Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best an economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,
Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app. Right now,
Speaker 1: he was an outlier, He's not anymore. Andrew hollen Horst
Speaker 1: has led it's City Group. He's our chief US economist
Speaker 1: on one two right AX, all of a sudden with
Speaker 1: a number today, Andrew, I'm intersted in September twentieth, and
Speaker 1: I just I'm absolutely my head is spinning over restrictive?
Speaker 1: Are we close to restrictive in our complex mathematics of
Speaker 1: this economy?
Speaker 2: I mean, I don't know that you need to go
Speaker 2: into the complex mathematics. We can, and that's important, But
Speaker 2: if you just step back and you look at this
Speaker 2: labor market data in particular, we've surprised month after month
Speaker 2: to the upside. We continue to see these jobs numbers
Speaker 2: coming in stronger, and I think Mike g have all
Speaker 2: the right caveats around ADP employment. There's a lot of
Speaker 2: reasons that that can differ from the official payrolls reading,
Speaker 2: and we have some big seasonal adjustment issues. All of
Speaker 2: that I think is right, but just take a step
Speaker 2: back look at these jobs numbers. Hundreds of thousands of
Speaker 2: additional jobs relative to expectations that have been created. That's
Speaker 2: a signal that maybe we're not at appropriately restrictive rates.
Speaker 3: Is that an appropriate signal? Is that a lagging indicator?
Speaker 2: Andrew, That's the big issue is the FED is making
Speaker 2: policy now looking at data that is going to depend
Speaker 2: on their lagged policy making. And I think the bank issue,
Speaker 2: the credit tightening, that's something that probably still is going
Speaker 2: to be working its way through the economy, slowing things down.
Speaker 2: The concern though, is that some areas have already been
Speaker 2: worked through. If you look at the housing sector, we
Speaker 2: bottomed in housing, we've come off that bottom, and we
Speaker 2: didn't lose construction jobs. And that's a great thing for
Speaker 2: construction worker is a good thing for the economy. But
Speaker 2: if the FED is looking to loosen the labor market,
Speaker 2: we're just really not seeing that in the data.
Speaker 3: Can you hap me with that That's been a key
Speaker 3: question for me in the last twenty four hours, and
Speaker 3: I'll keep digging into this too with other guests later
Speaker 3: on Bloomberg TV and on Bloomberg Radio. When you look
Speaker 3: at the surprise indicators, that index is the highest been
Speaker 3: since twenty twenty one. So that's the incoming information relative
Speaker 3: to the estimates before that economic data. Is that because
Speaker 3: things are better than expected or are things getting better?
Speaker 3: Are they actually improving?
Speaker 2: I think it is better than expected, And this is
Speaker 2: really theory versus data, and the theory would tell you
Speaker 2: interest rates are higher, real interest rates are higher, that
Speaker 2: tailwind from lagged fiscal stimulus should be coming off. All
Speaker 2: of those things should be slowing the economy, and we
Speaker 2: think we see some signs that some of that slowing
Speaker 2: is happening. But job growth has slowed down. It used
Speaker 2: to be running a million a month, and it was
Speaker 2: running five hundred thousand a month, but it slowed to
Speaker 2: somewhere around three hundred thousand a month, and that's just
Speaker 2: a lot fat than anyone would have expected at this point.
Speaker 1: The arch issue here is Edheiman looks at a very
Speaker 1: very weak economy and yet we've got service sector doing
Speaker 1: this and that does City Group look at this as
Speaker 1: a weak economy after two percent GDP AD justin in
Speaker 1: the first quarter.
Speaker 2: I think this cycle is just so different that some
Speaker 2: of the standard indicators of weakness are not working the
Speaker 2: way that they have historically. One example, John was talking
Speaker 2: about before manufacturing manufacturing ism showing contraction. That's usually a
Speaker 2: good leading indicator of recession. The housing sector being in contraction,
Speaker 2: that's usually a good leading indicator of recession. But this
Speaker 2: cycle is different. We have this transference to services fact
Speaker 2: and the continuum.
Speaker 1: Here are we, as constant just mentioned from Azuo, Are
Speaker 1: we where it's a pandemic supply side analysis or is
Speaker 1: it a demand side demand driven analysis? For the FED?
Speaker 2: I think you have to do them together. And I
Speaker 2: think that it's a commonly made statement now that well
Speaker 2: central bank should be focused on the demand side, not
Speaker 2: the supply side. You have to focus on where is
Speaker 2: the demand side relative to the supply side. And unless
Speaker 2: you think the shock to supply is some very transitory
Speaker 2: issue and a lot of the issues that we have
Speaker 2: on the supply side now are structural and we'll be
Speaker 2: with us for some time. Central banks need to recognize
Speaker 2: that supply side and then adjust demand accordingly.
Speaker 3: I'm looking forward to bookmark in the address from Chairman
Speaker 3: Pound and Jackson Hole next month with the address from
Speaker 3: last year and comparing where unemployment was down and where
Speaker 3: it is now, because i was looking for that to
Speaker 3: come into three point six percent, which is basically where
Speaker 3: it was where he was dressed in the public talking
Speaker 3: about course in pain and potentially pain in the labor market.
Speaker 1: I'm in the camp alocentra that this isn't in the textbooks,
Speaker 1: as Andrew alludes to post pandemic. It's both sides, supply
Speaker 1: and demand, and we're we're just making it up as
Speaker 1: we go. Michael McKee, we're waiting for claims. How to
Speaker 1: claims Michael McKee dovetail into the ADP report.
Speaker 4: Well, I can tell you they come in a little
Speaker 4: bit higher than anticipated, to two hundred and forty eight thousand.
Speaker 4: That is higher than the initial report of two thirty
Speaker 4: nine last week, but it is also higher than the
Speaker 4: anticipated two forty five, so a bit of a rebuild
Speaker 4: in claims. Now, this is a tough time of year
Speaker 4: to get claims right because you have a couple of
Speaker 4: things going on. We had a juneteenth holiday that was
Speaker 4: in the last report, which is now revised down to
Speaker 4: two thirty six, and that's a new holiday, so hard to.
Speaker 1: Seasonally adjust for that.
Speaker 4: And then you've got the auto industry shutdowns that come
Speaker 4: around every summer. So I wouldn't put too much on
Speaker 4: the actual number, but the level change is a little
Speaker 4: bit stronger, but it's still nowhere near telling you that
Speaker 4: we have a big layoff problem going on. One million,
Speaker 4: seven hundred and twenty thousand continuing claims. That's down from
Speaker 4: one seven thirty three the week before.
Speaker 1: So the people who.
Speaker 4: Are getting benefits has fallen back, which tells you so
Speaker 4: thing as well. So that's two out of the three
Speaker 4: or two out of the four. Today, we'll get jobs,
Speaker 4: the Jolts numbers, and we'll get the services employment numbers
Speaker 4: coming up, and then watch that two twenty five survey
Speaker 4: for payrolls tomorrow.
