WEBVTT - Bloomberg Surveillance TV: January 9, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and a Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify, 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:36.760 Bloomberg Terminal and the Bloomberg Business app. We begin this 0:00:36.880 --> 0:00:39.000 out with stock sinching lower. Jim Zelter and the team 0:00:39.040 --> 0:00:43.200 over at Apollo Asset Management looking for opportunity outside of equities, saying, 0:00:43.280 --> 0:00:46.000 quote of interest rates remain higher as we expect, and 0:00:46.040 --> 0:00:48.199 the terminal Fed funds rate stays higher than where it 0:00:48.240 --> 0:00:51.479 has been historically. We see private credit as an attractive 0:00:51.520 --> 0:00:55.600 alternative to over valued public equities. Jim joins us now 0:00:55.600 --> 0:00:57.280 from More. Jim, good morning and a very happy new 0:00:57.360 --> 0:01:00.600 year to you. I'm going to kick off this conversation 0:01:00.680 --> 0:01:03.000 by stealing one of Leasa's questions to stand twenty twenty 0:01:03.000 --> 0:01:06.400 five is stocks to rich or a bonds too cheap. 0:01:08.040 --> 0:01:11.840 Well, I think we have a backdrop. I think your 0:01:11.959 --> 0:01:16.160 point about the US and China and Europe and the 0:01:16.200 --> 0:01:19.959 three parties, you know, it's our view that there's intrsent 0:01:20.000 --> 0:01:23.840 has been very consistent. The US economy has been the 0:01:23.880 --> 0:01:28.760 beacon of opportunity in the last several years, strong economic growth, 0:01:29.360 --> 0:01:33.040 capital coming in from around the globe, and so in 0:01:33.120 --> 0:01:34.800 terms of those talk, I don't want to talk about 0:01:34.800 --> 0:01:38.160 the stock market. I really talk about underlying economy. Underlying 0:01:38.200 --> 0:01:40.920 economy looks like it's a place to invest. I don't 0:01:40.920 --> 0:01:44.120 think it's any surprise that when you peel the onion 0:01:44.200 --> 0:01:48.120 back private capital, which has really been embraced in the 0:01:48.280 --> 0:01:53.680 US and gives diversity of funding, lets companies grow, start expand, 0:01:53.880 --> 0:01:56.280 and all the things we're talking about the global renaissance. 0:01:56.680 --> 0:01:59.280 It's been the place to invest and it's been attracting capital. 0:02:00.720 --> 0:02:04.000 Contrasts that to what's going on in the UK and 0:02:04.200 --> 0:02:08.440 continental Europe, where they are stuck in a financing system 0:02:08.520 --> 0:02:11.400 that's really fifteen twenty thirty years behind the rest of 0:02:12.000 --> 0:02:14.800 what's going on in North America. It tells us that 0:02:14.880 --> 0:02:16.280 the US is the place to invest. 0:02:16.520 --> 0:02:18.280 So you think some of these problems in Europe might 0:02:18.280 --> 0:02:19.480 be more structural in nature. 0:02:19.760 --> 0:02:22.520 I think structural is really the key to really analysis. 0:02:22.520 --> 0:02:24.640 It's very easy to focus on the last three to 0:02:24.720 --> 0:02:27.519 six months we talk about the Liz Trust moment in 0:02:27.560 --> 0:02:30.240 the UK. I think it is a great reminder for 0:02:30.280 --> 0:02:35.440 this current administration, as they've got great ambitions in terms 0:02:35.560 --> 0:02:41.919 of US investment, capex, tariffs, immigration, a variety of other 0:02:41.960 --> 0:02:45.400 big initiatives. It's good for this reminder of the Liz 0:02:45.440 --> 0:02:47.080 Trust moment in the back of their minds. 0:02:47.080 --> 0:02:49.120 You know what can happen if you lose confidence. 