Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordert. Join us each day
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Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. President Donald Trump signing
Speaker 2: an executive order putting his trade deal with Japan into place.
Speaker 2: The agreement will apply a baseline fifteen percent off on
Speaker 2: nearly all Japanese imports entering the US, including automobiles. The
Speaker 2: government of Japan has also agreed to invest five hundred
Speaker 2: and fifty billion dollars in the United States.
Speaker 3: Joining us.
Speaker 2: Now, I'm very pleased to say, is the United States
Speaker 2: Secretary of Commas, Howard Lutner. Mister Secretary, Welcome to the programs.
Speaker 2: I know you wanted to talk about Japan, so let's
Speaker 2: do that. I want you to share with us the
Speaker 2: terms of this five hundred and fifty billion dollar investment fund,
Speaker 2: a collpitarive course of the negotiations that you've been helping
Speaker 2: to lead with the Japanese. Can you share with us
Speaker 2: the details this morning, sir.
Speaker 4: Sure.
Speaker 5: So this is a completely different kind of trade deal
Speaker 5: that anyone's ever seen before. So the idea is, the
Speaker 5: Japanese government will give five hundred and fifty billion dollars
Speaker 5: to Donald Trump to invest as the United States and
Speaker 5: Donald Trump sees fit in America. So the Japanese will
Speaker 5: get back their money and ninety percent of the profits
Speaker 5: will go to the American citizens, the American taxpayer. So
Speaker 5: Donald Trump, I'll give you an example. We buy all
Speaker 5: of our antibiotics, generic antibiotics in China. So Donald Trump
Speaker 5: can say, let's go build generic pharmaceuticals in America. Let's
Speaker 5: build those antibiotics in America. The Japanese will fund it,
Speaker 5: and then we will have generic antibiotics in America, will
Speaker 5: no longer be reliant on China. So it's in his
Speaker 5: hands to invest. This is not ordinary foreign companies investing.
Speaker 5: This is not Mitsubishi building a plant in America. This
Speaker 5: is five hundred and fifty billion dollars by the Japanese
Speaker 5: government put in the hands of Donald Trump that he
Speaker 5: can then invest in America. It's amazing. I mean, it's
Speaker 5: the thing I am most proud of it. It's the
Speaker 5: most proud of ever been on a business deal I've
Speaker 5: ever done.
Speaker 2: So it sounds amazing. Do the Japanese think it's amazing?
Speaker 2: And have they codified this agreement?
Speaker 5: They have so yesterday it was all signed. So the
Speaker 5: President signed the EO, I signed the MoU with Minister
Speaker 5: A Kazawa in the Commerce Department. This is signed, it
Speaker 5: is written. So what happens is Donald Trump can select
Speaker 5: the project that he wants. We put a capital call
Speaker 5: into the Japanese, they send in the money, and we
Speaker 5: build the project in America. So if you think about this,
Speaker 5: five hundred and fifty billion dollars invested during Donald Trump's
Speaker 5: term is a half a point of GDP given to
Speaker 5: the United States of America's president by the Japanese government.
Speaker 4: I mean, this is amazing.
Speaker 5: In order to have a fifteen percent tariff and so
Speaker 5: they can keep making their cars in Japan.
Speaker 2: Let's just down the details, mister secretary. So the timeline
Speaker 2: you talked about the rest of the president's term, is
Speaker 2: the reclear timeline here, and what's the enforcement mechanism to
Speaker 2: make sure it happens.
Speaker 4: Well, two things.
Speaker 5: Number One, they've committed that they will meet the Capitol call.
Speaker 5: So when we're building a project, they will fund the
Speaker 5: project's building during the term this investment lasts through, meaning
Speaker 5: they will put out the money through the rest of
Speaker 5: Donald Trump's term. So January twenty twenty nine, and let's
Speaker 5: say halfway through and they've invested two hundred and fifty
Speaker 5: billion dollars, they stop.
Speaker 4: Saying, I don't want to send you any more money.
Speaker 4: The tariffs pack, you know, pop right back up.
Speaker 5: And they no longer receive the cash flow from these projects.
Speaker 5: They would all just stay with the United States of America.
Speaker 5: So there is just no way they're going to not
Speaker 5: fund these projects. And Donald Trump is going to deliver
Speaker 5: to the American people.
Speaker 4: And this deal is really it's.
Speaker 5: If you think about it, five hundred and fifty billion
Speaker 5: dollars of Japanese government's money in order to buy down
Speaker 5: their tariff in Donald Trump's hands for his availability to
Speaker 5: invest and build in America. Alaska pipeline scale fifty billion,
Speaker 5: one hundred billion.
Speaker 4: Donald Trump wants.
Speaker 5: To unleash the Alaska pipelines. The Japanese will finance it,
Speaker 5: and it's great for America.
Speaker 4: It's fantastic.