Speaker 1: That may change. The survey may change before the jobs.
Speaker 4: Before the jobs report, because if we get all this strength,
Speaker 4: people might start to build some of that into their
Speaker 4: anticipated numbers.
Speaker 1: Futures to tier eight negative thirty three on the sp
Speaker 1: Futures were at a stick on the VICS fifteen point
Speaker 1: two at nine the two year yield's got a life
Speaker 1: of its own, up thirteen basis points five point zero
Speaker 1: seven percent. Think with that money market funded City Group
Speaker 1: is going to do. We have the honor of continuing
Speaker 1: from City Group, where he is a seven point two
Speaker 1: percent six month CD Andrew Holland Horst is with us,
Speaker 1: they're chief US economist. I want to go to what
Speaker 1: matters in the textbooks, which is not the yield of
Speaker 1: the ten year four point zero two percent up nine
Speaker 1: basis points, but a ten year inflation adjusted yield measurement
Speaker 1: of one point seven seven percent, Given the hollend Horse
Speaker 1: rate structure, given the Bill Dudley rate structure, given the
Speaker 1: Mohammed Alarian rate structure, where's a comfortable real yield that
Speaker 1: we can live with.
Speaker 2: I think you're going to the right place, Tom, which
Speaker 2: is that ten year inflation adjusted yield that's going to
Speaker 2: control the level of activity in the economy. And what
Speaker 2: we've seen historically is those level of real yields need
Speaker 2: to get up above one percent, maybe even above two percent,
Speaker 2: to really slow the economy. So that's the first thing
Speaker 2: to keep in mind on the real yield story. The
Speaker 2: second thing is what is the inflation number that you're subtracting.
Speaker 2: That's really the key question. If you're subtracting two percent inflation,
Speaker 2: then an approximately four percent your treasure yield is going
Speaker 2: to be a two hundred basis point real yield. If
Speaker 2: you're subtracting four percent inflation, then we're at zero real yield.
Speaker 2: So that that's really the question. I think the question
Speaker 2: is where is inflation going to run strong?
Speaker 1: And you see one there what you got from Holland
Speaker 1: or she's got three statistics, she got the nominal yield.
Speaker 1: Take away the inflation, right, that's movable, and that gets
Speaker 1: you to a real yield of the residual off the
Speaker 1: back end. One of the themes we're hearing going to show
Speaker 1: from smart people is the stickiness of our disinflation. What
Speaker 1: is your call on disinflation? Do we get to three
Speaker 1: percent whereas Jim Bianco states, we could actually reverse or
Speaker 1: stay there for a good amount of time, what's your
Speaker 1: call on inflation?
Speaker 2: Yeah, so we have some positive dynamics over the next
Speaker 2: few weeks actually in the inflation data, where you should
Speaker 2: see used car prices coming down, shelter prices should be slowing.
Speaker 2: So there are reasons to think we're going to slow
Speaker 2: into the end of the year, probably get down to
Speaker 2: something like a four percent underlying core PCE pace, maybe
Speaker 2: into the high threes. That's all good news for the FED.
Speaker 2: The issue is looking further into twenty twenty four. Now,
Speaker 2: if this housing rebound continues, if house prices continue to rise,
Speaker 2: if the labor market stays tight, then it's really hard
Speaker 2: to tell the story where inflation is disflace further and
Speaker 2: you have risk that inflation actually increases. So that's not
Speaker 2: our base case outlook, but I think those risks are
Speaker 2: becoming a lot more material.
Speaker 1: There's July twenty six, and then there's Jackson Hole. Does
Speaker 1: all this chick might change what you believe you'll perceive
Speaker 1: at Jackson Hole? Not so far.
Speaker 4: I mean, I think a lot of depend on tomorrow
Speaker 4: in the sense that if we get something like half
Speaker 4: a million jobs created, they're going to raise rates. They're
Speaker 4: probably going to raise rates in September, and Jay Powell
Speaker 4: will explain it to us all in Jackson Hole. But
Speaker 4: if it comes in more like the two twenty five
Speaker 4: that's anticipated, then you've got open questions about September. So
Speaker 4: let me throw that out to Andrew here when you
Speaker 4: start to model out what happens over the next six months.
Speaker 4: Let's just get to the end of twenty twenty three.
Speaker 4: Do they go to or do they just go one
Speaker 4: in hold? Are they on every other month? How should
Speaker 4: people anticipate what the Fed's going to be doing.
Speaker 2: Yeah, I don't think there's a strong presumption towards every
Speaker 2: other month. We saw in the minutes as well in
Speaker 2: comments from Chair Powell that they want to moderate the pace,
Speaker 2: but they're not really telling us that that's necessarily every
Speaker 2: other meeting, and they want to keep this kind of
Speaker 2: very data dependent approach. So I think it's exactly what
Speaker 2: you said. They're going to look at the labor market data,
Speaker 2: They're going to look at the inflation data, Like I said,
Speaker 2: core inflation. The next couple prints maybe are going to
Speaker 2: be a little bit softer, So that should be somewhat
Speaker 2: encouraging for FED officials. On the other hand, this research
Speaker 2: and activity story and this two percent growth that is
Speaker 2: continuing longer than expected, job growth that stays stronger than expected,
Speaker 2: that might end up being pivotal for whether they make
Speaker 2: that September hike or not. I agree with you. If
Speaker 2: we see anything approaching what we saw in ADP and
Speaker 2: the NFP reading, then that's probably a strong signal that
Speaker 2: they will go ahead in September.
Speaker 4: I'll get Tom all excited here because he loves to
Speaker 4: talk about our star. But part of the calculation going forward,
Speaker 4: you mentioned the two percent growth that goes on longer
Speaker 4: than expected. Do you think that the neutral rate is
Speaker 4: higher and will stay higher than it has been or
Speaker 4: are you in the John Williams fed camp says we're
Speaker 4: going to go back down to two percent and rates
Speaker 4: can fall down as well.
Speaker 2: I mean, I guess maybe you could say I'm in
Speaker 2: the Louboch John Williams camp, which is a paper that
Speaker 2: the two co authors wrote that suggests that you should
Speaker 2: have this kind of very slow moving update to where
Speaker 2: that our start is because we really don't observe it.
Speaker 2: What we do observe is where's inflation, where's growth? And
Speaker 2: if inflation and growth are coming in stronger than expected,
Speaker 2: then you should start revising that up. So I am
Speaker 2: kind of slowly starting to adjust higher where that our
Speaker 2: star might be. I don't think we've come a long
Speaker 2: way there yet. We have to see more data to
Speaker 2: really know where we end up. If you look at
Speaker 2: the FED stots. Remember that long run our star in
Speaker 2: their dot plot came down significantly over the last decade
Speaker 2: that they had the dot plot. We're starting to see
Speaker 2: some of those dots move high, and I think that's
Speaker 2: just appropriate given the data that we.
