1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 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 --> 00:00:37,560 Speaker 2: Terminal and the Bloomberg Business App. Jim Kron of Morgan Stanley, 10 00:00:37,600 --> 00:00:41,280 Speaker 2: saying he's not bearish but skeptical, writes in this inflation 11 00:00:41,440 --> 00:00:44,519 Speaker 2: is creeping KaiA and puts further scrutiny on the fedsibility 12 00:00:44,560 --> 00:00:47,280 Speaker 2: to cut interest rates. Tensions in the Middle East also 13 00:00:47,360 --> 00:00:49,920 Speaker 2: create a potential for a more systemic type of risk. 14 00:00:50,280 --> 00:00:52,400 Speaker 2: We can't forget that a bull in a candy shop 15 00:00:52,640 --> 00:00:55,800 Speaker 2: is still just a bull, and bulls can be unpredictable. 16 00:00:56,120 --> 00:00:58,280 Speaker 2: Jim joins us. Now for more, Jim, welcome to the program. 17 00:00:58,400 --> 00:01:01,600 Speaker 2: Let's run with that analogy. If you will, Bill in 18 00:01:01,640 --> 00:01:03,160 Speaker 2: a candy shelf, do you think we're a little too 19 00:01:03,240 --> 00:01:04,759 Speaker 2: high on sugar right now. 20 00:01:06,120 --> 00:01:07,319 Speaker 1: I think that's a good way to put it. 21 00:01:07,640 --> 00:01:08,920 Speaker 3: I do think of it as a little bit of 22 00:01:08,959 --> 00:01:13,920 Speaker 3: a sugar high. My concern is that we're pulling forward 23 00:01:14,000 --> 00:01:17,240 Speaker 3: twenty twenty five earnings right now, and we're painting an 24 00:01:17,280 --> 00:01:20,440 Speaker 3: almost near perfect picture going into the future. It's not 25 00:01:20,480 --> 00:01:23,520 Speaker 3: that i'mbarrassed, it's not that I'm negative on the markets broadly. 26 00:01:23,840 --> 00:01:26,280 Speaker 3: I just think that we're getting a lot happening really 27 00:01:26,319 --> 00:01:29,160 Speaker 3: really quickly. In other words, we're getting this soft landing 28 00:01:29,200 --> 00:01:32,520 Speaker 3: that everybody's been projecting, but we're getting it very very fast. 29 00:01:32,920 --> 00:01:35,760 Speaker 3: Valuations reflect that, right, So if you look at two 30 00:01:35,880 --> 00:01:38,520 Speaker 3: hundred and eighty dollars earnings, let's say for twenty twenty five, 31 00:01:38,560 --> 00:01:42,520 Speaker 3: which is roughly consensus, you assign a twenty one or 32 00:01:42,640 --> 00:01:45,119 Speaker 3: twenty two multiple to that, you're going to get an 33 00:01:45,200 --> 00:01:49,320 Speaker 3: SMP somewhere close to around six thousand, and that's about. 34 00:01:49,000 --> 00:01:50,160 Speaker 1: Where we are today. 35 00:01:50,520 --> 00:01:52,920 Speaker 3: But if you take that valuation down a little bit 36 00:01:53,000 --> 00:01:55,160 Speaker 3: and you get a little bit more normalized, to say 37 00:01:55,160 --> 00:01:57,720 Speaker 3: maybe a twenty pe on those two hundred and eighty 38 00:01:57,720 --> 00:02:01,280 Speaker 3: dollars earnings, then the sp is fit fifty six hundred, right. 39 00:02:01,360 --> 00:02:02,840 Speaker 1: So it's lower than where it is today. 40 00:02:02,840 --> 00:02:05,680 Speaker 3: It's not a disaster, but net we're talking about a 41 00:02:05,720 --> 00:02:09,079 Speaker 3: few percentage points in either direction. I don't necessarily think 42 00:02:09,080 --> 00:02:11,880 Speaker 3: that we're going to be in a very strong bull 43 00:02:12,080 --> 00:02:15,519 Speaker 3: run from these levels or from these valuations. So that's 44 00:02:15,560 --> 00:02:18,600 Speaker 3: where my skepticism is. I'm not saying that things aren't 45 00:02:18,680 --> 00:02:21,760 Speaker 3: okay consumers strong, retail sales was good, you know, inflation, 46 00:02:21,919 --> 00:02:26,200 Speaker 3: earnings GDI numbers are all good, so incomes are. 47 00:02:26,080 --> 00:02:27,440 Speaker 1: Good, so people can keep spending. 48 00:02:27,720 --> 00:02:30,560 Speaker 3: What I'm saying is how much can it continue at 49 00:02:30,600 --> 00:02:32,360 Speaker 3: this rate of change. 50 00:02:32,400 --> 00:02:34,720 Speaker 2: Well, let's take the valuation piece of it, Jim. This 51 00:02:34,760 --> 00:02:37,040 Speaker 2: is what Cameron Dawson, a New Edge said over the weekend. 