Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: This is a joy and I'm gonna cut to the
Speaker 2: chase of what Ethan Harris really did. There was a
Speaker 2: small shop that went under. It was called Lehman Brothers,
Speaker 2: and he was one of a select few that provided
Speaker 2: immense stability to Lehman Brothers in the debris. After that,
Speaker 2: he migrated over to Bank of America marilynch where he's
Speaker 2: been a force.
Speaker 1: For decades and he's retiring. Here, I'm gonna cut to
Speaker 1: the chase.
Speaker 2: Its moynihanna aware of this because Brian comes out Bloomberg.
Speaker 1: Well, I really think real.
Speaker 2: GDP, he's going to do this, and he's looking at
Speaker 2: down at Ethan Harris and stuff.
Speaker 1: Moynihn allow this, Yeah, he's allowing it.
Speaker 3: You know. One of the great things about our CEO
Speaker 3: is that he does read our stuff and he really
Speaker 3: cares about his research department. So I'm going to miss that.
Speaker 3: I mean, one of the great things about working at
Speaker 3: b of A is that the firm really cares about research.
Speaker 1: I've been busting. He's selling this like it's just great. Brian.
Speaker 1: You can't come out in front of the campus. Stay
Speaker 1: over there, Brian.
Speaker 2: What's important here is you wrote a magnificent book years ago,
Speaker 2: Ben Bernanke's FED. That was a piercing book with your
Speaker 2: experience at the FED about the dynamics of the FED.
Speaker 2: What does Jerome Powell's FED look like?
Speaker 1: Is you go to write your next book?
Speaker 3: Yeah, so I am going to finally write that next
Speaker 3: book you've been asking me about for fifteen years.
Speaker 4: You know.
Speaker 3: I think what we're going to see is a turning
Speaker 3: back the clock. I think the experiment that the FED
Speaker 3: did with this twenty twenty new framework didn't work, and
Speaker 3: we're going to see a turning back of the clock
Speaker 3: to something that looks more like a Ben Bernanke or
Speaker 3: a Janet Yallen FED. I don't think it makes sense
Speaker 3: for the FED to do what they did was which
Speaker 3: is way to the last second, wait for inflation to
Speaker 3: be really underway and then start to hike interest rates.
Speaker 3: So I don't expect radical change, but rather kind of
Speaker 3: just go back to the old model.
Speaker 2: Well, the old model.
Speaker 5: Is it the old model meaning ten years ago, or
Speaker 5: is it the old model forty years ago which was
Speaker 5: very different? And that's really the big debate we've been
Speaker 5: hearing about. What's your view of how we're going to
Speaker 5: look back at this moment in history.
Speaker 6: Was it a sea change that.
Speaker 5: Ushered in a new era of high inflation or was
Speaker 5: it a pandemic and dous blip it's going to go
Speaker 5: back to what we were seeing five years ago.
Speaker 3: Well, I think the Fed is demonstrated that they learned
Speaker 3: a lesson here. They started very late, and you'll hear
Speaker 3: that from Bill Dudley later today. He was one of
Speaker 3: the people arguing they should get moving and they start
Speaker 3: too late. They did an incredibly aggressive catching up, and
Speaker 3: that was a signal to me that they understood that
Speaker 3: they'd made a mistake. Because you don't want to be
Speaker 3: going seventy five basis points a meeting. It's very dangerous normally,
Speaker 3: but if you're way behind the curve, you catch up,
Speaker 3: So I don't agree with people who say they're going
Speaker 3: to compromise on their inflation target. At his press conference,
Speaker 3: he repeats over and over and over again every chance
Speaker 3: he gets, he says, we're serious about hitting our two
Speaker 3: percent inflation target. He's putting his credibility in the line.
Speaker 3: He does not want to be Arthur Burns. He wants
Speaker 3: to be Paul Vulker.
Speaker 5: What have we learned though, about this aggressive tightening. You're
Speaker 5: saying they don't want to do that. They did that,
Speaker 5: nothing broke. You could argue, Okay, we saw some bank rumbles,
Speaker 5: but right now we're looking at housing reaccelerating, seeming to
Speaker 5: have already bottomed, and much of the economy before being
Speaker 5: better than expected. What do you make of that?
Speaker 3: Well, I think that they were up against some very
Speaker 3: big tail winds in the I mean, you had all
Speaker 3: that massive excess saving left over from the fiscal stimulus
Speaker 3: during the crisis. You've had a pent up demand for
Speaker 3: workers with all these job openings, and so the Fed
Speaker 3: did achieve some weakening in parts of the economy that
Speaker 3: are intrasensitive, but the consumer just refused to roll over.
Speaker 3: You know, jobs were great, the savings were high, and
Speaker 3: they could spend their savings. So I think it's delayed
Speaker 3: the weakness, and we still think a mild recession, probably
Speaker 3: early next year. But like a lot of other forecasters,
Speaker 3: we've been forced to conceive that it's not here. It's
Speaker 3: gonna take a while. I don't think it's the end
Speaker 3: of the world. There's this hot hard landing soft landing debate.
Speaker 3: Come on, if you're forecasting the unemployment rate going from
Speaker 3: three and a half to four and a half, that's
Speaker 3: not a hard landing. That's great, that's normal unemployment. So
Speaker 3: it's the people I disagree with, the perfect landing crowd
Speaker 3: that says, oh, you don't have to have any pain
Speaker 3: at all. All that inflation is going to go away
Speaker 3: on its own. No adjustment in the economy that I
Speaker 3: disagree with. But it's going to be a soft landing,
Speaker 3: either bumpy or a little more bumpy. But it's not
Speaker 3: going to be a hard landing.
