Speaker 1: Boom, 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 Hordern. 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
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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. Sarah Hunt of Alpine
Speaker 2: Saxon Woods, writing this, we still see a land grab
Speaker 2: and a spending boom on the backbone of the AI infrastructure.
Speaker 2: With valuations at high levels, there will need to be
Speaker 2: further evidence that spending does not pause. Sarah joins us
Speaker 2: now for more. Sarah, good morning. It's good to see you.
Speaker 3: Good morning.
Speaker 2: Are you nervous about what we might hear from some
Speaker 2: of their customers later this earning season.
Speaker 4: I think we're still in a player. I mean, it's
Speaker 4: interesting because I saw it. Note that I think Goldman
Speaker 4: put out on the fact that maybe they were spending
Speaker 4: too much and I'm thinking, how do you say that
Speaker 4: right now? It's a little bit early to say you're
Speaker 4: spending too much. It reminds me of, you know, just
Speaker 4: to date myself, the dark fiber discussion in two thousand
Speaker 4: about we're putting in too much dark fiber.
Speaker 5: Well, the Internet absorbed it all. So the question is
Speaker 5: what is.
Speaker 4: Enough infrastructure And I don't think we have the answer
Speaker 4: to that yet. It's just a lot of large numbers problem.
Speaker 2: Now to build on that shit. We reward the Apples.
Speaker 2: This was ultimately Golden and Cole for having some big
Speaker 2: stock buy back or reward those that are investing all
Speaker 2: this money in the future, some big, big outlays that
Speaker 2: were seeing of the likes of Mets or other names too.
Speaker 4: I think that's a little bit just trying to split
Speaker 4: the reality of you're rewarding the companies that have a
Speaker 4: lot of cash, what they do with that cash, as
Speaker 4: long as it's not something that seems absolutely ridiculous. Is
Speaker 4: still we have a lot of cash, and that's where
Speaker 4: I want to be. So I think that, you know,
Speaker 4: for Apple, that makes more sense for them right now,
Speaker 4: and for the other companies it makes sense to do
Speaker 4: what they're doing so I don't think unless it's you know,
Speaker 4: it's not some acquisition of something that's making no money
Speaker 4: or something along those lines.
Speaker 1: What do you make of us Constraang his argument that
Speaker 1: essentially there is a very positive story to tell with
Speaker 1: a lot of these AI companies and the sort of
Speaker 1: big techniqus, but sentiment has gotten so overinflated and people
Speaker 1: are expecting such big beats that in the near term
Speaker 1: it just seems nearly impossible for them to exceed those
Speaker 1: to the same degree.
Speaker 5: Do you agree.
Speaker 4: I think this is the difficult part right now, because
Speaker 4: there will come a point where all the spending on
Speaker 4: infrastructure will slow down, or the delta will go negative,
Speaker 4: and or you haven't got enough use cases for the
Speaker 4: other companies that are supposed to start getting more profitable
Speaker 4: on the back of AI. And I think when that happens,
Speaker 4: and I think it may happen, then you're going to
Speaker 4: start to see people really worry about valuations. I don't
Speaker 4: think that we're there yet because I think that you're
Speaker 4: still spending a lot of money, but I think that
Speaker 4: the concern will be, Okay, we've built in all this
Speaker 4: infrastructure serve like the dark far argument, we have all
Speaker 4: this stuff, but we can't use it enough yet. But
Speaker 4: it will get used and it will ultimately. I think,
Speaker 4: just not sure the use cases are what we're thinking
Speaker 4: about right now.
Speaker 1: It feels like it's almost easier to speculate on whether
Speaker 1: AI is a bubble or not a bubble and what
Speaker 1: the potential is, rather than talk about the other four
Speaker 1: hundred ninety three names and how hinge they are to
Speaker 1: an economic cycle that's really questionable.
Speaker 5: I want to go back to Delta. You mentioned Delta.
Speaker 1: It was supposed to be the darling of a cycle
Speaker 1: that benefited people who have the money to fly around
Speaker 1: the world and are doing so in record numbers. Is
Speaker 1: that sort of a signal to you that there is
Speaker 1: some fundamental problem in consumers that will percolate to a
Speaker 1: broader number of potentially consumer facing companies.
Speaker 4: Well, I'd love to look at the release because I
Speaker 4: didn't get a chance to go through it very carefully.
Speaker 4: But is the problem the revenue line is the problem?
