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 Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. We begin with our
Speaker 2: top story, start Sliding going into jobless claims at eight
Speaker 2: thirty Eastern times. Sema shaff Princeval Acid Management thinks it
Speaker 2: will take a lot to end this bout of volatility.
Speaker 2: Unfortunately for markets, the negativity of the current narrative implies
Speaker 2: it may take a combination of solid economic data, earnings,
Speaker 2: and reassuring fedspeak to settle nerves. Seema joins us. Now
Speaker 2: for more, Seema, Let's take it from the top then
Speaker 2: and go for it point by point. The feder Reserve,
Speaker 2: the FED speak, the yearnings, and the data. Just where
Speaker 2: are we at the moment?
Speaker 3: We haven't got that much, I'll wuldie there's not much
Speaker 3: Fed speak between now and Jacksonville. I'd expect a couple
Speaker 3: more speakers to be coming out to calm the market.
Speaker 3: The thing is is that, you know, just as we
Speaker 3: are all reacting to the to the economic data as
Speaker 3: it comes out, that is also the case for the Fed.
Speaker 3: So they can tell us that things don't look so bad.
Speaker 3: They can reassure us that the labor market doesn't. You
Speaker 3: know that the payrolls print of last week is just
Speaker 3: one data point. But of course if you were to
Speaker 3: see a continued deterioration in the data, what the FED
Speaker 3: themselves are going to have to respond in kind?
Speaker 2: What is driving things here?
Speaker 4: Seema?
Speaker 2: What's amazing about this shock of the last week, if
Speaker 2: we can call it? That is for many people that
Speaker 2: are still trying to diagnose the origins of it. Is
Speaker 2: this a growth scare board in America or the vicious
Speaker 2: some wind of the carry trade out of Tokyo, Japan.
Speaker 2: Where'd you place the greater emphasis?
Speaker 3: Well, I would say they look for the last six
Speaker 3: weeks to two months, I have seen the number of
Speaker 3: client queries moving towards worrying about actually recession has been
Speaker 3: quite surprising. So we've moved away from wondering, you know,
Speaker 3: is the economy going to continue to accelerate? Is there
Speaker 3: an overheating to people really questioning how weak the economy is.
Speaker 3: So in a way, I do think this is a
Speaker 3: growth scal I don't actually buy into it, but I
Speaker 3: do think a lot of it is born of a
Speaker 3: growth skit. And then it's been exacerbated by this very
Speaker 3: very low liquidity. I think the three of you are
Speaker 3: the only ones left in New York this week, so
Speaker 3: that hasn't helped. And then of course it's positioning the
Speaker 3: carriage trade. So it's been a bit of a perfect
Speaker 3: storm of events. But I think that the growth skin
Speaker 3: has actually been building up in people's concerns for a while.
Speaker 5: See what does that mean for the data coming in
Speaker 5: not just this week? John went through the calendar PPI,
Speaker 5: CPI and retail sales next week. Are you worried?
Speaker 3: I don't think I'm worried because I think when we
Speaker 3: look at the breadth of the data, we do believe
Speaker 3: that there's still a lot of resilience, particularly in household
Speaker 3: balancees and corporate balancees. And what that should mean is
Speaker 3: that if you were to see a deteriorating labor market,
Speaker 3: it shouldn't then new take into a hard landing. But
Speaker 3: we have to also be aware that job losses can
Speaker 3: be quite self reinforcing. Job losses lead to further job losses.
Speaker 3: At this point that we're not seeing layoffs, and a
Speaker 3: lot of the surveys that we're looking at and just
Speaker 3: kind of watching companies and how they're reporting, you're not
Speaker 3: really hearing news of that. But of course the third
Speaker 3: has to be aware that the labor market deterioration, if
Speaker 3: it continues, well, then that could feed and create it
Speaker 3: down with spiral. I think that the CPI data, for
Speaker 3: the first time in ages, that's not the front and center.
Speaker 3: It's really about the growth data, and in particular about
Speaker 3: the labor market.
Speaker 5: See Michael, let me actually ask that question another way.
Speaker 5: Are you worried about the market reaction? Are you worried
Speaker 5: that this is a market that is putting too much
Speaker 5: weight on the negative data that's been coming in.
