WEBVTT - Traders Stick With Two 2026 Fed Cuts After Jobs Data 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App, 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.120 us live on YouTube. 0:00:27.240 --> 0:00:29.320 We have a perfect guest to speak of our equity. 0:00:29.360 --> 0:00:33.000 Conversation of the day is stephenoth He is with Federated 0:00:33.040 --> 0:00:35.480 him as we're thrilled that he could join us here 0:00:36.080 --> 0:00:39.720 this morning. Just as a general statement, and it goes 0:00:39.760 --> 0:00:42.000 back to the day you and I looked at AOL 0:00:42.080 --> 0:00:45.440 Time Warner and said, really, did these deals work out? 0:00:45.520 --> 0:00:49.519 My answers, No, there's no evidence they're a value. 0:00:49.240 --> 0:00:51.600 Add They haven't added a lot of value. 0:00:51.680 --> 0:00:55.240 Tom. It's gotta go longer than nasty, but it's not TV. 0:00:55.640 --> 0:00:57.120 You gotta have longer. 0:00:57.120 --> 0:01:00.440 This is an interesting deal though, I mean, you know, 0:01:00.600 --> 0:01:02.800 Netflix getting ahold of these studios. 0:01:04.600 --> 0:01:05.440 I think it's it. 0:01:05.400 --> 0:01:09.120 Could really I've been the whole Hollywood industry. 0:01:09.160 --> 0:01:12.000 I think that's what can create profit where Federated can 0:01:12.000 --> 0:01:12.560 invest in it. 0:01:13.720 --> 0:01:16.800 We're not in Netflix. Well, we're in all these stocks, 0:01:16.800 --> 0:01:20.920 but we're not heavy there. You know, we we'd rather 0:01:21.240 --> 0:01:24.600 on on these mag seven names. We kind of play 0:01:24.680 --> 0:01:28.640 relative value, and for us right now, Amazon is maybe 0:01:28.640 --> 0:01:31.959 a better value if you will. I mean, people talk 0:01:31.959 --> 0:01:34.520 about a bubble, but you can buy Amazon at eighteen 0:01:34.560 --> 0:01:38.120 times cash flows. It's really not bad for a company 0:01:38.160 --> 0:01:40.600 that we look at it and say to you, you're 0:01:40.640 --> 0:01:45.080 you're getting aws AI and you're kind of getting the 0:01:45.080 --> 0:01:46.319 retail business for free. 0:01:46.520 --> 0:01:46.720 Yep. 0:01:47.680 --> 0:01:50.160 See twenty twenty five. It has been a really wonderful 0:01:50.240 --> 0:01:52.680 year for investors. I mean, fifteen percent in the S 0:01:52.720 --> 0:01:56.160 and P twenty percent in the NASTAC fixed income, high 0:01:56.240 --> 0:01:59.040 single digit returns. What's kind of the setup for twenty 0:01:59.040 --> 0:02:00.000 twenty six for you guys? 0:02:00.200 --> 0:02:01.160 We think it's pretty good. 0:02:01.200 --> 0:02:04.240 We've got a two year target of eighty six hundred, 0:02:04.600 --> 0:02:07.559 we've got seventy eight hundred for next year, and really 0:02:07.600 --> 0:02:10.480 driven by earnings growth. At this stage, we've got earnings 0:02:10.480 --> 0:02:15.200 at yeah, three ninety out three years, and you know 0:02:15.320 --> 0:02:19.280 Stock's eight nominal GDP growth. Nominal GDP growth looks really 0:02:19.280 --> 0:02:23.080 good to us. You've got the AI revolution driving earnings, 0:02:23.280 --> 0:02:27.320 You've got enormous productivity. We've got GDP next year up 0:02:27.400 --> 0:02:30.000 three percent. I think the consensus is two we've been 0:02:30.040 --> 0:02:32.120 on the high side along, we've been more right than 0:02:32.120 --> 0:02:34.520 wrong on that. But you know, you've got a lot 0:02:34.520 --> 0:02:36.600 of stimulus coming next year that we think could get 0:02:36.680 --> 0:02:40.160 you a surprise on the upside, and with the job 0:02:40.240 --> 0:02:44.480 market relatively stable, that means a big boost in productivity, 0:02:44.639 --> 0:02:47.600 which is a big boost in earning. So I think 0:02:47.600 --> 0:02:48.799 the setup looks pretty good. 0:02:48.880 --> 0:02:52.919 Paul, SPX eighty six hundred, I'm all in is Dow 0:02:53.320 --> 0:02:54.359 sixty thousand? 0:02:54.520 --> 0:02:55.960 Yeah, a forty eight. 