Speaker 2: It's the Secretary to appreciate. We've got a number of
Speaker 2: topics to get through with you in a short amount
Speaker 2: of time, so I wanted to turn to one of
Speaker 2: the issues in India. This came from the present this
Speaker 2: morning on social media. It looks like we've lost India
Speaker 2: and Russia for that matter, to deepest darkest China. May
Speaker 2: they have a long and prosperous future together. This relationship
Speaker 2: between the US and India has clearly soured.
Speaker 5: You.
Speaker 2: Your South said earlier this year that India rubbed the
Speaker 2: US the wrong way. There's an understandable tension that continues
Speaker 2: to build. But they're not the only ones buying Russian energy.
Speaker 2: The Chinese are buying Russian energy, and for that matter,
Speaker 2: the Europeans too. And I think there's a sense from
Speaker 2: the Indian side, mister Secretary, that they feel singled out,
Speaker 2: perhaps unfairly. What's your comment, your message for them this morning?
Speaker 5: Well, remember before the Russian conflict, the Indians bought less
Speaker 5: than two percent of their oil from Russia. Less than
Speaker 5: two percent and now they're buying forty percent.
Speaker 4: Of their oil from Russia.
Speaker 5: What they're doing is because the oil is sanctioned, it's
Speaker 5: really really cheap because the Russia trying to find people
Speaker 5: to buy it, and so the Indians have just decided, ah,
Speaker 5: the heck with it, let's buy cheap and make a
Speaker 5: ton of money.
Speaker 4: But you know what, that is just plain wrong.
Speaker 5: It's ridiculous, and they either need to decide which side they.
Speaker 4: Want to be on. You know what's funny is I
Speaker 4: remember the Chinese.
Speaker 5: Sell the Chinese, Well, we're always willing to talk. The
Speaker 5: Chinese sell to us, the Indians sell to us. They're
Speaker 5: not going to be able to sell to each other.
Speaker 5: We are the consumer of the world. People have to
Speaker 5: remember it's our thirty trillion dollar economy that is the
Speaker 5: consumer of the world. So eventually they all have to
Speaker 5: come back to the customer, because we all know eventually
Speaker 5: the customer is always right.
Speaker 1: When you are talking with India, mister Secretary, I know
Speaker 1: a lot of companies in the US have shifted manufacturing
Speaker 1: to India from China's there's a real interest in this
Speaker 1: in terms of their costs. How much do you feel
Speaker 1: like you've lost leverage as a result of the court
Speaker 1: case that came out fairly recently.
Speaker 5: We haven't lost any thing with respect to the court case.
Speaker 4: If you look at the.
Speaker 5: Descent right, it was seven to four. Read the descent cheat.
Speaker 5: The current Chief Justice sided with President Trump, the former
Speaker 5: Chief Justice sided with President Trump, and the incoming Chief
Speaker 5: Justice sided with President Trump. And the smartest guy on
Speaker 5: the bench, which is well known who the smartest guy.
Speaker 4: On the bench is, he sided with Donald Trump.
Speaker 5: So I think you are going to see the Supreme
Speaker 5: Court side with Donald Trump. And I don't think we've
Speaker 5: lost leverage. What we've lost is that India doesn't yet
Speaker 5: want to open their market. Stop buying Russian oil, right,
Speaker 5: and stop being a part of bricks right. They're the
Speaker 5: vowel between Russia and China. If that's who you want
Speaker 5: to be, go be it. But either support the dollar,
Speaker 5: support the United States of America, support your biggest client,
Speaker 5: who was the American consumer, or I guess you're going
Speaker 5: to be a fifty percent tariff and let's see how
Speaker 5: long this lasts.
Speaker 1: It seems like there's been a hardening of the line,
Speaker 1: both with President Trump as well as Mody, and a
Speaker 1: sense that there isn't really a coming together. In fact,
Speaker 1: that meeting with Jujenpang and Vladimir Putin and FRIM Minister
Speaker 1: Mody seemed to indicate a coalescing of the bricks.
Speaker 3: Do you see anywhere in.
Speaker 1: The next month two months any type of deal or
Speaker 1: backing down to a lower rate with India.
Speaker 4: I would expect.
Speaker 5: You saw it in Canada, right the Carney got elected
Speaker 5: with this term elbows up, meaning let's fight with America.
Speaker 5: They put on retaliatory tariffs. They were all bravado, and
Speaker 5: what happened? Their GDP negative one point six percent, unemployment
Speaker 5: rocketing towards eight percent, and what did Carney just do?
Speaker 5: He just finally finally dropped his retaliatory tariffs. So I
Speaker 5: think what happens is it's all bravado because you think
Speaker 5: it feels good to fight with the biggest client in
Speaker 5: the world. But eventually your businesses are going to say,
Speaker 5: you've got to stop this and go make your deal
Speaker 5: with America. So I think, yes, in a month or
Speaker 5: two months, I think India is going to be at
Speaker 5: the table and they're going to say they're sorry, and
Speaker 5: they're going to try to make a deal with Donald Trump.
