WEBVTT - Bloomberg Surveillance TV: February 10th, 2026 0:00:02.360 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordert. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.840 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.040 Terminal and the Bloomberg Business app. We begin this out 0:00:37.080 --> 0:00:38.839 with stocks on the brink of all time highs, with 0:00:38.920 --> 0:00:41.639 a sort of data on deck. Marvin Low of State Street, right, 0:00:41.680 --> 0:00:44.159 and the following we still find the current environment remaining 0:00:44.320 --> 0:00:48.400 conducive for risk. Rotate America, not South America, which puts 0:00:48.440 --> 0:00:51.239 treasuries and the dollar most at risk. Marvin joins us. 0:00:51.240 --> 0:00:54.000 Now for one Marvin, good morning. Fifteen percent for the 0:00:54.080 --> 0:00:56.440 year ahead. No, you're pushing back. I don't know what 0:00:56.480 --> 0:00:57.440 accounting he's using. 0:00:58.000 --> 0:01:00.040 What a kind of genip figure is even the team looking. 0:01:00.040 --> 0:01:01.520 Well, yeah, exactly exactly. 0:01:01.520 --> 0:01:04.000 I mean trend growth is two percent, right, We're above 0:01:04.080 --> 0:01:07.000 trend growth for the last several quarters. We have a 0:01:07.040 --> 0:01:11.520 tendency to underestimate the strength of the US economy, but 0:01:11.680 --> 0:01:12.440 double digits. 0:01:13.440 --> 0:01:15.759 You know why people are bullish, though maybe not that bullish, 0:01:15.800 --> 0:01:18.320 but bullish, And it's because we've already had write cups 0:01:18.319 --> 0:01:20.679 from the Federal Reserve. Sure, there's tanks free funds to 0:01:20.720 --> 0:01:23.800 come through the next several months. And we're looking at 0:01:23.840 --> 0:01:27.160 just four companies with campex intentions of six hundred and 0:01:27.200 --> 0:01:29.440 fifty billion dollars, and when they come to the debt market, 0:01:29.440 --> 0:01:31.720 the market's taking it down really really well. 0:01:31.840 --> 0:01:33.240 Is it hard to find that story? 0:01:33.400 --> 0:01:34.759 I think it is hard to fade the story. 0:01:35.400 --> 0:01:37.360 You know, it might be hard to you know, plow 0:01:37.480 --> 0:01:39.360 more into it at this point, but I don't think 0:01:39.360 --> 0:01:42.800 you're fading that story. And ultimately, we are seeing the 0:01:42.920 --> 0:01:44.839 rotation that seems to be getting a lot of attention 0:01:44.880 --> 0:01:47.400 over the last couple of weeks as a healthy rationalization 0:01:47.560 --> 0:01:49.760 of where you're supposed to put your money into the markets. 0:01:50.480 --> 0:01:53.240 I'm stuck on the fifteen percent and this idea that 0:01:53.440 --> 0:01:56.840 potentially not necessarily we're going to at fifteen percent, but 0:01:56.960 --> 0:01:59.680 it indicates the way that President Trump is some of 0:01:59.680 --> 0:02:01.960 the advices are thinking about the United States, which is 0:02:02.240 --> 0:02:04.640 in some ways an emerging economy. In some ways, this 0:02:04.760 --> 0:02:07.280 is a not developed market that sort of has a 0:02:07.320 --> 0:02:09.720 staid growth rate. And I just wonder if there are 0:02:09.760 --> 0:02:13.160 broader implications of that kind of lofty goal for the 0:02:13.200 --> 0:02:15.840 way that US assets are treated, given some of the 0:02:15.880 --> 0:02:18.880 volatility and the fact that people have increasingly looked at 0:02:18.880 --> 0:02:22.280 some of the budget as well as the potential coordination 0:02:22.320 --> 0:02:25.799 between the Treasure and FED as emerging market behavior not 0:02:25.919 --> 0:02:27.560 necessarily a developed market. 