Speaker 4: The cost line you mentioned earlier, the extra costs. This
Speaker 4: has been the question about what happens when inflation comes
Speaker 4: down to margins start to get squeezed. If this is
Speaker 4: more of an issue of margin squeeze, and it's not
Speaker 4: a problem on the economic front. It's more a problem
Speaker 4: on an individual company front because everyone's got to figure
Speaker 4: out how to deal with their costs. A lot of
Speaker 4: cost labor costs went up in the last couple of years.
Speaker 4: Those contracts are only starting to come through. I think
Speaker 4: that's part of it. So they might be blaming it
Speaker 4: on cutting too much capacity, But having flown recently, I
Speaker 4: don't see any excess capacity anywhere.
Speaker 2: Who asks price in power right now?
Speaker 3: Why'd you see that? If you can pick it into
Speaker 3: stream right now?
Speaker 2: Who has pricing power? We mentioned Costco earlier today putting
Speaker 2: up membership fees. Where do you see that pricing power?
Speaker 4: I think the pricing power is coming through in the
Speaker 4: technology space. I think that Nvidia is getting better prices
Speaker 4: than they were getting before because they're the.
Speaker 5: Only ones who have it.
Speaker 4: I think any place where something is in short supply,
Speaker 4: you have some pricing power, and I think on the
Speaker 4: technology side you have more pricing power. I would argue
Speaker 4: that the airlines do have pricing power, having paid for
Speaker 4: airline tickets, but I would also say that it depends
Speaker 4: on where you're going, and it depends on the timing
Speaker 4: of that. But I think that in the end, any
Speaker 4: place where there is any kind of capacity constraint, you
Speaker 4: have pricing power.
Speaker 2: What is it about airlines that everyone just left the
Speaker 2: rants about. I mean, I could join you too. It's
Speaker 2: cust a fortune and it's miserable. Why is it always miserable.
Speaker 4: Because we are at a point where so many people
Speaker 4: are flying that even as they're increasing capacity the airlines,
Speaker 4: the airports can't handle it.
Speaker 5: The airlines can't handle it. There's nowhere to sit. It's hot.
Speaker 5: I mean, I can go on and on.
Speaker 1: I remember when I was a KIAUS to go to
Speaker 1: the Midwest frequently because my family lived there. We flew
Speaker 1: on Midwest Express which they had you know, glass little
Speaker 1: salt upper shakers and home baked.
Speaker 6: It was a very nice experience.
Speaker 1: Everything was first class and it went out of business.
Speaker 1: But you raise this question about how much you end
Speaker 1: up with cost structures that are.
Speaker 5: Only now getting bigger.
Speaker 1: Do you think that people are under mess estimating the
Speaker 1: margin compression that we could potentially see this cycle, because yeah,
Speaker 1: the pricing power is in Nvidia, but it's not necessarily
Speaker 1: in Delta. I mean it kind of is, but we
Speaker 1: thought it was, but it isn't. Necessarily it's some of
Speaker 1: these other areas that are also dealing with fundamentally higher
Speaker 1: costs that haven't come down.
Speaker 4: I think that is we were concerned that there was
Speaker 4: going to be a margin compression earlier than there has been,
Speaker 4: So it might just be that there's a lag on
Speaker 4: that margin compression because the costs haven't really caught up yet.
Speaker 5: Everything.
Speaker 4: You know, we're such immediate people the price changes today.
Speaker 4: We can see this today in business cycles, things take longer,
Speaker 4: contracts take longer to play out, It takes longer for
Speaker 4: people to figure out exactly what their cost structure is
Speaker 4: going to look like. Fuel prices have come down, that
Speaker 4: should have been a help to them, but it also
Speaker 4: might be that because they were using fuel that they'd
Speaker 4: bought at higher prices, it won't come down until the
Speaker 4: third quarter. So I think that there's a lot of
Speaker 4: rolling cost situations that we can't see because we're not
Speaker 4: those corporations and we're looking at things from that Wall
Speaker 4: Street immediacy level of I need to know today what's
Speaker 4: happening tomorrow, And I think that that's something that is
Speaker 4: going to have to play out in the next several months,
Speaker 4: and we're starting to see whether or not that's going
Speaker 4: to happen. I don't know if Delta is a bellweather
Speaker 4: or if that's just a one off for them.
Speaker 1: What are you more interested in today, CPI or the
Speaker 1: president's press conference at five point thirty.
Speaker 5: Yes, I think that both of them are important, right.