Speaker 1: Say, just joining us, it is twenty three hours of chaos.
Speaker 1: That's all on the way to put it. Michael McKee
Speaker 1: is focused on the Jolt survey tomorrow will bring you
Speaker 1: the unemployment data tomorrow, the job the two jobs reports.
Speaker 1: This off the shock of ADP in a market on
Speaker 1: the move, the equity space down thirty two points on
Speaker 1: the SMB futures, the vic's out a stick fifteen point
Speaker 1: two eight and the yields. I'm not going to take
Speaker 1: a lot of time here, but I'm out nine basis
Speaker 1: points higher ten year real yield. The two year yield
Speaker 1: is a five point zero eight percent, really remarkable, and
Speaker 1: to Hollanoards. I just brought up the City Group mortgage
Speaker 1: rate and it's something like a published seven point zero
Speaker 1: seven percent. What do these yield moves do to housing?
Speaker 1: And it's to me, we're right on the edge of
Speaker 1: a jump condition in the cost of money to affect
Speaker 1: real estate.
Speaker 2: Right, Higher mortgage rates are going to slow the housing market,
Speaker 2: and we've seen that over the past few quarters. But
Speaker 2: that mortgage rate actually peaked back in September October of
Speaker 2: last year when ten year yields peak. Now we're getting
Speaker 2: back to those levels again, so you can see those
Speaker 2: same kind of mortgage rates. The issue that you've had
Speaker 2: is that reduced demand for housing, but it also now
Speaker 2: has reduced the supply of housing in the sense that
Speaker 2: if you have an existing home, you don't want to
Speaker 2: put that home on the market. You don't want to
Speaker 2: lose that three percent mortgage rate. So we're seeing the
Speaker 2: housing data is a really interesting development where we're actually
Speaker 2: getting more activity in new housing starts. You're getting prices
Speaker 2: that are moving higher because demand is lower, but like
Speaker 2: we were talking about before, the supply is also lower,
Speaker 2: and as that market adjust to that, you're actually starting
Speaker 2: to see some renewed price pressure.
Speaker 1: As a general statement, if businesses live in the nominal
Speaker 1: space the top line space, sook's not the inflation adjusted
Speaker 1: space I'm looking. I'm sorry, it's a jump condition and
Speaker 1: fourteen basis points in the two year yield five point
Speaker 1: zero nine percent. How does the business appetite change with
Speaker 1: a shock of this Thursday morning?
Speaker 2: Yeah, we definitely will see this feeding through to broader
Speaker 2: credit conditions. You see that in the Senior Loan Officers
Speaker 2: survey will be interesting. We'll get another look at that soon.
Speaker 2: And you see lending conditions broadly that are tightening. This
Speaker 2: is just going to take time to go through the
Speaker 2: banking system and the credit system.
Speaker 1: We had a viewer question, but I never get the
Speaker 1: viewer questions. McKee's the only one that gets the viewer questions.
Speaker 1: View you're getting is this from which governor? Is this
Speaker 1: start going? You get all the questions, is this crossing
Speaker 1: emailing it?
Speaker 4: Well, it's a pretty simple question, and it's probably something
Speaker 4: I should have thought of to ask you as well.
Speaker 4: You guys are at one seventy for tomorrow, and that's
Speaker 4: below the consensus. Do you change based on any of
Speaker 4: this data? How are you going to put it together?
Speaker 1: Yeah?
Speaker 2: I don't think we'll change based on this. And the
Speaker 2: issue there is what you mentioned, Mike, which is the
Speaker 2: seasonal adjustment issues. The reason we're lower on tomorrow's number
Speaker 2: is because this data is so difficult to seasonally adjust,
Speaker 2: and that seasonal adjustment tends to differ between ADP and NFP,
Speaker 2: So when we go back and look at this data,
Speaker 2: I think we probably will end up being weaker on
Speaker 2: NFP than we were on ADP, and we'll end up
Speaker 2: attributing that to seasonal adjustment issues.
Speaker 1: I look at it, my head spinning. You're going to
Speaker 1: go back to the office today, do you guys rip
Speaker 1: it up? Or do you just have to wait to
Speaker 1: see what eight thirty tomorrow is?
Speaker 2: You know, every day it's like we're starting over again.
Speaker 2: I mean, the cycle has just been so different than
Speaker 2: anything we've seen. So we take the data as we
Speaker 2: get it.
Speaker 1: And that I'm going to suggest describe as the central
Speaker 1: Bank of the United States right now. To me, they're
Speaker 1: wildly ex post as I've never defined in my mind before.
Speaker 2: Yeah, I think that's right, a very reactionary, and.
Speaker 1: I saw that at CenTra. I think all four people
Speaker 1: they were all struggling to come up with theory. There's
Speaker 1: no theory here.
Speaker 2: Yeah, there is a sense in which the data have
Speaker 2: just diverged so much from the theory that everyone has
Speaker 2: become more empirical and more reactionary to the data.
Speaker 1: Thank you so much for joining us. Can we see
Speaker 1: you the Marday thirty. If we get a bang up
Speaker 1: number like this, we get six hundred thousand non farm payrolls. Yeah,
Speaker 1: pick up the phone. Andrew Hollinhurst with this was City Group,
Speaker 1: long ago and far away. I was in Tokyo and
Speaker 1: a gentleman from Credit Sweez came up to me and said,
Speaker 1: thank you so much for telling people about our world
Speaker 1: class literature. We say this now, of course, with the
Speaker 1: death of credits and all of that effort was led
Speaker 1: by Neil Sauce, who got me really really help jumpstart
Speaker 1: everything I do here. And under Neil saus was a
Speaker 1: guy named Dominic Constant. He and Ira Jersey led a
Speaker 1: world class team synthesizing all of this mumble jumble together,
Speaker 1: which you are joined by doctor Constam now at Missoula,
Speaker 1: America's Dominic. Coming to cut to the chase you invented
Speaker 1: super restrictive. Does Jerown Powell want to become super super restrictive?
Speaker 5: Well, I think he He's obviously already super restrictive, and
Speaker 5: I think the only reason why they would be willing
Speaker 5: to unwind that will be either if you get a
Speaker 5: faster fall in inflation or you see the labor market
Speaker 5: beginning to loosen up materially, which you know, the combination
Speaker 5: of both we think will happen. I think the panic,
Speaker 5: if you like, back in March going into of April May,
Speaker 5: when rates were very low, the curve steepening. People are
Speaker 5: focused on the banking crisis. That panic has obviously subsided,
Speaker 5: thanks a lot to what the policymakers did, But there's
Speaker 5: still a scar on the economy that I think you're
Speaker 5: going to see coming through.
