WEBVTT - Surveillance: Kaminski on a 6% 10-Year Yield 0:00:05.080 --> 0:00:07.200 This is the Bloomberg Surveillance Podcast. 0:00:07.680 --> 0:00:08.280 I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bromoids along with Tom Keen and Jonathan Ferrell. Join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:19.480 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:19.600 --> 0:00:22.840 Spotify and anywhere you get your podcasts, and always on 0:00:22.880 --> 0:00:26.440 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:26.600 --> 0:00:29.040 Kadi Kaminski joined US now Chief Research Strategies to out 0:00:29.080 --> 0:00:31.240 for Simplex Katie, what a call at the start of 0:00:31.280 --> 0:00:33.960 the year. This short that you've had on bonds is 0:00:34.000 --> 0:00:36.120 paying off in a big way over the last month. 0:00:36.479 --> 0:00:38.600 You've put out a headline and you knew it would 0:00:38.600 --> 0:00:40.960 get attention. You've raised the prospect to gun to six. 0:00:41.040 --> 0:00:43.800 So let's breathe some life into that conversation. What is 0:00:43.880 --> 0:00:45.600 it that you saw at the start of the year 0:00:46.040 --> 0:00:49.040 that's continuing now and you think these forces are here 0:00:49.080 --> 0:00:49.440 to stay. 0:00:50.040 --> 0:00:50.320 Yeah. 0:00:50.360 --> 0:00:55.280 So we've seen short signals and fixed income all year, albeit. 0:00:54.960 --> 0:00:56.160 Not as strong as last year. 0:00:56.600 --> 0:01:00.600 But what's really interesting about this, particularly recently, is we've 0:01:00.680 --> 0:01:03.959 started to see the market agree with us, and we've 0:01:04.000 --> 0:01:07.120 also seen some of the fundamental players out there say 0:01:07.240 --> 0:01:10.400 this might have to happen higher rates for longer. 0:01:11.040 --> 0:01:13.480 So, Katy, is it time to back away concerning at 0:01:13.480 --> 0:01:15.440 the start of the year's contrarian Why is it a 0:01:15.440 --> 0:01:16.280 movie you want to stick with? 0:01:16.600 --> 0:01:18.800 Well, this is a really good question, because I'm asking 0:01:18.840 --> 0:01:21.119 myself this as well. Is that if we've looked at 0:01:21.120 --> 0:01:24.920 the data with technical signals, when the curve is still inverted, 0:01:25.480 --> 0:01:28.680 trend signals short tend to work really well. As we 0:01:28.720 --> 0:01:31.600 see a flatter curve, it becomes more mixed. 0:01:31.920 --> 0:01:33.720 And if we can see a steeper. 0:01:33.280 --> 0:01:35.640 Curve, I plan that we're probably going to be long 0:01:36.080 --> 0:01:39.039 So we're still within that transition period where we could 0:01:39.040 --> 0:01:41.360 have a very interesting trend. 0:01:41.160 --> 0:01:44.080 Environment as we see the curve flatten out. 0:01:44.319 --> 0:01:47.640 And everyone realized why hold long term debt when you 0:01:47.640 --> 0:01:50.840 can have such a good return short term And if 0:01:50.880 --> 0:01:53.560 the data isn't clear that we're going to cut rates quickly, 0:01:54.280 --> 0:01:55.760 it's a sticky inflation play. 0:01:55.840 --> 0:01:57.760 It's a question about long term cash flows. 0:01:57.760 --> 0:01:59.840 And I think people are starting to really realize this 0:01:59.920 --> 0:02:01.200 is this is the real. 0:02:01.040 --> 0:02:02.000 Issue, Katie. 0:02:02.040 --> 0:02:05.480 Every single day we ask people why now the bond 0:02:05.520 --> 0:02:07.960 sell off is something people were talking about for quite 0:02:08.000 --> 0:02:11.800 a while. Suddenly it seems to be reasserting itself. Do 0:02:11.840 --> 0:02:14.399 you have an answer to the now of the selloff? 