0:02:27.560 --> 0:02:27.680 One. 0:02:27.760 --> 0:02:29.440 Yeah, I mean, that's a great analogy, and it certainly 0:02:29.480 --> 0:02:31.359 is a conversation that I think everyone's had over the 0:02:31.440 --> 0:02:33.960 last year, where you know, the developed markets have become 0:02:34.000 --> 0:02:36.280 the emerging markets in a lot of ways. The restraint 0:02:36.320 --> 0:02:38.000 that we see out of the emerging markets are making 0:02:38.000 --> 0:02:42.800 them the better behave children in the room if you will. 0:02:43.680 --> 0:02:48.120 You know, it does speak to the risk parameters that 0:02:48.200 --> 0:02:52.840 you demand on assets in a market that is talking 0:02:52.880 --> 0:02:55.920 that way and administrations that ultimately want to try to 0:02:55.919 --> 0:02:57.079 push that type of agenda. 0:02:57.400 --> 0:03:00.640 For sure, there is a cost for that volatility. 0:03:00.240 --> 0:03:02.239 Not seeing it in terms of the bond auctions that 0:03:02.280 --> 0:03:04.919 we're getting. We're getting some treasury auctions this week We've 0:03:04.919 --> 0:03:07.880 got a lot of US companies that are raising debt overseas. 0:03:08.280 --> 0:03:10.600 It doesn't seem like that premium is getting baked in 0:03:10.720 --> 0:03:11.480 any mature way. 0:03:11.520 --> 0:03:12.320 Is that going to shift? 0:03:12.440 --> 0:03:15.000 Yeah? You know what, I do think that. 0:03:16.360 --> 0:03:19.079 The dollar is weaker than one would normally expect with 0:03:19.120 --> 0:03:21.320 the type of growth environment that we're talking about, and 0:03:21.400 --> 0:03:24.000 long yields are higher than one would expect during a 0:03:24.040 --> 0:03:26.640 cutting cycle. You know, the fact that we're looking at 0:03:26.680 --> 0:03:30.320 ten year yields, particularly from a curve perspective, widening out 0:03:30.600 --> 0:03:34.800 into this cutting cycle is somewhat unique. But regime change 0:03:34.880 --> 0:03:38.640 wise takes time, and I think that you have the 0:03:39.640 --> 0:03:42.880 factors that might be driving it, but the catalysts have 0:03:43.040 --> 0:03:46.080 yet to materialize. We're all watching it and we're waiting 0:03:46.160 --> 0:03:49.440 for whether or not we're really dealing with a new regime. 0:03:49.480 --> 0:03:51.560 But for the moment, you have to give the FED, 0:03:51.840 --> 0:03:54.720 the whole financial system the benefit of the doubt that 0:03:55.080 --> 0:03:57.480 you can't really avoid these asset classes. 0:03:57.520 --> 0:03:59.760 Well, the President weighed in on Kevin Moosh last night 0:04:00.120 --> 0:04:01.720 that it was his runner up in the first time, 0:04:01.760 --> 0:04:04.040 and then when asked about what's going on with the 0:04:04.120 --> 0:04:06.880 DOJ investigation and whether it was worth it to have 0:04:06.960 --> 0:04:09.160 this investigation, it means it's holding up the nominations. He 0:04:09.240 --> 0:04:10.560 basically was like, nonchalant. 0:04:10.840 --> 0:04:12.200 If it happens, it happens. 0:04:12.640 --> 0:04:16.560 How are you thinking about a future Kevin warsh led 0:04:16.640 --> 0:04:18.440 Federal Reserve? Do you think he's going to come in 0:04:18.440 --> 0:04:19.440 and be dubvish? 0:04:19.560 --> 0:04:20.000 You know what? 0:04:20.720 --> 0:04:24.040 Everything That's pretty much the conversation that everyone's been having 0:04:24.080 --> 0:04:25.040 for the last couple of weeks. 0:04:25.560 --> 0:04:26.440 His history is the. 0:04:26.400 --> 0:04:30.760 Exact opposite the way I see it, whether it's the 0:04:30.880 --> 0:04:34.680 fact that policy setting occurs within the committee and he's 0:04:34.680 --> 0:04:39.640 one vote, and the balance sheet discussions and ultimately, you know, 0:04:39.680 --> 0:04:42.400 a Fed Treasury type of a cur accord where we 0:04:42.520 --> 0:04:46.360 talk about potentially less Fed buying at the long end, 0:04:46.440 --> 0:04:49.000 all of that is a higher yield. So you know, 0:04:49.040 --> 0:04:53.160 for me, it still is a duration neutral and potentially 0:04:53.200 --> 0:04:55.360 steeper curve type of discussion that comes out of all 0:04:55.360 --> 0:04:55.560 of this. 0:04:55.680 --> 0:04:57.400 The President was also saying how he's been fighting with 0:04:57.440 --> 0:05:00.480 Senator Tom Tillis for a while, which is why he's retiring. 