Speaker 3: I think I don't know if it's necessarily putting too
Speaker 3: much weight. I think it's a market which is on edge,
Speaker 3: as exacerbated about the fact liquidity is so low. But
Speaker 3: I think that from here the direction is fairly unclear
Speaker 3: of the next through four weeks. It's going to respond
Speaker 3: to how that data comes out. If jobless claims moves
Speaker 3: further up today, then I think, of course you're going
Speaker 3: to see a negative market reaction. If it falls back
Speaker 3: a bit, then the market is going to celebrate, and
Speaker 3: I expect that to be the pattern of market moves
Speaker 3: for the remainder of the month, once until you get
Speaker 3: into September and a certainly post Jackson hule. At that
Speaker 3: point maybe you can see some stabilization in a really
Speaker 3: clear direction for the market.
Speaker 4: We also have the DNC next month, and I bring
Speaker 4: this up because Lri Calvacino is on with Manis and
Speaker 4: on Mondays you put our notes saying that the S
Speaker 4: and P five hunderd has now been positively correlated with
Speaker 4: Trump's betting market odds, which have been deteriorating. Now, Lag Harris,
Speaker 4: could politics be also one of those pillars, one of
Speaker 4: those reasons why we are seeing the market's whipsa and
Speaker 4: we sat that'd sell off on Monday.
Speaker 3: So I think that the political picture actually played out
Speaker 3: maybe about three weeks ago, when you have that huge rotation.
Speaker 3: I do think that the rotation to a small cup
Speaker 3: is a little bit about the Trump trade. Things are
Speaker 3: settled at the moment. But you're right in saying that
Speaker 3: that election story it's coming back. It's not like it's disappeared.
Speaker 3: So come September, I think that it is probably going
Speaker 3: to be again near the front of the new story,
Speaker 3: along with the FED. So we will see that add
Speaker 3: to the volatility and probably impact the market narrative too.
Speaker 4: So of all this about September, should you know, Danny
Speaker 4: John and I the last three people left in New York?
Speaker 5: Is all of this just noise?
Speaker 3: Then in a way it's noise. So I mean the
Speaker 3: thing that we're inviting clients is I look away from
Speaker 3: the near tim headlines. It's fairly shocking. The moves are
Speaker 3: very very significant, but we have to have I think,
Speaker 3: those important things to have an idea of what your
Speaker 3: fundamental picture is. Now. It is still unfolding because you're
Speaker 3: at that cusp where you could be pointing to a
Speaker 3: stable economy. But then, as I said before, if job
Speaker 3: losses really start to mount, then it feeds further weakness.
Speaker 3: So unfortunately the native isn't as clear as it would
Speaker 3: have been. Maybe six months ago. But the key one
Speaker 3: is focus on the fundamentals, because the technicals can really
Speaker 3: whipsaw you around, but it's the fundamentals which you're really
Speaker 3: going to create that clear longer term.
Speaker 2: Trend the same, and that's the story. We've got to
Speaker 2: talk about the price of the story. And in certain
Speaker 2: parts of the market we've had quite a big set.
Speaker 2: We heard from Barclay's yesterday. They were talking about going
Speaker 2: overweight tech, overweight financials, looking at buying opportunities. Seem where
Speaker 2: do you see the opportunities at the moment? Where do
Speaker 2: you want to be?
Speaker 3: So I think the key area is, look, we still
Speaker 3: see defensive quality. We know we're going into an economic
Speaker 3: slow down. We don't think it's going to be recession,
Speaker 3: but it does suggest that you need to have a
Speaker 3: slightly safer element to the portfolio. We do think that
Speaker 3: fixing commandment has really proved its work in the last
Speaker 3: few days with that active correlation returning between equities and bonds,
Speaker 3: and then within you know, we've maintained an over weight
Speaker 3: to large cap tech. We're keeping it at some point,
Speaker 3: probably not yet, but at some point will be a
Speaker 3: buying opportunity as well.
Speaker 2: You saying we're not in recession, but I have to say,
Speaker 2: in certain parts of this economy, it certainly feels like
Speaker 2: we are. If you're a low income consumer right now,
Speaker 2: it looks and sounds like recession. If you're a manufacturing
Speaker 2: based on the m we had, it looks and sounds
Speaker 2: like recession. Parts of this market firmly in recession.
Speaker 3: So you're there are pockets of the economy which are struggling.
Speaker 3: And that makes sense because remember that the FED did
Speaker 3: hike a significant amount in a really really short space
Speaker 3: of time, So there will be pockets which will be struggling.
Speaker 3: Lower income households, the ones that really don't have the savings,
Speaker 3: that haven't benefited from that passive income the rise and
Speaker 3: emputy prices rise and house prices. They're the ones who
Speaker 3: were most leveraged to the interest roid environment, and that's
Speaker 3: where the weakness is. But remember, for the US economy,
Speaker 3: the medium and higher income households are the ones that
Speaker 3: really carry growth. They account for about sixty percent of
Speaker 3: consumer spending. So as long as they are okay, and
Speaker 3: the lower income households and are not really struggling significantly
Speaker 3: with job layoffs, then I think the US economy, it's slowing,
Speaker 3: but we're not heading towards recession. But you're right, there
Speaker 3: is a very very differentiated environment underneath the surface for
Speaker 3: the US economy.
