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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Lisa A.

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Speaker 2: Bromoids, along with Tom Keen and Jonathan Ferrell, join us

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Speaker 2: each day for insight from the best in economics, geopolitics,

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Speaker 2: finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand.

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Speaker 2: On Apple, Spotify and anywhere you get your podcasts, and

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Speaker 2: always on Bloomberg dot Com, the Bloomberg Terminal, and the

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Speaker 2: Bloomberg Business App.

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Speaker 3: Joining us around a table here in the studio, Stuart

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Speaker 3: Kayes at ahead of US Secrety trading strategy over a city.

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Speaker 3: Good morning, Stewart, Good morning. How long can Goldilocks last?

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Speaker 3: Hsb's question, not mine, HSBC just asking that question seconds ago.

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Speaker 3: They say, continued disinflation and stronger than expected growth in

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Speaker 3: many DMS argues for a continued risk on stance, does it?

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Speaker 4: I think in general with those I think, you know,

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Speaker 4: a big picture. If the labor market in the US

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Speaker 4: remains strong and course CPI continues to ease, I think

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Speaker 4: that's a good backdrop, you know, for risk assets. I

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Speaker 4: think the issue we're having now is frankly, expectations. You know,

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Speaker 4: if you look at what's happened over the last month,

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Speaker 4: you had a reasonably solid earning season, but the average

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Speaker 4: stock that b EPs was unchanged on the day. You had,

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Speaker 4: you know, a solid payrolls report, the market traded off.

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Speaker 4: You had an easy inflation print, and the market was flat.

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Speaker 4: So yeah, I mean, there's a lot of good news

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Speaker 4: out there, but the market I think has become a

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Speaker 4: little callous to it, which is kind of not good

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Speaker 4: for risk reward.

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Speaker 3: In review, Michael harn had talked about this Lisa over

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Speaker 3: at BFVA and the fund manager survey. Their line was

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Speaker 3: basically bear positioning was strong tail went for risk assets

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Speaker 3: in the first half, not the case in the second half.

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Speaker 3: Their fund manager survey. You mentioned it yesterday at least

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Speaker 3: bearish since February of last year.

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Speaker 2: Yeah, cash allocations coming down, and we heard that to

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Speaker 2: start the show.

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Speaker 1: Basically, take the cash.

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Speaker 2: You might as well put it into risk, because why not,

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Speaker 2: you might as well get the upside surprise if the

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Speaker 2: economy is strong.

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Speaker 3: You put it into tech. At the start of the year,

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Speaker 3: you did do it, and the other people didn't. There

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Speaker 3: was that pool of negativity to feed on to drive

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Speaker 3: tech higher. After a brutal year in twenty twenty two,

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Speaker 3: are you sticking with that trade.

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Speaker 4: You know, it's a tough call right here. I think yes,

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Speaker 4: as a base case, we still like tech and growth.

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Speaker 4: We still think that can work because we do ultimately

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Speaker 4: expect you know, the labor market data to begin to weekend,

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Speaker 4: and I think in that environment, that's kind of where

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Speaker 4: you want to sit. Obviously, the last month has been

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Speaker 4: pretty tough for that trade, particularly because yields have risen,

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Speaker 4: you know, pretty sharply, and that's impacted tech I think

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Speaker 4: more than other sectors. And also this expectation story. If

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Speaker 4: you're worried about high expectations, you know, that's clearly very

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Speaker 4: acute in the tech space. So I think you are

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Speaker 4: fighting expectations, you're fighting performance, and right now you're fighting

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Speaker 4: higher yields. But if you do think economy can weaken

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Speaker 4: and that should hopefully put a cap on yields, that

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Speaker 4: I think tech is a place that you want to

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Speaker 4: be in that case. But certainly the past month has

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Speaker 4: been been a tough ride for us.

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Speaker 2: Can we just talk about quickly just pause cash on

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Speaker 2: the sidelines. This is sort of the misnomer that everyone

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Speaker 2: keeps talking about, Oh, there's so much cash in the sidelines.

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Speaker 2: All these people who aren't invested. Cash is great for

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Speaker 2: some people if they're earning five percent. So at what

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Speaker 2: point can we say the cash in the sidelines has

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Speaker 2: been used up?

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Speaker 4: I think it's a great question. If you look at

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Speaker 4: retail money market balances, those are up six hundred billion

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Speaker 4: dollars since April of last year. Six hundred billion is

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Speaker 4: a big number, right, you know, But to your point,

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Speaker 4: you're you're equipping a five percent coupon on that, and

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Speaker 4: clearly not all of that six hundred will go into cash.

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Speaker 4: A lot of that's probably come out of traditional bank

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Speaker 4: accounts and got into money market funds to get that yield.

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Speaker 4: So I think the question is to release that money.

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Speaker 4: What has to happen, right, Either you need to get

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Speaker 4: yields lower so that five percent isn't as attractive, or

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Speaker 4: you need to have equities continue to perform the way

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Speaker 4: they are and you get sort of a fomo you

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Speaker 4: know situation on the equity side. It does feel like

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Speaker 4: equities are topping out a little bit, so I think

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Speaker 4: I think it's going to be hard to dislodge that money.

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Speaker 2: To the sentiment point, at what point do losses become

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Speaker 2: self fulfilling? At what point do losses spur a question

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Speaker 2: to this whole goldilocks to John's point and FOMO feel

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Speaker 2: that we were hearing about for the past couple of months.

