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Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App and inflation
Speaker 2: Report coming to you right now from across America. I'm
Speaker 2: waiting for the data, particularly on that critical three tenths
Speaker 2: of a percent data, and it comes in a little
Speaker 2: elevated away from the free lunch people were talking about.
Speaker 2: Instead of zero point three, it's zero point four year
Speaker 2: over year, not three point four. It's a lofty three
Speaker 2: point five. And the big one, the wildser to meet
Speaker 2: Paul Sweeney, is three point seven. Core year over year
Speaker 2: comes out at three point eight with a spirited real
Speaker 2: average hourly earnings, The markets react.
Speaker 3: S and p five hundred just ticks down pretty solidy
Speaker 3: down seven tens to one percent. The nastac off about
Speaker 3: nine tens a one percent rate on this data. Go
Speaker 3: to the yield space, Tom. The two year treasury, the
Speaker 3: one that's really tied to short term rates, up eleven
Speaker 3: basis points, just in a couple of ticks. Here, the
Speaker 3: ten years up nine basis points four point four in.
Speaker 2: The real yield explodes out ten basis points a higher
Speaker 2: inflation adjusting yield two point zero nine percent. I'm taking
Speaker 2: some time here, folks, so I reckon digest this market
Speaker 2: moving data curve spread a little bit of disinversion, but
Speaker 2: the real dynamic is just simply in level. I'm not
Speaker 2: going to mince words. I said this on Monday. I
Speaker 2: was just guessing. Now I'm not guessing. We are on
Speaker 2: the five percent watch for the US full faith and
Speaker 2: credit two year yield four point eighty seven percent rounded
Speaker 2: up twelve full bas points of movement a ten year
Speaker 2: four point four to six. There's prosaic ideas, like what
Speaker 2: does this do to a thirty year mortgage? Is one idea?
Speaker 2: What does this do to money market funds? Paul? What
Speaker 2: do we start doing? Is it another half a trillion
Speaker 2: dollars this week and the money mark.
Speaker 4: It's interesting time.
Speaker 3: I'm just looking at the top live on the reporting
Speaker 3: on the Bloomberg terminal, Chris Ancy, senior editor for Bloomberg,
Speaker 3: who says, this is going to really question the feasibility
Speaker 3: of a June FED great cut, that's the bottom line.
Speaker 2: He's had time to look at his studios in Princeton
Speaker 2: with Bloomberg Intelligence Ira Jersey and will have Neil Dudda
Speaker 2: with us in moments as they both digest the data.
Speaker 2: I right, I guess I got to go to the
Speaker 2: FED chit chat. This is about as no June cut
Speaker 2: as we've ever seen.
Speaker 5: Uh, no June cutting. We're gonna start pricing out July
Speaker 5: in a hurry as well here Tom, So you know
Speaker 5: it very likely when you keep on this was not
Speaker 5: the worst data obviously that we could seen right off.
Speaker 5: Zero point five would have been worse, for sure. But
Speaker 5: it just shows you that the the disinflationary environment is
Speaker 5: is is lagging now. So the you know, the the
Speaker 5: idea that we were going to continue to have a
Speaker 5: slow decline of inflation just hasn't happened. And now we're
Speaker 5: we're starting to see a leveling off, and because of that,
Speaker 5: it's going to be harder and harder for the Fed
Speaker 5: Reserve to start cutting interest rates, like even make the
Speaker 5: case that they need to start start cutting interest rates
Speaker 5: and and calibrate their uh, calibrate what they're doing. So
Speaker 5: so it wouldn't surprise me at this point if if
Speaker 5: the majority of the market started the price for the
Speaker 5: first full cut to be in November at some point
Speaker 5: in the next couple of next couple of days, because
Speaker 5: you know, if they don't cut in July, then then
Speaker 5: I think that they would just prefer to wait instead of,
Speaker 5: you know, making a first cut in September. They'll say
Speaker 5: that they would. Every meeting's live. Yeah, quite frankly, they've
Speaker 5: never actually cut within a month of the election, so
Speaker 5: I suspect that they'll they'll skip in September and then
Speaker 5: go to November.
Speaker 2: It's like saying Arsenal list and Villa is a snooze fest.
Speaker 2: It's it's live. The Vicks fifteen point seven zero of
Speaker 2: point seven to two down futures negative three hundred SMP
Speaker 2: futures negative forty six. Paul, let me lay out the
Speaker 2: FED meetings May one June twelve July thirty one, and
Speaker 2: the one I've been watching, which is September eighteenth. Forget
Speaker 2: about the politics, forget about the election. They're going to
Speaker 2: have a lot more data into the Q three.
Speaker 3: Season YEP end of current from a Bloomberg economy saying
Speaker 3: no surprises here. Shelter and gas prices are fingered by
Speaker 3: the BLS as the main culprits here in the higher
Speaker 3: inflation print here. So I mean, IRA is the Fed
Speaker 3: just saying again, we're data dependent. We're seeing a little
Speaker 3: bit of stickiness here, a little bit of a resurgence
Speaker 3: here in core inflation.
Speaker 4: So it's okay.
Speaker 3: Wait, is that kind of how you think they're going
Speaker 3: to message it?
Speaker 5: Yeah, I think they almost have to mention it that way.
Speaker 5: And you know, we get the minutes today and you're
Speaker 5: not going to revise the minutes because of this number.
Speaker 5: But I think as we get into and you hear
Speaker 5: some of the Fed speak going into the quiet period
Speaker 5: before that that may meeting that Tom just mentioned, you know,
Speaker 5: one of the things that you're going to look at
Speaker 5: is the shorter term. Right. You've heard Governor Waller and
Speaker 5: as well as other members of the Federal Reserve talk
Speaker 5: about the kind of the shorter term momentum of inflation.
Speaker 5: And when you look at the three month annualized core
Speaker 5: inflation rate right now, it's at four point five percent.
