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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Terminal and the Bloomberg Business app. Towson' slock of Apollo
Speaker 2: got two benefits there. One he got an extra twelve
Speaker 2: minutes to go over all of this, and two might
Speaker 2: be Key set him up perfectly because Torston New just
Speaker 2: out there nodding.
Speaker 1: You agree, don't you, Hunter Resent. I mean, let's look
Speaker 1: at the numbers. Non fine pay roles in August was
Speaker 1: better than in July. The unemployment RATI in August was
Speaker 1: better than in July. Average arlie earnings higher than in July.
Speaker 1: And you look at average medio hours also better than
Speaker 1: in July. I mean, this is better than in July.
Speaker 1: This economy is not slowing down. In the way that
Speaker 1: markets anticipating we will not get eight cuts over the
Speaker 1: next twelve months. Here you should instead look at this
Speaker 1: report as this is really telling you that there is
Speaker 1: a soft lending.
Speaker 2: So help me with this. In October, when we look
Speaker 2: back at this report and we get another revision, a
Speaker 2: downward revision, don't we have to reframe some of this
Speaker 2: conversation and just say everything gets keeps getting revised lower.
Speaker 2: This is Least's point over the last few days. This economy,
Speaker 2: this labor market is weaker than we initially thought.
Speaker 1: It was GDP in the second quarter verse three percent.
Speaker 1: It was just revised up. Jobless claims continues to be
Speaker 1: a good. Continuing claims was also good. If you look
Speaker 1: at the daily data for how many people go to restaurants,
Speaker 1: how many people's fly on airplanes, the weekly data from
Speaker 1: Redbook on retail sales, if we're across the board on bankruptcies,
Speaker 1: if we're across the board on credit card spending. In
Speaker 1: the aggregate, the growth data is just not showing signs
Speaker 1: of a slowdown. It is true that the labor market
Speaker 1: is weakening, and yes, the duels data has bidding a
Speaker 1: little bit, maybe more in balance as the fit would
Speaker 1: be saying, but this whole notion that the economy is
Speaker 1: slowing down rapidly, it is completely misguided.
Speaker 3: What I thought was fascinating. I was speaking to a
Speaker 3: number of retail executives at this conference this week, and
Speaker 3: their biggest question was what's going to happen with the consumer?
Speaker 3: They didn't know, They had zero visibility. Even though you
Speaker 3: are seeing some trends and signs of robustness, some signs
Speaker 3: of weakness, they said, ultimately, it just depends on whether
Speaker 3: they have the money to spend. These labor market reports
Speaker 3: are raising a red flag for a lot of people,
Speaker 3: saying if they lose their jobs, they won't How fragile
Speaker 3: is that sort of happiness that you're describing to a
Speaker 3: scenario like that.
Speaker 1: Certainly, if we do have a rise in the unemployer rate,
Speaker 1: so that's not what happened there, impliner ray and down,
Speaker 1: it would become a problem. But if you also exactly
Speaker 1: as you know too well, look at what they did
Speaker 1: say the retailers during this earning season. Target Set, no
Speaker 1: sign of a lowdown, Walnut, no sign of a s lowdown,
Speaker 1: and also Costco, no sign of a lowdown. You saw
Speaker 1: dollar general, some parts of consumers are on the mont distress,
Speaker 1: but broadly speaking, looking at retail sales, both the monthly,
Speaker 1: the weekly, and cross the boat on credit card data,
Speaker 1: there's just no sign of a shop slowdown.
Speaker 2: So the bottom line in this.
Speaker 1: Discussion is that you only get a recession when you
Speaker 1: have a really big shock to the economy, and that
Speaker 1: makes sense of course with COVID human Brothers going under,
Speaker 1: of course, the bust of the IT bubble in two thousand.
Speaker 1: But this is not an exogynous shock with something coming
Speaker 1: from the outside. This is all engineered by the FED
Speaker 1: trying to slow things down. And now the FED is
Speaker 1: telling us that they're about to lower rates, so that's
Speaker 1: about to counter some of those negative things.