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Speaker 4: Look, I mean, if equities start to move a little

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Speaker 4: bit lower, yeah, that's going to a dense sentiment. I

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Speaker 4: don't think there's any way around that. You know, tech

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Speaker 4: has performed Polard, but frankly, the SMP isn't that far

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Speaker 4: off off its high. So, you know, it's interesting last year,

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Speaker 4: in a high volatility environment, the moves we've seen recently

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Speaker 4: would have not you know, not really registered, right. But

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Speaker 4: July was the lowest realized volatility months that we've seen

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Speaker 4: since December of twenty nineteen. So you get into August,

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Speaker 4: you get at a little bit of a blip and

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Speaker 4: it feels I think a little more painful. But yeah,

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Speaker 4: I think you know, one of the things we were

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Speaker 4: a little bit worried about is, you know, a lot

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Speaker 4: of folks were very defensive and hedging earlier in the year.

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Speaker 4: That hedging did not work out. It cost a lot

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Speaker 4: of money in terms of premium paid. The market is

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Speaker 4: probably less well hedged today, you know, than it was

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Speaker 4: probably three months ago. So to your point, there if

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Speaker 4: we do get some losses, the market is going to

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Speaker 4: be a little more surprised by it, or probably a

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Speaker 4: little more disrupted by it than it might have been

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Speaker 4: earlier this year.

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Speaker 3: Let's finish on where the negativity is now. It's in China.

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Speaker 3: Everybody that comes on this show is so downbeat on

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Speaker 3: what's happening in the country at the moment. The dates

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Speaker 3: is bad. The date that you can see, you're not

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Speaker 3: going to see much more of it on the youth

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Speaker 3: unemployment side. I've got no idea when that changes. The

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Speaker 3: data this week basically led to a policy response by

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Speaker 3: the Chinese central banks cut rates by the most I

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Speaker 3: think since twenty twenty. This is typically the time to

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Speaker 3: lean in, to lean into Chinese equities. When people are

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Speaker 3: so down beat on what's happening, there is this that

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Speaker 3: time you.

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Speaker 4: Know, we're not there yet, you know, I think I think,

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Speaker 4: at least me personally, you know, we're pretty co on China.

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Speaker 4: But like I think, there's three aspects of the China story.

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Speaker 4: There's two weeks ago, everybody was celebrating China's exporting deflation.

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Speaker 4: This is going to help the FED, right, But that

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Speaker 4: sort of ignored the flip side of it, which is

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Speaker 4: you're losing a global growth impulse. This week, the discussion

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Speaker 4: is much more about the growth side and to what

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Speaker 4: you were discussing earlier, which is a sentiment issue. And

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Speaker 4: I think the sentiment issue, frankly, is what's going to

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Speaker 4: keep people out a little bit. You know, foreign investors.

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Speaker 4: I think we're we're not happy with how they were

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Speaker 4: treated by China over the last couple of years, and

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Speaker 4: I think it's going to make money, you know, kind

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Speaker 4: of slow to re engage in that space. So I think,

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Speaker 4: to me, the sentiment is very hard to predict. The

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Speaker 4: growth versus inflation trade off, I think really just has

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Speaker 4: to do with what the market narrative is at any

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Speaker 4: given point in time.

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Speaker 5: Right, you know, if.

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Speaker 4: Two weeks ago was an inflation narrative, it's good. Now

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Speaker 4: it's a growth narrative, it's a little bit bad. But

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Speaker 4: I think we're we're generally, you know, being fairly cautious

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Speaker 4: about about putting money into China. The flows that we've

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Speaker 4: seen are much more options based, high payout type stuff,

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Speaker 4: you know, limited risk, you know, you know type flow

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Speaker 4: is going into China. We've discussed this in the past.

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Speaker 4: If the evolution to that Chinese trade this year is

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Speaker 4: and you know, or over the last twelve months have

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Speaker 4: been very, very fascinating, and right now I think people

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Speaker 4: are a a little bit cautious to put under to work.

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Speaker 2: There's a question about whether or not put money to

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Speaker 2: work in Chinese equities. There's another about the read through

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Speaker 2: effect in the United States for companies that are leveraged

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Speaker 2: to China. And then just more broadly, I think about

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Speaker 2: the fact that this wealth manager mispayments on several of

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Speaker 2: its products, that you're dealing with a housing market that

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Speaker 2: doesn't see a light at the end of the tunnel.

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Speaker 2: At what point does that have contagion that percolates outside

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Speaker 2: of China.

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Speaker 4: It's a good question because you know, I think initially

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Speaker 4: or stage two or three of the China trade was

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Speaker 4: I'm going to own Europe and I'm going to own

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Speaker 4: luxury goods that sell into the China consumer. Right So

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Speaker 4: you know, certainly those type of stocks would be under

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Speaker 4: a little bit of pressure given the lack of spending

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Speaker 4: growth that we're seeing in China. So yeah, it gets

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Speaker 4: an impact. If you look at the foreign direct investment

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Speaker 4: in China, it's come off a little bit us companies

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Speaker 4: are clearly not putting money, you know, directly in there

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Speaker 4: for luxury goods, and you'd probably throw Apple on into

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Speaker 4: that category.

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Speaker 6: In Tesla as well.

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Speaker 4: You know, the domestic demand has been ahead wind, so yeah,

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Speaker 4: it's it is a risk, and I think that just

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Speaker 4: gets into this global growth narrative of when does the

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Speaker 4: benefit on the inflation side get out weighed by the

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Speaker 4: sort of detriment on the growth side.

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Speaker 3: Well said, I'm just looking at Target on my screen

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Speaker 3: right now, slightly distracted. It's by by eight point five

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Speaker 3: percent at the back of this. Do you those one

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Speaker 3: of those stories if you told me the earnings before

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Speaker 3: they came out and then said, guess what the stock

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Speaker 3: price is going to do, I'd be like, we they've

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Speaker 3: cut the outlook on profits, so that's not great, that's right,

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Speaker 3: but it'll be like this second quarter reband for profit.