0:02:14.840 --> 0:02:17.519 Yes, I really think it has to do with behavior, 0:02:17.560 --> 0:02:20.840 and I think that everyone would rather wait to see 0:02:20.840 --> 0:02:23.080 if something is going to come to fruition, and that's 0:02:23.120 --> 0:02:24.000 exactly what you're. 0:02:23.880 --> 0:02:24.880 Seeing this week. 0:02:25.080 --> 0:02:29.239 Everyone's sitting around waiting to hear commentary. They're pretty sure 0:02:29.320 --> 0:02:31.400 they know what it's going to be. And I think 0:02:31.480 --> 0:02:33.800 the real truth is that we're starting to see the 0:02:33.880 --> 0:02:37.120 data is pretty consistent with the narrative that this is 0:02:37.160 --> 0:02:40.600 going to take some time and that higher rates could 0:02:40.600 --> 0:02:42.520 be part of what is the new normal in a 0:02:42.560 --> 0:02:45.680 world where we've experienced so much inflation and sort of 0:02:45.720 --> 0:02:48.040 a very different post pandemic economy. 0:02:48.400 --> 0:02:51.040 And I think that's where it's starting to turn around. 0:02:51.080 --> 0:02:53.840 And I'm sortain to see fundamental investors agree with the 0:02:53.880 --> 0:02:54.840 technical signals. 0:02:55.000 --> 0:02:57.200 How important is it that stocks have been able to 0:02:57.320 --> 0:02:59.720 rally in the face of higher yields. Is this sort 0:02:59.720 --> 0:03:02.800 of defy the idea that this is sustainable and something 0:03:02.840 --> 0:03:04.839 people can lean into. The yields are going to stay 0:03:04.840 --> 0:03:07.160 this high and the whole world isn't going to collapse 0:03:07.160 --> 0:03:07.760 as a result. 0:03:08.120 --> 0:03:11.120 Yeah, that's a tricky one because I think the backdrop 0:03:11.160 --> 0:03:11.880 of yesterday. 0:03:11.960 --> 0:03:15.120 So yesterday definitely brought that to light. You saw an 0:03:15.200 --> 0:03:16.440 environment where. 0:03:16.440 --> 0:03:18.960 Stocks were up, the NASAQ was up a ton, and 0:03:19.080 --> 0:03:21.639 yields were up to sixteen year highs. 0:03:22.520 --> 0:03:24.840 That's a weird situation for markets. 0:03:24.960 --> 0:03:27.720 I think if it's actually the case that those two 0:03:27.800 --> 0:03:31.399 things coincide, it means the market's accepting higher. 0:03:31.280 --> 0:03:34.880 Rates, which could be a good thing. On the other hand, 0:03:34.920 --> 0:03:35.400 I'd be a. 0:03:35.400 --> 0:03:38.000 Little skeptical of how big of a move we've had 0:03:38.040 --> 0:03:40.120 this month. We could have just had a little bit 0:03:40.120 --> 0:03:43.240 of relief rally yesterday, So I think we need to 0:03:43.280 --> 0:03:46.720 watch that correlation trade a little bit more closely. 0:03:46.320 --> 0:03:48.400 Going forward and see if. 0:03:48.200 --> 0:03:52.360 This positive correlation environment is actually going to stick. 0:03:52.560 --> 0:03:54.360 Hey, Kitty, we can say the rights on the screen. 0:03:55.160 --> 0:03:57.560 I just want to how many people are paying them, Kitty. 0:03:57.640 --> 0:04:01.160 We haven't had the great refinancing yet. People maybe think 0:04:01.200 --> 0:04:04.520 it begins next year in high yield Kitty, do you 0:04:04.520 --> 0:04:08.400 think this economy can tolerate these kind of rights beyond 0:04:08.480 --> 0:04:10.200 site six to nine months? 0:04:10.520 --> 0:04:13.280 This is the really tough question, and I think that's 0:04:13.360 --> 0:04:17.400 what Mark showed us, is that suddenly it seems like people. 0:04:17.120 --> 0:04:19.560 Wake up and they say, wait a minute, there's a 0:04:19.600 --> 0:04:22.880 good deal for yield here, or this isn't working. 0:04:22.920 --> 0:04:26.160 And I think it's very hard to predict when people 0:04:26.200 --> 0:04:29.960 are actually going to refinance and when those particular events 0:04:30.000 --> 0:04:33.359 are either going to change their behavior. The truth is 0:04:33.440 --> 0:04:36.800 people behave differently and they in a higher rate environment. 