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Speaker 2: All right, everybody, yeah, the working man man the fed for.
Speaker 1: I'm getting so many viewers and listeners are getting in
Speaker 1: touch with me right now.
Speaker 2: So are you sure you want to do this story?
Speaker 4: Well?
Speaker 2: No, I mean about hot desking too, Oh and hot desking.
Speaker 1: Yeah, Fabio f CerPA wrote in and said that he
Speaker 1: had to google it. So I think, you know, not
Speaker 1: everybodyho knows what hot desking is.
Speaker 5: I actually didn't.
Speaker 1: I had never heard of it until the pandemic, Caro,
Speaker 1: when my wife was like, you know, she's like, we're
Speaker 1: hot desking at work.
Speaker 2: I've never heard the expression never. Okay, so sharing desks,
Speaker 2: I've heard that yet.
Speaker 1: But they but it was different during the pandemic. What
Speaker 1: they were doing was they wanted to make sure that
Speaker 1: people who were coming into the office weren't close to
Speaker 1: other people. So they had certain days when some people
Speaker 1: came in, other days others came in. So it's like, okay,
Speaker 1: you're hot desking. You're using this desk that somebody, you know,
Speaker 1: somebody else typically uses.
Speaker 2: In the nineteen nineties, IBM Business, a business unit, said
Speaker 2: they did something called hotelling, like this idea of kind
Speaker 2: of the same thing I guess of sharing desks. And
Speaker 2: then there's a naval practice of hot racking, where sailors
Speaker 2: on different ships share the same bunk. So there's history here.
Speaker 2: There's history. All right, all right, we're tabling that. Let's
Speaker 2: talk about the economy. As we said, as you heard
Speaker 2: from the music working men and women. That is very
Speaker 2: true of all things involved with the FED. FED speakers
Speaker 2: out in full force. FED Chair at J. Powell today
Speaker 2: say in the Central Bank must be willing to think
Speaker 2: beyond the complex mathematical simulations it traditionally uses to forecast
Speaker 2: the economy. There's a method to the mag I guess,
Speaker 2: so who knew? And this is at a conference where
Speaker 2: the Fed's research and statistics. You know, he didn't say much.
Speaker 2: He's going to make some comments tomorrow where he might
Speaker 2: be able to have more time to express his views.
Speaker 2: It's going to be a panel to him on monetary
Speaker 2: policy challenges.
Speaker 5: Yeah.
Speaker 1: Chair Powell and his FED colleagues continued to remind us
Speaker 1: the goal is still two percent inflation, and yet, as
Speaker 1: Bloomberg opinion columnists Connor Sen writes today, the FED needs
Speaker 1: to forget about inflation and focus on that other part
Speaker 1: of its dual mandate, which is jobs. Connor joins us
Speaker 1: now to explain he's also the founder of Peachtree Creek Investments.
Speaker 1: He joins us on zoom from Atlanta. Connor, we love
Speaker 1: it when you join us. Thanks for joining us this afternoon.
Speaker 1: So why do you argue that you know, at least
Speaker 1: when it comes to you know what the Fed, the
Speaker 1: Fed's dual mandate, it's time to put inflation in the
Speaker 1: rear view, which the FED has been so focused on
Speaker 1: for the last two years, and now focus on jobs.
Speaker 6: So the real shift in the past six months in
Speaker 6: the data is that the unemployment rate has risen by
Speaker 6: a half percent and is now at three point nine percent,
Speaker 6: ahead of the fed's year end target or goal forecast
Speaker 6: of three point eight percent. And so for the first time,
Speaker 6: really since this whole inflation panic kicked up, we now
Speaker 6: have to worry about inflate to employment in a way
Speaker 6: we haven't before. And so the employment mandate coming back
Speaker 6: into the picture changes the calculus for the FED.
Speaker 2: Go through it though, Really I love this. The unemployment
Speaker 2: rate at three point nine percent in October, slightly above
Speaker 2: the feds end twenty twenty three forecast of three point
Speaker 2: eight percent. But what you note is it has risen
Speaker 2: fifty base his point since April, an exceptional move for
Speaker 2: a healthy economy. Sometimes it feels like fifty bases points
Speaker 2: maybe wasn't a lot, but it is a big move.
Speaker 6: Correct, Yeah, exactly when you saw this sort of magnitude
Speaker 6: of move. Over the past twenty years, it's typically as
Speaker 6: the economy was heading into recession.
Speaker 1: Okay, son, can we make that jump though?
Speaker 2: Forgive me tim? Can we make that jump though so quickly?
Speaker 2: Just because that move? I mean, I feel like this
Speaker 2: has been an environment where you know, fool me once recession,
Speaker 2: fool me twice recession, and it doesn't Things don't happen.
Speaker 2: So can you really make that jump because of this
Speaker 2: move and the unemployment rate.
Speaker 6: I don't think we're heading into recession, but it's the
Speaker 6: kind of thing where the FED it's sort of what
Speaker 6: do you think the FED will do with the data?
Speaker 6: And they have to at least weigh the fact that
Speaker 6: in the past this sort of unemployment trend has often
Speaker 6: led to recession. And at a time when they know
Speaker 6: that inflation has come down, it's not at two percent,
Speaker 6: but it's been coming down, and they see unemployment taking up,
Speaker 6: it's now not out of the possibility that unemployment could
Speaker 6: tip the economy into recession over the next six or
Speaker 6: nine months, and that has to sh shift the way
Speaker 6: they think about policy.
Speaker 1: What if Connor and these are dreaded words, this time
Speaker 1: is different.
Speaker 6: And I think it is because you look at sort
Speaker 6: of the bullwhip is the term we've used for a
Speaker 6: lot of things, where job opening has came down two million,
Speaker 6: but we had so many that it was fine, And
Speaker 6: hiring rates are down, labor market churn is down. This
Speaker 6: is probably part of the same dynamic, but you can't
Speaker 6: be sure. And as I pointed out in my column,
Speaker 6: over the past six months, a million people have joined
Speaker 6: the labor force and the unemployment levels were risen by
Speaker 6: eight hundred thousand. So even though we've had all this
Speaker 6: great growth, it's not really converting into job growth.
Speaker 1: Can you explain that dynamic here? How more people join
Speaker 1: in the labor force, how some of them are They're
Speaker 1: not necessarily sitting on the sidelines, they're just not finding.
Speaker 6: A job right And it's not like the million people
Speaker 6: who have joined the labor force are unemployed. There's just
Speaker 6: a lot of churn in the economy one hundred and
Speaker 6: fifty million workers or so. But it just shows that
Speaker 6: the growth we've seen is due to productivity growth, not
Speaker 6: rapid hiring, not rapid labor demand. And if you're fed,
Speaker 6: you think we've achieved our labor market mandate. Fed Governor
Speaker 6: Waller said yesterday that labor market balance is in a
Speaker 6: pretty good place, and not those exact words, but my
Speaker 6: guess is that's the view of committee. And if the
Speaker 6: labor market's now in a good place, well, they were
Speaker 6: worried for a while that the labor market was what
Speaker 6: was kicking up inflation, and they shouldn't be worried about
Speaker 6: that anymore.