Speaker 2: With our new data capture, with all the noise that's
Speaker 2: out there, is there too much communication? We open the
Speaker 2: show with a beautiful vignette one of our interns put
Speaker 2: together of all these fed speakers speaking.
Speaker 1: Is there too much communication?
Speaker 3: Well, I mean that's the structure of the FED, right,
Speaker 3: it's a very old FED. Well, when when Greenspan dominated,
Speaker 3: he would he's suppressed the rest of the committee's openness,
Speaker 3: and so that's changed under the new FED chairs. So
Speaker 3: there's a lot of information coming out.
Speaker 1: I think the.
Speaker 3: Business reporters are a bit too hyped up about this
Speaker 3: whole thing. They keep talking about hawks and doves and
Speaker 3: all that hawks hawkish pulls. Yeah, well, look look at
Speaker 3: the FED. There's been virtually no descents through a period
Speaker 3: of way behind the curve, fastest titan history and now
Speaker 3: data dependent. Nobody's dissenting, right. So the idea that you know,
Speaker 3: you need to get all pumped up about what some
Speaker 3: dove said or what some hawks said, I think is
Speaker 3: way overdone.
Speaker 2: You have been prodigious in building careers. I mean what
Speaker 2: you did for Michelle Myers she went off to some
Speaker 2: charge card company. I know what she was thinking. Moine
Speaker 2: hands you have to recover from Michelle Meyer Levn. But
Speaker 2: the bottom line is you built careers. You came out
Speaker 2: of the Newtonian calculus at Clark University up in Massachuse.
Speaker 2: It's the idea here of math matters is there's too
Speaker 2: much math now in the game.
Speaker 3: Well not in the part of the area I'm in. Right,
Speaker 3: If you're a fed economist or a street economist and
Speaker 3: you're trying to figure out the economy and policy, we
Speaker 3: all understand that it's a lot of storytelling and historic
Speaker 3: analogy that you don't want to get crazy about the modeling.
Speaker 3: In academia, there is has been this drift into mathiness
Speaker 3: where you impress people by the complexity of the model,
Speaker 3: but it doesn't really work in the real world. So
Speaker 3: there's become a split in economics profession between people are
Speaker 3: practical economists and the ones that do the mathiness.
Speaker 5: We're speaking with Ethan Harris of Bank of America Securities
Speaker 5: after more than a decade at Bank of America, who
Speaker 5: is retiring as of this Friday. I believe I believe
Speaker 5: this is your last interview that has been scheduled, and
Speaker 5: we appreciate you sharing it with us. I want to
Speaker 5: pivot a little bit because we're talking about looking back
Speaker 5: over a trajectory of a career and understanding where we are.
Speaker 7: At this moment.
Speaker 5: Do you think that in the future people coming into
Speaker 5: this industry, we'll be working in an office to the
Speaker 5: same degree, do you think that that will be one
Speaker 5: of the big sea changes that persists over the next decades.
Speaker 3: Well, I think it to some degree. Hybrid is the
Speaker 3: new normal. I think there's a battle going on between
Speaker 3: a corporate leadership and the and the staff about whether
Speaker 3: that's really what they want to do.
Speaker 2: Harris getting himself into Troubletdown's compliance is like, what's he saying, Yeah, so.
Speaker 3: Maybe maybe today is my last day. But I'm not
Speaker 3: talking about Bank of America. I'm talking about in general,
Speaker 3: you know, And there's a trade off, right, So it's
Speaker 3: definitely not good for developing new people to have everyone
Speaker 3: sitting and their pajamas at home. That's not a good.
Speaker 1: Maybe quote you on that exactly.
Speaker 3: If they don't have their panamason then you're early trouble.
Speaker 3: But anyways, so you don't want to be entirely at home.
Speaker 3: On the other hand, in my case, I have a
Speaker 3: crazy New York City suburb commute, and so for me,
Speaker 3: I'm more productive if I'm working hybrid. So that's really
Speaker 3: the debate. It's about, you know, what's the most productive model,
Speaker 3: And I think in many industry's hybrid it's going to
Speaker 3: end up being the thing.
Speaker 5: A sensitive question as we talk about some of the
Speaker 5: earnings of tech companies and artificial intelligence. Is chat gpt
Speaker 5: going to be your new research assistant?
Speaker 1: You know?
Speaker 3: I tried it, and in fact, a friend of my
Speaker 3: son tried it out, and he put my name in
Speaker 3: there and started asking questions about me. Now I've got
Speaker 3: a lot of visibility in the press and stuff. What
Speaker 3: I found with chat the chat app is that at
Speaker 3: first it gave very good answers. It found my bio
Speaker 3: and wrote it up in better language than I did.
Speaker 3: But then as my son's friend kept asking tougher questions,
Speaker 3: it started returning nonsense. It started telling me that I'd
Speaker 3: won some great prize in Japan for some Yeah, there's
Speaker 3: something like it's like a peace prize or something in Japan.
Speaker 3: And so if you pushed it and tried to get
Speaker 3: it to get really interesting, it gave you junk.
Speaker 1: I've got to ask you this, because it's the heritage.
Speaker 1: Can you give all of our global.
Speaker 2: Wall Street audience a vignette of what it was like,
Speaker 2: not the final days of Lehman, but a week after Lehman,
Speaker 2: a month after Lehman. Give us a window and how
Speaker 2: you and others had the leadership there to pick up
Speaker 2: the pieces.
Speaker 3: Well, I mean everyone was in shell shock, and I
Speaker 3: was lucky my team got picked up by Barclay's and
Speaker 3: so we had a life raft to lifeboat to jump into.
Speaker 3: But you know, you were kind of in this environment
Speaker 3: where you had both these forced marriages going on in
Speaker 3: Wall Street, which are never fun, at the same time
Speaker 3: that you have this incredibly demanding and interesting and challenging
Speaker 3: world you're trying to forecast where the economy is just collapsing.
