Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Geita Goberenath has been
Speaker 2: Deputy Managing Director of the International Monetary Fund during one
Speaker 2: of the most transformative economic periods in modern history, including
Speaker 2: the pandemic, inflation, shock, and the push to de globalites.
Speaker 2: After seven years at the IMF, she's stepping down tomorrow
Speaker 2: and joins us now for a final conversation. Geita, welcome
Speaker 2: back to Bloomberg Surveillance and thank you for sharing your
Speaker 2: time with us this morning. Let's start there. Let's look
Speaker 2: at your time at the International Monagery Fund. How much
Speaker 2: has changed over almost a decade.
Speaker 3: Hi, and the pleasure to join you.
Speaker 4: Pretty much.
Speaker 3: I think everything has changed. I started at the IMF
Speaker 3: in twenty nineteen and that feels like that was the
Speaker 3: calm before the storm, and you had the pandemic, you
Speaker 3: had war in Ukraine, and now geoeconomic fragmentation. I think
Speaker 3: the global economic order is transforming in ways we haven't
Speaker 3: seen in decades, and it's still highly unclear where the
Speaker 3: global economy will settle. I think the second big difference
Speaker 3: between twenty nineteen and now is on the fiscal front.
Speaker 3: Death levels are incredibly high, they are ever increasing, and
Speaker 3: while in the past you might have said, so what
Speaker 3: markets will take it, that's not the case anymore, even
Speaker 3: in advanced economies. You see that in France, the UK,
Speaker 3: and also in terms of long eels in the US.
Speaker 3: And I say that third big change is on technology.
Speaker 3: AI over the last few years has certainly cut the
Speaker 3: imagination of everybody, huge promise, the huge risks.
Speaker 5: How has the IMF's for all changed during this period,
Speaker 5: given that it was set up under a very different
Speaker 5: infrastructure at a time, and a lot of people are
Speaker 5: saying we're now in the post Bretton Woods era.
Speaker 3: The IMF has great experience dealing with turbulence. You know,
Speaker 3: there was a period when you had the end of
Speaker 3: Breton Woods going off the fixed exchange rate to the
Speaker 3: dollar and the dollars to gold. That change happened and
Speaker 3: the IMF adapted, and we are obviously now in a
Speaker 3: world with big shifts in terms of how countries work
Speaker 3: with each other. The IMF has always functioned as trying
Speaker 3: to do the art of the possible, which is due
Speaker 3: the best you can given the constraints, and done it
Speaker 3: very successfully. So if ever there was a time for
Speaker 3: this institution, it's super important now. It has the ability
Speaker 3: to bring different countries together around the table, good discussions
Speaker 3: to happen on the in the economy, on the outlook. Again,
Speaker 3: very vital institution for the world.
Speaker 5: Do you see a risk that it doesn't survive though
Speaker 5: at a time when funding is really in question, it's
Speaker 5: a lot of major economies. We've seen China go it alone.
Speaker 5: There have been questions about the United States.
Speaker 3: Firstly, the IMFs funding structure doesn't rely on any budgetary
Speaker 3: support from any country, so it's in a very strong
Speaker 3: place because of that, and everything we've seen so far
Speaker 3: points to all the members wanting the IMF to continue functioning.
Speaker 1: As it has.
Speaker 3: We work very closely with the US administration. That engagement
Speaker 3: is going extremely well, but also the other one hundred
Speaker 3: and ninety member countries that we have so as of now,
Speaker 3: lots of support. Of course, the environment has changed and
Speaker 3: the IMF is going to adapt to it in this
Speaker 3: new geopolitical environment that we have, but it has a
Speaker 3: lot of experience dealing with these kinds of events.
Speaker 5: One thing that you've done during your tenure at the
Speaker 5: IMF is really study the change in the geopolitical relationship.
Speaker 5: You've talked a lot about that, including the reliance on
Speaker 5: the dollar, and that's been a point of big speculation
Speaker 5: of late in markets as well. How much you actually
Speaker 5: seeing worldwide nations try to shift to alternatives from the
Speaker 5: green back, this idea of insulating themselves from some of
Speaker 5: the policy uncertainty that have made a lot of headlines
Speaker 5: this year.
Speaker 3: So we do see small shifts on the margin, right
Speaker 3: We are seeing countries diversifying out of the US, but
Speaker 3: again on the margin, because they were so exposed to
Speaker 3: the US, several of them are hedging against a dollar risk.
Speaker 1: We're seeing some of that.
Speaker 3: Too, But I think the narrative that somehow something is
Speaker 3: dramatically changed about the behavior of the dollar.
Speaker 1: It's really too early. People point to the correlation.
Speaker 3: Between what's happening with long term bond eels and the
Speaker 3: strength of the dollar and saying, well, that's changed, and
Speaker 3: therefore something has changed dramatically.
Speaker 6: That's not the case.
Speaker 3: We take long enough period, the relationship between the dollar
Speaker 3: and borrowing costs is you know, it can move in
Speaker 3: different ways. So there's nothing unpre idented. But of course
Speaker 3: these are still early days. We shall see where all
Speaker 3: of the shifts in the global economic order are headed.
Speaker 3: And I think that's the source of tremendous uncertainty that's
Speaker 3: still weighing on the world economy.
Speaker 5: How much has any perceived loss of FED independence changed that?
