WEBVTT - Fed Needs to Forget About Inflation and Focus on Jobs 0:00:00.080 --> 0:00:02.360 Hey, it's Carol and Tim and we have something new 0:00:02.360 --> 0:00:03.160 and exciting for you. 0:00:03.400 --> 0:00:06.680 Everything you love about Bloomberg Radio is now in your car. 0:00:06.880 --> 0:00:10.160 The new Bloomberg Business App now featuring Apple CarPlay and 0:00:10.160 --> 0:00:10.800 Android Auto. 0:00:10.920 --> 0:00:14.400 Listen to your favorite Bloomberg Radio stations anytime. 0:00:13.840 --> 0:00:17.280 Plus every Bloomberg podcast, the latest news, and more, all 0:00:17.320 --> 0:00:18.360 at the click of a button. 0:00:18.520 --> 0:00:21.560 It's free and simple to use. Just download the Bloomberg 0:00:21.600 --> 0:00:24.079 Business App on your smartphone and connect your phone to 0:00:24.160 --> 0:00:24.680 your car. 0:00:24.880 --> 0:00:27.880 The Bloomberg Business App now with Apple CarPlay and Android 0:00:27.920 --> 0:00:30.720 Auto features. Download it free in the Apple App Store 0:00:30.800 --> 0:00:31.920 or on Google Play. 0:00:32.040 --> 0:00:36.440 Presented by our sponsor, Interactive Brokers, this. 0:00:36.840 --> 0:00:41.120 Is Bloomberg BusinessWeek inside from the reporters and editors who 0:00:41.200 --> 0:00:45.239 bring you America's most trusted business magazine, plus global business, 0:00:45.280 --> 0:00:49.400 finance and tech news. The Bloomberg Business Week Podcast with 0:00:49.600 --> 0:00:58.080 Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:01:05.120 --> 0:01:09.399 All right, everybody, yeah, the working man man the fed for. 0:01:10.000 --> 0:01:12.959 I'm getting so many viewers and listeners are getting in 0:01:13.000 --> 0:01:13.960 touch with me right now. 0:01:15.200 --> 0:01:17.080 So are you sure you want to do this story? 0:01:17.280 --> 0:01:17.400 Well? 0:01:17.440 --> 0:01:20.600 No, I mean about hot desking too, Oh and hot desking. 0:01:20.360 --> 0:01:23.120 Yeah, Fabio f CerPA wrote in and said that he 0:01:23.160 --> 0:01:25.360 had to google it. So I think, you know, not 0:01:25.400 --> 0:01:26.760 everybodyho knows what hot desking is. 0:01:26.920 --> 0:01:27.559 I actually didn't. 0:01:27.680 --> 0:01:30.560 I had never heard of it until the pandemic, Caro, 0:01:30.640 --> 0:01:32.520 when my wife was like, you know, she's like, we're 0:01:32.520 --> 0:01:33.479 hot desking at work. 0:01:33.680 --> 0:01:37.440 I've never heard the expression never. Okay, so sharing desks, 0:01:37.480 --> 0:01:38.160 I've heard that yet. 0:01:38.240 --> 0:01:40.319 But they but it was different during the pandemic. What 0:01:40.319 --> 0:01:41.800 they were doing was they wanted to make sure that 0:01:41.880 --> 0:01:44.600 people who were coming into the office weren't close to 0:01:44.640 --> 0:01:47.360 other people. So they had certain days when some people 0:01:47.360 --> 0:01:49.960 came in, other days others came in. So it's like, okay, 0:01:49.960 --> 0:01:52.480 you're hot desking. You're using this desk that somebody, you know, 0:01:52.560 --> 0:01:53.760 somebody else typically uses. 0:01:53.840 --> 0:01:57.240 In the nineteen nineties, IBM Business, a business unit, said 0:01:57.880 --> 0:02:01.400 they did something called hotelling, like this idea of kind 0:02:01.400 --> 0:02:02.840 of the same thing I guess of sharing desks. And 0:02:02.880 --> 0:02:05.840 then there's a naval practice of hot racking, where sailors 0:02:06.040 --> 0:02:10.520 on different ships share the same bunk. So there's history here. 0:02:10.560 --> 0:02:14.600 There's history. All right, all right, we're tabling that. Let's 0:02:14.600 --> 0:02:17.320 talk about the economy. As we said, as you heard 0:02:17.320 --> 0:02:21.760 from the music working men and women. That is very 0:02:21.800 --> 0:02:25.240 true of all things involved with the FED. FED speakers 0:02:25.280 --> 0:02:27.640 out in full force. FED Chair at J. Powell today 0:02:27.639 --> 0:02:29.680 say in the Central Bank must be willing to think 0:02:29.720 --> 0:02:33.800 beyond the complex mathematical simulations it traditionally uses to forecast 0:02:33.840 --> 0:02:37.400 the economy. There's a method to the mag I guess, 0:02:37.440 --> 0:02:40.639 so who knew? And this is at a conference where 0:02:40.639 --> 0:02:42.760 the Fed's research and statistics. You know, he didn't say much. 0:02:42.960 --> 0:02:45.120 He's going to make some comments tomorrow where he might 0:02:45.160 --> 0:02:47.000 be able to have more time to express his views. 0:02:47.160 --> 0:02:48.919 It's going to be a panel to him on monetary 0:02:48.919 --> 0:02:49.760 policy challenges. 0:02:49.840 --> 0:02:50.000 Yeah. 0:02:50.040 --> 0:02:52.040 Chair Powell and his FED colleagues continued to remind us 0:02:52.040 --> 0:02:54.520 the goal is still two percent inflation, and yet, as 0:02:54.520 --> 0:02:57.680 Bloomberg opinion columnists Connor Sen writes today, the FED needs 0:02:57.680 --> 0:03:00.680 to forget about inflation and focus on that other part 0:03:01.120 --> 0:03:04.280 of its dual mandate, which is jobs. Connor joins us 0:03:04.320 --> 0:03:07.080 now to explain he's also the founder of Peachtree Creek Investments. 0:03:07.080 --> 0:03:09.680 He joins us on zoom from Atlanta. Connor, we love 0:03:09.680 --> 0:03:12.120 it when you join us. Thanks for joining us this afternoon. 0:03:12.280 --> 0:03:14.040 So why do you argue that you know, at least 0:03:14.080 --> 0:03:16.000 when it comes to you know what the Fed, the 0:03:16.040 --> 0:03:18.440 Fed's dual mandate, it's time to put inflation in the 0:03:18.520 --> 0:03:20.560 rear view, which the FED has been so focused on 0:03:20.600 --> 0:03:22.960 for the last two years, and now focus on jobs. 0:03:23.840 --> 0:03:26.200 So the real shift in the past six months in 0:03:26.240 --> 0:03:28.320 the data is that the unemployment rate has risen by 0:03:28.320 --> 0:03:31.080 a half percent and is now at three point nine percent, 0:03:31.200 --> 0:03:34.960 ahead of the fed's year end target or goal forecast 0:03:35.040 --> 0:03:37.960 of three point eight percent. And so for the first time, 0:03:37.960 --> 0:03:41.640 really since this whole inflation panic kicked up, we now 0:03:41.680 --> 0:03:43.840 have to worry about inflate to employment in a way 0:03:43.880 --> 0:03:46.360 we haven't before. And so the employment mandate coming back 0:03:46.360 --> 0:03:48.840 into the picture changes the calculus for the FED. 0:03:49.120 --> 0:03:51.280 Go through it though, Really I love this. The unemployment 0:03:51.360 --> 0:03:53.360 rate at three point nine percent in October, slightly above 0:03:53.400 --> 0:03:56.680 the feds end twenty twenty three forecast of three point 0:03:56.680 --> 0:03:59.240 eight percent. But what you note is it has risen 0:03:59.320 --> 0:04:02.280 fifty base his point since April, an exceptional move for 0:04:02.320 --> 0:04:05.160 a healthy economy. Sometimes it feels like fifty bases points 0:04:05.200 --> 0:04:06.920 maybe wasn't a lot, but it is a big move. 0:04:07.000 --> 0:04:10.880 Correct, Yeah, exactly when you saw this sort of magnitude 0:04:10.920 --> 0:04:13.000 of move. Over the past twenty years, it's typically as 0:04:13.000 --> 0:04:14.840 the economy was heading into recession. 0:04:15.840 --> 0:04:18.960 Okay, son, can we make that jump though? 0:04:19.279 --> 0:04:21.719 Forgive me tim? Can we make that jump though so quickly? 0:04:21.839 --> 0:04:23.640 Just because that move? I mean, I feel like this 0:04:23.680 --> 0:04:28.039 has been an environment where you know, fool me once recession, 0:04:28.240 --> 0:04:30.960 fool me twice recession, and it doesn't Things don't happen. 0:04:31.120 --> 0:04:34.160 So can you really make that jump because of this 0:04:34.200 --> 0:04:35.320 move and the unemployment rate. 0:04:36.120 --> 0:04:37.920 I don't think we're heading into recession, but it's the 0:04:38.000 --> 0:04:40.080 kind of thing where the FED it's sort of what 0:04:40.120 --> 0:04:41.960 do you think the FED will do with the data? 0:04:42.120 --> 0:04:43.880 And they have to at least weigh the fact that 0:04:43.880 --> 0:04:46.839 in the past this sort of unemployment trend has often 0:04:46.920 --> 0:04:49.240 led to recession. And at a time when they know 0:04:49.320 --> 0:04:51.960 that inflation has come down, it's not at two percent, 0:04:52.000 --> 0:04:54.800 but it's been coming down, and they see unemployment taking up, 0:04:55.200 --> 0:04:58.280 it's now not out of the possibility that unemployment could 0:04:58.480 --> 0:05:00.320 tip the economy into recession over the next six or 0:05:00.400 --> 0:05:02.440 nine months, and that has to sh shift the way 0:05:02.440 --> 0:05:03.320 they think about policy. 0:05:04.160 --> 0:05:08.360 What if Connor and these are dreaded words, this time 0:05:08.440 --> 0:05:09.240 is different. 0:05:10.160 --> 0:05:12.279 And I think it is because you look at sort 0:05:12.279 --> 0:05:13.880 of the bullwhip is the term we've used for a 0:05:13.920 --> 0:05:16.719 lot of things, where job opening has came down two million, 0:05:16.800 --> 0:05:19.320 but we had so many that it was fine, And 0:05:19.680 --> 0:05:22.360 hiring rates are down, labor market churn is down. This 0:05:22.400 --> 0:05:24.840 is probably part of the same dynamic, but you can't 0:05:24.839 --> 0:05:26.760 be sure. And as I pointed out in my column, 0:05:26.839 --> 0:05:29.240 over the past six months, a million people have joined 0:05:29.240 --> 0:05:31.960 the labor force and the unemployment levels were risen by 0:05:31.960 --> 0:05:34.120 eight hundred thousand. So even though we've had all this 0:05:34.160 --> 0:05:36.680 great growth, it's not really converting into job growth. 0:05:36.760 --> 0:05:39.520 Can you explain that dynamic here? How more people join 0:05:39.520 --> 0:05:41.760 in the labor force, how some of them are They're 0:05:41.800 --> 0:05:44.400 not necessarily sitting on the sidelines, they're just not finding. 