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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Ley. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg

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Speaker 1: dot com, and of course on the Bloomberg Terminent. Michael

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Speaker 1: gabon DARKNS The Door with Barclayser, Chief US Economists Michael,

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Speaker 1: frame out your g dB call if you want to

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Speaker 1: change it right now. We're all ears. Good morning, Tom,

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Speaker 1: Lisa and John. Look, I think I think Mike I

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Speaker 1: accurately framed it the way that I would, which is,

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Speaker 1: to me, this feels more like coming down from stimulus

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Speaker 1: payments than it does reflecting UH delta variant fears. So

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Speaker 1: I think we're gonna we're gonna return to an environment

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Speaker 1: of more of what I'll call pedestrian retails else reports

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Speaker 1: on average, because games will be driven more by labor

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Speaker 1: market income now, not by stimulus payments. So this was

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Speaker 1: kind of a transition month in that regard, and what

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Speaker 1: obviously gummed up the system was a lot of shortages

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Speaker 1: in terms of semiconductors and autos so the X Auto's

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Speaker 1: number here is probably your more accurate read in terms

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Speaker 1: of what it means for the state of the consumer.

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Speaker 1: We're at six and a half percent on Q three.

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Speaker 1: To to address your your question, we have personal consumption

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Speaker 1: slowing to four. But what I'll note is a lot

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Speaker 1: of the growth in the next two to three quarters,

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Speaker 1: maybe even four quarters in the US, I think most

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Speaker 1: of us are expecting is going to come from restocking.

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Speaker 1: So the inventory shortages that that have that have cropped up,

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Speaker 1: we're all kind of assuming, Look, over time, business is

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Speaker 1: gonna want to is going to want to rebuild those stocks.

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Speaker 1: So maybe you know, a good one to two to

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Speaker 1: maybe even three percentage points of growth in the third quarter,

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Speaker 1: I think most of us are thinking come from inventories, right,

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Speaker 1: So if we don't get that, you're going to get

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Speaker 1: a sharper drop off. Sorry, Lisa, no no worries, Michael,

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Speaker 1: I just sort of a pile on what you were

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Speaker 1: saying retail sales X Auto. You said it was a

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Speaker 1: more accurate read. It also came in disappointing, declining zero

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Speaker 1: point four percent versus the expectation for an increase of

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Speaker 1: zero point two percent. You talk about how the labor

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Speaker 1: market and improvements there are supposed to pick up from

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Speaker 1: where the stimulus checks are leaving off. And yet the

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Speaker 1: labor market is facing the headwind of the delta variant

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Speaker 1: and the fact that people are saying home more in

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Speaker 1: order to be safe. And there is a question of

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Speaker 1: whether this hamper's growth perhaps more than people expect. What

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Speaker 1: do you think it's it's certainly possible. I it's certainly

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Speaker 1: I right now, I think on balance, i'd said be

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Speaker 1: more worried about delta variant growth in places like China

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Speaker 1: and Southeast Asia because of what it could do to

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Speaker 1: intensify supply chain bottlenecks globally in the US, I just

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Speaker 1: where the delta variant is is spreading are our states

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Speaker 1: that probably aren't going to move to lockdown. So I

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Speaker 1: do think you might have a compositional shift away from

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Speaker 1: hotels and airlines and face to face things back towards

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Speaker 1: goods again. So we could see a bit of a

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Speaker 1: hiccup in that certainly doesn't help, I think is that

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Speaker 1: is the obvious answer. How much it constraints growth has

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Speaker 1: to be seen. Again, we have consumption slowing from almost

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Speaker 1: twelve percent in the second quarter down to four and

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Speaker 1: the third, so I'd say we're baking at least some

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Speaker 1: of that. In what did net exports look like? You

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Speaker 1: mentioned the inventory dynamic again usually obscure, not now is

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Speaker 1: the dynamics of exports and imports is important? Well? It is.

