Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 2: with Paul Sweeney. Join us each day for insight from
Speaker 2: the best in economics, finance, investment, and international relations. You
Speaker 2: can also watch the show live on YouTube. Visit the
Speaker 2: Bloomberg Podcast channel on YouTube to see the show weekday
Speaker 2: mornings from seven to ten am Eastern from our global
Speaker 2: headquarters in New York City. Subscribe to the podcast on Apple, Spotify,
Speaker 2: or anywhere else you listen and always I'm Bloomberg Radio,
Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App. We need voices,
Speaker 2: we need people with experience. And they said, well who,
Speaker 2: And I said, can you get that young Miller kid
Speaker 2: who was with George Schultz and James Baker just a
Speaker 2: few years ago, like Aaron David Miller thirty years ago,
Speaker 2: joining us now, a bit wiser, a bit older, Aaron
Speaker 2: David Miller out of Tulane and of course definitive at
Speaker 2: the Carnegie Endowment for International Peace. I want you to
Speaker 2: tell me how the facts change, Aaron David Miller. If
Speaker 2: I go directly west of Jerusalem, almost to the Mediterranean,
Speaker 2: to I think it's genera.
Speaker 3: I don't have it in front of me.
Speaker 2: A little village thirty one thousand people directly south of
Speaker 2: Tel Aviv, where a missile took out a school in
Speaker 2: the dead of night.
Speaker 3: No one was hurt. But how does that.
Speaker 2: Missile, Aaron David Miller landing on that school in a
Speaker 2: small town, how does that change the dialogue?
Speaker 4: Yeah, it has a ton of caderra and whether that
Speaker 4: was a strike or a shrapnel from an interceptor is unclear.
Speaker 3: But look, I think there are two things.
Speaker 4: And by the way, thanks for having me and I
Speaker 4: really appreciate that the kudos. Number one. What happened yesterday
Speaker 4: is virtually unprecedented, certainly in the air of Israeli Iranian
Speaker 4: Israeli conflict. Iran Locke launched one hundred and eighty plus
Speaker 4: ballistic missiles, and unlike cruise missiles, these take only twelve
Speaker 4: minutes roughly to travel from Iran to impact to an
Speaker 4: Israeli airspace. And it was a saturation attack. It covered
Speaker 4: much of the country. Yes, it was directed primarily at
Speaker 4: several military bases and most out headquarters, but I've been
Speaker 4: to most out headquarters. It is not in some isolated
Speaker 4: area so this could have been, to say the least,
Speaker 4: a catastrophe, and yet Israel's an early air defense Iron
Speaker 4: Dome David sling Arrow managed to intercept most the US
Speaker 4: two destroyers shut down a dozen or so. The Jordanians
Speaker 4: contributed as well, and I think that's the good news.
Speaker 4: That Iran may have three thousand ballistic missiles, but it
Speaker 4: took a huge shot yesterday and it essentially failed. At
Speaker 4: the same time, this is the second direct attack Aaron
Speaker 4: on Israelia. One was a thirteen fourteen. Israelis are are
Speaker 4: going to respond. I don't think there's any doubt. They
Speaker 4: cannot allow a quote new normal to be created. And
Speaker 4: even while they're degrading to his balla to a point
Speaker 4: where it is a hollowed out shadow of itself, they
Speaker 4: are They're going to respond. Biden's going to talk to
Speaker 4: to Ntagnell shortly before the beginning at Rossia Shano, which.
Speaker 2: Okay, see Aaron, just because of the time, because I
Speaker 2: know Paul wants to gain her. I got one more question.
Speaker 2: Paul's got a bunch of important questions.
Speaker 3: Robert T.
Speaker 2: Kaplan air and David Miller would say, get out the
Speaker 2: map from Armenia down to the tip of the Persian
Speaker 2: Gulf is five hundred miles and then it's another five
Speaker 2: hundred miles one thousand miles total across from Dubai. That's
Speaker 2: the western border of Iran. Where should Israel attack, Well.
Speaker 4: I think the strikes will be multiple. I think there
Speaker 4: will be economic targets, there will be strategic conventional military facilities.
Speaker 4: They'll be IRGC command and control facilities, the nuclear sites.
