1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,240 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:36,680 Speaker 2: Terminal and the Bloomberg Business app. We begin with the 10 00:00:36,680 --> 00:00:39,360 Speaker 2: big issue positioning for the second half, Cameron Dawson and 11 00:00:39,400 --> 00:00:41,960 Speaker 2: New Weet's Wealth saying this, the trend is still your friend. 12 00:00:42,680 --> 00:00:45,720 Speaker 2: Powerfully up. Don't fight the trend of positive equities, but 13 00:00:45,760 --> 00:00:48,360 Speaker 2: be aware that the market could shift quickly if growth 14 00:00:48,400 --> 00:00:52,280 Speaker 2: forecasts for EPs or GDP begin to get trimmed. Cameron 15 00:00:52,320 --> 00:00:53,880 Speaker 2: joined us now for more. Cameron, good morning to you. 16 00:00:53,960 --> 00:00:54,440 Speaker 3: Good morning. 17 00:00:54,480 --> 00:00:56,320 Speaker 2: Are we starting to see that already? Are those growth 18 00:00:56,400 --> 00:00:57,840 Speaker 2: estimates starting to be trimmed? 19 00:00:58,000 --> 00:01:00,520 Speaker 4: It happened Friday for the first time in twelve months, 20 00:01:00,520 --> 00:01:03,480 Speaker 4: we saw twenty twenty four GDP estimates get revised lower 21 00:01:03,680 --> 00:01:06,360 Speaker 4: it's just slightly and it's just one data point, so 22 00:01:06,400 --> 00:01:08,760 Speaker 4: it's not quite a trend yet, but that is a 23 00:01:08,800 --> 00:01:11,800 Speaker 4: big shift from the last eighteen months, where we've had 24 00:01:12,080 --> 00:01:15,600 Speaker 4: rising GDP forecasts pretty much every single month, which has 25 00:01:15,640 --> 00:01:18,920 Speaker 4: provided a boost to equities, provided a boost to credit markets. 26 00:01:19,160 --> 00:01:21,720 Speaker 4: That's why you can trade at such high valuation, such 27 00:01:21,800 --> 00:01:25,120 Speaker 4: tight spreads, because you're raising forecasts. If that starts to 28 00:01:25,200 --> 00:01:27,320 Speaker 4: change in a more meaningful way, that's when you could 29 00:01:27,360 --> 00:01:28,640 Speaker 4: have a more risk off move. 30 00:01:28,920 --> 00:01:31,600 Speaker 2: Growth is start to disappoint relative to expectations as well. 31 00:01:31,720 --> 00:01:34,240 Speaker 2: That's been a theme with incoming economic data. Can you 32 00:01:34,280 --> 00:01:36,160 Speaker 2: walk us through what you're looking for in the data 33 00:01:36,200 --> 00:01:38,640 Speaker 2: this week. Are you in the camp of mic data 34 00:01:38,680 --> 00:01:40,520 Speaker 2: where you think that we're we here and effect's got 35 00:01:40,560 --> 00:01:42,920 Speaker 2: to respond, or David Kelly where things are slowing but 36 00:01:42,959 --> 00:01:45,120 Speaker 2: they're not slow and this is just normalization. 37 00:01:45,520 --> 00:01:47,640 Speaker 4: I think it is more of the normalization. We're not 38 00:01:47,680 --> 00:01:49,400 Speaker 4: at the point yet where things are falling off a 39 00:01:49,440 --> 00:01:51,720 Speaker 4: cliff that you say we're headed deep into a recession, 40 00:01:52,160 --> 00:01:54,680 Speaker 4: but we're definitely coming off the boil. And if we 41 00:01:54,720 --> 00:01:57,400 Speaker 4: think about the labor market, to your point earlier, you 42 00:01:57,480 --> 00:02:00,400 Speaker 4: have two very different stories about the labor market. We 43 00:02:00,400 --> 00:02:03,080 Speaker 4: think it's much more likely that it's somewhere in between, 44 00:02:03,360 --> 00:02:06,560 Speaker 4: where the real jobs number is somewhere around one hundred thousand. 45 00:02:06,920 --> 00:02:09,680 Speaker 4: What that means, though, is more important for the unemployment rate, 46 00:02:09,720 --> 00:02:12,080 Speaker 4: because we're already at the Fed's target for this year 47 00:02:12,160 --> 00:02:15,480 Speaker 4: at four point zero percent. If that continues to creep higher, 48 00:02:15,639 --> 00:02:18,440 Speaker 4: and if you continue to see this moderation in the PCE, 49 00:02:19,200 --> 00:02:21,560 Speaker 4: it does give the Fed the degrees of freedom to 50 00:02:21,639 --> 00:02:24,760 Speaker 4: at least do one rate cut, maybe two rate cuts 51 00:02:24,760 --> 00:02:27,320 Speaker 4: this year. But then the question is what happens in 52 00:02:27,360 --> 00:02:30,240 Speaker 4: twenty twenty five if they start to ease policy, fiscal 53 00:02:30,280 --> 00:02:33,680 Speaker 4: remains stimulative, and then we start thinking about the Republican sweep. 54 00:02:33,840 --> 00:02:35,840 Speaker 1: You say that it's important to just keep going with 55 00:02:35,880 --> 00:02:38,519 Speaker 1: this momentum trade just simply because it is so powerful. 