0:02:56.000 --> 0:02:59.120 I've never done that. I've never done That's the first. 0:02:58.600 --> 0:03:03.120 Again, what sectors kind of screen well for you guys, Steve, 0:03:03.120 --> 0:03:05.760 because we've had tech has been such a start for 0:03:05.800 --> 0:03:07.679 so long, and then the AI story over the last 0:03:07.680 --> 0:03:09.480 two or three years has been the star. 0:03:09.600 --> 0:03:11.880 What sectors screenwall. 0:03:11.240 --> 0:03:13.600 Right, So what we're trying to do is we don't 0:03:13.600 --> 0:03:15.920 want to be out of this AI trade because it's 0:03:15.960 --> 0:03:19.480 the driver, but we're just modestly overweight those stocks and 0:03:19.520 --> 0:03:22.680 again playing relative value within there, and we think the 0:03:22.720 --> 0:03:26.040 big picture next year is finally this broadening out happens. 0:03:26.080 --> 0:03:29.040 The FED cutting helps the interest rates sensitive parts of 0:03:29.040 --> 0:03:31.840 the economy that have been suffering, so that starts to 0:03:31.919 --> 0:03:36.520 live housing, regional banks, emerging markets actually had a good 0:03:36.600 --> 0:03:38.960 year this year off of very low levels. We think 0:03:39.000 --> 0:03:41.480 that's a really interesting place. So we are playing this 0:03:41.600 --> 0:03:46.400 broadening out trade, but not going underweight or avoiding. The 0:03:46.800 --> 0:03:48.880 drivers of the same witch are the tech stocks, but 0:03:48.920 --> 0:03:51.520 we think they're kind of they're going to becoming a 0:03:51.560 --> 0:03:54.280 relative value play within there. We don't really see them 0:03:54.320 --> 0:03:57.119 as necessarily leading the market forward next year. 0:03:57.320 --> 0:04:00.680 Help us with the gloom that's out there. Three years 0:04:00.680 --> 0:04:04.600 of double digit return. People are modeling a fourth year 0:04:04.680 --> 0:04:08.000 of double digit return. It's like three times Paul. Since 0:04:08.040 --> 0:04:12.880 World War Two, we've had this oddity. How should people cautious, 0:04:13.240 --> 0:04:17.920 including clients have federated, How should they be enthusiastic if 0:04:17.960 --> 0:04:19.320 they don't feel that way. 0:04:19.920 --> 0:04:22.039 Well, what we've been saying, Tom, is we're in a 0:04:22.120 --> 0:04:24.880 secular bull market here. This is only the third one 0:04:24.920 --> 0:04:27.600 in the last hundred years. They happen after you've had 0:04:27.600 --> 0:04:30.960 a fifteen year bear where everyone is lost a lot 0:04:31.000 --> 0:04:33.960 of money, which they did between ninety nine and thirteen, 0:04:34.680 --> 0:04:38.000 and they're forever cautious for a generation. 0:04:38.279 --> 0:04:41.000 The scar that's what it's like. Depression, be right, That's. 0:04:40.839 --> 0:04:43.920 What drives the bull and that's why here you know, 0:04:44.200 --> 0:04:46.599 as soon as we get a little bit of a pop, 0:04:46.720 --> 0:04:50.440 everyone's talking about bubbles. We put out on our website 0:04:50.720 --> 0:04:55.120 earlier this week a bubble monitor, because in our experience, 0:04:55.440 --> 0:04:58.120 you've got to look at bubbles from the perspective of 0:04:58.760 --> 0:05:03.320 several different dementi that tend to happen kind of in 0:05:03.400 --> 0:05:06.720 conjunction with one another, not just one. So overinvestment one 0:05:06.760 --> 0:05:11.000 people talk a lot about. But excess liquidity, we're not there. Actually, 0:05:11.040 --> 0:05:14.560 the Fed's probably too tight regulatory errors. 