Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
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Speaker 1: You can also listen to our radio show at two
Speaker 1: pm Eastern Time on Bloomberg Radio or watch us on
Speaker 1: YouTube search Bloomberg Global News. Well, so much for the
Speaker 1: recent upbeat change in the stock market sentiment that two
Speaker 1: day equity rallies we just talked about here in the
Speaker 1: United States with Abigail really coming to an handle, though
Speaker 1: we're definitely off our loads of this session thanks to
Speaker 1: hot economic data pouring cold water on investor thinking that
Speaker 1: the global monetary tightening cycle was close to peaking, and
Speaker 1: we did feel like pigpiling on that thinking was the
Speaker 1: president of San Francisco fed Mary Daily, who stopped by
Speaker 1: Bloomberg headquarters. She caught up with our own Bloomberg News
Speaker 1: International Economics and Policy correspondent Michael McKee, who joins us
Speaker 1: here in our Interactive Brokers studio. And so we are
Speaker 1: all talking pivot and yet well we had to ask
Speaker 1: her about pivot because that's what's the main topic in
Speaker 1: the markets. It's interesting because we've seen markets get very
Speaker 1: schizophrenic about this. One week, they think the FED is
Speaker 1: going to cut back. Just last week, the FED was
Speaker 1: not going to cut rates at all. And now you've
Speaker 1: got a rate cut priced in starting in March. And hey,
Speaker 1: so I asked Mary Daily about that and uh, and
Speaker 1: the graph you can see on the w I r
Speaker 1: P function, the bar chart that shows these rate cuts,
Speaker 1: and she said, I'm not going to happen. Well, she's
Speaker 1: one of these classic data dependent FED non voting member
Speaker 1: this year voting member. But she's basically saying, look at
Speaker 1: core inflation, core inflation, it's pointing the wrong way. We're
Speaker 1: accelerating July to August, and we will get September a
Speaker 1: later date. That's a point where, isn't it. Yeah, here's
Speaker 1: what you said. I don't see that happening at all.
Speaker 1: I see us as raising to a level that we
Speaker 1: believe is restrictive enough to bring inflation down and then
Speaker 1: holding it there until we see inflation truly get close
Speaker 1: to two percent and and demonstrate that price stability is restored.
Speaker 1: So basically, Mary Dale, president of San Francisco, FETs so basically,
Speaker 1: stop it, right, everybody. Yeah, I've actually been warning us.
Speaker 1: Every time we've said it. You're like, no, there's no pivot. Yeah,
Speaker 1: there's no pivot. And I asked her if we debate
Speaker 1: constantly for what they're gonna do with the next meeting.
Speaker 1: And I asked her about that, and she said, it's
Speaker 1: not how much we do at each meeting, it's where
Speaker 1: we get to and then how long it stays there.
Speaker 1: She wants the the terminal FED funds rate. She thinks
Speaker 1: it's gonna be somewhere between four and a half and
Speaker 1: five percent, and that they're going to try to get
Speaker 1: to percent by the end of this year and then
Speaker 1: they leave it there until they see significant progress. Uh,
Speaker 1: if inflation should collapse, then maybe we do get a pivot.
Speaker 1: She talks about being nimble. I think, yeah, nimble, but resolute.
Speaker 1: And she said, you know, people, I go out to Boise, Idaho,
Speaker 1: and people don't know what I mean. By that, and
Speaker 1: she said, we are focused on bringing inflation down. That
Speaker 1: is what we're going to do. But how we do it.
Speaker 1: We can be nimble and we can react. You know,
Speaker 1: if there's some issue in the economy, we don't have
Speaker 1: to raise rates as fast, or we don't have to
Speaker 1: raise rates that month or whatever. It's just going to
Speaker 1: be a question of keeping an eye on the economy,
Speaker 1: but also keeping your eye on the main goal, which
Speaker 1: is bringing down inflation. So we know you had to
Speaker 1: ask about the pivot because of the rally that you've seen,
Speaker 1: certainly in the equity markets. But what was top of
Speaker 1: mind for you, Mike, who follows this day in and
Speaker 1: day out. Well, I think that was the biggest Uh.