Speaker 2: Can you go to also, folks, this is an education
Speaker 2: right now for everybody watching and listening. Aggregate weekly payroll growth.
Speaker 2: Talk to us about this metric as well and what
Speaker 2: it tells us.
Speaker 6: Sure, So what that calculates is the number of workers
Speaker 6: times how many hours they work, times what their wages are,
Speaker 6: and so it's sort of a rough aggregate for just
Speaker 6: worker incomes. And that's now only grown five percent over
Speaker 6: the past year, which is basically what it did in
Speaker 6: the twenty tens. So that number was really high last year,
Speaker 6: and that was a reason to believe that the labor
Speaker 6: market was driving inflation, and that's no longer concerned.
Speaker 2: So interesting, So listen, we've got you know, Jay Powell
Speaker 2: on top. I'm thinking about you know, I don't know.
Speaker 2: He obviously didn't say much today, but he didn't have
Speaker 2: much opportunity to say, but we do anticipate he might
Speaker 2: have some more time to express his views. Tomorrow it's
Speaker 2: going to be a panel of monetary policy challenges. Do
Speaker 2: you think I mean, do you feel like they're starting
Speaker 2: to talk more about the labor market. I don't feel
Speaker 2: that way. I feel like they're pretty comfortable with it.
Speaker 2: But what would you look for maybe J. Powell and
Speaker 2: company to start talking about or maybe what they should
Speaker 2: be talking about.
Speaker 6: Well, they like to change their communication iteratively. They're not
Speaker 6: going to go from we're looking to hike too, we're
Speaker 6: looking to cut in two weeks. That's not what they
Speaker 6: do barring the economy collapsing. So this month, what I
Speaker 6: would look for is just them talking about the labor
Speaker 6: market being back in balance. That to me would be
Speaker 6: the key that all of a sudden they're going to
Speaker 6: focus more on employment. The employment mandate is the risk
Speaker 6: management there is very different than the inflation side, and
Speaker 6: I would look for them potentially in December to not
Speaker 6: hike and sort of be open minded about where policy
Speaker 6: could go in twenty twenty four. And I think the
Speaker 6: bond market is starting to sniff that out a little bit.
Speaker 2: But you don't even think just open minded you think
Speaker 2: that we could see some serious rate cuts by the
Speaker 2: FED next year. I mean, the market on the last
Speaker 2: FED meeting jumped the idea of a cut. They moved
Speaker 2: it from July expectations to the June to June. So
Speaker 2: what does serious rate cuts mean in your view?
Speaker 6: And when I think we'll get insurance cuts or surgical
Speaker 6: cuts something like that where they'll say if we cut
Speaker 6: two or three times, that would uninvert the yeld curve,
Speaker 6: which a lot of banks would like, and that would
Speaker 6: sort of if there's negative momentum in the labor market,
Speaker 6: that would maybe cut that off, get housing going a
Speaker 6: little bit again, and just make them feel at ease
Speaker 6: that they haven't overtightened. And as again inflations come down,
Speaker 6: the labor markets and balanced. So maybe we don't need
Speaker 6: FED funds at five and a quarter to five and
Speaker 6: a half anymore. Maybe more like four and a half
Speaker 6: would accomplish what the Fed's looking to do.
Speaker 1: But Connor, in the past, you know, the FED has
Speaker 1: thought that it's gotten inflation under control and then a
Speaker 1: few months later inflation is reded. It's ugly head again,
Speaker 1: what data would you point to right now to say, okay, well,
Speaker 1: the worst of inflation is behind us.
Speaker 6: So first you again, the labor market is no longer
Speaker 6: sort of driving. That's what the FED will think. You
Speaker 6: look at what's going on in Shelter, and we know
Speaker 6: that there's a lag between sort of market rents, what
Speaker 6: people who are signing least today are paying, and sort
Speaker 6: of how it's calculated in CPI, So we know that's
Speaker 6: going to be very benign over the next year really
Speaker 6: because of the lags in that. The dynamic that the
Speaker 6: FED was looking at was this core services X housing
Speaker 6: measure of inflation, which they thought was the labor sort
Speaker 6: of component. But again, if the labor market's in balance,
Speaker 6: then that shouldn't be a driver either going forward. And
Speaker 6: so there's just nothing that they could point to that
Speaker 6: they would believe that inflation should still be a problem.
Speaker 6: And it's the FED likes have changed the way they
Speaker 6: think about things. This power Fed anyway, and they have
Speaker 6: the opportunity now to do so.
Speaker 2: Connor, it does sound like what you're arguing too for
Speaker 2: is that the FED be a little bit more preemptive
Speaker 2: in this before the labor market falls apart, and it's
Speaker 2: something much more serious.
Speaker 6: Right, they did this in nineteen eighty five. They even
Speaker 6: paled it in twenty nineteen, arguably where they cut rate
Speaker 6: seventy five basis points, even though we saw job growth throughout.
Speaker 6: And it's just a sort of acknowledgement that policy doesn't
Speaker 6: need to be as tight as it was the spring,
Speaker 6: and it's they're still going to call this restrictive policy,
Speaker 6: just not as restrictive as it's been.
Speaker 2: Interesting, So would you suggest to the audience here who
Speaker 2: are watching and listening that just focus on the labor
Speaker 2: market now you've been a little bit more for cues
Speaker 2: about what kind of comes next.
Speaker 6: Definitely the labor market data and how the FED talks
Speaker 6: about it.
Speaker 2: All right, Really fun to check in with you. Bloomberg
Speaker 2: Opinion columnist Connerson writing about this today. He's the founder
Speaker 2: of Peachtree Creek Investments, and you can certainly check out
Speaker 2: his story and more from Bloomberg Opinion on the Bloomberg
Speaker 2: and at Bloomberg dot com slash Opinion. I've got to say,
Speaker 2: opinion columns always kind of a must read for me.
Speaker 1: Yeah, that's where we got a Javier Bloss's story a
Speaker 1: little earlier about the economic indicators.
Speaker 2: Known as lubricants.
Speaker 1: Yeah, opin go also on the Bloomberg terminal and.
Speaker 2: Bobby Gosh yesterday. Yeah, I mean it's just really good stuff.
Speaker 5: And yes, they got great they got great stuff.
Speaker 2: Perspective on kind of our world. We got a lot
Speaker 2: of perspectives coming up on our world, investment world and
Speaker 2: world at large, including Middle East conflict, also Ukraine, Russia,
Speaker 2: the connection. What we need to keep in mind. All right, everybody,
Speaker 2: just getting started on this Wednesday. This is Bloomberg.
Speaker 3: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 3: live weekday afternoons from three to six Eastern Listen on
Speaker 3: Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app,
Speaker 3: or watch us live on YouTube.
Speaker 2: In Yeah, all right, folks. As we said, we are
Speaker 2: still in the midst of some earnings in this quarterly season.