52 00:02:37,360 --> 00:02:39,359 Speaker 2: You could have argued at any point over the last 53 00:02:39,440 --> 00:02:42,280 Speaker 2: year the stocks were expensive. I'm sure you'd agree with that, 54 00:02:42,440 --> 00:02:44,120 Speaker 2: but there needs to be a catalyst to change this 55 00:02:44,240 --> 00:02:47,959 Speaker 2: much to ever higher multipoise multiples. It feels like, Jim, 56 00:02:48,080 --> 00:02:50,600 Speaker 2: we're in this virtuous cycle right now looking for a 57 00:02:50,680 --> 00:02:53,000 Speaker 2: disruptor to it. And Tilson's Slock of Apollo spoke to 58 00:02:53,040 --> 00:02:55,520 Speaker 2: the same thing. The Fed cutting rates. They've got a 59 00:02:55,520 --> 00:02:57,519 Speaker 2: bus to cut even more so, we've got a dubbish fed. 60 00:02:57,720 --> 00:03:00,960 Speaker 2: We've got high stocks and high home prices. Private financing 61 00:03:01,280 --> 00:03:04,000 Speaker 2: is wide open, as you can see, continue support from 62 00:03:04,000 --> 00:03:06,880 Speaker 2: fiscal plans, low debt, servicing costs that are locked in 63 00:03:06,960 --> 00:03:09,920 Speaker 2: for buzs, corporates and households as well. Jim, that's just 64 00:03:09,960 --> 00:03:13,320 Speaker 2: fading on itself. So the outlook just keeps on improving. Now, Jim, 65 00:03:13,480 --> 00:03:15,560 Speaker 2: from your perspective, do you have anything in mind that 66 00:03:15,560 --> 00:03:18,360 Speaker 2: could disrupt that process at the moment, because that's the 67 00:03:18,400 --> 00:03:21,160 Speaker 2: reason the reasons people are so bullish right now. 68 00:03:22,040 --> 00:03:24,360 Speaker 3: Yeah, and I agree with those reasons, and it's why 69 00:03:24,400 --> 00:03:27,400 Speaker 3: we maintain a bullish tilt in our portfolios as well, 70 00:03:27,600 --> 00:03:30,520 Speaker 3: you know, moving more towards neutrals, not moving towards negative 71 00:03:30,600 --> 00:03:33,480 Speaker 3: because we do think that there are some potential factors, 72 00:03:33,520 --> 00:03:35,720 Speaker 3: you know, clearly tensions in the Middle East to flare 73 00:03:35,840 --> 00:03:39,040 Speaker 3: up there, we could get some election uncertainty or some 74 00:03:39,160 --> 00:03:43,800 Speaker 3: election volatility around this, But ultimately what we would need 75 00:03:43,840 --> 00:03:46,760 Speaker 3: to see is damage done to the consumer and arise 76 00:03:46,800 --> 00:03:47,920 Speaker 3: in the unemployment rate. 77 00:03:48,200 --> 00:03:49,080 Speaker 1: So I think some of the. 78 00:03:49,120 --> 00:03:51,800 Speaker 3: Damage that could come is that if we start to 79 00:03:51,800 --> 00:03:54,520 Speaker 3: see some weakening of the labor market. Now we're not 80 00:03:54,520 --> 00:03:56,960 Speaker 3: seeing signs of that yet, but we all know that 81 00:03:57,000 --> 00:04:00,000 Speaker 3: the non farm payroll data has been heavily revised or 82 00:04:00,000 --> 00:04:02,400 Speaker 3: over time, and if we do start to see that 83 00:04:02,640 --> 00:04:05,400 Speaker 3: in a period where we start to see some margins 84 00:04:05,440 --> 00:04:10,880 Speaker 3: starting to shrink across corporate America, that could create a 85 00:04:11,000 --> 00:04:14,720 Speaker 3: significant or a faster move higher in the unemployment rate, 86 00:04:15,000 --> 00:04:19,320 Speaker 3: and that would completely change the narrative. We're not there yet, Jonathan, 87 00:04:19,520 --> 00:04:21,080 Speaker 3: and I think that's the and I think that's the 88 00:04:21,080 --> 00:04:23,839 Speaker 3: most important thing to highlight. We're not there yet, but 89 00:04:24,120 --> 00:04:26,480 Speaker 3: we do have to recognize that at these valuations and 90 00:04:26,520 --> 00:04:29,200 Speaker 3: at these levels, that it makes it hard to have 91 00:04:29,240 --> 00:04:32,160 Speaker 3: a positive surprise, and it makes it easier to have 92 00:04:32,200 --> 00:04:33,159 Speaker 3: a negative surprise. 93 00:04:33,400 --> 00:04:37,960 Speaker 4: One aspect of your argument is essentially kind of abnegating 94 00:04:38,000 --> 00:04:40,160 Speaker 4: this idea of a cyclical tilt that you can get 95 00:04:40,160 --> 00:04:43,440 Speaker 4: that rotation away from big tech and some of the 96 00:04:43,560 --> 00:04:49,279 Speaker 4: arch behemoths other large stocks and really fuel this next 97 00:04:49,360 --> 00:04:51,200 Speaker 4: leg of recovery. And I saw the same kind of 98 00:04:51,200 --> 00:04:55,480 Speaker 4: sentiment for me Mateka over at JP Morgan. How much 99 00:04:55,480 --> 00:04:58,440 Speaker 4: are you leaning against a cyclical move the idea that 100 00:04:58,480 --> 00:05:00,320 Speaker 4: the equal way in the russels you've had and I have 101 00:05:00,360 --> 00:05:01,440 Speaker 4: been performing. 102 00:05:02,720 --> 00:05:04,920 Speaker 3: No, Actually, I mean I think it's a great question, 103 00:05:05,040 --> 00:05:08,240 Speaker 3: and actually we're embracing the broadening of the markets and 104 00:05:08,279 --> 00:05:11,640 Speaker 3: the cyclicals and even the defensives. So what the markets 105 00:05:11,640 --> 00:05:14,880 Speaker 3: are kind of realizing right now is that this mag 106 00:05:15,040 --> 00:05:17,760 Speaker 3: seven the tech in the larger cap and the growth 107 00:05:18,400 --> 00:05:21,560 Speaker 3: names that are out there have done a very very 108 00:05:21,600 --> 00:05:22,960 Speaker 3: good job this year, but. 109 00:05:22,960 --> 00:05:24,800 Speaker 1: There may be more to the story. And this is 110 00:05:24,839 --> 00:05:25,120 Speaker 1: going to be. 111 00:05:25,160 --> 00:05:26,919 Speaker 3: Across the rustle, This is going to be across the 112 00:05:26,920 --> 00:05:29,359 Speaker 3: broader base sectors of the markets. This is going to 113 00:05:29,360 --> 00:05:31,680 Speaker 3: be across the equal way. One of the themes that 114 00:05:31,680 --> 00:05:34,040 Speaker 3: we're putting forward as we move into twenty twenty five 115 00:05:34,200 --> 00:05:36,680 Speaker 3: is how do you invest in what seems to be 116 00:05:36,720 --> 00:05:38,159 Speaker 3: a fully valued market. 