Speaker 4: I'm sure there's an argument being made that now is
Speaker 4: the time Isabella is weakened and no longer has the
Speaker 4: deterrent capacity. Amasa's organized military structure has gone. Iran's defenses
Speaker 4: are weak, So do it now. I'm taking a fire here,
Speaker 4: but I think the Israelis this time around will avoid
Speaker 4: Non Taz and the enrichment facilities.
Speaker 5: Okay, because I mean Aaron. I think a lot of
Speaker 5: folks just were coming up to the one year anniversary
Speaker 5: of the October seventh attack here, and the scope and
Speaker 5: the aims of this response from Israel gone from decapitating
Speaker 5: Hamas and getting the hostages back to something much much
Speaker 5: broader in the region, And as you suggest, perhaps the
Speaker 5: thinking is, if not now, when do we deal a
Speaker 5: really severe blow to Iran. What are the chances of
Speaker 5: that in terms of the nuclear facilities do you think?
Speaker 3: You know?
Speaker 4: I think the argument can be made us elections coming,
Speaker 4: the Israelis have more margin for maneuver and operational capacity now.
Speaker 4: They probably will never have a more provicious moment. Question
Speaker 4: is whether or not this would be coordinated with the
Speaker 4: United States. Again, I'm assuming they'll be. The Iranians are
Speaker 4: going to respond to whatever the Israelis do. Most likely
Speaker 4: there may be ample opportunities. But again I'm thinking opportunity
Speaker 4: or not, Israeli can set the program back. They do
Speaker 4: not have the capacity to fundamentally destroy it and permanently
Speaker 4: prevent its rebuilding. And remember, iran Is nuclear rimes told
Speaker 4: State they don't yet have a clear weapon, and I
Speaker 4: think that has to be taken into the mix.
Speaker 2: Aaron, I've got to get this in with great respect
Speaker 2: to your public service. Back thirty years ago, what would
Speaker 2: it zach Rabin say right now?
Speaker 4: Raben would not have handled October seventh the way this
Speaker 4: current Israeli government would have handled it. Raben would have responded,
Speaker 4: probably as forcefully. But during the course of that conflict,
Speaker 4: this man who had a sense of strategy, understood the
Speaker 4: relationship between the application of military force and achievable political endgames.
Speaker 4: Rabina would have understood that Israel's involved in three wars
Speaker 4: of attrition, one with Hamas, one with his bow, and
Speaker 4: obviously one with thereon, and I think he would have
Speaker 4: begun to understand and to work with or rather rather
Speaker 4: than not against the United States and other regional allies,
Speaker 4: the amidies that by Rainy's Saudi's, I'm trying to figure
Speaker 4: out a way to create an alternative to Hamas in Gaza,
Speaker 4: and an alternative political reality over time in Lebanon. That's
Speaker 4: the difference I think between this is rarely prime minister
Speaker 4: on trial for bribery, fraud and reach of trust, and
Speaker 4: it drew from this court whose entire world is driven
Speaker 4: largely by his political future or the absence of one,
Speaker 4: if he should be convicted and have to cut a
Speaker 4: plea deal by prison time.
Speaker 3: That's the difference.
Speaker 2: This has been wonderful, Aaron David Miller, thank you for
Speaker 2: your contribution. With Carnegie, there's no other way to put it.
Speaker 2: His wonderful book years ago out as well, The much
Speaker 2: too Promised Land, Aaron David Miller.
Speaker 3: With US now is someone who runs some.
Speaker 2: Money in charge of all the dividend complex, a federated
Speaker 2: Pittsburgh and also an author. I've said a lot about
Speaker 2: the immense intellectual challenge of Daniel Parris's The Ownership Dividend.
Speaker 2: It is a dense short read on what's really interesting
Speaker 2: about how equity stocks became in This is a quote
Speaker 2: from the book. US stocks began moving in the direction
Speaker 2: of becoming nearly cashless investments. Wonderful to have you here.
Speaker 2: You mentioned buybacks. Maybe we've reached a peak. Can Apple
Speaker 2: just keep buying backstock? Mathematically? Why can't they just keep
Speaker 2: giving profits buy in backstock?