Speaker 1: The idea that she communicated, the idea that no, we're
Speaker 1: not we're not watching the markets for signals for what
Speaker 1: we're going to do, We're watching inflation. Uh. She said, Basically,
Speaker 1: what the Fed wants to see, and this is something
Speaker 1: to keep in mind for Friday, is the economy moderating.
Speaker 1: That we see jobs, job gains start to slow down,
Speaker 1: and we see inflation, particularly core inflation, start to slow down.
Speaker 1: It doesn't go away immediately, but you see a process underway,
Speaker 1: and then they'll know they're doing the right thing and
Speaker 1: then they can um sort of stop where they are
Speaker 1: and leave it where they are until they see there's
Speaker 1: enough restraint on the economy to get this inflation problem
Speaker 1: out of the way. So today's economic data, how does
Speaker 1: that play into the thought? Uh, you know, it kind
Speaker 1: of goes against the idea that she was talking about
Speaker 1: the the I S M Services numbers today, but she
Speaker 1: did point out the Jolts numbers yesterday. She said she's
Speaker 1: been talking to corporations all over the West Big District
Speaker 1: and they've been saying that they are cutting back on
Speaker 1: their hiring and in many cases and ed you know
Speaker 1: this better than anybody, the tech companies are just they're
Speaker 1: not gonna hire anymore this year. They're done, and some
Speaker 1: of them are actually talking about some layoffs. Uh. She said.
Speaker 1: What happens is the companies go to these online firms
Speaker 1: with resident post resumes and job openings, and they signed
Speaker 1: a three month contract and they don't say, all right,
Speaker 1: call the firm up and cancel a contract a month early.
Speaker 1: They just let it run out, which is why job
Speaker 1: postings have remained high. And she said she thinks they've
Speaker 1: been telling her for months that this is going to happen.
Speaker 1: She thinks that's what we saw in yesterday's data, that
Speaker 1: the companies are seriously starting to slow down on their hiring. Uh.
Speaker 1: And concomminately, she said, don't look at jobless claims because
Speaker 1: that's the last thing that's going to happen in this economy.
Speaker 1: There's still so many openings that nobody's talking about layoffs.
Speaker 1: They're just talking about not hiring. You've been very kind
Speaker 1: over the is to take me to meet Mary Daily,
Speaker 1: and she's one of these sort of Fed Inaction type figures.
Speaker 1: She goes out into the real world and she seems
Speaker 1: to be saying, here, we recognize the pain of everyday Americans,
Speaker 1: but they also need to know that the FED is,
Speaker 1: as you said, resolute in fighting inflation, not necessarily listening
Speaker 1: to their pain and how they decided to take action.
Speaker 1: She talks about going to a Walmart in the San
Speaker 1: Francisco Bay area, um, just just in a sweatshirt and jeans.
Speaker 1: She told them she was an economist, but she didn't
Speaker 1: tell them who she was, and she walked around interviewing
Speaker 1: customers and they all said they're much more worried about
Speaker 1: inflation than they are about jobs. More worried about inflation
Speaker 1: rather than jobs. All right, great reporting has always in
Speaker 1: a great interview Bloomberg News International Economics and Policy Correspondent
Speaker 1: Michael McKee on Bloomberg. You're listening to Bloomberg Business Week
Speaker 1: with Carol Masser and Bloomberg Quick Takes. Tim Stenovic on
Speaker 1: Bloomberg Radio. We mentioned as headlines that the judge in
Speaker 1: the Elon Musk Twitter trial saying she hasn't received any
Speaker 1: filing yet to halt the case. Uh, and that's that
Speaker 1: October seventeenth trial is still on for now. So I
Speaker 1: feel like Ed La Loow, you've been covering this story.
Speaker 1: You're here the editor Bloomberg Business Week, also in our studio.