0:02:49.600 --> 0:02:51.480 But there's no doubt I think if you look at 0:02:51.520 --> 0:02:57.360 what the Drogy document did later last fall, he pointed 0:02:57.360 --> 0:03:00.640 out in one hundred and fifty eight summary pages of 0:03:00.760 --> 0:03:04.880 all the challenges that they have not really embraced. And 0:03:05.000 --> 0:03:07.680 while the banks are in better shape than they've been 0:03:07.720 --> 0:03:11.120 in a couple of decades in Europe, the US is 0:03:11.160 --> 0:03:14.280 the standout. We have the greatest financial services sector in 0:03:14.320 --> 0:03:17.480 the world, we have the deepest, broadest capital markets. We've 0:03:17.600 --> 0:03:21.080 undergone a tremendous amount of regulations on our banks and 0:03:21.120 --> 0:03:24.520 they've continued to thrive in a more narrow world. And 0:03:24.560 --> 0:03:27.440 that's the page that the Europeans should be looking at 0:03:27.800 --> 0:03:32.720 embracing securitization, embracing private capital. They've got a massive amount 0:03:32.840 --> 0:03:36.560 of infrastructure needs and they should be embracing that for 0:03:36.600 --> 0:03:38.320 their long term economic success. 0:03:38.680 --> 0:03:40.920 In the meantime, people are saying that maybe the ghost 0:03:40.920 --> 0:03:43.360 of list trust is kind of hovering over this administration 0:03:43.400 --> 0:03:46.400 and hovering over the US treasure market right now, especially 0:03:46.440 --> 0:03:49.240 given the rise that we've seen in longer term yields. 0:03:49.240 --> 0:03:52.680 And I'm wondering how susceptible you are to changing your 0:03:52.760 --> 0:03:55.640 view on how constructive the US economy is if you 0:03:55.760 --> 0:03:58.600 get some more negative data prints. We had Greg Daco 0:03:58.760 --> 0:04:01.080 yesterday talking about a fro in job market. We had 0:04:01.080 --> 0:04:04.280 Neila Richardson talking about how smaller companies really are feeling 0:04:04.360 --> 0:04:06.960 rates where they are. 0:04:07.400 --> 0:04:09.920 Rates have been higher for the last twelve to eighteen 0:04:10.040 --> 0:04:13.360 ons they been higher. Obviously, we're in a period right 0:04:13.400 --> 0:04:15.960 now where what the Fed did and its actions in 0:04:16.000 --> 0:04:18.400 the fall and what the market has responded to is 0:04:18.440 --> 0:04:20.599 a very unique period. So you're right, we are in 0:04:20.680 --> 0:04:23.440 a little bit of a unique zone here with regard 0:04:23.480 --> 0:04:26.560 to macro and rates in the US. I do think 0:04:26.640 --> 0:04:29.800 we are in a period where rates do look attractive 0:04:29.920 --> 0:04:32.760 versus where equities are. And we're in a period right 0:04:32.760 --> 0:04:35.800 now where we're still the place of economic growth, but 0:04:35.839 --> 0:04:38.400 it is a warning sign for the administration about how 0:04:38.480 --> 0:04:40.800 much they can push. Now. Clearly the other side of 0:04:40.800 --> 0:04:43.280 the trade, I would not probably be lowering rates right now. 0:04:43.520 --> 0:04:47.320 I think that you have full employment, economy is doing 0:04:47.400 --> 0:04:49.680 quite well. I'm not sure I see a need other 0:04:49.680 --> 0:04:52.320 than economic textbook to lower rates in terms of the target. 0:04:52.760 --> 0:04:55.000 But it does create a lot of room for the 0:04:55.000 --> 0:04:58.000 new administration if they have weakness in any kind of 0:04:58.000 --> 0:05:01.039 the economy. Because of their initiatives, the Fed put is back, 0:05:01.080 --> 0:05:01.880 they have a lot. 0:05:01.680 --> 0:05:02.440 Of room to move. 0:05:02.960 --> 0:05:05.960 Your colleague, sort of edifying your points as you say 0:05:05.960 --> 0:05:09.080 them towards the slock moments ago, inflation reaccelerating to your 0:05:09.080 --> 0:05:12.760 point about not necessarily needing to lower rates further, you 0:05:12.800 --> 0:05:16.200 talk about credit being the sweet spot in debt, maybe 0:05:16.200 --> 0:05:18.520 even over equities, and that has been the story over 0:05:18.560 --> 0:05:20.800 a long period of time, the past couple of years. 0:05:21.240 --> 0:05:24.760 If inflation could be reaccelerating, could you see that story 0:05:24.880 --> 0:05:26.760 changing at a certain point. 