Speaker 5: And we've been talking about how there's this dissonance between
Speaker 5: the commentary by a lot of analysts and economists about
Speaker 5: the fear of some sort of loss of independence and
Speaker 5: then a lack of market reaction that you would kind
Speaker 5: of expect on the other side. Are you seeing any
Speaker 5: shifts that maybe are less visible.
Speaker 3: I think everybody agrees on this, would be markets and
Speaker 3: economic professionals, policymakers. Everybody agrees that central bank independence is critical.
Speaker 3: One tree policy independence is critical. So if we are
Speaker 3: not seeing much market reaction, it must be that people
Speaker 3: think that well, that independence is still intact, that independence
Speaker 3: has been critical to bring down inflation from the high
Speaker 3: levels we saw post pandemic inflation expectations were anchored because
Speaker 3: of that, inflation came down.
Speaker 4: So I don't think there's.
Speaker 1: Any ibsence but about that.
Speaker 3: It must be that everybody still believes that independence, especially
Speaker 3: operational independence in terms of setting arntry policy rates, will
Speaker 3: be maintained.
Speaker 5: So you reject the idea that the market's just somehow
Speaker 5: ignoring a reality or something like that. You think the
Speaker 5: market's speaking and that we should listen to the market.
Speaker 3: No, I just think that everybody at this point is
Speaker 3: functioning on the fog of uncertainty. I mean, there's really
Speaker 3: a lot of information thrown out there. Separating the week
Speaker 3: from the chef. It's not that easy, and so I
Speaker 3: think everybody is on wait and see mode. And right now,
Speaker 3: at least, of course, I think that the markets are
Speaker 3: putting very very low probability on any big negative event.
Speaker 3: That may be excessive. I think is more to worry
Speaker 3: about than what the markets are showing right now. But again,
Speaker 3: we should have to wait and see GATA.
Speaker 1: Let's put some of these things together.
Speaker 2: If you look at developments in the UK, in France,
Speaker 2: the bil to address fiscal concerns and find that additional
Speaker 2: fiscal space, the latest developments here in America as well,
Speaker 2: are you witnessing Do you think we're witnessing a convergence
Speaker 2: between the kind of dynamics we typically see an EM
Speaker 2: with DM and do you think those terms are useful anymore?
Speaker 1: In quite the same way.
Speaker 3: I think we have certainly moved away from the case
Speaker 3: of advanced economies. Rich economies can keep increasing their death
Speaker 3: which is what's projected to happen, and there's not nouchu
Speaker 3: to worry about. I think we certainly pass that major
Speaker 3: economies are beginning to worry about what's happening to their eels.
Speaker 3: You're seeing that it's a major concern France right now
Speaker 3: as we speak. But even in the US long term
Speaker 3: meals are basically back to PREGFC level. We are away
Speaker 3: from that world of a big global savings glad, away
Speaker 3: from that world of central banks buying large amounts of
Speaker 3: government assets. So I think it would be really complacent
Speaker 3: for any government, rich or poor to say that well, no,
Speaker 3: our debt will always be bought. And I think one
Speaker 3: point I want to make is that we talk about
Speaker 3: resilience for the global economy, which has been really you know,
Speaker 3: the positive of these last many years, despite all these shocks.
Speaker 1: But we should.
Speaker 3: Recognize that the reason we've seen resilience is because we
Speaker 3: haven't had a financial crisis. Despite the pandemic, despite wards,
Speaker 3: despite geoeconomic fragmentation, despite FED rates going up very sharply,
Speaker 3: we've not had a financial crisis. That doesn't mean that
Speaker 3: that will never happen. We have very high levels of
Speaker 3: debt around the world. I think bond markets are in.
Speaker 6: A fragile place.
Speaker 3: You have valuations in equity markets that are sky high.
Speaker 3: So I would say trede carefully because if you do
Speaker 3: have a financial crisis, we know those the scarring that
Speaker 3: comes from that is long lasting.
Speaker 5: And when you talk about a financial crisis, some people
Speaker 5: are wondering what can potentially trigger it. Are you saying
Speaker 5: that the sovereign debt market of developed markets is of
Speaker 5: the greatest concern at this point?
Speaker 3: I mean, usually when you get a financial crisis, it's
Speaker 3: a combination of events that can trigger it, right, And
Speaker 3: so if you have multiple markets that seem to be
Speaker 3: in a vulnerable position. You could end up with a
Speaker 3: negative event, right, and so the bond markets what you're
Speaker 3: seeing with very high levels of debt fragility. Associated with
Speaker 3: that equity valuations that are very high. Yes, there's a
Speaker 3: promise that maybe AI will truly transform the world, but
Speaker 3: as we know from the dot com bust, even a
Speaker 3: technology like the Internet that did transform the world went
Speaker 3: through a boom bus cycle. So that combination non bank
Speaker 3: financial institutions we've never had a crisis, well they've been
Speaker 3: as large as they are right now. The amount of
Speaker 3: corporate borrowing that's happening with nbfi's much higher than pre
Speaker 3: twenty nineteen. So there's a lot that looks stretched at
Speaker 3: this moment. And at the same time, I think the
Speaker 3: world economy is gambling with all kinds of new policies.
Speaker 3: So I would say trade carefully, make sure that financial
Speaker 3: supervision and regulation is continued. See what needs to be
Speaker 3: done with NBFI is what's the appropriate level of supervision
Speaker 3: and regulation that's required over there.
