1 00:00:00,120 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify, or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:36,800 Speaker 2: Terminal and the Bloomberg Business App. We begin with our 10 00:00:36,840 --> 00:00:39,960 Speaker 2: top story, Alpha Ben and Tesla results failing to impress 11 00:00:39,960 --> 00:00:43,160 Speaker 2: investors as earning season continues to ramp up. Black Ross 12 00:00:43,240 --> 00:00:45,960 Speaker 2: Kate Moore right in the following early reports suggests a 13 00:00:46,000 --> 00:00:51,479 Speaker 2: potential continuation of first quarter trends. Auto industrial cyclicals not 14 00:00:51,600 --> 00:00:54,600 Speaker 2: yet out of the words, Consumer spending remains tempered, and 15 00:00:54,680 --> 00:00:58,400 Speaker 2: companies with positive earnings momentum into a slowing economy will 16 00:00:58,440 --> 00:01:01,120 Speaker 2: be rewarded. Kate joins us for more. Okay, let's talk 17 00:01:01,160 --> 00:01:02,720 Speaker 2: about the theme and welcome to the show. It's been 18 00:01:02,760 --> 00:01:05,560 Speaker 2: too long as always, Yes, get straight Instagram, I've got 19 00:01:05,600 --> 00:01:07,720 Speaker 2: to see you. The small caps rippen in the last 20 00:01:07,760 --> 00:01:10,040 Speaker 2: couple of weeks. You don't think it's that durable. Let's 21 00:01:10,040 --> 00:01:10,559 Speaker 2: start there. 22 00:01:10,920 --> 00:01:14,120 Speaker 1: Why Okay, Yeah, I mean we could have like a 23 00:01:14,120 --> 00:01:16,720 Speaker 1: whole conversation about this, John, But there are a few reasons. 24 00:01:16,920 --> 00:01:19,240 Speaker 1: I think the most primary reason here is that small 25 00:01:19,240 --> 00:01:22,560 Speaker 1: caps tend to perform when the economy is improving, when 26 00:01:22,560 --> 00:01:26,080 Speaker 1: the second derivative of economic growth is positive. And we're 27 00:01:26,080 --> 00:01:27,560 Speaker 1: at a point right now where I think we can 28 00:01:27,600 --> 00:01:30,240 Speaker 1: all agree the economy is slowing, maybe not at a 29 00:01:30,319 --> 00:01:32,400 Speaker 1: dramatic piece at this point, but in such a way 30 00:01:32,400 --> 00:01:35,280 Speaker 1: that the BED should be able to ease policy rates. 31 00:01:35,040 --> 00:01:36,000 Speaker 3: Sooner rather than later. 32 00:01:36,360 --> 00:01:39,360 Speaker 1: And that environment that's slowing economy is not generally good 33 00:01:39,360 --> 00:01:42,640 Speaker 1: for companies that are price takers, that are in lower 34 00:01:42,680 --> 00:01:45,200 Speaker 1: on the supply chain, and that tend to not have 35 00:01:45,319 --> 00:01:48,080 Speaker 1: the diversity of businesses that they're large in. Megacap peers 36 00:01:48,120 --> 00:01:51,120 Speaker 1: do the cushion them through different parts of an economic cycle. 37 00:01:51,680 --> 00:01:53,400 Speaker 1: I also want to point this out, you know, because 38 00:01:53,400 --> 00:01:57,520 Speaker 1: people have made the small cap argument around the debt profile. Hey, 39 00:01:57,640 --> 00:01:59,640 Speaker 1: you know, small caps have a lot of floating rate debt, 40 00:01:59,680 --> 00:02:01,240 Speaker 1: and that's going to be great when the FED starts 41 00:02:01,280 --> 00:02:03,720 Speaker 1: cutting rates. Well, they need more than twenty five or 42 00:02:03,760 --> 00:02:06,400 Speaker 1: fifty or in many cases seventy five basis points of 43 00:02:06,480 --> 00:02:09,480 Speaker 1: raid cuts before really has a significant impact. And I 44 00:02:09,480 --> 00:02:11,280 Speaker 1: want to note that a lot of the debt for 45 00:02:11,320 --> 00:02:14,160 Speaker 1: the small caps it comes in the form of bank loans, 46 00:02:14,400 --> 00:02:16,520 Speaker 1: and we need banks to feel confident enough about the 47 00:02:16,560 --> 00:02:19,400 Speaker 1: economy to be extending that those loans to the small 48 00:02:19,400 --> 00:02:22,200 Speaker 1: companies at the same time. So I think this is 49 00:02:22,200 --> 00:02:26,280 Speaker 1: a tactical, technical, and sentiment oriented play and not really 50 00:02:26,360 --> 00:02:28,399 Speaker 1: based on the fundamentals of small companies. 51 00:02:28,600 --> 00:02:30,720 Speaker 4: It also is based on valuations, Kate, at a time 52 00:02:30,880 --> 00:02:33,440 Speaker 4: when you're still seeing some of the big tech names 53 00:02:33,800 --> 00:02:37,480 Speaker 4: really garnering some pretty high elevations, you've been overweighted some 54 00:02:37,520 --> 00:02:39,760 Speaker 4: of the AI names, some of the big tech darlings, 55 00:02:40,120 --> 00:02:42,760 Speaker 4: and even you seem to be cooling on the margins 56 00:02:42,919 --> 00:02:45,720 Speaker 4: about just how much further they can go. Can you 57 00:02:45,800 --> 00:02:49,200 Speaker 4: explain the sort of bifurcation of not being particularly positive 58 00:02:49,240 --> 00:02:52,120 Speaker 4: on the small caps but also sort of seeing some 59 00:02:52,200 --> 00:02:55,959 Speaker 4: of the large cap beloved stocks losing some luster. 60 00:02:57,000 --> 00:02:59,040 Speaker 1: Yeah, you're right, it is a little bit of a 61 00:02:59,080 --> 00:03:02,160 Speaker 1: tricky point. I hopefully want to get to a point 62 00:03:02,160 --> 00:03:04,320 Speaker 1: in the fall where our view changes a little bit, 63 00:03:04,480 --> 00:03:06,400 Speaker 1: but we've been trimming a little bit of our very 64 00:03:06,440 --> 00:03:09,079 Speaker 1: significant what had been a very significant tech overweight over 65 00:03:09,120 --> 00:03:12,079 Speaker 1: the course of the last number of weeks, since it's 66 00:03:12,120 --> 00:03:15,079 Speaker 1: really kind of late spring. And much of that has 67 00:03:15,120 --> 00:03:18,040 Speaker 1: to do with the incredible performance we saw in the 68 00:03:18,080 --> 00:03:20,320 Speaker 1: first half of the year, and as you point out, 69 00:03:20,480 --> 00:03:23,359 Speaker 1: we've traded at premium valuations for lots of these stocks. 70 00:03:23,480 --> 00:03:26,920 Speaker 1: We don't actually think most of these aied AI oriented 71 00:03:26,960 --> 00:03:29,959 Speaker 1: companies are going to have trouble with their earnings. Remember 72 00:03:30,000 --> 00:03:32,640 Speaker 1: their later reporters made the report kind of late next 73 00:03:32,680 --> 00:03:34,920 Speaker 1: week or in through August. I think those are going 74 00:03:34,960 --> 00:03:38,000 Speaker 1: to be the show me moments for the theme. That said, 75 00:03:38,640 --> 00:03:41,840 Speaker 1: when we're at these kind of price to perfection levels 76 00:03:41,920 --> 00:03:44,080 Speaker 1: and we're at such huge premiums to other parts of 77 00:03:44,080 --> 00:03:46,480 Speaker 1: the market, it's just good risk management to trim a 78 00:03:46,520 --> 00:03:48,840 Speaker 1: little bit. I just also want to emphasize, though, that 79 00:03:48,880 --> 00:03:52,800 Speaker 1: our enthusiasm for the AI theme has not diminished. This 80 00:03:52,840 --> 00:03:55,680 Speaker 1: is more of a tactical and portfolio construction move that. 81 00:03:55,640 --> 00:03:58,640 Speaker 4: We've made, which might explain why other people seem to 82 00:03:58,680 --> 00:04:00,760 Speaker 4: have a similar kind of sentiment, least based on the 83 00:04:00,760 --> 00:04:04,320 Speaker 4: price reaction to Google shares after their earnings that were 84 00:04:04,480 --> 00:04:08,200 Speaker 4: largely better than expected. Just when you dial this forward, 85 00:04:08,520 --> 00:04:12,240 Speaker 4: if you're marginally selling some of the large cap names 86 00:04:12,520 --> 00:04:16,200 Speaker 4: and you're not buying small caps, what are you going into. 87 00:04:17,400 --> 00:04:19,320 Speaker 1: Well, we've kind of marginally sold a little bit on 88 00:04:19,680 --> 00:04:22,960 Speaker 1: the AI and tech oriented names, but we've done a 89 00:04:22,960 --> 00:04:26,559 Speaker 1: little bit of sector rotation, nothing dramatic. We're not buying 90 00:04:26,600 --> 00:04:28,560 Speaker 1: into sectors we don't have a lot of conviction in. 91 00:04:28,600 --> 00:04:31,000 Speaker 1: I would say we're not adding to consumer staples at 92 00:04:31,000 --> 00:04:34,200 Speaker 1: this point, but you know, we've been selective around banks. 