Speaker 4: I think that you had a guest on earlier today
Speaker 4: who said that one number isn't the most important thing. Well,
Speaker 4: it's not the most important thing unless it goes very
Speaker 4: much in the wrong direction, right, So CPI went very
Speaker 4: much in the wrong direction, it would be the most
Speaker 4: important thing. I think that there has been chaos since
Speaker 4: the original debate, and I don't think that that chaos
Speaker 4: is yet over.
Speaker 5: I think all the discussions you were having earlier.
Speaker 4: I mean, none of what anybody is saying is makes
Speaker 4: sense except tell me something I want to hear, And
Speaker 4: until I hear what I want to hear, I'm not
Speaker 4: believing what you're saying. And so that's where we seem
Speaker 4: to be. I don't know that that's going to make
Speaker 4: the press conference today is going to make that any different.
Speaker 4: I don't think to the extent I mean, it's it's unfortunate,
Speaker 4: But I don't think to the extent that you know,
Speaker 4: it's not wrong that age is not something you.
Speaker 2: Can take away noise or news. Do you think it's
Speaker 2: real news for this market the considerations that are percolating
Speaker 2: over the last few weeks, to the to the.
Speaker 4: Extent that we've seen both of these people as president,
Speaker 4: and the market has reacted well to both. I think
Speaker 4: I understand why people say whoever's president is noise, but
Speaker 4: political chaos is not just noise. And if it gets
Speaker 4: too chaotic, I think that that is going to take
Speaker 4: people's risk appetite down to some degree. But we don't
Speaker 4: know that yet, and we don't know what kind of
Speaker 4: you know, decisions people are facing right now.
Speaker 5: We know where one side of the ledger is.
Speaker 4: We don't yet know where the other side of the
Speaker 4: ledger is, even though he keeps saying he is that
Speaker 4: side of the ledger, and nobody seems to believe him.
Speaker 3: We're waiting for him to make a decision.
Speaker 2: Sarah, you know that, Sarah Hunt a vampid snackson words, Sarah,
Speaker 2: It's going to see it. I'm Maris in Washington with
Speaker 2: a special guest, the Democratic congresswoman Haidie Stevens of Michigan.
Speaker 3: I am as I see you.
Speaker 7: Thank you so much, John, and Congresswoman Miss Stevens, you're
Speaker 7: also going to be in Michigan tomorrow with Biden. Yes,
Speaker 7: I am a starch supporter of him, and you're not
Speaker 7: backing down.
Speaker 6: Why.
Speaker 8: I'm really enthusiastic about this campaign and what we've built
Speaker 8: in Michigan. I've been rigorously on it since the beginning
Speaker 8: of the year. Detroit is at its lowest levels of
Speaker 8: unemployment and fifty years we have manufacturing growth. I have
Speaker 8: a really popular governor, Gretchen Whitmer, who's endorsed this president,
Speaker 8: who's a co chair of his campaign, who's met with
Speaker 8: him since some of the debate fallout and is sticking
Speaker 8: by him.
Speaker 3: And the commitment to stand up for.
Speaker 8: Women's reproductive rights, to tackle our gun violence epidemic that
Speaker 8: has hit us pretty hard in Michigan, and.
Speaker 5: There's a team right.
Speaker 8: We have built an incredible ground operation and it's hard
Speaker 8: work with persuasion voters, with turnout.
Speaker 6: I don't want to.
Speaker 8: Turn away from this though now I want to keep going.
Speaker 8: Fifteen some weeks left, bring this over the finish line,
Speaker 8: and I believe and know that the Biden Hearris ticket
Speaker 8: is the one to get this done for us.
Speaker 7: Do you think he's the best candidate though, I do.
Speaker 7: You see the polling today from Washington Post ABC, more
Speaker 7: than fifty six Democrats say six and ten independents that
Speaker 7: he should step beside. Is it that he's the best
Speaker 7: candidate at this moment or there's concern about basically telling
Speaker 7: a sitting president, the leader.
Speaker 5: Of the party, that it's.
Speaker 7: Time to go.
Speaker 8: Look, the stakes are high. The other thing that the
Speaker 8: polling is showing you is that people are freaked out
Speaker 8: about Donald Trump coming back, what that means for young women,
Speaker 8: what that means for our economy that spiraled out of
Speaker 8: control when he was president during a global pandemic that
Speaker 8: was not well handled by him.