Speaker 6: Thank you having me on the show, Tom and Paul.
Speaker 6: You know, I would dispute the notion that they're buying back,
Speaker 6: that they're giving profits back to shareholders. I can take
Speaker 6: a different view of buybacks. But right now buybacks are very,
Speaker 6: very popular. They're going to continue to do it. I
Speaker 6: think their last authorization was one hundred billion dollars. It's
Speaker 6: a stunning amount of money. We're heading towards a trillion
Speaker 6: dollars in buybacks this year in fiscal or calendar twenty
Speaker 6: twenty four, dividends from the s and P five hundred
Speaker 6: will be about six hundred and six twenty or so
Speaker 6: six twenty five. So buybacks are just wildly acceptable from
Speaker 6: a shareholder perspective, though a business owner perspective, investing through
Speaker 6: the stock market, buybacks don't really work for with fewer
Speaker 6: shares if you do now, most companies announce share backs
Speaker 6: very loudly, but the amount of the share capital that
Speaker 6: they take out of circulation is always lower because they're
Speaker 6: issuing shares out the back door, and they're timing of buybacks.
Speaker 6: You know, the market center all time high. The timing
Speaker 6: of buybacks is generally fairly poor. Companies initiate buybacks when
Speaker 6: they are flushed with cash. It would be better if
Speaker 6: they did it when they were in the swale of
Speaker 6: their cycle, not at the peak. So there are lots
Speaker 6: of reasons why the backboard math of buybacks, which in
Speaker 6: the academy is neutral to a dividend. I write books
Speaker 6: and books and books, and why that's not the case,
Speaker 6: but why that's just not the case in the market.
Speaker 2: I got to bring in our guest here because we
Speaker 2: go into a three am meeting. Bloomberg Surveillance and Sweeney's
Speaker 2: like a robot get parason, Get parason, Get parason, Paul,
Speaker 2: this is your guest exactly.
Speaker 5: Hey, Dan, I mean you know when I was a
Speaker 5: research channels to Wall Street that you know, had my
Speaker 5: income model, I had my balance sheet model, but by
Speaker 5: far the most important model for me was my cash
Speaker 5: flow model. I wanted to know where the cash was
Speaker 5: coming from and where it's going. So, when you sit
Speaker 5: down with a management team, do you have a preferred
Speaker 5: strategy of Hey, you've got x dollars of free cash
Speaker 5: fl overy year, we think this much to go to buyback,
Speaker 5: this much to go to dividends. Do you have a
Speaker 5: policy you like to talk to management teams about it.
Speaker 6: We are not in the interest of starving companies of capital.
Speaker 6: That is the number one acquisition made against business owners
Speaker 6: in the stock market, Minority business owners in the stock
Speaker 6: market seeking a cash payment for the capital. It is
Speaker 6: not that we're trying to bankrupt these companies. But there
Speaker 6: is a reasonable allocation for the US stock market for decades.
Speaker 6: US economy for decades, indeed, better part of two centuries
Speaker 6: was able to grow very, very rapidly and have a
Speaker 6: dividend payout ratio of approximately fifty percent. So we're able
Speaker 6: to build an industrial juggernaut and still pay out cash dividends.
Speaker 6: Now you have tech companies and others saying, oh, if
Speaker 6: I pay a dividend, I won't be able to grow.
Speaker 6: The fact is they're using the money for other purposes.
Speaker 6: But I would say that we've been around a third
Speaker 6: for a while, for the last decade or two. I
Speaker 6: think the more appropriate level for a business owner approaching
Speaker 6: the stock market as an opportunity to own businesses over
Speaker 6: the long term is something closer to about half. And
Speaker 6: that's free cash though, as you know, that earnings payout
Speaker 6: of nominal book earnings at this point is so polluted
Speaker 6: with the accounting challenges and the Shenanigans of adjusted EPs
Speaker 6: and so forth, that we really at free cash flow.
Speaker 5: So for you know, our stock market has been for
Speaker 5: a couple of decades at least driven almost entirely by
Speaker 5: big technology companies. Even more so over the less few years.
Speaker 5: They'll give you a token dividend Apple Meta, you know,
Speaker 5: less than one percent. What do you say to those
Speaker 5: management teams who have literally almost countless free cash flow
Speaker 5: every single year?
