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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 1: We begin with our top story, the S and P
Speaker 1: five hundred, looking to build on three weeks of gains
Speaker 1: as investors prepare for a busy week of data. Peter
Speaker 1: Sheer of Academy Securities writing this, I think we are
Speaker 1: near the end of the lower yields fed put rally.
Speaker 1: That is, health stocks creep higher on anemic volumes last week.
Speaker 1: We argue that the market might quote gap from no
Speaker 1: landing to some form of bumpy landing. I'm pleased to say,
Speaker 1: joins us right now, it seems like we're some sort
Speaker 1: of precipice.
Speaker 3: Of narrative shift.
Speaker 1: Is that kind of how you.
Speaker 4: See it, yeah, And I feel we kind of clung
Speaker 4: to this American exceptionalism too long. The data started turning
Speaker 4: a couple months ago. You've seen it in the City
Speaker 4: Economic Surprise Index, which you know encompasses a fair bit
Speaker 4: of data, and yet all you heard was American exceptionalism
Speaker 4: and American exceptionalism, American exceptionalism. I think that narrative has changed,
Speaker 4: and we're going to wake up one day and realize, whoa, whoa,
Speaker 4: things aren't as good as we thought they were.
Speaker 3: And I think that's where we're at right now.
Speaker 4: And Friday's consumer confidence was certainly a shock to anyone
Speaker 4: who thought everything's still rosy.
Speaker 1: Well, this is the reason why some people are looking
Speaker 1: at this idea of maybe not goldilocks, but a landing
Speaker 1: which will at least break the prospect of FED rate
Speaker 1: cuts back on the table. Why do you see it
Speaker 1: as something more pernicious than that, that this weakness is
Speaker 1: maybe more entrenched.
Speaker 4: One we've all been asking for the last year and
Speaker 4: a half. When does the consumer slow down? When does
Speaker 4: credit card debt all these things start, you know, intend,
Speaker 4: you know, stopping their spending. I think we're seeing some
Speaker 4: of that again. What I found really striking about consumer
Speaker 4: confidence on Friday is University of Michigan publishes both by
Speaker 4: Democrats and if those were affiliated with Republican Party, and
Speaker 4: the Democrat party side went down precipitously as well. It's
Speaker 4: down below ninety. So that struck me. It's, you know,
Speaker 4: there's this party as we're heading to the election. People
Speaker 4: seem very depressed. On both sides. They're worried. I think
Speaker 4: that's kind of accelerates. We'll get a lot of information
Speaker 4: about sales. And the big thing to me is equities
Speaker 4: have already had this fed put rally, so I think
Speaker 4: we've priced in a lot of bed put ye narrative.
Speaker 3: We're not going to get that many cuts, even if
Speaker 3: they cut.
Speaker 1: We were speaking to Cameron Dawson of New Edge earlier
Speaker 1: this morning and she said she's actually more interested in
Speaker 1: retail sales than the CPI print, maybe because of what
Speaker 1: you're just talking about.
Speaker 5: Would you agree with that?
Speaker 1: Is that sort of how you view things?
Speaker 4: Yeah, I think there's a decent chance CPI will come
Speaker 4: in lower than expected.
Speaker 3: Just all the way the calculations are done.
Speaker 4: We probably get a brief rally both on bonds and stocks,
Speaker 4: But it really comes down to what's going on with
Speaker 4: the retail, what's going on with consumption, what's going to happen.
Speaker 4: I think with trade tariffs, right, if we're going to
Speaker 4: put on more tariffs on China, how do they respond?
Speaker 4: And I think we have just started this trade war
Speaker 4: and it's accelerating, and what we're going to see as
Speaker 4: more and more margin pressure as Chinese brands try and
Speaker 4: compete both in China but also across the globe. Not
Speaker 4: necessarily in the US, but I think that's where there's
Speaker 4: going to be margin pressure. There's going to be competition
Speaker 4: with these Chinese brands that's not yet priced in at all,
Speaker 4: and I think tariffs, if we announced this week, will
Speaker 4: make that more clear to people.
Speaker 3: Hey, we've got to be aware of this, and it's.
Speaker 4: Changing how the world global economy is behaving.