Speaker 2: Disney continuing to be up about two point two percent
Speaker 2: in the after hours. We'll continue to track that and
Speaker 2: Take two, which had quite a day to day on
Speaker 2: expectations of the next Grand Theft auto release, although we
Speaker 2: don't know when coming across with their earnings. In Stock,
Speaker 2: which rallied today is just down about one percent in
Speaker 2: the aftermarket all right, let's get to as we said,
Speaker 2: earnings sures of H and R Block. They were down
Speaker 2: more than five percent at one point today following earnings
Speaker 2: last night. First quarter US assisted tax prep revenue that
Speaker 2: was a beat. Company said it still sees fiscal rev
Speaker 2: of about three point five to three billion to five
Speaker 2: point fifty nine billion versus an estimate of three point
Speaker 2: fifty six billion. They did reaffirm their full year outlook
Speaker 2: and the stock roughly up him about thirteen percent year
Speaker 2: to date.
Speaker 1: Well with more on the quarter, the outlook in the
Speaker 1: overall business. We got back with us Jeff Jones, he's
Speaker 1: president and CEO of H and R Block. He joins
Speaker 1: us once again on Zoom from Kansas City, Missouri.
Speaker 5: Jeff, good to have you back with us. How are you.
Speaker 4: I'm doing great, Great to talk with you, guys.
Speaker 1: Hey, we're going to get to the quarter that was
Speaker 1: and the quarter that is in just a second. But
Speaker 1: we love talking to you because you have a good
Speaker 1: idea of the consumer. You of course know what they're earning.
Speaker 1: Give us an idea of what you're thinking and what
Speaker 1: you're seeing with the economy right now.
Speaker 4: You know, the timing is actually really great. We're not economists,
Speaker 4: as you know, but I do think we have a
Speaker 4: real front row seat on what's happening given the twenty
Speaker 4: million people we serve, we simply call them hardworking Americans,
Speaker 4: and we just released our third annual report we call
Speaker 4: the Outlook on American Life. We basically look at all
Speaker 4: the anonymized data from tax returns. I like to think
Speaker 4: of it as a financial fingerprint or financial DNA, and
Speaker 4: we're seeing some really interesting trends in what you would
Speaker 4: call middle America. I think the first thing that we
Speaker 4: see is inside what we call middle America are actually
Speaker 4: two different groups, the millennial middle and the boomer middle.
Speaker 4: And even though they're demographically different, you know, they have
Speaker 4: some similar views about what they're feeling right now financially,
Speaker 4: and what we hear from them is they see that
Speaker 4: the inflation that we're all dealing with has essentially wiped
Speaker 4: out their wage gains. And both of those groups are
Speaker 4: telling us that they feel like they're struggling, and it
Speaker 4: doesn't matter if you're young or old. That mindset and
Speaker 4: that feeling is the same among both of the groups.
Speaker 2: So that's a continuation because into September you shared I
Speaker 2: think it was September. Maybe it was with our Bloomberg
Speaker 2: team that the same thing that you saw the consumer
Speaker 2: this year struggling. This was American's earning around forty thousand
Speaker 2: dollars desperate for their tax refunds this past spring. We're
Speaker 2: not in prime tax filing season, Jeff. But you still
Speaker 2: feel like that struggling idea. You're still seeing that.
Speaker 4: Well, yes, and for two different reasons. When we spoke
Speaker 4: last time, it was what we were seeing in the
Speaker 4: business at that moment, and people's desire to get their
Speaker 4: refund early, obviously looking for every dollar possible. This is
Speaker 4: different data. This is looking at the tax return data
Speaker 4: anonymized for millions of filers and then interviewing over a
Speaker 4: thousand of them, So it is different data. The theme
Speaker 4: remains the same. I think a couple of other interesting
Speaker 4: things though. I mean, whether you're millennial or boomer, what
Speaker 4: we see is that they're both finding ways to cope
Speaker 4: and manage. We see in our data that millennials are
Speaker 4: working two jobs at a higher rate than ever before,
Speaker 4: they're more likely than others to buy on credit, and
Speaker 4: boomers are pushing out retirement. They tell us they're postponing
Speaker 4: those big purchases, so you know, they have the same
Speaker 4: mindset about their financial state, but both are finding ways
Speaker 4: to manage and cope.
Speaker 1: What about gen X, I asked, because you know gen
Speaker 1: X is the is the generation between boomers and millennials.
Speaker 1: And I feel I'm not part of gen X. I'm
Speaker 1: a millennial, but I do feel like gen X is
Speaker 1: really having a moment right now. A lot of the
Speaker 1: executives we speak to our members of gen X. A
Speaker 1: lot of the people making the decisions, not necessarily politicians,
Speaker 1: are gen X. How are they faring?
Speaker 4: You know, I'm a gen xer. I certainly am not
Speaker 4: in this category that we're talking about here, but when
Speaker 4: we look at that data, I think the similarities remain true.
Speaker 4: You know. So Pew defines Middle America as forty five
Speaker 4: thousand to one hundred and forty five thousand dollars, but
Speaker 4: most of this audience make under eighty thousand dollars a year,
Speaker 4: whether you're millennial or Gen X or boomer. And so
Speaker 4: it's this common idea that you know, through the pandemic
Speaker 4: coming into twenty two, people did see some wage gains,
Speaker 4: but inflation is offset it. So now they're trying to
Speaker 4: find ways to cope and getting two jobs. Buying on credit,
Speaker 4: using buy now, pay later, or postponing big purchases is
Speaker 4: the way to cope. It's interesting. I just saw the
Speaker 4: NRF data forecasting holiday sales, and as I recall, they
Speaker 4: forecasted three to four percent sales growth, which was the
Speaker 4: lowest growth in about four years. When I understand that
Speaker 4: and look at the data we're seeing, it makes sense
Speaker 4: people are cautious. They're really struggling to figure out how
Speaker 4: to deal with this economic reality and think about their mindset.
Speaker 4: I love this fact. Millennials sixty seven percent of the
Speaker 4: ones that we see believe that next year will be better,
Speaker 4: but boomers sixty six percent of them believe their situation
Speaker 4: will remain the same or get worse. I don't know
Speaker 4: if that's the wisdom of age or the naivety of youth,
Speaker 4: but their behaviors are similar, but their mindsets are very different.
Speaker 1: But could it be because some of the boomers, many
Speaker 1: of the boomers now are on fixed incomes whereas millennials
Speaker 1: are still in their prime earning years.
Speaker 4: It could be, for sure, and we definitely see that dynamic.
Speaker 4: But because they're pushing out retirement later and later, less
Speaker 4: and less of them are on the same fixed income
Speaker 4: because struggling to get to that life stage.
Speaker 2: Yeah, that's pretty interesting. I feel like it so meshes
Speaker 2: Jeff with the environment that we've been in where it
Speaker 2: doesn't feel like all the data falls in line and
Speaker 2: tells one narrative. It just kind of, you know, goes
Speaker 2: in different directions. Having said that recession no recession? Would
Speaker 2: you you know, do you make the call with your team?
Speaker 2: I knew as an executive you've got a plan for
Speaker 2: multiple scenarios, but do you more often you know, or
Speaker 2: amp up the talk about recession either next year or
Speaker 2: how do you how do you describe it?