Speaker 6: Yeah, And so this year we saw a couple of
Speaker 6: companies move in that direction symbolically token, no more than that,
Speaker 6: so I don't want to discourage that behavior. But they're
Speaker 6: not part of the dividend universe yet because the cash
Speaker 6: flows simply aren't there to the minority shareholder. So we
Speaker 6: like the movement in that direction, but it's not material yet,
Speaker 6: and so it's a journey, not a moment. It would
Speaker 6: be stunning if one of those large companies were to
Speaker 6: announce a dividend payment that amounted to three or four
Speaker 6: percent of their share price of their market capitalization, and
Speaker 6: announced that they were backing off of the buybacks, but
Speaker 6: that would get our attention.
Speaker 3: Discuss Duke Energy. Good morning, Tim Cook.
Speaker 2: I know you're listening in your commute today out in Coopertino.
Speaker 2: Duke Energy with a three point six percent yield. Their
Speaker 2: persistency of excellence over twenty years is jaw dropping, coming
Speaker 2: out to about a ten percent return, but their five
Speaker 2: year dividend growth is two point zero two percent, which
Speaker 2: matters more the yield or the dividend growth.
Speaker 6: I'm not going to discuss individual securities, but I will
Speaker 6: answer the question. When you operate with a high yield,
Speaker 6: the hard part is dividend growth. So the US stock
Speaker 6: market has a yolda around one point three percent. We
Speaker 6: target in our portfolios a gross yield between four and
Speaker 6: five percent. Duke meets that standard. Other companies do as.
Speaker 7: Well at that level.
Speaker 6: The hard part's dividend growth, where we spend almost all
Speaker 6: of our time is trying to figure out those companies
Speaker 6: that do have a reasonable cash flow pad are they
Speaker 6: in a position to grow better? You ask about utilities
Speaker 6: in general, they have been among the less rapidly growing
Speaker 6: dividend companies are the last couple decades. However, watch out
Speaker 6: over the next couple decades. The demand for electricity is
Speaker 6: finally stopped being flatlined, its kicked up, and these companies
Speaker 6: are well positioned to benefit from them.
Speaker 2: Okay, so Totel of Paris, I mean, I don't want
Speaker 2: you to go into the individual stack, Paul, but I
Speaker 2: got a five point one percent yield in a dividend
Speaker 2: growth like Duke energy of three point five percent. When
Speaker 2: do you know you're a yield hog or a dividend
Speaker 2: hog versus doing something intelligent like Paul does.
Speaker 3: In his five oh one k.
Speaker 6: So Total has its enter its analyst day today in
Speaker 6: New York. I'm heading to that right after we sign off,
Speaker 6: and so we will find out what they're announcing, but
Speaker 6: they do that company can't discuss individual securities, but I
Speaker 6: can say the numbers that you presented have a reasonably
Speaker 6: good balance of dividing yield and dividend growth. But your
Speaker 6: question again, where the risk of being a dividend investor
Speaker 6: in a stock market is exactly what you identify, Tom,
Speaker 6: and that is the risk of being too yielding and
Speaker 6: not enough dividend growth. And that's what we work on
Speaker 6: sort of every day in the portfolio.
Speaker 5: So what is that balance for you?
Speaker 6: I mean for us, it's roughly fifty to fifty, meaning
Speaker 6: we are looking for an even four to five percent
Speaker 6: yield at the portfolio level, not individual securities, and roughly
Speaker 6: the same and dividend growth and the harder part, I
Speaker 6: will tell you, in a one and a half percent
Speaker 6: yielding market which is all oriented towards buybacks and flashy,
Speaker 6: shiny new objects, the hard parts of the dividend growth
Speaker 6: and that's where we spend most of our times.
Speaker 3: Thank you so much.
Speaker 2: Great to have you in our studios here from Pittsburgh
Speaker 2: Baseball Park in America.
Speaker 3: A question about that with the Pirates, the.
Speaker 2: Book is the ownership dividend is he manages the dividend portfolio.
Speaker 3: It federated.
Speaker 2: Daniel Paris, thanks so much for being with us this morning.