93 00:04:34,279 --> 00:04:36,400 Speaker 1: I think there's some opportunity there. We see some very 94 00:04:36,440 --> 00:04:40,640 Speaker 1: high quality bound sheets and opportunities. We see some opportunities 95 00:04:40,680 --> 00:04:43,960 Speaker 1: across energy stuff that has gotten exceptionally cheap, and we're 96 00:04:43,960 --> 00:04:46,479 Speaker 1: going to continue to kind of monitor both the growth 97 00:04:46,520 --> 00:04:49,600 Speaker 1: story that could impact energy as well as the policy side. 98 00:04:49,960 --> 00:04:52,440 Speaker 1: And then I would say there are parts of consumer 99 00:04:52,680 --> 00:04:55,600 Speaker 1: that we do like and we are being selected there. 100 00:04:55,880 --> 00:04:57,880 Speaker 1: You mentioned just a moment before I came on that 101 00:04:57,960 --> 00:05:00,760 Speaker 1: there has been very mixed news forarticularly for the low 102 00:05:00,839 --> 00:05:01,560 Speaker 1: end consumer. 103 00:05:02,320 --> 00:05:03,120 Speaker 3: But there are. 104 00:05:03,240 --> 00:05:08,040 Speaker 1: Consumer companies, maybe experiential consumer companies or those with very 105 00:05:08,080 --> 00:05:11,719 Speaker 1: specific and well loved brands that we think can be 106 00:05:11,800 --> 00:05:14,920 Speaker 1: resilient even in the slong economy. So let's just say this, 107 00:05:15,120 --> 00:05:17,640 Speaker 1: we're being more selective and we're kind of trimming on 108 00:05:17,720 --> 00:05:20,880 Speaker 1: margin stuff that has run very, very hard, but not 109 00:05:20,960 --> 00:05:22,080 Speaker 1: giving up on the theme. 110 00:05:21,960 --> 00:05:24,080 Speaker 2: You named the range of sectors. One I just want 111 00:05:24,120 --> 00:05:25,560 Speaker 2: to tase out and build on that, and then we 112 00:05:25,560 --> 00:05:28,120 Speaker 2: can go to Weather's kate energy and you mentioned some 113 00:05:28,200 --> 00:05:30,600 Speaker 2: policy considerations. Can you get a little bit deeper. How 114 00:05:30,640 --> 00:05:31,800 Speaker 2: are you thinking about that sector? 115 00:05:32,960 --> 00:05:37,720 Speaker 1: Well, I mean, energy has the potential to look quite 116 00:05:37,760 --> 00:05:41,320 Speaker 1: different in twenty twenty five under one administration rather than another. 117 00:05:42,080 --> 00:05:44,359 Speaker 1: And we're going to be paying very close attention to 118 00:05:44,400 --> 00:05:47,719 Speaker 1: what happens in the November election, not just the presidential level, 119 00:05:47,760 --> 00:05:49,920 Speaker 1: but also at the congressional level, you know, and kind 120 00:05:49,920 --> 00:05:53,120 Speaker 1: of how the tone might change towards traditional energy versus 121 00:05:53,200 --> 00:05:57,000 Speaker 1: renewable energy, in which parts of that complex have the 122 00:05:57,040 --> 00:06:00,680 Speaker 1: best legs for the next couple of years. I will say, 123 00:06:01,240 --> 00:06:03,880 Speaker 1: even though we're talking about slowing growth, we're not talking 124 00:06:03,880 --> 00:06:07,479 Speaker 1: about catastrophic growth. So we think there's an underlying overall 125 00:06:07,520 --> 00:06:10,760 Speaker 1: demand for traditional energy. And we've continued to see that 126 00:06:10,839 --> 00:06:14,040 Speaker 1: type of capital discipline that we've talked about many times 127 00:06:14,120 --> 00:06:16,719 Speaker 1: in the traditional energy companies, which is leading them to 128 00:06:16,760 --> 00:06:21,000 Speaker 1: look fairly profitable and to generate cash. So there's a 129 00:06:21,000 --> 00:06:22,720 Speaker 1: lot to do there, and I think it's kind of 130 00:06:22,720 --> 00:06:25,960 Speaker 1: an interesting and exciting sector given potential policy changes in 131 00:06:26,000 --> 00:06:28,279 Speaker 1: the US and elsewhere, and that may lead to some 132 00:06:28,400 --> 00:06:30,520 Speaker 1: rotations within the industries in the sector. 133 00:06:30,839 --> 00:06:33,960 Speaker 5: Can you just drill down into exactly what you're looking 134 00:06:34,000 --> 00:06:37,279 Speaker 5: at how the rhetoric potentially can mean an investment decision 135 00:06:37,320 --> 00:06:40,800 Speaker 5: because under Biden, energy stocks did do well and we're 136 00:06:40,839 --> 00:06:44,760 Speaker 5: pumping at least crude natural gas, the most any country 137 00:06:44,800 --> 00:06:48,520 Speaker 5: has ever produced on record, even though the former president 138 00:06:48,560 --> 00:06:51,800 Speaker 5: Donald Trump says he's going to unleash America's liquid goal. 139 00:06:51,960 --> 00:06:54,279 Speaker 5: So how do you put some of this rhetoric into 140 00:06:54,320 --> 00:06:54,880 Speaker 5: a position? 141 00:06:55,920 --> 00:06:56,680 Speaker 3: Yeah, I mean, I. 142 00:06:56,600 --> 00:06:59,840 Speaker 1: Think this is a great point in any political cycles, 143 00:07:00,160 --> 00:07:04,039 Speaker 1: huge gap between narrative and reality, and when it comes 144 00:07:04,120 --> 00:07:06,520 Speaker 1: to energy, you pointed this out very well. There was 145 00:07:06,560 --> 00:07:11,080 Speaker 1: an enormous gap between negative rhetoric and actual reality. 146 00:07:11,480 --> 00:07:13,080 Speaker 3: So here's what I will say. 147 00:07:13,200 --> 00:07:16,160 Speaker 1: We have to understand what the consensus thinks. We need 148 00:07:16,200 --> 00:07:20,320 Speaker 1: to understand how people, not just ourselves, are interpreting policy, 149 00:07:20,600 --> 00:07:23,440 Speaker 1: and we need to position ourselves around that not just 150 00:07:23,480 --> 00:07:26,280 Speaker 1: around the real impacts of policy. It's kind of like 151 00:07:26,320 --> 00:07:30,360 Speaker 1: the second River. It's the understanding behavior. It's understanding sentiment, 152 00:07:30,600 --> 00:07:34,360 Speaker 1: and it's understanding how people have gone into changes in 153 00:07:34,440 --> 00:07:37,680 Speaker 1: rhetoric and the narrative in terms of their positioning. So 154 00:07:37,680 --> 00:07:39,400 Speaker 1: it's a little bit of art, I would say. I mean, 155 00:07:39,520 --> 00:07:41,800 Speaker 1: this is kind of one of the fun parts of investing. 