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Speaker 1: I mean that the goods balances, that is that a

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Speaker 1: record deficit, right, Anything that keeps us buying goods is

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Speaker 1: going to keep us importing a lot of materials. If

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Speaker 1: there's a restocking cycle in front of us, that means

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Speaker 1: imports are going to be fairly strong as well. So

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Speaker 1: we seem to be in a situation where most of

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Speaker 1: us were probably looking for the trade deficit to move back,

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Speaker 1: you know, towards towards the surplus, a smaller deficit, but

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Speaker 1: maybe we stay at record wide even even longer. So

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Speaker 1: I think that the more delta is a problem, the

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Speaker 1: more we're gonna kind of stick with our pattern of

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Speaker 1: preferring goods over services, and that's likely to keep us

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Speaker 1: importing a lot. Michael Gape and I always asked this

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Speaker 1: question one thirty Eastern. It's the chairman of the Federal

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Speaker 1: Reserve in a town hall with educators. Do you watch

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Speaker 1: or do you take a long lunch. Oh I watch,

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Speaker 1: I expect you to, Michael Gape and thank you, sir.

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Speaker 1: It's going to catch up. Let's bringing David Stubbs Showery

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Speaker 1: JP Morgan, Chase Bank, Global Head of Market Strategy, David,

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Speaker 1: let's start with the secrety market and record highs and

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Speaker 1: this idea that margins and margins may not be insulated

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Speaker 1: going into the new year. What's your take on that, Hi,

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Speaker 1: John M. I probably take the other side of that

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Speaker 1: to a certain extent. I think we've been one of

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Speaker 1: the most important things that's going on right now macro economically,

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Speaker 1: and it feeds through the corporate earnings, is that we

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Speaker 1: are in the midst of a puditivity shock. We see

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Speaker 1: very clear evidence of that. I think firstly, productivity go

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Speaker 1: started to inflect up in the latter half of the

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Speaker 1: last decade before you know this, this crisis started to

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Speaker 1: re accelerate gradually. And I think the crisis forced a

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Speaker 1: wave of investment into digital technology, which we're now seeing

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Speaker 1: companies utilized to deal with a rising input cost environment

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Speaker 1: and yet deliver tremendous earnings. So I think that's going

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Speaker 1: to continue for a while. UM and I think at

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Speaker 1: some point, of course, you know the cycle will pressure margins.

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Speaker 1: But for me, look at the strength of the strength

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Speaker 1: of investment, look at the strength of productivity. That's the

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Speaker 1: major driver ICA of the next couple of years. Canceled

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Speaker 1: the next three guests. We're going along here with David Stubbs. David,

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Speaker 1: you have hit a third rail with me, which is

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Speaker 1: the new capital deepening. I'm going to go back to

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Speaker 1: the great productivity analysis of fifteen years ago and give

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Speaker 1: great credit to Credit Suite so and that. But David Stubbs,

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Speaker 1: there's a new capital deepening and it's in technology. What

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Speaker 1: does that mean for the stock market? It means great things, Tom,

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Speaker 1: It means you're sustainable earnings. It means a CAPEX cycle

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Speaker 1: feeding into into text top top line as well, and

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Speaker 1: it means significant changes I think both in how businesses

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Speaker 1: organized themselves internally kind of business enterprise, your software, plus

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Speaker 1: how they talk to their clients and manage their self

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Speaker 1: thought sales force, so kind of sales software. And I

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Speaker 1: think that is one of the most powerful trends we're

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Speaker 1: going to see. It's a global trend and I think

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Speaker 1: it's one which has been turbo charged by the need

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Speaker 1: to all of a sudden, go remote, go digital, um

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Speaker 1: and reduce the in person contact. And I think you're

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Speaker 1: studden to see the foundations now of a significant roosting

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Speaker 1: productivity for the next two or three years. What happens

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Speaker 1: after that an open question, but I'll certainly take the

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Speaker 1: over on productivity growth in the next couple of years.

