Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leye.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Tom,
Speaker 1: do you want to introduce our guests? Consider? No? No, Please?
Speaker 1: You you're so so keen on disrupting the top of
Speaker 1: the program. I urge you to. I urge you to
Speaker 1: kick off the program. Bracecast somebody. Brace. There'll be a
Speaker 1: spare mike in about two minutes if you want to
Speaker 1: take it. The chief economist at JP Morgan, good morning
Speaker 1: to you, Bruce. Good morning. One hundred straight months of
Speaker 1: gains for payrolls. Why they expected in January? One hundreds
Speaker 1: straight months of payroll gains in America? How much longer
Speaker 1: can we do this for? I think we can continue
Speaker 1: to do this for a while, especially since we now
Speaker 1: have a FED who seems to be on a extended pause,
Speaker 1: and you know, I think we have to absorb some
Speaker 1: of the weakness coming from abroad, and we do have
Speaker 1: some risks, but I don't think this expansion is close
Speaker 1: to ending. So I don't see why we can't keep
Speaker 1: going for a couple more years at least. John's really
Speaker 1: important question. I didn't know that, John, that was a
Speaker 1: hundred months in a row. John, wouldn't you agree as
Speaker 1: we look at all the economis who speak to it
Speaker 1: was a great Miscall of the of the recovery was
Speaker 1: two hundred plus thousand a month. Everybody was suing a
Speaker 1: couple of years ago. Everybody said, get ready for two
Speaker 1: to slow, get ready for it to slow, and it
Speaker 1: didn't happen. So brace if this can continue for the
Speaker 1: time big, can it continue at the clip that it
Speaker 1: has done through with what you set me up. I'm
Speaker 1: a little bit cautious and saying I do think job
Speaker 1: growth is is going to slow here because we've been
Speaker 1: running an economy that's been supported by a stimulus and
Speaker 1: that is starting to fade, and I think the global
Speaker 1: economy softer as well. So we think job growth today
Speaker 1: is gonna be a hundred and seventy thousand. I think
Speaker 1: as we moved through the rest of the year, we
Speaker 1: slow into the fifty range. If we're if our broad
Speaker 1: forecast on growth being close to two percent is right, Uh,
Speaker 1: that's still pretty good, and it's still gonna put a
Speaker 1: downward pressure on the on the unemployment rate, and that
Speaker 1: I think ultimately becomes your call. The FED is basically saying, hey,
Speaker 1: we don't think we're going to see inflation anytime soon,
Speaker 1: so we could signal a longer pause. I would agree
Speaker 1: with that. I don't think the problem is going to
Speaker 1: be inflation moving up, but I do think wages are
Speaker 1: gonna get higher. And I think the problem as we
Speaker 1: go through the next year, year and a half is
Speaker 1: the compression in corporate profit margins that we begin to
Speaker 1: see how will companies respond to decelerating nominal growth and
Speaker 1: compressing margins. How would they respond to that just in
Speaker 1: terms of hiring. Well, I think they're gonna bend a little,
Speaker 1: and that's the forecast we have, but I don't think
Speaker 1: they're gonna break, especially given that it has come against
Speaker 1: the backdrop of what was a really good two year
Speaker 1: run in terms of core for profits and margin expansion.
Speaker 1: So our call as the corporate sector pulls back modestly
Speaker 1: on both jobs and business spending, and we have an
Speaker 1: economy that slows down to about a two pace. Here
Speaker 1: if you're just joining US force casmin with j Pete Morgan.
Speaker 1: I want to go back to the theme of the
Speaker 1: week out of the San Francisco Feed, a brilliant paper,
Speaker 1: thanks to Jim Edwards, a business decider, for really pushing
Speaker 1: it forward. Uh, involuntary part time employment? Are the jobs
Speaker 1: were creating? Are they full time? For the most part?
Speaker 1: They are? I think what we have seen all time
Speaker 1: with medical benefits is that is that part is that assumed.