Speaker 4: All of that is going to be very important.
Speaker 5: So you're leaving the IMF and you're going back to
Speaker 5: Harvard A university that you've known very well, what are
Speaker 5: you going to be doing there? And how important is
Speaker 5: it for you to really get this sense back in
Speaker 5: the economics profession of pure research and true rigor versus
Speaker 5: some of the politicization that we've seen recently.
Speaker 3: So I think the reason that the economics profession has
Speaker 3: been able to contribute so well over these last few
Speaker 3: years is because in the phase of unprecedented shocks, you
Speaker 3: really need to go back to some of your training
Speaker 3: to figure out how you're going to respond to a
Speaker 3: pandemic that you haven't seen in one hundred years or
Speaker 3: war in Europe, right, So having that base of knowledge
Speaker 3: is very important. But at the same time, Hi, I
Speaker 3: think the economics profession has to recognize that there is
Speaker 3: something of a trust deficit, especially with mainstream economists, and
Speaker 3: how do we get over that. There's broad consensus in
Speaker 3: the economics profession that open trade, central bank independence super important.
Speaker 1: Those are the crown.
Speaker 3: Jewels for good economic policy, and yet the policy direction
Speaker 3: is away from that. So I think there is absolutely
Speaker 3: some bit of soul searching, some bit of stepping back
Speaker 3: and asking yourself, how do you solve this trust deficit?
Speaker 3: How do you make sure this in this new world
Speaker 3: of communication, that the good ideas still come true.
Speaker 1: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Dan Ives, the global head of tech research of Wentburst, writing,
Speaker 2: we view any declined and invidious stock to be a
Speaker 2: clear buying opportunity as it remains the only game in
Speaker 2: town fueling this fourth Industrial revolution. On just now for more, Dan,
Speaker 2: you sit in the headlines the boom is over. What's
Speaker 2: the pushback this morning?
Speaker 7: I think the booms just starting. I mean, if you
Speaker 7: look at these numbers, especially when you factor in what
Speaker 7: China is going to be. I mean, you know Jensen
Speaker 7: talked about fifty fifty percent type growth number, This just
Speaker 7: shows the next stage of adoption is actually just starting.
Speaker 6: I think, Look, I think the stock is green today.
Speaker 5: By the end of the day, Dan, that's what you're saying.
Speaker 5: You think that by the end of the day people
Speaker 5: will realize come around to your point of view that
Speaker 5: actually what the disappointment was was a non inclusion of
Speaker 5: any China sales, but a real robust growth elsewhere.
Speaker 6: Is that your argument?
Speaker 7: You just exactly like summarize it, because the reality is
Speaker 7: is that when you look at data center and then
Speaker 7: you actually factor and with China's going to be when
Speaker 7: you look at two to five billion and you look
Speaker 7: at the acceleration next few quarters, I mean, there's no
Speaker 7: reason that's not accelerating. And now in China with the
Speaker 7: pay for play model back in you're talking about could
Speaker 7: be an incremental twenty twenty five thirty billion. That's why
Speaker 7: it comes down to the godfather of Ai Jensen and
Speaker 7: Video continue to dominate this and I think this is
Speaker 7: just a further validation tech stocks go higher.
Speaker 5: Dan, I feel like we should do a show where
Speaker 5: in the world is Dan ives of Webbush because you're
Speaker 5: always somewhere different. This morning, it looks like you're down
Speaker 5: under in Sydney, and I'm curious about the rest of
Speaker 5: the world. It's actually really telling that you've been traveling
Speaker 5: the world because outside of China and Video's growth has
Speaker 5: been tremendous and we've seen a real increase, particularly in
Speaker 5: other Asian countries.
Speaker 6: How much does that.
Speaker 5: Give you that extra bullish push that, even if it's
Speaker 5: not China, you are seeing the rest of the world
Speaker 5: rush to adopt as much as they can of in
Speaker 5: video before maybe some of the policies change yeah.
Speaker 7: Look, and I think you see that Leason when you
Speaker 7: look in Middle East, I mean Middle East, perfect example,
Speaker 7: they're just continuing to just massively build that out when
Speaker 7: it comes to Saudi UAE. Look, the reality is is
Speaker 7: that they're years ahead.
Speaker 6: To any other chip player.
Speaker 7: I mean you look at everything happened from a Huawei perspective.
Speaker 6: There, they've narrowed the gap.
Speaker 7: But the reality is that every Chinese big tech player
Speaker 7: wants in vidio chips. And I think what you started
Speaker 7: and now realize is that you talk about a third
Speaker 7: of that overall revenue going to in video. This is
Speaker 7: trillion that's going to be playing out. That's why I
Speaker 7: believe there's a five trillion dollar mark cap. You know,
Speaker 7: either by year end they're early twenty six.
Speaker 8: But Dan, the China policy is subject to change on
Speaker 8: the US side, and also we have seen in the
Speaker 8: past Beijing telling firms not to buy and video chips.
Speaker 8: Can this company continue to grow the way you envision
Speaker 8: if say China was taken out of the of the play.
Speaker 7: Yeah, Look, there's no doubt China continues to be That's
Speaker 7: the golden goose for Jensen Avini. But that's also why
Speaker 7: look Jensen ten percent politician, ninety percent CEO. And when
Speaker 7: you think about the China market, but also Beijing telling
Speaker 7: Chinese company is big tech not to buy in idio chips,
Speaker 7: that's like telling a kid don't eat the candy.