Speaker 1: Well, I want to get to that one second. This
Speaker 1: has been your thesis for a long time that's been
Speaker 1: really prescient, which is basically, this is a glut of
Speaker 1: goods and the Chinese government is going to try to
Speaker 1: flood the rest of the world with stuff that they're
Speaker 1: overproducing because they structurally have to because their economy relies
Speaker 1: on it.
Speaker 3: It's sort of the new.
Speaker 1: Housing market is a new industrial overproduction. Before we get there, though,
Speaker 1: I want to just have you respond because you've see,
Speaker 1: in direct opposition to what ahspc's Max Kettner is saying,
Speaker 1: what he put out this morning, the dip in risk
Speaker 1: assets is increasingly in the rear view year as many
Speaker 1: major equity indices and reapproach their unit date highs. Talking
Speaker 1: again about goldilocks that essentially some of these pressures that
Speaker 1: you're talking about are going to keep the FED cutting
Speaker 1: on some sort of trajectory that will allow things to
Speaker 1: keep tugging along. Why do you think that is going
Speaker 1: to end? At a time where earnings have come in
Speaker 1: stronger than people expected, and companies are displaying a good
Speaker 1: deal of pricing power and been able to shrug off
Speaker 1: some of the geopolitical headwinds.
Speaker 4: Now, I think one big thing that's been helping the
Speaker 4: stock market is a huge record buyback. So we've seen
Speaker 4: record buybacks. That's only supporting stocks when you look at
Speaker 4: it right. In some of the past week, you saw
Speaker 4: a little bit of weakness and then it was overcome
Speaker 4: during the course of the day with what looked like
Speaker 4: a lot like just you know, corporate buying, So I
Speaker 4: think that's been supportive. I think the valuation questions are
Speaker 4: still real. How much is AI driven US? Where we
Speaker 4: headed on AI? You know, are we getting the benefit
Speaker 4: all those things will start my out right, we get
Speaker 4: in video earnings next week, so that'll be an important part.
Speaker 4: So I think the valuations are creeping back high, setting
Speaker 4: people up for another disappointment. And that's why I think
Speaker 4: we dropped this five to ten percent. We got down
Speaker 4: about six percent. We never got to that ten percent level.
Speaker 4: I think we get there, you know, in the next
Speaker 4: few weeks or months, as this realization sets in. There's
Speaker 4: still too much hopium out there.
Speaker 1: Well, this raises a prospect of what's the catalyst. Is
Speaker 1: it going to be economic data pointing to a more
Speaker 1: material slowdown in the consumer? Is the consumer maybe not
Speaker 1: as significant as people previously thought, which is something that
Speaker 1: we heard in an interview that Dandy Berger did earlier
Speaker 1: this morning. Or is this really going to come from
Speaker 1: the geopolitics at the moment of more tariffs, of widening pressures,
Speaker 1: of this question of whether companies can sell in China
Speaker 1: at a time where the gates are going up in
Speaker 1: the US.
Speaker 4: So my base case is that this economic weakness has
Speaker 4: been helping yields lower, that's been helping stocks. We're going
Speaker 4: to hit a point in the coming days or weeks
Speaker 4: where we see more economic weakness and people realize, wow,
Speaker 4: maybe this isn't so good for the future of the market,
Speaker 4: and that's when you start rolling over in stocks. And
Speaker 4: then you've got the geopolitical risk you've got made by
Speaker 4: China theory, You've got the tariffs. All of those things
Speaker 4: I think are almost quote unquote freebies if you're going
Speaker 4: to be short or underweight this market. I think any
Speaker 4: of those alone can knock this market down, and you
Speaker 4: potentially get multiple of those things occurring. So I think
Speaker 4: we're well set up if you want to be underweight
Speaker 4: to benefit from that.
Speaker 3: I still like yields.
Speaker 4: I think yields do go lower, but stocks are going
Speaker 4: to start giving up This whole narrative of lower yields
Speaker 4: is good for stocks, And say, yields are going lower
Speaker 4: because this economy is shaky and maybe even jobs aren't
Speaker 4: anywhere close to as good as the published data has been.
Speaker 1: How much do you see a potential rally and government
Speaker 1: debt given some of the hangovers with inflation, given the
Speaker 1: fact that we are seeing terriffs being put in place,
Speaker 1: and given the fact that the deficit, which some people
Speaker 1: worry about some people shrug off, is continuing to climb.