0:05:27.279 --> 0:05:29.839 Yes, you could, And I guess this, and there's a 0:05:29.839 --> 0:05:31.800 lot of consensus out there about where the S and 0:05:31.839 --> 0:05:33.960 P is in a go where rates are going. But 0:05:35.440 --> 0:05:38.800 in our view and the backdrop, US economy still the 0:05:38.839 --> 0:05:42.120 strength of the globe. It's the beacon of economic opportunity. 0:05:43.320 --> 0:05:46.120 We still have a lot of economic growth in terms 0:05:46.160 --> 0:05:48.560 of the industrial renaissance that we've been talking about. So 0:05:49.040 --> 0:05:52.520 in our view, the breadth of credit investment grade as 0:05:52.600 --> 0:05:55.960 well as non investment grade, we try to find areas 0:05:56.080 --> 0:05:59.600 of dislocation or areas of mismatch of capital and opportunity, 0:05:59.839 --> 0:06:02.919 and we're still seeing it in credit versus the equity markets. Now, 0:06:03.040 --> 0:06:04.880 when you look at the S and P five hundred, 0:06:06.360 --> 0:06:08.760 I would say that it's interesting, you've got we all 0:06:08.800 --> 0:06:11.520 know what the magnificent seven are, but certainly the other 0:06:11.640 --> 0:06:15.880 four hundred and ninety three a lot of unloved opportunities 0:06:16.000 --> 0:06:19.159 that in that basket. And there's probably an opportunity in 0:06:19.200 --> 0:06:21.640 a non consensus view in terms of those companies in 0:06:21.720 --> 0:06:25.360 terms of just pure economic growth. But we are still listen, 0:06:25.480 --> 0:06:29.080 private crediting has private credit and private capital has been 0:06:29.120 --> 0:06:31.240 the engine of economic growth in the US. And I 0:06:31.240 --> 0:06:33.360 will you know again I said earlier, it's not a 0:06:33.400 --> 0:06:36.000 great iron it's a great irony that the US has 0:06:36.000 --> 0:06:38.560 been the bastion of economic growth with the embracing of 0:06:38.600 --> 0:06:42.400 private capital. But you know, one of the greatest investors 0:06:42.440 --> 0:06:46.120 in US capital history, Warn Buffet in Berkshire. When you 0:06:46.160 --> 0:06:50.000 really pull the covers back on Berkshire Hathaway. Of the 0:06:50.160 --> 0:06:52.560 trillion dollars of assets at the end of twenty three, 0:06:53.279 --> 0:06:55.720 thirty percent are in the public equities that we know 0:06:55.760 --> 0:07:00.440 about Apple, Coca Cola, American Express via a seventy percent 0:07:00.560 --> 0:07:05.000 are private companies. It's the growth engine. He's the greatest capitalist. 0:07:05.080 --> 0:07:08.600 He's been doing it for fifty years. That's where growth 0:07:08.600 --> 0:07:13.200 and opportunities in America. Private capital in private companies, and 0:07:13.240 --> 0:07:15.440 they have access in the debt markets. They don't need 0:07:15.440 --> 0:07:18.440 to go public to raise capital anymore. Eight thousand public 0:07:18.480 --> 0:07:21.360 companies to four thousand. That's the trend in the future. 0:07:21.600 --> 0:07:24.160 And we're sitting really at an intersection trying to bring 0:07:24.200 --> 0:07:28.680 those opportunities to the broad group of investors, retirees and 0:07:28.720 --> 0:07:29.920 savers around the globe. 0:07:30.000 --> 0:07:32.680 So you mentioned Europe and Europe certainly the bank channel 0:07:33.080 --> 0:07:35.240 is overburdened. We've been talking about this for years. The 0:07:35.280 --> 0:07:37.400 Europeans have drunk and talk about trying to do something 0:07:37.400 --> 0:07:39.280 with public markets. Are the same way we have here 0:07:39.520 --> 0:07:42.160 in the United States. It's not happening. I want to 0:07:42.240 --> 0:07:44.680 understand from your perspective, how you will work with the 0:07:44.680 --> 0:07:47.240 banks in America going forward from here, because this is 0:07:47.280 --> 0:07:48.960 not of a new trend where the banks will originate 0:07:49.000 --> 0:07:50.880 the loans and then you'll provide the money. How's that 0:07:50.920 --> 0:07:52.520 going to work in years to come? How big can 0:07:52.560 --> 0:07:53.400 that opportunity be? 0:07:54.120 --> 0:07:57.040 Oh, I think we're I think twenty four was a 0:07:57.120 --> 0:08:03.440 pivot year for us as a