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Speaker 2: I personally think this is just where where the expectations

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Speaker 2: have been set, because if you look at those shares,

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Speaker 2: they're down considerably on the year. So at a certain point,

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Speaker 2: if they're not hemorrhaging money and throwing all in, you know,

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Speaker 2: some negative news, I guess it's positive. I can't really

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Speaker 2: read it any other way?

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Speaker 3: What can I learn from a MAF like that.

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Speaker 4: Well, the thing is you say Target. If you said Tarja,

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Speaker 4: it would be much more be much more understandable of

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Speaker 4: the type of move. But look, this is the important

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Speaker 4: part earnings, right, It's what happens with the consumer.

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Speaker 3: Santaturists over in China. Couldn't they taj out of out

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Speaker 3: of the mh some kind of collap What you said?

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Speaker 3: Did you say this how syncs?

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Speaker 1: No, you're the one that they sell. I know, the

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Speaker 1: soap that goes on saying so I can affirm that nice.

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Speaker 2: Okay news you need to know.

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Speaker 3: To see city. Thank you? Thank you kinda right. The

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Speaker 3: guess that comes on this show, they're like thank you.

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Speaker 1: Yeah, I think I think I'm going to run away.

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Speaker 3: Now, thank you, and I'm kind of sorry. Let's turn

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Speaker 3: to Greg Peters, co c I of PGIM Fixed Income

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Speaker 3: Greg Joints. Just now, Greg, not to talk about what's

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Speaker 3: happening with Target, t j X, and Walmart, to talk

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Speaker 3: about this bond market. Greg. A question that we've asked

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Speaker 3: all week, and we've got a different perspective from different people.

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Speaker 3: What is behind this bond market move? Greg, of the

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Speaker 3: last month.

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Speaker 7: Yeah, So I was listening to your rep artee, you know,

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Speaker 7: before you came over to me, and I think I

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Speaker 7: have a very different narrative than the one that you

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Speaker 7: were just talking about.

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Speaker 6: I think it's about growth.

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Speaker 7: You know, the FED has raised interest rates, inflation is

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Speaker 7: coming under control.

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Speaker 6: Are they done? I don't know.

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Speaker 7: There's probably some more room left to move higher. But

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Speaker 7: it's the underlying growth element that has driven the bond

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Speaker 7: market in my estimation, as it's about the shape of

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Speaker 7: the curve, right, So if you believe that inflation is

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Speaker 7: going to remain relatively high, the economy is strong and stable,

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Speaker 7: then the curve has to start to normalize, and what

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Speaker 7: that means is that back end rates have to move

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Speaker 7: higher as a consequence. So to me, it's all about

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Speaker 7: this strength and economic activity and sure, inflation you know,

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Speaker 7: remains you know, above above trend, but it's really the

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Speaker 7: growth story.

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Speaker 2: But if you take a look at that implication, there's

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Speaker 2: some broader market consequences to this. First of all, it

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Speaker 2: means that the yield curve is normalizing up, not down

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Speaker 2: to three percent, and that means that we could have

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Speaker 2: higher rates for longer at a time, or this economy

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Speaker 2: can keep chugging along despite rates where they are. Can

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Speaker 2: the credit markets sustain a five percent or four and

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Speaker 2: a half percent long term.

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Speaker 1: Based treasure yield?

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Speaker 2: Does that wreck some of the math behind the credit

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Speaker 2: bed Well.

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Speaker 6: Yes and no.

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Speaker 7: So I mean I think the economy can handle higher

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Speaker 7: interest rates. I think that has been the mistake that

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Speaker 7: many investor has made, myself included the underlying strengthen the

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Speaker 7: economy and the ability to handle higher rates and the

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Speaker 7: benefit of higher rates that you're seeing visa via the consumer.

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Speaker 7: But you're quite right, Lisa, there's been so many capital structures,

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Speaker 7: whether it's in commercial real estate, whether it's in credit,

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Speaker 7: that have been built on the backs of extremely low

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Speaker 7: interest rates.

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Speaker 6: So as interest rates.

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Speaker 7: Remain at the high higher level here, then a lot

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Speaker 7: of those capital structures really can't withstand that environment. So

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Speaker 7: as a consequence, I think we're in this stronger growth environment,

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Speaker 7: but at the same time we will see above trend

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Speaker 7: default and distress activity as a lot of these companies

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Speaker 7: really just are unable to.

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Speaker 6: Be a going concern with the higher rate environment.

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Speaker 2: One thing we keep hearing Craig is a number of

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Speaker 2: investors say they're leading into duration because you might as well.

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Speaker 2: Lock in yields where they are getting four point two

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Speaker 2: percent for ten years looks pretty good relative to what

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Speaker 2: you used to be able to get. Are you saying

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Speaker 2: that there is more normalization to be had if we

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Speaker 2: are going to create a more flat or more normalized

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Speaker 2: yield curve.

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Speaker 7: Yes, and that's what we've been saying, and I've been

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Speaker 7: arguing that for the past six months, as I think

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Speaker 7: it's too early to lock in duration. If you believe

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Speaker 7: that the economy you know, is entering a soft landing,

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Speaker 7: no landing, whatever landing you want to assign to it,

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Speaker 7: that means rates have to move higher, not lower. And

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Speaker 7: so yeah, the FED might modulate a little on the

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Speaker 7: margin take rates down, but not as much as in

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Speaker 7: the price right, and so for me rates are higher.

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Speaker 7: I don't see any rush to lock in duration at

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Speaker 7: this point. We're leaning against that and have been leaning

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Speaker 7: against that for quite some time. So we're still short duration.