Speaker 2: Well, let's weigh. We get another headline from the Federal
Speaker 2: Reserve Mi McKay from the neo FED President John Williams.
Speaker 4: Yeah, John Williams is saying it is time now to
Speaker 4: join the party. He is not commenting in his prepared
Speaker 4: remarks about today's numbers.
Speaker 2: Of course he.
Speaker 4: Wouldn't have had them ahead of time, but he does
Speaker 4: say it's time to cut rates.
Speaker 5: Excuse me.
Speaker 4: With the economy now in equa poise, which he titled
Speaker 4: his speech that means in balance and inflation on a
Speaker 4: path to two percent, it is now appropriate to dial
Speaker 4: down the degree of strictiveness in the stance of policy
Speaker 4: by reducing the target range for the federal funds rate.
Speaker 4: So the guy who's vice chairman of the Open Market
Speaker 4: Committee is saying we're gonna cut rates. He's not yet
Speaker 4: talking about by how much, But there.
Speaker 2: Is a Q and A, so we'll keep an eye
Speaker 2: on and apparently unser thesaurus too for the New York
Speaker 2: fact torsan sluck. What do you make of that? And
Speaker 2: what are you looking for from Governor Waller?
Speaker 1: So I do think Waller will also give some more
Speaker 1: guidance in terms of what's going on, at least with
Speaker 1: a bigger economic picture. But I don't think that he
Speaker 1: will tell us much about whether this is twenty five
Speaker 1: or fifty. It requires probably a very important debate given
Speaker 1: the spectrum of where if I'MC members have been recently
Speaker 1: in the speetures, some are clearly saying some are even
Speaker 1: suggesting we should have much fewer cuts over the next
Speaker 1: seven quarters, and others, of course are suggesting that we
Speaker 1: should go much faster. So I do think that they
Speaker 1: need to gather in the room and think hard about
Speaker 1: do we want to go towards twenty five or fifty?
Speaker 1: I would say, and I would agree with Mike that
Speaker 1: twenty five is the right now. But given that literally
Speaker 1: everything in this report was better than in July.
Speaker 3: Would it be a policy error though to go by fifty?
Speaker 1: See that opens up the debate about our sty and
Speaker 1: how far do we need to go down if our
Speaker 1: star and where we need to go to And ultimately
Speaker 1: so real rates plus inflation, if we only need to
Speaker 1: go to four and a half, we're not far away
Speaker 1: from that, so there's no rush to lower rates. If
Speaker 1: we do need to go all the way down to
Speaker 1: two and a half or three, then there is certainly
Speaker 1: more of a rush. But give me the incoming data
Speaker 1: across the boat is still good. Why is there this
Speaker 1: rush to cut rate so traumatic? Other than the our
Speaker 1: Star framework which says that we got to get going.
Speaker 3: Jackson Hall speech was all about understanding the effect that
Speaker 3: FED policy has in the overall economy. The conclusion was,
Speaker 3: we still don't know. We don't have a sense of
Speaker 3: exactly how quickly it gets sort of transmitted in how
Speaker 3: much of the lag effects that we're starting to see.
Speaker 3: There is an argument if you cut rates more aggressively
Speaker 3: now you can get ahead of some of the lag
Speaker 3: effects that we haven't yet even seen. Why don't you
Speaker 3: give credence.
Speaker 1: To that, because there are three very important reasons why
Speaker 1: we did not get that slow down that we all
Speaker 1: anticipated for so long throughout twenty twenty three. Remember they
Speaker 1: started hiking rates in mants of twenty twenty to. First
Speaker 1: of all, consumers and firms had locked in low interest rates,
Speaker 1: AI investment has been very strong, and fiscal policy has
Speaker 1: been a huge tailwind. All these things combined have been
Speaker 1: the key reason why the economy has not slowed down,
Speaker 1: and those things actually still in place. A lot of
Speaker 1: people still, of course have low interest rates in mortgages,
Speaker 1: IT investment, greade, credit fixed rate also very locked.