56 00:02:38,560 --> 00:02:41,120 Speaker 1: And yet something that Torsten Slot put out there was 57 00:02:41,160 --> 00:02:43,760 Speaker 1: the top ten companies in the SP five hundred makeup 58 00:02:43,919 --> 00:02:46,480 Speaker 1: thirty five percent of the market cap, but only twenty 59 00:02:46,480 --> 00:02:50,000 Speaker 1: three percent of earnings. We are basically pricing in a 60 00:02:50,080 --> 00:02:53,160 Speaker 1: much more significant boost to earnings some of the names 61 00:02:53,160 --> 00:02:56,280 Speaker 1: that have been delivering. Let's be honest. Does that concern 62 00:02:56,320 --> 00:02:58,840 Speaker 1: you at all? But if we do get a reality check, 63 00:02:59,080 --> 00:03:00,360 Speaker 1: it will be a painful one. 64 00:03:00,440 --> 00:03:03,000 Speaker 4: We are slowly shifting from a world where's the stocks 65 00:03:03,000 --> 00:03:05,920 Speaker 4: were going up because earning sestiments were getting revised so 66 00:03:06,040 --> 00:03:09,120 Speaker 4: much higher. For these big megacap names, the market was 67 00:03:09,160 --> 00:03:12,040 Speaker 4: just chasing the earning sestments higher. Now we're at a 68 00:03:12,040 --> 00:03:15,880 Speaker 4: point where it's really multiple expansion that's boosting names like Nvidia, 69 00:03:16,040 --> 00:03:18,839 Speaker 4: like Amazon, and so the question is how much can 70 00:03:18,840 --> 00:03:22,360 Speaker 4: that sustain? Mostly as the earnings growth rate for the 71 00:03:22,440 --> 00:03:27,239 Speaker 4: Magnificent seven decelerates significantly into twenty five and even into 72 00:03:27,280 --> 00:03:29,080 Speaker 4: the back half of this year, you're going from a 73 00:03:29,120 --> 00:03:31,840 Speaker 4: peak of over sixty percent growth for mag seven names 74 00:03:32,080 --> 00:03:34,480 Speaker 4: to about fifteen percent by the time we get to 75 00:03:34,520 --> 00:03:38,080 Speaker 4: the fourth quarter. And interestingly, the market has priced in 76 00:03:38,160 --> 00:03:40,320 Speaker 4: that the rest of the four and ninety three will 77 00:03:40,360 --> 00:03:43,440 Speaker 4: have about the same amount of growth. The challenge with that, though, 78 00:03:43,680 --> 00:03:45,920 Speaker 4: that's a really high bar for those four ninety three 79 00:03:46,000 --> 00:03:49,200 Speaker 4: names to see mid single digits or mid teens kind 80 00:03:49,200 --> 00:03:52,120 Speaker 4: of growth, which just means there's room for downside surprise 81 00:03:52,160 --> 00:03:52,760 Speaker 4: and earnings well. 82 00:03:52,800 --> 00:03:55,600 Speaker 1: This is something that David Costin of Goldman Sachs really 83 00:03:55,640 --> 00:03:57,800 Speaker 1: picked up on that basically that earnings bar is the 84 00:03:57,840 --> 00:04:00,960 Speaker 1: highest going back to twenty twenty one. This all paints 85 00:04:00,960 --> 00:04:03,200 Speaker 1: sort of a bearish picture, and yet you're still bullish. 86 00:04:03,840 --> 00:04:07,200 Speaker 1: So how much do you sort of shift your position 87 00:04:07,360 --> 00:04:09,120 Speaker 1: based on something that you see in the data or 88 00:04:09,120 --> 00:04:12,160 Speaker 1: based on an earning support versus just go with momentum 89 00:04:12,160 --> 00:04:13,080 Speaker 1: because that's what's working. 90 00:04:13,240 --> 00:04:16,640 Speaker 4: Yeah, the trend, momentum and the liquidity has been so supportive. 91 00:04:16,960 --> 00:04:19,280 Speaker 4: We think it really becomes more of a challenge into 92 00:04:19,360 --> 00:04:22,120 Speaker 4: twenty five, where we do think twenty five estimates are 93 00:04:22,160 --> 00:04:25,400 Speaker 4: too high. If you unpack them, you have GDP or 94 00:04:25,640 --> 00:04:28,880 Speaker 4: revenue starting to accelerate and one hundred basis points of 95 00:04:28,880 --> 00:04:32,479 Speaker 4: margin expansion. That's in a world where nominal GDP is 96 00:04:32,520 --> 00:04:36,640 Speaker 4: going to decelerate. You typically don't get revenue accelerations and 97 00:04:36,680 --> 00:04:40,960 Speaker 4: big margin expansion in a moderating nominal GDP kind of economy. 98 00:04:41,240 --> 00:04:43,920 Speaker 4: So we think the two seventy eight dollars a share 99 00:04:44,000 --> 00:04:47,280 Speaker 4: for twenty twenty five is firmly too high, But it 100 00:04:47,360 --> 00:04:50,600 Speaker 4: may not be yet that we're starting that revision downcycle. 101 00:04:50,720 --> 00:04:53,039 Speaker 2: There's a phrase you used, you said and then and 102 00:04:53,040 --> 00:04:55,840 Speaker 2: then it was followed by Republican wife. Is it too 103 00:04:55,920 --> 00:04:58,320 Speaker 2: early to stop considering that right now. 104 00:04:58,800 --> 00:05:01,760 Speaker 4: Based on the polls, No, and I think the interesting 105 00:05:01,800 --> 00:05:04,479 Speaker 4: thing is comparing the starting point of a potential Trump 106 00:05:04,520 --> 00:05:09,000 Speaker 4: presidency today versus twenty sixteen. In twenty sixteen, the unemployment 107 00:05:09,080 --> 00:05:12,040 Speaker 4: rate was four point seven percent. Wage growth was growing 108 00:05:12,080 --> 00:05:15,440 Speaker 4: in the mid twos. That's different than today wage growth 109 00:05:15,560 --> 00:05:17,919 Speaker 4: is growing at four percent. So if you do something 110 00:05:18,000 --> 00:05:21,440 Speaker 4: that constricts labor supply, what is the risk that you 111 00:05:21,520 --> 00:05:25,640 Speaker 4: see a more pernicious kind of wage inflation cycle if 112 00:05:25,680 --> 00:05:28,360 Speaker 4: you lose that bottom tier of workers that are coming 113 00:05:28,400 --> 00:05:30,720 Speaker 4: in that have helped keep wages in check. I think 114 00:05:30,760 --> 00:05:33,000 Speaker 4: that you can do a similar thing on tariffs, where 115 00:05:33,000 --> 00:05:35,320 Speaker 4: you had deep deflation of durable goods. At the start 116 00:05:35,360 --> 00:05:38,599 Speaker 4: of his presidency, durable goods inflation went from negative two 117 00:05:38,600 --> 00:05:41,240 Speaker 4: and a half percent to about flat. So how much 118 00:05:41,279 --> 00:05:45,760 Speaker 4: could you see tariffs and immigration contribute to this inflation outlook? 