WEBVTT - Bloomberg Surveillance TV: October 2, 2024 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie hortert join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.440 Terminal and the Bloomberg Business app. We begin this hour 0:00:37.720 --> 0:00:40.040 with the recent rally firmly on hold as the world 0:00:40.040 --> 0:00:42.720 of weights Israel's next move. Investors keeping one eye on 0:00:42.880 --> 0:00:45.440 US labor market data a head of payrolls on Friday, 0:00:45.520 --> 0:00:48.960 Jim biancov Bianco Research writing, I've still a no lander, 0:00:49.200 --> 0:00:51.920 meaning guys, see the economy is okay, not even showing 0:00:51.960 --> 0:00:54.200 signs of a self landing. I can debate whether we 0:00:54.240 --> 0:00:57.040 are seeing much calling in this labor market. Jim joins 0:00:57.120 --> 0:00:58.960 us now for more. Jim, good morning, and welcome to 0:00:59.040 --> 0:01:01.000 New York. Thanks he at least it went through the 0:01:01.040 --> 0:01:03.440 JUMPIP connects. You look at what's happening with the quits right. 0:01:03.760 --> 0:01:06.039 Quits writes down, look at what's happening with the Honring's right. 0:01:06.200 --> 0:01:08.240 Honding's writes down, Why do you not see that as 0:01:08.280 --> 0:01:09.959 a sign of a slowed down in the slang pima 0:01:10.080 --> 0:01:11.039 kit If you look. 0:01:10.880 --> 0:01:12.800 At the bigger picture of the numbers, they are down 0:01:12.840 --> 0:01:15.759 from say July or June, but the bigger picture over 0:01:15.760 --> 0:01:18.400 the last several years, these are still numbers that are 0:01:18.480 --> 0:01:19.319 very constructive for. 0:01:19.280 --> 0:01:22.280 The labor market right now. If you look at if you. 0:01:22.280 --> 0:01:25.920 Want to expand out from the JILT report to payrolls 0:01:26.080 --> 0:01:29.320 to the household survey, those. 0:01:29.200 --> 0:01:30.399 Numbers look pretty good now. 0:01:30.400 --> 0:01:32.839 The one number that is weak has been the rising 0:01:32.920 --> 0:01:36.840 unemployment rate. But the Fed likes to use the phrase 0:01:36.959 --> 0:01:41.240 increase in labor supply, which is a euphemism for migration. 0:01:41.480 --> 0:01:43.440 We've getten more people coming into the country. 0:01:43.480 --> 0:01:45.959 The growth the population growth rate in the country right now, 0:01:46.120 --> 0:01:48.800 according to the CBO, is pushing a thirty year high 0:01:48.880 --> 0:01:51.080 because of migration, and a lot of those people are 0:01:51.080 --> 0:01:53.640 coming into the country are unemployed, and that's what's getting 0:01:53.680 --> 0:01:56.160 picked up in the unemployment rate, which is why that 0:01:56.240 --> 0:01:59.080 number is rising. That's not necessarily a sign that people 0:01:59.080 --> 0:01:59.920 are losing job. 0:02:00.080 --> 0:02:02.280 Just say, year at three six state doesn't scream no landing, 0:02:02.320 --> 0:02:05.160 Ten year at three seventy six doesn't scream no landing. 0:02:05.160 --> 0:02:06.640 What's your feel on this spun market? 0:02:06.840 --> 0:02:07.000 You know? 0:02:07.120 --> 0:02:09.360 I think that at three sixty in the two year note, 0:02:09.400 --> 0:02:11.160 it is priced in pretty much. 0:02:11.280 --> 0:02:12.440 The Fed cutting rates all the. 0:02:12.440 --> 0:02:15.120 Way to say three to three and a quarter that's 0:02:15.160 --> 0:02:18.440 in ten two year notes shouldn't go anywhere else. Wall 0:02:18.480 --> 0:02:20.680 Street is really on this idea that we're going to 0:02:20.720 --> 0:02:23.600 see a curve steepening. I guess I am too, but 0:02:23.680 --> 0:02:25.680 at this point that's a barish trade because we're going 0:02:25.720 --> 0:02:27.520 to stay at three sixty, and the way you steep 0:02:27.560 --> 0:02:29.480 in the curve is the ten year in yield has 0:02:29.520 --> 0:02:32.240 to start to rise from here. I don't see the 0:02:32.560 --> 0:02:35.520 two year note going, say under three percent, unless you 0:02:35.560 --> 0:02:38.520 make the case the economy is really falling apart and 0:02:38.560 --> 0:02:40.919 the Fed is going to cut rates well beyond say 0:02:40.960 --> 0:02:43.079 three percent, down to around two percent or lower. 