Speaker 5: It was at four percent back in January, So that's accelerating, right,
Speaker 5: So that's a that's not a good sign.
Speaker 2: Now.
Speaker 5: Granted, seasonally this tends to be a time when inflation's
Speaker 5: a little bit higher anyway, so you have to get
Speaker 5: with a little bit of a grain of salt. But
Speaker 5: it's still moving in the wrong direction, right, And I
Speaker 5: think that that's one of the keys that you can
Speaker 5: take away from this report is that yes, people will
Speaker 5: nuance this and say, oh, well, it's housing lagging. There's
Speaker 5: all these other indicators. Prices obviously, you know, feed into
Speaker 5: at least some of this report today. But nonetheless, like
Speaker 5: in aggregate, you're still looking at an economy that doesn't
Speaker 5: have stable inflation quite yet.
Speaker 2: We're we're gonna rep up the script here. We're with
Speaker 2: Ira Jersey. He will continue with us, and Neil Dutta
Speaker 2: will join us in a moment commercial free to you
Speaker 2: across America until the nine zero zero hour with the
Speaker 2: support of Commonwealth. We thank them for their work with
Speaker 2: our Economics Commonwealth, supporting more than two thousand independent financial
Speaker 2: advisors with the solutions they need to grow a thriving business.
Speaker 2: Commonwealth go where you grow. Visit Commonwealth dot com to
Speaker 2: learn more. We're thrilled. Also tell you schedule Tracy Alloway
Speaker 2: and Joe Wisenthal will rip up the script there as
Speaker 2: well and talk to mister Wisenthal and miss Alloway about
Speaker 2: this important inflation report. Down negative three point fifty SPX
Speaker 2: futures at negative fifty five to VIX out at fifteen
Speaker 2: point eighty seven. As Paul mentioned, the two year yield
Speaker 2: four point eight nine percent now a fifteen basis point
Speaker 2: higher yield, lower price on the two year yield. Ivery Jersey,
Speaker 2: please please stay with us if you can. Neil Dudda
Speaker 2: joins now from Renaissance Macro. Neil. This goes right to
Speaker 2: the ambiguity, which you think is constructive. If we have
Speaker 2: a little inflation, I guess we're gonna get a little
Speaker 2: bit of nominal GDP. Does inflation adjusted GDP get crushed?
Speaker 2: Are you in like some two percent doom and gloom
Speaker 2: crew with real GDP?
Speaker 6: Well, well I'm not dooming gloom on on real growth.
Speaker 6: But you know, I think I agree with Ira that
Speaker 6: you know, today's inflation number does push out the timing,
Speaker 6: and I think you know, what's important for I think
Speaker 6: investors to kind of think about here is just how
Speaker 6: path dependent is that first cut. I mean, you know,
Speaker 6: if it's not July, then are they are they not
Speaker 6: going to ease right before the election? I mean, how
Speaker 6: much of that to enter their thinking. It's something to
Speaker 6: think about. The one thing I would say is that
Speaker 6: you know, much of the upside surprise and in the
Speaker 6: core CPI number this morning was driven by medical care
Speaker 6: services inflation, and it's important to keep in mind that,
Speaker 6: you know, there are differences of scope between the CPI
Speaker 6: data and the pc data, and the CPI data is running,
Speaker 6: you know, over a full percentage point higher than PCEE.
Speaker 6: That's about twice almost three times what's normal, and so
Speaker 6: you know, in some respects, I do think the margin
Speaker 6: might be for stating how important CPI is for the
Speaker 6: FEDS reaction function. But you know, it's a bad number
Speaker 6: and at the margin that pushes the timing out.
Speaker 2: Pausing to jump in here, Marcus to tier eight negative
Speaker 2: seventy on SPX futures down features negative four fifty.
Speaker 3: And Tom just on the currency front, dollar yen breaches
Speaker 3: one fifty two, you're yeah, one six four spot three seven,
Speaker 3: So a little bit of weakness there. So, Neil, where's
Speaker 3: inflation coming from?
Speaker 4: I mean, I don't know.
Speaker 3: I guess we always thought that this, you know, last
Speaker 3: hundred basis points or so of reducing inflation would probably
Speaker 3: be the toughest.
Speaker 4: Where are we seeing inflation these days?
Speaker 6: Well, you're seeing it. I mean you're seeing it in
Speaker 6: motor vehicle insurance. That was a big driver for inflation
Speaker 6: last month. You also saw it in apparel, so a
Speaker 6: parallel prices rose quite sharply. You know. Keep in mind, though,
Speaker 6: I mean what I would just say is that you
Speaker 6: look at apparel prices, they rose I think seven tenths
Speaker 6: of one percent in March, and that's following a big
Speaker 6: increase in February. But taking a step back, people are
Speaker 6: already making a trade off, right, So if you look
Speaker 6: at real consumption of clothing, it's already declining. So in
Speaker 6: some respects, that is not the kind of inflation that
Speaker 6: should be worried about. I mean, that's not demander of
Speaker 6: an inflation. If people are cutting back in the areas
Speaker 6: that are going up in prices. That suggests that people
Speaker 6: are making a trade off already and there's somewhat resistance
Speaker 6: to higher prices, which then raises the question about how
Speaker 6: long those price increases can stick. You know, motor vehicle insurance,
Speaker 6: you know, it was going in the right direction. It
Speaker 6: was still very elevated, but it was going in the
Speaker 6: right direction for the last few months, and now it's
Speaker 6: right reversing, you know, but we did see things like
Speaker 6: car prices come down, so I'm not really sure what
Speaker 6: to make that. And ultimately, if the underlying value of
Speaker 6: the asset itself, which is cars, right's going under price,
Speaker 6: you'd expect, you know, the insurance cars.