Speaker 4: Yeah, I think at the front end we should get
Speaker 4: to two cuts this year. Maybe you see price in
Speaker 4: three cuts. I don't think we can get any better
Speaker 4: than that. And on tens, I think we can go
Speaker 4: down to maybe four thirty. So I kind of have
Speaker 4: this four thirty to four to fifty range. But as
Speaker 4: you say, you've got all these other issues, and I've
Speaker 4: got to admit, over the past couple of weeks, I'm
Speaker 4: increasing looking at the commodity market and getting more and
Speaker 4: more nervous that inflation is actually going to creep up
Speaker 4: through the commodity market.
Speaker 3: And that was off my.
Speaker 4: Radar, I would say, two three weeks ago. And as
Speaker 4: you look through the data you go back through look
Speaker 4: a lot of the ISM, a lot of the PMI,
Speaker 4: all prices paid were much higher. Well, the rest of
Speaker 4: the data was weaker. So you know, I don't want
Speaker 4: to say stat inflation. I don't think that's a realistic situation,
Speaker 4: but I can't dismiss it as easily now as I
Speaker 4: put a month ago.
Speaker 1: Just real quick, which commodity, because oil prices haven't been
Speaker 1: really shooting higher.
Speaker 3: What are you watching?
Speaker 4: So Copper's up quite significantly. You've seen Goal, you know,
Speaker 4: the precious metals up, nickels up, a lot of the
Speaker 4: industrial metals are actually up. Oil has been fairly stable.
Speaker 4: Oil had a lot of priced in and it's kind
Speaker 4: of been calm again. It hasn't really retreated even as
Speaker 4: you've seen kind of the status co emerge in the
Speaker 4: Middle East.
Speaker 3: So I think that's still susceptible for a shock.
Speaker 4: But really, Copper's been one of the big keys that
Speaker 4: I've been looking at.
Speaker 1: And with a five to ten percent decline in equities.
Speaker 5: Peter, are you a buyer?
Speaker 3: Is this a by the JIT moment? Yeah? I think so.
Speaker 3: I think it'll be a good opportunity again right now.
Speaker 4: I like Warren stocks better than U S Stox, so
Speaker 4: I'm not completely burish on the global economy. I like
Speaker 4: Chinese stocks, Indian stocks much better than I like, you know,
Speaker 4: the NASZAC one hundred, and I am wanting to buy
Speaker 4: banks and some of the things that have lagged behind.
Speaker 4: So some of these low valuation, high debt companies I
Speaker 4: think they can rebound as you start getting through this.
Speaker 4: And we even started seeing in the past week or
Speaker 4: two right where some of the you know, the rust
Speaker 4: of two thousands been doing a little bit better. So
Speaker 4: I think if we get that pullback, that's where I
Speaker 4: want to invest. I like the equal weighted indices better,
Speaker 4: but I am waiting for a pullback to get really committed.
Speaker 1: Peter's share of Academy Securities, thank you as always really
Speaker 1: wonderful insights. Meanwhile, the Financial Times reporting the New York
Speaker 1: Stock Exchange surveying mark participants on round the clock trading.
Speaker 1: The survey, coming as a startup backed by Stephen Cohen's
Speaker 1: Point seventy two Ventures Fund, is seeking SEC approval to
Speaker 1: launch the first round the clock exchange. Let's head to
Speaker 1: New York where Danny Berger is joined by the New
Speaker 1: York Sack Exchange President Lynn Martin to talk about why
Speaker 1: we all need twenty four to seven trading in our lives.
Speaker 5: Danny, Hi, Lisa, that's right, because you know, we want
Speaker 5: to be wrangling the kids and have the ability to
Speaker 5: trade while we do. Say Hyland, thank you so much
Speaker 5: for joining us, Thanks for having me. So some others
Speaker 5: might have opinions about this. But overall the survey that
Speaker 5: you've gotten so far from what you've heard, I know
Speaker 5: you're still in the middle of it.
Speaker 3: What have you heard so far?