leading firm in this 0:08:03.600 --> 0:08:07.520 industry and in this sector. There was a great headline, 0:08:07.560 --> 0:08:08.800 and you and I talked about the three of us 0:08:08.840 --> 0:08:11.000 have talked about in this show many times, where the 0:08:11.040 --> 0:08:15.000 great battle between private capital and banks. The reality is, 0:08:15.200 --> 0:08:18.640 if you look at the commercial dialogue going on between 0:08:18.680 --> 0:08:22.040 the top five, top ten institutions and the handful of 0:08:22.120 --> 0:08:26.280 us that lead our industry, the amount of integration dialogue 0:08:26.360 --> 0:08:29.600 working together on big deals has never been deeper. Obviously, 0:08:29.640 --> 0:08:32.840 there was our City Bank transaction, our City Group transaction. 0:08:32.960 --> 0:08:35.600 There was a transaction we did with Standard Charter BNP, 0:08:36.320 --> 0:08:38.560 and so I think we're still at the early days. 0:08:39.040 --> 0:08:44.360 These partnerships need to have substance. They can't be excused 0:08:44.360 --> 0:08:47.120 the phrase shotgun marriages. They have to be ones that 0:08:47.160 --> 0:08:51.000 really have substance, dialogue, trust, and some history of doing 0:08:51.040 --> 0:08:53.959 a lot of transactions together. We've been fortunate and all 0:08:54.000 --> 0:08:56.640 the ones we've put together where there has been a 0:08:56.640 --> 0:09:00.200 lot of either history of personnel or of activity. But 0:09:00.280 --> 0:09:02.960 I think it's I think still it's early days, early innings. 0:09:03.000 --> 0:09:05.880 Now there's a lot of headlines just to grab headlines, 0:09:05.920 --> 0:09:08.400 and there's not a lot of substance behind them. But 0:09:08.520 --> 0:09:13.359 I think that trend of private capital and bank partnerships 0:09:13.440 --> 0:09:15.520 is going to extend in twenty five and twenty six. 0:09:15.920 --> 0:09:19.480 And I do think if you think about the economic backdrop, 0:09:19.960 --> 0:09:22.560 I do sense that there is a great opportunity for 0:09:22.600 --> 0:09:25.600 strategic m and a that clearly feels like it's going 0:09:25.640 --> 0:09:28.920 to happen. I'm a little bit more skeptical about the 0:09:29.480 --> 0:09:30.960 massive IPO window. 0:09:31.559 --> 0:09:33.599 If you look at the. 0:09:33.160 --> 0:09:37.360 Last ten years, equity issuance has been about two hundred 0:09:37.400 --> 0:09:41.200 and fifty billion, fifty billion IPOs, two hundred billion secondaries. 0:09:41.360 --> 0:09:44.080 That's removing all the stack numbers. I think you still 0:09:44.120 --> 0:09:46.319 have a valuation issue with a lot of private equity 0:09:46.960 --> 0:09:49.480 companies that want to want to come out and do 0:09:49.559 --> 0:09:52.920 their IPO and so I think we have a consensus 0:09:53.040 --> 0:09:55.720 view or non consensus view would apollow that that number 0:09:55.760 --> 0:09:57.560 is going to be not as large as people think. 0:09:57.960 --> 0:10:00.000 And so the big mismatch if you have a big 0:10:00.600 --> 0:10:03.800 credit market, a big equity market, this area of hybrid 0:10:03.840 --> 0:10:06.680 in between, which we've been talking a lot about applying 0:10:06.760 --> 0:10:10.080 capital to those over levered companies. That's the opportunity of 0:10:10.080 --> 0:10:11.160 twenty five and twenty six. 0:10:11.200 --> 0:10:12.800 Just to build on the IPI issue just a little 0:10:12.800 --> 0:10:14.679 bit more. Is that just a valuation issue or do 0:10:14.720 --> 0:10:16.520 you think it's a role that you have to play 0:10:16.520 --> 0:10:18.560 here that these companies don't need to go public anymore. 0:10:18.720 --> 0:10:20.400 It's a combination of both. It's a great question. 