0:04:36.960 --> 0:04:39.760 We've seen that shift in short term rates. We haven't 0:04:39.800 --> 0:04:41.680 seen it in high yield. We haven't seen it in 0:04:41.760 --> 0:04:45.200 long term debt yet. This week was interesting to me 0:04:45.400 --> 0:04:48.360 because it said people might be starting to wake up. 0:04:48.400 --> 0:04:51.360 You're starting to see headlines about selling treasuries. You guys 0:04:51.400 --> 0:04:54.279 are just asking about that. Could it be the time? 0:04:54.360 --> 0:04:55.159 Maybe this fall? 0:04:55.600 --> 0:04:59.200 Ketty, just one more question. The six percent, the number 0:04:59.240 --> 0:05:02.240 six lot of attention. Is that actually a call from you? 0:05:02.640 --> 0:05:03.520 Is that a forecast? 0:05:03.960 --> 0:05:07.920 No, we don't forecast, but we do see trends in data, 0:05:08.120 --> 0:05:11.560 and if you look over longer term horizons, six percent 0:05:11.760 --> 0:05:14.360 isn't a crazy number for a tenure. I know it 0:05:14.400 --> 0:05:16.200 is for those of us that have been living in 0:05:16.760 --> 0:05:19.200 a decade of really low interest rates. But those of 0:05:19.279 --> 0:05:21.520 us who look at the technical signals and long term 0:05:21.600 --> 0:05:24.800 historical patterns, what you see is that that's not a 0:05:25.600 --> 0:05:29.760 restrictive rate for many periods in economic history. So it's 0:05:29.839 --> 0:05:32.920 not strange to think that we might have higher rates 0:05:33.000 --> 0:05:35.839 if we have surprises on the upside and inflation in 0:05:35.880 --> 0:05:36.240 the fall. 0:05:36.440 --> 0:05:39.080 Katy, great, cool to start the year. Just fantastic and 0:05:39.120 --> 0:05:41.599 great to catch up with you late into Walgus, Katy 0:05:41.640 --> 0:05:44.160 Kaminski there of alpha simplex on this bond. 0:05:43.960 --> 0:05:57.640 Market, weighing in on how this economy has been strong 0:05:57.920 --> 0:06:00.640 but will deteriorate in the face of some of these yields. 0:06:00.680 --> 0:06:04.000 Chief economist and macro strategist at Dreyfus and Mellon, I 0:06:04.040 --> 0:06:06.680 want to just start there, Vincent. Are these yields sustainable 0:06:06.680 --> 0:06:07.559 where they are right now? 0:06:08.040 --> 0:06:08.280 Yeah? 0:06:08.320 --> 0:06:11.880 They sound easier to explain than when they were sub 0:06:11.920 --> 0:06:15.159 two percent a few years ago. Inflation is going to 0:06:15.160 --> 0:06:20.800 settle down in two percent, the term premium or the 0:06:20.960 --> 0:06:24.480 risk premium that investors are going to pay, are going 0:06:24.480 --> 0:06:28.839 to turn positive instead of negative, and the equal real 0:06:28.920 --> 0:06:33.000 rate or the natural rate of interest is probably higher 0:06:33.160 --> 0:06:38.640 given how robust economic activity is. So yeah, it's sustainable. 0:06:38.960 --> 0:06:43.520 It's particularly sustainable because a key message of chair pal 0:06:43.680 --> 0:06:49.400 at Jackson Hole is going to be the policy rate 0:06:49.560 --> 0:06:52.960 is going to rest on a high plateau for a while. 0:06:53.240 --> 0:06:55.400 That's going to feed into longer term yields. 0:06:55.600 --> 0:06:57.839 We've been talking all morning about long and variable lags 0:06:57.839 --> 0:06:59.919 and whether they're very long and very variable or what 0:07:00.080 --> 0:07:02.640 that they're very short. We've already seen the worst of it, 0:07:02.680 --> 0:07:05.200 and now the market is adapting and adjusting. To use 0:07:05.200 --> 0:07:07.720 the phrase frequently used on this show, which is it? 0:07:09.240 --> 0:07:12.240 So it depends on sector, and that is the question 0:07:12.360 --> 0:07:15.440 for Jackson Hole. By the way, it's about shifts in 0:07:15.520 --> 0:07:19.360 the economy. From a monetary policy maker, comes down to 0:07:19.480 --> 0:07:24.200 the question, what's the transmission to monetary policy? How long 0:07:24.240 --> 0:07:30.040 are the lags? Answer is sector bi sector. The lag 0:07:30.120 --> 0:07:35.440 defective monetary policy is local, not national. You already went 0:07:35.520 --> 0:07:39.320 through one segment of the economy where it's shorter real estate. 