1
00:00:05,519 --> 00:00:08,600
Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Carol Masser, along

2
00:00:08,640 --> 00:00:11,520
Speaker 1: with Manis Crowning and Katie Greifeld join us each day

3
00:00:11,560 --> 00:00:15,680
Speaker 1: for insight from the best in economics, geopolitics, finance and investment.

4
00:00:16,000 --> 00:00:19,479
Speaker 1: Subscribe to Bloomberg Surveillance on demand at Apple, Spotify and

5
00:00:19,560 --> 00:00:23,239
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot com,

6
00:00:23,280 --> 00:00:26,120
Speaker 1: the Bloomberg Terminal, and of course, on the Bloomberg Business App.

7
00:00:26,480 --> 00:00:27,960
Speaker 1: All right, well, let's see what our next guest has

8
00:00:27,960 --> 00:00:29,920
Speaker 1: to say, because she knows everything about the US consumer.

9
00:00:30,000 --> 00:00:32,280
Speaker 1: Dana Telsey is back with our CEO and chief Research

10
00:00:32,320 --> 00:00:34,920
Speaker 1: officer at Tells the Advisory Group. Dana, thank you so much,

11
00:00:35,040 --> 00:00:38,880
Speaker 1: so appreciate you coming on with us again. The US

12
00:00:38,880 --> 00:00:40,880
Speaker 1: to consumer, they do like to go out and shop

13
00:00:41,320 --> 00:00:44,440
Speaker 1: me included, how are we doing? What are we hearing

14
00:00:44,600 --> 00:00:47,480
Speaker 1: about the day after Christmas shopping? Are you getting any

15
00:00:47,479 --> 00:00:48,479
Speaker 1: early reads?

16
00:00:48,920 --> 00:00:51,400
Speaker 2: Yes, we just got an early read within the past hour.

17
00:00:51,560 --> 00:00:55,240
Speaker 2: MasterCards Spending Pulse came out with their data from November

18
00:00:55,320 --> 00:00:59,720
Speaker 2: one through December twenty fourth holiday season sales up three

19
00:00:59,760 --> 00:01:03,800
Speaker 2: point one percent, slightly below their forecast of three point

20
00:01:03,960 --> 00:01:07,080
Speaker 2: seven percent. And keep in mind it goes through December

21
00:01:07,080 --> 00:01:10,520
Speaker 2: twenty fourth. Many of the other forecasters out there either

22
00:01:10,600 --> 00:01:14,319
Speaker 2: go through December or through January. That's coming in at

23
00:01:14,319 --> 00:01:17,319
Speaker 2: the lower end of the three to five percent range.

24
00:01:17,560 --> 00:01:21,119
Speaker 2: But as you mentioned earlier, it's still up. Consumers are

25
00:01:21,160 --> 00:01:24,759
Speaker 2: still spending, We've got gift cards that need to be redeemed.

26
00:01:25,080 --> 00:01:27,760
Speaker 2: And overall, some of the interesting data that came out

27
00:01:27,760 --> 00:01:31,160
Speaker 2: of it is the fact that apparel was up, online

28
00:01:31,280 --> 00:01:35,520
Speaker 2: was stronger than in store sales, jewelry was down, and

29
00:01:35,600 --> 00:01:40,039
Speaker 2: restaurants that focus on experience. You saw restaurants and grocery

30
00:01:40,120 --> 00:01:40,640
Speaker 2: being up.

31
00:01:40,959 --> 00:01:43,080
Speaker 1: Yeah, I'm just coming back from an overseas trip and

32
00:01:43,080 --> 00:01:44,959
Speaker 1: that's what I did. I ate out a lot and

33
00:01:45,120 --> 00:01:47,640
Speaker 1: enjoyed it rather than shopping. But having said this, Dana,

34
00:01:47,640 --> 00:01:50,400
Speaker 1: you're the expert. You've seen the cycles, you know, coming

35
00:01:50,440 --> 00:01:52,600
Speaker 1: off the pandemic. What do those numbers tell you about

36
00:01:52,600 --> 00:01:53,920
Speaker 1: the health of the US consumer.

37
00:01:54,960 --> 00:01:55,440
Speaker 3: I think the.

38
00:01:55,440 --> 00:01:58,480
Speaker 2: US consumer is healthy. I think they're being very cautious

39
00:01:58,520 --> 00:02:01,720
Speaker 2: in their spending and change that I've seen even in

40
00:02:01,760 --> 00:02:05,640
Speaker 2: the past year, we've seen a moderation in spending across

41
00:02:05,680 --> 00:02:09,040
Speaker 2: all income levels, from high end to low end. That

42
00:02:09,280 --> 00:02:13,000
Speaker 2: spending is moderated with much more cautious and discerning consumer.

43
00:02:13,480 --> 00:02:15,720
Speaker 2: You think about some of the things that have changed.

44
00:02:15,960 --> 00:02:18,880
Speaker 2: The luxury goods spend is lower than what it has been.

45
00:02:19,240 --> 00:02:24,560
Speaker 2: You're seeing apparel being spend very discerning. Jewelry has been weak.

46
00:02:24,760 --> 00:02:28,520
Speaker 2: It's expected that in twenty twenty four jewelry will have

47
00:02:28,600 --> 00:02:31,239
Speaker 2: more of an uplift given we'll get back to more

48
00:02:31,360 --> 00:02:36,120
Speaker 2: normalization and engagements post COVID. But for the most part,

49
00:02:36,360 --> 00:02:41,600
Speaker 2: it's very discerning spend and the retailers planned appropriately. Discounts

50
00:02:41,600 --> 00:02:45,800
Speaker 2: and promotions weren't as severe as they had been pre pandemic.

51
00:02:47,320 --> 00:02:49,839
Speaker 4: Danni, good to see you this Morning's interesting that the

52
00:02:49,840 --> 00:02:51,639
Speaker 4: fresh data that you have is just a little bit

53
00:02:51,720 --> 00:02:55,720
Speaker 4: lighter than perhaps the estimates. Give us your take in

54
00:02:55,840 --> 00:03:00,040
Speaker 4: terms off hedonism as ubs of coled it never go

55
00:03:00,240 --> 00:03:03,160
Speaker 4: short the hedonism of the US consumer. When you see

56
00:03:03,160 --> 00:03:07,959
Speaker 4: credit card balances at over a trillion dollars on a

57
00:03:08,000 --> 00:03:13,720
Speaker 4: great proportional by Nie pay later, is that hedonistic behavior

58
00:03:14,200 --> 00:03:17,160
Speaker 4: that can cause us a problem in the near term

59
00:03:17,680 --> 00:03:19,880
Speaker 4: or do you just look through it and go, actually,

60
00:03:19,919 --> 00:03:22,640
Speaker 4: they're fully employed. We've got full employment. Things are good.

61
00:03:22,960 --> 00:03:26,520
Speaker 4: Stop worrying about the credit card balances and the pine

62
00:03:26,560 --> 00:03:27,440
Speaker 4: n I pay later.

63
00:03:28,560 --> 00:03:30,760
Speaker 2: I think overall, one of the things about the US

64
00:03:30,840 --> 00:03:34,720
Speaker 2: consumer they continue to exhibit strength. I would have thought

65
00:03:34,760 --> 00:03:37,200
Speaker 2: that as we went through this year you would have

66
00:03:37,240 --> 00:03:39,880
Speaker 2: had a greater moderation and spend from the lower and

67
00:03:39,920 --> 00:03:43,160
Speaker 2: middle income. But exactly what you just mentioned is the

68
00:03:43,200 --> 00:03:47,000
Speaker 2: strength of employment inflation coming down are giving them the

69
00:03:47,080 --> 00:03:50,280
Speaker 2: ability to spend. They may not be spending as much

70
00:03:50,360 --> 00:03:53,640
Speaker 2: as they did two years ago given the stimulus that

71
00:03:53,680 --> 00:03:57,480
Speaker 2: they everyone benefited from, but they're still spending more than

72
00:03:57,480 --> 00:04:00,160
Speaker 2: you may have thought. And now the lower rate, it's

73
00:04:00,200 --> 00:04:02,640
Speaker 2: the stronger job market that if you want a job,

74
00:04:02,720 --> 00:04:05,080
Speaker 2: you can get a job, and that your wages are

75
00:04:05,120 --> 00:04:08,640
Speaker 2: going up, and frankly, wage growth is pretty substantial with

76
00:04:08,720 --> 00:04:12,440
Speaker 2: the flation easing. I think just the US consumer is

77
00:04:12,480 --> 00:04:16,840
Speaker 2: an optimistic consumer, even though the rate of spend is

78
00:04:16,920 --> 00:04:19,680
Speaker 2: not as great as it was in twenty one and

79
00:04:19,720 --> 00:04:20,560
Speaker 2: even in twenty two.

80
00:04:20,640 --> 00:04:23,360
Speaker 5: In many instances, Dan, it's really interesting to hear you

81
00:04:23,360 --> 00:04:25,560
Speaker 5: say that, because, of course, one of the big questions

82
00:04:25,640 --> 00:04:28,040
Speaker 5: has been how do you have the FED hiking rates

83
00:04:28,240 --> 00:04:31,719
Speaker 5: by five hundred basis points without too much pain? And

84
00:04:31,760 --> 00:04:34,200
Speaker 5: it sounds like when it's coming to that consumer spend

85
00:04:34,200 --> 00:04:37,160
Speaker 5: that that can actually continue here, that actually maybe we

86
00:04:37,200 --> 00:04:39,800
Speaker 5: did get through this tightening cycle without that sort of

87
00:04:39,880 --> 00:04:42,400
Speaker 5: associated pain that was widely expected.

88
00:04:43,279 --> 00:04:45,240
Speaker 2: It does feel that way. I mean, you certainly have

89
00:04:45,279 --> 00:04:48,159
Speaker 2: had categories that have been weak. You take a look

90
00:04:48,200 --> 00:04:51,400
Speaker 2: at housing and things related to the home that's been weak.

91
00:04:51,520 --> 00:04:54,359
Speaker 2: You look at luxury goods, which has gotten weaker. But

92
00:04:54,480 --> 00:04:57,120
Speaker 2: one of the data points to watch is while year

93
00:04:57,240 --> 00:04:59,920
Speaker 2: over year it could be weak, when you look back

94
00:05:00,160 --> 00:05:04,120
Speaker 2: twenty nineteen to today, even luxury goods sales are up

95
00:05:04,160 --> 00:05:08,120
Speaker 2: fifty percent plus, so that consumer, if they want a job,

96
00:05:08,200 --> 00:05:11,120
Speaker 2: can get a job. But I think also one of

97
00:05:11,120 --> 00:05:15,240
Speaker 2: the toughest things for retailers, we're seeing more confidence in

98
00:05:15,279 --> 00:05:19,200
Speaker 2: their ability to project profits than sales. I think you're

99
00:05:19,240 --> 00:05:22,600
Speaker 2: going to continue to see retailers being very cautious on

100
00:05:22,640 --> 00:05:25,320
Speaker 2: sales growth. I think we don't have the tourism that

101
00:05:25,360 --> 00:05:28,000
Speaker 2: we've had in the past, and that the orders that

102
00:05:28,080 --> 00:05:31,120
Speaker 2: many of the wholesale accounts or department stores are placing

103
00:05:31,640 --> 00:05:35,280
Speaker 2: continue to be cautious with vendors. I think that no

104
00:05:35,320 --> 00:05:39,600
Speaker 2: one's expecting a rip roaring retail environment go forward.