Speaker 5: Well, Siman, just given the noise that's been around this
Speaker 5: earning season, you would assume that it looks pretty bad
Speaker 5: that you've had all these companies from airlines to autos
Speaker 5: talking about how bad things are for the consumer. But
Speaker 5: Deutsche Bank speaking Charger points out that earnings are on
Speaker 5: track to rise the most in eight quarters, at ten
Speaker 5: percent quarter over quarter for this one.
Speaker 6: Do you take comfort in that?
Speaker 5: I mean, are we overlooking what is otherwise a strong
Speaker 5: earning season?
Speaker 1: Yeah?
Speaker 3: I was thinking exactly the same thing today, when when
Speaker 3: you think about the narrative, you'd suggest that maybe earning's
Speaker 3: picture has been horrendous this season. It really hasn't. But
Speaker 3: I think the thing is that we came into the
Speaker 3: earning season with people, as I said, really worried about
Speaker 3: what is happening with growth backdrop, but also looking at
Speaker 3: evaluations some of those big tech firms and starting to
Speaker 3: wonder if they would deliver. So I think that that
Speaker 3: has almost encompassed the entire narrative and hidden the fact
Speaker 3: that actually under the bonnet it doesn't look that bad.
Speaker 3: There has been a broadening out of the stronger earnings
Speaker 3: performance and some other sectors, not just big tech and
Speaker 3: actually the opposite of big tech are really the ones
Speaker 3: who are performing well. And that is a really I
Speaker 3: think encouraging sign. For the remainder of the.
Speaker 2: Year, it's going to catch up. As always, semis Shout,
Speaker 2: Principal Asset Management, talking about what's under the bonnet. The
Speaker 2: Harris Watz ticket is heading to Phoenix, Arizona for the
Speaker 2: next stump of their swing state tour. Jendie Vance shadowing
Speaker 2: the campaign with his own rallies to undercut recent momentum
Speaker 2: behind the Harris campaign. Tobin Marcus of Wolf Research rights this,
Speaker 2: we still think it's premature to consider Harris an outright favorite,
Speaker 2: which still give a slight edge to Trump. Tober Marcus
Speaker 2: joins us now for more, tyb. Been great to catch
Speaker 2: up with you, sir, as always seen just a full
Speaker 2: full aircraft hanker and it just reminded me of like
Speaker 2: twenty sixteen and Donald Trump. They seem to be taking
Speaker 2: a leaf out of his playbook from eight years ago. Tobin,
Speaker 2: and it looks to be highly effective. They look like
Speaker 2: they have some real momentum in the Harris campaign. Yet
Speaker 2: jd Vance is right, we haven't heard Harris answer any
Speaker 2: questions at all, with the exception of standing on the
Speaker 2: tarmac following a prisoner exchange and Tobin. I wonder if
Speaker 2: that's going to change at all anytime soon, whether actually
Speaker 2: it needs to.
Speaker 1: So right now, I think they are trying not to
Speaker 1: mess with the good thing. It's been a very very
Speaker 1: very good two and a half week run for Harris,
Speaker 1: and she took over the top of the ticket, and
Speaker 1: I think that they are reveling in the momentum that
Speaker 1: they're seeing out there and sort of not feeling the
Speaker 1: need to take you any unprompted questions if they're getting
Speaker 1: their menswers to right, the point of the campaign is
Speaker 1: to deliver their message. They feel like they're doing that.
Speaker 1: They're getting tons of earned media, most of it positive,
Speaker 1: but certainly there's no lack of attention, so I think
Speaker 1: they are not going to feel immediately compelled to change
Speaker 1: their media strategy, although you know, as the campaign goes on,
Speaker 1: I do think that we're going to have to see
Speaker 1: a little more kind of unprompted answering of questions. But
Speaker 1: I mean, frankly, both Harris and Trump are not taking
Speaker 1: a sort of press conference forward approach. We're seeing a
Speaker 1: lot of appearances on alternative media, Trump going on I
Speaker 1: guess Kick was the streaming platform he was on the
Speaker 1: other week, which is sort of similarly as an unorthodox
Speaker 1: media strategy.