119 00:05:45,839 --> 00:05:46,840 Speaker 2: So am I sunning bones. 120 00:05:48,080 --> 00:05:50,080 Speaker 4: I think that the risk is that yields do move 121 00:05:50,120 --> 00:05:52,440 Speaker 4: higher because the other thing we heard from the debate 122 00:05:52,560 --> 00:05:56,600 Speaker 4: is that neither party is considering austerity whatsoever, So get 123 00:05:56,720 --> 00:05:59,520 Speaker 4: used to higher treasury issuance in order to fund the deficits. 124 00:06:00,000 --> 00:06:02,680 Speaker 1: Basically agree with what Christian MAMMANI was saying that Thursday 125 00:06:02,720 --> 00:06:05,680 Speaker 1: Night on some levels was a game changer in terms 126 00:06:05,760 --> 00:06:09,320 Speaker 1: of your market views and the increasing certainty around a 127 00:06:09,320 --> 00:06:10,640 Speaker 1: potential outcome in November. 128 00:06:10,839 --> 00:06:13,840 Speaker 4: I think that the best output for this economy would 129 00:06:13,839 --> 00:06:16,560 Speaker 4: be gridlock, meaning that they can't do too much, don't 130 00:06:16,640 --> 00:06:18,880 Speaker 4: change it, if it's not broke, don't fix it. The 131 00:06:19,000 --> 00:06:21,880 Speaker 4: challenges is based on Thursday Night. Does that raise the 132 00:06:21,880 --> 00:06:24,680 Speaker 4: odds of a Republican sweep where you could see more 133 00:06:24,680 --> 00:06:27,640 Speaker 4: sweeping policies, you could see the full extent of the 134 00:06:27,680 --> 00:06:31,000 Speaker 4: effort of policies actually be enacted, And I think that 135 00:06:31,040 --> 00:06:32,760 Speaker 4: would be the risk for the market is that you 136 00:06:32,880 --> 00:06:35,799 Speaker 4: do get this inflation, you do get higher deficit spending, 137 00:06:36,120 --> 00:06:38,520 Speaker 4: and to point out, the tax cuts that you would 138 00:06:38,560 --> 00:06:40,960 Speaker 4: potentially get going into a second round of a Trump 139 00:06:41,000 --> 00:06:43,400 Speaker 4: presidency are not nearly as big as what we got 140 00:06:43,440 --> 00:06:46,359 Speaker 4: in twenty seventeen, meaning we had those tax cuts to 141 00:06:46,400 --> 00:06:49,320 Speaker 4: offset these other things. You're talking about one to two 142 00:06:49,320 --> 00:06:51,560 Speaker 4: percent lower in the corporate tax rate, so you don't 143 00:06:51,560 --> 00:06:53,880 Speaker 4: get nearly as much sugar as you get with the 144 00:06:53,920 --> 00:06:56,120 Speaker 4: spinach of things like tariffs and immigration. 145 00:06:56,360 --> 00:06:59,160 Speaker 2: We're hearing this repeatedly through this morning, Cameron Dawson, The 146 00:06:59,800 --> 00:07:13,280 Speaker 2: Wow JP Morgan's David Kelly right in this neither consumers 147 00:07:13,280 --> 00:07:16,400 Speaker 2: nor investors are behaving as if they are scared. Investors 148 00:07:16,440 --> 00:07:18,200 Speaker 2: have pushed the S and P five hundred to an 149 00:07:18,200 --> 00:07:21,520 Speaker 2: all time record high thirty three times already this year, 150 00:07:21,680 --> 00:07:25,080 Speaker 2: while consumers have maintained a personal savings rate a three 151 00:07:25,120 --> 00:07:27,320 Speaker 2: point six percent. David, it's with us around a table, 152 00:07:27,360 --> 00:07:29,640 Speaker 2: David can Monetier morning. A lot of people coming on 153 00:07:29,680 --> 00:07:32,080 Speaker 2: the program talking up a consumer slow down, cracks in 154 00:07:32,120 --> 00:07:34,840 Speaker 2: the labor market. Why shouldn't we be fearful of that? 155 00:07:36,320 --> 00:07:38,320 Speaker 2: I don't think we should be fearful right now. What 156 00:07:38,360 --> 00:07:40,800 Speaker 2: we're seeing is a small down shift in growth. 157 00:07:41,960 --> 00:07:45,720 Speaker 5: We have a problem at lower middle income consumers. And 158 00:07:45,760 --> 00:07:48,679 Speaker 5: if you look at consumer durable sorry, consumer non durable spending, 159 00:07:48,720 --> 00:07:51,800 Speaker 5: things like food and clothing, just the basics, that was 160 00:07:51,840 --> 00:07:54,040 Speaker 5: actually lower in me than it was in December. So 161 00:07:54,080 --> 00:07:55,920 Speaker 5: we can see that slow down. But at the same time, 162 00:07:55,920 --> 00:08:01,040 Speaker 5: we seeing tremendous wealth gains, and we've we've also seen 163 00:08:01,080 --> 00:08:04,000 Speaker 5: tremendous wealth gains. We've seen a lot of payroll job growth, 164 00:08:04,000 --> 00:08:07,280 Speaker 5: a lot of wage income growth. So well as I 165 00:08:07,320 --> 00:08:09,840 Speaker 5: look at the consumer consumer spanning will grow more slowly 166 00:08:10,000 --> 00:08:12,200 Speaker 5: somewhere in the one and a half percent range going 167 00:08:12,200 --> 00:08:13,840 Speaker 5: forward with the rest of this year, as opposed to 168 00:08:13,920 --> 00:08:16,720 Speaker 5: two percent plus. But that's still enough, and so I 169 00:08:16,720 --> 00:08:19,280 Speaker 5: think we all's happening here is the economy slowing down 170 00:08:19,320 --> 00:08:22,040 Speaker 5: to you know, you know, a little undertwo in terms 171 00:08:22,080 --> 00:08:23,800 Speaker 5: of growth, a little over to in terms of inflation, 172 00:08:23,840 --> 00:08:24,960 Speaker 5: but it's still pretty good. 173 00:08:24,960 --> 00:08:27,480 Speaker 2: So slowly not slough. Can you tell me the difference 174 00:08:27,480 --> 00:08:30,480 Speaker 2: between normalization and something more sinister? What would that look like? 175 00:08:30,480 --> 00:08:31,720 Speaker 2: What would change your mind? Ultimately? 