0:05:44.080 --> 0:05:47.520 A job right And it's not like the million people 0:05:47.520 --> 0:05:50.039 who have joined the labor force are unemployed. There's just 0:05:50.480 --> 0:05:52.040 a lot of churn in the economy one hundred and 0:05:52.040 --> 0:05:54.560 fifty million workers or so. But it just shows that 0:05:54.839 --> 0:05:56.960 the growth we've seen is due to productivity growth, not 0:05:57.080 --> 0:06:00.360 rapid hiring, not rapid labor demand. And if you're fed, 0:06:00.400 --> 0:06:03.719 you think we've achieved our labor market mandate. Fed Governor 0:06:03.760 --> 0:06:06.600 Waller said yesterday that labor market balance is in a 0:06:06.600 --> 0:06:09.320 pretty good place, and not those exact words, but my 0:06:09.360 --> 0:06:11.480 guess is that's the view of committee. And if the 0:06:11.560 --> 0:06:14.080 labor market's now in a good place, well, they were 0:06:14.080 --> 0:06:15.960 worried for a while that the labor market was what 0:06:16.040 --> 0:06:18.479 was kicking up inflation, and they shouldn't be worried about 0:06:18.480 --> 0:06:19.000 that anymore. 0:06:19.080 --> 0:06:23.279 Can you go to also, folks, this is an education 0:06:23.440 --> 0:06:27.760 right now for everybody watching and listening. Aggregate weekly payroll growth. 0:06:27.960 --> 0:06:30.200 Talk to us about this metric as well and what 0:06:30.240 --> 0:06:31.080 it tells us. 0:06:31.720 --> 0:06:34.240 Sure, So what that calculates is the number of workers 0:06:34.440 --> 0:06:37.279 times how many hours they work, times what their wages are, 0:06:37.320 --> 0:06:39.719 and so it's sort of a rough aggregate for just 0:06:39.839 --> 0:06:43.200 worker incomes. And that's now only grown five percent over 0:06:43.200 --> 0:06:45.080 the past year, which is basically what it did in 0:06:45.120 --> 0:06:48.400 the twenty tens. So that number was really high last year, 0:06:48.440 --> 0:06:50.239 and that was a reason to believe that the labor 0:06:50.240 --> 0:06:53.240 market was driving inflation, and that's no longer concerned. 0:06:54.080 --> 0:06:57.239 So interesting, So listen, we've got you know, Jay Powell 0:06:57.279 --> 0:07:00.680 on top. I'm thinking about you know, I don't know. 0:07:00.760 --> 0:07:02.560 He obviously didn't say much today, but he didn't have 0:07:02.640 --> 0:07:05.440 much opportunity to say, but we do anticipate he might 0:07:05.480 --> 0:07:07.440 have some more time to express his views. Tomorrow it's 0:07:07.480 --> 0:07:10.880 going to be a panel of monetary policy challenges. Do 0:07:10.920 --> 0:07:13.080 you think I mean, do you feel like they're starting 0:07:13.080 --> 0:07:14.880 to talk more about the labor market. I don't feel 0:07:15.080 --> 0:07:17.240 that way. I feel like they're pretty comfortable with it. 0:07:17.280 --> 0:07:20.480 But what would you look for maybe J. Powell and 0:07:20.560 --> 0:07:22.760 company to start talking about or maybe what they should 0:07:22.800 --> 0:07:24.080 be talking about. 0:07:24.640 --> 0:07:27.280 Well, they like to change their communication iteratively. They're not 0:07:27.320 --> 0:07:29.560 going to go from we're looking to hike too, we're 0:07:29.560 --> 0:07:31.120 looking to cut in two weeks. That's not what they 0:07:31.160 --> 0:07:33.960 do barring the economy collapsing. So this month, what I 0:07:33.960 --> 0:07:35.800 would look for is just them talking about the labor 0:07:35.800 --> 0:07:38.200 market being back in balance. That to me would be 0:07:38.200 --> 0:07:40.120 the key that all of a sudden they're going to 0:07:40.160 --> 0:07:43.280 focus more on employment. The employment mandate is the risk 0:07:43.320 --> 0:07:46.200 management there is very different than the inflation side, and 0:07:46.320 --> 0:07:48.600 I would look for them potentially in December to not 0:07:48.720 --> 0:07:52.840 hike and sort of be open minded about where policy 0:07:52.840 --> 0:07:54.560 could go in twenty twenty four. And I think the 0:07:54.560 --> 0:07:56.320 bond market is starting to sniff that out a little bit. 0:07:56.360 --> 0:07:58.120 But you don't even think just open minded you think 0:07:58.120 --> 0:08:00.240 that we could see some serious rate cuts by the 0:08:00.280 --> 0:08:02.600 FED next year. I mean, the market on the last 0:08:02.600 --> 0:08:05.320 FED meeting jumped the idea of a cut. They moved 0:08:05.320 --> 0:08:08.640 it from July expectations to the June to June. So 0:08:08.920 --> 0:08:10.960 what does serious rate cuts mean in your view? 0:08:11.040 --> 0:08:14.000 And when I think we'll get insurance cuts or surgical 0:08:14.080 --> 0:08:16.760 cuts something like that where they'll say if we cut 0:08:16.800 --> 0:08:19.280 two or three times, that would uninvert the yeld curve, 0:08:19.360 --> 0:08:21.880 which a lot of banks would like, and that would 0:08:21.880 --> 0:08:24.119 sort of if there's negative momentum in the labor market, 0:08:24.240 --> 0:08:26.200 that would maybe cut that off, get housing going a 0:08:26.200 --> 0:08:28.920 little bit again, and just make them feel at ease 0:08:29.040 --> 0:08:32.520 that they haven't overtightened. And as again inflations come down, 0:08:32.720 --> 0:08:34.800 the labor markets and balanced. So maybe we don't need 0:08:34.880 --> 0:08:36.480 FED funds at five and a quarter to five and 0:08:36.520 --> 0:08:38.520 a half anymore. Maybe more like four and a half 0:08:38.559 --> 0:08:40.320 would accomplish what the Fed's looking to do. 0:08:40.720 --> 0:08:43.319 But Connor, in the past, you know, the FED has 0:08:43.600 --> 0:08:47.080 thought that it's gotten inflation under control and then a 0:08:47.120 --> 0:08:50.079 few months later inflation is reded. It's ugly head again, 0:08:50.800 --> 0:08:53.320 what data would you point to right now to say, okay, well, 0:08:53.600 --> 0:08:55.400 the worst of inflation is behind us. 0:08:56.280 --> 0:08:59.080 So first you again, the labor market is no longer 0:08:59.360 --> 0:09:01.400 sort of driving. That's what the FED will think. You 0:09:01.440 --> 0:09:03.480 look at what's going on in Shelter, and we know 0:09:03.520 --> 0:09:05.600 that there's a lag between sort of market rents, what 0:09:05.640 --> 0:09:08.199 people who are signing least today are paying, and sort 0:09:08.200 --> 0:09:10.680 of how it's calculated in CPI, So we know that's 0:09:10.679 --> 0:09:13.040 going to be very benign over the next year really 0:09:13.080 --> 0:09:15.559 because of the lags in that. The dynamic that the 0:09:15.600 --> 0:09:18.120 FED was looking at was this core services X housing 0:09:18.240 --> 0:09:21.560 measure of inflation, which they thought was the labor sort 0:09:21.559 --> 0:09:24.000 of component. But again, if the labor market's in balance, 0:09:24.040 --> 0:09:26.120 then that shouldn't be a driver either going forward. And 0:09:26.160 --> 0:09:28.800 so there's just nothing that they could point to that 0:09:29.000 --> 0:09:31.320 they would believe that inflation should still be a problem. 0:09:31.840 --> 0:09:34.320 And it's the FED likes have changed the way they 0:09:34.320 --> 0:09:37.120 think about things. This power Fed anyway, and they have 0:09:37.200 --> 0:09:38.360 the opportunity now to do so. 0:09:38.520 --> 0:09:41.160 Connor, it does sound like what you're arguing too for 0:09:41.440 --> 0:09:43.000 is that the FED be a little bit more preemptive 0:09:43.040 --> 0:09:45.439 in this before the labor market falls apart, and it's 0:09:45.480 --> 0:09:47.040 something much more serious. 0:09:47.440 --> 0:09:49.440 Right, they did this in nineteen eighty five. They even 0:09:49.440 --> 0:09:51.679 paled it in twenty nineteen, arguably where they cut rate 0:09:51.720 --> 0:09:54.560 seventy five basis points, even though we saw job growth throughout. 0:09:55.080 --> 0:09:57.440 And it's just a sort of acknowledgement that policy doesn't 0:09:57.480 --> 0:09:59.440 need to be as tight as it was the spring, 0:10:00.000 --> 0:10:02.360 and it's they're still going to call this restrictive policy, 0:10:02.559 --> 0:10:04.319 just not as restrictive as it's been. 0:10:04.880 --> 0:10:07.520 Interesting, So would you suggest to the audience here who 0:10:07.520 --> 0:10:10.040 are watching and listening that just focus on the labor 0:10:10.080 --> 0:10:11.640 market now you've been a little bit more for cues 0:10:11.640 --> 0:10:12.839 about what kind of comes next. 0:10:13.600 --> 0:10:15.760 Definitely the labor market data and how the FED talks 0:10:15.760 --> 0:10:16.120 about it. 0:10:16.280 --> 0:10:18.000 All right, Really fun to check in with you. Bloomberg 0:10:18.040 --> 0:10:23.080 Opinion columnist Connerson writing about this today. He's the founder 0:10:23.120 --> 0:10:26.360 of Peachtree Creek Investments, and you can certainly check out 0:10:26.360 --> 0:10:28.280 his story and more from Bloomberg Opinion on the Bloomberg 0:10:28.280 --> 0:10:30.360 and at Bloomberg dot com slash Opinion. I've got to say, 0:10:30.520 --> 0:10:33.320 opinion columns always kind of a must read for me. 0:10:33.559 --> 0:10:35.640 Yeah, that's where we got a Javier Bloss's story a 0:10:35.679 --> 0:10:38.280 little earlier about the economic indicators. 0:10:38.240 --> 0:10:39.160 Known as lubricants. 0:10:39.240 --> 0:10:42.040 Yeah, opin go also on the Bloomberg terminal and. 0:10:42.040 --> 0:10:45.040 Bobby Gosh yesterday. Yeah, I mean it's just really good stuff. 0:10:45.040 --> 0:10:46.600 And yes, they got great they got great stuff. 0:10:46.640 --> 0:10:49.120 Perspective on kind of our world. We got a lot 0:10:49.120 --> 0:10:51.400 of perspectives coming up on our world, investment world and 0:10:51.400 --> 0:10:56.720 world at large, including Middle East conflict, also Ukraine, Russia, 0:10:56.760 --> 0:10:59.319 the connection. What we need to keep in mind. All right, everybody, 0:10:59.320 --> 0:11:02.040 just getting started on this Wednesday. This is Bloomberg. 