Speaker 4: Right, But he also did just down with our colleagues
Speaker 4: at BusinessWeek to talk about a slew a number of
Speaker 4: policy something we haven't seen from Kamala Harris. At what
Speaker 4: point do you think they'll actually come up with an
Speaker 4: agenda for what their policy plans would be if they
Speaker 4: win the White House.
Speaker 1: Well, they have to put out a platform for the
Speaker 1: Democratic National Convention, which is in two weeks, so we'll
Speaker 1: see something before too long that sort of purports to
Speaker 1: be the official agenda of the Democratic Party, and those
Speaker 1: platforms generally are not that informative about what anyone is
Speaker 1: planning to do. They're a little bit of an interest
Speaker 1: group management exercise, particularly on the Democratic side. Trump took
Speaker 1: a more active role in setting the RNC agenda this year,
Speaker 1: and frankly, I think it would be wise for Harris
Speaker 1: to sort of similarly lay out something that's kind of
Speaker 1: streamlined and reflects what she personally wants to prioritize, rather
Speaker 1: than some incredibly detailed fourteen point plan on every single
Speaker 1: policy issue under the sun. So you know, before too
Speaker 1: long we should see her put out something. But you know,
Speaker 1: it's a short campaign. But short of the campaign is
Speaker 1: the less I think she's going to have to answer
Speaker 1: all these tough questions about exactly what's your agenda on
Speaker 1: Peede family leaves you talk about that. I think probably
Speaker 1: she can just sort of state a priority for the
Speaker 1: issue that she wants to focus on and leave some
Speaker 1: of these details for after the election.
Speaker 4: The short campaign works for her, and Washington Post had
Speaker 4: a story where the former president Don Trump apparently said
Speaker 4: to someone, I already beat Biden. Now I have to
Speaker 4: go out and prove myself against her. How should the
Speaker 4: Trump campaign be dealing with this? Because we just showed
Speaker 4: pictures of her rallies. She's getting a lot of people,
Speaker 4: and there's a lot of excitement around her and her
Speaker 4: new VP pick, Governor wald.
Speaker 7: Well.
Speaker 1: Their strategy, I think has always been to portray her
Speaker 1: as kind of dangerously liberal and out of stept The
Speaker 1: American people based on her as positions that she took
Speaker 1: in the twenty nineteen twenty primary. She committed to various
Speaker 1: different things that I think are problematic. One of the
Speaker 1: reasons why I don't yet consider her her favorite, even
Speaker 1: though the polling has looked very strong for her, along
Speaker 1: with that enthusiasm on the ground, is that we haven't
Speaker 1: really had a chance to see whether or not those
Speaker 1: attacks are sticking yet. They have not been delivered in
Speaker 1: the most disciplined way, I would say from the Trump side.
Speaker 1: And I think the way that they're intending to tap
Speaker 1: walls onto that sort of attacking Nice Minnesota as a
Speaker 1: socialist healthscape seems a little bit challenging. But there is
Speaker 1: plenty of ammunition they have to go after Harris, and
Speaker 1: we've only started to see that that effort come together.
Speaker 5: So and that's the content of what they're saying. I
Speaker 5: want to ask you about how they're saying it. We
Speaker 5: haven't seen Trump at a rally since Saturday when he
Speaker 5: was in Georgia. Instead, it's been Jade Vance who's been
Speaker 5: out throughout the Midwest. What do you make of that
Speaker 5: tactic that they're basically sending him out to appeal to
Speaker 5: these voters.
Speaker 1: Well, look, I mean, Jade Vance is from the Midwest.
Speaker 1: His electoral track record is not particularly impressive in the Midwest,
Speaker 1: so I don't know how he's going to do as
Speaker 1: a voter. You know, in Ohio he ran behind Trump,
Speaker 1: and he ran way, way way behind the governor governor
Speaker 1: who is sort of potentially more popular figure. So he
Speaker 1: has some affinity I think, for that part of the
Speaker 1: electoral map, but it remains to be seen how effective
Speaker 1: he is as a as a messenger. You know, Trump's
Speaker 1: not been running the most sort of vigorous campaign, more
Speaker 1: so than in Biden back when he was on the ticket.
Speaker 1: But I think on both sides we do have guys
Speaker 1: who are a little bit kind of probably past the
Speaker 1: peak of their powers in terms of their ability to
Speaker 1: just sort of run a really, really, really aggressive campaign
Speaker 1: five days a week. So you know, if they want
Speaker 1: those to tax to stick, I think they are ultimately
Speaker 1: going to have to get Trump more out there rather
Speaker 1: than just posting about her untrue social so but.