0:05:00.520 --> 0:05:02.520 Do you have any concern about independence of the Fed? 0:05:02.920 --> 0:05:06.279 You know what, Yes, we always have concern, you know, 0:05:06.320 --> 0:05:08.839 having said that the Federal Reserve Act has what stood 0:05:08.880 --> 0:05:11.560 the test of time. You know, I do think that 0:05:11.800 --> 0:05:15.520 the market will quickly punish absolutely bad policy. 0:05:15.640 --> 0:05:17.040 There's a difference in credibility. 0:05:17.120 --> 0:05:19.520 If they're cutting by twenty five basis points, you know, 0:05:19.560 --> 0:05:23.040 and there's disagreement around it, that's not that's not necessarily independence. 0:05:23.279 --> 0:05:25.120 If you're actually saying that you're going to go to 0:05:25.160 --> 0:05:28.480 the zero lower bound while inflation is three to four 0:05:28.480 --> 0:05:31.599 percent and accelerating, that's bad policy. It gets punished, and 0:05:31.640 --> 0:05:33.520 it immediately makes its way into the financial market. 0:05:33.560 --> 0:05:36.240 Sa'ce vess tens right now to seventy banksis points. There's 0:05:36.240 --> 0:05:38.719 some statements then not that state, what come, nun have 0:05:38.800 --> 0:05:39.440 you got in mind? 0:05:39.640 --> 0:05:42.680 You know, I've got, I've got and I've had then 0:05:42.720 --> 0:05:45.480 this program in particular for for quite some time, somewhere 0:05:45.480 --> 0:05:49.480 around the one twenty range. Historically, that is not overly steep. 0:05:49.680 --> 0:05:52.280 And when we talk about regime changes, we really do 0:05:52.400 --> 0:05:56.000 need to think through several cycles, including before the GFC, 0:05:56.080 --> 0:05:57.599 when the carver was more naturally steep. 0:05:57.680 --> 0:06:00.679 Is that driven by the front end or alone ent It's. 0:06:00.560 --> 0:06:03.520 Driven by a bit of both, So a bear Stephen 0:06:03.600 --> 0:06:04.359 or a bear twist. 0:06:04.520 --> 0:06:06.919 As part of that discussion, how quickly can you actually 0:06:06.960 --> 0:06:09.200 start seeing that come to fruition. So we hear this 0:06:09.240 --> 0:06:11.600 from a lot of different people. The yield curve should 0:06:11.640 --> 0:06:14.680 be steeper, you should have an extra yield premium on 0:06:14.720 --> 0:06:18.000 the long end. We haven't really seen it come to pass, 0:06:18.080 --> 0:06:20.880 especially when you see sort of how immune long end 0:06:20.920 --> 0:06:23.560 yield curve has been to even some of the volatility 0:06:23.600 --> 0:06:26.520 we're seeing in Japan. So what sort of your explanation 0:06:27.080 --> 0:06:29.479 of what hope people are holding on too before that 0:06:29.560 --> 0:06:31.120 starts to really materialized. 0:06:31.320 --> 0:06:34.760 I mean, I mean, treasuries are this incredibly interesting asset 0:06:34.760 --> 0:06:37.680 class within the world, and it's not as if anybody 0:06:37.720 --> 0:06:40.560 is incentive to sell aggressively around it. It's really a 0:06:40.600 --> 0:06:42.760 function of when they buy less. And I think we're 0:06:42.800 --> 0:06:45.640 starting to see those types of conversations emerge. Do we 0:06:45.680 --> 0:06:48.960 continue to see less foreign interest in the US markets 0:06:49.120 --> 0:06:52.080 because there are one hundred year bonds, I thinkuld buy elsewhere? 0:06:52.880 --> 0:06:56.680 That is kind of the iterative process around how we 0:06:56.760 --> 0:06:59.919 get there. But it really does make it difficult if 0:07:00.080 --> 0:07:04.760 you're playing a trade and you expect a duration our 0:07:04.800 --> 0:07:06.760 performance because the FED is cutting we haven't had it 0:07:07.160 --> 0:07:08.120 and I wouldn't expect it. 0:07:08.200 --> 0:07:10.000 Do you think alphabet exists in one hundred. 