0:02:43.240 --> 0:02:45.040 I love when people say I'm a no lander, I'm 0:02:45.080 --> 0:02:46.760 a soft lander. It's sort of like saying I'm a 0:02:46.800 --> 0:02:49.200 flat earther. But there's sort of a question here about 0:02:49.240 --> 0:02:49.960 what that means. 0:02:49.960 --> 0:02:50.840 I mean going forward. 0:02:50.840 --> 0:02:52.679 Does that mean that there just is no recession or 0:02:52.720 --> 0:02:56.280 does that mean that there actually is a reacceleration from 0:02:56.360 --> 0:02:57.760 here of growth and inflation. 0:02:57.919 --> 0:02:59.440 You know, you brought up a really good point because 0:02:59.480 --> 0:03:02.239 I've critici size the soft landing camp that it's this 0:03:02.360 --> 0:03:03.480 thing without a definition. 0:03:03.600 --> 0:03:05.079 So in a year I'll define it and tell you 0:03:05.120 --> 0:03:05.800 I was correct. 0:03:06.760 --> 0:03:10.960 I think, yeah, Well, I think a no lander scenario 0:03:11.080 --> 0:03:13.560 is if you accept that potential GDP, what would the 0:03:13.560 --> 0:03:16.359 economy grow without it being stimulated or restrained is around 0:03:16.560 --> 0:03:18.079 two and a half percent, two to two and a 0:03:18.080 --> 0:03:20.640 half percent. I think that's the no landing camp, is 0:03:20.639 --> 0:03:22.440 that we continue to grow at the two to two 0:03:22.440 --> 0:03:25.000 and a half percent camp. Also, if you wanted to 0:03:25.000 --> 0:03:28.760 throw inflation in there, I am in the sticky inflation 0:03:28.919 --> 0:03:31.920 camp that the long run inflation rate is probably closer 0:03:31.919 --> 0:03:34.880 to a three handle, if not a three handle, then 0:03:35.000 --> 0:03:37.720 down at two point zero percent, where the Fed thinks 0:03:37.720 --> 0:03:40.000 it's going to be. So if you add in the 0:03:40.040 --> 0:03:42.920 two together with nominal GDP, you know two to two 0:03:42.960 --> 0:03:45.760 and a half percent real growth, three ish percent inflation, 0:03:46.080 --> 0:03:48.280 we're talking about five and a half percent nominal GDP. 0:03:48.480 --> 0:03:50.720 And that's where you know the no Landing idea. 0:03:50.520 --> 0:03:53.560 Comes how much just being a no Lander sort of 0:03:53.600 --> 0:03:56.760 hinge on this idea that authorities already willing and able 0:03:56.920 --> 0:03:59.680 to come in and step in, whether it's raycuts, whether 0:03:59.760 --> 0:04:02.760 it's the Bazuka we goes to Scott from China, whether it's. 0:04:02.600 --> 0:04:04.120 Potential fiscal stimulus. 0:04:03.760 --> 0:04:06.520 In the United States despite the deficit that people care 0:04:06.560 --> 0:04:08.440 about but aren't necessarily pricing. 0:04:08.120 --> 0:04:11.520 In Oh, I think that you know the no Lander camp, 0:04:11.680 --> 0:04:14.200 if I defined it at the way I do, it's 0:04:14.320 --> 0:04:16.839 all of those things give me worried that we don't 0:04:16.960 --> 0:04:20.640 need the Fed aggressively cut rates, we don't need massive 0:04:20.640 --> 0:04:23.480 fiscal stimulus, and if we're going to get it, what 0:04:23.520 --> 0:04:25.800 we're going to do is we're going to produce more 0:04:25.800 --> 0:04:29.400 inflation and probably second half of twenty five. And that's 0:04:29.480 --> 0:04:32.360 really the biggest concern right now is are we going 0:04:32.400 --> 0:04:36.080 to overstimulate because in the no Landing camp where we 0:04:36.120 --> 0:04:38.400 don't really need that kind of stimulation, but so it 0:04:38.440 --> 0:04:39.720 looks like we're going to get it anyway. 