117 00:05:38,440 --> 00:05:40,560 Speaker 1: You can't really play the beta. You can't just. 118 00:05:40,520 --> 00:05:42,640 Speaker 3: Say, oh, well, the index is going to go up 119 00:05:42,640 --> 00:05:45,720 Speaker 3: another x percent more or less. What you have to 120 00:05:45,760 --> 00:05:47,840 Speaker 3: do is you have to start thinking about the different 121 00:05:47,880 --> 00:05:49,360 Speaker 3: components of the markets. 122 00:05:49,640 --> 00:05:51,320 Speaker 1: You have to find sectors in the markets that. 123 00:05:51,279 --> 00:05:54,000 Speaker 3: Are well valued, that have lower pe multiples, good good 124 00:05:54,000 --> 00:05:58,920 Speaker 3: balance sheets, good factors, good interest coverage ratios, and have 125 00:05:59,000 --> 00:06:01,960 Speaker 3: some pricing powered, some controls, and you can find them 126 00:06:02,000 --> 00:06:04,279 Speaker 3: in the other four hundred and ninety three stocks. And 127 00:06:04,320 --> 00:06:07,200 Speaker 3: I think that's the stuff that we should be looking at. 128 00:06:07,440 --> 00:06:09,800 Speaker 3: Those are the sectors. That's the management style that we 129 00:06:09,839 --> 00:06:12,039 Speaker 3: need to start to move into, because I think it's 130 00:06:12,040 --> 00:06:15,320 Speaker 3: going to be more about asset selection and investment selection 131 00:06:15,480 --> 00:06:18,320 Speaker 3: as we move into twenty twenty five as opposed to 132 00:06:18,480 --> 00:06:22,200 Speaker 3: just a target weight asset allocation into x percent equities 133 00:06:22,279 --> 00:06:25,520 Speaker 3: or ex percent bonds. It's really going to matter how 134 00:06:25,560 --> 00:06:29,920 Speaker 3: the constituency of your portfolio is made up, what sectors were, 135 00:06:29,960 --> 00:06:31,080 Speaker 3: and what valuations. 136 00:06:31,279 --> 00:06:33,640 Speaker 4: Is this a sort of one year timeframe of an 137 00:06:33,680 --> 00:06:35,880 Speaker 4: adjustment and investment cycle, or do you see this as 138 00:06:35,880 --> 00:06:39,200 Speaker 4: a ten year kind of timeframe, as maybe the overall 139 00:06:39,240 --> 00:06:43,360 Speaker 4: index level returns don't look as great as they have traditionally. 140 00:06:44,480 --> 00:06:47,360 Speaker 3: Yeah, I think this is something that probably adjusts over 141 00:06:47,400 --> 00:06:49,920 Speaker 3: the next year or so, so let me call that 142 00:06:50,000 --> 00:06:54,040 Speaker 3: short term. I don't think that we're always going to 143 00:06:54,080 --> 00:06:56,400 Speaker 3: have this bifurcated market like we do today. 144 00:06:56,440 --> 00:06:58,760 Speaker 1: I think there needs to be some coalescing and. 145 00:06:58,680 --> 00:07:02,640 Speaker 3: That's where you get the broadening of the markets, where 146 00:07:02,640 --> 00:07:05,360 Speaker 3: you get other sectors that haven't participated in the rally 147 00:07:05,720 --> 00:07:09,360 Speaker 3: start to participate late. That's usually a late cycle thing 148 00:07:09,440 --> 00:07:12,520 Speaker 3: to start to see, and then the markets tend to 149 00:07:12,520 --> 00:07:15,520 Speaker 3: move in a more uniform way, beta up, beta down. 150 00:07:16,040 --> 00:07:18,679 Speaker 3: So I don't see this necessarily as a long long 151 00:07:18,760 --> 00:07:22,000 Speaker 3: term view, but I do say that twenty twenty five 152 00:07:22,040 --> 00:07:24,520 Speaker 3: will be all about tacticals. Don't forget we're going to 153 00:07:24,520 --> 00:07:26,680 Speaker 3: be talking about taxes and policy, no matter who the 154 00:07:26,720 --> 00:07:29,040 Speaker 3: next president is. We're going to start talking about that 155 00:07:29,760 --> 00:07:32,440 Speaker 3: on January of twenty twenty five, because that's when the 156 00:07:32,440 --> 00:07:34,040 Speaker 3: decisions are going to start to get made that are 157 00:07:34,040 --> 00:07:36,920 Speaker 3: going to have big influences on markets going into late 158 00:07:36,960 --> 00:07:39,800 Speaker 3: twenty five and into twenty six when policies are likely 159 00:07:39,840 --> 00:07:40,440 Speaker 3: to change. 160 00:07:40,640 --> 00:07:43,120 Speaker 5: Jim, do you believe right now that the market is 161 00:07:43,240 --> 00:07:44,760 Speaker 5: rotating into the Trump trade? 