Speaker 5: And it will be on Donald Trump's desk how he
Speaker 5: wants to deal with Mody and we leave that to him.
Speaker 4: That's why he's the president.
Speaker 2: Speaking of making a deal. I understand the Swiss are
Speaker 2: in town, just tearing that the Swiss Vice president has
Speaker 2: turned up in the Nat of Stice again. Is there
Speaker 2: a meeting on the agenda to today going into the weekend.
Speaker 5: Yes, so I'm going to meet with the Swiss delegation.
Speaker 5: They're coming in to make a new proposal, and the
Speaker 5: Trump administration is.
Speaker 4: Always willing to listen.
Speaker 5: But you have to remember, you know, the Swiss like
Speaker 5: to say they're a small country of only nine million people,
Speaker 5: a small rich country.
Speaker 4: And how do they become so rich?
Speaker 5: They sell us pharmacuit articles like it's going out of style,
Speaker 5: all right. They make so much money off of America.
Speaker 5: That's why they're rich. So let's hear what they have
Speaker 5: to say. We'll discuss it with the president. You know,
Speaker 5: I'm not optimistic, but I'm always willing to listen, and
Speaker 5: Donald Trump is always.
Speaker 2: Why are you not optimistic? Traditionally there's been a decent relationship.
Speaker 2: Then the president's first term relied on the Swiss a
Speaker 2: lot when it came to foreign policy and developments in
Speaker 2: places like Iran. What's happened this time?
Speaker 4: Well, if you.
Speaker 5: Just consider trade, right, you know, the European Union, right,
Speaker 5: they open their market four hundred and fifty million people,
Speaker 5: twenty trillion dollar economy, and they say, well, take our
Speaker 5: tariffs down to zero. You the American exporters can sell
Speaker 5: us everything.
Speaker 4: I mean, how fantastic is that?
Speaker 5: And they say we'll pay you fifteen percent and you
Speaker 5: pay us nothing. I mean, that is really really attractive.
Speaker 5: Now you go to Switzerland, nine million people. I mean,
Speaker 5: they're going to offer the American exporter as compared to
Speaker 5: the size and scale by which they export and earn
Speaker 5: money off of us. So the idea is we need
Speaker 5: balanced in fair trade. And that's a difficult thing. Now
Speaker 5: you saw the Japanese. They decided to take a completely
Speaker 5: different path, and what they said is we will give
Speaker 5: Donald Trump the power to invest five hundred and fifty
Speaker 5: billion dollars as he at his direction, for the benefit
Speaker 5: of America.
Speaker 4: Now that's a different way of thinking.
Speaker 5: Now, if the Swiss come out of the box with
Speaker 5: a whole new way of thinking, I'm open minded. But
Speaker 5: if they just say our rich companies are going to
Speaker 5: buy more of America. I mean, that's what Donald Trump
Speaker 5: is complaining about. You realized in nineteen eighty five, we
Speaker 5: America owned more of the rest of the world. We
Speaker 5: owned one hundred and just about one hundred and fifty
Speaker 5: billion of the rest of the world. And you know,
Speaker 5: in twenty twenty five, when Donald Trump takes office, the
Speaker 5: rest of the world owns.
Speaker 4: Twenty six trillion more.
Speaker 5: Of us because they just use all the money they
Speaker 5: make off of us to buy us, and sooner or
Speaker 5: later they're just going to own us. And Donald Trump
Speaker 5: has said enough of this, We are going to own
Speaker 5: ourselves going forward.
Speaker 2: Mister Secretary, I know you're your own boss on your
Speaker 2: own time, but your team is telling us we've got
Speaker 2: to go shortly, so I'm gonna squeeze out a few
Speaker 2: more minutes if I can. At a thirty Eastern time.
Speaker 2: We're meant to get a job's number. This is what
Speaker 2: we heard from the BLS just moments ago that the
Speaker 2: Bureau of Labor Statistics says it's experiencing a technical problem
Speaker 2: and data retrieval tools are currently not available on the website. Sir,
Speaker 2: are we going to see a number in ten minutes time.
Speaker 5: I don't know if we're gonna see the number, but
Speaker 5: I tell you it makes it crystal clear. You should
Speaker 5: have fired the person who was running that group right.
Speaker 5: Because it didn't fire them two weeks ago, you sure
Speaker 5: at heck would be firing them today. So they need
Speaker 5: new leadership in BLS, that's for sure.
Speaker 4: They need new tech and BLS, that's for sure.
Speaker 5: And Donald Trump needs to rely upon the numbers. America
Speaker 5: needs to rely upon the numbers. You can't have these
Speaker 5: bent former administration people who have a view and who
Speaker 5: want to harm the president. We need accurate numbers coming
Speaker 5: from BLS and finally we'll have new leadership.
Speaker 4: To deliver it.
Speaker 1: Mister secretary, you're also going to promise new resources for
Speaker 1: them to increase their collection and increase some of their
Speaker 1: staff to go out and make this data accurate.