Speaker 6: What we've heard is there are a lot of things
Speaker 6: to consider, mainly on the infrastructure side, which is not
Speaker 6: really a surprise. It's why we sought out to get
Speaker 6: feedback before something like this was introduced by the SRO community.
Speaker 6: We wanted to understand all of the pieces of the
Speaker 6: ecosystem that would need to fit together if we're going
Speaker 6: to introduce this responsibly. So the feedbacks so far hasn't
Speaker 6: really surprised us. There's a lot of parts of the
Speaker 6: value chain to consider.
Speaker 5: So realistically, if you did want to do something like this,
Speaker 5: how long would it take to actually set up that
Speaker 5: type of infrastructure.
Speaker 6: There's a variety of things that would need to be considered.
Speaker 6: Most importantly, we would need to talk to our regulators
Speaker 6: about it. Not just us, our clearinghouse DTC would also
Speaker 6: need to consider that with the regulators to the extent
Speaker 6: that they would remain open for that twenty four hour trading.
Speaker 5: It's interesting because if there does appear to be demand here.
Speaker 5: Lisa mentioned Steve Cohen's venture wants to do something like this.
Speaker 5: Do you have any sense of idea of where that
Speaker 5: demand is coming from the type of person that wants
Speaker 5: to be trading twenty four seven.
Speaker 6: So I don't know that it's really twenty four hours
Speaker 6: a day. I think what has started most of demand,
Speaker 6: what's really triggered most of the demand has been the
Speaker 6: rise of the ETFs. And if you look at the
Speaker 6: basket in some of the ETFs, particularly the international ETFs,
Speaker 6: they're not just securities that are listed on domestic exchange.
Speaker 6: So from a risk management standpoint, it would make sense
Speaker 6: that you would want to manage your risk in the
Speaker 6: underlying baskets when those domestic markets are open.
Speaker 5: Fair enough now, No, when it comes to IPOs, we
Speaker 5: started this year. You and many folks were excited for
Speaker 5: twenty twenty four that it would be a big year.
Speaker 5: So many people's hopes have been dashed. I think the
Speaker 5: volume is somewhere still near a decade's low when it
Speaker 5: comes to IPO volume, are you still hopeful for this year?
Speaker 6: I absolutely am, and actually I'm incredibly optimistic given the
Speaker 6: amount of proceeds that have been raised so far in
Speaker 6: the markets fourteen billion so far has been raised in
Speaker 6: the US markets. Through last Friday, we've had about twenty
Speaker 6: five operating company IPOs on the New York Stock Exchange.
Speaker 6: That's two times the amount of proceeds raised year to
Speaker 6: date versus last year, and three times versus twenty twenty two.
Speaker 6: So the markets are definitely opening up. And what I'm
Speaker 6: personally excited about is those companies we've welcome have not
Speaker 6: just gotten large deals done, many times, they have upsized
Speaker 6: their deals. They've priced either at the high end or
Speaker 6: above the range, and then they're seeing that pop, the
Speaker 6: twenty percent pop when their stock opens. So it's been
Speaker 6: a really exciting particularly Q two, really exciting time where
Speaker 6: we're seeing about two IPOs a week at NYSA.
Speaker 5: Well, Reddit is a great example of a company about IPO,
Speaker 5: a lot of fanfare around it, but a company like Reddit,
Speaker 5: it's a mature company, it's a quality company investors.
Speaker 3: Feel safe with.
Speaker 5: It is the room for anything outside of that.
Speaker 6: So you have seen some more growth oriented companies go.
Speaker 6: But importantly, as you mentioned, they've had a path to profitability.
Speaker 6: So I think that's really what is getting valued. It's
Speaker 6: why those companies that either are profitable or have a
Speaker 6: path to profitability are getting rewarded. You look at a
Speaker 6: company like Viking, which is a lot just IPO of
Speaker 6: the year, it's a household name. I had so many
Speaker 6: people say to me, I can't believe this company is
Speaker 6: in public already, given that many of us have enjoyed
Speaker 6: their cruises, whatever the case may be. But then you've
Speaker 6: also got great companies emerging companies around cyber like Rubric
Speaker 6: who just iPod on us.