156 00:07:42,760 --> 00:07:44,680 Speaker 1: I think there are lots of parts of policy, and 157 00:07:45,040 --> 00:07:47,880 Speaker 1: outside of energy, for example, that could look a little 158 00:07:47,920 --> 00:07:51,120 Speaker 1: different in twenty twenty five under either administration. We've been 159 00:07:51,160 --> 00:07:53,280 Speaker 1: spending a huge amount of time, and you know, there's 160 00:07:53,400 --> 00:07:55,840 Speaker 1: a lot of the street been talking about one set 161 00:07:55,880 --> 00:07:58,080 Speaker 1: of trades versus another set of trades. I have to say, 162 00:07:58,120 --> 00:08:00,880 Speaker 1: I think it's premature. I've made this point multiple times 163 00:08:00,880 --> 00:08:03,880 Speaker 1: and I'm going to just underscore it again. Congress matters, 164 00:08:03,960 --> 00:08:06,400 Speaker 1: and at this point we don't have a great sense 165 00:08:06,440 --> 00:08:08,200 Speaker 1: for how the down ballot votes are going to go. 166 00:08:09,040 --> 00:08:12,280 Speaker 1: And if we have a sense, let's say at the 167 00:08:12,400 --> 00:08:15,080 Speaker 1: end of November, for what the composition of Congress is 168 00:08:15,120 --> 00:08:17,239 Speaker 1: going to look like, what kind of policies could actually 169 00:08:17,240 --> 00:08:19,160 Speaker 1: been enacted, I think it's going to be an easier 170 00:08:19,200 --> 00:08:23,480 Speaker 1: time to put on a more specific US policy trades 171 00:08:23,480 --> 00:08:24,040 Speaker 1: than today. 172 00:08:24,640 --> 00:08:26,960 Speaker 2: You've got to wait. Came off of blank, Girldka. Thank 173 00:08:26,960 --> 00:08:38,800 Speaker 2: you appreciate it, Thank you very much. It's the LASST 174 00:08:38,800 --> 00:08:41,880 Speaker 2: this morning is Rayley. Prime Minister Benjamin Natiya, who's speaking 175 00:08:41,880 --> 00:08:45,000 Speaker 2: before Congress at two pm Eastern today, where he's expected 176 00:08:45,040 --> 00:08:46,840 Speaker 2: to try to shore up support as the war in 177 00:08:46,880 --> 00:08:50,520 Speaker 2: Gaza continues. Natanya, who's set to meet with President Biden 178 00:08:50,559 --> 00:08:54,040 Speaker 2: and Vice President Kamala Harris separately on Thursday, followed by 179 00:08:54,080 --> 00:08:57,160 Speaker 2: a meeting with Donald Trump on Friday. Aaron David Miller 180 00:08:57,400 --> 00:08:59,920 Speaker 2: of the Carnegie Endownment for International Peace joins us now 181 00:09:00,000 --> 00:09:02,240 Speaker 2: now for maw and I want to get to this question. 182 00:09:02,440 --> 00:09:05,480 Speaker 2: President Biden is a Lamdun president. We all understand that. 183 00:09:05,679 --> 00:09:07,960 Speaker 2: Do you think that gives him less space to deal 184 00:09:08,000 --> 00:09:10,360 Speaker 2: with the likes of nets in Yahoo or more space 185 00:09:10,559 --> 00:09:11,520 Speaker 2: to find an agreement? 186 00:09:12,520 --> 00:09:15,000 Speaker 3: I mean, look, I think from the beginning of this conflict, 187 00:09:15,040 --> 00:09:19,760 Speaker 3: Thanks for having me, John, the tone, the trajectory, the motives, 188 00:09:19,800 --> 00:09:23,640 Speaker 3: the calculations escalation de escalation have been set by the 189 00:09:23,640 --> 00:09:27,240 Speaker 3: two major combatants, Israel and Hamas. If there is a deal, 190 00:09:27,360 --> 00:09:30,160 Speaker 3: and I suspect there's a reasonable chance by mid August 191 00:09:30,520 --> 00:09:32,720 Speaker 3: that you actually could achieve one. I think it'll have 192 00:09:32,760 --> 00:09:36,200 Speaker 3: more to do frankly, with changing calculations on the part 193 00:09:36,240 --> 00:09:41,560 Speaker 3: of Hamas and or Israel particular, mister Ntaganhu, than it 194 00:09:41,600 --> 00:09:44,920 Speaker 3: will be with American pressure on one hand or American 195 00:09:44,960 --> 00:09:46,880 Speaker 3: persuasion on the other. 196 00:09:47,440 --> 00:09:49,880 Speaker 5: Aaron, we have commercial ships in the Red Sea still 197 00:09:49,960 --> 00:09:54,359 Speaker 5: under threat, we have five Americans still under hostage from Hamas. 198 00:09:54,920 --> 00:09:58,120 Speaker 5: What it kind of deterrens do you see from this 199 00:09:58,200 --> 00:09:59,679 Speaker 5: administration currently? 200 00:10:00,760 --> 00:10:03,160 Speaker 3: You know, I think and there are many feelings about 201 00:10:03,160 --> 00:10:05,640 Speaker 3: the administration's policies for this war, but I think the 202 00:10:05,679 --> 00:10:09,920 Speaker 3: one issue that they've been relatively successful on is preventing 203 00:10:10,040 --> 00:10:11,920 Speaker 3: what I would describe to you as a major, a 204 00:10:11,960 --> 00:10:16,160 Speaker 3: major escalation. Certainly, the Huthis are going to remain a problem. 205 00:10:16,280 --> 00:10:18,440 Speaker 3: I mean, they are a keeper, There's no question about it. 206 00:10:18,480 --> 00:10:21,760 Speaker 3: They are, according to some analysts, the southern is Bulah, 207 00:10:21,800 --> 00:10:24,319 Speaker 3: and they've demonstrated that they have reached They launched this 208 00:10:24,400 --> 00:10:29,640 Speaker 3: Sama drone thirteen hundred miles from Yemen into downtown central 209 00:10:29,679 --> 00:10:32,160 Speaker 3: Tel AVIVI not even is Bulah has done that. So 210 00:10:32,200 --> 00:10:35,120 Speaker 3: I think the administration has to deal with a certain 211 00:10:35,200 --> 00:10:37,959 Speaker 3: number of realities in One of those is that Iran 212 00:10:38,040 --> 00:10:42,080 Speaker 3: has benefited greatly from the use and exploitation of their proxies, 213 00:10:42,160 --> 00:10:47,000 Speaker 3: and there's very little, frankly pending some transformative agreement between 214 00:10:47,000 --> 00:10:51,400 Speaker 3: the US and Iran highly unlikely certainly between now and 215 00:10:51,440 --> 00:10:54,800 Speaker 3: the end of this administration or probably for the next. 216 00:10:54,800 --> 00:10:58,080 Speaker 3: So that's a problem that the United States has no 217 00:10:58,160 --> 00:10:59,960 Speaker 3: solution to. It's going to have to try to make 218 00:11:00,360 --> 00:11:01,480 Speaker 3: to the best of its ability. 219 00:11:01,679 --> 00:11:05,560 Speaker 5: It feels like we continuously see red lines crossed when 220 00:11:05,559 --> 00:11:07,920 Speaker 5: it comes to this conflict, but especially when it comes 221 00:11:07,960 --> 00:11:12,640 Speaker 5: to Iran. What is the policy currently from the Biden administration. 222 00:11:12,840 --> 00:11:16,199 Speaker 3: Management and de escalation and look, in fairness to the 223 00:11:16,320 --> 00:11:19,480 Speaker 3: Mession for frankly, any administration, I work for a republican 224 00:11:19,520 --> 00:11:23,240 Speaker 3: and democratic administration. We have a strategic problem with Iran, 225 00:11:23,720 --> 00:11:26,400 Speaker 3: both on the nuclear side and with respect to their 226 00:11:26,520 --> 00:11:29,320 Speaker 3: use of proxy proxies in the region, and we have 227 00:11:29,640 --> 00:11:33,520 Speaker 3: no strategic solution. The reality is you have a regime 228 00:11:33,559 --> 00:11:39,120 Speaker 3: that is highly ideological and dangerously pragmatic. It's expanded its 229 00:11:39,120 --> 00:11:42,600 Speaker 3: reach now and creating a virtual alliance with Putin and 230 00:11:42,640 --> 00:11:45,840 Speaker 3: his war against Ukraine's back to his Bulah, the Huthis 231 00:11:46,280 --> 00:11:50,559 Speaker 3: Hamas in Gaza, a little cost and expense to itself. 