Speaker 3: It was an amazing time and you just had to
Speaker 3: kind of, you know, lean on each other a bit.
Speaker 2: I guess Ethan Harris thank you so much. With a
Speaker 2: huge commitment to the show.
Speaker 8: It's just been great research.
Speaker 6: Francis, I just can't believe how transparency k just was
Speaker 6: so for a legal issue.
Speaker 9: Well, in the CFA curriculum they talk a lot about
Speaker 9: transparency and they talk about how you shouldn't even give
Speaker 9: the appearance of conflicts. So Tom looks like it's done
Speaker 9: a great job there.
Speaker 1: Yeah, But the other issue is letter in.
Speaker 2: The major issue here is insider trading is not as
Speaker 2: clear cut as the public thinks they get.
Speaker 1: It can get really back and forth about who said what?
Speaker 2: When I was stunned by the allegations, I would think
Speaker 2: Francis Donald is with us.
Speaker 1: All right now we say thank you. I thrilled your
Speaker 1: here this morning. What are you writing about this weekend?
Speaker 1: And why will see plus iplet's cheapless NX. What's the
Speaker 1: dynamic there? Is it investment or is it the mystery
Speaker 1: of this buoyant consumer?
Speaker 9: You know, we are trying to stick to process even
Speaker 9: as price moves against our base case, which is that, yes,
Speaker 9: still all of our leading indicators and our economic model
Speaker 9: suggests that the best base case scenario is indeed a
Speaker 9: recession in Q four.
Speaker 6: Now that's not.
Speaker 9: Actually the game. The game is an asset manager is
Speaker 9: not to say whether there's recession or a soft lanning,
Speaker 9: but to get a sense as to what markets will
Speaker 9: price in and out over the next three to six months.
Speaker 8: So what we're.
Speaker 9: Talking about is that in the next one to two
Speaker 9: months we actually see economic data that will still give
Speaker 9: the appearance of soft lanning. That's an opportunity to chase
Speaker 9: some risk. But if you're looking further out, if you're
Speaker 9: looking beyond the next three months, we still have to
Speaker 9: maintain this call. It doesn't feel good as everyone moves
Speaker 9: towards the soft lanning thesis. But when you stick to
Speaker 9: the leading indicators, we have to say that is the
Speaker 9: best base case.
Speaker 5: What does it mean to lean into risk right now?
Speaker 5: What are those areas well?
Speaker 9: There is even as a macro strategist, as an economist,
Speaker 9: I can say sometimes you need to participate in momentum
Speaker 9: driven rallies.
Speaker 6: This happens.
Speaker 9: Macro is not always the primary investment driver. Again, that
Speaker 9: is not the most comfortable thing to say as a
Speaker 9: macro strategist, but an overlay and it matters much more
Speaker 9: at inflection points. I do not believe right now we
Speaker 9: are at an inflection point, even though today's a FED
Speaker 9: meeting and it may feel that way. That inflection point
Speaker 9: is to win. That recession will probably come back into
Speaker 9: the story is probably three months from now. So if
Speaker 9: you want to play off momentum, sentiment and technicals, now
Speaker 9: is the time to shine if those are your strength.
Speaker 2: Did somebody overnight push their recession call out to twenty
Speaker 2: twenty five?
Speaker 1: I want to say gold and sex, but I'm making it.
Speaker 6: I didn't say that.
Speaker 2: Somebody out there finding everybody's pushing it out, not nar Yeah,
Speaker 2: I'm sure.
Speaker 1: Fortunately, can you raise it to twenty twenty six?
Speaker 2: Sure?
Speaker 9: And I'm sure that if you asked any economists, they
Speaker 9: would have some sort of recession in over the next
Speaker 9: five years, because I don't believe that cycles are necessarily dead.
Speaker 9: But it's a good question, and we ask ourselves all
Speaker 9: the time, which is why hasn't the recession that everyone's
Speaker 9: forecast materialized? It's probably because, and again, you know, you
Speaker 9: have to look at what a standard economic model would
Speaker 9: tell you. You also have to say what may be not
Speaker 9: true about that model or what's different about this environment,
Speaker 9: And a lot of strategists has said this time is
Speaker 9: fundamentally different. My view is that, well, you can't throw
Speaker 9: the baby out with the bathwater. There are elements of
Speaker 9: this story that are going to be very different. This
Speaker 9: recession that occurs later this year and into twenty twenty
Speaker 9: four will look slightly different. Unemployment rate probably not going
Speaker 9: to rise to the same extent, and you do have
Speaker 9: to question why isn't it here yet? It's probably because
Speaker 9: you have what we like to call cycle extenders in play,
Speaker 9: things like labor shortages, excess savings. We're not talking, you
Speaker 9: know, you don't need a PhD to figure it out that
Speaker 9: there are things that are different about this story. But
Speaker 9: negating all of history, negating all of the power of
Speaker 9: leading indicators, to me, is not prudent in this environment.
Speaker 6: So Geremeny has session, Yes, Europe still has an inflation problem.
Speaker 6: As you anticipate that growth downturn in the United States,
Speaker 6: do you also envision that maybe we have a sticky
Speaker 6: inflation problem too simultaneously?
Speaker 9: Yeah, absolutely, And this is actually what concerns me more.
Speaker 9: We spend so much time talking about recession or soft landing.
Speaker 9: There are a heck of a lot of environments in
Speaker 9: between those two things. And frankly, if I'm an asset manager,
Speaker 9: which i am, and trying to figure out how to
Speaker 9: invest over the next five years, a classic recession rebound,
Speaker 9: we have a playbook for that. You can do well
Speaker 9: in that type of environment. What concerns me more, what
Speaker 9: we don't have the playbooks for is what Europe is
Speaker 9: experiencing now, sticky high inflation with no growth. One thing
Speaker 9: I'm worried about is actually this concept of the soft
Speaker 9: landing being green light being the most bullish outcome. I'm
Speaker 9: not sure that a soft landing is as bullish as
Speaker 9: everybody makes it out to be.