Speaker 5: A couple of weeks ago, even with the uptick and demand,
Speaker 5: prequeent data came out that there's still three point trillion
Speaker 5: dollars of companies of money tied up in aging companies
Speaker 5: that haven't gone public. There still is this impetus to
Speaker 5: stay private for longer. Are you concerned with as companies
Speaker 5: stay private for longer that they found alternative paths to
Speaker 5: going public and just that norm that we used to sell,
Speaker 5: see it's not going to get back to that.
Speaker 6: I'm not really concerned because there is no match for
Speaker 6: the US capital markets in terms of an efficient form
Speaker 6: of capital and attaining that capital that you really need
Speaker 6: to scale your business. Not just from that perspective, but
Speaker 6: also rewarding employees democratizing investment and a M and A
Speaker 6: is a big reason that I hear some of these
Speaker 6: companies go and they believe that there's a different M
Speaker 6: and A currency that you get with becoming a public
Speaker 6: company versus staying private. So I continue to be incredibly optimistic. However,
Speaker 6: if people are going to be more thoughtful about when
Speaker 6: they go public, I don't think you're going to see
Speaker 6: a rush to the public markets like you saw in
Speaker 6: twenty twenty one for quite some time. But importantly, I
Speaker 6: think we're out of the twenty twenty two twenty twenty
Speaker 6: three closed IPO markets.
Speaker 5: Is there a chance we get back to that rush
Speaker 5: and what needs to be in place for that to happen.
Speaker 6: Well, it feels like, you know, we have the capacity
Speaker 6: to have a pretty normal year. If we've raised fourteen
Speaker 6: just over fourteen billion to date, in an average year
Speaker 6: you raise about forty five billion in the public markets,
Speaker 6: we're not too far off, and based on what we're
Speaker 6: seeing in our pipeline, I think this this could be
Speaker 6: a pretty close to normal year.
Speaker 5: How much of that depends on the FED cutting is
Speaker 5: not necessary.
Speaker 6: I don't think it's necessarily dependent on the FED cutting.
Speaker 6: I think people are getting used to this concept of
Speaker 6: there's a little bit of uncertainty in the markets. The
Speaker 6: big concern you had over the last two years was
Speaker 6: the hard landing versus soft landing. And I think people
Speaker 6: feel pretty good about our economy, so I don't know
Speaker 6: that it matters if the FED cuts once, not at all,
Speaker 6: whatever the case may be. But I do think you'll
Speaker 6: probably see a little bit of a closure of the
Speaker 6: IPO markets around election time like you have any other
Speaker 6: election year.
Speaker 5: Fair enough, And going back to some things you mentioned
Speaker 5: of why the American IPO market remains strong despite some
Speaker 5: of the wobbles, things like the liquidity, the investor base.
Speaker 5: It's made it a global destination. But there was this
Speaker 5: report that she in the Chinese fast fashion company wants
Speaker 5: to list in London instead of the US because of
Speaker 5: the regulatory environment. Is that global beacon that the US
Speaker 5: going to change with the US regulators that are more
Speaker 5: intent on cracking down in China.
Speaker 6: I don't know about that. I mean, I can't really
Speaker 6: speak to the conversations that a prospect like Asians has
Speaker 6: had with our regulators. I do hope that they're able
Speaker 6: to enter the US markets, but it will be up
Speaker 6: to our regulators to determine how Okay.
Speaker 5: Lynn, we're going to have to leave it there. Thank
Speaker 5: you so much for joining. Really great to see you.
Speaker 5: That is Lynn Martin of the Nice Sye Lisa. With that,
Speaker 5: I'll send it back to you.
Speaker 1: Right now. With us here in DC, we have tourist
Speaker 1: and Slock, chief economist for Apollo, who's here for the
Speaker 1: same event that I'm here for, so I'm very glad
Speaker 1: to see you. I want to start with a question
Speaker 1: we've been asking all morning, which is which is more
Speaker 1: important the inflation data or the retail sales data.
Speaker 7: Well, if if you're from the FEDS dual mandate, which
Speaker 7: is inflation at two percent and full employment, inflation is
Speaker 7: probably a little more important. And particularly it's important because
Speaker 7: for the last three months, we've seen the annualized change
Speaker 7: in supercoco up by eight percent. We've seen the annualized
Speaker 7: change and coin inflation go up by four percent. So
Speaker 7: the momentum in inflation in the last three four months
Speaker 7: has just been moving.