105
00:05:39,960 --> 00:05:42,679
Speaker 5: And I'm taking a look at the Telsea Advisory groups

106
00:05:42,680 --> 00:05:45,640
Speaker 5: twenty twenty four top pick. So I always appreciate a

107
00:05:45,720 --> 00:05:48,159
Speaker 5: year ahead list. I want to talk about the consumer

108
00:05:48,520 --> 00:05:51,839
Speaker 5: technology category. Your top pick there, you only have one,

109
00:05:52,000 --> 00:05:55,200
Speaker 5: and it's Amazon. Who can stand up to Amazon at

110
00:05:55,200 --> 00:05:55,640
Speaker 5: this point?

111
00:05:56,400 --> 00:05:58,440
Speaker 2: I mean, certainly what you're going to get from Amazon,

112
00:05:58,600 --> 00:06:02,680
Speaker 2: Amazon is your online choice. But when you're thinking about discounters,

113
00:06:02,720 --> 00:06:05,719
Speaker 2: whether it's Target, whether it's five below, you take a

114
00:06:05,760 --> 00:06:08,520
Speaker 2: look at Dollar try look at off Price where many

115
00:06:08,560 --> 00:06:11,799
Speaker 2: of the off pricers overall have had same store sales

116
00:06:11,800 --> 00:06:15,000
Speaker 2: of five to six percent plus. They're getting the benefit

117
00:06:15,040 --> 00:06:18,320
Speaker 2: of the trade down customer. So I'm watching in store

118
00:06:18,360 --> 00:06:22,360
Speaker 2: sales very carefully. Don't belie the fact that in store

119
00:06:22,400 --> 00:06:24,920
Speaker 2: sales continue to remain very important.

120
00:06:26,000 --> 00:06:27,640
Speaker 1: That's what I was going to ask you, because it's funny.

121
00:06:27,640 --> 00:06:29,640
Speaker 1: I'm looking at dollartree. They're down about three percent. I

122
00:06:29,640 --> 00:06:31,840
Speaker 1: feel like there's been some struggling when you you know,

123
00:06:31,920 --> 00:06:34,160
Speaker 1: not all retail is the same. Who do you think

124
00:06:34,240 --> 00:06:37,920
Speaker 1: is most vulnerable in this environment data.

125
00:06:37,279 --> 00:06:40,479
Speaker 2: I think when you're watching where the vulnerabilities are, it's

126
00:06:40,480 --> 00:06:43,800
Speaker 2: some of the retailers overall who are too overloaded on

127
00:06:43,880 --> 00:06:47,680
Speaker 2: inventory and who haven't innovated or don't have value. When

128
00:06:47,720 --> 00:06:49,919
Speaker 2: you think about what we did for our twenty twenty

129
00:06:49,920 --> 00:06:54,600
Speaker 2: four outlook, who had the hallmarks of product newness, innovation

130
00:06:54,720 --> 00:06:57,720
Speaker 2: and value and apparel on foot Where it's Birkenstock and

131
00:06:57,800 --> 00:07:00,359
Speaker 2: Ralph Lauren an off price, you're gonna get all the

132
00:07:00,400 --> 00:07:04,240
Speaker 2: off prices winning, including Burlington and tj X. When I

133
00:07:04,279 --> 00:07:07,480
Speaker 2: think about special TV tail out there, I think it's

134
00:07:07,560 --> 00:07:11,000
Speaker 2: companies like Bath and Bodyworks in European Wax. And when

135
00:07:11,000 --> 00:07:14,080
Speaker 2: you think about the discounts like we mentioned five below,

136
00:07:14,240 --> 00:07:17,880
Speaker 2: Dollar Tree and Target with their margin recovery story. But

137
00:07:17,920 --> 00:07:21,640
Speaker 2: don't leave Walmart out. Walmart continues to be a share gainer,

138
00:07:21,920 --> 00:07:24,000
Speaker 2: both with grocery and with goods.

139
00:07:24,160 --> 00:07:25,800
Speaker 1: Did you want to see something about Birkinstock.

140
00:07:27,480 --> 00:07:30,280
Speaker 5: I'm just gonna say they're not the most aesthentically pleasing shoes.

141
00:07:30,320 --> 00:07:34,480
Speaker 4: I'll just leave it at that.

142
00:07:34,960 --> 00:07:39,000
Speaker 1: Hey, listen, Barbie Worm, that's true. Just gonna say, Katie Grefeld,

143
00:07:39,160 --> 00:07:42,080
Speaker 1: that was after she left Barbie World. Okay, so even better,

144
00:07:42,480 --> 00:07:43,800
Speaker 1: that's true.

145
00:07:43,440 --> 00:07:44,600
Speaker 4: We've gone Barbie World.

146
00:07:44,800 --> 00:07:47,640
Speaker 1: Okay, Dana Telsea, I agree. Listen the runways, right, they

147
00:07:47,680 --> 00:07:51,160
Speaker 1: end up putting Birkenstock's crocs like they go everywhere. Dana Telsea.

148
00:07:51,680 --> 00:07:54,880
Speaker 1: You're a gem of Telsey Advisor Group. Thank you so much.

149
00:07:54,880 --> 00:08:02,160
Speaker 1: Happy holidays and happy New Year to you. The International

150
00:08:02,200 --> 00:08:05,560
Speaker 1: Trade Commission found Apple infringed on patents from Massimo. The

151
00:08:05,640 --> 00:08:09,160
Speaker 1: USTR A now saying two patents were infringe including the

152
00:08:09,200 --> 00:08:11,840
Speaker 1: one from that company. So great setup to see what

153
00:08:12,160 --> 00:08:14,760
Speaker 1: Dan ives, who definitely likes Apple, see what he has

154
00:08:14,800 --> 00:08:17,840
Speaker 1: to say. He's senior equity analyst at Wedbust, joining Katie

155
00:08:18,160 --> 00:08:20,560
Speaker 1: Manis and myself here in studio. Great to have you.

156
00:08:20,600 --> 00:08:21,200
Speaker 4: Great you to be here.

157
00:08:21,240 --> 00:08:23,720
Speaker 1: Happy holidays, you too, creepy here is it going to

158
00:08:23,720 --> 00:08:25,760
Speaker 1: be a happy year for Apple? It feels like it's

159
00:08:25,800 --> 00:08:26,960
Speaker 1: going to get off to a rough start.

160
00:08:27,280 --> 00:08:29,440
Speaker 6: I think it's time to get out the popcorn because,

161
00:08:29,440 --> 00:08:32,560
Speaker 6: in my opinion, this is the next stage of I

162
00:08:32,600 --> 00:08:34,880
Speaker 6: think the growth phase in Cooper Tino and I think

163
00:08:34,920 --> 00:08:35,880
Speaker 6: we'll give you a quick time.

164
00:08:36,080 --> 00:08:37,760
Speaker 1: How do you like factor in this kind of stuff.

165
00:08:37,760 --> 00:08:39,160
Speaker 1: I can't buy a watch. I need a new watch,

166
00:08:39,160 --> 00:08:40,079
Speaker 1: and I can't buy it right now.

167
00:08:40,200 --> 00:08:43,760
Speaker 6: Look, we're talking less than one percent of disruption from

168
00:08:43,760 --> 00:08:46,319
Speaker 6: Apple watch, you know, in terms of in the actual quarter,

169
00:08:46,360 --> 00:08:48,120
Speaker 6: and I think, look, it just speaks to they're going

170
00:08:48,200 --> 00:08:52,000
Speaker 6: to have patent issues like this on healthcare. But there's

171
00:08:52,000 --> 00:08:56,360
Speaker 6: a renaissance of growth on iPhone units services double digits,

172
00:08:56,679 --> 00:08:58,240
Speaker 6: and that's why I think a lot of the Bears

173
00:08:58,320 --> 00:09:01,200
Speaker 6: right now they're deep in those cay is in hibernation mode.

174
00:09:01,200 --> 00:09:03,240
Speaker 6: I think a year from now we have a four

175
00:09:03,320 --> 00:09:05,320
Speaker 6: trillion dollar markap on Apple.

176
00:09:05,679 --> 00:09:09,840
Speaker 4: You say the Burrs had a great fictional story, okay,

177
00:09:09,920 --> 00:09:12,680
Speaker 4: and Netflix fictional fixation story.

178
00:09:12,800 --> 00:09:14,280
Speaker 1: We all want to be in Apple.

179
00:09:14,400 --> 00:09:17,760
Speaker 4: I got a hand to tea. This shirt just screams,

180
00:09:17,840 --> 00:09:21,560
Speaker 4: you know, full full of confidence, full of vigor. But

181
00:09:21,640 --> 00:09:23,520
Speaker 4: you look at the China story, so it makes sense

182
00:09:23,520 --> 00:09:24,640
Speaker 4: of this for us. How do you get to four

183
00:09:24,679 --> 00:09:27,079
Speaker 4: trillion dollars when you still got the government pushing back

184
00:09:27,080 --> 00:09:29,720
Speaker 4: against opper products. It was a headline just in December.

185
00:09:29,760 --> 00:09:32,800
Speaker 4: I mean, is that myth or is that a headwind?

186
00:09:33,320 --> 00:09:34,880
Speaker 1: I think it's a headwind.

187
00:09:35,080 --> 00:09:38,040
Speaker 6: And ultimately my view in terms of China is that

188
00:09:38,160 --> 00:09:41,640
Speaker 6: I'm not saying it's Roses and Champagne in Beijing with Apple,

189
00:09:41,840 --> 00:09:44,960
Speaker 6: but we are seeing growth and that's something we've seen

190
00:09:44,960 --> 00:09:47,280
Speaker 6: come out of Asia. Checks even over the last week,

191
00:09:47,559 --> 00:09:50,240
Speaker 6: because you have one hundred million iPhones in China in

192
00:09:50,240 --> 00:09:53,720
Speaker 6: the window of an upgrade opportunity as those upgrade and

193
00:09:53,800 --> 00:09:57,400
Speaker 6: look for Huawei, it's a good phone, but realistic it's

194
00:09:57,440 --> 00:10:01,080
Speaker 6: an iPhone twelve. I'm seeing from an actual function perspective,

195
00:10:01,440 --> 00:10:03,400
Speaker 6: So I do think that it's a head when they

196
00:10:03,440 --> 00:10:05,679
Speaker 6: have to contend with. But it is the hearts and

197
00:10:05,800 --> 00:10:07,959
Speaker 6: lungs of the Apple story. And that's why a lot

198
00:10:07,960 --> 00:10:12,040
Speaker 6: of the bears at five hundred billion, a trillion, trillion

199
00:10:12,080 --> 00:10:15,960
Speaker 6: and a half two, it's all about the China trillion.

200
00:10:16,040 --> 00:10:18,520
Speaker 6: Now it's all three trillion, I think, going to Fortunoly,

201
00:10:18,520 --> 00:10:21,880
Speaker 6: it's always about that big bad wolf, the China story

202
00:10:21,880 --> 00:10:24,959
Speaker 6: and the actuality China has actually been fuel in the engine.

203
00:10:25,040 --> 00:10:27,080
Speaker 5: Well, let's talk about what the Bears are saying right now,

204
00:10:27,160 --> 00:10:29,400
Speaker 5: because they're saying you think about in terms of the

205
00:10:29,400 --> 00:10:32,160
Speaker 5: product lineup that Apple really hasn't had a hit since

206
00:10:32,160 --> 00:10:34,320
Speaker 5: the AirPods, and that was all the way back in

207
00:10:34,400 --> 00:10:37,080
Speaker 5: twenty sixteen. So you talk about this new growth, but

208
00:10:37,480 --> 00:10:39,679
Speaker 5: from the product lineup, where is it going to come from?