232 00:11:50,679 --> 00:11:53,559 Speaker 3: The Iranian problem, unless of the change in regime, in 233 00:11:53,679 --> 00:11:56,480 Speaker 3: my judgment, is going to be a management problem. It's 234 00:11:56,480 --> 00:12:00,840 Speaker 3: not pretty, it's not emostally satisfied, but frankly reality, I 235 00:12:00,920 --> 00:12:02,640 Speaker 3: just don't see the alternative right now. 236 00:12:03,080 --> 00:12:06,199 Speaker 4: So given that that's sort of an ongoing Simmary issue. 237 00:12:06,520 --> 00:12:10,480 Speaker 4: Looking inward, you've worked with both Republican and Democratic administrations 238 00:12:10,520 --> 00:12:14,959 Speaker 4: when trying to manage this situation and the applications for Israel. 239 00:12:15,320 --> 00:12:19,240 Speaker 4: Have you ever seen such a big divergence between Republicans 240 00:12:19,280 --> 00:12:22,079 Speaker 4: and Democrats in terms of support for Israel. 241 00:12:22,840 --> 00:12:25,200 Speaker 3: I mean, I think you really broke the code. You 242 00:12:25,280 --> 00:12:29,280 Speaker 3: have a degree of polarization and the fracturing of bipartisanship 243 00:12:29,320 --> 00:12:33,640 Speaker 3: that is unprecedented in this relationship. The Republican Party, and 244 00:12:33,720 --> 00:12:36,559 Speaker 3: again I've voted for Republicans and I've worked for Republicans. 245 00:12:36,600 --> 00:12:40,319 Speaker 3: Maybe not these kinds of Republicans, but the REPLCME Party 246 00:12:40,360 --> 00:12:43,080 Speaker 3: has emerged as the Israel can do no wrong party, 247 00:12:43,520 --> 00:12:47,600 Speaker 3: and the Democratic Party is split not just between progressives 248 00:12:47,600 --> 00:12:51,480 Speaker 3: and mainstreamers. You have mainstream Democrats, Chris Krunz, Chris van Hollen, 249 00:12:51,840 --> 00:12:54,520 Speaker 3: Chris Murphy, who at one point or another the last 250 00:12:54,559 --> 00:12:59,080 Speaker 3: several months have publicly called for conditioning military assistance to Israel. 251 00:12:59,120 --> 00:13:02,160 Speaker 3: So what is it state here? I think, literally, for 252 00:13:02,200 --> 00:13:03,920 Speaker 3: the first time in the history of the US, is 253 00:13:03,920 --> 00:13:08,920 Speaker 3: a real relationship. Is a debate between Republicans and Democrats 254 00:13:08,960 --> 00:13:12,720 Speaker 3: and within the Democratic Party about what it actually means 255 00:13:13,559 --> 00:13:17,600 Speaker 3: to be proSP and that for anyone who is interested 256 00:13:17,880 --> 00:13:22,040 Speaker 3: or cares about a strong, healthy US is real relationship 257 00:13:22,080 --> 00:13:27,600 Speaker 3: based on reciprocity and trust. That is a very worrisome development. 258 00:13:27,840 --> 00:13:30,840 Speaker 4: So what is a pro Israel point of view from 259 00:13:30,840 --> 00:13:33,480 Speaker 4: the Donald Trump camp versus the Kamala Harris camp. 260 00:13:33,960 --> 00:13:37,000 Speaker 3: Well, I think you all presidents are blind dates, right, 261 00:13:37,040 --> 00:13:39,679 Speaker 3: So no matter what their resumes are, when they get 262 00:13:39,720 --> 00:13:43,800 Speaker 3: to the White House, they essentially are going to be tested. 263 00:13:44,120 --> 00:13:47,720 Speaker 3: You've had four years of a trial run with Donald Trump. 264 00:13:47,720 --> 00:13:49,600 Speaker 3: And again, I'll say it again, I've voted for a 265 00:13:49,640 --> 00:13:52,640 Speaker 3: PUBLICUS of Democrats. I've worked for a polics and of Democrats. 266 00:13:52,840 --> 00:13:56,360 Speaker 3: I think it's fair to say that Donald Trump, whose 267 00:13:56,400 --> 00:13:59,880 Speaker 3: conception of the national interest frankly is transcended by his 268 00:14:00,160 --> 00:14:06,480 Speaker 3: own personal interests excuse me, and tethering to his political interests, 269 00:14:07,000 --> 00:14:10,560 Speaker 3: created what I would call as a believer in strong 270 00:14:10,640 --> 00:14:13,160 Speaker 3: US is reel relationship, a sort of a sugar high 271 00:14:13,200 --> 00:14:16,880 Speaker 3: for Israel, a series of goodies pro Israeli gestures and 272 00:14:17,000 --> 00:14:21,240 Speaker 3: policies which were very pro Israel and appreciated by certainly 273 00:14:21,240 --> 00:14:25,680 Speaker 3: by Benjamin Attaniahu, with whom the former president has a 274 00:14:25,720 --> 00:14:30,040 Speaker 3: sort of vulcan mind meld, but unbalanced. The Trump administration, 275 00:14:30,160 --> 00:14:32,360 Speaker 3: even though it deserves credit for the abraham of Courts, 276 00:14:32,760 --> 00:14:38,280 Speaker 3: also had no serious, significant policy or approach to managing 277 00:14:38,880 --> 00:14:41,280 Speaker 3: what I think is probably the greater challenge at these 278 00:14:41,280 --> 00:14:44,560 Speaker 3: early face and that is what to do about the Palestinians. 279 00:14:44,840 --> 00:14:47,680 Speaker 3: You have fifteen million humans, and let me deploy river 280 00:14:47,840 --> 00:14:51,040 Speaker 3: to the ceed here in an educational context, you have 281 00:14:51,160 --> 00:14:55,400 Speaker 3: fifteen million humans living between the Mediterranean Sea and the 282 00:14:55,480 --> 00:14:59,040 Speaker 3: Jordan River. What are you going to do? How are 283 00:14:59,040 --> 00:15:03,240 Speaker 3: they going to co exist? In my judgment, the only rational, 284 00:15:03,280 --> 00:15:06,280 Speaker 3: even though it's more attuned to it galaxy far far 285 00:15:06,320 --> 00:15:11,080 Speaker 3: away than back herond planet Earth, is separation through negotiations. 286 00:15:11,520 --> 00:15:14,239 Speaker 3: And the Trump administration took an approach on the Palestinian 287 00:15:14,280 --> 00:15:20,120 Speaker 3: issue which essentially discounted it as a factor. And I 288 00:15:20,160 --> 00:15:24,680 Speaker 3: think we see year after year after year that this problem, 289 00:15:25,000 --> 00:15:29,240 Speaker 3: the Hamas Terror surgy, Google Hamas Terror Surge is not 290 00:15:29,320 --> 00:15:32,800 Speaker 3: a manifestation, in my judgment, of what the more rational 291 00:15:32,880 --> 00:15:37,080 Speaker 3: elements within the Palestinian community want and believe they can 292 00:15:37,120 --> 00:15:40,400 Speaker 3: actually achieve for their people. So focusing on Palestinians I 293 00:15:40,480 --> 00:15:44,080 Speaker 3: think is critically important. However, Grim the future of a 294 00:15:44,160 --> 00:15:46,040 Speaker 3: two state solution is right now. 295 00:15:45,960 --> 00:15:48,240 Speaker 2: And we've run out of time. That was deeply thoughtful. 296 00:15:48,280 --> 00:15:51,080 Speaker 2: The subject has always been polarizing, it is even more 297 00:15:51,160 --> 00:15:53,680 Speaker 2: su in twenty twenty four, Aaron Tavid Miller of the 298 00:15:53,720 --> 00:16:06,600 Speaker 2: Canagan towmin for International Stephen Trent of City joined just 299 00:16:06,720 --> 00:16:08,680 Speaker 2: now for more. You're surprised the work more than that, 300 00:16:08,680 --> 00:16:11,480 Speaker 2: I think other people are too steven. Let's get into this. Typically, 301 00:16:11,480 --> 00:16:13,920 Speaker 2: when you see outages like this, there is this favorite 302 00:16:13,920 --> 00:16:17,720 Speaker 2: word of economists that we often hear by Amus as well, transitory. 303 00:16:17,760 --> 00:16:19,400 Speaker 2: It sort of comes and goes, we move on. It 304 00:16:19,400 --> 00:16:21,600 Speaker 2: doesn't leave a scar on the stock. Stephen, do you 305 00:16:21,600 --> 00:16:24,200 Speaker 2: think this moment is different for this airline? Which excuse 306 00:16:24,240 --> 00:16:26,400 Speaker 2: the plant has been flying high for quite a while 307 00:16:26,480 --> 00:16:28,400 Speaker 2: now in this country. 