Speaker 1: I don't know the data on how many people have
Speaker 1: medical benefit but clearly today there's more people with health
Speaker 1: insurance than there were five or six years ago. Part
Speaker 1: of that is Obamacare and some other things that have
Speaker 1: gone on. I think the issue on this economy is
Speaker 1: not that we're creating bad jobs. It's that we are
Speaker 1: still sitting with a part a utilization rate, of layer
Speaker 1: participation rate which is still very much lower than where
Speaker 1: it was before the expansion. We're still sitting with wage
Speaker 1: inflation which was lower, as we talked about earlier, where
Speaker 1: it was in the previous expansion. So the labor market
Speaker 1: is tight, but we only partially recovered. And that's one
Speaker 1: reason why I think the FED is willing to give
Speaker 1: this experiment some time to work, to see how far
Speaker 1: we can go before inflation becomes an issue. I mean,
Speaker 1: maybe the FED will and maybe it won't. I think
Speaker 1: the consensus view at the moment is that they've got
Speaker 1: to the right place in terms of policy. But how
Speaker 1: we got here, Bruce, was an absolute mess over the
Speaker 1: last couple of months. Actually asked this question a couple
Speaker 1: of times yesterday to try and get a better picture
Speaker 1: of where people think the FED is actually going. So
Speaker 1: we sit here now with what many people assume is
Speaker 1: the right policy setting for this economy and the amount
Speaker 1: of uncertainty abroad. But then someone turned around to me
Speaker 1: yesterday and said, well, hang on a minute, the journey
Speaker 1: does matter. How we got here was a total mess.
Speaker 1: And how do you know that in a couple of
Speaker 1: months time, after a few payrolls prints that are really,
Speaker 1: really strong, that this FED won't introduce the likelihood of
Speaker 1: another rate hike. Well, I think in the next couple
Speaker 1: of months, if you take the signal and its entirety
Speaker 1: on Wednesday would be it would be a mess if
Speaker 1: they would shift back that quickly, even if the data
Speaker 1: flow is good. What I would argue about this is
Speaker 1: that the last three or four months you have to
Speaker 1: realize the Fed had been on a path to get
Speaker 1: to some level that was close to neutral, and they
Speaker 1: were basically signaling they were relatively insensitive to the incoming news.
Speaker 1: They actually welcomed some adjustment in financial conditions as they
Speaker 1: did that, and then that began to snowball on itself
Speaker 1: and they had to make a change. Also, they got
Speaker 1: rates up into the mid twos. So I wouldn't characterize
Speaker 1: it a mess, and I would be characterizing it as
Speaker 1: a mess if we in two months time with better
Speaker 1: economic you see the Fed kind of backtrack on the
Speaker 1: statements so that they made on Wednesday, but linking in
Speaker 1: jobs here, and this is important. The one off of
Speaker 1: a weaker first quarter g d P. The JP Morgan
Speaker 1: house call is we go back to Richard Claire to
Speaker 1: solid economy. Um, yes, solid economy, but not the economy
Speaker 1: who had in two thousand and eighteen, which was clearly everybody,
Speaker 1: even the president it was because he wants more of that.
Speaker 1: So we come back to a solid economy. We continue
Speaker 1: to see job growth, we continue to see wage inflation
Speaker 1: move higher, but core inflation sticks it around two percent.
Speaker 1: And the question is does the Fed have any reason
Speaker 1: to move and I think they're telling us that that's
Speaker 1: probably not going to be enough to get them to
Speaker 1: move as we go through the next I think I
Speaker 1: think my frustration with the Federal Reserve is, is you
Speaker 1: describe this economy. Of course it was goosed through, it
Speaker 1: was going to slow down in Everyone was saying the
Speaker 1: same thing. You all saw it on the horizon, and
Speaker 1: then the Federal Reserve behaved like it was a corner
Speaker 1: it didn't see in the road, a turn it didn't
Speaker 1: see in the road, and it's sliding the back end
Speaker 1: of the car route. I mean, I don't understand why
Speaker 1: the Federal Reserve has done this abrupt turn when so
Speaker 1: many people saw this coming through eighteen into nineteen that
Speaker 1: growth was going to slow. So why didn't the Federal
Speaker 1: Reserve start making the adjustment in December? Why was it
Speaker 1: only after the December news conference that all the troops
Speaker 1: were sent out from the f O m C to
Speaker 1: start pledging patients. I didn't hear it in the chair
Speaker 1: Ammond's news conference in December. I didn't hear any of
Speaker 1: what I heard a couple of days ago from him.