0:07:09.840 --> 0:07:13.440 Years, the history of one hundred year bonds, and I 0:07:13.440 --> 0:07:16.040 haven't been around for all of them, but is not 0:07:16.080 --> 0:07:16.960 necessarily great. 0:07:17.680 --> 0:07:21.160 Stay with us. More Bloomberg surveillance coming up after this. 0:07:30.480 --> 0:07:32.680 The issue is for the president for the White House 0:07:32.720 --> 0:07:34.360 is that many of these issues built coming out of 0:07:34.400 --> 0:07:36.800 the pandemic. The problem they've got when you sit in 0:07:36.800 --> 0:07:39.920 the White House, you own it going into the midterms, and. 0:07:39.840 --> 0:07:40.560 He's owning it now. 0:07:40.600 --> 0:07:42.040 He's trying to sell it in the same way that 0:07:42.040 --> 0:07:43.520 they've sold it in the past, which is this is 0:07:43.560 --> 0:07:46.120 really great, this is excellent, and will it translate to 0:07:46.160 --> 0:07:47.080 how people feel about it? 0:07:47.160 --> 0:07:49.040 John Labor, if your range A group has this to say, 0:07:49.080 --> 0:07:52.560 the primary season will be more unpredictable than usual. The 0:07:52.640 --> 0:07:55.480 national and environment for twenty twenty six looks very positive 0:07:55.640 --> 0:07:58.040 for Democrats. John joins us now for more, John welcome, 0:07:58.320 --> 0:08:00.800 there's the president of the Republicans have to runway the 0:08:00.840 --> 0:08:02.240 time to turn this around. 0:08:03.560 --> 0:08:04.000 Probably not. 0:08:04.120 --> 0:08:05.560 I mean, I think there's a world where there's a 0:08:05.560 --> 0:08:09.600 booming economy between now and November and that helps them 0:08:09.680 --> 0:08:12.520 save some of these marginal seats. But you know, Americans 0:08:12.520 --> 0:08:14.160 have to feel it, and they have to be convinced 0:08:14.200 --> 0:08:17.000 that it's the Trump administration's actions that are driving it. 0:08:17.080 --> 0:08:19.440 So you want to see lower unemployment, which is very 0:08:19.440 --> 0:08:22.240 difficult given how low it is already. You want to 0:08:22.240 --> 0:08:25.880 see the presidents and poll numbers improving. And he's underwater 0:08:25.960 --> 0:08:30.200 on all the top issues the economy, inflation, immigration, and 0:08:30.360 --> 0:08:32.640 he's got to really change the narrative there. And I 0:08:32.679 --> 0:08:36.160 think importantly, you need Americans to feel like they can 0:08:36.240 --> 0:08:39.040 afford what they want. And I think that's the biggest 0:08:39.120 --> 0:08:42.440 challenge that face Biden. It's the biggest challenge that face Trump. 0:08:42.679 --> 0:08:44.760 You're not going to turn around the price of housing 0:08:45.000 --> 0:08:47.520 between now and November. Maybe you can make a difference 0:08:47.600 --> 0:08:49.839 on groceries or some of the other things that people 0:08:49.880 --> 0:08:55.080 feel are too high priced energy, Perhaps college affordability is 0:08:55.080 --> 0:08:59.360 not going anywhere. These fundamental things that make most American 0:08:59.440 --> 0:09:01.800 voters unheal just aren't going to turn around. And like 0:09:01.840 --> 0:09:04.480 you said, John, you own it when you're the president. 0:09:04.559 --> 0:09:06.480 So if people don't like the direction of the country, 0:09:06.559 --> 0:09:10.400 they blame you. Trump is personally unpopular and just hasn't 0:09:10.440 --> 0:09:13.240 proven the ability to expand his appeal really throughout the 0:09:13.240 --> 0:09:16.559 course of his political career. So it would really surprise 0:09:16.600 --> 0:09:20.640 me if the Democrats didn't take the House and potentially 0:09:20.640 --> 0:09:22.280 the Senate, although that's a lot less likely. 