Speaker 7: And the polling also shows people think Trump would be
Speaker 7: better when it comes to things like the economy, which
Speaker 7: our polling shows is still the number one issue.
Speaker 8: It is the number one issue, and it's not just
Speaker 8: look at the facts today. Look, pulling is absolutely important.
Speaker 8: I have to look at pulling. And I have had
Speaker 8: polls that have led me down a path of success,
Speaker 8: and I've had polls that have led me wrong before.
Speaker 8: But what I know is that people are concerned about Trump.
Speaker 8: I mean, I hear that on the ground in Oakland County, Michigan.
Speaker 8: It is pulpable. People want to win. These stakes are high. Obviously,
Speaker 8: when President Biden was gathering his delegate votes and campaigning
Speaker 8: in the small primary that he had earlier this year,
Speaker 8: it wasn't one hundred percent clear every step of the
Speaker 8: way that Trump was going to be the nominee. Now
Speaker 8: he's hiding in mar A Lago. We don't see him
Speaker 8: really very much. He's come to Michigan maybe once or twice,
Speaker 8: a few surrogates here and there. Pretty quiet from him.
Speaker 8: And in part we've got a president who's governing, who's
Speaker 8: leading NATO, who's got the backing of international leaders who
Speaker 8: support his plan. We have, by the way, a major
Speaker 8: foreign aid package that got done in a divice government.
Speaker 8: That's exactly what Joe Biden asked.
Speaker 7: I think the concern is not so much can he
Speaker 7: lead right now? It's what does the next four years mean?
Speaker 7: And you mentioned Governor Whitmer. She was on CNN last
Speaker 7: night and she was asked should he take a cognitive test?
Speaker 7: Her answer was it wouldn't hurt, do you agree with
Speaker 7: the governor.
Speaker 8: Yeah, well, Trump joked around about his own cognitive tests
Speaker 8: and you know that he was some super genius and
Speaker 8: was spouting off things. Look, anything the president needs to
Speaker 8: do to reassure people. I have been recently with him
Speaker 8: when he announced tariffs on Chinese evs and critical minerals.
Speaker 8: I was in the Oval office with him for an
Speaker 8: extended period of time. I haven't seen one decision coming
Speaker 8: out of this administration under his leadership that concerns me.
Speaker 8: I also know that we have got a message for
Speaker 8: the next four years. It's clear people are spooked. It's
Speaker 8: also clear, though, people are united to do whatever it
Speaker 8: takes to beat Donald Trump, and we've got the campaign
Speaker 8: to do it.
Speaker 6: We really do.
Speaker 7: You've spent time with him recently, You're going to be
Speaker 7: with him tomorrow.
Speaker 5: You said, there's not a.
Speaker 7: Decision that makes you rethink this that's coming from President Biden.
Speaker 7: Not a decision you see that concerns you. But what
Speaker 7: about his speech, the way he walks actual deterioration is health.
Speaker 3: Have you seen any of that?
Speaker 9: Not?
Speaker 8: Really, to be honest with you, I mean, look, I
Speaker 8: can't tell people to unsee what they saw on the
Speaker 8: debate I thought he answered it. Honestly, Look, it's not
Speaker 8: news that he is the age that he is. I
Speaker 8: look at this and I see flawless execution from this administration,
Speaker 8: COVID relief, infrastructure dollars, not just bills that have gotten passed,
Speaker 8: but things that are being executed flawlessly, like the Chips Act,
Speaker 8: which is so important to our Michigan manufacturing economy. Something
Speaker 8: that President Biden has championed his campaign message is let's
Speaker 8: finish the job.
Speaker 5: There is more to do.
Speaker 8: It's promises made, promise is kept. There are more things
Speaker 8: that we need to accomplish here that are on the horizon.
Speaker 8: Paid leave, funding for our public schools, support for our educators,
Speaker 8: the next generation. This is a real campaign. And look,
Speaker 8: this is a tough moment. It's been quiet. We've had
Speaker 8: twenty four to seven Trump TV and his convictions and
Speaker 8: all that insanity. I don't want to go back to that.
Speaker 8: My voters in Michigan are terrified of going back to that.
Speaker 8: The former president pretends that he supports unions, goes to
Speaker 8: a non union shop. We worked for the UAW, we
Speaker 8: got the UAW endorsement. We've had this whole process here
Speaker 8: where weeks out from.
Speaker 3: Our own convention.
Speaker 8: We got to stand up to this Trump leaders.
