1
00:00:02,400 --> 00:00:06,760
Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

2
00:00:11,680 --> 00:00:15,480
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

3
00:00:15,480 --> 00:00:18,720
Speaker 2: with Lisa Bromwitz and Amerie Hordert. Join us each day

4
00:00:18,760 --> 00:00:22,280
Speaker 2: for insight from the best in markets, economics, and geopolitics

5
00:00:22,440 --> 00:00:24,880
Speaker 2: from our global headquarters in New York City. We are

6
00:00:24,960 --> 00:00:27,680
Speaker 2: live on Bloomberg Television weekday mornings from six to nine

7
00:00:27,720 --> 00:00:31,319
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

8
00:00:31,320 --> 00:00:33,960
Speaker 2: anywhere else you listen, and as always on the Bloomberg

9
00:00:34,040 --> 00:00:36,960
Speaker 2: Terminal and the Bloomberg Business app. We begin the sound

10
00:00:36,960 --> 00:00:39,680
Speaker 2: with investors searching for direction in a pivotal year potentially

11
00:00:39,680 --> 00:00:42,400
Speaker 2: for the Federal Reserve. FED Governor Stephen Myron doubling down

12
00:00:42,400 --> 00:00:44,320
Speaker 2: on his dubvish starts calling for the Central Bank to

13
00:00:44,360 --> 00:00:46,680
Speaker 2: cut interest rates by more than a percentage point in

14
00:00:46,720 --> 00:00:49,839
Speaker 2: twenty twenty six. Governor Myron joins us. Now four more. Governor,

15
00:00:49,880 --> 00:00:50,919
Speaker 2: good morning and happy new year.

16
00:00:51,040 --> 00:00:52,279
Speaker 3: Happy to here, Thanks for having me back.

17
00:00:52,320 --> 00:00:54,520
Speaker 2: It's good to see you've been very very transparent about

18
00:00:54,560 --> 00:00:56,279
Speaker 2: where you were on the dot plot and what your

19
00:00:56,320 --> 00:00:59,160
Speaker 2: forecast is. So let's start there. Where are you for

20
00:00:59,240 --> 00:01:01,440
Speaker 2: this year? Wes you don't what are you looking fun.

21
00:01:01,600 --> 00:01:03,680
Speaker 3: Yeah, so I'm on surprisingly the lowest dot. I'm looking

22
00:01:03,720 --> 00:01:05,440
Speaker 3: for about a point and a half of cuts. A

23
00:01:05,440 --> 00:01:07,520
Speaker 3: lot of that is driven by my view of inflation.

24
00:01:07,560 --> 00:01:09,199
Speaker 3: I gave a speech about this and you know, about

25
00:01:09,240 --> 00:01:12,560
Speaker 3: a month ago in December Columbia University. My view is

26
00:01:12,600 --> 00:01:15,679
Speaker 3: that almost all of the excess inflation over target is

27
00:01:15,760 --> 00:01:18,480
Speaker 3: due to quirks of how we calculate inflation. So, as

28
00:01:18,520 --> 00:01:20,280
Speaker 3: you have talked about with many of your guests many

29
00:01:20,280 --> 00:01:23,240
Speaker 3: times before, shelter inflation really really lags a lot. And

30
00:01:23,280 --> 00:01:25,640
Speaker 3: because average tenant rents have caught up to new tenant rents,

31
00:01:25,640 --> 00:01:27,520
Speaker 3: because market rents have been running at at one percent

32
00:01:27,640 --> 00:01:29,520
Speaker 3: rate for a couple of years now, I think it's

33
00:01:29,560 --> 00:01:33,480
Speaker 3: appropriate to sort of think about underlying inflation as abstracting

34
00:01:33,520 --> 00:01:36,000
Speaker 3: from that a little bit. You know, the shelter inflation

35
00:01:36,040 --> 00:01:37,959
Speaker 3: is indicative of a supply demand in balance from twenty

36
00:01:38,000 --> 00:01:40,440
Speaker 3: twenty two to twenty twenty three, not twenty twenty seven.

37
00:01:40,480 --> 00:01:42,200
Speaker 3: We need to be making policy for twenty twenty seven

38
00:01:42,200 --> 00:01:44,120
Speaker 3: because of policy lags. And there side of it is

39
00:01:44,120 --> 00:01:46,119
Speaker 3: the portfolio management fees that I'm sure you've talked about

40
00:01:46,120 --> 00:01:48,320
Speaker 3: again with many of your guests. Many times stock market

41
00:01:48,320 --> 00:01:51,520
Speaker 3: went up mechanically inflation was higher despite many of your

42
00:01:51,520 --> 00:01:53,840
Speaker 3: other guests, I'm sure no doubt telling you about fee

43
00:01:53,840 --> 00:01:56,960
Speaker 3: compression and these asset management industry for decades, so you

44
00:01:57,120 --> 00:01:59,760
Speaker 3: was tracked from those two things. Underlying inflation is running

45
00:01:59,760 --> 00:02:01,680
Speaker 3: a two point three percent that's with the noise of

46
00:02:01,680 --> 00:02:02,120
Speaker 3: our target.

47
00:02:02,400 --> 00:02:04,440
Speaker 2: That sounds like an argument for neutral. You're making an

48
00:02:04,520 --> 00:02:06,680
Speaker 2: argument though, for this year, for a combination. Where does

49
00:02:06,720 --> 00:02:09,240
Speaker 2: that come from? Why are you looking for a combinative

50
00:02:09,280 --> 00:02:12,240
Speaker 2: monetary policy? Stats coming out to Washington. Yeah, so a

51
00:02:12,240 --> 00:02:12,760
Speaker 2: couple things.

52
00:02:12,760 --> 00:02:15,360
Speaker 3: First of all, as I just said, underlying inflation's running

53
00:02:15,400 --> 00:02:17,880
Speaker 3: within noise of our target, and that's a good indication

54
00:02:17,919 --> 00:02:19,680
Speaker 3: of where overall inflation is going to be going in

55
00:02:19,680 --> 00:02:21,919
Speaker 3: the medium term. But then the unemployment rate is four

56
00:02:21,919 --> 00:02:24,160
Speaker 3: point six percent, right, So that means that there's about

57
00:02:24,200 --> 00:02:26,920
Speaker 3: a million Americans who don't have jobs, who could have

58
00:02:27,040 --> 00:02:30,079
Speaker 3: jobs without causing unwanted inflation, without causing unwanted up, we're

59
00:02:30,080 --> 00:02:32,079
Speaker 3: pressure on inflation. I don't think it's right to tell

60
00:02:32,120 --> 00:02:34,280
Speaker 3: those people that they shouldn't have jobs because we're just

61
00:02:34,480 --> 00:02:37,760
Speaker 3: mechanically calculating inflation in some silly way. I just don't

62
00:02:37,760 --> 00:02:39,600
Speaker 3: think that makes a lot of sense. The other thing

63
00:02:39,680 --> 00:02:42,200
Speaker 3: is that because we've kept policy tighter than I think

64
00:02:42,240 --> 00:02:44,440
Speaker 3: it ought to be, that makes me mark down our

65
00:02:44,440 --> 00:02:47,200
Speaker 3: growth forecast for the future relative to where it should be.

66
00:02:47,560 --> 00:02:49,919
Speaker 3: And so if we didn't need if we hadn't kept

67
00:02:49,919 --> 00:02:53,120
Speaker 3: been keeping policy in my view too tight over the

68
00:02:53,160 --> 00:02:55,480
Speaker 3: last year or so, it wouldn't be necessary to provide

69
00:02:55,520 --> 00:02:56,280
Speaker 3: that type just correctly.

70
00:02:56,320 --> 00:02:58,480
Speaker 2: You say marked down in the future, because they fat

71
00:02:58,520 --> 00:03:01,600
Speaker 2: actually marked up GDP for twenty six What do you

72
00:03:01,639 --> 00:03:02,360
Speaker 2: mean in the future.

73
00:03:02,600 --> 00:03:04,760
Speaker 3: No, So, like when you look at these dots right

74
00:03:05,120 --> 00:03:09,440
Speaker 3: in the set, they're projections of appropriate policy, and projections

75
00:03:09,480 --> 00:03:15,760
Speaker 3: of economic fundamentals like growth and inflation conditional upon appropriate policy.

76
00:03:15,840 --> 00:03:19,200
Speaker 3: So my projections for growth and inflation are conditional upon

77
00:03:19,240 --> 00:03:22,040
Speaker 3: getting my policy forecast right, my policy projection. If I

78
00:03:22,040 --> 00:03:24,000
Speaker 3: don't get my policy projection because the rest of the

79
00:03:24,040 --> 00:03:26,280
Speaker 3: committee is more hawkish than I am, then we wouldn't

80
00:03:26,280 --> 00:03:30,240
Speaker 3: meet my growth and inflation projections. We'd underperform them. And

81
00:03:30,280 --> 00:03:32,440
Speaker 3: so because policy has been in my view too tight

82
00:03:32,520 --> 00:03:35,040
Speaker 3: for the last year, that means that my expectations of

83
00:03:35,080 --> 00:03:38,880
Speaker 3: growth will ultimately be will ultimately be unsatisfied because we

84
00:03:38,920 --> 00:03:40,080
Speaker 3: didn't get the policy that I wanted.