Speaker 4: Yeah.
Speaker 5: Can you imagine they had people calling around. I mean,
Speaker 5: come on, computers, computers, Wow, it's twenty twenty five and
Speaker 5: a half. Computers, new resources, new technology, wildly better information.
Speaker 5: That's what America demands. That's what Donald Trump's going to
Speaker 5: give them. And you just need to change leadership every
Speaker 5: once in a while and make sure we get it right.
Speaker 5: I'm excited about what's coming. Of course, you fire the person,
Speaker 5: what do you learn? You learn that their technology is
Speaker 5: just voet.
Speaker 4: But we'll fix it. We'll fix it.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Payrolls report did drop on time four minutes ago twenty
Speaker 2: two thousand downside surprise seventy five was the estimate. You're
Speaker 2: looking at a three month average now for payrolls of
Speaker 2: just twenty nine thousand captured in the bond market, with
Speaker 2: lower yields in the FX market, with a week of
Speaker 2: dollar inequities, equities still positive on the session by a
Speaker 2: quarter of one percent on the S and P five hundred,
Speaker 2: the NASNAK sell up nicely by zero point seven. The russell,
Speaker 2: after a seven percent surge in August, up again this morning.
Speaker 1: This idea that this could lead to a reignition of
Speaker 1: the cycle, and it goes back to the question that
Speaker 1: you asked yesterday. Is this a FED that will be
Speaker 1: cutting into something of a reacceleration or that will cut
Speaker 1: and spur that reacceleration. Right now, the market, based on
Speaker 1: the market activity, seems to think that raycut could be
Speaker 1: very helpful. In allowing the reignition of cycle.
Speaker 2: We've got a fantastic lineup for the next twenty five
Speaker 2: minutes or so. We can kick it off with Stephanie
Speaker 2: Roth of Wolf Research. Stephanie Gimonic. No morning, you've had
Speaker 2: five minutes to go over this, so what's your first take?
Speaker 6: First take is another week summer employment report. Immigration seems
Speaker 6: to be having another impact on the data. When you
Speaker 6: look at the household survey, the foreign worm population was
Speaker 6: again sort of the weaker part of it. Looking ahead,
Speaker 6: we expect that you'll have one more piece of negative news.
Speaker 6: So September ninth, once we get the annual preliminary benchmark revisions,
Speaker 6: that's going to be revised down to the tune of
Speaker 6: something like six hundred thousand. That's going to be another
Speaker 6: really bad negative headline. Then beyond that, we think that
Speaker 6: the signs will look a little bit better. So we
Speaker 6: have another couple of weeks of this. It should be
Speaker 6: a dubbsh September FMC, And then beyond that we think
Speaker 6: that the tides could turn up a little bit, and
Speaker 6: then you'll start to see the economy start to pick
Speaker 6: up cyclically. You'll have a bit of a trough and
Speaker 6: then the dynamics could look.
Speaker 3: A bit different.
Speaker 2: The first thing you went to, though, was population growth.
Speaker 2: Do you think there's still a big supply side story
Speaker 2: that's under appreciated in these numbers.
Speaker 6: Yes, I do. I think that's a large part of
Speaker 6: what's going on. Of course, it's hard to sort of
Speaker 6: decipher months a month, but if you look at the
Speaker 6: household survey, foreign born employment was down three hundred and
Speaker 6: forty two thousand, when native born was up four hundred
Speaker 6: and fifty one thousand. The label force participation rate for
Speaker 6: foreign born take down again, So it does look like
Speaker 6: you're seeing some continued weakness out.
Speaker 3: Of the immigration.
Speaker 6: That's helps explain why PARA growth was negative. In June,
Speaker 6: we had five hundred thousand people from the HNV program
Speaker 6: whose visas got expired overnight from May to June.
Speaker 1: If that's the case, why aren't we seeing faster wage growth?
Speaker 1: Why are we seeing the underemployment rate going up? Why
Speaker 1: are we seeing the average number of hours worked in
Speaker 1: a week kind of stay stagnant or even go down. Right,
Speaker 1: These are the sides of weakness that people look at
Speaker 1: on the corners and say, wait a second, there is
Speaker 1: something here that speaks to the demand side as much
Speaker 1: as there is this also supply side story.
Speaker 6: Yeah, I mean the wages were fine zo point three percent,
Speaker 6: which is an okay number, not a number that you
Speaker 6: would expect if the belid market is really falling apart.
Speaker 6: So what we're seeing is a combination of supplying demand.
Speaker 6: It's certainly not just a supply side story. The band
Speaker 6: is also softened, but when you look at for the
Speaker 6: months ahead, that demand should start to pick up as
Speaker 6: the tarif uncertainty starts to fade. So we had a
Speaker 6: lot of things, largely policy driven, that hit the economy
Speaker 6: over the summer that should go the other way later
Speaker 6: this year. But right now it's a combination of a
Speaker 6: supply side shock and also some significant hits to the
Speaker 6: demand side as well.