Speaker 6: The reality is they want in video chips.
Speaker 7: They don't want to have a third fourth rate chip.
Speaker 7: And that's why Jensen knows it. And they're going to
Speaker 7: continue to kind of play this policy. And I think
Speaker 7: we see here six nine, twelve months now China's a
Speaker 7: fifty billion dollars annual market for them.
Speaker 8: Jensen Wang last night said they keep advocating on the
Speaker 8: sensibility of an importance of American tech companies to lead
Speaker 8: and win the AI race. Basically, we keep lobbying the
Speaker 8: American government when it comes to Blackwell, do you think
Speaker 8: at some point they'll be able to sell those chips
Speaker 8: into China?
Speaker 7: Hey for play model, right, I mean maybe that fifteen
Speaker 7: percent goes to twenty five percent. Look, because Jensen understands
Speaker 7: that what they can sell that gives Huawei and China
Speaker 7: that much more power. And I think in this AI
Speaker 7: arms race between the US and China's biggest poker chip
Speaker 7: on the table continues to be in video, and I
Speaker 7: think that's the reality. There's no one that has more
Speaker 7: info when it comes to AI, you know, relative to Trump.
Speaker 6: Vin Jentsen, I mean he's become really I think.
Speaker 7: A big strategic advisor for Trump administration when it comes
Speaker 7: to AI.
Speaker 2: Now, nobody's saying the growth story is gone a way.
Speaker 2: We don't think this is going to next growth. No
Speaker 2: one's suggesting that we're going to see healthy double digit
Speaker 2: growth figures. Based on what we heard from the company overnight.
Speaker 2: What they are suggesting is that the level of growth
Speaker 2: is going to change, and perhaps we need to reassess
Speaker 2: our view of this company With that in mind, don
Speaker 2: how have you changed your view as growth decelerates just
Speaker 2: by definition?
Speaker 7: Yeah, Look, my view is that as you start to
Speaker 7: actually go into physical AI world and you go into
Speaker 7: Thomas going to robotics, you look at the next few years.
Speaker 7: I could argue streets underestimating numbers twenty five thirty percent
Speaker 7: next fe years. So I think as this actually plays out,
Speaker 7: my view is like in video is undervalued relative to
Speaker 7: where this is all going, and we're only in Like
Speaker 7: I've talked about, the AI party was nine pm, now
Speaker 7: ten ten fifteen pm. That party goes to four am,
Speaker 7: and Jensen's going to be out there in the dans
Speaker 7: for because he and in video we in the AI
Speaker 7: revolution and one with the hyper scalurs and pound Teer.
Speaker 5: What's become clear though, from the earnings of the likes
Speaker 5: of Microsoft and Google or Alphabet, is that there is
Speaker 5: some pushback when it comes to the investor in community
Speaker 5: about how much some of these companies are spending and
Speaker 5: it needs to broaden out in a significant way, and
Speaker 5: if it does, that raises questions about how much in
Speaker 5: Vidia has to steal market share from other players. Who's
Speaker 5: going to be the biggest loser as in Vidia continues
Speaker 5: and charts its path over complete dominance of this industry.
Speaker 7: Yeah, losers are clearly Intel, right, I mean, despite obviously
Speaker 7: what we see with US government and you know, obviously
Speaker 7: soft Bank. I mean, I just think there's a better
Speaker 7: chance to meet playing Ryder cup beck Page than Intel
Speaker 7: gaining share, you know, And I think that's that's part
Speaker 7: of the issue, is that AMD is going to gain
Speaker 7: share in video in the game chair. You're clearly on
Speaker 7: broad common others, but it's a have and to have
Speaker 7: nots that's going to continue to play out.
Speaker 6: But but you look at last night's quarter along.
Speaker 7: With what we've seen from earnings as a ball, you
Speaker 7: feel really good in terms of the validation story for AI.
Speaker 2: Down before you go, Shaitkeigan Bradley have chosen himself.
Speaker 7: Look, I think he could have chosen himself. You know,
Speaker 7: it was obviously maybe a good decision for him. But
Speaker 7: I think ultimately US wins. That wins a Ryder cup
Speaker 7: that pitch.
Speaker 2: Stay with us mult Blomberg Surveillance coming up after this.
Speaker 2: Stuart Kaiser, the head of Equity Trading Strategy a city
Speaker 2: right in the following. In videos, earnings is the largest
Speaker 2: event for the S and P five hundred over the
Speaker 2: next month. For equity investors, the AI theme and the
Speaker 2: impact of that on returns is on par with the FED.
Speaker 2: She joins us now for more Stuke and Mornic, good
Speaker 2: morning things. A pretty calm on bike. What you make
Speaker 2: of that?
Speaker 4: I mean, I think the.
Speaker 9: Video numbers were just about good enough effectively, probably right
Speaker 9: at the low end of where the whisper number was.
Speaker 9: The China stuff obviously adds a little bit a little
Speaker 9: bit of noise to it, but I mean margin seventy
Speaker 9: you know, seventy whatever four and a half, seventy three
Speaker 9: and a half percent ey sackmor they wanted to be fifty.
Speaker 4: Four billion of revenues.
Speaker 9: I think that the test here was if a video
Speaker 9: was really strong, what would it have done to.
Speaker 4: The Russell trade?