Speaker 2: In for a long time.
Speaker 1: So that means that if you do start cutting rates,
Speaker 1: it's actually the transmission is also going to be weaker.
Speaker 1: On the downside, it was weak when you were raising rates,
Speaker 1: it's also weak when you're cutting rates. So because of that,
Speaker 1: AI investments still strong, fiscal policy from Chips Act, Inflation
Speaker 1: Reduction Act, and infrastructure acts still strong. All this argues
Speaker 1: that the data will just continue to be steady over
Speaker 1: the next several quarters. There is no reason to expect
Speaker 1: this to be a hard landing. There is no exactantess
Speaker 1: shock similar to what we have seen during previous recessions.
Speaker 6: Christen klugabuks the revision for a second. If you take
Speaker 6: off the twenty five thousand we took off last month
Speaker 6: and you do here for August, you'd get one seventeen.
Speaker 6: Would you still feel this way if it printed one seventeen?
Speaker 1: Sure? Of course, revisions are very important because we have
Speaker 1: seen some MDEST slow down, But broadly speaking, the data
Speaker 1: was still better than what it was in July. So
Speaker 1: taken as the overall picture of him, particularly with the
Speaker 1: unemployment rate, which is especially important when you put that
Speaker 1: into your tailor rules and try to figure out what
Speaker 1: should the reaction function be from the fit. And that's
Speaker 1: how all the regional fits prepare the forecast. And if
Speaker 1: the unempliner rate goes down, it's hard to argue why
Speaker 1: they should be going fifty. To go fifty, you need
Speaker 1: some very excuse me, academic argument about our star, and
Speaker 1: you've got to get going with lowering rates very very quickly.
Speaker 1: And the question is, with the incoming data being so strong,
Speaker 1: it's monaps saraposia really so restrictive, it doesn't look like
Speaker 1: it's restrictive. If it was really restrictive, the important report
Speaker 1: would be a lot weaker.
Speaker 2: Pause, because this is exactly where I wanted to finish
Speaker 2: with you. You're saying five point fifty is still not
Speaker 2: that restrictive for this economy.
Speaker 1: So if ASDA, if where we're going in the terminal
Speaker 1: rate is four and a half, it's five and a
Speaker 1: half far away from four and a half. I know, we,
Speaker 1: excuse me, have been somewhat not quite brainwashed, but very
Speaker 1: distorted by a lot of fmcment was seriously saying we've
Speaker 1: got a normalized raise, normalized raise, normalized rates. But let
Speaker 1: me ask you this, John, if we really had restrictive
Speaker 1: manetary policy, why have we for two and a half
Speaker 1: years and counting, still been getting very good economic data,
Speaker 1: including GDP in the second quarter at three percent.
Speaker 2: The lassage is so longer, they might say, the lags
Speaker 2: are just long.
Speaker 1: What should be the reason for that. The tailwinds from
Speaker 1: AI continue to be strong, the tails from fiscal policy
Speaker 1: is still strong. We have locked in low interest rates
Speaker 1: for the consumer and for corporates. Where is this very
Speaker 1: significant transmission of margetary policy.
Speaker 2: When we sit here and do this again a year
Speaker 2: from now, we'll do it before then, don't worry. In
Speaker 2: twelve months time, where do you think rights are. They've
Speaker 2: got a four handle, they still got a five.
Speaker 1: I think that they will be much higher than what
Speaker 1: the market is pricing at the moment, because this is
Speaker 1: not a shock that is generating ever recession. Why haven't
Speaker 1: we had a recession for now thirty six months in counting.
