WEBVTT - Bloomberg Surveillance TV: October 9, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.440 with Lisa Bromwitz and Amrie hort Ern. Join us each 0:00:18.520 --> 0:00:21.440 day for insight from the best in markets, economics, and 0:00:21.480 --> 0:00:24.759 geopolitics from our global headquarters in New York City. We 0:00:24.800 --> 0:00:27.479 are live on Bloomberg Television weekday mornings from six to 0:00:27.560 --> 0:00:31.040 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.240 --> 0:00:33.519 or anywhere else you listen, and as always on the 0:00:33.520 --> 0:00:37.000 Bloomberg Terminal and the Bloomberg Business app. Andrew Seeds of 0:00:37.000 --> 0:00:40.400 Morgan Stanley in the Soft Landing camp Self landings don't 0:00:40.440 --> 0:00:42.280 have to play out in a straight line. This is 0:00:42.320 --> 0:00:44.760 a tricky window where risk around growth are skewed to 0:00:44.840 --> 0:00:47.239 the downside. A few false negatives in the data can 0:00:47.320 --> 0:00:50.760 lead to belts of volatility. Andrew joins us now for more. Andrew, 0:00:50.760 --> 0:00:53.240 welcome to the program. Let's start with that phrase, soft landing. 0:00:53.440 --> 0:00:54.320 What does it mean to you? 0:00:56.120 --> 0:00:57.600 Good morning? It's great to be here. 0:00:57.920 --> 0:01:01.560 So for us it means inflation coming down, the FED easing, 0:01:02.000 --> 0:01:04.319 and no recession. And that's you know, very much what 0:01:04.440 --> 0:01:08.280 Morgan Stanley has been forecasting what we continue to forecast, 0:01:08.360 --> 0:01:11.480 and I think that's what I think, fortunately, we've. 0:01:11.280 --> 0:01:12.360 Been seeing from the data. 0:01:12.560 --> 0:01:15.440 I think we were in a critical window over September 0:01:15.480 --> 0:01:18.560 and still in October where you know, the market's going 0:01:18.600 --> 0:01:21.320 to be more vulnerable to weaker data because the FED 0:01:21.360 --> 0:01:24.800 and the ECB haven't really gotten underway yet with rate cuts. 0:01:24.840 --> 0:01:26.520 But I think so far that data has come in 0:01:26.560 --> 0:01:29.320 pretty solid, and I think that supports the soft landing view. 0:01:29.480 --> 0:01:31.119 Andrew, do you refer to some of the data as 0:01:31.200 --> 0:01:33.560 a few false negatives potentially in our future? Can we 0:01:33.560 --> 0:01:35.560 talk about the data we had through the summer and 0:01:35.600 --> 0:01:37.880 at the other side, which one was the head fake, 0:01:38.000 --> 0:01:40.880 the deceleration in jombs through the summer, or the reacceleration 0:01:41.000 --> 0:01:42.440 we saw on Friday. 0:01:44.200 --> 0:01:46.760 Yeah, so I think it was potentially this kind of 0:01:46.840 --> 0:01:49.120 rise in the unemployment rate. And this has been something 0:01:49.120 --> 0:01:51.640 that's in a lot of focus because you know, over 0:01:51.680 --> 0:01:55.200 a long period of time, it's consistently been one of 0:01:55.240 --> 0:01:58.640 the more worry cyclical indicators for markets. You know, once 0:01:58.680 --> 0:02:01.520 the unemployment rate has rise, it's almost kind of too 0:02:01.640 --> 0:02:02.520 late at that point. 0:02:02.600 --> 0:02:03.800 That's one of the last. 0:02:03.480 --> 0:02:06.880 Indicators historically to crack, and at that point it's very 0:02:06.920 --> 0:02:09.800 bad for equities and credit, and I think that's what 0:02:09.840 --> 0:02:13.240 the market was concerned about. You had concerns about triggering 0:02:13.240 --> 0:02:15.760 the SAM rule, You had concerns at the unemployment rate 0:02:15.840 --> 0:02:18.640 was already going up, and yet the FED as of 0:02:18.680 --> 0:02:21.440 the July meeting had still kept rates on hold. 0:02:21.800 --> 0:02:23.920 Now you know, there was another view there, and that 0:02:24.000 --> 0:02:24.160 was the. 0:02:24.200 --> 0:02:26.600 View closer to the view of Morgan Stanley's economist, which 0:02:26.639 --> 0:02:29.680 is at