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Speaker 1: Which areas do you think are going to see the

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Speaker 1: most productivity gains. Are we going to see it in

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Speaker 1: the likes of Walmart and Amazon, which have been consolidating

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Speaker 1: up power and going to be more able to automate,

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Speaker 1: or other sectors that perhaps are less bit up Well,

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Speaker 1: I think certainly you can target the companies that are

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Speaker 1: supplying the tools of productivity. And you see that in

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Speaker 1: absolutely cow computing, you see that in the in the

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Speaker 1: software providers, all all that's enabled by the rollout of

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Speaker 1: five G. It's enabled by you know, the increase in

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Speaker 1: semi conductor demand. You know that we'll see at least

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Speaker 1: so I think that this is a very broad based

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Speaker 1: in position of new technology across the economy, and that's

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Speaker 1: what it really drives. Productivity cycles you can measure macroeconomically.

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Speaker 1: There's the old adage recently in the last decade that

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Speaker 1: you can see the technological change everywhere except on the

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Speaker 1: productivity numbers. I think that is now starting to change.

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Speaker 1: Because you've had two or three generations of some of

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Speaker 1: the software. It's now being introduced and coursing through the

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Speaker 1: mainstream of the economy. And that's why as we see

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Speaker 1: these technologies now going from discovery to dissemination, you're starting

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Speaker 1: to see the uptakes your cycle. And I think that's

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Speaker 1: what that's will help, will maintain margins and drive that

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Speaker 1: bottom line for most of the listed companies. It's amazing

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Speaker 1: how many conversations we're having at the moment and hardly

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Speaker 1: mentioning the Federal Reserve. David, what's in that for you?

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Speaker 1: The tape is story. We're just comfortable with that now.

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Speaker 1: I think we think we asked to a certain extent. John,

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Speaker 1: I mean everyone's been worried about this taper really since

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Speaker 1: all year. I think the communication has been okay. I

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Speaker 1: think your previous guess said there was far too many speakers.

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Speaker 1: There's a lot to keep up with. For sure, Um,

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Speaker 1: I think we we would probably say that we we

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Speaker 1: don't expect a taper tantrum, for sure. I think there's

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Speaker 1: a question about the pace of of of tapering, and

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Speaker 1: we still think that inflation will fade as we go

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Speaker 1: into the middle of next year. We have the FED

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Speaker 1: hiking in early twenty three, and I don't think that's

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Speaker 1: too much of a of a barrier to the market

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Speaker 1: where we are, you know, right now. But I'm looking

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Speaker 1: at the minutes tomorrow rather than speech today for any

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Speaker 1: any new signs. David, you want to make a prediction

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Speaker 1: out over SPX five thousand, Can we get you to

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Speaker 1: do that right now? Tom? I think our official numbers

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Speaker 1: are a little south of that. You've gotta be the

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Speaker 1: biggest ball at JP Morgan. Mr Diamond's gonna wind you

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Speaker 1: up in the top office there this morning. Let's go

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Speaker 1: Cob dub Douglas, David stubs. You've got three ratio productivity,

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Speaker 1: you've got capital, you've got labor dynamics, and then you've

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Speaker 1: got this wack of thing total factor productivity. The technological

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Speaker 1: revolution that we're going to see. Where does it show up.

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Speaker 1: It definitely shows up in total factor productivity, Tom, because that's,

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Speaker 1: you know, firstly, very difficult to measure. It's kind of

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Speaker 1: a catch all for the things you can't you clearly

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Speaker 1: see day to day And of course you know, Tom,

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Speaker 1: we have to be careful here with the numbers. They're

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Speaker 1: volatile and they get revised. You really need to wait

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Speaker 1: for the third round of GDP and to take your

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Speaker 1: multiar moving averages to see it. But you can see it,

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Speaker 1: and that's where I think you'll you'll start to see

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Speaker 1: the real, your real change. We're also really excited about

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Speaker 1: the innovation you'll see in healthcare, and of course the

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Speaker 1: pushing investment to sustainable trends like clean energy. So I

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Speaker 1: think there's a whole range of technologies here, Tom, that

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Speaker 1: we've all been reading about but haven't really been experiencing

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Speaker 1: in the ties. Are going to see us integrate those

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Speaker 1: into our daily life lives. And you're think youre gonna

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Speaker 1: see a lot of investable changes out of that. Not

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Speaker 1: all of it in large cap stocks, by the way,

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Speaker 1: a lot of that in private investments, and a lot

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Speaker 1: of that is down the capitalization spectrum, but it's it's there,

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Speaker 1: and it's certainly investable. Classic t K trying to get

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Speaker 1: Stubbs in trouble with Mr Don Davis. Stubbs, thank you said,

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Speaker 1: I mean it's going to catch up. He should be

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Speaker 1: writing the m DNA for Jamie Diamond. Let's bring you,

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Speaker 1: Francis Donald Manulife Investment Management chief economist and head of

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Speaker 1: macroeconomic Strategy. Francis going to catch up with you again.