Speaker 1: It's a story that keeps on giving, just when we
Speaker 1: think we're getting to an end. Yeah. I mean, as
Speaker 1: it stands, I'm still off to Delaware. But what I
Speaker 1: would say is language is important. Right, So must said,
Speaker 1: you know what, I will buy Twitter for fifty four
Speaker 1: dollars twenty cents to share? What did Twitter say? Twitter said,
Speaker 1: we're committed to closing the deal at fifty four dollars
Speaker 1: twenty cents to share nowhere did they say we accept
Speaker 1: your re offer, Mr Musk. You know, so we've been
Speaker 1: waiting to see what they'll do, whether they drop proceedings
Speaker 1: against him, and now we know they are yet to
Speaker 1: do so. All right, we also want to bring in
Speaker 1: and we mentioned to Ael Webber is with us the
Speaker 1: editor of Bloomberg Business Week. So too is Bloomberg Sarah Fryer,
Speaker 1: who's writing about Elan's turnabout as well. She's Bloomberg News
Speaker 1: Big Tech team leader, author of No Filter, the inside
Speaker 1: story of of Instagram. Excuse me, she joins us on
Speaker 1: the phone from San Francisco. But Uh, Jill, I mean,
Speaker 1: if you had to put this story to bed, what
Speaker 1: would you do right now? You call, you call Sarah,
Speaker 1: you say, what's going on? Um? Uh, there's a piece
Speaker 1: of art that we commissioned to go with Sarah's story
Speaker 1: that is the art of the moment. It's a tesla
Speaker 1: covered in bird poop. Um and uh, it's awesome and
Speaker 1: it's perfect. In the headline. My headline for it is
Speaker 1: Twitter's turn And I think you know, and I think
Speaker 1: this is also, um what what Sarah ultimately rights here is.
Speaker 1: For a while, it's been sort of like, who's actually
Speaker 1: in charge right here? Who who's Who's who got the
Speaker 1: high ground? And I think what this shows is that
Speaker 1: Twitter now officially has the high ground. Um. So Sarah
Speaker 1: talked to us about how you expressed that idea. Well,
Speaker 1: I think about what Elon Musk is offering here is
Speaker 1: what he's already offered. He's already said that he would
Speaker 1: the company for ford for a billion. This doesn't give
Speaker 1: Twitter anything that they didn't already have. So they have
Speaker 1: no reason to take him out as a word, because
Speaker 1: let's look at how his word has has happened, you
Speaker 1: know how, It's how it's resulted in prior occasions. Right,
Speaker 1: he said he would join Twitter's board, and then he
Speaker 1: reneged on that shortly thereafter, um, when he got in
Speaker 1: an argument, and and then he said he would buy
Speaker 1: the company, and then a couple of weeks later he
Speaker 1: said he wouldn't. So I think that Twitter really has
Speaker 1: no reason to trust him. And I don't see a
Speaker 1: scenario where they are going to, um just take take
Speaker 1: this new offer and call it a day. I think
Speaker 1: that they're they're going to be really careful and and
Speaker 1: and um, you know, if they're wise that keep keep
Speaker 1: the lawyers involved. So the alternative headline doesn't go quite
Speaker 1: as well with the image that I proposed. But show
Speaker 1: me the money, right, absolutely, I mean I think that
Speaker 1: that is that's really the ticket here. I mean, we
Speaker 1: know the funding is in place. Um, we know that
Speaker 1: that everything is is as it should be. Um to
Speaker 1: close the deal. Um, nothing has really changed on that front.
Speaker 1: What has changed. It's been a you know, particularly embarrassing
Speaker 1: a few weeks for Elon Musk. Is private text messages
Speaker 1: have become public. Um, he's he's a table read of
Speaker 1: all of those text messages. There are just for like
Speaker 1: go through a mall, but anyway, go ahead. Oh my goodness,
Speaker 1: there's so many gems. But but yeah, I think I
Speaker 1: think there's that. But you know, he he is is.
Speaker 1: I talked to a lawyer today who said the most
Speaker 1: cynical view of this, this move from Elon Musk is
Speaker 1: that he is maybe trying to trying to pressure Twitter
Speaker 1: publicly into dropping the suit and then he might still
Speaker 1: not buy Twitter, and it might um, you know, find
Speaker 1: another another reason to like one of these stories, Joel,
Speaker 1: where you're like, this cannot get any more weird, and
Speaker 1: you walk into work on a Tuesday, and suddenly it
Speaker 1: gets more weird. But it is Sarah's point. We learned
Speaker 1: a lot from the discovery process. The text messages you
Speaker 1: wonder what we didn't learn, And this is part of
Speaker 1: our Bloomberg reporting what we we have found. If that
Speaker 1: deposition goes ahead and then it's filed as evidence, Joel
Speaker 1: later in the week, if the trial happens, perhaps you'd
Speaker 1: like to go to Delaware for us and find out
Speaker 1: well as its stands. As I say, I am going
Speaker 1: to Delaware. But I mean, and look like this. This
Speaker 1: is why it's like the best business story of the year.