162 00:07:46,240 --> 00:07:46,440 Speaker 6: Yeah? 163 00:07:46,720 --> 00:07:48,400 Speaker 3: I think it is, and I think it was said, 164 00:07:48,520 --> 00:07:51,800 Speaker 3: you know, nicely by Lisa earlier on the show that 165 00:07:52,040 --> 00:07:53,880 Speaker 3: it's in some degree it's. 166 00:07:53,760 --> 00:07:56,280 Speaker 1: A movement away from the blue wave. Right. 167 00:07:56,360 --> 00:07:58,480 Speaker 3: So, I know, we've been talking about tariffs, and we 168 00:07:58,600 --> 00:08:02,080 Speaker 3: call tariffs a tax, but taxes are also at taxed too, right, 169 00:08:02,200 --> 00:08:05,200 Speaker 3: So if one candidate is talking about tariffs and another 170 00:08:05,280 --> 00:08:08,560 Speaker 3: candidate is talking about higher taxes, they're both the tax. 171 00:08:08,840 --> 00:08:10,600 Speaker 3: What does that mean to me as an investor? 172 00:08:10,920 --> 00:08:11,400 Speaker 1: Inflation? 173 00:08:12,120 --> 00:08:16,000 Speaker 3: And ultimately, no matter who the next president is I 174 00:08:16,040 --> 00:08:18,520 Speaker 3: think it's going to be really hard to get inflation 175 00:08:18,720 --> 00:08:21,800 Speaker 3: under control. And that's one of the reasons why I 176 00:08:21,840 --> 00:08:24,080 Speaker 3: think you see yields starting to move higher. 177 00:08:24,240 --> 00:08:25,320 Speaker 1: It's not so much just to. 178 00:08:25,280 --> 00:08:28,680 Speaker 3: Trump trade or not, but I think it's a realization 179 00:08:28,840 --> 00:08:31,160 Speaker 3: that we're moving to an area where. 180 00:08:30,960 --> 00:08:32,480 Speaker 1: Deficits are still going to be high. 181 00:08:32,720 --> 00:08:35,319 Speaker 3: There's still a large degree of spending that's out there, 182 00:08:35,400 --> 00:08:37,400 Speaker 3: and the US deficit is too high, by the way, 183 00:08:38,320 --> 00:08:41,400 Speaker 3: and all of this is putting upward pressure on rates, 184 00:08:41,760 --> 00:08:43,839 Speaker 3: and I think this is something that we're going to 185 00:08:43,920 --> 00:08:45,800 Speaker 3: have to deal with as we move into the next 186 00:08:45,800 --> 00:08:46,360 Speaker 3: months ahead. 187 00:08:46,679 --> 00:08:50,000 Speaker 2: Three seventy September eighteenth, on a tenure when the Fed 188 00:08:50,040 --> 00:08:54,440 Speaker 2: cup fifty basis points three seventy this morning four thirteen, Jim, 189 00:08:54,480 --> 00:08:56,400 Speaker 2: it's going to say, as always, thank you, sir, Jim 190 00:08:56,440 --> 00:09:09,360 Speaker 2: Karner of Morgan Stanley. Dan Morris a BNP parapour writing 191 00:09:09,480 --> 00:09:12,120 Speaker 2: US earnings are driving our performance at the equity market, 192 00:09:12,400 --> 00:09:15,640 Speaker 2: still early in the season, but results are encouraging risk. 193 00:09:15,679 --> 00:09:17,560 Speaker 2: If an I think is that growth is too strong 194 00:09:17,840 --> 00:09:20,200 Speaker 2: and the market is too optimistic on the path of 195 00:09:20,280 --> 00:09:22,679 Speaker 2: rate cuts, Dan joins us now for more. Dan, welcome 196 00:09:22,720 --> 00:09:25,160 Speaker 2: to the program sir as always in good morning to you. 197 00:09:25,200 --> 00:09:27,040 Speaker 2: Do you think there's too much a good thing going 198 00:09:27,080 --> 00:09:30,680 Speaker 2: on right now? Then in the US economy, well. 199 00:09:30,559 --> 00:09:31,760 Speaker 6: We probably should enjoy it. 200 00:09:31,800 --> 00:09:34,760 Speaker 7: What at last, we know that bad things inevitably happen, 201 00:09:34,840 --> 00:09:37,240 Speaker 7: we'll have some type of negative surprise and it won't 202 00:09:37,280 --> 00:09:40,960 Speaker 7: be another six weeks or six months of continued gains 203 00:09:40,960 --> 00:09:42,960 Speaker 7: for the market. But hardly speaking, if you look at 204 00:09:43,000 --> 00:09:46,000 Speaker 7: the environment, at least in the US, it is pretty encouraging. 205 00:09:46,040 --> 00:09:48,760 Speaker 7: Stocks reflect that we believe we're on a path to 206 00:09:48,880 --> 00:09:49,640 Speaker 7: a soft landing. 207 00:09:50,120 --> 00:09:51,040 Speaker 6: Rates are going down. 208 00:09:51,120 --> 00:09:53,640 Speaker 7: We can discuss all day about how quickly that's going 209 00:09:53,720 --> 00:09:55,400 Speaker 7: to happen and when the cuts are going to take place, 210 00:09:56,040 --> 00:09:57,960 Speaker 7: But for now we're kind of waiting for what that 211 00:09:58,000 --> 00:09:59,160 Speaker 7: negative shock might be. 212 00:09:59,240 --> 00:10:00,800 Speaker 6: But the economy look resilient. 