308 00:16:29,240 --> 00:16:31,760 Speaker 6: Oh, thank you very much for having me in. Good morning. 309 00:16:31,840 --> 00:16:35,000 Speaker 6: So when we see outages like this, This is a 310 00:16:35,000 --> 00:16:40,000 Speaker 6: little worse than one what would typically see from a 311 00:16:40,080 --> 00:16:43,760 Speaker 6: network outage or from some kind of weather event. So 312 00:16:44,040 --> 00:16:48,320 Speaker 6: people think, for example, back to Southwestern December twenty twenty two, 313 00:16:49,280 --> 00:16:55,040 Speaker 6: you saw that carrier's cancelations around the low seventies for 314 00:16:55,160 --> 00:16:59,120 Speaker 6: a day or two, which is considerably higher than what 315 00:16:59,160 --> 00:17:02,120 Speaker 6: we're seeing for Adel today. So Delta, we saw a 316 00:17:02,120 --> 00:17:04,960 Speaker 6: couple of days where the cancelation rates were in the thirties, 317 00:17:05,680 --> 00:17:09,000 Speaker 6: but indeed it's a couple of days. So Delta did 318 00:17:09,080 --> 00:17:14,800 Speaker 6: have a technology outage in twenty sixteen and that resulted in, 319 00:17:15,040 --> 00:17:21,480 Speaker 6: for example, twenty three hundred council flights. At this point, unfortunately, 320 00:17:22,080 --> 00:17:26,240 Speaker 6: the carrier is above fifty five hundred cancelations since Friday, 321 00:17:26,359 --> 00:17:29,480 Speaker 6: So in terms of scale, it is a little bit 322 00:17:29,560 --> 00:17:32,760 Speaker 6: tougher than most of what we've seen in the past. 323 00:17:33,200 --> 00:17:35,600 Speaker 2: Saying you know these companies inside out, what is it 324 00:17:35,640 --> 00:17:38,720 Speaker 2: about how Deltzer operates that It's meant they found it 325 00:17:38,800 --> 00:17:42,679 Speaker 2: much more difficult to respond and actually make sure they 326 00:17:42,680 --> 00:17:45,080 Speaker 2: can come out the other side of this faster than 327 00:17:45,080 --> 00:17:48,040 Speaker 2: nearther airlines have. It feels like it's back to business 328 00:17:48,240 --> 00:17:51,320 Speaker 2: at American are United. Why can't the same be said 329 00:17:51,359 --> 00:17:53,800 Speaker 2: about Delta when they all experienced a similar shock. 330 00:17:55,600 --> 00:17:59,919 Speaker 6: Yeah, absolutely so. Not every airline has the same technological setup. 331 00:18:00,800 --> 00:18:05,040 Speaker 6: It's conceivable, for example, that the other carriers do not 332 00:18:05,200 --> 00:18:09,159 Speaker 6: have as much exposure to CrowdStrike excuse me, and maybe 333 00:18:09,160 --> 00:18:12,000 Speaker 6: some of the carriers don't have any exposure. Over the 334 00:18:12,040 --> 00:18:15,280 Speaker 6: last couple of weeks, for example, to its credit, we 335 00:18:15,359 --> 00:18:21,480 Speaker 6: saw very little disruption with Southwest or Alaska airlines for instance, 336 00:18:22,000 --> 00:18:26,520 Speaker 6: where a Delta for instance, has something like over ten 337 00:18:26,600 --> 00:18:31,199 Speaker 6: thousand individual systems that it has to restart as a 338 00:18:31,240 --> 00:18:36,120 Speaker 6: result of this crowd strike out it so the relative 339 00:18:36,240 --> 00:18:38,320 Speaker 6: exposures are not the same. 340 00:18:39,119 --> 00:18:40,880 Speaker 4: I guess there's a larger question here, Steven, and we've 341 00:18:40,880 --> 00:18:43,200 Speaker 4: been asking it in terms of how do you diversify 342 00:18:43,600 --> 00:18:46,800 Speaker 4: away from being so dependent on one system that you 343 00:18:46,840 --> 00:18:50,040 Speaker 4: could be vulnerable to this type of thing happening. Has 344 00:18:50,040 --> 00:18:53,280 Speaker 4: anyone been examining the vulnerabilities not just in Delta but 345 00:18:53,320 --> 00:18:56,640 Speaker 4: other airlines as well, in terms of United was really 346 00:18:56,680 --> 00:19:00,600 Speaker 4: sunk when there were problems with specific Boeing planes. There 347 00:19:00,680 --> 00:19:04,000 Speaker 4: is this question now with Delta and CrowdStrike. Are there 348 00:19:04,080 --> 00:19:06,760 Speaker 4: sort of key vulnerabilities that people are studying within the 349 00:19:06,800 --> 00:19:10,119 Speaker 4: airlines that could sink entire systems all of a sudden, 350 00:19:10,359 --> 00:19:12,600 Speaker 4: in a flash. 351 00:19:12,680 --> 00:19:16,520 Speaker 6: Yeah, it's a hard one because I think the group 352 00:19:16,680 --> 00:19:20,080 Speaker 6: thinks about these kind of risks all the time. So 353 00:19:20,240 --> 00:19:23,479 Speaker 6: for example today, exactly as you said, if you're an 354 00:19:23,560 --> 00:19:28,040 Speaker 6: airline that's operating only Boeing seven three seven maxis you 355 00:19:28,160 --> 00:19:32,520 Speaker 6: have a different set of supply risk for example, versus 356 00:19:32,520 --> 00:19:37,400 Speaker 6: a competitor that has Boeing Airbus and Embryer planes for instance. 357 00:19:38,200 --> 00:19:43,080 Speaker 6: So that's always a risk in terms of whether these 358 00:19:43,119 --> 00:19:47,680 Speaker 6: airlines need to have different systems set up. You know, 359 00:19:47,760 --> 00:19:51,840 Speaker 6: that's something that I think the group is probably going 360 00:19:51,920 --> 00:19:54,080 Speaker 6: to be looking into, at least elements of the market 361 00:19:54,480 --> 00:19:55,520 Speaker 6: are going to look into that. 362 00:19:56,000 --> 00:19:56,159 Speaker 1: You know. 363 00:19:56,240 --> 00:19:59,800 Speaker 6: On the other hand, there are other risks with having 364 00:20:00,520 --> 00:20:03,760 Speaker 6: too many suppliers. Just look at global supply chain today. 365 00:20:04,240 --> 00:20:06,359 Speaker 6: You basically need everything to go right. And I know 366 00:20:06,400 --> 00:20:08,959 Speaker 6: it's not exactly the same situation, but you need everything 367 00:20:09,000 --> 00:20:12,399 Speaker 6: to go right, and two or three suppliers can really, 368 00:20:13,440 --> 00:20:15,479 Speaker 6: you know, screw up the works, so to speak. So 369 00:20:16,640 --> 00:20:21,199 Speaker 6: I think in this case, certainly, I would imagine that 370 00:20:21,280 --> 00:20:24,360 Speaker 6: elements of the group are going to be looking at 371 00:20:24,440 --> 00:20:30,359 Speaker 6: how to have some fail safes in their technological supply 372 00:20:30,480 --> 00:20:31,159 Speaker 6: going forward. 373 00:20:31,640 --> 00:20:34,600 Speaker 5: I was struck by the Delta union saying pilots felt 374 00:20:34,640 --> 00:20:38,320 Speaker 5: quote abandoned basically by the system and the company. How 375 00:20:38,359 --> 00:20:41,359 Speaker 5: does Delta then close basically the trust gap they're going 376 00:20:41,400 --> 00:20:44,560 Speaker 5: to have with their flyers but also their staff. 377 00:20:46,600 --> 00:20:46,840 Speaker 3: Yeah. 378 00:20:46,880 --> 00:20:49,359 Speaker 6: So I think you have a situation like this with 379 00:20:49,480 --> 00:20:53,040 Speaker 6: thousands of flights consoles, you know, very easy to say 380 00:20:53,760 --> 00:20:59,879 Speaker 6: that for anybody involved, it's a very emotional situation. I 381 00:21:00,119 --> 00:21:05,920 Speaker 6: don't want to dismiss what frustration you may have from 382 00:21:05,960 --> 00:21:10,160 Speaker 6: pilots or customers or flight attendants. Certainly they have very 383 00:21:10,200 --> 00:21:14,440 Speaker 6: real frustrations, and many of them have had really bad weeks. 