Speaker 1: I mean, it is really the case that the economy
Speaker 1: and the economic data has just been much better than
Speaker 1: we literally any modelould have predicted for the reasons that
Speaker 1: I just mentioned. Mayme be locked in low interest rates,
Speaker 1: tales from fiscal policy and AI spending being completely independent
Speaker 1: of whatever the FIT is doing.
Speaker 2: This is box office and we should do it again
Speaker 2: next week and looking forward to it. Toason' sluck of Apollo,
Speaker 2: thank you very much. In the commercial blank We've were
Speaker 2: debating with Jeff Rosenberg of Blank Rock what would be
Speaker 2: the most confusing labor market report today for the Federal
Speaker 2: Reserve and for market participants? And Jeff said something like
Speaker 2: if you've got a slightly softer jobs report, but unemployment
Speaker 2: actually dropped back from four point three to say four
Speaker 2: point two. And Jeff, we've got a mix. That's the
Speaker 2: mix we've got. So Jeff Rosenberg of Blank Rock, Jeff,
Speaker 2: please make sense of this for us? Yeah, tough to
Speaker 2: make sense of it.
Speaker 7: It's a bit of that mixture. But I think the
Speaker 7: headline reaction is to the slightly weaker payroll headline and
Speaker 7: the revisions as Lisa was pointing out, So it's a
Speaker 7: little bit weaker on margin. You know, the bond market
Speaker 7: is very much behaving as if you know, if we
Speaker 7: price it, they will cut, and so increasing the probability
Speaker 7: or trying to push the probability to fifty. I don't
Speaker 7: think this report is definitive on the twenty five versus fifty.
Speaker 7: I think it's going to be Waller, What.
Speaker 2: Do you want from Governor Waller? Jeff at eleven a
Speaker 2: m Astern time? What are you looking for? You think
Speaker 2: that's the final voice that sets up whether we go
Speaker 2: twenty five or fifty. I think it is.
Speaker 7: I mean, I think it's set up on the calendar
Speaker 7: to give markets clarity on what the Fed's going to do.
Speaker 7: He will have had the information, he would have had
Speaker 7: a chance to talk to Powell, and so that you
Speaker 7: don't get a big market reaction, you know, next not
Speaker 7: next Wednesday, but the eighteenth, when they when the FMC meets.
Speaker 7: So I think it is intended to, you know, provide
Speaker 7: a little bit of a steer to the market. So
Speaker 7: I think that's going to be you know, as important
Speaker 7: as the number that just dropped. What we get in
Speaker 7: terms of the reaction, you know, and it's hard to say,
Speaker 7: you know, which way they go. I think you know,
Speaker 7: the market is pushing from fifty. You know, this number
Speaker 7: isn't you know, particularly weak. You have the potential of
Speaker 7: the first print bias lower on the headline. Maybe that
Speaker 7: gets revised, you know, up we're talking about revisions. This
Speaker 7: is a weirdness in the data where August tends to
Speaker 7: be weaker. You know, there's a slowing and there's an
Speaker 7: argument you know, on both sides. You know, if they
Speaker 7: do fifty, does that you know, kind of signal too
Speaker 7: much concern. They can talk around that, They can talk
Speaker 7: about fifty and talk about their confidence in the economy
Speaker 7: and kind of ease some of that concern, you know,
Speaker 7: so the market has been kind of right in the
Speaker 7: middle between the two this morning. I think it's really
Speaker 7: just about that revisions and a little bit weaker relative
Speaker 7: to the expectations and consensus around one to sixty five
Speaker 7: coming in a little bit below that.
Speaker 3: As an investor, what's your response mechanism to a FED
Speaker 3: that signals fifty basis points of a rate cut. Is
Speaker 3: it basically just extrapolating out about one hundred and fifty
Speaker 3: basis points of cuts this year and then essentially that's
Speaker 3: going to be questionable for risk assets?
Speaker 2: Or do you say this is.
Speaker 3: Supportive because this means that they are going to adjust
Speaker 3: quickly back to something that the market thinks is more neutral.