Speaker 7: Our concerned Washington Post this morning, there was a behind
Speaker 7: the scenes meeting yesterday Sean Fain. President Biden went and
Speaker 7: stood on a picket line with this man. He is
Speaker 7: now voicing his concerns.
Speaker 5: So when you're in Michigan.
Speaker 7: And you're here from union leaders, Trump is chipping away
Speaker 7: at these people Michigan, potentially Biden can lose. That's what congressman'
Speaker 7: Slockin even said on a recent donor call.
Speaker 8: Yeah, look, we want the win campaign and our union
Speaker 8: leaders they're deploying their members to knockdoors to evangelize this effort.
Speaker 8: And that's what you do in closed door meetings. You
Speaker 8: do say hey, what's our plan, how we're going to
Speaker 8: do this. We're the Democratic Party, you know, differing opinions,
Speaker 8: expression of opinions. I've had four to five Republican members
Speaker 8: of Congress from Michigan who've either left their party, impeached
Speaker 8: the former president, or.
Speaker 5: Got voted out.
Speaker 8: I mean, give me a break, Like, this is how
Speaker 8: it works in our party. It's a good and healthy thing.
Speaker 8: And I'm going to tell you something else that I
Speaker 8: know about Joe Biden. He is the ultimate comeback king.
Speaker 8: He's the most underestimated individual in American politics. He always
Speaker 8: has been. He's got a good north star. He's tapped
Speaker 8: into his faith, He's been through things that have tested
Speaker 8: him for this moment. And yes, he's our older, wiser president.
Speaker 8: He has not steered us wrong, and he has got
Speaker 8: a vision alongside this amazing team that he has to
Speaker 8: continue to win the future for US.
Speaker 7: Commerceman Haley Stevens, thank you so much for your time.
Speaker 2: With us around the table. Steve for Shudo of Missoo,
Speaker 2: I'm still with us. David Kelly of JP Morgan Asset Management.
Speaker 2: David just got this from Neil Data of Renmack. The
Speaker 2: Doves have what they need. It's time to cut get
Speaker 2: on with it. Do you agree?
Speaker 3: No, I think they should go in September.
Speaker 9: I think they just need to be steady as they
Speaker 9: do this because if they rush it, it's going to
Speaker 9: actually look like they're scared about something. And I mean,
Speaker 9: I don't think they should have gone this high in
Speaker 9: the first place, but now they're here, just us take
Speaker 9: it down easily. So I still think September, December, March
Speaker 9: June September December sixth rade cuts one and a half years.
Speaker 3: Think that's what they should do.
Speaker 2: Poulin, Central Portugal sent a strong labor market, gives them
Speaker 2: some time, the luxury of time. Do you think he
Speaker 2: has that time as well?
Speaker 3: Yeah, I think so.
Speaker 9: I mean there could be some cracks in private that
Speaker 9: could be some craxy and regional banks. I mean, we
Speaker 9: are concerned about things that are not set up for
Speaker 9: normal interest rates. But remember long term interistrates are kind
Speaker 9: of at normal levels here. A normal business ought to
Speaker 9: be able to operate here. So I think it's if
Speaker 9: it's shows the economy a little bit by not accelerating this, okay,
Speaker 9: but I'd rather they take their.
Speaker 3: Time and I'll rush.
Speaker 9: This because once they start rushing rate coats, then it's
Speaker 9: going to scare people.
Speaker 5: See what's your impression.
Speaker 1: I know that you've been on the Maybe they shouldn't
Speaker 1: cut at all. What about given how much inflation has
Speaker 1: come down.
Speaker 10: Again, you've had an inflection point in the economy. We
Speaker 10: went from three point three percent last year with an
Speaker 10: economy that was clearly growing too strong, an inflation was
Speaker 10: not going down. You had to shift to a slower
Speaker 10: growth economy. This year two point two two point three percent.
Speaker 10: You've had some benefits of that in terms of a
Speaker 10: higher unemployment rate, a lower level of inflation. Is the
Speaker 10: economy going to stay a trend or is it going
Speaker 10: beyond that?
Speaker 6: That's now the question they have to answer.
Speaker 10: They also have to worry about the risk because, as
Speaker 10: David mentioned quite clearly, the concern is if they move
Speaker 10: too quickly, the expectational set in the market could get
Speaker 10: ahead of themselves. You know, you've already seen one or
Speaker 10: two of strategists on the streets saying they're going to
Speaker 10: cut rates eight times next year. So you've got this
Speaker 10: environment where if the market goes too far, they then
Speaker 10: have to think about well they then have to reverse policy.