176 00:08:32,559 --> 00:08:34,640 Speaker 5: Well, this is a this is a very stable sort 177 00:08:34,679 --> 00:08:38,480 Speaker 5: of it's kind of like this very stable machine that 178 00:08:38,520 --> 00:08:42,040 Speaker 5: sort of just just pumps out twos in terms of 179 00:08:42,040 --> 00:08:45,559 Speaker 5: growth and inflation. What could change that is you know, 180 00:08:45,640 --> 00:08:48,520 Speaker 5: something will change it ashock or be a big policy change, 181 00:08:48,520 --> 00:08:50,160 Speaker 5: and we're just talking about you know, I do think 182 00:08:50,160 --> 00:08:54,320 Speaker 5: that what happened on Thursday meaningfully increases the likelihood of 183 00:08:54,360 --> 00:08:58,160 Speaker 5: a Republican sweep in November. If you know, if Donald 184 00:08:58,280 --> 00:09:01,120 Speaker 5: if Joe Biden is the candidate, is quite possible, a 185 00:09:01,160 --> 00:09:03,720 Speaker 5: lot of independence will stay at home, and so Republicans 186 00:09:03,760 --> 00:09:06,640 Speaker 5: will sweep. Now if they sweep, if you take Donald 187 00:09:06,640 --> 00:09:10,839 Speaker 5: trumpet his word, you've got much higher tariffs, and now 188 00:09:10,920 --> 00:09:15,680 Speaker 5: tariffs are elixur for stagflation, tariff's slow growth and push 189 00:09:15,760 --> 00:09:18,160 Speaker 5: up inflation. At the same time, if you took him 190 00:09:18,480 --> 00:09:21,280 Speaker 5: at his word on immigration, you'd the economy come to 191 00:09:21,520 --> 00:09:27,960 Speaker 5: a halt because of the deportation of unreaded immigrants or 192 00:09:28,600 --> 00:09:32,280 Speaker 5: illegal immigrants. But I'm not sure if we've take them 193 00:09:32,280 --> 00:09:34,720 Speaker 5: it as a word. I think history suggests that perhaps 194 00:09:34,720 --> 00:09:38,120 Speaker 5: it would be optimistic or not optimistic. But it would 195 00:09:38,160 --> 00:09:40,439 Speaker 5: be foolish to take him at his word and this stuff. 196 00:09:40,480 --> 00:09:42,120 Speaker 5: But still something to think about it. I mean, some 197 00:09:42,679 --> 00:09:45,600 Speaker 5: policy shop could absolutely tip this economy into into recession. 198 00:09:45,640 --> 00:09:48,800 Speaker 1: Oh on a second, John said that basically Friday was 199 00:09:48,800 --> 00:09:51,520 Speaker 1: the first day of this election cycle, at least for markets. 200 00:09:52,000 --> 00:09:56,000 Speaker 1: How much do you actually rearrange what you think about 201 00:09:56,280 --> 00:09:59,000 Speaker 1: how to position in markets as a response to this 202 00:09:59,040 --> 00:10:01,199 Speaker 1: idea that you think that they're is a greater likelihood 203 00:10:01,440 --> 00:10:02,440 Speaker 1: of a Republican suite? 204 00:10:02,480 --> 00:10:04,320 Speaker 5: Oh, you do. It does make a difference. I mean, 205 00:10:04,400 --> 00:10:08,640 Speaker 5: let me give you one example, the twenty seventeen tax cuts. 206 00:10:09,280 --> 00:10:13,160 Speaker 5: If Joe Biden is re elected, then some of those 207 00:10:13,200 --> 00:10:15,440 Speaker 5: tax cuts will be standing beyond twenty five, but not 208 00:10:15,520 --> 00:10:17,760 Speaker 5: all of them. If Donald Trump is actually I expect 209 00:10:17,760 --> 00:10:19,360 Speaker 5: that whole thing to go through. And if you add 210 00:10:19,400 --> 00:10:21,200 Speaker 5: that to what the CBO is already looking at in 211 00:10:21,240 --> 00:10:23,199 Speaker 5: terms of the growth of the debt, the debt is 212 00:10:23,200 --> 00:10:27,040 Speaker 5: a share of GDP by the early twenty thirty is 213 00:10:27,040 --> 00:10:28,679 Speaker 5: going to be about one hundred and thirty five percent 214 00:10:28,720 --> 00:10:31,439 Speaker 5: as opposed to one hundred twenty you know, one hundred 215 00:10:31,440 --> 00:10:34,200 Speaker 5: and twenty two percent. So you're going to have significantly 216 00:10:34,240 --> 00:10:37,320 Speaker 5: more debt if we extend all these these tax cuts, 217 00:10:38,120 --> 00:10:40,400 Speaker 5: and that means a higher level of long term interest rates. 218 00:10:40,720 --> 00:10:42,480 Speaker 1: So, in other words, are you more bearish and long 219 00:10:42,600 --> 00:10:46,600 Speaker 1: term bonds right now than you were, say Thursday morning? 