Speaker 2: With the tensions of the world, maybe a little bit
Speaker 2: of Erning's as well. Nike and Humanna very difficult this morning.
Speaker 2: Future is negative ten to futures negative one forty one.
Speaker 3: The VIX out over twenty nineteen point four five. Right
Speaker 3: now on.
Speaker 2: The VIX Paul Sweeney's yield the two year yield three
Speaker 2: point six y one percent. Higher yields three point seven
Speaker 2: six percent. You had a three ninety nine to thirty
Speaker 2: year now four point one one, so a higher set
Speaker 2: of yields across a full faith and credit curve.
Speaker 3: On oil, Brent crued up two point eight.
Speaker 2: Percent, up of full two dollars. It's gone negative two
Speaker 2: standard deviations out the plus two standard deviations eloquently, It's
Speaker 2: seventy five point six zero.
Speaker 3: There was a debate last night.
Speaker 5: Different I did not, but I got the highlights this morning.
Speaker 5: Much like you would go to ESPN for sports highlights,
Speaker 5: I went to guess some most highlights. It seemed pretty reasonable.
Speaker 5: They'd act like reasonable adults. There's some politic.
Speaker 2: Aed Mills they were polite, cordial, deferential, joining us now
Speaker 2: the polite, cordial, deferential Ed Mills, policy analyst.
Speaker 3: At Raymond James.
Speaker 2: I was thunderstruck Ed Mills by the decorum almost to
Speaker 2: the edge of Kennedy Nixon just a few years ago,
Speaker 2: ed before your time. Is that where we're going in
Speaker 2: five years when all of this anger recedes?
Speaker 3: Tom?
Speaker 7: I hope.
Speaker 8: So you know, I was struck, and I have folks
Speaker 8: on my team who are kind of somewhat newer, kind
Speaker 8: of I don't go back to Kennedy Nixon, but I've
Speaker 8: been watching for my adult life the all of the debates,
Speaker 8: and it's been remarkable. You go back to twenty sixteen,
Speaker 8: you go back to twenty twenty, and it seems like
Speaker 8: this is the conversation we had. The more substant to
Speaker 8: debate was at the vice presidential level, and when you
Speaker 8: turn on the commentary afterwards, there is a lot of
Speaker 8: conversation of would the American people prefer these as their candidates.
Speaker 8: I do think it's nice to actually have a debate
Speaker 8: where you have candidates turned to each other and say,
Speaker 8: I actually agree with what you said, but here's my vision.
Speaker 8: And we had that multiple times last night.
Speaker 5: So Ed, I mean, the reality is vice president debates
Speaker 5: have little impact generally on the broader general election. As
Speaker 5: we make this sprint here towards No. Fifth, what is
Speaker 5: the goal of each campaign do you think?
Speaker 8: Yeah, Paul, I think that that's absolutely correct. What we
Speaker 8: wrote in our note at Raymond James was the goal
Speaker 8: of a vice presidential candidate is to get the American
Speaker 8: people to have comfort with him or her on whether
Speaker 8: or not they could be president. And I think both
Speaker 8: of those candidates clearly cleared that bar last night.
Speaker 7: As we look to your question and.
Speaker 8: What the sprint is to the end of the month
Speaker 8: here into November fifth is trying to get momentum back
Speaker 8: for the Trump vance team and trying to maintain the
Speaker 8: momentum for the Harris Walls team. And I continue to
Speaker 8: believe we have seven swing states, but as I do
Speaker 8: my maps, it's very hard to see one side winning
Speaker 8: unless they capture Pennsylvania. So it's going to be essentially
Speaker 8: all four of those candidates should take up residency, either
Speaker 8: in Philadelphia or in Pittsburgh and see what they can
Speaker 8: get out of that state to see who can win
Speaker 8: this election.
Speaker 5: So Ed, I mean, you know, Tom and I by it,
Speaker 5: by our math, we think there's forty two people maybe
Speaker 5: in state of Pennsylvania that are going to decide this selection.
Speaker 5: I just don't recall it ever being so tight. It
Speaker 5: seems like a new world of campaigning, a new world
Speaker 5: of politics seemingly gets tighter and tighter. What in fact
Speaker 5: can be done between now November fifth by either side?