209
00:10:39,840 --> 00:10:42,199
Speaker 6: Well, first off, the install base. It's on powerl It's

210
00:10:42,200 --> 00:10:44,800
Speaker 6: the best install based in the world. So just from

211
00:10:44,840 --> 00:10:47,319
Speaker 6: an install based perspective, you have two hundred and fifteen

212
00:10:47,320 --> 00:10:49,439
Speaker 6: million iPhones in a window of an upgrade opportunity. I

213
00:10:49,440 --> 00:10:53,000
Speaker 6: think that's why iPhone fifteen so far Christmas came earlier

214
00:10:53,080 --> 00:10:56,840
Speaker 6: strong holiday season, but for twenty twenty four. German's talked

215
00:10:56,840 --> 00:10:59,440
Speaker 6: about this as well. I believe you're going to have

216
00:11:00,160 --> 00:11:03,040
Speaker 6: not just new phones that come out from an iPhone sixteen,

217
00:11:03,080 --> 00:11:05,800
Speaker 6: but we believe you're going to have the Apple the

218
00:11:05,840 --> 00:11:08,920
Speaker 6: iPhone app store, which is gonna be an AI app

219
00:11:08,960 --> 00:11:12,199
Speaker 6: store focused on AI apps. That's gonna be something that's

220
00:11:12,200 --> 00:11:15,960
Speaker 6: gonna be incremental for services, and I think that's very important.

221
00:11:16,000 --> 00:11:18,960
Speaker 6: You combined with Vision Pro, and we believe more and

222
00:11:18,960 --> 00:11:21,760
Speaker 6: more products coming out that they flex the muscles.

223
00:11:21,880 --> 00:11:22,080
Speaker 4: Dan.

224
00:11:22,280 --> 00:11:24,720
Speaker 1: Is there a bear story though on Apple? I mean,

225
00:11:24,760 --> 00:11:26,240
Speaker 1: I think if Tom Kean was here, and I know

226
00:11:26,280 --> 00:11:28,240
Speaker 1: this is how we fail. We are an Apple family,

227
00:11:28,320 --> 00:11:29,959
Speaker 1: and when somebody goes to buy something like no, so

228
00:11:30,080 --> 00:11:31,280
Speaker 1: you can't do that, it's going to be an Apple

229
00:11:31,280 --> 00:11:34,480
Speaker 1: product because that's been our infrastructure, that's our network. No

230
00:11:34,600 --> 00:11:37,920
Speaker 1: green text bubbles, there are none, exactly, although there's an

231
00:11:37,920 --> 00:11:40,200
Speaker 1: app that I think, Y sure people, but I just

232
00:11:40,320 --> 00:11:43,160
Speaker 1: that installed base. I'm looking at what twenty twenty four

233
00:11:43,200 --> 00:11:46,079
Speaker 1: revenue estimate of three hundred and ninety seven billion dollars.

234
00:11:46,600 --> 00:11:49,360
Speaker 1: Every time the Apple numbers cross, they're off the charts.

235
00:11:49,520 --> 00:11:52,640
Speaker 1: Even if the growth isn't significant, there's still that installed

236
00:11:52,640 --> 00:11:54,360
Speaker 1: basis enough to keep a lot of momentum.

237
00:11:54,400 --> 00:11:57,559
Speaker 6: And if Keene was here, would he be focused on.

238
00:11:58,280 --> 00:12:00,640
Speaker 1: Any kind of is we don't have money means here?

239
00:12:00,920 --> 00:12:02,000
Speaker 4: Just like I'm.

240
00:12:05,600 --> 00:12:13,240
Speaker 6: Kidding, it's an AI, it's AI generator. But look, realistically,

241
00:12:13,400 --> 00:12:16,160
Speaker 6: it's about valuation. Look, if you look at valuation, you

242
00:12:16,160 --> 00:12:19,240
Speaker 6: look at the cash flow generation of Apple. There we're

243
00:12:19,240 --> 00:12:21,079
Speaker 6: gonna see over the coming years the e but the

244
00:12:21,240 --> 00:12:25,160
Speaker 6: margins are expanding. Now think the Bear story, it's look

245
00:12:25,160 --> 00:12:27,439
Speaker 6: a lot of the Bears they just look at their

246
00:12:27,480 --> 00:12:30,440
Speaker 6: spreadsheets on Park Ave and and there you know, in

247
00:12:30,440 --> 00:12:31,760
Speaker 6: their tower saying this is.

248
00:12:31,679 --> 00:12:33,800
Speaker 1: An expensive far story for Apple at all.

249
00:12:33,880 --> 00:12:37,079
Speaker 6: Because to me, the Bear story, it's valuation. It's China,

250
00:12:37,120 --> 00:12:40,000
Speaker 6: and I think at that point it's it's a headwind,

251
00:12:40,200 --> 00:12:43,520
Speaker 6: but it's more fictional Netflix story than reality. That's going

252
00:12:43,600 --> 00:12:46,880
Speaker 6: to hurt them. And then it's just more competition. But

253
00:12:46,920 --> 00:12:49,480
Speaker 6: it also it comes down to valuation. And that's why

254
00:12:49,520 --> 00:12:52,720
Speaker 6: this year I think the Bears they focus so much

255
00:12:52,760 --> 00:12:56,840
Speaker 6: on valuation. Instead of the actual underlying growth story that's happening,

256
00:12:56,880 --> 00:12:59,240
Speaker 6: not just rapp, but we believe it's the star of

257
00:12:59,280 --> 00:13:01,240
Speaker 6: a new tech, fullmarket for tech.

258
00:13:01,400 --> 00:13:03,320
Speaker 4: I mean, and this is this is your thesis for

259
00:13:03,480 --> 00:13:06,040
Speaker 4: next year, which is about I mean, twenty twenty three

260
00:13:06,080 --> 00:13:07,559
Speaker 4: was a year in which every time we saw an

261
00:13:07,559 --> 00:13:11,120
Speaker 4: AI story evolved Microsoft. Wait, we were.

262
00:13:11,040 --> 00:13:12,199
Speaker 1: Talking about AI this year.

263
00:13:12,320 --> 00:13:17,400
Speaker 4: Wow, AI, you didn't have a Yeah, I know. Yeah,

264
00:13:17,840 --> 00:13:21,360
Speaker 4: so tempt to buy a zampick rather than the treadmill.

265
00:13:21,440 --> 00:13:23,600
Speaker 4: But on a side more serious note, Clyde and AI

266
00:13:23,880 --> 00:13:26,600
Speaker 4: have been the dominant forces as well as balance sheets

267
00:13:26,640 --> 00:13:29,800
Speaker 4: in tech. I put those three together and let's let's

268
00:13:29,840 --> 00:13:33,240
Speaker 4: just put Apple aside for a moment. Clyde and AI.

269
00:13:33,679 --> 00:13:36,960
Speaker 4: How do I disaggregate who's going to perform well in

270
00:13:37,000 --> 00:13:40,320
Speaker 4: this what's going to make a cloud a grade and

271
00:13:40,360 --> 00:13:42,160
Speaker 4: an AI a grade stock?

272
00:13:42,360 --> 00:13:42,520
Speaker 7: Yeah?

273
00:13:42,559 --> 00:13:45,040
Speaker 6: And I think you hit on. And what's really a

274
00:13:45,120 --> 00:13:47,560
Speaker 6: key point if you look at what's happened when the

275
00:13:47,679 --> 00:13:49,840
Speaker 6: delan redman at the top of that mountain. From a

276
00:13:49,840 --> 00:13:53,800
Speaker 6: cloud perspective, now, this is more monization for the hyperscale

277
00:13:53,840 --> 00:13:57,199
Speaker 6: players from Microsoft, for Amazon, for Google. We believe for

278
00:13:57,240 --> 00:13:59,960
Speaker 6: every one hundred dollars of cloud spend the last four

279
00:14:00,120 --> 00:14:03,560
Speaker 6: five years, or is thirty five to forty incremental AI spent.

280
00:14:03,960 --> 00:14:06,679
Speaker 6: That's why I'd say when you can Microsoft, you look

281
00:14:06,679 --> 00:14:08,839
Speaker 6: at Google, this is going to be just a new

282
00:14:08,840 --> 00:14:10,680
Speaker 6: frontier of growth. And then of course you have the

283
00:14:10,679 --> 00:14:14,280
Speaker 6: godfather of AI, Gents and Nvidia. This is really just

284
00:14:14,320 --> 00:14:16,800
Speaker 6: starting what we've used in nineteen ninety five moment.

285
00:14:16,920 --> 00:14:18,160
Speaker 4: It's called father of AI.

286
00:14:18,960 --> 00:14:21,360
Speaker 1: You look to them stock in the S and P five.

287
00:14:22,000 --> 00:14:25,800
Speaker 6: Well, it's the biggest tech transformation thirty years, haven't seen

288
00:14:25,880 --> 00:14:28,720
Speaker 6: since nineteen ninety five start of the Internet, and we

289
00:14:28,800 --> 00:14:32,520
Speaker 6: believe this is actually the beginning of the next phase

290
00:14:32,520 --> 00:14:33,120
Speaker 6: of this bull We.

291
00:14:33,200 --> 00:14:35,320
Speaker 1: Just want to know, are there a million AI ets

292
00:14:35,320 --> 00:14:37,160
Speaker 1: that have all sudden come on? You know exactly?

293
00:14:38,080 --> 00:14:41,520
Speaker 5: There's a few dozen that were launched way before we

294
00:14:41,560 --> 00:14:43,960
Speaker 5: started talking about AI around this time last year.

295
00:14:44,000 --> 00:14:45,840
Speaker 1: But I do want to switch gears here.

296
00:14:45,720 --> 00:14:49,280
Speaker 5: And talk about EV demand because this has been one

297
00:14:49,280 --> 00:14:51,400
Speaker 5: of the stories that's really emerged. It just feels like

298
00:14:51,440 --> 00:14:55,960
Speaker 5: all of these automakers really miscalculated how much demand there

299
00:14:56,000 --> 00:14:58,240
Speaker 5: would be for evs and now you're seeing those production

300
00:14:58,320 --> 00:15:02,320
Speaker 5: targets get cut. How does that factor into how you're

301
00:15:02,320 --> 00:15:05,760
Speaker 5: thinking about Tesla. Is that a bear case for Tesla

302
00:15:05,840 --> 00:15:09,040
Speaker 5: or does Tesla just command more of maybe a shrinking pie.

303
00:15:09,200 --> 00:15:09,400
Speaker 8: Yeah?

304
00:15:09,480 --> 00:15:11,640
Speaker 6: Kay, I think that's a great point. Look, right now

305
00:15:11,640 --> 00:15:14,600
Speaker 6: it's Tesla's world. Everyone else pan rent when it comes

306
00:15:14,640 --> 00:15:18,680
Speaker 6: to electric vehicles, and I think they're doubling down. What's

307
00:15:18,680 --> 00:15:21,600
Speaker 6: happening Detroit, GM Ford actually peeling back a little from

308
00:15:21,640 --> 00:15:26,240
Speaker 6: electric vehicles. Some of the foreign automakers look demands definitely soften.

309
00:15:26,440 --> 00:15:29,280
Speaker 6: Price wars have come through, but a lot of those

310
00:15:29,320 --> 00:15:33,880
Speaker 6: storms have now passed. I think for Tesla specifically, unit

311
00:15:34,040 --> 00:15:36,400
Speaker 6: volume looks strong. In China. I think there's gonna be

312
00:15:36,760 --> 00:15:40,560
Speaker 6: a record quarter for China in terms of Q four.