Speaker 3: In the wrong direction.
Speaker 7: So what's really important about Wednesday's number is whether that
Speaker 7: momentum continues or whether we're going to see Indeed, as
Speaker 7: Mike and Daniel was just talking about move low and inflation.
Speaker 1: Why do you think from the Fed's reaction function, they
Speaker 1: care more about that CPI print, which a lot of people,
Speaker 1: including Austin Coolsby, have set as a lagging indicator versus
Speaker 1: real weakening in the consumer in a sense that growth
Speaker 1: is being challenged.
Speaker 7: Well, I think the problem for them is that the
Speaker 7: momentum in inflation has just not been going down for
Speaker 7: the last several months, and if momentum has been building
Speaker 7: to the upside, we really need from a FED perspective,
Speaker 7: to see that momentum break and that's the risk with
Speaker 7: the numbers this week.
Speaker 3: Shelter.
Speaker 7: There's an argument about, well, on the one hand, maybe
Speaker 7: areas of occupancy rates are looking a bit better, which
Speaker 7: would argue for Shelter inflation to come down. On the
Speaker 7: other hand, case Shiller is now rising at six seven
Speaker 7: percent and the annual rates, so that means that we're
Speaker 7: seeing momentum actually building in home prices. So there's different
Speaker 7: parts of the scale here that are weighing on. We
Speaker 7: just don't quite know what the shel See inflation data
Speaker 7: will do, and it has been coming down a lot
Speaker 7: slower than what anyone expected and that might still combine
Speaker 7: with auto insurance and combined with everything that's going on,
Speaker 7: and the subcomponents still continue to put some upward pressure
Speaker 7: on inflation.
Speaker 1: So you still see no rate cuts this year.
Speaker 7: We still see no rate cuts, and of course noway
Speaker 7: from C members are also beginning to talk about no
Speaker 7: rate coasts this year. So I do think that it's
Speaker 7: just becoming more and more difficult. If you put it
Speaker 7: together on a little spreadsheet, the growth rate that we've
Speaker 7: seen for the last thirty years, for the rest of
Speaker 7: this year, you will still have inflation at around three
Speaker 7: percent by the end of the year. You need a
Speaker 7: really dramatic slowdown in inflation erupon one for every single
Speaker 7: month for the rest of the year to get core
Speaker 7: PC inflation backed to two percent by the end of
Speaker 7: the year. So the upward propressure on inflation is just
Speaker 7: really strong over the next several months.
Speaker 1: What we heard from firdjer J. Powell a couple of
Speaker 1: weeks ago is real indication he wants to cut rates.
Speaker 1: He is concerned about the strength of the economy. There
Speaker 1: is clear deterioration there. It seems like the bias has
Speaker 1: been more on strength than potentially that inflation. Read what
Speaker 1: makes you think that's going to change given the fact
Speaker 1: that we do see real pressure that's coming through with
Speaker 1: initial jobless claims, with consumer confidence, with the fact that
Speaker 1: people definitely are feeling something that's coming through in the numbers.
Speaker 7: Oh absolutely, And that's why to resale sales it is
Speaker 7: also important. It's not that inflation is the only important
Speaker 7: indicator this week.
Speaker 3: Retail sales too does play a role.
Speaker 7: What's interesting is if you look at the Bank of
Speaker 7: America cut data both a debit CUD and credit cards,
Speaker 7: it actually showed, surprisingly where they show across the income
Speaker 7: distribution that there was actually a fairly significant bump higher
Speaker 7: in spending for both the low income billidon come andhig income.
Speaker 3: Groups in the month of April.
Speaker 7: So there's a number of different indicators that are pointing
Speaker 7: in different directions. We do see to your point, dealinguage,
Speaker 7: your rates go up in particular for low income house
Speaker 7: and households that are younger on auto loans and credit
Speaker 7: cards and student loans also have been seeing some pressure.
Speaker 7: But the bottom line still is that let's see what
Speaker 7: the data gives us, because overall, yes, the lad's not
Speaker 7: van payrolls was a little bit weaker. There were two
Speaker 7: reasons why there was slightly weaker, but the conclusive still
Speaker 7: is this economy is not falling apart. It is still
Speaker 7: a fairly solid growth rate that we see over the
Speaker 7: next several quarters.