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Speaker 7: As once again it's growth, Lisa.

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Speaker 3: I see me taking that position, Greg, Not because you

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Speaker 3: think we're going ten twenty basis points high than where

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Speaker 3: we are. It must be bigger than that. What kind

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Speaker 3: of numbers do you think we can get to?

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Speaker 7: I don't know, there's been a big move already, right,

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Speaker 7: So I don't want to get greedy either, But I

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Speaker 7: think on balance, the tendency will be for higher rates,

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Speaker 7: not lower rates. And so you know, we've been kind

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Speaker 7: of talking about this range of you know, four to

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Speaker 7: four and a half, but the truth of the matter

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Speaker 7: is it's leaning against the forwards and what's in the price,

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Speaker 7: and what's in the price in the forward.

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Speaker 6: Space it continued rate cuts in a lower yield environment.

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Speaker 7: So that's kind of what we're leaning against more than

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Speaker 7: kind of making in the call and where rates ultimately

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Speaker 7: settle out. But it's the tendency for rates to be

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Speaker 7: higher that I think most investors are missing. As the

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Speaker 7: regime that we were in pre pandemic is gone, it's different,

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Speaker 7: and I think the rate regime is different as a consequence,

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Speaker 7: and I don't think investors have accepted that reality or

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Speaker 7: accepted the reality that the FED also can't easily and

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Speaker 7: readily cut interest rates like they did in the past.

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Speaker 3: So, Greg, what I hear then is just another way

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Speaker 3: of saying, don't worry about the reinvestment risk of sitting

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Speaker 3: at the front end. Is that right?

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Speaker 6: Yeah?

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Speaker 7: To a degree, I mean, I think cash rates are

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Speaker 7: really quite attractive here. I think that's inducing investors to

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Speaker 7: take risk off the table, not lean into it. On

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Speaker 7: the credit side of the aisle, there's tremendous opportunity across

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Speaker 7: the global credit markets. A lot of that opportunity, though,

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Speaker 7: is in safe type of allocation. So whether it's end

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Speaker 7: type of credit, whether it's structure products, these are safe

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Speaker 7: bets where you earn a.

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Speaker 6: Tremendous amount of carry.

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Speaker 7: You don't have to dip down into triple c's take

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Speaker 7: a lot of duration or credit risk, and so take

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Speaker 7: what the markets are giving you, and what the market

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Speaker 7: is giving you is really quite quite attractive here.

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Speaker 6: So we're extremely.

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Speaker 7: Bullish on the US economy kind of on a long

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Speaker 7: term basis. We're very bullish on fixed income as well.

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Speaker 7: But you don't have to take a lot of risk

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Speaker 7: in order to be successful. And I think that's the

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Speaker 7: important message that I want to leave.

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Speaker 3: Message receaved a clinic, Greg, Thank you, sir, Greg paid

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Speaker 3: us they have paygim fixed income.

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Speaker 2: Carcadonna has been brilliant on this point. Chief you as

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Speaker 2: economist at BNP Pariba who has been talking about how

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Speaker 2: he will expect inflation to keep coming down, which it

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Speaker 2: has this year, and that there can be some relief

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Speaker 2: from the FED to move away. Carl joins us. Now

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Speaker 2: I'm so pleased to say a good front of the show, Carl.

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Speaker 2: What's your take on the resilience? Just starting with the

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Speaker 2: housing market that we continue to see.

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Speaker 8: There well as we look at this morning's numbers, I

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Speaker 8: think when housing starts tell you one story and housing

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Speaker 8: permits tell you a slightly different story, permits are the

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Speaker 8: ones you're supposed to trust, because housing starts can be

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Speaker 8: very volatile due to weather and other types of factors

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Speaker 8: that custom choppiness. On a month to month basis, housing

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Speaker 8: data have been in a pretty sour environment for the

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Speaker 8: last several quarters. The pace of decline is slowing, but

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Speaker 8: with affordability as low as it is and mortgage rates

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Speaker 8: hitting new highs on a daily basis almost I think

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Speaker 8: these are some real constraints going forward. Of course, the

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Speaker 8: inventory shortages that you highlighted are a big factor supporting activity,

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Speaker 8: especially encouraging new construction. But even yesterday in the home

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Speaker 8: builder sentiment survey that buyer traffic prospective buyer traffic is

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Speaker 8: extremely low and home builder sentiment declining for the first

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Speaker 8: time this year.

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Speaker 2: So straplight that into retail sales, are you saying that

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Speaker 2: you're seeing similar signs that it cannot continue to have

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Speaker 2: the same kind of robust gains and consumer spending that

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Speaker 2: we've seen.

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Speaker 8: Well, Lisa, I see some significant headwinds emerging for retail

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Speaker 8: sales and consumption more broadly in the back half of

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Speaker 8: this year. Now, as we dissected yesterday's retail sales data

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Speaker 8: for July, and maybe Amazon Prime Day helped to support

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Speaker 8: the numbers and whatnot, but as we went into the details,

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Speaker 8: it looked like discretionary spending was particularly strong. So the

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Speaker 8: sporting goods, hobby, leisure, restaurants and bars, all the things

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Speaker 8: you would spend on if you have extra cash in

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Speaker 8: your pocket. Those categories were actually the strongest categories in

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Speaker 8: the report. So things are on a solid footing in

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Speaker 8: the month of July at least, But as we go

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Speaker 8: into the back half of the year, we know that

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Speaker 8: labor activity is slow, We know that income generation from

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Speaker 8: labor activity is decelerating as well. We have student loan

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Speaker 8: payments resuming in October, so there's questions whether people will

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Speaker 8: immediately jump back into paying those loans or not, but

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Speaker 8: with an annualized price tag of about one hundred billion dollars,

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Speaker 8: it could have a very significant consequence, even if it

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Speaker 8: isn't fully felt in the initial months. You have a

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Speaker 8: potential government shutdown coming in the back half of the year.