Speaker 10: So the dots have kind of put them in a
Speaker 10: bit of a tricky box for themselves.
Speaker 6: So they really can't do a hawkish cut.
Speaker 10: All they could do here is do a cut that
Speaker 10: fulfills the dots and the markets are likely to go
Speaker 10: well beyond that.
Speaker 1: Okay, pause, this is something that people used to talk about.
Speaker 1: We have just gotten thirty seven record highs on the
Speaker 1: S and.
Speaker 5: P five hundred this year.
Speaker 1: Why is that not potentially problematic enough for them?
Speaker 6: Why is that welcome?
Speaker 5: You think it should be.
Speaker 10: It should be, But this is a different FED. You
Speaker 10: have to take a look at the people at this FED.
Speaker 10: These are a bunch of political economists. They're not the
Speaker 10: old school anti inflation hawks. The political economists want to
Speaker 10: play with the levers. They've written their dissertations on playing
Speaker 10: with the levers. They want to play with the levers.
Speaker 10: They're gonna play with the levers. We're not arguing about
Speaker 10: if we're arguing about when and how the market will
Speaker 10: react to it. They think that they can control the
Speaker 10: market's behavior, and to a certain extent, they've done that,
Speaker 10: and they've gotten a great hand. Let's be honest. They're
Speaker 10: getting everything to want. The economy looks as if it's slowing,
Speaker 10: the labor market looks as if it's coming back to normal.
Speaker 10: Inflation looks as it's coming down. To me, this is
Speaker 10: a winning hand. Why would you toss it out by
Speaker 10: doing something stupid in July?
Speaker 6: They wouldn't. You'd sit back and wait.
Speaker 3: The other thing about it.
Speaker 9: You know, if there are parts of the markets which
Speaker 9: are over exuberant, it is entirely the full to the
Speaker 9: federal reserve for going ten years with raids at zero.
Speaker 9: I mean, if you make the carrying cost of crazy zero,
Speaker 9: then people do crazy things.
Speaker 3: And so we saw that.
Speaker 9: We saw then we've got momentum going in bitcoin and
Speaker 9: meme stalks and.
Speaker 3: Even the mag seven.
Speaker 9: And what's happening now is you've got a stable economy
Speaker 9: and people just.
Speaker 3: Doubling down on the best that have worked.
Speaker 9: But we want to see more fundamental investing rather than
Speaker 9: momentum investing. But they already they've sort of caused this
Speaker 9: momentum investing environment by keeping rate solo so long that
Speaker 9: you could get all these irrational bets going.
Speaker 3: And now the problem is, well, how do you get
Speaker 3: out of that?
Speaker 9: And I think you just returned to rational interest rates,
Speaker 9: which makes sense based on the economic fundamentals, and then
Speaker 9: over time markets can return to that rather than trying
Speaker 9: to manipulate markets by moving industrates too quickly.
Speaker 1: Steve, what do you make of that argument that essentially
Speaker 1: if they adjust policy, that will help some of the
Speaker 1: names that haven't participated in the euphoria we're seeing Russell
Speaker 1: two thousand, which is underperformed, actually outperforming at rate kind
Speaker 1: of expectations, not necessarily in Nvidia, I.
Speaker 10: Think there has been an environment in here in which
Speaker 10: basically the underperformance has been a function of the fact
Speaker 10: that earnings for a lot of these companies haven't been good.
Speaker 10: And the reason why earnings for a lot of these
Speaker 10: companies haven't been good is because their costs have gone up,
Speaker 10: and not only that, because of the discount or the
Speaker 10: slower growth environment that we've seen coming into this year,
Speaker 10: it's harder for them to pass those prices on, so
Speaker 10: they're getting squeezed.
Speaker 6: The question is what is the next reaction to it.
Speaker 10: I think the answer is if the Federal Reserve begins
Speaker 10: to cut interest rates and the market goes very aggressively,
Speaker 10: which I think the market will do. The market will
Speaker 10: overstate what the Fed is going to do because every
Speaker 10: time they cut, they go to zero. I guarantee you
Speaker 10: as soon as they cut, you are going to see
Speaker 10: zero hedge and you're gonna see a lot of news
Speaker 10: stories out there about there must be a collapse in
Speaker 10: the real estate market, there's something going on in the economy.