0:05:14.600 --> 0:05:17.040 We're not there. You know. 0:05:17.240 --> 0:05:20.680 Over investment you could sort of make the case maybe, 0:05:20.680 --> 0:05:23.600 but if you look at the levels of investment relative 0:05:23.640 --> 0:05:27.120 to GDP in this phase, it's still below what you 0:05:27.240 --> 0:05:30.640 saw in the other big industrial revolutions, and it's being 0:05:30.640 --> 0:05:35.600 funded by cash excess debt, we're not there. And over evaluations, 0:05:35.640 --> 0:05:37.440 we just went through the story on Amazon. I don't 0:05:37.440 --> 0:05:39.960 think we're there yet either. So we've got a few 0:05:39.960 --> 0:05:42.120 things for lashing y'all. A little bit of fraud out 0:05:42.120 --> 0:05:45.440 there that's never good. But you know, we think generally 0:05:45.480 --> 0:05:47.839 we're early. Before you start calling for a bubble. 0:05:47.720 --> 0:05:49.760 To get your Wednesday started. Stephen off with this, he's 0:05:49.800 --> 0:05:52.440 a federal inter mens here Inequity's got a real equity show. 0:05:52.600 --> 0:05:55.080 We'll do some bonds with Irig Jersey later, and we'll 0:05:55.080 --> 0:05:57.479 do some real estate as well. We're doing commodities today, 0:05:57.560 --> 0:06:00.600 we can do that. We'll do commodities as well. Paulstrading 0:06:00.640 --> 0:06:02.960 and Time Keen. The way you listen to us, Thank you, 0:06:03.080 --> 0:06:06.640 ninety ninety one FM, Nathan Hager Radio in Washington, ninety 0:06:06.680 --> 0:06:10.719 two nine FM in Boston, Bloomberg eleven three zero here, 0:06:10.760 --> 0:06:13.680 and of course on YouTube. Subscribe. The way you do 0:06:13.720 --> 0:06:15.479 is somebody asked me the other day, how do I 0:06:15.520 --> 0:06:17.839 get you on YouTube? Okay, here's the way you go. 0:06:17.880 --> 0:06:21.960 On Bloomberg Podcasts. Up comes Bloomberg Podcasts. We do the 0:06:21.960 --> 0:06:25.799 live show every morning. Subscribe to Bloomberg Podcasts on YouTube 0:06:25.960 --> 0:06:27.279 to see handsome Steve Off. 0:06:27.360 --> 0:06:29.880 Yeah, just click a button. There you go, Steve. How 0:06:29.920 --> 0:06:33.800 about US equities versus maybe rest of world equities. We 0:06:33.880 --> 0:06:35.680 had a little bit of a migration earlier in the 0:06:35.760 --> 0:06:38.000 year out of the US maybe into Europe and some 0:06:38.040 --> 0:06:39.240 other markets. How do you think about that? 0:06:39.520 --> 0:06:42.320 Yeah, I mean those markets were really cheap, and a 0:06:42.320 --> 0:06:45.040 lot of it was actually a currency place. Okay, yeah, 0:06:45.080 --> 0:06:47.000 because you know that was a big move I just 0:06:47.120 --> 0:06:50.520 came back in September. I was out in Japan with 0:06:50.560 --> 0:06:54.960 our Japanese analysts and just came back last week from 0:06:55.240 --> 0:06:58.279 a long trip out to Europe talking to folks out there, 0:06:58.320 --> 0:06:59.840 so I'm a little fresh on that. And I would 0:06:59.839 --> 0:07:03.640 say this, if you look at EFA, which is a 0:07:03.680 --> 0:07:07.680 technical term for basically the developed world outside the USA, 0:07:08.360 --> 0:07:11.920 Europe looks okay to US. You know, it's not as 0:07:12.000 --> 0:07:13.880 cheap as it used to be relative to US, it's 0:07:13.880 --> 0:07:17.440 still relatively inexpensive, and the downside isn't really there the 0:07:17.480 --> 0:07:20.000 econ you know, the governments are spending more money thanks 0:07:20.000 --> 0:07:24.360 to President Trump on defense, but on the other hand, 0:07:24.640 --> 0:07:26.680 there's not a lot of upside and there's not a 0:07:26.760 --> 0:07:31.880 lot of AI technology in Europe, so it's kind of backstage. 0:07:31.920 --> 0:07:36.000 We think it's okay. Japan is really interesting. It's it's 0:07:36.080 --> 0:07:38.720 you know, restructuring, first time the real estate markets finally 0:07:38.720 --> 0:07:41.440 come back after thirty years. Tom you probably remember the 0:07:41.520 --> 0:07:45.720 days when Tokyo real estate was more expensive than all 0:07:45.800 --> 0:07:48.240 of the United States, et cetera. But it's starting to 0:07:48.280 --> 0:07:50.440 really come back now. So we think that's interesting. But 0:07:50.920 --> 0:07:54.640 basically the way we're staged here is we're modestly overweight 0:07:55.520 --> 0:08:00.240 so called EFA Developed because of Japan. We're overweight EM 0:08:00.400 --> 0:08:04.239 because emerging markets is the only place outside the US 0:08:04.400 --> 0:08:08.320 where you can get technology stocks basically in Asia, and 0:08:08.360 --> 0:08:11.240 we think that looks interesting. We think Latin America next 0:08:11.320 --> 0:08:14.960 year looks pretty interesting. So we're overweight there, but our 0:08:14.960 --> 0:08:20.000 big overweights remain in the US because that's where you know, 0:08:20.120 --> 0:08:23.200 this is the leaders here in this industrial revolution. 