Speaker 4: You know, I've been consistent on this that we don't
Speaker 4: see hard recession now. The new dynamics are the geopolitical landscape,
Speaker 4: obviously war. Those are new dynamics and we're not sure
Speaker 4: what to make about that and how it will translate
Speaker 4: to our business in this country. But we've consistently seen
Speaker 4: the consumer need money, need money faster, seeing strain in
Speaker 4: their life, but finding ways to get by. And when
Speaker 4: you put those things together, you know, job growth remains good. Obviously,
Speaker 4: companies now are dealing with the fact that our vacancy
Speaker 4: rates are lower than ever, so people aren't leaving. So
Speaker 4: the data is conflicting. But we don't sit here today
Speaker 4: and forecast recession.
Speaker 1: So what does it mean? What does all this mean
Speaker 1: for your business? I mean people pay taxes whether or
Speaker 1: not they're feeling optimistic or pessimistic about their finances. People
Speaker 1: pay taxes whether or not there's a recession. What does
Speaker 1: all this mean for your business?
Speaker 4: There are two things that we deliver that the consumer
Speaker 4: desperately needs. Value and transparency. And so you're absolutely right.
Speaker 4: In our tax business it is a legal obligation. But
Speaker 4: in our spruce financial product or in our small business
Speaker 4: services where small businesses may be doing less service, that's
Speaker 4: where it impacts this. And so we think all the
Speaker 4: time about the value for price paid, and we think
Speaker 4: about being as transparent with as we can with the consumer.
Speaker 4: They know what they're buying, they know what they're paying,
Speaker 4: and they're getting expertise to help them along the way.
Speaker 4: That's how we respond when we know the consumer gets struck.
Speaker 2: But having said that, because that's one thing, we only
Speaker 2: have about thirty seconds left here. That strategy of building
Speaker 2: out your business bookkeeping bank products, other services. You know,
Speaker 2: that small business community. How would you describe the small
Speaker 2: business how they are doing right now? And forgive me, Jeff,
Speaker 2: only about thirty seconds.
Speaker 4: In simple terms about the same way. Most small businesses
Speaker 4: are micro businesses zero to nine employees. In a lot
Speaker 4: of ways, they are consumers and live like consumers. So
Speaker 4: I would say in simple terms about like the consumer.
Speaker 4: So struggling a little bit, struggling a little bit, you know,
Speaker 4: still seeing business, different sectors performing differently. That's probably too
Speaker 4: detailed for now.
Speaker 2: Okay, really appreciate it. Bewhile Jeff Jones, President and CEO
Speaker 2: of H and R Block on zoom from Kansas City, Missouri.
Speaker 2: Joining us here on Bloomberg Business Week.
Speaker 3: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 3: live weekday afternoons from three to six Eastern on Bloomberg Radio,
Speaker 3: the Bloomberg Business app, and YouTube. You can also listen
Speaker 3: live on Amazon Alexa from our flagship New York station
Speaker 3: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 7: Well.
Speaker 2: As the current issue of Bloomberg BusinessWeek reminds us from
Speaker 2: Wall Street to the World Bank, one risk towers above all,
Speaker 2: and that is geopolitical. We know Israel has talked about
Speaker 2: its troops entering the middle of Gaza's main city as
Speaker 2: they continue their offensive against Hamas EU commissioned President Ursula
Speaker 2: Vanderline weighing in saying Israel will have to leave Gaza eventually.
Speaker 2: And then, of course, Tim, there's the war between Russia
Speaker 2: and Ukraine.
Speaker 1: Yeah, well into its second year, almost its third year.
Speaker 1: Ukraine President Zelenski welcoming a decision by the European Unions
Speaker 1: Executive arm Tobacco start to membership talks with Kiev, pledging
Speaker 1: to continue work to develop state institutions. A lot for
Speaker 1: the world to manage. And we've got a great.
Speaker 2: Guest, Carol Angela Stemp back with US, senior fellow at
Speaker 2: Brookings and City, author of Putin's World, former national intelligence
Speaker 2: officer for Russian and Eurasia. She worked at the US
Speaker 2: State Department. She's back with US on Zoom from Washington. Angela,
Speaker 2: thank you, thank you, thank you. Is the world making
Speaker 2: what feels like a mistake, and to some extent it
Speaker 2: feels like they're forgetting about the Russian war in Ukraine.
Speaker 8: Well, certainly the conflict in the Middle East has diverted
Speaker 8: attention from the war in Ukraine, but that war goes on.
Speaker 8: Just today, Russia destroyed a I guess it was a
Speaker 8: Liberian flagged ship in the port of an Odessa, killing
Speaker 8: the pilot. It's been attacking the Ukrainian infrastructure. The Ukrainians
Speaker 8: are fighting valiantly back, but the war seems to be
Speaker 8: at this moment in a dynamic stalemate. And the Ukrainians,
Speaker 8: you know, continued to need assistance from the West, particularly
Speaker 8: from the United States, and of course that's up for
Speaker 8: question at the moment.
Speaker 1: It is up for question, But so far the United
Speaker 1: States has pledged and given quite a bit of aid
Speaker 1: to the Ukrainians. Are you concerned? I mean, I guess
Speaker 1: if you were a decision maker in Washington, would you
Speaker 1: how much would you like? What would you need to
Speaker 1: see in order for you to say, Okay, that's enough
Speaker 1: aid for Ukraine.
Speaker 8: Well, I think we have to continue supporting them. If
Speaker 8: we don't send them more assistance and more weapons, it's
Speaker 8: going to be much harder for them to push back
Speaker 8: against the Russians. I think they'll be probably somewhat of
Speaker 8: a lot in the fighting in the winter, even though
Speaker 8: some of these attacks will go on but we know
Speaker 8: that in the spring the fighting will start up again,
Speaker 8: and we need to equip the Ukrainians so that they
Speaker 8: can continue to try and push back the Russians.
Speaker 1: But if it's a stalemate, then what's the motivation for
Speaker 1: And forgive me, because we're talking about you know, we
Speaker 1: have to remember this is people, This is people. Yeah,
Speaker 1: but a lot of that gets lost, I think in
Speaker 1: the conversation when members of Congress are talking about budgets
Speaker 1: and there's a lot of tension with providing aid to Ukraine,
Speaker 1: and there has been for more than two years at
Speaker 1: this point, how do lawmakers justify continuing to send it
Speaker 1: if it's just a continued stalemate.
Speaker 8: Well, first of all, it's in our national interest not
Speaker 8: to have Russia win this war. If Russia succeeds in
Speaker 8: someding Ukraine, that's not where Russia is going to stop.
Speaker 8: It'll probably set its sites for the West, including possibly
Speaker 8: if you read some of the things that were published
Speaker 8: today written by the former president Medvedive, it sites on Poland,
Speaker 8: and the US doesn't want you know, we don't have
Speaker 8: any boots on the ground there. Our men and women
Speaker 8: aren't dying for this. But it's in our interest to
Speaker 8: make sure that we don't get sucked into another even
Speaker 8: bigger war in Europe if we don't support Ukraine, you know,
Speaker 8: as it fights back well.
Speaker 2: And this is where you know, we so wanted to
Speaker 2: have you back because it was understandably you understand why
Speaker 2: in the past month we have shifted our focus. It
Speaker 2: feels like as a world, you know, how much stress
Speaker 2: can we geopolitically focus on. Both situations are dire and important,
Speaker 2: but we have shifted to what's going on between Israel
Speaker 2: and Hamas at this point. But I wanted you to
Speaker 2: come back on for us to understand Vladimir Putin and
Speaker 2: what his goals are here. With what he is trying
Speaker 2: to do, it doesn't necessarily stop with Ukraine, correct.