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Speaker 1: Peak macro is price, but pete pessimism is not your words.

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Speaker 1: What do they mean, Francis, that's the line. So peak

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Speaker 1: macro is a theme that just about everyone understands that

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Speaker 1: the you're over, your comparables are going to decline, and

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Speaker 1: we're just not going to grow at the speed we

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Speaker 1: were before, as we were coming out of the COVID

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Speaker 1: nineteen recession. But there are still a lot of areas

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Speaker 1: that can go wrong. We are tetering on a knife

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Speaker 1: edge here towards a full synchronized global recovery. That's the hope,

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Speaker 1: but there are a lot of things that come go wrong.

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Speaker 1: And what concerns me is that we have yet to

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Speaker 1: see what I think is peak pessimism in this market.

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Speaker 1: That doesn't mean a recession tomorrow, it doesn't mean we're

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Speaker 1: going to see collapse of cross assets, but it does

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Speaker 1: mean that their scope for disappointment, particularly on the consumer side,

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Speaker 1: we've not had to give back there I think we

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Speaker 1: might start to see a variety of growth data points

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Speaker 1: that make us a little bit more nervous. Okay, So

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Speaker 1: in the nirvan of a boom economy, Francis for the

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Speaker 1: biggest decision was do you stake your reputation a nine

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Speaker 1: percent growth or real growth? Now we're onto something new.

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Speaker 1: How do you model an economy that we've never seen before?

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Speaker 1: This is the problem I have, Tom And the biggest

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Speaker 1: question I have when I wake up every day is

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Speaker 1: is Delta the fourth and final wave of COVID or

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Speaker 1: are we going to be in rolling variants that shave

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Speaker 1: growth off on a more sustained basis for several years

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Speaker 1: Because the implications are very very different. Right now, we're

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Speaker 1: seeing prices that are so high, consumers are telling us

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Speaker 1: we don't want to buy houses and cars and large purchases.

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Speaker 1: That was the University of Michigan Consumer Sentiment index that

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Speaker 1: was very shocking to a lot of people. Is that

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Speaker 1: just demand delayed or is it demand destroyed? And that's

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Speaker 1: the biggest question that's on our plate for now. We

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Speaker 1: can commonly say it's at least delayed, the delta is

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Speaker 1: at least a blip. But if we're enrolling variants, and

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Speaker 1: we see consumers who say I'm going to permanently pull

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Speaker 1: back even if I'm vaccinated. That's a very different outlook.

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Speaker 1: It's one with lower potential GDP, a lower neutral rate

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Speaker 1: for the FED, and a very different type of two

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Speaker 1: to five year outlook. Right now, six months ago, people

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Speaker 1: would say a lower lower neutral rate for the FED

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Speaker 1: meant higher stock valuations is actually gave a boost to

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Speaker 1: risk assets. Are we moving away from that kind of

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Speaker 1: paradigm because people have already priced in all of these

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Speaker 1: low rates for the foreseeable future. It's a good point, Lisa,

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Speaker 1: And up until this point, very weak economic data has

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Speaker 1: been associated with lower yields. It has been a bond play,

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Speaker 1: not a cross ass at play. But we should probably

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Speaker 1: watch for the potential that as we move towards peak pessimism,

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Speaker 1: we see some wobbliness and other asset classes. But you know,

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Speaker 1: as you know, I'm an asset allocators spend a lot

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Speaker 1: of my time supporting asset allocation funds. There is truly

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Speaker 1: not a lot of places to go, and if you

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Speaker 1: want to deliver your expected returns to these portfolios, you