85
00:03:40,200 --> 00:03:43,520
Speaker 4: You have GDP two point six percent roughly over the

86
00:03:43,560 --> 00:03:46,360
Speaker 4: next few years. Are you saying that the appropriate growth

87
00:03:46,440 --> 00:03:48,640
Speaker 4: rate is something like that two percent and two point

88
00:03:48,680 --> 00:03:51,080
Speaker 4: six percent and not necessarily three percent.

89
00:03:50,800 --> 00:03:53,560
Speaker 3: Are above Well, so that's conditional upon getting upon getting

90
00:03:53,560 --> 00:03:57,080
Speaker 3: the policy projection that I want, right, I think, and

91
00:03:57,440 --> 00:03:59,440
Speaker 3: I think, and part of that is due part of

92
00:03:59,440 --> 00:04:01,680
Speaker 3: the reason why it's a little bit lower than I

93
00:04:01,720 --> 00:04:03,680
Speaker 3: think two point eight two point nine is probably where

94
00:04:03,880 --> 00:04:05,400
Speaker 3: more where it would be if we got if we

95
00:04:05,600 --> 00:04:08,000
Speaker 3: sort of had the great policy the entire time. Part

96
00:04:08,000 --> 00:04:09,200
Speaker 3: of the reason it's a little bit lower than that

97
00:04:09,280 --> 00:04:11,720
Speaker 3: is because we got to account for policy having been

98
00:04:11,720 --> 00:04:13,200
Speaker 3: too tight over the last twelve months.

99
00:04:13,760 --> 00:04:15,480
Speaker 1: There's also a question about the reaction function.

100
00:04:15,720 --> 00:04:17,159
Speaker 4: You're talking about the data that we're going to be

101
00:04:17,160 --> 00:04:18,320
Speaker 4: getting tomorrow.

102
00:04:18,400 --> 00:04:20,359
Speaker 1: What would you have to see to change your view?

103
00:04:20,440 --> 00:04:22,719
Speaker 4: I mean, if we saw, let's say, the unemployment rate

104
00:04:23,000 --> 00:04:26,120
Speaker 4: go down to four point four percent, would you start

105
00:04:26,160 --> 00:04:28,520
Speaker 4: to question whether one hundred and fifty basis points of

106
00:04:28,560 --> 00:04:30,000
Speaker 4: cuts is really necessary this year?

107
00:04:30,200 --> 00:04:32,240
Speaker 3: That's a great question. And before I answer it, let

108
00:04:32,279 --> 00:04:36,039
Speaker 3: me step back a foot and say that my forecast

109
00:04:36,080 --> 00:04:38,960
Speaker 3: is conditional upon shelter inflation coming down right, And there's

110
00:04:38,960 --> 00:04:40,359
Speaker 3: people who agree with me, by the way, like you

111
00:04:40,360 --> 00:04:42,000
Speaker 3: look at the research from Goldman Sachs, you know, it's

112
00:04:42,040 --> 00:04:44,440
Speaker 3: pretty similar to where I am on shelter. They've got

113
00:04:44,480 --> 00:04:46,840
Speaker 3: shelter inflation running below the pre COVID rate by the

114
00:04:46,920 --> 00:04:48,520
Speaker 3: end of the year, similar to where I have it.

115
00:04:49,720 --> 00:04:52,400
Speaker 3: Where I differ from a lot of my colleagues again,

116
00:04:52,600 --> 00:04:55,080
Speaker 3: is thinking that goods inflation is not drive being driven

117
00:04:55,080 --> 00:04:57,680
Speaker 3: by tariffs. Don'tee tariffs drive being driven by goods inflation.

118
00:04:58,000 --> 00:05:00,480
Speaker 3: I see goods inflation. I'm not sure what driving I

119
00:05:00,560 --> 00:05:03,359
Speaker 3: listed a few possibilities in the speech in December. I

120
00:05:03,400 --> 00:05:05,359
Speaker 3: think the jury is still out on that one. But

121
00:05:05,520 --> 00:05:07,919
Speaker 3: if I end up being right on inflation and gold

122
00:05:07,960 --> 00:05:09,800
Speaker 3: sorry on shelter. If I end up being right in

123
00:05:09,800 --> 00:05:11,960
Speaker 3: shelter and Goldman ends up being read in shelter, and

124
00:05:12,000 --> 00:05:14,000
Speaker 3: I end up being wrong on tariffs and everybody else

125
00:05:14,040 --> 00:05:16,440
Speaker 3: is right on tariffs, then we're going to undershoot our target.

126
00:05:16,880 --> 00:05:18,880
Speaker 3: Two sided risk is back, And I think that people

127
00:05:18,920 --> 00:05:21,680
Speaker 3: haven't really internalized that yet. And I think it's important

128
00:05:21,720 --> 00:05:24,480
Speaker 3: to appreciate that. Now, where would I be wrong? Because

129
00:05:24,520 --> 00:05:27,240
Speaker 3: so much of my disinflation forecast is based upon shelter.

130
00:05:27,560 --> 00:05:29,800
Speaker 3: I'm going to be wrong if market rents pick up again.

131
00:05:29,880 --> 00:05:31,600
Speaker 4: So you're saying this is all an inflation issue and

132
00:05:31,680 --> 00:05:33,080
Speaker 4: not anything to do with the labor market.

133
00:05:33,360 --> 00:05:35,760
Speaker 3: Now, as I said before, unemployment is unemployment is somewhat

134
00:05:35,760 --> 00:05:38,880
Speaker 3: above the somewhat above what where I view the natural rate,

135
00:05:38,960 --> 00:05:42,120
Speaker 3: and so it's sixty basis points a million people you

136
00:05:42,120 --> 00:05:45,120
Speaker 3: know of unnecessary unemployment that we could reduce by having

137
00:05:45,120 --> 00:05:46,000
Speaker 3: a more appropriate policy.

138
00:05:46,040 --> 00:05:47,040
Speaker 1: Now it's Talisa's point.

139
00:05:47,040 --> 00:05:48,599
Speaker 5: Is there a line in the sand and the unemployment

140
00:05:48,640 --> 00:05:50,719
Speaker 5: rate tomorrow that would maybe have you think about this

141
00:05:50,760 --> 00:05:52,960
Speaker 5: a little bit differently? What if the unemployment rate drops

142
00:05:53,000 --> 00:05:55,239
Speaker 5: down four point five percent or even four point four percent?

143
00:05:55,320 --> 00:05:57,560
Speaker 3: Yeah, I would absolutely add I would absolutely jus my projection.

144
00:05:57,640 --> 00:05:59,800
Speaker 3: So if you look at the September step, right, I

145
00:05:59,880 --> 00:06:01,680
Speaker 3: was fifty business points higher than I was in the

146
00:06:01,680 --> 00:06:04,240
Speaker 3: December step. Part of the reason why I adjusted my

147
00:06:04,279 --> 00:06:06,919
Speaker 3: dot down by fifty basis points is because the labor

148
00:06:06,960 --> 00:06:10,960
Speaker 3: market didn't perform from my expectations that I had in September,

149
00:06:11,000 --> 00:06:13,880
Speaker 3: and because inflation actually I performed to the downside, right,

150
00:06:13,920 --> 00:06:15,880
Speaker 3: So it was appropriate to adjust my dot down and

151
00:06:15,920 --> 00:06:17,400
Speaker 3: then on top of that, we had the two type

152
00:06:17,400 --> 00:06:19,600
Speaker 3: policies I described. So if the data come in a

153
00:06:19,640 --> 00:06:21,279
Speaker 3: little bit better, yeah, of course I'm going to adjust

154
00:06:21,279 --> 00:06:21,800
Speaker 3: my expectation.

155
00:06:21,960 --> 00:06:23,400
Speaker 5: In just the past few weeks, we've heard from a

156
00:06:23,480 --> 00:06:26,480
Speaker 5: number of your colleagues talking about how actually they feel

157
00:06:26,520 --> 00:06:28,839
Speaker 5: like we're pretty close to neutral. Have you made any

158
00:06:28,880 --> 00:06:32,159
Speaker 5: inroads convincing them that they're not right about this the

159
00:06:32,160 --> 00:06:33,039
Speaker 5: way you see the world.