384 00:21:14,760 --> 00:21:15,320 Speaker 3: I get that. 385 00:21:16,040 --> 00:21:19,760 Speaker 6: I think when the dust settles on the root causes 386 00:21:19,800 --> 00:21:23,680 Speaker 6: of this and how it might be mitigated going forward, 387 00:21:24,320 --> 00:21:28,320 Speaker 6: I wouldn't say it's fair to take, you know, the 388 00:21:28,400 --> 00:21:33,679 Speaker 6: worst point of consumer and employee anger and project that forward. 389 00:21:34,520 --> 00:21:37,720 Speaker 6: You know, this problem did not start with Delta. Delta 390 00:21:37,840 --> 00:21:41,320 Speaker 6: is not the origin of this technological problem. They are 391 00:21:41,480 --> 00:21:45,000 Speaker 6: collateral damage, as were hospitals and nine to one one 392 00:21:45,040 --> 00:21:49,440 Speaker 6: call centers in various places. So I think the actions 393 00:21:49,480 --> 00:21:54,080 Speaker 6: that the carrier takes going forward present an opportunity in 394 00:21:54,160 --> 00:21:56,760 Speaker 6: terms of its relationship with those constituents. 395 00:21:57,080 --> 00:21:59,760 Speaker 2: Steven, great to get your thoughts. Appreciate it. Steven's trend 396 00:21:59,760 --> 00:22:12,920 Speaker 2: there of city. So this is really noteworthy. This morning 397 00:22:12,920 --> 00:22:16,280 Speaker 2: on Bloomberg Opinion, former New York Fed President Bill Dudley 398 00:22:16,280 --> 00:22:18,680 Speaker 2: out with a bold call, saying the Central Bank needs 399 00:22:18,720 --> 00:22:21,639 Speaker 2: to move right in this The Fanks have changed. So 400 00:22:21,720 --> 00:22:25,040 Speaker 2: I've changed my mind. The Fed should cut preferably at 401 00:22:25,080 --> 00:22:29,240 Speaker 2: next week's policymaking meeting. Although it might already be too 402 00:22:29,280 --> 00:22:32,600 Speaker 2: late to fend off a recession by cunning rates, dawdling 403 00:22:32,640 --> 00:22:37,359 Speaker 2: now unnecessarily increases the risk. Joining us now to discuss 404 00:22:37,880 --> 00:22:41,960 Speaker 2: is Michael Kushma of Morgan Stanley alongside Derek Bilton of 405 00:22:42,080 --> 00:22:44,200 Speaker 2: TD Bank. Michael, I'm going to come across the U first. 406 00:22:44,200 --> 00:22:46,200 Speaker 2: What did you make a built Dudley's note this morning? 407 00:22:46,280 --> 00:22:47,240 Speaker 2: Let's go. Let's move. 408 00:22:47,359 --> 00:22:50,159 Speaker 7: Well, we've moved a long way in terms of the 409 00:22:50,160 --> 00:22:53,199 Speaker 7: actual economic performance of the US economy. We're growing much 410 00:22:53,240 --> 00:22:55,080 Speaker 7: slower the new last year, when we had all the 411 00:22:55,080 --> 00:22:59,560 Speaker 7: ballmarket expectations of raycut, we got through the fleation bullepping 412 00:22:59,600 --> 00:23:02,800 Speaker 7: t one where we had this surprising, very sharp increase. 413 00:23:02,920 --> 00:23:06,240 Speaker 7: Now we're back to that deteriorating trend or improving trend 414 00:23:06,280 --> 00:23:08,760 Speaker 7: of inflation. By the end of the year, we're likely 415 00:23:08,800 --> 00:23:12,560 Speaker 7: to get to sort of the fed's forecast for inflation targets. 416 00:23:12,560 --> 00:23:16,960 Speaker 7: So we should be having less restrictive policy, but question 417 00:23:17,080 --> 00:23:18,320 Speaker 7: how much less restrictive. 418 00:23:18,440 --> 00:23:20,199 Speaker 2: I can feel the consensus move, and I think we 419 00:23:20,240 --> 00:23:22,720 Speaker 2: all can based on the conversations and how they've developed 420 00:23:22,760 --> 00:23:25,560 Speaker 2: over the last few weeks. But things are still pretty split. 421 00:23:25,880 --> 00:23:28,280 Speaker 2: Governments say why way. We have Barclay's on the program 422 00:23:28,359 --> 00:23:31,399 Speaker 2: yesterday saying why not. Wait, Derek, which camp you win? 423 00:23:31,920 --> 00:23:35,320 Speaker 2: Going against this? July may think I'm in the weight camp. 424 00:23:35,920 --> 00:23:38,520 Speaker 8: You know, things are slower, but they're not slow, and 425 00:23:38,640 --> 00:23:42,640 Speaker 8: we'll get evidence of that in tomorrow's GDP data personal 426 00:23:42,720 --> 00:23:46,560 Speaker 8: spending data on Friday for June. Inflation has rolled over, 427 00:23:46,600 --> 00:23:49,040 Speaker 8: which is great news. But you know, you still have 428 00:23:49,080 --> 00:23:52,359 Speaker 8: the economy that's fairly resilient. And pal has been saying 429 00:23:52,359 --> 00:23:57,000 Speaker 8: all along that resilience gives the bed more if fords, 430 00:23:57,040 --> 00:23:59,600 Speaker 8: more time to be patient. So I do think that 431 00:24:00,160 --> 00:24:03,679 Speaker 8: taking July off and moving in September probably would be 432 00:24:03,720 --> 00:24:04,639 Speaker 8: the best bet. 433 00:24:04,840 --> 00:24:07,439 Speaker 4: Michael, this is sort of consensus that September is the 434 00:24:07,520 --> 00:24:10,080 Speaker 4: right time to go that there isn't really a chance 435 00:24:10,200 --> 00:24:12,919 Speaker 4: of dramatic weakening. And yet in the tone that we 436 00:24:13,000 --> 00:24:15,000 Speaker 4: heard from Bill Dudley and the tone that we've heard 437 00:24:15,080 --> 00:24:17,440 Speaker 4: from say the Redfin data we've been talking about this 438 00:24:17,520 --> 00:24:20,640 Speaker 4: morning about housing deals falling apart at a record pace 439 00:24:20,720 --> 00:24:23,840 Speaker 4: in June, how much is there a sense that actually 440 00:24:23,840 --> 00:24:26,639 Speaker 4: the economic data is moving in real time and suggesting 441 00:24:27,000 --> 00:24:28,000 Speaker 4: more of an urgency. 442 00:24:28,480 --> 00:24:30,520 Speaker 7: I don't think there's so much of an urgency for 443 00:24:30,600 --> 00:24:32,880 Speaker 7: the whole economy as a whole. Clearly, certain interst rates 444 00:24:32,880 --> 00:24:37,439 Speaker 7: sensitive sectors where it's commercial property, office property, even what 445 00:24:37,600 --> 00:24:41,000 Speaker 7: residential property is under stress from high interest rates. But 446 00:24:41,040 --> 00:24:42,760 Speaker 7: a lot of other sectors of the economy are doing 447 00:24:43,160 --> 00:24:46,399 Speaker 7: just fine. In fact, there the goods producing sector manufacturing 448 00:24:46,400 --> 00:24:48,240 Speaker 7: out but is up quite nicely. Talking about the old 449 00:24:48,280 --> 00:24:51,439 Speaker 7: economy versus the new economies doing just fine. But the 450 00:24:51,440 --> 00:24:54,000 Speaker 7: point I think is we call compare with today's situations. 451 00:24:54,040 --> 00:24:57,640 Speaker 7: They nineteen ninety four nineteen ninety five, green spend pivoted 452 00:24:57,760 --> 00:25:01,359 Speaker 7: very quickly from rate hikes to rate cuts. In modest 453 00:25:01,440 --> 00:25:04,680 Speaker 7: rate cuts in nineteen ninety five, which kept the expansion going. 454 00:25:05,280 --> 00:25:09,040 Speaker 7: Policy rates that they are restrictive why not have less 455 00:25:09,119 --> 00:25:12,240 Speaker 7: restrictive policy, not easy policy. 456 00:25:11,880 --> 00:25:12,640 Speaker 2: But less restrictive. 