0:10:20.440 --> 0:10:23.920 I think it is a valuation issue for probably fifty 0:10:23.960 --> 0:10:26.800 to sixty percent of them. I think it's very very 0:10:26.840 --> 0:10:31.560 clear now private companies have access to all sorts of capital, 0:10:31.920 --> 0:10:35.120 debt and equity, preferred, convertible, whatever it may be. 0:10:35.520 --> 0:10:37.640 And so the typical route you needed to. 0:10:37.600 --> 0:10:41.640 Go to have your employees be able to monetize their 0:10:41.679 --> 0:10:46.840 investments broad based capital equity revolvers. You saw what OpenAI 0:10:46.920 --> 0:10:50.480 did several months ago bringing in a bank facility. There's 0:10:50.640 --> 0:10:55.400 tremendous pools of capital, private capital to confund and financies companies. 0:10:55.400 --> 0:10:58.640 So going public is by no means the ticket to 0:10:58.720 --> 0:11:01.720 liquidity you needed in the past, a lot more. 0:11:01.640 --> 0:11:04.400 Options in five to ten years. Will there be a 0:11:04.400 --> 0:11:07.760 difference between public and private markets, We don't believe. 0:11:07.760 --> 0:11:10.760 So I think there will be some differentiations. And I 0:11:10.760 --> 0:11:13.760 think the question that gets raised right after that question 0:11:13.800 --> 0:11:15.520 that you ask is well, is there going to be 0:11:15.520 --> 0:11:19.080 a massive compression in yields and the advantage is going 0:11:19.120 --> 0:11:21.280 to go to those folks that have the bigger You're 0:11:21.320 --> 0:11:24.240 going to make money on the origination, the ability to 0:11:24.320 --> 0:11:27.320 make the three, five, seven, ten billion dollar commitment to 0:11:27.480 --> 0:11:31.160 XYZ company, that's where you're going to garner the extra spread. 0:11:31.760 --> 0:11:34.880 But all the things that we're doing in origination, in 0:11:34.920 --> 0:11:39.000 capital formation, in trying to bring some liquidity these markets, 0:11:39.040 --> 0:11:44.240 in terms of secondary activity, with transparency and price discovery, 0:11:44.920 --> 0:11:48.120 I think the barriers and you know what's what's private 0:11:48.200 --> 0:11:50.880 is risky and what's public is safe. I think those 0:11:50.880 --> 0:11:53.319 barriers will be coming down. And again I go back 0:11:53.360 --> 0:11:55.640 to this bookshare It's no one really talks about it, 0:11:56.040 --> 0:11:59.199 but it's it is quite an irony that the greatest 0:11:59.600 --> 0:12:03.880 public investor of all time seventy percent of those companies. 0:12:03.880 --> 0:12:05.480 When you look at the when you look. 0:12:05.360 --> 0:12:09.600 At the web page, these are some great American companies 0:12:10.040 --> 0:12:13.920 and over fifty years he's assembled them and they're massive compounders. 0:12:14.320 --> 0:12:17.680 And that's seventy percent of the underlying value. Geico being 0:12:17.679 --> 0:12:21.960 at the top, Clayton Holmes, BNSF, many many other great companies. 0:12:22.320 --> 0:12:25.560 And I think that's a lesson versus all there's there's 0:12:25.600 --> 0:12:28.480 companies that are private and there's private equity. You should 0:12:28.520 --> 0:12:31.480 differentiate between the two. But we clearly want to be 0:12:31.559 --> 0:12:34.800 part of that big trend and offer those two investors 0:12:34.800 --> 0:12:37.080 in the retirements around the globe. It's a big change 0:12:37.080 --> 0:12:37.880 in market structure. 0:12:38.000 --> 0:12:39.400 You're going to be sticking with us to talk about 0:12:39.400 --> 0:12:41.160 that change in market structure and the changes we could 0:12:41.160 --> 0:12:43.720 be seeing in Washington, DC. A little bit later this year, 0:12:43.800 --> 0:12:56.640 Jim's out to the Apollo Asset Management maybe the Register 0:12:56.720 --> 0:12:59.400 of ABP, predicting a slow down, writing the labor market 0:12:59.440 --> 0:13:01.600 downshift to a more modest pace of growth in the 0:13:01.600 --> 0:13:03.960 final month of twenty four where they slow down in 0:13:04.000 --> 0:13:06.760 both hiring and pay gains, and places say that Nita 0:13:06.800 --> 0:13:07.560 joins us now for more. 0:13:07.640 --> 0:13:10.199 Nita good to see you happy, happy, You're good to 0:13:10.240 --> 0:13:10.520 see you. 0:13:10.559 --> 0:13:12.720 You put out your numbers yesterday. Where did you see 0:13:12.720 --> 0:13:14.480 weakness and where did you see some strength? 