0:11:03.880 --> 0:11:07.480 You're listening to the Bloomberg Business Week podcast. Catch us 0:11:07.520 --> 0:11:10.840 live weekday afternoons from three to six Eastern Listen on 0:11:10.920 --> 0:11:14.959 Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, 0:11:15.240 --> 0:11:17.320 or watch us live on YouTube. 0:11:20.160 --> 0:11:28.559 In Yeah, all right, folks. As we said, we are 0:11:28.600 --> 0:11:33.120 still in the midst of some earnings in this quarterly season. 0:11:33.520 --> 0:11:35.680 Disney continuing to be up about two point two percent 0:11:35.720 --> 0:11:37.959 in the after hours. We'll continue to track that and 0:11:38.040 --> 0:11:41.080 Take two, which had quite a day to day on 0:11:41.200 --> 0:11:44.800 expectations of the next Grand Theft auto release, although we 0:11:44.840 --> 0:11:47.680 don't know when coming across with their earnings. In Stock, 0:11:47.800 --> 0:11:50.520 which rallied today is just down about one percent in 0:11:50.559 --> 0:11:52.760 the aftermarket all right, let's get to as we said, 0:11:52.800 --> 0:11:55.560 earnings sures of H and R Block. They were down 0:11:55.600 --> 0:11:58.440 more than five percent at one point today following earnings 0:11:58.520 --> 0:12:02.679 last night. First quarter US assisted tax prep revenue that 0:12:02.720 --> 0:12:05.120 was a beat. Company said it still sees fiscal rev 0:12:05.160 --> 0:12:07.160 of about three point five to three billion to five 0:12:07.200 --> 0:12:10.160 point fifty nine billion versus an estimate of three point 0:12:10.200 --> 0:12:13.880 fifty six billion. They did reaffirm their full year outlook 0:12:13.880 --> 0:12:16.720 and the stock roughly up him about thirteen percent year 0:12:16.760 --> 0:12:17.199 to date. 0:12:17.480 --> 0:12:18.920 Well with more on the quarter, the outlook in the 0:12:18.960 --> 0:12:21.360 overall business. We got back with us Jeff Jones, he's 0:12:21.400 --> 0:12:23.640 president and CEO of H and R Block. He joins 0:12:23.679 --> 0:12:25.960 us once again on Zoom from Kansas City, Missouri. 0:12:26.000 --> 0:12:27.600 Jeff, good to have you back with us. How are you. 0:12:28.520 --> 0:12:30.200 I'm doing great, Great to talk with you, guys. 0:12:30.280 --> 0:12:31.800 Hey, we're going to get to the quarter that was 0:12:31.880 --> 0:12:33.640 and the quarter that is in just a second. But 0:12:33.679 --> 0:12:35.120 we love talking to you because you have a good 0:12:35.160 --> 0:12:38.920 idea of the consumer. You of course know what they're earning. 0:12:39.720 --> 0:12:41.760 Give us an idea of what you're thinking and what 0:12:41.760 --> 0:12:43.440 you're seeing with the economy right now. 0:12:44.600 --> 0:12:48.439 You know, the timing is actually really great. We're not economists, 0:12:48.480 --> 0:12:50.720 as you know, but I do think we have a 0:12:50.760 --> 0:12:53.640 real front row seat on what's happening given the twenty 0:12:53.679 --> 0:12:57.800 million people we serve, we simply call them hardworking Americans, 0:12:57.840 --> 0:13:01.880 and we just released our third annual report we call 0:13:01.960 --> 0:13:06.000 the Outlook on American Life. We basically look at all 0:13:06.000 --> 0:13:09.439 the anonymized data from tax returns. I like to think 0:13:09.480 --> 0:13:14.000 of it as a financial fingerprint or financial DNA, and 0:13:14.040 --> 0:13:17.120 we're seeing some really interesting trends in what you would 0:13:17.120 --> 0:13:21.280 call middle America. I think the first thing that we 0:13:21.320 --> 0:13:25.800 see is inside what we call middle America are actually 0:13:25.920 --> 0:13:30.800 two different groups, the millennial middle and the boomer middle. 0:13:31.320 --> 0:13:35.960 And even though they're demographically different, you know, they have 0:13:36.080 --> 0:13:39.920 some similar views about what they're feeling right now financially, 0:13:40.000 --> 0:13:43.360 and what we hear from them is they see that 0:13:43.640 --> 0:13:47.480 the inflation that we're all dealing with has essentially wiped 0:13:47.480 --> 0:13:50.800 out their wage gains. And both of those groups are 0:13:50.800 --> 0:13:53.680 telling us that they feel like they're struggling, and it 0:13:53.720 --> 0:13:56.400 doesn't matter if you're young or old. That mindset and 0:13:56.400 --> 0:13:58.480 that feeling is the same among both of the groups. 0:13:58.520 --> 0:14:01.679 So that's a continuation because into September you shared I 0:14:01.720 --> 0:14:05.600 think it was September. Maybe it was with our Bloomberg 0:14:05.600 --> 0:14:08.040 team that the same thing that you saw the consumer 0:14:08.080 --> 0:14:10.880 this year struggling. This was American's earning around forty thousand 0:14:10.920 --> 0:14:14.680 dollars desperate for their tax refunds this past spring. We're 0:14:14.679 --> 0:14:17.920 not in prime tax filing season, Jeff. But you still 0:14:17.960 --> 0:14:20.960 feel like that struggling idea. You're still seeing that. 0:14:22.360 --> 0:14:25.360 Well, yes, and for two different reasons. When we spoke 0:14:25.440 --> 0:14:27.680 last time, it was what we were seeing in the 0:14:27.760 --> 0:14:31.720 business at that moment, and people's desire to get their 0:14:31.720 --> 0:14:35.840 refund early, obviously looking for every dollar possible. This is 0:14:36.000 --> 0:14:39.960 different data. This is looking at the tax return data 0:14:39.960 --> 0:14:45.000 anonymized for millions of filers and then interviewing over a 0:14:45.080 --> 0:14:49.400 thousand of them, So it is different data. The theme 0:14:49.480 --> 0:14:52.360 remains the same. I think a couple of other interesting 0:14:52.400 --> 0:14:55.480 things though. I mean, whether you're millennial or boomer, what 0:14:55.520 --> 0:14:58.560 we see is that they're both finding ways to cope 0:14:58.600 --> 0:15:02.600 and manage. We see in our data that millennials are 0:15:02.640 --> 0:15:06.320 working two jobs at a higher rate than ever before, 0:15:06.880 --> 0:15:10.840 they're more likely than others to buy on credit, and 0:15:10.920 --> 0:15:15.480 boomers are pushing out retirement. They tell us they're postponing 0:15:15.520 --> 0:15:18.600 those big purchases, so you know, they have the same 0:15:18.720 --> 0:15:22.480 mindset about their financial state, but both are finding ways 0:15:22.520 --> 0:15:23.480 to manage and cope. 0:15:23.880 --> 0:15:26.640 What about gen X, I asked, because you know gen 0:15:26.800 --> 0:15:30.840 X is the is the generation between boomers and millennials. 0:15:31.000 --> 0:15:33.320 And I feel I'm not part of gen X. I'm 0:15:33.320 --> 0:15:35.400 a millennial, but I do feel like gen X is 0:15:35.400 --> 0:15:36.880 really having a moment right now. A lot of the 0:15:36.920 --> 0:15:39.720 executives we speak to our members of gen X. A 0:15:39.720 --> 0:15:43.080 lot of the people making the decisions, not necessarily politicians, 0:15:43.720 --> 0:15:45.960 are gen X. How are they faring? 0:15:47.320 --> 0:15:51.000 You know, I'm a gen xer. I certainly am not 0:15:51.120 --> 0:15:54.840 in this category that we're talking about here, but when 0:15:54.880 --> 0:15:59.040 we look at that data, I think the similarities remain true. 0:15:59.720 --> 0:16:03.640 You know. So Pew defines Middle America as forty five 0:16:03.720 --> 0:16:06.960 thousand to one hundred and forty five thousand dollars, but 0:16:07.160 --> 0:16:11.600 most of this audience make under eighty thousand dollars a year, 0:16:12.400 --> 0:16:15.920 whether you're millennial or Gen X or boomer. And so 0:16:16.240 --> 0:16:19.720 it's this common idea that you know, through the pandemic 0:16:20.560 --> 0:16:24.200 coming into twenty two, people did see some wage gains, 0:16:24.840 --> 0:16:28.400 but inflation is offset it. So now they're trying to 0:16:28.440 --> 0:16:32.480 find ways to cope and getting two jobs. Buying on credit, 0:16:32.680 --> 0:16:37.360 using buy now, pay later, or postponing big purchases is 0:16:37.400 --> 0:16:40.720 the way to cope. It's interesting. I just saw the 0:16:40.840 --> 0:16:45.320 NRF data forecasting holiday sales, and as I recall, they 0:16:45.360 --> 0:16:48.800 forecasted three to four percent sales growth, which was the 0:16:48.920 --> 0:16:53.440 lowest growth in about four years. When I understand that 0:16:53.560 --> 0:16:56.240 and look at the data we're seeing, it makes sense 0:16:57.520 --> 0:17:01.720 people are cautious. They're really struggling to figure out how 0:17:02.480 --> 0:17:07.639 to deal with this economic reality and think about their mindset. 0:17:07.840 --> 0:17:12.919 I love this fact. Millennials sixty seven percent of the 0:17:12.960 --> 0:17:16.520 ones that we see believe that next year will be better, 0:17:17.720 --> 0:17:22.440 but boomers sixty six percent of them believe their situation 0:17:23.119 --> 0:17:26.960 will remain the same or get worse. I don't know 0:17:27.040 --> 0:17:30.359 if that's the wisdom of age or the naivety of youth, 0:17:30.440 --> 0:17:34.840 but their behaviors are similar, but their mindsets are very different. 0:17:34.960 --> 0:17:36.800 But could it be because some of the boomers, many 0:17:36.800 --> 0:17:39.160 of the boomers now are on fixed incomes whereas millennials 0:17:39.200 --> 0:17:40.639 are still in their prime earning years. 0:17:42.040 --> 0:17:44.680 It could be, for sure, and we definitely see that dynamic. 0:17:45.119 --> 0:17:50.280 But because they're pushing out retirement later and later, less 0:17:50.280 --> 0:17:52.720 and less of them are on the same fixed income 0:17:52.760 --> 0:17:55.639 because struggling to get to that life stage. 