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Speaker 1: have to move further out the race. Curve. What I

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Speaker 1: think we also need to think about is that shift

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Speaker 1: towards alternatives infrastructure, agriculture. Reeds are doing very well in

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Speaker 1: this environment. There are different asset classes that are going

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Speaker 1: to continue to bed it structurally from that lower rate environment. Absolutely,

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Speaker 1: But in the near term, just like you mentioned here

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Speaker 1: with home Deepot, we may see some disappointment happening on

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Speaker 1: the earnings front, and that's gonna mean we see a

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Speaker 1: little bit of wobbliness and other asset classes as well. Francis,

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Speaker 1: can we skip Cham and Pound today? Can I give them? Miss?

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Speaker 1: I wish, I wish that I could skip all of

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Speaker 1: the Fed speak. But I think you have a little

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Speaker 1: bit of a point here, which is that what are

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Speaker 1: we going to learn that we don't already know. We

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Speaker 1: know that a taper is coming. The biggest disagree then

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Speaker 1: on Wall Street right now? Is it September? Is it December?

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Speaker 1: Guess what doesn't really matter in the grand scheme of things.

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Speaker 1: What matters to me is how that taper is constructed.

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Speaker 1: How long do they indicate it's going to extend for

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Speaker 1: or hint at, what is the composition of it? Does

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Speaker 1: Powell successfully divorce the idea that tapering leads you into

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Speaker 1: rate heights and give themselves some flexibility. So it's not

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Speaker 1: the when. It's the how of the taper that's going

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Speaker 1: to be the most market moving, not the date. So

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Speaker 1: I'd love to hear a little bit of that. I

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Speaker 1: think Paul's has a lot of disagreement behind them on

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Speaker 1: the FED. He's probably going to go down the middle

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Speaker 1: of the line. But of course we'll be watching with educators.

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Speaker 1: I'm not sure if that's the forum to get all

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Speaker 1: of that done. We'll see Francis. Thank you as always,

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Speaker 1: Francis Donald Many Life Investment Management, Global Chief Economists and

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Speaker 1: head of macro economic Strategy. Right now, Joe Feldman joined

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Speaker 1: some Telsey Advisory. I grew up here on Walmart on

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Speaker 1: the rest of the big blocks as well. I want

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Speaker 1: to point out Depot over the last ten years up

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Speaker 1: per year, Joe Felban is the next decade look as

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Speaker 1: rosie for these guys as Home Depot of the last

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Speaker 1: ten years, well, the big guys keep getting bigger, they

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Speaker 1: keep taking market share. So yeah, if we think things

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Speaker 1: do look pretty rosy, there's gonna be some bumps in

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Speaker 1: the road, you know. For example, Home Depot things are

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Speaker 1: slowing a little bit, but that'll be temporary. It'll pass

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Speaker 1: the time and they'll be continue to grow over the

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Speaker 1: longer term. Sure, one of the most important things in

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Speaker 1: the Bloomberg folks in terms of like why do you

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Speaker 1: get a Bloomberg terminal in that is you can see

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Speaker 1: the float, the institutional ownership versus the float in a

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Speaker 1: couple of key clicks, and there's two groups. There's Home

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Speaker 1: deepot on Amazon it's seventy two Afloat and Joe Felban

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Speaker 1: the rest like Walmart or at sixty percent to float.

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Speaker 1: What's the partition there for institutions. Yeah, I think they're

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Speaker 1: just like these fortress companies that are are like I said,

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Speaker 1: they're dominating in retail. There the extra you really well,

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Speaker 1: they're gaining market share, they've got you know, customers that

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Speaker 1: want to go and shop at those stores and as

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Speaker 1: leaders in their respective spaces. That it just keeps institutions

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Speaker 1: really invested in some of these names. And I think

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Speaker 1: that you know, there's others I think, you know, Walmart, Target,

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Speaker 1: Lows I think are like that Costco. You could put

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Speaker 1: in that camp as well. So there's definitely some some

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Speaker 1: big behemoth retailers that continue to consolidate the share in

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Speaker 1: out there that that's available to them. So this sounds

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Speaker 1: like a great story. It sounds like it would be

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Speaker 1: a by Walmart shares up about four percent four point

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Speaker 1: six percent on the year today after beating earnings, were

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Speaker 1: beating forecasts across the board better than expected, showing that

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Speaker 1: they are continuing to see gains even post pandemic. Shares

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Speaker 1: down one point four percent right now in pre market trading.