Speaker 2: It just feels like he's trying to be a man
Speaker 2: who's already beaten. He's still trying to beat Joe Biden,
Speaker 2: and so I wonder why he's finding it so difficult
Speaker 2: to pivot. We talked about these pivots in the campaign,
Speaker 2: cuding the Democratic ticket had to pivot. It's done a
Speaker 2: great job of doing so. You can see the enthusiasm
Speaker 2: in the Partsy can see that reflected in the polls.
Speaker 2: Why do you think this campaign is struggling so hard
Speaker 2: to pivot?
Speaker 1: Yeah, so the campaign organization, I think is pivoting reasonably well.
Speaker 1: I think if you look at Trump's kind of campaign leadership,
Speaker 1: they're not feeling too wrong footed by the need to
Speaker 1: go after Harris. They feel like they have plenty to
Speaker 1: say about her, even though again that message has not
Speaker 1: yet come across, and time will tell whether or not
Speaker 1: they succeed in getting this sort of negative attempt to
Speaker 1: define her across. But Trump himself, Yeah, really does seem
Speaker 1: to be struggling. I guess there's been a lot of
Speaker 1: intrigue in DC about what exactly is meant by this
Speaker 1: coma blah nickname that he.
Speaker 7: Tries to be.
Speaker 1: He seems to be trying to roll out. So it
Speaker 1: does feel like he personally is sort of throwing some
Speaker 1: things at the wall and seeing what will stick. Again,
Speaker 1: you have ninety days left in the campaign, so we
Speaker 1: have some time to see if he can make it happen,
Speaker 1: but for now not the most effective effort from him.
Speaker 2: Time and this was great. It's going to hear from you,
Speaker 2: sir as always Tybermarcus therefore fresearch to look at the
Speaker 2: totality of the data. Joining us now is David Rosenberg
Speaker 2: of Rosenberg Research. David, we've been looking forward to catching
Speaker 2: up with you, sir. Let's just take a step back.
Speaker 2: Totality the data is a fed would like to say,
Speaker 2: what's your assessment of where we are, David at the moment, Well, I.
Speaker 7: Still think that we're either intercession or about to confront one.
Speaker 7: And you know, I know everybody's on tenor books because
Speaker 7: of weekly jobas claims numbers which can quite often contain
Speaker 7: quite a bit of noise in coming off or could
Speaker 7: have been a hurricane distortion from the previous week. However,
Speaker 7: I would say that what's tried, tested and true is
Speaker 7: the unemployment rate, and the unemployment rate is up nine
Speaker 7: tenths of a percentage point over the past fifteen months,
Speaker 7: and the data going back to nineteen forty eight show
Speaker 7: that we had twelve recessions. And when you're up ninety
Speaker 7: bases points or more in the unemployment rate from the
Speaker 7: cyclow You go on a recession one hundred percent of
Speaker 7: the time, So I am definitely not one of those
Speaker 7: people that would say to you it's different this time.
Speaker 7: I don't think that it is. In today's job is
Speaker 7: Glam's numbers. We'll get a fresh patch a week today.
Speaker 7: Doesn't change my view.
Speaker 2: David.
Speaker 5: I'm going to push you on this, and I'm sure
Speaker 5: it's something that you have heard multiple times, So give
Speaker 5: you the opportunity to tell me why I am wrong.
Speaker 5: The argument of you being wrong goes something like this,
Speaker 5: that the uptrend is about immigration. Torson's lack of Apollo
Speaker 5: out with a note just moments ago saying that more
Speaker 5: visas are getting accepted, that there's been a COVID backlog,
Speaker 5: and that just adds again to the evidence that there's
Speaker 5: growth in the labor supply, hence the uptrend in unemployment.
Speaker 5: Why is that argument not right?
Speaker 7: Well, the argument is partially right, but the reality is
Speaker 7: just to go back, the unemployment comes from the household survey,
Speaker 7: not the payroll survey. But the reality is that there's
Speaker 7: been no growth in job creation in the household survey
Speaker 7: over the past twelve months. What the data show is
Speaker 7: that ninety six percent of those people, and I'm sure
Speaker 7: a lot of them are immigrants, ninety six percent of
Speaker 7: the people that entered the labor force in the past
Speaker 7: year have not found a job. Now, I would pose
Speaker 7: the question back to you, does that sound like a
Speaker 7: buoyant labor market as far as you're concerned. This time
Speaker 7: last year, ninety six percent of labor force entrants we're
Speaker 7: finding a job. Only four percent now are finding a job.