Speaker 1: I mean, you think about where this started. I mean
Speaker 1: think about and you know, Matt Levine wrote this in
Speaker 1: his newsletter today, money stuff that you know, just from
Speaker 1: a money standpoint, like Morgan Stanley, this does not look
Speaker 1: good for Morgan Stanley the and you know, when when
Speaker 1: all this was proposed, it all sounded great and like
Speaker 1: we were in a completely different economic environment. Now he's
Speaker 1: in terms of the financing talking about the debt here right,
Speaker 1: that must lined up as part of his funding for
Speaker 1: the deer. And and so I think the conversation is
Speaker 1: um and how much bashing, you know, Twitter hasn't has
Speaker 1: endured here and you know, ultimately, Sarah, I thought the
Speaker 1: most interesting thing of that you had in the remarks
Speaker 1: ultimately is this scene that you you culminate with, which
Speaker 1: is this conversation that's happening at Twitter. Well, when this
Speaker 1: news happens, right, we'll take us there. So at Twitter,
Speaker 1: in my colleague Kurt Wagner, UM has many sources, sources
Speaker 1: of the company, and he found that they were listening
Speaker 1: of all things, to presentations from teams on our plan,
Speaker 1: which if this deal goes through, a total waste of time, UM,
Speaker 1: because Elon Musk has very different ideas about how to
Speaker 1: run Twitter. And what's interesting was you nobody really stopped
Speaker 1: to acknowledge that this news had just gone by. And
Speaker 1: I think that this is just a company that's used
Speaker 1: to being in limbo. This is this is UM you know,
Speaker 1: always they're always finding themselves at the center of some
Speaker 1: dramma or other. They have they've had activists on their board,
Speaker 1: they've shuffled through leaders, they've they've been in UM you know,
Speaker 1: acquisition flirtations in the past. So I think that these
Speaker 1: employees they're they're also UM. You think they can they
Speaker 1: can complain on slack or or make means of the situation.
Speaker 1: But I do think that, um, you know, these really
Speaker 1: big decisions are are probably gonna wait until we actually
Speaker 1: know the rayon must in this company. Yeah. I was
Speaker 1: told by a sore Sarah, as you know that in
Speaker 1: the first fifteen minutes of that meeting, paragagrole, the CEO
Speaker 1: of Twitter, made a presentation and then disappeared from the
Speaker 1: meeting and for two or three hours, employees sat there
Speaker 1: while the news was breaking all around them and nothing,
Speaker 1: you know, there was silence, you know, Sarah, what happens
Speaker 1: next very quickly? Well, I think we have to see
Speaker 1: what how Twitter respond. And the two sides were talking today. Um,
Speaker 1: whether an agreement will come out of that, we might
Speaker 1: hear today, we might not. Um. The judges says she
Speaker 1: has not received the filing for a request to stay
Speaker 1: in the case, So that means that, um, you know,
Speaker 1: things are not all settled. Um, we we still have
Speaker 1: some Twitter clearly still have some some you know, discussions
Speaker 1: they need to have to be to their satisfaction. It's
Speaker 1: like an episode of Billions. Oh, I mean, let's have
Speaker 1: our own show about Way Past the Fall. My my
Speaker 1: most favorite thing here is Delaware. Yeah, Delaware, alright, Sarta Fire,
Speaker 1: thank you so much. As always big tech team leader
Speaker 1: Bloomberg News, also author of No Filter, the inside story
Speaker 1: of Instagram. These are the remarks this week Mars indeed
Speaker 1: alright in upcoming issue of the magazine. Of course, that
Speaker 1: was the voice of the editor of Blomberg Business Week, Weber.