160
00:06:33,080 --> 00:06:34,960
Speaker 3: You know, I can't, I can't speak for them, but

161
00:06:35,440 --> 00:06:37,000
Speaker 3: you know, I think that every month we come in

162
00:06:37,040 --> 00:06:39,040
Speaker 3: and the unemployment rate takes up a little bit, and

163
00:06:39,080 --> 00:06:41,400
Speaker 3: the inflation, you know, the inflation data sort of seemed

164
00:06:41,400 --> 00:06:43,039
Speaker 3: to be doing a little bit better. I think it's

165
00:06:43,080 --> 00:06:45,800
Speaker 3: really difficult to argue that policy is neutral, especially when

166
00:06:45,800 --> 00:06:48,800
Speaker 3: we've been on this course of gradual listening to the

167
00:06:48,880 --> 00:06:51,200
Speaker 3: labor market for a couple of years now. It's just

168
00:06:51,279 --> 00:06:53,680
Speaker 3: really difficult in my mind to sort of argue that

169
00:06:53,440 --> 00:06:56,200
Speaker 3: that that policy is not is not restricting the economy.

170
00:06:56,240 --> 00:06:57,600
Speaker 2: A couple of ways I want to pick, can yeah,

171
00:06:57,640 --> 00:07:00,240
Speaker 2: and one is neutral and the other is correct. I

172
00:07:00,279 --> 00:07:02,760
Speaker 2: think it's very difficult to say this is where I

173
00:07:02,760 --> 00:07:05,560
Speaker 2: think neutral is, and this should be the correct policy rate,

174
00:07:05,600 --> 00:07:07,600
Speaker 2: because it's such a guessing game as to where neutral is.

175
00:07:07,640 --> 00:07:08,640
Speaker 6: And I think you understand that.

176
00:07:08,800 --> 00:07:10,920
Speaker 2: Of course, I also want to pick up the difference

177
00:07:10,960 --> 00:07:13,600
Speaker 2: between being an economist and being a policy maker. When

178
00:07:13,600 --> 00:07:15,560
Speaker 2: you say two way risk, I think that really makes

179
00:07:15,640 --> 00:07:18,040
Speaker 2: us all think about speed and the appropriate speed to

180
00:07:18,080 --> 00:07:21,440
Speaker 2: adjust monetary policy when there risk two sided risk. Why

181
00:07:21,480 --> 00:07:23,880
Speaker 2: do you think we should be going this fast this

182
00:07:24,000 --> 00:07:27,200
Speaker 2: year in your mind to cut that aggressively in twenty

183
00:07:27,280 --> 00:07:27,840
Speaker 2: twenty six.

184
00:07:28,280 --> 00:07:30,680
Speaker 3: Sure, so, same thing as I said in the lest

185
00:07:30,720 --> 00:07:33,160
Speaker 3: few times I've been here. We're still materially above neutral

186
00:07:33,160 --> 00:07:35,360
Speaker 3: in my mind, And there's not really a reason to

187
00:07:35,400 --> 00:07:37,600
Speaker 3: be materially above neutral if the labor market isn't a

188
00:07:37,600 --> 00:07:41,920
Speaker 3: weakening path and inflation is underlying inflation's already running close

189
00:07:42,000 --> 00:07:44,200
Speaker 3: store target and on trajectory to hit it. To hit

190
00:07:44,200 --> 00:07:46,280
Speaker 3: the target, there's just not a real reason to be

191
00:07:46,320 --> 00:07:49,600
Speaker 3: so restrictive. And we're running unnecessary risks on the labor

192
00:07:49,600 --> 00:07:52,120
Speaker 3: market by being so restrictive, And so in my mind,

193
00:07:52,240 --> 00:07:54,520
Speaker 3: it's like we're selling options for nothing, and I don't

194
00:07:54,560 --> 00:07:55,680
Speaker 3: see why we're selling those options.

195
00:07:55,760 --> 00:07:58,360
Speaker 2: This just requires such a strong amount of conviction, though

196
00:07:58,440 --> 00:07:59,920
Speaker 2: coming down to the pandemic. I think what we all

197
00:08:00,160 --> 00:08:02,640
Speaker 2: lean was a massive degree of humidity because there were

198
00:08:02,680 --> 00:08:05,720
Speaker 2: so many things that we thought were obvious that actually

199
00:08:05,960 --> 00:08:08,280
Speaker 2: things just turned out to be completely the opposite. And

200
00:08:08,320 --> 00:08:09,920
Speaker 2: I wonder if this year we should have the same

201
00:08:09,960 --> 00:08:12,720
Speaker 2: approach to monetary policy. As a monetary policy official, do

202
00:08:12,760 --> 00:08:14,680
Speaker 2: you have to sit here and say, actually, the prudent

203
00:08:14,680 --> 00:08:16,640
Speaker 2: way to do things is actually to move slowly and

204
00:08:16,680 --> 00:08:18,920
Speaker 2: work things out meeting by meeting, because that's what I

205
00:08:18,920 --> 00:08:21,080
Speaker 2: hear from other members of the committee, And I'm wondering

206
00:08:21,120 --> 00:08:22,800
Speaker 2: why you see things so differently.

207
00:08:23,080 --> 00:08:24,600
Speaker 3: Sure, so, first of all, I'll say that I was

208
00:08:24,640 --> 00:08:27,200
Speaker 3: right about inflation at coming out of the pandemic. And

209
00:08:27,240 --> 00:08:29,080
Speaker 3: if you sort of go back to twenty twenty when

210
00:08:29,080 --> 00:08:30,760
Speaker 3: I was in the Treasury Department, you know, we were

211
00:08:30,840 --> 00:08:33,880
Speaker 3: arguing for a smaller stimulus package because we didn't see

212
00:08:34,120 --> 00:08:36,520
Speaker 3: we didn't see COVID as a similar type of recession

213
00:08:36,559 --> 00:08:39,520
Speaker 3: that we had POSTGFC, post dot com bubble, where you

214
00:08:39,520 --> 00:08:42,959
Speaker 3: had persistently leveraging, dragging on demand that caused the balance

215
00:08:43,000 --> 00:08:46,720
Speaker 3: sheet recession with a persistent, slow, crappy recovery. Right, COVID

216
00:08:46,800 --> 00:08:49,240
Speaker 3: was like a switch turned off. Right people stayed home

217
00:08:49,360 --> 00:08:51,280
Speaker 3: and the switch turned on when they started going out again,

218
00:08:51,320 --> 00:08:52,840
Speaker 3: and so there wasn't going to be a slow recovery.

219
00:08:52,920 --> 00:08:55,880
Speaker 3: And that's why we were pushing for smaller stimulus packages,

220
00:08:56,160 --> 00:08:58,880
Speaker 3: because we didn't think that it narrated that type of package.

221
00:08:58,880 --> 00:09:01,960
Speaker 3: We were concerned about inflation picking up. So I did

222
00:09:01,960 --> 00:09:04,920
Speaker 3: get that. I did get that right, and I do

223
00:09:05,040 --> 00:09:10,280
Speaker 3: understand the value of of being cautions and having humiliating

224
00:09:10,320 --> 00:09:12,560
Speaker 3: these things. I will say my forecast, as I said before,

225
00:09:12,640 --> 00:09:16,080
Speaker 3: is predicated upon shelter inflation, and shelter is a weird

226
00:09:16,120 --> 00:09:19,360
Speaker 3: thing where market rents give us a window into measured

227
00:09:19,440 --> 00:09:22,199
Speaker 3: into the path of measured inflation that's very different than

228
00:09:22,240 --> 00:09:25,840
Speaker 3: other sections of the inflation index. We know that market rents,

229
00:09:25,880 --> 00:09:28,120
Speaker 3: a weighted average of single family and multi family market

230
00:09:28,200 --> 00:09:29,960
Speaker 3: rents have been growing at a one percent rate for

231
00:09:30,000 --> 00:09:32,360
Speaker 3: two years now. We know that average tenant rents have

232
00:09:32,400 --> 00:09:35,200
Speaker 3: caught up to new tenant rents. Right, there are statistically

233
00:09:35,240 --> 00:09:38,240
Speaker 3: mechanical relationships that give you a lot of confidence that

234
00:09:38,320 --> 00:09:40,760
Speaker 3: measured shelter inflation is going to come down a lot. Right.

235
00:09:40,960 --> 00:09:42,800
Speaker 3: You don't have that type of confidence when you're talking

236
00:09:42,800 --> 00:09:44,520
Speaker 3: about goods. I said before, I don't know what's driving

237
00:09:44,559 --> 00:09:47,920
Speaker 3: goods inflation, right, I don't have this this forecast that

238
00:09:47,960 --> 00:09:49,800
Speaker 3: goods inflation is going to is going to come down

239
00:09:49,960 --> 00:09:52,439
Speaker 3: because it's just driven by tariffs that my colleagues seem

240
00:09:52,480 --> 00:09:55,760
Speaker 3: to have. Right. I don't have that type of confidence

241
00:09:55,800 --> 00:09:57,400
Speaker 3: on areas the index that I think are much more

242
00:09:57,440 --> 00:10:01,120
Speaker 3: difficult to understand. Shelter is a mechanic thing from market

243
00:10:01,120 --> 00:10:04,640
Speaker 3: rents to measured inflation, and therefore it's in my mind

244
00:10:04,640 --> 00:10:06,719
Speaker 3: appropriate to have that high degree of confidence. And to

245
00:10:06,840 --> 00:10:09,000
Speaker 3: Leasa's point, where would I be wrong if the market

246
00:10:09,000 --> 00:10:11,360
Speaker 3: rents pick up again? If the market rents pick up,

247
00:10:11,520 --> 00:10:14,520
Speaker 3: then I'm going to say my mechanical pass through from

248
00:10:14,559 --> 00:10:17,760
Speaker 3: market rents into measured shelter inflation is getting invalided, and

249
00:10:17,800 --> 00:10:18,319
Speaker 3: we'll see that.