0:17:55.840 --> 0:17:58.160 Yeah, that's pretty interesting. I feel like it so meshes 0:17:58.280 --> 0:18:01.520 Jeff with the environment that we've been in where it 0:18:01.560 --> 0:18:03.879 doesn't feel like all the data falls in line and 0:18:03.920 --> 0:18:07.920 tells one narrative. It just kind of, you know, goes 0:18:07.920 --> 0:18:12.480 in different directions. Having said that recession no recession? Would 0:18:12.520 --> 0:18:15.040 you you know, do you make the call with your team? 0:18:15.080 --> 0:18:17.080 I knew as an executive you've got a plan for 0:18:17.359 --> 0:18:22.399 multiple scenarios, but do you more often you know, or 0:18:22.480 --> 0:18:26.720 amp up the talk about recession either next year or 0:18:26.880 --> 0:18:28.280 how do you how do you describe it? 0:18:29.440 --> 0:18:32.439 You know, I've been consistent on this that we don't 0:18:32.520 --> 0:18:38.560 see hard recession now. The new dynamics are the geopolitical landscape, 0:18:38.760 --> 0:18:42.640 obviously war. Those are new dynamics and we're not sure 0:18:42.680 --> 0:18:45.080 what to make about that and how it will translate 0:18:45.119 --> 0:18:49.720 to our business in this country. But we've consistently seen 0:18:49.760 --> 0:18:56.399 the consumer need money, need money faster, seeing strain in 0:18:56.440 --> 0:19:00.360 their life, but finding ways to get by. And when 0:19:00.359 --> 0:19:04.440 you put those things together, you know, job growth remains good. Obviously, 0:19:04.480 --> 0:19:07.520 companies now are dealing with the fact that our vacancy 0:19:07.640 --> 0:19:11.600 rates are lower than ever, so people aren't leaving. So 0:19:11.640 --> 0:19:14.479 the data is conflicting. But we don't sit here today 0:19:14.880 --> 0:19:16.040 and forecast recession. 0:19:17.640 --> 0:19:18.960 So what does it mean? What does all this mean 0:19:19.000 --> 0:19:21.080 for your business? I mean people pay taxes whether or 0:19:21.080 --> 0:19:25.960 not they're feeling optimistic or pessimistic about their finances. People 0:19:26.000 --> 0:19:28.480 pay taxes whether or not there's a recession. What does 0:19:28.520 --> 0:19:29.680 all this mean for your business? 0:19:31.240 --> 0:19:34.040 There are two things that we deliver that the consumer 0:19:34.119 --> 0:19:39.600 desperately needs. Value and transparency. And so you're absolutely right. 0:19:39.640 --> 0:19:43.280 In our tax business it is a legal obligation. But 0:19:43.480 --> 0:19:46.480 in our spruce financial product or in our small business 0:19:46.520 --> 0:19:50.840 services where small businesses may be doing less service, that's 0:19:50.880 --> 0:19:53.960 where it impacts this. And so we think all the 0:19:54.040 --> 0:19:57.920 time about the value for price paid, and we think 0:19:57.960 --> 0:20:01.240 about being as transparent with as we can with the consumer. 0:20:01.840 --> 0:20:04.040 They know what they're buying, they know what they're paying, 0:20:04.760 --> 0:20:07.600 and they're getting expertise to help them along the way. 0:20:08.080 --> 0:20:11.320 That's how we respond when we know the consumer gets struck. 0:20:11.680 --> 0:20:13.800 But having said that, because that's one thing, we only 0:20:13.800 --> 0:20:16.399 have about thirty seconds left here. That strategy of building 0:20:16.400 --> 0:20:21.000 out your business bookkeeping bank products, other services. You know, 0:20:21.040 --> 0:20:23.640 that small business community. How would you describe the small 0:20:23.680 --> 0:20:25.760 business how they are doing right now? And forgive me, Jeff, 0:20:25.840 --> 0:20:27.359 only about thirty seconds. 0:20:28.320 --> 0:20:31.800 In simple terms about the same way. Most small businesses 0:20:31.840 --> 0:20:35.320 are micro businesses zero to nine employees. In a lot 0:20:35.320 --> 0:20:38.439 of ways, they are consumers and live like consumers. So 0:20:38.520 --> 0:20:40.880 I would say in simple terms about like the consumer. 0:20:41.000 --> 0:20:44.679 So struggling a little bit, struggling a little bit, you know, 0:20:44.840 --> 0:20:48.960 still seeing business, different sectors performing differently. That's probably too 0:20:49.000 --> 0:20:49.760 detailed for now. 0:20:49.920 --> 0:20:53.520 Okay, really appreciate it. Bewhile Jeff Jones, President and CEO 0:20:53.560 --> 0:20:56.119 of H and R Block on zoom from Kansas City, Missouri. 0:20:56.560 --> 0:20:58.400 Joining us here on Bloomberg Business Week. 0:20:59.119 --> 0:21:02.679 You're listening to the Bloomberg Business Week podcast. Catch us 0:21:02.720 --> 0:21:06.840 live weekday afternoons from three to six Eastern on Bloomberg Radio, 0:21:06.920 --> 0:21:10.240 the Bloomberg Business app, and YouTube. You can also listen 0:21:10.320 --> 0:21:13.440 live on Amazon Alexa from our flagship New York station 0:21:13.880 --> 0:21:16.919 Just Say Alexa playing Bloomberg eleven thirty. 0:21:18.320 --> 0:21:18.480 Well. 0:21:18.520 --> 0:21:20.840 As the current issue of Bloomberg BusinessWeek reminds us from 0:21:20.880 --> 0:21:23.480 Wall Street to the World Bank, one risk towers above all, 0:21:23.520 --> 0:21:27.440 and that is geopolitical. We know Israel has talked about 0:21:27.480 --> 0:21:29.879 its troops entering the middle of Gaza's main city as 0:21:29.880 --> 0:21:34.119 they continue their offensive against Hamas EU commissioned President Ursula 0:21:34.240 --> 0:21:38.960 Vanderline weighing in saying Israel will have to leave Gaza eventually. 0:21:39.040 --> 0:21:41.439 And then, of course, Tim, there's the war between Russia 0:21:41.480 --> 0:21:42.640 and Ukraine. 0:21:42.760 --> 0:21:45.080 Yeah, well into its second year, almost its third year. 0:21:45.160 --> 0:21:48.359 Ukraine President Zelenski welcoming a decision by the European Unions 0:21:48.400 --> 0:21:51.840 Executive arm Tobacco start to membership talks with Kiev, pledging 0:21:51.840 --> 0:21:55.399 to continue work to develop state institutions. A lot for 0:21:55.440 --> 0:21:57.320 the world to manage. And we've got a great. 0:21:57.119 --> 0:21:59.359 Guest, Carol Angela Stemp back with US, senior fellow at 0:21:59.359 --> 0:22:03.320 Brookings and City, author of Putin's World, former national intelligence 0:22:03.359 --> 0:22:05.720 officer for Russian and Eurasia. She worked at the US 0:22:05.720 --> 0:22:09.480 State Department. She's back with US on Zoom from Washington. Angela, 0:22:09.600 --> 0:22:12.600 thank you, thank you, thank you. Is the world making 0:22:12.840 --> 0:22:15.760 what feels like a mistake, and to some extent it 0:22:15.760 --> 0:22:19.000 feels like they're forgetting about the Russian war in Ukraine. 0:22:20.160 --> 0:22:22.760 Well, certainly the conflict in the Middle East has diverted 0:22:22.800 --> 0:22:26.000 attention from the war in Ukraine, but that war goes on. 0:22:26.680 --> 0:22:31.879 Just today, Russia destroyed a I guess it was a 0:22:31.960 --> 0:22:35.520 Liberian flagged ship in the port of an Odessa, killing 0:22:35.520 --> 0:22:40.880 the pilot. It's been attacking the Ukrainian infrastructure. The Ukrainians 0:22:40.880 --> 0:22:44.359 are fighting valiantly back, but the war seems to be 0:22:44.400 --> 0:22:49.440 at this moment in a dynamic stalemate. And the Ukrainians, 0:22:49.480 --> 0:22:53.440 you know, continued to need assistance from the West, particularly 0:22:53.480 --> 0:22:56.000 from the United States, and of course that's up for 0:22:56.080 --> 0:22:57.400 question at the moment. 0:22:57.320 --> 0:22:59.680 It is up for question, But so far the United 0:22:59.680 --> 0:23:02.840 States has pledged and given quite a bit of aid 0:23:02.880 --> 0:23:06.080 to the Ukrainians. Are you concerned? I mean, I guess 0:23:06.080 --> 0:23:08.919 if you were a decision maker in Washington, would you 0:23:09.040 --> 0:23:10.919 how much would you like? What would you need to 0:23:10.920 --> 0:23:13.360 see in order for you to say, Okay, that's enough 0:23:13.359 --> 0:23:14.400 aid for Ukraine. 0:23:15.760 --> 0:23:19.240 Well, I think we have to continue supporting them. If 0:23:19.240 --> 0:23:22.240 we don't send them more assistance and more weapons, it's 0:23:22.280 --> 0:23:24.520 going to be much harder for them to push back 0:23:24.560 --> 0:23:28.119 against the Russians. I think they'll be probably somewhat of 0:23:28.160 --> 0:23:30.600 a lot in the fighting in the winter, even though 0:23:30.640 --> 0:23:32.840 some of these attacks will go on but we know 0:23:32.920 --> 0:23:36.000 that in the spring the fighting will start up again, 0:23:36.040 --> 0:23:38.640 and we need to equip the Ukrainians so that they 0:23:38.680 --> 0:23:41.640 can continue to try and push back the Russians. 0:23:41.760 --> 0:23:45.600 But if it's a stalemate, then what's the motivation for 0:23:46.400 --> 0:23:48.240 And forgive me, because we're talking about you know, we 0:23:48.280 --> 0:23:51.680 have to remember this is people, This is people. Yeah, 0:23:51.680 --> 0:23:53.760 but a lot of that gets lost, I think in 0:23:53.800 --> 0:23:58.080 the conversation when members of Congress are talking about budgets 0:23:58.080 --> 0:24:01.679 and there's a lot of tension with providing aid to Ukraine, 0:24:01.720 --> 0:24:03.679 and there has been for more than two years at 0:24:03.680 --> 0:24:08.600 this point, how do lawmakers justify continuing to send it 0:24:08.720 --> 0:24:10.280 if it's just a continued stalemate. 