Speaker 2: Okay, I want to go to Ira right now, and
Speaker 2: then Neil Dudda with the same question. We're going to
Speaker 2: go Mafi here because Duda won't come on unless we
Speaker 2: go mathe Ira. It's real simple. The ten year reel
Speaker 2: yield is now out over two standard deviations up to
Speaker 2: two point zero nine percent. It did it in February
Speaker 2: Valentine's Day when we all had to buy Lisa chocolate
Speaker 2: killed us. And then from December it's been a lift
Speaker 2: from one point seven zero up to two point zero
Speaker 2: nine Ira Jersey Are we had a critic a point
Speaker 2: for the real yield.
Speaker 5: I don't think so. You know, the real yield is
Speaker 5: so to the way that we look at the real
Speaker 5: yield that basically two components describe most of why we're
Speaker 5: pricing where we are two percentage for ten year really yields.
Speaker 5: So first is just volatility in the market, right, so
Speaker 5: you're going to do when when the market volatility is high,
Speaker 5: you're going to demand a higher really yield and number one.
Speaker 5: And then secondly, and I think that this is important
Speaker 5: and one of the reasons you're seeing the big sell
Speaker 5: off today there, and that's monetary policy. So so you know,
Speaker 5: if if if the difference between the Fed Fund rate
Speaker 5: and uh and and CPI or PC whatever inflation measure
Speaker 5: you have you want to use, is relatively high, and then certainly,
Speaker 5: you know tips yields, you have to price that in
Speaker 5: as well. So so so those two factors tend to
Speaker 5: tend to drive this. And the fact that now that
Speaker 5: the market's starting to price out some of the early
Speaker 5: cuts and starting to price out some you know, that
Speaker 5: terminal floor that we were talking about earlier now the
Speaker 5: terminal rate floor is moving up as well. You'd expect
Speaker 5: this see somewhat higher real yield, and you're seeing that now.
Speaker 6: No, it's not.
Speaker 5: I mean, it's not unattractive quite frankly, Tom, you know,
Speaker 5: two percent plus inflation is an interesting I think is
Speaker 5: our interesting levels to think about for for tips versus
Speaker 5: versus nominal treasury done.
Speaker 2: I look at the five year inflation adjusted yield and
Speaker 2: we're back to a November almost pre Thanksgiving pricing here
Speaker 2: four point five three percent. What does a four point
Speaker 2: five to three percent five year real yield due to
Speaker 2: American business?
Speaker 6: I mean, I think at the margin it you know,
Speaker 6: I mean, obviously it raises the cost of financing. I
Speaker 6: think what it does, I think it you know, frankly,
Speaker 6: what it makes look more ridiculous is the FEDS longer
Speaker 6: run expectations for where neutral rates are. I mean, clearly,
Speaker 6: you know this is an economy that can still work
Speaker 6: at high rates at these rates. I mean I think
Speaker 6: that much is clear. But you know, I think what
Speaker 6: it does suggests is that you know, the FEDS expectations
Speaker 6: for where neutral well be is just frankly too low.
Speaker 6: And I think, you know, every month that goes by
Speaker 6: where you get a combination of strong jobs growth and
Speaker 6: higher inflation. I mean, I think that that kind of
Speaker 6: basically cements that case.
Speaker 3: Boy, I'm looking at just a couple of categories here, Tom.
Speaker 3: Car insurance was up twenty two from a year ago.
Speaker 4: That's so much.
Speaker 2: Show you what's going on the show right now. I mean,
Speaker 2: I'm sorry, this is a fixed cost? Can I say that?
Speaker 4: I think?
Speaker 1: So?
Speaker 4: Yeah, I got to pay it every every month. I mean,
Speaker 4: I know, you know, you know, you've got the Bentley
Speaker 4: and everything. But for those of us, I mean you.
Speaker 2: Say car insurance, except that's like breathing air. You have
Speaker 2: to pay car insurance, right, you have.
Speaker 6: To pay it. I mean, but as I say, I mean,
Speaker 6: it's it's it's interesting because it's it's interesting because it
Speaker 6: hasn't moderated yet when you look. I mean, ultimately, these
Speaker 6: things should follow the underlying value. I mean, what are
Speaker 6: you ensuring? Right, you're insuring a car? What do we
Speaker 6: know about the price of cars? The price of cars
Speaker 6: is actually going down. That's why poor commandit a CPI
Speaker 6: in this number was you know on the software side,
Speaker 6: so you know there is you know, there is some
Speaker 6: of that going on. I mean, could just be timing,
Speaker 6: but you know, you have to take these numbers as
Speaker 6: they come to you. Given the uncertainty that Fed's been
Speaker 6: talking about, and I think, you know, at the margin
Speaker 6: that kind of it should push them to err on
Speaker 6: the side of waiting.
Speaker 3: Hey, Ira, you know, looking at the ten year treasury here,
Speaker 3: we're almost fourteen basis points pushing up four point five zero.
Speaker 3: You know, I have I know nothing about the bond market,
Speaker 3: and I say that proudly four to four and a
Speaker 3: half percent was kind of my range for the ten year.
Speaker 4: Do I have to rethink that.
Speaker 5: Well, four fifty one is a very important technical level
Speaker 5: on the charts. We've been highlighting that level now for
Speaker 5: about ten days. You break there and we can certainly
Speaker 5: get back toward four point seven percent pretty quickly. I
Speaker 5: would like to say something that you just comment on,
Speaker 5: something that Neil just said, and that's that higher terminal,
Speaker 5: the terminal floor. Right, So the idea that you know
Speaker 5: two and a half percent is no longer or the
Speaker 5: kind of the base case. I think there's there's a
Speaker 5: recency bias that a lot of investors have, and certainly
Speaker 5: members of the Federal Reserve and the FED staff have
Speaker 5: and that's that you know, we we've come down and
Speaker 5: that the that terminal rates, that that the that our
Speaker 5: star is basically much lower than it was, say in
Speaker 5: the nineteen nineties or nineteen eighties or seventies. You know,
Speaker 5: I don't think we're going back to the nineteen seventies
Speaker 5: or eighties, but certainly, you know, our star the real
Speaker 5: funds rates, so the real neutral rate has to be
Speaker 5: higher than it was, you know, prior to prior to
Speaker 5: to COVID, because because there's a lot of there's a
Speaker 5: lot of structural issues that have shifted pretty significantly since COVID.