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Speaker 8: And also all those excess savings generated during the pandemic

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Speaker 8: have been getting spent at a pretty healthy clip, whereas

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Speaker 8: we think the kind of excess savings will be fully

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Speaker 8: exhausted by the end of the year, And as we

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Speaker 8: look by income quintile, we can see really the lowest

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Speaker 8: three quintiles that's a significant share of the population. The

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Speaker 8: lowest three quintiles have basically exhausted those savings already, which

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Speaker 8: should mean more price sensitivity among consumers, which helps on

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Speaker 8: the inflation side, but also a slower pace of conser

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Speaker 8: ssumption as well. Not there as of July, but that's

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Speaker 8: something we're watching for in the back half.

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Speaker 2: People have been saying this for a while, and then

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Speaker 2: you see house after house push out their forecast for

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Speaker 2: recession and say, well, maybe it's not happening as soon

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Speaker 2: as we thought. Can you give us a sense of

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Speaker 2: what gives someone conviction that it will eventually happen, even

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Speaker 2: though month after month everyone had expected some of these

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Speaker 2: consumers to run out of cash by midyear. Now at

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Speaker 2: the end of the year, maybe it's early next year,

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Speaker 2: when does it sort of start to shift to okay,

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Speaker 2: maybe this is sustainable.

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Speaker 8: Well, I think that, you know, as we see new

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Speaker 8: data coming in, there has been more resilience in the

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Speaker 8: labor market than a lot of folks anticipated earlier this year,

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Speaker 8: you know, jobless claims. We've had a few false starts

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Speaker 8: where they've started to back up and it looked like

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Speaker 8: maybe there was some deterioration in the labor market and

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Speaker 8: then kind of the numbers came right back down and whatnot. So,

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Speaker 8: you know, those kind of like canary in the coal

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Speaker 8: mine moments proved to be a false false flag in

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Speaker 8: the past. But if we look at the broader trend,

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Speaker 8: we do see that it is slowing. So as nominal

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Speaker 8: GDP growth decelerates, as payroll gains decelerate, this does change

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Speaker 8: a lot of dynamics in the economy, including corporate profit trends,

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Speaker 8: which as corporate profits decelerate, that has an implication for

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Speaker 8: both capital spending plans and also hiring plans. You still

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Speaker 8: have a tightening of financial conditions or of lending conditions

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Speaker 8: from the banking sector that we can see showing up

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Speaker 8: in the FED surveys, banking surveys, bank earnings, etc.

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Speaker 6: Etc.

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Speaker 8: So there are some problems that are becoming pretty intense

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Speaker 8: headwinds in an economy that's slowing already, but getting the

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Speaker 8: timing right has been problematic for forecasters. More broadly, I

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Speaker 8: don't think we're at the point where you're supposed to

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Speaker 8: throw the recession call away and it's kind of immaculate

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Speaker 8: disinflation and the soft landing for the economy. I'm still

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Speaker 8: skeptical that we'll really be able to pull that off

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Speaker 8: because monetary policy, as we know, is a very blunt instrument,

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Speaker 8: and so kind of finessing the landing to have no

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Speaker 8: contraction is something quite unprecedented, and so I would be surprised,

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Speaker 8: given that the speed with which to Fed Titan policy,

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Speaker 8: if we can nail the landing, given the uncertainty over

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Speaker 8: lags and the net impact.

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Speaker 2: So do you think, Carl, just to sort of underscore

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Speaker 2: what you're saying, do you think that right now bond

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Speaker 2: markets have it wrong with a four point two percent

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00:20:24,840 --> 00:20:26,560
Speaker 2: yield on a ten yure. Do you think that people

439
00:20:26,600 --> 00:20:28,800
Speaker 2: are getting over their skis in terms of how high

440
00:20:28,880 --> 00:20:32,119
Speaker 2: rates can be and how long the economy can be strong.

441
00:20:33,520 --> 00:20:36,720
Speaker 8: Well, Ultimately, those longer dated yields are going to be

442
00:20:36,760 --> 00:20:40,120
Speaker 8: a function of real growth in the economy and inflation trends.

443
00:20:40,760 --> 00:20:42,240
Speaker 8: So if you think that there's a kind of a

444
00:20:42,320 --> 00:20:46,399
Speaker 8: persistently higher inflation trend over the longer run, then you

445
00:20:46,400 --> 00:20:49,480
Speaker 8: can make a case for four percent or higher on yields.

446
00:20:50,359 --> 00:20:53,720
Speaker 8: We do think that we will see some pretty impressive

447
00:20:54,040 --> 00:20:57,119
Speaker 8: cooling of inflation pressures over the next several quarters. We

448
00:20:57,160 --> 00:20:59,560
Speaker 8: think inflation will be back to target by the end

449
00:20:59,600 --> 00:21:01,879
Speaker 8: of next year, and I think that maybe part of

450
00:21:01,920 --> 00:21:06,960
Speaker 8: that higher inflation for longer CAMP may have to revise

451
00:21:06,960 --> 00:21:09,719
Speaker 8: some of those estimates as we see the economy decelerate,

452
00:21:09,760 --> 00:21:13,520
Speaker 8: the labor softening, and a lot of these inflation categories

453
00:21:13,520 --> 00:21:17,159
Speaker 8: moving in a favorable direction. The rent story alone is

454
00:21:17,200 --> 00:21:20,000
Speaker 8: a big factor for the inflation profile that's coming down.