Speaker 6: Because we have four.
Speaker 9: Cuts priced in for next year, and if we don't
Speaker 9: get those, because the economy is all clear, we have
Speaker 9: a rerating to be made in a variety of risk assets.
Speaker 9: I'm not sure that we've really thought through what does
Speaker 9: soft landing need for equity markets. It's not as bullish
Speaker 9: as it may appear.
Speaker 5: How much do you think it's a bear market trap
Speaker 5: almost to lure people back to the sixty forty ahead
Speaker 5: of what you just explained in terms of the vulnerabilities
Speaker 5: in that type of maybe soft landing, but high inflation,
Speaker 5: no growth kind of a circumstances.
Speaker 9: Well, again, it really depends on your timeline. If you're
Speaker 9: operating on a one to two month timeline, it's not
Speaker 9: a trap. It's an opportunity in order to really leverage
Speaker 9: what we'll probably see is some cyclicality, some cyclical bounds,
Speaker 9: and things like manufacturing data. But if you're a longer
Speaker 9: term investor, absolutely you should be looking at these bullish
Speaker 9: runs as opportunities to add back to quality and maybe
Speaker 9: reduce your risk. I think it's also going to call
Speaker 9: into play why there's a lot more focus on alternative
Speaker 9: assets and private assets, because in this type of environment,
Speaker 9: one that John is describing as slower growth for sessions
Speaker 9: with sticky hin inflation, we're going to be looking for
Speaker 9: asset classes that really reduce that volatility and are less
Speaker 9: correlated with the sixty forty As for.
Speaker 2: A friend, is the meeting, this afternoon is the press conference?
Speaker 1: This afternoon is snoozefest.
Speaker 9: I hope for Marcus that it is, and I would expect
Speaker 9: that Chair Powell also hopes that it's a smooth what
Speaker 9: you produce. I don't believe there is anything that Chair
Speaker 9: Powell could say today that would convince the market to
Speaker 9: take out rate cuts from next year. And that's because
Speaker 9: just about everybody recognizes that the Fed does not have
Speaker 9: the luxury of pivoting. What's happened since the last meeting.
Speaker 9: We've got ad prices surging, inflation expectations in the longer
Speaker 9: end of the curve are up quite a bit, and
Speaker 9: financial conditions are easing. He has no choice. He cannot
Speaker 9: go dubbish. If he does, it'll be a little bit
Speaker 9: of an accident. So this is a market that's probably
Speaker 9: going to start putting a little less weight on what
Speaker 9: the Fed says and more on what twenty twenty four
Speaker 9: is going to look like.
Speaker 6: How do you think he manages what is increasingly looking
Speaker 6: like a broken consensus on the FMCA.
Speaker 9: Well, that's a tough one, probably like a lot of
Speaker 9: strategists are doing, which is coming out with a base
Speaker 9: case and then thinking through all the other scenarios behind
Speaker 9: the scenes. Goldman does a good job about talking about
Speaker 9: a base case and then a probability weighted base case,
Speaker 9: and so the FED can start talking a little bit
Speaker 9: more about scenarios. But it comes back to the issue
Speaker 9: that the FED has to control inflation expectations. I think
Speaker 9: this is a big theme for the next five years
Speaker 9: that central banks will have to have a moment where
Speaker 9: they admit, we don't know what's always going on, and secondly,
Speaker 9: we can't combat all elements of inflation. That's going to
Speaker 9: be the story for how markets trade around central banks
Speaker 9: over the secular theme.
Speaker 6: Francis, this was awesome coming to studium more often.
Speaker 4: I'd love to.
Speaker 6: I love it, Francis Donald of Manueline.
Speaker 2: Right now in the bond gent I'm going to bounce
Speaker 2: it back to you here because Kathy Jones is with us.
Speaker 2: She's Chief Fixed income strategist at Charles Schwab, and I
Speaker 2: think this is under play, John. There's been real stasis here,
Speaker 2: the real yield stasis, ten year old stasis. All my
Speaker 2: radars up in the boondom market because it's boring.
Speaker 6: Right now, Kathy, let's get to it. Will it be boring?
Speaker 6: Get to thirty Eastern time?
Speaker 10: Oh, I'm sure we'll get some excited, you know, you
Speaker 10: always do. But as you said, that's widely anticipated that
Speaker 10: it's going to hike. And then what's forward guidance going
Speaker 10: to be? And I think the expectation is they'll sound hawkish,
Speaker 10: but they may indicate a pause. How does that get
Speaker 10: parsed out in the Q and A session? What does
Speaker 10: Paul kind of communicate here? Will we get a dissenting
Speaker 10: vote possibly, or at least a hint that a handful
Speaker 10: of Fed officials are not on board with more rate hikes.
Speaker 10: That could communicate a lot to the market.
Speaker 6: We've spoken to a couple of people this morning who
Speaker 6: think the inflation reaccelerates later this year. I just wonder
Speaker 6: if that's in your base case and what it would
Speaker 6: mean for a yield curve right now that's already deeply inverted.
Speaker 10: Yeah, we don't have a really acceleration and inflation built in.
Speaker 10: There's a lot of disinflation in the pipeline that is
Speaker 10: still flowing through, especially when you look at wholesale goods prices,
Speaker 10: and we're not seeing that huge amount of pressure on
Speaker 10: the inflation side. Of course, you have oil, which is
Speaker 10: it is going to be there, but ex food and energy,
Speaker 10: it doesn't look like we're seeing a reacceleration at this
Speaker 10: stage of the game. Growth is still substandard. It's been
Speaker 10: five quarters of one and a half percent GDP growth.