250
00:10:18,559 --> 00:10:21,079
Speaker 4: Just to hone in a little bit on the housing aspect,

251
00:10:21,120 --> 00:10:23,760
Speaker 4: since that has been a really hot topic, how much

252
00:10:23,800 --> 00:10:26,000
Speaker 4: signal would you take if you did start cutting more

253
00:10:26,040 --> 00:10:28,720
Speaker 4: aggressively at the fetcher reserve and tenure yield rows and

254
00:10:28,760 --> 00:10:31,559
Speaker 4: that actually created an issue for mortgage rates and the

255
00:10:31,640 --> 00:10:33,719
Speaker 4: pass through there. It might actually help with the disinflation,

256
00:10:33,800 --> 00:10:35,959
Speaker 4: but it might as exactly be the outcome that you're

257
00:10:36,000 --> 00:10:36,480
Speaker 4: looking for.

258
00:10:37,160 --> 00:10:39,959
Speaker 3: Yeah, so this is an area where I where I'd

259
00:10:40,000 --> 00:10:42,920
Speaker 3: want to have I'd want to not jump to conclusions

260
00:10:42,920 --> 00:10:44,520
Speaker 3: because I want to sort of try and analyze it

261
00:10:44,640 --> 00:10:46,360
Speaker 3: very carefully and think about what the market is saying,

262
00:10:46,440 --> 00:10:48,559
Speaker 3: think about what the economy is doing. And if it's

263
00:10:48,600 --> 00:10:51,040
Speaker 3: the case that you cut rates and you sort of

264
00:10:51,080 --> 00:10:52,959
Speaker 3: get a burst of activity in some sector of the

265
00:10:52,960 --> 00:10:55,840
Speaker 3: economy that's not housing and that ends up crowding out housing,

266
00:10:56,240 --> 00:10:58,840
Speaker 3: then you know, you wouldn't really mind. You're focused on aggregates,

267
00:10:58,840 --> 00:11:02,800
Speaker 3: You're focused on inflation, very inflation, You're focused on er unemployment. Right.

268
00:11:04,000 --> 00:11:06,760
Speaker 3: If it looks like you cut rates and the bottom

269
00:11:06,760 --> 00:11:09,480
Speaker 3: market is giving you a very clear signal and I'm

270
00:11:09,480 --> 00:11:11,880
Speaker 3: not just talking about like you know, trading behavior for

271
00:11:11,920 --> 00:11:14,560
Speaker 3: a week. I'm talking about a very clear signal over

272
00:11:14,559 --> 00:11:16,160
Speaker 3: the course of a period of time that it's not

273
00:11:16,360 --> 00:11:18,320
Speaker 3: the right move, then I think, yeah, you want to

274
00:11:18,360 --> 00:11:19,880
Speaker 3: you want to take that signal, and you want to

275
00:11:19,880 --> 00:11:21,839
Speaker 3: think about what's the market telling me that I missed?

276
00:11:21,920 --> 00:11:24,360
Speaker 3: Is the market right? Am I wrong? Let me rethink

277
00:11:24,360 --> 00:11:24,880
Speaker 3: my framework.

278
00:11:25,040 --> 00:11:25,760
Speaker 6: You're going to miss this.

279
00:11:26,600 --> 00:11:28,320
Speaker 2: When it's all over, it feels like you're enjoying this

280
00:11:28,559 --> 00:11:29,760
Speaker 2: are you going to miss this when you have to

281
00:11:29,960 --> 00:11:30,840
Speaker 2: leave the Federal Reserve?

282
00:11:32,000 --> 00:11:35,440
Speaker 3: Well, you know, Uh, that's not part of my forecast.

283
00:11:36,160 --> 00:11:37,160
Speaker 6: How are you going to hang around?

284
00:11:37,520 --> 00:11:37,679
Speaker 4: Oh?

285
00:11:37,720 --> 00:11:39,199
Speaker 3: I have no idea. You know, we'll see. I don't

286
00:11:39,240 --> 00:11:40,480
Speaker 3: I don't make personal decisions.

287
00:11:40,679 --> 00:11:43,200
Speaker 6: Okay, you've had nothing at all from anybody.

288
00:11:43,920 --> 00:11:46,280
Speaker 3: Uh, you know, I think that you know, we're very

289
00:11:46,280 --> 00:11:48,600
Speaker 3: clearly now getting into getting into the new year, and

290
00:11:48,640 --> 00:11:50,480
Speaker 3: the president. You know, the President has said in the

291
00:11:50,559 --> 00:11:52,920
Speaker 3: past that he would make announcements as we got there,

292
00:11:53,000 --> 00:11:56,360
Speaker 3: So you know, I imagine we'll be getting some at

293
00:11:56,360 --> 00:11:59,080
Speaker 3: some point. But you know, I don't know. I don't

294
00:11:59,120 --> 00:12:01,280
Speaker 3: know anything about my future, so I would I wouldn't

295
00:12:01,280 --> 00:12:01,600
Speaker 3: mind it.

296
00:12:01,760 --> 00:12:02,400
Speaker 6: Stay with us.

297
00:12:02,720 --> 00:12:15,000
Speaker 2: More Bloomberg surveillance coming up after this. We'll begin this

298
00:12:15,080 --> 00:12:17,480
Speaker 2: hour with stocks continuing to pull back from all time high,

299
00:12:17,480 --> 00:12:21,119
Speaker 2: seemshap of principal asset management seeing upside ahead, writing, widespread

300
00:12:21,120 --> 00:12:26,280
Speaker 2: fiscal stimulus, monetary normalization, accelerating AI driven capex, and adoption

301
00:12:26,360 --> 00:12:29,520
Speaker 2: are all factors that should underpin robust growth. SEEMA joint

302
00:12:29,600 --> 00:12:31,640
Speaker 2: is now for more seeming there they kind of structure

303
00:12:31,640 --> 00:12:34,400
Speaker 2: all big picture stories for the next twelve twenty four

304
00:12:34,400 --> 00:12:37,079
Speaker 2: months or so. Let's talk about the last twelve twenty

305
00:12:37,120 --> 00:12:40,560
Speaker 2: four hours, Seema. We're pushing back on executive pay, on

306
00:12:40,679 --> 00:12:43,440
Speaker 2: capital return. These are things you wouldn't typically associate with

307
00:12:43,480 --> 00:12:46,400
Speaker 2: the United States, certainly wouldn't typically associate them with the

308
00:12:46,440 --> 00:12:49,120
Speaker 2: Republican Party. As you sit there in London and your

309
00:12:49,160 --> 00:12:52,720
Speaker 2: investors think about allocating capital to the United States, does

310
00:12:52,720 --> 00:12:53,400
Speaker 2: it give you pause?

311
00:12:55,800 --> 00:12:58,160
Speaker 7: Well, Hi, John, I think it does to some extent.

312
00:12:58,200 --> 00:13:00,320
Speaker 7: I mean, at any time that you have government into mention,

313
00:13:00,559 --> 00:13:04,120
Speaker 7: it typically does put off investors, obviously by varying amounts.

314
00:13:05,000 --> 00:13:07,320
Speaker 7: There are some things that he said there which I

315
00:13:07,320 --> 00:13:09,760
Speaker 7: think they don't necessarily add up. I mean, in terms

316
00:13:09,760 --> 00:13:13,280
Speaker 7: of putting off investors from corporate housing, you almost need

317
00:13:13,320 --> 00:13:17,440
Speaker 7: them there to encourage greater supply, which would be your

318
00:13:17,440 --> 00:13:20,360
Speaker 7: best way of resolving afordability issues. And then even on

319
00:13:20,360 --> 00:13:22,520
Speaker 7: the defense side, you know, trying to put off the

320
00:13:22,559 --> 00:13:25,520
Speaker 7: investment is hardly going to be conducive to some of

321
00:13:25,559 --> 00:13:28,040
Speaker 7: the things that he's saying. The other thing about this

322
00:13:28,080 --> 00:13:30,120
Speaker 7: as well, is that coming into twenty twenty six, there's

323
00:13:30,120 --> 00:13:31,880
Speaker 7: obviously been a lot of optimism. One of the thing

324
00:13:31,920 --> 00:13:36,840
Speaker 7: that's been non people's assumptions is that policy upheaval volatility

325
00:13:36,920 --> 00:13:38,160
Speaker 7: is going to be a little bit less in what

326
00:13:38,200 --> 00:13:39,960
Speaker 7: we had last year, And of course, as you said,

327
00:13:39,960 --> 00:13:43,359
Speaker 7: the last for the eight hours suggests the exact opposite.