Speaker 9: And I think that's what a lot of people were
Speaker 9: sort of debating, was if we get a because you know, Snowflake,
Speaker 9: a mango dB both very strong results on the soffar
Speaker 9: Ai side, if you had gotten that from a video,
Speaker 9: would that have made people you turn out of the
Speaker 9: Russell and value trade back into growth. It doesn't seem
Speaker 9: like the numbers were strong enough to do that, but
Speaker 9: they were strong enough to keep the S and P
Speaker 9: from selling offs.
Speaker 2: So mill toast in video rapport is good for small camps.
Speaker 9: Yeah, at least tactically, you know, at least to highlighted
Speaker 9: with the mix of policy versus data. I think that
Speaker 9: that small cap trade as really poor risk reward as
Speaker 9: we go into September, because it's careful what you wish for,
Speaker 9: wish for good news, good news news, bad news type situation.
Speaker 9: But yeah, exactly, But yeah, I think I think the
Speaker 9: video report kind of like threaded the needle. Right, it
Speaker 9: was strong enough that you didn't get kind of a
Speaker 9: liquidation in those long positions, but it wasn't so strong
Speaker 9: that it disrupted the rotation that's been going on for
Speaker 9: the last.
Speaker 4: Couple of weeks.
Speaker 5: Is this actually a connected idea that somehow big tech
Speaker 5: winning is small companies losing or is this just simply
Speaker 5: that markets can only focus on one idea at a time,
Speaker 5: and if they're not focused in AI, they're focus in
Speaker 5: the FED.
Speaker 9: Yeah, it's probably a little bit of both, but yeah,
Speaker 9: I would agree with that. I think there is some
Speaker 9: view that how do you keep up with the spending
Speaker 9: that these hyperscalers are doing, or if you're a smaller company,
Speaker 9: the market right now is to some degree in one
Speaker 9: big trade, right, and that trade is long growth long
Speaker 9: large cap long the AI thematic right, and everything else
Speaker 9: has sort of been ignored to some degree. What we
Speaker 9: saw in August is people trying to re engage with
Speaker 9: those smaller cap, lower quality laggards to some extent. And
Speaker 9: to your point, I mean, there's a limited amount of money, right,
Speaker 9: Money's got to be in one place, and right now
Speaker 9: it's getting kind of rotated a little bit.
Speaker 4: To that value, trade al right.
Speaker 5: Is any money coming out of bonds and going into stocks.
Speaker 4: And this is something that a.
Speaker 5: Number of people had been flirting with earlier in the year,
Speaker 5: the idea that they could get better yield on stocks
Speaker 5: at a time when inflation was going to be a
Speaker 5: little bit more elevated than say bonds, especially with uncertain policy.
Speaker 9: Yeah, it'd be interesting to see if the Fed actually
Speaker 9: does start cutting and those money marketing yields actually get
Speaker 9: down to a level where it's a little bit attractive
Speaker 9: if we see a re engagement. If you look at
Speaker 9: the balances in retail money market funds, I mean, you're
Speaker 9: like three trillion bucks. It's a lot of money. Not
Speaker 9: all of that is coming into stocks, right. I think
Speaker 9: some of that was basically bank account money that got
Speaker 9: put into money.
Speaker 4: Markets for yield.
Speaker 9: I don't necessarily know if that would go directly into equities,
Speaker 9: but there's the potential you get a little bit of
Speaker 9: a tailwind, a little bit of a toil went there.
Speaker 9: The question there, though, is if there is, why are
Speaker 9: they cutting? Is ultimately what this gets into. If they're
Speaker 9: cutting because the labor market is falling apart, money is
Speaker 9: not going to be rushing into equities, and that's going
Speaker 9: to be negative for Russell et cetera. If they're cutting
Speaker 9: because that sort of base cases in play where they're
Speaker 9: just gradually going back to new neutral and otherwise solid economy,
Speaker 9: then yeah, you might get money out of bonds and equities.
Speaker 8: Well, with the event of Nvidia behind us, what's the
Speaker 8: market going to be focused on now? Is it squarely
Speaker 8: on the labor market report ahead of the Fed meeting?
Speaker 4: Yeah?
Speaker 9: I think it's payrolls and then September ninth you get
Speaker 9: the BLS revision to payrolls, which, as you cover Trump,
Speaker 9: I'm sure that'll be very, very very certifuction this.
Speaker 8: Week in the cabinet meeting that he expects a very
Speaker 8: strong labor market report.
Speaker 9: He might get a decent labor market report, but look,
Speaker 9: I mean, consensus is sub one hundred k. Chairpal last
Speaker 9: week said break even on jobs right now is fifty
Speaker 9: to seventy five K. So look, I mean a strong
Speaker 9: report right now will probably be one hundred and twenty five.
Speaker 4: But you know, our economists think you might get.
Speaker 9: You know, four hundred thousand, you know, negative revisions from
Speaker 9: the BLS benchmark that is not going to go over
Speaker 9: well politically and honestly, from a market's perspective, that's a
Speaker 9: sneaky event. On September ninth, you know how many jobs
Speaker 9: get kind of revised out of the BLS.
Speaker 1: It's a ready else setup, isn't it.
Speaker 2: This market is pricing in a cyclical up term federal reserves,
Speaker 2: ready consent increasing center baut cyclical DOWNSTND.
Speaker 4: What gives I agree with three hundred percent. But I
Speaker 4: actually thought the response to the FED.