Speaker 8: That's correct. I mean he's first of all, believes that
Speaker 8: he can wait this out. The war will go on
Speaker 8: in twenty twenty four. Russia has more men that it
Speaker 8: can send as canon fodder than Ukraine does. It has
Speaker 8: a three times of population, and they're getting you know,
Speaker 8: ammunition now from North Korea. We know that they're getting
Speaker 8: drones from Iran. So he wants to wait this out
Speaker 8: and hope that someone es the White House in twenty
Speaker 8: twenty five, who will say enough, we don't want to
Speaker 8: support Ukraine anymore, or that they'll be Ukraine fatigue maybe
Speaker 8: in some European countries. So he's waiting for West and
Speaker 8: resolved to collapse, which it remarkably hasn't yet. But his again,
Speaker 8: his goals don't stop at Ukraine. There might be a pause,
Speaker 8: he wouldn't, you know, Russia wouldn't immediately then turn its
Speaker 8: sights on another country. But in the longer run, as
Speaker 8: long as he's in power, and he's running for reelection
Speaker 8: next year, and he will surely get re elected. As
Speaker 8: long as he's in power, those aims I think aren't
Speaker 8: going to change.
Speaker 2: So he has enough men. Does he have enough money?
Speaker 2: I mean, can he break his country? Vladimir Putin in
Speaker 2: his fight his conquest of Ukraine?
Speaker 8: He has enough money? I mean, the Russians are still
Speaker 8: making money on selling oil and gas. You know, despite
Speaker 8: all of the sanctions and everything, they are making money
Speaker 8: from the hydrocarbon sales. Their economy is set to grow,
Speaker 8: predicted to grow in fact, I think by about two
Speaker 8: percent next year. They've recovered a bit and the economy
Speaker 8: is doing better than it was before. So they can
Speaker 8: continue this fight.
Speaker 1: That's what's so surprising to me. I mean, we spoke
Speaker 1: to you Angela early on in the and we've been
Speaker 1: speaking to you throughout the conflict. But the general consensus
Speaker 1: was this was going to be quick, and it's been
Speaker 1: anything but quick. How do you think this war ends
Speaker 1: as we approach the third year?
Speaker 5: Right?
Speaker 8: Well, it's you know, this is the sixty four thousand
Speaker 8: dollars question that everyone is asking. I mean, at some
Speaker 8: point it might be that both sides recognize that neither
Speaker 8: of them are going to achieve their full aims, and
Speaker 8: that they do sit down and negotiate. That's still what
Speaker 8: we want to avoid is another frozen conflict, which is
Speaker 8: to have some kind of agreement but which is really
Speaker 8: only temporary, and an agreement that would involve Ukraine unless
Speaker 8: it makes more progress territorial it would territorially, it would
Speaker 8: lose some more territory. That might end the fight. You
Speaker 8: could have a ceasefire, you could end the fighting, but
Speaker 8: that's not a longer term solution to this.
Speaker 5: You know, the.
Speaker 8: You know, the desired solution would be obviously for Russia
Speaker 8: to withdraw its troops and to renounce the you know,
Speaker 8: territorial claims on these areas that it claims to have
Speaker 8: annexed but which it doesn't fully control. But that may
Speaker 8: take much longer. So it probably would be you know,
Speaker 8: in the short run at least some kind of a
Speaker 8: ceasefire and a temporary solution to this. A longer term
Speaker 8: solution is much harder to envisag.
Speaker 2: Yeah, you do wonder if even in some kind of
Speaker 2: resolution ceasefire, any territory win on the behalf of Russian
Speaker 2: President Vladimir Putin is just going to incite him to
Speaker 2: continue on his quest. So, Angela, thank you so much.
Speaker 2: As we said, a lot going on geopolitically, but we
Speaker 2: do want to draw everyone's attention to what is still
Speaker 2: going on in this now what to almost three year
Speaker 2: Russian war invasion of Ukraine, and it does feel like
Speaker 2: it's at.
Speaker 1: A critical point, but it's stillmate too.
Speaker 2: It's stillmate as well, exactly all right, angelistat Brookings, thank
Speaker 2: you so much.
Speaker 3: If you're listening to the Bloomberg Business Week podcast, catch
Speaker 3: us live weekday afternoons from three to six Eastern Listen
Speaker 3: on Bloomberg dot com, the iHeartRadio app, and the Bloomberg
Speaker 3: Business app, or watch us live on YouTube.
Speaker 8: Thought you be thinking you could be a Muster Lincoln
Speaker 8: if you only had a brain.
Speaker 2: If I had a brain, I don't know if you
Speaker 2: have a brain.
Speaker 5: It depends on selling yourself.
Speaker 9: Ends of the day.
Speaker 2: In the hour cover of the new issue of Bloomberg
Speaker 2: Business Week also relates to a new podcast by our team,
Speaker 2: Elon Inc. Elon Musk is getting ready for what could
Speaker 2: be the most consequential launch of his career. It isn't
Speaker 2: rocket science, something we just talked about about going on
Speaker 2: to Mars with our author Kelly Wiener Smith. No, it's
Speaker 2: brain surgery.
Speaker 1: Yeah, must company, Neuralink is seeking a volunteer for its
Speaker 1: first clinical trial. Is the cover of a Bloomberg Business
Speaker 1: Week with more we got Bloomberg BusinessWeek editor Joel Weber
Speaker 1: and a Bloomberg Business Week features writer Ashley Vance joining
Speaker 1: us this afternoon.
Speaker 5: Joel, I want to.
Speaker 1: Start with you Neuralink. We've heard a lot about it,
Speaker 1: we haven't seen it in action very much. There's a
Speaker 1: reason for us trying to do with these in Yeah,
Speaker 1: with these chips and planet why what.
Speaker 5: Is the reason?
Speaker 10: Well, you can't touch a head, a human's head until
Speaker 10: you know you get FDA approval, which Neuralink now has,
Speaker 10: so in the very near future, the company is going
Speaker 10: to actually start implanting devices in humans. And Ashley Vance
Speaker 10: has had an unprecedented front row as Neuralink has been
Speaker 10: developing this technology. Ashley take us inside the company. I mean,
Speaker 10: Elon is known for doing bold things that you know,
Speaker 10: break open whole new industries. But this is sort of
Speaker 10: a test of of Elon in a whole new way, now,
Speaker 10: right it.
Speaker 9: Is, you know, I mean, this is a guy we've
Speaker 9: seen with SpaceX, with Tesla. You know, they've accomplished incredible things,
Speaker 9: but they've had some pretty severe bumps along the way.
Speaker 9: SpaceX blew up its first three rockets. Tesla it took
Speaker 9: about a decade to figure out how to mass produce cars.
Speaker 9: And we're talking about brain implants here. This is something
Speaker 9: that really can't go wrong on the first go round.