the unemployment rate was giving somewhat potentially kind 0:02:29.720 --> 0:02:32.680 of misleading signals because of the shape of the labor 0:02:32.680 --> 0:02:36.320 market the fact that participation was actually quite strong, that 0:02:36.400 --> 0:02:37.639 was kind of confounding the. 0:02:37.600 --> 0:02:39.720 Picture a bit. But we really didn't know. 0:02:39.840 --> 0:02:42.200 And even you know, heading into the other week with 0:02:42.560 --> 0:02:45.200 the the latest non farm payroll number, you had a 0:02:45.560 --> 0:02:48.960 really wide set of expectations going into that number, and 0:02:48.960 --> 0:02:51.480 the usually wide set. So I think the number we 0:02:51.560 --> 0:02:53.400 got was was good. We were at one hundred and 0:02:53.440 --> 0:02:56.080 sixty thousand at Morgan Stanley. We got a better number 0:02:56.120 --> 0:02:58.440 than that. And also I think given some of these 0:02:58.520 --> 0:03:02.360 very kind of unfortunate track natural disasters that we're seeing 0:03:02.360 --> 0:03:05.280 in the US, that could make the next several data 0:03:05.320 --> 0:03:07.560 prints more uncertain. So I think the fact that we 0:03:07.639 --> 0:03:11.200 got one solid reading for the economy or another solid 0:03:11.200 --> 0:03:14.359 reading on jobs is quite helpful for I think assuring 0:03:14.400 --> 0:03:16.200 the market that for now the economy is still in 0:03:16.200 --> 0:03:16.880 an okay place. 0:03:17.120 --> 0:03:19.639 Even with those prints. It's interesting to look, Andrew at 0:03:19.639 --> 0:03:23.800 how FED language hasn't changed. They are still talking about 0:03:23.840 --> 0:03:27.040 a balanced approach. Balanced is the new buzzword. Collin said 0:03:27.040 --> 0:03:30.000 it yesterday. Jefferson said it too. And we have an 0:03:30.000 --> 0:03:33.360 Atlanta GDP now tracker at three point two percent. If 0:03:33.360 --> 0:03:35.440 it is a FED that is still biased to cut 0:03:35.600 --> 0:03:38.880 with a strong economy, how positive is that for risk asses? 0:03:40.400 --> 0:03:42.760 Yeah, so we do think we're still in a good 0:03:42.920 --> 0:03:45.360 is good environment, you know you mentioned correctly. 0:03:45.360 --> 0:03:47.240 We also followed that Atlanta FED tracker. 0:03:47.320 --> 0:03:49.720 We think it's been a great indicator recently and it 0:03:49.800 --> 0:03:52.560 is suggesting a very strong US economy. 0:03:52.880 --> 0:03:53.720 But I think the other. 0:03:53.600 --> 0:03:57.080 Important thing is inflation is really looking like it's getting 0:03:57.120 --> 0:03:58.120 back under control. 0:03:58.200 --> 0:03:59.680 That kind of the battle against. 0:03:59.440 --> 0:04:02.720 Inflation has been one and if you look at forward 0:04:02.800 --> 0:04:05.920 looking inflation expectations from the interest rate market, say over 0:04:05.920 --> 0:04:08.840 the next two years, those are kind of below. Those 0:04:08.840 --> 0:04:11.200 are implying a number below what the FED is targeting. 0:04:11.280 --> 0:04:14.360 So if we think about kind of historical performance patterns, 0:04:14.360 --> 0:04:17.640 certainly historical patterns for credit, you know, a scenario where 0:04:17.640 --> 0:04:20.120 the economy is holding up better, where the FED is 0:04:20.160 --> 0:04:24.520 cutting more gradually towards neutral, which is what we're forecasting 0:04:24.560 --> 0:04:27.160 at Morgan Stanley. We think from this point on they're 0:04:27.160 --> 0:04:30.719 doing twenty five basis point cuts. That's been a much 0:04:30.839 --> 0:04:34.920 better kind of trade off for risky assets than one 0:04:34.960 --> 0:04:37.360 where growth is weakening more and you're getting a lot 0:04:37.440 --> 0:04:39.520 more FED cuts. So I think the scenario that we're 0:04:39.520 --> 0:04:42.159 getting in the data is very much tracking closer to 0:04:42.160 --> 0:04:44.520 that better soft landing base case that. 0:04:44.520 --> 0:04:46.760 Scenario lay out. It's happening in the treasury market, that 0:04:46.839 --> 0:04:49.599 repricing has happened since Friday, but Andrew, in the corporate 0:04:49.640 --> 0:04:53.040 credit market, the repricing hasn't happened. Investment grade spreads are 0:04:53.040 --> 0:04:55.800 still at eighty three basis points, exactly where they were 0:04:56.120 --> 0:04:59.360 on Friday. Are you surprised by the resilience the unmovedness 0:04:59.360 --> 0:05:00.240 of this market. 