Speaker 9: The response to the FED was much more positive than
Speaker 9: I would have guessed.
Speaker 4: I think what happened was the initial.
Speaker 9: Headline was about their getting ready to cut, but if
Speaker 9: you read his speech, it was because they are seeing
Speaker 9: some you know, weakness in the labor market. Not only
Speaker 9: if they say weakness, I think the risk reward is
Speaker 9: really poor. And then a lot of folks, I think,
Speaker 9: believe that they're prioritizing growth. But he also specifically said
Speaker 9: we're not going to allow character of inflation to become
Speaker 9: a bigger problem. So I was surprised, honestly at how
Speaker 9: positively the market reacted to the FED.
Speaker 4: But yeah, I'm with you.
Speaker 9: I think you have a little bit of I don't
Speaker 9: want to say a disagreement but you have a situation
Speaker 9: where the FED is clearly worried about the growth side
Speaker 9: of their mandate. The market has been willing to ignore
Speaker 9: that to some degree, and as I said, I think
Speaker 9: that gives you really poor risk award to some of
Speaker 9: these smaller captures.
Speaker 2: There's a phrase I really don't like, but I'm going
Speaker 2: to use it. Hawkish cup Is that kind of what
Speaker 2: you're thinking about September seventeenth, of course, relative to what's
Speaker 2: expected at the time and what comes in on the
Speaker 2: data front over the next few weeks.
Speaker 1: But it's that where you're at now.
Speaker 9: I guess you know in the sense that yeah, they
Speaker 9: are probably going to cut, and yes, I think they're
Speaker 9: going to be very cautious, and how they cautious and
Speaker 9: how they message that in the sense that this is not,
Speaker 9: you know, an aggressive kind of cutting regime.
Speaker 6: No.
Speaker 9: Look, if you get a very weak labor market report,
Speaker 9: that cut may it may not come across as as hawkey.
Speaker 4: So you know, they are very very data dependent.
Speaker 9: But although equal, let's say we print a consentious job
Speaker 9: number of call it seventy five K, and you get
Speaker 9: an okay inflation print, then yes they'll cut. But to
Speaker 9: your point, They're not going to message this as an
Speaker 9: aggressive cutting cycle. They're probably going to message this as
Speaker 9: a meeting by meeting process that is data dependent.
Speaker 5: So if you just turn this on its head and
Speaker 5: take it a step further, is this essentially a market
Speaker 5: that's hoping this is a politicized rate cut and then
Speaker 5: it's going to be a politicized rate cutting cycle that
Speaker 5: doesn't necessarily warrant it based on where the economy is,
Speaker 5: which will give fuel to equities but won't actually be
Speaker 5: as a result of economic weakness.
Speaker 9: Well, myself out of trouble, I'm going to call those
Speaker 9: insurance customs yes, and I think that well, probably yes,
Speaker 9: enjoy some insurance counts. Look, there is a sneaky uber
Speaker 9: Bowl case out there lurking right, which is that for
Speaker 9: three months corporate Americas said on their hands, did less hiring,
Speaker 9: did less capital investment because of the uncertainty around tariffs
Speaker 9: and taxes and immigration. And we get into September, things
Speaker 9: have calmed down, and you have budgets that need to
Speaker 9: be spent into your end and you get some hiring
Speaker 9: that is a low probability but very bullsh out come.
Speaker 4: No, you say that it's low probability.
Speaker 5: But I was looking at your very own economic surprise
Speaker 5: index and it actually is at the highest, the most
Speaker 5: positive going back to the end of last year. So
Speaker 5: if you see, yes, the economic data hasn't been great,
Speaker 5: but it's been trending in the right direction. It's actually
Speaker 5: begoing the opposite direction of some sort of doom and
Speaker 5: gloom in the economy. So how do you square that
Speaker 5: with the idea that there really is weakness under the
Speaker 5: hood that the FED is responding to.
Speaker 9: Well, what's interesting about that too, is a lot of
Speaker 9: us come from the soft data, which is survey data.
Speaker 4: You mish was actually quite weak.
Speaker 9: So is the survey data that's in you're figuring No,
Speaker 9: But the survey data that's improved has been corporate survey data.
Speaker 4: It's been the PMIS.
Speaker 9: So in the sense, if you believe that corporates are
Speaker 9: going to re engage, that's very positive news. If you're
Speaker 9: worried about the labor market, you're kind of a little
Speaker 9: more circumspect about it. So agree that the data looks
Speaker 9: pretty good. Look, economic surprise can be positive for two reasons.
Speaker 9: It could be really strong data or really low expectations.
Speaker 9: In this case, it might be that the expectations were
Speaker 9: kind of low when we're clearing relatively low.
Speaker 8: Mark that kind of set up with Corporate America having
Speaker 8: the one big beautiful build deregulation and some clarity on tariffs.
Speaker 8: What does that mean for the FED in twenty twenty six.
Speaker 9: I mean, I probably mean someth that'll be really if
Speaker 9: they're in a cutting cycle, doing it very very methodically
Speaker 9: and maybe like a quarter to quarter basis instead of
Speaker 9: a meeting to meeting basis. Look if they get if
Speaker 9: you were to have all of that stuff kind of
Speaker 9: coalesce into a little bit of an upturn in the
Speaker 9: US economic data, then yeah, the FED is going to
Speaker 9: be much more focused on ensuring that the inflation risk
Speaker 9: is out of there. I mean, you have a FED
Speaker 9: chair who was there during an inflation surge is getting
Speaker 9: ready to leave that seat. I can't imagine he wants
Speaker 9: to leave that seat with inflation pressure again kind of
Speaker 9: being an issue. So it would actually be a blessing
Speaker 9: for the FED. I think if you got an upturning
Speaker 9: corporate corporate economic activity that allowed the FED then to
Speaker 9: kind of take their time.