0:08:23.240 --> 0:08:26.480 Right, I mean, evaluation here is just extraordinary, isn't it. 0:08:26.920 --> 0:08:29.520 Well, As I said earlier, I think on the max 0:08:29.560 --> 0:08:31.920 seven in some cases it is are, but there's other 0:08:31.960 --> 0:08:35.240 ones in there that look pretty valuable and pretty cheap. 0:08:35.400 --> 0:08:37.520 And then on the other side of it, the rest 0:08:37.559 --> 0:08:40.319 of the broader market actually is inexpensive. So we think 0:08:40.360 --> 0:08:43.120 in the US the big story next year is finally 0:08:43.160 --> 0:08:46.199 this broadening out trade. It's going to benefit from these 0:08:46.280 --> 0:08:49.280 raid cuts from the FED, the regional banks, the housing sector, 0:08:50.000 --> 0:08:50.839 the industrials. 0:08:50.880 --> 0:08:52.640 So you know, we're. 0:08:52.240 --> 0:08:55.080 Playing the broadening out trade in the US, hanging in 0:08:55.120 --> 0:08:58.360 there with the US tech stocks but trading relative value 0:08:58.400 --> 0:09:01.320 and then looking outside for more attack in Asia. 0:09:01.720 --> 0:09:05.160 Let's go William Priest here, what is the Steve Off? 0:09:05.320 --> 0:09:09.480 What is a steve ofth process to identify quality free 0:09:09.520 --> 0:09:10.559 cash flow growth. 0:09:11.360 --> 0:09:15.000 Right, So you know people talk about quality and I 0:09:15.000 --> 0:09:17.160 had never met a PM in my life who didn't 0:09:17.160 --> 0:09:19.559 say he buys quality stocks. So you know, you got 0:09:19.600 --> 0:09:21.760 to define it so that we start with a management 0:09:21.800 --> 0:09:24.000 team that we believe in and has a track record 0:09:24.080 --> 0:09:26.920 of growth. The second is we look at cash flows 0:09:26.960 --> 0:09:30.440 being generated by the business in a business position that 0:09:30.520 --> 0:09:34.640 can sustain and protect those cash flows. And we want 0:09:34.640 --> 0:09:36.880 to see cash flows. We want to see pretty good, 0:09:37.040 --> 0:09:39.959 solid balance sheets. We don't want to see people playing 0:09:40.000 --> 0:09:41.280 around with fake earnings. 0:09:41.280 --> 0:09:43.520 Because the time I got to bring this up, folks, 0:09:43.520 --> 0:09:46.040 this is so important what you're hearing here. This is 0:09:46.080 --> 0:09:49.880 like the mistakes that are made out there. The fundamental 0:09:50.280 --> 0:09:54.840 outlaw underlying of quality free cash flow is the partial 0:09:54.880 --> 0:09:58.839 differential of revenue growth. What you started with anominal yeah 0:09:58.920 --> 0:10:03.840 GDP absolutely, if you don't have a revenue growth beeps 0:10:03.880 --> 0:10:07.440 above norm however you want, you know, fan distribution whatever. 0:10:07.840 --> 0:10:11.080 If you don't have revenue growth, you can't get down 0:10:11.120 --> 0:10:11.960 to the bottom of the feld. 0:10:12.000 --> 0:10:13.120 You can't get cash flaw. 0:10:13.600 --> 0:10:17.520 Yeah, it's just that simple part. I can't say nominal 0:10:17.559 --> 0:10:19.040 GDP is where I am. 0:10:19.280 --> 0:10:22.400 Steve, we said the biggest IPO of the year, price 0:10:22.480 --> 0:10:23.480 less name Medline. 