Speaker 2: Mam McKay standing by Mike, you've got some moll Yeah.
Speaker 7: John, to the issue you're just talking about now, I'm
Speaker 7: not sure it holds a lot of water. Because the
Speaker 7: civilian labor force grew by four hundred and thirty six
Speaker 7: thousand during the month, which is the biggest since April,
Speaker 7: and April was when the month that we saw the
Speaker 7: market the labor data start to weaken. The participation rate
Speaker 7: actually ticked up, and at this point it doesn't look
Speaker 7: like immigration played a big role.
Speaker 3: I have to mention here.
Speaker 7: That the BLS cautions on its website and in its
Speaker 7: literature not to use the foreign board native born population
Speaker 7: statistics to just tell you what happened this month, because
Speaker 7: there are statistical reasons that they don't. It's complicated. I
Speaker 7: won't go into it on the air, but I'm not
Speaker 7: sure that gives us a whole lot of information. It's
Speaker 7: been a talking point used by administrations from both parties,
Speaker 7: but I'm not sure that that makes a lot of difference.
Speaker 7: The biggest thing that we saw in the numbers here
Speaker 7: quickly is that leisure and hospitality, and also education and
Speaker 7: health are the only two categories that really show any
Speaker 7: growth at all. Education and health about forty six thousand,
Speaker 7: leisure hospitality twenty eight thousand. There are an awful lot
Speaker 7: of categories that lost jobs.
Speaker 3: During the month.
Speaker 7: I will point out that construction jobs were down by
Speaker 7: seven thousand, ADP had them up by sixteen thousand. And
Speaker 7: in that strange comment the President made last night about
Speaker 7: the payroll report, which suggested he already knew what the
Speaker 7: numbers were He said, it's all construction now, but it
Speaker 7: doesn't seem.
Speaker 3: To be construction.
Speaker 2: Mike McKay with Elysis might thank you, Stephanie. You were
Speaker 2: following that explanation. Please I want to give you some
Speaker 2: time to respond.
Speaker 3: Yeah, so, I mean, I think it's fair.
Speaker 6: The data are certainly volid a month a month, but
Speaker 6: if you look at the foreign born statistics out of
Speaker 6: the household survey, it's been fairly weak for the past
Speaker 6: couple of months. So it to the extent that, of
Speaker 6: course it's not a perfect picture, but we do know
Speaker 6: that there's significant crackdown from an immigration perspective that is
Speaker 6: likely having some impact. Although it's very difficult to get
Speaker 6: a clean read out of the data. You saw the
Speaker 6: foreign born employment fall threeinge of forty two thousand in
Speaker 6: August four and sixteen in July. It's hard to say
Speaker 6: that there's no impact from an immigration perspective. Of course,
Speaker 6: it's difficult to get the exact precise numbers out of
Speaker 6: the household survey because it is notoriously validile as might
Speaker 6: just mention, yeah, but it's hard to say that there's
Speaker 6: no impact from immigrate Getting a range.
Speaker 2: Of responses already this morning. This from nil Data of Renmak.
Speaker 2: The Hawks have lost on their own terms. Employment growth
Speaker 2: is still calling and the unemployment rate is rising.
Speaker 1: You have right now one hundred percent chance of a
Speaker 1: rate cut baked in for later this month. So it
Speaker 1: seems like they are agreeing with his assessment and that
Speaker 1: on their own terms this would warrant a rate cut.
Speaker 1: Key question to me is what is the depth of
Speaker 1: the weakness. And I keep going to, yes, the bond
Speaker 1: market response, but that's actually less interesting to me than
Speaker 1: the stock market response to the fact that there is
Speaker 1: this belief that this is not great, but it's not
Speaker 1: so bad that our curtails the cyclical tilt that we've seen,
Speaker 1: and that to me is really the big question.
Speaker 2: Let's turn to Jeff Rosenberg on that he joined us
Speaker 2: from Blackrock. Jeff, welcome to the program, Sir. What do
Speaker 2: we always say the first move isn't always the right move,
Speaker 2: and let's see if this sticks. But the first move
Speaker 2: is stocks higher. What's your take?
Speaker 8: Yeah, the first move is stocks higher, and this is
Speaker 8: bad news. Is good news for the stock market, because
Speaker 8: the Fed's going to ride to the rescue and cut
Speaker 8: rates and the economy is not going to fall off
Speaker 8: a cliff. Financial conditions will help that. It's a little
Speaker 8: bit circular, but if the FED is going to underwrite
Speaker 8: the risk rally, then financial conditions will hold up confidence
Speaker 8: even if you're having a little bit of a slow
Speaker 8: down here on the demand side.
Speaker 3: So look, that's the initial read.
Speaker 8: You know, Russell two thousand, nasdak out performance is really
Speaker 8: quite notable. People piling into what has already been working.
Speaker 3: Because the FED is going to be behind that.