0:04:39.839 --> 0:04:41.279 You said you're going to take the over of the 0:04:41.279 --> 0:04:45.080 Friday's payroll report of one hundred and fifty K, do 0:04:45.120 --> 0:04:48.240 you just immediately have to then slash sixty seventy thousand 0:04:48.320 --> 0:04:50.960 off of that because of the revisions we continuously see. 0:04:51.120 --> 0:04:52.440 Yeah, that's usually what happens. 0:04:52.440 --> 0:04:54.200 I think twenty five of the last thirty one months, 0:04:54.240 --> 0:04:57.960 the payroll report beats a Wall Street's estimate, and then 0:04:58.000 --> 0:05:00.000 the revisions come in. And it's almost to the point 0:05:00.040 --> 0:05:01.719 right now where people have been more and more asking 0:05:01.760 --> 0:05:04.240 me is what's your guests on revisions as opposed to 0:05:04.279 --> 0:05:06.160 what's your guests on the payroll report? 0:05:07.040 --> 0:05:07.520 Revisions? 0:05:07.560 --> 0:05:10.560 I think are getting overstated a little bit that usually 0:05:10.720 --> 0:05:14.520 when they run and cycles the revisions, up until twenty two, 0:05:14.560 --> 0:05:17.560 the revisions were mostly upward, and since twenty two they've 0:05:17.600 --> 0:05:21.120 been mostly downward. And so I don't see the revisions 0:05:21.120 --> 0:05:23.840 as being some kind of dark secret thing that tells 0:05:23.880 --> 0:05:25.159 us that the economy is in trouble. 0:05:25.320 --> 0:05:26.560 But yeah, I probably see. 0:05:26.360 --> 0:05:30.159 That the revisions will pull back on the numbers that 0:05:30.200 --> 0:05:34.279 we saw in July and August, but the headline number, 0:05:34.600 --> 0:05:35.960 you know, like I said, most of the time, it 0:05:36.000 --> 0:05:38.240 seems to be when we get the next. 0:05:38.000 --> 0:05:40.560 Payroll report, the following one, when you look at what 0:05:40.600 --> 0:05:43.480 happened in October, we're going to have Hurricane Helen's impact 0:05:43.560 --> 0:05:46.800 and also the strike workers at the ports. How difficult 0:05:46.920 --> 0:05:50.000 is it going to be to really extrapolate the labor data. 0:05:50.200 --> 0:05:52.400 Oh yeah, and don't forget the boning strike too. And 0:05:52.839 --> 0:05:55.480 so I heard Mike McKee say this the other day, 0:05:55.480 --> 0:05:57.640 and I'll you know, there is a possibility of a 0:05:57.640 --> 0:06:01.039 negative payroll report coming up. The payroll survey week is 0:06:01.040 --> 0:06:04.719 the thirteenth. If these strikes keep going into disruptions into 0:06:04.760 --> 0:06:07.960 the thirteenth and we find that, you know, getting things 0:06:08.000 --> 0:06:12.400 back to normal after Hurricane Helene, goes more than two weeks, 0:06:12.760 --> 0:06:15.520 we could see this start to impact jobs. Remember the 0:06:15.560 --> 0:06:19.359 way the Jobs for survey works, they have a company report. 0:06:19.640 --> 0:06:22.159 If the company doesn't have power or it's closed and 0:06:22.200 --> 0:06:25.440 it doesn't report, they put them down for zero this month. 0:06:25.640 --> 0:06:28.159 They'll pick it up next month, revise it, and you 0:06:28.160 --> 0:06:30.119 could see a big dive in the numbers. Hurricane Harvey. 0:06:30.160 --> 0:06:33.600 We saw that last twenty seventeen, in September, we saw 0:06:33.600 --> 0:06:36.360 a negative payroll report off of that when it hit. 0:06:36.320 --> 0:06:39.080 Houston, and a one with Blimback Economics late to this 0:06:39.160 --> 0:06:40.920 hour and has put some numbers on this. If the 0:06:40.920 --> 0:06:42.960 strike lasts more than two weeks, we estimate the knock 0:06:42.960 --> 0:06:46.440 on effects could lower October payrolls do the first November 0:06:46.720 --> 0:06:49.600 by Money's eighty thousand jumps. They think that's going to 0:06:49.680 --> 0:06:52.040 lead the Federal Reserve to interest rates again by fifty 0:06:52.080 --> 0:06:55.440 basis points. If those numbers actually materialize. Wearing you on 0:06:55.480 --> 0:06:56.960 the fence move November seventh. 