328
00:13:43,480 --> 00:13:46,360
Speaker 7: So I think that there's some things in here which

329
00:13:46,400 --> 00:13:49,320
Speaker 7: may not have immediate impact, but cerddenly from an investor's standpoint,

330
00:13:49,679 --> 00:13:52,360
Speaker 7: this is a moment of pause that maybe twenty twenty

331
00:13:52,400 --> 00:13:54,560
Speaker 7: six is not going to be as smooth as a

332
00:13:54,559 --> 00:13:55,640
Speaker 7: lot of people anticipated.

333
00:13:55,679 --> 00:13:57,920
Speaker 6: Well, let's just reflect on the last twelve months. So

334
00:13:58,040 --> 00:13:59,000
Speaker 6: earnings have been great.

335
00:13:59,360 --> 00:14:02,679
Speaker 2: Payroll growth it's been absolutely terrible, and investors have been

336
00:14:02,679 --> 00:14:04,319
Speaker 2: okay with that because earnings have been great and the

337
00:14:04,360 --> 00:14:06,079
Speaker 2: equity market has been hitting all time highs. At the

338
00:14:06,080 --> 00:14:08,440
Speaker 2: same time, consumer sentiment has been rock bottom. Now, if

339
00:14:08,440 --> 00:14:11,719
Speaker 2: you're a politician, to address the consumer sentiment issues, you

340
00:14:11,800 --> 00:14:13,480
Speaker 2: might have to introduce policies that aren't going to be

341
00:14:13,559 --> 00:14:15,600
Speaker 2: favorable for the kind of things that have driven us

342
00:14:15,600 --> 00:14:17,360
Speaker 2: to all time highs and the equity market, the kind

343
00:14:17,360 --> 00:14:19,240
Speaker 2: of things that are driven a long term bull market

344
00:14:19,560 --> 00:14:21,280
Speaker 2: in the United States. Se I mean, do we have

345
00:14:21,320 --> 00:14:23,120
Speaker 2: to think about those issues a little bit more going

346
00:14:23,160 --> 00:14:25,760
Speaker 2: into the midterms and beyond that for a whole generation

347
00:14:25,800 --> 00:14:27,880
Speaker 2: of individuals that haven't participated in this run up in

348
00:14:27,880 --> 00:14:30,600
Speaker 2: the equity market. They're voting for this stuff and they're

349
00:14:30,640 --> 00:14:32,280
Speaker 2: going to keep voting for this stuff, and it's the

350
00:14:32,360 --> 00:14:34,320
Speaker 2: kind of stuff that's not going to be favorable for

351
00:14:34,440 --> 00:14:35,200
Speaker 2: risk assets.

352
00:14:36,840 --> 00:14:39,120
Speaker 7: It is, I think it's you know, some of those pockets.

353
00:14:39,160 --> 00:14:41,080
Speaker 7: So it's a question of how much does it impact

354
00:14:41,080 --> 00:14:43,360
Speaker 7: the aggregate. So you know, as you said to your point,

355
00:14:43,640 --> 00:14:46,000
Speaker 7: affordability is going to be the buzzword. It has been

356
00:14:46,000 --> 00:14:48,640
Speaker 7: for the last month or two, it's likely to continue.

357
00:14:49,360 --> 00:14:51,320
Speaker 7: How could we see that playing out, Well, there's obviously

358
00:14:51,360 --> 00:14:55,600
Speaker 7: the couple of policies around a dividend. There's also the

359
00:14:55,640 --> 00:14:58,080
Speaker 7: idea about maybe potentially lowering some of the tariffs that

360
00:14:58,080 --> 00:15:01,920
Speaker 7: are impacting some of the lowing hassles the most. Now,

361
00:15:02,200 --> 00:15:04,840
Speaker 7: those things ideally if we think about think that through

362
00:15:04,840 --> 00:15:07,080
Speaker 7: if they can get passed, and that would suggest that

363
00:15:07,160 --> 00:15:10,479
Speaker 7: you could see some upside for consumer discretionary. But ultimately,

364
00:15:10,880 --> 00:15:13,560
Speaker 7: because of the case show, but mainly because the top

365
00:15:13,600 --> 00:15:16,040
Speaker 7: ten percent really do it count thro around half of

366
00:15:16,080 --> 00:15:19,720
Speaker 7: you as consumer spending, it doesn't necessarily move the needle.

367
00:15:19,760 --> 00:15:23,160
Speaker 7: What we want to see is a constructive and can

368
00:15:23,240 --> 00:15:26,520
Speaker 7: back up where Ernie's can continue to do well, and

369
00:15:26,560 --> 00:15:28,680
Speaker 7: it's important that those policies, and at the moment it

370
00:15:28,720 --> 00:15:30,480
Speaker 7: doesn't look like it will be, but it doesn't as

371
00:15:30,520 --> 00:15:33,080
Speaker 7: long as those policies are not going to be impacting

372
00:15:33,080 --> 00:15:35,000
Speaker 7: the Ernie's growth for a lot of these companies that

373
00:15:35,040 --> 00:15:35,760
Speaker 7: we're focusing on.

374
00:15:35,920 --> 00:15:37,360
Speaker 4: This is the reason why I see that so many

375
00:15:37,360 --> 00:15:39,880
Speaker 4: people have looked past some of the volatility and at

376
00:15:39,960 --> 00:15:43,560
Speaker 4: least headlines coming from Washington, DC. There is one aspect

377
00:15:43,560 --> 00:15:47,120
Speaker 4: though that has remained relatively unnoticed, at least with respect

378
00:15:47,160 --> 00:15:49,440
Speaker 4: to bond markets, and that is that you can expect

379
00:15:49,440 --> 00:15:53,480
Speaker 4: an expansion of the fiscal deficit, possibly quite considerably, especially

380
00:15:53,520 --> 00:15:56,200
Speaker 4: if anything even close to what the President is proposing

381
00:15:56,440 --> 00:15:59,680
Speaker 4: relating to the government relating to the military comes to pass.

382
00:16:00,040 --> 00:16:02,000
Speaker 4: Why do you think that's not shaking up fixed income

383
00:16:02,080 --> 00:16:04,160
Speaker 4: markets in any material way.

384
00:16:04,880 --> 00:16:07,080
Speaker 7: Well, I think at the moment, one of the considerations

385
00:16:07,160 --> 00:16:08,920
Speaker 7: is a lot of this won't get past your Congress.

386
00:16:08,920 --> 00:16:12,920
Speaker 7: So there's enough I wouldn't say fiscal discipline or considerable concern,

387
00:16:13,000 --> 00:16:15,440
Speaker 7: but there's enough of a pushback that a lot of

388
00:16:15,440 --> 00:16:16,480
Speaker 7: this won't come to pass.

389
00:16:16,720 --> 00:16:18,360
Speaker 6: But I think that you're absolutely right.

390
00:16:18,280 --> 00:16:19,760
Speaker 7: And saying that this is a key risk. When we're

391
00:16:19,760 --> 00:16:22,440
Speaker 7: looking at the acuity market, we feel pretty positive about

392
00:16:22,440 --> 00:16:25,600
Speaker 7: the macro backdrop and earnings. The one caveat to this

393
00:16:25,720 --> 00:16:28,960
Speaker 7: so or is that bond deals have to stay fairly

394
00:16:28,960 --> 00:16:32,400
Speaker 7: well behaved. You cannot see a very significant sell off

395
00:16:33,120 --> 00:16:35,360
Speaker 7: against this backdrop. I mean, ultimately for this year, what

396
00:16:35,400 --> 00:16:38,240
Speaker 7: we're expecting is that earnings or is it equity returns

397
00:16:38,600 --> 00:16:40,800
Speaker 7: won't be driven by multiple expansions. They have to come

398
00:16:40,800 --> 00:16:44,640
Speaker 7: from earnings, and any significant increase in interest rates bond

399
00:16:44,680 --> 00:16:49,240
Speaker 7: deals could be a real hurdle for the expectations of

400
00:16:50,000 --> 00:16:52,000
Speaker 7: I guess low double digit returns that we have.

401
00:16:52,400 --> 00:16:53,440
Speaker 1: Well, I guess to build on that.

402
00:16:53,720 --> 00:16:56,240
Speaker 4: We've just seen the fastest start to a year for

403
00:16:56,320 --> 00:16:59,520
Speaker 4: corporate and government bond issue is ever. We have seen

404
00:16:59,720 --> 00:17:02,760
Speaker 4: two one hundred and sixty billion dollars worth of sales

405
00:17:02,920 --> 00:17:05,360
Speaker 4: from these entities over just the first few trading days.