Speaker 1: This is an abrupt term, Bruce in six weeks. I
Speaker 1: do think we had a shift in December which basically
Speaker 1: signaled to us that the March meeting was off the table,
Speaker 1: that this sequence of moving every quarter had been broken.
Speaker 1: But what they were signaling us in December was a
Speaker 1: pause and a tightening cycle that had not been completed
Speaker 1: on their point in time, and certainly market participants were
Speaker 1: frustrated by that, at least some. Uh. There's also issues
Speaker 1: around how they're talking about the balance sheet. UM. Again,
Speaker 1: I'm going to defend the Fed a little bit here,
Speaker 1: which is that I think they've made an important shift
Speaker 1: uh this week, a shift that we didn't expect in
Speaker 1: the magnitude of it. Um. But they have been gradually
Speaker 1: moving against an economy that you know, has continued to grow,
Speaker 1: has seen risk build pretty quickly. Basically, it started to
Speaker 1: rise in October in terms of the financial market adjustments,
Speaker 1: in terms of the deceleration, and it took them three
Speaker 1: months against the backdrop of a four or five month event.
Speaker 1: It's you know, you could argue it's slow for market time,
Speaker 1: but it's not actually that slow in real time in
Speaker 1: terms of what the data has been showing us. Bruce,
Speaker 1: always get your insight on the economy, and of course
Speaker 1: on the Federal Reserve as well. Bruce Cassman, the chief
Speaker 1: economist that Jake P. Morgan let us digress over the
Speaker 1: equity markets here. I've got some good guests coming up
Speaker 1: on the labor economy. John Gallop joins from Credit speech
Speaker 1: as well. John, you have a killer chart which answers
Speaker 1: a lot of questions of our listeners. If you take
Speaker 1: the stock market and you rip out Apple with all
Speaker 1: of its emotion and effect, and you rip out Energy
Speaker 1: with all the dynamics of that goofy sector, you get
Speaker 1: a different look. What's the look of the equity market? Ex?
Speaker 1: Apple x Energy? Well, when you look good morning time,
Speaker 1: When when you look at the earnings UM picture UM,
Speaker 1: things are coming in exactly in line with long term
Speaker 1: averages if you x out Apple and Energy stock with
Speaker 1: respect to UM stock price revisions. And the reason this
Speaker 1: is so important is because the headlines are reading that
Speaker 1: these results are coming in horribly and that that earnings
Speaker 1: expectations are being flashed, and that's just really not the case. John,
Speaker 1: What do you say to people that say, well, this
Speaker 1: is easy to strip out the weakness, and of course
Speaker 1: you'll end up with some stress. Why Why is this? Why?
Speaker 1: Is this a useful exercise, John John John John Galub
Speaker 1: has done that for fifteen years. That's oh. You know.
Speaker 1: The funny thing is when I when I do, when
Speaker 1: I strip out things that make things look better. Um,
Speaker 1: people say that you're trying to juice the numbers, but
Speaker 1: at the same works in the opposite direction. Let me
Speaker 1: give an example of in the first three quarters of
Speaker 1: the earnings grew at about a ridiculously good number. I said,
Speaker 1: wait a second, that you can't count that, because first
Speaker 1: of all, you have all these tax games, which tax benefits,
Speaker 1: which aren't gonna continue into the future. You have a
Speaker 1: whole bunch of one off items, and when you actually
Speaker 1: look at the underlying trend, you're left with something probably
Speaker 1: closer to ten percent, which is still healthy but importantly
Speaker 1: potentially sustainable. And that that's the way you have to
Speaker 1: look at it with John. John Ferrell brings up a
Speaker 1: really important point. A lot of people think having the
Speaker 1: confidence to be in the market, to participate is an
Speaker 1: easy task. You've been brilliant about participating in the market.