0:06:57.080 --> 0:06:58.839 You know that that's going to be a difficult one 0:06:58.880 --> 0:07:01.280 because if we were to see that type of number, 0:07:01.320 --> 0:07:04.080 and that's just off of the port strike, we still 0:07:04.080 --> 0:07:06.920 got the bone strike, We've still got the hurricane and 0:07:07.320 --> 0:07:10.240 maybe disruption from the Middle East coming as well. With 0:07:10.760 --> 0:07:13.720 energy prices, it's going to muddy the water for the FED. 0:07:13.880 --> 0:07:16.200 It's going to make it very, very difficult to try 0:07:16.280 --> 0:07:18.400 and discern what is the economy doing. 0:07:18.720 --> 0:07:20.680 Yeah, we know that there's this port strike. Yeah we 0:07:20.800 --> 0:07:23.360 know it depressed jobs, but we also know it's temporary, 0:07:23.560 --> 0:07:23.840 that the. 0:07:24.320 --> 0:07:27.080 Port strike will eventually end and things will eventually return 0:07:27.160 --> 0:07:27.800 back to normal. 0:07:28.440 --> 0:07:30.040 It's going to be very difficult for them. 0:07:30.200 --> 0:07:33.200 I think Paul set up the case for twenty five 0:07:33.640 --> 0:07:37.040 at a couple of days ago when he spoke in 0:07:37.200 --> 0:07:39.440 that that seems to be more of the prudent action, 0:07:39.680 --> 0:07:42.360 especially that it's two days after the election and there's 0:07:42.400 --> 0:07:44.360 a reasonable chance we won't know the outcome of the 0:07:44.400 --> 0:07:46.480 election by November seventh as well. 0:07:46.760 --> 0:07:48.960 Jim, it's going to say it new Y'll say thank you, sir, 0:07:49.080 --> 0:07:50.200 Jim bian Cut. 0:07:50.240 --> 0:07:50.800 We said. 0:08:00.120 --> 0:08:03.120 Davis, chief economist at Vanguard, Joe, thank you so much 0:08:03.160 --> 0:08:04.840 for being with us. I want to start just with 0:08:05.120 --> 0:08:08.120 weakening but not weak. How do you parse the difference 0:08:08.160 --> 0:08:10.680 at a time where we definitely are seeing weakening? 0:08:12.120 --> 0:08:14.880 Well sure, and again I think that's also really at 0:08:14.880 --> 0:08:17.680 the heart of the Federal Reserves response. We've clearly seen 0:08:17.720 --> 0:08:19.040 a slow down the labor market. 0:08:19.160 --> 0:08:20.320 Part of that's been very welcome. 0:08:20.440 --> 0:08:22.600 I mean, we were out of balance for the past 0:08:22.640 --> 0:08:25.520 two years and had you know, really rapid wage growth. 0:08:25.560 --> 0:08:29.960 We're approaching the levels now where any further weakening or 0:08:30.040 --> 0:08:33.559 slow or just slowing or cooling would really put you know, 0:08:33.720 --> 0:08:36.319 really bigger concerns on the table. I think the Federal 0:08:36.360 --> 0:08:40.439 Reserve has been weighing this information very importantly, and so 0:08:40.880 --> 0:08:42.880 you know, really explains you know, some of their. 0:08:43.240 --> 0:08:44.200 Pretty aggressive moves. 0:08:44.240 --> 0:08:46.560 I mean, I think the big tension in the market 0:08:46.840 --> 0:08:51.160 is are there the are the jobs figures really representative 0:08:51.200 --> 0:08:53.120 of the strength of the economy, or is it things 0:08:53.200 --> 0:08:55.400 such as GDP growth, which is going to three percent 0:08:55.480 --> 0:08:57.160 and not showing any signs of a slowdown. 0:08:57.320 --> 0:08:58.120 So which is it, Joe? 0:08:58.160 --> 0:09:01.600 I mean, we just had all CEO Mark Rowan speaking 0:09:01.640 --> 0:09:04.079 with our own Jonathan Farrow, and he was basically saying 0:09:04.160 --> 0:09:07.480 that the fifty basis point raycut was a really expensive 0:09:07.559 --> 0:09:10.960 insurance policy and that actually this is not an economy 0:09:11.040 --> 0:09:13.880 that needs it. Based on GDP and based on earnings. 