213 00:10:01,040 --> 00:10:03,960 Speaker 2: Dan, you say self landing ubsas clients are asking us 214 00:10:04,000 --> 00:10:06,839 Speaker 2: about a so called no landing. What's the difference between 215 00:10:06,880 --> 00:10:09,880 Speaker 2: a self landing and a no landing and how from 216 00:10:09,920 --> 00:10:12,880 Speaker 2: your perspective does your approach the capital allocation decision shift 217 00:10:13,200 --> 00:10:14,040 Speaker 2: with either in mind? 218 00:10:15,800 --> 00:10:18,240 Speaker 7: Well, if I think my interpretation of a no landing 219 00:10:18,360 --> 00:10:20,600 Speaker 7: was that you actually don't get growth. Back to the 220 00:10:20,600 --> 00:10:23,200 Speaker 7: long run average for the economy in the US, which 221 00:10:23,240 --> 00:10:26,080 Speaker 7: would be say, one point seventy five percent, and clearly 222 00:10:26,120 --> 00:10:28,839 Speaker 7: we're well above that now. The last I checked the 223 00:10:29,000 --> 00:10:32,480 Speaker 7: Atlanta GDP now forecasts from the FED was three percent, 224 00:10:32,600 --> 00:10:35,360 Speaker 7: So you know, we're quite a ways to go. And 225 00:10:35,360 --> 00:10:37,720 Speaker 7: that's where we get into the dynamic of how quickly 226 00:10:37,760 --> 00:10:40,199 Speaker 7: the FED is going to actually cut rates if growth 227 00:10:40,200 --> 00:10:41,080 Speaker 7: stays that strong. 228 00:10:41,160 --> 00:10:42,680 Speaker 6: So I think that's going to be the dilemma. 229 00:10:42,679 --> 00:10:45,240 Speaker 7: That's where perhaps you have some mispricing in the market, 230 00:10:45,800 --> 00:10:48,560 Speaker 7: too much optimism on the rate front, But from an 231 00:10:48,600 --> 00:10:50,560 Speaker 7: equity point of view, that's not per se such a 232 00:10:50,559 --> 00:10:51,160 Speaker 7: big problem. 233 00:10:51,320 --> 00:10:53,240 Speaker 4: At a certain point, though, Dan, you have to wonder 234 00:10:53,280 --> 00:10:56,559 Speaker 4: about whether the earnings ratify the sort of no landing scenario, 235 00:10:56,679 --> 00:10:59,640 Speaker 4: and a number of different strategists pointed out that we 236 00:10:59,720 --> 00:11:02,199 Speaker 4: have I've seen downward revisions to some of the forward 237 00:11:02,240 --> 00:11:05,720 Speaker 4: looking projections, particularly for some of the cyclical companies. How 238 00:11:05,800 --> 00:11:08,240 Speaker 4: much does that raise concerns about you as we pursue 239 00:11:08,280 --> 00:11:11,160 Speaker 4: the earnings of the likes of auto companies later this week. 240 00:11:12,679 --> 00:11:14,920 Speaker 7: Well, Lisa, I think the key thing to keep in mind. 241 00:11:14,960 --> 00:11:18,640 Speaker 7: I mean, revisions clearly are important. Positive revisions are better 242 00:11:18,640 --> 00:11:21,080 Speaker 7: than negative revisions, But we want to look at the 243 00:11:21,120 --> 00:11:23,560 Speaker 7: absolute earnings growth that we think we're going to get. 244 00:11:23,640 --> 00:11:26,120 Speaker 7: So even if you have negative revisions, but earnings are 245 00:11:26,240 --> 00:11:28,880 Speaker 7: up a year from now, really the market should be 246 00:11:28,920 --> 00:11:31,240 Speaker 7: up as well, So you want to keep it in perspective. 247 00:11:32,000 --> 00:11:34,760 Speaker 7: Kind Of Inevitably, analysts tend to be too optimistic, so 248 00:11:34,800 --> 00:11:36,720 Speaker 7: they were revised down those estimates. 249 00:11:37,080 --> 00:11:38,880 Speaker 6: But if there's growth behind it, that's going to be 250 00:11:38,960 --> 00:11:39,440 Speaker 6: what matters. 251 00:11:39,640 --> 00:11:42,160 Speaker 4: Dan, how much are you trying to understand what the 252 00:11:42,160 --> 00:11:44,920 Speaker 4: Trump trade is, what the Harris trade is, and how 253 00:11:44,920 --> 00:11:47,400 Speaker 4: to really game that out at a time where maybe 254 00:11:47,400 --> 00:11:49,760 Speaker 4: earnings matter, maybe the FED matters for right now, all 255 00:11:49,800 --> 00:11:51,360 Speaker 4: the oxygen's been stuck out of the room for the 256 00:11:51,360 --> 00:11:54,439 Speaker 4: next two weeks, well some. 257 00:11:54,480 --> 00:11:56,920 Speaker 7: Degree at least over the next two weeks. Argue perhaps 258 00:11:56,960 --> 00:11:59,480 Speaker 7: the opposite. I think the election outcome is so uncertain. 259 00:11:59,520 --> 00:12:01,640 Speaker 7: I think it's it's challenging for a lot of investors 260 00:12:01,679 --> 00:12:03,640 Speaker 7: to think about how they would try to play an outcome, 261 00:12:04,160 --> 00:12:06,920 Speaker 7: particularly when what honestly I think is going to matter 262 00:12:07,000 --> 00:12:09,720 Speaker 7: at least as much, if not arguably more, is what 263 00:12:09,720 --> 00:12:13,079 Speaker 7: happens in Congress, because that determines what the victor will 264 00:12:13,120 --> 00:12:15,439 Speaker 7: be able to do. If it's divided Congress, clearly you 265 00:12:15,480 --> 00:12:18,120 Speaker 7: have much more limited scope if there's a sweep either way, 266 00:12:18,679 --> 00:12:21,360 Speaker 7: and really anticipating that now, I think it would take 267 00:12:21,360 --> 00:12:22,600 Speaker 7: a quite brave person. 