455
00:21:20,080 --> 00:21:23,679
Speaker 8: That's a very big component of the CPI or the

456
00:21:23,680 --> 00:21:28,280
Speaker 8: inflation basket that's decelerating. You have goods prices showing further

457
00:21:28,359 --> 00:21:32,080
Speaker 8: signs of moderation. So the real question will be the

458
00:21:32,160 --> 00:21:34,520
Speaker 8: labor market dynamics, and if we do get some softening

459
00:21:34,600 --> 00:21:37,520
Speaker 8: of labor conditions and wage pressures coming down, then I

460
00:21:37,560 --> 00:21:40,440
Speaker 8: think that might alleviate some of those inflation concerns, which

461
00:21:40,480 --> 00:21:44,000
Speaker 8: then could factor into where longer term yields are headed

462
00:21:44,040 --> 00:21:45,720
Speaker 8: as well. So I don't know that they're getting the

463
00:21:45,760 --> 00:21:48,920
Speaker 8: story totally wrong, but maybe assessing it as being a

464
00:21:48,960 --> 00:21:50,720
Speaker 8: little bit too hot at the moment.

465
00:21:50,920 --> 00:21:52,879
Speaker 2: Just real quick, Carl, what's the one question that you

466
00:21:52,880 --> 00:21:55,280
Speaker 2: want answered by J Powell next week at Jackson Hall.

467
00:21:55,960 --> 00:21:59,560
Speaker 8: I'm very curious, given the theme is structural changes in

468
00:21:59,600 --> 00:22:03,640
Speaker 8: the global economic outlook, you know, to watch the degree

469
00:22:03,680 --> 00:22:06,359
Speaker 8: to which this might be setting the stage for changing

470
00:22:06,400 --> 00:22:09,639
Speaker 8: inflation targets or things of that nature. Now, this is

471
00:22:10,080 --> 00:22:12,159
Speaker 8: the conference or the symposium is put on by the

472
00:22:12,200 --> 00:22:15,560
Speaker 8: Kansas City FED, which is notoriously hawkish, So this may

473
00:22:15,560 --> 00:22:17,879
Speaker 8: be a way of kind of chopping down the straw

474
00:22:17,920 --> 00:22:20,960
Speaker 8: men before they can even get any firm anchoring. So

475
00:22:21,080 --> 00:22:23,560
Speaker 8: rather than saying there are structural changes and we should

476
00:22:23,640 --> 00:22:25,959
Speaker 8: change the inflation target, they can say, well, there are

477
00:22:26,040 --> 00:22:29,280
Speaker 8: structural changes, but these are the reasons why we don't

478
00:22:29,280 --> 00:22:32,359
Speaker 8: think we should be changing longer term estimates for growth,

479
00:22:32,359 --> 00:22:34,320
Speaker 8: inflation or inflation targeting.

480
00:22:34,520 --> 00:22:37,000
Speaker 2: Kura Kadano VMP Paiva, thank you so much for being

481
00:22:37,040 --> 00:22:37,400
Speaker 2: with us.

482
00:22:48,640 --> 00:22:51,840
Speaker 3: Benasausie joined us now see and chief research officer at

483
00:22:51,880 --> 00:22:54,480
Speaker 3: houseI Advice Recruit. Diana, great to have you with us

484
00:22:54,520 --> 00:22:57,640
Speaker 3: on the program. Target I guess being a low bar

485
00:22:57,680 --> 00:22:59,760
Speaker 3: because the stock is running really hard. Can you tell

486
00:22:59,800 --> 00:23:01,720
Speaker 3: me what's going on there? How low was that bar

487
00:23:01,840 --> 00:23:03,760
Speaker 3: and how much clarity have you got on what's going

488
00:23:03,760 --> 00:23:04,360
Speaker 3: on over there.

489
00:23:04,640 --> 00:23:06,960
Speaker 5: We'll have more clarity after they do the earnings call

490
00:23:07,000 --> 00:23:09,119
Speaker 5: at eight o'clock. But I think the real change is

491
00:23:09,119 --> 00:23:12,800
Speaker 5: the fact that the inventory levels continue to remain very clean.

492
00:23:13,440 --> 00:23:15,359
Speaker 5: When you take a look at the gross margin, it

493
00:23:15,400 --> 00:23:19,000
Speaker 5: was better than expected. Shrink continues to be an issue

494
00:23:19,000 --> 00:23:22,840
Speaker 5: out there, but it's all about essentials, which is frankly

495
00:23:22,960 --> 00:23:25,479
Speaker 5: much stronger than what you have with DISCRETIONATY. At Target,

496
00:23:25,960 --> 00:23:29,000
Speaker 5: it's a world of difference because you had TJX support

497
00:23:29,400 --> 00:23:33,040
Speaker 5: better than expected numbers talking about the strength and apparel

498
00:23:33,080 --> 00:23:37,520
Speaker 5: and accessories. So if you have essentials, that's what's selling,

499
00:23:37,760 --> 00:23:40,120
Speaker 5: but off prices where the action is for.

500
00:23:40,080 --> 00:23:43,119
Speaker 2: Apparel, Danna, before we get into TJX and exactly what

501
00:23:43,160 --> 00:23:45,520
Speaker 2: the retail trends are. I'd love your thoughts and what

502
00:23:45,560 --> 00:23:48,720
Speaker 2: we're hearing more of, which is the social pushback and

503
00:23:48,760 --> 00:23:52,240
Speaker 2: the consequence on sales. If you look at Target's earnings,

504
00:23:52,280 --> 00:23:55,800
Speaker 2: they said that last quarter's profits took a hit as

505
00:23:55,840 --> 00:23:59,480
Speaker 2: a result of the controversy around Pride Month collections of

506
00:23:59,600 --> 00:24:01,959
Speaker 2: items that they were selling. Dana. We also heard this

507
00:24:02,000 --> 00:24:05,320
Speaker 2: from Anheuser Busch. How much is this becoming a theme?