0:07:40.600 --> 0:07:46.120 Home buyers depend critically on mortgage rates, builders depend critically 0:07:46.640 --> 0:07:51.720 on marketable rates. So that has borne the brunt of 0:07:51.840 --> 0:07:57.160 the remarkable FED tightening a lot sooner than any other areas. 0:07:57.760 --> 0:08:03.760 Other parts of the economy have cushion between aggregate demand 0:08:04.080 --> 0:08:10.880 and monetary policy. Households still have a lot of retained 0:08:10.960 --> 0:08:14.360 saving from the fiscal ar jest. They got in twenty 0:08:14.440 --> 0:08:17.480 twenty and twenty twenty one, they're working it down. As 0:08:17.560 --> 0:08:21.360 that buffer gets smaller and smaller, you'll see the interest 0:08:21.440 --> 0:08:22.760 rate effect bite more. 0:08:23.080 --> 0:08:25.120 Let's develop on that a little bit more, especially as 0:08:25.120 --> 0:08:28.440 we get earnings from Macy's and Low's and exporting goods 0:08:28.480 --> 0:08:30.960 this morning. Showing a kind of motley picture of where 0:08:31.000 --> 0:08:33.760 the consumer is and how much savings they have left. 0:08:34.040 --> 0:08:36.920 What's your sense of the fact that everyone's been saying 0:08:37.120 --> 0:08:39.320 the savings are running out, the savings are running out. 0:08:39.679 --> 0:08:41.640 Now they're going to be running out, and they still 0:08:41.679 --> 0:08:43.520 have it. Does that make you think that they're not 0:08:43.600 --> 0:08:46.800 going to run out or that people just were perhaps 0:08:46.880 --> 0:08:49.960 a little premature and how quickly they thought they would 0:08:50.040 --> 0:08:50.439 dry up. 0:08:51.480 --> 0:08:54.640 So it probably tells us we didn't appreciate how big 0:08:54.840 --> 0:08:58.800 the say cash load was at the beginning. That is, 0:08:58.840 --> 0:09:01.560 household saved a lot more of what they got from 0:09:01.600 --> 0:09:07.520 the government than we expected and continued to save for 0:09:07.720 --> 0:09:11.040 a while to come. You know, if you just look 0:09:11.080 --> 0:09:16.280 at a typical saving rate relative to what households actually 0:09:16.200 --> 0:09:19.200 were doing, they must have worked down at least a 0:09:19.360 --> 0:09:23.240 half the cashload. But that's still half. And by the way, 0:09:23.559 --> 0:09:28.199 we should also remember that states and localities also got 0:09:28.360 --> 0:09:34.160 fiscal transfers and they have a cash pile on the 0:09:34.280 --> 0:09:39.280 sideline as well. And those state governments and localities in 0:09:39.320 --> 0:09:42.920 particular are the ones that are really very cyclically sensitive. 0:09:43.360 --> 0:09:48.480 So essentially what the federal government did was lengthen the 0:09:48.559 --> 0:09:54.800 legs of monetary policy by immunizing by insulating some of 0:09:54.840 --> 0:10:00.960 the intra sensitive parts of our economy too. To Fed policy. 0:10:00.559 --> 0:10:03.400 Instrument, this is important and it really speaks to what 0:10:03.600 --> 0:10:06.320 could happen if the Fed keeps rates where they are, 0:10:06.640 --> 0:10:08.280 even if they don't raise them again, but keeps them 0:10:08.280 --> 0:10:10.640 where they are through the remainder of this year and 0:10:10.760 --> 0:10:13.520 all of next year and even potentially into twenty twenty five. 0:10:13.800 --> 0:10:16.200 How long do they have to keep rates where they 0:10:16.240 --> 0:10:19.600 are to start feeling the bite to make it so 0:10:19.720 --> 0:10:22.480 that you know it actually has the transmission mechanism that 0:10:22.520 --> 0:10:23.160 it was intended. 0:10:23.920 --> 0:10:26.280 Yeah, there's a couple of really important points about that. 0:10:26.520 --> 0:10:30.320 One is, remember how chair pal describes the path for rates. 0:10:30.400 --> 0:10:32.120 It's how fast. 0:10:31.840 --> 0:10:34.480 You raise them, what level will you go to? And 0:10:34.520 --> 0:10:38.200 then how long you keep them there? And we're really 0:10:38.240 --> 0:10:41.280 at that third stage. How long do they keep them there? 