268 00:12:22,720 --> 00:12:24,640 Speaker 5: Daniel, given that the fact that we need to know 269 00:12:24,679 --> 00:12:27,240 Speaker 5: the composition of Congress, and also the fact that if 270 00:12:27,240 --> 00:12:29,280 Speaker 5: you look at these swing state polling, they're on a 271 00:12:29,360 --> 00:12:29,880 Speaker 5: knife's edge. 272 00:12:29,920 --> 00:12:30,840 Speaker 6: It's fifty to fifty. 273 00:12:30,840 --> 00:12:33,079 Speaker 5: It's a coin flip when it comes to this election 274 00:12:33,160 --> 00:12:35,640 Speaker 5: in two weeks time. Why do we do see the 275 00:12:35,679 --> 00:12:38,040 Speaker 5: markets rotating though towards a Trump trade. 276 00:12:39,840 --> 00:12:42,360 Speaker 7: Well, I guess, as you pointed out, it all depends 277 00:12:42,400 --> 00:12:45,000 Speaker 7: how you interpret it. I guess our focus is more 278 00:12:45,040 --> 00:12:47,160 Speaker 7: on the medium term outlook for the economy and really 279 00:12:47,200 --> 00:12:49,440 Speaker 7: under kind of any scenario you think you have for 280 00:12:49,480 --> 00:12:52,079 Speaker 7: the results of the elections, it is still a quite 281 00:12:52,120 --> 00:12:54,360 Speaker 7: positive outlook. Now there's going to be difference on maybe 282 00:12:54,400 --> 00:12:58,400 Speaker 7: what sectors do well or worse depending on the configuration, 283 00:12:58,559 --> 00:13:01,960 Speaker 7: but at a high level where we're optimistic if you will, 284 00:13:02,480 --> 00:13:04,559 Speaker 7: and have our overweight inequities in the US. 285 00:13:05,080 --> 00:13:07,280 Speaker 5: So basically what you're saying is regardless of the US 286 00:13:07,360 --> 00:13:09,720 Speaker 5: election compared to the rest of the world, especially when 287 00:13:09,679 --> 00:13:11,079 Speaker 5: you look at what's going on in China and the 288 00:13:11,160 --> 00:13:16,360 Speaker 5: data there and Europe. The US remains in this exceptionalism realm. 289 00:13:17,240 --> 00:13:20,000 Speaker 7: Really, it is hard to find another major economy right 290 00:13:20,040 --> 00:13:22,840 Speaker 7: now that can match the performance of the US. You know, 291 00:13:22,840 --> 00:13:25,160 Speaker 7: we'll see how long that lasts, but for now, at 292 00:13:25,240 --> 00:13:27,360 Speaker 7: least it does seem to be on a pretty positive trend. 293 00:13:27,440 --> 00:13:29,320 Speaker 2: Hey Dan, it's good to hear from you, as always, 294 00:13:29,400 --> 00:13:32,080 Speaker 2: Dan Morris there in London of bnpparentbou on the so 295 00:13:32,160 --> 00:13:44,160 Speaker 2: called Trump trade, the d out there Bank for America 296 00:13:44,240 --> 00:13:46,520 Speaker 2: Right in the following With the latest string of upside 297 00:13:46,600 --> 00:13:50,640 Speaker 2: data surprises, client concerns have shifted from recession to reacceleration. 298 00:13:50,960 --> 00:13:53,080 Speaker 2: In our view, the economy is resilient, but there are 299 00:13:53,200 --> 00:13:57,280 Speaker 2: enough minor headwinds to make reacceleration unlikely. At ech joined 300 00:13:57,360 --> 00:13:59,040 Speaker 2: just now for more at tcha. Good to see you, 301 00:13:59,120 --> 00:14:00,760 Speaker 2: Thanks for having me. See you don't believe in this 302 00:14:00,800 --> 00:14:03,120 Speaker 2: reacceleration story, so let's stand there. 303 00:14:03,160 --> 00:14:06,240 Speaker 8: We underpins them view not yet, so we don't believe 304 00:14:06,240 --> 00:14:09,439 Speaker 8: in reacceleration yet. Let's talk about the recent data flow. 305 00:14:10,120 --> 00:14:15,320 Speaker 8: Start with jobs. Obviously, fantastic jobs report for September, right, 306 00:14:15,400 --> 00:14:18,319 Speaker 8: but we would think of that more like a mediocre 307 00:14:18,360 --> 00:14:21,760 Speaker 8: student who waste one test. So good job, but we're 308 00:14:21,760 --> 00:14:24,120 Speaker 8: not there yet in terms of you know, have you 309 00:14:24,160 --> 00:14:26,200 Speaker 8: turned the corner or is this really an A plus 310 00:14:26,240 --> 00:14:28,720 Speaker 8: label market? I don't think it is just yet, right. 