0:24:11.320 --> 0:24:14.359 Well, first of all, it's in our national interest not 0:24:14.480 --> 0:24:17.760 to have Russia win this war. If Russia succeeds in 0:24:18.000 --> 0:24:21.480 someding Ukraine, that's not where Russia is going to stop. 0:24:21.480 --> 0:24:26.120 It'll probably set its sites for the West, including possibly 0:24:26.200 --> 0:24:28.560 if you read some of the things that were published 0:24:28.560 --> 0:24:32.920 today written by the former president Medvedive, it sites on Poland, 0:24:33.560 --> 0:24:35.600 and the US doesn't want you know, we don't have 0:24:35.680 --> 0:24:39.040 any boots on the ground there. Our men and women 0:24:39.080 --> 0:24:41.399 aren't dying for this. But it's in our interest to 0:24:41.440 --> 0:24:44.320 make sure that we don't get sucked into another even 0:24:44.359 --> 0:24:48.840 bigger war in Europe if we don't support Ukraine, you know, 0:24:48.920 --> 0:24:50.320 as it fights back well. 0:24:50.359 --> 0:24:52.159 And this is where you know, we so wanted to 0:24:52.160 --> 0:24:55.600 have you back because it was understandably you understand why 0:24:55.600 --> 0:24:58.840 in the past month we have shifted our focus. It 0:24:58.880 --> 0:25:01.080 feels like as a world, you know, how much stress 0:25:01.119 --> 0:25:05.600 can we geopolitically focus on. Both situations are dire and important, 0:25:06.080 --> 0:25:08.600 but we have shifted to what's going on between Israel 0:25:08.600 --> 0:25:10.720 and Hamas at this point. But I wanted you to 0:25:10.760 --> 0:25:16.320 come back on for us to understand Vladimir Putin and 0:25:16.400 --> 0:25:20.320 what his goals are here. With what he is trying 0:25:20.320 --> 0:25:23.639 to do, it doesn't necessarily stop with Ukraine, correct. 0:25:24.200 --> 0:25:27.479 That's correct. I mean he's first of all, believes that 0:25:27.560 --> 0:25:31.040 he can wait this out. The war will go on 0:25:31.119 --> 0:25:34.320 in twenty twenty four. Russia has more men that it 0:25:34.440 --> 0:25:39.040 can send as canon fodder than Ukraine does. It has 0:25:39.119 --> 0:25:42.159 a three times of population, and they're getting you know, 0:25:42.480 --> 0:25:45.200 ammunition now from North Korea. We know that they're getting 0:25:45.240 --> 0:25:47.720 drones from Iran. So he wants to wait this out 0:25:48.000 --> 0:25:50.960 and hope that someone es the White House in twenty 0:25:51.000 --> 0:25:53.439 twenty five, who will say enough, we don't want to 0:25:53.440 --> 0:25:57.280 support Ukraine anymore, or that they'll be Ukraine fatigue maybe 0:25:57.320 --> 0:26:00.240 in some European countries. So he's waiting for West and 0:26:00.320 --> 0:26:05.480 resolved to collapse, which it remarkably hasn't yet. But his again, 0:26:05.600 --> 0:26:09.760 his goals don't stop at Ukraine. There might be a pause, 0:26:10.520 --> 0:26:14.199 he wouldn't, you know, Russia wouldn't immediately then turn its 0:26:14.240 --> 0:26:16.720 sights on another country. But in the longer run, as 0:26:16.720 --> 0:26:19.480 long as he's in power, and he's running for reelection 0:26:20.520 --> 0:26:23.200 next year, and he will surely get re elected. As 0:26:23.200 --> 0:26:26.040 long as he's in power, those aims I think aren't 0:26:26.080 --> 0:26:26.680 going to change. 0:26:26.680 --> 0:26:29.080 So he has enough men. Does he have enough money? 0:26:29.280 --> 0:26:32.720 I mean, can he break his country? Vladimir Putin in 0:26:32.800 --> 0:26:35.040 his fight his conquest of Ukraine? 0:26:35.760 --> 0:26:38.240 He has enough money? I mean, the Russians are still 0:26:38.240 --> 0:26:41.640 making money on selling oil and gas. You know, despite 0:26:41.680 --> 0:26:45.280 all of the sanctions and everything, they are making money 0:26:45.280 --> 0:26:50.240 from the hydrocarbon sales. Their economy is set to grow, 0:26:50.359 --> 0:26:54.080 predicted to grow in fact, I think by about two 0:26:54.160 --> 0:26:59.040 percent next year. They've recovered a bit and the economy 0:26:59.080 --> 0:27:01.120 is doing better than it was before. So they can 0:27:01.160 --> 0:27:02.080 continue this fight. 0:27:03.480 --> 0:27:06.760 That's what's so surprising to me. I mean, we spoke 0:27:06.800 --> 0:27:09.399 to you Angela early on in the and we've been 0:27:09.400 --> 0:27:12.840 speaking to you throughout the conflict. But the general consensus 0:27:12.960 --> 0:27:15.040 was this was going to be quick, and it's been 0:27:15.080 --> 0:27:18.480 anything but quick. How do you think this war ends 0:27:18.800 --> 0:27:20.040 as we approach the third year? 0:27:21.040 --> 0:27:21.200 Right? 0:27:21.280 --> 0:27:24.639 Well, it's you know, this is the sixty four thousand 0:27:24.680 --> 0:27:27.919 dollars question that everyone is asking. I mean, at some 0:27:28.160 --> 0:27:34.080 point it might be that both sides recognize that neither 0:27:34.160 --> 0:27:37.239 of them are going to achieve their full aims, and 0:27:37.280 --> 0:27:42.200 that they do sit down and negotiate. That's still what 0:27:42.240 --> 0:27:45.479 we want to avoid is another frozen conflict, which is 0:27:45.480 --> 0:27:48.760 to have some kind of agreement but which is really 0:27:48.760 --> 0:27:52.600 only temporary, and an agreement that would involve Ukraine unless 0:27:52.640 --> 0:27:56.760 it makes more progress territorial it would territorially, it would 0:27:56.760 --> 0:28:01.000 lose some more territory. That might end the fight. You 0:28:01.080 --> 0:28:04.000 could have a ceasefire, you could end the fighting, but 0:28:04.040 --> 0:28:06.760 that's not a longer term solution to this. 0:28:08.320 --> 0:28:08.840 You know, the. 0:28:10.400 --> 0:28:14.119 You know, the desired solution would be obviously for Russia 0:28:14.160 --> 0:28:18.639 to withdraw its troops and to renounce the you know, 0:28:18.800 --> 0:28:21.840 territorial claims on these areas that it claims to have 0:28:21.880 --> 0:28:25.760 annexed but which it doesn't fully control. But that may 0:28:25.800 --> 0:28:29.280 take much longer. So it probably would be you know, 0:28:29.480 --> 0:28:31.879 in the short run at least some kind of a 0:28:31.960 --> 0:28:35.720 ceasefire and a temporary solution to this. A longer term 0:28:35.800 --> 0:28:37.919 solution is much harder to envisag. 0:28:38.120 --> 0:28:40.200 Yeah, you do wonder if even in some kind of 0:28:40.440 --> 0:28:44.800 resolution ceasefire, any territory win on the behalf of Russian 0:28:44.800 --> 0:28:48.840 President Vladimir Putin is just going to incite him to 0:28:49.000 --> 0:28:52.480 continue on his quest. So, Angela, thank you so much. 0:28:52.480 --> 0:28:54.600 As we said, a lot going on geopolitically, but we 0:28:54.640 --> 0:28:57.960 do want to draw everyone's attention to what is still 0:28:57.960 --> 0:29:01.200 going on in this now what to almost three year 0:29:01.800 --> 0:29:05.800 Russian war invasion of Ukraine, and it does feel like 0:29:05.840 --> 0:29:06.360 it's at. 0:29:06.680 --> 0:29:08.840 A critical point, but it's stillmate too. 0:29:09.040 --> 0:29:12.800 It's stillmate as well, exactly all right, angelistat Brookings, thank 0:29:12.800 --> 0:29:13.360 you so much. 0:29:14.560 --> 0:29:18.080 If you're listening to the Bloomberg Business Week podcast, catch 0:29:18.160 --> 0:29:21.520 us live weekday afternoons from three to six Eastern Listen 0:29:21.560 --> 0:29:25.040 on Bloomberg dot com, the iHeartRadio app, and the Bloomberg 0:29:25.080 --> 0:29:28.560 Business app, or watch us live on YouTube. 0:29:30.000 --> 0:29:33.360 Thought you be thinking you could be a Muster Lincoln 0:29:33.440 --> 0:29:35.400 if you only had a brain. 0:29:39.760 --> 0:29:42.080 If I had a brain, I don't know if you 0:29:42.240 --> 0:29:42.880 have a brain. 0:29:43.320 --> 0:29:44.800 It depends on selling yourself. 0:29:45.080 --> 0:29:45.640 Ends of the day. 0:29:45.680 --> 0:29:48.920 In the hour cover of the new issue of Bloomberg 0:29:48.960 --> 0:29:53.840 Business Week also relates to a new podcast by our team, 0:29:54.080 --> 0:29:57.600 Elon Inc. Elon Musk is getting ready for what could 0:29:57.640 --> 0:30:00.600 be the most consequential launch of his career. It isn't 0:30:00.640 --> 0:30:02.880 rocket science, something we just talked about about going on 0:30:02.880 --> 0:30:07.520 to Mars with our author Kelly Wiener Smith. No, it's 0:30:07.680 --> 0:30:08.640 brain surgery. 0:30:09.120 --> 0:30:11.840 Yeah, must company, Neuralink is seeking a volunteer for its 0:30:11.880 --> 0:30:15.320 first clinical trial. Is the cover of a Bloomberg Business 0:30:15.320 --> 0:30:18.040 Week with more we got Bloomberg BusinessWeek editor Joel Weber 0:30:18.240 --> 0:30:21.280 and a Bloomberg Business Week features writer Ashley Vance joining 0:30:21.400 --> 0:30:22.360 us this afternoon. 0:30:22.880 --> 0:30:23.480 Joel, I want to. 0:30:23.440 --> 0:30:26.120 Start with you Neuralink. We've heard a lot about it, 0:30:26.200 --> 0:30:29.920 we haven't seen it in action very much. There's a 0:30:29.920 --> 0:30:32.680 reason for us trying to do with these in Yeah, 0:30:32.680 --> 0:30:34.760 with these chips and planet why what. 0:30:34.760 --> 0:30:35.080 Is the reason? 0:30:35.280 --> 0:30:39.400 Well, you can't touch a head, a human's head until 0:30:39.560 --> 0:30:43.920 you know you get FDA approval, which Neuralink now has, 0:30:43.960 --> 0:30:48.560 so in the very near future, the company is going 0:30:48.600 --> 0:30:55.320 to actually start implanting devices in humans. And Ashley Vance 0:30:55.400 --> 0:31:00.920 has had an unprecedented front row as Neuralink has been 0:31:00.960 --> 0:31:06.320 developing this technology. Ashley take us inside the company. I mean, 0:31:06.680 --> 0:31:12.320 Elon is known for doing bold things that you know, 0:31:12.480 --> 0:31:15.440 break open whole new industries. But this is sort of 0:31:15.480 --> 0:31:19.320 a test of of Elon in a whole new way, now, 0:31:19.400 --> 0:31:21.080 right it. 0:31:21.040 --> 0:31:23.320 Is, you know, I mean, this is a guy we've 0:31:23.360 --> 0:31:27.800 seen with SpaceX, with Tesla. You know, they've accomplished incredible things, 0:31:27.800 --> 0:31:30.760 but they've had some pretty severe bumps along the way. 0:31:30.800 --> 0:31:34.120 SpaceX blew up its first three rockets. Tesla it took 0:31:34.160 --> 0:31:37.280 about a decade to figure out how to mass produce cars. 0:31:37.320 --> 0:31:40.880 And we're talking about brain implants here. This is something 0:31:41.000 --> 0:31:44.640 that really can't go wrong on the first go round. 