Speaker 5: We've talked about all of them, right, whether it's immigration,
Speaker 5: work from home, like, there's a whole bunch of things
Speaker 5: to think about that way. But the idea that that
Speaker 5: our star and that the real rate is higher, I
Speaker 5: think is something that's that's underappreciated by a lot of
Speaker 5: policy makers, and I think that that that's going to
Speaker 5: take some time for them to get it into their psychology.
Speaker 5: That yes, you know, maybe three percent is the new
Speaker 5: two percent.
Speaker 2: One final question, you guys, you've got to go to
Speaker 2: our other esteem guests here. Neil dot As simple as
Speaker 2: I can, is America oppressed by inflation? Now?
Speaker 6: I wouldn't say that America is oppressed by inflation. I
Speaker 6: mean if you ask, if you ask consumers about their
Speaker 6: short run inflation expectations, they've actually been going down, even
Speaker 6: though we've been seeing these upside surprises on inflation. And
Speaker 6: you know, I mean so I think that to me,
Speaker 6: that disconnect, frankly, is quite interesting. The fact that inflation
Speaker 6: expectations have been moderating. I mean, we just saw that
Speaker 6: this week with the New York Fred Right consumer expectations data.
Speaker 6: I think that, to me is one reason why I'm
Speaker 6: a little bit skeptical that what we're seeing so far
Speaker 6: this year is kind of the underlying trend for where
Speaker 6: inflation is. But the data are with the data are
Speaker 6: as I mentioned. But you always have to kind of
Speaker 6: go back to first principles, Tom, I mean, ultimately, unit
Speaker 6: labor costs are are are we? I mean, where's the
Speaker 6: inflation really, you know, coming from? You have to start
Speaker 6: worrying about it. You know, at some point soon if
Speaker 6: inflation continues to surprise in this fashion, you have to
Speaker 6: worry a little bit about, you know, declines in real
Speaker 6: wage growth weighing on consumer spending at some point later.
Speaker 6: So I do think that that's something that should begin
Speaker 6: to enter the conversation if this continues.
Speaker 2: Somebody just sent it in a lovech YouTube. What am
Speaker 2: I going to be looking at? I'm going to look
Speaker 2: at Jason Firman up at Harvard who does a wonderful
Speaker 2: annualized inflation series. I'm sure I'll get that out on
Speaker 2: Twitter here in a moment. Future is negative sixty four
Speaker 2: down features at negative four hundred. Thank you Ira Jersey
Speaker 2: of Bloomberg Intelligence. Thank you Neil Dudda of Renaissance Macro
Speaker 2: with a real market moving that report today. We are
Speaker 2: fortunate and that we're going to talk about their show
Speaker 2: Oddlines is just genormous Apple podcasts where you see it,
Speaker 2: you know, you look, you got a charitable you know,
Speaker 2: and there's a Joe and Tracy the Tracy and Joe Show.
Speaker 4: And yeah, all that.
Speaker 2: We'll talk about Oddlets, but we're going to open up
Speaker 2: the conversation with Tracy Alloway and Joseph Weisenthal here just
Speaker 2: about inflation. Tracy, where are you seeing inflation? We've been
Speaker 2: making jokes about it, except it's not funny.
Speaker 1: Well, my personal basket of inflation is all mayonnaise, so
Speaker 1: that's how I measure it. I haven't looked at up
Speaker 1: the component change in the in the Mayo index just
Speaker 1: yet this morning, but I plan to right after this interview. Look,
Speaker 1: I think most of the unexpected rise seems to have
Speaker 1: come out of shelter costs and gasoline, or at least
Speaker 1: that's what the BLS said. I think the really interesting
Speaker 1: thing here is, and Neil and Ira, we're kind of
Speaker 1: touching on this. You know, we can talk about the
Speaker 1: neutral rate, our star, the natural rate of interest all
Speaker 1: we want, but the inflation data doesn't seem to be
Speaker 1: bearing out that entire thesis. And in fact, I thought
Speaker 1: it was really interesting last week it kind of flew
Speaker 1: under the radar, but the Bank for International Settlements published
Speaker 1: a paper where they basically said, like, our star is
Speaker 1: kind of useless and we should probably just be looking
Speaker 1: at observed inflation instead of trying to observe this unknowable
Speaker 1: neutral world that's.
Speaker 2: Called the gospel. According to Tom King, Joe, what's your
Speaker 2: insight here right now? Inflation's oppressive. I just quoted Argentina
Speaker 2: with two hundred and seventy six percent annual inflation that's oppressive,
Speaker 2: that's oppressed crust.
Speaker 7: Well, we still have real wage growth, as Neil was
Speaker 7: talking about. As Neil mentioned, even consumer's own expectations for
Speaker 7: inflations via various surveys have come down. So I think
Speaker 7: there's an argument that we're not being pressed oppressed by inflation.
Speaker 4: It's still bad.
Speaker 2: You know.
Speaker 7: There's two things that I'm thinking about, which is that
Speaker 7: there is this view among many, the sort of Powell
Speaker 7: Waller Bullard camp I would say that policy is tight
Speaker 7: right now and on some level you and this goes
Speaker 7: to tree point about the unknowability of neutral. It's like,
Speaker 7: if inflation keeps surprising to the upside and maybe accelerating
Speaker 7: a little bit since the last year, what are these
Speaker 7: words tight even mean in the context of the observed
Speaker 7: reality that inflation is drifting up. The other thing I
Speaker 7: keep thinking about, you know, we have futures down today currently,
Speaker 7: S and P futures down one point two percent. The story,
Speaker 7: the story of twenty twenty four has been hotter than expect,
Speaker 7: inflation prints and a red hot stock market. Nonetheless, so
Speaker 7: in the short term, yes, this is certainly a bump.