0:05:01.640 --> 0:05:04.760 Well, you know, look, spreads, spreads are tight, but our 0:05:04.839 --> 0:05:07.880 view at Morgan Stanley has been that spreads should be 0:05:07.960 --> 0:05:11.800 tighted that we're in an environment of better than expected fundamentals. 0:05:11.880 --> 0:05:16.320 We think soft landing is an unusually good backdrop for credit. 0:05:16.360 --> 0:05:17.480 Credit likes moderation. 0:05:18.120 --> 0:05:21.200 A soft landing is all about moderation and growth and 0:05:21.279 --> 0:05:23.240 inflation and monetary policy. 0:05:23.640 --> 0:05:26.279 And you still have very good technicals, You still. 0:05:26.120 --> 0:05:29.080 Have very strong demand relative to supply in the market, 0:05:29.120 --> 0:05:32.640 and better than average fundamentals. Better than average technicals probably 0:05:32.680 --> 0:05:35.880 should mean, you know, tighter than average, richer than average valuation. 0:05:36.080 --> 0:05:38.599 So I think another important factor, and I'm glad you 0:05:38.640 --> 0:05:40.560 linked it to yields, is we do think we're in 0:05:40.560 --> 0:05:43.640 an environment where higher yields are good for spreads, That 0:05:43.720 --> 0:05:47.520 higher yields are bringing in more demand from insurers, from 0:05:47.600 --> 0:05:50.840 pension front funds, from a lot of the buyers who've 0:05:50.839 --> 0:05:53.120 been really driving the market over the last year. And 0:05:53.160 --> 0:05:55.680 so you know, with the yields going up to four percent, 0:05:55.800 --> 0:05:59.159 all of a sudden, that same spread hits a lot 0:05:59.200 --> 0:06:00.919 more yield bug for those buyers. 0:06:01.200 --> 0:06:03.400 Andrew, right now, we're dealing an environment where there's a 0:06:03.480 --> 0:06:06.640 number of potential risks in the United States. There's the 0:06:06.720 --> 0:06:09.080 politics potentially we're not going to know for days weeks, 0:06:09.080 --> 0:06:11.920 and we could see a contested election. Then there's the geopolitics. 0:06:11.920 --> 0:06:15.080 We see in the short term increase in the oil price. 0:06:15.279 --> 0:06:19.839 What is the biggest catalyst to potentially your soft landing scenario. 0:06:21.480 --> 0:06:24.000 Well, I do think, you know, understandably, I think the 0:06:24.120 --> 0:06:27.760 US election is going to and will get a lot 0:06:27.800 --> 0:06:29.960 of that focus. You know, I think you are facing 0:06:30.760 --> 0:06:34.960 a close election, that's one important factor, and between two 0:06:35.040 --> 0:06:40.240 candidates with very very different policy agendas and policy proposals, 0:06:40.279 --> 0:06:42.600 and so, you know, I think in terms of thinking 0:06:42.640 --> 0:06:45.000 about factors that are not just going to affect the 0:06:45.000 --> 0:06:48.120 market over the next next month, and we are less 0:06:48.160 --> 0:06:50.120 than a month away from the US election, but also 0:06:50.720 --> 0:06:54.120 really going to potentially affect how investors think about pricing 0:06:54.560 --> 0:06:57.400 into next year, I do think the US election probably 0:06:57.480 --> 0:07:00.360 stands out as a really important factor, and and that's 0:07:00.400 --> 0:07:03.000 why certainly, you know, at Morgan Stanley we've been devoting 0:07:03.000 --> 0:07:04.719 a lot of our effort to trying to understand the 0:07:04.720 --> 0:07:07.880 issues around it and research related to election implications. 