Speaker 10: The Fed knows something we don't know. We're going to
Speaker 10: be talking about zero levels of interest rates. Once that happens,
Speaker 10: they're going to be faced with a very different situation.
Speaker 10: This is why equity analysts have been unwilling to cut
Speaker 10: their earnings because they know that basically whenever the Fed cuts,
Speaker 10: they go to zero. So we're expecting it to cut.
Speaker 10: We're expecting to go to zero. So why would i
Speaker 10: have cut my earnings numbers. I'm going to have a
Speaker 10: real bullish economy.
Speaker 9: The most data's time for the economy is usually when
Speaker 9: the federal reserve sides are going to help us.
Speaker 2: It's just the point you'll make it just on the
Speaker 2: timing that they wouldn't go in July because it would
Speaker 2: spook people.
Speaker 3: Yes, I mean I think that. I think there is
Speaker 3: a cadence.
Speaker 9: You know, there are four big meetings so they put
Speaker 9: out new sumary of Economic projections and four smaller meetings
Speaker 9: when they don't and I think a cadence of cutting
Speaker 9: rates at every as Summary of Economic Projections meeting, so
Speaker 9: this is September December.
Speaker 3: It makes it predictable.
Speaker 9: And you also get down to look our termal rate
Speaker 9: here is essentially a normal rate of about four percent
Speaker 9: or so in the federal funds rate. That's where we're
Speaker 9: headed until the economy actually need or financial markets in
Speaker 9: the economy need us to do something, but they shouldn't.
Speaker 3: Try and micro manage the economy.
Speaker 9: And because what they end up doing is causing bubbles
Speaker 9: and busts in asset prices.
Speaker 2: I'd like the view from both of you on the
Speaker 2: following question. Are there political considerations at playing hair Do
Speaker 2: you think there are?
Speaker 9: I believe they try very hard not to not to
Speaker 9: interact or make political decisions or virtually political decisions, because
Speaker 9: they don't want to come in back at them. You know,
Speaker 9: deep down, I know they prefer a government that lets
Speaker 9: them do their job because while I don't always agree
Speaker 9: with what they do, I think we would be infinitely
Speaker 9: worse if we had people from the other side of
Speaker 9: Washington telling them what to do. That would only make
Speaker 9: the situation much worse. Side much all the Fed make mistakes,
Speaker 9: but there are all those mistakes they make on their
Speaker 9: road with the best intentions for the country, rather than
Speaker 9: have the other side of Washington make the decisions for them.
Speaker 10: Safe well, I think the answer is they want to
Speaker 10: maximize social welfare. We can argue is to the right
Speaker 10: way to maximize social welfare. The inflation hawks would say
Speaker 10: keep inflation at two percent on a sustained level. Let
Speaker 10: the economy find its own equilibrium on the real growth side.
Speaker 10: This Federal Reserve, on the other hand, wants to maximize
Speaker 10: social welfare by keeping unemployment very, very low. There's a
Speaker 10: big difference in the fundamental profile. And that's the reason
Speaker 10: why I'm sitting here saying it's nuts if they cut
Speaker 10: interest rates.
Speaker 6: They run a lot of risk if they will cut interest.
Speaker 10: Rates, and they may have to reverse it down the
Speaker 10: road because they've created this instinctive response in the marketplace.
Speaker 10: But I also think you have to keep in mind
Speaker 10: this Federal Reserve has been itching to cut rates. I
Speaker 10: think they'd be crazy to go in July and open
Speaker 10: issue as to whether or not we could talk about September.
Speaker 10: It's always been about not if, but when, and we'll
Speaker 10: see what the data shows us between now and then.
Speaker 1: So what you're just saying is that essentially the most
Speaker 1: important number for them is the employment number, not necessarily
Speaker 1: the inflation number.
Speaker 6: Is that correct.
Speaker 10: They don't want to see a rise in unemployment, No,
Speaker 10: they don't want to see it. Keep in mind, the
Speaker 10: rise in unemployment we've had today goes back to something
Speaker 10: David said earlier, which is basically, the household employment is
Speaker 10: dipping and the payroll employment, Oh it isn't. The reality is,
Speaker 10: whenever you re benchmark these two series, guess what, it's
Speaker 10: the household employment that suggested to payroll. So the payroll
Speaker 10: is the better coincident indicator of what's happening. So you've
Speaker 10: had to dip down in household employment, You've had an
Speaker 10: increase in the participation rate, and the unemployment rate has
Speaker 10: gone up. You've had very few layoffs according to that
Speaker 10: same Household survey, so you actually have an environment here
Speaker 10: in which people aren't losing their jobs. So to me,
Speaker 10: the labor market is actually still tighter, and that is
Speaker 10: what they're paying attention.