220 00:10:47,880 --> 00:10:49,920 Speaker 5: Yes, I think I think it would be a rational 221 00:10:49,920 --> 00:10:51,120 Speaker 5: thing to be that way. 222 00:10:51,200 --> 00:10:53,839 Speaker 2: Yes, let's build on that a little bit more. If 223 00:10:53,840 --> 00:10:56,600 Speaker 2: that's how you've responded to Thursday night, How should Sham 224 00:10:56,679 --> 00:10:58,640 Speaker 2: and Power respond to this, because surely has the fact 225 00:10:58,640 --> 00:11:00,640 Speaker 2: that they're sent to the equations for money policy looking 226 00:11:00,679 --> 00:11:02,000 Speaker 2: now twelve months and beyond. 227 00:11:02,800 --> 00:11:04,920 Speaker 5: No, I think that, to be honest, I think that's 228 00:11:04,960 --> 00:11:08,280 Speaker 5: too cute. I think he should make policy for the 229 00:11:08,280 --> 00:11:11,600 Speaker 5: economy that he's got, because it's I mean, I think 230 00:11:11,600 --> 00:11:13,720 Speaker 5: we can change our views a little bit here, but 231 00:11:13,880 --> 00:11:18,000 Speaker 5: he always sort of takes monetary policy as given. Right now, 232 00:11:18,120 --> 00:11:20,920 Speaker 5: markets are pricing in about a seventy percent shot of 233 00:11:21,040 --> 00:11:22,880 Speaker 5: raycod in September, and I think that still makes sense 234 00:11:23,040 --> 00:11:25,600 Speaker 5: because what I'm saying earlier on about a dawn shift 235 00:11:25,640 --> 00:11:27,400 Speaker 5: and growth is real. That's all we got right now. 236 00:11:27,600 --> 00:11:32,760 Speaker 5: What happens after the election does depend on how policies 237 00:11:32,800 --> 00:11:36,280 Speaker 5: are implemented, but he can't really make policy based on 238 00:11:36,360 --> 00:11:39,120 Speaker 5: how the election might turn out and then what a 239 00:11:39,200 --> 00:11:41,880 Speaker 5: particular configuration Washington might mean for policy. It was just 240 00:11:41,920 --> 00:11:42,480 Speaker 5: too far out of there. 241 00:11:42,600 --> 00:11:44,320 Speaker 2: Can we think back to twenty seven, seen when we 242 00:11:44,360 --> 00:11:46,920 Speaker 2: got those tax counts from the Trump presidency at the time, 243 00:11:47,240 --> 00:11:49,079 Speaker 2: how they chair to the Federal Reserve at that point, 244 00:11:49,080 --> 00:11:51,880 Speaker 2: how the Federal Reserve adapted given they had to wait 245 00:11:51,920 --> 00:11:53,480 Speaker 2: for the policy, they had to waite for it to 246 00:11:53,480 --> 00:11:54,880 Speaker 2: be delivered, and they had to wait and see what 247 00:11:55,000 --> 00:11:56,720 Speaker 2: ultimately if it does the economy. 248 00:11:57,080 --> 00:11:59,600 Speaker 5: Well, they're also getting a lot of incoming from the administration, 249 00:11:59,640 --> 00:12:02,120 Speaker 5: which is which is very unusual. But the administration was 250 00:12:02,160 --> 00:12:05,120 Speaker 5: trying to bully them into easy monetary policy, and we 251 00:12:05,160 --> 00:12:07,840 Speaker 5: did actually end up in twenty nineteen with very easy 252 00:12:07,880 --> 00:12:11,040 Speaker 5: monetary policy, given an eclumny in which inflation was actually 253 00:12:11,040 --> 00:12:15,080 Speaker 5: beginning to build. So, I mean, I think there's a 254 00:12:15,120 --> 00:12:18,200 Speaker 5: real question again, if Donald Trump is elected and he 255 00:12:18,280 --> 00:12:21,800 Speaker 5: has a Republican Senate, does it does he simply does 256 00:12:21,840 --> 00:12:25,280 Speaker 5: he want to replace Chairman Powell? And it's you know, 257 00:12:25,320 --> 00:12:28,040 Speaker 5: I'm not a psychologists chair. It's a really question what 258 00:12:28,080 --> 00:12:30,960 Speaker 5: the priorities would be for Donald Trump if you found 259 00:12:31,000 --> 00:12:32,200 Speaker 5: himself in the White House. 260 00:12:32,200 --> 00:12:34,800 Speaker 1: Again, there's another question on top of all of this, 261 00:12:35,160 --> 00:12:38,240 Speaker 1: which is just how much leverage the next president's going 262 00:12:38,320 --> 00:12:41,440 Speaker 1: to have with respect to pushing different levers given the 263 00:12:41,520 --> 00:12:44,960 Speaker 1: economic fragilities that we started this conversation talking about. We 264 00:12:45,080 --> 00:12:48,320 Speaker 1: began by talking about the second quarter and whether the 265 00:12:48,400 --> 00:12:51,000 Speaker 1: idea of the underperformance of the equal weight, the underperformance 266 00:12:51,000 --> 00:12:53,840 Speaker 1: of the Russell two thousand was a sign almost a 267 00:12:53,880 --> 00:12:56,360 Speaker 1: canary and the coal mine of some kind of weakness 268 00:12:56,559 --> 00:12:59,320 Speaker 1: under the hood that is pervasive and that really is 269 00:12:59,360 --> 00:13:02,000 Speaker 1: on a tipping point. Do you believe that to be 270 00:13:02,040 --> 00:13:03,640 Speaker 1: the case? What would you have to see this week 271 00:13:03,640 --> 00:13:05,880 Speaker 1: in the data coming out to give you that kind 272 00:13:05,920 --> 00:13:06,280 Speaker 1: of sense. 273 00:13:06,360 --> 00:13:08,760 Speaker 5: No, I don't think so, I don't expect to see 274 00:13:08,920 --> 00:13:11,360 Speaker 5: very rational signals coming out of the markets. To be honest, 275 00:13:11,400 --> 00:13:13,280 Speaker 5: I mean to me, when I look at the concentration 276 00:13:13,400 --> 00:13:17,560 Speaker 5: in the US equity market, it speaks to the euphoria 277 00:13:18,040 --> 00:13:21,679 Speaker 5: at the top, not rational thought at the bottom. I mean, 278 00:13:21,720 --> 00:13:23,160 Speaker 5: I think that's what's going. And if you look at 279 00:13:23,280 --> 00:13:25,320 Speaker 5: the US share of global equity markets, the same thing. 