Speaker 1: This is Bloomberg Radio. This is Bloomberg Business Week with
Speaker 1: Carol mat Sure and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. As we've talked about, I just got to
Speaker 1: pull up actually Twitter because with the market turnaround, I
Speaker 1: just want to see what Twitter is doing. Still down
Speaker 1: about one percent because there's still some uncertainty whether or
Speaker 1: not Elon Musk will cross the finish line when it
Speaker 1: comes to buying the company. Meantime, I love this, Ellen, Ellen.
Speaker 1: I feel like um Ed is flashing that new shiny
Speaker 1: thing which he is good about doing, and it's called
Speaker 1: what X the everything app Yeah. I mean we always
Speaker 1: talk about this in the context of Tesla, right, that
Speaker 1: one of his skills is keeping everyone looking to the horizon,
Speaker 1: forget what's happening right now, you know, look away, look away,
Speaker 1: from honestly X. What is X? I don't know? Do
Speaker 1: you know? Does our next guests? No? I guess we
Speaker 1: should find out. All right, Tom Giles, come on in,
Speaker 1: an executive editor of Bloomberg Technology. He's with us from
Speaker 1: our San Francisco beer. All right, Tom, it's so great
Speaker 1: to have you here, the three of us. Uh, fun conversation.
Speaker 1: So what is X? Well, based on yesterday's tweet, he's
Speaker 1: calling it X the everything app. It makes me think
Speaker 1: of the everything store, right that Amazon wants to provide
Speaker 1: all of these services and sell all of these items
Speaker 1: to everybody in around the world. What he's talking about,
Speaker 1: what he's alluding to, is some kind of a super app.
Speaker 1: It's a one stop shop where you can go and
Speaker 1: do much more than what you can do on Twitter. Now.
Speaker 1: It's already a very useful tool for those of us
Speaker 1: who are who are who are big Twitter users, know
Speaker 1: what we're up to, um stuff we're reporting on. But
Speaker 1: he wants to make it more useful. And one of
Speaker 1: his one of his complaints, and he has many complaints
Speaker 1: about Twitter, is that he wants it to be more
Speaker 1: useful to people. And what he's what he's alluding to
Speaker 1: is the way that companies like ten Cent in China
Speaker 1: have used whee chat and turned it into something called
Speaker 1: a super app. That's something like I said, at one
Speaker 1: stop shop, where you can go and do much more
Speaker 1: than communicate. You can you know, you can have your
Speaker 1: your d ms with folks, you can have group chats,
Speaker 1: but you can also do things like book cars. So
Speaker 1: it plays plays the role of an uber. Or you
Speaker 1: can use it to order in food. Uh so it's
Speaker 1: your grub hub. You can use it for a whole
Speaker 1: host of of of services. And this is something that
Speaker 1: has taken off in parts of Asian certainly certainly gained
Speaker 1: a lot of popularity in China where tent set is,
Speaker 1: where we chat is everywhere. And he would certainly, uh,
Speaker 1: he'd certainly love to have Twitter have that same kind
Speaker 1: of usefulness. I mean, to me, this is logical because
Speaker 1: I believe I'm right and saying must said he wanted
Speaker 1: to grow twitters use a base from around two million
Speaker 1: now to a billion, and you wonder how is he
Speaker 1: going to get there? I mean, we use Twitter actively,
Speaker 1: much of the press does, and the media, but you
Speaker 1: wonder who the new audience for Twitter will be. I mean,
Speaker 1: what other concrete proposals that we have from Musk. Tom Well,
Speaker 1: he's talked about you know, he's talked about you know,
Speaker 1: he talked he's compared to TikTok and wanting there to
Speaker 1: be more functionality in terms of the stuff that you
Speaker 1: share on the blogging service. Right now, Twitter is still
Speaker 1: very much a tool that we use for short, short
Speaker 1: tweets that are you know, full of our words and
Speaker 1: sometimes there's images and sometimes there's video. But it's not
Speaker 1: a big video sharing site, um, you know, but there's
Speaker 1: a lot of things. I mean, remember where Elon Musk
Speaker 1: got his start, which was in payments, which is in
Speaker 1: you know, revolutionizing the way people send and receive money.