0:10:23.720 --> 0:10:24.240 I missed this. 0:10:24.400 --> 0:10:27.400 What is it? I mean, six point three billion dollar IPO. 0:10:28.280 --> 0:10:30.080 That's going to be kind of a bullish sign, right, 0:10:30.120 --> 0:10:32.200 I mean, I mean it just seems like if you're 0:10:33.440 --> 0:10:35.760 raising that kind of capital in this market for a 0:10:35.840 --> 0:10:39.600 traditional healthcare company, what do you make of that? 0:10:39.960 --> 0:10:43.160 The middle syllable economy is confidence. 0:10:43.600 --> 0:10:43.840 YEP. 0:10:44.400 --> 0:10:48.160 So you're absolutely rightful with that question. It's something when 0:10:48.240 --> 0:10:50.800 I review everything's going on with our board every quarter, 0:10:50.960 --> 0:10:55.120 our clients. I look at IPO activity M and a 0:10:55.120 --> 0:10:59.480 activity of late. I found myself kind of as the 0:10:59.559 --> 0:11:03.800 reception a Federal Hermes after five pm when the regular 0:11:03.840 --> 0:11:07.520 staff goes home and you've got these road shows coming through. Uh, 0:11:07.679 --> 0:11:10.840 and it's you know, Steve is introducing me able to you. 0:11:11.240 --> 0:11:13.760 But you know there's a lot of activity there. We're 0:11:13.800 --> 0:11:17.360 never not nowhere near back the bubble days, if you will, 0:11:17.400 --> 0:11:20.240 when things are really popping through lunches. 0:11:20.520 --> 0:11:20.760 Yeah. 0:11:20.800 --> 0:11:23.199 I love to see this activity because to me, it 0:11:23.280 --> 0:11:25.640 is a sign that animal spirits are coming back into 0:11:25.640 --> 0:11:28.680 the economy, and that's what drives everything else. 0:11:28.880 --> 0:11:32.200 Medline MDL and thank you Paul, I miss this completely. 0:11:32.240 --> 0:11:34.120 Did you get your eight thousand shares? 0:11:34.320 --> 0:11:34.480 Yes? 0:11:34.520 --> 0:11:36.720 Sure, absolutely, I just want to be sure we're taking 0:11:36.760 --> 0:11:39.040 care of But this is like, Paul, this is like 0:11:39.559 --> 0:11:42.040 the way it used to be. I mean, and you said. 0:11:41.800 --> 0:11:43.719 We're seeing some M and A activity out there, We're 0:11:43.720 --> 0:11:47.000 seeing some IPO activity out there. A lot of that 0:11:47.080 --> 0:11:50.480 boats I mean, or suggests that the market's pretty comfortable 0:11:50.480 --> 0:11:53.559 with where things are right here. So get that thing. 0:11:53.760 --> 0:11:56.720 Steve, wonderful to have you in. Thank you. Likewise, stranger 0:11:56.800 --> 0:12:02.160 Stephen a legend at Princeton Federated amazild that he could 0:12:02.200 --> 0:12:05.959 come in stay with us. More from Bloomberg Surveillance coming 0:12:06.040 --> 0:12:07.040 up after this. 0:12:14.280 --> 0:12:17.840 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:12:17.920 --> 0:12:21.120 weekday afternoons from seven to ten am Eastern Listen on 0:12:21.160 --> 0:12:24.840 Applecarplay and Android Otto with the Bloomberg Business app, or 0:12:24.960 --> 0:12:26.640 watch us live on YouTube. 0:12:26.920 --> 0:12:30.080 One of my great inventions is the phrase chart paragraph. Charter. 0:12:30.280 --> 0:12:33.080 Came out of Bear Stearns and Golden Sex years ago, 0:12:33.160 --> 0:12:37.240 John Writing's work. David Malpasses worked on Ossius and Dudley 0:12:37.280 --> 0:12:41.240 and the team there carrying on that tradition. Eric Winnigrad 0:12:41.360 --> 0:12:44.679 is brilliant at Alliance Bernstein doing the chart paragraph thing. 0:12:44.679 --> 0:12:46.600 I want to get to aggregate paycheck in a moment. 0:12:46.880 --> 0:12:49.240 Steve Authur new Guests just came in with a wild 0:12:49.360 --> 0:12:53.040 two year optimism on the equity market and the equivalent 0:12:53.160 --> 0:12:57.040 Dow is now fifty nine sixty thousand, and he pins 0:12:57.080 --> 0:13:03.480 it off nominal GDP gus current GDP, real GDP plus 0:13:03.520 --> 0:13:06.560 the inflation component. What do you see out two years? 