Speaker 8: Well, I think it's an important question because we do
Speaker 8: have the fact that we are just started the month
Speaker 8: of October, and we have a list of potential October surprises.
Speaker 8: So for Harris, I think it is about trying to
Speaker 8: contain those surprises, trying to contain some of the momentum
Speaker 8: that she's had since she's announced.
Speaker 7: As a candidate.
Speaker 8: And for Trump, what we're watching is back in twenty
Speaker 8: sixteen and twenty twenty he had a surge at the end.
Speaker 8: Is he able to capitalize on this and get that
Speaker 8: surge once again?
Speaker 3: Yeah?
Speaker 2: I mean Walter's note out at Cook Political Report at
Speaker 2: this morning is jaw dropping on the closeness of this
Speaker 2: and the dynamics here. She takes undecided in swing states
Speaker 2: from ten percent down to five percent at Mills twenty
Speaker 2: twenty NPR quote just forty four thousand votes in Georgia, Arizona,
Speaker 2: and Wisconsin separated Biden and Trump from a tie in
Speaker 2: the electoral College? Are we closer now?
Speaker 7: Potentially?
Speaker 8: And I look at that and I say, if it
Speaker 8: does come down to Pennsylvania, Tom, there's a law in
Speaker 8: Pennsylvania that does not allow you to open up ballots
Speaker 8: that have been mailed in until seven pm on election night.
Speaker 8: And so it's very possible that we would have the
Speaker 8: repeat of twenty two twenty in Pennsylvania where same day
Speaker 8: votes favor Trump. You have an election if and it
Speaker 8: hinges on Pennsylvania. What I am concerned for from a
Speaker 8: market perspective, from a voters in the American people accepting
Speaker 8: the outcome of this election is I don't want to
Speaker 8: come down to one state and have that lead windle
Speaker 8: as kind of votes get counted and then a doubt
Speaker 8: set in.
Speaker 3: And a civis question.
Speaker 2: With your expertise here and folks at Mills for decades,
Speaker 2: legislative experience and of courses work at Raymond James, when
Speaker 2: someone says to you mail order votes are shady, uncountable, whatever.
Speaker 3: Other language you want to do, how do you respond
Speaker 3: to that?
Speaker 8: I point to the literature that shows that they are
Speaker 8: incredibly kind of safe and easy way of doing it.
Speaker 8: We have a couple of states Utah, Washington State that
Speaker 8: kind of almost.
Speaker 7: Exclusively vote by mail.
Speaker 8: When I started in campaigns, it was the exact opposite.
Speaker 8: It was disproportionately Democrats that showed up on the same day,
Speaker 8: and a lot of conversations was how do we shift
Speaker 8: that kind of politically one way or another, depending upon
Speaker 8: which side you're working on.
Speaker 7: So it's pretty remarkable.
Speaker 8: It's only in recent years where you've had those concerns
Speaker 8: pop up into our conversation.
Speaker 5: Ed, what should we be looking for down ballot for
Speaker 5: each of these parties? Here are there certain states, certain
Speaker 5: seats that you're focusing on.
Speaker 8: Yeah, So in the House of Representatives, I think the
Speaker 8: switch from Biden to Harris has probably had the biggest impact.
Speaker 8: Something I'm looking at there is that Democrats need to
Speaker 8: pick up about three or four seats in the House
Speaker 8: of Representatives to win the majority. There are eight Republicans
Speaker 8: in New York in California who are labeled as toss ups,
Speaker 8: and so to the extent that the Democratic base has
Speaker 8: been energized since Harris has gotten into this election, those
Speaker 8: Republicans have a tougher kind of road ahead for them.
Speaker 8: On the Senate side, you look at the fact that
Speaker 8: Tester and Montana probably could decide who has a majority
Speaker 8: in the Senate in testers underwater. So Democrats have moved
Speaker 8: into Texas, moved into Florida. The question there is is
Speaker 8: that a recognition of they are very much underwater in
Speaker 8: their attempt to keep the majority.
Speaker 2: I think at thirty seconds, John from just east of Newark,
Speaker 2: New Jersey, asks, is assault tax going to get fixed.