Speaker 7: So it's not just about labor supply, and it's not
Speaker 7: just about firing your layoffs which remain very low. Companies
Speaker 7: are still hoarding labor. But what are they doing. They're
Speaker 7: cutting the workweek and they're furloing workers from full time
Speaker 7: part time. Well, you get from full time to part time,
Speaker 7: it's not a job loss, so you don't you don't
Speaker 7: collect an unemployment insurance check. But there are decisive shifts
Speaker 7: taking place in the labor market right now. So there's
Speaker 7: been no growth in household employment. And in fact, if
Speaker 7: you look at household if you look at the full
Speaker 7: time picture, full time jobs are down on a year
Speaker 7: of a year basis. The number of full time jobs
Speaker 7: are negative year on year, and that does not happen
Speaker 7: typically in an economy that's still expanding. That's my point.
Speaker 4: We heard from Mary Daily recently and she said, firms
Speaker 4: are not laying off people to your point there, So
Speaker 4: why isn't this just normalization? How can we be a
Speaker 4: recession if firms are not laying off individuals?
Speaker 7: Well, because employment is not just one number. It's the
Speaker 7: product of the two numbers firings and hirings. And what's happening
Speaker 7: and it's not contained in today's job is claim number.
Speaker 7: But you do see in the Jolt Stata agency in
Speaker 7: the Challenger data, which is that hiring activity is collapsing.
Speaker 7: Like I don't know what I'm missing. We just got
Speaker 7: a few weeks ago the Joel Stata. The Joel Stata
Speaker 7: showed that the number of new hires in the economy,
Speaker 7: the number of new hires is running negative nine percent
Speaker 7: year of a year, and the level of hirings is
Speaker 7: back to where it was in April twenty twenty. So
Speaker 7: what's happening is that, yes, the firing rate is remaining
Speaker 7: very low for the reasons. As I said before, a
Speaker 7: lot of it is because companies have this horrible memory
Speaker 7: that is lingering about letting people go in twenty twenty
Speaker 7: and then not finding them again. So they're holding on
Speaker 7: to their staff, they're cutting hours, repositioning staff to part
Speaker 7: time from full time, and that's giving this illusion that yes,
Speaker 7: fires are very low, but what's happening is that the
Speaker 7: hiring rate is collapsing. We've got the Challenger numbers just
Speaker 7: ahead of non farm last week, So in July the
Speaker 7: number of hiring announcements in the Challenger data was the
Speaker 7: weakest for any July back when the data started in
Speaker 7: two thousand and four. The number of hires in the
Speaker 7: Challenger survey is negative seventy one percent year of a year.
Speaker 7: So you're just looking at one side of the ledger,
Speaker 7: which is firings. But the reason why employment growth is
Speaker 7: decilerating sharply even in the payroll survey is because hiring
Speaker 7: activity is collapsing even as the firing rate remains very low.
Speaker 7: That's the story beneath the story, David.
Speaker 2: As you know, whether it's consensus right now, a lot
Speaker 2: of people believe the FED needs to get less restrictive.
Speaker 2: There's another element to this as well. I just wonder
Speaker 2: whether you think they need to get accommodative. And when
Speaker 2: we talk less about the path and whether they go
Speaker 2: twenty five or fifty in September, and talk more about
Speaker 2: the destination, where do you think they're going to end
Speaker 2: up here at the Federal Reserve?
Speaker 7: Well, you know, I think that J. Powell gave us
Speaker 7: a ton of information at the podium last week at
Speaker 7: the press conference when he uttered the word normalization. Describe
Speaker 7: the labor market in the economy no fewer than eleven
Speaker 7: times normalization. So things have normalized. You strip out the
Speaker 7: nonsense around owner's equivalent rent and the lag nature of
Speaker 7: the actual rents, and inflation is basically back to target,
Speaker 7: and the unemployment rate is actually higher now than it
Speaker 7: was before COVID, when the funds rate was one point
Speaker 7: seventy five. So he uttered the word normalization. The only
Speaker 7: thing that's not normalized is the fit funds rate. And
Speaker 7: so what's normalized, Well, according to their own estimates, the
Speaker 7: neutral rate, the equilibrium rate, the rate that we should
Speaker 7: have in a balance to economy, which he said we're
Speaker 7: in is two point seventy five. And every tailor rule
Speaker 7: estimate shows that today the funds rate maximum should be
Speaker 7: four percent, we're still five and a quarter, five and
Speaker 7: a half, So they are ridiculously behind the curve no
Speaker 7: matter what's happening with the equity market. And it wasn't
Speaker 7: about data that caused the markets to start thinking they're
Speaker 7: going to go inter meeting. It was are we going
Speaker 7: to continue to get thousand point down days in the Dow?