Speaker 9: Well, I think it's I think it's it's almost like
Speaker 9: we've seen a micro economic change in the labor market
Speaker 9: rather than a macroeconomic change. Because if you go back
Speaker 9: to where we hit a trough back in April of
Speaker 9: twenty three, if you could fog a mirror, you've got
Speaker 9: a job. And frankly, there are a lot of people
Speaker 9: in America who shouldn't be employed. And what's happened is
Speaker 9: if you look at what's actually happened with the unemployment
Speaker 9: numbers from the Household Survey, it's.
Speaker 3: The long term unemployed. They've gone up. And that's really interesting.
Speaker 3: In an economy we've got to eight million.
Speaker 9: Job buildings, there are people who after fifteen weeks, after
Speaker 9: twenty six weeks, cannot find a job. That's not about
Speaker 9: the economy, that's about the you know, are these people employable?
Speaker 9: And so I think what's happened is we've actually I
Speaker 9: think Chairman Pal's right, we have actually returned to a
Speaker 9: kind of normal labor markets. At four point one percent unemployment.
Speaker 9: I don't think there's anything wrong with that. I don't
Speaker 9: think it's a sign of great macroeconomic weakness. I would
Speaker 9: take issue with one thing, though, I am concerned that
Speaker 9: Payroll Survey may be overestimating things because when I look
Speaker 9: at business formation data, it's suggesting that we're creating all
Speaker 9: these businesses, and if that's feeding into their birth stats model,
Speaker 9: they may be getting a little bit wrong because I
Speaker 9: think I think there's a lot.
Speaker 3: Of churn in businesses.
Speaker 9: I don't think this has a much business new business
Speaker 9: creation as some of the data would suggest.
Speaker 1: Just want to offer this up fed funds futures have
Speaker 1: just readjusted to about eighty five percent chance of September.
Speaker 1: So that sounds like it's a bit more in line
Speaker 1: with what I would expect given what we're seeing.
Speaker 5: I'm curious, Steve, given.
Speaker 1: What you're talking about, how you would see some of
Speaker 1: the earnings that we got today that indicated a real
Speaker 1: reduction in consumer spending and definitely less pricing power.
Speaker 6: More broadly, I.
Speaker 10: Think it indicated more the less broader pricing power environment. Beginning,
Speaker 10: we're still running an inflation rate well above two percent
Speaker 10: even with these numbers, so we're still a percentage point above.
Speaker 10: And if we're going to say, oh gee, the deceleration
Speaker 10: from three percent to two percent is a big movement
Speaker 10: on growth, okay, the movement from three percent to two
Speaker 10: percent on inflation has to be considered a big movement.
Speaker 6: Though, So we're still in that environment.
Speaker 10: So I think that the realities when we balance it
Speaker 10: and we look back at the data in general, we
Speaker 10: take a look, they're still well above their target on inflation,
Speaker 10: and there's still maybe a trend growth.
Speaker 6: Okay, where we go from here? I think the reality
Speaker 6: is that you're.
Speaker 10: Seeing an environment where cost pressures are squeezing companies and
Speaker 10: that's really their problem, and they will if you cut
Speaker 10: interest rates and you have a sharp rebounded economic activity,
Speaker 10: they will pass those price increases along and when that happens,
Speaker 10: then it becomes a problem for them. This is why
Speaker 10: go slow, take your time. You've got a winning hand.
Speaker 10: Why would you do anything today or potentially September to
Speaker 10: destroy that winning hand.
Speaker 6: It makes no sense to me.
Speaker 2: I just wanted to know if FuG and Merits was
Speaker 2: on the job description at JP Morgan.
Speaker 6: That's all I want to know that.
Speaker 5: I wanted to know what he was talking about.
Speaker 1: Is it that you get close to it and.
Speaker 2: Go yeah, yeah, yeah, you're checking.
Speaker 5: Okay, okay, thank you, thank you. I'm just.
Speaker 6: Watching.
Speaker 2: They shout up to David Kelly of JP Morgan to
Speaker 2: both if you, thank you, Jent. It's just fantastic. This
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