280 00:13:25,320 --> 00:13:27,199 Speaker 5: The US should not be sixty five percent of global 281 00:13:27,200 --> 00:13:30,000 Speaker 5: stock marketing camp. So when I see these things in markets, 282 00:13:30,040 --> 00:13:33,880 Speaker 5: it doesn't tell me that markets are rationally discounting an 283 00:13:33,880 --> 00:13:37,120 Speaker 5: oncoming economic slowdown. What it tells me is that people 284 00:13:37,240 --> 00:13:42,120 Speaker 5: are simply doubling down on existing bets because they think 285 00:13:42,160 --> 00:13:43,400 Speaker 5: this party's going to keep going. 286 00:13:43,880 --> 00:13:45,600 Speaker 1: Just to sort of put this all together, do you 287 00:13:45,679 --> 00:13:48,720 Speaker 1: believe that some people are investing in big tech simply 288 00:13:48,800 --> 00:13:51,920 Speaker 1: because they have all of this uncertainty, including the election 289 00:13:52,040 --> 00:13:55,360 Speaker 1: coming down the pike, including the sort of uncertainty around 290 00:13:55,400 --> 00:13:57,800 Speaker 1: the economy, that the one haven has been these tech 291 00:13:57,880 --> 00:14:00,200 Speaker 1: names that keeps delivering, and then if we can at 292 00:14:00,240 --> 00:14:04,080 Speaker 1: certainty that could actually encourage people to leave those names 293 00:14:04,120 --> 00:14:05,280 Speaker 1: and go elsewhere. 294 00:14:05,360 --> 00:14:08,240 Speaker 5: We were talking, we were talking on about our granddaughter. 295 00:14:08,360 --> 00:14:11,040 Speaker 5: We took her out of the park recently to blow 296 00:14:11,080 --> 00:14:12,800 Speaker 5: and she was blowing bubbles the first time, but it 297 00:14:12,800 --> 00:14:14,720 Speaker 5: didn't work very well because it was really windy and 298 00:14:14,720 --> 00:14:16,520 Speaker 5: all the bubbles were bursting. But if you had a 299 00:14:16,520 --> 00:14:19,080 Speaker 5: really calm day, bubbles grow great. And the problem is 300 00:14:19,080 --> 00:14:21,320 Speaker 5: we've got a really calm economy that just grows bubbles. 301 00:14:21,520 --> 00:14:23,760 Speaker 5: What's happening is people look at the economics if from 302 00:14:23,800 --> 00:14:26,240 Speaker 5: that's fine, and then they put it. They double down 303 00:14:26,280 --> 00:14:28,280 Speaker 5: on the bet. On megacap tech, they double down the 304 00:14:28,280 --> 00:14:30,280 Speaker 5: bet in the US. None of these bets are going 305 00:14:30,320 --> 00:14:33,720 Speaker 5: to get reversed until something shocks the system. And right 306 00:14:33,760 --> 00:14:35,280 Speaker 5: now the economic clims just to calm. 307 00:14:35,360 --> 00:14:37,760 Speaker 2: We'll say November provides that shot. Devid Caddy, it's got 308 00:14:37,840 --> 00:14:39,840 Speaker 2: to see it. Like I said, Devid Caddy, A JP Morgan, 309 00:14:49,960 --> 00:14:52,560 Speaker 2: I go down with rough mkm right in this. The 310 00:14:52,600 --> 00:14:54,840 Speaker 2: whole mark of good central banking is to try to 311 00:14:54,880 --> 00:14:57,960 Speaker 2: be forward looking so that the slippage between the neutral 312 00:14:58,080 --> 00:15:02,480 Speaker 2: rate and the policy right is kept minim minimum. Reacting relatedly, 313 00:15:02,760 --> 00:15:04,800 Speaker 2: is nothing more than a sets up for a rinse 314 00:15:04,840 --> 00:15:07,960 Speaker 2: and repeat boom to bust set of cycles. Michael John 315 00:15:08,040 --> 00:15:10,240 Speaker 2: just now for more, Michael, wonderful to catch up with you, buddy, 316 00:15:10,360 --> 00:15:12,120 Speaker 2: one of the very best working out where we are 317 00:15:12,160 --> 00:15:14,400 Speaker 2: in these sidecods. Can you tell me what's flashing red 318 00:15:14,600 --> 00:15:15,880 Speaker 2: on your dashboard right now? 319 00:15:15,880 --> 00:15:16,400 Speaker 1: What is it? 320 00:15:17,640 --> 00:15:19,920 Speaker 6: Thank you guys for having me on. I appreciate it. 321 00:15:20,200 --> 00:15:22,520 Speaker 3: Well, look, you know, I actually just took a look 322 00:15:22,520 --> 00:15:25,040 Speaker 3: at the Bloomberg Surprise Index, so I'll give you guys 323 00:15:25,040 --> 00:15:28,960 Speaker 3: that prop. It's rolling over, right, We've had a raft 324 00:15:29,000 --> 00:15:31,400 Speaker 3: of pretty weak data. We're going to get some additional 325 00:15:31,440 --> 00:15:36,280 Speaker 3: manufacturing figures this morning. About housing's been rolling over. We're 326 00:15:36,320 --> 00:15:40,160 Speaker 3: starting to see some you know, upward pressure on jobless claims. 