Speaker 9: It's Neuralink is one, as we point out in the
Speaker 9: story of now dozens upon dozens of companies that are
Speaker 9: looking to do brain implants, spinal implants, mostly to help
Speaker 9: people in pretty dire circumstances paralyzed stroke als.
Speaker 5: Things like that.
Speaker 9: So but you know, really this is the start of
Speaker 9: a very exciting field. Neuralink is as ambitious as ever
Speaker 9: with Elon's companies, but as a lot on the line
Speaker 9: with this first trial.
Speaker 10: So how does neuralinks device and approach differ from the
Speaker 10: other competitors who have a little bit of a head start.
Speaker 10: They'd already had FDA approval and have been doing human implants.
Speaker 10: So what's going to distinguish the neuralink approach.
Speaker 9: Yeah, I mean there's a few things that the other companies. Yes,
Speaker 9: they've done amazing stuff. They're in bodies. I've been to
Speaker 9: Switzerland seen paralyzed people walking again with the spinal implant.
Speaker 9: The biggest difference here is it's full Elon. You know,
Speaker 9: this implant is more powerful than the others by about
Speaker 9: a thousand times.
Speaker 5: It's much smaller.
Speaker 9: The other devices require you to have like a separate
Speaker 9: battery pack, a separate computing system that amplifies signals that's
Speaker 9: usually implanted in someone's body. With Neuralink, they're going to
Speaker 9: cut a tiny hole out of somebody's skull, put have
Speaker 9: a robot do the surgery that puts these electrodes, these
Speaker 9: electronic threads.
Speaker 5: Into somebody's brain, and then the computing.
Speaker 9: Part the computing part, the battery, the amplifier, all of
Speaker 9: that goes into that hole in the skull and then
Speaker 9: fits flush with your head and your skin goes over.
Speaker 9: You can't even really tell you've had it. And so
Speaker 9: it's this more powerful implant. It's miniaturized, and it has
Speaker 9: the robot to try and turn this from like a
Speaker 9: one off type laboratory experiment into something that's repeatable.
Speaker 10: So walk us through what the timeline looks like like
Speaker 10: where they are now and what's gonna hopefully transpire for
Speaker 10: what they're trying to accomplish.
Speaker 9: Yeah, so the last time I was there was just
Speaker 9: about six weeks ago in Austin where the company is
Speaker 9: moving a lot of its headquarters and so they're already
Speaker 9: you know, thousands of people and sort of signed up
Speaker 9: to get this implant, and now they're going through these
Speaker 9: applications to try to find the ideal candidate. Hopefully someone
Speaker 9: that's that's it is going to be someone who's paralyzed
Speaker 9: but is otherwise kind of young and overall healthy, and
Speaker 9: this could happen within you know, it sounds like it's
Speaker 9: going to be within the next couple of months. They've
Speaker 9: already identified a hospital in Arizona, which is where this
Speaker 9: is likely to take place, and and so it's just
Speaker 9: trying right now, they're just finding the exact right candidate
Speaker 9: for this first trial.
Speaker 1: Where actually does this kind of fall on the Elon
Speaker 1: Musk spectrum of priorities right now? Given that he has
Speaker 1: a SpaceX Tesla x slash, Twitter, the boring company Neuralink,
Speaker 1: nine Kids.
Speaker 10: X AI, don't forget XAI, which you know got announced
Speaker 10: over the weeksa thank you.
Speaker 5: But where where? Like how is he?
Speaker 1: I mean, this is a guy you know, well Ashley,
Speaker 1: Like where does this fall in his list of things
Speaker 1: that he wants to do, like and he wants to
Speaker 1: be part of his legacy.
Speaker 5: It's pretty high up there.
Speaker 9: I mean he you know, all his companies always come
Speaker 9: with this we're going to save humanity kind of trapping,
Speaker 9: and this this fits into that. When it was first
Speaker 9: presented to the public, I mean, he went straight for
Speaker 9: the AI sci fi We're gonna download Spanish and Kung
Speaker 9: Fu into our brains and and this this was going
Speaker 9: to be for everybody. Billions of people would get the
Speaker 9: same plant. You know, it's much clearer now that for
Speaker 9: the foreseeable future, this is to help people in sort
Speaker 9: of dire circumstances, and so he takes that mission pretty seriously.
Speaker 9: It's interesting he is not at Neuralink on anything like
Speaker 9: a day to day basis. I mean he shows up
Speaker 9: in my experience like once a month and gets these
Speaker 9: kind of debriefs on what's going on. And the company's
Speaker 9: essentially run by like a triumvirate of people.
Speaker 2: So, you know, one of the things you've you've been
Speaker 2: to the Neuralink facilities in Silicon Valley, talked to us
Speaker 2: about that. They also have operation in Austin. I'm just
Speaker 2: curious about, you know, what you've seen, what you've learned,
Speaker 2: any of the conversations you've had with Elon about this.
Speaker 10: Yeah, and you got to see Elon, you know, basically
Speaker 10: at work with the team at Neuralink. What was that like?
Speaker 9: I saw them with the team, I saw them with
Speaker 9: the primates. You know, so in Fremont. In Fremont is
Speaker 9: where most of the primate research has taken place to date,
Speaker 9: and so for the last three years I kind of
Speaker 9: hung out with the same group of seventeen monkeys in there.
Speaker 5: You know, on one hand, the office is kind of standard.
Speaker 9: It has people sitting at desks and working on their
Speaker 9: robot prototypes.
Speaker 5: And things like that.
Speaker 9: But then there is this animal care facility, and just
Speaker 9: to let people know, I mean, you're in there with
Speaker 9: seventeen monkeys and at any given time, three or four
Speaker 9: of them have a laptop that's been wheeled to like
Speaker 9: the front of their cage, and they're playing video games
Speaker 9: in many cases just with their mind their things, thinking
Speaker 9: what they want to do in this video game, moving
Speaker 9: a cursor onto a onto a tile, tracing letters on
Speaker 9: the screen, and just doing that by thinking about it
Speaker 9: with the implant going to this computer.
Speaker 5: It is wild. It's sort of hard to try to
Speaker 5: convey this in words.
Speaker 9: It's like one of those things that you experience and
Speaker 9: it's it's hard to get across, which just how strange
Speaker 9: it is.
Speaker 2: But but you think of people right who don't have
Speaker 2: that ability and are paralyzed. If they could potentially have
Speaker 2: that capability going forward, that's pretty dramatic and life change.
Speaker 5: Absolutely.
Speaker 9: Yeah, just to make it clear, I mean, the initial
Speaker 9: goal with this right is to be able to think
Speaker 9: words that then go into a text message or a
Speaker 9: WhatsApp message, so you're.
Speaker 5: Communicating with your loved ones.
Speaker 9: You're communicating about your wants and needs and with the
Speaker 9: outside world.
Speaker 5: And the other goal is to be able.
Speaker 9: To move a cursor around a computer screen and a
Speaker 9: very fluid fashion. And you know, as any of us
Speaker 9: can imagine, I mean, just having access to a computer
Speaker 9: unlocks you know, so many things that you can do.
Speaker 5: And so I mean, this.
Speaker 9: Is it is like borderline miraculous type technology.