0:13:14.800 --> 0:13:18.760 Well, we saw weakness in manufacturing. And this is, you know, 0:13:18.800 --> 0:13:21.160 doubling down on a trend we've been seeing all year, 0:13:21.520 --> 0:13:26.000 three consecutive months of shedding jobs in manufacturing. That's very cyclical. 0:13:26.320 --> 0:13:28.920 On the strength side, we have to turn to a 0:13:29.040 --> 0:13:33.280 very non cyclical sector, which is healthcare. Healthcare has been 0:13:33.320 --> 0:13:36.800 posting strong gains for the last six months. You see 0:13:36.800 --> 0:13:38.760 that in the ADP data. You also see that in 0:13:38.800 --> 0:13:41.960 the BLS data. It's what's really driving the jobs market now. 0:13:42.200 --> 0:13:45.360 And the question is is it enough for twenty twenty 0:13:45.400 --> 0:13:48.199 five for healthcare to be in the dominant position? 0:13:48.320 --> 0:13:50.760 A work is losing leverage against that backdrop. If you're 0:13:50.760 --> 0:13:53.439 seeing more narrow gains, if we're losing breadth and it's 0:13:53.440 --> 0:13:57.040 coming from areas outside of cyclical sectors in the economy, 0:13:57.360 --> 0:13:59.920 are we seeing a loss of leverage for workers? More broadly, 0:14:00.120 --> 0:14:02.600 We've been talking about this over the past few days. 0:14:03.040 --> 0:14:05.160 JP Morgan sank get back to work, get back to 0:14:05.200 --> 0:14:07.400 the office five days a week. We talked about it 0:14:07.440 --> 0:14:09.320 a little bit earlier this morning that maybe that's why 0:14:09.360 --> 0:14:11.760 the union's on the docks are maybe settling a little 0:14:11.760 --> 0:14:14.160 bit earlier. What are you seeing around pay and signs 0:14:14.160 --> 0:14:15.240 of a loss of leverage. 0:14:15.640 --> 0:14:19.360 We're seeing a lot and I would align with those 0:14:19.440 --> 0:14:22.600 remarks that workers have lost some leverage from the heyday 0:14:22.600 --> 0:14:25.120 of the Great Resignation when they were clearly in the 0:14:25.200 --> 0:14:27.760 driver's seat. There is no one in the driver's seat 0:14:27.840 --> 0:14:30.200 right now. I think in the labor market it's pretty 0:14:30.240 --> 0:14:32.640 calm and quiet. But what we're seeing is that pay 0:14:32.640 --> 0:14:36.120 growth has declined. We're looking at the lowest pay growth 0:14:36.120 --> 0:14:40.800 for job stairs since twenty twenty one, so that is significant. 0:14:41.080 --> 0:14:43.120 But also you have to look at hours work. 0:14:43.160 --> 0:14:47.400 Then that's where companies are kind of fine tuning their 0:14:47.480 --> 0:14:50.720 labor count. Layoffs are very low, there are historical lows 0:14:50.760 --> 0:14:53.920 for the past two years, but the number of hours 0:14:53.960 --> 0:14:57.120 people are working have been declining consistently over the past 0:14:57.440 --> 0:15:01.080 year and a half. That means that workers are making less. Also, 0:15:01.120 --> 0:15:03.600 I'll point to the Jolts data that came out this week. 0:15:03.880 --> 0:15:06.720 Everyone made a big hubbub about the job openings. I 0:15:06.800 --> 0:15:10.520 went directly to the job quits which are much lower, 0:15:10.560 --> 0:15:13.320 So people are staying put in their jobs, and that 0:15:13.360 --> 0:15:16.120 means there's been very little turnover in this labor market. 0:15:16.200 --> 0:15:16.960 I agree with you one. 0:15:16.920 --> 0:15:18.960 Point nine percent, which is tied with the lowest rate 0:15:19.000 --> 0:15:21.840 for quits going back to twenty twenty and really raises 0:15:21.880 --> 0:15:26.040 some eyebrows about just how much mormility and agency workers feel. 0:15:26.080 --> 0:15:28.560 I am wondering the why behind this. Is it because 0:15:28.560 --> 0:15:31.840 of policy uncertainty from companies? Is it because borrowing costs 0:15:31.880 --> 0:15:34.720 are higher, or they're not making big expansionary moves, or 0:15:34.760 --> 0:15:37.520 is it