Speaker 8: And I think that, you know, on top of what
Speaker 8: Stephanie and you all were just talking about. Yeah, it's
Speaker 8: a weaker report, but it's a weaker report that solidifies
Speaker 8: twenty five. But it's really about and I think is
Speaker 8: where Lisa was about to go, you know, what's the
Speaker 8: path from here? Does this put October on the table?
Speaker 8: Does this put fifty on the table? But what it
Speaker 8: really puts on the table is a FED that gets
Speaker 8: back in motion for cutting rates. And if the economy
Speaker 8: is not falling off a cliff, that's a pretty good.
Speaker 3: Combination for risk assets.
Speaker 8: And that's why you're seeing, at least in this initial reaction,
Speaker 8: bad news is good news.
Speaker 1: You said something really important there Jeff that this is
Speaker 1: an indication that the FED is going to underwrite risk
Speaker 1: assets at a time when there is enough weakness in
Speaker 1: labor markets to justify that. We'll give you confidence that
Speaker 1: the weakness that we're seeing is fixable or addressable by
Speaker 1: a couple of rate cuts this year by the Federal Reserve.
Speaker 8: Well, I wouldn't overstate that and say that it is.
Speaker 8: But the confidence piece of that is really the primacy
Speaker 8: of financial conditions. And so you know, while we're worried
Speaker 8: about a lot of things, one of the things we're
Speaker 8: not worried about is financial conditions, and they are exceptionally easy.
Speaker 8: And this is what I've said on the program many times.
Speaker 8: You know, we focus on the economy, and it's this
Speaker 8: kind of debate, does the stock market worry about the
Speaker 8: economy or does the economy worry about the stock market?
Speaker 8: And I think it's more the latter, that it's about
Speaker 8: financial conditions, and the stock market is less about the
Speaker 8: economy and much more about AI and technology, and that
Speaker 8: boost to wealth is supporting consumption and that's what drives
Speaker 8: the economy much more than anything else. And so I
Speaker 8: think that's what kind of eases the concern here around
Speaker 8: the slowing in the in the jobs market that we're
Speaker 8: seeing out of today's data.
Speaker 1: If we've seen the hawks throw in their hawkish tilt
Speaker 1: and become more dubbish on the fresher reserve and start
Speaker 1: cutting rates, does data like this, Jeff, make you think
Speaker 1: that maybe you have to price in steeper cuts over
Speaker 1: the remainder of next year, especially with the changing of
Speaker 1: the guard, that maybe this market is underappreciating the risk
Speaker 1: of more significant easing.
Speaker 3: Yeah, it's a really good question.
Speaker 8: I think it's one that will turn our attention increasingly
Speaker 8: towards which is okay to what end Waller, you know,
Speaker 8: gave a little hint in that in his interview earlier
Speaker 8: this week. One hundred to one hundred and fifty basis
Speaker 8: points that seems to be what most consensus use around
Speaker 8: Taylor rule implies. You know, so that amount is kind
Speaker 8: of priced in. I think the uncertainty that you're alluding
Speaker 8: to is, you know, will that be enough and you know,
Speaker 8: d end up pricing in you know more than that,
Speaker 8: you know right now, the kind of standard economic analysis,
Speaker 8: the tailor rules are arguing for a path of cuts,
Speaker 8: but it's a shallow path because policy is only moderately,
Speaker 8: moderately restrictive. And yes, the delta and the change here
Speaker 8: is to the downside, the deceleration on the demand side.
Speaker 3: But its powerless. How highlighted.
Speaker 4: Excuse me?
Speaker 8: You know this is also still a labor market that is,
Speaker 8: you know, not tremendously out of balance. These are small increases,
Speaker 8: yes they're increases in the unemployment rate, but the supply
Speaker 8: side and the demand side are both easing at the
Speaker 8: same time. And you see it in the strength in
Speaker 8: the wages, the persistent you know, one thing that didn't
Speaker 8: happen here is a big slowdown in the work week.
Speaker 3: Something will keep an eye on and and so that
Speaker 3: will hold up. How deep does this path have to get.
Speaker 2: It's quiet end of the curve, Jeff, Just to keep
Speaker 2: you up to speed on things if you haven't got
Speaker 2: the bloomberg in front of you. But down nine basis
Speaker 2: points at the front end of the curve now trading
Speaker 2: at three forty three forty nine, so into the three
Speaker 2: forties now, which is something we haven't seen all year.
Speaker 2: Tens are at about four point zero nine percent, so
Speaker 2: we've broken down through four point one thirty's are way
Speaker 2: off away from five percent of the moment. At about
Speaker 2: four eighty one, we're down four basis points on the session. So, Jeff,
Speaker 2: let's talk about the shape of the curve. There is
Speaker 2: a fear had by some, not all, but some that
Speaker 2: we'd see a repeat of last year, that we'd see
Speaker 2: some week jobs day to the Fed would come out
Speaker 2: of the gates aggressively and what you'd see is the
Speaker 2: frontend come down, with the long end would actually sell off,
Speaker 2: years would rise, and maybe we'd get the same kind
Speaker 2: of move that we saw last year.