Speaker 1: We've been talking about the flip flopping narrative. We had
Speaker 1: no landing for a lot of this year. It's been
Speaker 1: flipping and flopping depending on the day, sometimes in the
Speaker 1: same day. Then we got to goldilocks, and that seemed
Speaker 1: to be where everybody was at for about a couple
Speaker 1: of weeks, and then now people are talking about the
Speaker 1: potential for a hard landing due to economic weakness. It
Speaker 1: sounds like you don't disagree. It's just later than people
Speaker 1: expect and it's not soon enough to keep the FED
Speaker 1: from holding rates where they are.
Speaker 3: Is that correct? I think that is correct.
Speaker 7: But I think at the tailwinds to the economy that
Speaker 7: are still behind us.
Speaker 3: Two things naming.
Speaker 7: We still have behind us a very strong tailwind that
Speaker 7: comes from easy financial conditions.
Speaker 3: The stock market is.
Speaker 7: Up nine trillion since November one AFMC meeting, when the
Speaker 7: FIT begins to talk about rate cuts instead of rate hikes.
Speaker 7: And on top of that, we also have a tailwind
Speaker 7: from fiscal spending. We still have strong spending in the
Speaker 7: pipeline from the Chipsack if lation reduction, in act.
Speaker 3: The infrastr to act.
Speaker 7: Those two things easy financial conditions and easy fiscal policy,
Speaker 7: which by the way, is very different from what's going
Speaker 7: on in Europe. But those things are likely to continue
Speaker 7: to give us fairly robust data at least for the
Speaker 7: next several months and most likely even all the way
Speaker 7: through the end of the year.
Speaker 1: Siphos has put out commentary that seem to agree with
Speaker 1: what we heard from Peter's share of Academy Securities earlier.
Speaker 1: This is the next five hundred points for the S
Speaker 1: and p five hundred are going to be down, talking
Speaker 1: about a ten percent correction, similar to what we heard
Speaker 1: from Peter. Why do you disagree that there is enough
Speaker 1: ammunition for things to kind of hang in there and
Speaker 1: even creep higher even as people really do wake up
Speaker 1: to real risks that we're seeing with respect to spending.
Speaker 7: Well, I think this is a really important question. So
Speaker 7: the risk from higher for longer is two things. Higher
Speaker 7: for long on his own means higher debt servicing costs
Speaker 7: for companies. That should argue for Starks going down and
Speaker 7: credit spreads widening. The problem is that the reason for
Speaker 7: higher valonga is that the economy is good, meaning earners
Speaker 7: are good. GDP has been strong, so as a result
Speaker 7: of that, we should expect starks to go up. We
Speaker 7: should have express to So there's a tug of war
Speaker 7: between rates. Higher for longer is hurting, so to speak,
Speaker 7: in the cfo's office, when debt servicing costs are having
Speaker 7: a negative impact. But if that's happening because the economy
Speaker 7: is good, I would still expect the economies to do
Speaker 7: just find for the next several quarters as a result
Speaker 7: of the tailwind off the stock market going up, easy
Speaker 7: financial conditions, tight credit spreads, and also fiscal policy is
Speaker 7: still providing quite a tail wind.
Speaker 1: Does that mean that there's going to be a bigger downside.
Speaker 3: On the other side?
Speaker 7: That does mean that when we look into twenty twenty five,
Speaker 7: I do think that we'll settle ourselves up because think
Speaker 7: about the following exactly as you're saying, Lisa. The fact
Speaker 7: that we have the linguagy rates going up on credit
Speaker 7: cards and order loans, even in an economy where everyone
Speaker 7: has a job. The fact that you have highly leveled
Speaker 7: companies in venture capital, in tech, in growth enterprise software
Speaker 7: that are highly indebted and experiencing a lot of problems,
Speaker 7: that these problems are still here even in a good economy.
Speaker 7: That tells you once people do begin to lose their jobs,
Speaker 7: once the economy does begin to slow down, you already
Speaker 7: have a lot of distress, including a commercialy state. There's
Speaker 7: a lot of office problems. Obviously, imagine what the problems
Speaker 7: will look like if you finally get on fine rate
Speaker 7: to move high. So therefore, the sensitivity next year is
Speaker 7: that we might actually get a risk of a harder
Speaker 7: landing coming back. But that's not the theme for the
Speaker 7: next level quarters.