0:07:08.000 --> 0:07:10.120 Do you think the market right now is properly hedged 0:07:10.440 --> 0:07:13.040 for a scenario where the election might be contested. 0:07:15.360 --> 0:07:17.080 Well, I think that's it's difficult to say. 0:07:17.080 --> 0:07:19.400 I mean, I think we have seen some increase in 0:07:19.480 --> 0:07:23.720 volatility around the month of November but it's also a 0:07:23.800 --> 0:07:25.840 factor where this is an issue. 0:07:25.840 --> 0:07:27.480 I mean, I'll talk about the election more. 0:07:27.360 --> 0:07:30.800 Generally, that is a kind of an unknown heading into 0:07:31.160 --> 0:07:33.240 heading into next month. The markets had this on their 0:07:33.240 --> 0:07:35.120 calendar for a long period of time. I think a 0:07:35.120 --> 0:07:38.520 lot of investors in our meetings cite the election as 0:07:38.560 --> 0:07:40.040 a major source of uncertainty. 0:07:40.120 --> 0:07:41.640 So, you know, I do think. 0:07:41.440 --> 0:07:43.960 We as much as it's fair to say that the 0:07:44.000 --> 0:07:47.360 election is bringing up the potential for volatility, is bringing 0:07:47.360 --> 0:07:50.520 the potential for uncertainty, I think it's also possible. You know, 0:07:50.560 --> 0:07:52.720 it's also fair to say that investors are very aware 0:07:52.760 --> 0:07:54.880 of this and that they are they're going in with 0:07:54.880 --> 0:07:55.560 their eyes open. 0:07:55.640 --> 0:07:56.360 Now. You know. 0:07:56.440 --> 0:07:58.640 Again, I think it's a factor that we also when 0:07:58.680 --> 0:08:01.160 we look out into twenty twenty five, and you know, 0:08:01.200 --> 0:08:04.320 again we're pretty optimistic, say on more m and a 0:08:04.400 --> 0:08:06.520 activity in the market. You know, we actually think that 0:08:06.600 --> 0:08:09.480 moving past the election, just kind of having this once 0:08:09.600 --> 0:08:12.840 this question is resolved, that that can be a positive 0:08:12.840 --> 0:08:14.840 catalyst in certain ways. So that can help, we think 0:08:14.880 --> 0:08:18.680 trigger more corporate activity, and that there are some you know, 0:08:18.760 --> 0:08:22.200 some risks associated with it, but also some positives As 0:08:22.200 --> 0:08:23.400 you move past the event. 0:08:23.280 --> 0:08:25.480 You're not the only one who's said that. Andrew appreciate it. 0:08:25.520 --> 0:08:38.000 Andrew sheets the more constanting Camra Dawson of New Edge Wealth, 0:08:38.040 --> 0:08:41.000 saying we would not be surprised to see continued volatility 0:08:41.040 --> 0:08:43.440 in the near term as risk assets are going into 0:08:43.440 --> 0:08:47.480 this historically high volatility month price for perfection. The volatility 0:08:47.520 --> 0:08:50.840 is unlikely to be ctist clinics caatis clissmic given the 0:08:50.920 --> 0:08:53.400 backdrop of strong economic growth and a shift to more 0:08:53.400 --> 0:08:56.120 supportive monetary policy. With a very long word, Cameron Dawson 0:08:56.200 --> 0:08:58.240 joins us now for more easy to write than say 0:08:58.240 --> 0:08:59.920 out loud. Cameron, thanks for that, put it in just 0:09:00.160 --> 0:09:01.880 for you, Thank you very much. Let's talk about this 0:09:01.960 --> 0:09:03.880 run we've seen in some of these individual names and 0:09:03.960 --> 0:09:06.480 video has had a massive run five days of gains, 0:09:06.600 --> 0:09:09.080 and for some people they're reflecting on the first half 0:09:09.120 --> 0:09:11.120 of this year where we had this big boost in 0:09:11.160 --> 0:09:13.079 inflation turned out to be a bit of a head fake. 0:09:13.160 --> 0:09:15.480 We started to think about high rates for longer, and 0:09:15.559 --> 0:09:17.840 tech stocks really started to perform and we reached in 0:09:17.880 --> 0:09:19.760 for that playbook all over again. 