Speaker 2: I didn't take you as a humisch kind of guy.
Speaker 2: I used to be a Humich kind of guy. And
Speaker 2: then I realized that the respondent right, you know, the
Speaker 2: response right is just ridiculous.
Speaker 5: You need to defend yourself here because you know, humish
Speaker 5: kind of guy.
Speaker 4: Ehodaently is your new kind of.
Speaker 1: Slight conspiracy theorists, humish kind of guy.
Speaker 4: This is what happens when the British come. They don't
Speaker 4: like the Dow, they don't.
Speaker 9: Like they're anti America.
Speaker 2: Stay with us, malplinpag Savanna's coming up off to this,
Speaker 2: would like to bring in Nati Richards and the chief
Speaker 2: economist of ADP nat A good morning, Good morning. If
Speaker 2: you took some time off, not that you ever do,
Speaker 2: but if you did, and you didn't know any of
Speaker 2: the economic data and I just showed you jobless claims,
Speaker 2: would you have a decent read on the languor market
Speaker 2: right now?
Speaker 10: Yes, I would think it was pretty strong. But if
Speaker 10: I unpacked it a little bit, then I haven't taken
Speaker 10: a lot of time off.
Speaker 6: Actually I've been a mock.
Speaker 10: I actually identify four crosswalks between macro trends that are
Speaker 10: big in the making and also the very granular real
Speaker 10: time data that we're seeing. Then the first one is
Speaker 10: the consumer. That consumer spending, which you're seeing picked up
Speaker 10: in the GDP numbers, has been a resilient driver of
Speaker 10: the labor market as well. So where you see strength
Speaker 10: in the consumer, you're seeing strength in the jobs market,
Speaker 10: namingly leisure and hospitality, and there's some trade and transportation
Speaker 10: that has been strong. But then you see this other
Speaker 10: macro theme of uncertainty, and I think that's depressing some
Speaker 10: job gains in professional services. So there's a lot going
Speaker 10: on between the big picture macro trends and the smaller, granular,
Speaker 10: real time hiring that businesses are doing right now.
Speaker 5: How much is there stealth firing or sort of attrition
Speaker 5: plans that are in place that don't make it some
Speaker 5: of the overall numbers as necessarily job losses in the
Speaker 5: traditional way.
Speaker 10: You know, this is a super and I'm glad you
Speaker 10: asked me this question because it's a super complex question
Speaker 10: because what we're seeing on the part of the employer
Speaker 10: may not be demand driven.
Speaker 6: First of all, we had this.
Speaker 10: Great, big, great resignation in twenty twenty two, and young
Speaker 10: people are supposed to turn over, they're supposed to leave
Speaker 10: these jobs. They're staying put. And so there's a little
Speaker 10: bit less hiring because people are staying put, and then
Speaker 10: you have the effect of AI. There's been new research
Speaker 10: from Stanford that was out using ADP data. A paper
Speaker 10: was released yesterday saying that in AI exposed fields like
Speaker 10: software developers or customer service reps, you are seeing an
Speaker 10: impact in early career. So you can't look at the macro.
Speaker 10: You have to dig beneath the SURFA to see all
Speaker 10: the things that are different about this labor market, making
Speaker 10: it very challenging to predict its next moves.
Speaker 5: But do you get a sense of whether it is
Speaker 5: weakening in a way that would justify some sort of
Speaker 5: FED move or that would require some sort of policy adjustment,
Speaker 5: or is it just transforming. Is it just a structural
Speaker 5: shift that has nothing to do with policy. Frankly, it
Speaker 5: has to do everything with technology.
Speaker 10: Yes, and yes, and that's what makes it so hard. Yes,
Speaker 10: it is weakening. We are seeing a slow down and
Speaker 10: hiring momentum. It's a slow down from the beginning of
Speaker 10: the year. It's a slow down from last year. Some
Speaker 10: of that is what Chair Pal said in his speech,
Speaker 10: that we're seeing lower supply, lower demand, but still some
Speaker 10: equilibrium that gives us a pretty good unemployment rate.
Speaker 6: But yes, it is structural.
Speaker 10: We're seeing aging demographics really cut into labor and these
Speaker 10: nascent technologies affecting early career in real time. So yes
Speaker 10: and yes, it's both, and that's why you can't predict it.
Speaker 10: You're going to see companies be hesitant and slow down.
Speaker 10: They're hiring because of macro trends that have nothing to
Speaker 10: do with their customer base, and then they're going to
Speaker 10: be come back in the market and hire.
Speaker 4: When they need to.
Speaker 10: And so we won't know if a one month slow
Speaker 10: down is indicative of a really weakening labor market or
Speaker 10: just some hesitancy. So we have to look at a
Speaker 10: couple more months to get that trend right. The Ocean
Speaker 10: First Financial CEO is just on. He was saying with
Speaker 10: his commercial clients, they're not hiring as much because of AI.