0:13:06.679 --> 0:13:08.480 Well, so I think that's the important part of that 0:13:08.640 --> 0:13:11.760 is the inflation component. Right, A nominal GDP has been 0:13:11.760 --> 0:13:14.480 elevated this year because inflation has been sticking. With inflation 0:13:14.600 --> 0:13:17.200 still running three percent, nominal GDP is going to be higher, 0:13:17.200 --> 0:13:20.600 and Steve is right, equities benefit from higher nominal GDP. 0:13:20.840 --> 0:13:22.079 So that all makes sense. 0:13:22.520 --> 0:13:25.439 The question on a forward basis is, if inflation comes down, 0:13:25.480 --> 0:13:28.480 as we expect that it will, what does real GDP do? 0:13:28.600 --> 0:13:30.880 What does real growth do? And I think the jury's 0:13:30.880 --> 0:13:33.680 out on that. You can tell optimistic stories around AI 0:13:33.760 --> 0:13:36.600 and the booster productivity history tells you it usually takes 0:13:36.640 --> 0:13:39.120 longer than a year or two for these technological advances 0:13:39.160 --> 0:13:42.720 to really manifest themselves in terms of massive productivity growth. 0:13:43.160 --> 0:13:45.480 So we share the idea that the economy will continue 0:13:45.520 --> 0:13:48.880 to expand. I would say that we are not quite 0:13:48.920 --> 0:13:52.200 as optimistic as Steve seems to be. I'm an economist, 0:13:52.280 --> 0:13:54.160 or sort of. I lose my guild card if I'm 0:13:54.160 --> 0:13:55.559 too optimistic about anything. 0:13:55.600 --> 0:13:58.360 I switch Deceber. We're asking the economists what the market 0:13:58.400 --> 0:14:01.600 will do, and we're asking strategists and managers what the 0:14:01.640 --> 0:14:02.560 economy will do. 0:14:03.040 --> 0:14:06.000 Well, Eric, what do you make of the economy The 0:14:06.080 --> 0:14:07.360 labor data we got yesterday? 0:14:07.559 --> 0:14:09.560 So I don't think the labor market data really changed 0:14:09.559 --> 0:14:10.920 our picture of the economy, right. 0:14:11.200 --> 0:14:13.200 The labor market is certainly. 0:14:12.880 --> 0:14:15.600 A lot slower than it was six nine months ago, 0:14:15.600 --> 0:14:17.720 where we're in a low higher, low fier economy. 0:14:17.760 --> 0:14:18.880 I think people are aware of that. 0:14:19.760 --> 0:14:22.600 I think that it is I would phrase it as 0:14:22.600 --> 0:14:25.840 sort of precariously balanced, in the sense that labor supply 0:14:25.920 --> 0:14:29.160 has been constrained by migration policy, and labor demand has 0:14:29.200 --> 0:14:31.600 been constrained by a variety of different factors, and so 0:14:32.200 --> 0:14:35.080 we're sort of sitting close to a neutral ish level 0:14:35.160 --> 0:14:37.640 at a lower level of hiring. What I do take 0:14:37.680 --> 0:14:40.600 information from, though, is that it is only close to balanced. 0:14:40.720 --> 0:14:43.000 The unemployment rate has gone up for several months in 0:14:43.040 --> 0:14:45.440 a row. Now is at a new cycle high. And 0:14:45.480 --> 0:14:48.400 that's tells you that labor demand is falling faster than 0:14:48.480 --> 0:14:51.720 labor supply. It's not a lot faster, but it is faster, 0:14:51.800 --> 0:14:54.720 and to me, that's the primary driver of why I 0:14:54.800 --> 0:14:57.240 expect the FED to cut as we move through next year. 0:14:57.360 --> 0:15:00.120 We're going to get some inflation data tomorrow. There, how 0:15:00.120 --> 0:15:03.040 do you view that? What do you expecting to see tomorrow? Again? 0:15:03.320 --> 0:15:05.080 You know, the evidence that we have, and this is 0:15:05.120 --> 0:15:07.280 the first week that we've gotten data since the government 0:15:07.320 --> 0:15:10.560 shutdown ended. The evidence that we have from private sector sources, 0:15:10.560 --> 0:15:13.280 from other places is that the economy didn't change meaningfully 0:15:13.360 --> 0:15:16.160 during the shutdown. I expect the inflation data to show that, 0:15:16.200 --> 0:15:17.840 which is to say that it's going to be sticky. 0:15:18.000 --> 0:15:19.720 You know, I don't think we should expect a dramatic 0:15:19.800 --> 0:15:23.000 change from where we were before. Goods prices are elevated 0:15:23.040 --> 0:15:26.400 because of tariffs. Services prices are coming down, but only slowly. 