0:09:20.000 --> 0:09:22.400 It is interesting to see the equal weight S and 0:09:22.440 --> 0:09:24.760 P five hundred, which has been doing better over the 0:09:24.800 --> 0:09:27.960 last couple of months start to roll over on a 0:09:28.000 --> 0:09:31.760 relative basis, which just suggests that maybe there's this narrowness 0:09:31.760 --> 0:09:34.320 creeping back into the market. And you see it within 0:09:34.360 --> 0:09:38.679 the tech sector itself. Look at video being strong driving semiconductors, 0:09:38.920 --> 0:09:42.120 but flip the page to software. Microsoft is breaking down. 0:09:42.200 --> 0:09:44.760 It's now below it's two hundred day moving average. So 0:09:44.880 --> 0:09:48.000 even within the all great tech sector, there are pockets 0:09:48.000 --> 0:09:50.520 of weakness being held up by just a couple of names. 0:09:50.679 --> 0:09:53.000 Is this all about red cup expectations? Is that in 0:09:53.040 --> 0:09:54.520 the drive and see or is it something else? 0:09:54.880 --> 0:09:57.199 We think it's the confluence of everything if you take 0:09:57.240 --> 0:09:59.600 a step back and appreciate the fact that you have 0:09:59.720 --> 0:10:02.480 strong economic growth. Look at Atlanta fed GDP now at 0:10:02.480 --> 0:10:05.760 three point two percent, supported by fiscal deficits. As if 0:10:05.760 --> 0:10:08.560 we're in a crisis now with the bond market pricing 0:10:08.559 --> 0:10:12.400 in the largest non recessionary cutting cycle in forty years, 0:10:12.679 --> 0:10:15.440 What is rate or what are risk assets not to like? 0:10:15.760 --> 0:10:18.400 And we think that's why you see credit spread so tight. 0:10:18.440 --> 0:10:21.559 The b DOUBLEA credit spread is now one hundred basis points, 0:10:21.600 --> 0:10:24.000 nearly at the lows that we saw in twenty twenty one. 0:10:24.080 --> 0:10:27.080 Equity valuations twenty one and a half times. That's at 0:10:27.240 --> 0:10:29.760 nearly the highs we saw in twenty twenty one. So 0:10:29.840 --> 0:10:32.600 these markets are priced for perfection, but that's because the 0:10:32.679 --> 0:10:36.120 backdrop is quite nearly perfect. The question is can it 0:10:36.240 --> 0:10:37.800 last and where does it go from here? 0:10:37.960 --> 0:10:41.240 Does earning season help? With expectations of under five percent 0:10:41.280 --> 0:10:43.880 growth your rear, that's relative to what we've seen before, 0:10:44.080 --> 0:10:44.839 kind of a low bar. 0:10:45.360 --> 0:10:47.120 It is a low bar because you've also seen those 0:10:47.200 --> 0:10:50.720 estimates get trimmed going into this earning season, so maybe 0:10:50.720 --> 0:10:53.360 we can jump over this lower bar. The thing that's 0:10:53.360 --> 0:10:56.200 interesting is over the last two months you've actually seen 0:10:56.240 --> 0:10:59.560 twenty twenty five estimates get trimmed as well. We think 0:10:59.559 --> 0:11:02.040 that's why markets have stalled out over the last couple 0:11:02.040 --> 0:11:02.439 of months. 0:11:02.440 --> 0:11:04.080 They've been relatively flat. 0:11:04.320 --> 0:11:07.760 So you do need to see earning sestments continue to rise, 0:11:07.880 --> 0:11:10.640 we think, in order to support the market. The one 0:11:10.800 --> 0:11:13.280 thing that has been the key underlying support for this 0:11:13.360 --> 0:11:16.200 market since the beginning of twenty twenty two is rising 0:11:16.240 --> 0:11:18.000 twelve month forward earning sestments. 0:11:18.200 --> 0:11:21.120 That is absolutely critical to maintain, and. 0:11:21.200 --> 0:11:23.640 You've seen that in seventy two percent of the companies. 0:11:23.679 --> 0:11:25.680 That's according to Bank of America are expected to grow 0:11:25.679 --> 0:11:28.760 their EPs. That's some good breath, but as John was 0:11:28.800 --> 0:11:31.920 just describing, the market doesn't have breath at this very moment. 0:11:32.240 --> 0:11:35.440 Do you expect that to change? It's certainly the hope 0:11:35.440 --> 0:11:36.400 of a lot of people. 