Speaker 1: So imagine, if you will, if if he has his way,
Speaker 1: and if he you know, can can can unleash his
Speaker 1: engineers and get them to you know, make the products,
Speaker 1: uh that that would make it more effective. Think about
Speaker 1: what if what if Twitter was more of like a
Speaker 1: pain it's company where you could use it to you know,
Speaker 1: to carry out transactions in the way that we currently
Speaker 1: use Venmo or PayPal or some of these other services.
Speaker 1: If you could do other you know, carry out other
Speaker 1: financial transactions with it, Um, you know, and I mean
Speaker 1: the other thing that the other thing that people you know,
Speaker 1: whach tent spent is also a big entertainment purveyor of entertainment.
Speaker 1: We don't think of Twitter as being a platform for
Speaker 1: that kind of thing. We think of that more, you know,
Speaker 1: that's more YouTube, and to some degree even Facebook. But
Speaker 1: uh and and obviously uh, you know, Apple and some
Speaker 1: of the other some of the other sellers of devices
Speaker 1: that we have. The problem that I have with this
Speaker 1: concept of a super app is, while it has taken
Speaker 1: off in parts of Asia, in the United States, we
Speaker 1: become really really accustomed to having a whole slew of
Speaker 1: apps on our phones. We're very comfortable with it. I
Speaker 1: find it kind of clunky, and I love the idea
Speaker 1: of something more like a super app. The problem is,
Speaker 1: we're really entrenched, and we've really become accustomed to having
Speaker 1: you know, hundred apps on our phone and just you know,
Speaker 1: scrolling right and left to get from app to app.
Speaker 1: We've grown accustomed to it, even though it's clunky, even
Speaker 1: though it's inconvenient. If he could revolutionize that, it would
Speaker 1: certainly be a sea change in the way at least
Speaker 1: people here in the United States use our smartphones. Yeah,
Speaker 1: I mean, I agree with you. I'd love to have
Speaker 1: like some streamlining have so many apps. But I do
Speaker 1: wonder like, how do you move from where we are
Speaker 1: today to kind of an aggregator to unless to some
Speaker 1: extent where it's one stop shopping. Um, great stuff. Tom Giles,
Speaker 1: thank you so much. We always appreciate when you can
Speaker 1: find time for us. He's Bloomberg Technology executive editor, joining
Speaker 1: us from our San Francisco bureau. But I do kind
Speaker 1: of a blown away again by Ellen and his ability
Speaker 1: to get us to be having a conversation about something else.
Speaker 1: Tom leads our coverage of TACH. He leads the team,
Speaker 1: and we're already looking to the what next. We're not
Speaker 1: really you're what now? You know those headlines that the
Speaker 1: trial is still going ahead. We're not done yet. We're
Speaker 1: not done yet. I really want to know about that
Speaker 1: white robot, that humanoid. Let's stick stick on topic, the
Speaker 1: human in the body. Oh my gosh, you can't make
Speaker 1: this stuff up. You are listening and watching Bluebirg Radio.
Speaker 1: I'm bro journal now, but you let me drive? No,
Speaker 1: no, no no, no, please, I'll do the riding gravels. I
Speaker 1: want to drive it's a good question. This is the
Speaker 1: Drive to the Clothes on Bluebird Radio. All right, let's
Speaker 1: get to it, everybody. Just about a little under ten
Speaker 1: minutes left in today's trading session. You heard Charlie breakdown
Speaker 1: the numbers. We're just off our highs. We're seeing a
Speaker 1: little bit of selling in the last few minutes, but
Speaker 1: we're definitely off our loads of the session. Call it
Speaker 1: for the most part, unchanged, but slightly lower when it
Speaker 1: comes to those major equity averages. So let's get to
Speaker 1: the Drive to the clothes. Aaron Kennon is back. He's
Speaker 1: co founder and chief executive officer at Clear Harbor Asset Management,
Speaker 1: roughly over a billion in assets under management. On the
Speaker 1: phone from Stanford, Connecticut. Hey, Aaron, good to have you here.
Speaker 1: Ed lud Low is in for Tim on this Wednesday.