because they're still watching what's going on in 0:15:37.520 --> 0:15:41.280 the artificial intelligence front with the potential that this will 0:15:41.320 --> 0:15:43.200 make some big changes to their workforce, and they're not 0:15:43.240 --> 0:15:44.080 sure exactly how. 0:15:44.840 --> 0:15:47.760 So let's take those pieces together. I think there is 0:15:47.800 --> 0:15:50.480 a bit of uncertainty about policies, but when you look 0:15:50.480 --> 0:15:52.600 at where the weakness is in terms of firm size, 0:15:52.640 --> 0:15:55.000 it's really been in small firms that we've seen the 0:15:55.160 --> 0:15:59.000 hit the slowdown in hiring. Big firms are still hiring, 0:15:59.280 --> 0:16:01.560 and you see that clearly in the ADP data. So 0:16:01.600 --> 0:16:04.200 that points to more financing constraints than it does to 0:16:04.400 --> 0:16:09.160 AI investment or uncertainty about what the next tariff policy 0:16:09.200 --> 0:16:12.880 will be. Most small firms don't operate in that macro 0:16:13.000 --> 0:16:16.800 scenario on a consistent basis when adding one or two employees. 0:16:17.040 --> 0:16:20.120 So when you're looking at that interest rates matter in 0:16:20.200 --> 0:16:23.480 terms of financing costs for small firms longer term over 0:16:23.520 --> 0:16:26.120 twenty twenty five, I think that AI investment in those 0:16:26.160 --> 0:16:29.600 trade offs between capital and labor become much more relevant 0:16:29.800 --> 0:16:31.880 starting this year, but also into the future. 0:16:31.920 --> 0:16:34.080 Are you saying that on the ground, from the bottom up, 0:16:34.120 --> 0:16:36.640 what you're seeing is that long and variable lags still 0:16:36.680 --> 0:16:38.960 do exist, and that they just got a lot longer, 0:16:39.000 --> 0:16:42.280 and that they still are restricting certain smaller companies. It's 0:16:42.320 --> 0:16:46.360 gotten a lot more variable our lag, So okay, all right, 0:16:46.360 --> 0:16:48.360 so they've gotten a lot more variable, and that's the 0:16:48.360 --> 0:16:50.920 reason why you are seeing it only in smaller businesses. 0:16:50.920 --> 0:16:54.000 But are you saying that rate staying here might look 0:16:54.080 --> 0:16:57.160 like they're not necessarily hampering financial conditions, but they are 0:16:57.240 --> 0:17:00.520 constraining the labor market in a more significant degree at 0:17:00.560 --> 0:17:02.520 this point than they did even six months ago. 0:17:03.080 --> 0:17:06.159 Firms that rely on bank capital and small business loans 0:17:06.200 --> 0:17:09.960 are feeling the effects of higher interest rates. It may 0:17:10.000 --> 0:17:13.280 not be translating to the larger firms yet, but in 0:17:13.359 --> 0:17:15.199 terms of on the ground, the mom and pop, the 0:17:15.240 --> 0:17:17.680 main street businesses. I think you see that in their 0:17:17.760 --> 0:17:21.359 hiring decisions, and so yes, that is material because small 0:17:21.400 --> 0:17:24.000 firms are the engine of growth for the labor market 0:17:24.040 --> 0:17:26.800 and for the economy, and if you want that dynamism 0:17:26.880 --> 0:17:28.800 to continue, it really has to be at the small 0:17:28.800 --> 0:17:29.240 firm level. 0:17:29.440 --> 0:17:31.200 So, Nator, what's your reaction to the race and shift 0:17:31.240 --> 0:17:33.160 over the Federal Reserve? What do you make of things? 0:17:33.760 --> 0:17:37.760 Very extension, Well, there's been a couple couple shifts. I 0:17:37.800 --> 0:17:40.600 think what we're seeing in terms of the commentary around 0:17:40.600 --> 0:17:43.960 the FED is that they have put out this idea 0:17:43.960 --> 0:17:46.280 of being more patient. And this is a FED that 0:17:46.320 --> 0:17:50.840 we're not really used to seeing. Historically, Usually the FED 0:17:50.920 --> 0:17:56.600 when it's starting a policy change, its moderate, predictable, modest 0:17:56.680 --> 0:18:00.959 moves every decision meeting. Now we're a said that says, hey, 0:18:01.080 --> 0:18:03.840 we might take