Speaker 1: State the faith this morning, somebody's going on this weekend,
Speaker 1: and as they get ready to root for the patriots
Speaker 1: to get it done, They're gonna go. Should I be
Speaker 1: in the market state the case for people to think
Speaker 1: it's a simple exercise, Well, well I don't think right now, Tom,
Speaker 1: it is such an easy exercise. I'll tell you why.
Speaker 1: The first thing is is that the economy is legitimately
Speaker 1: going to be slower in in in teen and than
Speaker 1: it was last year. And the earnings as a results
Speaker 1: are gonna be not They're not gonna be horrible, but
Speaker 1: they're also gonna be weaker. But here's the key. We're
Speaker 1: not going into recession. We're gonna hear from today that
Speaker 1: that jobs are still expanding, UM in this uh, in
Speaker 1: this country. UM. The FED. The the consensus belief on
Speaker 1: Wall Street is that the Fed is entirely done raising
Speaker 1: rates for this cycle, so that they're no longer a
Speaker 1: headwind and we're still reaping the benefits of the fact
Speaker 1: that in the fourth quarter of last year you had
Speaker 1: stock prices get smacked down really hard, and stocks are
Speaker 1: are really inexpensive compared to where there were a few
Speaker 1: months ago. So, John, I want to bring you a
Speaker 1: quote from Andrew Sheets of Morgan Stanley, who we caught
Speaker 1: up with a little bit earlier. He basically said, if
Speaker 1: you look back at the history when the feed has
Speaker 1: got a more dovish because of weakening data, that's been
Speaker 1: a bad time for investors. It's helpful the FED is helping,
Speaker 1: but it doesn't solve some of these bigger issues. What
Speaker 1: do you think about that, John, Well, here's what happens, Johnson,
Speaker 1: Typically is the FED stops raising rates when they've screwed
Speaker 1: up and gone too far and and really done some damage.
Speaker 1: And it's it's somewhat rare that they pull off a
Speaker 1: soft landing. And right now it kind of looks like
Speaker 1: that's where we are, that the FED has gone from
Speaker 1: zero rate policy to two and a half percent on
Speaker 1: FED funds when most other major countries in the world
Speaker 1: are still at zero or negative UM. But I don't
Speaker 1: believe that they've done the kind of damage that they
Speaker 1: have in the past. So perhaps this time is the
Speaker 1: magic bullet there, and this is that that soft landing
Speaker 1: that everybody helps, which I actually think I think it
Speaker 1: is many people reflecting on the nine nineties kind of
Speaker 1: playbook the midnineties going into the late nineties of the
Speaker 1: framework for thinking about this market. Is that a useful
Speaker 1: framework to use? John, You know. I think that we
Speaker 1: always try to to say what's the thing which looks
Speaker 1: closest to this, and I'm not sure that we can.
Speaker 1: And I think that the most important difference right now
Speaker 1: is I think that the overall long term trend here
Speaker 1: is on slower economic growth, and it doesn't mean recessionary,
Speaker 1: It just means um a little bit more slug me.
Speaker 1: I think that if you the most likely period this
Speaker 1: is gonna mimic, do I own the belieguerd to have
Speaker 1: them come back, or given your slower model, do you
Speaker 1: value more highly marginally better growth. Which is it? I
Speaker 1: think in this environment, um companies that generate lots of
Speaker 1: cash flow, companies that have lower fixed overhead, companies that
Speaker 1: generate growth that doesn't need the economy, which means that
Speaker 1: in this environment, heck companies look good, healthcare companies look good.