0:09:22.440 --> 0:09:23.160 So for the remain of the. 0:09:23.200 --> 0:09:24.559 Year, what can we see the White House do to 0:09:24.600 --> 0:09:26.720 try to turn this around. We saw a beef directive 0:09:26.800 --> 0:09:30.120 overnight looking at Bangladesh social media. They say that tariff 0:09:30.160 --> 0:09:31.560 rates are going to be cut. Are we going to 0:09:31.559 --> 0:09:35.239 see the President actually reverse some of his signature policies. 0:09:36.320 --> 0:09:39.600 Yeah, I think tariffs are likely to come down between 0:09:39.640 --> 0:09:41.960 now and the end of the year. That's probably because 0:09:41.960 --> 0:09:44.240 of this court case and also because of the cost 0:09:44.320 --> 0:09:46.920 of living concerns. They're going to continue to push these 0:09:46.960 --> 0:09:49.680 stimulus checks. You know, they've got a number of other 0:09:49.880 --> 0:09:54.080 ideas about ways that they can lower the cost of living, 0:09:54.120 --> 0:09:55.400 But I think a lot of it's just going to 0:09:55.400 --> 0:09:58.480 be window dressing because the actual levers the White House 0:09:58.480 --> 0:10:01.000 has to pull aren't that great. Look, the Biden administration 0:10:01.440 --> 0:10:03.560 looked at all these options, and it's not like there's 0:10:03.559 --> 0:10:06.480 a big ideological gap between what the Trump team is 0:10:06.520 --> 0:10:08.880 willing to do and what the Biden team is willing 0:10:08.920 --> 0:10:11.679 to do. In fact, Trump is embracing policies that even 0:10:11.679 --> 0:10:15.320 the Biden administration said, we're two interventionists for the government 0:10:15.360 --> 0:10:18.480 to think about capping interest rate fees and stuff like that. 0:10:18.800 --> 0:10:21.240 So all of these things have been looked at and rejected. 0:10:21.280 --> 0:10:23.160 If the White House could do something about the cost 0:10:23.240 --> 0:10:25.440 of living, they would have done it by now. They 0:10:25.440 --> 0:10:27.440 can goose the economy. They're going to run it hot, 0:10:27.480 --> 0:10:29.920 and you heard Trump talk about that just now. But 0:10:30.000 --> 0:10:33.160 I don't think that helps address the fundamental concerns that 0:10:33.240 --> 0:10:36.360 are a wait for President Trump right now, John. 0:10:36.160 --> 0:10:37.480 When it comes to the midterms, how bad do you 0:10:37.520 --> 0:10:39.080 think it is going to be Republicans? I know we 0:10:39.120 --> 0:10:41.560 had that state Senate seat in Texas that was a 0:10:41.559 --> 0:10:44.720 plus seventeen Trump district, But also over the weekend another 0:10:44.840 --> 0:10:48.319 unique election in Louisiana a House seat. This was another 0:10:48.360 --> 0:10:51.200 Trump district that a Democrat won. How bad is it 0:10:51.200 --> 0:10:52.400 going to be for Republicans? 0:10:52.840 --> 0:10:55.480 Yeah, the Republicans have a structural issue, which is that 0:10:55.559 --> 0:10:59.079 the coalition that's formed over the coalition that they put 0:10:59.120 --> 0:11:02.280 together over the last ten years is a Trump coalition, 0:11:02.520 --> 0:11:04.520 and that means that a lot of those voters only 0:11:04.559 --> 0:11:06.640 show up to vote when Trump's at the top of 0:11:06.679 --> 0:11:09.480 the ticket. Twenty twenty was close. He won in twenty four, 0:11:09.640 --> 0:11:12.880 twenty sixteen, he was close. He almost won the popular vote, 0:11:12.960 --> 0:11:15.160 but in the off cycle elections they just aren't doing 0:11:15.200 --> 0:11:18.000 that well, and it's because their voters don't show up. 0:11:18.280 --> 0:11:21.400 And I probably anticipate that this time around. So you're 0:11:21.400 --> 0:11:23.440 looking at you know, if you look at previous wave 0:11:23.480 --> 0:11:26.560 elections in the US. In twenty twelve, the Democrats picked 0:11:26.600 --> 0:11:30.040 up about sixty seats, and twenty eighteen, the Democrats picked 0:11:30.120 --> 0:11:32.440 up sorry, the Republicans picked up about sixty seats. In 0:11:32.480 --> 0:11:35.400 twenty eighteen, the Democrats picked up about