Speaker 1: John, and they are opening. You mentioned this the idea
Speaker 1: of March and we forget the bank trauma. While you
Speaker 1: were gone, we had stress tests, and you'd think we'd
Speaker 1: move beyond trauma. I'm not so sure.
Speaker 3: Drink sure, that's our new drinking game while you were gone.
Speaker 1: Yeah, but it's Jenny Cremel. That's what we're using.
Speaker 3: Okay, nothing too hard because you're mentioning it so much.
Speaker 3: Just to build on that. You said the scars are
Speaker 3: there and they're going to start to come through. That
Speaker 3: indicates that you believe a process did begin back in March.
Speaker 3: Could you shine a light on that a little bit
Speaker 3: more done? What are you seeing that it's taking place
Speaker 3: at a moment you think will come to the surface.
Speaker 5: Well, we know that credit conditions have tightened a lot
Speaker 5: in the survey data, and that anyway works through to
Speaker 5: a lag in terms of a lending growth itself slowing down,
Speaker 5: and you can see in the weekly data lending growth
Speaker 5: doesn't look particularly good, particularly for the larger banks. So
Speaker 5: that's sort of one issue that's already in place. The
Speaker 5: other issue is really the net interest margin story that
Speaker 5: so you're going to start getting the bank earnings and
Speaker 5: nims are going to get released, and you can model nims,
Speaker 5: you know, relatively straightforward, and they're going to deteriorate. They're
Speaker 5: clearly going to deteriorate. The curve is a very inverted
Speaker 5: NIM compression, i would argue, is very much in place. Again,
Speaker 5: it takes a few quarters to properly see through, but
Speaker 5: we're talking about a swing of a few hundred billion
Speaker 5: dollars potentially as much as that in terms of what
Speaker 5: could be taken out of bank earnings essentially, and that's
Speaker 5: just from the sort of top down macro view. And
Speaker 5: then of course the issue is how that's distributed across
Speaker 5: the banks. You know, some banks are going to be
Speaker 5: much better place than other banks to deal with this.
Speaker 5: The ones that really had to fight for deposits, if
Speaker 5: you like, are going to be the ones that will
Speaker 5: come back into focus. So the policymakers have done a lot,
Speaker 5: I think, to put you to ring fence the crisis
Speaker 5: in terms of sort of a banking systematics or a problem.
Speaker 5: But that's all going to sort of feed through still
Speaker 5: into weaker lending growth, and that collides with what we
Speaker 5: think is going to be a loosening up for the
Speaker 5: labor market because people are kind of there's too much
Speaker 5: labor hoarding going on, not yet enough labor shedding going on.
Speaker 5: But that transition I think will take place in the fall.
Speaker 5: So we've had obviously a bit of a round trip
Speaker 5: in markets, but I think the fundamentals behind the outlook
Speaker 5: for the economy are still a little bit you know,
Speaker 5: very much concerning if we can get a soft landing, fantastic,
Speaker 5: but a hard landing is very much still on the radar.
Speaker 3: I think, Tom, we need you to build on that
Speaker 3: just a little bit more. You mentioned how some of
Speaker 3: those banking issues might be distributed across the banking system.
Speaker 3: How that will be distributed across banks small through to
Speaker 3: large will have implications for how it's distributed through the economy.
Speaker 3: Can you give me that element of it. Dom How
Speaker 3: do you think this will show up in the broader economy.
Speaker 3: Is it just small sections of the economy that starts
Speaker 3: to struggle or is it a broader issue.
Speaker 5: No, I think it's gonna it's gonna be it's going
Speaker 5: to be a little bit like what we've already seen.
Speaker 5: I think it's going to be the combination of the
Speaker 5: banks that perhaps you haven't had the benefit of of
Speaker 5: earning uh at i e. R rates at the FED.
Speaker 5: You know, they haven't had the excess reserves perhaps, so
Speaker 5: they've had to you know, on their income side, it's
Speaker 5: been you know, it's been a bit more difficult. And
Speaker 5: in addition, they've had to fight for their deposits. So
Speaker 5: uh and and and you know that that's going to
Speaker 5: be probably the same sort of thing that we saw before.
Speaker 5: Uh and and and you know, in terms of the
Speaker 5: economic impact, uh you know, you can just look at
Speaker 5: the sectors that where there's clearly been sort of over employments.
Speaker 5: I mean, you know, technology is obviously one. So I
Speaker 5: think that's kind of you know where you'll probably see
Speaker 5: the stress years ago.
Speaker 1: Dominic, the most famous chart you generated was how everybody
Speaker 1: was consistently wrong predicting higher rates. And there are these
Speaker 1: little wisps and a Credit suitee model of wrong wrong, wrong, wrong,
Speaker 1: wrong over time, and much saying you were wrong. I'm
Speaker 1: saying the entire street was wrong. What's the chart now
Speaker 1: that indicates how wrong we are? What's the chart now
Speaker 1: that just we're just getting it wrong?
Speaker 5: Well, I mean, I guess you know the way in
Speaker 5: which the FED expects if you're going to look at
Speaker 5: the same kind of hair charts we used to call them,
Speaker 5: whereby the market had always consistently overestimated what the FED
Speaker 5: was going to be doing. You can certainly argue that
Speaker 5: the market has tended to underestimate the commitment of the
Speaker 5: FED to sort of maintain rates at an elevated level
Speaker 5: and keep pushing through. So if you go back a year,
Speaker 5: you know, we were pricing four cuts, and you know,
Speaker 5: come this year and obviously the market is not there now,
Speaker 5: so it's been running on the other side of that.
Speaker 1: That's where we're dovetailing you with Hollandhorse some city group here.
Speaker 1: We're getting two different views. If we get an Andrew
Speaker 1: Holland Horse market with two rate increases, how does our
Speaker 1: world change?
Speaker 5: Well, I mean, every time they hight rates, I think
Speaker 5: the market is not going to be convinced that they're
Speaker 5: going to have to do even more. I think it's
Speaker 5: more like they hype, but you know that's the last
Speaker 5: one sort of thing. Well, at least they reduce the
Speaker 5: probability of the next hike. So the market is very
Speaker 5: much and that's just a function of the super restrictive.