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Speaker 1: How do you make sense of this? Yeah, I candidly,

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Speaker 1: it's a little surprising to me. I mean, and especially

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Speaker 1: with the setup for the back half where Walmart's got

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Speaker 1: so much momentum going into back to school and into holiday.

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Speaker 1: They've clearly got the inventory as much as their supply

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Speaker 1: chain pressures out there. Their inventory was up nicely, so

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Speaker 1: they're set up very well for a back half. I'm

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Speaker 1: a little surprised that customers are selling or investors are

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Speaker 1: selling on this news. Um. You know, I think that

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Speaker 1: they performed quite well. Traffic was up, you know, their

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Speaker 1: same source sales were better than expected. They raised their

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Speaker 1: full year guidance. I mean, there's a lot of things

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Speaker 1: going well and and you know, even with that e

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Speaker 1: commerce sales number coming in a little bit lighter at six.

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Speaker 1: You know, we were hoping it was going to be

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Speaker 1: more like ten percent. Last year was up, So six

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Speaker 1: on top of ninety seven is not so bad. You know.

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Speaker 1: I'm okay with that, And I think that they're going

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Speaker 1: to continue to execute well through this period. I mean,

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Speaker 1: especially with the fiscal stimulus and the government support that's

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Speaker 1: there for this consumer, with the child task credit. It's

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Speaker 1: the setup is still very good for the back half

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Speaker 1: for Walmart. You mentioned the key issue that I think

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Speaker 1: a lot of people are pointing to the disappointment and

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Speaker 1: e commerce sales and the progress made, their lack there

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Speaker 1: of relative to the boom of last year. And there

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Speaker 1: does seem to be a concern about this horse race

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Speaker 1: who's going to get ahead when it comes to online sales?

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Speaker 1: Because this is the new economy. What should investors be

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Speaker 1: looking for in terms of investment in the e commerce space,

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Speaker 1: in terms of market share, in terms of progress to

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Speaker 1: make them feel like the store is going to come

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Speaker 1: out ahead in the era of Walmart, Target and Amazon. Well, listen,

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Speaker 1: I I we've been thinking that sales online we're going

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Speaker 1: to slow this year, and they clearly have um you know,

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Speaker 1: and doing positive performance is still very good. You know,

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Speaker 1: a lot of us would have thought against a ninety

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Speaker 1: seven percent increase last year that you'd see a negative

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Speaker 1: even And so I think that, you know, between Walmart

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Speaker 1: and Amazon Target, they're continuing to gain eyeballs online and

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Speaker 1: gain market share online. And I think that that's coming

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Speaker 1: at the expense of a lot of weaker players. I

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Speaker 1: think Walmart, Amazon Target again Costco that others have done

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Speaker 1: a very good job of providing a very broad range

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Speaker 1: of product to be able to get and procure are online,

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Speaker 1: and we see them continuing to gain market here. Even Amazon, Look,

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Speaker 1: they had their second quarter was soft by Amazon standards

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Speaker 1: right there. Their prime day was a little bit softer

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Speaker 1: than we all expected, and the quarter itself was a

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Speaker 1: little softer. So you know, that trend line against the

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Speaker 1: comparison from last year makes some sense. And when you

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Speaker 1: look at on a two year basis, you know, compared

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Speaker 1: to twenty nineteen levels pre COVID, things are looking pretty

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Speaker 1: solid for for a lot of these guys. Jeff Foundman

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Speaker 1: go to half of me said as a wife, thank you.

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Speaker 1: TAUSI sending research analysts and assistant director of we Such.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join

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Speaker 1: us live weekdays from seven to ten am Eastern on

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Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six

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Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on

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Speaker 1: the terminal. I'm Tom keene In. This is Bloomer