forty. And I 0:11:35.440 --> 0:11:38.560 think because of redistricting and jerrymandering and the way they're 0:11:38.600 --> 0:11:41.960 able to draw districts, even a wave election this cycle, 0:11:42.000 --> 0:11:44.480 where let's say the Democrats are ahead by three to 0:11:44.520 --> 0:11:47.320 five points in the national popular vote, which would be huge, 0:11:47.440 --> 0:11:49.040 I think there's a kind of a ceiling as to 0:11:49.040 --> 0:11:51.600 how far they can go because these districts have drawn 0:11:51.640 --> 0:11:54.840 to be so friendly to Republican incumbents. So I would 0:11:54.840 --> 0:11:57.760 be looking for a twenty to twenty five seat shift. 0:11:58.600 --> 0:12:00.160 Anything less than that, of it's in the ten into 0:12:00.200 --> 0:12:02.760 fifteen range, is probably a good night for the Republicans. 0:12:02.960 --> 0:12:05.520 Anything more than that would be a real. I think 0:12:05.760 --> 0:12:07.400 massive wave for the. 0:12:07.360 --> 0:12:09.880 Democrats House Republicans who are up for a re election. 0:12:10.160 --> 0:12:12.600 How much are they closely aligning themselves with President Trump 0:12:12.600 --> 0:12:15.640 and his agenda right now versus trying to distance themselves. 0:12:16.240 --> 0:12:18.040 I think you align yourself with the president through the 0:12:18.080 --> 0:12:20.320 primary and you want to look like you're a problem 0:12:20.320 --> 0:12:23.600 solving guy or woman that gets things done, and aligning 0:12:23.679 --> 0:12:26.000 yourself with the president in the general could be helpful 0:12:26.040 --> 0:12:28.240 with that. Again, a lot of these districts are very, 0:12:28.320 --> 0:12:32.120 very safe, so you know, most members of Congress are 0:12:32.120 --> 0:12:34.600 going to say, hey, I'm a Trump Republican. I want 0:12:34.600 --> 0:12:37.480 to get this done for President Trump. You know there 0:12:37.520 --> 0:12:40.200 will be a few who are in these more marginal seats, 0:12:40.360 --> 0:12:43.600 people like Mike Lawler in New York. You know Susan 0:12:43.640 --> 0:12:45.960 Collins in Maine who's not running. But you know they've 0:12:45.960 --> 0:12:48.240 got these people who are in these more moderate seats 0:12:48.240 --> 0:12:50.560 who are going to be looking to make distance from 0:12:50.559 --> 0:12:52.800 the president. But it's not going to be I don't think. 0:12:52.880 --> 0:12:55.720 I don't expect a jail break for Republicans between now 0:12:55.760 --> 0:12:56.480 and November. 0:12:57.000 --> 0:13:00.480 Stay with us Multilinpex dividance coming up off to this 0:13:09.679 --> 0:13:12.400 Hi Rose tomorrow morning about twenty four an a thirty 0:13:12.520 --> 0:13:14.360 east in time. If you're just joined, I guess welcome 0:13:14.400 --> 0:13:16.800 a bit soften I'm expected. On retail sales, we were 0:13:16.800 --> 0:13:19.360 looking for positive zero point four and we got zero 0:13:19.800 --> 0:13:22.640 point zero. Greig dak e y John to snap them all, 0:13:22.679 --> 0:13:24.120 Greg and Mornic, good morning. What do you make of 0:13:24.160 --> 0:13:26.040 that downside surprise? How much wight would you put on it? 0:13:26.240 --> 0:13:28.640 I think what's very interesting is that over the course 0:13:28.679 --> 0:13:30.520 of the past few months, we were trying to explain 0:13:30.559 --> 0:13:32.719 where the strength and consumer spending was coming from, and. 0:13:32.640 --> 0:13:34.160 We were talking a lot about polarization. 