0:10:41.840 --> 0:10:45.240 And in some sense it doesn't matter if they raise 0:10:45.240 --> 0:10:48.000 them an extra quarter point or a half point, or 0:10:48.040 --> 0:10:52.000 they keep them unchanged. They can compensate by keeping the 0:10:52.160 --> 0:10:56.480 policy rate there for a longer time, and that's now 0:10:56.559 --> 0:11:01.280 the strategy of monetary policy. And the longer they keep 0:11:01.360 --> 0:11:06.679 rates on that plateau, the more effects of the prior 0:11:06.920 --> 0:11:09.679 increases in rates we're going to see on the economy. 0:11:10.040 --> 0:11:13.679 So that's the big message to hammer home to investors. 0:11:13.960 --> 0:11:18.000 They got that the funds rates going may go up 0:11:18.040 --> 0:11:22.000 another quarter point, that's not the important point. The important 0:11:22.080 --> 0:11:25.199 point is it's not going to be cut nearly as 0:11:25.280 --> 0:11:29.640 quickly as you might think. Right now. Next year, they're 0:11:29.760 --> 0:11:34.160 keeping rates at a plateau. They're waiting for the legs 0:11:34.320 --> 0:11:37.960 of the effects of monetary policy to play through. If 0:11:37.960 --> 0:11:41.280 they're patient and see those legs, they don't have to 0:11:41.320 --> 0:11:45.240 add incremental restraint because they've got the restraint in the 0:11:45.280 --> 0:11:46.199 pipeline already. 0:11:46.760 --> 0:11:48.679 Just quickly here, do you think that Vedcher Powell is 0:11:48.679 --> 0:11:50.760 going to say anything substantive this week? 0:11:51.720 --> 0:11:54.760 I think he can pack a little dubbish. He doesn't 0:11:54.800 --> 0:11:57.959 have to talk about pain like he did last year. 0:11:59.160 --> 0:12:02.880 He just has to be a little more neutral than 0:12:02.880 --> 0:12:05.800 he came across at his last press conference, he's got 0:12:05.840 --> 0:12:09.120 markets about where he wants. The main message he's going 0:12:09.200 --> 0:12:12.040 to want to send is rates are going to be 0:12:12.120 --> 0:12:16.839 around around current levels for a lot longer than you think, and. 0:12:16.800 --> 0:12:18.920 That seems to be what people are adapting to right now, 0:12:18.960 --> 0:12:22.559 and the implications for longer term seem to be really 0:12:22.640 --> 0:12:25.880 kind of giving everyone some angst in terms of what 0:12:26.000 --> 0:12:28.160 yield is the appropriate yield for the rest of. 0:12:28.160 --> 0:12:29.000 The risk market. 0:12:29.400 --> 0:12:32.400 Vincent Reinhardt, thank you so much for your insights. 0:12:36.679 --> 0:12:38.959 Let's talk retail, Chuck rum John just now seeing a 0:12:39.040 --> 0:12:42.320 retail analyst over at Gorgan Haskett. Chuck, you named it. 0:12:42.400 --> 0:12:44.320 You came out with that phrase in the last couple 0:12:44.320 --> 0:12:47.960 of months on this program. You said, discretionary recession. Are 0:12:48.000 --> 0:12:49.800 you seeing signs of that from the earnings we've seen 0:12:49.800 --> 0:12:50.280 this morning? 0:12:52.040 --> 0:12:55.079 Yeah, I mean, I mean generally speaking, almost everybody's copying 0:12:55.200 --> 0:12:57.640 negative and I think you know, you can go back 0:12:57.640 --> 0:12:59.760 to last week's Target report and you look at the 0:12:59.800 --> 0:13:03.320 big bell weathers between Walmart and Target, and you know, Walmart, 0:13:03.360 --> 0:13:05.760 who sells a lot more food business, was really strong 0:13:06.120 --> 0:13:09.000 and Target, whose business is more discretionary in nature, continues 0:13:09.040 --> 0:13:11.720 to be really soft. But I think, as you guys know, 0:13:11.800 --> 0:13:13.920 the market's forward looking, and I think we're starting to 0:13:13.960 --> 0:13:17.360 see some signs of stabilization and discretionary as service spending 0:13:17.679 --> 0:13:20.800 we think is starting the plateau. We're seeing some signs 0:13:20.800 --> 0:13:23.360 and home furnishings that that certain parts of the business 0:13:23.400 --> 0:13:25.640 are starting to stabilize. We heard from TJ and Ross 0:13:25.720 --> 0:13:29.080 last week, wayfair earlier in August, so you know, we'll see. 0:13:29.360 --> 0:13:31.480 But there's a lot of mixed data points out there today. 