Speaker 1: And maybe as importantly, the US market I still think
Speaker 1: looks better than the rest the world because our businesses
Speaker 1: are are more resilient, just because of the industries are in.
Speaker 1: Is Amazon resilient? I mean they come out with earnings
Speaker 1: own you know they're down two two three percent, whatever
Speaker 1: thing was more than that, you know they're down and
Speaker 1: there's all that, But how do I know? You don't
Speaker 1: do individual stocks, But what do you do, John Gallup
Speaker 1: with a double digit revenue grower in your lower revenue
Speaker 1: growth environment. If that revenue growth, if it was an
Speaker 1: energy company that had had double digit energy growth because
Speaker 1: of the commodity, I'm not that interested. If it's a
Speaker 1: double digit grower, because they're taking share from everyone else
Speaker 1: around it. They've been taking share whether the economy was
Speaker 1: a little stronger a little bit weaker. You have to
Speaker 1: like those kind of companies. The stockdown four percent In
Speaker 1: case you're wondering home in the pre market, did you
Speaker 1: have any more questions? Have plenty of questions for Jonathan Gollup.
Speaker 1: I wanted to pick up on his point about buy
Speaker 1: America versus the rest of the World's interesting. There are
Speaker 1: some people John excites it now that fed us back
Speaker 1: to way and seemingly we may well get a trade
Speaker 1: deal that the opportunity will lie outside of America. What's
Speaker 1: your message to those the you want to buy outside
Speaker 1: of the US when you have a an accelerating economy,
Speaker 1: and you want to buy in the US when the
Speaker 1: economy is more stagnant, and the reason for that is
Speaker 1: that the US, the U S SMP is more services,
Speaker 1: they're more businesses that are not as industrial base. And
Speaker 1: so if the economy slows over the next year or two,
Speaker 1: as not only I expect, but as a consensus view is,
Speaker 1: then the US tends to do better in that environment.
Speaker 1: It's not about the US economy being being better, It's
Speaker 1: really about the environment being one that that tends to
Speaker 1: favor s. Thank you so much. Really, really, you know
Speaker 1: what's great about Gala you going to this research on
Speaker 1: John There is always that one thing that shots you
Speaker 1: and you did that X Apple X energy thing. It's
Speaker 1: a whole different look. The street always always helps me.
Speaker 1: Inc it was six, it was a summer. I have
Speaker 1: the clearest memory of the shock of the Iceland summit,
Speaker 1: the Ravick Summit of Reagan and Gorbachev. Are Michael McKee
Speaker 1: was there. Michael is down in Washington today knee deep
Speaker 1: in the jobs report. But we're doing better. Margaret Brennan
Speaker 1: with US. Of course, I host to Face the Nation
Speaker 1: Seat on CBS all of their network affiliates coast to coast.
Speaker 1: UH Sunday morning, you can hear at a two pm
Speaker 1: on Bloomberg Rady I'll tell you about that in a minute.
Speaker 1: But Margaret, you're actually way knowledgeable on this. What is
Speaker 1: the import at the Secretary of State and the President
Speaker 1: United States are gonna walk away from Raya vic Well,
Speaker 1: this is significant. The iro n F treaty, it's one
Speaker 1: of those nuclear arms control agreements that tried to put
Speaker 1: a cap on the pulled up end of this pools
Speaker 1: that could develop direct these nuclear weapons at each other.