0:15:26.720 --> 0:15:29.600 We're still stuck sort of around three percent, and it 0:15:29.600 --> 0:15:31.600 won't be until next year that we see real progress 0:15:31.600 --> 0:15:31.840 on that. 0:15:31.880 --> 0:15:34.640 A lot of good analysis yesterday is really really valuable. 0:15:34.640 --> 0:15:37.640 A lot on LinkedIn and Twitter, Eric Uinigrette, I love 0:15:37.880 --> 0:15:42.080 your phrase aggregate paycheck. That's sort of how each and 0:15:42.160 --> 0:15:45.720 every house listening and watching the show feels. There's like 0:15:45.800 --> 0:15:49.520 the aggregate paycheck into the house. Do we risk a 0:15:49.640 --> 0:15:52.720 negative real aggregate paycheck. 0:15:52.920 --> 0:15:55.320 We've been close at different times this year. You know, 0:15:55.360 --> 0:15:58.200 that's where inflation really starts to bite, because salaries adjust, 0:15:58.280 --> 0:16:00.960 but they don't adjust as quickly as prices do. And 0:16:01.000 --> 0:16:03.280 so you have at various times this year been dancing 0:16:03.360 --> 0:16:06.480 with the idea of households losing ground in aggregate. Right, 0:16:06.520 --> 0:16:09.800 so this doesn't mean every household, but some households losing 0:16:09.840 --> 0:16:14.280 ground relative to where prices are. Right now, we're sitting 0:16:14.400 --> 0:16:17.520 on a six month annualized basis just above zero, and 0:16:17.560 --> 0:16:19.760 to me, that's the primary driver of the economy. We 0:16:19.800 --> 0:16:22.280 can talk about capecs, investment, we can talk about AI 0:16:22.440 --> 0:16:23.920 and all that. At the end of the day, this 0:16:24.000 --> 0:16:26.360 is still a consumer driven economy. And if the household 0:16:26.360 --> 0:16:29.680 paycheck doesn't stay above water, things start to look pretty 0:16:29.760 --> 0:16:30.480 pretty dangerous. 0:16:30.600 --> 0:16:33.400 Then in Dartmouth College, when you looked at this, you 0:16:33.480 --> 0:16:36.400 bring it over to the political mandate. If we have 0:16:36.560 --> 0:16:41.360 flat real wages, a crushing aggregate paycheck in America. That 0:16:41.600 --> 0:16:45.040 really drives a central bank to a more accommodative strategy. 0:16:45.120 --> 0:16:46.440 Right, Well, it should do, right. 0:16:46.600 --> 0:16:48.640 You know, it's a challenge for the central bank because 0:16:48.640 --> 0:16:50.600 if the reason that the paycheck is running close to 0:16:50.680 --> 0:16:53.280 zero is that inflation is too high, it's not clear 0:16:53.280 --> 0:16:55.480 that they're supposed to cut rates, right. Maybe they're supposed 0:16:55.480 --> 0:16:57.640 to stay tight and address it through the inflation side 0:16:57.640 --> 0:16:59.880 of the mandate. I think Chair Powell's been eloquent in 0:17:00.040 --> 0:17:02.120 talking about this and saying that the FED is being 0:17:02.160 --> 0:17:05.320 pulled away from its mandate in both directions. That's why 0:17:05.400 --> 0:17:07.600 you see the discord within the Fed. That's why you 0:17:07.600 --> 0:17:10.240 see the sense in both directions there is some evidence 0:17:10.280 --> 0:17:13.439 of economic weakness. There is also evidence of inflation stickiness, 0:17:13.640 --> 0:17:15.359 and so it's not clear what they're supposed to do. 0:17:15.680 --> 0:17:17.479 But Tom, when you say, you know, this brings up 0:17:17.480 --> 0:17:20.560 the political side of things. We have not had to 0:17:20.560 --> 0:17:22.119 think about this for a while, but we will as 0:17:22.160 --> 0:17:25.320 the year progressive. We're rolling toward midterm elections, and you know, 0:17:25.359 --> 0:17:29.199 with affordability looking likely to be one of the primary issues, 0:17:29.240 --> 0:17:31.959 it's not clear how the American public will react in 0:17:32.000 --> 0:17:35.360 a political sense if the paycheck were to fall into 0:17:35.400 --> 0:17:38.160 negative territory, or if they were to feel that things 0:17:38.160 --> 0:17:39.000 are deteriorating. 