0:13:31.679 --> 0:13:33.760 Let's talk about some of the specifics that have come out. 0:13:34.080 --> 0:13:37.760 Macy's in particular, evidently first saw a bit of a 0:13:37.800 --> 0:13:40.880 pop as a reaffirmed guidance, and then now shares are 0:13:40.960 --> 0:13:45.440 lower as they're looking at markdowns being insufficient to clear inventory. 0:13:45.559 --> 0:13:49.599 Is there any larger story to tell here about price tolerance, 0:13:49.760 --> 0:13:52.760 about the middle tier retailers and how tough it is 0:13:52.800 --> 0:13:54.959 for them to really move their materials. 0:13:55.760 --> 0:13:57.800 Well, no, I mean, I think the bottom line for 0:13:58.160 --> 0:14:00.720 Mecis is that you know, some art to their banners 0:14:00.720 --> 0:14:03.439 were really good, and I think generally speaking, inventory levels 0:14:03.440 --> 0:14:06.720 across retail continue to be really healthy, but there's there's 0:14:06.720 --> 0:14:09.160 definitely weakness across certain parts of retail. 0:14:09.640 --> 0:14:11.199 There's no really size fits all. Right. 0:14:11.240 --> 0:14:14.240 Now, we continue to watch the trend and you know, 0:14:14.640 --> 0:14:16.199 we'll see how some of the data points come out, 0:14:16.240 --> 0:14:18.880 Like a company like Lows, whose numbers are actually a 0:14:18.920 --> 0:14:22.120 lot better than expected today. You wouldn't expect to see 0:14:22.120 --> 0:14:24.960 that with rates moving higher, but their business continues to 0:14:25.000 --> 0:14:25.640 be really healthy. 0:14:25.920 --> 0:14:26.080 Yeah. 0:14:26.120 --> 0:14:28.200 Well, people are renovating their homes rather than moving out 0:14:28.240 --> 0:14:30.720 because they want to keep their mortgage rates at you know, 0:14:30.720 --> 0:14:32.320 three percent or whatever. I do want to talk about 0:14:32.360 --> 0:14:35.760 Dick boarding hoods shares plunging after they missed their forecast 0:14:36.200 --> 0:14:39.080 talking about theft as one of the biggest reasons. How 0:14:39.120 --> 0:14:42.640 much more have we heard about theft among all the retailers, 0:14:42.960 --> 0:14:45.000 particularly over the past two years. 0:14:45.480 --> 0:14:47.880 It is an issue that is not getting any better, 0:14:47.960 --> 0:14:51.040 and the problem is retailers can't price to it right away, 0:14:51.120 --> 0:14:54.440 and that's where the margin surprise comes from. Everybody's talking 0:14:54.480 --> 0:14:57.600 about it. Targets, talked about it on Depot, has cited it, 0:14:57.840 --> 0:15:00.800 and even Dix. But this issue today wasn't necessarily because 0:15:01.480 --> 0:15:05.120 the theft. Their same store sales were below plan and really, 0:15:05.160 --> 0:15:08.400 for the first time since the pandemic, they kind of 0:15:08.400 --> 0:15:12.440 put up, you know, a foul ball for them at. 0:15:12.280 --> 0:15:14.880 This point, we're looking at a situation where people are 0:15:14.880 --> 0:15:18.400 expecting discretionary spending to run out. Is there an area 0:15:18.480 --> 0:15:20.880 of the market where we're seeing this or are we 0:15:21.000 --> 0:15:22.720 just not seeing this? And do you view some of 0:15:22.720 --> 0:15:25.120 the warnings that we've heard from Walmart's CEO and Target 0:15:25.160 --> 0:15:28.280 CEOs as simply being trying to lower the bar so 0:15:28.320 --> 0:15:30.240 they have an easier time crossing it later. 0:15:31.080 --> 0:15:31.800 That's a good question. 