Speaker 10: So to that end, what what are the sort of
Speaker 10: the use cases that the company sees the implant being
Speaker 10: able to solve in the in the short term and
Speaker 10: then a longer term And like how big of a
Speaker 10: you know, growth pattern could they see based on the
Speaker 10: amount of interest they've had from from people who have
Speaker 10: said that they're willing to get an implant.
Speaker 9: Yeah, you know, in the short term, nereal Link is
Speaker 9: building off like decades of research here, so people have
Speaker 9: had the ability to think a couple words at a time,
Speaker 9: to click yes or no on a screen. But with
Speaker 9: this extra horsepower, you know, they want it to be
Speaker 9: where you're you're thinking words almost as fast as as
Speaker 9: one of us could type on a computer today. So
Speaker 9: that's kind of the near term goal, being able to navigate.
Speaker 5: On the screen.
Speaker 9: They also have a spinal plant that they're working on
Speaker 9: that would be paired with his brain implant, and the
Speaker 9: goal there is to restore movement in limbs and also
Speaker 9: feeling in limbs where you kind of short circuit or
Speaker 9: create a circuit really between your spine and the brain
Speaker 9: and from there, I mean, it moves. You know, I
Speaker 9: can talk about very futuristic stuff. It would be far off,
Speaker 9: but it's things like improving your hearing, improving your site
Speaker 9: and kind of you know, just anything that your brain controls,
Speaker 9: which is a lot.
Speaker 1: How promising, Ashley is this? I mean, are we going
Speaker 1: to start seeing in your estimation, in your opinion, will
Speaker 1: we start seeing the big healthcare companies try to get
Speaker 1: their hands on this type of technology.
Speaker 9: You know, if you look at the traditional device makers
Speaker 9: that do things like deep brain stimulation for epilepsy and
Speaker 9: things like that, it's been a very very slow moving
Speaker 9: field where a device gets made, comes out of a
Speaker 9: research laboratory, and hardly gets advanced.
Speaker 5: Things have totally changed though.
Speaker 9: I mean Neural again is one of at least thirty
Speaker 9: six other companies working on products in this field. So
Speaker 9: this thing, this whole field has moved from academia to
Speaker 9: hundreds upon hundreds of millions of dollars coming in from
Speaker 9: venture capitalists, and so I try not to get people's
Speaker 9: hopes up too much because we don't really know exactly
Speaker 9: how this is going to play out, if the products
Speaker 9: are going to live up to their potential. But there's
Speaker 9: such an explosion of interest here, and in my experience
Speaker 9: of seeing people with the spinal implants, you know, it's encouraging.
Speaker 9: I mean, this is even even in the limited forms
Speaker 9: of the technology right now, it's life changing for people
Speaker 9: who get these implants, and so if we're anywhere close
Speaker 9: to the hype, it will be a dramatic next ten
Speaker 9: or fifteen years.
Speaker 10: So actually, another element that I think you do a
Speaker 10: really great job of exploring in the story is that
Speaker 10: in all the companies that Elon has, at some point
Speaker 10: he ends up kind of touching a race. FDA is
Speaker 10: a regulator that he hasn't had to interact with yet.
Speaker 10: But there are some commonalities in some of the scenes
Speaker 10: in the stories kind of show that how does what's
Speaker 10: the experience been with neuralink and the whole regulation side
Speaker 10: of this particular space.
Speaker 9: Yeah, I mean, if I'm totally honest, I've been reporting
Speaker 9: this story for a long time, in part waiting for
Speaker 9: them to get FDA approval, and there were times when
Speaker 9: I thought that actually would not happen. You know, they
Speaker 9: have this very dramatic robot doing this very dramatic surgery
Speaker 9: with a new implant. So they submitted fifteen thousand pages
Speaker 9: of documents to the FDA to prove out their technology.
Speaker 9: It was an arduous process. Elon was all the Elon
Speaker 9: you could expect during this. You know, I saw some
Speaker 9: meetings where people said, look, the FDA said you can
Speaker 9: do this one surgery, but you can't do another one
Speaker 9: for a year, to which Elon replied unacceptable. And then
Speaker 9: it obviously goes back of the team to try and
Speaker 9: address address this. And you know, Elon has this philosophy
Speaker 9: really that obviously you push regulators to the edge, and
Speaker 9: as we talk about in the story, like he's seeing
Speaker 9: with SpaceX in the rockets, it's kind of you launch
Speaker 9: it and you show them the FAA that the rocket works,
Speaker 9: and then you get to launch again. And so the
Speaker 9: hope here is you put this in someone's brain, the
Speaker 9: human who can communicate, you know, the monkeys can't tell
Speaker 9: us what this experience is like. But this human will
Speaker 9: be able to and Elon's hope is the human says
Speaker 9: it's revolutionary and the FDA lets them keep going.
Speaker 2: Well, it's pretty incredible. And I got to say he's
Speaker 2: a controversial figure, but I would never rule him out
Speaker 2: on anything. This is the cover of the new issue.
Speaker 2: It's also part of the new podcast Elon Inc. We kid,
Speaker 2: it's true, but it's Elon's world and we are largely
Speaker 2: living in and Jill Webber and of course Ashley Vance.
Speaker 2: It's also the cover story of the new issue of
Speaker 2: Bloomberg Business.
Speaker 3: Week, a journal.
Speaker 2: How about you let me drive?
Speaker 4: Oh no, no, no, no, who's going to drive?
Speaker 3: Alright, please, I'll do the gravel?
Speaker 4: Wait, I want to drive.
Speaker 8: It's a good question.
Speaker 5: Good.
Speaker 3: This is the drive to the Globe.
Speaker 6: Doing well by around on Bloomberg Radio.
Speaker 2: All right, everybody, we've got just about seventeen and a
Speaker 2: half minutes left in the Wednesday trade. Carol Master along
Speaker 2: with Tim Stanovik live here at Bloomberg Headquarters, uh and
Speaker 2: in our Bloomberg Interactive Brokers studio. You know, call it
Speaker 2: meth in terms of the equity trade, right.
Speaker 1: Yeah, but the s and p is in the greens
Speaker 1: so or boy, I know, but it's going to notch
Speaker 1: another another consecutive day of winds.
Speaker 2: So maybe well, yeah, tybe, we.
Speaker 1: Do have, Yeah, we do have. What you say, seven
Speaker 1: seventeen minutes to go, A lot can happen, right, We're data.
Speaker 2: Dependent, We are data dependent. A lot of treasury oxygen's
Speaker 2: happening as well. Let's see what Leo Kelly has to
Speaker 2: say about it, all of it. He's founder in sy
Speaker 2: Inverden's Capital Advisors back with us. He has owned Zoom
Speaker 2: from Hunt Valley, Maryland. Leo, good to be talking with
Speaker 2: you once again. This environment, it's an interesting one. Last
Speaker 2: week the FED meeting, many investors read that as a
Speaker 2: very dubvish FED. Do you think the US Central Bank
Speaker 2: is done when it comes to rates raising rates?
Speaker 5: No, absolutely not.
Speaker 7: And I think you might have on the head the
Speaker 7: secret to what's happening in the market. I think everybody's
Speaker 7: looking at seventeen minute increments anymore, you know, as we
Speaker 7: think about what's happening in the economy as a whole.