Speaker 7: That was just all about the stock market. But they
Speaker 7: are ridiculously behind the curve irrespective of what the capital
Speaker 7: margarets are doing. So he basically said things are normalized,
Speaker 7: and we do not have a funds rate that is
Speaker 7: consistent with a normalized economy. So they have a long
Speaker 7: road to hoe.
Speaker 2: David ros Rosenbuck Research, Dave, we quit to catch up
Speaker 2: set mat To Danny's point, we've both been talking about it.
Speaker 2: Are we're going to treat every single jobless climbs print
Speaker 2: every single week for the rest of the summer, the
Speaker 2: rest of this year.
Speaker 6: This way, it's gonna be exciting. We're going to be
Speaker 6: watching for it. It's gonna be It's gonna because.
Speaker 2: I think we should put this much weight on this print.
Speaker 6: Yes, because that people want to talk to us about it,
Speaker 6: so I think we should. We absolutely shouldn't to your point,
Speaker 6: it's it's a very noisy number week to week. You
Speaker 6: gotta look at the trend. But more importantly, at the
Speaker 6: start of a recession, generally speaking, weekly in appointment claims
Speaker 6: are sort of three hundred and fifty to four hundred
Speaker 6: and fifty thousand, so we're still well off the number
Speaker 6: where we see companies firing and people are getting really
Speaker 6: concerned about their financial condition. So we're not overly concerned
Speaker 6: about a recession right now. We're not calling for a recession. Certainly,
Speaker 6: the market implied recession as we're way too low a
Speaker 6: couple of weeks ago, and they're more getting to a
Speaker 6: place that's more normal. There's a higher risk of recession
Speaker 6: than zero. But it's still not a base case for
Speaker 6: us yet.
Speaker 2: So what you make of the levels around right now
Speaker 2: in the bond market.
Speaker 6: So for the bond market, as you know, bond guys
Speaker 6: like undertakers, we're only when everyone else is said, we've
Speaker 6: been listening for a year now, all these reasons why
Speaker 6: bonds don't work, why diverse vacation isn't going to work,
Speaker 6: why you should have commodities something else. Your portfolio last
Speaker 6: week was close the Blue Book. Put your pencils down
Speaker 6: and the exams over bonds did their job. We've been
Speaker 6: saying this for a year. We've been counseling getting long
Speaker 6: duration four over a year now with real rates around
Speaker 6: that two percent level below that, now they can do
Speaker 6: a job of diverse sewing. Back in twenty twenty one
Speaker 6: when they were negative two percent real right when there
Speaker 6: were fifty base points two percent and ten years, yes,
Speaker 6: they weren't doing their job. Now they can do their job.
Speaker 6: That was the most important thing we learned from the
Speaker 6: market that when there is an economic downturn, when there
Speaker 6: is real market volatility, treasuries, high quality, fix and click
Speaker 6: collateral will protect your portfolio.
Speaker 5: I look at the past week, though, and I say, yeah,
Speaker 5: I did a job. They did their job, but in
Speaker 5: an extremely volatile way that you saw some big swings
Speaker 5: in this bond market does not dampen their ability to
Speaker 5: give you protection that if I have bonds in my
Speaker 5: portfolio that it could actually add to some of the
Speaker 5: volatility in it.
Speaker 6: That's a very good question. So Mark Cabaner are head
Speaker 6: of race research at Bank for America Meryl. He does
Speaker 6: have learned about liquidity in the treasury market. You can
Speaker 6: flip that a little bit on its head, though there's
Speaker 6: no constitutionally guaranteed to right to be able to trade
Speaker 6: a yard to ten years in a millisecond. So when
Speaker 6: people realize that maybe the liquidity's not quite there right,
Speaker 6: maybe they can't take as large positions. Maybe there will
Speaker 6: be an increase in risk premiums in the market for
Speaker 6: our clients who are liquity providers looking for money to work.
Speaker 6: Higher risk premiums potentially because of the bidass factors and
Speaker 6: the liquity you're talking about, is probably better for overall
Speaker 6: for investors on the whole, because that should lead to
Speaker 6: a higher term premium, should lead to higher credit spreads
Speaker 6: on average. They should get a little more compensation for
Speaker 6: that lack of liquidity. So we are a little bit
Speaker 6: concerned about it, but from an investor who's providing liquity
Speaker 6: to the market, can actually be a benefit.
Speaker 5: Just to that point, do you think this week would
Speaker 5: have played out differently if it wasn't the debta summer,
Speaker 5: if it wasn't August, if this was a couple months ago.