406
00:17:05,400 --> 00:17:06,920
Speaker 1: And I just wonder at what point you start to get.

407
00:17:06,840 --> 00:17:09,959
Speaker 4: Real pushback from debt markets that are saying, what are

408
00:17:10,000 --> 00:17:12,240
Speaker 4: we funding exactly? Is there sort of a blank check

409
00:17:12,280 --> 00:17:15,919
Speaker 4: that we're offering to governments and corporations to just build

410
00:17:16,240 --> 00:17:16,840
Speaker 4: to nowhere?

411
00:17:18,200 --> 00:17:20,159
Speaker 7: You know, coming into twenty twenty. See, if I think

412
00:17:20,160 --> 00:17:22,960
Speaker 7: everyone's you know, concerned about the debtload doesn't have been

413
00:17:23,320 --> 00:17:25,800
Speaker 7: so many many years, and the assumption has been that

414
00:17:25,880 --> 00:17:27,600
Speaker 7: twenty twenty six is not the year when this is

415
00:17:27,640 --> 00:17:28,800
Speaker 7: going to come to a head.

416
00:17:29,359 --> 00:17:30,639
Speaker 6: As long as the macro is.

417
00:17:30,640 --> 00:17:32,919
Speaker 7: Okay, as long as the economy is doing okay the

418
00:17:33,000 --> 00:17:35,720
Speaker 7: fairdest cutting rates, then this is something the issues is

419
00:17:35,720 --> 00:17:39,040
Speaker 7: something that companies can continue to absorb. But of course

420
00:17:39,080 --> 00:17:40,560
Speaker 7: there is a time limit to that. Now we don't

421
00:17:40,600 --> 00:17:42,760
Speaker 7: know when that's going to be. But at least just

422
00:17:42,800 --> 00:17:46,760
Speaker 7: looking at the economics behind everything which is driving the market,

423
00:17:46,880 --> 00:17:50,119
Speaker 7: we do feel fairly sanguine about that. We're hoping it's

424
00:17:50,119 --> 00:17:52,280
Speaker 7: a twenty twenty seven story, not a twenty sixth story.

425
00:17:52,800 --> 00:17:54,720
Speaker 5: As a global strategy, when you see what the president

426
00:17:54,760 --> 00:17:58,000
Speaker 5: is doing, the state intervention really in full swing when

427
00:17:58,040 --> 00:18:00,960
Speaker 5: it comes to the United States right now. Do you

428
00:18:01,040 --> 00:18:06,199
Speaker 5: expect this to be a theme this year for more industries,

429
00:18:06,359 --> 00:18:10,120
Speaker 5: not just ones that are critical for national security?

430
00:18:10,840 --> 00:18:13,360
Speaker 7: Well, I think that interventionist is as you said, it's

431
00:18:13,400 --> 00:18:16,080
Speaker 7: not just it potentially isn't about just national security. I think,

432
00:18:16,119 --> 00:18:18,400
Speaker 7: as I said before, I think affordability is really key,

433
00:18:19,040 --> 00:18:22,240
Speaker 7: which is why we're hearing so much about housing. Maybe

434
00:18:22,320 --> 00:18:25,359
Speaker 7: intervention in or at least pushing back from companies ort

435
00:18:25,400 --> 00:18:28,720
Speaker 7: least stopping them from passing on some of the tap increases.

436
00:18:28,880 --> 00:18:31,200
Speaker 7: I think those are all things that we could anticipate

437
00:18:31,880 --> 00:18:34,800
Speaker 7: for twenty twenty six, and I think as an Internet

438
00:18:34,840 --> 00:18:36,800
Speaker 7: for investor, one of the things that we do here

439
00:18:36,800 --> 00:18:40,399
Speaker 7: in Europe and across Asia is these concerns about the

440
00:18:40,480 --> 00:18:42,320
Speaker 7: US outlook. Is one of the reasons why you are

441
00:18:42,359 --> 00:18:46,200
Speaker 7: seeing this global diversification trade just gaining more and more momentum.

442
00:18:46,359 --> 00:18:48,480
Speaker 7: People really starting to look outside of the US and

443
00:18:48,480 --> 00:18:51,680
Speaker 7: also recognizing the fundamental strengths that exist in other countries.

444
00:18:52,359 --> 00:18:53,800
Speaker 6: I don't think that we're looking.

445
00:18:53,680 --> 00:18:57,240
Speaker 7: At a kind of a flood of movement away from

446
00:18:57,240 --> 00:18:59,399
Speaker 7: the US, but I think it does just add to

447
00:18:59,440 --> 00:19:01,000
Speaker 7: the attractiveness for other markets.

448
00:19:01,280 --> 00:19:03,480
Speaker 5: How seriously do you take some of the President's statements,

449
00:19:03,480 --> 00:19:05,760
Speaker 5: because I'm thinking of just housing itself. He even said

450
00:19:05,800 --> 00:19:09,120
Speaker 5: I will call on Congress to codify it. This has

451
00:19:09,160 --> 00:19:11,920
Speaker 5: to be legislation that goes through the House of Representatives

452
00:19:12,119 --> 00:19:14,240
Speaker 5: and the Senate, not policy by truth.

453
00:19:15,600 --> 00:19:17,520
Speaker 7: Yeah, you don't have to take everything with a pinch

454
00:19:17,560 --> 00:19:19,240
Speaker 7: of sol and I think the reason that we're not

455
00:19:19,240 --> 00:19:21,639
Speaker 7: seeing the bond market react is because there is this

456
00:19:21,720 --> 00:19:23,480
Speaker 7: belief that it's not going to get through Congress. So

457
00:19:23,520 --> 00:19:25,840
Speaker 7: these are very popular words. Some of it, Inepoli, I

458
00:19:25,840 --> 00:19:29,639
Speaker 7: think will trickle through, but we're not expecting an avalanche

459
00:19:29,680 --> 00:19:33,480
Speaker 7: of policy moves, but a lot of policy rettroc should

460
00:19:33,480 --> 00:19:34,920
Speaker 7: be expected ahead of the midterms.

461
00:19:35,080 --> 00:19:38,600
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.

462
00:19:47,880 --> 00:19:50,679
Speaker 2: The polit Global Management president Jim soeuter right in the

463
00:19:50,680 --> 00:19:54,480
Speaker 2: following twenty six US outlook is consistent with a stagflation

464
00:19:54,560 --> 00:19:57,439
Speaker 2: re environment, and we expect interest rates to be higher

465
00:19:57,600 --> 00:19:58,119
Speaker 2: for longer.

466
00:19:58,320 --> 00:20:00,640
Speaker 6: Jim joins US now for more. Jim go Mornic, Good morning, John.

467
00:20:00,640 --> 00:20:01,240
Speaker 3: How are you happy.

468
00:20:01,240 --> 00:20:02,439
Speaker 6: I'm well, it's good to see you.

469
00:20:02,480 --> 00:20:03,879
Speaker 2: I want to pick up on this headline from our

470
00:20:03,880 --> 00:20:06,719
Speaker 2: friends over the ft in the last month, Apollo's cutting

471
00:20:06,800 --> 00:20:08,520
Speaker 2: risk and still piling cash.

472
00:20:09,040 --> 00:20:11,240
Speaker 6: Is that true? What do you guys have to well?

473
00:20:11,640 --> 00:20:13,760
Speaker 8: I would say that we've always been known as a

474
00:20:13,800 --> 00:20:16,639
Speaker 8: discipline investor. We talk about purchase price matter as we

475
00:20:16,680 --> 00:20:20,199
Speaker 8: talk about alignment with our investors, and I think that

476
00:20:20,680 --> 00:20:23,840
Speaker 8: what that statement is is really about the gauntlet for

477
00:20:24,000 --> 00:20:27,280
Speaker 8: approving investments that Apollo has gotten higher and higher over

478
00:20:27,280 --> 00:20:30,160
Speaker 8: the last year or so. As we see an environment

479
00:20:30,280 --> 00:20:32,960
Speaker 8: that down the fairwee I'll use a golf analogy. Down

480
00:20:33,040 --> 00:20:34,959
Speaker 8: the fairway, you've got a lot of great things going on,

481
00:20:35,880 --> 00:20:39,320
Speaker 8: you know, massive capex cycle, good economic growth, consumer and

482
00:20:39,400 --> 00:20:44,280
Speaker 8: solid shape, a variety of great attributes. That being said,

483
00:20:44,840 --> 00:20:49,480
Speaker 8: the rough where there's lots of challenges between geopolitics, between

484
00:20:49,520 --> 00:20:53,200
Speaker 8: the concern about inflation, between the concern about the return

485
00:20:53,320 --> 00:20:58,479
Speaker 8: of invested capital and AI there's a variety of left

486
00:20:58,520 --> 00:21:03,840
Speaker 8: hail items that have certain grown in stature. As I

487
00:21:03,880 --> 00:21:06,800
Speaker 8: listened to some of the macro commentary here, I think

488
00:21:06,840 --> 00:21:09,920
Speaker 8: there's a great deal of humility about the macro view

489
00:21:10,000 --> 00:21:12,480
Speaker 8: of how the predictions. As I meant, I've said here

490
00:21:12,480 --> 00:21:15,520
Speaker 8: many times. We sat here after SVB, we all thought

491
00:21:15,760 --> 00:21:20,600
Speaker 8: massive capital slow down and spending and credit crisis. The

492
00:21:20,760 --> 00:21:25,080
Speaker 8: US economy really was massively resilient. You guys talked earlier

493
00:21:25,080 --> 00:21:28,160
Speaker 8: about what's going on with the deficit. I think it's

494
00:21:28,160 --> 00:21:30,680
Speaker 8: a little bit it's the economy stupid. The US economy.