Speaker 7: Yeah, you know, we had that debate yesterday and I
Speaker 7: think it's it's a tough one. You know, typically when
Speaker 7: the FED cuts fifty, they're cutting fifty because there's a
Speaker 7: growing deceleration in the economic data. This is a tricky
Speaker 7: period because you obviously have a lot of focus on
Speaker 7: the labor markets and the labor market deceleration as being
Speaker 7: the leading indicator. It's not really a leading indicator. It's
Speaker 7: kind of coincidence. Some measures are lagging, you know. The
Speaker 7: rest of the economy looks strong, but there's this fear
Speaker 7: that the FED is behind the curve and that the
Speaker 7: rest of the slowdown is coming. And the rise in
Speaker 7: terms of kind of hard landing fears and so fifty
Speaker 7: might you know, kind of push people along that direction.
Speaker 7: So it's more negative rather than the Feds kind of
Speaker 7: on the job. It's uh, oh, the Feds behind the curve.
Speaker 7: The fifty basis points validates our fear. And then you
Speaker 7: have all the other issues in terms of risks, high valuations,
Speaker 7: concentration in terms of evaluation in the tech sector, all
Speaker 7: kind of leading to a lot of angst. And then
Speaker 7: even what we saw last month, you know, in terms
Speaker 7: of the outsized market reaction positioning October not October, I'm
Speaker 7: talking about August second and August fifth. So I think
Speaker 7: the risk here is that fifty could be more of
Speaker 7: a negative signal than a reassuring signal that the Fed's
Speaker 7: on the case. But it's a tough call either way.
Speaker 3: Well, you were having the debate yesterday, Jeff, not just
Speaker 3: the market, more broadly, what was your reaction being given
Speaker 3: the fact that the FED doesn't have proprietary data that
Speaker 3: we don't see that points to a more conclusive signal
Speaker 3: about where this economy is headed.
Speaker 7: Yeah, it's really about the fed's shift. We saw it
Speaker 7: from Jackson, Hole and Powell, and it's shifted this whole
Speaker 7: narrative focus and really market reaction focus onto the growth
Speaker 7: data away from the inflation data. And that shift means
Speaker 7: the FED is worried now more about securing the benefits
Speaker 7: of their past policy intervention to secure the benefits of
Speaker 7: reducing inflation, and now focusing on you know, securing the
Speaker 7: securing the soft landing, so all of any signals around
Speaker 7: their sensitivity, any validation of that in terms of the data,
Speaker 7: you know, makes people very much on edge that you're
Speaker 7: you know, back not to the what but Powell called
Speaker 7: the era of flouted rules that you know, you can't
Speaker 7: rely on these rules like the PSALM rule, like labor
Speaker 7: market differentials and other things that that that people point
Speaker 7: to when you have recession signals that those may actually
Speaker 7: in this time, UH, you know, be the right signal.
Speaker 7: And that kind of concern that you see in many commentary,
Speaker 7: many UH forecasts, you know, gets more validated under a
Speaker 7: fifty basis point cut scenario. And I think that's the
Speaker 7: concern that would be, you know, the pushback. They can
Speaker 7: signal around that, they can use the language, they can
Speaker 7: use the press conference to manage that. But you know,
Speaker 7: it's a tricky it's a tricky needle.
Speaker 2: The threat. He Jeff, this was great, Jeff Rosenberg of
Speaker 2: Black Rock. So here's the latest. Donald Trump promising to
Speaker 2: use tariff's as an economic weapon in a potential second term.
Speaker 2: HiT's remarks coming ahead of Tuesday's debate with Vice President
Speaker 2: Kamala Harris. Michael Jesus of Morgan Stanley right in the
Speaker 2: following tariffs could pressure economic growth, but possibly more so
Speaker 2: outside the US, potentially driving more dubbish central bank policies
Speaker 2: overseas than that the Federal Reserve. Michael joins us for
Speaker 2: more Michael Goodmornich. That's a thoughtful take on a situation
Speaker 2: for global central banks. Do you think some of those
Speaker 2: policies could be more damaging to countries abroad than maybe domestically.