0:15:31.880 --> 0:15:33.480 One of the things that we're starting to see, and 0:15:33.520 --> 0:15:35.960 we heard it in Macy's report today and Target called 0:15:35.960 --> 0:15:39.080 about last week, was a rise in delinquencies in their 0:15:39.080 --> 0:15:41.400 credit card businesses, and that's something we. 0:15:41.400 --> 0:15:42.400 Really need to keep an eye on. 0:15:42.480 --> 0:15:44.600 We have not heard that in several years, and we're 0:15:44.600 --> 0:15:47.320 starting to hear it today. Like I said, Macy's credit 0:15:47.320 --> 0:15:50.360 income was much weaker, so we're seeing some cracks in 0:15:50.400 --> 0:15:54.000 the consumer. But broadly speaking, we still are pretty upbeat. 0:15:54.040 --> 0:15:56.640 You know, when you look at real wage growth, you know, 0:15:56.720 --> 0:15:59.680 three consecutive months of positive real wage growth, we haven't 0:15:59.680 --> 0:16:02.720 seen that in years. We actually think back to school 0:16:02.760 --> 0:16:06.040 could be really healthy. You know, the weather is certainly 0:16:06.080 --> 0:16:08.520 breaking across the country, like you'd expect to see. Balance 0:16:08.560 --> 0:16:11.520 sheets for the consumer in really good shape, so we're 0:16:11.560 --> 0:16:13.840 more optimistic than we were three months ago. I know 0:16:13.880 --> 0:16:18.840 we talked about that discretionary recession. It's really really company specific. 0:16:18.440 --> 0:16:20.720 Right now, Chuck, you know the new blame game. There's 0:16:20.720 --> 0:16:23.160 already made excuse in the oven from Target and Walmart 0:16:23.160 --> 0:16:25.600 at least has talked about it a million times. Student 0:16:25.640 --> 0:16:27.920 loan repayments. Who does that affect more? 0:16:29.000 --> 0:16:32.520 They do'll affect more the targets of the world than Walmart. 0:16:32.520 --> 0:16:34.600 I mean, anybody who has a student loan tends to have, 0:16:35.120 --> 0:16:37.640 you know, household income of seventy five thousand or above, 0:16:37.720 --> 0:16:40.120 So it's going to be an issue. 0:16:40.520 --> 0:16:42.200 I don't think it's a huge issue. 0:16:42.480 --> 0:16:45.520 And again we come back to real wage growth offsetting 0:16:45.800 --> 0:16:47.760 a lot of those student loan repayments. But at the 0:16:47.840 --> 0:16:50.320 end of the day, people who haven't been paying a 0:16:50.360 --> 0:16:53.200 student loan are going to be It's a net negative. 0:16:52.800 --> 0:16:53.560 At the end of the day. 0:16:54.040 --> 0:16:55.760 When you talk about the fact that we are seeing 0:16:55.800 --> 0:16:59.280 people shift from services back to goods, which goods are 0:16:59.280 --> 0:17:01.840 getting the biggest pop from that? Is it the idea 0:17:01.880 --> 0:17:04.120 of investing in your home because you're not moving. 0:17:04.240 --> 0:17:04.920 Is it close? 0:17:05.560 --> 0:17:07.080 Are there areas you're looking at. 0:17:07.400 --> 0:17:08.399 Yeah, that's a great question. 0:17:08.680 --> 0:17:11.879 You know, we follow Costco and Costco gives monthly comps 0:17:11.880 --> 0:17:14.159 and so you get a really good snapshot on the 0:17:14.160 --> 0:17:17.159 consumer in certain parts of their business. We're starting to 0:17:17.240 --> 0:17:22.120 see that stabilization in consumer electronics. We're starting to see 0:17:22.160 --> 0:17:24.880 in home furnishings. And when I see stabilization, I mean 0:17:25.280 --> 0:17:27.879 we're not seeing declines. You know, we're seeing sort of 0:17:28.160 --> 0:17:32.000 you know, flat levels on unit volumes. And we'll continue 0:17:32.040 --> 0:17:34.880 to see. Like I said, the consumer has money, consumer 0:17:34.920 --> 0:17:36.720 has jobs so that they're willing to spend. 0:17:36.720 --> 0:17:38.920 And if we see services start to pull back. 0:17:39.200 --> 0:17:42.240 We think when people are spending more time in their home, 0:17:42.280 --> 0:17:44.359 they'll continue to invest in their home. And that's an 0:17:44.400 --> 0:17:47.160 area that we think could continue. And you see again 0:17:47.240 --> 0:17:50.920 like numbers like home DEEPO last week, stabilization lows numbers Today, 0:17:50.920 --> 0:17:54.720 we're actually pretty healthy relative to expectations. Home furnishings, you're 0:17:54.760 --> 0:17:57.320 starting to see signs of it. So I think that's 0:17:57.359 --> 0:17:58.879 what the market wants to start to look for. 0:17:59.320 --> 0:18:02.000 Chuck a bit more constructive. Thank you, sir, Chuck Grum 0:18:02.440 --> 0:18:03.400 of Golden Basket. 