 1: I got a.
Speaker 2: Multiple of fifteen, which is what one third of the
Speaker 2: high flyers one fifth of Nvidia. In that can Brian
Speaker 2: Cornell and his team say we're back on plan the
Speaker 2: pandemics beyond us and we will have the glide pass
Speaker 2: of the TAJE we knew years ago.
Speaker 5: I think we might be at a turning point. It
Speaker 5: might be a little early to say that we're already there,
Speaker 5: but I think that today's results definitely indicate that a
Speaker 5: lot of the strategies that they're retrenching, that they're putting
Speaker 5: back into place, do put target back on that right trajectory.
Speaker 10: Jennifer, thanks for the update. Let's cat cheup against tomorrow
Speaker 10: when we get numbers from Wolmont. Jennifer Pontanshestan of Bloomberg Intetogen's.
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