508
00:24:05,400 --> 00:24:09,240
Speaker 2: How much is this a real potential threat for retailers

509
00:24:09,280 --> 00:24:10,480
Speaker 2: that hadn't dealt.

510
00:24:10,240 --> 00:24:12,000
Speaker 1: With this kind of thing as much before.

511
00:24:12,960 --> 00:24:14,920
Speaker 5: It is a threat, and we've seen it happen to

512
00:24:15,119 --> 00:24:19,919
Speaker 5: multiple different categories of companies selling consumer goods. Certainly, I

513
00:24:19,960 --> 00:24:23,359
Speaker 5: think the care and the concern about how you navigate

514
00:24:23,400 --> 00:24:26,280
Speaker 5: this landscape is something that is new for all the

515
00:24:26,359 --> 00:24:29,280
Speaker 5: retailers and I think is only going to continue to

516
00:24:29,320 --> 00:24:32,400
Speaker 5: become more of a topic going forward. And I think

517
00:24:32,440 --> 00:24:36,040
Speaker 5: you can see these consumer companies even more mindful and

518
00:24:36,160 --> 00:24:40,359
Speaker 5: planning about what stance they take on particular issues going forward.

519
00:24:40,400 --> 00:24:43,359
Speaker 2: When you talk about the off price retailers really benefiting

520
00:24:43,880 --> 00:24:47,199
Speaker 2: at a time where people are being more discretionary, is

521
00:24:47,200 --> 00:24:50,760
Speaker 2: that a negative sign for the luxury players or is

522
00:24:50,800 --> 00:24:52,520
Speaker 2: it just there's plenty of money to go around.

523
00:24:53,440 --> 00:24:55,760
Speaker 5: I think overall the luxury players are in a world

524
00:24:55,760 --> 00:24:59,119
Speaker 5: of their own. They have a high end consumer who

525
00:24:59,720 --> 00:25:05,359
Speaker 5: has less succeptance to really being careful about their spend.

526
00:25:05,440 --> 00:25:09,680
Speaker 5: But there's different magnitudes of certainly luxury and aspirational goods

527
00:25:09,720 --> 00:25:13,400
Speaker 5: depending upon the price point. The comparisons year over year

528
00:25:13,440 --> 00:25:16,440
Speaker 5: are very challenging in luxury and while many of them,

529
00:25:16,520 --> 00:25:20,840
Speaker 5: even the European luxury goods companies, are lower year over year,

530
00:25:21,000 --> 00:25:24,480
Speaker 5: when you compare it to twenty nineteen, they continue to

531
00:25:24,480 --> 00:25:27,600
Speaker 5: be up, could be fifty percent or more. But I

532
00:25:27,640 --> 00:25:31,840
Speaker 5: think every level of consumer spend overall, we've seen a

533
00:25:31,880 --> 00:25:35,560
Speaker 5: moderation and where we're seeing the allocation. It seems like

534
00:25:35,600 --> 00:25:39,040
Speaker 5: one of the only places in discretionary if it's any

535
00:25:39,040 --> 00:25:42,520
Speaker 5: of the events like Taylor, Swift or Barbie, that people

536
00:25:42,560 --> 00:25:47,040
Speaker 5: are buying new costumes or new items to wear to

537
00:25:47,560 --> 00:25:48,280
Speaker 5: those events.

538
00:25:48,840 --> 00:25:51,000
Speaker 3: Dana, just to touch on luxury a little bit more.

539
00:25:51,440 --> 00:25:55,200
Speaker 3: Different regions are performing better than others in America, it's

540
00:25:55,240 --> 00:25:58,560
Speaker 3: been disappointing. I'm thinking of Richemont and others too. Data

541
00:25:58,640 --> 00:26:01,800
Speaker 3: recently China have allowed group tours to I think the

542
00:26:01,920 --> 00:26:04,840
Speaker 3: UK and the United States. Some people believe that might

543
00:26:04,880 --> 00:26:07,399
Speaker 3: make a difference. I want your opinion on that, based

544
00:26:07,440 --> 00:26:10,120
Speaker 3: on experience over the last year. Does that move the dial?

545
00:26:11,000 --> 00:26:12,560
Speaker 5: I think it's going to help. I think it's going

546
00:26:12,640 --> 00:26:15,000
Speaker 5: to help. I think it's going to help show an increase.

547
00:26:15,320 --> 00:26:17,800
Speaker 5: I think it's going to help to drive demand. I

548
00:26:17,840 --> 00:26:20,320
Speaker 5: think you need more than just the tourist groups to

549
00:26:20,440 --> 00:26:23,480
Speaker 5: truly move the needle, but it should help stem the

550
00:26:23,560 --> 00:26:25,840
Speaker 5: rate of decline that we've seen from some of those

551
00:26:25,920 --> 00:26:27,960
Speaker 5: luxury players in the Americas.

552
00:26:28,080 --> 00:26:30,080
Speaker 3: The theme I've tried to work on over the last year,

553
00:26:30,119 --> 00:26:31,760
Speaker 3: and I have to say I haven't had much clarity

554
00:26:31,760 --> 00:26:33,960
Speaker 3: on it, Dana, but maybe you can help me. A

555
00:26:34,040 --> 00:26:36,520
Speaker 3: year two years ago, we would see a lot of

556
00:26:36,560 --> 00:26:41,520
Speaker 3: people embracing buy now, pay later for entry level luxury goods.