0:31:44.760 --> 0:31:47.800 It's Neuralink is one, as we point out in the 0:31:47.840 --> 0:31:51.360 story of now dozens upon dozens of companies that are 0:31:51.400 --> 0:31:55.560 looking to do brain implants, spinal implants, mostly to help 0:31:55.600 --> 0:32:01.400 people in pretty dire circumstances paralyzed stroke als. 0:32:00.880 --> 0:32:01.520 Things like that. 0:32:02.440 --> 0:32:04.280 So but you know, really this is the start of 0:32:04.320 --> 0:32:08.640 a very exciting field. Neuralink is as ambitious as ever 0:32:08.800 --> 0:32:12.000 with Elon's companies, but as a lot on the line 0:32:12.120 --> 0:32:13.280 with this first trial. 0:32:13.400 --> 0:32:17.920 So how does neuralinks device and approach differ from the 0:32:18.040 --> 0:32:20.520 other competitors who have a little bit of a head start. 0:32:20.560 --> 0:32:24.440 They'd already had FDA approval and have been doing human implants. 0:32:24.440 --> 0:32:27.680 So what's going to distinguish the neuralink approach. 0:32:28.400 --> 0:32:32.240 Yeah, I mean there's a few things that the other companies. Yes, 0:32:32.520 --> 0:32:36.440 they've done amazing stuff. They're in bodies. I've been to 0:32:36.480 --> 0:32:40.240 Switzerland seen paralyzed people walking again with the spinal implant. 0:32:41.080 --> 0:32:44.880 The biggest difference here is it's full Elon. You know, 0:32:44.960 --> 0:32:48.120 this implant is more powerful than the others by about 0:32:48.120 --> 0:32:50.080 a thousand times. 0:32:49.880 --> 0:32:51.200 It's much smaller. 0:32:51.240 --> 0:32:54.680 The other devices require you to have like a separate 0:32:54.800 --> 0:32:58.960 battery pack, a separate computing system that amplifies signals that's 0:32:59.000 --> 0:33:02.200 usually implanted in someone's body. With Neuralink, they're going to 0:33:02.280 --> 0:33:06.320 cut a tiny hole out of somebody's skull, put have 0:33:06.400 --> 0:33:09.239 a robot do the surgery that puts these electrodes, these 0:33:09.280 --> 0:33:10.840 electronic threads. 0:33:10.560 --> 0:33:13.840 Into somebody's brain, and then the computing. 0:33:13.400 --> 0:33:19.360 Part the computing part, the battery, the amplifier, all of 0:33:19.360 --> 0:33:22.280 that goes into that hole in the skull and then 0:33:22.360 --> 0:33:25.920 fits flush with your head and your skin goes over. 0:33:26.000 --> 0:33:28.200 You can't even really tell you've had it. And so 0:33:28.680 --> 0:33:33.120 it's this more powerful implant. It's miniaturized, and it has 0:33:33.120 --> 0:33:36.080 the robot to try and turn this from like a 0:33:36.160 --> 0:33:39.920 one off type laboratory experiment into something that's repeatable. 0:33:40.240 --> 0:33:42.920 So walk us through what the timeline looks like like 0:33:43.160 --> 0:33:46.840 where they are now and what's gonna hopefully transpire for 0:33:47.440 --> 0:33:49.240 what they're trying to accomplish. 0:33:49.440 --> 0:33:51.600 Yeah, so the last time I was there was just 0:33:51.640 --> 0:33:55.000 about six weeks ago in Austin where the company is 0:33:55.080 --> 0:33:57.720 moving a lot of its headquarters and so they're already 0:33:58.800 --> 0:34:01.160 you know, thousands of people and sort of signed up 0:34:01.240 --> 0:34:04.120 to get this implant, and now they're going through these 0:34:04.160 --> 0:34:07.640 applications to try to find the ideal candidate. Hopefully someone 0:34:07.680 --> 0:34:10.640 that's that's it is going to be someone who's paralyzed 0:34:10.640 --> 0:34:15.000 but is otherwise kind of young and overall healthy, and 0:34:16.000 --> 0:34:19.359 this could happen within you know, it sounds like it's 0:34:19.400 --> 0:34:21.040 going to be within the next couple of months. They've 0:34:21.040 --> 0:34:24.400 already identified a hospital in Arizona, which is where this 0:34:24.480 --> 0:34:26.960 is likely to take place, and and so it's just 0:34:27.000 --> 0:34:30.560 trying right now, they're just finding the exact right candidate 0:34:30.640 --> 0:34:31.520 for this first trial. 0:34:33.480 --> 0:34:37.080 Where actually does this kind of fall on the Elon 0:34:37.200 --> 0:34:40.319 Musk spectrum of priorities right now? Given that he has 0:34:40.480 --> 0:34:47.279 a SpaceX Tesla x slash, Twitter, the boring company Neuralink, 0:34:48.200 --> 0:34:50.120 nine Kids. 0:34:49.560 --> 0:34:52.640 X AI, don't forget XAI, which you know got announced 0:34:52.680 --> 0:34:54.400 over the weeksa thank you. 0:34:54.960 --> 0:34:56.440 But where where? Like how is he? 0:34:56.480 --> 0:34:58.000 I mean, this is a guy you know, well Ashley, 0:34:58.040 --> 0:34:59.600 Like where does this fall in his list of things 0:34:59.600 --> 0:35:01.440 that he wants to do, like and he wants to 0:35:01.440 --> 0:35:02.360 be part of his legacy. 0:35:03.080 --> 0:35:04.279 It's pretty high up there. 0:35:04.280 --> 0:35:07.399 I mean he you know, all his companies always come 0:35:07.440 --> 0:35:10.480 with this we're going to save humanity kind of trapping, 0:35:10.520 --> 0:35:13.400 and this this fits into that. When it was first 0:35:13.440 --> 0:35:15.560 presented to the public, I mean, he went straight for 0:35:15.719 --> 0:35:20.200 the AI sci fi We're gonna download Spanish and Kung 0:35:20.280 --> 0:35:22.920 Fu into our brains and and this this was going 0:35:23.000 --> 0:35:25.040 to be for everybody. Billions of people would get the 0:35:25.080 --> 0:35:28.719 same plant. You know, it's much clearer now that for 0:35:28.840 --> 0:35:31.839 the foreseeable future, this is to help people in sort 0:35:31.880 --> 0:35:35.880 of dire circumstances, and so he takes that mission pretty seriously. 0:35:36.000 --> 0:35:39.120 It's interesting he is not at Neuralink on anything like 0:35:39.160 --> 0:35:41.640 a day to day basis. I mean he shows up 0:35:41.960 --> 0:35:44.520 in my experience like once a month and gets these 0:35:44.600 --> 0:35:47.160 kind of debriefs on what's going on. And the company's 0:35:47.360 --> 0:35:50.560 essentially run by like a triumvirate of people. 0:35:53.120 --> 0:35:55.560 So, you know, one of the things you've you've been 0:35:55.600 --> 0:35:58.839 to the Neuralink facilities in Silicon Valley, talked to us 0:35:58.880 --> 0:36:02.319 about that. They also have operation in Austin. I'm just 0:36:02.440 --> 0:36:05.480 curious about, you know, what you've seen, what you've learned, 0:36:05.640 --> 0:36:08.440 any of the conversations you've had with Elon about this. 0:36:08.719 --> 0:36:11.560 Yeah, and you got to see Elon, you know, basically 0:36:11.600 --> 0:36:15.279 at work with the team at Neuralink. What was that like? 0:36:16.120 --> 0:36:17.759 I saw them with the team, I saw them with 0:36:17.800 --> 0:36:23.160 the primates. You know, so in Fremont. In Fremont is 0:36:23.160 --> 0:36:26.560 where most of the primate research has taken place to date, 0:36:26.640 --> 0:36:29.040 and so for the last three years I kind of 0:36:29.120 --> 0:36:32.719 hung out with the same group of seventeen monkeys in there. 0:36:33.239 --> 0:36:35.760 You know, on one hand, the office is kind of standard. 0:36:35.800 --> 0:36:38.520 It has people sitting at desks and working on their 0:36:39.080 --> 0:36:40.640 robot prototypes. 0:36:40.120 --> 0:36:40.680 And things like that. 0:36:40.719 --> 0:36:43.239 But then there is this animal care facility, and just 0:36:43.280 --> 0:36:46.759 to let people know, I mean, you're in there with 0:36:46.880 --> 0:36:50.399 seventeen monkeys and at any given time, three or four 0:36:50.440 --> 0:36:53.040 of them have a laptop that's been wheeled to like 0:36:53.080 --> 0:36:56.840 the front of their cage, and they're playing video games 0:36:56.840 --> 0:37:00.280 in many cases just with their mind their things, thinking 0:37:00.360 --> 0:37:02.640 what they want to do in this video game, moving 0:37:02.680 --> 0:37:07.879 a cursor onto a onto a tile, tracing letters on 0:37:07.920 --> 0:37:11.400 the screen, and just doing that by thinking about it 0:37:11.440 --> 0:37:13.760 with the implant going to this computer. 0:37:13.880 --> 0:37:16.560 It is wild. It's sort of hard to try to 0:37:16.600 --> 0:37:18.160 convey this in words. 0:37:18.200 --> 0:37:20.440 It's like one of those things that you experience and 0:37:20.480 --> 0:37:23.000 it's it's hard to get across, which just how strange 0:37:23.000 --> 0:37:23.319 it is. 0:37:24.040 --> 0:37:26.680 But but you think of people right who don't have 0:37:26.760 --> 0:37:30.520 that ability and are paralyzed. If they could potentially have 0:37:30.600 --> 0:37:34.239 that capability going forward, that's pretty dramatic and life change. 0:37:34.280 --> 0:37:34.840 Absolutely. 0:37:35.200 --> 0:37:37.280 Yeah, just to make it clear, I mean, the initial 0:37:37.320 --> 0:37:40.040 goal with this right is to be able to think 0:37:40.400 --> 0:37:43.160 words that then go into a text message or a 0:37:43.200 --> 0:37:44.600 WhatsApp message, so you're. 0:37:44.480 --> 0:37:45.959 Communicating with your loved ones. 0:37:45.960 --> 0:37:49.279 You're communicating about your wants and needs and with the 0:37:49.360 --> 0:37:50.160 outside world. 0:37:50.280 --> 0:37:52.720 And the other goal is to be able. 0:37:52.640 --> 0:37:55.640 To move a cursor around a computer screen and a 0:37:55.760 --> 0:37:59.520 very fluid fashion. And you know, as any of us 0:37:59.520 --> 0:38:02.680 can imagine, I mean, just having access to a computer 0:38:03.400 --> 0:38:06.839 unlocks you know, so many things that you can do. 0:38:07.120 --> 0:38:08.680 And so I mean, this. 0:38:08.680 --> 0:38:12.680 Is it is like borderline miraculous type technology. 