Speaker 7: But it has been interesting that those that first cut
Speaker 7: keeps getting priced out further and further into the future.
Speaker 7: Now just fifty cuts, fifty bases points priced in, and
Speaker 7: by and large, the stock market, by any outside of today,
Speaker 7: still doing phenomenally well.
Speaker 3: Exactly, And Tracy, I'm just looking, you know, for context,
Speaker 3: seeing Bloomberg reporting here sheltering gas combined contributed over half
Speaker 3: of the overall monthly increase.
Speaker 4: That's kind of what.
Speaker 3: People feel month to month, day to day. This is
Speaker 3: a you know, I was I put in our internal chat,
Speaker 3: this is a problem for President Joe Biden.
Speaker 4: I mean inflation. You don't want to see that thing
Speaker 4: coming back.
Speaker 1: Well, I guess there's two there things we're kind of
Speaker 1: learning here, which is one, a lot more people seem
Speaker 1: to care about how much things cost than the actual
Speaker 1: employment rate, right, Like, the number of people buying stuff
Speaker 1: is just always going to be bigger than the number
Speaker 1: of people who are actually unemployed. So I think, you know,
Speaker 1: it's great that the Fed can go out and say, well,
Speaker 1: the labor you know, the unemployment rate is at decades low,
Speaker 1: But the thing people see the most in their day
Speaker 1: to day lives is the grocery price or the price
Speaker 1: of gas or whatever. So that's one thing, and then
Speaker 1: the other thing I would say is, you know, I
Speaker 1: think Biden has been tackling this issue in some new
Speaker 1: and slightly innovative ways, including talking about price gouging, talking
Speaker 1: about profit margins, and again, the rate of inflation on
Speaker 1: the stuff that is a daily need for people is
Speaker 1: where we see the most impact. Right, So people have
Speaker 1: to buy food, they have to gas up their cars, whatever.
Speaker 1: They don't have a lot of, like Drew, competition in
Speaker 1: that market.
Speaker 2: Paul and I don't have a real life. We don't travel.
Speaker 2: You guys are like jetting around, you know, the golf
Speaker 2: stream and usual. The rest of the country. Are they
Speaker 2: in I guess Arkansas or Texas? Are they in disinflation
Speaker 2: while we're oppressed here in New York.
Speaker 4: I mean I don't think so.
Speaker 2: I mean I don't think so at all.
Speaker 1: You can see the regional CPI number.
Speaker 7: Yeah, And I don't think there is some pocket of
Speaker 7: the country that's escaping it.
Speaker 2: And in fact, I think.
Speaker 7: In a lot of these markets you see hotter than
Speaker 7: expected inflation in part because there's just been so much
Speaker 7: rapid growth and so much strain on the local resources
Speaker 7: due to the influx of population, which kind of maybe
Speaker 7: negates other advantage.
Speaker 2: Yeah, I'm got to talk about out lots or when
Speaker 2: we put put in the time out here, they're handlers,
Speaker 2: they get upset. Yeah, a writer, you go off, go
Speaker 2: off the thing. I mean, if you're in Calverton, New York,
Speaker 2: out by the Hamptons on a given weekend and you
Speaker 2: gotta figure out what to do with acreagew you weigh
Speaker 2: in with attractors, apply cup cadet fifty four inch, twenty
Speaker 2: four horse power riding lawnmower. That's what you Tracy as too.
Speaker 2: You guys talk to Well, she's got the man's mode
Speaker 2: out for the dog. I mean the dog. The dog
Speaker 2: needs exercise. But what did you learn? I mean this
Speaker 2: is like classic odd lots. Yeah, you're talking to tractors supply.
Speaker 2: What you learn?
Speaker 7: So we had the CEO out tomorrow. It comes out
Speaker 7: tomorrow and we're gonna learn why Tracy keeps having to
Speaker 7: spend more and more money.
Speaker 1: I on the modal tractor supply customer.
Speaker 7: But the other interesting, the really interesting thing economically with them,
Speaker 7: and it even speaks to what you were talking about
Speaker 7: with Texas and Arkansas. All that is that there are
Speaker 7: some COVID booms that happened in un reversed peloton Zoom,
Speaker 7: et cetera, and then we sort of went back to normal.
Speaker 7: This move out of the cities has not really negated,
Speaker 7: and people are moving further and further and further apart.
Speaker 7: This was not just a one off shot, and so
Speaker 7: it benefits their sort of strategy which they sort of
Speaker 7: proudly say, we don't have anything near New York, but
Speaker 7: we have three stores Neurodeska Texas.
Speaker 2: Paul, you're living this and Joe and Tracy I don't
Speaker 2: have a life. But the bottom line is Joe is
Speaker 2: one hund I saw you just today with the eclipse
Speaker 2: Monday Tuesday into this Wednesday. I'm sorry, they're out in
Speaker 2: Calverton interrupt I know. I mean, that's all there is
Speaker 2: to it. You guys.
Speaker 3: Also had a recent interview with about US Mexico Freight.
Speaker 3: I got to think that is a great growth story.
Speaker 3: I think about the with the Canadian Pacific bought that
Speaker 3: railroad dow thing from Canada all the way down to Mexico.
Speaker 1: Yeah. So we spoke with Matt Silver, who's the co
Speaker 1: founder of this new company which is building technology basically
Speaker 1: to facilitate cross border trade between the US and Mexico,
Speaker 1: and he's been talking about how it's booming. You know,
Speaker 1: there was always auto production manufacturing in Mexico, so that's
Speaker 1: really picked up. And the one the point that he made,
Speaker 1: which seems kind of obvious, but I guess I hadn't
Speaker 1: internalized it, was the idea of Mexico having a competitive
Speaker 1: advantage just because of its geographic location next to the
Speaker 1: US and the fact that it's in the same time zone.