557
00:26:41,920 --> 00:26:43,919
Speaker 3: What we've learned in the last month or so is

558
00:26:43,920 --> 00:26:47,440
Speaker 3: that entry level luxury at certain firms has been hit.

559
00:26:47,920 --> 00:26:51,280
Speaker 3: Are the two things in any way, shape or form tied.

560
00:26:51,480 --> 00:26:53,320
Speaker 3: Do those dots join up to you, Dana? Have we

561
00:26:53,400 --> 00:26:56,640
Speaker 3: seen that buy now, pay later bubble burst for luxury?

562
00:26:57,640 --> 00:27:00,520
Speaker 5: I think that it has burst, certainly a bit. Luxury.

563
00:27:00,720 --> 00:27:03,040
Speaker 5: I think when you think about the headwinds of rising

564
00:27:03,080 --> 00:27:05,879
Speaker 5: interest rates. You have student loans that are coming up

565
00:27:05,920 --> 00:27:10,040
Speaker 5: in October. The average household has six two hundred dollars

566
00:27:10,080 --> 00:27:13,080
Speaker 5: dollars of expenses and you're going to get an increase

567
00:27:13,160 --> 00:27:17,080
Speaker 5: of three to eight percent on of spend coming from

568
00:27:17,119 --> 00:27:20,320
Speaker 5: student loans. On top of that, there's less to go round,

569
00:27:20,680 --> 00:27:23,600
Speaker 5: and so that's why there's the focus on essentials and

570
00:27:23,640 --> 00:27:26,320
Speaker 5: a reduced focus on some of the aspirational items.

571
00:27:26,440 --> 00:27:28,400
Speaker 2: Dana, just to build on what John was asking about,

572
00:27:28,440 --> 00:27:30,320
Speaker 2: are you surprised that we haven't seen more of a

573
00:27:30,400 --> 00:27:33,199
Speaker 2: hit to luxury retailers on the one two punch of

574
00:27:33,280 --> 00:27:37,040
Speaker 2: certain entry level buyers stepping away and some issues with China,

575
00:27:37,280 --> 00:27:40,919
Speaker 2: whether it's restrictions or whether it's the idea of just

576
00:27:41,000 --> 00:27:44,280
Speaker 2: the contraction that we're seeing in certain aspects of the economy,

577
00:27:44,680 --> 00:27:46,640
Speaker 2: why that hasn't had more of an effect.

578
00:27:47,040 --> 00:27:49,400
Speaker 5: I think some of the aspirational players that are out there,

579
00:27:49,400 --> 00:27:52,240
Speaker 5: they've added a lot of newness and product innovation. There's

580
00:27:52,480 --> 00:27:56,120
Speaker 5: extreme demand for newness and innovation, and it's really led

581
00:27:56,200 --> 00:27:59,239
Speaker 5: to be able to have continued strength. But it's not

582
00:27:59,400 --> 00:28:02,960
Speaker 5: a world of equals. It's definitely a world where essentially

583
00:28:03,320 --> 00:28:07,440
Speaker 5: what's the price you're charging, what there's some promotions on

584
00:28:07,480 --> 00:28:10,159
Speaker 5: some of these items that people can get, And what

585
00:28:10,200 --> 00:28:12,359
Speaker 5: are you seeing others wearing. What are you going to

586
00:28:12,440 --> 00:28:15,359
Speaker 5: give up in order to buy that aspirational item? And

587
00:28:15,440 --> 00:28:18,240
Speaker 5: I think it's definitely haves and have nots in terms

588
00:28:18,280 --> 00:28:20,720
Speaker 5: of being choiceful in what spend is on.

589
00:28:21,080 --> 00:28:22,840
Speaker 2: So what happens to all of the middle players, the

590
00:28:22,880 --> 00:28:28,080
Speaker 2: middle tier that don't fall into bargain picking or luxury Well.

591
00:28:27,920 --> 00:28:31,160
Speaker 5: Look what we've seen it be very challenging out there.

592
00:28:31,320 --> 00:28:33,879
Speaker 5: We've seen it for apparel retailers like the Gaps of

593
00:28:33,920 --> 00:28:36,840
Speaker 5: the world. Who is encouraging to hear American Eagle the

594
00:28:36,920 --> 00:28:40,080
Speaker 5: other week talk about the pickup in July. We've seen

595
00:28:40,200 --> 00:28:44,080
Speaker 5: retailers overall lower their inventory levels. But I think you're

596
00:28:44,080 --> 00:28:46,920
Speaker 5: going to see these inventory levels continue to come clean

597
00:28:47,320 --> 00:28:50,480
Speaker 5: because the lower freight costs being helped to the margins.

598
00:28:50,520 --> 00:28:54,320
Speaker 5: The leaner inventory levels, there's more margin clarity. I think

599
00:28:54,360 --> 00:28:57,600
Speaker 5: the cleanliness on inventory will be the key to managing

600
00:28:57,640 --> 00:29:00,440
Speaker 5: through this is you have to keep your balance sheet.

601
00:29:00,840 --> 00:29:01,120
Speaker 6: Dana.

602
00:29:01,160 --> 00:29:02,800
Speaker 3: I have no idea how you listen to the call

603
00:29:03,200 --> 00:29:04,880
Speaker 3: and conduct an interview at the same time, but you

604
00:29:04,880 --> 00:29:08,520
Speaker 3: can it's amazing, Danna. Thank you, Dana Tausi Tasi Advisory Group.

605
00:29:08,560 --> 00:29:09,400
Speaker 3: We appreciate it.

606
00:29:10,440 --> 00:29:13,880
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610
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612
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