313
00:15:40,920 --> 00:15:43,920
Speaker 6: You go into next year, I think demand actually starts

314
00:15:43,960 --> 00:15:47,000
Speaker 6: to accelerate a bit relative to where people thought. I

315
00:15:47,000 --> 00:15:50,359
Speaker 6: think for the overall industry, it's still a massive transformation,

316
00:15:50,840 --> 00:15:53,440
Speaker 6: but now you're starting to maybe peel back a bit

317
00:15:53,480 --> 00:15:55,280
Speaker 6: in terms of Okay, this is not going to forty

318
00:15:55,320 --> 00:15:59,160
Speaker 6: percent penetration, Maybe it's twenty five thirty dan thirty seconds.

319
00:15:59,240 --> 00:16:01,520
Speaker 5: China is the all and cry of the Bears when

320
00:16:01,560 --> 00:16:03,840
Speaker 5: it comes to Apple, so too when it comes to Tesla.

321
00:16:03,880 --> 00:16:06,800
Speaker 5: You think about all those Chinese ev makers. How does

322
00:16:06,840 --> 00:16:09,720
Speaker 5: Tesla compete overseas.

323
00:16:09,600 --> 00:16:11,000
Speaker 6: They've done it. I mean, I think a lot of

324
00:16:11,040 --> 00:16:14,080
Speaker 6: the price war it was. Look, this was a pooker

325
00:16:14,680 --> 00:16:18,320
Speaker 6: move for the ages by must cup prices focus on units,

326
00:16:18,520 --> 00:16:20,640
Speaker 6: and that's why right now this has been flex the

327
00:16:20,720 --> 00:16:24,480
Speaker 6: muscles in Beijing four, not just Tesla, but of course

328
00:16:24,480 --> 00:16:26,120
Speaker 6: for Apple despite bare noise.

329
00:16:27,040 --> 00:16:28,960
Speaker 1: You know, before we started, we showed a piece on

330
00:16:29,080 --> 00:16:31,960
Speaker 1: drones just real quickly twenty five seconds. Is there a

331
00:16:32,040 --> 00:16:34,840
Speaker 1: drone plane for drone play for you? I mean all

332
00:16:34,880 --> 00:16:37,440
Speaker 1: of the company Amazon's in at Walmarts, everybody's in it,

333
00:16:37,440 --> 00:16:38,680
Speaker 1: and there's individual startups.

334
00:16:38,800 --> 00:16:41,120
Speaker 6: Hey, look, I think that's past. I remember being a

335
00:16:41,160 --> 00:16:45,360
Speaker 6: CS years ago in fun. Yeah, I think that's Look,

336
00:16:45,520 --> 00:16:48,080
Speaker 6: that's why you have to separate mat is like, yes, yes,

337
00:16:48,480 --> 00:16:52,320
Speaker 6: you separate type from the reality. There's there's parts that

338
00:16:52,440 --> 00:16:54,480
Speaker 6: market that are growth. Yeah, but you look at AI.

339
00:16:55,160 --> 00:16:58,720
Speaker 6: This is the super Bowl in terms of tech market.

340
00:16:59,000 --> 00:17:01,120
Speaker 1: We're gonna have a bull to market in twenty twenty

341
00:17:01,120 --> 00:17:01,520
Speaker 1: five two.

342
00:17:02,280 --> 00:17:04,960
Speaker 6: I think this bold tech market goes we lead for

343
00:17:05,000 --> 00:17:07,960
Speaker 6: another two years. That's why right now it's getting the

344
00:17:07,960 --> 00:17:08,720
Speaker 6: popcorn out.

345
00:17:09,800 --> 00:17:12,359
Speaker 1: That's a lot of popcorn, all right, always fun.

346
00:17:12,200 --> 00:17:12,680
Speaker 4: To talk with you.

347
00:17:12,680 --> 00:17:14,399
Speaker 1: Great, thanks for having so, I appreciate it, Thanks for

348
00:17:14,400 --> 00:17:15,640
Speaker 1: coming in this happy new year.

349
00:17:15,680 --> 00:17:15,800
Speaker 4: Dan.

350
00:17:15,880 --> 00:17:18,560
Speaker 1: I's of course of web Bush. Check out his research

351
00:17:18,600 --> 00:17:20,560
Speaker 1: and of course his calls on things like Apple and

352
00:17:20,600 --> 00:17:32,720
Speaker 1: just really the tech market overall. All right, let's see

353
00:17:32,760 --> 00:17:34,280
Speaker 1: what Matt Miskin has to say about all of this.

354
00:17:34,359 --> 00:17:38,040
Speaker 1: K chief investment strategist John Hancock Investment Management joining us

355
00:17:38,080 --> 00:17:40,320
Speaker 1: just outside of Boston. Matt, great to have you here

356
00:17:40,800 --> 00:17:43,640
Speaker 1: on this Tuesday. There's a lot that could come at

357
00:17:43,680 --> 00:17:45,840
Speaker 1: us at twenty twenty four, but as you look back

358
00:17:45,840 --> 00:17:49,000
Speaker 1: at twenty twenty three, are there I don't know, trends,

359
00:17:49,760 --> 00:17:52,240
Speaker 1: narratives that you think will no doubt about it carry

360
00:17:52,240 --> 00:17:53,800
Speaker 1: it over into twenty twenty four.

361
00:17:54,240 --> 00:17:56,919
Speaker 7: Yeah, thanks Carol. And really the last two months to

362
00:17:57,080 --> 00:18:00,679
Speaker 7: find twenty twenty three markets, and it was all really

363
00:18:00,800 --> 00:18:05,120
Speaker 7: around Powell's pivot. So in September they were forecasting another

364
00:18:05,200 --> 00:18:09,240
Speaker 7: rate hike in December and then actually no rate cuts

365
00:18:09,280 --> 00:18:13,560
Speaker 7: into twenty twenty four. That really changed significantly. So now,

366
00:18:13,800 --> 00:18:16,840
Speaker 7: of course in November he went to no hike in December,

367
00:18:17,200 --> 00:18:20,080
Speaker 7: and then in December really pivoted. I think about the

368
00:18:20,119 --> 00:18:22,560
Speaker 7: pivot foot I mean, it almost looked like a travel

369
00:18:22,600 --> 00:18:25,760
Speaker 7: here where that pivot foot moved, because they they did

370
00:18:25,760 --> 00:18:26,040
Speaker 7: a one.

371
00:18:26,240 --> 00:18:26,800
Speaker 6: Powell did a.

372
00:18:26,800 --> 00:18:29,920
Speaker 7: One to eighty from his tone in September two November.

373
00:18:30,000 --> 00:18:33,000
Speaker 7: And I look at small cap stocks in particular as

374
00:18:33,000 --> 00:18:35,680
Speaker 7: the biggest beneficiary, down five percent on a year to

375
00:18:36,200 --> 00:18:39,200
Speaker 7: year to date basis the four November first and then

376
00:18:39,359 --> 00:18:41,879
Speaker 7: ending right now, they're of seventeen percent year to date.

377
00:18:42,280 --> 00:18:44,080
Speaker 7: Again in the futures market, even though this is a

378
00:18:44,160 --> 00:18:46,960
Speaker 7: quiet week, small caps looking up the highest in this

379
00:18:47,040 --> 00:18:48,000
Speaker 7: morning time talking.

380
00:18:47,760 --> 00:18:50,560
Speaker 1: About a one eighty right exactly?

381
00:18:51,280 --> 00:18:53,080
Speaker 4: Do you think that that's where we go next? And

382
00:18:53,200 --> 00:18:54,480
Speaker 4: I mean if you look at some of the perform

383
00:18:54,840 --> 00:18:56,400
Speaker 4: you look at some of the performance on the US

384
00:18:56,480 --> 00:18:59,360
Speaker 4: equity markets, just just top lines, S and P five

385
00:19:00,080 --> 00:19:04,080
Speaker 4: three percent on the year. There it is over the

386
00:19:04,119 --> 00:19:06,520
Speaker 4: past two months. So more than fifty percent of the

387
00:19:06,520 --> 00:19:08,720
Speaker 4: move was done in the last two months. You said,

388
00:19:08,720 --> 00:19:11,720
Speaker 4: the optimism is already very much baked into stocks, both

389
00:19:11,720 --> 00:19:14,960
Speaker 4: in earnings and estimates and valuations. The math, the math

390
00:19:15,000 --> 00:19:18,000
Speaker 4: for you is not compelling. So if it's not compelling,

391
00:19:18,040 --> 00:19:20,320
Speaker 4: there's the Russell, by the way up over the past

392
00:19:20,320 --> 00:19:24,240
Speaker 4: two months, up twenty two percent. The math not being compelling.

393
00:19:24,480 --> 00:19:27,280
Speaker 4: What does that do? Do I stall? Do I draw down?

394
00:19:27,680 --> 00:19:31,480
Speaker 4: What happens? Do we shudder in January because the bond

395
00:19:31,520 --> 00:19:33,720
Speaker 4: market is convinced we're on a slice and dice from

396
00:19:33,720 --> 00:19:34,080
Speaker 4: the Fed?

397
00:19:35,160 --> 00:19:38,440
Speaker 7: Right, Yeah, I mean Russell two thousand. Earnings are down

398
00:19:38,560 --> 00:19:41,680
Speaker 7: seventeen percent this year, prices up seventeen I mean it

399
00:19:41,800 --> 00:19:44,119
Speaker 7: was one of the ones I love the most is technology,

400
00:19:44,160 --> 00:19:46,200
Speaker 7: And Karen was talking about earnings and loving earnings. I

401
00:19:46,280 --> 00:19:49,800
Speaker 7: love earnings too. Technology earnings are up about five percent

402
00:19:49,880 --> 00:19:51,960
Speaker 7: this year. That's not bad. S and P five hundred

403
00:19:52,000 --> 00:19:54,320
Speaker 7: Tech five percent. Actually, that beats most of the world.

404
00:19:54,400 --> 00:19:58,640
Speaker 7: And earnings the companies are up price wise fifty five percent.

405
00:19:59,160 --> 00:20:00,800
Speaker 7: So that just shows you how much this has been

406
00:20:00,880 --> 00:20:04,840
Speaker 7: multiple expansion versus earnings. It's all about Powell this year.

407
00:20:05,040 --> 00:20:07,000
Speaker 7: It really all came down to the last two months

408
00:20:07,000 --> 00:20:09,560
Speaker 7: in this pivot. I don't think that next year is

409
00:20:09,600 --> 00:20:12,680
Speaker 7: going to be that meaningful as it relates to everything

410
00:20:12,800 --> 00:20:14,879
Speaker 7: relied to the FED. I think fundamental is going to

411
00:20:14,960 --> 00:20:17,639
Speaker 7: matter more. Economic data is going to matter more, and

412
00:20:17,680 --> 00:20:20,159
Speaker 7: I think the FED isn't a tough position because the

413
00:20:20,200 --> 00:20:22,360
Speaker 7: soft data has led you blind this year.

414
00:20:22,440 --> 00:20:23,960
Speaker 4: It's all and you've.

415
00:20:23,720 --> 00:20:25,440
Speaker 7: Had to really focus on the hard data. The thing

416
00:20:25,520 --> 00:20:28,239
Speaker 7: is the hard data lags the soft data, and so

417
00:20:28,320 --> 00:20:29,920
Speaker 7: they just have to wait. They have to be data

418
00:20:29,920 --> 00:20:33,760
Speaker 7: depend and Mannas just like you said, so way now

419
00:20:33,800 --> 00:20:35,280
Speaker 7: they're going to wait on that, and I think they're

420
00:20:35,280 --> 00:20:37,200
Speaker 7: gonna have to wait right to the last minute to cut,

421
00:20:37,240 --> 00:20:38,960
Speaker 7: and I think that may be too late and they're

422
00:20:38,960 --> 00:20:41,119
Speaker 7: gonna have to cut more aggressively than actually the market.