0:38:13.160 --> 0:38:15.040 So to that end, what what are the sort of 0:38:15.080 --> 0:38:19.239 the use cases that the company sees the implant being 0:38:19.280 --> 0:38:22.319 able to solve in the in the short term and 0:38:22.360 --> 0:38:25.240 then a longer term And like how big of a 0:38:25.360 --> 0:38:29.880 you know, growth pattern could they see based on the 0:38:29.920 --> 0:38:32.400 amount of interest they've had from from people who have 0:38:32.440 --> 0:38:34.080 said that they're willing to get an implant. 0:38:34.760 --> 0:38:36.640 Yeah, you know, in the short term, nereal Link is 0:38:36.680 --> 0:38:39.799 building off like decades of research here, so people have 0:38:39.920 --> 0:38:42.560 had the ability to think a couple words at a time, 0:38:42.680 --> 0:38:45.440 to click yes or no on a screen. But with 0:38:45.520 --> 0:38:47.880 this extra horsepower, you know, they want it to be 0:38:48.120 --> 0:38:51.839 where you're you're thinking words almost as fast as as 0:38:51.880 --> 0:38:54.759 one of us could type on a computer today. So 0:38:54.760 --> 0:38:58.080 that's kind of the near term goal, being able to navigate. 0:38:57.640 --> 0:38:58.240 On the screen. 0:38:58.320 --> 0:39:01.239 They also have a spinal plant that they're working on 0:39:01.320 --> 0:39:04.000 that would be paired with his brain implant, and the 0:39:04.040 --> 0:39:07.320 goal there is to restore movement in limbs and also 0:39:07.440 --> 0:39:11.200 feeling in limbs where you kind of short circuit or 0:39:11.239 --> 0:39:14.840 create a circuit really between your spine and the brain 0:39:15.080 --> 0:39:17.000 and from there, I mean, it moves. You know, I 0:39:17.000 --> 0:39:19.439 can talk about very futuristic stuff. It would be far off, 0:39:19.480 --> 0:39:22.760 but it's things like improving your hearing, improving your site 0:39:23.000 --> 0:39:26.840 and kind of you know, just anything that your brain controls, 0:39:26.880 --> 0:39:27.560 which is a lot. 0:39:30.000 --> 0:39:32.400 How promising, Ashley is this? I mean, are we going 0:39:32.480 --> 0:39:36.120 to start seeing in your estimation, in your opinion, will 0:39:36.160 --> 0:39:40.000 we start seeing the big healthcare companies try to get 0:39:40.000 --> 0:39:41.520 their hands on this type of technology. 0:39:42.800 --> 0:39:45.960 You know, if you look at the traditional device makers 0:39:45.960 --> 0:39:49.040 that do things like deep brain stimulation for epilepsy and 0:39:49.080 --> 0:39:51.480 things like that, it's been a very very slow moving 0:39:51.680 --> 0:39:54.400 field where a device gets made, comes out of a 0:39:54.440 --> 0:39:58.120 research laboratory, and hardly gets advanced. 0:39:58.320 --> 0:39:59.440 Things have totally changed though. 0:39:59.480 --> 0:40:02.480 I mean Neural again is one of at least thirty 0:40:02.520 --> 0:40:06.040 six other companies working on products in this field. So 0:40:06.080 --> 0:40:09.120 this thing, this whole field has moved from academia to 0:40:09.560 --> 0:40:12.960 hundreds upon hundreds of millions of dollars coming in from 0:40:13.040 --> 0:40:16.120 venture capitalists, and so I try not to get people's 0:40:16.120 --> 0:40:19.320 hopes up too much because we don't really know exactly 0:40:19.360 --> 0:40:21.120 how this is going to play out, if the products 0:40:21.120 --> 0:40:24.719 are going to live up to their potential. But there's 0:40:24.760 --> 0:40:28.680 such an explosion of interest here, and in my experience 0:40:28.680 --> 0:40:32.360 of seeing people with the spinal implants, you know, it's encouraging. 0:40:32.400 --> 0:40:35.720 I mean, this is even even in the limited forms 0:40:35.760 --> 0:40:38.759 of the technology right now, it's life changing for people 0:40:38.800 --> 0:40:41.600 who get these implants, and so if we're anywhere close 0:40:41.920 --> 0:40:44.399 to the hype, it will be a dramatic next ten 0:40:44.520 --> 0:40:45.560 or fifteen years. 0:40:46.120 --> 0:40:48.960 So actually, another element that I think you do a 0:40:49.040 --> 0:40:52.319 really great job of exploring in the story is that 0:40:53.080 --> 0:40:58.120 in all the companies that Elon has, at some point 0:40:58.160 --> 0:41:02.160 he ends up kind of touching a race. FDA is 0:41:02.160 --> 0:41:05.080 a regulator that he hasn't had to interact with yet. 0:41:05.080 --> 0:41:08.120 But there are some commonalities in some of the scenes 0:41:08.160 --> 0:41:10.960 in the stories kind of show that how does what's 0:41:10.960 --> 0:41:14.799 the experience been with neuralink and the whole regulation side 0:41:14.800 --> 0:41:16.320 of this particular space. 0:41:17.200 --> 0:41:19.200 Yeah, I mean, if I'm totally honest, I've been reporting 0:41:19.239 --> 0:41:21.279 this story for a long time, in part waiting for 0:41:21.360 --> 0:41:24.319 them to get FDA approval, and there were times when 0:41:24.360 --> 0:41:27.319 I thought that actually would not happen. You know, they 0:41:27.320 --> 0:41:30.840 have this very dramatic robot doing this very dramatic surgery 0:41:30.880 --> 0:41:35.520 with a new implant. So they submitted fifteen thousand pages 0:41:35.719 --> 0:41:40.239 of documents to the FDA to prove out their technology. 0:41:40.280 --> 0:41:44.880 It was an arduous process. Elon was all the Elon 0:41:45.160 --> 0:41:47.719 you could expect during this. You know, I saw some 0:41:47.800 --> 0:41:51.440 meetings where people said, look, the FDA said you can 0:41:51.480 --> 0:41:53.800 do this one surgery, but you can't do another one 0:41:53.920 --> 0:41:58.640 for a year, to which Elon replied unacceptable. And then 0:41:58.680 --> 0:42:01.040 it obviously goes back of the team to try and 0:42:01.239 --> 0:42:05.719 address address this. And you know, Elon has this philosophy 0:42:05.960 --> 0:42:09.840 really that obviously you push regulators to the edge, and 0:42:10.160 --> 0:42:12.240 as we talk about in the story, like he's seeing 0:42:12.480 --> 0:42:15.000 with SpaceX in the rockets, it's kind of you launch 0:42:15.040 --> 0:42:18.680 it and you show them the FAA that the rocket works, 0:42:18.719 --> 0:42:20.480 and then you get to launch again. And so the 0:42:20.560 --> 0:42:23.680 hope here is you put this in someone's brain, the 0:42:23.800 --> 0:42:26.719 human who can communicate, you know, the monkeys can't tell 0:42:26.800 --> 0:42:29.239 us what this experience is like. But this human will 0:42:29.239 --> 0:42:32.480 be able to and Elon's hope is the human says 0:42:32.640 --> 0:42:35.960 it's revolutionary and the FDA lets them keep going. 0:42:36.960 --> 0:42:40.359 Well, it's pretty incredible. And I got to say he's 0:42:40.400 --> 0:42:42.520 a controversial figure, but I would never rule him out 0:42:42.560 --> 0:42:45.880 on anything. This is the cover of the new issue. 0:42:45.920 --> 0:42:50.040 It's also part of the new podcast Elon Inc. We kid, 0:42:50.080 --> 0:42:52.160 it's true, but it's Elon's world and we are largely 0:42:52.200 --> 0:42:54.960 living in and Jill Webber and of course Ashley Vance. 0:42:55.000 --> 0:42:57.200 It's also the cover story of the new issue of 0:42:57.200 --> 0:42:58.120 Bloomberg Business. 0:42:57.920 --> 0:43:02.880 Week, a journal. 0:43:03.920 --> 0:43:04.879 How about you let me drive? 0:43:05.160 --> 0:43:07.160 Oh no, no, no, no, who's going to drive? 0:43:08.239 --> 0:43:10.480 Alright, please, I'll do the gravel? 0:43:11.280 --> 0:43:12.439 Wait, I want to drive. 0:43:14.680 --> 0:43:15.600 It's a good question. 0:43:16.040 --> 0:43:16.200 Good. 0:43:19.360 --> 0:43:21.280 This is the drive to the Globe. 0:43:21.520 --> 0:43:25.800 Doing well by around on Bloomberg Radio. 0:43:26.280 --> 0:43:28.320 All right, everybody, we've got just about seventeen and a 0:43:28.360 --> 0:43:31.000 half minutes left in the Wednesday trade. Carol Master along 0:43:31.000 --> 0:43:33.880 with Tim Stanovik live here at Bloomberg Headquarters, uh and 0:43:34.000 --> 0:43:36.560 in our Bloomberg Interactive Brokers studio. You know, call it 0:43:36.800 --> 0:43:38.640 meth in terms of the equity trade, right. 0:43:38.719 --> 0:43:40.480 Yeah, but the s and p is in the greens 0:43:40.480 --> 0:43:43.160 so or boy, I know, but it's going to notch 0:43:43.160 --> 0:43:45.640 another another consecutive day of winds. 0:43:45.719 --> 0:43:47.960 So maybe well, yeah, tybe, we. 0:43:47.960 --> 0:43:50.160 Do have, Yeah, we do have. What you say, seven 0:43:50.200 --> 0:43:54.480 seventeen minutes to go, A lot can happen, right, We're data. 0:43:54.360 --> 0:43:57.640 Dependent, We are data dependent. A lot of treasury oxygen's 0:43:57.640 --> 0:43:59.560 happening as well. Let's see what Leo Kelly has to 0:43:59.600 --> 0:44:00.960 say about it, all of it. He's founder in sy 0:44:01.040 --> 0:44:03.839 Inverden's Capital Advisors back with us. He has owned Zoom 0:44:03.840 --> 0:44:06.920 from Hunt Valley, Maryland. Leo, good to be talking with 0:44:07.000 --> 0:44:10.640 you once again. This environment, it's an interesting one. Last 0:44:10.680 --> 0:44:13.840 week the FED meeting, many investors read that as a 0:44:13.960 --> 0:44:17.839 very dubvish FED. Do you think the US Central Bank 0:44:18.080 --> 0:44:21.560 is done when it comes to rates raising rates? 0:44:22.680 --> 0:44:23.799 No, absolutely not. 0:44:24.120 --> 0:44:27.799 And I think you might have on the head the 0:44:27.840 --> 0:44:29.920 secret to what's happening in the market. I think everybody's 0:44:29.920 --> 0:44:35.279 looking at seventeen minute increments anymore, you know, as we 0:44:35.320 --> 0:44:38.640 think about what's happening in the economy as a whole. 0:44:39.880 --> 0:44:42.640 The FED gave just enough language for the markets to 0:44:42.680 --> 0:44:45.759 get optimistic and for the folks that I think have 0:44:45.880 --> 0:44:49.319 really been let's just say rooting for an outcome, and 0:44:49.360 --> 0:44:51.160 what I've known after being in this market for a 0:44:51.200 --> 0:44:55.480 few decades, when you're rooting for an outcome, that's a problem. 