Speaker 10: You were at Jackson Hole, the theme was labor and transition,
Speaker 10: Yet you said no one presented a paper on artificial intelligence.
Speaker 10: Is the FED too late to really understanding what's going on?
Speaker 10: You know, it is so new and it's a great
Speaker 10: question these themes, these papers in general, I mean, economists
Speaker 10: have a lot of good attributes being on track all
Speaker 10: the time in the micro data is not always one
Speaker 10: of them, so some of them, I know, it's a
Speaker 10: big reveal. So these papers are really important. They had
Speaker 10: big themes like fertility and population growth and mobility.
Speaker 8: Well, what's happening right in front of them right now.
Speaker 10: But AI is harder because you have to have granular data.
Speaker 10: And that's why this paper that I mentioned from Stanford,
Speaker 10: looking at ADP's millions of job titles, you actually see
Speaker 10: the effect AI is happening. So for employers there are
Speaker 10: some big investments in AI. Some of that investment will
Speaker 10: augment career, so for later career, more tenured workers, AI
Speaker 10: is seen to boost productivity, and those investments are being
Speaker 10: made by companies. But for jobs that are easily automated,
Speaker 10: you might see a transition of those workers, and you're
Speaker 10: already seeing that transition happening. I think it's going to
Speaker 10: be short term. I think labor shifts to where the
Speaker 10: puck is heading when it comes to productivity. But we're
Speaker 10: in the midst of that transformation right now. And yes
Speaker 10: it's not really being picked up in economic models.
Speaker 1: If you want to just tune again, welcome to the program.
Speaker 2: Just moments ago some economic data on GDP and on
Speaker 2: jobless claims. Mi McKee standing by was a little bit more.
Speaker 2: Might you've had a second look, what'd you say.
Speaker 4: Well, we can do. It's under the hood here.
Speaker 11: And the basic reason we saw a rise in GDP
Speaker 11: in the first revision for the second quarter is personal
Speaker 11: consumption rose to one point six percent from one point
Speaker 11: four percent. In business investment significantly increased, non residential fixed
Speaker 11: investment up five point seven percent. It was one point
Speaker 11: nine percent in the original print. Exports were down one
Speaker 11: point three percent, a little bit less than they were
Speaker 11: in the initial print, and imports were down twenty nine
Speaker 11: point eight percent, basically unchanged in terms of overall trade numbers,
Speaker 11: but we did see that shift from the first quarter
Speaker 11: to second quarter where imports were huge in the first
Speaker 11: quarter and dropped off negative actually in the second quarter.
Speaker 11: And then finally we had the federal government down spending
Speaker 11: down four point seven percent and non defense spending down
Speaker 11: twelve point five percent, So a big drop there in
Speaker 11: what the government was spending and the bottom line, and
Speaker 11: Neili will appreciate this, I guess as one of those
Speaker 11: economists who looks at the micro and macro numbers is
Speaker 11: that real final sales to domestic purchasers were up one
Speaker 11: point six percent over one point one percent in the
Speaker 11: first initial print. Overall real final sales six point eight
Speaker 11: percent from six point three percent, So we have a
Speaker 11: little bit stronger GDP than we thought we had in
Speaker 11: the second quarter.
Speaker 4: Of course, now it's all about quarter.
Speaker 1: Three Mi mckaye.
Speaker 2: Just before you go, it feels like in April the
Speaker 2: wisdom paralysis and the economy. A lot of people have
Speaker 2: back trying to work out what was happening with policy.
Speaker 2: Are you getting a read, a clean read on anything
Speaker 2: to do with just things bouncing back that maybe we
Speaker 2: will see that reacceleration as the year progresses and people
Speaker 2: re engage with the economy.
Speaker 4: I think we're too.
Speaker 11: Far away from the second quarter numbers to say that
Speaker 11: they have this revision has much bearing on what's going
Speaker 11: to happen. The good news was that businesses were spending
Speaker 11: in the second quarter, and that's been what everybody's watching.
Speaker 4: Were they going to hold off or not?
Speaker 11: Consumer spending continues at a slower pace than it had
Speaker 11: but they're still hanging in there.
Speaker 4: So where do we go from here?
Speaker 11: Everybody's been waiting to see what effect the tariffs would have,
Speaker 11: and this is about the time when we're going to
Speaker 11: start seeing that.
Speaker 2: Mimi kay, I appreciate it, Mike, thank you. Sir As
Speaker 2: always might come the tank to that NATA is still
Speaker 2: with us. NATA, we wanted a word from you on
Speaker 2: the Federal serve. September in some ways feels like an
Speaker 2: easy co now they're going to cut rights. How would
Speaker 2: you set things out for people for September and beyond
Speaker 2: into twenty six of the Federal Serve.
Speaker 10: I think it's really helpful to look at how the
Speaker 10: FED has moved historically, which is in small bites, moderated
Speaker 10: over a long time prime That may not be the
Speaker 10: way that they can act now because there's so many
Speaker 10: moving parts of this economy. Whether you think that tariffs
Speaker 10: are a one time price increase or have ripple effects,
Speaker 10: the fact is the lags between monetary policy and the
Speaker 10: lags between what's going on in the economy, they might
Speaker 10: miss each other. And so I expect a FED that
Speaker 10: will be constantly data driven and may have to pause
Speaker 10: to recalibrate where the economy is moving. I don't think
Speaker 10: it's going to be clear to them even when they
Speaker 10: start acting.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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