495
00:21:30,720 --> 00:21:33,399
Speaker 8: People just don't want to shorten the great momentum of

496
00:21:33,440 --> 00:21:37,640
Speaker 8: what's going on, and we have an administration. It's very

497
00:21:37,680 --> 00:21:41,879
Speaker 8: politically savvy about populist topics. He's been very responsive. But

498
00:21:42,240 --> 00:21:44,640
Speaker 8: again this back to us, back to the question you had.

499
00:21:44,880 --> 00:21:47,120
Speaker 3: We're putting money to work. This week was a busy week.

500
00:21:47,160 --> 00:21:52,600
Speaker 8: We announced six billion of deals of transactions, all great companies. Again,

501
00:21:52,680 --> 00:21:55,119
Speaker 8: we're leaning into larger companies that are part of the

502
00:21:55,160 --> 00:21:59,560
Speaker 8: global industrial renaissance. One with that Brad Jacobs of forty

503
00:21:59,560 --> 00:22:02,119
Speaker 8: to thirty five year winner in the building product space.

504
00:22:03,040 --> 00:22:06,960
Speaker 8: The second one with Russell Investments really simplifying their capital structure.

505
00:22:07,400 --> 00:22:10,040
Speaker 8: And then the last transaction was very interesting. Actually it

506
00:22:10,160 --> 00:22:13,640
Speaker 8: was for veilor Xai. It was really a sale lease

507
00:22:13,760 --> 00:22:19,600
Speaker 8: back on a massive amount five billion of Nvidia chips.

508
00:22:19,680 --> 00:22:23,600
Speaker 8: So all three really interesting transactions, but really well structured

509
00:22:24,000 --> 00:22:26,520
Speaker 8: downside risk, and I think that's our view right now.

510
00:22:26,560 --> 00:22:29,480
Speaker 8: We want to be investing capital. But you've got to

511
00:22:29,560 --> 00:22:32,359
Speaker 8: acknowledge you can wake up on a Saturday morning and

512
00:22:32,400 --> 00:22:36,840
Speaker 8: see us with activities around the globe that really enhances

513
00:22:36,880 --> 00:22:40,800
Speaker 8: the tail risk of geopolitics. You can get a stroke

514
00:22:40,840 --> 00:22:43,879
Speaker 8: of the pen announcement yesterday with regard to housing, and

515
00:22:43,960 --> 00:22:46,120
Speaker 8: so I think you have to be very very careful

516
00:22:46,160 --> 00:22:48,760
Speaker 8: about how you invest long term at scale.

517
00:22:49,040 --> 00:22:51,200
Speaker 2: To extend the analogy, though, to your point, the fair

518
00:22:51,240 --> 00:22:54,359
Speaker 2: way is getting narrower, the rough is getting deeper. In

519
00:22:54,400 --> 00:22:55,840
Speaker 2: the last few years it has not been that way.

520
00:22:55,880 --> 00:22:58,000
Speaker 2: Allocate to risk and you'll perform. You'll do well world.

521
00:22:58,000 --> 00:23:00,520
Speaker 2: It's like a tougher environment. The analogy for golf. For

522
00:23:00,560 --> 00:23:02,480
Speaker 2: those who play a lot of golf, it's worth the

523
00:23:02,600 --> 00:23:05,600
Speaker 2: US Open. US Open is known for tight fairways and

524
00:23:05,680 --> 00:23:09,240
Speaker 2: really punitive rough and if you cape in the faaraway,

525
00:23:09,320 --> 00:23:10,960
Speaker 2: you're going to be a great victor and you're going

526
00:23:11,000 --> 00:23:13,960
Speaker 2: to have great success. I think there's going to be

527
00:23:14,080 --> 00:23:16,720
Speaker 2: as last year will remind us you can have some

528
00:23:16,840 --> 00:23:18,840
Speaker 2: bumps in the road during the course of the year.

529
00:23:19,400 --> 00:23:22,840
Speaker 2: That definitely changed the trajectory on liquidity, on momentum, on

530
00:23:22,960 --> 00:23:26,240
Speaker 2: risk appetite. So but I think the long term trend

531
00:23:26,240 --> 00:23:29,679
Speaker 2: is quite positive. But I do think you have to

532
00:23:29,720 --> 00:23:32,160
Speaker 2: be very measured about how you execute your business model.

533
00:23:32,400 --> 00:23:35,439
Speaker 4: So if that's the US Cup, do you go to

534
00:23:35,680 --> 00:23:36,840
Speaker 4: the Ryder Cup just.

535
00:23:39,240 --> 00:23:40,960
Speaker 1: You know, I mean the idea, do you stand your

536
00:23:41,640 --> 00:23:43,920
Speaker 1: I google that evidently I bombed it on it.

537
00:23:43,960 --> 00:23:46,440
Speaker 4: I'm curious if you go overseas, you know, because to

538
00:23:46,480 --> 00:23:47,879
Speaker 4: differs fy away from the United States.

539
00:23:47,960 --> 00:23:50,320
Speaker 8: We've been We've been i would say two account that

540
00:23:50,400 --> 00:23:52,600
Speaker 8: we've been very vocal and I've been vocaling on this

541
00:23:52,680 --> 00:23:55,720
Speaker 8: program about Europe. You know, we we when you look

542
00:23:55,800 --> 00:24:01,359
Speaker 8: at the needs of governments around the globe, especially in Europe,

543
00:24:01,359 --> 00:24:03,960
Speaker 8: in Germany in particular, and some more so in the UK,

544
00:24:04,840 --> 00:24:09,600
Speaker 8: the government does demand for capital far aways their ability

545
00:24:09,600 --> 00:24:12,080
Speaker 8: to participate, and so we want to be part of

546
00:24:12,080 --> 00:24:14,840
Speaker 8: that renaissance and that part of the globe in places

547
00:24:15,359 --> 00:24:17,720
Speaker 8: like Japan and Australia. We want to be part of

548
00:24:17,800 --> 00:24:21,760
Speaker 8: the retirement solutions and some of the global industrial renaissance

549
00:24:21,840 --> 00:24:27,560
Speaker 8: with a changing banking system. We're not a broadly speaking,

550
00:24:28,200 --> 00:24:32,159
Speaker 8: a developing an emerging markets investor. So while we have

551
00:24:32,200 --> 00:24:35,320
Speaker 8: a view on what's going on in Latin America today,

552
00:24:35,800 --> 00:24:38,639
Speaker 8: that's a negligible part of our capital. That's just not

553
00:24:38,720 --> 00:24:42,439
Speaker 8: what we do. We're really a G seven and larger

554
00:24:42,480 --> 00:24:43,480
Speaker 8: economy investor.

555
00:24:43,640 --> 00:24:45,760
Speaker 4: So you were talking about how you're getting more conservative.

556
00:24:46,600 --> 00:24:49,439
Speaker 4: Corporations and governments are attacking the market at a record

557
00:24:49,440 --> 00:24:52,520
Speaker 4: pace so far this year, about two hundred and sixty

558
00:24:52,640 --> 00:24:55,560
Speaker 4: billion dollars of bond issuance from governments and corporations around

559
00:24:55,560 --> 00:24:58,240
Speaker 4: the world have been issued the fastest pace ever. Is

560
00:24:58,280 --> 00:25:01,320
Speaker 4: this because there is a lot of optimism out there

561
00:25:01,400 --> 00:25:03,800
Speaker 4: or is this because they see a small window that

562
00:25:03,880 --> 00:25:05,360
Speaker 4: could close and they want to get in.