Speaker 10: It's really hard, I think, to push the inflation narrative
Speaker 10: from there.
Speaker 5: Would it be bad if J. Powell came out and said,
Speaker 5: we have no clue, we don't know where this is going.
Speaker 5: We're going to pause. Raphael Bostik is going to dissent,
Speaker 5: because he probably will, because he's been the lone dove
Speaker 5: out there that's been pretty vocal.
Speaker 1: All of us aren't sure.
Speaker 5: Here's what we're watching.
Speaker 10: Call it a day.
Speaker 5: Why can't he just do that?
Speaker 10: I sort of wish he would to tell you the truth,
Speaker 10: but I think the Fed has to. They have forecasts,
Speaker 10: they have to communicate some sort of confidence about going forward.
Speaker 10: But you know, the truth is they don't know. They
Speaker 10: never know. Nobody really knows what's going to happen in
Speaker 10: the next few quarters. They can only follow the indicators
Speaker 10: and the trends. And we have, as Tom mentioned, very
Speaker 10: high real rates. We have tightening credit at the banks
Speaker 10: a lot, and we'll get the senior loan officers I
Speaker 10: think pretty soon. I would imagine the Fed has done
Speaker 10: some work on what's going on behind the scenes at
Speaker 10: the banks. I'm not waiting for the quarterly report to
Speaker 10: come out, so they may have a feel for just
Speaker 10: how tight credit is getting. So those are all going
Speaker 10: to go into the equation and then QT continues. We've
Speaker 10: still got that going on in the background, so tightening
Speaker 10: is still happening even if they pause, and I think
Speaker 10: that that may be part of the message that comes out.
Speaker 5: And one aspect of this. And we're seeing this in
Speaker 5: terms of two year yields going up as high as
Speaker 5: they have, higher than the previous meeting, even as ris
Speaker 5: askids continue to rally. Can they with conviction say they
Speaker 5: are not going to hike next year and really push
Speaker 5: against people who are saying, well, it might be a recession.
Speaker 5: Could they give some indication of how high the bar
Speaker 5: is for them to really ease.
Speaker 2: Well.
Speaker 10: Paul, I think it was last November, outlined four things
Speaker 10: that he was watching for a pivot for a change
Speaker 10: in rates, and when was this disinflation from the wholesale
Speaker 10: markets to retail pricing. You could sort of say, yeah,
Speaker 10: that's happened. He's talked about a sub trend GDP growth
Speaker 10: for a number of quarters. Would argue we've probably had
Speaker 10: that over the last year or so. He talked about,
Speaker 10: you know, slow down in housing prices, and we're starting
Speaker 10: to see that, but it hasn't flown a kind of
Speaker 10: flowed through to the data. And then I think that
Speaker 10: there's the wage data, and so we have to wait
Speaker 10: for that. So I think they could outline the criteria
Speaker 10: and then say this is what we're watching. I think
Speaker 10: they've kind of outlined it in general over the last
Speaker 10: year or two. But we're waiting to see all of
Speaker 10: the boxes get checked. We're waiting to see everything kicking.
Speaker 10: And I would argue that, you know, the labor data
Speaker 10: is probably the final one.
Speaker 2: Let's go from sixty thousand feet down to six feet.
Speaker 2: I'm over a kitchen table this weekend I'm still not
Speaker 2: recovered from the bond tobaccle of eighteen months ago.
Speaker 1: I thought bonds were always supposed to go up.
Speaker 2: What is the retail recommendation in to participate in fixed
Speaker 2: income out to twenty twenty six?
Speaker 10: So we like extending duration, either with a barbell or
Speaker 10: say a.
Speaker 8: Ladder ladder out is appropriate?
Speaker 10: Yeah, yeah, laddering is fine because it takes you out
Speaker 10: of the game.
Speaker 2: Give us a duration gap and that a maturity gap
Speaker 2: on how you ladder up?
Speaker 10: Yeah, we like the a one to seven year right now,
Speaker 10: but it depends. If you're in the UNI market, you
Speaker 10: might want to go a little further out because.
Speaker 2: They thirty years or the Austrian piece.
Speaker 10: No, no, Austrian pieces.
Speaker 1: That's what I did.
Speaker 2: This is a really important lesson, John, You ladder out
Speaker 2: with someone an adult like this and retails ladder out?
Speaker 2: Should we go ten years or twenty years because they're
Speaker 2: yild hogs and they want to pick up yield?
Speaker 1: Miss Jones? Is laddering one to seven? That's a massive
Speaker 1: lesson right there.
Speaker 6: How's that sentry bund doing?
Speaker 1: It's you know, it's just.
Speaker 5: It's gonna say, it's just you know, it's a nice.
Speaker 6: You know at the time when all that stuff was
Speaker 6: being issued, when Argentina came to the mind, it was
Speaker 6: one of those moments where everyone knew. Everyone knew it
Speaker 6: wasn't like you had that contrarian thought, well, this is
Speaker 6: a bubble, this is bad. Like everyone knew it was.
Speaker 6: They also knew that negative yields was deeply unsustainable. They
Speaker 6: just got more negative and persisted for a long time.
Speaker 1: Lisa.
Speaker 5: This is when you know something's truly a bubble, when
Speaker 5: people say maybe it's a bubble that can just exist
Speaker 5: in perpetuity. Giants have a new place where it's really
Speaker 5: capital appreciation and or the price appreciation, not the actual coupon,
Speaker 5: which is nothing.
Speaker 6: Yeah, we were going to the bond market for capital
Speaker 6: returns and a monster bond market rally that yields are negative. Great,
Speaker 6: but there'll be more negative and price. That was the story,
Speaker 6: like the last ten years, Tom.