Speaker 5: Yeah, We'll say I think about the US's pasture in
Speaker 5: terms of trede relationships with the rest of the world.
Speaker 5: If it's terrifying more of its imports, then more the
Speaker 5: pressure is going to be overseas. So this thing comes
Speaker 5: up in the context of Wiznamy for the dollar, right,
Speaker 5: and the Trump campaigns talked about the desire to have
Speaker 5: a weaker dollar, but some of these policies we think
Speaker 5: at least initially would manifest, and the stronger dollar because
Speaker 5: it's putting more pressure on the rest of the world
Speaker 5: than the central bank dubblishness you'd see overseas without weigh what.
Speaker 2: It would do to the US.
Speaker 6: Most people talk about also in the contacts, of what
Speaker 6: it means for US consumers. If you look at the
Speaker 6: rest of the world, who would win in that scenario.
Speaker 5: Well, I think it's complicated to say that there are
Speaker 5: specific kind of winners and losers. I'd say is if
Speaker 5: over the long term, if the US is pursuing more
Speaker 5: protectionist policies and the aggregate, which it probably is regardless
Speaker 5: of who's present, it's just a matter of tactics. Republicans
Speaker 5: clearly want to lean more on tariffs. But what it
Speaker 5: does create this long term incentive towards nearshore and reshoring,
Speaker 5: et cetera. And the places that are best set up
Speaker 5: for that, I think are the ones that we know
Speaker 5: from the most part, right Mexico. If you go into
Speaker 5: Asia we're talking about Vietnam or maybe Turkey a Nina,
Speaker 5: because these are areas where you have to kind of
Speaker 5: re create the labor supply and the labor cost elements
Speaker 5: that you have in China. But you can't do it
Speaker 5: in one place. You have to if you're multinationally, you
Speaker 5: have to kind of do in the aggregate in the
Speaker 5: multiple different places.
Speaker 3: You have a hard job, especially at a time where
Speaker 3: people are saying it's basically a toss up and nobody
Speaker 3: really knows what's going to happen, and people are coming
Speaker 3: to you to explain what's going to happen, and you say,
Speaker 3: I have no clue, but I am curious about whether
Speaker 3: it's getting easier in this one sense that the two
Speaker 3: parties are kind of coming to the same place that
Speaker 3: increasingly it looks like the policies are very similar to
Speaker 3: one another. You just talked about how they are going
Speaker 3: to be protection as policies no matter what, is there
Speaker 3: a baseline of how much this gets accelerated, regardless of
Speaker 3: whether it's Harris or Trump.
Speaker 5: Yeah, I mean so, if we're talking about trade, the
Speaker 5: real difference is in the short term on whether or
Speaker 5: not you're using tariffs right, And if that's true, then
Speaker 5: what you're the real difference in twenty twenty five is
Speaker 5: are we pursuing trade protectionist policies that have terriffs or don't.
Speaker 5: The end state might be very much the same, but
Speaker 5: in the short term, the tactic of using tariffs just
Speaker 5: creates a lot more volatility, a lot more uncertainty of
Speaker 5: your own growth. And then to the that you've got
Speaker 5: a Republican pursuing those policies, maybe they're going to deliver
Speaker 5: something on the back end in twenty twenty six that's
Speaker 5: helpful to the economy in terms of greater fiscal expansion.
Speaker 5: But the sequencing here is important because you might very
Speaker 5: well go through the tougher and more risky stuff.
Speaker 2: Upfront, and then you want to talk about corporate taxes.
Speaker 2: Now we can have the tariff conversation. It's a bit
Speaker 2: easier because we don't have to talk about the makeup
Speaker 2: of Congress when it comes to taxes.
Speaker 1: We do.