Speaker 5: I mean, there's no way you can look at the
Speaker 5: market in any kind of sort of context and say
Speaker 5: that the Fed isn't very very restrictive in terms of
Speaker 5: where real rates are. And it's just a question really
Speaker 5: of what your view of inflation is. If inflation is
Speaker 5: coming down, if the Fed doesn't do anything, they become
Speaker 5: even more restrictive. And that's very important to it to
Speaker 5: realize that even if you know the FED does sort
Speaker 5: of get rates up to say five and a half
Speaker 5: or even six percent and keep them there, unless you
Speaker 5: think inflation is also going back up again, then that
Speaker 5: policy will become just even more and more restrictive, and
Speaker 5: they're going to have to unwind those rate hikes very
Speaker 5: quickly otherwise they will collapse economy, and when we look
Speaker 5: at inflation, I actually think the inflation picture in the
Speaker 5: US is looking pretty good. The core services side has
Speaker 5: come down and the good side is bad because of
Speaker 5: used cars. But you know what, no one's actually buying
Speaker 5: that many used cars in real terms. The real purchases
Speaker 5: of used cars has been going down for the last
Speaker 5: couple of months, but that's because the price has been
Speaker 5: going up, and that's just the sort of supply side issue,
Speaker 5: and that's not really, in my view, what the central
Speaker 5: bank should be really focused on. That they should be
Speaker 5: focused on demand side inflation. They can't really help the
Speaker 5: supply side. So that's why we get into this sort
Speaker 5: of concern around this really restrictive sort of policy, and
Speaker 5: why the you know, you get this tail risk of
Speaker 5: a harder landing when it all goes wrong, it's going
Speaker 5: to go wrong pretty quickly, and that's why the FED
Speaker 5: may have to reverse course very very quickly.
Speaker 3: Amazing dumb constant there be Mazoo America's let's get to
Speaker 3: Emily Rowland Co Chief investment strategist John Hadcock Investment Management. Emily,
Speaker 3: wonderful to hear from you. As always, Tom and I
Speaker 3: were just talking about it. You've got some people on
Speaker 3: Wall Street forecasting recession, other people saying things set to improve.
Speaker 3: Where are you and the team?
Speaker 6: Yeah, this is a very very tricky late cycle environment
Speaker 6: where things often look pretty great right before they're not.
Speaker 6: And you had the great Ed Hyman on yesterday, you know,
Speaker 6: talking about this how this late cycle environment's lasting a
Speaker 6: long time. And we would define that as a period
Speaker 6: in between when the leading economic indicators go negative and
Speaker 6: through the recession, and that typically only lasts about six months.
Speaker 6: But we're on month ten eleven, and in the six
Speaker 6: seven example, you know, we went to eighteen months there.
Speaker 6: So these are periods where you're seeing a lot of
Speaker 6: chop in the economic data, a lot of chop in yield.
Speaker 6: Do you want to participate in the market because risk
Speaker 6: assets can see these big swings higher. But you guys
Speaker 6: were talking about the I think it was the European
Speaker 6: Grand Prix earlier on the show, and it got me
Speaker 6: thinking about how you want to participate in this market
Speaker 6: and and sort of like drafting in car racing, you
Speaker 6: don't necessarily want to be out front here taking on
Speaker 6: too much risk. You want to participate by owning things
Speaker 6: like higher quality assets and leading into bonds.
Speaker 1: I mean, I mean I look at Emily, where we
Speaker 1: are and the zeitgeist just by quality, by persistent free
Speaker 1: cash flow, I get all that. I just want to know,
Speaker 1: do I want to be in the market or not
Speaker 1: giving them away? My head spinning with the data. Are
Speaker 1: you participating in equities?
Speaker 6: Yeah, you definitely want to be there right now? As
Speaker 6: I said before, you can see these massive swings higher
Speaker 6: and risk assets as you almost see investors celebrating, as
Speaker 6: John mentioned earlier, this idea that the economic data have
Speaker 6: come in a lot better than expected in many cases,
Speaker 6: So you want to you also want to think about
Speaker 6: this kind of almost pivot party that's going on right
Speaker 6: now as investors celebrate the idea that the FED is
Speaker 6: getting to the end of its tightening cycle. We've only
Speaker 6: got one more rate big priced in than a hole
Speaker 6: then cuts in twenty twenty four. So the pivot party
Speaker 6: can be a pretty powerful one. You want to go
Speaker 6: to it, but you might want to think about, you know,
Speaker 6: sipping on a light beer and instead of reaching for
Speaker 6: the tequila because you might have you know, sort of
Speaker 6: fewer regrets the next day.
Speaker 1: Let's see a fair level four John there if you
Speaker 1: haven't reached for the light light beer, John, I was
Speaker 1: weaned on course and you and young Roland don't know
Speaker 1: what cores three two beer. Is the only one that
Speaker 1: knows that we talked is David Malpass.
Speaker 3: So it's me about.
Speaker 1: David Malpass had a keg of course three two beer
Speaker 1: in his room at Colorado College years ago. It was
Speaker 1: some moralistic Midwest evangelical thing. I don't know where this
Speaker 1: is all before light beer. And so you were too young.
Speaker 1: You were you know, you were getting shot in Vietnam,
Speaker 1: but you were too young to have a bud So
Speaker 1: you had a course three two beer, which is think
Speaker 1: of it like like a course light. Put a glass
Speaker 1: of water in it and now oh yeah, oh yeah.
Speaker 3: Mal Pass had a.
Speaker 1: Keg of course three two beer in his room at Colorado.
Speaker 1: That's all we got through physics.
Speaker 3: How do you think buds hose data over the July
Speaker 3: fourth holiday?
Speaker 1: Let's actually it's a really reportable issue. It's maybe not
Speaker 1: what we do early morning, but you know, I think
Speaker 1: in terms of marketing and advertising, the tobacco a bud
Speaker 1: light really needs to be studied by every institution.
Speaker 3: Look what you said, Emily let's move on from that.
Speaker 3: Talk to me about stokes that you do like, sectors
Speaker 3: you do like right now, and sectus you want to avoid.
Speaker 6: Yeah, so we continue to lean into quality. That's companies
Speaker 6: with great balance sheets, lots of cash, a limited need
Speaker 6: to tap the capital markets in order to grow. That
Speaker 6: does lead us to the technology sector. It leads us
Speaker 6: to the US, which of course has an abundance of
Speaker 6: technology stocks compared to the rest of the world. So
Speaker 6: you know, we do recognize that tective course is run
Speaker 6: a lot. We started to see that market leadership broaden.
Speaker 6: We're worried about valuation risk as well, so we want
Speaker 6: to look to parts of the market that can help
Speaker 6: protect portfolios from that. Mid cap stocks in the US
Speaker 6: mid cap value in particular, one of the only areas
Speaker 6: that's trading at a discount not only to its own
Speaker 6: large cap piers, but also to its own history. That's
Speaker 6: another area that we're looking at in portfolios to diversify
Speaker 6: and again leaning into bonds. You're getting five percent on
Speaker 6: high quality bonds right now, investment grade corporate bonds up
Speaker 6: in the credit spectrum. That's another place we think that
Speaker 6: there's a great mix between risk and return.
Speaker 3: If I remember correctly, Emily, and correct me if I'm wrong,
Speaker 3: you didn't jump on the international bandwagon in the way
Speaker 3: of the state at the stand of the year. I mean,
Speaker 3: why was that?