423
00:20:41,160 --> 00:20:43,680
Speaker 5: Thanks well man, I don't really like earnings. I really

424
00:20:43,720 --> 00:20:46,199
Speaker 5: like talking about the macro, and it's been convenient for

425
00:20:46,280 --> 00:20:48,960
Speaker 5: me because to your point, you've seen equities really be

426
00:20:49,080 --> 00:20:52,240
Speaker 5: driven by the macro, even at the single stock level.

427
00:20:52,280 --> 00:20:54,879
Speaker 5: But I want to talk about the different psychology between

428
00:20:54,920 --> 00:20:57,560
Speaker 5: the equity market and the bond market because I love

429
00:20:57,600 --> 00:21:00,960
Speaker 5: this line in your note that stocks are stories, bonds

430
00:21:01,040 --> 00:21:01,480
Speaker 5: or math.

431
00:21:01,600 --> 00:21:02,760
Speaker 1: Talk us through that a little bit.

432
00:21:02,800 --> 00:21:03,520
Speaker 3: What you mean there.

433
00:21:04,520 --> 00:21:06,479
Speaker 7: Yeah, So with the bond market, you know, it's going

434
00:21:06,560 --> 00:21:09,280
Speaker 7: to be your income and income right now, even though

435
00:21:09,280 --> 00:21:11,199
Speaker 7: it's changed a lot in the last two months. I

436
00:21:11,200 --> 00:21:13,280
Speaker 7: mean when we were writing that, you know, a month ago,

437
00:21:13,359 --> 00:21:16,680
Speaker 7: and we were like five six percent in high quality bonds.

438
00:21:16,720 --> 00:21:20,399
Speaker 7: This is amazing. We've been looking for high quality income

439
00:21:20,400 --> 00:21:23,040
Speaker 7: at these levels for years and finally we're getting it.

440
00:21:23,040 --> 00:21:26,359
Speaker 7: It's still about four to five percent. We think, actually

441
00:21:26,359 --> 00:21:28,520
Speaker 7: four to five percent is an income stream where you

442
00:21:28,560 --> 00:21:30,760
Speaker 7: can depend on that on high quality bonds will be

443
00:21:30,760 --> 00:21:33,800
Speaker 7: an attractive return stream into next year. And we've been

444
00:21:33,840 --> 00:21:36,840
Speaker 7: talking about cash, right six trillion dollars in money markets

445
00:21:36,840 --> 00:21:38,720
Speaker 7: on the sidelines. What is that yield going to be

446
00:21:38,800 --> 00:21:41,720
Speaker 7: like next year? If it's five now, that could be

447
00:21:41,760 --> 00:21:44,200
Speaker 7: down to four to three percent depending on how much

448
00:21:44,240 --> 00:21:46,600
Speaker 7: the FED cuts, and then subsequent year could be even longer.

449
00:21:47,080 --> 00:21:49,520
Speaker 7: We don't want to have variable interest streams. We want

450
00:21:49,560 --> 00:21:53,760
Speaker 7: to fix in streams. And that's about the math math.

451
00:21:53,920 --> 00:21:57,080
Speaker 7: We like that the factual parts of that. Right now,

452
00:21:57,200 --> 00:22:01,919
Speaker 7: stocks look like your high multiple, high ears estimates, and

453
00:22:02,160 --> 00:22:05,720
Speaker 7: sentiment is all about soft landing. That can change quickly

454
00:22:05,760 --> 00:22:06,800
Speaker 7: into twenty twenty four.

455
00:22:07,240 --> 00:22:08,919
Speaker 5: Man I just want to follow up quickly on that

456
00:22:09,000 --> 00:22:11,800
Speaker 5: money market point that you rate, because Manison and I

457
00:22:11,800 --> 00:22:14,440
Speaker 5: have been boutting this around all morning. Where does that

458
00:22:14,560 --> 00:22:17,679
Speaker 5: money belong to? That cash that's come into money market

459
00:22:17,680 --> 00:22:21,080
Speaker 5: funds when it comes out, does that belong to risk assets?

460
00:22:21,160 --> 00:22:23,719
Speaker 5: Or is this maybe stickier than usual When you think

461
00:22:23,720 --> 00:22:25,160
Speaker 5: about the banking story.

462
00:22:25,680 --> 00:22:28,800
Speaker 7: Yeah, Katie, what we looked at when we've seen money

463
00:22:28,800 --> 00:22:31,639
Speaker 7: market assets like this before, we trend it over time,

464
00:22:31,720 --> 00:22:34,439
Speaker 7: and what we've seen is money market assets usually rise

465
00:22:34,600 --> 00:22:38,560
Speaker 7: going into a recession, they actually accelerate and everybody sells

466
00:22:38,760 --> 00:22:41,600
Speaker 7: right at the low of the market. And that's actually

467
00:22:41,640 --> 00:22:43,840
Speaker 7: the peak and money market assets is the trough in

468
00:22:43,880 --> 00:22:46,679
Speaker 7: the s and P five hundred happen in two thousand

469
00:22:46,680 --> 00:22:49,560
Speaker 7: and eight, happen in March and twenty twenty, and now

470
00:22:49,560 --> 00:22:52,439
Speaker 7: we're building, building building, and then so what happens on

471
00:22:52,480 --> 00:22:54,399
Speaker 7: the flip side of that, I think it actually finds

472
00:22:54,400 --> 00:22:57,880
Speaker 7: a home in a balanced portfolio, stocks and bonds usually

473
00:22:57,920 --> 00:23:01,320
Speaker 7: get the biggest beneficiary. Do you have some inflows this

474
00:23:01,400 --> 00:23:04,119
Speaker 7: year about one hundred billion taxable fixed income that's the

475
00:23:04,240 --> 00:23:07,399
Speaker 7: highest outside of money markets, but it's still a fraction

476
00:23:07,800 --> 00:23:09,880
Speaker 7: a ten percent of what money markets took in fix

477
00:23:09,960 --> 00:23:12,359
Speaker 7: taxible fixed income put in. And that's why I struggle

478
00:23:12,400 --> 00:23:16,800
Speaker 7: with the bond sentiment. We're not seeing that overly aggressive

479
00:23:16,840 --> 00:23:19,960
Speaker 7: bond sentiment or bullish bond sentiment. We actually hear investors

480
00:23:20,000 --> 00:23:22,159
Speaker 7: that are still pretty cautious and they're saying, we're going

481
00:23:22,200 --> 00:23:23,080
Speaker 7: to wait till next year.

482
00:23:23,000 --> 00:23:23,720
Speaker 8: To buy bonds.

483
00:23:24,040 --> 00:23:26,520
Speaker 7: And the thing is, bond yields have moved really fast,

484
00:23:26,560 --> 00:23:28,600
Speaker 7: a lot faster than usual. We don't want to have

485
00:23:28,640 --> 00:23:30,920
Speaker 7: those yields go away before you actually get the opportunity

486
00:23:30,960 --> 00:23:31,520
Speaker 7: and take advantage.

487
00:23:31,520 --> 00:23:33,600
Speaker 1: Well, that's what I was thinking, you know, for such

488
00:23:33,640 --> 00:23:36,240
Speaker 1: a big period. I feel like we were saying, listen,

489
00:23:36,280 --> 00:23:38,520
Speaker 1: look what the bond marketing can give you at this point,

490
00:23:38,560 --> 00:23:41,080
Speaker 1: So why not lock it in? Less volatility, less you know,

491
00:23:41,160 --> 00:23:44,439
Speaker 1: concerns over you know, risk your askets such as stocks

492
00:23:44,480 --> 00:23:46,920
Speaker 1: or elsewhere. But having said that, you know you're looking

493
00:23:46,960 --> 00:23:48,280
Speaker 1: at your four oh one K for those who are

494
00:23:48,359 --> 00:23:50,760
Speaker 1: lucky enough to have one and saying, wow, sound up

495
00:23:50,760 --> 00:23:53,600
Speaker 1: for one. Well, good for you, But you look at

496
00:23:53,600 --> 00:23:55,919
Speaker 1: those equity returns, and mind you, a lot of it was,

497
00:23:56,000 --> 00:23:57,800
Speaker 1: you know, towards the second half of the year and

498
00:23:58,000 --> 00:24:01,200
Speaker 1: just in the last month or two. Having said that,

499
00:24:01,359 --> 00:24:03,960
Speaker 1: how do you justify the bond story when you can

500
00:24:04,160 --> 00:24:06,840
Speaker 1: many times over if you'll just easily throw it into

501
00:24:07,480 --> 00:24:08,399
Speaker 1: an index fund? Again?

502
00:24:09,480 --> 00:24:09,720
Speaker 4: Yeah?

503
00:24:09,720 --> 00:24:12,280
Speaker 7: And I mean, you know, I have conversations with friends

504
00:24:12,280 --> 00:24:14,720
Speaker 7: and family and they're all saying, how do I own

505
00:24:14,760 --> 00:24:17,879
Speaker 7: these bonds? I'm going to go all in on AI

506
00:24:18,280 --> 00:24:20,320
Speaker 7: or you know whatever, the thing that's up the most,

507
00:24:20,359 --> 00:24:22,000
Speaker 7: I'm going to get more of that. And it's just

508
00:24:22,160 --> 00:24:25,760
Speaker 7: it goes back to a behavioral finance principles that we

509
00:24:25,840 --> 00:24:27,919
Speaker 7: learn about, where you know, you always want to have

510
00:24:28,040 --> 00:24:29,840
Speaker 7: the thing that's performing the best. You want to sell

511
00:24:29,840 --> 00:24:31,840
Speaker 7: the thing that's that's down the most in your forward

512
00:24:31,880 --> 00:24:35,720
Speaker 7: k or portfolios. And it's it's to us about rebalancing

513
00:24:35,760 --> 00:24:37,960
Speaker 7: in times like this where you have such a huge

514
00:24:38,040 --> 00:24:41,640
Speaker 7: run up in stocks versus bonds or whatever other asset classes,

515
00:24:41,720 --> 00:24:45,159
Speaker 7: more discipline approach. So we're looking to rebalance, trimp some

516
00:24:45,280 --> 00:24:47,560
Speaker 7: risk into next year. We think again, a lot of

517
00:24:47,600 --> 00:24:50,080
Speaker 7: the run up has been built in to the equity

518
00:24:50,119 --> 00:24:54,280
Speaker 7: sides of portfolios. Rebalance that into higher quality parts of portfolios,

519
00:24:54,400 --> 00:24:58,000
Speaker 7: like high quality fixed income, and get that income stream

520
00:24:58,040 --> 00:25:01,040
Speaker 7: into next year. Yeah, so that that's how we would.

521
00:25:00,880 --> 00:25:01,360
Speaker 6: Look at it.

522
00:25:01,520 --> 00:25:04,439
Speaker 1: Yeah, something's never changed, right in terms of either balanced

523
00:25:04,440 --> 00:25:08,000
Speaker 1: portfolio and the importance of bond market in your strategy.

524
00:25:08,000 --> 00:25:09,400
Speaker 1: All right, listen, we got to leave it there, Matt.

525
00:25:09,440 --> 00:25:11,480
Speaker 1: Thank you so much. Happy new year. Matt Miskin of

526
00:25:11,560 --> 00:25:14,879
Speaker 1: John Hancock Investment Management. We appreciate your time on this.