457 00:25:12,680 --> 00:25:15,359 Speaker 7: The economy is growing two percent, inflation's close to target. 458 00:25:15,359 --> 00:25:17,560 Speaker 7: Do we really need five and a half ris interest rates? 459 00:25:18,000 --> 00:25:20,640 Speaker 7: Get ahead of the game, so to speak, by nudging 460 00:25:20,640 --> 00:25:24,040 Speaker 7: them lower, but not necessarily initiating a rate cutting cycle 461 00:25:24,280 --> 00:25:25,359 Speaker 7: going forward, Derek. 462 00:25:25,800 --> 00:25:29,120 Speaker 4: One argument against this, I presume, would be this idea 463 00:25:29,320 --> 00:25:32,280 Speaker 4: of concerns that it could reignite inflation. That would be 464 00:25:32,320 --> 00:25:36,119 Speaker 4: the only argument not to reduce some accommodation at this point, 465 00:25:36,160 --> 00:25:39,520 Speaker 4: given that inflation is slowing, Derek. Or there's signs that 466 00:25:39,640 --> 00:25:43,159 Speaker 4: inflation truly is sticky and could reaccelerate even with a 467 00:25:43,240 --> 00:25:45,439 Speaker 4: twenty five or fifty basis point rate cut by the 468 00:25:45,440 --> 00:25:46,119 Speaker 4: fasual Reserve. 469 00:25:47,320 --> 00:25:49,760 Speaker 8: Yeah, I mean, just look at the service components. You 470 00:25:49,800 --> 00:25:52,760 Speaker 8: know it's still quite high. I know we've seen some 471 00:25:52,840 --> 00:25:56,480 Speaker 8: improvement of late, but I don't think the inflation dragon 472 00:25:56,520 --> 00:25:58,879 Speaker 8: has been fully slayed yet. And I am on the 473 00:25:58,880 --> 00:26:01,919 Speaker 8: camp or baseline in the camp that you know that 474 00:26:02,119 --> 00:26:03,680 Speaker 8: chance this is a false done. 475 00:26:03,520 --> 00:26:05,600 Speaker 9: We're going to see another big leg up in inflation. 476 00:26:05,640 --> 00:26:07,639 Speaker 8: We don't buy into that, but you can't rule at 477 00:26:07,680 --> 00:26:11,040 Speaker 8: the risk and for a central bank that is a 478 00:26:11,160 --> 00:26:13,800 Speaker 8: risk manager. You know clearly they're they're taking that in 479 00:26:13,800 --> 00:26:18,119 Speaker 8: new accounts. So I'm worried still about service inflation. You know, 480 00:26:18,200 --> 00:26:21,480 Speaker 8: the job market again to slowed. Vacancies have come down, 481 00:26:22,160 --> 00:26:26,479 Speaker 8: but real wages are still positive by growth, and you know, 482 00:26:26,560 --> 00:26:28,439 Speaker 8: the employment market's still quite strong. 483 00:26:28,560 --> 00:26:30,920 Speaker 9: So you know, one can't throw this notion. 484 00:26:31,200 --> 00:26:33,160 Speaker 8: You could see a bit of a pickup and spending 485 00:26:33,200 --> 00:26:35,639 Speaker 8: above trend from below trend in Q two to above 486 00:26:35,680 --> 00:26:38,440 Speaker 8: trend in Q three. And I think these are things 487 00:26:38,440 --> 00:26:40,200 Speaker 8: that the Fed has in the back of its mind 488 00:26:40,240 --> 00:26:40,760 Speaker 8: when it's. 489 00:26:40,640 --> 00:26:43,560 Speaker 9: Trying to balance do we move sooner, do we move later? 490 00:26:44,160 --> 00:26:46,320 Speaker 2: They're trying to build confidence about getting back to two. 491 00:26:47,200 --> 00:26:49,960 Speaker 2: Your concerns Is this about returning to fall or getting 492 00:26:49,960 --> 00:26:50,600 Speaker 2: stuck at three? 493 00:26:52,359 --> 00:26:55,600 Speaker 8: No, it's getting stuck three. You know, I think again 494 00:26:55,920 --> 00:26:58,440 Speaker 8: things have changed. I think we need to acknowledge excess 495 00:26:58,840 --> 00:27:03,119 Speaker 8: savings and then pretty much fully withdrawn. And things are slow, 496 00:27:03,320 --> 00:27:05,760 Speaker 8: and those rates that might be referred to are biting 497 00:27:05,800 --> 00:27:06,800 Speaker 8: the housing market. 498 00:27:07,119 --> 00:27:09,560 Speaker 9: Some of these areas are showing more evidence of. 499 00:27:10,080 --> 00:27:12,919 Speaker 8: As struggling, and so I don't think we're in an 500 00:27:13,000 --> 00:27:14,840 Speaker 8: environment inflation in the back before now. 501 00:27:14,840 --> 00:27:16,280 Speaker 9: Of course, anything's possible. 502 00:27:16,359 --> 00:27:18,960 Speaker 8: We're looking at some of the shipping rates backing up 503 00:27:19,760 --> 00:27:22,440 Speaker 8: you know, who knows geopolitically some of the risks These 504 00:27:22,440 --> 00:27:24,080 Speaker 8: are not you know, in the next month or so, 505 00:27:24,200 --> 00:27:26,080 Speaker 8: but going out next three to four months, there are 506 00:27:26,080 --> 00:27:29,040 Speaker 8: lots of question marks. But yeah, the four percent world 507 00:27:29,160 --> 00:27:31,720 Speaker 8: just doesn't seem like don't put a very remote arts. 508 00:27:32,200 --> 00:27:34,840 Speaker 2: You gave a nod to the bond market, So let's 509 00:27:34,840 --> 00:27:36,600 Speaker 2: talk about rates in a bond market. Michael, I want 510 00:27:36,600 --> 00:27:38,000 Speaker 2: to talk about that now. At least has let this 511 00:27:38,040 --> 00:27:41,520 Speaker 2: conversation this morning, two year versus ten year negative about 512 00:27:41,520 --> 00:27:45,439 Speaker 2: seventeen basis points. The curve is uninverting. Let's call it 513 00:27:45,480 --> 00:27:47,439 Speaker 2: that sort of normalizing. I'm not sure we can call 514 00:27:47,480 --> 00:27:49,360 Speaker 2: it steep. You can say it's steeper, but it's still 515 00:27:49,359 --> 00:27:51,560 Speaker 2: not steep. Let's put it that way. It's still very 516 00:27:51,640 --> 00:27:54,600 Speaker 2: much inverted. There's two ways you can uninvert. Can be 517 00:27:54,680 --> 00:27:57,000 Speaker 2: led by the front end. Two you can rally rate 518 00:27:57,080 --> 00:27:59,920 Speaker 2: cuining cycle off the back of much weakly anticipated data. 519 00:28:00,320 --> 00:28:02,080 Speaker 2: Or it could be lent by the long end long 520 00:28:02,080 --> 00:28:04,800 Speaker 2: get sALS off yields pop higah. And there's plenty of 521 00:28:04,800 --> 00:28:07,080 Speaker 2: reasons for that to happen. What are you expecting from 522 00:28:07,080 --> 00:28:09,280 Speaker 2: the yield curve and what drives either side. 523 00:28:09,600 --> 00:28:11,560 Speaker 7: I think it's it's clear we're moving to a rate 524 00:28:11,640 --> 00:28:13,679 Speaker 7: cutting cycle of some port. I think a lot of 525 00:28:13,680 --> 00:28:15,280 Speaker 7: it has been discut, if not all or more of 526 00:28:15,320 --> 00:28:17,800 Speaker 7: it's been discounting. Today, with two year notes where they are, 527 00:28:17,920 --> 00:28:19,840 Speaker 7: I don't think the Fed's going to cut rays enough 528 00:28:20,200 --> 00:28:22,920 Speaker 7: over the next six to nine months to justify two 529 00:28:23,000 --> 00:28:24,959 Speaker 7: year notes, you know, four and a quarter and lower 530 00:28:25,000 --> 00:28:27,840 Speaker 7: than that back then. I think if the FED is 531 00:28:27,960 --> 00:28:31,479 Speaker 7: proved clearly moving in advance of economic weakness, if they 532 00:28:31,480 --> 00:28:34,080 Speaker 7: do move one to two rate cuts this year innother 533 00:28:34,160 --> 00:28:36,880 Speaker 7: one in Q one next year, it boosts the confidence 534 00:28:36,920 --> 00:28:38,120 Speaker 7: in the long end of the yek curve. It may 535 00:28:38,200 --> 00:28:41,800 Speaker 7: slow down the inflation progress on that front, but the 536 00:28:42,000 --> 00:28:45,160 Speaker 7: balance would be I'd rather preserve employment gains rather than 537 00:28:45,400 --> 00:28:48,840 Speaker 7: disinflate faster than otherwise. So I think they're balancing off 538 00:28:48,880 --> 00:28:51,480 Speaker 7: those two types of risks, which leads both to this hot, 539 00:28:51,520 --> 00:28:55,160 Speaker 7: steeper yell curves. Moving too quickly faster than the economy 540 00:28:55,200 --> 00:28:58,360 Speaker 7: weakens will boaster long term yields. On the other hand, 541 00:28:58,400 --> 00:29:02,120 Speaker 7: if they wait too long, long term yals may continue 542 00:29:02,160 --> 00:29:03,320 Speaker 7: to drift lower. 