Speaker 6: And all of this was happening, I definitely think that
Speaker 6: was a factor. A lot of traders on their two
Speaker 6: week vacations. Now August is a new September. It feels like,
Speaker 6: definitely there was more violatile than we would have expected.
Speaker 6: And again you start to say these things in the market,
Speaker 6: like six or seven federate cuts by January seem to
Speaker 6: overestimate economic weakness. It was more market technical sentiment driven.
Speaker 4: So what do you do in a day like today
Speaker 4: when the markets are basically reacting to this claims like
Speaker 4: it's a non fum payrolls because it's a liquid it's August.
Speaker 6: So one of the best things to do is just
Speaker 6: have your strategic plan in place and take opportunities like
Speaker 6: this as they give it to you. So we've been
Speaker 6: saying for a while that again we didn't expect a recession,
Speaker 6: but as we looked across the credit complex, we thought
Speaker 6: ig high yield, even muni's were a little bit expensive.
Speaker 6: So we're slightly underweight some of the credit sectors, but
Speaker 6: we haven't moved to an underway position on equity. So actually,
Speaker 6: when we see volatility like this, we've been advising clients
Speaker 6: to take advantage of it, get back to their strategic targets,
Speaker 6: put a little bit of money to work, you kind
Speaker 6: of want this volatility. You want these drawdowns every once
Speaker 6: in a while to be able to add back to
Speaker 6: your portfolio.
Speaker 2: When you get backups in Yeo's line, the ones we've
Speaker 2: got right now. Do you think these are going to
Speaker 2: get bored? Do you think the last week was a
Speaker 2: wake up call for the lazy money, if we can
Speaker 2: call it that, sitting in money market funds getting rewarded
Speaker 2: for doing nothing, and they've been sold repeatedly by individual
Speaker 2: after individual on Wall Street to lock in this yield,
Speaker 2: this reinvestment risk, that's been the phrase of this year.
Speaker 2: And then they've sat there and said, I don't know
Speaker 2: what you're talking about it. You've been sending this for
Speaker 2: twelve months and we've had no rate cuts. Do you
Speaker 2: think this was the week where that money woke up
Speaker 2: a little bit?
Speaker 6: I would like to think that's the case, but that's
Speaker 6: not going to be the case in my opinion. As
Speaker 6: you said, we've been counseling for a year or so
Speaker 6: that fixed incomes longer dated bonds. Cash is not fixed income,
Speaker 6: it's veriabile income. You just don't know how long are
Speaker 6: you're going to cash hield for. It's going to come down,
Speaker 6: But unfortunately, what it seems like until the fit actually cuts,
Speaker 6: people don't actually move out of money market funds. So
Speaker 6: we're still going to counsel that. I do think this
Speaker 6: is somewhat of a wake up call again that if
Speaker 6: you were concerned that bonds couldn't diversify, I think that
Speaker 6: is taken off the table and now so that will
Speaker 6: hopefully encourage clients get back their strategic targets are fixing it.
Speaker 2: Did you just give us a little snake peek of
Speaker 2: what client conversations were like this week. Yes, they're still
Speaker 2: reluctant to do this.
Speaker 6: They've been reluctant to do this for some time, which
Speaker 6: is one of the reasons. You know, it's the right
Speaker 6: thing to do. When it's that hard to get people
Speaker 6: to do it, you know that's probably the right.
Speaker 2: Well, why do you think this week wasn't enough for them?
Speaker 2: What did they say back to you? What did those
Speaker 2: conversations sound like?
Speaker 6: So essentially, there's always some new concern why they wouldn't
Speaker 6: want to move it a cash whether it's higher deficits,
Speaker 6: whether it's the fact that they can still get five
Speaker 6: and a quarter percent even if they cut three or
Speaker 6: four times they can still get it. It's just it's
Speaker 6: very difficult to make the conversation. I try to tell folks,
Speaker 6: the yield curve tries to trick you, right when yields
Speaker 6: are that high in the shorten and lower and the
Speaker 6: long and it's trying to trick you. Sort of don't
Speaker 6: fall for And again we don't need to be crazy
Speaker 6: long bonds. But getting clients from a two to three
Speaker 6: year average duration to a five or six year duration, God,
Speaker 6: is going to be better for the long term.
Speaker 2: It's a big challenge still at the moment, Matt's going
Speaker 2: to say thank you, sir. Matt Days offair of Merrow
Speaker 2: and Bank of America Private Bank on the latest jobless
Speaker 2: claims print. This is the Bloomberg Sevenants podcast, bringing you
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