527
00:25:20,240 --> 00:25:24,280
Speaker 4: Let's bring in Tom Tazarius. He is the head of

528
00:25:24,320 --> 00:25:28,840
Speaker 4: fixed income research at Strategus, a Baird company. Good morning,

529
00:25:28,880 --> 00:25:30,119
Speaker 4: good to see, happy holidays.

530
00:25:30,119 --> 00:25:30,840
Speaker 3: Happy holidays.

531
00:25:31,240 --> 00:25:34,720
Speaker 4: So the US bond market pulled it back from the

532
00:25:34,840 --> 00:25:38,440
Speaker 4: jaws of defeat, delivered at three percent return. So does

533
00:25:38,480 --> 00:25:42,159
Speaker 4: that set me up for a more magnificent twenty twenty

534
00:25:42,200 --> 00:25:44,520
Speaker 4: four or three eighty eight. I'm my old priced inn

535
00:25:44,520 --> 00:25:46,399
Speaker 4: for one hundred and sixty basis points and cuts my

536
00:25:46,480 --> 00:25:47,520
Speaker 4: run is done. Good morning.

537
00:25:47,560 --> 00:25:49,400
Speaker 9: Well, it's going to depend whether we have a recession

538
00:25:49,440 --> 00:25:52,280
Speaker 9: next year, and to tell you the truth, that is

539
00:25:52,400 --> 00:25:55,320
Speaker 9: very hard to predict at this point in time because Washington,

540
00:25:55,440 --> 00:25:57,720
Speaker 9: DC has decided that they're going to run this US

541
00:25:57,800 --> 00:26:01,040
Speaker 9: economy at full employment at all costs, which means it's

542
00:26:01,040 --> 00:26:03,000
Speaker 9: going to be very difficult to get the consumer to

543
00:26:03,040 --> 00:26:05,520
Speaker 9: pull back, particularly in the second half of the year.

544
00:26:05,800 --> 00:26:08,359
Speaker 9: So we have a seasonal week spot coming in the

545
00:26:08,400 --> 00:26:11,640
Speaker 9: next few months, we'll say, late January to April, where

546
00:26:11,680 --> 00:26:14,880
Speaker 9: the US could dip into a recession, albeit very shallow.

547
00:26:15,080 --> 00:26:16,240
Speaker 3: If that's the case, then.

548
00:26:16,119 --> 00:26:19,440
Speaker 9: Expect those rate cuts to materialize and the bond market

549
00:26:19,440 --> 00:26:20,399
Speaker 9: to push yields lower.

550
00:26:20,560 --> 00:26:22,840
Speaker 3: If that does not happen, that is you do not.

551
00:26:22,920 --> 00:26:26,359
Speaker 9: Have that seasonal week spot transition into a rise in unemployment.

552
00:26:26,480 --> 00:26:28,160
Speaker 3: It's gonna be hard for the bond market to rally

553
00:26:28,200 --> 00:26:28,880
Speaker 3: further from here.

554
00:26:29,160 --> 00:26:31,560
Speaker 4: Okay, I like what you say. They're going to run

555
00:26:31,640 --> 00:26:34,680
Speaker 4: this economy at full speed as much as they can.

556
00:26:35,119 --> 00:26:38,560
Speaker 4: What does that mean? I mean, what are the additional risks.

557
00:26:38,600 --> 00:26:40,200
Speaker 4: One of the big debates that we were having before

558
00:26:40,240 --> 00:26:44,080
Speaker 4: Christmas was about issuance on about indigestion in the bond market.

559
00:26:44,440 --> 00:26:47,560
Speaker 4: So let's just square that away. We didn't get indigestion

560
00:26:47,840 --> 00:26:50,280
Speaker 4: really on these bond auctions at the back end of

561
00:26:50,320 --> 00:26:53,199
Speaker 4: the year. What's my risk in twenty twenty four of indigestion.

562
00:26:54,000 --> 00:26:56,159
Speaker 9: Very high, but it's going to depend on what the

563
00:26:56,200 --> 00:26:58,600
Speaker 9: Fed does. And because of that, I do believe twenty

564
00:26:58,640 --> 00:27:00,399
Speaker 9: twenty four is going to be the year that we

565
00:27:00,440 --> 00:27:03,000
Speaker 9: have a very serious discussion in the financial market's about

566
00:27:03,040 --> 00:27:07,040
Speaker 9: the Federal reserves credibility as an independent entity. Because if

567
00:27:07,040 --> 00:27:09,880
Speaker 9: you look at the economy coming into twenty twenty four,

568
00:27:10,119 --> 00:27:12,720
Speaker 9: it's still in a really decent spot. The unemployment rate

569
00:27:12,760 --> 00:27:15,399
Speaker 9: is very low. It's hard to justify rate cuts at

570
00:27:15,400 --> 00:27:18,320
Speaker 9: this point in time, certainly by March. Now, with that said,

571
00:27:18,480 --> 00:27:20,880
Speaker 9: the market's pricing in one hundred and fifty bases points

572
00:27:20,920 --> 00:27:21,720
Speaker 9: of rate cuts here.

573
00:27:21,640 --> 00:27:22,560
Speaker 1: So it's too aggressive to you.

574
00:27:22,760 --> 00:27:24,160
Speaker 3: Too aggressive at full employment?

575
00:27:24,200 --> 00:27:28,520
Speaker 9: Absolutely, yeah, maybe fifty, maybe seventy five at full employment

576
00:27:28,680 --> 00:27:30,679
Speaker 9: just to kind of fine tune monetary policy. But one

577
00:27:30,760 --> 00:27:33,919
Speaker 9: hundred and fifty that's a very steep amount of cuts

578
00:27:33,960 --> 00:27:36,320
Speaker 9: from something that is otherwise as of right now, not

579
00:27:36,400 --> 00:27:36,960
Speaker 9: a recession.

580
00:27:37,040 --> 00:27:37,200
Speaker 6: Tom.

581
00:27:37,200 --> 00:27:39,119
Speaker 1: I feel like one of our favorite drinking games of

582
00:27:39,119 --> 00:27:41,520
Speaker 1: the year was data dependent, Like how many times we

583
00:27:41,600 --> 00:27:44,879
Speaker 1: heard the FED remind us, no matter what the narrative was,

584
00:27:45,000 --> 00:27:48,320
Speaker 1: we're watching the data points, even with what the market's expecting,

585
00:27:48,760 --> 00:27:51,679
Speaker 1: a pretty aggressive FED moving to cut rates. Do we

586
00:27:51,760 --> 00:27:53,440
Speaker 1: need to watch those data points very closely?

587
00:27:53,600 --> 00:27:56,760
Speaker 9: We do, And I would continue to watch wages because

588
00:27:56,800 --> 00:27:59,600
Speaker 9: this is the one I've always said, average hourly earnings

589
00:27:59,640 --> 00:28:02,720
Speaker 9: or employed cost index, those the most important ones. Obviously

590
00:28:02,920 --> 00:28:05,480
Speaker 9: CPI and PC are going to tell us whether the

591
00:28:05,480 --> 00:28:07,800
Speaker 9: FED has room to cut, but wages are going to

592
00:28:07,880 --> 00:28:10,760
Speaker 9: tell us whether CPI or inflation are going to reaccelerate

593
00:28:10,800 --> 00:28:11,840
Speaker 9: once those cuts hit.

594
00:28:12,000 --> 00:28:13,080
Speaker 3: And here's the important point.

595
00:28:13,119 --> 00:28:15,840
Speaker 9: Wages are growing at four percent if the fed's target

596
00:28:15,880 --> 00:28:18,080
Speaker 9: is two percent, how are you going to stay there

597
00:28:18,200 --> 00:28:21,560
Speaker 9: if rate cuts begin to culminate, how are you going

598
00:28:21,600 --> 00:28:24,560
Speaker 9: to stay at two percent? If wages are pulling inflation higher,

599
00:28:24,800 --> 00:28:27,240
Speaker 9: productivity has to be rough algebra two percent.

600
00:28:27,400 --> 00:28:28,560
Speaker 3: I don't see that right now.

601
00:28:28,960 --> 00:28:31,960
Speaker 1: It's really it's interesting. So then what worries you in

602
00:28:32,040 --> 00:28:35,080
Speaker 1: terms of the economics story, Is it that we are

603
00:28:35,119 --> 00:28:37,760
Speaker 1: all just expecting a much more aggressive FED?

604
00:28:37,800 --> 00:28:38,200
Speaker 4: What is it?

605
00:28:38,240 --> 00:28:39,520
Speaker 1: Is it the expectation or what?

606
00:28:39,920 --> 00:28:42,720
Speaker 9: So I've got two worries going into twenty twenty four.

607
00:28:42,840 --> 00:28:45,920
Speaker 9: One is the consumer is running at exhaustion, building up

608
00:28:46,040 --> 00:28:49,080
Speaker 9: enormous amounts of credit card debt, and we're seeing bigger

609
00:28:49,120 --> 00:28:53,600
Speaker 9: and bigger seasonal pullbacks oddly enough, in January, February, March,

610
00:28:53,680 --> 00:28:56,080
Speaker 9: and again we'll see them in September or October. So

611
00:28:56,120 --> 00:28:59,080
Speaker 9: the consumer's binging from May to August, and then binging

612
00:28:59,080 --> 00:29:02,480
Speaker 9: again from holloween until New Year's and then every six

613
00:29:02,520 --> 00:29:05,400
Speaker 9: months the pullback gets bigger and bigger. So patching that

614
00:29:05,480 --> 00:29:08,520
Speaker 9: over with band aid stimulus is require more and more stimulus.

615
00:29:08,560 --> 00:29:11,160
Speaker 9: But the problem with that is you're keeping the economy

616
00:29:11,160 --> 00:29:14,960
Speaker 9: at full employment artificially, and that means structurally inflation is

617
00:29:15,000 --> 00:29:16,760
Speaker 9: going to continue to be elevated.

618
00:29:16,880 --> 00:29:18,920
Speaker 5: I want to actually go back to the politics of

619
00:29:18,960 --> 00:29:21,120
Speaker 5: the FED and this discussion that could be coming when

620
00:29:21,120 --> 00:29:23,680
Speaker 5: it comes to the independence of the FED, because you

621
00:29:23,680 --> 00:29:26,720
Speaker 5: think about the FED cutting by March. In your view,

622
00:29:26,720 --> 00:29:27,640
Speaker 5: that's not justified.

623
00:29:27,760 --> 00:29:29,760
Speaker 1: Is the FED really political or is it just a

624
00:29:29,800 --> 00:29:31,480
Speaker 1: case it's got to do something.

625
00:29:31,200 --> 00:29:33,360
Speaker 5: Well, I mean, you think about the argument that they're

626
00:29:33,360 --> 00:29:36,240
Speaker 5: making that they basically want to get out of restricted territory,

627
00:29:36,240 --> 00:29:39,320
Speaker 5: that this isn't cutting to ease necessarily, it's just to

628
00:29:39,520 --> 00:29:42,600
Speaker 5: make things a little bit less restrictive, get closer to neutral.

629
00:29:42,840 --> 00:29:44,000
Speaker 1: Do you not buy that argument?

630
00:29:44,160 --> 00:29:47,120
Speaker 9: Well, neutral might be five percent. FED funds rate might

631
00:29:47,160 --> 00:29:49,280
Speaker 9: be four seventy five, it's not three point fifty.

632
00:29:49,720 --> 00:29:50,479
Speaker 3: That's the problem.