0:13:34.200 --> 0:13:36.640 We were talking about the wealthy doing more of their 0:13:36.679 --> 0:13:39.120 fair share of spending. We were talking about credit growth, 0:13:39.120 --> 0:13:41.200 we were talking about a savings dip, all of which 0:13:41.280 --> 0:13:44.640 are real. But the reality is that the averages are 0:13:44.920 --> 0:13:47.800 softer than we had anticipated. So what this tells us 0:13:47.880 --> 0:13:51.040 is that even with a savings dip and the saving 0:13:51.120 --> 0:13:54.480 rate having fallen two percentage point since April, even with 0:13:54.679 --> 0:13:57.600 credit growth being quite strong in December, and even with 0:13:57.679 --> 0:14:00.160 affluent consumers still doing more than their fair shit or 0:14:00.200 --> 0:14:05.199 spending spending, momentum is softening. Why because the labor market 0:14:05.240 --> 0:14:08.200 is softening. This is the key pillar to income growth 0:14:08.240 --> 0:14:11.199 and in turn to consumer spending activity, and we are 0:14:11.240 --> 0:14:15.600 seeing that labor pillar start to slow and show slower 0:14:15.600 --> 0:14:16.199 income growth. 0:14:16.240 --> 0:14:18.640 It sounds like you don't think tax refunds are going 0:14:18.640 --> 0:14:19.680 to send this story around. 0:14:20.160 --> 0:14:24.080 Well, there was this proposition that tax refunds were essentially 0:14:24.160 --> 0:14:27.040 spent ahead of time, that people were banking on these 0:14:27.080 --> 0:14:30.760 tax refunds to spend. That's rarely the case, and even 0:14:30.800 --> 0:14:33.200 if they had done so, there was this question as 0:14:33.240 --> 0:14:36.200 to how much more fuel these could bring in the 0:14:36.240 --> 0:14:39.480 early part of twenty twenty six, with these tax refunds 0:14:39.560 --> 0:14:43.960 either being spent or used to reimburse credit or to 0:14:44.200 --> 0:14:45.400 replenish savings. 0:14:45.600 --> 0:14:47.840 I think that story is one that we're going to. 0:14:47.880 --> 0:14:50.840 Have to pay very close attention to, because yes, there 0:14:50.880 --> 0:14:53.080 will be larger tax refunds. 0:14:52.640 --> 0:14:55.520 But who gets these tax refunds and how. 0:14:55.240 --> 0:14:58.000 Are they being put to use in an environment where 0:14:58.000 --> 0:15:00.400 the labor market is in a deep freeze and where 0:15:00.480 --> 0:15:03.840 job opportunities are not as widely available as they once were, 0:15:04.040 --> 0:15:08.040 and where income growth is slowing. Real disposable income growth 0:15:08.240 --> 0:15:11.240 over the course of November and into December one percent 0:15:11.560 --> 0:15:14.760 consumer spending in November two and a half percent, and 0:15:14.800 --> 0:15:17.800 we're seeing as of today with the retail sales data 0:15:17.880 --> 0:15:19.440 that that momentum is slowing going. 0:15:19.240 --> 0:15:19.920 Into twenty six. 0:15:20.000 --> 0:15:22.120 We spent more than two hours on this program talking 0:15:22.200 --> 0:15:24.440 about the boom of the US economy and how we're 0:15:24.440 --> 0:15:27.280 going to see a run a hot type of environment 0:15:27.400 --> 0:15:30.200 right now with all of this hyperscaler spending, and then 0:15:30.240 --> 0:15:33.400 we see spending by the average consumer that comes in 0:15:33.520 --> 0:15:36.720 extremely disappointing and points to a completely different pricture. 0:15:37.040 --> 0:15:37.760 If you watch what. 0:15:37.720 --> 0:15:40.760 They do, not necessarily what they say. How do these 0:15:40.800 --> 0:15:42.600 two stories get reconciled. 0:15:43.000 --> 0:15:46.040 Who benefits from the growth? That is the key question. 0:15:46.400 --> 0:15:49.359 We are in an environment where not everybody is benefiting 0:15:49.400 --> 0:15:49.960 from growth. 0:15:50.320 --> 0:15:52.840 We are seeing an environment where when you look. 0:15:52.720 --> 0:15:55.520 At productivity growth, it's quite strong, and I think it's real. 0:15:55.600 --> 0:15:56.560 It's not AI driven. 0:15:56.560 --> 0:15:59.120 It's driven by businesses trying to do more in a 0:15:59.240 --> 0:16:01.960 high cost and life viarnment, So that is real. We're 0:16:01.960 --> 0:16:05.960 seeing the gains, however, benefit a few. It's a winner's 0:16:06.000 --> 0:16:08.320 takes all type of environment. It's an environment where a 0:16:08.320 --> 0:16:11.240 lot of the gains are accruing to capital. 