0:44:55.920 --> 0:44:58.400 The reality is is there's still too much money in 0:44:58.440 --> 0:45:02.400 the system. M two is still up a thirty plus 0:45:02.400 --> 0:45:04.879 percent over a two and a half three year period, 0:45:05.880 --> 0:45:09.759 and because of that, inflation's going to be just incredibly persistent. 0:45:10.239 --> 0:45:13.480 What the FED has also said is it's still going 0:45:13.520 --> 0:45:15.840 to be tough to get to two percent. And the 0:45:15.880 --> 0:45:18.520 FED knows that with all the money in the system, 0:45:18.680 --> 0:45:21.440 if they as they ease back at all, inflation is 0:45:21.480 --> 0:45:23.560 going to keep coming back. So I think the Fed's 0:45:23.600 --> 0:45:26.440 doing exactly what they had to do, react to the 0:45:26.840 --> 0:45:31.440 to the geopolitical moment, pause, give just enough language to 0:45:31.520 --> 0:45:34.600 let the market calm down, and then they'll get back 0:45:34.600 --> 0:45:35.399 to it next year. 0:45:35.480 --> 0:45:39.440 Does that mean the market will not be calm when 0:45:39.520 --> 0:45:40.520 the Fed gets back to it. 0:45:41.719 --> 0:45:43.560 I think we're going to keep seeing what we're seeing, 0:45:44.600 --> 0:45:47.640 what we keep hearing as folks are trying to figure 0:45:47.640 --> 0:45:50.480 out this market. This market is two years old, right, 0:45:50.520 --> 0:45:54.080 We're still in a bear market from January of twenty two, 0:45:54.800 --> 0:45:57.240 and we haven't really come out of that bear market yet, 0:45:57.800 --> 0:45:59.839 and this is an interest rate bear market. We're in 0:46:00.280 --> 0:46:03.120 process of working through this. So I think the market's 0:46:03.160 --> 0:46:05.960 going to continue what it did. FED gets active again, 0:46:06.320 --> 0:46:09.360 rates go up, and the market is going to struggle. 0:46:09.440 --> 0:46:12.000 We hold a lot of cash on our portfolios more 0:46:12.000 --> 0:46:15.880 than normal. We're loving this five percent and we're holding 0:46:15.880 --> 0:46:18.440 on because we think we're going to get some significant volatility, 0:46:18.840 --> 0:46:21.240 and when we do, we're ready to put that cash 0:46:21.239 --> 0:46:24.319 to work. I think on the backside of this, there's 0:46:24.360 --> 0:46:27.640 going to be the end of this, finally, this interest 0:46:27.719 --> 0:46:29.560 rate rise bear market, and we can get out of 0:46:29.560 --> 0:46:31.480 this and have some opportunity in front of us. 0:46:31.520 --> 0:46:33.160 Okay, so what's going to prompt you to put money 0:46:33.200 --> 0:46:35.800 back into the market. I mean five percent is great, 0:46:35.880 --> 0:46:38.520 but if you look at the S and P five hundred, 0:46:38.760 --> 0:46:41.520 I mean that's up, you know, three and a half 0:46:41.520 --> 0:46:43.400 percent just in the last five days. 0:46:43.800 --> 0:46:47.759 Yeah, well, I guess is it. It's up, but it's 0:46:47.840 --> 0:46:49.759 up off of you know, a dip, right, All it 0:46:49.800 --> 0:46:51.799 did was go down and go back up. The other 0:46:51.800 --> 0:46:53.960 thing about the SP five hundred this year, the equal 0:46:53.960 --> 0:46:57.080 weight S top five hundred is basically break even this year. 0:46:58.080 --> 0:47:00.359 You know, again, we've got a few stocks that are 0:47:00.440 --> 0:47:03.680 driving this whole market broadly. The market is really pretty 0:47:03.680 --> 0:47:06.399 ho hum this year, and if you look from January first, 0:47:06.520 --> 0:47:10.520 twenty two this year, stocks are down. They still haven't 0:47:10.560 --> 0:47:13.360 come out of this. So the five percent looks fine. 0:47:13.560 --> 0:47:15.799 I agree with you, though at one point the five 0:47:15.800 --> 0:47:19.799 percent is meaningless if when we do get volatility, we've 0:47:19.840 --> 0:47:22.160 put that to work. I think there's an opportunity here 0:47:22.480 --> 0:47:25.759 to make money in some volatility. What will cause us 0:47:25.760 --> 0:47:29.759 to do that, It's pretty simple valuation right now, and 0:47:29.800 --> 0:47:33.160 we still have a consumer slowing down, we have confidence shrinking, 0:47:33.400 --> 0:47:36.600 we have an ism that now recorded it's twelfth straight 0:47:36.640 --> 0:47:41.400 month in contraction. Rates are still high. There's still a 0:47:41.400 --> 0:47:43.719 lot here to kind of grind through to get to 0:47:43.760 --> 0:47:44.360 the other side. 0:47:44.440 --> 0:47:44.640 LEO. 0:47:44.760 --> 0:47:46.680 So we're down still about four percent four and a 0:47:46.680 --> 0:47:50.160 half percent from the late July high on the S 0:47:50.239 --> 0:47:52.200 and P five hundred. All right, so we're still a 0:47:52.360 --> 0:47:55.440 bit lower. But I mean, is it not low enough 0:47:55.840 --> 0:48:00.400 that you find enough interesting equity opportunities, especially among the 0:48:00.520 --> 0:48:02.960 large caps at this point, that you'd like to see 0:48:03.000 --> 0:48:04.960 a little bit more fluff come out of the market, 0:48:05.239 --> 0:48:07.520 or is this an opportunity where you need to start 0:48:07.560 --> 0:48:11.520 thinking about maybe kind of buying an anticipation of what comes, 0:48:11.560 --> 0:48:14.759 perhaps maybe rate cuts next year, which it seems like 0:48:15.040 --> 0:48:18.120 that momentum is growing again, although as you said, the 0:48:18.120 --> 0:48:19.640 FED is still on its inflation fight. 0:48:20.480 --> 0:48:22.360 Yeah, Carol, I think that's a great question. There's a 0:48:22.400 --> 0:48:26.319 couple pieces to unpack there. First of all, again, I 0:48:26.360 --> 0:48:28.600 still think we're in this interest rates higher market. I 0:48:28.600 --> 0:48:32.919 think the surprise could be higher faster and inflation coming 0:48:32.960 --> 0:48:35.680 back up and surprising folks, if you look at the 0:48:35.719 --> 0:48:39.680 ten year it has made higher lows and higher highs 0:48:39.719 --> 0:48:43.239 through this whole process, and every time it starts to 0:48:43.239 --> 0:48:47.040 go back to that higher low, everyone's convinced the Fed's 0:48:47.080 --> 0:48:48.520 done and this is going to pull back in the 0:48:48.560 --> 0:48:51.719 market's rally. But that is not what has happened. Consistently. 0:48:51.760 --> 0:48:54.920 It is ratcheted higher again. You may remember from our 0:48:54.960 --> 0:48:58.160 prior conversations we think this is the beginning of a 0:48:58.239 --> 0:49:02.799 secular bear market in bonds, which takes a long time 0:49:02.840 --> 0:49:05.920 to work through. Now in that they're cyclical bull markets, 0:49:05.960 --> 0:49:10.520 which is helpful relative to the other part of your question. No, 0:49:10.640 --> 0:49:13.360 we don't think it's advantageous right now to put money 0:49:13.360 --> 0:49:15.600 at the market. We don't think the valuations are cheap enough. 0:49:15.640 --> 0:49:19.600 As I said, we're coming off of that that high 0:49:19.960 --> 0:49:22.160 were the broad market really hasn't done much of anything, 0:49:22.160 --> 0:49:24.440 and the tech stocks are pulling back from frothy highs. 0:49:24.880 --> 0:49:28.279 So I don't think it's quite time yet. But I 0:49:28.320 --> 0:49:30.279 will also say Carol, that depends on where you are 0:49:30.280 --> 0:49:34.799 as an investor. Where we are is neutral in our 0:49:35.120 --> 0:49:38.880 in our equity weightings, meaning an equal weight. We're not overweight, 0:49:38.880 --> 0:49:42.200 We're not underweight. We are underweight some of the overpriced areas, 0:49:42.680 --> 0:49:45.600 like some of the growth areas. We think there's some 0:49:45.719 --> 0:49:48.960 value international, we think there's some value forming in small cap, 0:49:49.040 --> 0:49:52.320 we may not be there yet. And we're underweight bonds 0:49:52.640 --> 0:49:55.120 because we still think rates go higher. So we're very 0:49:55.200 --> 0:49:59.840 short in our fixed income portfolio, where neutral in our equities, 0:50:00.080 --> 0:50:03.200 overweight cash, and we still love private investing. We think 0:50:03.200 --> 0:50:04.399 there's opportunity there. 0:50:05.200 --> 0:50:07.520 In thirty seconds, what's the opportunity in privates right now? 0:50:08.440 --> 0:50:10.479 Well, I think private credit looks interesting. I'm a little 0:50:10.520 --> 0:50:13.200 nervous how hot it's getting right people are running to it. 0:50:13.560 --> 0:50:15.360 But for some time, we've been doing this for a 0:50:15.360 --> 0:50:18.879 few years and making great yields. The other area that's 0:50:18.920 --> 0:50:22.640 always good in private investing is good old fashioned businesses 0:50:22.920 --> 0:50:25.880 in the private markets are not trading at the market 0:50:25.960 --> 0:50:29.239 multiples we're seeing in the public markets, So if you 0:50:29.280 --> 0:50:31.360 do your due diligence, you can go in there and 0:50:31.400 --> 0:50:33.239 find great companies to invest in. 0:50:33.600 --> 0:50:33.680 That. 0:50:34.239 --> 0:50:36.320 Again, I think the economy is going to be okay 0:50:36.400 --> 0:50:38.680 coming out of what is soon to be a recession. 0:50:39.080 --> 0:50:41.200 On the other side of that, all right, listen always 0:50:41.239 --> 0:50:43.600 funding check in with you. Leo Kelly, founder and CEO 0:50:43.760 --> 0:50:48.000 of Verdance Capital Advisor, is fun and informative on zoom 0:50:48.040 --> 0:50:49.120 from Hunt Valley, Maryland. 0:50:50.120 --> 0:50:53.960 This is the Bloomberg Business Week podcast. I've a little Apple, 0:50:54.200 --> 0:50:58.160 Spotify and anywhere else you get your podcast. Listen live 0:50:58.239 --> 0:51:02.280 weekday afternoons from Treaties six Eastern on Bloomberg dot com, 0:51:02.320 --> 0:51:05.640 the iHeartRadio app, tune In, and the Bloomberg Business App. 0:51:05.719 --> 0:51:08.680 You can also watch us live every weekday on YouTube 0:51:08.880 --> 0:51:10.880 and always on the Bloomberg terminal