Speaker 6: Well, I think that there's an idea out there that
Speaker 6: there's going to be this immaculate economic cycle where you know, somehow,
Speaker 6: potentially the US goes into a recession, but the rest
Speaker 6: of the world avoids one. And that's just never been
Speaker 6: the case, and we continue to believe that we're going
Speaker 6: to see a global economic recessions. You just look at
Speaker 6: the PMIS on the manufacturing side. You know, Germany's at
Speaker 6: forty two, and meanwhile you're seeing European equities.
Speaker 2: At all time times.
Speaker 6: To us, the macroeconomic fact drop just simply doesn't match
Speaker 6: with a cross asset performance. And also when you think
Speaker 6: about owning European equities, it's very cyclical, high data. They
Speaker 6: tend to do better early in an economic cycle, and
Speaker 6: right now we think we're in a late cycle environment.
Speaker 6: So we think that you want to wait. We do
Speaker 6: have some of it in portfolios or overweight Europe versus
Speaker 6: emerging market equities, but we think that the better time
Speaker 6: for Europe is going to be in the future.
Speaker 3: Emily, wonderful to hear from you as always, Emily Rodland,
Speaker 3: John Honkok Investment Management on boost sport that Joe can
Speaker 3: convice joining us now, how is us macro strategy over
Speaker 3: at m U f G. George, wonderful to hear from you, sir.
Speaker 3: We all read the minutes yesterday, some of us did,
Speaker 3: at least, I think TKK that's what I miss for George.
Speaker 3: I think the question I've got to ask you is
Speaker 3: how significant is the division emerging on the FMC.
Speaker 7: Look, I don't think it's a significant yet. I mean
Speaker 7: the commentary that we got after the minutes probably mattered more.
Speaker 7: I mean they're going to most likely unless something really
Speaker 7: he rails it from here untill then. But I do
Speaker 7: think there was some important pieces in the midst that
Speaker 7: are worth mentioning. And they're starting to focus on, you know,
Speaker 7: although inflation is you know, they're highly attentive and that's
Speaker 7: the main focus of their continues to be but they
Speaker 7: are starting to focus on some of the growth factors,
Speaker 7: like the fact that GDI is diverging from GDP. I
Speaker 7: I'd never expected to see that in the FED minutes,
Speaker 7: and the focus on like the BLS data, maybe's over
Speaker 7: counting jobs. So I think the FED starts to think
Speaker 7: about how robust is this recovery at this stage.
Speaker 1: George thrilled to have you on today. Just the right
Speaker 1: guest at the right time. I want to focus on
Speaker 1: the inflation andjusted yield our listeners and viewers. It's not
Speaker 1: a common statistic. It's at one point seventy three ballooning
Speaker 1: up for one point five to eight. Where is your
Speaker 1: pre pandemic pre pandemic normal on the real ten year yield?
Speaker 7: On the real ten yearield. I think we're surpassing it.
Speaker 7: I mean we're actually getting back to levels that we're
Speaker 7: seeing pre GFC. I mean, if we were to make.
Speaker 1: A move towards to agree, so, what is the level
Speaker 1: here where the tension or it begins to fall apart?
Speaker 7: Look so in any other time period. Because we've been
Speaker 7: operating with these huge lags that have been kind of
Speaker 7: this liquidity buffer has been allowing markets to ignore the
Speaker 7: real rate. But if the real rate continues to move
Speaker 7: marech higher like it has been, I think that financial
Speaker 7: markets will take notice pretty soon.
Speaker 3: George, you were spent in a hike then in several weeks,
Speaker 3: just to be clear, just to start there.
Speaker 7: Yes, I think I do think that given the language
Speaker 7: as well as what's priced into the market, it will
Speaker 7: take a lot to derail a hike.
Speaker 3: And the next one after that. George, you expected another
Speaker 3: one after that, because there's a lot of people that
Speaker 3: think maybe they're go in July, perhaps they're done. Others
Speaker 3: look at the FMC and what the committee is communicating
Speaker 3: right now and see another one in our future, the
Speaker 3: one that follows me.
Speaker 7: I think it's really going to be about financial conditions.
Speaker 7: I mean, we're starting to see more tightening, and I
Speaker 7: think this real rate channel is important that Tom's highlighting.
Speaker 7: So I think if we were to continue to see
Speaker 7: the overall rate structure move higher, let's not forget that
Speaker 7: since the being really since last year, the ten year
Speaker 7: in general has treated well under the Fed funds market.
Speaker 7: So if we get a kind of normation or a ketchup,
Speaker 7: even if it's a brief catch up like an anti
Speaker 7: seasonal rise in rates which people call a bear steepener,
Speaker 7: which we have a little bit of that yesterday and
Speaker 7: a little bit this morning, I think that really matters.
Speaker 1: That will be where.
Speaker 7: Tightening takes place. Because we've had rates under and that's
Speaker 7: really helped out the housing market. So if we were
Speaker 7: to continue to see a rise in five year ten
Speaker 7: year rates, I think that would be a game changer.
Speaker 3: Well, Joyce, let's build on that. Let's go further out
Speaker 3: the curve. The Federal Reserve right now is communicating a
Speaker 3: couple more hikes. You seem to be on board. Potentially
Speaker 3: that's going to develop. The Federal Reserve is also communicating
Speaker 3: at the same time, simultaneously, a mild recession potentially in
Speaker 3: the second half. What should a ten year be doing
Speaker 3: in the world of the Federal Reserve is projecting.
Speaker 7: Well, I mean it depends what kind of inflation kind
Speaker 7: of a recession we get. I mean we have this,
Speaker 7: you know, we have about fifteen to twenty percent risk
Speaker 7: of a statflation, which has never been really in the
Speaker 7: cards for US economic forecasting. But I think that you know,
Speaker 7: stackflation rists are out there that at some point, you know,
Speaker 7: if the FAT can't really get inflation under control, I mean,
Speaker 7: you're seeing similar situations with the BOE could raise rates
Speaker 7: to ten percent and it might take longer to get
Speaker 7: inflation down, and all you're going to do is crush
Speaker 7: the economy, So I think, I mean, it really comes
Speaker 7: down to like a stacklation recession nuance.
Speaker 1: How does a yield curve disinvert? What is the what
Speaker 1: are the threads of threat like that? John, thank you,
Speaker 1: one of the threads of information that allow us to disinvert,
Speaker 1: say from negative one oh five to say negative forty,
Speaker 1: negative thirty.
Speaker 7: So traditionally it's always been the FED cuts rates. I mean,
Speaker 7: if the Fed work cut rates two hundred basis points,
Speaker 7: the two year would move much faster than the ten
Speaker 7: yure for sure. You know, bear steepeners are kind of
Speaker 7: like unicorns, really hard to find. They're very rare when
Speaker 7: they happen, they're short lived, but they're very painful. So
Speaker 7: arise in long term rates. We haven't really seen that
Speaker 7: happen on a consistent basis, so it would have to
Speaker 7: come from the fine end.