327 00:15:40,200 --> 00:15:43,200 Speaker 3: First time claims still look pretty healthy, but continuing claims 328 00:15:43,200 --> 00:15:46,320 Speaker 3: are actually about thirty five percent off the lows of 329 00:15:46,400 --> 00:15:51,120 Speaker 3: the cycle. And despite pretty strong headline payroll growth, the 330 00:15:51,200 --> 00:15:56,120 Speaker 3: unemployment rate is moving up. It hasn't jumped drastically, but 331 00:15:56,240 --> 00:15:58,440 Speaker 3: we're six tents off the lows. And if you go 332 00:15:58,560 --> 00:16:02,720 Speaker 3: back historically, it's very unlikely that you see something something 333 00:16:02,800 --> 00:16:06,920 Speaker 3: like that without the beginning of a recession, not far 334 00:16:07,000 --> 00:16:10,720 Speaker 3: off or actually in it, and you don't realize it. 335 00:16:11,280 --> 00:16:14,000 Speaker 3: And so I agree with the quote from Muhammad that 336 00:16:14,040 --> 00:16:16,640 Speaker 3: you played earlier. I think that the risk here is 337 00:16:16,680 --> 00:16:20,240 Speaker 3: because the Fed is dealing with the aftermath of this 338 00:16:20,320 --> 00:16:25,240 Speaker 3: two year inflation overshoot. Once bitten, twice shy most likely. 339 00:16:25,280 --> 00:16:26,720 Speaker 3: I think they're going to be a bit laid in, 340 00:16:26,760 --> 00:16:28,560 Speaker 3: a bit behind the curve here, Michael. 341 00:16:28,600 --> 00:16:31,320 Speaker 2: When clients say, we're just normalizing, that's all this is. 342 00:16:31,440 --> 00:16:34,000 Speaker 2: We're just normalizing. It's nothing worse than that. How'd you 343 00:16:34,120 --> 00:16:34,880 Speaker 2: count to that point? 344 00:16:36,960 --> 00:16:38,880 Speaker 3: Yeah, well, I mean I think it really you know, 345 00:16:38,960 --> 00:16:41,880 Speaker 3: normal depends on the state of the business cycle, and 346 00:16:42,000 --> 00:16:44,680 Speaker 3: so the first mistake the FED made, I think was 347 00:16:44,720 --> 00:16:47,720 Speaker 3: a bit of a primacy recency bias. So the previous 348 00:16:47,760 --> 00:16:51,840 Speaker 3: cycle was very low, very low inflation, very low growth 349 00:16:52,520 --> 00:16:55,080 Speaker 3: in a long period of very low rates, and so 350 00:16:55,160 --> 00:16:57,280 Speaker 3: the FED really acted aggressively. 351 00:16:57,320 --> 00:17:00,200 Speaker 6: Fiscal policy was much more aggressive. 352 00:17:00,160 --> 00:17:01,960 Speaker 3: And no one wanted to believe that we were in 353 00:17:01,960 --> 00:17:03,960 Speaker 3: a V shaped recovery with high inflation. 354 00:17:04,720 --> 00:17:06,880 Speaker 6: So it took a while for the FED. 355 00:17:06,680 --> 00:17:09,200 Speaker 3: To acknowledge that, and they were way behind the curve, 356 00:17:09,680 --> 00:17:12,520 Speaker 3: and so normalizing ment raising rates much more and than 357 00:17:12,560 --> 00:17:16,480 Speaker 3: holding them higher. And now things are decelerating. You know, 358 00:17:16,480 --> 00:17:19,959 Speaker 3: we haven't totally fallen off a cliff just yet. But 359 00:17:20,160 --> 00:17:23,679 Speaker 3: if the cycle continues to weaken and the FED is 360 00:17:23,800 --> 00:17:26,760 Speaker 3: just standing pad. Then you have essentially a passive tightening 361 00:17:26,800 --> 00:17:30,360 Speaker 3: and monetary conditions and that's the end of the cycle. 362 00:17:30,960 --> 00:17:33,240 Speaker 6: So you know, business cycles don't last forever. 363 00:17:33,720 --> 00:17:36,399 Speaker 3: And the reason for that is it's very difficult for 364 00:17:36,480 --> 00:17:39,560 Speaker 3: the Fed to be precise in tracking the neutral interest rate. 365 00:17:39,880 --> 00:17:42,440 Speaker 3: And Paul talked about this in the last press conference. 366 00:17:43,320 --> 00:17:46,520 Speaker 3: So you know, normal is very much a relative term. 367 00:17:46,600 --> 00:17:48,800 Speaker 3: It depends on the state of the business cycle. So 368 00:17:49,320 --> 00:17:51,000 Speaker 3: you know, five and a half, you know, five and 369 00:17:51,000 --> 00:17:53,560 Speaker 3: a quarter to five and a half percent policy rates, 370 00:17:54,040 --> 00:17:57,639 Speaker 3: you know a year ago may have been appropriate, but 371 00:17:57,920 --> 00:18:00,040 Speaker 3: you know, moving into the fall that you know that 372 00:18:00,160 --> 00:18:02,520 Speaker 3: might be much too high for the state of the 373 00:18:02,600 --> 00:18:03,320 Speaker 3: labor market. 374 00:18:03,640 --> 00:18:05,960 Speaker 1: Given all of that, and given the data that we 375 00:18:06,040 --> 00:18:09,199 Speaker 1: have coming out this week, what's the most important that 376 00:18:09,280 --> 00:18:12,280 Speaker 1: you're looking at to really gauge how urgent the FEDS 377 00:18:12,280 --> 00:18:13,680 Speaker 1: should feel about cutting rates. 378 00:18:15,160 --> 00:18:18,240 Speaker 3: Yeah, I mean, I think the labor market data on 379 00:18:18,400 --> 00:18:22,360 Speaker 3: Friday should be interesting, you know, and whether we ever 380 00:18:22,440 --> 00:18:26,080 Speaker 3: seen this, whether we end up seeing this divergence between 381 00:18:27,000 --> 00:18:31,840 Speaker 3: the two labor market surveys being resolved anytime soon. So 382 00:18:31,880 --> 00:18:35,119 Speaker 3: the unemployment rate comes from a separate survey of households. 383 00:18:35,119 --> 00:18:38,040 Speaker 3: It's generally viewed as not as reliable, but it does 384 00:18:38,080 --> 00:18:41,000 Speaker 3: tend to move at turning points, and the unemployment rate 385 00:18:41,040 --> 00:18:45,359 Speaker 3: itself is really only revised once. So as a singular 386 00:18:45,440 --> 00:18:48,959 Speaker 3: summary statistic, it's a you know, I think it's a 387 00:18:49,000 --> 00:18:53,480 Speaker 3: super robust coincidence to slightly lagging indicator, and you know, 388 00:18:53,560 --> 00:18:56,240 Speaker 3: can at least confirm what's happening to the business cycle. 