0:11:36.440 --> 0:11:39.800 And if you look into next year's earnings estments for 0:11:39.800 --> 0:11:42.880 twenty twenty five, the market has priced in the mag 0:11:42.960 --> 0:11:47.720 seven decelerating materially and the rest of the market accelerating 0:11:47.760 --> 0:11:50.560 in their earnings growth. But in a way that actually 0:11:50.640 --> 0:11:53.640 creates a high bar for the rest of the market 0:11:53.720 --> 0:11:56.960 to deliver because you have these big accelerations in earnings 0:11:56.960 --> 0:11:59.199 growth which are already priced in and forecasted. 0:11:59.320 --> 0:12:01.520 So the banks would put on Friday, and we're all 0:12:01.520 --> 0:12:03.839 reflecting on what we heard maybe two weeks ago when 0:12:03.840 --> 0:12:06.800 we heard from Alli Financial warn about credit risk, and 0:12:06.840 --> 0:12:09.040 we heard from Dan Pinto JP Morgan. We talked about 0:12:09.080 --> 0:12:11.480 lower interest rates maybe weighing go on that interest income. 0:12:11.679 --> 0:12:13.079 What do you think is going to be the standout 0:12:13.120 --> 0:12:15.320 theme for this reporting season for some of the banks, 0:12:15.320 --> 0:12:16.280 both big and small. 0:12:16.559 --> 0:12:18.920 I think it all comes back to the credit risk question, 0:12:19.040 --> 0:12:21.720 which is the underlying question that we've all been asking. 0:12:22.200 --> 0:12:25.760 Is the economic data overstating the strength of this economy, 0:12:26.080 --> 0:12:29.360 and the message from the banks will be important because 0:12:29.360 --> 0:12:31.720 they'll give us a notion about small businesses, they'll give 0:12:31.800 --> 0:12:33.280 us a notion about consumers. 0:12:33.679 --> 0:12:35.400 And if we continue to see. 0:12:35.120 --> 0:12:38.439 Credit risks bubble up, look at default rates within consumers. 0:12:38.480 --> 0:12:41.360 That's where ALI was flagging back a couple of weeks ago. 0:12:41.640 --> 0:12:44.680 If you continue to see that, it would question some 0:12:44.840 --> 0:12:48.480 of this headline data necessarily not being as strong as 0:12:48.559 --> 0:12:50.040 maybe it looks on the surface. 0:12:50.200 --> 0:12:52.199 In the Wait a little bit, Jack Caffrey, JP Morgan 0:12:52.200 --> 0:12:54.760 mentioned this yesterday. It's very unusual to see defaults on 0:12:54.800 --> 0:12:57.600 auto loans. If you go back to GFC, I remember 0:12:57.600 --> 0:13:00.079 all the stories we tell the car was the last thing. 0:13:00.240 --> 0:13:01.840 It was the one thing you held on, so you 0:13:01.880 --> 0:13:03.400 always made that payment. 0:13:03.440 --> 0:13:04.720 What could that be about. 0:13:04.920 --> 0:13:07.679 It's partially a function of the price increases that we 0:13:07.760 --> 0:13:10.280 saw coming out of the pandemic. It's partially a function 0:13:10.320 --> 0:13:13.040 of people reaching for cars coming out of the pandemic, 0:13:13.360 --> 0:13:16.600 but it also likely reflects the true K shaped economy. 0:13:16.880 --> 0:13:19.680 It's usually the lower income consumer that's more likely to 0:13:19.760 --> 0:13:22.840 finance their cars and have floating rate debt overall, with 0:13:22.920 --> 0:13:26.200 credit cards, we do know that the low income consumer 0:13:26.360 --> 0:13:29.160 is under pressure and the one thing that is keeping 0:13:29.160 --> 0:13:33.400 them above water is this jobs market. It's pretty incredible 0:13:33.440 --> 0:13:36.120 that you're seeing this huge uptick in default with a 0:13:36.160 --> 0:13:37.760 relatively robust jobs market. 0:13:37.840 --> 0:13:39.360 Look at where the unemployment rate is. 0:13:39.640 --> 0:13:42.480 If that goes up any higher, this could actually have 0:13:42.679 --> 0:13:45.160 default in that cohort of consumers that would be in 0:13:45.160 --> 0:13:48.000 line with the GFC, even though consensus seems to be 0:13:48.480 --> 0:13:50.560 that we're not going to have a consumer led kind 0:13:50.600 --> 0:13:52.760 of recession in this cycle. So I think it is 0:13:52.880 --> 0:13:56.200 incredibly unique, but it is certainly something that catches our 0:13:56.240 --> 0:13:57.920 e that makes us question the data. 0:13:58.000 --> 0:13:59.880 That is one of those things again just out of 0:14:00.080 --> 0:14:02.960 line with an economy that's been driven by consumer spending. 