0:18:13.680 --> 0:18:16.600 David Rubenside, I am so happy to say joins us now, 0:18:16.680 --> 0:18:20.520 host of that show and co founder of Carlisle. Let's 0:18:20.520 --> 0:18:22.919 just start there. Isn't this the golden era for pensions 0:18:22.920 --> 0:18:25.600 where they can actually get the returns that they need 0:18:25.640 --> 0:18:27.280 to get to meet their obligations. 0:18:27.800 --> 0:18:30.760 Well, clearly, fixed income returns are much better than they 0:18:30.800 --> 0:18:34.240 were a year or two or three ago, but money 0:18:34.320 --> 0:18:37.239 pension funds in the United States, state pension funds are 0:18:37.320 --> 0:18:40.679 underfunded still, and even kal PURRS, which is the largest 0:18:40.720 --> 0:18:43.320 state pension fund at four hundred and sixty five billion dollars, 0:18:43.760 --> 0:18:48.320 is underfunded. Underfunded the Centsment actuarily it's about twenty percent 0:18:48.359 --> 0:18:52.200 below having full funding. Now, these pension funds are still 0:18:52.200 --> 0:18:54.879 in better shape than the US government's Social Security program, 0:18:55.040 --> 0:18:57.320 which is not funded at all. That's a completely pay 0:18:57.359 --> 0:19:01.960 as you go program, and that's much worse shape relatively speaking, 0:19:02.119 --> 0:19:04.800 to compare to the state pension funds. But some state 0:19:04.840 --> 0:19:10.879 pension funds are massively underfunded. Kentucky, Connecticut, Illinois are funded 0:19:10.880 --> 0:19:14.080 at maybe forty percent of their overall obligation. So it's 0:19:14.080 --> 0:19:16.800 a challenge. And the fixed income rates that are now 0:19:16.880 --> 0:19:19.240 higher than they were before are a plus for those 0:19:19.280 --> 0:19:21.760 funds for sure, But there are many state pension funds 0:19:21.760 --> 0:19:24.000 that are still massively underfunded, and. 0:19:23.960 --> 0:19:26.440 This is the reason why there had been a concern 0:19:26.520 --> 0:19:28.879 in a low rate environment of how much some of 0:19:28.880 --> 0:19:31.320 these funds would have to lever up to get the 0:19:31.359 --> 0:19:34.680 returns that they needed to become funded. At this point, 0:19:34.880 --> 0:19:38.640 do you feel like the risk taking appetite, I should say, 0:19:38.680 --> 0:19:41.600 among some of these funds is diminished or has grown 0:19:41.760 --> 0:19:44.840 as they see the opportunity to actually meet those obligations 0:19:45.080 --> 0:19:47.560 without asking for additional contributions from members. 0:19:47.680 --> 0:19:49.399 Well, I think a lot of the state pension funds 0:19:49.440 --> 0:19:53.440 are pleased that the fixed income element of their portfolio 0:19:53.560 --> 0:19:55.399 is now going to perform much better. So if you 0:19:55.400 --> 0:19:58.719 can get five percent yields on treasuries, you're getting very 0:19:58.760 --> 0:20:00.520 close to what you need to do, which say six 0:20:00.760 --> 0:20:03.240 point eight percent in cal Pers case. But most of 0:20:03.280 --> 0:20:06.679 the state pension funds are designed for actuarial purposes to 0:20:06.760 --> 0:20:09.800 yield about six to seven percent or so a year. 0:20:10.160 --> 0:20:11.439 Some of them are able to do it and some 0:20:11.560 --> 0:20:13.840 are not. But I would say the easy money is 0:20:13.880 --> 0:20:17.240 probably behind them, which is to say, the high tech world, 0:20:17.280 --> 0:20:20.600 which showed some really great equity returns in recent years, 0:20:20.760 --> 0:20:23.280 that's probably behind most of the state pension funds. Now 0:20:23.440 --> 0:20:25.440