Speaker 1: This is critical, George. And you know, with MUFG and
Speaker 1: the Japanese affiliation, you've got first order knowledge on this
Speaker 1: domain knowledge on this. If the long term yields are lower,
Speaker 1: is that pricing up yield down by foreign buyers of
Speaker 1: full faith and credit US paper at this juncture?
Speaker 7: Really, and you look at the actual public flows and
Speaker 7: see what's going on. This has really been a domestic
Speaker 7: driven the bomb market. It has been for quite some time.
Speaker 7: We've seen less and less foreign influence for years and so,
Speaker 7: and especially in the last number of months. I do
Speaker 7: think that most of this will have to be taken down.
Speaker 7: The supply that the US government's bringing to market a
Speaker 7: lot of people have to be taken down by domestic investors.
Speaker 7: I mean, foreign investors obviously play a critical role, but
Speaker 7: I just think that given where funding costs are and
Speaker 7: everything else that's going on, and more importantly, now, the
Speaker 7: US Treasury has competition from other markets. Other sovereign markets
Speaker 7: are yielding higher as well. So and we don't know
Speaker 7: what the BOJA is going to do with its own policy,
Speaker 7: which then might make jgbs more attractive at home. So
Speaker 7: I think that the level of rates, the curve maintaining
Speaker 7: its steepness is something that I think is going to
Speaker 7: be critical, even when the FET starts cutting rates later on.
Speaker 1: What is your strategy as a bond portfolio take a
Speaker 1: full faith and credit portfolio. What is a duration strategy?
Speaker 1: Do you barbell? Do you a ladder? To you a
Speaker 1: single point? Do you go to cash? What do you do,
Speaker 1: I mean think.
Speaker 7: You have a bias of a ladder, but with a
Speaker 7: misweighted I do think that you know at some point
Speaker 7: you know, if that keeps raising rates, we have an
Speaker 7: attractive front end. So I mean your risk reward is
Speaker 7: how much downside can you get if rates were to
Speaker 7: moving out of twenty five fifty versus them going down
Speaker 7: one hundred or two hundred. Right, So the risk reward
Speaker 7: has changed and you have to look for plays that
Speaker 7: are more convex the mortgage, your mortgage rates and mortgage markets.
Speaker 7: Mortage bonds specifically as rates rise would also be much
Speaker 7: more attractive.
Speaker 3: George, this was fun anything but boring right now in
Speaker 3: the bottom market. Jeorge can converse there of m uf J.
Speaker 3: The conversation outside of the cross asset analysis and financial
Speaker 3: markets very much on the spat between Ala Musk and
Speaker 3: Mark Zuckerberg. And it gets real overnight with the unveiling
Speaker 3: of well they calling threads over Instagram a direct challenge
Speaker 3: to Twitter Tom for Joonmy.
Speaker 1: This is a non event, but unfortunately it's so important.
Speaker 1: I think John, we got to get right to it.
Speaker 3: I would do that right.
Speaker 1: Nash is an important voice on this. Dan Ives has
Speaker 1: earned the credibility. I'm going to say eight months ago,
Speaker 1: he was the dumbest guy in the block. How dare
Speaker 1: you think we're going up? And we have had a
Speaker 1: dan ives market from the third week of October twenty
Speaker 1: twenty two. I got to get the threads. But what
Speaker 1: did you see in October of twenty two the rest
Speaker 1: of us did not see.
Speaker 8: I think it was fundamentals that were going to be
Speaker 8: a lot more stable than I think why the skeptics
Speaker 8: thought what we were seeing specifically in cloud, in enterprise,
Speaker 8: and even when it comes to consumer with names like
Speaker 8: app we just felt like the bark was worse than
Speaker 8: the bite. And then starting in the fall, that's when
Speaker 8: we started to do our AI research, and in my opinion,
Speaker 8: it was gonna be the biggest transformational trend that we've
Speaker 8: seen in tech. And I think as that's played out
Speaker 8: that combo is sort of where we are.
Speaker 1: I got any other questions, but we've got this idiocy
Speaker 1: this morning. Threads canna get critical mass.
Speaker 8: I think it's gonna be very difficult to get critical mass.
Speaker 8: I think right now the name of the game for
Speaker 8: Zuckerberg and Meta is just further expanded Instagram based in
Speaker 8: terms of the cross sell opportunity eventually advertising. They're trying
Speaker 8: to strike while the iron's hot, given some of the
Speaker 8: issues we've seen with Twitter and Musk, but getting the
Speaker 8: scale is going to be difficult. But Musk has left
Speaker 8: open opportunity here. We saw what happened this weekend. There's
Speaker 8: a lot of frustration building and I believe this is
Speaker 8: just a drum roll to what's going to probably be
Speaker 8: the cage match this fall.
Speaker 3: Looking forward to that cage match too, Let's dig into
Speaker 3: that define critical mass. What is that? What's the number?
Speaker 8: Well, I think you really have to start to get
Speaker 8: to something i'll call thirty forty million users. You know,
Speaker 8: when you start thinking about where.
Speaker 3: You've got, they're going to have that by the end
Speaker 3: of away.
Speaker 1: But thirty forty million users.
Speaker 8: You need engage. It's not just about the users. That's
Speaker 8: the one thing. You'll see sign ups in the first
Speaker 8: seven hours, ten million, twenty million. It's about you get
Speaker 8: to forty to fifty million, then scale to one hundred
Speaker 8: million plus in the next call it six to nine months.
Speaker 8: But engagement on the platform's key.
Speaker 3: That often is about that down But I wonder why
Speaker 3: because Instagram already has this pre loaded base they can
Speaker 3: port directly. I did a sign up yesterday. There's no
Speaker 3: friction there. It's always really easy to execute. Why do
Speaker 3: you have doubts?
Speaker 8: It's really because if you look at anything that's tried
Speaker 8: to challenge Twitter in terms of any of the other platforms,
Speaker 8: it's been very difficult to scale. Now Here, for Zuckerberg,
Speaker 8: you got a billion plus users you could tap into.
Speaker 8: They've had women of success I think scaling other standalone apps,
Speaker 8: and I think right now the question is how much
Speaker 8: resources are they going to put into this. Is this
Speaker 8: just sort of a moonshot type project or something that
Speaker 8: they really want to scale? And look, I think for Zuckerberg,
Speaker 8: there they went from a position of massive weakness, going
Speaker 8: back to you know when you talk about eight nine
Speaker 8: months ago to now to flex the muscles moment from
Speaker 8: for Zuckerberg, sure, you're especially going towards You're not on
Speaker 8: here yet.
Speaker 1: I'm not what do you wait?
Speaker 8: Come on you d I'm waiting till I'm wait. I
Speaker 8: was waiting for you. But so now that Pharaoh and Keenron,
Speaker 8: I'll go on.