Speaker 1: Meanwhile, you keep mentioning the fiscal overhang and how much
Speaker 1: that's going to be funding things. It is the reason
Speaker 1: why we're here.
Speaker 3: We're going to be.
Speaker 1: Speaking on a panel talking about the fiscal debt and
Speaker 1: how much that's really going to be a problem at
Speaker 1: a time where Seeweisman came on and said, the only
Speaker 1: the death is of people. If it's worrying for the
Speaker 1: past thirty years and they've been wrong and wrong and wrong,
Speaker 1: why is it different this time.
Speaker 7: Well, because all the literature and all the papers that
Speaker 7: look at financial crisis and dead crisis. They do so
Speaker 7: that if you eventually keep on growing your dead levels
Speaker 7: up up, and they just keep rising, and the CBO,
Speaker 7: the Congressional Budget Office forecast is that we basically go
Speaker 7: from one hundred percent of GDP dead levels to two
Speaker 7: hundred percent of GDP dead levels. Ultimately, it does try
Speaker 7: to stress the system more in terms of three things.
Speaker 7: What's happening in treasury auctions, what's happening to ratings meaning
Speaker 7: sovereign ratings, and what's happening to the term premium.
Speaker 3: So that's why in.
Speaker 7: Financial markets we should be watching auctions, which we do
Speaker 7: every week.
Speaker 3: We should be.
Speaker 7: Watching what's happening from the rating agencies where we get
Speaker 7: another sovereign downgrade of the US from some of them.
Speaker 7: Moody still has trivial a fits has been downgrading in August,
Speaker 7: so that's really important. And the third thing is the
Speaker 7: term premium, which you can find on your Bloomberg screen here,
Speaker 7: has also been trending high in the last six nine months.
Speaker 7: So the stresses are slowly beginning to emerge. So far,
Speaker 7: most auctions are going fine, but investors should absolutely be
Speaker 7: keeping an eye on this. This is something that's just
Speaker 7: a big and bigger risk.
Speaker 1: In the background, you have some in credible statistics in
Speaker 1: terms of the amount of debt that's going to mature
Speaker 1: by the government eight point nine trillion dollars of the
Speaker 1: next year. You talk about an average twelve percent of
Speaker 1: government spending is currently composed comprised of debt servicing payments.
Speaker 1: And we're talking about a lot of people who are
Speaker 1: still dismissing this in terms of a major risk. What
Speaker 1: do you think could be the catalyst? At what point
Speaker 1: do you say to people you know you can dismiss
Speaker 1: it until you can't. Is the election something you're watching?
Speaker 7: Well, I would say that if you think about this
Speaker 7: from a corporate perspective, when dead levels go up for
Speaker 7: a long time, it doesn't matter in most cases, and
Speaker 7: certainly it doesn't matter. So the fear you can have
Speaker 7: exactly as you're highlighting that the rollover of existing debt
Speaker 7: is roughly around nine trillion. Then on top of that,
Speaker 7: the budget deficit in very round numbers is about a
Speaker 7: trillion for the next many years, So that brings us
Speaker 7: to ten trillion.
Speaker 3: And then, by the way, if it is.
Speaker 7: Still doing QT, which adds a few more hundred billions
Speaker 7: of dollars, so it brings you to more than ten
Speaker 7: trillion dollars that needs to be refinance in the next
Speaker 7: twelve months, So that's roughly a third of GDP. If
Speaker 7: we do continue to see more spending, and if we
Speaker 7: will continue to see budget deficits as far as the
Speaker 7: CEO continues to forecast, then I do think that investors
Speaker 7: need to watch very carefully what's going on again with auctions,
Speaker 7: what's going on with rating agencies, are they downgrading the US?
Speaker 7: And finally, what's going on with the term premium because
Speaker 7: that's where these stresses in financial markets will first begin
Speaker 7: to show up.
Speaker 1: So put you down as or the deficit one of
Speaker 1: those in that camp. Absolutely the Restan's block of Apollo.
Speaker 1: Thank you so much.
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