311 00:14:28,800 --> 00:14:31,880 Speaker 8: And then if you think about the GDPGDI revisions, the 312 00:14:31,960 --> 00:14:35,120 Speaker 8: revisions were actually more to the older data right from 313 00:14:35,120 --> 00:14:37,560 Speaker 8: early twenty twenty three late twenty twenty two. So it's 314 00:14:37,560 --> 00:14:40,840 Speaker 8: telling us a story more of a very resilient economy 315 00:14:40,840 --> 00:14:43,520 Speaker 8: that's been holding on to around three percent growth in 316 00:14:43,560 --> 00:14:46,360 Speaker 8: private domestic demand for six quarters. So it's not so 317 00:14:46,480 --> 00:14:49,560 Speaker 8: much that we're reaccelerating, it's just that we've been growing 318 00:14:49,640 --> 00:14:52,520 Speaker 8: well above what we thought trend was for an extended 319 00:14:52,560 --> 00:14:53,160 Speaker 8: period of time. 320 00:14:53,240 --> 00:14:55,600 Speaker 6: What would change your mind? What would convince you? 321 00:14:56,040 --> 00:14:57,920 Speaker 8: So a couple of things could do it right. The 322 00:14:57,960 --> 00:15:02,720 Speaker 8: first one would be signific fiscal stimulus, but potentially after 323 00:15:02,720 --> 00:15:04,520 Speaker 8: the election, but that would have to be over and 324 00:15:04,600 --> 00:15:07,440 Speaker 8: above just extending the tax cuts right because the tax 325 00:15:07,480 --> 00:15:10,080 Speaker 8: cuts are status quo from the perspective of consumers and 326 00:15:10,120 --> 00:15:12,920 Speaker 8: businesses right now. And then the other possibility is that 327 00:15:12,960 --> 00:15:15,080 Speaker 8: you get a large negative supply shock. The economy is 328 00:15:15,080 --> 00:15:18,760 Speaker 8: already running at potential. So with that negative supply shock, 329 00:15:18,800 --> 00:15:20,040 Speaker 8: you could potentially overheat. 330 00:15:20,280 --> 00:15:22,280 Speaker 4: What is that negative supply shock? Is that sort of 331 00:15:22,360 --> 00:15:23,120 Speaker 4: code for something? 332 00:15:23,720 --> 00:15:26,360 Speaker 8: Well, it could be a number of things, right, It 333 00:15:26,360 --> 00:15:30,760 Speaker 8: could be geopolitics, It could be some significant disruption in 334 00:15:30,840 --> 00:15:33,280 Speaker 8: terms of tariffs. Those are a few potential examples. 335 00:15:33,480 --> 00:15:35,560 Speaker 4: So you talk about the R word, It used to 336 00:15:35,560 --> 00:15:38,880 Speaker 4: be recession. Now it's reacceleration. Yes, And I love this 337 00:15:38,960 --> 00:15:41,720 Speaker 4: because it sort of puts into cold relief the idea 338 00:15:41,760 --> 00:15:46,520 Speaker 4: that maybe this market sees the tail risks increasingly reacceleration 339 00:15:47,080 --> 00:15:50,040 Speaker 4: and not recession. Is that what you're seeing some of 340 00:15:50,080 --> 00:15:53,200 Speaker 4: the baseline data and some of the baseline analysis that 341 00:15:53,280 --> 00:15:54,920 Speaker 4: you see coming out of Wall Street. 342 00:15:55,080 --> 00:15:57,000 Speaker 8: So the way we would talk about it is that 343 00:15:57,400 --> 00:16:00,360 Speaker 8: two three weeks ago, before we got the jobs and 344 00:16:00,400 --> 00:16:03,000 Speaker 8: the data revisions, we would have thought the risks to 345 00:16:03,080 --> 00:16:06,120 Speaker 8: our outlook were slightly skewed to the downside, so more 346 00:16:06,160 --> 00:16:09,680 Speaker 8: towards recession than reacceleration. Now we think the risks are 347 00:16:09,680 --> 00:16:12,160 Speaker 8: pretty balanced. But the base case for US is still 348 00:16:12,320 --> 00:16:15,000 Speaker 8: an economy that just softens up a little bit, doesn't 349 00:16:15,040 --> 00:16:18,520 Speaker 8: go into recession, not even close. As inflation continues to 350 00:16:18,520 --> 00:16:19,720 Speaker 8: move back down towards target. 351 00:16:19,880 --> 00:16:21,800 Speaker 5: Pring this all together, what are you expecting on November 352 00:16:21,880 --> 00:16:22,720 Speaker 5: seventh from the Fed? 353 00:16:23,560 --> 00:16:26,520 Speaker 8: We're expecting a twenty five basis point rapecut. We are 354 00:16:26,640 --> 00:16:30,960 Speaker 8: comfortable with that view. Basically, the last jobs report did 355 00:16:31,120 --> 00:16:34,120 Speaker 8: the job, did the work of two jobs reports right 356 00:16:34,200 --> 00:16:37,080 Speaker 8: in terms of really delivering job growth, and you had 357 00:16:37,080 --> 00:16:40,080 Speaker 8: the upside revisions as well. You really had everything you wanted. 358 00:16:40,120 --> 00:16:43,200 Speaker 8: So I think they'll be comfortable doing another twenty five, 359 00:16:43,360 --> 00:16:45,600 Speaker 8: but they don't really have to do with fifty anymore. 