Speaker 1: I mean, I mean it is, I mean the whole
Speaker 1: last ten years, last sixteen years.
Speaker 6: Kathy Jones, thank you. It's going to see you, Kathy
Speaker 6: Jhons are charged for up there. It denis alongside this
Speaker 6: morning and good morning, Dat.
Speaker 1: I's going to see it.
Speaker 6: I thought you were going to say, at the corner
Speaker 6: of my eye saw this fluorescent jacket, and that's when
Speaker 6: I met Dan Ives. Dan, I always reflect on this
Speaker 6: video and you've heard this story before, forgive me, but
Speaker 6: you remember the clip from sixty Minutes in the late nineties,
Speaker 6: and there's this very sort of smug journalist asking an
Speaker 6: analyst about Amazon being bigger than Sears and saying bigger
Speaker 6: than Sears, And you look back on it thirty years later,
Speaker 6: twenty five years later, and it sounds ridiculous. So in
Speaker 6: moments like these, are trying to be maybe a little
Speaker 6: bit modest about what I don't know, and try and
Speaker 6: be a little bit you know, humidity is the word,
Speaker 6: maybe Ramo, just you know, try and have some humility
Speaker 6: about this AI moment. Dan, do you think we need
Speaker 6: a bigger dose of humility about how big this could be?
Speaker 7: I mean, I think it's even going to be bigger
Speaker 7: than the street is even anticipating. And I think what
Speaker 7: we saw from Microsoft and Google just further confirms what
Speaker 7: we saw from in video. I mean, the used cases
Speaker 7: are exploding across the board. And if I look at
Speaker 7: this as a nineteen ninety five moment, biggest trend information
Speaker 7: that we've seen in tech in thirty years, and I
Speaker 7: think that's why this is just what's going to lead
Speaker 7: Obviously spite fed and MACA, it's the star of a
Speaker 7: new tech bull market in my opinion.
Speaker 5: There is the nuance though, when people start to dig
Speaker 5: into what does AI mean in which areas are the
Speaker 5: investable and most lucrative areas. Is it going to be
Speaker 5: generative AI where basically you can go to any retailer,
Speaker 5: put your avatar and try on clothes and then order things,
Speaker 5: or is it something else? What are you looking for
Speaker 5: to determine who the winners are going to be?
Speaker 4: Yeah?
Speaker 7: Well right now New York City cab driven is the
Speaker 7: first derivative nvidiam Microsoft, and I think that's been proven
Speaker 7: again again top of the mountain. Now it's all about
Speaker 7: who's second, third, fourth derivative. It's really software and chips.
Speaker 7: When I look at names like Salesforce, dot Com, Mango, dB,
Speaker 7: you look at Snowflake, I think that's really just tip
Speaker 7: of the iceberg. I think others across the chip ecosystem
Speaker 7: and what we're really starting to see now it's all
Speaker 7: about use cases. That that's why right now, investors they're
Speaker 7: just looking. If you look at UH, it's expensive on
Speaker 7: next year's number, it's really looking out two, three, four years.
Speaker 7: I believe this from everything we're hearing. It could be
Speaker 7: eight to ten percent of budgets next year for it
Speaker 7: from less than one percent today.
Speaker 5: So if you take a look at the price action
Speaker 5: today with Microsoft shares lower because they didn't necessarily deliver
Speaker 5: on the profitability of AI yet they can't. They're investing
Speaker 5: still and they're not delivering as fast of some sort
Speaker 5: of investment on the cloud space. What would you say
Speaker 5: to investors in terms of how they should look at
Speaker 5: this valuation, how they should look at some of the
Speaker 5: rejiggering of the top executives and put a price target
Speaker 5: on that.
Speaker 7: Yeah, it's a great and that was all my conversations
Speaker 7: last night and even earlier this morning with institutional investors. Look, Nadella,
Speaker 7: the tactician, the hall of famer. I mean, this is
Speaker 7: just getting the popcorn out ready for what I view
Speaker 7: as actually an accelerating growth story. They're not gonna they're
Speaker 7: not cook style, gonna give their playbook away. They're going
Speaker 7: to keep this conservative and I view, which is the
Speaker 7: sandbag special as they continue to just beat numbers over
Speaker 7: the next few course, which is why I believe Microsoft
Speaker 7: a year from now it's gonna join Apple in that
Speaker 7: three trillion dollar I think more three point five trillion.
Speaker 1: What I see in the year George Hammond Wrights in
Speaker 1: the Ft today about the AI crew.
Speaker 2: He's got anthropic Google, Microsoft and open AI. Okay, I
Speaker 2: guess that's the new industry organization around this.
Speaker 1: The ludites are going to show up.
Speaker 2: We're gonna do a nineteenth century redux here of the
Speaker 2: damage of AI. How do these giant companies with a
Speaker 2: profitability they have handled the twenty first century ludites?
Speaker 7: Look, I think stronger. You're gonna get stronger. There'll be
Speaker 7: some self regulation, but ultimately, if you look from a
Speaker 7: regulatory perspective, they're going twenty miles an hour in the
Speaker 7: right lane. Technology is going one hundred in the left lane.
Speaker 7: So I think, really the stronger to get stronger. If
Speaker 7: you look at Microsoft, you look what we see out
Speaker 7: of alp BET. That was a huge fux. The muscles
Speaker 7: carter for them.
Speaker 1: Oh, I like the CFA talk.
Speaker 7: It was a huge fux and muscles quarter and that's Look,
Speaker 7: this is this is one if you're if you're a
Speaker 7: bear now coming a little out of hibernation mode, thinking
Speaker 7: that you want to look at me, if you're a
Speaker 7: bear coming a little out of hibernation mode. I think
Speaker 7: ultimately what you saw from tech earnings, which is more
Speaker 7: and more bullish, okay, And I think next week is
Speaker 7: going to be the golden moment that.