0:09:13.960 --> 0:09:16.439 What makes you think that the labor market data, like 0:09:16.679 --> 0:09:19.240 the underpinnings of jolts that show that quits rates have 0:09:19.360 --> 0:09:21.640 really gone down, what makes you think that we should 0:09:21.679 --> 0:09:22.439 more heavily weight that. 0:09:24.520 --> 0:09:28.640 Well, again, I mean I think the whole insurance phrasing 0:09:28.760 --> 0:09:31.719 is actually pretty appropriate. You know, again, the economy is 0:09:31.800 --> 0:09:35.080 pretty resilient. I think we still have some turbulence ahead. 0:09:35.120 --> 0:09:37.640 Our lead indicators, which you mentioned at the outset, still 0:09:37.720 --> 0:09:40.240 point to some further weakness, and they're pretty powerful indicators 0:09:40.280 --> 0:09:43.319 given just the breath of our sample. And so I 0:09:43.360 --> 0:09:45.000 think what they're trying to do again, let's be clear, 0:09:45.000 --> 0:09:48.600 the Federal Reserve is all in on the soft landing expectation, 0:09:48.880 --> 0:09:50.880 and so I think they're going to be fairly aggressive 0:09:50.960 --> 0:09:54.640 to try to increase the odds that that happens. But 0:09:54.720 --> 0:09:57.800 there is risk in that strategy if the labor market, 0:09:57.840 --> 0:09:59.200 which I don't think it is, but if the labor 0:09:59.280 --> 0:10:01.880 market is setting the false signal and it's the GDP 0:10:02.080 --> 0:10:05.079 numbers that are more accurate or more representative than you 0:10:05.160 --> 0:10:06.719 know six months from that, we're going to have this 0:10:06.840 --> 0:10:09.680 crossroads because the equity market, I think, is looking at 0:10:09.760 --> 0:10:12.520 GDP and the bond market and the treasury market is 0:10:12.559 --> 0:10:13.280 looking at jobs. 0:10:13.600 --> 0:10:14.680 Well, Joe Powell tried. 0:10:14.559 --> 0:10:17.280 To solve this tension by just saying the labor market 0:10:17.480 --> 0:10:20.280 is a real time indicator and GDP is not. GDP 0:10:20.480 --> 0:10:24.199 is historically bad at predicting a recession. Does that mean 0:10:24.280 --> 0:10:27.679 that we just can completely discount it, completely discount the 0:10:27.720 --> 0:10:30.680 strength and what it tells us about one inflation coming 0:10:30.720 --> 0:10:34.240 in and the likelihood that unemployment moves in a more 0:10:34.400 --> 0:10:35.160 malicious manner. 0:10:35.640 --> 0:10:35.840 Yeah. 0:10:37.320 --> 0:10:40.760 I wouldn't be too quick to completely discount GDP because 0:10:40.840 --> 0:10:45.839 underneath GDP is corporate earnings, corporate profits, business investment, and 0:10:45.920 --> 0:10:47.600 so I think that it is important. I mean again, 0:10:47.840 --> 0:10:49.960 I think you know, policymakers, to be fair to chair 0:10:50.000 --> 0:10:52.120 the power, I think they are looking at a distillation 0:10:52.280 --> 0:10:54.959 but there's no doubt that the futteral Reserve is weighing 0:10:55.080 --> 0:11:00.560 the jobs market much more heavily than the GDP numbers. Again, 0:11:00.760 --> 0:11:02.720 I think, you know, the next several months will. 0:11:02.600 --> 0:11:03.319 Have some weakness. 0:11:03.400 --> 0:11:06.480 If we're right, then the federal Reserve will look very prescient. 