543 00:29:04,040 --> 00:29:05,640 Speaker 2: It sounds like both. 544 00:29:05,440 --> 00:29:08,280 Speaker 4: You, Michael and Derek are kind of talking as though 545 00:29:08,320 --> 00:29:10,080 Speaker 4: you disagree with each other but agree a little bit 546 00:29:10,080 --> 00:29:12,280 Speaker 4: more than it actually seems. And it's sort of a 547 00:29:12,440 --> 00:29:14,800 Speaker 4: compelling to me that you said that the two year 548 00:29:14,880 --> 00:29:17,560 Speaker 4: yield kind of has gone pretty far in terms of 549 00:29:17,600 --> 00:29:19,640 Speaker 4: how many rate cuts it's already priced in. Are you 550 00:29:19,680 --> 00:29:22,600 Speaker 4: saying that it's something you should fade the rally at 551 00:29:22,600 --> 00:29:23,080 Speaker 4: the front. 552 00:29:22,960 --> 00:29:27,360 Speaker 7: End thinking about thinking about because markets tend to overreact 553 00:29:27,400 --> 00:29:28,040 Speaker 7: and overshoot. 554 00:29:28,080 --> 00:29:28,560 Speaker 2: We've seen that. 555 00:29:28,600 --> 00:29:30,520 Speaker 7: We saw that last last fourth to the fourth quarter 556 00:29:30,560 --> 00:29:33,240 Speaker 7: of last year, where where there's mice major rally with 557 00:29:33,280 --> 00:29:36,719 Speaker 7: six rate cuts price Nuver twenty twenty four, and obviously 558 00:29:36,760 --> 00:29:38,840 Speaker 7: it didn't materialize the way to major sell. 559 00:29:38,720 --> 00:29:40,640 Speaker 2: Off in Q one. So I think that I'm not 560 00:29:40,680 --> 00:29:41,480 Speaker 2: talking of a major cell. 561 00:29:41,760 --> 00:29:44,360 Speaker 7: We're getting closer and closer to that transition point to 562 00:29:44,480 --> 00:29:47,840 Speaker 7: actually cutting interest rates as opposed to speculating about them 563 00:29:47,880 --> 00:29:50,040 Speaker 7: at some point in the distant future. But I do 564 00:29:50,080 --> 00:29:53,080 Speaker 7: think there's likely to be disappointment as how much actually 565 00:29:53,200 --> 00:29:56,600 Speaker 7: happens over the next several quarters. But the data today 566 00:29:56,680 --> 00:29:59,800 Speaker 7: has been leaning that direction. We've had until just recently, 567 00:29:59,840 --> 00:30:03,200 Speaker 7: we economic data weaker labor market data in some in 568 00:30:03,240 --> 00:30:06,200 Speaker 7: some ways, and we've had better inflation data, so how 569 00:30:06,280 --> 00:30:09,120 Speaker 7: this is not good for bond yields or for expectations 570 00:30:09,120 --> 00:30:12,080 Speaker 7: of rate cuts, but the cumuti of amount seems to 571 00:30:12,080 --> 00:30:15,760 Speaker 7: be overshooting to the to the upside. So at some point, 572 00:30:16,440 --> 00:30:18,760 Speaker 7: if we get four percent to your notes borrowing some 573 00:30:18,920 --> 00:30:22,080 Speaker 7: catastrophic and risk factor in the world, which flight to 574 00:30:22,160 --> 00:30:25,280 Speaker 7: quality or flight to risk free assets? Otherwise, it looks 575 00:30:25,320 --> 00:30:27,480 Speaker 7: like we're going to be pretty solid right now. 576 00:30:27,640 --> 00:30:30,600 Speaker 4: And Derek, it does seem like you pretty much agree 577 00:30:30,720 --> 00:30:32,960 Speaker 4: that basically this is just a matter of when they 578 00:30:32,960 --> 00:30:35,160 Speaker 4: begin to start to tweak some of the policy, not 579 00:30:35,200 --> 00:30:39,120 Speaker 4: necessarily whether we're entering some massive recession or whether we're 580 00:30:39,200 --> 00:30:42,600 Speaker 4: actually going to grow strongly. Is there something in the 581 00:30:42,680 --> 00:30:45,760 Speaker 4: data that gives you confidence that we are not seeing 582 00:30:45,960 --> 00:30:49,680 Speaker 4: a rapid deterioration that could lead to a more pernicious weakening, 583 00:30:49,920 --> 00:30:52,800 Speaker 4: which is what basically was sort of the implication of 584 00:30:52,800 --> 00:30:53,880 Speaker 4: Bill Dudley's column. 585 00:30:55,240 --> 00:30:56,920 Speaker 9: Yeah, I think you know the Gune numbers. 586 00:30:56,960 --> 00:30:59,560 Speaker 8: It's only one month, but certainly we had had, you know, 587 00:31:00,320 --> 00:31:04,320 Speaker 8: of downside surprises on data. Now is depending on swinging 588 00:31:04,360 --> 00:31:07,000 Speaker 8: a bit towards some upside surprises. It seems to be 589 00:31:07,080 --> 00:31:10,080 Speaker 8: the you know, the pattern in the US economy. You 590 00:31:10,200 --> 00:31:13,200 Speaker 8: get three or four good inflation reports and then you 591 00:31:13,200 --> 00:31:16,520 Speaker 8: know two or three bad ones. So you know, I 592 00:31:16,600 --> 00:31:18,880 Speaker 8: just think when I look at the US, productivity is 593 00:31:18,880 --> 00:31:21,560 Speaker 8: still very strong, employment is still healthy. 594 00:31:21,640 --> 00:31:24,120 Speaker 9: It's it's the economy. I still think it stands out. 595 00:31:24,560 --> 00:31:26,959 Speaker 8: So I had not at the camp that we're going 596 00:31:27,040 --> 00:31:29,160 Speaker 8: to you know, get close for recession in the US, 597 00:31:29,160 --> 00:31:30,960 Speaker 8: that we're going to sort of grow along and around 598 00:31:31,120 --> 00:31:33,760 Speaker 8: one and a half to two percent clip subtrend, sort 599 00:31:33,760 --> 00:31:37,000 Speaker 8: of that Goldilocks type environment, and then we'll you know, 600 00:31:37,040 --> 00:31:40,200 Speaker 8: avoid the worst case scenario. You know, as Michael mentioned, 601 00:31:40,400 --> 00:31:43,840 Speaker 8: lots of potential risks, you know, the elections, some of 602 00:31:43,880 --> 00:31:47,760 Speaker 8: the uncertainty there geopolitically, a lot of potential surprises. 603 00:31:47,760 --> 00:31:50,160 Speaker 9: But if I look at the US in and of itself, 604 00:31:50,160 --> 00:31:51,280 Speaker 9: I think it'll do just fine. 605 00:31:51,440 --> 00:31:53,400 Speaker 2: Derek, thanks for being with us this morning. I appreciate it. 606 00:31:53,480 --> 00:31:56,800 Speaker 2: Derek Bilton their TD alongside Michael kusma A Moregan Stanley. 607 00:31:57,680 --> 00:32:01,200 Speaker 2: This is the Bloomberg's Events podcast, bringing you the best 608 00:32:01,280 --> 00:32:04,600 Speaker 2: in markets, economics, and geopolitics. You can watch the show 609 00:32:04,640 --> 00:32:07,600 Speaker 2: live on Bloomberg TV weekday mornings from six am to 610 00:32:07,720 --> 00:32:11,480 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 611 00:32:11,640 --> 00:32:13,840 Speaker 2: or anywhere else you listen, and as always, on the 612 00:32:13,840 --> 00:32:16,320 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.