Speaker 3: Mark Zuckerberg says this, I think there should be a
Speaker 3: public conversations out with one bidon plus people on it.
Speaker 3: Twitter has had the opportunity to do this, but as
Speaker 3: of now did a lot of people have had the
Speaker 3: opportunity at Twitter to do this and they failed? What
Speaker 3: did they get wrong? And we're still trying to work
Speaker 3: this out? And why is Mark Zuckerberg the man that
Speaker 3: might be able to do it?
Speaker 1: Yeah?
Speaker 8: I think it's it's minisation. I mean, if you look
Speaker 8: with Zuckerberg has been able to do. Obviously with the
Speaker 8: meta platform, monetizing has obviously been key. Ultimately that's been
Speaker 8: the issue for Twitter. That's been the uphill battle. They're
Speaker 8: trying to get it from verification, subscription, every which way.
Speaker 8: I think that's been the big challenge for them, especially
Speaker 8: in this essential arms race that's going on in the
Speaker 8: space to find.
Speaker 1: That you know, Lizzie Sunders has just done. We all
Speaker 1: agree it's been a multiple expansion. How does a growthy
Speaker 1: guy yet like you, an Apple fanboy, how do you
Speaker 1: adapt to the multiple expansion of the various and Sunday
Speaker 1: wunderstocks of the last year.
Speaker 8: Yeah, I mean I view it especially when I look
Speaker 8: at a name Mike Apple, where you're going into a
Speaker 8: mini super cycle with iPhone fifteen. I think multiple expansion
Speaker 8: is really about the increased opportunity to monetize an install
Speaker 8: based It's all install based based.
Speaker 1: So it's as ecosystem belogna.
Speaker 8: And but that's why what's happening in Redmond? What's happening
Speaker 8: Cooper Tino? I think it's really been what's on the
Speaker 8: other side of the mount And I think that's really
Speaker 8: the key.
Speaker 1: Are we just running our terminal value out? If the
Speaker 1: cfass five years seven years, are we all buying Apple
Speaker 1: because we think it's an nine year terminal value.
Speaker 8: By That's that's exactly my view. I did. Okay, look,
Speaker 8: you're you're the professor and the tactician of MAK and I.
Speaker 3: Think when you look at Cooper that time could come back.
Speaker 8: But that's why we believe three trillion. This train just
Speaker 8: doesn't stop.
Speaker 1: The biggest problem. You don't see this on radio, but
Speaker 1: he dresses conservative for us because conservative. He's got like
Speaker 1: it's a clash, Like the shoes are outrageous. He goes
Speaker 1: on Wapner and he's dressed like you know, it's party time.
Speaker 1: Friday afternoon, four pm.
Speaker 3: They dressed down over that the Stalk Exchange.
Speaker 1: Oh, they don't dress down. They just dressed. It's like
Speaker 1: a cultural thing. He dresses. He might as well wear
Speaker 1: a tuxedo.
Speaker 8: When I'm with such debonair, like the way like someone
Speaker 8: like I need to dress a little down and then waiter.
Speaker 8: I'm just gonna go on threads.
Speaker 1: Apple, Bye, Target, give me some update here. We're coming
Speaker 1: in an earning season.
Speaker 8: They're going to do it again to twenty based too
Speaker 8: fifty bullcase. I think this now starts to to four trillion.
Speaker 8: In my opinion, I think it's gonna be another trophy case,
Speaker 8: not just quarter, but in terms of what we're seeing
Speaker 8: going into iPhone fifteen into September for Cook and Cooper Tino,
Speaker 8: which is why I believe this is really just the
Speaker 8: start of this.
Speaker 1: Is a secret on ives. He actually knows the data.
Speaker 1: How many people like John Tucker and Bloomberg Radio have
Speaker 1: an iPhone that's four hundred years old or they're gonna
Speaker 1: bite for the new toy.
Speaker 8: It's John Tucker in two hundred and fifty million other
Speaker 8: individuals that have not upgraded their iPhone in four plus years.
Speaker 8: That's the key, and that's ultimately why right now Apple
Speaker 8: continues to short to own it and everyone else paying rent.
Speaker 3: I'm hold enough the upgrade At the moment, I just
Speaker 3: don't see anythink in the new iPhone that I particularly one.
Speaker 1: I'm a data book to me. It's a technology. He
Speaker 1: is this this new phone?
Speaker 3: Is it quick?
Speaker 1: Don't buy it? Don't buy it? You buy it just
Speaker 1: for the battery?
Speaker 3: Is the camera?
Speaker 1: Which is the camera's battery? Yeah, you buy it for
Speaker 1: the battery.
Speaker 3: That's exactly why I end up up griding because they
Speaker 3: killed the battery. They get in that the new phones
Speaker 3: got what more?
Speaker 1: Wisban?
Speaker 3: You know what they do?
Speaker 1: Man? You talked to German.
Speaker 8: Look and ultimately what I believe here it's not just
Speaker 8: about technology we're going to see on the camera side,
Speaker 8: we're going to see on the chip. But I think
Speaker 8: it's really going to be at the software because I
Speaker 8: believe this is really the start of what's going to
Speaker 8: be the AI ecosystem being built out in Cooper Team.
Speaker 3: I've asked you this before. You've got to have a
Speaker 3: better answer this time. It didn't like the last one.
Speaker 3: What are you talking about with Apple and AI?
Speaker 1: What is it?
Speaker 3: What it is on steroids?
Speaker 8: No, Because ultimately twelve eighteen months from now, you are
Speaker 8: going to have a separate app store for Apple that's
Speaker 8: AI apps only within the within the ecosystem, and I
Speaker 8: believe for developers and in terms of the sum of
Speaker 8: the parts, that could ultimately add forty to fifty dollars
Speaker 8: per share that we see for Apple, and that I
Speaker 8: think that's the next leg of the stool along with
Speaker 8: the Apple Car in twenty twenty.
Speaker 3: Six, twenty twenty six for the Apple Car, that's a cool.
Speaker 8: Yeah, And I believe it's a matter of when, not if.
Speaker 8: And it just shows as much as the haters continue
Speaker 8: to fire and a crowd theaters innovations done at Apple.
Speaker 8: Yet again, the continued innovate. And that's why Cook is
Speaker 8: Hall of Fame CEO tactician like he is.
Speaker 3: Okay, that nice of white Push. Thank God to see
Speaker 3: you great the good update.
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and
Speaker 1: anywhere else you get your podcasts. Listen live every weekday
Speaker 1: starting at seven am Eastern on Bloomberg dot com, the
Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You
Speaker 1: can watch us live on Bloomberg Television and always on
Speaker 1: the Bloomberg terminal. Thanks for listening. I'm Tom Keen, and
Speaker 1: this is Bloomberg