Speaker 1: Let's talk about um, the markets. Do you feel like
Speaker 1: we are seeing a market capitulation at this point, that
Speaker 1: maybe we bottomed out when it comes to equities. Well,
Speaker 1: I certainly hope so, Caroline d but I fear that
Speaker 1: that may not be the case. When you know, we
Speaker 1: sort of look at the historic analog of what tends
Speaker 1: to happen when markets find bottoms and bear markets, and
Speaker 1: usually that means the FED is stopped tightening and they
Speaker 1: are actually starting to reduce their FED funds rate. It
Speaker 1: usually means that the interest rate curve is positive and
Speaker 1: nicely positive. And usually there's some sort of panic um
Speaker 1: embedded in the market where valuations cut through sort of
Speaker 1: longer term averages. And we haven't really seen that. We've
Speaker 1: seen a correction and evaluations, but we haven't sliced through
Speaker 1: those averages. So somewhat cautious there. And on the bond side,
Speaker 1: you know, probably a little more just incrementally constructive. You know,
Speaker 1: when you look at the inflation adjusted rates of return,
Speaker 1: real rates are positive by about a hundred and fifty
Speaker 1: basis points now, and if we're sitting here in December
Speaker 1: thirty one, there were there were negative by about a
Speaker 1: hundred ten basis points, and so there's certainly more cushion
Speaker 1: and there is an alternative on the margin to two
Speaker 1: equities at least here in the short term. Yeah, looking
Speaker 1: at the yield on the tenure pushing up by around
Speaker 1: twelve basis points is following kind of push hard and
Speaker 1: yields in Europe earlier he Aaron for you how much
Speaker 1: of this is a story of good data bad news
Speaker 1: in the context of the FED. We've kind of been
Speaker 1: talking about this all day on Bloomberg Radio and television. Yeah,
Speaker 1: it's interesting. I mean, you know, day to day earlier
Speaker 1: this week that certainly seemed to play out where we
Speaker 1: had the jolt status suggesting that maybe there was some
Speaker 1: softening in the employment side of the docket. And then
Speaker 1: we saw the equity market surge and the dollar was
Speaker 1: was weakening too over the last couple of days, which
Speaker 1: certainly was a tailwind too. I think the equity and
Speaker 1: risk on trade, but you know today is a little
Speaker 1: different yet. I s M services that were stronger than
Speaker 1: expected in the markets on changed and bonds are actually
Speaker 1: selling off in price higher and yield. So but I
Speaker 1: do think the longer term trend is what you're alluding to,
Speaker 1: which is the FED is looking for evidence that the
Speaker 1: employment picture is indeed softening and that there's a trend
Speaker 1: line to it. We'll see, of course pay rolls on Friday, um.
Speaker 1: But they're also looking for the economic data to play through,
Speaker 1: and that's been very mixed. We saw I s M
Speaker 1: manufacturing earlier this week, which was weaker than anticipated, and
Speaker 1: then of course the services number today was stronger. So um,
Speaker 1: you know, well, we'll have to see there. There's certainly,
Speaker 1: you know, caught between a bit of a rock and
Speaker 1: a hard place, and and they know there are reputations
Speaker 1: on the line. They probably entered the game of raising
Speaker 1: rates a little too late and they certainly do not
Speaker 1: want to be accused of pulling the rip cord on
Speaker 1: their tightening exercise too early. So does that mean we're
Speaker 1: in a recession, will be in a recession, or I
Speaker 1: don't know, how do you see that side of the conversation. Well,
Speaker 1: you know, I I we do debate that question. We
Speaker 1: have had two consecutive quarters of negative GDP growth, so
Speaker 1: you know that tends to be the definition. Um, some
Speaker 1: refer to that as a technical recession and others consider
Speaker 1: it an unofficial one. We'll have to see what the
Speaker 1: NBR says later on on that front. But what I
Speaker 1: do think, you know, we need to be thinking about is,
Speaker 1: you know, where where is the trend for earnings. We
Speaker 1: haven't seen earnings roll over yet. There's an anticipation that
Speaker 1: that's going to hurt, that's going to occur in the
Speaker 1: quarters ahead, and how will the markets react to that,
Speaker 1: and will they get ahead of it? Is this going
Speaker 1: to be a shower recession or a deep recession? And um,
Speaker 1: you know, certainly there there's there's lots of sort of
Speaker 1: varying opinions around that particular point. Hey guys, just a
Speaker 1: kind of public service announcement, and then ask that one
Speaker 1: just ticking into the red down two tents of one percent,
Speaker 1: joining other major industries. That is a pretty short lived
Speaker 1: late rally in the session, with about five minutes left
Speaker 1: to go in trading. It's interesting, is recession priced in?