0:11:06.800 --> 0:11:08.520 But nevertheless, you know, we're coming at a. 0:11:08.559 --> 0:11:11.439 Modest crossroads i'd say roughly six months from now, and 0:11:11.559 --> 0:11:13.800 that is and it's not a Bears crossroads. It's more 0:11:13.880 --> 0:11:17.079 of is the equity market right and this softness in 0:11:17.120 --> 0:11:19.480 the labor market's going to stabilize and then we're following 0:11:19.559 --> 0:11:21.640 GDP or is it going to be the latter and 0:11:21.679 --> 0:11:24.000 we're going to have GDP go come from three to two. 0:11:25.240 --> 0:11:27.079 I wish I had more conviction of which one it's 0:11:27.120 --> 0:11:30.040 going to be. Policymakers are trying to change that calculus 0:11:30.480 --> 0:11:33.319 in the next several months, but that is really the 0:11:33.400 --> 0:11:34.040 heart of the issue. 0:11:34.240 --> 0:11:36.559 I love the way that you're phrasing this because it's 0:11:36.720 --> 0:11:39.880 really accurate. It makes me feel like, right now the 0:11:39.960 --> 0:11:42.280 labor market is doing to dictate the bond market, and 0:11:42.440 --> 0:11:46.439 it's basically the GDP numbers Atlanta Fed. GDP is what 0:11:46.559 --> 0:11:48.839 almost every analyst who comes on the show, Who's bullish 0:11:48.880 --> 0:11:51.560 and Equities points to and says, look what's slow down? 0:11:51.640 --> 0:11:54.720 I just wonder how much the Fed could get ahead 0:11:54.720 --> 0:11:56.679 of this in economic terms. In other words, if they 0:11:56.760 --> 0:11:58.880 cut by they just cut by fifty basis points, if 0:11:58.880 --> 0:12:02.000 they do another fifty basis point cut, say in November, 0:12:02.280 --> 0:12:05.880 how much could they affect change to actually bring the 0:12:05.920 --> 0:12:09.280 labor market up to GDP and GDI rather than bring 0:12:09.360 --> 0:12:11.680 GDP and GDI down to the weakness that we're seeing 0:12:11.720 --> 0:12:12.800 currently in the labor market. 0:12:14.040 --> 0:12:16.360 Well, again, I think there are recent actions, there is 0:12:16.440 --> 0:12:19.800 some lag. So I mean the financial markets respond instantaneously. 0:12:19.880 --> 0:12:21.760 We're already trying to get ahead of the Futter Reserve. 0:12:22.320 --> 0:12:24.880 But in terms of the labor market the next three months, 0:12:24.920 --> 0:12:28.520 they're pretty much baked. I actually wish I knew exactly 0:12:28.520 --> 0:12:30.920 what the numbers would be, But our leading indicators say, listen, 0:12:30.960 --> 0:12:33.280 there's still some choppiness, but they're not going to go negative. 0:12:33.320 --> 0:12:36.280 That would be a surprise to me. And so again 0:12:36.440 --> 0:12:38.040 I think where it's going to come out. The Federal 0:12:38.040 --> 0:12:40.440 Reserve is now trying to look six months out and saying, listen, 0:12:40.520 --> 0:12:43.599 we want to nail that landing. The only risk I 0:12:43.679 --> 0:12:46.800 think the more bullish part of the economists or analyst 0:12:46.840 --> 0:12:49.079 community is saying is listen, you don't need to be 0:12:49.160 --> 0:12:51.000 cutting at all or not much. And so I think 0:12:51.000 --> 0:12:53.000 the Futter Reserve, if they're going to fight that narrative, 0:12:53.400 --> 0:12:56.439 they have to explain why they believe they're so restrictive 0:12:56.480 --> 0:12:59.080 and yet we have three percent GDP growth. I'm still 0:12:59.080 --> 0:13:01.439 waiting for the answer, but I think that's something that 0:13:01.520 --> 0:13:04.800 would be helpful for the Thurd Reserve to articulate where 0:13:04.840 --> 0:13:06.360 they're going to go for the next six months. 0:13:06.800 --> 0:13:09.959 Joe, but how are you going to review the non 0:13:10.040 --> 0:13:12.800 farm payers report November third? That's looking back at October 0:13:12.880 --> 0:13:15.719 when you see all these mismatches in the economy and 0:13:15.840 --> 0:13:18.160 people will be out of work. We know that because 0:13:18.160 --> 0:13:20.480 of what's going on with the number of strikes and 0:13:20.559 --> 0:13:21.560 Boeing and the port. 0:13:23.160 --> 0:13:24.960 Well again, I think you have to look at other things. 