a break, we might go on vacation 0:18:04.000 --> 0:18:06.800 for this one, and do a rate cut at the 0:18:06.840 --> 0:18:09.680 next meeting. And I think that adds a little uncertainty 0:18:09.720 --> 0:18:12.199 to what the future path of interest rates will be. 0:18:12.280 --> 0:18:14.640 And some of us might include some changes to policy 0:18:14.680 --> 0:18:16.440 that we might expect, and some of us might know 0:18:16.600 --> 0:18:18.440 and that's been part of the confusion. It's wildly strive 0:18:18.520 --> 0:18:19.760 for the past month or so. 0:18:20.080 --> 0:18:22.879 How does a market factor in what the FED is 0:18:22.920 --> 0:18:24.679 going to be looking at When we don't have a 0:18:24.720 --> 0:18:28.080 sense of what policies and input data will potentially be 0:18:28.119 --> 0:18:31.280 going into their equation. It makes for rather confusing. 0:18:31.359 --> 0:18:33.879 Does that make get more confusing for you, Neva? 0:18:34.040 --> 0:18:36.960 For me, it's about the data, right. Some of this 0:18:37.200 --> 0:18:40.560 is just kind of animal spirits. It matters for the markets, 0:18:40.680 --> 0:18:45.359 it matters for the mood of making investment decisions, But 0:18:45.440 --> 0:18:48.800 does it matter for that HR director in a company 0:18:48.920 --> 0:18:51.119 who's trying to figure out how to grow a business 0:18:51.119 --> 0:18:54.880 in a particular area. Those policy changes are not going 0:18:54.920 --> 0:18:58.400 to hit that HR director in this month. It might 0:18:58.440 --> 0:19:01.119 play out over six months or year. But they have 0:19:01.240 --> 0:19:03.200 to figure out the here and now in terms of 0:19:03.240 --> 0:19:06.720 the economic conditions that they're confronting with their customers, not 0:19:06.840 --> 0:19:07.680 with the FETIS doing. 0:19:07.720 --> 0:19:09.920 It's increasing the complex, that's for sure. It's good to 0:19:09.920 --> 0:19:12.080 see you a white thanks for dropping by Nata Richard 0:19:12.080 --> 0:19:24.320 than that of id Pai set down to Washington, DC, 0:19:24.560 --> 0:19:27.080 where Amory is sitting down with a former City of 0:19:27.200 --> 0:19:29.880 US Intelligence official, Norman rule Hi, a Marie. 0:19:30.800 --> 0:19:31.880 Hey, John, thanks so much. 0:19:31.960 --> 0:19:32.160 Yeah. 0:19:32.160 --> 0:19:35.000 What we're hearing right now from the incoming Trump administration 0:19:35.000 --> 0:19:37.439 from Steve Wickoff, who went over to Joha to be 0:19:37.600 --> 0:19:41.080 a part and witness these negotiations and to really lend 0:19:41.880 --> 0:19:44.159 some support, is that they think that they can have 0:19:44.240 --> 0:19:46.439 good news to deliver. So of course you want to 0:19:46.480 --> 0:19:50.800 bring in Norm Rule, who spent decades at the CIA 0:19:51.240 --> 0:19:54.280 dealing with Middle East and conflicts. Norman, is it your 0:19:54.359 --> 0:19:58.800 understanding that potentially we could get a Gaza hostage agreement 0:19:59.160 --> 0:20:00.879 before President by and leaves office. 0:20:01.920 --> 0:20:03.680 Good morning. Yes, that is correct. 0:20:03.760 --> 0:20:08.280 The incoming Trump administration and outgoing Biden administration have been 0:20:08.320 --> 0:20:14.720 working very closely with no reports of any disagreements or 0:20:14.760 --> 0:20:20.280 frictions to achieve this. These statements by President Trump beginning 0:20:20.280 --> 0:20:22.760 in December that there would be all hell to pay 0:20:23.280 --> 0:20:27.359 if the hostages were not released injected a new life 0:20:27.520 --> 0:20:31.480 into this issue, and both Hamas and the Israelis have 0:20:31.600 --> 0:20:37.080 claimed that they have made concessions to make this hostage deal, 0:20:37.119 --> 0:20:40.520 which would be the first phase of a longer deal, happen. 0:20:40.960 --> 0:20:44.800 This said, the phrase cautious optimism has been used repeatedly 0:20:44.840 --> 0:20:48.640 in the past. Hamas has not dropped its primary demand, 0:20:48.840 --> 0:20:52.600