633
00:29:50,480 --> 00:29:52,680
Speaker 9: Why is the bond market or the futures market pricing

634
00:29:52,720 --> 00:29:55,320
Speaker 9: in such an extreme amount of rate cuts starting no

635
00:29:55,440 --> 00:30:00,280
Speaker 9: later than March, when the economy and the equity markets example,

636
00:30:00,400 --> 00:30:01,360
Speaker 9: or all projecting to.

637
00:30:01,440 --> 00:30:03,080
Speaker 4: Be a little variable lag eventually ran.

638
00:30:03,800 --> 00:30:05,200
Speaker 3: So something doesn't add up there.

639
00:30:05,240 --> 00:30:08,080
Speaker 9: And I think the futures markets are starting to question

640
00:30:08,200 --> 00:30:10,760
Speaker 9: the credibility of the FED, and they're seeing in particularly

641
00:30:10,760 --> 00:30:13,160
Speaker 9: the Treasury is going to have a huge liquidity hiccup

642
00:30:13,160 --> 00:30:15,240
Speaker 9: in the middle portion of the year if the FED

643
00:30:15,280 --> 00:30:18,040
Speaker 9: has not cut and has not stopped balance sheet reduction.

644
00:30:18,120 --> 00:30:20,239
Speaker 9: So if you look out to June, you say, right,

645
00:30:20,320 --> 00:30:23,000
Speaker 9: cuts need to commence before then to help the treasury.

646
00:30:23,120 --> 00:30:24,960
Speaker 5: I'm glad you brought up the balance sheet because I

647
00:30:24,960 --> 00:30:27,880
Speaker 5: feel like I don't know, we don't talk about it enough.

648
00:30:28,360 --> 00:30:30,360
Speaker 5: And if we enter into a situation where the FED

649
00:30:30,760 --> 00:30:33,680
Speaker 5: is cutting rates that their justification is that we're just

650
00:30:33,800 --> 00:30:36,840
Speaker 5: getting out of ultra restrictive territory here we can continue

651
00:30:36,840 --> 00:30:39,440
Speaker 5: to run off the balance sheet. What does that mean

652
00:30:39,560 --> 00:30:42,520
Speaker 5: for the bond market? How does the FED message that

653
00:30:42,600 --> 00:30:45,480
Speaker 5: and how is that actually received by the market, because

654
00:30:45,640 --> 00:30:47,920
Speaker 5: I mean, at first glimance, that would appear to be

655
00:30:48,160 --> 00:30:50,600
Speaker 5: the FED acting at opposite ends.

656
00:30:50,840 --> 00:30:52,920
Speaker 9: Well, this is going to be very difficult for the

657
00:30:52,920 --> 00:30:56,440
Speaker 9: FED to deliver on this politically, optically, it's going to

658
00:30:56,480 --> 00:30:59,160
Speaker 9: look like they are being accommodative to the administration no

659
00:30:59,160 --> 00:31:01,840
Speaker 9: matter what they do if they stop balance sheet reduction

660
00:31:02,120 --> 00:31:04,320
Speaker 9: and they begin great cuts. So they're gonna have to

661
00:31:04,360 --> 00:31:06,520
Speaker 9: communicate this, and the way they're probably going to communicate

662
00:31:06,520 --> 00:31:08,880
Speaker 9: this is through the concept of ample reserves in the

663
00:31:08,880 --> 00:31:13,040
Speaker 9: banking system stopping balance sheet reduction, because they're getting close

664
00:31:13,080 --> 00:31:15,560
Speaker 9: to the point where there's going to be liquidity issues

665
00:31:15,640 --> 00:31:18,880
Speaker 9: in the repo market. That will probably be how it's communicated,

666
00:31:18,920 --> 00:31:21,920
Speaker 9: but that's going to be a questionable argument in my opinion.

667
00:31:22,560 --> 00:31:24,840
Speaker 4: I was sort of mulling this over last night before

668
00:31:24,920 --> 00:31:27,160
Speaker 4: before we came in this morning. We became a bit

669
00:31:27,160 --> 00:31:30,600
Speaker 4: obsessed about the basis trade in the last couple of months. Indeed,

670
00:31:30,640 --> 00:31:33,640
Speaker 4: the Bank of England didn't become obsessed by it. They

671
00:31:34,040 --> 00:31:39,600
Speaker 4: very much noted it. What is the risk of some

672
00:31:39,760 --> 00:31:44,560
Speaker 4: kind of an eruption or reversal of that basis trade.

673
00:31:44,600 --> 00:31:46,880
Speaker 4: It's been around forever, we're just talking about it an

674
00:31:46,880 --> 00:31:49,280
Speaker 4: awful lot more so told me through the risk from

675
00:31:49,400 --> 00:31:52,200
Speaker 4: the basis trade, the risk from slightly faster faster.

676
00:31:51,960 --> 00:31:55,280
Speaker 9: Positions, Well, the risk is obviously that you're having the

677
00:31:55,440 --> 00:31:59,160
Speaker 9: liquidity providers become someone who is very large and dependent,

678
00:31:59,200 --> 00:32:01,880
Speaker 9: and we're dependent on that one or two liquidity providers,

679
00:32:01,920 --> 00:32:04,160
Speaker 9: just like in the past in the profinancial crisis, when

680
00:32:04,200 --> 00:32:07,760
Speaker 9: we're dependent upon dealers, primary dealers as liquidity providers. Now

681
00:32:07,760 --> 00:32:10,880
Speaker 9: we're dependent in the treasury market on basis traders and

682
00:32:10,920 --> 00:32:13,360
Speaker 9: to some extent primary dealers as well. So whenever you

683
00:32:13,440 --> 00:32:17,480
Speaker 9: become overly reliant on one type of liquidity provider another,

684
00:32:17,520 --> 00:32:20,200
Speaker 9: you're always at risk, and the odds are eventually that

685
00:32:20,240 --> 00:32:23,560
Speaker 9: liquidity provider is going to have a pullback, which will

686
00:32:23,600 --> 00:32:26,800
Speaker 9: cascade into a full market liquidity hiccup.

687
00:32:26,880 --> 00:32:29,440
Speaker 3: But by the way, that's what's a market is supposed

688
00:32:29,480 --> 00:32:31,840
Speaker 3: to do. Markets are supposed to seize up from time

689
00:32:31,920 --> 00:32:32,280
Speaker 3: to time.

690
00:32:32,680 --> 00:32:35,800
Speaker 1: Tom Left's question, we've been so US focused. Understandably so,

691
00:32:36,680 --> 00:32:39,479
Speaker 1: but I do wonder the global bond story. It's not

692
00:32:39,520 --> 00:32:41,360
Speaker 1: just a US bond store, but we're seeing this play

693
00:32:41,360 --> 00:32:43,320
Speaker 1: out globally. How do you kind of factor all of

694
00:32:43,320 --> 00:32:43,600
Speaker 1: that in?

695
00:32:43,720 --> 00:32:46,600
Speaker 9: Well, I think the economic weakness is greater outside of

696
00:32:46,680 --> 00:32:49,360
Speaker 9: the US, and so as a consequence, you should see

697
00:32:49,360 --> 00:32:52,720
Speaker 9: other central banks beginning to pivot themselves and eventually move

698
00:32:52,760 --> 00:32:53,680
Speaker 9: towards rate cuts.

699
00:32:53,880 --> 00:32:55,000
Speaker 3: You should also begin to.

700
00:32:55,000 --> 00:32:58,680
Speaker 9: See other central banks pulling back from balance sheet reduction,

701
00:32:58,800 --> 00:33:00,800
Speaker 9: as the FED is eventually going to do. So there

702
00:33:00,840 --> 00:33:04,200
Speaker 9: should be global support for the bond markets because you

703
00:33:04,320 --> 00:33:06,120
Speaker 9: simply have a weakening global economy.

704
00:33:06,120 --> 00:33:08,400
Speaker 1: Five seconds. You have a favorite global bond market.

705
00:33:08,600 --> 00:33:09,440
Speaker 3: Right now, the US.

706
00:33:09,880 --> 00:33:15,160
Speaker 4: All right, all things hell, the US splendid position. Tom,

707
00:33:15,200 --> 00:33:18,600
Speaker 4: Thank you very much for being with us this holiday.

708
00:33:18,720 --> 00:33:23,640
Speaker 4: Tom Tazarius stradigis on All Things Markets.

709
00:33:33,840 --> 00:33:35,840
Speaker 1: Certainly watching what's going on in the Middle East. Having

710
00:33:35,880 --> 00:33:37,880
Speaker 1: said that, We've got a great guest. Norman Rule is

711
00:33:37,920 --> 00:33:41,400
Speaker 1: former senior US Intelligence official and senior advisor of the

712
00:33:41,440 --> 00:33:45,000
Speaker 1: Transnational Threats Project at the Center for Strategic and International Studies,

713
00:33:45,080 --> 00:33:48,720
Speaker 1: joining us on this Tuesday. What do we need to

714
00:33:48,840 --> 00:33:51,520
Speaker 1: be thinking about as we continue to watch these headlines

715
00:33:51,560 --> 00:33:54,400
Speaker 1: and what seems to be escalation of the Middle East conflict?

716
00:33:54,440 --> 00:33:58,440
Speaker 8: Norman, Good morning. Over the last several days, we've seen

717
00:33:58,520 --> 00:34:02,120
Speaker 8: a multifront escalation violence through the region. We have the

718
00:34:02,200 --> 00:34:06,480
Speaker 8: Israelis moving from a holding pattern North Gaza to Rafa

719
00:34:06,760 --> 00:34:08,839
Speaker 8: and Khan Yunis, which is going to be the most

720
00:34:08,840 --> 00:34:11,600
Speaker 8: difficult and challenging aspect of the war. But it's the

721
00:34:11,640 --> 00:34:15,359
Speaker 8: location of the Hamas leadership hostages and a vast array

722
00:34:15,360 --> 00:34:19,080
Speaker 8: of connels, perhaps twice as many israel anticipated. We've seen

723
00:34:19,080 --> 00:34:21,840
Speaker 8: the attacks by Ketab Hasblo on US forces and the

724
00:34:22,000 --> 00:34:27,759
Speaker 8: US response against three sites in Iraq that is demonstrating

725
00:34:27,800 --> 00:34:31,959
Speaker 8: a capacity for retaliation but not necessarily determs. We've also

726
00:34:32,000 --> 00:34:36,520
Speaker 8: seen the Israeli believed killing of the most senior Iranian

727
00:34:36,640 --> 00:34:41,520
Speaker 8: Kods force officials since Akassam Solomani. He was responsible reportedly

728
00:34:41,640 --> 00:34:45,040
Speaker 8: for the shipment of Iranian weapons to proxies in Syria

729
00:34:45,360 --> 00:34:48,560
Speaker 8: and Lebanon, and his death will require some sort of

730
00:34:48,680 --> 00:34:53,240
Speaker 8: Iranian retaliation. And last, we've seen some modest continued action

731
00:34:53,360 --> 00:34:56,160
Speaker 8: by the Hufis against shipping in the Red Sea. However

732
00:34:56,200 --> 00:34:59,040
Speaker 8: that's been offset by a growing number of ships from

733
00:34:59,080 --> 00:35:03,479
Speaker 8: a variety of and MRSK has resumed its shipping through

734
00:35:03,520 --> 00:35:05,440
Speaker 8: the Red Sea Arabian Sea area.