Speaker 2: Next Thursday'll say I talk. I want to know about
Speaker 2: next Thursday. Amazon and Apple. Amazon's not in an list
Speaker 2: of AI companies. I think they're in the cloud. Apple
Speaker 2: certainly isn't. How does Apple embrace AI? How did they
Speaker 2: get on this list of these companies?
Speaker 7: Cook continues to play chess, others play checkers, And I
Speaker 7: think where we believe it's going to be an AI
Speaker 7: driven app store. German's hinted at some of the AI technology,
Speaker 7: but I ultimately believe the next one to two years
Speaker 7: that's just going to be a further penetration story adds
Speaker 7: thirty to forty dollars some of the part.
Speaker 2: And if they took their margins down the income statement,
Speaker 2: how many beefs can Apple pick up on uh ebitdal
Speaker 2: Let's say out of AI five.
Speaker 7: Years out, AI combined with chips you're talking to incremental
Speaker 7: three four hundred BIPs. That's just three to four hundred
Speaker 7: BIPs improvement because they own their ecosystem plus AI okay,
Speaker 7: being pure software.
Speaker 1: Quickly do they.
Speaker 2: Get the four trillion dollars market cap off of three
Speaker 2: hundred bip improvement.
Speaker 7: I believe we will be sitting here in early twenty
Speaker 7: twenty five getting ready for Super Bowl and Apple will
Speaker 7: be four trillion.
Speaker 6: Okay, brief so I acknowledged it in the late nineties,
Speaker 6: there were some real things that we didn't appreciate. We
Speaker 6: also got sold a lot of bs. So can you
Speaker 6: explain to me? And I wish we could curse on
Speaker 6: this show, could you explain to me AI generated App Store?
Speaker 6: What is that?
Speaker 7: So that's ultimately going to be whether it's health, fitness,
Speaker 7: any types of apps developers are going to build, They're
Speaker 7: going to be AI generated with all what I'll called
Speaker 7: generated AI technology that we built within the app store,
Speaker 7: So ultimately any Apple user will be able to download
Speaker 7: those apps for developers, just like we have the App
Speaker 7: store today. The next version of that is going to
Speaker 7: be an AI driven app store that I believe Coupertino
Speaker 7: will ultimately come out and I think they're actually starting
Speaker 7: the concept of it with you know, Vision pro and
Speaker 7: ultimately a new form factor.
Speaker 6: In the meantime, it's not gonna be a bad that
Speaker 6: it's going to be about how many iPhones they sell.
Speaker 6: For a long time, you've been bullished on this upgrade
Speaker 6: cycle that kind of never was and it's always been
Speaker 6: a justification for why this stock's got to go further.
Speaker 6: So a lot of people that haven't upgraded, they're going
Speaker 6: to buy the iPhone thirteen, fourteen, fifteen, and then it
Speaker 6: kind of remains the same and pretty staple what's coming
Speaker 6: on there.
Speaker 7: Street numbers are moved up fifteen percent of iPhone. So
Speaker 7: the thing is the Bears ultimately thought sub two hundred million,
Speaker 7: but yet they sold two hundred twenty five million. Because
Speaker 7: they continue and keen the tacticianers as well as anyone,
Speaker 7: they continue to underestimate the golden install based Cooper Tino,
Speaker 7: which is why I view this as a mini super
Speaker 7: cycle playing out. And I think Apple next Thursday, Cook
Speaker 7: on the call, that's just going to be further what
Speaker 7: I've used fuel on the engine for this upgrade cycle.
Speaker 2: Here's the upgrade cycle. I just took a photo of
Speaker 2: Dan's shoe. The saturation on this phone is so superior
Speaker 2: to anything.
Speaker 5: And it still doesn't It doesn't care.
Speaker 7: Sure, and look at that camera tech, the technology and
Speaker 7: the chip.
Speaker 6: Isn't the Samsung camera betsa yeah.
Speaker 1: But that this is a really important point.
Speaker 2: Overnight we got thirty When does Samsung just give it up?
Speaker 1: The report overnight was not good.
Speaker 7: Look Samsung, ever, it's like Uphill Battle, another sort of
Speaker 7: black eye for them. And I think ultimately it's just
Speaker 7: it continues to be more and more share games for Apple,
Speaker 7: and I think, look Samsung, it reminds you know, it
Speaker 7: just it's a continued struggle that they have again again.
Speaker 6: Then it's gonna catch up. Then we're gonna do this
Speaker 6: again in the next way. I'm gonna I'm looking forward
Speaker 6: to it. Thank you, buddy.
Speaker 2: I'm gonna put this out on Twitter ives unfiltered, unfiltered.
Speaker 6: Yeah, it's just a picture of a sneaks Yeah, okay,
Speaker 6: then nice of wet push.
Speaker 2: This is the conversation of the day. If you are
Speaker 2: in Local twenty five in Boston and you grew up
Speaker 2: with three generations of teamsters, and.
Speaker 1: Then you take on all of what we know, all
Speaker 1: of the.
Speaker 2: Decades and decades of history of the Teamsters, and you
Speaker 2: revolutionize unions in America. You come to a moment like
Speaker 2: we saw yesterday with big brown Ups. Sean O'Brien has
Speaker 2: provided the leadership on this. He's General President of the
Speaker 2: International Brotherhood of Teamsters and joins us this morning. Sean,
Speaker 2: congratulations on this pre vote agreement, this handshake agreement you
Speaker 2: have with UPS. In your comments and others, you say
Speaker 2: Amazon is next.
Speaker 1: Where do you move.