Speaker 1: What strategically the Trump administration says this does quietly says
Speaker 1: this does is that it allows them to build up
Speaker 1: in response to China. It frees them from the constraints
Speaker 1: there to address a new threat within Asia. But it
Speaker 1: also and what they're saying publicly is that the they say,
Speaker 1: a response to Russia breaking the rules anyhow, if they
Speaker 1: Russia has already been developing missiles outside the agreement, and
Speaker 1: therefore if this thing wasn't effective in the first place,
Speaker 1: but this gives us six months they could change their
Speaker 1: minds if Russia comes into compliance. But very few people
Speaker 1: think that will actually happen. In the Chinese there's this
Speaker 1: illusion of Republican and Democratic party support for the outrage
Speaker 1: over Walwi whatever. That's separate issue. Is there any kind
Speaker 1: of Republican and democratic support of what Secretary Pompeio's proposing, uh,
Speaker 1: in terms of the I n F treating treating Excuse me, Yes,
Speaker 1: there is. There's a lot of support actually, and in
Speaker 1: that Intelligence Chief exchange you saw on Capitol Hill earlier
Speaker 1: this week, you heard some of that from republicans. Um
Speaker 1: certainly as Sara Marco Rubio center Tom Popp. They want
Speaker 1: to see the administration get quote unquote tougher on Russia.
Speaker 1: They like that signaling, and they also like the re
Speaker 1: orientation towards China, so they cheer it on. So the
Speaker 1: question is really, uh, you know, it's interesting how much
Speaker 1: Russia and Putin are given air time beyond their actual impact.
Speaker 1: But you know, are they actually undermining us in other ways?
Speaker 1: You know, we may be dealing with a treaty, but
Speaker 1: when they're doing things like social media manipulation and other things,
Speaker 1: are they actually more effective at using the new tools
Speaker 1: rather than the old ones. Margaret Bennan, you're the only
Speaker 1: one I know that actually counts the number of residential
Speaker 1: tweets per day that completely shifts face the nation. On Sunday,
Speaker 1: I'm going to take a real risk here that maybe
Speaker 1: Trump Pelosi leads a charge frame face the nation. For
Speaker 1: this Sunday morning on CBS, we will be speaking with
Speaker 1: President Trump, continuing this tradition of a Super Bowl time. Okay,
Speaker 1: stop stop, stop, Margaret Rams or patriots to see if
Speaker 1: we continue. Look, I'm a Connecticut Yankee, but you know,
Speaker 1: I guess I'm supposed to be neutral in this one.
Speaker 1: You gotta be neutral because you're with CBS. There you go.
Speaker 1: What are you gonna say to President Trump this weekend?
Speaker 1: I mean, it is a great tradition of the Super Bowl.
Speaker 1: It's also a really serious interview. How will you approach
Speaker 1: this interview with the President of the United States, Well,
Speaker 1: you know, we will talk about a range of things
Speaker 1: including you know, we know he's a patriot, Patriots fan.
Speaker 1: We want to talk to him a little bit about
Speaker 1: the fun stuff, but also a lot of serious stuff including, um,
Speaker 1: the chances of another shutdown in three weeks less than
Speaker 1: three weeks now, uh, whether he intends to bypass Congress
Speaker 1: to get funding to build this border wall that he's
Speaker 1: still arguing with Congress about Democrats about um. But also
Speaker 1: look at some of the security threats, whether it's Venezuela.
Speaker 1: He's tweeting this morning about Syria and Afghanistan and again
Speaker 1: vowing to bring our troops help. What does that look like,
Speaker 1: particularly when you have seen the vast majority of Republicans
Speaker 1: in the Senate rebuke him, tell him he's endangering national
Speaker 1: security by going through the percipitates withdrawal from the battlefield.