Speaker 2: Let's talk about how workable things are. Harris is saying,
Speaker 2: take things from twenty one to twenty eight. Trump is
Speaker 2: saying take things from twenty one down to fifteen, but
Speaker 2: with a lot of conditions. I imagine you filtered a
Speaker 2: lot of calls yesterday from clients. What did you tell
Speaker 2: them about how workable the Trump plan is for corporate
Speaker 2: tax cut.
Speaker 5: I mean, it's the workability of any of this is
Speaker 5: really a function more of politics than anything else. Right
Speaker 5: at the end of the day, all of these tax
Speaker 5: plans are going to have to pass through a budget
Speaker 5: reconciliation process that in some ways starts with party leadership
Speaker 5: deciding what number on the deficit expansion are they comfortable with,
Speaker 5: and then everything kind of fits inside of that. That's
Speaker 5: effectively what happened and with the Tax Cuts and Jobs
Speaker 5: Act in the negotiation in twenty seventeen where Senator Corker said,
Speaker 5: we can do one and a half trillion dollars on
Speaker 5: the deficit, and then everything kind of fit in from there.
Speaker 5: So I think these proposals are important to talk about
Speaker 5: and we have to pencil in assumptions for them. But
Speaker 5: you know, how workable is twenty eight percent on cap
Speaker 5: gains as opposed to something higher, Well, that's really a
Speaker 5: function of was the party decide the aggregate they're willing
Speaker 5: to do on the deficit, and then therefore, what is
Speaker 5: it they feel like they need to pay for and
Speaker 5: what levers they have to pull from.
Speaker 6: There, there's a ton of proposals that are coming out
Speaker 6: of both sides, contempting on Social Security taxes, expanding child
Speaker 6: tax credit, which seems that both individuals want to do.
Speaker 6: What do you think is your base case actually gets
Speaker 6: done if we have a divided government.
Speaker 5: Well, in dividing government, I think you can expect at
Speaker 5: least some of the kind of commonly supported provisions that
Speaker 5: are set to expire, and so of the Tax Cuts
Speaker 5: and Jobs Act get extended, and then mostly kind of
Speaker 5: everything else goes to the wayside. So when we add
Speaker 5: up what we think are kind of commonly accepted provisions,
Speaker 5: adds up to about a trillion dollars of incremental deficit
Speaker 5: expansion for ten years starting in twenty twenty six. That's
Speaker 5: where we think the bipartisan angle is. If Republicans sweep,
Speaker 5: we think that number can get as high as one
Speaker 5: point six trillion. If Democrats sweep, because they'd be more
Speaker 5: willing to bring you revenue to the table on the
Speaker 5: tax side, that number could be like five hundred to
Speaker 5: seven hundred billion instead. So really, I think we have
Speaker 5: to think more in terms of the values and the
Speaker 5: principles each party is bringing to the table.
Speaker 2: The precision on the.
Speaker 5: Numbers is going to follow later after we get more details.
Speaker 3: Okay, I want to build at this though, And this
Speaker 3: is what we're talking about with Tobias Marcus too. I mean,
Speaker 3: we talk about the lack of clarity around some of
Speaker 3: these numbers that we get and the details that are
Speaker 3: yet to be worked out, and yet house after houses
Speaker 3: come out and said that Trump is going to increase
Speaker 3: the deficit more than Kamala Harris. We have a number
Speaker 3: of Republican strategis as well as people who could be
Speaker 3: as advisors, who come on the show and get very
Speaker 3: angry and they tell us that we're not accounting for
Speaker 3: growth that will come on the heels of some of
Speaker 3: these tax cuts, et cetera. What's the argument against that?
Speaker 3: Why is that not being included in any of this?