Speaker 3: Jeff, do you see things lining.
Speaker 2: Up for a repeat of twenty four or is this
Speaker 2: different this time?
Speaker 3: Well, it's certainly different this time.
Speaker 8: And you know, the day's focus is on the labor
Speaker 8: markets and it's a premiere data point for the growth
Speaker 8: side of the equation. But next week other data will
Speaker 8: come out and we'll focus again on the other side,
Speaker 8: which is the inflationary side.
Speaker 3: And so this is really the tension that you see.
Speaker 8: Within the curve that if the FED is cutting and
Speaker 8: they're telling us, and Powell was pretty clear coming out
Speaker 8: of Jackson Hole, there's a primacy of within the dual mandate,
Speaker 8: the growth side, the maximum employment side of that mandate,
Speaker 8: but it's happening at a time, and this is where
Speaker 8: the hawks have you know, kind of been you know,
Speaker 8: squawking a little bit that, hey, you know, the inflation
Speaker 8: piece hasn't really been solved and the uncertainty of the
Speaker 8: pass through of tariff inflation is still in front of us.
Speaker 8: Plus all the other things that go into the back
Speaker 8: end of the curve, the demands supply, the fiscal the deficits.
Speaker 8: It raises the potential here and you're seeing it in
Speaker 8: the curve this morning that you just lag the declines
Speaker 8: from what the Fed is doing in policy rates to
Speaker 8: the back end of the curve. And that view is
Speaker 8: you know, pretty consensus in terms of the expectations of deepening,
Speaker 8: and we've had a lot of that put into the
Speaker 8: curve already, so you know, that may get a little
Speaker 8: bit tired.
Speaker 3: And you've got some technical positioning.
Speaker 8: Everybody's on the same side of the boat, so that
Speaker 8: can have an unwind. But the fundamentals behind a steepening
Speaker 8: curve outlook cutting interest rates in the face of still
Speaker 8: sticky inflation on top of all the fiscal concerns, you know,
Speaker 8: do argue that the pass through from policy in the
Speaker 8: short end to the back end won't be as strong
Speaker 8: as we would historically expect. Absent, you know, the big
Speaker 8: shock of an economy that really discelerates and brings back
Speaker 8: a specter of not inflation but deflation. That's how you
Speaker 8: get the back end to really outperform.
Speaker 2: Stay with us, multpleinpex. Savanna's coming up off to this.
Speaker 2: Michael Nathansen of Muffett Nathansen has a by raising a
Speaker 2: two thirty price talk on Alphabet Chas and writes the following,
Speaker 2: this outcome is a home run for the status quo,
Speaker 2: and the status quo has been very favorable to Google.
Speaker 2: Michael joins us. Now for Michael, welks to the programs.
Speaker 2: Just your reflections on what happened early this week, and
Speaker 2: then we can get to whether the runsom competitors that
Speaker 2: can really break up this status quote.
Speaker 9: Yeah, good morning, Jonathan. That was the best outcome, obviously possible.
Speaker 9: The market had been really fearful of what the courts
Speaker 9: could have done here, and it could have hurt Apple
Speaker 9: deeply and Alphabet deeply. And you look at this and say,
Speaker 9: to your point, the court was smart to say change
Speaker 9: is coming anyway, Why are we going to accelerate whatever's happening.
Speaker 9: Let's let the markets decide the future of search. So
Speaker 9: I was really pleased as a Google bull Alphabet bull,
Speaker 9: but I thought it was a really smart decision by
Speaker 9: the judge to step back and say, this is going
Speaker 9: to change anyway.
Speaker 3: Let's see where technology moves us.
Speaker 4: Right.
Speaker 2: So, Michael, how do you think it's going to change?
Speaker 2: And why stay constructive on this name?
Speaker 4: Okay, good question.
Speaker 9: So what's going to happen is search as we know
Speaker 9: it has changed already, right, Search is moving from links
Speaker 9: to answers. Do you use open AI, Chat, Chipetia or
Speaker 9: even the new AI mode at Google. You're seeing a
Speaker 9: different type of search that is mostly happening in informational queries,
Speaker 9: not commercial queries. Right, So our view is it's going
Speaker 9: to take a long time for commercial queries. You'll find
Speaker 9: me the best hotel in Boston, find me, you know,
Speaker 9: a new dog food for my dog. Those searches are
Speaker 9: still happening more traditionally, and I think what's going to
Speaker 9: happen is as less queries, you know, basically, more queries
Speaker 9: will stop at the you know, the head end of
Speaker 9: an AI mode. The queries that remain questions that remain
Speaker 9: will be more valuable the people who are selling answers.
Speaker 4: Does that make sense to you, Johnathan?