Speaker 7: The FED gave just enough language for the markets to
Speaker 7: get optimistic and for the folks that I think have
Speaker 7: really been let's just say rooting for an outcome, and
Speaker 7: what I've known after being in this market for a
Speaker 7: few decades, when you're rooting for an outcome, that's a problem.
Speaker 7: The reality is is there's still too much money in
Speaker 7: the system. M two is still up a thirty plus
Speaker 7: percent over a two and a half three year period,
Speaker 7: and because of that, inflation's going to be just incredibly persistent.
Speaker 7: What the FED has also said is it's still going
Speaker 7: to be tough to get to two percent. And the
Speaker 7: FED knows that with all the money in the system,
Speaker 7: if they as they ease back at all, inflation is
Speaker 7: going to keep coming back. So I think the Fed's
Speaker 7: doing exactly what they had to do, react to the
Speaker 7: to the geopolitical moment, pause, give just enough language to
Speaker 7: let the market calm down, and then they'll get back
Speaker 7: to it next year.
Speaker 1: Does that mean the market will not be calm when
Speaker 1: the Fed gets back to it.
Speaker 7: I think we're going to keep seeing what we're seeing,
Speaker 7: what we keep hearing as folks are trying to figure
Speaker 7: out this market. This market is two years old, right,
Speaker 7: We're still in a bear market from January of twenty two,
Speaker 7: and we haven't really come out of that bear market yet,
Speaker 7: and this is an interest rate bear market. We're in
Speaker 7: process of working through this. So I think the market's
Speaker 7: going to continue what it did. FED gets active again,
Speaker 7: rates go up, and the market is going to struggle.
Speaker 7: We hold a lot of cash on our portfolios more
Speaker 7: than normal. We're loving this five percent and we're holding
Speaker 7: on because we think we're going to get some significant volatility,
Speaker 7: and when we do, we're ready to put that cash
Speaker 7: to work. I think on the backside of this, there's
Speaker 7: going to be the end of this, finally, this interest
Speaker 7: rate rise bear market, and we can get out of
Speaker 7: this and have some opportunity in front of us.
Speaker 1: Okay, so what's going to prompt you to put money
Speaker 1: back into the market. I mean five percent is great,
Speaker 1: but if you look at the S and P five hundred,
Speaker 1: I mean that's up, you know, three and a half
Speaker 1: percent just in the last five days.
Speaker 7: Yeah, well, I guess is it. It's up, but it's
Speaker 7: up off of you know, a dip, right, All it
Speaker 7: did was go down and go back up. The other
Speaker 7: thing about the SP five hundred this year, the equal
Speaker 7: weight S top five hundred is basically break even this year.
Speaker 7: You know, again, we've got a few stocks that are
Speaker 7: driving this whole market broadly. The market is really pretty
Speaker 7: ho hum this year, and if you look from January first,
Speaker 7: twenty two this year, stocks are down. They still haven't
Speaker 7: come out of this. So the five percent looks fine.
Speaker 7: I agree with you, though at one point the five
Speaker 7: percent is meaningless if when we do get volatility, we've
Speaker 7: put that to work. I think there's an opportunity here
Speaker 7: to make money in some volatility. What will cause us
Speaker 7: to do that, It's pretty simple valuation right now, and
Speaker 7: we still have a consumer slowing down, we have confidence shrinking,
Speaker 7: we have an ism that now recorded it's twelfth straight
Speaker 7: month in contraction. Rates are still high. There's still a
Speaker 7: lot here to kind of grind through to get to
Speaker 7: the other side.
Speaker 4: LEO.
Speaker 2: So we're down still about four percent four and a
Speaker 2: half percent from the late July high on the S
Speaker 2: and P five hundred. All right, so we're still a
Speaker 2: bit lower. But I mean, is it not low enough
Speaker 2: that you find enough interesting equity opportunities, especially among the
Speaker 2: large caps at this point, that you'd like to see
Speaker 2: a little bit more fluff come out of the market,
Speaker 2: or is this an opportunity where you need to start
Speaker 2: thinking about maybe kind of buying an anticipation of what comes,
Speaker 2: perhaps maybe rate cuts next year, which it seems like
Speaker 2: that momentum is growing again, although as you said, the
Speaker 2: FED is still on its inflation fight.
Speaker 7: Yeah, Carol, I think that's a great question. There's a
Speaker 7: couple pieces to unpack there. First of all, again, I
Speaker 7: still think we're in this interest rates higher market. I
Speaker 7: think the surprise could be higher faster and inflation coming
Speaker 7: back up and surprising folks, if you look at the
Speaker 7: ten year it has made higher lows and higher highs
Speaker 7: through this whole process, and every time it starts to
Speaker 7: go back to that higher low, everyone's convinced the Fed's
Speaker 7: done and this is going to pull back in the
Speaker 7: market's rally. But that is not what has happened. Consistently.
Speaker 7: It is ratcheted higher again. You may remember from our
Speaker 7: prior conversations we think this is the beginning of a
Speaker 7: secular bear market in bonds, which takes a long time
Speaker 7: to work through. Now in that they're cyclical bull markets,
Speaker 7: which is helpful relative to the other part of your question. No,
Speaker 7: we don't think it's advantageous right now to put money
Speaker 7: at the market. We don't think the valuations are cheap enough.
Speaker 7: As I said, we're coming off of that that high
Speaker 7: were the broad market really hasn't done much of anything,
Speaker 7: and the tech stocks are pulling back from frothy highs.
Speaker 7: So I don't think it's quite time yet. But I
Speaker 7: will also say Carol, that depends on where you are
Speaker 7: as an investor. Where we are is neutral in our
Speaker 7: in our equity weightings, meaning an equal weight. We're not overweight,
Speaker 7: We're not underweight. We are underweight some of the overpriced areas,
Speaker 7: like some of the growth areas. We think there's some
Speaker 7: value international, we think there's some value forming in small cap,
Speaker 7: we may not be there yet. And we're underweight bonds
Speaker 7: because we still think rates go higher. So we're very
Speaker 7: short in our fixed income portfolio, where neutral in our equities,
Speaker 7: overweight cash, and we still love private investing. We think
Speaker 7: there's opportunity there.
Speaker 1: In thirty seconds, what's the opportunity in privates right now?
Speaker 7: Well, I think private credit looks interesting. I'm a little
Speaker 7: nervous how hot it's getting right people are running to it.
Speaker 7: But for some time, we've been doing this for a
Speaker 7: few years and making great yields. The other area that's
Speaker 7: always good in private investing is good old fashioned businesses
Speaker 7: in the private markets are not trading at the market
Speaker 7: multiples we're seeing in the public markets, So if you
Speaker 7: do your due diligence, you can go in there and
Speaker 7: find great companies to invest in.
Speaker 3: That.
Speaker 7: Again, I think the economy is going to be okay
Speaker 7: coming out of what is soon to be a recession.
Speaker 2: On the other side of that, all right, listen always
Speaker 2: funding check in with you. Leo Kelly, founder and CEO
Speaker 2: of Verdance Capital Advisor, is fun and informative on zoom
Speaker 2: from Hunt Valley, Maryland.
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