Speaker 1: You can go down to Mexico, drink tequila with a
Speaker 1: potential business partner, and fly back to the US in
Speaker 1: a day. Right, try to yeah that too. You need
Speaker 1: recovery built in.
Speaker 2: Guys, Thank you, thank you. Alots out on Apple podcasts.
Speaker 2: I'm spending a lot of time looking at the podcasts
Speaker 2: and odd lots leading away from Bloomberg with some intelligent conversation,
Speaker 2: really interested in tractor supply. As Tracy looks at the
Speaker 2: cub cadet.
Speaker 1: You got to go, Tom. They have the baby chickens
Speaker 1: right now. They're very cute.
Speaker 2: Oh good, that would be good. The baby chickens with
Speaker 2: that little kennel feet, that would just be I can't imagine.
Speaker 2: Stephen Rashudo We're like, yeah, rashudo econ, we're econned out.
Speaker 2: Except wow, what a report with miszoo. Good morning, sir.
Speaker 2: Did you expect this.
Speaker 8: We're not as bad as these numbers, that's for sure.
Speaker 8: The reality is, though we have been in the camp
Speaker 8: that basically the data was going to keep the Federal
Speaker 8: Reserve from doing what the Fed wants to do, which
Speaker 8: is cut interest rates, and that the economy fundamentally is
Speaker 8: healthier than a lot of people anticipate, not surprised by
Speaker 8: it in that regard, but surprised on the month over
Speaker 8: month changes.
Speaker 2: What about fixed inflation costs? At the ECHOS building when
Speaker 2: they sit around the table, are they going to talk
Speaker 2: about we have to eat, we have to pay car insurance,
Speaker 2: we have to pay rent or a mortgage averaging out
Speaker 2: now at whatever it is, five to six percent up
Speaker 2: to the seven point three percent. Do they talk about
Speaker 2: required inflation costs versus luxury inflation?
Speaker 8: Well, they really should, because at the end of the day,
Speaker 8: they're trying to maximize social welfare, and their concept behind
Speaker 8: keeping the labor market as tight as it is is
Speaker 8: to try to drive up wages. The problem is by
Speaker 8: keeping the labor market tight in an environment where all
Speaker 8: the excess capacity is used up in the system is
Speaker 8: it creates inflation. And that's when you get into the situation,
Speaker 8: as you indicated a few seconds ago, in terms.
Speaker 4: Of negative real wages.
Speaker 8: So your attempt to try to maximize social welfare by
Speaker 8: keeping a labor market tight could go against you if
Speaker 8: CEOs and companies feel they have pricing power. And after
Speaker 8: seeing this kind of improvement in the data, you're starting
Speaker 8: to see that that's a broad based improvement in the
Speaker 8: inflation numbers. Arise in the inflation numbers is telling you
Speaker 8: that more and more people feel they do have some
Speaker 8: pricing power left, and that's why it's working at the
Speaker 8: detriment of their desire to maximize social welfare.
Speaker 3: So, Steve, I think the initial round of inflation that
Speaker 3: we saw from a pandemic, a lot of folks saying, hey,
Speaker 3: this is supply side driven, it'll play out.
Speaker 4: Is that still the case?
Speaker 8: Well, it did play out, and the reason why fear
Speaker 8: people all the time. AH, inflation was up at nine percent,
Speaker 8: now it's at three. All this is happening because of
Speaker 8: the FED. It's not happening before the FED. It was
Speaker 8: happened as a result of the supply side and the
Speaker 8: fact that even though monetary fiscal policy he's still very
Speaker 8: very accommodative, it's not as accommodative as it was. So
Speaker 8: between those two factors, you've taken inflation down to the
Speaker 8: three plus percentage points. Getting it from three to two
Speaker 8: is a very different story. This is where the FED
Speaker 8: has to get involved, and the FED has been telling
Speaker 8: you over and over again, we want to cut rates,
Speaker 8: and it's been damaging their ability to create a better
Speaker 8: inflationary environment.
Speaker 3: When you see inflation at maybe just the last three
Speaker 3: months ticking up a little bit, does that change your
Speaker 3: economic outlook as it relates to the consumer and the
Speaker 3: retail sales and all these types of things that probably
Speaker 3: go into your GDP model.
Speaker 8: Well, I mean it reflects more what we've been saying.
Speaker 8: We've been in the camp that the labor market is
Speaker 8: tied and the Fed's not going to achieve its inflation target.
Speaker 8: So at some point, you know, the FED either just
Speaker 8: walks away from its inflation target, which is a risk,
Speaker 8: but then that implies higher long term interest rates, and
Speaker 8: that goes against the desire of the same people who
Speaker 8: want to cut rates because they want to see lower
Speaker 8: mortgage rates. They want to see people be able to
Speaker 8: afford to buy homes, and therefore they get the cells
Speaker 8: into this catch twenty two and they haven't been able
Speaker 8: to get themselves out of it because the economy is
Speaker 8: fundamentally healthy.
Speaker 3: And now they are just looking at the WRP function
Speaker 3: pushing out maybe only fifty fifty basis points for the
Speaker 3: entire year this year and a big contrast to how
Speaker 3: we started the year with a lot more cuts pract
Speaker 3: factored into the market. Does the Fed wait till September?
Speaker 4: I don't know.
Speaker 8: Well, they certainly have another opportunity in June when they
Speaker 8: redo the dots again. I mean, my personal preference would
Speaker 8: be that next year when they do the review of
Speaker 8: monetary policy, they eliminate the dots.
Speaker 2: I think the dot's cool.