0:14:03.000 --> 0:14:05.040 You also see it in some of these companies in 0:14:05.160 --> 0:14:09.240 just the past month. Pepsi, Constellation, Nike, Fedaches, rh Hormal, 0:14:09.320 --> 0:14:13.400 Dollar Tree, Lululemon have all cut their sales or earnings 0:14:13.440 --> 0:14:15.040 again just in the past month. 0:14:15.480 --> 0:14:16.760 Is there a sector. 0:14:16.480 --> 0:14:18.320 Because this has continued to be a problem for this 0:14:18.360 --> 0:14:21.560 equity market of staples of packaged food companies that you 0:14:21.720 --> 0:14:23.600 just can't buy until we figure out what's happening with 0:14:23.640 --> 0:14:24.200 the consumer. 0:14:24.320 --> 0:14:27.160 I think it's all a reflection of this fading pricing power, 0:14:27.200 --> 0:14:29.800 and that comes squarely to head with what we're seeing 0:14:29.840 --> 0:14:33.280 within forecasts for earnings, because earnings are forecasted to actually 0:14:33.440 --> 0:14:34.560 accelerate next. 0:14:34.440 --> 0:14:35.920 Year on the revenue line. 0:14:36.080 --> 0:14:39.400 If you see fading pricing power companies effectively saying we 0:14:39.520 --> 0:14:42.280 want to raise prices, but consumers are pushing back because 0:14:42.320 --> 0:14:45.600 they can't take it anymore. That suggests that you'll actually 0:14:45.640 --> 0:14:48.920 see a deceleration in revenue next year, which is certainly 0:14:48.960 --> 0:14:49.920 not what's being priced in. 0:14:50.120 --> 0:14:52.800 Does that cap just how bullish you can be on 0:14:52.840 --> 0:14:57.080 an overall equity market which with otherwise has good fundamental 0:14:57.120 --> 0:14:58.680 growth in the economy behind it. 0:14:59.080 --> 0:15:00.640 We don't think it would be be the end of 0:15:00.680 --> 0:15:03.320 the world or a two reaching of a base case 0:15:03.400 --> 0:15:07.120 to expect relatively flat returns in twenty twenty five. It's 0:15:07.120 --> 0:15:09.080 not enough to say get out of your equities and 0:15:09.160 --> 0:15:12.000 run for the hills. It's just to appreciate that if 0:15:12.000 --> 0:15:15.360 that twelve month forward earnings number starts to flatline, it's 0:15:15.480 --> 0:15:18.200 likely that returns flat line. It looks a lot more 0:15:18.240 --> 0:15:21.520 like a year like twenty fifteen or twenty eighteen, or 0:15:21.520 --> 0:15:24.160 the market chopped sideways. And the good news in that 0:15:24.440 --> 0:15:27.040 is it effectively allowed you to grow into very fulsome 0:15:27.080 --> 0:15:29.240 valuation multiples, which is where we are today. 0:15:29.360 --> 0:15:31.040 Cameron, I hate to be the debbie downer, but what 0:15:31.120 --> 0:15:32.360 if tariff Man comes back? 0:15:32.400 --> 0:15:36.000 What if forward earnings actually look like for these companies. 0:15:36.440 --> 0:15:40.240 We didn't necessarily see it impact company earnings in a 0:15:40.360 --> 0:15:44.200 material way in twenty eighteen because it was far more pocketed. 0:15:44.680 --> 0:15:47.560 If we have broad tariffs, though, this is certainly something 0:15:47.600 --> 0:15:51.000 that could challenge the earnings picture because we do know 0:15:51.080 --> 0:15:52.800 it's effectively a regressive tax. 0:15:52.840 --> 0:15:54.680 We do know it does lower consumption. 0:15:55.120 --> 0:15:57.360 It's less of an inflation risk and more of the 0:15:57.360 --> 0:15:59.880 fact that it would dampen consumption, which then, of course 0:16:00.000 --> 0:16:02.520 would cause you to question earning sestements and that would 0:16:02.520 --> 0:16:04.320 be a source of volatility for equities. 0:16:04.440 --> 0:16:07.280 I meant, too, the debbie downer on the earnings estimates. 