Speaker 1: Margaret Brennan, thank you so much. Really looking forward to
Speaker 1: this interview of the weekend. Without question, Margaret Brennan and
Speaker 1: President Trump, it has been an extraordinary October. The Peace
Speaker 1: of November, what a December, and in the January, and
Speaker 1: the house call that one last year by a country
Speaker 1: mile was the shop known as Morgan Stanley. There, Ellen Zetner,
Speaker 1: way out front, way out front, on a fed that
Speaker 1: would slow down, would demur from higher interest rates. She
Speaker 1: nailed that. And Michael Wilson nailed the struggles of the
Speaker 1: equity market. He is their chief US equity strategist of
Speaker 1: Michael Wilson joins us this morning from our interactive broker studio,
Speaker 1: the Bloomberg Interactive Broker Studio. Mike, you've got a re
Speaker 1: appraise after down thirteen percent. Whatever the math is, how
Speaker 1: do you position into this new month. Thanks Tom. Look,
Speaker 1: I think, as you said, we've just had this crazy
Speaker 1: move both down and up. I mean, clearly December we
Speaker 1: think overshot on the downside. We expected things to bounce back,
Speaker 1: Like pretty much everybody, you know, nobody's really ever sure
Speaker 1: how far it's gonna snap back. And I think obviously
Speaker 1: price momentum makes people feel more boa just like negative
Speaker 1: price momentum makes them feel more bearish. And I think
Speaker 1: that I think that that's a little bit of a
Speaker 1: mirage at the moment. So if you're if you're actually
Speaker 1: intellectually honest here, I would say, what's going on is
Speaker 1: the Fed made an absolute pivot in earlier in January,
Speaker 1: and they followed it up on Wednesday, was kind of
Speaker 1: confirming they're not going to raise rates anytime soon, and
Speaker 1: they may even start to address the balance sheet in
Speaker 1: a way that I mean, did did Jim Gorman give
Speaker 1: Ellen's that in her tickets at the fifty yard line?
Speaker 1: I mean, els like ten rows up, but she should
Speaker 1: get something that's for sure? Absolutely, yeah, yeah, absolutely, and
Speaker 1: and and so look, I mean, but that's why stocks
Speaker 1: are up. Okay, stocks are up because the FED changed
Speaker 1: um and and that was one of our reasons we
Speaker 1: were negative last year's that fed it was tightening a
Speaker 1: little too quickly. Okay, So that's that's good, okay. And
Speaker 1: stocks are rallying on bad news, and I think folks
Speaker 1: are somewhat misinterpreting that that means that all the bad
Speaker 1: news is priced fun fundamentally. But the reality, Tom is it.
Speaker 1: And we're equity and estra analysts. You know, the earnings
Speaker 1: revisions are terrible, okay, And what I mean by that
Speaker 1: is that the forward arranging estiments are coming down even
Speaker 1: more rapidly than we expect it. And we've been calling
Speaker 1: for an earnings recession in two thousand nineteen for a while.
Speaker 1: So that does not make us feel very comfortable. And
Speaker 1: we think, here, this is probably the bad trade. This
Speaker 1: is not the time to be chasing. We think we're
Speaker 1: going to get a pull back. I don't think we're
Speaker 1: going to get a full test anymore of December, but
Speaker 1: I think we'll get a very substantial retraintment, at which
Speaker 1: point then stocks will be attractive again. But you know,
Speaker 1: I think it's you know, this up and down nature
Speaker 1: that the market is still trying to figure out examply
Speaker 1: what the right, what the right prices, and you know,
Speaker 1: from our standpoint, it's sort of fair or expensive again,
Speaker 1: So Michaelson, anything in the jobs report today that causes
Speaker 1: you to change your view or change what you think
Speaker 1: the Fed will do? Uh? Here in the first half
Speaker 1: of the year, it's interesting. Uh. You know, clearly Ellen's
Speaker 1: had a more bearish calling the economy than the consensus
Speaker 1: for this year, to see a deceleration in the economy
Speaker 1: towards one percent by three Q. Of course, payroll numbers
Speaker 1: were very strong. Headline peril numbers make people kind of question, well,
Speaker 1: is that really what's going on? I would argue yes,
Speaker 1: because there was a big revision last month downwards, so
Speaker 1: the headline number is not as big. And if you
Speaker 1: look at the unemployment rate, you know, uh kind of
Speaker 1: perplexingly is it's actually up now two months in a row,
Speaker 1: and the U six is up five tenths. So I
Speaker 1: think the underlying jobs market may be actually weakening more
Speaker 1: than what the headlines might be suggesting. So I I
Speaker 1: think Ellen's got it right. I think we're going to
Speaker 1: continue to decelerate on growth. That doesn't mean we'recession. And
Speaker 1: I think there's a good reason for that companies earnings
Speaker 1: are not as strong, so they're not going to be
Speaker 1: hiring as rapidly. So Mike, what's given we do have
Speaker 1: a dovish fed at the moment, the economy seems solid
Speaker 1: to two and a half percent, what would get you
Speaker 1: a little bit more aggressive as it relates to equities price,
Speaker 1: So you know clearly in December we're pretty vocal that
Speaker 1: was right at our bare case target. That's a great price.