Speaker 4: We have a function on the Bloomberg terminal, dots go yes.
Speaker 2: I think that can go I would say, I would say,
Speaker 2: with great respect to mister Bloomberg, can the dots go
Speaker 2: go away? Yes? Please go away?
Speaker 8: Thanks, And I think that would be a positive step
Speaker 8: in the right direction for them. But you know, until
Speaker 8: we get that, I think you're probably waiting to June.
Speaker 8: I don't think you'll get any real messaging coming out
Speaker 8: from the May FMC meeting.
Speaker 2: I want to go political here, which is not you know,
Speaker 2: it's not that you're not comfortable with that, Steve. You're
Speaker 2: so able that you can answer this beautifully. I'm sorry,
Speaker 2: but inflation is the halves and they have nots. The
Speaker 2: President's got to address this. This is now one two,
Speaker 2: three months of persistent inflation. But to me, there's a
Speaker 2: great separation in America. For example, Paul and I'm thinking
Speaker 2: of the great Barry Hinckley from the iconic Hinkley ship family.
Speaker 2: He's trotting out Martha Stewart Skyland's too Hinkley pictic boat.
Speaker 2: And because he's helping Martha slide into a Hinckley picnic boat.
Speaker 2: And this is popping like one point seven to two million.
Speaker 2: This is a this is like gorgeous. This is you know,
Speaker 2: Purcelli takes us down the Hudson River to go over
Speaker 2: to Pigum. Okay, you know, Steve shutdo, I'm sorry, there's
Speaker 2: a halves and have nots to inflation. The fancy people
Speaker 2: that have Hinkley picnic boats, they're not worried about this report,
Speaker 2: are they?
Speaker 6: No?
Speaker 2: But You're right.
Speaker 8: There is a real difference, and this comes down to
Speaker 8: the maximized social welfare. The people that they supposedly say
Speaker 8: they want to help, they're not helping with the policies
Speaker 8: they're creating. And that's the underlying problem for this administration.
Speaker 8: They have loaded the Federal Reserve with a bunch of doves,
Speaker 8: and those doves really want to cut interest rates in
Speaker 8: an environment where the economy is telling them you shouldn't
Speaker 8: be cutting interest rates. And then there's this academic environment
Speaker 8: that you get from a lot of Wall Street economists,
Speaker 8: which way, well rach are just naturally too high. I
Speaker 8: wish they would just come down and normalize. People don't
Speaker 8: know what normal is.
Speaker 2: Yeah, but it's Steve that those academic economists in the
Speaker 2: market economists are people that either have want or aspire
Speaker 2: to a Hinkley Picnics. They do. They're not our listeners
Speaker 2: out there living this.
Speaker 8: You're one hundred percent correct, and this is why the
Speaker 8: mistakes the Fed are making is basically allowing this economy
Speaker 8: to stay too height, that high, too tight, or too hot,
Speaker 8: that you are actually creating pricing power for corporate America,
Speaker 8: which then wants to create double digit returns, and that
Speaker 8: double digit returns is what then drives at equity price.
Speaker 8: And now equities are having a hitting year. But let's
Speaker 8: be honest, they had a hell of a great run
Speaker 8: in the first quarter.
Speaker 2: You know, Martha Stewart's picnic boat is Skyland's too. Do
Speaker 2: you know what mine would be? Drama me drama on
Speaker 2: the beg Steven Rashudo, thank you so much, Barry Hickley
Speaker 2: and Martha Stewart, thank you so much as well for
Speaker 2: giving us inflation perspective. Lisa Matero Report Bonds, Lisa Maateo,
Speaker 2: there was almost too many choices this morning.
Speaker 9: Here, there's a lot, There's a lot going on. There
Speaker 9: were some good stories this one. I have to ask you.
Speaker 9: If you're traveling on a plane, have you ever been
Speaker 9: asked to change your seat?
Speaker 3: Sure you have, Yeah, And this is the way I
Speaker 3: think about it. When I having four kids traveling back
Speaker 3: and forth to San Francisco for twenty five years, many
Speaker 3: times we ask people to kind of help out and
Speaker 3: switch seats so it could be together. So now I'm
Speaker 3: on the flip side of that, and I try to
Speaker 3: be as accommodating as I can. But if somebody asked
Speaker 3: me to move from my aisle seat, which is my preference.
Speaker 3: It's like a middle seat. I don't care even if
Speaker 3: there are kids who want Somebody an.
Speaker 2: Economy who has an aisle seat often is paying extra
Speaker 2: for it.
Speaker 4: And that's the new one.
Speaker 9: This is the problems because people are paying extra for
Speaker 9: seats now right Passengers are paying more for seats, and
Speaker 9: then they don't want to pay more, so they just
Speaker 9: use the option to just go wherever. But then when
Speaker 9: they get on the plane in the cabin, they're starting
Speaker 9: to ask other people. You know what, I just switch
Speaker 9: with you.
Speaker 2: I just sent afterthought to Edinburgh. Okay, it was outrageous.
Speaker 2: It was like I thought it'd be seven hundred bucks
Speaker 2: and it was twelve thirteen hundred bucks. And one of
Speaker 2: the overlays was aisle seat or window seat, and the
Speaker 2: second overlay was oxygen.
Speaker 4: And I said, we'll pay.
Speaker 2: Up for oxygen yep as well. But is the answer
Speaker 2: that people are being rooted down and nuts?
Speaker 9: It's the answered is that it's causing a lot of
Speaker 9: tension in the cabin, and there's so much tension and
Speaker 9: travel to begin with. So the Wall Street Journal has
Speaker 9: a really good look into this because you have the
Speaker 9: passenger who was asking and they're like looked at as
Speaker 9: like a cheap scape. Then you have the person sitting
Speaker 9: in the seat who looked at like a jerk if
Speaker 9: they don't change the seed. And then you have the
Speaker 9: airline stewardesses who were called the middle and they just
Speaker 9: want to sit there and say, not my problem. Yeah,
Speaker 9: it's up to you guys. You bottle it out, all right.