0:16:07.600 --> 0:16:09.240 Do you think companies are going to have to focus 0:16:09.280 --> 0:16:13.200 on this in this quarter because it is just around 0:16:13.240 --> 0:16:15.440 the block in terms of what this election is going 0:16:15.480 --> 0:16:15.920 to look like. 0:16:16.440 --> 0:16:19.120 We've already been hearing from companies over the last let's 0:16:19.160 --> 0:16:22.160 call it three four months that they've been delaying some 0:16:22.360 --> 0:16:26.640 capital spending, they've been delaying some hiring decisions, because of 0:16:26.720 --> 0:16:30.360 election uncertainty, So certainly that is something that's weighing on 0:16:30.400 --> 0:16:33.800 their mind whether or not they're going to absolutely make 0:16:33.920 --> 0:16:37.560 changes because of the election going into this earning season, 0:16:37.760 --> 0:16:39.720 they'll probably say, we have to wait and see. 0:16:39.880 --> 0:16:41.880 Think about how wide the rank is for twenty twenty 0:16:41.880 --> 0:16:43.920 five a sweep fre either side. We can have a 0:16:43.920 --> 0:16:45.720 corporate taxt right of what twenty eight percent on the 0:16:45.720 --> 0:16:48.320 one side and fifteen percent on the other with conditions, 0:16:48.440 --> 0:16:49.920 What does that look like for you? Just how wide 0:16:49.960 --> 0:16:51.240 is the range for twenty twenty five? 0:16:51.920 --> 0:16:52.880 Completely massive? 0:16:52.960 --> 0:16:54.880 And I think that what we have to appreciate is 0:16:54.920 --> 0:16:57.080 that both sides what they have in common is that 0:16:57.080 --> 0:17:01.800 they're talking about higher deficit spending and growth dampening policies. 0:17:02.080 --> 0:17:04.520 So on one side you get growth dampening from tariffs 0:17:04.560 --> 0:17:07.720 and potential immigration. The other side you get potential growth 0:17:07.800 --> 0:17:10.960 dampening on higher corporate taxes, which just means that we 0:17:11.000 --> 0:17:12.919 then have to turn our minds to the bond market 0:17:13.000 --> 0:17:15.159 and how does the bond market digest all of this. 0:17:15.640 --> 0:17:17.960 We do know that the bond market did not like 0:17:18.080 --> 0:17:21.040 the higher treasury issuance in the third quarter twenty twenty three. 0:17:21.720 --> 0:17:23.800 Treasury yields went up by one hundred and fifty basis 0:17:23.800 --> 0:17:27.280 points and valuations within the equity market hated it. So 0:17:27.320 --> 0:17:30.040 we do think that instead of this idea by the 0:17:30.119 --> 0:17:33.840 rumor sell the news with the election, that the election 0:17:33.920 --> 0:17:37.520 itself could be a source of volatility if it results 0:17:37.520 --> 0:17:38.320 in a sweep. 0:17:38.119 --> 0:17:40.919 That could be charactistmic camera, thank you, Did I do 0:17:40.960 --> 0:17:41.239 that right? 0:17:41.680 --> 0:17:41.880 Yeah? 0:17:41.880 --> 0:17:42.600 Thank you? All right? 0:17:42.680 --> 0:17:45.160 Second guard Cameron Dason and new h Wow Cameron, thank 0:17:45.200 --> 0:17:57.240 you very much. So here's the latest fame of bracing 0:17:57.320 --> 0:18:00.639 for Milton's landfall. Already stretched thin following how Urricane Helene. 0:18:00.680 --> 0:18:03.400 The agency is preparing for a three billion dollars deficit 0:18:03.480 --> 0:18:06.119 by temporary but the government says it has the resources 0:18:06.119 --> 0:18:09.639 to meet immediate needs. The former FEMA administrator, Craig Fugu, 0:18:09.800 --> 0:18:13.720 joins us now he let the agency under the Obama administration. Craig, 0:18:13.760 --> 0:18:15.560 thank you for giving us your time this morning. We 0:18:15.640 --> 0:18:17.280 recall also some of the work that you did with 0:18:17.320 --> 0:18:19.800 Governor Jeff Bush back in the early two thousands, and 0:18:19.840 --> 0:18:22.560 maybe we can start the conversation there of the hurricane 0:18:22.600 --> 0:18:25.440 seasons that you oversaw in two thousand and four, five six. 0:18:25.480 --> 0:18:28.120 When you think back to that period. What's different about 0:18:28.160 --> 0:18:31.400