735
00:35:05,560 --> 00:35:09,040
Speaker 4: They have, indeed, Norman they've resumed that, and that is

736
00:35:09,080 --> 00:35:11,880
Speaker 4: the coalition of up to twenty countries that are now

737
00:35:12,080 --> 00:35:15,200
Speaker 4: affording protection. So I think that is quite progressive. I

738
00:35:15,200 --> 00:35:18,000
Speaker 4: want to join your experience. You were the principal intelligence

739
00:35:19,000 --> 00:35:24,680
Speaker 4: officer overseeing national intelligence policy on Iran and Iran related issues.

740
00:35:24,960 --> 00:35:27,160
Speaker 4: I sat down with the Iranian Foreign Minister when he

741
00:35:27,280 --> 00:35:29,959
Speaker 4: was here at the UN. I specifically asked him about

742
00:35:29,960 --> 00:35:32,560
Speaker 4: where you scaling up in terms of troops, in terms

743
00:35:32,600 --> 00:35:35,920
Speaker 4: of ships, et cetera. Of course, he prevaricated and accused

744
00:35:35,920 --> 00:35:39,279
Speaker 4: me of perhaps interrogating him rather than interviewing him. The

745
00:35:39,440 --> 00:35:41,359
Speaker 4: essence of it is this, when you look at where

746
00:35:41,360 --> 00:35:46,000
Speaker 4: Iran are escalating via their proxies. Where are the weakest links,

747
00:35:46,080 --> 00:35:48,360
Speaker 4: as it were, for the Coalition of the West. Is

748
00:35:48,400 --> 00:35:51,400
Speaker 4: it in Lebanon? Is that the highest flashpoint that you

749
00:35:51,440 --> 00:35:54,880
Speaker 4: can see, or is it this one off reprisal from

750
00:35:55,080 --> 00:35:58,480
Speaker 4: the US into Iraq? Where is the weakest link for

751
00:35:58,600 --> 00:35:59,719
Speaker 4: the coalition At the.

752
00:35:59,680 --> 00:36:04,560
Speaker 8: Moment, The most important area for focus, I continue to

753
00:36:04,560 --> 00:36:06,880
Speaker 8: believe would be the Red Sea. We have to watch

754
00:36:07,000 --> 00:36:10,799
Speaker 8: for the possibility of the Hui's using explosive drone boats,

755
00:36:10,840 --> 00:36:15,160
Speaker 8: perhaps mining, and perhaps believing that the retaliatory capacity of

756
00:36:15,160 --> 00:36:18,799
Speaker 8: the coalition is weak because it is untested and the

757
00:36:18,960 --> 00:36:22,279
Speaker 8: US is now pretty much advised it's not interested in

758
00:36:22,400 --> 00:36:25,759
Speaker 8: escalation of regional conflicts, so I would look there as

759
00:36:25,800 --> 00:36:29,400
Speaker 8: a result a response from the proxies. We do have

760
00:36:29,520 --> 00:36:32,919
Speaker 8: the Lebanese challenge, and Israeli soldier has died today from

761
00:36:32,960 --> 00:36:35,560
Speaker 8: wounds he incurred from an anti tank rocket a few

762
00:36:35,600 --> 00:36:38,640
Speaker 8: days ago. But the Lebanese has block peers to be

763
00:36:38,719 --> 00:36:41,520
Speaker 8: constrained by its own perception that it doesn't want to

764
00:36:41,520 --> 00:36:44,600
Speaker 8: be involved in a conflict that could bring strategic damage

765
00:36:44,600 --> 00:36:46,000
Speaker 8: to its own equities.

766
00:36:46,040 --> 00:36:48,880
Speaker 5: And norm Since October seventh, of course, the Hamas attack

767
00:36:49,040 --> 00:36:52,839
Speaker 5: on Israel. The guiding thought here has been that the administration,

768
00:36:53,000 --> 00:36:56,120
Speaker 5: really government's worldwide, don't want that to broaden into a

769
00:36:56,280 --> 00:36:59,360
Speaker 5: wider conflict. But you think about what's happened over the

770
00:36:59,400 --> 00:37:01,520
Speaker 5: past few weeks, of course, with the Red Sea and

771
00:37:01,560 --> 00:37:04,880
Speaker 5: now these drone attacks in Iraq, is that starting to

772
00:37:04,880 --> 00:37:05,759
Speaker 5: look inevitable?

773
00:37:07,360 --> 00:37:11,480
Speaker 8: Well, what's happening is that the world preposture of opposing

774
00:37:11,520 --> 00:37:15,600
Speaker 8: any expansion in the conflict is inevitably eroding the deterrent

775
00:37:15,680 --> 00:37:20,719
Speaker 8: capacity of the international community and collective security. Iron's proxies

776
00:37:20,760 --> 00:37:23,279
Speaker 8: are testing red lines, they're seeing that some red lines

777
00:37:23,320 --> 00:37:26,880
Speaker 8: are pink, and they're also normalizing a certain scale of violence.

778
00:37:27,080 --> 00:37:30,000
Speaker 8: There was a time when medium range ballistic missile shots

779
00:37:30,000 --> 00:37:32,959
Speaker 8: from Yemen to Israel would have seen as something lot

780
00:37:33,000 --> 00:37:36,400
Speaker 8: to sparkle a regional conflict, and now it really doesn't

781
00:37:36,400 --> 00:37:39,640
Speaker 8: make the news after a few hours. So the normalization

782
00:37:39,719 --> 00:37:41,640
Speaker 8: of violence is a very troubling issue.

783
00:37:41,960 --> 00:37:44,799
Speaker 1: Hey, norm there's another story on the Bloomberg coming out

784
00:37:44,840 --> 00:37:48,320
Speaker 1: late last night that Israeli Prime Minister Benjamin Ettnyaho outlined

785
00:37:48,400 --> 00:37:52,359
Speaker 1: three prerequisites excuse me to achieving peace in the war

786
00:37:52,400 --> 00:37:56,000
Speaker 1: with Hamas the destruction of the groove, the delitillarization of

787
00:37:56,040 --> 00:37:59,959
Speaker 1: Gaza and for Palestinian society to be deradicalized. Those seem

788
00:38:00,360 --> 00:38:03,600
Speaker 1: pretty rough metrics to hit. Having said that there is

789
00:38:03,640 --> 00:38:07,239
Speaker 1: a lot of pressure on Israel to end this, what

790
00:38:07,440 --> 00:38:10,360
Speaker 1: is the likely outcome is the pressure building that you

791
00:38:10,480 --> 00:38:14,560
Speaker 1: think there could be some kind of truth created sooner

792
00:38:14,640 --> 00:38:15,360
Speaker 1: rather than later.

793
00:38:17,000 --> 00:38:17,520
Speaker 4: The head of.

794
00:38:17,480 --> 00:38:20,640
Speaker 8: Hamas has made an announcement also during this period in

795
00:38:20,640 --> 00:38:23,480
Speaker 8: which he has refused to surrender and has made some

796
00:38:23,520 --> 00:38:27,239
Speaker 8: moblandish complaint claims on Israeli losses. When you look at

797
00:38:27,360 --> 00:38:30,960
Speaker 8: Prime Minister Nataniahu's statement, the most troubling aspect is actually

798
00:38:30,960 --> 00:38:35,000
Speaker 8: the deradicalization of Gaza society. That is something that would

799
00:38:35,000 --> 00:38:38,600
Speaker 8: take months, if not years, and the international community doesn't

800
00:38:38,640 --> 00:38:41,560
Speaker 8: have a lot of experience with this, oth Saudi Arabia

801
00:38:41,560 --> 00:38:44,560
Speaker 8: and the Emirates do for their own world. I think

802
00:38:44,560 --> 00:38:47,640
Speaker 8: it's also notable that Natanyahu did not mention the hostages,

803
00:38:47,680 --> 00:38:51,480
Speaker 8: and he's come under significant pressure from Israeli hostage family

804
00:38:51,520 --> 00:38:54,439
Speaker 8: for not doing more to bring back the roughly one

805
00:38:54,520 --> 00:38:57,480
Speaker 8: hundred plus hostages who remain in Hama's hands.

806
00:38:58,000 --> 00:39:02,279
Speaker 4: Will we hear a different rhetoric from the White House,

807
00:39:02,320 --> 00:39:05,799
Speaker 4: from the Biden administration going into the new year.

808
00:39:07,520 --> 00:39:09,640
Speaker 8: I don't think so. The White House will likely continue

809
00:39:09,640 --> 00:39:13,360
Speaker 8: to express support for Israel's right to defend itself and

810
00:39:13,840 --> 00:39:17,040
Speaker 8: to punish and eradicate Hamas's leadership. But also you will

811
00:39:17,040 --> 00:39:20,000
Speaker 8: see continued pressure by the United States to bring in

812
00:39:20,080 --> 00:39:24,080
Speaker 8: more humanitarian supplies. Is well will respond correctly that the

813
00:39:24,120 --> 00:39:26,680
Speaker 8: more fuel that comes in if Hamas uses that fuel

814
00:39:26,760 --> 00:39:30,280
Speaker 8: to retain control of tunnels, and that extends the conflict.

815
00:39:30,520 --> 00:39:32,480
Speaker 8: But I think you're going to see a continuation of

816
00:39:32,480 --> 00:39:33,800
Speaker 8: the administration's narrative.

817
00:39:34,040 --> 00:39:37,040
Speaker 1: Norm is it though time for the administration to change

818
00:39:37,040 --> 00:39:39,840
Speaker 1: that narrative if you consider some of the pressure, the

819
00:39:39,840 --> 00:39:43,759
Speaker 1: global pressure and even pressure within inside the United States,

820
00:39:44,560 --> 00:39:45,560
Speaker 1: and that would be difficult.

821
00:39:45,600 --> 00:39:48,719
Speaker 8: It would be difficult for Israel, which has gone through

822
00:39:48,760 --> 00:39:52,120
Speaker 8: the October seventh massacre and the bad news on hostages

823
00:39:52,160 --> 00:39:54,319
Speaker 8: and the losses of its own personnel, to say that

824
00:39:54,360 --> 00:39:58,399
Speaker 8: it would tolerate the continued existence of Hamas's top three

825
00:39:58,480 --> 00:40:02,640
Speaker 8: military leaders and the radicalization of a society on their border.

826
00:40:02,880 --> 00:40:05,200
Speaker 8: I think what we should look for is the likelihood

827
00:40:05,239 --> 00:40:09,440
Speaker 8: that Israel increases focus on eradicating the top three personnel

828
00:40:09,440 --> 00:40:13,120
Speaker 8: on Hamasa's military leadership. Or perhaps forcing them to flee country.

829
00:40:13,440 --> 00:40:15,560
Speaker 1: All right, gon Alivia there, We so appreciate your time

830
00:40:15,600 --> 00:40:18,919
Speaker 1: this morning, A very important story for everybody on this Tuesday. Norm.

831
00:40:18,960 --> 00:40:22,440
Speaker 1: Thank you, Norman Rule of csis. We really appreciate him

832
00:40:22,520 --> 00:40:27,120
Speaker 1: joining us here. Subscribe to the Bloomberg Surveillance Podcast on Apple, Spotify,

833
00:40:27,160 --> 00:40:30,360
Speaker 1: and anywhere else you get your podcasts. Listen live every

834
00:40:30,360 --> 00:40:33,480
Speaker 1: weekday starting at seven am Eastern on Bloomberg dot Com,

835
00:40:33,600 --> 00:40:37,000
Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app.

836
00:40:37,200 --> 00:40:39,800
Speaker 1: You can watch us live on Bloomberg Television and always

837
00:40:39,840 --> 00:40:42,319
Speaker 1: on the Bloomberg terminal. Thanks so much for listening. I'm

838
00:40:42,360 --> 00:40:44,320
Speaker 1: Carol Masser, and this is Bloomberg