Speaker 9: Theater owners they're saying that blockbusters are not enough to
Speaker 9: help them survive. They like the Barbinheimer, you know, that
Speaker 9: whole trend of it, but they need more than two
Speaker 9: movies to survive.
Speaker 2: Paul start there. You had a one off, was Barbonheimer,
Speaker 2: like just one lovely summer?
Speaker 4: No, I mean there's a lot of stuff.
Speaker 3: Twenty four is gonna be the summer of twenty four
Speaker 3: is gonna be okay, twenty five and twenty six are
Speaker 3: gonna be continue.
Speaker 2: Yeah.
Speaker 9: No, And it's a probably because you've had like, you know,
Speaker 9: big hits like barbon Higher, but then you had the
Speaker 9: sleeper hits. You had the Five Nights and Freddy's. You've
Speaker 9: had that one.
Speaker 2: Five I love it.
Speaker 9: You didn't see the Five Nights Freddy I saw that one,
Speaker 9: but it made so much money it was a sleeper.
Speaker 9: Then you have the Taylor Swift, the Beyonce concert films
Speaker 9: trying to pump in money. But then you have the
Speaker 9: Hollywood strikes also that hurt. You have a competition from streaming,
Speaker 9: and that's another issue that the theaters are dealing with.
Speaker 9: So we'll see where it goes.
Speaker 2: But do we still have movies that do like one
Speaker 2: hundred million? Yes, yes, there's still blockbusters.
Speaker 3: Sure, a blockbuster today really has to be like a
Speaker 3: billion global, global, global, And it's not.
Speaker 9: The superhero ones, not as not as much of a
Speaker 9: money maker as they used to be.
Speaker 2: Interesting, I've been to the theater since time began. Oh no,
Speaker 2: I mean.
Speaker 4: It's support and that's some great, big old theaters.
Speaker 2: What I remember. I know we got to continue here,
Speaker 2: but I remember when the kids went all the time,
Speaker 2: and then one day they just stopped and it was
Speaker 2: because of streaming and Netflix. Yep, they just stopped going.
Speaker 4: If that's my convenient.
Speaker 9: Max, What do you track and field? This one is
Speaker 9: interesting from the associated.
Speaker 2: For med field.
Speaker 9: It's going to become the first sport to introduce prize
Speaker 9: money at the Olympics. The World Athletics. They're the governing
Speaker 9: body of the of Athletics. They say they're going to
Speaker 9: pay fifty thousand dollars to gold medalists in Paris. It
Speaker 9: comes from this big pot of two point four million
Speaker 9: dollars they're setting aside to pay them. There's forty eight
Speaker 9: events in track and field, so that's how it's going
Speaker 9: to break down. If you're on a relay team, you
Speaker 9: have to break up the fifty thousand dollars. But it's
Speaker 9: the start of something new. Paying these athletes to win
Speaker 9: the time.
Speaker 4: They were amateur. Doesn't that break the whole amateur thing?
Speaker 9: Correct? But neilil cashish, you know, to go along with
Speaker 9: it all right, and there's more to come. They're actually
Speaker 9: thinking of payments for silver and bronze medalists. They're planned
Speaker 9: to start from the twenty twenty eight Olympics in Los Angeles.
Speaker 2: I mean to me, I've been wading lamand English. I
Speaker 2: really recommended folks to the Laman, the great French newspaper, and
Speaker 2: they have a very inexpensive all English site which I
Speaker 2: find fascinating. And of course there's no other debate. Are
Speaker 2: they going to get in the river and swim so
Speaker 2: what do you do. You got to pay somebody ten
Speaker 2: thousand bucks to get in the river. Exist it's not
Speaker 2: it's not pretty. I mean it's not. You know, at
Speaker 2: some point, if we get closer.
Speaker 4: You've got his suite all set up in Paris for
Speaker 4: the Olympics.
Speaker 2: We do. You know, we're on the back side, away
Speaker 2: from the street, and you know we're looking out and
Speaker 2: they get the cigar you know, garden sure v r
Speaker 2: X or whatever cigar bar.
Speaker 4: All right, but you know we're all set up for
Speaker 4: the summer.
Speaker 2: I felt is going to be out with Gus in
Speaker 2: the horses. Yep, just taking Gus the horse and they're
Speaker 2: hanging out. I think it's out by Versailles.
Speaker 4: Okay, very exciting.
Speaker 9: Next, finally, if this we don't want to hear this
Speaker 9: on the early morning shift when we come in, but
Speaker 9: declf becoming the hottest thing in coffee right now. You know,
Speaker 9: you have alcohol free cocktails, you have meat free hamburgers.
Speaker 9: So now d calf is becoming the new thing.
Speaker 4: Uh.
Speaker 9: The reason why is become new techniques and caffeine removal.
Speaker 9: They've started without using chemicals, so it's becoming a little
Speaker 9: bit healthier, I guess.
Speaker 3: People drink right cafe a coffee versus DCAF.
Speaker 4: I don't know the percentage there, it's.
Speaker 9: Not, but it's becoming this high thing because there's different competitions,
Speaker 9: like these high class competitions and DCAF was actually won
Speaker 9: a top prize for the first time in like this
Speaker 9: competition's twenty year history. So it's starting to pick up
Speaker 9: a little bit.
Speaker 2: The tang here, and folks, I've been using tang zero.
Speaker 2: You know, the sugar became a problem and tang zero's great,
Speaker 2: but you guys deserve to walk by the DCAF excellence
Speaker 2: of Senkall Senka was too. Yeah, I assume Senka is
Speaker 2: still around. Lisa, thanks so much. That is Lisa Matteo
Speaker 2: with the newspapers. This is a Bloomberg Surveillance podcast, bringing
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