Speaker 1: I would be a very attractive price too, and by
Speaker 1: the way, it's stocked by stock. So what I don't
Speaker 1: like right now is that the market's kind of going
Speaker 1: back to some of these high flying stocks and paying
Speaker 1: probably too high and multiple. So we're being very sensitive evaluation.
Speaker 1: And there's definitely things out there that we like that
Speaker 1: are properly priced, But I think you need to be
Speaker 1: disciplined about your entry points. You don't have this big
Speaker 1: tail wind at your back anymore of accelerating growth, and
Speaker 1: you know, easy monetary policy when you when you look
Speaker 1: at all your analysts Acrosse and I don't know how
Speaker 1: many research annelsts you have, but it's an island nation.
Speaker 1: When you look at your research annelists, what do they
Speaker 1: say down the income statement and can corporate officers adapt
Speaker 1: to the new lower revenue prospects. I mean, is there
Speaker 1: a wiggle room there for them to hold margins and
Speaker 1: maintain free cash flow? Well, Tom, there's there's one thing
Speaker 1: we know about corporate America is that they're very good
Speaker 1: at cutting costs and that probably know it's world class,
Speaker 1: that's what that's what American companies do well, and they
Speaker 1: will absolutely react quickly if the topline prospects start to deteriorate.
Speaker 1: And I think as once again, I think we're starting
Speaker 1: to see some of that. If you actually peel back
Speaker 1: the onion on some of his labor numbers, I'm not
Speaker 1: sure that that's not what's going on already. I think
Speaker 1: we're starting to see companies reevaluate cap X potentially. You know, Um,
Speaker 1: one of the reasons why Amazon stock was down overnight
Speaker 1: because they're spending more money than maybe people expected. Well,
Speaker 1: if they're going to do that in the face of
Speaker 1: lower revenues, by the way, they have missed revenues for
Speaker 1: a couple of quarters. Now, um, then that's gonna have
Speaker 1: a margin impact and then ultimately they'll have to cut
Speaker 1: back if that doesn't change. So companies will absolutely respond, uh,
Speaker 1: in spades, if if if top line is short. So, Mike,
Speaker 1: are there any sectors at the moment that you feel attractive?
Speaker 1: Let's take Thanks for example, they lead the market down
Speaker 1: in December, leading it back up here in the first quarter,
Speaker 1: real quickly. How to view those Well, I mean, fang
Speaker 1: is not really a sector, but I know what you're saying,
Speaker 1: so high multiple you know, kind of software internet, Uh,
Speaker 1: you know, maybe secular growth type companies. Uh, that is,
Speaker 1: that is what has really served investors well in the
Speaker 1: era of KIWI and fiscal austerity, right, low growth world.
Speaker 1: You want to you want to pay them for growth.
Speaker 1: And we made a call last year that we think
Speaker 1: that era is kind of over, meaning those docks are fine,
Speaker 1: those are great companies. Okay, you just gotta be careful
Speaker 1: what you pay for them. And I would argue in
Speaker 1: December they were on sale and you should have been
Speaker 1: buying them. But here a lot of these things have
Speaker 1: come back to the point now where I think they're
Speaker 1: probably overpriced. I would be okay, they're offering better value.
Speaker 1: Mike Wilson with US of Morgan Stanley. Thanks for listening
Speaker 1: to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews
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