Speaker 7: If Democrats win?
Speaker 8: I think the salt tax expires in resets to being unlimited.
Speaker 8: I think that there is a Republican sweep. It stays
Speaker 8: as if is if Republicans win, but there is a
Speaker 8: Democratic House, look for a compromise at twenty thousand dollars
Speaker 8: versus ten thousand dollars and an income threshold of five
Speaker 8: hundred thousand dollars to qualify for that higher twenty thousand
Speaker 8: dollars tax deduction.
Speaker 3: John, thank you for that response. Ad Mills brilliant with
Speaker 3: Raymond jameson.
Speaker 2: You know how much I hate the fed parlor game,
Speaker 2: except Paul, this time is different.
Speaker 3: You gotta look at the parlor game.
Speaker 2: Stephanie Roth with a brilliant note at Wolf Research really
Speaker 2: frames it out the many different opinions. Stephanie, critically, you
Speaker 2: say the three months trend is not one hundred and
Speaker 2: sixty sixteen. One hundred and sixteen thousand is published. But
Speaker 2: as a higher statistic, why is that many disagree with you?
Speaker 1: Totally fair?
Speaker 9: So when you look at the three month averages, it's
Speaker 9: been reported, sure that it's one hundred and sixteen thousand,
Speaker 9: but what you've seen historically is that August tends to
Speaker 9: get revised up so by actually the forty nine thousand
Speaker 9: by the third print. So if you incorporate those types
Speaker 9: of revisions, which we expect to see on Friday, and
Speaker 9: of course we'll see whether that's right or not. But
Speaker 9: if we got a forty nine thousand upward revision to
Speaker 9: the month of August, in your three months ten is
Speaker 9: closer to one hundred and thirty five.
Speaker 2: And what's amazing about this, folks one over the square
Speaker 2: root of n is she got Bucknell mathematics here along
Speaker 2: with masters and statistics from really Glumbia University. Like the
Speaker 2: other day we're talking to Sebastian Page about Gaussian and
Speaker 2: bluss on distribution.
Speaker 5: Stephanie's all over this, She's all a master's and statistics.
Speaker 5: Oh my goodness. So Stephanie, people are telling me I
Speaker 5: really have to pay attention to this labor report this
Speaker 5: coming Friday. Is that because the Fed's really focused on that.
Speaker 9: Yeah, this is the most important payrolls report of the year. Wow,
Speaker 9: for a couple of reasons. One this is we're now
Speaker 9: starting to get concerned about the labor market. We have
Speaker 9: seen a deceleration in momentum in terms of jobs, and
Speaker 9: Powell said this, it's not about the level of the
Speaker 9: labor market, but it is about the speed. And the
Speaker 9: next couple of prints are going to be really noisy
Speaker 9: outside of this one. So once we get the October
Speaker 9: print printed in November, we're going to have the impact
Speaker 9: of Boeing Strikesotentially, we're gonna have the potential impact of
Speaker 9: port strikes. We're gonna have the hurricane, and that could
Speaker 9: last for a couple of months. So this is one
Speaker 9: of the cleanest reads. We're going to get in a
Speaker 9: point where the labor market is the most important thing here.
Speaker 5: So stepping back from that, I mean, how how do
Speaker 5: you kind of view this labor market. Again, some people
Speaker 5: are saying, hey, if you look at the absolute levels,
Speaker 5: it's in good shape. Four point two percent whatever the
Speaker 5: unemployment rate, that's kind of full employment. But there are
Speaker 5: others saying, boy, the most recent trends are troubling. How
Speaker 5: do you kind of view it?
Speaker 9: Yeah, and the recent trends certainly point to a deceleration.
Speaker 9: And this is kind of what a soft landing looks like.
Speaker 9: Right at some point, soft landing and recession look kind
Speaker 9: of similar because you get that deceleration, and the question
Speaker 9: is where you stabilize.
Speaker 1: So what we're seeing right now is the labor market
Speaker 1: is fairly healthy. Claims are not picking up.
Speaker 9: We're seeing job openings even yesterday that kind of stabilize.
Speaker 9: So our base case is that the labor market is
Speaker 9: going to stabilize at a level that's similar to what
Speaker 9: we saw in twenty nineteen, which is a healthy labor market.