0:13:25.000 --> 0:13:26.720 I think you have to look at the new entrance 0:13:26.800 --> 0:13:28.679 coming in. I mean, one of the biggest reasons why 0:13:28.760 --> 0:13:31.880 we didn't have a more material slowdown this year was 0:13:32.000 --> 0:13:34.240 just the really the surgeon immigration. So you're going to 0:13:34.280 --> 0:13:36.520 look at a distillation picture. It's not so much what 0:13:36.600 --> 0:13:40.040 the headline is it's the breath of job creation. It's 0:13:40.120 --> 0:13:43.839 industries that are always strong, are they continuing to add 0:13:43.880 --> 0:13:46.960 at a current pace. It's the hours being worked outside 0:13:47.040 --> 0:13:50.000 of the strikes and areas. So yeah, yeah, Again, like 0:13:50.080 --> 0:13:53.040 anything in life, there's going to be noise in that report. 0:13:53.280 --> 0:13:55.200 I think what you're trying to say more than anything 0:13:55.320 --> 0:13:58.560 is the diffusion or the breath of industries and companies 0:13:58.640 --> 0:14:01.839 therefore that are in the continuing to add to just 0:14:01.920 --> 0:14:02.400 the jobs. 0:14:02.800 --> 0:14:02.959 Joe. 0:14:03.040 --> 0:14:05.680 You also talk about something in your research, a phrase 0:14:05.760 --> 0:14:08.200 that feels like it's been dropped by the wayside as 0:14:08.280 --> 0:14:11.120 of late, and that is the last mile of inflation. 0:14:11.280 --> 0:14:13.559 That's some of the unevenness that you see. You expect 0:14:13.640 --> 0:14:16.400 inflation to remain stubborn in this the second half of 0:14:16.600 --> 0:14:19.520 twenty twenty four. Does that mean this whole sort of 0:14:19.840 --> 0:14:22.520 idea that Powell was doing some sort of victory lap, 0:14:22.600 --> 0:14:25.160 even though he didn't explicitly say it, saying that inflation 0:14:25.400 --> 0:14:26.720 has been conquered. 0:14:26.320 --> 0:14:27.800 That that's not exactly right. 0:14:29.280 --> 0:14:31.240 Well, I get I think the Federal Reserve, you know, 0:14:31.280 --> 0:14:33.360 they're one of the few institutions that can actually affect 0:14:33.360 --> 0:14:35.720 the outcome because if everyone believes that inflation is on 0:14:35.760 --> 0:14:36.320 their control. 0:14:36.760 --> 0:14:37.880 It tends to go their way. 0:14:38.440 --> 0:14:41.200 But you know, the housing market and all of its 0:14:41.360 --> 0:14:44.080 esoteric calculations has been you know, one of the airs 0:14:44.080 --> 0:14:45.800 that's really been subborn. And I think that you know, 0:14:45.880 --> 0:14:49.720 even FED officials would acknowledge that. But again, you know, 0:14:49.840 --> 0:14:52.480 this is a fairly dovish institution. But to give the 0:14:52.520 --> 0:14:55.000 feder Reserve credit, they said that they could have a 0:14:55.080 --> 0:14:58.000 trade off of bringdown inflation without a material impact in 0:14:58.080 --> 0:15:01.400 the labor market. Now, you know, they got a really 0:15:01.520 --> 0:15:04.960 good luck in terms of the immigration surge, but tracking 0:15:05.040 --> 0:15:07.480 to date, so again, you know, I'm not cheering against 0:15:07.480 --> 0:15:10.480 the soft landing. I'm just waiting to see, you know, 0:15:10.720 --> 0:15:13.280 where does that calculus given their aggressive cuts and what 0:15:13.520 --> 0:15:15.880 likely will continue for a little bit of while a 0:15:15.920 --> 0:15:18.600 little bit of time. Where are where are we six 0:15:18.680 --> 0:15:20.560 months from now? And that's something that we will continue 0:15:20.560 --> 0:15:21.040 to focus on. 0:15:21.360 --> 0:15:22.680 Joe before we. 0:15:22.800 --> 0:15:25.200 Let you go, How much are you expecting the jobs 0:15:25.200 --> 0:15:27.520 are part to surprise the upside of the down side 0:15:27.760 --> 0:15:29.000 when we get them on Friday? 