Speaker 9: So our view is that the price of the traffic
Speaker 9: to people's websites will only go up because they'll be
Speaker 9: less graphic one of people's websites as more answers are
Speaker 9: headed off at people like an open ai or AI
Speaker 9: mode at Google.
Speaker 1: So it's consolidating all of the attention on a smaller
Speaker 1: group of names. So it's a more valuable proposition. Do
Speaker 1: you think that Google needs to really now ramp up
Speaker 1: any type of open ai competitor, any kind of chatbot,
Speaker 1: artificial intelligence induced search result in the next two to
Speaker 1: three months. They have a time on them, a clock
Speaker 1: on them to sort of show their metal in their
Speaker 1: competition with open Ai.
Speaker 9: So it's interesting. I would say to you if you
Speaker 9: had me on two years ago, a year ago, I'd
Speaker 9: be very nervous about their speed to market and their
Speaker 9: ability to change. They've been changing the past couple months
Speaker 9: pretty aggressively. They had an event called io back in May.
Speaker 9: They launched a bunch of new products. If you look,
Speaker 9: if you look at what's happening in real time at
Speaker 9: you know, AI mode on Google Search, you're seeing tremendous change,
Speaker 9: So I think the ramping is happening in the current timeframe.
Speaker 9: I am less worried than I was a year ago
Speaker 9: about their ability to change. I think they've realized our
Speaker 9: job is to deliver consumer satisfaction. Our job is not
Speaker 9: to hold onto business models that have been great to us.
Speaker 9: We need to basically look at what consumers want and
Speaker 9: give it to them. And if you dig into what
Speaker 9: Google is now providing, it's really massively changed. So I
Speaker 9: think you will see in the next six months or a
Speaker 9: year even more change, and it's going to be multimodive.
Speaker 9: You'll see change when it comes to video search and
Speaker 9: you know, an image search. They're really moving quickly to
Speaker 9: create you know, a three sixty view of search that's
Speaker 9: just more than texts. So I'm pretty bullish on their
Speaker 9: product roadmap and what we've seen so far. I think
Speaker 9: that's the big change that the market has woken up
Speaker 9: and said they're not dead.
Speaker 4: They're not sleeping at you at the wheel.
Speaker 9: They see the challenge from Catch and then taking it
Speaker 9: on pretty aggressively.
Speaker 1: You mentioned Apple and that they also benefited from that,
Speaker 1: and I wonder a lot of people waking up to
Speaker 1: the fact that Apple's not dead as well in the
Speaker 1: past couple of days at least by virtue of their
Speaker 1: share price. Were you comforted by the fact that Tim
Speaker 1: Cook was at that meeting yesterday and it seemed like
Speaker 1: the president seemed a lot more amenable to him, calling
Speaker 1: out some of the investments and even giving him a
Speaker 1: nod with their India presence.
Speaker 9: Yeah, so, Craig, my partner Carver's Apple. We had to
Speaker 9: sell on Apple heading into the court. You know the
Speaker 9: court findings. We're really worried that they would lose twenty
Speaker 9: billion plus of payments from Alphabet, which was pretty much
Speaker 9: all profit. John Hint's point that the status quo remaining,
Speaker 9: it is incredibly positive for Apple that they can work
Speaker 9: with Google, maybe they build a new seri product that's
Speaker 9: been rumored. They don't have to lose twenty billion plus
Speaker 9: the payments. And then to your point on this administration,
Speaker 9: the administration had been very, very positive and they could
Speaker 9: have been a lot more aggressive pushing Apple to move
Speaker 9: production to more expensive markets. So I think it's a
Speaker 9: massive win win for Apple. Tomb Cook has played his
Speaker 9: cards perfectly here and then he got the benefit of
Speaker 9: Judge Meta allowing him to kind of maintain that relationship
Speaker 9: with Alphabet. So you had in a matter of week
Speaker 9: two stocks Google, Alphabet and Apple that were really underweighted
Speaker 9: by a lot of investors come back to the forefront.
Speaker 9: And that's why the market's been so strong. It's been
Speaker 9: a great outcome for these guys.
Speaker 2: Michael, just before you go, do you pay much attention
Speaker 2: to seating plans and who gets to seat next to
Speaker 2: the president? Do you read anything between the lines?
Speaker 4: Probably?
Speaker 9: I probably do, right, John, I did not see the
Speaker 9: seating plans last night. I apologize too, bitch of Washing
Speaker 9: two bite Washington.
Speaker 1: Mark Zuckerberg was the first person next to him.
Speaker 3: I'll give you that cheat sheet, thank you so much.
Speaker 9: Well, look how much marks we're spending right now out
Speaker 9: of nowhere and Capex right they've just massively ramped up
Speaker 9: their investment in the US on data centers right in
Speaker 9: Ohio and Louisiana. So he's spending spending is Dana White
Speaker 9: on his board? Now he's done more than anyone. I
Speaker 9: can think I can get back into the good races
Speaker 9: of this administration.
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