0:16:11.000 --> 0:16:14.080 And not labor. If you look at real wage growth. 0:16:13.880 --> 0:16:16.160 Right now, and we're seeing with the employment costs in 0:16:16.240 --> 0:16:19.560 next that adjusted for inflation, we're very close to zero. 0:16:20.000 --> 0:16:24.040 It's an indication not that the economy is not benefiting 0:16:24.080 --> 0:16:26.040 from stronger productivity growth, but. 0:16:26.120 --> 0:16:28.480 Instead that the gains are not split equally. 0:16:28.680 --> 0:16:31.240 They're going to profit margins, they're not going to real 0:16:31.280 --> 0:16:34.280 wage growth, and that means that income is under pressure 0:16:34.480 --> 0:16:37.280 and that we have this fragile foundation to growth when 0:16:37.280 --> 0:16:38.720 it comes to consumer spending activity. 0:16:38.840 --> 0:16:40.320 Is there a breaking point for this? 0:16:40.440 --> 0:16:43.080 And I'm talking about in economic breaking point, not necessarily 0:16:43.120 --> 0:16:45.080 a political breaking point. We talk a lot about potential 0:16:45.080 --> 0:16:47.680 policies that are populists that come and redistribute the wealth, 0:16:47.720 --> 0:16:49.840 et cetera that could stem from this type of dynamic. 0:16:49.880 --> 0:16:53.080 But is there a market equalizing factor that comes from 0:16:53.080 --> 0:16:56.400 people not able to spend maybe on some of the 0:16:56.440 --> 0:16:59.360 goods that might be enabled by artificial intelligence. I mean, 0:16:59.360 --> 0:17:02.640 when does that sort of bridge gets broken through. 0:17:03.120 --> 0:17:05.160 I don't know that there is one point at which 0:17:05.200 --> 0:17:08.240 something breaks, but the reality is that a narrow foundation 0:17:08.320 --> 0:17:11.359 to growth is less stable in terms of economic momentum. 0:17:11.560 --> 0:17:14.439 If you have more weight that is put towards higher 0:17:14.440 --> 0:17:17.320 income individuals that are doing more than their fair share 0:17:17.359 --> 0:17:20.679 of spending then as a result of that, any type 0:17:20.720 --> 0:17:23.800 of uncertainty on the financial market front can lead to 0:17:23.840 --> 0:17:26.639 a pullback in spending from those individuals. And if the 0:17:26.720 --> 0:17:30.280 foundations in terms of income growth for the masses, in 0:17:30.400 --> 0:17:34.280 terms of consumers are softer than that means that they 0:17:34.359 --> 0:17:37.440 are more susceptible to pulling back and being more judicious 0:17:37.480 --> 0:17:38.560 when it comes to outlays. 0:17:38.840 --> 0:17:41.240 Same thing is valid on the business front. 0:17:41.240 --> 0:17:43.119 We often talk about a ca shaped economy on the 0:17:43.119 --> 0:17:46.320 consumer front, It's the same on the business front. A 0:17:46.400 --> 0:17:50.440 few businesses are driving business investment. It's not all businesses 0:17:50.480 --> 0:17:53.200 that are investing. And that means that when you look 0:17:53.200 --> 0:17:56.480 at profit margins on average, they're still very healthy and 0:17:56.560 --> 0:17:58.960 they are a good sign and a reassuring sign. 0:17:59.119 --> 0:18:00.480 But look at small businesses. 0:18:00.800 --> 0:18:03.000 They're struggling in the face of a number of these 0:18:03.040 --> 0:18:06.040 headwinds and they're not driving growth as strongly as the 0:18:06.080 --> 0:18:06.840 larger businesses. 0:18:06.920 --> 0:18:09.520 Is it too soon to extrapolate, maybe potentially what also 0:18:09.560 --> 0:18:10.359 is going on here? 0:18:10.480 --> 0:18:12.040 Are prices too high? 0:18:12.119 --> 0:18:15.040 Are we seeing that people are just buying less or 0:18:15.440 --> 0:18:17.920 as we see in some of the consumer confidence reports 0:18:17.960 --> 0:18:22.640 and sentiment data, people are concerned about the job prospects, upcoming, 0:18:22.680 --> 0:18:23.200 so maybe. 0:18:23.000 --> 0:18:24.040