Speaker 2: From this successful agreement to the next transportation company? Is
Speaker 2: it Amazon?
Speaker 4: Amazon's definitely going to be a target to organize. We're
Speaker 4: going to take this historic agreement and use it as
Speaker 4: a template to show the Amazon work what they will
Speaker 4: receive when they joined the teams to union and we
Speaker 4: organize them.
Speaker 2: The significance of this agreement speaks to a new Teamsters.
Speaker 2: Does all of America, including I'm going to call capitalist America,
Speaker 2: misunderstand the modern labored dynamic?
Speaker 4: Well, I'm not sure if they misunderstand it. But the
Speaker 4: one thing that we were able to achieve with this
Speaker 4: agreement is that we showed the entire country what you
Speaker 4: can do when you have the support of your rank
Speaker 4: and file members. I think we put some more energy
Speaker 4: into the labor movement. But also we got the largest
Speaker 4: deal done without having to strike the company, So I
Speaker 4: think we added credibility to the process, and also more importantly,
Speaker 4: we set the tone for what organized labor can achieve
Speaker 4: against Corporate America and these high profits. And we want
Speaker 4: to be rewarded. Our members need to be rewarded.
Speaker 5: Shaan, you said that UPS blinked in a statement to
Speaker 5: your three hundred and forty thousand members. Do you get
Speaker 5: the sense that corporations are more willing to blink now
Speaker 5: because of the labor shortages, that your negotiating power is
Speaker 5: stronger than it's been in a very long time.
Speaker 4: Yeah, I think we've got We've got tremendous leverage right
Speaker 4: now because you know, we can leverage our ability. We've provided.
Speaker 4: We've provided tremendous support during the pandemic, providing goods and services,
Speaker 4: and I think now it's the time to capitalize. I mean,
Speaker 4: we fought too long. We kept seeing CEO pay increasing
Speaker 4: and stock options increasing, and our members pay, not just
Speaker 4: in the Teamsters Union but throughout the labor movement, we're
Speaker 4: not increasing. So I think right now we have the
Speaker 4: ability to really really showcase and be the model and
Speaker 4: encourage other unions to stand up and fight.
Speaker 5: How do you decide, Sean, when you're negotiating what the
Speaker 5: threshold is between workers' rights and we're pay increases versus
Speaker 5: the health of a company, of what's sustainable over a
Speaker 5: longer period of time, given that prices are increasing and
Speaker 5: this is an inflationary environment.
Speaker 4: Well, I think, first off, I mean, we had a
Speaker 4: great situation here with UPS because of our members and
Speaker 4: their hard work. They made one hundred billion dollars. So
Speaker 4: a healthy company should share the profits and should share
Speaker 4: the wealth. Look, we take every negotiation, we do a
Speaker 4: deep dive. We're a lot more sophisticated than we were
Speaker 4: thirty or forty years ago, So we obviously study the finances,
Speaker 4: study the projections, and make certain that you know, we
Speaker 4: understand what we can get out of these companies. But
Speaker 4: you know, far too long. You know, everybody uses the
Speaker 4: economy saying hey, we could probably go into a recession,
Speaker 4: and that's all well and good. We always come out
Speaker 4: of bad situations at some point in time. So we
Speaker 4: always just stay focused on what our members need. We're
Speaker 4: not too concerned about Wall Street or anything else. What
Speaker 4: is going to help our members buy and provide middle
Speaker 4: class opportunities for their families.
Speaker 2: Mister Brian in the time that we have left, I mean,
Speaker 2: your sons are involved in this. Your father was Local
Speaker 2: twenty five as well. You've lived this for your entire lifetime.
Speaker 2: How do we change the atomization of labor in America,
Speaker 2: the deunionization of America. Do you perceive a sea change
Speaker 2: with this agreement?
Speaker 1: Yeah?
Speaker 4: I think this agreement is going to be a template
Speaker 4: to show the entire workforce, union and non union what
Speaker 4: you get when you join a union. You're going to
Speaker 4: get wage increases, You're gonna get health and welfare, you're
Speaker 4: gonna get pension, but more potently going at dignitium, respect
Speaker 4: and a future. This agreement that we negotiated, you know,
Speaker 4: we protected against technology. We provided for full time job opportunities.
Speaker 4: That's the leverage that you have when you're working for
Speaker 4: the best contract in the industry, and we achieve that.
Speaker 2: Seana, you were just going to run out of time here.
Speaker 2: I want you to speak to the Bloomberg Surveillance office.
Speaker 2: There are a lot of fancy people, let's be blunt.
Speaker 2: They're probably less pro.
Speaker 1: Union than many What do unions.
Speaker 2: What do the teamsters bring to capitalists to provide for
Speaker 2: better productivity?
Speaker 4: Hey, we bring the best work for us in America.
Speaker 4: We prove that during the pandemic, not just in ups,
Speaker 4: but picking up rubbish, delivering groceries. We provided goods and services.
Speaker 4: We prove we're essential, and we're going to continue that
Speaker 4: post pandemic, and we've got the best workforce in America.
Speaker 2: Shawn O'Brien, congratulations. All I ask is after ups, you
Speaker 2: do something about the Red Sox Shawn O'Brien Local twenty
Speaker 2: five in Boston and also with the International Brotherhood of
Speaker 2: Teamsters there as well. Subscribe to the Bloomberg Surveillance podcast
Speaker 2: on Apple, Spotify and anywhere else you get your podcasts.
Speaker 2: Listen live every weekday starting at seven am Eastern on
Speaker 2: Bloomberg dot Com, the iHeartRadio app, tune In.
Speaker 1: And the Bloomberg Business app.
Speaker 2: You can watch us live on Bloomberg Television and always.
Speaker 1: I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keen,
Speaker 1: and this is Bloomberg