0:17:39.560 --> 0:17:42.360 You say that the run rate of hiring has clearly 0:17:42.400 --> 0:17:45.040 slowed this year and remains weak by historical standards. Why 0:17:45.119 --> 0:17:47.680 is that so? I think there's a couple of aspects 0:17:47.680 --> 0:17:47.919 to that. 0:17:47.960 --> 0:17:50.080 One is that labor supply has slowed, there are fewer 0:17:50.119 --> 0:17:53.960 workers available. Another part of it is that businesses have 0:17:53.960 --> 0:17:56.080 gotten a little fat on labor. I think that people 0:17:56.200 --> 0:17:58.959 hired and you know, rewind a few years when we 0:17:58.960 --> 0:18:02.000 were here talking about labor shortages and businesses couldn't find people. 0:18:02.640 --> 0:18:04.720 As a result, once they found them, they've been very 0:18:04.720 --> 0:18:07.320 reluctant to let them go. So businesses have been running 0:18:07.320 --> 0:18:10.199 at full staff for a while, which diminishes their hiring needs. 0:18:10.600 --> 0:18:13.480 But the primary driver I think has been economic uncertainty. 0:18:13.680 --> 0:18:16.360 Businesses have not wanted to hire in an environment where 0:18:16.359 --> 0:18:18.960 they don't know the policy regime. The month, if you 0:18:19.000 --> 0:18:21.439 have to pick a month where hiring really deteriorated the 0:18:21.440 --> 0:18:24.160 most and moved into this lower trajectory, it was April, 0:18:24.359 --> 0:18:27.400 right after the tariffnounce And I don't know that that's 0:18:27.440 --> 0:18:29.879 a reaction to tariff specifically so much as it is 0:18:29.920 --> 0:18:31.360 a reaction to the uncertainty. 0:18:31.840 --> 0:18:35.080 We do our Eric winnigred audible here folks on China 0:18:35.160 --> 0:18:37.840 with his work at Dartmouth and their acclaimed Asian studies 0:18:38.240 --> 0:18:40.720 program Dembra eight can publish out of London today for 0:18:40.760 --> 0:18:45.000 Bloomberg on luxury and there's a basic idea that the 0:18:45.040 --> 0:18:48.920 three cities in China that do luxury Shanghai, Hong Kong vision. 0:18:49.040 --> 0:18:51.920 I guess it will come back. I'm reading Bloomberg News 0:18:51.920 --> 0:18:56.360 on the fiscal structure of the Xi administration, the GI government, 0:18:56.720 --> 0:18:59.760 and I'm seeing some real stress there. How do you 0:19:00.000 --> 0:19:03.360 received China for Americans in the next year. 0:19:03.640 --> 0:19:08.439 So from an American perspective, you know, China is not 0:19:08.560 --> 0:19:11.679 as relevant as it was before because of the tariff policy. 0:19:11.720 --> 0:19:14.560 There's been a redirection of exports. If you look at China, 0:19:14.920 --> 0:19:17.080 their trade surplus has hit a record this year, even 0:19:17.119 --> 0:19:19.439 as their trade into the US has diminished because of 0:19:19.480 --> 0:19:22.800 tariff policy. They are exporting more to Europe, they are 0:19:22.800 --> 0:19:26.160 exporting more within Asia, they are exporting more to South America. 0:19:26.400 --> 0:19:28.760 They have to continue exporting because in order to keep 0:19:28.800 --> 0:19:32.439 growth positive, they have to continue producing and domestic demand 0:19:32.480 --> 0:19:34.639 in China. As we've talked about before is very weak. 0:19:34.880 --> 0:19:36.399 So if they're going to produce it and people in 0:19:36.480 --> 0:19:37.960 China won't buy it and they can't sell it to 0:19:38.000 --> 0:19:40.000 the US, they have to find somewhere else to sell it, 0:19:40.320 --> 0:19:42.439 and they have. And I find it a little bit 0:19:42.480 --> 0:19:46.280 ironic that in the US we're talking about the affordability crisis, 0:19:46.560 --> 0:19:50.280 China is essentially exporting deflation everywhere else in the world 0:19:50.440 --> 0:19:52.440 because we won't let them export it here anymore. 0:19:53.119 --> 0:19:56.440