0:15:30.320 --> 0:15:32.600 Oh my goodness. I've been employed for twenty two years 0:15:32.640 --> 0:15:35.080 in part because I've tried to avoid these questions. But 0:15:35.360 --> 0:15:37.680 I would say there's monest risk on the downside. But 0:15:38.200 --> 0:15:40.040 take that with the grain of salt. If I was 0:15:40.120 --> 0:15:42.600 that accurate, I would probably already be retired. 0:15:43.040 --> 0:15:43.440 I love it. 0:15:43.520 --> 0:15:46.480 I expected you to be like, well, suddenly disturbance. Can 0:15:46.600 --> 0:15:48.360 hear you, Joe Davis, a Vanguard, thank you so. 0:15:48.480 --> 0:15:49.240 Much for being with us. 0:15:49.240 --> 0:15:50.080 I really appreciate it. 0:15:59.200 --> 0:16:02.080 Tony Rodriguez, head of fixed Income strategy at neuven And 0:16:02.320 --> 0:16:04.240 what do you make of that? What we just we're 0:16:04.280 --> 0:16:06.800 hearing about from Joe that essentially the bond market is 0:16:06.840 --> 0:16:09.760 taking its cues from the potential weakening of the labor market, 0:16:10.120 --> 0:16:14.000 whereas stocks really are looking much more at GDP and GDI. 0:16:14.800 --> 0:16:16.480 Yeah, I think that's accurate, and I think when you 0:16:16.560 --> 0:16:18.800 take that to the fixed income context, you're seeing the 0:16:18.960 --> 0:16:22.400 equity like response in the credit markets. Right So emerging 0:16:22.480 --> 0:16:24.880 markets are doing well, preferreds are doing well, high yields 0:16:24.920 --> 0:16:28.640 doing well. So credit risk is highly valued right now, 0:16:28.800 --> 0:16:32.400 and the fundamentals are very solid, defaults are low, corporate 0:16:32.440 --> 0:16:34.760 profits are good. So you're seeing the same story in 0:16:34.800 --> 0:16:37.000 the fixed income market. It's just that it's focused on 0:16:37.080 --> 0:16:40.600 the credit sectors. So I think the disconnect is maybe 0:16:40.680 --> 0:16:43.240 that in the treasury market you are seeing people that 0:16:43.320 --> 0:16:46.360 are kind of hedging against their risk books. So if 0:16:46.400 --> 0:16:48.880 you have an aggressive equity position, one of the only 0:16:48.960 --> 0:16:51.440 things that's going to work well. If in fact we 0:16:51.560 --> 0:16:55.360 get the hard landing that's not the highest probability, treasuries 0:16:55.400 --> 0:16:58.120 will rally. Treasuries will serve as a hedge. So I 0:16:58.200 --> 0:17:00.800 think there's a lot of money in that market that 0:17:00.960 --> 0:17:04.000 is serving as a hedge too, taking risk and the 0:17:04.040 --> 0:17:07.120 credit markets taking risk in the equity markets private markets. 0:17:07.520 --> 0:17:09.360 That didn't work though over the past couple of years 0:17:09.480 --> 0:17:11.920 because the issue the risk was inflation, and the different 0:17:12.000 --> 0:17:14.000 kinds of risk can mean that the bonds can be 0:17:14.040 --> 0:17:17.560 a buffer or not. Are you basically saying the increasingly 0:17:17.640 --> 0:17:20.639 bonds very diversifier because inflation is off the table, that 0:17:20.760 --> 0:17:23.680 is no longer a concern in any investor's mind that 0:17:23.800 --> 0:17:24.320 you speak with. 0:17:25.119 --> 0:17:27.680 Essentially, yes, I mean we wouldn't say inflation risk is 0:17:27.840 --> 0:17:31.320 off the table completely, but it's certainly much lower risk 0:17:31.400 --> 0:17:31.960 than it had been. 0:17:32.040 --> 0:17:33.720 We do think inflation continues to come down. 0:17:33.760 --> 0:17:35.960 So when you think of fixed income, you want to 0:17:36.000 --> 0:17:39.240 get income out of it, liquidity and a hedge and stability. 0:17:39.680 --> 0:17:42.120 Back when inflation really started to take off, in twenty two, 0:17:42.320 --> 0:17:44.960 there was no income in it, there was no potential 0:17:45.040 --> 0:17:48.280 for protection because rates were so low, there was still liquidity. 0:17:48.560 --> 0:17:50.760