Speaker 1: You know, we've kind of seen earnings expectations and equities
Speaker 1: come down aaron, but in a recession, typically reprice expectations
Speaker 1: right ten. And it doesn't feel like we actually have
Speaker 1: that full recession pricing, particularly in the technology sector, but
Speaker 1: other corners of the equities market. Yeah, I think a
Speaker 1: very shallow recession, I would argue, is probably priced in.
Speaker 1: But if we are seeing some sort of double digit
Speaker 1: decline and let's say SMP earnings next year, um, that's
Speaker 1: probably not yet priced into the markets. And um, and
Speaker 1: so you know, we'll see how we'll have to see
Speaker 1: how that how that trend plays out. Certainly there are
Speaker 1: headwinds to the strong dollar. It was nice to see
Speaker 1: earlier this week the dollar weekend, which I think is
Speaker 1: providing a bit of an airbag for the equity market here.
Speaker 1: But there's a lot of uncertainty outside the United States,
Speaker 1: which can on the margin, keep the dollar stronger even
Speaker 1: if our economic that is deteriorating. So where do you
Speaker 1: commit new money? Which is a question I like to
Speaker 1: ask everybody, and I am curious. You know, Aaron, is
Speaker 1: new money coming in? Uh? Well yes? And also on
Speaker 1: the on the first question, um, and you know, whenever
Speaker 1: there's uncertainty, there's there's concerned. Whenever there's concerned, there are
Speaker 1: um people that may feel as though they need better
Speaker 1: advice or they haven't had professional advice before. So we're
Speaker 1: in the business of providing that to two clients and
Speaker 1: creating you risk adjusted asset allocations and providing advice across
Speaker 1: their their financial life, whether it's an individual, family or
Speaker 1: non for profit organization. So for us, we're not heavily tactical,
Speaker 1: but if we are not at target on certain asset classes,
Speaker 1: we will make adjustments. I think at this moment where
Speaker 1: interest rates are making adjustments, extending duration on the margin,
Speaker 1: UH within fixed income makes sense. You can buy an
Speaker 1: investment grade portfolio that mature is at the end of
Speaker 1: two thousand and twenty four with a yield to maturity
Speaker 1: of almost five percent right now, and that has an
Speaker 1: average maturity of less than two years. You can buy
Speaker 1: something similar that matures at the end of two thousand
Speaker 1: twenty three with a yield to maturity of four seventy
Speaker 1: and has an average maturity of less than one year.
Speaker 1: You know, you have two year treasury yields at the
Speaker 1: beginning of this year at twenty basis points. Now we're
Speaker 1: at four fifteen. So we think the portfolio makes a
Speaker 1: lot more sense going forward here than it did at
Speaker 1: the beginning of the year. And so you know, on
Speaker 1: the margin, on a risk adjusted basis, we think if
Speaker 1: you're underweight, you're fixed income exposure, may want to may
Speaker 1: want to wake up and and reallocate on the margin. Also,
Speaker 1: mortgage backed securities Fannie and Freddy mortgages, you can buy
Speaker 1: them through an e t F for individually. Those are
Speaker 1: quite attractive, trading below below par right now with a
Speaker 1: five and a half percent coupon interest been compelling risk
Speaker 1: adjusted return opportunity or in our opinion, as you said earlier,
Speaker 1: there's an alternative stocks at this point because of the
Speaker 1: move up that we've seen in various fixed income and
Speaker 1: yields in particular. Aaron Kennon, co founder and CEO Clear
Speaker 1: Harbor Asset Management, joining us on the phone from Stanford, Connecticut.
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