360 00:16:45,640 --> 00:16:48,160 Speaker 5: What if we get a really good jobs report before 361 00:16:48,200 --> 00:16:50,200 Speaker 5: that FED meeting, is there a chance they don't cut? 362 00:16:50,560 --> 00:16:53,280 Speaker 8: The bar would be very very high for that for 363 00:16:53,320 --> 00:16:56,040 Speaker 8: a few reasons. Right, if you don't cut in November, 364 00:16:56,680 --> 00:16:59,520 Speaker 8: you're basically admitting that you made a mistake in September 365 00:16:59,560 --> 00:17:02,560 Speaker 8: by going fifty, and you've already told us that, Look, 366 00:17:02,600 --> 00:17:05,200 Speaker 8: we can keep cutting for now with policy rates growth 367 00:17:05,200 --> 00:17:08,320 Speaker 8: close to five percent, as long as inflation continues to 368 00:17:08,320 --> 00:17:11,040 Speaker 8: move back towards target. The last inflation print wasn't great, 369 00:17:11,320 --> 00:17:14,320 Speaker 8: but it wasn't terrible either, so they should be comfortable 370 00:17:14,359 --> 00:17:15,640 Speaker 8: still cutting for now. 371 00:17:16,040 --> 00:17:18,959 Speaker 4: So given the fact that essentially you're saying it's not 372 00:17:18,960 --> 00:17:21,359 Speaker 4: that the economy is reaccelerating, but we're staying around a 373 00:17:21,440 --> 00:17:24,480 Speaker 4: level that seems like it's above trend growth. How much 374 00:17:24,480 --> 00:17:27,200 Speaker 4: are you saying that maybe we need to reassess how 375 00:17:27,200 --> 00:17:29,040 Speaker 4: far the Fed can cut, you know, the sort of 376 00:17:29,040 --> 00:17:32,639 Speaker 4: the target rate has to be substantially higher than we 377 00:17:32,680 --> 00:17:34,040 Speaker 4: thought maybe two months ago. 378 00:17:34,320 --> 00:17:37,119 Speaker 8: So this is exactly the question that I think everyone's 379 00:17:37,160 --> 00:17:39,120 Speaker 8: wrestling with, right, So that there could be a few 380 00:17:39,200 --> 00:17:42,080 Speaker 8: reasons why the target rate has gone up. The first 381 00:17:42,119 --> 00:17:44,960 Speaker 8: one would be that inflation's just not behaving the way 382 00:17:44,960 --> 00:17:47,560 Speaker 8: we want it to behave, right, but that that would 383 00:17:47,560 --> 00:17:50,960 Speaker 8: be more of an overheating story. The other potential story 384 00:17:51,240 --> 00:17:54,080 Speaker 8: is that trend growth has gone up. Right. That could 385 00:17:54,119 --> 00:17:56,080 Speaker 8: be because of labor supply, but it could also be 386 00:17:56,080 --> 00:17:58,399 Speaker 8: because of productivity. So the other thing that's happening on 387 00:17:58,440 --> 00:18:00,600 Speaker 8: November seventh, by the way, which is a little at wonkish, 388 00:18:00,760 --> 00:18:03,720 Speaker 8: is that at eight thirty we get the revised productivity data, 389 00:18:04,080 --> 00:18:06,240 Speaker 8: which will include the GDP revisions. 390 00:18:06,280 --> 00:18:07,240 Speaker 6: Right, nobody's spending. 391 00:18:07,000 --> 00:18:09,399 Speaker 8: Attime to that because of the said and the election, 392 00:18:10,080 --> 00:18:12,800 Speaker 8: But I think it'll actually be quite interesting because the 393 00:18:12,840 --> 00:18:15,800 Speaker 8: story around productivity could change quite a lot, and that 394 00:18:15,880 --> 00:18:19,399 Speaker 8: has significant implications for long term growth growth as well 395 00:18:19,480 --> 00:18:20,720 Speaker 8: as the terminal rate. 396 00:18:20,800 --> 00:18:23,040 Speaker 4: How much do you push back against people who say 397 00:18:23,040 --> 00:18:25,439 Speaker 4: you can already see the trickle effects of the fifty 398 00:18:25,480 --> 00:18:28,359 Speaker 4: basis point rate cut through the economy. You can already 399 00:18:28,359 --> 00:18:30,840 Speaker 4: see mortgage rates coming down and bringing more people in. 400 00:18:30,880 --> 00:18:34,080 Speaker 4: You could already see loan activity picking up on the margins. 401 00:18:34,119 --> 00:18:36,480 Speaker 4: Do you reject that or do you actually say yes 402 00:18:36,800 --> 00:18:39,960 Speaker 4: in a way on the margins it has been stimulative to. 403 00:18:39,880 --> 00:18:42,399 Speaker 8: The extent that that's happening. It's got to be very 404 00:18:42,560 --> 00:18:46,000 Speaker 8: very marginal, right, I mean they cut rates in the 405 00:18:46,040 --> 00:18:49,679 Speaker 8: middle of September. We have some of the September data, 406 00:18:49,840 --> 00:18:52,320 Speaker 8: right We don't have any of the October data right now, 407 00:18:52,400 --> 00:18:55,800 Speaker 8: so we really wouldn't see it in any meaningful way 408 00:18:55,840 --> 00:18:56,680 Speaker 8: in the data right now. 409 00:18:56,760 --> 00:18:57,160 Speaker 6: Aha. 410 00:18:57,200 --> 00:18:59,240 Speaker 2: Always got to catch up with you, sir At Makt 411 00:18:59,480 --> 00:19:03,480 Speaker 2: of Thanks and America. This is the Bloomberg Surveillance Podcast, 412 00:19:03,600 --> 00:19:07,160 Speaker 2: bringing you the best in markets, economics, a gio politics. 413 00:19:07,440 --> 00:19:09,920 Speaker 2: You can watch the show live on Bloomberg TV weekday 414 00:19:09,920 --> 00:19:13,159 Speaker 2: mornings from six am to nine am Eastern. Subscribe to 415 00:19:13,200 --> 00:19:16,439 Speaker 2: the podcast on Apple, Spotify or anywhere else you listen, 416 00:19:16,680 --> 00:19:19,320 Speaker 2: and as always on the Bloomberg Terminal and the Bloomberg 417 00:19:19,320 --> 00:19:19,920 Speaker 2: Business app.