Speaker 5: Well, I think there's a technical argument and then there's
Speaker 5: more speculative argument. The technical argument is that the way
Speaker 5: the government's going to score any of these things typically
Speaker 5: is not going to account for incremental growth or dynamic
Speaker 5: scoring as they like to call it, and so investors
Speaker 5: kind of not having certainty on that, particularly bond market
Speaker 5: investors are really going to project for or sort to
Speaker 5: discount to the present what is the expected depths of
Speaker 5: projection that the government is telling them that's going the
Speaker 5: factor into supply, and so the idea of sort of
Speaker 5: future economic growth kind of mitigating that deficit impact to
Speaker 5: T plus two, three, four or five years later feels
Speaker 5: quite speculative and it's not something that you can work
Speaker 5: with from an investment perspective.
Speaker 6: Bank of America this morning. So the most important NFP
Speaker 6: and most important debate of the year, that's what we're
Speaker 6: waiting for. The debate is important because we still don't
Speaker 6: know all of Kamala Harris's policy proposals. What are you
Speaker 6: most interested in trying to understand from her economic plans?
Speaker 5: Yeah, means I would love to hear more precision on
Speaker 5: both the tax and the spending side. I don't think
Speaker 5: you're going to get more of that from either candidate though,
Speaker 5: And campaigns a lot of times are about putting your
Speaker 5: values out and expressing them in statements as opposed to
Speaker 5: specifical policies, because that's going to be more persuasive to voters.
Speaker 5: So I'm obviously going to watch carefully what happens on
Speaker 5: the debate station next week. I personally have low expectations
Speaker 5: for us learning more precisely what each candidate wants to.
Speaker 2: Have You developed much of a sective focus just yet
Speaker 2: or is it still too early.
Speaker 5: Well, I think there are some sectors that clearly sort
Speaker 5: of you know, benefit or benefit less in either outcome.
Speaker 5: To the extent Democrats have more control. A lot of
Speaker 5: the sectors that benefit from the IRA, particularly clean tech,
Speaker 5: are going to be more secure because that spending is
Speaker 5: going to be more secure if you have Republicans sweep
Speaker 5: and therefore more of a skew towards extending more of
Speaker 5: those tax cuts. You know, that skews more towards domestic industries,
Speaker 5: a little more towards small cap I think it's one
Speaker 5: of the reasons that when it looked like Trump win
Speaker 5: probabilities were going a lot higher following the June debate,
Speaker 5: you started to see signs of life in small caps,
Speaker 5: and that's kind of come back as things have gone
Speaker 5: to more of a toss up.
Speaker 2: This is what Dan Greenhouse said, yes that I on
Speaker 2: this program.
Speaker 3: Yeah, essentially that when you start to look underneath the hood,
Speaker 3: and this is what we heard also from Trump's potential
Speaker 3: advisor that they're going to free some of that funding
Speaker 3: for the IRA and that could end up really hurting
Speaker 3: particular areas, which is the reason why you're seeing some
Speaker 3: sort of shifting around the candidate.
Speaker 2: To speak almost exclusively for the investor class. I think
Speaker 2: the way they view things at the moment is that
Speaker 2: Harris needs Congress to do some of the bad stuff
Speaker 2: high corporate taxes. Trump doesn't need Congress to do some
Speaker 2: of the bad stuff. He needs Congress to do some
Speaker 2: of the good stuff to offset the tariffs. So ultimately,
Speaker 2: I think the things as they stand are Harris needs
Speaker 2: a sweep and that means that's bad for markets, and
Speaker 2: if Trump doesn't get sweep, that's also bad for markets.
Speaker 3: Fair Enough, sure, I mean I think that right now.
Speaker 3: What I find most interesting is that regardless of whether
Speaker 3: that's good for markets or bad for markets, it's when
Speaker 3: it will be good for markets are bad for markets.
Speaker 3: And the fact that Michael Jesus is saying that essentially
Speaker 3: the sweeteners will come later because it will take longer
Speaker 3: to me is indicative of well, the Trump trade looked
Speaker 3: different this time around.
Speaker 2: Mike, this was great. It's going to see it's a
Speaker 2: complex stuff. Mike Seest of Morgan Stanley. This is the
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