Speaker 9: One reason to believe that is forgetting about the labor
Speaker 9: market data. But if you look at consumer spending, that
Speaker 9: rain is really healthy. It's running at about a three
Speaker 9: percent real realized pace, which is which is better than
Speaker 9: most folks would have expected, especially if you're concerned about
Speaker 9: the labor market. This is just another economic data point
Speaker 9: that tells you that economy is really doing just fine.
Speaker 3: Stephanie.
Speaker 2: Gobensax came out where I believe a three point two
Speaker 2: percent run rate statistic and real GDP, which dovetails with
Speaker 2: your optimism on a labor economy. Do we still have
Speaker 2: a legitimate real wage?
Speaker 3: Yeah?
Speaker 1: Well, yeah we do.
Speaker 9: We certainly do, and that's one reason why the consumer
Speaker 9: is still able to be spending. And now that you
Speaker 9: have inflation slowing back down, you know pretty considerably. Now
Speaker 9: you your wages are on your real wages are at
Speaker 9: least in positive territory, which is which is a good thing.
Speaker 9: For a period of time, that wasn't the case because
Speaker 9: inflation was running so high. But now your inflation rate
Speaker 9: is running at or even below two percent if you
Speaker 9: look on a six month basis, so consumers are actually
Speaker 9: able to be in a better position. And then we
Speaker 9: didn't even talk about interest rates which are now starting.
Speaker 1: To come down.
Speaker 9: So you're having an easy and financial conditions at a
Speaker 9: point where inflation is not running back down towards two percent.
Speaker 1: So that's good impetus for the consumer.
Speaker 5: So let's step back and what is your view of
Speaker 5: the consumer. We've had a lot of companies kind of
Speaker 5: calling out the lower end of the consumers really struggling here.
Speaker 5: Whether you look at the numbers out of a Walmart
Speaker 5: or Targe or the dollar stores, how do you view
Speaker 5: the consumer here?
Speaker 1: The consumer's okay, And that's been the case for a while.
Speaker 9: We've had for the past year and a half, we've
Speaker 9: heard heard companies come out and talk about the decelerating
Speaker 9: lower end consumer, and that's absolutely been the case. There
Speaker 9: has been a divergence between the middle and higher end consumer.
Speaker 1: Versus the lower end.
Speaker 9: But now there's a good reason to believe that actually
Speaker 9: that lower end consumer could start to do a little
Speaker 9: bit better. Their credit card interest rates are going to
Speaker 9: be coming down, and you know, it turns out the
Speaker 9: savings for the broad based economy is actually a bit
Speaker 9: better than what was previously reported. We just got GDP
Speaker 9: revisions last week that told us the savings rate is
Speaker 9: culture to five percent rather than three percent.
Speaker 1: So the consumer actually has a bit more buffer than
Speaker 1: we previously thought.
Speaker 9: And Powell talked about this the other day, highlighting exactly
Speaker 9: the same concept that you know, now maybe the consumer's
Speaker 9: a bit healthier than we thought, so, Yeah, you know,
Speaker 9: you might still hear a little bit of softness on
Speaker 9: the lower end, but we should actually start to see
Speaker 9: an inflection point where things get a bit better.
Speaker 3: For the consumer, usually valuable folks. This is what it's
Speaker 3: all about.
Speaker 2: The distinction of our conversations on Bloomberg Surveillance. Stephanie Rore
Speaker 2: out there pushing against the caution on the American labor economy.
Speaker 3: Stephanie Roth is with Wolf.
Speaker 2: This is a Bloomberg Surveillance podcast, bringing you the best
Speaker 2: in economics, finance, investment, and international relations. You can also
Speaker 2: watch the show live on YouTube. Visit the Bloomberg Podcast
Speaker 2: channel on YouTube to see the show weekday mornings from
Speaker 2: seven to ten am Eastern from our global headquarters in
Speaker 2: New York City. Subscribe to the podcast on Apple, Spotify,
Speaker 2: or anywhere else. Listen and always I'm Bloomberg Radio, the
Speaker 2: Bloomberg Terminal, and the Bloomberg Business App.