563
00:25:05,760 --> 00:25:07,200
Speaker 8: I don't think it's a small when when you look

564
00:25:07,200 --> 00:25:08,879
Speaker 8: at the numbers that have been put out by the

565
00:25:08,960 --> 00:25:12,840
Speaker 8: large financial institutions, the big banks about net issuance in

566
00:25:12,920 --> 00:25:16,520
Speaker 8: the IG market, it's north of like it's anywhere from

567
00:25:16,520 --> 00:25:19,880
Speaker 8: eight hundred billion to a trillion two net issuance, which

568
00:25:19,920 --> 00:25:21,800
Speaker 8: is one of the largest numbers in the last ten

569
00:25:21,840 --> 00:25:24,480
Speaker 8: to fifteen years. Same can be said in the high

570
00:25:24,520 --> 00:25:27,720
Speaker 8: yield and the leverage loan market, the net issuance is

571
00:25:27,760 --> 00:25:30,840
Speaker 8: going to be quite high. So with real rates and

572
00:25:30,880 --> 00:25:34,679
Speaker 8: real yields fairly high in a historic basis, with a

573
00:25:34,800 --> 00:25:39,040
Speaker 8: variety of pensioners and investors around the globe looking for

574
00:25:39,119 --> 00:25:42,800
Speaker 8: long duration yield, it's a pretty powerful mix of supply

575
00:25:42,880 --> 00:25:47,399
Speaker 8: and demand in terms of taking that overhang, if you will.

576
00:25:47,600 --> 00:25:50,280
Speaker 8: I think one of the big questions is does the

577
00:25:50,400 --> 00:25:55,199
Speaker 8: equity New issue IPO calendar actually come to fruition. And

578
00:25:55,240 --> 00:25:57,680
Speaker 8: the second thing that people aren't talking about is where

579
00:25:57,760 --> 00:26:02,040
Speaker 8: oil is right now. It's very deflationary if it were

580
00:26:02,080 --> 00:26:04,920
Speaker 8: to stay at these levels or even go lower. Again,

581
00:26:04,960 --> 00:26:07,040
Speaker 8: we're talking about all the things that can go wrong.

582
00:26:07,640 --> 00:26:09,560
Speaker 8: I'm a credit guy. You know, bonds don't go to

583
00:26:09,600 --> 00:26:13,520
Speaker 8: two hundred, they go to zero. I'm cautious by definition,

584
00:26:14,119 --> 00:26:17,760
Speaker 8: but you know, in oil at these levels on WTI

585
00:26:17,920 --> 00:26:21,760
Speaker 8: at fifty six fifty seven, and that's very deflationary and

586
00:26:21,960 --> 00:26:25,040
Speaker 8: very positive for economic growth. So you know, again, I

587
00:26:25,119 --> 00:26:28,399
Speaker 8: think that there's a variety of balancing acts here going on.

588
00:26:28,600 --> 00:26:31,840
Speaker 8: But you know, to John's first question, I would say

589
00:26:31,840 --> 00:26:35,679
Speaker 8: that we think that there's a variety of issues that

590
00:26:35,720 --> 00:26:37,520
Speaker 8: one needs to deal with, but at the same time,

591
00:26:37,600 --> 00:26:40,560
Speaker 8: you want to be putting money to work in large scale. Now,

592
00:26:40,800 --> 00:26:43,119
Speaker 8: if you look at the traditional high yield market, the

593
00:26:43,160 --> 00:26:46,959
Speaker 8: triple CLBO buyout, that activity is just not happening in

594
00:26:46,960 --> 00:26:51,200
Speaker 8: scale anymore. It's being funded in private credit, which I'm

595
00:26:51,240 --> 00:26:53,280
Speaker 8: sure we'll talk about because of our big white paper

596
00:26:53,320 --> 00:26:55,840
Speaker 8: in December. But at the end of the day, it's

597
00:26:55,920 --> 00:26:59,359
Speaker 8: really about credit and the ability for this IPO calendar

598
00:26:59,440 --> 00:26:59,879
Speaker 8: to come to.

599
00:27:00,000 --> 00:27:01,439
Speaker 2: We're shield on some of this gym because I can

600
00:27:01,440 --> 00:27:03,680
Speaker 2: tell you sort of openly and honestly what I've struggled

601
00:27:03,680 --> 00:27:05,560
Speaker 2: with I don't know what to look at anymore.

602
00:27:05,880 --> 00:27:07,320
Speaker 6: Payrolls has been a bit of a head fake.

603
00:27:07,400 --> 00:27:09,719
Speaker 2: In the last twelve months, we've seen a real deceleration

604
00:27:09,720 --> 00:27:11,480
Speaker 2: in payrolls growth, but it's not been relevant to the

605
00:27:11,480 --> 00:27:14,040
Speaker 2: performance of risk ansets more broadly, something that you and

606
00:27:14,040 --> 00:27:16,040
Speaker 2: the team have talked about for a number of years now.

607
00:27:16,280 --> 00:27:18,919
Speaker 2: When we saw interest rates go to four pushing five percent,

608
00:27:19,440 --> 00:27:20,879
Speaker 2: Lisa and I were talking about this for the best

609
00:27:20,920 --> 00:27:22,880
Speaker 2: part of twelve months. How on earth is this economy

610
00:27:22,880 --> 00:27:24,920
Speaker 2: going to deal with four to five percent interest rates?

611
00:27:24,960 --> 00:27:27,879
Speaker 2: And we dealt with that just about Okay, what should

612
00:27:27,920 --> 00:27:28,399
Speaker 2: we be focused?

613
00:27:28,920 --> 00:27:31,520
Speaker 8: I think, you know, I think to answer that question,

614
00:27:32,160 --> 00:27:36,440
Speaker 8: it's really we talk about the changing backdrop of market structure.

615
00:27:36,880 --> 00:27:40,959
Speaker 8: The reality is in the US today, it's been an

616
00:27:40,960 --> 00:27:44,800
Speaker 8: extended credit cycle. It's harder to have a real economic

617
00:27:44,880 --> 00:27:49,200
Speaker 8: recession because of the diversity of funding across the board.

618
00:27:49,520 --> 00:27:52,320
Speaker 8: We have the healthiest banks and the globe. We have

619
00:27:52,440 --> 00:27:56,240
Speaker 8: a securitization market that's alive and well in record size

620
00:27:56,280 --> 00:27:59,840
Speaker 8: of issuance. That disperses a lot of risk around the economy.

621
00:28:00,000 --> 00:28:02,840
Speaker 8: In terms of balance sheets, you have a consumer in

622
00:28:02,880 --> 00:28:05,320
Speaker 8: pretty good shape. You have a housing market where forty

623
00:28:05,320 --> 00:28:08,520
Speaker 8: percent of folks don't have a mortgage. I'm not saying

624
00:28:08,560 --> 00:28:10,400
Speaker 8: we're not going to have an economic cycle. We will

625
00:28:10,400 --> 00:28:13,119
Speaker 8: have an economic cycle, we will have a credit cycle.

626
00:28:13,680 --> 00:28:17,320
Speaker 8: But if the post SVB environment is any lesson to

627
00:28:17,400 --> 00:28:21,359
Speaker 8: us all because of the advances and the evolution of

628
00:28:21,400 --> 00:28:24,800
Speaker 8: the US economy since the GFC, it's a lot harder

629
00:28:25,119 --> 00:28:27,919
Speaker 8: to push over this machine than it had been in

630
00:28:27,960 --> 00:28:31,880
Speaker 8: the past. The transmission mechanism of the FED that used

631
00:28:31,920 --> 00:28:34,720
Speaker 8: to be instantaneous is not what it used to be.

632
00:28:35,119 --> 00:28:36,960
Speaker 8: We saw it in the last two years with housing

633
00:28:37,000 --> 00:28:40,120
Speaker 8: in the US because of the thirty year mortgage concept

634
00:28:40,240 --> 00:28:42,920
Speaker 8: or the lack of a mortgage versus countries like the

635
00:28:43,040 --> 00:28:45,600
Speaker 8: UK where most folks are on a five or seven

636
00:28:45,680 --> 00:28:48,840
Speaker 8: year floating rate mortgage. That has an immediate impact on

637
00:28:48,920 --> 00:28:51,640
Speaker 8: the breaks of the consumer and the economy, not the

638
00:28:51,680 --> 00:28:55,360
Speaker 8: case in the US. So the strength, the breadth of

639
00:28:55,560 --> 00:29:00,040
Speaker 8: market structure, how companies finance, the role of banking, the

640
00:29:00,040 --> 00:29:03,920
Speaker 8: ability for FED, the FED to actually have that transmission

641
00:29:03,920 --> 00:29:06,720
Speaker 8: mechanism of raising rais and slung the economy down.

642
00:29:07,120 --> 00:29:09,000
Speaker 3: It's not what it used to be. It's not your

643
00:29:09,040 --> 00:29:10,000
Speaker 3: father's economists.

644
00:29:10,560 --> 00:29:14,080
Speaker 2: This is the Bloomberg Survendance podcast, bringing you the best

645
00:29:14,160 --> 00:29:17,480
Speaker 2: in markets, economics, antient politics. You can watch the show

646
00:29:17,520 --> 00:29:20,480
Speaker 2: live on Bloomberg TV weekday mornings from six am to

647
00:29:20,600 --> 00:29:24,360
Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify,

648
00:29:24,520 --> 00:29:26,720
Speaker 2: or anywhere else you listen, and, as always, on the

649
00:29:26,760 --> 00:29:29,120
Speaker 2: Bloomberg Terminal and The Bloomberg Business Out