389 00:18:56,280 --> 00:18:59,000 Speaker 3: Are you growing at trend above trend, below trend? If 390 00:18:59,040 --> 00:19:01,960 Speaker 3: the unemployment rate is inching higher, you know, that's a 391 00:19:02,119 --> 00:19:06,000 Speaker 3: very strong signal that the economy potentially is if it 392 00:19:06,040 --> 00:19:09,159 Speaker 3: is growing, is growing below the growth rate of potential, 393 00:19:09,760 --> 00:19:13,159 Speaker 3: and so you know that that should potentially be setting 394 00:19:13,160 --> 00:19:15,000 Speaker 3: off some alarm bells at the Federal Reserve. 395 00:19:15,280 --> 00:19:17,280 Speaker 6: You know they are watching it. But you know, other 396 00:19:17,400 --> 00:19:20,160 Speaker 6: data hasn't, you know, has looked more robust. So there's 397 00:19:20,200 --> 00:19:21,320 Speaker 6: a debate going on. 398 00:19:21,520 --> 00:19:23,960 Speaker 1: Mike, what's the what's the signal for markets? Right now? 399 00:19:24,119 --> 00:19:28,000 Speaker 1: We talk about the divergence between the benchmark index level 400 00:19:28,000 --> 00:19:30,359 Speaker 1: the S and P of almost four percent in the 401 00:19:30,400 --> 00:19:33,440 Speaker 1: second quarter, even though equal weight was down about three percent. 402 00:19:34,000 --> 00:19:36,520 Speaker 1: Is this a feature of the market strength or a 403 00:19:36,560 --> 00:19:38,080 Speaker 1: bug of that market strength? 404 00:19:39,840 --> 00:19:40,800 Speaker 6: Well, I think it's both. 405 00:19:40,840 --> 00:19:43,480 Speaker 3: I mean it's a it's a feature of the AI frenzy. 406 00:19:43,640 --> 00:19:47,200 Speaker 3: So the S and P five hundred has had just tremendous, 407 00:19:47,280 --> 00:19:51,440 Speaker 3: tremendous gains and those have been driven essentially by six 408 00:19:51,560 --> 00:19:54,560 Speaker 3: or seven stocks and two sectors on a year to 409 00:19:54,680 --> 00:19:57,560 Speaker 3: date basis. You know, the small caps are sucking wind, 410 00:19:57,760 --> 00:20:02,000 Speaker 3: transports are weak, and so those areas might tell us 411 00:20:02,080 --> 00:20:04,679 Speaker 3: more about the state of the US business cycle than 412 00:20:04,720 --> 00:20:06,880 Speaker 3: what's happening with the S and P five hundred, which 413 00:20:06,920 --> 00:20:11,040 Speaker 3: is so AI driven at the at the moment, and 414 00:20:11,080 --> 00:20:14,159 Speaker 3: so it is an interesting divergence. I mean, the transports 415 00:20:14,200 --> 00:20:17,600 Speaker 3: have been have been underperforming the S and P five 416 00:20:17,680 --> 00:20:19,840 Speaker 3: hundred in a way that you see at the end 417 00:20:19,920 --> 00:20:23,920 Speaker 3: of business cycles. And so that's definitely something to keep 418 00:20:23,920 --> 00:20:26,600 Speaker 3: an eye on. If we can think in a multi year, 419 00:20:26,680 --> 00:20:29,280 Speaker 3: you know, over a multi year horizon, you know, few 420 00:20:29,359 --> 00:20:31,280 Speaker 3: can do that, but you know, I think some of 421 00:20:31,320 --> 00:20:34,200 Speaker 3: these areas that have lagged, in particular the small caps, 422 00:20:34,520 --> 00:20:37,000 Speaker 3: I do think if we're thinking in a five or 423 00:20:37,040 --> 00:20:40,440 Speaker 3: a ten year framework, you know, I think there's more 424 00:20:40,520 --> 00:20:42,720 Speaker 3: upside there than maybe some of the areas that have 425 00:20:42,840 --> 00:20:45,560 Speaker 3: performed so well. And I'm not saying, you know, step 426 00:20:45,600 --> 00:20:48,520 Speaker 3: out there and start shorting tech tech stocks today. 427 00:20:48,560 --> 00:20:50,439 Speaker 6: I mean, anyone who's tried to do that has been. 428 00:20:50,359 --> 00:20:53,360 Speaker 3: Totally run over. So, you know, a frenzy. The old 429 00:20:53,440 --> 00:20:55,760 Speaker 3: quote is they go much further than you think, but 430 00:20:55,840 --> 00:21:00,480 Speaker 3: they don't correct by going sideways. So you know, dangerous there. 431 00:21:00,520 --> 00:21:02,760 Speaker 3: But I think if we're if we're thinking longer term, 432 00:21:02,800 --> 00:21:05,560 Speaker 3: we probably have to pull in the expectations for the 433 00:21:05,640 --> 00:21:07,399 Speaker 3: S and P five hundred and then maybe be a 434 00:21:07,400 --> 00:21:11,440 Speaker 3: bit more optimistic about some of the areas that have blagged. 435 00:21:11,640 --> 00:21:12,800 Speaker 2: I was going to say, that's what we call a 436 00:21:12,840 --> 00:21:16,560 Speaker 2: trade for the brave. Michael Data of roth Amkam. This 437 00:21:16,760 --> 00:21:21,280 Speaker 2: is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, 438 00:21:21,320 --> 00:21:24,280 Speaker 2: and geopolitics. You can watch the show live on Bloomberg 439 00:21:24,280 --> 00:21:27,439 Speaker 2: TV weekday mornings from six am to nine am Eastern. 440 00:21:27,760 --> 00:21:31,120 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 441 00:21:31,119 --> 00:21:33,800 Speaker 2: you listen, and as always on the Bloomberg Terminal and 442 00:21:33,840 --> 00:21:35,040 Speaker 2: the Bloomberg Business app.